SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended August 31, 2000 or
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _______________ to ____________________
Commission File No. 0-30420
LCS Golf, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 11-3200338
--------------------------------- -------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
809 North Dixie Highway, Suite 200
West Palm Beach, Florida, 33401
----------------------------------------
(Address of principal executive offices)
(561) 835-8484
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Issuer's telephone number
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes |_| No |_|
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: The number of shares outstanding of
the Registrant's common stock is 20,282,225 (as of December 1, 2000).
Transitional Small Business Disclosure Format (Check one): Yes |_| No |X|
<PAGE>
PART 1. FINANCIAL INFORMATION
<PAGE>
LCS GOLF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2000 (UNAUDITED) AND FEBRUARY 29, 2000
ASSETS
AUGUST 31, FEBRUARY 29,
2000 2000
------------ ------------
(UNAUDITED)
CURRENT ASSETS:
Cash $ 25,110 $ 222,266
Accounts receivable (net of allowance
for doubtful accounts of $70,000 and
$64,750) 146,765 137,015
Due from factor -- 11,144
Prepaid and other current assets 99,872 171,440
------------ ------------
TOTAL CURRENT ASSETS 271,747 541,865
Fixed assets - at cost, less accumulated
depreciation and amortization 80,831 82,843
Prepaid license fee 1,308,925 1,388,254
Security deposits and other assets 51,500 18,000
------------ ------------
$ 1,713,003 $ 2,030,962
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 469,709 $ 326,496
Accrued wages - major stockholder/president 448,000 312,800
Debt in default 654,000 500,000
Note payable 25,000 25,000
Loans from major stockholder/president 361,206 269,963
Other current liabilities 74,869 66,444
------------ ------------
TOTAL CURRENT LIABILITIES 2,032,784 1,500,703
Liabilities to be paid with common stock 2,000 152,000
------------ ------------
TOTAL LIABILITIES 2,034,784 1,652,703
------------ ------------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock - $.001 par value, 50,000,000 shares
authorized, 20,282,225 and 20,132,225 shares
issued and outstanding 20,282 20,132
Additional paid-in capital 12,423,419 11,973,570
Accumulated deficit (12,765,482) (11,476,443)
Unamortized debt expense -- (139,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (321,781) 378,259
------------ ------------
$ 1,713,003 $ 2,030,962
============ ============
The notes to the condensed consolidated financial statements are made a part
hereof.
1
<PAGE>
LCS GOLF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31, SIX MONTHS ENDED AUGUST 31,
----------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES $ 158,605 $ 482,014 $ 560,832 $ 744,012
COST OF SALES 44,307 203,679 113,228 421,242
------------ ------------ ------------ ------------
114,298 278,335 447,604 322,770
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
(INCLUDES $0, $607,366, $0 AND $1,220,647
OF EXPENSES PAID WITH COMMON STOCK) 608,348 1,864,965 1,357,342 2,603,251
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS BEFORE OTHER INCOME
(EXPENSE) (494,050) (1,586,630) (909,738) (2,280,481)
OTHER INCOME (EXPENSE):
Other income (expense) (706) -- -- 1,282
Interest expense (296,181) (7,707) (379,301) (13,193)
------------ ------------ ------------ ------------
NET LOSS $ (790,937) $ (1,594,337) $ (1,289,039) $ (2,292,392)
============ ============ ============ ============
NET LOSS PER SHARE - BASIC AND DILUTED $ (.04) $ (.08) $ (.06) $ (.12)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 20,282,225 18,902,975 20,260,796 18,784,225
============ ============ ============ ============
</TABLE>
The notes to the condensed consolidated financial statements are made a part
hereof.
2
<PAGE>
LCS GOLF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31, SIX MONTHS ENDED AUGUST 31,
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (790,937) $(1,594,337) $(1,289,039) $(2,292,392)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 317,534 80,762 431,079 161,233
Provision for doubtful accounts 5,250 -- 5,250 --
Issuance of common stock for services - net -- 607,366 -- 1,220,647
Changes in:
Accounts receivable 54,238 (192,359) (15,000) (196,478)
Due from factor -- 43,300 11,144 65,686
Inventory -- (116,105) -- (150,359)
Prepaid and other current assets 18,006 680,285 71,568 296,918
Security deposits and other assets (30,000) (10,000) (33,500) (10,000)
Accounts payable and accrued expenses 68,537 110,683 143,216 210,508
Accrued wages - major stockholder/president 67,700 111,000 135,200 133,200
Other current liabilities 2,961 4,140 8,425 13,118
----------- ----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (286,711) (275,265) (531,657) (547,919)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (3,344) (17,836) (6,742) (19,159)
Loans to major stockholder/president -- 39,231 -- 26,515
----------- ----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES (3,344) 21,395 (6,742) 7,356
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note issued 300,000 50,000 300,000 50,000
Repayment of note (50,000) -- (50,000) --
Proceeds from major stockholder/president loans 58,157 408,653 97,151 408,653
Repayment of major stockholder/president loans -- (119,087) (5,908) (119,087)
----------- ----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 308,157 339,566 341,243 339,566
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 18,102 85,696 (197,156) (200,997)
CASH - BEGINNING OF PERIOD 7,008 2,336 222,266 289,029
----------- ----------- ----------- -----------
CASH - END OF PERIOD $ 25,110 $ 88,032 $ 25,110 $ 88,032
=========== =========== =========== ===========
SUPPLEMENTARY DISCLOSURES OF CASH PAID DURING
THE PERIOD:
Interest $ 6,542 $ 5,573 $ 11,187 $ 11,059
Income taxes $ 680
NONCASH ACTIVITY:
Liabilities paid with common stock $ 150,000
</TABLE>
The notes to the condensed consolidated financial statements are made a part
hereof.
3
<PAGE>
LCS GOLF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
On October 28, 1997, LCS Golf, Inc. ("LCS Golf"), 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. LCS Golf paid $50,000 as a finder's 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 LCS Golf for services rendered in connection with the merger.
For financial accounting purposes, the merger on October 28, 1997 has been
treated as the acquisition of LCS Delaware by LCS Golf in the form of a
recapitalization. Therefore, no value has been ascribed to the common stock held
by the LCS Delaware shareholders.
LCS Golf is engaged in the acquisition and operation of companies which provide
products and services to the golf playing public and marketing the database
information obtained from its websites. These products and services include
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.
LCS Golf formerly designed and manufactured consumer products, but ceased its
manufacturing operations in November of 1999. These products consist of
specialty pillows of which LCS Golf plans to sell on its websites. LCS Golf has
outsourced, utilizing its machinery and equipment, its manufacturing operations
to produce LCS Golf's line of products. During the six months ended August 31,
2000, the manufacturing segment is idle due to LCS Golf's decision not to
allocate funds to this segment and to concentrate all of its resources into
developing its database and Internet marketing business. Once LCS Golf is able
to raise additional capital, it intends to resume its manufacturing operations.
Principles of Consolidation
The consolidated financial statements include the accounts of LCS Golf and its
subsidiaries (the "Company"), all of which are wholly owned. All material
intercompany accounts and transactions have been eliminated in consolidation.
Basis of Presentation
The accompanying condensed 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 August 31, 2000, 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 for a significant portion of
its expenses or has obtained cash advances from its major stockholder/president,
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 1999 fiscal year 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.
4
<PAGE>
LCS GOLF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- (cont'd)
Interim Financial Data
These condensed consolidated financial statements have been prepared by the
Company, without audit by independent public accountants, pursuant to the rules
and regulations of the United States Securities and Exchange Commission. In the
opinion of management, the accompanying unaudited financial statements include
all normal recurring adjustments necessary to present fairly the information
required to be set forth therein. Certain information and note disclosures
normally included in financial statements prepared in accordance with Generally
Accepted Accounting Principles have been condensed or omitted from these
statements pursuant to such rules and regulations and, accordingly, these
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements included in the Company's fiscal year 2000
Annual Report on Form 10-KSB. Operating results for the three and six months
ended August 31, 2000 and 1999, are not necessarily indicative of the results
that may be expected for the full year or any other period.
There have been no significant changes in the accounting policies of the
Company. There were no significant changes in the Company's commitments and
contingencies as previously described in the fiscal year 2000 Annual Report on
Form 10-KSB.
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.
Advertising Costs
The Company expenses its advertising costs when incurred. Advertising costs were
$74,165 and $2,108 for the three months ended August 31, 2000 and 1999,
respectively, and $147,970 and $6,540 for the six months ended August 31, 2000
and 1999, respectively.
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 potential common shares, including stock options and warrants is not
included in the per share calculations as it would be antidilutive.
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 - DEBT IN DEFAULT
$500,000 Convertible Promissory Note
On February 16, 2000, the Company borrowed from Quintel Communications, Inc.
("Quintel"), an internet marketing and development company, $500,000 in the form
of a convertible promissory note ("Note"). As of August 8, 2000, this debt is in
default (see below). The Note was 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.
The Company entered into a ten year licensing agreement for the use of its
database with Quintel. Quintel will pay $5,000 per month. These payments can be
used to offset the remaining balance owed to Quintel (see below).
The Company also entered into a two year marketing agreement with Quintel to
develop programs to market products and services and send promotional e-mails to
the visitors and customers of the Company's websites. Quintel will pay the
Company $.25 for each individual who "opts in" to be registered with Quintel 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.
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 8, 2000, following certain disagreements concerning Quintel's use of
our database, the Company entered into a forebearance agreement and amended the
security agreement with Quintel. The Company made a $50,000 payment against the
$500,000 convertible note (see below) 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 Quintel, 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. Quintel 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, of which $150,000, (including
the two payments of $50,000 each discussed below) has been paid against this
guaranty.
Due to the above amendments, Quintel 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 or collections of the
Company's accounts receivable or money from the guarantor, the Company's major
stockholder/president, and the Company generates gross 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 an 8% convertible subordinated
promissory note (see below). 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 Quintel. The Company has not obtained a
waiver of the default, however, the major stockholder/president agreed to fund
personally, two payments of $50,000 each towards the principal and interest on
the Quintel Note. In addition, the Company agreed to remit 50% (formerly 25%) of
cash received from new accounts receivable.
$300,000 Convertible Subordinated Promissory Note
On August 8, 2000, American Warrant loaned the Company $300,000 under an 8%
convertible subordinated promissory note with a maturity date of August 8, 2002.
The note is convertible, at the option of American Warrant, into common stock at
$.25 per share, subject to adjustment which resulted in a discount of the note
of approximately $201,000. This discount is immediately recognized as interest
expense due to the ability of American Warrant to convert the note at any time.
Interest is payable quarterly commencing on September 30, 2000. The Company also
issued a five year warrant expiring on August 8, 2005 to purchase 600,000 shares
of common stock, exercisable at $.40 per share, subject to adjustment, to be
exercised in 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 allocated value of the warrant is $99,000, which is the
portion attributed to the warrant due to it being issued in conjunction with the
$300,000 convertible promissory note. This amount is to be amortized over the
life of the two year note, or shorter if exercised earlier. Based upon the
values ascribed to the convertibility feature of the note and the warrant, the
Company will record additional interest expense of approximately $204,000 during
the quarter ended August 31, 2000. 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 the Company. The Company also entered into a registration rights
agreement whereby a Registration Statement for the shares is to be filed as soon
as reasonably practicable but not later than September 15, 2000. The Company did
not file the Registration Statement by September 15, 2000 and is subject to
penalties since the Registration Statement was not declared effective by
November 15, 2000. The penalties are that for each 30-day period that the
Registration Statement is not declared effective, the conversion price of $0.25
of the convertible note and the warrant exercise price of $0.40 will each be
reduced by 2% until the exercise price reaches $0.05. In addition, the interest
rate on the convertible note will increase 2% for each 30-day period, not to
exceed 15%. Certain officers and directors agreed to a lock-up agreement
restricting their right to sell, transfer, pledge or hypothecate or otherwise
encumber their shares until the earlier of 1) the one year anniversary of the
agreement, 2) the effective date of the Registration Statement or 3) until the
Company raises $1,000,000 in equity or debt financing. The Company agreed to
recommend and use its best efforts to elect a representative of American Warrant
to the Board of Directors until one year from the date of the agreement or until
the Company raises $1,000,000 in equity or debt financing. The Company also
agreed that, without prior written consent of American Warrant, it would not
offer for sale or sell common stock at a price less than the average closing
price per share as quoted by the OTC Electronic Bulletin Board for the five days
prior to the transaction. When 85% of the interest and principal of the note is
paid or converted to common stock or 180 days from date of the Warrant Agreement
passes, no consent will be required.
5
<PAGE>
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 operates as a provider of
business, an Internet division and a manufacturing division. The golf related
division provides permission email direct marketing services through
Golfpromo.net and Targetmails.com. Internet and direct marketing services
through Ifusionco.com. PlayGolfNow.com Golf ecommerce, news and information
through a vertical golf portal, discounts on golf services.
After identifying the opportunity for permission email direct marketing,
newsletter marketing and Internet & direct marketing, we began to refocus our
strategy towards permission email and Internet marketing in the latter part of
our prior fiscal year. To implement our permission based email strategy, we
acquired Golf Promo, created TargetMails.com and started Ifusionco.com in 1999.
As a result of our new focus, we have built a network and developed reseller
relationships which collectively provide us with reach to over 3 million
self-selected individuals, who have given express permission to receive
promotional messages via email on specific categories of interest. Our current
strategy is to focus our resources on our permission email business by
continuing to build our network of subscribers and our customer base.
The company's client base and brand in the industry continue to be
recognized for providing quality and reliable services. The company has also
entered into agreements with several companies to manage and represent their
company's database and broker their client's list. This agreement will allow the
company to realize additional revenues, increased brand awareness and capture
additional market shares in the permission based and affinity marketing email
communications services.
The Company will continue to aggressively search for strategic partners
and/or acquisition candidates for its services, a suite of "permission" based
and "affinity" marketing email communication services targeted at businesses in
the golf, finance, sports and entertainment industries. Management is committed
to a fundamental strategy of slow, controlled growth. This approach to expansion
although conservative, will strengthen the concept and avoid the pitfalls of
some of the competition by insuring that the management team is not outdistanced
and can execute the companies business model.
We derive revenue by charging fees for sending permission email messages.
Revenue is recognized when emails are sent to subscribers. Our customers are
primarily e-commerce companies, their interactive advertising agencies, golf and
golf related companies.
We deliver email messages to members of our golf related division,
consisting of our own permission email list and those of our network partners,
and permission email lists from third party list managers. We pay our network
partners or third party list managers either a percentage of revenue derived
from the delivery of email messages to members on the lists they provide or a
fixed fee. Substantially all of our customers purchase our permission email
services under short-term and long-term contracts. Our revenues would suffer if
we were unable to secure new contracts from existing customers or obtain new
customers. We expect to continue to derive a substantial majority of our
revenues from short-term contracts.
We expect to increase spending on sales and marketing as we expand our
sales force, increase our subscriber base and promote awareness of our brand. We
also expect substantially higher general and administrative expenses as we
expand our infrastructure to support our expected growth and as we continue to
develop a new product line and make enhancements to our existing products. As a
result of these increases, we expect to incur significant losses for the
foreseeable future.
Manufacturing operations for Mr. B III - the company has outsourced,
utilizing our machinery and equipment, its manufacturing operations to produce
the company's line of Mr. B III products.
<PAGE>
In view of the rapidly evolving nature of our business, our limited
operating history and our recent focus on permission email and Internet
marketing services, we believe that period-to-period comparisons of our revenue
and operating results, including our gross margin and operating expenses as a
percentage of total revenues, are not meaningful and should not be relied upon
as an indication of future performance. We do not believe that our historical
growth rates are indicative of future results.
RESULTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 2000 AND AUGUST 31, 1999
Revenues. Our revenues consist of fees from providing Internet marketing
services, including the delivery of permission email direct marketing messages
to members in our golf network, newsletter-marketing, ecommerce, banner
advertising, direct marketing campaigns and sales from our manufacturing
segment. Total revenues were $158,605 for the three months ended August 31, 2000
compared with $482,014 for the three months ended August 31, 1999.
Revenues for the golf related segment were $158,605 for the three months
ended August 31, 2000 compared with $367,237 for the three months ended August
31, 1999. Revenues for the manufacturing segment were $0 for the three months
ended August 31, 2000 compared to $114,777 for the three months ended August 31,
1999.
Mr. B III, the company's manufacturing segment, is currently idle. Under
our current financial conditions, the company has decided not to allocate funds
to the manufacturing segment and concentrate all of its resources into
developing its database and Internet marketing business. Once we are able to
raise additional capital, we plan to resume our manufacturing operations.
Our revenues reflect the change in business focus in the last quarter of
the prior fiscal year, to a database marketing and permission based marketing
company and the outsourcing of the manufacturing business. We believe that our
revenues are subject to seasonal fluctuations because advertisers generally
place fewer advertisements during certain quarters of each year and direct
marketers mail substantially more marketing materials during certain quarters of
each year. Expenditures by advertisers and direct marketers tend to vary in
cycles that reflect overall economic conditions as well as budgeting and buying
patterns. Our revenues were materially reduced by a decline in the economic
prospects of advertisers on the Internet, direct marketers and the online
economy in general, which may have altered current and prospective advertisers'
spending priorities or budget cycles or extended our sale cycle.
Due to our current financial position, we have not been able to hire
additional sales staff to increase our sales or advertise our products and
services. We are trying to raise additional capital with which we plan to hire a
qualified sales force and begin an aggressive advertising campaign.
Cost of Revenue. Cost of revenues were $44,307 for the three months ended
August 31, 2000 compared with $203,679 for the three months ended August 31,
1999.
Cost of revenues for the golf related segment were $44,307 for the three
months ended August 31, 2000 compared to $0 for the three months ended August
31, 1999. Cost of revenues for the manufacturing segment were $0 for the three
months August 31, 2000 compared to $203,679 for the three months ended August
31, 1999.
Selling, General and Administrative Expenses. 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. Selling expenses
were primarily due to increases in 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. Selling, general and administrative expenses were
$608,348 for the three months ended August 31, 2000 compared to $1,864,965 for
the three months ended August 31, 1999.
Goodwill Expense. Due to changes in business focus the company decided to
write-off all of its goodwill at February 29, 2000 valued at approximately
$1,271,000. The company has outsourced its manufacturing operations of Mr. B
III. The write-off of the goodwill will allow the company to present its future
financial statement to more closely represent its current financial operations.
<PAGE>
Interest Expense. Interest expense consists primarily of the amortization
of unamortized debt expense and interest on debt obligations. Interest expense
was $296,181 for the three months ended August 31, 2000 compared to $7,707 for
the three months ended August 31, 1999.
Income Taxes. No provision for federal or state income taxes was recorded
as we incurred net operating losses since inception through August 31, 2000. The
tax benefit of the net operating losses has been reduced by a 100% valuation
allowance.
RESULTS OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 2000 AND AUGUST 31, 1999
Revenues. Our revenues consist of fees from providing Internet marketing
services, including the delivery of permission email direct marketing messages
to members in our golf network, newsletter-marketing, ecommerce, banner
advertising, direct marketing campaigns and sales from our manufacturing
segment. Total revenues were $560,832 for the six months ended August 31, 2000
compared with $744,012 for the six months ended August 31, 1999.
Revenues for the golf related segment were $560,832 for the six months
ended August 31, 2000 compared with $444,539 for the six months ended August 31,
1999. Revenues for the manufacturing segment were $0 for the six months ended
August 31, 2000 compared to $299,473 for the six months ended August 31, 1999.
Mr. B III, the company's manufacturing segment, is currently idle. Under
our current financial conditions, the company has decided not to allocate funds
to the manufacturing segment and concentrate all of its resources into
developing its database and Internet marketing business. Once we are able to
raise additional capital, we plan to resume our manufacturing operations.
Our revenues reflect the change in business focus in the last quarter of
the prior fiscal year, to a database marketing and permission based marketing
company and the outsourcing of the manufacturing business. We believe that our
revenues are subject to seasonal fluctuations because advertisers generally
place fewer advertisements during certain quarters of each year and direct
marketers mail substantially more marketing materials during certain quarters of
each year. Expenditures by advertisers and direct marketers tend to vary in
cycles that reflect overall economic conditions as well as budgeting and buying
patterns. Our revenues were materially reduced by a decline in the economic
prospects of advertisers on the Internet, direct marketers and the online
economy in general, which may have altered current and prospective advertisers'
spending priorities or budget cycles or extended our sale cycle.
Due to our current financial position, we have not been able to hire
additional sales staff to increase our sales or advertise our products and
services. We are trying to raise additional capital with which we plan to hire a
qualified sales force and begin an aggressive advertising campaign.
Cost of Revenue. Cost of revenues were $113,228 for the six months ended
August 31, 2000 compared with $421,242 for the six months ended August 31, 1999.
Cost of revenues for the golf related segment were $86,374 for the six
months ended August 31, 2000 compared to $0 for the six months ended August 31,
1999. Cost of revenues for the manufacturing segment were $26,854 for the six
months ended August 31, 2000 compared to $421,242 for the six months ended
August 31, 1999.
Selling, General and Administrative Expenses. 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. Selling expenses
were primarily due to increases in 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. Selling, general and administrative expenses were
$1,357,342 for the six months ended August 31, 2000 compared to $2,603,251 for
the six months ended August 31, 1999.
Goodwill Expense. Due to changes in business focus the company decided to
write-off all of its goodwill at February 29, 2000 valued at approximately
$1,271,000. The company has outsourced its manufacturing operations of Mr. B
III. The write-off of the goodwill will allow the company to present its future
financial statement to more closely represent its current financial operations.
Interest Expense. Interest expense consists primarily of the amortization
of unamortized debt expense and interest on debt obligations. Interest expense
was $379,301 for the six months ended August 31, 2000 compared to $13,193 for
the six months ended August 31, 1999.
Income Taxes. No provision for federal or state income taxes was recorded
as we incurred net operating losses since inception through August 31, 2000. The
tax benefit of the 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 golf network, newsletter-marketing, ecommerce, banner advertising, direct
marketing campaigns and sales from our manufacturing segment. 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, increase brand awareness and capture
additional market shares in the permission based and affinity marketing email
communications services.
From inception to August 31, 2000, we primarily funded our growth through
the issuance of stock and short-term borrowings. We are currently in default of
the loan agreement with Quintel. We anticipate repaying Quintel over a period of
time from current sales or loans. Our monthly cash flow will be greatly affected
by the repayment of the loan. We have to pay 50% of our collections made on our
accounts receivable and other cash receipts to Quintel, creating a shortfall in
our cash flow. We may have to seek additional short term loans from our CEO, Dr.
Michael Mitchell, or other sources 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, under this guaranty.
On August 8, 2000 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 receivable 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 at
August 8, 2002. The note is convertible, at the option of American Warrant, into
our common stock at $0.25 per share, subject to adjustment, which resulted in a
discount of the note of approximately $201,000. This discount is immediately
recognized as interest expense due to the ability of American Warrant to convert
the note at any time. 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 600,000 shares of our common stock, at the exercise
price of $0.40 per share, to be exercised in 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 allocated value of the warrant is
$99,000, which is the portion attributed to the warrant due to it being issued
in conjunction with the $300,000 convertible promissory note. This amount is to
be amortized over the life of the two year note, or shorter if exercised
earlier. Based upon the values ascribed to the convertibility feature of the
note and the warrant, the Company will record additional interest expense of
approximately $204,000 during the three months ended August 31, 2000. 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.
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 our cash flow until
such time as we are able to make payment in full under the Quintel Agreement.
We are also in default under the registration rights agreement with
American Warrant. The Registration Statement to register the shares if the
$300,000 convertible note is converted into our common stock and the shares
underline their warrants to purchase 600,000 shares of our common stock was not
declared effective by November 15, 2000. For each 30-day period after November
15, 2000 that the Registration Statement is not declared effective, the
following will occur:
1. $0.25 conversion price of the convertible note and the $0.40 warrant
exercise price will each be reduced by 2%, but not below $0.05 per
share;
2. the interest rate on the convertible note will increase by 2% per
period from the current rate of 8% until it reaches 15% per annum.
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 listing
requirements, we will attempt to raise capital from our Board of Directors. We
can make no assurances that we will be able to raise capital sufficient to
continue as a going concern.
We will need additional funding to meet our current operating needs, hire
additional sales staff and invest in infrastructure and marketing. We anticipate
revenues to increase proportionally to the utilization of funds, and additional
revenues should allow us to achieve a positive cash flow position for the next
twelve months. We will attempt to maintain our fixed cost at a steady rate and
control our variable cost in proportion to our revenue base. We believe that
with new capital, a cost control strategy and an increase in revenues, we should
be in a position to continue as a going concern. We expect to execute this plan
on an ongoing basis.
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.
YEAR 2000 READINESS DISCLOSURE
The company has not experienced any problem with any of its system and
software and does not expect to spend any additional funds on Year 2000 issues.
<PAGE>
CERTAIN FACTORS WHICH MAY AFFECT OUR FUTURE OPERATING RESULTS
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 six months ended August 31, 2000, permission email marketing
services represented 100% of our revenue, compared to 60% in the six months
ended August 31, 1999. Accordingly, our operating results since the end of the
second quarter 2001 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 A HISTORY OF LOSSES AND WE EXPECT FUTURE LOSSES.
We expect to continue to incur net losses for the foreseeable future and
negative cash flow from operations through at least the year 2001. 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 significant revenues to meet these increased expenses and to
achieve profitability. If we do achieve profitability, we cannot be certain that
we can sustain or increase profitability in the future.
OUR FUTURE OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY AND REMAIN UNCERTAIN,
WHICH COULD NEGATIVELY AFFECT THE VALUE OF YOUR INVESTMENT.
Our operating results are difficult to predict. Our future quarterly
operating results may fluctuate significantly and may not meet the expectations
of securities analysts or investors. If this occurs, the price of our common
stock would likely decline, perhaps substantially. Factors that may cause
fluctuations of 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 an increasing portion of our future revenues will be
derived from permission email marketing products and services. The volume and
timing of orders are difficult to predict because the market for our products is
in its infancy and the sales cycle may vary substantially from customer to
customer. Currently, our customer contracts are only for a limited period of
time, typically lasting only days or weeks, which makes revenues in any quarter
substantially dependent upon contracts entered into in that quarter. Our
customers can terminate their contracts with us on short notice without penalty.
Moreover, our sales are expected to fluctuate due to seasonal or cyclical
marketing campaigns. We expect that revenue growth in the first and third
quarters of each year may be lower than revenue growth in the
<PAGE>
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 significant revenues occur earlier than
expected, our operating results for later quarters may not compare favorably
with operating results from earlier quarters.
OUR SUCCESS DEPENDS UPON BROAD MARKET ACCEPTANCE OF PERMISSION EMAIL MARKETING
SERVICES AND WE ARE UNCERTAIN IF OR WHEN SUCH MARKET ACCEPTANCE WILL OCCUR.
We do not know if our products and services will be successful. The growth
of the Internet remains fairly recent and advertising on the Internet even more
so. The Internet may not be accepted as a viable long-term commercial
marketplace and medium of commerce for a number of reasons, including
potentially inadequate development of necessary Internet infrastructure,
government regulation or delayed development of enabling technologies and
performance improvements. 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 ma rketing. We believe that the promotion of the concept of
permission email marketing will require us to engage in an intensive marketing
and sales effort to educate prospective customers regarding the uses and
benefits of our products and services. Enterprises that have already invested
substantial resources in other advertising methods may be reluctant or slow to
adopt our new approach.
Our future growth also depends on the commercial success of our Golf Promo
l Network,Targetmails.com and Ifusionco.com the products that comprise our
network. If our customers do not widely adopt and purchase our services, our
business will suffer. Furthermore, the Internet advertising and permission email
services market is characterized by rapid technological change, frequent new
product introductions, changes in customer requirements and evolving industry
standards. If we are unable to develop and introduce products or enhancements to
our service offering in a timely manner, we may not be able to successfully
compete.
COMPETITION IN THE MARKET FOR INTERNET ADVERTISING AND DIRECT MARKETING IS
INTENSE AND COULD ADVERSELY AFFECT OUR BUSINESS.
The market for Internet advertising and direct marketing is intensely
competitive, rapidly changing and highly fragmented. We expect that competition
will increase significantly in the near term because of the attention the
Internet has received as a means of advertising and direct marketing and because
there are no significant barriers to entry. Our primary long-term competitors
may not have entered the market yet because our market is new. Competition could
result in price reductions, changes in the way services are priced, reduced
gross margin and loss of market share, any of which could cause our business to
suffer.
Many of our current and potential competitors have greater name
recognition, longer operating histories, larger customer bases and significantly
greater financial, technical, marketing, public relations, sales, distribution
and other resources than we do. Some of our potential competitors are among the
largest and most well-capitalized companies in the world. In addition, some of
our competitors may include website owners who own permission email lists. We
expect to face competition from these and other competitors, including Internet
portals, traditional list brokers, banner advertising managers, independent list
managers, incentive-based subscriber lists and customer management and retention
service companies.
<PAGE>
OUR FAILURE TO DEVELOP AND MAINTAIN OUR SALES, MARKETING AND SUPPORT
ORGANIZATION AND RELATIONSHIPS WITH OUR NETWORK PARTNERS AND THIRD PARTY LIST
MANAGERS WOULD LIMIT OUR GROWTH.
If we fail to substantially develop our direct and indirect sales and
marketing operations and our relations with our network partners, our growth
will be limited. Our products and services require a sales effort targeted at
several people within our prospective customers. We have recently expanded our
direct sales force and plan to hire additional sales personnel. We might not be
able to hire, train or retain the kind and number of sales and marketing
personnel we are targeting because competition for qualified sales and marketing
personnel is intense. In addition, we will increasingly rely on advertising
agencies and direct marketers to resell our products and services. If we do not
effectively manage or grow our sales and marketing channel, our business could
suffer.
We must continue to maintain and expand 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 for an initial term of one to three years, with an
automatic annual renewal. Pursuant to these contracts, we provide our network
partners with resale and tracking services by selling direct marketers access to
their lists, and our network partners receive a percentage of our revenue. We
cannot be assured 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. In addition to our network partners, we have reseller
arrangements with third party list managers, under which we pay a fixed fee for
the nonexclusive use of their list for a specific campaign. These third party
list managers are not contractually obligated to provide us with access to their
lists. A majority of the email addresses that we have access to through our
proprietary list, our network partners and our list managers is currently
comprised of addresses from list managers. If we fail to maintain or grow our
relationships with our network partners and third party list managers, our
business could suffer.
IF WE ARE UNABLE TO MANAGE OUR EXPECTED GROWTH, OUR BUSINESS WILL SUFFER.
Our ability to successfully offer our products and services and implement
our business plan in the rapidly evolving market for permission email marketing
services requires an effective planning and management process. We continue to
increase the scope of our operations and have grown our headcount substantially.
These factors have placed, and our anticipated future operations will continue
to place, a significant strain on our management systems and resources. We
expect that we will need to continue to improve our operational and financial
and managerial controls and reporting systems and procedures, and will need to
continue to expand, train and manage our work force.
OUR BUSINESS WOULD SUFFER IF WE ARE UNABLE TO SUCCESSFULLY INTEGRATE
ACQUISITIONS OF OTHER COMPANIES OR SUBSCRIBER LISTS.
From time to time, we expect to evaluate opportunities to grow through
acquisitions of, or investments in, complementary companies, products or
technologies. If we acquire a company, we could have difficulty in assimilating
that company's personnel, operations, products or technology. In addition, the
key personnel of the acquired company may decide not to work for us. If we make
acquisitions of products or technology, we could have difficult in assimilating
the acquired technology or products into our operations. These difficulties
could disrupt our ongoing business, distract our management and employees and
increase our expenses. Moreover, our profitability may suffer because of
acquisition-related costs or amortization costs for acquired goodwill and other
intangible assets. Furthermore, we may have to incur debt or issue equity
securities to pay for any future acquisitions, the issuance of which could be
dilutive to us or our existing stockholders. If we are unable to successfully
address any of these risks, our business could be harmed.
<PAGE>
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 revenues 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. In addition, our products and technologies are complex and we are
substantially dependent upon the continued service of our existing engineering
personnel. Not all of our officers or key employees are bound by an employment
agreement. Our relationships with these officers and key employees are at will.
Moreover, we do not have "key person" life insurance policies covering any of
our employees.
PRIVACY CONCERNS WITH RESPECT TO OUR PRODUCTS AND SERVICES COULD NEGATIVELY
AFFECT OUR BUSINESS.
Our technology collects and utilizes data derived from user activity in
the Golf Promo Network. Our network enables the use of personal profiles, in
addition to other mechanisms, to deliver targeted marketing materials, to help
compile demographic information and to limit the frequency with which an
advertisement is shown to the user. The effectiveness of our technology and the
success of our business could be limited by any reduction or limitation in the
use of personal profiles. These personal profiles contain bits of information
keyed to a specific server, file pathway or directory location that is stored in
the user's hard drive. Personal profiles are placed on the user's hard drive
without the user's knowledge or consent, but can be removed by the user at any
time through the modification of the user's browser settings. In addition,
currently available applications can be configured to prevent personal profiles
from being stored on their hard drive. Some commentators, privacy advocates and
governm ental bodies have suggested limiting or eliminating the use of personal
profiles. In the event this occurs, our business would likely suffer.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES OF DOING BUSINESS ON THE INTERNET
COULD NEGATIVELY IMPACT OUR BUSINESS.
Laws and regulations that apply to Internet communications, commerce and
advertising are becoming more prevalent. These regulations could affect the cost
of communicating on the Internet and negatively affect and demand for our direct
marketing solutions or otherwise harm our business. Recently, the United States
Congress enacted Internet legislation regarding children's privacy, copyright
and taxation. A number of other laws and regulations may be adopted covering
issues such as user privacy, pricing, acceptable content, taxation and quality
of products and services. This legislation could hinder growth in the use of the
Internet generally and decrease the acceptance of the Internet as a
communications, commercial and direct marketing medium. In addition, the growing
use of the Internet has burdened the existing telecommunications infrastructure
and has caused interruptions in the telephone service. Telephone carriers have
petitioned the government to regulate and impose fees on Internet service
providers and online service providers in a manner similar to long distance
carriers. The European Union recently adopted a directive addressing data
privacy that may result in limits on the collection and use of user information.
The laws governing the Internet remain largely unsettled, even in areas
where there has been some legislative action. It may take years to determine
whether and how existing laws including those governing intellectual property,
privacy, libel and taxation apply to the Internet and Internet advertising. In
addition, the growth and development of the market for Internet commerce may
prompt calls for more
<PAGE>
stringent consumer protection laws, both in the United States and abroad, that
may impose additional burdens on companies conducting business over the
Internet. Our business could suffer with the adoption or modification of laws or
regulations relating to the Internet, or the application of existing laws to the
Internet.
WE MAY FACE CLAIMS FOR ACTIVITIES OF OUR CUSTOMERS WHICH COULD HARM OUR
BUSINESS.
Our customers' promotion of their products and services may not comply
with federal, state and local laws. A wide variety of laws and regulations
govern the content of advertisements and regulate the sale of products and
services. There is also uncertainty as to the application of these laws to the
emerging world of advertising on the Internet. We cannot predict whether our
role in facilitating these marketing activities would expose us to liability
under these laws. We may face civil or criminal liability for unlawful
advertising or other activities of our customers. If we are exposed to this kind
of liability, we could be required to pay substantial fines or penalties,
redesign our business methods, discontinue some of our services or otherwise
expend resources to avoid liability. Any costs incurred as a result of that
liability or asserted liability could harm our business.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27. Financial Data Schedule
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: December 15, 2000 LCS GOLF, INC.
By: /s/ Dr. Michael Mitchell
----------------------------------------
Dr. Michael Mitchell
President, Chief Executive
Officer and Chairman
