Form 10QSB for WORLD GOLF LEAGUE INC 24-May-2004
Quarterly Report
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE SET FORTH ON THE FORWARD LOOKING STATEMENTS AS A
RESULT OF THE RISKS SET FORTH IN THE COMPANY'S FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION, GENERAL ECONOMIC CONDITIONS, AND CHANGES IN THE ASSUMPTIONS
USED IN MAKING SUCH FORWARD LOOKING STATEMENTS.
OVERVIEW
The World Golf League (the "Company") was incorporated on September 29,1998 in Delaware under the name Asia Pacific Trading, Inc. On May 11, 2000,Asia Pacific Trading, Inc. merged with Novus Laboratories, Inc., a Nevadacorporation ("Novus-NV"). Asia Pacific Trading changed its name to NovusLaboratories on June 20, 2000. The business operations of Novus-NV have sincebeen abandoned and Novus-NV has been dissolved.
In February 2003, the Company completed a 2.7:1 forward stock split of itsissued and outstanding common stock. In March 2003, the Company completed a10:1 forward stock split of its issued and outstanding common stock. Theeffects of both stock splits have been retroactively reflected in this report onForm 10-QSB unless otherwise stated.
On April 14, 2003, the Company acquired in excess of 80% of the issued andoutstanding shares of The World Golf League, Inc., a Florida corporation ("WorldGolf Florida"). World Golf Florida became a wholly-owned subsidiary of theCompany. As a result of the acquisition of World Golf Florida, and the changein business focus, Novus Laboratories changed its name to The World Golf League,Inc.
Novus Shareholders agreed to raise the Company a minimum of $500,000 orthey would cancel 30,000,000 post-split shares of their common stock. Thecompany and the Novus Shareholders amended the terms of the Share ExchangeAgreement to provide that a portion of the proceeds received from the sale ofthe shares by the former Novus shareholders would be delivered to the Company inlieu of canceling the shares. Through December 31, 2003, this arrangementresulted in the Company receiving an aggregate of $376,203, of which asignificant portion was paid to the Florida Attorney General as discussed below.The Company did not receive any money pursuant to this arrangement during thethree months ended March 31, 2004.
In addition, the Share Exchange Agreement stated that in the event$1,000,000 was not raised by the Novus Shareholders, shareholders of World GolfFlorida would receive an additional 30,000,000 post-split shares on a pro ratabasis as their original shares were issuable pursuant to the Share ExchangeAgreement. As $1,000,000 was not raised, World Golf will be issuing anadditional 30,000,000 shares of its restricted common stock to formershareholders of World Golf Florida.
The Company entered into a Stipulated Injunction with the State of Florida,Office of the Attorney General in July 2003, regarding a settlement of theCompany's unpaid obligation to the winners of the 2001 World Golf LeagueNational Tournament. Pursuant to the Stipulated Injunction, the Company agreedthat after the payment of certain specific expenses, the Florida AttorneyGeneral would receive 60% of the proceeds the Company receives from the sale ofits common stock by the former Novus stockholders. During the fiscal year endedDecember 31, 2003, the Company has paid $314,000 and executed a note payable tothe winners of the 2001 World Golf League National Tournament for $300,000 infull settlement of this lawsuit.
The World Golf League, Inc. is based in Longwood, Florida and markets its"Play for Pay" concept directly and through licensees in the United States and27 international venues. The World Golf League was founded in 1999 tocapitalize on the largest participation sport in the world, 26.5 million golfersin the United States and over 60 million worldwide. The World Golf concept(average golfers playing for substantial prize money with full handicap) hasreceived tremendous national publicity including the Golf Channel, SportsIllustrated and several major market news publications. In four short yearsWorld Golf has attracted player interest from all over the world. Participantsin World Golf events have included NFL Hall of Famers Lawrence Taylor and RickeyJackson, NHL Hall of Famer Phil Esposito and a host of pro golfers includingFulton Allem.
The Company added a World Championship tournament to its schedule. Thefirst one was played in Scottsdale, Arizona May 13-15 2004. The Company signedPhil Esposito, a professional hockey player and NHL Hall of Famer, to a one yearendorsement contract. Mr. Esposito joins The World Golf League as an officialspokesperson to provide endorsement services for The World Gold League intelevision and print advertising. The Company also signed Fred Funk to aone-year agreement under which Mr. Funk will represent the Company in any futuretelevision and print advertising campaigns.
In March 2004, Len Mattiace, a professional golfer and PGA Tour winner,joined The World Golf League as an official spokesperson. Mr. Mattiace willprovide endorsement services for The World Gold League in television and printadvertising.
During 2003, the Company began repurchasing certain of its licenseagreements based on separate agreed upon terms with the licensees. As ofDecember 31, 2003, the Company paid approximately $535,000 in cash and duringthe three months ended March 31, 2004, the Company issued 694,444 shares ofcommon stock with a value of $30,000 to repurchase certain of its licenseagreements. The stock was issued pursuant to the Company's stock option plan. Asof March 31, 2004, the Company still owed approximately $35,000 to 2 formerlicensees for the repurchase of the licenses.
Effective July 31, 2003 the Company entered into a consulting agreementwhereby the consultant is to provide various marketing services to the Company.The initial term of the agreement is for one year but may be extended forperiods of not less than six months, which would include increases in theconsultant's compensation of not less than 25%. At the commencement of theagreement, the consultant received 4,818,200 shares of the Company's commonstock as payment for one-half of the consultant's initial costs. Per theagreement, the consultant is to be paid a commission of 25% of the membershipfee for each new member generated and 25% for each membership renewal. Ifcertain performance levels are achieved, the consultant is also eligible forcash bonuses ranging from $25,000 to $250,000 and stock bonuses ranging from25,000 shares to 500,000 shares of the Company's common stock.
COMPARISON OF OPERATING RESULTS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 2003
The Company did not have any revenue for the three months ended March 31,2004 or the three months ended March 31, 2003.
Operating, general and administrative expenses increased $979,103 (or 546%)to $1,158,298 for the three months ended March 31, 2004, as compared to $179,195for the three months ended March 31, 2003. The increase in operating, generaland administrative expense and its net operating loss was due to additionalcosts incurred related to its marketing campaign, the increasing costs relatedto common stock issued for services as well as increases in legal and accountingfees.
Interest expense was $3,709 for the three months ended March 31, 2004. TheCompany did not have interest expense for the three months ended March 31, 2004.
As of March 31, 2004, the Company had an accumulated deficit of$11,705,324.
LIQUITY AND CAPITAL RESOURCES
As of March 31, 2004, total current assets were $114,111 consisting of cashand cash equivalents in the amount of $92,861 and the current portion of licensefee receivable in the amount of $21,250.
Total current liabilities were $676,285 as of March 31, 2004, consisting ofaccounts payable of $71,662, accrued liabilities of $283,373, note payable toprize winners of $300,000 and the current portion of deferred license feerevenue of $21,250.
The Company had negative net working capital of $562,174 for the threemonths ended March 31, 2004. The ratio of current assets to current liabilitiesfor the three months ended March 31, 2004 was 17%.
The Company had a $22,904 increase in cash and cash equivalents for theperiod ended March 31, 2004. The Company used $325,186 of cash in operatingactivities during the three months ended March 31, 2004. The Company used $1,030to purchase fixed assets during the three months ended March 31, 2004. TheCompany had the following cash flows from financing activities: $5,061 due to anincrease in payable to stockholder, $120,000 of capital contributed bystockholders and $224,059 as proceeds from the exercise of stock options.
The Company believes that it can operate at its current level of liquidityfor the next twelve months. It is imperative that the Company raise anadditional $2,500,000 of capital in order to implement its business plan. TheCompany is attempting to raise funds through debt and/or equity offerings. TheCompany intends to use any funds raised to pay down debt and to provide theCompany with working capital. There can be no assurance that any new capitalwould be available to the Company or that adequate funds from the Company'soperations, whether from the Company's revenues, financial markets, or otherarrangements will be available when needed or on terms satisfactory to theCompany. Any additional financing may involve dilution to the Company'sthen-existing shareholders. At this time, no additional financing has beensecured or identified. The Company has no commitments from officers, directorsor affiliates to provide funding. If the Company is unable to obtain debt and/orequity financing upon terms that the Company's management deems sufficientlyfavorable, or at all, it would have a materially adverse impact upon theCompany's ability to pursue its business strategy and maintain its currentoperations. As a result, it may require the Company to delay, curtail or scaleback some or all of its operations including future golf tournaments. TheCompany does not currently have commitments for capital at this time.
RISK FACTORS
Dependence Upon External Financing. It is imperative that we raise capitalto stay in business. We require capital of approximately $287,000 to satisfy theobligations of our past tournament. We also require $2,500,000 of additionalcapital in order to implement our business plan. Without this additionalcapital, the Company believes that it can operate at its current level ofliquidity for the next twelve months. The Company is taking steps to raiseequity capital. There can be no assurance that any new capital will be availableto the Company or that adequate funds for the Company's operations, whether fromthe Company's revenues, financial markets, or other arrangements will beavailable when needed or on terms satisfactory to the Company. Any additionalfinancing may involve dilution to the Company's then-existing shareholders. Atthis time, no other additional financing has been secured or identified. TheCompany has no commitments from officers, directors or affiliates to providefunding. If we are unable to obtain debt and/or equity financing upon terms thatour management deems sufficiently favorable, or at all, it would have amaterially adverse impact upon our ability to pursue our business strategy andmaintain our current operations.
Risk That We Will Be Unable to Attract New Members. In order for theCompany to be successful in its operations, it will need to attract new members.In the event the Company is unable to attract new members, it is unlikely thatthe Company will be able to continue its business model and the Company willlikely be forced to curtail operations.
Reliance on Key Management. Our success is highly dependent upon thecontinued services of Michael S. Pagnano, our Chief Executive Officer. If Mr.Pagnano were to leave us, it could have a materially adverse effect upon ourbusiness and operations.
Our Auditors Have Expressed Substantial Doubt About Our Ability to ContinueAs a Going Concern. Ham, Langston & Brezina, LLP, in their independentauditors' report on our balance sheet as of December 31, 2003, and the relatedstatements of operations, stockholders' deficit and cash flows for the yearsended December 31, 2003 and 2002, have expressed "substantial doubt" as toour ability to continue as a going concern based on operating losses we haveincurred since inception. Our financial statements do not include anyadjustments that might result from the outcome of that uncertainty. The goingconcern qualification is also described in Note 2 of the notes to our financialstatements.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results ofoperations is based upon our audited financial statements, which have beenprepared in accordance with accounting principals generally accepted in theUnited States. The preparation of these financial statements requires us tomake estimates and judgments that affect the reported amounts of assets,liabilities, revenues and expenses, and related disclosure of any contingentassets and liabilities. On an on-going basis, we evaluate our estimates,including those related to uncollectible receivable, investment values, incometaxes, the recapitalization and contingencies. We base our estimates on variousassumptions that we believe to be reasonable under the circumstances, theresults of which form the basis for making judgments about carrying values ofassets and liabilities that are not readily apparent from other sources. Actualresults may differ from these estimates under different assumptions orconditions.
We believe the following critical accounting policies affects our moresignificant judgments and estimates used in the preparation of our financialstatements:
Revenue Recognition.
Annual membership fee and royalty revenue are recognized ratably over theyear.
Historically, the Company entered into license agreements with thirdparties whereby the licensee had the right to develop and manage the Company'smarketing concept in an exclusive territory in the United States orinternationally. The license agreements generally required an initial downpayment and two equal annual installment payments for the initial license feeand monthly royalty payments of 15% of gross revenue generated by the licensee.During 2003, the Company re-purchased most of the licenses.
Stock Based Compensation
The Company accounts for its stock compensation arrangements under theprovisions of Accounting Principles Board ("APB") No. 25 "Accounting for StockIssued to Employees". The Company provides disclosure in accordance with thedisclosure-only provisions of Statement of Financial Accounting Standard("SFAS") No. 123 "Accounting for Stock-Based Compensation".
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