Item 7. Management’s Discussion and Analysis
ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OR
PLAN OF OPERATION.
The
following is management’s discussion and analysis of certain significant factors
that have affected our financial position and operating results during the
periods included in the accompanying consolidated financial statements, as
well
as information relating to the plans of our current management. This report
includes forward-looking statements. Generally, the words “believes,”
“anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,”
“continue,” and similar expressions or the negative thereof or comparable
terminology are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, including the matters set forth
in this report or other reports or documents we file with the Securities and
Exchange Commission from time to time, which could cause actual results or
outcomes to differ materially from those projected. Undue reliance should not
be
placed on these forward-looking statements which speak only as of the date
hereof. We undertake no obligation to update these forward-looking
statements.
The
following discussion and analysis should be read in conjunction with our
consolidated financial statements and the related notes thereto and other
financial information contained elsewhere in this Form 10-K.
Critical
Accounting Policies and Estimates
We
prepare our consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these financial statements requires the use of 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 amount of revenues and expenses during the reporting period. Our
management periodically evaluates the estimates and judgments made. Management
bases its estimates and judgments on historical experience and on various
factors that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates as a result of different assumptions
or
conditions.
16
The
following critical accounting policies affect the more significant judgments
and
estimates used in the preparation of the Company’s consolidated financial
statements.
Stock
Based Compensation
In
December 2004, the FASB issued a revision of SFAS No. 123 ("SFAS No. 123(R)")
that requires compensation costs related to share-based payment transactions
to
be recognized in the statement of operations. With limited exceptions, the
amount of compensation cost will be measured based on the grant-date fair value
of the equity or liability instruments issued. In addition, liability awards
will be re-measured each reporting period. Compensation cost will be recognized
over the period that an employee provides service in exchange for the award.
SFAS No. 123(R) replaces SFAS No. 123 and is effective as of the beginning
of
January 1, 2006. Based on the number of shares and awards outstanding as of
December 31, 2005 (and without giving effect to any awards which may be granted
in 2006), we do not expect our adoption of SFAS No. 123(R) in January 2006
to
have a material impact on the financial statements.
FSP
FAS
123(R)-5 was issued on October 10, 2006. The FSP provides that instruments
that
were originally issued as employee compensation and then modified, and that
modification is made to the terms of the instrument solely to reflect an equity
restructuring that occurs when the holders are no longer employees, then no
change in the recognition or the measurement (due to a change in classification)
of those instruments will result if both of the following conditions are met:
(a). There is no increase in fair value of the award (or the ratio of intrinsic
value to the exercise price of the award is preserved, that is, the holder
is
made whole), or the antidilution provision is not added to the terms of the
award in contemplation of an equity restructuring; and (b). All holders of
the
same class of equity instruments (for example, stock options) are treated in
the
same manner. The provisions in this FSP shall be applied in the first reporting
period beginning after the date the FSP is posted to the FASB website. The
Company has adopted SP FAS 123(R)-5 but it did not have a material impact on
its
consolidated results of operations and financial condition.
Accounting
Policies and Estimates
The
preparation of our financial statements in conformity with accounting principles
generally accepted in the United States of America requires our management
to
make certain 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 revenues and
expenses during the reporting period. Our
management periodically evaluates the estimates and judgments made. Management
bases its estimates and judgments on historical experience and on various
factors that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates as a result of different assumptions
or
conditions.
As
such,
in accordance with the use of accounting principles generally accepted in the
United States of America, our actual realized results may differ from
management’s initial estimates as reported. A summary of significant accounting
policies are detailed in notes to the financial statements which are an integral
component of this filing.
17
Revenues
We
have
adopted the Securities and Exchange Commission’s Staff Accounting Bulletin (SAB)
No. 104, which provides guidance on the recognition, presentation and disclosure
of revenue in financial statements.
Derivative
Financial Instruments
We
do not
use derivative instruments to hedge exposures to cash flow, market, or foreign
currency risks.
We
review
the terms of convertible debt and equity instruments that we issue to determine
whether there are embedded derivative instruments, including the embedded
conversion option, that are required to be bifurcated and accounted for
separately as a derivative financial instrument. When the risks and rewards
of
any embedded derivative instrument are not “clearly and closely” related to the
risks and rewards of the host instrument, the embedded derivative instrument
is
generally required to be bifurcated and accounted for separately. If the
convertible instrument is debt, or has debt-like characteristics, the risks
and
rewards associated with the embedded conversion option are not “clearly and
closely” related to that debt host instrument. The conversion option has the
risks and rewards associated with an equity instrument, not a debt instrument,
because its value is related to the value of our common stock. Nonetheless,
if
the host instrument is considered to be “conventional convertible debt” (or
“conventional convertible preferred stock”), bifurcation of the embedded
conversion option is generally not required. However, in certain circumstances,
if the instrument is not considered to be conventional convertible debt (or
conventional convertible preferred stock), bifurcation of the embedded
conversion option may be required. Generally, where the ability to physical
or
net-share settle the conversion option is deemed to be not within our control,
the embedded conversion option is required to be bifurcated and accounted for
as
a derivative financial instrument liability.
In
connection with the sale of convertible debt and equity instruments, we may
also
issue freestanding options or warrants. Additionally, we may issue options
or
warrants to non-employees in connection with consulting or other services they
provide. Although the terms of the options and warrants may not provide for
net-cash settlement, in certain circumstances, physical or net-share settlement
may be deemed to be out of our control and, accordingly, we may be required
to
account for these freestanding options and warrants as derivative financial
instrument liabilities, rather than as equity.
Derivative
financial instruments are required to be initially measured at their fair value.
For derivative financial instruments that shall be accounted for as liabilities,
the derivative instrument is initially recorded at its fair value and is then
re-valued at each reporting date, with changes in the fair value reported as
charges or credits to income.
In
circumstances where the embedded conversion option in a convertible instrument
may be required to be bifurcated and there are also other embedded derivative
instruments in the convertible instrument that are required to be bifurcated,
the bifurcated derivative instruments are accounted for as a single, compound
derivative instrument.
If
the
embedded derivative instrument is to be bifurcated and accounted for as a
liability, the total proceeds received will be first allocated to the fair
value
of the bifurcated derivative instrument. If freestanding options or warrants
were also issued and are to be accounted for as derivative instrument
liabilities (rather than as equity), the proceeds are next allocated to the
fair
value of those instruments. The remaining proceeds, if any, are then allocated
to the convertible instrument itself, usually resulting in that instrument
being
recorded at a discount from its face amount. In circumstances where a
freestanding derivative instrument is to be accounted for as an equity
instrument, the proceeds are allocated between the convertible instrument and
the derivative equity instrument, based on their relative fair
values.
18
The
identification of, and accounting for, derivative instruments is complex.
Derivative instrument liabilities are re-valued at the end of each reporting
period, with changes in fair value of the derivative liability recorded as
charges or credits to income in the period in which the changes occur. For
options, warrants and bifurcated conversion options that are accounted for
as
derivative instrument liabilities, we determine the fair value of these
instruments using the Black-Scholes option pricing model, binomial stock price
probability trees, or other valuation techniques, sometimes with the assistance
of a valuation consultant. These models require assumptions related to the
remaining term of the instruments and risk-free rates of return, our current
common stock price and expected dividend yield, and the expected volatility
of
our common stock price based on not only the history of our stock price but
also
the experience of other entities considered comparable to us. The identification
of, and accounting for, derivative instruments and the assumptions used to
value
them can significantly affect our financial statements.
The
derivatives (convertible debentures) issued on August 16, 2007 have been
accounted for in accordance with Statement of Financial Accounting Standards
No.
133, “Accounting
for Derivative Instruments and Hedging Activities”
(“SFAS
No. 133”) and the related interpretations. SFAS No. 133, as amended and the
Financial Accounting Standards Board Emerging Issues Task Force Issue
“Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in,
a
Company’s Own Stock”
(“EITF
No. 00-19”).
Recent
Developments
Following
the August 16, 2007 transaction in which Lextra acquired a majority interest
in
us, our existing agreement dated August 10, 1993 between us and Air Brook
Limousine, Inc., then one of our stockholders, was terminated. This agreement
had provided that Air Brook Limousine would fund our operations for as long
as
Air Brook Limousine deemed necessary and was financially able to do so. At
the
time of the closing, we owed Air Brook Limousine $340,000, which payable was
acquired by Lextra. Lextra thereafter agreed to forgive our $340,000 obligation
in return for 6,800,000 shares of our common stock. The disclosures below relate
to our operations before the closing of this transaction and the current state
of our affairs.
In
March
2007, Air Brook Limousine notified us that it had experienced extraordinary
increases in the cost of performing certain agreements under which it paid
our
wholly-owned subsidiary, A.B. Park & Fly, Inc., commissions from Air Brook
Limousine’s operation of two airport ground transportation terminals in New
Jersey and advised us of its intent to cancel the contracts. As part of a
settlement of issues, we entered into an Agreement and Plan of Reorganization
dated March 8, 2007, pursuant to which, among other things, we agreed that
A.B.
Park & Fly would be merged with and into a wholly-owned subsidiary of Air
Brook Limousine and the separate existence of A.B. Park & Fly would cease.
In consideration for the preceding, Air Brook Limousine delivered to us 150,000
shares of our common stock, which we canceled as outstanding
shares.
On
July
6, 2007, we filed a Form 8-K with the Securities and Exchange Commission
concerning a material definitive agreement dated as of June 26, 2007 concerning
prospective changes in control of us. We and certain shareholders who owned
and
controlled more than 51.16% of our issued and outstanding shares of common
stock
and Lextra entered into this agreement pursuant to which, among other things,
Lextra would (a) acquire 1,165,397 shares of our common stock from the selling
shareholders for $116,500; (b) acquire from Air Brook Limousine the $340,000
receivable discussed above; and (c) pay certain expenses in connection with
the
transaction in the amount of $43,500. Upon consummation of the proposed
transactions, including the exchange of the $340,000 receivable for 6,800,000
of
our common stock, Lextra would own more than 51.16% of our issued and
outstanding shares of common stock and would be deemed in control of
us.
19
Pursuant
to this Agreement, R. Thomas Kidd, Chief Executive Officer of Lextra would
be
appointed as our sole director, effective as of the closing of the agreement.
In
addition, Donald M. Petroski and Jeffrey M. Petroski, comprising our then
current directors, agreed to tender their respective resignations as our
directors effective as of the closing date.
This
agreement also provided that Donald M. Petroski would also tender his
resignation as our president and chief financial officer and Jeffrey M. Petroski
would also tender his resignation as our treasurer and secretary. The agreement
also provided that following the resignations of Donald M. Petroski and Jeffrey
M. Petroski as our officers, our board of directors would elect R. Thomas Kidd
as our chief executive officer. All of these transactions occurred on August
16,
2007.
On
August
16, 2007, Lextra Management Group, Inc., an event management company, acquired
51.16% of our issued and outstanding common stock pursuant to an Agreement
dated
June 26, 2007 by and among Lextra, our company and certain of our principal
stockholders. Pursuant to the terms of this agreement, at the closing, Lextra
acquired (a) 1,165,397 shares representing 51.16% of the issued and outstanding
shares of our common stock from the selling stockholders for an aggregate
purchase price of $116,500 and (b) an outstanding accounts receivable due to
Air
Brook Limousine by us in the amount of $340,000. At the closing, Air Brook
Limousine cancelled the agreement dated August 10, 1993 under which Air Brook
Limousine stipulated that it would fund our operations for as long as Air Brook
Limousine deemed necessary and as long as it was financially able. The
acquisition of 51.16% of our issued and outstanding shares may be deemed to
be a
change in control of our company.
On
August
16, 2007, we issued 6,800,000 shares of our common stock to Lextra in exchange
for the forgiveness of the $340,000 receivable.
On
August
21, 2007, we acquired all of the assets of Lextra pursuant to an Asset Purchase
Agreement dated August 21, 2007, in exchange for the issuance of 2,000,000
shares of common stock to Lextra and the forgiveness of our $500,000 loan to
Lextra. The assets of Lextra were transferred to our wholly-owned subsidiary,
SportsQuest Management Group, Inc.
As
a
result of the foregoing transactions, Lextra acquired beneficial ownership
of
9,965,397 shares of our common stock, which represents a 90% ownership
interest.
On
August
16, 2007, to obtain funding for our ongoing operations, we entered into a
Securities Purchase Agreement with AJW Partners, LLC, AJW Master Fund, Ltd.
and
New Millennium Capital Partners II, LLC, all accredited investors, for the
sale
of (i) up to $1,500,000 in secured convertible notes, which bear interest at
a
rate of 8% per year, and (ii) warrants to purchase 10,000,000 shares of our
common stock at an exercise price of $0.25 per share at any time through August
16, 2014. Under the agreements, we received $500,000 on August 16, 2007,
$500,000 was disbursed within five days of the filing of the registration
statement and $500,000 will be disbursed when the registration statement became
effective. The secured convertible notes mature three years from the date of
issuance and are convertible into our common stock, at the selling stockholder’s
option, at 60% of the average of the three lowest intraday trading prices for
the common stock on a principal market for the 20 trading days before but not
including the conversion date; provided, however, such percentage shall increase
to 70% in the event that the registration statement becomes effective on or
before a date to be negotiated by us and the selling stockholders owning secured
convertible notes.
20
On
August
17, 2007, we entered into a Stock Issuance, Assumption and Release Agreement
with Greens Worldwide Incorporated, a vertically integrated sports marketing
and
management company, engaged in owning and operating sports entities and their
support companies, and AJW Partners, LLC, AJW Offshore, Ltd., AJW Qualified
Partners, LLC and New Millennium Capital Partners II, LLC. The transaction
closed August 17, 2007. Pursuant to the agreement, Greens Worldwide issued
390,000 shares of its Series A Convertible Preferred Stock, par value $10.00
per
share, which shares are convertible into 249,600,000 shares of its common stock,
to us in exchange for our assumption of 50% of Greens Worldwide’s indebtedness
to the four investors referenced above. Under the terms of the agreement, the
four investors released Greens Worldwide from its obligations. In consideration
for such release, we issued to the four investors’ successors, AJW Partners,
LLC, AJW Master Fund, Ltd. and New Millennium Capital Partners II, LLC, callable
secured convertible notes with an aggregate face amount of $3,903,750, including
interest, and Greens Worldwide issued to the three successor investors callable
secured convertible notes with an aggregate face amount of $3,903,750, including
interest. The notes are due and payable on March 22, 2010 and are convertible
into our common stock or the common stock of Greens Worldwide, as applicable,
at
a 75% discount to the then current fair market value. The issuance of the Series
A Convertible Preferred Stock to us under the agreement resulted in a change
of
control of Greens Worldwide because the terms of the preferred stock entitle
us
to elect a majority of the members of the Greens Worldwide board of directors.
In addition, our ability to vote our shares of preferred stock on an
as-converted basis assures our control of any matters presented to the holders
of Greens Worldwide common stock.
On
August
20, 2007, we entered into an Agreement for the Exchange of Stock with
Zaring-Cioffi Entertainment, LLC, a full-service production company of
talent-based special events, and its members, ZCE, Inc. and Q-C Entertainment,
LLC. The closing is subject to the conversion of Zaring-Cioffi Entertainment,
LLC to a California Corporation and completion of our due diligence. Under
the
terms of the agreement, we agreed to purchase 100% of the issued and outstanding
shares of the California corporation in exchange for that number of shares
of
our common stock with a total value of $500,000, with the number of shares
computed by dividing the prior to closing average five day closing price of
our
common stock into the sum of $500,000. In addition, we agreed to pay to ZCE,
Inc. $150,000 in cash at closing and to issue warrants to ZCE Inc. and Q-C
Entertainment, LLC to purchase our common stock according to the following
schedule: 100,000 shares at a strike price of $0.50 per share expiring December
31, 2007, 100,000 shares at a strike price of $1.00 per share expiring December
31, 2008, and 200,000 shares at a strike price of $1.50 per share expiring
December 31, 2009.
On
August
23, 3007, the Company entered into an Investment Agreement (the “Investment
Agreement”) with Dutchess Private Equities Fund, Ltd., a Cayman Islands exempted
company (“Dutchess”). The Investment Agreement provides for the Company’s right,
subject to certain conditions, to require Dutchess to purchase up to $50,000,000
of the Company’s common stock at a seven percent discount to market over the 36
month period following a registration statement covering such common stock
being
declared effective by the Securities and Exchange Commission.
As
a
condition to entering into the Investment Agreement, the Company and Dutchess
entered into a Registration Rights Agreement, dated as of August 23, 2007 (the
“Registration Rights Agreement”). As set forth in the Registration Rights
Agreement, the Company has agreed to file a registration statement with the
Securities and Exchange Commission within 45 days after the date of the
Registration Rights Agreement to cover the resale by Dutchess of the shares
of
the Company’s common stock issued pursuant to the Investment Agreement. The
Company has agreed to initially register for resale 10,000,000 shares of its
common stock which would be issuable on the date preceding the filing of the
registration statement based on the closing bid price of the Company’s common
stock on such date and the amount reasonably calculated that represents common
stock issuable to other parties as set forth in the Investment Agreement except
to the extent that the Securities and Exchange Commission requires the share
amount to be reduced as a condition of effectiveness. The Company has
further agreed to use all commercially reasonable efforts to cause the
registration statement to be declared effective by the Securities and Exchange
Commission within 120 days after the date of the Registration Rights Agreement
and to keep such registration statement effective until the earlier to occur
of
the date on which (a) Dutchess shall have sold all of the shares of common
stock
issued or issuable pursuant to the Investment Agreement; or (b) Dutchess has
no
right to acquire any additional shares of common stock under the Investment
Agreement.
21
On
September 25, 2007, pursuant to a Bring Down Agreement and Amendment (the “Bring
Down and Amendment”), among the Company, Zaring/Cioffi Entertainment, Inc., Zce,
David Quinn (“Quinn”) and Jeff Merriman Cohen (“Cohen”), Quinn and Cohen, the
sole members of Q-C, assumed the rights, obligations, and liabilities of Q-C
under the Exchange Agreement, as amended by the Bring Down and Amendment. Under
the terms of the Exchange Agreement, as amended by the Bring Down and Amendment,
the Company purchased 100% of the issued and outstanding shares of Zaring-Cioffi
from its shareholders, ZCE, Quinn and Cohen, in exchange for the issuance of
409,836 shares of restricted common stock of the Company to ZCE and 409,836
shares of restricted common stock of the Company to Cohen and Quinn, which
stock
in the aggregate was valued at $500,000. In addition, the Company issued
warrants (the “Warrants”) to purchase an aggregate 400,000 shares of restricted
common stock of the Company to the shareholders of Zaring-Cioffi according
to
the following Schedule:
50,000
shares to each of ZCE and Quin Cohen at a strike price of $0.50 per share
expiring December 31, 2007; 50,000 shares to each ZCE and Quin and Cohen at
a
strike price of $1.00 per share expiring December 31, 2008; and 100,000 shares
to each of ZCE and Quin and Cohen at a strike price of $1.50 per share expiring
December 31, 2009.
Furthermore,
Quin and Cohen received, at no cost, a Bronze Level sponsorship position (or
its
equivalent) at all Zaring-Cioffi events through 2009.
Under
the
Bring Down and Amendment, the Company, Zaring-Cioffi, ZCE, Cohen and Quin also
made the representations and warranties set forth in the Exchange Agreement
as
of closing and agreed that the representations and warranties would not survive
the closing.
Target
Acquisitions
We
have
targeted several other sports entities for acquisition and believe that we
will
be successful in an acquisition strategy to grow our sports marketing platforms,
but no assurance can be given that we will achieve our objectives..
Title
Sponsorship
We
have
executed an agreement with NewsUSA to provide a presenting title media
sponsorship in the form of $10 million of print and radio media for promotion
of
us and our subsidiaries. In connection with that agreement, the Company is
obligated to issue shares of its restricted common stock. The agreement was
cancelled by mutual agreement in August, 2008.
Competitors
We
compete with many providers of sports entertainment events. There are many
event
management and sports marketing firms with more resources, operating history
and
projects than we have.
Management
believes that we have no direct golf tour competitors. We do not consider the
PGA Tour a competitor because the PGA Tour has more resources, player names,
broader television rights agreements, and is the governing body for Professional
Golf in the United States. Because of these factors we cannot compete with
the
PGA Tour.
22
There
are
many golf mini tours throughout the United States, none of which have our
amenities, television and media coverage, operational expertise, or funding.
As
such, they do not represent any significant competition to us.
RESULTS
OF OPERATIONS
Transition
Period Ended May 31, 2008
Revenues
for Period Ended May 31, 2008 was $15,750.. This revenue is directly the result
of changes in the Company's strategic direction in core operations. We continue
to aggressively pursue and devote its resources and focus its direction in
building asset value. We
have
further refocused in new acquisitions to increase our revenues and cash flow.
General
and administrative expenses for the Period Ended May 31, 2008 was $994,708
This
increase is attributed to the Company's increase in acquisitions and issuance
of
stock for compensations and issuance of warrants with convertible debt.
Interest
expense for period ended May 31, 2008 increased to $245,643. This increase
is a
result of embedded warrants in certain bond and loan payables of our subsidiary
SportsQuest, Inc. which required us to accrue for the beneficial conversations
feature in theses derivatives.
The
loss
for period ended May 31, 2008 decreased to ($1,406,796). The increase in loss
is
due to the increase in non cash transactions for services rendered and warrants
issued for convertible debt. .
No
tax
benefit was recorded on the expected operating loss for period ended May 31,
2008 as required by Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes. For the quarter ended we do not expect to realize
a
deferred tax asset and it is uncertain, therefore we have provided a 100%
valuation of the tax benefit and assets until we are certain to experience
net
profits in the future to fully realize the tax benefit and tax
assets.
LIQUIDITY
AND CAPITAL RESOURCES
Our
operating requirements have been funded primarily on its sale of media content,
financing facilities, and sales of our common stock. During the period ended
May
31, 2008, our net proceeds from the media content were $15,750. We believe
that
the cash flows are inadequate to repay the capital obligations and have relied
upon the sale of common stock to sustain its operations.
Cash
(used) operating activities for the period ended May 31, 2008 was $312,489.
We
have focused on core operations which results in an increase in acquisitions.
However we are still operating in a deficit. We have depreciation expenses
for
the period ended May 31, 2008 of $394.
Cash
(used) in investing activities was (179,937) for the period ended May 31, 2008.
We have advanced to affiliates of $179,937.
23
Cash
provided by financing activities was $327,910 for the period ended May 31,
2008.
Financing activities primarily consisted of proceeds from bond and loan payables
from third parties. We do not have adequate cash flows to satisfy its
obligations although have improved cash flow and anticipates have adequate
cash
flows in the upcoming fiscal period. We received proceeds from our bond issuance
of $70,448, we received proceeds from our loan payables of $255,205.
As
of
October 31, 2007 the Company’s open convertible secured note balance was
$662,860, listed as follows:
On
August
16, 2007, the Company entered into a Securities Purchase Agreement (the
“Purchase Agreement”), by and among the Company and AJW Partners, LLC, AJW
Master Fund, Ltd. and New Millennium Capital Partners II, LLC (collectively,
the
“Air Brook Investors”). The transactions contemplated by the Purchase Agreement
will result in a funding of a total of $1,500,000 into the Company.
The
Purchase Agreement provided for the sale by the Company to the SportsQuest
Investors of callable secured convertible notes with an aggregate face amount
of
$1,500,000, plus interest (the “Facility Notes”). The Air Brook Investors
purchased from the Company at closing Facility Notes with an aggregate face
amount of $500,000 and are required to purchase additional Facility Notes with
an aggregate face amount of $500,000 from the Company upon each of (i) the
filing of the registration statement required by the Registration Rights
Agreement and (iii) the declaration of effectiveness of such registration
statement by the Securities and Exchange Commission. The Facility Notes accrue
interest at a rate of 8% per year, require quarterly interest payments in
certain circumstances related to the market price of the Company’s common stock,
and are due and payable on August 16, 2010 (the “Maturity Date”). The Company is
not required to make any principal payments until the Maturity Date, but it
has
the option to prepay the amounts due under the Facility Notes in whole or in
part at any time, subject to the payment of varying prepayment penalties
depending on the time of such prepayment, as set forth in the Facility Notes.
The Facility Notes are convertible into common stock of the Company at a
discount to the then current fair market value of the Company’s common stock, as
set forth in the Facility Notes.
In
addition, the Purchase Agreement provided for the issuance by the Company to
the
SportsQuest Investors of warrants to purchase 10,000,000 shares of the Company’s
common stock (the “Warrants”). Each Warrant permits its holder to acquire shares
of the Company’s common stock at an exercise price of $0.25 per share at any
time through August 16, 2014.
The
Company recorded discounts of $833,333 related to the $1,000,000 worth of
Facility Notes issued during 2007. These discounts have been reflected as
additional paid in capital.
Based
on
present revenues and expenses, we are unable to generate sufficient funds
internally to sustain our current operations. We must raise additional capital
or other borrowing sources to continue our operations. It is management’s plan
to seek additional funding through the sale of common stock and the issuance
of
notes and debentures, including notes and debentures convertible into common
stock. If we issue additional shares of common stock, the value of shares of
existing stockholders is likely to be diluted.
However,
the terms of the convertible secured debentures issued to certain of the
existing stockholders require that we obtain the consent of such stockholders
prior to our entering into subsequent financing arrangements. No assurance
can
be given that we will be able to obtain additional financing, that we will
be
able to obtain additional financing on terms that are favorable to us or that
the holders of the secured debentures will provide their consent to permit
us to
enter into subsequent financing arrangements.
Our
future revenues and profits, if any, will primarily depend upon our ability
to
secure sales of our sponsorship and media products. We do not presently generate
significant revenue from the sales of our products. Although management believes
that our products are competitive for customers seeking local, regional and
national exposure, we cannot forecast with any reasonable certainty whether
our
products will gain acceptance in the marketplace and if so by when.
24
Except
for the limitations imposed upon us respective to the convertible secured
debentures, there are no material or known trends that will restrict either
short term or long-term liquidity.
Off-Balance
Sheet Arrangements
We
do not
have any off balance sheet arrangements that are reasonably likely to have
a
current or future effect on our financial condition, revenues, results of
operations, liquidity or capital expenditures.
Other
Considerations
There
are
numerous factors that affect the business and the results of its operations.
Sources of these factors include general economic and business conditions,
federal and state regulation of business activities, the level of demand for
product services, the level and intensity of competition in the media content
industry, and the ability to develop new services based on new or evolving
technology and the market's acceptance of those new services, our ability to
timely and effectively manage periodic product transitions, the services,
customer and geographic sales mix of any particular period, and our ability
to
continue to improve our infrastructure including personnel and systems to keep
pace with our anticipated rapid growth.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
We
do
hold any derivative instruments but do not engage in any hedging activities.
We
are in the business of acquiring successfully operating subsidiaries to build
the value of our Company.
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