UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the quarterly period ended March 31, 2008
or
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
transition period from ______ to __________
Commission
File Number
:
0-28606
(Exact
name of registrant as specified in its charter)
Nevada
|
|
22-3387630
|
(State or other jurisdiction of incorporation or organization)
|
|
(IRS Employer Identification No.)
|
109 North Post Oak
Lane, Suite 422
Houston,
TX 77024
(Address
of principal executive offices)
(713)
621-2737
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
Yes
x No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “small
reporting company” in Rule 12b-2 of the Exchange Act.
|
|
Accelerated
filer o
|
Non-accelerated
filer o
|
(Do
not check if a small reporting company)
|
Small
reporting company x
|
Indicate
by check whether the registrant is a shell company (as defined in Rule 12b-2
of
the Exchange Act). Yes o
No x
The
number of shares outstanding of our common stock at May 7, 2008 was
499,336,058.
TURNAROUND
PARTNERS, INC.
FORM
10-Q
INDEX
|
|
Page
Number
|
|
|
|
|
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PART
I - FINANCIAL INFORMATION
|
|
|
|
Item
1. Financial Statements
|
|
|
|
Condensed
Consolidated Balance Sheets as of March 31, 2008 (Unaudited) and
December
31, 2007
|
|
|
3 – 4
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|
Condensed
Consolidated Statements of Operations for the three months ended
March 31,
2008 and 2007 (Unaudited)
|
|
|
5
|
|
Condensed
Consolidated Statements of Cash Flows for the three months ended
March 31,
2008 and 2007 (Unaudited)
|
|
|
6 – 7
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Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
|
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8 – 13
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Item
2. Management’s Discussion and Analysis or Plan of
Operation
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13 – 16
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Item
4. Controls and procedures
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16
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|
|
|
|
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PART
II - OTHER INFORMATION
|
|
|
|
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Item
6. Exhibits
|
|
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17
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SIGNATURES
|
|
|
18
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|
PART
1 - FINANCIAL INFORMATION
ITEM
1 - FINANCIAL STATEMENTS
TURNAROUND
PARTNERS, INC. AND SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEET
|
|
March 31,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
131,247
|
|
$
|
255,961
|
|
Notes
and accounts receivable, net of allowance accounts of
$442,686
|
|
|
349,494
|
|
|
299,576
|
|
Investment
in marketable securities
|
|
|
500,000
|
|
|
510,791
|
|
Prepaid
expense
|
|
|
10,680
|
|
|
23,208
|
|
Total
current assets
|
|
|
991,421
|
|
|
1,089,536
|
|
|
|
|
|
|
|
|
|
NONCURRENT
ASSETS
|
|
|
|
|
|
|
|
Investment
in real estate partnership and other investments, at cost
|
|
|
3,755,490
|
|
|
3,749,859
|
|
Deferred
debenture costs
|
|
|
23,320
|
|
|
25,506
|
|
Total
noncurrent assets
|
|
|
3,778,810
|
|
|
3,775,365
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
4,770,231
|
|
$
|
4,864,901
|
|
|
|
|
|
|
|
|
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LIABILITIES
AND SHAREHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
659,850
|
|
$
|
607,181
|
|
Unearned
income
|
|
|
-
|
|
|
9,167
|
|
Convertible
debentures
|
|
|
1,874,056
|
|
|
1,932,475
|
|
Notes
payable
|
|
|
91,681
|
|
|
96,003
|
|
Series
C Preferred stock including associated paid in capital; liquidation
preference of $232,381, redeemable
at $1,500 per share at Company option, cumulative dividends of $120
per
share per year, non-voting, par value $.01, 1,000 shares authorized,
155
shares issued and outstanding
|
|
|
232,381
|
|
|
337,380
|
|
Derivative
liability
|
|
|
325,674
|
|
|
282,181
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
3,183,642
|
|
|
3,264,387
|
|
|
|
|
|
|
|
|
|
Convertible
debentures--net of $1,136,193 discount
|
|
|
5,181,082
|
|
|
5,088,807
|
|
Note
payable
|
|
|
98,614
|
|
|
110,978
|
|
Accrued
interest payable
|
|
|
1,140,493
|
|
|
903,746
|
|
Total
liabilities
|
|
|
9,603,831
|
|
|
9,367,918
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
-
|
|
|
-
|
|
TURNAROUND
PARTNERS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEET
(Continued)
|
|
March 31,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS'
DEFICIT
|
|
|
|
|
|
Preferred
Stock, par value $.01, 2,000,000 shares authorized:
|
|
|
|
|
|
Series
A Convertible Preferred Stock, noncumulative, $.01 par value; 400,000
shares authorized; none issued
|
|
|
-
|
|
|
-
|
|
Series
B Convertible Preferred Stock, $.01 par value; 100,000 shares authorized;
6,666 shares issued and outstanding; no liquidation or redemption
value
|
|
|
67
|
|
|
67
|
|
Series
D Convertible Preferred Stock, $.01 par value; 100,000 shares authorized;
700 shares issued and outstanding; no liquidation or redemption
value
|
|
|
7
|
|
|
7
|
|
Common
stock, $.001 par value; 5,000,000,000 shares authorized; 494,236,054
shares issued and outstanding
|
|
|
494,236
|
|
|
135,235
|
|
Additional
paid-in capital
|
|
|
749,995
|
|
|
1,049,994
|
|
Retained
deficit
|
|
|
(6,077,905
|
)
|
|
(5,688,320
|
)
|
Total
shareholders' deficit
|
|
|
(4,833,600
|
)
|
|
(4,503,017
|
)
|
TOTAL
LIABILITIES AND SHAREHOLDERS' DEFICIT
|
|
$
|
4,770,231
|
|
$
|
4,864,901
|
|
See
accompanying Notes to Condensed Consolidated Financial Statements
TURNAROUND
PARTNERS, INC. AND SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR
THE THREE MONTHS ENDED
|
|
March
31,
|
|
March
31,
|
|
|
|
2008
|
|
2007
|
|
REVENUE
|
|
|
|
|
|
Consulting
revenue
|
|
$
|
9,167
|
|
$
|
213,867
|
|
Factoring
revenue
|
|
|
27,102
|
|
|
-
|
|
Marketable
securities gain (loss)
|
|
|
(13,476
|
)
|
|
21,500
|
|
Fee
income
|
|
|
-
|
|
|
17,500
|
|
Total
revenue
|
|
|
22,793
|
|
|
252,867
|
|
|
|
|
|
|
|
|
|
GENERAL
AND ADMINISTRATIVE EXPENSES
|
|
|
|
|
|
|
|
Salaries
and benefits
|
|
|
132,258
|
|
|
237,083
|
|
Professional
fees
|
|
|
51,782
|
|
|
142,816
|
|
Other
general and administrative expenses
|
|
|
13,602
|
|
|
136,787
|
|
Allocated
overhead to affiliated entity
|
|
|
-
|
|
|
(101,199
|
)
|
Total
general and administrative expenses
|
|
|
197,642
|
|
|
415,487
|
|
|
|
|
|
|
|
|
|
OPERATING
LOSS
|
|
|
(174,849
|
)
|
|
(162,620
|
)
|
|
|
|
|
|
|
|
|
Other
(income) expense:
|
|
|
|
|
|
|
|
Net
change in fair value of derivative liabilities
|
|
|
43,494
|
|
|
265,968
|
|
Income
on debt extinguishment
|
|
|
-
|
|
|
(450,650
|
)
|
Other
income - net
|
|
|
-
|
|
|
(35,821
|
)
|
Interest
expense
|
|
|
132,186
|
|
|
147,184
|
|
Interest
expense - derivatives
|
|
|
222,783
|
|
|
307,870
|
|
Interest
Income
|
|
|
(14,168
|
)
|
|
-
|
|
Income
from investment in real estate partnership
|
|
|
(137,533
|
)
|
|
-
|
|
Recovery
of bad debts previously expensed
|
|
|
(40,000
|
)
|
|
-
|
|
Total
other (income) expense
|
|
|
206,762
|
|
|
234,551
|
|
NET
LOSS
|
|
|
(381,611
|
)
|
|
(397,171
|
)
|
Preferred
dividends paid
|
|
|
7,971
|
|
|
-
|
|
LOSS
AVAILABLE TO COMMON SHARES
|
|
|
(389,582
|
)
|
|
(397,171
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted income (loss) per share
|
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted average shares outstanding
|
|
|
327,322,867
|
|
|
33,954,444
|
|
See
accompanying Notes to Consolidated Financial Statements
TURNAROUND
PARTNER INC. AND SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
Net
loss
|
|
$
|
(381,611
|
)
|
$
|
(397,171
|
)
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
-
|
|
|
6,220
|
|
Amortization
of deferred expenses
|
|
|
2,186
|
|
|
95,421
|
|
Non-cash
unrealized gains in marketable securities
|
|
|
12,902
|
|
|
-
|
|
Non-cash
income for redemption of preferred stock
|
|
|
(104,417
|
)
|
|
-
|
|
Non-cash
interest expense-derivatives
|
|
|
92,275
|
|
|
307,870
|
|
Net
change in fair value of derivative liability
|
|
|
43,493
|
|
|
265,968
|
|
Non-cash
debt modification gain
|
|
|
-
|
|
|
(450,650
|
)
|
Non-cash
(income) expense
|
|
|
-
|
|
|
(153,522
|
)
|
Income
from investment in real estate partnership
|
|
|
(137,533
|
)
|
|
-
|
|
(Increase)
decrease in assets:
|
|
|
|
|
|
|
|
Other
accounts receivable
|
|
|
(39,721
|
)
|
|
499
|
|
Notes
receivable
|
|
|
(1,939
|
)
|
|
59,298
|
|
Prepaid
and other
|
|
|
4,270
|
|
|
(52,572
|
)
|
Investment
in marketable securities
|
|
|
10,791
|
|
|
(103,140
|
)
|
Increase
(decrease) in liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(5,602
|
)
|
|
(16,180
|
)
|
Accrued
liabilities
|
|
|
(292,798
|
)
|
|
(85,626
|
)
|
Unearned
income
|
|
|
(9,167
|
)
|
|
41,666
|
|
Accrued
interest
|
|
|
587,814
|
|
|
134,312
|
|
Net
cash used in operating activities
|
|
|
(219,057
|
)
|
|
(347,607
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
Purchases
of fixed assets
|
|
|
-
|
|
|
(2,279
|
)
|
Preferental
returns on capital of and distribution from partnership
|
|
|
119,000
|
|
|
446,250
|
|
Net
cash provided by investing activities
|
|
|
119,000
|
|
|
443,971
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
Principal
payments on note payable
|
|
|
(16,686
|
)
|
|
(20,336
|
)
|
Dividends
paid on preferred stock
|
|
|
(7,971
|
)
|
|
-
|
|
Net
cash used in financing activities
|
|
|
(24,657
|
)
|
|
(20,336
|
)
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(124,714
|
)
|
|
76,028
|
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
255,961
|
|
|
1,153,793
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
131,247
|
|
$
|
1,229,821
|
|
|
|
|
|
|
|
|
|
TURNAROUND
PARTNER INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
SUPPLEMENTAL
INFORMATION
|
|
|
|
|
|
Interest
paid
|
|
$
|
4,190
|
|
$
|
6,257
|
|
Taxes
paid
|
|
$
|
-
|
|
$
|
-
|
|
Conversion
of convertible debentures and accrued interest:
|
|
|
|
|
|
|
|
Decrease
in debentures and accrued interest
|
|
$
|
59,000
|
|
$
|
- |
|
Increase
in common stock
|
|
$
|
59,000
|
|
$
|
10,338
|
|
Increase
in paid-in-capital
|
|
$
|
-
|
|
$
|
112,486
|
|
Conversion
of Series E preferred stock:
|
|
|
|
|
|
|
|
Increase
in common stock
|
|
$
|
300,000
|
|
$
|
-
|
|
Decrease
in paid-in-capital
|
|
$
|
300,000
|
|
$
|
-
|
|
See
accompanying Notes to Condensed Consolidated Financial
Statements
TURNAROUND
PARTNERS, INC. AND SUBSIDIARIES
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note
1 - Basis of Presentation
The
accompanying unaudited condensed consolidated financial statements of Turnaround
Partners, Inc. and subsidiaries have been prepared in accordance with generally
accepted accounting principles for interim financial information and the
instructions to Form 10-Q and Article 8 of Regulation S-X. The results of
operations for the interim period ended March 31, 2008 shown in this report
are not necessarily indicative of results to be expected for the full fiscal
year ending December 31, 2008. In the opinion of the Company’s management,
the information contained herein reflects all adjustments necessary for a fair
presentation of the Company’s results of operations, financial position and cash
flows. All such adjustments are of a normal, recurring nature.
Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been omitted in accordance with the published
rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”)
for interim financial statements. The unaudited Condensed Consolidated Financial
Statements and the notes thereto in this report should be read in conjunction
with the audited Consolidated Financial Statements and notes thereto included
in
our Annual Report on Form 10-KSB for the fiscal year ended December 31,
2007 (the “10-KSB”).
As
used
herein, the “Company”, “management”, “we”, “our” refers to Turnaround Partners,
Inc. or Turnaround Partners, Inc. together with its subsidiaries. The Company’s
fiscal year ends on December 31st.
In
light
of the Company’s change in control of ownership as of December 5, 2007 discussed
below, the Company is contemplating a new business model. Currently, the Company
believes that the new business plan going forward will be to focus on
alternative and clean technologies.
Through
March 31, 2008, we had primarily provided business restructuring, turnaround
execution and business development advisory services for emerging and
re-emerging public and private companies. The Company also actively trades
securities and options with available cash. Many of these transactions contain
a
considerable amount of risk. Under our consulting agreements, we did not take
positions in securities of our clients that at any one time would cause us
to
have an ownership interest in them of over 4.99%. We also have a limited
partnership interest in a hotel in West Palm Beach, Florida.
On
December 5, 2007 (the “Closing
Date”),
the
Company filed on Form 8-K Current Report, as amended on December 14, 2007 and
February 20, 2008, disclosing that the Company entered into a Stock Purchase
Agreement with Mr. Timothy J. Connolly, an individual and Viewpoint Capital,
LLC, a Nevada limited liability company pursuant to which the Company issued
to
the Investor one (1) share of the Company’s Series E convertible preferred
stock, par value $0.001 per share, which such Series E Preferred is convertible
into Three Hundred Million Shares (300,000,000) of common stock of the Company,
par value $0.001 per share in exchange for the transfer by the Investor to
the
Company of Four Million (4,000,000) unrestricted, free-trading shares of common
stock of Asset Capital Group, Inc. (“ACGU”), a Nevada corporation having a value
of Three Million Four Hundred Thousand Dollars ($3,400,000) based on the closing
price of ACGU Common Stock as of the Closing Date as reported on the Pink
Sheets, LLC. ACGU Common Stock trades under the symbol “ACGU.PK”. As a result of
this transaction, the Investor acquired a 63.66% controlling interest in the
Company’s Common Stock by virtue of the Investor’s ownership of the Series E
Preferred.
On
February 13, 2008, the Investor delivered to the Company a notice to convert
the
one (1) shares of Series E Preferred to Three Hundred Million (300,000,000)
shares of Common Stock. On February 14, 2008, the Company issued to the Investor
Three Hundred Million (300,000,000) shares of Common Stock, all of which are
restricted, and canceled the One (1) share of Series E Preferred. As a result
of
this transaction, the Investor acquired a 63.66% controlling interest in the
Common Stock of the Company.
During
the month of March 2008, we sold our investment in stock of ACGU for
approximately $7,700.
As
filed
on Form 8-K Current Report on January 3, 2008, and is hereby incorporated in
this document by reference, the Company disclosed that effective as of December
31, 2007, Corporate Strategies, Inc. (“CSI”),
a
Texas corporation and wholly-owned subsidiary of Turnaround Partners, Inc.,
a
Nevada corporation entered into a Purchase Agreement with Natural Nutrition,
Inc., a Nevada corporation (“NN”)
and
CSI Business Finance, Inc., a Texas corporation and wholly-owned subsidiary
of
NN (together with NN, the “Buyer”)
pursuant to which CSI conveyed, transferred and assigned to the Buyer all of
its
title to and rights in CSI’s ten percent (10%) interest in the total issued and
outstanding capital stock of Interactive Nutrition International, Inc. (“INII”),
a company organized under the laws of Canada in exchange for the conveyance,
transfer and assignment to CSI by the Buyer of certain Notes held by the Buyer
(as such term is defined in the Agreement) plus a cash payment equal to One
Hundred Ninety-Eight Thousand Eight Hundred Ninety-Nine Dollars and Ten Cents
($198,899.10). In addition, NN assumed payment for all of CSI’s office lease,
equipment payments and any other payments related to the office space in
Houston, Texas for the remainder of the lease term and any renewals.
The
accompanying unaudited condensed consolidated financial statements include
the
accounts of the Company and its subsidiaries. All significant inter-company
balances and transactions have been eliminated.
Change
in Accounting Principle for Registration Payment
Arrangements.
In
December 2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Staff Position on No. EITF 00-19-2, Accounting for Registration Payment
Arrangements (“FSP EITF 00-19-2”). FSP EITF 00-19-2 provides that the contingent
obligation to make future payments or otherwise transfer consideration under
a
registration payment arrangement should be separately recognized and measured
in
accordance with Statement of Financial Accounting Standards (“FAS”) No. 5,
Accounting for Contingencies, which provides that loss contingencies should
be
recognized as liabilities if they are probable and can be reasonably estimated.
Subsequent to the adoption of FSP EITF 00-19-2, any changes in the carrying
amount of the contingent liability will result in a gain or loss that will
be
recognized in the consolidated statement of operations in the period the changes
occur. The guidance in FSP EITF 00-19-2 is effective immediately for
registration payment arrangements and the financial instruments subject to
those
arrangements that are entered into or modified subsequent to the date of
issuance of FSP EITF 00-19-2. For registration payment arrangements and
financial instruments subject to those arrangement that were entered into prior
to the issuance of FSP EITF 00-19-2, this guidance is effective for our
consolidated financial statements issued for the year beginning January 1,
2007,
and interim periods within that year.
On
January 1, 2007, we adopted the provisions of FSP EITF 00-19-2 to account for
our registration payment arrangements. As of January 1, 2007 and March 31,
2007,
management determined that is was not probable that we would have any payment
obligation under our registration payment arrangements; therefore, no accrual
for contingent obligation is required under the provisions of FSP EITF 00-19-2.
Accordingly, these amended comparative condensed consolidated financial
statements have been adjusted to apply the new method prospectively. The
following financial statement line items for the three months ended March 31,
2007 were affected by the change in accounting principle:
Consolidated
Statements of Operations
|
|
As Computed
|
|
As Reported
|
|
|
|
|
|
under
|
|
under FSP
|
|
Effect of
|
|
|
|
EITF 00-19
|
|
EITF 00-19-2
|
|
Change
|
|
|
|
|
|
|
|
|
|
Three
months ended March 31, 2007
|
|
|
|
|
|
|
|
Interest
expense-derivatives
|
|
$
|
337,323
|
|
$
|
307,870
|
|
$
|
(29,453
|
)
|
Net
change in fair value of derivative
|
|
|
260,180
|
|
|
265,968
|
|
|
5,788
|
|
Net
loss
|
|
|
(373,506
|
)
|
|
(397,171
|
)
|
|
23,665
|
|
Net
loss per share
|
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2007
|
|
|
|
|
|
|
|
|
|
|
Debenture
payable - net of discount
|
|
|
7,004,391
|
|
|
6,648,538
|
|
|
355,853
|
|
Derivative
liability
|
|
|
1,132,911
|
|
|
777,058
|
|
|
(355,853
|
)
|
Total
liabilities and shareholders' deficit
|
|
|
6,794,609
|
|
|
6,794,609
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2007
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(373,506
|
)
|
|
(397,171
|
)
|
|
23,665
|
|
Net
change in fair value of derivatives and amortization of debt
discount.
|
|
|
597,503
|
|
|
573,838
|
|
|
(23,665
|
)
|
Recently
Issued Accounting Pronouncements.
In
March
2008, the FASB issued Statement No. 161, Disclosures
about Derivative Instruments and Hedging Activities - an amendment of FASB
Statement No. 133
(SFAS
161). This statement requires enhanced disclosures about an entity’s derivative
and hedging activities and is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with
earlier application encouraged. The Company will adopt SFAS 161 in the first
fiscal quarter of 2009. Since SFAS 161 requires only additional disclosures
concerning derivatives and hedging activities, adoption of SFAS 161 will not
have an impact on the Company’s consolidated financial condition, results of
operations or cash flows.
Note
2 - Income (Loss) Per Common Share
In
accordance with the Financial Accounting Standards Board (the “FASB”) Statement
of Financial Accounting Standards No. 128 (“SFAS 128”), "Earnings per Share",
basic earnings per share are computed based on the weighted average shares
of
common stock outstanding during the periods. Diluted earnings per share
are computed based on the weighted average shares of common stock plus the
assumed issuance of common stock for all potentially dilutive
securities.
The
computations for basic and diluted net income (loss) per share consist of the
following:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
(381,611
|
)
|
$
|
(397,171
|
)
|
Less
effect of derivatives, preferred stock and convertible
debenture
|
|
|
398,463
|
|
|
-
|
|
Adjusted
income (loss) from continuing operations
|
|
$
|
16,852
|
|
$
|
(397,171
|
)
|
|
|
|
|
|
|
|
|
Income
(loss) from discontinued operations
|
|
|
-
|
|
|
-
|
|
Gain
on sale of subsidiary
|
|
|
-
|
|
|
-
|
|
Net
income (loss)
|
|
$
|
16,852
|
|
$
|
(397,171
|
)
|
|
|
|
|
|
|
|
|
Basic
weighted average shares
|
|
|
327,322,867
|
|
|
33,954,444
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
Series
B preferred stock
|
|
|
-
|
|
|
-
|
|
Series
D preferred stock
|
|
|
-
|
|
|
-
|
|
Convertible
debentures
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares
|
|
|
327,322,867
|
|
|
33,954,444
|
|
|
|
|
|
|
|
|
|
Income
(loss) per share:
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
Net
(loss)
|
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
|
(1)
|
A
weighted average year-to-date number of Convertible Debentures, Series
B
and Series D preferred stock to convert into 402,663,175 shares of
common
stock were outstanding during the three months ended March 31, 2008,
but
were not included in the computation of diluted per share net income
for
the three months ended March 31, 2008 because they were anti-dilutive.
There were no similar potentially dilutive shares outstanding for
the
three months ended March 31, 2007.
|
Note
3 - Convertible Debentures - Derivative Financial
Instruments
The
Convertible Debentures issued from 2003 through 2007 have been accounted for
in
accordance with SFAS 133 and EITF No. 00-19, "Accounting for Derivative
Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own Stock."
The
Company has identified the following instruments have derivatives requiring
evaluation
and accounting under the relevant guidance applicable to financial derivatives:
YA
Global
Debenture issued 5/6/04 in the face amount of $400,000
YA
Global
Debenture issued 6/24/04 in the face amount of $500,000
YA
Global
Debenture issued 9/28/04 in the face amount of $400,000
YA
Global
Debenture issued 4/6/05 in the faceamount of $400,000
Holland
et. al. Debentures issued 12/22/03 in the face amount of$250,000
Saporito
Debenture issued 1/29/04 in the face amount of $100,000
Viola
Debenture issued 10/12/04 in the face amount of $100,000
Highgate
House issued 12/02/05 in the face amount of $6,225,000
These
embedded derivatives have been bifurcated from their respective host debt
contracts and accounted for as derivative liabilities in accordance with EITF
00-19 and SFAS No. 133.
The
embedded derivatives are marked-to-market each reporting period with changes
in
fair value recorded to the Company's income statement as "Net change in
derivative liability". The Company has utilized a third party to fair value
the
embedded derivatives using a layered discounted probability-weighted cash flow
approach. This valuation was prepared by the third party valuation firm that
developed the original model that the Company used to value its
derivatives.
The
fair
value of the derivative liabilities are subject to the changes in the trading
value of the Company's common stock, as well as other factors. As a result,
our
financial statements may fluctuate from quarter-to-quarter based on factors,
such as the price of our stock at the balance sheet date and the amount of
shares converted by debenture holders. Consequently, our financial position
and
results of operations may vary from quarter-to-quarter based on conditions
other
than our operating revenues and expenses.
During
the first quarter of 2007, certain individuals converted debentures into our
common stock. As a result, we recorded a gain on extinguishment of debt in
the
amount of $450,000 for the quarter ended March 31, 2007.
Note
4 - Segment Reporting
Our
company has two business segments: business services (which consists of
turnaround execution services, management restructuring services, and business
development services) and a hotel investment through our wholly owned
subsidiary, Kipling Holdings, Inc.
We
primarily provide business restructuring, turnaround execution and business
development advisory services for emerging and re-emerging public
companies.
The
Company's operations are conducted in the United States.
|
|
Business
|
|
Hotel
|
|
|
|
Services
|
|
Investment
|
|
Three
months ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
252,867
|
|
$
|
-
|
|
Loss
before income tax
|
|
|
(173,579
|
)
|
|
(223,592
|
)
|
Segment
assets
|
|
|
1,787,757
|
|
|
5,006,852
|
|
|
|
|
|
|
|
|
|
Year
ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
22,793
|
|
$
|
-
|
|
Income
(loss) before income tax
|
|
|
(519,144
|
)
|
|
137,533
|
|
Segment
assets
|
|
|
507,228
|
|
|
4,263,003
|
|
Note
5 - Investment in Unconsolidated Entities
Through
our wholly-owned subsidiary, Kipling Holdings, Inc, we own a 35% limited
partnership interest in a partnership that owns a Hilton hotel in West Palm
Beach, Florida. Because we do not control the partnership entity, we carry
our
investment in unconsolidated entities at cost, plus our equity in net earnings
or losses, less distributions received since the date of acquisition and any
adjustment for impairment. Our equity in net earnings or losses is adjusted
for
the straight-line depreciation, over the lower of 25 years or the remaining
life
of the venture, of the difference between our cost and our proportionate share
of the underlying net assets at the date of acquisition. We periodically review
our investment in unconsolidated entities for other than temporary declines
in
fair value. Any decline that is not expected to be recovered in the next 12
months is considered other than temporary and an impairment is recorded as
a
reduction in the carrying value of the investment. For the year ended December
31, 2007, we recorded an impairment on our investment in real estate partnership
in the amount of $ 540,000. Estimated fair values are based on our projections
of cash flows. Since we are a limited partner, we do not make management
decisions in this partnership and are subject to the decisions made by the
general partner of this unconsolidated entity. This could include a sale of
the
property at a time and price that may not be in our best interest. While we
expect the General Partner will act in good faith at all times, we could incur
a
loss on this investment if a sale or foreclosure of the real estate occurs
at a
price that does not fully recover our equity investment.
Note
6 - Series C Preferred Stock
We
have
155 shares of Series C preferred stock outstanding. The stock has a liquidation
preference of $232,381 and is redeemable at $1,500 per share at the Company’s
option. Dividends are cumulative and accrue at the rate of $120 per share per
year. Under the purchase agreement dated December 5, 2007, the series C
preferred stock was to have been paid off by December 31, 2007. Therefore,
the
full liquidation value of $232,381 is recorded as a current
liability.
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
FORWARD-LOOKING
STATEMENTS AND ASSOCIATED RISKS
This
Quarterly Report on Form 10-Q, and the accompanying M,D&A, contains
forward-looking statements. Statements contained in this report about
Turnaround Partners, Inc.’s future outlook, prospects, strategies and plans, and
about industry conditions and demand for our financial services are
forward-looking. All statements that express belief, expectation,
estimates or intentions, as well as those that are not statements of historical
fact, are forward looking. The words "proposed," "anticipates," "anticipated,"
"will," "would," "should," "estimates" and similar expressions are intended
to
identify forward-looking statements. Forward-looking statements represent
our reasonable belief and are based on our current expectations and assumptions
with respect to future events. While we believe our expectations and assumptions
are reasonable, they involve risks and uncertainties beyond our control that
could cause the actual results or outcome to differ materially from the expected
results or outcome reflected in our forward-looking statements. In light
of these risks, uncertainties and assumptions, the forward-looking events
discussed in this quarterly report may not occur. Such risks and
uncertainties include, without limitation, the success of our contemplated
new
business plan, conditions in the capital and equity markets, our success in
trading marketable securities, the success of our investment in our partnership
that owns a hotel in West Palm Beach, Florida and our ability to obtain and
maintain normal terms with our vendors and service providers during the periods
covered by the forward-looking statements.
The
forward-looking statements contained in this report speak only as of the date
hereof. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or any other reason. All forward-looking statements attributable to
Turnaround Partners, Inc. or any person acting on its behalf are expressly
qualified in their entirety by the cautionary statements contained or referred
in this document, our annual report filed on Form 10-KSB and any future
documents filed with the SEC. The following M,D&A should be read in
conjunction with the unaudited Condensed Consolidated Financial Statements
of
the Company, and the related notes thereto included elsewhere herein, and in
conjunction with our audited financial statements, together with footnotes
and
the M,D&A, in our 2007 annual report filed on Form 10-KSB as filed with the
SEC.
OVERVIEW
The
accompanying unaudited Condensed Consolidated Financial Statements include
the
accounts of the Company and its subsidiaries. All significant inter-company
balances and transactions have been eliminated.
The
discussion below regarding our results of operations, liquidity and capital
resources are for the business of providing restructuring and turnaround
services. In light of the Company’s change in control of ownership, the Company
is contemplating a new business model. Currently, the Company believes that
the
new business plan going forward will be to focus on alternative and clean
technologies.
Historically
we primarily provided business restructuring, turnaround execution and business
development advisory services for emerging and re-emerging public and private
companies. The Company also actively trades securities and options with
available cash. Many of these transactions contain a considerable amount of
risk. Under our consulting agreements, we do not take positions in securities
of
our clients that at any one time would cause us to have an ownership interest
in
them of over 4.99%.
On
December 5, 2007 (the “Closing
Date”),
the
Company filed on Form 8-K Current Report, as amended on December 14, 2007 and
February 20, 2008, disclosing that the Company entered into a Stock Purchase
Agreement with Mr. Timothy J. Connolly, an individual and Viewpoint Capital,
LLC, a Nevada limited liability company pursuant to which the Company issued
to
the Investor one (1) share of the Company’s Series E convertible preferred
stock, par value $0.01 per share, which such Series E Preferred is convertible
into Three Hundred Million Shares (300,000,000) of common stock of the Company,
par value $0.001 per share in exchange for the transfer by the Investor to
the
Company of Four Million (4,000,000) unrestricted, free-trading shares of common
stock of Asset Capital Group, Inc. (“ACGU”), a Nevada corporation having a value
of Three Million Four Hundred Thousand Dollars ($3,400,000) based on the closing
price of ACGU Common Stock as of the Closing Date as reported on the Pink
Sheets, LLC. ACGU Common Stock trades under the symbol “ACGU.PK”. As a result of
this transaction, the Investor acquired a 63.66% controlling interest in the
Company’s Common Stock by virtue of the Investor’s ownership of the Series E
Preferred.
On
February 13, 2008, the Investor delivered to the Company a notice to convert
the
one (1) shares of Series E Preferred to Three Hundred Million (300,000,000)
shares of Common Stock. On February 14, 2008, the Company issued to the Investor
Three Hundred Million (300,000,000) shares of Common Stock, all of which are
restricted, and canceled the One (1) share of Series E Preferred. As a result
of
this transaction, the Investor acquired a 63.66% controlling interest in the
Common Stock of the Company.
During
the month of March 2008, we sold our investment in stock of ACGU for
approximately $7,700.
As
filed
on Form 8-K Current Report on January 3, 2008, and is hereby incorporated in
this document by reference, the Company disclosed that effective as of December
31, 2007, Corporate Strategies, Inc. (“CSI”),
a
Texas corporation and wholly-owned subsidiary of Turnaround Partners, Inc.,
a
Nevada corporation entered into a Purchase Agreement with Natural Nutrition,
Inc., a Nevada corporation (“NN”)
and
CSI Business Finance, Inc., a Texas corporation and wholly-owned subsidiary
of
NN pursuant to which CSI conveyed, transferred and assigned to the Buyer all
of
its title to and rights in CSI’s ten percent (10%) interest in the total issued
and outstanding capital stock of Interactive Nutrition International, Inc.,
a
company organized under the laws of Canada (“INII”)
in
exchange for the conveyance, transfer and assignment to CSI by the Buyer of
certain Notes held by the Buyer (as such term is defined in the Agreement)
plus
a cash payment equal to One Hundred Ninety-Eight Thousand Eight Hundred
Ninety-Nine Dollars and Ten Cents ($198,899.10). In addition, NN assumed payment
for all of CSI’s office lease, equipment payments and any other payments related
to the office space located in Houston, Texas for the remainder of the lease
term and any renewals.
Through
our wholly-owned subsidiary, Kipling Holdings, Inc, we own a 35% limited
partnership interest in a partnership that owns a Hilton hotel in West Palm
Beach, Florida. Because we do not control the partnership entity, we carry
our
investment in unconsolidated entities at cost, plus our equity in net earnings
or losses, less distributions received since the date of acquisition and any
adjustment for impairment. Our equity in net earnings or losses is adjusted
for
the straight-line depreciation, over the lower of 25 years or the remaining
life
of the venture, of the difference between our cost and our proportionate share
of the underlying net assets at the date of acquisition. We periodically review
our investment in unconsolidated entities for other than temporary declines
in
fair value. Any decline that is not expected to be recovered in the next 12
months is considered other than temporary and an impairment is recorded as
a
reduction in the carrying value of the investment. For the year ended December
31, 2007, we recorded an impairment on our investment in real estate partnership
in the amount of $ 540,000. Estimated fair values are based on our projections
of cash flows. Since we are a limited partner, we do not make management
decisions in this partnership and are subject to the decisions made by the
general partner of this unconsolidated entity. This could include a sale of
the
property at a time and price that may not be in our best interest. While we
expect the General Partner will act in good faith at all times, we could incur
a
loss on this investment if a sale or foreclosure of the real estate occurs
at a
price that does not fully recover our equity investment.
Recent
Accounting Pronouncements
In
March
2008, the FASB issued Statement No. 161, Disclosures
about Derivative Instruments and Hedging Activities - an amendment of FASB
Statement No. 133
(SFAS
161). This statement requires enhanced disclosures about an entity’s derivative
and hedging activities and is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with
earlier application encouraged. The Company will adopt SFAS 161 in the first
fiscal quarter of 2009. Since SFAS 161 requires only additional disclosures
concerning derivatives and hedging activities, adoption of SFAS 161 will not
have an impact on the Company’s consolidated financial condition, results of
operations or cash flows.
RESULTS
OF OPERATIONS
Three
Months Ended March 31, 2008 and March 31, 2007
Revenue
Our
total
revenue for the three months ended March 31, 2008 was $22,793 as opposed to
total revenue of $252,867 for the same period ending March 31, 2007.
We
earned
$9,167 in consulting revenue for the three months ended March 31, 2008 versus
$213,867 for the three months ended March 31, 2007. Consulting revenues are
generally one-time fees related to specific events, or contracts for services
rendered over a period of time. Because
of the possible change in our fundamental business model, no new contracts
have
been procured at the time of this filing, and it is possible that no new
contracts will be sought in the future.
We
recovered $27,102 of factoring revenue previously written off. We believe that
there is potential for the recovery of additional factoring revenue of this
nature but the amount and its certainty cannot be assured.
Trading
in marketable securities generated a loss of $13,476 for the quarter ended
March
31, 2008 compared to income of $21,500 for the same period in 2007. Marketable
securities losses included unrealized gains (losses) of $(12,903) and $33,863,
respectively for the quarters ended March 31, 2008 and 2007 and realized losses
of $573 and $12,363, respectively for the quarters ended March 31, 2008 and
2007.
We
did
not generate any fee income for the three months ended March 31, 2008. Our
fee
income for the three months ended March 31, 2007 was $17,500. Fee income is
generated through the realization of placement fees from clients for financing
transactions. Because
of the possible change in our fundamental business model, no new contracts
have
been procured at the time of this filing, and it is possible that no new
contracts will be sought in the future.
General
and Administrative Expenses
General
and administrative (“G&A”) expenses for the quarter ended March 31, 2008
were $197,642 compared to $415,487 for the period ended March 31, 2007, a
decrease of approximately $217,845. For the three months ended March 31, 2008,
general and administrative expenses were primarily comprised of salaries and
benefits of $132,258 and professional fees of $51,782. For the three months
ended March 31, 2007, general and administrative expenses were primarily
comprised of salaries and benefits in the amount of $237,083 and professional
fees of $142,816. The remaining general and administrative expenses were
comprised of ordinary expenses necessary for our operations. Our company shares
office space and certain administrative functions and staff with another
company. For the three months ended March 31, 2007, $101,199 of expenses were
allocated to this company. There were no such allocations for the three months
ended March 31, 2008.
Salaries
and benefits decreased by approximately $105,000 to $132,258 in 2008 as compared
to the same period in 2007, primarily as a result of our acquisition specialist
leaving our employment in May 2007 and our Chief Financial Officer leaving
our
employment in December 2007.
Other
income and expense
Interest
expense increased by approximately $100,000 for the three months ended March
31,
2008 as compared to the same period ended March 31, 2007. The increase is
primarily a result of interest expense associated with our convertible
debentures.
We
recorded a net change in fair value of derivative liabilities in the amount
of
$43,494 and $265,968 for the three months ended March 31, 2008 and March 31,
2007, respectively. These amounts represent the change in the fair value of
the
net derivative liability for the quarters.
During
the first quarter of 2007, certain individuals converted their debentures into
our common stock. As a result, we recorded a gain on debt extinguishment in
the
amount of $450,650 in the first quarter of 2007. There was no such gain on
debt
extinguishment for the first quarter of 2008.
We
recovered $40,000 of bad debts in the first quarter of 2008.
LIQUIDITY
AND CAPITAL RESOURCES
Operating
activities
We
recorded a net loss for the three months ended March 31, 2008 of $381,611 versus
a net loss of $397,171 for the three months ended March 31, 2007. Net cash
used
in operating activities was $219,057 for the three months ended March 31, 2008.
Non-cash derivative interest expense and net change in derivative liability
amounted to a charge of $135,768. We recorded income from our investment in
real
estate partnership in the amount of $137,533. We also had an increase in the
value of our marketable securities in the amount of $80,390.
At
March
31, 2008, the Company had a working capital deficit of $2,192,221. Our working
capital deficit includes a computed liability for the fair value of derivatives
of $325,674, which will only be realized on the conversion of the derivatives,
or settlement of the debentures. The Company at its option can force conversion
of certain of convertible debentures into the Company's common stock at maturity
date.
Investing
activities
We
received proceeds from a preferential return from our investment in the
partnership that owns a hotel in West Palm Beach, Florida in the amount of
$119,000.
As
of
March 31, 2008, $500,000 of our short-term investments was invested in auction
rate securities, or ARSs. The $500,000 we have invested in ARSs at May 12,
2008
is collateralized by portfolios of AAA municipal obligations. Through the
date of this filing, auctions of these securities were not successful, resulting
in our continuing to hold these securities and the issuers paying interest
at
the maximum contractual rate. Based on current market conditions, it is
likely that auctions related to these securities will be unsuccessful in the
near term. Unsuccessful auctions will result in our holding securities
beyond their next scheduled auction reset dates and limiting the short-term
liquidity of these investments. While these failures in the auction process
have affected our ability to access
these funds in the near term, we do not believe that the underlying securities
or collateral have been affected. We believe that the higher reset rates on
failed auctions provide sufficient incentive for the security issuers to address
this lack of liquidity. If the credit rating of the security issuers
deteriorates, we may be required to adjust the carrying value of these
investments through an impairment charge. Excluding ARSs, we had approximately
$131,247 in cash and short-term investments. We believe the working capital
available to us will be sufficient to meet our cash requirements for at least
the next 12 months, however if the ARS’ are not converted into cash within
the next 12 months the Company could experience working capital
difficulties.
Financing
activities
For
the
three months ended March 31, 2008, we repaid $16,686 on note payables and paid
preferred dividends in the amount of $7,971.
We
have
155 shares of Series C preferred stock outstanding. The stock has a liquidation
preference of $232,381 and is redeemable at $1,500 per share at the Company’s
option. Dividends are cumulative and accrue at the rate of $120 per share per
year. Under the purchase agreement dated December 5, 2007, the series C
preferred stock was to have been paid off by December 31, 2007 therefore, the
full liquidation value of $232,381 is recorded as a current
liability.
Our
cash
flows for the periods are summarized below:
|
|
Three months ended
|
|
Three months ended
|
|
|
|
March 31, 2008
|
|
March 31, 2007
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
$
|
219,057
|
|
$
|
347,607
|
|
Net
cash provided by investing activities
|
|
|
119,000
|
|
|
443,971
|
|
Net
cash used in financing activities
|
|
|
24,657
|
|
|
20,336
|
|
Our
cash
decreased by $124,714 since December 31, 2007.
We
believe the working capital available to us will be sufficient to meet our
cash
requirements for at least the next 12 months, however if the ARS’ are not
converted into cash within the next 12 months the Company could experience
working capital difficulties.
OFF-BALANCE
SHEET ARRANGEMENTS
None
ITEM
4T. CONTROLS AND PROCEDURES
(A)
Evaluation of Disclosure Controls and Procedures
The
Company maintains disclosure controls and procedures designed to ensure that
information required to be disclosed in reports filed under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized,
accumulated and communicated to the Company’s management, including its Chief
Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as appropriate,
to allow timely decisions regarding required disclosure.
As
of the
end of the period covered by this report, the Company's management carried
out
an evaluation, under the supervision and with the participation of the Company's
Chief Executive Officer (“CEO”), of the effectiveness of the design and
operation of the Company's system of disclosure controls and procedures pursuant
to the Securities and Exchange Act, Rule 13a-15(e) and 15d-15(e) under the
Exchange Act). Based on the material weaknesses described herein the Company's
CEO has concluded that the Company's disclosure controls and procedures were
not
effective, as of the date of that evaluation, for the purposes of recording,
processing, summarizing and timely reporting of material information required
to
be disclosed in reports filed by the Company under the Exchange Act.
Because
of its size, the Company shares its accounting staff with another company
located in the same suite in Houston, Texas and is comprised of its controller
and a data entry clerk. The controller and data entry clerk are considered
contract employees whom also work for the other company within the office suite
as contract employees. We currently do not have the resources to hire full-time
accounting personnel and do not anticipate hiring any full-time accounting
personnel in the near future. Because of the structure of our staff, we have a
failure to maintain effective controls over the selection, application and
monitoring of our accounting policies to assure that certain complex equity
transactions are accounted for in accordance with generally accepted accounting
principles.
(B)
Changes in
Internal Controls over Financial Reporting
In
connection with the evaluation of the Company's internal controls during the
Company's last fiscal quarter covered by this report, the Company's CEO has
determined that there were no changes to the Company's internal controls over
financial reporting that have materially affected, or are reasonably likely
to
materially effect, the Company's internal controls over financial
reporting.
Material
Weaknesses Identified
In
connection with the audit of our Consolidated Financial Statements for the
fiscal year ended December 31, 2007, our independent registered public
accounting firm informed us that we had significant deficiencies constituting
material weaknesses as defined by the standards of the Public Company Accounting
Oversight Board, which had been identified in connection with the audit of
our
Consolidated Financial Statements for the fiscal years ended December 31,
2007.
The
material weaknesses identified by the auditor during the December 31, 2007
audit
were the lack of segregation of duties necessary to maintain proper checks
and
balances between functions and the lack of procedures to properly account for
non-routine transactions including the write down of stock investment,
impairment of an investment in a partnership and recording of the additional
liability at the liquidation value for a series of preferred stock which was
to
be completely liquidated at December 31, 2007.
The
absence of qualified full time accounting personnel was a contributing factor
to
the problems identified by the auditor. The specific circumstances giving rise
to the weaknesses include utilizing the services of contract accountants on
a
part time basis in the absence of internal accounting personnel.
PART
II - OTHER INFORMATION
ITEM
6. EXHIBITS AND REPORTS ON FORM 8-K
(a)
Documents Filed As Part Of This Report:
See
Index
to Condensed Consolidated Financial Statements attached which are filed as
part
of this Quarterly Report.
(b)
Exhibits:
EXHIBIT
NO.
|
|
DESCRIPTION
|
|
LOCATION
|
2.1
|
|
Agreement
and Plan of Merger, dated as of November 22, 2006, by and between
Emerge
Capital Corp. (the Delaware corporation) and Turnaround Partners,
Inc.
(the Nevada corporation)
|
|
Incorporated
by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K as
filed with the U.S. Securities and Exchange Commission on January
5,
2007.
|
2.2
|
|
Certificate
of Ownership and Merger of Emerge Capital Corp. with and into Turnaround
Partners, Inc.
|
|
Incorporated
by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K as
filed with the U.S. Securities and Exchange Commission on January
5,
2007.
|
2.3
|
|
Articles
of Merger of Turnaround Partners, Inc. and Emerge Capital
Corp.
|
|
Incorporated
by reference to Exhibit 2.3 to the Company’s Current Report on Form 8-K as
filed with the U.S. Securities and Exchange Commission on January
5,
2007.
|
3.1
|
|
Articles
of Incorporation of Turnaround Partners, Inc.
|
|
Incorporated
by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K as
filed with the U.S. Securities and Exchange Commission on January
5,
2007.
|
3.2
|
|
Bylaws
of Turnaround Partners, Inc.
|
|
Incorporated
by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K as
filed with the U.S. Securities and Exchange Commission on January
5,
2007.
|
3.3
|
|
Amendment
to Bylaws of Turnaround Partners, Inc. rescinded
|
|
Incorporated
by reference to Item 5.03 of the Company’s Current Report on Form 8-K as
filed with the U.S. Securities and Exchange Commission on February
22,
2008.
|
4.1
|
|
2005
Stock Incentive Plan
|
|
Incorporated
by reference to Appendix A to the Company's Definitive Information
Statement as filed with the U.S. Securities and Exchange Commission
on
December 13, 2005
|
4.2
|
|
Amended
and Restated Certificate of Designation of Series D Preferred
Stock
|
|
Incorporated
by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K as
filed with the U.S. Securities and Exchange Commission on December
14,
2007.
|
10.1
|
|
Purchase
Agreement, dated effective as of December 31, 2007, by and among
Natural
Nutrition, Inc., CSI Business Finance, Inc., and Corporate Strategies,
Inc.
|
|
Incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
as filed with the U.S. Securities and Exchange Commission on January
3,
2008.
|
10.2
|
|
Amendment
to Stock Purchase Agreement, dated December 5, 2007, by and among
Turnaround Partners, Inc., Mr. Timothy J. Connolly and Viewpoint
Capital,
LLC
|
|
Incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
as filed with the U.S. Securities and Exchange Commission on February
20,
2008
|
31.1
|
|
Certification
by Chief Executive Officer pursuant to 15.U.S.C. Section 7241, as
adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
Included
herein
|
32.1
|
|
Certification
by Chief Executive Officer pursuant to 18.U.S.C. Section 1350, as
adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
Included
herein
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Date:
May 15, 2008
|
Turnaround Partners, Inc.
|
|
|
|
(Registrant)
|
|
|
|
/s/ Russell Kidder
|
|
Russell Kidder
|
|
President, Chief Executive Officer and Interim CFO
|