UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-KSB/A
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(D)
OF
THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
FOR
THE
YEAR ENDED DECEMBER 31, 2007
COMMISSION
FILE NUMBER 0-28606
TURNAROUND
PARTNERS, INC.
(EXACT
NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA
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22-3387630
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(STATE
OR OTHER JURISDICTION
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(IRS
EMPLOYER IDENTIFICATION NO.)
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OF
INCORPORATION OR ORGANIZATION)
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109
NORTH POST OAK LANE, SUITE 422
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HOUSTON,
TEXAS
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77024
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(ADDRESS
OF PRINCIPAL EXECUTIVE OFFICES)
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(ZIP
CODE)
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(713)
621-2737
(REGISTRANT'S
TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities
registered pursuant to Section 12(b) of the Act:
NONE
Securities
registered pursuant to Section 12(g) of the Act:
COMMON
STOCK PAR VALUE $0.001 PER SHARE
(TITLE
OF
CLASS)
Indicate
by check mark whether the issuer is not required to file reports pursuant
to Section 13 or 15(d) of the Exchange Act.
Yes
o No
x
Indicate
by check mark whether the registrant (1) has filed all reports required
to
be
filed by Section 13 or 15(d) of the Exchange Act during the preceding
twelve
(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
ninety (90) days.
Yes
x
No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405
of
Regulation S-B is not contained herein, and will not be contained, to the
best
of
registrant's knowledge, in definitive proxy or information
statements incorporated
by reference in Part III of this Form 10-KSB or any amendment to this
Form
10-KSB. x
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule
12b-2 of the Exchange Act.
Yes
o
No
x
The
Company's revenues for its most recent fiscal year were $1,127,219.
The
aggregate market value of the voting stock held by non-affiliates of the
registrant
as of April 10, 2008 was $197,694 based on a value of $0.0004 per share.
The
number of shares of common stock, par value $0.001 per share, outstanding
as of
April
10, 2008 were 494,236,058.
Transitional
Small Business Disclosure Format (check one) Yes
o
No
x
EXPLANATORY
NOTE
The
purpose of this Amendment No. 1 on Form 10-KSB/A is to respond to comments
received by Turnaround Partners, Inc., from the Securities and Exchange
Commission’s Division of Corporation Finance in a letter dated July 21, 2008
("Comment Letter") regarding our previously filed Annual Report on Form 10-KSB
for the year ended December 31, 2007, filed with the Securities and Exchange
Commission on April 14, 2008 (“Original Form 10-KSB”). In accordance with the
suggestions made in the Comment letter, in this amendment, Item 8A(T). "Controls
and Procedures," beginning on page 17 of this Amendment, is revised to
include management's assessment of internal control over financial reporting.
Similarly, in addition, Exhibit 31.1 (Certification) has been revised to include
inadvertently omitted representations in paragraph number
four.
Furthermore,
as required by Rule 12b-15 under the Securities Exchange Act of 1934, as
amended, all new certifications (Exhibits 31.1 and 32.1) by our Principal
Executive Officer and Principal Financial and Accounting Officer are being
filed
as exhibits to this Amendment No. 1 on Form 10-KSB/A.
There
are no other changes to the Original Form 10-KSB other than those outlined
above. Except as required to reflect the changes noted above, this Amendment
No.
1 on Form 10-KSB/A does not attempt to modify or update any other disclosures
set forth in our Original Form 10-KSB. Furthermore, this Amendment No. 1 on
Form
10-KSB/A does not purport to provide a general update or discussion of any
other
developments of Turnaround Partners, Inc. to the filing of the Original Form
10-KSB.
TURNAROUND
PARTNERS, INC.
FORM
10-KSB/A
FOR
THE YEAR ENDED DECEMBER 31, 2007
INDEX
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PAGE
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PART
I
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Item
1. Description of Business
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4
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Item
2. Description of Property
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7
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Item
3. Legal Proceedings
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7
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7
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PART
II
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8
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Item
6. Management's Discussion and Analysis or Plan of Operation
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9
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Item
7. Financial Statements
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17
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17
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Item
8A(T). Controls And Procedures
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17
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Item
9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
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20
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21
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Item
11. Security Ownership of Certain Beneficial Owners and Management
and
Related Shareholder Matters
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22
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Item
12. Certain Relationships and Related Transactions
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24
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Item
13. Exhibits
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24
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Item
14. Principal Accountant Fees and Services
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27
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Signatures
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28
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ITEM
1.
DESCRIPTION OF BUSINESS
Overview
In
this
Annual Report the words “Turnaround Partners” “Turnaround Partners, Inc.”,
“Turnaround”, the "Company", "we", "our" and "us" refer to Turnaround Partners,
Inc., (formerly Emerge Capital Corp, formerly NuWave Technologies, Inc.
(“NuWave”)) collectively with our consolidated subsidiaries, unless the context
indicates otherwise. Our fiscal year ends on December 31st.
On
August
31, 2005, NuWave entered into a merger agreement (the "Agreement") with
Corporate Strategies, Inc. ("Corporate Strategies") and the shareholders of
Corporate Strategies ("Shareholders"). The Company was subsequently renamed
Turnaround Partners, Inc. The transaction was accounted for as a reverse
acquisition since control of the merged group passed to the shareholders of
the
acquired company (Corporate Strategies).
Pursuant
to the terms of the Agreement, the Company issued one (1) share of its common
stock ("Common Stock"), par value $0.001 per share, to each holder of Corporate
Strategies Class A common stock in exchange for two (2) shares of Corporate
Strategies Class A common stock, par value $0.001 per share. Second, the Company
issued one (1) share of the Company's Series C preferred stock ("Series C
Preferred"), par value $0.01 per share, to each holder of Corporate Strategies
Series A preferred stock for one (1) share of Corporate Strategies Series A
preferred stock, par value $0.001 per share.
The
Company issued and delivered shares of its Series B convertible Preferred stock
("Series B Preferred") to each holder of Corporate Strategies Class B common
stock so that effectively upon conversion of the Series B Preferred into common
shares, the common shares issued upon conversion shall be equal to ninety-five
percent (95%) of the issued and outstanding stock of the Company (calculated
on
a fully diluted basis as of the date of the Merger, following the issuance
of
all the Merger Consideration (as such term is defined in the Agreement) and
after giving effect to such conversion, but not including any shares of Common
Stock issuable upon conversion of any then outstanding Company convertible
debentures. Therefore, the Merger Consideration for the Common Stock, Series
C
Preferred and Series B Preferred was the Corporate Strategies Class A common,
Series A preferred and Class B common, respectively. The number of shares issued
to the Shareholders in connection with the Merger was based upon a determination
by the Company's Board of Directors (the "Board").
The
terms
of the Series B Preferred were subsequently modified. In connection with the
Kipling purchase, 93,334 shares of Series B Preferred were exchanged for a
like
number of Series D Preferred, which were subsequently reduced to 700 shares
of
Series D Preferred. The remaining 6,666 shares of Series B Preferred are
convertible into 4,195,445 shares of common stock. Each share of the Series
D
may be convertible, at the option of the holder, at any time and from time
to
time after December 31, 2006 through June 30, 2009, into that number of shares
of Common Stock equal to the greater of (a) one tenth of one percent (0.1%)
of
the total number of shares of Common Stock issued and outstanding as of the
last
day of the fiscal quarter immediately preceding such date of conversion,
calculated on a fully diluted basis after giving effect to the conversion of
such share(s) of Series D and (b) One Hundred Thousand (100,000) shares of
Common Stock. Each share of Series D Preferred Stock held by the Holders which
has not been converted on or before June 30, 2009 into shares of Common Stock
shall be convertible, at the option of the Holder of such share, at any time
and
from time to time after June 30, 2009 into one tenth of one percent (0.1%)
of
the total number of shares of Common Stock issued and outstanding on June 30,
2009, calculated on a fully diluted basis after giving effect to the conversion
of such share(s) of Series D Preferred Stock. The shares of Common Stock
received upon conversion shall be fully paid and non-assessable shares of Common
Stock. Due
to
the change in control of the Company, Mr. Connolly and his spouse may not
convert debentures that would result in ownership of more than 4.99% of the
Company at the time of conversion.
The
Series B and D Convertible Preferred Stockholders and the holders of the common
stock vote together and the Preferred Stock shall be counted on an "as
converted" basis, thereby giving the Preferred Shareholders control of the
Company.
In
November 2006, we migrated from a Delaware corporation to a Nevada corporation
and changed the name of the Company to Turnaround Partners, Inc.
On
May
31, 2006, we filed an S-8 with the Securities and Exchange Commission for the
Emerge Capital Corp. 2005 Stock Incentive Plan (the “Plan”). The document was
submitted to register 10,000,000 shares of common stock. The purpose of the
Plan
is to promote the long-term growth and profitability of the Company by (a)
providing key people with incentives to improve shareholder value and to
contribute to the growth and financial success of the Company, and (b)
enabling the Company to attract, retain and reward
the best-available persons. This document is herein incorporated by reference.
As of December 31, 2007 there were 7,250,000 shares available under the Plan.
On
September 30, 2006, we completed a stock purchase agreement (the “Agreement”)
with Kipling Holdings, Inc. (“Kipling”) and Timothy J. Connolly, to acquire 100%
of the total issued and outstanding capital stock of Kipling, a Delaware
corporation. Kipling holds 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 (the “Purchase
Agreement”)
with
Mr. Timothy J. Connolly, an individual, and Viewpoint Capital, LLC, a Nevada
limited liability company (the “Investor”)
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
(“Series
E Preferred”),
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
(“Common
Stock”)
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., a Nevada corporation (“ACGU
Common Stock”)
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. Consequently, our investment in marketable securities
as
of December 2007 includes the net realizable value of these securities sold
in
March 2008.
Effective
as of the Closing Date, Mr. Connolly resigned as Vice Chairman of the Board
and
as President and Chief Executive Officer of the Company, however Mr. Connolly
shall continue to serve as President and Chief Executive Officer of Corporate
Strategies, Inc., a Texas corporation and wholly-owned subsidiary of the Company
(“CSI”)
with
the understanding that the business of CSI will be discontinued or spun off
to
its stockholders. In addition, Mr. Connolly shall continue to receive the same
compensation as he has received through the Closing Date for his aforementioned
continued services to CSI through December 31, 2008, which such date may be
extended by mutual agreement by and among the parties to the Purchase Agreement.
Furthermore,
Mr. Connolly (and his spouse) agreed on the Closing Date to relinquish certain
non-dilutive rights in favor of Mr. Connolly (and his spouse) contained in
Seven
Hundred (700) shares of Series D convertible preferred stock held by Mr.
Connolly (and his spouse) effective June 30, 2009 (instead of the previous
date
of December 31, 2010) in exchange for the Company conveying all rights to the
names “Turnaround Partners, Inc.”, “Corporate Strategies, Inc.” and “Kipling
Holdings, Inc.”, as well as all title to all furniture and equipment in the
Houston office of the Company. The parties to the Purchase Agreement also agreed
that the names of these companies shall be changed within sixty (60) days
following the Closing Date.
In
connection with the Purchase Agreement, Mr. Russell Kidder was appointed to
serve as President, Chief Executive Officer and as a Director of the Company
effective as of the Closing Date.
As
disclosed in the Form 8-K Current Report referred to above, the Company
disclosed that effective as of December 27, 2007, the Board of Directors of
the
Registrant (the “Board”)
accepted the resignation of (a) Wm. Chris Mathers from his position as Chief
Financial Officer of the Registrant and (b) Fred Zeidman from his position
as a
member of the Board. Mr. Russell Kidder, the Registrant’s current President,
Chief Executive Officer and member of the Board, shall serve as interim Chief
Financial Officer, effective as of December 27, 2007.
As
filed
on Form 8-K Current Report on January 3, 2008, 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 (the “Registrant”)
entered into a Purchase Agreement (the “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., 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 at 109 N. Post Oak Lane, Suite 422, Houston, Texas 77024
for
the remainder of the lease term and any renewals.
Operations
Principal
services and our market
The
discussion below regarding our principal services and market assumes the Company
will continue with its current business plan, however, in
light
of the Company’s change in control of ownership, the Company is contemplating a
new business model. Currently, the Company believes the new business plan going
forward will be to focus on alternative and clean technologies.
The
Company is an established provider of restructuring strategies, turnaround
execution and business development services for emerging and re-emerging public
companies. The Company markets its services to public companies, hedge funds,
institutional investors and banks that have significant exposure in troubled
micro-cap public companies. These companies are typically either in operational
or financial difficulty and may be in default of lending or equity agreements,
and as a result, they may be facing bankruptcy or liquidation if their
operations are not turned around. 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%.
The
Company is generally compensated with a combination of cash payments on a
monthly or quarterly basis, and outright grants of equity in the form of common
stock and/or warrants for purchasing common stock. We believe this compensation
plan aligns our interests with the client company's shareholders because our
ultimate compensation is maximized by successfully increasing shareholder value.
This performance based compensation arrangement clearly demonstrates that our
interests are consistent with both our clients and their
shareholders.
The
Company minimizes risk from our restructuring/turnaround clients by implementing
the following policies:
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The
Company will not assume the financial obligations of the client company
in
any circumstance. In most cases, the financial institution with the
greatest risk has referred the Company to the
transaction.
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The
Company requires the client or their investor to provide the client
company with working capital necessary to execute the turnaround
plan.
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The
Company requires the client to fully indemnify the Company against
any
actions, with the exception of gross negligence or
malfeasance.
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If
the client has officer and director insurance, we require the client
to
add the Company or any of the Company's contractors as insured parties
under the policy.
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Should
the Company consider altering any of the policies above, it will
require a
vote of our Board of Directors to waive them and agree to the maximum
amount of risk that the Company will
assume.
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The
Company also actively trades securities and options with available cash. Many
of
these transactions contain a considerable amount of risk.
Lehigh
Acquisition Corp. ("Lehigh") was a subsidiary of NuWave and was acquired August
31, 2005, the date of the merger. Lehigh was sold on February 3, 2006. These
financial statements include the operations of Lehigh through February 3, 2006
as discontinued operations.
Competition
for our services
Competition
for the services we provide comes mainly from turnaround management and
restructuring firms, financial advisory firms, business consulting firms and
crisis management groups, many of which have substantially more capital
resources than the Company.
To
date,
a significant portion of our business and financing has come from an
institutional fund (YA Global Investments, LP (“YA Global”), (formerly Cornell
Capital Partners, LP) that invests primarily in micro-cap
companies.
Employees
As
of
April 10, 2008, the Company has 1 part time employee and employs the services
of
2 others on a contract basis. The controller and data entry clerk are considered
contract employees whom also work as contract employees for a company sharing
an
office suite with Turnaround Partners, Inc.
We
maintain our headquarters in Houston, Texas in a 2,644 square foot office space
shared with our then affiliated company, Natural Nutrition, Inc. We believe
that
the property is adequate and suitable for our current needs.
At
the
time of the August 2005 merger, the Company, through its wholly owned subsidiary
WH Acquisition Corp (“WH”), acquired a residential property consisting of land
and a residential building in Jersey City, New Jersey for a total purchase
price
of $122,000. The purchase price was paid with $113,000 in cash and $9,000 in
the
form of a deposit. The property was sold in December, 2005 for $165,000 and
the
Company took a mortgage note in the amount of $148,500 due December 1, 2006,
which was extended to May 1, 2007, secured by a mortgage on the property. The
debtor has subsequently filed for bankruptcy protection. The property is in
danger of condemnation and we may abandon our claim with the bankruptcy court
as
we have reserved our entire investment in this property. This note receivable
has been fully reserved.
None.
None.
PART
II
ITEM
5.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Market
Information
Turnaround
Partners, Inc.’s, common stock, par value $0.001 per share, is traded on the
Over-the-Counter Bulletin Board (OTCBB) Market under the symbol TRNP.OB. The
OTCBB is a regulated quotation service that displays real-time quotes, last-sale
prices and volume information in over-the-counter equity securities. The
following table sets forth the range of high and low closing bid prices for
our
common stock as reported on the OTCBB during each of the quarters presented.
The
quotations set forth below are inter-dealer quotations, without retail mark-ups,
mark-downs or commissions and do not necessarily represent actual
transactions.
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Bid Price Per Share
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High
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Low
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Three
months ended March 31, 2006
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$
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0.170
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$
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0.060
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Three
months ended June 30, 2006
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0.100
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0.072
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Three
months ended September 30, 2006
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0.080
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0.051
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Three
months ended December 31, 2006
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0.060
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0.010
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Three
months ended March 31, 2007
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$
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0.070
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$
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0.009
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Three
months ended June 30, 2007
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0.020
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0.003
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Three
months ended September 30, 2007
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0.008
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0.001
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Three
months ended December 31, 2007
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0.006
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0.001
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As
of
December 31, 2007, there were approximately 220 holders of record of the
Company's common stock. This number does not include beneficial owners of the
common stock whose shares are held in the names of various dealers, clearing
agencies, banks, brokers and other fiduciaries.
The
Company has never declared or paid any cash dividends on its common shares.
The
Company currently intends to retain any future earnings to finance the growth
and development of its business and future operations, and therefore does not
anticipate paying any cash dividends in the foreseeable future.
Securities
Authorized for Issuance under Equity Compensation Plans:
On
December 13, 2005, we established the Turnaround Partners, Inc. 2005 Stock
Incentive Plan (the "Plan"). The Plan was adopted and approved by our
shareholders. On a calendar year basis, an amount of shares of Common Stock
equivalent to fifteen percent (15%) of the fully diluted shares outstanding
on
January 2 of any such calendar year (without taking into account outstanding
Awards as defined in the Plan at the end of the prior calendar year) may be
allocated, at the discretion of the Administrator, to be granted as Awards
under
the Plan, less Awards outstanding at the end of the prior calendar year. In
no
event shall the number of shares which may be allocated as Awards under the
Plan
be more than Ten Million (10,000,000) shares of Common Stock for a given
calendar year. At present, there are no outstanding options. The following
table
below sets forth the securities available for issuance under the
Plan:
Equity
Compensation Plan Information
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Number or securities
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remaining available for
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Number of securities to be
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future issuance under
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issued upon exercise of
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Weighted-average exercise
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equity compensation plans
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outstanding options, warrants
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price of outstanding options,
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(excluding securities
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Plan
category
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and rights
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warrants and rights
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reflected in column (a))
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(a)
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(b)
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(c)
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Equity
compensation plans approved by security holders
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-
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-
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1,583,333
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Equity
compensation plans not approved by security holders
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-
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-
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-
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There
were no sales of unregistered securities or purchases of equity securities
by
the small business issuer and affiliated purchasers.
ITEM
6.
MANAGEMENT'S DISCUSSION AND ANALYSIS (“MD&A”) OF FINANCIAL CONDITION AND
RESULTS OF
OPERATIONS
This
Annual Report on Form 10-KSB, and the accompanying MD&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 annual report may not occur. Such risks and
uncertainties include, without limitation, our continuing success in securing
consulting agreements, conditions in the capital and equity markets that provide
opportunities for our restructuring and turnaround services, our success in
trading marketable securities, our ability to maintain contracts that are
critical to our operations, actual customer demand for our financing and related
services, collection of accounts and notes receivable 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
to in this Annual Report filed on Form 10-KSB and in our future periodic reports
filed with the SEC. The following MD&A should be read in conjunction with
these audited Consolidated Financial Statements of the Company, and the related
notes thereto included elsewhere herein.
Overview
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.
Through
December 31, 2007, 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%.
In
August
of 2005, Corporate Strategies, Inc. entered into a share exchange agreement
whereby it exchanged all of the common stock of its subsidiary, CSI Business
Finance, for 100,000 restricted shares of Series A Convertible Preferred stock
of Health Express USA Inc. (HEXS.OB) - subsequently named Natural Nutrition,
Inc. (NNTN.OB). The preferred stock shares acquired in this transaction were
distributed to the shareholders of Corporate Strategies in the form of a
dividend.
On
August
31, 2005, NuWave Technologies, Inc. ( "NuWave" or "the Company") entered into
a
merger agreement (the "Agreement") with Corporate Strategies, Inc. ("Corporate
Strategies") and the shareholders of Corporate Strategies ("Shareholders").
The
Company was subsequently renamed Turnaround Partners, Inc. The transaction
was
accounted for as a reverse acquisition since control of the merged group passed
to the shareholders of the acquired company (Corporate Strategies).
Pursuant
to the terms of the Agreement, the Company issued one (1) share of its common
stock ("Common Stock"), par value $0.001 per share, to each holder of Corporate
Strategies Class A common stock in exchange for two (2) shares of Corporate
Strategies Class A common stock, par value $0.001 per share. Second, the Company
issued one (1) share of the Company's Series C preferred stock ("Series C
Preferred"), par value $0.01 per share, to each holder of Corporate Strategies
Series A preferred stock for one (1) share of Corporate Strategies Series A
preferred stock, par value $0.001 per share.
The
Company issued and delivered shares of its Series B convertible Preferred stock
("Series B Preferred") to each holder of Corporate Strategies Class B common
stock so that effectively upon conversion of the Series B Preferred into common
shares, the common shares issued upon conversion shall be equal to ninety-five
percent (95%) of the issued and outstanding stock of the Company (calculated
on
a fully diluted basis as of the date of the Merger, following the issuance
of
all the Merger Consideration (as such term is defined in the Agreement) and
after giving effect to such conversion, but not including any shares of Common
Stock issuable upon conversion of any then outstanding Company convertible
debentures ). Therefore, the Merger Consideration for the
Common
Stock, Series C Preferred and Series B Preferred was the Corporate Strategies
Class A common, Series A preferred and Class B common, respectively. The number
of shares issued to the Shareholders in connection with the Merger was based
upon a determination by the Company's Board of Directors (the
"Board").
The
terms
of the Series B Preferred were subsequently modified. In connection with the
Kipling purchase, 93,334 shares of Series B Preferred were exchanged for a
like
number of Series D Preferred, which were subsequently reduced to 700 shares
of
Series D Preferred. The remaining 6,666 shares of Series B Preferred are
convertible into 4,195,445 shares of common stock. Each share of the Series
D
may be convertible, at the option of the holder, at any time and from time
to
time after December 31, 2006 through June 30, 2009, into that number of shares
of Common Stock equal to the greater of (a) one tenth of one percent (0.1%)
of
the total number of shares of Common Stock issued and outstanding as of the
last
day of the fiscal quarter immediately preceding such date of conversion,
calculated on a fully diluted basis after giving effect to the conversion of
such share(s) of Series D and (b) One Hundred Thousand (100,000) shares of
Common Stock. Each share of Series D Preferred Stock held by the Holders which
has not been converted on or before June 30, 2009 into shares of Common Stock
shall be convertible, at the option of the Holder of such share, at any time
and
from time to time after June 30, 2009 into one tenth of one percent (0.1%)
of
the total number of shares of Common Stock issued and outstanding on June 30,
2009, calculated on a fully diluted basis after giving effect to the conversion
of such share(s) of Series D Preferred Stock. The shares of Common Stock
received upon conversion shall be fully paid and non-assessable shares of Common
Stock. Due to the change in control of the Company, Mr. Connolly and his spouse
may not convert debentures that would result in ownership of more than 4.99%
of
the Company at the time of conversion.
The
Series B and D Preferred shareholders and the holders of the common stock vote
together and the Series B and D Preferred shall be counted on an "as converted"
basis, thereby giving the Series B and D Preferred shareholders control of
the
Company. The transaction was accounted for as a reverse acquisition since
control of the merged group passed to the shareholders of the acquired company
(Corporate Strategies).
On
October 27, 2006, we filed a Schedule 14C Information statement. This
information statement was furnished to all holders of shares of common stock
and
Series B and D convertible preferred stock of record at the close of business
on
October 23, 2006. Within this statement, the corporate actions involved three
proposals providing for the following:
|
1.
|
To
approve a change of name of the Company to Turnaround Partners,
Inc;
|
|
2.
|
To
approve the migration of the Company from a Delaware corporation
to a
Nevada corporation; and
|
|
3.
|
To
approve an increase of the number of authorized shares of Common
Stock of
the Company from Nine Hundred Million (900,000,000) to Five Billion
(5,000,000,000) shares.
|
Lehigh
Acquisition Corp. ("Lehigh") was a subsidiary of NuWave and is treated as if
it
was acquired August 31, 2005, the date of the merger. Lehigh was sold on
February 3, 2006. The financial statements include the operations of Lehigh
through February 3, 2006 as discontinued operations.
On
May
31, 2006, we filed an S-8 with the Securities and Exchange Commission for the
Turnaround Partners, Inc. 2005 Stock Incentive Plan (the “Plan”). The document
was submitted to register 10,000,000 shares of common stock. The purpose of
the
Plan is to promote the long-term growth and profitability of the Company
by (a) providing key people with incentives to improve shareholder value
and to contribute to the growth and financial success of the Company,
and (b) enabling the Company to attract, retain and reward the
best-available persons. This document is herein incorporated by reference.
On
June
26, 2006, we filed an SB-2 with the Securities Exchange Commission. The
prospectus related to the registration of (a) 1,860,000 shares of common stock
of Turnaround Partners, Inc. that would have been offered for sale from time
to
time by YA Global, (b) 937,500 shares of common stock of Turnaround Partners,
Inc. that would have been offered for sale from time to time by iVoice, Inc.
and
(c) 2,812,500 shares of common stock of Turnaround Partners, Inc. that would
have been distributed by dividend by iVoice to all of the Class A common
stockholders of iVoice. Turnaround Partners, Inc. was not selling any shares
of
common stock in this offering and therefore would not have received any proceeds
from this offering. On August 31, 2006, we formally withdrew this registration
statement pursuant to Rule 477(a) under the General Rules and Regulations under
the Securities Act of 1933, as amended.
Pursuant
to the purchase of our interest in Kipling effective September 25, 2006, the
Board of Directors approved the designation of Series D convertible preferred
stock (the “Series D”), par value of $0.01, to consist of up to One Hundred
Thousand (100,000) shares. As a result of the Kipling purchase, on December
31,
2006, the Board of Directors reduced the 93,334 shares of then outstanding
Series D owned by our CEO, Timothy J. Connolly, and his spouse to Seven Hundred
(700) shares of Series D. The Series D ranks pari passu with the common stock
of
the Company on an “as converted” basis, and senior to the Company’s Series A, B
and C preferred stock. The holders of the Series D are entitled to receive
dividends or distributions on a pro rata basis when and if dividends are
declared on our Common Stock, but with no liquidation preference. Each share
of
the Series D may be convertible, at the option of the holder, at any time and
from time to time after December 31, 2006 through June 30, 2009, into that
number of shares of Common Stock equal to the greater of (a) one tenth of one
percent (0.1%) of the total number of shares of Common Stock issued and
outstanding as of the last day of the fiscal quarter immediately preceding
such
date of conversion, calculated on a fully diluted basis after giving effect
to
the conversion of such share(s) of Series D and (b) One Hundred Thousand
(100,000) shares of Common Stock. Each share of Series D Preferred Stock held
by
the Holders which has not been converted on or before June 30, 2009 into shares
of Common Stock shall be convertible, at the option of the Holder of such share,
at any time and from time to time after June 30, 2009 into one tenth of one
percent (0.1%) of the total number of shares of Common Stock issued and
outstanding on June 30, 2009, calculated on a fully diluted basis after giving
effect to the conversion of such share(s) of Series D Preferred Stock. The
shares of Common Stock received upon conversion shall be fully paid and
non-assessable shares of Common Stock. Due to the change in control of the
Company, Mr. Connolly and his spouse may not convert debentures that would
result in ownership of more than 4.99% of the Company at the time of conversion.
On
September 30, 2006, we completed a stock purchase agreement (the “Purchase
Agreement”) to acquire 100% of the total issued and outstanding capital stock of
Kipling Holdings, Inc., a Delaware corporation from Timothy J. Connolly in
consideration of (a) our assumption of all of the liabilities of Kipling,
subject to certain consents, (b) certain anti-dilution rights as set forth
in
the Purchase Agreement and (c) all legal and other costs and expenses incurred
by Kipling in consideration with this Purchase Agreement. Mr. Connolly serves
as
CEO of Turnaround and therefore (i) Turnaround obtained a third party appraisal
of the Company which valued the acquired asset at Two Million Two Hundred Fifty
Thousand Dollars ($2,250,000) more than the liabilities assumed and (ii)
Turnaround’s other (disinterested) Board member and CFO reviewed and approved
this affiliate transaction. Mr. Connolly received no profit from this
affiliated transaction. Mr. Connolly received no profit from this
affiliated transaction. Because this transaction was between parties under
common control, we recorded the $3,313,264 of consideration in excess of Mr.
Connolly’s original cost basis as a deemed distribution to Mr. Connolly. The
Purchase Agreement had been subject to the written consent of Highgate House
Funds, Ltd. (“Highgate”)
an
affiliate of YA Global, which the Company and Highgate reduced to writing
effective as of September 30, 2006. Kipling, at December 31, 2006, owned a
thirty percent interest in a Hilton hotel, which commenced operations in
February 2007, in West Palm Beach, Florida. Since the purchase was effective
on
September 30, 2006 the Company did not record any revenue or expenses during
the
nine months ended September 30, 2006.
In
a
separate agreement with an individual, the Company issued an additional
2,000,000 shares and 3,000,000 warrants ($0.05 per warrant) in consideration
of
the individual’s surrender of his option, rights or other interests whatsoever
to purchase any capital stock of Kipling Holdings, Inc. The Company has valued
these 2,000,000 shares at $140,000. The Company used the closing price of $0.07
per share on September 30, 2006, the date of contract execution, as the value
assigned to these shares. This expense is included as merger expense for the
twelve months ended December 31, 2006. The Company has valued the 3,000,000
warrants in the amount of $141,000 using the Black Sholes method and is
amortized over the term of the agreement.
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 (the “Purchase
Agreement”)
with
Mr. Timothy J. Connolly, an individual, and Viewpoint Capital, LLC, a Nevada
limited liability company (the “Investor”)
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
(“Series
E Preferred”),
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 (“Common
Stock”)
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., a Nevada corporation (“ACGU
Common Stock”)
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. Consequently, our investment in marketable securities
as
of December 2007 includes the net realizable value of these securities sold
in
March 2008.
Effective
as of the Closing Date, Mr. Connolly resigned as Vice Chairman of the Board
and
as President and Chief Executive Officer of the Company, however Mr. Connolly
shall continue to serve as President and Chief Executive Officer of Corporate
Strategies, Inc., a Texas corporation and wholly-owned subsidiary of the Company
(“CSI”)
with
the understanding that the business of CSI will be discontinued or spun off
to
its stockholders. In addition, Mr. Connolly shall continue to receive the same
compensation as he has received through the Closing Date for his aforementioned
continued services to CSI through December 31, 2008, which such date may be
extended by mutual agreement by and among the parties to the Purchase Agreement.
Furthermore,
Mr. Connolly (and his spouse) agreed on the Closing Date to relinquish certain
non-dilutive rights in favor of Mr. Connolly (and his spouse) contained in
Seven
Hundred (700) shares of Series D convertible preferred stock held by Mr.
Connolly (and his spouse) effective June 30, 2009 (instead of the previous
date
of December 31, 2010) in exchange for the Company conveying all rights to the
names “Turnaround Partners, Inc.”, “Corporate Strategies, Inc.” and “Kipling
Holdings, Inc.”, as well as all title to all furniture and equipment in the
Houston office of the Company. The parties to the Purchase Agreement also agreed
that the names of these companies shall be changed within sixty (60) days
following the Closing Date.
As
disclosed in the Form 8-K Current Report referred to above, the Company
disclosed that effective as of December 27, 2007, the Board of Directors of
the
Registrant (the “Board”)
accepted the resignation of (a) Wm. Chris Mathers from his position as Chief
Financial Officer of the Registrant and (b) Fred Zeidman from his position
as a
member of the Board. Mr. Russell Kidder, the Registrant’s current President,
Chief Executive Officer and member of the Board, shall serve as interim Chief
Financial Officer, effective as of December 27, 2007.
In
connection with the Purchase Agreement, Mr. Russell Kidder was appointed to
serve as President, Chief Executive Officer and as a Director of the Company
effective as of the Closing Date.
As
filed
on Form 8-K Current Report on January 3, 2008, 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 (the “Registrant”)
entered into a Purchase Agreement (the “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., 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 at 109 N. Post Oak Lane, Suite 422, Houston, Texas 77024
for
the remainder of the lease term and any renewals.
Results
of continuing operations for the year ended December 31, 2007 (the “2007
Period”) as compared with December 31, 2006 (the “2006
Period”).
Revenues
Total
revenue for the 2007 Period decreased by approximately $19,800 as compared
to
the 2006 Period.
Discount
income was approximately $10,425 in the 2006 Period as compared with zero
discount income for the 2007 Period. Management does not anticipate generating
any significant new business in this area.
Consulting
revenue increased by approximately $392,883 to $1,356,160 in the 2007 Period.
Consulting revenues are generally one-time fees related to specific events,
or
contracts covering services to be rendered over a period of time. The Company
enters into contracts to provide strategic consulting services, including
general business development, mergers, acquisitions, management advisory, and
restructuring services. There was one such contracts at December 31, 2007.
The
contract fee was prepaid in stock of the client company. The deferred revenue
is
being recognized through the period ending January 2008 at an amount of
approximately $9,100 per month. In the past our contracts generally called
for a
base payment equal to approximately $6,000 - $12,000 per month, which may be
payable in stock, with additional fees for consulting services beyond a preset
amount. Some contracts include warrants or success fees. 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
recorded overall losses in marketable securities in the 2007 Period of
approximately $303,373 versus a loss of approximately $51,093 for the 2006
Period. The Company accepts both compensation for its services and invests
in
micro cap marketable securities. Most of these securities are in companies
defined as penny stocks and are volatile, trading substantially up or down
in
any given quarter. Realized gains and (losses) for the 2007 and 2006 Periods
were ($278,020) versus $107,716, respectively, and unrealized gains and (losses)
for the 2007 and 2006 Periods of ($25,353) versus ($158,809),
respectively.
Fee
income represents brokerage fees of approximately $54,650 received or accrued
in
2007 on loans we referred to a then affiliated company, CSI Business Finance
Inc. Fees for the 2007 Period and the 2006 Period totaled $54,650 and $204,610,
respectively. Management does not anticipate generating any significant new
business in this area.
General
and Administrative Expenses
General
and administrative expenses decreased by approximately $216,000 to $2,045,663
for the 2007 Period as compared to $2,261,933 for the 2006 Period. For the
twelve months ended December 31, 2007, general and administrative expenses
were
primarily comprised of salaries and benefits ($831,214), professional fees
($479,161) and bad debts in the amount of $524,414, primarily as a result of
a
mortgage note in the amount of $148,500 due to the Company from an individual
who declared bankruptcy, a loan in the amount of $100,000 to a company in
Vermont that is deemed uncollectible and a loan to another microcap company
that
is deemed uncollectible in the amount of $200,000. The remaining general and
administrative expenses were comprised of business development, rent,
advertising and other ordinary expenses necessary for our operations. For the
twelve months ended December 31, 2006, general and administrative expenses
were
$2,261,933 and consisted primarily of salaries and benefits ($892,286),
professional fees ($855,722) and bad debts in the amount of $243,302. The
remaining general and administrative expenses were comprised of business
development, rent, advertising and other ordinary expenses necessary for our
operations. Our company shared office space and certain administrative functions
and staff with an affiliated company to whom we allocate costs for these shared
functions based on an estimate of time usage. We have not reached the size
to
benefit from separate office space and a full time staff. Beginning in 2008,
the
leased premises were assumed by the then affiliated company, Natural Nutrition,
Inc.
Salaries
and benefits decreased by approximately $61,000 to $831,214 in the 2007 Period
as compared to the 2006 Period, primarily as a result of our acquisition
specialist leaving our employment in May 2007.
Professional
fees were approximately $479,161 for the twelve months ended December 31, 2007,
a decrease of approximately $376,000 as compared to the 2006 Period. The
decrease was primarily a result of acquisition due diligence fees incurred
in
the 2006 Period not similarly incurred in the 2007 Period. The remainder of
the
professional fees for the 2007 Period represents accounting, legal and
consulting fees relating to regulatory requirements of being a public
company.
We
allocated overhead to a then affiliated company for items such as rent, payroll
and other general operating expenses. For the 2007 Period we allocated
approximately $244,000 versus $308,000 for the 2006 Period. There are no such
allocations beginning in 2008.
Other
income and expense
We
recorded derivative income of $141,664 for the 2007 Period and $3,642,080 for
the 2006 Period. These amounts represent the change in the fair value of the
net
derivative liability.
In
connection with the acquisition of Kipling Holdings, Inc on September 30, 2006,
we paid $140,000 under a services contract to an individual. This expense has
been classified as a merger expense in the results of operations for the twelve
months ended December 31, 2006.
Certain
convertible debt was considered extinguished in the first quarter 2006 because
of the sale of Lehigh. The extinguishment income was $130,563 for the twelve
months ended December 31, 2006.
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 for the 2007 Period.
Interest
expense increased by approximately $547,207 for the 2007 Period as compared
to
the 2006 Period. The increase is primarily a result of the amortization of
discounts related to derivatives on our convertible debentures and interest
expense incurred on our investment in Kipling.
For
the
2007 Period, we recorded an operating loss and impairment on our investment
in
the West Palm Beach hotel within Kipling Holdings, Inc. in the amount of
$685,136. Included in this amount is $540,000 for impairment of long-lived
asset. During the fourth quarter of 2007 there was a proposed sale of the hotel
that would have resulted in a loss to the Company of approximately $540,000.
The
sale of the hotel did not occur, but the asset was written down to estimated
net
realizable value nevertheless. The business segment affected is our “Hotel
Investment” as found in Footnote 19 of the consolidated financial
statements.
Discontinued
Operations
During
February 2006, the Company sold the shares of its wholly-owned subsidiary
Lehigh. This resulted in a loss from discontinued operations for the 2006 in
the
amount of $4,688, net of applicable income tax.
Gain
on
sale of subsidiary of $3,042,406 represents the gain on the sale of Lehigh
in
February 2006.
During
August 2005, Corporate Strategies distributed the shares of its business finance
subsidiary (CSI Business Finance, Inc.) to its shareholders. On December 31,
2005, the Company sold its mortgage brokerage subsidiary for a convertible
debenture. Based on a
review
for collectibility at the transaction date, it was determined that
collectibility was improbable and, accordingly no proceeds were recognized
from
the sale. Since the mortgage brokerage subsidiary had negative equity at the
sale date, the Company recognized a profit to the extent of net liabilities
assumed by the purchaser. In December 2006, we received $275,000 in full
satisfaction of the convertible debenture which was recorded as a gain on sale
of subsidiary at December 31, 2006.
LIQUIDITY
AND CAPITAL RESOURCES
Operating
activities
We
recorded a net loss for the twelve months ended December 31, 2007 in the amount
of $2,604,975 versus net income in the amount of $4,936,074 for the twelve
months ended December 31, 2006. Our net income for the twelve months ended
December 31, 2006 was primarily a result of the gain on sale of Lehigh and
our
net change in fair value of derivative liability. Net cash used in operating
activities was $1,598,439 for the twelve months ended December 31, 2007. We
expensed $524,414 in bad debts primarily as a result of a mortgage note in
the
amount of $148,500 due to the Company from an individual who declared
bankruptcy, a loan in the amount of $100,000 to a company in Vermont that was
deemed uncollectible and a loan to another microcap company that is deemed
uncollectible in the amount of $200,000. We recorded interest expense and net
change in derivative liability in the amount of $692,908. In the fourth quarter
of 2007 we recorded an operating loss and impairment in our investment in the
West Palm Beach hotel (Kipling) in the amount of $685,136. We recorded income
in
the amount of $889,804 as a non-cash merger expense for the sale of our 10%
interest in Natural Nutrition, Inc., a then affiliated company. Certain
debentures were converted that resulted in a gain on debt modification in the
amount of $450,250.
At
December 31, 2007, the Company had a working capital deficit of approximately
$2,174,851. Our working capital deficit includes a computed liability for the
fair value of derivatives of $282,181, which will only be realized on the
conversion of the derivatives, or settlement of the debentures. Our convertible
debenture liability in the amount of $1,932,475 is classified as a current
liability however it is our option to force conversion of these convertible
debentures into the Company's common stock at any time.
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%. Because of this restriction, we could be hindered in our ability
to
generate necessary cash for our operations.
Investing
activities
We
received preferential returns and distributions of capital from our investment
in the West Palm Beach hotel in the amount of $481,250. We also received net
proceeds from disposition of an investment in the amount of
$198,899
As
of
December 31, 2007, $500,000 of our short-term investments was invested in
auction rate securities, or ARSs. The $500,000 we have invested in ARSs at
April
28, 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, at April 28, 2008,
we
had approximately $231,877 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
twelve months ended December 31, 2007, we repaid approximately $84,233 on note
payables.
We
have
225 shares of Series C preferred stock outstanding. The stock has a liquidation
preference of $337,380 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 $337,380 is recorded as a current
liability.
Our
cash
flows for the periods are summarized below:
|
|
Year ended
|
|
Year ended
|
|
|
|
December 31, 2007
|
|
December 31, 2006
|
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
$
|
(1,490,657
|
)
|
$
|
146,119
|
|
Net
cash provided by investing activities
|
|
|
677,058
|
|
|
599,635
|
|
Net
cash used in financing activities
|
|
|
84,233
|
|
|
68,812
|
|
Our
cash
decreased by $897,832 since December 31, 2006.
Management
believes the Company has adequate working capital and cash to be provided from
operating activities to fund current levels of operations. We anticipate that
our company will grow. As our business grows we believe that we will have to
raise additional capital in the private debt and/or public equity markets to
fund our investments.
OFF-BALANCE
SHEET ARRANGEMENTS
Until
December 31, 2007, we leased our office space under an operating lease. Rental
expense under operating leases for continuing operations aggregated $87,453
and
$76,395 for the years ended December 31, 2007 and 2006, respectively. Effective
February 10, 2005, the Company entered into a new five year lease in a new
building and moved the Company’s headquarters there. Beginning January 1, 2008,
this leased has been assumed by our then affiliate company, Natural Nutrition,
Inc.
RECENT
ACCOUNTING PRONOUNCEMENTS
In
June
2006, the Financial Accounting Standards Board (“FASB”)
issued
FASB Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes” (“FIN 48”).
FIN 48 clarifies the application of SFAS No. 109, Accounting
for Income Taxes,
by
establishing a threshold condition that a tax position must meet for any part
of
the benefit of that position to be recognized in the financial statements.
In
addition to recognition, FIN 48 provides guidance concerning measurement,
derecognition, classification and disclosure of tax positions. FIN 48 is
effective for fiscal years beginning after December 15, 2006; accordingly,
the Company adopted FIN 48 effective as of January 1, 2007. The
adoption of FIN 48 did not have a material impact on its effective tax
rate.
In
September 2006, the SEC staff issued Staff Accounting Bulletin (“SAB”)
No. 108, Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements. SAB 108
provides guidance on how the effects of the carryover or reversal of prior
year
misstatements should be considered in quantifying a current year misstatement.
SAB 108 established a dual approach that requires quantification of errors
under two methods: (1) roll-over method which quantifies the amount by
which the current year income statement is misstated, and (2) the iron
curtain method which quantifies the error as the cumulative amount by which
the
current year balance sheet is misstated. In some situations, companies will
be
required to record errors that occurred in prior years even though those errors
were immaterial for each year in which they arose. Companies may choose to
either restate all previously presented financial statements or record the
cumulative effect of such errors as an adjustment to retained earnings at the
beginning of the period in which SAB 108 is applied. SAB 108 is
effective for fiscal years ending after November 15, 2006. The adoption of
this pronouncement did not have an impact on the Company’s financial position or
results of operations.
In
September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements (“SFAS
No. 157”).
This
statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and expands disclosures about
fair
value measurements. This statement clarifies how to measure fair value as
permitted under other accounting pronouncements but does not require any new
fair value measurements. SFAS No. 157 was originally effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. On February 12, 2008, the FASB issued
Final FASB Staff Position (“FSP”)
No.
Financial Accounting Standard (“FAS”)
157-2,
Effective
Date of FASB Statement No.
157 (“FSP
No. 157-2”).
FSP
No. 157-2, which was effective upon issuance, delays the effective date of
SFAS
No. 157 for nonfinancial assets and nonfinancial liabilities, except for items
that are recognized or disclosed at fair value at least once a year, to fiscal
years beginning after November 15, 2008. The Company expects to adopt FAS No.
157 on January 1, 2008 and 2009 for financial assets and financial liabilities
and nonfinancial assets and nonfinancial liabilities, respectively. The Company
does not believe that the adoption of FAS No. 157 will have a material effect
on
the Company’s consolidated financial statements.
In
July
2006, the FASB issued FIN 48, which clarifies the accounting for uncertainty
in
tax positions. This Interpretation requires that the Company recognize in our
financial statements, the impact of a tax position, if that position is more
likely than not of being sustained on audit, based on the technical merits
of
the position. The provisions of FIN 48 are effective as of the beginning of
our
2007 fiscal year, with the cumulative effect of the change in accounting
principle recorded as an adjustment to opening retained earnings. The adoption
of FIN 48 did not have a material effect on the Company’s financial condition or
results of operations for the year ended December 31, 2007.
In
February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Liabilities Including an amendment
of
FASB Statement No. 115 (“SFAS
No. 159”).
SFAS
No. 159 permits entities to choose to measure many financial instruments and
certain other items at fair value that are
not
currently required to be measured at fair value. SFAS No. 159 also establishes
presentation and disclosure requirements designed to facilitate comparisons
between entities that choose different measurement attributes for similar types
of assets and liabilities. SFAS No. 159 is effective as of the beginning
of an entity’s first fiscal year that begins after November 15, 2007. The
Company expects to adopt SFAS No. 159 on January 1, 2008. The Company has
evaluated the impact of adopting SFAS No. 159 and has determined that it will
not elect the fair value option under SFAS No.159 for any financial instruments
that are not required to be presented at fair value under generally accepted
accounting principles.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51” (“SFAS
160”).
SFAS
160 establishes new accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. Before
this statement, limited guidance existed for reporting noncontrolling interests
(minority interest). As a result, diversity in practice exists. In some cases
minority interest is reported as a liability and in others it is reported in
the
mezzanine section between liabilities and equity. Specifically, SFAS 160
requires the recognition of a noncontrolling interest (minority interest) as
equity in the consolidated financials statements and separate from the parent’s
equity. The amount of net income attributable to the noncontrolling interest
will be included in consolidated net income on the face of the income statement.
SFAS 160 clarifies that changes in a parent’s ownership interest in a subsidiary
that do not result in deconsolidation are equity transactions if the parent
retains its controlling financial interest. In addition, this statement requires
that a parent recognize gain or loss in net income when a subsidiary is
deconsolidated. Such gain or loss will be measured using the fair value of
the
noncontrolling equity investment on the deconsolidation date. SFAS 160 also
includes expanded disclosure requirements regarding the interests of the parent
and its noncontrolling interests. SFAS 160 is effective for the Company on
January 1, 2009. Earlier adoption is prohibited. The Company is currently
evaluating the impact, if any, of the adoption of SFAS 160 will have on its
consolidated financial statements.
In
December 2007, the FASB issued SFAS No. 141R, Business
Combinations.
SFAS
No. 141R provides companies with principles and requirements on how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, liabilities assumed, and any noncontrolling interest in the acquiree
as well as the recognition and measurement of goodwill acquired in a business
combination. SFAS No. 141R also requires certain disclosures to enable users
of
the financial statements to evaluate the nature and financial effects of the
business combination. Acquisition costs associated with the business combination
will generally be expensed as incurred. SFAS 141R is effective for business
combinations occurring in fiscal years beginning after December 15, 2008. Early
adoption of SFAS No. 141R is not permitted. The Company is currently evaluating
the impact SFAS No. 141R will have on any future business
combinations.
Critical
Accounting Policies
DERIVATIVE
FINANCIAL INSTRUMENTS
The
derivatives issued from 2003 through 2006 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 that these debentures have embedded derivatives. These
embedded derivatives have been bifurcated from their respective host debt
contracts and accounted for as derivative liabilities in accordance with EITF
00-19. When multiple derivatives
exist within the Convertible Notes, they have been bundled together as a single
hybrid compound instrument in accordance with SFAS No. 133 Derivatives
Implementation Group Implementation Issue No. B-15, "Embedded Derivatives:
Separate Accounting for Multiple Derivative Features Embedded in a Single Hybrid
Instrument".
The
embedded derivatives within the Convertible Notes have been recorded at fair
value at the date of issuance; and are marked-to-market each reporting period
with changes in fair value recorded to the Company's income statement as "Net
change in fair value of derivative liabilities". The Company has utilized a
third party valuation firm to fair value the embedded derivatives using a
layered discounted probability-weighted cash flow approach.
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,
the
Company's financial statements may fluctuate from quarter-to-quarter based
on
factors, such as the price of the Company's stock at the balance sheet date
and
the amount of shares converted by note 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.
REVENUE
RECOGNITION
The
Company follows the guidance of the SEC's Staff Accounting Bulletin No. 104
for
revenue recognition. The Company records revenue when persuasive evidence of
an
arrangement exists, services have been rendered or product delivery has
occurred, the sales price to the customer is fixed or determinable, and
collectibility is reasonably assured.
The
Consolidated Financial Statements of Turnaround Partners, Inc. required by
Item
310(a)of Regulation S-B are attached to this Annual Report. Reference is made
to
Item 13 below for an Index to such Consolidated Financial
Statements.
FINANCIAL
DISCLOSURE
There
have been no changes in accountants or disagreements on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope
or
procedures with the Company’s independent accountants during the two (2) fiscal
years ended December 31, 2007.
ITEM
8A(T). CONTROLS AND PROCEDURES
Because
of its size, the Company shares its accounting staff with another company
located in the same suite in Houston, Texas and the accounting staff is
comprised of a 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.
As
of the
end of the period covered by this report, we have evaluated the effectiveness
of
the design and operation of our disclosure controls and procedures under
the
supervision and with the participation of our Chief Executive Officer
("CEO").
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
and 2006.
The
material weaknesses identified by the auditor during the December 31, 2006
and
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.
Further,
based on the material weaknesses described herein, we concluded that our
disclosure controls and procedures were not effective at December 31, 2007.
The
Company Has Material
Weaknesses in Its Internal Control over Financial Reporting that May Prevent
The
Company from Being Able to Accurately Report Its Financial Results or Prevent
Fraud, which Could Harm Its Business and Operating Results.
Effective
internal controls are necessary for us to provide reliable and accurate
financial reports and prevent fraud. In addition, Section 404 under the
Sarbanes-Oxley Act of 2002 requires that the Company assess, and its independent
registered public accounting firm attest to, the design and operating
effectiveness of internal control over financial reporting. If the Company
cannot provide reliable and accurate financial reports and prevent fraud, its
business and operating results could be harmed. The Company has in the past
discovered, and may in the future discover, areas of its internal controls
that
need improvement. The Company has identified material weaknesses in its
internal control as of December 31, 2007 as a result of an evaluation of those
controls conducted in August 2008. These matters and the Company’s efforts
regarding remediation of these matters, as well as efforts regarding internal
controls generally are discussed in detail in Part II, Item 8A(T) Controls
and
Procedures, of this Annual Report on Form 10-KSB. However, as the
Company’s material weaknesses in its internal controls demonstrate, the Company
cannot be certain that the remedial measures it has taken to date will ensure
that the Company designs, implements, and maintains adequate controls over
its
financial processes and reporting in the future.
Additionally,
since the requirements of Section 404 are ongoing and apply for future years,
the Company cannot be certain that it or its independent registered public
accounting firm will not identify additional deficiencies or material weaknesses
in its internal controls in the future, in addition to those identified as
of
December 31, 2007. Attempts to remedy the material weaknesses that have been
identified and any additional deficiencies, significant deficiencies or material
weaknesses that the Company or its independent registered public accounting
firm
may identify in the future, could require the Company to incur significant
costs, hire additional personnel, expend significant time and management
resources or make other changes. Any delay or failure to design and implement
new or improved controls, or difficulties encountered in their implementation
or
operation, could harm our operating results, cause the Company to fail to meet
its financial reporting obligations, or prevent the Company from providing
reliable and accurate financial reports or avoiding or detecting fraud.
Disclosure of the Company’s material weaknesses, any failure to remediate such
material weaknesses in a timely fashion or having or maintaining ineffective
internal controls could cause investors to lose confidence in our reported
financial information, which could have a negative effect on the trading price
of the Company’s stock and its access to capital.
Management’s
Report on Internal Control over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control
structure and procedures over financial reporting (as defined in
Rules 13a-15(e) and 15d-15(e)) under the Exchange Act. Management conducted
an assessment of the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2007 based on the framework set
forth in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Internal control
over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives because of its inherent limitations. Internal
control over financial reporting is a process that involves human diligence
and
compliance and is subject to lapses in judgment and breakdowns resulting from
human failures. Because of such limitations, there is a risk that material
misstatements may not be prevented or detected on a timely basis by internal
control over financial reporting. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
A
material weakness in internal control over financial reporting is defined by
the
Public Company Accounting Oversight Board’s Audit Standard No. 2 as being a
significant deficiency, or combination of significant deficiencies, that results
in more than a remote likelihood that a material misstatement of the financial
statements would not be prevented or detected. A significant deficiency is
a
control deficiency, or combination of control deficiencies, that adversely
affects the Company’s ability to initiate, authorize, record, process or report
external financial data reliably in accordance with generally accepted
accounting principles (GAAP) such that there is more than a remote likelihood
that a misstatement of the Company’s annual or interim financial statements that
is more than inconsequential will not be prevented or detected.
Management
identified the following material weaknesses as of December 31, 2007 to the
Company’s internal control over financial reporting:
|
1.
|
Deficiencies
in the Company’s Control Environment. The Company’s control environment
did not sufficiently promote effective internal control over financial
reporting throughout the organization. This material weakness exists
because of the aggregate effect of multiple deficiencies in internal
control which affect the Company's control environment, including:
(a) the
lack of an audit committee, (b) the lack of independent financial
expertise on the Board of Directors, and (c) the absence of a
whistleblower hotline. The Company has no current plans, however,
to
establish an audit committee or to enter into a contract with an
independent whistleblower hotline service provider, and accordingly,
expects to continue to lack an audit committee, financial expertise
on the
Board of Directors, and a whistleblower
hotline.
|
|
2.
|
Deficiencies
in the Company’s Accounting System Controls. The Company failed to perform
certain control procedures designed to ensure that the financial
statement
presentations and related disclosures were complete and in accordance
with
GAAP. These deficiencies include: (a) inadequate review of journal
entries
and wire transfers, (b) the lack of independent review of balance
sheet
account reconciliations and supporting calculations, (c) inadequate
communication between management and the accounting department.
|
Based
on
the material weaknesses described above and the criteria set forth by the COSO
Framework, our Principal Executive Officer and Interim Principal Financial
and
Accounting Officer (one individual) has concluded that the Company did not
maintain effective internal control over financial reporting at a reasonable
assurance level as of December 31, 2007 or at the date of this filing as a
result of an evaluation of those controls conducted in August 2008.
This
Annual Report does not include an attestation report of the company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the company’s registered
public accounting firm pursuant to temporary rules of the SEC that permit the
company to provide only management’s report in this Annual Report.
Remediation
During
fiscal 2008, we plan to implement remediation measures (to the extent that
financial resources are available) to address the material weaknesses described
in item number 2 above. These process changes will improve our internal controls
environment and increase the likelihood of our identifying non-routine and
non-systematic transactions. The Company's remediation plans include
implementing procedures for the adequate review and approval of wire transfers.
These plans, while improving our internal control environment, will not
eliminate all of the material weaknesses described above due to our limited
accounting staff comprised of one professional and one part-time contract
payroll and accounts payable clerk.
Management
recognizes that these enhancements require continual monitoring and evaluation
for effectiveness. The development of these actions is an iterative process
and
will evolve as the Company continues to evaluate and improve our internal
controls over financial reporting.
Management
will review progress on these activities on a consistent and ongoing basis
at
the Chief Executive Officer and senior management level. We also plan to take
additional steps to elevate Company awareness about and communication of these
important issues through improved communication.
The
continued remediation of the material weaknesses described above is a priority.
Our Board of Directors will continually assess the progress and sufficiency
of
these initiatives and make adjustments as and when necessary. As of the date
of
this report, our management believes that our efforts, when completed, will
mitigate, but not eliminate the material weaknesses in internal control over
financial reporting as described above. Our management and the Board of
Directors do not expect that our disclosure controls and procedures or internal
control over financial reporting will prevent all errors or all instances of
fraud. A control system, no matter how well designed and operated, can provide
only reasonable, not absolute, assurance that the control system’s objectives
will be met. Further, the design of a control system must reflect the fact
that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control gaps and instances of fraud have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple errors or mistakes.
Controls can also be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the controls.
The
design of any system of controls is based in part upon certain assumptions
about
the likelihood of future events, and any design may not succeed in achieving
its
stated goals under all potential future conditions.
Subsequent
Changes in Internal Control over Financial Reporting
Except as disclosed above, there were no changes in our internal control over
financial reporting that occurred during our last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
PART
III
ITEM
9.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH
SECTION 16(A) OF THE EXCHANGE ACT
The
Company is not aware of any legal proceedings in which any director, executive
officer, affiliate or any owner of record or beneficial owner of more than
five
percent (5%) of any class of voting securities of the Company, or any associate
of any such director, executive officer or affiliate of the Company or security
holder is a party adverse to the Company or any of its subsidiaries or has
a
material interest adverse to the Company or any of its
subsidiaries.
The
following table sets forth the names and ages of the current director and
executive officersof the Company and the positions held at the Company. The
executive officer of the Company is elected annually by the Board of Directors
(the "Board") . The Directors serve one (1) year terms until their successors
are elected. The executive officers serve terms of one (1) year or until
their
death, resignation or removal by the Board.
|
|
Age
|
|
Positions(S)
|
|
|
61
|
|
Director,
President, Chief Executive Officer
|
Interim
Chief Financial Officer
|
|
|
|
|
There
are
no family relationships among the director or executive officer of the Company.
Except as provided herein, the Company's director or executive officer is
not a
director of any company that files reports with the SEC, except as discussed
below. The Company's director has not been involved in any bankruptcy or
criminal proceeding (excluding traffic and other minor offenses), and nor
has he
been enjoined from engaging in any business during the past five (5)
years.
Set
forth
below is a brief description of the background and business experience of
the
Company's existing Director and executive officer for the past five (5)
years:
Russell
Kidder.
From
1989 to present, Mr. Kidder has served as a consultant to a number of small
private and public companies, assisting them in capital formation, mergers
and
acquisitions, securities reporting compliance issues and general corporate
administration. Mr. Kidder did not serve as an officer or a director of any
company from December 2002 through December 2005. In December 2005, Mr. Kidder
was named Secretary of TRAC Financial Group, Inc. He continued to serve in
that
capacity following a change in control of the company and name change to
FINI
Group, Inc. on July 28, 2006, until July 2007. From July 2007 through October
2007, Mr. Kidder served as Secretary of Asset Capital Group, Inc. (“ACGU.PK”).
Mr. Kidder earned his B.A. in Political Science and his Juris Doctor Degree
from
the University of Southern California.
The
Company’s Board of Directors does not currently have an audit committee nor does
it have a financial expert.
Members
of our Board of Directors are not compensated.
ITEM
10.
EXECUTIVE COMPENSATION
COMPENSATION
OF EXECUTIVE OFFICERS
The
following table sets forth the annual and long-term compensation for services
in
all capacities for the fiscal years ended December 31, 2007, 2006 and 2005
for
our two principal officers.
|
|
|
|
|
|
SUMMARY COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal
Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock Awards
($)
|
|
Option Awards
($)
|
|
Non-Equity Incentive
Plan Compensation
|
|
All Other
Compensation ($) (1)
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Russell
Kidder
|
|
|
2007
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
President,
CEO and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interim
CFO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy
J Connolly, Former CEO
|
|
|
2007
|
|
$
|
551,000
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
551,000
|
|
|
|
|
2006
|
|
$
|
338,500
|
|
$
|
100,000
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
13,400
|
|
$
|
451,900
|
|
|
|
|
2005
|
|
$
|
265,000
|
|
$
|
20,000
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
12,000
|
|
$
|
297,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wm
Chris Mathers,
|
|
|
2007
|
|
$
|
60,000
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
60,000
|
|
Former
CFO
|
|
|
2006
|
|
$
|
29,500
|
|
$
|
1,500
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
31,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
- Auto allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Incentive Plan
On
May
31, 2006,Turnaround Partners, Inc. 2006 Stock Incentive Plan (the "Plan")
was
adopted and approved by the shareholders. On a calendar year basis, an amount
of
shares of Common Stock equivalent to fifteen percent (15%) of the fully diluted
shares outstanding on January 2 of any such calendar year may be allocated,
at
the discretion of the Administrator, to be granted as awards under the Plan,
less awards outstanding at the end of the prior calendar year. The number
of
shares allocated to this plan was 10,000,000 shares. As of December 31, 2007,
there were 7,250,000 shares available under the Plan.
For
the
years ended December 31, 2006 and 2007, there were no outstanding equity
awards
or options granted.
Employee
Agreements
On
September 1, 2004, Corporate Strategies entered into a five year employment
agreement, effective June 1, 2004, with Timothy J. Connolly to serve as Chief
Executive Officer and director of Corporate Strategies. The agreement has
a
renewal provision and provides for an annual salary and bonus upon attaining
certain performance criteria set by the board of directors. The agreement
also
provides certain anti-dilution provisions in return for an extension of lock-up
of the Chief Executive Officer's shares until December 31, 2007 and for certain
other fringe benefits. Effective
as of the Closing Date (December 5, 2007) of the agreement with ACGU, Mr.
Connolly resigned as Vice Chairman of the Board and as President and Chief
Executive Officer of the Company, however Mr. Connolly shall continue to
serve
as President and Chief Executive Officer of Corporate Strategies, Inc., a
Texas
corporation and wholly-owned subsidiary of the Company (“CSI”)
with
the understanding that the business of CSI will be discontinued or spun off
to
its stockholders. In addition, Mr. Connolly shall continue to receive the
same
compensation as he has received through the Closing Date for his aforementioned
continued services to CSI through December 31, 2008, which such date may
be
extended by mutual agreement by and among the parties to the Purchase Agreement.
On
September 1, 2004, Corporate Strategies entered into a three year employment
agreement with Fred Zeidman to serve as President and a director of Corporate
Strategies. The agreement has a renewal provision and provides for an annual
salary and bonus upon attaining certain performance criteria set by the board
of
directors and certain fringe benefits; in addition, Mr. Zeidman received
50% of
all consulting fees from companies directly provided by or supervised by
him.
The employment agreement with Mr. Zeidman has not been renewed as of the
date of
this filing and Mr. Zeidman no longer receives compensation from Corporate
Strategies.
On
December 2, 2005, Kipling entered into a three year employment agreement
with
Timothy J. Connolly to serve as President and Chief Executive Officer. The
agreement has a renewal provision and provides for an annual salary.
Additionally, Mr. Connolly is entitled to a 10% interest in any distributions
of
any kind, dividends, income, bonuses or sale of the property owned by the
Company.
ITEM
11.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
SHAREHOLDER MATTERS
The
table
below sets forth information with respect to the beneficial ownership of
our
common stock and Series B and D Preferred Stock as of February 14, 2008 for
(a)
any person who we know is the beneficial owner of more than five percent
(5%) of
our outstanding common stock and Series B and D Preferred, (b) each of our
directors and executive officers and (c) all of our directors and officers
as a
group. Other than the persons identified below, no person owned beneficially
more than five percent (5%) of each of the Company's common stock and Series
B
Preferred. With the exception of the Company's 225 non-voting shares of Series
C
Preferred Stock, there are no other classes or series of capital stock
outstanding. As of February 14, 2008, the Company had 494,236,058 shares
of
common stock, 6,666 shares of Series B Preferred and 700 shares of Series
D
Preferred issued and outstanding.
Title
of Class
|
|
Name
and Address of
Beneficial
Owner
|
|
Amount
of
Direct
Ownership
|
|
Amount
&
Nature
of
Indirect
Beneficial
Ownership
|
|
Total
of Direct
and
Beneficial
Ownership
|
|
Percentage
of
Class(1)
|
|
Common
|
|
|
Viewpoint
Capital, LLC
2470
Evening Twilight Lane
Henderson,
Nevada 89044
|
|
|
300,000,000
|
|
|
—
|
|
|
300,000,000
|
|
|
63.66
|
%
|
Common
|
|
|
Michael
O. Sutton
10806
Briar Branch Lane
Houston,
TX 77024
|
|
|
10,723,600
|
|
|
4,395,445
|
(2)
|
|
15,119,045
|
|
|
3.21
|
%
|
Common
|
|
|
Timothy
J. Connolly
109
N. Post Oak Lane
Suite
422
Houston,
TX 77024
|
|
|
—
|
|
|
13,050,000
|
(3)
|
|
13,050,000
|
|
|
9.99
|
%
|
Common
|
|
|
Jan
Carson Connolly
8602
Pasture View Lane
Houston,
TX 77024
|
|
|
—
|
|
|
13,050,000
|
(4)
|
|
13,050,000
|
|
|
9.99
|
%
|
Common
|
|
|
Gerald
Holland
22
Coult Lane
Old
Lyme, CT 07601
|
|
|
5,113,636
|
|
|
177,740,511
|
(5)
|
|
182,854,147
|
|
|
38.80
|
%
|
Common
|
|
|
Joanna
Saporito
668
W. Saddle River Rd.
Ho-Ho-Kus,
NJ 07423
|
|
|
—
|
|
|
72,421,863
|
(5)
|
|
72,421,863
|
|
|
15.37
|
%
|
Common
|
|
|
Mary-Ellen
Viola
249
Long Hill Drive
Short
Hills, NJ 07078
|
|
|
—
|
|
|
13,050,000
|
(5)
|
|
13,050,000
|
|
|
9.99
|
%
|
Common
|
|
|
David
Kesselbrenner
10
Devonshire Rd.
Livingston,
NJ 07039
|
|
|
—
|
|
|
8,560,816
|
(5)
|
|
8,560,816
|
|
|
1.82
|
%
|
Common
|
|
|
Louis
Kesselbrenner
10
Devonshire Rd.
Livingston,
NJ 07039
|
|
|
—
|
|
|
29,447,378
|
(5)
|
|
29,447,378
|
|
|
6.25
|
%
|
Common
|
|
|
Sarah
Kesselbrenner
10
Devonshire Rd.
Livingston,
NJ 07039
|
|
|
—
|
|
|
29,447,378
|
(5)
|
|
29,447,378
|
|
|
6.25
|
%
|
Common
|
|
|
Joseph
Kesselbrenner
10
Devonshire Rd.
Livingston,
NJ 07039
|
|
|
—
|
|
|
9,216,738
|
(5)
|
|
9,216,738
|
|
|
1.96
|
%
|
Common
|
|
|
YA
Global Investments LP
101
Hudson Street
Suite
3700
Jersey
City, NJ 07302
|
|
|
—
|
|
|
6,120,000
|
(5)
|
|
6,120,000
|
|
|
4.99
|
%
|
Common
|
|
|
Highgate
House Funds, Ltd.
101
Hudson Street
Suite
3700
Jersey
City, NJ 07302
|
|
|
—
|
|
|
6,120,000
|
(5)
|
|
6,120,000
|
|
|
4.99
|
%
|
|
(1)
|
Applicable
percentages of ownership are based on 471,236,054 shares of Common
Stock
on February 14, 2008 for each stockholder. Beneficial ownership
is
determined in accordance within the rules of the SEC and generally
includes voting of investment power with respect to the securities.
Shares
subject to securities exercisable or convertible into shares of
Common
Stock that are currently exercisable or exercisable within sixty
(60) days
of February 14, 2008 are deemed to be beneficially owned by the
person
holding such derivative securities for the purpose of computing
the
percentage of ownership of such persons, but are not treated as
outstanding for the purpose of computing the percentage ownership
of any
other person.
|
|
|
|
|
(2)
|
Includes
4,195,445 shares which may be issued upon conversion of the 6,666
shares
of Series B Preferred Stock beneficially owned by Mr. Sutton and
200,000
shares directly held by his spouse.
|
|
|
|
|
(3)
|
Includes
shares of Common Stock which may be issued upon conversion of 595
shares
of Series D Preferred Stock beneficially owned by Mr. Connolly
and shares
of Common Stock which may be issued upon conversion of 105 shares
of
Series D Preferred Stock beneficially owned by his spouse, subject
to a
9.99% ownership limitation set forth in the amended and restated
Certificate of Designation of Series D Preferred Stock.
|
|
|
|
|
(4)
|
Includes
shares of Common Stock which may be issued upon conversion of 105
shares
of Series D Preferred Stock beneficially owned by Ms. Connolly
and shares
of Common Stock which may be issued upon conversion of 595 shares
of
Series D Preferred Stock beneficially owned by her spouse, subject
to a
9.99% ownership limitation set forth in the amended and restated
Certificate of Designation of Series D Preferred Stock.
|
|
|
|
|
(5)
|
These
shares represent the approximate number of shares underlying convertible
debentures at an assumed price of $0.001 in light of the fact that
the
Company is prohibited from issuing shares of Common Stock at a
price per
share below par. Because the conversion price will fluctuate based
on the
market price of the Company’s stock, the actual number of shares to be
issued upon conversion of the debentures may be lower but cannot
be
higher.
|
|
|
|
(B)
Security Ownership of Management
Title of Class
|
|
Name and Address of Beneficial Owner
|
|
Amount of
Direct
Ownership
|
|
Amount & Nature
of Beneficial
Ownership
|
|
Total of
Direct and
Beneficial
Ownership
|
|
Percentage
of Class(1)
|
|
Common
|
|
|
Russell
Kidder, President,
Chief
Executive Officer and Director
109
North Post Oak Lane
Suite
422
Houston,
TX 77024
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Richard
P. McLaughlin, Secretary
109
North Post Oak Lane
Suite
422
Houston,
TX 77024
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALL
DIRECTORS AND
EXECUTIVE
OFFICERS AS
A
GROUP (TWO PERSONS)(3)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
0
|
%
|
|
(1)
|
Applicable
percentages of ownership are based on 471,236,054 shares of Common
Stock
outstanding on February 14, 2008 for each stockholder. Beneficial
ownership is determined in accordance within the rules of the SEC
and
generally includes voting of investment power with respect to the
securities. Shares subject to securities exercisable or convertible
into
shares of Common Stock that are currently exercisable or exercisable
within sixty (60) days of February 14, 2008 are deemed to be beneficially
owned by the person
|
ITEM
12.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONCENTRATION
OF TRANSACTIONS WITH YA GLOBAL
At
December 31, 2007, $7,826,100 of the convertible debentures are owed to YA
Global and to Highgate House Funds, Ltd., an affiliate of YA
Global.
YA
Global
was the principal lender to Nuwave both before and after the
merger.
YA
Global
acquired Lehigh Acquisition Corp., formerly a wholly-owned subsidiary of
NuWave,
in February 2006. Lehigh owns the land held for development and sale. Proceeds
from the sale of $5,556,356 reduced indebtedness to YA Global by
$5,281,274.
YA
Global
has significant relationships with affiliated companies, both as a purchaser
and
lender.
ITEM
13.
EXHIBITS
(a)
Documents Filed As Part Of This Report:
See
Index
to Consolidated Financial Statements attached which are filed as part of
this
Annual 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.
|
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
|
|
Assignment
and Amendment Agreement, dated January 26, 2004, related to the
Secured
Note Payable Agreement dated December 22, 2003, by and between
Stone
Street Asset Management, LLC and NuWave
|
|
Incorporated
by reference to Exhibit 99.7 to the Company’s Current Report on Form 8-K
as filed with the U.S. Securities and Exchange Commission on January
27,
2005.
|
10.2
|
|
Convertible
Debenture, issued on May 6, 2004, by Corporate Strategies, Inc
to Cornell
Capital Partners, LP
|
|
Incorporated
by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-KSB
for the year ended December 31, 2005 as filed with the U.S. Securities
and
Exchange Commission on April 17, 2006
|
10.3
|
|
Convertible
Debenture, issued on June 24, 2004, by Corporate Strategies, Inc.
to
iVoice, Inc.
|
|
Incorporated
by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-KSB
for the year ended December 31, 2005 as filed with the U.S. Securities
and
Exchange Commission on April 17, 2006
|
10.4
|
|
Employment
Agreement, dated September 1, 2004, by and between Corporate Strategies,
Inc. and Timothy J. Connolly
|
|
Incorporated
by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-KSB
for the year ended December 31, 2005 as filed with the U.S. Securities
and
Exchange Commission on April 17,
2006
|
10.5
|
|
Employment
Agreement, dated September 1, 2004, by and between Corporate Strategies,
Inc. and Fred Zeidman
|
|
Incorporated
by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-KSB
for the year ended December 31, 2005 as filed with the U.S. Securities
and
Exchange Commission on April 17, 2006
|
10.6
|
|
Convertible
Debenture, issued on September 28, 2004, by Corporate Strategies,
Inc. to
Cornell Capital Partners, LP
|
|
Incorporated
by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-KSB
for the year ended December 31, 2005 as filed with the U.S. Securities
and
Exchange Commission on April 17, 2006
|
10.7
|
|
Termination
Agreement, dated January 26, 2005, related to the Standby Equity
Distribution dated as of May 2004 by and between the Company and
Cornell
Capital Partners, LP
|
|
Incorporated
by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K
as filed with the U.S. Securities and Exchange Commission on January
27,
2005.
|
10.8
|
|
Standby
Equity Distribution Agreement, dated as of January 26, 2005, between
the
Company and Cornell Capital Partners, LP
|
|
Incorporated
by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K
as filed with the U.S. Securities and Exchange Commission on January
27,
2005.
|
10.9
|
|
Registration
Rights Agreement, dated as of January 26, 2005, by and between
the Company
and Cornell Capital Partners, LP
|
|
Incorporated
by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K
as filed with the U.S. Securities and Exchange Commission on January
27,
2005.
|
10.10
|
|
Placement
Agent Agreement, dated as of January 26, 2005, by and among the
Company,
Cornell capital Partners, LP and Newbridge Securities
Corporation
|
|
Incorporated
by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K
as filed with the U.S. Securities and Exchange Commission on January
27,
2005.
|
10.11
|
|
Termination
Agreement, dated January 26, 2005, related to the Convertible Debenture
issued by the Company and Cornell Capital Partners, LP on December
22,
2003
|
|
Incorporated
by reference to Exhibit 99.5 to the Company’s Current Report on Form 8-K
as filed with the U.S. Securities and Exchange Commission on January
27,
2005.
|
10.12
|
|
Promissory
Note, dated as of January 2, 2005, issued by the Company to Cornell
Capital Partner, LP
|
|
Incorporated
by reference to Exhibit 99.6 to the Company’s Current Report on Form 8-K
as filed with the U.S. Securities and Exchange Commission on January
27,
2005.
|
10.13
|
|
Convertible
Debenture, issued on April 6, 2005, by Corporate Strategies, Inc.
to
Cornell Capital Partners, LP
|
|
Incorporated
by reference to Exhibit 10.13 to the Company’s Annual Report on Form
10-KSB for the year ended December 31, 2005 as filed with the U.S.
Securities and Exchange Commission on April 17, 2006
|
10.14
|
|
$250,000
Convertible Debenture, dated as of May 5, 2005, issued to Cornell
Capital
Partners, LP
|
|
Incorporated
by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K
as filed with the U.S. Securities and Exchange Commission on May
10,
2005.
|
10.15
|
|
Letter
of Intent, dated June 3, 2005, by and between the Company and Corporate
Strategies, Inc.
|
|
Incorporated
by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K
as filed with the U.S. Securities and Exchange Commission on June
16,
2005.
|
10.16
|
|
$150,000
Convertible Debenture, dated as of July 20, 2005, issued to Cornell
Capital Partners, LP
|
|
Incorporated
by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K
as filed with the U.S. Securities and Exchange Commission on July
28,
2005.
|
10.17
|
|
Merger
Agreement, dated as of August 31, 2005, by and among NuWave Technologies,
Inc., Strategies Acquisition Corp., Corporate Strategies, Inc.
and the
Shareholders listed therein
|
|
Incorporated
by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K/A
as filed with the U.S. Securities and Exchange Commission on September
8,
2005.
|
10.18
|
|
Services
Agreement, dated October 1, 2005, by and between Timothy J. Connolly
and
Sagamore Holdings, Inc.
|
|
Incorporated
by reference to Exhibit 10.18 to the Company’s Annual Report on Form
10-KSB for the year ended December 31, 2005 as filed with the U.S.
Securities and Exchange Commission on April 17, 2006
|
10.19
|
|
Stock
Purchase Agreement, dated as of November 11, 2005, by and among
Corporate
Strategies, Inc., Mr. Robert P. Farrell and Mr. Joseph W. Donohue,
Jr.
|
|
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
30,
2006.
|
10.20
|
|
Letter,
dated November 18, 2005, from Cornell Capital Partners, LP to modify
certain Debentures
|
|
Incorporated
by reference to Exhibit 10.21 to the Company’s Annual Report on Form
10-KSB for the year ended December 31, 2005 as filed with the U.S.
Securities and Exchange Commission on April 17, 2006
|
10.21
|
|
Consulting
Agreement, dated December 14, 2005, by and between Timothy J. Connolly
on
behalf of Corporate Strategies, Inc. and Elite Flight Solutions,
Inc.
|
|
Incorporated
by reference to Exhibit 10.22 to the Company’s Annual Report on Form
10-KSB for the year ended December 31, 2005 as filed with the U.S.
Securities and Exchange Commission on April 17,
2006
|
10.22
|
|
Convertible
Debenture, issued December 31, 2005, by Elite Flight Solutions,
Inc. to
Corporate Strategies, Inc.
|
|
Incorporated
by reference to Exhibit 10.23 to the Company’s Annual Report on Form
10-KSB for the year ended December 31, 2005 as filed with the U.S.
Securities and Exchange Commission on April 17, 2006
|
10.23
|
|
Consulting
Agreement, dated January 1, 2006, by and between Timothy J. Connolly
and
Power Technology, Inc.
|
|
Incorporated
by reference to Exhibit 10.24 to the Company’s Annual Report on Form
10-KSB for the year ended December 31, 2005 as filed with the U.S.
Securities and Exchange Commission on April 17, 2006
|
10.24
|
|
Consulting
Agreement, dated January 1, 2006, by and between Timothy J. Connolly
on
behalf of Corporate Strategies, Inc. and TRAC Financial Group,
Inc.
|
|
Incorporated
by reference to Exhibit 10.25 to the Company’s Annual Report on Form
10-KSB for the year ended December 31, 2005 as filed with the U.S.
Securities and Exchange Commission on April 17, 2006
|
10.25
|
|
Assumption
Agreement, dated February 7, 2006, by and between Lehigh and Cornell
capital Partners, LP
|
|
Incorporated
by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
as filed with the U.S. Securities and Exchange Commission on February
15,
2006.
|
10.26
|
|
Stock
Purchase Agreement, dated as of February 3, 2006, by and between
the
Company and Cornell Capital Partners, LP
|
|
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
15,
2006.
|
10.27
|
|
Joinder
Agreement, dated as of February 11, 2006, effective as of December
31,
2005, by Elite Flight Solutions, Inc.
|
|
Incorporated
by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K
as filed with the U.S. Securities and Exchange Commission on February
28,
2006.
|
10.28
|
|
Security
Agreement, dated as of February 11, 2006, effective as of December
31,
2005, by and between Elite Flight Solutions, Inc. and Corporate
Strategies, Inc.
|
|
Incorporated
by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K
as filed with the U.S. Securities and Exchange Commission on February
28,
2006.
|
10.29
|
|
Secured
Convertible Debenture, dated as of February 11, 2006, effective
as of
December 31, 2005, issued to Corporate Strategies, Inc.
|
|
Incorporated
by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K
as filed with the U.S. Securities and Exchange Commission on February
28,
2006.
|
10.30
|
|
Registration
Rights Agreement, dated as of February 11, 2006, effective as of
December
31, 2005, by and between Elite Flight Solutions, Inc. and Corporate
Strategies, Inc.
|
|
Incorporated
by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
as filed with the U.S. Securities and Exchange Commission on February
28,
2006.
|
10.31
|
|
Securities
Purchase Agreement, dated as of February 11, 2006, effective as
of
December 31, 2005, by and between Elite Flight Solutions, 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 February
28,
2006.
|
10.32
|
|
Purchase
Agreement, dated as of September 30, 2006, by and among Emerge
Capital
Corp., Kipling Holdings, Inc. and Timothy J. Connolly
|
|
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 October
6,
2006.
|
10.33
|
|
First
Amendment to Purchase Agreement, dated October 5, 2006, by and
among
Emerge Capital Corp, Kipling Holdings, Inc. and Timothy J.
Connolly
|
|
Incorporated
by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
as filed with the U.S. Securities and Exchange Commission on October
6,
2006.
|
10.34
|
|
Second
Amendment to Purchase Agreement, effective as of December 31, 2006,
by and
among Emerge Capital Corp, Kipling Holdings, Inc. and Timothy J.
Connolly
|
|
Incorporated
by reference to Exhibit 10.34 to the Company’s Annual Report on Form
10-KSB for the year ended December 31, 2006 as filed with the U.S.
Securities and Exchange Commission on April 17, 2007
|
10.35
|
|
Letter
Agreement, dated October 9, 2007, by and between Corporate Strategies,
In.
and YA Global Investments, L.P.
|
|
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 October
15,
2007.
|
10.36
|
|
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 December
11,
2007.
|
16.1
|
|
Letter
dated November 9, 2005, from Weiser LLP
|
|
Incorporated
by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K
as filed with the U.S. Securities and Exchange Commission on November
14,
2005, 2005.
|
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
|
ITEM
14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
(1)
Audit
Fees. Turnaround Partners, Inc. paid to Thomas Leger & Co., L.L.P. ("Leger")
audit fees of $0.00 for the audit of fiscal year 2007 and $93,625 for fiscal
year 2006. The Company paid Leger audit fees of $28,040 and $48,195 for the
2007
and 2006 quarterly reviews, respectively. We have not received any invoices
for
the 2007 audit fees through April 17, 2008.
(2)
Audit-related fees. Turnaround Partners, Inc. paid Leger audit-related fees
of
$3,950 for costs associated with our S-8 filing in 2006.
(3)
Tax
Fees. The Company has not paid for tax services to Leger.
(4)
All
Other Fees. The Company paid $4,910 for other services to Leger.
(5)
Audit
Committee pre-approval policies and procedures. The Company does not currently
have an audit committee. Russell Kidder, Director of Turnaround Partners,
Inc.,
approved the engagement of Leger.
SIGNATURES
In
accordance with the requirements of the Exchange Act, the Company has caused
this Annual Report on Form 10-KSB to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date:
September 4, 2008
|
|
Turnaround
Partners, Inc.
|
|
|
(Registrant)
|
|
|
|
|
|
/s/
Russell Kidder
|
|
|
Russell
Kidder
President,
Chief Executive Officer and Interim CFO
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant and in
the
capacities and on the dates indicated.
/s/
Russell Kidder
|
|
September
4, 2008
|
Name:
Russell Kidder
Titles:
Chief Executive Officer, Interim Chief Financial Officer,
Principal
Executive Officer, Interim Principal Financial and
Accounting
Officer and Director
|
|
|
INDEX
TO
CONSOLIDATED FINANCIAL STATEMENTS
TABLE
OF
CONTENTS
|
PAGE
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
|
Consolidated
Balance Sheet as of December 31, 2007
|
F-2
|
|
|
Consolidated
Statements of Operations for the Years Ended
|
|
December
31, 2007 and 2006
|
F-4
|
|
|
Consolidated
Statements of Changes in Shareholders' Deficit
|
|
for
the Years Ended December 31, 2007 and 2006
|
F-6
|
|
|
Consolidated
Statements of Cash Flows for the Years Ended
|
|
December
31, 2007 and 2006
|
F-7
|
|
|
Notes
to the Consolidated Financial Statements
|
F-9 to F-28
|
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Shareholders
Turnaround
Partners, Inc. and Subsidiaries
Houston,
Texas
We
have
audited the accompanying consolidated balance sheet of Turnaround Partners,
Inc.
and Subsidiaries as of December 31, 2007 and the related consolidated statements
of operations, changes in shareholders' deficit, and cash flows for the years
ended December 31, 2007 and 2006. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects the financial position of Turnaround Partners, Inc.
and
Subsidiaries as of December 31, 2007, and the consolidated results of their
operations and their cash flows for the years ended December 31, 2007 and 2006
in conformity with accounting principles generally accepted in the United States
of America.
/s/
Thomas Leger & Co., L.L.P.
Thomas
Leger & Co., L.L.P.
April
30,
2008
Houston,
Texas
TURNAROUND
PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEET
December
31, 2007
ASSETS
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
255,961
|
|
Notes
and accounts receivable, net of allowance accounts of
$482,686
|
|
|
299,576
|
|
Investment
in marketable securities
|
|
|
510,791
|
|
Prepaid
expense and deferred financing costs
|
|
|
23,208
|
|
Total
current assets
|
|
|
1,089,536
|
|
|
|
|
|
|
NONCURRENT
ASSETS
|
|
|
|
|
Investment
in real estate partnership and other investments, at cost
|
|
|
3,749,859
|
|
Deferred
debenture costs
|
|
|
25,506
|
|
Total
noncurrent assets
|
|
|
3,775,365
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
4,864,901
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
607,181
|
|
Unearned
income
|
|
|
9,167
|
|
Convertible
debentures
|
|
|
1,932,475
|
|
Notes
payable
|
|
|
96,003
|
|
Series
C Preferred stock including associated paid in capital; liquidation
preference of $337,380, 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,
225
shares issued and outstanding
|
|
|
337,380
|
|
Derivative
liability
|
|
|
282,181
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
3,264,387
|
|
|
|
|
|
|
Convertible
debentures—net of $1,136,193 discount
|
|
|
5,088,807
|
|
Note
payable
|
|
|
110,978
|
|
Accrued
interest payable
|
|
|
903,746
|
|
Total
liabilities
|
|
|
9,367,918
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
-
|
|
TURNAROUND
PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEET
December
31, 2007
(Continued)
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
|
|
Series
D Convertible Preferred Stock, $.01 par value; 100,000 shares authorized;
700 shares issued and outstanding; no liquidation or redemption
value
|
|
|
7
|
|
Series
E Convertible Preferred Stock, $.001 par value; 1 shares authorized;
1
share issued and outstanding; no liquidation or redemption
value
|
|
|
-
|
|
Common
stock, $.001 par value; 5,000,000,000 shares authorized; 135,236,054
shares issued and outstanding
|
|
|
135,235
|
|
Additional
paid-in capital
|
|
|
1,049,994
|
|
Retained
deficit
|
|
|
(5,688,320
|
)
|
Total
shareholders' deficit
|
|
|
(4,503,017
|
)
|
TOTAL
LIABILITIES AND SHAREHOLDERS' DEFICIT
|
|
$
|
4,864,901
|
|
See
accompanying Notes to Consolidated Financial Statements
TURNAROUND
PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE YEARS ENDED
|
|
2007
|
|
2006
|
|
REVENUE
|
|
|
|
|
|
|
|
Discount
income
|
|
$
|
-
|
|
$
|
10,425
|
|
Consulting
revenue
|
|
|
1,356,160
|
|
|
963,277
|
|
Marketable
securities loss
|
|
|
(303,373
|
)
|
|
(51,093
|
)
|
Fee
income
|
|
|
54,650
|
|
|
204,610
|
|
Total
revenue
|
|
|
1,107,437
|
|
|
1,127,219
|
|
|
|
|
|
|
|
|
|
GENERAL
AND ADMINISTRATIVE EXPENSES
|
|
|
|
|
|
|
|
Salaries
and benefits
|
|
|
831,214
|
|
|
892,286
|
|
Advertising
|
|
|
69,455
|
|
|
120,155
|
|
Business
develeopment, travel and entertainment
|
|
|
62,828
|
|
|
86,685
|
|
Rent
|
|
|
87,453
|
|
|
76,395
|
|
Depreciation
and amortization
|
|
|
24,041
|
|
|
23,874
|
|
Professional
fees
|
|
|
479,161
|
|
|
855,722
|
|
Bad
debt
|
|
|
524,414
|
|
|
243,302
|
|
Other
expenses
|
|
|
211,048
|
|
|
271,995
|
|
Allocated
overhead to affiliated entity
|
|
|
(243,951
|
)
|
|
(308,481
|
)
|
Total
general and administrative expenses
|
|
|
2,045,663
|
|
|
2,261,933
|
|
|
|
|
|
|
|
|
|
OPERATING
LOSS
|
|
|
(938,226
|
)
|
|
(1,134,714
|
)
|
Other
(income) expense:
|
|
|
|
|
|
|
|
Net
change in fair value of derivative liabilities
|
|
|
(141,664
|
)
|
|
(3,642,080
|
)
|
Income
on debt extinguishment
|
|
|
(450,650
|
)
|
|
(130,563
|
)
|
Merger
expense
|
|
|
-
|
|
|
140,000
|
|
Interest
expense
|
|
|
586,508
|
|
|
273,802
|
|
Interest
expense - derivatives
|
|
|
834,572
|
|
|
600,071
|
|
Interest
Income
|
|
|
(17,455
|
)
|
|
(54,790
|
)
|
Loss
from operations and impairment of investment in real estate
partnership
|
|
|
685,136
|
|
|
78,095
|
|
Other
(income) expense
|
|
|
170,302
|
|
|
(22,605
|
)
|
Total
other (income) expense
|
|
|
1,666,749
|
|
|
(2,758,070
|
)
|
Income
(loss) before income tax
|
|
|
(2,604,975
|
)
|
|
1,623,356
|
|
|
|
|
|
|
|
|
|
INCOME
TAX PROVISION
|
|
|
|
|
|
|
|
Current
income tax benefit
|
|
|
-
|
|
|
-
|
|
Deferred
income tax expense (benefit )
|
|
|
-
|
|
|
-
|
|
Total
income tax expense (benefit)
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) FROM CONTINUING OPERATIONS
|
|
|
(2,604,975
|
)
|
|
1,623,356
|
|
TURNAROUND
PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE YEARS ENDED
(continued)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
INCOME
(LOSS) FROM DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
|
-
|
|
|
(4,688
|
)
|
Gain
on sale of subsidiaries
|
|
|
-
|
|
|
3,317,406
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
|
|
(2,604,975
|
)
|
|
4,936,074
|
|
Preferred
dividends paid
|
|
|
-
|
|
|
4,554
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) AVAILABLE TO COMMON SHARES
|
|
$
|
(2,604,975
|
)
|
$
|
4,931,520
|
|
|
|
|
|
|
|
|
|
Basic
income (loss) per share:
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
|
(0.04
|
)
|
|
0.06
|
|
Income
(loss) from discontinued operations
|
|
|
-
|
|
|
0.13
|
|
|
|
$
|
(0.04
|
)
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
Diluted
income (loss) per share:
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
|
-
|
|
|
0.02
|
|
Income
(loss) from discontinued operations
|
|
|
-
|
|
|
0.03
|
|
|
|
$ |
- |
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
Basic
average shares outstanding
|
|
|
63,733,188
|
|
|
25,505,662
|
|
|
|
|
|
|
|
|
|
Diluted
average shares outstanding
|
|
|
63,733,188
|
|
|
98,411,949
|
|
See
accompanying Notes to Consolidated Financial Statements
TURNAROUND
PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
For
the Years Ended December 31, 2006 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
Series B Preferred
|
|
Series C Preferred
|
|
Series D Preferred
|
|
Series E Preferred
|
|
Common Stock
|
|
Paid-in
|
|
Retained
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
100,000
|
|
$
|
1,000
|
|
|
536
|
|
$
|
5
|
|
|
-
|
|
$
|
-
|
|
|
-
|
|
$
|
-
|
|
|
22,710,816
|
|
$
|
22,711
|
|
$
|
719,638
|
|
$
|
(4,701,603
|
)
|
$
|
(3,958,249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
services
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,800,000
|
|
|
4,800
|
|
|
287,700
|
|
|
-
|
|
|
292,500
|
|
Conversion
of debentures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,936,688
|
|
|
1,936
|
|
|
62,065
|
|
|
|
|
|
64,001
|
|
Issuance
of 3,000,000 warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
services
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
141,000
|
|
|
-
|
|
|
141,000
|
|
Redemption
of preferred stock
|
|
|
-
|
|
|
-
|
|
|
(282
|
)
|
|
(3
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(243,498
|
)
|
|
-
|
|
|
(243,501
|
)
|
Transfer
preferred stock to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
current
liability
|
|
|
-
|
|
|
-
|
|
|
(254
|
)
|
|
(2
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(224,976
|
)
|
|
|
|
|
(224,978
|
)
|
Exchange
of series B preferred for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
series
D preferred
|
|
|
(93,334
|
)
|
|
(933
|
)
|
|
-
|
|
|
-
|
|
|
93,334
|
|
|
933
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Reduction
in series D preferred shares
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(92,634
|
)
|
|
(926
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
926
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed
distribution to shareholder
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,313,264
|
)
|
|
(3,313,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,936,074
|
|
|
4,936,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
dividends paid
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,554
|
)
|
|
(4,554
|
)
|
Balance,
December 31, 2006
|
|
|
6,666
|
|
|
67
|
|
|
-
|
|
|
-
|
|
|
700
|
|
|
7
|
|
|
-
|
|
|
-
|
|
|
29,447,504
|
|
|
29,447
|
|
|
742,855
|
|
|
(3,083,345
|
)
|
|
(2,310,969
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
services
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,192,307
|
|
|
1,192
|
|
|
14,308
|
|
|
-
|
|
|
15,500
|
|
Conversion
of debentures
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
104,596,247
|
|
|
104,596
|
|
|
285,673
|
|
|
|
|
|
390,269
|
|
Proceeds
for sale of stock received for Series E preferred stock
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,158
|
|
|
-
|
|
|
7,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,604,975
|
)
|
|
(2,604,975
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
6,666
|
|
$
|
67
|
|
|
-
|
|
$
|
-
|
|
|
700
|
|
$
|
7
|
|
|
1
|
|
$
|
-
|
|
|
135,236,058
|
|
$
|
135,235
|
|
|
1,049,994
|
|
$
|
(5,688,320
|
)
|
$
|
(4,503,017
|
)
|
See
accompanying Notes to Consolidated Financial Statements
TURNAROUND
PARTNER INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(2,604,975
|
)
|
$
|
4,936,074
|
|
|
|
|
|
|
|
|
|
Adjustment
to reconcile net income (loss) to net cash provided by (used in)
operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
24,041
|
|
|
23,874
|
|
Amortization
of deferred expenses
|
|
|
324,918
|
|
|
60,638
|
|
Bad
debts
|
|
|
484,414
|
|
|
243,302
|
|
Loss
from discontinued operations
|
|
|
-
|
|
|
4,688
|
|
Non-cash
stock issued for services
|
|
|
15,500
|
|
|
62,077
|
|
Non-cash
consulting fees
|
|
|
(889,804
|
)
|
|
-
|
|
Non-cash
merger expense
|
|
|
-
|
|
|
140,000
|
|
Non-cash
expense for redemption of preferred stock
|
|
|
152,834
|
|
|
3,072
|
|
Non-cash
expenses
|
|
|
75,853
|
|
|
88,095
|
|
Non-cash
interest expense-derivatives
|
|
|
860,233
|
|
|
600,071
|
|
Net
change in fair value of derivative liability
|
|
|
(167,325
|
)
|
|
(3,642,080
|
)
|
Non-cash
debt modification gain
|
|
|
(450,250
|
)
|
|
(130,563
|
)
|
Non-cash
gain on sale of subsidary
|
|
|
-
|
|
|
(3,317,406
|
)
|
Non-cash
income
|
|
|
(289,722
|
)
|
|
(541,527
|
)
|
Loss
from and impairment of investment in real estate
partnership
|
|
|
685,136
|
|
|
-
|
|
(Increase)
decrease in assets:
|
|
|
|
|
|
|
|
Other
accounts receivable
|
|
|
295,216
|
|
|
(245,186
|
)
|
Notes
receivable
|
|
|
6,415
|
|
|
211,142
|
|
Prepaid
and other
|
|
|
(89,562
|
)
|
|
102,412
|
|
Investment
in marketable securities
|
|
|
(246,137
|
)
|
|
391,060
|
|
Increase
(decrease) in liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(37,623
|
)
|
|
(8,588
|
)
|
Accrued
liabilities
|
|
|
(152,236
|
)
|
|
241,405
|
|
Unearned
income
|
|
|
76,667
|
|
|
717,749
|
|
Due
to clients
|
|
|
-
|
|
|
(19,608
|
)
|
Accrued
interest
|
|
|
435,750
|
|
|
225,418
|
|
Net
cash provided by (used in) operating activities
|
|
|
(1,490,657
|
)
|
|
146,119
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
Purchases
of fixed assets
|
|
|
(3,091
|
)
|
|
(21,784
|
)
|
Cash
received in purchase and from sale of subsidiary
|
|
|
-
|
|
|
559,742
|
|
Cash
received for sale of investment
|
|
|
198,899
|
|
|
-
|
|
Cash
paid in purchase of subsidiary
|
|
|
-
|
|
|
(10,000
|
)
|
Investment
purchases
|
|
|
-
|
|
|
(7,073
|
)
|
Preferental
returns on capital of and distribution from partnership
|
|
|
481,250
|
|
|
78,750
|
|
Net
cash provided by investing activities
|
|
|
677,058
|
|
|
599,635
|
|
TURNAROUND
PARTNER INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Continued)
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
Principal
payments on note payable
|
|
|
(84,233
|
)
|
|
(64,258
|
)
|
Dividends
paid on preferred stock
|
|
|
-
|
|
|
(4,554
|
)
|
Net
cash used in financing activities
|
|
|
(84,233
|
)
|
|
(68,812
|
)
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(897,832
|
)
|
|
676,942
|
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
1,153,793
|
|
|
476,851
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
255,961
|
|
$
|
1,153,793
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
INFORMATION
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
50,040
|
|
$
|
14,689
|
|
Taxes
paid
|
|
$
|
-
|
|
$
|
9,882
|
|
Decrease
in notes receivable
|
|
$
|
900,000
|
|
$
|
-
|
|
Acquisition
of investment
|
|
$
|
1,789,804
|
|
$
|
-
|
|
Conversion
of convertible debentures and accrued interest:
|
|
|
|
|
|
|
|
Decrease
in debentures and accrued interest
|
|
$
|
390,265
|
|
$
|
63,996
|
|
Increase
in common stock
|
|
$
|
104,596
|
|
$
|
1,936
|
|
Increase
in paid-in-capital
|
|
$
|
285,673
|
|
$
|
62,065
|
|
Sale
of Preferred Stock - Series E
|
|
|
|
|
|
|
|
Increase
in Accounts Receivable
|
|
$
|
7,158
|
|
$
|
-
|
|
Increase
in Paid-in-capital
|
|
$
|
7,158
|
|
$
|
-
|
|
Disposition
of investment
|
|
|
|
|
|
|
|
Purchase
of notes receivable
|
|
$
|
586,000
|
|
$
|
-
|
|
Collection
of affiliate receivable
|
|
$
|
106,905
|
|
$
|
-
|
|
Decrease
in investment exchanged for notes receivable and affiliate
receivable
|
|
$
|
889,804
|
|
$
|
-
|
|
Redemption
of preferred stock
|
|
$
|
36,000
|
|
$
|
-
|
|
Disposition
of furniture and fixtures
|
|
$
|
48,837
|
|
$
|
-
|
|
Exercise
of investment of stock warrants
|
|
$
|
11,000
|
|
$
|
-
|
|
Redemption
and purchase of preferred stock:
|
|
|
|
|
|
|
|
Decrease
in accounts receivable
|
|
$
|
-
|
|
$
|
22,500
|
|
Increase
in notes payable
|
|
$
|
-
|
|
$
|
240,000
|
|
Decrease
in paid-in capital
|
|
$
|
-
|
|
$
|
243,498
|
|
Sale
of subsidiary:
|
|
|
|
|
|
|
|
Assets
sold
|
|
$
|
-
|
|
$
|
2,906,001
|
|
Liabilities
assumed by buyer
|
|
$
|
-
|
|
$
|
5,861,821
|
|
Purchase
of subsidiary:
|
|
|
|
|
|
|
|
Assets
purchased
|
|
$
|
-
|
|
$
|
5,081,476
|
|
Liabilities
assumed
|
|
$
|
-
|
|
$
|
3,906,744
|
|
Deemed
distribution
|
|
$
|
-
|
|
$
|
3,313,264
|
|
Common
stock and warrants issued for services:
|
|
|
|
|
|
|
|
Increase
in prepaids
|
|
$
|
-
|
|
$
|
221,423
|
|
Increase
in common stock
|
|
$
|
-
|
|
$
|
3,800
|
|
Increase
in paid-in-capital
|
|
$
|
-
|
|
$
|
279,700
|
|
See
accompanying Notes to Consolidated Financial Statements
TURNAROUND
PARTNERS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007 and 2006
NOTE
1 -
DESCRIPTION OF MERGER, NATURE OF OPERATIONS AND CONSOLIDATION
On
August
31, 2005, NuWave entered into a merger agreement (the "Agreement") with
Corporate Strategies, Inc. ("Corporate Strategies") and the shareholders
of
Corporate Strategies ("Shareholders"). The Company was subsequently renamed
Turnaround Partners, Inc. The transaction was accounted for as a reverse
acquisition since control of the merged group passed to the shareholders
of the
acquired company (Corporate Strategies).
Pursuant
to the terms of the Agreement, the Company issued one (1) share of its common
stock ("Common Stock"), par value $0.001 per share, to each holder of Corporate
Strategies Class A common stock in exchange for two (2) shares of Corporate
Strategies Class A common stock, par value $0.001 per share. Second, the
Company
issued one (1) share of the Company's Series C preferred stock ("Series C
Preferred"), par value $0.01 per share, to each holder of Corporate Strategies
Series A preferred stock for one (1) share of Corporate Strategies Series
A
preferred stock, par value $0.001 per share.
The
Company issued and delivered shares of its Series B convertible Preferred
stock
("Series B Preferred") to each holder of Corporate Strategies Class B common
stock so that effectively upon conversion of the Series B Preferred into
common
shares, the common shares issued upon conversion shall be equal to ninety-five
percent (95%) of the issued and outstanding stock of the Company (calculated
on
a fully diluted basis as of the date of the Merger, following the issuance
of
all the Merger Consideration (as such term is defined in the Agreement) and
after giving effect to such conversion, but not including any shares of Common
Stock issuable upon conversion of any then outstanding Company convertible
debentures ). Therefore, the Merger Consideration for the Common Stock, Series
C
Preferred and Series B Preferred was the Corporate Strategies Class A common,
Series A preferred and Class B common, respectively. The number of shares
issued
to the Shareholders in connection with the Merger was based upon a determination
by the Company's Board of Directors (the "Board").
The
terms
of the Series B Preferred were subsequently modified. In connection with
the
Kipling purchase, 93,334 shares of Series B Preferred were exchanged for
a like
number of Series D Preferred, which were subsequently reduced to 700 shares
of
Series D Preferred. The remaining 6,666 shares of Series B Preferred are
convertible into 4,195,445 shares of common stock. Each share of the Series
D
may be convertible, at the option of the holder, at any time and from time
to
time after December 31, 2006 through June 30, 2009, into that number of shares
of Common Stock equal to the greater of (a) one tenth of one percent (0.1%)
of
the total number of shares of Common Stock issued and outstanding as of the
last
day of the fiscal quarter immediately preceding such date of conversion,
calculated on a fully diluted basis after giving effect to the conversion
of
such share(s) of Series D and (b) One Hundred Thousand (100,000) shares of
Common Stock. Each share of Series D Preferred Stock held by the Holders
which
has not been converted on or before June 30, 2009 into shares of Common Stock
shall be convertible, at the option of the Holder of such share, at any time
and
from time to time after December 31, 2010 into one tenth of one percent (0.1%)
of the total number of shares of Common Stock issued and outstanding on June
30,
2009, calculated on a fully diluted basis after giving effect to the conversion
of such share(s) of Series D Preferred Stock. The shares of Common Stock
received upon conversion shall be fully paid and non-assessable shares of
Common
Stock. Due to the change in control of the Company, Mr. Connolly and his
spouse
may not convert debentures that would result in ownership of more than 4.99%
of
the Company at the time of conversion.
The
Series B and D Convertible Preferred Stockholders and the holders of the
common
stock vote together and the Preferred Stock shall be counted on an "as
converted" basis, thereby giving the Preferred Shareholders control of the
Company.
On
May
31, 2006, we filed an S-8 with the Securities and Exchange Commission for
the
Emerge Capital Corp. 2005 Stock Incentive Plan (the “Plan”). The document was
submitted to register 10,000,000 shares of common stock. The purpose of the
Plan
is to promote the long-term growth and profitability of the Company by (a)
providing key people with incentives to improve shareholder value and to
contribute to the growth and financial success of the Company, and (b)
enabling the Company to attract, retain and reward the best-available persons.
This document is herein incorporated by reference. As of December 31, 2007
there
were 7,250,000 shares available under the Plan.
On
September 30, 2006, we completed a stock purchase agreement (the “Agreement”)
with Kipling Holdings, Inc. (“Kipling”) and Timothy J. Connolly, to acquire 100%
of the total issued and outstanding capital stock of Kipling Holdings, Inc.
(“Kipling”), a Delaware corporation. Kipling holds 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 (the “Purchase
Agreement”)
with
Mr. Timothy J. Connolly, an individual and Viewpoint Capital, LLC, a Nevada
limited liability company (the “Investor”)
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 (“Series
E Preferred”),
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
(“Common
Stock”)
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., a Nevada corporation (“ACGU
Common Stock”)
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. Consequently, our investment in marketable securities
as
of December 2007 includes the net realizable value of these securities sold
in
March 2008.
Effective
as of the Closing Date, Mr. Connolly resigned as Vice Chairman of the Board
and
as President and Chief Executive Officer of the Company, however Mr. Connolly
shall continue to serve as President and Chief Executive Officer of Corporate
Strategies, Inc., a Texas corporation and wholly-owned subsidiary of the
Company
(“CSI”)
with
the understanding that the business of CSI will be discontinued or spun off
to
its stockholders. In addition, Mr. Connolly shall continue to receive the
same
compensation as he has received through the Closing Date for his aforementioned
continued services to CSI through December 31, 2008, which such date may
be
extended by mutual agreement by and among the parties to the Purchase Agreement.
Furthermore,
Mr. Connolly (and his spouse) agreed on the Closing Date to relinquish certain
non-dilutive rights in favor of Mr. Connolly (and his spouse) contained in
Seven
Hundred (700) shares of Series D convertible preferred stock held by Mr.
Connolly (and his spouse) effective June 30, 2009 (instead of the previous
date
of December 31, 2010) in exchange for the Company conveying all rights to
the
names “Turnaround Partners, Inc.”, “Corporate Strategies, Inc.” and “Kipling
Holdings, Inc.”, as well as all title to all furniture and equipment in the
Houston office of the Company. The parties to the Purchase Agreement also
agreed
that the names of these companies shall be changed within sixty (60) days
following the Closing Date.
As
disclosed in the Form 8-K Current Report referred to above, the Company
disclosed that effective as of December 27, 2007, the Board of Directors
of the
Registrant (the “Board”)
accepted the resignation of (a) Wm. Chris Mathers from his position as Chief
Financial Officer of the Registrant and (b) Fred Zeidman from his position
as a
member of the Board. Mr. Russell Kidder, the Registrant’s current President,
Chief Executive Officer and member of the Board, shall serve as interim Chief
Financial Officer, effective as of December 27, 2007.
In
connection with the Purchase Agreement, Mr. Russell Kidder was appointed
to
serve as President, Chief Executive Officer and as a Director of the Company
effective as of the Closing Date.
As
filed
on Form 8-K Current Report on January 3, 2008, 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.
NATURE
OF
OPERATIONS AND ORGANIZATION
The
discussion below regarding the nature of operations and organization assumes
the
Company will continue with the current business plan, however in light of
the
Company’s change in control of ownership, the Company is contemplating a new
business model. Currently, the Company believes the new business plan going
forward is to focus on alternative and clean technologies.
The
Company is an established provider of restructuring strategies, turnaround
execution and business development services for emerging and re-emerging
public
companies. The Company markets its services to public companies, hedge funds,
institutional investors and banks that have significant exposure in troubled
micro-cap public companies. These companies are typically either in operational
or financial difficulty and may be in default of lending or equity agreements,
and as a result, they may be facing bankruptcy or liquidation if their
operations are not turned around. 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%.
The
Company is generally compensated with a combination of cash payments on a
monthly or quarterly basis, and outright grants of equity in the form of
common
stock and/or warrants for purchasing common stock. We believe this compensation
plan aligns our interests with the client company's shareholders because
our
ultimate compensation is maximized by successfully increasing shareholder
value.
This performance based compensation arrangement clearly demonstrates that
our
interests are consistent with both our clients and their
shareholders.
The
Company minimizes risk from our restructuring/turnaround clients by implementing
the following policies:
· |
The
Company will not assume the financial obligations of the client company
in
any circumstance. In most cases, the financial institution with the
greatest risk has referred the Company to the
transaction.
|
· |
The
Company requires the client or their investor to provide the client
company with working capital necessary to execute the turnaround
plan.
|
· |
The
Company requires the client to fully indemnify the Company against
any
actions, with the exception of gross negligence or
malfeasance.
|
· |
If
the client has officer and director insurance, we require the client
to
add the Company or any of the Company's contractors as insured parties
under the policy.
|
· |
Should
the Company consider altering any of the policies above, it will
require a
vote of our Board of Directors to waive them and agree to the maximum
amount of risk that the Company will
assume.
|
The
Company also actively trades securities and options with available cash.
Many of
these transactions contain a considerable amount of risk.
Lehigh
Acquisition Corp. ("Lehigh") was a subsidiary of NuWave and is treated as
if it
was acquired August 31, 2005, the date of the merger. Lehigh was sold on
February 3, 2006. These financial statements include the operations of Lehigh
through February 3, 2006 as discontinued operations.
CONSOLIDATION
AND PRESENTATION
The
accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant inter-company balances and
transactions have been eliminated.
NOTE
2
-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE
RECOGNITION
The
Company's revenue recognition policies are in compliance with Staff Accounting
Bulletin 104. Revenue is recognized at the date a formal arrangement exists,
the
price is fixed or determinable, the delivery is complete, no other significant
obligation of the Company exists and collectibility is reasonably
assured.
Revenues
from sales of real estate are recorded when title is conveyed to the buyer,
adequate cash payment has been received and there is no continued involvement.
One of our subsidiaries holding real estate was sold in February
2006.
Commission
income from the brokering of loans is recognized when all of the services
required to be performed for such revenues have been completed. Incremental
direct costs include credit reports appraisal fees, document preparation
fees,
wire fees, filing fees, and commissions, and are included in operating expenses,
net of reimbursements.
Discount
income from purchased receivables represents a percentage of the purchased
invoice. The discount percentage earned is determined by the number of days
the
invoice is outstanding. Management does not anticipate generating any
significant new business in this area.
Consulting
revenue is recognized as services are performed.
Marketable
securities gains (losses) is both trading gains or losses and the change
in
market value of the trading securities owned by the Company, including related
puts and calls. The Company accounts for marketable securities in accordance
with Financial Accounting Standard 115 "Accounting for Certain Investments
in
Debt and Equity Securities."
USE
OF
ESTIMATES
The
preparation of consolidated financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
CASH
AND
CASH EQUIVALENTS
For
purposes of the consolidated statement of cash flows, the Company considers
all
short-term securities purchased with a maturity date of three months or less
to
be cash equivalents.
COLLECTIBILITY
OF ACCOUNTS AND NOTES RECEIVABLE
The
accounts and notes receivable are reviewed monthly for aging and quarterly
credit evaluation of the customer's financial condition to determine
collectibility. Write-offs or an increase in the allowance for doubtful accounts
are made based on this evaluation. The allowance for doubtful accounts was
approximately $482,686 for the year ended December 31, 2007.
FIXED
ASSETS
Fixed
assets are stated at cost. Depreciation is computed using the straight-line
method over estimated useful lives of three to five years. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
useful life of the improvement or the term of the lease.
When
assets are retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss
is
recognized in operations for the period. The cost of maintenance and repairs
is
charged to expense as incurred; significant renewals and betterments are
capitalized.
The
Company did not have any fixed assets as of December 31, 2007. As part of
the
December 2007 transaction with ACGU, title to all furniture and equipment
in the
Houston office of the Company was conveyed to the ex-Vice Chairman of the
Board
of Directors and ex-CEO, Tim Connolly.
LAND
HELD
FOR DEVELOPMENT AND SALE
Land
held
for development and sale is stated at the seller's historical cost basis,
plus
the costs of improvements. The subsidiary holding the land was sold in February
2006.
IMPAIRMENT
OF LONG-LIVED ASSETS
The
Company periodically assesses the recoverability of long-lived assets, including
property and equipment, and the investment in the real estate partnership,
when
there are indications of potential impairment, based on estimates of
undiscounted future cash flows. The amount of impairment is calculated by
comparing anticipated discounted future cash flows with the carrying value
of
the related asset. In performing this analysis, management considers such
factors as current results, trends, and future prospects, in addition to
other
economic factors.
For
the
2007 Period, we recorded an operating loss and impairment on our investment
in
the West Palm Beach hotel within Kipling Holdings, Inc. in the amount of
$685,136. Included in this amount is $540,000 for impairment of long-lived
asset. During the fourth quarter of 2007 there was a proposed sale of the
hotel
that would have resulted in a loss to the Company of approximately $540.000.
The
sale of the hotel did not occur, but the asset was written down to estimated
net
realizable value nevertheless. The business segment affected is our “Hotel
Investment” as found in Footnote 20 of the consolidated financial
statements.
DERIVATIVE
FINANCIAL INSTRUMENTS
Derivatives
are 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.
FAIR
VALUE DISCLOSURE AT DECEMBER 31, 2007
The
carrying value of cash, notes and accounts receivable, accounts payable,
accrued
liabilities and notes payable are reasonable estimates of their fair value
because of short-term maturity.
INCOME
TAXES
The
Company accounts for income taxes under SFAS No. 109, "Accounting for Income
Taxes," which requires an asset and liability approach to financial accounting
and reporting for income taxes. The difference between the financial statement
and tax basis of assets and liabilities is determined annually. Deferred
tax
assets and liabilities are computed for those differences that have future
tax
consequences using the currently enacted tax laws and rates that apply to
the
periods in which they are expected to affect taxable income. Valuation
allowances are established, if necessary, to reduce the deferred tax asset
to
the amount that will assure full realization. Income tax expense is the current
tax payable or refundable for the period plus or minus the net change in
the
deferred
tax assets and liabilities.
ADVERTISING
Advertising
costs are expensed as incurred. Advertising expense on continuing operations
was
$69,455 and $120,155 for the years ended December 31, 2007 and 2006,
respectively.
NET
INCOME (LOSS) PER SHARE
Basic
income (loss) per share is computed by dividing the net income (loss) available
to common shareholders by the weighted average of common shares outstanding
during the year. Diluted per share amounts assume the conversion, exercise,
or
issuance of all potential common stock instruments unless the effect is
anti-dilutive, thereby reducing the loss or increasing the income per
share.
RECENT
ACCOUNTING PRONOUNCEMENTS
In
June
2006, the Financial Accounting Standards Board (“FASB”)
issued
FASB Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes” (“FIN 48”).
FIN 48 clarifies the application of SFAS No. 109, Accounting
for Income Taxes,
by
establishing a threshold condition that a tax position must meet for any
part of
the benefit of that position to be recognized in the financial statements.
In
addition to recognition, FIN 48 provides guidance concerning measurement,
derecognition, classification and disclosure of tax positions. FIN 48 is
effective for fiscal years beginning after December 15, 2006; accordingly,
the Company adopted FIN 48 effective as of January 1, 2007. The
adoption of FIN 48 did not have a material impact on its effective tax
rate.
In
September 2006, the SEC staff issued Staff Accounting Bulletin (“SAB”)
No. 108, Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements. SAB 108
provides guidance on how the effects of the carryover or reversal of prior
year
misstatements should be considered in quantifying a current year misstatement.
SAB 108 established a dual approach that requires quantification of errors
under two methods: (1) roll-over method which quantifies the amount by
which the current year income statement is misstated, and (2) the iron
curtain method which quantifies the error as the cumulative amount by which
the
current year balance sheet is misstated. In some situations, companies will
be
required to record errors that occurred in prior years even though those
errors
were immaterial for each year in which they arose. Companies may choose to
either restate all previously presented financial statements or record the
cumulative effect of such errors as an adjustment to retained earnings at
the
beginning of the period in which SAB 108 is applied. SAB 108 is
effective for fiscal years ending after November 15, 2006. The adoption of
this pronouncement did not have an impact on the Company’s financial position or
results of operations.
In
September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements (“SFAS
No. 157”).
This
statement defines fair value, establishes a framework for measuring fair
value
in generally accepted accounting principles, and expands disclosures about
fair
value measurements. This statement clarifies how to measure fair value as
permitted under other accounting pronouncements but does not require any
new
fair value measurements. SFAS No. 157 was originally effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. On February 12, 2008, the FASB
issued
Final FASB Staff Position (“FSP”)
No.
Financial Accounting Standard (“FAS”)
157-2,
Effective
Date of FASB Statement No.
157 (“FSP
No. 157-2”).
FSP
No. 157-2, which was effective upon issuance, delays the effective date of
SFAS
No. 157 for nonfinancial assets and nonfinancial liabilities, except for
items
that are recognized or disclosed at fair value at least once a year, to fiscal
years beginning after November 15, 2008. The Company expects to adopt FAS
No.
157 on January 1, 2008 and 2009 for financial assets and financial liabilities
and nonfinancial assets and nonfinancial liabilities, respectively. The Company
does not believe that the adoption of FAS No. 157 will have a material effect
on
the Company’s consolidated financial statements.
In
July
2006, the FASB issued FIN 48, which clarifies the accounting for uncertainty
in
tax positions. This Interpretation requires that the Company recognize in
our
financial statements, the impact of a tax position, if that position is more
likely than not of being sustained on audit, based on the technical merits
of
the position. The provisions of FIN 48 are effective as of the beginning
of our
2007 fiscal year, with the cumulative effect of the change in accounting
principle recorded as an adjustment to opening retained earnings. The adoption
of FIN 48 did not have a material effect on the Company’s financial condition or
results of operations for the year ended December 31, 2007.
In
February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Liabilities Including an amendment
of
FASB Statement No. 115 (“SFAS
No. 159”).
SFAS
No. 159 permits entities to choose to measure many financial instruments
and
certain other items at fair value that are
not
currently required to be measured at fair value. SFAS No. 159 also establishes
presentation and disclosure requirements designed to facilitate comparisons
between entities that choose different measurement attributes for similar
types
of assets and liabilities. SFAS No. 159 is effective as of the beginning
of an entity’s first fiscal year that begins after November 15, 2007. The
Company expects to adopt SFAS No. 159 on January 1, 2008. The Company has
evaluated the impact of adopting SFAS No. 159 and has determined that it
will
not elect the fair value option under SFAS No.159 for any financial instruments
that are not required to be presented at fair value under generally accepted
accounting principles.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51”
(“SFAS
160”).
SFAS
160 establishes new accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. Before
this statement, limited guidance existed for reporting noncontrolling interests
(minority interest). As a result, diversity in practice exists. In some cases
minority interest is reported as a liability and in others it is reported
in the
mezzanine section between liabilities and equity. Specifically, SFAS 160
requires the recognition of a noncontrolling interest (minority interest)
as
equity in the consolidated financials statements and separate from the parent’s
equity. The amount of net income attributable to the noncontrolling interest
will be included in consolidated net income on the face of the income statement.
SFAS 160 clarifies that changes in a parent’s ownership interest in a subsidiary
that do not result in deconsolidation are equity transactions if the parent
retains its controlling financial interest. In addition, this statement requires
that a parent recognize gain or loss in net income when a subsidiary is
deconsolidated. Such gain or loss will be measured using the fair value of
the
noncontrolling equity investment on the deconsolidation date. SFAS 160 also
includes expanded disclosure requirements regarding the interests of the
parent
and its noncontrolling interests. SFAS 160 is effective for the Company on
January 1, 2009. Earlier adoption is prohibited.
The Company is currently evaluating the impact, if any, of the adoption of
SFAS
160 will have on its consolidated financial statements.
In
December 2007, the FASB issued SFAS No. 141R, Business
Combinations.
SFAS
No. 141R provides companies with principles and requirements on how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, liabilities assumed, and any noncontrolling interest in the acquiree
as well as the recognition and measurement of goodwill acquired in a business
combination. SFAS No. 141R also requires certain disclosures to enable users
of
the financial statements to evaluate the nature and financial effects of
the
business combination. Acquisition costs associated with the business combination
will generally be expensed as incurred. SFAS 141R is effective for business
combinations occurring in fiscal years beginning after December 15, 2008.
Early
adoption of SFAS No. 141R is not permitted. The Company is currently evaluating
the impact SFAS No. 141R will have on any future business
combinations.
NOTE
3 –
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:
|
|
Years
Ended
|
|
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
(2,604,975
|
)
|
$
|
1,623,356
|
|
Less
effect of derivatives, preferred stock and convertible
debenture
|
|
|
828,766
|
|
|
-
|
|
Adjusted
income (loss) from continuing operations
|
|
$
|
(1,776,209
|
)
|
$
|
1,623,356
|
|
|
|
|
|
|
|
|
|
Income
(loss) from discontinued operations
|
|
|
-
|
|
|
(4,688
|
)
|
Gain
on sale of subsidiary
|
|
|
-
|
|
|
3,317,406
|
|
Net
income (loss)
|
|
$
|
(1,776,209
|
)
|
$
|
4,936,074
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares
|
|
|
63,733,188
|
|
|
25,505,662
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
Series
B preferred stock
|
|
|
-
|
|
|
4,195,445
|
|
Series
D preferred stock
|
|
|
-
|
|
|
68,710,842
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares
|
|
|
63,733,188
|
|
|
98,411,949
|
|
|
|
|
|
|
|
|
|
Income
(loss) per share:
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
(0.04
|
)
|
$
|
0.06
|
|
Income
(loss) from discontinued operations
|
|
|
-
|
|
|
0.13
|
|
Net
income (loss)
|
|
$
|
(0.04
|
)
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
-
|
|
$
|
0.02
|
|
Income
(loss) from discontinued operations
|
|
|
-
|
|
|
0.03
|
|
Net
income (loss)
|
|
$
|
-
|
|
$
|
0.05
|
|
|
(1)
|
A
weighted average year-to-date number of Convertible Debentures to
convert
into 52,502,492 and 51,383,109 shares of common stock were outstanding
during the twelve months ended December 31, 2007 and 2006, respectively,
but were not included in the computation of diluted per share net
income
(loss) for the twelve months ended December 31, 2007 or 2006 because
they
were anti-dilutive. In addition, because they were anti-dilutive,
4,195,445 of Series B preferred stock and 94,665,241 of Series D
preferred
stock were not included in the computation of diluted per share.
In
addition there were 3,000,000 warrants that were not included because
of
their anti-dilutive effect.
|
NOTE
4 -
CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Financial
instruments, which potentially subject the Company to concentrations of credit
risk consist principally of cash, accounts and notes receivable and marketable
securities. The Company maintains its cash accounts in high quality FDIC insured
banks in Texas and in money market brokerage accounts. The Company's accounts
receivables consist of receivables for consulting from companies located in
the
United States. The Company performs ongoing credit evaluations of its customers'
financial conditions to ensure collections and minimize losses. The Company
reduces its credit risk relating to marketable securities through
diversification of marketable securities held. See Note 7 - Investment in
Marketable Securities for risks associated with a short-term investment in
auction rate securities.
For
the
years ended December 31, 2007 and 2006, the Company had sales as a percent
of
annual revenues from continuing operations from the following
customers:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Customer
A
|
|
|
63
|
%
|
|
0
|
%
|
Customer
B
|
|
|
9
|
%
|
|
31
|
%
|
Customer
C
|
|
|
0
|
%
|
|
25
|
%
|
Customer
D
|
|
|
9
|
%
|
|
19
|
%
|
Customer
E
|
|
|
19
|
%
|
|
0
|
%
|
No
other
customers accounted for more than 10% of revenue during the year.
NOTE
5 -
CONCENTRATION OF TRANSACTIONS WITH YA GLOBAL INVESTMENTS, LP (“YA Global”) (fka
Cornell Capital Partners, LP).
At
December 31, 2007, $7,826,100 of the convertible debentures are owed to YA
Global and Highgate House Funds, Ltd., an affiliate of YA Global.
YA
Global
is the principal lender to the Company.
In
February 2006, the Company sold its wholly-owned subsidiary, Lehigh, to YA
Global for total proceeds of $5,948,407 including the assumption of $4,881,274
promissory notes, $400,000 of convertible debentures, $573,737 of accrued
expense and interest and cash of $93,396. The transaction resulted in a gain
of
$3,042,406.
NOTE
6 -
FIXED ASSETS
The
Company did not have any fixed assets as of December 31, 2007. As part of the
December 2007 transaction with ACGU, title to all furniture and equipment in
the
Houston office of the Company was conveyed to the ex-Vice Chairman of the Board
of Directors and CEO, Tim Connolly.
Depreciation
expense for the years ended December 31, 2007 and 2006 was $24,041 and $23,874,
respectively.
NOTE
7 -
INVESTMENT IN MARKETABLE SECURITIES
Investments
in marketable securities primarily include shares of common stock in various
companies. The investments are considered trading securities, and accordingly
any changes in market value are reflected in the consolidated statement of
operations. At December 31, 2007 and 2006, the Company had unrealized losses
of
$25,353 and $158,809, respectively, related to marketable securities held on
those dates. These unrealized gains and losses are included in the consolidated
statements of operations for the respective years.
Investments
include shares of common stock in companies which do not have a readily
determinable fair market value and are accounted for using the cost method.
Once
a quarter, the financial statements, operations and any other information needed
to evaluate these investments are reviewed to determine if an impairment needs
to be recorded. At December 31, 2007, the Company had $29,852 of investment
in
preferred stock carried at cost.
As
of
December 31, 2007, $500,000 of our short-term investments was invested in
auction rate securities, or ARSs. The $500,000 we have invested in ARSs at
April
28, 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.
NOTE
8 – ACQUISITION OF KIPLING HOLDINGS, INC.
On
September 30, 2006, we completed a stock purchase agreement (the “Agreement”) to
acquire 100% of the total issued and outstanding capital stock of Kipling
Holdings, Inc. (“Kipling”), a Delaware corporation from Timothy J. Connolly in
consideration of (a) our assumption of all of the liabilities of Kipling,
subject to certain consents, (b) certain anti-dilution rights as set forth
in
the Agreement and (c) all legal and other costs and expenses incurred by Kipling
in consideration with this Agreement. Mr. Connolly serves as CEO of Turnaround
and therefore (i) Turnaround obtained a third party appraisal of the Company
which valued the required asset at Two Million Two Hundred Fifty Thousand
Dollars ($2,250,000) more than the liabilities assumed and (ii)
Turnaround’s other (disinterested) Board member and CFO reviewed and approved
this affiliate transaction. Mr. Connolly received no profit from this
affiliated transaction. Because this transaction was between parties under
common control, we recorded the $3,313,264 of consideration in excess of Mr.
Connolly’s original cost basis as a deemed distribution to Mr. Connolly. The
Agreement had been subject to the written consent of Highgate House Funds,
Ltd.
(“Highgate”),
which
the Company and Highgate reduced to writing effective as of September 30, 2006.
Kipling primarily provides capital for investments in the hospitality industry.
Kipling, at December 31, 2007, owned a thirty percent interest in a Hilton
hotel
under construction in West Palm Beach, Florida. Since the purchase was effective
on September 30, 2006 the Company did not record any revenue or expenses during
the nine months ended September 30, 2006. The loss for the period, October
1
through December 31, 2006, and for the entire year ended December 31, 2007
had
been included in the statement of operations.
In
a
separate agreement with an individual, the Company issued an additional
2,000,000 shares and 3,000,000 warrants ($0.05 per warrant) in consideration
of
the individual’s surrender of his option, rights or other interests whatsoever
to purchase any capital stock of Kipling Holdings, Inc. The Company has valued
these 2,000,000 shares at $140,000. The Company used the closing price of $0.07
per share on September 30, 2006, the date of contract execution, as the value
assigned to these shares. This expense is included as merger expense for the
twelve months ended December 31, 2006. The Company has valued the 3,000,000
warrants in the amount of $141,000 using the Black Sholes method and is
amortized over the term of the agreement.
Assets
and liabilities acquired in the acquisition
The
Company has a thirty percent limited partnership interest in Worthington
Hospitality, L.L.L.P. (Worthington) totaling $3,720,007. The initial investment
of $4,500,000 was funded on December 7, 2005. The partnership currently has
a
Hilton hotel, which became operational in February 2007, in West Palm Beach,
Florida. The partnership agreement provides for a preferential return of seven
percent per annum on the capital contributions funded by the investors until
such time as the hotel/partnership secures a temporary or permanent certificate
of occupancy, at which time the preferential return shall cease to accrue.
As of
December 31, 2007, the $4,500,000 Investment in Worthington has been reduced
by
$481,250 for the preferential return and distributions of capital, cumulative
partnership income and loses and a $540,000 impairment through December 31,
2007. The Company receives thirty percent of any monetary amounts paid out
by
the partnership and will be allocated thirty percent of all operating profits,
non-operating profits and losses of the partnership. This investment is
accounted for using the equity method.
Worthington
started its operations September 14, 2005. At December 31, 2007 Worthington
had
a book value of $2,648,223 consisting of cash, land, building, furniture and
fixtures, equipment and other assets of $12,199,936 and accounts payable and
debt of $9,551,713. The difference between the book value of the investment
and
the underlying equity in the net assets per the partnership at the date of
completion of the hotel in the amount of $2,694,557 is being depreciated over
25
years which is the same as the depreciable life of the building.
The
general partner has exclusive responsibility for management of the partnership
including the power to sell the hotel and land. Limited partners have no right
or authority to conduct partnership business. The partnership agreement provides
that, without the unanimous consent of the limited partners, the general partner
cannot transfer less than 100% of the partnership interests. If the general
partner decides to transfer 100% of the partnership interest in an
“arm’s-length” transaction, he may require all of the partners to transfer all
of their respective interest. Limited partners are not responsible for the
expenses, liabilities or obligations of the partnership except as expressly
assumed or guaranteed.
Debenture
Payable from the acquisition
The
Company is the issuer of a $6,225,000 Secured Convertible Debenture (“the
Debenture”) payable to Highgate House Funds, Ltd (“Holder”), dated December 2,
2005. The Debenture bears interest at the rate of 7%, which is accrued until
maturity. The Debenture is due and payable in full, including accrued interest
from inception, on December 1, 2010. Associated deferred debenture costs in
the
amount of $43,725, net of $18,219 amortization as of December 31, 2007, has
been
recorded as a non-current asset.
The
Debenture is convertible, at the option of the Holder, into common stock of
the
Company at a price per share equal to the lower of (i) $.50 (the “Fixed Price”)
or (ii) eighty percent (80%) of the lowest closing bid price for the five (5)
trading days immediately preceding the date of conversion or, if a special
event
of default occurs, at a price per share equal to eighty percent (80%) of the
lowest closing bid price for the thirty (30) trading days immediately preceding
the date of conversion. The shares of common stock issuable by the Company
to
the investor upon conversion of shares of the Debentures will not be registered
initially under the Securities Act of 1933. The Company is obligated to register
the resale of the conversion shares under the Securities and Exchange Act,
pursuant to the terms of the Investor Registration Rights Agreement dated
December 2, 2005. The Registration Rights Agreement called for the Company
to
register the underlying securities no later than 180 after the execution of
the
Debenture agreement (this requirement has been extended to June 30, 2008) and
use its best efforts to have the Initial Registration statement declared
effective by the SEC no later than ninety days after the date
filed.
Per
the
original agreement, in the event the Registration Statement is not filed by
December 6, 2006 or is not declared effective within ninety days of the filing
date, the Company will pay liquidated damages, to the Holder, a cash amount
equal to two percent per month of the outstanding principal amount of the
Debenture outstanding. The holder had verbally agreed to extend the registration
filing requirement date to June 30, 2008. The requirement under the Registration
Rights Agreement for this debenture has now been verbally waived.
The
debenture is secured by all of the assets and property of the Company including
the investment in Worthington.
The
following unaudited pro forma financial information presents the consolidated
results of operations for the twelve months ended December 31, 2006, as if
the
acquisition had occurred on January 1, 2006, after giving effect to certain
adjustments. The pro forma information does not necessarily reflect the results
of operations that would have occurred had the entities been a single company
during this period. Kipling was not in existence for the period ending December
31, 2005.
|
|
December 31, 2006
|
|
|
|
(unaudited)
|
|
|
|
|
|
Net
sales
|
|
$
|
1,127,219
|
|
Net
income (loss)
|
|
$
|
1,591,354
|
|
Weighted
average number of common shares outstanding – basic
|
|
|
25,505,662
|
|
Weighted
average number of common shares outstanding – diluted
|
|
|
98,411,949
|
|
Income
per common share – basic
|
|
$
|
0.19
|
|
Income
per common share – diluted
|
|
$
|
0.05
|
|
NOTE
9 -
NOTES PAYABLE
On
November 20, 2002, the Company obtained an unsecured revolving line of credit
of
$100,000 at prime plus 2% with an open maturity date. At December 31, 2007,
the
prime rate was 7.50% and amount borrowed was $48,936. At December 31, 2007,
all
payments under the terms of the note were current.
NOTE
10
-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
ViolaDebenture
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
The
Company has identified the above debentures have embedded derivatives. These
embedded derivatives have been bifurcated from their respective host debt
contracts and accounted for as derivative liabilities in accordance with EITF
00-19. When multiple derivatives exist within the Convertible Notes, they have
been bundled together as a single hybrid compound instrument in accordance
with
SFAS No. 133 Derivatives Implementation Group Implementation Issue No. B-15,
"Embedded Derivatives: Separate Accounting for Multiple Derivative Features
Embedded in a Single Hybrid Instrument."
The
embedded derivatives within the Convertible Notes have been recorded at fair
value at the date of issuance; and are marked-to-market each reporting period
with changes in fair value recorded to the Company's income statement as "Net
change in fair value of derivative liabilities." The Company has utilized a
third party valuation firm to fair value the embedded derivatives using a
layered discounted probability-weighted cash flow approach.
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,
the
Company's financial statements may fluctuate from quarter-to-quarter based
on
factors, such as the price of the Company's stock at the balance sheet date
and
the amount of shares converted by note 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.
YA
GLOBAL
5/06/04 CONVERTIBLE DEBENTURE
On
May 6,
2004, Corporate Strategies entered into a Secured Debenture agreement with
YA
Global, pursuant to which the Company sold $400,000 of convertible notes due
May
5, 2007.
The
notes
bear interest at 5%, which is accrued until maturity on May 5, 2007. The notes
are convertible, at the option of the holders, into common stock of the Company
at a price of $0.18 per share, subject to standard anti-dilution provisions
relating to splits, reverse splits and other transactions plus a reset provision
whereby the conversion price may be adjusted downward to a lower price per
share
based on 80% of the lowest closing bid price for the five trading days prior
to
conversion. The Holder has the right to cause the notes to be converted into
common stock, subject to an ownership limitation of 4.99% of the outstanding
stock. The Company has the right to repurchase the Notes at 120% of the face
amount. The conversion feature, reset provision and the Company's optional
early
redemption right have been bundled together as a single compound embedded
derivative liability, and fair valued using a layered discounted
probability-weighted cash flow approach.
YA
GLOBAL
6/24/04 CONVERTIBLE DEBENTURE
On
June
24, 2004, Corporate Strategies entered into a Secured Debenture agreement with
I-Voice, pursuant to which the Company sold $500,000 of convertible notes due
May 1, 2007. The notes were subsequently assigned to YA Global.
The
notes
bear interest at 5%, which is accrued until maturity on May 1, 2007. The notes
are convertible, at the option of the holders, into common stock of the Company
at a price of $0.114 per share, subject to standard anti-dilution provisions
relating to splits, reverse splits and other transactions plus a reset provision
whereby the conversion price may be adjusted downward to a lower price per
share
based on 80% of the lowest closing bid price for the five trading days prior
to
conversion. The Holder has the right to cause the notes to be converted into
common stock, subject to an ownership limitation of 4.99% of the outstanding
stock. The Company has the right to repurchase the Notes at 120% of the face
amount. The conversion feature, reset provision and the Company's optional
early
redemption right have been bundled together as a single compound embedded
derivative liability, and fair value using a layered discounted
probability-weighted cash flow approach.
YA
GLOBAL
9/28/04 CONVERTIBLE DEBENTURE
On
September 28, 2004, Corporate Strategies entered into a Secured Debenture
agreement with YA GLobal., pursuant to which the Company sold $400,000 of
convertible notes due September 28, 2007.
The
notes
bear interest at 5%, which is accrued until maturity on September 28, 2007.
The
notes are convertible, at the option of the holders, into common stock of the
Company at a price of $0.084 per share, subject to standard anti-dilution
provisions relating to splits, reverse splits and other transactions plus a
reset provision whereby the conversion price may be adjusted downward to a
lower
price per share based on 80% of the lowest closing bid price for the five
trading days prior to conversion. The Holder has the right to cause the notes
to
be converted into common stock, subject to an ownership limitation of 4.99%
of
the outstanding stock. The Company has the right to repurchase the Notes at
120%
of the face amount. The conversion feature, reset provision and the Company's
optional early redemption right have been bundled together as a single compound
embedded derivative liability, and fair valued using a layered discounted
probability-weighted cash flow approach.
YA
GLOBAL
4/06/05 CONVERTIBLE DEBENTURE
On
April
6, 2005, Corporate Strategies entered into a Secured Debenture agreement with
YA
Global, pursuant to which the Company sold $400,000 of convertible notes due
April 6, 2008.
The
notes
bear interest at 5%, which is accrued until maturity on April 6, 2008. The
notes
are convertible, at the option of the holders, into common stock of the Company
at a price of $0.108 per share, subject to standard anti-dilution provisions
relating to splits, reverse splits and other transactions plus a reset provision
whereby the conversion price may be adjusted downward to a lower price per
share
based on 80% of the lowest closing bid price for the five trading days prior
to
conversion. The Holder has the right to cause the notes to be converted into
common stock, subject to an ownership limitation of 4.99% of the outstanding
stock. The Company has the right to repurchase the Notes at 120% of the face
amount. The conversion feature, reset provision and the Company's optional
early
redemption right have been bundled together as a single compound embedded
derivative liability, and fair valued using a layered discounted
probability-weighted cash flow approach.
HOLLAND
ET. AL. 12/22/03 SECURED CONVERTIBLE NOTES
On
December 22, 2003, NuWave entered into a Secured Debenture agreement with two
investors (Holland et. al) pursuant to which Nuwave sold $250,000 of convertible
notes due December 22, 2005.
The
notes
bear interest at 5%, which is accrued until maturity on December 22, 2005.
The
notes are convertible, at the option of the holders, into common stock of the
Company at a price of $0.168 per share, subject to standard anti-dilution
provisions relating to splits, reverse splits and other transactions plus a
reset provision whereby the conversion price may be adjusted downward to a
lower
price per share based on 80% of the lowest daily volume weighted average price
("VWAP") for the five trading days prior to conversion. The Holder has the
right
to cause the notes to be converted into common stock. The Company has the right
to repurchase the Notes at 110% of the face amount. The notes are unsecured
general obligations of the Company and are subordinated to all other
indebtedness of the Company unless the other indebtedness is expressly made
subordinate to the notes. The notes were acquired by the Company effective
August 31, 2005 as part of the reverse merger between NuWave and Corporate
Strategies The notes were amended on November 30, 2005 to defer the maturity
date to January 31, 2007 and were further amended on January 23, 2007 to defer
the maturity date to June 30, 2007. The conversion feature, reset provision
and
the Company's optional early redemption right have been bundled together as
a
single compound embedded derivative liability, and valued using a layered
discounted probability-weighted cash flow approach. The modification was
determined to be substantial and the Company accounted for the modification
as
an extinguishment of debt under EITF 96-19, and recorded the replacement note.
The single compound embedded derivative liability was valued using the same
methodology for the replacement note.
SAPORITO
CONVERTIBLE DEBENTURE
On
January 29, 2004, NuWave entered into a Secured Debenture agreement with Joanna
Saporito pursuant to which NuWave sold $100,000 of convertible notes due January
29, 2006.
The
notes
bear interest at 5%, which is accrued until maturity on January 29, 2006. The
notes are convertible, at the option of the holders, into common stock of the
Company at a price of $0.156 per share, subject to standard anti-dilution
provisions relating to splits, reverse splits and other transactions plus a
reset provision whereby the conversion price may be adjusted downward to a
lower
price per share based on 80% of the lowest daily volume weighted average price
("VWAP") for the five trading days prior to conversion. The Holder has the
right
to cause the notes to be converted into common stock. The Company has the right
to repurchase the Notes at 110% of the face amount. The notes are unsecured
general obligations of the Company and are subordinated to all other
indebtedness of the Company unless the other indebtedness is expressly made
subordinate to the notes. The notes were acquired by the Company effective
August 31, 2005 as part of the reverse merger between NuWave Technologies and
Corporate Strategies. The notes were amended on November 30, 2005 to defer
the
maturity date to January 31, 2007 and were further amended on January 23, 2007
to defer the maturity date to June 30, 2007. The conversion feature, reset
provision and the Company's optional early redemption right have been bundled
together as a single compound embedded derivative liability, and fair valued
using a layered discounted probability-weighted cash flow approach. The
modification was determined to be substantial and the Company accounted for
the
modification as an extinguishment of debt under EITF 96-19, and recorded the
replacement note.
The
single compound embedded derivative liability was valued using the same
methodology .
VIOLA
CONVERTIBLE DEBENTURE
On
October 12, 2004, NuWave Technologies entered into a Secured Debenture agreement
with Mary-Ellen Viola pursuant to which NuWave sold $100,000 of convertible
notes due October 12, 2006.
The
notes
bear interest at 5%, which is accrued until maturity on October 12, 2006. The
notes are convertible, at the option of the holders, into common stock of the
Company at a price of $0.078 per share, subject to standard anti-dilution
provisions relating to splits, reverse splits and other transactions plus a
reset provision whereby the conversion price may be adjusted downward to a
lower
price per share based on 80% of the lowest closing bid price for the five
trading days prior to conversion. The Holder has the right to cause the notes
to
be converted into common stock, subject to an ownership limitation of 9.99%
of
the outstanding stock. The Company has the right to repurchase the Notes at
110%
of the face amount. The notes were acquired by the Company effective August
31,
2005 as part of the reverse merger between NuWave and Corporate Strategies.
The
notes were amended on January 23, 2007 to defer the maturity date to June 30,
2007. The conversion feature, reset provision and the Company's optional early
redemption right have been bundled together as a single compound embedded
derivative liability, and fair valued using a layered discounted
probability-weighted cash flow approach.
HIGHGATE
HOUSE 12/02/05 CONVERTIBLE DEBENTURE
The
Company is the issuer of a $6,225,000 Secured Convertible Debenture (“the
Debenture”) payable to Highgate House Funds, Ltd (“Holder”), dated December 2,
2005. The Debenture bears interest at the rate of 7%, which is accrued until
maturity. The Debenture is due and payable in full, including accrued interest
from inception, on December 1, 2010.
The
Debenture is convertible, at the option of the Holder, into common stock of
the
Company at a price per share equal to the lower of (i) $.50 (the “Fixed Price”)
or (ii) eighty percent (80%) of the lowest closing bid price for the five (5)
trading days immediately preceding the date of conversion or, if a special
event
of default occurs, at a price per share equal to eighty percent (80%) of the
lowest closing bid price for the thirty (30) trading days immediately preceding
the date of conversion. The shares of common stock issuable by the Company
to
the investor upon conversion of shares of the Debentures will not be registered
initially under the Securities Act of 1933. The Company is obligated to register
the resale of the conversion shares under the Securities and Exchange Act,
pursuant to the terms of the Investor Registration Rights Agreement dated
December 2, 2005. The Registration Rights Agreement called for the Company
to
register the underlying securities no later than 180 after the execution of
the
Debenture agreement (this requirement has been extended to June 30, 2007) and
use its best efforts to have the Initial Registration statement declared
effective by the SEC no later than ninety days after the date filed. The
conversion feature and the Company's optional early redemption right have been
bundled together as a single compound embedded derivative liability, and fair
valued using a layered discounted probability-weighted cash flow approach.
The
debentures for YA Global, Holland, Saparito and Viola have been verbally
extended to June 30, 2008. At December 31, 2007, $1,932,475 of debentures are
classified as a current liability, however the Company can force conversion
of
the debentures into common stock at any time.
DERIVATIVE
VALUATIONS
The
fair
value model utilized to value the various embedded derivatives in the
convertible notes, comprises multiple probability-weighted scenarios under
various assumptions reflecting the economics of the Convertible Debentures,
such
as the risk-free interest rate, expected Company stock price and volatility,
likelihood of conversion and or redemption, and likelihood default status and
timely registration. At inception, the fair value of this single compound
embedded derivative was bifurcated from the host debt contract and recorded
as a
derivative liability which resulted in a reduction of the initial notional
carrying amount of the Convertible Debentures (as unamortized discount which
will be amortized over the term of the note under the effective interest
method).
The
following is a summary of the Convertible Debentures and the adjustments made
based on the embedded derivatives:
Summary
of Derivative Values
|
|
Derivative Liabilities - Value as of:
|
|
|
|
|
|
Convertible
Debentures
|
|
12/31/2007
|
|
|
|
|
|
Holland
et. al. Debentures issued 12/22/03
|
|
$
|
1,284
|
|
Saporito
Debenture issued 1/29/04
|
|
|
2,045
|
|
YA
Global Debentures issued 5/6/04
|
|
|
1,881
|
|
YA
Global Debentures issued 6/24/04
|
|
|
3,134
|
|
YA
Global Debentures issued 9/28/04
|
|
|
2,508
|
|
Viola
Debenture issued 10/12/04
|
|
|
202
|
|
YA
Global Debentures issued 4/6/05
|
|
|
2,504
|
|
Highgate
Debenture issued 12/2/05
|
|
|
268,623
|
|
|
|
|
|
|
Total
|
|
$
|
282,181
|
|
DEBT
DISCOUNTS
For
the
period from inception of the Convertible Debentures through each balance
sheet
date, the amortization of unamortized discount on the Convertible Notes
has
been
classified as interest expense in the accompanying statements of operations.
As of December 31, 2007 there were no discounts associated with the Convertible
Debentures.
Annual
maturities of notes payable and convertible debentures at December 31,
2007
are
as follows:
Year
Ending December 31,
|
|
Amount
|
|
|
|
|
|
2008
|
|
$
|
475,976
|
|
2009
|
|
|
50,973
|
|
2010
|
|
|
6,280,204
|
|
2011
|
|
|
4,802
|
|
Total
|
|
$
|
6,811,955
|
|
NOTE
11 -
DEBT EXTINGUISHMENT
The
Company accounts for modifications to debt instruments based on the accounting
guidance found in EITF 96-19, Debtor's Accounting for a Modification or Exchange
of Debt Instruments. Several of the convertible notes were modified in November,
2005 to extend the maturity to January 31, 2007. These convertible notes were
further modified in January, 2007 to extend the maturity to June 30, 2007.
None
of the debentures were extended past June 30, 2007. All debentures are
classified as a current liability, however the Company can force conversion
of
the debentures into common stock at any time. In addition, two (2) convertible
notes were extinguished as part of the proceeds for the sale of Lehigh in
February, 2006. Upon modification, each of the convertible notes were tested
for
extinguishment under the guidance of EITF 96-19. The modification was determined
to be substantial for the following notes and the Company accounted for the
modification as an extinguishment of debt and recorded the following gains
(losses):
Summary
of Debt Extinguishment:
Convertible
Note
|
|
Gain
on
|
|
Extinguishment
|
|
|
|
|
|
|
|
|
|
12/31/07
|
|
12/31/06
|
|
|
|
|
|
|
|
Holland
et. al. Debentures issued 12/8/03
|
|
$
|
133,425
|
|
$
|
0.00
|
|
Holland
et. al. Debentures issued 12/22/03
|
|
|
213,545
|
|
|
0.00
|
|
Saporito
Debenture issued 1/29/04
|
|
|
103,680
|
|
|
0.00
|
|
YA
Global Debentures issued 5/5/05
|
|
|
0.00
|
|
|
36,194
|
|
YA
Global Debenture issued 7/20/05
|
|
|
0.00
|
|
|
58,171
|
|
Viola
Debenture issued 10/12/04
|
|
|
0.00
|
|
|
36,198
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
450,650
|
|
$
|
130,563
|
|
NOTE
12 -
DESCRIPTION OF CAPITAL STOCK
The
current authorized capital stock of the Company consists of Five Billion
(5,000,000,000) shares of Common Stock, par value $0.001 per share, Four Hundred
Thousand (400,000) shares of Series A convertible preferred, par value $.01
per
share, One Hundred Thousand (100,000) shares each of convertible Series B and
D
Preferred, par value $0.01 per share, One Thousand (1,000) non-voting shares
of
Series C Preferred, par value $0.01 per share and one (1) share of Series E
Preferred, par value $0.001. As of December 31, 2007, 135,236,054 shares of
Common Stock, Six thousand six hundred and sixty-six (6,666) shares of Series
B
Preferred, two hundred twenty-five (225) shares of Series C Preferred, seven
hundred (700) shares of Series D Preferred stock, and one (1) share of Series
E
preferred were issued and outstanding. The following description is a summary
of
the capital stock and contains the material terms of voting capital
stock.
Each
share of Common Stock entitles the holder to one (1) vote on each matter
submitted to a vote of our shareholders, including the election of Directors.
There is no cumulative voting. Subject to preferences that may be applicable
to
any outstanding preferred stock, Shareholders are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors.
Shareholders have no preemptive, conversion or other subscription
rights.
The
Company is authorized to issue two million (200,000,000) shares of preferred
stock. The holder of the Company's Series B Preferred is entitled to convert
into 4,195,445 shares of common stock and is entitled to cast votes equal to
these shares on all matters submitted to the shareholders. The series C
preferred shares have no voting rights, except as required under Nevada general
corporation law. We have 225 shares of Series C preferred stock outstanding.
The
stock has a liquidation preference of $337,380 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 $337,380 is recorded as a current
liability.
Pursuant
to the purchase of our interest in Kipling Holdings, Inc. (“Kipling”) as fully
described in Item 6, and effective September 25, 2006, the Board of Directors
approved the designation of Series D convertible preferred stock (the “Series
D”), par value of $0.01, to consist of up to One Hundred Thousand (100,000)
shares. As a result of the Kipling purchase, on December 31, 2006, the Board
of
Directors reduced the 93,334 shares of then outstanding Series D owned by our
CEO, Timothy J. Connolly, and his spouse to Seven Hundred (700) shares of Series
D. The Series D ranks pari passu with the common stock of the Company on an
“as
converted” basis, and senior to the Company’s Series A, B and C preferred stock.
The holders of the Series D are entitled to receive dividends or distributions
on a pro rata basis when and if dividends are declared on our Common Stock,
but
with no liquidation preference. Each share of the Series D may be convertible,
at the option of the holder, at any time and from time to time after December
31, 2006 through June 30, 2009, into that number of shares of Common Stock
equal
to the greater of (a) one tenth of one percent (0.1%) of the total number of
shares of Common Stock issued and outstanding as of the last day of the fiscal
quarter immediately preceding such date of conversion, calculated on a fully
diluted basis after giving effect to the conversion of such share(s) of Series
D
and (b) One Hundred Thousand (100,000) shares of Common Stock. Each share of
Series D Preferred Stock held by the Holders which has not been converted on
or
before June 30, 2009 into shares of Common Stock shall be convertible, at the
option of the Holder of such share, at any time and from time to time after
June
30, 2009 into one tenth of one percent (0.1%) of the total number of shares
of
Common Stock issued and outstanding on June 30, 2009, calculated on a fully
diluted basis after giving effect to the conversion of such share(s) of Series
D
Preferred Stock. The shares of Common Stock received upon conversion shall
be
fully paid and non-assessable shares of Common Stock. Due to the change in
control of the Company, Mr. Connolly and his spouse may not convert debentures
that would result in ownership of more than 4.99% of the Company at the time
of
conversion.
Pursuant
to the closing date with Viewpoint Capital, LLC on December 5, 2007 (the
“Closing
Date”),
the
Company disclosed that the Company entered into a Stock Purchase Agreement
(the
“Purchase
Agreement”)
with
Mr. Timothy J. Connolly, an individual and Viewpoint Capital, LLC, a Nevada
limited liability company (the “Investor”)
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
(“Series
E Preferred”),
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
(“Common
Stock”)
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., a Nevada corporation (“ACGU
Common Stock”)
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. During the month of March 2008, we sold our investment
in
stock of ACGU for approximately $7,700.
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.
NOTE
13 -
WARRANTS
At
December 31, 2007 warrants were outstanding to purchase 200,000 shares of the
Company's common stock for $1.00 per common share. The warrants expire in
September 2008. At September 30, 2006, the Company issued 3,000,000 warrants
to
purchase the Company’s common stock at an exercise price of $.05 per share until
December 31, 2007. These warrants were not exercised as of December 31,
2007.
NOTE
14 -
STOCK OPTIONS
No
options remain outstanding as of December 31, 2007.
NOTE
15 – STOCK INCENTIVE PLAN
On
May
31, 2006, the Turnaround Partners, Inc. 2005 Stock Incentive Plan (the Plan)
was
adopted and approved by shareholders. On a calendar year basis, an amount of
shares of Common Stock equivalent to the greater of 10 million common shares
or
fifteen percent (15%) of the fully diluted shares outstanding on January 2
of
any such calendar year may be allocated, at the discretion of the Administrator,
to be granted as awards under the Plan, less awards outstanding at the end
of
the prior calendar year. At December 31, 2007 there were 7,250,000 shares
available under the Plan.
NOTE
16 -
COMMITMENTS AND CONTINGENCIES
EMPLOYMENT
CONTRACTS
On
September 1, 2004, the Company entered into a five year employment agreement,
effective June 1, 2004, with Tim Connolly, Chief Executive Officer and Vice
Chairman of the Board. The agreement has a renewal provision and provides for
an
annual salary and bonus upon attaining certain performance criteria set by
the
board of directors. The agreement also provides certain anti-dilution provisions
in return for an extension of lock-up of the Chief Executive Officer's shares
until December 31, 2007 and for certain other fringe benefits. As a result
of
the agreement of December 5, 2007 with ACGU, Mr. Connolly resigned as Vice
Chairman of the Board and as President and Chief Executive Officer of the
Company, however Mr. Connolly shall continue to serve as President and Chief
Executive Officer of Corporate Strategies, Inc., a Texas corporation and
wholly-owned subsidiary of the Company (“CSI”)
with
the understanding that the business of CSI will be discontinued or spun off
to
its stockholders. In addition, Mr. Connolly shall continue to receive the same
compensation as he has received through the Closing Date for his aforementioned
continued services to CSI through December 31, 2008, which such date may be
extended by mutual agreement by and among the parties to the Purchase Agreement.
On
September 1, 2004, Corporate Strategies entered into a three year employment
agreement with Fred Zeidman to serve as President and a director of Corporate
Strategies. The agreement has a renewal provision and provides for an annual
salary and bonus upon attaining certain performance criteria set by the board
of
directors and certain fringe benefits; in addition, Mr. Zeidman received 50%
of
all consulting fees from companies directly provided by or supervised by him.
The employment agreement with Mr. Zeidman has not been renewed as of the date
of
this filing and Mr. Zeidman no longer receives compensation from Corporate
Strategies.
On
December 2, 2005, Kipling entered into a three year employment agreement with
Timothy J. Connolly to serve as President and Chief Executive Officer. The
agreement has a renewal provision and provides for an annual salary.
Additionally, Mr. Connolly is entitled to a 10% interest in any distributions
of
any kind, dividends, income, bonuses or sale of the property owned by the
Company.
LEASES
Until
December 31, 2007, we leased our office space under an operating lease. Rental
expense under operating leases for continuing operations aggregated $87,453
and
$76,395 for the years ended December 31, 2007 and 2006, respectively. Beginning
January 1, 2008, this leased has been assumed by our then affiliate company,
Natural Nutrition, Inc.
NOTE
17 -
RELATED PARTY TRANSACTIONS
ALLOCATION
OF OPERATING EXPENSES
The
Company performed certain administrative and management functions for CSI
Business Finance, know known as iNutrition, Inc. Based on an estimation of
efforts expended, Finance was allocated approximately $244,000 and $308,000
for
the years ended December 31, 2007 and 2006, respectively. For the years
beginning 2008, the Company no longer provides these administrative
services.
NOTE
18 -
INCOME TAXES
The
following table sets forth a reconciliation of the statutory federal income
tax
for the year ended December 31, 2007 and 2006:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Income
(loss) before taxes
|
|
$
|
(2,604,976
|
)
|
$
|
4,936,074
|
|
|
|
|
|
|
|
|
|
Income
tax benefit computed at statutory rates
|
|
$
|
(885,692
|
)
|
$
|
1,678,265
|
|
Permanent
differences, nondeductible expenses
|
|
|
279,288
|
|
|
8,390
|
|
Increase
in valuation allowance
|
|
|
527,936
|
|
|
365,207
|
|
Net
increase in fair value of derivative liability, net of amortization
and
debt modification gain
|
|
|
82,368
|
|
|
(1,078,674
|
)
|
Gain
on sale of subsidiary
|
|
|
-
|
|
|
(1,034,418
|
)
|
Merger
expense
|
|
|
-
|
|
|
47,600
|
|
Net
operating loss allocable to a subsidiary that was sold
|
|
|
-
|
|
|
1,594
|
|
Other
|
|
|
(3,900
|
)
|
|
12,036
|
|
|
|
|
|
|
|
|
|
Tax
(liability) benefit
|
|
$
|
-
|
|
$
|
-
|
|
The
Company will file a consolidated tax return with its subsidiaries.
DEFERRED
INCOME TAXES
The
tax
effects of the temporary differences between financial statement income
and
taxable income are recognized as a deferred tax asset and liability.
Significant
components of the deferred tax asset and liability as of December 31,
2007
is set out below:
Net
operating loss
|
|
$
|
11,312,332
|
|
Valuation
allowance
|
|
|
(11,327,878
|
)
|
Revised
net operating loss
|
|
|
(290,696
|
)
|
Bad
debt expense
|
|
|
164,113
|
|
Intangible
asset tax basis difference
|
|
|
123,462
|
|
Unrealized
loss on security transactions
|
|
|
8,620
|
|
Charitable
contributions carried forward
|
|
|
10,047
|
|
|
|
|
|
|
Net
deferred tax asset (liability)
|
|
$
|
-
|
|
The
Company has a net operating loss carry forward estimated at $32,416,578 which
expires
through 2028. This loss is limited under Internal Revenue Code section
382.
NOTE
19 -
SEGMENT REPORTING
The
Company had two segments: business services (which consists of turnaround
execution services, management restructuring services, and business development
services) and hotel investment.
The
Company primarily provides business restructuring, turnaround execution and
business development advisory services for emerging and re-emerging public
companies.
The
Company evaluates segment performance and allocates resources based on several
factors, of which revenue and income before federal income tax are the primary
financial measures. The accounting policies of the reportable segments are
the
same as those described in the footnote entitled "Summary of Significant
Accounting Policies" of the Notes to the Consolidated Financial
Statements.
The
Company's operations are conducted in the United States.
|
|
Business
|
|
Hotel
|
|
|
|
Services
|
|
Investment
|
|
Year
ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,127,219
|
|
$
|
-
|
|
Interest
expense, net of interest income
|
|
|
624,089
|
|
|
194,494
|
|
Income
(loss) before income tax,
|
|
|
|
|
|
|
|
merger
expense and discontinued
|
|
|
|
|
|
|
|
operations
|
|
|
(1,269,423
|
)
|
|
3,032,779
|
|
Income
from discontinued operations
|
|
|
-
|
|
|
4,688
|
|
Segment
assets
|
|
|
1,909,239
|
|
|
5,197,536
|
|
Additions
to long-term assets
|
|
|
28,958
|
|
|
5,043,239
|
|
Depreciation
and amortization
|
|
|
23,874
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,107,437
|
|
$
|
-
|
|
Interest
expense, net of interest income
|
|
|
606,175
|
|
|
797,450
|
|
Loss
before income tax,
|
|
|
|
|
|
|
|
merger
expense and discontinued
|
|
|
|
|
|
|
|
operations
|
|
|
(775,063
|
)
|
|
(1,829,912
|
)
|
Segment
assets
|
|
|
691,273
|
|
|
4,173,628
|
|
Additions
to long-term assets
|
|
|
3,091
|
|
|
-
|
|
Depreciation
and amortization
|
|
|
24,041
|
|
|
-
|
|