U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended: SEPTEMBER 30, 2004
Commission File Number: 0-23100
IDEA SPORTS ENTERTAINMENT GROUP, INC.
(Exact name of small business issuer as specified in its charter)
TEAM SPORTS ENTERTAINMENT, INC.
(Former name of small business issuer as specified in its charter)
DELAWARE 22-2649848
(State of Incorporation) (IRS Employer ID No)
800 WEST MAIN, LAKE CITY, SC 29560
(Address of principal executive office)
3930 GLADE ROAD, #108-380, COLLEYVILLE, TEXAS 76034
(Former address of principal executive office)
(843) 374-4332
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ].
The number of shares outstanding of registrant's common stock, par value $.0001
per share, as of October 31, 2004 was 63,782,412.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X].
IDEA SPORTS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I FINANCIAL INFORMATION (Unaudited)
Item 1. Condensed Consolidated Balance Sheet as of September 30, 2004 3
Condensed Consolidated Statements of Operations for the
three months ended September 30, 2004 and 2003 4
Condensed Consolidated Statements of Operations for the nine
months ended September 30, 2004 and 2003, and the period from
inception (May 15, 2001), through September 30, 2004 5
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2004 and 2003, and the period from
inception (May 15, 2001), through September 30, 2004 6
Notes to Condensed Consolidated Financial Statements 7-13
Item 2. Management's Discussion and Analysis or Plan of Operation 14-16
Item 3. Controls and Procedures 17
PART II OTHER INFORMATION 18-20
2
IDEA SPORTS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2004
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,464
Employee advances 10,000
-------------
Total current assets 12,464
Other assets 786
-------------
Total assets $ 13,250
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Notes payable $ 3,072,750
Accounts payable 68,632
Accrued expenses 20,857
Amounts payable to related parties 337,905
Accrued interest payable 458,460
-------------
Total liabilities 3,958,604
-------------
Commitments and contingencies
STOCKHOLDERS' DEFICIT
Preferred stock: $2.75 par value; authorized 2,000,000 shares;
no shares issued and outstanding --
Common stock: $.0001 par value; authorized 500,000,000 shares;
issued 63,901,212 shares and outstanding 63,782,412 shares 6,378
Additional paid-in capital 15,874,618
Accumulated deficit (19,826,350)
-------------
Total stockholders' deficit (3,945,354)
-------------
Total liabilities and stockholders' deficit $ 13,250
=============
See accompanying notes to condensed consolidated financial statements.
3
IDEA SPORTS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
2004 2003
------------- -------------
CONTINUING OPERATIONS
Administrative expense $ 48,713 $ --
------------- -------------
LOSS FROM CONTINUING OPERATIONS (48,713) --
------------- -------------
DISCONTINUED OPERATIONS
Loss from discontinued operations (97,974) (7,825,909)
Income tax benefit -- --
------------- -------------
NET LOSS FROM DISCONTINUED OPERATIONS (97,974) (7,825,909)
------------- -------------
NET LOSS $ (146,687) $ (7,825,909)
============= =============
NET LOSS PER SHARE, BASIC AND DILUTED, FROM:
CONTINUING OPERATIONS $ (0.00) $ --
DISCONTINUED OPERATIONS (0.00) (0.12)
------------- -------------
$ (0.00) $ (0.12)
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING,
BASIC AND DILUTED 63,782,412 63,639,344
============= =============
See accompanying notes to condensed consolidated financial statements.
4
IDEA SPORTS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003, AND THE PERIOD
FROM INCEPTION (MAY 15, 2001) THROUGH SEPTEMBER 30, 2004
(UNAUDITED)
FROM INCEPTION
(MAY 15, 2001)
NINE MONTHS ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30,
2004 2003 2004
------------- ------------- --------------
CONTINUING OPERATIONS
Administrative expense $ 48,713 $ -- $ 48,713
------------- ------------- --------------
LOSS FROM CONTINUING OPERATIONS (48,713) -- (48,713)
------------ ------------ -------------
DISCONTINUED OPERATIONS
Loss from discontinued operations (428,264) (8,833,177) (15,482,285)
Income tax benefit -- -- --
------------- ------------- --------------
NET LOSS FROM DISCONTINUED OPERATIONS (428,264) (8,833,177) (15,482,285)
------------- ------------- --------------
NET LOSS $ (476,977) $ (8,833,177) $ (15,530,998)
============= ============= ==============
NET LOSS PER SHARE, BASIC AND DILUTED, FROM:
CONTINUING OPERATIONS $ (0.00) $ -- $ (0.00)
DISCONTINUED OPERATIONS (0.01) (0.14) (0.25)
------------- ------------- --------------
TOTAL $ (0.01) $ (0.14) $ (0.25)
============= ============= ==============
WEIGHTED AVERAGE SHARES OUTSTANDING,
BASIC AND DILUTED 63,782,412 63,531,253 63,125,751
============= ============= ==============
See accompanying notes to condensed consolidated financial statements.
5
IDEA SPORTS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003, AND THE PERIOD
FROM INCEPTION (MAY 15, 2001), THROUGH SEPTEMBER 30, 2004
(UNAUDITED)
FROM INCEPTION
(MAY 15, 2001)
NINE MONTHS ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30,
2004 2003 2004
------------- ------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (476,977) $ (8,833,177) $ (15,530,998)
Loss from discontinued operations (428,264) (8,833,177) (15,482,285)
------------- ------------- --------------
Loss from continuing operations (48,713) -- (48,713)
Adjustment to reconcile net loss to net cash used
in operating activities:
Other assets (786) -- (786)
Accounts payable 20,863 -- 20,863
Accrued expenses 1,147 -- 1,147
------------- ------------- --------------
Net cash used in continuing operations (27,489) -- (27,489)
------------- ------------- -------------
Net cash used in discontinued operations (87,415) (1,438,027) (9,381,322)
------------- ------------- --------------
Net cash used in operations (114,904) (1,438,027) (9,408,811)
------------- ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used in discontinued operations -- -- (1,583,671)
------------- ------------- --------------
Net cash used in investing activities -- -- (1,583,671)
------------- ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Loan proceeds 37,500 -- 37,500
Employee advances (8,800) -- (8,800)
------------- ------------- --------------
Net cash from continuing operations 28,700 -- 28,700
------------- ------------- --------------
Net cash from discontinued operations -- 915,250 10,966,246
------------- ------------- --------------
Net cash provided by financing activities 28,700 915,250 10,994,946
------------- ------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (86,204) (522,777) 2,464
CASH AND CASH EQUIVALENTS, beginning of period 88,668 650,305 --
------------- ------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ 2,464 $ 127,528 $ 2,464
============= ============= ==============
See accompanying notes to condensed consolidated financial statements.
6
IDEA SPORTS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following notes to the condensed consolidated financial statements and
management's discussion and analysis or plan of operation contain
"forward-looking" statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Such forward-looking statements may include projections or
expectations of future financial or economic performance of the Company, and
statements of the Company's plans and objectives for future operations. Words
such as "expects", "anticipates", "approximates", "believes", "estimates",
"hopes", "intends", and "plans", and variations of such words and similar
expressions are intended to identify such forward-looking statements. No
assurance can be given that actual results or events will not differ materially
from those projected, estimated, assumed or anticipated in any such
forward-looking statements. Important factors that could result in such
differences, in addition to other factors noted with such forward-looking
statements, include those discussed in Exhibit 99.1 filed with the Securities
and Exchange Commission as an exhibit to the Company's Annual Report on Form
10-KSB for fiscal year 2002.
NOTE 1--BASIS OF PRESENTATION
-----------------------------
The condensed consolidated financial statements include the accounts of
Idea Sports Entertainment Group, Inc. (formerly Team Sports
Entertainment, Inc.) and its wholly owned subsidiaries, Idea Management
Group, Inc. ("IMGI") and Maxx Motorsports, Inc. ("Maxx"), and its
wholly owned subsidiary, Team Racing Auto Circuit, LLC ("TRAC")
(collectively, the "Company"). All significant intercompany balances
and transactions have been eliminated in consolidation. Maxx, through
TRAC, planned to own, operate and sanction an automotive racing league
designed to provide content for television and tracks while expanding
the existing base of racing fans. Accordingly, the operations of the
Company are presented as those of a development stage enterprise, from
its inception (May 15, 2001), as prescribed by Statement of Financial
Accounting Standards No. 7, "Accounting and Reporting by Development
Stage Enterprises." The Company follows the AICPA SOP 98-5, "Reporting
on the Costs of Start-Up Activities" in accounting for its start-up
activities. On August 26, 2003, the Board of Directors of the Company
unanimously approved a plan to immediately discontinue its racing
operation. As the racing operation was its only business then, all
operations of the Company was included in discontinued operations until
the acquisition of IMGI on September 9, 2004 (see note 3). On November
8, 2004, the Company changed its name to Idea Sports Entertainment
Group, Inc.
The condensed consolidated financial statements included in this report
have been prepared by the Company pursuant to the rules and regulations
of the Securities and Exchange Commission for interim reporting and
include all adjustments (consisting only of normal recurring
adjustments) that are, in the opinion of management, necessary for a
fair presentation. These condensed consolidated financial statements
have not been audited.
7
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States have been condensed or omitted
pursuant to such rules and regulations for interim reporting. The
Company believes that the disclosures contained herein are adequate to
make the information presented not misleading. However, these condensed
consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Annual Report for the year ended December 31, 2003, which is
included in the Company's Form 10-KSB for the year ended December 31,
2003. The financial data for the interim periods presented may not
necessarily reflect the results to be anticipated for the complete
year.
Certain reclassifications of the amounts presented for the comparative
period have been made to conform to the current presentation.
NOTE 2--GOING CONCERN
---------------------
The Company has been in the development stage since its inception (May
15, 2001) and has not established sources of revenue sufficient to fund
the development of business and pay operating expenses, resulting in a
net loss of $15,530,998 from inception through September 30, 2004. The
Company has ceased its plans to begin a racing league and all related
operations have been discontinued. In addition, current liabilities of
the Company exceed their assets by $3,945,354 and their convertible
promissory notes payable obligations are in default. These conditions
raise substantial doubt about the Company's ability to continue as a
going concern. These condensed consolidated financial statements do not
include any adjustments that may result from the outcome of these
uncertainties.
Since August 26, 2003, the Company has attempted to locate and
negotiate with a business entity for a merger of that business into the
Company. On September 9, 2004, the Company acquired IMGI. There can be
no assurance that the Company will be able to obtain sufficient funding
to support IMGI's business plan.
NOTE 3--ACQUISITION OF IDEA MANAGEMENT GROUP, INC.
--------------------------------------------------
On September 9, 2004, the Company acquired IMGI, a development stage
company with no prior operations, in exchange for a warrant to purchase
15,000,000 shares of the Company's common stock at an exercise price of
$.10 per share. In addition, in the event IMGI generates $2,000,000 in
gross revenue by September 8, 2007, the sellers of IMGI shall receive
an additional warrant to purchase 15,000,000 shares of the Company's
common stock at an exercise price of $.10 per share.
8
IMGI is a company devoted to the creation, development and acquisition
of innovative motion pictures and television programming in the sports
and family genre. These unique and commercial entertainment properties
are designed to appeal to the sports enthusiast and are to be
distributed domestically and internationally through both strategic
partnerships with film and distribution companies, as well as, growing
Internet distribution channels.
NOTE 4--DISCONTINUED OPERATIONS
-------------------------------
The Company has been in the development stage since its inception (May
15, 2001) and has not established sources of revenue sufficient to fund
the development of business and pay operating expenses, resulting in a
net loss of $15,482,285 from inception through September 30, 2004.
On August 26, 2003, the Board of Directors of the Company unanimously
approved a plan to immediately discontinue its racing operation. As the
racing operation was its only business at that time, all operations of
the Company have been included in discontinued operations until the
acquisition of IMGI on September 9, 2004.
As a part of the evaluation of the assets of the Company, the following
assets were considered to be fully impaired based upon management's
expectation that they had no future value. These amounts have been
recorded as impairment losses and were included in loss from
discontinued operations during the quarter ended September 30, 2003.
Race car designs and manufacturing equipment $ 1,673,400
Production contract payments 2,545,781
Goodwill 2,810,627
------------------
Total $ 7,029,808
==================
NOTE 5--STOCK OPTION PLANS
--------------------------
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25 (APB No. 25),
"Accounting for Stock Issued to Employees," and related
interpretations, in accounting for its stock option plan. As such,
compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise
price.
SFAS No. 123, "Accounting for Stock Based Compensation" (SFAS No. 123),
requires the Company to disclose pro forma information regarding option
grants made to its employees. SFAS No. 123 specifies certain valuation
techniques that produce estimated compensation charges that are
included in the pro forma results below. These amounts have not been
reflected in the Company's consolidated statement of operations,
because APB No. 25 specifies that no compensation charge arises when
the price of the employees' stock options equal the market value of the
underlying stock at the grant date, as in the case of options granted
to the Company employees, board of directors, advisory committee
members, and consultants.
9
SFAS No. 123 pro forma numbers are as follows for the three and nine
months ended September 30, 2004 and 2003, and for the period from
inception (May 15, 2001) through September 30, 2004:
Three Months Ended September 30, 2004 and 2003
----------------------------------------------
2004 2003
------------ ------------
Net loss, as reported $ (146,687) $(7,825,909)
Add: Stock-based employee compensation
expense determined under fair value based
method for all awards -- (1,249,841)
Deduct: Stock-based employee compensation
included in reported net loss -- --
------------ ------------
Pro forma net loss $ (146,687) $(9,075,750)
============ ============
Basic and diluted net loss per share:
Pro forma $ (.00) $ (.14)
As reported $ (.00) $ (.12)
Nine Months Ended September 30, 2004 and 2003
---------------------------------------------
From
inception
(May 15, 2001)
through
September 30, September 30,
2004 2003 2004
------------ ------------- --------------
Net loss, as reported $ (476,977) $ (8,833,177) $ (15,530,998)
Add: Stock-based employee compensation
expense determined under fair value based
method for all awards -- (1,464,659) (4,047,994)
Deduct: Stock-based employee compensation
included in reported net loss -- -- --
------------ ------------- --------------
Pro forma net loss $ (476,977) $(10,297,836) $ (19,578,992)
============ ============= ==============
Basic and diluted net loss per share:
Pro forma $ (.01) $ (.16) $ (.31)
As reported $ (.01) $ (.14) $ (.25)
10
Under SFAS No. 123, the fair value of each option grant is estimated on the date
of grant using the Black-Scholes option pricing model. In 2001, the year in
which the first group of options were issued, the following weighted average
assumptions were used: risk-free interest rate based on date of issuance and
term between 3.83% and 4.93%, no expected dividends, a volatility factor of
138.13% and an expected life of the options of 3 to 10 years.
On April 2, 2003, the Board of Directors granted options to certain employees
and directors to acquire 8,800,000 shares of the Company's common stock at
prices ranging from $.42 to $1.00 per share. The options were scheduled to vest
as follows: 4,500,000 on April 2, 2003, 2,210,000 on the day the 2004 racing
season commences and 2,090,000 on the day the 2005 racing season commences. The
following assumptions were used: risk-free interest rate of 4.67%, no expected
dividends, a volatility factor of 127.59% and an expected life of the option of
1 to 2 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, it is management's
opinion that the existing models do not necessarily provide a reliable single
measure of the fair value of the Company options.
NOTE 6--NOTES PAYABLE
---------------------
a) In April 2003, holders of $1,645,000 of the $2,270,000
convertible notes payable agreed to extend the maturity date
of their respective notes from August 31, 2003 to March 1,
2004. In addition, certain holders of the notes increased the
principal amount of their notes by an aggregate amount of
$765,250. A 10% loan origination fee was paid on the increased
principal balances through the issuance of 306,100 shares of
the Company's common stock to the holders of the notes at $.25
per share. The origination fee of $76,525 was amortized over
the terms of the convertible notes payable. Notes in the
aggregate principle amount of $625,000 bear interest at 8% per
annum, require quarterly interest payments, and matured August
31, 2003. The remaining notes, in the aggregate principle
amount of $2,410,250, bear interest at 8% per annum, require
quarterly interest payments, and matured March 1, 2004. Each
note is convertible into common stock of the Company at the
rate of $.20 per share. The common stock issuable upon
conversion of the convertible notes payable is restricted and
may only be sold in compliance with Rule 144 of the Securities
Act of 1933, as amended.
At September 30, 2004, the Company owed accrued interest on
the notes of $458,460 and has not made any quarterly interest
payments since May 2003. All notes are currently in default
and are accruing interest at the default rate of 12%, since
the default occurred.
11
b) In September 2004, the Company issued its 8% convertible note
payable in the amount of $37,500, which is payable in cash
until May 1, 2005. After May 1, 2005, the note can be
converted into the Company's common stock at $.04 per share.
NOTE 7--COMMITMENTS AND CONTINGENCIES
-------------------------------------
On August 26, 2003, when the Board of Directors of the Company
discontinued racing operations, the Company was a party to the
following agreements:
o Racing Car Design and Construction Agreement
o Team Sales Brokerage Agreement
o Broadcasting Agreement
o Sales Provider Agreement for Sponsorship
Opportunities
o Office Lease
o Local Operator Agreement with Former Chief Executive
Officer
Management of the Company does not believe the Company has any
remaining liability under these agreements. Additional detail regarding
these agreements can be found in the Company's Form 10-KSB for the year
ended December 31, 2003.
During the three month period ended June 30, 2004, the landlord of the
office lease, which the Company vacated at the end of last year, drew
$100,000 on the letter of credit which had secured payment on the
lease. As a result, the $100,000 in restricted cash, which secured the
letter of credit, was paid.
NOTE 8--RELATED PARTIES
-----------------------
The Company has received loans and advances, principally for services,
from certain individuals considered to be related parties. The amount
due to these parties is as follows:
William Miller, former CEO $ 127,888
Robert Wussler, former Chairman of the Board of Directors 29,167
G. David Gordon, attorney, creditor and stockholder 90,850
Unpaid director fees 90,000
---------
Total $ 337,905
=========
Employee advances includes $9,600 due from the chief executive officer
of the Company at September 30, 2004. As of November 23, 2004, the
balance has been reduced to $3,700.
12
NOTE 9--LEGAL
-------------
On May 3, 2004, in the Chancery Court of the State of Delaware, five
shareholders, including former officers/directors of the Company, filed
suit against the Company's former Directors, Terry Washburn and Terry
Hansen. The suit alleges breach of fiduciary duty, mismanagement,
wrongful termination and conversion. The Company believes this is a
retaliation suit by Pritchett and Miller, two of the plaintiffs,
because of the legal proceeding brought against each of them in
Atlanta, Georgia. The Company has filed a motion to dismiss as a result
of the pending suit in Atlanta, Georgia.
NOTE 10--SUBSEQUENT EVENT
-------------------------
Effective October 31, 2004, the Company acquired all of the issued and
outstanding memberships in Strategic Gaming Consultants, LLC ("SGC"), a
Nevada limited liability company, in exchange for warrants to acquire
750,000 shares of the Company's common stock at an exercise price of
$.10 per share. In addition, in the event SGC generates $2,000,000 in
gross revenue within three years, the sellers of SGC shall receive an
additional warrant to purchase 750,000 shares of the Company's common
stock at an exercise price of $.10 per share.
SGC has had no prior operations. SGC was formed to provide consultation
and related services to include the setup, management and security for
all types of casino operations.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company has been in the development stage since its inception (May
15, 2001) and has not established sources of revenue sufficient to fund
the development of business and pay operating expenses, resulting in a
net loss of $15,530,998 from inception through September 30, 2004.
Accordingly, on August 26, 2003, the Board of Directors of the Company
unanimously approved a plan to immediately discontinue its racing
operation. Since August 26, 2003, the Company has been attempting to
find a suitable acquisition candidate and on September 9, 2004, the
Company acquired IMGI.
IMGI, a development stage company with no prior operations, is a
company devoted to the creation, development and acquisition of
innovative motion pictures and television programming in the sports and
family genre. These unique and commercial entertainment properties are
designed to appeal to the sports enthusiast and are to be distributed
domestically and internationally through both strategic partnerships
with film and distribution companies, as well as, growing Internet
distribution channels.
GOING CONCERN FACTORS--LIQUIDITY
The Company, has been in the development stage since its inception (May
15, 2001) and has not established sources of revenue sufficient to fund
the development of business and pay operating expenses, resulting in a
net loss of $15,530,998 from inception through September 30, 2004. The
Company has ceased its plans to begin a racing league and all related
operations have been discontinued. In addition, current liabilities of
the Company exceed their assets by $3,945,354 and their convertible
promissory notes payable obligations are in default. These conditions
raise substantial doubt about the Company's ability to continue as a
going concern. These condensed consolidated financial statements do not
include any adjustments that may result from the outcome of these
uncertainties.
Since August 26, 2003, the Company has attempted to locate and
negotiate with a business entity for a merger of that business into the
Company. On September 9, 2004, the Company acquired IMGI. There can be
no assurance that the Company will be able to obtain sufficient funding
to support IMGI's business plan.
On May 3, 2004, in the Chancery Court of the State of Delaware, five
shareholders, including former officers/directors of the Company, filed
suit against the Company's former Directors, Terry Washburn and Terry
Hansen. The suit alleges breach of fiduciary duty, mismanagement,
wrongful termination and conversion. The Company believes this is a
retaliation suit by Pritchett and Miller, two of the plaintiffs,
because of the legal proceeding brought against each of them in
Atlanta, Georgia. The Company has filed a motion to dismiss as a result
of the pending suit in Atlanta, Georgia.
14
DISCONTINUED OPERATIONS
The Company has been in the development stage since its inception (May
15, 2001) and has not established sources of revenue sufficient to fund
the development of business and pay operating expenses, resulting in a
net loss from discontinued operations of $15,482,285 from inception
through September 30, 2004. On August 26, 2003, when the Board of
Directors of the Company discontinued racing operations, the Company
was a party to the following agreements:
o Racing Car Design and Construction Agreement
o Team Sales Brokerage Agreement
o Broadcasting Agreement
o Sales Provider Agreement for Sponsorship
Opportunities
o Office Lease
o Local Operator Agreement with Former Chief Executive
Officer
Management of the Company does not believe the Company has any
remaining liability under these agreements. Additional detail regarding
these agreements can be found in the Company's Form 10-KSB for the year
ended December 31, 2003.
During the three month period ended June 30, 2004, the landlord of the
office lease, which the Company vacated at the end of last year, drew
$100,000 on the letter of credit which had secured payment on the
lease. As a result, the $100,000 in restricted cash, which secured the
letter of credit, was paid.
CURRENT OPERATIONS
The Company had two employees until March 31, 2004, and is completing
the wind-down of the racing business. Certain shareholders and
creditors of the Company are evaluating other business opportunities.
Any new business would require raising additional capital and would
probably result in a substantial dilution of existing stockholders.
On September 9, 2004, the Company acquired IMGI, a company devoted to
the creation, development and acquisition of innovative motion pictures
and television programming in the sports and family genre. These unique
and commercial entertainment properties are designed to appeal to the
sports enthusiast and are to be distributed domestically and
internationally through both strategic partnerships with film and
distribution companies, as well as, growing Internet distribution
channels.
On October 31, 2004, the Company acquired SGC. SGC has had no prior
operations. SGC was formed to provide consultation and related services
to include the setup, management and security for all types of casino
operations.
15
ASSET IMPAIRMENT
As a part of the evaluation of the assets of the Company upon
discontinuing its operations, the following assets were considered to
be fully impaired based upon management's expectation that they had no
future value. These amounts have been recorded as impairment losses and
were included in the loss from discontinued operations during the
quarter ended September 30, 2003.
Race car designs and manufacturing equipment $ 1,673,400
Production contract payments 2,545,781
Goodwill 2,810,627
-----------
Total $ 7,029,808
===========
16
ITEM 3. CONTROLS AND PROCEDURES
The Company discontinued its planned racing operations on August 26,
2003, and subsequently terminated the majority of its employees. A
third-party consultant was retained to communicate to management the
disclosures required by reports that are filed under the Exchange Act.
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be disclosed
in the reports that are filed or submitted under the Exchange Act is
recorded, processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to
be disclosed in the reports that are filed under the Exchange Act is
accumulated and communicated to management, including the principal
executive officer, as appropriate to allow timely decisions regarding
required disclosure. Under the supervision of and with the
participation of management, including the principal executive officer,
the Company has evaluated the effectiveness of the design and operation
of its disclosure controls and procedures as of September 30, 2004,
and, based on its evaluation, our principal executive officer has
concluded that these controls and procedures are effective.
(b) Changes in Internal Controls
Other than as discussed above, there have been no significant changes
in internal controls or in other factors that could significantly
affect these controls subsequent to the date of the evaluation
described above, including any corrective actions with regard to
significant deficiencies and material weaknesses.
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PART II--OTHER INFORMATION
ITEM 6. EXHIBITS
(a) Exhibits--
Exhibit 31.1 Certification pursuant to 18 U.S.C. Section 1350
Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1 Certification pursuant to 18 U.S.C. Section 1350
Section 906 of the Sarbanes-Oxley Act of 2002
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IDEA SPORTS ENTERTAINMENT GROUP, INC.
November 24, 2004 By: /s/ William C. Morris
------------------------------------------
William C. Morris, Chief Executive Officer
and principal financial and accounting
officer
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