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: June 30, 2001
Commission File Number: 0-23100
TEAM SPORTS ENTERTAINMENT, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 22-2649848
(State of Incorporation) (IRS Employer ID No)
1111 South Main, Suite 127, Grapevine, TX 76051
(Address of principal executive office)
(817) 410-5708
(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 June 30, 2001 was 61,931,575.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X].
TEAM SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
INDEX
Page
No.
Part I. Unaudited Financial Information
Item 1.Condensed Consolidated:
Balance Sheet - June 30, 2001 3
Statements of Operations - 4
Three and Six Months Ended June 30, 2001 and 2000 and Development Stage
Subsidiary from inception (May 15, 2001), through June 30, 2001
Statement of Stockholders' Equity - 5
Six Months Ended June 30, 2001
Statements of Cash Flows - 6
Six Months Ended June 30, 2001 and 2000 and Development Stage
Subsidiary from inception (May 15, 2001), through June 30, 2001
Notes to Financial Statements - 7-14
Six Months Ended June 30, 2001 and 2000
Item 2.Managements Discussion and Analysis of Plan of Operation 15-16
Part II. Other Information 17
2
TEAM SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheet
June 30, 2001
(Unaudited)
Assets
Current assets
Cash and cash equivalents $7,378,545
Marketable equity securities 168,000
Inventory 9,000
Prepaid expenses and other assets 75,549
--------------------------
Total current assets 7,631,094
Property and equipment, net 11,998
Goodwill, net of amortization in the amount of $24,441 2,908,391
Other 5,100
--------------------------
$ 10,556,583
==========================
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 75,916
Accrued expenses 37,000
--------------------------
Total current liabilities 112,916
Stockholders' equity
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 6,193
shares; issued and outstanding 61,931,575 shares
Paid-in capital 15,401,785
Notes receivable from warrant exercise (350,000)
Accumulated deficit (4,614,311)
--------------------------
Total stockholders' equity 10,443,667
--------------------------
$ 10,556,583
==========================
See accompanying notes to condensed consolidated financial statements.
3
TEAM SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Operations
Three and Six Months Ended June 30, 2001 and 2000 and Development Stage
Subsidiary from Inception (May 15, 2001), through June 30, 2001 (Unaudited)
Subsidiary -
May 15, 2001
through
Three Months Ended June 30, Six Months Ended June 30, June 30, 2001
2001 2000 2001 2000 (Note B)
Sales and revenues $ 7,945 $ 46,491 $ 28,310 $ 92,197 $ -
Cost of goods sold 3,096 20,271 9,536 47,489 -
------------------- ------------------ ------------------- ------------------- --------------
Gross profit 4,849 26,220 18,774 44,708 -
Selling, general and administrative
expense 329,684 67,161 436,857 81,861 284,979
------------------- ------------------ ------------------- ------------------- --------------
Loss from operations (324,835) (40,941) (418,083) (37,153) (284,979)
Other income (expense):
Interest and other income 28,210 5,018 31,099 7,137 318
Unrealized gain (loss) on marketable
equity securities (8,000) - 68,000 - -
------------------- ------------------ ------------------- ------------------- --------------
Total other income 20,210 5,018 99,099 7,137 318
------------------- ------------------ ------------------- ------------------- --------------
Loss before income taxes and
discontinued operations (304,625) (35,923) (318,984) (30,016) (284,661)
Income tax expense - 4,153 - 4,153 -
------------------- ------------------ ------------------- ------------------- --------------
Loss from continuing operations (304,625) (40,076) (318,984) (34,169) (284,661)
------------------- ------------------ ------------------- ------------------- --------------
Discontinued operations:
Earnings (loss) from operations of
discontinued operations, before
income taxes 572 (622,418) (1,380,770) (593,711) -
Income tax expense (benefit) - (10,806) - 1,406 -
------------------- ------------------ ------------------- ------------------- --------------
Earnings (loss) from discontinued
operations 572 (611,612) (1,380,770) (595,117) -
------------------- ------------------ ------------------- ------------------- --------------
Net earnings (loss) $ (304,053) $ (651,688) $(1,699,754) $ (629,286) $ (284,661)
=================== ================== =================== =================== ==============
Net earnings (loss) per share,
basic and diluted
Continuing operations $ (0.01) $ (0.00) $ (0.01) $ (0.00) $ (0.00)
Discontinued operations 0.00 (0.02) (0.04) (0.03) -
------------------- ------------------ ------------------- ------------------- --------------
$ (0.01) $ (0.02) $ (0.04) $ (0.03) $ (0.00)
=================== ================== =================== =================== ==============
Weighted average shares outstanding
Basic and diluted 46,639,141 30,575,212 38,846,832 22,761,923 61,931,575
=================== ================== =================== =================== ===============
See accompanying notes to condensed consolidated financial statements.
4
TEAM SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Stockholders' Equity
Six Months Ended June 30, 2001
(Unaudited)
Notes
Receivable -
Common Stock Paid-in Warrant Accumulated
Shares Par Value Capital Exercise Deficit Total
Balance, December 31, 2000 30,958,875 $3,096 $ 8,788,899 $(350,000) $(2,914,557) $5,527,438
Issuance of common shares for services 48,000 5 14,995 - - 15,000
Stock based compensation - - 21,524 - - 21,524
Issuance of common shares for cash 31,874,700 3,187 7,241,063 - - 7,244,250
Issuance of common shares to acquire
Maxx Motorsports, Inc. 11,050,000 1,105 2,761,395 - - 2,762,500
Shares cancelled in exchange for
operations discontinued (12,000,000) (1,200) (3,426,091) - (3,427,291)
Net loss - - - - (1,699,754) (1,699,754)
--------------- -------------- ---------------- --------------- -------------- -------------
Balance, June 30, 2001 61,931,575 $6,193 $15,401,785 $(350,000) $(4,614,311) $ 10,443,667
=============== ============== ================ =============== ============== =============
See accompanying notes to condensed consolidated financial statements.
5
TEAM SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows Six Months Ended June 30, 2001
and 2000 and Development Stage Subsidiary from Inception (May 15, 2001),
through June 30, 2001 (Unaudited)
Subsidiary -
May 15, 2001
through
June 30, 2001
2001 2000 (Note B)
Cash flows from operating activities
Net earnings (loss) $ (1,699,754) $ (629,286) $ (284,661)
Adjustments to reconcile net earnings (loss) to net
cash used by operating activities:
Loss from discontinued operations, net of tax
1,380,770 595,117 -
Depreciation and amortization
26,150 1,600 24,650
Unrealized gain from marketable securities
(68,000) - -
Common stock issued for services
15,000 - -
Change in assets and liabilities (excluding effects of acquisitions):
Accounts receivable
225 - -
Inventory
7,990 (9,000) -
Prepaid expenses and other assets
6,824 - -
Accounts payable and accrued expenses
(90,343) - (114,954)
-------------------- ------------------ ------------------
Net cash used by operating activities
(421,138) (41,569) (374,965)
-------------------- ------------------ ------------------
Cash flows from investing activities
Collections of notes receivable - officer
226,331 - -
Acquisition of Maxx Motorsports, Inc., net of cash acquired
(45,213) - -
Proceeds from short-term investments
133,669 - -
Capital expenditures
(6,570) (5,020) (6,570)
-------------------- ------------------ ------------------
Net cash provided by (used in) investing activities
308,217 (5,020) (6,570)
-------------------- ------------------ ------------------
Cash flows from financing activities
Proceeds from issuance of common stock
7,244,250 - -
Collection of notes receivable
240,000 - -
Funds advanced from parent
- - 573,368
Funds transferred from discontinued operations
7,216 46,589 -
-------------------- ------------------ ------------------
Net cash provided by financing activities
7,491,466 46,589 573,368
-------------------- ------------------ ------------------
Net increase in cash and cash equivalents from
continuing operations
7,378,545 - 191,833
Cash and cash equivalents, beginning of period
from continuing operations
- - 1,791
-------------------- ------------------ ------------------
Cash and cash equivalents, end of period $ 7,378,545 $ - $ 193,624
==================== ================== ==================
See accompanying notes to condensed consolidated financial statements.
6
TEAM SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
Six Months Ended June 30, 2001 and 2000
(Unaudited)
A ORGANIZATION
Team Sports Entertainment, Inc. (the "Company" or "Team Sports"), a
Delaware corporation, is a holding company with one wholly owned
subsidiary, Maxx Motorsports, Inc. ("Maxx"), a South Carolina
corporation. Maxx, through its wholly owned subsidiary, Team Racing
Auto Circuit, LLC. ("TRAC") plans 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. On May 15,
2001, Team Sports changed its name from Logisoft Corp. to Team Sports
Entertainment, Inc.
On May 15, 2001 the Company acquired all of the common stock of Maxx
Motorsports, Inc., a South Carolina corporation, in a tax-free stock
exchange for 7,750,000 shares of the Company's common stock. In
addition, as a part of this agreement, the Company issued 3,300,000
shares of its common stock in exchange for $450,000 of Maxx's
liabilities and other obligations to third parties that were
instrumental to the transaction. In addition, the Company completed the
sale of its wholly owned subsidiaries, Logisoft Computer Products Corp.
("LCP") and eStorefronts.net Corp. ("eStorefronts"), who created global
and localized Internet solutions for both traditional and pure
e-business companies, to a group of its shareholders in exchange for
12,000,000 shares of the Company's common stock, which were cancelled.
The operations from these business segments have been classified as
discontinued operations in the accompanying financial statements.
The 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
financial statements have not been audited.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles 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 financial statements should be
read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report for the year ended December 31,
2000, which is included in the Company's Form 10-KSB for the year ended
December 31, 2000. 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.
7
B. ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation - The
consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Maxx Motorsports, Inc. and its wholly
owned subsidiary, Team Racing Auto Circuit, LLC. All significant
intercompany balances and transactions have been eliminated in
consolidation. Maxx, through its wholly owned subsidiary, TRAC, plans
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 Maxx and TRAC 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 separate operations of Team Sports are not
included as a development stage enterprise. The Company follows the
AICPA SOP 98-5, "Reporting on the Costs of Start-Up Activities" in
accounting for its start-up activities.
Cash and cash equivalents - The Company considers all highly liquid
debt instruments purchased with a maturity of three months or less to
be cash equivalents.
Investment securities - Investments are classified into three
categories as follows:
o Trading securities reported at fair value with unrealized gains
and losses included in earnings;
o Securities available-for-sale reported at fair value with
unrealized gains and losses reported in other comprehensive
income;
o Held-to-maturity securities reported at amortized cost.
Property and equipment - Property and equipment are stated at cost.
Expenditures for significant renewals and improvements are capitalized.
Repairs and maintenance are charged to expense as incurred.
Depreciation is computed using a straight-line method for financial
purposes and an accelerated method for tax purposes based upon the
useful lives of the assets.
Goodwill - Goodwill represents the excess of the cost of businesses
acquired over the fair value of identifiable net assets at the dates of
acquisition. Goodwill is amortized on a straight-line basis over 15
years. The carrying value of goodwill is evaluated periodically in
relation to the operating performance and estimated future undiscounted
cash flows of the underlying businesses.
Revenue recognition - Revenue from product sales is recognized when the
related goods are shipped and all significant obligations of the
Company have been satisfied. Revenue from services is recognized when
the services are performed.
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.
Deferred income taxes - Deferred income taxes are provided for
temporary differences between financial and tax reporting in accordance
with the liability method under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes." A valuation allowance is recorded to reduce the carrying
amounts of deferred tax assets unless it is more likely than not that
such assets will be realized.
Earnings (loss) per common share - Earnings (loss) per common share are
calculated under the provisions of SFAS No. 128, "Earnings per Share,"
which established new standards for computing and presenting earnings
per share. SFAS No. 128 requires the Company to report both basic
earnings per share, which is based on the weighted-average number of
common shares outstanding, and diluted earnings per share, which is
based on the weighted-average number of common shares outstanding plus
all potential dilutive common shares outstanding.
8
Estimates - Use of estimates and assumptions are made by management in
the preparation of the financial statements in conformity with
generally accepted accounting principles that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
C. ACQUISITION OF MAXX MOTORSPORTS, INC.
On May 15, 2001 the Company acquired all of the common stock of Maxx
Motorsports, Inc., a South Carolina corporation, in a tax-free stock
exchange for 7,750,000 shares of the Company's common stock. In
addition, as a part of this agreement, the Company issued 3,300,000
shares of its common stock in exchange for $450,000 of Maxx's
liabilities and other obligations to third parties that were
instrumental to the transaction.
TRAC will initially consist of multi-car teams, strategically
positioned in major North American television markets located near
major motorsport venues. Each team will represent the city or state
where it is located. The initial TRAC racing season, planned to start
in 2003, will consist of a regular season race schedule, a playoff race
schedule, and a Championship Race. TRAC will incorporate the use of
aerodynamically identical cars (Aerostock(TM)), fuel-injection engines
and other innovative competition standards to increase parity among the
teams without diminishing the entertainment value. TRAC intends to
attract multiple manufacturers who currently are involved in
motorsports worldwide, but may not be currently involved in the major
stock car racing series in America.
TRAC will be structured as a single-entity league to allow for
centralized management, economies of scale in purchasing, strict
operational standards and cost controls at the team level. Revenue
sharing systems will be enacted to ensure parity and fairly allocate
revenue among teams.
Initial TRAC funds will be derived through the sales of rights to
city/state-based teams. TRAC will seek strategic alliances with
companies in the areas of television, sports/entertainment marketing
and public relations. Once racing begins, TRAC will generate revenue
through event ticket sales, league corporate sponsorships, television
and other multimedia contracts, merchandise sales, licensing/royalty
fees, team fees/dues, and sales of additional expansion teams.
TRAC's long-term business plan includes expanding its team base not
only in North America, but also internationally.
The acquisition of Maxx Motorsports, Inc. has been accounted for using
the purchase method of accounting. Accordingly, the net assets acquired
were recorded at fair value at the date of the acquisition. The
transaction resulted in goodwill in the amount of $2,932,832, which is
being amortized over fifteen years. A summary of the assets acquired
and liabilities assumed in the acquisition follows:
Current assets, excluding cash $ 50,000
Property and equipment 3,017
Goodwill 2,932,832
Common stock issued (2,762,500)
Liabilities assumed (178,136)
-------------
Cash paid in excess of cash received $ 45,213
=============
9
Unaudited pro forma results of operations from continuing operations
for the three-month and six-month periods ended June 30, 2001 and 2000,
as if the acquisition had occurred at the beginning of the periods
follows:
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
Revenues $ 7,945 $ 46,491 $ 28,310 $ 92,197
============= ============== ============= ==============
Loss from operations $ (400,453) $ (129,288) $ (445,330) $ (207,001)
============= ============== ============= ==============
Loss per share $ (.01) $ (.00) $ (.01) $ (.00)
============= ============== ============= ==============
D. MARKETABLE INVESTMENT SECURITIES
The cost of investment securities as shown in the accompanying balance
sheet and their estimated market value at June 30, 2001 is as follows:
2001
Trading securities:
Cost $ 100,000
Unrealized gain 68,000
-----------
$ 168,000
===========
The Company included an unrealized gain in the amount of $68,000 in
earnings for the six-month period ended June 30, 2001 and included an
unrealized loss in the amount of $8,000 in earnings for the three-month
period ended June 30, 2001.
E. NOTES RECEIVABLE - OFFICER
In July 2000, the Company entered into a bridge loan with the former
Chief Executive Officer of the Company related to the purchase of the
officer's principal residence. The remaining balance of this loan in
the amount of $144,097, plus accrued interest was repaid in April 2001.
F. COMMON STOCK OPTIONS AND WARRANTS
In April 2000, the Company adopted its 2000 Stock Option Plan (the
"Plan") and the Company's Board of Directors approved the same. The
Company's shareholders approved the Plan in April 2001. The Plan was
established to advance the interests of the Company and its
stockholders by attracting, retaining and motivating key personnel of
the Company. The Board of Directors, or a committee that it appoints,
is authorized to grant options to purchase the Common Stock of the
Company, not to exceed an aggregate of 3,000,000 shares. The Board of
Directors, or a committee that it appoints, is also authorized to
establish the exercise price and vesting terms of individual grants
under the Plan.
Options granted under the Plan may be either "incentive stock options"
intended to qualify as such under the Internal Revenue Code, or
"non-qualified stock options". The Company expects that most options
granted pursuant to the Plan will be subject to vesting over a three or
four-year period, such as 25% increments on each annual grant date
anniversary, during which the optionee must continue to be an employee
of the Company. The Board or the committee, if applicable, may choose
to impose different vesting requirements or none at all. Options
outstanding under the Plan have a maximum term of up to ten (10) years.
10
The Plan also provides that all options that are not vested will become
vested upon a change in control, unless the options are either assumed
or substituted with equivalent options. In addition, unvested options
become vested, after a change in control, if an optionee is subject to
involuntary termination other than for cause during that optionee's
remaining vesting period after a change in control. The Plan further
provides that all options will be forfeited 90 days after employment
terminates. All options granted under the Plan were to employees and
consultants of LCP and eStorefronts, which were sold on May 15, 2001.
Subsequent to June 30, 2001, options to acquire 11,737 shares of the
Company's common stock were exercised and the remaining 1,806,463 were
forfeited.
A summary of stock option activity under the Plan during the six months
ended June 30, 2001 is as follows:
Weighted Average
Options Exercise Price
--------- ----------------
Outstanding at December 31, 2000 1,823,450 $ 1.30
Granted 111,000 0.46
Exercised - -
Forfeited (116,250) 1.96
---------
Outstanding at June 30, 2001 1,818,200 $ 1.21
========= ===============
The stock options issued under the Plan include 1,376,700 options,
which vest ratably over a four-year period (25% per year) and 441,500
options, which vest ratably over a 36-month period.
The Company applies APB No. 25 and related interpretations in
accounting for the stock option plan. Stock compensation expense has
been recorded for 35,000 options issued to two employees with an
exercise price of $0.01 per share. Compensation expense is being
recognized for the difference between the fair value of the shares on
the day the options were granted and the $0.01 exercise price, over the
related service period of one year. The Company recognized $16,787 of
stock compensation expense for the six months ended June 30, 2001
relating to these options. The remaining stock compensation expense of
$4,737 relates to stock options granted to individuals for services
performed.
As a part of its issue of 28,977,000 shares of its common stock on May
15, 2001 for $7,244,250 in cash, the Company also issued warrants to
purchase 14,488,500 shares of its common stock at a purchase price of
$1.00 per share.
Three investors exercised 350,000 Class A warrants prior to their
expiration, June 7, 2000, and executed non-interest bearing promissory
notes for $350,000 which were originally due December 9, 2000. In
November 2000, the Company's Board of Directors extended the due date
of these notes until December 9, 2001. In accordance with EITF 85-1,
these notes have been recorded as a reduction of equity.
During the three months ended June 30, 2001, the Company granted common
stock options to three employees as part of their employment contracts
for a total of 1,000,000 shares of its common stock at an exercise
price of $1.00 per share, which was above the market price at the time.
Accordingly no additional compensation expense was recorded, pursuant
to APB No. 25. The options vest as follows: 83,333 in three months,
333,332 in six months, 333,334 in twelve months and 250,001 in
twenty-four months. The options can vest sooner if certain performance
criteria are met.
11
SFAS No. 123 "Accounting for Stock Based Compensation" ("SFAS 123"),
requires the Company to disclose pro forma information regarding option
grants made to its employees. SFAS 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 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's
employees and consultants.
SFAS No. 123 pro forma numbers are as follows for the six-months ended
June 30, 2001 and 2000:
2001 2000
Actual net loss $ (1,699,754) $ (629,286)
============= ==============
Pro forma net loss $ (1,719,904) $ (629,286)
============= ==============
Pro forma basic and diluted net
loss per share $ (.04) $ (.03)
======= =======
Under SFAS 123, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model. At June 30,
2001, the following weighted average assumptions were used: risk-free
interest rate of 6.0%, no expected dividends, a volatility factor of
131.65%, and a weighted average expected life of the options of 1 year.
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's 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, in management's opinion
the existing models do not necessarily provide a reliable single
measure of the fair value of the Company's options.
G. COMMON STOCK
On June 21, 2001, a majority of the shareholders of the Company,
through written consent, approved the increase in authorized common
stock of the Company from 60,000,000 shares, par value $.0001 to
500,000,000 shares, par value $.0001. The increase was filed August 6,
2001 with the state of Delaware.
The Company sold, pursuant to agreement, 28,977,000 shares of its
common stock for $7,244,250. The agreement required the Company to
prepare and file, within 75 days of the acquisition of Maxx (May 15,
2001), with the SEC a registration statement covering these securities
for an offering to be made on a continuous basis pursuant to Rule 415
of the U.S. Securities & Exchange Act. As a result of delays in
obtaining certain information from outside parties that was necessary
to complete the registration, the registration statement on Form S-3
was filed after the end of the 75 day period, accordingly, the Company
has recorded, as issued shares, an additional 2,897,700 common shares,
par value $.0001, effective May 15, 2001.
12
H. EARNINGS (LOSS) PER SHARE
At June 30, 2001, all exercisable common stock equivalents (1,818,200
options to purchase common stock) were antidilutive and are not
included in the earnings (loss) per share calculations.
I. INCOME TAXES
Income tax expense for continuing operations for the six months ended
June 30, 2001 and 2000 consists of:
2001 2000
Current tax expense:
Federal $ - $ -
State - 4,153
------------- -------------
- 4,153
Deferred tax expense - -
------------- -------------
Total income tax expense $ - $ 4,153
============= =============
Actual income tax expense applicable to earnings, from continuing
operations, before income taxes is reconciled with the "normally
expected" federal income tax expense as follows for the six months
ended June 30, 2001 and 2000:
2001 2000
"Normally expected" income tax expense $ (108,500) $ (10,200)
State income taxes, net of Federal
income tax benefit (13,100) 4,153
Valuation allowance 121,400 10,200
Other 200 -
------------ -------------
$ - $ 4,153
============ =============
The deferred income tax assets at June 30, 2001 are comprised of the
following:
Current Noncurrent
Net operating loss $ 34,800 $ -
Start-up costs - 109,700
Marketable equity securities (23,100) -
Valuation allowance (11,700) (109,700)
------------ -------------
Net deferred income tax assets $ - $ -
============ =============
13
H. DISCONTINUED OPERATIONS
As a part of the acquisition of Maxx, the Company was required to sell
its interest in its wholly owned subsidiaries, LCP and eStorefronts to
a group of its shareholders for 12,000,000 shares of its common stock.
Accordingly, no gain or loss was recognized on the transaction, which
was completed on May 15, 2001. Operating results for the discontinued
operations during the six months ended June 30, 2001 and 2000 were as
follows:
2001 2000
Net sales $ 2,532,207 $ 2,706,273
============= =============
Loss before income tax benefit (1,380,770) (594,713)
Income tax expense (benefit) - 1,406
------------- -------------
Earnings (loss) from discontinued operations
before minority interest (1,380,770) (596,119)
Minority interest - 1,002
------------- -------------
Net earnings (loss) from discontinued operations $ (1,380,770) $ (595,117)
============= =============
During the six months ended June 30, 2001, the Company realized a loss
from operations of its discontinued operations in the amount of
$1,380,770, as compared to a loss in the amount of $595,117 during the
same year earlier period. During the three months ended June 30, 2001,
the Company realized income from operation of its discontinued
operations in the amount of $572, as compared to a loss in the amount
of $611,612 during the year earlier period. During the three months
ended March 31, 2001, the Company recorded a provision for operating
losses to be incurred between the measurement date of March 31, 2001
and the disposal date of May 15, 2001 in the amount of $550,000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
From time to time, the Company may publish forward-looking statements
relative to such matters as anticipated financial performance, business
prospects, technological developments and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. All statements other than statements of
historical fact included in this section or elsewhere in this report
are, or may be deemed to be, forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Exchange Act of 1934. Important factors that could cause actual
results to differ materially from those discussed in such
forward-looking statements include, but are not limited to, the
following: changes in the economy or in specific customer industry
sectors; changes in customer procurement policies and practices;
changes in product manufacturer sales policies and practices; the
availability of product and labor; changes in operating expenses; the
effect of price increases or decreases; the variability and timing of
business opportunities including acquisitions, alliances, customer
agreements and supplier authorizations; the Company's ability to
realize the anticipated benefits of acquisitions and other business
strategies; the incurrence of debt and contingent liabilities in
connection with acquisitions; changes in accounting policies and
practices; the effect of organizational changes within the Company; the
emergence of new competitors, including firms with greater financial
resources than the Company; adverse state and federal regulation and
legislation; and the occurrence of extraordinary events, including
natural events and acts of God, fires, floods and accidents.
On May 15, 2001, the Company completed acquisition of Maxx for
7,750,000 shares of its common stock. Maxx, through its wholly owned
subsidiary, TRAC will own, operate, and sanction an automotive racing
league designed to provide content for television and tracks while
expanding the existing base of racing fans. TRAC will initially consist
of multi-car teams, strategically positioned in major North American
television markets located near major motorsport venues. Each team will
represent the city or state where it is located. The initial TRAC
racing season, planned to start in 2003, will consist of a regular
season race schedule, a playoff race schedule, and a Championship Race.
TRAC will incorporate the use of aerodynamically identical cars
(Aerostock(TM)), fuel-injection engines and other innovative
competition standards to increase parity among the teams without
diminishing the entertainment value. TRAC intends to attract multiple
manufacturers who currently are involved in motorsports worldwide, but
may not be currently involved in the major stock car racing series in
America.
TRAC will be structured as a single-entity league to allow for
centralized management, economies of scale in purchasing, strict
operational standards and cost controls at the team level. Revenue
sharing systems will be enacted to ensure parity and fairly allocate
revenue among teams.
Initial TRAC funds will be derived through the sales of rights to
city/state-based teams. TRAC will seek strategic alliances with
companies in the areas of television, sports/entertainment marketing
and public relations. Once racing begins, TRAC will generate revenue
through event ticket sales, league corporate sponsorships, television
and other multimedia contracts, merchandise sales, licensing/royalty
fees, team fees/dues, and sales of additional expansion teams.
TRAC's long-term business plan includes expanding its team base not
only in North America, but also internationally.
The Company's current projections include commencing sales of
city/state-based teams immediately and use of these proceeds together
with existing working capital to complete its business plan.
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The operations of Maxx and TRAC are presented as those of a development
stage enterprise, from its inception, May 15, 2001. The separate
operations of Team Sports are not included as a development stage
enterprise.
DISCONTINUED OPERATIONS
As a part of the acquisition of Maxx, the Company was required to sell
its interest in its wholly owned subsidiaries, LCP and eStorefronts to
a group of its shareholders in exchange for 12,000,000 shares of its
common stock. The transaction was also completed on May 15, 2001 and
the shares were cancelled.
During the six months ended June 30, 2001, the Company realized a loss
from operations of its discontinued operations in the amount of
$1,380,770, as compared to a loss in the amount of $595,117 during the
same year earlier period. During the three months ended June 30, 2001,
the Company realized income from operation of its discontinued
operations in the amount of $572, as compared to a loss in the amount
of $611,612 during the year earlier period. During the three months
ended March 31, 2001, the Company recorded a provision for operating
losses to be incurred between the measurement date of March 31, 2001
and the disposal date of May 15, 2001 in the amount of $550,000.
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PART II - OTHER INFORMATION
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Not applicable
(b) Reports on Form 8-K
(1) The Company filed its Form 8-K dated May 15, 2001
on May 29, 2001 and filed the related Form 8-K/A
on July 30, 2001 to report the acquisition of
Maxx Motorsports, Inc. and the related sale of
its subsidiaries in exchange for its common
stock. Financial statements included the audit of
Maxx Motorsports, LLC for the years ended
December 31, 2000 and 1999, together with a pro
forma balance sheet at March 31, 2001 and pro
forma statements of operations for the year ended
December 31, 2000 and for the three months ended
March 31, 2001.
(2) The Company filed its Form 8-K dated June 25,
2001 and filed June 29, 2001 reporting the
dismissal of its former principal accountants,
Bonadio & Co., LLP and the engagement of
Guest & Company, P.C. as its principal
accountants. Financial statements were not
filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
TEAM SPORTS ENTERTAINMENT, INC.
Date: August 17, 2001 By: /s/ Terry Washburn
------------------
Terry Washburn
Chief Executive Officer and
Principal Accounting Officer
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