Exhibit 99.1
SPORTSQUEST, INC.
AUDITED FINANCIAL STATEMENTS
AS OF OCTOBER 31, 2007 AND 2006
SPORTSQUEST, INC.
FINANCIAL STATEMENTS TABLE OF CONTENTS
FINANCIAL STATEMENTS Page
----
Independent Auditor's Report F-1
Balance Sheets F-2
Statements of Operations F-4
Statements of Stockholders' Equity F-5
Statements of Cash Flows F-6
Notes to the Financial Statements F-7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying balance sheets of SportsQuest, Inc. as of
October 31, 2007 and October 31, 2006 and the related statements of operations,
stockholders' equity, and cash flows for the twelve months then ended. These
financial statements are the responsibility of company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with 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 financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statements 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 SportsQuest, Inc. at
October 31, 2007 and October 31, 2006 and the results of its operations and its
cash flows for the twelve months then ended in conformity with U.S. Generally
Accepted Accounting Principles.
/s/ Gately & Associates, L.L.C.
- ----------------------------------------
Gately & Associates, L.L.C.
Altamonte Springs, FL
May 20, 2008
F-1
SPORTSQUEST, INC.
BALANCE SHEET
AS OF OCTOBER 31, 2007 AND OCTOBER 31, 2006
ASSETS
10/31/2007 10/31/2006
------------ ------------
CURRENT ASSETS
Cash $ 178,069 $ 215
Total Current Assets 178,069 215
------------ ------------
OTHER CURRENT ASSETS
Deferred Tax Asset 189,534 --
Investment in Subsidiary 650,000 --
Preferred Stock in Investment 3,903,750 --
Due From Related Party 37,140 --
Inventory - Media 10,000,000 --
Prepaid Packages 84,693 --
------------ ------------
Total Other Current Assets 14,865,117 --
------------ ------------
FIXED ASSETS
Furniture & Equipment 10,500
Accum deprec - Furn & Equip (750)
------------ ------------
Total Fixed Assets 9,750 --
------------ ------------
OTHER ASSETS
Goodwill 487,700 --
Total Other Assets 487,700 --
------------ ------------
TOTAL ASSETS $ 15,540,636 $ 215
============ ============
The accompanying notes are an integral part of these financial statements.
F-2
SPORTSQUEST, INC.
BALANCE SHEET
AS OF OCTOBER 31, 2007 AND OCTOBER 31, 2006
LIABILITIES AND STOCKHOLDERS' EQUITY
10/31/2007 10/31/2006
------------ ------------
CURRENT LIABILITIES
Accounts payable $ 104,239 $ 574
Payroll Liabilities 1,857 --
Compensation payable 78,672 --
Due to affiliate -- 355,430
Notes payable 4,053,750 --
------------ ------------
Total Current Liabilities 4,238,518 356,004
------------ ------------
LONG-TERM LIABILITIES
Note Payable 3,300,000 --
Bond Payable 662,860 --
------------ ------------
TOTAL LIABILITIES 8,201,378 356,004
------------ ------------
STOCKHOLDERS' EQUITY
Common Stock, $.0001 par value
Authorized: 98,800,000
Issued: 11,897,594 and 2,427,922, respectively 1,190 243
Preferred Stock, $.0001 par value:
1,200,000 shares authorized; none issued -- --
Additional paid in capital 8,784,245 425,146
Accumulated deficit (1,446,177) (781,178)
------------ ------------
Total Stockholders' Equity 7,339,258 (355,789)
------------ ------------
TOTAL LIABILITIES AND EQUITY $ 15,540,636 $ 215
============ ============
The accompanying notes are an integral part of these financial statements.
F-3
SPORTSQUEST, INC.
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDING OCTOBER 31, 2006 AND 2005
TWELVE TWELVE
MONTHS MONTHS
10/31/2007 10/31/2006
---------- ----------
REVENUE $ 28,183 $ 68,802
COST OF SERVICES -- --
----------- -----------
GROSS PROFIT OR (LOSS) 28,183 68,802
GENERAL AND ADMINISTRATIVE EXPENSES 401,508 8,416
OPERATING LOSS (373,325) 60,386
----------- -----------
INTEREST EXPENSE 496,193 --
GAIN ON SALE OF SUBSIDIARY (14,985) --
DIVIDEND INCOME -- --
----------- -----------
INCOME/(LOSS) BEFORE INCOME TAXES (854,533) 60,386
PROVISION FOR INCOME TAXES
Federal (189,534) 7,500
State -- 2,484
----------- -----------
NET INCOME/(LOSS) $ (664,999) $ 50,402
=========== ===========
EARNINGS (LOSS) PER SHARE, BASIC $ (0.16) $ 0.02
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 4,219,177 2,427,922
The accompanying notes are an integral part of these financial statements.
F-4
SPORTSQUEST, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
AS OF DECEMBER 31, 2006
ADDITIONAL
COMMON PAR PAID IN ACCUM TOTAL
STOCK VALUE CAPITAL DEFICIT EQUITY
----- ----- ------- ------- ------
Balance, October 31, 2005 2,427,922 $ 243 $ 425,146 $ (831,580) $ (406,191)
----------- ------- ---------- ----------- ----------
Net income (loss) 50,402 50,402
----------- ------- ---------- ----------- ----------
Balance, October 31, 2006 2,427,922 $ 243 $ 425,146 $ (781,178) $ (355,789)
----------- ------- ---------- ----------- ----------
Other changes for the six (150,000) (15) (14,985) (15,000)
months ended April 30, 2007
Capital Contribution on August 16, 2007 -- -- 500,000 500,000
In-Kind Contribution -- -- 1,013 1,013
Common stock issued for debt release
on August 16, 2007 6,800,000 680 339,320 340,000
Capital Contribution on August 16, 2007 -- -- 6,700,000 6,700,000
Common stock issued for assets
August 21, 2007 at $0.0001 2,000,000 200 -- 200
Capital Contribution on September 13, 2007 -- -- 500 500
Capital Contribution on September 21, 2007 -- -- 333,333 333,333
Common stock issued for assets
September 25, 2007 at $0.0001 819,672 82 499,918 500,000
Net income (loss) (664,999) (664,999)
----------- ------- ---------- ----------- ----------
Balance, October 31, 2007 11,897,594 $ 1,190 $8,784,245 $(1,446,177) $7,339,258
=========== ======= ========== =========== ==========
The accompanying notes are an integral part of these financial statements.
F-5
SPORTSQUEST, INC.
STATEMENTS OF CASH FLOWS
FOR THE TWELVE MONTHS ENDING OCTOBER 31, 2006 AND 2005, AND
TWELVE TWELVE
MONTHS MONTHS
10/31/2007 10/31/2006
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(664,999) $ 50,402
--------- ---------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Adjustments for charges not requiring outlay of cash:
In-kind Contribution 1,013 --
Non-cash interest on beneficial bond conversion 333,333 --
Non-cash office exp from stock acquisition 2,000 --
Non-cash bond issuance exp 5,000 --
Provision for income taxes (189,534) 7,500
Write-off of Deposit -- 650
Depreciation 750 --
Gain on Sale of Subsidiary (15,000) --
(Increase)/Decrease in prepaid expenses (84,693) --
Increase/(Decrease) in amount due to affiliate (15,430) (59,307)
Increase (Decrease) in accounts payable 104,239 --
Increase (Decrease) in accrued expenses 1,283 574
Increase (Decrease) in accrued interest 162,860 --
Increase (Decrease) in compensation payable 78,672 --
--------- ---------
Total adjustments to net income 384,493 (50,583)
--------- ---------
Net cash provided by (used in) operating activities (280,506) (181)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
None -- --
--------- ---------
Net cash flows provided by (used in) investing activities -- --
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash Received from Affiliate -- 300
Cash (Paid) to Affiliate (37,140) --
Contribution of Capital 500
Cash Received on notes payable -- --
Cash (Paid) on notes payable -- --
Cash Received on bond payable 495,000
Cash (Paid) on bond payable -- --
--------- ---------
Net cash provided by (used in) financing activities 458,360 300
--------- ---------
CASH RECONCILIATION
Net increase (decrease) in cash and cash equivalents 177,854 119
Cash and cash equivalents - beginning balance 215 96
--------- ---------
CASH AND CASH EQUIVALENTS BALANCE END OF PERIOD $ 178,069 $ 215
========= =========
The accompanying notes are an integral part of these financial statements.
F-6
SPORTSQUEST, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
NOTE 1 ORGANIZATION
We were incorporated in the state of Delaware on April 3, 1986 under the name
Bay Head Ventures, Inc. We changed our name to Air Brook Airport Express, Inc.
on December 8, 1988. On August 20, 2007, we changed our name to SportsQuest,
Inc. The Company was formed primarily to investigate potential merger
candidates, asset purchases and other possible business acquisitions.
BUSINESS
The Company continues to seek business acquisitions, but its primary activities
are to create, develop, own and manage high end sports events and their
operating entities, as well as executing a growth strategy involving
acquisitions of diverse and effective sports marketing platforms.
NOTE 2 GOING CONCERN UNCERTAINTY
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the financial
statements, the Company had a material working capital deficiency and an
accumulated deficit at October 31, 2007. These factors raise substantial doubt
about the ability of the Company to continue as a going concern. The financial
statements do not include adjustments relating to the recoverability of assets
and classification of liabilities that might be necessary should the Company be
unable to continue in operation with its affiliate.
The Company's present plans, the realization of which cannot be assured, to
overcome these difficulties include but are not limited to the continuing effort
to investigate business acquisition and merger opportunities.
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Cash
For purposes of the Statement of Cash Flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
b. Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, which include cash
equivalents and current liabilities, approximate their fair values at October
31, 2007.
c. Earnings Per Share
Basic and diluted net income per common share is computed by dividing the net
income available to common shareholders for the period by the weighted average
number of shares of common stock outstanding during the period. The number of
weighted average shares outstanding as well as the amount of net income per
share is the same for basic and diluted per share calculations for all periods
reflected in the accompanying financial statements.
F-7
SPORTSQUEST, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
d. Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes", which requires the
use of the "liability method". Accordingly, deferred tax liabilities and assets
are determined based on differences between the financial statement and tax
bases of assets and liabilities, using enacted tax rates in effect for the year
in which the differences are expected to reverse. Current income taxes are based
on the income that is currently taxable.
e. Use of Estimates
The preparation of 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.
f. Advertising Costs
The Company expenses advertising costs when the advertisement occurs. There were
no expenditures for advertising during the years ended October 31, 2007 or 2006.
g. Recognition of Revenue
Revenue reported to date is realized from commissions on sales at the Satellite
Terminals and is recognized on the accrual basis. Recognition occurs daily, upon
receipt of daily reports of sales of the Satellite Terminals.
h. Recent Accounting Pronouncements
SFAS No. 155 amends SFAS No. 140, "Accounting for the Impairment or Disposal of
Long-Lived Assets", to allow a qualifying special-purpose entity to hold a
derivative financial instrument that pertains to a beneficial interest other
than another derivative financial instrument. SFAS No. 155 applies to all
financial instruments acquired or issued after the beginning of an entity's
first fiscal year that begins after September 15, 2006, with earlier application
allowed. The adoption of this statement is not expected to have a material
effect on the Company's future reported financial position or results of
operations.
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets, an amendment of FASB Statement No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities".
This statement requires all separately recognized servicing assets and servicing
liabilities be initially measured at fair value, if practicable, and permits for
subsequent measurement using either fair value measurement with changes in fair
value reflected in earnings or the amortization and impairment requirements of
Statement No. 140. The subsequent measurement of separately recognized servicing
assets and servicing liabilities at fair value eliminates the necessity for
entities that manage the risks inherent in servicing assets and servicing
liabilities with derivatives to qualify for hedge accounting treatment and
eliminates the characterization of declines in fair value as impairments or
direct write-downs. SFAS No. 156 is effective for an entity's first fiscal year
beginning after September 15, 2006. The adoption of this statement is not
expected to have a material effect on the Company's future reported financial
position or results of operations.
In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statements No. 109". FIN
48 clarifies the accounting for uncertainty in income taxes by prescribing a
two-step method of first evaluating whether a tax position has met a more likely
than not recognition threshold and second, measuring that tax position to
determine the amount of benefit to be recognized in the financial statements.
F-8
SPORTSQUEST, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
FIN 48 provides guidance on the presentation of such positions within a
classified statement of financial position as well as on derecognition, interest
and penalties, accounting in interim periods, disclosure, and transition. FIN 48
is effective for fiscal years beginning after December 15, 2006. The adoption of
this statement is not expected to have a material effect on the Company's future
reported financial position or results of operations.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements". The
objective of SFAS 157 is to increase consistency and comparability in fair value
measurements and to expand disclosures about fair value measurements. SFAS 157
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS 157 applies under other accounting pronouncements that
require or permit fair value measurements and does not require any new fair
value measurements. The provisions of SFAS No. 157 are effective for fair value
measurements made in fiscal years beginning after November 15, 2007. The
adoption of this statement is not expected to have a material effect on the
Company's future reported financial position or results of operations.
In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS
No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities -
Including an Amendment of FASB Statement No. 115". This statement permits
entities to choose to measure many financial instruments and certain other items
at fair value. Most of the provisions of SFAS No. 159 apply only to entities
that elect the fair value option. However, the amendment to SFAS No. 115
"Accounting for Certain Investments in Debt and Equity Securities" applies to
all entities with available-for-sale and trading securities. SFAS No. 159 is
effective as of the beginning of an entity's first fiscal year that begins after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also elects
to apply the provision of SFAS No. 157, "Fair Value Measurements". The adoption
of this statement is not expected to have a material effect on the Company's
financial statements.
In December 2007, the FASB issued Statement of Financial Accounting Standards
No. 141 (Revised), Business Combinations ("SFAS 141R"). This statement 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 non-controlling interest in the acquiree as well as
the recognition and measurement of goodwill acquired in a business combination.
The statement 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 this statement is not permitted.
NOTE 4 PROPERTY AND EQUIPMENT
Property and equipment at October 31, 2007 were as follows:
Furniture & Equipment $ 10,500
Less accumulated depreciation (750)
--------
$ 9,750
========
During the year ended October 31, 2007and 2006, the Company recorded
depreciation expense of $750 and $0 respectively.
Pursuant to two 1991 agreements, Abex transferred all of its transportation
equipment and the operating activities of a ground transportation facility in
Ridgewood, New Jersey to its affiliate, Air Limo. Air Limo in return has agreed
to pay Abex a fee equal to ten (10%) percent of gross collections from such
facility.
F-9
SPORTSQUEST, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
NOTE 5 RELATED PARTY TRANSACTIONS
On May 1, 1993, Abex entered into an agreement with Air Limo concerning a second
Satellite Terminal operated by Air Limo in the Borough of Montvale. Pursuant to
this agreement, Air Limo bears all costs of operating the facility and pays Abex
three percent (3%) of the gross receipts generated by the facility.
Air Limo has stated its intention to advance funds on behalf of the Company and
its subsidiary as long as Air Limo deems this necessary and as long as Air Limo
is financially able to do so. Such advances are due on demand and Air Limo may
terminate this arrangement at any time.
In March 2007, Air Brook Limousine notified us that it had experienced
extraordinary increases in the cost of performing the agreements and advised us
of its intent to cancel the contracts. As part of a settlement of issues, we
entered into an Agreement and Plan of Reorganization dated March 8, 2007,
pursuant to which, among other things, we agreed that A.B. Park & Fly would be
merged with and into a wholly-owned subsidiary of Air Brook Limousine, wherein
the separate existence of A.B. Park & Fly would cease. In consideration for the
preceding, Air Brook Limousine agreed to deliver to us 150,000 shares of our
common stock, which we canceled as outstanding shares. This merger was completed
on March 15, 2007.
On August 16, 2007, Lextra Management Group, Inc., an event management company,
acquired 51.16% of our issued and outstanding common stock pursuant to an
Agreement dated June 26, 2007 by and among Lextra, our company and certain of
our principal stockholders. Pursuant to the terms of this agreement, at the
closing, Lextra acquired (a) 1,165,397 shares representing 51.16% of the issued
and outstanding shares of our common stock from the selling stockholders for an
aggregate purchase price of $116,500 and (b) an outstanding accounts receivable
due to Air Brook Limousine by us in the amount of $340,000. At the closing, Air
Brook Limousine cancelled the agreement dated August 10, 1993 under which Air
Brook Limousine stipulated that it would fund our operations for as long as Air
Brook Limousine deemed necessary and as long as it was financially able.
Per footnote No. 10 "Subsequent Events" the Company has chosen to account for
the acquisition of its wholly owned subsidiary, ZCE, Inc., as an unconsolidated
investment in the subsidiary as the Exchange Agreement and Bring Down and
Amendment agreement is in question and may be settled or rescinded once the
Company determines which course of action is in the best interest of the Company
and its shareholders.
In-Kind Contribution of Rent
During the year ended October 31, 2007, the Company recorded $1,013 as in-kind
contribution of rent paid by its affiliate.
NOTE 6 DUE TO AFFILIATE
On August 16, 2007, 6,800,000 shares were issued for a value of $340,000 in
exchange for release from debt to the Company's affiliate.
As of October 31, 2007, there was a balance due to Zaring Cioffi Entertainment
of $150,000. Pursuant to the Bring Down and Amendment, the Company would service
the debt of ZCE on a monthly basis until the registration statement was declared
effective by the SEC and the Company had received its third tranche of funding
in the amount of $500,000 under the callable notes dated August 17, 2007. In
addition, the Company has the right of offset for the sum of $20,000 already
advanced to ZCE on August 30, 2007, before the closing.
F-10
SPORTSQUEST, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
NOTE 7 NOTES PAYABLE
* On August 16, 2007, the Company entered into a Securities Purchase
Agreement (the "Purchase Agreement"), by and among the Company and AJW
Partners, LLC, AJW Master Fund, Ltd. and New Millennium Capital Partners
II, LLC (collectively, the "Air Brook Investors"). The transactions
contemplated by the Purchase Agreement will result in a funding of a total
of $1,500,000 into the Company.
The Purchase Agreement provided for the sale by the Company to the
SportsQuest Investors of callable secured convertible notes with an
aggregate face amount of $1,500,000, plus interest (the "Facility Notes").
The Air Brook Investors purchased from the Company at closing Facility
Notes with an aggregate face amount of $500,000 and are required to
purchase additional Facility Notes with an aggregate face amount of
$500,000 from the Company upon each of (i) the filing of the registration
statement required by the Registration Rights Agreement and (iii) the
declaration of effectiveness of such registration statement by the
Securities and Exchange Commission. The Facility Notes accrue interest at a
rate of 8% per year, require quarterly interest payments in certain
circumstances related to the market price of the Company's common stock,
and are due and payable on August 16, 2010 (the "Maturity Date"). The
Company is not required to make any principal payments until the Maturity
Date, but it has the option to prepay the amounts due under the Facility
Notes in whole or in part at any time, subject to the payment of varying
prepayment penalties depending on the time of such prepayment, as set forth
in the Facility Notes. The Facility Notes are convertible into common stock
of the Company at a discount to the then current fair market value of the
Company's common stock, as set forth in the Facility Notes.
In addition, the Purchase Agreement provided for the issuance by the
Company to the SportsQuest Investors of warrants to purchase 10,000,000
shares of the Company's common stock (the "Warrants"). Each Warrant permits
its holder to acquire shares of the Company's common stock at an exercise
price of $0.25 per share at any time through August 16, 2014.
The Company allocated the proceeds received between the Facility Notes
issued and the warrant based on the relative fair values at the time of
issuance in accordance with APB Opinion 14, Accounting for Convertible Debt
and Debt Issued with Stock Purchase Warrants. The Company then further
allocated the proceeds received to the beneficial conversion feature in
accordance with EITF Issue No. 98-5, Accounting for Convertible Securities
with Beneficial Conversion Features or Contingently Adjustable Conversion
Ratios, and the guidance in EITF Issue No. 00-27, Application of Issue No.
98-5 to Certain Convertible Instruments. The fair value of the warrant was
estimated on the date of issuance using the Black-Scholes valuation model
and the assumptions described in the table below:
Fair value of underlying stock at date of issuance $ 0.51
Exercise price $ 0.25
Expected life 7 years
Expected dividend yield 0%
Risk-free interest rate 4.39%
Volatility 62.08%
As of a result of the above allocations, the Company recorded discounts of
$833,333 related to the $1,000,000 worth of Facility Notes issued during
2007. These discounts have been reflected as additional paid in capital in
the accompany statement of stockholders' equity. During 2007, the Company
recorded approximately $496,193 of interest expense related to the
amortization of the discounts.
F-11
SPORTSQUEST, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
As a condition to entering into the Purchase Agreement, the Company and the
SportsQuest Investors entered into a Registration Rights Agreement, dated
as of August 16, 2007. As set forth in the Registration Rights Agreement,
the Company has agreed to file a registration statement with the Securities
and Exchange Commission, within 30 days, to cover the resale by the
SportsQuest Investors of the shares of the Company's common stock into
which the Facility Notes are convertible. The Company has further agreed to
use its best efforts to have such registration statement declared effective
and to keep such registration statement effective until the earlier of (i)
the date on which all of the securities covered by the registration
statement have been sold and (ii) the date on which such securities may be
immediately sold to the public without registration or restriction. The
Company has also granted piggyback registration rights to the SportsQuest
Investors, to the extent that it files a registration statement for its own
account, for the same period.
* On August 16, 2007, the Company loaned $500,000 to Lextra Management Group,
Inc. ("Lextra"), as set forth in a callable secured note (the "Lextra
Note") containing terms substantially similar to the Facility Notes. The
Lextra Note, however, does not contain any provision for the outstanding
amount due under it to be converted into Lextra's stock. This note was
satisfied during the period through the Asset Purchase Agreement referred
to in note 9.
* On August 17, 2007, the Company entered into a Stock Issuance, Assumption
and Release Agreement (the "Assumption Agreement"), by and among the
Company and Greens Worldwide Incorporated ("Greens Worldwide") and AJW
Partners, LLC, AJW Offshore, Ltd., AJW Qualified Partners, LLC and New
Millennium Capital Partners II, LLC (collectively, the "Greens Worldwide
Investors"). The transactions contemplated by the Assumption Agreement
include the following:
* The issuance by Greens Worldwide of 390,000 shares of its Series A
Convertible Preferred Stock, par value $10.00 per share (the "Series A
Preferred Stock"), to the Company; and
* The assumption by the Company of 50% of Greens Worldwide's
indebtedness to the Greens Worldwide Investors under a Securities
Purchase Agreement, dated as of March 22, 2007, by and among Greens
Worldwide and the Greens Worldwide Investors (the "Greens Worldwide
Agreement").
Under the terms of the Assumption Agreement, the Greens Worldwide Investors
will release Greens Worldwide from its obligations under the notes
described above. In consideration for such release, the Company will issue
to the SportsQuest Investors (who are the successors to the Greens
Worldwide Investors) callable secured convertible notes with an aggregate
face amount of $3,903,750, including interest (collectively, the
"Assumption Notes"), and Greens Worldwide will issue to the SportsQuest
Investors callable secured convertible notes with an aggregate face amount
of $3,903,750, including interest. The Assumption Notes have the same terms
and conditions as the notes described above, except that the Assumption
Notes are convertible into the Company's common stock.
The Company has elected to account for the investment at cost since Greens
Worldwide does not have common shares for the Company to convert its
preferred and it is unlikely that Greens Worldwide will have common shares
in the short term. In the event that Greens Worldwide has sufficient common
shares available for conversion, and the Company was to exercise its
conversion rights, the Company would not own more than 50% of the voting
common shares of Greens Worldwide.
* On September 25, 2007, the Company entered into an Exchange Agreement that
stipulated that the Company shall pay ZCE the sum of $150,000 in cash at
the closing (the "Closing Cash Payment"). Under the Bring Down and
Amendment, the parties acknowledged that the Closing Cash Payment was
F-12
SPORTSQUEST, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
intended to be used to pay off certain debts of the Company (the Debt").
Pursuant to the Bring Down and Amendment, the parties agreed that the
Closing Cash Payment would be paid to ZCE at closing. Instead, the Company
assumed the debt at closing and agreed to service the Debt according to the
then current monthly schedule and pursuant to the terms of the Bring Down
and Amendment. The Company agreed in the Bring Down and Amendment to pay
off the Debt in full on the closing of the sale of callable secured
convertible notes in the aggregate principal amount of $500,000 to AJW
Master Fund, Ltd., AJW Partners, LLC (collectively, "NIR") pursuant to the
Securities Purchase Agreement, dated August 16, 2007, among the Company and
NIR, which closing shall occur within five business days after the
declaration of the effectiveness of the Form SB-2 registration Statement
filed by the Company with the Securities and Exchange Commission on
September 14, 2007.
NOTE 8 SHAREHOLDERS' EQUITY
Common and Preferred Stock:
Common stock includes 98,800,000 shares authorized at a par value of $0.0001, of
which 11,897,594 are outstanding.
Preferred stock includes 1,200,000 shares authorized at a par value of $0.0001,
of which none are issued or outstanding.
For the periods ending October 31, 2007 and 2006, the Company had issued common
shares of 11,897,594 and 2,427,922 respectively.
During the year ended October 31, 2006, no new shares were issued.
During the year ended October 31, 2007, the Company issued the following:
In March of 2007, the Company sold a subsidiary for 150,000 shares of its own
stock that had been held by the Buyer.
On August 16, 2007, 6,800,000 shares were issued for a value of $340,000 in
exchange for release from debt to the Company's affiliate.
On August 21, 2007, the Company issued 2,000,000 shares at $0.0001 as part of an
Asset Purchase Agreement.
On September 25, 2007, the Company issued 819,672 shares at $0.0001 as part of
an Acquisition Agreement.
NOTE 9 ACQUISITIONS
Lextra Management Group, Inc.
On August 21, 2007, the Company entered into an Asset Purchase Agreement with
Lextra Management Group, Inc. ("Seller"). The Company issued 2,000,000 shares of
restricted common stock par value $.0001 plus forgiveness and discharge of a
$500,000 promissory due to the Company from the Seller dated August 16, 2007.
The Seller assigned, granted, transferred, and conveyed all of the right, title,
and interest of the Seller in and to all of the assets of Seller used
exclusively in the business (collectively, the "Purchased Assets") free and
clear of any and all liens, claims, charges, security interests, and
F-13
SPORTSQUEST, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
encumbrances as the same that existed on the closing date, August 21, 2007, as
follows:
A. All intellectual property, trade name, trade secrets, trademarks,
personnel contracts, web site, strategic partnerships, sponsors,
publications, operating model, manuals, and all other confidential
information relating to the business; and
B. All current, past and future clients.
C. All assets of the Seller.
D. Media Contract/Sponsorship contract with Media4Equity, Inc. in the
amount $10 million dollars, by and between the Seller.
E. Assignment of a private equity funding commitment in the amount of $50
million.
The Company shall not assume or be or become liable for any liability or
obligation of Seller, whether known, unknown, absolute, contingent, or
otherwise.
In connection with the Agreement, there was an amount allocated to goodwill.
This amount was related to commissions receivable on sports event packages and
venture and media rights transferred from Lextra. The Company's management feels
that there will be future cash inflows in excess of the amount of goodwill and
therefore no impairment on the asset was booked.
ZCE, INC.
On September 25, 2007, the Company completed an Exchange Agreement entered into
on August 20, 2007 with Zaring-Cioffi Entertainment, LLC, a California limited
liability company ("Zaring-Cioffi"), ZCE, Inc., a California corporation
("ZCE"), and Q-C Entertainment, LLC, a Washington limited liability company
("Q-C"). Pursuant to a Bring Down Agreement and Amendment (the "Bring Down and
Amendment"), dated September 25, 2007, among the Company, Zaring/Cioffi
Entertainment, Inc., Zce, David Quin ("Quin") and Jeff Merriman Cohen ("Cohen"),
Quin and Cohen, the sole members of Q-C, assumed the rights, obligations and
liabilities of Q-C under the Exchange Agreement, as amended by the Bring Down
and Amendment. Under the terms of the Exchange Agreement, as amended by the
Bring Down and Amendment, the Company purchased 100% of the issued and
outstanding shares of Zaring-Cioffi from its shareholders, ZCE, Quin and Cohen,
in exchange for the issuance of 409,836 shares of restricted common stock of the
Company to ZCE and 409,836 shares of restricted common stock of the Company to
Cohen and Quin, which stock in the aggregate was valued at $500,000. In
addition, the Company issued warrents (the "Warrants") to purchase an aggregate
400,000 shares of restricted common stock of the Company to the shareholders of
Zaring-Cioffi according to the following Schedule:
50,000 shares to each of ZCE and Quin Cohen at a strike price of $0.50 per share
expiring December 31, 2007; 50,000 shares to each ZCE and Quin and Cohen at a
strike price of $1.00 per share expiring December 31, 2008; and 100,000 shares
to each of ZCE and Quin and Cohen at a strike price of $1.50 per share expiring
December 31, 2009.
Furthermore, Quin and Cohen received, at no cost, a Bronze Level sponsorship
position (or its equivalent) at all Zaring-Cioffi events through 2009.
Under the Bring Down and Amendment, the Company, Zaring-Cioffi, ZCE, Cohen and
Quin also made the representations and warranties set forth in the Exchange
Agreement as of closing and agreed that the representations and warranties would
not survive the closing.
F-14
SPORTSQUEST, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
NOTE 10 INCOME TAXES
The Company has experienced significant net operating losses in previous years
and for the period ending October 31, 2007. As a result, no Federal income taxes
have been incurred during the years ended October 31, 2007 or 2006. There were
no remaining available net operating losses at October 31, 2006. The balance of
the realization allowance was reduced by $10,500 during the 2006 year because of
expiring net operating losses.
The Company has a net loss carry-forward of $1,263,561 as of October 31, 2007.
These amounts can be carried forward to be used to offset future income for tax
purposes for a period of 20 years for each year's loss.
The federal income tax payable that was accrued for the period ended October 31,
2007 was offset by the Company's net operating loss carry-forward therefore the
provisions for income tax in the income statements is $0. The federal income tax
payable that was accrued for the period ended October 31, 2006 was $7,500, and
was paid in 2007.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial statement
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of October 31, 2007 are as
follows:
Deferred tax assets:
Federal net operating loss $ 189,534
Total deferred tax assets 189,534
Less valuation allowance (0)
---------
$ 189,534
=========
The reconciliation of the effective income tax rate to the federal statutory
rate for the years ended October 31, 2007 and 2006 is as follows:
2007 2006
---- ----
Federal income tax rate (15.0%) (15.0%)
Effective income tax rate 15.0% 15.0%
NOTE 11 SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Revenue recognition produces a reduction of the obligation to Air Limo. In
addition, most Company expenses are paid by Air Limo and the obligation is
increased. These transactions resulted in a net reduction of the obligation to
Air Limo during the year ended October 31, 2006 to $59,007. During the year
ended October 31, 2007, the Company's agreement with Air Brook Limousine was
cancelled and the obligation was reduced to zero.
There was no cash paid for interest during these years. $2,484 was paid for
state income taxes during the year ended October 31, 2006.
NOTE 12 CONSOLIDATION OF SUBSIDIARY
Per footnote No. 4 "Related Party Transactions" as part of a settlement of
issues, the Company entered into an Agreement and Plan of Reorganization dated
March 8, 2007, pursuant to which, among other things, the Company agreed that
A.B. Park & Fly would be merged with and into a wholly-owned subsidiary of Air
Brook Limousine, wherein the separate existence of A.B. Park & Fly would cease.
In consideration for the proceeding, Air Brook Limousine agreed to deliver to us
150,000 shares of the Company's common stock, which the Company cancelled as
F-15
SPORTSQUEST, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
outstanding shares. The merger was completed March 15, 2007 and therefore the
Company does not account for Air Brook Limousine as a subsidiary for the year
ending October 31, 2007.
NOTE 13 SUBSEQUENT EVENTS
* Subsequent from the completion of the Exchange Agreement and Bring Down and
Amendment agreement with Zaring-Cioffi Entertainment, LLC, a California
limited liability company ("Zaring-Cioffi"), ZCE, Inc., a California
corporation ("ZCE"), and Q-C Entertainment, LLC, a Washington limited
liability company ("Q-C"), the Company uncovered discrepancies in the
representations of certain ZCE principals and management and the operations
of ZCE. The Company is currently involved in assessing these discrepancies
and determining the best course of action. As a result, the management of
ZCE has been terminated for cause.
On April 3, 2008, the Company filed a lawsuit against ZC Entertainment and
John Zaring for $20,000 in the Circuit Court of Chesapeake Virginia in
connection with a promissory note. This suit by the Company is related to
an advance made by the Company prior to the closing. The Company made
demand on ZCE and the guarantor, John Zaring, but the promissory note was
not paid in accordance with its terms.
* On November 5, 2007, SportsQuest, Inc. (the "Company") entered into an
Agreement for the Exchange of Common Stock (the "Exchange Agreement") with
Javaco, Inc., an Ohio corporation ("Javaco"), and Judith Vazquez, the sole
shareholder of Javaco (the "Shareholder"). Javaco is an industrial supplier
to the cable television industry. The closing is subject to the conversion
of Javaco, an S corporation, to a C corporation and completion of due
diligence by the Company. Under the terms of the Exchange Agreement, the
Company has agreed to purchase 100% of the issued and outstanding shares of
Javaco in exchange for that number of shares of common stock of the Company
to be issued to the Shareholder with a total value of $1,000,000, with the
number of shares computed by dividing the average closing price of the
common stock of the Company for the five days prior to closing into the sum
of $1,000,000. In addition, the Company shall issue warrants to the
Shareholder to purchase common stock of the Company according to the
following schedule: 100,000 shares at a strike price of $0.50 per share
expiring December 31, 2007, 100,000 shares at a strike price of $1.00 per
share expiring December 31, 2008, and 200,000 shares at a strike price of
$1.50 per share expiring December 31, 2009. The Company is also obligated
to pay a broker a three percent commission on the closing of this
transaction, payable in that number of shares of common stock of the
Company with a total value of $30,000, with the number of shares determined
as provided above. The closing is expected to occur on or about June 14,
2008, after the completion of an audit of the books and records of Javaco.
* On December 15, 2007, U.S. Pro Golf Tour, Inc. ("USPGT"), a wholly-owned
subsidiary of Greens Worldwide Incorporated ("GRWW"), and SportsQuest, Inc.
(the "Company") executed a three-year presenting title sponsorship
agreement (the "Agreement"). Under the Agreement, the Company has agreed to
issue $500,000 of its restricted common stock to GRWW and to underwrite all
purses and expenses for "official" USPGT events through 2010, subject to
certain performance conditions and registration rights. The Company will
rely on Section 4(2) of the Securities Act of 1933, as amended, and the
regulations promulgated thereunder, for the exemption from registration for
the sale of such shares. The Company withdrew its sponsorship as a result
of the events being scheduled for launch in 2009, in lieu of 2008. The
Company will revisit the title sponsorship opportunity as soon as plans are
made clearer as to the USPGT events and schedule for 2009.
F-16
SPORTSQUEST, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
* Effective January 1, 2008, the Company entered into a consulting agreement
with Rick Altmann, one of the Company's directors. The agreement is for a
term of five years. As compensation for services, he will receive a monthly
fee of $6000, payable on the first and 15th of each month for 2008, $7000
per month for 2009, and $8000 per month for 2010 and thereafter. The
Company may pay up to a mutually agreeable amount of fees in common stock
of the Company. The Consultant is responsible for all expenses that may be
incurred in performing the consulting services, including, but not limited
to, travel, third party expenses, and copying and mailing expenses unless
otherwise pre-approved by the Company. Mr. Altmann also received 500,00
shares of Common stock as compensation for serving as a Director.
* On January 8, 2008, the Company executed an Executive Employment Agreement
with its President and Chief Executive Officer for a term of five years.
The agreement provides for an annual base salary of $240,000, payable in
accordance with the Company's generally applicable payroll practices and
policies, but not less frequently than twice per month in arrears. Annual
base salary will increase 10% per year automatically.
The Executive is also eligible to receive a bonus from the Company, and to
participate in any of the Company's bonus plan(s) that may be adopted for
the benefit of executives of the Company. The award of any discretionary
bonus under this section shall be determined by the Board of Directors of
the Company.
The Executive is also entitled to receive such stock options as may be
granted to other executives of the Company as adopted by the Board of
Directors. As a signing bonus, the Company agreed to issue 100,000 shares
of Series A Convertible Preferred shares, convertible at the rate of one
share of preferred for each 500 shares of common stock of the Company, with
voting rights as if converted.
The Executive has been serving the Company since August 17, 2007 through
January 7, 2008. The Company has accrued the sum of $150,000 for the period
and agrees to pay the accrued amount upon receiving funding in an amount
sufficient to pay the accrual.
The Executive and Executive's dependants are eligible for medical health
insurance and Executive will receive five weeks of paid vacation after one
year of service, seven sick days, six personal days, and six major holidays
per year as well as any other benefits that are available generally to
other executives of the Company.
The Company shall pay or reimburse Executive for all reasonable expenses
incurred or paid by the Executive in the performance of Executive's duties.
* On February 26, 2008, the Company entered into a Securities Purchase
Agreement (the "Purchase Agreement"), by and among the Company ("Parent"),
and SportsQuest Management Group, Inc. (the "Subsidiary"). The Parent and
Subsidiary are collectively referred to as the "Company" and the secured
party's signatory and their respective endorsees, transferees and assigns
are collectively the "Secured Party". The transactions contemplated by the
Purchase Agreement will result in a funding of a total of $250,000 into the
Company.
The Purchase Agreement provided that the Parent shall issue to the Secured
Party certain of Parent's 8% Callable Secured Convertible Notes, due three
years from the date of issue, which are convertible into shares of the
Company's Common Stock, par value $0.0001 per share and the Parent shall
issue the Secured Party certain Common Stock purchase warrants.
F-17
SPORTSQUEST, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2007
AJW Master Fund or its registered assigns, is entitled to purchase from the
Company 2,000,000 fully paid and non-assessable shares of the Company's
Common Stock, par value $0.0001 per share, at an exercise price per share
equal to $0.003.
AJW Partners, LLC or its registered assigns, is entitled to purchase from
the Company 2,000,000 fully paid and non-assessable shares of the Company's
Common Stock, par value $0.0001 per share, at an exercise price per share
equal to $0.003.
New Millennium Capital Partners II, LLC or its registered assigns, is
entitled to purchase from the Company 6,000,000 fully paid and
non-assessable shares of the Company's Common Stock, par value $0.0001 per
share, at an exercise price per share equal to $0.003.
* On May 20, 2008, Domar Exotic Furnishings, Inc. (OTCBB DMXF) acquired
100,000 Preferred shares held by our President and CEO, in exchange for 6.5
million of DMXF common shares. This transaction represented a change in
control of the Company, however effective control of the Company is
unchanged due to a beneficial interest in the Company via Domar.
F-18