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, 2002
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)
13801 Reese Blvd West, Suite 150, Huntersville, NC 28078
(Address of principal executive office)
(704) 992-1290
(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 September 30, 2002 was 62,568,312.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X].
1
TEAM SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
INDEX
Page
No.
Part I. Unaudited Financial Information
Item 1.Condensed Consolidated:
Balance Sheet - September 30, 2002 .............. 3
Statements of Operations - ...................... 4
Three and Nine Months Ended September 30, 2002 and 2001 and Development Stage,
from inception (May 15, 2001), through September 30, 2002
Statement of Stockholders' Equity - ............. 5
Nine Months ended September 30, 2002
Statements of Cash Flows - ...................... 6
Nine Months Ended September 30, 2002 and 2001 and Development Stage,
from inception (May 15, 2001), through September 30, 2002
Notes to Financial Statements - ................. 7-10
Nine Months ended September 30, 2002 and 2001
Item 2.Managements Discussion and Analysis of Plan of Operation 11-14
Item 3.Controls and Procedures.......................... 15
Part II. Other Information................................ 16-18
2
TEAM SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheet
September 30, 2002
(Unaudited)
Assets
Current assets
Cash and cash equivalents ............................ $ 888,641
Marketable equity securities ......................... 22,857
Inventory ............................................ 2,268,125
Prepaid expenses and other assets .................... 229,108
------------
Total current assets ................................... 3,408,731
Property and equipment:
Race car designs and manufacturing equipment ......... 1,673,400
Office furniture and computer equipment .............. 154,274
------------
1,827,674
Less accumulated depreciation ........................ (26,306)
------------
Net property and equipment ......................... 1,801,368
Goodwill, net .......................................... 2,810,627
------------
$ 8,020,726
============
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses ................ $ 132,810
Current portion of capital lease payable ............. 36,070
Convertible promisory notes .......................... 1,613,000
Deferred revenue ..................................... 100,000
------------
Total current liabilities .............................. 1,881,880
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
shares; issued and outstanding 62,568,312 shares .... 6,257
Paid-in capital ...................................... 15,571,214
Unissued common stock; 645,200 shares 161,300
Accumulated deficit .................................. (9,599,925)
------------
Total stockholders' equity ............................. 6,138,846
------------
$ 8,020,726
============
See accompanying notes to condensed consolidated financial statements.
3
TEAM SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2002 and 2001 and Development Stage
from Inception (May 15, 2001), through September 30, 2002
(Unaudited)
From inception
(5/15/2001)
through
Three Months Ended Sept. 30, Nine Months Ended Sept. 30, Sept. 30, 2002
2002 2001 2002 2001 (Note A)
Sales and revenues ................... $ -- $ -- $ -- $ 28,310 $ --
Cost of goods sold ................... -- -- -- 9,536 --
------------ ------------ ------------ ------------ ------------
Gross profit ....................... -- -- -- 18,774 --
Selling, general and administrative
expense ............................ 590,108 913,606 2,846,519 1,350,463 3,606,273
------------ ------------ ------------ ------------ ------------
Loss from operations ............. (590,108) (913,606) (2,846,519) (1,331,689) (3,606,273)
Other income (expense):
Interest and other income .......... 937 77,883 13,613 108,982 6,370
Interest expense ................... (23,422) (686) (29,570) (686) (9,660)
Unrealized gain (loss) on marketable
equity securities ................ (4,285) (36,000) (21,143) 32,000 --
------------ ------------ ------------ ------------ ------------
Total other income ............... (26,770) 41,197 (37,100) 140,296 (3,290)
------------ ------------ ------------ ------------ ------------
Loss before income taxes and
discontinued operations ............ (616,878) (872,409) (2,883,619) (1,191,393) (3,609,563)
Income tax expense ................... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Loss from continuing operations ...... (616,878) (872,409) (2,883,619) (1,191,393) (3,609,563)
------------ ------------ ------------ ------------ ------------
Discontinued operations:
Earnings (loss) from operations of
discontinued operations ........... -- -- -- (1,380,770) --
------------ ------------ ------------ ------------ ------------
Earnings (loss) from discontinued
operations ......................... -- -- -- (1,380,770) --
------------ ------------ ------------ ------------ ------------
Net earnings (loss) .................. $ (616,878) $ (872,409) $ (2,883,619) $ (2,572,163) $ (3,609,563)
============ ============ ============ ============ ============
Net earnings (loss) per share,
basic and diluted
Continuing operations .............. $ (0.01) $ (0.01) $ (0.05) $ (0.03) $ (0.06)
Discontinued operations ............ -- -- -- (0.03) --
------------ ------------ ------------ ------------ ------------
$ (0.01) $ (0.01) $ (0.05) $ (0.06) $ (0.06)
============ ============ ============ ============ ============
Weighted average shares outstanding
Basic and diluted .................. 62,568,312 61,936,806 62,535,345 46,628,068 62,484,687
============ ============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
4
TEAM SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Stockholders' Equity
Nine Months Ended September 30, 2002
(Unaudited)
Stock Unissued
Common Stock Paid-in Subscription Common Accumulated
Shares Par Value Capital Receivable Stock Deficit Total
Balance, December 31, 2001 ..... 62,468,312 $ 6,247 $15,533,724 $ (350,000) $ -- $(6,716,306) $ 8,473,665
Exercise common stock warrants . 100,000 10 37,490 -- -- -- 37,500
Collection of stock subscription -- -- -- 350,000 -- 350,000
Unissued common stock .......... -- -- -- -- 161,300 -- 161,300
Net loss ....................... -- -- -- -- -- (2,883,619) (2,883,619)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, September 30, 2002 .... 63,213,512 $ 6,322 $15,732,449 $ -- $161,300 $(9,599,925) $ 6,138,846
=========== =========== =========== =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
5
TEAM SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2002 and 2001 and Development Stage
from Inception (May 15, 2001), through September 30, 2002
(Unaudited)
From inception
(5/15/2001)
through
Sept. 30, 2002
2002 2001 (Note A)
Cash flows from operating activities
Net earnings (loss) ......................................... $(2,883,619) $(2,572,163) $(3,609,563)
Adjustments to reconcile net earnings (loss) to net
cash used by operating activities:
Loss from discontinued operations, net of tax ............. -- 1,380,770 --
Depreciation and amortization ............................. 19,238 78,240 148,511
Unrealized loss (gain) from marketable securities ......... 21,143 (32,000) --
Common stock issued for services .......................... -- 15,000 --
Change in assets and liabilities (excluding
effects of acquisitions):
Accounts receivable ..................................... -- 225 --
Inventory ............................................... (2,268,125) 7,990 (2,268,125)
Prepaid expenses and other assets ....................... (17,808) 14,696 --
Accounts payable and accrued expenses ................... (729,456) (31,600) (99,682)
Deferred revenue ........................................ 100,000 -- --
----------- ----------- -----------
Net cash used by operating activities ....................... (5,758,627) (1,138,842) (5,828,859)
----------- ----------- -----------
Cash flows from investing activities
Collections of notes receivable - officer ................. -- 226,331 --
Acquisition of Maxx Motorsports, Inc., net of cash acquired -- (45,213) 1,290
Proceeds from short-term investments ...................... -- 133,669 --
Capital expenditures ...................................... (2,276) (65,827) (1,748,457)
----------- ----------- -----------
Net cash provided by (used in) investing activities ......... (2,276) 248,960 (1,747,167)
----------- ----------- -----------
Cash flows from financing activities
Proceeds from exercise of warrants ........................ 37,500 -- --
Proceeds from issuance of common stock .................... -- 7,244,993 --
Collection of notes receivable ............................ 350,000 240,000 --
Proceeds from convertible promissory notes ................ 1,613,000 -- --
Funds advanced from parent ................................ -- -- 7,807,741
Repayment of capital lease obligation ..................... (26,701) -- (39,626)
Funds transferred from (to) discontinued operations ....... -- 7,216 --
----------- ----------- -----------
Net cash provided by financing activities ................... 1,973,799 7,492,209 7,768,115
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents
from continuing operations ................................ (3,787,104) 6,602,327 192,089
Cash and cash equivalents, beginning of period
from continuing operations ................................ 4,675,745 -- --
----------- ----------- -----------
Cash and cash equivalents, end of period .................... $ 888,641 $ 6,602,327 $ 192,089
=========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
6
TEAM SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
Nine Months Ended September 30, 2002 and 2001
(Unaudited)
A. ACCOUNTING POLICIES
The financial statements included in this report have been prepared by
Team Sports Entertainment, Inc. (the "Company" or "Team Sports")
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 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 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, 2001, which is included in the Company's Form 10-KSB
for the year ended December 31, 2001. 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.
The consolidated financial statements include the accounts of Team
Sports and its wholly owned subsidiary, Maxx Motorsports, Inc. ("Maxx")
and its wholly owned subsidiary, Team Racing Auto Circuit, LLC
("TRAC"). 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.
On May 15, 2001, Team Sports changed its name from Logisoft Corp. to
Team Sports Entertainment, Inc.
7
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 $825,000 of Maxx's
liabilities. The Liabilities consisted of $450,000 for cash advances
and loans made to Maxx and $375,000 for consulting fees incurred. In
addition, the Company completed the sale of its wholly owned
subsidiaries, Logisoft Computer Products Corp. and eStorefronts.net
Corp., 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.
INVENTORY. Inventory consists of the costs incurred on the production
phase of the Racing Car Design and Construction Agreement with Riley
& Scott Race Car Engineering and other related costs. Costs are stated
at the lower of cost or market on a first-in, first-out basis.
REVENUE. Recognition of revenue from team operating agreements is
deferred until the event occurs and is recognized ratably over the
period covered by the agreement.
B. RECENTLY ADOPTED ACCOUNTING STANDARDS
On January 1, 2002, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets." As a result, the
Company stopped recording the amortization of goodwill as a charge to
earnings during the first quarter of 2002. In addition, the Company is
required to conduct an annual review of goodwill and intangible assets
for potential impairment. The Company is in the development stage and
accordingly utilized projections from its business plan in order to
complete its review and, based upon this review did not have to record
a charge to earnings for an impairment of goodwill as a result of these
new standards.
Effective January 1, 2002, the Company also adopted SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," which
replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of." SFAS No. 144 provides
updated guidance concerning the recognition and measurement of an
impairment loss for certain types of long-lived assets, expands the
scope of a discontinued operation to include a component of an entity
and eliminates the exemption to consolidation when control over a
subsidiary is likely to be temporary. The adoption of this new standard
did not have a material impact on the Company's financial position,
results of operations or cash flows.
8
C. INVENTORY AND COMMITMENTS
On October 22, 2001, TRAC entered into a Racing Car Design and
Construction Agreement with Riley & Scott Race Car Engineering. The
agreement required payments aggregating $1,515,000 during Phase I,
which was 23 weeks, and included design, tooling, prototype
construction and aero tooling. Phase II of the agreement commenced
after completion of Phase I and was planned to be completed in 58
weeks. Phase II was based upon production of 100 Racing Cars, at a cost
of approximately $110,000 each, plus the cost of engines. The agreement
also provides for the contractor to be the sole provider of most repair
service. Phase I of the agreement was completed during March 2002 and
Phase II of the agreement commenced in April 2002. At September 30,
2002, the Company had incurred and paid total costs of $2,268,125,
which amount is included in inventory, for cars, engines and associated
equipment. TRAC and Riley & Scott are currently developing a revised
schedule for Phase II of the agreement as a result of the delay in the
initial race season to 2004.
D. RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2002, the Companies had
various transactions with related parties, primarily its board members
and officers. The following is a summary of those transactions:
Consulting expenses to Directors. $166,001
Director fees ................... 60,750
Reimbursed aircraft expenses .... 62,891
Deferred revenue for Team Atlanta 100,000
Payments to William Miller, former CEO 780,000
E. CONVERTIBLE PROMISSORY NOTES
As of September 30, 2002, Team Sports had issued $1,613,000 in
convertible promissory notes to certain shareholders of the Company.
The notes are due August 31, 2003; bear interest at 8% per annum; with
interest payable quarterly; are convertible into Team Sports common
stock at the rate of $.20 per share; the note holder will receive a
10% fee which will be payable in common stock at the rate of $.25 per
share; and collateralized by all the assets of the Company. Team Sports
will issue 645,200 shares of its common stock in payment of the loan
origination fees. The common stock to be issued for the note
origination fees and the common stock issuable upon conversion of
convertable notes payable is restricted.
F. UNCERTAINTIES
The primary operating entity of Team Sports will be TRAC, which 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
$3,609,563 from inception through September 30, 2002. Going foward,
management anticipates obtaining the necessary operating capital
through the fees payable by Local Operators under operating agreements
or by private placement stock sales. The consolidated financial
statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts
and classification of liabilities that might be necessary in the event
the Companies are unable to generate sufficient capital to execute this
plan.
9
G. SUBSEQUENT EVENTS
TRAC is presently negotiating with a national network to televise its
races. There are numerous material issues to be resolved in the
negotiations and there can be no assurances that an agreement will be
reached.
During October 2002 Team Sports received an additional $657,000 from
the issue of convertible promissory notes. The notes are due August 31,
2003; bear interest at 8% per annum; with interest payable quarterly;
are convertible into Team Sports common stock at the rate of $.20 per
share; the note holder will receive a 10% fee which will be payable
in common stock at the rate of $.25 per share; and collateralized by
all of the assets of the Company. Team Sports will issue 262,800
shares of its common stock in payment of the loan origination fees.
The common stock to be issued for the note origination fees and the
common stock issuable upon conversion of convertable notes payable
is restricted.
10
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: the
Company's current liquidity crisis as described below; 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 the acquisition of Maxx. Maxx, through
its wholly owned subsidiary, TRAC plans to develop, own, operate, and sanction
an automotive racing league (the "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 the second quarter of 2004, will consist of a
regular season race schedule, an all-star race, and a Championship Race. TRAC
will incorporate the use of aerodynamically similar cars, fuel-injection engines
and other innovative competition standards intended to increase parity among the
teams without diminishing the entertainment value.
TRAC had originally planned on starting its racing league in the second quarter
of 2003. Due to adverse business conditions, signing a definitive television
agreement has taken considerably longer than management originally anticipated.
As a result, Local Operator sales have been delayed and the Company, along with
the aforementioned potential television partner, believes it was best to delay
the start of the race league to the second quarter of 2004. TRAC intends to
initially enter into Operating Agreements with up to ten third parties (the
11
"Local Operators") to be identified by TRAC with respect to the local operations
of a TRAC racing team but reserves the right to operate one or more teams
itself. Each Local Operator will pay a fee to TRAC to obtain the right to
operate the team in its market. TRAC also hopes to generate revenues from
national television, radio and other media agreements (including rights fees
and/or revenue sharing from sales of advertising time), sales of national
corporate sponsorships for the League and for League events (such as the
Championship Race), ticket sales, sales of sponsorships of the teams for the
races and license fees from sales of officially licensed merchandise. Finally,
TRAC hopes to receive fees from additional operators to obtain the right to
operate additional teams that may be organized beyond the original teams
("expansion fees"). In addition to the rights fee payable to TRAC, TRAC expects
to require each Local Operator to bear substantially all local expenses of
operating the team, including the costs of all personnel necessary to operate
the team; it is expected drivers will be employees of TRAC and assigned to the
teams. TRAC expects to enter into a lease for each racing venue. TRAC expects to
require the Local Operator to be responsible for performing all local operations
of the team, including presenting its home races, marketing the team and selling
tickets for the races, maintenance and repair of the cars, and payments under
the leases for its racing venue. The rights to all local and national revenues
will be owned by TRAC but the Local Operators will be entitled to retain all or
a significant portion of certain local revenues (e.g., local ticket sales and
local sponsorships) and to share in certain national revenues (e.g., television
and radio licensing fees, national sponsorship and merchandise licensing
revenue) and in the expansion fees paid to TRAC.
TRAC has engaged Moag & Company, a leading sports, media and entertainment
investment banking firm, to act as their sole and exclusive agent for sale of
the local operating rights for the ten-city racing league. Moag will identify
potential ownership groups, advise TRAC concerning those investors and will
assist in the negotiations on the sale of operating rights for each city.
Through standardization of racing cars, TRAC hopes to create a racing
environment in which each car is capable of winning and the fans will be focused
on drivers, race-day strategies and crew performance, rather than technological
advantages. We expect that our races will be shortened from the 4-5 hour window
of current stock car races to a window that is more consistent with traditional
team sports. Our business plan contemplates that cars will be based on
silhouettes of popular American sport cars, will be approximately 900 pounds
lighter than most current oval-based stock cars and will have considerably more
down-force, which should result in better handling, more passing and more
intense racing than the other forms of oval-based stock car racing.
TRAC's league format will put emphasis on city/regional affinities and provide a
business model not currently present in motorsports. We expect that our
marketing and positioning efforts, our competitive standards, and our visually
appealing cars will attract a broad audience of sports fans.
Our cars have been designed and developed by Riley & Scott Race Car Engineering
as described below, and the prototypes have now been completed. We have not yet
formalized Operating Agreements with any team owners, although we are meeting
with potential owners. Accordingly, there can be no assurances that our
expectations with respect to the League will be met.
12
TRAC has narrowed its list to 26 potential markets. We expect to have 10 markets
with teams for the initial race season in 2004. We will select these markets
based on factors including: strength of prospective operators, size of
television market, type of venue, level of anticipated civic support and
national geographic balance. We anticipate making Local Operator announcements
beginning in the first or second quarters of 2003. TRAC announced in April 2002
an agreement with Speedway Motorsports to race at five of their facilities.
Pending team owner/operator agreements, TRAC's inaugural season should include
two events each at Atlanta Motor Speedway, Bristol Motor Speedway, Las Vegas
Motor Speedway, Lowe's Motor Speedway in Charlotte and Texas Motor Speedway in
Fort Worth. The remaining five locations will be announced when arrangements
have been completed.
TRAC is currently in discussions seeking a national network to televise its
races beginning with the 2004 season.
There can be no assurance that TRAC will be successful in entering into
Operating Agreements with 10 Local Operators, in entering into a national
television contract on satisfactory terms or in launching in 2004. Management
anticipates obtaining the necessary operating capital to complete their business
plan through the fees payable by Local Operators under Operating Agreements or
by private placement stock sales.
In October 2001, the Company entered into an agreement with one of motorsports'
most respected design and manufacturing companies to develop the race cars to be
used during TRAC's first season. Riley & Scott Race Car Engineering, the company
that has produced championship designs in virtually every major form of
motorsports, has designed and plans to manufacture approximately 100 cars at
their manufacturing facility in Indianapolis, Indiana. The cars are
high-performance, muscle cars designed to race competitively on a variety of
oval tracks. The cars have been designed with high safety standards and are
distinctively designed for the purpose of creating visual appeal to attract a
broader demographic audience to stock car racing. The agreement between TRAC and
Riley & Scott required payments aggregating approximately $1,500,000 during
Phase I, which was 23 weeks and included design, tooling, prototype construction
and aero tooling. Phase II of the agreement commenced after completion of Phase
I and was originally planned to be completed within 58 weeks. Phase II is
currently based upon production of 100 racing cars, at a cost of approximately
$110,000 each, plus the cost of engines. TRAC has the right, by notice to Riley
& Scott, to reduce the number of cars to be produced during Phase II, but at an
increased price per car. The agreement also provides for Riley & Scott to be the
sole provider of most major repair services. Because of the revision in the
start date from 2003 to 2004 which is the result of unexpected delays in signing
a television contract and selling teams and sponsorships, management and Riley &
Scott are currently working on a new Phase II schedule in order to have an
appropriate number of race cars in the Local Operators' possession by April
2004. Phase I was financed by the Company's cash on hand; Phase II is expected
to be funded by cash on hand, additional debt and/or equity financing and fees
anticipated to be received under Operating Agreements which are anticipated to
be entered into with Local Operators.
13
During March 2002, TRAC completed payment to Riley & Scott for Phase I of the
agreement. Prototypes of the three cars successfully completed their first track
testing at Indianapolis Raceway Park on March 28-30, 2002 and the prototypes
were unveiled to the public on April 24, 2002. Phase II of the agreement
commenced during April 2002 and at September 30, 2002, costs aggregating
$2,268,125 for cars and engines had been incurred, paid and included in
inventory. TRAC is currently developing a revised schedule with Riley & Scott
for the balance of Phase II.
During the nine months ended September 30, 2002, the Company used $5,758,627 in
cash flow in their operating activities; investing activities used $2,276 in
cash flow; and financing activities provided $1,973,799 in cash flow, resulting
in a net decrease in cash of $3,787,104, leaving a balance in cash of $888,641
at September 30, 2002. So far this year, TRAC made payments of $2,268,125 on
Phase II of the agreement with Riley & Scott, including payments for engines.
The primary source of cash was the $1,613,000 in convertible promissory note
proceeds received in September 2002.
Selling, general and administrative expense includes a charge for $480,000 which
is the amount the Company had prepaid Mr. William Miller, former Chief Executive
Officer, for compensation for the ten month period beginning July 2002. As a
result of Mr. Miller's departure from the Company, management is presently
evaluating its options to pursue the return of a portion of the prepayment.
The Company has included $100,000 in deferred revenue relating to the payment by
Mr. Miller for the rights to Team Atlanta, which is also being evaluated.
The Company incurred $29,570 in interest expense during the nine months ended
September 30, 2002 as compared to the year earlier period amount of $686. The
increase is primarily the interest on the convertible promissory notes and the
related amortization of the loan fee.
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. This
transaction was also completed on May 15, 2001 and the shares were cancelled.
During the nine months ended September 30, 2001, the Company had a loss of
$1,380,770 from discontinued operations.
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Item 3. Controls and Procedures
The Company has established and currently maintains controls and other
procedures designed to ensure that material information required to be disclosed
in its reports filed under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time periods specified by the
Securities and Exchange Commission. In conjunction with the close of each fiscal
quarter, the Company conducts an update and a review and evaluation of the
effectiveness of the Company's disclosure controls and procedures. In the
opinion of the Company's principal executive officer, based upon an evaluation
completed within 90 days prior to the filing of this report, the Company's
disclosure controls and procedures are sufficiently effective to ensure that any
material information relating to the Company is recorded, processed, summarized
and reported to its principal officers to allow timely decisions regarding
required disclosures.
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PART II - OTHER INFORMATION
Items 1, 3 and 4 are omitted as they are not required.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
As of September 30, 2002, Team Sports will issue 645,200 shares of its
common stock as a loan origination fee in conjunction with the issue of
$1,613,000 in 8% convertible promissory notes. Subsequent to September 30,
2002, Team Sports will issue an additional 262,800 shares of its common
stock as loan origination fees for the $657,000 in 8% convertible
promissory notes issued during October 2002. The proceeds from the
convertible promissory notes are being used for working capital and to
complete the Company's business plan.The small business issuer claimed
exemption from registration based upon Section 4(2) of the Securities and
Exchange Act of 1933.
ITEM 5. OTHER INFORMATION
Charles Bradshaw became Chief Executive Officer on August 22, 2002. The
Company does not currently employ a Chief Financial Officer.
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - 99.1 Certificate Pursuant to 18 U.S.C. Section 1350
(b) Reports on Form 8-K - Not applicable
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: November 12, 2002 By: /s/ Charles Bradshaw
--------------------------
Charles Bradshaw
Chief Executive Officer and
Principal Accounting Officer
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CERTIFICATION
I, Charles Bradshaw, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Team Sports
Entertainment, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; 3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as, and for the periods presented in this quarterly report; 4. I am
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant is made known to me by others
within the Company, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based on my evaluation
as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls;
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
November 12, 2002 /s/ Charles Bradshaw
-----------------------
Charles Bradshaw
Chief Executive Officer
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Exhibit 99.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
Pursuant to and solely for purposes of, 18 U.S.C. Section 1350 (Section 906
of the Sarbanes-Oxley Act of 2002), each of the undersigned hereby
certifies in the capacity and on the date indicated below that:
1. The Quarterly Report of Team Sports Entertainment, Inc. (the "Registrant")
on Form 10-QSB for the period ended September 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report") fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Registrant.
Date: November 12, 2002 By: /s/Charles Bradshaw
-------------------
Charles Bradshaw
Chief Executive Officer
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