Custom Search

TURNAROUND PARTNERS, INC. IS ONE OF GOOD INVESTMENT CHOICE. DO YOUR DD BEFORE INVEST.

6-Sep-2007

Quarterly Report
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS

This Quarterly Report on Form 10-QSB, and the accompanying M,D&A, contains forward-looking statements. Statements contained in this report about Turnaround Partners, Inc.’s (formerly Emerge Capital Corp.) future outlook, prospects, strategies and plans, and about industry conditions and demand for our financial services are forward-looking. All statements that express belief, expectation, estimates or intentions, as well as those that are not statements of historical fact, are forward looking. The words “proposed,” “anticipates,” “anticipated,” “will,” “would,” “should,” “estimates” and similar expressions are intended to identify forward-looking statements. Forward-looking statements represent our reasonable belief and are based on our current expectations and assumptions with respect to future events. While we believe our expectations and assumptions are reasonable, they involve risks and uncertainties beyond our control that could cause the actual results or outcome to differ materially from the expected results or outcome reflected in our forward-looking statements. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this quarterly report may not occur. Such risks and uncertainties include, without limitation, our continuing success in securing consulting agreements, conditions in the capital and equity markets that provide opportunities for our restructuring and turnaround services, our success in trading marketable securities, our ability to maintain contracts that are critical to our operations, actual customer demand for our financing and related services, collection of accounts and notes receivable, the success of our investment in our partnership that owns a hotel in West Palm Beach, Florida and our ability to obtain and maintain normal terms with our vendors and service providers during the periods covered by the forward-looking statements.

The forward-looking statements contained in this report speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or any other reason. All forward-looking statements attributable to Turnaround Partners, Inc. or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in our annual report filed on Form 10-KSB and in our future periodic reports filed with the SEC. The following M,D&A should be read in conjunction with the unaudited Condensed Consolidated Financial Statements of the Company, and the related notes thereto included elsewhere herein, and in conjunction with our audited financial statements, together with footnotes and the M,D&A, in our 2006 annual report filed on Form 10-KSB with the SEC.

Pursuant to the terms of the Agreement, the Company issued one (1) share of its common stock (”Common Stock”), par value $0.001 per share, to each holder of Corporate Strategies Class A common stock in exchange for two (2) shares of Corporate Strategies Class A common stock, par value $0.001 per share. Second, the Company issued one (1) share of the Company’s Series C preferred stock (”Series C Preferred”), par value $0.01 per share, to each holder of Corporate Strategies Series A preferred stock for one (1) share of Corporate Strategies Series A preferred stock, par value $0.001 per share.

The Company issued and delivered shares of its Series B convertible Preferred stock (”Series B Preferred”) to each holder of Corporate Strategies Class B common stock so that effectively upon conversion of the Series B Preferred into common shares, the common shares issued upon conversion shall be equal to ninety-five percent (95%) of the issued and outstanding stock of the Company (calculated on a fully diluted basis as of the date of the Merger, following the issuance of all the Merger Consideration (as such term is defined in the Agreement) and after giving effect to such conversion, but not including any shares of Common Stock issuable upon conversion of any then outstanding Company convertible debentures ). Therefore, the Merger Consideration for the Common Stock, Series C Preferred and Series B Preferred was the Corporate Strategies Class A common, Series A preferred and Class B common, respectively. The number of shares issued to the Shareholders in connection with the Merger was based upon a determination by the Company’s Board of Directors (the “Board”).

The terms of the Series B Preferred were subsequently modified. In connection with the Kipling purchase, 93,334 shares of Series B Preferred were exchanged for a like number of Series D Preferred, which were subsequently reduced to 700 shares of Series D Preferred. The remaining 6,666 shares of Series B Preferred are convertible into 4,195,445 shares of common stock. Each share of the Series D may be convertible, at the option of the holder, at any time and from time to time after December 31, 2006 through December 31, 2010, into that number of shares of Common Stock equal to the greater of (a) one tenth of one percent (0.1%) of the total number of shares of Common Stock issued and outstanding as of the last day of the fiscal quarter immediately preceding such date of conversion, calculated on a fully diluted basis after giving effect to the conversion of such share(s) of Series D and (b) One Hundred Thousand (100,000) shares of Common Stock. Each share of Series D Preferred Stock held by the Holders which has not been converted on or before December 31, 2010 into shares of Common Stock shall be convertible, at the option of the Holder of such share, at any time and from time to time after December 31, 2010 into one tenth of one percent (0.1%) of the total number of shares of Common Stock issued and outstanding on December 31, 2010, calculated on a fully diluted basis after giving effect to the conversion of such share(s) of Series D Preferred Stock. The shares of Common Stock received upon conversion shall be fully paid and non-assessable shares of Common Stock.

The Series B and D Convertible Preferred Stockholders and the holders of the common stock vote together and the Preferred Stock shall be counted on an “as converted” basis, thereby giving the Preferred Shareholders control of the Company.

In November 2006, we migrated from a Delaware corporation to a Nevada corporation and changed the name of the Company to Turnaround Partners, Inc.

Lehigh Acquisition Corp. (”Lehigh”) was a subsidiary of NuWave and is treated as if it was acquired August 31, 2005, the date of the merger. Lehigh was sold on February 3, 2006. The interim financial statements include the operations of Lehigh from January 1, 2006 through February 3, 2006 as discontinued operations.

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All significant inter-company balances and transactions have been eliminated.

Recent Accounting Pronouncements

In February 2007, the FASB issued FASB Statement No. 159, Establishing the Fair Value Option for Financial Assets and Liabilities (”SFAS 159″) , to permit all entities to choose to elect to measure eligible financial instruments at fair value. SFAS 159 applies to fiscal years beginning after November 15, 2007, with early adoption permitted for an entity that has also elected to apply the provisions of SFAS 157, Fair Value Measurements . An entity is prohibited from retrospectively applying SFAS 159, unless it chooses early adoption. Management is currently evaluating the impact of SFAS 159 on the consolidated financial statements.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2007 and March 31, 2006

Revenue

Our total revenue for the three months ended March 31, 2007 was $252,867 as opposed to total revenue of $865,533 for the same period ending March 31, 2006.

For the three months ended March 31, 2006, we recorded discount income of $9,668. We did not realize any discount income for the same period ending March 31, 2007. We do not anticipate generating any significant new business in this area.

We earned $213,867 in consulting revenue for the three months ended March 31, 2007 versus $171,250 for the three months ended March 31, 2006. Consulting revenues are generally one-time fees related to specific events, or contracts for services rendered over a period of time. During the quarter ended March 31, 2007, we had ongoing consulting agreements with three customers compared to five during the same period 2006.

Trading in marketable securities generated income of $21,500 for the quarter ended March 31, 2007 compared to income of $664,615 for the same period in 2006. Marketable securities losses included unrealized gains (losses) of $33,863 and $571,098, respectively for the quarters ended March 31, 2007 and 2006 and realized gains (losses) of $(12,363) and $93,517, respectively for the quarters ended March 31, 2007 and 2006.

Our fee income was comparable for the two quarter ended March 31, 2007 ($17,500) and March 31, 2006 ($20,000). Fee income is generated through the realization of placement fees from clients for financing transaction that occurred during the comparable quarters.

Salaries and benefits increased by approximately $100,000 to $237,083 in 2007 as compared to the same period in 2006, primarily representing new employees added during the third quarter of 2005, the hiring of a part-time chief financial officer in July 2006 and a due diligence principal in January 2007.

Interest expense increased by approximately $334,000 for the three months ended March 31, 2007 as compared to the same period ended March 31, 2006. The increase is a primarily a result of the amortization of discounts related to derivatives on our convertible debentures.

Other income and expense

We recorded derivative income of $265,968 for the three months ended March 31, 2007 versus $182,653 for the same period ended March 31, 2006. These amounts represent the change in the fair value of the net derivative liability for the quarters.

Gain on sale of subsidiary of $3,042,406 represents the gain on the sale of Lehigh in February 2006.

During the first quarter of 2007 and 2006, certain individuals converted their debentures into our common stock. As a result, we recorded a gain on debt extinguishment in the amount of $450,650 in the first quarter of 2007 versus a gain of $94,365 in the first quarter of 2006.

Discontinued Operations

During February 2006, the Company sold the shares of its wholly-owned subsidiary Lehigh. The loss from discontinued operations was $4,688, for the three months ended March 31, 2006, net of applicable income tax.

LIQUIDITY AND CAPITAL RESOURCES

Operating activities

We recorded a net loss for the three months ended March 31, 2007 of $397,171 versus net income of $3,332,523 for the three months ended March 31, 2006. Net cash used in operating activities was $347,607 for the three months ended March 31, 2007. Non-cash derivative interest expense and net change in derivative liability amounted to a charge of $573,838. We recorded a gain on debt extinguishment in the amount of $450,650. An increase in the value of our marketable securities amounted to $103,140.

At March 31, 2007, the Company had a working capital deficit of $1,266,892 including $98,452 of restricted cash. Our working capital deficit includes a computed liability for the fair value of derivatives of $777,058, which will only be realized on the conversion of the derivatives, or settlement of the debentures. The Company at its option can force conversion of certain of convertible debentures into the Company’s common stock at maturity date.

We have a Standby Equity Distribution Agreement (the “SEDA”) with Cornell under which the Company may, at its discretion, periodically sell to Cornell registered shares of the Company’s common stock for a total purchase price of up to $30 million. For each share of common stock purchased under the SEDA, Cornell will pay NuWave 99% of the lowest closing bid price on the Over-the-Counter Bulletin Board or other principal market on which its common stock is traded for the 5 days immediately following the notice date. Furthermore, Cornell will retain a fee of 10% of each advance made under the SEDA. Additionally, we have been advised that an updated registration statement of the SEDA may be necessary in order to draw down capital under the terms of the SEDA.

We received proceeds from a preferential return from our investment in the partnership that owns a hotel in West Palm Beach, Florida in the amount of $446,250.

Under our consulting agreements, we do not take positions in securities of our clients that at any one time would cause us to have an ownership interest in them of over 4.99%. Because of this restriction, we could be hindered in our ability to generate necessary cash for our operations.

Financing activities

For the three months ended March 31, 2007, we repaid approximately $20,000 on note payables.

We have 249 shares of Series C preferred stock outstanding. The stock has a liquidation preference of $373,500 and is redeemable at $1,500 per share at the Company’s option. Dividends are cumulative and accrue at the rate of $120 per share per year. Although the Series C stock is redeemable at the option of the Company, the holder of these shares is our Chairman of the Board of Directors. Since these shares are held by our Chairman, who effectively has control of the redemption, we have classified our Series C preferred stock, and associated paid in capital, as a current liability in accordance with with EITF Topic No. D-98 “Classification and Measurement of Redeemable Securities”.

Our cash flows for the periods are summarized below:

                                                           Three months ended     Three months ended
                                                             March 31, 2007         March 31, 2006

Net cash provided by (used in) operating activities        $          (347,607 ) $             46,494
Net cash provided by investing activities                              443,971                111,198
Net cash used in financing activities                                  (20,336 )               (4,554 )

OFF-BALANCE SHEET ARRANGEMENTS

The Company leases its office space under an operating lease. Rental expense
under operating leases for continuing operations aggregated $20,448 for the
three months ended March 31, 2007.

Future minimum payments under non-cancellable operating leases for continuing
operations with initial or remaining terms of one year or more consist of the
following at March 31, 2007:

                     2007                              53,143
                     2008                              74,032
                     2009                              74,032
                     2010                               8,058

                     Total minimum lease payments   $ 209,265

http://biz.yahoo.com/e/070906/trnp.ob10qsb_a.html 

Possibly Related Posts:

• General Motors held merger talks with Chrysler: reports
• DJ UPDATE: Bank Of America May Sell Part Of China Bank Stake
• Analysts see more losses for Merrill Lynch
• ANALYST RATINGS CHANGES AS OF 1100 GMT
• First Solar, SunPower downgraded by Goldman on solar fears

Comments