ITEM 1: DESCRIPTION OF BUSINESS
Cautionary Factors That May Affect Future Results (Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)
The disclosure and analysis set forth herein contains certain forward looking statements, particularly statements relating to future actions, performance or results of current and anticipated products and services, sales efforts, expenditures, and financial results. From time to time, the Company also provides forward-looking statements in other publicly-released materials, both written and oral. Forward-looking statements provide current expectations or forecasts of future events such as new products or services, product approvals, revenues, and financial performance. These statements are identified as any statement that does not relate strictly to historical or current facts. They use words such as “anticipates,” “intends,” “plans,” “expects,” “will,” and other words and phrases of similar meaning. In all cases, a broad variety of assumptions can affect the realization of the expectations or forecasts in those statements. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially.
The Company undertakes no obligation to update any forward-looking statements, but investors are advised to consult any further disclosures by the Company on this subject in its subsequent filings pursuant to the Securities Exchange Act of 1934. Furthermore, as permitted by the Private Securities Litigation Reform Act of 1995, the Company provides these cautionary statements identifying risk factors, listed below, that could cause the Company’s actual results to differ materially from expected and historical results. It is not possible to foresee or identify all such factors. Consequently, this list should not be considered an exhaustive statement of all potential risks, uncertainties and inaccurate assumptions.
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BUSINESS OVERVIEW
DESCRIPTION OF BUSINESS
SportsNuts, Inc. (sometimes referred to hereinafter as the “Company”) is a sports management and marketing company, with a focus on community-based amateur athletics. Incorporated in Delaware on July 12, 1996, the Company helps organize and manage certain community sports events, providing online registration, merchandise sales, event sponsorship, and event coordination.
Until March 1, 2007, the Company offered computer hardware sales and related services through Secure Netwerks, Inc., its wholly-owned subsidiary. On that date, the Company spun-off the shares of Secure Netwerks on a pro-rata basis to its shareholders such that Secure Netwerks became an independent company. Following the spin-off, due to the substantially decreased level of revenues and operations of the Company, SportsNuts, became a “shell company” as defined in 12b-2 of the Securities Exchange Act of 1934.
BUSINESS FOCUS
The Company targets organized sports events with various marketing and technology services to increase consumer satisfaction, athlete participation, corporate involvement, and purchasing opportunities. The Company also seeks to create increased awareness of participating events within surrounding communities. Through it’s Internet properties, the Company provides online event registration, merchandise sales, event website hosting, and the issuance of targeted e-mails to sports participants who have requested information about upcoming sporting events. Event administrators can access and download customizable reports on their events, requesting a full financial breakdown or simply creating a report that displays the name and t-shirt size of each participant.
RESEARCH & DEVELOPMENT
Generally. Product development expenses related to the Company’s Internet services consist primarily of payroll, software and systems, and related costs for programmers and software developers. Product development expenses related to the Company’s information technology consulting consists primarily of payroll and systems development for the web site hosting services. Where appropriate, the Company capitalizes certain systems development costs in accordance with generally accepted accounting principles.
Software Development. The heart of the Company’s services is the sports information management system user base. A database contains all the detailed information that the Company gathers on every person who registers for a sports event through the Company’s web site. The database software holds and manipulates all such information. This database is built with Sequel software. The Company has invested in this software in order to insure reliability as well as scalability. For the size of the Company’s computer systems and the volume of throughput, Sequel databases are typically the fastest and are easily moved from one computer platform to another. The database can efficiently provide any of the stored information when it is automatically requested by the Company’s web site, software applications or manually requested by an employee for corporate use.
MARKET ANALYSIS/OPPORTUNITIES
The market for products and services among amateur sports enthusiasts in the United States is rapidly evolving and intensely competitive with a large number of competitors in the Internet sports industry. However, the niche market in which the Company competes possesses relatively few amateur sports organizations that can provide a comprehensive marketing and technological approach to organizations that seek to increase participation and attendance for their events. However, there can be no assurance that the Company can maintain a competitive position against current or future competitors as they enter the markets
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in which it competes, particularly those with greater financial, marketing, service, support, technical and other resources than those possessed by the Company. The Company’s failure to maintain a competitive position within the market could have a material adverse effect on its business, financial condition, results of operations and cash flows.
The Reach of Amateur Sports. Amateur sports in the United States has a massive following, estimated by the Company at 135 million fans, 76 million active participants, 4 million organized teams, and over $30 billion spent annually on products and services.
Amateur sports touch multiple audiences (athletes, fans, coaches, officials, sports physicians, athletic directors, community sports writers) who generally want to enhance the experience for themselves and the participants. At the grass-roots level, amateur sports tend to generate more emotional involvement than any other activity with the exception of academic education. The dreams of millions of athletes are pursued through sports and many families live vicariously through sports in various supporting roles. Amateur sports typically require a substantial investment of time and money. The demographic profile of amateur sports enthusiasts is therefore strong relative to recreational spending.
The Internet. Sports have been a core staple in the development of the Internet. The administration of amateur sports organizations and events and the information management of amateur sports data lend itself to unique marketing approaches that can be greatly facilitated through various web-based solutions, but are currently not addressed efficiently by any single organization.
Market Segmentation/User Needs
Generally. The Company has divided the grass roots amateur sports market into three specific segments: (i) Youth Sports (ages 5-13), (ii) High School Sports (ages 14-18), and (iii) Adult Recreation Sports (ages 19+). As discussed below, the Company believes that there are approximately 76 million persons within these three categories, or roughly thirty percent of the U.S. population. Each segment has specific interests and needs, but they all share the common goal of improving the amateur athletic experience by strengthening coaching and playing skills and providing easier access to reliable information and quality products and services.
Youth Sports. The Company estimated that there are roughly three million organized youth sports teams in the United States. Each team has an average of 12 players (36 million total players). However, since most children play more than one sport, the Company estimates that the number of unique participants in this segment to be 24 million.
Youth sports are typically less organized and managed far less efficiently than high school or adult recreational sports. The registration, rostering, and scheduling process is costly and cumbersome for youth sports organizations. In addition, game and event information is usually difficult to obtain, including time and location of contest, profile of the opposing team, and a summary of the event itself. Coaching at the youth sports level is often highly erratic, with a large number of children either inspired by or alienated toward organized sports for life during this period. Youth coaches require a variety of resources necessary to improve the quality of the instructional environment. Finally, youth sports are constantly in need of funding for equipment, facilities, and transportation.
High School Sports. The Company estimates that there are approximately 20,000 high schools in the United States, with approximately 25 teams of 20 athletes each per school across all sports and grade levels (10 million total players). As with youth sports, since most teens play more than one sport, the Company estimates that the number of unique participants, together with a significant number of non-athlete participants (e.g. drill team members, cheerleaders, and equipment managers) in this segment to be 8 million.
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Competition becomes significantly more important relative to youth sports as athletes reach their teenage years. Nevertheless, current methods of tracking the history or performance of an individual or team are difficult or impossible, and broad comparison and ranking systems are largely unavailable. Moreover, the scouting process is often unreliable, time consuming, and cost prohibitive. High school athletes desire the type of tangible performance measurements and statistics available through the Company’s sports information management system. In addition, those prep athletes with aspirations to participate in collegiate athletics are highly interested in scholarship and college placement opportunities afforded by increased exposure to college recruiters. As with youth sports, high school sports programs are also chronically underfunded. Finally, because of the increased intensity level of high school sports and the resulting injuries, these athletes will likely require access to sports medicine services, which is currently not available from any comprehensive source online.
Parents/Adult Recreation Sports. The Company estimates that the 32 million children and teens participating in amateur sports will have at least one non-participant supporter, most likely a parent. Although most youth and high school athletes have more than one parent who follows their activities, many parents with children who play sports typically have more than one child participating in organized amateur sports. Many of these adults also participate in recreational sports themselves. The Company believes that an additional 12 million adults who participate in recreational sports do not currently have children engaged in amateur sports. Accordingly, the Company estimates that 44 million U.S. adults follow a child who participates in amateur sports and/or personally participate in adult recreational sports.
Because competition as well as exercise is at the heart of adult sports participation, a source for statistical information is likely to be a significant attraction within this category. These persons are also more likely to utilize sports medicine services, given their increased susceptibility to aches, soreness, and injury due to age and increasing fragility. Sports-oriented adults have significant purchasing power relative to the youth sports and high school sports segment, particularly with credit card transactions over the Internet. Adults desire a wide range of and sufficient information concerning products and services that cater to their interests.
INTELLECTUAL PROPERTY
The Company has registered the Internet domain names, “www.sportsnuts.com,” and “www.sportsnuts.net.” Given the lack of resources available to the Company during 2009, the Company has not pursued any trademark applications for its name and brand.
The Company’s online registration and league management systems are not protected by any copyright or patent, and the Company does not anticipate filing an application with the U.S. Patent and Trademark Office or the United States Copyright Office for protection of any of these systems. Although the Company believes that copyright and patent protection for these systems is either cost prohibitive or unnecessary, it may be wrong. If the Company is wrong, it could face unexpected expenses pursuing, defending, or otherwise becoming involved in a copyright or patent dispute, any of which could have a material adverse effect upon the Company’s business, results of operations, and financial condition.
Because the Company has no formal trademark protection, other companies with names, marks, or slogans similar to SportsNuts could seek to require that the Company obtain a license from them or require the Company to change its name, either of which could entail substantial costs. Additionally, if the Company were required to change its name, it could lose all goodwill associated with the “SportsNuts” mark. In addition, future products and services offered by the Company may need to be marketed under different names if the mark “SportsNuts” causes confusion with another trade name being used by another company. The Company could also incur substantial costs to defend any legal action taken against the Company pursuant to a trademark or service mark dispute. If, in any legal action against the Company, its asserted trademarks, or service marks should be found to infringe upon intellectual property rights of a third party, the Company could be enjoined from further infringement and could be required to pay damages. In the event a third party was to sustain a valid claim against the Company, and in the event a required license
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was not available on commercially reasonable terms, the Company’s financial operations and results of operations could be materially adversely affected. Litigation, which could result in substantial cost to and diversion of resources of the Company, may also be necessary to enforce intellectual property rights of the Company or to defend the Company against claimed infringements of the rights of others.
GOVERNMENT REGULATION
There are currently few laws or regulations directly applicable to information technology or electronic commerce. Due to the increasing popularity and use of the Internet, it is possible that a number of laws and regulations may be adopted with respect to the Internet which could materially increase the cost of transacting business on the Internet. Although transmissions from the Company’s Internet properties originate from the State of Utah, the government of the United States and the governments of other states and foreign countries might attempt to regulate such transmissions or assess taxes, fees, tariffs, duties, or other payments against the Company, its affiliates, or customers purchasing products or services through its internet properties of its clients. Any such regulations or assessments could adversely affect the Company’s business, financial condition, and results of operations.
EMPLOYEES
As of March 24, 2010, the Company employed four persons on a part-time basis. The Company believes that its future success will depend in part on its continued ability to attract, hire, and retain a sufficient number of highly skilled personnel.
REPORTS TO SECURITY HOLDERS
SportsNuts is subject to the information requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith files quarterly and annual reports, as well as other information with the Securities and Exchange Commission (“Commission”) under File No. 333-14477. Such reports and other information filed with the Commission can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates, and at various regional and district offices maintained by the Commission throughout the United States. Information about the operation of the Commission’s public reference facilities may be obtained by calling the Commission at 1-800-SEC-0330. The Commission also maintains a website at http://www.sec.gov that contains reports and other information regarding the Company and other registrants that file electronic reports and information with the Commission.
ITEM 1A:
ITEM 1A: RISK FACTORS
Operating Risks
Defaults in Senior Securities. Effective February 1, 2000, the Company sold and issued a promissory note secured by virtually all tangible and intangible assets of the Company (“Note”) in exchange for $450,000 in cash proceeds. As of May 1, 2000, the Company is in default with respect to the Note. Although the Note holder continues to be supportive of the Company and its management, if the holder of the Note determines to foreclose upon the Note, the Company would likely be forced to sell all of its tangible and intangible assets to satisfy the obligation represented by the Note and would, therefore, likely cease operations entirely. The Note and Security Agreement executed in connection therewith have been filed as an exhibit to the Company’s 1999 annual report on Form 10-KSB filed with the Securities and Exchange Commission on March 30, 2000.
Company Not Currently Profitable. The Company was organized on July 12, 1996. Since the date of its inception, the Company has incurred substantial losses and has not yet generated a profit. There is no assurance that the Company will ever become profitable.
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Risk of Computer System Failure. The success of the Company is substantially dependent upon its ability to deliver high quality, uninterrupted access to its technology applications, which requires that the Company protect its computer hardware and software systems and the data and information stored in connection therewith. The Company’s systems are vulnerable to damage by fire, water (principally from overhead sprinkler systems that may be triggered by fire or excessive heat within the building in which the Company and other co-tenants operate), natural disaster, power loss, telecommunications failures, unauthorized intrusion, and other catastrophic events. Any substantial interruption in the Company’s systems would have a material adverse effect on the Company’s business, operating results, and financial condition. In addition, the Company’s systems may be vulnerable to computer viruses, physical or electronic break-ins, sabotage, or other problems caused by third parties which could lead to interruptions, delays, loss of data, or cessation in service to persons desiring to access the Company’s Internet properties. The occurrence of any of these risks could have a material adverse effect upon the Company’s business, results of operations, and financial condition.
Electronic Data Transmission Security Risks. A significant barrier to the electronic transmission of confidential data over the Internet is the perception that such data may not be secure. The Company relies upon encryption and authentication technology to provide the security necessary to effect secure transmissions of confidential information. There can be no assurance that advances in decryption technology, computer espionage, and other developments will not result in a breach or compromise of the algorithms used by the Company to protect transaction data of persons accessing the Company’s internet properties and internet properties of the Company’s clients, and therefore lead to the misappropriation of such data by third parties. Any such breach, compromise, or misappropriation could damage the Company’s reputation and expose the Company to a risk of loss or litigation and possible liability, and could have a material adverse effect upon the Company’s business, results of operations, or financial condition.
No Proprietary Protection for Technology. The Company’s online registration system, statistical information system, and the league management system are not protected by any copyright or patent, and the Company does not anticipate filing an application with the United States Patent and Trademark Office (“USPTO”) or the United States Copyright Office for protection of these systems. Although the Company believes that copyright and patent protection for these systems is either cost prohibitive or unnecessary, it may be wrong. If the Company is wrong, it could face unexpected expenses pursuing, defending, or otherwise becoming involved in a copyright or patent dispute, any of which could have a material adverse effect upon the Company’s business, results of operations, and financial condition.
Uncertain Protection of Trade Names and Related Intangible Assets. The Company has registered the Internet domain names, “www.sportsnuts.com,” and “www.sportsnuts.net.” Given the lack of financial resources available to the Company during 2008, the Company has not pursued trademark applications of its name and brand. Consequently, other companies with names, marks, or slogans similar to SportsNuts could seek to require that the Company obtain a license from them or require the Company to change its name, either of which could entail substantial costs. Additionally, if the Company were required to change its name, it could lose all goodwill associated with the “SportsNuts” mark. In addition, future products and services offered by the Company may need to be marketed under different names if the mark “SportsNuts” causes confusion with another trade name being used by another company. The Company could also incur substantial costs to defend any legal action taken against the Company pursuant to a trademark or service mark dispute. If any legal action against the Company, its asserted trademarks, or service marks should be found to infringe upon intellectual property rights of a third party, the Company could be enjoined from further infringement and could be required to pay damages. In the event a third party were to sustain a valid claim against the Company, and in the event a required license were not available on commercially reasonable terms, the Company’s financial operations and results of operations could be materially adversely affected. Litigation, which could result in substantial cost to and diversion of resources of the Company, may also be necessary to enforce intellectual property rights of the Company or to defend the Company against claimed infringements of the rights of others.
Investment Risks
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Speculative Investment. The shares of the Company’s common stock are a speculative investment. To date, the Company has generated substantial losses and has yet to achieve a profit. If the Company fails
to generate profits, it is unlikely that the Company will be able to meet its financial obligations and investors could lose their entire investments.
Likely Change of Control. During 2010, it is likely that the Company may offer certain of its creditors the right to convert their debts into common stock of the Company based upon the current trading price of the Company’s Common Stock. The conversion of even a portion of these debts will result in a change of control in favor of such creditors. Such creditors will likely also include Kenneth Denos, the Company’s former Chief Executive Officer.
Securities Class Action Claims Based Upon Price Fluctuation. Securities class action claims have been brought against issuing companies in the past after volatility in the market price of a company’s securities. With respect to the Company, such litigation could be very costly and divert the attention of the Company’s management and resources, and any adverse determination in such litigation could also subject the Company to significant liabilities, any or all of which could have a material adverse effect on the Company’s business, results of operations, and financial condition.
No Active Market. Although the Company’s shares are traded on the NASD Electronic Bulletin Board, the Company believes that the public trading price may be an inaccurate representation of the value of the Company because there is little or no trading volume in the Company’s shares and no analysts or NASD market makers actively follow the Company.
No Dividends. The Company does not anticipate paying dividends on its Common Stock in the foreseeable future, and may be restricted from paying dividends in the future pursuant to subsequent financing arrangements.
Anti-Takeover Provisions. The Company’s Certificate of Incorporation contains certain provisions which could be an impediment to a non-negotiated change in control of the Company, namely an ability, without stockholder approval, to issue up to 20,000,000 shares of preferred stock with rights and preferences determined by the board of directors, staggered terms for directors, and super-voting requirements. These provisions could impede a non-negotiated change in control and thereby prevent stockholders from obtaining a premium for their Common Stock.
Securities Eligible for Public Trading. All of the Company’s outstanding shares are either freely tradeable or immediately eligible for resale under Rule 144 promulgated pursuant to the Securities Act of 1933, as amended. Sales of substantial amounts of freely tradeable stock in the public market could adversely affect the market price of the Common Stock. The Company has also filed a registration statement with respect to its 2000 Stock Option Plan, the result of which could be the sale of a significant number of shares in the public market, and consequently, an adverse effect upon the public trading price of the Company’s Common Stock.
Private Liability of Management. The Company has adopted provisions in its Certificate of Incorporation which limit the liability of its officers and directors and provisions in its bylaws which provide for indemnification by the Company of its officers and directors to the fullest extent permitted by Delaware corporate law. The Company’s Certificate of Incorporation generally provides that its directors shall have no personal liability to the Company or its stockholders for monetary damages for breaches of their fiduciary duties as directors, except for breaches of their duties of loyalty, acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, acts involving unlawful payment of dividends or unlawful stock purchases or redemptions, or any transaction from which a director derives an improper personal benefit. Such provisions substantially limit the shareholders’ ability to hold directors liable for breaches of fiduciary duty.
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Potential Issuance of Additional Common and Preferred Stock. The Company is authorized to issue up to 200,000,000 shares of Common Stock. To the extent of such authorization, the Board of Directors of the Company will have the ability, without seeking shareholder approval, to issue additional
shares of common stock in the future for such consideration as the Board of Directors may consider sufficient. The issuance of additional Common Stock in the future may reduce the proportionate ownership and voting power of existing shareholders. The Company is also authorized to issue up to 20,000,000 shares of preferred stock, the rights and preferences of which may be designated in series by the Board of Directors. To the extent of such authorization, such designations may be made without shareholder approval. The designation and issuance of series of preferred stock in the future would create additional securities which would have dividend and liquidation preferences over common stock.
Volatility of Stock Prices. In the event that there is an established public market for the Company’s Common Stock, market prices will be influenced by many factors and will be more subject to significant fluctuations in response to variations in operating results of the Company and other factors such as investor perceptions of the Company, supply and demand, interest rates, general economic conditions and those specific to the industry, developments with regard to the Company’s activities, future financial condition and management.
Applicability of Low Priced Stock Risk Disclosure Requirements. The Common Stock of the Company may be considered a low priced security under rules promulgated under the Securities Exchange Act of 1934. Under these rules, broker-dealers participating in transactions in low priced securities must first deliver a risk disclosure document which describes the risks associated with such stocks, the broker-dealer’s duties, the customer’s rights and remedies, certain market and other information, and make a suitability determination approving the customer for low priced stock transactions based on the customer’s financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent of the customer, and provide monthly account statements to the customer. With all these restrictions, the likely effect of designation as a low priced stock will be to decrease the willingness of broker-dealers to make a market for the stock, to decrease the liquidity of the stock and to increase the transaction cost of sales and purchases of such stock compared to other securities.
ITEM 2:
ITEM 2: DESCRIPTION OF PROPERTY
The Company’s executive offices are located in a 5,500 square foot facility in south Salt Lake County, Utah, twenty minutes from the Salt Lake City International Airport and adjacent to Interstate 15. The Company subleases this facility from an entity controlled by Kenneth Denos, the Company’s former Chief Executive Officer. Base rent for use of this facility is $500.00 per month, on a month-to-month lease.
The Company believes that the size of its executive offices is adequate for its business, technology, and operational needs for the intermediate future. In the aggregate, however, the Company believes that additional office space may be necessary in the near future to accommodate its growth. The current commercial real estate market in Salt Lake City has sufficient capacity that management believes that the Company should not experience any significant difficulty in procuring additional office space as needed.
ITEM 3:
ITEM 3: LEGAL PROCEEDINGS
None.
ITEM 4:
ITEM 4: SUBMISSION ON MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II.
ITEM 5:
ITEM 5: MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.
(a)
Market for Common Equity and Related Stockholder Matters.
(1)
Market Information.
The Company’s Common Stock is listed on the NASD Electronic Bulletin Board (“Bulletin Board”) under the symbol “SPCI.” The Company’s stock has been traded on the Bulletin Board since approximately January, 1997. As of March 24, 2010, there was no active public market for the Company’s Common Stock. The following table sets forth, for the periods indicated, the high and low closing sales prices, as to Bulletin Board prices of shares of the Company’s Common Stock during the calendar year ended December 31, 2009:
The following table sets forth, for the periods indicated, the high and low closing sales prices, as to Bulletin Board prices of shares of the Company’s Common Stock during the calendar year ended December 31, 2008:
(2)
Holders.
As of March 24, 2010, the Company had approximately 365 holders of record of its Common Stock.
(3)
Dividends.
The Company has not paid any cash dividends on its Common Stock since inception and does not anticipate paying cash dividends in the foreseeable future. The Company anticipates that any future earnings will be retained for use in developing and/or expanding the business.
(b) Recent Sales of Unregistered Securities.
As of December 31, 2009, the Company had outstanding -0- common stock purchase options granted to various officers, directors, employees, and service providers of the Company pursuant to
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the Company’s 2000 Stock Option Plan (“Plan”). The Company believes that the options granted under the Plan are exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) of such Act.
During 2000-2005 and continuing into 2009, Kenneth Denos, the Company’s former Chief Executive Officer, made various cash loans to the Company totaling $86,500 in the aggregate. These loans are represented by unsecured promissory notes of the Company and bear interest at the rate of ten percent (10%) per annum.
During 2000-2005 and continuing into 2009, the Company has accrued payroll and other expenses owed to Kenneth Denos, the Company’s former Chief Executive Officer, totaling $1,030,762 in the aggregate. These accruals are unsecured obligations of the Company. Interest has accrued on the unpaid expenses commencing January 1, 2006 at the rate of twelve percent (12%) per annum.
ITEM 6:
ITEM 6: SELECTED FINANCIAL DATA
As a smaller reporting company we are not required to provide this information.
ITEM 7:
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion of the financial condition and results of operations of SportsNuts, Inc. and its subsidiaries (hereafter collectively, “SportsNuts” or the “Company”) should be read in conjunction with the Audited Financial Statements and related Notes thereto included herein. This discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding the Company’s expectations, beliefs, intentions, or future strategies that are signified by the words “expects,” “anticipates,” “intends,” “believes,” or similar language. Actual results could differ materially from those projected in the forward looking statements. Prospective investors should carefully consider the information set forth below under the caption “Risk Factors” in addition to the other information set forth herein. The Company cautions investors that its business and financial performance is subject to substantial risks and uncertainties.
Overview
SportsNuts is a sports management and marketing company, with a focus on community-based amateur athletics, providing unique solutions to the challenges faced by athletes and the organizations in which they participate. The Company helps organize and manage various sports events, providing online registration, merchandise sales, event sponsorship, and event coordination.
SportsNuts endeavors to make events more profitable and efficient by promoting such events through various media channels, attracting corporate sponsorships, and providing technology tools to decrease administrative and personnel costs.
The Company’s principal sources of revenues during 2009 were (i) online services targeted to sports organizations and their members, and (ii) offline promotional, management, and sponsorship services provided in connection with community-based sports events. The ability to generate revenues during the year 2009 and beyond depends substantially upon the revenues relating to the Company’s amateur sports business.
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Expenses which comprise cost of goods sold are principally comprised of offline costs associated with the management and promotion of sporting events which the company has an active role. Also included in cost of goods sold are commissions paid for information technology consulting contracts. As more organizations utilize the Company’s technology services, future expenses included in cost of goods sold will be personnel and materials costs to administer these services, as well as potential fee sharing expenses to organizations involved in sports event management, and online registration and administration.
General and administrative expenses have been comprised of administrative wages and benefits; occupancy and office expenses; outside legal, accounting and other professional fees; travel and other miscellaneous office and administrative expenses. Selling and marketing expenses include selling/marketing wages and benefits; advertising and promotional expenses; travel and other miscellaneous related expenses. R&D expenses consist mainly of development expenses related to creating new technology applications. In the future, the Company anticipates significant expenditures in business development to create strategic alliances with third parties, and in developing a sales channel to the various amateur sports organizations throughout the United States.
Because the Company has incurred losses, income tax expenses are immaterial. No tax benefits have been booked related to operating loss carryforwards, given the uncertainty of the Company being able to utilize such loss carry forwards in future years. The Company anticipates incurring additional losses during the coming year.
Results of Operations
Following is management’s discussion of the relevant items affecting results of operations for the years ended December 31, 2009 and 2008.
Revenues. The Company generated net revenues of $4.045 during the year ended December 31, 2009, which represents an 87% decrease compared to $30,738 in net revenues during the year 2008. The decrease is mainly the result of the sale of Rocky Mountain Sports Alliance (RMSA) to the original owner in 2009. RMSA contributed $11,335 in revenues during 2008. Furthermore, the decrease is the result of decreased participation in events in which the company manages and also handles online registrations. Following the spin-off of Secure Netwerks during 2007, the Company’s sole source of revenues will be related to sports events and services rendered pursuant thereto. Accordingly, the Company anticipates that future overall consolidated revenues will likely be substantially lower than in prior periods. Management therefore believes that SportsNuts is considered a “shell company” as defined in Rule 126-2 of the Securities Exchange Act of 1934.
Cost of Sales. Cost of sales for the year ended December 31, 2009 were $2,426, an 81% decrease from $12,626 during the year 2008. This decrease correlates with the decrease in revenues. RMSA incurred $3,990 in cost of sales during 2008. Cost of sales were 60% of revenues in 2009 compared to 41% in 2008. The Company anticipates that cost of sales will decrease in the future as a result of the spin-off of Secure Netwerks, Inc. during 2007 and the sale of Rocky Mountain Sports Alliance in 2009. Other costs of sales consisted of online registration services, sports event management and promotional services, and sales commissions paid in connection with hardware sales and leases.
Salaries and Consulting Expenses. Salaries and consulting expenses for the year ended December 31, 2009 were $130,105, a 4% decrease from $136,220 during the year 2008. No major change was expected in salaries and consulting and management continues to make a concerted effort to decrease certain costs associated with personnel salaries and benefits and contract labor.
Professional Fees. Professional fees for the year ended December 31, 2009 were $11,857, a 54% increase from $7,715 during 2008. As the Company continues to have audits and reviews of the financial statements those fees fluctuate based on the activity of the Company.
Selling, General and Administrative Expenses. Selling, general and administrative expenses were $3,163 for the year ended December 31, 2009, as compared to $4,713 during 2008, a decrease of 33%.
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Rocky Mountain Sports Alliance incurred $1,700 in selling, general and administrative expenses in 2008. No major change was expected in selling, general and administrative expenses. Where appropriate, the Company capitalizes certain systems development costs in accordance with generally accepted accounting principles.
Other Income (Expense). The Company had net other expense of $115,798 for the year ended December 31, 2009 compared to net other expense of $117,569 during 2008. The expenses incurred were comprised primarily of interest expenses related to balances on Company credit cards and promissory notes.
Liquidity and Capital Resources
As of December 31, 2009, the Company’s primary source of liquidity consisted of $519 in cash and cash equivalents. The Company holds most of its cash reserves in local checking accounts with local financial institutions. Since inception, the Company has financed its operations through a combination of short and long-term loans, and through the private placement of its Common Stock.
The Company has sustained significant net losses which have resulted in an accumulated deficit at December 31, 2009 of $24,125,458 and is currently experiencing a substantial shortfall in operating capital which raises doubt about the Company’s ability to continue as a going concern. The Company generated a net loss for the year ended December 31, 2009 of $268,985 compared to a net loss in 2008 of $248,105. The Company anticipates a net loss for the year ended December 31, 2010 and with the expected cash requirements for the coming months, without additional cash inflows from an increase in revenues combined with continued cost-cutting or a receipt of cash from capital investment, there is substantial doubt as to the Company’s ability to continue operations.
The Company believes these conditions have resulted from the inherent risks associated with the small startup technology-oriented companies. Such risks include, but are not limited to, the ability to (i) generate revenues and sales of its products and services at levels sufficient to cover its costs and provide a return for investors, (ii) attract additional capital in order to finance growth, (iii) further develop and successfully market commercial products and services, and (iv) successfully compete with other comparable companies having financial, production and marketing resources significantly greater than those of the Company.
The Company believes that its capital resources are insufficient for ongoing operations, with minimal current cash reserves. The Company will likely require considerable amounts of financing to make any significant advancement in its business strategy. There is presently no agreement in place with any source of financing and there can be no assurance that the Company will be able to raise any additional funds, or that such funds will be available on acceptable terms. Funds raised through future equity financing will likely be substantially dilutive to current shareholders. Lack of additional funds will materially affect the Company and its business, and may cause the Company to cease operations. Consequently, shareholders could incur a loss of their entire investment in the Company.
ITEM 7A:
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company we are not required to provide this information.
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ITEM 8:
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONTENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Deficit
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
SportsNuts, Inc.
South Jordan, Utah
We have audited the accompanying balance sheets of SportsNuts, Inc. as of December 31, 2009 and 2008 and the related statement of operations, stockholders' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SportsNuts, Inc. as of December 31, 2009 and 2008 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 7 to the financial statements, the Company has negative working capital, negative cash flows from operations and recurring operating losses which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 7. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Chisholm, Bierwolf, Nilson & Morrill LLC
Bountiful, Utah
March 31, 2010
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The accompanying notes are an integral part of these consolidated financial statements.
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The accompanying notes are an integral part of these consolidated financial statements.
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The accompanying notes are an integral part of these consolidated financial statements.
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The accompanying notes are an integral part of these consolidated financial statements.
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SPORTSNUTS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
a.
Organization and Description of Business
SportsNuts, Inc. (the “Company”) was incorporated under the laws of the State of Delaware on July 12, 1996. On April 15, 2001 the Company changed its name from SportsNuts.com International, Inc. to SportsNuts, Inc. Prior to the reorganization with SportsNuts.com, Inc. (“SportsNuts”), a privately held Delaware corporation, on April 6, 1999, the Company had not commenced active business operations and was considered a development stage company.
The Company’s primary business is providing unique solutions to the challenges faced by amateur athletes and the organizations in which they participate. The Company helps organize and manage a wide variety of sports events, providing online registration and merchandise sales, event sponsorship, event coordination, and online and offline promotion. The Company is the emerging technology leader in sports information systems and the only organization of its kind to compliment its technology solutions with offline, marketing, sales, and support. The Company’s mission is to become the ultimate resource for event coordinators, administrators, athletes, fans, and coaches.
Effective April 15, 2001, the Company issued 3,800,000 shares of its common stock to acquire Rocky Mountain Sports Alliance, Inc. (“RMSA”) in exchange for all of the issued and outstanding shares of RMSA common stock. The acquisition was accounted for as a purchase per APB No. 16. RMSA is a sports management firm located in Salt Lake City, Utah and currently holds the rights to a number of sports events throughout Utah and the surrounding intermountain area. Management believes that the addition of RMSA to the Company’s technology solutions gives the Company a unique position in the amateur sports industry in being able to provide offline as well as online support to teams, leagues, and sports organizations.
b.
Accounting Method
The Company’s consolidated financial statements are prepared using the accrual method of accounting. The Company has elected a December 31 year end.
c.
Cash and Cash Equivalents
Cash Equivalents include short-term, highly liquid investments with maturities of three months or less at the time of acquisition.
d.
Property and Equipment
Property and equipment are stated at cost. Expenditures for ordinary maintenance and repairs are charged to operations as incurred. Major additions and improvements are capitalized. Depreciation is computed using the straight-line and accelerated methods over estimated useful lives as follows:
e.
Accounts Receivable
Accounts receivable are recorded net of the allowance for doubtful accounts of $-0- as of December 31, 2009 and 2008. The Company generally offers 30-day credit terms on sales to its customers and requires no collateral. The Company maintains an allowance for doubtful accounts which is determined based on a number of factors, including each customer’s financial condition, general economic trends and management judgment.
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SPORTSNUTS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008
NOTE 1 -
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
f.
Revenue Recognition
Revenue is recognized upon completion of services or delivery of goods where the sales price is fixed or determinable and collectibility is reasonably assured. Advance customer payments are recorded as deferred revenue until such time as they are recognized. The Company does not offer any cash rebates. Returns or discounts, if any, are netted against gross revenues. For the years ended December 31, 2009 and 2008, sales are recorded net of the allowance for returns and discounts of $-0-.
g.
Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
h.
Advertising
The Company follows the policy of charging the costs of advertising to expense as incurred. Advertising expense is included in cost of sales in the consolidated statements of operations as it relates directly to the revenues associated with events managed by the Company. Advertising expense for the years ended December 31, 2009 and 2008 was $833 and $1,232, respectively.
i.
Basic and Fully Diluted Net Loss Per Share
The basic income (loss) per share of common stock is based on the weighted average number of shares issued and outstanding during the period of the financial statements. At December 31, 2008, $750,000 stock options were considered but not included in the computation because they would have an anti-dilutive effect on the net loss per common shares.
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SPORTSNUTS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008
NOTE 1 -
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
j.
Income Taxes
The Financial Accounting Standards Board (FASB) has issued FASB ASC 740-10 (Prior authoritative literature: Financial Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109 (FIN 48)). FASB ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with prior literature FASB Statement No. 109, Accounting for Income Taxes. This standard requires a company to determine whether it is more likely than not that a tax position will be sustained will be sustained upon examination based upon the technical merits of the position. If the more-likely-than- not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements. As a result of the implementation of this standard, the Company performed a review of its material tax positions in accordance with recognition and measurement standards established by FASB ASC 740-10.
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
At December 31, 2009 the Company had net operating loss carryforwards of approximately $8,234,000 that may be offset against future taxable income through 2029. No tax benefits have been reported in the financial statements, because the potential tax benefits of the net operating loss carry forwards are offset by a valuation allowance of the same amount.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in the future.
Net deferred tax assets consist of the following components as of December 31, 2009 and 2008:
The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income tax rates of 34% to pretax income from continuing operations for the years ended December 31, 2009 and 2008 due to the following:
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SPORTSNUTS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008
NOTE 1 -
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
j.
Income Taxes (continued)
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
At December 31, 2009, the Company had no unrecognized tax benefits that, if recognized, would affect the effective tax rate.
The Company did not have any tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months.
The Company includes interest and penalties arising from the underpayment of income taxes in the consolidated statements of operations in the provision for income taxes. As of December 31, 2009 and 2008, the Company had no accrued interest or penalties related to uncertain tax positions.
The tax years that remain subject to examination by major taxing jurisdictions are those for the years ended December 31, 2009, 2008 and 2007.
k.
Stock Options and Warrants
On January 1, 2006, the Company adopted FASB ASC 718, Share-Based Payment, to account for stock options.
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SPORTSNUTS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008
NOTE 1 -
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
l.
Line of Credit
The company had one line of credit outstanding at December 31, 2008. Following are the details of the line of credit:
Accrued interest at December 31, 2009 and 2008 was $-0-.
m.
Reclassifications
Certain amounts in the accompanying consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications have no material affect on the consolidated financial statements.
n.
Accrued Expenses
Accrued expenses consisted of the following:
o. Recent Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary. This amendment to Topic 810 clarifies, but does not change, the scope of current US GAAP. It clarifies the decrease in ownership provisions of Subtopic 810-10 and removes the potential conflict between guidance in that Subtopic and asset derecognition and gain or loss recognition guidance that may exist in other US GAAP. An entity will be required to follow the amended guidance beginning in the period that it first adopts FAS 160 (now included in Subtopic 810-10). For those entities that have already adopted FAS 160, the amendments are effective at the beginning of the first interim or annual reporting period ending on or after December 15, 2009. The amendments should be applied retrospectively to the first period that an entity adopted FAS 160. The Company does not expect the provisions of ASU 2010-02 to have a material effect on the financial position, results of operations or cash flows of the Company.
In January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to Topic 505 clarifies the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a
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SPORTSNUTS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008
NOTE 1 -
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
o. Recent Accounting Pronouncements (continued)
limit on the amount of cash that will be distributed is not a stock dividend for purposes of applying Topics 505 and 260. Effective for interim and annual periods ending on or after
December 15, 2009, and would be applied on a retrospective basis. The Company does not expect the provisions of ASU 2010-01 to have a material effect on the financial position, results of operations or cash flows of the Company.
In December 2009, the FASB issued Accounting Standards Update 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 167. (See FAS 167 effective date below.)
In December 2009, the FASB issued Accounting Standards Update 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 166. (See FAS 166 effective date below)
In October 2009, the FASB issued Accounting Standards Update 2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing. This Accounting Standards Update amends the FASB Accounting Standard Codification for EITF 09-1. (See EITF 09-1 effective date below.)
In October 2009, the FASB issued Accounting Standards Update 2009-14, Software (Topic 985): Certain Revenue Arrangements That Include Software Elements. This update changed the accounting model for revenue arrangements that include both tangible products and software elements. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15,2010. Early adoption is permitted. The Company does not expect the provisions of ASU 2009-14 to have a material effect on the financial position, results of operations or cash flows of the Company.
In October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. This update addressed the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than a combined unit and will be separated in more circumstances that under existing US GAAP. This amendment has eliminated that residual method of allocation. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company does not expect the provisions of ASU 2009-13 to have a material effect on the financial position, results of operations or cash flows of the Company.
In September 2009, the FASB issued Accounting Standards Update 2009-12, Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This update provides amendments to Topic 820 for the fair value measurement of investments in certain entities that calculate net asset value per share (or its equivalent). It is effective for interim and annual periods ending after December 15,2009. Early application is permitted in financial statements for earlier interim and annual periods that have not been issued. The Company does not expect the provisions of ASU 2009-12 to have a material effect on the financial position, results of operations or cash flows of the Company.
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SPORTSNUTS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008
NOTE 1 -
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
o. Recent Accounting Pronouncements (continued)
In July 2009, the FASB ratified the consensus reached by EITF (Emerging Issues Task Force) issued EITF No. 09-1, (ASC Topic 470) "Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance" ("EITF 09-1"). The provisions of EITF 09-1, clarifies the accounting treatment and disclosure of share-lending arrangements that are classified as equity in the financial statements of the share lender. An example of a share-lending arrangement is an agreement between the Company (share lender) and an investment bank (share borrower) which allows the investment bank to use the loaned shares to enter into equity derivative contracts with investors. EITF 09-1 is effective for fiscal years that beginning on or after December 15,2009 and requires retrospective application for all arrangements outstanding as
of the beginning of fiscal years beginning on or after December 15,2009. Share-lending arrangements that have been terminated as a result of counterparty default prior to December 15, 2009, but for which the entity has not reached a final settlement as of December 15, 2009 are within the scope. Effective for share-lending arrangements entered into on or after the beginning of the first reporting period that begins on or after June 15, 2009. The Company does not expect the provisions of EITF 09-1 to have a material effect on the financial position, results of operations or cash flows of the Company.
In June 2009, FASB issued ASC 105-10 (Prior authoritative literature: SFAS No. 168, "The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162").FASB ASC 105-10 establishes the FASB Accounting Standards Codification TM (Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. FASB ASC 105-10 is effective for financial statements issued for fiscal years and interim periods ending after September 15, 2009. As such, the Company is required to adopt these provisions at the beginning of the fiscal year ending December 31, 2009. Adoption of FASB ASC 105-10 did not have a material effect on the Company’s financial statements.
In June 2009, the FASB issued FASB ASC 810-10-65 (Prior authoritative literature: SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”) which amends the consolidation guidance applicable to a variable interest entity (“VIE”). This standard also amends the guidance governing the determination of whether an enterprise is the primary beneficiary of a VIE, and is therefore required to consolidate an entity, by requiring a qualitative analysis rather than a quantitative analysis. Previously, the standard required reconsideration of whether an enterprise was the primary beneficiary of a VIE only when specific events had occurred. This standard is effective for fiscal years beginning after November 15, 2009, and for interim periods within those fiscal years. Early adoption is prohibited. Adoption of FASB ASC 810-10-65 did not have a material impact on the Company’s financial statements.
In June 2009, the FASB ASC 860-10 (Prior authoritative literature: issued SFAS No. 166, “Accounting for Transfers of Financial Assets, an Amendment of FASB Statement No. 140”), which eliminates the concept of a qualifying special-purpose entity (“QSPE”), clarifies and amends the de-recognition criteria for a transfer to be accounted for as a sale, amends and clarifies the unit of account eligible for sale accounting and requires that a transferor initially measure at fair value and recognize all assets obtained and liabilities incurred as a result of a transfer of an entire financial asset or group of financial assets accounted for as a sale. This standard is effective for fiscal years beginning after November 15, 2009. Adoption of FASB ASC 860-10 did not have a material impact on the Company’s financial statements.
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SPORTSNUTS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008
NOTE 1 -
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
o. Recent Accounting Pronouncements (continued)
In May 2009, FASB issued FASB ASC 855-10 (Prior authoritative literature: SFAS No. 165, "Subsequent Events"). FASB ASC 855-10 establishes principles and requirements for the reporting of events or transactions that occur after the balance sheet date, but before financial statements are issued or are available to be issued. FASB ASC 855-10 is effective for financial statements issued for fiscal years and interim periods ending after June 15, 2009. As such, the Company adopted these provisions at the beginning of the interim period ended June 30, 2009.
In April 2009, the FASB issued FASB ASC 810-10-65 (Prior authoritative literature: SFAS No. 164, “Not-for-Profit Entities: Mergers and Acquisitions”) which governs the information that a not-for-profit entity should provide in its financial reports about a combination with one or more other not-for-profit entities, businesses or nonprofit activities and sets out the principles and requirements for how a not-for-profit entity should determine whether a combination is in fact a merger or an acquisition. This standard is effective for mergers occurring on or after Dec. 15,
2009 and for acquisitions where the acquisition date is on or after the beginning of the first annual reporting period, beginning on or after Dec. 15, 2009. This standard does not apply to the Company since the Company is considered a for-profit entity
In May 2008, the FASB issued FASB ASC 944 (Prior authoritative literature: SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts - an interpretation of FASB Statement No. 60"). FASB ASC 944 interprets Statement 60 and amends existing accounting pronouncements to clarify their application to the financial guarantee insurance contracts included within the scope of that Statement. This standard is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years. As such, the Company is required to adopt these provisions at the beginning of the fiscal year ended December 31, 2009. The Company does not believe this standard will have any impact on the financial statements.
In March 2008, the FASB issued FASB ASC 815-10 (Prior authoritative literature: SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities”), which is effective January 1, 2009. FASB ASC 815-10 requires enhanced disclosures about derivative instruments and hedging activities to allow for a better understanding of their effects on an entity’s financial position, financial performance, and cash flows. Among other things, this standard requires disclosures of the fair values of derivative instruments and associated gains and losses in a tabular formant. This standard is not currently applicable to the Company since we do not have derivative instruments or engage in hedging activity.
In December, 2007, the FASB issued FASB ASC 810-10-65 (Prior authoritative literature: SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”, an amendment of ARB No. 51). FASB ASC 810-10-65 will change the accounting and reporting for minority interests which will be characterized as noncontrolling interests and classified as a component of equity. This new consolidation method will significantly change the accounting for transactions with minority interest shareholders. This standard is effective for fiscal years and interim periods within those fiscal years beginning on or after December 15, 2008. The Company adopted this standard beginning January 1, 2009 and does not believe it has a material impact in its financial statements.
In December, 2007, the FASB issued FASB ASC 805 (Prior authoritative literature: SFAS No. 141(R), “Business Combinations”), which established the principles and requirements for how an
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SPORTSNUTS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008
NOTE 1 -
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
o. Recent Accounting Pronouncements (continued)
acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired. FASB ASC 805 also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. FASB ASC 805 is effective the first annual reporting period beginning on or after December 15, 2008. The Company adopted this standard beginning January 1, 2009 and does not believe it has a material impact in its financial statements.
In March 2007, FASB ASC 715-60 (Prior authoritative literature: EITF Issue No. 06-10, "Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements”). FASB ASC 715-60 provides guidance for determining a liability for the postretirement benefit obligation as well as recognition and measurement of the associated asset on the basis of the terms of the collateral assignment agreement. FASB ASC 715-60 is effective for fiscal years beginning after December 15, 2007. The adoption of FASB ASC 715-60 did not have a material impact on the Company’s financial position, results of operations, or cash flows.
In February 2007, FASB ASC 825-10 (Prior authoritative literature: Statement of Financial Accounting Standards No. 159, “ The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of FASB Statement No. 115 ,”) was issued. This standard allows a company to irrevocably elect fair value as the initial and subsequent measurement
attribute for certain financial assets and financial liabilities on a contract-by-contract basis, with changes in fair value recognized in earnings. The provisions of this standard were effective as of the beginning of fiscal year 2008, with early adoption permitted. The adoption of FASB ASC 825-10 did not have a material impact on the Company’s financial position, results of operations, or cash flows.
In September 2006, the FASB issued FASB ASC 820-10 (Prior authoritative literature: FASB Statement 157, “Fair Value Measurements”). FASB ASC 820-10 defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements. FASB ASC 820-10 applies under other accounting pronouncements that require or permit fair value measurements. Accordingly, FASB ASC 820-10 does not require any new fair value measurements. However, for some entities, the application of FASB ASC 820-10 will change current practice. The changes to current practice resulting from the application of FASB ASC 820-10 relate to the definition of fair value, the methods used to measure fair value and the expanded disclosures about fair value measurements. The provisions of FASB ASC 820-10 are effective as of January 1, 2008, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. However, delayed application of this statement is permitted for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The adoption of FASB ASC 820-10 did not have a material impact on the Company’s financial position, results of operations, or cash flows.
In June 2006, FASB issued FASB ASC 740-10 (Prior authoritative literature: FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109”). This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB No. 109, “Accounting for Income Taxes”. FASB ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition,
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SPORTSNUTS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008
NOTE 1 -
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
o. Recent Accounting Pronouncements (continued)
classification, interest and penalties, accounting in interim periods, disclosure, and transition. FASB ASC 740-10 is effective for fiscal years beginning after December 15, 2006. The adoption of FASB ASC 740-10 did not have a material impact on the Company’s financial position, results of operations, or cash flows.
p. Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risks consist of cash and cash equivalents. The Company places cash and cash equivalents at well known quality financial institutions. Cash and cash equivalents at banks are insured by the Federal Deposit Insurance Corporation for up to $250,000. The Company did not have any cash or cash equivalents in excess of this amount at December 31, 2009 and 2008.
q.
Financial Instruments
On January 1, 2008, the Company adopted FASB ASC 820-10-50, “Fair Value Measurements.” This guidance defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
-
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
-
Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement.
The carrying amounts reported in the balance sheets for the cash and cash equivalents, receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest.
r. Subsequent Events
The Company has evaluated subsequent events from the balance sheet date through the date the financial statements were issued and has determined that there are no such events that would have a material impact on the financial statements.
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SPORTSNUTS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008
NOTE 2- NOTES PAYABLE - RELATED PARTIES
Accrued interest on notes payable for the years ended December 31, 2009 and 2008 was $742,747 and $646,264, respectively.
NOTE 3 - COMMON AND PREFERRED STOCK TRANSACTIONS
Effective March 11, 2005, the Company issued 10,000,000 shares of its common stock in exchange for the exercise of stock options held by employees and consultants of the Company. The Company originally recorded a stock subscriptions receivable of $161,750. During the year ended December 31, 2008, the Company wrote off the subscriptions receivable against additional paid in capital.
NOTE 5 - OPTIONS AND WARRANTS
The Company has adopted FASB ASC 718, “Share-Based Payments” (“ASC 718”) to account for its stock options. The Company estimates the fair value of each stock award at the grant date by using the Black-Scholes option pricing model. The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and our experience. Compensation expense is recognized only for those
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SPORTSNUTS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008
NOTE 5 -
OPTIONS AND WARRANTS (Continued)
options expect to vest, with forfeitures estimated at the date of grant based on our historical experience and future expectations. No stock options or warrants were granted during 2009. At December 31, 2009 all options had been cancelled.
Employee Stock Options
The following tables summarize the information regarding employee stock options at December 31, 2008:
The following tables summarize the information regarding employee stock options at December 31, 2009:
NOTE 6 - OPERATING LEASES
The Company leased a storage unit on a month to month basis. The lease was cancelled by the Company during 2009. Rental expense for the years ended December 31, 2009 and 2008 was $234 and $1,404, respectively.
NOTE 7 - GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has sustained significant net losses which have resulted in an accumulated deficit at December 31, 2009 of approximately $24,125,000, has negative working capital, and negative cash flows from operations, all of which raise substantial doubt regarding the Company’s ability to continue as a going concern.
To date the Company has funded its operations through a combination of loans and the private placement of its common stock. The Company anticipates another net loss for the year ended December 31, 2010 and with the expected cash requirements for the coming year, there is substantial doubt as to the Company’s ability to continue operations.
The Company believes these conditions have resulted from the inherent risks associated with small startup technology-oriented companies. Such risks include, but are not limited to, the ability to (i) generate revenues and sales of its products and services at levels sufficient to cover its costs
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SPORTSNUTS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008
NOTE 7 - GOING CONCERN (Continued)
and provide a return for investors, (ii) attract additional capital in order to finance growth, (iii) further develop and successfully market commercial products and services, and (iv) successfully compete with other comparable companies having financial, production and marketing resources significantly greater than those of the Company.
The Company is attempting to improve these conditions by way of financial assistance through issuances of additional equity and by generating revenues through sales of products and services.
NOTE 8 - RELATED PARTY TRANSACTIONS
From time to time, the Company makes advances to a related company which has common management. These advances are short term in nature and due on demand. The Company made advances of $54,787 and received payments on these advances of $45,879 during the year ended December 31, 2008. The balance receivable at December 31, 2008 was $25,303. These transactions were part of the subsidiary company Rocky Mountain Sports Alliance (RMSA). As part of the sale and discontinuation of the subsidiary, these amounts went with RMSA. These advances are not loaned to any officer or director of the Company.
From time to time, an officer of the Company and an entity he owns paid for expenses of the Company for which he has not been reimbursed. These unreimbursed expenses are disclosed as due to related parties. The amount of unreimbursed expenses incurred were $-0- and $894 during the years ended December 31, 2009 and 2008, respectively. The balance due at December 31, 2009 and 2008 was $167,664 and $167,555, respectively. Accrued interest on these amounts was $79,150 and $59,030 for the years ended December 31, 2009 and 2008, respectively.
NOTE 9 - DISCONTINUED OPERATIONS
During the year ended December 31, 2009, the Company sold its wholly owned subsidiary, Rocky Mountain Sports Alliance, Inc. (RMSA) for $1 to the previous owner of RMSA. There have been little or no operations in RMSA for the past several years. As part of the sale, all assets and liabilities of RMSA were transferred with the sale of the subsidiary. The Company has accounted for these operations as discontinued. The loss from the discontinued operations was $9,681 which represents the original investment in the subsidiary.
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ITEM 9:
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A:
ITEM 9A: CONTROLS AND PROCEDURES
Management’s Report on Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, to allow for timely decisions regarding required disclosure.
As of December 31, 2009, the end of our fiscal year covered by this report, we carried out an evaluation, under the supervision of our Chief Executive Officer and Controller, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, we concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report. Our board of directors has only one member. We do not have a formal audit committee.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act, as amended). In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of internal control include providing management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management’s authorization and recorded properly to permit the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2009. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Our management has concluded that, as of December 31, 2009, our internal control over financial reporting is effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US generally accepted accounting principles.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Inherent limitations on effectiveness of controls
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Internal control over financial reporting has inherent limitations which include but is not limited to the use of independent professionals for advice and guidance, interpretation of existing and/or changing rules and principles, segregation of management duties, scale of organization, and personnel factors. Internal control over financial reporting is a process which involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis, however these inherent limitations are known features of the financial reporting process and it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
There have been no significant changes in our internal controls over financial reporting that occurred during the year ended December 31, 2009 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.
ITEM 9B:
ITEM 9B: OTHER INFORMATION
None
PART III
ITEM 10:
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Pursuant to the Company's Delaware Certificate of Incorporation and Bylaws, the Company's Board of Directors (the "Board") has been divided into three classes, with only a single class subject to re-election each year. The initial re-election of the Board under this procedure requires the directors to be nominated to serve a one-, two-, or three-year term. Thereafter, any director, whether elected or re-elected, will serve a three-year term. Each of the Company’s eight directorships has been divided into one of these three classes, with one class containing two directorships and two classes containing three directorships. John D. Thomas, age 37, is the Chief Executive Officer of the Company and currently the only executive officer of the Company and the only member of the Board of Directors. A short summary of Mr. Thomas’ business experience is below. His term of office will expire at the next annual shareholders meeting. No annual shareholders’ meeting is planned for the year 2009.
John D. Thomas, J.D., age 37, Mr. Thomas has served as corporate counsel for SportsNuts, Inc., since January, 2005. Mr. Thomas practices law specializing in general corporate law and mergers and acquisitions for his law firm, John D. Thomas P.C. Since December, 2008, Mr. Thomas has served as a member of the board of directors and chairman of the audit committee of Bayhill Capital, Inc. (BYHL.OB), a filer of reports pursuant to 13(a) and 15(d) of the Securities Exchange Act of 1934. Since July, 2009, Mr. Thomas has served as a member of the board of directors of Tremont Fair, Inc. (TMTF.OB) a filer of reports pursuant to 13(a) and 15(d) of the Securities Exchange Act of 1934. He has also been general legal counsel for Cancer Therapeutics, Inc., a filer of reports pursuant to Sections 13(a)
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and 15(d) of the Securities Exchange Act of 1934, since May, 2004. Prior to his association with Cancer Therapeutics, Mr. Thomas practiced general corporate law for various clients from May, 2003 until the present and from November 1999 until August 2002. Mr. Thomas holds a Juris Doctor degree from Texas Tech University School of Law and is licensed to practice law in Texas and Utah. In August, 2009, Mr. Thomas entered into a settlement with the Commodity Futures Trading Commission wherein Mr. Thomas consented to an order of permanent injunction from his future involvement in commodity pools trading and commodities operations.
Board of Directors Meetings and Committees
Although various items were reviewed and approved by the Board of Directors during 2009, the Board held no formal meetings during the fiscal year ended December 31, 2009.
The Company does not have Audit or Compensation Committees of the Board of Directors. Because of the lack of financial resources available to the Company, the Company also does not have an “audit committee financial expert” as such term is described in Item 401 of Regulation S-B promulgated by the Securities and Exchange Commission.
Compensation of Directors
Although the Company anticipates compensating the members of its Board of Directors in the future at industry levels, current members are not paid cash compensation for their service as directors. Each director may be reimbursed for certain expenses incurred in attending Board of Directors and committee meetings. Directors may also be granted stock options under the Company’s 2000 Stock Option Plan.
Code of Ethics
We have adopted a code of ethics that applies to all of our executive officers and senior financial officers (including our chief executive officer, chief financial officer and any person performing similar functions). A copy of our code of ethics is publicly available on our website at www.sportsnuts.com under the caption "INVESTORS." If we make any substantive amendments to our code of ethics or grant any waiver, including any implicit waiver, from a provision of the code to our chief executive officer, chief financial officer, chief accounting officer or controller, we will disclose the nature of such amendment or waiver in a report on Form 8-K.
Section 16(a) Beneficial Ownership Reporting Compliance
We are required to identify each person who was an officer, director or beneficial owner of more than 10% of our registered equity securities during our most recent fiscal year and who failed to file on a timely basis reports required by Section 16(a) of the Securities Exchange Act of 1934.
For the 2009 fiscal year we are unaware of any officer, director or beneficial owner of more that 10% of our registered equity securities who failed to file reports on a timely basis in accordance with Section 16(a) of the Securities Exchange Act of 1934.
ITEM 11:
ITEM 11: EXECUTIVE COMPENSATION.
The following table sets forth certain information regarding the annual and long-term compensation for services rendered in all capacities during the fiscal year ended December 31, 2009,
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2008, and 2007 of those persons who were the Company’s Chief Executive Officer and other executive officers of the Company.
Summary Compensation Table
(1) Represents $100,000 in earned but unpaid salary during 2007.
Aggregated Option Exercises in Last Fiscal Year and Year End Option Values
(1) Based on the closing sales price of the Common Stock on the NASD Electronic Bulletin Board on December 31, 2008 of $0.00131.
ITEM 12:
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
(a) Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding the beneficial ownership of the Company’s Common Stock (par value $0.002 per share) as of March 23, 2010 by (i) each person (or group of affiliated persons) who is known by the Company to beneficially own more than 5% of the outstanding shares of the Company’s Common Stock, (ii) each person who has served as a director or executive officer of the Company during the calendar year 2009, and (iii) all persons who have served as a director or executive officer of the Company during the calendar year 2009 as a group. As of such date, the Company had 121,321,086 shares of Common Stock outstanding. Unless indicated otherwise, the
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address for each officer, director, and 5% shareholder is c/o the Company, 10757 South, River Front Parkway, South Jordan, Utah 84095.
(1) For each shareholder, the calculation of percentage of beneficial ownership is based upon 121,321,086 shares of Common Stock outstanding as of March 31, 2009, and shares of Common Stock subject to options, warrants and/or conversion rights held by the shareholder that are currently exercisable or exercisable within 60 days, which are deemed to be outstanding and to be beneficially owned by the shareholder holding such options, warrants, or conversion rights. The percentage ownership of any shareholder is determined by assuming that the shareholder has exercised all options, warrants and conversion rights to obtain additional securities and that no other shareholder has exercised such rights. Except as otherwise indicated below, the persons and entity named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them, subject to applicable community property laws.
(2) Chief Executive Officer, Secretary and Director of the Company.
(3) Former Chief Executive Officer, Secretary, and Director of the Company. Includes 800,000 shares of Common Stock held directly by Mr. Denos and 9,000,000 shares of Common Stock issuable upon exercise of options held by Mr. Denos that are currently exercisable or will become exercisable within 60 days. Because Mr. Denos is a member of the Board of Directors of Moore, Clayton & Co., Inc. (“MCC”), this number also includes 1,071,429 shares held directly by MCC, and certain promissory notes held by MCC that are currently convertible into 13,596,524 shares of Common Stock.
(3) Principal Shareholder of the Company. Includes 25,000,000 shares held directly by Prestbury Investment Holdings Limited (“PIHL”).
(4) Prinicipal of PIHL and, together with Mr. Nicholas Leslau, the controlling shareholders of PIHL. Includes 25,000,000 shares of Common Stock held directly by PIHL.
(5) Principal of PIHL and, together with Mr. Nigel Wray, the controlling shareholders of PIHL. Includes 25,000,000 shares of Common Stock held directly by PIHL.
(6) Principal Shareholder of the Company. Includes 12,273,895 shares of Common Stock held directly by Gardner Management, Inc. Profit Sharing Plan and Trust and 6,752,712 shares of Common Stock issuable upon the exercise of a Convertible Promissory Note held by the Trust.
(7) Principal Shareholder of the Company. Includes 1,071,429 shares held directly by MCC and certain promissory notes held by MCC that are convertible into 13,596,524 shares of Common Stock.
(8) Principal Shareholder of the Company. Includes 5,000,000 shares of Common Stock held directly by Mr. Shell and 2,500,000 shares of Common Stock held by Kelli Shell, the wife of Mr. Shell.
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(b) Securities Authorized for Issuance Under Equity Compensation Plans.
(c) Possible Change of Control.
To reduce the Company’s debts, the Company may attempt to convert certain of its liabilities into Common Stock during 2010, depending upon the agreement of various creditors of the Company. These liabilities are the result of loans received by the Company, accrued payroll expense for various employees of the Company, and operating liabilities incurred but unpaid during the past five years. Although the Company will endeavor to obtain the highest possible conversion price to such liabilities, the collective effect of converting a substantial amount of this debt may result in a change of control of the Company in favor of certain of the Company’s larger creditors.
ITEM 13:
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
During 2000-2009 and up to the date of this filing, Kenneth I. Denos, the former Chief Executive Officer of the Company, made various loans to the Company in his personal capacity and through a professional corporation controlled by Mr. Denos. These loans, aggregating $86,500, were made for working capital purposes, are due upon demand, and bear interest at the rate of ten percent (10%) per annum until repaid.
Since May 2000, Kenneth I. Denos, the Company’s Former Chief Executive Officer, has not been paid a salary for his services, although his salary payment obligation has been accrued on the books of the Company. As of December 31, 2009, such accrued payroll liability and related expenses totaled $1,030,762. Accordingly, the Company may seek to convert some or all of Mr. Denos’ payroll liability into stock of the Company, the result of which could be the issuance of a substantial number of shares of Common Stock and substantial dilution to current stockholders.
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Commencing May 1, 2006, the Company became a subtenant of Acadia Properties, Inc., an entity controlled by Kenneth I. Denos, the Company’s Chief Executive Officer. Acadia Properties will charge the Company $500 per month for use of its facilities, telephones, and limited use of office supplies.
ITEM 14:
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
Change in Auditors
On or about January 1, 2009, we were notified that effective January 1, 2009, the audit partner of Bouwhuis, Morrill & Company, LLC (“BMC”) our auditors, joined Chisholm, Bierwolf & Nilson, LLC (“CBN”) which became Chisholm, Bierwolf, Nilson & Morrill, LLC (“CBNM”). As a result, BMC resigned as our independent registered public accounting firm and CBNM was formally engaged as our new independent registered public accounting firm. The decision to retain CBNM as our certifying public accountant was authorized and approved by our board of directors.
During the period from the engagement of the former auditors through the date of the resignation of the former auditors, including the registrant’s most recent fiscal year and the subsequent interim period, there were no disagreements with the former auditors, whether or not resolved, on any matter of accounting principles or practices, financial statements disclosure, or auditing scope or procedure, which, if not resolved to the former auditor’s satisfaction, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its report.
The reports of BMC did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.
Fees Billed For Audit and Non-Audit Services
The following table represents the aggregate fees billed for professional audit services rendered to the Company by Chisholm, Bierwolf, Nilson & Morrill, LLC for 2009, and Bouwhuis, Morrill & Company, LLC, for 2008 for the audit of the Company’s annual financial statements for the years ended December 31, 2009 and 2008, and all fees billed for other services rendered during those periods.
(1) Audit Fees. These are fees for professional services for the audit of the Company’s annual financial statements, and for the review of the financial statements included in the Company’s filings on Form 10-K, and for services that are normally provided in connection with statutory and regulatory filings or engagements.
(2) Audit-Related Fees. These are fees for the assurance and related services reasonably related to the performance of the audit or the review of the Company’s financial statements.
(3) Tax Fees. These are fees for professional services with respect to tax compliance, tax advice, and tax planning.
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(4) All Other Fees. These are fees for permissible work that does not fall within any of the other fee categories, i.e., Audit Fees, Audit-Related Fees, or Tax Fees.
ITEM 15:
ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
Documents Filed as a Part of this Report
(1)
Financial Statements
See “Item 8 - Financial Statements Required by Form 10-K .”
(2)
Financial Statement Schedules
The following Financial Statement Schedules of the Company and its subsidiaries, together with
the report of Bouwhuis Morrill & Company, LLC, the Company’s independent registered public accounting firm, thereon are filed as part of this Report on Form 10-K as listed below and should be read in conjunction with the consolidated financial statements of the Company:
Report of Chisholm, Bierwolf, Nilson & Morrill, LLC, Independent Accountants, on Financial Statement Schedules for 2008.
Report of Bouwhuis Morrill & Company, LLC, Independent Accountants, on Financial Statement Schedules for 2007.
(3)
Exhibits
See “Index to Exhibits.”
(b)
Reports on Form 8-K
No reports on Form 8-K were filed during the year ended December 31, 2009.
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INDEX TO EXHIBITS
(1) Filed as an Exhibit to the Company’s quarterly report on Form 10-QSB, filed with the Commission on August 14, 2001.
(2) Filed as an Exhibit to the Company’s quarterly report on Form 10-QSB, filed with the Commission on August 14, 2001.
(3) Filed as an Exhibit to the Company’s annual report on Form 10-KSB, filed with the Commission on March 30, 2000.
(4) Filed as an Exhibit to the Company’s Quarterly Report on Form 10-QSB, filed with the Commission on May 11, 2001.
(5) Filed as an Exhibit to the Company’s quarterly report on Form 10-QSB, filed with the Commission on March 17, 2004.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SPORTSNUTS, INC.
Dated March 31, 2010
By:
/s/ John D. Thomas
John D. Thomas
Chief Executive Officer
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