Page
Number
|
|
|
|
PART
I - FINANCIAL INFORMATION
|
|
Item
1. Financial Statements
|
|
Condensed
Consolidated Balance Sheet as of March 31, 2007
(Unaudited)
|
3
-
4
|
Condensed
Consolidated Statements of Operations for the three months ended
March 31,
2007 and 2006 (Unaudited)
|
5
|
Condensed
Consolidated Statements of Cash Flows for the three months ended
March 31,
2007 and 2006 (Unaudited)
|
6
|
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
7
-
13
|
Item
2. Management’s Discussion and Analysis or Plan of
Operation
|
13
- 17
|
Item
3. Controls and Procedures
|
17
- 18
|
|
|
PART
II - OTHER INFORMATION
|
|
Item
1. Legal Proceedings
|
18
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
18
|
Item
3. Defaults Upon Senior Securities
|
18
|
Item
4. Submission of Matters to a Vote of Security Holders
|
19
|
Item
5. Other Information
|
19
|
Item
6. Exhibits
|
19
|
SIGNATURES
|
20
|
PART
I - FINANCIAL INFORMATION
|
||
ITEM
1. FINANCIAL STATEMENTS
|
||
TURNAROUND
PARTNERS, INC. AND SUBSIDIARIES
|
||
(formerly
Emerge Capital Corp and Subsidiaries)
|
||
CONDENSED
CONSOLIDATED BALANCE SHEET
|
||
March
31, 2007
|
||
(Unaudited)
|
||
ASSETS
|
CURRENT
ASSETS
|
||||
Cash
and cash equivalents
|
$
|
1,131,369
|
||
Restricted
cash
|
98,452
|
|||
Notes
and accounts receivable
|
325,870
|
|||
Investment
in marketable securities
|
256,991
|
|||
Due
from affiliate
|
128,066
|
|||
Prepaid
expense and deferred financing costs
|
245,010
|
|||
Total
current assets
|
2,185,758
|
|||
NONCURRENT
ASSETS
|
||||
Investment
in real estate partnership and other investments
|
4,543,005
|
|||
Fixed
assets, net
|
65,846
|
|||
Total
noncurrent assets
|
4,608,851
|
|||
TOTAL
ASSETS
|
$
|
6,794,609
|
||
LIABILITIES
AND SHAREHOLDERS' DEFICIT
|
||||
CURRENT
LIABILITIES
|
||||
Accounts
payable and accrued expenses
|
$
|
678,297
|
||
Convertible
debentures--net of $236,568 discount
|
1,480,628
|
|||
Notes
payable
|
165,565
|
|||
Unearned
income
|
130,555
|
|||
Series
C Preferred stock including associated paid in capital; liquidation
preference of $373,500,
|
||||
redeemable
at $1,500 per share at Company option, cumulative dividends of
$120
|
||||
per
share per year, non-voting, par value $.01, 1,000 shares
authorized,
|
||||
249
shares issued and outstanding
|
220,547
|
|||
Derivative
liability
|
777,058
|
|||
Total
current liabilities
|
3,452,650
|
|||
Convertible
debentures--net of $1,457,090 discount
|
5,167,910
|
|||
Notes
payable
|
146,628
|
|||
Accrued
interest payable
|
612,764
|
|||
Total
liabilities
|
9,379,952
|
|||
COMMITMENTS
AND CONTINGENCIES
|
-
|
|||
TURNAROUND
PARTNERS, INC. AND SUBSIDIARIES
|
||
(formerly
Emerge Capital Corp and Subsidiaries)
|
||
CONDENSED
CONSOLIDATED BALANCE SHEET
|
||
March
31, 2007
|
||
(Unaudited)
|
||
(Continued)
|
SHAREHOLDERS'
DEFICIT
|
||||
Preferred
Stock, par value $.01, 2,000,000 shares authorized:
|
||||
Series
A Convertible Preferred Stock, noncumulative, $.01 par
value;
|
||||
400,000
shares authorized; none issued
|
-
|
|||
Series
B Convertible Preferred Stock, $.01 par value; 100,000 shares
authorized;
|
||||
6,666
shares issued and outstanding; no liquidation or redemption
value
|
67
|
|||
Series
D Convertible Preferred Stock, 100,000 shares authorized;
|
||||
700
shares issued and outstanding; no liquidation or redemption
value
|
7
|
|||
Common
stock, $.001 par value; 900,000,000 shares authorized;
|
||||
39,784,753
shares issued and outstanding
|
39,785
|
|||
Additional
paid-in capital
|
855,317
|
|||
Retained
deficit
|
(3,480,519
|
)
|
||
Total
shareholders' deficit
|
(2,585,343
|
)
|
||
TOTAL
LIABILITIES AND SHAREHOLDERS' DEFICIT
|
$
|
6,794,609
|
See
accompanying Notes to Condensed Consolidated Financial Statements
(unaudited)
|
TURNAROUND
PARTNERS, INC. AND SUBSIDIARIES
|
(formerly
Emerge Capital Corp and Subsidiaries)
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(Unaudited)
|
|
Three
months ended March 31,
|
||||||
2007
|
2006
(restated)
|
||||||
REVENUE
|
|||||||
Discount
income
|
$
|
-
|
$
|
9,668
|
|||
Consulting
revenue
|
213,867
|
171,250
|
|||||
Marketable
securities gain
|
21,500
|
664,615
|
|||||
Fee
income
|
17,500
|
20,000
|
|||||
Total
revenue
|
252,867
|
865,533
|
|||||
General
and administrative expenses (net of allocation to
|
|||||||
an
affiliated entity--$101,199 for 2007 and $41,796 for 2006)
|
415,487
|
379,493
|
|||||
OPERATING
INCOME (LOSS)
|
(162,620
|
)
|
486,040
|
||||
Other
(income) expense:
|
|||||||
Gain
on sale of subsidiary
|
-
|
(3,042,406
|
)
|
||||
Net
change in derivative liability
|
265,968
|
185,986
|
|||||
Debt
extinguishment
|
(450,650
|
)
|
(94,365
|
)
|
|||
Interest
expense
|
140,568
|
31,384
|
|||||
Interest
expense-derivatives
|
307,870
|
70,741
|
|||||
Interest
expense - Preferred Series C stock
|
6,616
|
7,794
|
|||||
Other
income - net
|
(35,821
|
)
|
(22,275
|
)
|
|||
Total
other (income) expense
|
234,551
|
(2,863,141
|
)
|
||||
Income
(loss) before income tax
|
(397,171
|
)
|
3,349,181
|
||||
INCOME
TAX PROVISION
|
|||||||
Deferred
income tax benefit
|
-
|
-
|
|||||
Total
income tax provision
|
-
|
-
|
|||||
INCOME
(LOSS) FROM CONTINUING OPERATIONS
|
(397,171
|
)
|
3,349,181
|
||||
LOSS
FROM DISCONTINUED OPERATIONS
|
-
|
4,687
|
|||||
NET
INCOME (LOSS)
|
(397,171
|
)
|
3,344,494
|
||||
Preferred
dividends paid
|
-
|
4,554
|
|||||
INCOME
(LOSS) AVAILABLE TO COMMON SHARES
|
$
|
(397,171
|
)
|
$
|
3,339,940
|
||
Basic
income (loss) per share:
|
|||||||
Income
(loss) from continuing operations
|
(0.01
|
)
|
0.14
|
||||
Loss
from discontinued operations
|
-
|
-
|
|||||
$
|
(0.01
|
)
|
$
|
0.14
|
|||
Diluted
income (loss) per share:
|
|||||||
Income
(loss) from continuing operations
|
(0.01
|
)
|
0.01
|
||||
Loss
from discontinued operations
|
-
|
-
|
|||||
$
|
(0.01
|
)
|
$
|
0.01
|
|||
Basic
average shares outstanding
|
33,954,444
|
23,735,816
|
|||||
Diluted
average shares outstanding
|
33,954,444
|
490,271,170
|
|||||
See
accompanying Notes to Condensed Consolidated Financial Statements
(unaudited)
|
TURNAROUND
PARTNERS, INC. AND SUBSIDIARIES
|
||||
(formerly
Emerge Capital Corp and Subsidiaries)
|
||||
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||
(Unaudited)
|
Three
Months Ended March 31,
|
|||||||
2007
|
2006
(restated)
|
||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|||||||
Net
income (loss)
|
$
|
(397,171
|
)
|
$
|
3,344,494
|
||
Adjustment
to reconcile net income (loss) to net cash provided by
|
|||||||
(used
in) operating activities
|
49,564
|
(3,298,000
|
)
|
||||
Net
cash provided by (used in) operating activities
|
(347,607
|
)
|
46,494
|
||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|||||||
Purchases
of fixed assets
|
(2,279
|
)
|
(5,418
|
)
|
|||
Cash
received for sale of subsidiary
|
-
|
93,396
|
|||||
Preferential
return from partnership
|
446,250
|
-
|
|||||
Proceeds
from sale of investments
|
-
|
23,220
|
|||||
Net
cash provided by investing activities
|
443,971
|
111,198
|
|||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|||||||
Principal
payments on note payable
|
(20,336
|
)
|
-
|
||||
Dividends
paid on preferred stock
|
-
|
(4,554
|
)
|
||||
Net
cash used in financing activities
|
(20,336
|
)
|
(4,554
|
)
|
|||
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
76,028
|
153,138
|
|||||
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
1,153,793
|
378,399
|
|||||
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
$
|
1,229,821
|
$
|
531,537
|
|||
SUPPLEMENTAL
INFORMATION
|
|||||||
Interest
paid
|
$
|
6,257
|
$
|
-
|
|||
Taxes
paid
|
$
|
-
|
$
|
9,882
|
|||
Conversion
of debentures to common stock:
|
|||||||
Increase
in par value
|
$
|
10,338
|
$
|
-
|
|||
Increase
in paid in capital
|
$
|
112,486
|
$
|
-
|
|||
Redemption
and purchase of preferred stock:
|
|||||||
Decrease
in accounts receivable
|
$
|
-
|
$
|
15,000
|
|||
Increase
in notes payable
|
$
|
-
|
$
|
240,000
|
|||
Decrease
in paid-in capital
|
$
|
-
|
$
|
243,498
|
|||
Sale
of subsidiary:
|
|||||||
Assets
sold
|
$
|
-
|
$
|
2,906,001
|
|||
Liabilities
assumed by buyer
|
$
|
-
|
$
|
5,855,011
|
|||
See
accompanying Notes to Condensed Consolidated Financial Statements
(unaudited)
|
Consolidated
Statements of Operations
|
As
Computed
|
As
Reported
|
|||||||||
under
|
under
FSP
|
Effect
of
|
||||||||
EITF
00-19
|
EITF
00-19-2
|
Change
|
||||||||
Three
months ended March 31, 2007
|
||||||||||
Interest
expense-derivatives
|
$
|
337,323
|
$
|
307,870
|
$
|
(29,453
|
)
|
|||
Net
change in fair value of derivative
|
260,180
|
265,968
|
5,788
|
|||||||
Net
loss
|
(373,506
|
)
|
(397,171
|
)
|
23,665
|
|||||
Net
loss per share
|
(0.01
|
)
|
(0.01
|
)
|
0.00
|
|||||
Three
months ended March 31, 2006
|
||||||||||
Interest
expense-derivatives
|
81,491
|
70,741
|
(10,750
|
)
|
||||||
Net
change in fair value of derivative
|
182,653
|
185,986
|
3,333
|
|||||||
Net
income
|
3,337,077
|
3,344,494
|
7,417
|
|||||||
Net
income per share
|
0.14
|
0.14
|
(0.00
|
)
|
||||||
Consolidated
Balance Sheet
|
||||||||||
March
31, 2007
|
||||||||||
Debenture
payable - net of discount
|
7,004,391
|
6,648,538
|
355,853
|
|||||||
Derivative
liability
|
1,132,911
|
777,058
|
(355,853
|
)
|
||||||
Total
liabilities and shareholders' deficit
|
6,794,609
|
6,794,609
|
-
|
|||||||
Consolidated
Statements of Cash Flows
|
||||||||||
March
31, 2007
|
||||||||||
Net
loss
|
(373,506
|
)
|
(397,171
|
)
|
23,665
|
|||||
Net
change in fair value of derivatives and
|
||||||||||
amortization
of debt discount.
|
597,503
|
573,838
|
(23,665
|
)
|
||||||
March
31, 2006
|
||||||||||
Net
income
|
3,337,077
|
3,344,494
|
7,417
|
|||||||
Net
change in fair value of derivatives and
|
||||||||||
amortization
of debt discount.
|
264,144
|
256,727
|
(7,417
|
)
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
2007
|
2006
|
||||||
Income
(loss) from continuing operations
|
$
|
(397,171
|
)
|
$
|
3,339,940
|
||
Less
effect of derivatives, preferred stock and convertible
debenture
|
-
|
218,785
|
|||||
Adjusted
income (loss) from continuing operations
|
(397,171
|
)
|
3,558,725
|
||||
Loss
from discontinued operations
|
-
|
(4,687
|
)
|
||||
Net
income (loss)
|
$
|
(397,171
|
)
|
$
|
3,554,038
|
||
Basic
weighted average shares
|
33,954,444
|
23,735,816
|
|||||
Effect
of dilutive securities:
|
|||||||
Series
D preferred stock
|
-
|
12,319,034
|
|||||
Convertible
debentures
|
-
|
454,216,320
|
|||||
Diluted
weighted average shares
|
33,954,444
|
490,271,170
|
|||||
Income
(loss) per share:
|
|||||||
Basic:
|
|||||||
Income
(loss) from continuing operations
|
$
|
(0.01
|
)
|
$
|
0.14
|
||
Income
(loss) from discontinued operations
|
-
|
(0.00
|
)
|
||||
Net
income (loss)
|
$
|
(0.01
|
)
|
$
|
0.14
|
||
Diluted:
|
|||||||
Income
(loss) from continuing operations
|
$
|
(0.01
|
)
|
$
|
0.01
|
||
Income
(loss) from discontinued operations
|
-
|
(0.00
|
)
|
||||
Net
income (loss)
|
$
|
(0.01
|
)
|
$
|
0.01
|
(1)
|
A
weighted average year-to-date number of Convertible Debentures, Series
B
and Series D preferred stock to convert into 151,198,873 shares of
common
stock were outstanding during the three months ended March 31, 2007,
but
were not included in the computation of diluted per share net income
for
the three months ended March 31, 2007 because they were anti-dilutive.
There were no similar potentially dilutive shares outstanding for
the
three months ended March 31, 2006.
|
·
|
Cornell
Debenture issued 5/6/04 in the face amount of
$400,000
|
·
|
Cornell
Debenture issued 6/24/04 in the face amount of
$500,000
|
·
|
Cornell
Debenture issued 9/28/04 in the face amount of
$400,000
|
·
|
Cornell
Debenture issued 4/6/05 in the face amount of
$400,000
|
·
|
Holland
et. al. Debentures issued 12/8/03 in the face amount of
$135,000
|
·
|
Holland
et. al. Debentures issued 12/22/03 in the face amount of
$250,000
|
·
|
Saporito
Debenture issued 1/29/04 in the face amount of
$100,000
|
·
|
Viola
Debenture issued 10/12/04 in the face amount of
$100,000
|
·
|
Highgate
House Funds Debenture issued 12/02/05 in the face amount of
$6,225,000
|
Business
|
Hotel
|
||||||
Services
|
Investment
|
||||||
Three
months ended March 31, 2007
|
|||||||
Revenue
|
$
|
252,867
|
$
|
-
|
|||
Loss
before income tax
|
(173,579
|
)
|
(223,592
|
)
|
|||
Segment
assets
|
1,787,757
|
5,006,852
|
|||||
Three
months ended March 31, 2006
|
|||||||
Revenue
|
$
|
865,533
|
$
|
-
|
|||
Loss
before income tax
|
3,349,181
|
-
|
|||||
Segment
assets
|
2,875,096
|
-
|
Three
months ended
|
Three
months ended
|
|||
March
31, 2007
|
March
31, 2006
|
|||
Net
cash provided by (used in) operating activities
|
$(347,607)
|
$46,494
|
||
Net
cash provided by investing activities
|
443,971
|
111,198
|
||
Net
cash used in financing activities
|
(20,336)
|
(4,554)
|
Operating
|
||||
Leases
|
||||
2007
|
53,143
|
|||
2008
|
74,032
|
|||
2009
|
74,032
|
|||
2010
|
8,058
|
|||
Total
minimum lease payments
|
$
|
209,265
|
1
|
We
have hired a part-time Chief Financial Officer and a contract part-time
bookkeeper to allow us to properly implement segregation of duties
necessary to maintain checks and balances between accounting and
executive
functions.
|
2
|
All
non-routine transactions will be reviewed by our part-time Chief
Financial
Officer and contract controller before they are
completed.
|
3
|
We
will emphasize enhancement of the segregation of duties based on
the
limited resources that we have, and, where practical, we will continue
to
assess the cost versus benefit of adding additional resources that
would
mitigate the situation. Our part-time Chief Financial Officer will
monitor
our accounting policies to ensure proper accounting for financial
derivatives and other unusual transactions on an ongoing
basis.
|
Date:
May 21, 2007
|
Turnaround
Partners, Inc.
|
|
(Registrant)
|
|
|
|
/s/
Timothy J Connolly
|
|
Timothy
J. Connolly
Chief
Executive Officer
|
|
Date:
May 21, 2007
|
Turnaround
Partners, Inc.
|
|
(Registrant)
|
|
|
|
/s/
Wm Chris Mathers
|
|
Wm
Chris Mathers
Chief
Financial Officer
|
|