CervoMed Inc. - Quarter Report: 2009 March (Form 10-Q)
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
|
x
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
FOR THE
QUARTERLY PERIOD ENDED MARCH 31, 2009
|
¨
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Commission
file number: 0000-24477
STRATUS
MEDIA GROUP, INC.
(Exact
name of Registrant as specified in its charter)
|
Nevada
|
#86-0776876
|
|
(State
of Incorporation)
|
(I.R.S.
Employer Identification No.)
|
8439 West
Sunset Boulevard, West Hollywood, CA 90069
(Address
of principal executive offices)
(323)
656-2222
(Issuer's
telephone number)
Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No ¨
Indiate by check mark whether the
registrant has submitted electronically and posted on its website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T during the preceding 12 months (or for such shorter period
registrant was required to submit and post such
files). Yes ¨ No o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of "large accelerated
filer," “accelerated filer,” and “smaller reporting company: in Rule 12b-2 of
the Exchange Act (Check one):
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Large
Accelerated Filer ¨
|
Accelerated
Filer ¨
|
|
|
Non-Accelerated
Filer (Do not check if smaller reporting
company) ¨
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Smaller
Reporting Company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
Indicate
the number of shares outstanding of each of the issuer’s classes of common stock
as of May 14, 2009: 57,689,687.
STRATUS
MEDIA GROUP, INC.
FORM
10-Q
MARCH
31, 2009
INDEX
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Page
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||
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Part
I – Financial Information
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3
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|
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Item
1.
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Financial
Statements
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3
|
|
Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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15
|
|
Item
3.
|
Qualitative
and Quantitative Disclosures About Market Risk
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18
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Item
4T.
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Controls
and Procedures
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18
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Part
II – Other Information
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19
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|
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Item
1.
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Legal
Proceedings
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19
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Item
IA.
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Risk
Factors
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19
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|
Item
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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19
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|
Item
3.
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Defaults
Upon Senior Securities
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19
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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19
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Item
5.
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Other
Information
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19
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Item
6.
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Exhibits
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20
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Signatures
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20
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Certifications
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2
PART I
— FINANCIAL INFORMATION ITEM I — FINANCIAL STATEMENTS
STRATUS
MEDIA GROUP, INC.
BALANCE
SHEETS
|
March
31,
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
(Unaudited)
|
||||||||
|
ASSETS
|
||||||||
|
Current
assets
|
||||||||
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Cash
|
$ | 212 | $ | 800 | ||||
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Restricted
cash
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162,855 | 162,855 | ||||||
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Receivables
|
10,165 | 10,165 | ||||||
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Deposits
and prepaid expenses
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35,861 | 35,861 | ||||||
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Inventory
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9,482 | 9,482 | ||||||
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Total
current assets
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218,575 | 219,163 | ||||||
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Property and equipment,
net
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2,080 | 2,469 | ||||||
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Intangible assets,
net
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4,056,003 | 4,067,355 | ||||||
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Goodwill
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1,073,345 | 1,073,345 | ||||||
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Total
assets
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$ | 5,350,003 | $ | 5,362,332 | ||||
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LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
|
Current
liabilities
|
||||||||
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Accounts
payable
|
$ | 667,618 | $ | 633,605 | ||||
|
Deferred
salary
|
60,000 | - | ||||||
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Accrued
interest
|
221,116 | 193,421 | ||||||
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Accrued
expenses - legal judgment
|
65,316 | 65,316 | ||||||
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Other
accrued expenses and other liabilities
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879,234 | 815,942 | ||||||
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Loans
payable to shareholders
|
735,127 | 767,488 | ||||||
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Current
portion of notes payable - related parties
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90,000 | 90,000 | ||||||
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Notes
payable
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319,517 | 319,517 | ||||||
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Event
acquisition liabilities
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913,760 | 913,760 | ||||||
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Redemption
fund reserve
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124,293 | 124,293 | ||||||
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Total
current liabilities
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4,075,981 | 3,923,342 | ||||||
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Non-current
liabilities
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||||||||
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Non-current
portion of notes payable - related parties
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1,000,000 | 1,000,000 | ||||||
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Total
liabilities
|
5,075,981 | 4,923,342 | ||||||
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Commitments
and contingencies
|
||||||||
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Shareholders'
equity
|
||||||||
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Preferred
stock, $0.01 par value: 5,000,000 shares authorized 0 and 0
shares issued and outstanding
|
- | - | ||||||
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Common
stock, $0.001 par value: 200,000,000 shares authorized
57,276,464 and 57,130,879 shares issued and outstanding,
respectively
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57,277 | 57,132 | ||||||
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Additional
paid-in capital
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15,397,830 | 15,154,541 | ||||||
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Stock
subscription receivable
|
(100,000 | ) | (100,000 | ) | ||||
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Accumulated
deficit
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(15,081,085 | ) | (14,672,683 | ) | ||||
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Total
shareholders' equity
|
274,022 | 438,990 | ||||||
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Total
liabilities and shareholders' equity
|
$ | 5,350,003 | $ | 5,362,332 | ||||
See
accompanying notes to financial statements.
3
STRATUS
MEDIA GROUP, INC.
STATEMENTS
OF OPERATIONS
(UNAUDITED)
|
Three
Months Ended March 31,
|
||||||||
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2009
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2008
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|||||||
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Net
revenues
|
||||||||
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Event
revenues
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$ | - | $ | 33,606 | ||||
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Stratus
revenues
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- | 5,533 | ||||||
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Total
revenues
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- | 39,139 | ||||||
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Cost
of revenues
|
||||||||
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Event
cost of sales
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- | 25,162 | ||||||
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Total
cost of sales
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- | 25,162 | ||||||
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Gross
profit
|
- | 13,977 | ||||||
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Operating
expenses
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||||||||
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General
and administrative
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319,497 | 143,745 | ||||||
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Legal
and professional services
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49,701 | 116,960 | ||||||
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Depreciation
and amortization
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11,743 | 14,507 | ||||||
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Total
operating expenses
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380,941 | 275,212 | ||||||
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Loss
from operations
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(380,941 | ) | (261,235 | ) | ||||
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Other
(income)/expenses
|
||||||||
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Other
(income)/expense
|
- | (374,053 | ) | |||||
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Interest
expense
|
27,460 | 46,745 | ||||||
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Total
other expenses
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27,460 | (327,308 | ) | |||||
|
Net
income/(loss)
|
$ | (408,401 | ) | $ | 66,073 | |||
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Basic
and diluted earnings per share
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$ | (0.01 | ) | $ | 0.00 | |||
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Basic
and diluted weighted-average common shares
|
57,249,712 | 50,329,343 | ||||||
See
accompanying notes to financial statements.
4
STRATUS
MEDIA GROUP, INC.
STATEMENTS
OF CASH FLOWS
(UNAUDITED)
|
Three
Months Ended March 31,
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||||||||
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2009
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2008
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|||||||
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(unaudited)
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(unaudited)
|
|||||||
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Cash
flows from operating activities:
|
||||||||
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Net
income/(loss)
|
$ | (408,401 | ) | $ | 66,073 | |||
|
Adjustments
to reconcile net income/(loss) to net cash used in operating
activities:
|
||||||||
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Depreciation
and amortization
|
11,743 | 14,507 | ||||||
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Expense
for value of stock issued in excess of value received
|
102,257 | - | ||||||
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Stock
compensation expense
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9,174 | - | ||||||
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Increase
/ (decrease) in:
|
||||||||
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Accounts
payable
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34,013 | (3,849 | ) | |||||
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Deferred
salary
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60,000 | 60,000 | ||||||
|
Accrued
interest
|
27,695 | 46,057 | ||||||
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Accrued
expenses - legal judgment
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- | (365,579 | ) | |||||
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Other
accrued expenses and other liabilities
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63,292 | 91,254 | ||||||
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Deferred
revenue
|
- | (5,535 | ) | |||||
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Net
cash used in operating activities
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(100,227 | ) | (97,072 | ) | ||||
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Cash
flows from financing activities:
|
||||||||
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Proceeds
from bank overdraft
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- | 6,006 | ||||||
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Payments
of line of credit
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- | (1,530 | ) | |||||
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Payments
on loans payable to shareholders
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(32,361 | ) | (7,600 | ) | ||||
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Proceeds
from issuance of common stock for cash
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132,000 | 100,000 | ||||||
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Net
cash provided by financing activities
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99,639 | 96,876 | ||||||
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Net
change in cash and cash equivalents
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(588 | ) | (196 | ) | ||||
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Cash
and cash equivalents, beginning of period
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800 | 196 | ||||||
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Cash
and cash equivalents, end of period
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$ | 212 | $ | - | ||||
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Supplemental
disclosure of cash flow information:
|
||||||||
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Cash
paid during the period for interest
|
$ | - | $ | - | ||||
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Cash
paid during the period for income taxes
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$ | - | $ | - | ||||
See
accompanying notes to financial statements.
5
STRATUS
MEDIA GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS
MARCH
31, 2009
(UNAUDITED)
|
1.
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Business
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Business
On March
14, 2008, pursuant to an Agreement and Plan of Merger dated as of August 20,
2007 by and among Feris International, Inc. (“Feris”), Feris Merger Sub, Inc.
and Patty Linson, on the one hand, and Pro Sports & Entertainment, Inc. , on
the other hand, Feris issued 49,500,000 shares of its common stock in exchange
for all of the issued and outstanding shares of the Stratus, resulting in
Stratus becoming a wholly-owned subsidiary of Feris and the surviving
entity for accounting purposes (“Reverse Merger”).
In July
2008, Feris’ corporate name was changed to Stratus Media Group, Inc.
(“Company”). Stratus, a California corporation, was organized on
November 23, 1998 and specializes in sports and entertainment events that it
owns, operates, manages, markets and sells in national markets. In addition,
Stratus acquired the business of Stratus Rewards, LLC (“Stratus”) in August
2005. Stratus is a credit card rewards program that uses the Visa
card platform that offers a unique luxury rewards redemption program, including
private jet travel, premium travel opportunities, exclusive events and luxury
merchandise. The sponsoring bank that ran the program when the
Company acquired Stratus stopped processing new members and sending the Company
statements in October 2007 and provided notice in March 2008 that it was
discontinuing the program. While several cardmembers are continuing
to use their cards with the sponsor bank, the Stratus Rewards program is
currently inactive and the Company has not recorded new revenues since October
2007. The Company is actively seeking a new sponsoring bank to
restart the program, but there can be no assurances that it will be able to do
so.
Management's
Plan of Operations
The
Company has suffered losses from operations and currently lacks liquidity to
meet its current obligations. The Company had a net loss for the
three months ended March 31, 2009 of $408,401 and net income for the three
months ended March 31, 2008 of $66,073. As of March 31,
2009, the Company had negative working capital of $3,857,406 and cumulative
losses of $15,081,085. Unless additional financing is obtained, the
Company may not be able to continue as a going concern. In the three months
ended March 31, 2009, the Company raised $120,000 in capital through the
issuance of common stock. The Company is actively seeking additional
capital. However, due to the current economic environment and the
Company’s current financial condition, we cannot assure current and future
stockholders there will be adequate capital available when needed and on
acceptable terms.
The
financial statements have been prepared on a going concern basis which
contemplates the realization of assets and the settlement of liabilities in the
normal course of business. The financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result if the Company becomes unable to continue as a going
concern.
|
2.
|
Basis
of Presentation and Significant Accounting
Policies
|
Basis
of Presentation
The
financial statements are unaudited and have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information, pursuant to the rules and regulations of the
Securities and Exchange Commission. Notes to the financial statements which
would substantially duplicate the disclosures contained in the financial
statements for the most recent fiscal year 2008 for the Company have been
omitted. The results of operations for the three months ended March 31,
2009 and 2008 are not necessarily indicative of the
results to be expected for the full year. These statements should be read in
conjunction with the financial statements and related notes which are part of
the Company's Report on Form 10-K, as amended, that included audited results for
the years ended December 31, 2008 and 2007.
Stock
Split
On March
14, 2008, the Board of Directors of the Company approved a 3.582 for 1.000
forward stock split of the PSEI's common stock. The effective date of the stock
split was March 14, 2008 and was concurrent with the Reverse Merger. All share
and per share information have been adjusted to give effect to the stock split
for all periods presented, including all references throughout the financial
statements and accompanying notes.
6
Net
Loss per Share
Basic and
diluted loss per share is based on the weighted-average number of shares of
common stock outstanding during the period. Diluted loss per share also includes
the effect of stock options and other common stock equivalents outstanding
during the period, and assumes the conversion of the Company's stock options and
warrants are dilutive. For the three months ended March 31, 2009, no potentially
dilutive shares have been excluded from diluted loss per share since the options
and warrants are out of the money and thus antidilutive.
|
3.
|
Litigation
|
In
connection with a settlement agreement in May 2005, a judgment was entered in
the Superior Court of the County of Los Angeles against the Company in favor of
the previous owners of the “Core Tour” event of $482,126 plus
interest. The dispute arose out of the Company’s asset purchase of
the “Core Tour” event from the plaintiffs. As of December 31, 2005,
the Company recorded the $482,126 amount of the judgment. On July 31,
2008, Stratus Management and Core Tour agreed to a settlement whereby Stratus
will retain all rights of the Core Tour events in exchange for payment of
$482,126 in cash by December 31, 2008 and 74,000 shares of Common Stock as
payment of interest. On December 31, 2008, the Company issued 102,840
shares of our common stock to the owners of the Core Tour as payment for accrued
interest on the judgment as of that date. These shares were valued at
the $163,516 based on the closing stock price of our common stock as of that
date, and accrued interest on the books of $172,993 was reversed, with the
difference going to other income. The Company is in negotiations
regarding payment of the $482,126.
In March
2008, a court case was overturned and dismissed for which a $365,579 reserve had
been established on the balance sheet. This reserve was reversed,
with the offset going to other income.
On August
18, 2008, two judgments totaling approximately $70,805 were entered against
Stratus related to wage claims for two former employees. This amount
was taken as an expense in the three months ended September 30,
2008.
In or
around October 2008, the Company was made aware by a third party that HollyRod
Foundation (“HollyRod”), a California non-profit corporation, filed a lawsuit in
the Superior Court of California, County of Los Angeles, seeking to collect
$100,000 of sponsorship fees related to the Company’s sponsorship of a function
held by HollyRod in Phoenix Arizona in January 2008 related to the Super
Bowl. In February 2009, Hollyrod filed a motion for summary judgment
with the court. The Company believes the case presented by HollyRod
is without merit and that HollyRod breached the agreement by failing to perform
on nearly all required actions required of HollyRod in the sponsorship
agreement. The Company has notified HollyRod that the Company has not been
properly served and, upon being properly served, the Company intends to
vigorously defend this action and believes it will prevail, but there can be no
assurance that it will do so. The Company has not taken a charge in the
three months ended March 31, 2009 for this action.
4. Acquisition
of Stratus Rewards
In August
2005, the Company acquired the business of Stratus Rewards, a credit card
rewards program.
The total
consideration for this acquisition was $3,000,000, with the Company entering
into a note payable of $1,000,000 and issuing 666,667 common shares valued at
$2,000,000. The note is payable in eight quarterly equal payments over a 24
month period, with the first payment due upon completion of the first
post-public merger funding of a minimum amount of $3,000,000.
The
results of operations of the business acquired have been included in the
Company’s Statements of Operations from the date of acquisition. Depreciation
and amortization related to the acquisition were calculated based on the
estimated fair market values and estimated useful lives for property and
equipment and an independent valuation for certain identifiable intangible
assets was acquired.
The
sponsoring bank that ran the program when the Company acquired Stratus Rewards
stopped processing new members and sending the Company statements in October
2007 and provided notice in March 2008 that it was discontinuing the
program. While several cardmembers are continuing to use their cards
with the sponsor bank, the Stratus Rewards program is currently inactive and the
Company has not recorded new revenues since October 2007. The Company
is seeking a new sponsoring bank to restart the program, but there can be no
assurances that it will be able to do so.
|
5.
|
Property
and Equipment
|
Property
and equipment as of March 31, 2009 (unaudited) and December 31, 2008 consisted
of the following:
7
|
March
31, 2009
|
December
31, 2008
|
|||||||
|
(unaudited)
|
||||||||
|
Computers
and peripherals
|
$
|
52,873
|
$
|
52,873
|
||||
|
Office
machines
|
11,058
|
11,058
|
||||||
|
Furniture
and fixtures
|
56,468
|
56,468
|
||||||
|
120,399
|
120,399
|
|||||||
|
Less: accumulated
depreciation
|
(118,319
|
)
|
(117,930
|
)
|
||||
|
$
|
2,080
|
$
|
2,469
|
|||||
For the
three months ended March 31, 2009 and 2008, depreciation expense was $390 and
$3,154, respectively.
6. Goodwill
and intangible assets
The
following sets forth the intangible assets of the Company as of March 31, 2009
(unaudited) and December 31, 2008:
|
March
31,
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
(unaudited)
|
||||||||
|
Intangible
Assets
|
||||||||
|
Events
|
||||||||
|
● Long
Beach Marathon
|
$ | 300,000 | $ | 300,000 | ||||
|
● Concours
on Rodeo
|
600,000 | 600,000 | ||||||
|
● Santa
Barbara Concours d'Elegance
|
243,000 | 243,000 | ||||||
|
● Cour
Tour/Action Sports Tour
|
1,067,069 | 1,067,069 | ||||||
|
● Freedom
Bowl
|
344,232 | 344,232 | ||||||
|
● Maui
Music Festival
|
725,805 | 725,805 | ||||||
|
● Athlete
Management
|
15,000 | 15,000 | ||||||
|
Total
- Events
|
3,295,106 | 3,295,106 | ||||||
|
Stratus
Rewards
|
||||||||
|
● Purchased
Licensed Technology, net of Accum. Amort. of $126,903 and
$92,293
|
219,197 | 227,849 | ||||||
|
● Membership
List, net of accum.amort. of $39,600 and $28,800
|
68,400 | 71,100 | ||||||
|
● Corporate
Partner List
|
23,300 | 23,300 | ||||||
|
● Corporate
Membership
|
450,000 | 450,000 | ||||||
|
Total
- Stratus Rewards
|
760,897 | 772,249 | ||||||
|
Total
Intangible Assets
|
$ | 4,056,003 | $ | 4,067,355 | ||||
In
accordance with SFAS No. 142, the Company’s goodwill and intangible assets,
other than the purchased licensed technology and the membership list for Stratus
Rewards, are considered to have indefinite lives and are not amortized, but
rather are subject to annual impairment tests. The Company’s annual impairment
testing date is December 31, but the Company monitors the facts and
circumstances for all intangible properties and will record an impairment if
warranted by adverse changes in facts and circumstances. As of December 31,
2008, the Company determined that the $255,000 value of the Snow & Ski
Tour, the $61,233 value of the Millrose games and $1,000,000 of
Stratus goodwill was impaired and these amounts were written off as of
that date with a charge taken to operating expenses. The
purchased licensed technology and membership list are being amortized over their
estimated useful life of 10 years. For the three months ended March
31, 2009 and 2008, amortization expense was $11,352 and $11,352,
respectively.
7. Other
accrued expenses and other liabilities
Other accrued liabilities at March 31,
2009 (unaudited) and December 31, 2008 consisted of the following:
8
|
March
31,
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
(unaudited)
|
||||||||
|
Professional
fees
|
$ | 137,408 | $ | 128,908 | ||||
|
Travel
expenses
|
177,218 | 147,509 | ||||||
|
Consultants
fees
|
236,452 | 217,199 | ||||||
|
Payroll
tax liabilities
|
272,447 | 270,047 | ||||||
|
Other
|
55,709 | 52,279 | ||||||
|
Total
accrued liab
|
$ | 879,234 | $ | 815,942 | ||||
8.
Loans payable to shareholders
The Loans Payable to Shareholders
represents a loan from the Company’s President and amounted to the following at
March 31, 2009 (unaudited) and December 31, 2008:
|
March
31,
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
(unaudited)
|
||||||||
|
Loans
payable to shareholders, due on demand, with an interest rate
of 9.5%
|
$ | 735,127 | $ | 767,488 | ||||
Interest
expense on loans to shareholders for the three months ended March 31, 2009 and
2008 was $17,508 and $23,930, respectively.
9. Notes
payable to related parties
Notes Payable to Related Parties at
March 31, 2009 (unaudited) and December, 2008 consisted of the
following:
9
|
March
31,
|
December
31,
|
||||||||
|
2009
|
2008
|
||||||||
|
(unaudited)
|
|||||||||
|
●
|
Note
payable to shareholder (unsecured), dated
|
||||||||
|
January
14, 2005, with maturity date of May 14, 2005.
|
|||||||||
|
The
principal amount and accrued interest were payable
|
|||||||||
|
on
May 14, 2005, plus interest at 10% per
annum. This
|
|||||||||
|
note
is currently in default.
|
$ | 70,000 | $ | 70,000 | |||||
|
●
|
Note
payable to shareholder (unsecured), dated
|
||||||||
|
February
1, 2005, with maturity date of June 1, 2005.
|
|||||||||
|
The
principal amount and accrued interest were payable
|
|||||||||
|
on
June 1, 2005, plus interest at 10% per
annum. This
|
|||||||||
|
note
is currently in default.
|
10,000 | 10,000 | |||||||
|
●
|
Note
payable to shareholder (unsecured), dated
|
||||||||
|
February
5, 2005, with maturity date of June 5, 2005.
|
|||||||||
|
The
principal amount and accrued interest were payable
|
|||||||||
|
on
June 5, 2005, plus interest at 10% per
annum. This
|
|||||||||
|
note
is currently in default.
|
10,000 | 10,000 | |||||||
|
●
|
Note
payable to shareholder related to purchase of
|
||||||||
|
of
Stratus. The note is payable in eight quarterly
equal
|
|||||||||
|
payments
over a 24 month period, with the first payment
|
|||||||||
|
due
upon completion of the first post-public merger
|
|||||||||
|
funding,
with such funding to be at a minimum amount
|
|||||||||
|
of
$3,000,000.
|
1,000,000 | 1,000,000 | |||||||
|
Total
|
1,090,000 | 1,090,000 | |||||||
|
Less:
current portion
|
90,000 | 90,000 | |||||||
|
Long-term
portion
|
$ | 1,000,000 | $ | 1,000,000 | |||||
For the
three months ended March 31, 2009 and 2008, the Company incurred interest
expense on these Notes Payable to Related Parties of $2,250 and $2,250,
respectively.
10. Notes
payable
The Notes Payable at March 31, 2009
(unaudited) and December 31, 2008 consisted of the following:
10
|
March
31,
|
December
31,
|
||||||||
|
2009
|
2008
|
||||||||
|
(unaudited)
|
|||||||||
|
●
|
Note
payable to non-shareholder (unsecured),
|
||||||||
|
date
January 19, 2005 with maturity date of
|
|||||||||
|
May
19, 2005. The principal amount and accrued
|
|||||||||
|
interest
were payable June 1, 2005, plus interest
|
|||||||||
|
at
10% per annum. This note is currently in
default.
|
$ | 125,000 | $ | 125,000 | |||||
|
●
|
Note
payable to a shareholder (unsecured)
|
||||||||
|
$100,000
made in August 2008 and $84,517
|
|||||||||
|
made
after November 2008. Payable on demand
|
|||||||||
|
and
bears interest at 10% per annum.
|
184,517 | 184,517 | |||||||
|
●
|
Note
payable to non-shareholder
|
||||||||
|
(unsecured). Payable
on demand and
|
|||||||||
|
does
not bear interest
|
10,000 | 10,000 | |||||||
|
Total
|
$ | 319,517 | $ | 319,517 | |||||
For the
three months ended March 31, 2009 and 2008, the Company incurred interest
expense on these Notes Payable of $7,938 and $7,825, respectively.
11. Event
acquisition liabilities
The
following sets forth the liabilities, in relation to the acquisition of events
(refer to Note 6), assumed by the Company as of March 31, 2009 (unaudited) and
December 31, 2008:
|
March
31,
|
December
31,
|
||||||||
|
2009
|
2008
|
||||||||
|
(unaudited)
|
|||||||||
|
●
|
Concours
on Rodeo
|
$ | 430,043 | $ | 430,043 | ||||
|
●
|
Core
Tour/Action Sports Tour
|
483,717 | 483,717 | ||||||
| $ | 913,760 | $ | 913,760 | ||||||
12. Redemption
fund reserve
The
redemption fund reserve records the liabilities related to the Company’s
obligations to pay for the redemption of rewards from the Stratus credit card
rewards program.
13. Related
party transaction
From
prior to fiscal year 2006 through the present, the Company has rented office
space owned by the Chairman, President and Chief Executive Officer of the
Company. The total rent expense accrued by the Company in the three months ended
March 31, 2009 and 2008 was $12,000 and $12,000, respectively. The
Company believes that such rents are at or below prevailing market rates and
continues to rent this space.
14. Shareholders’
Deficit
Common
Stock
On March
14, 2008, pursuant to an Agreement and Plan of Merger dated as of August 20,
2007 (the “Merger Agreement”) by and among Feris International, Inc. (“Feris”),
Feris Merger Sub, Inc. and Patty Linson, on the one hand, and Pro Sports &
Entertainment, Inc. (“PSEI”), on the other hand, Feris issued 49,500,000 shares
of its common stock in exchange for all of the issued and outstanding shares of
the PSEI, resulting in a “reverse merger” in which PSEI became a
wholly owned subsidiary of Feris and is the surviving entity for accounting
purposes.
11
During
the three months ended March 31, 2009 and 2008 the Company raised $120,000 and
$380,000, respectively, through the issuance of 145,580 and 453,728 shares of
common stock, respectively. Of the stock sold for
the three months ended March 31, 2008, $100,000 was collected during those three
months and the remaining $280,000 was collected subsequently.
Stock
Options
Total
non-cash stock option expense for the three months ended March 31, 2009 and 2008
was $0 and $1,713,369, respectively. On January 1, 2007 we granted
4,862,895 options to purchase shares of our common stock that vested upon grant
and we recognized $1,713,369 in expense related to these options in 2007, which
was the entire value of the options since they were fully vested.
The fair
value of the option granted on January 1, 2007 was estimated as of the grant
date using the Black-Scholes option pricing model with the following
assumptions:
|
2007
|
||||
|
RiskRisk-free
interest rate
|
4.68 | % | ||
|
ExpExpected
life of option-years
|
5.0 | |||
|
ExpExpected
stock price volatility
|
70 | % | ||
|
ExpExpected
dividend yield
|
— | |||
The
risk-free interest rate is based on U.S. Treasury interest rates, the terms of
which are consistent with the expected life of the stock options. For the option
granted January 1, 2007, expected volatility is based upon an average
volatility of comparable public companies, since our common stock was not
publicly traded at that time. There were no option grants in
2008. Future option grants will be calculated using expected
volatility based upon the average volatility of our common stock.
We did
not recognize any share-based payment expense in the year ended December 31,
2008.
The
following table sets forth the activity of our stock options to purchase common
stock:
|
Options Outstanding
|
Options Exercisable
|
|||||||||||||||||||||||
|
|
Range of
Exercise Prices
|
Options
Outstanding
|
Weighted
Average
Remaining
Life in
Years
|
Weighted
Average
Exercise
Price
|
Options
Exercisable
|
Weighted
Average
Exercise
Price of
Options
Exercisable
|
||||||||||||||||||
|
Year
As of March 31, 2009
|
$ |
1.79-$10.75
|
5,738,509 | 3.0 | 2.42 | 5,738,509 | 2.42 | |||||||||||||||||
Warrants
During
2005, the Company granted warrants with rights to purchase 43,283 shares of its
common stock with a strike price of $0.84 cents per share. These warrants have
terms of five years and the exercise prices for these warrants are to be the
share prices applicable in the next Company Financing after February 2005 as a
result of the Reverse Merger. The warrants will expire in 2010. The Company
valued these warrants, using the Black-Scholes option pricing model, at December
31, 2006 and 2005, at $15,562 and $15,562, respectively, and included this
liability in other accrued expenses and other liabilities. There were
no warrants granted in fiscal 2008 or the three months ended March 31,
2009.
These
warrants were granted as financing costs related to notes payable agreements
with two shareholders and one non-shareholder. The warrants are accounted for as
financing costs which were capitalized and amortized over the five-year life of
the debt. Total amortization expense for the three months ended March 31, 2009
and 2008 were $0 and $1,813, respectively.
The
Company analyzed these warrants in accordance with EITF pronouncement No. 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock”. The Company determined that the warrants
should be classified as a liability based on the fact that the number of shares
attributable to these warrants is indeterminate.
In
connection with the sale of common stock during the three months ended March 31,
2009, five-year warrants were issued to purchase a total of 9,900 shares of our
common stock at $2.00 and there were no warrants issued during the three months
ended March 31, 2009. At the respective times of issuance, these
warrants were valued at $9,177, which was taken as an operating expense, using
the Black-Scholes option pricing model using the following
assumptions:
12
|
3
Months Ended
March
31, 2009
|
||||
|
RiskRisk-free
interest rate range
|
1.66-2.07
|
%
|
||
|
ExpExpected
life of option-years
|
5.0
|
|||
|
ExpExpected
stock price volatility
|
76.5
|
%
|
||
|
ExpExpected
dividend yield
|
—
|
|||
15. Commitments
and contingencies
Office
space rental
Rent
expense for the three months ended March 31, 2009 and 2008 amounted to $46,200
and $12,000, respectively.
Effective
April 1, 2008, the Company entered into a lease for office space in West
Hollywood, California with a security deposit of $34,200 at a monthly rate of
$8,500 from April 1, 2008 to October 31, 2008, and a monthly rent of $11,400 per
month from November 1, 2008 until the end of the lease at June 30,
2010.
Contractural
obligations
Set forth
below is information concerning our known contractual obligations as of
March 31, 2009 that are fixed and determinable.
|
Total
|
2009
|
2010
|
2011
|
|||||||||||||
|
Debt
obligations*
|
$ | 1,000,000 | $ | 375,000 | $ | 500,000 | $ | 125,000 | ||||||||
|
Rent
obligations
|
301,200 | 184,800 | 116,400 | - | ||||||||||||
|
Total
|
$ | 1,301,200 | $ | 559,800 | $ | 616,400 | $ | 125,000 | ||||||||
* Debt
incurred in connection with acuiqisition of Stratus. Repayment is
triggered by first funding of at least $3,000,000. For purposes of
this schedule such funding is assumed to occur by June 30, 2009
Employment
Agreement
The
Company has an Employment Agreement (“Agreement”), dated January 1, 2007, with
its President and Chief Executive Officer, which requires the Company to offer a
non-qualified stock option to purchase 10% of the fully diluted shares of the
Company’s capital stock issued and outstanding on January 1, 2007, the effective
date of the Agreement. The stock option has a term of five years at
an exercise price of $1.79 per share for 4,862,894 shares (which was equal to
the fair value) and vested immediately on the date of the agreement. This stock
option is subject to a customary anti-dilution provision with respect to any
stock splits, mergers, reorganizations and other such events. The length of this
Agreement is five years from the effective date unless the employment is
terminated for another cause. During the duration of this Agreement, the Chief
Executive Officer is entitled to an annual salary of $240,000 and a bonus of
$250,000 in the event a Valuing Event causes the Company to be valued in excess
of $100,000,000 and an additional bonus of $500,000 in the event a Valuing Event
causes the Company to be valued in excess of $500,000,000. For the quarter ended
March 31, 2009 and the year ended December 31, 2008, no bonuses have been paid
by the Company in relation to this Agreement.
Acquisitions
On April
21, 2008, the Company agreed to purchase the tangible and intangible assets of
Nouveau Model Talent Management, Inc. (“Nouveau”), a modeling and talent
management agency, for 500,000 shares of Company common stock, of which 166,667
shares will be issued at the time of closing, 166,667 shares will be issued one
year from closing and the remaining 166,666 shares will be issued two years from
closing. The closing of this transaction requires that Nouveau comply
with the conditions for closing in the agreement which include, but are not
limited to, obtaining an audit of its 2006 and 2007 financial statements and a
review of its financial statements for the three months ended March 31,
2008. To date, Nouveau has not obtained this audit and review and the
transaction has not closed.
On July
30, 2008, the Company signed a definitive purchase agreement to acquire 100% of
the common stock of Exclusive Events S.A., a privately held corporation based in
Geneva, Switzerland that provides Formula One racecar experiences to its
customers, in a cash and stock transaction with an aggregate base value of
approximately $1,612,000, with $1,128,000 in cash and $484,000 in shares of the
Company’s common stock, with the number of such shares to be determined by
dividing this amount by the average closing price of the Company’s common stock
for thirty days prior to the closing of the transaction. In addition,
if Exclusive Events meets certain financial performance criteria for 2008 and
2009, additional payments totaling $1,612,000, subject to certain conditions and
adjustments, will be due, with $484,000 in cash and $1,128,000 in shares of the
Company’s common stock, with the number of shares to be determined by dividing
the amount due by the average closing price of the Company’s common stock for
thirty days prior to the computation of the performance bonus. The
transaction is subject to customary conditions and approvals and the Company’s
ability to fund the cash portion of the purchase price. This
agreement expired on December 15, 2008, but the Company is in negotiations to
extend the expiration date and make changes to the agreement.
13
|
16.
|
Subsequent
Events
|
Subsequent to March 31, 2009, the
Company entered into a subscription agreement to sell 413,223 shares of its
common stock for $500,000 and issued warrants to purchase 37,500
shares of its common stock for $2.00. These warrants have a five-year
life. As of May 14, 2009, $141,500 has been received pursuant to this
stock subscription agreement.
On May 1,
2009, the Company entered into a lease agreement for approximately 1,800 square
feet of office space in Santa Barbara, California for use as its executive
offices. The lease expires on January 1, 2011 with a three-year
renewal term available at an initial rent plus common area charges of
approximately $4,400. The Company intends to retain a portion of its
current office space in West Hollywood, California for sales and marketing use
and is currently in negotiations with the owner of that property to
significantly reduce its leased space and rents at that location.
14
ITEM
2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Forward-Looking
Statements
This
report contains 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. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or anticipated results, including those set forth under
“Certain Factors That May Affect Future Results” below and elsewhere in, or
incorporated by reference into, this report.
In
some cases, you can identify forward-looking statements by terms such as “may,”
“intend,” “might,” “will,” “should,” “could,” “would,” “expect,” “believe,”
“anticipate,” “estimate,” “predict,” “potential,” or the negative of these
terms, and similar expressions are intended to identify forward-looking
statements. When used in the following discussion, the words “believes,”
“anticipates” and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties,
which could cause actual results to differ materially from those projected.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The forward-looking
statements in this report are based upon management’s current expectations and
belief, which management believes is reasonable. These statements represent our
estimates and assumptions only as of the date of this Quarterly Report on Form
10-Q, and we undertake no obligation to publicly release the result of any
revisions to these forward-looking statements, which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
The
following discussion relates to the operations of Stratus and should be read in
conjunction with the Notes to Financial Statements.
Description
of Business
Overview
On March
14, 2008, pursuant to an Agreement and Plan of Merger dated as of August 20,
2007 by and among Feris International, Inc. (“Feris”), Feris Merger Sub, Inc.
and Patty Linson, on the one hand, and Pro Sports & Entertainment, Inc.
(“PSEI”), on the other hand, Feris issued 49,500,000 shares of its common stock
in exchange for all of the issued and outstanding shares of the PSEI, resulting
in PSEI becoming a wholly-owned subsidiary of Feris and is the surviving entity
for accounting purposes (“Reverse Merger”). In July 2008, Feris’
corporate name was changed to Stratus Media Group, Inc. (“Stratus” or
“Company”). The Company is based in Los Angeles, California and
remains a Nevada corporation.
PSEI, a
California corporation, was organized in November 1998 and specializes in sports
and entertainment events that it owns, and intends to operate, manage, market
and sell in national markets. In addition, Stratus acquired the business of
Stratus Rewards, LLC (“Stratus Rewards”) in August 2005. Stratus
Rewards is a credit card rewards marketing program that uses the Visa card
platform that offers a unique luxury rewards redemption program, including
private jet travel, premium travel opportunities, exclusive events and luxury
merchandise.
The
business plan of Stratus is to own and operate 100% of all event revenue rights
and derive its revenue primarily from ticket and admission sales, corporate
sponsorship, television, print, radio, on-line and broadcast rights fees,
merchandising, and hospitality activities. With additional funding,
the objective of management is to build a profitable business by implementing an
aggressive acquisition growth plan to acquire quality companies, build corporate
infrastructure, and increase organic growth. The plan is to leverage
operational efficiencies across an expanded portfolio of events to reduce costs
and increase revenues. The Company intends to promote the Stratus
Rewards card and its events together, obtaining maximum cross marketing benefit
among card members, corporate sponsors and Stratus events.
Stratus
is using a “roll up” strategy, targeting sports and live entertainment events
and companies that are independently owned and operated or being divested by
larger companies with the plan to aggregate them into one large leading live
entertainment company. The strategy is to purchase these events for
approximately four to six times Earnings Before Interest, Taxes, Depreciation
and Amortization (“EBITDA”) of the events, with the expectation that the
combined EBITDA of the Company from these events will receive a higher valuation
multiple in the public markets.
Assuming
the availability of capital, Stratus is targeting acquisitions of event
properties. The goal is to aggressively build-up a critical mass of
events, venues and companies that allow for numerous cross-event
synergies. Specifically:
|
|
·
|
On
the expense side, to share sales, financial and operations resources
across multiple events, creating economies of scale, increasing the
Company’s purchasing power, eliminating duplicative costs, and bringing
standardized operating and financial procedures to all events, thus
increasing the margins of all
events.
|
15
|
|
·
|
On
the revenue side, to present advertisers and corporate sponsors an
exciting and diverse menu of demographics and programming that allows
sponsors “one stop shopping” rather than having to deal with each event on
its own, and in so doing, convert these sponsors into “strategic
partners.”
|
With
these core operational synergies and subject to available capital, Stratus
intends to (1) expand its acquisition strategy of additional live sports and
entertainment events and companies, (2) create entirely new event properties on
the forefront of the “experience economy” and thus tap into people’s lifestyle
passions, and (3) cross-promote the Stratus Rewards Visa card with these events
to enhance the results of the card and event businesses.
The
business plan of Stratus is to provide integrated event management, television
programming, marketing, talent representation and consulting services in the
sports and other live entertainment industries. Stratus’s event
management, television programming and marketing services may
involve:
|
|
·
|
managing
sporting events, such as college bowl games, golf tournaments and auto
racing team and events;
|
|
|
·
|
managing
live entertainment events, such as music festivals, car shows and fashion
shows;
|
|
|
·
|
producing
television programs, principally sports entertainment and live
entertainment programs; and
|
|
|
·
|
marketing
athletes, models and entertainers and
organizations.
|
Description
of our Revenues, Costs and Expenses
Revenues
Our
revenues represent event revenues from ticket sales, sponsorships,
concessions and merchandise, which are recorded when the event occurs, and
Stratus revenues from membership fees, fees on purchases and interest income
earned on the redemption trust. Membership fees are amortized over
the twelve month period and fees from purchases and interest income are recorded
when they occur.
Gross
Profit
Our gross
profit represents revenues less the cost of sales. Our event cost of sales
consists of the costs renting the venue, structures at the venue, concessions,
and temporary personnel hired for the event. Cost of sales for the
Stratus program are nominal.
Operating
Expenses
Our
selling, general and administrative expenses include personnel, rent, travel,
office and other costs for selling and promoting events and running the
administrative functions of the Company. Legal and professional
services are paid to outside attorneys, auditors and consultants are broken out
separately given the size of these expenses relative to selling, general and
administrative expenses. Operating expenses also include the non-cash
expenses for the value of common stock issued above the value of consideration
received and the Black-Sholes costs of options and warrants.
Interest
Expense
Our
interest expense results from accruing interest on a court judgment, loans
payable to shareholders, current portion of notes payable-related parties and
notes payable.
The
following discussion relates to the operations of Stratus and should be read in
conjunction with the Notes to Financial Statements.
Results
of Operations for the Three Months Ended March 31, 2009
Revenues
Revenues for the three months ended
March 31, 2009 (“Current Period”) were $0, a decrease of $39,139, or
100%, from the $39,139 in revenues realized for the three months ended March 31,
2008 (“Prior Period”). There were no event revenues in the Current
Period and there were $33,606 of event revenues in the Prior
Period. This decrease was related to revenues from a promotional
event held in the Prior Period that did not occur in the Current
Period. Stratus card revenues were $0 in the Current Period, a
decrease of $5,533, or 100%, from the Prior Period. The sponsoring
bank that ran the program when the Company acquired Stratus stopped providing
the Company with statements in October 2007 and formally discontinued the
program in March 2008. The Stratus Rewards program is currently
inactive and the Company is actively seeking a new sponsoring bank to restart
the program.
16
Gross
Profit
There was
$25,162 of event cost of sales for the Prior Period, resulting in gross profit
for events of $13,977, or 35.7% of revenues.
Operating
Expenses
Overall
operating expenses for the Current Period were $380,941, an increase of
$105,729, or 38%, from $275,212 in the Prior Period. General and
administrative expenses of $319,497 increased by $175,752, or 122%, from
$143,745 in the Prior Period, related to higher consulting fees of $27,020
in the Current Period for higher hours needed to conclude the 2008 and 2007
audits and the Company’s first Annual Report on Form 10K, $34,200 of additional
rent expense in the Current Period related to the West Hollywood office space,
and $102,257 in non-cash charges for the value of common stock sold over the
value received. Legal and professional services of $49,701 decreased
by $67,259, or 58%, from $116,960 in the Prior Period, primarily related to the
higher levels of legal activity in the Prior Period related to the Company’s
reverse merger and initial SEC filing in the Prior
Period. Depreciation and amortization remained relatively constant
with $11,743 in the Current Period, compared with $14,507 in the Prior
Period.
Other
Income
Other
income decreased by $374,053, or 100%, in the Current Period from a net gain of
$374,053 in the Prior Period to $0 in the Current Period. The Prior
Period included a $365,579 gain from reversing an accrual for legal judgment
when the related court case was dismissed.
Interest
Expense
Interest
expense was $27,460 in the Current Period, a decrease of $19,285, or 41%, from
$46,745 in the Prior Period, primarily related to the use of common stock to
reduce interest-bearing debt to stockholders and the elimination of interest on
the Core Tour settlement on December 31, 2008
Liquidity
and Capital Resources
The
report of our independent registered public accounting firm on the financial
statements for the years ended December 31, 2008 and 2007 contains an
explanatory paragraph expressing substantial doubt about our ability to continue
as a going concern as a result of recurring losses, a working capital
deficiency, and negative cash flows. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that would be necessary
if we are unable to continue as a going concern.
During
the three months ended March 31, 2009, we sold 145,580 shares to investors for
$132,000. The Company is actively pursuing equity capital and is
targeting an initial raise of $2 million to $5 million or more. The
proceeds raised will be used for operational expenses, settling existing
liabilities, acquisitions and selling expenses. Due to our history of
operating losses and the current credit constraints in the capital markets, we
cannot assure you that such financing will be available to us on favorable
terms, or at all. If we cannot obtain such financing, we will
be forced to curtail our operations or may not be able to continue as a going
concern, and we may become unable to satisfy our obligations to our creditors.
In such an event we will need to enter into discussions with our creditors to
settle, or otherwise seek relief from, our obligations.
At March
31, 2009, our principal sources of liquidity consist of advances of funds from
officers, increases in accounts payable and accrued expenses, and the issuance
of equity securities. In addition to funding operations, our
principal short-term and long-term liquidity needs have been, and are expected
to be, the settling of obligations to our creditors, capital expenditures, the
funding of operating losses until we achieve profitability, and general
corporate purposes. In addition, commensurate with our level of sales, we
require working capital for purchases of inventories and sales and marketing
costs to increase the promotion and distribution of our products. At March 31,
2009, our cash and cash equivalents were $212, and we had negative working
capital of $3,857,406. At March 31, 2009, we had $2,144,644 in debt
obligations (comprised of $735,127 loan to shareholder, $1,090,000 notes payable
to related parties and $319,517 in notes payable), all of which is due upon
demand, and $215,000 is in default for non-payment.
Cash
Flows
The
following table sets forth our unaudited cash flows for the three months ended
March 31:
17
|
Three
Months Ended March 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
(unaudited)
|
(unaudited)
|
|||||||
|
Operating
activities
|
$ | (100,227 | ) | $ | (97,072 | ) | ||
|
Investing
activities
|
- | - | ||||||
|
Financing
activities
|
99,639 | 96,876 | ||||||
|
Total
change
|
$ | (588 | ) | $ | (196 | ) | ||
Operating
Activities
Operating
cash flows for the three months ended March 31, 2009 reflects the net loss of
$408,401, offset by changes in working capital of $185,000, depreciation and
amortization of $11,743, non-cash expenses of $9.174 for the Black-Scholes cost
of warrant issuance, and non-cash expense of $102,257 for the value of stock on
the day of the sale of common stock over the value received.
Operating
cash flows for the three months ended March 31, 2008 reflects the net income of
$66,073, offset by changes in working capital of $148,638 and non-cash items
(depreciation and amortization) of $14,507. The change in working capital is
primarily related to reversing a $365,579 reserve for a legal action that was
dismissed, offset by increases in deferred salary, accrued interest and other
accrued expenses.
Investing
Activities
Capital
constraints resulted in no cash used in investing activities during either
period.
Financing
Activities
During
the three months ended March 31, 2009, we received cash proceeds of
$132,000 and used $32,361 to partially repay loans to shareholders for net cash
proceeds of $99,639. During the three months ended March 31, 2009 we
received $100,000 and used a net of $3,124 to repay debt obligations, for net
proceeds of $96,876.
Off
Balance Sheet Arrangements
We have
no off balance sheet arrangements.
|
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
Not applicable
|
ITEM
4T.
|
CONTROLS
AND PROCEDURES
|
(a) Evaluation
of disclosure controls and procedures.
Our chief
executive officer and chief financial officer have evaluated our “disclosure
controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) of the
Exchange Act) as of March 31, 2009. These officers have concluded that our
disclosure controls and procedures were not effective as of March 31, 2009 to
ensure that information required to be disclosed by the Company in reports that
it files or submits under the Exchange Act, is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission (“SEC”) rules and forms. Management believes there is
non-compliance with controls that affects the integrity and timeliness of the
Company’s financial statements. However, the Company has used extensive review
following the closing date of the financial statements to ensure the integrity
of the statements. The Company intends to continue to evaluate its
disclosure controls and procedures, and make needed improvements.
(b) Changes
in internal controls.
There
have been no changes made in our internal controls over financial reporting that
have materially affected, or are reasonably likely to affect, our internal
control over financial reporting.
18
PART
II – OTHER INFORMATION
|
ITEM
1.
|
LEGAL
PROCEEDINGS
|
In
connection with a settlement agreement about May 27, 2005, a judgment was
entered in the Superior Court of the County of Los Angeles against the Company
in favor of the previous owners of the “Core Tour” event, in the amount of
$482,126 plus interest. The dispute arose out of the Company’s asset
purchase of the “Core Tour” event from the plaintiffs. As of December
31, 2008, the Company has recorded the $482,126 amount of the
judgment. On July 31, 2008, Stratus Management and Core Tour have
agreed to a settlement whereby Stratus will retain all rights of the Core Tour
events in exchange for payment of $482,126 in cash by December 31, 2008 and
74,000 shares of Common Stock as payment of interest. On December 31,
2008, the Company issued 102,840 shares of our common stock to the owners of the
Core Tour as payment for accrued interest on the judgment as of that
date. These shares were valued at the $163,516 based on the closing
stock price of our common stock as of that date, and accrued interest on the
books of $172,993 was reversed, with the difference going to other
income. The Company is in negotiations regarding payment of the
$482,126.
In March
2008, a court case was overturned and dismissed for which a $365,579 reserve had
been established on the balance sheet. This reserve was reversed,
with the offset going to other income.
On August
18, 2008, two judgments totaling approximately $70,805 were entered against
Stratus related to wage claims for two former employees. This amount
was taken as an expense in the three months ended September 30,
2008.
In or
around October 2008, the Company was made aware by a third party that HollyRod
Foundation (“HollyRod”), a California non-profit corporation, had filed a
lawsuit in the Superior Court of California, County of Los Angeles, seeking to
collect $100,000 of sponsorship fees related to the Company’s sponsorship of a
function held by HollyRod in Phoenix Arizona in January 2008 related to the
Super Bowl. In February 2009, Hollyrod filed a motion for summary
judgment with the court. The Company believes the case presented by
HollyRod is without merit and that HollyRod breached the agreement by failing to
perform on nearly all required actions required of HollyRod in the sponsorship
agreement. The Company has notified HollyRod that the Company has not been
properly served and, upon being properly served, the Company intends to
vigorously defend this action and believes it will prevail, but there can be no
assurance that it will do so. The Company has not taken a charge in the
twelve months ended December 31, 2008 for this action.
|
ITEM
1A.
|
RISK
FACTORS
|
Not applicable.
|
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
Between
January 7, 2009 and March 6, 2009, the Company raised $120,000 through the
issuance of 145,580 shares of common stock to three accredited
investors. No commissions were paid on these sales.
All
securities were issued pursuant to an exemption from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2)
and Regulation D, given that these sales were made to accredited investors under
a written subscription agreement in which such investors acknowledged that the
shares were being purchased for investment purposes and that the certificates
evidencing such stock ownership would contain a restrictive legend.
|
ITEM
3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
None.
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
None
|
ITEM
5.
|
OTHER
INFORMATION
|
None
19
|
ITEM
6.
|
EXHIBITS
|
|
Exhibit No.
|
Exhibit
Description
|
|
|
31.1
|
Certification
by the Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) under
the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
|
|
31.2
|
Certification
by the acting Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)
under the Securities Exchange Act of 1934 as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
|
|
|
32.1
|
Certification
by the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
32.2
|
Certification
by the acting Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
STRATUS
MEDIA GROUP, INC.
|
||
|
By:
|
/s/ Paul Feller
|
|
|
Name: Paul
Feller
|
||
|
Title: Chief
Executive Officer
|
||
|
Date: May
14, 2009
|
|
By:
|
/s/ John Moynahan
|
|
|
Name: John
Moynahan
|
||
|
Title: Acting
Chief Financial Officer
|
||
|
Date: May
14, 2009
|
20