<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Amendment No. 1 to
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
COLLEGE BOUND STUDENT ALLIANCE, INC.
(Name of Small Business Issuer in its charter)
COLORADO 84-1416023
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5275 DTC PARKWAY, SUITE 110, ENGLEWOOD, COLORADO 80111-5275
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (303) 804-0155
Securities to be registered under Section 12(b) of the Act: NONE
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK, $0.001 PAR VALUE
(Title of class)
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
College Bound Student Alliance, Inc. (the "Company") was organized
under the laws of the State of Colorado on July 15, 1993 under the name Winter
Park Ventures, Inc. On April 22, 1997, the Company changed its name to
SportsStar Marketing, Inc. On July 13, 1999, the Company changed its name to
College Bound Student Alliance, Inc. The Company, using a staff of regional
directors and sales representatives nationwide, represents high school students
and student-athletes seeking financial, informational, recruiting, and
admissions assistance to attend college. The Company's offices are located at
5275 DTC Parkway, Suite 110, Englewood, Colorado 80111-5275, and its telephone
number is (303) 804-0155.
The Company was dormant until 1997. In June 1997, the Company
entered into an agreement with National College Recruiting Association, Inc.
("NCRA"), a wholly-owned subsidiary of Chartwell International, Inc.
Chartwell International was at the time and still is a principal stockholder
of the Company. NCRA granted the Company an exclusive license for the use,
rights, and interests in and to all of the assets constituting the business
of NCRA, along with the rights to sell new and service existing franchises of
NCRA and to publish the BLUE CHIP ILLUSTRATED magazine. NCRA owns the rights
to a program to promote high school athletes to colleges in the pursuit of
broadening exposure and choice of schools as well as increasing their
opportunities for scholarship money. The program's principal method of
promotion is through profiles prepared and distributed to various colleges.
The term of the Agreement is for five years, with unlimited five-year
renewals under the same terms and conditions. As consideration for the
license, the Company agreed to pay NCRA an initial payment of $150,000 and
2.5% of the gross revenues realized from the business operations of NCRA. An
additional license fee of $100,000 is to be paid to NCRA upon receipt of
additional financing by the Company.
In April 1999, the Company acquired College Bound Student-Athletes,
Inc., a Wisconsin corporation ("CBS-Athletes"), for $1,307,000, consisting of
$1,040,000 debt, 545,000 shares of the Company's common stock, and an option to
purchase up to 500,000 shares of the Company's common stock at $.50 per share.
Additional payments of up to $1.1 million and options to purchase 500,000 shares
of the Company's common stock could be made upon CBS-Athletes achieving certain
performance thresholds. It is presently uncertain whether such performance
thresholds will be met, but additional consideration, if any, will be recorded
if and when said thresholds are met.
SERVICES OFFERED
The Company offers a placement service to college-bound students, their
parents, and college staff, which focuses on matching a student's talents and
abilities, via a student profile, with colleges that the student is qualified to
attend. Students pay a fee to become a client of the Company. This fee may be
underwritten by a corporate sponsor that has set aside funds for students
needing financial assistance. Corporate sponsors include NFL Charities,
McDonalds, various professional sports teams, and others.
The Company is currently seeking financing to expand and develop
related products and to develop an Internet-driven delivery vehicle that
provides students, parents, high schools and college staffs worldwide with
comprehensive and cost-effective programs and services for helping to bring
students and colleges together. The focus of the Company will be to greatly
broaden its efforts in four distinct markets: the academics, fine arts and
athletics assistance markets currently being served by the Company, as well
as a vocational studies assistance market.
2
<PAGE>
MARKETING AND SALES
The Company markets its services largely through seminars, corporate
sponsors and through an organization of full- and part-time regional directors
and sales representatives who live in the local area and who are familiar with
the high schools, students, teachers, and coaches in that area. Direct personal
sales are generally conducted at the student's home with the student's parents
and the student, targeting those students and athletes who meet minimum
standards of academic, fine arts, and athletic performance. Seminars are used to
present information about the Company's services to large groups and to enroll
students as new clients of the Company.
The Company derives its revenues from the following sources:
- - DIRECT SALE OF STUDENT PROFILES. These are sold directly to students
and parents via seminars and/or direct contact through the Company's
regional directors and sales representatives.
- - CORPORATE SPONSORSHIPS. National and local organizations cover the
students' fees for utilizing the Company's programs, primarily for
public relations and/or social responsibility objectives. These
sponsorships are allocated according to the donor's wishes where
specified.
- - EMPLOYEE BENEFIT PROGRAMS. Organizations cover the student fees for the
Company's services as an addition to their current employee benefits
package. The Company's services are treated as an expanded tuition
reimbursement program to help attract and retain employees.
- - ADDITIONAL REVENUE SOURCES. Additional programs, such as student
highlights videos, student camps, SAT and ACT preparation programs,
course tutoring, selection evaluations, and college- major interest
tests are also available for additional fees.
- - CORPORATE ADVERTISING AND PROMOTION. The Company plans to increase
corporate participation by having Corporations pay an annual fee to
gain exclusive product category rights to promote their branded
products in/on Company vehicles, through Internet advertising, with
logo placement on student profiles, through BLUE CHIP ILLUSTRATED
ads, and through branded communications in mailings.
FRANCHISES
Through the license obtained from NCRA, the Company previously
offered for sale and sold franchises for NCRA business activities. For an
initial franchise fee of $10,000 to $40,000 (depending on territory size) and
ongoing royalties for each profile subscription sold, the Company granted the
franchisee an exclusive geographic area from which to solicit or promote
subscriptions to high school students, using the "NCRA" name, marketing
materials, and distribution network. The Company also provided training to
the franchisee, ongoing consulting and assistance, as well as subscriber
services. Upon receipt from a franchisee of a completed student profile, the
Company prepared and distributed the profile to a range from 220 colleges to
1,000 colleges (depending on the student client's needs and interests),
responded to inquiries from colleges and subscribers, and updated the
subscriber's profile.
Currently, there are less than 10 franchises active in the Company's
program and the Company has discontinued selling new franchises.
3
<PAGE>
TRADEMARKS
In June 1999, the Company filed service mark applications with U.S.
Patent and Trademark Office to register the following marks: College Bound
Alliance, CBSA, and College Bound Student Alliance. These applications are
pending.
The Company acquired the design service mark registration for "CBSA",
registered on January 24, 1995 with the U.S. Patent and Trademark Office, from
CBS-Athletes.
NCRA has a design service mark for "NCRA-National College Recruiting
Association", which was registered March 9, 1999 with the U.S. Patent and
Trademark Office.
COMPETITION
Management believes that less than 1% of the profiling market is being
served by the Company and its competitors. There are two primary types of
student recruiting: (i) Internet companies where, for a fee, the student places
his/her own information on an Internet site, and (ii) companies with operations
similar to those of the Company.
Based on information informally gathered by the Company, management
believes that admissions directors, department heads, and coaches do not express
a great deal of interest in Internet profiles due to the biased, undocumented
and unverified nature of the information presented.
Management knows of two companies, College Prospects of America and
The National Scouting Report, which appear to offer services for Athletes
similar to those of the Company. Both of these companies are franchise or
license-based, are smaller than the Company, and are not believed by
management to be a competitive threat to its future growth.
There can be no assurance that the Company will be able to maintain its
position in the industry. Barriers to entry into Internet-based businesses are
low and the development by others of new, improved or modified programs and/or
services could make the Company's products and/or services obsolete. Therefore,
even if the Company develops new and innovative services or products that prove
to be commercially feasible, there is no assurance that a new development by a
competitor will not supersede any such services or products. The Company must,
therefore, continuously improve its services and develop new products in order
to be competitive. In this regard, the Company may not have sufficient resources
to undertake the research and development necessary to remain competitive.
GOVERNMENT APPROVALS AND REGULATION
Few regulations control the Company's business and operations, other
than regulations applicable to businesses generally. It is possible, however,
that future laws and regulations may be adopted with respect to college
financial aid covering such issues as privacy, pricing, quality of services, and
libel, among others. Any such new legislation or regulation could have an
adverse impact on the Company's business.
The Company is subject to state and federal laws regarding its past
sales of franchises to a small number of its regional directors and sales
representatives (less than 10% of the Company's regional directors and sales
representatives are franchisees). The last franchise was sold in January
1999. The Company, however, has discontinued offering franchises and has no
plans to offer franchises in the future.
4
<PAGE>
EMPLOYEES
As of February 29, 2000, the Company had a total of 18 employees (14
full-time and 4 part-time) in its Denver and Wisconsin offices. In addition,
the Company has approximately 200 independent regional directors and sales
representatives located throughout the country who are paid on a commission
basis.
The Company's future success depends in significant part upon the
service of its key senior management personnel and its ability to attract and
retain highly qualified technical and managerial personnel. The time that the
officers and directors devote to the business affairs of the Company and the
skill with which they discharge their responsibilities will substantially
impact the Company's success. To the extent the services of these individuals
would be unavailable to the Company for any reason, the Company would be
required to identify, hire, train and retain other highly qualified technical
and managerial personnel to manage and operate the Company. The Company's
business could be adversely affected to the extent such key individuals could
not be replaced.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
PLAN OF OPERATION
The Company was dormant until 1997 when it changed its name to
SportsStar Marketing, Inc. It concluded a $1,000,000 public offering in
January 1998 and acquired College Bound Student Athletes, Inc. (CBS Athletes)
in April 1999. Both companies had been experiencing operating losses through
the date of the combination, and have continued to experience losses after
they merged and restructured their combined businesses. The Company believes
the lack of liquid financial resources are primarily responsible for the
losses.
In August 1999 the Company hired a Chief Executive Officer and, in
late 1999, completed a revised business plan. In February 2000 the Company
completed a $1,000,000 public offering which it plans to use the proceeds
from to increase sales through development and/or acquisition of new
products, expanding and upgrading the number and quality of sales
representatives, augmenting the personal evaluation seminar program, and
designing an effective website. The Company has engaged an IT firm to further
develop its internet and ecommerce ability to market its services and
products as funds become available, including implementation of back office
solutions to automate (1) production functions of fulfillment and delivery
and (2) accounting and management information systems.
The Company believes cash expected to be generated from operations, the
recent $1 million financing, and a $500,000 Corporate Sponsorship received in
March 2000 will satisfy its cash requirements through at least August 2000.
The Company also plans to raise capital through equity or combined debt
and equity financing. The proceeds will be used to expand its product lines, to
further develop its Internet capabilities, to further develop the corporate
sponsorship program, for acquisitions, and for additional working capital,
however, there can be no assurance that it will raise any capital.
Employees are expected to increase from 14 to approximately 30 over the
next twelve months, excluding part-time and contract labor that the Company uses
from time-to-time.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Due to the acquisition of CBS-Athletes in April 1999, the results of
operations of CBS-Athletes have been included in the Company's financial
statements from April 15, 1999. The purchase price was allocated to the fair
value of identifiable assets and liabilities. The Company recorded three
intangible assets in connection with the acquisition: payment for a covenant not
to compete of $156,013, software of $73,300, and recruiting systems technology
of $1,057,108. These are reflected on the balance sheet as other assets.
The Company's fiscal year end is July 31. The following is a summary of
certain selected financial information based on the audited consolidated
financial statements as of and for the years ended July 31, 1999 and 1998, and
the unaudited consolidated financial statements as of and for the six months
ended January 31, 2000. Reference should be made to the financial statements
attached to this registration statement to put the following summary in context.
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
JANUARY 31, 2000 JANUARY 31, 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Working capital (deficiency).............................. $ (1,141,146) $ (2,442)
Long-term debt............................................ $ 751,592 $ 0
Total assets.............................................. $ 1,395,401 $ 295,504
Stockholders' equity (deficiency)......................... $ (546,627) $ 179,170
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
JULY 31, 1999 JULY 31, 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Working capital (deficiency).............................. $ (790,972) $ 190,536
Long-term debt............................................ $ 751,976 $ 0
Total assets.............................................. $ 1,557,226 $ 465,827
Stockholders' equity (deficiency)......................... $ (103,967) $ 404,351
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, 2000 JANUARY 31, 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues.................................................. $ 655,481 $ 259,537
Loss from operations...................................... $ (527,076) $ (291,392)
Net loss.................................................. $ (562,116) $ (291,549)
Net loss per share........................................ $ (0.03) $ (0.02)
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
JULY 31, 1999 JULY 31, 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues.................................................. $ 706,886 $ 194,672
Loss from operations...................................... $ (761,310) $ (648,223)
Net loss.................................................. $ (793,990) $ (657,427)
Net loss per share........................................ $ (0.05) $ (0.04)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Except for the historical information contained herein, the previous
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section and elsewhere
herein.
6
<PAGE>
SIX MONTHS ENDING JANUARY 31, 2000 VERSUS JANUARY 31, 1999
GENERAL. Substantially all of the Company's revenue is derived from
profile fees. The Company's revenue in a particular period is directly
related to the number of profiles produced during the period. Management
believes that the Company's business is somewhat seasonal, with average
revenue dipping in the period beginning at Thanksgiving and ending at the New
Year's holiday. Profiling revenue represents revenue that is recognized from
contracts as services are performed. Deferred revenue is recorded for cash
received in advance for services the Company is obligated to perform. The
cost of profiling revenue is mainly comprised of the cost of commissions,
production salaries, facility rental, postage and other direct service cost.
Other revenue represents the Company's revenue associated with sales
representative training and corporate sponsorship.
REVENUE. For the six months ending January 31, 2000, total revenue
increased 150% to $655,000 as compared to $260,000 for the same period in 1999.
Profile revenue increased $534,000 or 450% for the first six months of
fiscal year 2000 to $652,000 from $118,000 for the comparable period in 1999,
primarily as a result of the acquisition of CBS-Athletes; $507,000 of the
increase was attributable to CBS-Athletes.
The Company has recently experienced substantial revenue growth,
however, there can be no assurance that the Company will continue to grow at
historical rates or at all. The Company's ability to generate increased revenue
and achieve profitability will depend upon its ability to increase sales through
development and/or acquisition of new products, expanding and upgrading the
number of sales representatives, expanding the seminar program and designing an
effective Internet ecommerce site. The Company's ability to expand and develop
these channels depends on a number of factors beyond the Company's control,
including general business and economic conditions. Expansion and development of
existing and additional marketing and distribution channels will also depend, in
part, upon the Company's ability to secure additional technology, expertise and
staff.
The Company's results have been affected by the interest expense and
amortization of intangibles related to the acquisition completed in the second
half of fiscal 1999. The Company's results have also been affected by the costs
associated with the integration of operational and administrative functions.
There can be no assurance that the Company will be able to successfully
integrate the business it has acquired in a timely manner and in accordance with
its strategic objectives. Failure to integrate acquired businesses effectively
and efficiently, could have a material adverse effect on the Company's business,
financial condition and results of operations.
Franchise and other revenue decreased $138,000 or (97%) to $4,000 for
the first six months of fiscal 2000 as compared to the same period in 1999 due
to a decrease of $142,000 in franchise fees. The Company has discontinued the
sale of franchises and anticipates no additional future revenue from sale of
franchise regions.
COST OF SERVICES. The cost of services for the first six months of
fiscal 2000 increased $272,000 or 170% to $435,000 from $163,000 for the
comparable period in 1999. The increase in cost of services is attributable to
the acquisition of CBS-Athletes.
7
<PAGE>
OPERATING EXPENSE. General and administrative expenses increased
$284,000 to $648,000 for the first six months of fiscal 2000, as compared to
$364,000 for the comparable period in fiscal 1999. The increase results from the
operating expenses of CBS-Athletes included in fiscal 1999, corporate and
additional management compensation for new staff. Because of increased
management staff and cost of new technology, the Company anticipates higher
general and administrative expenses to continue.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expenses increased $75,000 to $99,000 for the first six months of fiscal
2000, as compared to $24,000 for the comparable period in fiscal 1999. The
additional depreciation and amortization expense recorded during the period
is primarily due to the acquisition of CBS-Athletes.
OPERATING LOSS. The Company's operating loss for the first six
months of fiscal 2000 is $527,000 as compared to an operating loss of
$291,000 for the comparable period in 1999. The increase in operating loss is
primarily attributable to the increased general and administrative expenses
associated with the CBS-Athletes acquisition, costs of merging operations,
legal fees, and higher investor and public relations expenses. Of the
operating loss in fiscal 2000, $187,000 does not require an immediate outlay
of cash resources.
NON OPERATING INCOME (EXPENSE). Interest expense for the first six
months of fiscal 2000 increased $35,000 as compared to the same period in 1999.
The increase in interest expense relates to the financing of the acquisition
made by the Company in the second half of fiscal 1999. The Company's interest
expense is directly related to its level of borrowings.
NET LOSS AND NET LOSS PER SHARE. The net loss for the first six
months of fiscal 2000 was $562,000, as compared to $292,000 for the
comparable period in 1999. The basic and diluted net loss per share for the
first six months of fiscal 2000 was $0.03, as compared to net loss per share
of $0.02 for the comparable period in 1999. The Company has issued options to
purchase 1,611,233 shares of its common stock as of January 31, 2000, which
could potentially dilute basic earnings per share in the future.
FISCAL YEAR ENDED JULY 31, 1999 VERSUS JULY 31, 1998
REVENUE. For the fiscal year ending July 31, 1999, total revenue
increased $512,000 or 260% to $707,000 as compared to $195,000 for the fiscal
year ending July 31, 1998.
Profile revenue increased $391,000 or 360% for the fiscal year 1999 to
$499,000 from $108,000 for the fiscal year 1998, primarily as a result of the
acquisition of CBS-Athletes; $306,000 or 80% of the increase was attributable to
CBS-Athletes. Franchise fee revenue increased $92,000 or 140% for the fiscal
year 1999 to $157,000 from $65,000 for the fiscal year 1998.
Other revenue increased $29,000 or 130% to $51,000 for the fiscal year
1999 as compared to the same period in 1998 as a result of increased
miscellaneous income.
The Company has recently experienced substantial revenue growth,
however, there can be no assurance that the Company will continue to grow at
historical rates or at all. The Company's ability to generate increased revenue
and achieve profitability will depend upon its ability to increase sales through
development or acquisition of new products, expanding and upgrading the number
of sales representatives, expanding its seminar program and designing an
effective Internet ecommerce site. The Company's ability to expand and develop
these channels depends on a number of factors beyond the Company's control,
including general business and economic conditions. Expansion and
8
<PAGE>
development of existing and additional marketing and distribution channels will
also depend, in part, upon the Company's ability to secure additional
technology, expertise and staff.
The Company's results have been lowered by interest expense and
amortization of intangibles related to the acquisition completed in the second
half of fiscal 1999. The Company's results have also been affected by the costs
associated with the integration of operational and administrative functions.
There can be no assurance that the Company will be able to integrate the
business it has acquired successfully or in a timely manner in accordance with
its strategic objectives. Failure to integrate acquired businesses effectively
and efficiently, could have a material adverse effect on the Company's business,
financial condition and results of operations.
COST OF SERVICES. The cost of services for fiscal 1999 increased
$241,000 or 140% to $413,000 from $172,000 for fiscal 1998. The increase in
cost of services is due to the acquisition of CBS Athletes, developing
promotional materials and communication costs.
OPERATING EXPENSE. Selling, general and administrative expenses
increased $322,000 to $945,000 for fiscal 1999, as compared to $623,000 for
fiscal 1998. The increase results from the operating expenses of CBS-Athletes
included in fiscal 1999 and additional compensation for new management and
staff personnel. Because of increased management staff and cost of new
technology, the Company anticipates selling, general and administrative
expenses to increase in the future.
DEPRECIATION & AMORTIZATION. Depreciation and amortization increased
$62,000 to $110,000 for fiscal 1999, as compared to $48,000 for the comparable
period in fiscal 1998. The additional depreciation and amortization expense
recorded during the period is primarily attributable to the acquisition of
CBS-Athletes.
OPERATING LOSS. The Company's operating loss for fiscal 1999 is
$761,000 as compared to an operating loss of $648,000 for 1998. The increase
in operating loss is primarily attributable to the increased general and
administrative expenses associated with the CBS-Athletes acquisition, costs
of merging operations, legal fees, and higher investor and public relations
expenses.
NON OPERATING INCOME (EXPENSE). Interest expense for fiscal 1999
increased $23,000 to $33,000 from $9,000 as compared to the same period in 1998.
The increase in interest expense relates to the financing of the acquisition
made by the Company in the second half of fiscal 1999. The Company's interest
expense is directly related to its level of borrowings.
NET LOSS AND NET LOSS PER SHARE. The net loss for fiscal 1999 was
$794,000, as compared to a net loss of $657,000 for the comparable period in
1998. The basic and diluted loss per share for fiscal 1999 was $0.05, as
compared to net loss per share of $0.04 for the comparable period in 1998.
The Company has issued options to purchase 1,126,233 shares of its common
stock as of July 31, 1999, which could potentially dilute basic earnings per
share in the future. Comparing 1998 to 1997 is not meaningful as we had no
operations in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity and capital resources
historically have been cash flows from operations, borrowings and issuances of
its equity securities. These sources of cash flows have been offset by cash used
for acquisitions and payment of operating costs.
In February 2000, the Company completed the sale of 2,000,000 shares of
common stock for $1,000,000 and in March received a $500,000 corporate
sponsorship. The Company repaid $210,000
9
<PAGE>
of acquisition and other debt, $76,000 of deferred compensation and $360,000 of
deferred vendor and accounts payable with the proceeds from these transactions.
Management of the Company believes the cash received from the sale of common
stock and sponsorship, plus cash expected to be generated by operations, will be
sufficient to allow the Company to meet its obligations as they come due through
at least August 1, 2000.
YEAR 2000 COMPLIANCE
The Company has determined that the Company's critical operating
systems, accounting systems, computer systems and business equipment are the
major resources that are affected by the Year 2000 issue. While certain of
these systems may need to be upgraded or replaced, the identified systems and
or programs are primarily "off the shelf" products with Year 2000 updates
available. The Company has determined these systems to be substantially
compliant. One proprietary software program requires updating to become
compliant. Actions are being taken to account for the issue and the
operational impact is minimal.
Management believes that it has an effective plan in place to
adequately address the Year 2000 issue in a timely manner. Nevertheless, failure
of third parties upon which the Company's business relies could result in
disruption of the Company's supply of equipment and other general problems
related to daily operations. In addition, disruptions in the economy generally
resulting from Year 2000 issues could adversely effect the Company. Although,
the Company believes its Year 2000 plan will adequately address the Company's
internal issues, the overall risks associated with the Year 2000 issue cannot be
fully identified until the Company receives more responses from significant
suppliers. Accordingly, the amount of potential liability and lost revenue, if
any, cannot be reasonably estimated at this time.
ITEM 3. DESCRIPTION OF PROPERTY.
The Company leases approximately 4,080 square feet of office space from
Chartwell International, an affiliate, at 5275 DTC Parkway, Suite 110,
Englewood, Colorado, for monthly rent of $5,270. The lease expires July 31,
2000. See Part I - Item 7. Certain Relationships and Related Transactions.
CBS-Athletes leases approximately 4,700 square feet of office space
from a non-affiliated third party at N19 W6717 Commerce Court, Cedarburg,
Wisconsin, for monthly rent of $3,710. The lease expires August 31, 2000.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table provides certain information as to the officers and
directors individually and as a group, and the holders of more than 5% of the
Common Stock of the Company, as of February 29, 2000:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF OWNER NUMBER OF SHARES OWNED PERCENT OF CLASS(1)
<S> <C> <C>
Chartwell International, Inc. 7,330,369 35.65%
5275 DTC Parkway, Suite 110 (2)
Englewood, CO 80111
10
<PAGE>
<CAPTION>
NAME AND ADDRESS OF OWNER NUMBER OF SHARES OWNED PERCENT OF CLASS(1)
<S> <C> <C>
Janice A. Jones 1,783,000 8.67%
5275 DTC Parkway, Suite 110 (3)
Englewood, CO 80111
Kevin W. Gemas 1,350,000 6.41%
N19 W6717 Commerce Court (4)
Cedarburg, Wisconsin 53012
Jerome M. Lapin 250,000 1.20%
5275 DTC Parkway, Suite 110 (5)
Englewood, CO 80111
William R. Willard 120,000 0.58%
356 Playa Del Norte, No. 2 (6)
La Jolla, CA 92037
Rick N. Newton 115,000 0.56%
5275 DTC Parkway, Suite 110 (7)
Englewood, CO 80111
Arthur D. Harrison 60,686 0.30%
5275 DTC Parkway, Suite 110
Englewood, CO 80111
Serena V. Riedel 0 --
5275 DTC Parkway, Suite 110
Englewood, CO 80111
Officers and Directors as a group 11,009,055 51.51%
(7 persons) (2)(3)(4)(5)(6)(7)
</TABLE>
(1) This table is based on 20,561,585 shares of Common Stock outstanding on
February 29, 2000. Where the persons listed on this table have the
right to obtain additional shares of common stock within 60 days from
February 29, 2000, these additional shares are deemed to be outstanding
for the purpose of computing the percentage of class owned by such
persons, but are not deemed to be outstanding for the purpose of
computing the percentage of any other person.
(2) According to a Form 10-SB filed by Chartwell International, Inc., Dr.
Janice A. Jones is the beneficial owner of 48% of Chartwell's common
stock. Dr. Jones is an officer and director of Chartwell. William R.
Willard is a director of Chartwell. The officers and directors of the
Company may be deemed to have beneficial ownership of the shares owned
by record by Chartwell.
(3) Includes 219,000 shares owned of record by John J. Grace, the spouse of
Janice A. Jones, and 1,500,000 shares owned of record by Family Jewels
II Limited Partnership, an entity owned and controlled by Dr. Jones.
(4) These shares are owned of record by Kevin W. Gemas and Wayne O. Gemas
as joint tenants. Includes shares issuable upon exercise of an option
to purchase 500,000 shares. See Part I - Item 1. Description of
Business. Includes 350,000 shares held in escrow to secure payment of
certain notes.
11
<PAGE>
(5) Includes shares issuable upon exercise of an option to purchase 250,000
shares. See Part I, Item 6. Executive Compensation.
(6) Includes 80,000 shares owned of record by The Bridgestream Trust, an
entity owned and/or controlled by Mr. Willard.
(7) Includes shares issuable upon exercise of an option to purchase 60,000
shares. See Part I, Item 6. Executive Compensation.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Rick N. Newton 48 Chairman of the Board of Directors
Jerome M. Lapin 69 Chief Executive Officer and Director
Kevin Gemas 37 Chief Operating Officer - Profiles Division
Arthur D. Harrison 67 Chief Financial Officer and Treasurer
Janice A. Jones 51 Corporate Secretary and Director
William R. Willard 57 Director
Serena V. Riedel 30 Vice President - Administration
</TABLE>
The term of office of each director of the Company ends at the next
annual meeting of the Company's stockholders or when the director's successor is
elected and qualified. No date for the next annual meeting of stockholders is
specified in the Company's Bylaws, nor has a meeting been fixed by the Board of
Directors. The term of office of each officer of the Company ends at the next
annual meeting of the Company's Board of Directors, which is expected to take
place immediately after the next annual meeting of stockholders, or when such
officer's successor is elected and qualified.
RICK N. NEWTON has been the Chairman of the Board of Directors of the
Company since April 1999. From November 1996 to March,1999, he was Director of
Corporate Finance Services at American Express Co., Denver, Colorado. From April
1990 to October 1996, he was CEO of Systems Science Institute. Mr. Newton has
more than 28 years of multi-industry experience ranging from start-up to Fortune
500 companies, and is primarily responsible for the Company's recent acquisition
of CBS-Athletes. He graduated from the University of Colorado with a Degree in
Engineering. Mr. Newton devotes approximately 20% of his time to the business of
the Company.
JEROME M. LAPIN has been Chief Executive Officer and a Director of the
Company since August 1999. From January 1994 to July 1999, Mr. Lapin was
President, CEO and Chairman of the Board of Directors of American Coin
Merchandising Corporation, a publicly traded company, (symbol ACMI), based in
Boulder, Colorado. Mr. Lapin was a co-founder of International House of Pancakes
in 1958. In 1966, he retired to Australia where he pursued private business
interests including World Hosts Pty, Ltd. which owned Caprice Restaurant and
introduced Orange Julius to Australia. In 1978 Mr. Lapin returned to the United
States and became President and CEO of Topsy's International, Inc., Kansas
12
<PAGE>
City, Missouri, which acquired the Tastee Freez chain of 800 units. He was also
President of Sanwa Foods, Inc., a soup manufacturer in Los Angeles that was
subsequently acquired by Campbell Soups. Mr. Lapin devotes full time to the
business of the Company.
KEVIN GEMAS has been the Chief Operating Officer-Profiles Division of
the Company since April, 1999. From January 1991 to April 1999, he was President
of College Bound Student-Athletes, Inc., Cedarburg, Wisconsin, which he founded
in 1990. This company was acquired by the Company in April 1999. He graduated
from Clemson University in 1985 with a B.S. Degree in Business Administration.
Mr. Gemas devotes full-time to the business of the Company.
ARTHUR D. HARRISON has been the Chief Financial Officer of the Company
since February 1999. Since 1983, he has also been owner of Arthur Harrison &
Co., a financial services consulting firm in Englewood, Colorado. He has
represented companies in Colorado's manufacturing, construction, distribution
and service industries and has served a Vice Chairman of Colorado Venture
Centers and The Rockies Venture Club. In addition, he served on the Boards of
Jackson Sound Inc., Atmospheric Instrumentation Research, Inc. and Napro
Biotherapeutics, Inc., a publicly-traded pharmaceutical company. As co-editor of
a column for The Denver Post newspaper for 6 years, he provided business advice
to many high-tech and low-tech companies. He graduated from Bucknell University
in 1954 with a B.S. Degree in Commerce & Finance. Mr. Harrison devotes his time
as required to the business of the Company.
JANICE A. JONES, PH.D., is the founder of the Company, and has been a
director of the Company since 1997 and its corporate secretary since 1998. In
addition, she founded and has been a director of Chartwell since its inception
in 1984 and its Chief Executive Officer since 1990, as well as President and a
director of NCRA. In 1979 she formed The Chartwell Group, Inc., an investment
banking and financial relations firm serving emerging growth companies. Dr.
Jones was engaged in investor relations for several companies from 1973 to 1982
including Cameron & Associates from 1976 to 1980. Dr. Jones holds Ph.D., 1980,
and Masters, 1976, degrees in Social Sciences from Yeshiva University, and a
B.A., 1973, from Hunter College. She received the Hunter College Hall of Fame
Award in 1986. In June 1995, Dr. Jones consented to the entry of an Order of the
Commission relative to Cease and Desist Proceedings instituted by the SEC.
Without admitting or denying the matters set forth therein, Dr. Jones was found
to have failed for three years and two months to file a Schedule 13G or
amendments thereto or to timely file Forms 3, 4 and 5 with respect to a public
company of which she was an officer, director and greater than 5% shareholder.
Dr. Jones devotes full-time to the business of the Company and Chartwell.
WILLIAM R. WILLARD has been a Director of the Company since June
1997. Since 1997, he has also been a Director of Chartwell. Mr. Willard has
been actively involved with public offerings, private placements, mergers and
acquisitions and other corporate finance activities both domestically and
internationally at Bridgestream Partners, L.L.C. since May 1992, where he is
Managing Partner and owns 100% of the membership interest. Prior to forming
Willard Capital Group Ltd. in 1998, Mr. Willard was First Vice President in
Corporate Finance for Bateman Eichler, Hill Richards, Inc. Mr. Willard has
diverse experience at several other investment banks, consulting firms and an
advertising firm. Mr. Willard received his B.S. in Political Science and
International Relations from the University of Wisconsin in 1965 and an
M.B.A. in Finance and International Business from the University of Chicago,
Graduate School of Business in 1971. He also attended the Sorbonne (Paris,
France) where he received his Cour Practique certificate. He serves on the
boards of directors of: Trans-Leasing International, Inc. (a reporting
company under the Securities Exchange Act of 1934), IDAS Corporation, E-2000,
and Chick's Natural. Mr. Willard devotes his time as required to the business
of the Company.
SERENA V. RIEDEL has been the Vice President of Administration for
the Company since November 1999. She has been Director of Investor Relations
for the Company since November 1998. From March 1998 to
13
<PAGE>
November 1998, she was Vice President of Operations for Ryan Insurance
Strategies Corporation, an insurance consulting company in Denver, Colorado.
From May 1989 to March 1998, Ms. Riedel held various executive and senior
administrative assistant positions at four other companies. Ms. Riedel
devotes full-time to the business of the Company.
Dr. Jones may be deemed to be the "promoter" of the Company within the
meaning of the Rules and Regulations under federal securities laws.
ITEM 6. EXECUTIVE COMPENSATION.
The following table sets forth information for all persons who have
served as the chief executive officer of the Company during the last completed
fiscal year:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
-----------------------------------------------------------------------------------
AWARDS PAYOUTS
-----------------------------------------
OTHER RESTRICTED SECURITIES
NAME ANNUAL STOCK UNDERLYING ALL
AND COMPENSA AWARD(S) OPTIONS/ LTIP OTHER
PRINCIPAL YEAR SALARY BONUS TION ($) SARS PAYOUTS COMPEN-
POSITION ($) ($) ($) (#) SATION ($)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William 1999 $62,000 $-0- $-0- $16,578 -0- -0- $-0-
Kroske
President
(1)
</TABLE>
- ---------------
(1) William Kroske was the President of the Company from June
1997 to April 1999. From April to August 1999, Kevin
Gemas served in an interim capacity.
No stock options or stock appreciation rights were granted to Mr.
Kroske.
Since April 1997, the Company has issued 8,000 restricted shares of
Common Stock quarterly to each of Janice Jones, William Willard, and John Grace
as compensation for their services to the Company.
In February 1999, the Company entered into a employment agreement with
Arthur D. Harrison, Chief Financial Officer, pursuant to which he is paid $15
per hour payable upon receipt of his billing invoice; $35 per hour payable upon
receipt of financing of at least $750,000; and $90 per hour in the form of a
warrant or stock option based on current offering valuation.
On March 29, 1999, in connection with the acquisition of CBS-Athletes,
the Company entered into an Employment Agreement with Kevin Gemas. Under the
terms of the Agreement, Mr. Gemas is to be employed by the Company for an
initial term of five years, with annual extensions thereafter by mutual consent
of the parties, at an annual salary of $90,000, subject to annual review. In
addition, Mr. Gemas receives a standard benefit package (health insurance,
vacation pay, sick pay, etc.) and an automobile allowance of $1,100 per month.
Beginning in April 2000, he is entitled to participate in the Company's
executive management bonus and stock option plans, when such plans are
instituted.
On March 29, 1999, in connection with the acquisition of
CBS-Athletes, the Company entered into a Consulting Agreement with Wayne O.
Gemas, father of Kevin Gemas. Pursuant to the terms of the Consulting
Agreement, Wayne Gemas
14
<PAGE>
will provide consulting services to the Company on all matters pertaining to the
business of the Company for a period of 5 years and will receive $1,500.00 per
month (including an allowance for business expenses) for such services. In
addition, Mr. Gemas is entitled to health insurance coverage, with the premium
for such policy to be paid by the Company.
In April 1999, the Company entered into an employment agreement with
Rick Newton, Chairman of the Board of Directors. Pursuant to the terms of the
agreement, Mr. Newton received 55,000 restricted shares of Common Stock upon
acceptance of his engagement and an option to purchase up to 1,000,000 shares of
Common Stock at $0.50 per share. The option is exercisable for a five-year
period and vests at the rate of 200,000 shares per year. Upon reaching operating
profitability of $100,000 per year, Mr. Newton will receive an annual salary of
$25,000. On August 10, 1999, the Board of Directors rescinded the five-year
option to purchase up to 1,000,000 shares, but granted Mr. Newton the option to
purchase up to 60,000 shares at $0.50 per share, the amount vested since the
beginning of his employment. This option expires April 16, 2004.
On August 9, 1999, the Company entered into an Employment and Stock
Option Agreement with Jerome M. Lapin, the Chief Executive Officer of the
Company. Mr. Lapin's employment agreement renews automatically for successive
one-year terms unless his employment is terminated. He is paid an annual salary
of $60,000 and was granted five-year options to purchase 500,000 shares of
Common Stock at $0.272 per share, half of which vested on August 9, 1999 and the
remainder of which will vest August 9, 2000. Mr. Lapin has agreed that during
his employment with the Company and for a period of three years from the
termination of his employment that he will not directly or indirectly, own,
manage, operate, control, be employed by, perform services for, consult with,
solicit business for, participate in, or be connected with the ownership,
management, operation, or control of (i) any business which is materially
similar to or competitive with the Company's business in the United States or
(ii) any of the Company's then existing vendors, affiliates, or customers in the
United States. Mr. Lapin has deferred payment of his salary. At January 31,
2000, $28,500 in salary had been accrued.
On September 1, 1999, the Company entered into a letter agreement with
John J. Grace, the spouse of Janice Jones, an officer, director, and principal
stockholder of the Company, with regard to his compensation for services
rendered July 1, 1999 through December 31, 1999. Mr. Grace billed the Company
for actual time worked at the rate of $100 as follows: $25 per hour payable upon
receipt of billings, $50 per hour payable upon receipt of financing of $500,000
or more, and $25 per hour in stock valued at $0.50 per share. For the fiscal
year ended July 31, 1999 and six months ended January 31, 2000, Mr. Grace earned
$-0- and $47,000, respectively, and received $22,000 in March 2000. Mr. Grace
has agreed to defer receipt of compensation until additional financing is
received by the Company. This contract has been extended to March 31, 2000.
Beginning March 2000, Dr. Jones is paid a annual salary of
$50,000.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In June 1997, the Company entered into an agreement with National
College Recruiting Association, Inc. ("NCRA"), a wholly-owned subsidiary of
Chartwell International, Inc. Chartwell International was at the time and still
is a principal stockholder of the Company. Dr. Janice A. Jones, an officer and
director of the Company, is and was at the time the Agreement was entered into,
an officer, director and principal stockholder of Chartwell. NCRA granted the
Company an exclusive license for the use, rights, and interests in and to all of
the assets constituting the business of NCRA, along with the rights to sell new
and service existing franchises of NCRA and to publish the BLUE CHIP ILLUSTRATED
magazine. The term of the Agreement is for five years, with unlimited five-year
renewals
15
<PAGE>
under the same terms and conditions. As consideration for the license, the
Company agreed to pay NCRA an initial payment of $150,000 and 2.5% of the gross
revenues realized from the business operations of NCRA. An additional license
fee of $100,000 is to be paid to NCRA upon receipt of additional financing for
the Company.
Since June 1997, the Company has been leasing office space from
Chartwell International, Inc. The lease expires July 31, 2000. Rental expense
was $37,545 and $39,775 for the years ended July 31, 1999 and 1998,
respectively.
On February 26, 1998, the Company entered into a Management Services
Agreement with Chartwell International, Inc. Chartwell agreed to raise capital
for the Company as required; provide accounting and financial services; provide
acquisition services; communicate with major investors, business partners and
legal counsel; assist in the utilization of trade credits; assist in the
preparation of business plans; and assist with external promotional
announcements. The Company agreed to pay Chartwell $7,500 per month beginning
February 1, 1998 until the Company's revenues exceed $4,000,000 per year. At
that time, Chartwell's fee would increase to 2-1/2% of total revenues. The
Company also agreed to reimburse Chartwell for its out-of-pocket expenses
incurred by Chartwell on behalf of the Company. Management fee expense was
$90,000 and $45,000 for the years ended July 31, 1999 and 1998, respectively.
This agreement was terminated February 29, 2000.
On June 15, 1999, the Company borrowed $5,000 from Arthur E. Harrison,
the Company's Chief Financial Officer. The related promissory note was due
December 15, 1999 with simple interest at the rate of 10% per annum. Rick N.
Newton and Janice A. Jones, officers and directors of the Company, personally
guaranteed the payment of the note. This note was paid in February 2000.
On June 15, 1999, the Company also borrowed $6,000 from Chartwell
International. The related promissory note was due December 15, 1999 with simple
interest at the rate of 10% per annum. This note was paid in February 2000.
On July 28, 1999, the Company borrowed $50,000 from Spring Sun
Holdings, Ltd., a non-affiliated third party. The related promissory note was
guaranteed by Chartwell International, Inc. and secured by 135,135 shares of the
Company's Common Stock owned by Chartwell. The note accrued interest at the rate
of 10% per annum and was due January 28, 2000. The Company tendered payment of
this note at maturity.
On January 28, 2000 and February 1, 2000, the Company borrowed $52,500
and $17,500, respectively, from Chartwell International, Inc., a principal
stockholder of the Company and a company of which Janice Jones is an officer,
director and principal stockholder. Janice Jones is also an officer, director,
and principal stockholder of the Company. The notes are unsecured and accrue
interest at the rate of 10% per annum. These loans are still outstanding and
Chartwell has agreed to extend the maturity date of these loans to March 1,
2001.
ITEM 8. DESCRIPTION OF SECURITIES.
The authorized capital stock of the Company consists of 40,000,000
shares of Common Stock, each with $0.001 par value per share, and 10,000,000
shares of Preferred Stock, each with $0.001 par value per share.
16
<PAGE>
COMMON STOCK
Each share of Common Stock has one vote with respect to all matters
voted upon by the stockholders. The shares of Common Stock do not have
cumulative voting rights.
Holders of Common Stock are entitled to receive dividends, when and if
declared by the Board of Directors, out of funds of the Company legally
available therefor. The Company has never declared a dividend on its Common
Stock and has no present intention of declaring any dividends in the future.
Holders of Common Stock do not have any preemptive rights or other
rights to subscribe for additional shares, or any conversion rights. Upon a
liquidation, dissolution, or winding up of the affairs of the Company, holders
of the Common Stock will be entitled to share ratably in the assets available
for distribution to such stockholders after the payment of all liabilities.
The outstanding shares of the Common Stock of the Company are fully
paid and non-assessable.
The registrar and transfer agent for the Company's Common Stock is
Corporate Stock Transfer, Inc., 3200 Cherry Creek Drive South, Suite 430,
Denver, Colorado 80209.
PREFERRED STOCK
The Articles of Incorporation permit the Board of Directors, without
further stockholder authorization, to issue Preferred Stock in one or more
series and to fix the price and the terms and provisions of each series,
including dividend rights and preferences, conversion rights, voting rights,
redemption rights, and rights on liquidation, including preferences over the
Common Stock, all of which could adversely affect the rights of the holders of
the Common Stock. The Board of Directors has not established or issued a series
of Preferred Stock.
17
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS.
The Company's Common Stock is not traded on a registered securities
exchange, or on NASDAQ. The Company's Common Stock has been quoted on the OTC
Bulletin Board since February 1998, and currently trades under the symbol
"GRAD". The following table sets forth the range of high and low bid quotations
for each fiscal quarter within the last two fiscal years, as well as the current
fiscal year. These quotations reflect inter-dealer prices without retail
mark-up, mark-down, or commissions and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED HIGH BID LOW BID
<S> <C> <C>
April 30, 1998............................................ $1.81 $0.75
July 31, 1998............................................. $1.44 $0.69
October 31, 1998.......................................... $0.75 $0.13
January 31, 1999.......................................... $0.36 $0.09
April 30, 1999............................................ $0.49 $0.20
July 31, 1999............................................. $0.60 $0.22
October 31, 1999.......................................... $0.52 $0.18
January 31, 2000.......................................... $0.35 $0.15
</TABLE>
On March 15, 2000, the closing price for the Common Stock was $0.90.
As of February 29, 2000, there were 156 record holders of the Company's
Common Stock. Based on reports from Investor Communication Services, the Company
believes that there are approximately 1,770 beneficial stockholders.
Since the Company's inception, no cash dividends have been declared on
the Company's Common Stock.
The Securities and Exchange Commission (SEC) has adopted rules that
regulate broker-dealer practices in connection with transactions in "penny
stocks". Generally, penny stocks are equity securities with a price of less than
$5.00 (other than securities registered on certain national exchanges or quoted
on the NASDAQ system). If the Company's shares are traded for less than $5 per
share, as they currently are, the shares will be subject to the SEC's penny
stock rules unless (1) the Company's net tangible assets exceed $5,000,000
during the Company's first three years of continuous operations or $2,000,000
after the Company's first three years of continuous operations; or (2) the
Company has had average revenue of at least $6,000,000 for the last three years.
The penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document prescribed by the SEC that provides information about penny
stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. In addition,
the penny stock rules require that prior to a transaction in a penny stock not
otherwise exempt from
18
<PAGE>
those rules, the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These requirements may have
the effect of reducing the level of trading activity in the secondary market for
a stock that becomes subject to the penny stock rules. As long as the Company's
Common Stock is subject to the penny stock rules, the holders of the Common
Stock may find it difficult to sell the Common Stock of the Company.
ITEM 2. LEGAL PROCEEDINGS.
None.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
In January 2000, the Company engaged KPMG LLP to audit its financial
statements for the fiscal year ended July 31, 1999. The decision to engage KPMG
LLP was approved by the Board of Directors of the Company. The Company did not
consult KPMG LLP prior to its engagement.
Grant Thornton LLP audited the Company's financial statements for the
fiscal year ended July 31, 1998. The report of Grant Thornton LLP on those
financial statements did not contain an adverse opinion or a disclaimer of an
opinion. That report made reference to a going concern qualification. There were
no disagreements with Grant Thornton LLP on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure
during the term of its engagement by the Company. No reportable events occurred
during the term of the engagement.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Company has sold shares of Common
Stock which were not registered under the Securities Act of 1933, as amended, as
follows:
On June 16, 1997, 400,000 shares of Common Stock were authorized for
issuance to officers, directors, and other founders of the Company, for a total
value of $500.
On June 27, 1997, the Company issued 11,646,000 shares of Common Stock
to Chartwell International, Inc. for cash and other assets valued at $69,000.
In July 1997, the Company sold 1,350,000 shares of Common Stock to 19
investors for cash of $118,000, net of offering costs, pursuant to the exemption
from registration contained in Rule 504 promulgated under the Securities Act of
1933.
In August and September 1997, 750,000 shares of Common Stock were
issued to the principals of Corporate Relations Group for cash and services
valued at $75,000.
In September 1997, 100,000 shares of Common Stock were issued to 2
investors, Olympus Capital, Inc. and Pow Wow, Inc., in consideration for making
bridge loans to the Company. The shares were valued at $10,000.
From August 1997 through May 1998, 75,632 shares of Common Stock were
issued to officers and directors of the Company for services valued at $15,816.
19
<PAGE>
In September 1997, the Company sold 1,540,000 shares of Common Stock to
40 investors for cash of $745,000, net of offering costs, pursuant to the
exemption from registration contained in Rule 504 promulgated under the
Securities Act of 1933.
In October 1997, 23,500 shares of Common Stock were issued to 10
individuals to buy back franchises. The shares were valued at $6,150.
In July 1998, the Company accrued 101,668 shares of issuance to
employees. The shares were valued at $53,624 and were actually issued in
December 1998.
From December 1998 to May 1999, the Company issued 236,001 shares of
Common Stock to directors of the Company (William Willard, Janice Jones, and
William Kroske) and an advisor to the Company (John Grace) for services valued
at $21,274.
From December 1998 to March 1999, the Company issued 173,656 shares of
Common Stock to employees for compensation in the amount of $15,758.
From December 1998 to March 1999, the Company issued 471,795 shares of
Common Stock to certain parties for services valued at $41,770 and to secure the
payment of certain amounts owed by the Company. The shares issued for security
(450,100) are held in escrow.
In February 1999, the Company issued 42,000 shares of Common Stock to 4
persons for cash, net of offering costs, of $12,311, pursuant to the exemption
from registration contained in Rule 504.
In April 1999, the Company issued 500,000 shares of Common Stock to
Wayne Gemas as part of the purchase price for CBS-Athletes, and 22,500 shares of
Common Stock to 6 employees and consultants of CBS-Athletes. The shares were
valued at $133,028. In addition, options to purchase 500,000 shares of Common
Stock at $0.50 per share, and additional options to purchase 500,000 shares of
Common Stock contingent upon attaining certain performance thresholds were
issued to Wayne Gemas. The options issued at $0.50 were valued at $61,531. An
additional 25,000 shares, valued at $5,528, were issued to one of the
CBS-Athletes consultants in August 1999.
In May 1999, 351,996 shares of Common Stock were issued and held in
escrow to secure the payment of a note in the amount of $176,000. These
shares were not valued since they are held in escrow. These shares were
cancelled in January 2000 and 352,000 shares were reissued in the names of
Kevin and Wayne Gemas. The shares are still held in escrow.
In August 1999, the Company issued 42,990 shares of Common Stock to
officers, directors, and an advisor of the Company (Art Harrison, Janice Jones,
William Willard, and John Grace) for compensation of $9,505.
In August 1999, the Company issued 1,347 shares of Common Stock to
Marcus McCarty for compensation of $298.
In August 1999, the Company issued 55,000 shares of Common
Stock to The Taxin Network for services valued at $6,683.
In October 1999, the Company issued 125,000 shares of Common Stock to
Patrick Darrel Hackman for investor relation services valued at $20,100.
In November 1999, the Company issued 360,000 shares of Common Stock to
Johnson & Associates for investor/public relations services valued at $52,704.
20
<PAGE>
In January 2000, the Company issued 140,000 shares of Common Stock to
Charlie Jarvis for website creation services valued at $37,520.
In February 2000, the Company issued 145,033 shares of Common Stock to
officers, directors and advisors of the Company (Arthur Harrison, Janice Jones,
William Willard, and John Grace) for compensation $133,126.
In February 2000, the Company issued 3,278 shares of Common Stock to
Daniel J. Miske in lieu of legal fees of $1,639.
In February 2000, the Company offered and sold 2,000,000 shares of
Common Stock at $.50 per share for a total of $1,000,000 pursuant to Rule 504 of
Regulation D to 8 persons in the State of Nevada and one accredited investor in
the State of Colorado. The offering was registered by qualification in the State
of Nevada. No underwriters were used in connection with the offering.
In February 2000, the Company issued 8,000 shares of Common Stock to
Serena Riedel, an employee of the Company, for compensation of $4,342.
No underwriters were used in connection with any of the stock
transactions described above. Except for those transactions for which the
Company has relied upon the exemption from registration contained in Rule 504,
the Company has relied upon Section 4(2) of the Securities Act of 1933. All of
the purchasers were deemed to be sophisticated with respect to an investment in
securities of the Company by virtue of their financial condition and/or
relationship to members of management of the Company. The Company affixed
appropriate legends to the stock certificates issued in the transactions
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 7-109-101 ET SEQ. of the Colorado Business Corporation Act and
Article 8 of the Company's Articles of Incorporation permit the Company to
indemnify its officers and directors and certain other persons against expenses
in defense of a suit to which they are parties by reason of such office, so long
as the persons conducted themselves in good faith and the persons reasonably
believed that their conduct was in the Company's best interests or not opposed
to the Company's best interests, and with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful.
Indemnification is not permitted in connection with a proceeding by or in the
right of the corporation in which the officer or director was adjudged liable to
the corporation or in connection with any other proceeding charging that the
officer or director derived an improper personal benefit, whether or not
involving action in an official capacity.
PART F/S
21
<PAGE>
College Bound Student Alliance, Inc.
Condensed Consolidated Balance Sheets
as of January 31,
(unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Current assets
Cash $ 11,624 $ 17,576
Accounts receivable, net 21,692 4,625
Notes receivable, current portion -- 44,402
Other 15,974 47,289
----------- -----------
Total current assets 49,290 113,892
Equipment, net 73,391 33,774
Recruiting systems technology, net 1,144,314 1,198
Trademarks and licensing, net 108,223 141,540
Other assets 20,183 5,100
----------- -----------
TOTAL ASSETS $ 1,395,401 $ 295,504
=========== ===========
Current liabilities
Accounts payable $ 692,964 $ 63,798
Accrued expenses 200,253 52,536
Current portion of notes payable 261,011 --
Deferred revenue 36,208 --
----------- -----------
Total 1,190,436 116,334
Long term notes payable to former owner of CBSA,
less current portion 751,592 --
----------- -----------
Total liabilities 1,942,028 116,334
Stockholders' equity (deficit)
Common stock 18,562 16,991
Additional paid in capital 1,479,657 1,338,357
Treasury stock -- (196,396)
Accumulated deficit (2,044,846) (979,782)
----------- -----------
Total stockholders' equity (deficit) (546,627) 179,170
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,395,401 $ 295,504
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
22
<PAGE>
College Bound Student Alliance, Inc.
Condensed Consolidated Statement of Operations
for the six month period ending January 31,
(unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Revenue
Profiles $ 651,904 $ 117,587
Franchises -- 141,950
Other 3,577 --
------------ ------------
Total revenue 655,481 259,537
Cost of services 435,003 162,881
General and administrative 648,254 363,808
Depreciation and amortization 99,299 24,240
------------ ------------
Operating loss (527,076) (291,392)
Interest expense, net 35,041 156
------------ ------------
NET LOSS $ (562,116) $ (291,549)
============ ============
Net loss per share - basic and diluted $ (0.03) $ (0.02)
============ ============
Weighted average number of common shares outstanding 18,128,788 16,131,847
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
23
<PAGE>
College Bound Student Alliance, Inc.
Consolidated Condensed Statement of Cash Flows
for the six month period ending January 31, 2000
<TABLE>
<S> <C>
Net Loss $(562,116)
Adjustments to reconcile net loss
Depreciation and amortization 99,299
Stock issuances 119,792
---------
Adjusted net loss (343,025)
Net cash provided by operating activities 279,649
Net cash provided by investment activities (7,382)
Net cash provided by financing activities --
---------
Net cash decrease for period (70,758)
Cash at beginning of period 82,383
---------
Cash at end of period $ 11,624
=========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
24
<PAGE>
COLLEGE BOUND STUDENT ALLIANCE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR SIX MONTHS ENDING JANUARY 31, 2000
unaudited
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
College Bound Student Alliance, Inc., (the "Company") was incorporated in the
State of Colorado on July 15, 1993 under the name Winter Park Ventures. The
Company was inactive until 1997. On April 22, 1997, the Company amended it
articles of incorporation and changed its name to SportsStar Marketing, Inc. On
July 13, 1999, the Company changed to its current name after the acquisition of
College Bound Student Athletes, Inc.
The Company's business objective is to expand the choices of colleges of
qualified students and to assist parents and students who have the opportunity
to access financial aid opportunities. This is the Company's only business
segment. The company is transitioning from a franchise based sales force to a
direct sales force and other marketing channels. The Company uses a central
production and distribution facility to prepare the finished product and
distribute to the appropriate colleges. The Company's main product lines include
profiling, higher education aids and learning programs, financial aid and merit
award searches and academic and personal development programs. The Company also
owns the rights to publish the magazine "BlueChip Illustrated".
Beginning in April 1999, the consolidated financial statements include the
financial statements of the Company and its wholly owned subsidiary, College
Bound Student-Athletes, Inc. All inter-company balances and transactions have
been eliminated in consolidation.
The accompanying condensed consolidated financial statements have been prepared,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. Although the Company believes that the disclosures are adequate to
make the information presented not misleading, it is suggested that these
condensed consolidated financial statements be read in connection with the
financial statements and notes thereto included herein for the year ended July
31, 1999 included elsewhere herein.
In the opinion of the Company, the accompanying condensed consolidated financial
statements include all adjustments (consisting of normal recurring accruals and
adjustments) required to present fairly the Company's financial position at
January 31, 2000 and January 31, 1999, and the results of their operations for
each of the six month periods ended January 31, 2000 and 1999.
25
<PAGE>
The operating results for the six months ended January 31, 2000 are not
necessarily indicative of the results that may be expected for the year ended
July 31, 2000.
2. NET LOSS PER SHARE
Basic loss and diluted loss per share are computed by dividing loss available to
common stockholders by the weighted average number of common shares outstanding
during the period and by all dilutive potential common shares outstanding during
the period, respectively. The weighted average number of shares used in the
computation of basic loss per share were 18,128,788 and 16,131,847 for the six
months ended January 31, 2000 and 1999, respectively. Basic loss per common
share and loss per common share assuming dilution are the same for the periods
ending January 31, 2000 and 1999 because of the anti-dilutive effect of stock
options and awards when there is a net loss. The Company has issued options to
purchase 1,611,233 shares of its common stock as of January 31, 2000, which
could potentially dilute basic earnings per share in the future.
3. USE OF 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 revenue and expenses during the reporting period. Actual
results could differ significantly from those amounts.
4. INCOME TAXES
Income taxes are computed using the anticipated effective tax rate for the year.
5. LIQUIDITY
In February 2000, the Company completed the sale of 2,000,000 shares of
common stock for $1,000,000 and in March 2000 received a $500,000 corporate
sponsorship. The Company repaid $210,000 of acquisition and other debt,
$76,000 of deferred compensation and $360,000 of deferred vendor and accounts
payable with the proceeds from these transactions.
Management of the Company believes the cash received from the sale of common
stock and sponsorship, plus cash generated from operations, will be
sufficient to allow the Company to meet its obligations as they come due
through at least August 2000.
The Company's internal sources of liquidity include the continuing commitment of
certain management personnel to defer a portion or all of their compensation
until cash flow improves, the commitment of certain major
stockholders/noteholders to defer
26
<PAGE>
payments on their notes until cash flow improves and the ability of a
significant stockholder to contribute funding if needed.
6. BUSINESS COMBINATION
On April 15, 1999, the Company acquired College Bound Student Athletes, Inc.
(CBS Athletes), for $1,307,000, consisting of $1,040,000 debt, 545,000 shares of
the Company's stock, and options to purchase 500,000 shares of the company's
common stock at $0.50 per share. Additional payments of up to $1.1 million and
options to purchase 500,000 shares of the Company's common stock could be made
upon CBS Athletes achieving certain performance thresholds. It is presently not
probable that such performance thresholds will be met. Additional consideration,
if any, would be recognized at the point that meeting the thresholds becomes
probable.
The acquisition has been accounted for by the purchase method and the results of
operation of have been included in the Company's financial statements from April
15, 1999. The purchase price was allocated to the fair value of identifiable
assets and liabilities. In connection with the purchase, the Company recorded
three intangible assets: payment for a covenant not to compete of $156,013 which
is being amortized over the covenant period of three years on a straight-line
basis; software of $73,300 which is being amortized on a straight line basis
over five years; and recruiting systems technology of $1,057,108 which is being
amortized on a straight line basis over ten years.
7. NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties include notes payable to stockholders and
employees. Interest is accrued at rates ranging from 8% to 10% per annum and the
notes payable, including accrued interest, are due upon the Company obtaining
defined additional financing.
8. STOCKHOLDERS' EQUITY (DEFICIT)
The Company has 10,000,000 shares of authorized preferred stock, par value
$0.001, issuable from time to time in different series with rights and
privileges to be determined by the Board of Directors. No preferred stock has
yet been issued.
27
<PAGE>
9. STOCK OPTIONS
Stock option activity during the six months ending January 31, 2000 was as
follows:
<TABLE>
<CAPTION>
Number of shares Range of exercise prices
---------------- ------------------------
<S> <C> <C>
Balance at July 31, 1999 1,126,233 $0.50 to $1.00
Granted 485,000 $0.27 to $0.50
Canceled or exercised 0
---------
Balance at January 31, 2000 1,611,233 $0.27 to $1.00
=========
Number of options exercisable at January 31, 2000 1,326,233 $0.27 to $1.00
=========
</TABLE>
The Company has agreements to grant additional options to certain employees. The
Chairman of the Board is granted an additional 200,000 options for each year of
service which vests after the year such service is completed. The CEO is to
receive 250,000 options on the anniversary date of employment and the Corporate
Controller is to receive 20,000 per year for the next four years on the
anniversary date of employment, which vest after the year such service is
completed.
28
<PAGE>
Independent Auditors' Report
Board of Directors
College Bound Student Alliance, Inc. and subsidiary:
We have audited the accompanying consolidated balance sheet of College Bound
Student Alliance, Inc. and subsidiary (Company) as of July 31, 1999, and the
related consolidated statement of operations, stockholders' equity (deficit) and
cash flows for the year then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit. The
financial statements of College Bound Student Alliance, Inc. as of and for the
year ended July 31, 1998, were audited by other auditors, whose report dated
December 7, 1998 on those statements included an explanatory paragraph due to
uncertainty relating to the Company's ability to continue as a going concern.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1999 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of College
Bound Student Alliance, Inc. and subsidiary as of July 31, 1999, and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
KPMG LLP
Denver, Colorado
January 19, 2000, except as to
note 2, which is as of
March 9, 2000
29
<PAGE>
COLLEGE BOUND STUDENT ALLIANCE, INC.
AND SUBSIDIARY
Consolidated Financial Statements
July 31, 1999 and 1998
(With Independent Auditors' Report Thereon)
30
<PAGE>
COLLEGE BOUND STUDENT ALLIANCE, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
July 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
----------- ----------
<S> <C> <C>
Current assets:
Cash $ 82,383 173,832
Trade credits -- 49,513
Accounts receivable, net of allowance for doubtful accounts of
$28,000 in 1999 21,052 --
Other current assets 14,810 11,917
Current portion of notes receivable -- 16,090
Receivable from related party -- 660
----------- ----------
Total current assets 118,245 252,012
Notes receivable less current portion -- 7,963
Property and equipment, net 83,286 36,624
Licensing rights, net of accumulated amortization of $91,000 and
$47,250 in 1999 and 1998, respectively 119,000 162,750
Organization costs -- 1,378
Other assets, net of accumulated amortization of $54,826 in 1999 1,236,695 5,100
----------- ----------
Total assets $ 1,557,226 465,827
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable $ 50,000 --
Current portion of capital lease obligation 3,372 --
Current portion of long-term debt payable to stockholder 132,348 --
Accounts payable 374,252 37,910
Accrued liabilities 128,697 23,566
Notes payable to related parties 86,000 --
Due to related parties 98,340 --
Deferred revenue 36,208 --
----------- ----------
Total current liabilities 909,217 61,476
----------- ----------
Long-term liabilities -
long-term debt payable to stockholder, less current portion 751,976 --
----------- ----------
Total liabilities 1,661,193 61,476
Stockholders' equity (deficit):
Preferred stock, $.001 par value, 10,000,000 shares authorized,
none issued or outstanding -- --
Common stock, $.001 par value, 40,000,000 shares authorized;
17,784,748 and 15,986,800 shares issued and outstanding at
July 31, 1999 and 1998, respectively 17,785 15,987
Additional paid in capital 1,360,977 1,077,103
Accumulated deficit (1,482,729) (688,739)
----------- ----------
Total stockholders' equity (deficit) (103,967) 404,351
----------- ----------
Commitments and contingent liabilities (notes 3, 6, 7, 8 and 11)
Total liabilities and stockholders' equity (deficit) $ 1,557,226 465,827
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
COLLEGE BOUND STUDENT ALLIANCE, INC.
AND SUBSIDIARY
Consolidated Statements of Operations
Years ended July 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Revenue:
Profile fees $ 499,154 107,543
Franchise fees 156,627 64,682
Other 51,105 22,447
------------ -----------
706,886 194,672
Costs and expenses:
Cost of services 413,015 --
Selling, general and administrative expenses 945,077 794,839
Depreciation and amortization 110,104 48,056
------------ -----------
1,468,196 842,895
------------ -----------
Loss from operations (761,310) (648,223)
Interest expense (41,014) (9,204)
Other income, net 8,334 --
------------ -----------
Loss before income taxes (793,990) (657,427)
Provision for income taxes -- --
------------ -----------
Net loss $ (793,990) (657,427)
============ ===========
Net loss per share - basic and diluted $ (0.05) (0.04)
============ ===========
Weighted average number of common shares outstanding 16,711,127 15,607,360
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
COLLEGE BOUND STUDENT ALLIANCE, INC.
AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
Years ended July 31, 1999 and 1998
<TABLE>
<CAPTION>
Additional Total
paid in Accumulated stockholders'
Shares Amount capital deficit equity (deficit)
---------- ------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at July 31, 1997 13,396,000 $13,396 174,104 (31,312) 156,188
Common stock issued for services 750,000 750 74,250 -- 75,000
Common stock issued to investors for bridge loan 100,000 100 9,900 -- 10,000
Common stock issued to officers and directors for services 75,632 76 15,740 -- 15,816
Common stock issued to repurchase franchises 23,500 23 6,127 -- 6,150
Common stock issued for cash, net of offering costs 1,540,000 1,540 743,460 -- 745,000
Common stock accrued but not issued 101,668 102 53,522 -- 53,624
Net loss -- -- -- (657,427) (657,427)
---------- ------- ---------- ---------- --------
Balance at July 31, 1998 15,986,800 15,987 1,077,103 (688,739) 404,351
Common stock issued for cash 42,000 42 12,269 -- 12,311
Common stock issued to directors for services 236,001 236 21,038 -- 21,274
Common stock issued to employees for compensation 173,656 174 15,584 -- 15,758
Common stock issued for services 471,795 472 41,298 -- 41,770
Common stock issued for acquisition 522,500 522 132,506 -- 133,028
Common stock options issued for acquisition -- -- 61,531 -- 61,531
Common stock held in escrow 351,996 352 (352) -- --
Net loss -- -- -- (793,990) (793,990)
---------- ------- ---------- ---------- --------
Balance at July 31, 1999 17,784,748 $17,785 1,360,977 (1,482,729) (103,967)
========== ======= ========== ========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE>
COLLEGE BOUND STUDENT ALLIANCE, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended July 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (793,990) (657,427)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provision for doubtful accounts 18,000 --
Depreciation and amortization 112,069 48,056
Issuance of common stock for director services 21,274 --
Issuance of common stock for employee compensation 15,758 --
Issuance of common stock for services 13,581 95,975
Trade credits exchanged for services -- 27,182
Notes receivable exchanged for franchises -- (24,713)
Changes in operating assets and liabilities:
Accounts receivable 6,225 --
Other current assets (4,858) (6,197)
Accrued liabilities (46,113) 23,566
Accounts payable 341,854 22,993
----------- --------
Net cash used in operating activities (316,200) (470,565)
----------- --------
Cash flows from investing activities:
Purchase of property and equipment (2,000) (28,124)
Purchase of CBSA 24,446 --
Other assets (29,970) --
----------- --------
Net cash used in investing activities (7,524) (28,124)
----------- --------
Cash flows from financing activities:
Payments on capital leases (1,291) --
Proceeds from notes payable 50,000 778,225
Proceeds from notes payable to related parties 11,000 --
Collections on notes receivable 24,713 390
Decrease (increase) in related party payable 147,853 (144,043)
----------- --------
Net cash provided by financing activities 232,275 634,572
----------- --------
Net increase (decrease) in cash (91,449) 135,883
Cash at beginning of year 173,832 37,949
----------- --------
Cash at end of year $ 82,383 173,832
=========== ========
Supplemental disclosure of cash flow information:
Cash paid for interest for the years ended July 31, 1999
and 1998 was $2,340 and $6,583, respectively
Schedule of non-cash investing and financing activities:
The Company purchased all the outstanding stock of
College Bound Student-Athletes, Inc. Assets were
acquired and liabilities assumed were as follows:
Fair value of assets acquired $ 1,519,006 --
Long-term debt assumed (964,901) --
Common stock and fair value of stock options issued (194,559) --
----------- --------
Other liabilities assumed $ 359,546 --
=========== ========
The Company received $31,000 in trade credits in settlement of a note
receivable during the year ended July 31, 1998
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE>
COLLEGE BOUND STUDENT ALLIANCE, INC.
and subsidiary
Notes to Consolidated Financial Statements
July 31, 1999 and 1998
(1) ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) HISTORY AND BUSINESS ACTIVITY
College Bound Student Alliance, Inc. (Company) was incorporated in the
State of Colorado on July 15, 1993 under the name Winter Park Ventures. The
Company was inactive until 1997. On April 22, 1997, the Company amended its
articles of incorporation and changed its name to SportStar Marketing, Inc.
On July 13, 1999, the Company changed to its current name after the
acquisition of College Bound Student Athletes, Inc.
The Company's business objective is to expand the choices of qualified
colleges for qualified students and assists parents and students who have
the opportunity to qualify for the financial aid opportunities available to
them. This is the Company's only business segment. The Company is
transitioning from a franchise based sales force to a direct sales force
and other marketing channels. The Company uses a central production and
distribution facility to prepare the finished product and distribute to the
appropriate colleges. The Company's main product line includes profiling,
higher education aids and learning programs, financial aid and merit award
searches and academic and personal development programs. The Company also
holds the rights to publish the magazine "BlueChip Illustrated".
During fiscal 1999, the consolidated financial statements include the
financial statements of the Company and its wholly owned subsidiary,
College Bound Student-Athletes Inc. All intercompany balances and
transactions have been eliminated in consolidation.
(b) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less as cash equivalents.
(c) TRADE CREDITS
The Company accounts for trade credits according to Financial Accounting
Standards Board Emerging Issues Task Force abstract No. 93-11. Trade
credits are recorded at cost, and represent purchasing value for goods and
services in established barter markets. The Company considers these credits
as the equivalent of cash for purchase of certain goods and services, but
reviews its trade credits periodically to assess their carrying amounts.
(d) LICENSING RIGHTS
Licensing rights are recorded at cost and are amortized on a straight-line
basis over the term of the agreement, which is five years.
(e) NET LOSS PER SHARE
The Company computes earnings (loss) per share in accordance with the
requirements of Statement of Financial Accounting Standards No. 128,
EARNINGS PER SHARE, (SFAS No. 128). SFAS No. 128 requires the disclosure of
basic earnings per share and diluted earnings per
35
<PAGE>
COLLEGE BOUND STUDENT ALLIANCE, INC.
and subsidiary
Notes to Consolidated Financial Statements
July 31, 1999 and 1998
share. Basic earnings per share is computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding. Diluted earnings per share is computed by dividing income
available to common stockholders by the weighted average number of common
shares outstanding increased for potentially dilutive common shares
outstanding during the period. The dilutive effect of stock options,
warrants, and their equivalents is calculated using the treasury stock
method.
Net loss per common share - basic and diluted is computed based on the
weighted average number of shares of common stock outstanding during the
year. Basic loss per common share and loss per common share - assuming
dilution, are the same for the years ended July 31, 1999 and 1998 because
of the antidilutive effect of stock options and awards when there is a net
loss. The Company has issued options to purchase 1,126,233 and 311,233
shares of its common stock as of July 31, 1999 and 1998, respectively,
which could potentially dilute basic earnings per share in the future.
(f) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciation is recorded
using the straight-line method over the estimated lives of the assets
ranging from five to seven years for furniture and equipment and three
years for vehicles.
(g) REVENUE RECOGNITION
The Company recognizes profile fee revenue from students as the services
are performed. Deferred revenue is recorded for cash received in advance
for services the Company is obligated to perform. The Company recognizes
franchise fee revenue from an individual franchise sale when all the
initial services of the Company, as required by the franchise agreement,
have been performed.
(h) INCOME TAXES
The Company has accounted for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), ACCOUNTING FOR
INCOME TAXES. Under SFAS No. 109, income taxes are accounted for under the
asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in operations in the period that includes the enactment date.
(i) STOCK OPTION PLAN AND STOCK OPTION AGREEMENTS
The Company accounts for stock options issued to employees in accordance
with the provisions of Accounting Principles Board (APB) Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED
36
<PAGE>
COLLEGE BOUND STUDENT ALLIANCE, INC.
and subsidiary
Notes to Consolidated Financial Statements
July 31, 1999 and 1998
TO EMPLOYEES, and related interpretations. As such, compensation expense is
recorded on the date of grant only if the current market price of the
underlying stock exceeds the exercise price. The Company has adopted
Statement of Financial Accounting Standards No. 123 (SFAS No. 123),
ACCOUNTING FOR STOCK-BASED COMPENSATION, which permits entities to
recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of APB Opinion No. 25
and provide pro forma net income (loss) disclosures for employee stock
option grants as if the fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the provisions
of APB Opinion No. 25 and provide the pro forma disclosures required by
SFAS No. 123 for stock options issued to employees. All stock options
issued to non-employees are accounted for using the provisions of SFAS No.
123.
(j) USE OF 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 revenue and expenses
during the reporting period. Actual results could differ significantly from
those estimates.
(k) RECLASSIFICATION
Certain financial statement reclassifications have been made to 1998
amounts to conform to the presentation used in 1999.
(2) LIQUIDITY
In February of 2000, the Company completed a sale of 2,000,000 shares of
common stock for $1,000,000 and received in March of 2000, $500,000 of
corporate sponsorship. Management of the Company believes the cash received
from the sale of common stock and sponsorship, plus any cash generated from
operations, will be sufficient to allow the Company to meet its obligations
as they come due through at least August 1, 2000.
(3) BUSINESS COMBINATION
On April 15, 1999, the Company acquired College Bound Student Athletes,
Inc. (CBS Athletes), for $1,307,146, consisting of $1,039,900 debt, 545,000
shares of the Company's common stock, and options to purchase 500,000
shares of the Company's common stock at $0.50 per share. Additional
payments of up to $1.1 million and options to purchase 500,000 shares of
the Company's common stock could be made upon CBS Athletes achieving
certain performance thresholds. It is presently not probable that such
performance thresholds will be met. Additional consideration, if any, would
be recognized at the point that meeting the thresholds becomes probable.
The acquisition has been accounted for by the purchase method and the
results of operations of CBS Athletes have been included in the Company's
financial statements from April 15, 1999. The
37
<PAGE>
COLLEGE BOUND STUDENT ALLIANCE, INC.
and subsidiary
Notes to Consolidated Financial Statements
July 31, 1999 and 1998
purchase price was allocated to the fair value of identifiable assets and
liabilities. In connection with the purchase, the Company recorded three
intangible assets: payment for a covenant not to compete of $156,013 which
is being amortized over the covenant period of three years on a
straight-line basis; software of $73,300 which is being amortized on a
straight line basis over five years; and recruiting systems technology of
$1,057,108 which is being amortized on a straight line basis over ten
years. These intangible assets have been recorded as other assets.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and CBS Athletes as if the
acquisition had occurred at the beginning of fiscal 1999 and 1998, after
giving effect to certain adjustments including amortization of intangibles,
additional depreciation expense and increased interest expense on debt
related to the acquisition. The pro forma financial information does not
necessarily reflect the results of operations that would have occurred had
the Company and CBSA constituted a single entity during such periods.
<TABLE>
<CAPTION>
Year ended Year ended
July 31, 1999 July 31, 1998
------------- -------------
<S> <C> <C>
Net sales $ 1,357,630 1,913,838
=========== ==========
Net loss $ 753,045 (602,382)
=========== ==========
Net loss per share - basic and diluted $ (.05) (.04)
============ ==========
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment at July 31, 1999 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
--------- -------
<S> <C> <C>
Furniture and equipment $ 89,659 46,923
Vehicle 14,076 --
--------- -------
103,735 46,923
Less accumulated depreciation (20,449) (10,299)
--------- -------
$ 83,286 36,624
========= =======
</TABLE>
Depreciation expense for the years ended July 31, 1999 and 1998, was
$11,719 and $5,689, respectively.
38
<PAGE>
COLLEGE BOUND STUDENT ALLIANCE, INC.
and subsidiary
Notes to Consolidated Financial Statements
July 31, 1999 and 1998
(5) NOTES RECEIVABLE
Notes receivable consist of the following at July 31:
<TABLE>
<CAPTION>
1998
-------
<S> <C>
Promissory note, balance due on or before November 1, 2000;
interest at an annual rate of 8%, secured by franchise $ 4,553
Promissory note, monthly installments of $250, balance due
December 30, 1999; interest at an annual rate of 5%,
secured by franchise 5,750
Promissory note, $8,000 due December 1998 plus 6% interest,
$5,750 due June 1, 1999 plus 6% interest, secured by franchise 13,750
-------
24,053
Less current portion 16,090
-------
$ 7,963
=======
</TABLE>
(6) NOTE PAYABLE AND NOTES PAYABLE TO RELATED PARTIES
On July 28, 1999, the Company borrowed $50,000 from a third party with an
interest rate of 10% per annum, the principal and accrued interest of which
is payable on January 28, 2000.
Notes payable to related parties include notes payable to stockholders and
employees. Interest is accrued at rates ranging from 8% to 10% per annum
and the notes payable, including accrued interest, are due upon the
Company's obtaining defined additional financing.
(7) LONG-TERM DEBT PAYABLE TO STOCKHOLDER
Notes payable to related parties as of July 31, 1999 consisted of the
following:
<TABLE>
<S> <C>
Note payable to stockholder for acquisition of CBS Athletes $527,951
Note payable to stockholder assumed in connection with acquisition
of CBS Athletes 208,888
Note payable to stockholder for agreement not to compete
in connection with acquisition of CBS Athletes 147,485
--------
884,324
Less: current portion 132,348
--------
$751,976
========
</TABLE>
39
<PAGE>
COLLEGE BOUND STUDENT ALLIANCE, INC.
and subsidiary
Notes to Consolidated Financial Statements
July 31, 1999 and 1998
In December 1999 and March 2000, the former owner of CBS Athletes and the
Company entered into an amendment to require payments on debt acquired or
issued in connection with the acquisition of CBS Athletes as follows:
1. $600,000 non-interest bearing note and $75,000 other note: $160,000 is
due upon obtaining $1 million in financing (payment was made in March
2000) and the remainder of the unpaid balance upon receiving an
additional $3,500,000 in financing or $20,000 on July 1, 2000; $20,000
on October 1, 2000; $20,000 on January 1, 2001; $20,000 on March 1,
2001, and the balance on March 15, 2001.
2. $176,000 covenant not to compete: 36 equal monthly installments of
$4,889 beginning December 15, 1999.
3. $208,888, 8% note final payment due November 15, 2004: 60 equal
monthly installments of interest and principal of $4,446 beginning
December 15, 1999.
In March 2000, payments of $160,000 were made on the $675,000
above-mentioned notes.
Aggregate maturities of notes payable as of July 31, 1999 assuming the
Company does not obtain additional financing which causes acceleration of
the payment of this debt follows:
<TABLE>
<S> <C>
July 31:
2000 $ 132,348
2001 532,494
2002 95,381
2003 61,877
2004 47,568
Thereafter 14,656
---------
$ 884,324
=========
</TABLE>
(8) RELATED PARTY TRANSACTIONS
The Company entered into a consulting agreement with the former owner of
CBSA for $1,500 per month for five years beginning as of the date when the
first $100,000 payment is made on the Acquisition Note. No payments were
made on the Acquisition Note and no amounts have been expensed or are
payable as of July 31, 1999 related to this consulting agreement.
The Company leases office space on a month-to-month basis from Chartwell
International, Inc. (Chartwell). Rental expense was $37,545 and $39,775 for
the years ended July 31, 1999 and 1998, respectively.
40
<PAGE>
COLLEGE BOUND STUDENT ALLIANCE, INC.
and subsidiary
Notes to Consolidated Financial Statements
July 31, 1999 and 1998
Beginning February 1, 1998, the Company entered into a three-year agreement
with Chartwell whereby Chartwell's management performs certain management
functions for the Company in exchange for $7,500 per month. Management fee
expense was $90,000 and $45,000 for the years ended July 31, 1999 and 1998,
respectively. Included in due to related parties is $98,340 and $0 payable
to Chartwell at July 31, 1999 and 1998, respectively.
The Company has acquired licensing rights through an agreement with
National College Recruiting Association, Inc. (NCRA), which is a wholly
owned subsidiary of Chartwell. The license provides the Company with
exclusive use, rights and interest in the NCRA name, franchise program,
operating franchisees, franchise fees, operating systems and technology,
the "Blue Chip Illustrated" magazine and the 900 Sports line, for a
five-year period renewable for an unspecified number of five year terms.
The fee for the license includes a payment of $210,000 to NCRA, plus 2.5%
of gross revenue from licensed operations and an additional payment of
$100,000 upon the Company raising an additional $500,000 in capital.
The Company, through the NCRA license, offered for sale and sold franchises
whereby the purchaser may, for a fee and royalties, secure the use of
NCRA's name, distribution network and marketing materials. Under the terms
of the franchise agreement, prior to the opening of the franchise, the
Company makes available to the franchisee, training at a NCRA facility,
sales and start up consulting, and the right to operate a NCRA franchise
using the NCRA name and trademark. During the operation of the franchise,
the Company is required to provide, among other things, ongoing training
and consulting, subscriber services and access to advertising materials and
supplies generally for an additional fee.
The Company has recorded its licensing rights at cost, $210,000, and is
amortizing the asset over a five-year period using the straight-line
method.
(9) INCOME TAXES
Income tax benefit differed from the amounts computed by applying the U.S.
Federal income tax rate of 34% for fiscal 1999 and 1998 as a result of the
following:
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Computed "expected" tax benefit $ 269,957 223,525
Increase (decrease) in tax benefit resulting
from:
State income taxes, net of federal benefit 26,009 21,695
Increase in valuation allowance (295,966) (245,220)
--------- --------
Income tax expense (benefit) $ -- --
========= ========
</TABLE>
The Company has a net operating loss carryforward of approximately $1.4
million available to offset future U.S. tax liabilities, which expires
beginning in 2018 and is the Company's only significant
41
<PAGE>
deferred tax asset. Due to historical operating losses, the Company has
provided a valuation allowance against this asset. Accordingly, no deferred
tax asset has been included in the accompanying balance sheets.
(10) STOCKHOLDERS' EQUITY (DEFICIT)
The Company has 10,000,000 shares of authorized preferred stock, par value
$.001, issuable from time to time in different series with rights and
privileges to be determined by the Board of Directors. No specific series
of preferred stock have yet been established.
At July 31, 1998, the Company had an obligation to issue 101,668 shares of
common stock to employees and directors of the Company. Consideration had
been exchanged but the shares had not been issued at year end. These shares
are considered issued and outstanding at July 31, 1998.
(11) EMPLOYMENT AGREEMENT
In August 1997, the Chairman of the Board entered into an agreement which
gives the Chairman a five-year option to purchase 1,000,000 shares of the
Company's common stock at $.50 per share which was the fair value of the
common stock on the grant date. The shares vest at the rate of 200,000
shares per year.
(12) STOCK OPTIONS
The per share weighted average fair value of stock options granted during
1999 and 1998 was $.30 and $.34, respectively, on the date of grant using
the Black Scholes option pricing model with the following assumptions: no
expected dividend yield, risk free interest rate of 6%, volatility of 175%,
and expected option lives ranging from 3 to 5 years.
The Company applies APB Opinion No. 25 in accounting for its stock options
issued to employees and, accordingly, no compensation cost has been
recognized in the accompanying financial statements. Had the Company
determined compensation cost based on the fair value at the grant date for
its stock options under SFAS No. 123, the Company's net loss would have
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
Net loss as reported $ (793,990) (657,427)
========== ========
Net loss, pro forma $ (850,285) (657,427)
========== ========
Net loss per share - basic and diluted
pro forma $ (.05) (0.04)
========== ========
</TABLE>
The above pro forma disclosures are not necessarily representative of the
effect on the reported net loss for future periods because options vest
over several years and additional awards are generally made each year.
42
<PAGE>
COLLEGE BOUND STUDENT ALLIANCE, INC.
and subsidiary
Notes to Consolidated Financial Statements
July 31, 1999 and 1998
Stock option activity during the years indicated was as follows:
<TABLE>
<CAPTION>
Number of Range of
shares exercise prices
---------- ---------------
<S> <C> <C>
Balance at July 31, 1997 10,000 $ .50
Granted 311,233
Canceled (10,000)
-----------
Balance at July 28, 1998 311,233 .50
Granted 815,000 .50 - 1.00
-----------
Balance at July 31, 1999 1,126,233 .50 - 1.00
===========
Number of options exercisable at July 31, 1999 321,233 .50 - 1.00
===========
</TABLE>
Canceled options are a result of employee terminations or forfeitures.
<TABLE>
<CAPTION>
Weighted
average
remaining Number
Number contractual life exercisable at
Exercise price outstanding (years) July 31, 1999
-------------- ----------- ---------------- --------------
<S> <C> <C> <C>
$ .50 1,116,233 3.8 311,233
1.00 10,000 1.6 10,000
--------- --------
1,126,233 321,233
========= ========
</TABLE>
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable, notes payable, accounts
payable, accrued liabilities, notes payable to related parties and due to
related parties approximates fair value because of the short maturity or
duration of these instruments. The carrying amount of long-term debt
approximates fair value as the interest rates are considered market rates.
43
<PAGE>
PART III
The following exhibits are included with this registration statement:
REGULATION
S-B DOCUMENT
NUMBER
2.1 Stock Purchase Agreement with Wayne O. Gemas*
3.1 Amended and Restated Articles of Incorporation*
3.2 Bylaws*
10.1 Agreement with National College Recruiting Association*
10.2 Management Services Agreement with Chartwell
International, Inc.*
10.3 Office Lease with Chartwell International, Inc.*
10.4 Office Lease with The Intrepid Company*
10.5 Consulting Agreement with Wayne O. Gemas*
10.6 Executive Employment Agreement with Kevin Gemas*
10.7 Employment Agreement with Arthur D. Harrison*
10.8 Employment Agreement with Rick N. Newton*
10.9 Promissory Note to Arthur D. Harrison dated June 15, 1999*
10.10 Employment and Stock Option Agreement with Jerome M.
Lapin dated August 9, 1999*
10.11 Promissory Note to Chartwell International, Inc. dated
January 28, 2000, as amended*
10.12 Promissory Note to Chartwell International, Inc. dated
February 1, 2000, as amended*
21 Subsidiaries of the Registrant*
27 Financial Data Schedule*
99 Consent of KPMG LLP*
- -----------------
* previously filed
44
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
COLLEGE BOUND STUDENT ALLIANCE, INC.
Date: April 12, 2000 By: /s/ Jerome M. Lapin
---------------------------------
Jerome M. Lapin
Chief Executive Officer
45
