UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter Ended March 31, 2005.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission File Number 814-00703
AVENTURA HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter)
Florida 65-024624
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
2650 Biscayne Boulevard, First Floor, Miami, Florida 33137
(Address of principal executive offices)
(305) 937-2000
(Issuer's telephone number)
Aventura Holdings, Inc.
20533 Biscayne Boulevard, Suite 1122, Aventura, Florida 33180
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes [X]
No [ ]
The number of shares of common stock outstanding as of January 23, 2006 was
2,310,657,813.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
1
Index
Page
Number
PART I. FINANCIAL INFORMATION 3
Item 1. Financial statements 3
Balance Sheet as of March 31, 2005 (unaudited) 3
Statements of Operations from January 1, 2005 through
March 15, 2005 (Pre-BDC), from March 16, 2005 through
March 31, 2005 (Post-BDC) and for the three months ended
March 31, 2004 (unaudited) 4
Statements of Cash Flows for the
three months ended March 31, 2005 and 2004 (unaudited) 5
Statement of Changes in Net Assets from March 16, 2005
To March 31, 2005(unaudited) 6
Schedule of Investments as of March 31, 2005 (unaudited) 7
Schedule of Financial Highlights from March 16, 2005
through March 31, 2005 (unaudited) 8
Notes to Financial Statements (unaudited) 9
Item 2. Management's Discussion and Analysis or Plan of Operations 14
Item 3. Controls and Procedures 19
PART II. OTHER INFORMATION 20
Item 1. Legal Proceedings 20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits 21
SIGNATURES 21
CERTIFICATIONS 22
2
PART I. FINANCIAL INFORMATION
Item 1. Financial statements
AVENTURA HOLDINGS, INC. F/K/A SUN NETWORK GROUP, INC.
BALANCE SHEET
MARCH 31, 2005
(unaudited)
ASSETS:
Current Assets:
Cash and cash equivalents $ 4,110
--------------
Total Current Assets 4,110
--------------
Investments -
--------------
TOTAL ASSETS $ 4,110
==============
LIABILITIES & SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts payable $ 15,625
Due to stockholder 93,500
--------------
Total Current Liabilities 109,125
--------------
Shareholder Equity:
Common Stock; $0.001 par value; 5,000,000,000 shares
authorized; 323,657,813 shares issued and outstanding 323,658
Additional Paid in Capital 8,218,502
Accumulated Deficit (8,647,175)
--------------
Total Shareholders' Equity (105,015)
--------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 4,110
==============
$ (0.00)
==============
The accompanying notes are an integral part of these financial statements.
3
AVENTURA HOLDINGS, INC. F/K/A SUN NETWORK GROUP, INC.
STATEMENTS OF OPERATIONS
POST BDC ELECTION PRE BDC ELECTION FOR THE THREE
FROM MARCH 16 FROM JANUARY 1 MONTHS ENDED
THRU MARCH 31 THRU MARCH 15 MARCH 31
-------------- -------------- --------------
2005 2005 2004
-------------- -------------- --------------
(unaudited) (unaudited) (unaudited)
OPERATING INCOME:
------------------
REVENUES:
Operating Revenues $ - $ 5,000 $ 2,415
EXPENSES:
Operating Expenses:
Compensation - 37,500
Consulting 149,000 1,112,233
Debenture penalties - 30,000
Debt issuance cost amortization - 7,000
Professional Fees 18,422 2,729 10,143
General & Administrative Expenses 3,767 34,960 34,711
-------------- -------------- --------------
Total Operating Expenses 22,189 186,689 1,231,587
-------------- -------------- --------------
Net Operating Loss (22,189) (181,689) (1,229,172)
OTHER INCOME AND (EXPENSES):
Settlement expense (57,334)
Interest expense (19,581)
Recovery of bad debt 2,849 4,520
-------------- -------------- --------------
Total Other Revenues and (Expenses) - 2,849 (72,395)
NET LOSS (22,189) (178,840) (1,301,567)
============== ============== ==============
LOSS PER SHARE:
Net Loss Per Common Share -
Basic and Diluted $ (0.00) $ (0.00) $ (0.02)
============== ============== ==============
Weighted Common Shares Outstanding -
Basic and Diluted 323,657,813 323,657,813 79,961,349
============== ============== ==============
The accompanying notes are an integral part of these financial statements.
4
AVENTURA HOLDINGS, INC. F/K/A SUN NETWORK GROUP, INC.
STATEMENTS OF CASH FLOWS
For the Three Months Ended
March 31
---------------------------------
2005 2004
-------------- --------------
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $ (201,029) $ (1,301,567)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization of deferred finance costs 7,000
Amortization of debt discounts to interest expense - 875
Stock based consulting expense 147,025 1,112,233
Settlement expense - 57,334
Increase (decrease) in:
Accounts payable (8,238) 3,542
Accrued interest - 18,706
Accrued penalties - 30,000
Accrued compensation, related party - 27,500
-------------- --------------
Net cash used in operating activities (62,242) (44,377)
-------------- --------------
Cash flows from financing activities:
Proceeds from (payments on) loans from officer 46,500 -
Proceeds from loans payable 490,000
Debt issuance costs (49,000)
Payments on convertible debenture - (270,000)
-------------- --------------
Net cash provided by financing activities 46,500 171,000
-------------- --------------
Net decrease in cash (15,742) 126,623
Cash at beginning of period 19,852 101,879
-------------- --------------
Cash at end of period $ 4,110 $ 228,502
============== ==============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ - $ -
============== ==============
Income Taxes $ - $ -
============== ==============
Non-Cash investing and financing activities:
Common stock issued for debentures payable $ - $ 62,188
============== ==============
Debt issuance costs deferred in connection with
convertible debentures $ - $ 49,000
============== ==============
The accompanying notes are an integral part of these financial statements.
5
AVENTURA HOLDINGS, INC. F/K/A SUN NETWORK GROUP, INC.
STATEMENT OF CHANGES IN NET ASSETS
MARCH 31, 2005
FROM MARCH 16
THROUGH
MARCH 31, 2005
--------------
(unaudited)
Decrease in net assets from operations:
Net operating loss (22,189)
--------------
Net decrease in net assets from operations (22,189)
Common stock transactions -
--------------
Total increase in net assets (22,189)
Net Assets:
Beginning of Period (82,826)
--------------
End of Period (105,015)
==============
The accompanying notes are an integral part of these financial statements
6
AVENTURA HOLDINGS, INC. F/K/A SUN NETWORK GROUP, INC.
SCHEDULE OF INVESTMENTS
MARCH 31, 2005
TITLE OF PERCENTAGE OF
SECURITIES HELD CLASS HELD ON
PORTFOLIO PRIMARY BY THE A FULLY DILUTED FAIR
COMPANY INDUSTRY COMPANY BASIS (3) COST VALUE
---------------------- -------------- -------------- -------------- -------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited)
Investments:
Majority Owned Affiliate (1):
Radio TV Network, Inc. Media Common Stock 100% $ - $ -
Minority Owned Other Controlled
Affiliate (2):
Radio X Network, Inc. Media Common Stock 50% $ 110,000 $ -
-------------- --------------
TOTAL INVESTMENTS, NET OF UNEARNED INCOME $ 110,000 $ -
============== ==============
(1) Majority owned investments are generally defined under the Investment Company Act of 1940 as companies in which
we own more than 50%
of the voting securities of the company. If we own 100% of a Company, it is presented as majority owned.
(2) Minority owned investments are generally defined under the Investment Company Act of 1940 as companies in which
we own more than 25%
but less than a majority of the voting securities of the company.
(3) All common stock and member unit investments are in private companies, non-income producing and restricted at
the relevant period end.
The accompanying notes are an integral part of these financial statements
7
AVENTURA HOLDINGS, INC. F/K/A SUN NETWORK GROUP, INC.
SCHEDULE OF FINANCIAL HIGHLIGHTS
FROM MARCH 16 THROUGH MARCH 31, 2005
(unaudited)
Net asset value at beginning of period (a) $ (0.00)
Net operating income (losses) before investment gains and losses (b) (0.00)
Net realized gains (losses) on investments (b) -
Net unrealized gains (losses) on investments (b) -
--------------
Net increase (decrease) in shareholders' equity from net income (loss) (0.00)
--------------
Dividends declared -
--------------
Net increase (decrease) in stockholders' equity resulting from dividends -
--------------
Issuance of shares 0.00
--------------
Net increase (decrease) in stockholders' equity relating to share issuances 0.00
--------------
Net asset value at end of period (a) $ (0.00)
==============
Per share market value at end of period $ (0.00)
Total return (c) -21.13%
Shares outstanding at end of period 323,657,813
Ratio/Supplemental Data:
Net assets at end of period $ (105,015)
Ratio of operating expenses to average net assets (annualized) -21.13%
Ratio of net operating income to average net assets (annualized) -21.13%
(a) Based on total shares outstanding.
(b) Based on weighted average shares outstanding.
(c) Total return equals the change in the ending net asset value over the beginning of
period net asset value divided by the beginning net asset value.
The accompanying notes are an integral part of these financial statements
8
AVENTURA HOLDINGS, INC. F/K/A SUN NETWORK GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - NATURE OF ORGANIZATION
On March 15, 2005, the Company filed form N-54A with the SEC Securities and
Exchange Commission to become a Business Development Company ("BDC") pursuant to
Section 54 of the Investment Company Act of 1940 ("the "1940 Act"). As a result
of its new status, the Company will now operate as an investment holding company
and plans to announce a number of acquisitions and investments, each of which
will be designed to build an investment portfolio and enhance the Company's
shareholder value. It is the Company's intention to provide capital and
advisory services for management buyouts, recapitalizations, and the growth and
capital needs of emerging growth companies.
As a BDC, the Company will be structured in a manner more consistent with its
current business strategy. As a result, the Company is positioned to raise
capital for acquisitions and investments in a more efficient manner and to
develop and expand its business interests. The Company is currently
concentrating its investment strategies in the telephony sector based upon
experience and exposure to opportunities but plans to expand its potential
acquisitions and investments to other lines of business and industry, as the
acquisitions and investments, in total, will enhance value to stockholders
through capital appreciation and payments of dividends to the Company by its
investee companies.
BDC regulation was created in 1980 by Congress to encourage the flow of public
equity capital to small businesses in the United States. BDC's, like all mutual
funds and closed-end funds, are regulated under the 1940 Act. BDC's report to
stockholders like traditional operating companies and file regular quarterly and
annual reports with the Securities and Exchange Commission. BDC's are required
to make available significant managerial assistance to their portfolio
companies.
The Company filed for a change in name with the State of Florida on June 3, 2005
from Sun Network Group, Inc. to Aventura VoIP Networks, Inc. and on October 19,
2005 from Aventura VoIP Networks, Inc. to Aventura Holdings, Inc. The Company
financial statements are presented as Aventura Holdings, Inc. The NASD accepted
the Aventura Holdings, Inc. name change, assigned 053563 10 2 as our new CUSIP
and AVNT as our new trading symbol.
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A - Basis of Presentation
-----------------------------
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). The accompanying financial statements for the interim
periods are unaudited and reflect all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of the financial position and operating results for the
periods presented. These financial statements should be read in conjunction
with the financial statements of Aventura Holdings, Inc. f/k/a Sun Network
Group, Inc. for the years ended December 31, 2004 and 2003 and notes thereto
contained in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2004 as filed with the SEC . The results of operations for the
three months ended March 31, 2005 are not necessarily indicative of the results
for the full fiscal year ending December 31, 2005.
The accompanying unaudited financial statements are prepared in accordance with
the guidance in the AICPA's Audit and Accounting Guide, "Audits of Investment
Companies" since the Company elected to be regulated as a Business Development
Company effective March 15, 2005.
In accordance with Article 6 of Regulation S-X under the Securities Act of 1933
and Securities Exchange Act of 1934, the Company does not consolidate portfolio
company investments, including those in which it has a controlling interest.
Therefore, effective March 16, 2005, the Company no longer consolidates Radio X
Network and Radio TV Network.
9
The results of operations for 2005 are divided into two periods. The period
from January 1, to March 15, 2005 represents the period prior to BDC election
and the period from March 16, 2005 to March 31, 2005 represents the period the
Company operated as a BDC. Accounting principles used in the preparation of the
financial statements beginning March 16, 2005 are different from those of prior
periods and, therefore, the financial position and results of operations of
these periods are not directly comparable. The Company utilizes the cumulative
effect method to reflect the effects of conversion to a BDC. There was no
cumulative effect adjustment from the conversion to a BDC in March 2005.
On February 28, 2005 the Company entered into a binding letter of intent to
acquire 100% of Aventura Networks, LLC in exchange for shares of the Company's
common stock. Aventura is a leading Voice over Internet Protocol (VoIP)
telephone service provider conducting business primarily in the wholesale
market. In the event of termination of the letter of intent, there is a $50,000
termination fee payable by the party that terminates.
B - Summary of Significant Accounting Policies
----------------------------------------------------
Investments
Investments in securities of unaffiliated issuers represent holdings of less
than 5% of the issuer's voting common stock. Investments in and advances to
affiliates are presented as (i) majority-owned, if holdings, directly or
indirectly, represent over 50% of the issuer's voting common stock, (ii)
minority-owned other controlled affiliates if the holdings, directly or
indirectly, represent over 25% and up to 50% of the issuer's voting common stock
and (iii) minority-owned other non-controlled affiliates if the holdings,
directly or indirectly, represent 5% to 25% of the issuer's voting common stock.
Investments - other than securities represent all investments other than in
securities of the issuer.
Investments in securities or other than securities of privately held entities
are initially recorded at their original cost as of the date the Company
obtained an enforceable right to demand the securities or other investment
purchased and incurred an enforceable obligation to pay the investment price.
For financial statement purposes, investments are recorded at their fair value.
Currently, readily determinable fair values do not exist for our investments and
the fair value of these investments is determined in good faith by the Company's
Board of Directors pursuant to a valuation policy and consistent valuation
process. Due to the inherent uncertainty of these valuations, the estimates may
differ significantly from the values that would have been used had a ready
market for the investments existed and the differences may be material. Our
valuation methodology includes the examination of among other things, the
underlying portfolio company performance, financial condition and market
changing events that impact valuation.
Realized gains (losses) from the sale of investments and unrealized gains
(losses) from the valuation of investments are reflected in operations during
the period incurred.
Revenue Recognition
Prior to its BDC election in March, 2005 the Company recognized revenues in
accordance with the guidance in the Securities and Exchange Commission Staff
Accounting Bulletin 104. Revenue was recognized when persuasive evidence of an
arrangement exists, as services are provided and when collection of the fixed or
determinable selling price is reasonable assured.
Revenues from the current and future activities as a business development
company which may include investment income such as interest income and
dividends, and realized or unrealized gains and losses on investments will be
recognized in accordance with the AICPA's Audit and Accounting Guide, "Audits of
Investment Companies."
10
Net Loss Per Common Share
Basic net income (loss) per common share (Basic EPS) excludes dilution and is
computed by dividing net income (loss) available to common stockholder by the
weighted average number of common shares outstanding for the period. Diluted
net income per share (Diluted EPS) reflects the potential dilution that could
occur if stock options or other contracts to issue common stock were exercised
or converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company. At March 31, 2005, there were no
common stock warrants outstanding which may dilute future earnings per share.
NOTE 3 - INVESTMENTS
At March 31, 2005, the Company held a 50% investment in Radio X Network. The
original cost basis was $110,000 and the fair market value at March 31, 2005 was
zero.
At March 31, 2005 the Company held a 100% investment in Radio TV Network, Inc.
The original cost basis was $0 and the fair market value at March 31, 2005 was
zero. As of March 31, 2005 Radio TV Network was inactive.
NOTE 4 - DUE TO STOCKHOLDER
Due to stockholder at March 31, 2005 of $93,500 represents advances from the
Company's CEO. The advances are non-interest bearing and payable on demand.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
A - Compliance with the BDC Rules and Regulations under the Investment Company
--------------------------------------------------------------------------------
Act of 1940:
--------------
In March 2005, we filed an election to become subject to Sections 55 through 65
of the Investment Company Act of 1940, such that we could commence conducting
our business activities as a BDC. In April 2005, we determined to commence an
offering of shares of our common stock as a BDC in accordance with the exemption
from the registration requirements of the Securities Act of 1933 as provided by
Regulation E. In connection with that prospective offer, we filed a Form 1-E
with the U.S. Securities and Exchange Commission (SEC). In June 2005 we closed
on a $315,000 common stock sale under Regulation E.
In April 2005 and subsequently we received a series of comment letters from the
SEC regarding various compliance issues with regard to our status as a Business
Development Company. As a result, we currently understand that we may be out of
compliance with certain of the rules and regulations governing the business and
affairs, financial status, and financial reporting items required of BDCs. We
are making every effort to comply as soon as is practicable with the relevant
sections of the 1940 Act and are working with our counsel to accomplish that
compliance. While we are seeking to comply with the 1940 Act, we cannot
provide any specific time frame for full compliance. We cannot predict with
certainty what, if any, regulatory or financial consequences may result from the
foregoing. The above matter may result in certain contingent liabilities to the
Company as a result of potential actions by the SEC or others against the
Company. Such contingent liabilities could not be estimated by management as of
the date of this Report. The Company may have granted and issued common stock
for consulting services after its election as a BDC in March 2005, which may
have violated certain sections of the 1940 Act. Management is considering
actions to remedy such potential violations. As the result of such actions, the
Company may incur liabilities to the consultants which management could not
estimate as of the date of this report.
The outcome of the above matters could have a significant impact on our ability
to continue as a going concern.
B - Other Legal Matters:
----------------------------
From time to time we may become subject to proceedings, lawsuits and other
claims in the ordinary course of business including proceedings related to
environmental and other matters. Such matters are subject to many
uncertainties, and outcomes are not predictable with assurance.
11
NOTE 6 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In November 2004, the FASB issued SFAS No. 151, entitled Inventory Costs - An
Amendment of ARB No. 43, Chapter 4. SFAS No. 151 amends the guidance in ARB No.
43, Chapter 4, entitled Inventory Pricing [June 1953], to clarify the accounting
for "abnormal amounts" of idle facility expense, freight, handling costs, and
wasted material [spoilage]. Before revision by SFAS No. 151, the guidance that
existed in ARB No. 43 stipulated that these type items may be "so abnormal" that
the appropriate accounting treatment would be to expense these costs as incurred
[i.e., these costs would be current-period charges]. SFAS No. 151 requires that
these type items be recognized as current-period charges without regard to
whether the "so abnormal" criterion has been met. Additionally, SFAS No. 151
requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. The
adoption of SFAS 151 did not impact the financial statements.
In December 2004, the FASB issued SFAS No. 152, entitled Accounting for Real
Estate Time-Sharing Transactions -- An Amendment of FASB Statements No. 66 and
67. SFAS No. 152 amends SFAS No. 66 to reference the financial accounting and
reporting guidance for real estate time-sharing transactions that is provided in
AICPA Statement of Position 04-2. SFAS No. 152 also amends SFAS No. 67 to state
that the guidance for (a) incidental operations and (b) costs incurred to sell
real estate projects does not apply to real estate time-sharing transactions.
The accounting for those operations and costs is subject to the guidance of SOP
04-2. This statement is effective for financial statements for fiscal years
beginning after June 15, 2005. The adoption of SFAS 152 did not impact the
financial statements.
In December 2004, the FASB issued SFAS No. 153, entitled Exchanges of
Non-monetary Assets -- An Amendment of APB Opinion No.29. SFAS No. 153 amends
Opinion 29 to eliminate the exception for non-monetary exchanges of non-monetary
assets that do not have commercial substance. A non-monetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. The adoption of SFAS 153 did
not impact the financial statements.
In December 2004, the FASB issued SFAS No. 123 (Revised), entitled Share-Based
Payment. This revised Statement eliminates the alternative to use APB Opinion
No. 25's intrinsic value method of accounting that was provided in SFAS No. 123
as originally issued. Under Opinion 25, issuing stock options to employees
generally resulted in recognition of no compensation cost. This Statement
requires entities to recognize the cost of employee services received in
exchange for awards of equity instruments based on the grant-date fair value of
those awards. For public companies that file as a small business issuer, this
Statement is effective as of the beginning of the first interim or annual
reporting period that begins after December 15, 2005. The adoption of SFAS 123
(Revised) will have an impact the financial statements if the Company issues
stock options to the employees in the future.
12
NOTE 7 - GOING CONCERN
As reflected in the accompanying financial statements, the Company had an
accumulated deficit of $8,647,175, net losses of $201,029 for the three months
ended March 31, 2005 and working capital deficit of $105,015 at March 31, 2005,
and cash used in operations in for the three months ended March 31, 2005 of
$62,242.
The financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern. Management believes
that the actions presently being taken to further implement its business plan,
including seeking portfolio investments provide opportunity for the Company to
continue as a going concern.
Because the Company is regulated as a business development company, the Company
believes that is has access to sufficient cash and capital resources to operate
and grow its business for the next 12 months. Specifically, the Company intends
to sell common stock permitted under the exemption from registration offered by
Regulation E of the Securities Act to meet its financial needs in addition to
its investment goals and opportunities.
13
Item 2. Management's Discussion and Analysis or Plan of Operations
This following information specifies certain forward-looking statements of
management of the company. Forward-looking statements are statements that
estimate the happening of future events are not based on historical fact.
Forward-looking statements may be identified by the use of forward-looking
terminology, such as "may", "shall", "could", "expect", "estimate",
"anticipate", "predict", "probable", "possible", "should", "continue", or
similar terms, variations of those terms or the negative of those terms. The
forward-looking statements specified in the following information have been
compiled by our management on the basis of assumptions made by management and
considered by management to be reasonable. Our future operating results,
however, are impossible to predict and no representation, guaranty, or warranty
is to be inferred from those forward-looking statements.
The assumptions used for purposes of the forward-looking statements specified in
the following information represent estimates of future events and are subject
to uncertainty as to possible changes in economic, legislative, industry, and
other circumstances. As a result, the identification and interpretation of data
and other information and their use in developing and selecting assumptions from
and among reasonable alternatives require the exercise of judgment. To the
extent that the assumed events do not occur, the outcome may vary substantially
from anticipated or projected results, and, accordingly, no opinion is expressed
on the achievability of those forward-looking statements. No assurance can be
given that any of the assumptions relating to the forward-looking statements
specified in the following information are accurate, and we assume no obligation
to update any such forward-looking statements other than is required by law.
OVERVIEW
The Company acquired all of the assets of Radio TV Network, Inc ("RTV") on July
16, 2001 in a transaction treated as a recapitalization of RTV. RTV has been
developing and operating, for the past few years, a new television network that
produces and distributes TV adaptations of top rated radio programs. The Company
has not had success in establishing the TV network and will no longer dedicate
any resources to this endeavor. The Company also produces and distributes radio
programs through a partnership created in September 2002 with an established
radio network. This network represents all of the Company's current revenue
streams. The Company is planning on expanding and moving into new areas,
primarily the VOIP telecom business, via a proposed acquisition in 2005.
RISK FACTORS
Investing in our common stock involves a high degree of risk. You should
consider carefully the risks described below and all other information contained
in this Report, including our financial statements and the related notes and the
schedules and exhibits to this Report.
Risks Related to Our Business and Financial Results
We have a limited operating history as a business development company which may
impair your ability to assess our prospects.
Prior to March, 2005, we had not operated as a business development company
under the Investment Company Act of 1940. As a result, we have limited operating
results under these regulatory frameworks that can demonstrate to you either
their effect on our business or our ability to manage our business under these
frameworks. In addition, prior to March, 2005, our management had no prior
experience managing a business development company. We cannot assure you that we
will be able to operate successfully as a business development company.
Because there is generally no established market for which to value our
investments, our board of directors' determination of the value of our
investments may differ materially from the values that a ready market or third
party would attribute to these investments.
14
Under the 1940 Act, we are required to carry our portfolio investments at market
value or, if there is no readily available market value, at fair value as
determined by our board. We are required by the 1940 Act to specifically value
each individual investment and to record any unrealized depreciation for any
asset that we believe has decreased in value. Because there is typically no
public market for the equity securities of the companies in which we invest, our
board will determine the fair value of these equity securities on a quarterly
basis pursuant to our valuation policy. Because of the inherent uncertainty of
determining the fair value of investments that do not have a readily available
market value, the fair value of our investments determined in good faith by the
board of directors may differ significantly from the values that would have been
used had a ready market existed for the investments, and the differences could
be material.
We may make loans to and invest in primarily small- and medium-sized privately
owned companies, which may default on their loans, thereby reducing or
eliminating the return on our investments.
Our portfolio primarily consists of securities issued by small and medium-sized
privately owned businesses. Compared to larger publicly owned firms, these
companies may be more vulnerable to economic downturns, may have more limited
access to capital and higher funding costs, may have a weaker financial
position, and may need more capital to expand or compete. These businesses also
may experience substantial variations in operating results. They may face
intense competition, including from companies with greater financial, technical
and marketing resources. Typically, they also depend for their success on the
management talents and efforts of an individual or a small group of persons. The
death, disability or resignation of any of their key employees could harm their
financial condition. Furthermore, some of these companies do business in
regulated industries and could be affected by changes in government regulation.
Accordingly, these factors could impair their cash flow or result in other
events, such as bankruptcy, which could limit their ability to repay their
obligations to us, and may adversely affect the return on, or the recovery of,
our investment in these businesses. Deterioration in a borrower's financial
condition and prospects may be accompanied by deterioration in any collateral
for any loan we may make.
Some of these companies may be unable to obtain financing from public capital
markets or from traditional credit sources, such as commercial banks.
Accordingly, advances made to these types of customers may entail a
higher risk of loss than advances made to customers who are able to utilize
traditional credit sources. These conditions may also make it difficult for us
to obtain repayment of any loans.
Furthermore, there is generally no publicly available information about such
companies and we must rely on the diligence of our employees to obtain
information in connection with our investment decisions. If we are unable to
uncover all material information about these companies, we may not make a fully
informed investment decision and we may lose money on our investments.
If the industry sectors in which our portfolio is currently concentrated
experience adverse economic or business conditions, our operating results may be
negatively impacted.
Currently our investment base is primarily in the information services, media,
technology and business services industry sectors. These sectors are
characterized by high margins, high growth rates, consolidation and product and
market extension opportunities. Value often is vested in intangible assets and
intellectual property. These customers can experience adverse business
conditions or risks related to their industries.
Accordingly, if our customers suffer (as some customers currently are) due to
these adverse business conditions or risks or due to economic slowdowns or
downturns in these industry sectors, we will be more vulnerable to losses in our
portfolio and our operating results may be negatively impacted.
Economic downturns or recessions could impair our investment portfolio.
Our investments may be susceptible to economic downturns or recessions and may
be unable to perform as expected. Therefore, our non-performing portfolio
company investment values are likely to increase and the value of our total
portfolio is likely to decrease during these periods. Economic downturns or
recessions could lead to financial losses in our portfolio and a decrease in net
income. Unfavorable economic conditions could also lead to a decrease in
revenues and assets.
15
An economic downturn could disproportionately impact the industry sectors in
which we concentrate causing us to be more vulnerable to losses in our portfolio
and experience diminished demand for capital in these industry sectors and,
consequently, our operating results may be negatively impacted.
Unfavorable economic conditions also could increase our funding costs, limit our
access to the capital markets or result in a decision by lenders not to extend
credit to us. These events could prevent us from increasing our investments and
harm our operating results.
Indebtedness and servicing our indebtedness could reduce funds available to grow
our business or make new investments.
At March 31, 2005, the Company's only debt was to its Chairman and CEO.
However, if the Company elects to borrow, also known as leverage, this may
magnify the potential for gain or loss on amounts invested and, therefore,
increase the risks associated with investing in our securities. Leverage is
generally considered a speculative investment technique. If the value of our
consolidated assets increases, then leveraging would cause the net asset value
attributable to our common stock to increase more than it otherwise would have
had we not utilized leverage. Conversely, if the value of our consolidated
assets decreases, leveraging would cause net asset value attributable to our
common stock to decline more than it otherwise would have had we not utilized
leverage. Similarly, any increase in our consolidated revenue in excess of
consolidated interest expense on our borrowed funds would cause our net income
to increase more than it would without the use of leverage. Any decrease in our
consolidated revenue would cause net income to decline more than it would have
had we not borrowed funds and could negatively affect our ability to make
distributions on our common stock.
As a business development company, we generally are required to meet a coverage
ratio of total assets to total borrowings and other senior securities, which
include all of our borrowings and any preferred stock we may issue in the
future, of at least 200%. If this ratio declines below 200%, we may not be able
to incur additional debt and may need to sell a portion of our investments to
repay some debt when it is disadvantageous to do so, and we may not be able to
make distributions.
You may not receive distributions.
We intend to make distributions on a quarterly basis to our stockholders. We may
not be able to achieve operating results that will allow us to make
distributions at a specific level or to increase the amount of these
distributions from time to time. In addition, due to the asset coverage test
applicable to us as a business development company, we may be limited in our
ability to make distributions. See "Regulation as a Business Development
Company". Also, restrictions and provisions in any new debt facilities may limit
our ability to make distributions. If we do not distribute a certain percentage
of our income annually, we will suffer adverse tax consequences, including
possible loss of our status as a business development company. We cannot assure
you that you will receive any distributions or distributions at a particular
level.
We may have difficulty paying our required distributions if we recognize income
before or without receiving cash representing such income.
In accordance with generally accepted accounting principles and tax regulations,
we include in income certain amounts that we have not yet received in cash.
Since we may recognize income before or without receiving cash representing such
income, we may have difficulty distributing said income.
If we fail to manage our growth, our financial results could be adversely
affected.
Our growth can place significant strain on our management systems and resources.
We must continue to refine and expand our marketing capabilities, our management
of the investment process, our access to financing resources and our technology.
As we grow, we must continue to hire, train, supervise and manage new employees.
We may not develop sufficient lending and administrative personnel and
management and operating systems to manage our expansion effectively. If we are
unable to manage our growth, our operations could be adversely affected and our
financial results could be adversely affected.
If we need to sell any of our investments, we may not be able to do so at a
favorable price and, as a result, we may suffer losses.
Our investments are usually subject to contractual or legal restrictions on
resale or are otherwise illiquid because there is usually no established trading
market for such investments. The illiquidity of most of our investments may make
it difficult for us to dispose of them at a favorable price, and, as a result,
we may suffer losses. In addition, if we were forced to immediately liquidate
some or all of the investments in our portfolio, the proceeds of such
liquidation could be significantly less than the current value of such
investments. We may be required to liquidate some or all of our portfolio to
meet our debt service obligations or to maintain our qualification as a business
development company and as a regulated investment company if we do not satisfy
one or more of the applicable criteria under the respective regulatory
frameworks.
Our business depends on our key personnel.
Our future success depends to a significant extent on the continued services of
our Chief Executive Officer as well as other key personnel. The loss of key
persons would likely have a significant detrimental effect on our business.
Regulations governing our operation as a business development company will
affect our ability to, and the way in which we raise additional capital.
We may issue debt securities and/or borrow money from banks or other financial
institutions, which we refer to collectively as "senior securities," up to the
maximum amount permitted by the 1940 Act. Under the provisions of the 1940 Act,
we are permitted, as a business development company, to issue senior securities
only in amounts such that our asset coverage, as defined in the 1940 Act, equals
at least 200% after each issuance of senior securities. If the value of our
assets declines, we may be unable to satisfy this test. If that happens, we may
be required to sell a portion of our investments and, depending on the nature of
our leverage, repay a portion of our indebtedness at a time when such sales may
be disadvantageous.
We are not generally able to issue and sell our common stock at a price below
net asset value per share. We may, however, sell our common stock at a price
below the current net asset value of the common stock if our board of directors
determines that such sale is in the best interests of Aventura Holdings, Inc.
and its stockholders, and our stockholders approve such sale. In any such case,
the price at which our securities are to be issued and sold may not be less than
a price which, in the determination of our board of directors, closely
approximates the market value of such securities (less any distributing
commission or discount).
Any change in regulation of our business could negatively affect the
profitability of our operations.
Changes in the laws, regulations or interpretations of the laws and regulations
that govern business development companies, regulated investment companies or
non-depository commercial lenders could significantly affect our operations and
our cost of doing business. We are subject to federal, state and local laws and
regulations and are subject to judicial and administrative decisions that affect
our operations. If these laws, regulations or decisions change, or if we expand
our business into jurisdictions that have adopted more stringent requirements
than those in which we currently conduct business, we may have to incur
significant expenses in order to comply or we might have to restrict our
operations.
Our ability to invest in private companies may be limited in certain
circumstances.
If we are to maintain our status as a business development company, we must not
acquire any assets other than "qualifying assets" unless, at the time of and
after giving effect to such acquisition, at least 70% of our total assets are
qualifying assets. If we acquire debt or equity securities from an issuer that
has outstanding marginable securities at the time we make an investment, these
acquired assets generally cannot be treated as qualifying assets. This result is
dictated by the definition of "eligible portfolio company" under the 1940 Act,
which in part focuses on whether a company has outstanding marginable
securities.
16
Amendments promulgated in 1998 by the Board of Governors of the Federal Reserve
System expanded the definition of a marginable security under the Federal
Reserve's margin rules to include any non-equity security. Thus, any debt
securities issued by any entity are marginable securities under the Federal
Reserve's current margin rules. As a result, the staff of the SEC has raised the
question as to whether a private company that has outstanding debt securities
would qualify under the relevant portion of the "eligible portfolio company"
criteria. The SEC has recently issued proposed rules to include any company that
does not have a class of securities listed on a national securities exchange or
association in the definition of "eligible portfolio company."
Until the question raised by the staff of the SEC pertaining to the Federal
Reserve's 1998 change to its margin rules has been addressed by final
legislative, administrative or judicial action, we intend to treat as qualifying
assets only those debt and equity securities that are issued by a private
company that has no marginable securities outstanding at the time we purchase
such securities or that otherwise qualifies as an "eligible portfolio company"
under the 1940 Act.
RECENT DEVELOPMENTS
On June 27, 2002 the Company entered into agreement with four (4) institutional
investors to provide the Company $750,000 in capital through a Secured
Convertible Debenture Offering ("Debenture"). The Company has filed and
withdrawn a SB-2 Registration Statement and, subsequently, a SB-2/A amended
Registration Statement and a new SB-2 Registration Statement in connection with
the Debenture. On October 30, 2003, the SB-2 was declared effective by the SEC.
On June 28, 2002 the Company entered into an Option Agreement and Plan of Merger
("Agreement") to acquire all of the assets of Live Media Enterprises, Inc
("Live"), a west coast based independent producer of consumer lifestyle events.
On September 3, 2002 the Company elected to terminate the Agreement with Live
and not proceed with the acquisition. In connection with the Agreements the
Company has loaned Live the sum of $56,000. This loan is documented in two
Promissory Notes and is collateralized by substantially all of the assets of
Live and personally guaranteed by Live's principal shareholder and officer. The
Company is presently attempting to collect its debts from Live in the Los
Angeles Superior Court.
On September 5, 2002, the Company entered into agreement with Sports Byline USA,
L.P. to own and operate a new, national radio network, Radio X. Radio X intends
to develop, produce, license, broadcast and distribute radio programs, targeted
to young males that will be distributed via traditional terrestrial stations,
via satellite and over the Internet. The Company has contributed the sum of
$100,000 to this business plus certain management services. Our partnership
interest is 50%, however, we have an overriding voting control over all matters
of the partnership. Radio X currently has three radio programs in distribution.
On March 8, 2004, we entered into a redemption agreement with our debenture
holders, whereby we agreed to pay $150,000 per week for five weeks commencing on
March 22, 2004 until such time as the Company has paid $750,000. Upon final
payment, we delivered 20,000,000 shares of common stock to the debenture holders
as full satisfaction of liabilities under the debenture agreements. The full
redemption of the Secured Convertible Debentures was completed in mid 2004.
In March and April 2004, we entered into loan agreements to borrow an aggregate
of $824,000. The loans bear interest at a rate equal to the prevailing 30-day
LIBOR rate plus 100 basis points. Interest on the loans is computed on the basis
of a 360-day year for the number of actual days elapsed and is due and payable
quarterly commencing in June 2004. The loans are due in March and April 2006. If
the loans are not paid by the close of business on the due date in March 2006,
the Company shall pay the lender a late charge equal to five percent of the
outstanding principal balance. The Company paid a cash fee equal to 10% of the
amount borrowed which is deducted directly from the proceeds by the lender. The
loans are collateralized by 28,000,000 shares of the Company's common stock. In
addition, we issued an additional 38,000,000 common shares into escrow as
collateral during March 2004 in anticipation of future borrowings. The
collateral shares are not considered outstanding for accounting purposes and do
not have voting rights until and unless they are foreclosed upon due to any
future default as stipulated in the agreements. In 2004 the Company resigned all
of its pledged collateral to the Lender in exchange for full forgiveness of all
loans and any and all past due interest obligations.
On February 28, 2005 we entered into a binding letter of intent to acquire 100%
of Aventura Networks, LLC in exchange for shares of our common stock. Aventura
is a leading Voice Over Internet Protocol ("VOIP"') telephone service provider
currently conducting business primarily in the wholesale market. In the event of
termination of the letter of intent, there is a $50,000 termination fee payable
by the party that terminates the letter of intent.
17
On March 15, 2005, we elected to be regulated as a business development company
under the Investment Company Act of 1940. We filed Form 1-E under the Securities
and Exchange Act notifying the Securities and Exchange Commission of the intent
to sell, under Regulation E promulgated under the Securities Act of 1933, up to
$5 million of our common stock.
RESULTS OF OPERATIONS
As a BDC, the Company does not operate a business or consolidate its earnings
with its portfolio investees. Effective March 15, 2005 the Company elected BDC
status meaning that the Company is in the business of investing in other
businesses. BDC's measure most income by investment gains and losses and the
fluctuation in the value of its portfolio investees. It is difficult to
meaningfully compare the three months ended March 31, 2005 to the three months
ended March 31, 2004. All comparative references are for presentation purposes
only and should be viewed accordingly.
REVENUES
Revenues for the three months ended March 31, 2005 were $5,000 as compared to
revenues for the five months ended March 31, 2004 of $2,415 and were derived
from our subsidiary, Radio X Network prior to our BDC election.
OPERATING EXPENSES
Compensation was $0 for the three months ended March 31, 2005 compared to
$37,500 for the comparable period in 2004. Compensation relates solely to
compensation under our employment agreement with our president
Consulting expense for the three months ended March 31, 2005 was $149,000
compared to $1,112,233 for the three months ended March 31, 2004. Consulting
expense related to the issuance of common stock for services to outside
consultants.
The debenture penalty of $30,000 for the three months ended March 31, 2004
represents the accrued penalty under the provisions of the convertible
debentures. The penalties relate to the deadlines associated with the Company
filing a Registration Statement in connection with the convertible debentures
and liquidated damages penalty for not having enough authorized shares to allow
for the issuance of all dilutive securities based on a formula as stipulated in
the debenture agreement and a default penalty on the June 28, 2003 and August 8,
2003 maturity of $500,000 of debentures. There was no such expense in 2005 as
the debentures were repaid in 2004.
The debt issue cost amortization of $7,000 for the three months ended March 31,
2004 represents the amortization of the cost we incurred to raise debt capital.
These fees are recorded debt discount and amortized over the loan term. There
was no such expense in 2005 as the debentures were repaid in 2004.
Professional fees for the three months ended March 31, 2005 were $21,151
compared to $10,143 for the three months ended March 31, 2004. The increase is
primarily related to accounting, legal and audit services regarding our SEC
filings.
Other selling, general and administrative expenses were $38,727 for the three
months ended March 31, 2005 as compared to $34,711 for the three months ended
March 31, 2004. The increase in expenses is primarily due to travel related
expense for the three months ended March 31, 2005 as compared to the three
months ended March 31, 2004.
Interest expense was $0 for the three months ended March 31, 2005 compared to
$19,581 for the three months ended March 31, 2004. Interest expense is
attributed to the loan payable and the convertible debenture offering and
includes accrued interest of the convertible debentures and amortization of the
debt discount as well as accrued interest on the convertible debentures due to
the default on payment. All debt was repaid or converted to equity in 2004.
For the three months ended March 31, 2004, we recognized an aggregate settlement
expense of $57,334 related to the redemption of the debentures. On February 4,
2003, we settled a lawsuit by issuing 1,000,000 common shares and $6,500 in
cash. The shares were valued at the quoted trading price of $0.03 per share on
the settlement date resulting in a total settlement expense of $36,500.
As a result of these factors, we reported a net loss of $201,029 or $(.00) per
share for the three months ended March 31, 2005 as compared to a net loss of
$1,301,567 or ($.02) per share for the three months ended March 31, 2004.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2005, we had an accumulated deficit of $8,647,175 and working
capital deficit of $105,015. Our operations have been funded by an equity
investor in our common stock where we issued 183,088 common shares for $82,390
cash during 2002, by the sale of convertible debentures of $750,000 through
November 2003, and net proceeds from loan of $752,600 through May 2004. We also
sold 53,000,000 shares of our common stock in a private placement offering in
September 2004 for $132,500. We collected $30,000 of this amount and are
attempting to collect the remaining $102,500. At December 31, 2004, we have
provided an allowance for $102,500 against this stock subscription receivable.
These funds were used primarily for working capital, capital expenditures,
advances to third parties in anticipation of entering into a merger or
acquisition agreement and to pay down certain related party loans and
debentures. During the three months ended June 30, 2004, we repaid $750,000 of
our outstanding convertible debentures. Our president also advanced to us
$40,000 during the fourth quarter of 2004 and $46,500 during the first quarter
of 2005. The cash balance at March 31, 2005 was $4,110 and we will have to
minimize operations until we receive additional cash flows from our businesses,
complete additional financing, or find a merger candidate. On February 28, 2005,
we entered into a binding letter of intent to acquire 100% Aventura Networks,
LLC in exchange for shares of our common stock. Aventura is a leading Voice Over
Internet Protocol ("VOIP"') telephone service provider currently conducting
business primarily in the wholesale market. There is a $50,000 termination fee
payable by the party that terminates the letter of intent.
We have no material commitments for capital expenditures. Other than several
thousand dollars to be generated from our advertising sales from the broadcast
of our initial program on the Radio X Network, debenture proceeds and loan
proceeds, we have no external sources of liquidity. Although we believe we will
have sufficient capital to fund our anticipated operations through the middle of
2005, we are not currently generating meaningful revenues and, unless we raise
additional capital, we may not be able to continue operating beyond the middle
of 2005.
Net cash used in operations during the three months ended March 31, 2005 was
$62,242 and was substantially attributable to net loss of $201,029 offset
primarily by non-cash stock based expenses of $147,025 and net changes in
operating assets and liabilities of ($8,238). In the comparable period of 2004,
we had net cash used in operations of $44,377 primarily relating to the net loss
of $1,301,567 primarily offset by stock-based consulting expense of $1,112,233,
non-cash debt discount amortization of $7,000, amortization of deferred debt
issuance costs of $875, a non-cash settlement expense of $57,334 and net changes
in operating assets and liabilities of $79,748.
Net cash provided by financing activities for the three months ended March 31,
2005 was $46,500 as compared to net cash provided by financing activities of
$171,000 for the three months ended March 31, 2004. During the three months
ended March 31, 2005, we received advances from our CEO of $46,500 In the
comparable period of 2004, we received proceeds from a loan of $490,000, paid
$49,000 in debt issuance costs and repaid convertible debentures of $270,000.
For the fiscal year ended December 31, 2004, our auditors have issued a going
concern opinion in connection with their audit of our financial statements.
These conditions raise substantial doubt about our ability to continue as a
going concern if sufficient additional funding is not acquired or alternative
sources of capital developed to meet our working capital needs.
CRITICAL ACCOUNTING POLICIES
A summary of significant accounting policies is included in Note 1 to the
unaudited financial statements included elsewhere in this Report. We believe
that the application of these policies on a consistent basis enables us to
provide useful and reliable financial information about our operating results
and financial condition.
18
OFF BALANCE SHEET ARRANGEMENTS
There are no off balance sheet arrangements that have or are reasonably likely
to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to investors.
Item 3. Controls and Procedures
As required by SEC rules, we have evaluated the effectiveness of the design and
operation of our disclosure controls and procedures at the end of the period
covered by this report. This evaluation was carried out under the supervision
and with the participation of our management, including our principal executive
officer and principal financial officer. Based on this evaluation, these
officers have concluded that the design and operation of our disclosure controls
and procedures are effective. There were no changes in our internal control over
financial reporting or in other factors that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
Our disclosure controls and procedures are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the SEC's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in the reports that we
file under the Exchange Act is accumulated and communicated to our management,
including principal executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required disclosure.
19
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
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Item 6. Exhibits
Regulation
S-B Number Exhibit
31.1 . . . . Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of the Company
31.2 . . . . Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of the Company
32.1 . . . . Section 906 Certification by Chief Executive Officer and Chief Financial Officer
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AVENTURA HOLDINGS, INC.
January 23, 2006 By: /s/ Craig A. Waltzer
-----------------------
Craig A. Waltzer
Chief Executive Officer, President, and
Director
21