Although TKO Sports Group’s reorganization in early 2004 and its entry onto the so-called Pink Sheets, a.k.a. penny stocks, were couched as steps toward bigger things, in fact those moves could have been attempts to turn around a company that was already sliding toward financial disaster.
Financial and bankruptcy insiders that SNEWSÂ® has spoken to note that the Pink Sheets (www.pinksheets.com) are usually not where a company takes its first steps to public trading, but rather is where companies get demoted. Indeed, the Pink Sheets are considered “shady,” as several put it, with brokers required to give purchasers extra waivers to sign to acknowledge they are aware of the risks. As a privately owned business, the Pink Sheets have no set standards, no government regulation, and no reporting rules to abide by, meaning buying and selling can be done as desired. Â
“Its’ a poor, pathetic way to go public,” said one financial insider.
However, when informed that a TKO annual financial statement for 2004 released in August 2005 noted the company was in breach of its financial covenants, financial experts noted that the company could have lost its lender, making the Pink Sheets move one way to gain some funding as it searched for another. According to the financial statement by accountant Deloitte & Touche:
“TSG is in breach of the financial covenants relating to its bank credit facilities, which total approximately $5.2 million. TSG has agreed with its lender that it will pursue other sources of financing. During the year ended December 31, 2004, the Company issued common shares for cash consideration of $1,000,000. The Company has also signed a letter of intent with a new lender concerning a proposed credit facility in the amount of $5.0 million. The new lender is performing the examination and investigation it requires in order to prepare a definitive lending agreement. The continued existence of the Company is dependent upon its abilityto complete new financing arrangements and to restore and maintain profitable operations.”
The statement also noted that the company had losses in both 2003 and 2004.
“Most bankruptcies are a year or more in the making,” said one financial insider. Companies don’t usually want to file for a bankruptcy of any kind, including Ch. 11 reorganization as in the case of TKO Sports Group USA Ltd., he said, but it can become the last place to turn after trying hard to raise money
In TKO’s case, Texas-based TKO Sports Group USA Ltd., a Delaware company, is actually a wholly owned subsidiary of TKO Holdings Inc., a Florida company, which also lists its principal address in Houston, Texas, but lists its only officer as Garry Kurtz, who is also CEO of TKO Sports Group USA. Another wholly owned subsidiary is Technical Knockout Inc., also a Florida company listed as “inactive” with an address in Florida and a mailing address in New York. Papers still on file list officers of Technical Knockout as Kurtz and Mitch Carlin, also senior vice president at TKO Sports Group USA.
TKO Sports Group USA Ltd. filed for reorganization on Oct. 11 under federal bankruptcy laws in the U.S. Bankruptcy Court, Southern District of Texas. Company executives have declined comment. Click here to see the SNEWSÂ® story on Oct. 24, 2005, “TKO files for Ch. 11 bankruptcy reorganization.”
Of 180 unsecured creditors listed, TKO Holdings Inc. is the largest with a debt owed it of $1.1 million. Linex International is also one of the largest at $503,473. Linex was acquired by TKO in October 2004 in a swap of shares; Kurtz had told SNEWSÂ® the company planned to release TKO by Linex-branded cardiovascular equipment by late 2005 or early 2006. In the company’s court-required schedules to report all financial matters, TKO has stated it has assets totaling $8,193,809 and liabilities of $10,571,610. Click here for additional information about finances in an Oct. 31, 2005, SNEWSÂ® story, “TKO creditors’ meeting set.”