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EX-32.1 - EXHIBIT 32.1 - World Series of Golf, Inc.ex321.htm
EX-31.2 - EXHIBIT 31.2 - World Series of Golf, Inc.ex312.htm
EX-31.1 - EXHIBIT 31.1 - World Series of Golf, Inc.ex311.htm
EX-32.2 - EXHIBIT 32.2 - World Series of Golf, Inc.ex322.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2010
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _________________ to _________________.
 
 
Commission File No. 333-140685
 
 
World Series of Golf, Inc.
(Exact name of registrant as Specified in Its Charter)
 
Nevada
(State or Other Jurisdiction
of Incorporation or Organization)
87-0719383
(I.R.S. Employer Identification No.)
 
 
10161 Park Run Dr., Suite 150
Las Vegas, Nevada 89145
(Address of Principal Executive Offices)
 
 
(702) 740-1740
(Registrant’s Telephone Number, Including Area Code)
 
Securities registered under Section 12(b) of the Exchange Act: None.
 
Securities registered under Section 12(g) of the Exchange Act: None.
 
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes   o      No   x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes   o      No   x
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   x      No   o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files. Yes [ ] No [ ]
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K x
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “large accelerated filed,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
 
Large accelerated filer   o
Accelerated filer   o
Non-accelerated filer   o
Smaller reporting company  x
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   o      No   x
 
On March 25, 2011, 24,351,561 shares of the registrant’s common stock were outstanding.
 
The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant was approximately $240,000 as of June 30, 2010. Shares of voting stock held by each executive officer and director of the registrant and each person who beneficially owns 10% or more of the registrant’s outstanding voting stock has been excluded from the calculation. This determination of affiliated status may not be conclusive for other purposes.
 
 

 
 
 

 


 
TABLE OF CONTENTS [to be revised.]
 
     
Pages
       
   
PART I
 
Item 1.
 
Business
2
Item 2.
 
Properties
7
Item 3.
 
Legal Proceedings
8
Item 4.
 
(Removed and Reserved.)
8
       
   
PART II
 
Item 5.
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
9
Item 7.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
10
Item 8.
 
Financial Statements and Supplementary Data
17
Item 9.
 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
17
Item 9A.
 
Controls and Procedures
18
Item 9B.
 
Other Information
18
       
   
PART III
 
Item 10.
 
Directors, Executive Officers and Corporate Governance
19
Item 11.
 
Executive Compensation
20
Item 12.
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
23
Item 13.
 
Certain Relationships and Related Transactions and Director Independence
25
Item 14.
 
Principal Accountant Fees and Services
25
       
   
PART IV
 
Item 15.
 
Exhibits and Financial Statement Schedules
27
       
   
SIGNATURES
28
 
 
 
 
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FORWARD-LOOKING STATEMENTS
 
This Annual Report on Form 10-K and the documents incorporated herein by reference, if any, contain forward-looking statements. These forward-looking statements reflect our current views with respect to future events or our financial performance, and involve certain known and unknown risks, uncertainties and other factors, including those identified below, which may cause our or our industry’s actual or future results, levels of activity, performance or achievements to differ materially from those expressed or implied by any forward-looking statements or from historical results. Forward-looking statements include information concerning our possible or assumed future results of operations and statements preceded by, followed by, or that include the words “may,” “will,” “could,” “would,” “should,” “believe,” “expect,” “plan,” “anticipate,” “intend,” “estimate,” “predict,” “potential” or similar expressions.
 
Forward-looking statements are inherently subject to risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not even anticipate. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions at the time made, we can give no assurance that such expectations will be achieved. Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. Except as required under applicable securities laws, we undertake no duty to update, supplement or revise any forward-looking statements after the date of this report or to conform them to actual results, new information, future events or otherwise.
 
The following factors, among others, could cause our or our industry’s future results to differ materially from historical results or those anticipated: (1) the availability of additional funds to enable us to successfully pursue our business plan; (2) the uncertainties related to the appeal and acceptance of our proprietary method of play and our planned online products; (3) the success or failure of our development of additional products and services; (4) our ability to maintain, attract and integrate management personnel; (5) our ability to secure suitable broadcast and sponsorship agreements; (6) our ability to effectively market and sell our services to current and new customers; (7) changes in the rules and regulations governing our business; (8) the intensity of competition; and (9) general economic conditions. As a result of these and other factors, we may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect our business, financial condition, operating results and stock price.
 
 

 

 
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PART I
 
In this Annual Report on Form 10-K, we will refer to World Series of Golf, Inc., a Nevada corporation, as “our company,” “we,” “us” and “our.”
 
 ITEM 1. – BUSINESS
 
Overview
 
We are a sports entertainment company that hosts amateur golf tournaments and events and seeks to create branded products, games, media and entertainment based on our proprietary golf tournament method of play which we call “The World Series of Golf”. We believe our unique method of play enhances the entertainment value of the skilled game of golf by incorporating elements of strategy similar to those found in “Texas Hold ‘Em”, a popular style of the card game poker.
 
Since we began operating our current line of business in 2006, we have held three three-day World Series of Golf tournaments in Las Vegas, Nevada, during the month of May in each of 2007, 2008 and 2009. Our third tournament took place from May 12-14, 2009 at the Las Vegas Paiute Golf Resort in Las Vegas, Nevada. Due to insufficient capital, we did not host a tournament in 2010, as we previously anticipated. Through our media partners, we broadcast our tournaments on domestic and international television and via other media outlets, as live events or as a produced series. We also sell sponsorships for our live tournaments and television coverage. Due to our funding constraints we delayed the development and launch of a planned multi-player online video game that we were  building with The World Golf Tour, operator of www.wgt.com.   We still plan to offer one or more virtual gaming options, which may be delivered online through our website, www.worldseriesofgolf.com, in a free standing kiosk or via a gaming console, assuming we can obtain sufficient capital to complete development of the game.  This will take advantage of the Company’s Patent No. 7,841,933, which was issued by the United States Patent Office on November 30, 2010 which incorporates the combination of Texas Hold’em Poker style wagering with other activities, including golf, in a virtual environment.  The virtual game is based on our unique method of play and is tied into a social network/web community where interested players can not only play the online version of The World Series of Golf but will also be able to communicate with each other, share information and buy related products online.
 
We generate revenue primarily through entry fees paid by the amateur players entering our tournaments, advertising, and sponsorship fees. We anticipate that, once we fully implement our online game strategy, revenue from subscription fees for online games and sponsorship fees to become a material percentage of our total revenues.
 
Our principal executive offices are located at 10161 Park Run Drive, Suite 150, Las Vegas Nevada 89145, and our telephone number at that address is (702) 740-1740. We maintain an Internet website at www.worldseriesofgolf.com. Information on our website is not part of this Annual Report.
 
Products and Services
 
The Game
 
Central to all of our product and services offerings and our business strategy are the unique rules of the World Series of Golf tournament play. The World Series of Golf, first introduced at our 2007 inaugural tournament, is our proprietary golf tournament format that incorporates the highly skilled game of golf with the popular “Texas Hold ‘Em” style of poker. The World Series of Golf is a hole-by-hole hit and bet, no limit amateur prize tournament, which is played on professional 18-hole golf courses in accordance with our specific rules of play. To date, the game has been available for play only in live, “land-based” tournaments held in Las Vegas, Nevada. As further described herein, we are also developing a virtual game format having rules of play closely based on those of our live tournaments and on based our recently granted United States Patent.
 
Events/Tournaments
 
Since we began operating our current line of business in 2006, we have held three annual three-day World Series of Golf tournaments in Las Vegas, Nevada, during the month of May in each of 2007, 2008 and 2009. In our 2007, 2008 and 2009 events, we had 60, 80 and 125 amateur golfers, respectively, who competed for a total of $530,000, $580,000 and $720,000 in cash prizes, respectively. Each player paid a $10,000 entry fee to enter the tournament, except for certain players whose fee was waived pursuant to various sponsorship or other agreements. The 2007 and 2008 events were televised and broadcasted by major television networks (NBC and CBS, respectively) as two-hour television shows. The 2009 event was broadcasted domestically on the WGN America network as a thirteen week, one hour episodic television series, with an additional thirteen weeks of repeats. As noted above, due to insufficient capital, we did not host a tournament in 2010, as we previously anticipated.
 
Our third tournament took place, from May 12 to May 14, 2009, at the Las Vegas Paiute Golf Resort in Las Vegas, Nevada, an international golf destination with three 18 hole professional golf courses. We acquired exclusive rights to utilize all golf courses and other facilities at the resort for our tournament, including 5,000 square feet of hospitality space. For the 2009 event, we arranged or provided training of tournament personnel, hardware, software, signage, training and maintenance support, whereas in 2007 and 2008, we retained the services of an event management firm to provide such services. Approximately 70% of the players in the 2009 event were repeat players from our prior tournaments.
 
 
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As part of our growth strategy, we plan to create a qualifying circuit of World Series of Golf tournaments to be held at various times during the year at various highly-rated golf courses, both domestically and internationally. The winners of these qualifying tournaments would compete against one another in an end-of-season tournament to be held in Las Vegas at which we will crown the World Series of Golf grand champion for that season.
 
Summary Rules of Play. Our tournament is only open to amateur golfers who may register at our website or by contacting our offices directly. The tournament is typically played over several days with up to 125 amateur player participants on the first day of the tournament.
 
At the start of the tournament, the players are divided into foursomes, fivesomes or sixsomes depending on the total number of players in the event. A ‘dealer’ (which we call a ‘croupier’) remains with each group to keep track of all wagers and scores, as well as to address rule interpretations or violations. Players in our World Series of Golf format compete with one another for the largest “bank” or “purse” among their respective groups in order to continue playing in the tournament on succeeding days as their competitors are eliminated. On the final day of the tournament, the remaining players (those not eliminated) are grouped in a foursome, fivesome or sixsome and compete with one another until one player is declared the winner of the World Series of Golf tournament. Players who advance out of day one are paid $10,000. Players who advance out of day two, which has been five in each one of our prior events, are paid according to their order of finish. Payouts for the 2009 event were $300,000 for first place, $100,000 for second place, $50,000 for third place, $40,000 for fourth place and $30,000 for fifth place. A total of 25 players received payouts in the 2009 event.
 
Under our unique method of play, players must ante at the beginning of each hole. A specific order of play is determined and maintained throughout the round. At each hole, the first player makes his or her wager prior to hitting the first shot. Thereafter, the other players in the group may bet, raise, check or fold, with no betting limit. This process is repeated after each round of golf shots. Antes are 1% of the total purse on the tee. On day one, each player’s purse is $10,000 and antes are $100 and double every three holes. Antes increase on days two and three as a result of one player in each group from day one accumulating all of the purses of the group. On day two, each player begins with $50,000 in his or her purse and antes are initially $500 and then double every three holes. On day three, each of the five finalists has $250,000 in their purse and their antes are initially $2,500 and then double every three holes. Each of the antes on each respective day is also the minimum bet. Players are then permitted to raise in $100 increments and can go “all in” at any time.
 
At the conclusion of 18 holes (assuming at least two members of the group have not been eliminated prior to then), if more than one player has enough money to match an ante, then extra holes are played and the antes double on each successive hole. For example, on day one, if more than one player has over $6,400, they play an extra hole and if more than one player has over $12,800, they play a second extra hole. The match ends after a second extra hole. In the event of a tie on any hole, the players split the pot. In the event every player in a group ties a hole, antes will carry over to the next hole. Players are eliminated when they cannot ante on a hole. Players are not permitted to buy back in. The winner of the tournament is the last player remaining after all other players have been eliminated. The foregoing summary is for illustrative purposes only. Actual rules of play are available from the company on our website. 
 
Broadcast/Media
 
We believe that increasing exposure to our live tournaments will lead to increased revenue from sponsorships and other advertising in addition to the revenue we generate from our tournament entry fees. We believe we can obtain a greater degree of exposure for our tournaments (and our website offerings) and thus increase the value of our sponsorships and advertising rights, by promoting our tournaments, including our unique method of play, through television distribution. To this end, we seek production and broadcast partners in connection with the broadcast of our tournaments.
 
Production . We film the game play at our live World Series of Golf tournaments, as well as “behind the scenes” in the clubhouse and the sponsoring hotel and then edit all footage into episodes of varying lengths that are distributed for telecasting to domestic and international television audiences. We use outside productions companies to provide us with these services. For our 2007 tournament, we produced two one-hour episodes which were broadcast on NBC. For our 2008 tournament, we produced two one-hour television shows that were broadcast domestically on CBS and internationally on Setanta Golf network.
 
Echo Entertainment, Inc., a full-service production company, produced thirteen one-hour episodes in high definition television based on our 2009 tournament which were provided in ready-to-air format for broadcasting on WGN America. Echo Entertainment produced all of the on-course and in-hotel remote coverage and delivered the finished programming to WGN America. Echo Entertainment also produced the content based on our 2008 tournament.
 
We seek to structure our broadcasts in the manner of reality shows where viewers can follow the background stories and play-by-play struggles of relatable and interesting ‘common person’ golfers. We believe this type of presentation and approach to our tournaments will lead to more watchable and compelling television than the professional golf tournaments that are commonly broadcast on television today. Through our player application process, we attempt to select a varied playing field for the World Series of Golf tournament that will provide viewers with a number of memorable characters and interesting story lines.  
 
Broadcasting. Since our first tournament in 2007, we have entered into broadcast agreements for the domestic and international telecast of our productions.
 
Domestic Telecasts. For our 2009 World Series of Golf tournament, we licensed production of the event to WGN Continental Broadcasting Company, a Tribune Entertainment company and the owner and operator of WGN America, a domestic television network that reaches approximately 72 million households, whereby it broadcast on WGN America a 13-week episodic television series based on our 2009 World Series of Golf tournament.
 
WGN America broadcast our programming for thirteen consecutive weeks beginning in July 2009 on Sundays at 11a.m. with a rebroadcast on Saturdays at 1p.m. We granted WGN America the right to extend our agreement to cover any similar events in 2010 and 2011. Due to a change in programming direction where WGN is moving away from their previous sports focus and moving to comedy programming, we are in discussion with several other television networks to carry the next series of tournaments that we will broadcast in the future.
 
WGN America had the right to incorporate four billboards into the episodes and retained one-half of the commercial minutes for each episode. We had the right to sell the remaining commercial minutes to advertisers. We also have the right to reformat the 2009 tournament and rebroadcast in partnership with other networks. Additional terms of the agreement provided that WGN America will serve as a sponsor of our 2009 World Series of Golf tournament. See “Sponsorships” herein.
 
In 2008, our two one-hour television shows were broadcast on CBS.
 
International Telecasts. We seek to capitalize on the international appeal of the game of golf by introducing our unique method of play to international audiences. We believe that international telecasts of our production are essential to growing international interest in our game. Beginning with our 2008 World Series of Golf tournament, we began licensing rights to the international telecast of our episodes.
 
We licensed our 2009 World Series of Golf tournament production to Setanta, a leading international sports broadcaster with operations in Great Britain, Ireland, Luxembourg, Canada and Australia and which owns and operates premium sports TV channels that are made available to customers on a subscription basis via satellite, cable, digital, broadband and mobile distribution, for telecast outside the U.S. in Setanta coverage areas including Great Britain, Scotland, Ireland, the DISH Network and DirectTV. Under the license, we provided thirteen one-hour episodes in ready-to-air format for broadcasting on Setanta Sports beginning in September 2009. We retained the rights to place all advertising during the airing of the telecast. In connection with a change in the ownership structure of Setanta in July 2009, our planned international broadcast of our tournament did not occur and we did not receive any revenue related to the international programming rights.
 
We licensed our 2008 tournament production to Setanta Sports. Our production initially aired on the Setanta Golf channel and later on the Setanta Sports 1 channel. The telecast included a thirty minute preview show explaining the rules of the games and four one-hour episodes covering the 2008 event. All episodes aired in prime time (Thursday evenings) and generated over 125 hours of content on the network (an initial airing plus at least five rebroadcasts).
 
 
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Internet Broadcast. We also plan to broadcast the production of our May 2009 tournament and future tournaments on Internet TV. At this time, we are in discussions to partner with companies that offer this type of service. However, there can be no assurance that we will be successful in reaching an agreement. We believe this outlet can vastly expand our broadcast capability globally via the Internet and provide high definition, studio quality video to enhance the high resolution quality of our online game.
 
Sponsorships . In connection with our live tournaments, our telecasts and our website, we grant or sell sponsorships to interested advertisers pursuant to which the advertiser’s products or services may be identified as an “official” product or service provider of the World Series of Golf and we grant “naming rights” that entitle one such advertiser to be the sole sponsor of the live tournament. Sponsorships are an important part of our business strategy as they allow us to partner with complementary service providers to bring greater awareness to our products and services. Sponsorships also allow us to acquire necessary products and services at little or no cost (in the case of in-kind sponsorships) and generate additional revenue. Some of our 2009 event sponsors included:
 
 
WGN America – Under our agreement with WGN Broadcast Company, the WGN America network was referred to as the “Official Broadcast Partner of the World Series of Golf” for our 2009 tournament.
 
The Mirage Casino Hotel – The Mirage, a 3,323 room hotel and casino resort located in Las Vegas, Nevada, is the “Official Hotel and Casino of the World Series of Golf.” Under our sponsorship agreement, The Mirage provided us with hotel accommodations, preferred guest room rates, convention space and catering, an opening night draw party for 350 persons, tournament event space and closing night awards mixer. The Mirage has been one of our sponsors since our inaugural tournament. In 2009 and 2008, we recognized revenue and related cost of sales of approximately $243,600 and $454,000, respectively, related to our agreement with The Mirage.
 
FullTiltPoker.net – Under an agreement with Pocket Kings, Ltd., the developer and operator of FullTiltPoker.net, the second largest poker website in the U.S., our 2009 World Series of Golf tournament was referred to as the “FullTiltPoker.net World Series of Golf”. We also provided other signage display rights at the event and incorporated the FullTiltPoker.net logo and other graphics into our television broadcasts. According to the terms of our agreement, Pocket Kings, Ltd. pays us a sponsorship package fee which includes additional amounts for certain entitlements such as player entry fees and other rights in connection with our European broadcasts. We also granted Pocket Kings, Ltd. a right of first refusal to sponsor future events. In 2008, we recognized revenue of $395,000 related to our agreement with Pocket Kings, Ltd. Our 2009 agreement with Pocket Kings, Ltd. was for $495,000, of which we recognized $370,000 during 2009, $25,000 is in deferred revenue as of December 31, 2009 and recognized in 2010 as it related to an up-front payment, and the remaining $100,000 was not received and will not be recognized as it related to European broadcasting rights which did not occur as discussed above.
 
Planned Internet Offerings
 
Online Video Games and Social Networking. In addition to our amateur live tournaments, we plan to offer World Series of Golf game enthusiasts the opportunity to play our game in a virtual environment, without the need to pay an entry fee or wager using real money and to socially network with other game enthusiasts in a web community at our website, via a freestanding gaming kiosk, or via gaming console. Management believes that much of our potential for long-term growth resides with the development of an online game and revenue base. The number of participants in our land-based events is inherently limited by the requirements of bringing players together in one place, by the $10,000 high-stakes buy-in, and by the logistical challenges that will mount in any live event as more and more participants are added.  By bringing our proprietary game to the Internet, we hope to transcend these limitations.
 
The virtual game will be developed with several valuable features: it will (1) require users to register; (2) allow people to play and get familiar with our format and (3) encourage the development of a social networking community related to the game and its online play. Through the virtual game, we expect to be able to conduct events 24 hours a day, seven days a week. Players will be able to compete in varied types of play, including 3 hole, 6 hole, 9 hole, or 18 hole events. Most of these events will be buy-in events. Registered players will acquire credits and then use these credits to participate in the virtual events they choose. Management expects this to not only drive revenue, but give the users an opportunity to learn the format. We anticipate leveraging our land based events, media and strategic partner relations to drive traffic to the virtual game site.
 
Once a critical number of players have familiarized themselves with our game and have refined their skills using our U.S.-based virtual game, we will explore opportunities to incorporate online gaming into the virtual games.
 
Brand Licensing
 
We seek to generate additional revenue from the World Series of Golf brand in the U.S. and worldwide by pursuing the license of our name, logo and other proprietary marks for use with products and services that we wish to be associated with. We have only recently begun our licensing program. In September 2007, we licensed the World Series of Golf name and logo to the Custom Group of the United Kingdom, in exchange for license fees of approximately $931,000 which we received and recognized as revenue in 2008. We terminated this agreement in 2009 due to the Custom Group’s default.
 
Growth Strategy
 
Management’s objective is to build a global brand for World Series of Golf and our unique method of play by providing an integrated offering of “real world,” live events, broadcast coverage and a high-quality online gaming experience and a strong web community. The key elements of our growth strategy include the following:
   
Identifying and securing long-term broadcasting partners for the domestic and international distribution of our production content;
   
Securing high-quality sponsorships from advertisers offering strategic advantages and having products and services that are complementary to our business;
   
Building awareness of, and increasing interest in, our game through an comprehensive marketing program consisting of strategic alliances, sponsorships, online advertising and traditional media advertising;
   
Producing additional media content derived from our existing and future live, “land-based” events for broadcasting on various media;
   
Continuing to develop, improve and protect our technology and intellectual property assets, such as our website, our proposed online game and Internet broadcast network and our trademarks;
   
Expanding our live, “land-based” tournaments into other markets, nationally and internationally, by developing qualifying tournaments that culminate in a final, season-ending tournament; and
   
Hiring additional managerial, technical and administrative personnel to support our planned growth.
 
Competition
 
We believe that our unique method of play differentiates us from any other amateur, land-based, televised golf tournament. We believe that the unique scoring and wagering component of our method of play is so central to our game format that we do not directly compete with traditional amateur golf tournaments or professional, televised golf tournaments. However, we face competition from other areas. Since we have historically operated our land-based tournament in Las Vegas, Nevada, a major resort destination, we compete with resort-based gaming and non-gaming entertainment operating in the immediate and surrounding market areas, such as poker tournaments and other forms of casino and hotel entertainment. To the extent we compete in this market, we may be at a disadvantage due to the greater marketing resources, brand recognition, financial strength and entertainment diversity of such competitors. With regard to our television broadcasts, we compete for viewership and sponsorship with televised sporting events and other television programming that may air at the same time as our television broadcasts.
 
 
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Sales and Marketing
 
We have marketed our live tournaments to the general public through our website, the websites of our World Series of Golf partners, such as The Mirage and Pocket King Ltd.’s FullTiltPoker.net, direct mail and through the awareness we build from our domestic and international television broadcasts and news articles and features written about us in local publications and trade magazines.
 
Regulation
 
We are not aware of any material legal or other regulatory restrictions that may adversely affect our business. Generally, in the U.S., games of skill are distinguished at law from games of chance by the predominant role of skill in determining the outcome of the game. We believe, after consultation with our gaming law counsel, that our unique method of play constitutes a game of skill and that we are not subject to Nevada State gaming regulations in connection with the operation of our World Series of Golf tournament play. It is possible, however, that our golf tournaments could become the subject of future federal or state gaming legislation or regulations or that federal or state authorities could take the position that our planned activities are subject to existing regulations. 
 
In addition, we believe that our planned online video games to be offered via the Internet are games of skill and not gambling subject to U.S. federal or state regulations regarding Internet gambling. Most U.S. states do not prohibit offering games of skill with prizes for a fee, but do prohibit offering games of chance with prizes for a fee. However, as a result of the enactment of the Unlawful Internet Gambling Enforcement Act of 2006 (the “UIGEA”) in the U.S., there can be no assurance that regulators will not choose to interpret and administer laws in a manner that would restrict our online video game operations. Whether a particular game involves the requisite amount of skill is ultimately a question of fact for regulators and courts to decide. These determinations of fact can differ from state to state. Should there be any change to the laws or to the interpretation of these laws in any state or changes in federal law, a change in the interpretation of existing federal law or in any states in which we offer our services or an interpretation of the UIGEA restricting our operations, we may no longer be able to offer our services in certain states or may be required to modify its services at a cost to comply with changes in the law or its interpretation. Proposed legislation was recently introduced in the U.S. House of Representatives which, if enacted, would relax certain restrictions on online poker and Internet gambling under UIGEA. The proposed legislation would allow licensed online operators to accept bets and wagers from individuals in the U.S. and allow financial institutions to handle such transactions. We view this legislation as beneficial to our business; however, there can be no assurance that it will be adopted.
 
In the United States, there exists other legislation that regulates certain other aspects of the Internet, including online content, user privacy, taxation, liability for third party activities and jurisdiction, some of which may be or become applicable to our business.
 
Research and Development
 
We are not engaged in any meaningful research and development activities and we do not have a research and development staff. We regularly monitor and assess the effectiveness of the rules of our game and make adjustments accordingly to maximize efficiency of the game interest of our participants.
 
Intellectual Property
 
We create, own and distribute intellectual property. It is our practice to protect our technology through patents, trademarks, copyrights, trade secret laws, restrictions on disclosure and other methods.
 
We filed a U.S. utility patent application (Application No. 10/958,933) for the invention, entitled “Method for Conducting Sports Tournaments With Wagering” with respect to our unique World Series of Golf method of play. The patent was granted as it pertains to virtual method of play on November 30, 2010 and issued under US Patent No. 7,841,933.  The application is currently pending as it relates to live method of play events.
 

 
 
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We have a registered trademark for the name “World Series of Golf” and its related logo. We have applied for registration for the following marks: “World Series of Professional Men’s Golf”, “World Series of Professional Ladies Golf”, and “World Series of Amateur Golf” and “World Series of Golf Club Championship.” We also have a registered trademark in Japan and Canada for the name “World Series of Golf”.
 
We have no foreign patents or other foreign trademarks. Prior to expanding our live tournaments into foreign markets, we plan to take measures to protect our intellectual property in such markets.
 
We also rely on trade secrets, know-how and other unpatented proprietary information in our business. Most of our employees are required to enter into confidentiality and non-competition agreements. However, there is no assurance that these agreements would be enforceable if they are breached or, if enforced, that they would adequately protect us or provide an adequate remedy for the damages that may be caused by such a breach.
 
Seasonality
 
In 2009 and 2008, we earned approximately 85% and 70%, respectively, of our annual revenues during the second quarter of the year due to the fact that we have held our tournaments during the month of May.  Participants in our tournaments typically register online at our website and pay their entry fee during the first or second quarter of the year. In addition, we recognize sponsorship and advertising revenue when we provide the advertising, which is in connection with the tournament, or when we utilize the in-kind services or products, which are typically utilized in connection with the tournaments, such as player gifts and hotel rooms. We expect this trend to continue until such time as we successfully expand the number of tournaments we offer in other locations throughout the year or increase the revenues we generate from other sources, such as broadcast license fees and merchandise sales.
 
Industry
 
Due to the unique nature of our business, we do not operate in a single industry, but rather across discrete segments of several industries that we believe are complimentary and offer the opportunity for several diversified revenue models. These industries are sports and entertainment, gaming and online games.
 
Sports and Entertainment. Golf is one of the most popular sports in the United States and worldwide. Part of what makes the game so popular, we believe, is its appeal as a spectator sport as well as a player sport. As evidence of the sport’s popularity in relation to other sports, golf facility revenues in the U.S. exceeded revenues from all professional and semi-professional sports combined, according to a 2008 study by Golf 20/20, an industry trade group. Golf Magazine, a monthly print publication, reported having over six million subscribers in 2008, and the top five golf websites had 3.7 million visitors during the same period. World Golf Tour, Inc., an operator of online golf games, reported having about 250,000 unique visitors to its website each month. Golf’s international appeal is evidenced by the television broadcast of the 2008 PGA Tour events in over 200 countries.
 
The golf industry is expected to achieve revenues in the United States of $81 billion in 2009 and grow to $91 billion by 2012 despite the recent economic downturn, according to estimates by National Diversity Solutions, a research firm focusing on diversity matters. The sport’s appeal as both a player and spectator sport creates opportunities for markets in various sectors of the larger golf market, such as golf facilities, broadcast, print, and online media, golf apparel, golf equipment, online golf games, among others.
 
Our business strategy seeks to capitalize on the popularity and projected growth of golf, domestically and internationally, by incorporating our proprietary method of golf play to create a suite of products and services for commercial sale to golf and gaming enthusiasts alike.
 
Gaming. Due to the scoring elements of our method of play (which resemble poker wagering), we also operate in a small segment of the larger gaming industry, which is a $70 billion dollar industry in the U.S. according to the American Gaming Association. The uniqueness of our game, which involves skill and gaming elements similar to poker, make industry segmentation and comparisons difficult. However, we believe that a fraction of customers of gaming facilities, of which there are more than 40 million, according to the Las Vegas Visitor and Convention Authority, represent potential customers for our tournaments and our other planned product offerings. These potential customers may include, without limitation, participants in sports wagering, in which individuals place bets against each other in relation to sporting events, which had revenues of approximately $17 billion in North America during 2008.
 
Online Games . Once we launch our virtual World Series of Golf game(s) we will enter the fast-growing online games industry. Our World Series of Golf online game will be categorized as a skill-based game. The International Game Developers Association (IGDA) defines a “skill based game” as a web game played in a tournament format, with each player paying a cash entry fee to play and with a cash or merchandise prize going to the winner or winners of the tournament. Online games also typically generate revenue from advertising and so-called “micro-transactions” in which gamers make smaller dollar purchases on the website. Skill based games are so named because the outcome of each competition is based on the players’ ability and performance, with any elements of luck either eliminated or greatly reduced.
 
 
6

 
 
The Internet has been the fastest growing market for goods and services over the last ten years and within this marketplace the sector known as online skill games is growing four times faster than the Internet itself, according to analyst firm DFC Intelligence. Online skill games generated $3.4 billion in 2005 and are projected to exceed $13 billion by 2011, according to recent figures obtained from DFC Intelligence. Furthermore, the number of U.S. online gamers is projected to increase from 153 million in 2009 to over 180 million in 2012, according to IDC, a research firm.
 
The online skill games sector has been identified as a natural progression in online entertainment for people of all ages, playing by the millions from all over the world and at any one time there are game networks with hundreds of thousands of players online. We believe that the ease and speed of online games makes them more attractive than console games, which require the purchase of a gaming system, such as Xbox or Nintendo Wii.
 
Employees
 
As of December 31, 2010, we had 2 employees.   We believe our relations with our employees are good.
 
Development of Business
 
We were incorporated in the State of Nevada on June 30, 2006 under the name “Innovative Consumer Products, Inc.” During the period from our incorporation until January 31, 2008, we generated no significant revenues and accumulated no significant assets, as we attempted to develop and finance our plan to manufacture several alternative prototypes of a proprietary clamp (or hook) device that attaches to the edge of a table or other surface to provide a safe and elevated place to store a purse and other items.
 
On January 31, 2008, we acquired all of the outstanding capital stock of World Series of Golf, Inc., a privately-held Nevada corporation (“WSG-NV”) engaged in the sports entertainment industry that conducted golf tournament events under a proprietary method of play format and produced its own content for television and online applications. We immediately ceased prior business and began devoting all resources to the acquired business of WSG-NV.
 
The acquisition was consummated pursuant to an Agreement and Plan of Merger, dated January 31, 2008, among our company, WSG-NV, and WSG Acquisition, Inc. (“Acquisition Sub”), a newly formed wholly-owned Nevada subsidiary, whereby WSG-NV merged with and into Acquisition Sub. This transaction is commonly referred to as a “reverse acquisition” in which all of the outstanding capital stock of WSG-NV was effectively exchanged for a controlling interest in our company, which was a publicly-held “shell” corporation at the time of the transaction. This was considered a capital transaction (a recapitalization) rather than a business combination. Accordingly, no goodwill or other intangible assets were recorded. On February 1, 2008, we merged with Acquisition Sub in a short form merger under Nevada law and changed our name to “World Series of Golf, Inc.”
 
Business of Predecessor
 
WSG-NV, in which we acquired a 100% interest on January 31, 2008, was formed in 2003. As indicated above, WSG-NV was engaged in sports entertainment. Since WSG-NV was considered to be the acquirer for financial reporting purposes, our historical financial statements for any period prior to January 31, 2008, are those of WSG-NV.
 
 ITEM 2. – PROPERTIES
 
We do not own any real property. Our corporate offices at 10161 Park Run Dr., Suite 150, in Las Vegas, Nevada are leased from Plaza Offices LLC (formerly Ideawide LLC) on a month-to-month basis.
 
 
 
7

 
 
We have granted a security interest in all of our assets to The Slitz Family Trust, of which Mr. John Slitz, Jr., our former Chairman, is the trustee, as security for our payment of amounts due to the trust under an outstanding promissory note.
 
 ITEM 3. – LEGAL PROCEEDINGS
 
There are no legal proceedings to which the Company or any of its property is the subject.
 
 ITEM 4. – [Reserved.]

 
8

 
 
PART II
 
 ITEM 5. – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Our common stock is quoted on the OTC Bulletin Board under the symbol WSGF. Our common stock was previously quoted on the Pink OTC Markets, Inc. under the symbol “WSGF”.
 
The following table sets forth the range of high and low bid quotations for our common stock for each of the periods indicated as reported by the OTC Bulletin Board or the Pink Sheets, as applicable. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
 
   
High
 
Low
         
2010
       
First Quarter
 
$0.025
 
$0.003
Second Quarter
 
$0.025
 
$0.002
Third Quarter
 
$0.045
 
$0.0052
Fourth Quarter
 
$0.04
 
$0.08
2009
       
First Quarter
 
$0.09
 
$0.01
Second Quarter
 
$0.15
 
$0.01
Third Quarter
 
$0.19
 
$0.02
Fourth Quarter
 
$0.05
 
$0.005
 
Holders of Our Common Stock
 
At March 8, 2011, there were approximately 128 holders of record of our common stock. This number excludes any estimate by us of the number of beneficial owners of shares held in street name, the accuracy of which cannot be guaranteed.
 
Dividends
 
We have not declared any cash dividends on our Common Stock since inception and do not anticipate paying such dividends in the foreseeable future. We plan to retain any future earnings for use in our business operations. Any decisions as to future payment of cash dividends will depend on our earnings and financial position and such other factors as the Board of Directors deems relevant.
 
Recent Sales of Unregistered Securities

On September 30, 2010, the Company issued a $35,000, 8% convertible debenture due March 31, 2011 to Jim Tilton for accrued compensation expense.  The convertible debenture is convertible at 50% of the common stock price at the date the Company receives notice of conversion.  Mr. Tilton is the Company’s chief financial officer and director.

On December 31, 2010, the Company issued a 25,000, 8% convertible debenture due June 30, 2011 to Jim Tilton for accrued compensation expense.  The convertible debenture is convertible at 50% of the common stock price at the date the Company receives notice of conversion.  Mr. Tilton is the Company’s chief financial officer and director.

In connection with the foregoing, the Company relied upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering.
 
Securities Authorized for Issuance under Equity Compensation Plans
 
In May 2008, our stockholders adopted and approved our 2007 Stock Option Plan (the “2007 Plan”). In April 2009, we terminated the 2007 Plan and adopted our 2009 Equity Incentive Plan (“2009 Plan”), which allows for awards of qualified and non-qualified stock options for up to 3,000,000 shares of our common stock. In August 2009, our board of directors approved the adoption of our Amended and Restated 2009 Equity Incentive Plan (the “Amended 2009 Plan”). Our board of directors amended the 2009 Plan to increase the number of shares issuable under the 2009 Plan to 4,000,000 shares of our common stock.
 
 
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The following table summarizes the number of shares of our common stock authorized for issuance under our equity compensation plans as of December 31, 2010.
 
Plan Category
(a)
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options
 
(b)
Weighted-
Average
Exercise Price
of Outstanding
Options
 
(c)
Number of
Securities
Remaining
Available
for Future
Issuance Under
Equity
Compensation
Plans (excluding
securities reflected
in column(a))
           
Equity compensation plans approved by security holders
2,085,000
 
$
0.07
 
1,565,000
Equity compensation plans not approved by security holders
   
 
 0
             
Total
2,085,000
 
$
0.07
 
1,565,000
             
 
Issuer Repurchases of Equity Securities

None.
 
ITEM 7. – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statements contained herein may be forward-looking statements. These forward-looking statements reflect our current views with respect to future events or our financial performance, and involve certain known and unknown risks, uncertainties, and other factors, including those identified below, which may cause our or our industry’s actual or future results, levels of activity, performance or achievements to differ materially from those expressed or implied by any forward-looking statements or from historical results. The following factors, among others, could cause our or our industry’s future results to differ materially from historical results or those anticipated: (1) the availability of additional funds to enable us to successfully pursue our business plan; (2) the uncertainties related to the appeal and acceptance of our proprietary method of play and our planned online products; (3) the success or failure of our development of additional products and services; (4) our ability to maintain, attract and integrate management personnel; (5) our ability to secure suitable broadcast and sponsorship agreements; (6) our ability to effectively market and sell our services to current and new customers; (7) changes in the rules and regulations governing our business; (8) the intensity of competition; and (9) general economic conditions. As a result of these and other factors, we may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect our business, financial condition, operating results, and stock price. Additional factors that would cause actual results to differ materially from those projected or suggested in any forward-looking statements are contained in our filings with the Securities and Exchange Commission, including those factors discussed under the caption “Forward-Looking Information” in our most recent Annual Report on Form 10-K, as may be supplemented or amended from time to time, which we urge investors to consider. Except as required by applicable securities laws, we undertake no duty to update, supplement, or revise any forward-looking statements after the date of this report or to conform them to actual results, new information, future events, or otherwise. The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and notes appearing elsewhere in this Report.

On January 31, 2008, Innovative Consumer Products, Inc. (“ICP”), a public Nevada shell corporation, acquired all of the outstanding capital stock of World Series of Golf, Inc. (“WSG-NV”), a privately-held Nevada corporation engaged in the sports entertainment industry.

The acquisition was consummated pursuant to an agreement and plan of merger, dated January 31, 2008, whereby WSG-NV merged with and into WSG Acquisition, Inc. (“Acquisition Sub”), a newly formed wholly-owned Nevada subsidiary of ICP. This transaction is commonly referred to as a “reverse acquisition,” in which all of the outstanding capital stock of WSG-NV was effectively exchanged for a controlling interest in ICP. This type of transaction is considered to be a recapitalization rather than a business combination. Accordingly, no goodwill or other intangible assets were recorded and WSG-NV was considered to be the acquirer for financial reporting purposes. Our historical financial statements for any period prior to January 31, 2008 are those of WSG-NV. On February 1, 2008, we merged with Acquisition Sub in a short form merger under Nevada law and changed our name to “World Series of Golf, Inc.”

We are a sports entertainment company that hosts amateur golf tournaments and events and seeks to create branded products, games, media, and entertainment based on our proprietary golf tournament method of play which we call “The World Series of Golf.” We believe our unique method of play enhances the entertainment value of the skilled game of golf by incorporating elements of strategy similar to those found in “Texas Hold ‘Em”, a popular style of the card game poker.
 
 
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We have held a three-day World Series of Golf tournament in Las Vegas, Nevada during May in 2007, 2008 and 2009. Due to insufficient capital, we have not hosted a tournament in 2010, as we previously anticipated. Through our media partners, we broadcast our tournaments on domestic and international television and via other media outlets as live events or as a produced series. We also sell sponsorships for our live tournaments and television coverage. Due to our funding constraints, we have delayed the launch of our virtual game that we are planning to develop.   We plan to offer through our website, www.worldseriesofgolf.com, a single and multi-player virtual game which we intend to launch during the fourth quarter of 2011.  The single and multi-player virtual game is based on our unique method of play and can be tied into a social network/web community where interested players can not only play the online version of The World Series of Golf, but will also be able to communicate with each other, share information, and buy related products online.

We generate revenue primarily through entry fees paid by the amateur players entering our tournaments, advertising, and sponsorship fees. We anticipate that, once we fully implement our online game strategy, revenue from subscription fees for online games and sponsorship fees to become a material percentage of our total revenues.

Recent Developments

As we previously reported in our Current Report on Form 8-K, on April 13, 2010, we entered into a securities purchase agreement with Green Life Inc. (“Green Life”) pursuant to which Green Life agreed to purchase 2,000 shares of our Series A convertible preferred stock (“Preferred Shares”), representing a controlling interest in our company, for an aggregate purchase price of $200,000 and a convertible debenture in the principal amount of $50,000. The total investment was $250,000 and the transaction closed on April 14, 2010. The proceeds of the investment were used primarily to pay certain past due trade payables and professional fees, which allowed us to prepare and file our annual report.

In connection with the purchase agreement, we executed and filed with the Secretary of State of Nevada a Certificate of Designation, Preference and Rights of the Series A Convertible Preferred Stock (“Certificate of Designation”). Under the Certificate of Designation, at any time after September 1, 2010, the Preferred Shares are convertible into shares of common stock at a price equal to the average of the closing “volume weighted average price” of our common stock for the five (5) consecutive trading days prior to conversion. The Certificate of Designation provides that the Preferred Shares shall vote together with the common stock and have 51% of the voting power. It also contains certain approval rights of the holders of the Preferred Shares, which require us to obtain the consent of at least 75% of the outstanding Preferred Shares before taking certain corporate actions such as a merger, payment of dividends, making certain capital expenditures, and the like.

The convertible debenture has a stated interest rate of 8% and is due on March 31, 2011, unless earlier converted. The debenture (principal or interest, any portion thereof) is convertible either at the holder’s or our option at a price equal to 50% of the closing price of our common stock on the date of conversion. The note contains a blocker provision which restricts Green Life’s conversion of the note to the extent that the conversion would result in Green Life beneficially owning more than 4.99% of our outstanding common stock.

Pursuant to a registration rights agreement with Green Life also executed on April 13, 2010, we are required to file a registration statement with the Securities and Exchange Commission for the resale of our common stock underlying the convertible Preferred Stock and convertible debenture.

Cash Position, Going Concern and Recent Financing Activities

We have prepared our consolidated financial statements assuming that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. As of December 31, 2010, we had an accumulated deficit of approximately $15,139,089 , negative cash flows from operations since inception, and expect to incur additional losses in the future as we continue to develop and grow our business. We have funded our losses primarily through the sale of common stock and warrants in private placements; borrowings from related parties and other investors; and revenue provided by our sponsorships and advertising, contracts, licensing arrangements, and tournaments. The further development of our business will require capital. At December 31, 2010, we had a working capital deficit (current assets less current liabilities) of $5,447,279 and $28,461 in cash. Our operating expenses will consume a material amount of our cash resources.

We are still in the early stages of executing our business strategy. Our current cash levels, together with the cash flows we generate from operating activities, are not sufficient to enable us to execute our business strategy. We require additional financing to execute our business strategy and to satisfy our near-term working capital requirements. In the event that we cannot obtain additional funds on a timely basis or our operations do not generate sufficient cash flow, we may be forced to curtail or cease our activities, which would likely result in the loss to investors of all or a substantial portion of their investment. We are actively seeking to raise additional capital through the sale of shares of our capital stock to institutional investors and through strategic investments. If management deems necessary, we might also seek additional loans from related parties. However, there can be no assurance that we will be able to consummate any of these transactions, or that these transactions will be consummated on a timely basis or on terms favorable to us.
 
 
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Discussion of Cash Flows

We used cash of approximately $382,356 and $1,032,392 in our operating activities during the years ended December 31, 2010 and 2009, respectively. Cash used in operating activities relates primarily to funding net losses, partially offset by share-based payments of consulting and other expenses. We expect to use cash for operating activities in the foreseeable future as we continue our operating activities.

Our investing activities used cash of $936 and $3,489 in the years ended December 31, 2010 and 2009, respectively for the purchase of equipment.
 
Our financing activities provided cash of approximately $411,300 and $915,000 in the years ended December 31, 2010 and 2009, respectively.  During the year ended December 31, 2010, we received $200,000 through the issuance of Series A preferred stock, $150,000 from the issuance of convertible debt, $65,000 from advances, and $6,300 as an advance from a related party.  We paid $10,000 to a related party.  During the year ended December 31, 2009, we received advances of $915,000 from a related party.

Recent Financing Activities

In February 2010, certain advances from our chairman of the board, which totaled $921,300, were replaced by a promissory note in the principal amount of $921,300, with a stated interest rate of 8% per annum. The note is convertible at the option of the holder at a conversion price of $0.02 per share. The note is payable within five (5) days after demand by holder. If the note is not paid upon demand, a default interest rate of 18% per annum applies. The obligations under this additional promissory note are secured pursuant to a security agreement, which grants to the Slitz Family Trust (of which John Slitz, Jr., our former Secretary and Chairman of the Board serves as trustee) a security interest in substantially all of our assets.

In March 2010, we received an advance from Green Life in the amount of $50,000 under unspecified terms. In connection with the Green Life transactions described below, we agreed to amend Green Life and our understanding with respect to the advance and provide for terms, which were substantially similar to the terms specified under the transaction.

On April 13, 2010, we entered into a securities purchase agreement with Green Life pursuant to which Green Life agreed to purchase 2,000 shares of our Series A convertible preferred stock, representing a controlling interest in our company, for an aggregate purchase price of $200,000 and a convertible debenture in the principal amount of $50,000, representing an amendment of the terms of the $50,000 advance previously received from Green Life in March 2010. The total investment was $250,000 and the transaction closed on April 14, 2010.

On September 17, 2010, we entered into a convertible note and warrant purchase agreement pursuant to which we issued and sold to Inter-Mountain, seven secured convertible notes in the aggregate principal amount of $1,446,500 and a five-year warrant to purchase up to 19,047,619 shares of our common stock. The secured convertible notes are due on March 17, 2014, and bear interest at the rate of 6% per annum, payable upon maturity. The secured convertible notes are convertible into the our common stock at a conversion price equal to 70% of the closing bid price of the common stock for the three trading days with the lowest closing bids during the 20 trading days immediately preceding the conversion date.  At December 31, 2010, the conversion rate was $0.012.The warrant has an exercise price equal to the lower of $1.00 or 70% of the closing bid price of the common stock for the three trading days with the lowest closing bids during the 20 trading days immediately preceding the exercise date. The Warrant may be exercised on a cashless basis.
 
The secured convertible notes are secured by certain buyer trust deed notes issued by Inter-Mountain to us in the amount of $1,200,000 which bear interest at 5% per annum. We received net proceeds of $100,000, computed as follows: $1,446,500 less $131,500 in original issue discount, $15,000 in transaction expenses paid to Inter-Mountain, and $1,200,000 for the trust deed notes.

Going Concern

In our Annual Report on Form 10-K for the year ended December 31, 2010, our independent auditors included explanatory paragraphs in their reports relating to our consolidated financial statements for the years ended December 31, 2010 and 2009, which states that we have incurred negative cash flows from operations since inception, and expect to incur additional losses in the future and have a substantial accumulated deficit. These conditions give rise to substantial doubt about our ability to continue as a going concern. Our ability to expand operations and generate additional revenue and our ability to obtain additional funding will determine our ability to continue as a going concern. Our condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Summary

We are dependent on existing cash resources and external sources of financing to meet our working capital needs. Current sources of liquidity are insufficient to provide for budgeted and anticipated working capital requirements. We will therefore be required to seek additional financing to satisfy our working capital requirements. No assurances can be given that such capital will be available to us on acceptable terms, if at all. In addition to equity financing and strategic investments, we may seek additional related party loans. If we are unable to obtain any such additional financing or if such financing cannot be obtained on terms acceptable to us, we may be required to delay or scale back our operations, including the development of our online game, which would adversely affect our ability to generate future revenues and may force us to curtail or cease our operating activities.
 
 
12

 

To attain profitable operations, management’s plan is to execute its strategy of (1) increasing the number of tournaments; (2) leveraging the existing tournament to generate ancillary revenue streams via Internet TV or other venues; (3) continuing the development of the online game; and (4) continuing to build sponsorship, advertising, and related revenue, including license fees related to the sale of branded merchandise. We will continue to be dependent on outside capital to fund our operations for the foreseeable future. Any financing we obtain may further dilute, or otherwise impair, the ownership interest of our current stockholders. If we fail to generate positive cash flows or fail to obtain additional capital when required, we could modify, delay, or abandon some or all of our plans. These factors, among others, raise substantial doubt about our ability to continue as a going concern.

On August 13, 2010, Joseph Martinez resigned as our chief executive officer, chief financial officer, treasurer, and director; Joseph Slitz resigned as our chairman and director; James Tilton was elected our director and chief financial officer; and Patrick Brown was elected our chief executive officer and treasurer. In connection with the resignation of Mr. Martinez, we entered into an agreement of termination and release with Mr. Martinez, pursuant to which Mr. Martinez’s employment agreement was terminated, the parties provided mutual releases, the Company agreed to pay Mr. Martinez $15,000 in cash per month over a three-year period, and the Company issued Mr. Martinez a three-year note in the principal amount of $275,000. In connection with the resignation of Mr. Slitz, we entered into an agreement of termination and release with Mr. Slitz, pursuant to which Mr. Slitz’s consulting agreement was terminated, the Company agreed to pay Mr. Slitz $15,000 in cash per month over a three-year period, the Company agreed to issue Mr. Slitz $200,000 in stated value of preferred stock (with terms to be agreed upon by the parties), the parties agreed to amend and restate the amended and convertible promissory note, dated May 28, 2009, issued by the Company to The Slitz Family Trust (with terms to be agreed upon by the parties) and the Company’s obligations with respect to $270,000 owed to Mr. Slitz for serviced provided shall remain outstanding (which amount shall be reduced by the $15,000 in cash per month over three month the Company agreed to pay).

Consolidated Results of Operations

   
Year Ended
             
   
December 31,
   
Change
 
   
2010
   
2009
    $       %  
                           
                           
Sponsorship and advertising
  $ 25,000     $ 698,600     $ (673,600 )     (96 )  %
Player entry fees
    -       789,994       (789,994 )     (100 )  %
Total revenue
    25,000       1,488,594       (1,463,594 )     (98 )  %
                                 
Operating expenses:
                               
Cost of revenue
    -       1,770,446       (1,770,446 )     (100 )  %
Sales and marketing
    -       66,845       (66,845 )     (100 )  %
General and administrative
    1,296,646       1,790,585       (493,939 )     (28 )  %
Total operating expenses
    1,296,646       3,627,876       (2,331,230 )     (64 )  %
                                 
Gain (loss) from operations
    (1,271,646 )     (2,139,282 )     867,636       (41 )  %
                                 
Other income (expense):
                               
Interest and financing costs
    (724,775 )     (199,029 )     (525,746 )     264 %
Interest income
    17,666       3       17,663       588,767 %
Change in fair value of warrant liability
    (33,709 )     92,045       (125,754 )     (137 )  %
Total other income (expense)
    (740,818 )     (106,981 )     (633,837 )     592 %
                                 
Net loss
  $ (2,012,464 )   $ (2,246,263 )   $ 233,799       (10 )  %

 
Comparison of the Year Ended December 31, 2010 to the Year Ended December 31, 2009
Revenue: We generate revenue primarily through a combination of (1) the sale of sponsorships and advertising in connection with our tournaments, (2) the license of our proprietary marks/brands, and (3) entry fees paid by the players entering our golf tournaments. During the year ended December 31, 2010, we generated $25,000 in revenues compared to $1,488,594 for the year ended December 31, 2009.  Due to the lack of capital, we were unable to host our tournament during the second quarter of 2010 as we had hosted in the second quarter of 2009.
 
 
13

 

Cost of Revenue: Cost of revenue primarily consists of barter transactions, player payout (tournament prizes), media production costs, and other event costs. Cost of revenue decreased in the year ended December 31, 2010 compared to December 31, 2009. During the year ended December 31, 2010, we did not incur any costs related to a planned tournament.

Sales and Marketing: Sales and marketing expense consists primarily of consulting, public relations, sales materials, and advertising.  We did not incur any sales and marketing expenses during the year ended December 31, 2010 compared to the sales and marketing expenses of $66,845 during the year ended December 31, 2009.

General and Administrative: General and administrative expense consists primarily of salaries and other personnel-related expenses to support our tournament operations, non-cash stock-based compensation for general and administrative personnel, professional fees (e.g., accounting and legal), corporate insurance, and facilities costs. General and administrative expenses decreased in the year ended December 31, 2010 compared to December 31, 2009 due to continued cost reductions in the current year.

Interest and Financing Costs: Interest and financing costs increased $525,746 or264% in the year ended December 31, 2010 compared to 2009 due to the increase in convertible notes and the amortization of debt discounts associated with the convertible notes issued during the quarter.  We recorded to interest and financing costs $285,699 related to the fair value of the warrants.  In February 2010, we converted advances from a related party to a convertible note in the amount of $921,300 with an 8% interest rate.  Also, in May, we issued a $50,000 convertible note with an interest rate of 8% and convertible at 50% of the closing price on the date of conversion, which we determined had a beneficial conversion feature with a value of $50,000.  We also exchanged $200,000 of debt for a convertible note with similar terms to the $50,000 note, which we determined had a beneficial conversion feature with a value of $200,000. The increase is also due to the fair value of the warrants that were issued in conjunction with the convertible notes.  During the year ended December 31, 2010, we amortized $227,526 of the debt discount which is recorded in “interest and financing costs” on the consolidated statements of operations.

Change in Fair Value of Warrant Liability: The fair value of the derivative liability is revalued quarterly utilizing Black-Scholes valuation model computations with the increase or decrease in fair value being reported in the statement of operations as other income (expense). During the year ended December 31, 2010, the fair value increased $33,709 due to the increase in share price from $0.012 at December 31, 2019 to $0.016 at December 31, 2010.  During the year ended December 31, 2009, the fair value decreased $92,045 due to the decrease in share price from $0.075 at December 31, 2008 to $0.012 at December 31, 2009.

Contractual Obligations

Our significant contractual obligations are as follows:
 
   
Payments due by Period
 
   
Less than
   
One to
   
Three to
   
More Than
       
   
One Year
   
Three Years
   
Five Years
   
Five Years
   
Total
 
Convertible Notes Related Party
  $ 1,336,412     $ -     $ -     $ -     $ 1,336,412  
Convertible Notes
    1,285,000       246,500       -       -       1,531,500  
Note Payable Related Party
    -       275,000       -       -       275,000  
Total
  $ 2,621,412     $ 521,500     $ -     $ -     $ 3,142,912  

Off-Balance Sheet Arrangements

As of December 31, 2010, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Critical Accounting Policies

The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires our management to make assumptions, estimates, and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any.  We have identified certain accounting policies that are significant to the preparation of our financial statements.  These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial conditions and results of operations, and require management's difficult, subjective, or complex judgments often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.  Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management's current judgments.  We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements.

Use of Estimates
 
The preparation of financial statements, in conformity with U.S. Generally Accepted Accounting Principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management estimates relate to the determination of depreciation rates for equipment, future tax rates used to determine future income taxes, and the carrying values of goodwill and accrued derivative liabilities. Actual results could differ from these estimates upon which the carrying values were based.
 
 
14

 

Revenue Recognition

Revenue is recognized when there is persuasive evidence that an arrangement exists, delivery has occurred, collectability is reasonably assured, and fees are fixed or determinable.  We derive our revenues from sponsorship and advertising, license agreements, and player entry fees. Sponsorship and advertising revenue includes fees obtained for the right to sponsor our tournament events and for advertising in our television programming.

We recognize revenue from sponsorship and advertising agreements when earned in connection with the applicable tournament, as set forth in the sponsorship or advertising agreement, either upon completion of the tournament,  publication or airing of the advertising. Upfront non-refundable payments, where we are providing continuing services related to the airing of a tournament series, are deferred and recognized as revenue over the contract period. Revenues and related expenses from barter transactions, in which we receive goods or services in exchange for sponsorships of tournaments, are recorded at fair value.

We recognize revenue related to player entry fees upon the successful completion of a scheduled tournament. We record player entry fees revenue on a net basis, in that we do not record gifted or sponsored buy-ins to player entry fees revenue with an offset to expense. Player entry fees collected prior to a scheduled tournament are deferred and recognized when earned upon the occurrence of the scheduled tournament.

Warrant Liability

We apply ASC Topic 815, “Derivatives and Hedging,” which provides a two-step model to determine whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the scope exception in ASC 815-10-15-74.  Using the criteria in ASC 815, we determine which instruments or embedded features that require liability accounting and record the fair values as an accrued derivative liability. The changes in the values of the accrued derivative liabilities are shown in the accompanying consolidated statements of operations as “Change in fair value of warrant liability.”

Fair Value Measurements

For certain financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, and short-term debt, the carrying amounts approximate their fair values due to their short maturities. In addition, we have long-term debt with financial institutions. The carrying amounts of the convertible notes approximate their fair values based on current rates of interest for instruments with similar characteristics.

ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments we hold. ASC Topic 825, “Financial Instruments” defines fair value and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures.  The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities qualify as financial instruments, and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments, their expected realization, and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

·  
Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

·  
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

·  
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
 
We analyze all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815.

Stock-based Compensation

We record stock-based compensation in accordance with ASC Topic 718 “Compensation – Stock Compensation.”  ASC 718 requires companies to measure compensation cost for stock-based employee compensation at fair value on the grant date and recognize the expense over the employee’s requisite service period. Under ASC 718, our volatility is based on the historical volatility of our stock or the expected volatility of similar companies. The expected life assumption is primarily based on historical exercise patterns and employee post-vesting termination behavior. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
 
 
15

 

We use the Black-Scholes option-pricing model, which was developed for use in estimating the fair value of options. Option-pricing models require the input of highly complex and subjective variables, including the expected life of options granted and our expected stock price volatility over a period equal to or greater than the expected life of the options. Because changes in the subjective assumptions can materially affect the estimated value of our employee stock options, it is management’s opinion that the Black-Scholes option-pricing model may not provide an accurate measure of the fair value of the employee stock options. Although the fair value of employee stock options is determined in accordance with ASC 718 using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

Recently Issued Accounting Standards

In December 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Issued Update (“ASU”) No. 2010-28—Intangibles—Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. The amendments in this Update modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with the existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For public entities, the amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

In January 2011, the FASB issued ASU No. No. 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. This ASU temporarily delays the effective date of the disclosures about troubled debt restructurings in Update 2010-20 for public entities. The delay is intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. Currently, that guidance is anticipated to be effective for interim and annual periods ending after June 15, 2011. Accordingly, the Company has not included the disclosures deferred by this ASU.
 
 
16

 
 
 
 ITEM 8. – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 
Page No.
Report of Independent Registered Public Accounting Firm
F-1
Consolidated Balance Sheets as of December 31, 2010 and 2008
F-3
Consolidated Statements of Operations for fiscal years ended December 31, 2010 and 2009
F-4
Consolidated Statements of Stockholders’ Equity (Deficit) for fiscal years ended December 31, 2010 and 2009
F-5
Consolidated Statements of Cash Flows for fiscal years ended December 31, 2010 and 2009
F-6
Notes to Consolidated Financial Statements
F-7
 
 ITEM 9. – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On August 17, 2010, we dismissed Peterson Sullivan, LLP as our independent registered public accounting firm. The dismissal of Peterson Sullivan, LLP was approved by our board of directors.

The audit reports of Peterson Sullivan, LLP on the Company’s financial statements as of and for the years ended December 31, 2009 and December 31, 2008 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principles, except as follows:

                 
(1)           In Peterson Sullivan, LLP’s report dated April 15, 2010 for the Company’s financial statements for the fiscal year ended December 31, 2009, Peterson Sullivan, LLP indicated that: “The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has an accumulated deficit of approximately $13.1 million at December 31, 2009, has incurred negative cash flows from operations since inception, and expects to incur additional losses in the future. Additionally, the Company has a working capital deficit of approximately $4.1 million at December 31, 2009. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.”

(2)           In Peterson Sullivan, LLP’s report dated June 9, 2009 for the Company’s financial statements for the fiscal year ended December 31, 2008, Peterson Sullivan, LLP indicated that: “The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has an accumulated deficit of approximately $10.8 million at December 31, 2008, has incurred negative cash flows from operations since inception, and expects to incur additional losses in the future. Additionally, the Company has a working capital deficit of approximately $1.9 million at December 31, 2008. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.”
 
On August 17, 2010, the Company engaged Gruber and Company, LLC (“Gruber”) to assume the role of its new principal independent accountants. The decision to engage Gruber was approved by the Board of Directors.
 
During the years ended December 31, 2009 and 2008 and from January 1, 2010 to through August17, 2010, we did not consult with Gruber on (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that may be rendered on our financial statements, and Gruber did not provide either in a written report or oral advice to us that was an important factor considered by us in reaching a decision as to any accounting, auditing, or financial reporting issue; or (ii) the subject of any disagreement, or a reportable event.
 
 
17

 

 ITEM 9A. – CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

Our principal executive officer and principal financial officer, based on his evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Annual Report on Form 10-K, has concluded that our disclosure controls and procedures are effective for ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Internal Control over Financial Reporting

Management’s Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) promulgated under the Securities Exchange Act of 1934, as amended. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation under the framework in Internal Control – Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2010.
 
This Annual Report on Form 10-K does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permanently exempt smaller reporting companies.

Changes in Internal Control over Financial Reporting

There were no changes in internal control over financial reporting (as defined in Rule 13a-15f under the Exchange Act) that occurred during the fourth quarter of 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION
 
None.
 
 
18

 
 

 
PART III
 
 ITEM 10. – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
The following table sets forth the names and ages of each of our executive officers and directors. Our directors are elected at our annual meeting of stockholders and serve for one year or until successors are elected and quality.  Our Board of Directors elects our officers, and their terms of office are at the discretion of the Board.
Name
 
Age
 
Position
         
Patrick Brown
 
45
 
Chief Executive Officer,  Treasurer
James D. Tilton, Jr.
 
50
 
Chief Financial Officer, Director
 
Set forth below is biographical information concerning our executive officers and directors.
 
Patrick Brown, has served as Chief Executive Officer and Treasurer of the Company since  August 2010 and been self-employed since 2006 as owner of 4th Yes Consulting, which provides strategy and negotiation services. From 2003 to 2006, Mr. Brown worked at Phoenix Interests, Inc. (now known as NuMobile, Inc), developing and operating a pari-mutuel/thoroughbred online wagering site. Mr. Brown earned his undergraduate degree in business management from Xavier University and a law degree from University of Cincinnati.
 
James D. Tilton, Jr., has served as Chief Financial Officer and Director of the Company since August 2010. Mr. Tilton has also served as Chief Executive Officer, President, Secretary, Treasurer and sole director of NuMobile, Inc., a mobile computing technology company, since 2005. Since August 2010 Mr. Tilton has also served as Chief Financial Officer and director of World Series of Golf, Inc., and since February 2010 Mr. Tilton has served as Chief Financial Officer and director of Savanna East Africa, Inc. In addition, Mr. Tilton is the founder of SEA-Tiger, Inc. and has served as its President, Treasurer, Secretary and director since it resumed activity in 2008. Mr. Tilton has a B.A. in Political Science with an emphasis in Accounting/Business from the University of Louisville. Mr. Tilton’s experience in the securities industry (from 1995 to 1996, Mr. Tilton was a stockbroker at Morgan Keegan, and from 1997 to 1999, Mr. Tilton worked independently in the securities industry, specializing in corporate finance and investment banking) and as a director of other public companies qualifies him to serve as a director of the Company.

 
19

 

 
Term of Office
 
Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by the Board and hold office until removed by the Board.
 
Family Relationships
 
None.
 
Director or Officer Involvement in Certain Legal Proceedings
 
None.
 
Section 16(a) Beneficial Ownership Reporting Compliance
 
Our officers, directors and shareholders owning greater than ten percent (10%) of our shares are not required to file beneficial ownership reports pursuant to Section 16(a) of the Securities and Exchange Act (the “Exchange Act”) because we do not have a class of securities registered under Section 12 of the Exchange Act.
 
Code of Ethics Disclosure
 
On April 21, 2009, we adopted a formal code of ethics that applies to our principal executive officer and principal accounting officer, and all other officers, directors and employees.  We will provide a copy, without charge, to any person desiring a copy of the Code of Ethics, by written request to 10161 Park Run Dr., Suite 150, Las Vegas, NV 89145,  Attention: Corporate Secretary. In addition, we have posted the Code of Ethics on our website at www.worldseriesofgolf.com. A copy of our code of ethics is incorporated by reference as Exhibit 14.1 to this Annual Report on Form 10-K.

Audit Committee Financial Expert.
 
The board of directors acts as the Company’s audit committee. Due to the small size and early stage of the Company, the Company does not have an audit committee financial expert.

Board Leadership Structure and Role in Risk Oversight

We have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions should be separate or combined. Since August 2010, Mr. Brown has served as chief executive officer while Mr. Tilton has served as the sole director.
 
Our board of directors is primarily responsible for overseeing our risk management processes .  The board of directors receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks. The board of directors focuses on the most significant risks facing our company and our company’s general risk management strategy, and also ensures that risks undertaken by our Company are consistent with the board’s appetite for risk. While the board oversees our company’s risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our company and that our board leadership structure supports this approach. 
 
Changes in Nominating Procedures
 
None.
 
EXECUTIVE COMPENSATION
 
The following Summary Compensation Table sets forth certain information concerning the compensation of (ii) our Chief Executive Officer, and (ii) other personnel required to be disclosed by this Item whose compensation exceeds $100,000, for each of the years ended December 31, 2010 and 2009.

     
Salary
   
Bonus
   
Stock
   
Option
   
Other
   
Total
 
Name 
Year 
 
($)
   
($)
   
Awards ($)
   
Awards ($)
   
($)
   
($)
 
Joseph F. Martinez
2010
    115,000       -       -       -       -       115,000  
Former, CEO
2009
    210,000       -       -       20,200       1,500       231,700  
Patrick Brown
2010
    50,000       -       -       -       -       50,000  
CEO
2009
    -       -       -       -       -       -  

 
 
20

 
 
Narrative Disclosure to the Summary Compensation Table
 
Martinez Employment Agreement
 
On April 21, 2009, we entered into an employment agreement (the “Martinez Agreement”) with Joseph F. Martinez, pursuant to which Mr. Martinez will serve as our Chief Executive Officer for a term beginning on April 21, 2009 (the “Effective Date”) and ending at any time upon termination by either party.
 
Pursuant to the Martinez Agreement, Mr. Martinez will be entitled to annual base compensation of $240,000, with any increase in base compensation to be set by the Board from time to time as determined by the Board. Mr. Martinez is eligible to receive a target annual bonus of $120,000, with the actual amount to be determined by the Board or the Compensation Committee thereof should one be created.
 
Pursuant to the Martinez Agreement, we granted Mr. Martinez options to purchase up to 1,000,000 shares of common stock, par value $0.001 per share, of our company at an exercise price of $0.09 per share. The options vest monthly in equal installments over a thirty-six (36) month period, beginning the first month after the Effective Date, and expire ten (10) years after the grant date. The grant was made pursuant to the standard form of grant agreement under our 2009 Equity Incentive Plan, which plan is further described below.
 
In the event that Mr. Martinez’s employment is terminated without cause or Mr. Martinez chooses to terminate his employment for good reason, (i) all options granted to Mr. Martinez pursuant to the Martinez Agreement shall be fully vested and exercisable upon such termination and shall remain exercisable in accordance with the grant agreements and (ii) Mr. Martinez will receive an amount equal to six (6) months of his specified base salary at the rate in effect on the date of termination. In the event that Mr. Martinez’s employment is terminated for cause or Mr. Martinez chooses to terminate his employment other than for good reason, vesting of the options shall cease on the date of termination and any then unvested options shall terminate, however the then-vested options shall remain vested and exercisable in accordance with the grant agreements.
 
If Mr. Martinez’s employment is terminated within one year of the change in control, and such termination is without cause or if Mr. Martinez resigns for good reason, (i) Mr. Martinez shall receive an amount equal to six (6) months of his specified base salary at the rate in effect on the date of termination, and (ii) Mr. Martinez shall receive incentive cash compensation in an amount equal to 50% of his specified base salary at the rate in effect on the date of termination. In the event of a change in control of our company, all unvested stock options granted to Mr. Martinez shall immediately vest and shall remain exercisable as specified in the option grant agreements, subject to our right to direct the sale of shares in connection with a change of control.
 
Regardless of the nature of his separation from the company, Mr. Martinez will also receive salary, a pro-rated amount of incentive cash compensation for the fiscal year in which the termination occurs, pay for accrued but unused paid time off, and reimbursement of expenses through the date of termination.
 
In general, Mr. Martinez has agreed not to (i) compete with our company for a period of six (6) months following the end of the employment term, (ii) to solicit partners, vendors or employees of our company for a period of one (1) year following the end of the employment term, and (iii) solicit or accept business from any client of our company, including former clients that were clients within the last year prior to Mr. Martinez’s termination, for a period of one (1) year following the end of the employment term, unless such employment is terminated by us without cause or by Mr. Martinez for good reason.
 
On August 13, 2010, Joseph Martinez resigned as chief executive officer, chief financial officer, treasurer, and director, Joseph Slitz resigned as chairman and director, James Tilton was elected director and chief financial officer, and Patrick Brown was elected chief executive officer and treasurer of World Series of Golf, Inc. (the “Company”). In connection with the resignation of Mr. Martinez, the Company entered into an agreement of termination and release with Mr. Martinez, pursuant to which Mr. Martinez’s employment agreement was terminated, the parties provided mutual releases, the Company agreed to pay Mr. Martinez $15,000 in cash per month over a three-year period, and the Company issued Mr. Martinez a three-year note in the principal amount of $275,000.

 
 
21

 
 
Outstanding Equity Awards At Fiscal Year-End
 
The following table provides information related to outstanding equity awards for each of the Named Executive Officers as of December 31, 2010:
 
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
                 
Plan
                 
Awards:
               
Equity
Market or
     
Equity
     
Market
Incentive
Payout
     
Incentive
     
Value
Plan
Value of
     
Plan Awards:
   
Number
of Shares
Awards:
Unearned
 
Number of
Number of
Number of
   
of Shares
or Units
Number of
Shares
 
Securities
Securities
Securities
   
or Units
of Stock
Unearned
Units or
 
Underlying
Underlying
Underlying
   
of Stock
That
Shares or
Other
 
Unexercised
Unexercised
Unexercised
Option
Option
That Have
Have
Other Rights
Rights That
 
Options (#)
Options (#)
Unearned
Exercise
Expiration
Not
Not
That Have
Have Not
 
Exercisable
Unexercisable
Options (#)
Price
Date
Vested (#)
Vested ($)
Not Vested (#)
Vested ($)
Name (a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
Joseph F. Martinez
   
  
  
  
  
                   -
                      -
 
Former, CEO
       1,000,000
                     -
                    -
           0.09
4/21/2019
               -
                   -
                      -
               -

Director Compensation
 
We do not currently provide compensation to our directors for serving on our board of directors.
 
Slitz Consulting Agreement
 
On February 6, 2009, we entered into a Consulting Agreement with Joseph Slitz, pursuant to which we engaged Mr. Slitz for the purpose of advising us on business strategy, fund raising, organizational growth and staffing, particularly focusing on our internet business and opportunities. The agreement had a term of January 1, 2009 to December 31, 2011. During the term, we agreed to compensate Mr. Slitz will for his services as follows: (i) cash fees of $15,000 per month and (ii) a warrant to purchase 540,000 shares of our common stock at an exercise price of $0.50 per share, with 60,000 shares vesting immediately and 15,000 shares vesting in monthly installments beginning on July 2, 2009.
 
On August 13, 2010, Mr. Slitz resigned as chairman of the Company’s board of directors. In connection with the resignation of Mr. Slitz, the Company entered into an agreement of termination and release with Mr. Slitz, pursuant to which Mr. Slitz’s consulting agreement was terminated, the Company agreed to pay Mr. Slitz $15,000 in cash per month over a three-year period, the Company agreed to issue Mr. Slitz $200,000 in stated value of preferred stock (with terms to be agreed upon by the parties), the parties agreed to amend and restate the amended and convertible promissory note, dated May 28, 2009, issued by the Company to The Slitz Family Trust (with terms to be agreed upon by the parties), and the Company’s obligations with respect to $270,000 owed to Mr. Slitz for serviced provided shall remain outstanding (which amount shall be reduced by the $15,000 in cash per month over three month the Company agreed to pay).
 
Employee Benefit Plans
 
As of the fiscal year ended December 31, 2010, we had not made any grants under the 2007 Stock Option Plan. As of April 21, 2009, the Board adopted a resolution terminating the 2007 Stock Option Plan and approving the 2009 Equity Incentive Plan (the “2009 Equity Plan”).
 
2009 Equity Incentive Plan
 
We adopted the 2009 Equity Plan for the purpose of providing incentives for officers, directors, employees and consultants to promote the success of our company, to enhance our ability to attract and retain the services of such persons, to encourage them to continue in our employ and to maximize their performance. An aggregate of 4,000,000 shares of common stock are reserved for issuance under the 2009 Equity Plan. Options granted under the 2009 Equity Plan may be either: (i) options intended to qualify as “incentive stock options” under Section 422 of the Internal Revenue Code of 1986, or (ii) non-qualified stock options. Stock options and stock awards may be granted under the 2009 Equity Plan to all of our eligible officers, directors, consultants and employees. The Board, or our compensation committee should one be established, will administer the 2009 Equity Plan and has the authority to determine exercise prices applicable to the options, the eligible officers, directors, consultants or employees to whom options may be granted, the number of shares of common stock subject to each option and the extent to which options may be exercisable. In addition, the Board will have the power to interpret the 2009 Equity Plan and any agreement or instrument entered into under the 2009 Equity Plan, to establish, amend or waive rules and regulations for the 2009 Equity Plan administration, and to amend the terms and conditions of any outstanding stock incentives as allowed under the 2009 Equity Plan. Options granted to employees under the 2009 Equity Plan generally vest in equal installments over a three year period from the grant date, and options granted to directors under the 2009 Equity Plan vest in full one year after the grant date. Without approval by the Board, no option is transferable by the optionee other than by will or the laws of descent and distribution and each option is exercisable, during the lifetime of the optionee, only by such optionee.
 
Any incentive stock option that is granted under the 2009 Equity Plan may not be granted at a price less than the fair market value of the common stock on the date of grant (or less than 110% of the fair market value in the case of holders of 10% or more of the total combined voting power through all classes of our capital stock or the capital stock of a subsidiary or parent corporation).
 
Each incentive stock option, and the majority of nonqualified stock options, under the 2009 Equity Plan is exercisable for a period not to exceed ten years from the date of grant (or five years in the case of a holder of more than 10% of the total combined power of all classes of our capital stock or the capital stock of a subsidiary or parent corporation) and will lapse upon expiration of such period, or earlier upon termination of the recipient’s employment with us, or as determined by the Board.
 
 
22

 
 
 
Termination of Employment or Change of Control
 
Corporate Transactions . Pursuant to the 2009 Equity Plan, in the event of (i) a dissolution or liquidation of our company; (ii) a sale of all or substantially all of our assets; (iii) a merger or consolidation where we are not the surviving corporation; or (iv) a merger or consolidation where we are the surviving corporation but the holders of shares of common stock receive securities of another corporation and/or other property, including cash, the Board has the power to (A) cancel each option outstanding immediately prior to such event (whether or not then exercisable), and, in full consideration of such cancellation, pay to the grantee to whom such option was granted an amount in cash, for each share of common stock subject to such option, respectively, equal to the difference between the current value of the option, as determined by the Board, and the exercise price; and (B) provide for the exchange of each option outstanding immediately prior to such event (whether or not then exercisable) for an option on or with respect to, as appropriate, some or all of the property which a holder of the number of shares of common stock subject to such option would have received and, incident thereto, make an equitable adjustment as determined by the Board in the exercise price of the option, or the number of shares or amount of property subject to the option or, if appropriate, provide for a cash payment to the grantee to whom such option was granted in partial consideration for the exchange of the option.
 
Termination of Employment . If a grantee’s employment or service is terminated for cause, any unexercised option shall terminate effective immediately upon such termination of employment or service. If a grantee’s employment or services is terminated without cause, an outstanding option is only exercisable by the grantee if such option (i) was exercisable prior to the date of termination and (ii) is exercised within three (3) months following such termination. Except as otherwise provided by the grant certificate, if a grantee’s employment or service terminates on account of death, then any unexercised option, to the extent exercisable on the date of death, may be exercised, in whole or in part, within the first twelve (12) months after death (but only during the option term) only by the grantee’s executor or administrator or other duly appointed representative reasonably acceptable to the Board, unless the grantee’s will specifically disposes of such award, in which case such exercise shall be made only by the recipient of such specific disposition. Except as otherwise provided in the grant certificate, if a grantee’s employment or service terminates on account of disability, then any unexercised option, to the extent exercisable on the date of such termination, may be exercised in whole or in part, within the first twelve (12) months after such termination of employment or service (but only during the option term) by the grantee.
 
Change of Control. Except as otherwise provided in the grant certificate, upon the occurrence of a change in control (as defined in the 2009 Equity Plan), (i) any outstanding option becomes immediately exercisable; (ii) the Board may amend the terms of any grant certificate in such manner as it deems appropriate; and (iii) a grantee who incurs a termination of employment for any reason, other than a dismissal for cause, concurrent with or within one year following the change in control may exercise any outstanding option, but only to the extent that the grantee was entitled to exercise the award on the grantee’s termination date, within the first twelve (12) months following the termination of employment or service (but only during the option term).
 
ITEM 12. – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
The following table sets forth, as of March 25, 2011, the names, addresses and number of shares of our common stock beneficially owned by (i) all stockholders known to us to be the beneficial owner of more than five percent (5%) of our common stock, (ii) each member of our board of directors, (iii) each of our named executive officers and (iv) all of our directors and executive officers as a group.
 
Beneficial ownership of shares is determined under the rules of the Securities and Exchange Commission and generally includes any shares over which a person exercises sole or shared voting or investment power. For purposes of the following table, a person is deemed to have beneficial ownership of any shares of common stock that such person has the right to acquire within 60 days after the date of this Annual Report. For purposes of computing the percentage of outstanding shares of our common stock held by each person, any shares that such person has the right to acquire within 60 days after the date of this Annual Report are deemed to be outstanding, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. Except as otherwise noted, the persons named in the table have sole voting and investment power with respect to all of the shares of common stock beneficially owned by them. Unless otherwise indicated, the address of each person listed is c/o World Series of Golf, Inc., 10161 Park Run Drive, Suite 150, Las Vegas, Nevada 89145.
 
Percentage ownership in the following table is based on 24,351,161 shares of common stock outstanding on March 25, 2011.
 
 
 
23

 
 
PRINCIPAL STOCKHOLDER TABLE
Title of class
Name and address of beneficial owner
 
Amount and nature of
beneficial ownership
   
Percent of class
 
               
Common
James D. Tilton, Jr.
    8,000,000 (1)     24.73 %
 
All Officers and Directors as a Group
    8,00,000       24.73 %
 
Other 5% owners
               
Common John Slitz     51,767,175 (2)     68.01 %
                   
Common Green Life, Inc. (3)     26,666,667       52.27 %
 
(1) Mr. Tilton owns convertible debentures in the aggregate principal amount of $60,000, which are convertible into common stock at 50% of the common stock price at the date the Company receives notice of conversion. Amount of shares beneficially owned is based on a conversion price of $0.0075 as of March 8, 2011.
 
(2) Includes (i) 2,252,175 shares of common stock held of record, (ii) 2,300,000 shares of common stock issuable upon the conversion of convertible promissory note in the principal amount of $1,150,000 held by the Slitz Family Trust, (iii) 1,150,000 shares of common stock issuable upon the exercise of outstanding warrants at an exercise price of $0.50 per share. Mr. Slitz has voting and dispositive control over the shares held by the Slitz Family Trust, and (iv) and 46,065,000 shares of common stock issuable upon conversion of a convertible note in the principal amount of $921,300 and a conversion price of $0.02..
 
(3) Barry Ginsberg has voting and investment power over the securities held by Green Life, Inc. Green Life, Inc. owns all 2,000 issued and   outstanding shares of Series A Preferred Stock which are convertible into shares of common stock at a price equal to the average of the closing “volume weighted average price” of our common stock for the five consecutive trading days prior to conversion. Beneficial ownership includes 26,666,667 shares issuable upon conversion of 2,000 shares of Series A Preferred Stock based on a conversion price of $0.0075 as of March 8, 2011 (and a stated value of $100 per share),
 
24

 
 

 
ITEM 13. – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
Certain Relationships and Related Transactions
 
On August 13, 2010, the Company entered into an agreement of termination and release with Joseph Martinez, the Company’s chief executive officer, treasurer and director, in connection with Mr. Martinez’s resignation from these positions, pursuant to which Mr. Martinez’s employment agreement was terminated, the parties provided mutual releases, the Company agreed to pay Mr. Martinez $15,000 in cash per month over a three-year period, and the Company issued Mr. Martinez a three-year note in the principal amount of $275,000.
 
On August 13, 2010, the Company entered into an agreement of termination and release with Joseph Slitz, the Company’s chairman and director, in connection with Mr. Slitz’s resignation from these positions, pursuant to which Mr. Slitz’s consulting agreement was terminated, the Company agreed to pay Mr. Slitz $15,000 in cash per month over a three-year period, the Company agreed to issue Mr. Slitz $200,000 in stated value of preferred stock (with terms to be agreed upon by the parties), the parties agreed to amend and restate the amended and convertible promissory note, dated May 28, 2009, issued by the Company to The Slitz Family Trust (with terms to be agreed upon by the parties), and the Company’s obligations with respect to $270,000 owed to Mr. Slitz for serviced provided shall remain outstanding (which amount shall be reduced by the $15,000 in cash per month over three month the Company agreed to pay).

On September 30, 2010, the Company issued a $35,000, 8% convertible debenture due March 31, 2011 to Jim Tilton for accrued compensation expense.  The convertible debenture is convertible at 50% of the common stock price at the date the Company receives notice of conversion.  Mr. Tilton is the Company’s chief financial officer and director.

On December 31, 2010, the Company issued a 25,000, 8% convertible debenture due June 30, 2011 to Jim Tilton for accrued compensation expense.  The convertible debenture is convertible at 50% of the common stock price at the date the Company receives notice of conversion.  Mr. Tilton is the Company’s chief financial officer and director.
 
Director Independence
 
Our sole director, James D. Tilton, Jr. is not independent as that term is defined under the Nasdaq Marketplace Rules.
 
ITEM 14. – PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
Audit Fees
 
The aggregate fees billed by our auditors for professional services rendered in connection with a review of the financial statements included in our quarterly reports on Form 10-Q and the audit of our annual consolidated financial statements for the fiscal years ended December 31, 2010 and 2009 was approximately $51,000 and  $61,000, respectively.
 
Audit-Related Fees
 
The aggregate audit related fees billed by our auditors for professional services rendered in connection with audit-related fees, including review of Forms 8-K and consultations related to FINRA matters for the fiscal years ended December 31, 2010 and 2009 was approximately $0 and $22,000, respectively.
 
Tax Fees
 
We were not billed any fees by our auditors for professional services for tax compliance, tax advice, and tax planning in the fiscal years ended December 31, 2010 and 2009.
 
All Other Fees
 
We were not billed any fees by our auditors for all other non-audit services in the fiscal years ended December 31, 2010 and 2009.
 
 The board of directors on an annual basis reviews audit and non-audit services performed by the independent registered public accounting firm. All audit and non-audit services are pre-approved by the board of directors, which considers, among other things, the possible effect of the performance of such services on the auditors' independence. The board of directors has considered the role of Gruber & Company, LLC in providing services to us for the fiscal year ended December 31, 2010 and has concluded that such services are compatible with Gruber & Company, LLC’s independence as the Company's independent registered public accounting firm.

 
25

 
 
PART IV
 
 ITEM 15. – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 
(a)(1)(2) Financial Statements.
 
The financial statements listed in the Index to Financial Statements are filed as part of this Annual Report on Form 10-K.
 
(a)(3) Exhibits.
 
The exhibits required by this item are set forth on the Exhibit Index attached hereto.
 
 
 
26

 
 
World Series of Golf, Inc.
Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009






Contents
 
 
Page
   
Report of Independent Registered Public Accounting Firm
F-1
   
Report of Independent Registered Public Accounting Firm
F-2
   
Consolidated Financial Statements:
 
   
Consolidated Balance Sheets as of December 31, 2010 and 2009
F-3
   
Consolidated Statements of Operations for the years ended December 31, 2010 and 2009
F-4
   
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended  December 31, 2010 and 2009
F-5
   
Consolidated Statements of Cash Flows for the years ended December 31, 2010 and 2009
F-6
   
Notes to Consolidated Financial Statements
F-7

 
 
27

 

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Shareholders
World Series of Golf, Inc.
Las Vegas, Nevada
 
We have audited the accompanying consolidated balance sheets of World Series of Golf, Inc. and Subsidiary (“the Company”) as of December 31, 2010, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the years 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.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. 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 provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of World Series of Golf, Inc. and Subsidiary as of December 31, 2010, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.
 
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has an accumulated deficit of approximately $15.1 million at December 31, 2010, has incurred negative cash flows from operations since inception, and expects to incur additional losses in the future. Additionally, the Company has a working capital deficit of approximately $5.4 million at December 31, 2010. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 
/S/ Gruber & Company, LLC



St. Louis, Missouri
March 28, 2011
 

 
F - 1

 

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Shareholders
World Series of Golf, Inc.
Las Vegas, Nevada
 
We have audited the accompanying consolidated balance sheet of World Series of Golf, Inc. and Subsidiary (“the Company”) as of December 31, 2009, and the related consolidated statements 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.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. 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 provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of World Series of Golf, Inc. and Subsidiary as of December 31, 2009, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States.
 
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has an accumulated deficit, has incurred negative cash flows from operations since inception, and expects to incur additional losses in the future. Additionally, the Company has a working capital deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 
/S/ PETERSON SULLIVAN LLP
 
 
 
Seattle, Washington
April 15, 2010
 

 
F - 2

 

 
World Series of Golf, Inc
 
Consolidated Balance Sheets
 
As of December 31,
 
             
             
   
2010
   
2009
 
             
             
ASSETS
           
Current assets:
           
Cash
  $ 28,461     $ 453  
Prepaid expenses and other assets
    230,773       217,357  
Total current assets
    259,234       217,810  
                 
Equipment, net
    14,906       22,249  
                 
Total assets
  $ 274,140     $ 240,059  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
               
Current liabilities
               
Accounts payable
  $ 1,112,602     $ 1,079,909  
Unearned revenue and player deposits
    1,000       37,000  
Convertible note and interest payable to related parties, net of debt discount of $48,074 and $0
    1,288,338       1,234,333  
Convertible notes, net of debt discount of $177,992 and $0
    1,107,008       235,000  
Advances
    65,000       -  
Derivative liabilities
    787,664       9,985  
Due to related party
    563,278       1,095,000  
Accrued payroll
    191,300       190,000  
Other current liabilities
    590,323       467,646  
Total current liabilities
    5,706,513       4,348,873  
                 
Convertible notes payable, non-current, net of discounts of $116,158 and $0
    130,342       -  
Note payable-related party
    275,000       -  
                 
Total liabilities
    6,111,855       4,348,873  
                 
Commitments and contigencies
               
                 
Stockholders' deficit
               
Preferred stock, $0.001 par value; 10,000,000 shares authorized: 2,000 and 0 shares
               
issued and outstanding and December 31, 2010 and 2009
    2       -  
Common stock and additional paid in capital, $0.001 par value; 90,000,000
               
shares authorized: 22,151,561 shares issued and outstanding
    22,152       22,152  
Additional paid-in capital
    9,279,220       8,995,659  
Accumulated deficit
    (15,139,089 )     (13,126,625 )
Total stockholders' deficit
    (5,837,715 )     (4,108,814 )
                 
Total liabilities and stockholders' equity (deficit)
  $ 274,140     $ 240,059  
                 
The accompanying notes are an integral part of these consolidated financial statements.

 
 
F - 3

 

World Series of Golf, Inc
 
Consolidated Statements of Operations
 
For the Year Ended December 31,
 
             
             
   
2010
   
2009
 
             
Revenue:
           
Sponsorship and advertising
  $ 25,000     $ 698,600  
Player entry fees
    -       789,994  
                 
Total revenue
    25,000       1,488,594  
                 
Operating expenses:
               
Cost of revenue
    -       1,770,446  
Sales and marketing
    -       66,845  
General and administrative
    1,296,646       1,790,585  
Total operating expenses
    1,296,646       3,627,876  
                 
Loss from operations
    (1,271,646 )     (2,139,282 )
                 
Other income (expense):
               
Interest and financing costs
    (724,775 )     (199,029 )
Interest income
    17,666       3  
Change in fair value of derivative liabilities
    (33,709 )     92,045  
Total other income (expense)
    (740,818 )     (106,981 )
                 
Net loss
  $ (2,012,464 )   $ (2,246,263 )
                 
Loss per common share -- basic and diluted:
               
Net loss per common share -- basic diluted
  $ (0.09 )   $ (0.10 )
                 
Weighted average shares outstanding used in computing net
               
loss per share -- basic and diluted
    22,151,561       22,312,205  
                 
The accompanying notes are an integral part of these consolidated financial statements.
 

 

 
F - 4

 
 
World Series of Golf, Inc
Consolidated Statements of Stockholders' Equity (Deficit)
For the Year Ended December 31, 2010 and 2009
 
                                           
                                           
                           
Additional
         
Total
 
   
Preferred Stock
   
Common Stock
         
Paid-In
   
Accumulated
   
Stockholders'
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
   
Deficit
 
                                           
Balance, December 31, 2008
    -     $ -       22,803,999     $ 22,804     $ 8,867,173     $ (10,778,332 )   $ (1,888,355 )
Cumulative effect of change in accounting principle
    -       -       -       -       -       (102,030 )     (102,030 )
Balance, January 1, 2009
    -     $ -       22,803,999     $ 22,804     $ 8,867,173     $ (10,880,362 )   $ (1,990,385 )
                                                         
Warrants issued pursuant to convertible note due to related party
    -       -       -       -       11,386       -       11,386  
Shares and warrants issued and issuable for services
    -       -       250,000       250       18,250       -       18,500  
Issuance of shares in settlement of liability
    -       -       112,500       113       6,637       -       6,750  
Cancellation of shares previously issued for services
    -       -       (1,364,938 )     (1,365 )     1,365       -       -  
Compensation related to stock options and warrants
    -       -       -       -       84,198       -       84,198  
Options exercised in exchange for settlement of accounts payable
    -       -       350,000       350       6,650       -       7,000  
Net loss
    -       -       -       -       -       (2,246,263 )     (2,246,263 )
                                                         
Balance, December 31, 2009
    -     $ -       22,151,561     $ 22,152     $ 8,995,659     $ (13,126,625 )   $ (4,108,814 )
                                                         
Compensation related to stock options and warrants
    -       -       -       -       105,334       -       105,334  
Issuance of 2,000 Series A preferred stock for $100 per share                                                        
   on April 13, 2010
    2,000       2       -       -       199,998       -       200,000  
Reclasify fair value of warrants to derivative liability
    -       -       -       -       (21,771 )     -       (21,771 )
Net loss
    -       -       -       -       -       (2,012,464 )     (2,012,464 )
                                                         
Balance, December 31, 2010
    2,000     $ 2       22,151,561     $ 22,152     $ 9,279,220     $ (15,139,089 )   $ (5,837,715 )
                                                         
The accompanying notes are an integral part of these consolidated financial statements.


 
 
F - 5

 

World Series of Golf, Inc
Consolidated Statements of Cash Flows
For the Year Ended December 31,
             
             
   
2010
   
2009
 
             
Operating activities:
           
Net loss
  $ (2,012,464 )   $ (2,246,263 )
Adjustment to reconcile net loss to net cash used in operating activities:
         
Depreciation
    8,279       8,376  
Amortization of debt discount
    227,526       11,000  
Share-based payments of consulting and other expenses
    105,334       117,198  
Change in fair value of derivative liabilities
    33,709       (92,045 )
Convertible debt issued for compensation
    335,000       -  
Financing costs
    285,699       -  
Changes in operating assets and liabilities:
               
Prepaid expenses and other assets
    (166 )     (11,773 )
Accounts payable
    32,693       612,781  
Unearned revenue and player deposits
    (36,000 )     (17,000 )
Accrued interest on related party note payable
    130,779       172,076  
Due to related party
    383,278       370,000  
Accrued payroll
    1,300       -  
Other current liabilities
    122,677       43,258  
                 
Net cash used in operating activities
    (382,356 )     (1,032,392 )
                 
Investing activities:
               
Purchases of property and equipment
    (936 )     (3,489 )
                 
Net cash used in investing activities
    (936 )     (3,489 )
                 
Financing activities:
               
Proceeds from issuance of Series A preferred stock
    200,000       -  
Proceeds from issuance of convertible debt
    150,000       -  
Proceeds from advances
    65,000       -  
Payments on convertible note-related party
    (10,000 )     -  
Proceeds from advances from related parties
    6,300       915,000  
                 
Net cash provided by financing activities
    411,300       915,000  
                 
Net increase (decrease) in cash
    28,008       (120,881 )
                 
Cash -- beginning of period
    453       121,334  
                 
Cash -- end of period
  $ 28,461     $ 453  
                 
Supplemental disclosure:
               
Cash paid for interest
  $ -     $ -  
Cash paid for taxes
  $ -     $ -  
                 
                 
Supplemental non-cash investing and financing activities:
               
Options exercised in exchange for settlement of accounts payable
  $ -     $ 7,000  
Shares issued in settlement of liability
  $ -     $ 6,750  
                 
                 
                 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F - 6

 
World Series of Golf, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009

 
Note 1: Business and Organization

On January 31, 2008, Innovative Consumer Products, Inc. (“ICP”), (the “Company”), a public Nevada shell corporation, acquired all of the outstanding capital stock of World Series of Golf, Inc. (“WSG-NV”), a privately-held Nevada corporation engaged in the sports entertainment industry.

The acquisition was consummated pursuant to an Agreement and Plan of Merger, dated January 31, 2008, whereby WSG-NV merged with and into WSG Acquisition, Inc. (“Acquisition Sub”), a newly formed wholly-owned Nevada subsidiary of ICP. This transaction is commonly referred to as a “reverse acquisition” in which all of the outstanding capital stock of WSG-NV was effectively exchanged for a controlling interest in ICP. This type of transaction is considered to be a recapitalization rather than a business combination. Accordingly, for accounting purposes, no goodwill or other intangible assets were recorded. On February 1, 2008, the Company merged with Acquisition Sub in a short form merger under Nevada law and changed its name to “World Series of Golf, Inc.”

The Company is a sports entertainment company that hosts amateur golf tournaments and events and seeks to create branded products, games, media, and entertainment based on its proprietary golf tournament method of play, which is called “The World Series of Golf.” The Company has held three-day World Series of Golf tournaments in Las Vegas, Nevada during May in 2007, 2008, and 2009. Through its media partners, the Company broadcasts the tournaments on domestic and international television and via other media outlets as live events or as a produced series. The Company also sells sponsorships for the live tournaments and television coverage.

On April 13, 2010, the Company entered into a securities purchase agreement with Green Life Inc. (“Green Life”) pursuant to which Green Life agreed to purchase 2,000 shares of the Company’s Series A convertible preferred stock (“Preferred Shares”), representing a controlling interest in the Company, for an aggregate purchase price of $200,000 and a convertible debenture in the principal amount of $50,000, representing an amendment of the terms of the $50,000 advance previously received from Green Life in March 2010. The total investment was $250,000 and the transaction closed on April 14, 2010.

Note 2: Going Concern

The consolidated financial statements assume that the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. As of December 31, 2010, the Company had an accumulated deficit of $15,139,089, negative cash flows from operations since inception, and expects to incur additional losses in the future as the Company continues to develop and grow the business. The Company has funded its losses primarily through sales of common stock and warrants in private placements; borrowings from related parties and other investors; and revenue provided by sponsorships and advertising contracts, licensing arrangements, and tournaments. The further development of the business will require capital. At December 31, 2010, the Company has a working capital deficit of $5,447,279 and cash of $28,461.

The Company is dependent on existing cash resources and external sources of financing to meet its working capital needs. Current sources of liquidity are insufficient to provide for budgeted and anticipated working capital requirements. The Company will seek additional financing to satisfy its working capital requirements. No assurances can be given that such capital will be available on acceptable terms, if at all.  If the Company is unable to obtain any such additional financing or if such financing cannot be obtained on acceptable terms, the Company may be required to delay or scale back its operations, including the development of its online game, which would adversely affect its ability to generate future revenues and may force the Company to curtail or cease operating activities.

To attain profitable operations, management is working to develop regional and satellite tournaments both domestically and internationally. In recent months management has successfully obtained a rescission of a previously entered into exclusive licensing agreement, returning control to the Company for all satellite tournament operations as well as ownership and control over all prior and future television programs featuring the Company's tournaments. In addition, the Company is exploring options to generate additional revenue from the redistribution of prior television programming including cable and online options; working to develop online, virtual and simulator games based on the company's patented technology, and working to build and develop sponsorship and partner opportunities. The Company will continue to be dependent on outside capital to fund its operations for the foreseeable future, and continue to be involved in discussions and negotiations with investors in order to raise additional funds to provide sufficient working capital for operations with a near-term goal of generating positive cash flow from operations. Any financing obtained may further dilute or otherwise impair the ownership interest of the current stockholders. If the Company fails to generate positive cash flows or fails to obtain additional capital when required, the Company could modify, delay, or abandon some or all of its plans. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 
F - 7

 
World Series of Golf, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009

 
Note 3: Summary of Critical Accounting Policies and Recently Issued Accounting Standards

Principles of Consolidation

The Company’s consolidated financial statements include the accounts of World Series of Golf, Inc. and the Company’s wholly-owned subsidiary, WSG Online, Inc. Intercompany balances and transactions have been eliminated.

Use of Estimates

The preparation of financial statements, in conformity with U.S. Generally Accepted Accounting Principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The more significant accounting estimates, inherent in preparing the consolidated financial statements, include estimates as to valuation of fair value for goods and services received in barter transactions, valuation of equity related instruments issued, and valuation allowance for deferred income tax assets and the valuation of derivative liabilities.

Equipment

Equipment is stated at cost and depreciated using the straight-line method over estimated useful life of five years. Expenditures for maintenance and repairs are charged to expense as incurred.

Concentration of Credit Risk and Significant Customers

During 2009, a significant portion of our revenue was derived from a small number of customers. In 2009, Pocket Kings Ltd. (operator of FullTiltPoker.net) accounted for approximately 25% of total revenue and the Mirage Casino and Hotel accounted for approximately 16% of total revenue.
 
Revenue Recognition

Revenue is recognized when there is persuasive evidence that an arrangement exists, delivery has occurred, collectability is reasonably assured, and fees are fixed or determinable.  The Company derives its revenues from sponsorship and advertising, license agreements, and player entry fees. Sponsorship and advertising revenue includes fees obtained for the right to sponsor the Company’s tournament events and for advertising in the Company’s television programming.

The Company recognizes revenue from sponsorship and advertising agreements when earned in connection with the applicable tournament as set forth in the sponsorship or advertising agreement, either upon completion of the tournament, publication, or airing of the advertising. Upfront non-refundable payments, where the Company is providing continuing services related to the airing of a tournament series, are deferred and recognized as revenue over the contract period. Revenues and related expenses from barter transactions, in which the Company receives goods or services in exchange for sponsorship of tournaments, are recorded at fair value.  Barter transactions accounted for $0 and $329,000 of total revenue for the years ended December 31, 2010 and 2009, respectively

The Company recognizes revenue related to player entry fees upon the successful completion of a scheduled tournament. The Company records player entry fees revenue on a net basis, in that the Company does not record gifted or sponsored buy-ins to player entry fees revenue with an offset to expense. Player entry fees collected prior to a scheduled tournament are deferred and recognized when earned upon the occurrence of the scheduled tournament.

 
F - 8

 
World Series of Golf, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
 
Advertising
 
Advertising costs, which are included in sales and marketing expenses, are expensed as they are incurred. For the years ended December 31, 2010 and 2009, advertising costs were approximately $0 and $67,000, respectively.
 
Fair Value Measurements

For certain financial instruments, including cash, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities. In addition, the Company has long-term debt with financial institutions. The carrying amounts of the convertible notes approximate their fair values based on current rates of interest for instruments with similar characteristics.

ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three levels of valuation hierarchy are defined as follows:

·  
Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

·  
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

·  
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
  
The Company’s derivative liabilities are carried at fair value totaling $787,664and $9,985, as of December 31, 2010 and 2009, respectively.  The Company used Level 2 inputs for its valuation methodology for the derivative liabilities as their fair values were determined by using the Black-Scholes option pricing model using the following assumptions:
 
   
December 31, 2010
   
December 31, 2009
 
Annual dividend yield
    -       -  
Expected life (years)
 
0.16 to 4. 72
      1.4  
Risk-free interest rate
 
0.19 to 2.01%
      0.40 %
Expected volatility
    400 %     400 %

Expected volatility is based primarily on historical volatility. Historical volatility was computed using daily pricing observations for recent periods that correspond to the term of the warrants and conversion options.  The Company believes this method produces an estimate that is representative of future volatility over the expected term of these warrants and conversion options. The Company has no reason to believe future volatility, over the expected remaining life of these warrants, will differ materially from historical volatility. The expected life is based on the remaining term of the warrants and conversion options. The risk-free interest rate is based on U.S. Treasury securities with maturity terms similar to the expected remaining term of the warrants and conversion options.  The following table summarizes the financial liabilities measured at fair value on a recurring basis as of December 31, 2010:
 
 
F - 9

 
World Series of Golf, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009

 
   
Fair Value
   
Fair Value Measurements at
 
   
As of
   
December 31, 2010
 
   
December 31, 2010
   
Using Fair Value Hierarchy
 
Liabilities:
       
Level 1
   
Level 2
   
Level 3
 
Warrant liability
  $ 340,745       -     $ 340,745       -  
Beneficial conversion feature
    446,919     $ -       446,919     $ -  
Total
  $ 787,664     $ -     $ 787,664     $ -  

The Company recognized a loss for the year ended December 31, 2010 of $33,709.  For the year ended December 31, 2009, the Company recognized a gain of $92,045.

The following table summarizes the financial liabilities measured at fair value on a recurring basis as of December 31, 2009:
 
   
Fair Value
   
Fair Value Measurements at
 
   
As of
   
December 31, 2009
 
   
December 31, 2009
   
Using Fair Value Hierarchy
 
Liabilities:
       
Level 1
   
Level 2
   
Level 3
 
Warrant liability
  $ 9,985       -     $ 9,985       -  
Total
  $ 9,985     $ -     $ 9,985     $ -  
 
The Company did not identify any other non-recurring assets and liabilities that are required to be presented in the consolidated balance sheets at fair value in accordance with ASC 825.

Net Loss Per Common Share

Basic and diluted net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted loss per share excludes the effect of common stock equivalents (convertible notes, stock options, and warrants) since such inclusion in the computation would be anti-dilutive. The following numbers of shares have been excluded:
 
 
F - 10

 
World Series of Golf, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
 
 
   
December 31,
 
   
2010
   
2009
 
Convertible notes
    95,503,409       2,770,000  
Stock options
    2,085,000       2,085,000  
Warrants
    22,476,619       3,429,000  
      120,065,028       8,284,000  

Stock-Based Compensation
 
The Company records stock-based compensation in accordance with ASC Topic 718, “Compensation – Stock Compensation.”  ASC 718 requires companies to measure compensation cost for stock-based employee compensation at fair value on the grant date and recognize the expense over the employee’s requisite service period.

The Company uses the Black-Scholes option-pricing model which was developed for use in estimating the fair value of options. Option-pricing models require the input of highly complex and subjective variables including the expected life of options granted and the Company’s expected stock price volatility over a period equal to or greater than the expected life of the options. Because changes in the subjective assumptions can materially affect the estimated value of the Company’s employee stock options, it is management’s opinion that the Black-Scholes option-pricing model may not provide an accurate measure of the fair value of the Company’s employee stock options. Although the fair value of employee stock options is determined in accordance with ASC 718 using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.  Under ASC 718, the Company’s volatility is based on the historical volatility of the Company’s stock or the expected volatility of similar companies. The expected life assumption is primarily based on historical exercise patterns and employee post-vesting termination behavior. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

Income Taxes

The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes.” ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted for the effects of change in tax laws and rates on the date of enactment.

Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The evaluation of a tax position is a two-step process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefits to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. Penalties and interest incurred, related to underpayment of income tax, are classified as income tax expense in the year incurred.  No significant penalties or interest relating to income taxes have been incurred during the years ended December 31, 2010 and 2009. GAAP also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition.  There are no uncertain tax positions at December 31, 2010 and 2009.
 
 
F - 11

 
World Series of Golf, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009

 
Recently Issued Accounting Standards

In December 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-28—Intangibles—Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. The amendments in this Update modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with the existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For public entities, the amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

In January 2011, the FASB issued ASU No. No. 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. This ASU temporarily delays the effective date of the disclosures about troubled debt restructurings in Update 2010-20 for public entities. The delay is intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. Currently, that guidance is anticipated to be effective for interim and annual periods ending after June 15, 2011. Accordingly, the Company has not included the disclosures deferred by this ASU.

Note 4: Convertible Notes – Related Parties
 
Convertible notes payable to related parties at December 31, 2010 and 2009 consist of the following:
 
   
December 31,
   
December 31,
 
   
2010
   
2009
 
Convertible notes
  $ 1,210,000     $ 1,150,000  
Debt discount
    (48,074 )     -  
Accrued interest
    126,412       84,333  
    $ 1,288,338     $ 1,234,333  
                 
 
In January 2008, the original promissory note due to the chairman of the board of directors, in the amount of $985,000, was replaced by a second promissory note issued in the principal amount of $961,000, bearing interest at a rate of 12% per annum, with monthly interest-only payments of $9,606.87, and due on the first day of each month beginning February 1, 2008. The second promissory note was due on January 1, 2009. The note (principal and accrued interest) was convertible, at the sole option of the holder, into common shares at a conversion price of $1.00 per common share, subject to customary adjustments. The conversion price was changed to $0.50 per share in November 2008. Obligations under the second promissory note were collateralized by all of the Company’s tangible and intangible assets.

In February 2009, as amended May 2009, the existing obligations (principal and accrued interest) under the second promissory note were replaced by a third promissory note in the principal amount of $1,150,000. In connection with the refinancing of the obligations under the second promissory note, the Company recorded $78,000 in February 2009 as a financing fee. The new note is payable within five days after the demand of the holder and bears interest at 8% per annum. The note is convertible at the option of the holder, and conversion is at $0.50 per share. In connection with the third promissory note, the Company issued the holder warrants to purchase 1,150,000 shares of the Company’s common stock at an exercise price of $0.50 per share through February 1, 2015. The fair value of the warrants of $11,000 was computed using the Black-Scholes option pricing model with the following assumptions: expected term of 6 years (contractual term), volatility of 400% (based on historical volatility), 0% dividend rate and interest rate of 2.3%. In the first quarter 2009, we recorded interest expense of $11,000 to fully amortize the discount on the convertible notes payable related to the allocation of value to the warrants.
 
 
F - 12

 
World Series of Golf, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
 

 
In February 2010, certain advances from the chairman of the board, which totaled $921,300, were replaced by a promissory note in the principal amount of $921,300, with a stated interest rate of 8% per annum. The note is convertible at the option of the holder at a conversion price of $0.02 per share. The note is payable within five (5) days after demand by holder. If the note is not paid upon demand, a default interest rate of 18% per annum applies.

 In connection with the Green Life transactions described in Note 5, John F. Slitz, our then Secretary and Chairman of the Board agreed to assign $1,000,000 of Company indebtedness payable to him to a non-affiliate designee of Green Life in exchange for $10,000.  Pursuant to this assignment, the Company issued a $200,000 convertible note to Augustine Fund, L.P. (“Augustine”).

The obligations under this additional promissory note are secured pursuant to a Security Agreement, which grants to the Slitz Family Trust (of which John Slitz, Jr., the Company’s former Secretary and Chairman of the Board serves as trustee) a security interest in substantially all of the Company’s assets.

On September 30, 2010, the Company issued a $35,000, 8% convertible debenture due March 31, 2011 to Jim Tilton for accrued compensation expense.  The convertible debenture is convertible at 50% of the common stock price at the date the Company receives notice of conversion.  The Company determined that the convertible debenture contains a beneficial conversion feature which the Company valued at $35,000.  The Company recorded a debt discount of $35,000 and a derivative liability.  The Company will amortize the debt discount over the life of the convertible debenture.  The Company amortized $11,926 of the debt discount during the year ended December 31, 2010 which is recorded in interest and financing costs on the consolidated statement of operations.

On December 31, 2010, the Company issued a 25,000, 8% convertible debenture due June 30, 2011 to Jim Tilton for accrued compensation expense.  The convertible debenture is convertible at 50% of the common stock price at the date the Company receives notice of conversion.  The Company determined that the convertible debenture contains a beneficial conversion feature which the Company valued at $25,000.  The Company recorded a debt discount of $25,000 and a derivative liability.  The Company will amortize the debt discount over the life of the convertible debenture.

During the years ended December 31, 2010 and 2009, the Company recorded interest expense of $147,697 and $183,326, respectively, related to the obligations under these convertible notes payable to related parties.

The amortization expense of debt discount for the years ended December 31, 2010 and 2009 was $11,926 and $11,000, respectively, and is included in “interest and financing costs” in the accompanying consolidated statements of operations.

Note 5: Convertible Notes

Group Convertible Notes

In May and June 2008, the Company issued convertible promissory notes in an aggregate amount of $1,135,000 to certain investors. In December 2008, $900,000 of the convertible notes were converted into common stock at $1.00 per share. The remaining notes have a principal amount of $235,000, bear interest at 6% per annum, are convertible at $0.50, were repayable on or before October 31, 2008, and are currently past due.

Green Life Inc. Convertible Notes

In March, 2010, the Company received an advance from Green Life Inc. (“Green Life”) in the amount of $50,000.  On April 13, 2010, the Company entered into a securities purchase agreement with Green Life pursuant to which the Company issued to Green Life an unsecured convertible debenture in the principal amount of $50,000 and canceled the advance of $50,000.  The convertible note bears interest at 8% per annum, matures on March 31, 2011, and is convertible into shares of common stock at 50% of the closing bid price at the date of conversion. At December 31, 2010, the conversion rate was $0.009.  The Company determined that the convertible note contained a beneficial conversion feature because the conversion rate was less than the share price at the date of issuance.  The Company recorded a $50,000 debt discount related to the beneficial conversion feature.  During the year ended December 31, 2010, the Company amortized $38,194 of the debt discount, which is included in interest and financing costs in the accompanying consolidated statements of operations.
 
 
F - 13

 
World Series of Golf, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
 

 
Convertible Note Exchange – John Slitz

On April 13, 2010, the Company assigned $1,000,000 of the amount due to John Slitz to Green Life and pursuant to an exchange agreement entered into on April 13, 2010, Augustine exchanged $200,000 for a convertible note with an aggregate principal balance of $200,000.  The convertible note bears interest at 8% per annum, matures on April 13, 2011, and is convertible into shares of common stock at 50% of the closing bid price at the date of conversion. At December 31, 2010, the conversion rate was $0.009.  The Company determined that the convertible note contained a beneficial conversion feature because the conversion rate was less than the share price at the date of issuance.  The Company recorded a $200,000 debt discount related to the beneficial conversion feature.

Convertible Note – Inter-Mountain Capital Corp.

On September 17, 2010, the Company entered into a convertible note and warrant purchase agreement pursuant to which the Company issued and sold to Inter-Mountain Capital Corp. (“Inter-Mountain”), seven secured convertible notes in the aggregate principal amount of $1,446,500 and a five-year warrant to purchase up to 19,047,619 shares of common stock of the Company . The secured convertible notes are due on March 17, 2014, and bear interest at the rate of 6% per annum, payable upon maturity. The secured convertible notes are convertible into the Company’s common stock at a conversion price equal to 70% of the closing bid price of the common stock for the three trading days with the lowest closing bids during the 20 trading days immediately preceding the conversion date.  At December 31, 2010, the conversion rate was $0.012.  The warrant has an exercise price equal to the lower of $1.00 or 70% of the closing bid price of the common stock for the three trading days with the lowest closing bids during the 20 trading days immediately preceding the exercise date. The Warrant may be exercised on a cashless basis.
 
The secured convertible notes are secured by certain buyer trust deed notes issued by Inter-Mountain to the Company in the amount of $1,200,000 which bear interest at 5% per annum. The Company received net proceeds of $100,000, computed as follows: $1,446,500 less $131,500 in original issue discount, $15,000 in transaction expenses paid to Inter-Mountain, and $1,200,000 for the trust deed notes.

The Company determined that the convertible note contained a beneficial conversion feature because the conversion rate was less than the share price at the date of issuance.  The Company recorded a $126,500 debt discount related to the beneficial conversion feature.  During the year ended December 31, 2010, the Company amortized $14,758 of the debt discount, $15,342 of the original issue discount, and $1,750 of the debt issuance costs which is included in interest and financing costs in the accompanying consolidated statements of operations.

In accordance with ASC 815, the Company determined that the warrant should be classified as a liability at fair value on the date the warrant was issued.  The Company determined the fair value of the warrant at September 17, 2010 to be $285,699 using the Black-Scholes option pricing model with the following assumptions:

·  
Expected life of 5 years
·  
Volatility of 400%;
·  
Dividend yield of 0%;
·  
Risk free interest rate of 1.31%

The fair value of $285,699 was recorded as “derivative liabilities” with $285,699 recorded as “interest and financing costs” in the consolidated statements of operations.
 
 
F - 14

 
World Series of Golf, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
 

 
The following table summarizes the convertible notes:

Description
 
Amount
 
Balance, December 31, 2009
  $ 235,000  
Additional notes
    1,096,500  
Exchange of notes
    200,000  
Discount on additional notes
    (508,000 )
Amortization of discount
    213,850  
      1,237,350  
Less current portion, December 31, 2010
    (1,107,008 )
Noncurrent balance, December 31, 2010
  $ 130,342  
         

The Company recorded interest expense of $63,853 and $14,100 related to those notes for the years ended December 31, 2010, and 2009, respectively.

The amortization expense for the years ended December 31, 2010 and 2009 was $215,600 and $0, respectively, and is included in “interest and financing costs: in the accompanying consolidated statements of operations.

Note 6: Stockholders’ Equity (Deficit)

Preferred Stock

Our board of directors has the authority, without action by the stockholders, to designate and issue up to 10,000,000 shares of preferred stock in one or more series and to designate the rights, preferences and privileges of each series, any or all of which may be greater than the rights of our common stock.

Common Stock

Holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the holders of our common stock. Subject to the rights of the holders of any class of our capital stock having any preference or priority over our common stock, the holders of shares of our common stock are entitled to receive dividends that are declared by our board of directors out of legally available funds. In the event of our liquidation, dissolution or winding-up, the holders of common stock are entitled to share ratably in our net assets remaining after payment of liabilities, subject to prior rights of preferred stock, if any, then outstanding. Our common stock has no preemptive rights, conversion rights, redemption rights or sinking fund provisions, and there are no dividends in arrears or default. All shares of our common stock have equal distribution, liquidation and voting rights, and have no preferences or exchange rights.

In April 2009, we granted non-qualified options under our 2009 Plan to purchase 350,000 shares of our common stock at an exercise price of $0.02 per share to a consultant engaged in providing accounting and advisory services to our company. The options were fully vested on the date of grant and have a ten year term. The options were exercised in July 2009.

In May 2009, we issued 112,500 shares of our common stock to a consultant in settlement of amounts payable under a disputed contract. The fair value of the shares of $7,000 was included in accrued expenses at December 31, 2008.

In June 2009, we cancelled 1,364,938 shares previously treated as issued to the Custom Group as services were not provided. During 2007, we issued 2,000,000 million shares of our common stock for marketing-related services to be provided during 2007 by the Custom Group under an operating agreement.

In July 2009 we entered into an agreement with Seahawk Capital Partners, Inc. for investor relations and capital raising services. In connection with this agreement, 50,000 shares of our common stock were issuable at each of July 15, 2009 and August 15, 2009 and 150,000 shares of our common stock were issuable at September 15, 2009. We valued the shares issued to Seahawk Capital Partners, Inc. under the agreement at the closing market prices of our common stock at each of those dates and recorded the expense as general and administrative expense in the third quarter of 2009. In November 2009, we terminated our agreement with Seahawk Capital Partners, Inc.

On April 13, 2010, the Company entered into a securities purchase agreement with Green Life Inc. (“Green Life”), pursuant to which Green Life agreed to purchase 2,000 shares of Series A convertible preferred stock (“Preferred Shares”), representing a controlling interest in the company, for an aggregate purchase price of $200,000 and a convertible debenture in the principal amount of $50,000. The total investment was $250,000 and the transaction closed on April 14, 2010.
 
 
F - 15

 
World Series of Golf, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
 

 
In connection with the purchase agreement, the Company executed and filed with the Secretary of the State of Nevada a Certificate of Designation, Preference and Rights of the Series A Convertible Preferred Stock (“Certificate of Designation”). Under the Certificate of Designation, at any time after September 1, 2010, the Preferred Shares are convertible into shares of common stock at a price equal to the average of the closing “volume weighted average price” of the Company’s common stock for the five (5) consecutive trading days prior to conversion. The Certificate of Designation provides that the Preferred Shares shall vote together with the common stock and have 51% of the voting power. It also contains certain approval rights of the holders of the Preferred Shares, which requires the Company to obtain the consent of at least 75% of the outstanding Preferred Shares before taking certain corporate actions such as a merger, payment of dividends, making certain capital expenditures, and the like.

On April 13, 2010, the Company issued a $50,000 convertible note to Green Life and exchanged debt for a $200,000 convertible note to Augustine.  The conversion rate for each of the notes is 50% of the closing bid price at the date of conversion.  The Company determined that these notes contained a beneficial conversion feature that would need to be bifurcated from the host instrument because theoretically, the Company would not have enough authorized shares to satisfy the conversion.  The Company determined that the warrants that had been classified in equity should be reclassified to derivative liability because the number of potential dilutive shares exceeds the authorized shares.  The Company reclassified the warrant’s fair value of $21,771 from equity to derivative liability on April 13, 2010.  The Company determined the fair value of the warrants using the Black-Scholes model with the following assumptions.
 
· Risk free interest rate -
between.32% and 2.58%
· Expected life (year) -
between.88 and 4.39
· Volatility
400%
· Annual rate of dividends
0%
 
Stock Options
 
In May 2008, our stockholders adopted and approved our 2007 Stock Option Plan (the “2007 Plan”). In April 2009, we terminated the 2007 Plan and adopted our 2009 Equity Incentive Plan (“2009 Plan”), which allows for awards of qualified and non-qualified stock options for up to 3,000,000 shares of our common stock. In August 2009, our board of directors approved the adoption of our Amended and Restated 2009 Equity Incentive Plan (the “Amended 2009 Plan”). Our board of directors amended the 2009 Plan to increase the number of shares issuable under the 2009 Plan to 4,000,000 shares of our common stock.

At December 31, 2010, options to purchase up to 2,085,000 shares of our common stock were outstanding and 1,565,000 shares were available for future grants or awards under our Amended 2009 Plan.

Certain option and share awards provide for accelerated vesting if there is a change in control (as defined in the applicable plan and certain employment agreements we have with key officers).  During August 2010, there was a change in control which resulted in the immediate vesting of the outstanding options.  The Company expensed the remaining unamortized stock based compensation expense of $82,122.

The following table summarizes the option activity:
 
 
F - 16

 
World Series of Golf, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
 
 
     
Number of
     
Weighted Average
   
Weighted Average
   
Aggregate
 
     
Shares
     
Exercise Price
   
Contractual Life
   
Intrinsic Value
 
Outstanding at December 31, 2008
    -     $ -              
Granted
    2,765,000     $ 0.07              
Forefeited
    (330,000 )   $ 0.08              
Exercised
    (350,000 )   $ 0.02              
Outstanding at December 31, 2009
    2,085,000     $ 0.07              
Granted
    -                      
Canceled
    -                      
Exercised
    -                      
Outstanding at December 31, 2010
    2,085,000     $ 0.07       8.42     $ -  
Exercisable at December 31, 2010
    2,085,000     $ 0.07       8.42     $ -