UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the quarterly period ended November 30, 2009 |
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from ______________ to _____________ |
Commission File Number 000-50643
GLOBAL ENTERTAINMENT CORPORATION
(Exact name of registrant as specified in its charter)
Nevada | 86-0933274 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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1600 N Desert Drive, Suite 301, Tempe, AZ | 85281 |
(Address of principal executive offices) | (Zip Code) |
(480) 994-0772
(Registrant’s telephone number, including area code )
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark if the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) | 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
At January 11, 2010, 6,646,062 shares of Global Entertainment Corporation common stock were outstanding.
GLOBAL ENTERTAINMENT CORPORATION
INDEX
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED NOVEMBER 30, 2009
PART I. FINANCIAL INFORMATION | |
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Condensed Consolidated Balance Sheets – As of November 30, 2009 (Unaudited) and May 31, 2009 | 3 |
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Condensed Consolidated Statements of Operations (Unaudited) – Three and Six Months Ended | |
November 30, 2009 and 2008 | 4 |
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Condensed Consolidated Statements of Changes in Equity – Year Ended May 31, 2009 | |
and Six Months Ended November 30, 2009 (Unaudited) | 5 |
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Condensed Consolidated Statements of Cash Flows (Unaudited) – Six Months Ended | |
November 30, 2009 and 2008 | 6 |
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Notes to Condensed Consolidated Financial Statements | 7 |
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PART II. OTHER INFORMATION | |
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PART I – FINANCIAL INFORMATION
GLOBAL ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of November 30, 2009 (Unaudited) and May 31, 2009
(in thousands, except share and per share amounts)
| | November 30, | | | May 31, | |
| | 2009 | | | 2009 | |
ASSETS | | | | | | |
| | | | | | |
Current Assets: | | | | | | |
Cash and cash equivalents | | $ | 2,561 | | | $ | 1,111 | |
Accounts receivable, net of $5 allowance at May 31, 2009 | | | 3,163 | | | | 2,220 | |
Prepaid expenses and other assets | | | 457 | | | | 281 | |
Total Current Assets | | | 6,181 | | | | 3,612 | |
| | | | | | | | |
Property and equipment, net | | | 127 | | | | 708 | |
Accounts receivable | | | 640 | | | | 215 | |
Goodwill | | | 519 | | | | 519 | |
Other assets | | | 119 | | | | 114 | |
Total Assets | | $ | 7,586 | | | $ | 5,168 | |
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LIABILITIES AND EQUITY | | | | | | | | |
| | | | | | | | |
Current Liabilities: | | | | | | | | |
Accounts payable | | $ | 3,546 | | | $ | 1,132 | |
Accrued liabilities | | | 506 | | | | 588 | |
Deferred revenues | | | 392 | | | | 64 | |
Note payable - current portion | | | 115 | | | | 111 | |
Total Current Liabilities | | | 4,559 | | | | 1,895 | |
| | | | | | | | |
Deferred income tax liability, net | | | 5 | | | | 5 | |
Note payable - long-term portion | | | 10 | | | | 69 | |
Total Liabilities | | | 4,574 | | | | 1,969 | |
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Commitments and Contingencies | | | | | | | | |
| | | | | | | | |
Equity: | | | | | | | | |
Global Entertainment Corporation Equity - | | | | | | | | |
Preferred stock - $.001 par value; 10,000,000 shares authorized; | | | | | | | | |
no shares issued or outstanding | | | — | | | | — | |
Common stock - $.001 par value; 50,000,000 shares authorized; | | | | | | | | |
6,646,062 and 6,633,112 shares issued and outstanding as of | | | | | | | | |
November 30, 2009 and May 31, 2009 | | | 7 | | | | 7 | |
Paid-in capital | | | 10,980 | | | | 10,961 | |
Retained deficit | | | (8,011 | ) | | | (7,788 | ) |
Total Global Entertainment Corporation Equity | | | 2,976 | | | | 3,180 | |
Noncontrolling interest | | | 36 | | | | 19 | |
Total Equity | | | 3,012 | | | | 3,199 | |
Total Liabilities and Equity | | $ | 7,586 | | | $ | 5,168 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
GLOBAL ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended November 30, 2009 and 2008
(Unaudited) (in thousands, except share and per share amounts)
| | Three Months Ended | | | Six Months Ended | |
| | November 30, | | | November 30, | |
| | 2009 | | | 2008 | | | 2009 | | | 2008 | |
Revenues: | | | | | | | | | | | | |
Project development fees | | $ | 102 | | | $ | 269 | | | $ | 152 | | | $ | 478 | |
Project management fees | | | 533 | | | | 761 | | | | 979 | | | | 1,226 | |
Facility management fees | | | 1,534 | | | | 728 | | | | 2,438 | | | | 1,173 | |
Ticket service fees | | | 314 | | | | 695 | | | | 513 | | | | 1,315 | |
Food service revenue | | | 252 | | | | 130 | | | | 324 | | | | 130 | |
Advertising sales commissions | | | 120 | | | | 133 | | | | 191 | | | | 378 | |
License fees - league dues and other | | | 474 | | | | 515 | | | | 848 | | | | 789 | |
License fees - initial and transfer | | | — | | | | — | | | | 100 | | | | — | |
Other revenue | | | 5 | | | | — | | | | 159 | | | | 101 | |
Total Revenues | | | 3,334 | | | | 3,231 | | | | 5,704 | | | | 5,590 | |
Operating Costs: | | | | | | | | | | | | | | | | |
Cost of revenues | | | 1,943 | | | | 1,419 | | | | 3,079 | | | | 2,398 | |
General and administrative costs | | | 1,363 | | | | 1,720 | | | | 2,827 | | | | 3,216 | |
Total Operating Costs | | | 3,306 | | | | 3,139 | | | | 5,906 | | | | 5,614 | |
Operating Income (Loss) | | | 28 | | | | 92 | | | | (202 | ) | | | (24 | ) |
Other Income (Expense): | | | | | | | | | | | | | | | | |
Interest income | | | — | | | | 9 | | | | 1 | | | | 12 | |
Interest expense | | | (2 | ) | | | (354 | ) | | | (5 | ) | | | (361 | ) |
Total Other Expense | | | (2 | ) | | | (345 | ) | | | (4 | ) | | | (349 | ) |
Income (Loss) from Continuing Operations, before tax | | | 26 | | | | (253 | ) | | | (206 | ) | | | (373 | ) |
Income Tax Benefit | | | - | | | | — | | | | — | | | | — | |
Income (Loss) from Continuing Operations, net of tax | | | 26 | | | | (253 | ) | | | (206 | ) | | | (373 | ) |
Loss from Discontinued Operations, net of tax | | | - | | | | — | | | | — | | | | (48 | ) |
Net Income (Loss) | | | 26 | | | | (253 | ) | | | (206 | ) | | | (421 | ) |
Net Income (Loss), attributable to noncontrolling interest | | | — | | | | 3 | | | | 17 | | | | (5 | ) |
Net Income (Loss), attributable to Global | | $ | 26 | | | $ | (256 | ) | | $ | (223 | ) | | $ | (416 | ) |
| | | | | | | | | | | | | | | | |
Earnings (Loss) Per Share - basic and diluted: | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations, attributable to Global common | | | | | | | | | | | | | | | | |
shareholders | | $ | — | | | $ | (0.04 | ) | | $ | (0.03 | ) | | $ | (0.06 | ) |
Loss from discontinued operations, attributable to Global common | | | | | | | | | | | | | | | | |
shareholders | | | — | | | | — | | | | — | | | | — | |
Net income (loss), attributable to Global common shareholders | | $ | — | | | $ | (0.04 | ) | | $ | (0.03 | ) | | $ | (0.06 | ) |
| | | | | | | | | | | | | | | | |
Weighted Average Number of Shares Outstanding - basic and diluted | | | 6,639,150 | | | | 6,626,015 | | | | 6,636,115 | | | | 6,625,562 | |
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Amounts attributable to Global common shareholders | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations, net of tax, attributable to Global | | | | | | | | | | | | | | | | |
common shareholders | | $ | 26 | | | $ | (256 | ) | | $ | (223 | ) | | $ | (368 | ) |
Loss from discontinued operations, net of tax, attributable to | | | | | | | | | | | | | | | | |
Global common shareholders | | | — | | | | — | | | | — | | | | (48 | ) |
Net income (loss), attributable to Global common shareholders | | $ | 26 | | | $ | (256 | ) | | $ | (223 | ) | | $ | (416 | ) |
The accompanying notes are an integral part of the condensed consolidated financial statements.
GLOBAL ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Year Ended May 31, 2009 and the Six Months Ended November 30, 2009
(Unaudited)
(in thousands, except share amounts)
| | Global Entertainment Corporation | | | Non- | | | | |
| | Common Stock | | | Paid-in | | | Retained | | | | | | Controlling | | | Total | |
| | Shares | | | Amount | | | Capital | | | Deficit | | | Total | | | Interest | | | Equity | |
| | | | | | | | | | | | | | | | | | | | | |
Balance at May 31, 2008 | | | 6,625,114 | | | $ | 7 | | | $ | 10,930 | | | $ | (7,815 | ) | | $ | 3,122 | | | $ | (38 | ) | | $ | 3,084 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of restricted stock | | | 8,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation - restricted stock | | | — | | | | — | | | | 31 | | | | — | | | | 31 | | | | — | | | | 31 | |
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Other | | | (2 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | — | | | | — | | | | — | | | | 27 | | | | 27 | | | | 57 | | | | 84 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at May 31, 2009 | | | 6,633,112 | | | | 7 | | | | 10,961 | | | | (7,788 | ) | | | 3,180 | | | | 19 | | | | 3,199 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation - restricted stock | | | — | | | | — | | | | 19 | | | | — | | | | 19 | | | | — | | | | 19 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of restricted stock | | | 12,950 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | | — | | | | — | | | | — | | | | (223 | ) | | | (223 | ) | | | 17 | | | | (206 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at November 30, 2009 | | | 6,646,062 | | | $ | 7 | | | $ | 10,980 | | | $ | (8,011 | ) | | $ | 2,976 | | | $ | 36 | | | $ | 3,012 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
GLOBAL ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended November 30, 2009 and 2008
(Unaudited) (in thousands)
| | 2009 | | | 2008 | |
Cash flows from operating activities: | | | | | | |
Net loss, attributable to Global | | $ | (223 | ) | | $ | (416 | ) |
Adjustments to reconcile net loss to net cash used in operating activities- | | | | | | | | |
Depreciation | | | 49 | | | | 81 | |
Provision for doubtful accounts | | | 20 | | | | 25 | |
Noncontrolling interest | | | 17 | | | | (5 | ) |
Stock-based compensation - restricted stock | | | 19 | | | | 16 | |
Gain on sale of property and equipment | | | (10 | ) | | | — | |
Unbilled earnings on Wenatchee project | | | — | | | | (639 | ) |
Discontinued operations and related impairment charges | | | — | | | | 5 | |
Changes in assets and liabilities, net of businesses disposed- | | | | | | | | |
Accounts receivable | | | (1,388 | ) | | | (19 | ) |
Prepaid expenses and other assets | | | (183 | ) | | | (235 | ) |
Accounts payable | | | 2,483 | | | | 355 | |
Accrued liabilities | | | (82 | ) | | | 390 | |
Deferred revenues | | | 328 | | | | 446 | |
Net cash provided by operating activities | | | 1,030 | | | | 4 | |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Proceeds from sale of property and equipment | | | 586 | | | | — | |
Purchase of property and equipment | | | (111 | ) | | | (681 | ) |
Investment in Wenatchee project | | | — | | | | (21,342 | ) |
Deposit of restricted cash | | | — | | | | (1,250 | ) |
Proceeds from disposition of Our Old Car Company assets, net of expenses | | | — | | | | 1,790 | |
Net cash provided by (used in) investing activities | | | 475 | | | | (21,483 | ) |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
Notes payable proceeds | | | — | | | | 21,992 | |
Notes payable payments | | | (55 | ) | | | (292 | ) |
Net cash provided by (used in) financing activities | | | (55 | ) | | | 21,700 | |
| | | | | | | | |
Net increase in cash and cash equivalents | | | 1,450 | | | | 221 | |
| | | | | | | | |
Cash and cash equivalents, beginning of period | | | 1,111 | | | | 443 | |
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Cash and cash equivalents, end of period | | $ | 2,561 | | | $ | 664 | |
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Supplemental Disclosures: | | | | | | | | |
Interest paid | | $ | 5 | | | $ | 11 | |
Income taxes paid (received) | | $ | — | | | $ | — | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
GLOBAL ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation and Use of Estimates
Description of the Company
Global Entertainment Corporation (referred to in this report as “we,” “us,” “Global”) is an integrated event and entertainment company that is engaged, through its wholly owned subsidiaries, in sports management, multipurpose events center development, facility and venue management and marketing, and venue ticketing. We are primarily focused on projects located in mid-size communities.
Our current principal operating subsidiaries are Western Professional Hockey League, Inc., Global Properties I, International Coliseums Company, Inc., Global Entertainment Marketing Systems, Inc., Global Entertainment Ticketing, Encore Facility Management and GEC Food Service, LLC.
We, through our wholly owned subsidiary, Western Professional Hockey League, Inc. (WPHL), operate the Western Professional Hockey League, a minor league professional hockey organization, and are the licensor of the independently owned hockey teams which participate in the league. WPHL has entered into a joint operating agreement with the Central Hockey League, Inc. (CHL, Inc.). The effect of the joint operating agreement is that the two leagues had their respective teams join together and operate under the “Central Hockey League” name (as the League). The terms of the joint operating agreement define how the League will operate.
The League currently consists of seventeen (17) teams, (fifteen (15) participating in the 2009-2010 season) located in mid-market communities throughout the Central, Western and Southern regions of the United States. Three teams, each of which was an original CHL, Inc. team, continue to operate under a sanction agreement that requires direct payments to the League pursuant to the terms and conditions of the original CHL, Inc. agreements.
Global Properties I (GPI) provides services in targeted mid-sized communities across the United States related to the development of multipurpose events centers. GPI's development of multipurpose events centers promotes the development of the League by assisting potential licensees in securing quality venues in which to play minor professional hockey league games.
International Coliseums Company, Inc. (ICC) manages the construction of multipurpose events centers in mid-market communities.
Global Entertainment Marketing Systems, Inc. (GEMS), promotes, markets, and sells various services related to multipurpose entertainment facilities, including all contractually obligated income (COI) sources such as facility naming rights, luxury suite sales, premium seat license sales, and facility sponsorship agreements.
Global Entertainment Ticketing (GetTix) provides ticketing services for the multipurpose events centers developed by GPI, existing League licensees, and various other entertainment venues, theaters, concert halls, and other facilities and event coordinators. GetTix provides a full ticketing solution by way of box office, outlet, phone, internet and print-at-home service that utilizes distribution outlets in each market. GetTix uses third-party, state-of-the-art software to deliver ticketing capabilities that include database flexibility, easy season and group options, financial reporting and marketing resources.
Encore Facility Management (Encore) provides a full complement of multipurpose events center operational services. These services include providing administrative oversight in the areas of facility/property management and finance, event bookings, and food and beverage. Encore is currently involved with facility management of multipurpose events centers developed by GPI. Facility management operations are conducted under separate limited liability companies.
GEC Food Service, LLC (formerly Global Food Service, LLC) (Food Service), formed in fiscal 2009, manages facility food service operations.
On August 1, 2008, we sold substantially all of the assets of Our Old Car Company (formerly known as Cragar Industries, Inc.).
Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of Global Entertainment Corporation and its wholly owned subsidiaries, WPHL, GPI, ICC, GEMS, GetTix, Encore, Food Service and Our Old Car Company (formerly known as Cragar Industries, Inc.), as well as the limited liability companies formed for facility management. Intercompany balances and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included.
Operating results for the three and six month periods ended November 30, 2009, are not necessarily indicative of the results that may be expected for the year ending May 31, 2010, or for any other period.
For further information, refer to the consolidated financial statements and footnotes included in our report on Form 10-K for the year ended May 31, 2009.
Certain reclassifications are reflected in prior periods for the purpose of consistent presentation.
Subsequent events have been evaluated and disclosed through the date of this filing, which is the date these consolidated financial statements were issued.
Use of Estimates
Management uses estimates and assumptions in preparing financial statements in accordance with accounting principles generally accepted in the United States. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results may vary from the estimates that were assumed in preparing the condensed consolidated financial statements.
We believe our critical accounting policies and material estimates include, but are not limited to, revenue recognition, the allowance for doubtful accounts, arena guarantees and other contingencies, the carrying value of goodwill, the realization of deferred income tax assets, the fair value of a liability related to the secondary guarantee related to a worker’s compensation program, and the allocation of expenses and division of profit or loss relating to the joint operating agreement. Due to the uncertainties inherent in the estimation process and the significance of these items, it is at least reasonably possible that the estimates in connection with these items could be materially revised within the next year.
Accounting Developments
In November 2007, the EITF modified GAAP to prohibit application of the equity method of accounting to activities performed outside of a separate legal entity and requires revenues and costs incurred with third parties in connection with collaborative agreements be presented gross or net based on other applicable accounting literature. Payments to or from collaborators should be presented in an income statement based on the nature of the arrangement, whether the payments are within the scope of other accounting literature, and certain other criteria. We adopted these standards effective June 1, 2009, and applied the standards to our accounting for CHL, Inc.’s interest in the League effective June 1, 2009. Based on the nature of our arrangement with CHL, Inc., its interest is accounted for by analogy to the standards for the accounting and reporting of noncontrolling interests.
In December 2007, the FASB modified GAAP by establishing accounting and reporting standards for noncontrolling interests in a subsidiary and for the deconsolidation of a subsidiary. The standards also provide income statement presentation guidance and require expanded disclosures. We adopted these standards effective June 1, 2009, prospectively, except for the presentation and disclosure requirements which have been applied retrospectively for all periods presented. We account for CHL, Inc.’s interest in the League in accordance with these new standards effective June 1, 2009. The impact on our financial position and results of operations was as follows:
| · | CHL, Inc.’s share of the results of League operations is reflected separately on the face of the consolidated statements of operations below net income (loss) rather than in other income (expense). |
| · | CHL, Inc.’s undistributed earnings (loss) in the League is presented as noncontrolling interest in the equity section of the consolidated balance sheets, for all periods presented. Prior to adoption of these standards, CHL, Inc.’s undistributed earnings (loss) in the League had been presented in the consolidated balance sheets as a liability as of May 31, 2009, and an asset as of November 30, 2008. |
In September 2009, the EITF issued a consensus which revises the standards for recognizing revenue on arrangements with multiple deliverables. Before evaluating how to recognize revenue for transactions with multiple revenue generating activities, an entity should identify all the deliverables in the arrangement and, if there are multiple deliverables, evaluate each deliverable to determine the unit of accounting and whether it should be treated separately or in combination. The consensus removes certain thresholds for separation, provides criteria for allocation of revenue amongst deliverables and expands disclosure requirements. The standards will be effective June 1, 2011, for our fiscal year 2012, unless we elect to early adopt the standards effective June 1, 2009. We have not yet evaluated the impact these standards will have on our financial position or results of operations. We have not determined if we will early adopt the standards.
In June 2009, the FASB changed the consolidation rules as they relate to variable interest entities. The standards change the model for determining who should consolidate a variable interest entity, and require ongoing reassessment of whether we should consolidate a variable interest entity. The standards will be effective June 1, 2010, for our fiscal year 2011. We have not yet evaluated the impact these standards will have on our financial position or results of operations.
Earnings (Loss) Per Share (EPS)
Basic EPS is computed by dividing the applicable numerator for earnings (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed by dividing the applicable numerator for earnings (loss) by the total of the weighted average number of shares of common stock securities outstanding during the period and the effect of dilutive securities outstanding during the period. The effect of dilutive securities is not included in the weighted average number of shares outstanding when inclusion would increase the earnings per share or decrease the loss per share for income (loss) from continuing operations, net of tax.
Reconciliations of the numerators and denominators in the EPS computations for income (loss) from continuing operations, net of tax, for the three and six months ended November 30, 2009 and 2008, follow:
| | Three Months Ended | | | Six Months Ended | |
| | November 30, | | | November 30, | |
| | 2009 | | | 2008 | | | 2009 | | | 2008 | |
NUMERATOR- basic and diluted (in thousands): | | | | | | | | | | | | |
Income (loss) from continuing operations, net of tax, | | | | | | | | | | | | |
attributable to Global common shareholders | | $ | 26 | | | $ | (256 | ) | | $ | (223 | ) | | $ | (368 | ) |
| | | | | | | | | | | | | | | | |
DENOMINATOR: | | | | | | | | | | | | | | | | |
Basic EPS - weighted average shares outstanding | | | 6,639,150 | | | | 6,626,015 | | | | 6,636,115 | | | | 6,625,562 | |
Effect of dilutive securities | | | — | | | | — | | | | — | | | | — | |
Diluted EPS - weighted average shares outstanding | | | 6,639,150 | | | | 6,625,114 | | | | 6,636,115 | | | | 6,625,114 | |
| | | | | | | | | | | | | | | | |
Number of shares of common stock which could have been | | | | | | | | | | | | | | | | |
purchased with average outstanding securities not included in | | | | | | | | | | | | | | | | |
diluted EPS because effect would be antidilutive- | | | | | | | | | | | | | | | | |
Stock options (average price of $4.99 for the three and six months | | | 293,500 | | | | 338,304 | | | | 294,134 | | | | 364,368 | |
ended November 30, 2009) | | | | | | | | | | | | | | | | |
Warrants (average price of $7.10 for the three and six months | | | 215,800 | | | | 248,095 | | | | 215,800 | | | | 262,003 | |
ended November 30, 2009) | | | | | | | | | | | | | | | | |
Restricted stock | | | 26,059 | | | | 25,511 | | | | 25,979 | | | | 22,992 | |
The impacts of all outstanding options, warrants and restricted stock outstanding at November 30, 2009, were not included in the calculation of diluted EPS for the three and six months ended November 30, 2009, because to do so would be antidilutive. Outstanding options, warrants and restricted stock could potentially dilute EPS in the future.
The City of Wenatchee, Washington purchased our food service equipment, in its entirety for $0.6 million. We discontinued depreciation of the equipment in July 2009 and received the $0.6 million cash purchase price in October 2009. The gain on the sale was $10 thousand. As of November 30, 2009 and May 31, 2009, property and equipment was comprised of the following (in thousands):
| | November 30, | | | May 31, | | |
| | 2009 | | | 2009 | | Range of initial useful lives |
| | | | | | | |
Office furniture and equipment | | $ | 315 | | | $ | 276 | | 5 to 7 years |
Computer equipment | | | 394 | | | | 390 | | 2 to 7 years |
Food service equipment | | | - | | | | 636 | | 5 to 20 years |
| | | 709 | | | | 1,302 | | |
Less: accumulated depreciation | | | (582 | ) | | | (594 | ) | |
| | $ | 127 | | | $ | 708 | | |
As of November 30, 2009, note payable consists entirely of a note payable we entered into in fiscal year 2008 in connection with settlement of a legal matter. The note calls for 36 payments of $10 thousand monthly through December 2010. We recorded the present value of the payments, discounted at 7.0%, as notes payable and general and administrative costs. The note had an initial present value of $0.3 million.
We had a $1.75 million line of credit that expired October 1, 2009. The line of credit bore interest at a daily adjusting LIBOR rate plus 2%, subject to certain adjustments. We had received no cash advances on this credit facility prior to its expiration.
During fiscal year 2006, we entered into an agreement with Prescott Valley Signature Entertainment, LLC (PVSE, LLC) to form Prescott Valley Events Center, LLC (PVEC, LLC) to engage in the business of developing, managing, and leasing the Prescott Valley Events Center in Prescott Valley, Arizona (the Town). We are the managing member of PVEC, LLC. Construction of the center, which opened in November 2006, was funded by proceeds from the issuance of $35 million in Industrial Development Authority of the County of Yavapai Convention Center Facilities Excise Tax Revenue Bonds, Series 2005 (the Bonds).
We account for our investment in PVEC, LLC under the equity method. Our interest in this entity is not a controlling one, as we do not own a majority voting interest and our ability to affect the business operations is significantly limited by the PVEC, LLC operating agreement. The operating agreement also provides that a majority-in-interest of the members may replace the managing member, or if the managing member is in default, a majority-in-interest of the remaining members may replace the managing member.
In addition to a $1 thousand initial capital contribution, we contributed $250 thousand as an initial preferred capital contribution and PVSE, LLC contributed land with an approximate value of $1.5 million as an initial preferred capital contribution. Payment of the $250 thousand was made to PVEC, LLC in December 2008. We recorded losses on our investment in fiscal 2008, in the amount of $251 thousand, to bring our investment to zero. Our investment was zero at May 31, 2009, and remains zero at November 30, 2009.
PVEC, LLC lease payments on the facility are equal to debt service payments on the Bonds. In the event of any shortfalls in debt service payments, amounts will be paid by the Town from transaction privilege tax (TPT) collected from the surrounding project area.
Operating revenues of the center, as defined, are first used to pay operating expenses, as defined, second to pay our base management fee (4% of the center’s operating revenue), third to pay debt service, then to fund other items. As a result, we may be required to defer receipt of our management fees should operating revenues, as defined, be insufficient to pay operating expenses, as defined. Through November 30, 2009, no management fees had been deferred.
Cash distributions and distributions in liquidation are to be made to each member in the following priority: 1) to the extent needed to pay taxes, 2) to each member to the extent of loans in the form of our unpaid management fees and PVSE, LLC’s unpaid parking fees, and 3) to PVSE, LLC, until their preferred account equals ours (including preferred returns of 5% thereon) and then 50/50. Therefore, in fiscal 2008 we recognized 100% of PVEC, LLC’s losses to the extent of our funding commitment ($251 thousand). We will recognize additional losses to the extent of any loans to PVEC, LLC, should they accumulate, in the form of deferred management fees.
PVEC, LLC’s unaudited financial information for the three and six months ended November 30, 2009 and 2008, follows (in thousands):
| | Three Months Ended | | | Six Months Ended | |
| | November 30, | | | November 30, | |
| | 2009 | | | 2008 | | | 2009 | | | 2008 | |
Operating revenue | | $ | 566 | | | $ | 1,112 | | | $ | 909 | | | $ | 1,727 | |
Operating profit (loss) | | | (212 | ) | | | 63 | | | | (521 | ) | | | (166 | ) |
Net income (loss) | | | (229 | ) | | | 53 | | | | (548 | ) | | | (188 | ) |
Selected PVEC, LLC unaudited financial information as of November 30, 2009 and May 31, 2009, follows (in thousands):
| | November 30, | | | May 31, | |
| | 2009 | | | 2009 | |
Property and equipment, net | | $ | 28,488 | | | $ | 29,251 | |
Receivable from Town | | | 7,533 | | | | 6,558 | |
Total assets | | | 39,838 | | | | 38,758 | |
Debt payable | | | 35,000 | | | | 35,000 | |
Retained deficit | | | 1,605 | | | | 1,054 | |
Members' equity | | | 135 | | | | 685 | |
Effective September 1, 2009, we ceased recognizing PVEC, LLC advertising sales commissions and facility management fees, exclusive of payroll costs and reimbursed expenses, as collections are deemed no longer reasonably assured. As of November 30, 2009, our receivables from PVEC, LLC are classified as long-term as collections are not expected within the next twelve months. Our consolidated financial statements reflect the following related to transactions between us and PVEC, LLC (in thousands).
| | Three Months Ended | | | Six Months Ended | |
| | November 30, | | | November 30, | |
| | 2009 | | | 2008 | | | 2009 | | | 2008 | |
Facility management fees, exclusive of payroll costs | | | | | | | | | | | | |
and reimbursed expenses (Encore) | | $ | (2 | ) | | $ | 12 | | | $ | — | | | $ | 29 | |
Facility management fees, payroll costs (Encore) | | | 175 | | | | 171 | | | | 309 | | | | 326 | |
Facility management fees, reimbursed expenses (Encore) | | | 10 | | | | 29 | | | | 21 | | | | 48 | |
Advertising sales commission (GEMS) | | | — | | | | 19 | | | | 40 | | | | 86 | |
Ticket service fees (GetTix) | | | 18 | | | | 31 | | | | 38 | | | | 72 | |
Cost of revenues, facility payroll (Encore) | | | 175 | | | | 171 | | | | 309 | | | | 326 | |
Cost of revenues, reimbursed expenses (Encore) | | | 10 | | | | 29 | | | | 21 | | | | 48 | |
| | November 30, | | | May 31, | |
| | 2009 | | | 2009 | |
Accounts receivable, short -term | | $ | — | | | $ | 100 | |
Accounts receivable, long-term | | | 378 | | | | — | |
Subsequent to November 30, 2009, we have advanced $85 thousand of cash to PVEC, LLC. These advances are being expensed as equity method losses and bring our investment in PVEC, LLC below zero as of the date of this filing.
Commitments and Contingencies
Operating Leases
We lease 10,392 square feet of office space for our Tempe, Arizona headquarters pursuant to a lease with a sixty-six month initial term beginning January 2008. The lease is renewable for an additional sixty-month period. Leasehold improvements at the location are depreciated over the initial lease term. Non-level rents are recognized on a straight-line basis over the initial lease term. Liabilities related to non-level rents of $88 thousand and $96 thousand were included in accrued liabilities at November 30, 2009 and May 31, 2009.
In addition we are committed under an equipment and maintenance contract to pay $1 thousand monthly through December 2010.
Litigation
As with all entertainment facilities there exists a degree of risk that the general public may be accidentally injured. As of November 30, 2009, there were various claims outstanding in this regard that management does not believe will have a material effect on our financial condition or results of operations. To mitigate this risk, we maintain insurance coverage, which we believe effectively covers any reasonably foreseeable potential liability. There is no assurance that our insurance coverage will adequately cover all liabilities to which we may be exposed.
We are a plaintiff and a counter-defendant in a lawsuit involving the City of Rio Rancho, New Mexico filed in the New Mexico 13th Judicial District, Sandoval County, Case No. 01329 CV091504. Our claim seeks resolution of matters stemming from the time during which we managed the events center in Rio Rancho, New Mexico. Specifically, our claim is based on breach of contract and other matters. The complaint seeks payment of monies due in excess of $0.3 million and declaratory judgment that we have no liability to third-party creditors of the center. The city’s counterclaim alleges breach of contract, among other claims, and seeks judgment in excess of $0.2 million. We believe the counterclaim is without merit.
Global Entertainment Corporation, PVEC, LLC and two of our directors (James Treliving and Richard Kozuback) are four of sixteen defendants in Allstate Life Insurance Company (Allstate) v. Global Entertainment Corporation et. al. This suit, Case No. CV1962-JWS, was filed in United States District Court, District of Arizona. The litigation relates to the offering for the Bonds, issued to support the construction of the events center in Prescott Valley, Arizona. Allstate is a bond holder and the complaint alleges the bond offering failed to properly disclose certain facts, that the underwriters and certain law firms acted with deliberate recklessness and that the bond documents are defective. Allstate seeks unspecified damages and/or reimbursement of its investment, in excess of $26 million. We believe the claims against Global Entertainment Corporation, PVEC, LLC and the two directors are without merit. Our insurance carrier has been notified. Our insurance carrier has indicated an intention to decline coverage of Global Entertainment Corporation in this matter. Defense costs allocated to Global Entertainment Corporation are being expensed as incurred and defense costs allocated to the directors are being expensed as incurred up to the amount of the applicable deductible ($75 thousand or $100 thousand, depending on how the claim is ultimately classified).
All litigation settlement expenses are included in general and administrative costs. The following summarizes litigation settlement activity for the three and six months ended November 30, 2009 and 2008, and the balance sheet classification of litigation settlement liabilities at November 30, 2009 and May 31, 2009 (in thousands).
| | Three Months Ended | | | Six Months Ended | |
| | November 30, | | | November 30, | |
| | 2009 | | | 2008 | | | 2009 | | | 2008 | |
Litigation settlement liabilities, beginning of period | | $ | 203 | | | $ | 258 | | | $ | 330 | | | $ | 283 | |
Cash payments | | | (53 | ) | | | (26 | ) | | | (180 | ) | | | (51 | ) |
Litigation settlement liabilities, end of period | | $ | 150 | | | $ | 232 | | | $ | 150 | | | $ | 232 | |
| | November 30, | | | May 31, | |
| | 2009 | | | 2009 | |
Accounts payable | | | 25 | | | $ | 125 | |
Accrued liabilities | | $ | — | | | | 25 | |
Note payable - current portion | | | 115 | | | | 111 | |
Note payable - long-term portion | | | 10 | | | | 69 | |
| | $ | 150 | | | $ | 330 | |
Legal services costs are expensed as incurred. At November 30, 2009 and May 31, 2009, accounts payable included $111 thousand and $176 thousand in legal services costs. At November 30, 2009 and May 31, 2009, accrued liabilities included $14 thousand and $21 thousand in legal services costs.
Contingencies
We enter into indemnification provisions under our agreements with other companies in the ordinary course of business, typically with business partners and customers. Under these provisions we generally indemnify and hold harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of our activities. The maximum potential amount of future payments we could be required to make under these indemnification provisions is unlimited. We have not incurred material costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the estimated fair value of these agreements is minimal. Accordingly, we have no liabilities recorded for these agreements as of November 30, 2009.
As of November 30, 2009, we have entered into various employment contracts with key employees. Under certain circumstances we may be liable to pay amounts based on the related contract terms. We also have initiated legal actions against certain individuals which could result in awards in our favor.
Guarantees
In February 2008, we entered into an agreement to manage a multi-purpose events center to be constructed in Texas. The initial term of this agreement is fifteen years, with an option by the city to renew for an additional five years under certain conditions. This agreement includes a guarantee that the events center will operate at a break-even point and without cost to the city, not including any capital reserves and any other off-sets described in the agreement. This guarantee requires that all amounts reasonably required for the operation and maintenance of the events center will be generated by the operation of the events center, or otherwise paid by us. The agreement includes a provision that within thirty days of opening, the city will fund an operating account with three months of operating revenue, as defined. The monies in that operating account may be used to fund operations of the events center, but if used, must be repaid by us within thirty days after the first operating year, as defined. Should we be obligated to fund any operational shortfalls, the agreement provides for reimbursement to us from future profits from the events center. The maximum amount of future payments we could be required to make under this operational guarantee is theoretical due to various unknown factors. However, the guarantee would be limited to the operational loss from the facility for each year of the guarantee, less any reimbursements from the facility. Although no assurance can be made, we do not believe, that any potential guarantee payments would be material based on the operating results of similar facilities. The facility opened in November 2009.
In April 2009, we entered into an agreement with the city in Texas to fund a performance reserve related to having a hockey team play in the facility. Under the agreement we delay receipt of advertising sales commissions otherwise payable to us to fund a performance reserve. To the extent the performance reserve falls below the required reserve, we must fund cash. The required performance reserve levels are as follows:
| · | November 1, 2009 - $200,000, reduced to $150,000 when a hockey team plays the 2009-2010 season opener |
| · | November 1, 2010 - $150,000, reduced to $100,000 when a hockey team plays the 2010-2011 season opener |
| · | November 1, 2011 - $100,000, reduced to $50,000 when a hockey team plays the 2011-2012 season opener |
| · | November 1, 2012 - $50,000, reduced to zero when a hockey team plays 2012-2013 season opener. |
If no hockey team plays a season opener through the 2018-2019 season opener, the amount then in the reserve account is forfeited and future advertising sales commission are forfeited until either a hockey team plays in a season opener or a total of $300 thousand is forfeited. In no event is the amount forfeited to exceed $300 thousand. A hockey team played the 2009-2010 season opener and we believe the likelihood we will forfeit anything under this guarantee is remote. As of November 30, 2009, $150 thousand is in the performance reserve - $100 thousand is included in other assets and $50 thousand is included in prepaid and other assets in the accompanying balance sheets.
In May 2008, we entered into an agreement to manage a multi-purpose events center to be constructed in Missouri. The initial term of this agreement ends fifteen years from facility opening, and the city may renew the agreement for an additional five years under the same terms. The facility opened in November 2009. Our compensation under the agreement may only come from the facility operating account, which is to be funded by facility operations, as defined in the agreement. The management agreement includes a guarantee that we will subsidize the operations of the facility to the extent that funds in the facility operating account and a temporary operating account are not adequate. Under the terms of the agreement the city shall advance $0.5 million to fund a temporary operating reserve account, which may be used to fund shortfalls in the facility operations account. Excess funds in the facility operating account each operating year, after paying operating expenses, our base Encore fee and GEMS commission, are to be used in the following priority: 1) to reimburse us for any subsidy payments we have made, 2) to replenish the temporary operating reserve account, 3) to fund the capital reserve account and 4) to pay on a co-equal basis our incentive fee and deposits to three additional reserve accounts. The maximum amount of future payments we could be required to make under the guarantee is theoretical due to various unknown factors. However, once the temporary operating reserve account is depleted, the guarantee subsidy payments would be limited to the operational loss each operating year, plus the amount of our facility management fees and advertising sales commissions. We do not expect to make guarantee subsidy payments based on operating results of similar facilities, however, no assurance can be made that a payment pursuant to this guarantee would not be paid in the future and that such payment would not be material.
In addition, under the terms of the management agreement, an amount not to exceed $0.50 per ticket, and excess operating funds, are to be used to fund a capital reserve account up to $150 thousand in each of the first five operating years and up to $250 thousand thereafter. Should the capital reserve account not be fully funded for two consecutive years, the management agreement terminates, unless the city elects to renew the agreement.
We provide a secondary guarantee on a standby letter of credit in favor of Ace American Insurance Company for $0.6 million related to a guarantee under a workers compensation program. This letter of credit is fully collateralized by third parties. No amounts have been drawn on this letter of credit as of November 30, 2009. We believe the amount of payments under this guarantee will be negligible, and as such, have assigned no value to this guarantee at November 30, 2009.
We have guaranteed payment of a lease for equipment used by PVEC, LLC. As of November 30, 2009, twenty-four payments averaging $12 thousand per month, including principal and interest were outstanding. The fair value of the lease obligation at November 30, 2009, was approximately $270 thousand. The lease is secured by the equipment. We believe the amount of payments under this guarantee will be negligible, and as such, have assigned no value to this guarantee at November 30, 2009.
In addition to our commitments and guarantees described above we also have the commitments and guarantees described in the PVEC, LLC Joint Venture Note.
On August 1, 2008, we sold substantially all of the assets of Our Old Car Company (formerly known as Cragar Industries, Inc). The assets consisted primarily of intangibles, including trademarks, service marks and domain names. The cash from the transaction of approximately $1.8 million, net of transaction costs, was allocated primarily to the intangibles, with the remainder to tooling, inventory and other assets.
The following table presents selected operating data for Our Old Car Company for the six months ended November 30, 2008 (in thousands):
| | 2008 | |
Revenues | | $ | 60 | |
Loss on disposal | | | (51 | ) |
Loss before income taxes | | | (48 | ) |
Loss from discontinued operations, net of income tax | | | (48 | ) |
Our business activities and accounts receivable are with customers in various industries located throughout the United States. We perform ongoing credit evaluations of our customers and maintain allowances for potential credit losses.
As of November 30, 2009, approximately $640 thousand of trade receivables is classified as long-term assets. This classification was done in contemplation of the current economic conditions and the anticipated timing of collections. Management, after careful review and analysis, believes these receivables to be fully collectible and as such, no allowance for doubtful accounts has been established against these receivables.
The League operates primarily in mid-sized communities in the Central, Western and Southern regions of the United States, including Arizona, Colorado, Kansas, Louisiana, Mississippi, Missouri, Oklahoma, South Dakota, and Texas in fiscal 2010. Our facility management fees and project management fees are derived from events centers currently operating in, or being constructed in, Arizona, Missouri, Texas and Washington in fiscal 2010. The economic downturn which has affected these markets has negatively impacted our operating results and will most likely continue to do so until an economic recovery is complete.
We depend on contracts with cities or related governmental entities to design, develop, and manage new multipurpose facilities and adjacent real estate. Typically we must expend 20-30 months of effort to obtain such contracts. We depend on these contracts for the revenue they generate and the facilities resulting from these contracts are potential facilities in which our licensees may operate. Failure to timely secure these contracts may negatively impact our results. Many governments are struggling to maintain tax revenue and raise capital in the current economic environment and may have less interest in developing new multipurpose facilities or less ability to finance construction of new multipurpose facilities. Our revenues, project development fees and project management fees in particular, could be negatively impacted.
Purchasing a League license requires significant capital and commencing operation is a significant expense which limits the pool of potential licensees. We depend on a critical mass of licensees to capture the economies of scale inherent in the League’s operations and to facilitate intra-league play. There can be no assurance that we will be able to attract qualified candidates for licenses. We anticipate that expansion of the League will be difficult because of the high capital costs of licenses, competitive pressures from sports leagues and entertainment providers both within and outside of the markets where we currently operate, and the lack of arenas for new licensees.
The minor league hockey industry in which we conduct business is subject to significant competition from other sports and entertainment alternatives as well as both the National Hockey League and its minor league hockey system, the American Hockey League, and other independent minor hockey leagues. Even teams of the National Hockey League, which is the largest professional hockey league with the greatest attendance, have struggled to remain financially viable. A significant portion of our revenues result from payments made by our licensees. There can be no assurance that licensees will not default under their license agreements.
The League may be unable to attract new licensees and existing licensees may not be able to make the continuing payments required by their license agreements in the current economic environment. There can be no assurance that any payments will be made by new or current licensees.
Each of our subsidiaries is a separate legal entity with a separate management structure. Our corporate operations exist solely to support our subsidiary segments. As such, certain corporate overhead costs are allocated to the operating segments. There are no differences in accounting principles between the operations.
In all periods presents, goodwill relates to our International Coliseums segment.
The Food Service segment began operations in fiscal 2009.
No interest expense was allocated to discontinued operations in fiscal 2009 or fiscal 2008.
| | Gross Revenues | | | Income (Loss) from Continuing Operations, Before Tax | | | Identifiable Assets | | |
November 30, 2009 | | | | | | | | | | |
Global Entertainment Corporate Operations | | $ | 121 | | | $ | (618 | ) | | $ | 2,920 | | (a) |
GEC Food Service (b) | | | 335 | | | | (11 | ) | | | 85 | | |
Central Hockey League/WPHL | | | 948 | | | | 224 | | | | 713 | | |
Global Properties I | | | 152 | | | | (101 | ) | | | 223 | | |
International Coliseums | | | 979 | | | | 610 | | | | 2,171 | | (c) |
Encore Facility Management | | | 2,438 | | | | (21 | ) | | | 1,007 | | |
Global Entertainment Marketing Systems | | | 218 | | | | 22 | | | | 252 | | |
Global Entertainment Ticketing | | | 513 | | | | (311 | ) | | | 215 | | |
Global Entertainment Coporation Consolidated | | $ | 5,704 | | | $ | (206 | ) | | $ | 7,586 | | |
| | | | | | | | | | | | | |
November 30, 2008 | | | | | | | | | | | | | |
Global Entertainment Corporate Operations | | $ | 101 | | | $ | (1,178 | ) | | $ | 54,869 | | (a) |
GEC Food Service (b) | | | 131 | | | | (103 | ) | | | 698 | | |
Central Hockey League/WPHL | | | 788 | | | | 37 | | | | 503 | | |
Global Properties I | | | 478 | | | | 131 | | | | 199 | | |
International Coliseums | | | 1,226 | | | | 890 | | | | 592 | | |
Encore Facility Management | | | 1,173 | | | | (78 | ) | | | 180 | | |
Global Entertainment Marketing Systems | | | 378 | | | | 116 | | | | 178 | | |
Global Entertainment Ticketing | | | 1,315 | | | | (188 | ) | | | 348 | | |
Global Entertainment Coporation Consolidated | | $ | 5,590 | | | $ | (373 | ) | | $ | 57,567 | | |
(a) | Global Entertainment Corporate Operations assets include the investment in Wenatchee project of $52.4 million at November 30, 2008. The investment was sold in December 2008. Global Entertainment Corporate Operations assets include cash and cash equivalents and restricted cash of $2.6 million and $1.9 million at November 30, 2009 and 2008. |
(b) | The GEC Food Service segment began operations October 2008 in Wenatchee, Washington. The Wenatchee food service contract ended effective August 2009. We sold our food service equipment in October 2009. In November 2009 GEC Food Service began food service operations in Independence, Missouri using equipment owned by the city. |
(c) | The International Coliseums segment assets at November 30, 2009, include $0.9 million in accounts receivable from a city to fund furniture, fixture and equipment purchases made as agent for the city. November 30, 2008 assets included no comparable amounts. |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Disclosure
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995 regarding future events, including statements concerning our future operating results and financial condition and our future capital needs and sources. These statements are based on current expectations, estimates, forecasts, and projections as well as our beliefs and assumptions. Words such as “outlook”, “believes”, “expects”, “appears”, “may”, “will”, “should”, “anticipates” or the negatives thereof or comparable terminology, are intended to identify such forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to those discussed in our report on Form 10-K for the fiscal year ended May 31, 2009. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report. We undertake no obligation to revise or update publicly any forward-looking statements for any reason, unless otherwise required by law.
General
The following is management’s discussion and analysis of certain significant factors affecting our financial position and operating results during the periods included in the accompanying condensed consolidated financial statements.
Description of the Company
Our current operating subsidiaries are Western Professional Hockey League, Inc., Global Properties I, International Coliseums Company, Inc., Global Entertainment Marketing Systems, Inc., Global Entertainment Ticketing, Encore Facility Management and GEC Food Service, LLC.
Pursuant to a joint operating agreement between us and Central Hockey League Inc. (CHL, Inc.), WPHL operates and manages a minor professional hockey league known as the Central Hockey League (the League), which currently consists of seventeen teams (fifteen participating in the 2009-2010 season) located in mid-market communities throughout the Central, Western and Southern regions of the United States.
Global Properties I (GPI) provides services in targeted mid-sized communities across the United States related to the development of multipurpose events centers. GPI's development of multipurpose events centers promotes the development of the League by assisting potential licensees in securing quality venues in which to play minor professional hockey league games.
International Coliseums Company, Inc. (ICC) manages the construction of multipurpose events centers in mid-market communities.
Global Entertainment Marketing Systems, Inc. (GEMS), promotes, markets, and sells various services related to multipurpose entertainment facilities, including all contractually obligated income (COI) sources such as facility naming rights, luxury suite sales, premium seat license sales, and facility sponsorship agreements.
Global Entertainment Ticketing (GetTix) provides ticketing services for the multipurpose events centers developed by GPI, existing League licensees, and various other entertainment venues, theaters, concert halls, and other facilities and event coordinators. GetTix provides a full ticketing solution by way of box office, outlet, phone, internet and print-at-home service that utilizes distribution outlets in each market. GetTix uses third-party, state-of-the-art software to deliver ticketing capabilities that include database flexibility, easy season and group options, financial reporting and marketing resources.
Encore Facility Management (Encore) provides a full complement of multipurpose events center operational services. These services include providing administrative oversight in the areas of facility/property management and finance, event bookings, and food and beverage. Encore is currently involved with facility management of multipurpose events centers developed by GPI. Facility management operations are conducted under separate limited liability companies.
GEC Food Service, LLC (formerly Global Food Service, LLC) (Food Service), formed in fiscal 2009, manages facility food service operations.
On August 1, 2008, we sold substantially all of the assets of Our Old Car Company (formerly known as Cragar Industries, Inc.).
Critical Accounting Policies, Estimates and Judgments
Significant accounting policies are described in the audited consolidated financial statements and notes thereto included in our Report on Form 10-K for the year ended May 31, 2009. We believe our most critical accounting policies and estimates relate to revenue recognition, the allowance for doubtful accounts, arena guarantees and other contingencies, the carrying value of goodwill, the realization of deferred income tax assets, the fair value of a liability related to the secondary guarantee related to a worker’s compensation program, and the allocation of expenses and division of profit or loss relating to the joint operating agreement. Due to the uncertainties inherent in the estimation process and the significance of these items, it is at least reasonably possible that the estimates in connection with these items could be materially revised within the next year.
Overview and Forward Looking Information
During fiscal year 2008 we decided to divest of Our Old Car Company (formerly Cragar Industries, Inc.). As a result, the operations of Our Old Car Company have been classified as loss from discontinued operations in the consolidated statements of operations for all periods presented. Revenues and operating costs in the consolidated statements of operations now exclude all accounts of Our Old Car Company.
Total revenue in the six months and quarter ended November 30, 2009, included $0.3 million in facility management fees, ticket service fees, and food service revenues from contracts with the facility in Wenatchee, Washington, which opened in October 2008. The contracts related to that facility were terminated effective August 31, 2009.
We managed construction projects for facilities in Allen, Texas and Independence, Missouri until the facilities opened in November 2009. We have contracted to provide facility management service, ticket service and advertising sales at those facilities. We earned advertising sales commissions and certain pre-opening related facility management fees from both facilities prior to opening, and expect to continue to earn advertising sales commissions and facility management fees from both facilities after the openings under our multi-year contracts. We began recognizing food service revenues from the Independence facility beginning in November 2009.
Ground breaking on the facility in Dodge City, Kansas occurred in October 2009. Under our agreements related to the facility we earned the last of the contractual project development fees in our second quarter ended November 30, 2009. We began earning project management fees related to this project in the fourth quarter of fiscal 2009 and fees are expected to be earned over a total of twenty-two months. As of November 30, 2009, we have no active contracts providing for project development fees.
Our multi-year contracts with PVEC, LLC to provide facility management services, ticket services and advertising sales were active in the three and six months ended November 30, 2009, and remain active through the date of this filing. However, we have ceased recognizing advertising sales commissions and facility management fees, exclusive of payroll and reimbursed expense, as collections are deemed no longer reasonably assured.
We believe high unemployment levels and continued economic weakness have impacted our revenues and, in particular, contributed to 1) a decline in our ticket service fees and advertising sales commissions in the second quarter ended November 30, 2009, compared to the prior year quarter and 2) our inability to enter into arrangements to generate additional project development fees.
Three Months Ended November 30, 2009, Compared to Three Months Ended November 30, 2008
Revenues (in thousands):
| | Three Months Ended | | | | | | | |
| | November 30, 2009 | | | % of Revenue | | | November 30, 2008 | | | % of Revenue | | | Change | | | % Change | |
| | | | | | | | | | | | | | | | | | |
Project development fees | | $ | 102 | | | | 3.1 | | | $ | 269 | | | | 8.3 | | | $ | (167 | ) | | | (62.1 | ) |
Project management fees | | | 533 | | | | 16.0 | | | | 761 | | | | 23.6 | | | | (228 | ) | | | (30.0 | ) |
Facility management fees | | | 1,534 | | | | 46.0 | | | | 728 | | | | 22.5 | | | | 806 | | | | 110.7 | |
Ticket service fees | | | 314 | | | | 9.4 | | | | 695 | | | | 21.5 | | | | (381 | ) | | | (54.8 | ) |
Food service revenue | | | 252 | | | | 7.6 | | | | 130 | | | | 4.0 | | | | 122 | | | | 93.8 | |
Advertising sales commissions | | | 120 | | | | 3.6 | | | | 133 | | | | 4.1 | | | | (13 | ) | | | (9.8 | ) |
License fees - league dues and other | | | 474 | | | | 14.2 | | | | 515 | | | | 15.9 | | | | (41 | ) | | | (8.0 | ) |
Other | | | 5 | | | | 0.1 | | | | — | | | | — | | | | 5 | | | NM | |
Total Revenues | | $ | 3,334 | | | | 100.0 | | | $ | 3,231 | | | | 100.0 | | | $ | 103 | | | | 3.2 | |
At $3.3 million, total revenues were 3.2% higher in the quarter ended November 30, 2009, than the quarter ended November 30, 2008.
Project development fees for the quarter ended November 30, 2009, relate to the project for the facility in Dodge City, Kansas, signed in fiscal 2009, and the project for the facility in Allen, Texas. No further development fees are expected on these projects. Project development fees in the prior year quarter related to the project for the facility in Independence, Missouri.
Project management fees of $0.5 million were 30.0% lower for the quarter ended November 30, 2009, than the prior year quarter. Project management fees related to the Independence, Missouri, Allen, Texas and Dodge City, Kansas projects for the quarter ended November 30, 2009. The Independence, Missouri and Allen, Texas fees ceased with the opening of the facilities in November 2009. Project management fees in the quarter ended November 30, 2008, related to the Allen, Texas and Independence, Missouri projects.
Facility management fees were $1.5 million for the quarter ended November 30, 2009, compared to $0.7 million in the quarter ended November 30, 2008. Facility management fees include both recurring fees for management of facilities and fees for preopening services. The $0.8 million increase includes a $0.8 million increase in facility management fees for preopening services, primarily on the Allen, Texas and Independence, Missouri projects. The year-over-year increase in recurring fees from the Allen, Texas and Independence, Missouri facilities, which opened in November 2009, was offset by a decline in monthly management fees from the Rio Rancho, New Mexico facility, which ended in January 2009, and the Wenatchee, Washington facility, which ended in August 2009.
Ticket service fees decreased $0.4 million, to $0.3 million for the quarter ended November 30, 2009, from $0.7 million in the prior year quarter. This decrease in ticket service fees reflects decreases from a continued decline in the number of events held, attendance at events and venues under contract.
Food service revenues increased $0.1 million in the quarter ended November 30, 2009, to $0.3 million, compared to $0.1 million in the prior year quarter. The current year quarter included revenues from the initial twenty-three days of operations at the Independence, Missouri facility.
Advertising sales commissions were $0.1 million for the quarters ended November 30, 2009 and 2008. Sales commissions from the Allen, Texas and Independence, Missouri projects in the quarter ended November 30, 2009, offset the decrease from the loss of sales commissions from the Rio Rancho, New Mexico facility, no longer under contract, the Wenatchee, Washington facility, no longer under contract, and the Prescott Valley, Arizona facility.
License fees – league dues and other remained largely unchanged at $0.5 million for the quarters ended November 30, 2009 and 2008.
Operating Costs (in thousands):
| | Three Months Ended | | | | | | | |
| | November 30, 2009 | | | % of Revenue | | | November 30, 2008 | | | % of Revenue | | | Change | | | % Change | |
| | | | | | | | | | | | | | | | | | |
Cost of revenues | | $ | 1,943 | | | | 58.3 | | | $ | 1,419 | | | | 43.9 | | | $ | 524 | | | | 36.9 | |
General and administrative costs | | | 1,363 | | | | 40.9 | | | | 1,720 | | | | 53.2 | | | | (357 | ) | | | (20.8 | ) |
Total Operating Costs | | $ | 3,306 | | | | 99.2 | | | $ | 3,139 | | | | 97.2 | | | $ | 167 | | | | 5.3 | |
Total operating costs increased $0.2 million to $3.3 million for the quarter ended November 30, 2009, from $3.1 million in the prior year quarter. The quarter ended November 30, 2009, included $0.7 million of additional preopening costs, primarily related to the Allen, Texas and Independence, Missouri projects. That increase in cost of revenues was offset by a $0.3 million decrease in ticket servicing costs related to the decline in ticket service fees. General and administrative costs decreased year-over-year in most expense categories as a result of cost reduction initiatives.
Income (Loss) from Continuing Operations (in thousands):
| | Three Months Ended | | | | | | | |
| | November 30, 2009 | | | % of Revenue | | | November 30, 2008 | | | % of Revenue | | | Change | | | % Change | |
| | | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations, before tax | | $ | 26 | | | | 0.8 | | | $ | (253 | ) | | | (7.8 | ) | | $ | 279 | | | | (110.3 | ) |
Income from continuing operations, before tax, was $26 thousand for the quarter ended November 30, 2009, compared to a loss from continuing operations, before tax, of $0.3 million for the quarter ended November 30, 2008. Interest expense in the quarter ended November 30, 2009, was $0.3 million lower then in the prior year quarter, since the loan related to the Wenatchee project was repaid in December 2008.
Six Months Ended November 30, 2009, Compared to Six Months Ended November 30, 2008
Revenues (in thousands):
| | Six Months Ended | | | | | | | |
| | November 30, 2009 | | | % of Revenue | | | November 30, 2008 | | | % of Revenue | | | Change | | | % Change | |
| | | | | | | | | | | | | | | | | | |
Project development fees | | $ | 152 | | | | 2.7 | | | $ | 478 | | | | 8.6 | | | $ | (326 | ) | | | (68.2 | ) |
Project management fees | | | 979 | | | | 17.2 | | | | 1,226 | | | | 21.9 | | | | (247 | ) | | | (20.1 | ) |
Facility management fees | | | 2,438 | | | | 42.7 | | | | 1,173 | | | | 21.0 | | | | 1,265 | | | | 107.8 | |
Ticket service fees | | | 513 | | | | 9.0 | | | | 1,315 | | | | 23.5 | | | | (802 | ) | | | (61.0 | ) |
Food service revenue | | | 324 | | | | 5.7 | | | | 130 | | | | 2.3 | | | | 194 | | | | 149.2 | |
Advertising sales commissions | | | 191 | | | | 3.4 | | | | 378 | | | | 6.8 | | | | (187 | ) | | | (49.5 | ) |
License fees - league dues and other | | | 848 | | | | 14.9 | | | | 789 | | | | 14.1 | | | | 59 | | | | 7.5 | |
License fees - initial and transfer | | | 100 | | | | 1.8 | | | | — | | | | — | | | | 100 | | | NM | |
Other | | | 159 | | | | 2.8 | | | | 101 | | | | 1.8 | | | | 58 | | | | 57.4 | |
Total Revenues | | $ | 5,704 | | | | 100.0 | | | $ | 5,590 | | | | 100.0 | | | $ | 114 | | | | 2.0 | |
At $5.7 million, total revenues were 2.0% higher in the six months ended November 30, 2009, than in the six months ended November 30, 2008.
Project development fees for the six months ended November 30, 2009 relate to the project for the facility in Dodge City, Kansas, signed in fiscal 2009, and the project for the facility in Allen, Texas. No further development fees are expected on these projects. Project development fees in the prior year period related to the projects in Independence, Missouri, Dodge City, Kansas and Allen, Texas.
Project management fees of $1.0 million were 20.1% lower for the six months ended November 30, 2009, than in the prior year six months. Project management fees related to the Allen, Texas and Independence, Missouri projects, for the six months ended November 30, 2009, were lower on those projects, because fees ceased when those facilities opened in November 2009. The Dodge City, Kansas project management fees for the six months ended November 30, 2009, were insufficient to offset the Wenatchee, Washington project management fees in the prior year period.
Facility management fees were $2.4 million for the six months ended November 30, 2009, compared to $1.2 million in the six months ended November 30, 2008. Facility management fees include both recurring fees for management of facilities and fees for preopening services. The $1.3 million increase in facility management fees is primarily the result of the $1.2 million increase in fees for preopening services, primarily on the Allen, Texas and Independence, Missouri projects. The year-over-year increase in recurring fees from the Wenatchee, Washington facility, which opened in October 2008, was largely offset by a decline in monthly management fees from the Rio Rancho, New Mexico facility, which ended in January 2009, and the Wenatchee, Washington facility, which ended in August 2009.
Ticket service fees decreased $0.8 million, to $0.5 million for the six months ended November 30, 2009, from $1.3 million in the prior year period. This decrease in ticket service fees reflects decreases from a continued decline in the number of events held, attendance at events and venues under contract.
Food service revenues increased $0.2 million in the six months ended November 30, 2009, to $0.3 million, compared to $0.1 million in the prior year period. The current year period included revenues from the initial twenty-three days of operations at the Independence, Missouri facility and the last three months of operations at the Wenatchee, Washington facility.
Advertising sales commissions were $0.2 million for the six months ended November 30, 2009, and $0.4 million for the six months ended November 30, 2008. Sales commissions from the Allen, Texas and Independence, Missouri projects in the period ended November 30, 2009, were not sufficient to offset the loss of sales commissions from the Rio Rancho, New Mexico facility, no longer under contract, the Wenatchee, Washington facility, no longer under contract, and the Prescott, Valley, Arizona facility.
License fees – league dues and other remained largely unchanged at $0.8 million for the six months ended November 30, 2009 and 2008.
License fees – initial and transfer, include fees from a transfer in the quarter ended August 31, 2009. Since initial and transfer fees are not regularly recurring and are difficult to predict, there is no assurance that we will be able to increase or sustain our operating capital through this source.
Operating Costs (in thousands):
| | Six Months Ended | | | | | | | |
| | November 30, 2009 | | | % of Revenue | | | November 30, 2008 | | | % of Revenue | | | Change | | | % Change | |
| | | | | | | | | | | | | | | | | | |
Cost of revenues | | $ | 3,079 | | | | 54.0 | | | $ | 2,398 | | | | 42.9 | | | $ | 681 | | | | 28.4 | |
General and administrative costs | | | 2,827 | | | | 49.6 | | | | 3,216 | | | | 57.5 | | | | (389 | ) | | | (12.1 | ) |
Total Operating Costs | | $ | 5,906 | | | | 103.5 | | | $ | 5,614 | | | | 100.4 | | | $ | 292 | | | | 5.2 | |
Total operating costs increased $0.3 million to $5.9 million for the six months ended November 30, 2009, from $5.6 million in the prior year period. The six months ended November 30, 2009, included $1.1 million of additional preopening costs, primarily for the Allen, Texas and Independence, Missouri projects. That increase in cost of revenues was offset by a $0.5 million decrease in ticket servicing costs related to the decline in ticket service fees. General and administrative costs decreased year-over-year in most expense categories as a result of cost reduction initiatives.
Loss from Continuing Operations (in thousands):
| | Six Months Ended | | | | | | | |
| | November 30, 2009 | | | % of Revenue | | | November 30, 2008 | | | % of Revenue | | | Change | | | % Change | |
| | | | | | | | | | | | | | | | | | |
Loss from continuing operations, before tax | | $ | (206 | ) | | | (3.6 | ) | | $ | (373 | ) | | | (6.7 | ) | | $ | 167 | | | | (44.8 | ) |
Loss from continuing operations, before tax, was $0.2 million for the six months ended November 30, 2009, compared to a loss from continuing operations, before tax, of $0.4 million for the six months ended November 30, 2008. Interest expense in the six months ended November 30, 2009, was $0.3 million lower then in the prior year period due to the repayment of the Wenatchee project loan in December 2008.
Liquidity and Capital Resources
As of November 30, 2009, we had $2.6 million in cash and cash equivalents, including cash collected for GetTix tickets of less than $0.1 million for events scheduled to occur in the future.
Under our performance guarantee related to the hockey team in Texas, $150 thousand of working capital, included in prepaid and other assets is currently unavailable to us. We expect this working capital will be unavailable to us from November 2009 until November 2010, when we expect $50 thousand will be released. In addition, accounts receivable for advertising sales commissions from the Texas facility, $30 thousand at November 30, 2009, are not being paid to us under normal terms. We expect to receive payment of the advertising sales commission receivables earned through October 2010 at this facility, in November 2010.
Cash provided by operating activities was $1.0 million in the six months ended November 30, 2009. During the period ended November 30, 2009, we began receiving furniture, fixture and equipment on the project in Allen, Texas. We generally pay the vendors for these items after obtaining funds from the city. This furniture, fixture and equipment activity increased accounts receivable $0.9 million between May 31, 2009, and November 30, 2009, and increased accounts payable $2.3 million between May 31, 2009 and November 30, 2009.
Cash provided by investing activities in the six months ended November 30, 2009, was limited to fixed asset purchases, net of proceeds from disposal of our food service equipment. We received $0.6 million when we sold our food service equipment to the City of Wenatchee, Washington in October 2009. We use the city’s equipment to conduct food service operations in Independence, Missouri, beginning in November 2009, and do not expect to make any material capital expenditures in the remainder of fiscal 2010.
Cash used in financing activities for the six months ended November 30, 2009, consisted entirely of scheduled payments on our note payable. We do not currently have any intentions of entering into any additional financing arrangements.
We had a $1.75 million line of credit that expired October 1, 2009. We did not renew the facility.
As of November 30, 2009, approximately $640 thousand of trade receivables is classified as long-term assets. This classification was done in contemplation of the current economic conditions and the anticipated timing of collections. Management, after careful review and analysis, believes these receivables to be fully collectible and as such, no allowance for doubtful accounts has been established against these receivables.
We continue to evaluate the profitability of, and synergies among, our various subsidiaries and may determine to dispose of one or more of them, as we move forward with our business plan. Based on our current forecast and historical results, we expect to have adequate cash flow from available sources to fund our operating needs through November 30, 2010. If our business or profitability deteriorates or we incur unexpected expenses or asset impairments, it could have a material adverse effect on our liquidity and financial resources. We cannot guarantee that we would be able to obtain financing, if needed, on terms acceptable to us, if at all.
Accounting Developments
In November 2007, the EITF modified GAAP to prohibit application of the equity method of accounting to activities performed outside of a separate legal entity and requires revenues and costs incurred with third parties in connection with collaborative agreements be presented gross or net based on other applicable accounting literature. Payments to or from collaborators should be presented in an income statement based on the nature of the arrangement, whether the payments are within the scope of other accounting literature, and certain other criteria. We adopted these standards effective June 1, 2009, and applied the standards to our accounting for CHL, Inc.’s interest in the League effective June 1, 2009. Based on the nature of our arrangement with CHL, Inc., its interest is accounted for by analogy to the standards for the accounting and reporting of noncontrolling interests.
In December 2007, the FASB modified GAAP by establishing accounting and reporting standards for noncontrolling interests in a subsidiary and for the deconsolidation of a subsidiary. The standards also provide income statement presentation guidance and require expanded disclosures. We adopted these standards effective June 1, 2009, prospectively, except for the presentation and disclosure requirements, which have been applied retrospectively for all periods presented. We account for CHL, Inc.’s interest in the League in accordance with these new standards effective June 1, 2009. The impact on our financial position and results of operations was as follows:
| · | CHL, Inc.’s share of the results of League operations is reflected separately on the face of the consolidated statements of operations below net income (loss) rather than in other income (expense). |
| · | CHL, Inc.’s undistributed earnings (loss) in the League is presented as noncontrolling interest in the equity section of the consolidated balance sheets, for all periods presented. Prior to adoption of these standard CHL, Inc.’s undistributed earnings (loss) in the League had been presented in the consolidated balance sheets as a liability as of May 31, 2009, and as an asset as of November 30 2008. |
In September 2009, the EITF issued a consensus which revises the standards for recognizing revenue on arrangements with multiple deliverables. Before evaluating how to recognize revenue for transactions with multiple revenue generating activities, an entity should identify all the deliverables in the arrangement and, if there are multiple deliverables, evaluate each deliverable to determine the unit of accounting and whether it should be treated separately or in combination. The consensus removes certain thresholds for separation, provides criteria for allocation of revenue amongst deliverables and expands disclosure requirements. The standards will be effective June 1, 2010, for our fiscal year 2011, unless we elect to early adopt the standards effective June 1, 2009. We have not yet evaluated the impact these standards will have on our financial position or results of operations. We have not determined if we will early adopt the standards.
In June 2009, the FASB changed the consolidation rules as they relate to variable interest entities. The standards change the model for determining who should consolidate a variable interest entity, and require ongoing reassessment of whether we should consolidate a variable interest entity. The standards will be effective June 1, 2010, for our fiscal year 2011. We have not yet evaluated the impact these standards will have on our financial position or results of operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 4T. Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15 as of November 30, 2009. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Our management, including its principal executive officer and the principal financial officer, do not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. We monitor our disclosure controls and procedures and internal controls and make modifications as necessary; our intent in this regard is that the disclosure controls and procedures will be maintained as dynamic systems that change (including with improvements and corrections) as conditions warrant.
Changes in Internal Control over Financial Reporting.
There have not been changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the second quarter of fiscal 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are a plaintiff and a counter-defendant in a lawsuit involving the City of Rio Rancho, New Mexico filed in the New Mexico 13th Judicial District, Sandoval County, Case No. 01329 CV091504. Our claim seeks resolution of matters stemming from the time during which we managed the events center in Rio Rancho, New Mexico. Specifically, our claim is based on breach of contract and other matters. The complaint seeks payment of monies due in excess of $0.3 million and declaratory judgment that we have no liability to third-party creditors of the center. The city’s counterclaim alleges breach of contract, among other claims, and seeks judgment in excess of $0.2 million. We believe the counterclaim is without merit.
Global Entertainment Corporation, PVEC, LLC and two of our directors (James Treliving and Richard Kozuback) are four of sixteen defendants in Allstate Life Insurance Company (Allstate) v. Global Entertainment Corporation et. al. This suit, Case No. CV1962-JWS, was filed in United States District Court, District of Arizona. The litigation relates to the offering for the Bonds, issued to support the construction of the events center in Prescott Valley, Arizona. Allstate is a bond holder and the complaint alleges the bond offering failed to properly disclose certain facts, that the underwriters and certain law firms acted with deliberate recklessness and that the bond documents are defective. Allstate seeks unspecified damages and/or reimbursement of its investment, in excess of $26 million. We believe the claims against Global Entertainment Corporation, PVEC, LLC and the two directors are without merit. Our insurance carrier has been notified. Our insurance carrier has indicated an intention to decline coverage of Global Entertainment Corporation in this matter. Defense costs allocated to Global Entertainment Corporation are being expensed as incurred and defense costs allocated to the directors are being expensed as incurred up to the amount of the applicable deductible ($75 thousand or $100 thousand, depending on how the claim is ultimately classified).
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders was held October 15, 2009. The following nominees were elected to the board of directors to serve as directors until their successors are elected and qualified: W. James Treliving, Richard Kozuback, Michael L. Bowlin, Terry S. Jacobs, Stephen A McConnell, George Melville, Mark Schwartz. Each director was elected by the following vote:
| | For | | | Withheld | |
W. James Treliving | | | 5,162,588 | | | | 8,342 | |
Richard Kozuback | | | 5,162,623 | | | | 8,307 | |
Michael L. Bowlin | | | 5,162,623 | | | | 8,307 | |
Terry S. Jacobs | | | 5,162,623 | | | | 8,307 | |
Stephen A McConnell | | | 5,162,623 | | | | 8,307 | |
George Melville | | | 5,162,623 | | | | 8,307 | |
Mark Schwartz | | | 5,162,665 | | | | 8,265 | |
The shareholders also ratified the appointment of Semple, Marchal & Cooper, LLP as our independent registered public accounting firm for fiscal 2010, by the following vote: 5,150,346 for, 20,500 against and 84 abstaining.
Item 5. Other Information
None.
See Exhibit Index attached.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | GLOBAL ENTERTAINMENT CORPORATION |
| | (Registrant) |
| | |
| | |
| | |
| By | /s/Richard Kozuback |
| | Richard Kozuback |
| | President & Chief Executive Officer |
| | |
| | |
| | |
| By | s/James Yeager |
| | James Yeager |
| | Senior Vice President & Chief Financial Officer |
Exhibit Index
The following exhibits are filed herewith or incorporated herein pursuant to Regulation S-K, Item 601: