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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
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-18303
GOLF ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-2990598
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2500 Northwinds Parkway
Three Northwinds Center, Suite 175
Alpharetta, Georgia 30004-2245
(Address of principal executive offices)
(Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports 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 [ ]
There were 5,841,711 shares of Common Stock ($0.01 par value) outstanding as of
July 21, 2000.
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GOLF ENTERTAINMENT, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
For the Quarter ended June 30, 2000
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants' Report - Goldstein
Golub Kessler LLP 3
Consolidated Balance Sheets at June 30, 2000 and
December 31, 1999 (Unaudited) 4-5
Consolidated Statements of Operations for the six
months ended June 30, 2000 and 1999 (Unaudited) 6
Consolidated Statements of Cash Flows for the six
months ended June 30, 2000 and 1999 (Unaudited) 7
Notes to Consolidated Financial Statements (Unaudited) 8-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Submission of Matters to a Vote of Securities Holders 13
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants' Report
The Board of Directors and Stockholders
Golf Entertainment, Inc.
We have reviewed the accompanying consolidated balance sheet of Golf
Entertainment, Inc. and Subsidiaries as of June 30, 2000, and the related
consolidated statements of operations, and cash flows for the six month period
then ended. These financial statements are the responsibility of the company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
statements consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
/s/ Goldstein Golub Kessler LLP
New York, New York
August 11, 2000
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GOLF ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2000 1999
(Unaudited) (Audited)
----------- ------------
ASSETS
CURRENT ASSETS
Cash $ 834 $ 23,945
Prepaid expenses 14,205 --
Notes and accounts receivable-other 61,417 329,833
-------- ----------
Total Current Assets 76,456 353,778
-------- ----------
FURNITURE AND EQUIPMENT-net of accumulated
depreciation of $141,875 and $124,611 at June
30, 2000 and December 31, 1999, respectively 148,638 226,075
-------- ----------
OTHER ASSETS
Assets related to discontinued operations 445,741 1,030,333
-------- ----------
TOTAL ASSETS $670,835 $1,609,886
======== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
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GOLF ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2000 1999
------------ ------------
(Unaudited) (Audited)
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 157,780 $ 82,710
Accrued expenses 52,389 168,597
Current maturities of long-term debt 2,771 2,636
------------ ------------
Total Current Liabilities 212,940 253,943
------------ ------------
LONG-TERM DEBT 11,509 12,930
------------ ------------
OTHER LIABILITIES
Liabilities related to discontinued operations 154,750 667,675
Other liabilities 57,254 57,254
------------ ------------
Total Other Liabilities 212,004 724,929
------------ ------------
TOTAL LIABILITIES 436,453 991,802
------------ ------------
STOCKHOLDERS' EQUITY
Series A preferred stock, $0.01 par value, 1,000,000
shares authorized, 380,000 shares issued, 228,516
shares outstanding 2,285 2,285
Common stock, $0.01 par value, 25,000,000 shares
authorized, 5,841,711 and 3,201,711 shares issued
and outstanding at June 30, 2000 and December
31, 1999, respectively 58,417 32,017
Additional paid-in capital 11,628,150 10,914,470
Accumulated deficit (11,254,470) (10,330,688)
Deferred compensation (200,000) --
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 234,382 618,084
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 670,855 $ 1,609,886
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
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GOLF ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
--------------------------------- ---------------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Revenue $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------
Cost of revenue -- -- -- --
Selling, general and administrative 207,524 -- 535,665 --
Settlement of legal proceedings 17,500 -- 292,433 --
Depreciation and amortization 14,812 -- 30,151 --
Interest expense, net 4,283 -- 2,424 --
------------ ------------ ------------ ------------
244,119 -- 860,673 --
------------ ------------ ------------ ------------
Loss from continuing operations (244,119) -- (860,673) --
Income/(loss) from discontinued
operations 21,126 (294,874) (76,646) (743,988)
Gain on discontinued operations 15,837 -- 15,837 --
------------ ------------ ------------ ------------
Net loss $ (207,156) $ (294,874) $ (923,782) $ (743,988)
============ ============ ============ ============
Loss per share from continuing
operations $ (0.05) $ -- $ (0.20) $ --
Income/(loss) from discontinued
operations $ 0.01 $ (0.17) $ (0.01) $ (0.45)
Loss per common share -
basic and diluted $ (0.04) $ (0.17) $ (0.21) $ (0.45)
Weighted average shares
outstanding 4,924,147 1,763,646 4,339,699 1,655,888
The accompanying notes are an integral part of these consolidated financial
statements.
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GOLF ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
---------------------------------
June 30, June 30,
2000 1999
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(923,782) $ (743,988)
Adjustments to reconcile net loss to cash provided by
(used in) operating activities:
Depreciation and amortization 59,109 2,061,950
Stock compensation expense 200,000 37,500
Issuances of stock for services and settlements 135,080 --
Gain on disposals (4,305) --
Gain on discontinued operations (15,837) --
Change in assets and liabilities due to operating activities:
Decrease in accounts receivable 5,891 1,992,635
Decrease in inventory 19,721 603,286
Increase in prepaid expenses (14,205) --
Increase (decrease) in accounts payable (111,812) (568,779)
Decrease in accrued liabilities (153,265) (314,764)
Decrease in other operating activities 17,624 1,706
Increase in deferred compensation (200,000) --
--------- -----------
Total adjustments (61,699) 3,813,534
--------- -----------
Net cash provided by (used in) operating activities (861,783) 3,069,546
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales and disposals of off-lease inventory 6,605 7,530
Purchases of inventory for lease -- (856,176)
Sales and disposals of furniture and equipment 405,685 --
Purchases of furniture and equipment (725) --
Payments received on notes receivable 68,583 --
Decrease (increase) in notes receivable 199,833 (21,783)
Additions to net investment in sales-type and direct
financing leases -- (1,353,470)
Sales-type and direct financing lease rentals received 167,962 1,771,569
--------- -----------
Net cash provided by (used in) investing activities 847,943 (452,330)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from nonrecourse and recourse discounted
lease rentals -- 2,616,604
Payments on nonrecourse and recourse discounted
lease rentals (115,941) (4,568,881)
Proceeds from notes payable 3,555 79,176
Payments on notes payable (177,887) (1,120,035)
Proceeds from sale of stock 405,000 230,830
--------- -----------
Net cash provided by (used in) financing activities 114,727 (2,762,306)
--------- -----------
Net decrease in cash (23,111) (145,090)
Cash at beginning of period 23,945 391,705
--------- -----------
Cash at end of period $ 834 $ 246,615
========= ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 2,307 $ 884,241
Income taxes $ -- $ --
The accompanying notes are an integral part of these consolidated
financial statements.
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GOLF ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements are
condensed and do not include all information required by generally accepted
accounting principles to be included in a full set of financial statements. The
unaudited condensed consolidated financial statements include the accounts of
Golf Entertainment, Inc. and its wholly owned subsidiaries, collectively
referred to as the "Company".
All material intercompany accounts and transactions have been
eliminated. Certain reclassifications have been made to prior periods' amounts
to conform to current period presentation. The information furnished reflects
all adjustments, which are, in the opinion of the Company, necessary to present
fairly its financial position, the results of its operations and its cash flows
for the six months ended June 30, 2000 and 1999. It is suggested that this
report be read in conjunction with the Company's audited financial statements
included in the Annual Report on Form 10-K for the fiscal year ended December
31, 1999. The operating results and cash flows for the six-month period
presented are not necessarily indicative of the results that will be achieved
for the full fiscal year or for future periods.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial reporting period and the reported amount of revenue and
expenses. Actual results could differ from those estimates.
Note 2. Earnings per Common Share
Earnings per common share are based on the weighted average number of
common shares outstanding during each period presented. Weighted average basic
and diluted common shares outstanding for the three months ended June 30, 2000
and 1999 were 4,339,699 and 1,655,888 respectively. Vested and unvested options,
warrants and convertible preferred stock were not included in the computation of
dilutive EPS because the effect of doing so would be antidilutive.
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Note 3. Notes Payable
Notes payable consist of the following at: June 30, December 31,
2000 1999
-------- ------------
Term note payable to Northwinds
Center, LP, payments of $340 including
interest at 10%, due October 31, 2004 14,280 15,566
====== ======
Note 4. Assets and Liabilities Related to Discontinued Operations
Excluded from the sale of the leasing portfolio on December 31, 1999, the
Company retained certain assets and liabilities related to its former leasing
line of business. The assets and liabilities related to discontinued operations
are as follows:
June 30, December 31,
2000 1999
------------ ------------
Inventory, net of reserve for obsolescence $ 147,700 $ 150,000
Investment in leased assets, sales-type 298,041 466,002
Furniture and equipment, net of accumulated depreciation -0- 370,795
Other assets -0- 43,536
------------ ------------
$ 445,741 $ 1,030,333
============ ============
Accounts payable and accrued expenses $ -0- $ 223,938
Notes payable 154,750 443,737
------------ ------------
$ 154,750 $ 667,675
============ ============
On May 24, 2000, Traditions Acquisition Corporation, a wholly owned subsidiary
of Golf Entertainment, Inc., ceased to do business. Traditions Acquisition
Corporation ceased all operations of the Traditions Golf Club in Edmond,
Oklahoma and began procedures to dissolve. The subsidiary's recorded assets of
$387,353 and recorded liabilities of $403,190 were written down to $-0-.
Pursuant to the terms of the lease agreement, by which Traditions Acquisition
Corporation had leased the Traditions Golf Club facility, all future lease
payments would become due from Traditions Acquisition Corporation upon
termination of that lease. The owner of the facility terminated the lease
agreement effective May 23, 2000. The total remaining lease liability of
Traditions Acquisition Corporation is $888,000. This liability is not guaranteed
by Golf Entertainment, Inc. Traditions Acquisition Corporation is currently in
the process of dissolution.
Note 5. Supplemental Disclosures of Noncash Investing and Financing Activities
During the six months ended June 30, 2000, the Company issued 75,000 shares of
common stock in exchange for services valued at $73,830 and 215,000 shares of
common stock in settlement of an outstanding legal proceeding valued at $61,250.
The Company issued 1,000,000 shares of common stock in lieu of compensation for
the Chief Executive Officer for the six months, July 1, 2000 through December
31, 2000, valued at $200,000.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
Golf Entertainment, Inc. and its subsidiaries, unless otherwise noted,
(collectively, the "Company" or "Golf") is currently in the business of
developing and acquiring businesses in the golf industry as it relates to the
Internet ".com" sector.
Mr. Ronald G. Farrell introduced in late 1998 a plan to re-orient the
Company from the equipment leasing business to the golf industry, including
owning and operating golf courses, as well as other golf related businesses. On
February 17, 1999, the stockholders of the Company approved the issuance of
convertible debentures to an investment company managed by Mr. Farrell, as well
as the change of the Company's name to Golf Entertainment, Inc. The Company sold
substantially all of the assets associated with its former line of business
(business equipment leasing) in December 1999. In mid 1999, the Company acquired
an interest in a golf facility in Edmond, Oklahoma, which the Company dissolved
in the second quarter 2000. The Company has refocused its golf business in the
first quarter of 2000 to emphasize opportunities relating to the sale of golf
businesses through the Internet.
Results of Operations
For the six months and three months ended June 30, 2000, the selling,
general and administrative costs of the corporate headquarters were $529,135 and
$200,994, respectively. Expenses of $6,530 related to the Company's web site
development and marketing plan were paid during the second quarter of the year.
Depreciation related to corporate operations was $30,151 and $14,812,
respectively. Interest expense, net of interest income, related to corporate
operations was $2,424 and $4,283, respectively. Management is maintaining a cost
control plan which went into place during the first quarter of 2000 which will
reduce even further overhead expenses.
During the six months ended June 30, 2000, management has been
successful in settling substantially all outstanding legal proceedings. The
total settlement costs of $292,433 are a combination of cash to be paid over the
balance of the year, the issuance of common stock and the cancellation of
certain promissory notes. See PART II, Item 1 - Legal Proceedings.
On June 1, 2000, the Company sold certain of its office furniture and
equipment to a company whose principal shareholder is Ronald G. Farrell. The
office furniture and equipment was sold for $47,702 in cash. The sale price was
equal to the net carrying value of the assets, which approximated the true
market value. The Company did not realize a gain or loss on the transaction.
Subsequently, the Company entered into a rental agreement for the office
furniture and equipment with Mr. Farrell's company on a month-to-month basis.
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For the six months and three months ended June 30, 2000, the Company
sold some of its off-lease inventory and received financing income from payments
made by the lessor of its remaining sales-type leases. The Company reported
income of $11,037 and $2,916, respectively, from the results of these
transactions. This amount in included in Discontinued Operations.
On May 23, 2000, the owner of the Traditions Golf Club facility in
Edmond, Oklahoma terminated the operating lease for the facility. Traditions
Acquisition Corporation ceased doing business as of May 24, 2000. For the
twenty-one weeks ended May 23, 2000, the revenues from the Company's golf
facility in Edmond, Oklahoma were $253,234. The cost of revenue for the same
period was $42,690. The overhead expenses, depreciation and interest related to
the golf facility were $261,906, $28,958 and $9,663, respectively. These amounts
are included in Discontinued Operations. Substantially all of Traditions
Acquisition Corporation's liabilities are not guaranteed by Golf Entertainment,
Inc. or any of its other subsidiaries. Traditions Acquisition Corporation is
currently in the process of dissolution.
As a result of the foregoing, the Company recorded a net loss of
$923,782 and $207,156 for the six months and three months ended June 30, 2000,
respectively, as compared to a net loss of $743,988 and $294,874 for the six
months and three months ended June 30, 1999, respectively.
Management believes that with the disposition of its leasing and golf
range business that the Company is poised for increased growth through its
current operations and future acquisitions.
Liquidity and Capital Resources
The Company's cash requirements for operations and capital expenditures
during the six months ended June 30, 2000 were financed through the proceeds
from the sale of common stock, lease rental and note receivable payments, sale
and subsequent leaseback of furniture and equipment, and operations of the golf
course facility.
Secondly, the Company may sell the remaining $600,000 of an original
$1,500,000 offering of 6% Convertible Debentures to LEC Acquisition LLC, whose
managing member is the president of the Company.
Thirdly, the Company entered into an agreement in June 2000 with Sports
M&A.com, Inc., whose Chief Executive Officer is the president of the Company,
for the sale of $1,500,000 of 6% Convertible Debentures.
Fourthly, the Company's Chairman and Chief Executive Officer elected to
take 1,000,000 shares of the Company's stock in lieu of compensation for third
and fourth quarters of fiscal 2000.
The Company anticipates proceeds from the sale of these debentures
during the second half of fiscal 2000. Thus management believes that it will
have adequate capital resources to continue its operations at the present level
for at least the next twelve months.
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Future Plans
The Company has begun to focus on the Internet business as it relates
to the golf industry. The Company has developed its own web site and is
evaluating other opportunities for acquisition. The Company has engaged an
Internet development company to design and host its first web site, GolfBZ.com.
GolfBZ.com's business objective is to market golf related business on the
Internet on a fee basis. The Company will list business for sale and market them
to potential buyers. The Company launched the web site on July 21, 2000 with
more than $20,000,000 in listings. To fully develop the golf Internet business,
the Company will need substantially more cash. The Company expects to obtain
those funds from public or private sources of equity investment or debt
issuances, or combinations thereof. Failure to raise additional capital will
adversely affect the Company's plans.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Certain statements herein and in the future filings by the Company with
the Securities and Exchange Commission and in the Company's written and oral
statements made by or with the approval of an authorized executive officer
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
and the Company intends that such forward-looking statements be subject to the
safe-harbors created thereby. The words and phrases "looking ahead", "we are
confident", "should be", "will be", "predicted", "believe", "expect" and
"anticipate" and similar expressions identify forward-looking statements. These
and other similar forward-looking statements reflect the Company's current views
with respect to future events and financial performance, but are subject to many
uncertainties and factors relating to the Company's operations and business
environment which may cause the actual results of the Company to be materially
different from any future results expressed or implied by such forward-looking
statements. Examples of such uncertainties include, but are not limited to,
changes in customer demand and requirements, the availability and timing of
external capital, interest rate fluctuations, changes in federal income tax laws
and regulations, competition, unanticipated expenses and delays in the
integration of newly-acquired businesses, industry specific factors and
worldwide economic and business conditions. With respect to economic conditions,
a recession can cause customers to put off leisure time activities and adversely
affect the Company's revenue. The Company undertakes no obligation to publicly
update or revise any forward-looking statements whether as a result of new
information, future events or otherwise.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On July 1, 1999, the former chief executive officer of the Company and
another former employee of the Company filed a Complaint for Arbitration before
the American Arbitration Association. The Complaint claims the Plaintiffs were
improperly terminated by the Company, and that they are entitled to an
unspecified amount of actual and punitive damages. On or about July 22, 1999,
the Company answered, denying the allegations and submitting counterclaims
against the former chief executive officer for failure to repay monies owed and
breaches of other duties to the Company. On the same day, the Company answered
the other former employee's Complaint, and denied the allegations of that other
former employee. On May 3, 2000, the Company agreed to settle the arbitration
for $30,000 in cash and 175,000 shares of the Company's common stock and
cancellation of certain promissory notes issued by one of the plaintiffs. As of
July 14, 2000, the Company has paid the settlement in full.
During the second quarter of 1999, disputes with two former owners of
one of the Company's subsidiaries were settled and the Company issued 210,000
shares of common stock. In addition, the Company has an additional reserve for
the cash portion of the settlement of $8,850 and $10,000 as of June 30, 2000 and
December 31, 1999, respectively. On April 14, 2000, a judgement was entered in
favor of one of the former owners of one of the Company's subsidiaries that is
included in discontinued operations for $11,350. The Company has a liability
remaining of $8,850 as of July 14, 2000.
During the second quarter of 2000, a former creditor of the Company
filed suit against the Company seeking an unspecified amount of approximately
$150,000 for unpaid invoices. Subsequent to the end of the second quarter, the
Company reached a settlement agreement with the plaintiff's attorney to issue
the plaintiff 40,000 shares of the Company's stock, valued at $17,500, as full
settlement of claims made against the Company related to the suit.
The Company is also involved in legal proceedings from time to time in
the ordinary course of its business. There are no such currently pending
proceedings, which are expected to have a material adverse effect on the
Company.
Item 2. Submission of Matters to a Vote of Securities Holders
None.
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Item 5. Other Information
Since February 4, 1999, LEC Acquisition LLC has exercised warrants to
purchase $735,000 face amount of 6% Convertible Debentures and immediately
exercised its option to convert such debentures into 2,450,000 shares of the
Company's restricted common stock. As of July 21, 2000, LEC Acquisition LLC is
registered owner of 2,724,599 shares of the Company's common stock. Mr. Farrell,
as the managing member of LEC Acquisition LLC, exercises voting control over
shares held by LEC Acquisition LLC. Additionally, pursuant to the terms of the
operating agreement of the LLC, RGF Investments, Inc., a member of the LLC, will
receive and Mr. Farrell may receive shares of Common Stock at such time as the
LLC distributes shares of Common Stock to its members. Mr. Farrell has
disclaimed beneficial ownership of shares owned by LEC Acquisition, LLC.
On August 17, 1999, the Company was notified by the Nasdaq SmallCap
Market that the Company did not comply with the bid price requirement, as set
forth in Nasdaq Marketplace Rule 4310 (c) (04). On January 28, 2000, the
Company's common stock was delisted and became immediately eligible to trade on
the OTC Bulletin Board. Currently, the Company's common stock is trading on the
Nasdaq OTC Bulletin Board.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EX-27.1 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
None.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOLF ENTERTAINMENT, INC.
(Registrant)
Date: August 11, 2000 /s/ Ronald G. Farrell
----------------------------------------------
Ronald G. Farrell
Chief Executive Officer
(Principal Executive Officer)
Date: August 11, 2000 /s/ Scott A. Lane
----------------------------------------------
Scott A. Lane
Chief Financial Officer
(Principal Financial and Accounting Officer)
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