U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 2005.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from ____________ to _____________.
Commission file number: 0-27637
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Global Entertainment Holdings/Equities, Inc.
--------------------------------------------
(Name of small business issuer in its charter)
Colorado 47-0811483
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
703 Waterford Way, Suite 690, Miami, Florida 33126
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (305) 374-2036
--------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of May 6, 2005, there were 7,739,477 outstanding shares of the issuer's
common stock, par value $0.001.
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - March 31, 2005 (Unaudited)
And December 31, 2004...............................................3
Consolidated Unaudited Statements of Operations - For the
Three Months Ended March 31, 2005 and March 31, 2004................4
Consolidated Unaudited Statements of Cash Flows - For the
Three Months Ended March 31, 2005 and March 31, 2004................5
Notes to Consolidated Unaudited Financial Statements..................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.........................................................9
ITEM 3. CONTROLS AND PROCEDURES..............................................11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS....................................................13
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.............................................................13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES......................................13
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS....................13
ITEM 5. OTHER INFORMATION....................................................13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................13
SIGNATURES....................................................................14
CERTIFICATIONS.......................................................15
2
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
GLOBAL ENTERTAINMENT HOLDINGS/EQUITIES, INC. & SUBSIDIARIES
Consolidated Balance Sheets
As of March 31, As of December 31,
2005 2004
(unaudited) (see Note 2)
--------------- ------------------
ASSETS
Current Assets:
Cash $ 194,790 $ 233,456
Accounts receivable net of
allowance for doubtful accounts 377,679 452,294
Prepaid expenses 81,149 64,965
Other current assets 5,125 6,121
----------- -----------
Total Current Assets 658,743 756,836
Property & Equipment
Office Improvements 22,981 42,701
Computer Equipment 2,131,302 2,090,643
Furniture & Fixtures 260,725 260,724
Other 484,777 484,777
----------- -----------
2,899,785 2,878,845
Less accumulated depreciation (2,326,239) (2,193,068)
----------- -----------
Total Property & Equipment 573,546 685,777
Other Assets
Software developed for licensing, net 746,103 501,973
Other assets 119,578 130,015
----------- -----------
Total Other Assets 865,681 631,988
----------- -----------
Total Assets $ 2,097,970 $ 2,074,601
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long term debt $ 690,843 $ 664,946
Accounts payable and accrued expenses 492,805 437,851
Customer deposit 147,000 147,000
Estimated losses on Internet security
service project 116,942 116,942
Current portion of capital lease
Obligation 89,740 90,614
Income Taxes Payable 84,802 84,802
Deferred Rent 22,105 36,849
----------- -----------
Total Current Liabilities 1,644,237 1,579,004
----------- -----------
Capital lease obligations, excluding current
portion 47,866 68,999
Long-term debt 100,427 257,870
----------- -----------
148,293 326,869
----------- -----------
Total Liabilities 1,792,530 1,905,873
----------- -----------
Stockholders' Equity
Preferred Stock, 25,000,000 Shares Authorized,
None Issued -- --
Common Stock, 100,000,000 Shares Authorized
Par Value of $.001; 7,739,477 and 7,639,477
issued and outstanding, respectively 7,740 7,640
Additional paid in capital 2,260,927 2,251,027
Accumulated deficit (1,956,407) (2,083,119)
Treasury Stock, 34,100 shares, at Cost (6,820) (6,820)
----------- -----------
Stockholders' Equity 305,440 168,728
----------- -----------
Total Liabilities and
Stockholders' Equity $ 2,097,970 $ 2,074,601
=========== ===========
See notes to consolidated financial statements.
3
GLOBAL ENTERTAINMENT HOLDINGS/EQUITIES, INC. & SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended
March 31
------------------------------------
2005 2004
------------ ------------
Total Revenues $ 1,056,425 $ 1, 201,913
Cost of Sales 407,684 558,694
------------ ------------
Gross Profit 648,741 643,219
Expenses
Depreciation & Amortization 144,059 123,281
Occupancy costs 57,276 61,030
Professional Fees 19,916 105,709
Financial & Investor Relations 9,619 12,869
Administrative Expenses 86,135 57,601
Advertising and Marketing 49,336 11,266
Wages and Salaries 127,175 257,348
------------ ------------
Total Expenses 493,516 629,104
------------ ------------
Income from Operations 155,225 14,115
Other Income(Expenses)
Interest(Expense) (29,341) (11,009)
Interest Income 828 473
------------ ------------
Total Other Income (Expenses) (28,513) (10,536)
------------ ------------
Income Before Taxes 126,712 3,579
------------ ------------
Net Income $ 126,712 $ 3,579
============ ============
Basic and Diluted Earnings Per Share $ 0.02 $ 0.00
Weighted Average Shares - Basic 7,641,134 10,186,102
Weighted Average Shares - Diluted 7,927,234 10,186,102
See notes to consolidated financial statements.
4
GLOBAL ENTERTAINMENT HOLDINGS/EQUITIES, INC. & SUBSIDIARIES
Statements of Cash Flows
(Unaudited)
For the Three Months Ended
March 31
-----------------------------
2005 2004
--------- ---------
Cash Flows from Operating Activities
Net Income $ 126,712 $ 3,579
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities;
Depreciation and Amortization 188,266 300,112
Provision for bad debts -- 16,700
Loss on disposal of fixed assets 10,475 --
Change in Operating Assets & Liabilities
Accounts Receivable 74,615 (43,895)
Prepaid Expenses and other assets (16,184) (17,414)
Accounts Payable and Accrued Expenses 54,954 (246,773)
Deferred Rent (14,744) (5,831)
Other, Net 11,433 (197)
--------- ---------
Net Cash Provided By
Operating Activities $ 435,527 $ 6,281
--------- ---------
Cash Flows from Investing Activities
Purchase of equipment and software (40,659) (18,784)
Development of software (289,981) (145,320)
--------- ---------
Net Cash (Used) in Investing Activities $(330,640) $(164,104)
--------- ---------
Cash Flows from Financing Activities
Payments on capital lease obligations (22,007) (18,006)
Proceeds from notes payable 50,000 500,000
Acquisition of treasury stock -- (200,000)
Payment on Notes Payable (181,546) (78,541)
Issuance of Common Stock to officer 10,000 --
--------- ---------
Net Cash Provided By (Used In)
Financing Activities $(143,553) $ 203,453
--------- ---------
Increase (Decrease) in Cash & Cash Equivalents (38,666) 45,630
Cash & Cash Equivalents at Beginning of Period 233,456 434,895
--------- ---------
Cash & Cash Equivalents at End of Period $ 194,790 $ 480,525
========= =========
Supplemental Disclosures of Cash Flow Information:
Cash Paid for Interest $ 29,341 $ 7,457
Supplemental Disclosures
Schedule of Noncash Investing and Financing Transactions
During the period ended March 31, 2004, the Company settled a lawsuit with a
former shareholder. The settlement resulted in the Company acquiring the
outstanding shares of the former shareholder in exchange for cash in the amount
of $200,000 and notes payable amounting to $400,911. In addition, the Company
entered into a capital lease agreement for the acquisition of property and
equipment amounting to $38,002.
See notes to consolidated financial statements.
5
GLOBAL ENTERTAINMENT HOLDINGS/EQUITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004
(Unaudited)
NOTE 1 - GENERAL
The Company was incorporated on July 10, 1997, in Colorado as Masadi Resources,
Inc. On February 10, 1998, the name was changed to International Beverage
Corporation. On August 27, 1998, International Beverage Corporation merged with
Global Entertainment Holdings/Equities, Inc., and subsequently the surviving
corporation became known as Global Entertainment Holdings/Equities, Inc.
Principles of Consolidation
The Company currently has two wholly owned subsidiaries; IGW Software NV,
("IGW"), a Netherlands Antilles Corporation in Curacao, Netherlands Antilles,
and Prevail Online, Inc., ("Prevail"), a Colorado Corporation. IGW, is engaged
in the conception and creation of interactive digital entertainment software
programs for the gaming and wagering industry. Prevail, was purchased in August
of 1999 and it is currently inactive. The accompanying consolidated financial
statements include the accounts of the company and its wholly-owned
subsidiaries. Inter-company transactions and balances have been eliminated in
consolidation.
Liquidity
During the year ended December 31, 2004, the Company incurred a substantial
loss. Historically, the Company has relied on operating cash flows for its
liquidity. If revenues do not increase in 2005, this could impact the funds from
operating cash flow and jeopardize the Company's ability to meet current
obligations. In addition, the Company has a working capital deficiency of
$836,168. Debt payment of $664,946 and capital lease obligations of $90,614 are
due within the next year. Management is implementing various cost saving
programs as a result of these factors and believes that third and related party
financing will be available to enable the Company to continue as a going
concern. Additionally, officers of the Company have indicated that they will
provide up to $350,000 of funding to the Company.
NOTE 2 - BASIS OF PRESENTATION
The unaudited financial statements included herein have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all of 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 a fair presentation have
been included. Operating results for the three months ended March 31, 2005 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2005. The December 31, 2004 balance sheet was derived from
audited financial statements, but does not include all disclosures required by
generally accepted accounting principles. Certain information and note
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations relating to interim consolidated
financial statements. For further information, the statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's financial statements and notes thereto included in the Form 10KSB for
the year ended December 31, 2004.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are suppliers of software and hosting services
to the internet gaming industry, but the Company does not manage, operate or own
any gaming or wagering activities or entities. Some governmental jurisdictions,
such as the United Kingdom, have adopted legislation to regulate internet
gaming, whereas others are considering its prohibition. The uncertainty
surrounding the regulation or prohibition of internet gaming could have a
material adverse effect on the Company's business, revenues, operating results
and financial condition.
6
NOTE 4- LONG-TERM DEBT
In February 2005, the Company's CEO advanced $50,000, which is payable in
monthly installments of $3,119 including interest at 15%, and due in August
2006.
In April 2004, the Company entered into financing agreements with a shareholder
and a licensee by which the shareholder advanced the Company $300,000 and
the licensee advanced $200,000. The notes are payable in monthly installments of
$18,295 and $9,229, including interest at 12% and 10%, respectively, and are due
September 2005 and April 2006, respectively.
The proceeds of the notes were used for working capital and as down payment on
the settlement agreement discussed below in Note 9.
Additionally, pursuant to the agreement entered into on March 24, 2004, in
connection with the Company's entry into the internet security service industry,
the Company acquired computer equipment through a long-term debt obligation in
the amount of $234,580. This obligation is payable in monthly installments of
$11,043, including interest at 12% and is due April 2006.
Included in the current portion of long term debt is $232,745 due to
shareholders.
NOTE 5 - INCOME TAXES
No provision for income taxes has been reflected for the three months ended
March 31, 2005 as the company has sufficient net operating loss carry forwards
to offset taxable income. As of March 31, 2005, the valuation allowance offsets
the total net deferred tax asset balance.
NOTE 6 - STOCK BASED COMPENSATION
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation", (SFAS 123), the Company has elected
to account for stock options issued to employees under Accounting Principles
Board Opinion No. 25, (APB 25), and related interpretations. The Company
accounts for stock options issued to consultants and for other services in
accordance with SFAS 123.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123" as amended by FASB Statements No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure" ("SFAS 148")), provides an
alternative to APB 25 in accounting for stock based compensation issued to
employees. SFAS 123 provides for a fair value based method of accounting for
employee stock options and similar equity instruments. However, for companies
that continue to account for stock based compensation arrangements under APB 25,
SFAS 123 requires disclosure of the pro forma effect on net income and earnings
per share as if the fair value based method prescribed by SFAS 123 had been
applied. The Company intends to continue to account for stock based compensation
arrangements under APB No. 25 and has adopted the pro forma disclosure
requirements of SFAS 123.
Had compensation expense been recorded for the Company's awards based on fair
value as calculated using the "Black Scholes" Model at the grant dates
consistent with the methodologies of SFAS No. 123, the Company's reported net
7
income (loss) available to common shareholders and earnings per share would have
been reduced to the pro forma amounts indicated below:
For the period ended March 31: 2005 2004
----------- ---------
Net income available to
common shareholders:
As reported $ 126,712 $ 3,579
Deduct stock based compensation (6,698) (7,941)
----------- ---------
Pro forma $ 120,014 $ (4,362)
----------- ---------
Basic earnings (loss) per share:
Common share as reported 0.02 (0.00)
Common share pro forma 0.02 (0.00)
Diluted earnings (loss) per share:
Common share as reported 0.02 (0.00)
Common share pro forma 0.02 (0.00)
Under SFAS 123, the value of options granted during 2004 and 2003 was estimated
on the date of grant using the Black Scholes model with the following
assumptions: Risk-free interest rate 4% for 2004 and 2003, dividend yield - 0%
for 2004 and 2003, volatility 161.9% and 98.7% for 2004 and 2003, and a
remaining life of the option ranging from 6 to 10 years for 2004 and 2003.
No options were granted during the current period.
NOTE 7 - ECONOMIC DEPENDENCE
One licensee accounted for 100% of consolidated net revenues for the three month
period ending March 31, 2005. In the corresponding period of fiscal year 2004,
77% of consolidated revenues were accounted for by this licensee. The loss of
this licensee would jeopardize our ability to continue as a going concern.
NOTE 8 - SEGMENT INFORMATION
The Company groups its business into two geographic segments; The United States
of America and Curacao, Netherlands Antilles.
Software
Development
Management (Netherlands
Services (USA) Antilles) Total
-------------- ------------ -----------
March 31, 2005
Revenues $ 18,000 $ 1,038,425 $ 1,056,425
Operating Income(Loss) (53,873) 209,098 155,225
Total Assets 426,896 1,671,074 2,097,970
Depreciation and Amortization 42,900 145,366 188,266
March 31, 2004
Revenues $ -- $ 1,201,913 $ 1,201,913
Operating Income(Loss) (743,802) 757,917 14,115
Total Assets 556,869 2,263,604 2,820,473
Depreciation and Amortization 29,309 270,803 300,112
NOTE 9 - SETTLEMENT AGREEMENT
On November 27, 2002, the Company filed a complaint against a shareholder and
former officer for counts of breach of fiduciary duty, fraud, conversion,
business defamation, misappropriation, and declaratory relief.
On March 25, 2004, the Company entered into a settlement agreement in relation
to this matter. The agreement provides for total consideration in cash and notes
payable of $644,000. As part of the settlement, the Company received 2,859,919
shares of its common stock which has been cancelled. The settlement resulted in
a loss of approximately $28,000 which was recognized in the December 31, 2003
financial statements.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
As used herein, the term "Company," "we," "our," and "us" refers to Global
Entertainment Holdings/Equities, Inc., and its subsidiaries and predecessors,
unless otherwise indicated.
Forward-Looking Information
This report contains a number of forward-looking statements, which reflect the
Company's current views with respect to future events and financial performance
including statements regarding the Company's projections, and the interactive
gaming industry. These forward-looking statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from
historical results or those anticipated. In this report, the words
"anticipates", "believes", "expects", "intends", "future", "plans", "targets"
and similar expressions identify forward-looking statements. Readers are
cautioned to not place undue reliance on the forward-looking statements
contained herein, which speak only as of the date hereof. The Company makes no
obligation to publicly revise these forward-looking statements, to reflect
events or circumstances that may arise after the date hereof.
Additionally, these statements are based on certain assumptions that may prove
to be erroneous and are subject to certain risks including, but not limited to,
the Company's dependence on limited cash resources, and its dependence on
certain key personnel within the Company. Accordingly, actual results may
differ, possibly materially, from the predictions contained herein.
Business Overview
- -----------------
We provide business development support and administrative assistance for
technology-driven subsidiaries that license, develop and host interactive
digital entertainment software applications. Our services are technology based
only. We do not manage, operate or own any gaming or wagering activity or
entity.
We generate our operating revenues exclusively from IGW Software, N.V., ("IGW")
our wholly owned subsidiary, a Netherlands Antilles corporation. IGW is engaged
in the development, licensing and hosting of proprietary interactive digital
entertainment software. Other services offered to licensees include custom
software development and professional services. IGW derives its revenues from
licensing fees and consulting services.
Prevail Online, Inc., ("Prevail") our wholly owned subsidiary, a Colorado
corporation, is inactive and during the three months ended March 31, 2005, had
no revenues.
We have created a suite of gaming software products to offer our licensees
better risk management, ease of use and a back office product that simplifies
player and gaming oversight. Our software offers a fully automated online
entertainment experience for the licensee's player. Our online Sportsbook,
Racebook and Casino software systems are complemented by the player Loyalty
software, the Webmaster Affiliate software, wireless access, Interactive Poker
and the Call Center software. All software products are integrated, enabling
players to access all of an operator's affiliated websites seamlessly, using a
single account. This integrated feature results in higher revenues for our
licensees, as a result of giving players easier access to a larger variety of
activities.
9
Outlook
- -------
Revenues for 2005 are expected to be slightly higher in comparison to 2004
levels. We anticipate our growth coming from new licensees. In support of this
goal, we have doubled our projected sales and marketing budget in 2005 compared
to 2004. We have targeted new geographic sales areas and have engaged the
services of an experienced and well known sales and marketing firm in Europe to
assist us in reaching this market.
In an effort to maintain and grow our revenues, we are pursuing several avenues.
Primarily, we are looking at enhancing our product offerings through
co-branding, and/or reselling other gaming products. Additionally, during 2004
and as planned in the first three quarters of 2005, we have and will continue to
devote the majority of our software development efforts to our next generation
platform, a new and dynamic interactive digital entertainment product referenced
as Tyche. With the release of this new product in the third quarter of this
year, we anticipate access to new opportunities as a result of the rich features
and functionality of Tyche.
We continue to reduce and control costs to keep expenses in line with revenues.
Results of Operations
- ---------------------
Revenues for the three months ended March 31, 2005 and 2004 were composed of the
following elements:
2005 2004
---------- ----------
Recurring Licensing Fees $ 884,867 $1,066,645
Initial License Fees 2,000 36,269
Hosting Services 164,559 98,999
Custom Development 5,000 -
---------- ----------
Total $1,056,425 $1,201,913
Recurring licensing fee income decreased seventeen percent to $884,867 from
$1,066,645 for the three months ending March 31, 2005 compared to 2004. The
difference resulted from a change in our fee structure to our licensee and the
loss of a licensee from 2004. Initial licensing fees represent amounts assessed
on new installations for the implementation of our products. Hosting Services
increased $65,560 to $164,559 for the three months ending March 31, 2005
compared to $98,999 for the three months ending March 31, 2004. This increase is
from a reallocation of our fee structure to more appropriately match revenues
with costs.
Cost of sales decreased from 46 percent of sales for the three months ended
March 31, 2004, to 38.6 percent for the three months ended March 31, 2005. The
decrease occurred in our amortization of Proprietary Software, which was due to
the expiration of amortization in 2004 of substantial capitalized costs incurred
in 2001. Software support and maintenance decreased $37,600 from $96,987 for the
three months ending March 31, 2004, to $59,387 for the three months ending March
31, 2005. This decrease occurred as a result of reduced licensing costs from
third parties. The following amounts composed cost of sales for each period:
10
2005 2004
--------- ---------
Amortization of Proprietary Software $ 45,851 $ 177,766
Bandwidth and network charges 90,277 95,841
Software support and maintenance 59,387 96,987
Salaries 212,169 188,100
--------- ---------
Total $ 407,684 $ 558,694
Expenses decreased $135,588 from $629,104 for the three months ended March 31,
2004, to $493,516 for the three months ended March 31, 2005. This decrease
resulted from reduced Professional fees and lower Wages and Salaries expenses.
Professional fees decreased as a result of reduced legal services. Advertising
and Marketing expenses increased $38,070 in this period over the same period
last year as part of our efforts to expand sales. Administrative expenses
increased $28,534 from $57,601 for the three months ending March 31, 2004 to
$86,135 for the three months ending March 31, 2005, as a result of increased
expenditures in our data processing infrastructure. Wages and Salaries decreased
$130,173 for the three months ended March 31, 2005 compared to the same period
in 2004, as a result of cost cutting measures taken in reduced staffing.
Interest expense increased $18,332 from $11,009 for the period ending March 31,
2004 to $29,341 for the period ending March 31, 2005. The increase was a result
of additional financing incurred to support working capital loans and the
acquisition of treasury stock during 2004.
Although revenues decreased $145,488 during the current three month period
ending March 31, 2005 compared to the same period ending March 31, 2004, net
income increased $123,133 period on period. This increase in income can be
summarized as resulting from reduced amortization of proprietary software,
reduced legal expenses and reduced wages and salaries.
Liquidity and Capital Resources
- -------------------------------
Our principal source of short term liquidity is from operating cash flow. A
substantial decrease in revenues could impact the funds from operating cash flow
and jeopardize our ability to meet current obligations. We do not have a credit
line or any alternative means of short term funding. However, on February 14,
2005, our President and CEO lent us $50,000 for general working capital needs.
The loan is due in eighteen equal installments of $3,119.24 and bears an annual
interest rate of fifteen percent. At March 31, 2005, we had a negative working
capital balance of $(985,502) compared to a negative working capital balance of
$(822,168) at December 31, 2004.
3/31/05 3/31/04
-------- --------
Cash and cash equivalents $194,790 $480,525
======== ========
Percent of total assets 9% 17%
=== ===
Cash provided by operations $435,527 $ 6,281
Cash used in investing activities (330,640) (164,104)
Cash provided by (used in) financing (143,553) 203,453
-------- --------
Net increase (decrease) in cash $(38,666) $ 45,630
======== ========
11
Net cash provided by operating activities was $435,527 for the three months
ended March 31, 2005 as compared to $6,281 provided by operations for the three
months ended March 31, 2004. The primary source of cash in operations in the
current period was receipt of accounts receivable and an increase in accounts
payable, whereas for the same period in 2004 the primary source of cash from
operations was the result of non cash items, principally depreciation offset by
payment of accounts payable.
Net cash used in investing activities in the amount of $330,640 and $164,104 for
the three months ended March 31, 2005 and 2004, respectively, represented
primarily the capitalization of software development costs in both periods.
Cash used in financing activities amounted to $143,553, during the three months
ended March 31, 2005, which primarily went to pay notes payable. This compares
to $203,453 provided by financing activities during the three months ended March
31, 2004, which was generated from the proceeds of new loans in the amount of
$500,000 offset by payments on existing notes of $78,541 and the acquisition of
treasury stock in the amount of $200,000.
Our cash balance at March 31, 2005 was $194,790. We believe that the cash on
hand at March 31, 2005, along with cash generated from operations should be
sufficient to meet our operating expenses and working capital needs through the
end of 2005.
Critical Accounting Policies and Estimates
- ------------------------------------------
Our significant accounting policies are described in Note 1 to the consolidated
financial statements included in our annual report filed in form 10-KSB for the
year ended December 31, 2004. The accounting policies used in preparing our
interim 2005 consolidated financial statements are the same as those described
in our annual report.
We believe the critical accounting policies listed below affect significant
judgments and estimates used in the preparation of our consolidated financial
statements, although they are not all inclusive.
Revenue Recognition. We recognize revenues in accordance with the provisions of
the American Institute of Certified Public Accountants' Statement of Position
(SOP) 97-2, "Software Revenue Recognition," as amended by SOP 98-4 and SOP 98-9,
as well as Technical Practice Aids issued from time to time by the American
Institute of Certified Public Accountants, and in accordance with the Securities
and Exchange Commission Staff Accounting Bulletin No. 101, "Revenue Recognition
in Financial Statements." We license software under non-cancelable agreements
and provide related professional services, including consulting, training, and
implementation services, as well as ongoing support and maintenance. Consulting
and training services are not essential to the functionality of our software
products.
Software Development Costs. Software development costs are expensed as incurred
until technological feasibility is established. Software development costs
incurred subsequent to establishing technological feasibility are capitalized
and amortized over their three year estimated useful lives. Management is
required to use professional judgment in determining whether development costs
meet the criteria for immediate expense or capitalization.
Allowance for Doubtful Accounts. We maintain allowances for doubtful accounts
for estimated losses resulting from the inability of our licensees to make
required payments. If the financial condition of our licensees were to
deteriorate, resulting in an impairment of their ability to make payments,
12
additional allowances may be required or revenue could be deferred until
collectibility becomes probable.
Contingencies. We are subject to the possibility of various loss contingencies
in the normal course of business. We accrue for loss contingencies when a loss
is estimable and probable.
ITEM 3. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Within 90 days prior to the filing of this quarterly report, the Company's Chief
Executive Officer and its Chief Financial Officer evaluated the Company's
disclosure controls and procedures as required pursuant to Rule 13a-14 under the
Securities and Exchange Act of 1934, as amended. Under rules promulgated by the
SEC, disclosure controls and procedures are defined as those "controls or other
procedures of an issuer that are designed to ensure that information required to
be disclosed by the issuer in the reports filed or submitted by it under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Commission's rules and forms." Based on this
evaluation, the Chief Executive Officer and Chief Financial Officer determined
that such controls and procedures are effective in timely alerting them to
material information relating to the Company required to be included in the
Company's periodic SEC filings. There were no changes in internal controls over
financial reporting that occurred during our last fiscal quarter that have
materially affected or are reasonably likely to affect our internal controls
over financial reporting.
13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Sales of Unregistered Securities
- --------------------------------
During the three month period ended March 31 2005, as more fully set forth
below, we issued and sold unregistered securities which sales have not
previously been reported. An underwriter was not utilized in this transaction.
The recipients of securities in the transaction represented their intention to
acquire the securities for investment and without a view to distribution. Each
of the certificates representing the issued securities have been stamped with a
legend restricting the transfer of the securities prepared thereby. All sales of
securities were to accredited investors in private placements, and accordingly
all of the sales complied with Sections 3, 4(2) and 4(6) of the Securities Act
of 1933.
On March 28, 2005, we sold 100,000 shares of common stock for $10,000, at a per
share price of $0.10, to a private investor who is serving as our Chief
Information Officer under a contract we have with his employer. These securities
were issued in a transaction exempt from registration under the Securities Act
of 1933 in reliance on Sections 3, 4(2) and 4(6) of the Securities Act of 1933.
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibits marked with an asterisk have been filed previously with the Commission
and are incorporated herein by reference.
EXHIBIT
NO. DESCRIPTION
- ------- -----------
3.1 * Articles of Incorporation
3.2 * Bylaws
31.1 Certification of CEO Pursuant to Section 302 of Sarbanes-Oxley Act
of 2002
31.2 Certification of CFO Pursuant to Section 302 of Sarbanes-Oxley Act
of 2002
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
(b) The Company filed the following reports on Form 8-K during the quarter for
which this form is filed:
None
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this Quarterly Report on
Form 10-QSB to be executed on its behalf by the undersigned, hereunto duly
authorized.
Date: May 20, 2005
Global Entertainment Holdings/Equities, Inc.
/s/ Bryan P. Abboud
- -------------------
Bryan P. Abboud
President, Chief Executive Officer
and Director (Principal Executive Officer)
/s/ Clinton H. Snyder
- ---------------------
Clinton H. Snyder
Chief Financial Officer
(Principal Financial and Accounting Officer)
16