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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, 2006.
[ ] 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
Global Entertainment Holdings/Equities, Inc.
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(Name of small business issuer in its charter)
Colorado 47-0811483
- ------------------------------- ------------------
(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
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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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each issuer's classes of common
equity, as of the latest practicable date:
As of May 12, 2006, there were 7,555,244 outstanding shares of the issuer's
common stock, par value $0.001.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
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INDEX
Page No.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - March 31, 2006 (Unaudited)
And December 31, 2005...............................................3
Consolidated Unaudited Statements of Operations - For the
Three Months Ended March 31, 2006 and March 31, 2005................4
Consolidated Unaudited Statements of Cash Flows - For the
Three Months Ended March 31, 2006 and March 31, 2005................5
Notes to Consolidated Unaudited Financial Statements..................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................10
ITEM 3. CONTROLS AND PROCEDURES..............................................14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS....................................................15
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.............................................................15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES......................................15
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS....................15
ITEM 5. OTHER INFORMATION....................................................15
ITEM 6. EXHIBITS.............................................................15
SIGNATURES....................................................................16
CERTIFICATIONS
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,
2006 2005
(unaudited) (see Note 2)
----------- -----------
A S S E T S
Current Assets:
Cash $ 569,376 $ 102,724
Accounts receivable net of
allowance for doubtful accounts 149,491 86,026
Prepaid expenses 46,221 56,604
Other current assets 3,763 5,061
----------- -----------
Total Current Assets 768,851 250,415
Property & Equipment
Office Improvements 22,981 22,981
Computer Equipment 2,595,662 2,590,082
Furniture & Fixtures 265,876 262,028
Other 237,946 234,882
----------- -----------
3,122,465 3,109,973
Less accumulated depreciation 2,728,943 (2,653,909)
----------- -----------
Total Property & Equipment 393,522 456,064
Other Assets
Software developed for licensing, net 1,979,862 1,518,474
Other assets 133,098 133,097
----------- -----------
Total Other Assets 2,112,960 1,651,571
----------- -----------
Total Assets $ 3,275,333 $ 2,358,050
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long term debt $ 296,632 $ 131,937
Accounts payable and accrued expenses 544,931 436,217
Customer deposit 949,375 449,375
Current portion of capital lease
obligation 38,303 64,109
Income Taxes Payable to foreign
jurisdiction 84,802 84,802
Deferred Rent 15,104 16,854
----------- -----------
Total Current Liabilities 1,929,147 1,183,294
----------- -----------
Customer deposits 295,500 295,500
----------- -----------
Total Liabilities 2,224,647 1,478,794
----------- -----------
Stockholders' Equity
Preferred Stock, 25,000,000 Shares Authorized,
None Issued -- --
Common Stock, 100,000,000 Shares Authorized
Par Value of $.001; 7,755,256 and 7,535,256
issued and outstanding, respectively 7,556 7,536
Additional paid in capital 2,259,448 2,242,018
Accumulated deficit (1,216,318) (1,370,298)
----------- -----------
Stockholders' Equity 1,050,686 879,256
----------- -----------
Total Liabilities and
Stockholders' Equity $ 3,275,333 $ 2,358,050
=========== ===========
See accompanying summary of accounting principles and
notes to consolidated financial statements.
3
GLOBAL ENTERTAINMENT HOLDINGS/EQUITIES, INC. & SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended
March 31
--------------------------
2006 2005
----------- -----------
Total Revenues $ 1,035,754 $ 1,056,425
Cost of Sales 401,731 407,684
----------- -----------
Gross Profit 634,023 648,741
Expenses
Depreciation & Amortization 11,217 144,059
Occupancy costs 60,802 57,276
Professional Fees 67,818 19,916
Financial & Investor Relations 16,651 9,619
Administrative Expenses 98,008 86,135
Advertising and Marketing 78,628 49,336
Wages and Salaries 139,557 127,175
----------- -----------
Total Expenses 472,681 493,516
----------- -----------
Income from Operations 161,342 155,225
Other Income(Expenses)
Interest(Expense) (9,369) (29,341)
Interest Income 1,998 828
Other Income(Expense) 9 --
----------- -----------
Total Other Income (Expenses) (7,362) (28,513)
----------- -----------
Income Before Taxes 153,980 126,712
----------- -----------
Net Income $ 153,980 $ 126,712
=========== ===========
Basic and Diluted Earnings Per Share:
Basic Income Per share $ 0.02 $ 0.02
Diluted Income Per Share $ 0.02 $ 0.01
Basic and Diluted Weighted Average Shares:
Basic 7,536,618 7,641,134
Diluted 7,984,942 8,615,963
See accompanying summary of accounting principles and
notes to consolidated financial statements.
4
GLOBAL ENTERTAINMENT HOLDINGS/EQUITIES, INC. & SUBSIDIARIES
Statements of Cash Flows
(Unaudited)
For the Three Months Ended
March 31
----------------------
2006 2005
--------- ---------
Cash Flows from Operating Activities
Net Income $ 153,980 $ 126,712
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities;
Depreciation and Amortization 111,719 188,266
(Gain) Loss on disposal of fixed assets (9) 10,475
Option Expense 8,700 --
Change in Operating Assets & Liabilities
Accounts Receivable (63,465) 74,615
Prepaid Expenses and other assets 11,681 (16,184)
Accounts Payable and Accrued Expenses 108,714 54,954
Deferred Rent (1,750) (14,744)
Other -- 11,433
Customer Deposits 500,000 --
--------- ---------
Net Cash Provided By
Operating Activities $ 829,570 $ 435,527
--------- ---------
Cash Flows from Investing Activities
Purchase of equipment and software (16,014) (40,659)
Development of software (494,843) (289,981)
Proceeds on disposal of equipment 300 --
--------- ---------
Net Cash (Used) in Investing Activities $(510,557) $(330,640)
--------- ---------
Cash Flows from Financing Activities
Payments on capital lease obligations (25,806) (22,007)
Proceeds from notes payable 245,000 50,000
Payment on Notes Payable (80,305) (181,546)
Issuance of Common Stock 8,750 10,000
--------- ---------
Net Cash Provided By (Used In)
Financing Activities $ 147,639 $(143,553)
--------- ---------
Increase (Decrease) in Cash & Cash Equivalents 466,652 (38,666)
Cash & Cash Equivalents at Beginning of Period 102,724 233,456
--------- ---------
Cash & Cash Equivalents at End of Period $ 569,376 $ 194,790
========= =========
Disclosures from Operating Activities:
Interest Expense $ 9,369 $ 29,341
See accompanying summary of accounting principles and
notes to consolidated financial statements.
5
GLOBAL ENTERTAINMENT HOLDINGS/EQUITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006 and 2005
(Unaudited)
NOTE 1 - GENERAL
Global Entertainment Holdings/Equities, Inc. (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
The Company has incurred substantial losses in prior years. Historically, the
Company has relied on operating cash flows for its liquidity. The Company has a
working capital deficiency of $1,160,296. Debt payments of $296,632 and capital
lease obligations of $38,303 are due within the next year. Management has
implemented 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. During this period, the Company obtained
a $200,000 loan from one of its shareholders and a $45,000 loan from its CEO to
cover the Company's working capital needs.
As a result of the foregoing, management has, from time-to-time considered, and
expects to continue to consider, strategic alternatives to maximize shareholder
value. In accordance with this strategy, the Company recently entered into a non
binding letter of intent with Bayshore Media Group, Inc., a recently organized
Nevada company. The primary asset of Bayshore Media Group consists of the
exclusive rights to fourteen full length feature films. The Company is
considering a proposal to acquire all of the outstanding common stock of
Bayshore Media Group from its shareholders in exchange for shares of its
restricted common stock. Concurrent with the proposed acquisition, the Company
would sell all of its assets to its chief executive officer and a group of
shareholders of the Company in consideration of these related parties returning
shares of outstanding common stock to treasury. Such shares would be cancelled.
Completion of the proposed transaction is subject to certain conditions,
including but not limited to, satisfactory completion of due diligence, approval
of each company's board of directors, clearing any regulatory issues and
approval by the Company's shareholders.
6
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, 2006 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2006. The December 31, 2005 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 in the Form 10KSB for the year ended
December 31, 2005.
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.
NOTE 4- DEBT
The Company has the following obligations:
March 31, 2006 December 31, 2005
Notes to shareholders, payable in
monthly installments, bearing interest
at 15% and due in various dates ranging
from June to August 2006 $ 33,285 $ 59,453
Note to shareholder, payable interest
only at 12% in monthly installments,
principal due in full August, 2006 200,000 --
Note to related party due on demand,
bearing interest at 15% 45,000 --
Notes to former shareholder related to
the settlement agreement, payable in
monthly installments, bearing interest
at 10% due on April 7, 2006 18,347 72,484
---------- ---------
$ 296,632 $ 131,937
Less current portion 296,632 131,937
---------- ---------
Long-term debt $ -0- $ -0-
========== =========
7
NOTE 5 - INCOME TAXES
No provision for income taxes has been reflected for the three months ended
March 31, 2006 as the company has sufficient net operating loss carry forwards
to offset taxable income. As of March 31, 2006, the valuation allowance offsets
the total net deferred tax asset balance.
NOTE 6 - STOCK BASED COMPENSATION
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123R, "Share-Based Payment". SFAS No. 123R established standards for the
accounting for transactions in which an entity exchanges its equity instruments
for goods or services. It also addresses transactions in which an entity incurs
liabilities in exchange for goods or services that are based on the fair value
of the entity's equity instrument or that may be settled by the issuance of
those equity instruments. This statement require a public entity to measure the
cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award (with limited
exceptions). That cost will be recognized over the period during which an
employee is required to provide service in exchange for the award.
SFAS No. 123R is effective for all awards granted on or after December 15, 2005
and for awards modified, repurchased, or cancelled after that date. SFAS 123R
requires that compensation cost be recognized on or after the effective date for
the unvested portion of outstanding awards, as of the effective date, based on
the grant-date fair value of those awards calculated under SFAS No. 123,
"Accounting for Stock-Based Compensation." Share-based compensation expenses
include the impact of expensing the fair value of stock options as well as
expenses associated with non-vested share awards. The Company adopted the
provisions of SFAS No. 123R effective January 1, 2006, using the modified
prospective transition method.
Prior to December 15, 2005, the Company applied the intrinsic-valued based
method of accounting prescribed by Accounting Principles Board (APB) Opinion No.
25, "Accounting for Stock Issued to Employees", and related interpretations,
including FASB Interpretation (FIN) No. 44, "Accounting for Certain Transactions
Involving Stock Compensation, an Interpretation of APB Opinion No. 25". Under
this methodology, the Company adopted the disclosure requirements of SFAS No.
123, and recognized compensation expense only if, on the date of grant, the
market price of the underlying stock exceeded the exercise price.
On December 31, 2005, the Company granted stock options and accordingly has
adopted the modified prospective transition method and determines fair value
using the Black-Scholes valuation method. Accordingly, prior periods have not
been restated to reflect stock-based compensation under SFAS 123(R). The Company
recorded the following amounts of stock-based compensation for the three months
ended March 31, 2006:
General and administrative expenses $ 8,700
No income tax benefit has been recorded as the Company has a full valuation
allowance and management has concluded that it is more likely than not that the
net deferred tax asset will not be realized. As of March 31, 2006, there was
approximately $96,000 of total unrecognized compensation costs related to stock
options granted on December 31, 2005. These costs are expected to be recognized
over a 4-year period.
Estimated fair value of options granted during 2005 was estimated on the date of
grant using the Black Scholes model with the following assumptions: Risk-free
interest rate 4% for 2005, dividend yield - 0% for 2005, volatility 161.9% for
2005, and a remaining life of the options ranging from 6 to 10 years for 2005.
There were no options granted during the three month period ending March 31,
2006.
8
The following table illustrates the effect on net income and earnings per share
for the three months ended March 31, 2005 as if the fair valued based
methodology prescribed by SFAS 123 had been applied to all outstanding and
unvested awards:
For the period ended March 31: 2005
---------
Net income available to common shareholders:
As reported $ 126,712
Deduct stock based compensation (6,698)
---------
Pro forma $ 120,014
---------
Basic earnings per share:
Common share as reported 0.02
Common share pro forma 0.02
Diluted earnings per share:
Common share as reported 0.02
Common share pro forma 0.02
NOTE 7 - ECONOMIC DEPENDENCE
One licensee accounted for 100% of consolidated net revenues for the three month
period ended March 31, 2006 and 2005. 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.
Development Software
Management (Netherlands
Services (USA) Antilles) Total
-------------- ------------ ----------
March 31, 2006
Revenues $ -- $1,035,754 $1,035,754
Operating Income(Loss) (32,030) 193,372 161,342
Total Assets 271,674 3,003,659 3,275,333
Depreciation and Amortization 22,625 89,094 111,719
March 31, 2005
Revenues $ 18,000 $1,038,425 $1,056,425
Operating Income(Loss) (53,873) 209,098 155,225
Total Assets 426,895 1,671,075 2,097,970
Depreciation and Amortization 42,900 145,366 188,266
NOTE 9 - CUSTOMER DEPOSITS
During the three months ended March 31, 2006, the Company received $500,000 in
deposits from its Licensee. This deposit is to be applied toward the purchase of
software code by the licensee. The terms of this purchase have not been
finalized.
During the year ended December 31, 2005, the Company received $550,000 in
deposits from its Licensee. Under the terms of the deposits with its Licensee,
$275,000 is payable to the Licensee within six months of acceptance of the
Company's release of its new software, Elements. The balance is due on
termination of the software licensing agreement.
9
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, 2006, 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. However, see the following discussion regarding our outlook.
10
Outlook
- -------
While we have had limited success in reducing our operational expenses and we
continue to examine ways to reduce costs on a going-forward basis, as a public
company we are constantly faced with increasing costs and expenses to comply
with SEC reporting obligations. We will be required in fiscal 2007 to comply
with the new annual internal control certification pursuant to Section 404 of
the Sarbanes-Oxley Act of 2002 and the related SEC rules. We expect that these
and other compliance costs of a public company will increase significantly. In
addition, our stock has historically been, and continues to be, relatively
thinly traded, providing little liquidity for our shareholders. As a result of
the foregoing, we have, from time-to-time considered, and expect from
time-to-time to continue to consider strategic alternatives to maximize
shareholder value. In accordance with this strategy, we recently entered into a
non binding letter of intent with Bayshore Media Group, Inc., a recently
organized Nevada company. The primary asset of Bayshore Media Group consists of
the exclusive rights to fourteen full length feature films. We are considering a
proposal to acquire all of the outstanding common stock of Bayshore Media Group
from its shareholders in exchange for shares of our restricted common stock.
Concurrent with the proposed acquisition, we would sell all of our assets to our
chief executive officer and a group of shareholders of our company in
consideration of these related parties returning shares of our outstanding
common stock to our company's treasury. Such shares would be cancelled.
Completion of the proposed transaction is subject to certain conditions,
including but not limited to, satisfactory completion of due diligence, approval
of each company's board of directors, clearing any regulatory issues and
approval by our shareholders.
Results of Operations
- ---------------------
Revenues for the three months ended March 31, 2006 and 2005 were composed of the
following elements:
2006 2005
---------- ----------
Recurring Licensing Fees $ 776,512 $ 884,866
Initial License Fees -- 2,000
Hosting Services 176,588 164,559
Custom Development
and other income 82,654 5,000
---------- ----------
Total $1,035,754 $1,056,425
Recurring licensing fee income decreased twelve percent to $776,512 from
$884,866 for the three months ending March 31, 2006 compared to 2005. The
difference resulted from a contractual change in our fee structure to our
licensee. Initial licensing fees represent amounts assessed on new installations
for the implementation of our products. Hosting Services increased $12,029 to
$176,588 for the three months ending March 31, 2006 compared to $164,559 for the
three months ending March 31, 2005. This increase is from an increase in
bandwidth purchased by our licensee.
11
The following amounts composed cost of sales for each period:
2006 2005
--------- ---------
Amortization of Proprietary Software $ 100,473 $ 45,851
Bandwidth and network charges 112,135 90,277
Software support and maintenance 39,887 59,387
Salaries 149,236 212,169
--------- ---------
Total $ 401,731 $ 407,684
Cost of sales represented 38.7 percent of sales for the three months ended March
31, 2006, compared to 38.6 percent for the three months ended March 31, 2005.
Software support and maintenance decreased $19,500 from $59,387 for the three
months ending March 31, 2005, to $39,887 for the three months ending March 31,
2006. This decrease occurred as a result of reduced hosting facility costs over
the prior year period.
Expenses decreased $29,535 from $493,516 for the three months ended March 31,
2005, to $472,681 for the three months ended March 31, 2006. This decrease
resulted from reduced depreciation and amortization expense. Professional fees
increased as a result of additional legal and accounting expenses in connection
with the proposed reverse merger transaction. Advertising and Marketing expenses
increased $29,292 in this period over the same period last year as part of our
efforts to expand sales. Administrative expenses increased $11,873 from $86,135
for the three months ending March 31, 2005 to $98,008 for the three months
ending March 31, 2006, as a result of increased expenses in our data processing
department and higher public relation costs.
Interest expense decreased $19,972 from $29,341 for the period ending March 31,
2005 to $9,369 for the period ending March 31, 2006. The decrease resulted from
debt paydown as the loans reached their maturity dates.
Although revenues decreased $20,671 during the current three month period ending
March 31, 2006 compared to the same period ending March 31, 2005, net income
increased $27,268 period on period. This increase in income can be summarized as
resulting from reduced amortization of proprietary software and reduced interest
expense.
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, and on March 15, 2006 our President and CEO lent us $50,000 and $45,000,
respectively, and on January 31, 2006 a shareholder lent us $200,000. These
loans were for general working capital needs. The 2005 loan is due in eighteen
equal installments of $3,119.24 and bears an annual interest rate of fifteen
percent. The 2006 loan is due on demand and bears an annual interest rate of
fifteen percent. At March 31, 2006, we had a negative working capital balance of
$(1,160,296) compared to a negative working capital balance of $(932,879) at
December 31, 2005.
12
3/31/06 3/31/05
-------- --------
Cash and cash equivalents $569,376 $194,790
======== ========
Cash provided by operations $829,570 $435,527
Cash used in investing activities (510,557) (330,640)
Cash provided by (used in) financing 147,639 (143,553)
-------- --------
Net increase (decrease) in cash $466,652 $ (38,666)
======== ========
Net cash provided by operating activities was $829,570 for the three months
ended March 31, 2006 as compared to $435,527 provided by operations for the
three months ended March 31, 2005. The primary source of cash in operations in
the current period was receipt of customer deposit and an increase in accounts
payable and accrued expenses, whereas for the same period in 2005 the primary
source of cash from operations was in the receipt of accounts receivable.
Net cash used in investing activities in the amount of $510,557 and $330,640 for
the three months ended March 31, 2006 and 2005, respectively, represented
primarily the capitalization of software development costs in both periods.
Cash provided by financing activities amounted to $147,639, during the three
months ended March 31, 2006, which primarily was derived from proceeds on notes
payable. This compares to $143,553 used in financing activities during the three
months ended March 31, 2005, which was used in the payment on notes payable.
Our cash balance at March 31, 2006 was $569,376. We believe that the cash on
hand at March 31, 2006, along with cash generated from operations should be
sufficient to meet our operating expenses and working capital needs through the
end of 2006.
One licensee accounted for 100% of consolidated net revenues for the three month
period ended March 31, 2006 and 2005. The loss of this licensee would jeopardize
our ability to continue as a going concern.
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, 2005. The accounting policies used in preparing our
interim 2006 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. Revenue from the licensing of software programs is
recognized when there is persuasive evidence of an arrangement, delivery of
access to the software, the fee is fixed and determined, and collectibility is
probable. The license arrangements are not multiple elements, and license fees
are recorded when the four conditions above are achieved. Once the arrangement
has been contractually agreed upon, there are no customer cancellation
privileges. Fees that we may be entitled to are referred to as software
licensing fees and are recognized at such time as the licensee has earned
revenues through the use of the software and in accordance with the licensing
agreement.
13
Software Development Costs. We follow the guidance provided in Statement of
Financial Accounting Standards No. 86 "Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed" ("SFAS No. 86") regarding
the accounting for the costs of developing its products. Purchased software
(i.e., software acquired from a third party) is recorded at the lower of
acquisition cost or net realizable value. We develop software for licensing to
our customers and capitalize software development costs when technological
feasibility has been established. Technological feasibility generally occurs at
the time a detailed plan is available and programming of the software code may
begin. Software development costs that qualify for capitalization include the
salaries and benefits of the software engineers assigned to the projects, other
direct and indirect costs associated with those salaries and benefits, internal
and external quality assurance testing costs and the costs of outsourced
development activities and independent product testing and certification labs.
Software development costs not qualifying for capitalization are expensed and
classified as maintenance expense in the cost of revenue. Product development
expense and the capitalization rate will fluctuate from period to period
depending upon the number and status of software development projects that are
in process and the related number of people assigned to those projects.
Impairment will be recognized in the period when impairment is deemed by
management to have occurred.
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
As of the end of the period covered by this 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.
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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, 2006, 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 recipient of securities in the transaction represented its 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.
On February 14, 2006, we issued 35,000 shares of common stock for $8,750, at a
per share price of $0.25, to a warrant holder pursuant to a warrant exercise.
These securities were issued in a transaction exempt from registration under the
Securities Act of 1933 in reliance on Section 4(2) of the Securities Act of
1933. The warrant holder was an accredited investor.
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. 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
15
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: May 16, 2006
Global Entertainment Holdings/Equities, Inc.
By: /s/ Bryan P. Abboud
----------------------------------------
Bryan P. Abboud
President, Chief Executive Officer
and Director (Principal Executive Officer)
By: /s/ Clinton H. Snyder
------------------------------------------
Clinton H. Snyder
Chief Financial Officer
(Principal Financial and Accounting Officer)
16