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 February 28, 2009
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 000-50643
GLOBAL ENTERTAINMENT CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 86-0933274
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1600 N Desert Drive, Suite 301, Tempe, AZ 85281
(Address of principal executive offices) (Zip Code)
(480) 994-0772
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark if the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act.): Yes [ ] No [X]
At February 28, 2009, 6,627,112 shares of Global Entertainment Corporation
common stock were outstanding.
GLOBAL ENTERTAINMENT CORPORATION
INDEX
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED FEBRUARY 28, 2009
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets - As of February 28, 2009
(Unaudited) and May 31, 2008 3
Condensed Consolidated Statements of Operations (Unaudited) - Three
and Nine Months Ended February 28, 2009 and February 29, 2008 4
Condensed Consolidated Statements of Changes in Stockholders'
Equity - Year Ended May 31, 2008 and Nine Months Ended
February 28, 2009 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended February 28, 2009 and February 29, 2008 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 20
Item 3. Quantitative and Qualitative Disclosures about Market Risk 28
Item 4T. Controls and Procedures 28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 29
Item 1A. Risk Factors 29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 29
Item 3. Defaults upon Senior Securities 29
Item 4. Submission of Matters to a Vote of Security Holders 29
Item 5. Other Information 29
Item 6. Exhibits 29
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GLOBAL ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF FEBRUARY 28, 2009 (UNAUDITED) AND MAY 31, 2008
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
February 28, May 31,
2009 2008
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,233 $ 443
Accounts receivable, net of $64 and $2 allowance at
February 28, 2009 and May 31, 2008 1,681 1,111
Prepaid expenses and other assets 498 239
Investment in Wenatchee project -- 34,473
Assets to be disposed -- 2,167
-------- --------
TOTAL CURRENT ASSETS 3,412 38,433
Property and equipment, net 801 266
Goodwill 519 519
Deferred income tax asset 112 --
Other assets 316 108
Minority interests 25 38
-------- --------
TOTAL ASSETS $ 5,185 $ 39,364
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,108 $ 7,718
Accrued liabilities 929 750
Deferred revenues 238 24
Notes payable - current portion 109 27,220
Liabilities related to assets to be disposed -- 233
-------- --------
TOTAL CURRENT LIABILITIES 2,384 35,945
Deferred income tax liability 117 117
Notes payable - long-term portion 97 180
-------- --------
TOTAL LIABILITIES 2,598 36,242
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - $.001 par value; 10,000,000 shares
authorized; no shares issued or outstanding -- --
Common stock - $.001 par value; 50,000,000 shares
authorized; 6,627,112 and 6,625,114 shares issued and outstanding
as of February 28, 2009 and May 31, 2008 7 7
Paid-in capital 10,953 10,930
Accumulated deficit (8,373) (7,815)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 2,587 3,122
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,185 $ 39,364
======== ========
The accompanying notes are an integral part of
the condensed consolidated financial statements.
3
GLOBAL ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 28, 2009 AND FEBRUARY 29, 2008
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
February 28, February 29, February 28, February 29,
2009 2008 2009 2008
----------- ----------- ----------- -----------
REVENUES:
Project development fees $ 100 $ 317 $ 578 $ 523
Project management fees 247 132 1,473 376
Facility management fees 1,067 783 2,240 2,482
Ticket service fees 766 1,039 2,081 2,993
Advertising sales commissions 115 150 493 629
Concession revenue 282 -- 412 --
License fees - league dues and other 517 616 1,407 1,653
License fees - intial and transfer 443 -- 443 430
----------- ----------- ----------- -----------
TOTAL REVENUES 3,537 3,037 9,127 9,086
----------- ----------- ----------- -----------
OPERATING COSTS:
Cost of revenues 1,939 1,590 4,337 4,862
General and administrative costs 1,681 1,405 4,897 6,195
----------- ----------- ----------- -----------
TOTAL OPERATING COSTS 3,620 2,995 9,234 11,057
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (83) 42 (107) (1,971)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 6 13 18 89
Interest expense (47) (13) (408) (21)
Minority interests (18) -- (13) (20)
----------- ----------- ----------- -----------
TOTAL OTHER INCOME (EXPENSE) (59) -- (403) 48
----------- ----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (142) 42 (510) (1,923)
INCOME TAX BENEFIT -- 107 -- 107
----------- ----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS (142) 149 (510) (1,816)
LOSS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES -- (72) (48) (218)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (142) $ 77 $ (558) $ (2,034)
=========== =========== =========== ===========
EARNINGS(LOSS) PER SHARE:
Basic-
Income (loss) from continuing operations $ (0.02) $ 0.02 $ (0.08) $ (0.28)
Loss from discontinued operations -- (0.01) -- (0.03)
----------- ----------- ----------- -----------
Net income (loss) $ (0.02) $ 0.01 $ (0.08) $ (0.31)
=========== =========== =========== ===========
Diluted-
Income (loss) from continuing operations $ (0.02) $ 0.02 $ (0.08) $ (0.28)
Loss from discontinued operations -- (0.01) -- (0.03)
----------- ----------- ----------- -----------
Net income (loss) $ (0.02) $ 0.01 $ (0.08) $ (0.31)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 6,627,112 6,541,598 6,626,072 6,518,491
=========== =========== =========== ===========
Diluted 6,627,112 6,542,004 6,626,072 6,518,491
=========== =========== =========== ===========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
4
GLOBAL ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED MAY 31, 2008 AND THE NINE MONTHS ENDED FEBRUARY 28, 2009
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Common Stock
------------------------ Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
BALANCE AT MAY 31, 2007 6,508,173 $ 7 $ 10,731 $ (3,784) $ 6,954
Exercise of options 13,941 -- -- -- --
Issuance of common stock for restricted
stock 3,000 -- -- -- --
Stock-based compensation - restricted stock -- -- 36 -- 36
Issuance of stock 100,000 -- 163 -- 163
Net loss for the fiscal year ended
May 31, 2008 -- -- -- (4,031) (4,031)
--------- ------- --------- --------- ---------
BALANCE AT MAY 31, 2008 6,625,114 7 10,930 (7,815) 3,122
Issuance of common stock for restricted
stock 1,998 -- -- -- --
Stock-based compensation - restricted stock -- -- 23 -- 23
Net loss for the nine months ended
February 28, 2009 -- -- -- (558) (558)
--------- ------- --------- --------- ---------
BALANCE AT FEBRUARY 28, 2009 6,627,112 $ 7 $ 10,953 $ (8,373) $ 2,587
========= ======= ========= ========= =========
The accompanying notes are an integral part of
the condensed consolidated financial statements.
5
GLOBAL ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009 AND FEBRUARY 29, 2008
(UNAUDITED) (IN THOUSANDS)
Nine Months Ended
-------------------------------
February 28, February 29,
2009 2008
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (558) $ (2,034)
Adjustments to reconcile net loss to net cash
used in operating activities -
Depreciation 127 100
Unbilled earnings on Wenatchee project (555) (352)
Provision for doubtful accounts 270 71
Issuance of stock to vendor -- 163
Other non-cash items 36 3
Discontinued operations and related impairment charges 5 (61)
Changes in assets and liabilities, net of businesses
acquired and disposed -
Accounts receivable (810) 316
Income taxes receivable -- (75)
Prepaid expenses and other assets (473) 72
Accounts payable (944) (490)
Accrued liabilities 179 (67)
Deferred revenues 214 92
-------- --------
Net cash used in operating activities (2,509) (2,262)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Wenatchee project (23,023) (17,119)
Proceeds from sale of Wenatchee project 52,400 --
Deposit of restricted cash (1,250) --
Release of restricted cash 1,250 --
Proceeds from disposition of Cragar, net of expenses 1,790 --
Purchase of property and equipment (674) (119)
Proceeds from sale of property and equipment - Cragar -- 21
-------- --------
Net cash provided by (used in) investing activities 30,493 (17,217)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable proceeds 22,031 16,200
Notes payable payments (49,225) (16)
-------- --------
Net cash provided by (used in) financing activities (27,194) 16,184
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 790 (3,295)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 443 4,252
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,233 $ 957
======== ========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 408 $ 8
======== ========
Income taxes paid (received) $ -- $ --
======== ========
The accompanying notes are an integral part of
the condensed consolidated financial statements.
6
GLOBAL ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
BASIS OF PRESENTATION AND USE OF ESTIMATES
- --------------------------------------------------------------------------------
DESCRIPTION OF THE COMPANY
Global Entertainment Corporation (referred to in this report as "we," "us,"
"Global,", "Company" or "GEC") is an integrated event and entertainment company
that is engaged, through its wholly owned subsidiaries, in sports management,
multipurpose events center and related real estate development, facility and
venue management and marketing, and venue ticketing. We are primarily focused on
projects located in mid-size communities in the United States.
Our current operating subsidiaries are Western Professional Hockey League, Inc.,
Global Properties I, International Coliseums Company, Inc., Global Entertainment
Marketing Systems, Inc., Global Entertainment Ticketing, Encore Facility
Management, and Global Food Service, LLC, which formed in fiscal 2009. In
addition, facility management operations are conducted under separate wholly
owned limited liability companies.
We, through our wholly owned subsidiary, Western Professional Hockey League,
Inc., are the operator of the Western Professional Hockey League (WPHL), a minor
league professional hockey organization, and are the licensor of the
independently owned hockey teams which participate in the league. WPHL has
entered into a joint operating agreement with the Central Hockey League, Inc.
(CHL, Inc.). The effect of the joint operating agreement is that the two leagues
had their respective teams join together and operate under the Central Hockey
League name (as the League). The terms of the joint operating agreement define
how the League will operate.
The League is a structured licensed sports league, which includes competing
teams located in various states, including Texas, Colorado, Kansas, Louisiana,
Mississippi, South Dakota, New Mexico, Oklahoma, and Arizona. There are 17 teams
in the 2008-09 season and there were 17 teams in the 2007-08 season. In each
season 13 teams were licensed by WPHL. In each season, 4 teams, each of which
was an original CHL, Inc. team, continue to operate under a sanction agreement
that requires direct payments to the League pursuant to the terms and conditions
of the original CHL, Inc. agreements.
Global Properties I (GPI) provides services in targeted mid-sized communities
across the United States related to the development of multipurpose events
centers. International Coliseums Company, Inc. (ICC), manages the construction
of multipurpose events centers in mid-market communities. GPI's development of
multipurpose events centers promotes the development of the League by assisting
potential licensees in securing quality venues in which to play minor
professional hockey league games.
Global Entertainment Marketing Systems, Inc. (GEMS), promotes, markets, and
sells various services related to multipurpose entertainment facilities,
including all contractually obligated income (COI) sources such as facility
naming rights, luxury suite sales, club seat license sales, and facility
sponsorship agreements.
Global Entertainment Ticketing (GetTix) provides ticketing services for the
multipurpose event centers developed by GPI, existing League licensees, and
various other entertainment venues, theaters, concert halls, and other
facilities and event coordinators. GetTix provides a full ticketing solution by
way of box office, phone, internet and print-at-home service that utilizes
distribution outlets in each market. GetTix uses third-party, state-of-the-art
software to deliver ticketing capabilities that include database flexibility,
easy season and group options, financial reporting and marketing resources.
7
Encore Facility Management (Encore) provides a full complement of multipurpose
events center operational services. These services provide administrative
oversight in the areas of facility/property management and finance, event
bookings, and food and beverage. Encore is currently involved with facility
management of multipurpose events centers developed by GPI. Facility management
operations are conducted under separate limited liability companies.
Global Food Service, LLC, formed in fiscal 2009, manages the food service
operations at the Wenatchee, Washington facility.
On August 1, 2008, we closed a transaction pursuant to which we sold
substantially all of the assets of our subsidiary Cragar Industries, Inc.
(Cragar), a licensor of an automotive aftermarket wheel trademark and brand -
CRAGAR(R). The assets consisted primarily of intangible property, including
trademarks, service marks and domain names. The purchase price was approximately
$1.9 million in cash. Of the cash proceeds, $0.1 million was used for
transaction-related costs and $1.25 million was aside in a restricted account as
security for a letter of credit until December 2008. The remainder of the funds
was made available for working capital and general corporate purposes.
BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of Global
Entertainment Corporation and its wholly owned subsidiaries, WPHL, GPI, ICC,
GEMS, Encore, GetTix, Global Food Service, LLC and Cragar, as well as the
limited liability companies formed for facility management. Intercompany
balances and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q. Accordingly, they
do not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for fair presentation have been included.
Operating results for the three and nine month periods ended February 28, 2009,
are not necessarily indicative of the results that may be expected for the year
ending May 31, 2009, or for any other period.
For further information, refer to the financial statements and footnotes
included in our report on Form 10-K for the year ended May 31, 2008.
Certain reclassifications are reflected in prior periods for the purpose of
consistent presentation.
USE OF ESTIMATES
Management uses estimates and assumptions in preparing financial statements in
accordance with accounting principles generally accepted in the United States.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results may vary from the estimates that
were assumed in preparing the condensed consolidated financial statements.
Significant accounting policies are described in the audited consolidated
financial statements and notes thereto included in our Report on Form 10-K for
the year ended May 31, 2008, as supplemented by the following:
* Project development fees are fees earned for services such as
feasibility studies, cost analyses, vendor identification and contract
negotiation support. Project development fees are recognized when
persuasive evidence of an arrangement exists, services have been
rendered, the fee is fixed and determinable, and collectability is
reasonably assured. If a project proceeds to construction these fees
are typically recognized at or prior to ground breaking, but not prior
to a contract for the services being executed.
8
* We account for stock-based compensation in accordance with Statement
of Financial Accounting Standards No. 123R, "Share-Based Payment". We
recognize compensation cost for stock-based awards issued after March
1, 2006, over the requisite service period for each separately vesting
tranche, as if multiple awards were granted. Compensation cost is
based on grant-date fair value using quoted market prices for our
common stock.
We believe our critical accounting policies and material estimates include, but
are not limited to, revenue recognition, the allowance for doubtful accounts,
arena guarantees, the carrying value of goodwill, the realization of deferred
income tax assets, the fair value of liability related to the secondary
guarantee related to a worker's compensation program, and the allocation of
expenses, division of profit or loss relating to the joint operating agreement,
and the application of the percentage-of-completion method. Due to the
uncertainties inherent in the estimation process and the significance of these
items, it is at least reasonably possible that the estimates in connection with
these items could be materially revised within the next year.
RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements". The
statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. We adopted this statement prospectively effective
June 1, 2008, and there was no impact on our financial position or results of
operations.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities". This statement permits entities to
choose to measure many financial instruments and certain other items at fair
value. An entity shall report unrealized gains and losses on items for which the
fair value option has been elected in earnings at each subsequent reporting
date. We adopted this statement prospectively effective June 1, 2008 and there
was no impact on our financial position or results of operations. We have not
elected the fair value option for any eligible items.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51". This statement
establishes accounting and reporting standards for noncontrolling interests in a
subsidiary and for the deconsolidation of a subsidiary. The statement also
provides consolidated income statement presentation guidance and requires
expanded disclosures. This statement is effective for our fiscal year beginning
June 1, 2009, and interim periods within that year. The statement will be
applied prospectively, except for the presentation and disclosure requirements,
which will be applied retrospectively for all periods presented. We have not yet
evaluated the effect this statement will have on our financial position or
results of operations.
In November 2007 the EITF issued EITF 07-01 "Accounting for Collaborative
Agreements". This consensus prohibits application of the equity method of
accounting to activities performed outside of a separate legal entity and
requires revenues and costs incurred with third parties in connection with
collaborative agreements be presented gross or net based on other applicable
accounting literature. Payments to or from collaborators should be presented in
the income statement based on the nature of the arrangement, whether the
payments are within the scope of other accounting literature, and certain other
criteria. The consensus is required for our fiscal year beginning June 1, 2009.
We have not yet evaluated the effect this statement will have on our financial
position or results of operations.
- --------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE (EPS)
- --------------------------------------------------------------------------------
Basic earnings (loss) per share of common stock is computed by dividing the net
income (loss) by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings (loss) per share is computed by
dividing net income (loss) by the weighted average number of shares of common
stock and dilutive securities outstanding during the period. Dilutive securities
are not included in the weighted average number of shares when inclusion would
increase the income per share or decrease the loss per share. The computation of
9
diluted EPS equals the basic calculation in each period presented because common
stock equivalents were antidilutive due to losses from continuing operations for
each of the periods presented.
Reconciliations of the numerators and denominators in the EPS computations for
loss from continuing operations follow:
Three Months Ended Nine Months Ended
----------------------------- ----------------------------
February 28, February 29, February 28, February 29,
2009 2008 2009 2008
---------- --------- ---------- ----------
NUMERATOR (in thousands):
Basic and diluted - income (loss) from continuing
operations $ (142) $ 149 $ (510) $ (1,816)
========== ========== ========== ==========
DENOMINATOR:
Basic EPS - weighted average shares outstanding 6,627,112 6,541,598 6,626,072 6,518,491
Effect of dilutive securities -- 406 -- --
---------- ---------- ---------- ----------
Diluted EPS - weighted average shares outstanding 6,627,112 6,542,004 6,626,072 6,518,491
========== ========== ========== ==========
Number of shares of common stock which could be
purchased with average outstanding securities not
included in diluted EPS because effect would be antidilutive -
Stock options (average price of $5.00 and $4.95 for 305,333 396,719 344,906 493,606
the three and nine months ended February 28, 2009)
Warrants (average price of $6.79 and $6.57 for 235,800 275,760 253,365 275,760
the three and nine months ended February 28, 2009)
Restricted stock 30,500 14,500 25,467 19,932
The impacts of all outstanding options, warrants and restricted stock
outstanding at February 28, 2009, were not included in the calculation of
diluted EPS for the three and nine months ended February 28, 2009, because to do
so would be antidilutive. Outstanding options, warrants and restricted stock
could potentially dilute EPS in the future.
In February 2008, we issued 100,000 shares of common stock, valued at $1.63 per
share, in connection with a settlement agreement. The shares were valued at the
quoted market price of our common stock on the date of settlement.
- --------------------------------------------------------------------------------
INVESTMENT IN WENATCHEE PROJECT
- --------------------------------------------------------------------------------
We provided construction management services under an agreement with the City of
Wenatchee, Washington, related to a multi-purpose events center in that city.
Investment in Wenatchee on the condensed consolidated balance sheets represented
costs and estimated earnings in excess of billings on this construction project,
which we owned until the facility was sold to the Greater Wenatchee Regional
Events Center Public Facilities District (PFD) in December 2008. Costs
associated with the project, including all direct and indirect costs, including
contract supervision and interest during the construction period, were being
recorded as investment in Wenatchee project until the facility was completed in
the first week of October 2008. Accumulated capitalized interest, as of the date
of sale, totaled $1.6 million.
Revenues earned on this project were recorded based on the ratio of costs
incurred to the total costs expected to be incurred. For this purpose, only
costs related to performance under the contract were considered. This
cost-to-cost method was used because management believed costs were the best
available measure of our progress on the fixed-price contract, which could have
been modified by incentive and penalty provisions. As of the date of sale,
investment in Wenatchee project consisted of costs incurred of $50.6 million and
estimated earnings of $1.8 million. Under the terms of our construction
management agreement, we were not able to bill the City for our services and
received our revenue out of the proceeds from the sale of the facility. Earnings
10
of $1.6 million have been included in project management fees and estimated
earnings of $0.2 million have been included project development fees in the
condensed consolidated statements of operations from the start of the project
through the date of sale.
Although construction of the facility was substantially completed in the first
week of October 2008, we had not yet made final payment to certain construction
vendors. Resolution of these negotiations resulted in reductions in the revenue
on this project during the quarter ended February 28, 2009, of less than $0.1
million.
At February 28, 2009 and May 31, 2008, approximately $0.1 million and $5.9
million of payables related to expenditures on the project were included in
accounts payable.
- --------------------------------------------------------------------------------
NOTES PAYABLE
- --------------------------------------------------------------------------------
As of February 28, 2009, notes payable consists entirely of a note payable we
entered into in fiscal year 2008, in connection with settlement of a legal
matter. The note calls for 36 payments of $10 thousand monthly through December
2010. We recorded the present value of the payments, discounted at 7.0%, as
notes payable and general and administrative costs. The note had an initial
present value of $0.3 million.
Our note with Marshall Financial Group, LLC (Marshall) to borrow up to $52.0
million for the construction of a multi-purpose events center in Wenatchee,
Washington, was paid in full when the PFD purchased the facility in December
2008. The outstanding principal balance of the note bore interest at a rate of
prime plus 0.25%. Interest on the Marshall note accumulated monthly and
increased both notes payable and investment in Wenatchee project in the
condensed consolidated balance sheet until construction concluded in October
2008. After construction, we expensed $0.3 of interest on the note in the
quarter ended November 30, 2008 and expensed less than $0.1 million of interest
on the note in the quarter ended February 28, 2009.
We have a $1.75 million line of credit that had a maturity of November 1, 2008,
but has been amended, and now matures October 1, 2009. The line of credit bears
interest at a daily adjusting LIBOR rate plus 2%, subject to certain
adjustments. As of February 28, 2009, and through the date of this filing, we
have received no cash advances on this credit facility. Effective June 2008, we
are required to deposit cash in the amount of any requested cash advances or
letter of credit issuances. We deposited $1.25 million of the proceeds from the
disposition of Cragar with the bank in August 2008, as additional security for
the letter of credit. These funds were restricted, and unavailable to us, while
the letter of credit was outstanding. The letter of credit was surrendered by
Marshall when we repaid our construction loan in December 2008. As amended, the
line of credit is available to support up to $1.25 million in letters of credit.
The credit facility has been secured by substantially all of our tangible and
intangible assets. In order to borrow, we must meet certain financial covenants,
including maintaining a minimum current ratio (current assets compared to
current liabilities) of 1.05 as of the end of each fiscal quarter, a minimum
consolidated tangible net worth of $1.75 million as of the date of the
amendment, November 1, 2008, and an increase in tangible net worth of at least
75% of consolidated net income plus 100% of all increases of equity (including
the amount of any stock offering or issuance) on each anniversary date after May
31, 2009. We must maintain a zero balance for a consecutive 30 day period during
the term of the facility. As of February 28, 2009, we were in compliance with
the covenants.
- --------------------------------------------------------------------------------
JOINT OPERATING AGREEMENT
- --------------------------------------------------------------------------------
Pursuant to a joint operating agreement dated July 2001, CHL, Inc., which was
the operator of the Central Hockey League, and WPHL, Inc., which was the
operator of WPHL, agreed to operate the leagues jointly under the trade name
"Central Hockey League", as the "League". The joint operating agreement, as
modified in June 2008, provides that operations are to be governed by an
11
oversight board consisting of five members, two of whom are designated by CHL,
Inc., two of whom are designated by WPHL, Inc., and one of whom is designated
jointly. Despite this agreement, each of WPHL, Inc. and CHL, Inc. remain
separate and distinct legal entities and maintain separate books and records,
and are solely responsible for their own obligations. We own no interest in CHL,
Inc. WPHL, Inc., our wholly-owned subsidiary, performs all operating functions
of the League. Revenues from League assessment fees and corporate sponsorships
are included in our consolidated revenue and League operating costs are included
in our costs of sales and general and administrative expenses.
Net income from hockey operations is defined under the joint operating agreement
generally as revenues from assessment fees and corporate sponsorships less
operating costs from hockey operations. Pursuant to the joint operating
agreement, net income from hockey operations is allocated to WPHL, Inc. and CHL,
Inc. according to the percentage of revenue, as defined, from teams originated
by each league that operated during the year. If expenses exceed operating
revenue in any given period, losses are allocated to WPHL, Inc. and CHL, Inc. on
a pro rata basis according to the percentage of teams originated by each league
that operated during the year in which the loss occurs. Expansion fees, net of
costs, generated from the grant of new licenses generally are allocated 50% to
the league determined to have originated the team and 50% to operating revenue
to be divided according to the allocation formula described above.
The joint operating agreement also provides that ICC will have the sole and
exclusive right to construct arena facilities for participation in the leagues
during the term of the agreement.
The joint operating agreement, as modified in June 2008, requires the leagues to
operate jointly as the League through May 30, 2021. Under the terms of the
modification, CHL, Inc.'s purchase option has been eliminated and WPHL and CHL,
Inc. each now have a right of first refusal to purchase the other's interests if
a bona-fide third party offer to purchase the entire interest is received.
- --------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
- --------------------------------------------------------------------------------
PURCHASE COMMITMENTS
We have open purchase commitments for services, furniture and fixtures totaling
less than $0.1 million at February 28, 2009.
LITIGATION
As with all entertainment facilities there exists a degree of risk that the
general public may be accidentally injured. As of February 28, 2009, there were
various claims outstanding in this regard that management does not believe will
have a material effect on our financial condition or results of operations. To
mitigate this risk, we maintain insurance coverage, which we believe effectively
covers any reasonably foreseeable potential liability. There is no assurance
that our insurance coverage will adequately cover all liabilities to which we
may be exposed.
We are a plaintiff and a counter-defendant in a lawsuit involving our
franchisee, Blue Line Hockey, LLC (Blue Line), which operates the Youngstown
Steelhounds. Our claim was for approximately $0.1 million in unpaid franchise
and assessment fees owed by Blue Line, plus our attorneys' fees. Blue Line's
counterclaim alleged that the WPHL fraudulently induced Blue Line's principal to
enter the license agreement by failing to comply with franchise disclosure
requirements, and that the WPHL made fraudulent representations to induce Blue
Line into signing the franchise agreement. Blue Line sought rescission of the
license agreement, reimbursement of its franchise fee, $0.5 million of lease
payments, and reimbursement of travel expenses for the 2005-2006 season. We
settled this matter in March 2009, and reserved for the cash settlement in the
third quarter of fiscal 2009.
The following summarizes litigation settlement activity for the three and nine
months ended February 28, 2009 and February 29, 2008:
12
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
February 28, February 29, February 28, February 29,
2009 2008 2009 2008
------ ------ ------ ------
Litigation settlement liabilities, beginning of period $ (232) $ (834) $ (283) $ (93)
Litigation settlement expense - initial reserves (25) -- (25) (841)
Litigation settlement expense - adjustments to reserves -- 263 -- 263
Cash payments 26 100 77 200
Issuance of stock in settlement of litigation -- 163 -- 163
------ ------ ------ ------
Litigation settlement liabilities, end of period $ (231) $ (308) $ (231) $ (308)
====== ====== ====== ======
CONTINGENCIES
We enter into indemnification provisions under our agreements with other
companies in the ordinary course of business, typically with business partners
and customers. Under these provisions we generally indemnify and hold harmless
the indemnified party for losses suffered or incurred by the indemnified party
as a result of our activities. The maximum potential amount of future payments
we could be required to make under these indemnification provisions is
unlimited. We have not incurred material costs to defend lawsuits or settle
claims related to these indemnification agreements. As a result, we believe the
estimated fair value of these agreements is minimal. Accordingly, we have no
liabilities recorded for these agreements as of February 28, 2009.
As of February 28, 2009, we have entered into various employment contracts with
key employees. Under certain circumstances we may be liable to pay amounts based
on the related contract terms.
GUARANTEES
We had entered into a contract with the entertainment facility in New Mexico
which guaranteed certain economic performance standards. Although the term of
this contract was for an initial period of 10 years to expire in December 2014,
we provided notice of termination of the management contract in January 2009.
In February 2008, we entered into an agreement to manage a multi-purpose event
center to be constructed in Texas. The initial term of this agreement is fifteen
years, with an option by the city to renew for an additional five years under
certain conditions. This agreement includes a guarantee that the event center
will operate at a break-even point and without cost to the city, not including
any capital reserves and any other off-sets described in the agreement. This
guarantee requires that all amounts reasonably required for the operation and
maintenance of the event center will be generated by the operation of the event
center, or otherwise paid by us. Should we be obligated to fund any operational
shortfalls, the agreement provides for reimbursement to us from future profits
from the event center. The maximum amount of future payments we could be
required to make under this operational guarantee is theoretical due to various
unknown factors. However, the guarantee would be limited to the operational loss
from the facility for each year of the guarantee, less any reimbursements from
the facility. We do not believe that any potential guarantee payments would be
material based on the operating results of similar facilities. The facility is
expected to open in the fall of 2009.
In May 2008, we entered into an agreement to manage a multi-purpose event center
to be constructed in Missouri. The initial term of this agreement ends fifteen
years from facility opening, and the city may renew the agreement for an
additional five years under the same terms. The facility is expected to open in
the fall of 2009 and has an operating year ended June 30. Our compensation under
the agreement may only come from the facility operating account, which is to be
funded by facility operations, as defined in the agreement. The management
agreement includes a guarantee that we will subsidize the operations of the
facility to the extent that funds in the facility operating account and a
temporary operating account are not adequate. Under the terms of the agreement
the city shall advance $0.5 million to fund a temporary operating reserve
account, which may be used to fund shortfalls in the facility operations
account. Excess funds in the facility operating account each operating year,
after paying operating expenses, our base Encore fee and GEMS commission, are to
be used in the following priority: 1) to reimburse us for any subsidy payments
we have made, 2) to replenish the temporary operating reserve account, 3) to
fund the capital reserve account and 4) to pay on a co-equal basis our incentive
fee and deposits to three additional reserve accounts. The maximum amount of
13
future payments we could be required to make under the guarantee is theoretical
due to various unknown factors. However, once the temporary operating reserve
account is depleted, the guarantee subsidy payments would be limited to the
operational loss each operating year, plus the amount of our Encore and GEMS
fees. We do not expect to make guarantee subsidy payments based on operating
results of similar facilities, however, no assurance can be made that a payment
pursuant to this guarantee would not be paid in the future and that such payment
would not be material.
In addition, under the terms of the management agreement, an amount not to
exceed $0.50 per ticket, and excess operating funds, are to be used to fund a
capital reserve account up to $150 thousand in each of the first five operating
years and up to $250 thousand thereafter. Should the capital reserve account not
be fully funded for two consecutive years, the management agreement terminates,
unless the city elects to renew the agreement.
As of February 28, 2009, we provide a secondary guarantee on a standby letter of
credit in favor of Ace American Insurance Company for $1.5 million related to a
guarantee under a workers compensation program. This letter of credit is fully
collateralized by a third party and our secondary guarantee of this letter of
credit does not affect our borrowing capacity under our line of credit. No
amounts have been drawn on this letter of credit as of February 28, 2009. We
believe the amount of payments under this guarantee is negligible, and as such,
have assigned no value to this guarantee at February 28, 2009.
In addition to our commitments and guarantees described above we also have the
commitments and guarantees described in the following PVEC, LLC Joint Venture
Note.
- --------------------------------------------------------------------------------
PVEC, LLC JOINT VENTURE
- --------------------------------------------------------------------------------
During fiscal year 2006, we entered into a joint venture partnership agreement
with Prescott Valley Signature Entertainment, LLC to form Prescott Valley Events
Center, LLC (PVEC, LLC) to engage in the business of developing, managing, and
leasing the Prescott Valley Events Center in Prescott Valley, Arizona. We are
the managing member of PVEC, LLC. Construction of the center, which opened in
November 2006, was funded by proceeds from the issuance of $35 million in
Industrial Development Authority of the County of Yavapai Convention Center
Facilities Excise Tax Revenue Bonds, Series 2005 (the Bonds).
We account for our investment in PVEC, LLC under the equity method. Our interest
in this entity is not a controlling one, as we do not own a majority voting
interest and our ability to affect the business operations is significantly
limited by the partnership operating agreement. The PVEC, LLC operating
agreement also provides that a majority-in-interest of the members may replace
the managing member, or if the managing member is in default, a
majority-in-interest of the remaining members may replace the managing member.
We contributed $250 thousand as initial preferred capital while Prescott Valley
Signature Entertainment, LLC contributed land with an approximate value of $1.5
million as initial preferred capital. Because we had committed to pay our
initial capital contributions, these amounts were recorded in accounts payable
in our condensed consolidated balance sheets as of May 31, 2008. Payment was
made in December 2008. Further, because PVEC, LLC has sustained losses, and
profitable future operation is not assured, we recorded losses on our
investment, in the amount of $251 thousand, to bring our investment to zero. Our
investment was zero at May 31, 2008, and remains zero at February 28, 2009.
Each member will receive a 5% return on preferred capital contributions and will
share equally in the gain or loss of PVEC, LLC.
PVEC, LLC is obligated to make lease payments equal to debt service payments on
the Bonds. In the event of any shortfalls in debt service payments, amounts will
first be paid by escrow accounts funded by 2% of the transaction privilege tax
(TPT) collected from the surrounding project area and from a lockbox account
containing 1) our initial contribution to PVEC of $250 thousand, 2) $100
thousand per year (increasing annually by inflation) from the Town of Prescott
Valley and 3) earnings from the events center.
14
If it is determined that PVEC, LLC is required to fund operations, beyond
available cash from operations and other financing sources, the members intend
to contribute 100% of the cash needed until each member's preferred capital
account balances are equal and 50% of the cash needed if its preferred capital
contribution balances are equal. Operating revenues of the center, as defined,
are first used to pay operating expenses, as defined, second to our base
management fee (4% of the center's operating revenue), third to debt service,
then to fund other items. As a result, we may also forego our management fees
should operating revenues, as defined, be insufficient to pay operating
expenses, as defined.
Our consolidated financial statements reflect the following related to
transactions between us and PVEC, LLC (in thousands).
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
February 28, February 29, February 28, February 29,
2009 2008 2009 2008
------ ------ ------ ------
Facility management fees, exclusive of payroll (Encore) $ 19 $ 22 $ 48 $ 24
Facility management fees, payroll related (Encore) 199 226 525 688
Advertising sales commission (GEMS) 49 56 135 186
Ticket service fees (GetTix) 31 61 103 164
Cost of revenues, facility payroll (Encore) 199 226 525 688
February 28, May 31,
2009 2008
------ ------
Accounts payable $ 19 $502
Accrued liabilities 4 --
Accounts receivable -- 101
- --------------------------------------------------------------------------------
DISCONTINUED OPERATIONS
- --------------------------------------------------------------------------------
On August 1, 2008, we closed a transaction under which we sold substantially all
of the assets of Cragar Industries, Inc. (Cragar), a licensor of an automotive
aftermarket wheel trademark and brand name - CRAGAR(R). The assets consisted
primarily of intangibles, including trademarks, service marks and domain names.
The net cash purchase price of $1.8 million was allocated primarily to the
trademarks, with the remainder to tooling, inventory and other assets.
15
The assets and liabilities of Cragar, included in our condensed consolidated
balance sheets in assets to be disposed and liabilities related to assets to be
disposed are as follows (in thousands):
May 31,
2008
------
Receivables $ 116
Prepaid expenses and other assets 154
Deferred income tax asset 134
Trademarks 1,763
------
Assets to be disposed $2,167
======
Accounts payable $ 37
Accrued liabilities 120
Deferred income tax liabiliy 22
Deferred revenues 54
------
Liabilities related to assets to be disposed $ 233
======
We expect other cash flows from Cragar in fiscal 2009 to consist primarily of
the collection of receivables and payment of liabilities existing as of the
August 1, 2008, date of sale, which were largely unchanged from those existing
at May 31, 2008.
The following table presents selected operating data for Cragar (in thousands):
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
February 28, February 29, February 28, February 29,
2009 2008 2009 2008
------ ------ ------ ------
Revenues $ -- $ 136 $ 60 $ 602
Loss on disposal -- -- (51) --
Loss before income taxes -- (72) (48) (218)
Loss from discontinued opertions, net of tax -- (72) (48) (218)
- --------------------------------------------------------------------------------
CREDIT RISK
- --------------------------------------------------------------------------------
The current general unfavorable economic environment may have a significant
impact on our operating results.
The League operates primarily in mid-sized communities in the Central, Western
and Southern regions of the United States, including Texas, Colorado, Kansas,
Mississippi, Louisiana, New Mexico, Oklahoma, South Dakota and Arizona. Our
facility management fees are derived from events centers operating in Arizona
and Washington. These geographic areas are generally in an economic downturn
that could have a significant negative impact on our operating results.
We depend on contracts with cities or related governmental entities to design,
develop, and manage new multipurpose facilities and adjacent real estate.
Typically we must expend 20-30 months of effort to obtain such contracts. We
depend on these contracts for the revenue they generate and the facilities
resulting from these contracts are potential facilities in which our licensees
may operate. Failure to timely secure these contracts may negatively impact our
results. Many governments are struggling to maintain tax revenue and raise
capital in the current economic environment and may have less interest in
developing new multipurpose facilities. Our revenues, project development and
project management revenue in particular, could be negatively impacted.
Purchasing a League license requires significant capital and commencing
operation is a significant expense which limits the pool of potential licensees
We depend on a critical mass of licensees to capture the economies of scale
16
inherent in the League's operations and to facilitate intra-league play. There
can be no assurance that we will be able to attract qualified candidates for
licenses. We anticipate that expansion of the League will be difficult because
of the high capital costs of licenses, competitive pressures from sports leagues
and entertainment providers both within and outside of the markets where we
currently operate, and the lack of arenas for new licensees.
The minor league hockey industry in which we conduct business is subject to
significant competition from other sports and entertainment alternatives as well
as both the National Hockey League and its minor league hockey system, the
American Hockey League, and other independent minor hockey leagues. Even teams
of the National Hockey League, which is the largest professional hockey league
with the greatest attendance, have struggled to remain financially viable. A
significant portion of our revenues result from payments made by our licensees.
There can be no assurance that licensees will not default under their license
agreements.
The League may be unable to attract new licensees and existing licensees may not
be able to make the continuing payments required by their license agreements in
the current economic environment. There can be no assurance that any payments
will be made by new or current licensees.
- --------------------------------------------------------------------------------
SEGMENT INFORMATION
- --------------------------------------------------------------------------------
Each of our subsidiaries is a separate legal entity with a separate management
structure. Our corporate operations exist solely to support our subsidiary
segments. As such, certain corporate overhead costs are allocated to the
operating segments. There are no differences in accounting principles between
the operations.
At February 28, 2009 and May 31, 2008, goodwill relates to our International
Coliseums segment.
17
Nine Months Ended
------------------------------
Income (Loss)
from Continuing
Gross Operations Before Identifiable
Revenues Income Taxes Assets
-------- ------------ ------
February 28, 2009
Global Entertainment Corporate Operations $ 101 $(1,586) $ 2,099(a)
Global Food Service 412 (b) (83)(b) 682(b)
Central Hockey League/WPHL 1,749 358 979
Global Properties I 578 56 202
International Coliseums 1,473(c) 912 206
Encore Facility Management 2,240(d) (88) 231
Global Entertainment Marketing Systems 493 139 164
Global Entertainment Ticketing 2,081 (218) 622
------- ------- -------
Global Entertainment Coporation Consolidated $ 9,127 $ (510) $ 5,185
======= ======= =======
February 29, 2008
Global Entertainment Corporate Operations $ 174 $(2,268) $23,793(a)
Central Hockey League/WPHL 1,908 543 903
Global Properties I 373 (211) 566
International Coliseums 527(c) 36 674
Encore Facility Management 2,482(d) (534) 141
Global Entertainment Marketing Systems 629 (32) 147
Global Entertainment Ticketing 2,993 543 1,532(e)
Discontinued Operations -- -- 2,944
------- ------- -------
Global Entertainment Coporation Consolidated $ 9,086 $(1,923) $30,700
======= ======= =======
- ----------
(a) Global Entertainment Corporate Operations assets include the investment in
Wenatchee project of $21.8 million at February 29, 2008. The project was
sold in December 2008. Global Entertainment Corporate Operations assets
include cash and cash equivalents and restricted cash of $1.2 million at
February 28, 2009, and $1.0 million at February 29, 2008.
(b) The Global Food Service segment began operations October 2008 in Wenatchee,
Washington.
(c) International Coliseums revenues for the nine months ended February 28,
2009, includes $0.8 million of fees on the project in Independence,
Missouri, which began in February 2008 and the project in Allen, Texas,
which began in June 2008. Each project is anticipated to have a
twenty-month duration. In addition to the projects in Independence,
Missouri and Allen, Texas, ICC was also managing the construction project
in Wenatchee, Washington until completion in October 2008. Project
management fees related to Wenatchee and Independence were $0.5 million
higher for the nine months ended February 28, 2009 than the prior year
period.
(d) Encore facility management fees include no revenues in the nine months
ended February 28, 2009, from the management contract with the event center
in Youngstown, Ohio, which was cancelled effective September 2007. Encore
facility management fees include $0.5 million from that contract in the
nine months ended February 29, 2008. The $0.5 million year-over-year
increase in fees resulting from the opening of the Wenatchee, Washington
facility in October 2008, was offset by a $0.7 million decline in fees from
management of the Rio Rancho, New Mexico and Prescott Valley, Arizona
centers, which were under management in both periods. The Rio Rancho
contract terminated in January 2009.
(e) Global Entertainment Ticketing assets at February 29, 2008, were higher
than at February 28, 2009, primarily due to the timing of collection of
credit card sales.
18
- --------------------------------------------------------------------------------
SUBSEQUENT EVENTS
- --------------------------------------------------------------------------------
We provided notice to NYSE Amex on April 8, 2009, of our intent to remove our
common stock from the exchange. On or about April 20, 2009 we will file a Form
25 with the Securities and Exchange Commission related to the removal. Removal
is expected to be effective 10 calendar days after filing Form 25. We anticipate
the last day of trading for our common stock on NYSE Amex will be on or about
April 30, 2009. Although we can make no assurances that our common stock will be
quoted, we expect trading on the Over-The-Counter Bulletin Board (OTCBB) will
follow closely after the date of removal from NYSE Amex. A trading symbol has
yet to be assigned by OTCBB.
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING DISCLOSURE
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of the Safe Harbor provision of the Private Securities Litigation
Reform Act of 1995 regarding future events, including statements concerning our
future operating results and financial condition and our future capital needs
and sources. These statements are based on current expectations, estimates,
forecasts, and projections as well as our beliefs and assumptions. Words such as
"outlook", "believes", "expects", "appears", "may", "will", "should",
"anticipates" or the negatives thereof or comparable terminology, are intended
to identify such forward-looking statements. These forward-looking statements
are only predictions and are subject to risks, uncertainties and assumptions
that are difficult to predict. Therefore, actual results may differ materially
and adversely from those expressed in any forward-looking statements. Factors
that might cause or contribute to such differences include, but are not limited
to those discussed in our report on Form 10-K for the fiscal year ended May 31,
2008, under the section entitled "Risk Factors." You should not place undue
reliance on these forward-looking statements, which speak only as of the date of
this Quarterly Report. We undertake no obligation to revise or update publicly
any forward-looking statements for any reason, unless otherwise required by law.
GENERAL
The following is management's discussion and analysis of certain significant
factors affecting our financial position and operating results during the
periods included in the accompanying condensed consolidated financial
statements.
DESCRIPTION OF THE COMPANY
Global Entertainment Corporation (referred to in this report as "we," "us,"
"Global", "Company" or "GEC") is an integrated event and entertainment company
that is engaged, through its wholly owned subsidiaries, in sports management,
multipurpose events center and related real estate development, facility and
venue management and marketing, and venue ticketing. We are primarily focused on
projects located in mid-size communities in the United States.
Our current operating subsidiaries are Western Professional Hockey League, Inc.,
Global Properties I, International Coliseums Company, Inc., Global Entertainment
Marketing Systems, Inc., Global Entertainment Ticketing, Encore Facility
Management and Global Food Service, LLC which formed in fiscal 2009. In addition
facility management operations are conducted under separate wholly owned limited
liability companies.
We, through our wholly owned subsidiary, Western Professional Hockey League,
Inc., are the operator of the Western Professional Hockey League (WPHL), a minor
league professional hockey organization, and are the licensor of the
independently owned hockey teams which participate in the league. WPHL has
entered into a joint operating agreement with the Central Hockey League, Inc.
(CHL, Inc.). The effect of the joint operating agreement is that the two leagues
had their respective teams join together and operate under the Central Hockey
League name (as the League). The terms of the joint operating agreement define
how the League will operate.
The League is a structured licensed sports league, which includes competing
teams located in various states, including Texas, Colorado, Kansas, Louisiana,
Mississippi, New Mexico, South Dakota, Oklahoma, and Arizona. There are 17 teams
in the 2008-2009 season and there were 17 teams in the 2007-08 season. In each
season 13 teams were licensed by WPHL. In each season, 4 teams, each of which
was an original CHL, Inc. team, continue to operate under a sanction agreement
that requires direct payments to the League pursuant to the terms and conditions
of the original CHL, Inc. agreements.
Global Properties I (GPI) provides services in targeted mid-sized communities
across the United States related to the development of multipurpose events
centers. International Coliseums Company, Inc. (ICC), manages the construction
of multipurpose events centers in mid-market communities. GPI's development of
multipurpose events centers promotes the development of the League by assisting
potential licensees in securing quality venues in which to play minor
professional hockey league games.
Global Entertainment Marketing Systems, Inc. (GEMS), promotes, markets, and
sells various services related to multipurpose entertainment facilities,
including all contractually obligated income (COI) sources such as facility
naming rights, luxury suite sales, club seat license sales, and facility
sponsorship agreements.
20
Global Entertainment Ticketing (GetTix) provides ticketing services for the
multipurpose event centers developed by GPI, existing League licensees, and
various other entertainment venues, theaters, concert halls, and other
facilities and event coordinators. GetTix provides a full ticketing solution by
way of box office, phone, internet and print-at-home service that utilizes
distribution outlets in each market. GetTix uses third-party, state-of-the-art
software to deliver ticketing capabilities that include database flexibility,
easy season and group options, financial reporting and marketing resources.
Encore Facility Management (Encore) provides a full complement of multipurpose
events center operational services. These services provide administrative
oversight in the areas of facility/property management and finance, event
bookings, and food and beverage. Encore is currently involved with facility
management of multipurpose events centers developed by GPI. Facility management
operations are conducted under separate limited liability companies.
On August 1, 2008, we closed a transaction pursuant to which we sold
substantially all of the assets of our subsidiary Cragar Industries, Inc.
(Cragar), a licensor of an automotive aftermarket wheel trademark and brand -
CRAGAR(R). The assets consisted primarily of intangible property, including
trademarks, service marks and domain names. The purchase price was approximately
$1.9 million in cash. Of the cash proceeds, $0.1 million was used for
transaction-related costs and $1.25 million was set aside in a restricted
account as security for a letter of credit until December 2008. The remainder of
the funds was made available for working capital and general corporate purposes.
CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
Significant accounting policies are described in the audited consolidated
financial statements and notes thereto included in our Report on Form 10-K for
the year ended May 31, 2008. We believe our most critical accounting policies
and estimates relate to revenue recognition, the allowance for doubtful
accounts, arena guarantees, the carrying value of goodwill, the realization of
deferred income tax assets, the fair value of liability related to the secondary
guarantee related to a worker's compensation program, and the allocation of
expenses, division of profit or loss relating to the joint operating agreement,
and the application of the percentage-of-completion method. Due to the
uncertainties inherent in the estimation process and the significance of these
items, it is at least reasonably possible that the estimates in connection with
these items could be materially revised within the next year.
OVERVIEW AND FORWARD LOOKING INFORMATION
During fiscal year 2008 we decided to divest of Cragar. As a result, the
operations of Cragar have been classified as loss from discontinued operations
in the condensed consolidated statements of operations for all periods
presented. Revenues and operating costs in the condensed consolidated statements
of operations now exclude all accounts of Cragar.
21
THREE MONTHS ENDED FEBRUARY 28, 2009, COMPARED TO THREE MONTHS ENDED FEBRUARY
29, 2008
REVENUES (in thousands):
Three Months Ended
------------------------------------------------
February 28, % of February 29, % of
2009 Revenue 2008 Revenue Change % Change
---- ------- ---- ------- ------ --------
Project development fees $ 100 2.8 $ 317 10.4 $ (217) (68.5)
Project management fees 247 7.0 132 4.4 115 87.1
Facility management fees 1,067 30.2 783 25.8 284 36.3
Ticket service fees 766 21.7 1,039 34.2 (273) (26.3)
Advertising sales commissions 115 3.3 150 4.9 (35) (23.3)
Concession revenue 282 8.0 -- -- 282 NM
License fees - league dues and other 517 14.6 616 20.3 (99) (16.1)
License fees - initial and transfer 443 12.5 -- -- 443 NM
------ ----- ------ ----- ------ ----
Gross Revenues $3,537 100.0 $3,037 100.0 $ 500 16.5
====== ===== ====== ===== ====== ====
Total revenues increased $0.5 million, or 16.5%, to $3.5 million for the three
months ended February 28, 2009 compared to $3.0 million for the three months
ended February 29, 2008.
Project development fees decreased $0.2 million to $0.1 million in the quarter
ended February 28, 2009. Project development fees in the quarter ended February
28, 2009, include a portion of project development fees due under an agreement
with the City of Dodge City, Kansas, signed in fiscal 2009.
Project management revenues increased $0.1 million to $0.2 million for the
quarter ended February 28, 2009, from $0.1 million in the prior year quarter.
Project management fees for the quarter ended February 28, 2009, includes $0.3
million of fees on the project in Independence, Missouri, which began in
February 2008, and the project in Allen, Texas, which began in June 2008. Each
project is anticipated to have a twenty-month duration. In addition to the
projects in Independence, Missouri and Allen, Texas, ICC also managed the
construction project in Wenatchee, Washington through the first week of October
2008. Project management fees related to Wenatchee, recognized on a percentage
of completion basis, were $0.1 million lower for the quarter ended February 28,
2009 than the prior year quarter.
Facility management fees were $1.1 million for the three months ended February
28, 2009, compared to $0.8 million in the three months ended February 29, 2008.
Encore's current facility management contracts include the facilities in
Prescott Valley, Arizona, and Wenatchee, Washington, which opened in October
2008. The $0.3 million year-over-year increase in fees resulting from the
opening of the Wenatchee, Washington facility in October 2008, was offset by a
decline in fees from management of the Rio Rancho, New Mexico, which ended in
January 2009.
Ticket service fees decreased $0.3 million, or 26.3%, to $0.8 million for the
three months ended February 28, 2009, from $1.0 million for the prior year
quarter. This decrease in ticket service fees reflects 1) the $0.1 million
reduction in fees due to the discontinuance of services to the Chevrolet Center
in Youngstown, Ohio, in the spring of 2008 and 2) decreased sales with the
decline in the number of events held, attendance at events and venues under
contract, offset by 3) sales from services to the facility in Wenatchee,
Washington which opened in October 2008.
Advertising sales commissions were $0.1 million for the three months ended
February 28, 2009 and $0.2 million for the three months ended February 29, 2008.
The increase in commissions from the opening of the facility in Wenatchee,
Washington in October 2008 largely offset the decrease in commissions from
cancellation of the GEMS contracts with the facilities in Rio Rancho, New Mexico
and Hidalgo, Texas.
22
Concession revenue was $0.3 million for the quarter ended February 28, 2009. We
derive revenue from concession operations at the Wenatchee, Washington facility
which opened in October 2008.
License fees - League dues, declined $0.1 million to $0.5 million for the
quarter ended February 28, 2009, from $0.6 million for the quarter ended
February 29, 2008. This decrease is primarily the result of one less team owing
League dues for the 2008-2009 season than in the prior year and other teams
paying reduced League dues in the 2008-2009 season than in the prior year as
result of changes in their license status or terms.
License fees - initial and transfer, include fees from a transfer in the quarter
ended February 29, 2008. Since initial and transfer fees are not regularly
recurring and are difficult to predict, there is no assurance that we will be
able to increase or sustain our operating capital through this source.
OPERATING COSTS (in thousands):
Three Months Ended
------------------------------------------------
February 28, % of February 29, % of
2009 Revenue 2008 Revenue Change % Change
---- ------- ---- ------- ------ --------
Cost of revenues $1,939 54.8 $1,590 52.4 $ 349 22.0
General and administrative costs 1,681 47.5 1,405 46.3 276 19.6
------ ----- ------ ---- ------ ----
Total Operating Costs $3,620 102.4 $2,995 98.6 $ 625 20.9
====== ===== ====== ==== ====== ====
Total operating costs increased by $0.6 million, or 20.9%, to $3.6 million for
the quarter ended February 28, 2009, from $3.0 million in the prior year
quarter.
Cost of revenues increased by $0.3 million, or 22.0%, to $1.9 million for the
quarter ended February 28, 2009, from $1.6 million for the prior year quarter.
The increase is primarily due to a $0.2 million increase in costs on projects
prior to opening of facilities, which are reimbursed and a $0.2 million increase
related to concession services.
General and administrative expenses increased $0.3 million, or 19.6%, to $1.7
million for the quarter ended February 28, 2009, from $1.4 million in the prior
year quarter. Bad debt expense increased $0.2 million and legal costs increased
$0.3 million between quarters. The prior year quarter included a $0.3 million
reduction in a settlement reserve to reflect the actual settlement costs.
LOSS FROM CONTINUING OPERATIONS (in thousands):
Three Months Ended
------------------------------------------------
February 28, % of February 29, % of
2009 Revenue 2008 Revenue Change % Change
---- ------- ---- ------- ------ --------
Income (loss) from continuing operations $(141) (4.0) $149 4.9 $(290) (194.6)
===== ==== ==== === ===== ======
Loss from continuing operations was $0.1 million for the three months ended
February 28, 2009, compared to income from continuing operations of $0.1 million
for the three months ended February 29, 2008. The quarter ended February 28,
2009, includes an additional $0.2 in bad debt expense and did not benefit from
the $0.3 million reduction in settlement reserves to reflect the actual
settlement costs recorded in the quarter ended February 29, 2008.
23
NINE MONTHS ENDED FEBRUARY 28, 2009, COMPARED TO NINE MONTHS ENDED FEBRUARY 29,
2008
REVENUES (in thousands):
Nine Months Ended
------------------------------------------------
February 28, % of February 29, % of
2009 Revenue 2008 Revenue Change % Change
---- ------- ---- ------- ------ --------
Project development fees $ 578 6.3 $ 523 5.8 $ 55 10.5
Project management fees 1,473 16.1 376 4.1 1,097 291.8
Facility management fees 2,240 24.5 2,482 27.3 (242) (9.8)
Ticket service fees 2,081 22.8 2,993 32.9 (912) (30.5)
Advertising sales commissions 493 5.4 629 6.9 (136) (21.6)
Concession revenue 412 4.5 -- -- 412 NM
License fees - league dues and other 1,407 15.4 1,653 18.2 (246) (14.9)
License fees - initial and transfer 443 4.9 430 4.7 13 3.0
------- ----- ------- ----- ------- -----
Gross Revenues $ 9,127 100.0 $ 9,086 100.0 $ 41 0.5
======= ===== ======= ===== ======= =====
Total revenues increased 0.5%, to $9.1 million for the nine months ended
February 28, 2009. The project management fees increase of $1.1 million and the
$0.4 million increase from the new concession revenue source, were offset by
declines in other revenue categories.
Project development fees were relatively unchanged at $0.6 million for the nine
months ended February 2009. Project development fees in the nine months ended
February 28, 2009, include the final development fee installments from the
project development agreements with the City of Allen, Texas and the City of
Independence, Missouri, signed in 2008, and an installment on the contract with
Dodge City, Kansas, signed in 2009. Project development fees in the nine months
ended February 29, 2008 related to the project in Wenatchee, Washington.
Project management revenues increased $1.1 million to $1.5 million for the nine
months ended February 28, 2009, from $0.4 million in the prior year nine months.
Project management fees for the nine months ended February 28, 2009, includes
$0.8 million of fees on the project in Independence, Missouri, which began in
June 2008 and the project in Allen, Texas, which began in February 2008. Each
project is anticipated to have a twenty-month duration. In addition to the
projects in Independence, Missouri and Allen, Texas, ICC was also managing the
construction project in Wenatchee, Washington until completion in October 2008.
Project management fees related to Wenatchee and Allen were $0.4 million higher
for the nine months ended February 28, 2009 than the prior year period.
Facility management fees decreased $0.2 million, or 9.8%, to $2.2 million for
the nine months ended February 28, 2009, from $2.5 million in the prior year
nine months. The cancellation of the management contract with the event center
in Youngstown, Ohio, effective September 2007 contributed $0.5 million of the
decrease. The $0.5 million year-over-year increase in fees resulting from the
opening of the Wenatchee, Washington facility in October 2008, was offset by a
$0.7 million decline in fees from management of the Rio Rancho, New Mexico and
Prescott Valley, Arizona centers, which were under management in both periods.
The facilities in Rio Rancho, New Mexico and Prescott Valley, Arizona, each
experienced a decline in the number of events held and a decline in attendance.
The Rio Rancho contract terminated in January 2009.
Ticket service fees decreased $0.9 million, or 30.5%, to $2.1 million for the
nine months ended February 28, 2009, from $3.0 million for the prior year nine
months. This decrease in ticket service fees reflects 1) the $0.4 million
reduction in fees due to the discontinuance of services to the facility in
Youngstown, Ohio, in the spring of 2008 and 2) decreased sales due to the
decline in the number of events held, attendance at events and venues under
contract, offset by 3) sales from services to the facility in Wenatchee,
Washington which opened in October 2008.
24
Advertising sales commissions decreased $0.1 million, or 21.6%, to $0.5 million
for the nine months ended February 28, 2009, from $0.6 million for the nine
months ended February 29, 2008. Contractually obligated income was lower in all
facilities under contract throughout both periods as a result of the current
unfavorable economic environment. The increase in commissions from the opening
of the facility in Wenatchee, Washington in October 2008 offset the decrease in
commissions from cancellation of the GEMS contact with the facility in
Youngstown, Ohio in October 2007.
Concession revenue was $0.4 million for the nine months ended February 28, 2009.
We derive revenue from concession operations at the Wenatchee, Washington
facility which opened in October 2008.
License fees - League dues and other, decreased $0.2 million, or 14.9%, to $1.4
million for the nine months ended February 28, 2009, from $1.7 million for the
nine months ended February 29, 2008. This decrease is primarily the result of
one less team owing League dues for the 2008-2009 season than in the prior year
and other teams paying reduced League dues in the 2008-2009 season as result of
changes in their license status or terms.
License fees - initial and transfer, were $0.4 million in the nine months ended
February 28, 2009, and in the prior year nine months. Since initial and transfer
fees are not regularly recurring and are difficult to predict, there is no
assurance that we will be able to increase or sustain our operating capital
through this source.
OPERATING COSTS (in thousands):
Nine Months Ended
------------------------------------------------
February 28, % of February 29, % of
2009 Revenue 2008 Revenue Change % Change
---- ------- ---- ------- ------ --------
Cost of revenues $ 4,337 47.5 $ 4,862 53.5 $ (525) (10.8)
General and administrative costs 4,897 53.7 6,195 68.2 (1,298) (21.0)
------- ----- ------- ----- ------- -----
Total Operating Costs $ 9,234 101.2 $11,057 121.7 $(1,823) (16.5)
======= ===== ======= ===== ======= =====
Total operating costs decreased by $1.8 million, or 16.5%, to $9.2 million for
the nine months ended February 28, 2009, from $11.1 million in the prior year
nine months.
Cost of revenues decreased by $0.5 million, or 10.8%, to $4.3 million for the
nine months ended February 28, 2009, from $4.9 million for the prior year nine
months. This decrease resulted primarily from 1) a $0.6 million decrease in
facility management payroll associated with the decline in the number of events
held and attendance at facilities in Rio Rancho, New Mexico and Prescott Valley,
Arizona, a $0.2 million reduction in ticket service costs, offset by 3) a $0.4
million increase related to concession services. The reduction in facility
management payroll associated with the loss of the Youngstown, Ohio contract in
the second quarter of fiscal 2008 was offset by the increase in facility
management payroll associated with the start of the Wenatchee, Washington
contract in the second quarter of fiscal 2009. Ticket service costs declined
with the decline in ticket service revenue.
General and administrative expenses decreased $1.3 million, or 21.0%, to $4.9
million for the nine months ended February 28, 2009, from $6.2 million in the
prior year nine months. The decrease in general and administrative expenses
includes 1) a $1.0 million decrease in legal and settlement costs due to a
reduction in legal defense costs with the settlement of several matters since
February 29, 2008, 2) a $0.2 million reduction in severance expenses, and 3) a
$0.1 million reduction in commission expenses.
25
LOSS FROM CONTINUING OPERATIONS (in thousands):
Nine Months Ended
------------------------------------------------
February 28, % of February 29, % of
2009 Revenue 2008 Revenue Change % Change
---- ------- ---- ------- ------ --------
Loss from continuing operations $(510) (5.6) $(1,816) (20.0) $1,306 (71.9)
===== ==== ======= ===== ====== =====
Loss from continuing operations was $0.5 million for the nine months ended
February 28, 2009, compared to a loss from continuing operations of $1.8 million
for the nine months ended February 29, 2008. Operating losses improved to a loss
of $0.1 million in the nine months ended February 28, 2009, from a loss of $2.0
million in the prior year nine months. The nine months ended February 28, 2009,
however, includes $0.3 million of interest expense incurred on the construction
note after construction of the Wenatchee, Washington concluded in October 2008.
The improvement in operating losses of $1.9 million is primarily attributable to
the $1.0 million decrease in legal and settlement costs and the change in
revenue mix between years to higher margin revenue streams.
LIQUIDITY AND CAPITAL RESOURCES
As of February 28, 2009, we have $1.2 million in cash and cash equivalents,
including cash collected for GetTix tickets of approximately $0.4 million for
events scheduled to occur in the future.
Our note with Marshall Financial Group, LLC (Marshall) to borrow up to $52.0
million for the construction of a multi-purpose events center in Wenatchee,
Washington was paid in full when the Greater Wenatchee Regional Events Center
Public Facilities District (PFD) purchased the facility in December 2008. The
$52.4 million proceeds from the sale of the events center were distributed as
follows: $48.9 million to repay the Marshall construction note in full, $2.2
million for construction vendors and $1.3 million was made available for working
capital and general corporate purposes.
On August 1, 2008, we closed a transaction under which we sold substantially all
of the assets of Cragar. The assets consisted primarily of intangible property,
including trademarks, service marks and domain names. The purchase price was
approximately $1.8 million net of transaction-related costs and, as discussed in
greater detail below, $1.25 million of the cash initially received was set aside
in a restricted account as security for a letter of credit until December 2008,
when the letter of credit was surrendered by Marshall. As of February 28, 2009,
all of the proceeds have been made available for working capital and general
corporate purposes.
Cash used in operating activities in the first nine months of fiscal 2009, was
approximately $2.5 million compared to $2.3 million used by operating activities
in the first nine months of fiscal 2008. The net loss decrease was offset by
additions to accounts receivable and prepaid expenses and reductions in accounts
payable offset by increases in accrued liabilities.
Cash provided by investing activities was $30.5 million in the first nine months
of fiscal 2009 compared to cash used in investing activities of $17.2 million in
first nine months of fiscal 2008. Construction costs for the events center in
Wenatchee, Washington increased $23.0 million. The construction costs were
funded primarily with a construction loan with Marshall, as reflected as a
source of funds in the financing section. In addition, during the first nine
months of fiscal 2009, we invested $0.7 million in concession equipment for the
Wenatchee, Washington facility. The concession operation began when the facility
opened in October 2008. Offsetting the increased construction costs and
concession equipment purchases were the $1.8 million proceeds from the
disposition of Cragar, net of transaction-related costs, and $52.4 million
proceeds from the sale of the Wenatchee events center. We were also required to
set aside $1.25 million in a restricted account as security for a letter of
credit in the favor of Marshall, which was surrendered in December 2008, when we
repaid the Marshall note, and the restricted cash was released.
26
Cash used in financing activities totaled $27.2 million for the first nine
months of fiscal 2009, compared to cash provided by financing activities of
$16.2 million in the first nine months of fiscal 2008. During the first nine
months of 2009 we received $22.0 million in proceeds from the construction loan
with Marshall Financial Group, LLC and then repaid the loan in full with
proceeds from the sale of the Wenatchee events center in December 2008.
We have a $1.75 million line of credit that had matured on November 1, 2008, but
was amended and now matures October 1, 2009. The line of credit bears interest
at a daily adjusting LIBOR rate plus 2%, subject to certain adjustments. As of
February 28, 2009, and through the date of this filing, we have received no cash
advances on this credit facility. Effective June 2008, we are required to
deposit cash in the amount of any requested cash advances or letter of credit
issuances. As amended, the line of credit is available to support up to $1.25
million in letters of credit.
The credit facility has been secured by substantially all of our tangible and
intangible assets. In order to borrow, we must meet certain financial covenants,
including maintaining a minimum current ratio (current assets compared to
current liabilities) of 1.05 as of the end of each fiscal quarter, a minimum
consolidated tangible net worth of $1.75 million as of the date of the
amendment, November 1, 2008, and an increase in tangible net worth of at least
75% of consolidated net income plus 100% of all increases of equity (including
the amount of any stock offering or issuance) on each anniversary after May 31,
2009. We must maintain a zero balance for a consecutive 30 day period during the
term of the facility. As of February 28, 2009, we were in compliance with these
covenants.
We continue to evaluate the profitability of, and synergies among, our various
subsidiaries and may determine to dispose of one or more of them, as we move
forward with our business plan. Based on our current forecast and historical
results, we expect to have adequate cash flow from available sources to fund our
operating needs through February 28, 2010. We do not expect to borrow under the
line of credit, since any advances will require us to deposit cash in the amount
of the requested advance. If we do not comply with contractually obligated
financial covenants, our business or profitability deteriorates or we incur
unexpected expenses or asset impairments, it could have a material adverse
effect on our liquidity and financial resources. We cannot guarantee that we
would be able to obtain financing, if needed, on terms acceptable to us, if at
all.
NEW ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued SFAS No. 157 "Fair Value Measurements". The
statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. We adopted this statement prospectively effective
June 1, 2008, and there was no impact on our financial position or results of
operations.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities". This statement permits entities to
choose to measure many financial instruments and certain other items at fair
value. An entity shall report unrealized gains and losses on items for which the
fair value option has been elected in earnings at each subsequent reporting
date. We adopted this statement prospectively effective June 1, 2008, and there
was no impact on our financial position or results of operations. We have not
elected the fair value option for any eligible items.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51". This statement
establishes accounting and reporting standards for noncontrolling interests in a
subsidiary and for the deconsolidation of a subsidiary. The statement also
provides consolidated income statement presentation guidance and requires
expanded disclosures. This statement is effective for our fiscal year beginning
June 1, 2009, and interim periods within that year. The statement will be
applied prospectively, except for the presentation and disclosure requirements,
which will be applied retrospectively for all periods presented. We have not yet
evaluated the effect the statement will have on our financial position or
results of operations.
In November 2007 the EITF issued EITF 07-01 "Accounting for Collaborative
Agreements". This consensus prohibits application of the equity method of
accounting to activities performed outside of a separate legal entity and
requires revenues and costs incurred with third parties in connection with
collaborative agreements be presented gross or net based on other applicable
accounting literature. Payments to or from collaborators should be presented in
the income statement based on the nature of the arrangement, whether the
payments are within the scope of other accounting literature, and certain other
27
criteria. The consensus is required for our fiscal year beginning July 1, 2009.
We have not yet evaluated the effect this statement will have on our financial
position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4T. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures.
Under the supervision and with the participation of our management, including
the Chief Executive Officer and Chief Financial Officer, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15 as of February 28, 2009. Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that these disclosure controls and procedures are effective. There
were no changes in our internal control over financial reporting during the
period covered by this report that have materially affected, or are reasonably
likely to materially affect, our internal controls over financial reporting.
Our management, including its principal executive officer and the principal
financial officer, do not expect that our disclosure controls and procedures
will prevent all error and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.
Over time, controls may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and may not be detected. We
monitor our disclosure controls and procedures and internal controls and makes
modifications as necessary; our intent in this regard is that the disclosure
controls and procedures will be maintained as dynamic systems that change
(including with improvements and corrections) as conditions warrant.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.
There have not been changes in our internal control over financial reporting (as
such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
during the third quarter of fiscal 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As with all entertainment facilities there exists a degree of risk that the
general public may be accidentally injured at one of the facilities we develop,
design or manage. As of February 28, 2009, there were various claims outstanding
in this regard that management does not believe will have a material effect on
our financial condition or results of operations. To mitigate this risk, we
maintain insurance coverage, which we believe effectively covers any reasonably
foreseeable potential liability. There is no assurance, however, that our
insurance coverage will adequately cover all liabilities to which we may be
exposed.
We were a plaintiff and a counter-defendant in a lawsuit involving a former
licensee, Blue Line Hockey, LLC (Blue Line), which operates the Youngstown
Steelhounds. This suit was filed in Maricopa County Superior Court of Arizona on
28
November 7, 2006. Our claim was for approximately $0.1 million in unpaid license
and assessment fees owed by Blue Line, plus our attorneys' fees. Blue Line's
counterclaim alleged that WPHL fraudulently induced Blue Line's principal to
enter the license agreement by failing to comply with franchise disclosure
requirements, and that WPHL made fraudulent representations to induce Blue Line
into signing the license agreement. Blue Line sought rescission of the license
agreement, $0.5 million of lease payments, reimbursement of its franchise fee,
and reimbursement of travel expenses for the 2005-2006 season. We settled the
matter in the third quarter of fiscal year 2009.
We were a defendant in a lawsuit filed by Nustadia Developments Inc. and PBK
Architects. The suit arose out of certain contracts between us and the
plaintiffs, pursuant to which we agreed to use architectural design and
development management services of the plaintiffs with respect to certain arena
development projects. The suit sought direct damages of $4.5 million and other
unspecified damages for alleged breach of contract, tortious interference with
business expectancy, and breach of implied covenant of good faith and fair
dealing. This suit was filed in December 2005, in the Maricopa County Superior
Court of Arizona. We settled the matter in the third quarter of fiscal year 2008
and the case was dismissed in fiscal 2009.
ITEM 1A. RISK FACTORS
Refer to our report on Form 10-K for the fiscal year ended May 31, 2008, under
Item 1A. "Risk Factors."
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
See Exhibit Index attached.
29
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Global Entertainment Corporation
(Registrant)
April 14, 2009 By /s/ Richard Kozuback
-----------------------------------------------
Richard Kozuback
President & Chief Executive Officer
April 14, 2009 By /s/ James Yeager
-----------------------------------------------
James Yeager
Senior Vice President & Chief Financial Officer
30
EXHIBIT INDEX
The following exhibits are filed herewith or incorporated herein pursuant to
Regulation SB-601:
Exhibit
- -------
31.1 Certifications Pursuant to 18 U.S.C. Section 1350-Section 302,
signed by Richard Kozuback, Chief Executive Officer.*
31.2 Certifications Pursuant to 18 U.S.C. Section 1350-Section 302,
signed by James Yeager, Chief Financial Officer.*
32 Certification Pursuant to 18 U.S.C. Section 1350-Section 906,
signed by Richard Kozuback, Chief Executive Officer and James
Yeager, Chief Financial Officer.*
- ----------
* Filed herewith.