UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
of the
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported):
March 7, 2003
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GLOBAL ENTERTAINMENT HOLDINGS/EQUITIES, INC.
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(Exact name of registrant as specified in its charter)
Colorado
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(State or other jurisdiction of incorporation)
0-27637 47-0811483
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(Commission File Number) (IRS Employer Identification No.)
501 Brickell Key Drive, Suite 603, Miami, FL 33131
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(Address of principal executive office) (Zip Code)
305-374-2036
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(Registrant's telephone Number, including area code)
Item 5. Other Events.
On March 7, 2003, the board of directors of Global Entertainment
Holdings/Equities, Inc. (the "Company") mailed to all of the Company's
shareholders of record a letter outlining the history and background of the
Company along with a memorandum addressing the issues relating to a current
dispute with one of its shareholders, Steven Abboud. A complete copy of the
shareholder letter and memorandum are attached hereto as exhibits.
Item 7. Financial Statements and Exhibits.
(A) No financial statements or pro forma financial information are
required to be filed as a part of this report.
(B) The Exhibit Index is located on page 3.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated this 7th day of March, 2003.
Global Entertainment Holdings/Equities, Inc.
By: /s/ Clinton Snyder
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Clinton Snyder, Chief Financial Officer
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INDEX TO EXHIBITS
EXHIBIT PAGE
NO. NO. DESCRIPTION
- --- --- -----------
20(i) 4 Letter to Shareholders of Global Entertainment
Holdings/Equities, Inc.
20(ii) 11 Memorandum from the Board of Directors of Global
Entertainment Holdings/Equities, Inc.
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LETTER TO SHAREHOLDERS OF
GLOBAL ENTERTAINMENT HOLDINGS/EQUITIES, INC.
The following is a recap of historical events as well as recent
achievements of Global Entertainment Holdings/Equities, Inc. (us or our, Global,
or the Company). As a stockholder, you may find this history helpful in
understanding the background of the Company. We are not asking you for a proxy.
No response is required and you are requested not to send us a response.
Development of Global Through Various Corporate Reorganizations
The Company was incorporated in July, 1997, as Masadi Resources, Inc.
(Masadi), with the intention of focusing on oil and gas investment
opportunities. Corporate records do not indicate evidence of any business
investment or activity in the oil and gas arena.
On November 26, 1997, the business direction changed to focus on the
development and distribution of a new sport drink in competition with such
beverages as Gatorade. Along the lines of this new focus, Masadi entered into a
purchase and sales agreement with Beverage Source Worldwide (BSW), and, on
February 10, 1998, changed its name to International Beverage Corporation (IBC).
After several months of activity, IBC, sued to rescind the agreement with BSW.
Mark Darnell, the president of BSW, then counter-sued on the basis that the
Company and its then CEO did not raise the money promised to BSW. This
litigation was settled when the stock issued by the Company to BSW was
rescinded, BSW's rights were returned to Darnell and the Company paid BSW
$75,000. IBC thereafter ceased its efforts to pursue the sports beverage
business, having exhausted all of its resources.
On August 27, 1998, the Company, still known as IBC, merged into a private
corporation, Global Entertainment Holdings/Equities, Inc. (Global). IBC survived
this merger, but immediately adopted the name of Global Entertainment
Holdings/Equities, Inc.
Global had been formed on March 30, 1998, in anticipation of purchasing
Interactive Gaming and Wagering (IGW), a privately held foreign corporation. IGW
was a provider of software to the online gaming industry and was originally
organized in Curacao by Bryan Abboud along with a group of college
acquaintances. IGW chose Curacao because, the legislation was favorable to the
online gaming industry and the business infrastructure was stable. As with many
under funded startup companies, the founders started with a minimum amount of
capital, took low salaries and worked long hours to develop software to support
an Internet-based gaming system.
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IGW had been acquired by Global, while Global was still a private company,
under the following terms:
- The stockholders of IGW received 68% of Global's outstanding common stock
and became Global's wholly owned subsidiary.
- IGW was to provide the software it had developed to support the gaming
industry operators and hard assets such as computer equipment, furniture,
and a small amount of cash.
- Global pledged to provide $70,000 at the time of signing and $1 million
within 6 months of the signing of the final contract. No penalties were
included in the acquisition agreement in the event Global was unsuccessful
in raising this $1 million, and Global actually had very nominal assets at
the time of this transaction.
Despite the fact that Global was successful in raising more than
$1,900,000, IGW received only $255,000 in capital from Global during the six
months following the acquisition, and for the following two and one half years
received less than $800,000. The difference between the amount raised and amount
forwarded to IGW was allocated to salaries for Global's CEO and two
administrative level personnel in the Omaha, Nebraska corporate office, office
expenses, travel and entertainment expenses, litigation and settlement expenses
as discussed above relating to the failed IBC acquisition, and very large
expenditures on aggressive promotions of Global stock via outside investor
relations firms.
Of the $1.9 million raised by Global, more than $650,000 was in the form
of short-term loans rather than long term equity investments. This is important
to note as IGW was forced to finance and complete major product developments
with limited funds while being required to pay off those short-term notes. This
situation severely stunted IGW's development efforts and hindered its business
growth. It wasn't until the second quarter of 2001 that IGW successfully
converted an aging account receivable into a note on which the debtor is making
current payments, that the working capital shortage has been somewhat
alleviated. Since that second quarter of 2001, we have been able to finance the
majority of our expansion and development needs from current cash flow.
Changes in Management
The Company initially was incorporated with the assistance of Steven
Abboud, a major (25%) stockholder who, at the time was the only source for
raising capital for the venture. Steven Abboud was also served as a financial
advisor to the Company when it merged with IGW; he and entities in which he had
a beneficial interest controlled over 30% of the Company's stock. In late 1998,
when the Company merged with Global to
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effect the acquisition of IGW, Steven Abboud assumed the title of president and
CEO of the Company and undertook responsibility for the Company's expenditures
and capital raising transactions. Following that merger, the Company changed its
name to Global Entertainment Holdings/Equities, Inc. Bryan Abboud, founder of
IGW, remained as the president of the IGW subsidiary and was responsible for
spending decisions regarding only IGW's activities and operations.
In November, 1999, the Company received negative publicity when an article
was published in a national periodical concerning the Internet gaming industry.
Specifically, the article alleged that the industry was infiltrated by unsavory
characters and mentioned Steven Abboud as an example of this problem, and
identified Steven Abboud's conviction of two felonies and a jail term. As a
result of this disclosure, Steven Abboud terminated his employment as president
and CEO effective December, 1999 and resigned in August, 2000, from the Board of
Directors of Global. In exchange for his resignation, Global agreed to engage
Steven Abboud as a financial consultant for 18 months at $7500 per month, and
agreed to pay a commission starting at 20% for any financings deals he placed.
Following Steven Abboud's resignations, David Wintroub served as CEO, as
well as a member of the Board of directors, until he resigned in October, 2000.
Donald Lisa replaced Wintroub as CEO and oversaw the relocation of the Company's
headquarters from Omaha, Nebraska to Phoenix, Arizona, where Mr. Lisa resided.
Lisa served as CEO and as a member of the Board of directors until his
resignation on December 31, 2001. Upon Lisa's resignation, the Board asked Bryan
Abboud to serve as the Company's CEO, as well as to continue to serve as a
member of the Board of directors, a position he has held since September, 1998.
At the same time the changes occurred in management, the structure of the
Board changed. In late 2000, Steven Abboud approached Thomas Glaza about
becoming a member of Global's board of directors. Mr. Glaza accepted the
appointment in January 2001. Mr. Glaza has extensive experience in sales and
marketing within the software industry was a founder, president and CEO of a $9
million company which engaged in writing, servicing and installing software
systems. David Stein, a sales consultant and well- known author and educator,
was subsequently appointed to the board in early 2002 by the remaining two
members, Bryan Abboud and Mr. Glaza. Mr. Stein also has extensive operational
experience in the software business. James Doukas, an experienced businessman
and consultant, was appointed to the Company's Board of directors in April,
2002.
Mr. Lisa sent a letter to the Board, immediately prior to his resignation
on December 31, 2001, citing various allegations and demanding the resignation
of the remaining members of the Board as a result of these allegations. This
was a surprise to the
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Board, as Mr.Lisa had not expressed these allegations while he was CEO and in
fact had previously complimented Mr. Glaza on his contribution to the company
and cited his desire to spend more time with his family as reason for his
departure.
Mr. Glaza organized a Stockholders' Review Committee composed of eight
stockholders, all of whom had considerable holdings in the company, to review
the allegations of Mr.Lisa. The entire committee, in February 2002, agreed
that Mr. Lisa's allegations were, for the most part, unfounded.
In January, 2001, the headquarters of the Company was moved to Miami,
Florida to facilitate travel between Global and IGW. Bryan Abboud moved to Miami
to lead corporate affairs.
At the company's annual meeting of stockholders, which took place in July
2002, the current board of directors (Bryan Abboud, Thomas Glaza, David Stein
and James Doukas) was reelected with no dissenting votes.
Recent Achievements of Global
The following is a summary of what your Board of directors considers to be
the Company's recent notable achievements and developments.
We have experienced substantial increases in our revenues. The Board feels
that such continued growth, especially the growth which has occurred in the last
2 years, is significant in light of the economic slowdown throughout the world
and the slowing of growth in this industry. Government pressures to restrict the
flow of money to companies (our licensees) involved in off-shore betting is one
example of outside elements contributing to the slower growth of the industry.
Despite these factors, our revenues have grown as follows:
- 1998 Revenues were $980,000
- 1999 Revenues were $2.8 million
- 2000 revenues were $4,572 million
- 2001 revenues were $4.708 million
- Final revenue figures for the year ending Dec. 31, 2002, have not yet
been finalized. However, revenues for the first three quarter of 2002 were
$4,055,000 or 53% higher than for the comparable period in 2001.
These revenue increases have been primarily driven by the success of our
licensees, new accounts, more comprehensive e-commerce support and new products
such as our horse book product.
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We have significantly upgraded our marketing and sales efforts by
committing more resources and employing highly qualified personnel. As a result,
we have successfully added 5 new licensees since January, 2001.
As a software company competing for technical employees that historically
have been in short supply, stock options have been an invaluable and essential
form of compensation for our employees. Stock options have been issued in an
attempt to reward and improve retention of employees. As in most companies, such
options have no relation to "revenues generated" but serve as a tool in
management's arsenal to retain good software engineers and staff members.
The Board has thoroughly evaluated the number of stock options outstanding
and the terms governing such options. In early 2001, the options plan was
adjusted putting our option commitments in line with industry standards. The
typical measurements of option dilution are "overhang" (the amount of options
outstanding in relation to the total number of common shares issued) and the
"run rate" (the average annual percentage of options issued and planned to be
issued in relation to the number of shares outstanding). Since early 2001, both
of these measures are within the range of published averages for companies
similar to ours. A key fact to consider when evaluating our stock option
position is that unless the option has been exercised, the stock underlying the
option cannot be voted. Unfortunately, as of January 31, 2003, virtually 100% of
the stock options outstanding had exercise prices in excess of the closing
trading price of our common stock. Thus, some of the outstanding options may
never be exercised because their strike price is significantly higher than the
market price. Unexercised options further reduce the option overhang.
Some stockholders have implied that the company is worth much more than
the stock price would indicate in an effort to induce the company to purchase
their stock at a price higher than the current market demands. They cite as
proof a valuation performed by a previous executive of the company. We are
unaware of the existence of any qualified valuation concerning the Company.
While certain individuals had conducted their own analysis, none of that
analysis was reviewed by the Board and, in the Board's opinion, such valuations
would not be viewed as a reasonable estimate of our worth.
The Board is very determined to take actions that will result in increased
liquidity and a higher price for the Company's common stock. The Board believes
the Company can stimulate interest in the stock primarily by making sound
investments in people, research and development and new product offerings, along
with increasing emphasis on sales and effective financial controls. As your
Board presented at the July, 2002 stockholders' meeting, management intends to
increase promotional activities to improve interest in the
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stock as earnings, sales and organizational matters are more in tune with
investors' expectations. These improvements and the resulting interest in our
stock as an investment is expected to occur in the short term.
A few stockholders have raised the issue that IGW (our wholly owned
subsidiary) should pay dividends directly to the shareholders. This argument is
based on the premise that our subsidiary is located in Curacao, a country with a
very low tax rate. Aside from questioning the legality of such a proposal, the
Board envisions a stronger company and ultimately a greater return, by
reinvesting all earnings back into product development, product offerings,
marketing and growth. When the Company reaches the right point in its life
cycle, it will shift its philosophy accordingly. In the long term we believe our
stakeholders will see a greater benefit under the current course of action.
Status and History of VIP our Major Licensee
The Company's relationship with one of IGW's major customers continues to
be a topic of profound interest to certain parties. Accordingly, the Board
believes this topic to merit an expanded discussion.
This one licensee has always been a significant client since IGW's
inception. The original contract between IGW and this licensee was for a period
of six years and provided that the licensee would pay IGW 70% of its "gross
revenue." However, virtually as soon as the contract was signed, it became
apparent that the licensee could not pay the 70% royalty and remain competitive
in its market. However, IGW continued to send billings to the client and
consequently, their obligations to IGW began to grow at a rapid rate.
Acknowledging the problems with the unreasonable royalty structure of the
original contract, in 1999 and 2000 multiple steps were taken to reduce the
royalty rate. The Board of directors sanctioned the efforts as part of their
governance. This licensee became aware of lower rates charged to other IGW
clients as a result of an acquisition of another IGW licensee who had negotiated
a much lower rate.
In late 2000 when this licensee owed IGW $1.6 million, Thomas Glaza was
asked to join the company's Board of directors. While conducting due diligence,
Mr. Glaza reviewed the basis for this receivable and refused to join the Board
until the issue was resolved. As a result, an agreement was reached whereby the
receivable was converted into a short-term note with monthly payment provisions.
In consideration for signing the note and making the payments, IGW lowered the
royalty rate in stages. However, the royalty rate in the eyes of that licensee
still exceeded an acceptable level.
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In December 2001, IGW signed a letter of understanding with the licensee
that resolved the long-standing issue of lowering their royalty rate to what
they considered to be a competitive level. The approach used to help obtain the
agreement to the new terms was a complex formula based on the history and
projected revenues and values involved in the product licensing. This approach
to reach an amendment to the contract was reviewed by a Stockholder Committee,
which agreed that the amendment was reasonable and fair to our shareholders. In
February 2001, an agreement reflecting the reduction in royalty was executed.
This amendment to the contract cemented much better relations between IGW and
its single largest client and thus helped assure that our licensee would not
seek suppliers other than IGW to secure an industry competitive royalty rate.
Summary
The Board of directors is pleased that executive management has done an
admirable job of resolving complex business issues, establishing a documented
strategy and developing a better business model, all on a very tight budget.
Your company now has significantly better performance, revenue forecasts,
budgets, and cost controls than it has ever had in its past. This results from
hiring more specialized management in product development, sales and financial
planning and controls. Your CEO and Board have emphasized the hiring of quality
people with proven track records of accomplishment in the software industry. We
now feel, after a rocky start, the Company is on the right track for success. We
appreciate your support and vote of confidence by making an investment in Global
Entertainment Holdings/Equities, Inc.
Safe Harbor Statement
Statements in this letter that are not historical including statements
regarding Global Entertainment Holdings/Equities, Inc. or management's
intentions, hopes, beliefs, expectations, representations, projections, plans or
predictions of the future are forward- looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995, Section 21E of the
Securities Exchange Act of 1934, as amended, and Section 27A of the Securities
Act of 1933, as amended. It is important to note that the Company's actual
results could differ materially from those in any forward-looking statements. By
making these forward-looking statements, the Company undertakes no obligation to
update these statements for revisions or changes after the date of this release.
Additional information concerning factors that could cause actual results to
differ materially from those in the forward looking statement is contained in
the Company's SEC reports, including but not limited to, the annual report on
form 10-KSB for the year ended December 31, 2001 and the quarterly report on
forms 10-QSB for the periods ending March 31, 2002, June 30, 2002 and September
30, 2002.
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Global Entertainment Holdings/Equities, Inc.
501 Brickell Key Drive, Suite 603
Miami, Florida 33131
To: Global Stockholders
From: Global Entertainment Board of Directors
Date: March 6, 2003
Subject: Issues Related to Disputes with Steven Abboud
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Certain disputes have recently arisen between your company, Global
Entertainment Holdings/Equities, Inc. ("Global"), and Steven Abboud. These
disputes have occurred in the context of statements made by Steven Abboud
regarding Global, its board of directors and its clients, as well as a lawsuit
filed by Global against Mr. S. Abboud in Florida state court. The purpose of
this memorandum is to briefly address certain of these issues, as well as to
assure you, the owners of Global, that your board of directors is doing
everything in its power to protect your interests and grow the company. The
Company is not asking you for a proxy. No response to this memorandum is
required and you are requested not to send us a response.
By way of background, Steven Abboud was Global's president and CEO until
the board of directors sought his resignation as an active employee and board
member in late 1999. Global's board made every effort to treat Mr. S. Abboud
fairly and provided him with a handsome consulting agreement under which he made
well in excess of $135,000. That agreement was concluded after eighteen months
in mid-2001, at which time Mr. S. Abboud's only relationship with the
corporation became one of a shareholder.
In the first quarter of 2002, the company's corporate records were
transferred from Phoenix to Miami and reviewed by our new auditors in connection
with SEC and IRS reporting requirements. The company was then informed by these
auditors of certain apparent irregularities that they could not explain.
Initially, the auditors determined that significant travel and
entertainment expenses charged to the company by Steven Abboud while he was
president and CEO were inadequate under Federal tax guidelines. For example, Mr.
S. Abboud had spent large amounts on meals and had taken numerous trips to Las
Vegas and Europe with no discernable documentation substantiating any valid
business purpose.
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Further review indicated that Mr. S. Abboud had also authorized Global to
make extremely large expenditures in investor-relations campaigns. During the
same time he and companies he controlled and held a beneficial interest in were
selling shares of Global stock. This was a cause for concern both because of
strict federal laws regarding so-called "pumping and dumping," and because of
the substantial amount of Global's resources that were expended.
Perhaps of greatest concern, however, was the finding that Steven Abboud,
while he was president and CEO of the company, caused Global to issue
substantial amounts of Global shares to himself or companies he controlled and
held a beneficial interest. As but one of many examples, in connection with the
August 1998 purchase by Global of IGW, it appeared that approximately 1,409,000
shares of Global stock--apparently was earmarked for IGW shareholders--had been
issued instead to Mr. Abboud's company "SSI." The total amount of questioned
shares issued by Mr. S. Abboud to himself or his companies totals in the
millions. Global's board has assiduously investigated the documentation
supporting these issues, and made every attempt to find documentation approving
the issuance of these shares or any evidence of fair-and-adequate compensation
provided in exchange for these shares (as required by law). Global's efforts to
substantiate the proper issuance of these shares included attempts to discuss
the matter and obtain proof from Steven Abboud; the efforts were rejected.
Only after these issues were extensively investigated and with no apparent
explanation, did the board determine that it was appropriate to file a legal
action against Mr. S. Abboud. The board felt it was its fiduciary duty to you,
Global's shareholders, to seek reimbursement for any inappropriate expenditures
and obtain a declaration from the court regarding the validity of the shares at
issue. Given that these shares could total as much as 25% of the outstanding
stock of the company, if not properly issued they have significantly diluted the
properly issued outstanding shares. Thus, the board believes it would have been
a breach of its duty to Global's shareholders had it not sought assistance from
the courts.
Mr. S. Abboud's initial defense against this action has been to claim that
the Florida court does not have jurisdiction over him, despite his contacts with
Florida concerning Global business. We disagree with that position but are
prepared, if necessary, to re-file the action in Colorado (the state of
incorporation) or Nebraska (Mr. S. Abboud's home), if necessary, in order to
protect Global and its shareholders.
There are many other issues listed in the action; if any shareholder wishes
to receive a copy of the legal complaint which details many other issues, please
call Nancy Urselita of our staff at 305 375 2036 to request a hard copy via mail
or send an e-mail message to Nancy nancy@ineractive-gaming.com and request an
electronic copy via e-mail.
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We would only add regarding this action, that in an attempt to avoid the
expense of litigation, the company has offered to purchase Mr. S. Abboud's
Global stock at a substantial discount from the value when it was issued. The
difference between the value and the price paid to Mr. S. Abboud would properly
reflect the value of any unsubstantiated expenses and improperly issued stock.
(The company believes that a stock transaction such as this is the only
effective way to recover damages on behalf of the stockholders given Mr. S.
Abboud's financial situation.)
We hope you have found this communication helpful in understanding the
depths of the claims against Mr. Abboud and why we have initiated a legal action
to recover damages. If you would like more detail please avail yourself of the
offer to obtain a copy of the action by contacting our office as outlined above.
Sincerely,
/s/ Thomas L. Glaza
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Thomas L. Glaza
Chairman of the Board of Directors
Global Entertainment
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