UNITED STATES
SECURITES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended May 31, 2008
[ ] 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. Identification No.)
incorporation or organization)
1600 N Desert Drive, Suite 301, Tempe, AZ 85281
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code (480) 994-0772
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant of Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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
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)
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Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act.): Yes [ ] No [X]
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the issuer was $3,970,139 based on the closing price of $1.39
per share at August 13, 2008, as reported on the American Stock Exchange
At August 13, 2008, 6,625,114 shares of Global Entertainment Corporation common
stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement to be filed with the Commission for the annual
meeting of stockholders to be held October 17, 2008, are incorporated by
reference into Part III of this Annual Report on Form 10-K.
GLOBAL ENTERTAINMENT CORPORATION
ANNUAL REPORT ON FORM 10-K
INDEX
Page
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PART I.
Item 1. Business 3
Item 1A. Risk Factors 12
Item 1B. Unresolved Staff Comments 15
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to Vote of Security Holders
PART II.
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchase of Equity Securities 16
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 22
Item 8. Financial Statements and Supplementary Data 18
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure 45
Item 9A(T). Controls and Procedures 45
Item 9B Other Information 46
PART III.
Item 10. Directors, Executive Officers and Corporate Governance 46
Item 11. Executive Compensation 46
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 46
Item 13. Certain Relationships and Related Party Transactions,
and Director Independence 46
Item 14. Principal Accountant Fees and Services 46
PART IV.
Item 15. Exhibits and Financial Statement Schedules 47
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This Annual Report on Form 10-K contains "forward-looking statements" within the
meaning of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 regarding future events and the future results of Global
Entertainment Corporation that are based on current expectations, estimates,
forecasts, and projections as well as the beliefs and assumptions of Global
Entertainment Corporation's management. Words such as "outlook," "believes,"
"expects," "appears," "may," "will," "should," "anticipates" or the negative or
correlations 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, including those identified in Item 1A, Risk Factors, and
other risks identified herein and in future SEC filings and public
announcements. Therefore, actual results may differ materially and adversely
from those expressed in any forward-looking statements. You should not place
undue reliance on these forward-looking statements, which speak only as of the
date of this Annual Report. We undertake no obligation to revise or update
publicly any forward-looking statements.
PART I.
ITEM 1. BUSINESS.
OVERVIEW
Global Entertainment Corporation (referred to in this annual report as "we,"
"us," "Global" 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.
We were organized as a Nevada corporation in August 1998, under the name Global
II, Inc. In April 2000, Global II acquired all of the outstanding shares of
Western Professional Hockey League, Inc. from WPHL Holdings, Inc., a British
Columbia, Canada corporation. Contemporaneously with the acquisition of WPHL, we
changed our name to Global Entertainment Corporation.
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 and Encore Facility
Management.
Pursuant to a joint operating agreement between us and Central Hockey League,
Inc. (CHL Inc.), Western Professional Hockey League, Inc. (WPHL) operates and
manages a minor professional hockey league known as the Central Hockey League
(the League), which currently consists of 18 teams (16 expected to play in the
2008-2009 season) located in mid-market communities throughout the Central and
Western regions of the United States.
During the year ended May 31, 2007, we began operations of Global Properties I
(GPI) which provides services in targeted mid-sized communities across the
United States related to the development of multipurpose events centers and
surrounding multi-use real estate development.
GPI, along with International Coliseums Company, Inc. (ICC), develops
multipurpose events centers in mid-market communities. ICC'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. The inter-relationship between GPI, ICC and
WPHL is a key factor in the viability of a managed multipurpose entertainment
facility.
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 and ICC, 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.
In February 2006, we formed Encore Facility Management (Encore), a single source
management entity that provides a full complement of multipurpose events center
operational services. These services provide administrative oversight in the
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areas of facility/property management and finance, event bookings, and food and
beverage. Encore is currently involved with facility management of a
multipurpose events centers developed by GPI and ICC. 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., 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 expense and
$1.25 million has been set aside in a restricted account as security for a
letter of credit. The remainder of the funds was made available for working
capital and general corporate purposes.
BUSINESSES AND MARKETS
THE MINOR PROFESSIONAL HOCKEY LEAGUE BUSINESS
A central component of our business is the operation of the League We believe
that the League offers a unique entertainment alternative that is not typically
available to individuals living in our targeted mid-sized communities in the
United States, and that the affordable nature of tickets, refreshments, and
merchandise at League events allows access to families and individuals at all
levels of income. The introduction of a team in these mid-sized communities
offers several potential benefits to licensees, including:
* marketing and sponsorship opportunities through the League's diverse
fan base;
* increased revenue through sales of team-licensed products and;
* opportunities to network with surrounding communities and to create
team rivalries.
The introduction of a League team also offers several potential benefits to the
mid-sized community in which each team is located, including:
* increased tax revenue through direct ticket, refreshment and licensing
sales at professional minor league hockey games and other events as
well as indirect increases in sales at restaurants, stores and hotels
surrounding the arena in which the team plays;
* increased job opportunities for community citizens working for the
team or arena as well as surrounding businesses; and
* enhanced development of property located near the multipurpose event
facility.
WPHL operates the League. During the 2008-2009 season we expect that the League
will consist of 18 teams (2 dormant and 16 active) located in mid-sized
communities throughout the Central and Western regions of the United States.
WPHL licenses 14 of the teams. The remaining 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. Pursuant to a joint operating agreement with
CHL Inc., WPHL jointly manages and operates the League under the Central Hockey
League name. WPHL also provides ongoing support and assistance to teams in
accounting, ticket sales, marketing, hockey operations, development, and media
services. WPHL provides operational manuals for each team to utilize as a guide
and point of reference. In addition, yearly league conferences are held to
provide team owners an opportunity to meet with other owners and discuss
operational concerns. Operations are governed by an oversight board.
We do not operate or manage any teams outside of the joint operating agreement
with CHL, Inc. Pursuant to the joint operating agreement between CHL Inc. and
WPHL, CHL Inc. had an option to purchase all of WPHL's interests and rights
related to WPHL teams operating under the joint operating agreement, and any
other hockey related assets of WPHL, beginning in 2011. Under the terms of a
modification to the joint operating agreement entered into in June 2008, 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.
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The 16 League teams expected to play during the 2008-2009 season, are divided
into 4 divisions: Northeast, Northwest, Southeast and Southwest, as follows:
Northeast Northwest Southeast Southwest
--------- --------- --------- ---------
Bossier-Shreveport Mudbugs Colorado Eagles Corpus Christi IceRays Amarillo Gorillas
(Bossier City, LA) (Windsor, CO) (Corpus Christi, TX) (Amarillo, TX)
Memphis RiverKings Rapid City Rush Laredo Bucks Arizona Sun Dogs
(Southaven, MS) (Rapid City, SD) (Laredo, TX) (Prescott Valley, AZ)
Oklahoma City Blazers Rocky Mountain Rage Rio Grande Valley New Mexico Scorpions
(Oklahoma City, OK) (Broomfield, CO) Killer Bees (Rio Rancho, NM)
(Hidalgo, TX)
Tulsa Oilers Wichita Thunder Texas Brahmas Odessa Jackalopes
(Tulsa, OK) (Wichita, KS) (North Richland Hills, TX) (Odessa, TX)
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The Austin Ice Bats will not participate in the 2008-2009 season but retain
their active status in the League. Lubbock, Texas is dormant and will not
participate in the 2008-2009 season. Certain teams are past due on annual league
assessment installments for the 2008-2009 season and the schedule is subject to
change.
LICENSEE SELECTION. WPHL has not established a fixed set of prerequisites that a
prospective licensee must meet in order to be awarded a license. Instead, WPHL
recruits licensee candidates based on a variety of factors such as prior
business experience, financial strength and integrity, and probable ability to
successfully operate a sports-oriented organization.
LICENSE LOCATION SELECTION. WPHL seeks to grant licenses in communities capable
of sustaining and expanding a professional sports organization without
saturating an existing market or penetrating a market that is already serviced
by another hockey league. WPHL markets the availability of its franchising
opportunities primarily through individual association and brand identity.
License locations are determined by considering the following factors, among
others.
* PROXIMITY TO EXISTING LICENSES. WPHL seeks to grant licenses
sufficiently close to existing teams to reduce travel expenses
incurred by each team, but sufficiently far away from existing teams
to allow each team to have ample fan support.
* ARENA AVAILABILITY. Because an arena is essential to a licensee's
operations, WPHL investigates the availability of an existing arena
and assists in negotiating the arena lease. If no arena is available,
WPHL, through its affiliates ICC and GPI, works with the prospective
licensee and the municipality to provide a multipurpose arena.
* MARKET AND DEMOGRAPHIC DATA. WPHL performs a detailed review of a
prospective market's demographics, including the number of households,
average income per household, median income, prevailing wage data, and
additional general market data, to determine the suitability of the
market for a license.
* EXISTING COMPETITION. WPHL seeks to grant licenses where the new
licenses do not have direct competition with other hockey teams or
other major sports licenses. We believe the absence of direct
competition in a market allows a team to more easily develop fan
support.
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HISTORICAL LEAGUE ATTENDANCE AND TICKET REVENUE. The following tables reflect
attendance at League events and League ticket revenues per season (unaudited).
Season 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008
------ --------- --------- --------- --------- --------- --------- ---------
# of Teams Playing 16 16 17 17 15 17 17
--------- --------- --------- --------- --------- --------- ---------
Regular Season 2,183,197 2,253,489 2,448,584 2,284,057 2,238,408 2,387,286 2,164,657
Playoffs 152,455 134,335 168,894 179,130 185,805 318,257 149,293
--------- --------- --------- --------- --------- --------- ---------
Total 2,335,652 2,387,824 2,617,478 2,463,187 2,424,213 2,705,543 2,313,950
========= ========= ========= ========= ========= ========= =========
Per Game Average 4,270 4,381 4,521 4,487 4,671 4,350 3,942
Season 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008
------ --------- --------- --------- --------- --------- --------- ---------
# of Teams Playing 16 16 17 17 15 17 17
Ticket Revenue
(millions) $ 13.47 $ 13.78 $ 18.01 $ 16.99 $ 18.42 $ 25.49 $ 21.70
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League teams played 30 home games each during the 2004-2005 season versus 32
home games each during the previous three seasons. Teams resumed a 32 home game
schedule for the 2005-2006 season.
During the five seasons prior to the 2007-2008 season, based on information from
individual league websites, the League had experienced the highest per game
attendance of all North American AA professional hockey leagues. The declines in
game average attendance and ticket revenue in the 2007-2008 season are primarily
attributable to two teams which operated in arenas with seating capacity
substantially lower than the League average.
LICENSE AGREEMENTS. WPHL has entered into separate license agreements with 14 of
the 18 teams. Under the license agreements, if conditions are met, WPHL grants
license rights for a 10-year term for a designated area, which may be renewed by
the licensee. The licensee agrees to pay fees to WPHL and WPHL agrees to provide
various services, including services relating to accounting, ticket sales,
marketing, hockey operations, media, contracting and negotiating, rulemaking,
administrative and training, and conferences. In addition, WPHL and each team
have continuing rights and obligations, with respect to record keeping, the
team's arena, participation in WPHL management, intellectual property,
confidentiality, maintenance of insurance and indemnification, among others. The
remaining 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.
INITIAL LICENSE FEES AND COSTS. Unless an alternative arrangement is made with
WPHL, the current initial license fee is $1,250,000. WPHL has, in the past,
shared a portion of the initial license fee with the other WPHL teams, and
expects to continue to do so, although the sharing arrangement may be modified.
Through a variety of factors, management believes that the value of a WPHL
license has increased and WPHL has increased initial license fees to maintain a
consistent level of quality support for new Licensees.
CONTINUING LICENSE FEES. Upon the execution of a license agreement, a WPHL
licensee is responsible for continuing fees payable to WPHL. Licensees also are
responsible for continuing fees payable to the League, which fees are shared
with WPHL pursuant to the joint operating agreement between the leagues.
Continuing fees include assessment fees, advertising fees, local marketing
expenditures, transfer fees, audit fees and renewal fees, which are described
below:
* ASSESSMENT FEES. Assessment fees for WPHL licensees are $100,000
annually, $10,000 of which represents licensing fees paid to us and
$15,000 of which represents payment of officials to referee games.
Assessment fees are $90,000 annually for League licensees.
* ADVERTISING FEES. Advertising fees are 3% of gross team revenues. Fees
received from each licensee are pooled together to form an advertising
fund used for league promotion. In addition to the monthly advertising
fees, each license is required to spend a minimum of 1% of revenue on
local marketing and promotion. WPHL has the discretion not to collect
the advertising fees and to date has chosen not to collect advertising
fees from its licenses, although it retains the right to do so.
* TRANSFER FEES. In the event of a transfer of a license, a transfer fee
in the amount of the greater of $100,000 or 25% of the then-current
initial license fee is payable to WPHL. The transfer fee is
implemented to cover WPHL's administrative and other expenses in
connection with the transfer. In addition to the transfer fee, the new
licensee must complete any training programs in effect for current
licensees. All expenses associated with training must be paid by the
licensee.
* AUDIT FEES. At any given time, WPHL may conduct an audit of the books
and records of its licensees. If the audit discloses an understatement
of any of the aforementioned fees of 3% or more, the licensee is
required to pay the understated amount, the out of pocket expenses
(including accountants' and attorneys' fees) incurred by WPHL, and any
other fees relating to the audit.
* RENEWAL FEES. License agreements have a duration of 10 years. To
continue a license at the end of this period for an additional 10 year
term, licensees are required to pay a renewal fee equal to the greater
of the original initial license fee paid, or 25% of the then-current
initial license fee.
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LICENSE SERVICES. WPHL provides the following services to WPHL teams:
* TICKET SALES. The most significant stream of revenue for a team is
derived from the generation of ticket sales. As a result, WPHL employs
a staff with extensive ticket operations experience in the hockey
industry to advise teams how to maximize ticket sales. WPHL develops
and supplies each team with ticket operations manuals and on-site and
league-wide office hiring/staff training and assists teams in
implementing this training.
* MARKETING. Name recognition and team promotion is essential to the
development and success of WPHL's teams. WPHL assists each team with
corporate sales and marketing, league licensing and merchandising,
sponsorship recruitment and game night entertainment packages. WPHL
provides marketing manuals, operational guideline handbooks, and
design concepts for the creation of uniforms and team logos.
* HOCKEY OPERATIONS. WPHL assists each team in the selection of skilled
hockey players, as well as the retention and training of hockey
coaches, trainers, and equipment managers. WPHL provides each team
with a player personnel manual, which contains information collected
from seven WPHL scouts, including player's evaluations and statistics
from over twenty leagues throughout North America. WPHL hosts annual
expansion drafts for new teams, collects and distributes information
concerning hockey operations guidelines and regulations, and provides
an officiating staff for all preseason, regular season, and playoff
season games. WPHL hires, trains, schedules and supervises all facets
of game officiating, including the employment of in excess of 50 full
and part-time officials. WPHL also provides for a facilities manager
advisory council, comprised of each team's facilities manager, to
discuss issues of each team related to facilities management.
* MEDIA. WPHL assists teams in developing public awareness through a
variety of methods. WPHL coordinates all local and national press
information, as it relates to the league; maintains an Internet
website and assists teams in the development of their individual
sites; develops schedules for all preseason, regular season, and
playoff games; and responds to media and fan inquiries. We intend to
further develop our media assistance to teams.
* CONTRACTING AND NEGOTIATING. WPHL provides teams with services such as
ice equipment supply, food and beverage service contracts and arena
lease negotiations. WPHL also assists teams with United States
immigration policies to the extent that such policies pertain to the
retention of hockey players.
* RULEMAKING AND ADMINISTRATIVE. WPHL personnel attend the preseason
training camps of teams, during which time they meet with coaches and
players to review rule changes, the established substance abuse policy
and hockey-related issues. WPHL personnel also attend the All-Star
game held in January and selected playoff games. WPHL also provides
training programs for goal judges, timekeepers and other officials.
* TRAINING AND CONFERENCES. WPHL provides the following training and
conferences to licensees:
* INITIAL TRAINING. WPHL's executive management team provides each
newly established license with a 3 day initial training program.
WPHL hosts the training seminars at their Tempe, Arizona
headquarters for the team's chief operating officer and up to
three managerial employees. The 15 hour training schedule
includes topics such as ticketing and sales, marketing,
promotions, public relations, player and personnel issues, and
merchandising and licensing. WPHL does not incur any
out-of-pocket expenses for the trainees in connection with the
training program, as all transportation costs, living expenses
and wages are the team's responsibility.
* YEARLY CONFERENCES. WPHL conducts a yearly conference for all
teams and their staffs. The conference highlights various issues
relating to ticketing operations, marketing, corporate sales,
merchandising, hockey operations, public relations and media
services, human resources, and general license development. The
conferences are an important factor in improving intra-league
relations, as licensees are able to discuss hockey and business
related issues with peer teams. The conferences include guest
speakers, workshops on topics such as revenue generation through
corporate sponsorship, marketing, and ticket sales.
PLAYER AND PERSONNEL MATTERS. The quality and success of the players associated
with each license are of significant importance to the continued viability of
the League. The following is a list of the significant factors relating to the
League's involvement with the players:
* UNION. League players were not collectively represented by a players'
union until March 2008, when players voted to institute the
Professional Hockey Players Association (PHPA) into the league. Going
forward, League players, like other comparable minor professional
hockey leagues and the National Hockey League, will be represented by
the PHPA.
* RECRUITMENT. Teams recruit hockey players through a variety of means.
Players predominantly come from the Canadian, American, and European
junior leagues, other professional leagues, and the collegiate
circuit. The League offers recruiting assistance to teams by providing
a scouting network, whose members annually produce a compilation of
scouting reports on players they have observed, which is distributed
to team coaches to review.
* SALARY AND PLAYER CAPS. The League salary cap for the 2007-2008 season
per team was $10,000 per WEEK, However the cap for the 2008-2009
season has yet to be determined and will be negotiated with the PHPA.
Players were guaranteed to be paid no less than $300 per week, with
the prevailing wage earned by a player to be $300 per week. No player
bonuses are provided outside of the salary cap. Additionally, no team
may have more than 19 players on its payroll, excluding players on
injured reserve.
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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." The joint operating agreement, as modified in June 2008, provides that
operations are to be governed by an 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 the agreement to operate
the leagues jointly, 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. In addition, we own no interest in CHL
Inc.
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 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.
MULTIPURPOSE EVENTS CENTER DEVELOPMENT BUSINESS
Our multipurpose events center development business is operated through our
subsidiary entities, GPI and ICC, which develop, design and manage the
construction of multipurpose sports and entertainment arenas. These arenas have
an average seating capacity of 6,500 and are typically constructed in mid-market
communities.
GPI and ICC utilize a partnership approach with municipalities to provide a
comprehensive set of services to manage all facets of the overall center
construction process. For these services, service fees are charged and expenses
are reimbursed in the performance of such duties. There are typically three
distinct phases:
* BUSINESS PLAN DEVELOPMENT - GPI project coordinators perform market
research with outside consulting assistance, prepare an initial budget
for operation of a facility, and present the data to the owner;
* DESIGN - ICC project managers finalize conceptual drawings and
renderings in order to bring the design to completion; and
* CONSTRUCTION MANAGEMENT - ICC manages all phases of actual
construction from ground breaking to delivery.
As the municipality's partners, GPI and ICC:
* Create a business model that forecasts realistic outcomes thereby
facilitating the development of a properly structured financing plan;
* Create working alliances between nationally recognized design
professionals and architects;
* Lead the design and construction process for building premier events
facilities while maintaining sound cost controls; and
* Focus on obtaining involvement from local engineers, contractors and
subcontractors to form a solid development team that fosters local
pride and enthusiasm.
GPI and ICC have developed or managed or currently are developing or managing
the following multipurpose arena projects:
INDEPENDENCE, MISSOURI: GPI and ICC are currently managing the development of a
multi-purpose events center for the City of Independence, Missouri. Encore will
manage the building operations. GEMS will handle all sales and marketing
services. GetTix will provide exclusive ticketing services for all events. The
facility is slated to have approximately 5,800 fixed seats and an additional
second ice surface that will provide a youth hockey and skating facility for the
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community. The facility has a scheduled opening in late 2009 and will also be
home to a League team that will serve as the primary tenant.
ALLEN, TEXAS: GPI and ICC are currently performing project management services
for the development of an events center in Allen, Texas. This facility is a
4,300 seat facility. The facility is scheduled to open in the fall of 2009. A
League team will serve as the primary tenant. Encore will manage the facility;
GetTix will provide ticketing services, and GEMS will provide sales and
marketing services.
WENATCHEE, WASHINGTON: ICC is currently managing construction of the Town Toyota
Center located in Wenatchee, Washington. This facility is a 4,300 seat facility
and is scheduled to open in the fall of 2008. Encore will manage the facility;
GetTix will provide ticketing services, and GEMS will provide sales and
marketing services.
RIO RANCHO, NEW MEXICO: In fiscal year 2007, ICC completed development of the
Santa Ana Star Center located in Rio Rancho, New Mexico. The events center is a
6,500 - 8,000 seat facility and serves as a major component of the City of Rio
Rancho's new master planned downtown. The New Mexico Scorpions, a League team,
serve as the major tenant. Encore manages the facility, GetTix provides
ticketing services for all events at this facility, and GEMS provides sales and
marketing services.
PRESCOTT VALLEY, ARIZONA: In fiscal year 2007, ICC completed development of the
Tim's Toyota Center located in Prescott Valley, Arizona. This facility is a
5,000 - 6,200 seat arena and is a major component of a 40 acre retail and
entertainment district. A League hockey team, the Arizona Sundogs, serve as the
major tenant. Encore manages the facility, GetTix provides ticketing services,
and GEMS provides sales and marketing services.
BROOMFIELD, COLORADO: In fiscal year 2007, ICC completed project management
duties under a sub-contract with Icon Venue Group for the 6,000 seat Broomfield
Event Center in Broomfield, Colorado. A League hockey team, the Rocky Mountain
Rage, serves as the major tenant.
YOUNGSTOWN, OHIO: In October 2005, ICC completed development of the Chevrolet
Center located in Youngstown, Ohio. The Chevrolet Center is a 6,500 to
8,500-seat facility serving Youngstown, Ohio and surrounding communities.
LARIMER COUNTY, COLORADO: In fiscal year 2004, ICC completed its duties as the
project manager with respect to the development of the Larimer County Fairground
and Events Center, located in Larimer County, Colorado. Eventually this complex
will consist of 12 agricultural facilities that are anchored by the 6,000-seat
multipurpose events center. Since opening, this event center has been home to
the League team, the Colorado Eagles.
HIDALGO, TEXAS: ICC oversaw the construction of a multipurpose event center in
the City of Hidalgo, Texas. This facility opened in October 2003 and is home to
the League team, Rio Grande Valley Killer Bees. GEMS provides sales and
marketing services to the facility.
FACILITY AND VENUE MANAGEMENT BUSINESS
Our facility management business is operated through our subsidiary, Encore,
which was formed as a single source management entity that provides a full
complement of operational services. These services provide administrative
oversight in the areas of facility/property management, event bookings, and food
and beverage. Encore is currently involved with facility management of
multipurpose events centers developed by GPI and ICC. Facility management
operations are conducted under separate limited liability companies.
MARKETING AND LICENSING BUSINESS
Our marketing and licensing business is operated through our subsidiary, GEMS,
which was formed for the purpose of promoting, marketing, and selling various
revenue streams created by the development and operation of multipurpose arenas
in mid-sized communities throughout the United States. GEMS contracts to sell a
variety of services, including facility naming rights, facility sponsorship
agreements, luxury suite sales, and club seat license sales. We believe that
corporate sales and licensing will enable teams to keep ticket prices affordable
and thereby increase their fan bases while simultaneously increasing total
revenue.
TICKETING BUSINESS
We operate our ticketing business through our subsidiary GetTix, a full service
ticketing company for events and venues throughout our markets. The ticketing
business generates revenues through box office, outlet, call-center, and
Internet sales.
9
GetTix is currently selling tickets primarily for venues located in the Central
and Southern United States and plans to expand into additional venues. We
anticipate that ticketing will comprise an increasingly important component of
our revenues.
OUR STRATEGY
Our strategy for growth and profitability is to leverage our existing businesses
and to capitalize on cross-revenue generation opportunities within the mid-sized
communities we serve.
Our wholly-owned subsidiaries operating in sports management, multipurpose
events center and related real estate development, facility and venue management
and marketing, and venue ticketing represent a "one-stop-shop" for all
development and post development activities related to multipurpose event
facilities.
Each subsidiary has been structured to operate independently with third party
customers as well as its sister companies, thereby allowing each subsidiary the
ability to independently promote itself and the businesses of its sister
companies. By way of example, GetTix may provide ticketing services for a
multipurpose events center developed by GPI and ICC, managed by Encore, and
maintain a ticketing relationship with an independent third party venue. In
addition, Encore may manage an event center developed by GPI and ICC, but may
also contract to manage an independent third party venue with a ticketing
contract with GetTix. These forms of cross revenue generation occur throughout
our various businesses and have been designed to increase revenues as each
individual business expands.
The key elements of our strategy are to:
EXPAND THE LEAGUE. We believe that we can expand the League by targeting and
specifically identifying mid-market communities that have a limited number of
competing live entertainment options. In particular, we believe that the
development of a multipurpose arena together with a League team offers many
communities an opportunity to generate additional revenue streams for the
community as well as additional jobs for its residents.
LEVERAGE OUR ABILITY TO COMBINE MULTIPURPOSE EVENTS CENTER DESIGN, DEVELOPMENT,
AND MANAGEMENT EXPERTISE WITH VARIOUS ENTERTAINMENT OPTIONS. We believe that our
ability to combine our offerings for League teams and other entertainment
options as anchor tenants with our design, development, and management expertise
in multipurpose arenas provides us with a potential advantage compared to other
entertainment options typically available in mid-sized communities. We believe
this combination of expertise and experience offers these communities an
opportunity to increase tax revenues, create additional job opportunities, and
broaden the variety of entertainment options available to their citizens.
LEVERAGE OUR BASE BUSINESS TO PROMOTE TICKETING SERVICES PROVIDED BY GETTIX. We
believe that our existing business structure, with the design and management of
multipurpose arenas will increase the opportunity to provide ticketing services.
In addition, current strategic alliances with third party event organizations
may provide additional revenue streams.
DEVELOP COMMERCIAL AND RESIDENTIAL REAL ESTATE ADJACENT TO MULTIPURPOSE EVENTS
CENTER DEVELOPMENT PROJECTS. We believe that the opportunity to develop
available real estate adjacent to our multipurpose events center projects will
contribute to increasing revenue and profitability while providing the mid-sized
communities we serve with needed commercial and residential real estate growth.
CAPITALIZE ON ORGANIC GROWTH OPPORTUNITIES. Internal growth and development will
also continue to be pursued. We will continue to evaluate synergistic business
opportunities that fit our current organizational structure and attempt to
capitalize on those opportunities when practical.
There can be no assurance that we will be successful in implementing our
business strategies. Factors that could impede our ability to achieve our
objectives include: our inability to secure contracts with cities or related
governmental entities to design, develop, and manage new multipurpose facilities
and adjacent real estate; our inability to secure new licensees willing and able
to pay the license fees associated with a new license or to successfully operate
a team; the inability to successfully add ticket services through GetTix, and
our inability to generate sufficient cash flow or raise additional funds
necessary to ensure adequate working capital for our intended operations.
10
COMPETITION
We seek to compete in our core historical sports-related business activities by
focusing primarily on mid-sized communities in the Central, Western and Southern
regions of the United States, including Missouri, Texas, Colorado, Kansas,
Georgia, Alabama, Louisiana, Mississippi, New Mexico, Oklahoma, Arizona, and
Tennessee. Given the demographics of these communities, major professional
sports licenses and other major entertainment providers typically do not play or
perform in these communities. As a result, we believe there is significant
demand for reasonably priced professional sporting events and other
entertainment offerings that are not typically available to citizens of these
communities. By establishing a League team in these mid-sized communities, and
possibly facilitating the development, construction and operation of a
multipurpose events center, we intend to provide reasonably priced professional
sports and other entertainment options to these typically under-served markets,
and create additional marketing and licensing business opportunities for our
other business lines.
MINOR PROFESSIONAL HOCKEY LEAGUE BUSINESS. The League principally competes as
one of four minor professional hockey leagues in operation in the United States
(AA and AAA). Head-to-head competition has not typically occurred between the
existing leagues, as each league is located in a different geographic region of
the United States. However, with recent expansion efforts, these boundaries are
beginning to become less defined and leagues are encroaching upon each other's
markets, creating heightened competition. The ECHL (formerly the East Coast
Hockey League) operates predominantly along the Eastern and Western United
States coasts. The American Hockey League is the true farm system for the
National Hockey League (NHL) and operates across the continental United States
without regional or geographical boundaries. The International Hockey League
(formerly known as the United Hockey League) operates in the North Central
United States. Finally, the League operates within the Central and Western
regions of the United States. Because established licenses currently serve
specific geographical areas, we foresee limited competition from other hockey
leagues penetrating our existing markets. Competitors attempting to enter the
market would encounter brand identity obstacles, over-saturated markets, and
difficulties in obtaining venues available for play.
We not only compete against other minor professional hockey leagues but also
against entertainment of all different types and mediums. By way of example, we
experience competition with alternative sports and entertainment venues located
within our mid-size markets, such as bowling alleys, movie theaters, other
sports events, concerts, diverse amusement facilities, and even television
broadcasting.
EVENT CENTER DEVELOPMENT AND CONSTRUCTION BUSINESS. GPI and ICC compete
primarily against larger development and construction management firms,
including International Facilities Groups, AEG and Global Spectrum.
FACILITY AND VENUE MANAGEMENT AND MARKETING BUSINESS. Encore and GEMS compete
with larger management firms including SMG and AEG as well as several other
firms including Venueworks, Sports Facility Marketing Group, Global Spectrum and
Front Row Marketing Services.
TICKETING BUSINESS. GetTix competes primarily against large and established
ticketing service firms, such as Ticketmaster, Tickets.com and Tickets West, as
well as against venues and organizations that provide their own internal
ticketing services.
INTELLECTUAL PROPERTY
We own trademarks for the following: Global Entertainment and Design, We Play
Hockey Loud, Proud to be Loud, and Grades for Blades. There can be no assurance
that our intellectual property rights will preclude competitors from designing
competitive products, that the proprietary information or confidentiality
agreements with our licensing partners and others will not be breached or
infringed, that we would have adequate remedies for any breach or infringement,
or that our trade secrets will not otherwise become known to or independently
developed by competitors. Furthermore, although there are controls within the
licensing agreements, there is no assurance that actions taken by others will
not lead to a decrease in the value of our intellectual property.
EMPLOYEES
As of May 31, 2008, we had 65 full-time employees and 230 part-time employees.
Management believes that the relationship with our employees is good. None of
our employees are represented by a labor union.
11
WEBSITE ACCESS
Our website address is www.globalentertainment2000.com. On our website we make
available, free of charge, our code of ethics. The information on our website is
not incorporated by reference into, and is not part of, this report.
ITEM 1A. RISK FACTORS.
The following risks and uncertainties could affect our future results of
operations, financial condition and the market value of our common stock.
WE MAY NOT BE ABLE TO TIMELY SECURE CONTRACTS WITH CITIES OR RELATED
GOVERNMENTAL ENTITIES TO DESIGN, DEVELOP, AND MANAGE NEW MULTIPURPOSE FACILITIES
AND ADJACENT REAL ESTATE, WHICH MAY NEGATIVELY IMPACT OUR RESULTS OF OPERATIONS.
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.
WE MAY NOT BE ABLE TO SECURE NEW LICENSEES WILLING AND ABLE TO PAY INITIAL
LICENSE FEES AND COMMENCE, AND SUSTAIN OPERATIONS, WHICH MAY MEAN WE CANNOT
ACHIEVE THE CRITICAL NUMBER OF LICENSEES REQUIRED FOR PROFITABILITY.
Purchasing a 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 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 unproven and
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 licensees. There can be no assurance that licensees will not
default under their license agreements.
If the League is unable to attract new licensees, or if existing licensees are
not able to make the continuing payments required by their license agreements,
we may not be able to survive. There can be no assurance that any payments will
be made by new or current licensees.
IF OUR LICENSEE'S RELATIONSHIPS WITH PLAYERS WERE TO DETERIORATE, THE LICENSEES
MAY BE FACED WITH LABOR DISRUPTIONS OR STOPPAGES, WHICH COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The players in the League, employees of the licensees, will be represented by
the Professional Hockey Players Association in the 2008-2009 seasons. A
collective bargaining agreement has yet to be negotiated. The League and
licensees may be regularly subject to grievances, arbitration proceedings and
other claims concerning alleged past and current non-compliance with applicable
labor law and collective bargaining agreements. These matters, if resolved in a
manner unfavorable to us and our licensees, could have a material adverse effect
on our business, financial condition and results of operations
WE HAVE A HISTORY OF OPERATING LOSSES IN CERTAIN SUBSIDIARIES, WHICH MAKES IT
DIFFICULT TO DETERMINE FUTURE RESULTS.
Our history of losses in certain subsidiaries makes it difficult to assess our
future results of operations and to determine if we will ultimately succeed or
remain profitable. There are many events and factors that could materially and
adversely affect us, over some of which we have limited or no control,
including:
* the inability to obtain capital at times and in amounts necessary to
support our operations and intended growth;
12
* the inability to develop and expand our design, management and
construction business;
* the inability to attract and retain licensees for the minor
professional hockey league we operate and manage;
* the inability of minor professional hockey league licensees to attract
and retain the interest of the public in the markets served by the
licensees;
* competition from other hockey leagues;
* competition from alternative forms of sports and entertainment outside
the hockey industry; and
* the inability to develop and grow a customer base for our ticketing
and facility management services. There can be no assurance that we
will remain viable or that we will continue our operations for any
length of time.
WE INTEND TO EXPAND OUR BUSINESS AND MAY NOT SURVIVE IF THIS STRATEGY IS
UNSUCCESSFUL.
We intend to expand the number of professional minor league hockey licensees and
increase the number of arenas we develop and manage. There can be no assurance
that we will have available sources of funds or personnel necessary to achieve
rapid or sustained growth or that we will succeed in identifying and securing
desirable licensees and markets for expansion of the League or new facilities
and business opportunities available to expand our business. Even if we are able
to expand our business and operations, we may not be able to manage this growth
successfully. Any successful growth will require us to continue to implement and
improve our financial, accounting, and management information systems and to
hire, train, motivate, and manage additional employees. A failure to manage
growth effectively would have a material adverse effect on our business,
financial condition, and results of operations, and on our ability to execute
our business strategy successfully.
WE COMPETE AGAINST OTHER PROFESSIONAL HOCKEY LEAGUES AS WELL AS A GROWING NUMBER
OF OTHER ENTERTAINMENT ALTERNATIVES AND OUR FINANCIAL RESULTS DEPEND ON
CONTINUED FAN SUPPORT.
The League is currently one of four (4) minor professional hockey leagues in
operation in the United States. Head-to-head competition has not typically
occurred between the existing leagues, as each league has historically operated
in a different geographic region of the United States. However, with recent
expansion efforts of these leagues, the boundaries are beginning to become less
defined and leagues are encroaching upon each other's markets, creating
heightened competition.
We not only compete against other minor professional hockey leagues but also
against other professional sports and entertainment of all different types and
mediums. For example, we compete with alternative entertainment venues located
within our small to mid-size markets, such as bowling alleys, movie theatres,
other sports events, and diverse amusement facilities. In addition, hockey is a
relatively new and unfamiliar sport in many of the markets where the League
operates. As a result, many of the League's teams have had difficulty building
and maintaining a dedicated fan base. There can be no assurance that such teams
will be able to maintain or increase their fan bases or, if the League expands,
that its new teams will be able to build such a fan base. Our success depends on
the League's ability to generate and sustain fan interest. Absent a substantial
and dedicated fan base, Global Entertainment and the League may not be able to
survive. We also experience significant competition in our arena management and
ticketing businesses, primarily from much larger, better financed and more
recognized companies.
OUR CASH FLOW SEASONALITY MAY MAKE IT DIFFICULT FOR US TO MANAGE MEETING OUR
OBLIGATIONS.
A significant portion of our cash flow is generated from June 15 through
September 15 each year. The seasonality of the League's revenues may make it
difficult for us to meet current and future obligations that have payment dates
or schedules that do not correspond to the seasonality of our cash flow.
OUR EXPERIENCE IN THE ARENA DEVELOPMENT, CONSTRUCTION, FACILITY MANAGEMENT VENUE
SALES AND MARKETING AND TICKETING INDUSTRIES MAY LIMIT OUR ABILITY TO SUCCEED.
We acquired International Coliseums Company in November 2000. Prior to that
time, we were engaged exclusively in the minor league hockey industry and had no
prior experience in the development and construction of arenas. In January 2002
we formed Global Entertainment Marketing Systems to perform marketing and sales
13
activities related to multipurpose events facilities; we had no prior related
experience. We began formal ticketing operations in September 2004 with no prior
experience in the ticketing business. In September 2005 we began directly
managing the operations of multipurpose events centers with no prior experience.
Because of our recently acquired experience it is difficult to determine whether
we will be able to successfully manage these businesses and compete in these
industries.
There are several engineering and consulting firms in direct competition with
our arena development business. We also have several competitors in the facility
management and ticketing businesses. Most of these competitors have
substantially more financial resources and/or financial flexibility compared to
Global. Furthermore, the engineering and design industry is undergoing
consolidation, particularly in the United States. These competitive forces could
have a material adverse effect on our ability to successfully operate and
generate profits from our arena development business.
IF THE MARKETS IN WHICH WE OPERATE EXPERIENCE AN ECONOMIC DOWNTURN, REVENUES ARE
LIKELY TO DECLINE CAUSING OUR FINANCIAL CONDITION TO DETERIORATE.
Our revenues are likely to be significantly and adversely affected if economic
conditions in the mid-sized communities in which we operate deteriorate. In
particular, our arena development clients are likely to cut costs and delay,
curtail, or cancel projects in response to deterioration in economic conditions
either locally or nationally. These clients also may demand better pricing terms
during such periods. In addition, an economic downturn may impact the
credit-worthiness of these clients and the ability to collect cash from them to
meet the operating needs of our arena development business. Accordingly, if
current economic conditions worsen, our revenues, profits, and operating cash
are likely to be adversely impacted.
WE DEPEND ON KEY INDIVIDUALS, THE LOSS OF WHICH COULD NEGATIVELY AFFECT OUR
ONGOING OPERATIONS.
Our business depends on its ability to maintain certain key individuals and to
attract and retain additional qualified and competent personnel. The loss of the
services of Richard Kozuback, the President of Global Entertainment and Chairman
of WPHL, or other key officers and directors, could have a material adverse
effect on Global Entertainment's ability to conduct its business effectively.
In addition, the ability to attract, retain, and expand the staff of qualified
technical professionals employed by International Coliseums Company will be an
important factor in determining our future success. A shortage of professionals
qualified in certain technical areas exists from time to time in the engineering
and design industry. The market for these professionals is competitive, and we
may not be successful in our efforts to continue to attract and retain such
professionals.
WE ARE SUBJECT TO FEDERAL AND STATE REGULATIONS REGARDING FRANCHISING AND THE
FAILURE TO MAINTAIN COMPLIANCE WITH THESE LAWS COULD LIMIT OR PREVENT THE LEAGUE
FROM OPERATING.
We are subject to regulation by the Federal Trade Commission, or FTC, and state
laws that regulate the offer and sale of franchises and business opportunity
licenses, as well as state laws that regulate substantive aspects of the
licensor/licensee relationship. The FTC's rules on franchising generally require
us to furnish prospective franchisees a franchise offering circular containing
information prescribed by the FTC rules, however, there are exceptions to this
requirement based on the initial cost of a license and the licensee's financial
condition. At least fifteen (15) states presently regulate the offer and sale of
franchises and generally require registration of the franchise offering with
state authorities. Our failure to comply with these rules could result in
substantial penalties and damages, or suspension of part or all of the League's
operations.
OUR DEVELOPMENT AND MANAGEMENT OF PUBLIC VENUES MAY EXPOSE US TO LITIGATION.
Our participation in the development, operation, and management of multipurpose
sports and entertainment arenas attended by the public may expose us to
additional exposure from litigation arising from the use of such facilities by
the public. Although we maintain comprehensive general liability insurance to
protect us against the risk of loss, there can be no assurance that we will not
be a target in any potential litigation seeking substantial damages. We could be
adversely impacted if we become involved in litigation.
14
WE WILL REQUIRE ADDITIONAL CAPITAL TO SUPPORT OUR GROWTH PLANS.
We will require additional capital to continue to grow and possibly to survive.
The arena development industry, in particular, is capital intensive and requires
that we obtain additional working capital and additional funds to support our
operations. Unless we can generate sufficient levels of cash from our
operations, which we may not be able to achieve for the foreseeable future, we
will continue to rely on equity financing and long-term debt to meet our cash
requirements. There is no assurance that we will be able to maintain financing
on acceptable terms or at all. Furthermore, insufficient capital may require us
to delay or scale back anticipated future activities. In addition, if additional
capital is raised through equity-related financing, it could result in dilution
to the ownership interests of existing stockholders.
OUR COMMON STOCK IS THINLY TRADED AND YOU MAY NOT BE ABLE TO SELL THE SECURITIES
AT ALL OR WHEN YOU WANT TO DO SO.
Our common stock currently is quoted on the American Stock Exchange and
currently is thinly traded. Because of the limited public market for our common
stock, you may be unable to sell our common stock when you want to do so.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
We lease 10,392 square feet of office space for our Tempe, Arizona headquarters
pursuant to a lease with a sixty-six month initial term beginning in February
2008. This lease is renewable for an additional sixty-month period. We also
lease 461 square feet of office space to support our ticketing operations in
Austin, Texas on a month-to-month basis.
ITEM 3. 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 May 31, 2008, 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 are 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
November 7, 2006. Our claim is for approximately $115 thousand in unpaid license
and assessment fees owed by Blue Line, plus our attorneys' fees. Blue Line's
counterclaim alleges 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 seeks rescission of the license
agreement, reimbursement of its franchise fee, and reimbursement of travel
expenses for the 2005-2006 season. Although the outcome of this matter cannot be
predicted with certainty, we believe that we have both valid claims and valid
defenses to the counterclaims. Thus, we intend to vigorously prosecute our
claims and defend the counterclaims. No liability has been established at May
31, 2008, related to this matter.
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 are currently waiting for dismissal.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
15
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASE OF EQUITY SECURITIES
Our common stock trades on the American Stock Exchange (AMEX) under the symbol
"GEE". As of August 13, 2008, there were approximately 700 record and beneficial
owners of our common stock.
On April 7, 2006, we completed a private placement of 1,079,000 shares of common
stock, together with warrants to purchase an aggregate of 107,900 shares of
common stock at an exercise price of $7.10 per share. On April 28, 2006, we
filed a registration statement on Form S-3 (Commission File No. 333-133633)
covering resales of the common stock issued in the private placement, which was
subsequently amended on May 8, 2006. The registration statement went effective
on June 23, 2006.
The following schedule contains the high and low closing sales prices of our
common stock, as reported by the AMEX. The quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions.
June 1, 2006 - September 1, 2006 - December 1, 2006 - March 1, 2007 -
August 31, 2006 November 30, 2006 February 28, 2007 May 31, 2007
--------------- ----------------- ----------------- ------------
$5.40 - $6.90 $5.65 - $6.02 $4.77 - $5.65 $4.85 - $5.67
June 1, 2007 - September 1, 2007 - December 1, 2007 - March 1, 2008 -
August 31, 2007 November 30, 2007 February 29, 2008 May 31, 2008
--------------- ----------------- ----------------- ------------
$4.64 - $4.98 $3.70 - $4.65 $1.18 - $3.70 $0.83 - $1.90
|
We have never paid cash dividends on our common stock and do not anticipate
doing so in the foreseeable future. In addition, our bank credit facility
restricts our ability to pay dividends. Our current policy is to retain any
earnings to finance operations and expand our business.
As of May 31, 2008, there were warrants outstanding to purchase 275,760 shares
of our common stock, in addition to the number of securities to be issued upon
exercise of outstanding options, warrants and rights, as described below. The
following schedule contains information related to the Global Entertainment
Corporation 2000 Long-Term Incentive Plan and the 2007 Long-Term Incentive Plan,
as of May 31, 2008:
Number of securities
remaining available for
Number of securities future issuance under
to be issued upon Weighted-average equity compensation
exercise of exercise price of plans (excluding
outstanding options, outstanding options, securities reflected in
Plan Category warrants and rights warrants and rights column (a))
------------- ------------------- ------------------- -----------
(a) (b) (c)
Equity compensation
plans approved by
security holders 666,517 $ 5.49 493,892 (1)
Equity compensation
plans not approved by
security holders -- -- --
------- ------ -------
Total 666,517 $ 5.49 493,892
======= ====== =======
|
(1) The number of securities remaining available for future issuance includes
286,500 securities included under the 2007 Long-Term Incentive Plan,
adopted during fiscal year 2007. This plan authorizes the Board of
Directors to grant restricted stock awards to selected officers, employees,
outside consultants and directors for up to an aggregate of 320,000 shares
of common stock. As of May 31, 2008, we had issued 33,500 shares of
restricted stock under this plan.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following is management's discussion and analysis of certain significant
factors affecting our financial condition, changes in financial condition, and
results of operations during the last two fiscal years.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
This management's discussion and analysis is based on our consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent liabilities. Management bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Senior management has discussed the
development, selection and disclosure of these estimates with the Board of
Directors. Actual results may differ from these estimates.
Management believes that the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements.
REVENUE RECOGNITION
* License Fees: License fees include initial acquisition fees, transfer
fees and annual assessments. Initial license fees represent amounts
received from licensees to acquire a hockey license. Transfer license
fees represent the amounts received upon transfer of ownership of an
existing license. We recognize initial fees and transfer fees when we
have met all of our significant obligations under the terms of the
license agreement. Each arrangement is unique, however, under the
standard license agreement, we are generally responsible for assisting
the licensee with facility lease contract negotiations (if a lease has
not yet been secured), venue ticketing analysis and pricing,
concessionaire negotiations and staffing advisements. These generally
occur at, or before, the time the licensee acquires a license.
Pursuant to the terms of the joint operating agreement each team in
the League pays annual assessment fees of $75 thousand, plus $15
thousand per annum for officiating costs. In addition, the teams from
WPHL pay an extra $10 thousand annually to cover our costs. The fees
are recognized ratably over the year in proportion to the expenses
expected to be incurred.
* Advertising Sales Commissions: GEMS sells certain contractual rights
including facility naming rights, luxury suite sales, club seat
license sales, and facility sponsorship agreements. The revenue from
these contracts is recognized when earned in accordance with the
contract.
* Project Management Fees: ICC receives design/build and
construction-project supervisory contract revenue from various
municipalities in connection with the construction of municipal
venues. This revenue is recognized ratably over the duration of the
contracts. Project management fees also include amounts billed
relating to furniture, fixtures and equipment, architectural fees, and
other amounts incurred on behalf of municipalities. The related
revenue and expense for these amounts are recognized in the period
incurred. Revenues and costs from fixed-price and modified fixed-price
construction contracts are recognized for each contract on the
percentage-of-completion method, measured by the percentage of costs
incurred to date to the estimated total direct costs. As contracts can
extend over one or more accounting periods, revisions in costs and
earnings estimated during the course of the work are reflected during
the accounting period in which the facts that required such revision
become known. Project management revenues are recorded based on the
gross amounts billed to a customer in accordance with EITF 99-19,
"Reporting Revenue Gross as a Principal versus Net as an Agent".
* Project Development Fees: GPI targets mid-sized communities across the
United States providing services related to the development of
multipurpose events centers and surrounding multi-use real estate
development. Project development fees are recognized according to
specific contract terms; typically 50% upon signing of a development
contract and 50% upon construction groundbreaking.
* Facility Management Fees: Encore earns fees for managing the
operations of various municipal venues. These activities include
developing operating procedures and manuals, hiring all staff,
17
supporting sales and marketing, location maintenance, concessions
coordination, preparing annual budgets, and securing and promoting
events. Revenues from facility management services are recognized as
services are rendered and consist of contract fees, which reflect the
total price of such services. The payroll costs related to employees
working at the facilities are included in cost of revenues.
* Ticket Service Fees: GetTix is a ticketing agent with various venues,
theatres, event centers, and private entities requiring services to
fulfill orders to ticketed events. Revenues are generated from the
fees charged for processing ticket orders. These revenues are
recognized upon completion of the sale. Ticketing revenues are
recorded based on the net fees retained by GetTix in accordance with
EITF 99-19.
ALLOWANCE FOR DOUBTFUL ACCOUNTS. We provide for potential uncollectible trade
and miscellaneous receivables based on specific credit information and
historical collection experience. If market conditions decline, actual
collection experience may not meet expectations and may result in increased
delinquencies.
IMPAIRMENT OF GOODWILL. Our goodwill assets totaled $519 thousand as of May 31,
2008 and relate to costs in excess of identifiable assets in the acquisition of
ICC. Goodwill is tested for impairment at least annually. For goodwill, we first
compare the fair value of a reporting unit with its carrying amount, including
goodwill. If the carrying amount of a reporting unit exceeds the fair value of a
reporting unit, additional tests would be used to measure the amount of
impairment loss, if any. We use a present value technique to measure reporting
unit fair value. If the carrying amount of any other intangible asset exceeds
its fair value, we would recognize an impairment loss for the difference between
fair value and the carrying amount. If events occur and circumstances change,
causing the fair value of a reporting unit to fall below its carrying amount,
impairment losses may be recognized in the future.
ARENA GUARANTEES: We have entered into various contracts with facilities which
guarantee certain economic performance standards. In the event these economic
performance standards are not reached, we are liable for the difference between
the actual performance and the guaranteed performance. It is often not possible
to estimate a potential liability under these guarantees because of the
conditional nature of our obligations and the unique facts and circumstances
involved in each agreement. If economic conditions, or other facts and
circumstances were to change, this could cause an increase in our potential
liability and a charge to earnings.
DEFERRED TAX ASSET. We account for deferred income taxes under the asset and
liability method, which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in the consolidated financial statements or income tax returns. We
record a valuation allowance to reduce deferred income tax assets to an amount
that represents management's best estimate of the amount of such deferred income
tax asset that more likely than not will be realized. The ultimate realization
of the deferred tax asset is dependent upon the utilization of net operating
loss carry-forwards, as well as existing corporate income tax rates. Changes in
these facts and circumstances could affect the carrying value of the deferred
tax asset.
JOINT OPERATING AGREEMENT. We have entered into a joint operating agreement with
CHL Inc. Under the terms of the joint operating agreement, WPHL will handle all
operating functions of the combined league, with the profit or loss from league
operations being split between WPHL, Inc. and CHL Inc. based upon the number of
teams from the respective leagues. The allocation of expenses and division of
profits involves some degree of estimation. Changes in these estimates could
affect the allocation of profit or loss under the terms of the joint operating
agreement.
PERCENTAGE OF COMPLETION. The complexity of the estimation process and all
issues related to the assumptions, risks and uncertainties inherent with the
application of the percentage-of-completion method of accounting affects the
amounts reported in our consolidated financial statements. A number of internal
and external factors affect our percentage-of-completion estimates, including
labor rate, estimated future material prices and customer specification changes.
If our business conditions were different, or if we used different assumptions
in the application of this accounting policy, materially different amounts could
be reported in our consolidated financial statements.
YEAR ENDED MAY 31, 2008 COMPARED TO YEAR ENDED MAY 31, 2007
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 consolidated statements of operations for all periods presented. Revenues
and operating costs in the consolidated statements of operations now exclude all
accounts of Cragar.
18
REVENUES (in thousands):
Year Ended
------------------------------------------
May 31, % of May 31, % of
2008 Revenue 2007 Revenue Change % Change
---- ------- ---- ------- ------ --------
Project management fees $ 913 7.3 $13,871 53.7 $(12,958) (93.4)
Facility management fees 3,279 26.4 4,452 17.3 (1,173) (26.3)
License fees 2,430 19.5 2,341 9.1 89 3.8
Ticket service fees 4,143 33.3 4,106 15.9 37 0.9
Project development fees 769 6.2 100 0.4 669 NM
Advertising sales commissions 767 6.2 918 3.6 (151) (16.4)
Other revenue 136 1.1 24 0.1 112 NM
------- ----- ------- ----- -------- -----
Gross Revenues $12,437 100.0 $25,812 100.0 $(13,375) (51.8)
======= ===== ======= ===== ======== =====
|
Total revenues decreased $13.4 million, or 51.8%, to $12.4 million for fiscal
year 2008, from $25.8 million in fiscal year 2007. This decrease was the result
of ICC project management revenues which decreased $13.0 million, to $0.9
million in fiscal year 2008, from $13.9 million in fiscal year 2007. This
decrease resulted as ICC construction management projects were in the completion
stages in fiscal 2007, creating significant revenues from procurement of
furniture, fixtures, and equipment on behalf of project owners. The related
revenue and expense for these amounts are recognized in the period incurred.
Facility management fees decreased $1.2 million, or 26.3%, to $3.3 million for
fiscal year 2008 from $4.5 million in fiscal year 2007. This decrease occurred
primarily as a result of cancellation of the management contract with the
Chevrolet Center in Youngstown, Ohio. Encore's current facility management
contracts include the Santa Ana Star Center in Rio Rancho, New Mexico, and Tim's
Toyota Center in Prescott Valley, Arizona, and preopening management fees for
Wenatchee, Washington. Encore principally manages employees under each of its
current facility management contracts and, therefore, payroll costs for such
employees are recognized by Encore as revenue and are also included in cost of
revenues.
License fees increased $0.1 million, or 3.8%, to $2.4 million for fiscal year
2008 from $2.3 million for fiscal year 2007.
Ticket service fees were relatively unchanged at $4.1 million for fiscal year
2008 and the comparable prior year period.
Project development fees were $0.8 million in fiscal year 2008, compared to $0.1
million in the prior year. GPI signed project development agreements with the
City of Allen, Texas and the City of Independence, Missouri in fiscal year 2008,
and received other development fees. With the signing of the agreements with the
City of Allen and the City of Independence we recognized $0.5 million, or
approximately 50% of our contractual development fees. The agreements are
expected to yield GPI additional project management fees of $0.5 million in the
first half of fiscal 2009.
Advertising sales commission decreased $0.2 million, or 16.4%, to $0.8 million
in fiscal year 2008, compared to $0.9 million in the prior year. This decrease
occurred primarily as a result of cancellation of the GEMS contract with the
Chevrolet Center in Youngstown, Ohio. GEMS revenue for services in Wenatchee,
Washington began late in fiscal year 2008, but is not yet at a level comparable
to those from services in Youngstown, Ohio.
19
OPERATING COSTS (in thousands):
Year Ended
------------------------------------------
May 31, % of May 31, % of
2008 Revenue 2007 Revenue Change % Change
---- ------- ---- ------- ------ --------
Cost of revenues $ 6,759 54.4 $20,179 78.2 $(13,420) (66.5)
General and administrative costs 8,443 67.9 8,695 33.7 (252) (2.9)
------- ----- ------- ----- -------- -----
Total Operating Costs $15,202 122.2 $28,874 111.9 $(13,672) (47.4)
======= ===== ======= ===== ======== =====
|
Total operating costs decreased by $13.7 million, or 47.4%, to $15.2 million for
fiscal year 2008 from $28.9 million in the prior fiscal year.
Cost of revenues decreased by $13.4 million, or 66.5%, to $6.8 million for
fiscal year 2008, from $20.2 million for fiscal year 2007. This decrease
resulted primarily because 1) ICC construction management projects were in the
final stages during the prior fiscal year, which generated costs associated with
the purchase and sale of furniture, fixtures, and equipment on behalf of project
owners, and 2) facility management payroll associated with the facility in
Youngstown, Ohio, decreased due to cancellation of the management agreement.
General and administrative expenses decreased $0.3 million, or 2.9%, to $8.4
million for fiscal year 2008 from $8.7 million for fiscal year 2007. Fiscal year
2008 includes approximately $0.8 million in costs associated with litigation and
settlements and $0.2 million in severance. Fiscal year 2007 included $1.6
million in costs associated with litigation and settlements and $0.3 million
minority interest income.
LOSS FROM CONTINUING OPERATIONS (in thousands):
Year Ended
------------------------------------------
May 31, % of May 31, % of
2008 Revenue 2007 Revenue Change % Change
---- ------- ---- ------- ------ --------
Loss from Continuing Operations $(2,924) (23.5) $(2,601) (10.1) $(323) 12.4
======= ===== ======= ===== ===== ====
|
Loss from continuing operations was $2.9 million for fiscal year 2008, compared
to net loss of $2.6 million for the fiscal year 2007. Fiscal year 2008 includes
approximately $0.8 million in costs associated with litigation and settlements,
$0.3 million loss on our investment in PVEC LLC, and $0.2 million in severance.
Fiscal year 2007 included $1.6 million in costs associated with litigation and
settlements.
LIQUIDITY AND CAPITAL RESOURCES
As of May 31, 2008, we have $0.4 million in cash and cash equivalents, including
cash collected for GetTix tickets of approximately $0.3 million for events
scheduled to occur in the future.
Cash used by operating activities for fiscal 2008 was $2.9 million compared to
cash used by operating activities of $0.9 million in the prior fiscal year. This
increase in cash used by operations is attributable primarily to:
* a reduction in trade accounts payable and accrued liabilities of $1.7
million, in part because we funded, in fiscal 2008, legal and
settlement reserves of $0.7 million existing at May 31, 2007;
* an increase in unbilled earnings on the Wenatchee project of $0.8
million; and
* an offset by a reduction in accounts receivable of $1.8 million.
A $0.4 million source of operating capital during fiscal year 2008 was League
license transfer fees. Since League license 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 these or other
sources.
Cash used in investing activities totaled $27.9 million for fiscal year 2008,
compared to cash used in investing activities of $0.3 million in the prior
fiscal year. Of this increase, $27.7 million relates to construction of the
events center in Wenatchee, Washington. The construction costs are being funded
primarily with a construction loan with Marshall Financial Group, LLC, as
reflected as a source of funds in the financing section.
20
Cash provided by financing activities totaled $27.0 million for fiscal year
2008, primarily related to funds received from the construction loan with
Marshall Financial Group, LLC.
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 $1.9 million in cash. Of the proceeds, $0.1 million was used for
transaction-related costs and, as discussed in greater detail below, $1.25
million of the cash received has been set aside in a restricted account as
security for a letter of credit. The remainder of the funds was available for
working capital and general corporate purposes.
In August 2007, we entered into an agreement 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. The outstanding principal balance of the
note bears interest at a rate of prime plus 0.25% (5.25% at May 31, 2008). The
note is payable in its entirety in August 2009. The Greater Wenatchee Regional
Events Center Public Facilities District (PFD) has exercised its option to buy
the events center upon completion of construction, scheduled in October 2008.
When this sale is completed, we will be required to pay the construction loan in
full. Consequently, as of May 31, 2008, the $26.9 million outstanding balance on
the construction loan is classified as short-term notes payable in the
consolidated balance sheet.
Financial covenants of the Marshall note require that we maintain a level of
stockholders' equity of not less than $8.0 million and unrestricted cash, cash
equivalents, time deposits and marketable securities of not less than $3.5
million. As of May 31, 2008, we were not in compliance with these financial
covenants.
Interest on the Marshall note accumulates monthly and increases both notes
payable and investment in Wenatchee project in the consolidated balance sheet.
As of May 31, 2008, $1.1 million of our initial investment in the project was
included in investment in Wenatchee project; as we did not finance this initial
investment with the loan. We expect to finance future investments in the project
with the loan. Expenditures on the project are generally incurred in one month
and financed with the loan in the following month, when a draw request is
submitted Marshall.
We have a $1.75 million line of credit that matures on November 1, 2008, and
bears interest at a rate of prime plus 2% (7.0% at May 31, 2008). As of May 31,
2008, 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. At May 31, 2008, and as of the date
of this filing, we had a maximum borrowing capacity of $0.5 million, as a result
of a $1.25 million letter of credit in favor of Marshall, which reduced our
available line of credit. We deposited $1.25 million of the proceeds from the
disposition of Cragar with the bank in August 2008, as security for the letter
of credit. These funds are restricted, and unavailable to us, as long as the
letter of credit is outstanding. The letter of credit currently expires in
August 2009; however we expect the letter of credit to be surrendered by
Marshall in October 2008 when we intend to repay our construction loan with
proceeds from the sale of the events center in Wenatchee, Washington. The PFD
intends to issue bonds to finance its purchase of the facility. The success of
the bond issuance cannot be guaranteed.
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 $5 million as of the date of the amendment,
August 21, 2006, 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 of May 31
thereafter until maturity. We must maintain a zero balance for a consecutive 30
day period during the term of the facility. As of May 31, 2008, we were not in
compliance with the tangible net worth covenant; however, the bank has waived
this covenant violation.
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 May 31, 2009. We expect cash and cash flow will be low
in the first quarter of fiscal 2009, and remain low until the sale of the
Wenatchee events center in October 2008. We do not expect to borrow under the
letter of credit, since any advances will require us to deposit cash in the
amount of the requested advance. If we continue to not maintain compliance with
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 may be required to refinance all or part
21
of our existing debt. We cannot guarantee that we would be able to do so on
terms acceptable to us, if at all.
ECONOMIC FACTORS AND SEASONALITY
General economic factors, which are largely out of our control, may have a
materially adverse effect on our results of operations. Economic conditions may
adversely affect our customers' ability to pay for our services or interest in
our services. Economic conditions, particularly high gasoline prices, may also
have an adverse impact on arena operations, if customers of the arenas purchase
fewer tickets to arena events or decide not to renew season tickets or other
contracts.
We experience significant seasonality in our cash flows from assessment fees,
and must budget our cash flow accordingly. Approximately 75% of annual league
assessment fees are received prior to the start of the League hockey season in
October of each year.
INFLATION
We do not believe that inflation has been a material factor in our prior
operations, nor do we anticipate that general price inflation will have a
significant impact on our operations in the near future.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2006, the FASB issued FASB Interpretation No. 48 (FIN No. 48), "An
Interpretation of FASB Statement No. 109," which clarifies the accounting for
uncertainty in income taxes. This Interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN
No. 48 reflects the benefit recognition approach, where a tax benefit is
recognized when it is more likely than not to be sustained based on the
technical merits of the position. We adopted FIN No. 48 on June 1, 2007, and
there was no material effect on our financial position or results of operations.
In September 2006, the Financial Accounting Standard Board issued a Statement of
Financial Accounting Standard No. 157 (SFAS 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. This statement is effective for our fiscal year
beginning June 1, 2008, and interim periods within that fiscal year. The
adoption of SFAS 157 is not expected to have a material effect 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. This statement is effective for our fiscal year beginning June 1, 2008. We
do not expect SFAS No. 159 will have a material effect on our financial position
or results of operations.
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 expanded
disclosures. This statement is effective for our fiscal year beginning June 1,
2008. We have not yet evaluated the effect SFAS No. 160 will have on our
financial position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Global Entertainment Corporation and Subsidiaries
Phoenix, Arizona
We have audited the accompanying consolidated balance sheets of Global
Entertainment Corporation and subsidiaries as of May 31, 2008 and 2007, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Global Entertainment
Corporation and subsidiaries at May 31, 2008 and 2007, and the results of its
operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States.
/s/ Semple, Marchal & Cooper, LLP
-----------------------------------------
Phoenix, Arizona
August 27, 2008
|
23
GLOBAL ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
May 31, 2008 and 2007
(in thousands, except share and per share amounts)
2008 2007
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 443 $ 4,252
Accounts receivable, net of $2 and $557
allowance at May 31, 2008 and 2007 1,111 3,420
Prepaid expenses and other assets 239 706
Income taxes receivable -- 63
Deferred income tax asset -- 14
Investment in Wenatchee project 34,473 --
Assets to be disposed 2,167 302
-------- --------
TOTAL CURRENT ASSETS 38,433 8,757
Property and equipment, net 266 149
Goodwill 519 519
Other assets 108 81
Minority interests 38 --
Assets to be disposed -- 2,800
-------- --------
TOTAL ASSETS $ 39,364 $ 12,306
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,718 $ 3,123
Accrued liabilities 750 1,605
Deferred revenues 24 240
Notes payable - current portion 27,220 --
Liabilities related to assets to be disposed 233 318
-------- --------
TOTAL CURRENT LIABILITIES 35,945 5,286
Deferred income tax liability 117 66
Notes payable - long-term portion 180 --
-------- --------
TOTAL LIABILITIES 36,242 5,352
-------- --------
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;
6,625,114 and 6,508,173 shares issued and outstanding as of
May 31, 2008 and 2007 7 7
Paid-in capital 10,930 10,731
Retained deficit (7,815) (3,784)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 3,122 6,954
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 39,364 $ 12,306
======== ========
|
The accompanying notes are an integral part of
the consolidated financial statements.
24
GLOBAL ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended May 31, 2008 and 2007
(in thousands, except share and per share amounts)
2008 2007
---------- ----------
REVENUES:
Project management fees $ 913 $ 13,871
Facility management fees 3,279 4,452
License fees 2,430 2,341
Ticket service fees 4,143 4,106
Project development fees 769 100
Advertising sales commissions 767 918
Other revenue 136 24
---------- ----------
TOTAL REVENUES 12,437 25,812
---------- ----------
OPERATING COSTS:
Cost of revenues 6,759 20,179
General and administrative costs 8,443 8,695
---------- ----------
TOTAL OPERATING COSTS 15,202 28,874
---------- ----------
INCOME (LOSS) FROM OPERATIONS (2,765) (3,062)
OTHER INCOME (EXPENSE):
Interest income 94 247
Interest expense (40) (12)
Minority interests 38 304
Loss on investment in PVEC, LLC (251) --
Impairment of non-marketable securities -- (78)
---------- ----------
TOTAL OTHER INCOME (EXPENSE) (159) 461
---------- ----------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (2,924) (2,601)
INCOME TAX BENEFIT 105 --
---------- ----------
LOSS FROM CONTINUING OPERATIONS (2,819) (2,601)
LOSS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES (1,212) (1,524)
---------- ----------
NET LOSS $ (4,031) $ (4,125)
========== ==========
LOSS PER SHARE:
Basic-
Loss from continuing operations $ (0.43) $ (0.40)
Loss from discontinued operations (0.19) (0.23)
---------- ----------
Net loss $ (0.62) $ (0.63)
========== ==========
Diluted-
Loss from continuing operations $ (0.43) $ (0.40)
Loss from discontinued operations (0.19) (0.23)
---------- ----------
Net loss $ (0.62) $ (0.63)
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 6,545,292 6,502,736
========== ==========
Diluted 6,545,292 6,502,736
========== ==========
|
The accompanying notes are an integral part of
the consolidated financial statements.
25
GLOBAL ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended May 31, 2008 and 2007
(in thousands, except share amounts)
Common Stock Retained
---------------------- Paid-in Earnings
Shares Amount Capital (Deficit) Total
------ ------ ------- --------- -----
BALANCE AT MAY 31, 2006 6,487,492 $ 7 $ 10,666 $ 341 $ 11,014
Exercise of options 10,681 -- 9 -- 9
Issuance of restricted stock 10,000 -- 56 -- 56
Net loss for the fiscal year
ended May 31, 2007 -- -- -- (4,125) (4,125)
--------- ------ -------- -------- --------
BALANCE AT MAY 31, 2007 6,508,173 7 10,731 (3,784) 6,954
Exercise of options 13,941 -- -- -- --
Issuance of restricted stock 3,000 -- 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
========= ====== ======== ======== ========
|
The accompanying notes are an integral part of
the consolidated financial statements.
26
GLOBAL ENTERTAINMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended May 31, 2008 and 2007
(in thousands)
2008 2007
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,031) $ (4,125)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation 142 130
Deferred income taxes 65 --
Unbilled earnings on Wenatchee project (766) (378)
Provision for doubtful accounts 121 522
Loss on investment in PVEC, LLC 251 --
Issuance of stock to vendors 163 24
Other non-cash items (2) 78
Discontinued operations and related impairment charges 828 1,003
Changes in assets and liabilities, net of businesses
acquired and disposed-
Accounts receivable 1,810 3,114
Prepaid expenses and other assets 431 (295)
Income taxes receivable 63 --
Accounts payable (877) (10)
Accrued liabilities (855) (47)
Deferred revenues (216) (960)
-------- --------
Net cash used in operating activities (2,873) (944)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (250) (86)
Investment in Wenatchee construction project (27,704) --
Discontinued operations 22 (76)
Other investing activities -- (89)
-------- --------
Net cash used in investing activites (27,932) (251)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable proceeds 27,204 --
Notes payable payments (208) --
Other financing activities -- 9
-------- --------
Net cash provided by financing activities 26,996 9
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,809) (1,186)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,252 5,438
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 443 $ 4,252
======== ========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 36 $ 14
======== ========
Income taxes paid (received) $ (135) $ --
======== ========
|
The accompanying notes are an integral part of
the consolidated financial statements.
27
GLOBAL ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS,
AND USE OF ESTIMATES
DESCRIPTION OF THE COMPANY
Global Entertainment Corporation (referred to in this annual 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, and Encore Facility Management.
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 states, including Texas, Colorado, Kansas, Louisiana,
Mississippi, New Mexico, Oklahoma, and Arizona. There were 17 teams in the
2007-08 season and 18 teams in the 2006-07 season. In the 2007-2008 season 13
teams were licensed by WPHL and in the 2006-2007 season 14 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.
During the year ended May 31, 2007, we began operations of Global Properties I
(GPI) which provides services in targeted mid-sized communities across the
United States related to the development of multipurpose events centers and
surrounding multi-use real estate development.
GPI, along with International Coliseums Company, Inc. (ICC), develops
multipurpose events centers in mid-market communities. ICC'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. The inter-relationship between GPI, ICC and
WPHL is a key factor in the viability of a managed multipurpose entertainment
facility.
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 and ICC, 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.
In February 2006, we formed Encore Facility Management (Encore), a single source
management entity that 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 a
multipurpose events centers developed by GPI and ICC. Facility management
operations are conducted under separate limited liability companies.
28
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 has been set aside in a restricted
account as security for a letter of credit. The remainder of the funds was made
available for working capital and general corporate purposes.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Global Entertainment Corporation and its wholly owned subsidiaries, WPHL, GPI,
ICC, GEMS, Encore, GetTix and Cragar, as well as the limited liability companies
formed for facility management. Intercompany balances and transactions have been
eliminated in consolidation.
DISCONTINUED OPERATIONS
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 consolidated statements of operations for all periods presented.
RECLASSIFICATIONS
Certain balances have been reclassified in the accompanying consolidated
financial statements to conform to the current year presentation.
ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
We consider all highly liquid investments purchased with an original maturity of
three months or less to be cash and cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable represent amounts due from municipalities for services in
relation to construction and project management; license fees due and
receivables from merchant banks for credit card ticket sales, and other
receivables from customers. We follow the allowance method of recognizing
uncollectible accounts receivable. The allowance method recognizes bad debt
expense based on a review of individual accounts outstanding and our prior
history of uncollectible accounts receivable. We record delinquent finance
charges on outstanding accounts receivable only if they are collected. Accounts
receivable are generally unsecured. If market conditions decline, actual
collection experience may not meet expectations and may result in increased
delinquencies.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed under the straight-line method for financial statement
purposes and under accelerated methods for income tax purposes. Repairs and
maintenance expenses are charged to operations as incurred. Betterment or
renewals are capitalized as incurred.
We review property and equipment for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment recognized is measured by the amount by which the carrying amount of
the assets exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell.
GOODWILL
We evaluate goodwill and other intangibles for impairment annually, and when
impairment indicators arise, in accordance with Statement of Financial
Accounting Standard No. 142 (SFAS142), "Goodwill and Other Intangible Assets".
29
For goodwill, we first compare the fair value of a reporting unit with its
carrying amount, including goodwill. If the carrying amount of a reporting unit
exceeds the fair value of a reporting unit, additional tests would be used to
measure the amount of impairment loss, if any. We use a present value technique
to measure reporting unit fair value. If the carrying amount of any other
intangible asset exceeds its fair value, we would recognize an impairment loss
for the difference between fair value and the carrying amount. We have not
recognized any impairment losses to date on goodwill. If events occur and
circumstances change, causing the fair value of a reporting unit to fall below
its carrying amount, impairment losses may be recognized in the future.
DEFERRED REVENUES
Deferred revenues represent various fees received for which substantially all of
the services have not yet been performed. The revenues will be recognized when
the obligations of the agreement are met and the earnings cycle has been
completed.
MINORITY INTERESTS
We have entered into a joint operating agreement with CHL Inc. Under the terms
of the joint operating agreement, WPHL will handle all operating functions of
the combined league, with the profit or loss from league operations being split
between WPHL, Inc. and CHL Inc. based upon the number of teams from the
respective leagues. We consolidate league operations and CHL Inc.'s portion of
operations is recorded as minority interests. The allocation of expenses and
division of profits involves some degree of estimation. Changes in these
estimates could affect the allocation of profit or loss under the terms of the
joint operating agreement.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Accounts receivable, accounts payable, accrued liabilities and notes payable are
substantially current and bear reasonable interest rates. As a result, the
carrying values of these financial instruments are deemed to approximate fair
values.
REVENUE RECOGNITION
License Fees: License fees include initial acquisition fees, transfer fees and
annual assessments. Initial license fees represent amounts received from League
licensees to acquire a hockey license. Transfer license fees represent the
amounts received upon the transfer of ownership of an existing license. We
recognize initial fees and transfer fees when we have met all of our significant
obligations under the terms of the license agreement. Each arrangement is
unique, however, under the standard license agreement, we are generally
responsible for assisting the licensee with facility lease contract negotiations
(if a lease has not yet been secured), venue ticketing analysis and pricing,
concessionaire negotiations and staffing advisements. These generally occur at
the time the licensee acquires a license. Pursuant to the terms of the joint
operating agreement, each team in the League also pays annual assessment fees of
$75 thousand, plus $15 thousand per annum for officiating costs. In addition,
the teams from WPHL pay an extra $10 thousand annually to cover our costs. The
fees are recognized ratably over the year in proportion to the expenses expected
to be incurred. At the end of the year, net profits, or losses are shared
proportionately with each member of the joint operating agreement.
Advertising Sales Commission: GEMS sells certain contractual rights, including
facility naming rights, luxury suite sales, club seat license sales and facility
sponsorship agreements. The revenue from these contracts is recognized when
earned in accordance with the contract.
Project Management Fees: ICC receives design/build and construction-project
supervisory contract revenue from various municipalities in connection with the
construction of municipal venues. This revenue is recognized ratably over the
duration of the contracts. Project management fees also include amounts we
billed relating to furniture, fixtures and equipment, architecture fees, and
other amounts we incur on behalf of municipalities. The related revenue and
expense for these amounts are recognized in the period incurred. Revenues and
costs from fixed-price and modified fixed-price construction contracts, are
recognized for each contract on the percentage-of-completion method, measured by
the percentage of costs incurred to date to the estimated total direct costs. As
contracts can extend over one or more accounting periods, revisions in costs and
earnings estimated during the course of the work are reflected during the
accounting period in which the facts that required such revision become known.
Project management revenues are recorded based on the gross amounts billed to a
customer in accordance with EITF 99-19, "Reporting Revenue Gross as a Principal
versus Net as an Agent".
30
Project Development Fees: GPI targets mid-sized communities across the United
States providing our services related to the development of multipurpose events
centers and surrounding multi-use real estate development. Project development
fees are recognized according to specific contract terms; typically 50% upon
signing of a development contract and 50% upon construction groundbreaking.
Facility Management Fees: Encore earns fees for managing the operations of
various municipal venues. These activities include developing operating
procedures and manuals, hiring all staff, supporting sales and marketing,
location maintenance, concessions coordination, preparing annual budgets, and
securing and promoting events. Revenues from facility management services are
recognized as services are rendered and consist of contract fees, which reflect
the total price of such services. The payroll costs related to employees working
at the facilities are included in cost of revenues.
Ticket Service Fees: GetTix is a ticketing agent with various venues, theaters,
event centers, and private entities requiring services to fulfill orders to
ticketed events. Revenues are generated from the fees charged for processing
ticket orders. These revenues are recognized upon completion of the sale.
Ticketing revenues are recorded based on the net fees retained by GetTix in
accordance with EITF 99-19.
ARENA GUARANTEES
We have entered into various contracts with facilities which guarantee certain
economic performance standards. In the event these economic performance
standards are not reached, we are liable for the difference between the actual
performance and the guaranteed performance. We estimate and accrue an obligation
for an estimate of our potential liability under these guarantees, taking into
consideration our experience with similar facilities, the economic environment,
among other factors. It is often not possible to estimate a potential liability
under these guarantees because of the conditional nature of our obligations and
the unique facts and circumstances involved in each agreement. If economic
conditions, or other facts and circumstances were to change, this could cause an
increase in our potential liability and a charge to earnings.
INCOME TAXES
We estimate our actual current tax exposure together with the temporary
differences that have resulted from the differing treatment of items dictated by
generally accepted accounting principles versus United States tax laws. These
temporary differences result in deferred tax assets and liabilities. On an
on-going basis, we assess the likelihood that our deferred tax assets will be
recovered from future taxable income. If we were to believe the recovery was
less than likely, we would establish a valuation allowance against the deferred
tax asset and charge the amount as an income tax expense in the period in which
such a determination was made.
Interest is charged to interest expense and penalties are charged to general and
administrative costs if there are any assessments.
STOCK-BASED COMPENSATION
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.
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 consolidated financial statements.
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 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.
31
ACCOUNTING DEVELOPMENTS
In June 2006, the FASB issued FASB Interpretation No. 48 (FIN No. 48), "An
Interpretation of FASB Statement No. 109," which clarifies the accounting for
uncertainty in income taxes. This Interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN
No. 48 reflects the benefit recognition approach, where a tax benefit is
recognized when it is more likely than not to be sustained based on the
technical merits of the position. We adopted FIN No. 48 on June 1, 2007, and
there was no material effect on our financial position or results of operations.
In September 2006, the Financial Accounting Standard Board issued a Statement of
Financial Accounting Standard No. 157 (SFAS 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. This statement is effective for our fiscal year
beginning June 1, 2008, and interim periods within that fiscal year. The
adoption of SFAS 157 is not expected to have a material effect 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. This statement is effective for our fiscal year beginning June 1, 2008. We
do not expect SFAS No. 159 will have a material effect on our financial position
or results of operations.
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 expanded
disclosures. This statement is effective for our fiscal year beginning June 1,
2008. We have not yet evaluated the effect SFAS No. 160 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
diluted EPS equals the basic calculation in each year presented because common
stock equivalents were antiduilutive due to losses from continuing operations
for each of the years presented.
32
Reconciliations of the numerators and denominators in the EPS computations for
loss from continuing operation follow:
2008 2007
---------- ----------
NUMERATOR (in thousands):
Basic and diluted - loss from continuing operations $ (2,924) $ (2,601)
========== ==========
DENOMINATOR:
Basic EPS - weighted average shares outstanding 6,545,292 6,502,736
Effect of dilutive securities -- --
---------- ----------
Diluted EPS - weighted average shares outstanding 6,545,292 6,502,736
========== ==========
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 $4.82 and $4.79) 463,622 592,827
Warrants (average price of $6.32) 275,760 275,760
Restricted stock 15,399 13,501
|
The impacts of all outstanding options, warrants and restricted stock
outstanding at May 31, 2008, were not included in the calculation of diluted EPS
for fiscal year 2008, because to do so would be antidilutive. They could
potentially dilute EPS in the future.
INVESTMENT IN WENATCHEE PROJECT
We are providing 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 project of $34.5 million on the consolidated
balance sheets represents costs and estimated earnings in excess of billings on
this construction project, which we own until construction is complete and the
facility is sold, which is expected in October 2008. Revenues earned on this
project are 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 are considered. This cost-to-cost method is used because
management believes costs are the best available measure of our progress on this
fixed-price contract, which may be modified by incentive and penalty provisions.
At May 31, 2008, investment in Wenatchee project consisted of costs incurred of
$33.4 million and estimated earnings of $1.1 million. Estimated earnings of $0.9
million have been included in project management fees and $0.2 million in
project development fees in the consolidated statements of operations through
May 31, 2008. Under the terms of our construction management agreement, we are
not able to bill the City for our services and will receive our revenue out of
the proceeds from the sale of the facility.
Costs associated with the project, including all direct and indirect costs,
including contract supervision and interest during the construction period, are
being recorded as investment in Wenatchee project until the building is
completed. Accumulated interest through May 31, 2008, totals $0.8 million. We
expect project costs to total between $52 million and $54 million. The Greater
Wenatchee Regional Events Center Public Facilities District has exercised its
option to buy the events center upon completion of construction, scheduled in
October 2008.
In August 2007, we entered into an agreement with Marshall Financial Group, LLC
(Marshall) to borrow up to $52.0 million for the construction of the facility.
As of May 31, 2008, $1.1 million of our initial investment in the project was
included in investment in Wenatchee project but we did not finance this initial
investment with the loan. We expect to finance future investments in the project
with the loan. Expenditures on the project are generally incurred in one month
and financed with the loan in the following month, when a draw request is
submitted to Marshall.
At May 31, 2008, approximately $5.6 million of payables related to expenditures
on the project were included in accounts payable.
33
PROPERTY AND EQUIPMENT
As of May 31, 2008 and 2007, property and equipment was comprised of the
following (in thousands):
2008 2007
-------- --------
Office furniture and equipment $ 308 $ 241
Computer equipment 392 369
-------- --------
700 610
Less: accumulated depreciation (434) (461)
-------- --------
$ 266 $ 149
======== ========
|
The initial estimated useful lives for depreciation purposes range from two to
seven years.
PVEC, LLC JOINT VENTURE
During the fiscal year ended May 31, 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 as 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.
Each member must contribute $1 thousand for a 50% interest in the joint venture.
We will also contribute $250 thousand as preferred capital while Prescott Valley
Signature Entertainment, LLC contributed land with an approximate value of $1.5
million as preferred capital. Because we have committed to pay our initial
capital contributions, these amounts are recorded in accounts payable in our
consolidated balance sheets. Further, because PVEC LLC is sustaining losses, and
profitable future operation is not assured, we have recorded losses on our
investment, in the amount of $251 thousand, to bring our investment to zero.
Each member will receive a 5% return on preferred capital contributions and will
share equally in the gain or loss of PVEC, LLC. If funds available to PVEC, LLC
are insufficient to fund operations, the members agree 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.
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.
We have a limited guarantee of the cash flow of PVEC, LLC as cash flows from
operations of the center are first used to pay operating expenses, second to our
base management fee (4% of the center's operating revenue), third to debt
service, then to fund other items. The maximum losses under this guarantee are
limited to our annual management fee. We do not believe any potential payments
under this guarantee would be material.
34
PVEC, LLC's fiscal year ends December 31. Unaudited financial information for
PVEC, LLC, as of and for the years ended December 31, 2007 and 2006 follows (in
thousands):
2007 2006
-------- --------
Operating Revenues $ 5,514 1,352
TPT Revenues 731 --
Operating Expenses 7,285 1,344
Interest Expense 2,432 250
Loss Before Income Tax 3,332 --
As of Period End
Property and Equipment 31,357 32,621
Total Assets 36,627 43,527
Bonds Payable 35,000 35,000
Partners' Equity (1,591) 1,740
|
Our consolidated financial statements reflect the following for the years ended
May 31, 2008 and 2007, related to transactions between us and PVEC, LLC (in
thousands).
2008 2007
-------- --------
Facility management fees, exclusive of payroll (Encore) $ 54 $ 52
Facility management fees, payroll related (Encore) 878 779
Advertising sales commission (GEMS) 229 180
Ticket service feees (GetTix) 192 305
Cost of revenues - facility payroll (Encore) 878 779
Accounts payable at end of period 251 225
Accounts receivable at end of period 101 84
|
PROVISION FOR INCOME TAXES
The actual income tax benefit differs from the expected income tax benefit
computed by applying the United States Federal corporate statutory income tax
rate to loss from continuing operations for fiscal years 2008 and 2007 as
follows (in thousands):
2008 2007
-------- --------
Computed expected tax benefit $ (994) $ (884)
Meals and entertainment and
miscellaneous expenses 26 6
Exercise and sale of qualified options 25 --
Valuation allowance, primarily on benefit
of net operating loss carryforwards 1,008 1,030
State income taxes (170) (152)
------- -------
Income tax benefit $ (105) $ --
======= =======
|
The $105 thousand benefit is primarily current and includes a current tax
benefit of $75 thousand resulting from the carryback of net operating losses.
35
At May 31, 2008 and 2007, deferred tax assets and liabilities consisted of the
following (in thousands):
2008 2007
-------- --------
Deferred Tax Asset:
Allowance for doubtful accounts $ 1 $ 223
Net operating loss carryforwards 2,594 1,743
------- -------
2,595 1,966
Less: valuation allowance (2,595) (1,952)
------- -------
Deferred Tax Asset $ -- $ 14
======= =======
Deferred Tax Liabilites, Long Term-
depreciation $ (117) $ (66)
======= =======
|
We have established a valuation allowance due to the uncertainty in the
utilization of net operating loss carryforwards. In fiscal years 2008 and 2007,
the valuation allowance increased in fiscal years 2008 and 2007 to reflect the
status of net operating loss carryforwards.
The loss carryforwards acquired in the merger with Cragar were limited as to use
under IRC Section 382. In connection with the sale of Cragar in August 2008,
those carryforwards will no longer be available, to the extent not available at
May 31, 2008, and the related deferred tax assets have been written off
effective May 31, 2008. Our federal and state net operating loss carryforwards,
exclusive of those limited as to use under IRC Section 382, as of May 31, 2008,
totaled approximately $6.3 million. Net operating loss carryforwards will expire
in 2028 for federal tax purposes and 2013 for state tax purposes.
NOTES PAYABLE
In August 2007, we entered into an agreement 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. The outstanding principal balance of the
note bears interest at a rate of prime plus 0.25% (5.25% at May 31, 2008). The
note is payable in its entirety in August 2009. The Greater Wenatchee Regional
Events Center Public Facilities District has exercised its option to buy the
events center upon completion of construction, scheduled in October 2008. At the
time we sell the events center we will be required to pay the construction loan
in full. Consequently, as of May 31, 2008, the $26.9 million outstanding balance
on the construction loan is classified as short-term notes payable in the
consolidated balance sheet. Interest on the Marshall note accumulates monthly
and increases both note payable and investment in Wenatchee project in the
consolidated balance sheet.
Financial covenants of the Marshall note require that we maintain a level of
stockholders' equity of not less than $8.0 million and unrestricted cash, cash
equivalents, time deposits and marketable securities of not less than $3.5
million. As of May 31, 2008, we were not in compliance with these financial
covenants.
We have a $1.75 million line of credit, with a bank, that matures on November 1,
2008, and bears interest at a rate of prime plus 2% (7.0% at May 31, 2008). As
of May 31, 2008, 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. At May 31, 2008, we
had a maximum borrowing capacity of $0.5 million, as a result of a $1.25 million
letter of credit in favor of Marshall, which reduced our available line of
credit. We deposited $1.25 million of the proceeds from the disposition of
Cragar with the bank in August, 2008, as security for the letter of credit.
These funds are restricted, and unavailable to us, while the letter of credit is
outstanding. The letter of credit currently expires in August 2009, however we
expect the letter of credit to be surrendered by Marshall in October 2008 when
we intend to repay our construction loan with proceeds from the sale of the
events center in Wenatchee, Washington. The PFD intends to issue bonds to
finance its purchase of the facility. The success of the bond issuance cannot be
guaranteed.
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 $5 million as of the date of the amendment,
August 21, 2006, and an increase in tangible net worth of at least 75% of
consolidated net income plus 100% of all increases of equity (including the
36
amount of any stock offering or issuance) on each anniversary date of May 31
thereafter until maturity. We must maintain a zero balance for a consecutive 30
day period during the term of the facility. As of May 31, 2008, we were not in
compliance with the tangible net worth covenant; however, the bank has waived
this covenant violation.
In fiscal year 2008, we entered into a note payable 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.
In fiscal year 2008, we entered into an agreement with a vendor to finance $0.4
million of accounts payable under a note. The note bears interest at 8.3% and is
payable in monthly installments of $84 thousand through July 2008.
Principal maturities of notes payable are as follows (in thousands):
Marshal Settlement Vendor Total
Construction Note Note Notes
Fiscal Year Loan Payable Payable Payable
----------- ---- ------- ------- -------
2009 $26,867 $ 103 $ 250 $27,220
2010 -- 111 -- 111
2011 -- 69 -- 69
------- ------- ------- -------
$26,867 $ 283 $ 250 $27,400
======= ======= ======= =======
|
EQUITY
WARRANTS
During fiscal year 2006 we issued warrants to acquire shares of its common stock
to select qualified institutional and other investors and placement agents
related to a private placement of its common stock. During fiscal years 2008 and
2007, we had 275,760 warrants outstanding to purchase common stock. All of the
warrants are convertible into one share of common stock and carried initial
terms of five years. All of the warrants are vested and exercisable as of May
31, 2008.
Information with respect to warrants outstanding and exercisable at May 31,
2008, is as follows:
Number of Weighted
Warrants Average Weighted
Outstanding Remaining Average
Exercise and Contractual Exercise
Price Exercisable Term (in years) Price
----- ----------- --------------- -----
$3.50 20,000 0.80 $3.50
$3.55 39,960 0.33 3.55
$7.10 215,800 2.85 7.10
------- ----- -----
275,760 2.34 $6.32
======= ===== =====
|
OPTIONS
During 2000, we adopted the 2000 Long-Term Incentive Plan. The plan authorizes
our Board of Directors to grant both qualified incentive and non-qualified stock
options and restricted stock awards to selected officers, key employees, outside
consultants and directors for up to an aggregate of 750,000 shares of common
stock, as amended during fiscal year 2004. As of May 31, 2008, a total of
207,392 options remained available for issuance under the plan. These options
were issued to various directors, employees and consultants. Vesting of options
is at the discretion of the Board of Directors and all outstanding options are
fully vested as of May 31, 2008. Options issued under the plan have a maximum
term of 10 years. The exercise price of each option is equal to the market price
of our common stock on the date of grant.
37
The following summarizes option activity in fiscal years 2008 and 2007:
Weighted
Weighted Average Aggregate
Average Remaining Intrinsic
Number of Exercise Contractual Value
Options Price Term (in years) (in thousands)
------- ----- --------------- --------------
Outstanding at May 31, 2006 679,000 $4.66 6.80 $ 536
Exercised (19,351) 3.54 62
Forfeited (19,750) 5.97
-------- ----- ----- -----
Outstanding at May 31, 2007 639,899 4.65 5.80 160
Exercised (65,000) 3.58 64
Forfeited (184,142) 4.60
-------- ----- ----- -----
Outstanding at May 31, 2008 390,757 $4.89 5.16 $ --
======== ===== ===== =====
|
The following table summarizes additional information about out stock option
exercises in fiscal years 2008 and 2007.
2008 2007
-------- --------
Cashless Exercises-
Number of options exercised 65,000 16,851
Shares issued 13,941 8,181
Cash Exercises-
Number of options exercised -- 2,500
Cash proceeds (in thousands) $ -- $ 9
|
Additional information about outstanding options to purchase common stock as of
May 31, 2008, follows:
Number of Weighted
Options Average Weighted
Outstanding Remaining Average
Exercise and Contractual Exercise
Price Exercisable Term (in years) Price
----- ----------- --------------- -----
$3.50 166,500 4.58 $3.50
$3.55 49,757 0.33 3.55
$4.50 7,500 6.09 4.50
$5.40 60,000 7.01 5.40
$5.75 41,500 6.74 5.75
$8.50 65,500 7.47 8.50
------- ----- -----
390,757 5.16 $4.89
======= ===== =====
|
RESTRICTED STOCK
During fiscal 2007, we adopted the 2007 Long-Term Incentive Plan. The plan
authorizes the Board of Directors to grant restricted stock awards to selected
officers, employees, and outside consultants for up to an aggregate of 320,000
shares of common stock. Awards to non-employee directors vest over two years,
awards to officers and employees vest over four years, and awards made to
consultants or advisors shall vest as determined by the Compensation Committee
of the Board of Directors.
38
The following tables summarize restricted stock information for fiscal years
2008 and 2007:
2008 2007
-------- ---------
Restricted stock related expenses (in thousands)-
General and administrative costs $ 72 $ 24
Unrecognized compensation cost at end of period $ 53 $ 28
Weighted average period over which unrecognized
compensation will be recognized 1.9 years 0.3 years
Available for grant as of period end 286,500 305,000
|
2008 2007
------------------------ ------------------------
Weighted Weighted
Restricted Average Restricted Average
Stock Grant Date Stock Grant Date
Shares Fair Value Shares Fair Value
------ ---------- ------ ----------
Unvested as of beginning of period 15,000 $5.87 -- $ --
Unvested as of end of period 20,500 3.82 15,000 5.87
Granted during the period 18,500 3.60 15,000 5.87
Vested during the period 13,000 5.88 -- --
|
Restricted stock grants to consultants are revalued as of each reporting period
end until the measurement date has been reached.
OTHER EQUITY MATTERS
In February 2008, we issued 100,000 shares of common stock, valued at $1.63 per
share, in connection with the settlement of a legal matter.
We have never paid cash dividends on our common stock and do not anticipate
doing so in the foreseeable future. In addition, our bank credit facility
restricts our ability to pay dividends. Our current policy is to retain any
earnings to finance operations and expand our business.
COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
In connection with the construction project in Wenatchee, Washington, we have
purchase commitments for construction, furniture and fixtures totaling
approximately $14.1 million at May 31, 2008.
OPERATING LEASES
We lease 10,392 square feet of office space for our Tempe, Arizona headquarters
pursuant to a lease with a sixty-six month initial term beginning February 2008.
The lease is renewable for an additional sixty-month period. Leasehold
improvements on at the location are depreciated over the initial lease term.
Non-level rents are recognized on a straight-line basis over the initial lease
term.
In addition we are committed under a phone agreement and maintenance contract to
pay $7 thousand monthly though June 2009.
The minimum lease payments and minimum annual fees under our operating lease and
maintenance contracts, with original terms over one year, are as follows: $365
thousand in fiscal year 2009, $283 thousand in fiscal year 2010, $289 thousand
in fiscal 2011, $295 thousand in fiscal year 2012, and $295 thousand in fiscal
year 2013.
39
LITIGATION
As with all entertainment facilities there exists a degree of risk that the
general public may be accidentally injured. As of May 31, 2008, 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 a former
licensee, Blue Line Hockey, LLC (Blue Line), which operates the Youngstown
Steelhounds. Our claim is for approximately $115 thousand in unpaid license and
assessment fees owed by Blue Line, plus our attorneys' fees. Blue Line's
counterclaim alleges 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 seeks rescission of the license
agreement, reimbursement of its license fee, and reimbursement of travel
expenses for the 2005-2006 season. Although the outcome of this matter cannot be
predicted with certainty, we believe that we have both valid claims and valid
defenses to the counterclaims. Thus, we intend to vigorously prosecute our
claims and defend the counterclaims. No liability has been established at May
31, 2008, related to this matter.
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. This suit was filed in December 2005, and was pending in
the Maricopa County Superior Court of Arizona. We settled the matter with a
combination of stock, cash and a note payable in fiscal year 2008. We are
currently waiting for dismissal. Fiscal 2008 results reflect the related charges
in general and administrative costs.
Global was the claimant and counter-respondent in an arbitration against Global
Spectrum, L.P. (Spectrum). This arbitration was being conducted by the American
Arbitration Association in Phoenix, Arizona, and stemmed from a settlement
agreement entered into between Global and Spectrum. Global sought the
arbitrators' declaration that Global was not obligated to make any more payments
to Spectrum under the settlement agreement alleging that Spectrum misrepresented
material facts to induce Global to execute the settlement agreement. Fiscal 2008
results reflect charges related to settling this matter in general and
administrative costs.
International Coliseums Company was the plaintiff in a lawsuit it filed against
the City of Youngstown, Ohio. The lawsuit sought a determination that the City
took certain actions which prohibited ICC from performing as contracted under
the management agreement between the parties. We established a reserve to
reflect the estimated settlement costs in fiscal 2007 and settled the matter in
fiscal 2008. Fiscal 2007 results reflect the related charges in general and
administrative costs. The settlement eliminated the contingency related to
certain guaranteed economic performance standards in the Youngstown, Ohio
facility contract.
General and administrative costs in fiscal years 2008 and 2007, include
approximately $0.8 and $1.6 million in costs associated with litigation and
settlements.
CONTINGENCIES
Pursuant to the joint operating agreement between CHL, Inc. and WPHL, CHL, Inc.
had an option to purchase all of WPHL's interests and rights related to WPHL
teams operating under the joint operating agreement, and any other hockey
related assets of the WPHL, beginning in 2011. Under the terms of the
modification to the joint operating agreement entered into in June 2008, 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.
We enter into indemnification provisions under our agreements with other
companies in our 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 May 31, 2008.
40
As of May 31, 2008, 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 have entered into a contract with the entertainment facility in Rio Rancho,
New Mexico which guarantees certain economic performance standards. The term of
this contract is for a period of 10 years and expires in December 2014. In the
event these economic performance standards are not reached, we are obligated to
subsidize the difference between the actual performance and the guaranteed
performance. There are no recourse provisions under this agreement. The maximum
amount of future payments we could be required to make under the performance
guarantee is theoretical due to various unknown factors. However, the subsidy
would be limited to the cumulative operating losses of the facility for each
year of the guarantee. We have never made a material subsidy from this guarantee
and do not believe that any potential subsidy would be material.
In February 2008, we entered into a management agreement with the City of Allen,
Texas relative to a multi-purpose event center to be constructed in that city.
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 a management agreement with the City of
Independence, Missouri relative to a multi-purpose event center to be
constructed in that city. The initial term of this agreement ends fifteen years
from facility opening. 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 $500 thousand 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 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 with the City of
Independence, 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
dollars 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 May 31, 2008, 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 May 31, 2008. We believe
the amount of payments under this guarantee is negligible, and as such, have
assigned no value to this guarantee at May 31, 2008.
41
In addition to our commitments and guarantees described above we also have the
commitments and guarantees described in the PVEC, LLC Joint Venture Note.
RELATED PARTY TRANSACTIONS
We entered into an advisory service agreement in October 1999 with a related
party. The agreement engages the related party, a shareholder, to act as our
exclusive financial advisor. In consideration for the advisory services, we are
also obligated to pay specific fees. The related party would receive 10% of the
gross proceeds of any private placement of equity, 5% of the gross proceeds of
any private placement of debt, and 4% of the gross proceeds of any public
placement of equity or debt. A fee would also be received if we are involved in
a merger or acquisition. The fees are to be (i) 5% of the consideration from $1
to $3 million, plus (ii) 4% of the consideration from $3 million to $6 million,
plus (iii) 3% of the consideration from $6 million to $9 million, plus (iv) 2%
of the consideration from $9 million to $12 million, plus (v) 1% of the
consideration in excess of $12 million.
This related party has the right of first refusal to act as our exclusive
financial advisor for a period of two years from the date of successfully
closing a financing, as described above, for a transaction involving the
purchase, sale, merger, consolidation or business combination. We and the
related party will enter into an agreement appropriate and customary for
services and compensation that is competitive to market conditions at the time
the right is exercised.
Effective February 14, 2006, the agreement was replaced by a two year consulting
agreement with Miller Capital Corporation and a two year agreement for
investment banking services with Miller Capital Markets, LLC incorporating
similar terms as described above. Miller Capital Corporation and Miller Capital
Markets, LLC are related to the shareholder. The consulting agreement provided
for service fees of $180 thousand per year, effective June 1, 2006, and for the
related party to receive a restricted stock grant consisting of six thousand
shares of common stock. The agreements were extended another two years effective
February 14, 2008.
During the fiscal years ended May 31, 2008 and 2007, fees and expenses of
approximately $199 thousand and $246 thousand, were incurred under these
agreements. In addition, we incurred $25 thousand for due diligence reports in
each year. At May 31, 2008 and 2007, $23 thousand and $17 thousand was payable
to Miller Capital Corporation.
CONCENTRATION OF CREDIT RISK, BUSINESS AND REVENUE
We maintain cash at various financial institutions. Accounts at each United
States financial institution are insured by the Federal Deposit Insurance
Corporation (FDIC) up to $100 thousand. At May 31, 2008 and 2007, we had
uninsured cash and cash equivalents in the amounts of approximately $0.4 million
and $3.8 million. To mitigate this risk, we select financial institutions based
on their credit ratings and financial strength.
Our business activities and accounts receivable are with customers in various
industries located throughout the United States. We perform ongoing credit
evaluations of our customers and maintain allowances for potential credit
losses.
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, and Arizona. Our facility
management fees are derived from events centers operating in the Arizona and New
Mexico. Should these geographic areas sustain an economic downturn that could
have a significant negative impact on our operating results.
For the years ended May 31, 2008 and 2007, we recognized approximately 40% of
our revenue from three event centers which we manage, and from which we derived
Encore, GEMs and GetTix revenue. One of those centers is no longer under
management, the contract having terminated in the second quarter of fiscal year
2008.
42
EMPLOYEE BENEFIT PLAN
We maintain a 401(k) profit sharing plan allowing substantially all full-time
employees to participate. Under the terms of the Plan, the employees may elect
to contribute a portion of their salary to the Plan. The matching contributions
are at the discretion of the Board of Directors. For the years ended May 31,
2008 and 2007, the Company did not make contributions to the Plan.
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 May 31, 2008 and 2007, goodwill relates to our ICC segment.
The investment in Wenatchee construction project of $34.5 million in 2008,
relates to our corporate operations segment.
Loss on our investment in PVEC, LLC is a loss of our corporate operations
segment. The amount of our equity method investment in PVEC, LLC is currently
zero.
The following is a summary of certain financial information for our areas of
operation (in thousands):
For the Year Ended
----------------------------------------------------------
Income (Loss)
From Continuing Purchases of
Gross Operations Before Property and Identifiable
Revenues Income Taxes Depreciation Equipment Assets
-------- ------------ ------------ --------- ------
May 31,2008 (c)
Global Entertainment Corporate Operations $ 244 $(3,207) $ 68 $ 199 $35,705 (a)
Central Hockey League/WPHL 2,294 246 4 -- 549
Global Properties I 619 (200) 2 -- 447
International Coliseums 1,063 394 5 4 47
Encore Facility Management 3,279 (581) 1 -- 11
Global Entertainment Marketing Systems 767 (53) 3 47 42
Global Entertainment Ticketing 4,171 477 59 -- 396
Discontinued Operations -- -- -- -- 2,167
------- ------- ------- ------- -------
Global Entertainment Corporation, consolidated $12,437 $(2,924) $ 142 $ 250 $39,364
======= ======= ======= ======= =======
May 31,2007
Global Entertainment Corporate Operations $ -- $(1,001) $ 25 $ 44 $ 5,199
Central Hockey League/WPHL 2,364 (1,085) 13 1 686
Global Properties I 100 (714) 1 2 343
International Coliseums 13,871 (b) 196 (b) 7 -- 2,028 (b)
Encore Facility Management 4,452 (1,290) 1 -- 262
Global Entertainment Marketing Systems 918 296 5 -- 250
Global Entertainment Ticketing 4,107 997 78 39 436
Discontinued Operations -- -- -- -- 3,102
------- ------- ------- ------- -------
Global Entertainment Corporation, consolidated $25,812 $(2,601) $ 130 $ 86 $12,306
======= ======= ======= ======= =======
|
43
(a) Global Entertainment Corporate Operations assets include the investment in
Wenatchee project of $34.5 million at May 31, 2008. Global Entertainment
Corporate Operations assets include cash and cash equivalents of $443
thousand at May 31, 2008, and $4,252 thousand at May 31, 2007.
(b) International Coliseums gross revenues for fiscal year 2007 include
revenues for furniture, fixtures and equipment, as well as management fees
and other items on projects not recurring in fiscal 2008. Assets as of May
31, 2007, include receivables for such items, not in receivables as of May
31, 2008, as well as retainage receivables on those projects.
(c) As originally reported, in fiscal year 2007, all Global Entertainment
Corporate Operations actual costs were allocated to the operating segments
as a management fee. In fiscal year 2008, the management fee is fixed at a
lower rate. Fiscal year 2007, amounts have been restated to reflect
management fees consistent with 2008.
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 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 has been
set aside in a restricted account as security for a letter of credit. The
remainder of the funds was available for working capital and general corporate
purposes.
The purchase price of $1.9 million was allocated $1.8 million to the trademarks,
with the remainder to tooling, inventory and other assets.
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 date
of sale, which were largely unchanged from those existing at May 31, 2008.
The following table presents selected operating data for Cragar for fiscal years
2008 and 2007 (in thousands):
2008 2007
-------- --------
Revenues $ 775 $ 638
Loss on disposal (1,148) --
Loss before income taxes (1,212) (1,524)
Loss from discontinued operations, net of income tax (1,212) (1,524)
|
The assets and liabilities of Cragar, included in our consolidated balance
sheets at May 31, 2008 and 2007, in assets to be disposed and liabilities
related to assets to be disposed were as follows (in thousands):
2008 2007
-------- --------
Receivables $ 116 $ 205
Prepaid expenses and other assets 154 169
Deferred income tax asset 134 --
Trademarks 1,763 2,728
------ ------
Assets to be disposed $2,167 $3,102
====== ======
Accounts payable $ 37 $ 141
Accrued liabilities 120 105
Deferred income tax 22 --
Deferred revenues 54 72
------ ------
Liabilities related to assets to be disposed $ 233 $ 318
====== ======
|
Cragar trademarks were not subject to amortization. Assets not subject to
amortization were tested for impairment at least annually. An independent
business valuation was performed as of May 31, 2007, for the purpose of testing
the carrying value of trademarks related to our investment in Cragar. During
fiscal year 2007, we determined that, based on estimated future cash flows, the
carrying amount of Cragar trademarks exceeded fair value by $906 thousand;
accordingly, an impairment loss of that amount was recognized in fiscal year
2007, and is now classified in loss from discontinued operations in the
consolidated statement of operations. We had evaluated the recoverability of the
trademarks as of February 29, 2008, and believed no additional impairment
existed at that date. Subsequent to that date, we decided to liquidate our
investment in Cragar. Included in the loss on disposition of $1.1 million is a
$1.0 million write-down of the trademarks to the value assigned in the purchase
price allocation.
44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINIANCIAL DISCLOSURE.
None
ITEM 9A(T). 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 May 31, 2008. 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.
Management's Annual Report on Internal Control over Financial Reporting and
Changes in Internal Controls.
Our management is responsible for establishing and maintaining an effective
internal control over financial reporting as this term is defined under Rule
13a-15(f) of the Exchange Act and has made organizational arrangements providing
appropriate divisions of responsibility and has established communication
programs aimed at assuring that its policies, procedures and principles of
business conduct are understood and practiced by its employees. All internal
control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and
presentation.
We have assessed the effectiveness of our internal control over financial
reporting as of May 31, 2008, the period covered by this Annual Report on Form
10-K, as discussed above. In making this assessment, we used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission
("COSO") in INTERNAL CONTROL--INTEGRATED FRAMEWORK. Based on these criteria and
our assessment, we have determined that, as of May 31, 2008, our internal
control over financial reporting was effective.
This annual report does not include an attestation report of our registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management's report in this annual
report.
45
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 fourth quarter of fiscal 2008 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION.
None.
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our
directors and executive officers, as well as persons beneficially owning more
than 10% of our outstanding common stock, to file certain reports of ownership
with the SEC within specified time periods. Such officers, directors and
shareholders are also required by SEC rules to furnish us with copies of all
Section 16(a) forms they file.
Based solely on our review of such forms received by us during the fiscal year
ended May 31, 2008, or written representations from certain reporting persons,
we believe that between June 1, 2007 and May 31, 2008, all Section 16(a) filing
requirements applicable to its officers, directors and 10% shareholders were
complied with, except that: (i) James Yeager failed to timely file an initial
filing in connection with his appointment as an officer September 1, 2007, and
failed to timely file with respect to a grant of restricted stock October 17,
2007, (ii) James Domaz failed to timely file an initial filing in connection
with his appointment as an officer August 20, 2007, and failed to timely file
with respect to a grant of restricted stock on October 17, 2007, and (iii)
Richard Kozuback failed to timely file with respect to the exercise of options
November 3, 2007.
Other information required to be disclosed by this Item 10 will be included
under the caption "Directors, Executive Officers and Corporate Governance" of
our Proxy Statement to be filed relating to the Annual Meeting of Shareholders
for the fiscal year ended May 31, 2008, which is hereby incorporated by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information on our directors and officers will be included under the caption
"Executive Compensation" of our Proxy Statement to be filed relating to the
Annual Meeting of Shareholders for the fiscal year ended May 31, 2008, which is
hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
Information on equity compensation plans and beneficial ownership of our voting
securities by each director and all officers and directors as a group, and by
any person known to beneficially own more than 5% of any class of voting
security will be included under the caption "Beneficial Ownership of the
Company's Securities" of our Proxy Statement to be filed relating to the Annual
Meeting of Shareholders for the fiscal year ended May 31, 2008, which is hereby
incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
Information on certain relationships and related transactions will be included
under the caption "Certain Relationships and Related Parties" of our Proxy
Statement to be filed relating to the Annual Meeting of Shareholders for the
fiscal year ended May 31, 2008, which is hereby incorporated by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Information on principal accountant fees and services will be included under the
caption "Principal Accountant Fees and Services" of our Proxy Statement to be
filed relating to the Annual Meeting of Shareholders for the fiscal year ended
May 31, 2008, which is hereby incorporated by reference.
46
PART IV.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
See Exhibit Index attached hereto.
47
SIGNATURE
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 on August 29, 2008.
Global Entertainment Corporation
(Registrant)
By /s/ W. James Treliving
----------------------------------------------
W. James Treliving
Chairman of the Board
By /s/ Richard Kozuback
----------------------------------------------
Richard Kozuback
Director / President & Chief Executive Officer
By /s/ James Yeager
----------------------------------------------
James Yeager
Chief Financial Officer / Treasurer
By /s/ Michael L. Bowlin
----------------------------------------------
Michael L. Bowlin
Director
By /s/ Michael L. Hartzmark
----------------------------------------------
Michael L. Hartzmark
Director
By /s/ Terry S. Jacobs
----------------------------------------------
Terry S. Jacobs
Director
By /s/ Stephen A McConnell
----------------------------------------------
Stephen A McConnell
Director
By /s/ George Melville
----------------------------------------------
George Melville
Director
By /s/ Mark Schwartz
----------------------------------------------
Mark Schwartz
Director
|
48
EXHIBIT INDEX
The following exhibits are filed herewith or incorporated herein pursuant to
Regulation SB-601:
EXHIBIT
3.1 Amended and Restated Articles of Incorporation, dated April 14,
2000. (1)
3.2 Bylaws dated April 18, 2000. (2)
3.2.1 First Amendment to the Bylaws dated May 20, 2008. (3)
10.1 2007 Long-Term Incentive Plan, dated (4)
10.2 Employment Agreement between Global Entertainment Corporation and
Richard Kozuback, dated April 18, 2000(5)
10.3 Joint Operating Agreement, between Western Professional Hockey
League, Inc. and Central Hockey League, Inc. dated January 19,
2001 (6)
10.4 Modification to Joint Operating Agreement, dated June 4, 2008 *
10.5 Form of License Agreement between Western Professional Hockey
League, Inc. and licensees (7)
10.6 Form of Amendment to of License Agreement between Western
Professional Hockey League, Inc. and licensees (8)
10.7 Asset Purchase Agreement between Danbom Temporary, Inc. and Cragar
Industries, Inc., dated July 31, 2008 (9)
10.8 Construction-Term Loan Agreement by and among Marshall Financial
Group, LLC and Wenatchee Events Center, LLC dated August 2, 2007 *
10.9 Amended and Restated Lease with Purchase Option Agreement between
Wenatchee Events Center, LLC and the Greater Wenatchee Regional
Events Center Public Facilities District and City of Wenatchee,
dated May 30, 2007 *
10.10 Investment Banking Services Agreement between Global Entertainment
Corporation and Miller Capital Markets, LLC, dated December 14,
2007 *
10.11 Consulting Agreement between Global Entertainment Corporation and
Miller Capital Corporation, dated February 14, 2008 *
10.12 Form of License Agreement between WPHL and franchises, effective
February 28, 2008 *
21 Subsidiaries *
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.
(1) Incorporated herein by reference to Exhibit 3.1 of our Registration
Statement on Form S-4 (No. 333-109192), as filed with the Commission on
September 26, 2003.
(2) Incorporated herein by reference to Exhibit 3.2 of our Registration
Statement on Form S-4 (No. 333-109192), as filed with the Commission on
September 26, 2003.
(3) Incorporated herein by reference to Exhibit 3.1 of our current report on
Form 8-K, as filed with the Commission on June 17, 2008.
(4) Incorporated herein by reference to Exhibit 4.5 of our Registration
Statement on Form S-8 (No. 333-150246) as filed with the Commission on
April 15, 2008.
(5) Incorporated herein by reference to Exhibit 10.4 of our Registration
Statement on Form S-4 (No. 333-109192), as filed with the Commission on
September 26, 2003.
(6) Incorporated herein by reference to Exhibit 10.5 of our Registration
Statement on Form S-4 (No. 333-109192), as filed with the Commission on
September 26, 2003.
(7) Incorporated herein by reference to Exhibit 10.6 of our Registration
Statement on Form S-4 (No. 333-109192), as filed with the Commission on
September 26, 2003.
(8) Incorporated herein by reference to Exhibit 10.7 of our Registration
Statement on Form S-4 (No. 333-109192), as filed with the Commission on
September 26, 2003.
(9) Incorporated herein by reference to Exhibit 3.1 of our current report on
Form 8-K, as filed with the Commission on August 8, 2008.
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