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United States
SECURITIES 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 December 31, 2000.
or
[ ] 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 0-18303
GOLF ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
11-2990598
(I.R.S. Employer Identification Number)
9925 Haynes Bridge Road, Suite 200
PMB #226
Alpharetta, Georgia 30004
(Address of principal executive offices, including zip code)
(770) 667-9890
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, Par Value $0.01 per share, registered on OTC Bulletin Board
Series A Convertible Preferred Stock
Common Stock Purchase Warrants
Class C Common Stock Purchase Warrants
Class D Common Stock Purchase Warrants
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12
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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. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing: As of
May 11, 2001, the approximate market value of the common stock (based upon the
OTC Bulletin Board closing price of $0.03 of stated shares on that date) held by
non-affiliates was $71,403.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: As of May 11, 2001, the issuer
had 5,293,044 share of common stock, par value $0.01 per share, outstanding.
Documents incorporated by reference: None
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GOLF ENTERTAINMENT, INC.
2000 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business 4
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Securities Holders 7
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholders' Matters 8
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 15
PART III
Item 10. Directors and Executive Officers of the Registrant 16
Item 11. Executive Compensation 17
Item 12. Security Ownership of Certain Beneficial Owners
and Management 20
Item 13. Certain Relationships and Related Transactions 22
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K. 22
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GOLF ENTERTAINMENT, INC. AND SUBSIDIARIES
2000 ANNUAL REPORT ON FORM 10-K
PART I
ITEM 1. BUSINESS
GENERAL
Golf Entertainment, Inc. and its subsidiaries has ceased doing business. Golf
Entertainment, Inc. and its subsidiaries (GolfBZ.com, Inc. or "GolfBZ";
Traditions Acquisition Corporation or "TAC"; LEC Leasing, Inc. or "LEC";
Superior Computer Systems, Inc. or "SCS"; Pacific Mountain Computer Products,
Inc. or "PMCPI"; Atlantic Digital International, Inc. or "ADI"; LEC
Distribution, Inc; TJ Computer Services, Inc) (collectively, the "Company" or
"Golf") most currently was in the business of brokering businesses within the
golf industry via the Internet. Due to certain economic factors, the Company
ceased all active operations on April 6, 2001. The Company's primary remaining
objective is to respond to any inquiries regarding a business combination with a
potential purchaser or to acquire or merge with a company that desires to
establish a public trading market for its securities while avoiding what it may
deem to be adverse consequences of undertaking a public offering itself, such as
time delays, significant expense, loss of control and other burdens related to
compliance with various federal and state securities laws. This business
combination may be with a financially stable mature company or with a
financially unstable company or with a company in its early stages of
development of growth.
PRIOR HISTORY OF THE COMPANY
The Company was founded in 1980 under the name TJ Computer Services, Inc. ("TJ
CS"). In 1989, all of the outstanding common stock of TJ CS was acquired by
Harrison Development, Inc., an inactive public corporation organized in
Colorado, which then changed its name to TJ Systems Corporation. In October
1991, the Company reincorporated in the State of Delaware and in June 1995
changed its name to Leasing Edge Corporation. In March 1997, the Company's
stockholders approved a change in the Company's name to LEC Technologies, Inc.
to more accurately reflect the evolving nature of the Company's business. In
February 1999, the Company's stockholders approved a change in the Company's
name to Golf Entertainment, Inc. to reflect the re-orientation of the Company.
GOLF BROKERAGE BUSINESS
On May 10, 2001, Golf Entertainment, Inc. sold its golf brokerage business as
discussed below.
On July 21, 2000, Golf Entertainment, Inc. launched its Internet based business,
GolfBZ.com, Inc. GolfBZ's business was to broker golf-related business via the
Internet by soliciting buyers and sellers of golf courses, driving ranges,
manufacturers, distributors and being paid a commission upon the closing of a
transaction. Due the
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overall economic slowdown and withdrawal of major sources of funding for golf
businesses, management was not able to bring a business transaction to
completion since the inception of the business, nor does management see a
foreseeable transaction consummated in the near future.
GOLF ENTERTAINMENT BUSINESS
On May 24, 2000, Golf Entertainment, Inc.'s subsidiary, Traditions Acquisition
Corporation, ceased to do business as discussed below.
During the beginning of 2000, the Company proceeded with its announced intention
to become involved in the golf entertainment business. However, due to certain
market factors, the feasibility of a consolidation was significantly decreased
and Management focused its efforts in the golf business in the first quarter of
2000 to emphasize opportunities relating to golf Internet business. The Company
abandoned its sole facility, Traditions Golf Club in Edmond, Oklahoma, held in
its wholly owned subsidiary, Traditions Acquisition Corporation.
SEASONALITY
The Company has ceased to do business and therefore is not subject to
seasonality.
As of December 31, 2000, the golf brokerage business was not seasonal.
During 2000, sales at the Company's former golf facility were seasonal with
higher revenue in the warmer months.
COMPETITION
The Company faced competition from primarily individual local business brokers
and regional business brokers in its golf Internet business. The Company
believed that based on its national business plan, its listing base and range of
services, that the competition would not adversely affect its operations.
The Company's former golf facility faced competition from a number of sources
from local owner/operator facilities as well as national entities.
EMPLOYEES
As of December 31, 2000, the Company employed 6 full time employees at its
corporate headquarters. None of its employees are represented by a union. The
Company believes that relations with its employees are favorable.
ACQUISITIONS
The Company had no acquisitions during 2000.
DISPOSAL OF GOLF ENTERTAINMENT BUSINESS
On May 24, 2000, Traditions Acquisition Corporation, a wholly owned subsidiary
of Golf Entertainment, Inc., ceased to do business. Traditions Acquisition
Corporation
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ceased all operations of the Traditions Golf Club in Edmond, Oklahoma and began
procedures to dissolve. The subsidiary's recorded assets of $387,353 and
recorded liabilities of $401,460 were written down to $-0-. Pursuant to the
terms of the lease agreement, by which Traditions Acquisition Corporation had
leased the Traditions Golf Club facility, all future lease payments would become
due from Traditions Acquisition Corporation upon termination of that lease. The
owner of the facility terminated the lease agreement effective May 23, 2000. The
total remaining lease liability of Traditions Acquisition Corporation is
$888,000. This liability is not guaranteed by Golf Entertainment, Inc.
Traditions Acquisition Corporation is currently in the process of dissolution.
DISPOSAL OF THE GOLFBZ BUSINESS
Due to the cessation of business by Golf Entertainment, Inc. on April 6, 2001,
the Company sold its subsidiary, GolfBZ.com, Inc., and the related intangible
assets to Ronald G. Farrell, the Company's Chairman and Chief Executive Officer,
on May 10, 2001 in consideration for advancement of funds to allow for the audit
of the Company's financial statements of $25,000 and other consideration
including uncompensated management services.
ITEM 2. PROPERTIES
The following table sets forth certain information with respect to the Company's
headquarters as of May 11, 2001.
GENERAL APPROXIMATE TYPE OF
LOCATION CHARACTER SQUARE FOOTAGE INTEREST
-------- --------- -------------- --------
Alpharetta, GA (Headquarters) Office 3,196 Leased
The Company believes its property is in generally good condition, well
maintained and suitable for its intended use. The Company has notified the
landlord that it will close the office effective June 30, 2001.
ITEM 3. LEGAL PROCEEDINGS
On July 1, 1999, the former chief executive officer of the Company and another
former employee of the Company filed a Complaint for Arbitration before the
American Arbitration Association. On May 3, 2000, the Company agreed to settle
the arbitration, without admitting liability, for $30,000 in cash and 175,000
shares of the Company's common stock and cancellation of certain promissory
notes issued by one of the plaintiffs. As of July 14, 2000, the Company has paid
the settlement in full.
During the second quarter of 1999, disputes with two former owners of one of the
Company's subsidiaries were settled and the Company issued 210,000 shares of
common stock. In addition, the Company has an additional accrual reserves for
the cash portion of the settlement of $3,850 and $10,000 as of December 31, 2000
and December 31, 1999, respectively. The Company has no liability remaining as
of May 8, 2001.
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During the second quarter of 2000, a former creditor of the Company filed suit
against the Company seeking an unspecified amount of approximately $150,000 for
unpaid invoices. During the third quarter of 2000, the Company reached a
settlement agreement with the plaintiff's attorney to issue the plaintiff 40,000
shares of the Company's stock, valued at $17,500, as full settlement of claims
made against the Company related to the suit. The Company has no liability
remaining as of May 8, 2001.
The Company has also involved in legal proceedings from time to time arising out
of the ordinary course of its prior business. There are no such currently
pending proceedings, which are expected to have a material adverse effect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during 2000 to a vote of security holders of the
Company through the solicitation of proxies.
There was no annual meeting of stockholders held during 2000.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock trades on the OTC Bulletin Board of the Nasdaq Stock
Market under the symbol GECCE.OB. The following table sets forth the high and
low sales price quotations of the Company's common stock for the periods
indicated.
2000 1999
FISCAL QUARTER HIGH LOW HIGH LOW
First Quarter $1.00 $0.31 $1.19 $0.69
Second Quarter $0.56 $0.19 $2.00 $0.69
Third Quarter $0.66 $0.20 $0.97 $0.75
Fourth Quarter $0.28 $0.09 $1.03 $0.50
As of May 8, 2001, the Company had approximately 266 shareholders of record of
its $0.01 par value common stock and approximately 26 shareholders of record of
its $0.01 par value preferred stock.
The Company has not previously paid cash dividends on its common stock and does
not intend to pay such dividends for the foreseeable future.
American Stock Transfer & Trust Company, 40 Wall Street, New York, NY 10022 is
the Company's registrar and transfer agent with respect to its common stock and
preferred stock and registrar, transfer agent and warrant agent with respect to
the Company's warrants.
On August 17, 1999, the Company was notified by the Nasdaq SmallCap Market that
the Company did not comply with the bid price requirement, as set forth in
Nasdaq Marketplace Rule 4310 ( c) (04). On January 28, 2000, the Company's
common stock was delisted and became immediately eligible to trade on the OTC
Bulletin Board.
On April 23, 2001, the Company's ticker symbol was modified by having an `E'
appended to the end indicating non-compliance with required SEC filings. The
Company expects that this should be removed upon acceptance of the filing of
this Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA
The following financial information is derived from the consolidated financial
statements of the Company and its wholly owned subsidiaries for the period
indicated. The information set fort in the following table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing in Item 7 of this report and the Company's
consolidated financial statements and notes thereto appearing in Item 8 of the
report. All per share data has been retroactively adjusted to reflect the
one-for-four reverse stock split which became effective on September 15, 1998.
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For the Year ended December 31,
(In thousands, except per share data)
2000 1999 1998 1997 1996
Revenues $ -0- $ 585 $ 30,623 $30,715 $ 21,237
Net Income/
(Loss) from
Operations (1,338) (979) (3,202) 330 (1,398)
Discontinued
Operations (245) (1,432) -0- -0- -0-
NET INCOME/
(LOSS) (1,472) (2,412) (3,202) 330 (1,398)
NET INCOME/
(LOSS) PER
COMMON SHARE (0.32) (1.10) (2.63) 0.09 (1.80)
NET INCOME/
(LOSS) PER
COMMON SHARE-
DILUTED (0.32) (1.10) (2.63) 0.08 (1.80)
Total Assets 201 1,610 26,381 29,074 27,687
Discounted
Lease Rental 216 466 15,450 15,906 14,809
Total Liabilities 413 992 23,929 23,595 22,449
Total Stockholders'
Equity/(Deficit) (212) 618 2,452 5,478 5,238
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes thereto included elsewhere
in Item 8 of this report.
Overview
In April 2001, Golf Entertainment, Inc. ceased to do business.
During the first quarter of 2000, Golf Entertainment, Inc. refocused its golf
business to emphasize opportunities relating to golf Internet business. The
Company launched its Internet based business, GolfBZ.com, Inc., on July 21,
2000. GolfBZ's business was to
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broker golf-related business via the Internet by soliciting buyers and sellers
of golf courses, driving ranges, manufacturers, distributors and being paid a
commission upon the closing of a transaction. Due the overall economic slowdown
and withdrawal of major sources of funding for golf businesses, management was
not able to bring a business transaction to completion since the inception of
the business.
On May 24, 2000, Traditions Acquisition Corporation, a wholly owned subsidiary
of Golf Entertainment, Inc., ceased to do business. Traditions Acquisition
Corporation ceased all operations of the Traditions Golf Club in Edmond,
Oklahoma and began procedures to dissolve.
With respect to the discontinued leasing operations, the Company managed the
remaining 5 leases not sold with the lease portfolio by collecting approximately
$290,000 in minimum lease payments and repaying the recourse debt against the
remaining leases of approximately $115,000. The net proceeds were used for
general corporate purposes. Management also determined that the remaining
off-lease inventory had no measurable economic value and wrote down the carrying
value to $-0-. The Company also released the Buyer from certain obligations of
approximately $55,500 in lieu of payment for lease portfolio related
liabilities.
On April 6, 2001, the Board of Directors decided to cease operations of the
Company. The Company's primary current remaining objective is to respond to any
inquiries regarding a business combination with a potential purchaser or locate
a target business that the Company believes will have significant growth
potential and effect a business combination with that target. A business
combination may involve the acquisition of, or merger with, a financially
stable, mature company that desires to establish a public trading market for its
securities while avoiding what it may deem to be adverse consequences of
undertaking a public offering itself, such as time delays, significant expense,
loss of voting control and other burdens (including significant professional
fees) related to compliance with various federal and state securities laws. In
the alternative, a business combination may involve a company that may be
financially unstable or in its early stages of development or growth.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999
REVENUES
Total revenues for the year ended December 31, 2000 from the golf management
business were $253,234 comprised entirely of revenues from the Company's
Traditions Golf Club for the period January 2000 to May 2000. Traditions Golf
Club operations were acquired in May 1999. Total revenues for the period May
1999 to December 1999 were $585,482. The Company recorded revenues of $18,239
and $8,111,716 for the years ended December 31, 2000 and 1999, respectively,
from the discontinued leasing business. For financial statement purposes for the
year ended December 31, 2000, all leasing and golf management business revenues
are shown net of leasing and golf management business expenses as discontinued
operations.
COSTS AND EXPENSES
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Total non-leasing costs and expenses for the year ended December 31, 2000 were
$1,246,591, comprised of $835,451 of general and administrative expenses
including $76,724 directly related to the golf brokerage business, $55,837 in
depreciation expense, $5,174 in interest expenses, net of interest income, and
$313,520 in settlement expenses. Expenses related to the golf management
business of Traditions Golf Club were $42,429 related to cost of sales related
to revenues and $302,220 of selling, general and administrative expenses related
to the operations of the Traditions Golf Club, including depreciation expense of
$28,958 and interest expense of $7,652. For financial statement purposes for the
years ended December 31, 2000 and 1999, all expenses related to the golf
management business are shown net of golf management revenues as discontinued
operations. Total expenses directly related to the leasing business were
$203,191. For financial statement purposes for the years ended December 31, 2000
and 1999, all leasing expenses are shown net of leasing revenues as discontinued
operations.
Corporate expense decreased 6.7% from $813,542 for the year ended December 31,
1999 to $758,727 for the year ended December 31, 2000, a decrease of $54,815.
The decrease in corporate expense is attributable to a decrease in staffing
levels between periods, consolidation of operations to Alpharetta, Georgia and a
concentrated effort by the Company's new management to reduce general expenses.
Additionally, management reviewed the fixed assets of the Company for future
economic benefit and determined that the assets had no residual value and were
economically impaired. The Company reported an impairment charge of $128,267
Traditions Golf Club results were below expectations for the period January 1,
2000 through May 24, 2000. The subsidiary reported a net loss from operations of
$91,414 for the period January 1, 2000 through May 24, 2000. For financial
statement purposes, this is reported as discontinued operations.
DISCONTINUED OPERATIONS
Loss from discontinued operations decreased 82.8% from $1,432,446 for the year
ended December 31, 1999 to $246,545 for the year ended December 31, 2000, a
decrease of $1,185,901. The decrease in the loss from discontinued operations
between periods is due the sale of the leasing portfolio at December 31, 1999
and to the write down of inventory and residual values related to the Company's
leasing operations recorded in the 1999 period. The Company recorded a net loss
on discontinued operations of $169,237 for the leasing business from the final
write-off of inventory of $147,700 and the cancellation of a note receivable
from the purchaser of the lease portfolio for additional taxes owed on the lease
portfolio of $55,491 netted against a gain on disposal of certain inventory
items of $4,840, the recovery of a security deposit of $10,874 and the finance
income from the remaining leases of $18,239. The Company recorded a net loss on
discontinued operations of $77,307 from the golf management business from the
net loss from operations of $91,414 netted against a gain on the disposal of the
net fixed assets of $14,107.
The consolidated financial statements do not reflect a provision for income
taxes due to the utilization of net operating loss carryforwards and changes in
the related valuation
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allowance. At December 31, 2000, the Company had unexpired net operating loss
carryforwards of approximately $8,300,000, which can be utilized to offset
future taxable income, if any.
NET EARNINGS
As a result of the foregoing, the Company recorded a net loss of $1,471,857 for
the year ended December 31, 2000 as compared to a net loss of $2,411,691 for the
year ended December 31, 1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
(Note: The discussion below pertains to the Company's discontinued leasing
business.)
REVENUES
Total revenues for the year ended December 31, 1999 from the golf management
business were $585,482 comprised entirely of revenues from the Company's
Traditions Golf Club. Traditions Golf Club operations were acquired in May 1999.
Total revenues were $8,111,716 and $30,623,016 for the years ended December 31,
1999 and 1998, respectively from the discontinued leasing business. For
financial statement purposes for the years ended December 31, 1999 and 1998, all
leasing revenues are shown net of leasing expenses as discontinued operations.
COSTS AND EXPENSES
Total non-leasing costs and expenses for the year ended December 31, 1999 were
$751,185, comprised of $96,645 related to cost of sales related to revenues from
golf management operations and $654,540 of selling, general and administrative
expenses related to the operations of the Traditions Golf Club, including
depreciation expense of $40,428 and interest expense of $11,827. Total expenses
directly related to the leasing business were $9,238,710 and $25,778,551 for the
years ended December 31, 1999 and 1998, respectively. For financial statement
purposes for the year ended December 31, 1999 and 1998, all leasing expenses are
shown net of leasing revenues as discontinued operations.
Corporate expense decreased 88.7% from $7,206,266 for the year ended December
31, 1998 to $813,542 for the year ended December 31, 1999, a decrease of
$6,392,724. The decrease in corporate expense is attributable to a decrease in
staffing levels between periods, consolidation of operations to Alpharetta,
Georgia and a concentrated effort by the Company's new management to reduce
general expenses and a forgiveness of debt of $385,197, net interest income of
$5,771 and depreciation expense of $56,179.
Traditions Golf Club results were in line with expectations of a facility in its
first full 12 months of operations. The subsidiary reported a net loss from
operations of $165,703. For financial statement purposes for the year ended
December 31, 1999, all golf management expenses are shown net of golf management
revenues as discontinued operations.
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DISCONTINUED OPERATIONS
Loss from discontinued operations increased 100.0% from $-0- for the year ended
December 31, 1998 to $1,432,446 for the year ended December 31, 1999, an
increase of $1,432,446. The increase in the loss from discontinued operations
between periods is due to the sale of the leasing portfolio ad December 31, 1999
and to the write down of inventory and residual values related to the Company's
leasing operations recorded in the 1999 period. The Company recorded a net loss
on discontinued operations of $1,480,792 and a gain on disposal of the
discontinued operations' net fixed assets of $48,346.
LIQUIDITY AND CAPITAL RESOURCES
The Company has very little cash and has had no substantial access to cash
except for borrowings from insiders since the fourth quarter of 2000. The lack
of liquidity has caused the Company to cease operations.
Previously, the Company had a line of credit with Merrill Lynch Business
Financial Services, Inc. During December 1999, the Company was able to reach a
Settlement Agreement with Merrill Lynch, whereby the Company will pay monthly
installments over a 16-month period, beginning in April 2000. During 2000, the
Company negotiated a final settlement Merrill Lynch whereby the Company paid
$24,000 in cash and Merrill Lynch forgave the remaining $101,000. As of December
31, 2000, there was no amount outstanding to Merrill Lynch.
In March 1999, LEC Leasing, Inc. and IBM Corporation entered into an agreement
whereby $347,884 of accounts payable obligations were converted into an 8% term
note payable in monthly installments of $20,000. On November 12, 1999, the
Company and IBM reached an agreement, subject to appropriate documentation, to
substantially reduce the obligation and amend the repayment terms. As of
December 31, 2000, the balance owed IBM is $39,750.
In November 1999, the Company finalized its lease negotiations in conjunction
with its relocation to Alpharetta, Georgia. As part of the negotiations, the
Company and landlord agreed to a build-out allowance. Actual costs of the
build-out were greater than the allowance. The Company paid for the build-out
with a combination of cash and a note payable to the landlord of $15,980 to be
repaid over 5 years (lease term) at 10%. As of December 31, 2000, the Note
Payable balance was $12,929.
On November 30, 2000, the Company agreed to sell up to $500,000 of Convertible
Notes to the Company's Chairman/CEO, Ronald G. Farrell. The balance of the
Convertible Notes was $105,000 as of December 31, 2000. Through May 9, 2001, the
Company has been able to sell additional Convertible Notes of $77,000. The
Company has been unable to sell any of its Convertible Notes since May 9, 2001
and it will not be able to continue operations.
The Company believes that inflation has not been a significant factor in its
business.
The Company did not suffer any adverse consequences as a result of any "Y2K"
problems.
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RECENTLY ISSUED ACCOUNTING STANDARDS
Management does not believe that any recently issued but not yet adopted
accounting standards will have a material effect on the Company's results of
operations or on the reported amounts of its assets and liabilities upon
adoption.
FUTURE PLANS
On April 6, 2000, the Board of Directors decided to cease operations of the
Company. The Company's primary remaining objective is to respond to any
inquiries regarding a business combination with a potential purchaser or locate
a target business that the Company believes will have significant growth
potential and effect a business combination with that target. A business
combination may involve the acquisition of, or merger with, a financially
stable, mature company that desires to establish a public trading market for its
securities while avoiding what it may deem to be adverse consequences of
undertaking a public offering itself, such as time delays, significant expense,
loss of voting control and other burdens (including significant professional
fees) related to compliance with various federal and state securities laws. In
the alternative, a business combination may involve a company that may be
financially unstable or in its early stages of development or growth.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements herein and in the future filings by the Company with the
Securities and Exchange Commission and in the Company's written and oral
statements made by or with the approval of an authorized executive officer
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
and the Company intends that such forward-looking statements be subject to the
safe-harbors created thereby. The words and phrases "looking ahead", "we are
confident", "should be", "will be", "predicted", "believe", "expect" and
"anticipate" and similar expressions identify forward-looking statements. These
and other similar forward-looking statements reflect the Company's current views
with respect to future events and financial performance, but are subject to many
uncertainties and factors relating to the Company's operations and business
environment which may cause the actual results of the Company to be materially
different from any future results expressed or implied by such forward-looking
statements. Examples of such uncertainties include, but are not limited to,
changes in customer demand and requirements, the availability and timing of
external capital, interest rate fluctuations, changes in federal income tax
laws and regulations, competition, unanticipated expenses and delays in the
integration of newly-acquired businesses, industry specific factors and
worldwide economic and business conditions. With respect to economic conditions,
a recession can cause customers to put off leisure time activities and adversely
affect the Company's revenue. The Company undertakes no obligation to publicly
update or revise any forward-looking statements whether as a result of new
information, future events or otherwise.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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Index to Consolidated Financial Statements PAGE
Independent Auditors' Report - Goldstein Golub Kessler LLP 25
Consolidated Balance Sheets as of December 31, 2000 and 1999 26-27
Consolidated Statements of Operations For The Years Ended
December 31, 2000, 1999 and 1998 28
Consolidated Statements of Cash Flows For The Years Ended
December 31, 2000, 1999 and 1998 29-30
Consolidated Statements of Stockholders' Equity For The
Years Ended December 31, 2000, 1999 and 1998 31
Notes To Consolidated Financial Statements 32-48
The consolidated financial statements of the Company are filed under this Item 8
pursuant to Regulation S-X. Financial statement schedules are omitted because
either they are not required under the instructions, are inapplicable, or the
information is included elsewhere in the financial statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Inapplicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Name Age Position
---- --- --------
Ronald G. Farrell 57 Chairman of the Board, Chief
Executive Officer and President
Larry M. Segall 45 Director
John F. Chiste 44 Director
Scott A. Lane 36 Chief Financial Officer & Secretary
BIOGRAPHICAL INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS
Ronald G. Farrell. Mr. Farrell, age 57, has served as the Chairman of the Board,
and Chief Executive Officer of the Company since November 20, 1998, and as
President since August 16, 1999. Mr. Farrell tendered his resignation on April
6, 2001 effective April 30, 2001. On April 26, 2001, Mr. Farrell withdrew his
resignation. From July 1992 through December 1996, Mr. Farrell served as
Chairman and CEO of Computer Integration Corp., a publicly traded company. Mr.
Farrell is the founder, Chairman and President of R.G. Farrell, Inc. and RGF
Investments, Inc., both founded in 1985. These companies are wholly owned by Mr.
Farrell and are engaged in financial consulting in connection with private
placements, public offerings, venture capital transactions and leveraged buyout
and roll-up transactions. During the ten years from 1985 to 1995, Mr. Farrell
directed the acquisition of fourteen companies and was instrumental in four
public offerings.
Larry M. Segall. Mr. Segall, age 45, served as a Director of the Company since
November 1989 through April 2001. Mr. Segall resigned April 6, 2001. Mr. Segall
is currently the Chief Financial Officer of AdClip Networks Corporation, a
Internet marketing company. Mr. Segall was previously the Chief Financial
Officer of Vitamin Shoppe Industries, Inc. from October 1997 to November 2000.
From 1985 to 1996, Mr. Segall held a number of financial management positions
and was Vice President, Treasurer and Controller of Tiffany & Co. In 1997, he
was Senior Vice President - Merchandising Planning for Tiffany & Co. and was
responsible for worldwide strategic sales, merchandising and product planning,
including product development, product sourcing/replenishment, internal
manufacturing, inventory management and distribution resource planning. From
1983 to 1985 he was the Controller of Murijani International Ltd. From 1977 to
1983, he was employed by Deloitte & Touche LLP.
John F. Chiste. Mr. Chiste, age 43, served as a Director of the Company since
December 1999 through April 2001. Mr. Chiste resigned April 6, 2001. Mr. Chiste
has been the Treasurer and Chief Financial Officer Bluegreen Corp. since
November 1997. From May 1994 to October 1997, he was the Chief Financial Officer
of Computer Integration Corp. Prior to that, Mr. Chiste was Chief Financial
Officer of Sports/Leisure, Inc. from May 1992 to December 1992. Prior to his
employment by Sports/Leisure, Inc., Mr. Chiste
16
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was employed by Ernst & Young, LLP for 13 years, most recently as a Senior
Manager. Mr. Chiste is a Certified Public Accountant.
Scott A. Lane. Mr. Lane, age 36, became the Chief Financial Officer of the
Company in March 2000. Mr. Lane tendered his resignation on April 6, 2001
effective April 30, 2001. On April 26, 2001, Mr. Lane withdrew his resignation.
Prior to joining the Company, Mr. Lane was with BWAY Corporation as a project
manager since May 1998. From November 1991 through May 1998, Mr. Lane held
progressive management positions in accounting with Turner Broadcasting System,
Inc. From June 1986 to November 1991, Mr. Lane was with a large local public
accounting firm in Atlanta. Mr. Lane is a Certified Public Accountant.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation paid
and/or accrued to each of the Company's executive officers for services rendered
in all capacities to the Company during the three years ended December 31, 1999.
No other executive officer received annual compensation in excess of $100,000 in
any of the three fiscal years ended December 31, 2000. This information includes
the dollar value of base salaries, bonuses, awards, the number of stock options
granted and certain other compensation, if any, whether paid or deferred.
(A) SUMMARY COMPENSATION TABLE
Name of Individual and Other Annual
Principal Position Fiscal Year Salary ($) Bonus ($) Compensation ($)
------------------ ------------------------------------------------------------
Ronald G. Farrell 2000 $201,000 -- --
Chairman & CEO 1999 $353,976 -- --
1998 $ -- -- --
Michael F. Daniels 2000 $ -- -- $ --
President(1) 1999 $134,448 -- $ --(1)
1998 $326,385 -- $34,573(2)
William J. Vargas 2000 $ -- -- $ 3,692(3)
CFO & Secretary 1999 $110,250 -- $19,028(3)
1998 $123,417 -- --
Scott A. Lane 2000 $ 66,668 -- --
CFO & Secretary 1999 $ -- -- --
1998 $ -- -- --
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Restricted Securities All Other
Name of Individual and Fiscal Stock Underlying Annual
Principal Position Year Awards($) Options/SARs(#) Compensation
------------------ ------ -------------------------------------------
Ronald G. Farrell 2000 -- 2,000,000 --
Chairman & CEO 1999 -- 200,000 --
1998 -- 300,000 --
Michael F. Daniels 2000 -- --(5) --(4)
President 1999 -- --(5) --(4)
1998 -- 200,000(5) 2,500(4)
William J. Vargas 2000 -- --(5) --(4)
CFO & Secretary 1999 -- --(5) --(4)
1998 -- 77,500(5) 1,825(4)
Scott A. Lane 2000 -- 50,000 --
1999 -- -- --
1998 -- -- --
(1) Michael F. Daniels served as the Company's Chairman & CEO during the
period January 1, 1996 through November 20, 1998. Mr. Daniels resigned
as President of the Company in March, 1999. Mr. Daniels employment
agreement with one of the Company's subsidiaries was terminated in May
1999. See Item 3. Legal Proceedings.
(2) Consists of commission income based upon realization of excess residual
values related to leases entered into prior to May 15, 1993.
(3) Represents amounts paid as a consultant during the fourth quarter of
1999 and the first quarter of 2000.
(4) Represents Company matching contribution to 401(k) Profit Sharing Plan.
(5) In January of 1997, August of 1997 and January of 1998, Messrs. Daniels
and Vargas were granted stock options to purchase an aggregate of
404,000 shares and 163,750 shares, respectively. On December 8, 1997,
Messrs. Daniels and Vargas voluntarily rescinded their respective 1997
option grants, together with all grants received prior thereto, with
the exception of 147,531 stock options received by Mr. Daniels during
1993. In October 1998, Messrs. Daniels and Vargas voluntarily rescinded
their respective 1998 option grants, to the extent that they had not
been exercised, except for 2,500 stock options received by Mr. Vargas.
Messrs. Daniels and Vargas received no compensation for such
rescissions. All share amounts have been retroactively adjusted to
reflect the one-for-four reverse stock split that was effective
September 15, 1998.
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(B) OPTION/SAR GRANTS IN LAST FISCAL YEAR
Number of Percent of
Securities Total
Underlying Options/SAR's Exercise
Options/SAR's Granted to or Base Expiration
Name Granted (#) In Fiscal Year Price ($/Sh) Date
----------------------------------------------------------------------------------
Ronald G.
Farrell 2,000,000(1) 92.2% $0.13 11/30/10
Scott A.
Lane 50,000 2.3% $0.31 3/29/05
(1) In November, 2000, Mr. Farrell accepted an option grant of 2,000,000
shares in lieu of compensation for the six months from July 1, 2000
through December 31, 2000.
(C) AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
Number of Value of
Securities Unexercised
Underlying In-The-Money
Options/SAR's Options/SAR's
At Fiscal At Fiscal
Shares Year End(#) Year End($)
Acquired Value Exercisable/ Exercisable/
Name On Exercised Realized Unexercisable Unexercisable
--------------------------------------------------------------------------------------
Ronald G.
Farrell ---- ---- 2,400,000/100,000 -0-/-0-
Scott A.
Lane ---- ---- -0-/50,000 -0-/-0-
The last sales price for the Company's Common Stock on the OTC Bulletin Board on
December 31, 2000 was $0.09.
(D) DIRECTORS' COMPENSATION
Each non-employee director of the Company is paid $500 per month. In addition,
each director is entitled to participate in the Company's stock option plans.
The Company does not pay its directors any additional fees for committee
participation.
(E) EMPLOYMENT CONTRACTS
Ronald G. Farrell serves as the Company's Chief Executive Officer under an
employment agreement dated November 30, 1998 and effective January 1, 1999
through
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December 31, 2003, as amended. Mr. Farrell's compensation under such agreement
was originally $240,000 through December 31, 1999, and increases by 10% per year
thereafter, but was amended in May, 1999 to an annual salary of $360,000 through
December 31, 1999, with annual 10% increases, due to increased responsibility
associated with the Company's golf operations. Mr. Farrell's contract was
extended on November 30, 2000 through December 31, 2005 under the same terms and
conditions. In addition, Mr. Farrell is eligible to receive an annual bonus,
payable quarterly, based on Company performance. Such bonus may not exceed Mr.
Farrell's base salary for such respective fiscal year. Mr. Farrell was granted
the option to purchase a total of 2,000,000 shares of the Company's Common Stock
in lieu of cash compensation for the six months between July 1, 2000 and
December 31, 2000. The option grant vests immediately and is exercisable for 10
years. Mr. Farrell was also granted the option to purchase a total of 300,000
shares of the Company's Common Stock, vesting in 100,000 share increments on
each of December 31, 1999, December 31, 2000 and December 31, 2001. Pursuant to
such employment agreement, if Mr. Farrell should die during the term thereof, a
death benefit equal to eighteen months salary (currently $594,000) shall be paid
to his estate. Mr. Farrell may be terminated for cause.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 8, 2001, certain information
concerning those persons known to the Company, based on information obtained
from such persons, with respect to the beneficial ownership (as such term is
defined in Rule 13d-3 under the Securities Exchange Act of 1934) of shares (the
"Common Stock") of common stock, $0.01 par value, of the Company by (i) each
person known by the Company to be the owner of more than 5% of the outstanding
Common Stock, (ii) each Director of the Company and the nominee for Director,
(iii) each executive officer of the Company earning more than $100,000 during
the year ended December 31, 2000 and (iv) all executive officers and Directors
as a group:
Amount and Nature
Name and Address of of Beneficial Percentage of
Beneficial Owner (1) Ownership (2) Class (3)
-------------------- ------------------ -------------
LEC Acquisition LLC 2,912,932 (4) 23.2%
Ronald G. Farrell 7,165,000 (5) 57.0%
Larry M. Segall 137,177 (6) 1.1%
John F. Chiste 20,000 (7) 0.2%
Scott A. Lane 50,000 (8) 0.4%
Michael Daniels 95,000 (9) 0.8%
Debra Alisero 10,000 (9) 0.1%
Scott Printing Corporation 25,000 (10) 0.2%
All Directors and
Executive Officers
as a Group (6 persons) 7,372,177 58.6%
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(1) The address for all individuals identified herein is 9925 Haynes Bridge
Road, Suite 200, PMB #226, Alpharetta, Georgia 30004.
(2) Unless otherwise noted, the Company believes that all persons named in
the table have sole investment power with respect to all shares of
common stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities that can be acquired by such person
within 60 days from the date hereof upon the exercise of warrants or
options or upon the conversion of convertible securities. Each
beneficial owner's percentage ownership is determined by assuming that
options or warrants or shares of Series A Convertible Preferred Stock
that are held by such person (but not those held by any other person)
and which are exercisable or convertible within 60 days from the date
hereof have been exercised or converted.
(3) Based on 12,579,043 shares of Common Stock outstanding as of May 9,
2000.
(4) The Company granted LEC Acquisition LLC a warrant to purchase 6%
Convertible Debentures of the Company in the principal amount of
$1,429,170 which are convertible into shares of Common Stock. LEC
Acquisition LLC has purchased 2,759,432 shares pursuant to such
convertible debentures for $827,830. LEC Acquisition LLC has purchased
38,500 shares on the open market for $38,285. The number of shares of
Common Stock reflected in the Table includes 500,000 shares available
under a warrant issued by the Company on April 25, 2000. LEC
Acquisition LLC terminated the Debenture Agreement with the Company on
August 12, 2000. Mr. Farrell, as the managing partner of LEC
Acquisition LLC, exercises voting control over shares held by LEC
Acquisition LLC. Additionally, pursuant to the terms of the operating
agreement of the LLC, RGF Investments, Inc., a member of the LLC, will
receive and Mr. Farrell may receive shares of Common Stock at such time
as the LLC distributes shares of Common Stock to its members. Mr.
Farrell has disclaimed beneficial ownership of shares owned by LEC
Acquisition, LLC.
(5) Includes options to purchase 2,500,000 shares of Common Stock granted
to Mr. Farrell, 2,400,000 shares, which are currently exercisable. Also
includes 115,000 shares owned by Sports M&A.com, Inc., a corporation
which Mr. Farrell is the sole stockholder. Also includes the potential
conversion of demand debentures held by Mr. Farrell of 4,550,000
shares.
(6) Includes options to purchase 83,333 shares of Common Stock granted to
Mr. Segall, which are currently exercisable.
(7) Includes options to purchase 20,000 shares of Common Stock granted to
Mr. Chiste, which are currently exercisable.
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(8) Includes options to purchase 50,000 shares of Common Stock granted to
Mr. Lane, which none are currently exercisable.
(9) The Company has been informed that Mr. Daniels and Ms. Alisero have
granted a proxy to Mr. Farrell to vote such shares through May 3, 2001.
(10) The Company has been informed that Scott Printing Corporation has
granted a proxy to Mr. Farrell to vote such shares through December 31,
2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has granted LEC Acquisition LLC a warrant to purchase 6% Convertible
Debentures of the Company in the principal amount of $1,429,170 which are
convertible into shares of Common Stock. LEC Acquisition LLC has purchased
2,759,432 shares pursuant to such convertible debentures for $827,830. LEC
Acquisition LLC has purchased 38,500 shares on the open market for $38,285. The
number of shares of Common Stock reflected in the Table includes 500,000 shares
available under a warrant issued by the Company on April 25, 2000. LEC
Acquisition LLC terminated the Debenture Agreement with the Company on August
12, 2000. Mr. Farrell, as the managing partner of LEC Acquisition LLC, exercises
voting control over shares held by LEC Acquisition LLC. Additionally, pursuant
to the terms of the operating agreement of the LLC, RGF Investments, Inc., a
member of the LLC, will receive and Mr. Farrell may receive shares of Common
Stock at such time as the LLC distributes shares of Common Stock to its members.
Mr. Farrell has disclaimed beneficial ownership of shares owned by LEC
Acquisition, LLC.
During the third quarter of 2000, Sports M&A.com, Inc., an entity whose sole
shareholder is Ronald G. Farrell, purchased $23,000 of Convertible Notes from
the Company and subsequently converted them into 115,000 shares of the Company's
common stock.
During the fourth quarter of 2000, Ronald G. Farrell, the Company's Chairman and
Chief Executive Officer, purchased $105,000 of Convertible Notes from the
Company. Subsequent to December 31, 2001, Ronald G. Farrell has purchased
additional notes totaling $57,000 and $25,000 during the first and second
quarter of 2001, respectively. The notes are convertible in shares of the
Company's common stock.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as a part of this report:
(a) (1) The Consolidated Financial Statements included in Item 8
hereof and set forth on pages 25-48.
(2) The Financial Statement Schedules listed in the Index to
the Financial Statement Schedules.
(3) The exhibits listed in the Index to Exhibits.
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23
(b) Reports on Form 8-K.
The Company did not file any Reports on Form 8-K
during the fourth quarter of 2000.
The Company filed a Report on Form 8-K on April 9,
2001 regarding the cessation of the Company's
business.
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24
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GOLF ENTERTAINMENT, INC.
Date: May 17, 2001 By: /s/ Ronald G. Farrell
Ronald G. Farrell
Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
Date: May 17, 2001 By: /s/ Ronald G. Farrell
Ronald G. Farrell
Chief Executive Officer and Director
(Principal Executive Officer)
Date: May 17, 2001 By: /s/ Scott A. Lane
Scott A. Lane
Chief Financial Officer
(Principal Financial and Accounting Officer)
24
25
Independent Auditors' Report
The Board of Directors and Stockholders
Golf Entertainment, Inc.
We have audited the accompanying consolidated balance sheets of Golf
Entertainment, Inc. (formerly LEC Technologies, Inc.) and Subsidiaries as of
December 31, 2000 and 1999, and the related consolidated statements of
operations, stockholders' equity/(deficit), and cash flows for each of the three
years in the period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes 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 Golf Entertainment,
Inc. (formerly LEC Technologies, Inc.) and Subsidiaries as of December 31, 2000
and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred losses from operations, has a
working capital deficiency and a stockholders' deficiency that raise substantial
doubt about its ability to continue as a going concern. Management's plan in
regard to these matters is also described in Note 1. The financial statements do
not include any adjustments that may result from this uncertainty.
/s/ Goldstein Golub Kessler LLP
New York, New York
May 14, 2001
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26
GOLF ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
2000 1999
------------ ------------
ASSETS
CURRENT ASSETS
Cash 1,914 23,945
Prepaid expenses 25,352 --
Notes and accounts receivable, other -- 329,833
---------- ----------
Total current assets 27,266 353,778
---------- ----------
FURNITURE AND EQUIPMENT, net of accumulated
depreciation of -0- and 124,611 as of
December 31, 2000 and 1999, respectively -- 226,075
---------- ----------
OTHER ASSETS
Assets related to discontinued operations 173,990 1,030,033
---------- ----------
TOTAL ASSETS 201,256 1,609,886
========== ==========
The accompanying notes and independent auditors' report should be read in
conjunction with the consolidated financial statements.
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GOLF ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
2000 1999
------------ ------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable 149,768 82,710
Accrued liabilities 29,196 168,597
Notes payable 105,000 --
Current maturities of long-term debt 22,252 2,636
------------ ------------
Total current liabilities 306,216 253,943
------------ ------------
LONG-TERM DEBT 10,017 12,930
------------ ------------
OTHER LIABILITIES
Liabilities related to discontinued operations 39,750 667,675
Other liabilities 57,254 57,254
------------ ------------
Total other liabilities 97,004 724,929
------------ ------------
TOTAL LIABILITIES 413,237 991,802
------------ ------------
STOCKHOLDERS' EQUITY/(DEFICIT)
Series A convertible preferred stock, $0.01 par
value, 1,000,000 shares authorized, 380,000
shares issued; 228,516 shares outstanding
at December 31, 2000 and 1999,
respectively 2,285 2,285
Common stock, $0.01 par value, 25,000,000
shares authorized, 5,293,044 and 3,201,711
shares issued and outstanding at December
31, 2000 and 1999, respectively 52,930 32,017
Additional paid-in capital 11,535,349 10,914,470
Accumulated deficit (11,802,545) (10,330,688)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY/(DEFICIT) (211,981) 618,084
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY/(DEFICIT) 201,256 1,609,886
============ ============
The accompanying notes and independent auditors' report should be read in
conjunction with the consolidated financial statements.
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GOLF ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
2000 1999 1998
---------- ---------- ------------
Selling, general & administrative 1,148,971 522,076 --
Depreciation and amortization 55,837 56,179 --
Impairment charge 128,267 -- --
Interest expense, net 5,174 265 --
---------- ---------- ------------
1,338,249 (578,520) --
---------- ---------- ------------
Loss from continuing operations (1,338,249) (578,520) --
Loss from discontinued operations (260,652) (2,266,714) (3,202,265)
Gain on disposal 14,107 48,346 --
---------- ---------- ------------
Net Loss before extraordinary item (1,584,794) (2,796,888) (3,202,265)
Extraordinary income-gain on forgiveness
of debt 112,937 385,197 --
---------- ---------- ------------
Net Loss (1,471,857) (2,411,691) (3,202,265)
========== ========== ============
Loss per share from continuing operations (0.29) (0.26) --
Loss per share from discontinued operations (0.06) (1.04) (2.63)
Gain per share on disposal 0.00 0.02 --
Extraordinary gain per share 0.03 0.18 --
---------- ---------- ------------
Loss per common share - basic (0.32) (1.10) (2.63)
========== ========== ============
Loss per common share - diluted (0.32) (1.10) (2.63)
========== ========== ============
The accompanying notes and independent auditors' report should be read in
conjunction with the consolidated financial statements.
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GOLF ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
2000 1999 1998
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (1,471,857) (2,411,691) (3,202,265)
Adjustments to reconcile net loss to cash provided
by operating activities:
Depreciation & Amortization 84,795 2,785,366 5,242,149
Write down of inventory and residual values 147,700 694,630 1,455,378
Stock compensation expense 161,792 96,564 148,981
Gain on disposal -- (49,024) --
Write-off of notes receivable 305,324 -- --
Impairment charge 128,267 -- --
Forgiveness of debt (112,937) (385,197) --
Change in assets and liabilities due to
operating activities:
(Increase) decrease in accounts receivable -- 2,919,397 (205,101)
Increase in prepaid expenses (25,352) -- --
Decrease in inventory -- 445,599 721,923
Increase (decrease) in accounts payable 78,996 (3,341,572) (212,358)
Increase (decrease) in accrued liabilities (139,402) (539,765) 253,093
Increase (decrease) in other liabilities -- (47,944) (513,690)
Decrease in assets disposed of 387,684 -- --
Decrease in liabilities disposed of (401,734) -- --
---------- ---------- ----------
Total adjustments 615,133 2,578,054 6,890,375
---------- ---------- ----------
Net cash provided by (used in) operating activities (856,724) 166,363 3,688,110
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales and disposals of off-lease inventory -- -- 2,799,055
Proceeds from sales of furniture, fixtures and
equipment 47,700 7,820 --
Purchases of furniture and equipment (6,039) (73,623) (303,992)
Decrease in notes receivable-employees -- 143,376 --
Decrease (increase) in notes receivable 49,509 (379,833) (123,665)
Additions to net investment in sales-type and
direct financing leases -- -- (5,323,960)
Sales-type and direct financing lease rentals
received 292,012 1,846,830 3,107,094
---------- ---------- ----------
Net cash provided by (used in) investing activities 383,182 1,544,570 (3,871,008)
---------- ---------- ----------
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from nonrecourse and recourse discounted
lease rentals -- -- 8,898,725
Payments on nonrecourse and recourse discounted lease
rentals -- (2,182,856) (9,354,127)
Proceeds from notes payable 134,500 15,980 3,133,020
Payments on notes payable (162,989) (275,973) (2,245,200)
Proceeds from sale of stock 480,000 380,830 --
Purchase of treasury stock -- -- (66,454)
---------- ---------- ----------
Net cash provided by (used in) financing activities 451,511 (2,062,019) 365,964
---------- ---------- ----------
Net increase (decrease) in cash (22,031) (351,086) 183,066
Cash at beginning of period 23,945 391,705 208,639
Cash at end of period 1,914 40,619 391,705
========== ========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest 15,745 1,302,841 2,078,748
Income Taxes -- -- 43,627
The accompanying notes and independent auditors' report should be read in
conjunction with the consolidated financial statements.
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GOLF ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY/(DEFICIT)
AS OF DECEMBER 31, 2000
NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE TOTAL
---------------- ------------------ PAID-IN ACCUMULATED TREASURY FROM STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STOCK STOCKHOLDERS EQUITY
------- ------ --------- ------ ---------- ----------- -------- ------------ -------------
Balance at December 31,
1997 229,016 2,290 1,220,568 12,206 10,419,038 (4,716,732) (144,682) (93,750) 5,478,370
Exercise of stock
options 234,375 2,344 146,637 148,981
Purchase of treasury
stock (66,454) (66,454)
Write-off of shareholder
notes receivables 93,750 93,750
Retirement of treasury
stock (44,550) (446) (210,690) 211,136 --
Net loss, 1998 (3,202,265) (3,202,265)
------- ----- --------- ------ ---------- ----------- -------- ------- ----------
Balance at December 31,
1998 229,016 2,290 1,410,393 14,104 10,354,985 (7,918,997) -- -- 2,452,382
Conversion of preferred
stock to common (500) (5) 219 2 3 --
Stock compensation
expense 110,000 1,100 95,464 96,564
Issuances of stock in
lieu of payment 345,000 3,450 96,549 99,999
Sale of stock 1,336,099 13,361 367,469 -- -- 380,830
Net loss, 1999 (2,411,691) (2,411,691)
------- ----- --------- ------ ---------- ----------- -------- ------- ----------
Balance at December 31,
1999 228,516 2,285 3,201,711 32,017 10,914,470 (10,330,688) -- -- 618,084
Issuance of stock for
services 78,000 780 73,988 74,768
Issuance of stock for
settlements 375,000 3,750 83,274 87,024
Sale of stock 1,638,333 16,383 463,617 -- -- 480,000
Net loss, 2000 (1,471,857) (1,471,857)
------- ----- --------- ------ ---------- ----------- -------- ------- ----------
Balance at December 31,
2000 228,516 2,285 5,293,044 52,930 11,535,349 (11,802,545) -- -- (211,981)
======= ===== ========= ====== ========== =========== ======== ======= ==========
The accompanying notes and independent auditors' report should be read in
conjunction with the consolidated financial statements.
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GOLF ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nature of Operations: Golf Entertainment, Inc. and subsidiaries (LEC Leasing,
Inc. or "LEC"; Superior Computer Systems, Inc. or "SCS"; Pacific Mountain
Computer Products, Inc. or "PMCPI"; Atlantic Digital International, Inc. or
"ADI"; LEC Distribution, Inc; TJ Computer Services, Inc.; Traditions Acquisition
Corporation and GolfBZ.com, Inc. or "GolfBZ") (collectively, the "Company" or
"Golf") has ceased doing business as of April 6, 2001. Mr. Ronald G. Farrell
introduced in late 1998 a plan to re-orient the Company from the equipment
leasing business to the golf industry, including owning and operating golf
courses, as well as other opportunities in Internet ".com" businesses. On
February 17, 1999, the stockholders of the Company approved the issuance of
convertible debentures to an investment company managed by Mr. Farrell, as well
as the change of the Company's name to Golf Entertainment, Inc. from LEC
Technologies, Inc. On April 6, 2001, the Board of Directors decided to cease
operations of the Company.
The Company's former line of business was leasing business equipment.
Organization: The Company was originally founded in 1980 under the name TJ
Computer Services, Inc. ("TJCS"). In 1989, all of the outstanding common stock
of TJCS was acquired by Harrison Development, Inc., an inactive public
corporation organized in Colorado, which then changed its name to TJ Systems
Corporation. In October 1991, the Company reincorporated in the State of
Delaware and in June 1995, changed its name to Leasing Edge Corporation. On
March 12, 1997, the Company's shareholders' approved a change in the Company's
name to LEC Technologies, Inc. In February 1999, the Company's shareholders
approved a change in the Company's name to Golf Entertainment, Inc.
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. Intercompany accounts and transactions have been
eliminated in consolidation.
Allowance for Doubtful Accounts
The following table reflects changes in the Company's estimated reserve for
doubtful accounts for each of the three years in the period ended December 31,
2000.
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Balance at Balance at
Beginning of End of
Period Expense Write-off Period
------------ --------- --------- ----------
1998 $157,405 $ 250,350 $ 103,388 $ 304,367
1999 $304,367 $ 62,878 $ 360,906 $ 6,339
2000 $ 6,339 $ -0- $ 6,339 $ -0-
Use of Estimates
The preparation of these consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As shown in the accompanying
consolidated financial statements, the Company has incurred a net loss of
$1,471,857 in 2000. In addition, the Company has a stockholders' deficiency of
$211,981 at December 31, 2000. The Company's ability to continue as a going
concern is dependent upon its ability to obtain additional financing and the
attainment of an adequate level of profitable operations. Management believes
that the action it is taking will provide the opportunity for the Company to
continue as a going concern.
Furniture and Equipment
Furniture and equipment are recorded at cost. Expenditures that materially
increase the life of the assets are capitalized. Ordinary repairs and
maintenance are charged to expense as incurred.
Depreciation and amortization are provided on the straight-line method over the
following useful lives:
Computer equipment 3 to 5 years
Furniture and office equipment 5 to 7 years
Leasehold improvements Term of lease
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of:
Management periodically evaluates the carrying value of its long-lived assets,
including operating leases, furniture and equipment, and intangible assets.
Whenever events or changes in circumstances indicate that the carrying value of
such assets may not be recoverable, the Company recognizes an impairment loss
for the difference between the carrying value and the estimated net future cash
flows attributable to such asset. As a result of the review of the remaining
fixed assets of the Company, primarily used computer equipment, management has
recorded an impairment charge of $128,267 during the year ended December 31,
2000.
As a result of operating losses at SCS and PMCPI, management determined that the
carrying value of the goodwill associated with the acquisition of these entities
exceeded the estimated net future cash flows attributable to them and,
consequently, recorded an impairment loss of $567,360 during the year ended
December 31, 1998.
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Income Taxes
The Company uses the asset and liability method to account for income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. The measurement of deferred tax assets is reduced, if necessary, by a
valuation allowance for any tax benefits, which may not ultimately be realized.
Stock Option Plans
Prior to January 1, 1996, the Company accounted for its stock option plans in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"), and related
interpretations. As such, compensation would be recorded on the date of grant
only if the current market price of the underlying stock exceeded the exercise
price. On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123"), which permits entities to recognize as expense over the vesting period
the fair value of all stock-based awards on the date of grant. Alternatively,
SFAS No. 123 also allows entities to continue to apply the provisions of APB No.
25 and provide pro forma net income and pro forma earnings per share disclosures
for employee stock option grants made in 1995 and future years as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to continue to apply the provisions of APB No. 25 and provide the
pro forma disclosure provisions of SFAS No. 123.
Earnings Per Share
Basic and diluted loss per share are computed in accordance with SFAS No. 128,
"Earnings Per Share". Potential common shares have not been included in the
computation of diluted earnings per share because the effect would be
antidilutive.
Recently Issued Accounting Standards
Management does not believe that any recently issued but not yet adopted
accounting standards will have a material effect on the Company's results of
operations or on the reported amounts of its assets and liabilities upon
adoption.
Reclassification
Certain reclassifications have been made in the 1999 and 1998 financial
statements to conform to the 2000 presentation.
QUARTERLY INFORMATION
QUARTER ENDED QUARTER ENDED QUARTER ENDED QUARTER ENDED QUARTER ENDED
MARCH 31, 2000 JUNE 30, 2000 SEPTEMBER 30, 2000 DECEMBER 31, 2000 DECEMBER 31, 2000
-------------- ------------- ------------------ ----------------- -----------------
Net loss (716,626) (207,156) (374,046) (174,029) (1,471,85?)
Loss per share (0.19) (0.04) (0.06) (0.03) (0.32)
NOTE 2: LEASE ACCOUNTING POLICIES
SFAS No. 13 requires that a lessor classify each lease as either a direct
financing, sales-type or operating lease.
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Leased Assets
Direct financing and sales-type leases - Direct financing and sales-type leased
assets consist of the future minimum lease payments plus the present value of
the estimated unguaranteed residual less unearned finance income (collectively
referred to as the net investment).
Operating Leases - Operating leased assets consist of the equipment cost less
accumulated depreciation.
Revenue, Costs and Expenses
Direct Financing Leases - Revenue consists of interest earned on the present
value of the lease payments and residual and is included in finance income in
the accompanying Consolidated Statements of Operations. Revenue is recognized
periodically over the lease term as a constant percentage return on the net
investment. There are no costs and expenses related to direct financing leases
since revenue is recorded on a net basis.
Sales-type Leases - Revenue consists of the present value of the total
contractual lease payments and is recognized at lease inception. Costs and
expenses consist of the equipment's net book value at lease inception, less the
present value of the residual. Interest earned on the present value of the lease
payments and the residual, which is recognized periodically over the lease term
as a constant percentage return on the net investment, is included in finance
income in the accompanying Consolidated Statements of Operations.
Operating Leases - Revenue consists of the contractual lease payments and is
recognized on a straight-line basis over the lease term. Costs and expenses are
principally depreciation on the equipment, which is recognized on a
straight-line basis over the term of the lease to the Company's estimate of the
equipment's residual value.
NOTE 3: LEASED ASSETS
The components of the net investment in sales-type and direct financing leases,
which are included in assets related to discontinued operations, as of December
31 are as follows:
2000 1999
---------- ----------
Total future minimum lease payments $ 181,523 $ 502,707
Less unearned finance income (7,533) (36,705)
---------- ----------
Total $ 173,990 $ 466,002
========== ==========
Future minimum lease payments on sales-type and direct financing leases as of
December 31, 2000 are as follows:
Years ending December 31,
2001 $150,892
2002 30,631
--------
$181,523
========
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There are no future minimum lease rentals on operating leases due to sale of the
lease portfolio.
NOTE 4: ACQUISITION OF TRADITIONS GOLF CLUB
On May 22, 1999, Traditions Acquisition Corporation, a wholly-owned subsidiary
of Golf Entertainment, Inc, acquired substantially all of the assets except for
real estate of Golf Traditions I, Ltd., a partnership that developed Traditions
Golf Club in Edmond, Oklahoma. Traditions Golf Club has a 4,500 yard, 18 hole,
par 60 executive length golf course, a 20 acre practice range of 80 tees with
multiple target greens, an 18 hole practice putting course, a mini-course for
juniors, a pro shop and a club house. The purchase price for the acquisition was
approximately $454,073, and was equal to the liabilities assumed, approximately
$454,073. The purchase method of accounting was used to establish and record a
new cost basis for the assets acquired and liabilities assumed. Concurrently,
the Company entered into a ground lease for a 4-year term with two (2)
additional term options of two (2) years each for $24,000 per month. This lease
is accounted for as an operating lease.
The operating results for the acquisition have been included in the Company's
consolidated financial statements since the date of acquisition.
The following unaudited proforma results assume the acquisition of Traditions
Golf Club occurred at the beginning of the year ended December 31, 1999.
Net sales 888,009
Net expenses 2,083,680
Discontinued operations (1,480,792)
Gain on disposal 48,346
Extraordinary item 385,197
----------
Net loss (2,628,117)
==========
Basic earnings per share (1.20)
Diluted earnings per share (1.20)
NOTE 5: DISCONTINUED OPERATIONS
In 1998, the Board of Directors determined that, in light of the significant
losses from the Company's equipment leasing business and the sizeable
indebtedness of the Company from that business, that it was in the best interest
of the Company that its equipment leasing business be sold and the Company
should develop a golf entertainment business. The Directors agreed to the Sale
to repay indebtedness incurred in connection with the Company's equipment
leasing business and to generate capital for the development of the golf
entertainment business. The Company received approximately $14,000 in cash
(after deducting expenses of approximately $315,000), plus a note receivable of
$75,000 with monthly payments of $2,834 through June 2002. The Company released
the remaining balance of approximately $55,500 in lieu of payment of portfolio
related expenses. These funds were used to pay ongoing expenses of the Company
and repay Excel Bank,
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N.A. for certain recourse debt not being assumed by the Buyer. Furthermore, the
Buyer assumed approximately $12,500,000 of debt associated with the Company's
business equipment leases and approximately $2,600,000 of senior secured debt.
Revenue related to the discontinued leasing operations was $18,239, $8,102,630,
and $30,623,016 for the years ended December 31, 2000, 1999 and 1998,
respectively. At December 31, 2001, the Company had approximately $-0- of lease
inventory, $173,990 of leased assets, and $39,750 of related lease liabilities.
On May 24, 2000, Traditions Acquisition Corporation, a wholly owned subsidiary
of Golf Entertainment, Inc., ceased doing business. Traditions Acquisition
Corporation ceased all operations of the Traditions Golf Club in Edmond,
Oklahoma and began procedures to dissolve. The subsidiary's recorded assets of
$385,384 and recorded liabilities of $401,734 were written down to $-0-.
Pursuant to the terms of the lease agreement, by which Traditions Acquisition
Corporation had leased the Traditions Golf Club facility, all future lease
payments would become due from Traditions Acquisition Corporation upon
termination of that lease. The owner of the facility terminated the lease
agreement effective May 23, 2000. The total remaining lease liability of
Traditions Acquisition Corporation is $888,000. This liability is not guaranteed
by Golf Entertainment, Inc. Traditions Acquisition Corporation is currently in
the process of dissolution.
Revenue related to the discontinued golf operations was $253,234, $585,482 and
$-0- for the years ended December 31, 2000, 1999 and 1998, respectively. At
December 31, 2000, the Company had no assets or related golf liabilities.
Due to the cessation of business by Golf Entertainment, Inc. on April 6, 2001,
the Company sold its subsidiary, GolfBZ.com, Inc., and the related intangible
assets to Ronald G. Farrell, the Company's Chairman and Chief Executive Officer,
on May 10, 2001 for $25,000.
NOTE 6: INCOME TAXES
Total income tax expense (benefit) differed from the "expected" income tax
expense (benefit) determined by applying the statutory federal income tax rate
of 35% for the years ended December 31 as follows:
2000 1999 1998
---------- ---------- ------------
Computed "expected" income tax
expense (benefit) $ (515,150) $ (844,092) $ (1,120,793)
Change in valuation allowance
for deferred tax assets 464,952 809,429 1,115,340
Nondeductible expenses 50,198 34,663 5,453
---------- ---------- ------------
Total tax expense $ -- $ -- $ --
========== ========== ============
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and tax liabilities at December 31, 2000 and 1999 are
presented below:
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December 31, December 31,
2000 1999
------------ ------------
Deferred Tax Assets
Allowances for doubtful accounts,
inventory obsolescence and
residual value realization not
currently deductible $ -- $ 712,884
Net operating loss carryforwards 2,638,478 1,460,642
------------ ------------
Total gross deferred tax assets 2,638,478 2,173,526
Valuation allowance (2,638,478) (2,173,526)
------------ ------------
Net deferred tax assets $ -- $ --
============ ============
Deferred Tax Liabilities
Net deferred taxes liabilities $ -- $ --
============ ============
The Company has recorded a valuation allowance in accordance with the provisions
of SFAS No. 109 "Accounting for Income Taxes" to reflect the estimated amount of
deferred tax assets which may not be realized. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. At December 31, 2000 and 1999, the Company determined that
$2,638,478 and $2,173,526, respectively, of tax benefits did not meet the
realization criteria.
At December 31, 2000, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $8,300,000 which are available to
offset future taxable income, if any, through 2020.
NOTE 7: NONRECOURSE AND RECOURSE DISCOUNTED LEASE RENTALS
The Company assigned the rentals of its leases to financial institutions at
fixed rates on a nonrecourse or, to a lesser extent, on a recourse basis but
retained the residual rights. In return for future lease payments, the Company
received a discounted cash payment. Discounted lease rentals as of December 31,
2000 and 1999 were $-0- and $115,941 respectively of which $-0- and $115,941 are
recourse, respectively. Interest expense on discounted lease rentals for the
years ended December 31, 2000 and 1999 was $-0- and $838,584, respectively.
NOTE 8: NOTES PAYABLE AND LINES OF CREDIT
Notes Payable and Lines of Credit
Previously, the Company had a line of credit with Merrill Lynch Business
Financial Services, Inc. During December 1999, the Company was able to reach a
Settlement Agreement with Merrill Lynch, whereby the Company will pay monthly
installments over a 16-month period, beginning in April 2000. During 2000, the
Company negotiated a final settlement with Merrill Lynch whereby the Company
paid $24,000 in cash and
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Merrill Lynch forgave the remaining $101,000. As of December 31, 2000, there was
no amount outstanding to Merrill Lynch.
In March 1999, LEC Leasing, Inc. and IBM Corporation entered into an agreement
whereby $347,884 of accounts payable obligations were converted into an 8% term
note payable in monthly installments of $20,000. On November 12, 1999, the
Company and IBM reached an agreement, subject to appropriate documentation, to
substantially reduce the obligation and amend the repayment terms. As of
December 31, 2000, the balance owed IBM is $39,750.
In November 1999, the Company finalized its lease negotiations in conjunction
with its relocation to Alpharetta, Georgia. As part of the negotiations, the
Company and landlord agreed to a build-out allowance. Actual costs of the
build-out were greater than the allowance. The Company paid for the build-out
with a combination of cash and a note payable to the landlord of $15,980 to be
repaid over 5 years (lease term) at 10%. As of December 31, 2000, the Note
Payable balance was $12,929.
On November 30, 2000, the Company agreed to sell up to $500,000 of Convertible
Notes to the Company's Chairman/CEO, Ronald G. Farrell. The balance of the
Convertible Notes was $105,000 as of December 31, 2000.
Notes payable and lines of credit consist of the following at December 31,
2000 1999
---------- ----------
Term note payable to Northwinds
Center, LP, payments of $340 including
interest at 10%, due October 31, 2004 12,929 15,566
Term note payable to Imperial Premium,
Finance Company, payments of $1,842
including interest at 17.8%, due
June 25,2001 10,590 -0-
Term note payable to Scott Printing
Corporation, due in monthly installments
Beginning December 1, 2000 of $1,250
For 4 months, $2,500 for 2 months
With interest at 0.0% 8,750 -0-
Demand convertible note payable to
Ronald G. Farrell, interest accruing at
Prime plus 2.0%, due upon demand 105,000 -0-
---------- ----------
$ 137,269 $ 15,556
========== ==========
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Required annual principal payments as of December 31, 2000 are as follows:
2001 $ 127,253
2002 3,217
2003 3,554
2004 3,245
---------
Total $ 137,253
=========
NOTE 9: COMMITMENTS AND CONTINGENCIES
a) Lease Agreements
The Company leases its office space under an operating lease expiring October
2004. The minimum future rental payments required as of December 31, 2000 under
the operating lease are:
Years ending December 31,
2001 $ 76,800
2002 79,106
2003 81,477
2004 69,753
--------
Total $307,136
========
Rental expense on operating leases was $74,961, $344,883, and $301,658 for the
years ended December 31, 2000, 1999, and 1998, respectively. The Company has
notified the landlord that it will close the Office on June 30, 2001.
b) Employment Contracts
The Company has employment agreements with one of its executive officers with
remaining terms of approximately five years. Under this agreement, the employee
is entitled to receive other employee benefits of the Company, including medical
and life insurance coverage. If the agreement is terminated due to the death of
an employee, a death benefit equal to eighteen months salary shall be paid to
the employee's estate, currently $594,000. The Company may terminate for cause.
The Company's annual expense under these agreements is approximately $360,000.
The annual base salary under such agreement was $240,000 for the period January
1, 1999 through December 31, 2000, but was amended in May, 1999 to an annual
salary of $360,000 through December 31, 2000, with annual 10% increases
thereafter, due to increased responsibility associated with the Company's
operations. Mr. Farrell's contract was extended on November 30, 2000 through
December 31, 2005 under the same terms and conditions. Mr. Farrell was granted
the option to purchase a total of 2,000,000 shares of the Company's Common Stock
in lieu of cash compensation for the six months between July 1, 2000 and
December 31, 2000. The option grant vests immediately and is exercisable for 10
years.
In addition, pursuant to the terms of the agreement, such officer is eligible to
receive an annual bonus equal to five percent (5%) of the Company's operating
income for the year.
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Such bonus may not exceed such officer's base salary for each respective fiscal
year.
NOTE 10: RELATED PARTY TRANSACTIONS
a) Company's Board of Directors
A current director of the Company was formerly the Chief Financial Officer of
Vitamin Shoppe Industries, Inc. and was formerly an officer of Tiffany & Co.,
two of the Company's leasing business former customers. Another former director
of the Company was formerly the Chief Operating Officer of NetGrocer, Inc., one
of the Company's leasing business former customers. Neither director received
any cash or other remuneration from the Company other than their fees as
directors and participation in the Company's stock option plans. The Company
believes that the terms of its lease arrangements with Vitamin Shoppe
Industries, Inc., Tiffany & Co. and NetGrocer, Inc. were fair and were reached
on an arms-length basis.
The Chairman of the Board of Directors and Chief Executive Officer currently
holds $105,000 of the Company's Convertible Demand Notes. Mr. Farrell also owns
all of the stock of a privately-held company that owns 115,000 shares of the
Company's common stock. The Company believes that the terms and conditions of
the financing arrangements were fair.
b) Aggregate Effect of Transactions with Related Parties
The Board of Directors of the Company has reviewed the aggregate effect on
operations of the above-described transactions and concluded that such
transactions were in the best interest of the Company and on terms as fair to
the Company as could have been obtained from unaffiliated parties.
NOTE 11: STOCKHOLDERS' EQUITY
In 2000, the company issued 78,000 shares of restricted common stock for
services. The fair market value of the shares on the dates of issue was $74,768
and was expensed in 2000.
Also in 2000, the Company issued 375,000 shares of restricted common stock for
settlement of legal claims. The fair market value of the shares on the dates of
issue was $87,024 and was expensed in 2000.
Also in 2000, LEC Acquisition LLC acquired 1,523,333 shares of common stock. The
fair market value of the shares at the dates of issue was $457,000.
Also in 2000, Sports M&A.com, Inc. acquired 115,000 shares of the common stock.
The fair market value of the shares at the dates of issue was $23,000.
In 1999, the Company issued 110,000 shares of restricted common stock for
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compensation. The fair market value of the shares at the date of issue was
$96,564 and was expensed in 1999.
Also in 1999, the Company issued 345,000 shares of restricted common stock in
lieu of payment. The fair market value of the shares at the date of issue was
$99,999.
Also in 1999, 5 shares of the Company's preferred stock was converted to 219
shares of common stock. There was no economic effect to the company.
Also in 1999, LEC Acquisition LLC exercised its option to acquire 1,236,099
shares of common stock in exchange for its convertible notes. The fair market
value of the shares at the dates of issue was $370,830.
Also in 1999, other 6% convertible notes were exercised at the stated option
rate of $0.10 per share. 10,000 shares were issued.
On September 15, 1998, the Company's shareholder's approved a one-for-four
reverse stock split. All share data have been retroactively adjusted to give
effect to the reverse split as of the first date presented.
A. SERIES A CONVERTIBLE PREFERRED STOCK
In August of 1993, the Company completed the sale of 380,000 shares of Series A
Convertible Preferred Stock originally convertible in 14 shares of common stock.
Currently, the Preferred Stock is convertible at the holders option at any time
into 0.4375 shares of common stock at a conversion price of $22.72 per share
after giving effect to the reverse stock splits of 8 to 1 and 4 to 1 on February
24, 1999 and September 15, 1998, respectively. Outstanding Series A Preferred
Stock is redeemable by the Company at $10.00 per share plus accrued and unpaid
dividends. No warrants are outstanding as of December 31, 2000. The Series A
Preferred Stock pays dividends in arrears at an annual rate of $1.00 per share.
A conversion bonus equal to $0.25 per share of Series A Preferred Stock
converted shall be payable to any holder who converts such shares after the date
in any calendar quarter on which dividends accrue and prior to such date for the
succeeding calendar quarter.
At December 31, 2000 and 1999, there were 228,516 shares of preferred stock
outstanding. Also, at December 31, 2000 and 1999, there were -0- and 1,506,544
warrants outstanding, respectively.
Accrued and unpaid preferred stock dividends were $57,254 at December 31, 2000
and 1999. The preferred stock has unaccrued and unpaid dividends in the amounts
of $457,532 and $228,516 for December 31, 2000 and 1999, respectively.
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B. WARRANTS AND STOCK OPTIONS
Warrants
On November 30, 1998, the Company and LEC Acquisition LLC, a limited liability
company whose managing partner is Ronald G. Farrell, the Company's Chairman and
Chief Executive Officer, entered into a Subscription Agreement whereby LEC
Acquisition LLC was granted a one year warrant to purchase 6% Convertible
Debentures up to an aggregate principal amount of $1,429,170. The 6% Convertible
Debentures are convertible into up to an aggregate of 4,763,901 shares of the
Company's common stock, such conversion being subject to shareholder approval.
On February 17, 1999, the Company's shareholders approved a resolution
authorizing the Company to issue such shares upon conversion of the 6%
Convertible Debentures. On November 11, 1999, the Board of Directors approved an
amendment to the Subscription Agreement to extend the Warrant exercise period to
November 29, 2000. On April 25, 2000, the Company granted to LEC Acquisition,
LLC a three year warrant to purchase 500,000 shares of the Common Stock of the
Company. On August 12, 2000, LEC Acquisition LLC formally notified the Company
that it was terminating the Debenture Agreement.
Stock Options
1) Key Employee and Director
Options granted to employees generally vest over a three to five year period and
expire five years from the date of grant. Options granted to directors are
immediately vested and expire ten years from the date of grant. Under the stock
option plans, the exercise price of each option at issuance equals the market
price of the Company's common stock on the date of grant.
Additionally, a former officer of the Company has 14,531 options to acquire
common stock at an exercise price of $0.32 per share. The options were granted
in 1993 in lieu of prospective commissions and were subject to a three-year
vesting.
The Company applies APB Opinion No. 25 and related Interpretations in accounting
for its plans. Accordingly, no compensation cost has been recognized for its
fixed stock option plans in the consolidated financial statements. Had
compensation cost for the Company's stock option plans been determined
consistent with SFAS No. 123, the Company's net earnings (loss) available to
common stockholders and earnings (loss) per common weighted average share would
have been reduced to the pro forma amounts indicated below (in thousands, except
per share data):
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2000 1999 1998
Net loss available to common stockholders:
As reported $(1,472) $(2,412) $(3,202)
Pro forma (1,793) (2,493) (3,457)
Loss per common weighted average share:
As reported $ (0.32) $ (1.10) $ (2.63)
Pro forma (0.39) (1.14) (2.84)
For purposes of calculating the compensation cost consistent with SFAS No. 123,
the fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 2000, 1999 and 1998, respectively: dividend yield
of 0.0% for each year; expected volatility of 100 percent, 60 percent and 52
percent; risk free interest rates of 6.00%, 6.00%, and 5.83%; and expected lives
of one year, three years and five years.
Additional information on shares subject to options is as follows:
2000 1999 1998
--------------------------- ------------------------- -------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
--------- -------- ------- -------- -------- --------
Outstanding at
beginning of
year 690,781 $ 0.97 415,781 $ 1.12 138,906 $ 2.72
Granted 2,289,999 0.14 275,000 0.75 811,250 1.48
Exercised -0- -0- (234,375) 2.00
Forfeited (83,750) 2.59 -0- (300,000) 2.19
--------- ------- --------
Outstanding at
end of year 2,897,030 0.27 690,781 0.97 415,781 1.12
========= ======= ========
Options exer-
cisable at
year end 2,637,030 0.25 490,781 1.08 83,865 1.93
========= ======= ========
Weighted average
fair value of
options granted
during the year $ 0.14 $ 0.75 $ 0.46
======== ======== ========
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The following table summarizes information about stock options outstanding at
December 31, 2000:
Options Outstanding
-------------------------
Weighted
Average Weighted
Number Remaining Average
Range of exercise of Contractual Exercise
prices Shares Life Price
--------------------------------------------------------------
$0.10 60,000 9.8 yrs $0.10
0.13 2,090,000 9.8 yrs 0.13
0.20 10,000 9.8 yrs 0.20
0.31 119,999 6.3 yrs 0.31
0.32 14,531 2.7 yrs 0.32
0.69 300,000 7.9 yrs 0.69
0.75 275,000 4.0 yrs 0.75
0.81 20,000 7.8 yrs 0.81
3.00 7,500 1.2 yrs 3.00
---------
2,897,030 8.8 yrs $0.27
=========
Options Exercisable
----------------------
Weighted
Number Average
Range of exercise of Exercise
prices Shares Price
---------------------------------------------
$0.10 60,000 $0.10
0.13 2,000,000 0.13
0.20 10,000 0.20
0.31 49,999 0.31
0.32 14,531 0.32
0.69 200,000 0.69
0.75 275,000 0.75
0.81 20,000 0.81
3.00 7,500 3.00
---------
2,637,030 0.25
=========
2) Other Options
Options granted to other than employees/directors are accounted for based on the
fair value method pursuant to SFAS No. 123 utilizing the Black-Scholes
option-pricing method.
The Company issued a warrant to LEC Acquisition, LLC on April 25, 2000 for
500,000 shares of the Company's Common Stock at the purchase price of $0.20 per
share. The warrant's term is for three years. The warrants may be exercised in
whole or in part.
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NOTE 12: MAJOR CUSTOMERS
There are no significant customer relationships remaining after the sale of the
lease portfolio.
NOTE 13: EMPLOYEE BENEFIT PLANS
The Company had a qualified 401(k) Profit Sharing Plan (the "Plan") covering all
employees of the Company, including officers. During 1998, the Company
contributed its required amounts of $49,386 to the Plan on behalf of the Plan's
participants. The plan was terminated in 1999.
NOTE 14: SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 2000, the Company issued 78,000 shares of
common sock in exchange for services valued at $74,768; issued 375,000 shares of
restricted common stock to satisfy settlement obligations valued at $87,024.
During the year ended December 31, 1999, the Company issued 110,000 shares of
common stock in exchange for services valued at $96,564; converted $522,884 in
accounts payable obligations into term notes; issued 345,000 shares of
restricted common stock to satisfy accounts payable obligations of $100,000; and
assumed $454,073 in liabilities in exchange for $454,073 in assets to be used in
connection with the operations of the Traditions Golf Club.
During the year ended December 31, 1998, the Company issued 234,375 shares of
common stock pursuant to the cashless exercise of stock options.
NOTE 15: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments
was made in accordance with Statement of Financial Accounting Standards,
"Disclosures about Fair Value of Financial Instruments" ("SFAS No. 107"). SFAS
No. 107 specifically excludes certain items from its disclosure requirements
such as the Company's investment in leased assets. Accordingly, the aggregate
fair value amounts presented are not intended to represent the underlying value
of the net assets of the Company.
The carrying amounts at December 31, 2000 and 1999 for receivables, accounts
payable, accrued liabilities, notes payable and lines of credit approximate
their fair values due to the short maturity of these instruments. As of December
31, 2000 and 1999, the carrying amount of recourse discounted lease rentals of
$-0- and $115,941, respectively, approximate their fair values because the
discount rates are comparable to current market rates of comparable debt having
similar maturities and credit quality.
NOTE 16: 2000 FOURTH QUARTER CHARGES
During the fourth quarter of 2000, the Company recorded a charge of $97,700 to
reduce
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the carrying amount of certain assets related to discontinued operations. This
charge resulted from a decrease in the market value due to obsolescence of the
computer equipment held in storage facilities and reduced the carrying value to
$-0-.
During the fourth quarter of 2000, the Company recorded a charge of $128,267 to
record the impairment on long-lived assets. This charge reduced the carrying
value to $-0-.
NOTE 17: EARNINGS PER COMMON SHARE
In February of 1997, the Financial Accounting Standards Board issued SFAS No
128, "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 supersedes APB Opinion
No. 15 and specifies the computation, presentation and disclosure requirements
for earnings per share ("EPS"). It replaces the presentation of "primary EPS"
with a presentation of "basic EPS" and "fully diluted EPS" with "diluted EPS".
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted average number of shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock and is computed similarly to fully diluted EPS under APB
Opinion No. 15. The following EPS amounts reflect EPS as computed under SFAS No.
128 for the years ended December 31. All share and per share amounts have been
retroactively adjusted to reflect the one-for-four reverse stock split which
became effective on September 15, 1998:
2000 1999 1998
------------ ------------ ------------
Shares outstanding at
beginning of period 3,201,711 1,410,393 1,197,268
Effect of issuance of common
stock for compensation 74,434 45,342 --
Issuance of common stock in
lieu of payment -- 175,535 --
Issuance of common stock for
Settlements 165,738
Sale of stock 1,212,065 553,873 --
Conversion of preferred stock -- 109 --
Issuance of common stock
pursuant to private place-
ment transactions -- -- --
Exercise of stock options -- 32,748
Purchase of treasury stock -- -- (13,419)
------------ ------------ ------------
Weighted average common
shares outstanding 4,653,948 2,185,252 1,216,597
============ ============ ============
Net loss $ (1,471,857) $ (2,411,691) $ (3,202,265)
Preferred stock dividends -- -- --
------------ ------------ ------------
Net loss available to
common shareholders $ (1,471,857) $ (2,411,691) $ (3,202,265)
============ ============ ============
Loss per common share $ (0.32) $ (1.10) $ (2.63)
============ ============ ============
Weighted average common
shares outstanding 4,653,948 2,185,252 1,216,597
Effect of common shares
issuable upon exercise of
dilutive stock options -- -- --
------------ ------------ ------------
Weighted average common
shares outstanding assuming
dilution 4,653,948 2,185,252 1,216,597
============ ============ ============
Loss per common
share assuming dilution $ (0.32) $ (1.10) $ (2.63)
============ ============ ============
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The following potentially dilutive securities were not included in the
computation of dilutive EPS because the effect of doing so would be
antidilutive:
2000 1999 1998
--------- --------- ---------
Options 2,897,030 690,781 309,791
Warrants 1,506,544 1,207,075 1,207,179
Convertible preferred stock 99,976 228,516 100,195
Warrants issuable upon conversion
of preferred stock if conversion
occurred prior to August 4, 1998 -- -- 71,568
NOTE 18: SUBSEQUENT EVENTS
In April 2001, the Board of Directors of the Company decided to cease the
operations of the Company effective April 6, 2001 due to its economic
unfeasibility. The officers of the Company had given notice of their
resignation effective April 30, 2001. The officers have rescinded their
resignations. The directors of the Company have given notice of their
resignation effective April 6, 2001. Mr. Farrell has rescinded his resignation
as Chairman of the Board of Directors.
Due to the cessation of business by Golf Entertainment, Inc. on April 6, 2001,
the Company sold its subsidiary, GolfBZ.com, Inc., and the related intangible
assets to Ronald G. Farrell, the Company's Chairman and Chief Executive Officer,
on May 10, 2001 for $25,000.
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(a) Exhibits
Exhibit
Number Description
------- -----------
3.1 Certificate of Incorporation.*
3.2 Certificate of Amendment of Certificate of Incorporation,
dated June 23, 1995.**
3.3 Certificate of Amendment of Certificate of Incorporation,
dated March 20, 1997.******
3.4 By laws.*
4.1 Specimen Common Stock Certificate.*
4.2 Specimen Series A Convertible Preferred Stock Certificate.*
4.3 Specimen Warrant Certificate.*
4.4 Certificate of Designation of Series A Convertible Preferred
Stock.*
4.5 Form of Representative's Warrants.*
4.6 Form of Class C Common Stock Purchase Warrant.*****
4.7 Form of Class D Common Stock Purchase Warrant.*****
4.8 Amended and Restated Warrant Agency Agreement Dated as of
March 3, 1998, between the Company and American Stock Transfer
and Trust Company, as Warrant Agent.*****
10.1 Standard Office Lease - Gross dated April 7, 1995 between
the Company and Jack Cason (relating to office space in
Clark County, Nevada).**
10.2 1991 Directors' Stock Option Plan.*
10.3 1991 Key Employees' Stock Option Plan.*
10.4 1993 Directors' Stock Option Plan.*
10.5 1993 Key Employees' Stock Option Plan.*
10.6 1994 Stock Option Plan.****
10.7 1996 Stock Option Plan.*****
10.8 1997 Stock Option Plan.******
10.9 Form of 1996 Non-Plan Director Stock Option Agreement.******
10.10 Indemnification Agreement dated as of September 5, 1990
between the Company and Michael F. Daniels.*
10.11 Loan Agreement with Bank of America dated July 11, 1995.***
10.12 Amendment No. 1 to Loan Agreement with Bank of America.***
10.13 Amendment No. 2 to Loan Agreement with Bank of America.***
10.14 Amendment No. 3 to Loan Agreement with Bank of America.***
10.15 Amended and Restated Business Loan Agreement with Bank of
America dated February 28, 1997.
10.16 Bank of America Loan Modification Agreement dated July 24,
1997.
10.17 Second Bank of America Loan Modification Agreement dated
February 5, 1998.
10.18 Merrill Lynch Line of Credit Agreement.***
10.19 Amendment No. 1 to Merrill Lynch Line of Credit Agreement.***
10.20 Amendment No. 2 to Merrill Lynch Line of Credit Agreement.***
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10.21 Letter Agreement and Collateral Installment Note dated as of
October 8, 1997 with Merrill Lynch Business Financial
Services, Inc.
10.22 Letter Agreement between the Registrant and Excel Bank, N.A.
(formerly Union Chelsea National Bank) dated November 27,
1995.***
10.23 Revolving Credit Agreement with Excel Bank, N.A. dated as
March 8, 1998.
21 List of Subsidiaries.
(F*) Incorporated by reference to the Company's Registration
Statement on Form S-2, as filed with the Securities and Exchange
Commission on June 10, 1993, Registration No. 33-64246.
(F**) Incorporated by reference to the Company's Post Effective
Amendment No. 1 on Form S-2 to its Registration Statement on Form
S-2, as filed with the Securities and Exchange Commission on
August 1, 1995, Registration No. 33-93274.
(F***) Incorporated by reference to the Company's 1995 Annual Report
on Form 10-KSB/A, as filed with the Securities and Exchange Commission
on April 23, 1996, Commission File No. 0-18303.
(F****) Incorporated by reference to the Company's 1994 Proxy
Statement, Commission File No. 0-18303.
(F*****) Incorporated by reference to the Company's 1996 Proxy
Statement, Commission File No. 0-18303.
(F******) Incorporated by reference to the Company's Registration
Statement on Form S-8/S-3, as filed with the Securities and Exchange
Commission on June 11, 1997, Commission File No. 333-28921.
50