SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED:
JUNE 30, 1999 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 No. 0-18303
- -----------------------------------------------------------------
GOLF ENTERTAINMENT, INC.
_________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware No. 11-2990598
- -------------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2500 Northwinds Parkway
300 Northwinds Center - Suite 175
Alpharetta, GA 30004
- -------------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
(770) 667-9890
- --------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
Applicable only to issuers involved in bankruptcy proceedings
during the preceding five years:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
July 31, 1999: 2,641,492 common shares.
GOLF ENTERTAINMENT, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
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PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1999
(Unaudited) and December 31, 1998 3
Consolidated Statements of Operations -
for the three and six months ended
June 30, 1999 and 1998 (Unaudited) 5
Consolidated Statements of Cash Flows -
for the six months ended
June 30, 1999 and 1998 (Unaudited) 6
Notes to Consolidated Financial Statements
(Unaudited) 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Submission of Matters to a Vote of
Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
(a) Exhibits
(b) Reports on Form 8-K
</TABLE>
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
GOLF ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
(Unaudited) (Audited)
----------- ------------
<S> <C> <C>
ASSETS:
Cash $ 246,615 $ 391,705
Receivables - net of allowance
for doubtful accounts of $304,367
at June 30, 1999 and December 31,
1998, respectively 584,625 2,577,260
Notes receivable - employees - 143,376
Notes and accounts receivable - other 249,833 -
Inventory, net of reserve for
obsolescence of $940,868 and
$1,086,608 at June 30, 1999 and
December 31, 1998, respectively 1,574,916 1,862,981
Leased assets:
Operating leases, net 10,492,615 11,787,960
Sales-type and direct
financing leases 7,968,162 8,454,844
Furniture and equipment - net of
accumulated depreciation of
$481,832 and $425,465 911,510 552,706
Other assets 412,288 610,335
---------- ----------
TOTAL ASSETS $22,440,564 $26,381,167
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
(continued)
GOLF ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
(Unaudited) (Audited)
----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 2,612,963 $ 3,611,164
Accrued liabilities 430,654 745,418
Notes payable and lines of credit 3,698,573 4,016,584
Nonrecourse and recourse discounted
lease rentals 13,498,144 15,450,421
Other liabilities 123,506 105,198
---------- ----------
TOTAL LIABILITIES 20,363,840 23,928,785
---------- ----------
STOCKHOLDERS' EQUITY:
Series A convertible preferred
stock, $.01 par value; 1,000,000
shares authorized, 380,000 shares
issued; 229,016 shares outstanding 2,290 2,290
Common stock, $.01 par value;
25,000,000 shares authorized,
2,641,492 and 1,410,393 shares issued
and outstanding at June 30, 1999
and December 31, 1998, respectively 26,415 14,104
Additional paid-in capital 10,711,004 10,354,985
Accumulated deficit (8,662,985) (7,918,997)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 2,076,724 2,452,382
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $22,440,564 $26,381,167
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
GOLF ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------- ----------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Operating leases $1,496,393 $1,588,014 $ 2,990,097 $3,697,574
Sales-type leases 303,712 287,099 303,712 631,571
Finance income 235,249 194,568 490,579 372,109
Direct sales 4,600 112,163 135,317 943,093
--------- --------- ---------- ---------
Total revenues from
leasing operations 2,039,954 2,181,844 3,919,705 5,644,347
Distribution sales 60,458 4,361,562 1,327,113 9,065,330
Golf operations 125,676 - 125,676 -
Other (1,555) 2,051 (1,555) 3,396
--------- --------- ---------- ---------
Total revenues 2,224,533 6,545,457 5,370,939 14,713,073
--------- --------- ---------- ---------
Costs and expenses:
Operating leases 1,014,912 1,127,729 1,599,700 2,248,716
Sales-type leases 193,160 193,068 193,160 472,003
Interest expense 294,734 329,770 626,577 664,497
Direct sales 20,974 154,510 136,285 1,122,878
Write down of inventory
and residual values - 1,109,294 - 1,109,294
--------- --------- ---------- ---------
Total costs from
leasing operations 1,523,780 2,914,371 2,555,722 5,617,388
Distribution cost of
sales (5,597) 3,567,763 1,308,043 7,545,887
Golf operations 22,069 - 22,069 -
Selling, general and
administrative expenses 847,444 1,876,693 1,971,429 3,098,143
Interest expense 131,711 138,501 257,664 320,071
--------- --------- ---------- ---------
Total costs and expenses 2,519,407 8,497,328 6,114,927 16,581,489
--------- --------- ---------- ----------
Net loss $( 294,874)$(1,951,871) $(743,988)$(1,868,416)
========== ========== ======== ==========
</TABLE>
The accompanying notes are integral part of these consolidated financial
statements.
(Continued)
GOLF ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------- ----------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Loss per common share $ (0.17) $ (1.66) $ (0.45) $ (1.58)
======== ========= ======== =========
Loss per common share
assuming dilution $ (0.17) $ (1.66) $ (0.45) $ (1.58)
======== ========= ======== =========
</TABLE>
The accompanying notes are integral part of these consolidated financial
statements.
GOLF ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
June 30, June 30,
1999 1998
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ ( 743,988) $(1,868,416)
Adjustments to reconcile net
loss to cash provided by
operating activities:
Depreciation and amortization 2,061,950 2,320,325
Stock compensation expense 37,500 -
Write down of inventory, residual
values and other - 1,329,554
Change in assets and liabilities
due to operating activities:
(Increase) decrease in accounts
receivable 1,992,635 (66,761)
Decrease in inventory 603,286 103,958
Increase (decrease) in
accounts payable (568,779) 608,894
Increase (decrease) in accrued
liabilities (314,764) 381,467
All other operating activities 1,706 (314,134)
----------- ----------
Total adjustments 3,813,534 4,363,303
----------- ----------
Net cash provided by operating
activities 3,069,546 2,494,887
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales, transfers and disposals of
inventory and equipment 7,530 1,318,409
Purchases of inventory for lease (856,176) (2,404,708)
Purchases of furniture and equipment - (185,877)
Increase in notes receivable (21,783) (51,791)
Additions to net investment in
sales-type and direct finance leases (1,353,470) (2,078,026)
Sales-type and direct financing
lease rentals received 1,771,569 1,507,434
----------- ----------
Net cash used in investing activities ( 452,330) (1,894,559)
----------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
(Continued)
GOLF ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
June 30, June 30,
19998 19987
------------ -----------
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from nonrecourse and
recourse discounted lease rentals $ 2,616,604 $ 3,493,537
Payments on nonrecourse and recourse
discounted lease rentals (4,568,881) (4,312,865)
Proceeds from notes payable 79,176 829,048
Payments on notes payable (1,120,035) (465,013)
Sale of common stock 230,830 -
Purchase of treasury stock - (66,455)
----------- ----------
Net cash provided by (used in)
financing activities (2,762,306) (521,748)
----------- ----------
Net increase (decrease) in cash (145,090) 78,580
Cash at beginning of period 391,705 208,639
----------- ----------
Cash at end of period $ 246,615 $ 287,219
=========== ==========
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the period for:
Interest $ 884,241 $ 947,620
=========== ==========
Income taxes $ - $ 19,790
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
GOLF ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation: The accompanying consolidated
financial statements include the accounts of Golf Entertainment,
Inc. (formerly known as LEC Technologies, Inc.) and its wholly
owned 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. and Traditions Golf
Club)(collectively the "Company" or "Golf"). All material
intercompany accounts and transactions have been eliminated.
Certain reclassifications have been made to prior years' amounts to
conform with current period presentation.
Nature of Operations: Golf Entertainment, Inc. is currently
primarily a technology services company, providing solutions that
help organizations reduce technology cost and risk. The Company is
engaged in the buying, selling and leasing of data processing and
other high technology equipment and related services. The Company
is attempting to divest itself of its technology services
businesses in order to focus its business on opportunities in the
golf and leisure time industry.
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.
Basis of Presentation: In the opinion of the Company, the
accompanying unaudited Consolidated Financial Statements contain
all adjustments necessary to present fairly the results of its
operations for the three and six months ended June 30, 1999 and
1998 and its cash flows for the six months ended June 30, 1999.
It is suggested that this report be read in conjunction with the
Company's audited financial statements included in the Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.
The operating results for the three and six months ended June 30,
1999 and cash flows for the six months ended June 30, 1999 are not
necessarily indicative of the results that will be achieved for the
full fiscal year or for future periods.
Note 2. Earnings Per Share
Basic and diluted earnings (loss) per share are computed in
accordance with SFAS No. 128 "Earnings Per Share". The following
EPS amounts reflect EPS as computed under SFAS No. 128 (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):
<TABLE>
<CAPTION>
Three Months Ended
------------------------
June 30, June 30,
1999 1998
--------- ---------
<S> <C> <C>
Shares outstanding at
beginning of period 1,715,492 1,176,017
Effect of issuance of common
stock for services 2,967 -
Sale of common stock 42,879 -
Acquisition of SCS 2,308 -
--------- ---------
Weighted average common
shares outstanding 1,763,646 1,176,017
========= =========
Net loss $( 294,874) $(1,951,871)
Preferred stock dividends - -
--------- ----------
Net loss available to
common shareholders $( 294,874) $(1,951,871)
========= ==========
Loss per common share $ (0.17) $ (1.66)
========= ==========
Loss per common share
assuming dilution $ (0.17) $ (1.66)
========= ==========
Six Months Ended
------------------------
June 30, June 30,
1999 1998
--------- ---------
Shares outstanding at
beginning of period 1,410,393 1,197,267
Effect of issuance of common
stock for services 16,962 -
Sale of common stock 227,373 -
Acquisition of SCS 1,160 -
Purchase of treasury stock - (16,260)
--------- ---------
Weighted average common
shares outstanding 1,655,888 1,181,007
========= =========
Net income (loss) $( 743,988) $(1,868,416)
Preferred stock dividends - -
---------- ---------
Net earnings (loss) available to
common shareholders $( 743,988) $(1,868,416)
========= =========
Earnings (loss) per common share $ (0.45) $ (1.58)
========= =========
Earnings (loss) per common share
assuming dilution $ (0.45) $ (1.58)
========== =========
</TABLE>
Note 3. Notes Payable and Revolving Lines of Credit
In November 1995, the Company entered into a letter agreement with
Excel Bank N.A. (Excel") (formerly Union Chelsea National Bank)
whereby Excel agreed to make available to the Company a $250,000
line of credit (the "Equity Line") to be used to fund the Company's
equity investment in certain leases discounted by Excel (i.e., the
difference between the cost of the leased equipment and the
discounted present value of the minimum lease payments assigned to
Excel). Borrowings under the Equity Line are evidenced by term
notes and require monthly payments of principal and interest over
a period equal to the term of the related discounted lease with a
final balloon payment of between 30 and 50 percent depending on the
lease term. Interest rates on the term notes are at the applicable
discounted lease rate plus 1.75%. In addition, a fee equal to 15%
of the original loan amount is due at maturity which amount is
accrued ratably over the life of the loan. The unaccrued portion
thereof at June 30, 1999 was $96,729. In July 1996 and December of
1997, Excel increased its maximum commitment under the Equity Line
to $1,000,000 and $2,500,000, respectively. Such maximum
commitment is reduced by the amount of outstanding recourse
discounted lease rentals funded by Excel and an outstanding capital
lease obligation of approximately $575,217 and $58,877,
respectively, at June 30, 1999. At June 30, 1999, the Company had
outstanding term notes and available credit under the Equity Line
of $1,305,821 and $0, respectively. At June 30, 1999, the Company
was in payment default of the Excel Line. Such default was
subsequently cured in July 1999.
In September 1998, two of the Company's wholly owned subsidiaries,
LEC Leasing, Inc. and ADI, entered into a joint credit facility
with Finova Capital Corporation in the aggregate amount of
$3,000,000 (the "Finova Credit Facility"). The joint credit
facility consists of a $1.5 million term loan (the Finova Term
Loan") applicable to LEC Leasing, Inc. and a $1.5 revolving credit
facility (the "Finova Revolver") applicable to ADI.
The Finova Term Loan requires monthly principal payments of $25,000
plus interest at the prime rate plus 400 basis points from October
1, 1998 through September 1, 2001, at which time all remaining
principal and accrued interest is due. Proceeds from the Finova
Term Loan were used to repay the Company's outstanding indebtedness
to Bank of America National Trust and Savings Association in the
amount of $1,366,365 and for general corporate purposes. The
Finova Term Loan is secured by all of the personal property,
tangible and intangible, of LEC Leasing, Inc. and ADI and is
guaranteed by the Company. At June 30, 1999, the amount
outstanding under the Finova Term Loan was $1,298,279.
Proceeds from the Finova Revolver were used to repay ADI's
revolving credit agreement with Excel Bank, N.A. The Finova
Revolver is secured by all of the personal property, both tangible
and intangible, of ADI and LEC Leasing, Inc. and is guaranteed by
the Company. At June 30, 1999, amounts outstanding under the
Finova Revolver were $150,135 and the interest rate was 10.25%.
Restrictive covenants under the Finova Credit Facility include the
maintenance of consolidated net worth (as defined) of at least $3.5
million through December 31, 1998; $3.75 million from January 1,
1999 through June 30, 1999; $4.0 million from July 1, 1999 through
December 31, 1999; and $4.5 million from January 1, 2000 through
the expiration of the agreement; restrictions on incurring
additional indebtedness and creating additional liens on LEC
Leasing, Inc.'s personal property; and limitations on unfinanced
capital expenditures (as defined). The Company was not in
compliance with these covenants at June 30, 1999.
In October of 1997, PMCPI and Merrill Lynch Business Financial
Services, Inc. ("Merrill Lynch") replaced PMCPI's prior line of
credit (the "Merrill Line of Credit") with a term note in the
amount of $443,848 (the "Merrill Note"). Subsequently, the Company
negotiated a term out of the remaining obligation, effective June
16, 1998, whereby the then outstanding principal and accrued
interest balance of approximately $420,000 would be amortized to
zero as of March 1, 1999. On February 9, 1999, the Company and
Merrill Lynch entered into a letter agreement whereby the Merrill
Note was amended to provide for lesser monthly principal payments
such that the then outstanding principal and accrued interest
balance of approximately $215,000 would be amortized to zero as of
June 1, 1999. The Merrill Note is guaranteed by the Company and is
secured by the inventory and accounts receivable of PMCPI. At June
30, 1999, PMCPI was in payment default of the Merrill Note. As of
August 17, 1999, such payment default had not been cured.
In March of 1999, LEC Leasing, Inc. and Pinacor, Inc. entered into
an agreement whereby $175,000 of accounts payable obligations were
converted into a non-interest bearing term note payable in monthly
installments of $20,000. At June 30, 1999, LEC Leasing, Inc. was
in payment default under the note agreement. As of August 17,
1999, such payment default had not been cured.
In March of 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. At June 30, 1999, LEC Leasing, Inc. was in payment
default under the note agreement. As of August 17, 1999, such
payment default had not been cured.
Notes payable and lines of credit consist of the following at June
30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Secured notes payable to Excel,
payable in installments through
April, 2002 with fixed interest
rates between 9.75 and 10.0 percent,
secured by leased equipment $1,305,821 $1,479,072
Term loan with Finova Capital
Corporation, with interest at prime
plus 4.0 percent, payable in monthly
installments of $25,000 plus
interest, due September 1, 2001 1,298,279 1,425,000
Revolving line of credit agreement
with Finova Capital Corporation,
with floating interest rate of prime
plus 2.0 percent 150,135 762,223
Term note with Merrill Lynch, due
June 1, 1999, with floating
interest rate, currently at 9.25
percent 186,464 216,464
Term note due Pinacor, Inc., non-
interest bearing, payable in monthly
installments of $20,000, due October
1, 1999 155,000 -
Term note due IBM Corporation, paya-
ble in monthly installments of $20,000
with interest at 8%, due August, 2000 307,884 -
Other 294,990 133,825
--------- ---------
$3,698,573 $4,016,584
========= =========
</TABLE>
NOTE 4: SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES
During the six months ended June 30, 1999, the Company issued
50,000 shares of common stock in exchange for services valued at
$37,500; converted $522,884 in accounts payable obligations into
term notes; issued 135,000 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.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company is continuing its efforts to divest itself of its
technology services businesses and is focusing primarily on
acquiring and consolidating the ownership of existing golf ranges
and golf centers. The Company believes that the fragmented
ownership of golf ranges and centers, currently characteristic of
the industry in the United States, coupled with the extensive
business experience of the Company's CEO, Ronald G. Farrell, in
negotiating and financing acquisition opportunities, offer it an
opportunity for growth. The Company intends to enhance these
existing golf facilities by adding amenities and improving
management and operating systems. The Company also will develop
new golf recreational facilities, and may acquire other golf
related businesses. The Company intends that its facilities will
be centered around a driving range and will provide a variety of
golf practice areas for pitching, putting, chipping and sand play.
The Company intends that its facilities will be user-friendly for
all levels of golfer and will appeal to the entire family. Each
driving range will, generally, permit night play and limited year
round use. Each facility will offer instructional programs for
men, women and juniors, and will be staffed with professional
instructors. Most facilities will include a clubhouse that will
house a full-line pro-shop, a snack bar, a miniature golf course(s)
and batting cages. Where feasible, the Company intends that the
facilities will include par-3 or executive-length (shorter than
regulation-length) golf courses. The Company's revenues will be
derived from selling balls to be used on the driving range,
charging for rounds of miniature golf, charging for the use of the
batting cages, selling golf equipment, golf apparel and related
accessories through the pro-shop, fees for instructional programs
and from food and beverage sales. The Company will seek to realize
economies of scale at its facilities through centralized management
information systems, accounting, cash management and purchasing
programs. The Company may also seek long-term management contracts
to operate golf courses and golf related facilities.
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. In March, 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. Unless the context otherwise requires, the
term the "Company" as used herein refers to Golf Entertainment,
Inc. and its wholly-owned subsidiaries.
The Company's technology services are organized into three
groups of related businesses, and are provided generally through
separate business units, although there is a significant amount of
interrelated activities. The three business groups are as follows:
Leasing Services: Leasing, remarketing, financial
engineering, consulting and third-party maintenance and systems
integration services for midrange systems, telecommunications
equipment, point-of-sale systems and system peripherals. The
Company conducts its leasing services business through LEC Leasing,
Inc., a wholly-owned subsidiary of Golf Entertainment, Inc.
Distribution Services: Sale of terminals, printers,
communications controllers, supplies, technical consulting and
third-party maintenance services. Business units comprising
distribution services are SCS and PMCPI, wholly-owned subsidiaries
of Golf Entertainment, Inc.
Remarketing Services: Remarketing of previously leased
equipment, displaced equipment, and used equipment purchased from
other lessors or brokers. This unit also has consignment
relationships with certain customers to assist such organizations
in the sale of their used equipment. Business units comprising
remarketing services include LEC, SCS, PMCPI and ADI, a wholly-
owned subsidiary of Golf Entertainment, Inc., which specializes in
the acquisition and remarketing of used computer equipment on both
a domestic and international basis.
Accounting Practices
Accounting Classification of Leases: Reported earnings are
significantly impacted by the accounting classification of leases.
The Company's lease portfolio is comprised of sales-type, direct
financing and operating leases. The Company classifies each lease
at inception in accordance with Statement of Financial Accounting
Standards No. 13, as amended and interpreted. Sales-type and
direct financing leases are those leases which transfer
substantially all of the costs and risks of ownership of the
equipment to the lessee. Operating leases are those leases in
which substantially all of the benefits and risks of ownership of
the equipment are retained by the lessor.
The accounting treatment and resulting impact on the financial
statements differs significantly during the term of the lease,
depending on the type of lease classification. Under sales-type
leases, the present value of the minimum lease payments calculated
at the rate implicit in the lease is recorded as revenue and the
cost of the equipment less the present value of the estimated
unguaranteed residual value is recorded as leasing costs at lease
inception. Consequently, a significant portion of the gross profit
on the lease transaction is recognized at lease inception. Under
direct financing leases, the excess of the aggregate minimum lease
payments plus the estimated unguaranteed residual over the cost of
the equipment is recorded as unearned interest income at lease
inception. Such amount is then recognized monthly over the lease
term as a constant percentage of the related asset. There are no
costs and expenses related to direct financing leases since revenue
is recorded on a net basis. Under operating leases, the monthly
lease rental is recorded as revenue ratably over the lease term.
The cost of the related equipment is recorded as leased assets and
is depreciated over the lease term to the estimated unguaranteed
residual value. Regardless of the classification of a lease
transaction and the resultant accounting treatment during the lease
term, the aggregate gross profit recognized during the lease term
is identical.
Residual Values: The Company's cash flow depends to a great
extent on its ability to realize the residual value of leased
equipment after the initial term of the lease by re-leasing or
selling such equipment. The Company's financial results would be
materially and adversely affected if the residual value of the
equipment could not be realized when returned to the Company
because of technological obsolescence or for any other reason.
Estimated residual values for leased equipment vary, both in amount
and as a percentage of the original equipment cost, depending upon
many factors, including the type and manufacturer of the equipment,
the Company's experience with the type of equipment and the term of
the lease. In estimating future residual values, the Company
relies on both its own experience and upon third-party estimates of
future market value where available. The Company reviews its
estimated residual values at least annually and reduces them as
necessary. At the time of expiration of a lease, the Company
remarkets the equipment and records the proceeds from the sale (in
the event of a sale) or the present value of the lease rentals (in
the event of a sales-type lease) as revenue and records the net
book value of the related equipment as a cost of sale or lease.
For a description of the Company's other accounting practices,
see Note 1 of Notes to Consolidated Financial Statements in the
Company's Annual Report on Form 10-K for the year ended December
31, 1998. The following analysis of the Company's financial
condition and operating results should be read in conjunction with
the accompanying consolidated financial statements including the
notes thereto.
Results of Operations
Six Months Ended June 30, 1999 Compared to Six Months Ended June
30, 1998
Revenues
Total revenues from leasing operations decreased 30.6% from
$5,644,347 for the six months ended June 30, 1998 to $3,919,705 for
the six months ended June 30, 1999, a decrease of $1,724,642. The
decrease in lease revenues is primarily due to a decrease in
revenue from the portfolio base of operating leases, a decrease in
revenue from sales-type leases and a decrease in direct sales
revenue partially offset by an increase in finance income.
Revenue from the portfolio base of operating leases decreased
19.1% from $3,697,574 for the six months ended June 30, 1998 to
$2,990,097 for the six months ended June 30, 1999, a decrease of
$707,477. This decrease in operating lease revenue is due
primarily to a combination of an increase in the number of direct
finance leases written and the early termination of certain
operating leases purchased by a customer in the first half of
fiscal 1998. The accounting classification of a lease transaction
is a function of the pricing of the transaction combined with the
estimated end-of-lease residual value (i.e., if the estimated end-
of-lease residual value is less than 10% of equipment cost, the
lease classification will most likely be direct financing).
Revenue from leases classified as sales-type leases decreased 51.9%
from $631,571 for the six months ended June 30, 1998 to $303,712
for the six months ended June 30, 1999, a decrease of $327,859.
this decrease resulting from the Company entering into a lesser
number of renewal/upgrade transactions with its customers during
the current period. Revenue from direct sales of off-lease
equipment decreased 85.7% from $943,093 for the six months ended
June 30, 1998 to $135,317 for the six months ended June 30, 1999,
a decrease of $807,776. This decrease in sales of off-lease
equipment is directly related to a decrease in the volume of leases
coming to the end of their initial terms between periods. Since a
majority of the Company's leases are written for a 36-month term,
the volume of lease terminations in a period is directly related to
the volume of new leases written in the comparable period three
years prior. Finance income increased 31.8% from $372,109 for the
six months ended June 30, 1998 to $490,579 for the six months ended
June 30, 1999, an increase of $118,470. This increase in finance
income is the result of a change in the mix of leases written from
primarily operating leases to direct financing leases.
Distribution sales, representing the activity of ADI, SCS and
PMCPI, decreased 85.4% from $9,065,330 for the six months ended
June 30, 1998 to $1,327,113 for the six months ended June 30, 1999,
a decrease of $7,738,217. The decrease in distribution sales
activity is attributable to the wind-down of the activities of
these entities consistent with the refocusing of the Company from
a technology-services company to a golf course operator (see Future
Plans).
Golf operations revenue reflects the activities of the
Company's Traditions golf facility, acquired May 22, 1999 (see also
Item 5. Other Information).
Costs and Expenses
Total costs from leasing operations decreased 54.5% from
$5,617,388 for the six months ended June 30, 1998 to $2,555,722 for
the six months ended June 30, 1999, a decrease of $3,061,666. The
decrease in total costs from leasing operations is due primarily to
a decrease in operating lease depreciation, a decrease in costs
associated with sales-type leases, a decrease in direct sales costs
and the write-down to their net realizable values of certain off-
lease equipment of $1,109,294 in the comparable prior year period.
Gross profit from leasing operations (total revenues from leasing
operations less total costs from leasing operations) increased
4,959.5% from $26,959 for the six months ended June 30, 1998 to
$1,363,983 for the six months ended June 30, 1999, an increase of
$1,337,024. Gross margin (gross profit from leasing operations as
a percentage of total revenues from leasing operations) increased
to 34.8% from 0.5%.
Leasing costs associated with the portfolio base of operating
leases decreased 13.7% from $2,248,716 for the six months ended
June 30, 1998 to $1,941,514 for the six months ended June 30, 1999,
a decrease of $307,202. The decrease in costs from this segment of
the Company's lease portfolio is due primarily to a decrease in the
dollar amount of assets under lease having this accounting
classification. Gross profit on operating leases decreased 27.6%
from $1,448,858 for the six months ended June 30, 1998 to
$1,363,983 for the six months ended June 30, 1999, a decrease of
$400,275 due primarily to the expiration of certain month-to-month
leases. Such leases generally have a higher profit margin than
other operating leases since the equipment has often already been
depreciated to zero.
Direct sales costs (leasing costs with respect to the sale of
equipment off lease and leases with dollar buy-out options treated
as sales) decreased 87.9% from $1,122,878 for the six months ended
June 30, 1998 to $136,285 for the six months ended June 30, 1999,
a decrease of $986,593 and decreased as a percentage of related
revenue to 100.7% from 119.1%. The decrease in the cost to revenue
percentage is due to residual value realization more closely
matching stated values in 1999 as compared to 1998.
Distribution cost of sales of decreased 82.7% from $7,545,887
for the six months ended June 30, 1998 to $1,308,043 for the six
months ended June 30, 1999, a decrease of $6,237,844. Gross margin
on distribution sales decreased to 1.4% in 1999 from 16.8%.
Selling, general and administrative expenses decreased 36.4%
from $3,098,143 for the six months ended June 30, 1998 to
$1,971,429 for the six months ended June 30, 1999, a decrease of
$1,126,714. The decrease in selling, general and administrative
expenses was due primarily to decreased staffing levels.
Interest expense on non-lease related indebtedness decreased
$62,407, or 19.5% due to lower average debt levels and interest
rates.
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 allowance.
At June 30, 1999, the Company had unexpired net operating loss
carryforwards of approximately $6,000,000 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 $743,988 for the six months ended June 30, 1999 as compared to
a net loss of $1,168,416 for the six months ended June 30, 1998.
Three Months Ended June 30, 1999 Compared to Three Months Ended
June 30, 1998
Revenues
Total revenues from leasing operations decreased 6.5% from
$2,181,844 for the quarter ended June 30, 1998 to $2,039,954 for
the quarter ended June 30, 1999, a decrease of $141,890. The
decrease in lease revenues is primarily due to a decrease in
revenue from the portfolio base of operating leases and a decrease
in direct sales revenue, partially offset by increases in finance
income and in sales-type lease revenues.
Revenue from the portfolio base of operating leases decreased
5.8% from $1,588,014 for the quarter ended June 30, 1998 to
$1,496,393 for the quarter ended June 30, 1999, a decrease of
$91,621. This decrease in operating lease revenue is due primarily
to an increase in the number of direct finance leases written.
Direct sales of off-lease equipment decreased 95.9% from $112,163
for the quarter ended June 30, 1998 to $4,600 for the quarter ended
June 30, 1999, a decrease of $107,563. This decrease in sales of
off-lease equipment is due primarily to a decrease in the volume of
lease terminations during the second quarter of 1999 as compared to
the second quarter of 1998. Finance income increased 20.9% from
$194,568 for the quarter ended June 30, 1998 to $235,249 for the
quarter ended June 30, 1999, an increase of $40,681. This increase
in finance income is the result of a change in the mix of leases
written from primarily operating leases to direct financing leases.
Revenue from sales-type leases increased from $287,099 for the
quarter ended June 30, 1998 to $303,712 for the quarter ended June
30, 1999, an increase of $16,613.
Distribution sales decreased 98.6% from $4,361,562 for the
quarter ended June 30, 1998 to $60,458 for the quarter ended June
30, 1999, a decrease of $4,301,104. The decrease in distribution
sales activity is attributable to the wind-down of the activities
of these entities consistent with the refocusing of the Company
from a technology-services company to a golf course operator (see
Future Plans).
Costs and Expenses
Total costs from leasing operations decreased 47.7% from
$2,914,371 for the quarter ended June 30, 1998 to $1,523,780 for
the quarter ended June 30, 1999, a decrease of $1,390,591. The
decrease in total costs from leasing operations was primarily due
to the write-down to their net realizable values of certain off-
lease equipment of $1,109,294 in the second quarter of fiscal 1998
and a decrease in direct cost of sales, partially offset by an
increase in depreciation expense related to operating leases of
$228,997.
Gross profit from leasing operations (total revenues from
leasing operations less total costs from leasing operations)
increased 170.5% from a loss of $732,527 for the quarter ended June
30, 1998 to $516,174 for the quarter ended June 30, 1999, an
increase of $1,248,701. Gross margin (gross profit from leasing
operations as a percentage of total revenues from leasing
operations) increased to 25.3% from a negative 33.6% due to the
foregoing.
Leasing costs associated with the portfolio base of operating
leases increased 20.3% from $1,127,729 for the quarter ended June
30, 1998 to $1,356,726 for the quarter ended June 30, 1999, an
increase of $228,997. Gross profit on operating leases decreased
69.7% from $460,285 for the quarter ended June 30, 1998 to $139,667
for the quarter ended June 30, 1999, a decrease of $320,618.
Direct sales costs decreased 86.4% from $154,510 for the
quarter ended June 30, 1998 to $20,974 for the quarter ended June
30, 1999, a decrease of $133,536 but increased as a percentage of
related revenue to 456.0% from 137.8%. The increase in costs as a
percentage of revenue is due to residual value realization more
closely matching stated values in 1998 as compared to 1999.
Distribution cost of sales of decreased 100.2% from $3,567,763
for the quarter ended June 30, 1998 to $(5,597) for the quarter
ended June 30, 1999, a decrease of $3,573,360.
Selling, general and administrative expenses decreased 54.8%
from $1,876,693 for the quarter ended June 30, 1998 to $847,444 for
the quarter ended June 30, 1999, a decrease of $1,029,249. The
decrease in selling, general and administrative expenses was due
primarily to decreased staffing levels.
Interest expense on non-lease related indebtedness decreased
$6,790, or 4.9%. The decrease is due to lower average debt levels
in the current quarter as compared to the year-age quarter.
Net Earnings
As a result of the foregoing, the Company recorded a net loss
of $294,874 for the quarter ended June 30, 1999 as compared to a
net loss of $1,951,871 for the quarter ended June 30, 1998.
Liquidity and Capital Resources
In November 1995, the Company entered into a letter agreement
with Excel Bank N.A. (Excel") (formerly Union Chelsea National
Bank) whereby Excel agreed to make available to the Company a
$250,000 line of credit (the "Equity Line") to be used to fund the
Company's equity investment in certain leases discounted by Excel
(i.e., the difference between the cost of the leased equipment and
the discounted present value of the minimum lease payments assigned
to Excel). Borrowings under the Equity Line are evidenced by term
notes and require monthly payments of principal and interest over
a period equal to the term of the related discounted lease with a
final balloon payment of between 30 and 50 percent depending on the
lease term. Interest rates on the term notes are at the applicable
discounted lease rate plus 1.75%. In addition, a fee equal to 15%
of the original loan amount is due at maturity which amount is
accrued ratably over the life of the loan. The unaccrued portion
thereof at June 30, 1999 was $96,729. In July 1996 and December of
1997, Excel increased its maximum commitment under the Equity Line
to $1,000,000 and $2,500,000, respectively. Such maximum
commitment is reduced by the amount of outstanding recourse
discounted lease rentals funded by Excel and an outstanding capital
lease obligation of approximately $575,217 and $58,877,
respectively, at June 30, 1999. At June 30, 1999, the Company had
outstanding term notes and available credit under the Equity Line
of $1,305,821 and $0, respectively. At June 30, 1999, the Company
was in payment default of the Excel Line. Such default was
subsequently cured in July 1999.
In September 1998, two of the Company's wholly owned
subsidiaries, LEC Leasing, Inc. and ADI, entered into a joint
credit facility with Finova Capital Corporation in the aggregate
amount of $3,000,000 (the "Finova Credit Facility"). The joint
credit facility consists of a $1.5 million term loan (the Finova
Term Loan") applicable to LEC Leasing, Inc. and a $1.5 revolving
credit facility (the "Finova Revolver") applicable to ADI.
The Finova Term Loan requires monthly principal payments of
$25,000 plus interest at the prime rate plus 400 basis points from
October 1, 1998 through September 1, 2001, at which time all
remaining principal and accrued interest is due. Proceeds from the
Finova Term Loan were used to repay the Company's outstanding
indebtedness to Bank of America National Trust and Savings
Association in the amount of $1,366,365 and for general corporate
purposes. The Finova Term Loan is secured by all of the personal
property, tangible and intangible, of LEC Leasing, Inc. and ADI and
is guaranteed by the Company. At June 30, 1999, the amount
outstanding under the Finova Term Loan was $1,298,279.
Proceeds from the Finova Revolver were used to repay ADI's
revolving credit agreement with Excel Bank, N.A. The Finova
Revolver is secured by all of the personal property, both tangible
and intangible, of ADI and LEC Leasing, Inc. and is guaranteed by
the Company. At June 30, 1999, amounts outstanding under the
Finova Revolver were $150,135 and the interest rate was 10.25%.
Restrictive covenants under the Finova Credit Facility include
the maintenance of consolidated net worth (as defined) of at least
$3.5 million through December 31, 1998; $3.75 million from January
1, 1999 through June 30, 1999; $4.0 million from July 1, 1999
through December 31, 1999; and $4.5 million from January 1, 2000
through the expiration of the agreement; restrictions on incurring
additional indebtedness and creating additional liens on LEC
Leasing, Inc.'s personal property; and limitations on unfinanced
capital expenditures (as defined). The Company was not in
compliance with these covenants at June 30, 1999.
In October of 1997, PMCPI and Merrill Lynch Business Financial
Services, Inc. ("Merrill Lynch") replaced PMCPI's prior line of
credit (the "Merrill Line of Credit") with a term note in the
amount of $443,848 (the "Merrill Note"). Subsequently, the Company
negotiated a term out of the remaining obligation, effective June
16, 1998, whereby the then outstanding principal and accrued
interest balance of approximately $420,000 would be amortized to
zero as of March 1, 1999. On February 9, 1999, the Company and
Merrill Lynch entered into a letter agreement whereby the Merrill
Note was amended to provide for lesser monthly principal payments
such that the then outstanding principal and accrued interest
balance of approximately $215,000 would be amortized to zero as of
June 1, 1999. The Merrill Note is guaranteed by the Company and is
secured by the inventory and accounts receivable of PMCPI. At June
30, 1999, PMCPI was in payment default of the Merrill Note. As of
August 17, 1999, such payment default had not been cured.
In March of 1999, LEC Leasing, Inc. and Pinacor, Inc. entered
into an agreement whereby $175,000 of accounts payable obligations
were converted into a non-interest bearing term note payable in
monthly installments of $20,000. At June 30, 1999, LEC Leasing,
Inc. was in payment default under the note agreement. As of August
17, 1999, such payment default had not been cured.
In March of 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. At June 30, 1999, LEC Leasing, Inc. was
in payment default under the note agreement. As of August 17,
1999, such payment default had not been cured.
Due to the fact that the equipment the Company leases must be
paid for by the Company prior to leasing, the Company requires a
substantial amount of cash for its leasing activities. The
Company's growth has been significantly dependent upon its ability
to borrow funds or raise equity or debt financing to acquire
additional equipment for lease. Historically, the Company has
derived most of the funds necessary for the purchase of equipment
from nonrecourse financing and the remainder from internally
generated funds, recourse indebtedness and existing cash.
Consequently, the Company is continuously seeking debt and/or
equity financing to fund the growth of its lease portfolio.
However, should the Company fail to receive additional equity
financing or refinance its existing debt in 1999, the Company's
portfolio growth and resultant cash flows could be materially and
adversely affected. In addition, there is no assurance that
financial institutions will continue to finance the Company's
future leasing transactions on a nonrecourse basis or that the
Company will continue to attract customers that meet the credit
standards of its nonrecourse financing sources or that, if it
receives such additional financing for future lease transactions,
it will be on terms favorable to the Company. At June 30, 1999,
the Company had approximately $246,615 in cash on hand and no
credit availability under the Equity Line.
At the inception of each lease, the Company establishes the
residual value of the leased equipment, which is the estimated
market value of the equipment at the end of the initial lease term.
The Company's cash flow depends to a great extent on its ability to
realize the residual value of leased equipment after the initial
term of its leases with its customers. Historically, the Company
has realized its recorded investment in residual values through (i)
renegotiation of the lease during its term to add or modify
equipment; (ii) renewal or extension of the original lease; (iii)
leasing equipment to a new user after the initial lease term; or
(iv) sale of the equipment. Each of these alternatives impacts the
timing of the Company's cash realization of such recorded residual
values. Equipment may be returned to the Company at the end of an
initial or extended lease term when it may not be possible for the
Company to resell or re-lease the equipment on favorable terms.
Developments in the high technology equipment market tend to occur
at rapid rates, adding to the risk of obsolescence and shortened
product life cycles which could affect the Company's ability to
realize the residual value of such equipment. In addition, if the
lessee defaults on a lease, the financial institution that provided
nonrecourse financing may foreclose on its security interest in the
leased equipment and the Company may not realize any portion of
such residual value. If the residual value in any equipment cannot
be realized after the initial lease term, the recorded investment
in the equipment must be written down, resulting in lower cash flow
and reduced earnings. For the years ended December 31, 1998, 1997
and 1996, the Company reduced residual values and off-lease
equipment inventory by approximately $1,205,029, $75,331 and
$1,099,089, respectively, to their net realizable values. There
can be no assurance that the Company will not experience further
material residual value or inventory write-downs in the future.
The Company intends to continue to retain residual ownership
of all the equipment it leases. As of June 30, 1999, the Company
had a total net investment in lease transactions of $18.5 million
compared to $20.2 million as of December 31, 1998. The estimated
residual value of the Company's portfolio of leases expiring
between July 1, 1999 and December 31, 2003 totals $6,363,310,
although there can be no assurance that the Company will be able to
realize such residual value in the future. As of June 30, 1999,
the estimated residual value of the Company's portfolio of leases
by year of lease termination was as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1999 $ 1,246,060
2000 2,832,400
2001 1,948,350
2002 325,500
2003 11,000
Total $ 6,363,310
</TABLE>
Leased equipment expenditures of $2,209,646 for the six months
ended June 30, 1999 were financed through the discounting of
$2,616,604 of noncancelable lease rentals to various financial
institutions.
The Company believes that inflation has not been a significant
factor in its business.
Based on the Company's anticipated residual value realization,
management believes that the Company will have adequate capital
resources to continue its operations for at least the next twelve
months. Management further believes that the Company's existing
credit lines will be renewed as they come due.
The Company is aware of the issues associated with the
programming code in existing computer systems as the millennium
approaches. Independent of such issues, management of the Company
initiated an information systems project to standardize all of the
Company's hardware and software systems. The systems selected by
management are Year 2000 compliant. The implementation of such
systems was completed in 1998. The implementation of these systems
did not have a significant effect on the Company's earnings.
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
The Company is continuing its efforts to divest itself of its
technology services businesses and is focusing primarily on
acquiring and consolidating the ownership of existing golf ranges
and golf centers. The Company believes that the fragmented
ownership of golf ranges and centers, currently characteristic of
the industry in the United States, coupled with the extensive
business experience of the Company's CEO, Ronald G. Farrell, in
negotiating and financing acquisition opportunities, offer it an
opportunity for growth. The Company intends to enhance these
existing golf facilities by adding amenities and improving
management and operating systems. The Company also will develop
new golf recreational facilities, and may acquire other golf
related businesses. The Company intends that its facilities will
be centered around a driving range and will provide a variety of
golf practice areas for pitching, putting, chipping and sand play.
The Company intends that its facilities will be user-friendly for
all levels of golfer and will appeal to the entire family. Each
driving range will, generally, permit night play and limited year
round use. Each facility will offer instructional programs for
men, women and juniors, and will be staffed with professional
instructors. Most facilities will include a clubhouse that will
house a full-line pro-shop, a snack bar, a miniature golf course(s)
and batting cages. Where feasible, the Company intends that the
facilities will include par-3 or executive-length (shorter than
regulation-length) golf courses. The Company's revenues will be
derived from selling balls to be used on the driving range,
charging for rounds of miniature golf, charging for the use of the
batting cages, selling golf equipment, golf apparel and related
accessories through the pro-shop, fees for instructional programs
and from food and beverage sales. The Company will seek to realize
economies of scale at its facilities through centralized management
information systems, accounting, cash management and purchasing
programs. The Company may also seek long-term management contracts
to operate golf courses and golf related facilities.
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 mix of
leases written, the availability and timing of external capital,
the timing and method of the Company's realization of its recorded
residual values, new product announcements, continued growth of the
semiconductor industry, trend of movement to client/server
environment, 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 new investments and increase the Company's bad
debt experience. The mix of leases written in a quarter is a
direct result of a combination of factors, including, but not
limited to, changes in customers demands and/or requirements, new
product announcements, price changes, changes in delivery dates,
changes in maintenance policies and the pricing policies of
equipment manufacturers, and price competition from other lessors.
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.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
In 1996, the Company acquired all of the outstanding common
stock of Superior Computer Services, Inc. ("SCS") for 59,927 shares
of the Company's common stock, valued at $400,000, and two $100,000
non-interest bearing notes. Pursuant to the terms of the related
Stock Acquisition Agreement, the Company agreed to recompute the
portion of the purchase price represented by the Company's common
stock based on the average of the stock's closing price for the
five consecutive trading days ended December 1, 1998. If such
"Recomputed Value", as defined, was less than $400,000, the Company
agreed to either (i) issue to the sellers additional shares of
common stock such that the aggregate value of the total shares
issued equaled $400,000 or (ii) pay the sellers an equivalent
amount of cash. Due to significant operating losses at SCS, the
Company has refused to issue such additional shares or cash. As a
result, the two former shareholders of SCS have filed separate
lawsuits against the Company seeking the Company's performance
under the Stock Acquisition Agreement. The Company, in turn, has
countersued the former shareholders, asserting breach of fiduciary
duty, breach of contract, fraud and fraudulent inducement. The
parties settled these proceedings in June 1999.
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. The Complaint claims the Plaintiffs were improperly
terminated by the Company, and that they are entitled to an
unspecified amount of actual and punitive damages. On or about
July 22, 1999, the Company answered, denying the allegations and
submitting counterclaims against the former chief executive officer
for failure to repay monies owed and breaches of other duties to
the Company. On the same day, the Company answered the other
former employee's Complaint, and denied the allegations of that
other former employee. The matters are proceeding before the
American Arbitration Association. No date for a hearing has been
set.
ITEM 3. Defaults Upon Senior Securities.
As of August 17, 1999, the Company was in payment default
under the Excel Equity Line Agreement in the amount of
approximately $50,000 including accrued interest.
As of August 17, 1999, the Company was not in compliance with
the minimum consolidated net worth covenants under the Finova
Credit Facility.
For a description of the status of the Company's other debt
agreements, see Note 3 of Notes to Consolidated Financial
Statements.
ITEM 4. Submission of Matters to a Vote of Security Holders.
None.
ITEM 5. Other Information.
On May 22, 1999 the Company, through a wholly-owned
subsidiary, entered into a multi-year lease agreement for the
Company's first golf course and recreation facility. In connection
therewith, the Company assumed approximately $450,000 in
liabilities in exchange for $450,000 in assets to be used in
connection with the operation of the facility. Located in Oklahoma
City, Oklahoma and named Traditions, the recreational complex
includes a 4,500 yard, 18-hole, par 60 executive course; a 20-acre,
80 tee practice range with multiple target greens; a 9-hole pitch
and putt course; and an 18-hole practice putting course. The total
complex is less than one year old and encompasses approximately 120
acres. Private and group lessons, which are videotaped for each
student, are given in a separate facility.
On June 30, 1999, LEC Acquisition LLC exercised a warrant to
purchase $150,000 face amount of 6% Convertible Debentures and
immediately exercised its option to convert such debentures into
500,000 shares of the Company's restricted common stock. As of
August 17, 1999, LEC Acquisition LLC was the registered owner of
751,099 shares of the Company's common stock. In addition thereto,
Mr. Ronald Farrell, CEO and Chairman of the Company and the
managing director of LEC Acquisition LLC has informed the Company
that he holds proxies and voting control over an additional 367,250
shares of the Company's common stock.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial data Schedule.
(b) Reports on Form 8-K
None.
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
GOLF ENTERTAINMENT, INC.
(Registrant)
Date: August 17, 1999 /s/ Ronald G. Farrell
Ronald G. Farrell, Chief
Executive Officer
(Principal Executive Officer)
Date: August 17, 1999 /s/ William J. Vargas
William J. Vargas, V.P.- Finance
(Principal Financial and
Accounting Officer)
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