UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-18303
GOLF ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-2990598
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 East Emma Street
Springdale, Arkansas 72764
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including areas code (479)751-2300
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 [ ]
There were 22,360,398 shares of Common Stock ($0.01 par value)
outstanding as of September 30, 2002
GOLF ENTERTAINMENT, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
For the Quarter ended September 30, 2002
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet (unaudited)............................ 3- 4
Statements of Operations (unaudited)................. 5
Statements of Cash Flows (unaudited)................. 6
Notes to Financial Statements........................ 7- 8
Item 2. Management's Discussion And Analysis
Of Financial Condition And Results Of
Operations.......................................... 8-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................... 14-18
Item 2. Changes in Securities......... ...................... 18
Item 3. Defaults upon Senior Securities...................... 18
Item 4. Submission of Matters to a Vote
of Security Holders................................. 18
Item 5. Other Information..................................... 18
Item 6. Exhibits and Reports on Form 8-K...................... 19
Signatures...................................................... 19
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Golf Entertainment, Inc.
(A Development Stage Company)
BALANCE SHEET
AS AT
September 30, 2002 and December 31, 2001
September 30, December 31,
2002 2001
ASSETS
CURRENT ASSETS
Cash 3,381.00 7,581.00
Accounts Receivable 24,000.00 0.00
----------- ---------
Total Current Assets 27,381.00 7,581.00
FIXED ASSETS
Broadcast Operations
Equipment(net of
depreciation) 596,628.00 1,028,030.00
Leasehold Improvements 1,051.00 0.00
Office Equipment 441.00 0.00
----------- -------------
TOTAL FIXED ASSETS 598,120.00 1,028,030.00
OTHER ASSETS
Deposits 900.00 0.00
----------- -------------
TOTAL OTHER ASSETS $900.00 $0.00
TOTAL ASSETS $626,401.00 $1,035,611.00
----------- -------------
----------- -------------
-UNAUDITED-
See accompanying notes to Financial Statements
Page 3
Golf Entertainment, Inc.
(A Development Stage Company)
BALANCE SHEET
AS AT
September 30, 2002 and December 31, 2001
LIABILITIES & EQUITY
September 30, December 31,
2002 2001
CURRENT LIABILITIES
Accounts Payable $139,448.00 $139,448.00
Accrued Liabilities 0.00 13,492.00
----------- -------------
Total Current Liabilities 139,448.00 152,940.00
LONG TERM LIABILITIES
Long term notes payable 6,250.00 293,750.00
----------- -------------
Total Long Term Liabilities 6,250.00 293,750.00
----------- -------------
Total Liabilities 145,698.00 446,690.00
EQUITY
Common Stock, $0.01 par value,
authorized 100,000,000 shares; issued
and outstanding at December 31, 2001,
6,610,398 common shares; issued and
outstanding at Sept. 30, 2002,
22,360,398 shares 216,104.00 66,104.00
Common Stock, $0.01 par value,
payment received but unissued
3,750,000 shares. 0.00 37,500.00
Preferred Stock, $0.001 par value,
authorized 100,000,000 shares; issued
at March 31, 2002 and Sept. 30, 2002
0 shares 2,285.00 2,285.00
Additional Paid in Capital 12,284,515.00 12,352,040.00
Retained Earnings (Deficit
accumulated during development
stage) (12,022,201.00) (11,869,008.00)
------------- -------------
Total Stockholders' Equity 480,703.00 588,921.00
------------- -------------
TOTAL LIABILITIES & OWNER'S
EQUITY $626,401.00 $1,035,611.00
------------- -------------
------------- -------------
-UNAUDITED-
See accompanying notes to Financial Statements
Page 4
Golf Entertainment, Inc.
(A Development Stage Company)
STATEMENT OF OPERATIONS
FOR THE QUARTERS ENDED
September 30, 2002 and September 30, 2001
REVENUE
September 30, September 30,
2002 2001
Advertising Income 28,958.00 0.00
----------- -------------
TOTAL REVENUES 28,958.00 0.00
COSTS AND EXPENSES
General and Administrative 10,807.00 1,139.00
Depreciation Expense 15,701.00 0.00
Interest Expense 0.00 3,891.00
----------- -------------
Total Costs and Expenses 26,508.00 5,030.00
Net Income or (Loss) on
Continuing Operations 2,450.00 (5,030.00)
Net Gain or (Loss on
discontinued Operations 0.00 1,245.00
Extraordinary gain 0.00 11,751.00
----------- -------------
Net Loss 2,450.00 7,966.00
----------- -------------
----------- -------------
Basic earnings per share 0.00 0.00
number of common
shares outstanding 22,360,398 5,293,044
Net Income Per Share
-UNAUDITED-
See accompanying notes to Financial Statements
Page 5
Golf Entertainment, Inc.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
FOR PERIOD
FOR THE QUARTERS ENDED
September 30, 2002 and September 30, 2001
September 30, September 30,
CASH FLOWS FROM OPERATING ACTIVITIES 2002 2001
Net Income or (Loss)
Adjustments to Reconcile Net Loss to Net 2,450.00 (116,964.00)
(Increase) Decrease in accounts receivable (24,000.00) 25,352.00
Increase/(Decrease) in accounts payable 0.00 (16,659.00)
Increase/(Decrease) in accrued liabilities (5,794.00) (19,215.00)
Increase/(Decrease) in liabilities
disposed of in forgivenessof debt 9,974.00 (56,501.00)
Depreciation Expense 15,701.00
----------- -------------
Net change in cash from operations (4,119.00) (67,023.00
----------- -------------
Net change in cash from operations (1,669.00) (183,987.00)
CASH FLOWS FROM INVESTING ACTIVITIES
Sales-type and direct financing lease
rentals received 0.00 121,768.00
Net change in cash from investment 0.00 121,768.00
Activities
----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 0.00 91,739.00
Principal payments on long term debt 0.00 (30,143.00)
----------- -------------
Net cash provided by financing
Activities 0.00 61,596.00
Balance at beginning of period 9,250.00 1,914.00
Net increase (decrease) in cash (1,669.00) (623.00)
Balance at end of period 7,581.00 1,291.00
-UNAUDITED-
See accompanying notes to Financial Statements
Page 6
GOLF ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements are condensed and
do not include all information required by generally accepted accounting
principles to be included in a full set of financial statements. The unaudited
condensed consolidated financial statements include the accounts of Golf
Entertainment, Inc. and its wholly owned subsidiaries, collectively referred
to as the "Company".
All material intercompany accounts and transactions have been eliminated.
Certain reclassifications have been made to prior periods' amounts to conform
to current period presentation. The information furnished reflects all
adjustments, which are, in the opinion of the Company, necessary to present
fairly its financial position, the results of its operations and its cash
flows for the three months ended Sept. 30, 2002 and 2001. 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, 2001. The operating results and cash flows for the three-
month period presented are not necessarily indicative of the results that will
be achieved for the full fiscal year or for future periods.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial reporting period and the reported amount of revenue and expenses.
Actual results could differ from those estimates.
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 net income for the
three months ended September 30, 2002, $14,013. 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.
Note 2. Earnings per Common Share
Earnings per common share are based on the weighted average number of common
shares outstanding during each period presented. Weighted average basic and
diluted common shares outstanding for the three months ended Sept. 30, 2002
and 2001 were 22,360,398 and 5,293,044, respectively. (Of the 22,360,398
shares, 10,000,000 shares are subject to a recapitalization agreement and are
temporarily classed as "non-voting" shares). Vested and unvested
options, warrants and convertible preferred stock were not included in the
computation of dilutive EPS because the effect of doing so would be
antidilutive.
Page 7
GOLF ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Notes Payable and Long-term Debt
Notes payable and long-term debt consist of the following at:
September 30, December 31,
2002 2001
Term note payable to CIFC on Broadcast
Equipment, -0- 291,000
Term note payable to Francis J Hart -0- 16,900
Term note payable to Kasati -0- 60,000
Term note payable to Genesis Trust -0- 30,000
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% 6,250 6,250
------- -------
$ 6,250 $ 404,150
------- -------
------- -------
On September 15, 2002 the Company abandoned its acquisition of KUAQ-LP,
cancelling the related long term debt of $291,000.00
Note 4. Supplemental Disclosures of Non-cash Investing and Financing
Activities
During the second quarter, we agreed to a production contract wherein part of
the payment to be received by the Company is 750,000 shares of our own
previously issued common stock. This stock is to be tendered to the Company
upon completion of the production project, likely in the fourth quarter of
this year. Upon receipt, the stock will be tendered to our transfer agent
where it will be held as treasury stock.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
In this Quarterly Report on Form 10-Q, we will refer to Golf Entertainment,
Inc., a Delaware corporation, as "Golf," "the Company," "we," "us," and
"our." These terms include by reference, all of the current and former
subsidiary corporations we have owned either all, or a significant interest
in, since becoming a reporting company.
The Corporate Office of Golf Entertainment, Inc., is located at 100 East
Emma Street, Springdale, Arkansas 72764 and our telephone number is 479-
751-2300. Our facsimile line is 479-751-2273. Our office hours are, 9:00 a.m.
until 4:30 p.m., Monday through Friday, excepting national holidays.
Page 8
General
On January 1, 2002, Golf Entertainment, Inc. resumed normal business
operations at its offices in Alpharetta, Georgia and Springdale, Arkansas.
Corporate headquarters were moved, during the months of January and February
from Georgia to Arkansas. Sienna Broadvasting Corporation, formerly Golf
Entertainment, Inc. and its subsidiaries 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") is currently in the business of
television cablecasting and cable television advertising sales and production
of video projects, including TV comercials. We are in the process of
re-entering the equipment leasing market with a planned emphasis on broadcast
television transmitter, production and peripheral equipment. Additionally, the
Company is in the process of reactivating its former divisions with an eye to
using them as vehicles for acquisitions. The Company has realigned its
principal business focus and is now pursuing a marketing contract with a cable
TV service in Northwest Arkansas.
Results of Operations
For the three months ended September 30, 2002, the Company had gross revenues
of $28,958. The Company reported no operations revenues during 2001.
In fiscal 2001, the Company underwent a period of continuous operational
losses. A refocus of the business within the field of television broadcast and
production has tended to validate the new business model of the Company and
yielded revenues. For the three months ended Sept. 30, 2002, the selling,
general and administrative costs of the Company was $10,806. For three months
ended September 30, 2001, the selling, general and administrative costs of the
corporate headquarters were $1,139.
There was no interest expense during the reported period ending September 30,
2002. During the comparable period of 2001, interest expense was $3,891.
Management continues to employ a cost control plan and reviews overhead
expenses weekly in an effort to avoid incurring an operational deficit. Net
income for the period ending September 30, 2002 was $14,013. During the same
period in fiscal 2001, the Company reported a net income of $7,966.
Liquidity and Capital Resources
The Company has nominal cash on hand and has had no substantial access to
cash. Management is endeavoring to establish nominal lines of bank credit.
Additionally, the Company is now preparing a $5 million dollar private
placement in order to finance acquisitions and expansion of its programming
delivery. If fully subscribed, the private placement and the resulting
anticipated revenue stream will be sufficient to fully fund company operations
for the foreseeable future.
The Company presently has no bank lines of credit and no principal lender for
operating capital, should any be required.
The Company's Business, Expansion and Future Plans
a.) Private Fundraising
Management has forecast the need for an initial fundraising of $5.0 million
dollars in order to fulfill the business plan announced in the most recent
Annual Report.
Page 9
The Company is preparing a Regulation D, Rule 506, private offering to serve
as the vehicle for the first round of fundraising. The private placement will
result in a combination of equity securities (common stock) of the Company
being placed along with a warrant. The net equivalent price per share offered
is $0.55/share, with all proceeds being segregated into a separate project
account, to be expended solely in accordance with the schedule described in
the private placement memorandum. The Company is determining whether or not it
can fulfill its core business plan goals as announced in the most recent
Annual Report without necessarily incurring the capital needs attendant to
that proposed plan. For reasons discussed below, the Company is delaying its
options under Rule 506 until the capital markets stabilize, and, the Company
can effect a recovery in the price for its publicly traded security issues.
The Company is also assessing the viability of conducting a $10 million dollar
private placement offering in order to finance an internal "warehouse line" of
credit to facilitate its re-entry into the leasing business.
b.) Acquisitions of TV Stations
During the third quarter, the Company abandoned its plans to acquire a
low-power TV station in Springdale, Arkansas, KVAQ-LP, thereby reducing its
assets and corresponding liabilities related to this transaction. Although the
Company is reporting a loss of its equity in that transaction, it is also
reporting substantial reduction of long-term debt (see below). To replace the
profit center the LPTV station represented, the Company has entered into a
market agreement with a Springdale, Arkansas based cable TV provider. Where
the LPTV station afforded a single revenue source, the cable contract affords
an immediate avenue of up to seven Spanish language TV channels. Presently,
the Company has installed equipment for the first channel and has ordered
equipment to program another five channels. Installation of the additional
commercial insertion equipment is anticipated by December 31, 2002. The
Company is now engaging in marketing operations under the cable TV contract
described below.
Our pricing structure for ads on the cable system is slightly higher than we
previously charged for airtime on KVAQ-LP. Our production charges to
advertising clients remain relatively unchanged.
The Company has been allocated a dedicated channel by Ozark Wireless to
continue its broadcast operations on. There is no charge associated with this
allocation, although the cable system is entitled to receive 20% of the gross
revenue from local commercials aired on the channel. We will utilize this
allocation to continue transmission of the HTVN feed out of Fort Worth, Texas.
The Company has completed the required engineering work necessary to establish
a microwave studio-to-transmitter-link (STL) from our new studios to the cable
TV transmission tower, and anticipates completion of that installation by the
end of November, 2002. When the STL is established, we will resume live
broadcast operations from our facilities.
Generally, in the near term, the Company has refocused its attention on cable
television opportunities. We believe this affords us maximum short-term income
potential. If we are successful in the cable TV marketing operations we may
explore expansion of the operation to other cities in our target market.
Additionally, as we explore alternatives to a capital-intensive expansion
through new station build-outs, we are weighing the possibility of leased
airtime in target markets rather than outright station ownership. As capital
markets improve, the Company anticipates renewing its efforts to enter the
regional market, all as outlined in our business plan filed in our FY-2001
Annual Report.
Page 10
c.) FCC Licenses
We have prepared, with the exception of the final engineering data, license
applications for twelve stations we will build during the expansion project.
In the interim, we are now actively exploring either leased airtime or entering
into License Management Agreements (LMA's) in the target markets. Additionally,
we are exploring the feasibility of providing our program material to various
smaller tier cable systems via fiber optic links, thereby allowing for revenue
generation in distant markets without significant capital investment.
d.) The Ozark Wireless Cable Contract
In September, 2002, we signed a one-year contract with Ozark Wireless Cable of
Springdale Arkansas. This contract allows us the opportunity to exclusively
market all advertising "avails" that Ozark Wireless receives from the various
broadcasters it carries on its system, exclusive of local television broadcast
stations. Our agreement requires us to remit 20% of the gross revenue of all
conventional advertising spots to Ozark Wireless, and allows us to retain 80%.
Presently, Ozark has completed the first step in its expansion from an 8-
channel analog cable provider to a 100+ channel digital cable provider.
Ozark Wireless delivers its program content through an FCC licensed "multipoint
microwave distribution system," or, "MMDS." Our agreement with Ozark also
allows us to furnish it "repeaters" in its service area, 35-miles from the
center of Springdale, Arkansas, in order to expand its coverage to the full
extent of its license area. Ozark Wireless now offers over 20-channels of
Hispanic language programming and will add additional channels in the next two
quarters with a goal of establishing a base of 100~120 television channels and
20 music channels. As it expands its coverage, in the Northwest Arkansas market
area, Ozark Wireless is expected to emerge as the dominant source of Spanish
language TV programming, with 20-channels included in its single-tier pricing
plan. The balance of its TV channel offerings are anticipated to be English
language channels. The Company will be responsible for marketing all local ad
insertions on the expanded system.
The digital expansion is facilitated as the result of emerging technologies
related to digital signal compression. The Company anticipates that under the
current terms of its contract with Ozark Wireless, it will be required to
develop a much larger sales and production staff in order to adequately
compete with Cox Communications, the only other cable TV provider in the
Northwest Arkansas market area served by Ozark Wireless.
The Company is engaging in ongoing discussions with Ozark Wireless regarding a
possible joint venture designed to facilitate the planned subscriber expansion
plans of Ozark Wireless. In order to adequately compete, and, derive maximum
adrevenue, it is in the best interest of the Company and its shareholders, in
theopinion of management, to assist Ozark Wireless where feasible, in adding
new digital subscribers.
Unlike a conventional "hard-wired" cable system, Ozark Wireless has no
significant infrastructural build-out costs. Rather, the costs associated with
adding subscribers lies in the area of adding microwave repeaters to the outer
perimeter of the service area, and procuring customer required equipment such
as a rooftop downconverter and a set-top digital tuner made by Motorola. The
estimated costs of adding a new subscriber is approximately $330 per household,
for a single set-top converter box installation. Any number of additional
converter boxes maybe added in a household or multi-family housing unit in
order to extend the number of physical TV sets that may receive and display
signals from the system.
A MMDS is very much like a space-based satellite TV system, except that it can
easily include local TV broadcast stations, and insert local commercials into
the program mix.
Page 11
The Company and Ozark Wireless deal at an arms length, other than the marketing
contract described above. Neither company holds an equity interest in the other
and the Company has no plans to acquire or attempt to acquire Ozark Wireless.
The Company is actively exploring similar arrangements throughout smaller cable
markets as either an adjunct or alternative to the capital intensive expansion
plan involving construction or acquisition of broadcast TV stations.
As part of our plan to service the Ozark Wireless contract, we have reactivated
our Atlantic Digital subsidiary.
e.) Staffing Issues
During the third quarter, the Company received the resignation of Michael F.
Daniels as Chairman and CEO. Mr. Daniels did not express any disagreement nor
did he request the filing of a Form 8-K for any reason related to his most
recent departure from the Company. The Board of Directors is presently engaged
in a search for a new CEO. Additionally, the Company is assessing candidates
for outside directorships.
f.) Facility Relocation
During the third quarter we relocated to a facility in Springdale, Arkansas at
100 East Emma. The 13,000 square foot facility will allow the Company to
develop new program options and better facilitate its operations.
g.) Technology Assessment
We are consulting with various computer equipment providers to determine the
most cost effective means of inserting local commercial spots into various
network television feeds. As DVD technology is improving, and, the costs of
small personal computers continues to drop, we believe that the two
technologies may result in significant savings to the Company as it develops
turnkey or proprietary systems sufficient to insert, log and bill TV
commercialinsertions.
h.) Accounting & Purchasing Issues
We have significantly modified our accounting procedures and internal
controls. As we go forward, our operating procedure requires centralized
purchasing, and accountability for all capital equipment. Material and
equipment acquisition cost reduction is achieved by aggressive purchasing
policies. We have thus far achieved operational success by relying on used,
rather than new equipment items where possible. The savings achieved thus far
reduced our operations resumption costs by as much as 65%. We believe that a
"no-frills" approach to initial operations will result in the highest
possible potential for success and establishment of the greatest possible
value of the Company to shareholders.
i.) Performance Based Compensation
Executive staff, with the exclusion of marketing/sales staff, are compensated
at a maximum of $48,000 per annum. Our management team believes that our
compensation should be tied to our performance. Our Executive Compensation
Committee is developing a new compensation plan, but, by agreement between
management and the Company, a salary/bonus cap of $94,000 per annum is in
effect during any period of time in which we have private investor capital at
risk. No current member of management has any stock options and we do not
anticipate vesting any such options in the near future.
Compensation for sales staff is driven purely by performance, measured by
commissions from each sale. The Executive Staff member responsible for
Marketing & Sales will receive 10% of each sale, when it is paid for by the
customer. Line level sales staff will receive 20%. We believe the incentive
to sell is obvious. Each geographical market area will generally be handled
by one full time sales representative.
Page 12
j.) Risks Associated with Competition
In our current business model, we will be competing in the Northwest Arkansas
market area with Cox Communications, which has a markedly larger subscriber
base, larger advertising customer base and a larger marketing staff. Cox, a
national company, is in a much better position to compete.
In that the Company and its cable TV partner have substantially less overhead
and recurring monthly charges that Cox, we anticipate that our ad prices will
be more affordable to entry level and established TV advertisers. Ozark
Wireless' subscriber pricing plan, as understood by the Company, envisions
providing more digital channels than Cox, in the near terms, at a price to the
end-user which is about 50% less than Cox Communications presently charges.
The Company therefore views the venture with Ozark Wireless as an excellent
opportunity for potential growth. As Ozark Wireless expands its subscriber
base, we anticipate there will be a greater demand for commercials on that
system.
k.) Emerging And Current Special Risk Factors
As noted in our Form 8-K filing dated August 23, 2002, we face a difficult
challenge in dealing with stock manipulators. During the previous quarter two
such alleged manipulators, Carla Sue Hohenhouse and Daniel Johanning, filed a
purported defamation suit against the Company and several of its staff. In
their suit, they alleged "defamation," etc., as the result of the Company
having filed criminal and civil complaints regarding those individuals (and
others) with the Securities and Exchange Commission and various state and
federal law enforcement agencies. Their suit was subsequently dismissed by the
Court they initially filed it with, the United States District Court, Southern
District of Georgia at Savannah.
As the Company noted in the 8-K filing, and as clearly articulated in the
indictment of the defendants in United States v. Elgindy, et al., a classic
tactic employed by stock manipulators is to co-opt, corrupt or manipulate
public officers and/or agencies, and thereafter engage them to take adverse
actions against a company they have targeted.
We cited, in our Form 8-K, what we termed an "Elgindy model" describing this
type of activity by manipulators against the Company, and cited it as an
emerging risk factor. We believe that these manipulators whom we have brought
suit against are operating a classic "Elgindy" type operation against this and
other like-situated companies. Other than obtaining their criminal prosecution
and pursuing civil litigation, there is very little that a victim company such
as this Company can do to negate or mitigate the effect of their activities.
l.) Loss of the KVAQ Acquisition
On September 15, 2002, the Company abandoned its acquisition of KVAQ-LP. As a
result, it lost its estimated $400,000 equity in the transaction, and
eliminated debt in the amount of $291,000. The Company is seeking and will seek
civil recovery from third-parties to whom it attributes tortuous interference
liability. The Company immediately switched its programming to Ozark Wireless
Cable and commenced restructuring of operations to accommodate the changes
related to the loss of the KVAQ acquisition, and inauguration of the marketing
agreement with Ozark Wireless as outlined above.
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
Page 13
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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company has been involved in legal proceedings from time to time arising
out of the ordinary course of its prior business. Currently, there are no
pending proceedings which are expected to have the potential for a material
adverse effect on the Company, other than the matters disclosed immediately
below.
a.) Prior State Sales and Franchise Tax Claim Issues
In March, 2002, the Company was notified by a former Company director and
officer, Michael F. Daniels, that he had been made the subject of a Court
Judgment from the state of New Jersey. Upon investigation the Company learned
that their individual judgments were tied to a judgment rendered against the
LEC Leasing, Inc., a division of the Company. The case, styled State of New
Jersey, Department of the Treasury, Division of Taxation, is docketed in the
state's court system as case 35,953-01, 02 and 03. Mr. Daniels was listed as
judgment debtor by New Jersey on the general theory that he had been an
officer of LEC Leasing, Inc., and as such, had personal liability. The amount
of the judgment is $185,184.45 with accruing interest. Upon investigation,
the Company learned that this judgment consists, primarily, of estimated tax
returns for periods in 1999 which were prepared and filed in the name of LEC
Leasing by New Jersey tax officials. The Company, in its most recently filed
Annual Report reported that it is the sole shareholder of the common stock of
LEC Leasing, Inc., and operated the entity as its subsidiary during periods
in which the Company did business in New Jersey as a leasing service. The
Company does not believe it owes the state of New Jersey any past taxes;
believes that all such required reports were filed in a timely fashion and
intends to vigorously defend its position and the position of its former
employee. As of this filing, New Jersey has failed to reply to any
communication from the Company regarding these matters. Presently, the Company
rejects the validity of the claim.
As the Company undertook to investigate the circumstances surrounding the New
Jersey judgment, it learned it also has a state tax lien of record in the
Commonwealth of Kentucky, dated December 12, 2001, again for periods in 1999.
Like New Jersey, Kentucky estimated taxes then prepared and filed estimated
returns in the name of LEC Leasing, Inc. The estimated claim of Kentucky is
approximately $6,000, in case number 000321065. The Company does not believe
it owes the Commonwealth of Kentucky any past taxes; believes that all such
required reports were filed in a timely fashion and intends to vigorously
defend its position. The Company believes that this matter has been resolved
Page 14
in the Company's favor. In the event that the Company receives additional
claims from this taxing authority, they will be discussed in future reports.
Presently, the Company rejects the validity of the claim.
The Oklahoma Tax Commission has likewise filed Tax Warrants totaling
$14,442.75 for periods in 1998 through March, 2000. As in the case of New
Jersey and Kentucky, the State of Oklahoma has created estimates of taxes,
prepared and then filed returns in the name of LEC Leasing and then proceeded
to execute on such claims. In Oklahoma, the matter is docketed as Z413795279.
The Company does not believe it owes the state of Oklahoma any past taxes;
believes that all such required reports were filed in a timely fashion and
intends to vigorously defend its position. The Company believes that this
matter has been resolved in the Company's favor. In the event that the Company
receives additional claims from this taxing authority, they will be discussed
in future reports. Presently, the Company rejects the validity of the claim.
In each of the tax cases there is a common element: the taxing authority
claiming that it had not received reports; that the Company had believes it
previously filed the required reports or closure letters and that there was
or is a rational basis for the Company or its subsidiary to owe taxes. The
Company believes that these previously unreported liabilities do not
constitute valid obligations of the Company, but, has included them in its
financial statements pending resolution.
These events were immediately reported to the Company's auditors for the
affected period. Upon examination of the events the auditors were asked to
either affirm their audits, qualify their audits or disavow their audits for
FY 1999 and FY 2000. The auditors during that period, Goldman Golub Kessler,
responded that it was their belief that these events were not material and
that there was no need to restate the financial statements for the reported
periods. The Company believes these events occurred as the result of its
departure from the leasing business in December, 1999. When the Company sold
its lease portfolios it sent notices and letters to approximately one-hundred
state and local taxing authorities, advising them that the Company, and its
various divisions, had sold its lease portfolios on December 31, 1999 to
Somerset Capital Ltd. New Jersey, Oklahoma and Kentucky were mailed such
notices. Prior to the sale, Somerset had functioned as a management agent for
the Company, managing these portfolios. Accordingly, it is the position of
the Company that these liabilities, while substantial in their dollar amount,
are not predicated upon any lawful taxes owed or actual liability of the
Company and have occurred as the result of no fault or liability of the
Company. The Company has not previously reported these matters because a.) it
had no knowledge of them until March 2002, and, b.) had a reasonable basis to
believe it had closed all such tax accounts in a timely and responsible
fashion. The Company believes that these matters will be settled on terms
favorable to the Company, and, as noted above, the Company does not believe
it owes the claimant states any past taxes; believes that all such required
reports were filed in a timely fashion and intends to vigorously defend its
position. The Company has implemented internal audit and management controls
which it believes are reasonably calculated and designed to reduce similar
risks in the future.
The New Jersey judgment was a source of concern to the Company in that when we
reported our previous quarters, we thought it could be made the subject of an
execution proceeding whereby the entire assets of the Company were at risk. In
exploring these issues, we notified each such state that we rejected entirely
their assertion of claim, and we asked each claimant state to provide us with
any evidence of tax owed. As of the filing of this report, no state agency
referenced above has replied to any of our correspondence.
Page 15
In summary, we believe that the events related to the creation of the claims
are the result of the subject states noted above having failed to take timely
notice of our correspondence to them in 1999 and 2000 that the lease
portfolios had been sold; that we were ceasing operations in the leasing
sector; that the leases had been sold to an unrelated party. The vast majority
of taxing entities we had dealt with for years properly closed our tax files.
Several states, however, failed to act upon our notice and continued to
arbitrarily file returns in our name, without our knowledge or consent,
thereby creating the appearance of taxes owed when none in fact were or are.
b.) Prior Litigation & Integrally Related Settlements
Beginning in March, 2002, we entered into discussions with The Genesis Trust
regarding the adequacy of prior reporting when we learned the Company
might have failed to report significant liabilities. We contacted our
auditors and furnished them with all information we could locate regarding the
sales tax issues; they felt no need to restate any prior financial
information, given the totality of the circumstances. Our auditors at the Time,
Goldstein Golub Kessler, LLP, advised us they did not view, based on a review
of the totality of the circumstances, the matters related to the sales tax
issues to be material.
Then, in late April, 2002, the Company learned that the State of Delaware was
claiming approximately $400,000 in unpaid franchise taxes. We prepared and
filed adequate franchise tax returns and annual reports for the periods
required, and obtained relief from the Delaware claim. The final fees actually
owed totaled less than $250.
During this same period we were in active negotiations with our former CEO,
Ron Farrell, regarding certain claims he had against the Company; claims the
Company had against him and claims he had against The Genesis Trust.
The Genesis Trust notified us in April, 2002, that it believed the premises
and disclosures upon which it had entered into the December 31, 2001 stock
purchase agreement previously filed by the Company on Form 8-K were inadequate
and that the Company should rescind the transaction. After discussion, it was
agreed that rescission was not a practical solution. On May 6, 2002, the Trust
filed suit in the United States District Court for the Western District of
Arkansas. The gist of the claims embodied in the litigation were that past
management had failed to recognize and report potential tax liabilities
totaling several hundred thousands of dollars. The Company, while rejecting
the premise that any fraud had occurred on its part, agreed with the Genesis
Trust that it would be in the best interests of all parties to obtain a
judicial determination of the potential liability of the Company as regards
the potential liability situation surrounding the tax claims discussed abovE
Upon filing suit, the Company and the Plaintiff Genesis reached an agreement
whereby the Trust abandoned its claim to receive 3.75 million shares of stock
under the December 31, 2001 stock purchase agreement. In a non-public codicil
agreement, the Plaintiff Genesis also agreed to defray the cost of settlement
with our former Chief Executive Officer, Ron Farrell, and to cooperate with
the Company in private omnibus negotiations to reach a settlement with
Mr. Farrell, and, an entity he had sold a debenture interest to, Kolpin
International.
The Company, and the Plaintiff Genesis had been conducting various
negotiations by and between it, Farrell, Genesis and Kolpin. Each of the
parties had competing interests. The Company viewed the entire process as part
of a global settlement and when the final party reach agreement with all other
parties on July 15, 2002, we reported the entire omnibus or global settlement
on a Form 8-K filing of July 16, 2002, which filing is incorporated by
reference in this report as if fully set out. In that report we reported a
"change of control" of the registrant from Mr. Farrell and/or shares that he
had controlled to The Genesis Trust.
Page 16
The Company has subsequently moved the United States District Court to reopen
this case in order to allow enforcement of the Judgment against entities that
are presently non-parties to the litigation, but which are interfering with
the settlement through actions taken under the color of law.
c.) RICO Litigation Against Alleged Stock Manipulators
The Company filed suit in June, 2002, in the United States District Court for
the Western District of Arkansas at Fayetteville, case 02-5133 against several
parties alleging violation of the Racketeer Influenced and Corrupt
Organizations Act. The suit was amended on August 15, 2002, naming as
defendants Carla Sue Hohenhouse, Scott H. Wilding, Mahmood Shahsavar, Leonard
Mauck, Robert Kirk and several John Doe defendants. Subsequently, we identified
Daniel Johanning of the Broward County, Florida as a John Doe defendant and
served process on him. The amended complaint alleges that the defendants have
committed acts of extortion and wire fraud in conjunction with a fraudulent
scheme to injure the Company economically, and to facilitate "shorting" and
manipulation of the market for the Company's stock. The Company continues to
cooperate with state and federal law enforcement agencies to whom complaints
have been made. The Company has also filed a complaint with the Office of the
Inspector General of the United States Securities and Exchange Commission,
Washington, D.C., following claims by defendant Kirk that he had received
confidential information about the Company from what he has described in a
public writing as a contact or source within the SEC. Kirk and the other
defendants are sued for allegedly corrupting public officials and utilizing
information derived from those corrupt sources which they have characterized
as material, non-public information about the Company, in violation of
Title 17, Code of Federal Regulations, Section 240.10b-5, as well a violations
of the Hobbs act and the federal wire fraud statutes.
The Company is vigorously pursuing civil and criminal remedies against these
defendants.
d.) The Arkansas Securities Department
In late October, 2002, following a novel and highly unusual public news release
announcing a purported investigation of the Company and a settlor, The Genesis
Trust, (in prior federal litigation) the Arkansas Securities Department (ASD)
issued an ex parte "final order" which sought to unilaterally set aside the
entire contents of a settlement filed of record in the United States District
Court, Western District of Arkansas. That suit settled the claims of Genesis;
our former CEO Ronald Farrell; and others. Although it is generally thought and
accepted that a federal District Court has powers well beyond that of any one
particular state agency, the ASD nonetheless issued its purported order in case
S-02-011-02-F001.
When the Company first learned that the ASD had filed a purported "Order of
Investigation," it immediately notified the National Association of Securities
Dealers and the United States Securities and Exchange Commission. One aspect of
what we termed as the "Elgindy" model is the active use of regulatory agencies
by the perpetrators to injure or pressure the target company. We believe that
in this instance there is sufficient documentary evidence linking the actions
of the ASD to the activities of several of the RICO defendants sued by the
Company as to establish a relationship between the ASD events and the RICO
defendants.
We view the involvement of the ASD as being an aspect of the RICO enterprise
complained of in the previously cited federal litigation we have instituted.
Following the initial issuance of its purported order, and for an as yet
unexplained reason, the ASD elected to issue an amended ex parte order.
That event followed our complaints to federal agencies regarding conduct of
staff at the ASD. The statutory remedy in Arkansas for ignoring an order of the
ASD is for it to file an adversary suit in the Circuit Court of Pulaski County,
Arkansas and ask a Court to enforce the order(s) of the ASD. This has never
been done by the ASD. Such an adversary proceeding by the ASD would afford the
Company to immediately remove the litigation to a U.S. District Court.
Page 17
In October, 2002, the Company elected to exhaust all available "administrative
remedies" in order to ripen the issues with the ASD for litigation. The result
of the attempt to resolve the issues administratively, of course, was that the
ASD merely repeated its previous orders. The Company has asked the United
States District Court, Western District of Arkansas to reopen the Genesis
litigation in order to obtain more specific relief that will resolve in favor
of the Company, and the settlor Genesis, all issues related to the ASD
proceedings. If reopened, the Company will seek to join the ASD and the State
of Arkansas as third-party defendants and recover damages for what the Company
views as outrageous and unconscionable conduct on the part of the ASD. While
embarrassing, noisy and inconvenient, the Company does not view the ASD
proceedings as material; they affect only one shareholder and the Company views
the purported order of the ASD as being in direct and contumacious conflict
with an Order of a United States District Court, to which the ASD, at best is
an "inferior tribunal."
The Company feels it important to note that at no time material to the actions
taken by the Arkansas Securities Department has any neutral or detached
magistrate ever been reviewed nor has the Company had what it considers a
meaningful opportunity to be heard in any appropriate forum regarding the
unilateral actions taken by the ASD. The Company intends to vigorously pursue
all remedies available to it in this regard.
e.) The Securities and Exchange Commission
The Company has maintained regular contact with SEC staff at a regional level
regarding events related to the civil RICO litigation described above. Despite
public statements to the contrary attributable to several alleged stock
manipulators, the Company has not been notified by the Securities Exchange
Commission that it or any employee, officer or director is the subject of any
investigation or proceeding, either formal or informal.
Item 2. Changes in Securities
During the third quarter, 2002, we increased the number of authorized shares to
100,000,000 shares of common stock. This partially reverses the effects of a
series of "reverse splits" undertaken in the late 1990's by prior management
that were designed to try to keep the minimum bid price high enough to allow
the Company to remain on the NASDAQ small-cap listings. Additionally, the
Company finalized its name change in the state of Delaware from Golf
Entertainment, Inc., to Sienna Broadcasting Corporation. The Company is now in
the process of accomplishing NASD ticker symbol changes, reprinting of stock
certificates, etc. A Form 8-K will be filed when the NASD reflects the name
change in its records and assigns new ticker symbols.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Securities Holders
No natters were submitted for shareholder approval in this reporting period.
Item 5. Other Information & Subsequent Events
The Company has been notified by the National Association of Securities Dealers
that it is considered to be an issuer which would be affected by the phasing
out of the NASD "OTCBB" trading system in fiscal 2003 in lieu of a new listing
service, the "BBX," or, Bulletin Board Exchange. The Company has reviewed the
criteria for listing on this new NASD system and believes that currently meets
or will meet the new criteria for independent directors, shareholder
communication, independent audit committee, etc. The Company intends to apply
for BBX listing when the NASD commences accepting applications. The Company
will incur additional annual expenses, however, as a result of listing fees.
The Company filed amended articles of incorporation, amending its name and
authorized number of shares, during the third quarter of 2002. The Company
previously announced issuance of gratuity shares in its LEC Leasing, Inc.,
Page 18
division. The Company anticipated a payment (share certificate delivery) date
in early September, 2002. In order to process fulfillment, the Company is
required to obtain a CUSIP number for the physical certificate and the issue
generally. In order to obtain a CUSIP number, the Company had to first apply
for a "144A Portal" number from the NASD. That number, applied for in August,
2002, has not yet been received. Once the required issue numbers assigned,
however, the distribution of the shares will commence immediately. The Company
is diligently pursuing all required filings and clearances necessary to effect
the share distribution on a timely basis.
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K On August 23, 2002, the Company filed a Form 8-K noting
new and emerging risk factors related to the operation of a criminal enterprise
and scheme affecting the market price of the securities of the Company.
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: November 15, 2002 /s/ Jim Bolt
------------------------------------
Jim Bolt
Chief Operating Officer
(Principal Executive Officer)
Date: November 15, 2002 /s/ Jim Bolt
------------------------------------
Jim Bolt, COO
Acting Chief Financial Officer
(Principal Financial and Accounting
Officer)