-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DFq8SAYedueZXAerzX689MnlAsqvu10gTHTawQLbLGCsOxaJX+av0qc0ytICZtLP YWTLr/yfaBx/HCpmpMfjuA== 0000950144-96-006207.txt : 19960912 0000950144-96-006207.hdr.sgml : 19960912 ACCESSION NUMBER: 0000950144-96-006207 CONFORMED SUBMISSION TYPE: 10SB12G/A PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19960911 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SBI COMMUNICATIONS INC CENTRAL INDEX KEY: 0001013453 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATION SERVICES, NEC [4899] IRS NUMBER: 581700840 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10SB12G/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-28416 FILM NUMBER: 96628351 BUSINESS ADDRESS: STREET 1: 458 HIGHWAY 278 BY PASS STREET 2: PO BOX 597 CITY: PIEDMONT STATE: AL ZIP: 36272 BUSINESS PHONE: 2054478797 10SB12G/A 1 SBI COMMUNICATIONS FORM 10SB12G/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C., 20549 Securities and Exchange Commission File Number O-28426 FORM 10-SB/A GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS PURSUANT TO SECTIONS 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 ================================================================================ SBI COMMUNICATIONS, INC. (Name of small business issuer specified in its charter) ================================================================================ DELAWARE 58-1700840 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) POST OFFICE BOX 597 (205) 447-8797 458 HIGHWAY 278 BY PASS Issuer's telephone number PIEDMONT, ALABAMA 36272 (Address of Principal executive offices) (Zip code) ================================================================================ SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT Title of each class Name of each exchange on which to be registered. each class is to be registered. NONE NONE SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT COMMON STOCK PREFERRED STOCK (Title of Class) ================================================================================ DRAFT DATED AUGUST 31, 1996 ================================================================================ This First Amendment to Registration Statement Number O-28426, dated August 31, 1996, including exhibits, consists of 176 sequentially numbered pages. The exhibit index is located on sequentially numbered page 96. 2 TABLE OF CONTENTS
ITEM PAGE NUMBER NUMBER ITEM CAPTION - ------ ------ ------------ Part I - ------ Item 1. 3 Description of Business Item 2. 38 Management's Discussion and Analysis or Plan of Operation Item 3. 42 Description of Property Item 4. 42 Security Ownership of Certain Beneficial Owners and Management Item 5. 43 Directors, Executive Officers, Promoters and Control Persons Item 6. 46 Executive Compensation Item 7. 49 Certain Relationships and Related Transactions Item 8 54 Description of Securities Part II - ------- Item 1 55 Market Price of and Dividends on the Registrant's Common Equity and Other Shareholder Matters Item 2. 57 Legal Proceedings. Item 3. 58 Changes In and Disagreements with Accountants on Accounting and Financial Disclosure. Item 4. 58 Recent Sales of Unregistered Securities Item 5. 58 Indemnification of Officers & Directors Part FS 59 Financial Statements - ------- 95 Summary Financial Data Part III - -------- Item 1. 96 Index to Exhibits Item 2. 96 Description of Exhibits 98 Signatures
Form 10-SB Dated August 31, 1996, Page 2 3 ITEM I. DESCRIPTION OF BUSINESS GENERAL SBI Communications, Inc., a publicly held Delaware corporation (the "Registrant"), was originally organized in the State of Utah on September 23, 1983, under the corporate name Alpine Survival Products, Inc. Its name was changed to Justin Land and Development, Inc., during October of 1984, and to Supermin, Inc., on November 20, 1985. The Registrant was originally formed to engage in the acquisition of any speculative investment or business opportunity without restriction as to type or classification. On September 29, 1986, Supermin, Inc., concluded a reorganization under Section 368(a)(1)(B) of the Internal Revenue Code of 1954, as amended, pursuant to which it exchanged 200,000 shares of its common stock, $.001 par value (all shares numbers used in this registration statement are, unless otherwise stated, adjusted to reflect a one for 20 reverse stock split) for all of the capital stock of Satellite Bingo, Inc., a Georgia corporation organized on January 10, 1986, and the originator of the Registrant's current business (the "SBI Subsidiary"). In conjunction with such reorganization, the former stockholders of the SBI Subsidiary, acquired control of the Registrant and the Registrant changed its name to Satellite Bingo, Inc. On March 10, 1988, the Registrant changed its name to SBI Communications, Inc., its current name, and on January 28, 1993, the Registrant reincorporated into Delaware through a statutory merger with a wholly owned Delaware subsidiary in reliance on the exemption from registration requirements of Section 5 of the Securities Act of 1933, as amended, provided by Rule 145(a)(2) promulgated thereunder. The Registrant has two subsidiaries, SBI Communications, Inc., an Alabama corporation; and, Satellite Bingo, Inc., a Georgia corporation. As used in this registration statement, unless the context requires otherwise, the term "Registrant" includes SBI Communications, Inc., a publicly held Delaware corporation, and, its subsidiaries, predecessors and affiliates whose operations or assets have been taken over by SBI Communications, Inc., a publicly held Delaware corporation. CURRENT & PROPOSED OPERATIONS The Registrant is engaged in the interactive communications and entertainment fields. It brings together elements of the "information superhighway" to create interactive national television programs, including state-of-the-art computer technology, proprietary software programs, satellite communications, and advanced telecommunications systems. The Registrant's management believes that its experience in developing and delivering interactive television programs, as well as its ownership of proprietary systems and software, provide an advantage in its ability to launch new entertainment and information programs based on comparable resources. Form 10-SB Dated August 31, 1996, Page 3 4 As a result of its experience in production and broadcasting gaming programs, the Registrant has developed a substantial amount of technical, legal and operational information. Currently, the Registrant is planning a partnership with the Louisiana Charitable Organization alliance (LACOA), and the development of a senior citizens television network. Such ventures will involve development of television programs featuring interactive Bingo shows, auctions and factor direct sales. The LACOA project is currently awaiting passage of legislation presented by the Honorable Clenix Esensauter of Louisiana. Additional areas in the planning stage include the establishment of a Casino and Bingo Hall on real estate provided by Chereokee Indians of Georgia, Inc., (which is also now subject to State approval). Additional areas being explored include the establishment of a casino and Bingo hall on real estate provided by Cherokee Indians of Georgia, Inc. (now subject to state approval); and, acquisition of Zacker's (Horizon) Gas of Tampa, Florida, a retail propane gas company with $3,000,000 in annual sales. In light of the preliminary and conditional nature of negotiations, no assurances of any kind can be provided as to the likelihood that such proposed projects will come to fruition. The Registrant has been active in the interactive television programming business for over ten years. Its core business has been a live Bingo game produced and broadcast via satellite to Bingo halls and homes across the United States. The program generates revenues from phone service fees, card sales to local Bingo halls and from paid advertising. The Registrant manages an 80,000 square foot, hi-tech Bingo facility in Piedmont, Alabama for various charities. Such facility provides the Registrant with the ability to transmit its games and other entertainment programs to broadcast, on cable and satellite stations. Through its relationships with the PandaAmerica Shopping Network, the Registrant's programs can be broadcast on a 24 hours a day basis. Currently, rents and administrative fees charged to charities are unsecured and generally are paid only as revenues from the Bingo games produce sufficient profit to allow the charities to make payments. Rents receivable at June 30, 1996, $586,285, are concentated in that they are payable by only two charities. Management has estimated the amount of such receivables that are collectible based upon its knowledge of the financial condition of the charities and the history of the profitability of the Bingo games; however, it is possible that management's estimate of the amount of such receivables collectible could change in the near future based on actual payment history. The Registrant has entered into various licensing agreements to provide proprietary software and know how involving Bingo game production and operation covering territories in California, Brazil, Greece, Hong Kong, and Indian reservations, military bases and charity Bingo parlors in the United States. No licensee currently has Bingo operations generating significant fees or royalties for the Registrant. Should local, state, federal or foreign laws regulating Bingo change, such changes could have a material impact on the ability of the Registrant to generate future revenues. One recent change involved a decision by the United States Supreme Court declaring a federal statute that limited state control over operations located on Native American reservations unconstitutional. Such decision is not expected to impact any of the Registrant's current operations. Form 10-SB Dated August 31, 1996, Page 4 5 The Registrant is headquartered in Piedmont, Alabama at 458 Highway 278 Bypass, Piedmont, Alabama 36272. The Registrant's phone number is (205) 447-8797. The Registrant employs approximately 12 persons. GLOBALOT BINGO Introduction Globalot Bingo and Satellite Bingo are proprietary interactive Bingo games broadcast by the Registrant via satellite to participating cable and television stations. The use of telephones for game card distribution makes it possible for home viewers to also participate in the Registrant's broadcast programs. The Globalot Bingo program was designed to provide larger jackpots than participating operations could individually pay, permitting participating cable and broadcast stations to attract larger viewing audiences, increase profits and attract commercial sponsors. The game is currently broadcast daily over PandaAmerica Network. The Registrant intends to broadcast a Million Dollar Globalot game each Saturday evening at 11:00 p.m. (eastern time) starting on June 15, 1996. Future plans include expanding the game to other week nights. Operation In order to play the game each player must be playing a different card or cards. Globalot Bingo has developed a "Super Jackpot Bingo" computer program that can generate a series of one billion individual cards without duplication. Each card is unique and all cards are serially numbered to preclude anyone from submitting a fraudulent cards and/or counterfeiting. Globalot Bingo cards may be obtained by telephone until a specified time. At that point the Registrant suspends sales and provides the serial number of cards obtained for that night's game to its central processing office. In order to encourage participation and to develop a broad playing audience, Globalot Bingo has developed a special Million Dollar Globalot game, to air each Saturday evening at 11:00 p.m. (eastern time) starting on June 15, 1996. The game will pay the first person who attains Bingo each broadcast night an advertised cash prize. The prizes will involve a chance to win $1,000,000 by being the first participant to cover the correct 8 numbers in 16 calls (the term call referring to the first 16 numbers selected in the game) or less (the "Quick Pick 8" game) or, guaranteed second prizes of $25,000. If there is no winner in the $1,000,000 game, the Registrant will pay the first person to cover the shaded area or complete the Quick Pick 8 game $5,000. In addition to the Quick Pick 8 game, the Registrant will award a $20,000.00 dollar grand prize to the first person covering an entire card. This will provide players with nine opportunities to win a prize. Cards obtained to play the Registrant's current 24 hour program will be good for the entire week, including the Saturday Million Dollar Globalot game. As additional players participate, the Registrant plans to increase the grand prize to $50,000. Form 10-SB Dated August 31, 1996, Page 5 6 When the televised game begins, each number being called on the televised show is also recorded by the master computer. The computer system, by monitoring all of the cards in play, is able to determine when a Bingo has occurred and to provide the location of the winning card holder. The viewing audience is immediately shown the image of the winning card. All games are called at the rate of approximately one Bingo number every 12-15 seconds in order to allow players to play multiple cards. If it is determined that, based on the cards in play, the call is too fast or too slow, an adjustment is made. The national winner will be called during the broadcast by the program's host, or, may call the Globalot Bingo 800 number shown on the program. Upon contact, the winner will provide the Registrant's staff with his or her serial number and other necessary identification, including name and address. The winner is then instructed on how to claim the prize. If for reasons beyond the control of Globalot Bingo the regular telecast and game cannot be broadcast, all prize moneys announced for that week will be added to the jackpot for the next succeeding game. Technology The Registrant uses proprietary technologies that enable viewers at home to participate in Bingo games televised live in specific English speaking Hispanic markets in the US and Latin America (local laws permitting). Globalot Bingo has a special telephone number, 800-729-BINGO (2464), which is an access code to gain entry into long distance network. Upon dialing the number a caller hears a 45 second message disclosing who the caller has reached, providing information about Globalot Bingo, the caller's options and how to receive Globalot Bingo playing cards by telephone (including the cost and method of billing). A caller must have a prepaid calling card in order to obtain free Globalot Bingo playing cards via the phone, which must be purchased from the Registrant. The prepaid calling card also permits the purchaser to make long distance telephone calls at savings of up to 70% from regular long distance rates and will provide access to other services which the Registrant plans to make available in the future. In the event the caller, (who must be 18 or over), wishes to proceed after the 45 second announcement he or she must activate the system. Upon activation by the caller, the call is automatically switched to the Globalot Bingo card distribution center, and charges for the call to begin. The time necessary to receive three Globalot Bingo playing cards by telephone is eight minutes and the caller is charged $9.60 or $1.20 per minute. The charge for the call is deducted from the caller's prepaid calling card. The prepaid calling card may be obtained from the tele-communications switch via credit cards or by sending in payment to the Registrant. Interactive players may also obtain a strip of three cards free of any charge by sending a stamped, self addressed envelope to the Registrant. Form 10-SB Dated August 31, 1996, Page 6 7 Globalot Bingo has set up a winners hot-line for card holders to use in order to obtain information concerning winning cards. This allows players to play to win even if they didn't have an opportunity to see the show. This number is 800-684-8493. The Registrant also has the ability to receive long distance calls from 65 countries for Globalot Bingo playing cards, provided in the same manner as domestic callers except that service is provided in the predominant language used in the originating country. The cost for such calls will differ depending on the country of origin. The Registrant receives a portion of each call paid, payment being different in each originating country. International callers can obtain play information over the internet. The Registrant's software and communications technology eliminates the need and minimizes the expense related to the printing and distribution of Bingo cards by permitting viewers to receive up to four "cards" (numbers) by phone; and, allows its telephone switching network to handle thousands of calls simultaneously, permitting optimum viewer participation in each game. The use of these technologies also eliminates the need for live operators. The Registrant's production offices and computer center are located at 1332 South Glendale Avenue, Glendale, California 91205. Its phone number is 1-800-460-2170. Each strip of three cards gives the holder nine chances to win the Super Jackpot Prize. Registrant's Income The Registrant's income is based on the difference between the telephone charges paid by players and the negotiated cost charged to by the participating long distance company. The long distance charges appear on each caller's prepaid calling card, eliminating collection functions. Since no live operators are employed in recording and processing the calls and awards, the only expenses are related to the prizes offered, production and telecast of the Bingo game and administrative costs. PROJECTS UNDER DEVELOPMENT The Registrant is currently negotiating with Telemundo for production of Spanish language Bingo games to be telecast to Hispanic markets in the United States and in Latin American markets. It is also investigating the feasibility of pay-per-view broadcast of Bingo games to the cable television market and of a regular Bingo game broadcast to the United States. BACKGROUND Satellite Bingo The Registrant's initial satellite Bingo concept was to broadcast Bingo games periodically from a satellite re-transmission facility, thereby making the game available to viewers through the United States. The targeted viewing audience was comprised of homes with satellite dish receivers or access to cable facilities, and, direct broadcast recipients (i.e., Bingo halls). Each program was to be broadcast live and viewers were to be provided the opportunity to win valuable prizes by playing the game. Form 10-SB Dated August 31, 1996, Page 7 8 Pioneer Games of America The Registrant's first satellite Bingo broadcast, ("Pioneer Games of America") took place in 1985, from facilities in Tallahassee, Florida. The program was broadcast live once a week from WCTV Channel 6, Tallahassee's CBS affiliate station. At the time, the Registrant had agreements with 20 cable networks which allowed the program to be delivered via cable to homes across the United States. The program was also directly broadcast from WCTV to homes in the Tallahassee area. In addition, homes with satellite dish receivers were capable of picking up the program. Bingo game cards were distributed to the public free of charge through Piggly Wiggly grocery stores approximately 2 to 3 weeks prior to the game. The Registrant would print the cards, color code them each week to mark the start of a new game series, and distribute them to stores throughout the Southeast. The cards featured a Bingo scorecard on one side and a discount coupon for select store merchandise was featured on the other side. Distributing Bingo game cards to grocery stores provided the Registrant with a low-cost way to reach a mass market and gave Piggly Wiggly stores an attractive promotion from which to build foot traffic in its stores. Shoppers could pick up the free Bingo cards in the stores or write to an address provided during games to receive free Bingo cards by mail. The Registrant generated revenues by selling advertising to sponsors such as Proctor & Gamble, who would advertise their products during the broadcast and subsidize the product discount coupons which appeared on the backs of the Bingo cards. The Registrant also received revenues through syndication fees from independent television stations and cable systems, as well as through the sale of Bingo cards to sponsors like Piggly Wiggly, who distributed the cards in their grocery stores. Prizes consisted of cash awards of up to $40,000. The broadcast was held once a week for approximately 13 weeks. Each broadcast featured a live game program host who drew numbers and announced the winners. The popularity of the game was enormous. At one point, the Registrant was printing and distributing 7,500,000 cards per week. Eventually, the cost of producing and distributing the cards at the negotiated prices exceeded the Registrant's ability to make a profit, and the broadcasts ended in 1987. 2. Satellite Bingo Productions In September of 1987, the Registrant formed a joint venture called "Satellite Bingo Productions" for the purpose of producing and distributing a live satellite Bingo program once a week from a television studio in Glendale, California. Agreements with cable systems and television stations enabled the Registrant to broadcast the "Bingo Game Show" to larger metropolitan markets, such as Las Vegas and Detroit. To attract attention and generate excitement for the games, the Registrant secured national entertainers and celebrities such as Marty Allen, Jo Ann Worley and Don Sutton to appear on the broadcasts. As it had done in Tallahassee, the Registrant delivered Bingo cards to grocery stores in 32 cities throughout the United States. Again, due to the popularity of the game, the Registrant eventually became overwhelmed with requests for Bingo game cards. Cards were distributed below Form 10-SB Dated August 31, 1996, Page 8 9 cost which eventually eroded the Registrant's profit. Consequently, the Registrant discontinued the broadcast in 1988. 3. Spanish Satellite Bingo In 1988 the Registrant began spanish language broadcasts from Los Angeles, California, through KMEX Channel 34 to the Los Angeles Hispanic market. The broadcasts were produced at Glendale, California. Sponsors of the broadcast included the Coca-Cola Company and individual Seven-Eleven stores. In addition to Los Angeles, the program was broadcast to markets in Central and South America. As with the Registrant's previous satellite Bingo games, cash prizes of up to $25,000 were awarded and participants could pick up Bingo cards at participating Seven-Eleven stores. The game ran for approximately 13 weeks and, as with the other Bingo broadcasts, was terminated due to increased production costs. 4. Technical Improvements In the years following its last Satellite Bingo broadcast, the Registrant continued to develop and produce on-going Bingo programs held at Bingo parlors located on Native American reservations. The Registrant also continued to make substantial investments in the development of proprietary software. This software was responsible for generating combinations of Bingo card numbers which ensured that no two Bingo cards were alike. When the Registrant began broadcasting Satellite Bingo in 1985, it was capable of producing only 27,000 different combinations of Bingo cards. Over the years, enhancements to the program enabled the Registrant to increase its Bingo card combinations to more than 100 million. In 1990, the Registrant developed a highly-sophisticated copyrighted software program called the "One Billion Series for Bingo Lottery." This software enabled a computer to generate up to one billion uniquely different cards which were coded for play in a specific game through a series of assigned serial numbers. These serial numbers permitted the Registrant to easily track Bingo cards that it had printed and sold or otherwise distributed. The software placed in play only those cards which had been sold or distributed for a specific game, guaranteeing that each game would produce an identifiable group of winners, something the previous software was incapable of doing. Another major advantage of the software was that it was possible to tie it into an automated telecommunications system, which allowed the Registrant for the first time to distribute Bingo cards "over the telephone." Participants could call in and follow a series of automated voice commands to obtain the numbers for their free Bingo cards by telephone. The caller would simply write down the Bingo card numbers given by telephone on a blank sheet of paper, creating his own personalized Bingo card. Form 10-SB Dated August 31, 1996, Page 9 10 Because his information was captured on a computerized database, the Registrant could charge the participant for the call by arranging for the calls to appear on the participant's regular telephone bill. 5. Test Marketing The Registrant began implementing its new software system in 1991. To eliminate some of the obvious drawbacks of distributing Bingo cards on a weekly basis to a wide geographic area, the Registrant limited its distribution of Bingo cards to select military bases, charity Bingo halls and Indian reservations, which were already conducting their own weekly Bingo games and could distribute the satellite Bingo cards to their local participants. During the test marketing period, the Registrant provided Bingo cards to the participating game operators free of charge. The Registrant began charging for the cards once the test period was over. Satellite receivers were placed at participating Bingo halls. The receiver enabled operators to down-link the satellite Bingo broadcast to their Bingo audiences, who could play along on the satellite Bingo cards previously obtained from the hall. The Registrant's satellite Bingo games offered local Bingo players the chance to win larger cash prizes (during the test years 1991 and 1992, the Registrant gave away more than $120,000 in cash and prizes). The Registrant designed its satellite Bingo game with a view towards offering participating game operators with considerably larger jackpots than they could individually afford or legally pay in many jurisdictions. The Registrant's management believed that, because of the larger potential prizes, participating Bingo parlors and charity game operators would be able to attract larger numbers of players, resulting in increased income. In addition to the local play, the Registrant also began testing its "interactive" concept, whereby viewers at home (who were able to receive the satellite Bingo broadcast over their own satellite receiver dishes) could call a televised toll-free number, receive a set of Bingo card numbers over the telephone or by mail, and then, during a subsequent broadcast, play the game along at home. Satellite Bingo's popularity among local Bingo players, home viewers and game hall operators during the test stage led the Registrant to officially air the first "Globalot Bingo" program in November, 1993. 6. Globalot Bingo The Registrant produced and broadcast its first satellite Bingo program under the trade name "Globalot Bingo" on November 13, 1993, live from a charity Bingo hall located in Piedmont, Alabama. Globalot Bingo was broadcast each Saturday evening from 9:30 p.m. to 10:30 (Eastern Standard Time). Under the Globalot Bingo program, the Registrant paid an advertised cash prize to the first person who successfully completed one of its specially-generated, copyrighted Bingo game cards. The prizes were awarded following each weekly broadcast and started at $20,000 for the grand prize winner and $5,000 for the second prize winners. Form 10-SB Dated August 31, 1996, Page 10 11 Over time, the Registrant developed a larger prize potential for a grand prize winner. A special "Quick Pick 8" Bingo played during the broadcast involved a potential $1,000,000 cash prize. Prize payments were bonded through major insurance carriers licensed in states where the prizes were paid. In addition to home viewers and local players at the Piedmont Bingo hall, other Bingo halls located at military bases and Indian reservations offered Globalot Bingo to their local players by agreeing to sell Bingo game cards and paying the Registrant for their participation. The Registrant initially broadcast Globalot Bingo in the United States. Over time, the Registrant entered into agreements with groups in Hong Kong, Philippines, Venezuela, Greece and Brazil to develop and broadcast Bingo game programs. How Globalot Bingo Worked Like the Registrant's previous Bingo broadcasts, Globalot Bingo was based on the popular game where contestants filled in a Bingo card by playing "Quick Pick 8" or a "coverall" games. All games were called at a rate of approximately one Bingo number every 12 to 15 seconds in order to allow participants to play multiple cards. Most could comfortably play up to five cards at a time. The Registrant initially sold Globalot Bingo cards to licensees for $5.00 for a strip of three Bingo cards. The Registrant also offered game cards at $10.00 for a strip of three to home viewers. Home viewers who watched the program and wanted to play could call a special toll-free number in Toronto, Canada (now Denver, Colorado), and register the cards with a designated licensed Bingo hall (like the Piedmont, Alabama hall). They would receive their Bingo card numbers by telephone for the next Globalot Bingo program. Although there was no charge for the cards, the caller was billed approximately $10 for the long distance telephone call through the local telephone service provider. The length of the call determined the number of cards the caller could obtain. As with the sale of printed Globalot cards, the Registrant established a sales termination deadline prior to the start of the game to allow its computer sufficient time to process caller information. When the televised Globalot Bingo game began, each number called on the television program was recorded by the master computer. The computer system monitored all the cards in play and was able to determine when a win occurred. It then identified the licensee that sold the winning card. The viewing audience was informed which card won the Globalot game and actually saw an image of the card on the television screen. The grand prize winner would then call the Globalot 800 number and provide the Registrant with the serial number and other necessary identification. The winner was then provided with instructions on how to claim the prize. Prizes were paid through the designated licensed local Bingo hall at which the cards were registered; however, the local Bingo hall had no responsibility for the national prizes or their payment. After verification of the grand prize winner, additional numbers were called for second prize (or prizes), which were awarded by the Registrant. Form 10-SB Dated August 31, 1996, Page 11 12 The Registrant's sophisticated computer system acted as both a security system and a generator of Bingo card members. The computer could verify the winning card through the serial number and, as part of its memory, the computer knew when there was a winner as soon as the number was called. The Registrant successfully broadcasted its Globalot Bingo program from Piedmont, Alabama from November 13, 1993 until March 27, 1994, when a tornado damaged the Piedmont Bingo hall (now repaired and purchased by the Registrant). PRINCIPAL PRODUCTS OR SERVICES AND THEIR MARKETS Globalot Bingo 1. Introduction Globalot Bingo is a proprietary Bingo program developed and marketed by the Registrant and for broadcast via satellite to participating licensees. The licensees must be legally able to participate in the program based on the federal, state and local laws that specifically apply to them. Licensees include individuals who own satellite dishes but the bulk of its licensees have been Bingo parlor operators on Native American properties and Bingo games operated by non-profit organizations (e.g., churches). The Globalot Program was broadcast each Saturday from November 13, 1993, until March 27, 1994, at 9:30 p.m. (Eastern Standard Time), over transponder 8 of the Galaxy 3 communications satellite. Programming was interrupted when a tornado damaged the facilities used by the Registrant; however, the facilities have been repaired and purchased by the Registrant. During the interim, the Registrant re-evaluated its marketing plan and restructured its broadcasts to target the home viewer rather than bingo halls. The Registrant also decided that it would be more cost effective to work with an existing network (the PandaAmerica Shopping Network) rather than to purchase its own transponder time. The Registrant currently has an agreement with the PandaAmerica Shopping Network to produce a 24 hour animated bingo show and a weekly 30 minute live interactive game shows with cash and prizes given away. The 24 hour animated game show has been broadcast since November, 1995. The first half hour game show was broadcast on June 15, 1996 over PandaAmerica Network and its affiliates. The Globalot Program was frequently followed by continuing optional local games, usually starting after 10:00 p.m. (Eastern Standard Time). The Registrant plans to expand the Globalot Program to other week nights during the next twelve months. Under the Globalot Program, the Registrant pays the first person who successfully completes one of the Registrant's specially generated, copyrighted Bingo game cards (generally referred to as a "coverall") a pre-advertised cash prize. The prizes are awarded following each broadcast and started at a chance for $1,000,000, with a guarantee of $25,000 for the grand prize winner and $5,000 for the second prize winners. Form 10-SB Dated August 31, 1996, Page 12 13 The Registrant expects to increase the prize money paid to game winners in the future, based on anticipated increases in the number of players and Bingo parlors participating. The next level of prizes is expected to be a grand prize of $50,000 and second prizes of $10,000. The Globalot Program provides participating game operators with considerably larger jackpots than they could individually afford or legally pay in many jurisdictions. The Registrant expects that because of the larger potential prizes, participating Bingo parlors and charity game operators will attract larger numbers of players, resulting in increased income. The Registrant's administrative offices are currently located at 458 Highway 278 By Pass; Piedmont, Alabama 36272. Its toll free Globalot telephone number is 1-800-460-2170. Production offices with studio facilities are located at 1239 South Glendale Avenue, Glendale, California 91205. 2. Operation The Globalot Program can generate a series of up to one billion individual cards, without duplication. Each card is unique and all cards are serially numbered in order to preclude cheating and counterfeiting. Participation in the Globalot Program by licensees requires them to have access to a satellite dish and receiver to down-link the program; television monitors for viewing the program; and, a turn-key installation package provided by the Registrant. Under certain license arrangements, the Registrant provides the licensee with the required equipment, at the Registrant's expense. Globalot cards are sold by licensees of the Registrant for specifically dated games, with sales halted prior to commencement of the designated games at times specified in the licensing agreements. It is expected that most licensees will initially be operators of Bingo parlors or of games sponsored by authorized charities or churches. Immediately following the sales termination deadline, licensees provide the Registrant's central processing office with the serial number of cards sold for that night's game, via an 800 telephone number. Master computers in the Registrant's main offices then record all cards sold by licensees. When the televised game begins, each number called on the televised show is recorded by the master computer. The computer system monitors the cards in play and is able to determine when a win occurs. It then identifies the licensee which sold the winning card. The viewing audience is informed of which card won the Globalot game and actually see the image of the card on the viewing screens. The grand prize winner calls the Globalot 800 number listed on each card, and provides the Registrant with the serial number and other necessary identification of the winning card, together with the winner's name and address. The winner is then provided with instructions on how to claim the prize. Local Bingo parlors have no responsibility for the national prizes or their payment. After verification of the grand prize winner, additional numbers are called for a second prize (or prizes) to be paid by the Registrant. If, for reasons beyond the control of the Registrant, a regularly scheduled telecast cannot be broadcast, all prize funds announced for that week are added to the jackpot for the next telecast. All games are called at a rate of approximately one Bingo number every 15 seconds in order to allow players to play multiple cards. Based on the Registrant's experience, such time permits Form 10-SB Dated August 31, 1996, Page 13 14 experienced players to comfortably play up to five cards at a time. If it is determined by participating Bingo parlor operators that the calls are too fast or too slow, they notify the Registrant and adjustments can be made. Local operators have the option of continuing play, after award of Globalot prizes, for local prizes, subject to applicable local gaming laws and regulations. 3. The Copyrighted Bingo Cards The Registrant sells Globalot cards to licensees for $2.50 per strip of three different cards. Each strip gives the player three chances to win the grand prize. The licensee determines the resale price of the strips of cards to individual players. The Registrant currently provides its licensees two card payment plans, the EFT Plan and the Prepay Plan: 1. Licensees may execute an electronic funds transfer (EFT) authorization permitting the Registrant to debit the licensee's checking account for cards actually sold, in which case cards are shipped on consignment and the licensee is debited for cards sold immediately after it reports sales to the Registrant on the toll-free number. Because of the Registrant's card inventory tracking system, the Registrant can monitor the licensees card inventory and ships additional cards as required, assuring that the licensee always has an adequate reserve of cards on hand. 2. Licensees wishing to participate in Globalot but not wanting to enroll in the EFT program must pre-pay the price of their cards by submitting card orders accompanied by full payment therefor. In either case cards are shipped, freight pre-paid, by UPS surface mode. Expedited delivery is available at the expense of the licensee. 4. Local Play Licensees who operate Bingo parlors on Native American properties or who operate qualifying charity or church games can continue play after conclusion of the Globalot Program, subject to applicable local laws. When the Globalot transmission begins, the number caller for the local game operator places 75 balls in a slot designed to light up an electronic display. Each Globalot number called is also displayed on television monitors at local parlors. When a televised Globalot game ends and the grand prize winner has been recognized, local number caller merely rakes all remaining balls not called during the Globalot broadcast into a hopper and activates a local blower mechanism to complete local play. Local games are played until a local win for a locally determined and paid prize occurs. 5. Personal Play Form 10-SB Dated August 31, 1996, Page 14 15 Individuals who are unable to attend Globalot transmissions at licensed local parlors can still play by obtaining copyrighted cards for the next scheduled game directly from the Registrant and registering them with designated licensed local parlors (e.g., Frontier Palace in Piedmont, Alabama). The cards are obtained by calling the Registrant's special number in Denver, Colorado. Although there is no charge for the cards, the caller is billed $1.20 per minute for the call through his prepaid telephone calling card. Prizes are paid through the designated licensed local parlor with which the cards were registered. 6. Systems The Globalot System includes the following sub-systems: A. Customer Information System. All customer information including names, addresses, telephone numbers, hall sizes, security account codes, and comments are accessible through a data input/inquiry screen, with reports generated upon request. The sub-system permits card sales to be monitored and system security to be maintained. B. Card Sales Inventory System. This sub-system allows the user to track card sales by account identification number and date sold via a data input/inquiry screen. This system permits cards placed in play to be validated for ownership (security) and verifies the winner's location. It also allows a re-order system to track and report upon those accounts that need to buy more cards. C. Cards Into Play System. This sub-system requires the Bingo hall owner to telephone the user and provide the last serial number of cards sold for a game prior to game time. It allows the user to place card numbers into play via a data entry/inquiry screen and also performs security and responsibility checks insuring that the card numbers are owned by the account and that the number of cards to be played is a reasonable number for the hall size. D. Card Generation System. This sub-system generates up to 1 billion unique Bingo cards each with a serial number beginning with 0 and ending with 999,999,999, in order. There are 114 quadrillion potentially unique Bingo cards and the Company could allow for the total set. However, in order to limit the length of the serial number the Company has set the limit to 1 billion by using a 10 digit serial number (which the Company feels is a reasonable size). The Company decided that the best method for card generation would be to develop an algorithm whereby a serial number would represent a Bingo card and no database lookup would be necessary. This approach avoids the necessity for a large database of cards and provides a number Form 10-SB Dated August 31, 1996, Page 15 16 of advantages. First, system security is greatly increased because no one can tap into or get a copy of the card database. The source code for the algorithm is owned by the Company and the only copy is kept in secure storage. Second, hardware costs are greatly reduced because the Company does not have to rely on a hard disk or a modem hookup to verify a card (the program is resident in the local computer). Third, chances of system failure are greatly reduced since less hardware connections are required. E. Card Printing Services. The Company has contracted with a printing company for competitive printing services. The system automatically creates a magnetic tape for card printing that can be transferred to most printers. The printing company works directly with the Company to insure that all requirements for the printing and packaging are met. Alternatively users can print their own cards. F. The "Play Bingo" System. This system provides the actual game playing function. It takes all cards that are placed into play and picks Bingo numbers assuring that one and only one winner is randomly selected; and, also provides the option of continuing the game in order to provide for multiple winners. It runs after a selected cutoff time (thirty minutes before game time) and is ready for televised play at game time. Using the "plunger" and the electronic Bingo board, the Bingo numbers are determined and displayed until one card has won, at which time the computer notifies the user that there is a winner. The winner's location and card face are also displayed. The game plays quickly and accurately and the Company has calculated the statistical probabilities for the number of Bingo cards that can be called before a win occurs. The Company expects to have between forty and fifty Bingo numbers called before a card wins. The system assures that no other card will win. G. Card Validation and Winner Verification. A data entry/inquiry screen allows the user or the customer to type in a serial number and the face of the card is then displayed. The verify winner sub-system automatically provides this information about the winning card and gives the location of the winner on a winner report. H. The Re-order System. This system reports, upon request of the user, all customers who may need to re-order cards. Using the card sales and card play inventory systems any user that has ever played a game is listed on the report along with statistical data such as number of games remaining, average cards played per game, etc. I. The Security System. Security has been a major factor in the design of each part of the system. The card generation algorithm prevents copying or stealing of viable cards. The card sales, card play, and customer information systems provide controls to check validity of serial numbers, validity of ANI (automated Form 10-SB Dated August 31, 1996, Page 16 17 number identification), and validity of account number. In addition, only the Company owns and retains a copy of the software which is copyrighted. All cards are printed in a distinctive and unusual style on special paper so that copying of cards is very difficult. Card Sales are controlled by the user directly with a specific Bingo hall being responsible for the sale of each card. All card sales information is carefully tracked in inventory as is all card play information. A password is required to perform data entry or inquiry into the system. No new game can be played or setup for play unless this password is utilized. J. Post-play Inventory System. This system wraps up, cleans up, and resets the systems after a game has been played. The card sales and play inventory systems are updated with play information and with winner information. The automated call-in program and the game set-up master programs are placed into a wait state so that the user can schedule the next game to be played. K. User Training and Documentation. The system comes with complete user and system documentation. The Company supplies user training as part of the package. L. Card Generation This sub-system generates a file containing Bingo numbers and serial numbers to be printed on Bingo cards. Up to one billion unique Bingo cards can be generated. A print tape is generated to create Bingo cards, each unique and with a unique serial number. The Bingo numbers on the cards are randomly generated and the serial numbers are sequentially generated. A screen is available permitting card generation in the quantities desired. The user also determines whether cards will contain a "free space". Bingo numbers are randomly generated and stored with the corresponding serial number in a database. The number of cards generated is specified by the user with a breakpoint of 2,000 cards. Cards can be printed with a "free" space which must be selected at card generation time and all cards then generated will contain the "free space". The cards are recorded on magnetic tape which is shipped to a card printing shop. The user is responsible for all tape creation and shipping. The data entry screen permits the user to specify the number of cards to be generated and to enter the free space option. The user enters the number of cards to be generated. A sanity check is performed and all history is logged. The last sequence number is generated and the total number of cards already generated is displayed. The user is asked to approve continuance of card generation. The file is generated using random Bingo numbers for each card in the format required by the print company. The file is transferred to magnetic tape. The file is added to the "all cards" database for play. Form 10-SB Dated August 31, 1996, Page 17 18 M. Card Sale Inventory This sub-system provides the user with a computerized means of keeping track of all Bingo hall customers and all cards sold to such customers. Data entry screens allow the user to enter information about the Bingo halls including their names, locations, and telephone numbers. The user can also track how many and which Bingo cards are sold to each hall. With this sub-system the Bingo call-in system has the ability to provide security and to perform reasonability checks on the cards in play. Also, a re-order system can be created using the card sale inventory database. The user can then be pro-active about the sale of Bingo cards. This system provides the data necessary for security and for reasonability checks in the call-in system. The data stored also provides information about customers and helps track card usage for each customer. Many sales, usage, and statistical reports can be generated through this system. Data entry screens with at least the following information are created: Bingo hall name, address and phone number(s); contact person's name; account identification; serial numbers of cards sold identifying source and purchaser; and, the date of sale. A screen also displays the history of cards sold, including last serial number, dates sold, and dates played. All of the foregoing information is kept in a database which is accessed at the time of call-in for reasonability checks and security. The database is also accessed by the play programs to record cards played and winners for each location. N. Play Inventory (Pre-game Call-in) This set of programs allows the Bingo halls to call in and record the cards that are to be played in the upcoming game. A dialogic board is used to perform the communications and voice response to the customer. The customer enters information using the phone keypad. A data entry program allows an operator to place cards into play manually with override capabilities. There are several parts to this sub-system. First is the call-in program which allows the customer to place cards into play using an automated voice response system on an 800 number. Second is a watchdog program that checks to see that all Bingo halls have called in a specified time before play. Third is an override program that allows the user to put cards in play even if reasonability check on card numbers or the account identification numbers cause the automated call-in program to fail. The call-in program allows any customer to dial an 800 number and enter the last serial number on those cards that he has sold for play in the next game. This program performs checks on the customer's account identification number and on his ownership of cards and then either allows the cards into play or gives an error message to the customer. An account status field is also checked before cards are allowed into play. At a specified time prior to game beginning another program checks to see that all Bingo halls have called in to designate the cards in play. For those halls that have not called in an automatic call Form 10-SB Dated August 31, 1996, Page 18 19 is generated to remind the hall to call in. At a pre-specified later time a printout is generated so that a live operator can call the hall. The operator has a data entry screen that performs the same functions as the automated call-in program but can also override the security check and account status check. Specifically, the operator can place any generated cards into play. The following gives a basic outline for the pre-game call-in system. 1. Gives greeting message, gives date and time of upcoming game. 2. Gets account identification number. 3. Gets last serial number sold for play. 4. Checks card sale inventory file to check that range of serial numbers is valid for security identification number. 5. If the range of serial numbers is not valid, gives message to re-enter or call a live operator for help. Prints error report for live operator. 6. Gives closing message to Bingo hall, repeats game time. 7. Sends data to file for "play" program. 8. At designated time places reminder call to all halls that have not called in. 9. At designated time generates a final report of all halls that did not call in or that called in with errors. 10. Once the call-in time is over the call-in line so informs the caller. 11. Interfaces with security sub-system to track all attempts to enter system with invalid security codes. 12. Creates a data entry screen for the user to take call-ins by telephone manually and to override any measure utilized in call-in. O. Play Bingo This sub-system is the main brain of the system (the one that actually "plays" Bingo). Using a full card blackout with the possibility that some cards may have a free space, this sub-system generates from 40 to 47 Bingo numbers causing one card to win. The press of a button causes the numbers to display on a Bingo board. Once a winner is found the game is stopped and the next phase ("verify winner") begins. However, the user has the option to continue the game even though a winner has been found. In this event there will be multiple winners. Form 10-SB Dated August 31, 1996, Page 19 20 During call-in Bingo card numbers are retrieved from the "all cards" database and bitmapped into memory for the play program. There is a cut-off time when no more call-ins are allowed. At this time the play program finishes the bitmapping and then randomly chooses a card to win. This part of the program is actually "pre-play" as all numbers to be generated in the real-time play program are actually chosen here. Using an algorithm from 40 to 47 Bingo numbers are generated and ordered for play so that when the last number is called one and only one card will have won. The user has the option to continue the game, picking more numbers and getting more winners. The system creates a program to accept serial numbers from call-in and look up the cards in the database. Then the card numbers are bitmapped into memory. It creates the bitmapping program and the program that will randomly choose a winning card and then chooses the other Bingo numbers to call. It organizes these Bingo numbers into the order for the real-time play program, examines the card sale inventory file to find the winning Bingo hall and organizes this information into the order required by the real-time play program. Through a keystroke the system displays the Bingo numbers to the electronic board one at a time. Once a winner is found it is displays on the computer screen along with its location. P. Verify Winner This sub-system displays the face of the winning card, its serial number and the location of the winner on the screen. After the Bingo game is played and a winner has been found, the master of ceremonies announces that there is a winner. At this time the winner calls and gives his serial number. When the number is input the card's likeness is displayed to the computer screen. Once a game play is completed the winning card location and serial number is displayed. A program allows the user to enter the serial number and then the card face is displayed. If the wrong serial number is called an alternate screen is displayed. In the event of multiple winners all winning serial numbers are displayed. Q. Validation At any time during or after play this sub-system allows a card serial number to be typed into a data entry screen and to have the card displayed. In order to verify the numbers on any Bingo card a sub-system is available to display a replica of the card after its serial number is entered. The system creates a data entry screen that accepts a serial number. It displays the corresponding Bingo card numbers in a Bingo card format and displays error messages if the card is not found. R. Post Play Inventory This sub-system updates all necessary databases with information from the game. After a game is played the "all cards" database is updated so that cards already played will not be played again. The card sale inventory database is also updated so that all information desired by the user, including potential re-order reporting, winner statistics, and sales statistics can be generated. The system marks all cards in "all cards" database that have been played as "played". The database is subdivided with one sub-data base containing played cards and one containing unused cards and generates a backup copy of all databases. It updates card sale inventory database so that Form 10-SB Dated August 31, 1996, Page 20 21 the next pre-play call-in can do reasonability checks. Also, any other desired information can be stored here (such as winner information, sales statistics). Dates of play for serial numbers will be kept here. S. Card Re-order This sub-system tracks the card sale inventory database and generates reports to alert the user that a re-order by the customer is needed. After game play and post play inventory updates this sub-system checks each customer for number of outstanding cards and generates a report of those customers who should be interested in purchasing more cards. Programs analyze the card sale inventory file after each game played and create statistics for each customer. Using the statistics and user defined stock needs a probable re-order date is determined. A report is generated giving probable re-order dates for those customers with an upcoming date. T. Security This sub-system provides security features so that only those Bingo halls approved for play will have access to the call-in system. A security file associated with the card inventory system assigns a security code to each Bingo hall. The security code must be entered in the call-in system by the hall in order to put Bingo cards into play. The sub-system provides the user of the card inventory system with a security identification number for each Bingo hall which is given through an appropriate means to the responsible person at the Bingo hall. Then this code is utilized to verify authorization of Bingo card call-in. Any attempts to call-in Bingo cards with an invalid security code generate an error listing. If the "ANI" of the incoming call is known other information will be available for the user (such as number of bad attempts from a specific Bingo hall or number of attempts from bad ANI). After the initial Bingo hall information is entered in the inventory system this sub-system creates an account security number for the Bingo hall. The user gives the Bingo hall his security number either by telephone or by mail. The security number is checked at each call-in and any violations are reported. 7. Conclusions The system results in high difficulty of duplication as a barrier to competition. The complex card generation and play algorithms are the biggest detriment to duplication. The system's developer has been employed on numerous complex projects including development of the expanded memory manager for Compaq and creation of the operator workstation in use by Northern Telecom. The encoding of the serial number, the large size of the card database with no duplication and the fact that there is only one winner are all difficult to copy. As with most products there is the possibility that a competitor will develop such a system; however, such system would normally take at least one year to develop and would probably not run correctly unless the complex algorithms were developed. Form 10-SB Dated August 31, 1996, Page 21 22 The local computer hardware can be sold to the Bingo halls. This does not affect the ownership of the software which is proprietary. The only purpose for a local computer is to allow the Bingo hall to continue play at the local level after the national winner has been found and then to verify the local winning card. If the Bingo hall chooses not to continue the game there is no need for a local computer. A Bingo hall can purchase its own computer as long as is meets the required specifications. To date, however, no Bingo hall has purchased such computer hardware from the Registrant. The Company's software package provides critical features such as inventory control, a card re-order system, strict security, faster play, automated pre-play calling, a large unique database of cards, the ability to continue play beyond one winner, simple card generation (without database storage), inexpensive card printing, an optional local computer, user training and documentation, and an overall and complete system for Bingo games. Subscription Satellite Television 1. How Subscription Satellite Television Works Broadcasters can transmit up-link signals in an "unscrambled" or "scrambled" state. An unscrambled signal may be received by any satellite dish and viewed with an ordinary satellite receiver. Broadcasters may also alter their up-link signals to prevent unauthorized reception of the down-link programming. Such a scrambled signal may be viewed only if the signal has passed through an activated decoder; otherwise, it will appear on the television screen with an unstable image and unintelligible sound. (See "Decoder" and "VideoCipher Plus II", respectively below). The scrambled up-link signal contains addressable information so that only an activated VideoCipher II can descramble it. However, the decoder can only be activated via satellite, as follows: When a customer orders subscription programming, he provides his decoder's unique serial or identification number, which is put into a computerized digital code and added to the universe of similar codes from all purchases of the subscription programming. These codes are then continuously up-linked to the satellite for broadcast along with the subscription programming. If the decoder has been authorized for a specific program, it will be activated by its own broadcast "address" code (no other broadcast "address" code will affect that particular decoder). In the event a subscriber becomes delinquent in paying for the programming, or elects not to renew, the broadcaster will issue a de-authorization code which alters the decoder's "address" code within the up-linked signal, and the subscriber will no longer be able to decode the scrambled signal. 2. Components of a Home Satellite Television System or Earth Station A home satellite system consists of an outdoor "dish" (which essentially functions like the familiar roof top antenna, i.e., it receives and collects television signals), an indoor electronic receiver and a television set or monitor. In order to receive a particular signal, the owner of the earth station or dish must aim the dish at the broadcasting satellite, either electronically or manually, and tune the receiver to the desired transponder or channel. Mounted in the front of the dish is an electronic device called a "feedhorn". A broadcast from a satellite bounces off the dish and into the feedhorn, where it is translated into an electronic signal. This signal is then fed by wires to the tuned receiver, which converts it into a television image and sound. However, as described above, a scrambled Form 10-SB Dated August 31, 1996, Page 22 23 television signal will not generate visible images or sound unless the receiver is combined with a decoder which has been activated. Decoders are available separately or as built-in components of the receiver. Currently the most popular decoder is VideoCipher Plus II. (See "Decoder" and "VideoCipher Plus II" below). A Decoder is an electronic device which, when activated, converts an intentionally altered or scrambled satellite television signal back to the standard format or pattern for normal perception. VideoCipher Plus II is a brand of decoding system which currently is the standard which satellite home dish and unauthorized viewing of their respective services. It currently has the capacity to decode 56 different channels, and its compatible with virtually all satellite television receivers. However, a significant number of VideoCipher Plus II machines have been activated by unauthorized third parties, allowing people to view decoded signals without paying the programmer's fees. Such "piracy" has become widespread and is believed to have deprived programmers, including the Registrant, of substantial revenues. Although General Instrument Corp., the manufacturer, and the industry in general are attempting to reduce the number of unauthorized VideoCipher Plus II users, there can be no assurance that such efforts will be successful. There are over 4,700,000 satellite dish owners in the United States and PandaAmerica , over which the Registrant's programming is currently carried, currently reaches approximately 20,000,000 households through satellite, cable and direct broadcast. The Registrant also plans to buy time on Paxson Communications which reaches an additional 12.5 million cable households in major markets throughout the country. In addition, the Registrant is looking for other networks to carry their programming which will increase the number of households reached. A schedule of affiliate network data for PandaAmerica is filed as an exhibit to this registration statement. 3. Programming Distribution The Registrant distributes its programming to satellite dish owners and a limited number of hotels and small cable television systems via domestic communications satellites and a third party satellite service provider. Its programs are potentially available to anyone having proper satellite receiving facilities. Participating cable operators re-scramble the signal and offer it to their customers as part of their premium service. Satellite services are available from approximately 25 domestic communications satellites which are regularly used for broadcast transmissions, on a "protected" or "unprotected" basis, replacement transponders are reserved for use in the event that either the transponders used by the customer fail or the satellite containing such transponders fail. Replacement transponders are not reserved for service provided on an "unprotected" basis. Consequently, one customer's "unprotected" service can be interrupted for indefinite periods in order to restore service to a customer whose service is "protected" or in the event the satellite owner requires transponder space in emergency. The Registrant has had an oral agreement with Keystone Corporation giving it the "unprotected" right to use one transponder on its domestic communications satellite until December 31, 1996. Pursuant to the agreement, a satellite up-link facility in Hollywood, California, converted Form 10-SB Dated August 31, 1996, Page 23 24 the Registrant's programming from a live broadcast into scrambled audio and video signals, which were transmited (or "up-linked") to the transponder on the satellites, which in turn relayed (or "down-linked") the signals to satellite dishes located within the satellite's footprint for viewing. As a result of the Registrant's current arrangements with the PandAmerica (which now provides all such services) and the ready availability of satellite transponders for lease, the Registrant does not expect to continue such arrangements. Each transponder lease is subject to a tariff filed with the Federal Communication Commission (the "tariff") which generally sets forth the terms and nature of the service provided by the satellite owner to its lessees. In particular, under the terms of each tariff, the Registrant is provided with transponder time twenty-four hours a day, seven days a week through the lease expiration date on an unprotected, preemptible basis as defined in the tariff. There can be no assurance that these satellites will continue to be the satellite from which transmits its signals. 4. Satellite Service Requirements In order to operate and broadcast its interactive Bingo games, the Registrant must have access to satellite transmission facilities. Satellite services are available from approximately 25 domestic communication satellites which are regularly used for broadcast transmissions on both a "protected," i.e. reserved, and "unprotected" basis; replacement transponders are reserved for use in the event that either the transponders in use by a customer fail or the satellite containing such transponders fails. Replacement transponders are not reserved for service provided on an "unprotected basis." Consequently, "unprotected" service to a customer can be interrupted for indefinite periods in order to restore service to a customer whose service is "protected," or in the event the satellite owner requires transponder space in an emergency. The Registrant has a written agreement with 5 DTV Corporation giving it the "unprotected" right to use one transponder on its domestic communications satellite until the end of 1996, at a cost of $120 per hour. During 1995, the Registrant paid approximately $2,400 for use of such transponder. A copy of the current agreement is included as an exhibit to this registration statement. Pursuant to a series of agreements in force until the end of 1996, a satellite uplink facility in Hollywood, California, converts the Registrant's programming into audio and video signals for transmission to a transponder on a satellite, which in turn relays the signals to satellite dishes located within the satellite's footprint for viewing. Copies of the current agreements are included as exhibits to this registration statement. The cost of such services have averaged $175 per hour during the past 12 months, and are expected to average $175 per hour during the next twelve months, based on the Registrant's currently anticipated operations. During 1995, the Registrant paid $3,500 under such agreement. Each transponder lease is subject to a tariff filed with the Federal Communications Commission which generally sets forth the terms and nature of the service provided by the satellite owner to its lessees. In particular, under the terms of each tariff held by the Registrant, the Registrant is provided with transponder time twenty-four hours a day, seven days a week through the lease expiration date, on an unprotected basis, subject to pre-emption, as defined in the tariff. Notwithstanding the Registrant's tariff, however, there are no assurances that any of these satellites will continue to be operational. Form 10-SB Dated August 31, 1996, Page 24 25 In order to protect the privacy of the programming the Registrant scrambles its signals which are decoded by authorized licensees using activated VideoCipher II decoders. Unfortunately, a substantial number of VideoCipher II machines have been activated by unauthorized third parties, allowing such persons to view decode signals without paying the programmers' fees. Such "piracy" constitutes a criminal offense and deprives programmers, including the Registrant, of revenues otherwise charged for the right to view programming. Subsidiaries' Operations The Registrant currently has two operating subsidiaries and one project in development that will deliver a variety of interactive television programs and entertainment to home viewers in the United States and in international markets. They include: A. Public Domain Programming The Registrant has developed plans to offer public domain programming; however, such plans are currently on hold as a result of the greater emphasis currently placed by management on development and marketing of the Registrant's interactive Bingo programs. Public domain telephone services offered by the Registrant will use the computer technology, long distance services and phone bureau services provided by the Registrant's business partners, permitting users to call specific televised numbers in order to obtain information on social security payments, birth certificates and other "public domain" information. United States citizens can currently call Federal government agencies to receive this type of information free; however, management believes that the Registrant can develop a system providing such information in a more timely and efficient manner. The Registrant's phone system will be capable of receiving and processing more than 4,000 calls simultaneously. The Registrant's management believes that the convenience of this service will lead to potentially extensive use by the growing segment of the public that is becoming literate in the computer and telecommunications fields. The Registrant will derive revenues from the phone service fees generated. The Registrant's management believes that this service will pave the way for its proposed Life and Leisure Network. B. Life and Leisure Network This project is targeted to reach the expanding "over 50" market. The Registrant plans to produce and broadcast entertainment and information programs that will be of value to this segment of the population, including at-home games (like interactive Bingo), finance and investment programs, health care information programs and other entertainment programs that will focus on life enhancement. Like other proposed projects, this one is currently on hold while management concentrates on its interactive Bingo programming. Form 10-SB Dated August 31, 1996, Page 25 26 C. Interactive Satellite Bingo The initial program offering will be interactive Bingo games. The Bingo broadcasts will be similar in style and format to those produced by the Registrant. The subsidiary, however, intends to deliver its Bingo program on a daily basis from production facilities in Glendale, California (to be provided by Glendale Studios). Because the program will be broadcast daily, the Bingo games have the potential of generating a higher volume of revenues. Using the Registrant's computer systems, proprietary software and electronic phone switches, the subsidiary will be capable of handling up to 4,000 calls simultaneously. Revenues will be derived through service charges generated from the telephone line time used by participants who call the show to receive Bingo card numbers by telephone. The Bingo games will be initially broadcast in the United States. The subsidiary plans to expand the broadcasts to international markets like the Russian Federation via the Ostakino network at a future date. Other areas being currently considered include Brazil, Canada and Venezuela (see Part I, Item II - "Management Discussion & Analysis"). The contemplated international operations are currently on hold, all of management's efforts being currently concentrated on its domestic, interactive broadcasts and marketing. Contract With the Louisiana Charitable Organization Alliance, Inc. In additional to the two new subsidiaries, the Registrant also has an agreement with the Louisiana Charitable Organization Alliance, Inc. (LACOA) to operate a high-stakes weekly Bingo game in the state of Louisiana. LACOA's members, which include more than 1,600 charities in Louisiana, would have the right to sell Bingo cards for the broadcast. A percentage of the proceeds from card sales would go to each member charity and to LACOA. The Registrant believes that a high-stakes Bingo game will provide Louisiana charities with an effective competitive tool against state lotteries and other prize-offering events that attract the public's spending dollars. The game would be broadcast every Saturday night for 30 minutes on cable television stations throughout the state. Players could watch the Bingo game from their homes and call if they have a winning Bingo card. LACOA has advised management that a number of members of the Louisiana State Senate have opined to it that the Louisiana State Legislature will approve legislation permitting LACOA's member charities to participate in a high-stakes Bingo game as a means of raising funds. Both LACOA officials and the Registrant's management believe that chance are excellent that favorable clarifying legislation will be passed during the State's next legislative session, which is scheduled to reconvene in March, 1996; however, no assurances can be provided that such opinions will prove accurate. The Registrant estimates that, during its first full year of operation, the LACOA project could generate material revenues for the Registrant. The Registrant is also confident that this program Form 10-SB Dated August 31, 1996, Page 26 27 could be marketed to other states whose charitable organizations require a vehicle to increase the fund raising potential of their bingo operations. Affiliations With Key Contractors and Suppliers Development and implementation of the Registrant's proposed slate of programs, has been facilitated through a series of informal relationships (which the Registrant refers to as alliances) developed by the Registrant's management with several major contractors and suppliers. Such alliances are expected to provide the Registrant with the facilities and services it needs to successfully execute its programming and to develop and implement other lines of related business in the future. They include: Glendale/Oakridge studios, a major Hollywood-based video production company, that will provide the production studio for the game and auction shows. Integrated Telephony, Inc., a national phone service bureau with regional offices in Denver that will provide primary or back-up telecommunications support; PandaAmerica, a major television service group, that will be responsible for bringing in television station commitments. The Registrant is also pursuing contracts with cable networks. The Registrant is also holding discussions with several other companies. All of these companies have a proven track record of success in their respective industries. By leveraging the assets and capabilities provided by these companies, The Registrant's managements believes that it will create an efficient vehicle for producing and delivering a wide range of interactive television programs. Possible Agreements With TV Networks The Registrant has been approached by a number of television service companies and networks about the possibility of carrying its subsidiaries' proposed programming. These networks include TeleMundo and PandaAmerica. TeleMundo is a network that broadcasts programs to more than 100 Spanish-speaking stations. The Registrant has made a proposal, currently under consideration, to broadcast Interactive TV Services, Inc.'s programming to Telemundo's 35 South American country affiliates, as well as to 100 United States stations. The Registrant is also pursuing relationships with networks willing to aggressively advertise the Registrant's programs on the air in exchange for a percentage of the gross revenue the programs generate in their marketplaces. An agreement along such lines is currently in effect with PandaAmerica, Inc. Form 10-SB Dated August 31, 1996, Page 27 28 DISTRIBUTION METHODS OF THE PRODUCTS OR SERVICES The Registrant currently offers game cards electronically, over the phone, at $1.20 per minute for a strip of three cards and free by requesting in writing and sending a self addressed envelope to Globalot Bingo at 1239 South Glendale Avenue, Glendale, California, 91205. The Registrant markets and promotes its programming throughout each day on its channels via traditional videotaped commercials. In addition, it uses direct mail advertisements and places printed ads in television guides oriented toward the home viewing audience. The Registrant also has a sales incentive program which it offers to home satellite equipment dealers who can sell the Registrant's programming alone or in conjunction with their sale of home satellite receiving equipment. Home satellite dish owners who wish to participate in the Bingo programs may obtain cards by mail or by calling the Registrant's special 800 number at 1-800-729-2464, where, the Registrant accepts PandaAmerica pre-paid calling cards. When the viewer/contestant obtains the game cards they are automatically entered onto the Registrant's computer for play until after the super show on the following Saturday. STATUS OF ANY PUBLICLY ANNOUNCED NEW PRODUCT OR SERVICE Except as described above, the Registrant has no publicly announced new products or services. COMPETITIVE BUSINESS CONDITIONS AND THE SMALL BUSINESS ISSUER'S COMPETITIVE POSITION IN THE INDUSTRY AND METHODS OF COMPETITION The Industry 1. The Growth of Interactive Technology A number of important trends support management's belief that the Registrant is re-entering the interactive television programming market at the right time with the right products. As the phenomenon known as the "Information Superhighway" continues to shape the way people communicate with one another, receive information and facilitate transactions, a number of events are beginning to occur. Numerous books and recent articles indicate that people are becoming more comfortable with services and entertainment offered in the privacy of their own home through their telephones or personal computers. The data highway also known as the National Information Infrastructure (NII), is helping facilitate this trend by linking homes, offices and entertainment sources into one big network. The data highway and its ability to reach millions of consumers is providing unprecedented opportunities for manufacturers and marketers of products and services. These companies are being Form 10-SB Dated August 31, 1996, Page 28 29 challenged to find ways to use advanced technology, like interactive technology, to make it easy for consumers to find out about and purchase their products and services. Popular examples of interactive technology in the consumer market include on-line computer services (like Prodigy and CompuServe), voice automated telephone services (like consumer banking and financial services), and at-home television shopping services (like the Home Shopping Network). The success of these have convinced management that interactive television programming like that being offered by its new subsidiaries and through the LACOA project will be well received by a public that continues to accept more and more interactive technology into their daily lives. 2. The Bingo and Gaming Industry Management believes that the past success of the Registrant's interactive bingo programs are evidence that the game is as popular as ever among people around the world. Recent statistics generated by the United States government seem to strongly support this belief. According to a recent survey of American Gambling Attitudes and Behavior conducted by the United States Commission on the Review of a National Policy Toward Gambling, bingo is the fourth leading "entertainment sport" in the United States, generating some 60,000,000 spectators and/or participants each month. This figure represents 7,300,000 more participants/spectators than Major League Baseball attracts and almost 40,000,000 more participants/spectators than NFL Football and NBA Basketball attracts. The survey also shows that the game has equal appeal among genders. Approximately 30% of bingo players have an income of $25,000 and over, and bingo players are more likely to use their leisure time by doing indoor activities such as reading books, newspapers and magazines. As Americans become older as a population and choose to spend more time at home, management believes that interactive television programs like those it plans to offer will increase in popularity. Current statistics indicate that persons 65 and older that play Bingo play the game at least once a week. These research findings and past experience support management's belief that bingo is as popular as ever and that there is a viable market opportunity for the Registrant's nationally and internationally interactive broadcast programs The Registrant's Competitive Position Broadcast Bingo The Registrant competes with all broadcast game shows and, more generally, all types of broadcast promotions designed to increase audience share and advertising revenues. Management is not aware of any nationally broadcasted bingo shows. Some locally-originated shows exist in various locations. Management believes, without assurance, that it has a competitive edge over other broadcast bingo promotions since Ron Foster originated the concept and has been promoting it since 1984. Management believes that the Registrant has established a reputation of equitable and complete service to the broadcast and gaming industry. Form 10-SB Dated August 31, 1996, Page 29 30 With respect to game shows and other types of broadcast promotion, management believes that the simplicity of the bingo game and its mass audience appeal enables the Registrant to successfully compete with other game shows. 2. Other Activities The Registrant is not an established participant in the other areas in which it expects to operate; however, management believes that the fields involve rapidly developing markets which no single entity currently dominates, with great opportunities for entry level participants possessing an understanding of developing technologies. Consequently, although the interactive television fields are highly competitive and include major cable television and telephone companies, management is confident that its endeavors constitute a niche in which it can successfully compete. SOURCES AND AVAILABILITY OF RAW MATERIALS AND THE NAMES OF PRINCIPAL SUPPLIERS None of the Registrant's proposed activities are reliant on raw materials. Rather, they depend on the ability to exploit emerging technologies that are expected to be readily available. DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS The Registrant's proposed client base is expected to be extremely diversified, and its is not currently anticipated that any single customer will account for more that 5% of the Registrant's aggregate business. PATENTS, TRADEMARKS, LICENSES, FRANCHISES, CONCESSIONS, ROYALTY AGREEMENTS OR LABOR CONTRACTS, INCLUDING DURATION The Registrant has no patent rights. It has the following service marks: Satellite Bingo: International Class 41 (production and distribution of television game shows) granted Registration Number 1,473,709 on January 19, 1988 to Satellite Bingo, Inc. 20 years. Globalot Bingo: International Class 41 (production and distribution of television game shows) applied for on September 24, 1993, by SBI Communications, Inc. Rico Bingo: International Class 41 (production and distribution of television game shows) applied for on September 24, 1993, by SBI Communications, Inc. C-Note: International Class 41 (production and distribution of television game shows) applied for on September 24, 1993, by SBI Communications, Inc. The Registrant obtained an assignment to a copyrights for "the Works," copyright registrations for Globalot Bingo and derivatives: Number PAU 855-931 (June 10, 1986); Number PAu 847-876 (March 11, 1986); Number PAu 788-031 (September 19, 1985); Number PAu 927-410 (November 4, 1986); Number PA 370-721 (February 9, 1988); Number PA 516-494 Form 10-SB Dated August 31, 1996, Page 30 31 (January 17, 1991); Number PA 533-697 (January 17, 1991); from Satellite Bingo, Inc., to SBI Communications, Inc., dated September 14, 1993. NEED FOR ANY GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS OR SERVICES. IF GOVERNMENT APPROVAL IS NECESSARY AND THE SMALL BUSINESS ISSUER HAS NOT YET RECEIVED THAT APPROVAL, DISCUSS THE STATUS OF THE APPROVAL WITHIN THE GOVERNMENT APPROVAL PROCESS General The Registrant will be subject to applicable provisions of federal and state securities laws, especially with reference to periodic reporting requirements and, the operations of the Registrant are subject to regulation normally incident to business operations (e.g., occupational safety & health acts, workmen's compensation statutes, unemployment insurance legislation and income tax and social security related regulations). Because the Registrant is subject to regulation in every state and country in which it transacts business and because government regulation tends to be extremely dynamic, the Registrant will have to carefully monitor current and proposed legislation in order to continuously comply therewith. There can be no assurance that the Registrant's operations will always be in compliance with applicable governmental regulation and in the event that it fails to comply with applicable regulatory requirements, its activities may be curtailed and it may be exposed to fines and adverse publicity. In any such event, the Registrant's business could be detrimentally affected. Required Government Approvals for Products or Services The Registrant has requested several law firms to investigate the legal parameters for its operations, and has also reviewed several legal opinions provided to other companies offering gaming related programming. In conjunction with such research, the Registrant has compiled the following information. Copies of the opinions summarized below are filed as exhibits to this registration statement. The following summaries thereof are qualified in their entirety by reference to such exhibits. Fletcher, Heald & Hidreth advised the Registrant's president by letters dated March 19 and April 10, 1992 (referencing communications with Cynthia Young, Assistant Chief, Support of Litigation, Organized Crime and Racketeering Section of the Criminal Division, UNITED STATES DEPARTMENT OF JUSTICE) concerning the applicability of 18 USC Sections 1084, 1301, 1302, 1304, 1952, 1953, 1955 and 1962 to the Company's proposed programs. They noted that 18 USC 1307 and 25 USC 2720 provide exemptions from the restrictions reflected in Sections 1301, 1302, 1303 and 1304; however, the firm opined that such exemptions would not apply to the proposed programming. The letters discussed certain observations of Edythe Wise, Chief of the Complaints and Investigations Branch of the Enforcement Division of the Mass Media Bureau, FEDERAL COMMUNICATIONS COMMISSION, in which, based on stated assumptions concerning the proposed operations (including the encrypted nature of distribution) the staff opined that the program as described did not involve a broadcast to the public, and thus would not invoke the prohibitions of 18 USC 1304. Noting that consideration could not flow from the player to the promoter, the author Form 10-SB Dated August 31, 1996, Page 31 32 indicated that the proposed programs did not appear to violate federal law unless they violated a state law as well. No opinions were provided as to state law implications. In correspondence between the Federal Communications Commission and Putbrese, Hunsaker & Ruddy, dated September 14, 1990 through February 11, 1991, the Federal Communications Commission issued a declaratory ruling on the legality of advertising interactive bingo games on cable systems. It found that if such games provide persons interested in participating with an option to play for $2.00 per call over a 900 line, or for free, after obtaining a personal identification number, over 800 lines, the program would not appear to violate applicable Federal Communications Commission regulations. Based on correspondence between Sutherland, Asbill & Brennan and the Federal Communications Commission, from July 28, 1986, until some undetermined time in 1987, Edythe Wise, Chief, Complaints and Investigations Branch, Enforcement Division, Mass Media Bureau, FEDERAL COMMUNICATIONS COMMISSION, opined that the proposed activities would conform the Federal Communications Commission decision dated November 25, 1986 and reported at 2 Federal Communications Commission Rcd 1001 (1987). The program described involved free participation by players, who were eligible to receive cash and other prizes, through cable companies as a basic (no charge) service, including paid commercials; and, a pay per view cable program. Ms. Wyse opined that both methods appeared legal in that the first involved no consideration, and the second involved non-public broadcast. An opinion letter dated December 15, 1987, from Chamberlain, Hrdlicka, White, Johnson & Williams, to Travis Enterprises, Inc., regarding a "Million Dollar Bingo Game" originating on sovereign indian reservations and transmitted by encrypted closed circuit television and telephone lines to bingo halls, also on sovereign indian reservations, reflects that applicable legal issues involve jurisdiction over Indian affairs, federal and state anti-gaming laws, and, statutes and regulations governing mail, wire, television and radio communication. The opinion noted that a number of federal criminal statutes outlaw gaming activities prohibited under state laws and could technically impact the proposed game; however, it notes that a defacto exception appears to have been carved out for high stakes bingo games, making the issue unclear. It notes that licenses from the Federal Communications Commission and Department of the Interior (Indian Affairs) will probably be required and that safe harbor negotiations in such licensing proceedings would be prudent. The opinion concludes that federal pre-emption of regulation over Indian affairs, as well as over wire, radio and television communications will, in most cases, preclude application of state regulatory legislation. However, it notes that the effect of certain federal statutes and regulations require careful consideration in structuring and implementing the proposed operations to maintain special bingo related exceptions. An opinion letter dated July 28, 1987, from Ginsburg, Feldman and Bress to the Bingo Network, Inc., involving planned satellite transmission of Bingo games between Indian reservations addressed applicable federal law and concluded that such game is legally permissible. Opinion letters to Ron Foster, the Registrant's president, from Sutherland, Asbill & Brennan dated July 11 and 15, 1986, dealt with the legality of a program involving free participation by players, who were eligible to receive cash and other prizes, through cable companies as a basic (no Form 10-SB Dated August 31, 1996, Page 32 33 charge) service, including paid commercials; and, a pay per view cable program. The opinion concluded that the free cable access program would be permissible but further questions about pay per view aspect. In a letter involving the Registrant's C-Note game, dated June 18, 1993, the State of Nebraska discussed a prohibition under Nebraska Statute Section 9-701(1(a) to the offer of games of Bingo and keno in Nebraska, but noted that such statute would not appear to prohibit the broadcast of the games into Nebraska, or, the location in Nebraska of telephone banks involving offers of the games outside of Nebraska. An opinion letter issued by Wiley, Rein & Fielding (Washington, D.C.) on November 16, 1995, addressed the probable legality of the Registrant's pay-per-view Bingo projects. The opinion was limited to certain federal statutes (18 U.S.C. Sections 1084, 1301, 1302, 1304, 1307; 1951-1968; and, 25 U.S.C. Section 2720) and to Federal Communications Commission regulations. The opinion concluded that, under the specific circumstances described, the proposed activities did not appear to violate the prohibition against gaming activities contained in the cited federal statutes or the regulations promulgated thereunder. None of the authors of the foregoing opinions or the government personnel with whom they dealt have consented to the use thereof in this registration statement, therefore, such persons should not be deemed experts on which investors may rely. Rather, such opinions merely form the basis for the decision by the Registrant's management that the Registrant can legally conduct its current activities. Because neither the foregoing opinions or observations by government personnel are binding, no assurances can be provided that, at some future time, government personnel will not reach different conclusions, to the Registrant's detriment. EFFECT OF EXISTING OR PROBABLE GOVERNMENTAL REGULATIONS ON THE BUSINESS The Registrant is subject to regulation by the United States Federal Trade Commission, the Federal Communications Commission, the Justice Department, the Department of the Interior and the Securities and Exchange Commission, as well as by comparable state agencies. The costs of monitoring and complying with existing regulations is expensive and time consuming. The Registrant's management is required to expend significant resources to obtain required regulatory clearance and the delays incident thereto have and are expected to continue to deprive the Registrant of significant opportunities. However, because such regulations also apply to the Registrant's competitors, they merely tend to make all participants in the industry less effective, rather than to affect the Registrant's competitive business posture. During 1995, the Registrant incurred approximately $54,131 in legal fees related directly to compliance with governmental regulations promulgated by the Federal Communications Commission, the State of Alabama and Piedmont County. Form 10-SB Dated August 31, 1996, Page 33 34 ESTIMATE OF THE AMOUNT SPENT DURING EACH OF THE LAST TWO FISCAL YEARS ON RESEARCH AND DEVELOPMENT ACTIVITIES, AND IF APPLICABLE THE EXTENT TO WHICH THE COST OF SUCH ACTIVITIES ARE BORNE DIRECTLY BY CUSTOMERS During the last two years, the Registrant has expended no funds in research and development activities. Such expenses, if incurred in the future, will be passed along to the public indirectly in the form of components of the Registrant's pricing decisions. COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS (FEDERAL, STATE AND LOCAL) To the best of management's knowledge, the Registrant will not be required to directly incur material expenses in conjunction with federal, state or local environmental regulations, however, like all other companies, there are many but incalculable indirect expenses associated with compliance by other entities that affect the prices paid by the Registrant for goods and services. NUMBER OF TOTAL EMPLOYEES AND NUMBER OF FULL TIME EMPLOYEES The Registrant currently has 12 full time employees and employs part time employees and independent contractors from time to time, as required. Management is of the opinion that required employees and contractors are readily available at competitive prices. The Registrant has no labor contracts. SUMMARIES OF MATERIAL AGREEMENTS All of the foregoing agreements and instruments have been filed as exhibits to this registration statement. The following brief summaries thereof are qualified in their entirety by reference to such agreements. 1. Joint Venture Agreements A. Agreement with PandaAmerica and Glendale\Oakridge Studios. On November 2, 1995, the Registrant, PandaAmerica and Glendale\Oakridge Studios entered into an agreement to develop, finance, produce and distribute the original concept and all elements created by the Registrant entitled "Globalot Bingo." Each party receives 1/3 of "profits" on all exploitation of Globalot Bingo on the PandaAmerica Network and shares in the related costs. The parties intend to jointly produce market and promote a bingo-formatted show to be aired over Tel Star 402R ("T402R) receive Channel 24, which broadcasts PandaAmerica throughout the area covered by Tel Star 402R Footprint. The joint venture anticipates that payment for all expenses incurred and revenues generated will be shared equally by the parties. The agreement provides that "[u]pon approval of such expenses incurred or to be incurred. Equipment and services to be billed to the parties at cost (or fair market value). Operating board to be formed and consist of the following members: Marty Weiss (Pandaamerica); Al Makhanian, (Glendale Studios) and Ron Foster (the Registrant). .... All new ventures, expenses and all aspects Form 10-SB Dated August 31, 1996, Page 34 35 of operation shall be approved by all members of the operating board and/or parties. Such approval will not unreasonably be withheld .... All start-up expenses to be shared on an equal basis by the parties. These items to be approved by the parties. All expenses to be paid out of revenues, unless there are losses which will be paid equally by all of the parties. Profits after expenses to be shared equally by each party. Accounting shall be provided by CPA firm mutually agreed by the parties which include sales, expenses and all other related items to be provided to the parties on a monthly basis." Anticipated expenses include accounting; productions; credit cards; trademark and opyrights; Legal; telecommunications switcher; 800 numbers; printing and direct mail; travel; phone service (local - long distance); software; and, technology. The project is intended to be a pilot on Pandaamerica Television Network tentatively entitled Globalot Bingo. The Registrant, Pandaamerica, and Glendale/Oakridge Studios are expected to act act as show producers, and expect to work jointly creatively on the show, but, in case of any dispute, Ron Foster will have the final say in all creative decisions pertaining to the game Globalot Bingo. Pandaamerica and Glendale/Oakridge Studios shall be responsible for all production decisions and will share in costs. The Registrant, Pandaamerica, and Glendale/Oakridge Studios intend to work jointly to obtain funding commitments from other networks, cable or single station to produce viewers. They will each receive 1/3 of the profits on all exploitation from the project Globalot Bingo done on Pandaamerica Network; and, will share in expenses of producing Globalot Bingo on Pandaamerica's network. These costs will include prizes for winners of bingo, production costs, satellite time, and any studio production costs including labor. The Parties intend to mutually agree in good faith on any agreement and the terms thereof made to third parties, financiers or networks relating to this project, Bingo. The Registrant shall receive credit as Executive Producer, with the other parties being designated as Co-Executive Producers. B. Joint Venture Agreement with VPACS Limited (a New York corporation) Dated June 18, 1993, for international resale of telecommunications services, marketing services and provision of re-origination equipment to SBI Communications, Inc. Joint venture to operate as "SBI Communication World Link." VPACS to provide equipment and SBI Communications, Inc., to market worldwide. Equal share interests. Term, 10 years subject to 90 day notice termination options. (An alternative international long distance service). C. Cahill Agreement Dated August 16, 1993, and also involving Ron Foster and R.F. Associates Cayman Islands as co-parties with the Company (collectively referred to as the "Foster Interests"). Applies to everything owned or developed by the Foster Interests, but initially involved only Indian reservations (subject to future exercise of the Cahill Option). Calls for formation of a Nevada corporation to be Form 10-SB Dated August 31, 1996, Page 35 36 owned 49% by Cahill and 51% by the Foster Interests. Cahill to contribute $2,000,000 in capital, in $500,000 increments. Cahill to provide an additional $3,000,000 in debt financing when and if required to supplement working capital requirements. The Nevada corporation is to own the Company's rights recovered upon termination of the joint venture with Entertainment Television Network Corp. Foster Interests waive all remedies for Cahill default, except specific performance. 2. Bingo Parlor Agreements A. Chief Strikeaxe Trading Post (Oklahoma) Agreement with Satellite Bingo, Inc., dated November 12, 1993, calling for direct debit card purchases at $2.50 per strip. B. DCA Services Division, Fort Benning, Georgia Ticket consignment agreement dated December 10, 1993, for Globalot cards with the MWR Fund Community Operations Division. Term expires on December 31, 1994. Price, $2.50 per strip. C. Piedmont Jaycees The Registrant is a party to a month to month lease agreement with the Piedmont Jaycees described in Part I, Item 3. In addition, the Registrant and the Piedmont Jaycees are parties to four separate service provider agreements pertaining to operation of the Registrant's facilities leased to the Piedmont Jaycees. These involve access to a security system, transportation services, maintenance and repair services and bookkeeping services. All the agreements were executed on August 17, 1995, and have no set term. 3. Telephone Services Agreement Agreement dated January 17, 1996, between the Registrant and Integrated Telephony, Inc., pursuant to which the Registrant, on a month to month basis, obtains DAL 800, 900, Outbound, Debit Card, International Callback and Voice Processing services. Estimated cost is $3,200 per month. 4. Program & Production (omitted Las Vegas Television Network, Inc.) Glendale Studios Production Agreements Correspondence dated May 18, 1992, with Al Makhanian, pursuant to which Glendale Studios acknowledged that SBI Communications had a credit of $468,000 based on the issuance of 100,000 shares of stock during November of 1990. It detailed how the credit would be drawn on in conjunction with show productions, exclusive of actual labor charges, which SBI Communications would pay for. As of the date of this registration statement, approximately $300,000 of such credit remains available. 5. Service Agreements Form 10-SB Dated August 31, 1996, Page 36 37 Tate Memorandum of Service Agreement between SBI Communications, Inc., or its subsidiaries) and Bradley M. (Brad) Tate, dated November 1, 1993. Tate to provide required hardware and software knowledge for Globalot game, in consideration for a royalty of $.10 per premium toll calls for card purchases, and, $.05 per premium toll call for winners information inquiries. The agreement is to remain in effect until either the parties elect to terminate it, interruption of production for six months, or cancellation of Globalot Bingo games on radio or television. Tate Consulting Agreement between SBI Communications, Inc., and Bradley M. (Brad) Tate, dated July 19, 1993. Tate to provide computer, programmer and telecommunications consulting services in consideration for 100,000 shares of restricted common stock and a $250 engagement fee. The agreement has a term of 60 months. Alamo Standard form of car leasing program for SBI Communications, Inc.'s members, dated March 18, 1993. Apparently a benefit for Bingo club members and other groups sponsored by or through SBI Communications, Inc. 6. Letters of Intent A. Glendale Studios, Inc. Letter of intent dated November 8, 1995, contemplating a merger between SBI Communications, Inc., and Glendale Studios, Inc. Reference is made to a $7,500,000 purchase price for Glendale Studios. B. Cherokee Indians of Georgia, Inc. Letter of intent dated October 2, 1992, contemplating construction of a Bingo Hall funded and managed by SBI Communications, Inc., on real estate provided by Cherokee Indians of Georgia, Inc.. SBI Communications, Inc., to recover investment plus 10% annual interest and profits, if any, to be divided 40% to SBI Communications, Inc., and 60% to Cherokee Indians of Georgia, Inc. C. Promotions International Corporation Letter of intent dated March 28, 1996, between the Registrant and Promotions International Corporation of Beverly Hills, California, contemplating the granting of rights of first refusal, to Promotions International Corporation to use the Registrant's services, equipment and proprietary technology, in order to produce interactive television Bingo programming for any venue, world wide, in exchange for license and rental fees, percentage of income and payments for required operational personnel. Form 10-SB Dated August 31, 1996, Page 37 38 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND PLAN OF OPERATION. INTRODUCTION The Registrant is currently in the development stage of its business cycle. Since its inception, the Registrant has actively pursued licensing agreements designed to generate royalty income in exchange for providing software and methods involving bingo game production. In the past, the registrant has entered into various agreements covering territories in Brazil, Greece, Hong King, and Indian reservations, military bases, and charity bingo parlors in the United States. Prior emphasis on these type of licensing agreements has proven to be ineffective. No licensee currently has bingo operations generating significant fees or royalties for the Registrant. The majority of its current operating income is provided by managing bingo games for certain non-profit charities in a facility owned by the Registrant. The majority of future revenues, however, are not anticipated to occur in either of these areas. The Registrant hopes to generate significant future revenues from telecommunications services involved in interactive bingo and television buying shows by purchasing large blocks of long distance telephone time and reselling such time to television audience users at a profit. Management of the Registrant has made this area of business their first priority, and most of the other plans for the future are based on the success of the telecommunications area. Management would like to broadcast the bingo show to as many viewers as possible, and although there are no current foreign agreements, management's plans are not limited to the U.S. Management intends to pursue contracts with foreign countries and do some research into bingo on the internet. Overall, management hopes to be able to generate net revenues over $10 million annually from this area of business. The registrant also has plans to expand operations through the acquisition of television production facilities and rights to a television buying show. This would allow the Registrant to produce their bingo show in their own studio and broadcast it over their own network. It will also give management freedom to use their experience in programming and production to produce other forms of interactive entertainment, such as the ideas of Public Domain Broadcasting and The Life and Leisure Network mentioned elsewhere in this offering document. Diligently being examined are the legal opinions submitted for imminent contractual arrangements between two companies with the Registrant, a major international shop at home entity and a telecommunications company. Both of these entities are NASDAQ listed. Management feels confident that a deal will be consummated by year end 1996 allowing the Registrant to commence operations on a full scale in the telecommunications business segment. The Registrant is continuing to search for avenues to develop future revenue. In light of the preliminary and conditional nature of negotiations, no assurance can be provided as to the likelihood that such proposed projects will come to fruition. A summary of projects currently being pursued is as follows: A) The registrant is exploring the negotiation for the management contract for THE MILL Resort & Casino (Bingo Operation). At the request of Full House Resort, Inc., a public entity in joint partnership with the Coquille Indian Tribe, THE MILL is negotiating with the registrant to utilize the experience of SBI through a management contract. Management anticipates that such a contract could produce net revenues of $4 million annually. Negotiations are only in the preliminary stage at this time. Form 10-SB Dated August 31, 1996, Page 38 39 B) The registrant is under agreement to acquire Deadwood Gulch Resort & Casino in South Dakota. This is a twelve million dollar facility that is presently wholly-owned and operated by the Full House Company. The status at present is management is awaiting a decision by a participating equitable entity. This project will not be able to be consummated without such a participating entity. The acquisition of the resort & casino, if successfully consummated, is projected to generate net revenue of approximately $2 million annually. C) The Registrant is planning a partnership with the Louisiana Charitable Organization Alliance (LACOA), and the development of a senior citizens television network. Such ventures will involve development of television programs featuring interactive Bingo shows, auctions, and factory direct sales. The LACOA project is currently awaiting passage of legislation presented by Clenix Esensauter of Louisiana. D) The Registrant is in the planning stage of the establishment of a casino and bingo hall on real estate provided by the Cherokee Indians of Georgia, Inc., which is also now subject to Bureau of Indian Affairs (BIA) approval. E) To add diversification, the Registrant is also exploring the possible acquisition of Zacker's (Horizon) Gas of Tampa, Florida, a retail propane gas company with $3,000,000 in annual sales. Liquidity The following table summarizes working capital and total assets:
Fiscal Year Ended December 31, 1995 1994 ---- ---- Working Capital $ 102,830 $(451,163) Total Assets 8,179,490 8,150,090
At December 31, 1995, the Registrant's current assets exceeded its current liabilities, creating a working capital surplus. The surplus is primarily the result of the issuance of preferred convertible stock to liquidate liabilities owed to shareholders, and in income provided by the Registrant's operating activities relating to approximately $100,000 in fees collected from charities that sponsor bingo games at the Registrant's bingo hall. At December 31, 1994, the Registrant had current liabilities in excess of current assets, principally due to administrative expenses incurred during the development stage that have been funded by the majority stockholder in the form of advances due on demand. The Registrant has had some success in issuing stock for services, and accordingly has kept the working capital deficit to a minimum during these years. The changes in total assets are attributable to the Registrant's purchase of a building (bingo hall) in 1994 through the issuance of preferred stock. As a result, income from bingo hall operations has boosted working capital in the calendar year ended December 31, 1995. In the years prior to Form 10-SB Dated August 31, 1996, Page 39 40 1995, the Registrant was primarily involved in securing licensing agreements for rights to software and methods of operating bingo games it had developed. (omitted) As the Registrant continues to operate in the development stage, no significant cash flow is being generated from operating activities. 1994 was a relatively dormant year. The registrant was able to generate $5,043 in cash flow from operations principally from management of the bingo hall in the last month of the year. Shareholders also advanced net funds of $51,564, allowing the registrant to generate positive total cash flow of $56,607 for the year. In 1995, the Registrant became more active in pursuing ventures, as well as managing the bingo hall for the entire year. For 1995, the charities operating the bingo hall struggled, and the Registrant collected less funds than were needed to operate the games, as well as to cover administrative costs and costs of the facility. As a result, the Registrant used $350,199 in net cash flow for operations. The registrant also acquired various operating equipment at a cost of $105,363. To fund these cash flow needs, the Registrant was able to obtain $250,000 in proceeds from a loan to an affiliate, and $165,000 in proceeds from the sale of common stock. Combined, this resulted in a net decrease in cash for the year of $47,339. Capital Resources Since its inception, the Registrant's only significant sources of capital have been from the sale of common stock and loans from shareholders. See a discussion of these transactions under Item 7 - Certain Relationships and Related Party Transactions, and in the Consolidated Financial Statements of the Registrant. The Registrant has also acquired significant assets through the sale of convertible preferred stock. The Registrant anticipates continued expansion of its business through acquisitions using Company stock. Furthermore, with the bingo hall acquired in 1994 now in operation, the Registrant anticipates generation of revenues from the lease of this facility sufficient to cover administrative costs still being incurred as the Registrant moves forward in its development stage. Results of Operations The following table sets forth the relative relationship to total revenue of the revenue categories in the Registrant's statement of income and percentage changes (rounded to the nearest whole dollar). Amount of Total Revenue
Fiscal Year Ended December 31, 1995 1994 ---- ---- Revenues: Licenses & Royalties -0- -0- Bingo Hall Operations $602,738 $ 24,905 Interest Income 34 171 Other Income 2,101 -0- Total Revenue $604,873 $ 25,076
Form 10-SB Dated August 31, 1996, Page 40 41 In general, the Registrant experienced insignificant revenues in 1994 as it attempted to expand and develop its operations. Total revenues were $25,076 for 1994. At the end of 1994, the Registrant acquired a bingo hall, which it now leases to charities who sponsor bingo games. The Registrant also provides management services to assist the charities in the operations of the bingo games, for which the Registrant charges a fee. Net revenues related to the bingo hall operations were only $24,905 in 1994, but have grown to $602,738 for the calendar year ended December 31, 1995. Total revenues for calendar year ended December 31, 1995 were $604,873. Accordingly, except for the operation of the bingo hall, there are no other significant revenue sources of the Registrant at this time. For 1994 and 1995, the Registrant did not generate revenue from the sale of copyrighted bingo cards, foreign licensing agreements, sale of computer hardware or security systems, or other various areas of business opportunity discussed in this offering document. The Registrant's expenses can be summarized as follows: Amount of Total Expenses
Fiscal Year Ended December 31, 1995 1994 ---- ---- Salaries and related expenses $132,086 $ 14,200 Other general and administrative expenses 497,685 54,990 Depreciation and amortization 538,605 275,461 Interest expenses and finance charges 205,729 Nil
The most significant expense relates to the amortization of trademark, game show and computer program assets the Registrant has developed. The expense is running $265,960 per year. Such assets will be fully amortized at the end of 1996. For 1995, the Registrant also had depreciation on the bingo hall and related equipment, which will approximate $275,000 per year. These expenses do not require the use of cash. The low level of other expenses in 1994 is due to a slow down in the general activity of the Registrant as it explored alternative revenue generating ideas. With the addition of the bingo hall in late 1994, as well as the pursuit of television production and broadcast possibilities in 1995, such expenses have increased in 1995. As the Registrant continues to pursue television production and broadcast possibilities, these expenses will continue to rise as a result of expanded facility space and travel costs. Interest and finance charge expenses increased in 1995 due to $200,000 in finance charges incurred to obtain short-term financing. These finance charges were paid for through the issuance of preferred stock. Should the Registrant successfully acquire production facilities and broadcast companies under consideration, or expand operations in areas previously discussed as currently under consideration, revenues and expenses of the Registrant would change significantly. Management is not able to predict the impact of such changes on revenues or expenses at this time. Statement Re Computation of Earnings Per Share See Notes To Consolidated Financial Statements included elsewhere in this filing for a description of the Registrant's calculation of earnings per share. Form 10-SB Dated August 31, 1996, Page 41 42 ITEM 3. DESCRIPTION OF PROPERTIES. The Registrant's principal offices are located in Piedmont, Alabama, in facilities purchased by the Registrant on December 16, 1994, for $6,500,000 (paid in shares of the Registrant's preferred stock, valued at $5.00 per share). The facility is comprised of 80,000 square feet of usable space under roof, and includes a Bingo hall. The Bingo hall, including the personal property owned by the Registrant and maintained therein, has been leased on a month to month basis by the Registrant to Piedmont Jaycees, Inc. since August 10, 1995. The rental for the building and equipment located therein is $75,000 per month or $7,000 per day, whichever is greater, plus all other defined expenses, excluding insurance, ad valorem taxes, assessments, repairs, upkeep, maintenance and similar expenses. The Registrant also has a branch office at 1332 South Glendale Avenue, Glendale, California, and Production Studio and transmission facilities are obtained from third parties at competitive rates. The premises are comprised of approximately 3,000 square feet for which the Registrant pays $1,000 per month. The lease is scheduled to expire on December 31, 1996; however, the Registrant is confident that it can be renewed on favorable terms. ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT The following table sets forth, as of the date of this Registration Statement, the number and percentage of shares of common stock owned of record and beneficially by any group (as that term is defined for purposes of Section 13(d)(3) of the Exchange Act), person or firm that owns more than five percent (5%) of the Registrant's outstanding common stock (the Registrant's only class of voting securities).
NAME AND ADDRESS OF AMOUNT OF NATURE OF PERCENT OF BENEFICIAL OWNER * SHARES OWNERSHIP CLASS - ---------------- ------ --------- ----- Ronald Foster 1,632,089 Record & 32% 144-A North Court House Avenue Beneficial Leesburg, Georgia, 31763 Larry Cahill 1,000,000 Record & 19% 3330 Southgate Court Beneficial Cedar Rapids, Iowa 52404 Michael Graham 500,000 Record & 10% 1804 Cherry Lane Beneficial Bluefield, West Virginia 24701
- ----- * Includes all stock held either personally or by affiliates. Form 10-SB Dated August 31, 1996, Page 42 43 (b) Security Ownership of Management The following table sets forth, as of the date of this Registration Statement, the number and percentage of the equity securities of the Registrant, its parent or subsidiaries, ,owned of record or beneficially by each officer, director and person nominated to hold such office and by all officers and directors as a group.
TITLE OF NAME OF AMOUNT NATURE OF PERCENT OF CLASS BENEFICIAL OWNER SHARES OWNERSHIP CLASS - ----- ---------------- ------ --------- ----- Common Ronald Foster 1,632,089 ** 32.00% Common Kathy Hunt 0 *** 00.00% Common Thomas Barrett 0 *** 00.00% Common Claude Pichard 10,000 ** 00.07% Common Betty Rodgers 5,000 *** 00.035% Common Mel Ray 0 *** 00.00% Common Michael McGlothin 0 *** 00.00% Common All officers and directors as a group (5 people) 1,647,089 ** 33.05%
- ----- * Includes all stock held either personally or by affiliates. ** Record & Beneficial. *** Not Applicable. To the best knowledge and belief of the Registrant, there are no arrangements, understandings, or agreements relative to the disposition of the Registrant's securities, the operation of which would at a subsequent date result in a change in control of the Registrant. ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth the names and ages of the members of the Registrant's board of directors and its executive officers, the positions with the Registrant held by each, and the period during which each such person has held such position.
NAME AGE POSITION SINCE - ---- --- -------- ----- Ronald Foster 54 President/Chairman of the Board 1986 Betty Rodgers 52 Secretary/Treasurer/Director 1986 * Kathy Hunt 46 Secretary/Treasurer/Director 1994 Thomas Barrett 26 Vice President 1995 Claude Pichard 41 Vice President/Director 1986 Mel Ray 55 Director 1994 Michael McGlothlin 44 Director 1994
- ------ * Mrs. Rodgers served in such positions until 1994. Form 10-SB Dated August 31, 1996, Page 43 44 Messrs. Fosters, Barrett, and Pichard and Ms. Hunt are all engaged with the Registrant's business on a full time basis. All directors hold office until the next annual meeting of stockholders of the Registrant (currently expected to be held during March of 1997) and until their successors are elected and qualified. Officers hold office until the first meeting of directors following the annual meeting of stockholders and until their successors are elected and qualified, subject to earlier removal by the board of directors. There are currently no committees of the board of directors. BIOGRAPHIES OF THE REGISTRANT'S EXECUTIVE OFFICERS AND DIRECTORS Ronald Foster Mr. Foster, 54, is presently Chairman, President, Chief Executive Officer, and Executive Producer for SBI Communications, Inc. He has been working with the Registrant since its inception in 1984. His primary responsibilities include operations, finance, marketing and technical review. In addition to his responsibilities with the Registrant, Mr. Foster has held a number of other management positions over the years. From 1984 to 1986, he was executive vice president and producer of Pioneer Games of American Satellite Bingo, in Albany, Georgia. Mr. Foster was also owner and operator of Artist Management & Promotions where he was responsible for coordinating television entertainers, sports figures and other celebrities for department store promotions. Since 1987, Mr. Foster has served as president and director of Ed-Philis, Inc., a Nevada corporation and is now an executive vice president and member of the board of directors of Golden American Network, a California corporation. Since 1984, he has also been the president and chief executive officer of ROPA Communications, Inc., which owns and operates WTAU-TV-19 in Albany, Georgia. He created and produced "Stock Outlook 87, 88, and 89," a video presentation of public companies through Financial News Network (FNN), a national cable network. Mr. Foster also has experience as technical director and associate producer for numerous national live sports broadcasts produced by ABC, CBS and WTBS. Betty Rodgers Ms. Rodgers, 52, was the Secretary, Treasurer and a Director of the Registrant fom 1986 until 1994. Her primary responsibilities included general business, legal and administrative matters. Ms. Rodgers has extensive experience in the entertainment field. From 1967-83, she was the secretary and treasurer of the Rodgers Agency, Inc., a company that booked and managed entertainment artists for companies around the world. Since 1983, she has been president of Rodgers of Atlanta, Inc., an agency for the Arabian-American Oil Company (Aramco) that provides entertainment and recreational instructors for American employees in Aramco communities. Kathy Hunt Ms. Hunt is 46 years old and resides in Cedartown, Georgia. Ms. Hunt graduated from Berry College with a bachelor of science degree in Secretarial Science. Ms. Hunt has extensive experience in executive secretarial business, including the governmental (State of Georgia) and private sectors. She has extensive background in the field of bookkeeping, accounting, procurement, contract Form 10-SB Dated August 31, 1996, Page 44 45 management, statistical data compilation, personnel management and laws governing confidentiality. She is currently employed as bookkeeper and accountant for SBI Communications, Inc. Claude Pichard Mr. Pichard, 41, has been a Vice President and a director for the Registrant since 1986. His primary responsibilities include directing and developing the interactive Bingo and auction programs. Mr. Pichard has over twenty years of television experience as a producer, director and scriptwriter. He served as creative services director at WCTV in Tallahassee, Florida, where he headed an award-winning team of directors, writers and artists for the number one station in its market. He has also worked with numerous Hollywood-based game shows and was the director for the Bolivian National Lottery game. In addition to his responsibilities with the Registrant, Mr. Pichard also serves as a research and training specialist with the Florida Department of Law Enforcement where he supervises the production of training tapes, public service announcements and media related courses. Mr. Pichard holds a bachelor of science degree in mass communications from Florida State University. Mel Ray Mr. Ray is 55 years old and resides in Tampa, Florida. Mr. Ray has been an executive in the bottled and natural gas industries for more than 30 years, and currently manages six gas companies in the state of Florida, ranging from the west coast Tampa area all the way to the east coast of Florida. Mr. Ray's extensive experience in utility companies gives him a great understanding of local and federal government regulations. Due to the nature of his business, Mr. Ray also possesses knowledge concerning hazardous materials transportation, bulk purchasing, retail sales, management, marketing, acquisition, and personnel. Mr. Ray has 20 years of experience operating some of the most profitable divisions of Tropi-Gas, Petrolane, and Star Gas as an executive both in its international and domestic markets. Mr. Ray is an officer and director of the company. Michael McGlothlin Mr. McGlothlin is 44 years old and resides in Pounding Mill, Virginia. He is a graduate in Business and Physics from Hampden-Sydney College in Virginia, and has extensive experience in the mining, processing and trucking industry. Mr. McGlothlin currently owns and operates a mineral grinding facility, a land fill facility, and a fleet of 70 diesel trucks. Mr. McGlothlin's experience in mining and landfills gives him extensive knowledge in federal regulations. Mr. McGlothlin demonstrates the ability to use computers to their fullest potential and has the ability to notice potential problems at an early stage and correct them before they grow. Mr. McGlothlin has extensive experience in management, personnel, cost control, marketing, federal, state and local regulations. Mr. McGlothlin is an officer and director of the company. Thomas Barrett Mr. Barrett, age 26, serves as a vice president of the Registrant. He received his Bachelor of Science Degree in Finance from the University of Georgia in 1993. From 1988 until 1991, he was employed in Chicago as a broker assistant to a local currency futures trader, Mark Dehetogh, at the Form 10-SB Dated August 31, 1996, Page 45 46 Chicago Mercantile Exchange, and in 1991 worked for Refco Corp. as an assistant bond trader at the Chicago Board of Trade. From 1994 until 1995 he was employed as head of charity by the Steelworker's Assistance Fund at its Flamingo Bingo operation in Piedmont Alabama. From 1994 until joining the Registrant in 1995, Mr. Barrett was employed as assistant manager for Bingo matters by Elkhorn Valley Development Corp., at it's Frontier Palace operation in Piedmont, Alabama. FAMILY RELATIONSHIPS There are no family relationships among directors, executive officers or persons chosen by the Registrant to be nominated as a director or appointed as an executive officer of the Registrant of any of its affiliated subsidiaries. Mrs. Betty Rodgers, a former director was the sister of the Registrant's Chairman, Ronald Foster. INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS To the best knowledge and belief of the Registrant, during the past five years, no present or former director, executive officer or person nominated as a director or appointed as an executive officer of the Registrant or any of its affiliated subsidiaries, has been involved in: (1) Any bankruptcy petition by or against any business of which such person was a general partner or executive either at the time of the bankruptcy or within two years prior to that time; (2) Any conviction in criminal proceeding or subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) Being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily, barring, suspending, or otherwise limiting his involvement in any type of business, securities or banking activities; and (4) Being found by any court of competent jurisdiction (in a civil action), the Commission or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated. ITEM 6. EXECUTIVE COMPENSATION The Summary Compensation Table below sets forth all compensation paid to the Officers and Directors of the Registrant during the Registrant's year ended December 31, 1994, and 1995. Prior to June of 1992, the date on which a change in control of the Registrant was effected and current management took over their respective positions, previous management conducted no business, the Registrant was inactive and no compensation was paid or deferred to any of the Registrant's officers or directors. Form 10-SB Dated August 31, 1996, Page 46 47 1994 SUMMARY COMPENSATION TABLE
NAME ANNUAL COMPENSATION LONG TERM COMPENSATION AND AWARDS AWARDS LTIP ALL PRINCIPAL RESTRICTED RESTRICTED PAY- OTHER POSITION SALARY BONUS OTHER STOCK OPTIONS OUTS COMPENSATION - -------- Ronald Foster ** * * * * * * * Betty Rodgers *** * * * * * * * Claude Pichard +* * * * * * * Kathy Hunt (1) * * * * * * * Mel Ray (2) * * * * * * * Michael McGlothlin (3) * * * * * * *
1995 SUMMARY COMPENSATION TABLE
NAME ANNUAL COMPENSATION LONG TERM COMPENSATION AND AWARDS AWARDS LTIP ALL PRINCIPAL RESTRICTED RESTRICTED PAY- OTHER POSITION SALARY BONUS OTHER STOCK OPTIONS OUTS COMPENSATION - -------- Ronald Foster ** (5) * * * * * * Betty Rodgers *** * * * * * * * Claude Pichard +* * * * * * * Kathy Hunt (1) (6) * * * * * * Mel Ray (2) * * * * * * * Michael McGlothlin (3) * * * * * * Thomas Barrett (4) (7) * * * * * *
- ---- * None. ** President, Chairman and Chief Executive Officer. *** Former Secretary, Treasurer and Chief Financial Officer. + Vice President. (1) Secretary and Treasurer. (2) Director. (3) Director. (4) Vice President. (5) $120,000. (6) $10,690. (7) $1,500. (8) No person listed has any options to acquire securities of the kind required to be disclosed pursuant to instruction 1 of Item 403 of Regulation SB. EMPLOYMENT AGREEMENTS The Registrant is a party to an employment agreement with Ronald Foster, a copy of which is filed as an exhibit to this registration statement. The following summary thereof is qualified in its entirety by reference to such exhibit. On January 1, 1992, Mr. Foster entered into a ten year employment agreement with the Registrant, renewable thereafter for continuing one year terms unless one of the parties provides the other with written intention not to renew, on or before the 180th day prior to expiration of the then current term. Although the agreement can be terminated by the Registrant for cause, or the Registrant's stockholders can refuse to comply with its terms by not re-electing Mr. Foster as a director, such events accelerate Mr. Foster's rights to compensation under the Agreement. Form 10-SB Dated August 31, 1996, Page 47 48 The Agreement provides the Registrant with an obligation to defend and indemnify Mr. Foster to the fullest extent legally permitted, and calls for the following compensation: (a) Mr. Foster is entitled to an annual bonus payable in shares of the Registrant's common stock, determined by dividing 10% of the Registrant's pre-tax profits (excluding depreciation) for the subject calendar year by the average bid price for the Registrant's common stock during the last five trading days prior to the end of the last day of each year and the first five days of the new year, provided, however, that the agreement shall have been in effect for at least one business day during the subject year. (b) Mr. Foster is entitled to an annual cash bonus in a sum equal to 5% of the Registrant's gross annual income or 10% of the Registrant's net pre-tax profit (excluding depreciation), whichever is less. (c) Mr. Foster is entitled to a salary starting at $10,000 per month, but subject to review on a quarterly basis, with the expectation that it will be substantially increased as increased profits and cash flow from operations permit. (d) In addition to the foregoing, Mr. Foster is entitled to a benefit package equal to the most favorable benefit package provided by the Registrant or its subsidiaries to any of their employees, officers, directors, consultants or agents. All required payments are accruing until such time as the Registrant has adequate funds to meet its operating expenses and commitments. COMPENSATION UNDER PLANS None of the Registrant's executive officers have received or become entitled to any cash or non-cash compensation under any Registrant plans (as the term "plan" is defined in Instruction 6(ii) to Item 402(a)(2) of Regulation S-B, promulgated by the Securities and Exchange Commission) during the last calendar year, nor have they been awarded any stock options or other forms of indirect compensation by the Registrant. MANNER OF DETERMINING EXECUTIVE COMPENSATION Executive compensation is determined by the Registrant's Board of Directors, without pre-established policies, based on negotiations with the executive officer involved. The executive officer involved is not precluded from voting in favor of his or her compensation, if he or she is also a member of the Registrant's Board of Directors. Decisions are based on the respective bargaining strength of the parties. Form 10-SB Dated August 31, 1996, Page 48 49 ARRANGEMENTS WITH DIRECTORS Other than as indicated below there are no arrangements or understandings regarding compensation for services provided as a director, including any additional amounts payable for committee participation or special assignments. COMPENSATION OF DIRECTORS All officers and directors will be reimbursed for any expenses incurred on behalf of the Registrant. Directors will be reimbursed for expenses pertaining to attendance at meetings of the Registrant's board of directors , including travel, lodging and meals. They will also, at such time as the Registrant has sufficient revenues from operations, receive a fee of $250 per day for all Board meetings attended, including meetings of committees of the Board. Non-salaried officers and directors may be retained by the Registrant as consultants paid consulting fees deemed appropriate by the board of directors. ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS HISTORICAL BACKGROUND SBI Communications, Inc., a publicly held Delaware corporation (the "Registrant"), was originally organized in the State of Utah on September 23, 1983, under the corporate name Alpine Survival Products, Inc. Its name was changed to Justin Land and Development, Inc., during October of 1984, and to Supermin, Inc., on November 20, 1985. On September 29, 1986, Supermin, Inc., concluded a reorganization pursuant to Section 368(a)(1)(B) of the Internal Revenue Code of 1954, as amended, pursuant to which it exchanged 200,000 shares of its common stock, $.001 par value for all of the capital stock of Satellite Bingo, Inc., a Georgia corporation organized on January 10, 1986, and the originator of the Registrant's current business. In conjunction with such reorganization, the former stockholders of the SBI Subsidiary, acquired control of the Registrant and the Registrant changed its name to Satellite Bingo, Inc. On March 10, 1988, the Registrant changed its name to SBI Communications, Inc., its current name, and on January 28, 1993, the Registrant reincorporated into Delaware through a statutory merger with a wholly owned Delaware subsidiary, in reliance on the exemption from registration requirements of Section 5 of the Securities Act of 1933, as amended, provided by Rule 145(a)(2) promulgated thereunder. INITIAL PUBLIC OFFERING During 1983, the Registrant completed a public offering of its 125,000 shares of its authorized but previously unissued securities in reliance on Securities and Exchange Commission Rule 504 of Regulation D. The offering was registered by qualification with the State of Utah. Form 10-SB Dated August 31, 1996, Page 49 50 The offering price was arbitrarily determined at $.20 per share, and the Registrant received gross proceeds of $25,000. Offering expenses were $2,681. The placement agent was Bryan K. Johnson, then the Registrant's president, and the initial transfer agent was Fidelity Transfer Company with offices at 321 Boston Building; Salt Lake City, Utah 84111. TRANSACTIONS WITH PROMOTERS Bryan K. Johnson and Frank C. Trinniman were described as the original founders, parents and promoters of the Registrant (as those terms are defined in Regulation C promulgated under authority of the Securities Act of 1933, as amended) in the Registrant's original public offering prospectus. However, as a result of the reorganization described above, it would be more accurate to consider Mr. Ron Foster as the founder, parent and promoter of the Registrant, as presently constituted. In conjunction with the reorganization of the Registrant (described below), Mr. Foster received 200,000 shares of the Registrant's Common Stock in exchange for all of his capital stock in the SBI Subsidiary. REORGANIZATION On or about September 23, 1986, the Registrant (then operating as Supermin, Inc.) entered into a reorganization agreement with the stockholders of Satellite Bingo, Inc., a Georgia corporation, pursuant to which the Registrant exchanged 200,000 shares of its authorized but theretofore unissued common stock, $.001 per share par value, for all of the capital stock of the SBI Subsidiary. As a result of such transaction, the former stockholders of the SBI Subsidiary, became the Registrant's controlling stockholders (holding 200,000 of the 360,000 shares outstanding upon completion of the reorganization. Immediately following the reorganization, the officers and directors (Ron Foster, Frank C. Cooper, Michael C. Hall, Kenneth P. McDougal, and Betty Rodgers) of the SBI Subsidiary, were elected as the Registrant's officers and directors, and the Registrant's name was changed to Satellite Bingo, Inc. The transaction was structured in a manner designed to meet the tax free reorganization provisions of Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended, and securities were issued in conjunction therewith without registration under the provisions of Section 5 of the Act pursuant to exemptions provided by Sections 3(b), 4(1), 4(2) or 4(6) thereof. RELATED PARTY TRANSACTIONS Ronald Foster On January 15, 1991, the Registrant issued 250,000 shares of its Common Stock to Ron Foster in consideration for cancellation of $250,000 in debt. The transaction was effected in reliance on the exemption from registration under Section 5 of the Securities Act of 1933, as amended, provided by Section 4 (2). Form 10-SB Dated August 31, 1996, Page 50 51 On October 3, 1991, the Registrant issued 250,000 shares of its Common Stock to Ronald Foster as an inducement to make the Registrant a loan in the amount of $250,000, in reliance on the exemption from registration under Section 5 of the Securities Act of 1933, as amended, provided by Section 4 (2). During October of 1991, the Registrant issued 500,000 shares of its Common Stock to Ronald Foster as full payment for a $500,000 indebtedness to him for a series of loans made by him to the Registrant. The stock was valued at $1.00 per share despite the fact that, between July 1, 1991 and September 30, 1991, the stock was trading at prices ranging from $1.60 and $3.00 per share, because such shares were unregistered. The transaction was unanimously approved by the Registrant's Board of Directors, including the unanimous vote of all disinterested directors. The decision was ratified by the Registrant's stockholders at a meeting on June 3, 1992. On November 16, 1991, the Registrant issued 468,000 shares of its Common Stock to Ronald Foster in exchange for (i) copyrights, (ii) 25,000,000 Bingo cards, (iii) cups and T-shirts for the Bingo Club, (iv) prizes for set, (v) computer software, (vi) electronic boards, (vii) 2 Rebus puzzle boards, (viii) 40 ft. trailer, (ix) federal trademark number 1473709, (x) video library, including copyrights issued in relationship thereto, and (xi) brochures, which, in the aggregate were valued at $2,810,400. The transaction was effected in reliance on the exemption from registration under Section 5 of the Securities Act of 1933, as amended, provided by Section 4 (2). The stock was valued at $6.00 per share (during the period from October 1, 1991 to December 31, 1991, the Registrant's Common Stock traded at prices ranging between $2.00 and $7.00 per share). The exchange valuation was based on a third party appraisal of the subject assets, approved by the Registrant's Board of Directors (including the affirmative vote of all disinterested directors), and ratified by the Registrant's stockholders at a stockholders' meeting held on June 3, 1992. On November 16, 1991, the Registrant issued 500,000 shares of its Common Stock to Ronald Foster in consideration for cancellation of outstanding indebtedness of the Registrant in the amount of $500,000. During 1994 and for several other prior years, Mr. Ron Foster, the Registrant's principal shareholder, who also serves as Chief Executive Officer, personally funded the majority of the Registrant's operations. All amounts owed to Mr. Foster, including amounts originally evidenced by interest bearing notes, were converted to non-interest bearing advances effective January 1, 1993. The majority of these advances were repaid in 1995 through the issuance of 90,000 shares of preferred stock. During 1995, the Registrant accrued salary payable to the Registrant's principal shareholder totaling $120,000. All amounts owed to Mr. Foster are payable on demand. During 1994, the Registrant received advances from Mr. Foster of $56,564, and made repayments to Mr. Foster of $5,000. As of December 31, 1994, the Registrant owed $460,933 to Mr. Foster. During 1995, the Registrant made repayments (on a net basis) to Mr. Foster (exclusive of the preferred stock transaction described above) of $6,777 (in addition to the preferred stock transaction described above). Peter Papas Form 10-SB Dated August 31, 1996, Page 51 52 In October, 1995 the Registrant borrowed $250,000 from a trust managed by a shareholder, in the form of a mortgage note. The note is payable in full on October 15, 1996, with interest payable quarterly at prime plus 3%, secured by all corporate property up to $1,000,000 in value. The holder has the right to convert the mortgage note to common stock at a price of three dollars per share. This conversion privilege expires on July 15, 1996. Interest expense related to this note totaled $5,729 for the year ended December 31, 1995. As an inducement to consummate this transactions, the Registrant issued 40,000 shares of preferred stock to the individual. This stock has been valued at $200,000 in the Registrant's financial statements, with the Registrant recording a corresponding amount as a finance charges expense for the year ended December 31, 1995. All of the foregoing transactions involving issuance of securities were effected in reliance on the exemption from registration under Section 5 of the Securities Act of 1933, as amended, provided by Section 4(2) thereof. Other Officers or Directors On January 9, 1992, the Board voted to issue 5,000 shares of the Registrant's Common Stock to Claude Pichard and to Betty Rodgers as compensation for services to the Registrant in their capacities as officers and directors of the Registrant, on the basis of the Registrant's inability to pay them cash compensation. While Mr. Pichard and Ms. Rodgers, as directors of the Registrant, voted in favor of the authorizing resolution, Ronald Foster, the disinterested member of the Board of Directors who reviewed this transaction, also voted in favor of the resolution. However, Mr. Foster is the brother of Betty Rodgers. In order to avoid the appearance of conflicting interest, the action was ratified by the Registrant's stockholders vote at a meeting held on June 3, 1992. Glendale Studios On November 19, 1990, the Registrant issued 100,000 shares common stock (adjusted for one for 20 reverse stock split) to Glendale Studios in consideration for $468,000, in reliance on the exemption from registration under Section 5 of the Securities Act of 1933, as amended, provided by Section 4(2) thereof. Loans to Affiliates No (i) director or executive officer of Registrant, (ii) nominee for election as a director, (iii) member of the immediate family of persons described in (i) or (ii), (iv) corporation or organization (other than Registrant or majority owned subsidiary of Registrant) of which any of the persons specified in (i) or (ii) is an executive officer or partner is directly or indirectly, the beneficial owner of 10% or more of any class of equity securities, nor (v) any trust or other estate in which any of the persons specified in (i) or (ii) has a substantial beneficial interest or as to Form 10-SB Dated August 31, 1996, Page 52 53 which such person serves as a trustee or in a similar capacity, has been indebted to the Registrant or its subsidiaries at any time since January 1, 1991 in an amount in excess of $60,000. LIMITATIONS ON LIABILITY On March 10, 1988, the Registrant's stockholders voted to adopt provisions authorized by Section 16-10-49.1 of the Utah Business Corporation Act, eliminating the liability of the Registrant's officers and directors for monetary damages arising as a result of a breach of fiduciary duties. Such limitation on liability does not not include a breach of the duty of loyalty to the Registrant or its stockholders; acts or omissions not in good faith or which involve intentional misconduct or knowing violations of law; actions specified in Section 16-10-44 of the Utah Business Corporation Act; or, any transactions from which a director derived an improper personal benefit. Such provision was adopted in order to permit the Registrant to recruit qualified personnel who were otherwise not inclined to subject themselves to potential frivolous litigation by disgruntled stockholders, short sellers and others. REVERSE STOCK SPLIT & RE-INCORPORATION On February 1, 1993, the Registrant merged with a wholly owned Delaware subsidiary in order to change its corporate domicile to the State of Delaware. Such re-incorporation was deemed in the best interests of the Registrant by management for two reasons. First, the State of Utah has been perceived by the investment community as a haven for "penny stock" companies frequently associated with violations of applicable securities laws, while the State of Delaware serves as the state of domicile for many of the countries most respected corporations. Secondly, the corporate law of the State of Delaware has been subject to detailed analysis and interpretation by the Delaware courts in a manner making operation under Delaware law significantly more predictable than under the laws of most other states. Such predictability significantly simplifies long range corporate planning. In conjunction with such re-incorporation, the Registrant effected a one share for twenty reverse stock split and increased its authorized capitalization. As a result, the Registrant is now authorized to issue 40,000,000 shares of common stock, $0.001 par value, and 10,000,000 shares of preferred stock, $5.00 par value. Immediately prior to the reverse stock split, the Registrant had 49,015,117 shares outstanding. As a result of the reverse stock split, as of February 1, 1993, the Registrant's outstanding common stock was reduced to 2,450,856 shares (after rounding up all fractional shares). COMPARABILITY OF TERMS It is the opinion of the Registrant's current management that in each transaction described above since current management assumed control of the Registrant, the terms of transactions involving the Registrant's officers and directors were materially more favorable to the Registrant than it could have obtained from unrelated sources. Form 10-SB Dated August 31, 1996, Page 53 54 ITEM 8. DESCRIPTION OF SECURITIES GENERAL The Registrant is authorized to issue 50,000,000 shares of capital stock, 40,000,000 shares of which are designated as common stock, $.001 par value per share, and the balance as preferred stock, $5.00 par value per share. Immediately prior to this registration 5,345,439 shares of Common Stock were outstanding (excluding the 2,500,000 shares held but not yet allocated by the Registrant's Employees' Trust) and held of record by approximately 3,244 persons. In addition, 1,668,000 shares of preferred stock were outstanding, and held by approximately five persons. Corporate Stock Transfer, 370 17th Street, Suite 2350; Denver, Colorado 80202, acts as transfer agent and registrar for the Registrant's common and preferred stock. COMMON STOCK The following statement is a summary of the rights and privileges of the holders of the Registrant's Stock. It does not purport to be complete and is subject to the provisions of the Delaware General Corporation Act, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules, regulations and bylaws of the National Association of Securities Dealers, Inc. The following statements are qualified in their entirety by such references. Dividend Rights Holders of shares of the Registrant's common voting stock are entitled to receive, out of funds legally available, such dividends as may be declared by the Registrant's Board of Directors. The Registrant, as of the date of this registration statement, cannot forecast with any certainty, when and if any dividends will be paid, although the Registrant does not anticipate paying any dividends prior to its year ended December 31, 1996. Voting Rights Holders of shares of the common voting stock are entitled to one vote per outstanding share held on a designated record date, on each matter submitted to a vote at a meeting of shareholders. Each holder may exercise such vote either in person or by proxy. A majority of the outstanding shares of common stock present at a duly convened meeting, appearing in person or by proxy, constitutes a quorum for shareholders meetings. Except with respect to amending the Articles of Incorporation, which requires an affirmative vote of a majority of the Registrant's shares issued and withstanding, other matters to be acted upon by shareholders at any meeting of the shareholders require the affirmative vote of a majority of the shareholders voting in person or by proxy, provided a quorum, as defined above, is established. The holders of the common stock of the Registrant are not entitled to cumulative voting in election of Directors, and shareholders are denied any pre-emptive rights. Form 10-SB Dated August 31, 1996, Page 54 55 Liquidation Rights Upon liquidation, dissolution or winding up of the Registrant, the shareholders would be entitled to share on a pro-rata basis in assets available for distribution to shareholders. Purchase and Redemption Subject to special rights and restrictions appurtenant to any class of the Registrant's securities, the Registrant may, in compliance with the Deleware General Corporation Laws, repurchase shares of its common stock or redeem any class of its shares which are redeemable, unless a proposed purchase or redemption would render the Registrant unable to meet its liabilities as they mature. The Registrant is not aware of any restriction in purchasing shares of its common stock on the open market, other than those imposed by rules promulgated by the Securities and Exchange Commission pursuant to authority of Section 10(b) of the Securities Exchange Act of 1934, as amended (e.g., Rules 10b-6 and 10b-18). Miscellaneous The common stock of the Registrant has no conversion, subscription, or sinking fund rights. All shares when issued, are fully paid, non-assessable and not liable to further calls or assessments. PREFERRED STOCK All attributes of the currently unissued preferred stock will be determined by the Registrant's board of directors prior to issuance, as permitted by and subject to the requirements of applicable Delaware law. The currently outstanding preferred stock has a $5.00 per share par value and a $5.00 per share liquidation preference; paying no dividend but convertible into common stock upon demand at a conversion rate equal to $5.00 per share divided by the market value of the common stock at the date of conversion. The preferred stock has no voting rights except as to matters specifically dealing with changes in the attributes of the preferred stock. PART II ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET FOR COMMON EQUITY The Registrant's stock is traded on the NASDAQ OTC Electronic Bulletin Board. The Registrant currently has 5,345,439 shares of stock outstanding, with 750,000 in the public float. There are approximately 3,244 shareholders of record. For the fiscal year ended December 31, 1995, the Registrant reported revenues of $604,873 and a net loss of $(769,232). Form 10-SB Dated August 31, 1996, Page 55 56 The Common Stock of Registrant has been traded over-the-counter since 1983. Its trading symbol is "SBID." No established public trading market exists for the Common Stock of Registrant at this time. As of the date of this registration statement: No common equity is subject to options or warrants to purchase or securities convertible into common stock, except for the currently issued 1,668,000 shares of preferred stock which are convertible into common stock, as described below (see Part II, Item 8 "Description of Securities"); No common stock is currently being offered or proposed to be offered which offering could be reasonably expected to have a materially adverse effect on the market price of the Registrant's common equity; and There are approximately 5,135,439 shares of common stock which will become eligible for sale by December 31, 1996, pursuant to the provisions of Securities and Exchange Commission Rule 144. The Registrant has not agreed to register securities for resale under the Securities Act of 1933, as amended, for anyone. The following table sets forth in United States dollars the high and low bid quotations for such shares. Such bid quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and do not necessarily represent actual transactions. The source of the following information is the National Daily Quotation System, Inc.'s "Pink Sheets" and the National Association of Securities Dealers, Inc.'s Nasdaq Bulletin Board.
Date Low High Bid Bid --- --- April 1, 1996 - June 30, 1996 $ 0.1875 $ 0.375 January 1, 1996 - March 31, 1996 $ 0.25 $ 0.50 October 1, 1995 - December 31, 1995 $ 0.62 $ 1.37 July 1, 1995 - September 30, 1995 $ 0.50 $ 1.56 April 1, 1995 - June 30, 1995 $ 0.12 $ 1.75 January 1, 1995 - March 31, 1995 $ 0.12 $ 0.375 October 1, 1994 - December 31, 1994 $ 0.03 $ 0.06 July 1, 1994 - September 31, 1994 $ 0.06 $ 0.15 April 1, 1994 - June 30, 1994 $ 0.06 $ 0.15 January 1, 1994 - March 31, 1994 $ 0.06 $ 0.62 October 1, 1993 - December 31, 1993 $ 0.25 $ 1.50 July 1, 1993 - September 31, 1993 $ 0.50 $ 5.00 April 1, 1993 - June 30, 1993 $ 2.25 $ 5.375 January 1, 1993 - March 31, 1993 $ 0.02 $ 0.12
- ------ * Prices quoted reflect a one share for twenty reverse split effective on February 1, 1993. Form 10-SB Dated August 31, 1996, Page 56 57 DIVIDEND POLICY The Registrant has never paid any dividends. It is the present intention of the Registrant to pay dividends as soon as possible. There can, however, be no assurance that funds for payment of dividends will ever be available, or that even if available, the Registrant's board of directors then serving will resolve to declare them. MARKET The Registrant's securities are currently quoted on the National Association of Securities Dealers, Inc.'s NASDAQ Bulletin Board and on the National Daily Quotation System, Inc.'s "Pink Sheets." The Registrant expects that its securities will be listed on the National Association of Securities Dealers, Inc.'s automated quotation system ("NASDAQ") within the next 12 months and that they will be traded under its current symbol "SBID". SECURITY HOLDERS As of March 31, 1996, the latest practicable date for which information is available, the Registrant's management was of the opinion that the Registrant had approximately 3,244 common stock holders. DIVIDENDS There have been no cash dividends declared or paid since the inception the Registrant and no dividends are contemplated to be paid in the foreseeable future. ITEM 2. LEGAL PROCEEDINGS The Registrant is not a party to any pending legal proceedings other than those non material proceedings that arise in the ordinary course of business. As reflected in the statement of changes in stockholders' equity (see Part FS - "Financial Statements"), the Registrant has a history of issuing common stock for services difficult to value, or yet to be provided. Approximately 4,600,000 (or 86%) of the common stock outstanding at December 31, 1995, is restricted in some fashion as a result of the above transactions. Furthermore, the Registrant has in prior years canceled common stock certificates due to non-performance by the third parties involved in certain transactions. Although no party to such transactions has yet instigated litigation involving the Registrant for cancellation or restrictions of the related shares, due to the volume of such transactions, litigation remains a possibility. Management feels all actions it has taken to cancel or restrict common stock are legally justified and does not anticipate any material loss being incurred by the Registrant due to future resolution of these matters. Form 10-SB Dated August 31, 1996, Page 57 58 ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Registrant's audited statements for the calendar years ended December 31, 1995, 1994 and 1993, have been prepared by the Daniel Professional Group, of Charlotte, North Carolina. The Registrant has had no disputes with nor does it have any current plans to replace its auditors. ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES The Registrant has not previously registered any securities with the Securities and Exchange Commission, all sales having heretofore been effected in reliance on exemptions from applicable federal registration requirements, pursuant to Sections 4(2), 4(6) or 3(b) of the Securities Act of 1933, as amended, and Rules 144, 147, 257, 504 or 701 promulgated thereunder. During the past 36 months, no shares of the Registrant's securities have been issued except as disclosed in the consolidated statement of changes in shareholders' equity (deficit) included as a component of the audited financial statements for the years ended December 31, 1994 and 1995, filed herewith in response to Part FS of this registration statement. Such schedules are hereby incorporated herein by reference, as permitted by Rule 12b-23 of the Securities Exchange Act of 1934, as amended. The Registrant has never offered its securities through an underwriter, nor has it paid any commissions or granted any discounts in conjunction with such transactions. The Registrant relied on the exemptions from registration provided by Section 4(2) of the Securities Act of 1933 with respect to all issuances of securities listed above. In order to rely upon Section 4(2), the Registrant noted that no other offerings of the Registrant's common stock were made or contemplated to any other persons during the period of time in which the issuances disclosed above occurred, and that all stock certificates issued before legends indicating that the stock was not registered and that such stock was subject to restrictions on transfer. ITEM 5. INDEMNIFICATION OF OFFICERS AND DIRECTORS The Registrant's certificate of incorporation authorizes the board of directors to indemnify officers, directors, employees and agents to the fullest extent permitted by law. They also significantly limit the personal liability of the Registrant's officers and directors to the Registrant's stockholders. The Registrant's bylaws authorize the board of directors to indemnify officers, directors, employees and agents in the same circumstances set forth in the certificate of incorporation. The bylaws also authorize the Registrant to purchase liability insurance for the benefit of officers, directors, employees and agents and to enter into indemnity agreements with officers, directors, employees and agents. Form 10-SB Dated August 31, 1996, Page 58 59 Section 145 of the General Corporation law of the State of Delaware, under which the Registrant is organized, empowers a corporation, subject to certain limitations, to indemnify its officers, directors, employees and agents, or others acting in similar capacities for other entities at the request of the Registrant, against certain expenses, including attorneys fees, judgments, fines and other amounts which may be paid or incurred by them in their capacities as such officers, directors, employees and agents. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers or persons controlling the Registrant pursuant to the foregoing provisions, the Registrant has been informed that in the opinion of the United States Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable. PART FS FINANCIAL STATEMENTS The audited consolidated balance sheet of the Registrant for its years ended December 31, 1995 and 1994 and the related consolidated statements of operations, stockholder's equity and cash flows are submitted herewith. INDEX TO FINANCIAL STATEMENTS The audited consolidated balance sheet of the Registrant for its years ended December 31, 1995 and 1994 and related consolidated statements of income (loss), stockholder's equity and cash flows therefor, follow. The page numbers for the financial statement categories are as follows:
Page Description - ---- ----------- 61 Cover Page (Audited Statements for 1994 and 1995) 62 Report of the Daniel Professional Group, Inc., Certified Public Accountants, as to the calendar years ended December 31, 1995 and 1994. 63 Consolidated Balance Sheets - December 31, 1995 and December 31, 1994. 64 Consolidated Statement of Income (Loss) for the calendar years ended December 31, 1995 and December 31, 1994 and from inception until December 31, 1995.
Form 10-SB Dated August 31, 1996, Page 59 60 65 Consolidated Statement of Changes in Stockholder's Equity from Inception (January 10, 1986) through December 31, 1995. 71 Consolidated Cash Flows for the calendar years ended December 31, 1995 and December 31, 1994 and from inception until December 31, 1995. 72 Notes to Consolidated Financial Statement Statements for the calendar years ended December 31, 1995 and December 31, 1994. 78 Cover Page (Unaudited Statements for Six Months Ended June 30, 1996. 79 Compilation report of the Daniel Professional Group, Inc., Certified Public Accountants, as to the six months ended June 30, 1996. 80 Consolidated Balance Sheets - June 30, 1996. 81 Consolidated Statement of Income (Loss) for the six months ended June 30, 1996. 82 Consolidated Statement of Changes in Stockholder's Equity from Inception (January 10, 1986) through June 30, 1996. 87 Consolidated Cash Flows for the six months ended June 30, 1996. 88 Notes to Consolidated Financial Statement. Statements for the six months ended June 30, 1996.
Form 10-SB Dated August 31, 1996, Page 60 61 SBI COMMUNICATIONS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED FINANCIAL STATEMENTS AND ACCOUNTANTS' REPORT DECEMBER 31, 1995 AND 1994 Page 61 62 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors of SBI Communications, Inc. Piedmont, Alabama We have audited the accompanying consolidated balance sheets of SBI Communications, Inc., a development stage company, as of December 31, 1995 and 1994, and the related consolidated statements of income (loss), changes in shareholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of SBI Communications, Inc., a development stage company, as of December 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. March 28, 1996 Charlotte, North Carolina Page 62 63 SBI COMMUNICATIONS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS DECEMBER 31,
1995 1994 ---- ---- ASSETS Current assets: Cash $ 11,589 $ 58,928 Accounts receivable, net of allowance for doubtful accounts of $462,500 and $0 for 1995 and 1994, respectively 499,864 - Note receivable from shareholder (Note 2) 25,000 - ---------- ---------- 536,453 58,928 Property and equipment, less accumulated depreciation (Note 3) 7,316,219 7,483,501 Other assets (Note 4): Trademarks, net 100,000 200,000 Shows and computer programs, net 165,960 331,920 Game inventory 60,688 75,400 Organization costs 170 341 ---------- ---------- $8,179,490 $8,150,090 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Note payable to a trust managed by a shareholder (Note 2) $ 250,000 $ - Accounts payable 53,738 49,158 Accrued wages due to principal shareholder (Note 2) 120,000 - Advances due to principal shareholder (Note 2) 4,156 460,933 Accrued interest 5,729 - ---------- ---------- 433,623 510,091 ---------- ---------- Shareholders' equity (Note 5): Preferred stock, par value $5.00; 10,000,000 shares authorized; 1,668,000 and 1,505,000 shares issued and outstanding at December 31, 1995 and 1994, respectively 8,340,000 7,525,000 Common stock, par value $.001; 40,000,000 shares authorized; 5,345,439 and 5,135,439 shares issued and outstanding at December 31, 1995 and 1994, respectively 5,345 5,135 Paid-in capital 3,572,343 3,512,453 Deficit accumulated during the development stage (4,171,821) (3,402,589) ---------- ---------- Total shareholders' equity 7,745,867 7,639,999 ---------- ---------- $8,179,490 $8,150,090 ========== ==========
See accompanying notes to consolidated financial statements. Page 63 64 SBI COMMUNICATIONS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31,
Inception through December 31, 1995 1994 1995 ---- ---- ------------ Revenues: Licenses and royalties $ - $ - $ 641,642 Bingo hall rent 534,593 - 534,593 Bingo hall operating administrative fees 68,145 24,905 93,050 Interest income 34 171 1,101 Other income 2,101 - 235,754 ---------- ---------- ---------- Gross revenues 604,873 25,076 1,506,140 ---------- ---------- ---------- Expenses: Production costs - - 306,685 General and administrative 497,685 54,990 1,907,834 Salaries and related expenses 132,086 14,200 863,660 Depreciation and amortization 538,605 275,461 1,424,325 Interest expense and finance charges 205,729 - 294,630 Losses from equity interest in joint venture - - 880,827 ---------- ---------- ---------- Total expenses 1,374,105 344,651 5,677,961 ---------- ---------- ---------- Income (loss) from operations ($ 769,232) ($ 319,575) ($4,171,821) ========== ========== ========== Income (loss) per share (Note 5) ($ 0.14) ($ 0.07) ($ 2.39) ========== ========== ==========
See accompanying notes to consolidated financial statements. Page 64 65 SBI COMMUNICATIONS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) FROM INCEPTION, JANUARY 10, 1986, THROUGH DECEMBER 31, 1995
Deficit Common Stock Preferred Stock Accumulated -------------------- ---------------------- Additional During Total Number Number Paid-in Development Shareholders' of shares Amount of shares Amount Capital Stage Equity (Deficit) ---------- ------- ---------- ------- ----------- ----------- ---------------- Initial common stock sold in January, 1986 for cash of $500 4,000,000 $ 4,000 - $ - ($ 3,500) $ - $ 500 Recapitalization as a business combination 3,300,000 3,300 - - (13,153) - (9,853) Forgiveness of debt - - - - 246,370 - 246,370 Retroactive adjustment for 1 for 20 reverse stock split occurring in 1993 (6,935,000) (6,935) - - 6,935 - - Net loss, 1986 - - - - - (204,663) (204,663) --------- -------- --------- ---------- ---------- ---------- ---------- Balance, December 31, 1986 365,000 365 - - 236,652 (204,663) 32,354 Common stock sold for cash of $25,809 in August, 1987 ($12.90 per share) 2,000 2 - - 25,807 - 25,809 Common stock sold for cash of $71,691 in August, 1987 ($14.06 per share) 5,100 5 - - 71,686 - 71,691 Common stock issued in August, 1987 for rent concessions and other assets valued at $71,750 ($7.18 per share) 10,000 10 - - 71,740 - 71,750 Common stock sold for cash of $41,000 in October, 1987 ($10.00 per share) 4,100 4 - - 40,996 - 41,000 Common stock sold for cash of $5,000 in November, 1987 ($10.00 per share) 500 1 - - 4,999 - 5,000 Net loss, 1987 - - - - - (544,026) (544,026) --------- -------- --------- ---------- ---------- ---------- ---------- Balance December 31, 1987 386,700 387 - - 451,880 (748,689) (296,422) Common stock sold for cash of $100,000 in January, 1988 ($2.00 per share) 50,000 50 - - 99,950 - 100,000 Common stock issued in April, 1988 for services rendered valued at $34,716 ($5.00 per share) 6,943 7 - - 34,709 - 34,716 Common stock issued in June, 1988 for cash of $86,546 ($4.69 per share) 18,463 18 - - 86,528 - 86,546 Common stock issued in November, 1988 for services rendered from September through November, 1988, valued at $46,877 ($4.69 per share) 10,000 10 - - 46,867 - 46,877 Net loss, 1988 - - - - - (1,206,824) (1,206,824) --------- -------- --------- ---------- ---------- ---------- ---------- Balance December 31, 1988 472,106 472 - - 719,934 (1,955,513) (1,235,107) Common stock issued in January, 1989 for cash of $23,438 ($4.69 per share) 5,000 5 - - 23,433 - 23,438 Common stock issued in January, 1989 as inducement to lenders valued at $21,095 ($4.69 per share) 4,500 5 - - 21,090 - 21,095 Common stock issued in June, 1989 as repayment of debt valued at $70,000 ($4.67 per share) 15,000 15 - - 69,985 - 70,000
(Continued) Page 65 66 SBI COMMUNICATIONS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) FROM INCEPTION, JANUARY 10, 1986, THROUGH DECEMBER 31, 1995 (Continued)
Deficit Common Stock Preferred Stock Accumulated -------------------- ---------------------- Additional During Total Number Number Paid-in Development Shareholders' of shares Amount of shares Amount Capital Stage Equity (Deficit) ---------- ------- ---------- ------- ----------- ----------- ---------------- Common stock issued in June, 1989 for legal services from February through June, 1989, valued at $140,630 ($4.69 per share) 30,000 $ 30 - $ - $ 140,600 $ - $ 140,630 Net loss, 1989 - - - - - (491,957) (491,957) --------- -------- --------- ---------- ---------- ---------- ---------- Balance December 31, 1989 526,606 527 - - 975,042 (2,447,470) (1,471,901) Common stock issued in January, 1990 for production and uplinking services valued at $10,000 ($2.00 per share) 5,000 5 - - 9,995 - 10,000 Common stock issued in January, 1990 for design and software programs valued at $30,000 ($4.00 per share) 7,500 7 - - 29,993 - 30,000 Common stock issued in January, 1990 for telecommunication and layout services rendered valued at $50,000 ($2.00 per share) 25,000 25 - - 49,975 - 50,000 Common stock issued in June, 1990 for production services valued at $50,000 ($5.00 per share) 10,000 10 - - 49,990 - 50,000 Common stock sold in June, 1990 for cash of $3,750 ($5.00 per share) 750 1 - - 3,749 - 3,750 Common stock issued in November, 1990 as repayment of debt owed to CEO valued at $300,000 ($0.60 per share) 500,000 500 - - 299,500 - 300,000 Common stock issued in November, 1990 for receivables of $468,000, later deemed to have no value ($4.68 per share reduced to -0-) 100,000 100 - - (100) - - Common stock issued in December, 1990 to a board member for services rendered valued at $25,000 ($5.00 per share) 5,000 5 - - 24,995 - 25,000 Common stock issued in December, 1990 to a board member for services rendered valued at $25,000 ($5.00 per share) 5,000 5 - - 24,995 - 25,000 Net income, 1990 - - - - - 2,511,101 2,511,101 --------- -------- --------- ---------- ---------- ---------- ---------- Balance December 31, 1990 1,184,856 1,185 - - 1,468,134 63,631 1,532,950 Common stock issued in October, 1991 as repayment of debt owed to CEO valued at $500,000 ($1.00 per share) 500,000 500 - - 499,500 - 500,000 Common stock issued in November, 1991 to CEO for various trademarks, shows, computer programs and bingo game inventory, valued at $1,405,200 ($3.00 per share) 468,400 468 - - 1,404,732 - 1,405,200 Net loss, 1991 - - - - - (2,315,058) (2,315,058) --------- -------- --------- ---------- ---------- ---------- --------- Balance December 31, 1991 2,153,256 2,153 - - 3,372,366 (2,251,427) 1,123,092 Common stock issued in January, 1992 for marketing services valued at $9,000 ($0.60 per share) 15,000 15 - - 8,985 - 9,000
Page 66 67 Common stock issued in November, 1990 as repayment of debt owed to CEO valued at $300,000 ($0.60 per share) 500,000 500 - - 299,500 - 300,000 Common stock issued in November, 1990 for receivables of $468,000, later deemed to have no value ($4.68 per share reduced to -0-) 100,000 100 - - ( 100) - - Common stock issued in December, 1990 to a board member for services rendered valued at $25,000 ($5.00 per share) 5,000 5 - - 24,995 - 25,000 Common stock issued in December, 1990 to a board member for services rendered valued at $25,000 ($5.00 per share) 5,000 5 - - 24,995 - 25,000 Net income, 1990 - - - - - 2,511,101 2,511,101 --------- -------- --------- ---------- ---------- ---------- ---------- Balance December 31, 1990 1,184,856 1,185 - - 1,468,134 63,631 1,532,950 Common stock issued in October, 1991 as repayment of debt owed to CEO valued at $500,000 ($1.00 per share) 500,000 500 - - 499,500 - 500,000 Common stock issued in November, 1991 to CEO for various trademarks, shows, computer programs and bingo game inventory, valued at $1,405,200 ($3.00 per share) 468,400 468 - - 1,404,732 - 1,405,200 Net loss, 1991 - - - - - ( 2,315,058) (2,315,058) --------- -------- --------- ---------- ---------- ---------- --------- Balance December 31, 1991 2,153,256 2,153 - - 3,372,366 ( 2,251,427) 1,123,092 Common stock issued in January, 1992 for marketing services valued at $9,000 ($0.60 per share) 15,000 15 - - 8,985 - 9,000
Page 67 68 SBI COMMUNICATIONS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) FROM INCEPTION, JANUARY 10, 1986, THROUGH DECEMBER 31, 1995 (Continued)
Deficit Common Stock Preferred Stock Accumulated -------------------- ---------------------- Additional During Total Number Number Paid-in Development Shareholders' of shares Amount of shares Amount Capital Stage Equity (Deficit) ---------- ------- ---------- ------- ----------- ----------- ---------------- Common stock issued in January, 1992 for clerical services valued at $10,000 ($2.00 per share) 5,000 $ 5 - $ - $ 9,995 $ - $ 10,000 Common stock issued in January, 1992 for services provided by board member valued at $10,000 ($2.00 per share) 5,000 5 - - 9,995 - 10,000 Common stock issued in January, 1992 for services provided by board member valued at $10,000 ($2.00 per share) 5,000 5 - - 9,995 - 10,000 Common stock issued in January, 1992 for payment of interest due on notes to three individuals, valued at $9,900 ($0.57 per share) 17,500 18 - - 9,882 - 9,900 Common stock sold in August, 1992 for cash of $25,000 ($0.75 per share) 33,333 33 - - 24,967 - 25,000 Net loss, 1992 - - - - - (493,057) (493,057) --------- -------- --------- ---------- ---------- ---------- --------- Balance December 31, 1992 2,234,089 2,234 - - 3,446,185 (2,744,484) 703,935 Fractional shares issued in connection with reverse stock split 100 - - - - - - Common stock issued in March, 1993 for bonds - bonds were unable to be issued, stock was canceled in 1994 - no valued has been assigned 650,000 650 - - (650) - - Common stock issued in March, 1993 for consulting agreement; 350,000 shares originally issued, 200,000 shares canceled; no value assigned 150,000 150 - - (150) - - Common stock issued in April, 1993 for consulting agreement and $40,000 in cash; no value assigned to the consulting agreement ($0.40 per share) 100,000 100 - - 39,900 - 40,000 Common stock issued in July, 1993 for consulting agreement, no value assigned 650,000 650 - - (650) - - Common stock issued in August, 1993 for consulting agreement, no value assigned 100,000 100 - - (100) - - Common stock issued in August, 1993 to CEO for repayment of various debts valued at $37,500 ($0.19 per share) 200,000 200 - - 37,300 - 37,500 Common stock issued in October, 1993 for consulting services, no value assigned 1,250 1 - - (1) - - Common stock issued in November, 1993 for commitments to raise $400,000 but such funds were never received; Company has not yet canceled certificates, but restricted such certificates until the matter is resolved; no value has been assigned in that management anticipates ultimate cancellation of the certificates 200,000 200 - - (200) - -
(Continued) Page 68 69 SBI COMMUNICATIONS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) FROM INCEPTION, JANUARY 10, 1986, THROUGH DECEMBER 31, 1995 (Continued)
Deficit Common Stock Preferred Stock Accumulated -------------------- ---------------------- Additional During Total Number Number Paid-in Development Shareholders' of shares Amount of shares Amount Capital Stage Equity (Deficit) ---------- ------- ---------- ------- ----------- ----------- ---------------- Common stock issued in December, 1993 for consulting agreement; stock canceled in 1994 due to nonperformance; no value assigned 1,000,000 $ 1,000 - $ - ($1,000) $ - $ - Net loss, 1993 - - - - - (338,530) (338,530) --------- -------- --------- ---------- ---------- ---------- --------- Balance December 31, 1993 5,285,439 5,285 - - 3,520,634 (3,083,014) 442,905 Common stock issued in March, 1993 for bonds - bonds were unable to be issued, stock was canceled in 1994 (650,000) ($650) - - 650 - - Common stock issued in January, 1994 for consulting agreement and computer equipment with a book value of $91,669; no value has been assigned to the consulting agreement; total value of $91,669 ($0.09 per share) 1,000,000 1,000 - - 90,669 - 91,669 Common stock issued in December, 1993 for consulting agreement; stock canceled in July 1994 due to nonperformance; no value assigned in 1993 (1,000,000) (1,000) - - 1,000 - - Common stock issued in November, 1994 for consulting agreement, no value assigned 500,000 500 - - (500) - - Preferred stock issued in December, 1994 for land valued at $250,000; building valued at $6,250,000; and equipment valued at $900,000; total value of $7,400,000 ($4.93 per share) - - 1,500,000 7,500,000 (100,000) - 7,400,000 Preferred stock issued in December 1994 to individual to settle debts of approximately $25,000 ($5.00 per share) - - 5,000 25,000 - - 25,000 Net loss, 1994 - - - - - (319,575) (319,575) --------- ------- --------- ---------- ---------- ---------- ---------- Balance December 31, 1994 5,135,439 $ 5,135 1,505,000 $7,525,000 $3,512,453 ($3,402,589) $7,639,999 Common stock issued in January, 1995 for accounting services valued at $100 ($0.001 per share) 100,000 100 - - - - 100 Preferred stock issued in March, 1995, for cash - - 33,000 165,000 - - 165,000 Common stock issued in May, 1995 for legal services valued at $50,000 ($0.50 per share) 100,000 100 - - 49,900 - 50,000 Preferred stock issued in June, 1995, to principal shareholder as settlement for $450,000 owed to said shareholder, valued at $450,000 ($5.00 per share) - - 90,000 450,000 - - 450,000 Common stock issued in August, 1995 for legal services valued at $10,000 ($1.00 per share) 10,000 10 - - 9,990 - 10,000
(Continued) Page 69 70 SBI COMMUNICATIONS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) FROM INCEPTION, JANUARY 10, 1986, THROUGH DECEMBER 31, 1995 (Continued)
Deficit Common Stock Preferred Stock Accumulated -------------------- ---------------------- Additional During Total Number Number Paid-in Development Shareholders' of shares Amount of shares Amount Capital Stage Equity (Deficit) ---------- ------- ---------- ------- ----------- ----------- ---------------- Preferred stock issued in October, 1995 as an inducement to an individual to arrange for $250,000 to be loaned to the Company by a trust controlled by the individual, value of $200,000 ($5.00 per share) - - 40,000 200,000 - - 200,000 Net loss, 1995 - - - - - (769,232) (769,232) --------- ------- --------- ---------- ---------- ---------- ---------- Balance December 31, 1995 5,345,439 $ 5,345 1,668,000 $8,340,000 $3,572,343 ($4,171,821) $7,745,867 ========= ======= ========= ========== ========== ========== ==========
See accompanying notes to consolidated financial statements. Page 70 71 SBI COMMUNICATIONS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
Jan. 10, 1986 Through December 31, 1995 1994 1995 ---- ---- ------------ Cash flows from operating activities: Net (loss) ($769,232) ($319,575) ($4,171,821) Adjustments to reconcile net loss to cash provided from operations: Depreciation and amortization 538,776 275,460 1,424,495 Stock issued for services 180,100 - 1,850,438 Stock issued for financing costs 200,000 - 200,000 Increase in debt for services performed (120,000) - - Change in accounts receivable (524,864) - (524,864) Change in game inventories 14,712 - 14,712 Change in accounts payable 4,580 49,158 53,738 Change in accrued expenses 125,729 - 125,729 Loss on write-off of marketable securities - - 2,000 Loss on disposal of assets - - 2,440 Write-off of production costs - - 236,138 Loss on equity interest in joint venture - - 880,827 -------- -------- ---------- Cash provided (used) by operating activities (350,199) 5,043 93,832 -------- -------- ---------- Cash flows from investing activities: Organization costs incurred - - (758) Investment in marketable securities - - (2,000) Payment for production costs - - (236,567) Investment in joint venture - - (880,827) Effect of business capitalization - - (9,853) Purchase of property and equipment (105,363) - (186,628) -------- -------- ---------- Cash provided (used) by investing activities (105,363) - (1,316,633) -------- -------- ---------- Cash flows from financing activities: Loans from shareholders/affiliates 250,000 56,564 724,803 Repayments on loans from shareholders (6,777) (5,000) (78,147) Proceeds from issuance of common stock 165,000 - 587,734 -------- -------- ---------- Cash provided by financing activities 408,223 51,564 1,234,390 -------- -------- ---------- Net increase (decrease) in cash (47,339) 56,607 11,589 Cash at beginning of period 58,928 2,321 - -------- -------- ---------- Cash at end of period $ 11,589 $ 58,928 $ 11,589 ======== ======== ========== Supplemental information: Income taxes paid $ - $ - $ - ======== ======== ========== Interest paid $ - $ - $ 66,400 ======== ======== ==========
Non-cash transactions for 1995 and 1994 included the following: During 1995, legal and accounting fees valued at $60,100 were paid for by the issuance of 210,000 shares of common stock; $450,000 of loans payable to shareholders were repaid through the issuance of 90,000 shares of preferred stock; and $200,000 of finance charges relating to loan inducement fees were paid for by the issuance of 40,000 shares of preferred stock. During 1994, property and equipment valued at $7,491,669 was acquired through the issuance of 1,500,000 shares of preferred stock; and $25,000 of loans payable to shareholders were repaid through the issuance of 5,000 shares of preferred stock. See accompanying notes to consolidated financial statements. Page 71 72 SBI COMMUNICATIONS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1994 Note 1 - Summary of significant accounting policies The major accounting policies of SBI Communications, Inc. are summarized below to assist the reader in reviewing the Company's financial statements. Organization SBI Communications, Inc. (the "Company"), was originally organized in the State of Utah on September 23, 1983, under the corporate name of Alpine Survival Products, Inc. Its name was subsequently changed to Justin Land and Development, Inc. during October, 1984, and then to Supermin, Inc. on November 20, 1985. On September 29, 1986, Satellite Bingo, Inc. was the surviving corporate entity in a statutory merger with Supermin, Inc., a Utah corporation. In connection with the above merger, the former shareholders of Satellite Bingo, Inc. acquired control of the merged entity and changed the corporate name to Satellite Bingo, Inc. Through shareholder approval dated March 10, 1988, the name was changed to its current name of SBI Communications, Inc. Development stage company The Company plans to provide an interactive, satellite cable bingo game show and other similar telecommunication products or services to television viewers. Since principal operations have not commenced, and since only insignificant revenues have been generated, the Company is considered to be a development stage company. Statement of Financial Accounting Standards Number 7 establishes the accounting principles governing development stage companies. Principles of consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Satellite Bingo, Inc., a Georgia corporation, which currently is inactive with no assets or liabilities. Intercompany transactions and balances have been eliminated in consolidation. Estimates and assumptions The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reporting amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Page 72 73 Property and equipment Property and equipment are stated at cost. Expenditures for maintenance and repairs which do not improve or extend the life of an asset are charged to expense as incurred. Major renewals and betterments are charged to the property accounts. Upon retirement or sale of an asset, its cost and related accumulated depreciation or amortization are removed from the property accounts, and any gain or loss is recorded as income or expense. Depreciation is provided using straight-line methods for financial reporting. Trademarks, shows and computer programs Trademarks, shows and computer programs are intangible assets acquired through the issuance of stock. Such assets are being amortized on a straight-line basis over sixty (60) months. The five-year life is a subjective estimate that was derived after considering such factors as consumer demand, competition, expected actions of competitors, effect of obsolescence, etc. The estimated useful life of any unamortized cost will be re-evaluated upon completion of the Company's development stage.. Income taxes The Company provides for income taxes in accordance with Statement of Financial Accounting Standards No. 109, which requires the use of the asset and liability method and recognizes deferred income taxes for the consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The Company has no significant "temporary differences". Deferred tax assets also may be recorded for the future benefits of operating loss carryforwards if such benefits are not deemed "more likely than not" to be realized. The effect on deferred taxes for a change in tax rates is recognized in income or expense in the period that includes the enactment date. Statements of cash flows For the purposes of the statements of cash flows, the Company considers cash and highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Note 2 - Related party transactions During 1994 and for several other prior years, the Company's principal shareholder, who also serves as Chief Executive Officer (CEO), personally funded the majority of the Company's operations. All amounts owed to the shareholder, including amounts originally evidenced by interest bearing notes, were converted to non-interest bearing advances effective January 1, 1993. The majority of these advances were repaid in 1995 through the issuance of 90,000 shares of preferred stock. During 1995, the Company accrued salaries payable to the Company's principal shareholder totalling $120,000. Page 73 74 All amounts owed to the shareholder are payable on demand. During 1994, the Company received advances from this shareholder of $56,564, and made repayments to the shareholder of $5,000. As of December 31, 1994, the Company owed $460,933 to this shareholder. During 1995, the Company made repayments (on a net basis) to the shareholder (exclusive of the preferred stock transaction described above) of $6,777. As of December 31, 1995, the Company owed $4,156 to this shareholder. In addition to the above, the Company previously owed $25,000 in the form of an interest bearing note payable to another shareholder. This note, along with related accrued interest, was settled through the issuance of 5,000 shares of preferred stock valued at $25,000 to the shareholder during 1994. In October, 1995, the Company advanced $25,000 to a shareholder to be repaid upon demand with interest at prevailing market rates. In October, 1995, the Company borrowed $250,000 from a trust managed by a shareholder, in the form of a mortgage note. The note is payable in full on October 15, 1996, with interest payable quarterly at prime plus 3%, secured by all corporate property up to $1,000,000 in value. The holder has the right to convert the mortgage note to common stock at a price of $3 per share. This coversion privilege expires on July 15, 1996. Interest expense related to this note totalled $5,729 for the year ended December 31, 1995. As an inducement to consummate this transaction, the Company issued 40,000 shares of preferred stock to the individual. This stock has been valued at $200,000 in these financial statements, with the Company recording a corresponding amount as finance charges expense for the year ended December 31, 1995. Note 3 - Property and equipment Property and equipment are summarized as follows at December 31:
Estimated Useful Life 1995 1994 ----------- ---- ---- Land $ 250,000 $ 250,000 Building 40 years 6,250,000 6,250,000 Vehicles 5 years 10,920 - Furniture and equipment 5 to 7 years 1,087,384 992,941 ---------- ---------- 7,598,304 7,492,941 Less accumulated depreciation 282,085 9,440 ---------- ---------- $7,316,219 $7,483,501 ========== ==========
Depreciation expense totalled approximatley $273,000 and $9,000 for the years ended December 31, 1995 and 1994, respectively. Page 74 75 Note 4 - Other assets Other assets are summarized as follows at December 31:
1995 1994 ---- ---- Trademarks: Original cost $ 500,000 $ 500,000 Less accumulated amortization 400,000 300,000 ---------- ---------- $ 100,000 $ 200,000 ========== ========== Shows and computer programs: Original cost $ 829,800 $ 829,800 Less accumulated amortization 663,840 497,880 ---------- ---------- $ 165,960 $ 331,920 ========== ========== Game inventory: Original cost $ 75,400 $ 75,400 Less amounts used in operations 14 712 - ---------- ---------- $ 60,688 $ 75,400 ========== ========== Organization costs: Original cost $ 758 $ 758 Less accumulated amortization 588 417 ---------- ---------- $ 170 $ 341 ========== ==========
Game inventory is expensed as used. All other assets listed above are being amortized over sixty (60) months. Amortization expense totalled approximately $266,000 for each of the years ended December 31, 1995 and 1994. Note 5 - Common and preferred stock activity On January 1, 1993, the Company executed a plan of merger that effectively changed the Company from a Utah corporation to a Delaware corporation. This merger also resulted in a reverse stock split of one (1) share of the Delaware corporation for each twenty (20) shares of the Utah corporation. The common stock of the Company has been retroactively restated from its initial year to account for this reverse stock split. The Delaware corporation is authorized to issue up to 40,000,000 shares of common stock with a par value of $.001 per share, and 10,000,000 shares of preferred stock with a par value of $5.00 per share. The preferred stock may be issued from time to time in one or more series, the shares of each series to have such voting powers, dividend rates, designations, preferences, and other characteristics as adopted by the Board of Directors. Preferred stock issued during 1994 and 1995 consisted of one series (series A), having a liquidation preference of $5.00 per share, paying no dividend, and convertible into common stock upon demand, at a conversion rate that would transfer shares of common stock worth an amount equal to the par value of the preferred stock based upon the market value of the common stock at the date of conversion. The Company's income (loss) per share was calculated using 5,306,754, 4,743,658, and 1,745,221 weighted average shares outstanding for the year ended December 31, 1995, the year ended December 31, 1994, and for the period from inception to December Page 75 76 31, 1995, respectively. These amounts were determined based upon retroactive restatement for the 1 for 20 reverse stock split occuring in 1993, Although the preferred stock issued in 1995 and 1994 is a common stock equivalent, with a coversion rate of approximately 10 shares of common stock (based upon an approximate market price for common stock of $0.50 at December 31, 1995) for each share of preferred stock as of the date the preferred stock was issued, preferred stock conversion has not been included in the calculation of earnings per share in that to do so would be anti-dilutive. Note 6 - Income taxes Deferred income tax assets and liabilities are summarized as follows at December 31:
1995 1994 ---- ---- Deferred tax assets attributable to operating loss carryforwards $1,540,000 $1,300,000 Valuation allowance due to uncertainty surrounding realization of operating loss carryforwards ( 1,540,000) ( 1,300,000) Deferred tax liabilities - - ---------- ---------- Total deferred taxes $ - $ - ========== ==========
The Company has available at December 31, 1995, unused operating loss carryforwards, which may be applied against future taxable income, that expire as follows:
Amount of Unused Operating Expiration During Loss Carryforwards Year Ended December 31, -------------------------- ----------------------- $ 200,000 2001 550,000 2002 1,200,000 2003 300,000 2004 490,000 2007 340,000 2008 320,000 2009 650,000 2010 ---------- $4,050,000 ==========
Note 7 - Commitments, risks and contingencies The Company manages for various charities a bingo hall in Piedmont, Alabama. Rents and administrative fees charged to charities are unsecured, and generally are paid only as revenues from the bingo games produce sufficient profit to allow the charities to make payments. Rents receivable at December 31, 1995, are concentrated with only two charities. Management has estimated the amount of such receivables that are collectible based upon their knowledge of the financial condition of the charities and the history of the profitability of bingo games. It is reasonably possible that management's estimate of the amount of such receivables that are collectible could change in the near future. Page 76 77 The Company is also in the process of developing bingo productions to be broadcast by satellite into homes of viewers throughout the United States, and has entered into various licensing agreements to provide, for fees and royalties, certain software and methods involving bingo game production and operation. These agreements cover territories in California, Brazil, Greece, Hong Kong, and United States Indian Reservations/Military Bases/Charity Bingo Parlors. None of the above territories have significant bingo operations that are generating fees or royalties for the Company at this time. Should local, state, federal or foreign country laws change regarding bingo in these areas, such changes could have a material impact on the ability of the Company to generate future revenues. As reflected in the statement of changes in stockholders' equity, the Company has a history of issuing common stock for services difficult to value, or yet to be provided. Approximately 4,600,000 (or 86%) of the common stock outstanding at December 31, 1995, is restricted in some fashion as a result of the above transactions. Furthermore, the Company has in prior years canceled common stock certificates due to non-performance of the third parties involved in certain of the above transactions. Although no party to such transactions has yet instigated litigation involving the Company for cancellation or restriction of related shares, due to the volume of such transactions, litigation relating to such activity remains a possibility. Management feels all actions it has taken to cancel or restrict common stock are with merit, and does not anticipate any material loss being incurred by the Company relating to future resolution of these matters. The Company has an employment agreement with Mr. Ron Foster, shareholder and president, which expires on December 31, 2001. Under the agreement, Mr. Foster is entitled to $120,000 in minimum annual salary, cash bonuses of the lesser of 10% of revenues or 5% of pre-tax profits, and stock bonuses equivalent to 10% of pre-tax profits before depreciation. Note 8 - Fair market value of financial instruments The Company's accounts receivable are principally with two charities for unpaid rents. The collectibility of these receivables is contingent on the ability of the charities to generate sufficient profits from future bingo games, and/or other sources. Due to the nature of these receivables, their fair market value is not subject to reasonable estimation. Management feels that their fair market value approximates their recorded book value. The fair market value of all other financial instruments is estimated to approximate their carrying value in that their nature and terms are consistent with similar instruments in the market place at this time. The Company sold stock to a production company in California several years ago. As a result of the sale, the production company was to provide approximately $400,000 of production facility time and services at no additional charge. No value has been recorded for such services provided and to be provided in that their market value is not subject to reasonable estimation and that realization of future services is not assured. Page 77 78 SBI COMMUNICATIONS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED FINANCIAL STATEMENTS AND ACCOUNTANTS' REPORT JUNE 30, 1996 AND 1995 Page 78 79 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors of SBI Communications, Inc. Piedmont, Alabama We have compiled the accompanying consolidated balance sheets of SBI Communications, Inc., a development stage company, as of June 30, 1996 and 1995, and the related consolidated statements of income (loss), changes in shareholders' equity, and cash flows for the years then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. A compilation is limited to presenting in the form of financial statements information that is the representation of management. We have not audited or reviewed the accompanying consolidated financial statements and, accordingly, do not express an opinion or any other form of assurance on them. August 16, 1996 Charlotte, North Carolina Page 79 80 SBI COMMUNICATIONS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS JUNE 30, 1996
1996 1995 ---- ---- ASSETS ------ Current assets: Cash $ 19,947 $ 61 Cash held in escrow (Note 5) 95,000 - Accounts receivable, net of allowance for doubtful accounts of $462,500 and $300,000 for 1996 and 1995, respectively 586,285 268,015 Note receivable from shareholder (Note 2) 25,000 - ---------- ---------- 726,232 268,076 Property and equipment, less accumulated depreciation (Note 3) 7,206,362 7,397,087 Other assets (Note 4): Deferred loan costs 40,574 - Trademarks, net 50,000 150,000 Shows and computer programs, net 82,980 248,940 Game inventory 30,688 75,400 Organization costs 85 256 ---------- ---------- $8,136,921 $8,139,759 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Mortgage note payable - current portion (Note 5) $ 4,992 $ - Note payable to a trust managed by a shareholder (Note 2) 250,000 - Accounts payable 29,115 28,825 Accrued wages due to principal shareholder (Note 2) 180,000 60,000 Advances due to principal shareholder (Note 2) 24,477 50,962 Accrued interest 4,950 - ---------- ---------- 493,534 139,787 ---------- ---------- Mortgage note payable (Note 5) 243,753 - ---------- ---------- Shareholders' equity (Note 6): Preferred stock, par value $5.00; 10,000,000 shares authorized; 1,668,000 and 1,628,000 shares issued and outstanding at March 31, 1996 and 1995, respectively 8,340,000 8,140,000 Preferred stock subscribed 25,000 - Common stock, par value $.001; 40,000,000 shares authorized; 5,345,439 and 5,235,439 shares issued and outstanding at March 31, 1996 and 1995, respectively 5,345 5,335 Paid-in capital 3,567,343 3,562,353 Deficit accumulated during the development stage (4,538,054) (3,707,716) ---------- ---------- Total shareholders' equity 7,399,634 7,999,972 ---------- ---------- $8,136,921 $8,139,759 ========== ==========
See accompanying notes to consolidated financial statements and accountants compilation report. Page 80 81 SBI COMMUNICATIONS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE SIX MONTHS ENDED JUNE 30,
Inception through June 30, 1996 1995 1996 ---- ---- ----------- Revenues: Licenses and royalties $ - $ - $ 641,642 Bingo hall rent 200,000 150,000 734,593 Bingo hall operating administrative fees - - 93,050 Interest income 274 32 1,375 Other income - - 235,754 --------- --------- ----------- Gross revenues 200,274 150,032 1,706,414 --------- --------- ----------- Expenses: Production costs 8,198 - 314,883 General and administrative 180,564 142,468 2,088,398 Salaries and related expenses 76,860 66,000 940,520 Depreciation and amortization 273,974 246,498 1,698,299 Interest expense and finance charges 26,911 193 321,541 Losses from equity interest in joint venture - - 880,827 --------- --------- ----------- Total expenses 566,507 455,159 6,244,468 --------- --------- ----------- Income (loss) from operations $(366,233) $(305,127) $(4,538,054) ========= ========= =========== Income (loss) per share (Note 6) $ (0.07) $ (0.06) $ (2.20) ========= ========= ===========
See accompanying notes to consolidated financial statements and accountants compilation report. Page 81 82 SBI COMMUNICATIONS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) FROM INCEPTION, JANUARY 10, 1986, THROUGH JUNE 30, 1996
Deficit Common Stock Preferred Stock Accumulated --------------------- --------------------- Additional During Total Number Number Paid-in Development Shareholders' of shares Amount of shares Amount Capital Stage Equity (Deficit) ---------- ------- --------- ---------- ----------- ----------- ---------------- Initial common stock sold in January, 1986 for cash of $500 4,000,000 $ 4,000 - $ - $ (3,500) $ - $ 500 Recapitalization as a business combination 3,300,000 3,300 - - (13,153) - (9,853) Forgiveness of debt - - - - 246,370 - 246,370 Retroactive adjustment for 1 for 20 reverse stock split occurring in 1993 (6,935,000) (6,935) - - 6,935 - - Net loss, 1986 - - - - - (204,663) (204,663) ---------- ------- --------- ---------- ----------- ---------- ---------- Balance, December 31, 1986 365,000 365 - - 236,652 (204,663) 32,354 Common stock sold for cash of $25,809 in August, 1987 $(12.90 per share) 2,000 2 - - 25,807 - 25,809 Common stock sold for cash of $71,691 in August, 1987 $(14.06 per share) 5,100 5 - - 71,686 - 71,691 Common stock issued in August, 1987 for rent concessions and other assets valued at $71,750 $(7.18 per share) 10,000 10 - - 71,740 - 71,750 Common stock sold for cash of $41,000 in October, 1987 $(10.00 per share) 4,100 4 - - 40,996 - 41,000 Common stock sold for cash of $5,000 in November, 1987 $(10.00 per share) 500 1 - - 4,999 - 5,000 Net loss, 1987 - - - - - (544,026) (544,026) ---------- ------- --------- ---------- ----------- ---------- ---------- Balance December 31, 1987 386,700 387 - - 451,880 (748,689) (296,422) Common stock sold for cash of $100,000 in January, 1988 $(2.00 per share) 50,000 50 - - 99,950 - 100,000 Common stock issued in April, 1988 for services rendered valued at $34,716 $(5.00 per share) 6,943 7 - - 34,709 - 34,716 Common stock issued in June, 1988 for cash of $86,546 $(4.69 per share) 18,463 18 - - 86,528 - 86,546 Common stock issued in November, 1988 for services rendered from September through November, 1988, valued at $46,877 $(4.69 per share) 10,000 10 - - 46,867 - 46,877 Net loss, 1988 - - - - - (1,206,824) (1,206,824) ---------- ------- --------- ---------- ----------- ---------- ---------- Balance December 31, 1988 472,106 472 - - 719,934 (1,955,513) (1,235,107) Common stock issued in January, 1989 for cash of $23,438 $(4.69 per share) 5,000 5 - - 23,433 - 23,438 Common stock issued in January, 1989 as inducement to lenders valued at $21,095 $(4.69 per share) 4,500 5 - - 21,090 - 21,095 Common stock issued in June, 1989 as repayment of debt valued at $70,000 $(4.67 per share) 15,000 15 - - 69,985 - 70,000
(Continued) Page 82 83 SBI COMMUNICATIONS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) FROM INCEPTION, JANUARY 10, 1986, THROUGH JUNE 30, 1996 (Continued)
Deficit Common Stock Preferred Stock Accumulated --------------------- --------------------- Additional During Total Number Number Paid-in Development Shareholders' of shares Amount of shares Amount Capital Stage Equity (Deficit) ---------- ------- --------- ---------- ----------- ----------- ---------------- Common stock issued in June, 1989 for legal services from February through June, 1989, valued at $140,630 $(4.69 per share) 30,000 $ 30 - $ - $ 140,600 $ - $ 140,630 Net loss, 1989 - - - - - (491,957) (491,957) ---------- ------- --------- ---------- ----------- ---------- ---------- Balance December 31, 1989 526,606 527 - - 975,042 (2,447,470) (1,471,901) Common stock issued in January, 1990 for production and uplinking services valued at $10,000 $(2.00 per share) 5,000 5 - - 9,995 - 10,000 Common stock issued in January, 1990 for design and software programs valued at $30,000 $(4.00 per share) 7,500 7 - - 29,993 - 30,000 Common stock issued in January, 1990 for telecommunication and layout services rendered valued at $50,000 $(2.00 per share) 25,000 25 - - 49,975 - 50,000 Common stock issued in June, 1990 for production services valued at $50,000 $(5.00 per share) 10,000 10 - - 49,990 - 50,000 Common stock sold in June, 1990 for cash of $3,750 $(5.00 per share) 750 1 - - 3,749 - 3,750 Common stock issued in November, 1990 as repayment of debt owed to CEO valued at $300,000 $(0.60 per share) 500,000 500 - - 299,500 - 300,000 Common stock issued in November, 1990 for receivables of $468,000, later deemed to have no value $(4.68 per share reduced to -0-) 100,000 100 - - (100) - - Common stock issued in December, 1990 to a board member for services rendered valued at $25,000 $(5.00 per share) 5,000 5 - - 24,995 - 25,000 Common stock issued in December, 1990 to a board member for services rendered valued at $25,000 $(5.00 per share) 5,000 5 - - 24,995 - 25,000 Net income, 1990 - - - - - 2,511,101 2,511,101 ---------- ------- --------- ---------- ----------- ---------- ---------- Balance December 31, 1990 1,184,856 1,185 - - 1,468,134 63,631 1,532,950 Common stock issued in October, 1991 as repayment of debt owed to CEO valued at $500,000 $(1.00 per share) 500,000 500 - - 499,500 - 500,000 Common stock issued in November, 1991 to CEO for various trademarks, shows, computer programs and bingo game inventory, valued at $1,405,200 $(3.00 per share) 468,400 468 - - 1,404,732 - 1,405,200 Net loss, 1991 - - - - - (2,315,058) (2,315,058) ---------- ------- --------- ---------- ----------- ---------- ---------- Balance December 31, 1991 2,153,256 2,153 - - 3,372,366 (2,251,427) 1,123,092 Common stock issued in January, 1992 for marketing services valued at $9,000 $(0.60 per share) 15,000 15 - - 8,985 - 9,000
(Continued) Page 83 84 SBI COMMUNICATIONS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) FROM INCEPTION, JANUARY 10, 1986, THROUGH JUNE 30, 1996 (Continued)
Deficit Common Stock Preferred Stock Accumulated --------------------- --------------------- Additional During Total Number Number Paid-in Development Shareholders' of shares Amount of shares Amount Capital Stage Equity (Deficit) ---------- ------- --------- ---------- ----------- ----------- ---------------- Common stock issued in January, 1992 for clerical services valued at $10,000 $(2.00 per share) 5,000 $ 5 - $ - $ 9,995 $ - $ 10,000 Common stock issued in January, 1992 for services provided by board member valued at $10,000 $(2.00 per share) 5,000 5 - - 9,995 - 10,000 Common stock issued in January, 1992 for services provided by board member valued at $10,000 $(2.00 per share) 5,000 5 - - 9,995 - 10,000 Common stock issued in January, 1992 for payment of interest due on notes to three individuals, valued at $9,900 $(0.57 per share) 17,500 18 - - 9,882 - 9,900 Common stock sold in August, 1992 for cash of $25,000 $(0.75 per share) 33,333 33 - - 24,967 - 25,000 Net loss, 1992 - - - - - (493,057) (493,057) ---------- ------- --------- ---------- ----------- ---------- ---------- Balance December 31, 1992 2,234,089 2,234 - - 3,446,185 (2,744,484) 703,935 Fractional shares issued in connection with reverse stock split 100 - - - - - - Common stock issued in March, 1993 for bonds - bonds were unable to be issued, stock was canceled in 1994 - no valued has been assigned 650,000 650 - - (650) - - Common stock issued in March, 1993 for consulting agreement; 350,000 shares originally issued, 200,000 shares canceled; no value assigned 150,000 150 - - (150) - - Common stock issued in April, 1993 for consulting agreement and $40,000 in cash; no value assigned to the consulting agreement $(0.40 per share) 100,000 100 - - 39,900 - 40,000 Common stock issued in July, 1993 for consulting agreement, no value assigned 650,000 650 - - (650) - - Common stock issued in August, 1993 for consulting agreement, no value assigned 100,000 100 - - (100) - - Common stock issued in August, 1993 to CEO for repayment of various debts valued at $37,500 $(0.19 per share) 200,000 200 - - 37,300 - 37,500 Common stock issued in October, 1993 for consulting services, no value assigned 1,250 1 - - (1) - - Common stock issued in November, 1993 for commitments to raise $400,000 but such funds were never received; Company has not yet canceled certificates, but restricted such certificates until the matter is resolved; no value has been assigned in that management anticipates ultimate cancellation of the certificates 200,000 200 - - (200) - -
(Continued) Page 84 85 SBI COMMUNICATIONS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) FROM INCEPTION, JANUARY 10, 1986, THROUGH JUNE 30, 1996 (Continued)
Deficit Common Stock Preferred Stock Accumulated --------------------- --------------------- Additional During Total Number Number Paid-in Development Shareholders' of shares Amount of shares Amount Capital Stage Equity (Deficit) ---------- ------- --------- ---------- ----------- ----------- ---------------- ---------- ------- --------- ---------- ----------- ---------- ---------- Common stock issued in December, 1993 for consulting agreement; stock canceled in 1994 due to nonperformance; no value assigned 1,000,000 $ 1,000 - $ - $ (1,000) $ - $ - Net loss, 1993 - - - - - (338,530) (338,530) ---------- ------- --------- ---------- ----------- ---------- ---------- Balance December 31, 1993 5,285,439 5,285 - - 3,520,634 (3,083,014) 442,905 Common stock issued in March, 1993 for bonds - bonds were unable to be issued, stock was canceled in 1994 (650,000) $ (650) - - 650 - - Common stock issued in January, 1994 for consulting agreement and computer equipment with a book value of $91,669; no value has been assigned to the consulting agreement; total value of $91,669 $(0.09 per share) 1,000,000 1,000 - - 90,669 - 91,669 Common stock issued in December, 1993 for consulting agreement; stock canceled in July 1994 due to nonperformance; no value assigned in 1993 (1,000,000) (1,000) - - 1,000 - - Common stock issued in November, 1994 for consulting agreement, no value assigned 500,000 500 - - (500) - - Preferred stock issued in December, 1994 for land valued at $250,000; building valued at $6,250,000; and equipment valued at $900,000; total value of $7,400,000 $(4.93 per share) - - 1,500,000 7,500,000 (100,000) - 7,400,000 Preferred stock issued in December 1994 to individual to settle debts of approximately $25,000 $(5.00 per share) - - 5,000 25,000 - - 25,000 Net loss, 1994 - - - - - (319,575) (319,575) ---------- ------- --------- ---------- ----------- ---------- ---------- Balance December 31, 1994 5,135,439 5,135 1,505,000 7,525,000 3,512,453 (3,402,589) 7,639,999 Common stock issued in January, 1995 for accounting services valued at $100 $(0.001 per share) 100,000 100 - - - - 100 Preferred stock issued in March, 1995, for cash - - 33,000 165,000 - - 165,000 Net loss, January 1, 1995, to March 31, 1995 - - - - - (180,176) (180,176) ---------- ------- --------- ---------- ----------- ---------- ---------- Balance March 31, 1995 5,235,439 5,235 1,538,000 7,690,000 3,512,453 (3,582,765) 7,624,923 Common stock issued in May, 1995 for legal services valued at $50,000 $(0.50 per share) 100,000 100 - - 49,900 - 50,000 Preferred stock issued in June, 1995, to principal shareholder as settlement for $450,000 owed to said shareholder, valued at $450,000 $(5.00 per share) - - 90,000 450,000 - - 450,000 Common stock issued in August, 1995 for legal services valued at $10,000 $(1.00 per share) 10,000 10 - - 9,990 - 10,000
(Continued) Page 85 86 SBI COMMUNICATIONS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) FROM INCEPTION, JANUARY 10, 1986, THROUGH JUNE 30, 1996 (Continued)
Preferred Deficit Common Stock Preferred Stock Stock Subscribed Accumulated --------------------- --------------------- ---------------- Additional During Total Number Number Number Paid-in Development Shareholders' of shares Amount of shares Amount of Shares Amount Capital Stage Equity (Deficit) ---------- ------- --------- ---------- ---------------- ----------- ----------- ---------------- Preferred stock issued in October, 1995 as an inducement to an individual to arrange for $250,000 to be loaned to the Company by a trust controlled by the individual, value of $200,000 $(5.00 per share) - - 40,000 200,000 - - - - 200,000 Net loss, April 1, 1995 to December 31, 1995 - - - - - - - (589,056) (589,056) --------- ------- --------- ---------- ----- ------- ---------- ---------- ---------- Balance December 31, 1995 5,345,439 5,345 1,668,000 8,340,000 - - 3,572,343 (4,171,821) 7,745,867 Preferred stock sub- scribed in April, 1996, issued in July, 1996, as an inducement - - - - 5,000 25,000 (5,000) - 20,000 Net loss, January 1, 1996 to June 30, 1996 - - - - - - - (366,233) (366,233) --------- ------- --------- ---------- ----- ------- ---------- ---------- ---------- Balance June 30, 1996 5,345,439 $ 5,345 1,668,000 $8,340,000 5,000 $25,000 $3,567,343 (4,538,054) $7,399,634 ========= ======= ========= ========== ===== ======= ========== ========== ==========
See accompanying notes to consolidated financial statements and accountants compilation report. Page 86 87 SBI COMMUNICATIONS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, Jan. 10, 1986
Through June 30, 1996 1995 1996 ---- ---- ---- Cash flows from operating activities: Net (loss) $(366,233) $(305,127) $(4,538,054) Adjustments to reconcile net loss to cash provided from operations: Depreciation and amortization 273,974 246,498 1,698,469 Stock issued for services - 50,100 1,850,438 Stock issued for financing costs - - 200,000 Change in accounts receivable (86,421) (268,015) (611,285) Change in game inventories 30,000 - 44,712 Amortization of deferred loan costs 4,426 - 4,426 Change in accounts payable (24,623) (20,333) 29,115 Change in accrued expenses 59,221 60,000 184,950 Loss on write-off of marketable securities - - 2,000 Loss on disposal of assets - - 2,440 Write-off of production costs - - 236,138 Loss on equity interest in joint venture - - 880,827 --------- --------- ----------- Cash provided (used) by operating activities (109,656) (236,877) (15,824) --------- --------- ----------- Cash flows from investing activities: Cash held in escrow (120,000) - (120,000) Organization costs incurred - - (758) Investment in marketable securities - - (2,000) Payment for production costs - - (236,567) Investment in joint venture - - (880,827) Effect of business capitalization - - (9,853) Purchase of property and equipment (31,052) (27,019) (217,680) --------- --------- ----------- Cash provided (used) by investing activities (151,052) (27,019) (1,467,685) --------- --------- ----------- Cash flows from financing activities: Proceeds from notes payable 250,000 - 250,000 Repayment of notes payable (1,255) - (1,255) Loans from shareholders/affiliates 20,321 40,029 745,124 Repayments on loans from shareholders (-) (-) (78,147) Proceeds from issuance of common stock - 165,000 587,734 --------- --------- ----------- Cash provided by financing activities 269,066 205,029 1,503,456 --------- --------- ----------- Net increase (decrease) in cash 8,358 (58,867) 19,947 Cash at beginning of period 11,589 58,928 - --------- --------- ----------- Cash at end of period $ 19,947 $ 61 $ 19,947 ========= ========= =========== Supplemental information: Income taxes paid $ - $ - $ - ========= ========= =========== Interest paid $ 23,264 $ - $ 89,664 ========= ========= ===========
Significant non-cash transactions included the following: During 1995, legal and accounting fees valued at $60,100 were paid for by the issuance of 210,000 shares of common stock; $450,000 of loans payable to shareholders were repaid through the issuance of 90,000 shares of preferred stock; and $200,000 of finance charges relating to loan inducement fees were paid for by the issuance of 40,000 shares of preferred stock. During 1996, loan costs of $20,000 were paid for through the issuance of 5,000 shares of preferred stock. See accompanying notes to consolidated financial statements and accountants compilation report. Page 87 88 SBI COMMUNICATIONS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 AND 1995 Note 1 - Summary of significant accounting policies The major accounting policies of SBI Communications, Inc. are summarized below to assist the reader in reviewing the Company's financial statements. Organization SBI Communications, Inc. (the "Company"), was originally organized in the State of Utah on September 23, 1983, under the corporate name of Alpine Survival Products, Inc. Its name was subsequently changed to Justin Land and Development, Inc. during October, 1984, and then to Supermin, Inc. on November 20, 1985. On September 29, 1986, Satellite Bingo, Inc. was the surviving corporate entity in a statutory merger with Supermin, Inc., a Utah corporation. In connection with the above merger, the former shareholders of Satellite Bingo, Inc. acquired control of the merged entity and changed the corporate name to Satellite Bingo, Inc. Through shareholder approval dated March 10, 1988, the name was changed to its current name of SBI Communications, Inc. Development stage company The Company plans to provide an interactive, satellite cable bingo game show and other similar telecommunication products or services to television viewers. Since principal operations have not commenced, and since only insignificant revenues have been generated, the Company is considered to be a development stage company. Statement of Financial Accounting Standards Number 7 establishes the accounting principles governing development stage companies. Principles of consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Satellite Bingo, Inc., a Georgia corporation, which currently is inactive with no assets or liabilities. Intercompany transactions and balances have been eliminated in consolidation. Estimates and assumptions The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reporting amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Page 88 89 Property and equipment Property and equipment are stated at cost. Expenditures for maintenance and repairs which do not improve or extend the life of an asset are charged to expense as incurred. Major renewals and betterments are charged to the property accounts. Upon retirement or sale of an asset, its cost and related accumulated depreciation or amortization are removed from the property accounts, and any gain or loss is recorded as income or expense. Depreciation is provided using straight-line methods for financial reporting. Trademarks, shows and computer programs Trademarks, shows and computer programs are intangible assets acquired through the issuance of stock. Such assets are being amortized on a straight-line basis over sixty (60) months. The five-year life is a subjective estimate that was derived after considering such factors as consumer demand, competition, expected actions of competitors, effect of obsolescence, etc. The estimated useful life of any unamortized cost will be re-evaluated upon completion of the Company's development stage. Deferred loan costs Deferred loan costs are amortized using the effective interest method over the life of the related loan. Income taxes The Company provides for income taxes in accordance with Statement of Financial Accounting Standards No. 109, which requires the use of the asset and liability method and recognizes deferred income taxes for the consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The Company has no significant "temporary differences". Deferred tax assets also may be recorded for the future benefits of operating loss carryforwards if such benefits are not deemed "more likely than not" to be realized. The effect on deferred taxes for a change in tax rates is recognized in income or expense in the period that includes the enactment date. Statements of cash flows For the purposes of the statements of cash flows, the Company considers cash and highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Cash held in escrow is not considered a cash equivalent. Note 2 - Related party transactions During 1994 and for several other prior years, the Company's principal shareholder, who also serves as Chief Executive Officer (CEO), personally funded the majority of the Company's operations. All amounts owed to the shareholder, including amounts originally evidenced by interest bearing notes, were converted to non-interest bearing advances effective January 1, 1993. The majority of these advances were repaid in 1995 through the issuance of 90,000 shares of preferred stock. During 1995 and 1996, the Company accrued salaries payable to the Company's principal shareholder of $10,000 per month. Page 89 90 All amounts owed to the shareholder are payable on demand. During the six months ended June 30, 1995, the Company received net advances from this shareholder of $40,029. As of June 30, 1995, the Company owed $50,962 to this shareholder. During the six months ended June 30, 1996, the Company received net advances from this shareholder of $24,477. As of March 31, 1996, the Company owed $24,477 to this shareholder. In October, 1995, the Company advanced $25,000 to a shareholder to be repaid upon demand with interest at prevailing market rates. This balance was still outstanding at June 30, 1996. In October, 1995, the Company borrowed $250,000 from a trust managed by a shareholder, in the form of a mortgage note. The note is payable in full on October 15, 1996, with interest payable quarterly at prime plus 3%, secured by all corporate property up to $1,000,000 in value. The holder has the right to convert the mortgage note to common stock at a price of $3 per share. This conversion privilege expires on July 15, 1996. Interest expense related to this note totalled $13,750 for the six months ended June 30, 1996. Note 3 - Property and equipment Property and equipment are summarized as follows at June 30:
Estimated Useful Life 1996 1995 ----------- ---- ---- Land $ 250,000 $ 250,000 Building 40 years 6,250,000 6,250,000 Vehicles 5 years 10,920 10,920 Furniture and equipment 5 to 7 years 1,118,436 1,017,570 ---------- ---------- 7,629,356 7,528,490 Less accumulated depreciation 422,994 131,403 ---------- ---------- $7,206,362 $7,397,087 ========== ==========
Depreciation expense totalled approximately $140,000 and $122,000 for the six months ended June 30, 1996 and 1995, respectively. Note 4 - Other assets Other assets are summarized as follows at June 30:
1996 1995 ---- ---- Trademarks: Original cost $ 500,000 $ 500,000 Less accumulated amortization 450,000 350,000 ---------- ---------- $ 50,000 $ 150,000 ========== ========== Shows and computer programs: Original cost $ 829,800 $ 829,800 Less accumulated amortization 746,820 580,860 ---------- ---------- $ 82,980 $ 248,940 ========== ==========
Page 90 91
1996 1995 ---- ---- Game inventory: Original cost $ 75,400 $ 75,400 Less amounts used in operations 44,712 - ---------- ---------- $ 30,688 $ 75,400 ========== ========== Organization costs: Original cost $ 758 $ 758 Less accumulated amortization 673 503 ---------- ---------- $ 85 $ 255 ========== ========== Deferred loan costs: Original cost $ 20,000 - Less accumulated amortization 2,052 - ---------- ---------- $ 17,948 $ - ========== ==========
Game inventory is expensed as used. Deferred loan costs are being amortized over the life of the related loan (30 months) using the effective interest method. All other assets listed above are being amortized on a straight-line basis over sixty (60) months. Amortization expense including approximately $4,000 classified as interest expense in 1996, totalled approximately $136,000 and $134,000 for the six months ended June 30, 1996 and 1995, respectively. Note 5 - Mortgage note payable Mortgage note payable is summarized as follows as of June 30:
1996 1995 ---- ---- Mortgage note payable in 30 installments of $3,330 including interest at 14% per annum, with a final balloon payment of $235,255 due october 1,1998, secured by a deed of trust on all of the Company's real estate $ 248,745 $ - Less current portion 4,992 - --------- -------- Long-term portion $ 243,753 $ - ========= ========
$95,000 of the proceeds from the above note are currently held in escrow pending resolution of various conditions of the loan. Management anticipates collecting these funds during the third quarter of 1996. Note 6 - Common and preferred stock activity On January 1, 1993, the Company executed a plan of merger that effectively changed the Company from a Utah corporation to a Delaware corporation. This merger also resulted in a reverse stock split of one (1) share of the Delaware corporation for each twenty (20) shares of the Utah corporation. The common stock of the Company has been retroactively restated from its initial year to account for this reverse stock split. The Delaware corporation is authorized to issue up to 40,000,000 shares of common stock with a par value of $.001 per share, and 10,000,000 shares of preferred stock with a par value of $5.00 per share. The Page 91 92 preferred stock may be issued from time to time in one or more series, the shares of each series to have such voting powers, dividend rates, designations, preferences, and other characteristics as adopted by the Board of Directors. Preferred stock issued during 1994 and 1995 consisted of one series (series A), having a liquidation preference of $5.00 per share, paying no dividend, and convertible into common stock upon demand, at a conversion rate that would transfer shares of common stock worth an amount equal to the par value of the preferred stock based upon the market value of the common stock at the date of conversion. Preferred stock subscribed (see below) in 1996 has a liquidation preference of $5.00 per share, paying no dividend, and convertible into common stock after July 1, 1997, at a conversion rate of 5 shares of common stock for 1 share of preferred stock. As an inducement to obtain the mortgage note payable described in Note 5, the Company has granted an option to the mortgagor to acquire 50,000 shares of common stock at a price of fifty cents $(0.50) per share. Such option is exercisable upon thirty days notice, and expires upon repayment of the mortgage loan. The Company also has subscribed 5,000 shares of convertible preferred stock to the mortgagor as payment for $20,000 in loan closing costs. These shares were formally issued in the third quarter of 1996. The Company's income (loss) per share was calculated using 5,345,439, 5,269,141, and 2,059,838 weighted average shares outstanding for the six months ended June 30, 1996, the six months ended June 30, 1995, and for the period from inception to June 30, 1996, respectively. These amounts were determined based upon retroactive restatement for the 1 for 20 reverse stock split occurring in 1993. Although the preferred stock is a common stock equivalent, with a conversion rate of approximately 10 shares of common stock (based upon an approximate market price for common stock of $0.50 at December 31, 1995) for each share of preferred stock as of the date the preferred stock was issued, preferred stock conversion has not been included in the calculation of earnings per share in that to do so would be anti-dilutive. Note 7 - Income taxes Deferred income tax assets and liabilities are summarized as follows at June 30:
1996 1995 ---- ---- Deferred tax assets attributable to operating loss carryforwards $1,690,000 $1,370,000 Valuation allowance due to uncertainty surrounding realization of operating loss carryforwards (1,690,000) (1,370,000) Deferred tax liabilities - - ---------- ---------- Total deferred taxes $ - $ - ========== ==========
The Company has available at June 30, 1996, unused operating loss carryforwards, which may be applied against future taxable income, that expire as follows: Page 92 93
Amount of Unused Operating Expiration During Loss Carryforwards Year Ended December 31, -------------------------- ----------------------- $ 200,000 2001 550,000 2002 1,200,000 2003 300,000 2004 490,000 2007 340,000 2008 320,000 2009 650,000 2010 360,000 2011 ---------- $4,410,000 ==========
Note 8 - Commitments, risks and contingencies The Company manages for various charities a bingo hall in Piedmont, Alabama. Rents and administrative fees charged to charities are unsecured, and generally are paid only as revenues from the bingo games produce sufficient profit to allow the charities to make payments. Accounts receivable at June 30, 1996, are concentrated principally with two charities. Management has estimated the amount of such receivables that are collectible based upon their knowledge of the financial condition of the charities and the history of the profitability of bingo games. It is reasonably possible that management's estimate of the amount of such receivables that are collectible could change in the near future. The Company is also in the process of developing bingo productions to be broadcast by satellite into homes of viewers throughout the United States, and has entered into various licensing agreements to provide, for fees and royalties, certain software and methods involving bingo game production and operation. These agreements cover territories in California, Brazil, Greece, Hong Kong, and United States Indian Reservations/Military Bases/Charity Bingo Parlors. None of the above territories have significant bingo operations that are generating fees or royalties for the Company at this time. Should local, state, federal or foreign country laws change regarding bingo in these areas, such changes could have a material impact on the ability of the Company to generate future revenues. As reflected in the statement of changes in stockholders' equity, the Company has a history of issuing common stock for services difficult to value, or yet to be provided. Approximately 4,600,000 (or 86%) of the common stock outstanding at June 30, 1996, is restricted in some fashion as a result of the above transactions. Furthermore, the Company has in prior years canceled common stock certificates due to non-performance of the third parties involved in certain of the above transactions. Although no party to such transactions has yet instigated litigation involving the Company for cancellation or restriction of related shares, due to the volume of such transactions, litigation relating to such activity remains a possibility. Management feels all actions it has taken to cancel or restrict common stock are with merit, and does not anticipate any material loss being incurred by the Company relating to future resolution of these matters. Page 93 94 The Company has an employment agreement with Mr. Ron Foster, shareholder and president, which expires on December 31, 2001. Under the agreement, Mr. Foster is entitled to $120,000 in minimum annual salary, cash bonuses of the lesser of 10% of revenues or 5% of pre-tax profits, and stock bonuses equivalent to 10% of pre-tax profits before depreciation. Note 9 - Financial instruments The Company's accounts receivable are principally with two charities for unpaid rents. The collectibility of these receivables is contingent on the ability of the charities to generate sufficient profits from future bingo games, and/or other sources. Due to the nature of these receivables, their fair market value is not subject to reasonable estimation. Management feels that their fair market value approximates their recorded book value. The fair market value of all other financial instruments is estimated to approximate their carrying value in that their nature and terms are consistent with similar instruments in the market place at this time. The Company sold stock to a production company in California several years ago. As a result of the sale, the production company was to provide approximately $400,000 of production facility time and services at no additional charge. No value has been recorded for such services provided and to be provided in that their market value is not subject to reasonable estimation and that realization of future services is not assured. Page 94 95 SUMMARY FINANCIAL DATA Set forth below is selected financial information of the Registrant and its consolidated subsidiaries as derived from the audited statements of income (loss) for the last three fiscal years, from the balance sheets for the periods then ended. The selected financial information should be read in conjunction with the financial statements (including the notes thereto) filed with this Registration Statement and are qualified by reference to such financial statements.
DECEMBER 31, 1995 DECEMBER 31, 1994 ----------------- ----------------- STATEMENT OF OPERATIONS DATA - ---------------------------- Gross Revenues 604,873 25,076 Income from Operations(Loss) (769,232) (319,575) Net Income (Loss) per share * (.14) (.07) BALANCE SHEET DATA - ------------------ ASSETS - ------ Current Assets 536,453 58,928 Property & equipment, less accumulated depreciation 7,316,219 7,483,501 Other Assets 326,818 607,661 --------- --------- TOTAL ASSETS 8,179,490 8,150,090 LIABILITIES - ----------- Current Liabilities 433,623 510,091 Long Term Liabilities Nil Nil --------- --------- TOTAL LIABILITIES 433,623 510,091 TOTAL STOCKHOLDERS' EQUITY 7,745,867 7,639,999 --------- --------- Total Liabilities and Equity 8,179,490 8,150,090 - ---------------------------- ========= =========
- ------ * See above. Per share data is computed based on the weighted average of common stock outstanding as of the report date. PART III ITEM 1. INDEX TO EXHIBITS Incorporated by reference from Item 2 below. Form 10-SB Dated August 31, 1996, Page 95 96 ITEM 2. DESCRIPTION OF EXHIBITS
PAGE OR EXHIBIT SOURCE OF NUMBER INCORPORATION DESCRIPTION - ------- ------------- ----------- 2. .1 *** Plan of Reorganization: Agreement and Plan of Merger [sic] by and among Satellite Bingo, Inc., a Georgia corporation, and Supermin, Inc. dated September 2, 1986. .2 *** Re-incorporation in Delaware Instruments. 3. Constituent Documents: ---------------------- .1 *** Articles of Incorporation, as amended .2 *** Bylaws, as amended 10. Material Contracts: ------------------- .1 *** Agreements for Purchase of Piedmont Bingo Hall (Frontier Palace). .2 *** Employment Agreement between Registrant and Ronald Foster. .3 Joint Venture Agreements: ------------------------- *** .1 Joint Venture Agreement with VPACS Limited (a New York corporation) *** .2 Cahill Agreement 99 .3 La Yate Company Limited (Hong Kong) 108 .4 PandaAmerica/Glendale Studios .4 Bingo Hall Agreements: ---------------------- *** .1 Chief Strikeaxe Trading Post (Oklahoma) *** .2 DCA Services Division, Fort Benning, Georgia .5 *** Lease and Service Provider Agreements with Piedmont Jaycees. .6 Program & Production Agreements: -------------------------------- *** .1 Glendale Studios Production Agreements *** .2 Las Vegas Television Network, Inc. .7 *** Lease Agreement dated January 17, 1996, with Integrated Telephony Products, Inc. .8 Agreements with Bradley M. (Brad) Tate: --------------------------------------- *** .1 Memorandum of Service Agreement *** .2 Consulting Agreement .9 *** Alamo Leasing Agreement
Form 10-SB Dated August 31, 1996, Page 96 97
PAGE OR EXHIBIT SOURCE OF NUMBER INCORPORATION DESCRIPTION - ------- ------------- ----------- .10 Letters of Intent: ------------------ *** .1 Glendale Studios, Inc. *** .2 Cherokee Indians of Georgia, Inc. *** .3 Promotions International Corporation. .11 Licensing Agreements: --------------------- 111 .1 Fertina-C, LTD, March 25, 1992 (Greece) 118 .2 Satellite Bingo, Inc. and Luis Manuel Da Costa Matias, January 18, 1991(Brazil) 123 .3 I.O. Report, C.A., March 23, 1993, (Venezuela) .12 LACOA Agreements: ----------------- 126 .1 Lobbyist Engagement Agreement 130 .2 Management Agreement 11. * Statement re computation of per share earnings. 21. ** Subsidiaries of the Registrant. 27. Financial Data Schedule (for SEC use only) 99. Additional Exhibits: *** .1 Letter from Fletcher, Heald & Hidreth to Ron Foster, dated April 10, 1992, referencing communications with Cynthia Young, Assistant Chief, Support of Litigation, Organized Crime and Racketeering Section of the Criminal Division, UNITED STATES DEPARTMENT OF JUSTICE. *** .2 Letter from Fletcher, Heald & Hidreth to Ron Foster, dated March 19, 1992, referencing the legality under federal law of SBI Communications, Inc.'s programs and planned subscription network. *** .3 Correspondence between the Federal Communications Commission and Putbrese, Hunsaker & Ruddy, dated September 14, 1990 through February 11, 1991, requesting a request for declaratory ruling the legality of advertising interactive Bingo games on cable systems. *** .4 Correspondence between Sutherland, Asbill & Brennan and the Federal Communications Commission, from July 28, 1986, until some undetermined time in 1987. *** .5 Opinion letters to Ron Foster from Sutherland, Asbill & Brennan dated July 11 and 15, 1986. *** .6 Letter involving the game C-Note, dated June 18, 1993, referencing a prohibition under Section 9-701(1(a) to the offer of games of Bingo and keno
Form 10-SB Dated August 31, 1996, Page 97 98 in Nebraska, but noting that such statute would not appear to prohibit the broadcast of the games into Nebraska, or, the location in Nebraska of telephone banks involving offers of the games outside of Nebraska. *** .7 Opinion Letter dated November 16, 1995, from Wiley, Rein & Fielding (Washington, D.C.), re Pay-per-view Bingo. 137 .8 Ordinance Number 429 (Bingo) dated June 13, 1994, City Clerk of Piedmont, Alabama. 144 .9 Alabama Constitution, Amendment Number 508, Bingo Games in Calhoun County. 145 .10 Limited Appraisal of Frontier Palace, dated May 1, 1995, prepared by Phillip C. Ledbetter.
- --------- * Incorporated by reference from the financial statements filed herewith. ** Incorporated by reference from the disclosure thereof at Part I, Item I (Description of Business), located at page 3 of this registration statement. *** Provided in original filing. SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this First Amended Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized. SBI COMMUNICATIONS, INC. Dated: August 31, 1996 /s/Ronald Foster/s/ ------------------- Ronald Foster Chairman, Chief Executive Officer & President Form 10-SB Dated August 31, 1996, Page 98 EX-10.3.3 2 JOINT VENTURE AGREEMENT - LA YATE CO. 1 Exhibit 10.3.3 THIS MEMORANDUM OF JOINT VENTURE AGREEMENT (the "Agreement") is entered into this 15th day of April, 1989, by and between LA YATE COMPANY LIMITED a Hong Kong Corporation (LYL) and SBI Communications, Inc., a Utah Corporation (SBI). In consideration of the mutual promises of the parties and for other good and valuable consideration, the parties do hereby agree as follows: - 1. FORMATION OF JOINT VENTURE (a) The parties hereto agree to form a joint venture for the purpose of financing, developing and producing a television game show currently entitled "Satellite Bingo" (the "Project") for commercial television broadcast, and such other rights of exploitation as the parties deem commercially viable in Hong Kong. LYL shall be given a right to first refusal to form joint venture or other legal relationship with SBI in connection with the Project in other Asian countries. SBI agrees to make the same proposals to LYL that it makes to other entities relative to the Project in other Asian countries. LYL shall have 21 days from receipt of the proposal to accept or reject the proposal. Nothing in this paragraph shall restrict SBI's rights to negotiate with others regarding the Project. In the event that no response is submitted by LYL within the above stated period, SBI may immediately execute contracts with other entities, without notice to LYL. (b) This joint venture shall be deemed formed pursuant to and subject to the provisions of the California Corporations Code, Title 2, Chapter 1, known as Uniform Partnership Act; provided that if any provisions of this Agreement is inconsistent Form 10-SB Dated August 31, 1996, Page 99 2 with any provision of said Uniform Partnership Act, then the provisions of this Agreement shall prevail to the extent permitted by law. (c) The name of this joint venture shall be "Satellite Bingo, Ltd.". 2. Principal Place of Business The principal place of business of the joint venture shall be 509 Tak Shing House, 20 Des Voeux Road Central, Hong Kong, or such other place as may be mutually agreed by the parties hereto. 3. Term The term of the joint venture shall commence upon the approval of the Television and Entertainment Licensing Authority and/or any relevant authority of the Hong Kong Government in the manner stipulated in Clause 4 hereof and shall continue thereafter unless and until: (i) The election by all parties to terminate; (ii) If lack of financing for subsequent productions of the Project results in any interruption of production for a period in excess of six (6) months, then on the election of any party to terminate; (iii) The distribution to the parties of all the joint venture's assets; or (iv) The sale of all or substantially all of the assets of the Joint Venture and distribution of the proceeds to the parties. 4. Capital Contributions LYL has or will contribute to the capital of the joint venture the financing for the production of the show, SBI hereby contributes to the joint venture all the rights to exploit all of SBI's rights in and to the game show in the stated market. Each party shall have a capital account Form 10-SB Dated August 31, 1996, Page 100 3 equal to that party's capital contributions plus that party's allocations of net profit and minus that party's allocations of net loss and share of distribution. LYL may make additional capital contribution to the joint venture to cover the expenses of soliciting financing in accordance with Section 7 hereof including promotional costs as the parties shall mutually agree. Any other additional capital contributions shall be made by the unanimous approval of the parties hereto. The term "Adjusted Invested Capital" shall refer to all capital contributions by a party, less cash distributed to the party, provided that Adjusted Invested Capital shall not be reduced below zero. It is understood and agreed that SBI has expended One Hundred Thousand U.S. Dollars ($100,000) thus far on computers, software, sets, and promotional video tapes. Upon the approval of the Television and Entertainment Licensing Authority of the Hong Kong Government of the Project and upon LYL signing the contract with the T.V. Station, LYL will pay to SBI the sum of Fifty Thousand U.S. Dollars ($50,000) whereupon each party shall receive a contribution of Fifty Thousand U.S. Dollars (US $50,000). 5. Interest in Joint Venture The parties shall have "Percentage Interests" in the Joint Venture as follows:- LYL 50% SBI 50% 6. Financing the Project For six (6) months from the date of this Agreement LYL shall actively solicit financing from television stations, networks, cable services and various sponsors for the development, production and exploitation of the Project in the event the parties are unable to secure sufficient financing for such purpose within such six month period, either party may terminate the joint venture. Form 10-SB Dated August 31, 1996, Page 101 4 7. Production The budgets for Satellite Bingo shows, shall be subject to the mutual approval of the parties, but in event of dispute SBI shall have final budgeting approval. 8. Credit If the Project is produced, then the parties shall receive credit as follows: "Produced by SBI Communications, Inc. in association with LA YATE CO. LTD." together with such other credits , if any, as the parties mutually agree. 9. Control and Management Except as specifically provided herein, LYL shall be responsible for the management of the operations of the joint venture including the disbursement of joint venture's capital and other funds in accordance with a budget authorized in accordance with the terms of this Agreement. Notwithstanding Jon Benn of LYL shall on an ongoing basis, inform and consult with an officer of SBI. 10. Accounting LYL shall keep adequate books and records to reflect the affairs and transactions of the joint venture which shall be available for inspection by the parties during normal business hours. The parties shall insure that each party receives within ninety (90) days after the end of each taxable year the information necessary for the party to complete his federal and state income tax returns. 11. Banking Form 10-SB Dated August 31, 1996, Page 102 5 Joint Venture funds shall be deposited in a bank account in the name of the joint venture. Such funds shall be subject to withdrawal on the signature of an authorized signatory of LYL or of both LYL and SBI. 12. Cash Available for Distribution All revenues generated by the joint venture after paying all proper expenses and providing for reasonable reserves for the conduct of the joint venture business ("cash available for distribution") shall be distributed at such times as determined by LYL and SBI in the following order of priority: (i) First, to the parties in an amount which when added to all prior distributions under this subsection 12(a)(i) equal total capital contributions of the parties. (ii) Thereafter, cash available for distribution shall be distributed to the parties pro rata in accordance with their percentage interests. 13. Profits and Losses Net profits and net losses as determined by the joint venture's accountants shall be allocated as follows: - (i) Net loss shall first be allocated to the parties until net loss has been allocated in an amount equal to the capital contributions; (ii) Thereafter, net loss shall be allocated to the parties in accordance with their Percentage Interests. (iii) Net profit shall first be allocated to the parties until such time as there shall have been allocated to the parties under this subsection (13)(iii) net profit equal to such prior net loss allocations; Form 10-SB Dated August 31, 1996, Page 103 6 (iv) Thereafter, net profit shall be allocated to the parties in accordance with their percentage interests. Form 10-SB Dated August 31, 1996, Page 104 7 14. Compensation One or more of the parties may be entitled to compensation for services performed as a producer subject to the unanimous approval of the parties. Except as specifically set forth herein and except for distributions of cash made in accordance with Section 12, no party shall be entitled to compensation for services relating to the joint venture. 15. Reimbursement of Expenses The joint venture shall indemnify a party for payment made and personal liabilities reasonably incurred by it in the ordinary and proper conduct of the joint venture business or for the preservation of the joint venture property. 16. Assignment of interests No party shall sell, assign, mortgage, hypothecate or encumber its interest in the joint venture without the prior written consent of the non-assigning parties. 17. Dissolution Upon dissolution, the business of the joint venture shall be wound up, the assets shall be liquidated, and the proceeds applied to (i) payment of the joint venture debts (other than to the parties) including the expenses of liquidation; (ii) deposit in a trust account of a reasonable reserve for payment of contingent liabilities and expenses; and (iii) repayment for loans from the parties. The remaining proceeds shall be distributed in the manner provided for distribution of cash generally. After passage of a reasonable time and payment of the contingencies arising in that time, the balance remaining in the trust account shall be distributed to the parties in the same manner. It is specifically understood and agreed that upon termination and/or dissolution, the rights granted hereunder by SBI shall terminate and/or revert back to SBI. Form 10-SB Dated August 31, 1996, Page 105 8 18. Construction This Memorandum of Joint Venture Agreement shall be governed by and construed in accordance with the laws of the California Corporation Code applicable to contracts entered into and to be fully performed therein. 19. Entire Understanding The foregoing constitutes the entire understanding of the parties hereto, and supersedes any prior or collateral understandings and negotiations or agreements. 20. Notices All notice or demands shall be in writing and shall be delivered personally, electronically, telegraphically, or by express or certified mail. Delivery shall be deemed conclusively made (i) at the time of delivery if personally delivered, (ii) immediately in the event notice is delivered by transmittal over electronic or telephonic transmitting devices, such as telex or telecopy, provided the party to whom the notice is delivered has compatible device and electronically or by other written document confirms receipt thereof, or the party otherwise confirms actual receipt thereof; (iii) at the time that the telegraphic agency confirms to the sender delivery thereof to the addressee of the Parties or if they cannot agree then in accordance with the rules governing the Arbitrators shall have at least ten (10) years experience in the television and motion picture industry. Judgment on the arbitration award may be entered in any state or federal court of competent jurisdiction. Nothing contained herein shall, however, (i) prevent any party from seeking and obtaining extraordinary or provisional relief, including but not limited to, prohibitory or mandatory injunctions or extraordinary writs in any court of law or equity having jurisdiction; (ii) prevent any party from joining any other Defendant in any action brought by or against a third Form 10-SB Dated August 31, 1996, Page 106 9 party; or (iii) prevent any party from filing a legal action hereunder to effectuate any attachment or garnishment, provided that such party stipulates in such action, at any other party's request, to arbitration of the merits of said case in accordance with this provision. 22. Attorney's Fees In the event of any litigation or arbitration respecting or arising out of this Agreement, the prevailing party shall be entitled to recover its Attorneys' fees and costs. LA YATE CO. LTD SBI COMMUNICATIONS, INC. A Hong Kong Corporation A Utah Corporation /s/ Jon Benn /s/ /s/ Ron Foster /s/ - ----------------------- ------------------------ JON BENN, Director RON FOSTER, President
Form 10-SB Dated August 31, 1996, Page 107 EX-10.3.4 3 JOINT VENTURE AGREEMENT - PANDA AMERICA 1 Exhibit 10.3.4 AGREEMENT 1) PANDAAMERICA 3160 Torrance Blvd., Ste 100 Torrance, CA 90503 2) GLENDALE STUDIOS, INC., a California Corporation 1239 S. Glendale Avenue Glendale, CA 91205 3) SBI Communications, Inc., a Delaware Corporation 1330 South Glendale Avenue Glendale, CA 91205 Will jointly produce market and promote a bingo-formatted show to be aired over Tel Star 303 (T303) receive Channel 17, which broadcasts PandaAmerica throughout area covered by Tel Star 303 Footprint. This joint venture will provide payment for all expenses incurred and revenues equally by and to the parties. Upon approval of such expenses incurred or to be incurred. Equipment and services to be billed to the parties at cost (or fair market value). Operating board to be formed and consist of the following members: Marty Weiss (PandaAmerica) Al Makhanian (Glendale Studios) Ron Foster (SBI Communications) All new ventures, expenses and all aspects of operation shall be approved by all members of the operating board and/or parties. Such approval will not unreasonably be withheld. All start-up expenses to be shared on an equal basis by the parties. These items to be approved by the parties. All expenses to be paid out of revenues, unless there are losses which will be paid equally by all of the parties. Profits after expenses to be shared equally by each party. Accounting shall be provided by CPA firm mutually agreed by the parties which include sales, expenses and all other related items to be provided to the parties on a monthly basis. Accounting, Productions, Credit Cards, Trademark and Copyrights, Legal, Telecommunications Switcher, "800" numbers, Printing and Direct Mail , Travel, Phone Service (Local - Long Distance), Software, Technology Form 10-SB Dated August 31, 1996, Page 108 2 TO: RON FOSTER AL MAKHANIAN MARTY WEISS RE: GLOBALOT BINGO DATE: NOVEMBER 2, 1995 This shall set forth the basic terms of the agreement between SBI Communications, Inc., PandaAmerica, Inc., and Glendale/Oakridge Studios, Inc. The option for development, financing, production and distribution of the original concept and all elements thereof (concept) created by SBI Communications Inc. entitled Globalot Bingo as the project. I. PROJECT A) The project shall be a pilot on PandaAmerica Television Network tentatively entitled Globalot Bingo. B) SBI, PandaAmerica, and Glendale/Oakridge Studios shall act as show producers, and shall work jointly creatively on the show, but, in case of any dispute, Ron Foster will have the final say in all creative decisions pertaining to the game Globalot Bingo. PandaAmerica and Glendale/Oakridge Studios shall be responsible for all production decisions and will share in costs. II. FINANCING A) SBI, PandaAmerica, and Glendale/Oakridge Studios shall work jointly to obtain commitments from other networks, cable or single station to produce viewers. B) SBI, PandaAmerica, and Glendale/Oakridge Studios shall receive 33 1/3% profits on all exploitation from the project Globalot Bingo done on PandaAmerica Network. C) SBI, PandaAmerica, and Glendale/Oakridge Studios will share in expenses on producing Globalot Bingo on PandaAmerica's network. These costs will include prizes for winners of bingo, production costs, satellite time, and any studio production costs including labor. III. RIGHTS SBI, PandaAmerica, and Glendale/Oakridge Studios will mutually agree in good faith on any agreement and the terms thereof made to third parties, financiers or networks relating to this project, Bingo. Form 10-SB Dated August 31, 1996, Page 109 3 IV. CREDITS SBI shall receive Executive Producer, Al and Marty will share Co. Executive Producer. V. EXECUTION The foregoing, when signed by all parties will serve as a binding interim agreement in order, among other things, to begin development and licensing of the concept and until a more formal agreement, if any, on terms not inconsistent with those stated above, can be prepared and signed. SBI Communications Glendale/Oakridge Studios /s/ Ron Foster /s/ Al Makhanian /s/ - ------------------ -------------------- By: Ron Foster By: Al Makhanian PandaAmerica /s/ Marty Weiss /s/ - -------------------- By: Marty Weiss Form 10-SB Dated August 31, 1996, Page 110 EX-10.11.1 4 LICENSING AGREEMENT - FERTINA - C 1 Exhibit 10.11.1 LICENSING AGREEMENT THIS AGREEMENT (the "Agreement") is made this March 25, 1992 by and between SBI COMMUNICATIONS, INC., a Utah Corporation, and its wholly owned subsidiary Satellite Bingo, Inc., a Georgia Corporation (together called "SBI") and Fertina-C, LTD., a Greece Corporation. WHEREAS, SBI has developed a concept for beaming live interactive promotional bingo games, and other concepts to the cable and direct broadcast television markets. SBI has acquired certain equipment that would be useful in implementing said concept, has developed and copy-righted computer software necessary to implement said concept, has produced considerable video footage that could be useful in developing video tapes promoting said concept, and has trademarked the name and logo Satellite Bingo; and WHEREAS, Fertina-C, LTD. has the expertise on the European and Middle East market with business relations and the network to provide distribution and promotional services. Furthermore, Fertina-C, Ltd., has a desire of utilizing SBI concepts on satellite, cable television, on direct broadcast television and the Bingo Club nationally in Greece; WHEREAS, under a separate agreement, Fertina-C, Ltd. will enter into a consultant agreement with Ronald Foster to produce Satellite Bingo and its concepts. NOW THEREFORE, in consideration of $550,000 to be paid no later than April 30, 1997 annually in equal payments of $100,000 by Fertina-C, Ltd. to SBI, and in consideration of a continuing royalty payment described more fully below, the parties hereto agree as follows: 1. SBI hereby grants to Fertina-C, Ltd. an exclusive license to use its concepts, whether presently developed or developed in the future, its computer software footage to produce promotional video tapes (the "rights") on satellite, cable television, on direct broadcast television and in its Bingo Club. SBI will engage in no business operations on satellite, cable television, on direct broadcast television, or Bingo Club, and Fertina-C, Ltd. will not use the rights anywhere except on satellite, cable television, on direct broadcast television, or Bingo Club in Greece. SBI also herewith sells to Fertina-C, Ltd. certain "set pieces" including a computerized bingo board, a computerized random selector board, and spare parts. Form 10-SB Dated August 31, 1996, Page 111 2 2. The $550,000 paid herewith by Fertina-C, Ltd. to SBI will be allocated as follows: Purchase of production set pieces * $ 50,000 Rights to Satellite Bingo trademarks 40,000 Rights to footage to produce promotional video tapes 60,000 Rights to use computer software program 150,000 Exclusive rights to SBI concept for cable television, satellite, and direct broadcast television 200,000 Concept of the Bingo Club 50,000 -------- 550,000
3. Fertina-C, Ltd. hereby agrees to pay SBI or its assigns a 2% royalty on satellite bingo card sales, net of the money escrowed for prizes, made by Satellite Bingo for cable, on direct broadcast, and for the Bingo Club. Also a 2% fee will be paid to SBI on any additional revenues through advertising, sell of products or the Bingo Club. NOTE: By mutual approval between SBI and Fertina-C, Ltd., candidates will be selected for a scholarship, from this 2% royalty fund for agriculture education in Greece or from Greece into Georgia, or elsewhere. This fund will be held in escrow and will require both the Licensor and the Licensee for the use of these funds. 4. SBI hereby represents and warrants to Fertina-C, Ltd. that it is a corporation duly incorporated, validly existing and in good standing under the laws of Utah, that its wholly owned subsidiary is a corporation duly incorporated, validly existing and in good standing under the laws of Georgia; that it is the owner of all rights and equipment conveyed herein; that no litigation is pending or threatened that challenges SBI's ownership of these rights and equipment; that it will at closing deliver all rights and equipment free of any liens and encumbrances; that it has entered into no contracts that would prevent it from entering into this Agreement; and that it has obtained the necessary approval from its board of directors to enter into this Agreement. Fertina-C, Ltd. hereby represents and warrants to SBI that it is a corporation duly incorporated, validly existing and in good standing under the laws of Greece and that its President has authority under the corporation to enter into this Agreement. 5. This Agreement is binding upon inures to the benefit of SBI, its successors and assigns, and to Fertina-C, Ltd., its successors and assigns. Form 10-SB Dated August 31, 1996, Page 112 3 6. No modification or waiver of this Agreement shall be valid unless it is in writing and signed by the party against whom it is sought to be enforced. No waiver at any time of any provision of this Agreement shall be deemed a waiver of any other provision of this Agreement at that time of a waiver of that or any other provision at any other time. 7. This Agreement contains the entire understanding between the parties with reference to the matters contained herein, there being no terms, conditions, warranties or representations other than those contained herein. ADDITIONAL PARAGRAPHS 1. Licensee agrees that all broadcast will be via a live feed. Licensee agrees to provide copyright notice and credits in a manner to be supplied by Licensor. Under no circumstances shall Licensor delete such copyright notices or credits. Licensee agrees that all videos, brochures or any written, taped, or printed materials that result from the exploitation of this license shall bear the copyrights as provided by Licensor. Licensee further agrees that the use at any time of any of the above stated materials outside of the market territory provided under this agreement, or for purposes other than exploitation of this agreement shall constitute not only a material breach of this agreement, but shall also constitute copyright and trademark infringement. 2. Licensee agrees that no cards for participation in the game will be made available or distributed to areas not covered specifically by this agreement and that no winning cards will be honored if such cards are played via satellite or other instrumentality which is not in association with licensed broadcasts within the territory as provided by this agreement. 3. Licensor agrees that Licensee may develop variations from the original "Game" including but not limited to changing the name or format of the show, however, all variations shall contain trademark and copyrights as supplied by Licensor. Any deviation shall constitute a material breach and copyright and trademark infringement. 4. Licensee agrees to allow Licensor to review its overall plan of exploitation under this License Agreement, in advance of finalization, so as to allow Licensor an opportunity to object to any conduct, materials, etc. that may affect Licensor reputation. 5. Licensor reserves all rights not expressly granted herein, and the parties agree that Licensor may exercise all or any of its reserved rights, without limitation, unless expressly provided otherwise herein, and regardless of the extent to which such exercise is competitive with Licensee or the license granted hereunder. 6. Any controversy or claim arising out of, or relating to, this agreement, the breach thereof, or the coverage of this arbitration provision shall be settled by arbitration; provided, that any arbitrators selected shall have experience in or knowledge of the television broadcasting Form 10-SB Dated August 31, 1996, Page 113 4 industry. Any such arbitration shall be conducted in the U.S. The arbitration of such issues, including the determination of the amount of any damages suffered by any party hereof by reason of the acts or omissions of another shall be to the exclusion of any court of law, except as set forth below. The decision of the arbitrators or a majority of them shall be final and binding on all parties and their respective heirs, executors, administrators, successors and assigns. If the parties or the arbitrators appointed by them are unable to agree upon the selection of a neutral arbitrator, then either party may, at it election, require that the arbitration shall be conducted under the auspices and rules of the American Arbitration Association ('AAA') and that the neutral arbitrator shall be selected by the AAA. Notwithstanding the foregoing, Licensor may, at its election, by written notice to such effect, waive the provisions of this arbitration clause and proceed directly against Licensee by court action. Arbitration hereunder shall not, in any event (i) prevent any party from seeking and obtaining equitable relief, including, but not limited to, prohibitory or mandatory injunctions, specific performance or extraordinary writs, in any court of law or equity having jurisdiction, nor (ii) prevent any party from joining any other party as a defendant in any action brought by or against a third party, or (iii) prevent any party from filing legal action hereunder to effectuate any attachment or garnishment, provided that such party stipulates in such action, at any other party's request, to arbitrate on the merits of said case, or (iv) prevent a party from filing legal action to compel arbitration under the arbitration provisions hereof. Any action taken by Licensor as provided in sub-clauses (i) through (iv) above shall not constitute a waiver of Licensor's right to require arbitration hereunder unless such rights shall have been otherwise waived by Licensor as foresaid. The Arbitrator will be selected from a list of proposed names by AAA to the mutual agreement of Licensor and Licensee. 7. This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia. The parties consent to the jurisdiction of the courts of the State of Georgia (and/or that Federal courts within Georgia), and each party agrees that service of process may be effected by mail (certified or registered mail, return receipt requested), or to or by personal service upon such party (or any officer of a corporate party) at such party's address as set forth in this agreement or such other address as such party may specify in writing. 8. All notices hereunder must be in writing and must either be personally delivered or be sent by certified mail, postage prepaid, unless otherwise specified. The address for all notices and all payments required to be sent or delivered to Licensor and Licensee shall be the respective address stated below hereof, or such other address as the parties may designate in writing. SBI Communications, Inc. Fertina-C, Ltd./Greek Desk 144-A North Courthouse Ave. P. O. Box 14108 P. O. Box 729 11501 Athens Leesburg, GA 31763 Greece 9. Licensee shall not assign this agreement, in whole or in part, or sub-license or authorize or permit the sub-license of any programs hereunder, to any third party without the prior written Form 10-SB Dated August 31, 1996, Page 114 5 consent of Licensor. Licensor may assign its rights hereunder in whole or part to any person, firm or corporation. Licensor acknowledges that a joint venture may be formed. 10. Nothing in this agreement shall be construed so as to require the commission of any act contrary to law, and wherever there is any conflict between any provision of this agreement and any material statute, law, ordinance or regulation, the latter shall prevail, but in such event any provisions of this agreement so affected shall be curtailed and limited only to the extent necessary to bring them within the applicable requirements, and the remainder of this agreement represents the entire agreement between the parties and no modification or waiver of any term thereof shall be effective unless in writing and signed by both parties. The waiver by either party of any breach or default by the other party shall not be construed as a waiver of any other breach of default by such other party. 11. Licensee agrees to protect, indemnify defend and hold Licensor, and its employees and agents, harmless against all costs, claims, losses or damages, attorney's fees and other expenses arising out of or caused by Licensee's exploitation of the "Game"; and (ii) any breach by Licensee of any of Licensee's Warranties, representations or agreements hereunder. 12. Licensor agrees to refer all inquiries of any nature (with respect to this game in these markets) to Licensee. 13. The term of this license agreement shall be for an initial period of five years (5 years), subject to renewal of another five years (5 years) during the twelfth month of this agreement. Renewal will be extended in good faith and the fee will not exceed more than 25% over original fee stated herein by Licensor provided that Licensee has made substantial and significant progress in the exploitation of the game. Substantial and significant progress will be measured by the following parameters: a) Contracts for marketing, sponsors, and television stations shall be fully executed and delivered. b) Documented revenues or accounts receivables. In the event that Licensee has not made substantial progress under this contract and Licensor has an opportunity to exploit the game in Greece, Licensee agrees to negotiate with Licensor in good faith, a buy-out of Licensee under this contract, such negotiations to be based upon the progress of Licensee under this agreement. In the event of a breach of this contract by Licensee, all rights granted herein shall immediately terminate and revert to Licensor. Form 10-SB Dated August 31, 1996, Page 115 6 IN WITNESS WHEREOF, Licensee has this day and year executed this contract of license which upon execution by the Licensor shall constitute a license for broadcast of Satellite Bingo in accordance with the terms and conditions hereby; Form 10-SB Dated August 31, 1996, Page 116 7 Licensor: /s/ Ronald Foster /s/ Ronald Foster, President SBI Communications, Inc. Licensee: /s/ Fertina-C /s/ Fertina-C, Ltd. Form 10-SB Dated August 31, 1996, Page 117 EX-10.11.2 5 LICENSING AGREEMENT - SATELLITE BINGO 1 Exhibit 10.11.2 CONTRACT OF LICENSE Licensor: SATELLITE BINGO, INC. Date: January 18, 1991 144-A NORTH COURTHOUSE AVE. LEESBURG, GA 31763 U.S.A. (Hereinafter Licensor) Licensee: LUIS MANUEL DA COSTA MATIAS RUA VIOLETAS #140 CASAIS PORTUGAL (Hereinafter Licensee) Licensor hereby grants to Licensee the right to promote, market, advertise, produce and broadcast a game show, "Satellite Bingo" (hereinafter the "game") in the following broadcast markets (see paragraph A3) for a period of Ten years (10 years) (with an option for Ten more years (10) for a payment of $1.00 and each year thereafter for a payment of $1.00) subject to the terms and conditions set forth in the following paragraphs set forth herein. A. Luis Manuel Da Costa Matias shall provide the following: 1. Luis Manuel Da Costa Matias will develop and implement a marketing plan which will be designed to secure advertising/sponsors and television stations in Brazil, South America. Such marketing plan shall be subject to the approval of Licensor, however, approval will not be unreasonably withheld. 2. Luis Manuel Da Costa Matias shall be responsible for all aspects of the exploitation of this license including but not limited to the following: a) Production b) Distribution of cards c) Prizes d) Contracts with sponsors, advertisers, television stations, actors, producers, etc. e) All Governmental permits 3. Luis Manuel Da Costa Matias shall have the exclusive rights to exploit this license in the following markets: a) Brazil, South America Form 10-SB Dated August 31, 1996, Page 118 2 4. Licensee will provide and Licensor shall receive creator screen credits on each production. 5. Licensee shall exploit this license in such a manner as to protect all trademarks and copyrights of Licensor. 6. As compensation for the rights granted hereunder, Licensee shall pay to Licensor Two Million Dollars ($2,000,000 USD) for 80%. a) With a 12 month option for the remaining 20% for Seven Million Dollars ($7,000,000 USD). b) Payment will be as follows upon execution of this contract a payment fee of Five Hundred Thousand Dollars ($500,000 USD) due by March 31, 1991 and the balance of One Million, Five Hundred Thousand Dollars ($1,500,000 USD) to be paid prior to August 31, 1991. Licensor shall incur no liabilities or responsibilities other than those specifically set forth herein with respect to Licensee's exploitation of this license. B. Licensor shall provide the following: 1. Computer programs, bingo cards, and technical assistance. All computer programs and bingo cards shall be paid for directly by Licensee and Licensor will incur no liabilities for payment of same. Technical assistance will be provided via a separate consulting agreement 2. Proof of ownership of requisite copyrights, trademarks and rights granted herein. 3. 1" videos of actual programs for use as sale materials only. Such videos will be provided at Licensor's cost for reproduction. Where feasible, Licensor will provide its current sales materials for use by Licensee. C. ADDITIONAL PARAGRAPHS 1. Licensee agrees that all broadcast will be via a live feed. Licensee agrees to provide copyright notice and credits in a manner to be supplied by Licensor. Under no circumstance shall Licensor delete such copyright notices or credits. Licensee agrees that all videos, brochures or any written, taped, or printed materials that result from the exploitation of this license shall bear the copyrights as provided by Licensor. Licensee further agrees that the use at any time of any of the above stated materials is outside of the market territory provided under this agreement, or for purposes other than exploitation of this agreement shall constitute not only a material breach of this agreement, but shall also constitute copyright and trademark infringement. Form 10-SB Dated August 31, 1996, Page 119 3 2. Licensee agrees that no cards for participation in the game will be made available or distributed to areas not covered specifically by this agreement and that no winning cards will be honored if such cards are played via satellite or other instrumentality which is not in association with licensed broadcasts within the territory as provided by this agreement. 3. Licensor agrees that Licensee may develop variations form the original "game" including, but not limited to, changing the name or format of the show, however, all variations shall contain trademark and copyrights as supplied by Licensor. Any deviation shall constitute a material breach and copyright and trademark infringement. 4. Licensee agrees to allow Licensor to review its overall plan of exploitation under this License Agreement, in advance of finalization, so as to allow Licensor an opportunity to object to any conduct, materials, etc. that may affect Licensor reputation. 5. Licensor reserves all rights not expressly granted herein, and the parties agree that Licensor may exercise all or any of its reserved rights, without limitation, unless expressly provided otherwise herein, and regardless of the extent to which such exercise is competitive with Licensee or the license granted hereunder. 6. Any controversy or claim arising out of, or relating to, this agreement, the breach thereof, or the coverage of this arbitration provision shall be settled by arbitration; provided, that any arbitrators selected shall have experience in or knowledge of the television broadcasting industry. Any such arbitration shall be conducted in the U.S. The arbitration of such issues, including the determination of the amount of any damages suffered by any party hereof by reason of the acts or omissions of another shall be to the exclusion of any court of law, except as set forth below. The decision of the arbitrators or a majority of them shall be final and binding on all parties and their respective heirs, executors, administrators, successors and assigns. If the parties or the arbitrators appointed by them are unable to agree upon the selection of a neutral arbitrator, then either party may, at its election, require that the arbitration shall be conducted under the auspices and rules of the American Arbitration Association ('AAA') and that the neutral arbitrator shall be selected by the AAA. Notwithstanding the foregoing, Licensor may, at its election, by written notice to such effect, waive the provisions of this arbitration clause and proceed directly against Licensee by court action. Arbitration hereunder shall not, in any event (I) prevent any party from seeking and obtaining equitable relief, including, but not limited to, prohibitory or mandatory injunctions, specific performance or extraordinary writs, in any court of law or equity having jurisdiction, nor (II) prevent any party from joining any other party as a defendant in any action brought by or against a third party or (III) prevent any party from filing legal action hereunder to effectuate any attachment or garnishment, provided that such party stipulates in such action, at any other party's request to arbitrate on the merits of said case, or (IV) prevent a party from filing legal action to compel arbitration under the arbitration provisions hereof. Any action taken by Licensor as provided in sub-clauses (I) through (IV) above shall not constitute a waiver of Form 10-SB Dated August 31, 1996, Page 120 4 Licensor's right to require arbitration hereunder unless such rights shall have been otherwise waived by Licensor as foresaid. 7. This Agreement shall be governed by and construed in accordance with the laws of the State of California. The parties consent to the jurisdiction of the courts of the State of California (and/or the Federal courts within California), and each party agrees that service of process may be effected by mail (certified or registered mail, return receipt requested), or to or by personal service upon such party's address as set forth in this agreement or such other address as such party may specify in writing. 8. All notices hereunder must be in writing and must either be personally delivered or be sent by certified mail, postage prepaid, unless otherwise specified. The address for all notices and all payments required to be sent or delivered to Licensor and Licensee shall be the respective addresses stated on page 1 hereof, or such other address as the parties may designate in writing. 9. Licensee shall not assign this agreement, in whole or in part, or sub-license or authorize or permit the sub-license of any programs hereunder, to any third party without the prior written consent of Licensor. Licensor may assign its rights hereunder in whole or part to any person, firm or corporation. Licensor acknowledges that a joint venture may be formed. 10. Nothing in this agreement shall be construed so as to require the commission of any act contrary to law, and wherever there is any conflict between any provision of this agreement and any material statute, law, ordinance, or regulation, the latter shall prevail, but in such event any provisions of this agreement so affected shall be curtailed and limited only to the extent necessary to bring them within the applicable requirements, and the remainder of this agreement represents the entire agreement between the parties and no modification or waiver of any term thereof shall be effective unless in writing and signed by both parties. The waiver by either party of any breach or default by the other party shall not be construed as a waiver of any other breach of default by such other party. 11. Licensee agrees to protect, indemnify, defend and hold Licensee, and its employees and agents, harmless against all costs, claims, losses or damages, attorney's fees and other expenses arising out of or caused by Licensees exploitation of the Game; and (II) any breach by Licensee of any of Licensee's Warranties, representations or agreements hereunder. 12. Licensor and Licensee acknowledge that Craig Aronld has been instrumental in creating this association and as such is entitled to compensation to be negotiated by all parties in good faith. Form 10-SB Dated August 31, 1996, Page 121 5 13. Licensor agrees to refer all inquiries of any nature (with respect to this game in these markets) to Licensee. 14. The term of this license agreement shall be for an initial period of ten years (10 years), subject to renewal of another ten years (10 years) during the twelfth month of this agreement. Renewal will be extended in good faith by Licensor provided that Licensee has made substantial and significant progress in the exploitation of the game. Substantial and significant progress will be measured by the following parameters: a) Contracts for marketing, sponsors, and television stations shall be fully executed and delivered. b) Documented revenues or accounts receivables. If the show is set for production by the twelfth month (12), then Licensor will extend for the period of contracts involved for production. If the show completes its scheduled showing and, at the end of that period, there are no renewals of the production contract, then this license will terminate. In the event that Licensee has not made substantial progress under this contract and Licensor has an opportunity to exploit the game in South America, Licensee agrees to negotiate with Licensor in good faith, a buy-out of Licensee under this contract, such negotiations to be based upon the progress of Licensee under this agreement 15. Licensor reserves the right to terminate all rights granted hereunder, after 120 days from the date of execution of this agreement, in the event that Licensee has not entered into any contractual relations with sponsors, television stations or card distributors within the above stated 120 days. Licensee may preserve his rights hereunder provided that Licensee pays to Licensor a fee of Five Hundred Thousand US Dollars ($500,000 USD). In the event of a breach of this contract by Licensee, all rights granted herein shall immediately terminate and revert to Licensor. IN WITNESS WHEREOF, Licensee has this day and year executed this contract of license which upon execution by the Licensor shall constitute a license for broadcast of Satellite Bingo in accordance with the terms and conditions hereby: Licensor: /s/ Ron Foster /s/ Licensee: /s/ Luis Manuel Da Costa Matias ------------------------ -------------------------------- Ron Foster, Satellite Bingo, Inc. Luis Manuel Da Costa Matias Form 10-SB Dated August 31, 1996, Page 122 EX-10.11.3 6 LICENSING AGREEMENT - I.O. REPORT 1 Exhibit 10.11.3 AGREEMENT This agreement (the "Agreement") is made this 23rd day of March, 1993 by and between SBI COMMUNICATIONS, INC., a Delaware Corporation, and it's wholly owned subsidiary SATELLITE BINGO, INC., a Georgia Corporation and SBI COMMUNICATIONS, C.A. (to be formed in the Republic of Venezuela), together called "SBI", and I.O. REPORT, C.A., a Company duly registered in the Republic of Venezuela and hereinafter called "IOR". Whereas SBI has developed concepts for interactive bingo games, bingo lotteries and other concepts for the cable and direct broadcast television markets internationally; SBI has acquired certain equipment that would be useful in implementing said concepts; has developed copyrighted computer software necessary to implement said concepts; has produced considerable video footage that could be useful in developin video tapes promoting said concepts; and has trademarks, logos and patents; Whereas IOR has a desire to enter into a license to utilize SBI's concepts nationally in the Republic of Venezuela; Now, in consideration of US $500,000.00 to be paid by a five year promissory note from IOR to SBI, and expenses of US $50,000.00 to be paid as follows: US $15,000.00 upon signing of the agreement and US $35,000.00 to be paid over a 30 and 60 ($17,500 each) day period as SBI concepts are being implimented and any unforeseen expenses incurred must be approved and paid by IOR; 1. An exclusive licensing agreement from SBI to IOR will be presented in the next five (5) days; 2. A Computer Bingo Board is to be shipped to IOR in the next ten (10) days by airfreight and returned to SBI in the next ninety (90) days at IOR expense, and IOR will provide sufficient insurance to cover damages and/or loss of the board for an amount no less than US $80,000.00 (eighty thousand US dollars); 3. A computer tape which generates bingo cards will be shipped to IOR in the next five (5) days via DHL; 4. SBI Communicaciones de Venezuela, C.A. to be formed and Federico L. Wust will be installed as President in order to assist IOR in implementing said concepts; 5. IOR will provide office space, telephone and fax suitable for SBI operations in Carcaras; 6. IOR will pay SBI a continuing royalty of 2.5% (two and one half percent) of all gross monies produced by the selling of bingo cards sold in Venezuela under this license agreement; Form 10-SB Dated August 31, 1996, Page 123 2 7. SBI will grant IOR under this license agreement a first right of refusal to implement it's concepts in other South American Countries and others around the World as mutually agreed upon; 8. All other terms and conditions will be covered in the licensing agreement; 9. SBI will provide support for implementing the software program; 10. SBI will work with IOR in order to have a broadcast of the "LOTERIA DE CARACAS BINGO" by April 25th, 1993, 9:00 am Venezuelan time; 11. 1. SBI will provide computer programs (and IOR will protect this program) and technical assistance; 2. SBI will provide proof of ownership of requisite copyrights, trademarks and rights granted to IOR; 3. SBI will provide one inch (1") videos of actual programs for use as sale material only. Such videos will be provided at IOR cost of reproduction. 12. IOR will provide SBI with translated copies of documented agreements entered with other parties in order for SBI to have knowledge of all terms and conditions entered by IOR with third parties. IN WITNESS THEREOF, SBI has executed this agreement and will provide a formal agreement within the next five (5) days. By executing this agreement SBI has granted IOR an exclusive license for all it's concepts now and future concepts which may be developed. Terms and conditions of the formal agreement will reflect all of the above terms. SBI COMUNICACIONES DE SBI COMMUNICATIONS, INC. VENEZUELA, C.A. (to be formed) /s/ Federica L. Wust /s/ /s/ Ronald Foster /s/ - ------------------------ --------------------- Federico L. Wust Ronald Foster, President and CEO I. O. REPORT, C.A. /s/ Luis Jose Rodrigues /a/ ---------------------------------- Luis Jose' Rodrigues, President Vicente Gonzalez', Vice President Form 10-SB Dated August 31, 1996, Page 124 3 IN WITNESS THEREOF, SBI AND IOR have executed this agreement in Caracas, Republic of Venezuela, this 23rd day of March, 1993. SBI COMUNICACIONES DE SBI COMMUNICATIONS, INC. VENEZUELA, C.A. (to be formed) /s/ Federica L. Wust /s/ /s/ Ronald Foster /s/ - ------------------------ --------------------- Federico L. Wust Ronald Foster, President and CEO I. O. REPORT, C.A. /s/ Luis Jose Rodrigues /a/ --------------------------------- Luis Jose' Rodrigues, President Vicente Gonzalez', Vice President Form 10-SB Dated August 31, 1996, Page 125 EX-10.12.1 7 LACOA AGREEMENT - LOBBYIST ENGAGEMENT AGREEMENT 1 Exhibit 10.12.1 LOBBYIST ENGAGEMENT AGREEMENT THIS AGREEMENT (the "Agreement") made as of the 29th day of July, 1994 by and between SPRADLEY & SPRADLEY ("Spradley"), a Louisiana Corporation and SBI COMMUNICATIONS, INC., a Delaware Corporation (the "Company"); W I T N E S S E T H: WHEREAS, the parties hereto desire to enter into an agreement for the Company's contracting with Spradley to provide certain lobbying services to the Company on the terms and conditions hereinafter stated; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, the parties hereby agree as follows: 1. Relationship Established. The Company hereby contracts with Spradley to serve as a lobbyist for the Company and to perform such other services as may be mutually agreed upon by the Company and Spradley. Spradley shall use its best efforts to obtain an Executive Order from the Governor of Louisiana allowing the Louisiana Charitable Organization Alliance, Inc. to operate high stakes Bingo games in the state of Louisiana. In the alternative, if obtaining such Executive Order is not feasible, Spradley shall endeavor to aid in the initiation and passage of legislation in the Louisiana State Legislature allowing the Louisiana Charitable Organization Alliance, Inc. to operate high stakes Bingo games in the state of Louisiana. The aforementioned activities are referred to herein as the "Services". Spradley acknowledges that it has been informed of and discussed with the Company the specific activities which it will perform and understands the scope of the activities that will constitute the Services which it will provide to the Company. 2. Term of Employment. The term of Spradleys' contract as a Lobbyist under this Agreement shall commence on the date hereof (the "Effective Date") and shall continue for a maximum term of six (6) months from the Effective Date, unless sooner terminated by the first to occur of the following: (i) The completion of the Services to the satisfaction of the Company. (ii) The cancellation of this Agreement by the Company due to (i) the failure by Spradley to perform the Services diligently and competently on behalf of the Company in any material respect on a recurring basis, or (ii) the reasonable determination by Company that the performance of services by Spradley will not accomplish the goals stated in Paragraph 1 of this Agreement. Form 10-SB Dated August 31, 1996, Page 126 2 3. Compensation. The Company shall pay Spradley Two Thousand Dollars ($2,000.00) per month (or a pro rated portion thereof for each fraction of a month in which the Services were performed) during the term of this Agreement for the performance of the Services. 4. Confidentiality. (a) Proprietary Information. Spradley acknowledges that it may from time to time have access to and be provided with confidential, secret and proprietary information of the Company. Spradley agrees that it will not, without the prior written consent of the Company, for any reason or at any time, use or disclose to any individual, person, firm or entity ("Person") any fact or information not generally available to the public concerning any aspect of the products and business of the Company or its affiliates, including, without limitation, technical or nontechnical data, formulae, compilations, programs, methods, data, financial plans, product plans, marketing or sales strategies, lists of actual or potential customers or suppliers, or other information relating to the Company's business which derives economic value, actual or potential from not being generally known to other persons. Such information is hereinafter referred to as the "Proprietary Information". (b) Exceptions. Notwithstanding the provisions of Section 4(a) above, the following shall not be considered to be Proprietary Information: (i) any information that was in the public domain through no fault or act of Spradley prior to the disclosure thereof by the Company to Spradley; (ii) any information that comes into the public domain through no fault or act of Spradley; (iii) any information that is disclosed to Spradley by a third party (which terms shall not include the counsel, accountants and other non-employee representatives of the Company) having the legal right to make such disclosure; and (iv) any confidential business information that is not a trade secret under applicable law two (2) years after Spradley ceases to provide Services to the Company (provided, however, that the limited duration of the confidentiality obligation with regard to confidential business information not constituting a trade secret shall not operate or be construed as affording Spradley any right or license thereafter to use such confidential business information, or as a waiver by the Company of the rights and benefits otherwise available to the Company under the laws governing the protection and enforceability of patents, trade secrets and other intellectual property). (c) Exceptions Procedure. If Spradley considers any portion of the Proprietary Information to be within the exceptions set forth in Section 4(b) above, at least thirty (30) days before using or disclosing such Proprietary Information, Spradley shall so advise the Company in a writing, stating in detail its reasons therefor, citing and specifically referring to the documents or circumstances on which it is relying, and accompanied by copies of all cited documents. A failure of the Company to respond to any such notice shall in no event be deemed an acceptance of the assertions contained in such notice. 5. Representations of Spradley. Spradley represents that it, and each of its employees performing the Services hereunder, possesses all necessary licenses, registrations, permits and Form 10-SB Dated August 31, 1996, Page 127 3 other evidences of authority to perform the Services. Spradley agrees to make such filings, if any, with the State of Louisiana or other government, as may be required to properly effectuate this Agreement. Spradley understands that the Company is relying on the representations of Spradley concerning the applicable laws of the State of Louisiana in retaining Spradley hereunder. Spradley agrees to indemnify the Company and hold the Company harmless from any civil or criminal liability arising from the performance of the Services by Spradley hereunder. 6. Interpretation: Severability. All rights and restrictions contained in this Agreement may be exercised and shall be applicable and binding only to the extent that they do not violate any applicable laws and are intended to be limited to the extent necessary so that they will not render this Agreement illegal, invalid or unenforceable. 7. Nonwaiver. Failure of either party to insist, in one or more instances, on performance by the other in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of any right granted hereunder or of the future performance of any such term or condition or of any other term or condition of this Agreement, unless such waiver is contained in a writing signed by or on behalf of both parties. 8. Notices. Any notice or other communication required or permitted hereunder shall be deemed sufficiently given if sent by registered or certified mail, return receipt requested, postage and fees prepaid, addressed to the party to be notified as follows: (a) If to the Company: SBI Communications, Inc. P.O. Box 71236 Albany, Ga. 31708 2415-H Dawson Road Albany, Ga. 31707 (b) If to Spradley: Spradley and Spradley 7612 Picardi Avenue Baton Rouge, Louisiana 70808 or in each case to such other address as either party may from time to time designate in writing to the other. Such notice or communication shall be deemed to have been given as of the date so mailed. 9. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Georgia. 10. Entire Agreement: Amendment. This Agreement contains the sole and entire agreement between the parties hereto with respect to the Company's employment of Spradley and supersedes all prior discussions and agreements between the parties and any such prior agreements shall, from Form 10-SB Dated August 31, 1996, Page 128 4 and after the date hereof, be null and void. This Agreement shall not be modified or amended except by an instrument in writing signed by or on behalf of the parties hereto. 11. Parties Benefitted. This Agreement shall inure to the benefit of, and be binding upon the Company and Spradley and their partners, subsidiaries, and affiliates, and upon each party's respective successors and assigns. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. COMPANY: SBI COMMUNICATIONS, INC. By: /s/ Ronald Foster /s/ --------------------- Name: Ronald Foster ------------------- Title: President ----------------- SPRADLEY: SPRADLEY & SPRADLEY By: /s/ T. J. Spradley /s/ ---------------------- Name: T. J. Spradley -------------------- Title: Partner ------------------- Form 10-SB Dated August 31, 1996, Page 129 EX-10.12.2 8 MANAGEMENT AGREEMENT 1 Exhibit 10.12.2 MANAGEMENT AGREEMENT THIS AGREEMENT (the "Agreement") made as of the 28th day of July, 1994 by and between LOUISIANA CHARITABLE ORGANIZATION ALLIANCE, INC., a Louisiana corporation ("LACOA") and SBI COMMUNICATIONS, INC., a Delaware corporation ("SBI") and/or SBI GAMING, INC., a Nevada Corporation ("SBI Gaming") (hereinafter collectively "SBI" and "SBI Gaming" shall be called "Company"); WITNESSETH: WHEREAS, the parties hereto desire to enter into an agreement for LACOA's contracting with the Company to have the Company provide management and operational services for LACOA's high stakes Bingo games in the event that LACOA obtains authorization from the state government of Louisiana to operate high stakes Bingo games, on the terms and conditions hereinafter stated; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. Management. LACOA hereby agrees to contract with the Company to exclusively manage and operate LACOA's high stakes Bingo game throughout the state of Louisiana (the "Services"). The initial term of such contract shall be five (5) years, with the Company holding successive one (1) year renewal options with each option period carrying the same terms and conditions as the original five (5) year contract, and such original five (5) year contract shall include substantially the same terms as set forth on Exhibit A attached hereto. LACOA agrees that it will in no event contract with any other entity to provide the Services, unless LACOA receives the prior express written consent of the Company. 2. Condition. This Agreement is expressly conditioned on LACOA obtaining proper authorization from the state government of Louisiana to operate high stakes Bingo games. 3. Interpretation; Severability. All rights and restrictions contained in this Agreement may be exercised and shall be applicable and binding only to the extent that they do not violate any applicable laws and are intended to be limited to the extent necessary so that they will not render this Agreement illegal, invalid or unenforceable. 4. Notices. Any notice or other communication required or permitted hereunder shall be deemed sufficiently given if sent by registered or certified mail, return receipt requested, postage and fees prepaid, addressed to the party to be notified as follows: (a) If to the Company: SBI Communications, Inc. 2415 Dawson Road, Ste. H Form 10-SB Dated August 31, 1996, Page 130 2 Albany, Ga. 31707 (b) If to LACOA: Louisiana Charitable Organization Alliance, Inc. P.O. Box 806 Kenner La. 70063 (c) Copy to Larry Cahill: Larry Cahill 3330 Southgate Ct. Cedar Rapids, IA 52406 or in case to such other address as either party may from time to time designate in writing to the other. Such notice or communication shall be deemed to have been given as of the date so mailed. 5. Governing Law. This Agreement shall be governed by and enforced in accordance with the laws of the State of Georgia. 6. Parties Benefitted. This Agreement shall inure to the benefit of, and binding upon the Company and LACOA and their partners, subsidiaries and affiliates, and upon each party's respective successors and assigns. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as to the date first above written. COMPANY: SBI COMMUNICATIONS, INC. By: /s/ Ron Foster /s/ ------------------- Name: Ron Foster Title: President SBI GAMING, INC. By: /s/ Ron Foster /s/ ------------------- Name: Ron Foster Title: President LACOA: LOUISIANA CHARITABLE ORGANIZATION ALLIANCE, INC. By: /s/ Billy D. Butchfield /s/ ------------------------------------- Name: Title: President Form 10-SB Dated August 31, 1996, Page 131 3 Exhibit A SBI Communications, Inc. Louisiana Bingo Proposal for Louisiana Bingo Proposal Made by SBI Communication and their Gaming Company SBI Gaming, Inc. Proposal Made To: (LACOA) Louisiana Charitable Organization Alliance, Inc. * SBI, Inc. will contract with LACOA to participate in operating the Louisiana State Bingo operation as a Licensed Subcontractor. LACOA will be the authorized operator of the Bingo Games and SBI will be the operation subcontractor. SBI Gaming will be responsible for the following program operations. 1. Provide assistance to the LACOA in the organization of the state program. 2. Produce the Game Show weekly. 3. Prepare and produce game cards for the Bingo Game. 4. Set up the T.V. Contract & Programming. 5. Develop Advertising for the Bingo Program. 6. Fulfill prize payment. 7. Handle general administration of the operation. 8. Provide the feed on satellite for the Halls as needed. P.O. Box 71336/2415 Dawson Road/ Suite H/ Albany, GA 31708-1236 (912) 432-5103 Form 10-SB Dated August 31, 1996, Page 132 4 EXHIBIT A Game Time: * Saturday Night (Weekly) * 8:00 p.m. - 10:00 p.m. Time Frame * Show 20-25 Minutes * Broadcast in state wide cable and broadcast T.V. stations in Louisiana Game: * Bingo * Played for 1 winner in the state weekly for each game. A. Guaranteed prize winner for a coverall game $5,000-$20,000/ prize * Can be set at game time based on participation with not lower than (_____) prize weekly B. Quick Pick eight (8) out of Sixteen (16) numbers for a $1,000,000 prize 1. Played weekly 2. Not a guaranteed winner 3. Prize would be a 20 year pay out. 4. As soon as Escrow Funds are available for the $400,000 annuity, then the prize could be forced by going to 18 or 20 numbers to get a winner and keep players' interest at a high level. C. An In-Hall game for "Hall" stakes can be provided for any organizations that want to participate. (ie) Four (4) corner games. Form 10-SB Dated August 31, 1996, Page 133 5 EXHIBIT A --------- Game Operations: All Halls or Charitable games will sell cards all week in their games at the Halls and in any other outlet or capacity that is available. Each charity will be provided a standard quantity of cards. These will be provided through the format of distribution channels if the system can be worked out feasibly. Cards will be sold for $5.00 a strip of 3 cards. Closing of card sales shall occur 2 hours prior to game time (except Saturday night game/ charities which will be 1 hour prior to game time). At closing, all sale locations will report activated cards (first card in series serial # and last card in series serial #) by phone to the SBI clearing house to activate the cards for play in that weeks game. Those Halls will then be responsible for paying SBI on behalf of LACOA for the cards at the prescribed rate as set out in this policy. Prizes will be announced on the T.V. show and awarded to the prize winners: A. at an appointed state location. B. or by mail (After surrendering the winning prize card.) LACOA will give full legal authorization along with state approval to SBI Gaming to operate the game in their behalf in Louisiana. Agreements with each participating charity will be secured by LACOA and provided to SBI for records and operational support. Production: Will take place in SBI studios and be uplinked to Satellite Feed into the state stations. Production format and game process will be with a live pop-up Ball System or Computer Generated random number system that will include: * Game ball verifications * Winner Audits * Payment Audits * Winner on T.V. interview if possible Form 10-SB Dated August 31, 1996, Page 134 6 The program & advertising spots will explain: * How to play the game * Prize winner interviews * Some Entertainment production * How to claim prizes, etc. Numbers will be called in 12-15 second intervals T.V. Broadcast time contracts with stations will include advertising spots that will be produced for LACOA by SBI. Cash Flow & Payments Charities/Agencies will sell tickets all week and at game time in participating Halls. Payment for advertised tickets will be made weekly or subsequent weekly entries will not get activated. Payment will be made to: A. LACOA Director B. SBI on behalf of LACOA C. To distributor who then pays SBI Director. Participation charities will be allowed to take their earnings before payment is made. Form 10-SB Dated August 31, 1996, Page 135 7 Costs: Ticket strips (3 Cards) = $ 5.00/ sale Charity keeps = 1.50 State Association = 1.00 (operations cost) SBI operation = 2.50 * Charities pay their own tax. * LACOA pays its own tax. * SBI cost break down. 1. Ticket Production 2. Ticket Distributions 3. Game Show Production 4. T.V. Station Payment/Promotion 5. Prize Payment Note: After final T.V. costs and state tax is determined the above may need to be adjusted. Projected Financials - ----------------------- @ $5.00/strip of tickets x number of Halls x $5.00 = Strips Sold Weekly 1,000 1,600 2,400 Per Hall Halls Halls Halls -------- ----- ----- ----- 200 $1,000,000 $1,600,000 $2,400,000 250 $1,250,000 $2,000,000 $3,000,000 500 $2,500,000 $4,000,000 $6,000,000 (Per Week Revenue)
at 250 tickets/Hall x 1600 Halls/week =$2,000,000 weekly revenue or $104,000,000 annual sale volume. A very achievable number. Form 10-SB Dated August 31, 1996, Page 136 EX-27 9 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 114,947 0 1,073,785 462,500 0 726,232 7,629,356 422,994 8,136,921 493,534 243,753 0 8,340,000 5,345 (945,711) 8,136,921 0 200,274 0 359,032 0 0 26,911 (366,233) 0 (366,233) 0 0 0 (366,233) 0.07 0
EX-99.8 10 ORDINANCE NO. 429 1 Exhibit 99.8 ORDINANCE NO. 429 SECTION I: Definitions. As used in this article, the following terms shall have the respective meaning ascribed to them: Bingo: That specific kind of game, or enterprise, commonly known as "bingo", in which prizes are awarded on the basis of designated numbers, or symbols, which are drawn, at random, by the operator of said game, on cards, or sheets of paper, which contain, or set out numbered spaces, upon which said designated numbers, or symbols, may be placed by the persons playing or participating in said game. Equipment: The receptacle and numbered objects, or symbols, drawn from it; the master "bingo" board displaying numbers upon which such numbered objects, or symbol, are placed by the operator thereof; the cards, or sheets of paper, bearing numbers, or other designations, participating in said game, and the board, or signs, however operated, used to announce or display said numbers, or designations, as they are drawn by the operator of said game, all tables and chairs used by participants as well as any other items used in the playing of bingo. All such equipment shall be stamped or marked with the name of the organization and used on the premises of the organization operating and conducting the "bingo" game in which said equipment is being used unless specifically exempted by the City Clerk. Educational Organization: An organization within the state, not organized for pecuniary profit, the primary purpose of which is educational in nature and designed to develop the capabilities of individuals by instruction in any public or private kindergarten, elementary or secondary school, or any public or private college, not organized for pecuniary profit, and approved by the State Department of Education. Fraternal Organization: An organization within this state, except student fraternities or sororities, not organized for pecuniary profit, which is a branch, lodge, or chapter of a national or state organization and exists for the authorized purposes or other interests of its members. Member: An individual who has qualified for membership in a qualified organization pursuant to its by-laws, articles of incorporation, or charter. Permit Holder: A qualified organization issued a permit pursuant to this article. Qualified Organization: A bona fide religious, educational, charitable, service, senior citizens, fraternal, or veterans organization which has not been organized for pecuniary profit and which operates without profit to its members and which has been in existence continuously in the State of Alabama as such an organization for a period of not less than two (2) years. Criteria for recognizing organizations within the scope of this section shall be determined by the City Council of the City of Piedmont, Alabama. Religious Organization: an organization, church body of communicants, association, or group, not organized for pecuniary profit, meeting regularly within the state in common membership for mutual support, instruction and edification in worship and religious observances; or any society or association, not organized for pecuniary profit, or individuals united for religious purposes at a definite place; or a church related private school, not organized for pecuniary profit. Form 10-SB Dated August 31, 1996, Page 137 2 Senior Citizens Organization: An organization within this state, not organized for pecuniary profit, which consists of at least ten (10) members who are sixty (60) years of age, or older, and which exists for their mutual support and for the entertainment or advancing the causes of elderly or retired persons. Service Organization: A branch, lodge, or chapter of a national or state organization not organized for pecuniary profit, which is authorized by its written constitution charter, articles of incorporation, or by-laws to engage in a fraternal, civic, or service purpose within the state; and a local civic or service organization, not organized for pecuniary profit and not affiliated with a state or national organization, the constitutional charter, articles of incorporation, or by-laws of which contain a provision for the perpetuation of the organization as a non-profit organization the entire assets of which are pledged to charitable purposes or by the organization itself toward its perpetuation. Veterans Organization: An organization within this state, or a branch, or lodge, or chapter within this state of a state organization or of a national organization chartered by the Congress of the United States, not organized for pecuniary profit, the membership of which consists of individuals who have been, or are, members of the armed services of the United States. Location: A single building, hall, enclosure, or outdoor area used for the purpose of playing "bingo" pursuant to a permit issued under this article. "Bingo" games shall be held only on the premises wholly owned or leased by the organization operating or conducting said "bingo" games. If the premises or equipment are leased, the rental shall not be based on percentage of receipts or profits from the operation of said "bingo" games. A copy of any and all Lease Agreements must be filed with the City Clerk of the City of Piedmont, Alabama prior to issuance of permit to issuance of permit to operate bingo. SECTION II: Authority to Operate Games: (a) Any qualified non-profit organization, as herein defined, may operate and conduct "bingo" games, as herein defined, within this city, and its police jurisdiction for prizes or money, for charitable or educational purposes, to the extent and in the manner authorized by the provisions hereof and in accordance with Amendment 508 , of the Constitution of Alabama, 1901. (b) The game of bingo, shall be conducted in the City of Piedmont, Alabama only on the following days of the week: Monday, Tuesday, Thursday, Friday and Saturday. Any Bona Fide bingo permit holder may operate bingo games within their approved location on any combination of days herein outlined. SECTION III: General Permit-Required; determination of necessity; transferability. (a) No qualified organization shall be permitted to operate a "bingo" game within the city, or its police jurisdiction, until the City Clerk or his duly authorized representative has issued a permit to said organization for said purpose. (b) In the event that any controversy concerning whether or not certain activity, or type of activity, constitutes the game of "bingo", as herein defined, and for which a permit may be issued, the decision of the governing body determining said controversy shall control, and shall be final. (c) A permit issued pursuant hereto shall not be assignable or transferable. SECTION IV: Same - Application; investigation; annual fee; duration; renewal. Form 10-SB Dated August 31, 1996, Page 138 3 (a) All qualified organizations desiring to obtain or to review a permit to operate "bingo" games shall make application to the City Clerk on forms prescribed by the governing body. The City Attorney shall investigate the status of the applicant as a qualified organization as defined herein. The suitability of the proposed location where "bingo" will be conducted and the character and fitness of the members who will conduct and manage "bingo" games will be investigated by the Police Chief. Within fifteen (15) days from the date of application the Police Chief shall direct the results of the investigation and the application to the attention of the City Clerk along with his recommendation as to the fitness and character of these individuals. Based on this investigation the Police Chief shall submit in writing to the City Clerk the results of same along with his recommendation as to their fitness to operate said bingo games. The City Council reserves the right to review any bingo permit when it appears the operation would inure to the benefit of individual members, officers, agents, or employees of the permit holder rather than the qualified organization itself. All annual permits must be approved by the City Clerk. (b) All qualified organizations except qualified senior citizens organizations, as defined herein, shall pay an annual fee of $50.00 for a "bingo" permit. "Bingo" permits shall be issued at no cost to qualified senior citizen organizations which have otherwise complied with this article. No permit shall be issued to any qualified organization unless such organization has been in existence for twenty-four (24) months immediately prior to the issuance of the permit. (c) Such permit shall be valid for one (1) year from the date of issuance. (d) a permit may be renewed annually by filing a renewal application with the City Clerk within thirty (30) days, before the date of expiration on a form prescribed by the governing body. The City Clerk shall direct the renewal application to the attention of the Police Chief for necessary investigation. (e) Each application for a permit or for renewal of a permit shall contain the following information: (1) The name and address of the qualified organization. The name and home address of directors, or other persons similarly situated, of the organization. Also, the following information shall be required: (1) date of birth; (2) drivers license number (3) social security number and (4) home and business phone numbers. (2) The names and addresses of each of the persons who will be operating the "bingo" games along with all information required in (1) of this section. (3) The name and addresses of any persons organizations who will act as surety for the applicant, or to whom the applicant is financially indebted. (4) The location at which the applicant will conduct the "bingo" games. (5) A statement showing the convictions, if any, for criminal offenses, other than minor traffic offenses, of each of the persons listed in 1, 2, and 3 above. (6) Any other necessary and reasonable information which the City Clerk may require. (f) No "bingo" permit shall be granted to any applicant who fails to fully provide the information required by this section. Form 10-SB Dated August 31, 1996, Page 139 4 (g) No permit shall be issued initially unless applicant has in place cash bond or irrevocable letter of credit from bank approved by the City Clerk in the amount of $25,000.00. Permittee shall timely pay all debts, taxes or indebtedness due the City of Piedmont, Alabama, a Municipal Corporation. SECTION V: Same - Contents and Display. (a) Each "bingo" permit shall contain the name and address of the permit holder, location at which the permit holder is permitted to conduct "bingo" and the days of the week on which the permit holder will be permitted to conduct "bingo". (b) The "bingo" permit holder shall display the permit conspicuously at the location where "bingo" is being conducted at all times during the conduct of the games. SECTION VI: Special permit; application, fee issuance, contents, term, number, transfer. A qualified organization licensed pursuant to Section 4 may obtain a special permit to play "bingo" games at locations and on days other than those set forth in its annual permit upon submission of a special application to the City Clerk at least fifteen (15) days prior to the dates that such "bingo" games are to be played. The City Clerk shall direct the application to the attention of the Police Chief within fifteen (15) days of its receipt. All special permits must be approved by the city clerk as provided in Section 4. The privilege to a special permit is subject to the limitations of Subsection A of Section 4. The fee for a permit issued under this Section shall be Fifty Dollars ($50.00) unless the applicant is exempted from payment of same as provided in Section 4. SECTION VII: Suspension or revocation of permits; appeal. The City Clerk may suspend or revoke any permit issued pursuant to this article if the permit holder, or any officer, director, agent, member or employee of the permit holder violates this ordinance or rules promulgated hereunder. SECTION VIII: Issuance or reissuance of permit after revocation, forfeiture, or suspension, ground for forfeiture, return of permit upon suspension, revocation or forfeiture, effect suspension, revocation or forfeiture. (a) A permit holder whose permit is revoked in consequence of a violation of this article or a rule promulgated under this article shall be ineligible to apply for a permit for a period of one (1) year after the revocation. (b) A person convicted of an offense under this section or any other gambling offense shall be ineligible to participate in conducting "bingo" for a period of one (1) year after the conviction becomes final. (c) If the permit is suspended, in addition to other penalties, which may be imposed, the governing body may declare the violator ineligible to conduct a "bingo" game or apply for a permit under this article for a period not exceeding one (1) year. (d) The permit holder shall return its permit to the City Clerk on or before the effective date of a suspension, revocation, or forfeiture. Whether returned or not, the permit shall not be valid beyond the effective date of the suspension, revocation, or forfeiture. (e) It shall be unlawful for any person to conduct or aid in conducting a "bingo" game under an expired, suspended or revoked permit. SECTION IX: Records of permit holders; financial statements; inspection and location of "bingo" games. Form 10-SB Dated August 31, 1996, Page 140 5 (a) Each permit holder shall maintain the following records for at least three (3) years from the date on which the last "bingo" game is conducted: (1) An itemized list of the gross receipts for each session; (2) An itemized list of all expenses, including money and prizes paid during a "bingo" session, including the name and address of each person to whom the expenses are paid and a receipt for all of said expenses. An itemized listing of all cash winners of $1,200.00 or more shall be submitted for each session to the City Clerk. This list must include the name and address of each winner. Copies of IRS form W-2G or other required forms must be kept on file and available for inspection by the city upon prior notification by the City Clerk. The City Clerk, or such Clerk's authorized deputy auditor or representative shall examine and conduct all inspections regarding operation of "bingo". (b) On or before the fifteenth day of the month following the end of each calendar quarter each permit holder shall file with the City Clerk a financial statement of receipts and expenses relating to the operation of "bingo" games in the previous calendar quarter (April 15, July 15, October 15, and January 15). Said report shall be in addition to any and all other reports required by law. (c) The location at which "bingo" is being conducted or at which an applicant or permit holder intends to conduct "bingo" shall be open to inspection at all times by duly authorized representatives of the Police Chief. (d) A qualified organization shall be taxed at a rate of four dollars ($4.00) per person participating in the bingo games per session. Such tax must be paid by the close of the next business day (5:00 pm) following each bingo session. Such tax shall be submitted with the financial information required in part (a) of this section. Failure to pay tax on time may result in the automatic and immediate suspension of the bingo permit, as determined by the City Clerk and City Attorney. Such taxes shall be distributed by the City Clerk as follows: $2.00 to the City of Piedmont General Fund $2.00 to the Piedmont Board of Education SECTION X. Fee proceeds, disposition, expenses. All fees collected under this article shall be paid into the city's general fund and all necessary expenses incurred by the Police Chief in the administration and enforcement of this article shall be financed from the city's general fund. SECTION XI. Proceeds of "bingo" games, disposition. (a) A qualified organization operating "bingo" games pursuant to a permit issued by the City Clerk shall devote the entire net proceeds of such games to the charitable, civic, community, educational, benevolent, religious or scholastic activities stated in its charter, by-laws, or similar legal instrument or other activities approved by the City of Piedmont, Alabama. (b) An item of expense shall not be incurred or pain in connection with the holding, operating, or conducting of "bingo" except the following bona fide expenses may be incurred or paid in amount bearing a reasonable relationship to that proportion of the total expense attributable to the conduct of "bingo" games. (1) The purchase or rental of equipment necessary for conducting "bingo" and payment of services reasonably necessary for the repair of equipment; Form 10-SB Dated August 31, 1996, Page 141 6 (2) Cash prizes or the purchase of prizes or merchandise; (3) Rental of the location at which "bingo" is conducted, subject, however, to the definition of "location" in Section 1. If the premises or equipment are leased, the rate of rental shall not be based on a percentage of receipts or profits resulting from the operation of "bingo" games and must be reasonable and customary for such, subject to approval by the City Council; (4) Utilities; (5) Janitorial services; (6) The fee required for issuance or re-issuance of a permit to conduct "bingo"; (7) Other reasonable expenses incurred by the permit holder, not inconsistent with this article, as permitted by rules established by the governing body; (8) Reasonable wages necessary for the normal operation of bingo games conducted in accordance with the provisions of this ordinance. All wages are subject to approval by the Mayor and City Council of the City of Piedmont, Alabama. SECTION XII: Management and operation of "bingo"; persons eligible, compensation, equipment, prizes advertisement. (a) No person other than a bona fide member of the permit holder who has submitted provisions of Section IV may participate in the management of "bingo" under an approved permit. (b) "Bingo" may not be conducted with any equipment which is not owned, purchased, or being rented at a reasonable rate by the permit holder. (c) Advertising or promotion of "bingo" games may be directed toward bona fide members of the permit holder in accordance with the reasonable rules thereof to be established by the governing body. The permit holder shall indicate in all advertisements and promotions the purposes for which the net proceeds will be used by the permit holder. (d) A permit holder shall display its "bingo" license conspicuously at the location where the "bingo" game is conducted. (e) A permit holder shall conduct "bingo" games only at the single location specified in the permit holder's application. SECTION XIII: Age restriction to play or conduct "bingo" games. No person under the age of nineteen (19) years shall be permitted to play any game or games of "bingo" conducted pursuant to any permit issued under this article. No person under the age of nineteen (19) years shall be permitted to conduct or assist in the conducting of any game of "bingo" conducted pursuant to any permit issued under this article. SECTION XIV: Certain contract activities prohibited; special requirements (a) Only qualified organizations which are properly issued permits pursuant to this article shall be allowed to operate "bingo" games. (b) A qualified organization shall not lend its name or allow its identity to be used by any person in the operating, promotion or advertising of a "bingo" game in which said qualified organization is not directly and solely operating said "bingo" game. (c) It shall be unlawful to use equipment marked with the name of another organization. (d) No qualified organization shall pay consulting fees to any individual or entity for any services performed in relation to the operation of a "bingo" game. Any consultant used in the Form 10-SB Dated August 31, 1996, Page 142 7 operation of bingo must submit to provisions on Section IV of this ordinance, and must be approved in advance by the City Clerk following recommendation of the Police Chief. SECTION XV: Enforcement and supervision of administration of act, personnel, rules. (a) The governing body may promulgate reasonable rules and regulations deemed necessary for the proper administration and enforcement of the provisions of this article. The Police Chief shall employ personnel as necessary to implement this article. (b) The governing body by reasonable rules shall regulate the holding, operation, or conducting of "bingo" including but not limited to the following: (1) The method of play and selection of winners. (2) The type of equipment to be used. (3) Advertising and promotion among members of the permit holder. SECTION XVI: Offense; forfeiture of license; ineligibility to apply for license. Any person, association or corporation who or which shall: (1) Make any false statement in any application for any license authorized to be issued under this ordinance. (2) Fail to keep such books and records as shall fully and truly record a transaction connected with the conducting of "bingo". (3) Falsify or make any false entry in any books or records so far as they relate any manner to the conduct of "bingo", to the disposition of the proceeds thereof. (4) Divert or pay any portion of the net proceeds of any game of "bingo" to any person, association, or corporation, except in furtherance of one or more of the lawful purposes defined herein; or (5) Violate any of the provisions of this article or of the Constitution of the State of Alabama relating to the conduct of "bingo" in Calhoun County or any term of any license issued under this ordinance; shall be guilty of a Class "B" misdemeanor and shall be subject to incarceration for a period up to six (6) months and fined up to $500.00 plus court cost. In addition thereto, a qualified organization shall forfeit any license issued under this ordinance and be ineligible to apply for license under this ordinance for one (1) year thereafter. SECTION XVII: The sections and subsection of this ordinance shall be deemed severable. If any section, subsection, sentence or phrase of this ordinance is declared invalid or unconstitutional, such declaration shall not affect the remaining parts unaffected by such declaration. PASSED AND ADOPTED THIS THE 13TH DAY OF JUNE 1994. Form 10-SB Dated August 31, 1996, Page 143 EX-99.9 11 AMENDMENT NO. 508 TO ALABAMA CONSTITUTION 1 Exhibit 99.9 AMENDMENT NO. 508 Bingo Games in Calhoun County The operation of bingo games for prizes or money by certain nonprofit organizations for charitable, educational, or other lawful purposes shall be legal in Calhoun County, subject to the provisions of any resolution or ordinance by the county governing body or the governing bodies of the respective cities and towns, within their respective jurisdictions as provided by law regulating such operation. The said governing bodies shall have the authority to promulgate rules and regulations for the issuance of permits or licenses and for operation of bingo games, within their respective jurisdictions; provided, however, that said governing bodies must ensure compliance pursuant to said law and the following provisions: (a) No person under the age of 19 shall be permitted to play any game or games of bingo, unless accompanied by a parent or guardian; nor shall any person under the age of 19 be permitted to conduct or assist in the conduct of any game of bingo; (b) No bingo permit or license shall be issued to any non-profit organization, unless such organization shall have been in existence for at least 12 months immediately prior to the issuance of the permit or license; (c) Bingo games shall be operated only on the premisses owned or leased by the nonprofit organization operating the bingo game. If the premises is leased, the rate or rental shall not be based on a percentage of receipts or profits resulting from the operation of bingo games; (d) No nonprofit organization shall enter into any contract with any individual, firm, association or corporation to have said individual or entity operate bingo games or concessions on behalf of the nonprofit organization, nor shall said nonprofit organization pay consulting fees to any individual or entity for any service performed in relation to the operation or conduct of a bingo game; (e) A nonprofit organization shall not lend its name or allow its identity to be used by any other person or entity in the operating or advertising of a bingo game in which said nonprofit organization is not directly and solely operating said bingo game; (f) Prizes given by any qualified nonprofit organization for the playing of bingo games shall not exceed the cash amount of gifts of equivalent value, set by the legislature, during any bingo session. The legislature shall set a maximum amount for any calendar week; (g) No person or organization, by whatever name or composition thereof, shall take any expenses for the operation of a bingo game except as permitted by law. The provisions of this constitutional amendment shall be self-executing, but to adopt laws supplemental to this amendment or in furtherance of the general purposes and objectives herein set forth. Form 10-SB Dated August 31, 1996, Page 144 EX-99.10 12 LIMITED APPRAISAL OF FRONTIER PALACE 1 Exhibit 99.10 LIMITED APPRAISAL OF FRONTIER PALACE SBI COMMUNICATIONS, INC. 376 US HIGHWAY #278 BYPASS PIEDMONT, ALABAMA FOR Mr. Ron Foster SBI Communications, Inc. P. O. Box 597 Piedmont, AL 36272 PREPARED BY PHILIP C. LEDBETTER ACA #CG00236 May 1, 1995 Form 10-SB Dated August 31, 1996, Page 145 2 May 1, 1995 Mr Ron Foster SBI Communications, Inc. P. O. Box 597 Piedmont, AL 36272 Re: Frontier Palace 376 U. S. Hwy 278 Bypass Piedmont, Alabama Dear Mr. Foster: Pursuant to your request, please find enclosed the analysis regarding the above captioned business. A thorough inspection was made of the subject property, and the current bingo operation. Based on the thorough analysis of applicable financial data and the overall property attributes, it is estimated that the "going concern" value of the subject property, assuming the continuance of the current business, as of April 28, 1995 was: SEVEN MILLION DOLLARS ($7,000,000.00) Per your request, I have summarized the results of our analysis, opinions, and conclusions in the original report. I appreciated your choice of our firm for this matter. If I can provide you with more information, please contact me. Respectfully submitted, G. B. DANIELL REALTY COMPANY /s/ Phillip C. Ledbetter /s/ PHILLIP C. LEDBETTER CERTIFIED GENERAL APPRAISER CG 002336 Form 10-SB Dated August 31, 1996, Page 146 3 SUMMARY OF IMPORTANT FACTORS & CONCLUSIONS VALUATION DATE: May 1, 1995 PROPERTY LOCATION: Frontier Palace 376 U.S. Highway 278 Bypass Piedmont, Alabama PROPERTY RIGHTS APPRAISED: Fee simple LICENSES: Yes; Current LAND SIZE: 15 Acres HIGHEST AND BEST USE: Current Operation LEASES: See Income Approach ESTIMATED MARKET VALUE: $7,000,000.00 ESTIMATED MARKETING PERIOD: 24 Months
Form 10-SB Dated August 31, 1996, Page 147 4 IDENTIFICATION OF THE PROPERTY The subject property is being appraised as a 80,000 square foot facility doing business at the "Frontier Palace" which owns, leases, operates and manages a bingo gaming operation for a non-profit charity organization. The said charity is assumed to be in existence for the purpose of this report. The park is situated on 15+/- acres and is located in the northern section of Calhoun County, Alabama. The reader may find plats, data, photos and general information herein regarding the subject property. The writer has interviewed the management and ownership of the existing operation. All of which helped the writer better visualize the condition of the subject operation. Form 10-SB Dated August 31, 1996, Page 148 5 PURPOSE OF APPRAISAL Mr. Ron Foster of SBI Communications, Inc. in Piedmont, Alabama, has requested that this appraiser furnish to him a written report estimating the going-concern value of the commercial property located on Hwy 278 Bypass known as "Frontier Palace". DATE OF APPRAISAL The date of value is May 1, 1995. FUNCTION OF APPRAISAL It is my understanding that the appraisal report will be used by the client for negotiating and securing debt financing on the subject property. PROPERTY RIGHTS APPRAISED It is imperative that the Appraiser ascertain at the beginning of the assignment specific rights to be appraised. In this instance, the property is appraised in fee simple ownership, assuming good and marketable title. Form 10-SB Dated August 31, 1996, Page 149 6 PROPERTY ADDRESS 376 U.S. Highway #278 Bypass, Piedmont, Alabama. LEGAL DESCRIPTION The legal description was furnished to the appraiser as per that certain deed, map and legal description as attached herein. The reader may find a reduced copy of said deeds under OWNERSHIP HISTORY. SIZE OF PARCEL According to the survey plat of the subject parcel, available to the appraiser, the size of the subject parcel is as follows: 15 ACRES PURPOSE OF APPRAISAL This appraisal is made for the purpose of estimating the going concern of the subject property (see attached definition of going concern). Form 10-SB Dated August 31, 1996, Page 150 7 HISTORY OF OWNERSHIP The writer has not completed a detailed title search. However, it is the understanding of the appraiser that SBI Communications, Inc. purchased the property and all rights of the business in December, 1994. Please find enclosed a reduced copy of the prior deed for the legal description purposes only. Form 10-SB Dated August 31, 1996, Page 151 8 DEED AND LEGAL DESCRIPTION Form 10-SB Dated August 31, 1996, Page 152 9 Book 1871 Page 606 Know All Men By These Presents, That WILLIAM FAMBRO (a/k/a W. PAUL FAMBRO) and MARY CAROL TWETTEN FAMBRO, his wife, both residents of and domiciled in Floyd County, Georgia, for and in consideration of the sum of ONE HUNDRED THIRTY FIVE THOUSAND AND NO/100 DOLLARS ($135,000.00) to us in hand paid by CRANBERRY MAGNETITE CORPORATION, the receipt whereof we hereby acknowledge, do grant, bargain, sell and convey unto the said CRANBERRY MAGNETITE CORPORATION, the following described real estate, all situated in Calhoun County, State of Alabama, to-wit: 1515 George Wallace Dr. Gadsden, Al 35903 Begin at the Southeast corner of Spartan Foods, Inc. property as recorded in Deed Book 1666, Page 1029, Calhoun County Probate Office, said point being on the North right-of-way line of U. S. Highway No. 278 at Alabama State Highway Department Station 107+78.73 and run Easterly along the North right-of-way line of U. S. Highway No. 278 a distance of 418.45 feet; thence deflect 62 degrees 14 minutes 55 seconds left and run a distance of 910.78 feet; thence deflect 81 degrees 56 minutes 44 seconds left and run a distance of 560.53 feet; thence deflect 83 degrees 33 minutes 51 seconds left and run a distance of 220.80 feet; thence deflect 5 degrees 20 minutes 00 seconds left and run a distance of 90.90 feet, thence deflect 14 degrees 00 minutes 00 seconds right and run a distance of 61.10 feet; thence deflect 11 degrees 29 minutes 00 seconds left and run a distance of 272.20 feet; thence deflect 0 degrees 10 minutes 00 seconds left and run a distance of 200.00 feet; thence deflect 28 degrees 46 minutes 23 seconds left and run a distance of 68.79 feet; thence deflect 100 degrees 27 minutes 54 seconds left and run Easterly along the North line of Spartan Foods, Inc. property a distance of 176.00 feet to the Northeast corner thereof; thence deflect 90 degrees 00 minutes 17 seconds right and run Southerly along the East line of said property a distance of 425.00 feet to the point of beginning. Said parcel of land being a portion of Fraction 24 of Fractional Section 32 and Fraction 21 of Fractional Section 33, all being in T-12-S, R-10-E, being subject to easement rights for the existing sanitary sewer gravity line and forcemain and service lines across the property, lying and being in Piedmont, Calhoun County, Alabama, and containing 15.00 acres, more or less. To have and to hold the aforegranted premesis to the said CRANBERRY MAGNETITE CORPORATION, its successors and assigns, forever. And we, for ourselves and our heirs and assigns, do hereby covenant with the said CRANBERRY MAGNETITE CORPORATION, its successors and assigns, that we are lawfully seized in fee of the aforegranted premises; that such premises are free from all Form 10-SB Dated August 31, 1996, Page 153 10 encumbrances; that we have good right to sell and convey the same, and that we will warrant and defend the said premises to the said CRANBERRY MAGNETITE CORPORATION, its successors and assigns, forever against the lawful claims and demands of all persons. In Witness Whereof, we, WILLIAM FAMBRO (a/k/a W. PAUL FAMBRO) and MARY CAROL TWETTEN FAMBRO, his wife, have hereunto set our hands and seals this 4th day of March, 1993. ____________________________________ /s/ William Fambro /s/ Witness -------------------------- WILLIAM FAMBRO (a/k/a W. PAUL FAMBRO) /s/Glenda H. West/s/ /s/Mary Carrol Twetten Fambro/s/ - -------------------- --------------------------------- Witness MARY CAROL TWETTEN FAMBRO STATE OF GEORGIA FLOYD COUNTY, I, the undersigned, hereby certify that WILLIAM FAMBRO (a/k/a W. PAUL FAMBRO) and MARY CAROL TWETTEN FAMBRO, whose names are signed to the foregoing conveyance, and who are known to me, acknowledged before me on this day that, being informed of the contents of the conveyance, they executed the same voluntarily on the day the same bears date. Given under my hand this 4th day of March, 1993. /s/ Carol W. Williams/s/ NOTARY PUBLIC, STATE OF GEORGIA Commission Expires: This deed was prepared by John M. Graham, III, Esq., of Shaw, Maddox, Graham, Monk & Boling, P.O. Box 29, Rome, Georgia 30162-0029 Form 10-SB Dated August 31, 1996, Page 154 11 LOCATION MAPS Form 10-SB Dated August 31, 1996, Page 155 12 Map showing all counties in Alabama. From top left: Lauderdale, Limestone, Madison, Jackson, Colbert, Franklin, Lawrence, Morgan, Marshall, Dekalb, Marion, Winston, Cullman, Blount, Etowah, Cherokee, Lamar, Fayette, Walker, Jefferson, St. Clair, Calhoun, Pickens, Tuscaloosa, Shelby, Talladega, Clay, Randolph, Cleburne, Greene, Hale, Bibb, Perry, Chilton, Autauga, Coosa, Elmore, Tallapoosa, Chambers, Sumter, Marengo, Dallas, Lowndes, Montgomery, Macon, Lee, Russell, Bullock, Choctaw, Clarke, Washington, Monroe, Concuh Butler, Crenshaw, Coffee, Pike, Escambia, Covington, Coffee, Dale, Henry, Houston, Geneva. Following Page: Map of Piedmont showing parcel. Not a survey, just an approximate layout. Form 10-SB Dated August 31, 1996, Page 156 13 NEIGHBORHOOD AND SITE DATA Employment Stability Good Convenience to Employment Good Convenience to Shopping Good Convenience to Schools Good Adequacy of Public Transportation Good Recreational Facilities Good Adequacy of Utilities Good Property Compatibility Good Protection from Detrimental Conditions Good Police and Fire Protection Good General Appearances of Properties Good Appeal to the Market Good
ALL OF THE ABOVE FACTORS AND ASSUMPTIONS ARE CONSIDERED TO BE AVERAGE AND POSITIVE FACTORS. Form 10-SB Dated August 31, 1996, Page 157 14 LOCATION MAPS Form 10-SB Dated August 31, 1996, Page 158 15 IMPROVEMENTS ON THE SITE BASIC BUILDING STRUCTURE Below is a brief description of the quality of construction and material used in the subject country club building: FOUNDATION: Concrete block with slab FRAMING: Block and masonry with metal frames EXT. WALLS: Brick veneer with some metal panels ROOF: Metal Standing Seam FLOORS: Good quality of commercial carpeting with some vinyl tile and ceramic tile. INT. WALLS: Taped and painted sheetrock, excellent quality wall coverings - some wood paneling with chair rail and crown molding in offices. CEILINGS: 2' x 4' acoustic tile suspended on T-bar grid with recessed florescence lighting - some older areas are sheetrock with recessed lighting. HVAC: Central heat and air conditioning, zone controls assumed adequate capacity and service. ELECTRICAL: 110 amp service .3 phase, assumed adequate outlets. PLUMBING: Copper supply lines with some pvc waste lines - Men and Women restrooms, all fixtures are modern with some ceramic tile and fixtures PARKING: Asphalt
The building also features a vault, kitchen areas, storage areas, several offices, and a modern electrical entrance system. The security system includes 28 cameras. See List. Form 10-SB Dated August 31, 1996, Page 159 16 BUILDING INSPECTION PROPERTY: Frontier Palace (Inspection Date: 4/29/95) LOCATION: 376 US Highway #278 Bypass Piedmont, Alabama LAND AREA: 15 Acres rectangular site fronting Hwy 278 IMPROVEMENTS SIZE: 80,000 SF Gross ERECTED: 1993 +/- (New Construction) CONSTRUCTION: Retail: 3 Story metal with office and open area. ROOF: Steel bar joist and pan with rigid board, metal; open steel girders and purlins with sheet metal membrane. WALLS: Brick and Prefabricated metal. CEILINGS: 12 foot eave, open ceiling with wet sprinkler systems. FLOOR: Concrete on grade with commercial grades of carpet and vinyl in office; Sealed concrete on grade. LIGHTING: Office: Recessed fluorescent fixtures; Service: Industrial fluorescent strips plus skylite panels. ELECTRICAL: Office: Typical; Service: Typical. RESTROOMS: Open: Adequate; Office: Adequate. HVAC: Adequate (over built) LOADING FACILITIES: Garage Door - No dock - well CONDITION: Open: Good; Office: Good.
Form 10-SB Dated August 31, 1996, Page 160 17 IMPROVEMENTS ON THE SITE (cont'd) --------------------------------- Quality of Construction (Materials & Finish) Good Condition of Improvements Good Room Sizes and Layout Good Covered Areas and Storage Good Insulation - Adequacy Good Plumbing - Adequacy & condition Good Electrical - Adequacy & condition Good HVAC - Adequacy & condition Good Parking and Entrance Areas Good Compatibility to Neighborhood Good Access to Upper Levels Good Office Interior Layouts Good Quality of Construction Good Overall Usability Good Appeal and Marketability Good ALL OF THE ABOVE FACTORS ARE CONSIDERED TO BE NEW AND ABOVE AVERAGE AND ASSUMED TO BE IN GOOD CONDITION AND WORKING ORDER. ALL STATEMENTS ARE ASSUMED TO BE COMPLETED AND NEW. YEARS ESTIMATE REMAINING ECONOMIC LIFE: 25 TO 40. Form 10-SB Dated August 31, 1996, Page 161 18 HIGHEST AND BEST USE SUMMARY The subject property is well located which in return has allowed the good market demand. It is the opinion of the appraiser that the site is developed to its highest and best use as a gaming and educational complex specifically for a special usage. The steady income stream of the going concern tends to prove the good use of the property. Therefore, the subject property conforms to the appraiser's opinion of highest and best use. This is assuming the license of the current operation remains in place. Form 10-SB Dated August 31, 1996, Page 162 19 HIGHEST AND BEST USE According to the test of Real Estate Appraisal Terminology, Revised Edition, published jointly by the American Institute of Real Estate Appraisers and the Society of Real Estate Appraisers, Highest and best use may be defined as: That reasonable and probable use that supports the highest present value, as defined, as of the effective date of the appraisal. Alternatively, that use, from among reasonably probable and legal alternative uses, found to be physically possible, appropriately supported, financially feasible and which results in highest land value. This definition implies that the highest and best use of the subject is considered as if vacant. For improved properties, there is also a consideration of the highest and best use of the property as improved. The existing improvements are considered in relation to the highest and best as improved. The subject property is situated north of the major thoroughfare, U. S. Highway #278 Bypass (see attached maps). The development patterns in the area point to further commercial and retail complexes in the general area with no other gaming operation. Clearly, the subject property's highest and best use assumes the continuance of the going concern complex, which clearly best allows for the maximum benefit available. Form 10-SB Dated August 31, 1996, Page 163 20 INCOME APPROACH CONCLUSIONS In summary, the subject is a well located property for the present use. Demand for playing appears to have been steady in recent years with an increase of revenues and an overall increase of the net operating income. Note, that the Lessee is a non-profit concern. If the property was placed on the open market for sale at the present time, it is my opinion that the property would be sold as a going concern facility, and past operating statements would have the most (if not all) use to the new owners. However, based on the operating financial data provided the subject business, operation and property would have an estimate income value as follows. Please note some downward/upward adjustments were required to the operating statements due to taxes, insurance, amounts of maintenance, fees, rents, payouts, expenses and overall non-profit charges which indicates a higher than average operating gross costs. A detailed view of each income producer was analyzed and made by the appraiser. The property's location, access, license, size, shape, layout, condition, equipment, zoning classification, utilities, use and overall financial condition are all considered and analyzed for this appraisal, and was very supported in the final estimated value for the subject based on a reasonable rate of return for an investor based on the current market condition, was: ADJUSTED NET OPERATING INCOME: $700,000 10% NOI @ $700,000 = $7,000,000 Adjustments were required and made for the following: 1) Depreciation and Taxes 2) Non-Profit Expenses and Costs Form 10-SB Dated August 31, 1996, Page 164 21 INCOME/EXPENSE STATEMENT NOTES 1) The capitalization rate was developed on the local mortgage rates, interest rates, terms and demands on R.O.I. and R.O.E. from the local investors. 2) All verbal contracts were assumed to be in very short supply with no value estimated. 3) The stated average rental rate was derived from the current operation and past performance. 4) The occupancy rate was projected at 100% with the leasing period being more than 1 year. 5) The potential gross income from the lease was based on similar on-going operations and past operating statements of alike businesses. Also, from the actual tenant/business as stated by the parcel's owner. 6) All work is assumed to be completed, if any. This includes exterior and interior of the proposed structure. 7) Market conditions are stable and constant for this business operation. Form 10-SB Dated August 31, 1996, Page 165 22 SUMMARY OF VALUE CONCLUSIONS The estimated values of the equipment, furniture and other business related assets have been based on income stream, past history of related items and from conversations from the owners. The holding period for the assets is projected to be approximately 24 years. This time period is typical for the items and assets. The costs of ownership, holding and caring fees are estimated at 30% of the total. The fees should include most moving, interest and shipping expense, but not the owner's profit. A deep discount of 50% of the total has been applied in this assignment. This discount also includes the assumptions that the income stream should decline if the furniture and equipment are removed. Furthermore, the assets are considered to be part of the "going concern" business, and their values are included and shows up in the income stream. Form 10-SB Dated August 31, 1996, Page 166 23 CERTIFICATION OF THE APPRAISER I, the undersigned appraiser, hereby certify that: 1) I have no interest, present or contemplated, direct or otherwise in the appraised properties. 2) My employment and compensation are not contingent upon the valuations found. 3) I have made a thorough, personal inspection of the subproperties and the general area. 4) According to the best of my knowledge and belief, everything contained in this report is true, subject to the limiting conditions herein, and that no important facts have been intentionally overlooked or withheld. 5) This appraisal has been made in conformity with the rules and professional ethics of the Alabama Real Estate Commission. 5/5/95 /s/Phillip C. Ledbetter/s/ - ------ ------------------------------------ Date Phillip C. Ledbetter Appraiser & Broker Form 10-SB Dated August 31, 1996, Page 167 24 I certify that, to the best of my knowledge and belief: - -- the statements of fact contained in this report are true and correct. - -- the reported analyses, opinions and conclusions are limited only by the reported assumptions and limiting conditions, and are my personal, unbiased professional analyses, opinions, and conclusions. - -- I have no present or prospective interest in the property that is the subject of this report, and I have no personal interest or bias with respect to the parties involved. - -- my compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. - -- my analyses, opinions and conclusions were developed, and this report has been prepared in conformity with the Uniform Standards of Professional Appraisal Practice. - -- I have made a personal inspection of the property that is the subject of this report. - -- no one provided significant professional assistance to the person signing this report except as stated herein, if any. - -- the reported analyses, opinions and conclusions were developed and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute. - -- the use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representative. - -- or an approval of a loan. Form 10-SB Dated August 31, 1996, Page 168 25 ASSUMPTIONS AND LIMITING CONDITIONS ----------------------------------- 1) The legal descriptions, survey plats and maps furnished to the appraiser are assumed to be correct. 2) The appraiser assumes no responsibility for matters legal in nature, and title is assumed to be correct. 3) All existing leins and encumbrances, if any, have been disregarded, and the property has been appraised as though free and clear of those limitations. 4) Responsible ownership and competent management is assumed in the appraisal of these properties. 5) Information identified in this report as having been furnished by others is believed to be reliable but no responsibility is assumed for its accuracy. 6) The sketches included in this report are included merely to assist the reader in visualizing the property and are not to be constructed as being actual surveys. 7) Possession of this report, or any copy thereof, does not carry with it the right of publication, in whole or in part without the express consent of the appraiser. 8) Attendance or testimony in court by reason of this report is not required unless separate arrangements have been made with the appraiser. Form 10-SB Dated August 31, 1996, Page 169 26 ASSUMPTIONS AND LIMITING CONDITIONS The various indications of value developed in the appraisal are indications only. They were developed through the various approaches to value primarily to give weight to the various factors affecting value and to assist the appraiser in reaching a value conclusion. These indications of value must not be used in conjunction with any other appraisal and are invalid if so used. The distribution of the total valuation as between land and improvements applies only under the existing program of utilization. The separate value estimates for land and improvements must not be used in conjunction with any other appraisal and are invalid if so used. The appraiser assumed that there are no hidden conditions of the property, subsoil, or structures which would render it more or less valuable than otherwise apparently comparable property. The appraiser assumes no responsibility for such conditions or for engineering which might be required to discover them. Form 10-SB Dated August 31, 1996, Page 170 27 CERTIFICATION OF THE APPRAISER "This assignment was made subject to regulations of the state of Alabama Real Estate Appraisers Board. The undersigned state certified appraiser has met the requirements of the board that allow this report to be regarded as a 'Certified Appraisal.'" /s/Phillip C. Ledbetter/s/ -------------------------- Phillip C. Ledbetter, ACA Certified General Real Estate Appraiser Certificate Number: CG00236 Form 10-SB Dated August 31, 1996, Page 171 28 DISCLOSURE OF COMPETENCY I certify that I have the appropriate knowledge and experience that is required to complete this appraisal assignment within the standards and requirements to comply with the Competency Provision in the USPAP. Form 10-SB Dated August 31, 1996, Page 172 29 CERTIFICATION OF THE APPRAISER I, the undersigned appraiser, hereby certify that: 1) I have no interest, present or contemplated, direct or otherwise in the appraised properties. 2) My employment and compensation are not contingent upon the valuations found. 3) I have made a thorough, personal inspection of the subproperties and the general area. 4) According to the best of my knowledge and belief, everything contained in this report is true, subject to the limiting conditions herein, and that no important facts have been intentionally overlooked or withheld. 5) This appraisal has been made in conformity with the rules and professional ethics of the Alabama Real Estate Commission. 5/5/95 /s/Phillip C. Ledbetter/s/ - ------ -------------------------- Date Phillip C. Ledbetter Appraiser & Broker Form 10-SB Dated August 31, 1996, Page 173 30 PHILLIP C. LEDBETTER -------------------- EDUCATION - --------- 1979 Diploma - Jacksonville High School 1982 B.S. - Political Science - JSU 1982 B.A. - Economics - JSU LICENSES - -------- 1982 Alabama Real Estate License - Salesman 1984 Alabama Real Estate License - Broker 1990 State Certified General Appraiser EXPERIENCE - ---------- CLIENTS - ------- AmSouth Bank Colonial Bank SBA Courts Numerous Attorneys Independent Bank Accountants/Trusts Corporations Form 10-SB Dated August 31, 1996, Page 174 31 STATE OF ALABAMA This is to certify that PHILLIP C. LEDBETTER having given satisfactory evidence of the necessary qualifications required by the laws of the State of Alabama is authorized to transact business in Alabama as a CERTIFIED GENERAL REAL ESTATE APPRAISER with all rights, privileges and obligations apputenant thereto. Certificate Number: CG00236 Expiration Date: Sept., 30, 1995 Seal Signature Signature Signature Signature Signature Signature Signature Signature Signature ALABAMA REAL ESTATE APPRAISERS BOARD Form 10-SB Dated August 31, 1996, Page 175 32 STATE OF ALABAMA THE ALABAMA REAL ESTATE COMMISSION HEREBY GRANTS 1995-96 REAL ESTATE BROKERS LICENSE NUMBER 014815 TO PHILLIP C. LEDBETTER G B DANIEL REALTY COMPANY 1330 NOBLE STREET SUITE 21 ANNISTON, AL 36201 COUNTY 11 I014726 PHILLIP C. LEDBETTER COMPANY OFFICE REGISTRATION NUMBER COMPANY QUALIFYING BROKER TYPE OF LICENSE Q LICENSE NUMBER 014815 ISSUE DATE 10/1/94 EXPIRATION DATE 9/30/96 LICENSE FEES 90.00 RECOVERY FUND PENALTY REG. FEE C.E. HOURS 12.00 Table> THIS LICENSE SHALL TERMINATE WHENEVER ABOVE LICENSEE FAILS TO COMPLY WITH ANY PORTION OF THE ALABAMA REAL ESTATE LICENSING LAW. ALABAMA REAL ESTATE COMMISSION Signature Executive Director 205 350 990 127516R19940805 02561 Form 10-SB Dated August 31, 1996, Page 176 -----END PRIVACY-ENHANCED MESSAGE-----