-----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, WD48vmriudHMxEp1IZpt92KRqUbe+FWkqajuUZAqHGcxX7z3538T/ig8xWIJbDz1 MV28ymIzk+RTe4wOJ26o4Q== 0000944209-96-000406.txt : 19961029 0000944209-96-000406.hdr.sgml : 19961029 ACCESSION NUMBER: 0000944209-96-000406 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19961028 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALL-COMM MEDIA CORP CENTRAL INDEX KEY: 0000014280 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 880085608 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-16730 FILM NUMBER: 96648813 BUSINESS ADDRESS: STREET 1: 400 CORPORATE POINTE STREET 2: SUITE 780 CITY: CULVER CITY STATE: CA ZIP: 90230 BUSINESS PHONE: 310-342-28 MAIL ADDRESS: STREET 1: 400 CORPORATE POINTE SUITE 780 CITY: CULVER CITY STATE: CA ZIP: 90280 FORMER COMPANY: FORMER CONFORMED NAME: SPORTS TECH INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: BRISTOL HOLDINGS INC DATE OF NAME CHANGE: 19920518 FORMER COMPANY: FORMER CONFORMED NAME: BRISTOL GAMING CORP DATE OF NAME CHANGE: 19890518 10-K/A 1 AMENDMENT TO FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended June 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ______________ to___________________ Commission file number 0-16730 ALL-COMM MEDIA CORPORATION ---------------------------------------------------- (Exact name of registrant as specified in its charter) Nevada 88-0085608 --------------------------- ---------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 400 Corporate Pointe, Suite 780 Los Angeles, California 90230 -------------------------------------- -------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (310) 342-2800 -------------- Securities registered pursuant to Section 12(b) of the Act: None ------------ Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share -------------------------------------- (Title of class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ------- ------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of September 16, 1996, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $ 16,066,000. As of September 16, 1996, there were 3,194,659 shares of the Registrant's common stock outstanding. PART I ITEM 1 - BUSINESS - ----------------- General - ------- The business of All-Comm Media Corporation (the "Company" or "All-Comm Media"), previously known as Sports-Tech, Inc., ("Sports-Tech") arises out of the April 25, 1995 merger between Alliance Media Corporation ("Alliance") and the Company, and the concurrent acquisition of Stephen Dunn & Associates, Inc. (SD&A), a leading telemarketing and telefundraising company that specializes in direct marketing services for the arts, educational and other institutional tax- exempt organizations. Simultaneously, the former management and directors of Sports-Tech resigned in favor of the merger with Alliance and its plan to build a specialized marketing services company with a focus on providing direct marketing, information and media services. The change in the Company's name was approved at a special shareholders meeting held on August 22, 1995 to reflect the new corporate vision and direction originating from the change in management and board of directors associated with the merger with Alliance. The Company's shares are traded on the NASDAQ Small Cap Market under the symbol "ALCM". The Company's principal executive offices are located at 400 Corporate Pointe, Suite 780, Culver City, CA 90230. Its telephone number is (310) 342-2800. The Company's Strategy - ---------------------- Initially, the Company intends to expand through the acquisition of companies in the direct marketing, information and media services industry which can provide core capabilities for the direct marketing process. Direct marketing has become an increasingly important advertising medium and an integral component of marketing programs that combine multiple forms of communication, such as direct mail, telemarketing, print, television, radio, electronic media, information kiosks, CD-ROM and Internet World-Wide Web sites. A key element of the Company's growth strategy is to establish a complimentary group of companies under a unified corporate architecture that is capable of servicing multiple client needs in the new marketing and media environment. The Company believes that technological innovation will continue to increase the effectiveness of direct marketing. Other than as described in this Annual Report on Form 10-K (this "Form 10-K") the Company has no agreements to acquire any such companies and there can be no assurance that the Company will be able to acquire such companies. Stephen Dunn & Associates, Inc. ("SD&A") - --------------------------------------- SD&A was formed in 1983 and was acquired by the Company on April 25, 1995. For the twelve month period ended June 30, 1996 ("Fiscal 1996"), SD&A had revenues of more than $15.8 million. Clients of SD&A include many of the larger performing arts and cultural institutions, such as major symphonies, theatres and musical arts companies, along with public broadcasting stations, advocacy groups and educational institutions. SD&A's clients include over 150 of the nation's leading institutions and universities, such as New York Phil- 2 harmonic Orchestra, American Conservatory Theater, Lincoln Center, Museum of Modern Art, New York University, Duke University, National Audubon Society and Simon Weisenthal Center. SD&A has its headquarters in Los Angeles, California and operates a telemarketing calling center in Berkeley, California. History and Prior Activities - ---------------------------- The Company was originally incorporated in Nevada in 1919. During 1991, under the prior management, the Company acquired a 100% interest in Sports-Tech International, Inc. ("STI") and changed its name to Sports-Tech, Inc. In 1993, the Company acquired the business of High School Gridiron Report ("HSGR"). (See Discontinued Operations). STI and HSGR supplied information services and technology as well as academic, athletic and video data to high school, college and professional coaches and student athletes. In November, 1994, after a failed business strategy, the prior management of the Company discontinued these operations through the sale of STI and the cessation of the HSGR operation. Prior to, and as a condition of the merger with Alliance, the Company was required to divest its investments, except for an undeveloped parcel of land in Laughlin, Nevada. In August, 1996 the land was sold. (See All-Comm Holdings, Inc. herein for a description of this investment and the terms of its sale.) Merger with Alliance Media Corporation: On April 25, 1995, STI Merger Corporation ("Merger Sub"), a wholly owned subsidiary of the Company, was merged (the "Merger") with and into Alliance. The Merger was effected pursuant to the terms of an Acquisition Agreement, dated as of February 7, 1995, as amended. Pursuant to the terms of the Acquisition Agreement, upon consummation of the Merger, the then current members of the Board of Directors of the Company resigned and a new Board was appointed, consisting of persons designated by Alliance. (See Executive Officers and Directors of the Registrant and Significant Employees.) As a result of the Merger, Alliance became a wholly owned subsidiary of the Company and the former shareholders of Alliance received 1,025,000 shares of the Company's common stock valued at $2,745,000 constituting approximately 39.6% of the Company's common stock (on a fully diluted basis, taking into account shares issuable upon exercise of warrants delivered in payment of various fees incurred in connection with the Merger). These shares have registration rights commencing December 1, 1995. The assets of Alliance acquired by the Company consisted primarily of: (i) all of the issued and outstanding stock of SD&A, which Alliance had acquired effective April 25, 1995 pursuant to a Stock Purchase Agreement, dated as of January 31, 1995, between Alliance and Mr. Stephen Dunn (the "Dunn Agreement"); (ii) a five-year covenant not to compete with the former owner of SD&A; and (iii) the cash proceeds (net of certain payments, including the payment of $1.5 million required pursuant to the terms of the Dunn Agreement) of a private placement of equity securities by Alliance, which securities, upon consummation of the Merger, were converted into shares of the Company's common stock. Pursuant to the terms of the Dunn Agreement, terms of the acquisition included $1.5 million in cash plus a $4.5 million long term obligation and additional contingent payments of up to $850,000 per year over the period ending June 30, 1998, of which, at the Company's option, 50% may be made with restricted common shares of the Company. For Fiscal 1996, the $850,000 3 payment was earned and was paid, half in cash and half in stock. These acquisition terms were revised pursuant to the Company's private placement financing which occurred on June 7, 1996 (see "Private Placement of Preferred Stock") whereby the terms of the long term obligations were revised. Of the remaining balance of $4.1 million, approximately $2.0 million was repaid in June 1996. The balance of $2.1 million is payable in 36 monthly principal payments of $58,333, plus interest at 8%, starting September 19, 1996. The assets of SD&A, upon its acquisition by Alliance (and simultaneously obtained by the Company upon consummation of the Merger), consisted primarily of cash and cash equivalents, accounts receivable and furniture, fixtures and equipment, which were accounted for using the purchase method. The purchase price was allocated to assets acquired based on their estimated fair value. This treatment resulted in approximately $6.3 million of costs in excess of net assets acquired, after allocating approximately $1 million to a covenant not to compete. Such excess, which may increase for any further contingent payments, is being amortized over the expected period of benefit of 40 years. The operating results of these acquisitions are included in the consolidated results of operations of the Company from the date of acquisition, April 25, 1995. Current Activities - ------------------ Pending Acquisition of Metro Services Group, Inc.: On May 30, 1996, the Company signed a letter of intent to acquire the capital stock of Metro Services Group, Inc. ("Metro"). Metro is a private company formed in 1987 and based in New York City, with offices in Michigan, Illinois and California, and has annual sales in excess of $8 million. Metro develops and markets a variety of database direct marketing products and services to a wide range of commercial clients and tax-exempt organizations. Metro provides information-based products and services to the direct marketing industry through its four divisions: Metro Direct Marketing, which provides full service direct marketing programs for consumers and business to business clients, particularly in the financial services and publishing areas; MSGI Computer Services which utilizes a combination of mainframe, PC platforms and Internet servers for database development, data enhancement, response analysis and predictive modeling capabilities; MetroArts develops and executes customer acquisition campaigns for the performing arts, entertainment and cultural institutions and Metro Non-Profit provides strategic planning, membership and direct mail fundraising campaigns for non-profit institutions. The majority of Metro's revenues are derived from a commercially driven client base. Terms of the acquisition call for an exchange of stock, of approximately 2.0 million shares of the Company's common stock for all of the outstanding stock of Metro. Consummation of the acquisition is subject to a number of conditions, including the negotiation of a definitive agreement. No assurance can be given that the acquisition will be consummated. Stock Split and Change in Authorized Common Shares: Effective August 22, 1995, the Company's Board of Directors approved a one-for-four reverse stock split of the Company's authorized and issued common stock. Fractional shares were rounded up to whole shares. After the reverse stock split, approximately 3,016,000 shares were outstanding. All share and per share data in this Annual Report reflect the effect of the reverse stock split. Effective August 14, 1996, the Company's 4 shareholders approved an increase in the number of authorized shares of common stock from 6,250,000 to 36,250,000, to facilitate its corporate strategy and growth plans. Private Placements of Common Stock: On May 31, 1995, the Company completed a private placement of 413,759 restricted shares of its common stock for a total of $1,108,875 ($1,018,675 net after offering costs) in order to replenish cash resources which were depleted prior to the Merger with Alliance, as a result of losses and dispositions of assets prior to the Merger. (See Discontinued Operations and Events Prior to the Merger with Alliance Media Corporation.) These shares have registration rights commencing December 1, 1995. In March, 1996, the Company issued, in a private placement, 75,000 restricted shares of its common stock for an aggregate of $120,000 to four individuals, including 12,500 shares to related parties, in order to meet certain operating obligations. Private Placements of Convertible Preferred Stock: On May 9, 1996, the Company completed the private placement with an institutional investor of 10,000 shares of Series A convertible preferred stock for $750,000, $687,000 net after offering costs. On June 7, 1996, the Company completed the private placements with accredited investors of 6,200 shares of Series B convertible preferred stock for $3,100,000. The preferred stock is preferred as to the Company's assets over the common stock in the event of liquidation, dissolution or winding-up of the Company, prior to distribution of assets to common stockholders. The preferred stockholders are entitled to their original investment, plus accrued, unpaid dividends or, if unavailable, a ratable distribution of existing assets. The holders of the stock are entitled to receive a dividend payable only on redemption or credited against conversion, which shall accrue at the rate of 6% per annum. The convertible preferred stock is convertible, in whole or in part, at any time and from time to time until the second anniversary of the date of issuance, into common shares of the Company at the lesser of the price paid divided by $1.25, or 80% of the average closing sales price of the Company's common stock for the last five days prior to conversion, and is subject to certain restrictions, including automatic conversion on the second anniversary of its issuance. Under certain unlikely conditions prior to conversion, the preferred stock may be redeemed. In addition, the Company issued warrants to preferred shareholders for 3,100,000 shares of common stock exercisable at $2.50 for three years. On June 7, 1996, the Company completed the private placements with accredited investors of $1,000,000 of convertible notes and warrants for 3,000,000 shares of common stock. Subsequent to June 30, 1996, the notes and warrants were rescinded retroactive to June 7, 1996. In addition, on September 10, 1996, effective as of June 7, 1996, the Company completed a private placement of 2,000 shares of Series C convertible preferred stock with the same accredited investors for $1,000,000. The Series C convertible preferred stock is preferred as to the Company's assets over the common stock in the event of liquidation, dissolution or winding-up of the Company, prior to distribution of assets to common 5 stockholders. The preferred shareholders are entitled to their original investment, plus accrued unpaid dividends or, if available, a ratable distribution of existing assets. The holders of the stock are entitled to receive a dividend payable only on redemption or credited against conversion, which shall accrue at the same rate of 8% per annum, increasing to 24% on October 7, 1996, in the event that the shares are not registered. The Series C convertible preferred stock is convertible, in whole or in part, at any time and from time to time until the second anniversary of the date of issuance, into common shares of the Company at the price paid divided by $6.00, and is subject to certain restrictions, including automatic conversion on the second anniversary of issuance. Under certain unlikely conditions prior to conversion, the preferred stock may be redeemed. In addition, the Company issued warrants to preferred shareholders for 3,000,000 shares of common stock exercisable at $3.00 for three years. In connection with the June 7, 1996 transactions, payment of approximately $2.0 million was made on long term obligations due to the seller of the Company's operating subsidiary, Stephen Dunn & Associates, Inc. ("SD&A"). The Company used $812,500 to reacquire 10,000 shares of Series A convertible preferred stock issued in the private placement on May 9, 1996. Of the proceeds, $425,000 was used to prepay additional consideration to the seller of SD&A which was contingent upon post-closing SD&A earnings. The remainder will be used for general corporate purposes. Termination of Other Business Matters: As part of the Company's strategy to expand through the acquisition of companies in the direct marketing, information and media services industry, numerous negotiations occur, some of which may result in preliminary agreements. In the course of the Company's due diligence, these agreements may be abandoned or terminated for different reasons which may include non-substantiation of the target company's financial condition, unsatisfactory analysis of the target company's operations and/or financial projections, and numerous other matters. From time to time, and in the ordinary course of business, the Company is likely to enter into preliminary agreements which, upon further analysis or negotiations, may become abandoned or terminated. Accordingly, in March 1996, the Company terminated its agreement to acquire Bullseye Database Marketing, Inc., ('Bullseye") when the Company determined that certain conditions would not be satisfied in respect of its initial agreement dated December 20, 1995. Similarly, in February 1996, the Company abandoned its negotiations to acquire Forms Direct, Inc. ("FDI") in respect of its letter of intent dated September 28, 1995, and formally terminated all pending matters in August 1996. In March 1996, the Company elected to terminate its negotiations in respect of a February 6, 1996 loan commitment for a $2.0 million revolving credit line. Discontinued Operations - ----------------------- Sports-Tech International, Inc. and High School Gridiron Report: On March 9, 1995, as a condition precedent to the merger with Alliance Media, the Company sold Sports-Tech International, Inc. ("STI") to Dainichi Electronics, Inc. for $800,000 out of which $80,000 was paid by the Company as a commission to the former 6 president of STI. The former president of STI also received $38,750 in common stock, and warrants to purchase 2,500 shares of the Company's common stock at $8 per share. The Company realized a gain on the sale of $322,000. STI was acquired in 1992 from Florida Gaming Corporation ("Florida Gaming"), for $1,400,000 in cash and 660,000 shares of Sports-Tech, valued at $936,600. Acquisition costs totaled $342,000. Concurrent with the sale of STI, the Company ceased the operations of High School Gridiron Report ("HSGR"). HSGR was acquired on June 11, 1993, in exchange for 15,000 common shares of the Company, valued at $255,000, forgiveness of a note receivable of $161,000 and assumption of liabilities totaling $29,000. The sale of STI and the closing of HSGR operations have been accounted for as discontinued operations and, accordingly, the consolidated financial statements contained in this Annual Report have been reclassified to report separately this segment's net assets, operating results, gain on disposition and cash flows. Warrant Exercise: In July 1991, under the prior management, and in connection with the acquisition of 57.7% of the outstanding common stock of STI from Florida Gaming, the Company also acquired, for $40,000, a warrant (the "FGC Warrant") to acquire a number of shares, which at the time, represented 33% of the outstanding common stock of Florida Gaming, for an aggregate exercise price of $1,000,000. On July 28, 1994, the Company exercised the FGC Warrant, in full, and received 651,752 shares of Florida Gaming common stock. The exercise price of the FGC Warrant was financed with a $1,000,000 loan, and the shares of Florida Gaming common stock were pledged to collateralize the repayment of the loan. The parties to the loan included, among others, the Company's former chairman, former president, a former director and a shareholder, who each provided $200,000. The other lenders were non-affiliates. The lenders received the repayment of the $1,000,000 loan with interest at 7.75%, totaling $9,000 and a $300,000 commitment fee from the proceeds of the subsequent stock sale. During the year ended June 30, 1995, as a condition precedent to closing of the merger with Alliance Media, the Company sold all the common shares of Florida Gaming stock it had acquired for $2,683,000 and recognized a gain of $1,580,000. Industry Overview - ----------------- Advances in communications technology and the growing availability of complex consumer data are causing marketers to use new information technologies and media capabilities to more effectively target their customers and efficiently service their needs. The use of direct marketing by businesses to target and communicate with potential customers has been steadily increasing due, in part, to the relative cost efficiency of direct marketing, as compared to other advertising methods, as well as the rapid development of affordable computer technology. As a result, the analysis and management of databases that contain such information will continue to be an important driver for a variety of marketing programs. These programs utilize multiple forms of communications such as direct mail, telemarketing, 7 print, television, radio, video, CD-ROM, on-line services, such as the Internet, and other interactive and multimedia formats. Over the next decade, these marketing methodologies will provide major corporations with direct access to their customers and the most cost effective and efficient means for targeting specific audiences and developing long term customer relationships. The shift from mass marketing to personalized and targeted marketing enables advertising and marketing programs to be evaluated and adjusted through measurable results. Prior to and during much of the 1970's, the costs associated with selling products and services, either through mass marketing or through personal sales calls, were relatively low, while the costs of database development were prohibitive for all but the largest businesses. In the 1980's the costs of developing and implementing computer technologies to analyze and target potential customers declined while the costs of traditional marketing increased significantly. As technological innovation continues, the Company believes that more companies will seek to integrate various direct marketing methodologies within a wide-range of marketing and media campaigns. The ability to interact with customers and accurately measure the response to the message is used for a variety of purposes, including: prospecting for new customers, enhancing existing customer relationships and evaluating the potential for new products and services, and allows marketing campaigns to be continually refined to further enhance their effectiveness. Numerous industry sources indicate that such programs increase a company's ability to generate revenues, directly and indirectly, from specific audiences across a wider market and through more personalized access to consumers. Industry Consolidation - ---------------------- The direct marketing and media services industries are highly fragmented. Larger corporations have been steadily linking marketing and media strategies to more effectively reach customers in an increasingly competitive marketplace. The majority of service providers are specialized by industry and type of service. They are generally small in size, offering limited or single services that support the direct marketing process. Major corporations continue to increase their use of direct marketing, information and media services as technological advances occur. As such, merger and acquisition activity has accelerated among service providers seeking economies of scale, market penetration and complementary services that result from larger, stronger firms which possess a greater ability to execute increasingly complex marketing and media campaigns. Most advertising, marketing and media services firms, along with internal corporate marketing departments, rely on outside vendors to execute their requirements for implementing marketing programs. These vendors provide specialized services, such as market data analysis, creation of private databases, development and management of information systems that support marketing programs, direct mail creation, production, tracking and fulfillment, telemarketing and the creation of electronic video and digital image processing and distribution. Corporate marketing departments, advertising and other agencies, often lack this type of technical expertise to create, manage and control various aspects of the process. Consequently, as new communications mediums and marketing methodologies are 8 introduced into the marketplace, an increasing number of different service providers are involved in developing and executing marketing campaigns. Much of the consolidation is a result of economies of scale, the ability to cross-sell products and services, and the need to coordinate complex marketing programs, often within a single, reliable environment. Line of Business - ---------------- The Company, through SD&A, provides a variety of telemarketing and telefundraising services to clients in the tax-exempt sector. Since its inception in 1983, SD&A has worked with over 150 tax-exempt organizations, located in over thirty states, and has developed expertise in working with a broad range of tax-exempt organizations, including those which support the arts, such as theaters, operas, symphonies and ballets, as well as museums, colleges and universities, public television stations and advocacy groups. Campaigns are conducted either "on-site" at, or near, the client's premises or "off-site" at SD&A's full service calling center, located in Berkeley, California (the "Berkeley Calling Center" or "BCC"). SD&A's revenues are derived primarily from fees and commissions from telemarketing campaigns and telefundraising efforts. Telemarketing Campaigns. Telemarketing campaigns are highly focused marketing efforts designed to sell subscriptions to patrons for multiple performances or a portion of a season of performances at live theatres, symphonies, operas, ballets, musical theatres and similar performing arts venues. The campaigns are tailored to fit the clients' specific needs, generally range from eight to 26 weeks, and may be conducted at or near the clients' premises or at the Berkeley Calling Center. The design of each campaign includes evaluating and segmenting the target population using database analysis programs, often in combination with demographic and psychographic screening programs, to estimate the sales potential of different groups. Management believes that this approach to telemarketing campaigns is an efficient means to generate sales revenue for its clients and that it strengthens the clients' contact and prospect base, enhances the effectiveness of the clients' public relations as a fundraising tool to develop valuable information-gathering sources, and expands the database of potential patrons. Telefundraising Efforts. The telefundraising efforts fall into three groups: Annual Fund Campaigns, capital campaigns through the SD&A's CapiTEL program and Special Gift Campaigns. While colleges and universities were generally the first organizations to use telemarketing for capital and endowment campaigns, SD&A pioneered the application of these techniques to the performing arts through its CapiTEL program. SD&A provides both program design and management, including personalized direct mail and telefundraising solicitation. Four different types of telefundraising phone/mail campaigns are conducted: Annual Fund Campaigns to renew and acquire donors and increase the level of giving; Membership Campaigns to renew and acquire members to increase the client's membership base; CapiTEL Campaigns designed to solicit three to five- year gifts, typically used for an institutional client's physical "brick and mortar" projects; and Special Gift Campaigns seeking large donations often conducted in conjunction with Annual Fund Campaigns. 9 Government Regulation. Telemarketing sales practices are regulated both federally and at the state level. The federal Telephone Consumer Protection Act of 1991 (the "TCPA") prohibits telemarketing firms from initiating telephone solicitations to residential telephone subscribers before 8:00 a.m. or after 9:00 p.m., local time, and prohibits the use of automated telephone dialing equipment to call certain telephone numbers. In addition the TCPA requires telemarketing firms to maintain a list of residential customers that have stated that they do not want to receive telephone solicitations and, thereafter, to avoid making calls to such consumers' telephone numbers. The federal Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994 (the "TCFAPA") broadly authorizes the Federal Trade Commission (the "FTC") to issue regulations prohibiting misrepresentation in telemarketing sales. In August, 1995, the FTC issued updated proposed telemarketing sales rules. Generally, these rules prohibit misrepresentation regarding the cost, terms, restrictions, performance or duration of products or services offered by telephone solicitation and otherwise specifically address other perceived telemarketing abuses in the offering of prizes and the sale of business opportunities or investments. These operating procedures were already standard for SD&A prior to enactment of this federal legislation. A number of states have enacted, or are considering, legislation to regulate telemarketing. For example, telephone sales in certain states cannot be final unless a written contract is delivered to, and signed by, the buyer and may be canceled within three business days. At least one state also prohibits telemarketers from requiring credit card payment, and several other states require certain telemarketers to obtain licenses and post bonds. From time to time, bills are introduced in Congress which, if enacted, would regulate the use of credit information. SD&A cannot predict whether this legislation will be enacted and what effect, if any, it would have on the telemarketing industry. Many states regulate fundraising activities performed by professional fund- raisers by requiring them to register and to submit periodic activity reports. Growth Strategies. Management anticipates future revenue growth through assisting current clients to increase the size of existing subscription sales and fundraising campaigns and through obtaining new clients within its existing specializations, and in other areas, such as environmental organizations, hospitals and national health causes. Several programs have been implemented to increase the utilization of the telefundraising staff and the BCC capabilities by existing clients utilizing only telemarketing services. Finally, SD&A is investigating opportunities to utilize additional mediums to provide fundraising services for existing and potential clients that supports and creates new telemarketing and telefundraising techniques. To achieve growth, the Company utilizes an in-house marketing group which specifically targets potential clients. New business is also solicited through direct mail, telemarketing and attendance at trade shows and industry conferences. While management believes that these strategies will increase revenues, there can be no assurances that they will be effective. Client Relationships. During Fiscal 1996, SD&A provided telemarketing, telefundraising and consulting services to over 90 clients. SD&A generally operates under month-to-month contractual relationships and is paid for its telemarketing services based on the type 10 of campaign. In the area of performing arts, for both fundraising and subscription sales, SD&A is typically paid a percentage of the total amount raised but, in other instances, the Company is compensated on an hourly basis. For Fiscal 1996, approximately 83% of SD&A's revenues were derived from telemarketing and telefundraising and 17% from off-site campaigns. Competition. SD&A competes with other companies that provide similar services, as well as from those providing direct mail, television, radio and other advertising fundraising services. The telemarketing/fundraising industry is very competitive and highly fragmented. Most of SD&A's competitors are small, single facility operations. As such, competition is derived primarily from the in-house capabilities of the not-for-profit organizations. Seasonality. Typically, telemarketing and telefundraising campaigns are seasonal in nature with a substantial portion of revenues generated during the 1st and 4th fiscal quarters. All-Comm Holdings, Inc. (Previously, Bullhead Casino Corporation) - ---------------------------------------------------------------- In 1979, under the prior management, the Company, through its wholly-owned subsidiary, acquired 6.72 acres of undeveloped land on the Colorado River in Laughlin, Nevada, for approximately $560,000. On August 16, 1996 the land was sold to an independent third party, via a public auction, for $952,000 in cash, resulting in a net gain of approximately $114,000 over book value, as adjusted for capitalized costs and assessments during the holding period. Employees - --------- At September 16, 1996, the Company and SD&A collectively have approximately 1,100 employees, of whom approximately 1,000 are part-time. None of the Company's employees are covered by collective bargaining agreements and the Company believes that its relations with its employees are good. Small Business Issuer - --------------------- The Company has determined that it is a "small business issuer" within the meaning of Securities and Exchange Commission Regulation S-B and will make filings with the Securities and Exchange Commission relating to and during fiscal 1997 as a small business issuer. 11 ITEM 2 - PROPERTIES - ------------------- The Company, through All-Comm Holdings, Inc., owned the property identified in Item 1. Also, the Company leases approximately 2,000 square feet of office space in Culver City, California. The lease runs through April 30, 1998, and includes an option to lease an adjacent 1,204 square feet at the same rate as the prior lease. SD&A leases approximately 5,500 square feet of office space in Venice, California from its founder and president, 5,500 square feet in Berkeley, California, and 250 square feet in Patterson, New York. These leases range from month to month to two years and include options to renew. The Company believes its facilities are suitable and adequate for the purposes for which they are used and are adequately maintained. ITEM 3 - LEGAL PROCEEDINGS - -------------------------- The Company is party to minor legal proceedings. The outcome of these legal proceedings are not expected to have a material adverse effect on the consolidated financial condition, liquidity or expectations of the Company, based on the Company's current understanding of the relevant facts and law. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ Not applicable. 12 PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - ------------------------------------------------------------------------------ The common stock of the Company previously traded on the NASDAQ Small-Cap Market under the symbol SPTK. As approved by the shareholders on August 22, 1995, the Company changed its name to All-Comm Media Corporation and the symbol was changed to ALCM. The following table reflects the high and low sales prices for the Company's common stock for the fiscal quarters indicated, as furnished by the NASD, adjusted for the one-for-four reverse stock split:
Common Stock ------------ Low Sales Price High Sales Price --------------- ---------------- Fiscal 1996 Fourth Quarter $2.13 $6.38 Third Quarter 3.00 4.44 Second Quarter 1.88 5.00 First Quarter 3.63 8.25 Fiscal 1995 Fourth Quarter $6.50 $9.50 Third Quarter 5.38 7.50 Second Quarter 3.50 5.75 First Quarter 3.00 5.50
As of June 30, 1996, there were approximately 900 registered holders of record of the Company's common stock. (This number does not include investors whose accounts are maintained by securities firms in "street name".) The Company has never declared or paid any cash dividends on its common stock. The Company currently intends to retain earnings for use in the operation and expansion of its business and, therefore, does not anticipate paying any cash dividends in the foreseeable future. 13 ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA - --------------------------------------------- The consolidated statement of operations data set forth below with respect to the years ended June 30, 1996, 1995 and 1994, and the consolidated balance sheet data at June 30, 1996 and 1995 are derived from, and are qualified by reference to, the audited consolidated financial statements included elsewhere in this Annual Report. The consolidated statement of operations data for the years ended June 30, 1993 and 1992 and the consolidated balance sheet data at June 30, 1994, 1993 and 1992, are derived from audited financial statements not included in this Annual Report. This data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and notes thereto appearing elsewhere in this Report on Form 10-K.
As of and for the years ended June 30, ------------------------------------------------------------------------ 1996 1995 (1)(3) 1994 (3) 1993 (3) 1992 (3) ------------ ------------ ------------ ------------ ------------ OPERATING DATA: (2) Sales $15,889,210 $ 3,630,828 Loss from operations (460,437) (1,255,924) $ (844,417) $(1,992,500) $(1,515,754) Gains from sales of securities - 1,579,539 937,365 3,177,203 59,331 Interest expense and loan commitment fee (487,638) (394,200) (7,165) (43,604) (24,292) Income (loss) from continuing operations (1,076,883) (130,859) 86,807 979,457 (1,060,460) Net income (loss) (1,076,883) 110,397 (2,809,887) (1,115,338) (1,863,779) Income (loss) per common share: (4) Continuing operations (.36) (0.07) 0.06 0.71 (1.03) Net income (loss) (.36) 0.06 (1.91) (0.82) (1.81) Weighted average common shares and equivalents 3,068,278 1,807,540 1,468,747 1,373,160 1,032,442 BALANCE SHEET DATA: (2) Working capital 1,650,725 577,809 (233,572) 818,792 921,603 Total assets 13,301,066 11,824,491 1,639,733 2,657,561 4,319,038 Long-term obligations, net of current portion 1,516,667 3,000,000 Stockholders' equity 8,250,894 5,164,532 665,917 2,119,618 2,649,157 - --------------------
(1) Reflects operations of Alliance and SD&A for the period beginning with the acquisition on April 25, 1995. (2) See Description of Business and Management's Discussion and Analysis for discussion of businesses discontinued and acquired - 1995. (3) Certain of the above amounts have been restated to reflect discontinued operations. (4) Primary and fully diluted income (loss) per common share are the same in all fiscal years except 1993. Fully diluted income per common share from continuing operations and net loss in fiscal 1993 was $.70 and $(.79), respectively. 14 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF - ------------------------------------------------ FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- INTRODUCTION This discussion summarizes the significant factors affecting the consolidated operating results, financial condition and liquidity/cash flow of the Company for the three year period ended June 30, 1996. This should be read in conjunction with, the financial statements and notes thereto, included in this Annual Report. As more fully described in Footnote 3 to the consolidated financial statements, on April 25, 1995, the Company purchased 100% of the stock of Alliance which had simultaneously acquired SD&A. These acquisitions have been reflected in the consolidated financial statements using the purchase method of accounting. Accordingly, the Consolidated Statement of Operations and Consolidated Statement of Cash Flows include the operations of Alliance and SD&A starting on April 25, 1995. Also in the year ended June 30, 1995, ("Fiscal 1995"), the Company discontinued the operations of Sports-Tech International, Inc. and High School Gridiron Report. In Fiscal 1995, the Company sold Sports-Tech International and closed the HSGR operation. The ultimate sale of STI resulted in a gain of $322,000. The Consolidated Financial Statements have been reclassified to report the net assets, operating results, gain on disposition and cash flows of these operations as discontinued operations. With the disposition of the STI operations, closure of the HSGR operations and the acquisition of Alliance, the Company is operating in a completely new industry segment - direct marketing. RESULTS OF OPERATIONS 1996 COMPARED TO 1995 Continuing Operations: Sales and cost of sales totaled $15,889,000 and $10,882,000, respectively for the year ended June 30, 1996 ("Fiscal 1996") as compared with $3,631,000 and $2,434,000 in Fiscal 1995. These increases are due to the inclusion of SD&A operations for all of Fiscal 1996 as compared with the 66 day period from the date of acquisition, April 25, 1995 to June 30, 1995 in Fiscal 1995. Net sales in Fiscal 1996 and 1995 from telemarketing and telefundraising totaled $13,228,000 and $3,122,000, respectively, and sales from off-site campaigns totaled $2,661,000 and $509,000, respectively. Cost of sales represents labor and telephone expenses directly related to telemarketing, telefundraising and off-site campaign services. As a percentage of relative net sales, gross profit relating to telemarketing and telefundraising and off-site campaigns totaled 30% and 38%, respectively, for the current fiscal year, as compared to 30% and 48%, respectively, for the prior fiscal year. The decrease in margins from the off-site campaigns was due to Fiscal 1995 including only the period from acquisition to year end, as compared to Fiscal 1996, which included the full year. During the shortened period for Fiscal 1995, the Company serviced a large volume of campaigns, as compared with the full year of Fiscal 1996 where the average volume was lower. 15 Selling, general and administrative expenses include all selling, general and administrative expenses of SD&A and represent the expense of central services the Company provides to manage its divisional operations, SD&A and, in Fiscal 1995, its discontinued operations, STI and HSGR, and include senior corporate management, accounting and finance, general administration and legal services. As a result of the Company's new direction, it now also includes expenses relating to identification and evaluation of potential acquisitions. Selling, general and administrative expenses increased $2,724,000, to $5,106,000 in Fiscal 1996, as compared with $2,382,000 in Fiscal 1995. The increase was comprised of the following components: The inclusion of $3,640,000 of SD&A selling, general and administrative expenses for Fiscal 1996, compared to $782,000 during the period from April 25, 1995 to June 30, 1995 in the prior fiscal year, resulted in an increase of $2,858,000. Salary expenses associated with the new management and employees who joined the Company upon resignation of the prior management and its board of directors on April 25, 1995, attributed to $107,000 of the increase. Legal expenses decreased $152,000 from $251,000 in the prior year to $99,000 in the current year. Prior year expenses included preparation and filing of a registration statement required as part of a settlement reached by prior management, maintenance of the Company's NASDAQ Small Cap stock listing, preparation of a proxy statement regarding the Company's name change, and planning and execution of the new corporate strategy. Current year expenses included finalization of issues related to prior operations of the company, as well as efforts involved in the planning and execution of the new corporate strategy, amendment of the Company's prior year Registration Statement and preparation and filing of a special proxy statement to increase the authorized number of shares of common stock of the Company. Public relations increased by $63,000 due to efforts involved in implementing the new corporate strategy. Professional fees have decreased $70,000 due to prior year reporting requirements surrounding the acquisition of Alliance and SD&A and the disposition of STI. The directors and officers insurance premium decreased $76,000 due to additional coverage required in the prior year in connection with the merger. Discounts given to induce the exercise of stock options totaled $128,000 in the prior year, as compared with none in the current fiscal year. In following the new corporate strategy, the Company incurred $128,000 in expenses relating to investigation of acquisition candidates and financing sources. The value attributable to warrants issued to consultants during Fiscal 1996 totaled $37,000. As a condition precedent to the merger with Alliance Media, the Company closed its Beverly Hills office in the prior year, resulting in a loss on disposal of fixed assets of $30,000 and current year decrease in depreciation of $13,000. Related party charges decreased $6,000, to zero in the current fiscal year. The decrease is due to non-recurring fees incurred in the prior year relating to the sale of STI. Amortization of intangible assets totaled $362,000 in the current fiscal year, as compared to $65,000 in the prior fiscal year and related to the amortization of the covenant-not-to-compete and goodwill, over five years and forty years, respectively, acquired in the Alliance and SD&A transaction on April 25, 1995. 16 A non-recurring net gain from sales of securities totaled $1,580,000 in the prior fiscal year and resulted from the exercise by the Company of a common stock purchase warrant held as an investment and subsequent liquidation of the securities. Interest expense increased $393,000 in the current fiscal year and related primarily to the acquisition of $4,500,000 of debt in the Alliance and SD&A acquisition on April 25, 1995. Pretax income from SD&A operations totaled $1,363,000 in the current year and corporate expenses totaled $2,216,000, including $833,000 in corporate depreciation, amortization and interest expense. In the current fiscal year, the income tax provision on continuing operations totaled approximately $141,000 on losses from continuing operations of $936,000. The provision resulted from state and local taxes incurred on taxable income at the subsidiary level not reduced by losses incurred at other levels on which no tax benefits were available. Discontinued Operations: The gain on sale of, and loss from, discontinued operations in the prior fiscal year relates to the STI and HSGR operations which were either sold or closed in fiscal 1995, as a condition precedent to the merger with Alliance Media. No amounts related to discontinued operations were incurred in the current fiscal year. RESULTS OF OPERATIONS 1995 COMPARED TO 1994 Continuing Operations: Sales and cost of sales totaled $3,631,000 and $2,434,000, respectively for Fiscal 1995 as compared with no similar amounts incurred in the fiscal year ended June 30, 1994 ("Fiscal 1994"). These increases are due to the inclusion of SD&A operations from the date of acquisition, April 25, 1995. In Fiscal 1995, net sales from telemarketing and telefundraising totaled $3,122,000 and sales from off-site campaigns totaled $509,000. Cost of sales represents labor and telephone expenses directly related to telemarketing, telefundraising and off-site campaign services. As a percentage of relative net sales, gross profit relating to telemarketing and telefundraising and off-site campaigns totaled 30% and 48%, respectively. Selling, general and administrative expenses increased $1,559,000 to $2,382,000 in Fiscal 1995 as compared with $823,000 in Fiscal 1994. Of the increase, $750,000 resulted from the inclusion of SD&A selling, general and administrative expenses from the date of acquisition, April 25, 1995. Severance payments made to the prior management totaled $105,000, and $135,000 of the increase related to salary expenses associated with the new management and employees who joined the Company upon resignation of the prior management and board. Legal expenses increased $240,000 in Fiscal 1995 primarily due to an obligation to file a registration statement required by prior management, due diligence by the new management associated therewith and maintenance of the Company's NASDAQ Small Cap stock listing, preparation of a proxy statement regarding the Company's name change, and planning and execution of the new corporate strategy. Professional fees 17 increased $100,000 due to reporting requirements surrounding the acquisition of Alliance and SD&A and disposition of STI. The directors and officers insurance premium increased $110,000 due to the purchase of additional coverage. Discounts given to induce the exercise of stock options totaled $128,000 in Fiscal 1995, an increase of $42,000 as compared with Fiscal 1994. Miscellaneous other expenses increased $77,000 resulting from the increased activity of the Company. Related party charges decreased $15,000, to $6,000 in Fiscal 1995, as compared with $21,000 in Fiscal 1994. The decrease was due to the termination of a consulting agreement on October 1, 1993, offset by fees incurred in Fiscal 1995 relating to the sale of STI. The consulting contract was canceled in 1993 because the business activities of the Company no longer required the investment banking services provided. Amortization of intangible assets totaled $65,000 in Fiscal 1995 and related to the amortization of the covenant-not-to-compete and goodwill, over 5 years and 40 years, respectively, acquired in the Alliance and SD&A transaction. The net gain from sales of securities totaled $1,580,000 in Fiscal 1995 and resulted from the exercise by the Company of a common stock purchase warrant held as an investment. In July, 1994, the Company borrowed $1,000,000 to fund the exercise of the warrant. The loan was collateralized by a pledge of the warrant shares pursuant to the terms of a pledge agreement. The parties to the $1,000,000 loan included, among others, the Company's former chairman, former president, a former director and a shareholder, who each provided $200,000. The other lenders were non-affiliates. The lenders received the repayment of the $1,000,000 loan, interest at 7.75% totaling $9,000 and a $300,000 commitment fee from the proceeds of the subsequent stock sales. The Company subsequently sold all these securities and recognized a net gain of $1,580,000. The $300,000 loan commitment fee was paid as an inducement to this group of investors to provide the money necessary to exercise the covenant before its expiration on July 31, 1994. The Company's prior management had been unable to obtain the funds to exercise the warrant at more favorable terms. Interest expense increased $87,000 in Fiscal 1995 and related to the acquisition of $4,500,000 of debt in the Alliance and SD&A acquisition as of April 25, 1995, and the borrowings made to exercise the common stock purchase warrant previously discussed. In Fiscal 1995, the income tax provision on continuing operations totaled $75,000 on losses from continuing operations of $56,000. The provision resulted from state and local taxes incurred on taxable income at the subsidiary level not reduced by losses incurred at other levels on which no tax benefits were available. Discontinued Operations: The loss from discontinued operations relates to the STI and HSGR operations which were either sold or closed in Fiscal 1995, as a condition precedent to the merger with Alliance Media. The loss from discontinued operations totaled $81,000 in Fiscal 1995, as compared with almost $2,900,000 in Fiscal 1994. The decrease of $2,819,000 is due to the inclusion of the results of these operations for a partial year, and 18 lower losses due to reduced business activity and non recurrence of the HSGR goodwill write off of $310,000 and a contract termination settlement of $544,000. The gain on the sale of discontinued operations which totaled $322,000 relates to the sale of STI and is addressed in Note 5 of the Notes to Consolidated Financial Statements. CAPITAL RESOURCES AND LIQUIDITY The Company's cash and cash equivalents increased by $175,000, $799,000 and $310,000 in 1996, 1995 and 1994 respectively. In 1996, the Company used $884,000 in cash for operating activities, principally due to net losses incurred during the first full year following the acquisition of SD&A. While the SD&A operations generated net income during the year, legal, accounting, administrative and other expenditures at the corporate offices incurred by management in implementing the new corporate strategy approximated $1.4 million. These expenses included costs relating to the obligations associated with the registration statement and other remaining obligations associated with the activities of the prior management, as well as identification and evaluation of potential acquisitions and financing sources. The Company's management has liquidated all known remaining obligations arising from the prior management and has taken steps to reduce corporate overhead during 1997, principally in payroll reductions. Additional cash was used by an increase in accounts receivable at SD&A of $613,000, due to increases in sales. In 1996, the Company used $572,000 in investing activities. Payments totaling $478,000 were made relating to the acquisition of Alliance and SD&A. This was principally comprised of $425,000 in cash paid to the former owner of SD&A resulting from the achievement of defined results of operations for SD&A for the year. Capital expenditures in 1996 of $95,000 were principally leasehold improvements to increase the usable space at the offices of SD&A. SD&A is moving its Berkeley Calling Center in August 1996 and anticipates that expenditures in connection with the move will approximate $100,000. SD&A plans to expand its calling capacity at the Berkeley Calling Center in the Fall of 1996 at an anticipated cost of approximately $75,000. SD&A plans to finance a portion of the expansion and moving costs through bank borrowings. In 1996, the Company's financing activities provided $1,631,000. On April 25, 1995, Alliance and SD&A were acquired for issuance of 1,025,000 common shares valued at $2,745,000 and $500,000 of acquisition costs. Liabilities acquired totaled $6,694,000 including a $4,500,000 note yielding prime to be paid over a four year period. The obligations resulted from the acquisition of SD&A by Alliance and are payable to the former owner and founder of SD&A. Payments due in fiscal 1996 originally totaled $1,500,000 payable in quarterly installments. Additional contingent payments of up to $850,000 per year over the three year period ending June 30, 1998 may be required based on achievement of defined results of operations of SD&A after its acquisition. At the Company's option, up to one half of the additional contingent payments may be made with restricted common shares of the Company subject to certain registration rights. SD&A achieved its defined results of operations during 1996 and $425,000 was paid in cash and $425,000 accrued in 19 stock, as of June 30, 1996. In October 1995, and in February 1996, the long term obligations due to the sole selling shareholder of SD&A were restructured and the terms were further modified whereby SD&A, by borrowing on its line of credit and from its former owner, loaned the parent Company $500,000, payable June 30, 1996. The Company used $250,000 of the loan to pay the former owner accrued interest from September 1, 1995 through a partial prepayment for June 1996. All other principal and interest payments due monthly from January 31, 1996 to May 31, 1996 were deferred until June 30, 1996. In March 1996, the Company sold 75,000 shares of its common stock for an aggregate of $120,000, of which 12,500 shares were sold to related parties, in order to meet certain operating obligations arising from its acquisition of SD&A. On May 9, 1996, the Company completed a private placement with an institutional investor of 10,000 shares of convertible preferred stock for $750,000, $687,000 net after offering costs, which was redeemed out of net proceeds of a subsequent private placement as described below. On June 7, 1996, the Company completed a private placement with certain accredited investors of 6,200 shares of Series B Convertible Preferred Stock for $3,100,000 and 2,000 shares of Series C Convertible Preferred Stock for $1,000,000. In addition, the Company issued warrants to the Series B preferred shareholders to acquire a total of 3,100,000 shares of Common Stock at an exercise price of $2.50 per share for three years, starting with and subject to the availability of shares following shareholder authorization of additional common shares. The Company issued warrants to the Series C preferred shareholders for 3,000,000 shares of Common Stock at an exercise price of $3.00 per share for three years, starting with and subject to the availability of shares following shareholder authorization of additional common shares. In connection with the June 7, 1996 transactions, payment of approximately $2.0 million was made on long term obligations due to the former owner of SD&A. The remaining $2.1 million of long term obligations are payable in 36 monthly principal payments of $58,333 plus interest at 8%, starting September 19, 1996. $812,500 was used to reacquire 10,000 shares of Series A Convertible Preferred Stock issued in the private placement on May 9, 1996. The Company has announced a letter of intent to purchase, for all stock, Metro Services Group, Inc., a provider of information based products and services to the direct marketing industry. The Company is also currently involved in acquisition discussions with other entities which, if consummated, would require cash payments, plus issuances of common stock and notes payable to the sellers, as well as contingent payments based on future operating profits and performance. Depending on market conditions, the Company intends to finance the cash portions of the purchase prices of these acquisitions, as well as to obtain additional working capital, through the issuance of common or preferred stock and/or indebtedness, if such funds are unavailable from operations. Additional acquisitions, if consummated, may be financed in a similar manner. Although the Company believes that it will be successful in obtaining the financing necessary to complete the acquisitions now contemplated, and those in the future, there can be no assurances that 20 such capital will be available at terms acceptable to the Company, or at all, or that the acquisitions will be completed. The Company believes that funds available from operations and from the August, 1996 sale of the Laughlin, Nevada land will be adequate to finance its current operations and meet interest and debt obligations in its fiscal year ending June 30, 1997. Thereafter, and in conjunction with the Company's acquisition and growth strategy, additional financing may be required to meet potential acquisition payment requirements. The Company believes that it has the ability to raise funds through private placements or public offerings of debt and/or equity securities to meet these requirements. There can be no assurance, however, that such capital will be required or available at terms acceptable to the Company, or at all. Seasonality and Cyclicality: The business of SD&A tends to be seasonal, with higher revenues and profits occurring in the fourth fiscal quarter, followed by the first fiscal quarter. This is due to subscription renewal campaigns for SD&A's tax exempt clients, which generally begin in the spring time and continue during the summer months. NEW ACCOUNTING PRONOUNCEMENTS Adoption of the Financial and Accounting Standards Board ("FASB") Statement of Financial Accounting No. 121, "Accounting for the Impairment of Long-Lived Assets for Long-Lived Assets to be disposed of", which is effective for financial statements for fiscal years beginning after December 15, 1995, is not anticipated to have a material effect on the Company's consolidated financial statements. The FASB recently issued Statement of Financial Accounting No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which is effective for financial statements for fiscal years beginning after December 15, 1995. SFAS 123 establishes new financial accounting and reporting standards for stock-based compensation plans. Entities will be allowed to measure compensation cost for stock-based compensation under SFAS 123 or APB Opinion No. 25, "Accounting for Stock Issued to Employees". The Company elected to remain with the accounting in APB Opinion No. 25 and will be required to make pro forma disclosure of net income and earnings per share as if the provisions of SFAS 123 had been applied. The Company will implement SFAS 123 in the first quarter of Fiscal 1997. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- The Consolidated Financial Statements required by this Item 8 are set forth as indicated in the index following Item 14(a)(1). 21 ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------------------------------------------------------------------------ FINANCIAL DISCLOSURE - -------------------- On July 18, 1995, the Company engaged Coopers & Lybrand L.L.P. ("Coopers & Lybrand") as the independent auditor for the Company and its subsidiaries for the year ending June 30, 1995, replacing Arthur Andersen LLP ("Arthur Andersen"). The change in the Company's auditor on July 18, 1995 was in conjunction with the relocation of the Company's corporate offices to Culver City, California, the merger with Alliance and related acquisition of SD&A and change in the Board of Directors and management of the Company. During the year ended June 30, 1994, and the period preceding the change of auditors, there were no disagreements with Arthur Andersen on any matters of accounting principles or practices, financial statement disclosures or auditing scope or procedures, which disagreements, if not resolved to Arthur Andersen's satisfaction, would have caused it to make reference to the subject matter of the disagreement in connection with its report. Reference is made to the Form 8-KA report dated July 21, 1995, for more information and exhibits thereto containing the accountants' letter. 22 PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------ The Company's executive officers, directors and significant employees and their positions with the Company are as follows:
NAME AGE POSITION - ---- --- -------- Barry Peters............ 55 Chairman of the Board of Directors and Chief Executive Officer E. William Savage....... 54 Director, President, Chief Operating Officer, Secretary and Treasurer S. James Coppersmith.... 63 Director Seymour Jones........... 65 Director C. Anthony Wainwright... 63 Director J. Jeremy Barbera....... 40 Director and Vice President, All-Comm Media and President and Chief Executive Officer of Metro Stephen Dunn............ 46 Vice President, All-Comm Media and President and Chief Executive Officer of SD&A Robert M. Budlow........ 35 Vice President, All-Comm Media and Executive Vice President and Chief Operating Officer of Metro Scott A. Anderson....... 39 Chief Financial Officer Thomas Scheir........... 43 Vice President and Chief Operating Officer of SD&A
Mr. Peters has been Chairman of the Board and Chief Executive Officer of the Company since the acquisition of Alliance in April 1995 and has 26 years of experience in business development and corporate finance. Prior thereto, Mr. Peters served as Chairman and Chief Executive Officer of Alliance, which he co- founded, since its formation in 1994. Prior to the formation of Alliance, from 1972 to 1993, Mr. Peters served as the Managing Director of Vector Holdings, Inc. and its predecessor companies, an investment concern which specialized in sponsoring management groups for buyouts and restructurings of companies including: ESB Ray-O-Vac Corp., Time, Inc., Avco/Embassy Pictures Corp., Signal Companies, Inc., ITT Corporation, Borg-Warner Corporation and F. Schumacher & Co., Inc. Mr. Savage has been a Director and President, Chief Operating Officer, Secretary, and Treasurer of the Company since the acquisition of Alliance in April 1995 and has 27 years of executive business experience with emphasis on operations, marketing and business development. Prior thereto, he served as President of Alliance, which he co-founded, since its formation in 1994. In addition, Mr. Savage has been serving since 1991 as a director and as President of Movie Theatre Associates, Inc. and Movie Theatre Holdings, Inc., a general partner and a limited partner, respectively, of Movie Theatre Investors Ltd., an investment partnership that owns and operates movie theatres. 23 Mr. Coppersmith has been a Director of the Company since June 1996. Since 1994, Mr. Coppersmith has been Chairman of the Board of Trustees of Boston's Emerson College. Until his retirement in 1994, he held various senior executive positions with Metromedia Broadcasting where he managed its television operations in Los Angeles, New York and Boston, and served as President and General Manager of Boston's WCVB-TV, an ABC affiliate owned by The Hearst Corporation. Mr. Coppersmith also serves as a director for WABAN, Inc., Sun America Asset Management Corporation, Chyron Corporation, Uno Restaurant Corp., Kushner/Locke, Inc. and The Boston Stock Exchange. Mr. Jones has been a Director of the Company since June 1996. From April 1974 to September 1995, Mr. Jones was a senior partner of the accounting firm of Coopers & Lybrand L.L.P. Mr. Jones has over 35 years of accounting experience and over 10 years of experience as an arbitrator and as an expert witness, particularly in the area of mergers and acquisitions. Mr. Wainwright has been a Director of the Company since August 1996 and also served as a Director of the Company from the acquisition of Alliance until May 1996. Prior thereto, he was a director of Alliance. Mr. Wainwright also has been Chairman and Chief Executive Officer of the advertising firm Harris Drury Cohen, Inc. since 1995. Prior thereto, from 1994 to 1995, he served as a senior executive with Cordiant P.L.C.'s Compton Partners, a unit of the advertising firm Saatchi & Saatchi World Advertising, and, from 1989 to 1994, as Chairman and Chief Executive Officer of Campbell Mithun Esty, a unit of the advertising firm Saatchi & Saatchi World Advertising, in New York. Mr. Wainwright also serves as a director of Gibson Greeting, Inc., Del Webb Corporation, American Woodmark Corporation and Specialty Retail Group, Inc. Mr. Barbera has been a Director and Vice President of the Company since October 1996 and President and Chief Executive Officer of Metro since its formation in 1987. Mr. Barbera has 15 years of experience in data management services, and over 20 years of experience in the entertainment marketing area. Mr. Dunn has been Vice President of the Company since September 1996 and has also been President and Chief Executive Officer of SD&A, which he co- founded, since its formation in 1983. Previously, Mr. Dunn served as a consultant for the Los Angeles Olympic Organizing Committee for the Olympic Arts Festival, as Director of Marketing for the New World Festival of the Arts, and as Director of Marketing for the Berkeley Repertory Theater. Mr. Budlow has been Vice President of the Company since October 1996 and Executive Vice President and Chief Operating Officer of Metro since 1990. He has 10 years of experience in database management services and subscription, membership and donor renewal programs. 24 Mr. Anderson has been Chief Financial Officer of the Company since May 1996 and was Controller from May 1995 to May 1996 and a Director of the Company from May 1996 to August 1996. Prior thereto, from December 1994 to April 1995, he was associated with the accounting firm of Coopers & Lybrand L.L.P., and, from 1988 to 1994, he was a manager in the assurance department of an affiliate of the accounting firm of Deloitte & Touche, LLP. Mr. Anderson is a Certified Public Accountant. Mr. Scheir has been Vice President and Chief Operating Officer of SD&A since September 1996. Prior thereto, from 1990 to September 1996, he was Chief Financial Officer of SD&A, and from 1983 to 1990, he served as Business Manager of SD&A. Prior to joining SD&A, Mr. Scheir was List Manager with the San Francisco Symphony's marketing department. Compliance with Section 16(A) of the Exchange Act Section 16(a) of the Securities Exchange Act of 1934 requires that the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, file reports of ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission (the "Commission") and the NASDAQ National Market. Officers, directors and greater than ten percent stockholders are required by the Commission's regulations to furnish the Company with copies of all Forms 3, 4 and 5 they file. Based solely on the Company's review of the copies of such forms it has received and written representations from certain reporting persons that they were not required to file reports on Form 5 for the fiscal year ended June 30, 1996, the Company believes that all its officers, directors and greater than ten percent beneficial owners complied with all filing requirements applicable to them with respect to transactions during the fiscal year ended June 30, 1996, except that Messrs. Peters, Savage, Coogan and Wainwright each made one late filing due to administrative timing errors on the part of the Company with respect to stock options granted and Messrs. Jones and Coppersmith each made one late filing due to administrative timing errors on the part of the Company with respect to their election as directors of the Company. The Company has been advised that Newark Sales Corp. and Saleslink Ltd. each intend to file one late report on or about October 29, 1996 concerning one transaction, due to administrative timing errors on the part of such stockholders. 25 ITEM 11 - EXECUTIVE COMPENSATION - -------------------------------- Summary Compensation Table The following table (the "Summary Compensation Table") provides information relating to compensation for the fiscal years ended June 30, 1996 and June 30, 1995 for the Chairman of the Board and Chief Executive Officer and each of the other executive officers of the Company whose compensation is required to be disclosed by the rules and regulations of the Commission during such years as shown in the table (collectively, the "Named Executive Officers").
Long-Term Compensation Awards ------------------------------ Fiscal Year Annual Restricted Securities Ended Compensation Stock Underlying June 30,/(1)/ Salary ($) Awards($) Options/SARs(#) ------------- ------------ ----------- --------------- Name and Principal Position - --------------------------- Barry Peters 1996 100,626 32,058 150,000 Chairman of the Board and 1995 26,442 Chief Executive Officer E. William Savage 1996 100,626 32,058 150,000 President, Chief Operating 1995 26,442 Officer, Secretary and Treasurer Stephen Dunn 1996 228,462 5,000 Vice President, All-Comm Media 1995 42,308 and President and Chief Executive Officer of SD&A Thomas Scheir 1996 128,461 12,500 Executive Vice President, SD&A 1995 21,635
- ------------ /(1)/ Prior to the acquisition of Alliance in April, 1995 none of the Named Executive Officers was an officer or employee of the Company. Therefore, compensation for each of the Named Executive Officers is shown only for the prior two fiscal years. In addition, because the acquisition of Alliance took place in April, 1995, the compensation shown for each of the Named Executive Officers for the fiscal year ended June 30, 1995 reflects only two months of compensation in such fiscal year. In October 1996, the Company acquired Metro. Based on their current arrangements with the Company, if Messrs. Jeremy Barbera, Vice President of the Company and President and Chief Executive Officer of Metro, and Robert Budlow, Vice President of the Company and Executive Vice President of Metro, had been executive officers of the company at the beginning of fiscal 1996, they would have been among the most highly compensated executive officers of the Company for such fiscal year. Based on their current arrangements with the Company, the Company expects that Messrs. Barbera and Budlow will be among the Company's most highly compensated executive officers for fiscal 1997. See "Executive Compensation--Employment Contracts." 26 Stock Option Grants The table below provides information relating to stock options granted to the Named Executive Officers during the fiscal year ended June 30, 1996.
Individual Grants/(1)/ -------------------------------------------------------------------- Potential Realizable Value at Assumed Annual Number of % of Total Rates of Stock Securities Options/SARs Price Appreciation for Underlying Granted to Exercise or Option Term /(2)/ Options/SARs Employees in Base Price($) Expiration --------------------- Granted (#) Fiscal Year/(3)/ (per share/(4)/) Date 5% 10% ------------- ---------------- --------------- ------------ -------- -------- Name - ---- Barry Peters........ 150,000 29% $2.00 12/01/02 $122,130 $284,615 E. William Savage... 150,000 29% 2.00 12/01/02 122,130 284,615 Stephen Dunn........ 5,000 1% 3.38 01/08/99 2,660 5,586 Thomas Scheir....... 12,500 2% 2.00 12/01/02 10,178 23,718 - -------------
/(1)/ Since June 30, 1996 through the date hereof, options currently exercisable for 300,000 shares of the Company's common stock, par value $.01 per share (the "Common Stock"), have been granted to each of Mr. Peters and Mr. Savage. No other additional options have been granted during this period to any of the Named Executive Officers. /(2)/ Potential realizable value was calculated using an assumed annual compounded growth rate over the term of the option of 5% and 10%, respectively. Use of this model should not be viewed in any way as a forecast of the future performance of the Common Stock, which will be determined by future events and unknown factors. /(3)/ During the fiscal year ended June 30, 1996, all employees and all non- employee Directors of the Company received stock options for a total of 525,003 shares of Common Stock. /(4)/ Exercise price is the closing sales price of the Common Stock as reported on The Nasdaq SmallCap Market/SM/ on the date of the grant. The following table sets forth information regarding the number and value of securities underlying unexercised stock options held by the Named Executive Officers as of June 30, 1996.
Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Options/ Options/SARs at Fiscal SARs at Fiscal Year Year End (#) End ($) /(1)/ -------------------------- ------------------------- Name Exercisable/Unexercisable Exercisable/Unexercisable - ---- -------------------------- ------------------------- Barry Peters........ 150,000/0 506,250/0 E. William Savage... 150,000/0 506,250/0 Stephen Dunn........ 5,000/0 10,000/0 Thomas Scheir....... 12,500/0 42,188/0 --------- ---------
/(1)/ Fair market value of $5.375 per share at June 30, 1996 was used to determine the value of in-the-money options. 27 Compensation of Directors Directors who are not employees of the Company currently receive an annual retainer fee of $10,000 for serving on the Company's board of directors (the "Board of Directors") and an annual retainer fee of $1,500 for serving as a member of any committee thereof. Such Directors will also be reimbursed for their reasonable expenses for attending board and committee meetings. Any Director who is also an employee of the Company is not entitled to any compensation or reimbursement of expenses for serving as a Director of the Company or a member of any committee thereof. Options Issuable to Directors Pursuant to a resolution of the Board of Directors, in April of each year commencing in April 1996, each Director who is not an employee of the Company and who is then serving as a Director is granted options exercisable for 15,000 shares of Common Stock at an exercise price equal to the market price of the Common Stock prevailing on the date such options are granted. Employment Contracts Effective as of July 1, 1995, the Company entered into a separate employment agreement with each of Mr. Barry Peters and Mr. E. William Savage providing for Mr. Peters' employment as Chairman of the Board and Chief Executive Officer of the Company and for Mr. Savage's employment as President of the Company, respectively. Each such agreement provides for an initial term of employment of three years expiring on June 30, 1998 and is renewable for an additional three-year term at the discretion of the employee covered thereby, subject to termination as provided therein. The base salary for Mr. Peters during the term of his employment agreement is $137,500 for the first year, $195,000 for the second year and $270,500 for the third year. The base salary for Mr. Savage during the term of his employment agreement is $125,000 for the first year, $175,000 for the second year and $245,000 for the third year. In addition, pursuant to the terms of the relevant employment agreement, each of Mr. Peters and Mr. Savage has options to acquire 300,000 shares of Common Stock at an exercise price of $2.50 per share for the first 150,000 shares and $3.00 per share for the remaining 150,000 shares, which exercise prices were set pursuant to a resolution of the Board of Directors on September 26, 1996. At the end of each year or as otherwise may be deemed appropriate in the sole discretion of the Board of Directors, each of Mr. Peters and Mr. Savage may be paid a bonus, payable in whole or part in Common Stock at the election of the employee. In addition, each year the Board of Directors may grant to each of Mr. Peters and Mr. Savage such number of options to purchase shares of Common Stock at such prices as the Board of Directors may determine from time to time to be appropriate. During the first year of his employment, Mr. Peters elected to receive less than the full amount of cash salary due to him under his employment agreement and was paid a total of $100,626 in cash and $32,058 in the form of 16,029 shares of Common Stock. During the second year of Mr. Peters' employment up to and including September 30, 1996, Mr. Peters again elected to receive less than the full amount of cash salary due to him under his employment agreement and was paid a total of $18,750 in cash. Similarly, during the first year of his employment, Mr. Savage elected to receive less than the 28 full amount of cash salary due to him under his employment agreement and was paid a total of $100,626 in cash and $32,058 in the form of 16,029 shares of Common Stock. During the second year of Mr. Savage's employment up to and including September 30, 1996, Mr. Savage again elected to receive less than the full amount of cash salary due to him under his employment agreement and was paid a total of $18,750 in cash. Each of Mr. Peters and Mr. Savage has agreed in his respective employment agreement not to compete with the Company or engage in any business similar to that of the Company during the term of such employment agreement. In the event Mr. Peters or Mr. Savage, as the case may be, is terminated for other than good cause, or if Mr. Peters or Mr. Savage, as the case may be, resigns for "good reason" (as defined below), then Mr. Peters or Mr. Savage, as the case may be, will be entitled to receive severance pay in an amount equal to (i) one year's base salary then in effect, payable in accordance with normal payroll practices for the remainder of the term, plus (ii) the amount determined under clause (i) but payable in a lump sum on the effective date of such termination. For purposes of each of Mr. Peters' and Mr. Savage's respective employment agreement, "good reason" includes a Change in Control of the Company (as defined therein), which is deemed to occur if (a) after a merger or consolidation, the Company is not the surviving corporation and the Company's stockholders do not continue to own at least 80% of the Company's assets, (b) there is a sale of substantially all of the assets of the Company, (c) the stockholders approve a plan for the liquidation or dissolution of the Company, (d) any person becomes a 30% or more beneficial owner of the outstanding Common Stock, or (e) the employee ceases to be a Director for any reason, other than his voluntary resignation or voluntary election not to stand for re-election as a Director. Effective as of April 25, 1995, SD&A entered into a separate employment agreement with each of Mr. Stephen Dunn and Mr. Thomas Scheir, providing for Mr. Dunn's employment as President of SD&A and Mr. Scheir's employment as Chief Financial Officer of SD&A, respectively. Each such agreement provides for an initial term expiring on April 25, 1997, and is renewable for an additional one- year term at the discretion of the employee covered thereby, subject to termination as provided therein. The base salary for Mr. Dunn during the term of his employment agreement is $225,000 for the first year, $250,000 for the second year and $275,000 for the third year. The base salary for Mr. Scheir during the term of his employment is $125,000 for the first year, $150,000 for the second year and $175,000 for the third year. At the end of each year, in the sole discretion of the board of directors of SD&A, each of Mr. Dunn and Mr. Scheir may be paid a cash bonus. The agreements also provide for other fringe benefits as may be approved by the board of directors of SD&A. Each of Mr. Dunn and Mr. Scheir has agreed in his respective employment agreement not to (i) own, become employed by, or become a partner of any similar business during the term of his employment agreement, except that each may own 1% or less of any similar business or (ii) compete with SD&A for a period of three years after the termination of his employment. 29 Effective as of October 1, 1996, Metro entered into a separate employment agreement with each of Mr. Jeremy Barbera, Mr. Robert Budlow and Ms. Janet Sautkulis providing for Mr. Barbera's employment as President and Chief Executive Officer of Metro, Mr. Budlow's employment as Executive Vice President and Chief Operating Officer of Metro and Ms. Sautkulis' employment as Executive Vice President and General Manager of Metro, respectively. Each such agreement provides for an initial term expiring on September 30, 1999 (the "Employment Term") and is renewable for an additional three-year term unless Metro or the employee gives written notice to the other party, at least sixty (60) days prior to the expiration of the Employment Term, of its intention not to renew the employment agreement. The base salary for Mr. Barbera during the Employment Term is $150,000 for the first year, $200,000 for the second year and $250,000 for the third year. Pursuant to the relevant employment agreement, the base salary for each of Mr. Budlow and Ms. Sautkulis during the Employment Term is $125,000 for the first year, $165,000 for the second year and $200,000 for the third year. Pursuant to the terms of the relevant agreement, during each year of the Employment Terms, Mr. Barbera, Mr. Budlow and Ms. Sautkulis are each eligible to receive raises and bonuses based upon the achievement of earnings and other targeted criteria if and as determined by the Compensation Committee of the Board of Directors. The agreements also provide for the granting to Mr. Barbera, Mr. Budlow and Ms. Sautkulis of options to acquire Common Stock if and as determined by the Option Plan Committee. Each of Mr. Barbera, Mr. Budlow and Ms. Sautkulis has agreed in his or her respective employment agreement (i) not to compete with Metro or to be associated with any other similar business during the Employment Term, except that Mr. Barbera, Mr. Budlow and Ms. Sautkulis may each own up to 5% of the outstanding common stock of certain corporations, as described more fully in the relevant employment agreement, and (ii) upon termination of employment with Metro, not to solicit or encourage certain clients of Metro (as more fully described in the relevant employment agreement), to cease doing business with Metro, and not to do business with any other similar business, for a period of three years from the date of such termination. Metro has the right to terminate the employment of Mr. Barbera, Mr. Budlow or Ms. Sautkulis, as the case may be, "for cause" (as defined below), after giving notice to such employee, in which event such employee will be entitled only to receive his or her salary at the rate provided above to the date on which termination takes effect, plus any compensation which is accrued but unpaid on the date of termination. In the event of a disposition after October 1, 1996 of the properties and business of Metro by merger, consolidation, sale of assets, sale of stock, or otherwise, Metro has the right to assign each employment agreement and all of Metro's rights and obligations thereunder to the acquiring or surviving corporation. If, for any reason, such employment agreements are not assigned to, or assumed by, such acquiring or surviving corporation, the employee covered thereby may terminate such employment agreement by giving written notice thereof within six months of the date of any such acquisition or disposition, and upon such termination, or, if the employment agreement is terminated by Metro without cause, such employee will be entitled to receive severance pay consisting of a single lump sum distribution (with no present value adjustment) equal to the base salary as provided above for the year then in effect for a period of one year, notwithstanding that such one-year period might extend beyond the Employment Term. 30 For purposes of each of Mr. Barbera's, Mr. Budlow's and Ms. Santkulis' respective employment contract, "for cause" includes circumstances whereby the relevant employee shall (i) be convicted of a felony crime; (ii) commit any act or omit to take any action in bad faith and to the detriment of Metro; (iii) commit an act of moral turpitude to the detriment of Metro; (iv) commit an act of fraud against Metro; or (v) materially breach any term of the employment agreement and fail to correct the breach within 10 days after written notice thereof; provided that in the case of clauses (ii), (iii) or (iv) above, such determination must be made by the Board of Directors after a meeting at which such employee shall have been given an opportunity to explain such actions. Consulting Agreements On April 15, 1996, the Company entered into an agreement with Mr. Seymour Jones to retain his services as a financial consultant and advisor to the Company on a non-exclusive basis for a period of one year. Effective July 1996, the agreement was terminated. Notwithstanding such termination, pursuant to the terms of such agreement, in August 1996 Mr. Jones purchased from the Company, for $2,500 in the aggregate, warrants exercisable for 50,000 shares of Common Stock at an exercise price of $2.50 per share for the first 25,000 shares, $3.00 per share for the next 15,000 shares and $3.50 per share for the remaining 10,000 shares. The warrants are currently exercisable and expire on April 15, 2000. On April 17, 1996, the Company entered into an agreement with Mr. S. James Coppersmith to retain his services as a financial consultant and advisor to the Company on a non-exclusive basis for a period of one year. Effective July 1996, the agreement was terminated. Notwithstanding such termination, pursuant to the terms of such agreement, in September 1996 Mr. Coppersmith purchased from the Company, for $2,500 in the aggregate, warrants exercisable for 50,000 shares of Common Stock at an exercise price of $2.50 per share for the first 25,000 shares, $3.00 per share for the next 15,000 shares and $3.50 per share for the remaining 10,000 shares. The warrants are currently exercisable and expire on May 15, 2000. On June 3, 1996, the Company entered into an agreement with Mr. C. Anthony Wainwright to retain his services as a financial consultant and advisor to the Company on a non-exclusive basis for a period of two years. As compensation for such services, Mr. Wainwright is entitled to receive the sum of $1,000 per month for the term of the agreement plus all out-of-pocket expenses incurred by Mr. Wainwright in the performance of such services, provided that prior authorization from the Company shall have been received with respect to any such expense. In addition, pursuant to the terms of such agreement, Mr. Wainwright has the right, which right, as of the date hereof, has not been exercised, to purchase from the Company, for $2,500 in the aggregate warrants exercisable for 50,000 shares of Common Stock at an exercise price of $4.00 per share for the first 25,000 shares, $4.50 per share for the next 15,000 shares and $5.00 per share for the remaining 10,000 shares. The warrants may be exercised over a four-year period commencing June 3, 1996. The agreement is only assignable without the prior written consent of the other party in the event of a sale of all or substantially all of the business of the party desiring to assign the agreement. The agreement also provides for indemnification of Mr. Wainwright and his 31 affiliates (and their respective directors, officers, stockholders, general and limited partners, employees, agents and controlling persons and the successors and assigns of all of the foregoing) by the Company for any losses or claims arising out of the rendering of the services called for in the agreement, other than for negligence or willful misconduct. Compensation Committee Interlocks and Insider Participation The Board of Directors has established a compensation committee (the "Compensation Committee"), comprised of Messrs. Coppersmith and Wainwright, each of whom are independent Directors and are not eligible to receive options or other rights under any employee stock or other benefit plan for so long as such Director is a member of the Compensation Committee (other than the right of each such Director to receive options exercisable for 15,000 shares of Common Stock granted in April of each year, if such Director is then serving in such capacity, pursuant to a resolution adopted by the Board of Directors). The functions of the Compensation Committee are to formulate the Company's policy on compensation of executive officers, to review and approve annual salaries and bonuses for all officers, to review, approve and recommend to the Board of Directors the terms and conditions of all employee benefit plans or changes thereto, and to administer the Company's stock option plans. None of the executive officers of the Company serves as a director of another corporation where an executive officer of such other corporation serves as a director of the Company. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------------------ The following table sets forth certain information regarding the beneficial ownership of Common Stock as of October 10, 1996 by: (i) each Director and each of the Named Executive Officers; (ii) all executive officers and Directors of the Company as a group; and (iii) each person known by the Company to own beneficially more than 5% of the outstanding shares of Common Stock.
Amount and Nature of Common Stock Beneficially Owned Name and Address of Beneficial Holder/(1)/ Number Percent - ------------------------------------------ ------ ------- Directors and executive officers: Barry Peters/ (2)/............................................. 676,536 12.2% E. William Savage /(3)/........................................ 672,868 12.1 S. James Coppersmith/ (4)/..................................... 50,000 1.0 Seymour Jones /(4)/............................................ 50,000 1.0 C. Anthony Wainwright /(5)/.................................... 68,408 1.3 J. Jeremy Barbera /(6)/........................................ 1,199,924 23.0 Stephen Dunn /(7)/............................................. 138,716 2.7 Thomas Scheir /(8)/............................................ 12,875 * All Directors and executive officers as a group (10 persons)... 3,511,444 55.5
32 5% Stockholders/(9)/: Naomi Bodner /(10)/............................................ 2,011,500 28.3 Laura Huberfeld /(10)/......................................... 2,011,500 28.3 Newark Sales Corp. /(11)/...................................... 1,583,333 23.7 Saleslink Ltd. /(11)/.......................................... 1,583,333 23.7 Robert Budlow /(12)/........................................... 599,962 11.6 Seth Antine /(13)/............................................. 360,000 6.6 Irwin Gross /(14)/............................................. 270,000 5.0 - -------------
*Less than 1% /(1)/ Unless otherwise indicated in these footnotes, each stockholder has sole voting and investment power with respect to the shares beneficially owned. All share amounts reflect beneficial ownership determined pursuant to Rule 13d-3 under the Exchange Act. All information with respect to beneficial ownership has been furnished by the respective Director, executive officer or stockholder, as the case may be. Except as otherwise noted, each person has an address in care of the Company. /(2)/ Includes 450,000 beneficially owned shares of Common Stock issuable upon the exercise of currently exercisable options and 31,375 beneficially owned shares of Common Stock owned by family members with respect to which Mr. Peters disclaims beneficial ownership. /(3)/ Includes 450,000 beneficially owned shares of Common Stock issuable upon the exercise of currently exercisable options and 21,878 beneficially owned shares of Common Stock owned by family members with respect to which Mr. Savage disclaims beneficial ownership. /(4)/ Includes 50,000 beneficially owned shares of Common Stock issuable upon the exercise of currently exercisable warrants. /(5)/ Includes 15,000 beneficially owned shares of Common Stock issuable upon the exercise of currently exercisable options and 50,000 beneficially owned shares of Common Stock issuable upon the exercise of a contractual right to purchase warrants exercisable for such Common Stock pursuant to Mr. Wainwright's consulting agreement with the Company. /(6)/ Includes 111,524 beneficially owned shares of Common Stock issuable upon conversion of a convertible promissory note of the Company in the aggregate face amount of $600,000 issued to Mr. Barbera in connection with the Company's acquisition of Metro. /(7)/ Includes 5,000 beneficially owned shares of Common Stock issuable upon exercise of currently exercisable warrants. /(8)/ Includes 12,500 beneficially owned shares of Common Stock issuable upon exercise of currently exercisable options. /(9)/ The address for each of the 5% Stockholders is as follows: c/o Broad Capital Associates, Inc., 152 West 57th Street, New York, New York 10019, except for Mr. Budlow, whose address is in care of the Company. 33 /(10)/ Prior to the Offering, 1,000,000 of this 5% Stockholder's total number of beneficially owned shares of Common Stock are issuable upon exercise of currently exercisable warrants and 800,000 beneficially owned shares of Common Stock are issuable upon conversion of shares of the Company's Series B Convertible Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"), subject in each case to this 5% Stockholder's sole investment power. The remaining 211,500 beneficially owned shares of Common Stock are owned by Naomi Bodner/Laura Huberfeld Partnership (the "Bodner/Huberfeld Partnership") and are subject to a shared investment power. Each of Naomi Bodner and Laura Huberfeld disclaims beneficial ownership of the shares of Common Stock beneficially owned by the other and the shares of Common Stock beneficially owned by the Bodner/Huberfeld Partnership. /(11)/ 83,333 of this 5% Stockholder's total number of beneficially owned shares of Common Stock are issuable upon conversion of shares of Series C Preferred Stock and 1,500,000 beneficially owned shares of Common Stock issuable upon exercise of currently exercisable warrants. /(12)/ Includes 55,762 beneficially owned shares of Common Stock issuable upon conversion of a convertible promissory note of the Company in the aggregate face amount of $300,000 issued to Mr. Budlow in connection with the Company's acquisition of Metro. /(13)/ 200,000 of this 5% Stockholder's total number of beneficially owned shares of Common Stock issuable upon exercise of currently exercisable warrants, and 160,000 beneficially owned shares of Common Stock are issuable upon conversion of shares of Series B Preferred Stock. /(14)/ 150,000 of this 5% stockholder's total number of beneficially owned shares of Common Stock are issuable upon exercise of currently exercisable warrants, and 120,000 beneficially owned shares of Common Stock are issuable upon conversion of shares of Series B Preferred Stock. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- TRANSACTIONS UNDER CURRENT MANAGEMENT AFTER ALLIANCE ACQUISITION Transactions with Mr. Dunn. In connection with the acquisition of SD&A on April 25, 1995, Alliance issued promissory notes in an aggregate principal amount of $4.5 million to Mr. Dunn. Interest on such notes was payable monthly at a rate equal to the prime rate of Bank of America, N.T. & S.A., as in effect from time to time, subject to a maximum of 10% and a minimum of 8%. Principal payments were due quarterly, and originally $1.5 million was due in quarterly installments during fiscal 1996. All of the outstanding common shares of SD&A were initially pledged to collateralize such notes but were released in June 1996. In connection with such notes, an operating covenants agreement between the Company and Mr. Dunn included, among other things, provisions requiring that SD&A have a minimum level of working capital and cash levels, subject to periodic increases based on sales, before dividend payments could be made to the parent company. In June 1996, the operating covenants agreement was terminated. 34 Prior to October 1995, the Company made all principal payments when due. Each of the principal payments due October 1, 1995, January 1, 1996 and April 1, 1996 were deferred as they became due and thereafter from time to time. In June 1996, principal payments of approximately $2.0 million were made and the remaining obligations were restructured such that the remaining $2.1 minion is now payable in installments of $58,333 per month, plus interest at 8%, starting September 19, 1996. SD&A leases its corporate business premises from Mr. Dunn. The lease requires monthly rental payments of $11,805 through January 1, 1999, with an option to renew. SD&A incurs all costs of insurance, maintenance and utilities. Total rent paid by SD&A to Mr. Dunn during 1996 and from the date of acquisition to June 30, 1995 was approximately $138,000 and $26,000, respectively. Bank Credit Line. Mr. Dunn is currently a guarantor of SD&A's credit line. If such credit line is replaced with another credit facility, the Company does not currently expect that Mr. Dunn would be a guarantor of such replacement credit facility. Indebtedness of Management. Subsequent to the close of the Company's fiscal year ended June 30, 1996, in October 1996 the Company consummated its acquisition of Metro. In February 1996, Mr. Barbera, then a shareholder of Metro, borrowed $50,000 from Metro. Interest on such indebtedness accrues at a rate of 6% per annum. The principal of such indebtedness, together with accrued interest thereon, is repayable in four equal quarterly installment starting March 31, 1998. Transactions with Certain 10% Stockholders. Also subsequent to the close of the Company's fiscal year ended June 30, 1996, the Company filed a registration statement on Form SB-2 with the Commission with respect to a proposed public offering of Common Stock. In connection therewith, as consideration for their agreement to certain lock-up arrangements for a period of nine months from the date of the prospectus relating to such proposed public offering with respect to shares of Common Stock issuable upon the conversion of shares of Series B Preferred Stock or upon the exercise of warrants issued in connection with such Series B Preferred Stock, upon consummation of such proposed public offering, the Company will issue warrants exercisable for 400,000, 400,000 and 46,800 shares of Common Stock to Naomi Bodner, in her individual capacity, Laura Huberfeld, in her individual capacity, and the Bodner/Huberfeld Partnership, respectively. As of October 10, 1996, each of Ms. Bodner and Ms. Huberfeld is a beneficial holder of more than 10% of the Common Stock. 35 TRANSACTIONS UNDER FORMER MANAGEMENT PRIOR TO ALLIANCE ACQUISITION Former Company Counsel: Robert L. McDonald, Sr., a former director of the Company, is a senior partner of McDonald, Carano, Wilson, McCune, Bergin, Frankovich & Hicks ("McDonald Carano"), former general counsel to the Company. The total amount of fees paid by the Company for services rendered by McDonald Carano for the fiscal year ended June 30, 1995 did not exceed 5% of the firm's total revenues. Additionally, Mr. A.J. Hicks, a partner in McDonald Carano, previously served as Assistant Secretary to the Company and to its subsidiaries. Investment Banking Services: Marshall S. Geller, a former director of the Company and former chairman of its Executive Committee was a Senior Managing Director of Golenberg & Geller, Inc., a private merchant banking firm. Prior management of the Company retained Golenberg & Geller, Inc. during the 1995 and 1994 fiscal years to perform investment banking and financial advisory services. The fees paid by the Company for services rendered by Mr. Geller's firm for the fiscal years ended June 30, 1995 and 1994 were $5,700 and $21,000, respectively. During the 1995 fiscal year, the Company also retained Golenberg & Geller, Inc. and Whale Securities Co., L.P. ("Whale") to perform investment banking and financial advisory services in connection with the acquisition by the Company of Alliance Media Corporation. The finders' fee paid in connection with the merger with Alliance was $200,000, which was divided as follows: $100,000 to Golenberg & Geller, Inc.; $50,000 to Whale; and $50,000 to Millennium Capital Corp., one of the co-finders in the Transaction ("Millennium"). In addition, each of Mr. Geller, Mr. Golenberg, Whale and Millennium received 9,375 shares of the Company's Common Stock and a three-year warrant for 6,250 shares of the Common Stock at a price of $8.00 in further payment for their services. Florida Gaming Corporation Loan: On July 15, 1994, in order to fund the exercise price of the warrant which the Company owned to acquire shares of Florida Gaming Corporation ("FGC"), the prior management of the Company entered into a loan agreement (the "FGC Loan") for $1,000,000 with a group of lenders (the "Lenders"), which included Messrs. Marshall Geller (former director), Arnold Rosenstein (former president), and Neil Rosenstein (former Chairman of the Board and Chief Executive Officer) (the "Affiliated Lenders"). The Company borrowed the $1,000,000 available under the Loan Agreement on July 22, 1994. Borrowings were secured by a pledge of the common stock of FGC issuable upon exercise of the warrant. Each of the Affiliated Lenders lent the Company 20% of the total FGC Loan, or $200,000. Pursuant to the terms of the FGC Loan, borrowings bore interest at "prime rate." In addition, the Company was obligated to pay the Lenders, pro rata, a commitment fee of $300,000, and to pay their attorneys' fees and other expenses incurred in connection with the extension of the FGC Loan. The FGC Loan, including interest of $9,000 and the commitment fee, was repaid by September 21, 1994. During the period from July 1994 to March 1995, the Company sold the FGC common stock. 36 Mortgage Loan to Subsidiary: On June 9, 1994, under the former management of the Company, All-Comm Holdings, Inc. (formerly named Bullhead Casino Corporation), a wholly-owned subsidiary of the Company, borrowed $350,000 from the Company's former chief executive officer and its president, evidenced by a promissory note and secured by a mortgage on its parcel of land in Laughlin, Nevada. All-Comm Holdings, Inc. loaned the borrowed funds to the Company. The note was due July 31, 1995 with interest at the rate of 7.75% per annum, but was repaid in October 1994. Purchase of Property and Equipment: In April 1995, prior to the acquisition of Alliance, the Company's former chairman purchased, for $11,000, property and equipment owned by the Company having a cost of $160,000 and a net book value of $6,000. Indebtedness of Former Management. Pursuant to the terms of his employment agreement with the Company, which has expired, Arnold Rosenstein was issued 25,000 shares of Common Stock in exchange for a promissory note in the principal amount of $0.2 million. The promissory note accrued interest at 10.5% per annum payable at maturity on November 1, 1994. On January 21, 1994, Mr. Rosenstein paid $133,333, per resolutions of the Company's Board of Directors, for the early retirement of the $0.2 million note receivable for shares issued to him. The $66,667 allowance was charged to additional paid-in capital in the 1994 fiscal year. Also, on December 31, 1993, accrued interest of $87,500 was discounted to $58,334 and paid to the Company. 37 PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - -------------------------------------------------------------------------- (A)(1) Financial statements - see "Index to Financial Statements and Financial Statement Schedules" on page 41. (2) Financial statement schedule - see "Index to Financial Statements and Financial Statement Schedule" on page 41. (3) Exhibits: 3 (i) Amended and Restated Articles of Incorporation (b) 3 (ii) Certificate of Amendment to the Amended and Restated Articles of Incorporation of the Company (b) 3 (iii) Certificate of Amendment to the Articles of Incorporation (e) 3 (iv) By-Laws (b) 3 (v) Certificate of Amendment of Articles of Incorporation (a) 10.1 1991 Stock Option Agreement (c) 10.2 Operating Covenants Agreement, dated April 25, 1995, between Alliance Media Corporation and Mr. Stephen Dunn (d) 10.3 Pledge Agreement, dated as of April 25, 1995, between Alliance Media Corporation and Mr. Stephen Dunn (d) 10.4 Option Agreement (e) 10.5 Amendment to Option Agreement (f) 10.6 Memorandums of Understanding (f) 10.7 Sample Series B Convertible Preferred Stock Subscription Agreement (g) 10.8 Sample Private Placement Purchase Agreement for Convertible Notes (g) 10.9 Letter from Seller of SD&A agreeing to long-term obligation payment and restructuring (g) 10.10 Sample Convertible Notes Rescission Letter (a) 10.11 Sample Series C Convertible Preferred Stock Subscription Agreement (a ) 11. Statement re: computation of per share earnings (a) 22.1 List of Company's subsidiaries (a) 27 Financial Data Schedule (a) (a) Incorporated herein. (b) Incorporated by reference from the Company's Registration Statement on Form S-4, Registration Statement No. 33-45192 (c) Incorporated by reference to the Company's Registration Statement on Form S-8, Registration Statement 33-43520 38 (d) Incorporated herein by reference to Form 8-K Current Report of All-Comm Media Corporation dated April 25, 1995 (e) Incorporated by reference to the Company's Report on Form 10-K for the fiscal year ended June 30, 1995 (f) Incorporated by reference to the Company's Report on Form 10-Q for the quarter ended March 31, 1996 (g) Incorporated by reference to the Company's Report on Form 8-K dated June 7, 1996 (B) Reports on Form 8-K. On May 28, 1996, the Company filed a Memorandum regarding the resignation of two directors. On June 7, 1996, the Company filed a notification of the completion of a private placement on June 7, 1996. (C) Reference is made to Item 14(a)(3) above. (D) Reference is made to Item 14(a)(2) above. 39 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ALL-COMM MEDIA CORPORATION (Registrant) By /s/ Barry Peters -------------------- Barry Peters, Chairman of the Board and Chief Executive Officer Date: September 18, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date - --------- ----- ---- /s/ Barry Peters Chairman of the Board and September 18, 1996 - ------------------------ Chief Executive Officer Barry Peters /s/ E. William Savage Director, President and September 18, 1996 - ------------------------ Chief Operating Officer E. William Savage /s/ Scott Anderson Chief Financial and September 18, 1996 - ------------------------ Accounting Officer Scott Anderson /s/ S. James Coppersmith Director September 18, 1996 - ------------------------ S. James Coppersmith /s/ Seymour Jones Director September 18, 1996 - ------------------------- Seymour Jones /s/ C. Anthony Wainwright Director September 18, 1996 - ------------------------- C. Anthony Wainwright The foregoing constitute all of the Board of Directors. 40 ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE [Items 8 and 14(a)]
(1) FINANCIAL STATEMENTS: Page ----- Report of Independent Public Accountants 42 Consolidated Balance Sheets June 30, 1996 and 1995 43 Consolidated Statements of Operations Years Ended June 30, 1996, 1995 and 1994 44 Consolidated Statements of Stockholders' Equity Years Ended June 30, 1996, 1995 and 1994 45 Consolidated Statements of Cash Flows Years Ended June 30, 1996, 1995 and 1994 46-47 Notes to Consolidated Financial Statements 48-61
(2) FINANCIAL STATEMENT SCHEDULE: I. Condensed Financial Information of the Registrant All other financial statement schedules are omitted because of the absence of the conditions under which they are required or because the required information is given in the consolidated financial statements or the notes thereto. 41 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS The Stockholders of All-Comm Media Corporation We have audited the accompanying consolidated financial statements and the financial statement schedule of All-Comm Media Corporation and Subsidiaries, listed in Items 8 and 14(a) of this Form 10-K. These financial statements and financial statement schedule are the responsibility of All-Comm Media Corporation's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. 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 presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of All-Comm Media Corporation and Subsidiaries as of June 30, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 1996, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included herein. /s/ COOPERS & LYBRAND L.L.P. Los Angeles, California September 19, 1996 42 ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - JUNE 30, 1996 AND 1995
1996 1995 ---- ---- ASSETS - ------ Current assets: Cash and cash equivalents $ 1,393,044 $ 1,217,772 Accounts receivable, net of allowance for doubtful accounts of $34,906 and $40,552 in 1996 and 1995, respectively 2,681,748 2,067,977 Land held for sale at cost 921,465 766,651 Other current assets 107,658 116,468 ----------- ----------- Total current assets 5,103,915 4,168,868 Property and equipment at cost, net 299,045 344,154 Intangible assets at cost, net 7,851,060 7,272,769 Other assets 47,046 38,700 ----------- ----------- Total assets $13,301,066 $11,824,491 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Short term borrowings $ 500,000 Note payable to bank $ 49,694 Note payable other 72,000 Trade accounts payable 470,706 365,638 Accrued salaries and wages 706,039 641,507 Other accrued expenses 758,112 683,954 Income taxes payable 10,000 94,565 Current portion of long term obligations to related party 583,333 1,500,000 Related party payable 425,000 183,701 ----------- ----------- Total current liabilities 3,453,190 3,591,059 Long term obligations to related party less current portion 1,516,667 3,000,000 Other liabilities 80,315 68,900 ----------- ----------- Total liabilities 5,050,172 6,659,959 ----------- ----------- Commitments and contingencies Stockholders' equity: Class B convertible preferred stock - authorized 50,000 shares of $.01 par value; shares issued: 6,200 shares of Series B (none in 1995) ($3,112,230 involuntary liquidation preference); 2,000 shares of Series C (none in 1995) ($1,005,260 involuntary liquidation preference) 82 Common stock - authorized 6,250,000 shares of $.01 par value at June 30, 1996, increased on August 14, 1996 to 36,250,000; 3,198,534 and 1,436,833 shares issued, respectively 31,985 30,281 Additional paid-in capital 14,462,306 10,300,847 Accumulated deficit (6,108,010) (5,031,127) Less 11,800 shares of common stock in treasury, at cost (135,469) (135,469) ----------- ----------- Total stockholders' equity 8,250,894 5,164,532 ----------- ----------- Total liabilities and stockholders' equity $13,301,066 $11,824,491 =========== ===========
See Notes to Consolidated Financial Statements. 43 ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED JUNE 30, 1996, 1995 AND 1994
1996 1995 1994 ------------ ------------ ------------ Sales $15,889,210 $ 3,630,828 Cost of sales 10,882,437 2,434,011 ----------- ----------- Gross profit 5,006,773 1,196,817 Operating Expenses: Selling, general and administrative (5,105,673) (2,381,912) $ (823,417) Service fees of related parties (5,728) (21,000) Amortization of intangible assets (361,537) (65,101) ----------- ----------- ----------- Loss from operations (460,437) (1,255,924) (844,417) ----------- ----------- ----------- Other income (expense): Gain from sales of securities 1,579,539 937,365 Loan commitment fee (300,000) Dividends 7,237 Interest income 12,276 13,679 Interest expense (487,638) (94,200) (7,165) Other, net 1,047 (19,813) ----------- ----------- ----------- Total (475,362) 1,200,065 917,624 ----------- ----------- ----------- Income (loss) from continuing operations before income taxes (935,799) (55,859) 73,207 Credit (provision) for income taxes (141,084) (75,000) 13,600 ----------- ----------- ----------- Income (loss) from continuing operations before discontinued operations (1,076,883) (130,859) 86,807 Gain on sale of discontinued operations 322,387 Loss from discontinued operations (81,131) (2,896,694) ----------- ----------- ----------- Net income (loss) $(1,076,883) $ 110,397 $(2,809,887) =========== =========== =========== Net income (loss) attributable to common stockholders $(1,094,373) $ 110,397 $(2,809,887) =========== =========== =========== Income (loss) per common share: From continuing operations $ (.36) $ (.07) $ .06 From discontinued operations .13 (1.97) ----------- ----------- ----------- Income (loss) per common share $ (.36) $ .06 $ (1.91) =========== =========== =========== Weighted average common and common equivalent shares outstanding 3,068,278 1,807,540 1,468,747 =========== =========== ===========
Primary and fully diluted income (loss) per common share are the same in fiscal years 1996, 1995 and 1994. See Notes to Consolidated Financial Statements. 44 ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED JUNE 30, 1996, 1995 AND 1994
Convertible Preferred Stock Common Stock Additional Accu- -------------------- ------------------- Paid-in mulated Shares Amount Shares Amount Capital Deficit -------------------- ------------------- ------------ ------------ Balance June 30, 1993 1,252,192 $12,522 $ 4,667,952 $(2,331,637) Issuance of restricted shares for litigation settlement 25,000 250 249,750 Purchase of shares - cash Receivable paid - at discount (66,667) Shares issued upon exercise of stock options and warrants 159,641 1,596 991,173 Discounts granted on exercise of options 86,334 Net loss (2,809,887) ------- ----- --------- ------- ----------- ----------- Balance June 30, 1994 1,436,833 14,368 5,928,542 (5,141,524) Issuance of restricted shares for litigation settlement 37,500 375 149,625 Issuance of restricted shares for merger with Alliance Media Corp. 1,025,000 10,250 2,734,750 Issuance of restricted shares as finders fees 42,500 425 138,325 Private placement of shares - cash 413,759 4,138 1,014,537 Shares issued upon exercise of stock options and warrants 72,500 725 207,193 Discounts granted on exercise of options 127,875 Net income 110,397 ------- ----- --------- ------- ----------- ----------- Balance June 30, 1995 3,028,092 30,281 10,300,847 (5,031,127) Issuance of common shares as compensation to employees, directors and consultants 95,442 954 218,974 Sale of shares (including 12,500 to related parties) 75,000 750 119,250 Sale of Series A Preferred Stock 10,000 $ 100 686,669 Sale of Series B Preferred Stock 6,200 62 1,044,682 Sale of Series C Preferred Stock 2,000 20 166,626 Repurchase of Series A Preferred Stock (10,000) (100) (812,400) Warrants issued with Preferred Stock 2,672,522 Warrants issued to con- sultants and creditors 82,626 Accrued dividends on Series B&C Preferred Stock (17,490) Net loss (1,076,883) ------- ----- --------- ------- ----------- ----------- Balance June 30, 1996 8,200 $ 82 3,198,534 $31,985 $14,462,306 $(6,108,010) ======= ===== ========= ======= ========== =========== Treasury Stock --------------------- Receivable Shares Amount for Shares Totals -------- ---------- ---------- ------ Balance June 30, 1993 (5,550) $ (29,219) $(200,000) $ 2,119,618 Issuance of restricted shares for litigation settlement 250,000 Purchase of shares - cash (6,250) (106,250) (106,250) Receivable paid - at discount 200,000 133,333 Shares issued upon exercise of stock options and warrants 992,769 Discounts granted on exercise of options 86,334 Net loss (2,809,887) ------- --------- ---------- ----------- Balance June 30, 1994 (11,800) (135,469) -- 665,917 Issuance of restricted shares for litigation settlement 150,000 Issuance of restricted shares for merger with Alliance Media Corp. 2,745,000 Issuance of restricted shares as finders fees 138,750 Private placement of shares -cash 1,018,675 Shares issued upon exercise of stock options and warrants 207,918 Discounts granted on exercise of options 127,875 Net income 110,397 ------- --------- ---------- ----------- Balance June 30, 1995 (11,800) (135,469) -- 5,164,532 Issuance of common shares as compensation to employees, directors and consultants 219,928 Sale of shares (including 12,500 to related parties) 120,000 Sale of Series A Preferred Stock 686,769 Sale of Series B Preferred Stock 1,044,744 Sale of Series C Preferred Stock 166,646 Repurchase of Series A Preferred Stock (812,500) Warrants issued with Preferred Stock 2,672,522 Warrants issued to con- sultants and creditors 82,626 Accrued dividends on Series B&C Preferred Stock (17,490) Net loss (1,076,883) ------- --------- ---------- ----------- Balance June 30, 1996 (11,800) $(135,469) $ -- $ 8,250,894 ======= ========= ========== ===========
See Notes to Consolidated Financial Statements. 45 ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 1996, 1995 AND 1994
1996 1995 1994 ------------ ------------ ------------ Operating activities: Net income (loss) $(1,076,883) $ 110,397 $(2,809,887) Adjustments to reconcile loss to net cash used in operating activities: Gains from sales of securities (1,579,539) (937,365) Gain on sale of STI (322,387) Depreciation 139,881 52,348 39,306 Amortization 361,537 65,101 Deferred income tax (13,600) Loss on disposal of assets 30,319 Discount on exercise of options 127,875 86,334 Stock issuances to employees, directors and consultants 193,677 Warrant issuances to consultants and creditors 82,626 Issuance of stock and note for consultant termination settlement 394,000 Changes in assets and liabilities net of effects from acquisition: Accounts receivable (613,771) (377,631) Income tax refund receivable 55,000 Other current assets 38,710 (16,844) (3,778) Other assets (8,346) 20,519 61,959 Trade accounts payable 105,068 (147,360) 1,689 Accrued expenses and other current liabilities (21,674) 6,757 3,784 Income taxes payable (84,565) 55,000 Discontinued operations, net (152,662) 936,564 ----------- ----------- ----------- Net cash used in operating activities (883,740) (2,128,107) (2,185,994) ----------- ----------- ----------- Investing activities: Proceeds from sales of investments in securities 2,682,811 1,244,090 Purchase of investment in securities (1,063,272) Proceeds from sale of STI 800,000 Proceeds from sales of fixed assets 11,000 Acquisition of Alliance Media Corporation, net of cash acquired of $567,269 259,088 Payments relating to acquisition of Alliance & SD&A (477,704) Purchase of property and equipment (94,772) (43,905) (6,653) Land development costs (10,526) Investing activities of discontinued operations, net (42,271) ----------- ----------- ----------- Net cash provided by (used in) investing activities (572,476) 2,635,196 1,195,166 ----------- ----------- ----------- Financing activities: Repurchase of preferred stock (812,500) Proceeds from issuances of common stock 120,000 1,226,593 992,769 Proceeds from issuances of preferred stock and warrants 4,570,682 Proceeds from land option 150,000 Proceeds from bank loans 500,000 150,000 Repayments of bank loans (49,694) (513,059) Proceeds from note payable other 1,000,000 Repayments of note payable other (72,000) (1,072,000) (200,000) Related party borrowing (repayment) (2,775,000) (350,000) 350,000
46 Repurchase of common stock (106,250) Proceeds from receivable for shares 133,333 Financing activities of discontinued operations (19,350) ----------- ----------- ----------- Net cash provided by financing activities 1,631,488 291,534 1,300,502 ----------- ----------- ----------- Net increase in cash and cash equivalents 175,272 798,623 309,674 Cash and cash equivalents at beginning of year 1,217,772 419,149 109,475 ----------- ----------- ----------- Cash and cash equivalents at end of year $ 1,393,044 $ 1,217,772 $ 419,149 =========== =========== =========== Supplemental disclosures of cash flow data: Cash paid (received) during the year for: Interest $ 455,276 $ 60,422 $ 20,771 Financing charge $ 300,000 Income tax paid (refunded) $ 155,025 $ 15,000 $ (55,000)
Supplemental schedule of non cash investing and financing activities: In Fiscal 1995, the Company purchased all of the capital stock of Alliance Media Corporation for 1,025,000 shares of common stock valued at $2,745,000. Additionally, 37,500 shares of common stock valued at $100,000 were issued as finders fee. Other direct costs of the acquisition totaled approximately $500,000. In conjunction with the acquisition, net assets acquired and liabilities assumed, less payments prior to year end, were: Working capital, other than cash $ 601,729 Property and equipment (326,320) Costs in excess of net assets of companies acquired (7,337,870) Other assets (23,451) Long term debt 4,500,000 Common stock issued 2,845,000 ----------- $ 259,088 ===========
Five thousand shares of common stock valued at $38,750 were issued as a commission on the sale of STI during 1995. The Company issued 37,500 shares of common stock valued at $150,000 in Fiscal 1995 in settlement of a 1994 liability for early termination of a consulting agreement. In October, 1995, in accordance with the acquisition agreement between Alliance Media Corporation and the former owner of SD&A, the purchase price was increased by $85,699. In October, 1995, the Company issued 6,250 shares of common stock in settlement of a liability of $26,250. In November, 1995, a special county bond measure, with principal totaling $154,814, was assessed on the Company's land and was recorded as a land improvement, offset by a liability in accrued other expenses. In April, 1996, the Company issued 89,192 shares of common stock in settlement of liabilities to employees, directors and consultants of $193,678. During the year ended June 30, 1996, the Company issued warrants to consultants and creditors valued at $82,626. Accrued and unpaid dividends on convertible preferred shares during Fiscal 1996 totaled $17,490. On June 30, 1996, intangible assets were increased by $425,000 for accrued restricted common stock payable to the former owner of SD&A as an additional payment resulting from SD&A achievement of defined results of operations. See Note 3. See Notes to Consolidated Financial Statements. 47 ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL: All-Comm Media Corporation ("The Company") was formerly known as Sports- Tech, Inc. The name change was approved at a Special Meeting of Stockholders held on August 22, 1995. On April 25, 1995, the Company, through a wholly-owned subsidiary, was merged with Alliance Media Corporation ("Alliance") and its wholly-owned subsidiary, Stephen Dunn & Associates, Inc. ("SD&A"). The shareholders of Alliance received 1,025,000 shares of the Company's common stock. Upon consummation of the merger, the members of the board of directors of the Company resigned and a new board was appointed. Through SD&A, the Company currently operates in one industry segment, providing telemarketing and telefundraising to not-for-profit arts and other organizations principally in the United States. The Company's mission is to create a growth-oriented direct marketing and media services company through acquisitions and internal growth. The Company also owned approximately seven acres of undeveloped land in Laughlin, Nevada, which was sold on August 16, 1996. Prior to the merger with Alliance, the Company's principal activities were the investigation of non-gaming acquisitions. In fiscal 1992, the Company acquired a 100% interest in Sports-Tech International ("STI"), and in fiscal 1993 acquired 100% of the assets and certain liabilities of High School Gridiron Report ("HSGR"). STI was engaged in the development, acquisition, integration and sale of advanced computer software, computer equipment and computer aided video systems used by sports programs at the professional, collegiate and high school levels. HSGR provided academic and video data to aid in pre-qualifying high school athletes to colleges and universities. In fiscal 1995, the Company discontinued the operations of STI and HSGR. The Company believes that funds available from operations and from the August, 1996 sale of the Laughlin, Nevada land will be adequate to finance its current operations and meet interest and debt obligations in its fiscal year ending June 30, 1997. Thereafter, and in conjunction with the Company's acquisition and growth strategy, additional financing may be required to meet potential acquisition payment requirements. The Company believes that it has the ability to raise funds through private placements or public offerings of debt and/or equity securities to meet these requirements. There can be no assurance, however, that such capital will be required or available at terms acceptable to the Company, or at all. 2. SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation: The consolidated financial statements include the accounts of All-Comm Media Corporation and its wholly-owned subsidiaries, All-Comm Holdings, Inc. (formerly, Bullhead Casino Corporation), All-Comm Acquisition Corporation (formerly, BH Acquisitions, Inc.), Sports-Tech International, Inc. ("STI") (sold during fiscal year 1995), High School Gridiron Report, Inc. ("HSGR") (dissolved during fiscal year 1996), Alliance Media Corporation ("Alliance"), Stephen Dunn & Associates, Inc. ("SD&A") and BRST Mining Company (dissolved during fiscal year 1996). STI and HSGR are presented as discontinued operations in the consolidated financial statements. All material intercompany accounts and transactions are eliminated in consolidation. 48 Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The estimates and assumptions made in the preparation of the consolidated financial statements relate to the assessment of the carrying value of assets and liabilities. Actual results could differ from those estimates. Cash and Cash Equivalents/Statement of Cash Flows: Highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. Land held for Sale: The cost of acquiring, improving and planning the development of land was capitalized. Costs related to development were written off when such plans are abandoned. Interest cost was capitalized in periods in which activities specifically related to the development of the land took place. The land was valued at lower of cost or market. The land was sold on August 16, 1996. See Note 6. Property and Equipment: Property and equipment is recorded at cost less accumulated depreciation. Maintenance and repairs are expensed as incurred. The cost and related accumulated depreciation and amortization of property and equipment sold or retired are removed from the accounts and resulting gains or losses are included in current operations. Depreciation and amortization are provided on a straight line basis over the useful lives of the assets involved, limited as to leasehold improvements by the term of the lease, as follows: Equipment.........................5 years Furniture and fixtures............2 to 7 years Computer equipment and software...3 to 5 years Leasehold improvements............over the useful life of the assets or term of the lease, whichever is shorter Intangible Assets: Excess of cost over net assets acquired in connection with the Alliance and SD&A acquisitions are being amortized over the period of expected benefit of 40 years. Covenants not to compete are stated at cost and are amortized over the period of expected benefit of five years. For each of its investments, the Company assesses the recoverability of its goodwill, by determining whether the amortization of the goodwill balance over its remaining life can be recovered through projected undiscounted future cash flows over the remaining amortization period. If projected future cash flows indicate that unamortized goodwill will not be recovered, an adjustment will be made to reduce the net goodwill to an amount consistent with projected future cash flows discounted at the Company's incremental borrowing rate. Cash flow projections are based on trends of historical performance and management's estimate of future performance, giving consideration to existing and anticipated competitive and economic conditions. Revenue recognition: Sales represent fees earned by SD&A which are recorded when pledged cash is received for on-site campaigns and when services are provided for off-site campaigns. 49 Income taxes: Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates and laws applicable to the years in which the differences are expected to reverse. Valuation allowances, if any, are established when necessary to reduce deferred tax assets to the amount that is more likely than not to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities. Concentration of Credit Risk: Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of temporary cash investments and trade receivables. The Company restricts investment of temporary cash investments to financial institutions with high credit standing. Credit risk on trade receivables is minimized as a result of the large and diverse nature of the Company's customer base. Earnings (loss) per share: Primary earnings (loss) per common and common equivalent share and earnings per common and common equivalent share assuming full dilution are computed based on the weighted average number of common shares outstanding and common share equivalents attributable to the effects, if dilutive, of the assumed exercise of outstanding stock options and warrants, and the conversion of all convertible preferred stock. Reclassifications: Certain prior year items have been reclassified to conform with current year presentation. 3. ACQUISITION OF ALLIANCE MEDIA CORPORATION AND STEPHEN DUNN & ASSOCIATES, INC.: On April 25, 1995, the Company, through a statutory merger, acquired all of the outstanding common shares of Alliance. The purchase price was approximately $2,745,000, consisting of issuance of 1,025,000 restricted common shares of the Company to former shareholders of Alliance valued at $2.68 per common share. These shares have registration rights as of December 1, 1995. Direct costs of the acquisition approximated $500,000. Pursuant to the terms of the merger agreement, upon consummation of the merger the then current members of the Company's board of directors resigned, and a new board consisting of six persons designated by Alliance was appointed. The assets of Alliance acquired by the Company consisted primarily of (i) all the issued and outstanding stock of Stephen Dunn & Associates, Inc. ("SD&A"), which Alliance had acquired simultaneously with the merger, (ii) a five year covenant not to compete with the former owner of SD&A, and (iii) the cash proceeds of $1,509,750 (net of certain payments, including the payment of $1.5 million made pursuant to the acquisition of SD&A) of a private placement of equity securities of Alliance, which securities, upon consummation of the merger, were converted into the Company's common stock. The purchase price of SD&A paid by Alliance was $1.5 million in cash, plus $4.5 million in long-term obligations yielding prime rate, payable over four years. Additional contingent payments of up to $850,000 per year over the period ending June 30, 1998 may be required based on the achievement of defined results of operations of SD&A after its acquisition. At the Company's option, up to one half of the additional contingent payments may be made with restricted common shares of the Company. These additional shares have demand registration rights commencing in September 1997. Alliance and SD&A had entered into an operating covenant agreement relating to the 50 operations of SD&A and Alliance has pledged all of the common shares of SD&A acquired to collateralize its obligations under that agreement. These acquisition terms were revised pursuant to the Company private placement financing which occurred on June 7, 1996 (see "Private Placement of Preferred Stock") whereby the long term obligations were revised and approximately $2.0 million was paid in June, 1996. The balance of $2.1 million is payable in 36 monthly principal payments of $58,333, plus interest at 8%, starting September 19, 1996. The assets of SD&A acquired by Alliance (and therefore by the Company upon consummation of the merger) consisted primarily of cash and cash equivalents, accounts receivable and furniture, fixtures and equipment. These acquisitions were accounted for using the purchase method. The purchase price was allocated to assets acquired based on their estimated fair value. This treatment initially resulted in approximately $6.3 million of costs in excess of net assets required, after recording a covenant not to compete of approximately $1.0 million. The excess was increased by $850,000 on June 30, 1996, due to achievement of defined results of operations of SD&A for the year ended June 30, 1996. Such excess, which may increase for any further contingent payments, is being amortized over the remainder of the expected period of benefit of 40 years. The operating results of these acquisitions are included in the consolidated results of operations from the date of acquisition. The following summary, prepared on a pro forma basis, combines the consolidated results of operations as if Alliance and SD&A had been acquired as of the beginning of the period presented, after including the impact of certain adjustments, such as: amortization of intangibles, increased interest on the acquisition debt, and adjustment of officer salary for new contract.
Unaudited -------------------------- 1995 1994 ------------ ----------- Net sales $15,013,000 $12,685,000 Income (loss) from continuing operations (113,911) 235,965 Income (loss) from continuing operations per common share $ (.04) $ 0.10
The unaudited pro forma information is provided for informational purposes only. It is based on historical information and is not necessarily indicative of the actual results that would have occurred nor is it necessarily indicative of future results of operations of the combined entities. 4. DISCONTINUED OPERATIONS: On December 7, 1994, the Company entered into a definitive agreement for the sale of the Company's subsidiary, STI. The proposed purchase price for STI's operations was $1,100,000 of which $300,000 was paid as of the agreement date. By mutual agreement, the closing date was accelerated to March 8, 1995, and the purchase price reduced to $800,000, a reduction of $300,000 on the original sales price, out of which $80,000 was paid as a commission to STI's former president. The former president of STI also received $38,750 in common stock and warrants to purchase 2,500 shares of the Company's common stock at $8.00 per share in connection with this transaction. The Company realized a gain on the sale of $322,387. No tax is allocable to this gain due to net operating loss carryforwards. 51 Concurrent with the closing of sale of STI, all operations of HSGR ceased and all unrecoverable assets were written off, which amounted to approximately $22,000. Accordingly, STI and HSGR are reported as discontinued operations at June 30, 1995, and the consolidated financial statements have been reclassified to report separately the net assets, operating results, gain on disposition and cash flows of these operations. Revenues of these discontinued operations for fiscal 1995 and 1994 were $1,147,829 and $1,743,090, respectively. 5. PROPERTY AND EQUIPMENT Property and equipment of continuing operations at June 30, 1996 and 1995 consisted of the following:
1996 1995 ---------- ---------- Office furnishings and equipment $ 302,607 $246,157 Leasehold improvements 169,771 131,447 --------- -------- 472,378 377,604 Less accumulated depreciation and amortization (173,333) (33,450) --------- -------- $ 299,045 $344,154 ========= ========
6. LAND HELD FOR SALE: The Company, through its wholly owned subsidiary, All-Comm Holdings, Inc., owned approximately seven acres of undeveloped land in Laughlin, Nevada, which had a carrying value of $921,465 and $766,651 as of June 30, 1996 and 1995, respectively. During fiscal 1996, a bond measure was passed by Clark County, Nevada authorities, resulting in a special assessment to fund improvements which would benefit the land. The principal balance assessed to the Company totaled $154,814 plus interest at 6.4% and was payable in semi-annual installments over twenty years. The principal was capitalized by the Company in fiscal 1996. During fiscal 1995, the Company capitalized costs of $10,526 for its share of costs incurred by area property owners for development design fees. On August 16, 1996, the land was sold to, and liability assumed by, an independent third party, via auction, for $952,000 in cash, resulting in a net gain of approximately $114,000. 7. INTANGIBLE ASSETS: Intangible assets at June 30, 1996 and 1995, consist of the following:
1996 1995 ----------- ----------- Covenant not to compete $1,000,000 $1,000,000 Goodwill 7,277,698 6,337,870 ---------- ---------- 8,277,698 7,337,870 Less accumulated amortization (426,638) (65,101) ---------- ---------- $7,851,060 $7,272,769 ========== ==========
52 The increase in intangible assets during 1996 was principally due to recording of a contingent payment of $850,000 due to the former owner of SD&A subsequent to the achievement of defined results of operations of SD&A during the year ended June 30, 1996. 8. SHORT TERM BORROWINGS AND NOTE PAYABLE TO BANK: At June 30, 1995, SD&A had an unused $350,000 line of credit from a bank. During fiscal 1996, the line was increased to $500,000 and was fully used at June 30, 1996. The line bears interest at prime plus 1/2% (8.75% at June 30, 1996), is collateralized by substantially all of SD&A's assets and is personally guaranteed by SD&A's President. The line of credit also contains certain financial covenants, including current ratio, working capital, debt and net worth, capital expenditure, and cash flow requirements. At June 30, 1995, SD&A had a note payable outstanding totaling $49,694, which bore interest at the bank's prime rate plus 1.75%. The note payable required monthly principal repayments of $6,529 plus interest and was paid in full during 1996. 9. OTHER ACCRUED EXPENSES: Accrued expenses at June 30, 1996 and 1995 consisted of the following:
1996 1995 -------- -------- Accrued professional fees $290,897 $287,550 Accrued taxes and licenses 116,300 Other 467,215 280,104 -------- -------- Total $758,112 $683,954 ======== ========
10. LONG TERM OBLIGATIONS TO RELATED PARTY: In connection with the acquisition of SD&A on April 25, 1995, Alliance issued promissory notes totaling $4,500,000 to SD&A's current President and former sole shareholder. The notes bore interest at prime rate, not to exceed 10% or drop below 8%, and were payable monthly. Principal payments were due quarterly, and originally $1,500,000 was due in quarterly installments during fiscal 1996. All the outstanding common shares of SD&A were initially pledged to collateralize these notes but were released in June 1996. In connection with these notes, an operating covenant agreement included, among other things, provisions requiring that SD&A have a minimum level of working capital and cash levels, subject to periodic increases based on sales, before dividend payments can be made to the parent company. In June 1996 the operating covenant agreement was terminated. During 1996 the July 1, 1996 principal payment of $375,000 was made and the long term obligations were restructured to defer principal payments due October 1, 1995, January 1, 1996 and April 1, 1996, until June 1996. In June, 1996, principal payments of $2,025,000 were made and the remaining obligations of $2,100,000 are now payable at $58,333 per month, plus interest at 8%, starting September 19, 1996. 53 11. EMPLOYMENT CONTRACTS: Subject to execution of definitive agreements, the Company has entered into three-year employment arrangements with current officers of the Company. The arrangements provide for annual base salaries, base increases, cash and option bonuses which are payable if specified management goals are achieved, and certain termination benefits. The aggregate liability in the event of termination by the Company without cause of these employees is approximately $1,000,000. The Company also had employment contracts with certain members of the prior management of the Company. In fiscal 1995 and 1994, severance payments totaling approximately $60,000 and $40,000, respectively, were fully paid under the contracts. A contract with a prior key member of management also required the issuance of 25,000 shares of the Company's common stock in exchange for a $200,000 non-recourse promissory note receivable. The note receivable was due on November 1, 1994, along with accrued interest at 10.5% per annum. In fiscal 1994, the Company's Board of Directors approved discounting the interest receivable and note receivable by one third. The discount of the interest receivable of $29,166 was charged against operations and the $66,667 discount of the note receivable was charged to additional paid in capital. 12. COMMITMENTS AND CONTINGENCIES: Leases: SD&A leases its corporate business premises from its former owner. The lease requires monthly rental payments of $11,805 through January 1, 1999, with an option to renew. SD&A incurs all costs of insurance, maintenance and utilities. Also, the Company leases its corporate office space, copier, phones and automobiles under long term leases. Future minimum rental commitments under all non-cancelable leases, as of fiscal years ending June 30, are as follows: 1997 $ 324,978 1998 310,968 1999 199,609 2000 130,858 2001 130,858 ---------- $1,097,271 ==========
Rent expense for continuing operations was approximately $297,000, $89,000 and $56,000, for fiscal years ended 1996, 1995 and 1994, respectively. Total rent paid by SD&A to its former owner during 1996 and from the date of acquisition to June 30, 1995 was approximately $138,000 and $26,000, respectively. Litigation: Pursuant to a Settlement and Release Agreement dated June 17, 1994 with Membership Development, Inc. ("MDI"), a non-affiliated direct marketing company that was providing marketing services to Sports-Tech International, in fiscal 1994 the Company issued 25,000 shares of Sports- Tech stock valued at $250,000, executed an unsecured non-interest bearing promissory note for $144,000 and in fiscal 1995 issued an additional 37,500 shares of stock valued at $150,000. In May 1995, MDI exercised their right to require the Company to file a registration statement registering these securities for sale. A registration statement was filed but has not yet been declared effective. The entire $544,000 of consideration was expensed in fiscal 1994 and is included in discontinued operations. 54 The Company is party to various minor legal proceedings. The outcome of these legal proceedings are not expected to have a material adverse effect on the financial condition or operation of the Company based on the Company's current understanding of the relevant facts and law. 13. STOCKHOLDERS' EQUITY: Preferred Stock: On May 9, 1996, the Company completed the private placement with an institutional investor of 10,000 shares of Series A convertible preferred stock for $750,000, $687,000 net after offering costs. The convertible preferred stock was convertible into common shares of the Company at the lesser of the price paid divided by $2.50, or 80% of the closing bid price of the Company's common stock for the five trading days immediately prior to the conversion date, and was subject to certain restrictions. On June 7, 1996, the Company completed the private placements with accredited investors of 6,200 shares of Series B convertible preferred stock for $3,100,000. The preferred stock is preferred as to the Company's assets over the common stock in the event of liquidation, dissolution or winding-up of the Company, prior to distribution of assets to common stockholders. The preferred stockholders are entitled to their original investment, plus accrued, unpaid dividends or, if unavailable, a ratable distribution of existing assets. The holders of the stock are entitled to receive a dividend payable only on redemption or credited against conversion, which shall accrue at the rate of 6% per annum. The convertible preferred stock is convertible, in whole or in part, at any time and from time to time until the second anniversary of the date of issuance, into common shares of the company at the lesser of the price paid divided by $1.25, or 80% of the average closing sales price of the Company's common stock for the last five days prior to conversion, and is subject to certain restrictions, including automatic conversion on the second anniversary of issuance. Under certain unlikely conditions prior to conversion, the preferred stock may be redeemed. In addition, the Company issued warrants to preferred shareholders for 3,100,000 shares of common stock exercisable at $2.50 for three years. On June 7, 1996, the Company completed the private placements with accredited investors of $1,000,000 of convertible notes and warrants for 3,000,000 shares of common stock. Subsequent to year end, the notes and warrants were rescinded retroactive to June 7, 1996 and replaced with 2,000 shares of Series C convertible preferred stock for $1,000,000. The Series C convertible preferred stock is preferred as to the Company's assets over the common stock in the event of liquidation, dissolution or winding-up of the Company, prior to distribution of assets to common stockholders. The preferred shareholders are entitled to their original investment, plus accrued unpaid dividends or, if available, a ratable distribution of existing assets. The holders of the stock are entitled to receive a dividend payable only on redemption or credited against conversion, which shall accrue at the same rate of 8% per annum. The Series C convertible preferred stock is convertible, in whole or in part, at any time and from time to time until the second anniversary of the date of issuance, into common shares of the Company at the price paid divided by $6.00, and is subject to certain restrictions, including automatic conversion on the second anniversary of issuance. Under certain unlikely conditions prior to conversion, the preferred stock may be redeemed. In addition, the Company issued warrants to preferred shareholders for 3,000,000 shares of common stock exercisable at $3.00 for three years. The Company allocated the net proceeds received on the sales of each series of preferred shares and warrants based on the relative fair values of the securities at the time of issuance. 55 In connection with the June 7, 1996 transactions, the Company reacquired the 10,000 shares of Series A convertible preferred stock for $800,000 plus fees of $12,500. Common Stock: The Board of Directors approved a one-for-four reverse stock split of the Company's authorized and issued common stock, effective August 22, 1995. The Board also approved reducing the number of authorized shares of common stock to 6,250,000 with a par value of $.01 per share, from the 25,000,000 common shares previously authorized. Accordingly, all share and per share data, as appropriate, reflect the effect of the reverse split. Effective August 14, 1996, the shareholders and Board of Directors approved an increase in the number of authorized shares of common stock, from 6,250,000 to 36,250,000. During 1996, the Company issued 95,441 shares of restricted common stock as compensation to various employees, directors and consultants. In March 1996, the Company sold 75,000 restricted shares of its common stock for $120,000 to four individuals, including 12,500 shares to related parties. In May 1995, the Company completed a private placement of 413,759 shares of restricted common stock, at $2.68 per share. These shares have registration rights as of December 1, 1995. Net proceeds from this offering totaled $1,018,675. As discussed in Note 3, in connection with the acquisition of Alliance and SD&A, the Company issued 1,025,000 restricted common shares to the former shareholders of Alliance. These shares have registration rights. Also in connection with the acquisition, the Company issued 37,500 common shares valued at $100,000 and warrants to purchase 43,077 common shares at $6.00- to-$8.00 per share to investment banking firms, a shareholder, a director and a law firm which represented the Company. These warrants expire between April 25, 1998 and April 25, 2000. In connection with the sale of Sports-Tech International, Inc., the Company approved issuance of 5,000 common shares valued at $38,750 and warrants to purchase 2,500 shares at $8.00 through April 25, 1995 to its former president. On July 26, 1991, the Company sold warrants to purchase up to 62,500 shares of the Company's common stock to a private investor for $250 in cash, exercisable at $6.00 per share through July 31, 1996. This investor was subsequently elected to the Company's Board of Directors. On January 31, 1994, this Director exercised warrants to purchase 25,000 shares of common stock at $4.00 per share (reduced by Board of Directors Resolution from $6.00 to $4.00) by paying $100,000 to the Company. On June 9, 1994, this Director sold, in a private transaction, 18,750 of these warrants to another shareholder of the Company. In May, 1995, the Board of Directors approved the temporary reduction of the exercise price of these warrants from $6.00 to $2.68 and, on May 31, 1995, these 37,500 warrants were exercised for $100,500 in cash payments. 56 As of June 30, 1996, the Company has the following outstanding warrants to purchase 6,370,577 shares of common stock:
Date Shares of Common Exercise Price Per Date Issued Exercisable Stock upon Exercise Share of Common Stock ----------- ----------- ------------------- --------------------- April 1995 April 1995 33,750 $ 6.00-8.00 May 1995 May 1995 11,827 $ 6.00 October 1995 October 1995 30,000 $ 2.50 January 1996 January 1996 32,500 $3.375-8.00 February 1996 February 1996 15,000 $ 3.00-4.00 April 1996 April 1996 22,500 $ 1.60 May 1996 May 1996 100,000 $ 4.50 June 1996 June 1996 25,000 $ 4.50 June 1996 August 1996 6,100,000 $2.50-$3.00 --------- Total as of June 30, 1996 6,370,577 =========
Stock Options: In 1991, the Company adopted a non-qualified stock option plan (the 1991 Plan) for key employees, officers, directors and consultants to purchase up to 250,000 shares of common stock. In November, 1995, the Board of Directors increased the number of available shares by 600,000. The Plan is administered by the Board of Directors which has the authority to determine which officers and key employees of the Company will be granted options, the option price and exercisability of the options. In no event shall an option expire more than ten years after the grant. The following summarizes the stock option transactions under the 1991 Plan for the three fiscal years ended June 30, 1996:
Number Option Price of Shares Per Share ---------- --------------- Outstanding at June 30, 1993 193,617 $6.00 to $16.00 Granted 3,000 $22.00 Exercised (70,058) $6.00 to $16.00 Canceled (18,667) $6.00 to $16.00 ------- Outstanding at June 30, 1994 107,892 $6.00 to $22.00 Granted 8,750 $5.24 to $7.00 Exercised (22,500) $2.68 to $5.24 Canceled (3,334) $6.00 ------- Outstanding at June 30, 1995 90,808 Granted 525,003 $2.00 to $3.00 Canceled (91,004) $6.00 to $22.00 ------- Outstanding at June 30, 1996 524,807 =======
All the outstanding options under the 1991 Plan are exercisable and expire as follows: fiscal 1998 - 2,084, fiscal 2000 - 5,000 and fiscal 2003 - 517,723. All options granted in fiscal years 1996, 1995 and 1994 were issued at fair market value. At June 30, 1996, 179,504 options were available for grant. In May, 1995, a $128,000 discount was given to a former director of the Company to exercise 18,750 options and was recognized as compensation expense. In addition to the 1991 Plan, the Company has other option agreements with former officers, directors, employees and owners of an acquired Company. 57 The following summarizes transactions outside the 1991 Plan for the three fiscal years ended June 30, 1996:
Number Option Price of Shares Per Share ---------- ---------------- Outstanding at June 30, 1993 143,250 $3.00 to $16.00 Granted 18,000 $15.52 to $16.00 Exercised (64,584) $4.00 to $8.00 Canceled (22,875) $7.24 to $15.52 ------- Outstanding at June 30, 1994 73,791 $3.00 to $16.00 Exercised (12,500) $3.00 Canceled (28,875) $6.00 to $16.00 ------- Outstanding at June 30, 1995 32,416 Canceled (30,166) $4.50 to $6.00 ------- Outstanding at June 30, 1996 2,250 =======
All the outstanding options under these agreements are exercisable and expire in fiscal 1999. A one-third discount, totaling $86,334 was given to non-affiliates when 36,083 options were exercised in January 1994 and was recognized as compensation expense. Common Stock in Treasury: The Company has purchased 26,800 shares of its common stock for a total cost of $214,579 (or an average of $8.00 per share). In connection with the acquisition of the High School Gridiron Report assets, 15,000 shares were issued from the treasury stock. The remaining treasury shares have a total cost of $135,469 (or an average of $11.48 per share). 14. INCOME TAXES: Income tax expense (benefit) from continuing operations is as follows:
Years Ended June 30, 1996 1995 1994 -------- ------- --------- Current: Federal - - ($13,600) State & Local $141,084 $75,000 - Deferred - - - -------- ------- -------- Total $141,084 $75,000 ($13,600) ======== ======= ========
A reconciliation of the Federal statutory income tax rate to the effective income tax rate based on pre-tax income (loss) from continuing operations follows: 58
1996 1995 1994 ----- ----- ----- Statutory rate (34)% (34)% 34% Increase (decrease) in tax rate resulting from: Loss limitations and valuation allowance 34 34 Utilization of loss carryforwards (53) State income taxes 15 134 ---- ---- --- Effective rate 15% 134% (19)% ==== ==== ===
Effective July 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes". The adoption of SFAS 109 resulted in an income tax benefit of $13,600 in fiscal year 1994.
1996 1995 ---------- ---------- Deferred tax assets: Net operating loss carryforwards $ 691,100 $ 374,000 Amortization of intangibles 142,300 133,000 Other 95,900 158,800 --------- --------- Total deferred tax assets 929,300 665,800 Valuation allowance (789,800) (364,400) --------- --------- Net deferred tax assets 139,500 301,400 --------- --------- Deferred tax liabilities: Cash to accrual adjustment (139,500) (262,500) Other - (38,900) --------- --------- Total deferred tax liabilities (139,500) (301,400) --------- --------- Total deferred taxes, net $ - $ - ========= =========
The Company has a net operating loss of approximately $2,032,000 available which expires from 2008 through 2011. These losses can only be offset with future income. No income taxes are allocable to the gain on sale of discontinued operations during 1995 due to utilization of net operating loss carryforwards. 15. GAINS FROM SALES OF SECURITIES: In July, 1994, the Company borrowed $1,000,000 to fund the exercise by the Company of a common stock purchase warrant. The loan was collateralized by a pledge of the warrant shares pursuant to the terms of a pledge agreement. The parties to the $1,000,000 loan included, among others, the Company's former chairman, former president, a former director and a shareholder, who each provided $200,000. The other lenders were non-affiliates. The lenders received the repayment of the $1,000,000 loan, interest at 7.75% totaling $9,493 and a $300,000 commitment fee from the proceeds of the subsequent stock sales. The Company subsequently sold all these securities and recognized a gain of $1,580,000. During the fiscal year 1994, the Company realized gains from the sale of an issue of marketable equity securities of $937,365. The Company accounted for its investment in marketable equity securities under the cost method. 59 16. RELATED PARTY TRANSACTIONS: A former director of the Company is the senior managing director of a private merchant banking firm which was paid approximately $5,700 and $21,000 for investment advisory services in 1995 and 1994, respectively. In connection with the acquisition of Alliance, a finders fee totaling $100,000 was paid to the merchant banking firm in fiscal 1995, along with the former director and the other principal owner of the merchant banking firm each receiving 9,375 restricted common shares of the Company valued at $2.67 per share and warrants to purchase 6,250 common shares at $8.00 per share. On June 9, 1994, the Company borrowed $350,000 from the Company's former chief executive officer and its former president and pledged its equity interest in the Laughlin land as security for repayment of the loan. The note was due July 31, 1995 with interest at the rate of 7.25% (the Bank of America Nevada prime rate at the time of execution). The promissory note and interest of $8,695 were repaid in advance on October 4, 1994. A former director of the Company, and another person serving as secretary in 1993, were each partners in different law firms that provided legal services for which the Company recognized expenses aggregating approximately $31,000 and $11,000 in 1995 and 1994, respectively. In April 1995, the former chairman of the Company purchased property and equipment owned by the Company with a cost of $160,109 and net book value of $5,870 for a discounted appraised value of $11,000 in cash. Also see footnotes 3, 10, 11, 12, 13 and 15 for additional related party transactions. 17. NEW ACCOUNTING PROCEDURES: Adoption of the Financial and Accounting Standards Board ("FASB") Statement of Financial Accounting No. 121, "Accounting for the Impairment of Long- Lived Assets for Long-Lived Assets to be disposed of", which is effective for financial statements for fiscal years beginning after December 15, 1995, is not anticipated to have a material effect on the Company's consolidated financial statements. The FASB recently issued Statement of Financial Accounting No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which is effective for financial statements for fiscal years beginning after December 15, 1995. SFAS 123 establishes new financial accounting and reporting standards for stock-based compensation plans. Entities will be allowed to measure compensation cost for stock-based compensation under SFAS 123 or APB Opinion No. 25, "Accounting for Stock Issued to Employees". The Company elected to remain with the accounting in APB Opinion No. 25 and will be required to make pro forma disclosure of net income and earnings per share as if the provisions of SFAS 123 had been applied. The Company will implement SFAS 123 in the first quarter of Fiscal 1997. 60 18. SUBSEQUENT EVENTS: On May 30, 1996, the Company signed a letter of intent to acquire Metro Services Group, Inc. ("Metro"). Metro is a private company based in New York, New York, with offices in Michigan, Illinois and California, and has annualized sales in excess of $8 million. Metro develops and markets a variety of database direct marketing products and services through four divisions. Terms of the acquisition call for a tax-free exchange of stock and incentive option package for key employees, as well as contingent payments based on operating profits and performance. Consummation of the acquisition is subject to a number of conditions, including the negotiation of a definitive agreement and completion of financing arrangements. Accordingly, no assurance can be given that the acquisition will be consummated. Metro provides information-based products and services to the direct marketing industry through its four divisions: Metro Direct Marketing, which provides full service direct marketing programs for consumers and business to business clients, particularly in the financial services and publishing areas; MetroArts, develops and executes customer acquisition campaigns for the performing arts, entertainment and cultural institutions; MetroNon-Profit provides strategic planning, membership and direct mail fundraising campaigns for non-profit institutions; and MSGI Computer Services utilizes a combination of mainframe, PC platforms and Internet servers for database development, data enhancement, response analysis and predictive modeling to support the data processing requirements of Metro's clients. On August 16, 1996, the Company's land in Laughlin, Nevada, was sold to an independent third party, via auction, for $952,000 in cash, resulting in a gain of approximately $114,000. 61 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized. All-Comm Media Corporation -------------------------- (Registrant) By: /s/ Barry Peters ------------------------- Chairman of the Board and Chief Executive Officer Date: October 25, 1996 SCHEDULE I ALL-COMM MEDIA CORPORATION CONDENSED BALANCE SHEET June 30, 1996 and 1995
1996 1995 ---- ---- ASSETS - ------ Current assets: Cash and cash equivalents $ 976,644 $ 479,045 Other current assets 54,077 93,781 ----------- ----------- Total current assets 1,030,721 572,826 ----------- ----------- Property and equipment, at cost 29,942 26,992 Accumulated depreciation 11,641 3,175 ----------- ----------- Net property and equipment 18,301 23,817 Investments in and advances to subsidiaries 8,008,734 5,136,786 Other assets 23,595 9,355 ----------- ----------- Total assets $ 9,081,351 $ 5,742,784 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Trade accounts payable $ 259,327 $ 167,838 Accrued salaries and wages 77,025 75,366 Other accrued expenses 476,615 335,048 ----------- ----------- Total current liabilities 812,967 578,252 Other liabilities 17,490 ----------- ----------- Total liabilities 830,457 578,252 ----------- ----------- Stockholders' equity: Convertible preferred stock 82 Common stock 31,985 30,281 Additional paid-in capital 14,462,306 10,300,847 Treasury shares, at cost (135,469) (135,469) Accumulated deficit (6,108,010) (5,031,127) ----------- ----------- Total stockholders' equity 8,250,894 5,164,532 ----------- ----------- Total liabilities and stockholders' equity $ 9,081,351 $ 5,742,784 =========== ===========
63 SCHEDULE I ALL-COMM MEDIA CORPORATION CONDENSED STATEMENT OF OPERATIONS Years Ended June 30, 1996 and 1995
1996 1995 ---- ---- Income: Gains from sales of securities $1,579,539 Equity in earnings (losses) of subsidiaries $ 499,033 (18,320) ----------- ---------- Total 499,033 1,561,219 ----------- ---------- Costs and expenses: General and administrative 1,455,537 1,386,471 Depreciation and amortization 57,811 12,399 ----------- ---------- Total 1,513,348 1,398,870 ----------- ---------- Income (loss) from operations (1,014,315) 162,349 ----------- ---------- Other income (expense): Loan commitment fee (300,000) Interest income 10,081 15,446 Interest expense (72,649) (8,972) Other 318 ----------- ---------- Subtotal (62,568) (293,208) ----------- ---------- Loss from continuing operations before discontinued operations (1,076,883) (130,859) Loss from discontinued operations: Gain on sale of discontinued operations 322,387 Loss from discontinued operations (81,131) ----------- ---------- Net income (loss) $(1,076,833) $ 110,397 =========== ==========
64 SCHEDULE I ALL-COMM MEDIA CORPORATION CONDENSED STATEMENT OF CASH FLOWS Years Ended June 30, 1996 and 1995
1996 1995 ---- ---- Operating activities: Net cash flows used by operating activities $(1,108,968) $(2,485,237) ----------- ----------- Investing activities: Proceeds from sales of investments in securities 2,682,811 Purchase of investment in securities (1,063,272) Proceeds from sale of STI 800,000 Acquisition of Alliance Media Corporation (308,181) Investments in and advances to subsidiaries (2,346,665) (36,048) Purchase of property and equipment (2,950) 19,613 ----------- ----------- Net cash provided (used) by investing activities (2,349,615) 2,094,923 ----------- ----------- Financing activities: Proceeds from issuances of common stock 120,000 1,226,593 Proceeds from issuances of preferred stock 4,570,682 Repurchase of preferred stock (812,500) Proceeds from land option 150,000 Proceeds from note payable other 1,000,000 Repayments of note payable other (72,000) (1,422,000) ----------- ----------- Net cash provided by financing activities 3,956,182 804,593 ----------- ----------- Net increase in cash and cash equivalents 497,599 414,279 Cash and cash equivalents at beginning of year 479,045 64,766 ----------- ----------- Cash and cash equivalents at end of year $ 976,644 $ 479,045 =========== ===========
65 EX-3.(V) 2 CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORP. EXHIBIT 3.(v) CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION (After Issuance of Stock) ALL-COMM MEDIA CORPORATION The undersigned, E. William Savage, President and Secretary of ALL-COMM MEDIA CORPORATION, a Nevada corporation (the "Company"), does hereby certify that as of the date hereof: That the Board of Directors of said corporation, at a meeting duly convened, held on the 6/th/ day of June, 1996, adopted a resolution to amend the articles as follows: The first paragraph of Article VI is amended to read: "The total number of shares of all classes of capital stock which the Corporation shall have the authority to issue is 36,300,000 shares which shall be divided into two classes as follows: (i) 50,000 shares of Preferred Stock of the par value $.01 per share, and (ii) 36,250,000 shares of Common Stock of the par value of $.01 per share." That at a Special Meeting of Stockholders held on August 14, 1996, the stockholders voted either in person or by proxy, to adopt the amendment of Article VI as set forth and recommended by the Board of Directors. The amendment change to Article VI was adopted by 2,276,607 shares voting in favor, 99,424 opposed and 2,419 abstentions. The remainder were non-votes. The number of shares of the Corporation outstanding and entitled to vote at the Special Meeting on an amendment to the Articles of Incorporation was 3,186,734. IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment as of August 15, 1996. By: /s/ E. William Savage ---------------------- E. William Savage President and Secretary State of California } ss. County of Los Angeles On August 15, 1996 personally appeared before me, a Notary Public, E. William Savage, President and Secretary of All-Comm Media Corporation, who acknowledged that he executed the above instrument. /s/ James G. King ------------------ Signature of Notary 1 EX-10.10 3 SAMPLE CONVERTIBLE NOTES Exhibit 10.10 September 10, 1996 Dear Subscriber: We refer to the Private Placement Purchase Agreement between you and the Company dated June 7, 1996 ( the "Prior Agreement"). The Prior Agreement is hereby rescinded, as if it had never been signed. You will promptly deliver to the Company, for cancellation, all instruments which were delivered to you under the Prior Agreement. Concurrently herewith, the Company and you are entering into a Private Placement Purchase Agreement dated of this date and effective as of June 7, 1996 (the "New Agreement"). Amounts paid by you to the Company under the Prior Agreement are deemed to have been returned to you by the Company and to have been immediately reinvested by you as the full purchase price for securities purchased by you under the New Agreement. Please confirm your agreement with the foregoing by signing and returning the enclosed copy of this letter. ALL-COMM MEDIA CORPORATION By: /s/ E. William Savage --------------------- E. William Savage President Agreed: /s/ Subscriber - ----------------------- By: EX-10.11 4 SAMPLE SERIES C CONVERTIBLE PREF. STOCK SUB. AGMT. Exhibit 10.11 PRIVATE PLACEMENT PURCHASE AGREEMENT September 10, 1996, but effective as of June 7, 1996 All-Comm Media Corporation 400 Corporate Pointe Suite 780 Culver City, California, 90230-7615 Gentlemen; 1. At a closing to occur at the offices of your company (the "Company") simultaneously herewith, the undersigned ("Subscriber") will for $50,000 per Unit (as defined below) purchase from you, and you will sell, the number of Units set forth below opposite Subscriber's name below. Such purchase by Subscriber is part of an offering in which an aggregate of 20 Units will be sold simultaneously with such sale to Subscriber. Each Unit consists of 100 shares of Series C Convertible Preferred Stock having a redemption value of $500 per share (the "Preferred") and warrants to purchase 150,000 shares of common stock of the Company (the "Warrants"). 2. The Certificate of Designation for the Preferred shall be in the form of Exhibit A. The Preferred shall at the option of the holder be convertible at any time into common stock at $6.00 per share. If not theretofore converted, the Preferred shall automatically be deemed converted into common stock at such price on June 7, 1998. However, the Preferred shall not be redeemed under the preceding sentence, but shall instead be redeemed at redemption value, together with dividends accruing thereon at 8% per annum, on June 7, 1998 if the Company's common stock is not then trading on NASDAQ (or another U.S. securities exchange approved by the Securities and Exchange Commission where the common stock may then be listed) or if the registration statement referred to below has not theretofore been declared effective. The Preferred shall also be entitled to priority over the common stock in liquidation. 3. The Warrants shall be in the form of Exhibit B. The Warrants shall be exercisable at $3.00 per share and shall expire on the third anniversary of the date on which they are first exercisable or, if earlier, on the first (1st) date on which both (a) and (b) shall be true, namely (a) the registration statement referred to below shall be in effect and shall have been effective for not less than the ninety consecutive days immediately preceding such date and (b) the closing price per share of the Company's common stock on NASDAQ (or such other securities exchange where the common stock may then be listed) shall not be less than $8.00 per share and shall have been not less than $8.00 per share during the twenty consecutive trading days immediately preceding such date. For example, assume that the closing price per share shall have been $9.00 per share through October 1, 1996, that the closing price per share shall have been $7.00 per share through March 1, 1997, and that the closing price per share shall have been $8.00 per share for 20 consecutive trading days thereafter. Assume further that the Registration Statement shall have been in effect at all times from July 1, 1996. The expiration date of the Warrants shall be the close of business on the 20th trading day after March 1, 1997. All dates set forth in this paragraph shall be extended by one day for each day after December 31, 1996 on which the registration statement referred to in Section 3 is not in effect with respect to the shares purchasable under the Warrants. 3a. The Company will on or before October 7, 1996 file a registration statement on Form S-3 or Form S-l (the "Registration Statement") for the public sale by the holders of the shares which are issuable on conversion of the Preferred or upon exercise of the Warrants. The Company shall use its best efforts to cause the Registration Statement to become effective not later than 90 days after the date of filing, and to remain effective for two years with respect to Common Stock issued upon conversion of Preferred Stock and three years with respect to Common Stock issued upon exercise of Warrants. The registration shall be accompanied by blue sky clearances in such states as the holders may reasonably request. The Company shall pay all expenses of the registration hereunder, other than the holders' underwriting discounts. Registration rights may be assigned to assignees of the Preferred, the Warrants or the underlying stock. 4. (a) Subscriber represents and warrants that it is purchasing the Units solely for investment solely for its own account and not with a view to or for the resale or distribution thereof. (b) Subscriber understands that it may sell or otherwise transfer the Units, the Preferred, the Warrants or the shares of Common Stock issuable on conversion or exercise of the Preferred or the Warrants only if such transaction is duly registered under the Securities Act of 1933, as amended, under the Registration Statement or otherwise, or if Subscriber shall have received the favorable opinion of counsel to the holder, which opinion shall be reasonably satisfactory to counsel to the Company, to the effect that such sale or other transfer may be made in the absence of registration under the Securities Act of 1933, as amended, and registration or qualification in every applicable state. The certificates representing the aforesaid securities will be legended to reflect these restrictions, and stop transfer instructions will apply. Subscriber realizes that the Units are not a liquid investment. 5. (a) Subscriber has not relied upon the advice of a "Purchaser Representative" (as defined in Regulation D of the Securities Act) in evaluating the risks and merits of this investment. Subscriber has the knowledge and experience to evaluate the Company and the risks and merits relating thereto. (b) Subscriber represents and warrants that Subscriber is an "accredited investor" as such term is defined in Rule 501 of Regulation D promulgated pursuant to the Securities Act of 1933, as amended, and shall be such on the date any shares are issued to the holder; Subscriber acknowledges that Subscriber is able to bear the economic risk of losing Subscriber's entire investment in the shares and understands that an investment in the Company involves substantial risks; Subscriber has the power and authority to enter into this agreement, and the execution and delivery of, and performance under this agreement shall not conflict with any rule, regulation, judgment or agreement applicable to the Subscriber; and Subscriber has invested in previous transactions involving restricted securities. 6. This Agreement may not be changed or terminated except by written agreement. It shall be binding on the parties and on their personal representatives and permitted assigns. It sets forth all agreements of the parties. It shall be enforceable by decrees of specific performance (without posting bond or other security) as well as by other available remedies. Subscriber: ALL-COMM MEDIA CORPORATION /s/ Subscriber By: /s/ Barry Peters - -------------------------- -------------------------- Barry Peters Title: Chairman and CEO Number of Units: Units ------------ EX-11 5 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS Exhibit 11 STATEMENT REGARDING COMPUTATION OF NET INCOME (LOSS) PER SHARE
Fiscal Year ----------- 1996 1995 1994 ------------------------------------------ Net income per share was calculated as follows: Income (loss) from continuing operations before discontinued operations $(1,076,883) $ (130,859) $ 86,807 Income (loss) from discontinued operations $ 241,256 $(2,896,694) Net income (loss) $(1,076,883) $ 110,397 $(2,809,887) Accrued dividends on preferred stock $ (17,490) Net income (loss) attributable to common stockholders $(1,094,373) $ 110,397 $(2,809,887) Primary: Weighted average common shares outstanding 3,068,278 1,804,827 1,334,034 Incremental shares under stock options and warrants computed under the treasury stock method using the average market price of the issuer's common stock during the periods 280,758 2,713 134,713 Incremental shares under convertible preferred stock 220,556 Weighted average common and common equivalent shares outstanding 3,068,278 1,807,540 1,468,747 Income (loss) per common share from continuing operations $ (.36) $ (.07) $ .06 Income (loss) per common share from discontinued operations $ .13 $ (1.97) Net income (loss) per common share $ (.36) $ .06 $ (1.91) Fully diluted: Weighted average common shares outstanding 3,068,278 1,804,827 1,334,034 Incremental shares under stock options and warrants computed under the treasury stock method using the market price of the issuer's common stock at the end of the periods if higher than the average market price 420,652 13,565 134,713 Incremental shares under convertible preferred stock 220,556 Weighted average common and common equivalent shares outstanding 3,068,278 1,818,392 1,468,747 Income (loss) per common share from continuing operations $ (.36) $ (.07) $ .06 Income (loss) per common share from discontinued operations $ .13 $ (1.97) Net income (loss) per common share $ (.36) $ .06 $ (1.91)
EX-22.1 6 LIST OF COMPANY'S SUBSIDIARIES Exhibit 22.1 SUBSIDIARIES OF SPORTS-TECH, INC. All-Comm Acquisition Corporation (100%) All-Comm Holdings, Inc. (100%) Alliance Media Corporation (100%) Stephen Dunn & Associates, Inc. (100%) EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF ALL-COMM MEDIA CORPORATION AS OF AND FOR THE YEAR ENDED JUNE 30, 1996 INCLUDED IN THIS REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. U.S. DOLLARS YEAR JUN-30-1996 JUL-01-1995 JUN-30-1996 1 1,393,044 0 2,716,654 (34,906) 0 5,103,915 472,378 (173,333) 13,301,066 3,453,190 1,596,982 0 82 31,985 8,250,894 13,301,066 15,889,210 15,889,210 10,882,437 10,882,437 0 0 487,638 (935,799) 141,084 (1,076,883) 0 0 0 (1,076,883) (.36) (.36)
-----END PRIVACY-ENHANCED MESSAGE-----