SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
Securities and Exchange Commission File Number O-28416
FORM 10-SB/B
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
PURSUANT TO SECTIONS 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
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SBI COMMUNICATIONS, INC.
(NAME OF SMALL BUSINESS ISSUER SPECIFIED IN ITS CHARTER)
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DELAWARE 58-1700840
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
POST OFFICE BOX 597 (205) 447-8797
458 HIGHWAY 278 BY PASS ISSUER'S TELEPHONE NUMBER
PIEDMONT, ALABAMA 36272
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
=========================================================================
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE REGISTERED. EACH CLASS IS TO BE REGISTERED.
NONE NONE
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
COMMON STOCK
PREFERRED STOCK
(TITLE OF CLASS)
=========================================================================
DATED JANUARY 8, 1997
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THIS SECOND AMENDMENT TO REGISTRATION STATEMENT NUMBER O-28416, DATED
JANUARY 8, 1997, INCLUDING EXHIBITS, CONSISTS OF 100 SEQUENTIALLY NUMBERED
PAGES. THE EXHIBIT INDEX IS LOCATED ON SEQUENTIALLY NUMBERED PAGE 97.
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TABLE OF CONTENTS
ITEM PAGE
NUMBER NUMBER ITEM CAPTION
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PART I
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Item 1. 3 Description of Business
Item 2. 40 Management's Discussion and Analysis or Plan of Operation
Item 3. 45 Description of Property
Item 4. 45 Security Ownership of Certain Beneficial Owners and Management
Item 5. 47 Directors, Executive Officers, Promoters and Control Persons
Item 6. 50 Executive Compensation
Item 7. 52 Certain Relationships and Related Transactions
Item 8 57 Description of Securities
PART II
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Item 1 59 Market Price of and Dividends on the Registrant's Common
Equity and Other Shareholder Matters
Item 2. 63 Legal Proceedings.
Item 3. 63 Not Applicable.
Item 4. 64 Recent Sales of Unregistered Securities
Item 5. 64 Indemnification of Officers & Directors
PART FS 65 Financial Statements
96 Summary Financial Data
PART III
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Item 1. 96 Index to Exhibits
Item 2. 97 Description of Exhibits
100 Signatures
FORM 10-SB DATED JANUARY 8, 1997, PAGE 2
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ITEM I. DESCRIPTION OF BUSINESS
GENERAL
SBI Communications, Inc., a publicly held Delaware corporation (the
"Registrant"), was originally organized in the State of Utah on September 23,
1983, under the corporate name Alpine Survival Products, Inc. Its name was
changed to Justin Land and Development, Inc., during October of 1984, and to
Supermin, Inc., on November 20, 1985.
The Registrant was originally formed to engage in the acquisition of
any speculative investment or business opportunity without restriction as to
type or classification. On September 29, 1986, Supermin, Inc., concluded a
reorganization under Section 368(a)(1)(B) of the Internal Revenue Code of 1954,
as amended, pursuant to which it exchanged 200,000 shares of its common stock,
$.001 par value (all shares numbers used in this registration statement are,
unless otherwise stated, adjusted to reflect a one for 20 reverse stock split)
for all of the capital stock of Satellite Bingo, Inc., a Georgia corporation
organized on January 10, 1986, and the originator of the Registrant's current
business (the "SBI Subsidiary"). In conjunction with such reorganization, the
former stockholders of the SBI Subsidiary, acquired control of the Registrant
and the Registrant changed its name to Satellite Bingo, Inc.
On March 10, 1988, the Registrant changed its name to SBI
Communications, Inc., its current name, and on January 28, 1993, the Registrant
reincorporated into Delaware through a statutory merger with a wholly owned
Delaware subsidiary in reliance on the exemption from registration requirements
of Section 5 of the Securities Act of 1933, as amended, provided by Rule
145(a)(2) promulgated thereunder.
The Registrant has two subsidiaries, SBI Communications, Inc., an
Alabama corporation; and, Satellite Bingo, Inc., a Georgia corporation. As used
in this registration statement, unless the context requires otherwise, the term
"Registrant" includes SBI Communications, Inc., a publicly held Delaware
corporation, and, its subsidiaries, predecessors and affiliates whose operations
or assets have been taken over by SBI Communications, Inc., a publicly held
Delaware corporation.
CURRENT OPERATIONS
The Registrant manages an 80,000 square foot, hi-tech Bingo facility in
Piedmont, Alabama for various charities. Such facility provides the Registrant
with the ability to transmit its games and other entertainment programs to
broadcast, on cable and satellite stations. Currently, rents and administrative
fees charged to charities are unsecured and generally are paid only as revenues
from the Bingo games produce sufficient profit to allow the charities to make
payments. Rents receivable at September 30, 1996, $463,038, are concentated in
that they are payable by only two charities. Management has estimated the amount
of such receivables that are collectible based upon its knowledge of the
financial condition of the charities and the history of the profitability of the
Bingo games; however, it is possible that management's estimate of the amount of
such receivables collectible could change in the near future based on actual
payment history.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 3
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Should local, state, federal or foreign laws regulating Bingo change,
such changes could have a material impact on the ability of the Registrant to
generate future revenues. One recent change involved a decision by the United
States Supreme Court declaring a federal statute that limited state control over
operations located on Native American reservations unconstitutional. Such
decision is not expected to impact any of the Registrant's current operations.
The Registrant is headquartered in Piedmont, Alabama at 458 Highway 278
Bypass, Piedmont, Alabama 36272. The Registrant's phone number is (205)
447-8797. The Registrant employs approximately 12 persons.
OTHER PROPOSED OPERATIONS
The Registrant has experience in the interactive communications and
entertainment fields which brings together elements of the "information
superhighway." It has created and broadcast interactive national television
programs using state-of-the-art computer technology, proprietary software
programs, satellite communications, and advanced telecommunications systems.
The Registrant's management believes that its experience in developing
and delivering interactive television programs, as well as its ownership of
proprietary systems and software, provide an advantage in its ability to launch
new entertainment and information programs based on comparable resources.
As a result of its experience in production and broadcasting gaming
programs, the Registrant has developed a substantial amount of technical, legal
and operational information. Currently, the Registrant is exploring a
partnership with the Louisiana Charitable Organization Agreement alliance
(LACOA), and the development of a senior citizens television network. Such
ventures would involve development of television programs featuring interactive
Bingo shows, auctions and direct sales. The LACOA project would require passage
of legislation presented by the Honorable Clenix Esensauter of Louisiana.
Additional areas in the planning stage include the establishment of a Casino and
Bingo Hall on real estate provided by Chereokee Indians of Georgia, Inc.,
(subject to State approval); and, acquisition of Zacker's (Horizon) Gas of
Tampa, Florida, a retail propane gas company with $3,000,000 in annual sales.
Although retail gas and propane operations have nothing in common with the
Registrant's current business, the opportunity was presented to the Registrant's
president and in compliance with the legal corporate opportunities doctrine, he
presented it to the Registrant. The Registrant decided to avail itself of such
opportunity because of the propane industry experience of two members of its
board of Directors and because of the economic potential involved in a business
with a $7,000,000 asset base and annual sales of $3,000,000. If acquired,
Zacker's (Horizon) Gas of Tampa, Florida will be independently operated by its
current management, as a subsidiary of the Registrant.
In light of the preliminary and conditional nature of negotiations, no
assurances of any kind can be provided as to the likelihood that such proposed
projects will come to fruition.. The Registrant has been active in the
interactive television programming business for over ten years. Its
FORM 10-SB DATED JANUARY 8, 1997, PAGE 4
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core business has been a live Bingo game produced and broadcast via satellite to
Bingo halls and homes across the United States.
1. GLOBALOT BINGO
INTRODUCTION
Globalot Bingo and Satellite Bingo are proprietary interactive Bingo
games which were broadcast by the Registrant in the past via satellite to
participating cable and television stations. The Registrant plans to resume
expanded broadcasts in the near future, when it repairs required telephone
switching equipment.
The use of telephones for game card distribution makes it possible for
home viewers to also participate in the Registrant's broadcast programs. The
Globalot Bingo program was designed to provide larger jackpots than
participating operations could individually pay, permitting participating cable
and broadcast stations to attract larger viewing audiences, increase profits and
attract commercial sponsors.
A broadcast took place on June 15, 1996; however, subsequent
broadcasts have been delayed by a problem with the Registrant's telephone
switching equipment, which should be resolved in the near future. Future plans
include expanding the game to other week nights. The game was broadcast over
PandaAmerica Network in the past and daily broadcasts are expected to resume
during the second quarter of 1997, after the Registrant repairs its switching
equipment and makes alternative broadcast arrangements (required due to
PandaAmerica's inability or unwillingness to make timely payments to the
Registrant for past broadcasts).
The Registrant intends to broadcast a Million Dollar Globalot game each
Saturday evening at 11:00 p.m. (eastern time).
OPERATION
In order to play the game each player must be playing a different card
or cards. Globalot Bingo has developed a "Super Jackpot Bingo" computer program
that can generate a series of one billion individual cards without duplication.
Each card is unique and all cards are serially numbered to preclude anyone from
submitting a fraudulent cards and/or counterfeiting.
Globalot Bingo cards may be obtained by telephone until a specified
time. At that point the Registrant provides the serial number of cards obtained
for that night's game to its central processing office.
In order to encourage participation and to develop a broad playing
audience, Globalot Bingo developed a special Million Dollar Globalot game,
designed to air each Saturday evening at 11:00 p.m. (eastern time). A broadcast
took place on June 15, 1996; however, subsequent broadcasts have been delayed by
a problem with the Registrant's telephone switching equipment, which should be
resolved in the near future.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 5
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When broadcasts resume, the game will pay the first person who attains
Bingo each broadcast night an advertised cash prize. The prizes will involve a
chance to win $1,000,000 by being the first participant to cover the correct 8
numbers in 16 calls (the term call referring to the first 16 numbers selected in
the game) or less (the "Quick Pick 8" game) or, guaranteed second prizes of
$25,000. If there is no winner in the $1,000,000 game, the Registrant will pay
the first person to cover the shaded area or complete the Quick Pick 8 game
$5,000. In addition to the Quick Pick 8 game, the Registrant will award a
$20,000.00 dollar grand prize to the first person covering an entire card. Cards
obtained to play the Registrant's 24 hour program will be good for the entire
week, including the Saturday Million Dollar Globalot game.
As additional players participate, the Registrant plans to increase the
grand prize to $50,000.
When the televised game begins, each number being called on the
televised show is also recorded by the master computer. The computer system, by
monitoring all of the cards in play, is able to determine when a Bingo has
occurred and provide the location of the winning card holder. The viewing
audience is immediately shown the image of the winning card.
All games are called at the rate of approximately one Bingo number
every 12-15 seconds in order to allow players to play multiple cards. If it is
determined that, based on the cards in play, the call is too fast or too slow,
an adjustment is made.
The national winner will be called during the broadcast by the
program's host, or, may call the Globalot Bingo 800 number shown on the program.
Upon contact, the winner will provide the Registrant's staff with his or her
serial number and other necessary identification, including name and address.
The winner is then instructed on how to claim the prize.
If for reasons beyond the control of Globalot Bingo the regular
telecast and game cannot be broadcast, all prize moneys announced for that week
will be added to the jackpot for the next succeeding game.
TECHNOLOGY
The Registrant will use proprietary technologies that enable viewers at
home to participate in Bingo games televised live in specific English speaking
Hispanic markets in the US and Worldwide (local laws permitting).
Globalot Bingo has a special telephone number, 800-729-BINGO (2464),
which is an access code to gain entry into long distance network. Upon dialing
the number a caller hears a 45 second message disclosing who the caller has
reached, providing information about Globalot Bingo, the caller's options and
how to receive Globalot Bingo playing cards by telephone (including the cost and
method of billing). A caller must have a prepaid calling card in order to obtain
free Globalot Bingo playing cards via the phone, which must be purchased from
the Registrant. The prepaid calling card also permits the purchaser to make long
distance telephone calls at savings of up to 70% from regular long distance
rates and will provide access to other services which the Registrant plans to
make available in the future.
In the event the caller, (who must be 18 or over), wishes to proceed
after the 45 second
FORM 10SB DATED JANUARY 8, 1997, PAGE 6
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announcement he or she must activate the system. Upon activation by the caller,
the call is automatically switched to the Globalot Bingo card distribution
center, and charges for the call begin. The time necessary to receive three
Globalot Bingo playing cards by telephone is eight minutes and the caller is
charged $9.60 or $1.20 per minute. The charge for the call is deducted from the
caller's prepaid calling card. The prepaid calling card may be obtained from the
tele-communications switch via credit cards or by sending in payment to the
Registrant.
Interactive players will also be able to obtain a strip of three cards
free of any charge by sending a stamped, self addressed envelope to the
Registrant.
The Registrant has established a winners hot-line that will allow card
holders to obtain information concerning winning cards. This will allow players
to play and win even if they didn't have an opportunity to see the show. This
number is 800-684-8493.
The Registrant also has the ability to receive long distance calls from
65 countries for Globalot Bingo playing cards, provided in the same manner as
domestic callers except that service is provided in the predominant language
used in the originating country. The cost for such calls will differ depending
on the country of origin. The Registrant receives a portion of each call paid,
payment being different in each originating country. International callers can
obtain play information over the internet.
The Registrant's software and communications technology eliminates the
need and minimizes the expense related to the printing and distribution of Bingo
cards by permitting viewers to receive up to four "cards" (numbers) by phone;
and, allows its telephone switching network to handle thousands of calls
simultaneously, permitting optimum viewer participation in each game. The use of
these technologies also eliminates the need for live operators.
The Registrant's production offices and computer center are located at
1332 South Glendale Avenue, Glendale, California 91205. Its phone number is
1-800-460-2170. Each strip of three cards gives the holder nine chances to win
the Super Jackpot Prize.
REGISTRANT'S INCOME
The Registrant's income will be based on the difference between the
telephone charges paid by players and the negotiated cost charged to by the
participating long distance company. The long distance charges will appear on
each caller's prepaid calling card, eliminating collection functions. Since no
live operators are employed in recording and processing the calls and awards,
the only expenses are related to the prizes offered, production and telecast of
the Bingo game and administrative costs.
2. PROJECTS UNDER DEVELOPMENT
The Registrant is currently negotiating with Telemundo for production
of Spanish language Bingo games to be telecast to Hispanic markets in the United
States and in Latin American markets. It is also investigating the feasibility
of pay-per-view broadcast of Bingo games to the cable television market and of a
regular Bingo game broadcast to the United States.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 7
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BACKGROUND
SATELLITE BINGO
The Registrant's initial satellite Bingo concept was to broadcast Bingo
games periodically from a satellite re-transmission facility, thereby making the
game available to viewers through the United States. The targeted viewing
audience was comprised of homes with satellite dish receivers or access to cable
facilities, and, direct broadcast recipients (I.E., Bingo halls). Each program
was to be broadcast live and viewers were to be provided the opportunity to win
valuable prizes by playing the game.
PIONEER GAMES OF AMERICA
The Registrant's first satellite Bingo broadcast, ("Pioneer Games of
America") took place in 1985, from facilities in Tallahassee, Florida. The
program was broadcast live once a week from WCTV Channel 6, Tallahassee's CBS
affiliate station. At the time, the Registrant had agreements with 20 cable
networks which allowed the program to be delivered via cable to homes across the
United States. The program was also directly broadcast from WCTV to homes in the
Tallahassee area. In addition, homes with satellite dish receivers were capable
of picking up the program.
Bingo game cards were distributed to the public free of charge through
Piggly Wiggly grocery stores approximately 2 to 3 weeks prior to the game. The
Registrant would print the cards, color code them each week to mark the start of
a new game series, and distribute them to stores throughout the Southeast. The
cards featured a Bingo scorecard on one side and a discount coupon for select
store merchandise was featured on the other side.
Distributing Bingo game cards to grocery stores provided the Registrant
with a low-cost way to reach a mass market and gave Piggly Wiggly stores an
attractive promotion from which to build foot traffic in its stores. Shoppers
could pick up the free Bingo cards in the stores or write to an address provided
during games to receive free Bingo cards by mail.
The Registrant generated revenues by selling advertising to sponsors
such as Proctor & Gamble, who would advertise their products during the
broadcast and subsidize the product discount coupons which appeared on the backs
of the Bingo cards. The Registrant also received revenues through syndication
fees from independent television stations and cable systems, as well as through
the sale of Bingo cards to sponsors like Piggly Wiggly, who distributed the
cards in their grocery stores. Prizes consisted of cash awards of up to $40,000.
The broadcast was held once a week for approximately 13 weeks. Each
broadcast featured a live game program host who drew numbers and announced the
winners. The popularity of the game was enormous. At one point, the Registrant
was printing and distributing 7,500,000 cards per week. Eventually, the cost of
producing and distributing the cards at the negotiated prices exceeded the
Registrant's ability to make a profit, and the broadcasts ended in 1987.
2. SATELLITE BINGO PRODUCTIONS
FORM 10-SB DATED JANUARY 8, 1997, PAGE 8
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In September of 1987, the Registrant formed a joint venture called
"Satellite Bingo Productions" for the purpose of producing and distributing a
live satellite Bingo program once a week from a television studio in Glendale,
California. Agreements with cable systems and television stations enabled the
Registrant to broadcast the "Bingo Game Show" to larger metropolitan markets,
such as Las Vegas and Detroit. To attract attention and generate excitement for
the games, the Registrant secured national entertainers and celebrities such as
Marty Allen, Jo Ann Worley and Don Sutton to appear on the broadcasts.
As it had done in Tallahassee, the Registrant delivered Bingo cards to
grocery stores in 32 cities throughout the United States. Again, due to the
popularity of the game, the Registrant eventually became overwhelmed with
requests for Bingo game cards. Cards were distributed below cost which
eventually eroded the Registrant's profit. Consequently, the Registrant
discontinued the broadcast in 1988.
3. SPANISH SATELLITE BINGO
In 1988 the Registrant began Spanish language broadcasts from Los
Angeles, California, through KMEX Channel 34 to the Los Angeles Hispanic market.
The broadcasts were produced at Glendale, California.
Sponsors of the broadcast included the Coca-Cola Company and individual
Seven-Eleven stores. In addition to Los Angeles, the program was broadcast to
markets in Central and South America. As with the Registrant's previous
satellite Bingo games, cash prizes of up to $25,000 were awarded and
participants could pick up Bingo cards at participating Seven-Eleven stores.
The game ran for approximately 13 weeks and, as with the other Bingo
broadcasts, was terminated due to increased production costs.
4. TECHNICAL IMPROVEMENTS
In the years following its last Satellite Bingo broadcast, the
Registrant continued to develop and produce on-going Bingo programs held at
Bingo parlors located on Native American reservations. The Registrant also
continued to make substantial investments in the development of proprietary
software. This software was responsible for generating combinations of Bingo
card numbers which ensured that no two Bingo cards were alike.
When the Registrant began broadcasting Satellite Bingo in 1985, it was
capable of producing only 27,000 different combinations of Bingo cards. Over the
years, enhancements to the program enabled the Registrant to increase its Bingo
card combinations to more than 100 million.
In 1990, the Registrant developed a highly-sophisticated copyrighted
software program called the "One Billion Series for Bingo Lottery." This
software enabled a computer to generate up to one billion uniquely different
cards which were coded for play in a specific game through a series of assigned
serial numbers. These serial numbers permitted the Registrant to easily track
Bingo cards that it had printed and sold or otherwise distributed.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 9
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The software placed in play only those cards which had been sold or
distributed for a specific game, guaranteeing that each game would produce an
identifiable group of winners, something the previous software was incapable of
doing.
Another major advantage of the software was that it was possible to tie
it into an automated telecommunications system, which allowed the Registrant for
the first time to distribute Bingo cards "over the telephone." Participants
could call in and follow a series of automated voice commands to obtain the
numbers for their free Bingo cards by telephone. The caller would simply write
down the Bingo card numbers given by telephone on a blank sheet of paper,
creating his own personalized Bingo card.
Because his information was captured on a computerized database, the
Registrant could charge the participant for the call by arranging for the calls
to appear on the participant's regular telephone bill.
5. TEST MARKETING
The Registrant began implementing its new software system in 1991. To
eliminate some of the obvious drawbacks of distributing Bingo cards on a weekly
basis to a wide geographic area, the Registrant limited its distribution of
Bingo cards to select military bases, charity Bingo halls and Indian
reservations, which were already conducting their own weekly Bingo games and
could distribute the satellite Bingo cards to their local participants. During
the test marketing period, the Registrant provided Bingo cards to the
participating game operators free of charge. The Registrant began charging for
the cards once the test period was over.
Satellite receivers were placed at participating Bingo halls. The
receiver enabled operators to down-link the satellite Bingo broadcast to their
Bingo audiences, who could play along on the satellite Bingo cards previously
obtained from the hall. The Registrant's satellite Bingo games offered local
Bingo players the chance to win larger cash prizes (during the test years 1991
and 1992, the Registrant gave away more than $120,000 in cash and prizes).
The Registrant designed its satellite Bingo game with a view towards
offering participating game operators with considerably larger jackpots than
they could individually afford or legally pay in many jurisdictions. The
Registrant's management believed that, because of the larger potential prizes,
participating Bingo parlors and charity game operators would be able to attract
larger numbers of players, resulting in increased income.
In addition to the local play, the Registrant also began testing its
"interactive" concept, whereby viewers at home (who were able to receive the
satellite Bingo broadcast over their own satellite receiver dishes) could call a
televised toll-free number, receive a set of Bingo card numbers over the
telephone or by mail, and then, during a subsequent broadcast, play the game
along at home.
Satellite Bingo's popularity among local Bingo players, home viewers
and game hall operators during the test stage led the Registrant to officially
air the first "Globalot Bingo" program in November, 1993.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 10
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6. GLOBALOT BINGO
The Registrant produced and broadcast its first satellite Bingo program
under the trade name "Globalot Bingo" on November 13, 1993, live from a charity
Bingo hall located in Piedmont, Alabama. Globalot Bingo was broadcast each
Saturday evening from 9:30 p.m. to 10:30 (Eastern Standard Time).
Under the Globalot Bingo program, the Registrant paid an advertised
cash prize to the first person who successfully completed one of its
specially-generated, copyrighted Bingo game cards. The prizes were awarded
following each weekly broadcast and started at $20,000 for the grand prize
winner and $5,000 for the second prize winners.
Over time, the Registrant developed a larger prize potential for a
grand prize winner. A special "Quick Pick 8" Bingo played during the broadcast
involved a potential $1,000,000 cash prize. Prize payments were bonded through
major insurance carriers licensed in states where the prizes were paid.
In addition to home viewers and local players at the Piedmont Bingo
hall, other Bingo halls located at military bases and Indian reservations
offered Globalot Bingo to their local players by agreeing to sell Bingo game
cards and paying the Registrant for their participation.
HOW GLOBALOT BINGO WORKED
Like the Registrant's previous Bingo broadcasts, Globalot Bingo was
based on the popular game where contestants filled in a Bingo card by playing
"Quick Pick 8" or a "coverall" games. All games were called at a rate of
approximately one Bingo number every 12 to 15 seconds in order to allow
participants to play multiple cards. Most could comfortably play up to five
cards at a time. The Registrant initially sold Globalot Bingo cards to licensees
for $5.00 for a strip of three Bingo cards. The Registrant also offered game
cards at $10.00 for a strip of three to home viewers.
Home viewers who watched the program and wanted to play could call a
special toll-free number in Toronto, Canada (now Denver, Colorado), and register
the cards with a designated licensed Bingo hall (like the Piedmont, Alabama
hall). They would receive their Bingo card numbers by telephone for the next
Globalot Bingo program. Although there was no charge for the cards, the caller
was billed approximately $10 for the long distance telephone call through the
local telephone service provider. The length of the call determined the number
of cards the caller could obtain.
As with the sale of printed Globalot cards, the Registrant established
a termination deadline prior to the start of the game to allow its computer
sufficient time to process caller information. When the televised Globalot Bingo
game began, each number called on the television program was recorded by the
master computer. The computer system monitored all the cards in play and was
able to determine when a win occurred. It then identified the licensee that sold
the winning card.
The viewing audience was informed which card won the Globalot game and
actually saw an image of the card on the television screen. The grand prize
winner would then call the Globalot 800 number and provide the Registrant with
the serial number and other necessary identification. The
FORM 10-SB DATED JANUARY 8, 1997, PAGE 11
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winner was then provided with instructions on how to claim the prize. Prizes
were paid through the designated licensed local Bingo hall at which the cards
were registered; however, the local Bingo hall had no responsibility for the
national prizes or their payment. After verification of the grand prize winner,
additional numbers were called for second prize (or prizes), which were awarded
by the Registrant.
The Registrant's sophisticated computer system acted as both a security
system and a generator of Bingo card members. The computer could verify the
winning card through the serial number and, as part of its memory, the computer
knew when there was a winner as soon as the number was called.
The Registrant successfully broadcasted its Globalot Bingo program from
Piedmont, Alabama from November 13, 1993 until March 27, 1994, when a tornado
damaged the Piedmont Bingo hall (now repaired and purchased by the Registrant).
PRINCIPAL PRODUCTS OR SERVICES AND THEIR MARKETS
The Registrant manages an 80,000 square foot, hi-tech Bingo facility in
Piedmont, Alabama for various charities. Such facility provides the Registrant
with the ability to transmit its games and other entertainment programs to
broadcast, on cable and satellite stations. Currently, rents and administrative
fees charged to charities are unsecured and generally are paid only as revenues
from the Bingo games produce sufficient profit to allow the charities to make
payments. Rents receivable at September 30, 1996, $463,038, are concentrated in
that they are payable by only two charities. Management has estimated the amount
of such receivables that are collectible based upon its knowledge of the
financial condition of the charities and the history of the profitability of the
Bingo games; however, it is possible that management's estimate of the amount of
such receivables collectible could change in the near future based on actual
payment history.
In addition to the foregoing, the Registrant has in the past developed
and broadcast interactive game shows which it intends to resume broadcasting in
the future, after it repairs its telephone switching equipment and makes new
broadcast arrangements. These programs are described below:
GLOBALOT BINGO
1. INTRODUCTION
Globalot Bingo is a proprietary Bingo program developed and marketed by
the Registrant and for broadcast via satellite to participating licensees. The
licensees must be legally able to participate in the program based on the
federal, state and local laws that specifically apply to them. Licensees include
individuals who own satellite dishes but the bulk of its licensees have been
Bingo parlor operators on Native American properties and Bingo games operated by
non-profit organizations (E.G., churches).
The Globalot Program was broadcast each Saturday from November 13,
1993, until March 27, 1994, at 9:30 p.m. (Eastern Standard Time), over
transponder 8 of the Galaxy 3 communications satellite. Programming was
interrupted when a tornado damaged the facilities used by the
FORM 10-SB DATED JANUARY 8, 1997, PAGE 12
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Registrant; however, the facilities have been repaired and purchased by the
Registrant. During the interim, the Registrant re-evaluated its marketing plan
and restructured its broadcasts to target the home viewer rather than bingo
halls. The Registrant also decided that it would be more cost effective to work
with an existing network (the PandaAmerica Shopping Network) rather than to
purchase its own transponder time. The Registrant currently has an agreement
with the Panda America Shopping Network to produce a 24 hour animated bingo show
and a weekly 30 minute live interactive game shows with cash and prizes given
away. The first half hour game show was broadcast on June 15, 1996 over
PandaAmerica Network and its affiliates; however, subsequent broadcasts have
been delayed by a problem with the Registrant's telephone switching equipment,
which should be resolved in the near future. In addition, the Registrant has
determined to seek an alternative broadcast arrangement due to PandaAmerica's
inability or unwillingness to make timely payments to the Registrant for prior
broadcasts.
The Globalot Program was frequently followed by continuing optional
local games, usually starting after 10:00 p.m. (Eastern Standard Time). The
Registrant plans to expand the Globalot Program to other week nights during the
next twelve months.
Under the Globalot Program, the Registrant pays the first person who
successfully completes one of the Registrant's specially generated, copyrighted
Bingo game cards (generally referred to as a "coverall") a pre-advertised cash
prize. The prizes are awarded following each broadcast and started at a chance
for $1,000,000, with a guarantee of $25,000 for the grand prize winner and
$5,000 for the second prize winners.
The Registrant expects to increase the prize money paid to game winners
in the future, based on anticipated increases in the number of players and Bingo
parlors participating. The next level of prizes is expected to be a grand prize
of $50,000 and second prizes of $10,000.
The Globalot Program provides participating game operators with
considerably larger jackpots than they could individually afford or legally pay
in many jurisdictions. The Registrant expects that because of the larger
potential prizes, participating Bingo parlors and charity game operators will
attract larger numbers of players, resulting in increased income.
The Registrant's administrative offices are currently located at 458
Highway 278 By Pass; Piedmont, Alabama 36272. Its toll free Globalot telephone
number is 1-800-460-2170. Production offices with studio facilities are located
at 1239 South Glendale Avenue, Glendale, California 91205.
2. OPERATION
The Globalot Program can generate a series of up to one billion
individual cards, without duplication. Each card is unique and all cards are
serially numbered in order to preclude cheating and counterfeiting.
Participation in the Globalot Program by licensees requires them to have access
to a satellite dish and receiver to down-link the program; television monitors
for viewing the program; and, a turn-key installation package provided by the
Registrant. Under certain license arrangements, the Registrant provides the
licensee with the required equipment, at the Registrant's expense.
Globalot cards are sold by licensees of the Registrant for specifically
dated games, with sales
FORM 10-SB DATED JANUARY 8, 1997, PAGE 13
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halted prior to commencement of the designated games at times specified in the
licensing agreements. It is expected that most licensees will initially be
operators of Bingo parlors or of games sponsored by authorized charities or
churches.
Immediately following the sales termination deadline, licensees provide
the Registrant's central processing office with the serial number of cards sold
for that night's game, via an 800 telephone number. Master computers in the
Registrant's main offices then record all cards sold by licensees.
When the televised game begins, each number called on the televised
show is recorded by the master computer. The computer system monitors the cards
in play and is able to determine when a win occurs. It then identifies the
licensee which sold the winning card. The viewing audience is informed of which
card won the Globalot game and actually see the image of the card on the viewing
screens. The grand prize winner calls the Globalot 800 number listed on each
card, and provides the Registrant with the serial number and other necessary
identification of the winning card, together with the winner's name and address.
The winner is then provided with instructions on how to claim the prize. Local
Bingo parlors have no responsibility for the national prizes or their payment.
After verification of the grand prize winner, additional numbers are called for
a second prize (or prizes) to be paid by the Registrant. If, for reasons beyond
the control of the Registrant, a regularly scheduled telecast cannot be
broadcast, all prize funds announced for that week are added to the jackpot for
the next telecast.
All games are called at a rate of approximately one Bingo number every
15 seconds in order to allow players to play multiple cards. Based on the
Registrant's experience, such time permits experienced players to comfortably
play up to five cards at a time. If it is determined by participating Bingo
parlor operators that the calls are too fast or too slow, they notify the
Registrant and adjustments can be made.
Local operators have the option of continuing play, after award of
Globalot prizes, for local prizes, subject to applicable local gaming laws and
regulations.
3. THE COPYRIGHTED BINGO CARDS
The Registrant sells Globalot cards to licensees for $9.00 per strip of
three different cards. Each strip gives the player three chances to win the
grand prize.
The Registrant currently provides its licensees two card payment plans,
the EFT Plan and the Prepay Plan:
1. Licensees may execute an electronic funds transfer (EFT)
authorization permitting the Registrant to debit the licensee's
checking account for cards actually sold, in which case cards are
shipped on consignment and the licensee is debited for cards sold
immediately after it reports sales to the Registrant on the toll-free
number. Because of the Registrant's card inventory tracking system, the
Registrant can monitor the licensees card inventory and ships
additional cards as required, assuring that the licensee always has an
adequate reserve of cards on hand.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 14
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2. Licensees wishing to participate in Globalot but not wanting to
enroll in the EFT program must pre-pay the price of their cards by
submitting card orders accompanied by full payment therefor.
In either case cards are shipped, freight pre-paid, by UPS surface mode.
Expedited delivery is available at the expense of the licensee.
4. LOCAL PLAY
Licensees who operate Bingo parlors on Native American properties or
who operate qualifying charity or church games can continue play after
conclusion of the Globalot Program, subject to applicable local laws.
When the Globalot transmission begins, the number caller for the local
game operator places 75 balls in a slot designed to light up an electronic
display. Each Globalot number called is also displayed on television monitors at
local parlors. When a televised Globalot game ends and the grand prize winner
has been recognized, local number caller merely rakes all remaining balls not
called during the Globalot broadcast into a hopper and activates a local blower
mechanism to complete local play. Local games are played until a local win for a
locally determined and paid prize occurs.
5. PERSONAL PLAY
Individuals who are unable to attend Globalot transmissions at licensed
local parlors can still play by obtaining copyrighted cards for the next
scheduled game directly from the Registrant and registering them with designated
licensed local parlors (E.G., Frontier Palace in Piedmont, Alabama). The cards
are obtained by calling the Registrant's special number in Denver, Colorado.
Although there is no charge for the cards, the caller is billed $1.20 per minute
for the call through his prepaid telephone calling card. Prizes are paid through
the designated licensed local parlor with which the cards were registered.
6. SYSTEMS
The Globalot System includes the following sub-systems:
A. CUSTOMER INFORMATION SYSTEM.
All customer information including names, addresses, telephone numbers,
hall sizes, security account codes, and comments are accessible through a data
input/inquiry screen, with reports generated upon request. The sub-system
permits card sales to be monitored and system security to be maintained.
B. CARD SALES INVENTORY SYSTEM.
This sub-system allows the user to track card sales by account
identification number and date sold via a data input/inquiry screen. This system
permits cards placed in play to be validated for ownership (security) and
verifies the winner's location. It also allows a re-order system to track and
report upon those accounts that need to buy more cards.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 15
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C. CARDS INTO PLAY SYSTEM.
This sub-system requires the Bingo hall owner to telephone the user and
provide the last serial number of cards sold for a game prior to game time. It
allows the user to place card numbers into play via a data entry/inquiry screen
and also performs security and responsibility checks insuring that the card
numbers are owned by the account and that the number of cards to be played is a
reasonable number for the hall size.
D. CARD GENERATION SYSTEM.
This sub-system generates up to 1 billion unique Bingo cards each with
a serial number beginning with 0 and ending with 999,999,999, in order. There
are 114 quadrillion potentially unique Bingo cards and the Company could allow
for the total set. However, in order to limit the length of the serial number
the Company has set the limit to 1 billion by using a 10 digit serial number
(which the Company feels is a reasonable size).
The Company decided that the best method for card generation would be
to develop an algorithm whereby a serial number would represent a Bingo card and
no database lookup would be necessary. This approach avoids the necessity for a
large database of cards and provides a number of advantages. First, system
security is greatly increased because no one can tap into or get a copy of the
card database. The source code for the algorithm is owned by the Company and the
only copy is kept in secure storage. Second, hardware costs are greatly reduced
because the Company does not have to rely on a hard disk or a modem hookup to
verify a card (the program is resident in the local computer). Third, chances of
system failure are greatly reduced since less hardware connections are required.
E. CARD PRINTING SERVICES.
The Company has contracted with a printing company for competitive
printing services. The system automatically creates a magnetic tape for card
printing that can be transferred to most printers. The printing company works
directly with the Company to insure that all requirements for the printing and
packaging are met. Alternatively users can print their own cards.
F. THE "PLAY BINGO" SYSTEM.
This system provides the actual game playing function. It takes all
cards that are placed into play and picks Bingo numbers at random ; and, also
provides the option of continuing the game in order to provide for multiple
winners. It runs after a selected cutoff time (thirty minutes before game time)
and is ready for televised play at game time. Using the "plunger" and the
electronic Bingo board, the Bingo numbers are determined and displayed until one
card has won, at which time the computer notifies the user that there is a
winner. The winner's location and card face are also displayed. The game plays
quickly and accurately and the Company has calculated the statistical
probabilities for the number of Bingo cards that can be called before a win
occurs. The Company expects to have between forty and fifty Bingo numbers called
before a card wins.
G. CARD VALIDATION AND WINNER VERIFICATION.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 16
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A data entry/inquiry screen allows the user or the customer to type in
a serial number and the face of the card is then displayed. The verify winner
sub-system automatically provides this information about the winning card and
gives the location of the winner on a winner report.
H. THE RE-ORDER SYSTEM.
This system reports, upon request of the user, all customers who may
need to re-order cards. Using the card sales and card play inventory systems any
user that has ever played a game is listed on the report along with statistical
data such as number of games remaining, average cards played per game, ETC.
I. THE SECURITY SYSTEM.
Security has been a major factor in the design of each part of the
system. The card generation algorithm prevents copying or stealing of viable
cards. The card sales, card play, and customer information systems provide
controls to check validity of serial numbers, validity of ANI (automated number
identification), and validity of account number. In addition, only the Company
owns and retains a copy of the software which is copyrighted. All cards are
printed in a distinctive and unusual style on special paper so that copying of
cards is very difficult. Card Sales are controlled by the user directly with a
specific Bingo hall being responsible for the sale of each card. All card sales
information is carefully tracked in inventory as is all card play information. A
password is required to perform data entry or inquiry into the system. No new
game can be played or setup for play unless this password is utilized.
J. POST-PLAY INVENTORY SYSTEM.
This system wraps up, cleans up, and resets the systems after a game
has been played. The card sales and play inventory systems are updated with play
information and with winner information. The automated call-in program and the
game set-up master programs are placed into a wait state so that the user can
schedule the next game to be played.
K. USER TRAINING AND DOCUMENTATION.
The system comes with complete user and system documentation. The
Company supplies user training as part of the package.
L. CARD GENERATION
This sub-system generates a file containing Bingo numbers and serial
numbers to be printed on Bingo cards. Up to one billion unique Bingo cards can
be generated. A print tape is generated to create Bingo cards, each unique and
with a unique serial number. The Bingo numbers on the cards are randomly
generated and the serial numbers are sequentially generated. A screen is
available permitting card generation in the quantities desired. The user also
determines whether cards will contain a "free space".
Bingo numbers are randomly generated and stored with the corresponding
serial number in
FORM 10-SB DATED JANUARY 8, 1997, PAGE 17
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a database. The number of cards generated is specified by the user with a
breakpoint of 2,000 cards. Cards can be printed with a "free" space which must
be selected at card generation time and all cards then generated will contain
the "free space". The cards are recorded on magnetic tape which is shipped to a
card printing shop. The user is responsible for all tape creation and shipping.
The data entry screen permits the user to specify the number of cards
to be generated and to enter the free space option. The user enters the number
of cards to be generated. A sanity check is performed and all history is logged.
The last sequence number is generated and the total number of cards already
generated is displayed. The user is asked to approve continuance of card
generation. The file is generated using random Bingo numbers for each card in
the format required by the print company. The file is transferred to magnetic
tape. The file is added to the "all cards" database for play.
M. CARD SALE INVENTORY
This sub-system provides the user with a computerized means of keeping
track of all Bingo hall customers and all cards sold to such customers. Data
entry screens allow the user to enter information about the Bingo halls
including their names, locations, and telephone numbers. The user can also track
how many and which Bingo cards are sold to each hall. With this sub-system the
Bingo call-in system has the ability to provide security and to perform
reasonability checks on the cards in play. Also, a re-order system can be
created using the card sale inventory database. The user can then be pro-active
about the sale of Bingo cards.
This system provides the data necessary for security and for
reasonability checks in the call-in system. The data stored also provides
information about customers and helps track card usage for each customer. Many
sales, usage, and statistical reports can be generated through this system.
Data entry screens with at least the following information are created:
Bingo hall name, address and phone number(s); contact person's name; account
identification; serial numbers of cards sold identifying source and purchaser;
and, the date of sale. A screen also displays the history of cards sold,
including last serial number, dates sold, and dates played.
All of the foregoing information is kept in a database which is
accessed at the time of call-in for reasonability checks and security. The
database is also accessed by the play programs to record cards played and
winners for each location.
N. PLAY INVENTORY (PRE-GAME CALL-IN)
This set of programs allows the Bingo halls to call in and record the
cards that are to be played in the upcoming game. A dialogic board is used to
perform the communications and voice response to the customer. The customer
enters information using the phone keypad. A data entry program allows an
operator to place cards into play manually with override capabilities.
There are several parts to this sub-system. First is the call-in
program which allows the customer to place cards into play using an automated
voice response system on an 800 number. Second is a watchdog program that checks
to see that all Bingo halls have called in a specified time
FORM 10-SB DATED JANUARY 8, 1997, PAGE 18
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before play. Third is an override program that allows the user to put cards in
play even if reasonability check on card numbers or the account identification
numbers cause the automated call-in program to fail.
The call-in program allows any customer to dial an 800 number and enter
the last serial number on those cards that he has sold for play in the next
game. This program performs checks on the customer's account identification
number and on his ownership of cards and then either allows the cards into play
or gives an error message to the customer. An account status field is also
checked before cards are allowed into play.
At a specified time prior to game beginning another program checks to
see that all Bingo halls have called in to designate the cards in play. For
those halls that have not called in an automatic call is generated to remind the
hall to call in. At a pre-specified later time a printout is generated so that a
live operator can call the hall.
The operator has a data entry screen that performs the same functions
as the automated call-in program but can also override the security check and
account status check. Specifically, the operator can place any generated cards
into play.
The following gives a basic outline for the pre-game call-in system.
1. Gives greeting message, gives date and time of upcoming game.
2. Gets account identification number.
3. Gets last serial number sold for play.
4. Checks card sale inventory file to check that range of serial
numbers is valid for security identification number.
5. If the range of serial numbers is not valid, gives message to
re-enter or call a live operator for help. Prints error report for
live operator.
6. Gives closing message to Bingo hall, repeats game time.
7. Sends data to file for "play" program.
8. At designated time places reminder call to all halls that have not
called in.
9. At designated time generates a final report of all halls that did
not call in or that called in with errors.
10. Once the call-in time is over the call-in line so informs the
caller.
11. Interfaces with security sub-system to track all attempts to enter
system with invalid security codes.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 19
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12. Creates a data entry screen for the user to take call-ins by
telephone manually and to override any measure utilized in
call-in.
O. PLAY BINGO
This sub-system is the main brain of the system (the one that actually
"plays" Bingo). Using a full card blackout with the possibility that some cards
may have a free space, this sub-system generates from 40 to 47 Bingo numbers
causing one card to win. The press of a button causes the numbers to display on
a Bingo board. Once a winner is found the game is stopped and the next phase
("verify winner") begins. However, the user has the option to continue the game
even though a winner has been found. In this event there will be multiple
winners.
During call-in Bingo card numbers are retrieved from the "all cards"
database and bitmapped into memory for the play program. There is a cut-off time
when no more call-ins are allowed. At this time the play program finishes the
bitmapping and then randomly chooses a card to win. This part of the program is
actually "pre-play" as all numbers to be generated in the real-time play program
are actually chosen here. Using an algorithm from 40 to 47 Bingo numbers are
generated and ordered for play so that when the last number is called one and
only one card will have won. The user has the option to continue the game,
picking more numbers and getting more winners.
The system creates a program to accept serial numbers from call-in and
look up the cards in the database. Then the card numbers are bitmapped into
memory. It creates the bitmapping program and the program that will randomly
choose a winning card and then chooses the other Bingo numbers to call. It
organizes these Bingo numbers into the order for the real-time play program,
examines the card sale inventory file to find the winning Bingo hall and
organizes this information into the order required by the real-time play
program. Through a keystroke the system displays the Bingo numbers to the
electronic board one at a time. Once a winner is found it is displays on the
computer screen along with its location.
P. VERIFY WINNER
This sub-system displays the face of the winning card, its serial
number and the location of the winner on the screen. After the Bingo game is
played and a winner has been found, the master of ceremonies announces that
there is a winner. At this time the winner calls and gives his serial number.
When the number is input the card's likeness is displayed to the computer
screen.
Once a game play is completed the winning card location and serial
number is displayed. A program allows the user to enter the serial number and
then the card face is displayed. If the wrong serial number is called an
alternate screen is displayed. In the event of multiple winners all winning
serial numbers are displayed.
Q. VALIDATION
FORM 10-SB DATED JANUARY 8, 1997, PAGE 20
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At any time during or after play this sub-system allows a card serial
number to be typed into a data entry screen and to have the card displayed. In
order to verify the numbers on any Bingo card a sub-system is available to
display a replica of the card after its serial number is entered. The system
creates a data entry screen that accepts a serial number. It displays the
corresponding Bingo card numbers in a Bingo card format and displays error
messages if the card is not found.
R. POST PLAY INVENTORY
This sub-system updates all necessary databases with information from
the game. After a game is played the "all cards" database is updated so that
cards already played will not be played again. The card sale inventory database
is also updated so that all information desired by the user, including potential
re-order reporting, winner statistics, and sales statistics can be generated.
The system marks all cards in "all cards" database that have been
played as "played". The database is subdivided with one sub-data base containing
played cards and one containing unused cards and generates a backup copy of all
databases. It updates card sale inventory database so that the next pre-play
call-in can do reasonability checks. Also, any other desired information can be
stored here (such as winner information, sales statistics). Dates of play for
serial numbers will be kept here.
S. CARD RE-ORDER
This sub-system tracks the card sale inventory database and generates
reports to alert the user that a re-order by the customer is needed. After game
play and post play inventory updates this sub-system checks each customer for
number of outstanding cards and generates a report of those customers who should
be interested in purchasing more cards.
Programs analyze the card sale inventory file after each game played
and create statistics for each customer. Using the statistics and user defined
stock needs a probable re-order date is determined. A report is generated giving
probable re-order dates for those customers with an upcoming date.
T. SECURITY
This sub-system provides security features so that only those Bingo
halls approved for play will have access to the call-in system. A security file
associated with the card inventory system assigns a security code to each Bingo
hall. The security code must be entered in the call-in system by the hall in
order to put Bingo cards into play.
The sub-system provides the user of the card inventory system with a
security identification number for each Bingo hall which is given through an
appropriate means to the responsible person at the Bingo hall. Then this code is
utilized to verify authorization of Bingo card call-in. Any attempts to call-in
Bingo cards with an invalid security code generate an error listing. If the
"ANI" of the incoming call is known other information will be available for the
user (such as number of bad attempts from a specific Bingo hall or number of
attempts from bad ANI).
FORM 10-SB DATED JANUARY 8, 1997, PAGE 21
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After the initial Bingo hall information is entered in the inventory
system this sub-system creates an account security number for the Bingo hall.
The user gives the Bingo hall his security number either by telephone or by
mail. The security number is checked at each call-in and any violations are
reported.
7. CONCLUSIONS
The system results in high difficulty of duplication as a barrier to
competition. The complex card generation and play algorithms are the biggest
detriment to duplication. The system's developer has been employed on numerous
complex projects including development of the expanded memory manager for Compaq
and creation of the operator workstation in use by Northern Telecom. The
encoding of the serial number, the large size of the card database with no
duplication and the fact that there is only one winner are all difficult to
copy. As with most products there is the possibility that a competitor will
develop such a system; however, such system would normally take at least one
year to develop and would probably not run correctly unless the complex
algorithms were developed.
The local computer hardware can be sold to the Bingo halls. This does
not affect the ownership of the software which is proprietary. The only purpose
for a local computer is to allow the Bingo hall to continue play at the local
level after the national winner has been found and then to verify the local
winning card. If the Bingo hall chooses not to continue the game there is no
need for a local computer. A Bingo hall can purchase its own computer as long as
is meets the required specifications. To date, however, no Bingo hall has
purchased such computer hardware from the Registrant.
The Company's software package provides critical features such as
inventory control, a card re-order system, strict security, faster play,
automated pre-play calling, a large unique database of cards, the ability to
continue play beyond one winner, simple card generation (without database
storage), inexpensive card printing, an optional local computer, user training
and documentation, and an overall and complete system for Bingo games.
SUBSCRIPTION SATELLITE TELEVISION
1. HOW SUBSCRIPTION SATELLITE TELEVISION WORKS
Broadcasters can transmit up-link signals in an "unscrambled" or
"scrambled" state. An unscrambled signal may be received by any satellite dish
and viewed with an ordinary satellite receiver. Broadcasters may also alter
their up-link signals to prevent unauthorized reception of the down-link
programming. Such a scrambled signal may be viewed only if the signal has passed
through an activated decoder; otherwise, it will appear on the television screen
with an unstable image and unintelligible sound. (See "Decoder" and "VideoCipher
Plus II", respectively below). The scrambled up-link signal contains addressable
information so that only an activated VideoCipher II can descramble it. However,
the decoder can only be activated via satellite, as follows: When a customer
orders subscription programming, he provides his decoder's unique serial or
identification number, which is put into a computerized digital code and added
to the universe of similar codes from all purchases of the subscription
programming. These codes are then continuously up-linked to the satellite for
broadcast along with the subscription programming. If the decoder has been
FORM 10-SB DATED JANUARY 8, 1997, PAGE 22
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authorized for a specific program, it will be activated by its own broadcast
"address" code (no other broadcast "address" code will affect that particular
decoder). In the event a subscriber becomes delinquent in paying for the
programming, or elects not to renew, the broadcaster will issue a
de-authorization code which alters the decoder's "address" code within the
up-linked signal, and the subscriber will no longer be able to decode the
scrambled signal.
2. COMPONENTS OF A HOME SATELLITE TELEVISION SYSTEM OR EARTH STATION
A home satellite system consists of an outdoor "dish" (which
essentially functions like the familiar roof top antenna, I.E., it receives and
collects television signals), an indoor electronic receiver and a television set
or monitor. In order to receive a particular signal, the owner of the earth
station or dish must aim the dish at the broadcasting satellite, either
electronically or manually, and tune the receiver to the desired transponder or
channel. Mounted in the front of the dish is an electronic device called a
"feedhorn". A broadcast from a satellite bounces off the dish and into the
feedhorn, where it is translated into an electronic signal. This signal is then
fed by wires to the tuned receiver, which converts it into a television image
and sound. However, as described above, a scrambled television signal will not
generate visible images or sound unless the receiver is combined with a decoder
which has been activated.
Decoders are available separately or as built-in components of the
receiver. Currently the most popular decoder is VideoCipher Plus II. (See
"Decoder" and "VideoCipher Plus II" below). A Decoder is an electronic device
which, when activated, converts an intentionally altered or scrambled satellite
television signal back to the standard format or pattern for normal perception.
VIDEOCIPHER PLUS II is a brand of decoding system which currently is
the standard which satellite home dish and unauthorized viewing of their
respective services. It currently has the capacity to decode 56 different
channels, and its compatible with virtually all satellite television receivers.
However, a significant number of VideoCipher Plus II machines have been
activated by unauthorized third parties, allowing people to view decoded signals
without paying the programmer's fees. Such "piracy" has become widespread and is
believed to have deprived programmers, including the Registrant, of substantial
revenues. Although General Instrument Corp., the manufacturer, and the industry
in general are attempting to reduce the number of unauthorized VideoCipher Plus
II users, there can be no assurance that such efforts will be successful.
There are over 4,700,000 satellite dish owners in the United States and
PandaAmerica , over which the Registrant's programming has been carried in the
past, currently reaches approximately 20,000,000 households through satellite,
cable and direct broadcast. The Registrant also plans to buy time on Paxson
Communications which reaches an additional 12.5 million cable households in
major markets throughout the country. In addition, the Registrant is looking for
other networks to carry their programming which will increase the number of
households reached. A schedule of affiliate network data for PandaAmerica is
filed as an exhibit to this registration statement; however, it is not likely
that the Registrant will resume broadcasts on the PandaAmerica network based on
its past payment history for the Registrant's broadcasts.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 23
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3. PROGRAMMING DISTRIBUTION
The Registrant distributes its programming to satellite dish owners and
a limited number of hotels and small cable television systems via domestic
communications satellites and a third party satellite service provider. Its
programs are potentially available to anyone having proper satellite receiving
facilities. Participating cable operators re-scramble the signal and offer it to
their customers as part of their premium service.
Satellite services are available from approximately 25 domestic
communications satellites which are regularly used for broadcast transmissions,
on a "protected" or "unprotected" basis, replacement transponders are reserved
for use in the event that either the transponders used by the customer fail or
the satellite containing such transponders fail. Replacement transponders are
not reserved for service provided on an "unprotected" basis. Consequently, one
customer's "unprotected" service can be interrupted for indefinite periods in
order to restore service to a customer whose service is "protected" or in the
event the satellite owner requires transponder space in emergency.
The Registrant has had an oral agreement with Keystone Corporation
giving it the "unprotected" right to use one transponder on its domestic
communications satellite until December 31, 1996. Pursuant to the agreement, a
satellite up-link facility in Hollywood, California, converted the Registrant's
programming from a live broadcast into scrambled audio and video signals, which
were transmited (or "up-linked") to the transponder on the satellites, which in
turn relayed (or "down-linked") the signals to satellite dishes located within
the satellite's footprint for viewing.
Each transponder lease is subject to a tariff filed with the Federal
Communication Commission (the "tariff") which generally sets forth the terms and
nature of the service provided by the satellite owner to its lessees. In
particular, under the terms of each tariff, the Registrant is provided with
transponder time twenty-four hours a day, seven days a week through the lease
expiration date on an unprotected, preemptible basis as defined in the tariff.
There can be no assurance that these satellites will continue to be the
satellite from which transmits its signals.
4. SATELLITE SERVICE REQUIREMENTS
In order to operate and broadcast its interactive Bingo games, the
Registrant must have access to satellite transmission facilities. Satellite
services are available from approximately 25 domestic communication satellites
which are regularly used for broadcast transmissions on both a "protected," i.e.
reserved, and "unprotected" basis; replacement transponders are reserved for use
in the event that either the transponders in use by a customer fail or the
satellite containing such transponders fails. Replacement transponders are not
reserved for service provided on an "unprotected basis." Consequently,
"unprotected" service to a customer can be interrupted for indefinite periods in
order to restore service to a customer whose service is "protected," or in the
event the satellite owner requires transponder space in an emergency. The
Registrant has a written agreement with 5 DTV Corporation giving it the
"unprotected" right to use one transponder on its domestic communications
satellite until the end of 1996, at a cost of $120 per hour. During 1995, the
Registrant paid approximately $2,400 for use of such transponder. A copy of the
current agreement is included as an exhibit to this registration statement.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 24
<PAGE>
Pursuant to a series of agreements in force until the end of 1996, a
satellite uplink facility in Hollywood, California, converts the Registrant's
programming into audio and video signals for transmission to a transponder on a
satellite, which in turn relays the signals to satellite dishes located within
the satellite's footprint for viewing. Copies of the current agreements are
included as exhibits to this registration statement. The cost of such services
have averaged $175 per hour during the past 12 months, and are expected to
average $175 per hour during the next twelve months, based on the Registrant's
currently anticipated operations. During 1995, the Registrant paid $3,500 under
such agreement.
Each transponder lease is subject to a tariff filed with the Federal
Communications Commission which generally sets forth the terms and nature of the
service provided by the satellite owner to its lessees. In particular, under the
terms of each tariff held by the Registrant, the Registrant is provided with
transponder time twenty-four hours a day, seven days a week through the lease
expiration date, on an unprotected basis, subject to pre-emption, as defined in
the tariff. Notwithstanding the Registrant's tariff, however, there are no
assurances that any of these satellites will continue to be operational.
In order to protect the privacy of the programming the Registrant
scrambles its signals which are decoded by authorized licensees using activated
VideoCipher II decoders. Unfortunately, a substantial number of VideoCipher II
machines have been activated by unauthorized third parties, allowing such
persons to view decode signals without paying the programmers' fees. Such
"piracy" constitutes a criminal offense and deprives programmers, including the
Registrant, of revenues otherwise charged for the right to view programming.
SUBSIDIARIES' OPERATIONS
The Registrant's two subsidiaries and one project in development that
will deliver a variety of interactive television programs and entertainment to
home viewers in the United States and in international markets. They include:
A. LIFE AND LEISURE NETWORK
This project is targeted to reach the expanding "over 50" market. The
Registrant plans to produce and broadcast entertainment and information programs
that will be of value to this segment of the population, including at-home games
(like interactive Bingo), finance and investment programs, health care
information programs and other entertainment programs that will focus on life
enhancement. Like other proposed projects, this one is currently on hold while
management concentrates on its interactive Bingo programming.
B. INTERACTIVE SATELLITE BINGO
The initial program offering will be interactive Bingo games. The Bingo
broadcasts will be similar in style and format to those produced by the
Registrant. The subsidiary, however, intends to deliver its Bingo program on a
daily basis from production facilities in Glendale, California (to be provided
by Glendale Studios).
Because the program will be broadcast daily, the Bingo games have the
potential of
FORM 10-SB DATED JANUARY 8, 1997, PAGE 25
<PAGE>
generating a higher volume of revenues. Using the Registrant's computer systems,
proprietary software and electronic phone switches, the subsidiary will be
capable of handling up to 4,000 calls simultaneously. Revenues will be derived
through service charges generated from the telephone line time used by
participants who call the show to receive Bingo card numbers by telephone.
The Bingo games will be initially broadcast in the United States. The
subsidiary plans to expand the broadcasts to international markets like the
Russian Federation via the Ostakino network at a future date. Other areas being
currently considered include Brazil, Canada and Venezuela (see Part I, Item II -
"Management Discussion & Analysis"). The contemplated international operations
are currently on hold, all of management's efforts being currently concentrated
on its domestic, interactive broadcasts and marketing.
CONTRACT WITH THE LOUISIANA CHARITABLE ORGANIZATION ALLIANCE, INC.
In additional to the two new subsidiaries, the Registrant also has an
agreement with the Louisiana Charitable Organization Alliance, Inc. (LACOA) to
operate a high-stakes weekly Bingo game in the state of Louisiana.
1. LACOA AGREEMENT
On July 28, 1994, the Registrant entered into an agreement with the
Louisiana Charitable Organization Alliance, Inc., a Louisiana corporation
("LACOA"), pursuant to which the Registrant agreed to provide management and
operational services for LACOA's high stakes Bingo games in the event that LACOA
obtained authorization from the State government of Louisiana to operate high
stakes Bingo games.
LACOA agreed to contract with the Registrant to exclusively manage and
operate LACOA's high stakes Bingo game throughout the state of Louisiana (the
"Services"). The initial term of the contract was five (5) years, with the
Registrant holding successive one (1) year renewal options with each option
period carrying the same terms and conditions as the original five (5) year
contract, and such original five (5) year contract shall include substantially
the following terms:
SBI, Inc., a subsidiary of the Registrant ("SBI"), will participate in
operating the Louisiana State Bingo operation as a Licensed Subcontractor. LACOA
will be the authorized operator of the Bingo Games and SBI will be the operation
subcontractor and will be responsible for the following program functions.
1. Assistance to LACOA in the organization of the state program.
2. Production of the Game Show weekly.
3. Preparation and production of game cards for the Bingo Game.
4. Setting up the television contract and programming.
5. Developing advertising for the Bingo Program.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 26
<PAGE>
6. Making prize payments.
7. Handling general administration of the operation.
8. Providing the feed on satellite for the Halls as needed.
All Halls or Charitable games will sell cards all week in their games
at the Halls and in any other outlet or capacity that is available. Each charity
will be provided a standard quantity of cards. These will be provided through
the format of distribution channels if the system can be worked out.
Cards will be sold for $5.00 a strip of 3 cards. Closing of card sales
shall occur 2 hours prior to game time (except Saturday night game/ charities
which will be 1 hour prior to game time). At closing, all sale locations will
report activated cards (first card in series serial # and last card in series
serial #) by phone to the SBI clearing house to activate the cards for play in
that weeks game. Those Halls will then be responsible for paying SBI on behalf
of LACOA for the cards at the prescribed rate as set out in this policy. Prizes
will be announced on the Television show and awarded to the prize winners at an
appointed state location or by mail (after surrendering the winning prize card.)
LACOA will give full legal authorization along with state approval to SBI Gaming
to operate the game in their behalf in Louisiana. Agreements with each
participating charity will be secured by LACOA and provided to SBI for records
and operational support.
Production will take place at SBI studios and be up linked to Satellite
Feed into the state stations. Production format and game process will be with a
live pop-up Ball System or Computer Generated random number system that will
include game ball verifications; winner audits; payment audits; winner on
television interview if possible. The program & advertising spots will explain
how to play the game; prize winner interviews; some Entertainment production;
how to claim prizes, etc. Numbers will be called in 12-15 second intervals.
Television Broadcast time contracts with stations will include advertising spots
that will be produced for LACOA by SBI.
Charities/Agencies will sell tickets all week and at game time in
participating Halls. Payment for advertised tickets will be made weekly or
subsequent weekly entries will not get activated. Payment will be made to a
LACOA Director; SBI on behalf of LACOA; or, to a distributor who then pays a
LACOA Director. Participation charities will be allowed to take their earnings
before payment is made.
Anticipated costs are as follows: Ticket strips (3 Cards) are expected
to be sold for $5.00. The charity will keep $1.50; the State Association will
retain $1.00 (operations cost); and SBI will retain $2.50. The Charities and
LACOA will pay their own tax. SBI will, from its share of the revenues, pay for
ticket production; ticket distributions; game show production; television
station payment/promotion; and, prize payments.
2. SPRADLEY AGREEMENT
On July 29, 1994 the Registrant also entered into an agreement with
Spradley & Spradley, a Louisiana corporation ("Spradley"), to provide certain
lobbying services to the Registrant involving obtaining an Executive Order from
the Governor of Louisiana allowing LACOA to
FORM 10-SB DATED JANUARY 8, 1997, PAGE 27
<PAGE>
operate high stakes Bingo games in the state of Louisiana. In the alternative,
if obtaining such Executive Order was not feasible, Spradley was to aid in the
initiation and passage of legislation in the Louisiana State Legislature
allowing LACOA to operate high stakes Bingo games in the state of Louisiana.The
term of Spradleys' contract as a Lobbyist under the agreement was six moths,
subject to earlier termination by the first to occur of the following:
(A) The completion of the Services to the satisfaction of the Registrant.
(B) The cancellation of this Agreement by the Registrant due to (i)
the failure by Spradley to perform the services diligently and
competently on behalf of the Registrant in any material respect on a
recurring basis, or (ii) the reasonable determination by Registrant
that the performance of services by Spradley will not accomplish the
goals stated in the Agreement.
The agreement requires the Registrant to pay Spradley $2,000 per month
(or a pro rated portion thereof for each fraction of a month in which services
were performed) during the term of this Agreement for the performance of the
Services. Spradley represented that "it, and each of its employees performing
the Services hereunder, possesses all necessary licenses, registrations, permits
and other evidences of authority to perform the Services. Spradley agrees to
make such filings, if any, with the State of Louisiana or other government, as
may be required to properly effectuate this Agreement. Spradley understands that
the Registrant is relying on the representations of Spradley concerning the
applicable laws of the State of Louisiana in retaining Spradley hereunder.
Spradley agrees to indemnify the Registrant and hold the Registrant harmless
from any civil or criminal liability arising from the performance of the
Services by Spradley hereunder."
Copies of the LACOA and Spradley agreements have been filed as exhibits
to this registration statement.
LACOA's members, which include more than 1,600 charities in Louisiana,
would have the right to sell Bingo cards for the broadcast. A percentage of the
proceeds from card sales would go to each member charity and to LACOA. The
Registrant believes that a high-stakes Bingo game will provide Louisiana
charities with an effective competitive tool against state lotteries and other
prize-offering events that attract the public's spending dollars.
The game would be broadcast every Saturday night for 30 minutes on
cable television stations throughout the state. Players could watch the Bingo
game from their homes and call if they have a winning Bingo card.
LACOA has advised management that a number of members of the Louisiana
State Senate have opined to it that the Louisiana State Legislature will approve
legislation permitting LACOA's member charities to participate in a high-stakes
Bingo game as a means of raising funds. Both LACOA officials and the
Registrant's management believed that chance were excellent that favorable
clarifying legislation would be passed during the State's 1996 legislative
session,; however, action has not yet been taken and no assurances can be
provided that such legislation will ever be passed, although management remains
optimistic.
The Registrant estimates that, during its first full year of operation,
the LACOA project could
FORM 10-SB DATED JANUARY 8, 1997, PAGE 28
<PAGE>
generate material revenues for the Registrant. The Registrant is also confident
that this program could be marketed to other states whose charitable
organizations require a vehicle to increase the fund raising potential of their
bingo operations.
AFFILIATIONS WITH KEY CONTRACTORS AND SUPPLIERS
Development and implementation of the Registrant's proposed slate of
programs, has been facilitated through a series of informal relationships (which
the Registrant refers to as alliances) developed by the Registrant's management
with several major contractors and suppliers. Such alliances are expected to
provide the Registrant with the facilities and services it needs to successfully
execute its programming and to develop and implement other lines of related
business in the future.
They include:
Glendale/Oakridge studios, a major Hollywood-based video production
company, that will provide the production studio for the game and
auction shows.
Integrated Telephony, Inc., a national phone service bureau with
regional offices in Denver that will provide primary or back-up
telecommunications support.
The Registrant is also holding discussions with several other
companies. All of these companies have a proven track record of success in their
respective industries. By leveraging the assets and capabilities provided by
these companies, The Registrant's managements believes that it will create an
efficient vehicle for producing and delivering a wide range of interactive
television programs.
POSSIBLE AGREEMENTS WITH TV NETWORKS
The Registrant has been approached by a number of television service
companies and networks about the possibility of carrying its subsidiaries'
proposed programming. These networks include TeleMundo and PandaAmerica.
TeleMundo is a network that broadcasts programs to more than 100
Spanish-speaking stations. The Registrant has made a proposal, currently under
consideration, to broadcast Interactive TV Services, Inc.'s programming to
Telemundo's 35 South American country affiliates, as well as to 100 United
States stations.
The Registrant is also pursuing relationships with networks willing to
aggressively advertise the Registrant's programs on the air in exchange for a
percentage of the gross revenue the programs generate in their marketplaces.
DISTRIBUTION METHODS OF THE PRODUCTS OR SERVICES
CURRENT OPERATIONS
All current services are provided from the Registrant's 80,000 square
foot, hi-tech Bingo
FORM 10-SB DATED JANUARY 8, 1997, PAGE 29
<PAGE>
facility in Piedmont, Alabama. Currently, rents and administrative fees charged
to charities are unsecured and generally are paid only as revenues from the
Bingo games produce sufficient profit to allow the charities to make payments.
Rents receivable at September 30, 1996, $463,038, are concentrated in that they
are payable by only two charities. Management has estimated the amount of such
receivables that are collectible based upon its knowledge of the financial
condition of the charities and the history of the profitability of the Bingo
games; however, it is possible that management's estimate of the amount of such
receivables collectible could change in the near future based on actual payment
history.
HISTORICAL AND FUTURE OPERATIONS
The Registrant has in the past conducted televised Bingo games with
participation by a viewing audience and intends to resume such operations in the
future.
A strip of three game cards were made available over the phone at $1.20
per minute or provided free to persons requesting them in writing (accompanied
by a self addressed envelope) to Globalot Bingo at 1239 South Glendale Avenue,
Glendale, California, 91205.
The Registrant marketed and promoted its programming daily through
televised videotaped commercials. In addition, it used direct mail
advertisements and placed printed ads in television guides oriented toward the
home viewing audience. The Registrant also had a sales incentive program which
it offered to home satellite equipment dealers who could sell the Registrant's
programming alone or in conjunction with their sale of home satellite receiving
equipment. Home satellite dish owners who wished to participate in the Bingo
programs could obtain cards by mail or by calling the Registrant's special 800
number at 1-800-729-2464, where, the Registrant accepted pre-paid calling cards.
When the viewer/contestant obtained the game cards they were
automatically entered onto the Registrant's computer for play until after the
super show on the following Saturday.
The Registrant has entered into various licensing agreements to provide
proprietary software and know how involving Bingo game production and operation
covering territories in California, Brazil, Greece, Hong Kong, and Indian
reservations, military bases and charity Bingo parlors in the United States.
However, no licensee currently has Bingo operations generating significant fees
or royalties for the Registrant.
STATUS OF ANY PUBLICLY ANNOUNCED NEW PRODUCT OR SERVICE
Except as described above, the Registrant has no publicly announced new
products or services.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 30
<PAGE>
COMPETITIVE BUSINESS CONDITIONS AND THE SMALL BUSINESS ISSUER'S COMPETITIVE
POSITION IN THE INDUSTRY AND METHODS OF COMPETITION
INTERACTIVE TECHNOLOGY
A number of important trends support management's belief that the
Registrant is re-entering the interactive television programming market at the
right time with the right products. As the phenomenon known as the "Information
Superhighway" continues to shape the way people communicate with one another,
receive information and facilitate transactions, a number of events are
beginning to occur.
Numerous books and recent articles indicate that people are becoming
more comfortable with services and entertainment offered in the privacy of their
own home through their telephones or personal computers. The data highway also
known as the National Information Infrastructure (NII), is helping facilitate
this trend by linking homes, offices and entertainment sources into one big
network.
The data highway and its ability to reach millions of consumers is
providing unprecedented opportunities for manufacturers and marketers of
products and services. These companies are being challenged to find ways to use
advanced technology, like interactive technology, to make it easy for consumers
to find out about and purchase their products and services.
Popular examples of interactive technology in the consumer market
include on-line computer services (like Prodigy and CompuServe), voice automated
telephone services (like consumer banking and financial services), and at-home
television shopping services (like the Home Shopping Network). The success of
these have convinced management that interactive television programming like
that being offered by its new subsidiaries and through the LACOA project will be
well received by a public that continues to accept more and more interactive
technology into their daily lives.
THE BINGO AND GAMING INDUSTRY
Management believes that the past success of the Registrant's
interactive bingo programs are evidence that the game is as popular as ever
among people around the world. Recent statistics generated by the United States
government seem to strongly support this belief. According to a recent survey of
American Gambling Attitudes and Behavior conducted by the United States
Commission on the Review of a National Policy Toward Gambling, bingo is the
fourth leading "entertainment sport" in the United States, generating some
60,000,000 spectators and/or participants each month. This figure represents
7,300,000 more participants/spectators than Major League Baseball attracts and
almost 40,000,000 more participants/spectators than NFL Football and NBA
Basketball attracts.
The survey also shows that the game has equal appeal among genders.
Approximately 30% of bingo players have an income of $25,000 and over, and bingo
players are more likely to use their leisure time by doing indoor activities
such as reading books, newspapers and magazines.
As Americans become older as a population and choose to spend more time
at home,
FORM 10-SB DATED JANUARY 8, 1997, PAGE 31
<PAGE>
management believes that interactive television programs like those it plans to
offer will increase in popularity. Current statistics indicate that persons 65
and older that play Bingo play the game at least once a week.
These research findings and past experience support management's belief
that bingo is as popular as ever and that there is a viable market opportunity
for the Registrant's nationally and internationally interactive broadcast
programs.
THE REGISTRANT'S COMPETITIVE POSITION
The Registrant has no direct local competition for its current
operations (the operation of its facility in Piedmont, Alabama). However, its
operations are in competition with all aspects of the entertainment industry,
both locally and nationally.
BROADCAST BINGO
The Registrant competes with all broadcast game shows and, more
generally, all types of broadcast promotions designed to increase audience share
and advertising revenues. Management is not aware of any nationally broadcasted
bingo shows. Some locally-originated shows exist in various locations.
Management believes, without assurance, that it has a competitive edge over
other broadcast bingo promotions since Ron Foster originated the concept and has
been promoting it since 1984. Management believes that the Registrant has
established a reputation of equitable and complete service to the broadcast and
gaming industry.
With respect to game shows and other types of broadcast promotion,
management believes that the simplicity of the bingo game and its mass audience
appeal enables the Registrant to successfully compete with other game shows.
2. OTHER ACTIVITIES
The Registrant is not an established participant in the other areas in
which it expects to operate; however, management believes that the fields
involve rapidly developing markets which no single entity currently dominates,
with great opportunities for entry level participants possessing an
understanding of developing technologies. Consequently, although the interactive
television fields are highly competitive and include major cable television and
telephone companies, management is confident that its endeavors constitute a
niche in which it can successfully compete.
SOURCES AND AVAILABILITY OF RAW MATERIALS AND THE NAMES OF PRINCIPAL SUPPLIERS
None of the Registrant's proposed activities are reliant on raw
materials. Rather, they depend on the ability to exploit emerging technologies
that are expected to be readily available.
DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS
The Registrant's current operations are highly reliant on two local
charities. Its former broadcast operations and contemplated future operations
are not expected to be reliant on any single or small group of customers.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 32
<PAGE>
PATENTS, TRADEMARKS, LICENSES, FRANCHISES, CONCESSIONS, ROYALTY AGREEMENTS OR
LABOR CONTRACTS, INCLUDING DURATION
The Registrant has no patent rights. It has the following service
marks:
Satellite Bingo: International Class 41 (production and distribution
of television game shows) granted Registration Number
1,473,709 on January 19, 1988 to Satellite Bingo, Inc. 20
years.
Globalot Bingo: International Class 41 (production and distribution
of television game shows) applied for on September 24, 1993,
by SBI Communications, Inc.
Rico Bingo: International Class 41 (production and distribution
of television game shows) applied for on September 24, 1993,
by SBI Communications, Inc.
C-Note: International Class 41 (production and distribution of
television game shows) applied for on September 24, 1993, by
SBI Communications, Inc.
The Registrant obtained an assignment to a copyrights for "the Works,"
copyright registrations for Globalot Bingo and derivatives: Number PAU 855-931
(June 10, 1986); Number PAu 847-876 (March 11, 1986); Number PAu 788-031
(September 19, 1985); Number PAu 927-410 (November 4, 1986); Number PA 370-721
(February 9, 1988); Number PA 516-494 (January 17, 1991); Number PA 533-697
(January 17, 1991); from Satellite Bingo, Inc., to SBI Communications, Inc.,
dated September 14, 1993.
NEED FOR ANY GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS OR SERVICES. IF
GOVERNMENT APPROVAL IS NECESSARY AND THE SMALL BUSINESS ISSUER HAS NOT YET
RECEIVED THAT APPROVAL, DISCUSS THE STATUS OF THE APPROVAL WITHIN THE GOVERNMENT
APPROVAL PROCESS
GENERAL
The Registrant will be subject to applicable provisions of federal and
state securities laws, especially with reference to periodic reporting
requirements and, the operations of the Registrant are subject to regulation
normally incident to business operations (E.G., occupational safety & health
acts, workmen's compensation statutes, unemployment insurance legislation and
income tax and social security related regulations).
Because the Registrant is subject to regulation in every state and
country in which it transacts business and because government regulation tends
to be extremely dynamic, the Registrant will have to carefully monitor current
and proposed legislation in order to continuously comply therewith. There can be
no assurance that the Registrant's operations will always be in compliance with
applicable governmental regulation and in the event that it fails to comply with
applicable regulatory requirements, its activities may be curtailed and it may
be exposed to fines and adverse publicity. In any such event, the Registrant's
business could be detrimentally affected.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 33
<PAGE>
REQUIRED GOVERNMENT APPROVALS FOR PRODUCTS OR SERVICES
The Registrant has requested several law firms to investigate the legal
parameters for its operations, and has also reviewed several legal opinions
provided to other companies offering gaming related programming. In conjunction
with such research, the Registrant has compiled the following information.
Copies of the opinions summarized below are filed as exhibits to this
registration statement. The following summaries thereof are qualified in their
entirety by reference to such exhibits.
Fletcher, Heald & Hidreth advised the Registrant's president by letters
dated March 19 and April 10, 1992 (referencing communications with Cynthia
Young, Assistant Chief, Support of Litigation, ORGANIZED CRIME AND RACKETEERING
SECTION OF THE CRIMINAL DIVISION, UNITED STATES DEPARTMENT OF JUSTICE)
concerning the applicability of 18 USC Sections 1084, 1301, 1302, 1304, 1952,
1953, 1955 and 1962 to the Company's proposed programs. They noted that 18 USC
1307 and 25 USC 2720 provide exemptions from the restrictions reflected in
Sections 1301, 1302, 1303 and 1304; however, the firm opined that such
exemptions would not apply to the proposed programming. The letters discussed
certain observations of Edythe Wise, CHIEF OF THE COMPLAINTS AND INVESTIGATIONS
BRANCH OF THE ENFORCEMENT DIVISION OF THE MASS MEDIA BUREAU, FEDERAL
COMMUNICATIONS COMMISSION, in which, based on stated assumptions concerning the
proposed operations (including the encrypted nature of distribution) the staff
opined that the program as described did not involve a broadcast to the public,
and thus would not invoke the prohibitions of 18 USC 1304. Noting that
consideration could not flow from the player to the promoter, the author
indicated that the proposed programs did not appear to violate federal law
unless they violated a state law as well. No opinions were provided as to state
law implications.
In correspondence between the Federal Communications Commission and
Putbrese, Hunsaker & Ruddy, dated September 14, 1990 through February 11, 1991,
the Federal Communications Commission issued a declaratory ruling on the
legality of advertising interactive bingo games on cable systems. It found that
if such games provide persons interested in participating with an option to play
for $2.00 per call over a 900 line, or for free, after obtaining a personal
identification number, over 800 lines, the program would not appear to violate
applicable Federal Communications Commission regulations.
Based on correspondence between Sutherland, Asbill & Brennan and the
Federal Communications Commission, from July 28, 1986, until some undetermined
time in 1987, Edythe Wise, CHIEF, COMPLAINTS AND INVESTIGATIONS BRANCH,
ENFORCEMENT DIVISION, MASS MEDIA BUREAU, FEDERAL COMMUNICATIONS COMMISSION,
opined that the proposed activities would conform the Federal Communications
Commission decision dated November 25, 1986 and reported at 2 Federal
Communications Commission Rcd 1001 (1987). The program described involved free
participation by players, who were eligible to receive cash and other prizes,
through cable companies as a basic (no charge) service, including paid
commercials; and, a pay per view cable program. Ms. Wyse opined that both
methods appeared legal in that the first involved no consideration, and the
second involved non-public broadcast.
An opinion letter dated December 15, 1987, from Chamberlain, Hrdlicka,
White, Johnson & Williams, to Travis Enterprises, Inc., regarding a "Million
Dollar Bingo Game" originating on sovereign indian reservations and transmitted
by encrypted closed circuit television and telephone
FORM 10-SB DATED JANUARY 8, 1997, PAGE 34
<PAGE>
lines to bingo halls, also on sovereign Indian reservations, reflects that
applicable legal issues involve jurisdiction over Indian affairs, federal and
state anti-gaming laws, and, statutes and regulations governing mail, wire,
television and radio communication. The opinion noted that a number of federal
criminal statutes outlaw gaming activities prohibited under state laws and could
technically impact the proposed game; however, it notes that a DEFACTO exception
appears to have been carved out for high stakes bingo games, making the issue
unclear. It notes that licenses from the Federal Communications Commission and
Department of the Interior (Indian Affairs) will probably be required and that
safe harbor negotiations in such licensing proceedings would be prudent. The
opinion concludes that federal pre-emption of regulation over Indian affairs, as
well as over wire, radio and television communications will, in most cases,
preclude application of state regulatory legislation. However, it notes that the
effect of certain federal statutes and regulations require careful consideration
in structuring and implementing the proposed operations to maintain special
bingo related exceptions.
An opinion letter dated July 28, 1987, from Ginsburg, Feldman and Bress
to the Bingo Network, Inc., involving planned satellite transmission of Bingo
games between Indian reservations addressed applicable federal law and concluded
that such game is legally permissible.
Opinion letters to Ron Foster, the Registrant's president, from
Sutherland, Asbill & Brennan dated July 11 and 15, 1986, dealt with the legality
of a program involving free participation by players, who were eligible to
receive cash and other prizes, through cable companies as a basic (no charge)
service, including paid commercials; and, a pay per view cable program. The
opinion concluded that the free cable access program would be permissible but
further questions about pay per view aspect.
In a letter involving the Registrant's C-Note game, dated June 18,
1993, the State of Nebraska discussed a prohibition under Nebraska Statute
Section 9-701(1(a) to the offer of games of Bingo and keno in Nebraska, but
noted that such statute would not appear to prohibit the broadcast of the games
into Nebraska, or, the location in Nebraska of telephone banks involving offers
of the games outside of Nebraska.
An opinion letter issued by Wiley, Rein & Fielding (Washington, D.C.)
on November 16, 1995, addressed the probable legality of the Registrant's
pay-per-view Bingo projects. The opinion was limited to certain federal statutes
(18 U.S.C. Sections 1084, 1301, 1302, 1304, 1307; 1951-1968; and, 25 U.S.C.
Section 2720) and to Federal Communications Commission regulations. The opinion
concluded that, under the specific circumstances described, the proposed
activities did not appear to violate the prohibition against gaming activities
contained in the cited federal statutes or the regulations promulgated
thereunder.
NONE OF THE AUTHORS OF THE FOREGOING OPINIONS OR THE GOVERNMENT
PERSONNEL WITH WHOM THEY DEALT HAVE CONSENTED TO THE USE THEREOF IN THIS
REGISTRATION STATEMENT, THEREFORE, SUCH PERSONS SHOULD NOT BE DEEMED EXPERTS ON
WHICH INVESTORS MAY RELY. RATHER, SUCH OPINIONS MERELY FORM THE BASIS FOR THE
DECISION BY THE REGISTRANT'S MANAGEMENT THAT THE REGISTRANT CAN LEGALLY CONDUCT
ITS CURRENT ACTIVITIES. BECAUSE NEITHER THE FOREGOING OPINIONS OR OBSERVATIONS
BY GOVERNMENT PERSONNEL ARE BINDING, NO ASSURANCES CAN BE PROVIDED THAT, AT SOME
FUTURE TIME, GOVERNMENT PERSONNEL WILL NOT REACH DIFFERENT CONCLUSIONS, TO THE
REGISTRANT'S DETRIMENT.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 35
<PAGE>
EFFECT OF EXISTING OR PROBABLE GOVERNMENTAL REGULATIONS ON THE BUSINESS
The Registrant is subject to regulation by the United States Federal
Trade Commission, the Federal Communications Commission, the Justice Department,
the Department of the Interior and the Securities and Exchange Commission, as
well as by comparable state agencies.
The costs of monitoring and complying with existing regulations is
expensive and time consuming. The Registrant's management is required to expend
significant resources to obtain required regulatory clearance and the delays
incident thereto have and are expected to continue to deprive the Registrant of
significant opportunities. However, because such regulations also apply to the
Registrant's competitors, they merely tend to make all participants in the
industry less effective, rather than to affect the Registrant's competitive
business posture. During 1995, the Registrant incurred approximately $54,131 in
legal fees related directly to compliance with governmental regulations
promulgated by the Federal Communications Commission, the State of Alabama and
Piedmont County.
ESTIMATE OF THE AMOUNT SPENT DURING EACH OF THE LAST TWO FISCAL YEARS ON
RESEARCH AND DEVELOPMENT ACTIVITIES, AND IF APPLICABLE THE EXTENT TO WHICH THE
COST OF SUCH ACTIVITIES ARE BORNE DIRECTLY BY CUSTOMERS
During the last two years, the Registrant has expended no funds in
research and development activities. Such expenses, if incurred in the future,
will be passed along to the public indirectly in the form of components of the
Registrant's pricing decisions.
COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS (FEDERAL, STATE AND
LOCAL)
To the best of management's knowledge, the Registrant will not be
required to directly incur material expenses in conjunction with federal, state
or local environmental regulations, however, like all other companies, there are
many but incalculable indirect expenses associated with compliance by other
entities that affect the prices paid by the Registrant for goods and services.
NUMBER OF TOTAL EMPLOYEES AND NUMBER OF FULL TIME EMPLOYEES
The Registrant currently has 12 full time employees and employs part
time employees and independent contractors from time to time, as required.
Management is of the opinion that required employees and contractors are readily
available at competitive prices. The Registrant has no labor contracts.
SUMMARIES OF MATERIAL AGREEMENTS
All of the foregoing agreements and instruments have been filed as
exhibits to this registration statement. The following brief summaries thereof
are qualified in their entirety by reference to such agreements.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 36
<PAGE>
1. JOINT VENTURE AGREEMENTS
A. AGREEMENT WITH PANDAAMERICA AND GLENDALE\OAKRIDGE STUDIOS.
On November 2, 1995, the Registrant, PandaAmerica and Glendale\Oakridge
Studios entered into an agreement to develop, finance, produce and distribute
the original concept and all elements created by the Registrant entitled
"Globalot Bingo." Each party was to receive 1/3 of "profits" on all exploitation
of Globalot Bingo on the PandaAmerica Network and shares in the related costs.
The parties intended to jointly produce market and promote a
bingo-formatted show to be aired over Tel Star 402R ("T402R") receive Channel
24, which broadcasts PandaAmerica throughout the area covered by Tel Star 402R
Footprint.
The agreement provides that "[u]pon approval of such expenses incurred
or to be incurred. Equipment and services to be billed to the parties at cost
(or fair market value). Operating board to be formed and consist of the
following members: Marty Weiss (Pandaamerica); Al Makhanian, (Glendale Studios)
and Ron Foster (the Registrant). .... All new ventures, expenses and all aspects
of operation shall be approved by all members of the operating board and/or
parties. Such approval will not unreasonably be withheld .... All start-up
expenses to be shared on an equal basis by the parties. These items to be
approved by the parties. All expenses to be paid out of revenues, unless there
are losses which will be paid equally by all of the parties. Profits after
expenses to be shared equally by each party. Accounting shall be provided by CPA
firm mutually agreed by the parties which include sales, expenses and all other
related items to be provided to the parties on a monthly basis."
Anticipated expenses include accounting; productions; credit cards;
trademark and opyrights; Legal; telecommunications switcher; 800 numbers;
printing and direct mail; travel; phone service (local - long distance);
software; and, technology.
The project was intended to be a pilot on Pandaamerica Television
Network tentatively entitled Globalot Bingo. The Registrant, Pandaamerica, and
Glendale/Oakridge Studios expected to act act as show producers, and to work
jointly creatively on the show, but, that in case of any dispute, Ron Foster
would have the final say in all creative decisions pertaining to the game
Globalot Bingo. Pandaamerica and Glendale/Oakridge Studios were to be
responsible for all production decisions and will share in costs.
The Registrant, PandaAmerica, and Glendale/Oakridge Studios intended to
work jointly to obtain funding commitments from other networks, cable or single
station to produce viewers. Anticipated expenses include prizes for winners of
bingo, production costs, satellite time, and any studio production costs
including labor.
The Registrant was to be designated as Executive Producer, with the
other parties being designated as Co-Executive Producers.
As a result of PandaAmerica's inability or unwillingness to make
payments to the Registrant for programming provided, the registrant is
reconsidering its continued participation under this agreement.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 37
<PAGE>
B. JOINT VENTURE AGREEMENT WITH VPACS LIMITED (A NEW YORK CORPORATION)
Dated June 18, 1993, for international resale of telecommunications
services, marketing services and provision of re-origination equipment to SBI
Communications, Inc. Joint venture to operate as "SBI Communication World Link."
VPACS to provide equipment and SBI Communications, Inc., to market worldwide.
Equal share interests. Term, 10 years subject to 90 day notice termination
options. (An alternative international long distance service).
C. CAHILL AGREEMENT
Dated August 16, 1993, and also involving Ron Foster and R.F.
Associates Cayman Islands as co-parties with the Company (collectively referred
to as the "Foster Interests"). Applies to everything owned or developed by the
Foster Interests, but initially involved only Indian reservations (subject to
future exercise of the Cahill Option). Calls for formation of a Nevada
corporation to be owned 49% by Cahill and 51% by the Foster Interests. Cahill to
contribute $2,000,000 in capital, in $500,000 increments. Cahill to provide an
additional $3,000,000 in debt financing when and if required to supplement
working capital requirements. The Nevada corporation is to own the Company's
rights recovered upon termination of the joint venture with Entertainment
Television Network Corp. Foster Interests waive all remedies for Cahill default,
except specific performance.
2. BINGO PARLOR AGREEMENTS
A. CHIEF STRIKEAXE TRADING POST (OKLAHOMA)
Agreement with Satellite Bingo, Inc., dated November 12, 1993, calling
for direct debit card purchases at $2.50 per strip.
B. DCA SERVICES DIVISION, FORT BENNING, GEORGIA
Ticket consignment agreement dated December 10, 1993, for Globalot
cards with the MWR Fund Community Operations Division. Term expires on December
31, 1994. Price, $2.50 per strip.
C. PIEDMONT JAYCEES
The Registrant is a party to a month to month lease agreement with the
Piedmont Jaycees described in Part I, Item 3. In addition, the Registrant and
the Piedmont Jaycees are parties to four separate service provider agreements
pertaining to operation of the Registrant's facilities leased to the Piedmont
Jaycees. These involve access to a security system, transportation services,
maintenance and repair services and bookkeeping services. All the agreements
were executed on August 17, 1995, and have no set term.
3. TELEPHONE SERVICES AGREEMENT
Agreement dated January 17, 1996, between the Registrant and Integrated
Telephony, Inc., pursuant to which the Registrant, on a month to month basis,
obtains DAL 800, 900, Outbound, Debit Card, International Callback and Voice
Processing services. Estimated cost is $3,200 per month.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 38
<PAGE>
4. PROGRAM & PRODUCTION
GLENDALE STUDIOS PRODUCTION AGREEMENTS
Correspondence dated May 18, 1992, with Al Makhanian, pursuant to which
Glendale Studios acknowledged that SBI Communications had a credit of $468,000
based on the issuance of 100,000 shares of stock during November of 1990. It
detailed how the credit would be drawn on in conjunction with show productions,
exclusive of actual labor charges, which SBI Communications would pay for. As of
the date of this registration statement, approximately $300,000 of such credit
remains available.
5. SERVICE AGREEMENTS
TATE Memorandum of Service Agreement between SBI Communications,
Inc., or its subsidiaries) and Bradley M. (Brad) Tate, dated November 1, 1993.
Tate to provide required hardware and software knowledge for Globalot game, in
consideration for a royalty of $.10 per premium toll calls for card purchases,
and, $.05 per premium toll call for winners information inquiries. The agreement
is to remain in effect until either the parties elect to terminate it,
interruption of production for six months, or cancellation of Globalot Bingo
games on radio or television.
TATE Consulting Agreement between SBI Communications,Inc., and
Bradley M. (Brad) Tate, dated July 19, 1993. Tate to provide computer,
programmer and telecommunications consulting services in consideration for
100,000 shares of restricted common stock and a $250 engagement fee. The
agreement has a term of 60 months.
ALAMO Standard form of car leasing program for SBI Communications,
Inc.'s members, dated March 18, 1993. Apparently a benefit for Bingo club
members and other groups sponsored by or through SBI Communications, Inc.
6. LETTERS OF INTENT
A. GLENDALE STUDIOS, INC.
Letter of intent dated November 8, 1995, contemplating a merger between
SBI Communications, Inc., and Glendale Studios, Inc. Reference is made to a
$7,500,000 purchase price for Glendale Studios.
B. CHEROKEE INDIANS OF GEORGIA, INC.
Letter of intent dated October 2, 1992, contemplating construction of a
Bingo Hall funded and managed by SBI Communications, Inc., on real estate
provided by Cherokee Indians of Georgia, Inc.. SBI Communications, Inc., to
recover investment plus 10% annual interest and profits, if any, to be divided
40% to SBI Communications, Inc., and 60% to Cherokee Indians of Georgia, Inc.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 39
<PAGE>
C. PROMOTIONS INTERNATIONAL CORPORATION
Letter of intent dated March 28, 1996, between the Registrant and
Promotions International Corporation of Beverly Hills, California, contemplating
the granting of rights of first refusal, to Promotions International Corporation
to use the Registrant's services, equipment and proprietary technology, in order
to produce interactive television Bingo programming for any venue, world wide,
in exchange for license and rental fees, percentage of income and payments for
required operational personnel.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS AND PLAN OF OPERATION.
INTRODUCTION
The Registrant is currently in the development stage of its business
cycle. Since its inception, the Registrant has actively pursued licensing
agreements designed to generate royalty income in exchange for providing
software and methods involving bingo game production. In the past, the
Registrant entered into various agreements covering territories in Brazil,
Greece, Hong King, and Indian reservations, military bases, and charity bingo
parlors in the United States. Prior emphasis on these type of licensing
agreements has proven to be ineffective. No licensee currently has bingo
operations generating significant fees or royalties for the Registrant. The
majority of its current operating income is provided by managing bingo games for
certain non-profit charities in a facility owned by the Registrant. The majority
of future revenues, however, are not anticipated to occur in either of these
areas.
The Registrant hopes to generate significant future revenues from
telecommunications services involved in interactive bingo and television buying
shows by purchasing large blocks of long distance telephone time and reselling
such time to television audience users at a profit. Management currently
anticipates arranging contracts to purchase blocks of long distance telephone
time at rates of less than ten cents per minute. Television audience users will
call SBI telephone numbers to receive computer generated bingo playing cards.
There will be no charge for the card, but a charge for the telephone time it
takes to generate the card and communicate the information to the user.
Management anticipates an average telephone time usage of ten minutes per card
generated, and anticipates charging approximately one dollar per minute for such
time. Accordingly, management anticipates generating in excess of ninety cents
per minute profit on each telephone request for a bingo playing card, or
approximately nine dollars for each card requested. Management of the Registrant
has made this area of business their first priority, and most of the other plans
for the future are based on the success of the telecommunications area.
Management would like to broadcast the bingo show to as many viewers as
possible, and although there are no current foreign agreements, management's
plans are not limited to the U.S. Management intends to pursue contracts with
foreign countries and do some research into bingo on the Internet. Management
estimates that all significant costs to begin telecommunications operations have
already been incurred, but the Registrant must first locate a third party that
will contract with the Registrant to broadcast the bingo shows. Management is
not able to estimate the cost of expanding the telecommunications business
segment into foreign markets or onto the Internet at this
FORM 10-SB DATED JANUARY 8, 1997, PAGE 40
<PAGE>
time. Overall, management hopes to be able to generate significant net revenues
annually from this area of business. However, there can be no assurance that
management will succeed in finding an acceptable broadcasting vendor, or that
audience participation will be sufficient enough to provide adequate profit
margins to continue the venture.
Assuming success with the above concept, the Registrant also hopes to
expand operations through the acquisition of television production facilities
and rights to a television buying show. This would allow the Registrant to
produce their bingo show in their own studio and broadcast it over their own
network. It will also give management freedom to use their experience in
programming and production to produce other forms of interactive entertainment.
Diligently being examined are the legal opinions submitted for imminent
contractual arrangements between two companies with the Registrant, a major
international shop at home entity and a telecommunications Registrant. Both of
these entities are NASDAQ listed. Management feels confident that a deal will be
consummated by year end 1996 allowing the Registrant to commence operations on a
full scale in the telecommunications business segment.
The Registrant is continuing to search for avenues to develop future
revenue. In light of the preliminary and conditional nature of negotiations, no
assurance can be provided as to the likelihood that such proposed projects will
come to fruition, nor can management at this time make a reasonable estimation
of the cost to start such projects, or the future revenues or profits that might
be generated therefrom. A summary of projects currently being pursued is as
follows:
A) The Registrant is exploring the negotiation for the management contract
for THE MILL Resort & Casino (Bingo Operation). At the request of Full
House Resort, Inc., a public entity in joint partnership with the
Coquille Indian Tribe, THE MILL is negotiating with the Registrant to
utilize the experience of SBI through a management contract.
Negotiations are only in the preliminary stage at this time.
B) The Registrant is under agreement to acquire Deadwood Gulch Resort &
Casino in South Dakota. This is a twelve million dollar facility that
is presently wholly-owned and operated by the Full House Registrant.
The status at present is management is awaiting a decision by a
participating equitable entity. This project will not be able to be
consummated without such a participating entity.
C) The Registrant is planning a partnership with the Louisiana Charitable
Organization Alliance (LACOA), and the development of a senior citizens
television network. Such ventures will involve development of
television programs featuring interactive Bingo shows, auctions, and
factory direct sales. The LACOA project is currently awaiting passage
of legislation presented by Clenix Esensauter of Louisiana.
D) The Registrant is in the planning stage of the establishment of
a casino and bingo hall on real estate provided by the Cherokee Indians
of Georgia, Inc., which is also now subject to Bureau of Indian Affairs
(BIA) approval.
E) To add diversification, the Registrant is also exploring the
possible acquisition of Zacker's (Horizon) Gas of Tampa, Florida, a
retail propane gas Registrant with $3,000,000 in annual sales.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 41
<PAGE>
LIQUIDITY
The following table summarizes working capital and total assets:
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
Working Capital ($ 7,831) $ 102,830
Total Assets 7,783,047 8,179,490
At December 31, 1995, the Registrant's current assets exceeded its
current liabilities, creating a working capital surplus. The surplus is
primarily the result of the issuance of preferred convertible stock to liquidate
liabilities owed to shareholders, and in income provided by the Registrant's
operating activities relating to approximately $100,000 in fees collected from
charities that sponsor bingo games at the Registrant's bingo hall.
At September 30, 1996, the Registrant had current liabilities in excess
of current assets, principally due to administrative expenses incurred during
the development stage that have been funded by the majority stockholder in the
form of accrued salaries. $90,000 in salaries to management were accrued during
the nine months ended September 30, 1996. At September 30, 1996, a total of
$210,000 in salaries to management has been accrued. Management does not intend
to pay such accrued salaries until the Registrant has sufficient working capital
to do so while meeting operating needs. The Registrant has had some success in
issuing stock for services, and accordingly has kept the working capital deficit
to a minimum during the nine month period.
The change in total assets is principally attributable to the
Registrant's depreciation of the bingo hall and related equipment, as well as
the amortization of intangible assets. Depreciation and amortization totaled
$411,081 for the nine months ended September 30, 1996. In addition, during the
third quarter of 1996, management increased reserves for uncollectible
receivables by $87,500; and donated to the charity currently operating the bingo
hall $60,688 relating to game inventories (either previously used and billed to
the charity, but not yet paid for, or unused and still on site). These two
transactions resulted in a decrease in assets of $148,688.
As the Registrant continues to operate in the development stage, no
significant cash flow is being generated from operating activities. In early
1996, the charity operating the bingo hall struggled, and the Registrant
collected less funds than were needed to operate the games, as well as to cover
administrative costs and costs of the facility. The Registrant lowered rents
charged to the charity to $25,000 per month, significantly below the $75,000 per
month charged in 1995. As a result, the Registrant used $147,516 in net cash
flow for operations. The Registrant also acquired various operating equipment at
a cost of $38,064. To fund these cash flow needs, the Registrant was able to
obtain $250,000 in proceeds from a mortgage loan, but $61,000 of such proceeds
were needed to pay various loan inducement and closing costs, resulting in net
cash inflow from the loan of only $189,000. Overall, the Registrant experienced
a net increase in cash for the nine months of $1,464. Management anticipates the
charity operating the bingo hall to do sufficiently well in the future to allow
consistent payment of the $25,000 rent, as well as additional payments on older
receivable balances, which should strengthen the Registrant's cash flow from
operations.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 42
<PAGE>
CAPITAL RESOURCES
Since its inception, the Registrant's only significant sources of
capital have been from the sale of common stock and loans from shareholders. The
Registrant has also acquired significant assets through the sale of convertible
preferred stock. The Registrant anticipates continued expansion of its business
through acquisitions using Registrant stock. Furthermore, with the bingo hall
acquired in 1994 now operating more profitably, the Registrant anticipates
generation of revenues from the lease of this facility sufficient to cover
administrative costs still being incurred as the Registrant moves forward in its
development stage.
RESULTS OF OPERATIONS
The following table sets forth the relative relationship to total
revenue of the revenue categories in the Registrant's statement of income
(rounded to the nearest whole dollar).
<TABLE>
<CAPTION>
AMOUNT OF TOTAL REVENUE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Licenses & Royalties $ -0- $ -0- $ -0- $ -0-
Bingo Hall Operations 89,754 162,678 289,745 312,678
Interest Income 343 -0- 617 32
Total Revenue $90,097 $162,678 $290,371 $312,710
</TABLE>
In general, the Registrant experienced insignificant revenues in 1996
and 1995 as it attempted to expand and develop its operations. In 1995, the
Registrant was able to get a more stable charity to lease the bingo hall,
resulting in greater revenues in the three months ended September 30, 1995, as
opposed to any other prior 1995 quarter. However, due to a transition period in
early 1996 of charity management, bingo games were not as profitable as
anticipated, and rents were lowered from $75,000 per month in 1995 to $25,000
per month in 1996. This has resulted in a decline in operating revenues in 1996
compared to 1995 for both the quarter and year-to-date periods. The Registrant
has no other significant source of revenue at this time.
As the existing charity gains in experience, participation at the bingo
games has increased, allowing the charity to generate greater profits. This will
allow timely payment of current rent charges, as well as potential ability to
pay rents in the future closer to the $75,000 per month level originally agreed
to.
The Registrant's expenses can be summarized as follows:
FORM 10-SB DATED JANUARY 8, 1997, PAGE 43
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Salaries and related expenses $ 38,152 $ 38,263 $115,012 $104,263
Other general and administrative
expenses 249,687 83,497 430,251 225,965
Depreciation and amortization 137,107 156,951 411,081 403,449
Interest and finance charges 27,717 -0- 54,628 193
Other 12,918 -0- 21,116 -0-
Amount of Total Expenses $465,581 $278,711 $1,032,088 $733,870
</TABLE>
One of the most significant expenses relates to the amortization of
trademark, game show and computer program assets the Registrant has developed.
The expense is running $265,960 per year, or approximately $66,000 per quarter.
Such assets will be fully amortized at the end of 1996. The Registrant also has
depreciation on the bingo hall and related equipment, which approximates
$275,000 per year, or $69,000 per quarter. These expenses do not require the use
of cash. As explained previously, the Registrant made adjustments to receivable
and inventory balances in the third quarter of 1996, resulting in one time
charges to general and administrative expenses of approximately $148,000. The
Registrant also obtained debt financing in late 1995, and again in the spring of
1996, resulting in interest expense in 1996 with no corresponding expense in
1995. Interest expense includes about $17,000 in amortization of deferred loan
costs for the nine months ended September 30, 1996.
Should the Registrant successfully acquire production facilities and
broadcast companies under consideration, or expand operations in areas
previously discussed as currently under consideration, revenues and expenses of
the Registrant would change significantly. Management is not able to predict the
impact of such changes on revenues or expenses at this time.
IMPAIRMENT OF LONG LIVED ASSETS
Although the Registrant has generated significant losses over the
years, charity operations of the bingo hall are beginning to stabilize, and
appear to be at a level to insure a minimum of $300,000 of annual rental income,
with potential of $900,000 of annual rental income, as well as additional income
relating to management services provided. This revenue should be sufficient to
enable the Registrant to generate profits in the future. This, coupled with the
potential proceeds from the sale of the bingo hall itself at some future date,
has convinced management that the Registrant will ultimately collect net
revenues from ownership of the bingo hall in excess of the recorded cost of the
related fixed assets. Accordingly, management does not believe any adjustment in
the recorded amounts of such assets is warranted under the new accounting rules
relating to the impairment of long lived assets.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 44
<PAGE>
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
See Notes To Consolidated Financial Statements included elsewhere in
this filing for a description of the Registrant's calculation of earnings per
share.
ITEM 3. DESCRIPTION OF PROPERTIES
The Registrant's principal offices are located in Piedmont, Alabama, in
facilities purchased by the Registrant on December 16, 1994, for $6,500,000
(paid in shares of the Registrant's preferred stock, valued at $5.00 per share).
The facility is comprised of 80,000 square feet of usable space under roof, and
includes a Bingo hall. The Bingo hall, including the personal property owned by
the Registrant and maintained therein, has been leased on a month to month basis
by the Registrant to Piedmont Jaycees, Inc. since August 10, 1995. The rental
for the building and equipment located therein is $75,000 per month or $7,000
per day, whichever is greater, plus all other defined expenses, excluding
insurance, ad valorem taxes, assessments, repairs, upkeep, maintenance and
similar expenses.
The Registrant also has a branch office at 1332 South Glendale Avenue,
Glendale, California, and Production Studio and transmission facilities are
obtained from third parties at competitive rates. The premises are comprised of
approximately 3,000 square feet for which the Registrant pays $1,000 per month.
The lease is scheduled to expire on December 31, 1996; however, the Registrant
is confident that it can be renewed on favorable terms.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT
The following table sets forth, as of the date of this Registration
Statement, the number and percentage of shares of common stock owned of record
and beneficially by any group (as that term is defined for purposes of Section
13(d)(3) of the Exchange Act), person or firm that owns more than five percent
(5%) of the Registrant's outstanding common stock (the Registrant's only class
of voting securities).
FORM 10-SB DATED JANUARY 8, 1997, PAGE 45
<PAGE>
NAME AND ADDRESS OF AMOUNT OF NATURE OF PERCENT OF
BENEFICIAL OWNER * SHARES OWNERSHIP CLASS
- ------------------ --------- --------- ----------
Ronald Foster 1,632,089 Record & 32%
144-A North Court House Avenue Beneficial
Leesburg, Georgia, 31763
Larry Cahill 1,000,000 Record & 19%
3330 Southgate Court Beneficial
Cedar Rapids, Iowa 52404
Michael Graham 500,000 Record & 10%
1804 Cherry Lane Beneficial
Bluefield, West Virginia 24701
- -----
* Includes all stock held either personally or by affiliates.
(B) SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of the date of this Registration
Statement, the number and percentage of the equity securities of the Registrant,
its parent or subsidiaries, ,owned of record or beneficially by each officer,
director and person nominated to hold such office and by all officers and
directors as a group.
<TABLE>
<CAPTION>
TITLE OF NAME OF AMOUNT NATURE OF PERCENT OF
CLASS BENEFICIAL OWNER SHARES OWNERSHIP CLASS
- -------- ---------------- --------- --------- ----------
<S> <C> <C> <C> <C>
Common Ronald Foster 1,632,089 ** 32.00%
Common Kathy Hunt 0 *** 00.00%
Common Thomas Barrett 0 *** 00.00%
Common Claude Pichard 10,000 ** 00.07%
Common Betty Rodgers 5,000 *** 00.035%
Common Mel Ray 0 *** 00.00%
Common Michael McGlothin 0 *** 00.00%
Common All officers and directors
as a group (5 people) 1,647,089 ** 33.05
<FN>
- -----
* Includes all stock held either personally or by affiliates.
** Record & Beneficial.
*** Not Applicable.
</FN>
</TABLE>
To the best knowledge and belief of the Registrant, there are no
arrangements, understandings, or agreements relative to the disposition of the
Registrant's securities, the operation of which would at a subsequent date
result in a change in control of the Registrant.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 46
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of the members of the
Registrant's board of directors and its executive officers, the positions with
the Registrant held by each, and the period during which each such person has
held such position.
NAME AGE POSITION SINCE
- ---- --- -------- -----
Ronald Foster 54 President/Chairman of the Board 1986
Betty Rodgers 52 Secretary/Treasurer/Director 1986*
Kathy Hunt 46 Secretary/Treasurer/Director 1994
Thomas Barrett 26 Vice President 1995
Claude Pichard 41 Vice President/Director 1986
Mel Ray 55 Director 1994
Michael McGlothlin 44 Director 1994
- ------
* Mrs. Rodgers served in such positions until 1994.
Messrs. Fosters, Barrett, and Pichard and Ms. Hunt are all engaged with
the Registrant's business on a full time basis.
All directors hold office until the next annual meeting of stockholders
of the Registrant (currently expected to be held during March of 1997) and until
their successors are elected and qualified. Officers hold office until the first
meeting of directors following the annual meeting of stockholders and until
their successors are elected and qualified, subject to earlier removal by the
board of directors. There are currently no committees of the board of directors.
BIOGRAPHIES OF THE REGISTRANT'S EXECUTIVE OFFICERS AND DIRECTORS
RONALD FOSTER
Mr. Foster, 54, is presently Chairman, President, Chief Executive
Officer, and Executive Producer for SBI Communications, Inc. He has been working
with the Registrant since its inception in 1984. His primary responsibilities
include operations, finance, marketing and technical review. In addition to his
responsibilities with the Registrant, Mr. Foster has held a number of other
management positions over the years. From 1984 to 1986, he was executive vice
president and producer of Pioneer Games of American Satellite Bingo, in Albany,
Georgia. Mr. Foster was also owner and operator of Artist Management &
Promotions where he was responsible for coordinating television entertainers,
sports figures and other celebrities for department store promotions. Since
1987, Mr. Foster has served as president and director of Ed-Philis, Inc., a
Nevada corporation and is now an executive vice president and member of the
board of directors of Golden American Network, a California corporation. Since
1984, he has also been the president and chief executive officer of ROPA
Communications, Inc., which owns and operates WTAU-TV-19 in Albany, Georgia. He
created and produced "Stock Outlook 87, 88, and 89," a video presentation of
public companies through Financial News Network (FNN), a national cable network.
Mr. Foster also has
FORM 10-SB DATED JANUARY 8, 1997, PAGE 47
<PAGE>
experience as technical director and associate producer for numerous national
live sports broadcasts produced by ABC, CBS and WTBS.
BETTY RODGERS
Ms. Rodgers, 52, was the Secretary, Treasurer and a Director of the
Registrant fom 1986 until 1994. Her primary responsibilities included general
business, legal and administrative matters. Ms. Rodgers has extensive experience
in the entertainment field. From 1967-83, she was the secretary and treasurer of
the Rodgers Agency, Inc., a company that booked and managed entertainment
artists for companies around the world. Since 1983, she has been president of
Rodgers of Atlanta, Inc., an agency for the Arabian-American Oil Company
(Aramco) that provides entertainment and recreational instructors for American
employees in Aramco communities.
KATHY HUNT
Ms. Hunt is 46 years old and resides in Cedartown, Georgia. Ms. Hunt
graduated from Berry College with a bachelor of science degree in Secretarial
Science. Ms. Hunt has extensive experience in executive secretarial business,
including the governmental (State of Georgia) and private sectors. She has
extensive background in the field of bookkeeping, accounting, procurement,
contract management, statistical data compilation, personnel management and laws
governing confidentiality. She is currently employed as bookkeeper and
accountant for SBI Communications, Inc.
CLAUDE PICHARD
Mr. Pichard, 41, has been a Vice President and a director for the
Registrant since 1986. His primary responsibilities include directing and
developing the interactive Bingo and auction programs. Mr. Pichard has over
twenty years of television experience as a producer, director and scriptwriter.
He served as creative services director at WCTV in Tallahassee, Florida, where
he headed an award-winning team of directors, writers and artists for the number
one station in its market. He has also worked with numerous Hollywood-based game
shows and was the director for the Bolivian National Lottery game. In addition
to his responsibilities with the Registrant, Mr. Pichard also serves as a
research and training specialist with the Florida Department of Law Enforcement
where he supervises the production of training tapes, public service
announcements and media related courses. Mr. Pichard holds a bachelor of science
degree in mass communications from Florida State University.
MEL RAY
Mr. Ray is 55 years old and resides in Tampa, Florida. Mr. Ray has been
an executive in the bottled and natural gas industries for more than 30 years,
and currently manages six gas companies in the state of Florida, ranging from
the west coast Tampa area all the way to the east coast of Florida. Mr. Ray's
extensive experience in utility companies gives him a great understanding of
local and federal government regulations. Due to the nature of his business, Mr.
Ray also possesses knowledge concerning hazardous materials transportation, bulk
purchasing, retail sales, management, marketing, acquisition, and personnel. Mr.
Ray has 20 years of experience operating
FORM 10-SB DATED JANUARY 8, 1997, PAGE 48
<PAGE>
some of the most profitable divisions of Tropi-Gas, Petrolane, and Star Gas as
an executive both in its international and domestic markets. Mr. Ray is an
officer and director of the company.
MICHAEL MCGLOTHLIN
Mr. McGlothlin is 44 years old and resides in Pounding Mill, Virginia.
He is a graduate in Business and Physics from Hampden-Sydney College in
Virginia, and has extensive experience in the mining, processing and trucking
industry. Mr. McGlothlin currently owns and operates a mineral grinding
facility, a land fill facility, and a fleet of 70 diesel trucks. Mr.
McGlothlin's experience in mining and landfills gives him extensive knowledge in
federal regulations. Mr. McGlothlin demonstrates the ability to use computers to
their fullest potential and has the ability to notice potential problems at an
early stage and correct them before they grow. Mr. McGlothlin has extensive
experience in management, personnel, cost control, marketing, federal, state and
local regulations. Mr. McGlothlin is an officer and director of the company.
THOMAS BARRETT
Mr. Barrett, age 26, serves as a vice president of the Registrant. He
received his Bachelor of Science Degree in Finance from the University of
Georgia in 1993. From 1988 until 1991, he was employed in Chicago as a broker
assistant to a local currency futures trader, Mark Dehetogh, at the Chicago
Mercantile Exchange, and in 1991 worked for Refco Corp. as an assistant bond
trader at the Chicago Board of Trade. From 1994 until 1995 he was employed as
head of charity by the Steelworker's Assistance Fund at its Flamingo Bingo
operation in Piedmont Alabama. From 1994 until joining the Registrant in 1995,
Mr. Barrett was employed as assistant manager for Bingo matters by Elkhorn
Valley Development Corp., at it's Frontier Palace operation in Piedmont,
Alabama.
FAMILY RELATIONSHIPS
There are no family relationships among directors, executive officers
or persons chosen by the Registrant to be nominated as a director or appointed
as an executive officer of the Registrant of any of its affiliated subsidiaries.
Mrs. Betty Rodgers, a former director was the sister of the Registrant's
Chairman, Ronald Foster.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
To the best knowledge and belief of the Registrant, during the past
five years, no present or former director, executive officer or person nominated
as a director or appointed as an executive officer of the Registrant or any of
its affiliated subsidiaries, has been involved in:
(1) Any bankruptcy petition by or against any business of which such
person was a general partner or executive either at the time of
the bankruptcy or within two years prior to that time;
(2) Any conviction in criminal proceeding or subject to a pending
criminal proceeding (excluding traffic violations and other minor
offenses);
FORM 10-SB DATED JANUARY 8, 1997, PAGE 49
<PAGE>
(3) Being subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily, barring, suspending, or
otherwise limiting his involvement in any type of business,
securities or banking activities; and
(4) Being found by any court of competent jurisdiction (in a civil
action), the Commission or the Commodities Futures Trading
Commission to have violated a federal or state securities or
commodities law, and the judgment has not been reversed, suspended
or vacated.
ITEM 6. EXECUTIVE COMPENSATION
The Summary Compensation Table below sets forth all compensation paid
to the Officers and Directors of the Registrant during the Registrant's year
ended December 31, 1994, and 1995. Prior to June of 1992, the date on which a
change in control of the Registrant was effected and current management took
over their respective positions, previous management conducted no business, the
Registrant was inactive and no compensation was paid or deferred to any of the
Registrant's officers or directors.
<TABLE>
<CAPTION>
1994 SUMMARY COMPENSATION TABLE
NAME ANNUAL COMPENSATION LONG TERM COMPENSATION
AND AWARDS AWARDS LTIP ALL
PRINCIPAL RESTRICTED RESTRICTED PAY- OTHER
POSITION SALARY BONUS OTHER STOCK OPTIONS OUTS COMPENSATION
- -------- ------ ----- ----- ----- ------- ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald Foster ** * * * * * * *
Betty Rodgers *** * * * * * * *
Claude Pichard + * * * * * * *
Kathy Hunt (1) * * * * * * *
Mel Ray (2) * * * * * * *
Michael McGlothlin (3) * * * * * * *
</TABLE>
<TABLE>
<CAPTION>
1995 SUMMARY COMPENSATION TABLE
NAME ANNUAL COMPENSATION LONG TERM COMPENSATION
AND AWARDS AWARDS LTIP ALL
PRINCIPAL RESTRICTED RESTRICTED PAY- OTHER
POSITION SALARY BONUS OTHER STOCK OPTIONS OUTS COMPENSATION
- -------- ------ ----- ----- ----- ------- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald Foster ** (5) * * * * * *
Betty Rodgers *** * * * * * * *
Claude Pichard + * * * * * * * *
Kathy Hunt (1) (6) * * * * * *
Mel Ray (2) * * * * * * *
Michael McGlothlin (3) * * * * * *
Thomas Barrett (4) (7) * * * * * *
<FN>
- ----
* None.
** President, Chairman and Chief Executive Officer.
*** Former Secretary, Treasurer and Chief Financial Officer.
+ Vice President.
(1) Secretary and Treasurer.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 50
<PAGE>
(2) Director.
(3) Director.
(4) Vice President.
(5) $120,000.
(6) $10,690.
(7) $1,500.
(8) No person listed has any options to acquire securities of the kind
required to be disclosed pursuant to instruction 1 of Item 403 of
Regulation SB.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS
The Registrant is a party to an employment agreement with Ronald
Foster, a copy of which is filed as an exhibit to this registration statement.
The following summary thereof is qualified in its entirety by reference to such
exhibit.
On January 1, 1992, Mr. Foster entered into a ten year employment
agreement with the Registrant, renewable thereafter for continuing one year
terms unless one of the parties provides the other with written intention not to
renew, on or before the 180th day prior to expiration of the then current term.
Although the agreement can be terminated by the Registrant for cause, or the
Registrant's stockholders can refuse to comply with its terms by not re-electing
Mr. Foster as a director, such events accelerate Mr. Foster's rights to
compensation under the Agreement.
The Agreement provides the Registrant with an obligation to defend and
indemnify Mr. Foster to the fullest extent legally permitted, and calls for the
following compensation:
(a) Mr. Foster is entitled to an annual bonus payable in shares of the
Registrant's common stock, determined by dividing 10% of the
Registrant's pre-tax profits (excluding depreciation) for the subject
calendar year by the average bid price for the Registrant's common
stock during the last five trading days prior to the end of the last
day of each year and the first five days of the new year, PROVIDED,
HOWEVER, that the agreement shall have been in effect for at least one
business day during the subject year.
(b) Mr. Foster is entitled to an annual cash bonus in a sum equal to 5% of
the Registrant's gross annual income or 10% of the Registrant's net
pre-tax profit (excluding depreciation), whichever is less.
(c) Mr. Foster is entitled to a salary starting at $10,000 per month, but
subject to review on a quarterly basis, with the expectation that it
will be substantially increased as increased profits and cash flow from
operations permit.
(d) In addition to the foregoing, Mr. Foster is entitled to a benefit
package equal to the most favorable benefit package provided by the
Registrant or its subsidiaries to any of their employees, officers,
directors, consultants or agents.
All required payments are accruing until such time as the Registrant
has adequate funds to meet its operating expenses and commitments.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 51
<PAGE>
COMPENSATION UNDER PLANS
None of the Registrant's executive officers have received or become
entitled to any cash or non-cash compensation under any Registrant plans (as the
term "plan" is defined in Instruction 6(ii) to Item 402(a)(2) of Regulation S-B,
promulgated by the Securities and Exchange Commission) during the last calendar
year, nor have they been awarded any stock options or other forms of indirect
compensation by the Registrant.
MANNER OF DETERMINING EXECUTIVE COMPENSATION
Executive compensation is determined by the Registrant's Board of
Directors, without pre-established policies, based on negotiations with the
executive officer involved. The executive officer involved is not precluded from
voting in favor of his or her compensation, if he or she is also a member of the
Registrant's Board of Directors. Decisions are based on the respective
bargaining strength of the parties.
ARRANGEMENTS WITH DIRECTORS
Other than as indicated below there are no arrangements or
understandings regarding compensation for services provided as a director,
including any additional amounts payable for committee participation or special
assignments.
COMPENSATION OF DIRECTORS
All officers and directors will be reimbursed for any expenses incurred
on behalf of the Registrant. Directors will be reimbursed for expenses
pertaining to attendance at meetings of the Registrant's board of directors ,
including travel, lodging and meals. They will also, at such time as the
Registrant has sufficient revenues from operations, receive a fee of $250 per
day for all Board meetings attended, including meetings of committees of the
Board. Non-salaried officers and directors may be retained by the Registrant as
consultants paid consulting fees deemed appropriate by the board of directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
HISTORICAL BACKGROUND
SBI Communications, Inc., a publicly held Delaware corporation (the
"Registrant"), was originally organized in the State of Utah on September 23,
1983, under the corporate name Alpine Survival Products, Inc. Its name was
changed to Justin Land and Development, Inc., during October of 1984, and to
Supermin, Inc., on November 20, 1985.
On September 29, 1986, Supermin, Inc., concluded a reorganization
pursuant to Section 368(a)(1)(B) of the Internal Revenue Code of 1954, as
amended, pursuant to which it exchanged
FORM 10-SB DATED JANUARY 8, 1997, PAGE 52
<PAGE>
200,000 shares of its common stock, $.001 par value for all of the capital stock
of Satellite Bingo, Inc., a Georgia corporation organized on January 10, 1986,
and the originator of the Registrant's current business. In conjunction with
such reorganization, the former stockholders of the SBI Subsidiary, acquired
control of the Registrant and the Registrant changed its name to Satellite
Bingo, Inc.
On March 10, 1988, the Registrant changed its name to SBI
Communications, Inc., its current name, and on January 28, 1993, the Registrant
reincorporated into Delaware through a statutory merger with a wholly owned
Delaware subsidiary, in reliance on the exemption from registration requirements
of Section 5 of the Securities Act of 1933, as amended, provided by Rule
145(a)(2) promulgated thereunder.
INITIAL PUBLIC OFFERING
During 1983, the Registrant completed a public offering of its 125,000
shares of its authorized but previously unissued securities in reliance on
Securities and Exchange Commission Rule 504 of Regulation D. The offering was
registered by qualification with the State of Utah.
The offering price was arbitrarily determined at $.20 per share, and
the Registrant received gross proceeds of $25,000. Offering expenses were
$2,681. The placement agent was Bryan K. Johnson, then the Registrant's
president, and the initial transfer agent was Fidelity Transfer Company with
offices at 321 Boston Building; Salt Lake City, Utah 84111.
TRANSACTIONS WITH PROMOTERS
Bryan K. Johnson and Frank C. Trinniman were described as the original
founders, parents and promoters of the Registrant (as those terms are defined in
Regulation C promulgated under authority of the Securities Act of 1933, as
amended) in the Registrant's original public offering prospectus. However, as a
result of the reorganization described above, it would be more accurate to
consider Mr. Ron Foster as the founder, parent and promoter of the Registrant,
as presently constituted.
In conjunction with the reorganization of the Registrant (described
below), Mr. Foster received 200,000 shares of the Registrant's Common Stock in
exchange for all of his capital stock in the SBI Subsidiary.
REORGANIZATION
On or about September 23, 1986, the Registrant (then operating as
Supermin, Inc.) entered into a reorganization agreement with the stockholders of
Satellite Bingo, Inc., a Georgia corporation, pursuant to which the Registrant
exchanged 200,000 shares of its authorized but theretofore unissued common
stock, $.001 per share par value, for all of the capital stock of the SBI
Subsidiary. As a result of such transaction, the former stockholders of the SBI
Subsidiary, became the Registrant's controlling stockholders (holding 200,000 of
the 360,000 shares outstanding upon completion of the reorganization.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 53
<PAGE>
Immediately following the reorganization, the officers and directors
(Ron Foster, Frank C. Cooper, Michael C. Hall, Kenneth P. McDougal, and Betty
Rodgers) of the SBI Subsidiary, were elected as the Registrant's officers and
directors, and the Registrant's name was changed to Satellite Bingo, Inc.
The transaction was structured in a manner designed to meet the tax
free reorganization provisions of Section 368(a)(1)(B) of the Internal Revenue
Code of 1986, as amended, and securities were issued in conjunction therewith
without registration under the provisions of Section 5 of the Act pursuant to
exemptions provided by Sections 3(b), 4(1), 4(2) or 4(6) thereof.
RELATED PARTY TRANSACTIONS
RONALD FOSTER
On January 15, 1991, the Registrant issued 250,000 shares of its Common
Stock to Ron Foster in consideration for cancellation of $250,000 in debt. The
transaction was effected in reliance on the exemption from registration under
Section 5 of the Securities Act of 1933, as amended, provided by Section 4 (2).
On October 3, 1991, the Registrant issued 250,000 shares of its Common
Stock to Ronald Foster as an inducement to make the Registrant a loan in the
amount of $250,000, in reliance on the exemption from registration under Section
5 of the Securities Act of 1933, as amended, provided by Section 4 (2). During
October of 1991, the Registrant issued 500,000 shares of its Common Stock to
Ronald Foster as full payment for a $500,000 indebtedness to him for a series of
loans made by him to the Registrant. The stock was valued at $1.00 per share
despite the fact that, between July 1, 1991 and September 30, 1991, the stock
was trading at prices ranging from $1.60 and $3.00 per share, because such
shares were unregistered. The transaction was unanimously approved by the
Registrant's Board of Directors, including the unanimous vote of all
disinterested directors. The decision was ratified by the Registrant's
stockholders at a meeting on June 3, 1992.
On November 16, 1991, the Registrant issued 468,000 shares of its
Common Stock to Ronald Foster in exchange for (i) copyrights, (ii) 25,000,000
Bingo cards, (iii) cups and T-shirts for the Bingo Club, (iv) prizes for set,
(v) computer software, (vi) electronic boards, (vii) 2 Rebus puzzle boards,
(viii) 40 ft. trailer, (ix) federal trademark number 1473709, (x) video library,
including copyrights issued in relationship thereto, and (xi) brochures, which,
in the aggregate were valued at $2,810,400. The transaction was effected in
reliance on the exemption from registration under Section 5 of the Securities
Act of 1933, as amended, provided by Section 4 (2). The stock was valued at
$6.00 per share (during the period from October 1, 1991 to December 31, 1991,
the Registrant's Common Stock traded at prices ranging between $2.00 and $7.00
per share). The exchange valuation was based on a third party appraisal of the
subject assets, approved by the Registrant's Board of Directors (including the
affirmative vote of all disinterested directors), and ratified by the
Registrant's stockholders at a stockholders' meeting held on June 3, 1992.
On November 16, 1991, the Registrant issued 500,000 shares of its
Common Stock to Ronald Foster in consideration for cancellation of outstanding
indebtedness of the Registrant in
FORM 10-SB DATED JANUARY 8, 1997, PAGE 54
<PAGE>
the amount of $500,000.
During 1994 and for several other prior years, Mr. Ron Foster, the
Registrant's principal shareholder, who also serves as Chief Executive Officer,
personally funded the majority of the Registrant's operations. All amounts owed
to Mr. Foster, including amounts originally evidenced by interest bearing notes,
were converted to non-interest bearing advances effective January 1, 1993. The
majority of these advances were repaid in 1995 through the issuance of 90,000
shares of preferred stock. During 1995, the Registrant accrued salary payable to
the Registrant's principal shareholder totaling $120,000.
All amounts owed to Mr. Foster are payable on demand. During 1994, the
Registrant received advances from Mr. Foster of $56,564, and made repayments to
Mr. Foster of $5,000. As of December 31, 1994, the Registrant owed $460,933 to
Mr. Foster. During 1995, the Registrant made repayments (on a net basis) to Mr.
Foster (exclusive of the preferred stock transaction described above) of $6,777
(in addition to the preferred stock transaction described above).
PETER PAPAS
In October, 1995 the Registrant borrowed $250,000 from a trust managed
by a shareholder, in the form of a mortgage note. The note is payable in full on
October 15, 1996, with interest payable quarterly at prime plus 3%, secured by
all corporate property up to $1,000,000 in value. The holder has the right to
convert the mortgage note to common stock at a price of three dollars per share.
This conversion privilege expires on July 15, 1996. Interest expense related to
this note totaled $5,729 for the year ended December 31, 1995. As an inducement
to consummate this transactions, the Registrant issued 40,000 shares of
preferred stock to the individual. This stock has been valued at $200,000 in the
Registrant's financial statements, with the Registrant recording a corresponding
amount as a finance charges expense for the year ended December 31, 1995.
All of the foregoing transactions involving issuance of securities were
effected in reliance on the exemption from registration under Section 5 of the
Securities Act of 1933, as amended, provided by Section 4(2) thereof.
OTHER OFFICERS OR DIRECTORS
On January 9, 1992, the Board voted to issue 5,000 shares of the
Registrant's Common Stock to Claude Pichard and to Betty Rodgers as compensation
for services to the Registrant in their capacities as officers and directors of
the Registrant, on the basis of the Registrant's inability to pay them cash
compensation. While Mr. Pichard and Ms. Rodgers, as directors of the Registrant,
voted in favor of the authorizing resolution, Ronald Foster, the disinterested
member of the Board of Directors who reviewed this transaction, also voted in
favor of the resolution. However, Mr. Foster is the brother of Betty Rodgers. In
order to avoid the appearance of conflicting interest, the action was ratified
by the Registrant's stockholders vote at a meeting held on June 3, 1992.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 55
<PAGE>
GLENDALE STUDIOS
On November 19, 1990, the Registrant issued 100,000 shares common stock
(adjusted for one for 20 reverse stock split) to Glendale Studios in
consideration for $468,000, in reliance on the exemption from registration under
Section 5 of the Securities Act of 1933, as amended, provided by Section 4(2)
thereof.
LOANS TO AFFILIATES
No (i) director or executive officer of Registrant, (ii) nominee for
election as a director, (iii) member of the immediate family of persons
described in (i) or (ii), (iv) corporation or organization (other than
Registrant or majority owned subsidiary of Registrant) of which any of the
persons specified in (i) or (ii) is an executive officer or partner is directly
or indirectly, the beneficial owner of 10% or more of any class of equity
securities, nor (v) any trust or other estate in which any of the persons
specified in (i) or (ii) has a substantial beneficial interest or as to which
such person serves as a trustee or in a similar capacity, has been indebted to
the Registrant or its subsidiaries at any time since January 1, 1991 in an
amount in excess of $60,000.
LIMITATIONS ON LIABILITY
On March 10, 1988, the Registrant's stockholders voted to adopt
provisions authorized by Section 16-10-49.1 of the Utah Business Corporation
Act, eliminating the liability of the Registrant's officers and directors for
monetary damages arising as a result of a breach of fiduciary duties. Such
limitation on liability does not not include a breach of the duty of loyalty to
the Registrant or its stockholders; acts or omissions not in good faith or which
involve intentional misconduct or knowing violations of law; actions specified
in Section 16-10-44 of the Utah Business Corporation Act; or, any transactions
from which a director derived an improper personal benefit.
Such provision was adopted in order to permit the Registrant to recruit
qualified personnel who were otherwise not inclined to subject themselves to
potential frivolous litigation by disgruntled stockholders, short sellers and
others.
REVERSE STOCK SPLIT & RE-INCORPORATION
On February 1, 1993, the Registrant merged with a wholly owned Delaware
subsidiary in order to change its corporate domicile to the State of Delaware.
Such re-incorporation was deemed in the best interests of the Registrant by
management for two reasons. First, the State of Utah has been perceived by the
investment community as a haven for "penny stock" companies frequently
associated with violations of applicable securities laws, while the State of
Delaware serves as the state of domicile for many of the countries most
respected corporations. Secondly, the corporate law of the State of Delaware has
been subject to detailed analysis and interpretation by the Delaware courts in a
manner making operation under Delaware law significantly more predictable than
under the laws of most other states. Such predictability significantly
simplifies long range corporate planning.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 56
<PAGE>
In conjunction with such re-incorporation, the Registrant effected a
one share for twenty reverse stock split and increased its authorized
capitalization. As a result, the Registrant is now authorized to issue
40,000,000 shares of common stock, $0.001 par value, and 10,000,000 shares of
preferred stock, $5.00 par value. Immediately prior to the reverse stock split,
the Registrant had 49,015,117 shares outstanding. As a result of the reverse
stock split, as of February 1, 1993, the Registrant's outstanding common stock
was reduced to 2,450,856 shares (after rounding up all fractional shares).
COMPARABILITY OF TERMS
It is the opinion of the Registrant's current management that in each
transaction described above since current management assumed control of the
Registrant, the terms of transactions involving the Registrant's officers and
directors were materially more favorable to the Registrant than it could have
obtained from unrelated sources.
ITEM 8. DESCRIPTION OF SECURITIES
GENERAL
The Registrant is authorized to issue 50,000,000 shares of capital
stock, 40,000,000 shares of which are designated as common stock, $.001 par
value per share, and the balance as preferred stock, $5.00 par value per share.
Immediately prior to this registration 5,345,439 shares of Common Stock
were outstanding (excluding the 2,500,000 shares held but not yet allocated by
the Registrant's Employees' Trust) and held of record by approximately 3,244
persons. In addition, 1,668,000 shares of preferred stock were outstanding, and
held by approximately five persons.
Corporate Stock Transfer, 370 17th Street, Suite 2350; Denver, Colorado
80202, acts as transfer agent and registrar for the Registrant's common and
preferred stock.
COMMON STOCK
The following statement is a summary of the rights and privileges of
the holders of the Registrant's Stock. It does not purport to be complete and is
subject to the provisions of the Delaware General Corporation Act, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules, regulations and bylaws of the National Association of
Securities Dealers, Inc. The following statements are qualified in their
entirety by such references.
DIVIDEND RIGHTS
Holders of shares of the Registrant's common voting stock are entitled
to receive, out of funds legally available, such dividends as may be declared by
the Registrant's Board of Directors. The Registrant, as of the date of this
registration statement, cannot forecast with any certainty, when and if any
dividends will be paid, although the Registrant does not anticipate paying any
FORM 10-SB DATED JANUARY 8, 1997, PAGE 57
<PAGE>
dividends prior to its year ended December 31, 1996.
VOTING RIGHTS
Holders of shares of the common voting stock are entitled to one vote
per outstanding share held on a designated record date, on each matter submitted
to a vote at a meeting of shareholders. Each holder may exercise such vote
either in person or by proxy. A majority of the outstanding shares of common
stock present at a duly convened meeting, appearing in person or by proxy,
constitutes a quorum for shareholders meetings. Except with respect to amending
the Articles of Incorporation, which requires an affirmative vote of a majority
of the Registrant's shares issued and withstanding, other matters to be acted
upon by shareholders at any meeting of the shareholders require the affirmative
vote of a majority of the shareholders voting in person or by proxy, provided a
quorum, as defined above, is established. The holders of the common stock of the
Registrant are not entitled to cumulative voting in election of Directors, and
shareholders are denied any pre-emptive rights.
LIQUIDATION RIGHTS
Upon liquidation, dissolution or winding up of the Registrant, the
shareholders would be entitled to share on a pro-rata basis in assets available
for distribution to shareholders.
PURCHASE AND REDEMPTION
Subject to special rights and restrictions appurtenant to any class of
the Registrant's securities, the Registrant may, in compliance with the Deleware
General Corporation Laws, repurchase shares of its common stock or redeem any
class of its shares which are redeemable, unless a proposed purchase or
redemption would render the Registrant unable to meet its liabilities as they
mature. The Registrant is not aware of any restriction in purchasing shares of
its common stock on the open market, other than those imposed by rules
promulgated by the Securities and Exchange Commission pursuant to authority of
Section 10(b) of the Securities Exchange Act of 1934, as amended (e.g., RULES
10B-6 AND 10B-18).
MISCELLANEOUS
The common stock of the Registrant has no conversion, subscription, or
sinking fund rights. All shares when issued, are fully paid, non-assessable and
not liable to further calls or assessments.
PREFERRED STOCK
All attributes of the currently unissued preferred stock will be
determined by the Registrant's board of directors prior to issuance, as
permitted by and subject to the requirements of applicable Delaware law. The
currently outstanding preferred stock has a $5.00 per share par value and a
$5.00 per share liquidation preference; paying no dividend but convertible into
common stock upon demand at a conversion rate equal to $5.00 per share divided
by the market value of the common stock at the date of conversion. The preferred
stock has no voting rights
FORM 10-SB DATED JANUARY 8, 1997, PAGE 58
<PAGE>
except as to matters specifically dealing with changes in the attributes of the
preferred stock.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET FOR COMMON EQUITY
The Registrant's stock is traded on the NASDAQ OTC Electronic Bulletin
Board. The Registrant currently has 5,345,439 shares of stock outstanding, with
750,000 in the public float. There are approximately 3,244 shareholders of
record. For the fiscal year ended December 31, 1995, the Registrant reported
revenues of $604,873 and a net loss of $(769,232).
The Common Stock of Registrant has been traded over-the-counter since
1983. Its trading symbol is "SBID." No established public trading market exists
for the Common Stock of Registrant at this time. As of the date of this
registration statement:
No common equity is subject to options or warrants to purchase or
securities convertible into common stock, except for the currently
issued 1,668,000 shares of preferred stock which are convertible into
common stock, as described below (see Part II, Item 8 "Description of
Securities");
No common stock is currently being offered or proposed to be offered
which offering could be reasonably expected to have a materially
adverse effect on the market price of the Registrant's common equity;
and
There are approximately 5,345,439 shares of common stock which will
become eligible for sale by December 31, 1996, pursuant to the
provisions of Securities and Exchange Commission Rule 144.
The Registrant has not agreed to register securities for resale under
the Securities Act of 1933, as amended, for anyone.
The following table sets forth in United States dollars the high and
low bid quotations for such shares. Such bid quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commissions, and do not necessarily
represent actual transactions. The source of the following information is the
National Daily Quotation System, Inc.'s "Pink Sheets" and the National
Association of Securities Dealers, Inc.'s Nasdaq Bulletin Board.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 59
<PAGE>
Date LOW HIGH
BID BID
------- ------
July 1, 1996 - September 30, 1996 $ 0.125 $ 0.25
April 1, 1996 - June 30, 1996 $ 0.1875 $ 0.375
January 1, 1996 - March 31, 1996 $ 0.25 $ 0.50
October 1, 1995 - December 31, 1995 $ 0.62 $ 1.37
July 1, 1995 - September 30, 1995 $ 0.50 $ 1.56
April 1, 1995 - June 30, 1995 $ 0.12 $ 1.75
January 1, 1995 - March 31, 1995 $ 0.12 $ 0.375
October 1, 1994 - December 31, 1994 $ 0.03 $ 0.06
July 1, 1994 - September 31, 1994 $ 0.06 $ 0.15
April 1, 1994 - June 30, 1994 $ 0.06 $ 0.15
January 1, 1994 - March 31, 1994 $ 0.06 $ 0.62
October 1, 1993 - December 31, 1993 $ 0.25 $ 1.50
July 1, 1993 - September 31, 1993 $ 0.50 $ 5.00
April 1, 1993 - June 30, 1993 $ 2.25 $ 5.375
January 1, 1993 - March 31, 1993 $ 0.02 $ 0.12
- ------
* Prices quoted reflect a one share for twenty reverse split effective on
February 1, 1993.
DIVIDEND POLICY
The Registrant has never paid any dividends. It is the present intention
of the Registrant to pay dividends as soon as possible. There can, however, be
no assurance that funds for payment of dividends will ever be available, or that
even if available, the Registrant's board of directors then serving will resolve
to declare them.
MARKET
The Registrant's securities are currently quoted on the National
Association of Securities Dealers, Inc.'s NASDAQ Bulletin Board and on the
National Daily Quotation System, Inc.'s "Pink Sheets." The Registrant expects
that its securities will be listed on the National Association of Securities
Dealers, Inc.'s automated quotation system ("NASDAQ") within the next 12 months
and that they will be traded under its current symbol "SBID".
Section 15(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires brokers and dealers to make risk disclosures to
customers before effecting any transactions in "penny stocks". It also directs
the Securities and Exchange Commission to adopt rules setting forth additional
standards for disclosure of information concerning transactions in penny stocks.
Penny stocks are low-priced, over-the-counter securities that are prone to
manipulation because of their price and a lack of reliable market information
regarding them. Under Section 3(a)(51)(A) of the Exchange Act, any equity
security is considered to be a "penny stock," unless that security is: (i)
registered and traded on a national securities exchange meeting specified
Securities and Exchange Commission criteria; (ii) authorized for quotation on
the National Association of Securities Dealers, Inc.'s ("NASD") automated
inter-dealer quotation system ("NASDAQ"); (iii)
FORM 10-SB DATED JANUARY 8, 1997, PAGE 60
<PAGE>
issued by a registered investment company; (iv) excluded, on the basis of price
or the issuer's net tangible assets, from the definition of the term by
Securities and Exchange Commission rule; or (v) excluded from the definition by
the Securities and Exchange Commission.
Pursuant to Section 3(a)(51)(B), securities that normally would not be
considered penny stocks because they are registered on an exchange or authorized
for quotation on NASDAQ may be designated as penny stocks by the Securities and
Exchange Commission if the securities are traded off the exchange or if
transactions in the securities are effected by market makers that are not
entering quotations in NASDAQ.
Rule 3a51-1 was adopted by the Securities and Exchange Commission for the
purpose of implementing the provisions of Section 3(a)(51). Like Section
3(a)(51), it defines penny stocks by what they are not. Thus, the rule excludes
from the definition of penny stock any equity security that is: (1) a "reported"
security; (2) issued by an investment company registered under the 1940 Act; (3)
a put or call option issued by the Options Clearing Corporation; (4) priced at
five dollars or more; (5) subject to last sale reporting; or (6) whose issuer
has assets above a specified amount. (Release No. 30608, Part III.A).
Rule 3a51-1(a) excludes from the definition of penny stock any equity
security that is a "reported security" as defined in Rule 11Aa3-1(a). A reported
security is any exchange-listed or NASDAQ security for which transaction reports
are required to be made on a real-time basis pursuant to an effective
transaction reporting plan. Securities listed on the New York Stock Ex change
(the "NYSE"), certain regional exchange-listed securities that meet NYSE or Amex
criteria, and NASDAQ National Market System ("NMS") securities are not
considered penny stocks. (Release No. 30608, Part III.A.1). Generally,
securities listed on the American Stock Exchange (the "Amex") pursuant to the
Amex's original and junior tier or its "Emerging Company Marketplace" listing
criteria, are not considered penny stocks. Securities listed on the Amex
pursuant to its Emerging Companis Market ("ECM") criteria, however, are
considered to be "penny stock" solely for purposes of Exchange Act 15(b)(6).
(Release No. 30608, Part III.A.1).
Rule 3a51-1(d) excludes securities that are priced at five dollars or
more. Price, in most cases, will be the price at which a security is purchased
or sold in a particular transaction, excluding any broker commission, commission
equivalent, mark-up, or mark-down. In the absence of a particular transaction,
the five dollar price may be based on the inside bid quotation for the security
as displayed on a Qualifying Electronic Quotation System (i.e., an automated
inter-dealer quotation system as set forth in Exchange Act Section 17B(b)(2)).
"Inside bid quotation" is the highest bid quotation for the security displayed
by a market maker in the security on such a system. If there is no inside bid
quotation, the average of at least three inter-dealer bid quotations displayed
by three or more market makers in the security must meet the five dollar
requirement. Broker-dealers may not rely on quotations if they know that the
quotations have been entered for the purpose of circumventing the rule. (Release
No. 30608, Part III.A.3.b). An inter-dealer quotation system is defined in Rule
15c2-7(c)(1) as any system of general circulation to brokers and dealers that
regularly disseminates quotations of identified brokers or dealers. In the case
of a unit composed of one or more securities, the price divided by the number of
shares of the unit that are not warrants, options, or rights must be five
dollars or more. Furthermore, the exercise price of any warrant, option, or
right, or of the conversion price of any convertible security, included in the
unit must meet
FORM 10-SB DATED JANUARY 8, 1997, PAGE 61
<PAGE>
the five dollar requirement. For example: a unit composed of five shares of
common stock and five warrants would satisfy the requirements of the rule only
if the unit price was twenty-five dollars or more, and the warrant exercise
price was five dollars or more. Once the components of the unit begin trading
separately on the secondary market, they must each be separately priced at five
dollars or more. (Release No. 30608, footnote 66).
Securities that are registered, or approved for registration upon notice
of issuance, on a national securities exchange are also excluded from the
definition of penny stock (Rule 3a51-1(e)). The exchange must make transaction
reports available pursuant to Rule 11Aa3-1 for the exclusion to work. The
exclusion is further conditioned on the current price and volume information
with respect to transactions in that security being reported on a current and
continuing basis and made available to vendors of market information. In
addition, the exclusion is limited to exchange-listed securities that actually
are purchased or sold through the facilities of the exchange, or as part of a
distribution. Exchange-listed securities satisfying Rule 3a51-1(e), but which
are not otherwise excluded under Rule 3a51-1(a)-(d), continue to be deemed penny
stocks for purposes of Exchange Act Section 15(b)(6).
Exchanges that qualified for this exclusion as of April 1992 were the
NYSE, Amex, Boston Stock Exchange, Cincinnati Stock Exchange, Midwest Stock
Exchange, Pacific Stock exchange, Philadelphia Stock Exchange, and the Chicago
Board of Options. (Release No. 30608, footnote 37).
Securities that are registered, or approved for registration upon notice
of issuance, on NASDAQ are excluded from the definition of penny stock (Rule
3a51-1(f)). Similar to the exchange-registered exclusion of Rule 3a51-1(e), the
NASDAQ exclusion is conditioned on the current price and volume information with
respect to transactions in that security being reported on a current and
continuing basis and made available to vendors of market information pursuant to
the rules of NASD. NAS DAQ securities satisfying Rule 3a51-1(e), but which are
not otherwise excluded under Rule 3a51-1(a)-(d), continue to be deemed penny
stocks for purposes of Exchange Act Section 15(b)(6).
An exclusion is available for the securities of issuers that meet certain
financial standards. This exclusion pertains to: (i) issuers that have been in
continuous operation for at least three years having net tangible assets in
excess of $2 million (Rule 3a51-1(g)(1)); (ii) issuers that have been in
continuous operation for less than three years having net tangible assets in
excess of $5 million (Rule 3a51-1(g)(1)); (iii) issuers that have an average
revenue of at least $6 million for the last three years (Rule 3a51-1(g)(2)). To
satisfy this requirement, an issuer must have had total revenues of $18 million
by the end of a three-year period. (Release No. 30608, Part III.A.4). The
Registrant believes that its securities qualify under this exemption.
For domestic issuers, net tangible assets or revenues must be demonstrated
by financial statements that are dated no less than fifteen months prior to the
date of the related transaction. The statements must have been audited and
reported on by an independent accountant in accordance with Regulation S-X. For
foreign private issuers, net tangible assets or revenues must be demonstrated by
financial statements that are dated no less than fifteen months prior to the
date of the related transaction. The statements must be filed with the
Securities and Exchange Commission pursuant to Rule 12g3-2(b). If the issuer has
not been required to furnish financial statements during the previous fifteen
months, the statements may be prepared and audited in compliance with generally
FORM 10-SB DATED JANUARY 8, 1997, PAGE 62
<PAGE>
accepted accounting principles of the country of incorporation.
Whether the issuer is domestic or foreign, in all cases a broker or dealer
must review the financial statements and have a reasonable basis for believing
that they were accurate as of the date they were made (Rule 3a51-1[g][3]). In
most cases a broker-dealer need not inquire about or independently verify
information contained in the statements. (Release No. 30608, Part III.A.4).
Brokers and dealers must keep copies of the domestic or foreign issuer's
financial statements for at least three years following the date of the related
transaction (Rule 3a51-1[g][4]).
SECURITY HOLDERS
As of September 30, 1996, the latest practicable date for which
information is available, the Registrant's management was of the opinion that
the Registrant had approximately 3,244 common stock holders.
DIVIDENDS
There have been no cash dividends declared or paid since the inception the
Registrant and no dividends are contemplated to be paid in the foreseeable
future.
ITEM 2. LEGAL PROCEEDINGS
The Registrant is not a party to any pending legal proceedings other than
those non material proceedings that arise in the ordinary course of business.
As reflected in the statement of changes in stockholders' equity (see Part
FS - "Financial Statements"), the Registrant has a history of issuing common
stock for services difficult to value, or yet to be provided. Approximately
4,600,000 (or 86%) of the common stock outstanding at December 31, 1995, is
restricted in some fashion as a result of the above transactions. Furthermore,
the Registrant has in prior years canceled common stock certificates due to
non-performance by the third parties involved in certain transactions. Although
no party to such transactions has yet instigated litigation involving the
Registrant for cancellation or restrictions of the related shares, due to the
volume of such transactions, litigation remains a possibility. Management feels
all actions it has taken to cancel or restrict common stock are legally
justified and does not anticipate any material loss being incurred by the
Registrant due to future resolution of these matters.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Registrant's audited statements for the calendar years ended December
31, 1995, 1994 and 1993, have been prepared by the Daniel Professional Group, of
Charlotte, North Carolina. The Registrant has had no disputes with nor does it
have any current plans to replace its auditors.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 63
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has not previously registered any securities with the
Securities and Exchange Commission, all sales having heretofore been effected in
reliance on exemptions from applicable federal registration requirements,
pursuant to Sections 4(2), 4(6) or 3(b) of the Securities Act of 1933, as
amended, and Rules 144, 147, 257, 504 or 701 promulgated thereunder.
During the past 36 months, no shares of the Registrant's securities have
been issued except as disclosed in the consolidated statement of changes in
shareholders' equity (deficit) included as a component of the audited financial
statements for the years ended December 31, 1994 and 1995, filed herewith in
response to Part FS of this registration statement. Such schedules are hereby
incorporated herein by reference, as permitted by Rule 12b-23 of the Securities
Exchange Act of 1934, as amended.
The Registrant has never offered its securities through an underwriter,
nor has it paid any commissions or granted any discounts in conjunction with
such transactions.
The Registrant relied on the exemptions from registration provided by
Section 4(2) of the Securities Act of 1933 with respect to all issuances of
securities listed above. In order to rely upon Section 4(2), the Registrant
noted that no other offerings of the Registrant's common stock were made or
contemplated to any other persons during the period of time in which the
issuances disclosed above occurred, and that all stock certificates issued
before legends indicating that the stock was not registered and that such stock
was subject to restrictions on transfer.
ITEM 5. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Registrant's certificate of incorporation authorizes the board of
directors to indemnify officers, directors, employees and agents to the fullest
extent permitted by law. They also significantly limit the personal liability of
the Registrant's officers and directors to the Registrant's stockholders. The
Registrant's bylaws authorize the board of directors to indemnify officers,
directors, employees and agents in the same circumstances set forth in the
certificate of incorporation. The bylaws also authorize the Registrant to
purchase liability insurance for the benefit of officers, directors, employees
and agents and to enter into indemnity agreements with officers, directors,
employees and agents.
Section 145 of the General Corporation law of the State of Delaware, under
which the Registrant is organized, empowers a corporation, subject to certain
limitations, to indemnify its officers, directors, employees and agents, or
others acting in similar capacities for other entities at the request of the
Registrant, against certain expenses, including attorneys fees, judgments, fines
and other amounts which may be paid or incurred by them in their capacities as
such officers, directors, employees and agents.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended,
FORM 10-SB DATED JANUARY 8, 1997, PAGE 64
<PAGE>
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the United States Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
PART FS FINANCIAL STATEMENTS
The audited consolidated balance sheet of the Registrant for its years
ended December 31, 1995 and 1994 and the related consolidated statements of
operations, stockholder's equity and cash flows are submitted herewith.
INDEX TO FINANCIAL STATEMENTS
The audited consolidated balance sheet of the Registrant for its years
ended December 31, 1995 and 1994 and related consolidated statements of income
(loss), stockholder's equity and cash flows therefor, follow. The page numbers
for the financial statement categories are as follows:
PAGE DESCRIPTION
- ---- -----------
66 Cover Page (Audited Statements for 1995 and 1994)
67 Report of Certified Public Accountants, as to the calendar years ended
December 31, 1995 and 1994.
68 Consolidated Balance Sheets - December 31, 1995 and December 31, 1994.
69 Consolidated Statement of Income (Loss) for the calendar years ended
December 31, 1995 and December 31, 1994 and from inception until December
31, 1994.
70 Consolidated Statement of Changes in Stockholder's Equity from Inception
(January 10, 1986) through December 31, 1995.
75 Consolidated Cash Flows for the calendar years ended December 31, 1995 and
December 31, 1994 and from inception until December 31, 1995.
76 Notes to Consolidated Financial Statement Statements for the calendar
years ended December 31, 1995 and December 31, 1994.
82 Cover Page (Unaudited Statements for Nine Months Ended September 30, 1996
and 1995.
84 Consolidated Balance Sheets - September 30, 1996 and 1995.
85 Consolidated Statement of Income (Loss) for the nine months ended
September 30, 1996 and 1995.
86 Consolidated Statement of Changes in Stockholder's Equity from Inception
(January 10, 1986) through September 30, 1996.
92 Consolidated Cash Flows for the nine months ended September 30, 1996 and
1995.
93 Notes to Consolidated Financial Statement. Statements for the nine months
ended September 30, 1996 and 1995.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 65
<PAGE>
SBI COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
AND ACCOUNTANTS' REPORT
DECEMBER 31, 1995 AND 1994
FORM 10-SB DATED JANUARY 8, 1997, PAGE 66
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
SBI Communications, Inc.
Piedmont, Alabama
We have audited the accompanying consolidated balance sheets of SBI
Communications, Inc., a development stage company, as of December 31, 1995 and
1994, and the related consolidated statements of income (loss), changes in
shareholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of SBI
Communications, Inc., a development stage company, as of December 31, 1995 and
1994, and the consolidated results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
March 28, 1996
Charlotte, North Carolina
FORM 10-SB DATED JANUARY 8, 1997, PAGE 67
<PAGE>
<TABLE>
<CAPTION>
SBI COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
1995 1994
---------- ----------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 11,589 $ 58,928
Accounts receivable, net of allowance
for doubtful accounts of $462,500
for 1995 and $0 for 1994, respectively 499,864 -
Note receivable from
shareholder (Note 2) 25,000 -
---------- ----------
536,453 58,928
Property and equipment, less
accumulated depreciation
(Note 3) 7,316,219 7,483,501
Other assets (Note 4):
Trademarks, net 100,000 200,000
Shows and computer programs, net 165,960 331,920
Game inventory 60,688 75,400
Organization costs 170 341
---------- ----------
$8,179,490 $8,150,090
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to a trust managed by
a shareholder (Note 2) $ 250,000 $ -
Accounts payable 53,738 49,158
Accrued wages due to principal
shareholder (Note 2) 120,000 -
Advances due to principal
shareholder (Note 2) 4,156 460,933
Accrued interest 5,729 -
---------- ----------
433,623 510,091
---------- ----------
Shareholders' equity (Note 5):
Preferred stock, par value $5.00;
10,000,000 shares authorized;
1,668,000 and 1,505,000 shares
issued and outstanding at
December 31, 1995 and 1994,
respectively 8,340,000 7,525,000
Common stock, par value $.001;
40,000,000 shares authorized;
5,345,439 and 5,135,439 shares
issued and outstanding at
December 31, 1995 and 1994,
respectively 5,345 5,135
Paid-in capital 3,572,343 3,512,453
Deficit accumulated during
the development stage ( 4,171,821) ( 3,402,589)
----------- ------------
Total shareholders' equity 7,745,867 7,639,999
----------- -----------
$ 8,179,490 $ 8,150,090
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 68
<PAGE>
<TABLE>
<CAPTION>
SBI COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31,
INCEPTION
THROUGH
DECEMBER 31,
1995 1994 1995
---------- ---------- -----------
<S> <C> <C> <C>
Revenues:
Licenses and royalties $ - $ - $ 641,642
Bingo hall rent 534,593 - 534,593
Bingo hall operating
administrative fees 68,145 24,905 93,050
Interest income 34 171 1,101
Other income 2,101 - 235,754
---------- ---------- ----------
Gross revenues 604,873 25,076 1,506,140
---------- ---------- ----------
Expenses:
Production costs - - 306,685
General and
administrative 497,685 54,990 1,907,834
Salaries and related
expenses 132,086 14,200 863,660
Depreciation and
amortization 538,605 275,461 1,424,325
Interest expense
and finance charges 205,729 - 294,630
Losses from equity
interest in joint
venture - - 880,827
---------- ---------- ----------
Total expenses 1,374,105 344,651 5,677,961
---------- ---------- ----------
Income (loss) from
operations ($ 769,232) ($ 319,575) ($4,171,821)
========== ========== ==========
Income (loss) per
share (Note 5) ($ 0.14) ($ 0.07) ($ 2.39)
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 69
<PAGE>
<TABLE>
<CAPTION>
SBI COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY (DEFICIT)
FROM INCEPTION, JANUARY 10, 1986, THROUGH DECEMBER 31, 1995
DEFICIT
COMMON STOCK PREFERRED STOCK ACCUMULATED
--------------------- ---------------------- ADDITIONAL DURING TOTAL
NUMBER NUMBER PAID-IN DEVELOPMENT SHAREHOLDERS'
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL STAGE EQUITY (DEFICIT)
---------- -------- --------- ----------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial common stock sold
in January, 1986 for
cash of $500 4,000,000 $ 4,000 - $ - ($ 3,500) $ - $ 500
Recapitalization as a
business combination 3,300,000 3,300 - - ( 13,153) - ( 9,853)
Forgiveness of debt - - - - 246,370 - 246,370
Retroactive adjustment for
1 for 20 reverse stock
split occurring in 1993 (6,935,000) ( 6,935) - - 6,935 - -
Net loss, 1986 - - - - - ( 204,663) ( 204,663)
--------- -------- --------- ---------- ---------- ---------- ----------
Balance, December 31, 1986 365,000 365 - - 236,652 ( 204,663) 32,354
Common stock sold for cash
of $25,809 in August, 1987
($12.90 per share) 2,000 2 - - 25,807 - 25,809
Common stock sold for cash
of $71,691 in August, 1987
($14.06 per share) 5,100 5 - - 71,686 - 71,691
Common stock issued in August,
1987 for rent concessions
and other assets valued
at $71,750 ($7.18 per share) 10,000 10 - - 71,740 - 71,750
Common stock sold for cash
of $41,000 in October, 1987
($10.00 per share) 4,100 4 - - 40,996 - 41,000
Common stock sold for cash
of $5,000 in November, 1987
($10.00 per share) 500 1 - - 4,999 - 5,000
Net loss, 1987 - - - - - ( 544,026) ( 544,026)
--------- -------- --------- ---------- ---------- ---------- ----------
Balance December 31, 1987 386,700 387 - - 451,880 ( 748,689) ( 296,422)
Common stock sold for cash
of $100,000 in January, 1988
($2.00 per share) 50,000 50 - - 99,950 - 100,000
Common stock issued in April,
1988 for services rendered
valued at $34,716 ($5.00 per
share) 6,943 7 - - 34,709 - 34,716
Common stock issued in June,
1988 for cash of $86,546
($4.69 per share) 18,463 18 - - 86,528 - 86,546
Common stock issued in
November, 1988 for services
rendered from September
through November, 1988,
valued at $46,877 ($4.69
per share) 10,000 10 - - 46,867 - 46,877
Net loss, 1988 - - - - - ( 1,206,824) ( 1,206,824)
--------- -------- --------- ---------- ---------- ---------- ----------
Balance December 31, 1988 472,106 472 - - 719,934 ( 1,955,513) ( 1,235,107)
Common stock issued in
January, 1989 for cash of
$23,438 ($4.69 per share) 5,000 5 - - 23,433 - 23,438
Common stock issued in
January, 1989 as inducement
to lenders valued at
$21,095 ($4.69 per share) 4,500 5 - - 21,090 - 21,095
Common stock issued in June,
1989 as repayment of debt
valued at $70,000 ($4.67
per share) 15,000 15 - - 69,985 - 70,000
</TABLE>
(Continued)
FORM 10-SB DATED JANUARY 8, 1997, PAGE 70
<PAGE>
<TABLE>
<CAPTION>
SBI COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY (DEFICIT)
FROM INCEPTION, JANUARY 10, 1986, THROUGH DECEMBER 31, 1995
(CONTINUED)
DEFICIT
COMMON STOCK PREFERRED STOCK ACCUMULATED
-------------------- --------- ---------- ADDITIONAL DURING TOTAL
NUMBER NUMBER PAID-IN DEVELOPMENT SHAREHOLDERS'
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL STAGE EQUITY (DEFICIT)
--------- -------- --------- ---------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock issued in June,
1989 for legal services
from February through June,
1989, valued at $140,630
($4.69 per share) 30,000 $ 30 - $ - $ 140,600 $ - $ 140,630
Net loss, 1989 - - - - - ( 491,957) ( 491,957)
--------- -------- --------- ---------- ---------- ---------- ----------
Balance December 31, 1989 526,606 527 - - 975,042 ( 2,447,470) ( 1,471,901)
Common stock issued in January,
1990 for production and
uplinking services valued
at $10,000 ($2.00 per share) 5,000 5 - - 9,995 - 10,000
Common stock issued in January,
1990 for design and
software programs valued at
$30,000 ($4.00 per share) 7,500 7 - - 29,993 - 30,000
Common stock issued in January,
1990 for telecommunication and
layout services rendered valued
at $50,000 ($2.00 per share) 25,000 25 - - 49,975 - 50,000
Common stock issued in June,
1990 for production services
valued at $50,000 ($5.00 per
share) 10,000 10 - - 49,990 - 50,000
Common stock sold in June,
1990 for cash of $3,750
($5.00 per share) 750 1 - - 3,749 - 3,750
Common stock issued in November,
1990 as repayment of debt
owed to CEO valued at $300,000
($0.60 per share) 500,000 500 - - 299,500 - 300,000
Common stock issued in November,
1990 for receivables of
$468,000, later deemed to
have no value ($4.68 per
share reduced to -0-) 100,000 100 - - ( 100) - -
Common stock issued in December,
1990 to a board member for
services rendered valued at
$25,000 ($5.00 per share) 5,000 5 - - 24,995 - 25,000
Common stock issued in December,
1990 to a board member for
services rendered valued at
$25,000 ($5.00 per share) 5,000 5 - - 24,995 - 25,000
Net income, 1990 - - - - - 2,511,101 2,511,101
--------- -------- --------- ---------- ---------- ---------- ----------
Balance December 31, 1990 1,184,856 1,185 - - 1,468,134 63,631 1,532,950
Common stock issued in October,
1991 as repayment of debt
owed to CEO valued at
$500,000 ($1.00 per share) 500,000 500 - - 499,500 - 500,000
Common stock issued in November,
1991 to CEO for various
trademarks, shows, computer
programs and bingo game
inventory, valued at
$1,405,200 ($3.00 per share) 468,400 468 - - 1,404,732 - 1,405,200
Net loss, 1991 - - - - - ( 2,315,058) (2,315,058)
--------- -------- --------- ---------- ---------- ---------- ---------
Balance December 31, 1991 2,153,256 2,153 - - 3,372,366 ( 2,251,427) 1,123,092
Common stock issued in January,
1992 for marketing services
valued at $9,000 ($0.60 per
share) 15,000 15 - - 8,985 - 9,000
</TABLE>
(Continued)
FORM 10-SB DATED JANUARY 8, 1997, PAGE 71
<PAGE>
<TABLE>
<CAPTION>
SBI COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY (DEFICIT)
FROM INCEPTION, JANUARY 10, 1986, THROUGH DECEMBER 31, 1995
(CONTINUED)
DEFICIT
COMMON STOCK PREFERRED STOCK ACCUMULATED
-------------------- -------------------- ADDITIONAL DURING TOTAL
NUMBER NUMBER PAID-IN DEVELOPMENT SHAREHOLDERS'
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL STAGE EQUITY (DEFICIT)
--------- -------- --------- --------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock issued in January,
1992 for clerical services
valued at $10,000 ($2.00
per share) 5,000 $ 5 - $ - $ 9,995 $ - $ 10,000
Common stock issued in January,
1992 for services provided
by board member valued at
$10,000 ($2.00 per share) 5,000 5 - - 9,995 - 10,000
Common stock issued in January,
1992 for services provided
by board member valued at
$10,000 ($2.00 per share) 5,000 5 - - 9,995 - 10,000
Common stock issued in January,
1992 for payment of interest
due on notes to three
individuals, valued at
$9,900 ($0.57 per share) 17,500 18 - - 9,882 - 9,900
Common stock sold in August,
1992 for cash of $25,000
($0.75 per share) 33,333 33 - - 24,967 - 25,000
Net loss, 1992 - - - - - ( 493,057) ( 493,057)
--------- -------- --------- ---------- ---------- ---------- ---------
Balance December 31, 1992 2,234,089 2,234 - - 3,446,185 ( 2,744,484) 703,935
Fractional shares issued in
connection with reverse
stock split 100 - - - - - -
Common stock issued in March,
1993 for bonds - bonds were
unable to be issued, stock
was canceled in 1994 - no
valued has been assigned 650,000 650 - - ( 650) - -
Common stock issued in March,
1993 for consulting agreement;
350,000 shares originally
issued, 200,000 shares
canceled; no value assigned 150,000 150 - - ( 150) - -
Common stock issued in April,
1993 for consulting agreement
and $40,000 in cash; no value
assigned to the consulting
agreement ($0.40 per share) 100,000 100 - - 39,900 - 40,000
Common stock issued in July,
1993 for consulting agreement,
no value assigned 650,000 650 - - ( 650) - -
Common stock issued in August,
1993 for consulting agreement,
no value assigned 100,000 100 - - ( 100) - -
Common stock issued in August,
1993 to CEO for repayment
of various debts valued at
$37,500 ($0.19 per share) 200,000 200 - - 37,300 - 37,500
Common stock issued in October,
1993 for consulting services,
no value assigned 1,250 1 - - ( 1) - -
Common stock issued in November,
1993 for commitments to raise
$400,000 but such funds were
never received; company has
not yet canceled certificates,
but restricted such
certificates until the matter
is resolved; no value has been
assigned in that management
anticipates ultimate
cancellation of the
certificates 200,000 200 - - ( 200) - -
</TABLE>
(Continued)
FORM 10-SB DATED JANUARY 8, 1997, PAGE 72
<PAGE>
<TABLE>
<CAPTION>
SBI COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY (DEFICIT)
FROM INCEPTION, JANUARY 10, 1986, THROUGH DECEMBER 31, 1995
(CONTINUED)
DEFICIT
COMMON STOCK PREFERRED STOCK ACCUMULATED
-------------------- --------------------- ADDITIONAL DURING TOTAL
NUMBER NUMBER PAID-IN DEVELOPMENT SHAREHOLDERS'
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL STAGE EQUITY (DEFICIT)
--------- -------- --------- ---------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock issued in December,
1993 for consulting agreement;
stock canceled in 1994 due
to nonperformance; no value
assigned 1,000,000 $ 1,000 - $ - ($ 1,000) $ - $ -
Net loss, 1993 - - - - - ( 338,530) ( 338,530)
--------- -------- --------- ---------- ---------- ---------- ---------
Balance December 31, 1993 5,285,439 5,285 - - 3,520,634 ( 3,083,014) 442,905
Common stock issued in March,
1993 for bonds - bonds were
unable to be issued, stock
was canceled in 1994 ( 650,000) ($ 650) - - 650 - -
Common stock issued in
January, 1994 for consulting
agreement and computer
equipment with a book value
of $91,669; no value has
been assigned to the
consulting agreement;
total value of $91,669
($0.09 per share) 1,000,000 1,000 - - 90,669 - 91,669
Common stock issued in
December, 1993 for consulting
agreement; stock canceled in
July 1994 due to
nonperformance; no value
assigned in 1993 (1,000,000) ( 1,000) - - 1,000 - -
Common stock issued in
November, 1994 for
consulting agreement,
no value assigned 500,000 500 - - ( 500) - -
Preferred stock issued in
December, 1994 for land
valued at $250,000; building
valued at $6,250,000; and
equipment valued at $900,000;
total value of $7,400,000
($4.93 per share) - - 1,500,000 7,500,000 ( 100,000) - 7,400,000
Preferred stock issued in
December 1994 to individual
to settle debts of
approximately $25,000
($5.00 per share) - - 5,000 25,000 - - 25,000
Net loss, 1994 - - - - - ( 319,575) ( 319,575)
--------- ------- --------- ---------- ---------- ---------- ----------
Balance December 31, 1994 5,135,439 $ 5,135 1,505,000 $7,525,000 $3,512,453 ($3,402,589) $7,639,999
Common stock issued in January,
1995 for accounting services
valued at $100
($0.001 per share) 100,000 100 - - - - 100
Preferred stock issued in
March, 1995, for cash - - 33,000 165,000 - - 165,000
common stock issued in May,
1995 for legal services
valued at $50,000
($0.50 per share) 100,000 100 - - 49,900 - 50,000
Preferred stock issued in
June, 1995, to principal
shareholder as settlement
for $450,000 owed to said
shareholder, valued at
$450,000 ($5.00 per share) - - 90,000 450,000 - - 450,000
Common stock issued in
August, 1995 for
legal services valued
at $10,000 ($1.00 per share) 10,000 10 - - 9,990 - 10,000
</TABLE>
(Continued)
FORM 10-SB DATED JANUARY 8, 1997, PAGE 73
<PAGE>
<TABLE>
<CAPTION>
SBI COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY (DEFICIT)
FROM INCEPTION, JANUARY 10, 1986, THROUGH DECEMBER 31, 1995
(CONTINUED)
DEFICIT
COMMON STOCK PREFERRED STOCK ACCUMULATED
------------------- --------------------- ADDITIONAL DURING TOTAL
NUMBER NUMBER PAID-IN DEVELOPMENT SHAREHOLDERS'
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL STAGE EQUITY (DEFICIT)
--------- ------- --------- ---------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Preferred stock issued in
October, 1995 as an
inducement to an individual
to arrange for $250,000 to
be loaned to the company by
a trust controlled by the
individual, value of
$200,000 ($5.00 per share) - - 40,000 200,000 - - 200,000
Net loss, 1995 - - - - - ( 769,232) ( 769,232)
--------- ------- --------- ---------- ---------- ---------- ----------
Balance December 31, 1995 5,345,439 $ 5,345 1,668,000 $8,340,000 $3,572,343 ($4,171,821) $7,745,867
========= ======= ========= ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 74
<PAGE>
<TABLE>
<CAPTION>
SBI COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
JAN. 10, 1986
THROUGH
DECEMBER 31,
1995 1994 1995
---------- ---------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) ($769,232) ($319,575) ($4,171,821)
adjustments to reconcile net loss
to cash provided from operations:
Depreciation and amortization 538,776 275,460 1,424,495
Stock issued for services 180,100 - 1,850,438
Stock issued for financing costs 200,000 - 200,000
Increase in debt for
services performed ( 120,000) - -
Change in accounts receivable ( 524,864) - ( 524,864)
Change in game inventories 14,712 - 14,712
Change in accounts payable 4,580 49,158 53,738
Change in accrued expenses 125,729 - 125,729
Loss on write-off of marketable
securities - - 2,000
Loss on disposal of assets - - 2,440
Write-off of production costs - - 236,138
Loss on equity interest in
joint venture - - 880,827
-------- -------- ----------
Cash provided (used) by
operating activities ( 350,199) 5,043 93,832
-------- -------- ----------
Cash flows from investing activities:
Organization costs incurred - - ( 758)
Investment in marketable securities - - ( 2,000)
Payment for production costs - - (236,567)
Investment in joint venture - - ( 880,827)
Effect of business capitalization - - ( 9,853)
Purchase of property and equipment ( 105,363) - ( 186,628)
-------- -------- ----------
Cash provided (used) by
investing activities ( 105,363) - ( 1,316,633)
-------- -------- ----------
Cash flows from financing activities:
Loans from shareholders/affiliates 250,000 56,564 724,803
Repayments on loans from
shareholders ( 6,777) ( 5,000) ( 78,147)
Proceeds from issuance of
common stock 165,000 - 587,734
-------- -------- ----------
Cash provided by
financing activities 408,223 51,564 1,234,390
-------- -------- ----------
Net increase (decrease) in cash (47,339) 56,607 11,589
cash at beginning of period 58,928 2,321 -
-------- -------- ----------
Cash at end of period $ 11,589 $ 58,928 $ 11,589
======== ======== ==========
Supplemental information:
Income taxes paid $ - $ - $ -
======== ======== ==========
Interest paid $ - $ - $ 66,400
======== ======== ==========
</TABLE>
Non-cash transactions for 1995 and 1994 included the following:
During 1995, legal and accounting fees valued at $60,100 were paid for by the
issuance of 210,000 shares of common stock; $450,000 of loans payable to
shareholders were repaid through the issuance of 90,000 shares of preferred
stock; and $200,000 of finance charges relating to loan inducement fees were
paid for by the issuance of 40,000 shares of preferred stock.
During 1994, property and equipment valued at $7,491,669 was acquired through
the issuance of 1,500,000 shares of preferred stock; and $25,000 of loans
payable to shareholders were repaid through the issuance of 5,000 shares of
preferred stock.
See accompanying notes to consolidated financial statements.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 75
<PAGE>
SBI COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The major accounting policies of SBI Communications, Inc. are summarized
below to assist the reader in reviewing the Company's financial statements.
ORGANIZATION
SBI Communications, Inc. (the "Company"), was originally organized in the
State of Utah on September 23, 1983, under the corporate name of Alpine
Survival Products, Inc. Its name was subsequently changed to Justin Land
and Development, Inc. during October, 1984, and then to Supermin, Inc. on
November 20, 1985. On September 29, 1986, Satellite Bingo, Inc. was the
surviving corporate entity in a statutory merger with Supermin, Inc., a
Utah corporation. In connection with the above merger, the former
shareholders of Satellite Bingo, Inc. acquired control of the merged
entity and changed the corporate name to Satellite Bingo, Inc. Through
shareholder approval dated March 10, 1988, the name was changed to its
current name of SBI Communications, Inc.
DEVELOPMENT STAGE COMPANY
The Company plans to provide an interactive, satellite cable bingo game
show and other similar telecommunication products or services to
television viewers. Since principal operations have not commenced, and
since only insignificant revenues have been generated, the Company is
considered to be a development stage company. Statement of Financial
Accounting Standards Number 7 establishes the accounting principles
governing development stage companies.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Satellite Bingo, Inc., a Georgia
corporation, which currently is inactive with no assets or liabilities.
Intercompany transactions and balances have been eliminated in
consolidation.
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reporting amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 76
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for maintenance
and repairs which do not improve or extend the life of an asset are
charged to expense as incurred. Major renewals and betterments are charged
to the property accounts. Upon retirement or sale of an asset, its cost
and related accumulated depreciation or amortization are removed from the
property accounts, and any gain or loss is recorded as income or expense.
Depreciation is provided using straight-line methods for financial
reporting.
TRADEMARKS, SHOWS AND COMPUTER PROGRAMS
Trademarks, shows and computer programs are intangible assets acquired
through the issuance of stock. Such assets are being amortized on a
straight-line basis over sixty (60) months. The five-year life is a
subjective estimate that was derived after considering such factors as
consumer demand, competition, expected actions of competitors, effect of
obsolescence, etc. The estimated useful life of any unamortized cost will
be reevaluated upon completion of the Company's development stage.
INCOME TAXES
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, which requires the use of the
asset and liability method and recognizes deferred income taxes for the
consequences of "temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities. The Company has no significant "temporary differences".
Deferred tax assets also may be recorded for the future benefits of
operating loss carryforwards if such benefits are not deemed "more likely
than not" to be realized. The effect on deferred taxes for a change in tax
rates is recognized in income or expense in the period that includes the
enactment date.
STATEMENTS OF CASH FLOWS
For the purposes of the statements of cash flows, the Company considers
cash and highly liquid investments purchased with a maturity of three
months or less to be cash equivalents.
NOTE 2 - RELATED PARTY TRANSACTIONS
During 1994 and for several other prior years, the Company's principal
shareholder, who also serves as Chief Executive Officer (CEO), personally
funded the majority of the Company's operations. All amounts owed to the
shareholder, including amounts originally evidenced by interest bearing
notes, were converted to non-interest bearing advances effective January 1,
1993. The majority of these advances were repaid in 1995 through the issuance
of 90,000 shares of preferred stock. During 1995, the Company accrued
salaries payable to the Company's principal shareholder totalling $120,000.
All amounts owed to the shareholder are payable on demand. During 1994, the
Company received advances from this shareholder of
FORM 10-SB DATED JANUARY 8, 1997, PAGE 77
<PAGE>
$56,564, and made repayments to the shareholder of $5,000. As of December 31,
1994, the Company owed $460,933 to this shareholder. During 1995, the Company
made repayments (on a net basis) to the shareholder (exclusive of the
preferred stock transaction described above) of $6,777. As of December 31,
1995, the Company owed $4,156 to this shareholder.
In addition to the above, the Company previously owed $25,000 in the form of
an interest bearing note payable to another shareholder. This note, along
with related accrued interest, was settled through the issuance of 5,000
shares of preferred stock valued at $25,000 to the shareholder during 1994.
In October, 1995, the Company advanced $25,000 to a shareholder to be repaid
upon demand with interest at prevailing market rates.
In October, 1995, the Company borrowed $250,000 from a trust managed by a
shareholder, in the form of a mortgage note. The note is payable in full on
October 15, 1996, with interest payable quarterly at prime plus 3%, secured
by all corporate property up to $1,000,000 in value. The holder has the right
to convert the mortgage note to common stock at a price of $3 per share. This
coversion privilege expires on July 15, 1996. Interest expense related to
this note totalled $5,729 for the year ended December 31, 1995. As an
inducement to consummate this transaction, the Company issued 40,000 shares
of preferred stock to the individual. This stock has been valued at $200,000
in these financial statements, with the Company recording a corresponding
amount as finance charges expense for the year ended December 31, 1995.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows at December 31:
ESTIMATED
USEFUL LIFE 1995 1994
------------ ---------- ----------
Land $ 250,000 $ 250,000
Building 40 years 6,250,000 6,250,000
Vehicles 5 years 10,920 -
Furniture and
equipment 5 to 7 years 1,087,384 992,941
---------- ----------
7,598,304 7,492,941
Less accumulated
depreciation 282,085 9,440
---------- ----------
$7,316,219 $7,483,501
========== ==========
Depreciation expense totalled approximatley $273,000 and $9,000 for the years
ended December 31, 1995 and 1994, respectively.
NOTE 4 - OTHER ASSETS
Other assets are summarized as follows at December 31:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Trademarks:
Original cost $ 500,000 $ 500,000
Less accumulated amortization 400,000 300,000
---------- ----------
$ 100,000 $ 200,000
========== ==========
</TABLE>
FORM 10-SB DATED JANUARY 8, 1997, PAGE 78
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Shows and computer programs:
Original cost $ 829,800 $ 829,800
Less accumulated amortization 663,840 497,880
---------- ----------
$ 165,960 $ 331,920
========== ==========
Game inventory:
Original cost $ 75,400 $ 75,400
Less amounts used in operations 14 712 -
---------- --------
$ 60,688 $ 75,400
========== ==========
Organization costs:
Original cost $ 758 $ 758
Less accumulated amortization 588 417
---------- ----------
$ 170 $ 341
========== ==========
</TABLE>
Game inventory is expensed as used. All other assets listed above are being
amortized over sixty (60) months. Amortization expense totalled approximately
$266,000 for each of the years ended December 31, 1995 and 1994.
NOTE 5 - COMMON AND PREFERRED STOCK ACTIVITY
On January 1, 1993, the Company executed a plan of merger that effectively
changed the Company from a Utah corporation to a Delaware corporation. This
merger also resulted in a reverse stock split of one (1) share of the
Delaware corporation for each twenty (20) shares of the Utah corporation. The
common stock of the Company has been retroactively restated from its initial
year to account for this reverse stock split.
The Delaware corporation is authorized to issue up to 40,000,000 shares of
common stock with a par value of $.001 per share, and 10,000,000 shares of
preferred stock with a par value of $5.00 per share. The preferred stock may
be issued from time to time in one or more series, the shares of each series
to have such voting powers, dividend rates, designations, preferences, and
other characteristics as adopted by the Board of Directors. Preferred stock
issued during 1994 and 1995 consisted of one series (series A), having a
liquidation preference of $5.00 per share, paying no dividend, and
convertible into common stock upon demand, at a conversion rate that would
transfer shares of common stock worth an amount equal to the par value of the
preferred stock based upon the market value of the common stock at the date
of conversion.
The Company's income (loss) per share was calculated using 5,306,754,
4,743,658, and 1,745,221 weighted average shares outstanding for the year
ended December 31, 1995, the year ended December 31, 1994, and for the period
from inception to December 31, 1995, respectively. These amounts were
determined based upon retroactive restatement for the 1 for 20 reverse stock
split occuring in 1993, Although the preferred stock issued in 1995 and 1994
is a common stock equivalent, with a coversion rate of approximately 10
shares of common stock (based upon an approximate market price for common
stock of $0.50 at December 31, 1995) for each share of preferred stock as of
the date the preferred stock was issued, preferred stock conversion has not
been included in the calculation of earnings per share in that to do so would
be anti-dilutive.
A Number of non-cash transactions involving the issuance of common stock of
the Company (with related as well as unrelated parties) as
FORM 10-SB DATED JANUARY 8, 1997, PAGE 79
<PAGE>
shown in the statement of stockholders' equity are recorded based on the
estimated fair value of the consideration received (the asset received or
debt retired) regardless of the number of common shares issued in such
transactions. The Company's common stock did not have a readily determinable
market value at the time of the transactions.
NOTE 6 - INCOME TAXES
Deferred income tax assets and liabilities are summarized as follows at
December 31:
1995 1994
---------- ----------
Deferred tax assets
attributable to operating
loss carryforwards $1,540,000 $1,300,000
Valuation allowance due to
uncertainty surrounding
realization of operating
loss carryforwards ( 1,540,000) ( 1,300,000)
Deferred tax liabilities - -
---------- ----------
Total deferred taxes $ - $ -
========== ==========
The Company has available at December 31, 1995, unused operating loss
carryforwards, which may be applied against future taxable income, that
expire as follows:
AMOUNT OF UNUSED OPERATING EXPIRATION DURING
LOSS CARRYFORWARDS YEAR ENDED DECEMBER 31,
-------------------------- -----------------------
$ 200,000 2001
550,000 2002
1,200,000 2003
300,000 2004
490,000 2007
340,000 2008
320,000 2009
650,000 2010
----------
$4,050,000
==========
NOTE 7 - COMMITMENTS, RISKS AND CONTINGENCIES
The Company manages for various charities a bingo hall in Piedmont, Alabama.
Rents and administrative fees charged to charities are unsecured, and
generally are paid only as revenues from the bingo games produce sufficient
profit to allow the charities to make payments. Rents receivable at December
31, 1995, are concentrated with only two charities. Management has estimated
the amount of such receivables that are collectible based upon their
knowledge of the financial condition of the charities and the history of the
profitability of bingo games. It is reasonably possible that management's
estimate of the amount of such receivables that are collectible could change
in the near future.
The Company is also in the process of developing bingo productions to be
broadcast by satellite into homes of viewers throughout the United States,
and has entered into various licensing agreements to provide, for fees and
royalties, certain software and methods involving bingo game production and
operation. These agreements cover territories in California, Brazil, Greece,
Hong Kong, and United States Indian Reservations/Military Bases/Charity Bingo
FORM 10-SB DATED JANUARY 8, 1997, PAGE 80
<PAGE>
Parlors. None of the above territories have significant bingo operations that
are generating fees or royalties for the Company at this time. Should local,
state, federal or foreign country laws change regarding bingo in these areas,
such changes could have a material impact on the ability of the Company to
generate future revenues.
As reflected in the statement of changes in stockholders' equity, the Company
has a history of issuing common stock for services difficult to value, or yet
to be provided. Approximately 4,600,000 (or 86%) of the common stock
outstanding at December 31, 1995, is restricted in some fashion as a result
of the above transactions. Furthermore, the Company has in prior years
canceled common stock certificates due to non-performance of the third
parties involved in certain of the above transactions. Although no party to
such transactions has yet instigated litigation involving the Company for
cancellation or restriction of related shares, due to the volume of such
transactions, litigation relating to such activity remains a possibility.
Management feels all actions it has taken to cancel or restrict common stock
are with merit, and does not anticipate any material loss being incurred by
the Company relating to future resolution of these matters.
The Company has an employment agreement with Mr. Ron Foster, shareholder and
president, which expires on December 31, 2001. Under the agreement, Mr.
Foster is entitled to $120,000 in minimum annual salary, cash bonuses of the
lesser of 10% of revenues or 5% of pre-tax profits, and stock bonuses
equivalent to 10% of pre-tax profits before depreciation.
NOTE 8 - FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
The Company's accounts receivable are principally with two charities for
unpaid rents. The collectibility of these receivables is contingent on the
ability of the charities to generate sufficient profits from future bingo
games, and/or other sources. Due to the nature of these receivables, their
fair market value is not subject to reasonable estimation. Management feels
that their fair market value approximates their recorded book value. The fair
market value of all other financial instruments is estimated to approximate
their carrying value in that their nature and terms are consistent with
similar instruments in the market place at this time.
The Company sold stock to a production company in California several years
ago. As a result of the sale, the production company was to provide
approximately $400,000 of production facility time and services at no
additional charge. No value has been recorded for such services provided and
to be provided in that their market value is not subject to reasonable
estimation and that realization of future services is not assured.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 81
<PAGE>
SBI COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
AND ACCOUNTANTS' REPORT
SEPTEMBER 30, 1996 AND 1995
FORM 10-SB DATED JANUARY 8, 1997, PAGE 82
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
SBI Communications, Inc.
Piedmont, Alabama
We have compiled the accompanying consolidated balance sheet of SBI
Communications, Inc., a development stage company, as of September 30, 1996, and
the related consolidated statements of income (loss) for the three months and
nine months ended September 30, 1996 and 1995, the statement of changes in
stockholders' equity through September 30, 1996, and the statements of cash
flows for the nine months ended September 30, 1996 and 1995, in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the above described consolidated financial statements and, accordingly,
do not express an opinion or any other form of assurance on them.
Management has elected to omit substantial disclosures required by generally
accepted accounting principles. If the omitted disclosures were included in the
consolidated financial statements, they might influence the user's conclusions
about the Company's financial position, results of operations,and cash flows.
Accordingly, these financial statements are not designed for those who are not
informed about such matters.
The accompanying consolidated balance sheet as of December 31, 1995, was
compiled by us from financial statements that did not omit substantial
disclosures required by generally accepted accounting principles and that we
previously audited by other accountants as indicated in their report dated March
28, 1996. Such report expressed an unqualified opinion on the consolidated
balance as of December 31, 1995.
November 12, 1996
Charlotte, North Carolina
FORM 10-SB DATED JANUARY 8, 1997, PAGE 83
<PAGE>
<TABLE>
<CAPTION>
SBI COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER
1996 31, 1995
------------- --------
(UNAUDITED)
-----------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 13,053
$ 11,589
Accounts receivable, net of allowance
for doubtful accounts of $500,000 at
September 30, 1996 and $462,500 at
December 31, 1995 463,038 499,864
Notes receivable from shareholders 33,200 25,000
---------- ----------
509,291 536,453
Property and equipment, less accumulated
depreciation 7,142,799 7,316,219
Other assets:
Deferred loan costs 64,424 -
Trademarks, net 25,000 100,000
Shows and computer programs, net 41,490 165,960
Game inventory - 60,688
Organization costs 43 170
---------- ----------
$7,783,047 $8,179,490
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Mortgage note payable - current portion $ 5,672 $ -
Note payable to a trust managed by
a shareholder 250,000 250,000
Accounts payable 41,747 53,738
Accrued wages due to principal
shareholder 210,000 120,000
Advances due to principal shareholder 4,753 4,156
Accrued interest 4,950 5,729
---------- ----------
517,122 433,623
---------- ----------
Mortgage note payable 241,775 -
---------- ----------
Shareholders' equity:
Preferred stock, par value $5.00; 10,000,000 shares authorized; 1,668,000
shares issued and outstanding at September 30, 1996 and
December 31, 1995, respectively 8,340,000 8,340,000
Preferred stock subscribed 25,000 -
Common stock, par value $.001; 40,000,000 shares authorized; 5,345,439
shares issued and outstanding at September 30, 1996 and
December 31, 1995, respectively 5,345 5,345
Paid-in capital 3,567,343 3,572,343
Deficit accumulated during the development
stage ( 4,913,538) ( 4,171,821)
---------- ----------
Total shareholders' equity 7,024,150 7,745,867
---------- ----------
$7,783,047 $8,179,490
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
and accountants compilation report.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 84
<PAGE>
<TABLE>
<CAPTION>
SBI COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
THREE MONTHS ENDED NINE MONTHS ENDED INCEPTION
SEPTEMBER 30, SEPTEMBER 30, THROUGH
(UNAUDITED) (UNAUDITED) SEPTEMBER 30,
------------------------- -------------------------- 1996
1996 1995 1996 1995 (UNAUDITED)
--------- --------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Licenses and royalties $ -- $ -- $ -- -- $ 641,642
Bingo hall rent 77,000 148,790 277,000 298,790 811,593
Bingo hall operations 12,754 13,888 12,754 13,888 105,804
Interest income 343 -- 617 32 1,718
Other income -- -- -- -- 235,754
--------- --------- ---------- --------- -----------
Gross revenues 90,097 162,678 290,371 312,710 1,796,511
--------- --------- ---------- --------- -----------
Expenses:
Production costs 1,813 -- 10,011 -- 316,696
Bingo hall operations 11,105 -- 11,105 -- 11,105
General and administrative .. 249,687 83,497 430,251 225,965 2,338,085
Salaries and related expenses 38,152 38,263 115,012 104,263 978,672
Depreciation and amortization 137,107 156,951 411,081 403,449 1,835,406
Interest expense and finance
charges 27,717 -- 54,628 193 349,258
Losses from equity interest
in joint venture -- -- -- -- 880,827
--------- --------- ---------- --------- -----------
Total expenses 465,581 278,711 1,032,088 733,870 6,710,049
--------- --------- ---------- --------- -----------
Income (loss) from operations ($375,484) ($116,033) ($ 741,717) ($421,160) ($4,913,538)
========= ========= ========== ========= ===========
Income (loss) per share ($ 0.07) ($ .02) ($ 0.14) ($ .08) ($ 2.30)
========= ========= ========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements
and accountants compilation report.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 85
<PAGE>
<TABLE>
<CAPTION>
SBI COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY (DEFICIT)
FROM INCEPTION, JANUARY 10, 1986, THROUGH SEPTEMBER 30, 1996
DEFICIT
COMMON STOCK PREFERRED STOCK ACCUMULATED
--------------------- --------------------- ADDITIONAL DURING TOTAL
NUMBER NUMBER PAID-IN DEVELOPMENT SHAREHOLDERS'
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL STAGE EQUITY (DEFICIT)
---------- -------- --------- --------- ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial common stock sold
in January, 1986 for
cash of $500 4,000,000 $ 4,000 - $ - ($ 3,500) $ - $ 500
Recapitalization as a
business combination 3,300,000 3,300 - - (13,153) - (9,853)
Forgiveness of debt - - - - 246,370 - 246,370
Retroactive adjustment for
1 for 20 reverse stock
split occurring in 1993 (6,935,000) (6,935) - - 6,935 - -
Net loss, 1986 - - - - - (204,663) (204,663)
--------- -------- --------- ---------- ---------- ---------- ----------
Balance, December 31, 1986 365,000 365 - - 236,652 (204,663) 32,354
Common stock sold for cash
of $25,809 in August, 1987
($12.90 per share) 2,000 2 - - 25,807 - 25,809
Common stock sold for cash
of $71,691 in August, 1987
($14.06 per share) 5,100 5 - - 71,686 - 71,691
Common stock issued in August,
1987 for rent concessions
and other assets valued
at $71,750 ($7.18 per share) 10,000 10 - - 71,740 - 71,750
Common stock sold for cash
of $41,000 in October, 1987
($10.00 per share) 4,100 4 - - 40,996 - 41,000
Common stock sold for cash
of $5,000 in November, 1987
($10.00 per share) 500 1 - - 4,999 - 5,000
Net loss, 1987 - - - - - (544,026) (544,026)
--------- -------- --------- ---------- ---------- ---------- ----------
Balance December 31, 1987 386,700 387 - - 451,880 (748,689) (296,422)
Common stock sold for cash
of $100,000 in January, 1988
($2.00 per share) 50,000 50 - - 99,950 - 100,000
Common stock issued in April,
1988 for services rendered
valued at $34,716 ($5.00 per
share) 6,943 7 - - 34,709 - 34,716
Common stock issued in June,
1988 for cash of $86,546
($4.69 per share) 18,463 18 - - 86,528 - 86,546
Common stock issued in November,
1988 for services rendered
from June through November,
1988, valued at $46,877
($4.69 per share) 10,000 10 - - 46,867 - 46,877
Net loss, 1988 - - - - - ( 1,206,824) ( 1,206,824)
--------- -------- --------- ---------- ---------- ---------- ----------
Balance December 31, 1988 472,106 472 - - 719,934 ( 1,955,513) ( 1,235,107)
Common stock issued in January,
1989 for cash of $23,438
($4.69 per share) 5,000 5 - - 23,433 - 23,438
</TABLE>
(Continued)
FORM 10-SB DATED JANUARY 8, 1997, PAGE 86
<PAGE>
<TABLE>
<CAPTION>
SBI COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY (DEFICIT)
FROM INCEPTION, JANUARY 10, 1986, THROUGH SEPTEMBER 30, 1996
(CONTINUED)
DEFICIT
COMMON STOCK PREFERRED STOCK ACCUMULATED
-------------------- -------------------- ADDITIONAL DURING TOTAL
NUMBER NUMBER PAID-IN DEVELOPMENT SHAREHOLDERS'
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL STAGE EQUITY (DEFICIT)
--------- -------- --------- -------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock issued in January,
1989 as inducement to lenders
valued at $21,095 ($4.69
per share) 4,500 5 - - 21,090 - 21,095
Common stock issued in June,
1989 as repayment of debt
valued at $70,000 ($4.67
per share) 15,000 15 - - 69,985 - 70,000
Common stock issued in June,
1989 for legal services from
February through June,
1989, valued at $140,630
($4.69 per share) 30,000 $ 30 - $ - $ 140,600 $ - $ 140,630
Net loss, 1989 - - - - - ( 491,957) ( 491,957)
--------- -------- --------- ---------- ---------- ---------- ----------
Balance December 31, 1989 526,606 527 - - 975,042 ( 2,447,470) ( 1,471,901)
Common stock issued in January,
1990 for production and
uplinking services valued
at $10,000 ($2.00 per share) 5,000 5 - - 9,995 - 10,000
Common stock issued in January,
1990 for design and
software programs valued at
$30,000 ($4.00 per share) 7,500 7 - - 29,993 - 30,000
Common stock issued in January,
1990 for telecommunication
and layout services rendered
valued at $50,000 ($2.00 per
share) 25,000 25 - - 49,975 - 50,000
Common stock issued in June,
1990 for production services
valued at $50,000 ($5.00 per
share) 10,000 10 - - 49,990 - 50,000
Common stock sold in June,
1990 for cash of $3,750
($5.00 per share) 750 1 - - 3,749 - 3,750
Common stock issued in November,
1990 as repayment of debt
owed to CEO valued at $300,000
($0.60 per share) 500,000 500 - - 299,500 - 300,000
Common stock issued in November,
1990 for receivables of
$468,000, later deemed to have
no value ($4.68 per share
reduced to -0-) 100,000 100 - - ( 100) - -
Common stock issued in December,
1990 to a board member for
services rendered valued at
$25,000 ($5.00 per share) 5,000 5 - - 24,995 - 25,000
</TABLE>
(Continued)
FORM 10-SB DATED JANUARY 8, 1997, PAGE 87
<PAGE>
<TABLE>
<CAPTION>
SBI COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY (DEFICIT)
FROM INCEPTION, JANUARY 10, 1986, THROUGH SEPTEMBER 30, 1996
(CONTINUED)
DEFICIT
COMMON STOCK PREFERRED STOCK ACCUMULATED
-------------------- --------------------- ADDITIONAL DURING TOTAL
NUMBER NUMBER PAID-IN DEVELOPMENT SHAREHOLDERS'
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL STAGE EQUITY (DEFICIT)
--------- -------- --------- --------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock issued in December,
1990 to a board member for
services rendered valued at
$25,000 ($5.00 per share) 5,000 5 - - 24,995 - 25,000
Net income, 1990 - - - - - 2,511,101 2,511,101
--------- -------- --------- ---------- ---------- ---------- ----------
Balance December 31, 1990 1,184,856 1,185 - - 1,468,134 63,631 1,532,950
Common stock issued in October,
1991 as repayment of debt
owed to CEO valued at
$500,000 ($1.00 per share) 500,000 500 - - 499,500 - 500,000
Common stock issued in November,
1991 to CEO for various
trademarks, shows, computer
programs and bingo game
inventory, valued at
$1,405,200 ($3.00 per share) 468,400 468 - - 1,404,732 - 1,405,200
Net loss, 1991 - - - - - ( 2,315,058) (2,315,058)
--------- -------- --------- ---------- ---------- ---------- ---------
Balance December 31, 1991 2,153,256 2,153 - - 3,372,366 ( 2,251,427) 1,123,092
Common stock issued in January,
1992 for marketing services
valued at $9,000 ($0.60 per
share) 15,000 15 - - 8,985 - 9,000
Common stock issued in January,
1992 for clerical services
valued at $10,000 ($2.00
per share) 5,000 $ 5 - $ - $ 9,995 $ - $ 10,000
Common stock issued in January,
1992 for services provided
by board member valued at
$10,000 ($2.00 per share) 5,000 5 - - 9,995 - 10,000
Common stock issued in January,
1992 for services provided
by board member valued at
$10,000 ($2.00 per share) 5,000 5 - - 9,995 - 10,000
Common stock issued in January,
1992 for payment of interest
due on notes to three
individuals, valued at
$9,900 ($0.57 per share) 17,500 18 - - 9,882 - 9,900
Common stock sold in August,
1992 for cash of $25,000
($0.75 per share) 33,333 33 - - 24,967 - 25,000
Net loss, 1992 - - - - - ( 493,057) ( 493,057)
--------- -------- --------- ---------- ---------- ---------- ---------
Balance December 31, 1992 2,234,089 2,234 - - 3,446,185 ( 2,744,484) 703,935
Fractional shares issued in
connection with reverse
stock split 100 - - - - - -
</TABLE>
(Continued)
FORM 10-SB DATED JANUARY 8, 1997, PAGE 88
<PAGE>
<TABLE>
<CAPTION>
SBI COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY (DEFICIT)
FROM INCEPTION, JANUARY 10, 1986, THROUGH SEPTEMBER 30, 1996
(CONTINUED)
DEFICIT
COMMON STOCK PREFERRED STOCK ACCUMULATED
------------------- --------------------- ADDITIONAL DURING TOTAL
NUMBER NUMBER PAID-IN DEVELOPMENT SHAREHOLDERS'
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL STAGE EQUITY (DEFICIT)
--------- ------- --------- ------ ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock issued in March,
1993 for bonds - bonds were
unable to be issued, stock
was canceled in 1994 - no
valued has been assigned 650,000 650 - - ( 650) - -
Common stock issued in March,
1993 for consulting
agreement; 350,000 shares
originally issued, 200,000
shares canceled; no value
assigned 150,000 150 - - ( 150) - -
Common stock issued in April,
1993 for consulting
agreement and $40,000 in
cash; no value assigned to
the consulting agreement
($0.40 per share) 100,000 100 - - 39,900 - 40,000
Common stock issued in July,
1993 for consulting
agreement, no value
assigned 650,000 650 - - ( 650) - -
Common stock issued in
August, 1993 for
consulting agreement, no
value assigned 100,000 100 - - ( 100) - -
Common stock issued in
August, 1993 to CEO for
repayment of various debts
valued at $37,500 ($0.19
per share) 200,000 200 - - 37,300 - 37,500
Common stock issued in
October, 1993 for
consulting services, no
value assigned 1,250 1 - - ( 1) - -
Common stock issued in
November, 1993 for
commitments to raise $400,000
but such funds were never
received; Company has not yet
canceled certificates, but
restricted such certificates
until the matter is resolved;
no value has been assigned in
that management anticipates
ultimate cancellation of the
certificates 200,000 200 - - ( 200) - -
Common stock issued in
December, 1993 for
consulting agreement; stock
canceled in 1994 due to
nonperformance; no value
assigned 1,000,000 $ 1,000 - $ - ($ 1,000) $ - $ -
Net loss, 1993 - - - - - ( 338,530) ( 338,530)
--------- -------- --------- ---------- ---------- ---------- ---------
Balance December 31, 1993 5,285,439 5,285 - - 3,520,634 ( 3,083,014) 442,905
Common stock issued in
March, 1993 for bonds -
bonds were unable to be
issued, stock was
canceled in 1994 ( 650,000) ($ 650) - - 650 - -
</TABLE>
(Continued)
FORM 10-SB DATED JANUARY 8, 1997, PAGE 89
<PAGE>
<TABLE>
<CAPTION>
SBI COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY (DEFICIT)
FROM INCEPTION, JANUARY 10, 1986, THROUGH SEPTEMBER 30, 1996
(CONTINUED)
DEFICIT
COMMON STOCK PREFERRED STOCK ACCUMULATED
--------------------- ---------------------- ADDITIONAL DURING TOTAL
NUMBER NUMBER PAID-IN DEVELOPMENT SHAREHOLDERS'
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL STAGE EQUITY (DEFICIT)
---------- --------- --------- ---------- ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock issued in
January, 1994 for
consulting agreement
and computer equipment
with a book value of
$91,669; no value has been
assigned to the consulting
agreement; total value of
$91,669 ($0.09 per share) 1,000,000 1,000 - - 90,669 - 91,669
Common stock issued in
December, 1993 for
consulting agreement;
stock canceled in July
1994 due to nonperformance;
no value assigned in 1993 (1,000,000) ( 1,000) - - 1,000 - -
Common stock issued in
November, 1994 for
consulting agreement,
no value assigned 500,000 500 - - ( 500) - -
Preferred stock issued in
December, 1994 for land
valued at $250,000;
building valued at
$6,250,000; and equipment
valued at $900,000; total
value of $7,400,000 ($4.93
per share) - - 1,500,000 7,500,000 ( 100,000) - 7,400,000
Preferred stock issued in
December 1994 to individual
to settle debts of
approximately $25,000
($5.00 per share) - - 5,000 25,000 - - 25,000
Net loss, 1994 - - - - - ( 319,575) ( 319,575)
--------- ------- --------- ---------- ---------- ---------- ----------
Balance December 31, 1994 5,135,439 5,135 1,505,000 7,525,000 3,512,453 ( 3,402,589) 7,639,999
Common stock issued in
January, 1995 for
accounting services
valued at $100
($0.001 per share) 100,000 100 - - - - 100
Preferred stock issued in
March, 1995, for cash - - 33,000 165,000 - - 165,000
Net loss, January 1, 1995,
to March 31, 1995 - - - - - ( 180,176) ( 180,176)
--------- ------- --------- ---------- ---------- ---------- ----------
Balance March 31, 1995 5,235,439 5,235 1,538,000 7,690,000 3,512,453 ( 3,582,765) 7,624,923
Common stock issued in May,
1995 for legal services
valued at $50,000
($0.50 per share) 100,000 100 - - 49,900 - 50,000
Preferred stock issued in
June, 1995, to principal
shareholder as settlement
for $450,000 owed to said
shareholder, valued at
$450,000 ($5.00 per share) - - 90,000 450,000 - - 450,000
</TABLE>
(Continued)
FORM 10-SB DATED JANUARY 8, 1997, PAGE 90
<PAGE>
<TABLE>
<CAPTION>
SBI COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY (DEFICIT)
FROM INCEPTION, JANUARY 10, 1986, THROUGH SEPTEMBER 30, 1996
(CONTINUED)
PREFERRED DEFICIT
COMMON STOCK PREFERRED STOCK STOCK SUBSCRIBED ACCUMULATED
------------------- ------------------- ------------------- ADDITIONAL DURING TOTAL
NUMBER NUMBER NUMBER PAID-IN DEVELOPMENT SHAREHOLDERS'
OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL STAGE EQUITY (DEFICIT)
--------- ------ --------- -------- --------- -------- ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common stock issued in
August, 1995 for
legal services valued
at $10,000
($1.00 per share) 10,000 10 - - - - 9,990 - 10,000
Preferred stock issued
in October, 1995 as an
inducement to an
ndividual to arrange
for $250,000 to be
loaned to the Company
by a trust controlled
by the individual,
value of $200,000
($5.00 per share) - - 40,000 200,000 - - - - 200,000
Net loss, April 1, 1995
to December 31, 1995 - - - - - - - ( 589,056) ( 589,056)
--------- ------- --------- ---------- -------- -------- ---------- ---------- --------
Balance December 31,
1995 5,345,439 5,345 1,668,000 8,340,000 - - 3,572,343 ( 4,171,821) 7,745,867
Unaudited:
Preferred stock sub-
scribed in April,
1996, issued in July,
1996, as an inducement - - - - 5,000 25,000 ( 5,000) - 20,000
Net loss, January 1,
1996 to September 30,
1996 - - - - - - - ( 741,717) ( 741,717)
--------- ------- --------- ---------- -------- --------- ---------- ---------- ----------
Balance September 30,
1996 5,345,439 $ 5,345 1,668,000 $8,340,000 5,000 $ 25,000 $3,567,343 ($4,913,538) $7,024,150
========= ======= ========= ========== ======== ========= ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
and accountants compilation report.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 91
<PAGE>
<TABLE>
<CAPTION>
SBI COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
JAN. 10, 1986 THROUGH SEPT. 30,
1996 1995 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) ($ 741,717) ( $421,160) ($4,913,538)
Adjustments to reconcile net loss to cash
provided from operations:
Depreciation and amortization 411,081 403,449 1,835,576
Stock issued for services - 60,100 1,850,438
Stock issued for financing costs - - 200,000
Change in accounts receivable 28,626 ( 312,678) ( 496,238)
Change in game inventories 60,688 - 75,400
Amortization of deferred loan costs 16,576 - 16,576
Change in accounts payable ( 11,991) ( 41,005) 41,747
Change in accrued expenses 89,221 90,000 214,950
Loss on write-off of marketable securities - - 2,000
Loss on disposal of assets - - 2,440
Write-off of production costs - - 236,138
Loss on equity interest in joint venture - - 880,827
--------- --------- ----------
Cash provided (used) by operating activities ( 147,516) ( 221,294) ( 53,684)
--------- --------- ----------
Cash flows from investing activities:
Organization costs incurred - - ( 758)
Investment in marketable securities - - ( 2,000)
Payment for production costs - - ( 236,567)
Investment in joint venture - - ( 880,827)
Effect of business capitalization - - ( 9,853)
Purchase of property and equipment ( 38,064) ( 26,834) ( 224,692)
--------- --------- ----------
Cash provided (used) by investing activities ( 38,064) ( 26,834) ( 1,354,697)
--------- --------- ----------
Cash flows from financing activities:
Proceeds from notes payable 250,000 - 250,000
Deferred loan cost paid ( 61,000) - ( 61,000)
Repayment of notes payable ( 2,553) - ( 2,553)
Loans from shareholders/affiliates 20,321 40,029 745,124
Repayments on loans from shareholders ( 19,724) ( 13,309) ( 97,871)
Proceeds from issuance of common stock - 165,000 587,734
--------- --------- ----------
Cash provided by financing activities 187,044 191,720 1,421,434
--------- --------- ----------
Net increase (decrease) in cash 1,464 ( 56,408) 13,053
Cash at beginning of period 11,589 58,928 -
--------- --------- --------
Cash at end of period $ 13,053 $ 2,520 $ 13,053
========= ========= ==========
Supplemental information:
Income taxes paid $ - $ - $ -
========= ========= ==========
Interest paid $ 38,831 $ 193 $ 128,495
========= ========= ==========
</TABLE>
Significant non-cash transactions included the following:
During 1995, legal and accounting fees valued at $60,100 were paid for by the
issuance of 210,000 shares of common stock; $450,000 of loans payable to
shareholders were repaid through the issuance of 90,000 shares of preferred
stock; and $200,000 of finance charges relating to loan inducement fees were
paid for by the issuance of 40,000 shares of preferred stock.
During 1996, loan costs of $20,000 were paid for through the issuance of
5,000 shares of preferred stock.
See accompanying notes to consolidated financial statements
and accountants compilation report.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 92
<PAGE>
SBI COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
UNAUDITED
NOTE 1 - ORGANIZATION AND CERTAIN SIGNIFICANT ACCOUNTING POLICIES
The organization and certain major accounting policies of SBI Communications,
Inc. are summarized below to assist the reader in reviewing the Company's
financial statements.
ORGANIZATION
SBI Communications, Inc. (the "Company"), was originally organized in the
State of Utah on September 23, 1983, under the corporate name of Alpine
Survival Products, Inc. Its name was subsequently changed to Justin Land and
Development, Inc. during October, 1984, and then to Supermin, Inc. on
November 20, 1985. On September 29, 1986, Satellite Bingo, Inc. was the
surviving corporate entity in a statutory merger with Supermin, Inc., a Utah
corporation. In connection with the above merger, the former shareholders of
Satellite Bingo, Inc. acquired control of the merged entity and changed the
corporate name to Satellite Bingo, Inc. Through shareholder approval dated
March 10, 1988, the name was changed to its current name of SBI
Communications, Inc.
DEVELOPMENT STAGE COMPANY
The Company plans to provide an interactive, satellite cable bingo game show
and other similar telecommunication products or services to television
viewers. Since principal operations have not commenced, and since only
insignificant revenues have been generated, the Company is considered to be a
development stage company. Statement of Financial Accounting Standards Number
7 establishes the accounting principles governing development stage
companies.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, Satellite Bingo, Inc., a Georgia corporation,
which currently is inactive with no assets or liabilities. Intercompany
transactions and balances have been eliminated in consolidation.
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reporting amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements, which are for
interim periods, have been prepared by the Company. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
FORM 10-SB DATED JANUARY 8, 1997, PAGE 93
<PAGE>
omitted. In the opinion of the Company's management, the disclosures made are
adequate to make the information presented not misleading, and the consolidated
financial statements contain all adjustments necessary to present fairly the
financial position as of September 30, 1996, results of operations for the three
months and nine months ended September 30, 1996 and 1995, and cash flows for the
nine months ended September 30, 1996 and 1995. The unaudited consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the footnotes thereto contained in Form 10-SB as filed
with the Securities and Exchange Commission during 1996. The December 31, 1995,
balance sheet was derived from audited consolidated financial statements, but
does not include all disclosures required by generally accepted accounting
principles.
The results of operations for the nine months ended September 30, 1996, are not
necessarily indicative of the results to be expected for the full year.
NOTE 3 - DEFERRED LOAN COSTS
Deferred loan costs are summarized as follows at September 30, 1996:
Original cost $ 81,000
Less accumulated amortization 16,576
----------
$ 64,424
NOTE 4 - ACCOUNTS RECEIVABLE AND GAME INVENTORY ADJUSTMENTS
During the third quarter of 1996, management determined that amounts due from a
particular charity for back rents totalling $187,500 would likely be collected
only through assumption of certain furniture and equipment owned by the charity.
Management estimates that the value of such furniture and equipment is only
$100,000, and accordingly has recorded an additional bad debt reserve of
$87,500.
Game inventory used by charities leasing the bingo hall is billed to the related
charity. During the third quarter of 1996, management made the decision to not
pursue collection of amounts billed for game inventory during 1996, and to
donate the remaining game inventory to the charity. This resulted in a charge to
operations of $60,688 in the third quarter of 1996.
NOTE 5 - MORTGAGE NOTE PAYABLE
Mortgage note payable is summarized as follows as of September 30, 1996:
Mortgage note payable in 30
installments of $3,330 including
interest at 14% per annum, with a
final balloon payment of $235,255
due October 1,1998, secured by a
deed of trust on all of the
Company's real estate $ 247,447
Less current portion 5,672
Long-term portion $ 241,775
=========
FORM 10-SB DATED JANUARY 8, 1997, PAGE 94
<PAGE>
$61,000 of the proceeds from the above note were used to pay various costs
associated with the loan, and have been capitalized as deferred loan costs. In
addition, as a condition of the loan, the Company paid an additional $20,000 in
loan costs by issuing subscriptions for 5,000 shares of preferred stock to the
lender. As a further inducement to obtain the mortgage note, the Company has
granted an option to the mortgagor to acquire 50,000 shares of common stock at a
price of fifty cents ($0.50) per share. Such option is exercisable upon thirty
days notice, and expires upon repayment of the mortgage loan.
NOTE 6 - EARNINGS PER SHARE
The Company's income (loss) per share was calculated using weighted average
shares outstanding for the appropriate period. These amounts were determined
based upon retroactive restatement for the 1 for 20 reverse stock split
occurring in 1993. Although the preferred stock is a common stock equivalent,
with a conversion rate of approximately 10 shares of common stock for each share
of preferred stock as of the date the preferred stock was issued, preferred
stock conversion has not been included in the calculation of earnings per share
in that to do so would be anti-dilutive.
NOTE 7 - COMMITMENTS, RISKS AND CONTINGENCIES
The Company manages for various charities a bingo hall in Piedmont, Alabama.
Rents and administrative fees charged to charities are unsecured, and generally
are paid only as revenues from the bingo games produce sufficient profit to
allow the charities to make payments. Accounts receivable at September 30, 1996,
are concentrated principally with two charities. Management has estimated the
amount of such receivables that are collectible based upon their knowledge of
the financial condition of the charities and the history of the profitability of
bingo games. It is reasonably possible that management's estimate of the amount
of such receivables that are collectible could change in the near future.
As reflected in the statement of changes in stockholders' equity, the Company
has a history of issuing common stock for services difficult to value, or yet to
be provided. Approximately 4,600,000 (or 86%) of the common stock outstanding at
September 30, 1996, is restricted in some fashion as a result of the above
transactions. Furthermore, the Company has in prior years canceled common stock
certificates due to non-performance of the third parties involved in certain of
the above transactions. Although no party to such transactions has yet
instigated litigation involving the Company for cancellation or restriction of
related shares, due to the volume of such transactions, litigation relating to
such activity remains a possibility. Management feels all actions it has taken
to cancel or restrict common stock are with merit, and does not anticipate any
material loss being incurred by the Company relating to future resolution of
these matters.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 95
<PAGE>
SUMMARY FINANCIAL DATA
Set forth below is selected financial information of the Registrant and
its consolidated subsidiaries as derived from the audited statements of income
(loss) for the last two calendar years, from the balance sheets for the periods
then ended. The selected financial information should be read in conjunction
with the financial statements (including the notes thereto) filed with this
Registration Statement and are qualified by reference to such financial
statements.
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
STATEMENT OF OPERATIONS DATA
Gross Revenues 604,873 25,076
Income from Operations(Loss) ( 769,232) ( 319,575)
Net Income (Loss) per share * ( .14) ( .07)
BALANCE SHEET DATA
ASSETS
Current Assets 536,453 58,928
Property & equipment, less
accumulated depreciation 7,316,219 7,483,501
Other Assets 326,818 607,661
--------- ---------
TOTAL ASSETS 8,179,490 8,150,090
LIABILITIES
Current Liabilities 433,623 510,091
Long Term Liabilities NIL NIL
TOTAL LIABILITIES 433,623 510,091
TOTAL STOCKHOLDERS' EQUITY 7,745,867 7,639,999
--------- ---------
TOTAL LIABILITIES AND EQUITY 8,179,490 8,150,090
========= =========
- ------
* See above. Per share data is computed based on the weighted average of
common stock outstanding as of the report date.
PART III
ITEM 1. INDEX TO EXHIBITS
Incorporated by reference from Item 2 below.
FORM 10-SB DATED JANUARY 8, 1997, PAGE 96
<PAGE>
<TABLE>
<CAPTION>
ITEM 2. DESCRIPTION OF EXHIBITS
PAGE OR
EXHIBIT SOURCE OF
NUMBER INCORPORATION DESCRIPTION
- ------- ------------- -----------
<S> <C> <C>
2. .1 *** Plan of Reorganization: Agreement and Plan of Merger [sic] by and among
Satellite Bingo, Inc., a Georgia corporation, and Supermin, Inc. dated
September 2, 1986.
.2 *** Re-incorporation in Delaware Instruments.
3. CONSTITUENT DOCUMENTS:
.1 *** Articles of Incorporation, as amended
.2 *** Bylaws, as amended
10. MATERIAL CONTRACTS:
.1 *** Agreements for Purchase of Piedmont Bingo Hall (Frontier Palace).
.2 *** Employment Agreement between Registrant and Ronald Foster.
.3 JOINT VENTURE AGREEMENTS:
*** .1 Joint Venture Agreement with VPACS Limited (a New York corporation)
*** .2 Cahill Agreement
---- .3 La Yate Company Limited (Hong Kong)
---- .4 PandaAmerica/Glendale Studios
.4 BINGO HALL AGREEMENTS:
*** .1 Chief Strikeaxe Trading Post (Oklahoma)
*** .2 DCA Services Division, Fort Benning, Georgia
.5 *** Lease and Service Provider Agreements with Piedmont Jaycees.
.6 PROGRAM & PRODUCTION AGREEMENTS:
*** .1 Glendale Studios Production Agreements
*** .2 Las Vegas Television Network, Inc.
.7 *** Lease Agreement dated January 17, 1996, with Integrated Telephony Products,
Inc.
.8 AGREEMENTS WITH BRADLEY M. (BRAD) TATE:
*** .1 Memorandum of Service Agreement
*** .2 Consulting Agreement
.9 *** Alamo Leasing Agreement
</TABLE>
FORM 10-SB DATED JANUARY 8, 1997, PAGE 97
<PAGE>
<TABLE>
<CAPTION>
PAGE OR
EXHIBIT SOURCE OF
NUMBER INCORPORATION DESCRIPTION
- ------ ------------- -----------
<S> <C> <C>
.10 LETTERS OF INTENT:
*** .1 Glendale Studios, Inc.
*** .2 Cherokee Indians of Georgia, Inc.
*** .3 Promotions International Corporation.
.11 LICENSING AGREEMENTS:
*** .1 Fertina-C, LTD, March 25, 1992 (Greece)
*** .2 Satellite Bingo, Inc. and Luis Manuel Da Costa Matias,
January 18, 1991(Brazil)
*** .3 I.O. Report, C.A., March 23, 1993, (Venezuela)
.12 LACOA AGREEMENTS:
*** .1 Lobbyist Engagement Agreement
*** .2 Management Agreement
11. * Statement re computation of per share earnings.
21. ** Subsidiaries of the Registrant.
99. ADDITIONAL EXHIBITS:
*** .1 Letter from Fletcher, Heald & Hidreth to Ron Foster, dated
April 10, 1992, referencing communications with Cynthia
Young, Assistant Chief, Support of Litigation, rganized
Crime and Racketeering Section of the Criminal Division,
UNITED STATES DEPARTMENT OF JUSTICE.
*** .2 Letter from Fletcher, Heald & Hidreth to Ron Foster, dated
March 19, 1992, referencing the legality under federal law
of SBI Communications, Inc.'s programs and planned
subscription network.
*** .3 Correspondence between the Federal Communications
Commission and Putbrese, Hunsaker & Ruddy, dated
September 14, 1990 through February 11, 1991, requesting
a request for declaratory ruling the legality of advertising
interactive Bingo games on cable systems.
*** .4 Correspondence between Sutherland, Asbill & Brennan and
the Federal Communications Commission, from July 28,
1986, until some undetermined time in 1987.
*** .5 Opinion letters to Ron Foster from Sutherland, Asbill &
</TABLE>
FORM 10-SB DATED JANUARY 8, 1997, PAGE 98
<PAGE>
<TABLE>
<CAPTION>
PAGE OR
EXHIBIT SOURCE OF
NUMBER INCORPORATION DESCRIPTION
- ------ ------------- -----------
<S> <C> <C>
Brennan dated July 11 and 15, 1986.
*** .6 Letter involving the game C-Note, dated June 18, 1993,
referencing a prohibition under Section 9-701(1(a) to the
offer of games of Bingo and keno in Nebraska, but noting
that such statute would not appear to prohibit the
broadcast of the games into Nebraska, or, the location in
Nebraska of telephone banks involving offers of the
games outside of Nebraska.
*** .7 Opinion Letter dated November 16, 1995, from Wiley,
Rein & Fielding (Washington, D.C.), re Pay-per-view
Bingo.
*** .8 Ordinance Number 429 (Bingo) dated June 13, 1994,
City Clerk of Piedmont, Alabama.
*** .9 Alabama Constitution, Amendment Number 508, Bingo
Games in Calhoun County.
*** .10 Limited Appraisal of Frontier Palace, dated May 1, 1995,
prepared by Phillip C. Ledbetter.
<FN>
- ------
/bullet/ Incorporated by reference from the disclosure thereof in the
financial statements filed herewith.
** Incorporated by reference from the disclosure thereof at Part
I, Item I (Description of Business), located at page 3 of this
registration statement.
*** Provided in the original filing or first amendment.
</FN>
</TABLE>
FORM 10-SB DATED JANUARY 8, 1997, PAGE 99
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 12 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED, THE REGISTRANT HAS DULY CAUSED THIS FIRST AMENDED REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED.
SBI COMMUNICATIONS, INC.
DATED: DECEMBER 9, 1996
/s/RONALD FOSTER
--------------------------
Ronald Foster
Chairman, President & Chief Executive
FORM 10-SB DATED JANUARY 8, 1997, PAGE 100
