United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended November 30, 1999 Commission File Number: 0-24075
NBG RADIO NETWORK, INC.
(Name of small business issuer in its charter)
Nevada 88-0362102
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
520 SW Sixth Avenue, Suite 750
Portland, Oregon 97204
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (503) 802-4624
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were $3,640,163.
Based on the closing sales price of the Common Stock on February 23, 2000,
the aggregate market value of the voting stock of registrant held by
non-affiliates was $27,360,659.
The registrant has one class of Common Stock with 12,160,293 shares
outstanding as of February 23, 2000.
Documents Incorporated By Reference: None
Transitional Small Business Issuer Disclosure Format (check one):
Yes [ ] No [X].
<PAGE>
NBG RADIO NETWORK, INC.
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
PART I ...............................................................................1
Item 1. Description of Business........................................................5
Item 2. Description of Property........................................................5
Item 3. Legal Proceedings..............................................................5
Item 4. Submission of Matters to a Vote of Security Holders............................5
PART II ...............................................................................6
Item 5. Market for Common Equity and Related Stockholder Matters ......................6
Item 6. Management's Discussion and Analysis or Plan of Operation......................8
Item 7. Financial Statements..........................................................11
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..........................................................12
PART III ..............................................................................12
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act........................................12
Item 10. Executive Compensation........................................................15
Item 11. Security Ownership of Certain Beneficial Owners and Management................20
Item 12. Certain Relationships and Related Transactions................................21
Item 13. Exhibits and Reports on Form 8-K..............................................21
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PART I
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Item 1. Description of Business
- --------------------------------
General
- -------
Nostalgia Broadcasting Corporation was incorporated in March 1996 under the
laws of the State of Nevada. In January 1998, Nostalgia Broadcasting Corporation
changed its name to NBG Radio Network, Inc. (the "Company"). The Company's
principal executive offices are located at 520 SW 6th, Suite 750, Portland, OR
97204, and its telephone number is (503) 802-4624.
The Company creates, produces, and distributes national radio programs and
other services to the radio industry. The Company offers radio programs to the
industry in exchange for commercial broadcast time, which the Company sells to
national advertisers. The Company has grown from two programs and 150 radio
station affiliates at its inception in 1996 to currently offering 30 programs to
over 2,300 radio station affiliates. The group of radio stations who contract
with the Company to broadcast a particular program constitutes a radio network.
The Company derives a significant part of its revenue from selling the
commercial broadcast time on its radio networks to advertisers desiring national
coverage. The Company also derives a portion of its revenues from their sales
representation division. The sales representation division operates as a sales
staff for other nationally syndicated properties who do not wish to sell their
own product. The sales representation division generates its revenues by selling
the network advertising time for another company and retaining a sales
commission percentage of the gross sales.
The Company currently produces 30 network programs targeting the most popular
radio formats, including Adult Contemporary, Album Oriented Rock, Contemporary
Hit Radio, Country, News/Talk, and Oldies. The Company produces both short form
and long form programs. Short form features, such as SLICE OF LIFE WITH RICHARD
SIMMONS and TEEIN' IT UP WITH PETER JACOBSEN, are daily two to three minute
vignettes. Long form programs, such as MEN ARE FROM MARS AND WOMEN ARE FROM
VENUS and ABSOLUTELY 80'S WITH NINA BLACKWOOD, are programs that range from one
to four hours in length. The Company offers these programs to radio stations
free of charge. The radio stations airing these programs become networks for the
Company to sell advertising time. The Company sells the commercial broadcast
time inside of these networks to advertisers desiring national coverage.
The Company intends to aggressively expand its operations over the next twelve
months. Beginning with radio syndication, the Company's number one goal is to
enhance the value of its current network. In order to do this, the Company will
increase its marketing efforts to radio stations across the United States. The
marketing efforts will focus primarily on the top 50 media markets. By
increasing its network presence in the top 50 media markets, the Company will be
able to charge a higher spot rate for its advertising time. The spot rate is the
price the national advertiser pays per commercial aired on the Company's
network. The Company currently has a network of over 2,300 radio station
affiliates and, with over 10,000 radio stations in the United States, the
Company anticipates significantly expanding its network. There can be no
assurances that the Company will be able to expand its operations.
Another integral part of expanding the Company's network over the next
twelve months will be the addition of new programming. Radio stations rely on
network radio programming and distributors, such as
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the Company, to provide national quality programming and other services to
enhance their existing programming and ratings. Limited financial and creative
resources, among other matters, typically prevent most radio stations from
producing their own national quality programming. The Company intends to focus
its programming growth with long form programs. The Company has developed a
niche in short form programming and by developing more long form programming, it
will obtain more broadcast commercial inventory to sell to the Company's
network. A typical short form program will have 2 to 4 commercials available for
sale while a typical long form program has 8 to 12 commercials available for
sale. The Company intends to offer additional programming over the next twelve
months through internal development as well as the acquisition of businesses or
assets that complement the Company's operations.
The creation of a radio network allows the Company to sell the acquired
commercial broadcast inventory to advertisers desiring national coverage. Rates
for the sale of network advertising are established on the basis of audience
delivery or ratings and the demographic composition of the listening audience.
Thus, if the Company expands its network, as previously discussed, it will be
able to charge more for broadcast commercial time on the network. In addition to
being able to charge more for its advertising time, by expanding its
programming, the Company will also have more commercial broadcast inventory
available for sale.
The Company sells commercial broadcast time by guaranteeing certain
ratings and demographics. There can be no assurance that the guarantee will be
achieved. If the radio network on which the commercial broadcast time is sold
does not achieve the guarantee, the Company may be obligated to offer the
advertiser additional advertising time on the same radio network or on an
alternate radio network. These "make goods" or "bonus spots" are the predominant
means whereby the Company satisfies such obligations to advertisers.
Alternatively, the Company could be obligated to refund or credit a portion of
the advertising revenue derived from such sales. Historically the Company has
not had to refund any cash.
According to the National Association of Broadcasters (NAB) there are
approximately 10,000 commercial radio stations in the United States. The Company
currently has broadcast commercial time on over 2,300 of these radio stations.
Radio is one of the most cost effective forms of advertising given its wide
reach and low cost in comparison to print and television media and in 1999 over
$16.8 billion was spent on radio, an increase of 12% over 1998. Radio
advertising is attractive to advertisers for a variety of reasons: short lead
time between commercial production and broadcast time, low cost of commercial
production, and most importantly, most radio listening occurs away
from home and close to the point of purchase.
Radio stations attempt to develop formats, such as news/talk, music, or
other types of entertainment programming, in order to appeal to a target
listening audience that will attract local, regional, and national advertisers
to their station. However, due to consolidation in the industry, most radio
stations do not have the creative and financial resources to produce nationally
accepted programming. As a result, radio stations look to syndicators, such as
the Company, to enhance their existing local programming. As a national network
the Company licenses radio stations to air the Company's programs in exchange
for commercial broadcast time on the station. The Company then resells the
advertising time to advertisers requiring national coverage. The commercial
broadcast time may vary from market to market within a specified time period
depending on the requirements of the particular radio station. The advertising
rates are based upon audience ratings for the specific demographic the
advertiser is trying to reach. These
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ratings are determined by Arbitron Research Company who periodically measures
the percentage of the radio audience in a market area listening to a specific
radio station during a specific time period.
The Company's wholly owned subsidiary, NBG Solutions, Inc. ("NBG
Solutions"), offers flexible and customizable kiosk platform solutions to a
broad range of customers. Directly and throughout a network of strategic
partnerships, NBG Solutions offers customers a single master arrangement to
design, program, integrate, and service installed kiosks. A Kiosk, on a stand
alone or connected basis (through the Internet or phone lines), allows sponsors
and advertisers to cost effectively distribute timely information and can
facilitate direct interaction with consumers including E-commerce through credit
or smart cards. In addition, NBG Solutions is evaluating and developing
ancillary technological marketing services to complement and support radio
entertainment clients. These services include a "Preferred Listener" consumer
data tracking system and certain developing web based systems including custom
site hosting/development and audio streaming.
New Products
- ------------
On February 21, 2000 the Company launched its latest long form talk show
"Men are from Mars and Women are from Venus" with host Michael Najarian. The
program is aired Monday through Friday from 12:00 PM to 3:00 PM EST. It is a
caller driven talk show in which Mr. Najarian utilizes his special brand of
humor and insight to answer listener questions about relationship and
communication issues. Najarian encourages listeners to work through the problems
of love and marriage offering simple, balanced strategies taken directly from
the Men are From Mars Women are from Venus philosophy of best selling author
John Gray. Mr. Najarian is the touring speaker and seminar host for the Mars and
Venus companies.
The Company has formed a partnering agreement with Uno Com, the Hispanic
subsidiary of The Square One Group, Inc. to launch a Hispanic division for its
syndicated radio network. The two companies will produce a series of syndicated
radio programs and products for the US Hispanic radio format. The programming
and product lines will begin with fifteen programs scheduled to launch over the
first two quarters of 2000. The fifteen programs scheduled to be released are
diverse, ranging from daily prep services, generic commercial production,
sports, entertainment, music and talk programs.
The Company recently began a new non-traditional revenue source called NBG
Sampling Solutions. The concept provides the Company's advertisers the
opportunity to promote their products through the Company's extensive network
affiliate base. The process begins with the advertiser providing the Company
with a list of current product samples. After reviewing the products available,
the Company notifies its current list of network radio stations of the available
sample products. Interested stations then receive specific product samples
requested directly from the advertiser. The stations then distribute these
samples at various sponsored events. The advertisers gain exposure to a large,
yet specific market, and in return, the Company and the radio stations receive
revenue for the distribution of the product samples.
The Company has acquired the rights to one of the nation's leading comedy
and prep services, Dr. Don. Created in 1989 by founder Don Carpenter, the
service has steadily grown and is now in its tenth year of syndication as the
Dr. Don Prepsheet. It most recently was a part of Premiere Radio Network's
Cutler Country and Fire Power Prep Service. The Dr. Don Prepsheet is published
on a daily basis and provides radio stations with seven pages of comedy, trivia
and prep material for use on their morning
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shows. The material will be delivered by way of fax, e-mail or through the
Company's website. The Company began delivery of the service January 1, 2000 on
over 200 stations. In addition to writing the Dr. Don Prepsheet, Don Carpenter
currently works as the morning show host of WYCD-FM, Detroit.
The Company intends to launch a new talk show in the second quarter of
2000, called "Ground Zero". The program is a unique radio show that combines
science fiction and fact mixed with highly produced experimental rock music.
"Ground Zero" will provide a forum for the presentation and discussion of fresh
observations and novel ideas. The program will be dedicated to all aspects of
the seemingly inexplicable and anomalous.
Competition
- -----------
Competition for radio advertising is very intense. The industry is made up
of a variety of competitive forces. There are ownership groups, which own blocks
of radio stations across the industry, syndicators, like the Company, that offer
programming and marketing services to radio stations, and independent producers
and distributors that offer programs or services. Several of the Company's
syndicating competitors are also associated with major radio station group
owners. In addition to this, they have recognized brand names and will pay
compensation to the radio station to broadcast the network's commercials. The
Company's largest competitors, which are all also associated with ownership
groups, are AM/FM Radio Networks, Premiere Radio Networks, CBS Radio Networks,
and ABC Radio. The Company estimates that these competitors account for about
80% of the network advertising revenues. The Company is a leader of the
syndication companies not associated with an ownership group. The principal
competitive factors in the radio industry are the quality and creativity of
programming with the ability to provide advertisers with a cost-effective method
of reaching the target demographic. In this respect, the Company has positioned
itself by adding top entertainment and sports stars like Richard Simmons, Dr.
Don, Bitman, Nina Blackwood, Peter Jacobsen, and Steve Jones to its lineup of
program hosts. The Company's principal operating strategy is to continue to
provide high quality programming to the most popular formats. The Company has
developed and expanded its network through internal operations and will look to
continue this in the future as well as acquire assets and businesses that
complement the Company's operations.
Government Regulation
- ---------------------
Radio broadcasting and station ownership are regulated by the Federal
Communication Commission (FCC). The Company, as a producer and distributor of
radio programs, is generally not subject to regulation by the FCC.
Significant Customers
- ---------------------
The Company's customers are located throughout the United States. Each of
three customers represented 10% or more of the Company's revenue during 1999.
Horizon Communications accounted for $707,651, or 19% of the Company's revenues,
Z-5-O Radio accounted for $800,200, or 22% of the Company's revenues, and,
Ogilvy & Mather accounted for $1,218,994, or 33% of the Company's revenues. A
loss of any one of these customers could have a material adverse effect on the
financial condition and results of operations of the Company.
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Employees
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As of February 23, 2000, the Company had 32 full time employees. In
addition, the Company maintains continuing relationships with over 40
independent hosts, writers, and producers. The Company is not party to any
collective bargaining agreements. The Company believes its relationship with its
employees and independent contractors is good.
Item 2. Description of Property
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The Company leases approximately 6,500 square feet of office space in
Portland, Oregon in which its corporate headquarters, programming and
subsidiaries are located. The lease expires on March 31, 2003 and the annual
base rent is approximately $88,000. The Company also has a sales office in New
York and Los Angeles which it rents in exchange for advertising time on its
network.
The Company anticipates that it may require expansion of its current
facilities in the coming year. As a result, the Company has obtained an option
to lease an additional 3,000 square feet of space in its current building.
Item 3. Legal Proceedings
- --------------------------
From time to time, the Company may be party to various legal actions and
complaints arising in the ordinary course of business. On January 27, 2000, a
lawsuit was commenced in the state of Oregon (Multnomah County Circuit Court) by
IBTEX, A.G., a Liberian Corporation, against Terry L. Neal, Graham H. Norris,
Donovan C. Snyder and the Company alleging unlawful sale of a franchise and
securities and fraud relating to certain settlement and license agreements
between IBTEX, A.G. and ITEX Corporation in the amount of $2,000,000 and
alleging the Company breached an oral contract to perform the settlement
agreement in the amount of $800,000.
The Company believes that the action is without merit and that it has
substantial defenses to the claims. The Company intends to vigorously defend the
lawsuit.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
During the fourth quarter of 1999, no matters were submitted to a vote of
security holders.
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PART II
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Item 5. Market for Common Equity and Related Stockholder Matters
- -----------------------------------------------------------------
The Company's Common Stock has been quoted on the OTC Bulletin Board
since January 23, 1998. Prior to that there was no market for the Common Stock.
The following table sets forth the range of high and low bid prices of the
Company's Common Stock for the quarters indicated through the fourth quarter of
1999:
Calendar Year High Bid Low Bid
- ------------- -------- -------
1998*:
- ------
First quarter 5/8 7/16
Second quarter 3/4 1/2
Third quarter 2 1/16 5/16
Fourth quarter 1 3/8 9/16
1999:
- -----
First quarter 4 1 15/16
Second quarter 3 1 3/4
Third quarter 3 5/8 1 5/8
Fourth quarter 3 1 3/8
* Prices have been adjusted for a 3-for-1 stock split effective on July 31,
1998.
The quotations reflect inter-dealer prices, without retail markups, markdowns,
or commissions and do not necessarily represent actual transactions. The
quotations were derived from the National Quotation Bureau OTC Market Report.
The Company estimates that as of January 30, 2000 there were approximately 1,300
holders of record of the Common Stock.
Dividends
- ---------
The Company has never declared or paid a cash dividend on its Common Stock.
The Company currently intends to retain all earnings to finance growth of the
Company's business and does not anticipate paying any cash dividends in the
foreseeable future on its Common Stock. There are no restrictions on dividend
payments other than restrictions imposed by applicable laws.
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Unregistered Securities
- -----------------------
The following unregistered securities have been issued by the Company
during the last three fiscal years:
<TABLE>
<CAPTION>
- ------------------- ----------------------------- -------------------- ----------------------------- ----------------
Name of Principal
Title and Amount of Underwriter/
Securities Underwriting
Granted/Exercise Price if Discounts or Name or Class of Persons Consideration
Date of Grant Applicable Commissions who Received Securities Received
- ------------------- ----------------------------- -------------------- ----------------------------- ----------------
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January 1998 600,000/Options to purchase None/None Employees and board members $ -0-
Common Stock for $.60 per
share(1)
- ------------------- ----------------------------- -------------------- ----------------------------- ----------------
January 1998 60,750/Common Stock None/None Shares issued for hosting $36,450*
and producing services
- ------------------- ----------------------------- -------------------- ----------------------------- ----------------
January 1998 65,000/Common Stock None/None Shares issued for printing $50,000*
services
- ------------------- ----------------------------- -------------------- ----------------------------- ----------------
January 1998 3,000/Common Stock None/None Shares issued for $6,000*
consulting services
- ------------------- ----------------------------- -------------------- ----------------------------- ----------------
January 1998 9,000/Common Stock None/None Shares issued for investor $9,000*
relation services
- ------------------- ----------------------------- -------------------- ----------------------------- ----------------
January 1998 20,260/Common Stock None/None Shares issued in exchange $20,260
for outstanding notes
- ------------------- ----------------------------- -------------------- ----------------------------- ----------------
January 1998 199,960/Common Stock None/None Shares issued in exchange $99,980
for outstanding notes
- ------------------- ----------------------------- -------------------- ----------------------------- ----------------
June 1998 520,000/Options to purchase None/None Employees and board members $ -0-
Common Stock for $1.63 per
share(1)
- ------------------- ----------------------------- -------------------- ----------------------------- ----------------
June 1998 34,000/Common Stock None/None Shares issued for hosting $55,250*
and writing services
- ------------------- ----------------------------- -------------------- ----------------------------- ----------------
July 1998 250,000/Common Stock None/None Private Placement $500,000
- ------------------- ----------------------------- -------------------- ----------------------------- ----------------
July 1998 500,000/Common Stock None/None Private Placement $1,500,000
- ------------------- ----------------------------- -------------------- ----------------------------- ----------------
July 1998 48,000/Common Stock None/None Shares issued for printing $144,000*
services
- ------------------- ----------------------------- -------------------- ----------------------------- ----------------
July 1998 12,700/Common Stock None/None Shares issued for hosting $38,100*
and producing services
- ------------------- ----------------------------- -------------------- ----------------------------- ----------------
July 1998 584,230/Common Stock None/None Warrants exercised $584,230
- ------------------- ----------------------------- -------------------- ----------------------------- ----------------
July 1998 6,993,800/Common Stock None/None Shareholders $ -0-
- ------------------- ----------------------------- -------------------- ----------------------------- ----------------
January 1999 350,000/Options to purchase None/None Employees and board members $ -0-
Common Stock for $3.10 per
share(1)
- ------------------- ----------------------------- -------------------- ----------------------------- ----------------
January 1999 350,000/Common Stock None/None Shareholders of Mtek $1,267,000
Technical Services, Inc.
- ------------------- ----------------------------- -------------------- ----------------------------- ----------------
January 1999 30,000/Common Stock None/None Options exercised $16,200
- ------------------- ----------------------------- -------------------- ----------------------------- ----------------
June 1999 10,100/Common Stock None/None Options exercised $7,700
- ------------------- ----------------------------- -------------------- ----------------------------- ----------------
July 1999 12,000/Common Stock None/None Options exercised $6,500
- ------------------- ----------------------------- -------------------- ----------------------------- ----------------
July 1999 1,267,493/Common Stock None/None Warrants exercised $1,479,762
- ------------------- ----------------------------- -------------------- ----------------------------- ----------------
September 1999 621,500/Options to None/None Employees and board members $ -0-
purchase Common Stock
for $2.00 per share(1)
- ------------------- ----------------------------- -------------------- ----------------------------- ----------------
</TABLE>
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* Value of consideration estimated.
(1) The options vest and become exercisable in accordance with the Company's
1998 Stock Incentive Plan.
The above unregistered securities were sold or granted in reliance on an
exemption from the registration requirements of the Securities Act of 1933, as
amended ("Act") under Section 4(2) of the Act and/or Regulation D promulgated
under the Act.
Item 6. Management's Discussion and Analysis or Plan of Operation
- ------------------------------------------------------------------
Forward Looking Statements
- --------------------------
The information set forth below relating to matters that are not
historical facts are "forward looking statements" within the meaning of Section
21E of the Securities Exchange Act of 1934 and involve risks and uncertainties
which could cause actual results to differ materially from those contained in
such forward looking statements. Such risks and uncertainties include, but are
not limited to, the following:
o A decline in national and regional advertising
o Preference by customers of other forms of advertising such as newspapers
and magazines, outdoor advertising, network radio advertising, yellow page
directories and point-of-sale advertising
o Loss of executive management personnel
o Ability to maintain and establish new relations with radio stations to
place its programs
o Ability to predict public taste with respect to entertainment programs
Years Ended November 30, 1999 and 1998
- --------------------------------------
The following discussion should be read in conjunction with the audited
consolidated financial statements for the years ended November 30, 1999 and 1998
and the related notes thereto.
REVENUES. Total revenues for 1999 were $3.64 million compared to revenues
of $2.20 million for 1998, representing an increase of $1.44 million, or 65%.
This increase was principally due to increased advertising sales from the
internal development of new programs and partnering with other radio programmers
to expand the Company's network. In addition, the Company increased the number
of radio station affiliates on its network, which allowed the Company to sell
more broadcast commercial time at a higher spot rate.
DIRECT COSTS. Direct costs for 1999 and 1998 were $1.61 million and
$900,000 respectively, representing an increase of $710,000, or 79%. As a
percentage of total revenues, direct costs were 44.3% and 40.8% for 1999 and
1998, respectively, representing an increase of 3.5%. Direct costs consist
primarily of the costs to produce syndicated radio programs and the costs to
manufacture Kiosks. The increase in absolute dollars in 1999 is due mainly to
two new products. First, the Company increased the number of programs it
syndicates, especially long form programming (1 to 4 hour length shows). The
cost
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to produce a long form program is significantly more than a short form program
(1 to 3 minutes long); however, a long form program provides the Company with
significantly more broadcast commercial time to sell to its advertisers. Second,
the Company, through the acquisition of Mtek Technical Services, Inc., began a
new product line of Kiosk Integration Systems for retail applications. The Kiosk
products were not offered by the Company in 1998.
GROSS MARGIN. Gross margin for 1999 was $2.02 million, an increase of
$720,000, or 55%, over 1998. The increased operating income was principally due
to increased net advertising revenues resulting from the internal development of
new radio programs and the Company focusing on offering long form programming.
Long form programming provides the Company with increased commercial broadcast
time available for sale, thus increasing its total revenues and gross margin.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expense in
1999 was $3.30 million, representing an increase of $1.80 million, or 120% over
1998. A portion of this increase was due to wages and employee benefit expense
increasing $570,000 in 1999. The increase in absolute dollars is a result of the
significant growth in staff size over the prior fiscal year and the costs
associated with increasing the number of programs the Company syndicates. As a
percentage of total revenues, general and administrative expense was 90% and 68%
for 1999 and 1998, respectively.
The increase as a percentage of total revenues was primarily due to: (1)
Consulting and Professional fees increasing 82% from $170,000 in 1998 to
$310,000 in 1999, due primarily to the Company increasing its internet
initiatives and an increased investor relations campaign, (2) the Company
increasing its programming through internal development as well as the
acquisition of existing programs which resulted in a $730,000 increase in
depreciation and amortization expenses 1999, (3) postage and printing, office
and telephone expense increasing $200,000 in 1999 compared to 1998 primarily due
to the expansion and marketing of the radio network and the addition of NBG
Solutions in 1999, and (4) a write off of $90,000 of bad debts in 1999 compared
to no bad debt write off in 1998.
INCOME TAXES. The benefit recorded for income taxes in 1999 was $9,000.
Due to loss carryforwards, there was no provision for income taxes in 1998.
NET LOSS AND EARNINGS PER SHARE. Net loss for 1999 and 1998 was $1.26
million or $.11 per share, and $199,000 or $.03 per share, respectively. The
loss for 1999 was mainly due to amortization of intangible assets and
capitalized sales representation costs incurred in 1999 that were not incurred
in 1998..
Basic earnings per share were based upon 11,446,483 and 7,222,359 shares
outstanding on November 30, 1999 and 1998,
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respectively. The Company declared a 3-for-1 stock split in June of 1998 payable
to all shareholders of record as of July 31, 1998. Diluted earnings per share
have not been computed as the effect of outstanding options and warrants would
be anti-dilutive
Liquidity and Capital Resources
- -------------------------------
Historically, the Company has financed its cash flow requirements through
cash flows generated from operations and financing activities. The Company's
working capital at November 30, 1999 was $3.0 million compared to $2.0 million
at November 30, 1998. The increase in working capital was primarily due to an
increase in accounts receivable in 1999 compared to 1998.
In June 1998 the Company completed a private placement of 250,000 units at
$2.00 per unit. Each unit consisted of one share of Common Stock and one warrant
to purchase one share of Common Stock, exercisable immediately. The warrants
were exercisable for $2.25 from June 1998 to January 31, 2000. The warrants then
become exercisable for $2.50 after February 1, 2000 and expire on July 31, 2001.
The Company received proceeds of $500,000 from the private placement.
In July 1998 the Company completed a second private placement of 500,000
units at $3.00 per unit. Each unit consisted of one share of Common Stock and
one warrant to purchase one share of Common Stock, exercisable immediately. The
warrants were exercisable at $3.50 and expired on July 31, 1999. The Company
received proceeds of $1,500,000 from the private placement.
The Company declared a 3-for-1 stock split in June of 1998 payable to all
shareholders or record as of July 31, 1998. The offerings discussed above and
the warrant prices indicated do not reflect the stock split.
The Company has no long term debt.
Management believes that its available cash together with operating
revenues will be sufficient to fund the Company's working capital requirements
through November 30, 2000. The Company's management further believes it has
sufficient liquidity to implement its expansion and acquisition strategies.
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Item 7. Financial Statements
- -----------------------------
NBG RADIO NETWORK, INC.
(formerly Nostalgia Broadcasting Corporation)
INDEPENDENT AUDITOR'S REPORT
AND
FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
PAGE
INDEPENDENT AUDITOR'S REPORT, NOVEMBER 30, 1999 and 1998 F-1
FINANCIAL STATEMENTS
Balance sheets F-2 - F-3
Statements of operations F-4
Statement of stockholders' equity F-5
Statements of cash flows F-6 - F-7
Notes to financial statements F-8 - F-20
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INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
NBG Radio Network, Inc.
We have audited the accompanying balance sheets of NBG Radio Network, Inc. as of
November 30, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of November 30,
1999 and 1998, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
Moss Adams, LLP
Portland, Oregon
January 18, 2000
F-1
<PAGE>
NBG RADIO NETWORK, INC.
Balance Sheets
<TABLE>
<CAPTION>
ASSETS
NOVEMBER 30,
-----------------------------------------
1999 1998
------------------- -----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 892,092 $ 1,855,666
Marketable Securities, at fair value 468,750 -
Barter exchange receivables 148,136 241,678
Accounts receivable, net of allowance for
doubtful accounts of $1,200 in 1999 and 1998 2,121,207 1,175,330
Related-party receivable 47,462 14,462
Supplies Inventory 29,278 -
Sales representation agreements, net of accumulated amortization 1,555,689 -
------------------- -----------------
Total current assets 5,262,614 3,287,136
------------------- -----------------
PROPERTY AND EQUIPMENT, net of accumulated depreciation 202,713 136,171
DEPOSITS 1,000 3,250
INTANGIBLE ASSETS, net of amortization 1,634,897 587,750
-------------------
-----------------
Total assets $ 7,101,224 $ 4,014,307
=================== =================
F-2
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 179,649 $ 176,202
Accrued liabilities 31,615 67,886
Deferred programming revenue 500,000 -
Current portion of long-term debt - 245,248
Sales representation agreement liabilities 1,555,689 -
------------------- -----------------
Total current liabilities 2,266,953 489,336
------------------- -----------------
OTHER LIABILITIES
Long-term debt, net of current portion - 240,000
Deferred income tax liability - 9,789
------------------- -----------------
Total other liabilities - 249,789
Commitments and contigencies (Note 9)
------------------- -----------------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value; 20,000,000 shares
authorized; 12,160,293 and 10,490,700 shares issued
and outstanding at November 30, 1999 and 1998,
respectively 12,160 10,490
Additional paid-in-capital 6,708,412 3,930,212
Retained deficit (1,749,038) (484,763)
Stock subscription receivable (106,013) (180,757)
Other comprehensive income
Unrealized loss on marketable equity securities, net of tax (31,250) -
------------------- -----------------
Total stockholders' equity
4,834,271 3,275,182
------------------- -----------------
Total liabilities and stockholders' equity $ 7,101,224 $ 4,014,307
=================== =================
</TABLE>
See accompanying notes.
F-3
<PAGE>
NBG RADIO NETWORK, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
-----------------------------------------
1999 1998
------------------- ------------------
<S> <C> <C>
REVENUES
Advertising income $ 3,616,026 $ 2,188,056
Interest income 24,137 20,543
------------------- ------------------
Total revenues 3,640,163 2,208,599
DIRECT COSTS 1,612,184 901,476
------------------- ------------------
GROSS MARGIN 2,027,979 1,307,123
------------------- ------------------
GENERAL AND ADMINISTRATIVE EXPENSES
Wages and employee benefits 1,215,402 648,026
Depreciation and amortization 840,561 118,265
Consulting and professional 310,902 170,194
Travel and entertainment 196,729 201,262
Postage and printing 185,981 39,128
Advertising 130,555 115,024
Rent 99,804 68,696
Bad debt expense 90,134 -
Office supplies 80,785 40,732
Telephone 50,946 30,265
Interest 5,065 40,205
Other expenses 95,179 34,349
------------------- ------------------
Total general and administrative expenses 3,302,043 1,506,146
------------------- ------------------
Net loss before provision for income taxes (1,274,064) (199,023)
Provision for income taxes 9,789 -
------------------- ------------------
Net loss $ (1,264,275) $ (199,023)
Other comprehensive income:
Unrealized loss on marketable equity securities, net of income tax $ (31,250) -
------------------- ------------------
Comprehensive loss $ (1,295,525) $ (199,023)
=================== ==================
Basic loss per share of common stock $ (0.11) $ (0.03)
=================== ==================
Weighted average number of shares outstanding 11,446,483 7,222,359
=================== ==================
</TABLE>
See accompanying notes.
F-4
<PAGE>
NBG RADIO NETWORK, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
STOCK OTHER
ADDITIONAL RETAINED SUBSCRIPTION COMPREHENSIVE
COMMON STOCK PAID-IN DEFICIT RECEIVABLE INCOME TOTAL
CAPITAL
----------------------- ------------ ------------ ------------ ------------ -----------
SHARES AMOUNT
----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, November 30, 1996 1,110,000 $ 1,110 $ 493,363 $ (77,237) - - $ 417,236
Net loss for the year - - - (208,503) - - (208,503)
----------- ---------- ------------ ------------ ------------ ------------ -----------
BALANCE, November 30, 1997 1,110,000 1,110 493,363 (285,740) - - 208,733
Issuance of common shares for 232,250 232 337,968 - $(180,757) - 157,443
services
Issuance of common shares for 220,220 220 120,020 - - - 120,240
Cancellation of notes
payable
Private placement of common 750,000 750 1,999,250 - - - 2,000,000
Stock
Exercise of options and 1,184,430 1,184 986,605 - - - 987,789
warrants
3 for 1 stock split 6,993,800 6,994 (6,994) - - -
Net loss for the year - - - (199,023) - - (199,023)
----------- ---------- ------------ ------------ ------------ ------------ -----------
BALANCE, November 30, 1998 10,490,700 $ 10,490 $ 3,930,212 $ (484,763) $(180,757) - $3,275,182
Issuance of common shares for
business acquisition 350,000 350 1,266,650 - - - 1,267,000
Exercise of options and 1,319,593 1,320 1,511,550 - - - 1,512,870
warrants
Services provided for payment
of subscribed shares - - - - 74,744 - 74,774
Net loss for the year - - - (1,264,275) - - (1,264,275)
Change in unrealized loss on
marketable securities - - - - - (31,250) (31,250)
----------- ---------- ------------ ------------ ------------ ------------ -----------
Balance November 30, 1999 12,160,293 $ 12,160 $ 6,708,412 $(1,749,038) $(106,013) $ (31,250) $4,834,271
=========== ========== ============ ============ ============ ============ ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
NBG RADIO NETWORK, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
---------------------------------
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (1,264,275) $ (199,023)
Adjustments to reconcile net loss to cash from operating
activities:
Depreciation and amortization 840,561 118,265
Bad debt expense 90,134 -
Service provided in payment of subscribed shares 74,744 -
Common stock issued for services - 157,443
Deferred tax liability (9,789) (70)
Changes in assets and liabilities:
Barter exchange receivables 93,542 (241,678)
Accounts receivable (969,136) (961,445)
Related-party receivables (33,000) (122)
Suppliers inventory (29,278) -
Deposits 2,250 (3,250)
Accounts payable (73,748) 32,060
Accrued liabilities (36,271) (40,526)
Payments of programming contracts (467,437) -
------------- -------------
Net cash from operating activities (1,781,703) (1,138,346)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Issuance of common stock $ 1,512,870 $ 2,987,789
Net cash paid for investment in subsidiary (99,800) -
Acquisition of property and equipment (109,693) (72,717)
------------- -------------
Net cash from investing activities 1,303,377 2,915,072
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt - -
Payments on long-term debt (485,248) (33,753)
------------- -------------
Net cash from financing activities (485,248) (33,753)
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS
(963,574) 1,742,973
CASH, beginning of year 1,855,666 112,693
------------- -------------
CASH, end of year $ 892,092 $ 1,855,666
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 27,480 $ 43,176
============= =============
Cash paid for income taxes $ - $ 70
============= =============
SUPPLEMENTAL SCHEDULE OF NONCASH
F-6
<PAGE>
NBG RADIO NETWORK, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED NOVEMBER 30,
1999 1998
------------- -------------
INVESTING AND FINANCING ACTIVITIES
Acquisition of marketable equity securities for future
services $ 500,000 -
============= =============
Capitalization of programming contract assets and liabilities $ 2,023,126 -
============= =============
Issuance of common stock for acquisition of Mtek
Technical Services, Inc. $ 1,267,000 -
============= =============
Issuance of common stock for cancellation of long term
debt $ - $ 120,240
============= =============
Issuance of common stock for services, net of stock
subscription receivable $ - $ 157,443
============= =============
Payment of long term debt and acquisition of goodwill in
barter exchange transactions $ - $ -
============= =============
Acquisition of fixed assets with barter exchange funds $ - $ -
============= =============
</TABLE>
See accompanying notes.
F-7
<PAGE>
NBG RADIO NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND BUSINESS ACTIVITY
NBG Radio Network, Inc. (the Company) was organized under the laws
of the State of Nevada on March 27, 1996, with the name of
Nostalgia Broadcasting Corporation. In January 1998, shareholders
approved the Company's name change to NBG Radio Network, Inc. The
Company has been involved in the acquisition, creation, and
syndication of national radio programming and music production and
distribution. In January 1999, NBG Radio Network, Inc., completed
the acquisition of M-Tek Technical Services, Inc. (see Note 3),
which became NBG Solutions, Inc., a wholly-owned subsidiary of the
Company involved in providing design, installation and support for
interactive kiosks and card-based customer loyalty programs.
Substantially all operations of the Company and its subsidiaries
are conducted from the Company's headquarters in Portland, Oregon.
The Company's customers are located throughout the United States.
However, five customers accounted for $2,726,845 or approximately
75% of sales for the year ended November 30, 1999, and $1,561,250
or approximately 73% of accounts receivable as of November 30,
1999. Similarly, five customers accounted for approximately
$1,438,000 or 66% of sales for the year ended November 30, 1998,
and approximately $936,400 or 80% of accounts receivable as of
November 30, 1998.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Estimates and assumptions - Management uses estimates and
assumptions in preparing financial statements in accordance with
generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could vary from the
estimates that were assumed in preparing the financial statements.
Cash and cash equivalents - The Company considers all highly liquid
instruments purchased with original maturities of less than three
months to be cash equivalents.
Included in the Company's cash balances at November 30, 1999 and
1998, were deposits of $173,004 and $988,741, respectively, in time
certificates of deposit in foreign bank accounts. These accounts
are not insured by the Federal Deposit Insurance Corporation.
F-8
<PAGE>
NBG RADIO NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
Marketable securities - The Company classifies its marketable
securities as "available for sale." Securities classified as
"available for sale" are carried in the financial statements at
fair value. Realized gains and losses are included in the statement
of income. Any unrealized holding gains or losses are included in
the balance sheet as a separate component of stockholders' equity.
At November 30, 1999, the Company held an investment of 500,000
shares in Kinesys Pharmaceuticals, Inc., with a cost of $500,000
and a fair value of $468,750. The Company acquired the shares in
exchange for an equivalent value in advertising services to be
provided during 2000.
Barter exchange receivables - The Company holds barter exchange
accounts with ITEX Corporation, and Illinois Trade Association,
enterprises specializing in the development and maintenance of a
barter network for its participating members. The Company also
holds limited occupancy rights for available rooms at vacation and
resort hotels for which it provides advertising services in
exchange. Revenues and expenses from these barter exchange
transactions are recognized when services are received or provided.
Receivables are recognized at fair value when services are provided
before exchange merchandise or services are received or used.
Liabilities are recognized when exchange merchandise or services
are received or used before services are provided.
Capitalized sales representation agreement costs - Capitalized
sales representation agreement costs are being amortized by the
straight-line method over the lives of related contract agreements,
which extend from 12 to 18 months. For the year ended November 30,
1999, the Company recognized $467,437 in amortization expense
related to capitalized sales representation agreements (see Note
5).
Property and equipment - Property and equipment are stated at cost.
Depreciation is calculated using the straight-line method over the
estimated useful lives of the assets, which range from 7 to 31
years. Maintenance and repairs are charged to operations when
incurred. Betterments and renewals are capitalized. Depreciation
and amortization expenses for the years ending November 30, 1999
and 1998, were $43,151 and $43,265, respectively.
F-9
<PAGE>
NBG RADIO NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
Intangible assets - Intangible assets are comprised of purchased
goodwill and covenants not-to-compete. Purchased goodwill
represents the excess of cost over the fair value of net assets
acquired by the Company from business acquisitions in 1996 and 1999
(see Note 3). Goodwill is being amortized over a ten-year period
using the straight-line method. Covenants not-to-compete are being
amortized over the three-year life of related agreements. For the
years ending November 30, 1999 and 1998, the Company recognized
expenses resulting from the amortization of intangible assets of
$329,973 and $75,000, respectively.
Revenue recognition - The Company recognizes revenue from the sale
of advertising, music, and radio programs when the buyer has made
an unconditional commitment to secure air time through the
Company's national network and the Company has fulfilled its
commitment to provide radio advertising during the secured time.
Revenues recognized from the design, installation and support for
interactive kiosks produced through NBG Solutions, Inc., are
recognized when the product is delivered or services performed.
Income taxes - The Company follows the asset and liability method
of accounting for income taxes whereby deferred tax assets and
liabilities are recognized for the future tax consequences of
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the
deferred tax assets or liabilities are expected to be realized or
settled. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for
income taxes.
Marketing and advertising costs - All costs relating to marketing
and advertising are expensed in the year incurred. Amounts expensed
for the years ended November 30, 1999 and 1998, were $130,555 and
$115,024, respectively.
Stock option plan - The Company applies Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees," and
related interpretations in accounting for its stock option plan.
Accordingly, no compensation expense has been recognized for its
stock-based incentive plan. Had compensation cost for the
F-10
<PAGE>
NBG RADIO NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
Company's stock option plan been determined based upon the fair
value at grant date for awards under the plan consistent with
methodology prescribed under Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation,"
additional compensation expense would have been recognized as
described in Note 8.
Loss per share of common stock - Basic loss per share of common
stock is based upon the weighted average number of shares
outstanding during the period adjusted by the 3-for-1 stock split
in July 1998. Diluted losses per share reflect the potential
dilution that could occur if common shares were issued pursuant to
the exercise of outstanding options and warrants. Diluted losses
per share are not provided as the common stock equivalents would be
antidilutive in the computation.
Reclassification - Certain 1998 amounts have been reclassified for
consistency with the current year presentation.
NOTE 3 - ACQUISITION OF M-TEK TECHNICAL SERVICES, INC.
On January 25, 1999, the Company completed its acquisition of M-Tek
Technical Services, Inc. (M-Tek Technical), a kiosk integration
company providing customized technical solutions, bar coding, and
distribution channels. In the acquisition, the Company acquired
assets and assumed certain liabilities of M-Tek Technical for
$1,367,000. The acquisition was completed through payment of
$100,000 in cash and distribution of 350,000 shares in Company
common stock valued at $1,267,000 or $3.62 per share. In addition,
management of M-Tek Technical was provided with options to purchase
350,000 shares of common stock in the Company for $3.10 per share.
The underlying options will expire November 30, 2001, if not
exercised earlier.
F-11
<PAGE>
NBG RADIO NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - ACQUISITION OF M-TEK TECHNICAL SERVICES, INC. - (continued)
The acquisition was accounted for as a purchase. Accordingly, the
excess of the fair value of assets acquired over liabilities
assumed was recognized as ggodwill being amortized over its
expected useful life of ten years. M-Tek Technical's operations
were not significant prior to the date of its acqusition. The
following summarizes the fair value of the assets acquired and
liabilities assumed in the Company's purchase of M-Tek Technical.
Assets acquired:
Accounts receivable $ 66,875
Covenant not-to-compete 721,093
Goodwill 656,027
Liabilities assumed (77,195)
---------------
Net assets acquired $ 1,366,800
===============
NOTE 4 - BARTER EXCHANGE RECEIVABLES
As of November 30, 1999 and 1998, barter exchange receivables
consisted of the following:
1999 1998
------- -------
Resort room occupancy exchanged for
advertising services $132,556 $153,970
Barter exchange transaction account balances 15,580 87,798
------- -------
$148,136 $241,678
======= =======
F-12
<PAGE>
NBG RADIO NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5 - SALES REPRESENTATION AGREEMENTS
During 1999, the Company entered into several contractual
agreements through which it became representative for advertising
sales involving four nationally syndicated talk-radio programs.
Each of the agreements, which extend from 12 to 18 months, provides
for monthly payments to the program producer and for the sharing of
revenues that exceed established, aggregate monthly payment
amounts. Under these sales representation agreements, the Company
became responsible for monthly payments of $104,062 and made
aggregate payments to the producer of $467,437 for the year ended
November 30, 1999. During 1999, the Company did not meet the levels
of gross revenues from advertising sales that required revenue
sharing and, therefore, did not make any revenue sharing payments,
which range from 50% to 75%, for the year ended November 30, 1999.
Subsequent to November 30, 1999, the Company entered into two
additional sales representation agreements with substantially
similar terms and conditions as all prior contracts. As a result of
entering into the additional sales representation agreements, the
Company recognized additional capitalized assets and contract
liabilities of $240,000. For the years ending November 30, 2000 and
2001, the Company will be responsible to the program producer for
aggregate minimum monthly payments of $1,401,250 and $25,000,
respectively, excluding potential revenue sharing amounts.
F-13
<PAGE>
NBG RADIO NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at November 30,
1999 and 1998:
<TABLE>
<CAPTION>
<S> <C> <C>
Office equipment $ 19,151 $ 16,158
Studio equipment 196,479 139,540
Office furniture 83,888 34,127
Leasehold improvements 11,310 11,310
----------- -----------
310,828 201,135
Less accumulated depreciation and amortization (108,115) (64,964)
----------- -----------
$ 202,713 $ 136,171
=========== ===========
</TABLE>
NOTE 7 - LONG-TERM DEBT
For the year ended November 30, 1999, the Company had no long-term
debt. At November 30, 1998, long-term debt consisted of the
following:
<TABLE>
<CAPTION>
1998
---------
<S> <C>
Note payable in annual installments of $120,000,
including interest at 6% per annum, collateralized
by equipment and accounts receivable $ 478,596
F-14
<PAGE>
NBG RADIO NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7 - LONG-TERM DEBT - (continued)
1998
---------
Notes payable to shareholders at $588 per month,
($2,359 in 1997) including interest at 8.25%
per annum, collateralized by equipment and
accounts receivable $ 6,652
---------
485,248
Less current portion (245,248)
---------
$ 240,000
=========
</TABLE>
NOTE 8 - COMMON STOCK TRANSACTIONS
Private placement offerings - In July 1998, the Company raised
$2,000,000 through two private placement transactions. In the first
transaction, the Company raised $500,000 through the issuance of
250,000 common shares at $2 per share. In the second private
placement, the Company raised $1,500,000 with the issuance of
500,000 common shares at $3 per share.
Stock warrants - Attached to each share purchased through the 1998
private placement offerings were warrants providing the right to
acquire one additional share for each share purchased in the
private placement. All warrants became exercisable upon issuance.
F-15
<PAGE>
NBG RADIO NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8 - COMMON STOCK TRANSACTIONS - (continued)
The following summarizes shareholder warrant transactions in 1999
and 1998:
<TABLE>
<CAPTION>
PRICE
PER
SHARES SHARE
------------ -------------
<S> <C> <C>
Warrants outstanding November 30, 1997 600,000 $ 1.00
Warrants granted in 1998
First private placement 250,000 $ 2.25-2.50
Second private placement 500,000 $ 3.50
Warrants exercised in 1998 (584,430) $ (1.00)
Warrants expired in 1998 (15,570) $ (1.00)
------------
750,000 $ 2.25-3.50
Adjustment for 3 for 1 split July 31, 1998 1,500,000
------------
Warrants outstanding November 30, 1998 2,250,000 $ .75-1.17
Warrants granted in 1999 - $ -
Warrants exercised in 1999 (1,267,493) $ 1.17
Warrants expired in 1999 (232,507) $ 1.17
------------
Warrants outstanding, November 30, 1999 750,000 $ 0.83
============
</TABLE>
Stock option plan - The Company has adopted a Stock Incentive Plan
for employees, officers, and directors of the Company. The Plan
provides for the issuance of qualified and non-qualified options
for up to 3,000,000 shares of common stock of the Company. Grants
of stock options under the Plan are approved by the Company's Board
of Directors which also determines the exercise price, vesting
requirements, and term for exercise of all options.
F-16
<PAGE>
NBG RADIO NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8 - COMMON STOCK TRANSACTIONS - (continued)
The following table summarizes stock option transactions in 1999
and 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTION
SHARES PRICE
------------ -------------
<S> <C> <C>
Stock options outstanding, November 30, 1997 - $ -
Stock options granted in 1998:
Issued to employees, officers, directors, and
selected third parties 1,120,000 $ 1.08
Stock options exercised in 1998 (600,000) $ (0.60)
Stock options expired in 1998
- $ -
520,000 $ 1.63
Adjustment for 3-for-1 split July 31, 1998 1,040,000
------------
Stock options outstanding, November 30, 1998 1,560,000 $ 0.54
Stock options granted in 1999:
Issued to owners and management of M-Tek
Technical Services, Inc. 350,000 $ 3.10
Issued to employees, officers, and directors 621,500 $ 2.00
Stock options exercised in 1999 (52,100) $ 0.58
Stock options expired in 1999 (3,000) $ 0.54
------------
Stock options outstanding November 30, 1999 2,476,400 $ 1.27
============
</TABLE>
F-17
<PAGE>
NBG RADIO NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8 - COMMON STOCK TRANSACTIONS - (continued)
Had compensation cost for the Company's 1999 grants for stock-based
compensation plans been determined consistent with Statement of
Financial Accounting Standards (SFAS) No. 123, the Company's net
income, and net income per common share for November 30, 1999,
would approximate the pro forma amounts below. The disclosure
requirements of SFAS No. 123 were not material to the 1998
consolidated financial statements.
The fair value of each option granted during 1999 is estimated on
the date of grant using the Black-Scholes option-pricing model with
the following assumptions: (1) no dividend yield, (2) expected
volatility of 122.33%, (3) risk-free rate of 6.55%; and (4)
expected life of three years.
The effects of applying SFAS No. 123 in this pro forma disclosure
are not indicative of future amounts. SFAS No. 123 does not apply
to awards prior to 1996, and additionally awards in future years
are anticipated.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Lease commitments - The Company rents its office space and certain
office equipment under operating lease agreements. The following
summarizes the Company's lease commitments for succeeding years:
YEARS ENDING NOVEMBER 31,
-------------------------
2000 $ 88,615
2001 $ 84,454
2002 $ 88,787
2003 $ 27,616
F-18
<PAGE>
NBG RADIO NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9 - COMMITMENTS AND CONTINGENCIES - (continued)
Rental expense was $99,804 in 1999 and $68,696 in 1998.
Year 2000 matter - Because of the unprecedented nature of the Year
2000 issue, its effects, if any, may not be identified until a
future date. Management cannot assure that the Company has
identified all Year 2000 issues, that the Company's remediation
efforts have been successful in whole or in part, or that parties
with whom the Company does business will not be significantly
impacted by Year 2000 issues.
NOTE 10 - EMPLOYEE BENEFIT PLAN
The Company maintains a SARSEP savings plan for its employees.
Under this plan employees may elect to make contributions pursuant
to a salary reduction agreement upon meeting age and length of
service requirements. The Company currently has no policy to match
employee contributions.
NOTE 11 - INCOME TAXES
The income tax benefit consisted of the following for the years
ended November 30, 1999 and 1998:
1999 1998
----------- -----------
Current $ - $ -
Deferred tax benefit 411,519 74,670
Change in valuation allowance (401,730) (74,670)
----------- -----------
Total income tax benefit $ 9,789 $ -
----------- -----------
F-19
<PAGE>
NBG RADIO NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11 - INCOME TAXES - (continued)
Deferred tax assets (liabilities) are comprised of the following at
November 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Deferred tax assets
Allowance for doubtful accounts $ 408 $ 408
Net operating loss carryforward 478,481 136,264
Contribution carryforward 4,764 4,764
Amortization of goodwill 31,974 17,000
Amortization of covenant not-to-compete 54,481 -
-------------- --------------
570,108 158,436
Deferred tax liabilities
Book tax depreciation differences (9,942) (9,789)
Valuation allowance (560,166) (158,436)
-------------- --------------
Net deferred tax liability $ - $ (9,789)
============== ==============
</TABLE>
The Company has net operating loss and contribution carryforwards
of $1,364,750 available to offset future income tax liabilities.
These carryforwards will expire over various periods beginning in
2017 if not utilized earlier to offset taxable income.
Management of the Company has provided a valuation allowance to
offset existing deferred tax assets as of November 30, 1999 and
1998. The valuation allowance is provided because it is uncertain,
based on historical operating results, if the carryforwards will be
utilized prior to their expiration.
From the exercise of stock options, the Company has realized an
$85,465 income tax benefit, which would ordinarily be an offset to
shareholders' equity. However, due to the uncertain realizability
of this benefit a valuation allowance has been provided for the
entire balance.
F-20
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
- -------------------------------------------------------------------------
Financial Disclosure
- --------------------
In December 1998 the Company's management, with the knowledge of the Board
of Directors, dismissed the auditors Andersen, Andersen & Strong, L.C. and hired
the public accounting firm of Moss Adams LLP to act as the Company's new
auditor. The principal accountant's report for the financial statements from the
past two years, performed by Andersen, Andersen & Strong, L.C. does not contain
an adverse opinion or disclaimer of opinion, and was not modified as to
uncertainty, audit scope, or accounting principles. There were no disagreements
with the former accountant on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures.
PART III
--------
Item 9. Directors, Executive Officers, Promoters and Control Persons;
- ---------------------------------------------------------------------------
Compliance with Section 16(a) of the Exchange Act
- --------------------------------------------------
Set forth below is certain information concerning each person who served
as an executive officer during the year ended November 30, 1999 or is presently
a director of the Company. All officers and directors hold office until their
respective successors are elected and qualified, or until their earlier
resignation or removal.
Directors
- ---------
Name Position Age
John A. Holmes, III President, Chief Executive Officer, 29
and Chairman of the Board
Peter Jacobsen Director 46
Dick Versace Director 45
Steven R. Sears Director 33
Christopher J. Miller Director 41
The Directors are elected annually at the annual shareholders meeting and
serve until re-elected at the next annual shareholders meeting. All of the
Directors were elected to office on July 27, 1999.
John A. Holmes, age 29, has been President, CEO, and Chairman of the Board
since January 30, 1998. Prior to that, Mr. Holmes served as the General Manager
of the Company since its inception in March of 1996. Before joining the Company,
Mr. Holmes worked in radio syndication with IMS from August 1993 until May 1996.
Previously, he worked for KMOV-CBS TV as a sports producer from January 1991
through May 1993. From June of 1990 until December of 1990 Mr. Holmes worked for
Radio Personalities, Inc. where he was Executive Producer for the following
short form radio programs - "Offsides with Dan Dierdorf" and "Talkin' Roundball
with Dick Vitale."
Peter Jacobsen, age 46, has been a director with the Company since January
30, 1998. He is currently the host of one of the Company's short form features,
"Teein' It Up with Peter Jacobsen." Mr. Jacobsen, a member of the PGA Tour, has
multiple PGA Tour wins and has participated on two Ryder Cup teams. He has also
been an on course commentator for ABC and ESPN.
Dick Versace, age 45, has been a director with the Company since 1997. Mr.
Versace has coached basketball at all levels, high school, college, and the NBA.
Most recently he coached in the NBA with the
12
<PAGE>
Milwaukee Bucks. Prior to taking the position with the Bucks, Mr. Versace was a
television studio host and color analyst for TNT on the Turner Broadcasting
Network.
Steven R. Sears, age 33, has been a director of the Company since January
30, 1998 and has been a Vice President of the Company since July 1999. He is
originally from Long Beach, California where he was President of the family
owned construction business, Sears Roofing Service, Inc. He also served as Vice
President for Robert Kerr & Associates, a real estate construction company in
Portland, Oregon.
Christopher J. Miller, age 41, has been a director of the Company since
January 27, 1999. Mr. Miller is also the CEO of NBG Solutions. Prior to joining
the Company, Mr. Miller worked for US Bank in Portland, Oregon as Vice President
and manager of its West Region Client Services Group and Institutional Financial
Services. While at US Bank, Mr. Miller also worked as Senior Project Manager of
Institutional Financial Services and the Project Manager and Consultant for US
Bank Trust Division. Prior to working for US Bank, Mr. Miller worked for Bank of
America as Vice President and Regional Manager of Global Securities Services.
While at Bank of America, Mr. Miller also worked as Vice President and Manager
of Southern California Institutional Client Administration and Global Securities
Services.
Executive Officers
The names and business backgrounds of Executive Officers of the Company
who are not Directors of the Company are:
Name Position Age
John J. Brumfield Chief Financial Officer and Secretary 32
Oliver J. Holmes Vice President/Affiliate Relations 27
Dean R. Gavoni Vice President/Sales 39
Robert B. Taylor Vice President/Programming 31
David J. Thibeau Chief Technology Officer, NBG Solutions 40
John J. Brumfield, age 32, has been CFO since January 30, 1998. From
December 1996 to January 1998 he was the Controller for the Company. From
February 1996 to September 1996 he was a staff accountant for ITEX Corporation.
From September of 1994 until February 1996 Mr. Brumfield was a professional
golfer. Prior to that, he worked for the public accounting firm of Bogumil,
Holzgang & Associates as a staff accountant from July 1991 for September 1994.
Oliver J. Holmes, age 27, has been Vice President of Affiliate Relations
for the Company since January 30, 1998. Mr. Holmes has been manager of the
Affiliate Relations department since July 1996. Prior to working for the
Company, Mr. Holmes managed Underwater Safari's dive shop in the Virgin Islands.
Prior to that, he worked in affiliate relations for Radio Personalities, Inc.,
an independent radio syndicator.
Dean R. Gavoni, age 29, has been Vice President of Sales for the Company
since January 30, 1998. Mr. Gavoni has been the national sales manager since
July 1996. Prior to working for the Company, Mr. Gavoni worked in radio
syndication with IMS. Before that, he worked in marketing and sales for
Anheuser-Busch and on many political campaigns in the state of Illinois.
13
<PAGE>
Robert B. Taylor, age 31, has been Vice President of Programming since
July 27, 1999. From January 1999 to July 1999 he was the Director of Programming
at the Company. Prior to joining the Company Mr. Taylor worked for FST
Broadcasting as Director of Operations and General Manager. Mr. Taylor has 15
years of radio experience which includes experience with the well recognized
stations of Z-100, Hot 97, WPLJ and WLTW.
David J. Thibeau, age 40, has been Chief Technology Officer of NBG
Solutions since January 1999. From 1981 to 1997, Mr. Thibeau worked for Sunmark
Data, Inc., a forms distributor located in Portland, Oregon. Mr. Thibeau was
primarily engaged in sales and marketing management until September 1997. In
September 1997 he left Sunmark to work for Mtek Technical Services, Inc., a
systems integration firm located in Lake Oswego, Oregon that installed and
integrated Kiosks, inventory control systems and automated labeling systems.
MTek Technical Services, Inc. was acquired by the Company's subsidiary, NBG
Solutions, in January 1999.
Family Relationships
John A. Holmes, III, President and CEO is the older brother of the Vice
President of Affiliate Relations, Oliver J. Holmes.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16 of the Securities Exchange Act of 1934, the
Company's executive officers, Directors and persons who own more than ten
percent of the Company's Common Stock, are required to file certain reports,
within specified time periods, indicating their holdings of and transactions in
the Common Stock and derivative securities. Based solely on written
representations made to the Company and the Company's review of Forms 3, 4, and
5 furnished to the Company pursuant to Section 16 of the Securities Exchange
Act, the Company believes all required Forms 3, 4 and 5 were filed on time
except that Robert B. Taylor filed a late Form 3.
14
<PAGE>
Item 10. Executive Compensation
- --------------------------------
The following table sets forth all cash compensation, including bonuses
and deferred compensation, paid for the years ended November 30, 1999, 1998 and
1997 by the Company to its President and Chief Executive Officer and all other
executive officers with an annual salary and bonus in excess of $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
--------------------------------- --------------------------------------
Awards Payouts
---------------------------- ---------
Name and Restricted Securities
Principal Other Annual Stock Underlying LTIP All Other
Position Year Salary Bonus Compensation Award(s) Options/SARs Payouts Compensation
($) ($) ($) (f) (#) ($) ($)
(a) (b) (c) (d) (e) (g) (h) (i)
- ------------------ ------ -------- ------- ---------------- ------------ --------------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John A. Holmes,III 1999 $113,306 $-0- $-0- $-0- 270,000 $-0- $-0-
President 1998 $ 53,840 $-0- $-0- $-0- 480,000 $-0- $-0-
and CEO 1997 $ 44,655 $-0- $-0- $-0- -0- $-0- $-0-
- ------------------ ------ -------- ------- ---------------- ------------ --------------- --------- -----------------
Dean R. Gavoni, 1999 $107,795 $-0- $-0- $-0- 60,000 $-0- $-0-
VP - Sales 1998 $ 63,201 $-0- $-0- $-0- 180,000 $-0- $-0-
1997 $ 34,546 $-0- $-0- $-0- -0- $-0- $-0-
- ------------------ ------ -------- ------- ---------------- ------------ --------------- --------- -----------------
Christopher J. 1999 $100,000 $-0- $-0- $-0- 195,000 $-0- $-0-
Miller, CEO - *
NBG Solutions *
- ------------------ ------ -------- ------- ---------------- ------------ --------------- --------- -----------------
David J. 1999 $100,000 $-0- $-0- $-0- 175,000 $-0- $-0-
Thibeau, CTO - *
NBG Solutions *
- ------------------ ------ -------- ------- ---------------- ------------ --------------- --------- -----------------
</TABLE>
* Was not employed by the Company prior to 1999.
15
<PAGE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
Number Of Securities Percent Of Total
Underlying Options/SARs Options/SARs
Granted (#) Granted To Exercise or
(b) Employees In Base Price
Name Fiscal Year ($/Sh) Expiration Date
(a) (c) (d) (e)
- ----------------------------- -------------------------- -------------------- --------------- --------------------
<S> <C> <C> <C> <C>
John A. Holmes, III, 270,000 (1) 28% $2.00/share September 1, 2002
President and CEO
- ----------------------------- -------------------------- -------------------- --------------- --------------------
Dean R. Gavoni, VP - Sales 60,000 (1) 6% $2.00/share September 1, 2002
- ----------------------------- -------------------------- -------------------- --------------- --------------------
Christopher J. Miller, CEO 175,000 (2) $3.10/share November 30, 2002
- - NBG Solutions 20%
20,000 (1) $2.00/share September 1, 2002
- ----------------------------- -------------------------- -------------------- --------------- --------------------
David J. Thibeau, CTO - NBG 175,000 (2) 18% $3.10/share November 30, 2002
Solutions
- ----------------------------- -------------------------- -------------------- --------------- --------------------
</TABLE>
(1) The options became exercisable on September 1, 1999 and are not subject to
any performance or vesting restrictions.
(2) The options became exercisable February 1, 1999 and are not subject to any
performance or vesting restrictions.
<TABLE>
<CAPTION>
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTIONS/SAR VALUES
Number Of
Unexercised Value Of
Securities Unexercised
Underlying In-The-Money
Options/SARs At Option/SARs At
Shares Acquired FY-End (#) FY-End ($)
On Exercise Value Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
(a) (b) (c) (d) (e)
- ------------------------------------ ------------------- -------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
John A. Holmes, III, President and -0- $-0- 750,000/0 $746,580/$-0-
CEO
- ------------------------------------ ------------------- -------------------- -------------------- -------------------
Dean R. Gavoni, VP - Sales -0- $-0- 240,000 $202,800/$-0-
- ------------------------------------ ------------------- -------------------- -------------------- -------------------
Christopher J. Miller, CEO - NBG -0- $-0- 195,000 $-0-/$-0-
Solutions
- ------------------------------------ ------------------- -------------------- -------------------- -------------------
David J. Thibeau, CTO - NBG -0- $-0- 175,000 $-0-/$-0-
Solutions
- ------------------------------------ ------------------- -------------------- -------------------- -------------------
</TABLE>
16
<PAGE>
Employment Agreements
John A. Holmes, III
Effective November 1, 1998, the Company entered into a five year
employment agreement with John A Holmes, III, President and CEO. The employment
agreement provides for a base salary of $86,400 per annum, which will be
increased annually at the rate of the Consumer Price Index (CPI) plus 15%. In
addition, the employment agreement provides that Mr. Holmes will be paid a
minimum of 10% more than the next highest paid employee of the Company and its
subsidiaries. Mr. Holmes current cash compensation level is $125,000 per year.
Mr. Holmes has the right to terminate the agreement upon three months' prior
written notice. The Company, at its discretion, has the right to terminate the
employment agreement at any time without reason upon three months' prior written
notice or payment in lieu of notice equaling three months' compensation. The
Company may also terminate Mr. Holmes for cause without prior written notice.
The employment agreement also provides that in the event Mr. Holmes is
terminated or resigns following a "change in control" (as defined in the
employment agreement) of the Company, the Company will pay to Mr. Holmes an
amount equal to three times his base salary at the time of his termination or
resignation.
Dean R. Gavoni
Effective November 1, 1998, the Company entered into a two year
employment agreement with Dean R. Gavoni, Vice President - Sales. The employment
agreement provides for a base salary of $30,810 per annum, which will be
increased annually at the rate of the Consumer Price Index (CPI). In addition,
the Company has the option of raising his annual salary by up to 10% of his base
salary prior to any CPI adjustment. The agreement also provides for commissions
based on net advertising sales. The Company has the right to terminate the
agreement for any reason, or without reason, upon three months' prior written
notice or payment in lieu of notice equaling three months compensation. The
Company may also terminate Mr. Gavoni for cause without prior written notice.
Mr. Gavoni has the right to terminate the agreement at any time, for any reason,
by providing three months' prior written notice. The agreement also provides
that in the event Mr. Gavoni is terminated following a "change in control" (as
defined in the employment agreement) of the Company, the Company will pay to Mr.
Gavoni an amount equal to his annual compensation package.
Christopher J. Miller
Effective January 25, 1999, the Company entered into an employment
agreement with Christopher J. Miller, CEO of NBG Solutions. The agreement
terminates on November 30, 2002. The agreement provides for a base salary of
$120,000 per annum and eligibility to participate in the NBG Solutions
Non-Qualified Profit Sharing Plan. In accordance with the agreement, Mr. Miller
was granted non-qualified stock options to purchase 175,000 shares of the
Company's Common Stock for $3.10 per share, exercisable no later than November
30, 2002, in accordance with the Company's 1998 Stock Incentive Plan. The
Company may terminate Mr. Miller for cause upon thirty days' prior written
notice. Under the agreement, Mr. Miller is subject to a worldwide covenant not
to compete for a period of three years after the termination date.
David J. Thibeau
Effective January 25, 1999 the Company entered into an employment
agreement with David J. Thibeau, Chief Technology Officer of NBG Solutions. The
agreement provides for a base salary of $120,000 per annum and eligibility to
participate in the NBG Solutions Non-Qualified Profit Sharing Plan.
17
<PAGE>
In accordance with the agreement, Mr. Thibeau was granted non-qualified stock
options to purchase 175,000 shares of the Company's Common Stock for $3.10 per
share, exercisable no later than November 30, 2002, in accordance with the
Company's 1998 Stock Incentive Plan. The Company may terminate Mr. Thibeau for
cause upon thirty days' prior written notice. Under the agreement, Mr. Thibeau
is subject to a worldwide covenant not to compete for a period of three years
after the termination date.
Director Compensation
- ---------------------
Directors of the Company are not currently compensated for their services
other than as provided in the 1998 Stock Incentive Plan described below.
However, Directors are reimbursed for all reasonable expenses incurred on behalf
of the Company.
1998 Stock Incentive Plan
The Company has established the NBG Radio Network, Inc. 1998 Stock
Incentive Plan (the "Plan"). The purpose of the Plan is to attract and retain
the services of (1) selected employees, officers and directors of the Company or
of any subsidiary of the Company and (2) selected non-employee agents,
consultants, advisors, persons involved in the sale or distribution of the
Company's products and independent contractors of the Company or any subsidiary.
The Plan has not been submitted to a vote of the stockholders of the Company.
The Plan provides for the grant of options to qualified directors,
employees (including officers), independent contractors and consultants of the
Company to purchase an aggregate of 3,000,000 shares of Common Stock. The Plan
is currently administered by the Board of Directors, which determines, among
other things, the persons to be granted options under the Plan, the number of
shares subject to each option and the option price.
The Plan allows the Company to grant the following types of awards: (i)
Incentive Stock Options, as defined in Section 422 of the Internal Revenue Code
of 1986, as amended ("ISO's"); (ii) options other than ISOs ("Non-Statutory
Stock Options"); (iii) stock bonuses; (iv) stock appreciation rights ("SAR's")
in tandem with ISO's or Non-Statutory Stock Options; (vi) cash bonus rights;
(vii) performance units; and (viii) foreign qualified awards at any time within
10 years from the date the Plan was adopted.
The exercise price of ISO's and SAR's granted in tandem with ISO's, if
any, will be the fair market value of the shares of Common Stock, determined as
specified in the Plan, covered by such option on the date such option is
granted. If at the time an ISO is granted the optionee holds more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company, the purchase price of such options will be one hundred ten percent
(110%) of the fair market value of the shares of Common Stock covered by such
option on the date such option is granted. The exercise price of Non-Statutory
Stock Options and SAR's granted in tandem with Non-Statutory Stock Options will
be determined by the Board of Directors at the time of grant and may be any
amount determined by the Board of Directors.
Each ISO and, unless otherwise determined by the Board of Directors, each other
option granted under the Plan by its terms will be nonassignable and
nontransferable by the optionee, either voluntarily or by operation of law,
except (i) to an optionee's family member by gift or domestic relations order;
or (ii) by will or by the laws of descent and distribution of the state or
country of the optionee's domicile at the time of death.
Non-Statutory Stock Options will have a term fixed by the Board of Directors.
ISOs will have a term of no more than ten years, except that ISOs granted to an
optionee owning more than 10% of the outstanding
18
<PAGE>
Common Stock will have a term of no more than five years and must be granted to
and exercised by employees of the Company (including officers).
In September 1999, the Company granted Non-Statutory Options under the
Plan to non-employee directors in the following amounts:
Name Amount
---- ------
Peter Jacobsen 20,000
Dick Versace 20,000
The exercise price for the options is $2.00 per share and the options
will expire in September 2002, if not exercised earlier. All stock options
became exercisable upon the date of grant.
19
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The following table sets forth certain information regarding the
beneficial ownership of Common Stock of the Company as of February 21, 2000 as
to (i) each person who is known by the Company to own beneficially 5% or more of
the outstanding shares of the Company's Common Stock, (ii) each named executive
officer and (iii) all Directors and officers as a group. The persons named in
the table have sole voting and investment power with respect to all shares shown
as beneficially owned by them, subject to community property laws where
applicable and to the information contained in the footnotes to the table.
- -------------- -------------------------- --------------------- ----------------
(1) (2) (3) (4)
Name and Address of Amount and Nature of
Title of Class Beneficial Owner Beneficial Ownership Percent of Class
- -------------- -------------------------- --------------------- ----------------
Common Stock John A. Holmes 965,900 (1) 6%
3728 SW Hillside Drive
Portland, OR 97221
Common Stock Peter Jacobsen 167,000 (2) 1%
8700 SW Nimbus Avenue #B
Beaverton, OR 97008
Common Stock Dick Versace 172,000 (3) 1%
733 East Maywood
Peoria, IL 61603
Common Stock Steven R. Sears 396,817 (4) 3%
13800 Stampher
Lake Oswego, OR 97034
Common Stock Christopher J. Miller 413,000 (5) 3%
11888 SW Breyman Avenue
Portland, OR 97219
Common Stock David J. Thibeau 367,100 (6) 2%
132 Del Prado
Lake Oswego, OR 97035
Common Stock Dean R. Gavoni 323,334 (7) 2%
3503 SW Gale
Portland, OR 97201
Directors and Executive Officers as a group (10 persons)
3,551,657 (8) 23%
(1) Represents 215,900 common shares and 750,000 options without performance or
vesting restrictions.
(2) Represents 87,000 common shares and 80,000 options without performance or
vesting restrictions.
(3) Represents 92,000 common shares and 80,000 options without performance or
vesting restrictions.
(4) Represents 269,317 common shares and 127,500 options without performance or
vesting restrictions.
(5) Represents 175,000 common shares owned directly and 43,000 common shares
held in trust for the benefit of his children and 195,000 options without
performance or vesting restrictions.
(6) Represents 192,100 common shares and 175,000 options without performance or
vesting restrictions.
(7) Represents 83,334 common shares and 240,000 options without performance or
vesting restrictions.
(8) Represents 1,413,657 common shares owned directly, 43,000 common shares
owned indirectly and 2,095,000 options without performance or vesting
restrictions.
20
<PAGE>
Item 12. Certain Relationships and Related Transactions
- --------------------------------------------------------
On January 25, 1999, the Company completed its acquisition of MTek
Technical Services, Inc., a kiosk integration company providing customized
technical solutions, bar coding, and distribution channels. In the acquisition,
the Company acquired assets and assumed certain liabilities of MTek Technical
Services, Inc. for the purchase price of $1,367,000. The purchase price
consisted of $100,000 in cash and 350,000 shares (175,000 shares of Common Stock
to each of Messrs. Miller and Thibeau). As a result of the acquisition, Mr.
Miller became the Chief Operating Officer of NBG Solutions, Inc., a subsidiary
of the Company under an Employment Agreement, was appointed to the Board of
Directors of the Company, and was granted options to purchase 175,000 shares of
Common Stock at $3.10 per share. In addition, Mr. Thibeau became Vice
President/Chief Technology Officer of NBG Solutions, Inc. and was granted
options to purchase 175,000 shares of Common Stock at $3.10 per share.
Item 13. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a ) The following exhibits are filed as part of this report:
Exhibit
Number Description of Exhibit
3.1 Articles of Incorporation, as amended(1)
3.2 Amended and Restated Bylaws of the Company(2)
4.1 Form of Common Stock Certificate(3)
4.2 Form of Warrants - Private Placement #1(4)
10.1 Employee Agreement of John A. Holmes, III dated November 1, 1998*(3)
10.2 Employee Agreement of John J. Brumfield dated November 1, 1998*(3)
10.3 Employee Agreement of Oliver J. Holmes dated November 1, 1998*(3)
10.4 Employee Agreement of Dean R. Gavoni dated November 1, 1998*(3)
10.5 Employment and Nondisclosure Agreement of Christopher J. Miller dated
January 25, 1999*
10.6 Employment and Nondisclosure Agreement of David J. Thibeau dated
January 25, 1999*
10.7 1998 Stock Incentive Plan*(5)
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants - Moss Adams LLP
27 Financial Data Schedule
* Management contract or compensatory plan.
(1) Filed as exhibit to Form 10-SB filed April 16, 1998.
(2) Filed as exhibit to Form 10-QSB filed October 15, 1999.
(3) Filed as exhibit to Form 10-KSB filed March 2, 1999.
(4) Filed as exhibit to Form 10-KSB/A filed June 4, 1999
(5) Filed as exhibit to Form 10-QSB/A filed November 12, 1999
(b) No reports on Form 8-K were required to be filed during the last quarter
of the period covered by this report.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NBG RADIO NETWORK, INC.,
a Nevada corporation
Date: February 25, 2000 By: /s/ John A. Holmes, III
-----------------------
John A. Holmes, III, Chief Executive Officer
and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Date: February 25, 2000 By: /s/ John A. Holmes, III
-----------------------
John A. Holmes, III, Chairman, Board of
Directors; Chief Executive Officer
and President (Principal Executive Officer)
Date: February 25, 2000 By: /s/ John J. Brumfield
-----------------------
John J. Brumfield, Chief Financial
Officer and Secretary
(Principal Financial and Accounting Officer)
Date: February , 2000 By: /s/
-----------------------
Peter Jacobsen, Director
Date: February , 2000 By: /s/
-----------------------
Dick Versace, Director
Date: February 25, 2000 By: /s/ Steven R. Sears
-----------------------
Steven R. Sears, Director
Date: February 25, 2000 By: /s/ Christopher J. Miller
-------------------------
Christopher J. Miller, Director
22
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
3.1 Articles of Incorporation, as amended(1)
3.2 Amended and Restated Bylaws of the Company(2)
4.1 Form of Common Stock Certificate(3)
4.2 Form of Warrants - Private Placement #1(4)
10.1 Employee Agreement of John A. Holmes, III dated November 1, 1998*(3)
10.2 Employee Agreement of John J. Brumfield dated November 1, 1998*(3)
10.3 Employee Agreement of Oliver J. Holmes dated November 1, 1998*(3)
10.4 Employee Agreement of Dean R. Gavoni dated November 1, 1998*(3)
10.5 Employment and Nondisclosure Agreement of Christopher J. Miller dated
January 25, 1999*
10.6 Employment and Nondisclosure Agreement of David J. Thibeau dated
January 25, 1999*
10.7 1998 Stock Incentive Plan*(5)
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants - Moss Adams LLP
27 Financial Data Schedule
* Management contract or compensatory plan.
(1) Filed as exhibit to Form 10-SB filed April 16, 1998.
(2) Filed as exhibit to Form 10-QSB filed October 15, 1999.
(3) Filed as exhibit to Form 10-KSB filed March 2, 1999.
(4) Filed as exhibit to Form 10-KSB/A filed June 4, 1999
(5) Filed as exhibit to Form 10-QSB/A filed November 12, 1999
23
EXHIBIT 10.5
EMPLOYMENT
----------
AND NONDISCLOSURE AGREEMENT
---------------------------
THIS EMPLOYMENT AND NONDISCLOSURE AGREEMENT (the "Agreement") is made
and entered into as of the 25th day of January, 1999 (the "Effective Date"), by
and between NBG RADIO NETWORK, INC., a Nevada corporation (the "Company"), and
CHRISTOPHER J. MILLER (the "Employee", and, together with the Company, the
"Parties").
BACKGROUND
----------
Company is a publicly traded Nevada corporation engaged in the business
of creating and nationally marketing and syndicating radio advertising
programming.
Employee has managerial skills and expertise related to the business of
Kiosk programs and Kiosk integration.
Company has formed or is in the process of forming a fully owned
subsidiary under the name CustomLink, Inc. ("Subsidiary"), which will be in the
business of developing Kiosk programs and Kiosk integration.
Company intends to assign this Agreement to Subsidiary with the
intention that Employee will be employed by Subsidiary.
Employee is the co-owner of M-Tek Technical Services, Inc. ("M-Tek"),
which is currently involved in the business of Kiosk programming and Kiosk
integration. Contemporaneous with this Agreement, Company has acquired the
assets of M-Tek which assets have been or will be transferred to Subsidiary. The
parties desire to set forth the terms and conditions for Employee's employment
with Subsidiary. Company will remain liable and obligated to Employee according
to the terms of this Agreement.
I. EMPLOYMENT
The Company hereby employs Employee subject to the terms and conditions
contained in this Agreement. Employee hereby accepts such employment upon the
terms and conditions hereinafter set forth.
Page 1 - EMPLOYMENT AND NONDISCLOSURE AGREEMENT
<PAGE>
II. TERM
The employment of Employee in accordance with the terms of this
Agreement shall commence on the Effective Date hereof and shall continue in
effect until November 30, 2002, at which time this Agreement shall terminate
unless renewed by the parties. This Agreement shall not be terminated by Company
prior to November 30, 2002, except for cause. The date on which Employee's
employment ceases for any reason, shall be referred to herein as the
"Termination Date."
III. COMPENSATION
For all services rendered by Employee under this Agreement the Company
shall pay to Employee the compensation and Employee benefits described in
Exhibit A attached hereto and incorporated herein by reference. Employee shall
also be entitled to all other Employee benefits established by the Subsidiary
and outlined in any employment manual in effect with Subsidiary, including but
not limited to benefits set forth in any non-qualified profit sharing plan
established by Subsidiary.
IV. DUTIES
A. Job Responsibilities. Employee will occupy the position of Chief
Operating Officer of Subsidiary and shall be responsible for those duties
associated with that position as set forth in Exhibit B attached hereto and
incorporated herein by reference. Employee shall use his best efforts to promote
the interests of the Subsidiary, shall devote his working time, attention and
energies to the business of the Subsidiary, and shall not, during the term of
this Agreement, be engaged in any other business activity, whether or not such
business activity is pursued for gain or profit, that is in any way competitive
with Company or Subsidiary, provided, however, that Employee shall not be
restricted from engaging or participating in businesses or other activities
totally unrelated to the business activities of the Company or Subsidiary that
do not interfere with the satisfactory performance of Employee's duties and
obligations to the Subsidiary as set forth in this Agreement.
B. Company Policies. Employee shall comply with all Subsidiary
policies, rules, regulations and procedures as are applicable to the officers of
the Subsidiary.
V. REIMBURSEMENT FOR EXPENSES
Employee shall be entitled to reimbursement for reasonable business
expenses actually incurred by him on behalf of the Subsidiary, as required in
the performance of his duties hereunder. Employee shall submit supporting
vouchers, receipts and records for all such business expenses to the President
or Controller of the Subsidiary in order to obtain reimbursement.
Page 2 - EMPLOYMENT AND NONDISCLOSURE AGREEMENT
<PAGE>
VI. RESTRICTIVE COVENANT
A. Confidential Information. Employee acknowledges that by reason of
his employment by the Subsidiary, he will have access to valuable confidential
proprietary information concerning the Company and the Subsidiary, including but
not limited to its business plans, products, finances, customers, personnel,
trade secrets, computer programming, source codes, technical data and
information and business activities (the "Confidential Information"). At any
time during Employee's employment or after termination of Employee's employment
with the Subsidiary, Employee shall not, without the express authorization of
the President of the Company (i) disclose the Confidential Information to any
third party other than employees and authorized agents of the Company or
Subsidiary for purposes of performing his duties under this Agreement; or (ii)
use the Confidential Information, except for purposes of performing his duties
under this Agreement. All Company and Subsidiary property in the possession of
Employee must be returned to the Company upon termination of employment for any
reason. For purposes of this Agreement, Confidential Information does not
include matters that are public knowledge.
B. Covenant Not to Compete. Employee acknowledges that by (reason of
his employment) with Subsidiary and by reason of his contacts with Company, he
is of significant interest and value to competing companies. Accordingly,
Employee agrees that he will not for a period of three (3) years after the
Termination Date accept employment with or act as a consultant to, directly or
indirectly own, manage, operate, or control or participate in ownership
management or control of any company engaged in a business competing directly or
indirectly with the Company or Subsidiary. The scope of this covenant is
worldwide.
C. Solicitation of Employees. Employee agrees that for a period of
three (3) years immediately following the Termination Date, Employee shall not
directly or indirectly solicit, induce, recruit or entice any other Company or
Subsidiary employee to leave employment with Company or Subsidiary to pursue
employment with Employee or any other person or entity.
D. Injunctive Relief; Remedies. Employee acknowledges that the
restrictions contained in this section are necessary to protect the legitimate
interests of Company and Subsidiary and that any violation thereof would result
in irreparable harm and injury to the Company and/or Subsidiary. Employee
therefore agrees and acknowledges that in the event of any violation of any of
these restrictions, the Company and/or Subsidiary shall be entitled to obtain
from any court, preliminary and permanent injunctive relief, as well as damages
and an accounting of all earnings, profits and other benefits arising from such
violation, which damages may be cumulative and in addition to any other damages
or remedies which they may be entitled.
E. Scope of Agreement; Modification. The Parties have attempted to
limit Employee's right to compete only to the extent necessary to protect the
Company and Subsidiary from unfair competition. However, in the event the period
of time or the geographical area specified in this Agreement is adjudged
unreasonable by a court, the parties agree that a court or trier of fact in such
Page 3 - EMPLOYMENT AND NONDISCLOSURE AGREEMENT
<PAGE>
event may, and is hereby required, to modify and enforce this Agreement and the
covenant not to compete set forth herein to the extent it believes to be
reasonable under the circumstances.
F. Employee Acknowledgement. Employee acknowledges that Employee has
certain management skills which would be applied or could be applied to earn
gainful employment not in violation of the covenant not to compete set forth
herein.
VII. TERMINATION. Employee's employment with Company shall terminate on
November 30, 2002. Nothing set forth herein shall limit Company's right to
terminate Employee's employment for Cause as defined in Exhibit C upon thirty
(30) days advance written notice.
VIII. NOTICE. Any notice or other communication required or permitted
to be given under this Agreement shall be in writing and shall be personally
delivered, mailed by certified mail, return receipt requested, postage prepaid,
or sent by telex or facsimile transmission, addressed to the parties as follows:
EMPLOYEE: CHRISTOPHER J. MILLER
11888 S.W. Breyman
Portland, Oregon 97219
Fax No. (503) 636-3903
COMPANY: NBG RADIO NETWORK, INC.
c/o John Holmes
520 S.W. Sixth Avenue, Suite 750
Portland, Oregon 97204
Fax No. (503) 802-4627
SUBSIDIARY: CustomLink, Inc.
c/o John Holmes
520 S.W. Sixth Avenue, Suite 750
Portland, Oregon 97204
Fax No. (503) 802-4627
Any notice or other communication shall be deemed to be given: (1) in the case
of personal delivery on the date of delivery; (2) in the case of telex or
facsimile transmission on the date of confirmation of delivery to the addressee;
and (3) in the case of delivery by mail at the at the expiration of the third
day after the date of deposit in the United States mail. The addresses to which
notices or other communications shall be mailed may be changed from time to time
by giving written notice to the other party as provided in this Section.
Page 4 - EMPLOYMENT AND NONDISCLOSURE AGREEMENT
<PAGE>
IX. ASSIGNMENT
This Agreement may be assigned by the Company, at its discretion, to
any subsidiary of the Company, and the rights and obligations of the Company
under this Agreement shall automatically inure to the benefit of and shall be
binding upon the assigned subsidiary of the Company. This Agreement may not be
assigned by the Company to any person, firm or corporation that is not a
subsidiary of the Company without first obtaining the written consent of
Employee. As to Employee, this Agreement is personal and may not be assigned by
Employee to any other person, firm or corporation.
As to Company, it is understood and agreed that this Agreement shall be
assigned to Subsidiary (the "Assignment"), which is a wholly owned subsidiary of
Company. Employee hereby acknowledges and consents to the Assignment.
Notwithstanding the Assignment, Company shall remain liable and obligated to
Employee as set forth in this Agreement.
As to Company and Subsidiary, this Agreement may not be assigned except
to a wholly owned subsidiary of Company without Employee's consent which consent
shall not be unreasonably withheld.
X. RENEWAL
This Agreement may be renewed at the end of the Term of this Agreement,
upon written agreement, signed by the parties.
XI. MISCELLANEOUS
A. Entire Agreement. This Agreement and the attached and incorporated
Exhibits contain the entire Agreement of the Parties hereto, and may be amended
only by an agreement in writing signed by each of the Parties.
B. Arbitration. All disputes arising under this Agreement shall be
settled exclusively by arbitration before one (1) arbitrator and according to
the Rules of the American Arbitration Association (the "AAA"). The arbitration
will be held in Portland, Oregon.
The arbitrator shall be selected by agreement of Employee and the
Company or Subsidiary, but if they do not so agree within thirty (30) days after
the date of the request for arbitration, the selection of an arbitrator shall be
made pursuant to the Rules of the AAA. The award rendered by the arbitrator
shall be conclusive and binding upon the Parties hereto and judgment on any such
award may be entered in any court having jurisdiction over the Parties to and
the subject matter of the controversy. Except as may be provided otherwise, each
Party shall pay its own expenses of arbitration and the expenses of the
arbitrator shall be equally shared. Nothing herein set forth shall prevent the
Parties hereto from settling any dispute by mutual agreement at any time.
Page 5 - EMPLOYMENT AND NONDISCLOSURE AGREEMENT
<PAGE>
The Parties agree that they shall only be bound to conduct the
arbitration in accordance with the Rules of the AAA and shall not be required to
and shall not use the services of the AAA. The Parties, however, agree that for
purposes of discovery the rules of Oregon Civil Procedure, and Multnomah County
Circuit Court Local Rules shall apply.
The fact of and the content of any arbitration proceeding shall be
confidential and neither Party shall disclose the same to anyone without the
consent of all Parties to the arbitration, except that a judgment on the
arbitrator"s award may be filed as otherwise provided herein.
C. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one an the same instrument. A facsimile, telecopy or other
reproduction of this Agreement may be executed by one or more Parties hereto,
and an executed copy of the Agreement may be delivered by one or more Parties
hereto by facsimile or similar instantaneous transmission devise pursuant to
which the signature of or on behalf of the such Party can be seen and such
execution and delivery shall be considered valid, binding, and effective for all
purposes. At the request of any Party hereto, all Parties hereto agree to
execute an original of this Agreement as well as any facsimile, telecopy or
other reproduction hereto.
D. Freedom to Deal. Employee hereby represents and warrants to the
Company that he is free to enter into this Agreement, and his execution of this
Agreement and performance of his duties hereunder for the Company do not and
shall not constitute a breach of any agreement of Employee with, or other legal
obligation of Employee to, any third party.
E. Governing Law. This Agreement shall be construed in accordance with
and governed for all purposes by the laws of the State of Oregon applicable to
contracts executed and wholly-performed within such State, without regard to
principles of conflicts of law. The Parties hereby consent to the jurisdiction
and venue of the state and federal courts in and for Multnomah County, Oregon,
in connection with any disputes concerning the enforceability of Section X.C.
(Arbitration).
F. No Waiver. The failure of a Party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered a waiver of
such Party's rights or deprive such Party of the right thereafter to insist upon
strict adherence to that term or any other term of this Employee Agreement.
G. Severability. In the event that any one or more of the provisions of
this Agreement shall become invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions of this
Agreement shall not be affected thereby.
H. Binding Agreement. This Agreement shall inure to the benefit of and
be binding upon the personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees, and legatees of
Employee and upon the successors and assigns of Company and Subsidiary.
Page 6 - EMPLOYMENT AND NONDISCLOSURE AGREEMENT
<PAGE>
I. Definitions. Definitions used herein shall include those as set
forth in Exhibit C attached hereto and incorporated by reference.
IN WITNESS WHEREOF, the Parties have caused this Employment and
Nondisclosure Agreement to be duly executed effective as of the date first
mentioned above.
COMPANY: EMPLOYEE:
NBG RADIO NETWORK, INC. CHRISTOPHER J. MILLER
By:
------------------------------- -------------------------------
John A. Holmes, President Christopher J. Miller
Date: Date:
Page 7 - EMPLOYMENT AND NONDISCLOSURE AGREEMENT
<PAGE>
EXHIBIT A
EMPLOYEE COMPENSATION AND BENEFITS
1. Employee Compensation. Employee shall be paid a base salary of
$120,000.00 per year. The base salary shall be paid to Employee on a bi-monthly
basis.
a. Profit Sharing Plan. At the end of each fiscal year, Employee
shall be eligible to participate in the Non-Qualified Profit Sharing Plan of the
Subsidiary.
2. Additional Employee Benefits.
a. Retirement/Deferred Compensation Benefits. Employee shall be
included as a participant in all Subsidiary qualified retirement plans.
b. Health Benefits. Employee and Employee's family, if
applicable, shall be included in all Subsidiary health and medical insurance
plans.
c. Vacation/Personal Leave. Employee shall receive all vacation
and personal leave benefits, or any other benefit provided for in the Company
Employee Manual.
d. Expense Reimbursement. Employee shall be entitled to expense
reimbursement as set forth in Section V of this Agreement.
e. Mileage Reimbursement. Employee will be paid mileage for use
of her automobile with mileage reimbursement based upon Internal Revenue Service
Guidelines applicable at the time of reimbursement.
f. Other Employee Benefits. Employee shall be entitled to all
other employee benefits as adopted and put into effect by Subsidiary.
g. Non-Qualified Profit Sharing Plan. Employee shall be entitled
to the benefits of the Non-Qualified Profit Sharing Plan (the "Profit Sharing
Plan"), a copy of which is attached hereto as Exhibit A. If Company shall cause
to be implemented by Subsidiary as soon as practicable subsequent to the date of
this Agreement.
h. Level of Benefits. With respect to Employee benefits a, b and
c above, the level of benefits as provided by Subsidiary shall be the same as
provided by Company on behalf of its employees.
Initial:
Company
- -------
Christopher J. Miller
- -------
<PAGE>
EXHIBIT B
JOB DESCRIPTION
Direct and operate of Subsidiary, including the management of
Subsidiary's financial condition, production, marketing, promotion, sales.
Essential duties and responsibilities include the following:
Oversee and direct accounting and purchasing activities for
Subsidiary.
Direct the procedures and systems necessary to maintain proper
records and to afford adequate controls over production and
services of Subsidiary.
Direct the activities of Subsidiary.
Appraise the Company's President and/or Board of Directors of
Subsidiary's productivity and issue periodic financial and
operating reports.
Direct and coordinate the establishment of budget programs.
Perform other related duties may be assigned by Subsidiary.
Initial:
Company
- -------
Christopher J. Miller
- -------
<PAGE>
EXHIBIT C
ADDITIONAL DEFINITIONS
"Cause" as used herein means fraud, embezzlement, a crime (whether
misdemeanor or felony), any act of malfeasance which relates to Employee's
employment by Company or which would reasonably be expected to bear adversely
upon Company's or Subsidiary's reputation or failure by Employee to materially
perform Employee's duties as set forth herein.
Initial:
Company
- -------
Christopher J. Miller
- -------
EXHIBIT 10.6
EMPLOYMENT
----------
AND NONDISCLOSURE AGREEMENT
---------------------------
THIS EMPLOYMENT AND NONDISCLOSURE AGREEMENT (the "Agreement") is made
and entered into as of the 25th day of January, 1999 (the "Effective Date"), by
and between NBG RADIO NETWORK, INC., a Nevada corporation (the "Company"), and
DAVID J. THIBEAU (the "Employee", and, together with the Company, the
"Parties").
BACKGROUND
Company is a publicly traded Nevada corporation engaged in the business
of creating and nationally marketing and syndicating radio advertising
programming.
Employee has managerial skills and expertise related to the business of
Kiosk programs and Kiosk integration.
Company has formed or is in the process of forming a fully owned
subsidiary under the name CustomLink, Inc. ("Subsidiary"), which will be in the
business of developing Kiosk programs and Kiosk integration.
Company intends to assign this Agreement to Subsidiary with the
intention that Employee will be employed by Subsidiary.
Employee is the co-owner of M-Tek Technical Services, Inc. ("M-Tek"),
which is currently involved in the business of Kiosk programming and Kiosk
integration. Contemporaneous with this Agreement, Company has acquired the
assets of M-Tek which assets have been or will be transferred to Subsidiary. The
parties desire to set forth the terms and conditions for Employee's employment
with Subsidiary. Company will remain liable and obligated to Employee according
to the terms of this Agreement.
I. EMPLOYMENT
The Company hereby employs Employee subject to the terms and conditions
contained in this Agreement. Employee hereby accepts such employment upon the
terms and conditions hereinafter set forth.
II. TERM
Page 1 - EMPLOYMENT AND NONDISCLOSURE AGREEMENT
<PAGE>
The employment of Employee in accordance with the terms of this
Agreement shall commence on the Effective Date hereof and shall continue in
effect until November 30, 2002, at which time this Agreement shall terminate
unless renewed by the parties. This Agreement shall not be terminated by Company
prior to November 30, 2002, except for cause. The date on which Employee's
employment ceases for any reason, shall be referred to herein as the
"Termination Date."
III. COMPENSATION
For all services rendered by Employee under this Agreement the Company
shall pay to Employee the compensation and Employee benefits described in
Exhibit A attached hereto and incorporated herein by reference. Employee shall
also be entitled to all other Employee benefits established by the Subsidiary
and outlined in any employment manual in effect with Subsidiary, including but
not limited to benefits set forth in any non-qualified profit sharing plan
established by Subsidiary.
IV. DUTIES
A. Job Responsibilities. Employee will occupy the position of Chief
Operating Officer of Subsidiary and shall be responsible for those duties
associated with that position as set forth in Exhibit B attached hereto and
incorporated herein by reference. Employee shall use his best efforts to promote
the interests of the Subsidiary, shall devote his working time, attention and
energies to the business of the Subsidiary, and shall not, during the term of
this Agreement, be engaged in any other business activity, whether or not such
business activity is pursued for gain or profit, that is in any way competitive
with Company or Subsidiary, provided, however, that Employee shall not be
restricted from engaging or participating in businesses or other activities
totally unrelated to the business activities of the Company or Subsidiary that
do not interfere with the satisfactory performance of Employee's duties and
obligations to the Subsidiary as set forth in this Agreement.
B. Company Policies. Employee shall comply with all Subsidiary
policies, rules, regulations and procedures as are applicable to the officers of
the Subsidiary.
V. REIMBURSEMENT FOR EXPENSES
Employee shall be entitled to reimbursement for reasonable business
expenses actually incurred by him on behalf of the Subsidiary, as required in
the performance of his duties hereunder. Employee shall submit supporting
vouchers, receipts and records for all such business expenses to the President
or Controller of the Subsidiary in order to obtain reimbursement.
Page 2 - EMPLOYMENT AND NONDISCLOSURE AGREEMENT
<PAGE>
VI. RESTRICTIVE COVENANT
A. Confidential Information. Employee acknowledges that by reason of
his employment by the Subsidiary, he will have access to valuable confidential
proprietary information concerning the Company and the Subsidiary, including but
not limited to its business plans, products, finances, customers, personnel,
trade secrets, computer programming, source codes, technical data and
information and business activities (the "Confidential Information"). At any
time during Employee's employment or after termination of Employee's employment
with the Subsidiary, Employee shall not, without the express authorization of
the President of the Company (i) disclose the Confidential Information to any
third party other than employees and authorized agents of the Company or
Subsidiary for purposes of performing his duties under this Agreement; or (ii)
use the Confidential Information, except for purposes of performing his duties
under this Agreement. All Company and Subsidiary property in the possession of
Employee must be returned to the Company upon termination of employment for any
reason. For purposes of this Agreement, Confidential Information does not
include matters that are public knowledge.
B. Covenant Not to Compete. Employee acknowledges that by (reason of
his employment) with Subsidiary and by reason of his contacts with Company, he
is of significant interest and value to competing companies. Accordingly,
Employee agrees that he will not for a period of three (3) years after the
Termination Date accept employment with or act as a consultant to, directly or
indirectly own, manage, operate, or control or participate in ownership
management or control of any company engaged in a business competing directly or
indirectly with the Company or Subsidiary. The scope of this covenant is
worldwide.
C. Solicitation of Employees. Employee agrees that for a period of
three (3) years immediately following the Termination Date, Employee shall not
directly or indirectly solicit, induce, recruit or entice any other Company or
Subsidiary employee to leave employment with Company or Subsidiary to pursue
employment with Employee or any other person or entity.
D. Injunctive Relief; Remedies. Employee acknowledges that the
restrictions contained in this section are necessary to protect the legitimate
interests of Company and Subsidiary and that any violation thereof would result
in irreparable harm and injury to the Company and/or Subsidiary. Employee
therefore agrees and acknowledges that in the event of any violation of any of
these restrictions, the Company and/or Subsidiary shall be entitled to obtain
from any court, preliminary and permanent injunctive relief, as well as damages
and an accounting of all earnings, profits and other benefits arising from such
violation, which damages may be cumulative and in addition to any other damages
or remedies which they may be entitled.
E. Scope of Agreement; Modification. The Parties have attempted to
limit Employee's right to compete only to the extent necessary to protect the
Company and Subsidiary from unfair competition. However, in the event the period
of time or the geographical area specified in this Agreement is adjudged
unreasonable by a court, the parties agree that a court or trier of fact in such
Page 3 - EMPLOYMENT AND NONDISCLOSURE AGREEMENT
<PAGE>
event may, and is hereby required, to modify and enforce this Agreement and the
covenant not to compete set forth herein to the extent it believes to be
reasonable under the circumstances.
F. Employee Acknowledgement. Employee acknowledges that Employee has
certain management skills which would be applied or could be applied to earn
gainful employment not in violation of the covenant not to compete set forth
herein.
VII. TERMINATION. Employee's employment with Company shall terminate on
November 30, 2002. Nothing set forth herein shall limit Company's right to
terminate Employee's employment for Cause as defined in Exhibit C upon thirty
(30) days advance written notice.
VIII. NOTICE. Any notice or other communication required or permitted
to be given under this Agreement shall be in writing and shall be personally
delivered, mailed by certified mail, return receipt requested, postage prepaid,
or sent by telex or facsimile transmission, addressed to the parties as follows:
EMPLOYEE: DAVID J. THIBEAU
132 Del Prado
Lake Oswego, Oregon 97035
Fax No. (503) 699-2232
COMPANY: NBG RADIO NETWORK, INC.
c/o John Holmes
520 S.W. Sixth Avenue, Suite 750
Portland, Oregon 97204
Fax No. (503) 802-4627
SUBSIDIARY: CustomLink, Inc.
c/o John Holmes
520 S.W. Sixth Avenue, Suite 750
Portland, Oregon 97204
Fax No. (503) 802-4627
Any notice or other communication shall be deemed to be given: (1) in the case
of personal delivery on the date of delivery; (2) in the case of telex or
facsimile transmission on the date of confirmation of delivery to the addressee;
and (3) in the case of delivery by mail at the at the expiration of the third
day after the date of deposit in the United States mail. The addresses to which
notices or other communications shall be mailed may be changed from time to time
by giving written notice to the other party as provided in this Section.
Page 4 - EMPLOYMENT AND NONDISCLOSURE AGREEMENT
<PAGE>
IX. ASSIGNMENT
This Agreement may be assigned by the Company, at its discretion, to
any subsidiary of the Company, and the rights and obligations of the Company
under this Agreement shall automatically inure to the benefit of and shall be
binding upon the assigned subsidiary of the Company. This Agreement may not be
assigned by the Company to any person, firm or corporation that is not a
subsidiary of the Company without first obtaining the written consent of
Employee. As to Employee, this Agreement is personal and may not be assigned by
Employee to any other person, firm or corporation.
As to Company, it is understood and agreed that this Agreement shall be
assigned to Subsidiary (the "Assignment"), which is a wholly owned subsidiary of
Company. Employee hereby acknowledges and consents to the Assignment.
Notwithstanding the Assignment, Company shall remain liable and obligated to
Employee as set forth in this Agreement.
As to Company and Subsidiary, this Agreement may not be assigned except
to a wholly owned subsidiary of Company without Employee's consent which consent
shall not be unreasonably withheld.
X. RENEWAL
This Agreement may be renewed at the end of the Term of this Agreement,
upon written agreement, signed by the parties.
XI. MISCELLANEOUS
A. Entire Agreement. This Agreement and the attached and incorporated
Exhibits contain the entire Agreement of the Parties hereto, and may be amended
only by an agreement in writing signed by each of the Parties.
B. Arbitration. All disputes arising under this Agreement shall be
settled exclusively by arbitration before one (1) arbitrator and according to
the Rules of the American Arbitration Association (the "AAA"). The arbitration
will be held in Portland, Oregon.
The arbitrator shall be selected by agreement of Employee and the
Company or Subsidiary, but if they do not so agree within thirty (30) days after
the date of the request for arbitration, the selection of an arbitrator shall be
made pursuant to the Rules of the AAA. The award rendered by the arbitrator
shall be conclusive and binding upon the Parties hereto and judgment on any such
award may be entered in any court having jurisdiction over the Parties to and
the subject matter of the controversy. Except as may be provided otherwise, each
Party shall pay its own expenses of arbitration and the expenses of the
arbitrator shall be equally shared. Nothing herein set forth shall prevent the
Parties hereto from settling any dispute by mutual agreement at any time.
Page 5 - EMPLOYMENT AND NONDISCLOSURE AGREEMENT
<PAGE>
The Parties agree that they shall only be bound to conduct the
arbitration in accordance with the Rules of the AAA and shall not be required to
and shall not use the services of the AAA. The Parties, however, agree that for
purposes of discovery the rules of Oregon Civil Procedure, and Multnomah County
Circuit Court Local Rules shall apply.
The fact of and the content of any arbitration proceeding shall be
confidential and neither Party shall disclose the same to anyone without the
consent of all Parties to the arbitration, except that a judgment on the
arbitrator"s award may be filed as otherwise provided herein.
C. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one an the same instrument. A facsimile, telecopy or other
reproduction of this Agreement may be executed by one or more Parties hereto,
and an executed copy of the Agreement may be delivered by one or more Parties
hereto by facsimile or similar instantaneous transmission devise pursuant to
which the signature of or on behalf of the such Party can be seen and such
execution and delivery shall be considered valid, binding, and effective for all
purposes. At the request of any Party hereto, all Parties hereto agree to
execute an original of this Agreement as well as any facsimile, telecopy or
other reproduction hereto.
D. Freedom to Deal. Employee hereby represents and warrants to the
Company that he is free to enter into this Agreement, and his execution of this
Agreement and performance of his duties hereunder for the Company do not and
shall not constitute a breach of any agreement of Employee with, or other legal
obligation of Employee to, any third party.
E. Governing Law. This Agreement shall be construed in accordance with
and governed for all purposes by the laws of the State of Oregon applicable to
contracts executed and wholly-performed within such State, without regard to
principles of conflicts of law. The Parties hereby consent to the jurisdiction
and venue of the state and federal courts in and for Multnomah County, Oregon,
in connection with any disputes concerning the enforceability of Section X.C.
(Arbitration).
F. No Waiver. The failure of a Party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered a waiver of
such Party's rights or deprive such Party of the right thereafter to insist upon
strict adherence to that term or any other term of this Employee Agreement.
G. Severability. In the event that any one or more of the provisions of
this Agreement shall become invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions of this
Agreement shall not be affected thereby.
H. Binding Agreement. This Agreement shall inure to the benefit of and
be binding upon the personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees, and legatees of
Employee and upon the successors and assigns of Company and Subsidiary.
Page 6 - EMPLOYMENT AND NONDISCLOSURE AGREEMENT
<PAGE>
I. Definitions. Definitions used herein shall include those as set
forth in Exhibit C attached hereto and incorporated by reference.
IN WITNESS WHEREOF, the Parties have caused this Employment
and Nondisclosure Agreement to be duly executed effective as of the date first
mentioned above.
COMPANY: EMPLOYEE:
NBG RADIO NETWORK, INC. DAVID J. THIBEAU
By:
------------------------------------ ------------------------------------
John A. Holmes, President David J. Thibeau
Date: Date:
Page 7 - EMPLOYMENT AND NONDISCLOSURE AGREEMENT
<PAGE>
EXHIBIT A
EMPLOYEE COMPENSATION AND BENEFITS
1 Employee Compensation. Employee shall be paid a base salary of
$120,000.00 per year. The base salary shall be paid to Employee on a bi-monthly
basis.
a Profit Sharing Plan. At the end of each fiscal year, Employee
shall be eligible to participate in the Non-Qualified Profit Sharing Plan of the
Subsidiary.
2 Additional Employee Benefits.
a Retirement/Deferred Compensation Benefits. Employee shall be
included as a participant in all Subsidiary qualified retirement plans.
b Health Benefits. Employee and Employee's family, if
applicable, shall be included in all Subsidiary health and medical insurance
plans.
c Vacation/Personal Leave. Employee shall receive all vacation
and personal leave benefits, or any other benefit provided for in the Company
Employee Manual.
d Expense Reimbursement. Employee shall be entitled to expense
reimbursement as set forth in Section V of this Agreement.
e Mileage Reimbursement. Employee will be paid mileage for use
of her automobile with mileage reimbursement based upon Internal Revenue Service
Guidelines applicable at the time of reimbursement.
f Other Employee Benefits. Employee shall be entitled to all
other employee benefits as adopted and put into effect by Subsidiary.
g Non-Qualified Profit Sharing Plan. Employee shall be entitled
to the benefits of the Non-Qualified Profit Sharing Plan (the "Profit Sharing
Plan"), a copy of which is attached hereto as Exhibit A. If Company shall cause
to be implemented by Subsidiary as soon as practicable subsequent to the date of
this Agreement.
h Level of Benefits. With respect to Employee benefits a, b and
c above, the level of benefits as provided by Subsidiary shall be the same as
provided by Company on behalf of its employees.
Initial:
Company
- -------
David J. Thibeau
- -------
<PAGE>
EXHIBIT B
JOB DESCRIPTION
Direct and operate of Subsidiary, including the management of
Subsidiary's financial condition, production, marketing, promotion, sales.
Essential duties and responsibilities include the following:
Oversee and direct accounting and purchasing activities for
Subsidiary.
Direct the procedures and systems necessary to maintain proper
records and to afford adequate controls over production and
services of Subsidiary.
Direct the activities of Subsidiary.
Appraise the Company's President and/or Board of Directors of
Subsidiary's productivity and issue periodic financial and
operating reports.
Direct and coordinate the establishment of budget programs.
Perform other related duties may be assigned by Subsidiary.
Initial:
Company
- -------
David J. Thibeau
- -------
<PAGE>
EXHIBIT C
ADDITIONAL DEFINITIONS
"Cause" as used herein means fraud, embezzlement, a crime (whether
misdemeanor or felony), any act of malfeasance which relates to Employee's
employment by Company or which would reasonably be expected to bear adversely
upon Company's or Subsidiary's reputation or failure by Employee to materially
perform Employee's duties as set forth herein.
Initial:
Company
- -------
David J. Thibeau
- -------
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary State of Incorporation
NBG Solutions, Inc. Oregon
NBG Travel Exclusives, Inc. Oregon
NBG Interactive, Inc. Oregon
(Letterhead)
Moss-Adams LLP
Certified Public Accountants
February 28, 2000
NBG Radio Network, Inc.
520 S.W. 5th Ave., Suite 750
Portland, OR 97204
Re: NBG Radio Network, Inc. - Form S-8 Registration Statement
To NBG Radio Network, Inc.:
We consent to the incorporation by reference into the
Registration Statement of NBG Radio Network, Inc., filed on June 30, 1999 on
Form S-8, of our report dated January 18, 2000, relating to the audited
financial statements for the years ended November 30, 1999 and 1998, which
report appears in the Annual Report on Form 10-KSB of NBG Radio Network, Inc.,
for the year ended November 30, 1999, and to all references to our firm included
in the registration statement.
/s/ Moss Adams LLP
Moss Adams LLP
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-END> NOV-30-1999
<CASH> 892,092
<SECURITIES> 468,750
<RECEIVABLES> 2,270,543
<ALLOWANCES> 1,200
<INVENTORY> 0
<CURRENT-ASSETS> 5,262,614
<PP&E> 310,828
<DEPRECIATION> 108,115
<TOTAL-ASSETS> 7,101,224
<CURRENT-LIABILITIES> 2,266,953
<BONDS> 0
0
0
<COMMON> 12,160
<OTHER-SE> 4,822,111
<TOTAL-LIABILITY-AND-EQUITY> 7,101,224
<SALES> 0
<TOTAL-REVENUES> 3,640,163
<CGS> 0
<TOTAL-COSTS> 2,027,979
<OTHER-EXPENSES> 3,206,844
<LOSS-PROVISION> 90,134
<INTEREST-EXPENSE> 5,065
<INCOME-PRETAX> (1,274,064)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,274,064)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,274,064)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
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