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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to__________________
Commission file number 0-16730
ALL-COMM MEDIA CORPORATION
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(Exact name of registrant as specified in its charter)
Nevada 88-0085608
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
400 Corporate Pointe, Suite 780
Los Angeles, California 90230
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 342-2800
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of September 16, 1996, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $ 16,066,000.
As of September 16, 1996, there were 3,194,659 shares of the Registrant's common
stock outstanding.
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PART I
ITEM 1 - BUSINESS
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General
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The business of All-Comm Media Corporation (the "Company" or "All-Comm
Media"), previously known as Sports-Tech, Inc., ("Sports-Tech") arises out of
the April 25, 1995 merger between Alliance Media Corporation ("Alliance") and
the Company, and the concurrent acquisition of Stephen Dunn & Associates, Inc.
(SD&A), a leading telemarketing and telefundraising company that specializes in
direct marketing services for the arts, educational and other institutional tax-
exempt organizations. Simultaneously, the former management and directors of
Sports-Tech resigned in favor of the merger with Alliance and its plan to build
a specialized marketing services company with a focus on providing direct
marketing, information and media services. The change in the Company's name was
approved at a special shareholders meeting held on August 22, 1995 to reflect
the new corporate vision and direction originating from the change in management
and board of directors associated with the merger with Alliance. The Company's
shares are traded on the NASDAQ Small Cap Market under the symbol "ALCM". The
Company's principal executive offices are located at 400 Corporate Pointe, Suite
780, Culver City, CA 90230. Its telephone number is (310) 342-2800.
The Company's Strategy
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Initially, the Company intends to expand through the acquisition of
companies in the direct marketing, information and media services industry which
can provide core capabilities for the direct marketing process. Direct marketing
has become an increasingly important advertising medium and an integral
component of marketing programs that combine multiple forms of communication,
such as direct mail, telemarketing, print, television, radio, electronic media,
information kiosks, CD-ROM and Internet World-Wide Web sites. A key element of
the Company's growth strategy is to establish a complimentary group of companies
under a unified corporate architecture that is capable of servicing multiple
client needs in the new marketing and media environment. The Company believes
that technological innovation will continue to increase the effectiveness of
direct marketing.
Other than as described in this Annual Report on Form 10-K (this "Form 10-K")
the Company has no agreements to acquire any such companies and there can be no
assurance that the Company will be able to acquire such companies.
Stephen Dunn & Associates, Inc. ("SD&A")
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SD&A was formed in 1983 and was acquired by the Company on April 25, 1995.
For the twelve month period ended June 30, 1996 ("Fiscal 1996"), SD&A had
revenues of more than $15.8 million. Clients of SD&A include many of the larger
performing arts and cultural institutions, such as major symphonies, theatres
and musical arts companies, along with public broadcasting stations, advocacy
groups and educational institutions. SD&A's clients include over 150 of the
nation's leading institutions and universities, such as New York Philharmonic
Orchestra, American Conservatory Theater, Lincoln Center, Museum of Modern Art,
New York University, Duke University, National Audubon Society and Simon
Weisenthal
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Center. SD&A has its headquarters in Los Angeles, California and operates a
telemarketing calling center in Berkeley, California.
History and Prior Activities
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The Company was originally incorporated in Nevada in 1919. During 1991,
under the prior management, the Company acquired a 100% interest in Sports-Tech
International, Inc. ("STI") and changed its name to Sports-Tech, Inc. In 1993,
the Company acquired the business of High School Gridiron Report ("HSGR"). (See
Discontinued Operations). STI and HSGR supplied information services and
technology as well as academic, athletic and video data to high school, college
and professional coaches and student athletes. In November, 1994, after a failed
business strategy, the prior management of the Company discontinued these
operations through the sale of STI and the cessation of the HSGR operation.
Prior to, and as a condition of the merger with Alliance, the Company was
required to divest its investments, except for an undeveloped parcel of land in
Laughlin, Nevada. In August, 1996 the land was sold. (See All-Comm Holdings,
Inc. herein for a description of this investment and the terms of its sale.)
Merger with Alliance Media Corporation:
On April 25, 1995, STI Merger Corporation ("Merger Sub"), a wholly owned
subsidiary of the Company, was merged (the "Merger") with and into Alliance. The
Merger was effected pursuant to the terms of an Acquisition Agreement, dated as
of February 7, 1995, as amended. Pursuant to the terms of the Acquisition
Agreement, upon consummation of the Merger, the then current members of the
Board of Directors of the Company resigned and a new Board was appointed,
consisting of persons designated by Alliance. (See Executive Officers and
Directors of the Registrant and Significant Employees.) As a result of the
Merger, Alliance became a wholly owned subsidiary of the Company and the former
shareholders of Alliance received 1,025,000 shares of the Company's common stock
valued at $2,745,000 constituting approximately 39.6% of the Company's common
stock (on a fully diluted basis, taking into account shares issuable upon
exercise of warrants delivered in payment of various fees incurred in connection
with the Merger). These shares have registration rights commencing December 1,
1995.
The assets of Alliance acquired by the Company consisted primarily of: (i)
all of the issued and outstanding stock of SD&A, which Alliance had acquired
effective April 25, 1995 pursuant to a Stock Purchase Agreement, dated as of
January 31, 1995, between Alliance and Mr. Stephen Dunn (the "Dunn Agreement");
(ii) a five-year covenant not to compete with the former owner of SD&A; and
(iii) the cash proceeds (net of certain payments, including the payment of $1.5
million required pursuant to the terms of the Dunn Agreement) of a private
placement of equity securities by Alliance, which securities, upon consummation
of the Merger, were converted into shares of the Company's common stock.
Pursuant to the terms of the Dunn Agreement, terms of the acquisition included
$1.5 million in cash plus a $4.5 million long term obligation and additional
contingent payments of up to $850,000 per year over the period ending June 30,
1998, of which, at the Company's option, 50% may be made with restricted common
shares of the Company. For Fiscal 1996, the $850,000 payment was earned and was
paid, half in cash and half in stock. These acquisition terms were revised
pursuant to the Company's private placement financing which occurred on June 7,
1996 (see "Private Placement of Preferred Stock") whereby the terms of the long
term obligations were revised. Of the remaining balance of $4.1 million,
approximately
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$2.0 million was repaid in June 1996. The balance of $2.1 million is payable in
36 monthly principal payments of $58,333, plus interest at 8%, starting
September 19, 1996.
The assets of SD&A, upon its acquisition by Alliance (and simultaneously
obtained by the Company upon consummation of the Merger), consisted primarily of
cash and cash equivalents, accounts receivable and furniture, fixtures and
equipment, which were accounted for using the purchase method. The purchase
price was allocated to assets acquired based on their estimated fair value. This
treatment resulted in approximately $6.3 million of costs in excess of net
assets acquired, after allocating approximately $1 million to a covenant not to
compete. Such excess, which may increase for any further contingent payments, is
being amortized over the expected period of benefit of 40 years. The operating
results of these acquisitions are included in the consolidated results of
operations of the Company from the date of acquisition, April 25, 1995.
Current Activities
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Pending Acquisition of Metro Services Group, Inc.:
On May 30, 1996, the Company signed a letter of intent to acquire the
capital stock of Metro Services Group, Inc. ("Metro"). Metro is a private
company formed in 1987 and based in New York City, with offices in Michigan,
Illinois and California, and has annual sales in excess of $8 million. Metro
develops and markets a variety of database direct marketing products and
services to a wide range of commercial clients and tax-exempt organizations.
Metro provides information-based products and services to the direct marketing
industry through its four divisions: Metro Direct Marketing, which provides full
service direct marketing programs for consumers and business to business
clients, particularly in the financial services and publishing areas; MSGI
Computer Services which utilizes a combination of mainframe, PC platforms and
Internet servers for database development, data enhancement, response analysis
and predictive modeling capabilities; MetroArts develops and executes customer
acquisition campaigns for the performing arts, entertainment and cultural
institutions and Metro Non-Profit provides strategic planning, membership and
direct mail fundraising campaigns for non-profit institutions. The majority of
Metro's revenues are derived from a commercially driven client base. Terms of
the acquisition call for an exchange of stock, of approximately 2.0 million
shares of the Company's common stock for all of the outstanding stock of Metro.
Consummation of the acquisition is subject to a number of conditions, including
the negotiation of a definitive agreement. No assurance can be given that the
acquisition will be consummated.
Stock Split and Change in Authorized Common Shares:
Effective August 22, 1995, the Company's Board of Directors approved a one-
for-four reverse stock split of the Company's authorized and issued common
stock. Fractional shares were rounded up to whole shares. After the reverse
stock split, approximately 3,016,000 shares were outstanding. All share and per
share data in this Annual Report reflect the effect of the reverse stock split.
Effective August 14, 1996, the Company's shareholders approved an increase in
the number of authorized shares of common stock from 6,250,000 to 36,250,000, to
facilitate its corporate strategy and growth plans.
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Private Placements of Common Stock:
On May 31, 1995, the Company completed a private placement of 413,759
restricted shares of its common stock for a total of $1,108,875 ($1,018,675 net
after offering costs) in order to replenish cash resources which were depleted
prior to the Merger with Alliance, as a result of losses and dispositions of
assets prior to the Merger. (See Discontinued Operations and Events Prior to the
Merger with Alliance Media Corporation.) These shares have registration rights
commencing December 1, 1995.
In March, 1996, the Company issued, in a private placement, 75,000
restricted shares of its common stock for an aggregate of $120,000 to four
individuals, including 12,500 shares to related parties, in order to meet
certain operating obligations.
Private Placements of Convertible Preferred Stock:
On May 9, 1996, the Company completed the private placement with an
institutional investor of 10,000 shares of Series A convertible preferred stock
for $750,000, $681,000 net after offering costs.
On June 7, 1996, the Company completed the private placements with
accredited investors of 6,200 shares of Series B convertible preferred stock for
$3,100,000. The preferred stock is preferred as to the Company's assets over
the common stock in the event of liquidation, dissolution or winding-up of the
Company, prior to distribution of assets to common stockholders. The preferred
stockholders are entitled to their original investment, plus accrued, unpaid
dividends or, if unavailable, a ratable distribution of existing assets. The
holders of the stock are entitled to receive a dividend payable only on
redemption or credited against conversion, which shall accrue at the rate of 6%
per annum. The convertible preferred stock is convertible, in whole or in part,
at any time and from time to time until the second anniversary of the date of
issuance, into common shares of the Company at the lesser of the price paid
divided by $1.25, or 80% of the average closing sales price of the Company's
common stock for the last five days prior to conversion, and is subject to
certain restrictions, including automatic conversion on the second anniversary
of its issuance. Under certain unlikely conditions prior to conversion, the
preferred stock may be redeemed. In addition, the Company issued warrants to
preferred shareholders for 3,100,000 shares of common stock exercisable at $2.50
for three years.
On June 7, 1996, the Company completed the private placements with
accredited investors of $1,000,000 of convertible notes and warrants for
3,000,000 shares of common stock.
Subsequent to June 30, 1996, the notes and warrants were rescinded
retroactive to June 7, 1996. In addition, on September 10, 1996, effective as
of June 7, 1996, the Company completed a private placement of 2,000 shares of
Series C convertible preferred stock with the same accredited investors for
$1,000,000. The Series C convertible preferred stock is preferred as to the
Company's assets over the common stock in the event of liquidation, dissolution
or winding-up of the Company, prior to distribution of assets to common
stockholders. The preferred shareholders are entitled to their original
investment, plus accrued unpaid dividends or, if available, a ratable
distribution of existing assets. The holders of the stock are entitled to
receive a dividend payable only on redemption or credited against conversion,
which shall accrue at the same rate of 8% per annum, increasing to 24% on
October 7, 1996, in the event that the shares are not registered. The Series C
convertible
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preferred stock is convertible, in whole or in part, at any time and from time
to time until the second anniversary of the date of issuance, into common shares
of the Company at the price paid divided by $6.00, and is subject to certain
restrictions, including automatic conversion on the second anniversary of
issuance. Under certain unlikely conditions prior to conversion, the preferred
stock may be redeemed. In addition, the Company issued warrants to preferred
shareholders for 3,000,000 shares of common stock exercisable at $3.00 for three
years.
In connection with the June 7, 1996 transactions, payment of approximately
$2.0 million was made on long term obligations due to the seller of the
Company's operating subsidiary, Stephen Dunn & Associates, Inc. ("SD&A"). The
Company used $812,500 to reacquire 10,000 shares of Series A convertible
preferred stock issued in the private placement on May 9, 1996. Of the
proceeds, $425,000 was used to prepay additional consideration to the seller of
SD&A which was contingent upon post-closing SD&A earnings. The remainder will be
used for general corporate purposes.
Termination of Other Business Matters:
As part of the Company's strategy to expand through the acquisition of
companies in the direct marketing, information and media services industry,
numerous negotiations occur, some of which may result in preliminary agreements.
In the course of the Company's due diligence, these agreements may be abandoned
or terminated for different reasons which may include non-substantiation of the
target company's financial condition, unsatisfactory analysis of the target
company's operations and/or financial projections, and numerous other matters.
From time to time, and in the ordinary course of business, the Company is likely
to enter into preliminary agreements which, upon further analysis or
negotiations, may become abandoned or terminated. Accordingly, in March 1996,
the Company terminated its agreement to acquire Bullseye Database Marketing,
Inc., ("Bullseye") when the Company determined that certain conditions would not
be satisfied in respect of its initial agreement dated December 20, 1995.
Similarly, in February 1996, the Company abandoned its negotiations to acquire
Forms Direct, Inc. ("FDI") in respect of its letter of intent dated September
28, 1995, and formally terminated all pending matters in August 1996.
In March 1996, the Company elected to terminate its negotiations in respect
of a February 6, 1996 loan commitment for a $2.0 million revolving credit line.
Discontinued Operations
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Sports-Tech International, Inc. and High School Gridiron Report:
On March 9, 1995, as a condition precedent to the merger with Alliance
Media, the Company sold Sports-Tech International, Inc. ("STI") to Dainichi
Electronics, Inc. for $800,000 out of which $80,000 was paid by the Company as a
commission to the former president of STI. The former president of STI also
received $38,750 in common stock, and warrants to purchase 2,500 shares of the
Company's common stock at $8 per share. The Company realized a gain on the sale
of $322,000. STI was acquired in 1992 from Florida Gaming Corporation ("Florida
Gaming"), for $1,400,000 in cash and 660,000 shares of Sports-Tech, valued at
$936,600. Acquisition costs totaled $342,000.
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Concurrent with the sale of STI, the Company ceased the operations of High
School Gridiron Report ("HSGR"). HSGR was acquired on June 11, 1993, in
exchange for 15,000 common shares of the Company, valued at $255,000,
forgiveness of a note receivable of $161,000 and assumption of liabilities
totaling $29,000.
The sale of STI and the closing of HSGR operations have been accounted for
as discontinued operations and, accordingly, the consolidated financial
statements contained in this Annual Report have been reclassified to report
separately this segment's net assets, operating results, gain on disposition and
cash flows.
Warrant Exercise:
In July 1991, under the prior management, and in connection with the
acquisition of 57.7% of the outstanding common stock of STI from Florida Gaming,
the Company also acquired, for $40,000, a warrant (the "FGC Warrant") to acquire
a number of shares, which at the time, represented 33% of the outstanding common
stock of Florida Gaming, for an aggregate exercise price of $1,000,000.
On July 28, 1994, the Company exercised the FGC Warrant, in full, and
received 651,752 shares of Florida Gaming common stock. The exercise price of
the FGC Warrant was financed with a $1,000,000 loan, and the shares of Florida
Gaming common stock were pledged to collateralize the repayment of the loan. The
parties to the loan included, among others, the Company's former chairman,
former president, a former director and a shareholder, who each provided
$200,000. The other lenders were non-affiliates. The lenders received the
repayment of the $1,000,000 loan with interest at 7.75%, totaling $9,000 and a
$300,000 commitment fee from the proceeds of the subsequent stock sale.
During the year ended June 30, 1995, as a condition precedent to closing of
the merger with Alliance Media, the Company sold all the common shares of
Florida Gaming stock it had acquired for $2,683,000 and recognized a gain of
$1,580,000.
Industry Overview
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Advances in communications technology and the growing availability of
complex consumer data are causing marketers to use new information technologies
and media capabilities to more effectively target their customers and
efficiently service their needs. The use of direct marketing by businesses to
target and communicate with potential customers has been steadily increasing
due, in part, to the relative cost efficiency of direct marketing, as compared
to other advertising methods, as well as the rapid development of affordable
computer technology. As a result, the analysis and management of databases that
contain such information will continue to be an important driver for a variety
of marketing programs. These programs utilize multiple forms of communications
such as direct mail, telemarketing, print, television, radio, video, CD-ROM, on-
line services, such as the Internet, and other interactive and multimedia
formats.
Over the next decade, these marketing methodologies will provide major
corporations with direct access to their customers and the most cost effective
and efficient means for targeting specific audiences and developing long term
customer relationships. The shift from mass marketing to personalized and
targeted marketing enables advertising and marketing programs to be evaluated
and adjusted through measurable results. Prior to and during much of the
1970's, the costs associated with selling products and services, either
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through mass marketing or through personal sales calls, were relatively low,
while the costs of database development were prohibitive for all but the largest
businesses. In the 1980's the costs of developing and implementing computer
technologies to analyze and target potential customers declined while the costs
of traditional marketing increased significantly.
As technological innovation continues, the Company believes that more
companies will seek to integrate various direct marketing methodologies within a
wide-range of marketing and media campaigns. The ability to interact with
customers and accurately measure the response to the message is used for a
variety of purposes, including: prospecting for new customers, enhancing
existing customer relationships and evaluating the potential for new products
and services, and allows marketing campaigns to be continually refined to
further enhance their effectiveness. Numerous industry sources indicate that
such programs increase a company's ability to generate revenues, directly and
indirectly, from specific audiences across a wider market and through more
personalized access to consumers.
Industry Consolidation
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The direct marketing and media services industries are highly fragmented.
Larger corporations have been steadily linking marketing and media strategies to
more effectively reach customers in an increasingly competitive marketplace.
The majority of service providers are specialized by industry and type of
service. They are generally small in size, offering limited or single services
that support the direct marketing process. Major corporations continue to
increase their use of direct marketing, information and media services as
technological advances occur. As such, merger and acquisition activity has
accelerated among service providers seeking economies of scale, market
penetration and complementary services that result from larger, stronger firms
which possess a greater ability to execute increasingly complex marketing and
media campaigns.
Most advertising, marketing and media services firms, along with internal
corporate marketing departments, rely on outside vendors to execute their
requirements for implementing marketing programs. These vendors provide
specialized services, such as market data analysis, creation of private
databases, development and management of information systems that support
marketing programs, direct mail creation, production, tracking and fulfillment,
telemarketing and the creation of electronic video and digital image processing
and distribution. Corporate marketing departments, advertising and other
agencies, often lack this type of technical expertise to create, manage and
control various aspects of the process. Consequently, as new communications
mediums and marketing methodologies are introduced into the marketplace, an
increasing number of different service providers are involved in developing and
executing marketing campaigns. Much of the consolidation is a result of
economies of scale, the ability to cross-sell products and services, and the
need to coordinate complex marketing programs, often within a single, reliable
environment.
Line of Business
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The Company, through SD&A, provides a variety of telemarketing and
telefundraising services to clients in the tax-exempt sector. Since its
inception in 1983, SD&A has worked with over 150 tax-exempt organizations,
located in over thirty states, and has developed expertise in working with a
broad range of tax-exempt organizations, including those which support the arts,
such as theaters, operas, symphonies and ballets, as well as museums,
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colleges and universities, public television stations and advocacy groups.
Campaigns are conducted either "on-site" at, or near, the client's premises or
"off-site" at SD&A's full service calling center, located in Berkeley,
California (the "Berkeley Calling Center" or "BCC").
SD&A's revenues are derived primarily from fees and commissions from
telemarketing campaigns and telefundraising efforts.
Telemarketing Campaigns. Telemarketing campaigns are highly focused
marketing efforts designed to sell subscriptions to patrons for multiple
performances or a portion of a season of performances at live theatres,
symphonies, operas, ballets, musical theatres and similar performing arts
venues. The campaigns are tailored to fit the clients' specific needs,
generally range from eight to 26 weeks, and may be conducted at or near the
clients' premises or at the Berkeley Calling Center. The design of each
campaign includes evaluating and segmenting the target population using database
analysis programs, often in combination with demographic and psychographic
screening programs, to estimate the sales potential of different groups.
Management believes that this approach to telemarketing campaigns is an
efficient means to generate sales revenue for its clients and that it
strengthens the clients' contact and prospect base, enhances the effectiveness
of the clients' public relations as a fundraising tool to develop valuable
information-gathering sources, and expands the database of potential patrons.
Telefundraising Efforts. The telefundraising efforts fall into three
groups: Annual Fund Campaigns, capital campaigns through the SD&A's CapiTEL
program and Special Gift Campaigns. While colleges and universities were
generally the first organizations to use telemarketing for capital and endowment
campaigns, SD&A pioneered the application of these techniques to the performing
arts through its CapiTEL program. SD&A provides both program design and
management, including personalized direct mail and telefundraising solicitation.
Four different types of telefundraising phone/mail campaigns are conducted:
Annual Fund Campaigns to renew and acquire donors and increase the level of
giving; Membership Campaigns to renew and acquire members to increase the
client's membership base; CapiTEL Campaigns designed to solicit three to five-
year gifts, typically used for an institutional client's physical "brick and
mortar" projects; and Special Gift Campaigns seeking large donations often
conducted in conjunction with Annual Fund Campaigns.
Government Regulation. Telemarketing sales practices are regulated both
federally and at the state level. The federal Telephone Consumer Protection Act
of 1991 (the "TCPA") prohibits telemarketing firms from initiating telephone
solicitations to residential telephone subscribers before 8:00 a.m. or after
9:00 p.m., local time, and prohibits the use of automated telephone dialing
equipment to call certain telephone numbers. In addition the TCPA requires
telemarketing firms to maintain a list of residential customers that have stated
that they do not want to receive telephone solicitations and, thereafter, to
avoid making calls to such consumers' telephone numbers.
The federal Telemarketing and Consumer Fraud and Abuse Prevention Act of
1994 (the "TCFAPA") broadly authorizes the Federal Trade Commission (the "FTC")
to issue regulations prohibiting misrepresentation in telemarketing sales. In
August, 1995, the FTC issued updated proposed telemarketing sales rules.
Generally, these rules prohibit misrepresentation regarding the cost, terms,
restrictions, performance or duration of products or services offered by
telephone solicitation and otherwise specifically address other perceived
telemarketing abuses in the offering of prizes and the sale of business
opportunities
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or investments. These operating procedures were already standard for SD&A prior
to enactment of this federal legislation.
A number of states have enacted, or are considering, legislation to
regulate telemarketing. For example, telephone sales in certain states cannot
be final unless a written contract is delivered to, and signed by, the buyer and
may be canceled within three business days. At least one state also prohibits
telemarketers from requiring credit card payment, and several other states
require certain telemarketers to obtain licenses and post bonds. From time to
time, bills are introduced in Congress which, if enacted, would regulate the use
of credit information. SD&A cannot predict whether this legislation will be
enacted and what effect, if any, it would have on the telemarketing industry.
Many states regulate fundraising activities performed by professional fund-
raisers by requiring them to register and to submit periodic activity reports.
Growth Strategies. Management anticipates future revenue growth through
assisting current clients to increase the size of existing subscription sales
and fundraising campaigns and through obtaining new clients within its existing
specializations, and in other areas, such as environmental organizations,
hospitals and national health causes. Several programs have been implemented to
increase the utilization of the telefundraising staff and the BCC capabilities
by existing clients utilizing only telemarketing services. Finally, SD&A is
investigating opportunities to utilize additional mediums to provide fundraising
services for existing and potential clients that supports and creates new
telemarketing and telefundraising techniques. To achieve growth, the Company
utilizes an in-house marketing group which specifically targets potential
clients. New business is also solicited through direct mail, telemarketing and
attendance at trade shows and industry conferences. While management believes
that these strategies will increase revenues, there can be no assurances that
they will be effective.
Client Relationships. During Fiscal 1996, SD&A provided telemarketing,
telefundraising and consulting services to over 90 clients. SD&A generally
operates under month-to-month contractual relationships and is paid for its
telemarketing services based on the type of campaign. In the area of performing
arts, for both fundraising and subscription sales, SD&A is typically paid a
percentage of the total amount raised but, in other instances, the Company is
compensated on an hourly basis. For Fiscal 1996, approximately 83% of SD&A's
revenues were derived from telemarketing and telefundraising and 17% from off-
site campaigns.
Competition. SD&A competes with other companies that provide similar
services, as well as from those providing direct mail, television, radio and
other advertising fundraising services. The telemarketing/fundraising industry
is very competitive and highly fragmented. Most of SD&A's competitors are
small, single facility operations. As such, competition is derived primarily
from the in-house capabilities of the not-for-profit organizations.
Seasonality. Typically, telemarketing and telefundraising campaigns are
seasonal in nature with a substantial portion of revenues generated during the
1st and 4th fiscal quarters.
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All-Comm Holdings, Inc. (Previously, Bullhead Casino Corporation)
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In 1979, under the prior management, the Company, through its wholly-owned
subsidiary, acquired 6.72 acres of undeveloped land on the Colorado River in
Laughlin, Nevada, for approximately $560,000. On August 16, 1996 the land was
sold to an independent third party, via a public auction, for $952,000 in cash,
resulting in a net gain of approximately $114,000 over book value, as adjusted
for capitalized costs and assessments during the holding period.
Employees
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At September 16, 1996, the Company and SD&A collectively have approximately
1,100 employees, of whom approximately 1,000 are part-time. None of the
Company's employees are covered by collective bargaining agreements and the
Company believes that its relations with its employees are good.
Small Business Issuer
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The Company has determined that it is a "small business issuer" within the
meaning of Securities and Exchange Commission Regulation S-B and will make
filings with the Securities and Exchange Commission relating to and during
fiscal 1997 as a small business issuer.
Executive Officers and Directors of the Registrant and Significant Employees
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The Company's executive officers, directors and significant employees and
their positions with All-Comm Media are as follows:
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Name Age Position
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<S> <C> <C>
Barry Peters 55 Chairman of the Board of Directors and Chief Executive Officer
E. William Savage 53 Director, President, Chief Operating Officer, Secretary and Treasurer
S. James Coppersmith 63 Director
Seymour Jones 65 Director
C. Anthony Wainwright 63 Director
Scott Anderson 39 Chief Financial Officer
Stephen Dunn 46 President, Stephen Dunn & Associates, Inc.
Thomas Scheir 43 Chief Financial Officer, Stephen Dunn & Associates, Inc.
</TABLE>
11
<PAGE>
BARRY PETERS, CHAIRMAN, CHIEF EXECUTIVE OFFICER AND DIRECTOR. Mr. Peters has 26
years experience in business development and corporate finance. Prior to the
formation of Alliance, Mr. Peters was Managing Director of Vector Holdings,
Inc., an investment concern which specialized in sponsoring management groups,
and was instrumental in financing management buyouts and restructurings for
companies which included: ESB Ray-O-Vac Corp., Time, Inc., Avco/Embassy Pictures
Corp., Signal Companies, Inc., ITT Corporation and Borg-Warner Corporation.
Prior thereto, he was a founding Vice President of Integrated Resources, Inc.
from 1970 to 1972 where he was responsible for financing its acquisitions and
corporate development program. Previously, he was associated with a NYSE Member
Firm that specialized in institutional research and providing financing for
emerging companies. Mr. Peters began his career as a Staff Financial Analyst for
RCA Corporation where he received various assignments at NBC, RCA Records and
the Consumer Products Division. He holds an MBA in Finance from The Baruch
School of Business and a BA degree, Magna Cum Laude, in Economics from Hofstra
University.
E. WILLIAM SAVAGE, PRESIDENT, CHIEF OPERATING OFFICER AND DIRECTOR. Mr. Savage
has 27 years of executive business experience with emphasis on operations,
marketing and business development. Prior to the formation of Alliance, Mr.
Savage was President of Movie Theatre Associates, Inc., an owner of multiplex
cinemas, where he was responsible for financing general business development and
supervising operational matters. Previously, he was instrumental in the rapid
expansion and organizational development of Public Storage, Inc. (the nation's
largest mini-warehouse business) as President of Public Storage Capital Markets
Group where, for 11 years, he was responsible for management of several publicly
traded entities. He was also a founding officer of Storage Equities, Inc., a
NYSE listed company. Mr. Savage was Executive Vice President and Chief Operating
Officer of ASE listed H.S. Group, Inc., a diversified holding company, and Vice
President of Shareholder's Management Co., a publicly owned mutual fund
management firm. He began his career as Senior Investment Analyst with The
Prudential Insurance Company. He holds an MBA from the Wharton School of Finance
and Commerce and a BA degree in English from Pomona College.
S. JAMES COPPERSMITH, DIRECTOR, spent most of his television career with
Metromedia Broadcasting in various senior executive positions for managing
Metromedia's television operations in Los Angeles, New York, and Boston. He was
president and general manager of Boston's WCVB-TV, an ABC affiliate owned by The
Hearst Corporation. Under his leadership, WCVB won numerous George Foster
Peabody awards and several Gabrial Awards as the most outstanding station in
America, garnering more Boston/New England Emmy Awards than all other stations
combined, and received the Channels Magazine most prestigious recognition "Award
of Excellence". Prior to joining Hearst's affiliate, Coppersmith served as
president of Hubbard Broadcasting Inc.'s Television Division, and as president
of related operations involving satellite telecasting of sporting, news and
entertainment events. In 1994, he became chairman of the board of trustees of
Boston's Emerson College. He also serves as director for Sun America Asset
Management Corporation, Chyron Corporation (NYSE), Uno Restaurant Corp. (NYSE),
Kushner-Locke, Inc. (Nasdaq), and The Boston Stock Exchange.
12
<PAGE>
SEYMOUR JONES, DIRECTOR, was formerly a senior partner of Coopers & Lybrand,
L.L.P. in the New York office, and founding partner in charge of the Emerging
Business Division and Entrepreneurial Services Program. Mr. Jones has over 35
years of public accounting experience and substantial experience as an
arbitrator and as an expert witness, particularly in the area of mergers and
acquisitions. He devotes a considerable amount of his professional time to
emerging businesses and has given numerous lectures on accounting and auditing
to financial institutions. Mr. Jones is also a Professor of Accounting at New
York University, which has established an endowed lecture series on his behalf.
He holds an MBA from New York University and serves as an honorary member of the
Board of Trustees of the New York Institute of Credit.
C. ANTHONY WAINWRIGHT, DIRECTOR, is Chairman and Chief Executive Officer of the
advertising firm Harris Drury Cohen, Inc., and a former senior executive with
Cordient PLC's Compton Partners, Saatchi & Saatchi, and previously Chairman and
Chief Executive Officer of the Saatchi & Saatchi unit Campbell Mithun Esty in
New York. Author and frequent speaker on advertising and product branding, he is
also a director of Gibson Greetings, Inc., Del Webb Corporation, American
Woodmark Corporation and Specialty Retail Group, Inc.
SCOTT ANDERSON, CHIEF FINANCIAL OFFICER. Prior to joining the Company, Mr.
Anderson was associated with the firm of Deloitte & Touche, LLP, as a manager in
the assurance department in the Los Angeles, California office for eight years
and the Riyadh, Saudi Arabia office for six years. He served clients in banking
and investment services, insurance, manufacturing and service industries. Mr.
Anderson is a Certified Public Accountant and holds a BS degree in Business
Administration, with honors, from California State University, Long Beach.
STEPHEN DUNN, PRESIDENT, STEPHEN DUNN & ASSOCIATES, INC. Mr. Dunn has served as
President of Stephen Dunn & Associates, Inc. since its founding in 1983. Prior
to this, Mr. Dunn served as a consultant for the Los Angeles Olympic Organizing
Committee for the Olympic Arts Festival and as Director of Marketing for the New
World Festival of the Arts and the Berkeley Repertory Theater. He holds a BA
degree in English from Duke University.
THOMAS SCHEIR, CHIEF FINANCIAL OFFICER, STEPHEN DUNN & ASSOCIATES, INC. Mr.
Scheir joined Stephen Dunn & Associates, Inc. in 1983. Prior to this, he was a
business manager with the San Francisco Symphony. He holds a BA degree in art
from Yale University.
13
<PAGE>
ITEM 2 - PROPERTIES
- -------------------
The Company, through All-Comm Holdings, Inc., owned the property identified
in Item 1. Also, the Company leases approximately 2,000 square feet of office
space in Culver City, California. The lease runs through April 30, 1998, and
includes an option to lease an adjacent 1,204 square feet at the same rate as
the prior lease. SD&A leases approximately 5,500 square feet of office space in
Venice, California from its founder and president, 5,500 square feet in
Berkeley, California, and 250 square feet in Patterson, New York. These leases
range from month to month to two years and include options to renew. The Company
believes its facilities are suitable and adequate for the purposes for which
they are used and are adequately maintained.
ITEM 3 - LEGAL PROCEEDINGS
- --------------------------
The Company is party to minor legal proceedings. The outcome of these
legal proceedings are not expected to have a material adverse effect on the
consolidated financial condition, liquidity or expectations of the Company,
based on the Company's current understanding of the relevant facts and law.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
Not applicable.
14
<PAGE>
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
The common stock of the Company previously traded on the NASDAQ Small-Cap
Market under the symbol SPTK. As approved by the shareholders on August 22,
1995, the Company changed its name to All-Comm Media Corporation and the symbol
was changed to ALCM. The following table reflects the high and low sales prices
for the Company's common stock for the fiscal quarters indicated, as furnished
by the NASD, adjusted for the one-for-four reverse stock split:
<TABLE>
<CAPTION>
Common Stock
------------
Low Sales Price High Sales Price
--------------- ----------------
<S> <C> <C>
Fiscal 1996
Fourth Quarter $2.13 $6.38
Third Quarter 3.00 4.44
Second Quarter 1.88 5.00
First Quarter 3.63 8.25
Fiscal 1995
Fourth Quarter $6.50 $9.50
Third Quarter 5.38 7.50
Second Quarter 3.50 5.75
First Quarter 3.00 5.50
</TABLE>
As of June 30, 1996, there were approximately 900 registered holders of
record of the Company's common stock. (This number does not include investors
whose accounts are maintained by securities firms in "street name".)
The Company has never declared or paid any cash dividends on its common
stock. The Company currently intends to retain earnings for use in the operation
and expansion of its business and, therefore, does not anticipate paying any
cash dividends in the foreseeable future.
15
<PAGE>
ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA
- ---------------------------------------------
The consolidated statement of operations data set forth below with respect
to the years ended June 30, 1996, 1995 and 1994, and the consolidated balance
sheet data at June 30, 1996 and 1995 are derived from, and are qualified by
reference to, the audited consolidated financial statements included elsewhere
in this Annual Report. The consolidated statement of operations data for the
years ended June 30, 1993 and 1992 and the consolidated balance sheet data at
June 30, 1994, 1993 and 1992, are derived from audited financial statements not
included in this Annual Report. This data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto
appearing elsewhere in this Report on Form 10-K.
<TABLE>
<CAPTION>
As of and for the years ended June 30,
------------------------------------------------------------------------
1996 1995 (1)(3) 1994 (3) 1993 (3) 1992 (3)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA: (2)
Sales $15,889,210 $ 3,630,828
Loss from operations (460,437) (1,255,924) $ (844,417) $(1,992,500) $(1,515,754)
Gains from
sales of securities - 1,579,539 937,365 3,177,203 59,331
Interest expense and
loan commitment fee (487,638) (394,200) (7,165) (43,604) (24,292)
Income (loss) from
continuing operations (1,076,883) (130,859) 86,807 979,457 (1,060,460)
Net income (loss) (1,076,883) 110,397 (2,809,887) (1,115,338) (1,863,779)
Income (loss) per
common share: (4)
Continuing operations (.36) (0.07) 0.06 0.71 (1.03)
Net income (loss) (.36) 0.06 (1.91) (0.82) (1.81)
Weighted average common
shares and equivalents 3,068,278 1,807,540 1,468,747 1,373,160 1,032,442
BALANCE SHEET DATA: (2)
Working capital 1,793,928 577,809 (233,572) 818,792 921,603
Total assets 13,301,066 11,824,491 1,639,733 2,657,561 4,319,038
Long-term obligations,
net of current portion 1,516,667 3,000,000
Stockholders' equity 8,250,894 5,164,532 665,917 2,119,618 2,649,157
- --------------------
</TABLE>
(1) Reflects operations of Alliance and SD&A for the period beginning with the
acquisition on April 25, 1995.
(2) See Description of Business and Management's Discussion and Analysis for
discussion of businesses discontinued and acquired - 1995.
(3) Certain of the above amounts have been restated to reflect discontinued
operations.
(4) Primary and fully diluted income (loss) per common share are the same in
all fiscal years except 1993. Fully diluted income per common share from
continuing operations and net loss in fiscal 1993 was $.70 and $(.79),
respectively.
16
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- -------- ---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
INTRODUCTION
This discussion summarizes the significant factors affecting the
consolidated operating results, financial condition and liquidity/cash flow of
the Company for the three year period ended June 30, 1996. This should be read
in conjunction with, the financial statements and notes thereto, included in
this Annual Report. As more fully described in Footnote 3 to the consolidated
financial statements, on April 25, 1995, the Company purchased 100% of the stock
of Alliance which had simultaneously acquired SD&A. These acquisitions have been
reflected in the consolidated financial statements using the purchase method of
accounting. Accordingly, the Consolidated Statement of Operations and
Consolidated Statement of Cash Flows include the operations of Alliance and SD&A
starting on April 25, 1995.
Also in the year ended June 30, 1995, ("Fiscal 1995"), the Company
discontinued the operations of Sports-Tech International, Inc. and High School
Gridiron Report. In Fiscal 1995, the Company sold Sports-Tech International and
closed the HSGR operation. The ultimate sale of STI resulted in a gain of
$322,000. The Consolidated Financial Statements have been reclassified to report
the net assets, operating results, gain on disposition and cash flows of these
operations as discontinued operations. With the disposition of the STI
operations, closure of the HSGR operations and the acquisition of Alliance, the
Company is operating in a completely new industry segment - direct marketing.
RESULTS OF OPERATIONS 1996 COMPARED TO 1995
Continuing Operations: Sales and cost of sales totaled $15,889,000 and
$10,882,000, respectively for the year ended June 30, 1996 ("Fiscal 1996") as
compared with $3,631,000 and $2,434,000 in Fiscal 1995. These increases are due
to the inclusion of SD&A operations for all of Fiscal 1996 as compared with the
66 day period from the date of acquisition, April 25, 1995 to June 30, 1995 in
Fiscal 1995. Net sales in Fiscal 1996 and 1995 from telemarketing and
telefundraising totaled $13,228,000 and $3,122,000, respectively, and sales from
off-site campaigns totaled $2,661,000 and $509,000, respectively.
Cost of sales represents labor and telephone expenses directly related to
telemarketing, telefundraising and off-site campaign services. As a percentage
of relative net sales, gross profit relating to telemarketing and
telefundraising and off-site campaigns totaled 30% and 38%, respectively, for
the current fiscal year, as compared to 30% and 48%, respectively, for the prior
fiscal year. The decrease in margins from the off-site campaigns was due to
Fiscal 1995 including only the period from acquisition to year end, as compared
to Fiscal 1996, which included the full year. During the shortened period for
Fiscal 1995, the Company serviced a large volume of campaigns, as compared with
the full year of Fiscal 1996 where the average volume was lower.
Selling, general and administrative expenses include all selling, general
and administrative expenses of SD&A and represent the expense of central
services the Company provides to manage its divisional operations, SD&A and, in
Fiscal 1995, its discontinued operations, STI and HSGR, and include senior
corporate management, accounting and
17
<PAGE>
finance, general administration and legal services. As a result of the Company's
new direction, it now also includes expenses relating to identification and
evaluation of potential acquisitions.
Selling, general and administrative expenses increased $2,724,000, to
$5,106,000 in Fiscal 1996, as compared with $2,382,000 in Fiscal 1995. The
increase was comprised of the following components: The inclusion of $3,640,000
of SD&A selling, general and administrative expenses for Fiscal 1996, compared
to $782,000 during the period from April 25, 1995 to June 30, 1995 in the prior
fiscal year, resulted in an increase of $2,858,000. Salary expenses associated
with the new management and employees who joined the Company upon resignation of
the prior management and its board of directors on April 25, 1995, attributed to
$107,000 of the increase. Legal expenses decreased $152,000 from $251,000 in the
prior year to $99,000 in the current year. Prior year expenses included
preparation and filing of a registration statement required as part of a
settlement reached by prior management, maintenance of the Company's NASDAQ
Small Cap stock listing, preparation of a proxy statement regarding the
Company's name change, and planning and execution of the new corporate strategy.
Current year expenses included finalization of issues related to prior
operations of the company, as well as efforts involved in the planning and
execution of the new corporate strategy, amendment of the Company's prior year
Registration Statement and preparation and filing of a special proxy statement
to increase the authorized number of shares of common stock of the Company.
Public relations increased by $63,000 due to efforts involved in implementing
the new corporate strategy. Professional fees have decreased $70,000 due to
prior year reporting requirements surrounding the acquisition of Alliance and
SD&A and the disposition of STI. The directors and officers insurance premium
decreased $76,000 due to additional coverage required in the prior year in
connection with the merger. Discounts given to induce the exercise of stock
options totaled $128,000 in the prior year, as compared with none in the current
fiscal year. In following the new corporate strategy, the Company incurred
$128,000 in expenses relating to investigation of acquisition candidates and
financing sources. The value attributable to warrants issued to consultants
during Fiscal 1996 totaled $37,000. As a condition precedent to the merger with
Alliance Media, the Company closed its Beverly Hills office in the prior year,
resulting in a loss on disposal of fixed assets of $30,000 and current year
decrease in depreciation of $13,000.
Related party charges decreased $6,000, to zero in the current fiscal year.
The decrease is due to non-recurring fees incurred in the prior year relating to
the sale of STI.
Amortization of intangible assets totaled $362,000 in the current fiscal
year, as compared to $65,000 in the prior fiscal year and related to the
amortization of the covenant-not-to-compete and goodwill, over five years and
forty years, respectively, acquired in the Alliance and SD&A transaction on
April 25, 1995.
A non-recurring net gain from sales of securities totaled $1,580,000 in the
prior fiscal year and resulted from the exercise by the Company of a common
stock purchase warrant held as an investment and subsequent liquidation of the
securities.
Interest expense increased $393,000 in the current fiscal year and related
primarily to the acquisition of $4,500,000 of debt in the Alliance and SD&A
acquisition on April 25, 1995.
18
<PAGE>
Pretax income from SD&A operations totaled $1,363,000 in the current year
and corporate expenses totaled $2,216,000, including $833,000 in corporate
depreciation, amortization and interest expense.
In the current fiscal year, the income tax provision on continuing
operations totaled approximately $141,000 on losses from continuing operations
of $936,000. The provision resulted from state and local taxes incurred on
taxable income at the subsidiary level not reduced by losses incurred at other
levels on which no tax benefits were available.
Discontinued Operations: The gain on sale of, and loss from, discontinued
operations in the prior fiscal year relates to the STI and HSGR operations which
were either sold or closed in fiscal 1995, as a condition precedent to the
merger with Alliance Media. No amounts related to discontinued operations were
incurred in the current fiscal year.
RESULTS OF OPERATIONS 1995 COMPARED TO 1994
Continuing Operations: Sales and cost of sales totaled $3,631,000 and
$2,434,000, respectively for Fiscal 1995 as compared with no similar amounts
incurred in the fiscal year ended June 30, 1994 ("Fiscal 1994"). These increases
are due to the inclusion of SD&A operations from the date of acquisition, April
25, 1995. In Fiscal 1995, net sales from telemarketing and telefundraising
totaled $3,122,000 and sales from off-site campaigns totaled $509,000.
Cost of sales represents labor and telephone expenses directly related to
telemarketing, telefundraising and off-site campaign services. As a percentage
of relative net sales, gross profit relating to telemarketing and
telefundraising and off-site campaigns totaled 30% and 48%, respectively.
Selling, general and administrative expenses increased $1,559,000 to
$2,382,000 in Fiscal 1995 as compared with $823,000 in Fiscal 1994. Of the
increase, $750,000 resulted from the inclusion of SD&A selling, general and
administrative expenses from the date of acquisition, April 25, 1995. Severance
payments made to the prior management totaled $105,000, and $135,000 of the
increase related to salary expenses associated with the new management and
employees who joined the Company upon resignation of the prior management and
board. Legal expenses increased $240,000 in Fiscal 1995 primarily due to an
obligation to file a registration statement required by prior management, due
diligence by the new management associated therewith and maintenance of the
Company's NASDAQ Small Cap stock listing, preparation of a proxy statement
regarding the Company's name change, and planning and execution of the new
corporate strategy. Professional fees increased $100,000 due to reporting
requirements surrounding the acquisition of Alliance and SD&A and disposition of
STI. The directors and officers insurance premium increased $110,000 due to the
purchase of additional coverage. Discounts given to induce the exercise of stock
options totaled $128,000 in Fiscal 1995, an increase of $42,000 as compared with
Fiscal 1994. Miscellaneous other expenses increased $77,000 resulting from the
increased activity of the Company.
Related party charges decreased $15,000, to $6,000 in Fiscal 1995, as
compared with $21,000 in Fiscal 1994. The decrease was due to the termination of
a consulting agreement on October 1, 1993, offset by fees incurred in Fiscal
1995 relating to the sale of STI. The
19
<PAGE>
consulting contract was canceled in 1993 because the business activities of the
Company no longer required the investment banking services provided.
Amortization of intangible assets totaled $65,000 in Fiscal 1995 and
related to the amortization of the covenant-not-to-compete and goodwill, over 5
years and 40 years, respectively, acquired in the Alliance and SD&A transaction.
The net gain from sales of securities totaled $1,580,000 in Fiscal 1995 and
resulted from the exercise by the Company of a common stock purchase warrant
held as an investment. In July, 1994, the Company borrowed $1,000,000 to fund
the exercise of the warrant. The loan was collateralized by a pledge of the
warrant shares pursuant to the terms of a pledge agreement. The parties to the
$1,000,000 loan included, among others, the Company's former chairman, former
president, a former director and a shareholder, who each provided $200,000. The
other lenders were non-affiliates. The lenders received the repayment of the
$1,000,000 loan, interest at 7.75% totaling $9,000 and a $300,000 commitment fee
from the proceeds of the subsequent stock sales. The Company subsequently sold
all these securities and recognized a net gain of $1,580,000. The $300,000 loan
commitment fee was paid as an inducement to this group of investors to provide
the money necessary to exercise the covenant before its expiration on July 31,
1994. The Company's prior management had been unable to obtain the funds to
exercise the warrant at more favorable terms.
Interest expense increased $87,000 in Fiscal 1995 and related to the
acquisition of $4,500,000 of debt in the Alliance and SD&A acquisition as of
April 25, 1995, and the borrowings made to exercise the common stock purchase
warrant previously discussed.
In Fiscal 1995, the income tax provision on continuing operations totaled
$75,000 on losses from continuing operations of $56,000. The provision resulted
from state and local taxes incurred on taxable income at the subsidiary level
not reduced by losses incurred at other levels on which no tax benefits were
available.
Discontinued Operations: The loss from discontinued operations relates to
the STI and HSGR operations which were either sold or closed in Fiscal 1995, as
a condition precedent to the merger with Alliance Media. The loss from
discontinued operations totaled $81,000 in Fiscal 1995, as compared with almost
$2,900,000 in Fiscal 1994. The decrease of $2,819,000 is due to the inclusion
of the results of these operations for a partial year, and lower losses due to
reduced business activity and non recurrence of the HSGR goodwill write off of
$310,000 and a contract termination settlement of $544,000.
The gain on the sale of discontinued operations which totaled $322,000
relates to the sale of STI and is addressed in Note 5 of the Notes to
Consolidated Financial Statements.
CAPITAL RESOURCES AND LIQUIDITY
The Company's cash and cash equivalents increased by $175,000, $799,000 and
$310,000 in 1996, 1995 and 1994 respectively.
In 1996, the Company used $884,000 in cash for operating activities,
principally due to net losses incurred during the first full year following the
acquisition of SD&A. While the SD&A operations generated net income during the
year, legal, accounting, administrative
20
<PAGE>
and other expenditures at the corporate offices incurred by management in
implementing the new corporate strategy approximated $1.4 million. These
expenses included costs relating to the obligations associated with the
registration statement and other remaining obligations associated with the
activities of the prior management, as well as identification and evaluation of
potential acquisitions and financing sources. The Company's management has
liquidated all known remaining obligations arising from the prior management and
has taken steps to reduce corporate overhead during 1997, principally in payroll
reductions. Additional cash was used by an increase in accounts receivable at
SD&A of $613,000, due to increases in sales.
In 1996, the Company used $572,000 in investing activities. Payments
totaling $478,000 were made relating to the acquisition of Alliance and SD&A.
This was principally comprised of $425,000 in cash paid to the former owner of
SD&A resulting from the achievement of defined results of operations for SD&A
for the year. Capital expenditures in 1996 of $95,000 were principally
leasehold improvements to increase the usable space at the offices of SD&A.
SD&A is moving its Berkeley Calling Center in August 1996 and anticipates that
expenditures in connection with the move will approximate $100,000. SD&A plans
to expand its calling capacity at the Berkeley Calling Center in the Fall of
1996 at an anticipated cost of approximately $75,000. SD&A plans to finance a
portion of the expansion and moving costs through bank borrowings.
In 1996, the Company's financing activities provided $1,631,000. On April
25, 1995, Alliance and SD&A were acquired for issuance of 1,025,000 common
shares valued at $2,745,000 and $500,000 of acquisition costs. Liabilities
acquired totaled $6,694,000 including a $4,500,000 note yielding prime to be
paid over a four year period. The obligations resulted from the acquisition of
SD&A by Alliance and are payable to the former owner and founder of SD&A.
Payments due in fiscal 1996 originally totaled $1,500,000 payable in quarterly
installments. Additional contingent payments of up to $850,000 per year over
the three year period ending June 30, 1998 may be required based on achievement
of defined results of operations of SD&A after its acquisition. At the
Company's option, up to one half of the additional contingent payments may be
made with restricted common shares of the Company subject to certain
registration rights. SD&A achieved its defined results of operations during
1996 and $425,000 was paid in cash and $425,000 accrued in stock, as of June 30,
1996. In October 1995, and in February 1996, the long term obligations due to
the sole selling shareholder of SD&A were restructured and the terms were
further modified whereby SD&A, by borrowing on its line of credit and from its
former owner, loaned the parent Company $500,000, payable June 30, 1996. The
Company used $250,000 of the loan to pay the former owner accrued interest from
September 1, 1995 through a partial prepayment for June 1996. All other
principal and interest payments due monthly from January 31, 1996 to May 31,
1996 were deferred until June 30, 1996.
In March 1996, the Company sold 75,000 shares of its common stock for an
aggregate of $120,000, of which 12,500 shares were sold to related parties, in
order to meet certain operating obligations arising from its acquisition of
SD&A.
On May 9, 1996, the Company completed a private placement with an
institutional investor of 10,000 shares of convertible preferred stock for
$750,000, $687,000 net after offering costs, which was redeemed out of net
proceeds of a subsequent private placement as described below.
21
<PAGE>
On June 7, 1996, the Company completed a private placement with certain
accredited investors of 6,200 shares of Series B Convertible Preferred Stock for
$3,100,000 and 2,000 shares of Series C Convertible Preferred Stock for
$1,000,000. In addition, the Company issued warrants to the Series B preferred
shareholders to acquire a total of 3,100,000 shares of Common Stock at an
exercise price of $2.50 per share for three years, starting with and subject to
the availability of shares following shareholder authorization of additional
common shares. The Company issued warrants to the Series C preferred
shareholders for 3,000,000 shares of Common Stock at an exercise price of $3.00
per share for three years, starting with and subject to the availability of
shares following shareholder authorization of additional common shares.
In connection with the June 7, 1996 transactions, payment of approximately
$2.0 million was made on long term obligations due to the former owner of SD&A.
The remaining $2.1 million of long term obligations are payable in 36 monthly
principal payments of $58,333 plus interest at 8%, starting September 19, 1996.
$812,500 was used to reacquire 10,000 shares of Series A Convertible Preferred
Stock issued in the private placement on May 9, 1996.
The Company has announced a letter of intent to purchase, for all stock,
Metro Services Group, Inc., a provider of information based products and
services to the direct marketing industry. The Company is also currently
involved in acquisition discussions with other entities which, if consummated,
would require cash payments, plus issuances of common stock and notes payable to
the sellers, as well as contingent payments based on future operating profits
and performance. Depending on market conditions, the Company intends to finance
the cash portions of the purchase prices of these acquisitions, as well as to
obtain additional working capital, through the issuance of common or preferred
stock and/or indebtedness, if such funds are unavailable from operations.
Additional acquisitions, if consummated, may be financed in a similar manner.
Although the Company believes that it will be successful in obtaining the
financing necessary to complete the acquisitions now contemplated, and those in
the future, there can be no assurances that such capital will be available at
terms acceptable to the Company, or at all, or that the acquisitions will be
completed.
The Company believes that funds available from operations and from the
August, 1996 sale of the Laughlin, Nevada land will be adequate to finance its
current operations and meet interest and debt obligations in its fiscal year
ending June 30, 1997. Thereafter, and in conjunction with the Company's
acquisition and growth strategy, additional financing may be required to meet
potential acquisition payment requirements. The Company believes that it has
the ability to raise funds through private placements or public offerings of
debt and/or equity securities to meet these requirements. There can be no
assurance, however, that such capital will be required or available at terms
acceptable to the Company, or at all.
Seasonality and Cyclicality: The business of SD&A tends to be seasonal, with
higher revenues and profits occurring in the fourth fiscal quarter, followed by
the first fiscal quarter. This is due to subscription renewal campaigns for
SD&A's tax exempt clients, which generally begin in the spring time and continue
during the summer months.
22
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
Adoption of the Financial and Accounting Standards Board ("FASB") Statement
of Financial Accounting No. 121, "Accounting for the Impairment of Long-Lived
Assets for Long-Lived Assets to be disposed of", which is effective for
financial statements for fiscal years beginning after December 15, 1995, is not
anticipated to have a material effect on the Company's consolidated financial
statements.
The FASB recently issued Statement of Financial Accounting No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), which is effective for
financial statements for fiscal years beginning after December 15, 1995. SFAS
123 establishes new financial accounting and reporting standards for stock-based
compensation plans. Entities will be allowed to measure compensation cost for
stock-based compensation under SFAS 123 or APB Opinion No. 25, "Accounting for
Stock Issued to Employees". The Company elected to remain with the accounting
in APB Opinion No. 25 and will be required to make pro forma disclosure of net
income and earnings per share as if the provisions of SFAS 123 had been applied.
The Company will implement SFAS 123 in the first quarter of Fiscal 1997.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The Consolidated Financial Statements required by this Item 8 are set forth
as indicated in the index following Item 14(a)(1).
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
On July 18, 1995, the Company engaged Coopers & Lybrand L.L.P. ("Coopers
& Lybrand") as the independent auditor for the Company and its subsidiaries for
the year ending June 30, 1995, replacing Arthur Andersen LLP ("Arthur
Andersen"). The change in the Company's auditor on July 18, 1995 was in
conjunction with the relocation of the Company's corporate offices to Culver
City, California, the merger with Alliance and related acquisition of SD&A and
change in the Board of Directors and management of the Company.
During the year ended June 30, 1994, and the period preceding the change
of auditors, there were no disagreements with Arthur Andersen on any matters of
accounting principles or practices, financial statement disclosures or auditing
scope or procedures, which disagreements, if not resolved to Arthur Andersen's
satisfaction, would have caused it to make reference to the subject matter of
the disagreement in connection with its report.
Reference is made to the Form 8-KA report dated July 21, 1995, for more
information and exhibits thereto containing the accountants' letter.
23
<PAGE>
PART III
The information required by this Part III (items 10, 11, 12 and 13) is
hereby incorporated by reference from the Company's definitive proxy statement
which is expected to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934 not later than 120 days after the end of the fiscal year
covered by this report. Certain information, with respect to the Company's
executive officers, is set forth in Part I, under the caption "Executive
Officers and Directors of the Registrant and Significant Employees."
24
<PAGE>
PART IV
<TABLE>
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
<S> <C>
(A)(1) Financial statements - see "Index to Financial Statements and Financial
Statement Schedules" on page 28.
(2) Financial statement schedule - see "Index to Financial Statements and
Financial Statement Schedule" on page 28.
(3) Exhibits:
3 (i) Amended and Restated Articles of Incorporation (b)
3 (ii) Certificate of Amendment to the Amended and Restated Articles of
Incorporation of the Company (b)
3 (iii) Certificate of Amendment to the Articles of Incorporation (e)
3 (iv) By-Laws (b)
3 (v) Certificate of Amendment of Articles of Incorporation (a)
10.1 1991 Stock Option Agreement (c)
10.2 Operating Covenants Agreement, dated April 25, 1995, between
Alliance Media Corporation and Mr. Stephen Dunn (d)
10.3 Pledge Agreement, dated as of April 25, 1995, between Alliance
Media Corporation and Mr. Stephen Dunn (d)
10.4 Option Agreement (e)
10.5 Amendment to Option Agreement (f)
10.6 Memorandums of Understanding (f)
10.7 Sample Series B Convertible Preferred Stock Subscription Agreement (g)
10.8 Sample Private Placement Purchase Agreement for Convertible Notes (g)
10.9 Letter from Seller of SD&A agreeing to long-term obligation
payment and restructuring (g)
10.10 Sample Convertible Notes Rescission Letter (a)
10.11 Sample Series C Convertible Preferred Stock Subscription Agreement (a)
11. Statement re: computation of per share earnings (a)
22.1 List of Company's subsidiaries (a)
27 Financial Data Schedule (a)
(a) Incorporated herein.
(b) Incorporated by reference from the Company's Registration Statement on
Form S-4, Registration Statement No. 33-45192
(c) Incorporated by reference to the Company's Registration Statement on Form
S-8, Registration Statement 33-43520
(d) Incorporated herein by reference to Form 8-K Current Report of All-Comm
Media Corporation dated April 25, 1995
</TABLE>
25
<PAGE>
<TABLE>
<S> <C>
(e) Incorporated by reference to the Company's Report on Form 10-K for the
fiscal year ended June 30, 1995
(f) Incorporated by reference to the Company's Report on Form 10-Q for the
quarter ended March 31, 1996
(g) Incorporated by reference to the Company's Report on Form 8-K dated June
7, 1996
(B)Reports on Form 8-K.
On May 28, 1996, the Company filed a Memorandum regarding the resignation of
two directors.
On June 7, 1996, the Company filed a notification of the completion of a
private placement on June 7, 1996.
(C)Reference is made to Item 14(a)(3) above.
(D)Reference is made to Item 14(a)(2) above.
</TABLE>
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ALL-COMM MEDIA CORPORATION.
(Registrant)
By /s/ Barry Peters
-----------------------
Barry Peters
Chairman of the Board and Chief Executive Officer
Date: September 18, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Barry Peters Chairman of the Board and September 18, 1996
- --------------------------- Chief Executive Officer
Barry Peters
/s/ E. William Savage Director, President and September 18, 1996
- --------------------------- Chief Operating Officer
E. William Savage
/s/ Scott Anderson Chief Financial and Accounting Officer September 18, 1996
- ---------------------------
Scott Anderson
/s/ S. James Coppersmith Director September 18, 1996
- ---------------------------
S. James Coppersmith
/s/ Seymour Jones Director September 18, 1996
- ---------------------------
Seymour Jones
/s/ C. Anthony Wainwright Director September 18, 1996
- ---------------------------
C. Anthony Wainwright
The foregoing constitute all of the Board of Directors.
</TABLE>
27
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
[Items 8 and 14(a)]
<TABLE>
<CAPTION>
Page
----
<S> <C>
(1) FINANCIAL STATEMENTS:
Report of Independent Public Accountants 29
Consolidated Balance Sheets
June 30, 1996 and 1995 30
Consolidated Statements of Operations
Years Ended June 30, 1996, 1995 and 1994 31
Consolidated Statements of Stockholders' Equity
Years Ended June 30, 1996, 1995 and 1994 32
Consolidated Statements of Cash Flows
Years Ended June 30, 1996, 1995 and 1994 33-34
Notes to Consolidated Financial Statements 35-47
</TABLE>
(2) FINANCIAL STATEMENT SCHEDULE:
I. Condensed Financial Information of the Registrant
All other financial statement schedules are omitted because of the
absence of the conditions under which they are required or because the
required information is given in the consolidated financial statements
or the notes thereto.
28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Stockholders of
All-Comm Media Corporation
We have audited the accompanying consolidated financial statements and the
financial statement schedule of All-Comm Media Corporation and Subsidiaries,
listed in Items 8 and 14(a) of this Form 10-K. These financial statements and
financial statement schedule are the responsibility of All-Comm Media
Corporation's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of All-Comm Media
Corporation and Subsidiaries as of June 30, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1996, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, present fairly, in all material respects, the information
required to be included herein.
/s/ COOPERS & LYBRAND L.L.P.
Los Angeles, California
September 19, 1996
29
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ --------------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 1,393,044 $ 1,217,772
Accounts receivable, net of allowance for doubtful
accounts of $34,906 and $40,552 in 1996 and 1995, respectively 2,681,748 2,067,977
Land held for sale at cost 921,465 766,651
Other current assets 107,658 116,468
----------- -----------
Total current assets 5,103,915 4,168,868
Property and equipment at cost, net 299,045 344,154
Intangible assets at cost, net 7,851,060 7,272,769
Other assets 47,046 38,700
----------- -----------
Total assets $13,301,066 $11,824,491
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Short term borrowings $ 500,000
Note payable to bank $ 49,694
Note payable other 72,000
Trade accounts payable 470,706 365,638
Accrued salaries and wages 706,039 641,507
Other accrued expenses 758,112 683,954
Income taxes payable 10,000 94,565
Current portion of long term obligations to related
party 583,333 1,500,000
Related party payable 425,000 183,701
----------- -----------
Total current liabilities 3,453,190 3,591,059
Long term obligations to related party less current portion 1,516,667 3,000,000
Other liabilities 80,315 68,900
----------- -----------
Total liabilities 5,050,172 6,659,959
----------- -----------
Commitments and contingencies
Stockholders' equity:
Class B convertible preferred stock - authorized 50,000
shares of $.01 par value; shares issued:
6,200 shares of Series B (none in 1995) ($3,112,230
involuntary liquidation preference); 2,000 shares of
Series C (none in 1995) ($1,005,260 involuntary
liquidation preference) 82
Common stock - authorized 6,250,000 shares of $.01 par
value at June 30, 1996, increased on August 14, 1996
to 36,250,000; 3,198,534 and 1,436,833 shares issued,
respectively 31,985 30,281
Additional paid-in capital 14,462,306 10,300,847
Accumulated deficit (6,108,010) (5,031,127)
Less 11,800 shares of common stock
in treasury, at cost (135,469) (135,469)
----------- -----------
Total stockholders' equity 8,250,894 5,164,532
----------- -----------
Total liabilities and stockholders' equity $13,301,066 $11,824,491
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
30
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Sales $15,889,210 $ 3,630,828
Cost of sales 10,882,437 2,434,011
----------- -----------
Gross profit 5,006,773 1,196,817
Operating Expenses:
Selling, general and administrative (5,105,673) (2,381,912) $ (823,417)
Service fees of related parties (5,728) (21,000)
Amortization of intangible assets (361,537) (65,101)
----------- ----------- -----------
Loss from operations (460,437) (1,255,924) (844,417)
----------- ----------- -----------
Other income (expense):
Gain from sales of securities 1,579,539 937,365
Loan commitment fee (300,000)
Dividends 7,237
Interest income 12,276 13,679
Interest expense (487,638) (94,200) (7,165)
Other, net 1,047 (19,813)
----------- ----------- -----------
Total (475,362) 1,200,065 917,624
----------- ----------- -----------
Income (loss) from continuing
operations before income taxes (935,799) (55,859) 73,207
Credit (provision) for income taxes (141,084) (75,000) 13,600
----------- ----------- -----------
Income (loss) from continuing operations
before discontinued operations (1,076,883) (130,859) 86,807
Gain on sale of discontinued operations 322,387
Loss from discontinued operations (81,131) (2,896,694)
----------- ----------- -----------
Net income (loss) $(1,076,883) $ 110,397 $(2,809,887)
=========== =========== ===========
Net income (loss) attributable to
common shareholders $(1,094,373) $ 110,397 $(2,809,887)
=========== =========== ===========
Income (loss) per common share:
From continuing operations $ (.36) $ (.07) $ .06
From discontinued operations .13 (1.97)
----------- ----------- -----------
Income (loss) per common share $ (.36) $ .06 $ (1.91)
=========== =========== ===========
Weighted average common and common
equivalent shares outstanding 3,068,278 1,807,540 1,468,747
=========== =========== ===========
</TABLE>
Primary and fully diluted income (loss) per common share are the same in
fiscal years 1996, 1995 and 1994.
See Notes to Consolidated Financial Statements.
31
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional Accu-
--------------- ------------ Paid-in mulated
Shares Amount Shares Amount Capital Deficit
------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance June 30, 1993 1,252,192 $12,522 $ 4,667,952 $(2,331,637)
Issuance of restricted
shares for litigation
settlement 25,000 250 249,750
Purchase of shares - cash
Receivable paid - at
discount (66,667)
Shares issued upon
exercise of stock
options and warrants 159,641 1,596 991,173
Discounts granted on
exercise of options 86,334
Net loss (2,809,887)
------- ----- --------- ------- ----------- -----------
Balance June 30, 1994 1,436,833 14,368 5,928,542 (5,141,524)
Issuance of restricted
shares for litigation
settlement 37,500 375 149,625
Issuance of restricted
shares for merger
with Alliance Media
Corporation 1,025,000 10,250 2,734,750
Issuance of restricted
shares as finders fees 42,500 425 138,325
Private placement of
shares -cash 413,759 4,138 1,014,537
Shares issued upon
exercise of stock
options and warrants 72,500 725 207,193
Discounts granted on
exercise of options 127,875
Net income 110,397
------- ----- --------- ------- ----------- -----------
Balance June 30, 1995 3,028,092 30,281 10,300,847 (5,031,127)
Issuance of common
shares as compensation
to employees, directors
and consultants 95,442 954 218,974
Sale of shares (including
12,500 to related parties) 75,000 750 119,250
Sale of Series A
Preferred Stock 10,000 $ 100 686,669
Sale of Series B
Preferred Stock 6,200 62 1,044,682
Sale of Series C
Preferred Stock 2,000 20 166,626
Repurchase of Series A
Preferred Stock (10,000) (100) (812,400)
Warrants issued with
Preferred Stock 2,672,522
Warrants issued to con-
sultants and creditors 82,626
Accrued dividends on
Series B&C Preferred
Stock (17,490)
Net loss (1,076,883)
------- ----- --------- ------- ----------- -----------
Balance June 30, 1996 8,200 $ 82 3,198,534 $31,985 $14,462,306 $(6,108,010)
======= ===== ========= ======= =========== ===========
Treasury Stock
-------------- Receivable
Shares Amount for Shares Totals
------ ------ ---------- ------
<S> <C> <C> <C> <C>
Balance June 30, 1993 (5,550) $ (29,219) $(200,000) $ 2,119,618
Issuance of restricted
shares for litigation
settlement 250,000
Purchase of shares - cash (6,250) (106,250) (106,250)
Receivable paid - at
discount 200,000 133,333
Shares issued upon
exercise of stock
options and warrants 992,769
Discounts granted on
exercise of options 86,334
Net loss (2,809,887)
------- --------- --------- -----------
Balance June 30, 1994 (11,800) (135,469) -- 665,917
Issuance of restricted
shares for litigation
settlement 150,000
Issuance of restricted
shares for merger
with Alliance Media
Corporation 2,745,000
Issuance of restricted
shares as finders fees 138,750
Private placement of
shares -cash 1,018,675
Shares issued upon
exercise of stock
options and warrants 207,918
Discounts granted on
exercise of options 127,875
Net income 110,397
------- --------- --------- -----------
Balance June 30, 1995 (11,800) (135,469) -- 5,164,532
Issuance of common
shares as compensation
to employees, directors
and consultants 219,928
Sale of shares (including
12,500 to related parties) 120,000
Sale of Series A
Preferred Stock 686,769
Sale of Series B
Preferred Stock 1,044,744
Sale of Series C
Preferred Stock 166,646
Repurchase of Series A
Preferred Stock (812,500)
Warrants issued with
Preferred Stock 2,672,522
Warrants issued to con-
sultants and creditors 82,626
Accrued dividends on
Series B&C Preferred
Stock (17,490)
Net loss (1,076,883)
------- --------- --------- -----------
Balance June 30, 1996 (11,800) $(135,469) $ -- $ 8,250,894
======= ========= ========= ===========
</TABLE>
See Notes to Consolidated Financial Statements.
32
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net income (loss) $(1,076,883) $ 110,397 $(2,809,887)
Adjustments to reconcile loss to net cash used in
operating activities:
Gains from sales of securities (1,579,539) (937,365)
Gain on sale of STI (322,387)
Depreciation 139,881 52,348 39,306
Amortization 361,537 65,101
Deferred income tax (13,600)
Loss on disposal of assets 30,319
Discount on exercise of options 127,875 86,334
Stock issuances to employees, directors and consultants 193,677
Warrant issuances to consultants and creditors 82,626
Issuance of stock and note for consultant termination
settlement 394,000
Changes in assets and liabilities net of effects from
acquisition:
Accounts receivable (613,771) (377,631)
Income tax refund receivable 55,000
Other current assets 38,710 (16,844) (3,778)
Other assets (8,346) 20,519 61,959
Trade accounts payable 105,068 (147,360) 1,689
Accrued expenses and other current liabilities (21,674) 6,757 3,784
Income taxes payable (84,565) 55,000
Discontinued operations, net (152,662) 936,564
----------- ----------- -----------
Net cash used in operating activities (883,740) (2,128,107) (2,185,994)
----------- ----------- -----------
Investing activities:
Proceeds from sales of investments in securities 2,682,811 1,244,090
Purchase of investment in securities (1,063,272)
Proceeds from sale of STI 800,000
Proceeds from sales of fixed assets 11,000
Acquisition of Alliance Media Corporation, net of cash
acquired of $567,269 259,088
Payments relating to acquisition of Alliance & SD&A (477,704)
Purchase of property and equipment (94,772) (43,905) (6,653)
Land development costs (10,526)
Investing activities of discontinued operations, net (42,271)
----------- ----------- -----------
Net cash provided by (used in) investing activities (572,476) 2,635,196 1,195,166
----------- ----------- -----------
Financing activities:
Repurchase of preferred stock (812,500)
Proceeds from issuances of common stock 120,000 1,226,593 992,769
Proceeds from issuances of preferred stock and warrants 4,570,682
Proceeds from land option 150,000
Proceeds from bank loans 500,000 150,000
Repayments of bank loans (49,694) (513,059)
Proceeds from note payable other 1,000,000
Repayments of note payable other (72,000) (1,072,000) (200,000)
Related party borrowing (repayment) (2,775,000) (350,000) 350,000
Repurchase of common stock (106,250)
Proceeds from receivable for shares 133,333
Financing activities of discontinued operations (19,350)
----------- ----------- -----------
Net cash provided by financing activities 1,631,488 291,534 1,300,502
----------- ----------- -----------
</TABLE>
33
<PAGE>
<TABLE>
<S> <C> <C> <C>
Net increase in cash and cash equivalents 175,272 798,623 309,674
Cash and cash equivalents at beginning of year 1,217,772 419,149 109,475
----------- ----------- -----------
Cash and cash equivalents at end of year $ 1,393,044 $ 1,217,772 $ 419,149
=========== =========== ===========
Supplemental disclosures of cash flow data:
Cash paid (received) during the year for:
Interest $ 455,276 $ 60,422 $ 20,771
Financing charge $ 300,000
Income tax paid (refunded) $ 155,025 $ 15,000 $ (55,000)
</TABLE>
Supplemental schedule of non cash investing and financing activities:
In Fiscal 1995, the Company purchased all of the capital stock of Alliance Media
Corporation for 1,025,000 shares of common stock valued at $2,745,000.
Additionally, 37,500 shares of common stock valued at $100,000 were issued as
finders fee. Other direct costs of the acquisition totaled approximately
$500,000. In conjunction with the acquisition, net assets acquired and
liabilities assumed, less payments prior to year end, were:
<TABLE>
<S> <C>
Working capital, other than cash $ 601,729
Property and equipment (326,320)
Costs in excess of net assets of
companies acquired (7,337,870)
Other assets (23,451)
Long term debt 4,500,000
Common stock issued 2,845,000
-----------
$ 259,088
===========
</TABLE>
Five thousand shares of common stock valued at $38,750 were issued as a
commission on the sale of STI during 1995.
The Company issued 37,500 shares of common stock valued at $150,000 in Fiscal
1995 in settlement of a 1994 liability for early termination of a consulting
agreement.
In October, 1995, in accordance with the acquisition agreement between Alliance
Media Corporation and the former owner of SD&A, the purchase price was increased
by $85,699.
In October, 1995, the Company issued 6,250 shares of common stock in settlement
of a liability of $26,250.
In November, 1995, a special county bond measure, with principal totaling
$154,814, was assessed on the Company's land and was recorded as a land
improvement, offset by a liability in accrued other expenses.
In April, 1996, the Company issued 89,192 shares of common stock in settlement
of liabilities to employees, directors and consultants of $193,678.
During the year ended June 30, 1996, the Company issued warrants to consultants
and creditors valued at $82,626.
Accrued and unpaid dividends on convertible preferred shares during Fiscal 1996
totaled $17,490.
On June 30, 1996, intangible assets were increased by $425,000 for accrued
restricted common stock payable to the former owner of SD&A as an additional
payment resulting from SD&A achievement of defined results of operations. See
Note 3.
See Notes to Consolidated Financial Statements.
34
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL:
All-Comm Media Corporation ("The Company") was formerly known as Sports-
Tech, Inc. The name change was approved at a Special Meeting of
Shareholders held on August 22, 1995. On April 25, 1995, the Company,
through a wholly-owned subsidiary, was merged with Alliance Media
Corporation ("Alliance") and its wholly-owned subsidiary, Stephen Dunn &
Associates, Inc. ("SD&A"). The shareholders of Alliance received 1,025,000
shares of the Company's common stock. Upon consummation of the merger, the
members of the board of directors of the Company resigned and a new board
was appointed. Through SD&A, the Company currently operates in one industry
segment, providing telemarketing and telefundraising to not-for-profit arts
and other organizations principally in the United States. The Company's
mission is to create a growth-oriented direct marketing and media services
company through acquisitions and internal growth. The Company also owned
approximately seven acres of undeveloped land in Laughlin, Nevada, which
was sold on August 16, 1996.
Prior to the merger with Alliance, the Company's principal activities were
the investigation of non-gaming acquisitions. In fiscal 1992, the Company
acquired a 100% interest in Sports-Tech International ("STI"), and in
fiscal 1993 acquired 100% of the assets and certain liabilities of High
School Gridiron Report ("HSGR"). STI was engaged in the development,
acquisition, integration and sale of advanced computer software, computer
equipment and computer aided video systems used by sports programs at the
professional, collegiate and high school levels. HSGR provided academic and
video data to aid in pre-qualifying high school athletes to colleges and
universities. In fiscal 1995, the Company discontinued the operations of
STI and HSGR.
The Company believes that funds available from operations and from the
August, 1996 sale of the Laughlin, Nevada land will be adequate to finance
its current operations and meet interest and debt obligations in its fiscal
year ending June 30, 1997. Thereafter, and in conjunction with the
Company's acquisition and growth strategy, additional financing may be
required to meet potential acquisition payment requirements. The Company
believes that it has the ability to raise funds through private placements
or public offerings of debt and/or equity securities to meet these
requirements. There can be no assurance, however, that such capital will be
required or available at terms acceptable to the Company, or at all.
2. SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The consolidated financial statements include the accounts of All-Comm
Media Corporation and its wholly-owned subsidiaries, All-Comm Holdings,
Inc. (formerly, Bullhead Casino Corporation), All-Comm Acquisition
Corporation (formerly, BH Acquisitions, Inc.), Sports-Tech International,
Inc. ("STI") (sold during fiscal year 1995), High School Gridiron Report,
Inc. ("HSGR") (dissolved during fiscal year 1996), Alliance Media
Corporation ("Alliance"), Stephen Dunn & Associates, Inc. ("SD&A") and BRST
Mining Company (dissolved during fiscal year 1996). STI and HSGR are
presented as discontinued operations in the consolidated financial
statements. All material intercompany accounts and transactions are
eliminated in consolidation.
35
<PAGE>
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. The estimates and assumptions
made in the preparation of the consolidated financial statements relate to
the assessment of the carrying value of assets and liabilities. Actual
results could differ from those estimates.
Cash and Cash Equivalents/Statement of Cash Flows:
Highly liquid investments with an original maturity of three months or less
are considered to be cash equivalents.
Land held for Sale:
The cost of acquiring, improving and planning the development of land was
capitalized. Costs related to development were written off when such plans
are abandoned. Interest cost was capitalized in periods in which activities
specifically related to the development of the land took place. The land
was valued at lower of cost or market. The land was sold on August 16,
1996. See Note 6.
Property and Equipment:
Property and equipment is recorded at cost less accumulated depreciation.
Maintenance and repairs are expensed as incurred. The cost and related
accumulated depreciation and amortization of property and equipment sold or
retired are removed from the accounts and resulting gains or losses are
included in current operations. Depreciation and amortization are provided
on a straight line basis over the useful lives of the assets involved,
limited as to leasehold improvements by the term of the lease, as follows:
<TABLE>
<S> <C>
Equipment.........................5 years
Furniture and fixtures............2 to 7 years
Computer equipment and software...3 to 5 years
Leasehold improvements............over the useful life of the assets
or term of the lease, whichever is
shorter
</TABLE>
Intangible Assets:
Excess of cost over net assets acquired in connection with the Alliance and
SD&A acquisitions are being amortized over the period of expected benefit
of 40 years. Covenants not to compete are stated at cost and are amortized
over the period of expected benefit of five years. For each of its
investments, the Company assesses the recoverability of its goodwill, by
determining whether the amortization of the goodwill balance over its
remaining life can be recovered through projected undiscounted future cash
flows over the remaining amortization period. If projected future cash
flows indicate that unamortized goodwill will not be recovered, an
adjustment will be made to reduce the net goodwill to an amount consistent
with projected future cash flows discounted at the Company's incremental
borrowing rate. Cash flow projections are based on trends of historical
performance and management's estimate of future performance, giving
consideration to existing and anticipated competitive and economic
conditions.
Revenue recognition:
Sales represent fees earned by SD&A which are recorded when pledged cash is
received for on-site campaigns and when services are provided for off-site
campaigns.
36
<PAGE>
Income taxes:
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities
using enacted tax rates and laws applicable to the years in which the
differences are expected to reverse. Valuation allowances, if any, are
established when necessary to reduce deferred tax assets to the amount that
is more likely than not to be realized. Income tax expense is the tax
payable for the period and the change during the period in deferred tax
assets and liabilities.
Concentration of Credit Risk:
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of temporary cash investments and trade
receivables. The Company restricts investment of temporary cash investments
to financial institutions with high credit standing. Credit risk on trade
receivables is minimized as a result of the large and diverse nature of the
Company's customer base.
Earnings (loss) per share:
Primary earnings (loss) per common and common equivalent share and earnings
per common and common equivalent share assuming full dilution are computed
based on the weighted average number of common shares outstanding and
common share equivalents attributable to the effects, if dilutive, of the
assumed exercise of outstanding stock options and warrants, and the
conversion of convertible preferred shares.
Reclassifications:
Certain prior year items have been reclassified to conform with current
year presentation.
3. ACQUISITION OF ALLIANCE MEDIA CORPORATION AND STEPHEN DUNN & ASSOCIATES,
INC.:
On April 25, 1995, the Company, through a statutory merger, acquired all of
the outstanding common shares of Alliance. The purchase price was
approximately $2,745,000, consisting of issuance of 1,025,000 restricted
common shares of the Company to former shareholders of Alliance valued at
$2.68 per common share. These shares have registration rights as of
December 1, 1995. Direct costs of the acquisition approximated $500,000.
Pursuant to the terms of the merger agreement, upon consummation of the
merger the then current members of the Company's board of directors
resigned, and a new board consisting of six persons designated by Alliance
was appointed.
The assets of Alliance acquired by the Company consisted primarily of (i)
all the issued and outstanding stock of Stephen Dunn & Associates, Inc.
("SD&A"), which Alliance had acquired simultaneously with the merger, (ii)
a five year covenant not to compete with the former owner of SD&A, and
(iii) the cash proceeds of $1,509,750 (net of certain payments, including
the payment of $1.5 million made pursuant to the acquisition of SD&A) of a
private placement of equity securities of Alliance, which securities, upon
consummation of the merger, were converted into the Company's common stock.
The purchase price of SD&A paid by Alliance was $1.5 million in cash, plus
$4.5 million in long-term obligations yielding prime rate, payable over
four years. Additional contingent payments of up to $850,000 per year over
the period ending June 30, 1998 may be required based on the achievement of
defined results of operations of SD&A after its acquisition. At the
Company's option, up to one half of the additional contingent payments may
be made with restricted common shares of the Company. These additional
shares have demand registration rights commencing in September 1997.
Alliance and SD&A had entered into an operating covenant agreement relating
to the operations of SD&A and Alliance has pledged all of the common shares
of SD&A acquired to collateralize its obligations under that agreement.
37
<PAGE>
These acquisition terms were revised pursuant to the Company private
placement financing which occurred on June 7, 1996 (see "Private Placement
of Preferred Stock") whereby the long term obligations were revised and
approximately $2.0 million was paid in June, 1996. The balance of $2.1
million is payable in 36 monthly principal payments of $58,333, plus
interest at 8%, starting September 19, 1996.
The assets of SD&A acquired by Alliance (and therefore by the Company upon
consummation of the merger) consisted primarily of cash and cash
equivalents, accounts receivable and furniture, fixtures and equipment.
These acquisitions were accounted for using the purchase method. The
purchase price was allocated to assets acquired based on their estimated
fair value. This treatment initially resulted in approximately $6.3 million
of costs in excess of net assets required, after recording a covenant not
to compete of approximately $1.0 million. The excess was increased by
$850,000 on June 30, 1996, due to achievement of defined results of
operations of SD&A for the year ended June 30, 1996. Such excess, which may
increase for any further contingent payments, is being amortized over the
remainder of the expected period of benefit of 40 years.
The operating results of these acquisitions are included in the
consolidated results of operations from the date of acquisition. The
following summary, prepared on a pro forma basis, combines the consolidated
results of operations as if Alliance and SD&A had been acquired as of the
beginning of the period presented, after including the impact of certain
adjustments, such as: amortization of intangibles, increased interest on
the acquisition debt, and adjustment of officer salary for new contract.
<TABLE>
<CAPTION>
Unaudited
--------------------------
1995 1994
------------ -----------
<S> <C> <C>
Net sales $15,013,000 $12,685,000
Income (loss) from continuing operations (113,911) 235,965
Income (loss) from continuing operations per
common share $ (.04) $ 0.10
</TABLE>
The unaudited pro forma information is provided for informational purposes
only. It is based on historical information and is not necessarily
indicative of the actual results that would have occurred nor is it
necessarily indicative of future results of operations of the combined
entities.
4. DISCONTINUED OPERATIONS:
On December 7, 1994, the Company entered into a definitive agreement for
the sale of the Company's subsidiary, STI. The proposed purchase price for
STI's operations was $1,100,000 of which $300,000 was paid as of the
agreement date.
By mutual agreement, the closing date was accelerated to March 8, 1995, and
the purchase price reduced to $800,000, a reduction of $300,000 on the
original sales price, out of which $80,000 was paid as a commission to
STI's former president. The former president of STI also received $38,750
in common stock and warrants to purchase 2,500 shares of the Company's
common stock at $8.00 per share in connection with this transaction. The
Company realized a gain on the sale of $322,387. No tax is allocable to
this gain due to net operating loss carryforwards.
Concurrent with the closing of sale of STI, all operations of HSGR ceased
and all unrecoverable assets were written off, which amounted to
approximately $22,000. Accordingly, STI and HSGR are reported as
discontinued operations at June 30, 1995, and the consolidated financial
statements have been reclassified to report separately the net assets,
operating results, gain on disposition and cash flows of these operations.
38
<PAGE>
Revenues of these discontinued operations for fiscal 1995 and 1994 were
$1,147,829 and $1,743,090, respectively.
5. PROPERTY AND EQUIPMENT:
Property and equipment of continuing operations at June 30, 1996 and 1995
consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Office furnishings and equipment $ 302,607 $246,157
Leasehold improvements 169,771 131,447
--------- --------
472,378 377,604
Less accumulated depreciation and
amortization (173,333) (33,450)
--------- --------
$ 299,045 $344,154
========= ========
</TABLE>
6. LAND HELD FOR SALE:
The Company, through its wholly owned subsidiary, All-Comm Holdings, Inc.,
owned approximately seven acres of undeveloped land in Laughlin, Nevada,
which had a carrying value of $921,465 and $766,651 as of June 30, 1996 and
1995, respectively. During fiscal 1996, a bond measure was passed by Clark
County, Nevada authorities, resulting in a special assessment to fund
improvements which would benefit the land. The principal balance assessed
to the Company totaled $154,814 plus interest at 6.4% and was payable in
semi-annual installments over twenty years. The principal was capitalized
by the Company in fiscal 1996. During fiscal 1995, the Company capitalized
costs of $10,526 for its share of costs incurred by area property owners
for development design fees. On August 16, 1996, the land was sold to, and
liability assumed by, an independent third party, via auction, for $952,000
in cash, resulting in a net gain of approximately $114,000.
7. INTANGIBLE ASSETS:
Intangible assets at June 30, 1996 and 1995, consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Covenant not to compete $1,000,000 $1,000,000
Goodwill 7,277,698 6,337,870
---------- ----------
8,277,698 7,337,870
Less accumulated amortization (426,638) (65,101)
---------- ----------
$7,851,060 $7,272,769
========== ==========
</TABLE>
The increase in intangible assets during 1996 was principally due to
recording of a contingent payment of $850,000 due to the former owner of
SD&A subsequent to the achievement of defined results of operations of SD&A
during the year ended June 30, 1996.
39
<PAGE>
8. SHORT TERM BORROWINGS AND NOTE PAYABLE TO BANK:
At June 30, 1995, SD&A had an unused $350,000 line of credit from a bank.
During fiscal 1996, the line was increased to $500,000 and was fully used
at June 30, 1996. The line bears interest at prime plus 1/2% (8.75% at
June 30, 1996), is collateralized by substantially all of SD&A's assets and
is personally guaranteed by SD&A's President. The line of credit also
contains certain financial covenants, including current ratio, working
capital, debt and net worth, capital expenditure, and cash flow
requirements.
At June 30, 1995, SD&A had a note payable outstanding totaling $49,694,
which bore interest at the bank's prime rate plus 1.75%. The note payable
required monthly principal repayments of $6,529 plus interest and was paid
in full during 1996.
9. OTHER ACCRUED EXPENSES:
Accrued expenses at June 30, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Accrued professional fees $290,897 $287,550
Accrued taxes and licenses 116,300
Other 467,215 280,104
-------- --------
Total $758,112 $683,954
======== ========
</TABLE>
10. LONG TERM OBLIGATIONS TO RELATED PARTY:
In connection with the acquisition of SD&A on April 25, 1995, Alliance
issued promissory notes totaling $4,500,000 to SD&A's current President and
former sole shareholder. The notes bore interest at prime rate, not to
exceed 10% or drop below 8%, and were payable monthly. Principal payments
were due quarterly, and originally $1,500,000 was due in quarterly
installments during fiscal 1996. All the outstanding common shares of SD&A
were initially pledged to collateralize these notes but were released in
June 1996. In connection with these notes, an operating covenant agreement
included, among other things, provisions requiring that SD&A have a minimum
level of working capital and cash levels, subject to periodic increases
based on sales, before dividend payments can be made to the parent company.
In June 1996 the operating covenant agreement was terminated.
During 1996 the July 1, 1996 principal payment of $375,000 was made and the
long term obligations were restructured to defer principal payments due
October 1, 1995, January 1, 1996 and April 1, 1996, until June 1996. In
June, 1996, principal payments of $2,025,000 were made and the remaining
obligations of $2,100,000 are now payable at $58,333 per month, plus
interest at 8%, starting September 19, 1996.
11. EMPLOYMENT CONTRACTS:
Subject to execution of definitive agreements, the Company has entered into
three-year employment arrangements with current officers of the Company.
The arrangements provide for annual base salaries, base increases, cash and
option bonuses which are payable if specified management goals are
achieved, and certain termination benefits. The aggregate liability in the
event of termination by the Company without cause of these employees is
approximately $1,000,000.
40
<PAGE>
The Company also had employment contracts with certain members of the prior
management of the Company. In fiscal 1995 and 1994, severance payments
totaling approximately $60,000 and $40,000, respectively, were fully paid
under the contracts. A contract with a prior key member of management also
required the issuance of 25,000 shares of the Company's common stock in
exchange for a $200,000 non-recourse promissory note receivable. The note
receivable was due on November 1, 1994, along with accrued interest at
10.5% per annum. In fiscal 1994, the Company's Board of Directors approved
discounting the interest receivable and note receivable by one third. The
discount of the interest receivable of $29,166 was charged against
operations and the $66,667 discount of the note receivable was charged to
additional paid in capital.
12. COMMITMENTS AND CONTINGENCIES:
Leases: SD&A leases its corporate business premises from its former owner.
The lease requires monthly rental payments of $11,805 through January 1,
1999, with an option to renew. SD&A incurs all costs of insurance,
maintenance and utilities. Also, the Company leases its corporate office
space, copier, phones and automobiles under long term leases.
Future minimum rental commitments under all non-cancelable leases, as of
fiscal years ending June 30, are as follows:
<TABLE>
<S> <C>
1997 $ 324,978
1998 310,968
1999 199,609
2000 130,858
2001 130,858
----------
$1,097,271
==========
</TABLE>
Rent expense for continuing operations was approximately $297,000, $89,000
and $56,000, for fiscal years ended 1996, 1995 and 1994, respectively.
Total rent paid by SD&A to its former owner during 1996 and from the date
of acquisition to June 30, 1995 was approximately $138,000 and $26,000,
respectively.
Litigation: Pursuant to a Settlement and Release Agreement dated June 17,
1994 with Membership Development, Inc. ("MDI"), a non-affiliated direct
marketing company that was providing marketing services to Sports-Tech
International, in fiscal 1994 the Company issued 25,000 shares of Sports-
Tech stock valued at $250,000, executed an unsecured non-interest bearing
promissory note for $144,000 and in fiscal 1995 issued an additional 37,500
shares of stock valued at $150,000. In May 1995, MDI exercised their right
to require the Company to file a registration statement registering these
securities for sale. A registration statement was filed but has not yet
been declared effective. The entire $544,000 of consideration was expensed
in fiscal 1994 and is included in discontinued operations.
The Company is party to various minor legal proceedings. The outcome of
these legal proceedings are not expected to have a material adverse effect
on the financial condition or operation of the Company based on the
Company's current understanding of the relevant facts and law.
41
<PAGE>
13. STOCKHOLDERS' EQUITY:
Preferred Stock: On May 9, 1996, the Company completed the private
placement with an institutional investor of 10,000 shares of Series A
convertible preferred stock for $750,000, $687,000 net after offering
costs. The convertible preferred stock was convertible into common shares
of the Company at the lesser of the price paid divided by $2.50, or 80% of
the closing bid price of the Company's common stock for the five trading
days immediately prior to the conversion date, and was subject to certain
restrictions.
On June 7, 1996, the Company completed the private placements with
accredited investors of 6,200 shares of Series B convertible preferred
stock for $3,100,000. The preferred stock is preferred as to the Company's
assets over the common stock in the event of liquidation, dissolution or
winding-up of the Company, prior to distribution of assets to common
stockholders. The preferred stockholders are entitled to their original
investment, plus accrued, unpaid dividends or, if unavailable, a ratable
distribution of existing assets. The holders of the stock are entitled to
receive a dividend payable only on redemption or credited against
conversion, which shall accrue at the rate of 6% per annum. The
convertible preferred stock is convertible, in whole or in part, at any
time and from time to time until the second anniversary of the date of
issuance, into common shares of the company at the lesser of the price paid
divided by $1.25, or 80% of the average closing sales price of the
Company's common stock for the last five days prior to conversion, and is
subject to certain restrictions, including automatic conversion on the
second anniversary of issuance. Under certain unlikely conditions prior to
conversion, the preferred stock may be redeemed. In addition, the Company
issued warrants to preferred shareholders for 3,100,000 shares of common
stock exercisable at $2.50 for three years.
On June 7, 1996, the Company completed the private placements with
accredited investors of $1,000,000 of convertible notes and warrants for
3,000,000 shares of common stock. Subsequent to year end, the notes and
warrants were rescinded retroactive to June 7, 1996 and replaced with 2,000
shares of Series C convertible preferred stock for $1,000,000. The Series
C convertible preferred stock is preferred as to the Company's assets over
the common stock in the event of liquidation, dissolution or winding-up of
the Company, prior to distribution of assets to common stockholders. The
preferred shareholders are entitled to their original investment, plus
accrued unpaid dividends or, if available, a ratable distribution of
existing assets. The holders of the stock are entitled to receive a
dividend payable only on redemption or credited against conversion, which
shall accrue at the same rate of 8% per annum. The Series C convertible
preferred stock is convertible, in whole or in part, at any time and from
time to time until the second anniversary of the date of issuance, into
common shares of the Company at the price paid divided by $6.00, and is
subject to certain restrictions, including automatic conversion on the
second anniversary of issuance. Under certain unlikely conditions prior to
conversion, the preferred stock may be redeemed. In addition, the Company
issued warrants to preferred shareholders for 3,000,000 shares of common
stock exercisable at $3.00 for three years.
The Company allocated the net proceeds received on the sales of each series
of preferred shares and warrants based on the relative fair values of the
securities at the time of issuance.
In connection with the June 7, 1996 transactions, the Company reacquired
the 10,000 shares of Series A convertible preferred stock for $800,000 plus
fees of $12,500.
Common Stock: The Board of Directors approved a one-for-four reverse stock
split of the Company's authorized and issued common stock, effective August
22, 1995. The Board also approved reducing the number of authorized shares
of common stock to 6,250,000 with a par value of $.01 per share, from the
25,000,000 common shares previously authorized. Accordingly, all share and
per share data, as appropriate, reflect the effect of the reverse split.
42
<PAGE>
Effective August 14, 1996, the shareholders and Board of Directors approved
an increase in the number of authorized shares of common stock, from
6,250,000 to 36,250,000.
During 1996, the Company issued 95,441 shares of restricted common stock as
compensation to various employees, directors and consultants.
In March 1996, the Company sold 75,000 restricted shares of its common
stock for $120,000 to four individuals, including 12,500 shares to related
parties.
In May 1995, the Company completed a private placement of 413,759 shares of
restricted common stock, at $2.68 per share. These shares have
registration rights as of December 1, 1995. Net proceeds from this
offering totaled $1,018,675.
As discussed in Note 3, in connection with the acquisition of Alliance and
SD&A, the Company issued 1,025,000 restricted common shares to the former
shareholders of Alliance. These shares have registration rights. Also in
connection with the acquisition, the Company issued 37,500 common shares
valued at $100,000 and warrants to purchase 43,077 common shares at $6.00-
to-$8.00 per share to investment banking firms, a shareholder, a director
and a law firm which represented the Company. These warrants expire
between April 25, 1998 and April 25, 2000.
In connection with the sale of Sports-Tech International, Inc., the Company
approved issuance of 5,000 common shares valued at $38,750 and warrants to
purchase 2,500 shares at $8.00 through April 25, 1995 to its former
president.
On July 26, 1991, the Company sold warrants to purchase up to 62,500 shares
of the Company's common stock to a private investor for $250 in cash,
exercisable at $6.00 per share through July 31, 1996. This investor was
subsequently elected to the Company's Board of Directors. On January 31,
1994, this Director exercised warrants to purchase 25,000 shares of common
stock at $4.00 per share (reduced by Board of Directors Resolution from
$6.00 to $4.00) by paying $100,000 to the Company. On June 9, 1994, this
Director sold, in a private transaction, 18,750 of these warrants to
another shareholder of the Company. In May, 1995, the Board of Directors
approved the temporary reduction of the exercise price of these warrants
from $6.00 to $2.68 and, on May 31, 1995, these 37,500 warrants were
exercised for $100,500 in cash payments.
As of June 30, 1996, the Company has the following outstanding warrants to
purchase 6,370,577 shares of common stock:
<TABLE>
<CAPTION>
Date Shares of Common Exercise Price Per
Date Issued Exercisable Stock upon Exercise Share of Common Stock
- ----------- ----------- ------------------- ---------------------
<S> <C> <C> <C>
April 1995 April 1995 33,750 $ 6.00-8.00
May 1995 May 1995 11,827 $ 6.00
October 1995 October 1995 30,000 $ 2.50
January 1996 January 1996 32,500 $3.375-8.00
February 1996 February 1996 15,000 $ 3.00-4.00
April 1996 April 1996 22,500 $ 1.60
May 1996 May 1996 100,000 $ 4.50
June 1996 June 1996 25,000 $ 4.50
June 1996 August 1996 6,100,000 $2.50-$3.00
---------
Total as of June 30, 1996 6,370,577
=========
</TABLE>
43
<PAGE>
Stock Options: In 1991, the Company adopted a non-qualified stock option
plan (the 1991 Plan) for key employees, officers, directors and consultants
to purchase up to 250,000 shares of common stock. In November, 1995, the
Board of Directors increased the number of available shares by 600,000. The
Plan is administered by the Board of Directors which has the authority to
determine which officers and key employees of the Company will be granted
options, the option price and exercisability of the options. In no event
shall an option expire more than ten years after the grant.
The following summarizes the stock option transactions under the 1991 Plan
for the two fiscal years ended June 30, 1996:
<TABLE>
<CAPTION>
Number Option Price
of Shares Per Share
--------- ------------
<S> <C> <C>
Outstanding at June 30, 1993 193,617 $6.00 to $16.00
Granted 3,000 $22.00
Exercised (70,058) $6.00 to $16.00
Canceled (18,667) $6.00 to $16.00
-------
Outstanding at June 30, 1994 107,892 $6.00 to $22.00
Granted 8,750 $5.24 to $7.00
Exercised (22,500) $2.68 to $5.24
Canceled (3,334) $6.00
-------
Outstanding at June 30, 1995 90,808
Granted 525,003 $2.00 to $3.00
Canceled (91,004) $6.00 to $22.00
-------
Outstanding at June 30, 1996 524,807
=======
</TABLE>
All the outstanding options under the 1991 Plan are exercisable and expire
as follows: fiscal 1998 - 2,084, fiscal 2000 - 5,000 and fiscal 2003 -
517,723. All options granted in fiscal years 1996, 1995 and 1994 were
issued at fair market value. At June 30, 1996, 179,504 options were
available for grant. In May, 1995, a $128,000 discount was given to a
former director of the Company to exercise 18,750 options and was
recognized as compensation expense.
In addition to the 1991 Plan, the Company has other option agreements with
former officers, directors, employees and owners of an acquired Company.
The following summarizes transactions outside the 1991 Plan for the two
fiscal years ended June 30, 1996:
<TABLE>
<CAPTION>
Number Option Price
of Shares Per Share
--------- ------------
<S> <C> <C>
Outstanding at June 30, 1993 143,250 $3.00 to $16.00
Granted 18,000 $15.52 to $16.00
Exercised (64,584) $4.00 to $8.00
Canceled (22,875) $7.24 to $15.52
-------
Outstanding at June 30, 1994 73,791 $3.00 to $16.00
Exercised (12,500) $3.00
Canceled (28,875) $6.00 to $16.00
-------
Outstanding at June 30, 1995 32,416
Canceled (30,166) $4.50 to $6.00
-------
Outstanding at June 30, 1996 2,250
=======
</TABLE>
44
<PAGE>
All the outstanding options under these agreements are exercisable and
expire in fiscal 1999. A one-third discount, totaling $86,334 was given to
non-affiliates when 36,083 options were exercised in January 1994 and was
recognized as compensation expense.
Common Stock in Treasury: The Company has purchased 26,800 shares of its
common stock for a total cost of $214,579 (or an average of $8.00 per
share). In connection with the acquisition of the High School Gridiron
Report assets, 15,000 shares were issued from the treasury stock. The
remaining treasury shares have a total cost of $135,469 (or an average of
$11.48 per share).
14. INCOME TAXES:
Income tax expense (benefit) from continuing operations is as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
1996 1995 1994
-------- ------- ---------
<S> <C> <C> <C>
Current:
Federal - - ($13,600)
State & Local $141,084 $75,000 -
Deferred - - -
-------- ------- --------
Total $141,084 $75,000 ($13,600)
======== ======= ========
</TABLE>
A reconciliation of the Federal statutory income tax rate to the effective
income tax rate based on pre-tax income (loss) from continuing operations
follows:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Statutory rate (34)% (34)% 34%
Increase (decrease) in tax rate
resulting from:
Loss limitations and valuation
allowance 34 34
Utilization of loss carryforwards (53)
State income taxes 15 134
---- ----
Effective rate 15% 134% (19)%
==== ==== ====
</TABLE>
Effective July 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes". The adoption of SFAS 109 resulted in an income tax benefit of
$13,600 in fiscal year 1994.
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 691,100 $ 374,000
Amortization of intangibles 142,300 133,000
Other 95,900 158,800
--------- ---------
Total deferred tax assets 929,300 665,800
Valuation allowance (789,800) (364,400)
--------- ---------
Net deferred tax assets 139,500 301,400
--------- ---------
Deferred tax liabilities:
Cash to accrual adjustment (139,500) (262,500)
Other - (38,900)
--------- ---------
</TABLE>
45
<PAGE>
<TABLE>
<S> <C> <C>
Total deferred tax liabilities (139,500) (301,400)
--------- ---------
Total deferred taxes, net $ - $ -
========= =========
</TABLE>
The Company has a net operating loss of approximately $2,032,000 available
which expires from 2008 through 2011. These losses can only be offset with
future income.
No income taxes are allocable to the gain on sale of discontinued
operations during 1995 due to utilization of net operating loss
carryforwards.
15. GAINS FROM SALES OF SECURITIES:
In July, 1994, the Company borrowed $1,000,000 to fund the exercise by the
Company of a common stock purchase warrant. The loan was collateralized by
a pledge of the warrant shares pursuant to the terms of a pledge agreement.
The parties to the $1,000,000 loan included, among others, the Company's
former chairman, former president, a former director and a shareholder, who
each provided $200,000. The other lenders were non-affiliates. The
lenders received the repayment of the $1,000,000 loan, interest at 7.75%
totaling $9,493 and a $300,000 commitment fee from the proceeds of the
subsequent stock sales. The Company subsequently sold all these securities
and recognized a gain of $1,580,000.
During the fiscal year 1994, the Company realized gains from the sale of an
issue of marketable equity securities of $937,365. The Company accounted
for its investment in marketable equity securities under the cost method.
16. RELATED PARTY TRANSACTIONS:
A former director of the Company is the senior managing director of a
private merchant banking firm which was paid approximately $5,700 and
$21,000 for investment advisory services in 1995 and 1994, respectively.
In connection with the acquisition of Alliance, a finders fee totaling
$100,000 was paid to the merchant banking firm in fiscal 1995, along with
the former director and the other principal owner of the merchant banking
firm each receiving 9,375 restricted common shares of the Company valued at
$2.67 per share and warrants to purchase 6,250 common shares at $8.00 per
share.
On June 9, 1994, the Company borrowed $350,000 from the Company's former
chief executive officer and its former president and pledged its equity
interest in the Laughlin land as security for repayment of the loan. The
note was due July 31, 1995 with interest at the rate of 7.25% (the Bank of
America Nevada prime rate at the time of execution). The promissory note
and interest of $8,695 were repaid in advance on October 4, 1994.
A former director of the Company, and another person serving as secretary
in 1993, were each partners in different law firms that provided legal
services for which the Company recognized expenses aggregating
approximately $31,000 and $11,000 in 1995 and 1994, respectively.
In April 1995, the former chairman of the Company purchased property and
equipment owned by the Company with a cost of $160,109 and net book value
of $5,870 for a discounted appraised value of $11,000 in cash.
Also see footnotes 3, 10, 11, 12, 13 and 15 for additional related party
transactions.
46
<PAGE>
17. NEW ACCOUNTING PROCEDURES:
Adoption of the Financial and Accounting Standards Board ("FASB") Statement
of Financial Accounting No. 121, "Accounting for the Impairment of Long-
Lived Assets for Long-Lived Assets to be disposed of", which is effective
for financial statements for fiscal years beginning after December 15,
1995, is not anticipated to have a material effect on the Company's
consolidated financial statements.
The FASB recently issued Statement of Financial Accounting No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), which is effective
for financial statements for fiscal years beginning after December 15,
1995. SFAS 123 establishes new financial accounting and reporting
standards for stock-based compensation plans. Entities will be allowed to
measure compensation cost for stock-based compensation under SFAS 123 or
APB Opinion No. 25, "Accounting for Stock Issued to Employees". The
Company elected to remain with the accounting in APB Opinion No. 25 and
will be required to make pro forma disclosure of net income and earnings
per share as if the provisions of SFAS 123 had been applied. The Company
will implement SFAS 123 in the first quarter of Fiscal 1997.
18. SUBSEQUENT EVENTS:
On May 30, 1996, the Company signed a letter of intent to acquire Metro
Services Group, Inc. ("Metro"). Metro is a private company based in New
York, New York, with offices in Michigan, Illinois and California, and has
annualized sales in excess of $8 million. Metro develops and markets a
variety of database direct marketing products and services through four
divisions. Terms of the acquisition call for a tax-free exchange of stock
and incentive option package for key employees, as well as contingent
payments based on operating profits and performance. Consummation of the
acquisition is subject to a number of conditions, including the negotiation
of a definitive agreement and completion of financing arrangements.
Accordingly, no assurance can be given that the acquisition will be
consummated. Metro provides information-based products and services to the
direct marketing industry through its divisions: Metro Direct Marketing,
which provides full service direct marketing programs for consumers and
business to business clients, particularly in the financial services and
publishing areas; MetroArts, develops and executes customer acquisition
campaigns for the performing arts, entertainment and cultural institutions;
MetroNon-Profit provides strategic planning, membership and direct mail
fundraising campaigns for non-profit institutions; and MSGI Computer
Services utilizes a combination of mainframe, PC platforms and Internet
servers for database development, data enhancement, response analysis and
predictive modeling to support the data processing requirements of Metro's
clients.
On August 16, 1996, the Company's land in Laughlin, Nevada, was sold to an
independent third party, via auction, for $952,000 in cash, resulting in a
gain of approximately $114,000.
47
<PAGE>
SCHEDULE I
ALL-COMM MEDIA CORPORATION
CONDENSED BALANCE SHEET
June 30, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 976,644 $ 479,045
Other current assets 54,077 93,781
----------- -----------
Total current assets 1,030,721 572,826
----------- -----------
Property and equipment, at cost 29,942 26,992
Accumulated depreciation 11,641 3,175
----------- -----------
Net property and equipment 18,301 23,817
Investments in and advances to subsidiaries 8,008,734 5,136,786
Other assets 23,595 9,355
----------- -----------
Total assets $ 9,081,351 $ 5,742,784
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Trade accounts payable $ 259,327 $ 167,838
Accrued salaries and wages 77,025 75,366
Other accrued expenses 476,615 335,048
----------- -----------
Total current liabilities 812,967 578,252
Other liabilities 17,490
----------- -----------
Total liabilities 830,457 578,252
----------- -----------
Stockholders' equity:
Convertible preferred stock 82
Common stock 31,985 30,281
Additional paid-in capital 14,462,306 10,300,847
Treasury shares, at cost (135,469) (135,469)
Accumulated deficit (6,108,010) (5,031,127)
----------- -----------
Total stockholders' equity 8,250,894 5,164,532
----------- -----------
Total liabilities and stockholders' equity $ 9,081,351 $ 5,742,784
=========== ===========
</TABLE>
48
<PAGE>
SCHEDULE I
ALL-COMM MEDIA CORPORATION
CONDENSED STATEMENT OF OPERATIONS
Years Ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Income:
Gains from sales of securities $1,579,539
Equity in earnings (losses) of subsidiaries $ 499,033 (18,320)
----------- ----------
Total 499,033 1,561,219
----------- ----------
Costs and expenses:
General and administrative 1,455,537 1,386,471
Depreciation and amortization 57,811 12,399
----------- ----------
Total 1,513,348 1,398,870
----------- ----------
Income (loss) from operations (1,014,315) 162,349
----------- ----------
Other income (expense):
Loan commitment fee (300,000)
Interest income 10,081 15,446
Interest expense (72,649) (8,972)
Other 318
----------- ----------
Subtotal (62,568) (293,208)
----------- ----------
Loss from continuing operations before
discontinued operations (1,076,883) (130,859)
Loss from discontinued operations:
Gain on sale of discontinued operations 322,387
Loss from discontinued operations (81,131)
----------- ----------
Net income (loss) $(1,076,833) $ 110,397
=========== ==========
</TABLE>
49
<PAGE>
SCHEDULE I
ALL-COMM MEDIA CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
Years Ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
-------------- -------------
<S> <C> <C>
Operating activities:
Net cash flows used by operating activities ($1,108,968) ($2,485,237)
Investing activities:
Proceeds from sales of investments in securities 2,682,811
Purchase of investment in securities (1,063,272)
Proceeds from sale of STI 800,000
Acquisition of Alliance Media Corporation (308,181)
Investments in and advances to subsidiaries (2,346,665) (36,048)
Purchase of property and equipment (2,950) 19,613
----------- ----------
Net cash provided (used) by investing activities (2,349,615) 2,094,923
----------- ----------
Financing activities:
Proceeds from issuances of common stock 120,000 1,226,593
Proceeds from issuances of preferred stock 4,570,682
Repurchase of preferred stock (812,500)
Proceeds from land option 150,000
Proceeds from note payable other 1,000,000
Repayments of note payable other (72,000) (1,422,000)
----------- ----------
Net cash provided by financing activities 3,956,182 804,593
----------- ----------
Net increase in cash and cash equivalents 497,599 414,279
Cash and cash equivalents at beginning of year 479,045 64,766
----------- ----------
Cash and cash equivalents at end of year $ 976,644 $ 479,045
=========== ==========
</TABLE>
50
<PAGE>
Exhibit 3(v)
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
(After Issuance of Stock)
ALL-COMM MEDIA CORPORATION
The undersigned, E. William Savage, President and Secretary of ALL-COMM
MEDIA CORPORATION, a Nevada corporation (the "Company"), does hereby certify
that as of the date hereof:
That the Board of Directors of said corporation, at a meeting duly
convened, held on the 6/th/ day of June, 1996, adopted a resolution to amend the
articles as follows:
The first paragraph of Article VI is amended to read:
"The total number of shares of all classes of capital stock which the
Corporation shall have the authority to issue is 36,300,000 shares which
shall be divided into two classes as follows: (i) 50,000 shares of
Preferred Stock of the par value $.01 per share, and (ii) 36,250,000 shares
of Common Stock of the par value of $.01 per share."
That at a Special Meeting of Stockholders held on August 14, 1996, the
stockholders voted either in person or by proxy, to adopt the amendment of
Article VI as set forth and recommended by the Board of Directors. The
amendment change to Article VI was adopted by 2,276,607 shares voting in favor,
99,424 opposed and 2,419 abstentions. The remainder were non-votes. The number
of shares of the Corporation outstanding and entitled to vote at the Special
Meeting on an amendment to the Articles of Incorporation was 3,186,734.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment as of August 15, 1996.
By: /s/ E. William Savage
----------------------
E. William Savage
President and Secretary
State of California } ss.
County of Los Angeles
On August 15, 1996 personally appeared before me, a Notary Public, E.
William Savage, President and Secretary of All-Comm Media Corporation, who
acknowledged that he executed the above instrument.
/s/ James G. King
----------------------
Signature of Notary
<PAGE>
Exhibit 10.10
September 10, 1996
Dear Subscriber:
We refer to the Private Placement Purchase Agreement between you and the Company
dated June 7, 1996 ( the "Prior Agreement"). The Prior Agreement is hereby
rescinded, as if it had never been signed. You will promptly deliver to the
Company, for cancellation, all instruments which were delivered to you under the
Prior Agreement.
Concurrently herewith, the Company and you are entering into a Private Placement
Purchase Agreement dated of this date and effective as of June 7, 1996 (the "New
Agreement"). Amounts paid by you to the Company under the Prior Agreement are
deemed to have been returned to you by the Company and to have been immediately
reinvested by you as the full purchase price for securities purchased by you
under the New Agreement.
Please confirm your agreement with the foregoing by signing and returning the
enclosed copy of this letter.
ALL-COMM MEDIA CORPORATION
By: /s/ E. William Savage
-------------------------
E. William Savage
President
Agreed:
/s/ Subscriber
- --------------------
By:
<PAGE>
Exhibit 10.11
PRIVATE PLACEMENT PURCHASE AGREEMENT
September 10, 1996, but
effective as of June 7, 1996
All-Comm Media Corporation
400 Corporate Pointe
Suite 780
Culver City, California, 90230-7615
Gentlemen;
1. At a closing to occur at the offices of your company (the "Company")
simultaneously herewith, the undersigned ("Subscriber") will for $50,000 per
Unit (as defined below) purchase from you, and you will sell, the number of
Units set forth below opposite Subscriber's name below. Such purchase by
Subscriber is part of an offering in which an aggregate of 20 Units will be sold
simultaneously with such sale to Subscriber. Each Unit consists of 100 shares of
Series C Convertible Preferred Stock having a redemption value of $500 per share
(the "Preferred") and warrants to purchase 150,000 shares of common stock of the
Company (the "Warrants").
2. The Certificate of Designation for the Preferred shall be in the form of
Exhibit A. The Preferred shall at the option of the holder be convertible at any
time into common stock at $6.00 per share. If not theretofore converted, the
Preferred shall automatically be deemed converted into common stock at such
price on June 7, 1998. However, the Preferred shall not be redeemed under the
preceding sentence, but shall instead be redeemed at redemption value, together
with dividends accruing thereon at 8% per annum, on June 7, 1998 if the
Company's common stock is not then trading on NASDAQ (or another U.S. securities
exchange approved by the Securities and Exchange Commission where the common
stock may then be listed) or if the registration statement referred to below has
not theretofore been declared effective. The Preferred shall also be entitled to
priority over the common stock in liquidation.
3. The Warrants shall be in the form of Exhibit B. The Warrants shall be
exercisable at $3.00 per share and shall expire on the third anniversary of the
date on which they are first exercisable or, if earlier, on the first (1st) date
on which both (a) and (b) shall be true, namely (a) the registration statement
referred to below shall be in effect and shall have been effective for not less
than the ninety consecutive days immediately preceding such date and (b) the
closing price per share of the Company's common stock on NASDAQ (or such other
securities exchange where the common stock may then be listed) shall not be less
than $8.00 per share and shall have been not less than $8.00 per share during
the twenty consecutive trading days immediately preceding such date. For
example, assume that the closing price per share shall have been $9.00 per share
through October 1, 1996, that the closing price per share shall have been $7.00
per share through March 1, 1997, and that the closing price per share shall have
been $8.00 per share for 20 consecutive trading days thereafter. Assume further
that the Registration Statement shall have been in effect at all times from July
1, 1996. The expiration date of the Warrants shall be the close of business on
the 20th trading day after March 1, 1997. All dates set forth in this paragraph
shall be extended by one day for each day after December 31, 1996 on which the
registration statement referred to in Section 3 is not in effect with respect to
the shares purchasable under the Warrants.
3a. The Company will on or before October 7, 1996 file a registration statement
on Form S-3 or Form S-l (the "Registration Statement") for the public sale by
the holders of the shares which are issuable on conversion of the Preferred or
upon exercise of the Warrants. The Company shall use its best efforts to cause
the Registration
<PAGE>
Statement to become effective not later than 90 days after the date of filing,
and to remain effective for two years with respect to Common Stock issued upon
conversion of Preferred Stock and three years with respect to Common Stock
issued upon exercise of Warrants. The registration shall be accompanied by blue
sky clearances in such states as the holders may reasonably request. The Company
shall pay all expenses of the registration hereunder, other than the holders'
underwriting discounts. Registration rights may be assigned to assignees of the
Preferred, the Warrants or the underlying stock.
4. (a) Subscriber represents and warrants that it is purchasing the Units
solely for investment solely for its own account and not with a view to or for
the resale or distribution thereof.
(b) Subscriber understands that it may sell or otherwise transfer the
Units, the Preferred, the Warrants or the shares of Common Stock issuable on
conversion or exercise of the Preferred or the Warrants only if such transaction
is duly registered under the Securities Act of 1933, as amended, under the
Registration Statement or otherwise, or if Subscriber shall have received the
favorable opinion of counsel to the holder, which opinion shall be reasonably
satisfactory to counsel to the Company, to the effect that such sale or other
transfer may be made in the absence of registration under the Securities Act of
1933, as amended, and registration or qualification in every applicable state.
The certificates representing the aforesaid securities will be legended to
reflect these restrictions, and stop transfer instructions will apply.
Subscriber realizes that the Units are not a liquid investment.
5. (a) Subscriber has not relied upon the advice of a "Purchaser
Representative" (as defined in Regulation D of the Securities Act) in evaluating
the risks and merits of this investment. Subscriber has the knowledge and
experience to evaluate the Company and the risks and merits relating thereto.
(b) Subscriber represents and warrants that Subscriber is an "accredited
investor" as such term is defined in Rule 501 of Regulation D promulgated
pursuant to the Securities Act of 1933, as amended, and shall be such on the
date any shares are issued to the holder; Subscriber acknowledges that
Subscriber is able to bear the economic risk of losing Subscriber's entire
investment in the shares and understands that an investment in the Company
involves substantial risks; Subscriber has the power and authority to enter
into this agreement, and the execution and delivery of, and performance under
this agreement shall not conflict with any rule, regulation, judgment or
agreement applicable to the Subscriber; and Subscriber has invested in previous
transactions involving restricted securities.
6. This Agreement may not be changed or terminated except by written
agreement. It shall be binding on the parties and on their personal
representatives and permitted assigns. It sets forth all agreements of the
parties. It shall be enforceable by decrees of specific performance (without
posting bond or other security) as well as by other available remedies.
Subscriber: ALL-COMM MEDIA CORPORATION
/s/ Subscriber By: /s/ Barry Peters
- --------------------- -----------------------
Barry Peters
Title: Chairman and CEO
Number of Units: Units
---------
<PAGE>
Exhibit 11
STATEMENT REGARDING COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
Net income per share was calculated as follows: Fiscal Year
-----------
1996 1995 1994
------------------------------------------
<S> <C> <C> <C>
Income (loss) from continuing operations before
discontinued operations ($1,076,883) ($130,859) $ 86,807
Income (loss) from discontinued operations $ 241,256 ($2,896,694)
Net income (loss) ($1,076,883) $ 110,397 ($2,809,887)
Accrued dividends on preferred stock ($17,490)
Net income (loss) attributable to common shareholders ($1,094,373) $ 110,397 ($2,809,887)
Primary:
Weighted average common shares outstanding 3,068,278 1,804,827 1,334,034
Incremental shares under stock options and
warrants computed under the treasury stock
method using the average market price of the
issuer's common stock during the periods 280,758 2,713 134,713
Incremental shares under convertible preferred stock 220,556
Weighted average common and common
equivalent shares outstanding 3,068,278 1,807,540 1,468,747
Income (loss) per common share from continuing
operations ($.36) ($.07) $ .06
Income (loss) per common share from discontinued
operations $ .13 ($1.97)
Net income (loss) per common share ($.36) $ .06 ($1.91)
Fully diluted:
Weighted average common shares outstanding 3,068,278 1,804,827 1,334,034
Incremental shares under stock options and
warrants computed under the treasury stock
method using the market price of the issuer's
common stock at the end of the periods if higher
than the average market price 420,652 13,565 134,713
Incremental shares under convertible preferred stock 220,556
Weighted average common and common
equivalent shares outstanding 3,068,278 1,818,392 1,468,747
Income (loss) per common share from continuing
operations ($.36) ($.07) $ .06
Income (loss) per common share from discontinued
operations $ .13 ($1.97)
Net income (loss) per common share ($.36) $ .06 ($1.91)
</TABLE>
<PAGE>
Exhibit 22.1
SUBSIDIARIES OF SPORTS-TECH, INC.
All-Comm Acquisition Corporation (100%)
All-Comm Holdings, Inc. (100%)
Alliance Media Corporation (100%)
Stephen Dunn & Associates, Inc. (100%)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF ALL-COMM MEDIA CORPORATION AS OF AND FOR
THE YEAR ENDED JUNE 30, 1996 INCLUDED IN THIS REPORT ON FORM 10-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 1,393,044
<SECURITIES> 0
<RECEIVABLES> 2,716,654
<ALLOWANCES> (34,906)
<INVENTORY> 0
<CURRENT-ASSETS> 5,103,915
<PP&E> 472,378
<DEPRECIATION> (173,333)
<TOTAL-ASSETS> 13,301,066
<CURRENT-LIABILITIES> 3,453,190
<BONDS> 1,596,982
0
82
<COMMON> 31,985
<OTHER-SE> 8,250,894
<TOTAL-LIABILITY-AND-EQUITY> 13,301,066
<SALES> 15,889,210
<TOTAL-REVENUES> 15,889,210
<CGS> 10,882,437
<TOTAL-COSTS> 10,882,437
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 487,638
<INCOME-PRETAX> (935,799)
<INCOME-TAX> 141,084
<INCOME-CONTINUING> (1,076,883)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,076,883)
<EPS-PRIMARY> $(.36)
<EPS-DILUTED> $(.36)
</TABLE>
