<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
Registration Statement No. 333-9599
PROSPECTUS SUPPLEMENT
NO. 1
TO
PROSPECTUS DATED JANUARY 31, 1997
GLOBAL OUTDOORS, INC.
1. This Prospectus Supplement for Global Outdoors, Inc. (the "Company")
together with the Company's Prospectus dated January 31, 1997, is to be
used in connection with offers and sales of the Units consisting of Two
shares of Common Stock and One Class F Warrant described in the
Prospectus dated January 31, 1997. This Prospectus Supplement should be
read in conjunction with the Prospectus dated January 31, 1997
(collectively, the "Prospectus").
2. The Company's Quarterly Report on Form 10-QSB filed with the SEC on May
22, 1997 for the Quarter ended March 31, 1997 and the Company's Annual
Report on Form 10-KSB filed with the SEC on May 3, 1997 for the Year
ended December 31, 1996, are part of this Supplement and follow this
page.
3. See page 14 of Form 10-QSB regarding the Company not currently meeting
Nasdaq's minimum listing requirements of $1,000,000 in equity. A
hearing on this matter is scheduled for July 24, 1997. In the event,
that Nasdaq does not approve the Company's proposal to achieve
compliance, the Company's Common Stock will be delisted from Nasdaq.
Such delisting would make it more difficult for some brokers and
dealers to participate in this Offering due to Penny Stock transaction
rules requiring additional disclosures and related matters (See
Securities Exchange Act Section 15(g) and rules thereunder).
4. Rickel & Associates, Inc., Centex Securities and LaCroix Alexander
Financial Corporation have executed Selected Broker-Dealer Agreements
with the Company.
The Date of this Prospectus Supplement Is July 11, 1997
<PAGE> 2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________
Commission file number : 0-17287
-------
GLOBAL OUTDOORS, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Alaska 33-0074499
- --------------------------------- ----------------------
(State or other Jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
43445 BUSINESS PARK DRIVE, SUITE 113
TEMECULA, CALIFORNIA 92590
- --------------------------------------------------------------------------------
(Address and zip code of principal executive offices)
(909) 699-4749
- --------------------------------------------------------------------------------
(Issuer's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the Issuer (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 the filing requirements for at least
the past 90 days. Yes [X] NO [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Number of Shares Outstanding
Class at May 23, 1997
----- ----------------------------
Common Stock, $.02 par value 4,128,814
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<PAGE> 3
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
FINANCIAL STATEMENTS
PART I - ITEM 1
- --------------------------------------------------------------------------------
FOR THE QUARTER ENDED MARCH 31, 1997
- --------------------------------------------------------------------------------
GLOBAL OUTDOORS, INC.
-2-
<PAGE> 4
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31 December 31
1997 1996
----------- -----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 54,541 $ 82,027
Current portion of stockholder receivable 56,400 56,400
Advertising receivables, net of allowance for
doubtful accounts 103,583 82,334
Income taxes receivable 230,000 230,000
Inventories 147,021 159,361
Prepaid expenses 182,658 174,372
---------- ----------
Total current assets 774,203 784,494
MEMBERSHIP RECREATIONAL MINING
PROPERTIES, NET 995,010 995,010
ALASKA RECREATIONAL MINING PROPERTIES, NET 1,449,708 1,465,609
OUTDOOR CHANNEL EQUIPMENT, NET 367,324 386,584
OTHER EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, NET 233,198 232,703
STOCKHOLDER RECEIVABLE 201,958 223,657
TRADEMARKS, net of accumulated amortization 85,357 85,601
DEPOSITS AND OTHER ASSETS 106,906 52,240
---------- ----------
TOTAL ASSETS $4,213,664 $4,225,898
========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
-3-
<PAGE> 5
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31 December 31
1997 1996
----------- -----------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Line of credit $ 738,851 $ 715,322
Current maturities of long-term debt 300,410 303,593
Current maturities of capital leases 46,540 47,172
Customer deposits 429,476 9,500
Accounts payable and accrued expenses 372,556 420,198
Deferred revenue, current 1,441,608 1,433,552
----------- -----------
Total current liabilities 3,329,441 2,929,337
DEFERRED REVENUE, Long term portion 437,477 424,230
LONG TERM DEBT, Less current portion 613,611 637,717
CAPITAL LEASES, Less current portion 190,557 192,664
----------- -----------
Total liabilities 4,571,086 4,183,948
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Convertible preferred stock, non voting, 10% noncumulative,
no liquidation preference, $.001 par value; 10,000,000 shares
authorized; shares issued and outstanding: 60,675 at March 31,
1997; 60,775 at December 31, 1996 61 61
Common stock, $.02 par value; 50,000,000 shares
authorized; shares issued and outstanding: 4,128,814
at March 31, 1997; 4,122,354 at December 31, 1996 82,576 82,448
Additional paid-in capital 2,941,035 2,953,803
Retained deficit (3,159,844) (2,773,112)
Common stock subscriptions receivable (221,250) (221,250)
----------- -----------
Total stockholders' equity (357,422) 41,950
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,213,664 $ 4,225,898
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
-4-
<PAGE> 6
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------------ December 31
1997 1996 1996
----------- ------------- -----------
(unaudited)
<S> <C> <C> <C>
REVENUES:
Alaska Trip $ - $ - $ 828,901
Merchandise sales 251,052 172,641 488,973
Membership sales 747,819 823,911 3,137,447
Advertising 294,670 134,612 960,462
Interest 4,663 6,340 23,789
Other income 12,379 7,500 45,436
----------- ----------- -----------
Total revenues $ 1,310,583 $ 1,145,004 $ 5,485,008
=========== =========== ===========
EXPENSES:
Alaska trip expenses -- -- 553,596
Cost of merchandise sold 167,451 114,117 321,843
Cost of memberships sold 67,625 98,710 268,974
Satellite transmission fees 400,607 383,304 1,441,619
Advertising and programming 164,351 407,899 945,357
Selling, general and administrative 854,000 849,611 4,582,674
Interest 43,281 13,021 138,303
----------- ----------- -----------
Total expenses 1,697,315 1,866,662 8,252,366
----------- ----------- -----------
Loss before income taxes (386,732) (721,658) (2,767,358)
Income tax benefit -- 56,760 217,658
----------- ----------- -----------
Net loss $ (386,732) $ (664,898) $(2,549,700)
----------- =========== ===========
Loss per share $ (0.09) $ (0.17) $ (0.62)
=========== =========== ===========
Weighted average number of common shares
outstanding 4,126,674 4,018,676 4,103,141
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-5-
<PAGE> 7
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------------
1997 1996
---------- ----------
(unaudited)
<S> <C> <C>
Cash flows from operating activities $ (3,772) $ (65,050)
Cash flows (used in) investing activities,
purchase of equipment (69,799) (448,883)
Cash flows (used in) financing activities,
payments on long-term debt 46,085 343,867
--------- ---------
Net increase (decrease) in cash $ (27,486) $(170,066)
Cash at beginning of period $ 82,027 $ 458,448
--------- ---------
Cash at end of period $ 54,541 $ 288,382
========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-6-
<PAGE> 8
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
Global Outdoors, Inc. (the Company) owns and operates The Outdoor Channel, Inc.,
the first national television network devoted solely to outdoor activities, such
as hunting, fishing, scuba diving, camping, RV-ing and recreational gold
prospecting. The Company's other business activities consist of the promotion
and sale of an "Alaska trip", a recreational gold mining expedition to the
Company's Cripple River property located near Nome, Alaska, and the sale of Lost
Dutchman's (LDMA-AU, Inc.) memberships which entitle members to engage in
recreational prospecting on its California, Oregon, Alaska, Nevada, Arizona,
Colorado, Georgia, North Carolina and South Carolina properties. The Company has
also signed a mutual use agreement with another organization whose members are
entitled to engage in recreational mining on certain of each other's properties.
The Company also receives revenues from the sale of memberships in a gold
prospecting club, Gold Prospectors' Association of American, Inc. (GPAA),
revenue from advertisers in a bi-monthly magazine, advertising revenue through
cable television programming d/b/a The Outdoor Channel, Inc. and through
merchandise sales. Effective July 23, 1996, the Company changed its name from
Global Resources, Inc. to Global Outdoors, Inc.
The Company's operations are subject to various government regulations. The
operations of cable television systems, satellite distribution systems and
broadcast television program distribution companies are subject to the
Communications Act of 1934, as amended, and to regulatory supervision thereunder
by the Federal Communications Commission (the FCC). The Company's leased uplink
facility in Perris, California is licensed by the FCC and must be operated in
conformance with the terms and conditions of that license. Cable systems are
also subjected to local franchise authority regulation.
During 1996, the Company experienced significant operating losses, principally
from the operation of The Outdoor Channel, Inc. As a result of losses in 1996
and prior years, at December 31, 1996, the Company has negative working capital.
Furthermore, losses subsequent to December 31, 1996 have resulted in a deficit
stockholders' equity position. The Company is currently conducting a public
offering of common stock, and management is discussing additional
capital-raising efforts with third parties; however, management is unable to
predict the outcome of the discussions or determine to what extent the Company
will increase its capital base. Management is also currently negotiating
carriage agreements with third parties that could result in a significant
increase in the subscriber base for The Outdoor Channel, Inc., which would
result in an increase in advertising revenue for the Company; however,
management is unable to predict the outcome of those negotiations or determine
when the Company's revenues will increase. Under the terms of such carriage
agreements, the Company could be required to pay significant up-front fees.
Management believes the Company will be able to obtain financing to pay any such
fees. In April, 1997, the Company entered into an agreement with Perry T.
Massie, Thomas H. Massie and Wilma M. Massie (the Principal Stockholders),
whereby the Principal Stockholders agreed to provide for the cash flow
requirements of the Company over the next twelve months by means of loans or
equity investments.
SIGNIFICANT ACCOUNTING POLICIES:
Management Statement:
The interim financial statements for the period January 1 through March 31,
1997, include all adjustments which in the opinion of management are necessary
in order to make the financial statements not misleading.
-7-
<PAGE> 9
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Reference to Form 10-KSB:
Please refer to the Company's Form 10-KSB for the year ended December 31, 1996,
for additional information and disclosures which may be of interest to the
reader hereof.
Principles of consolidation:
The consolidated financial statements include the accounts of Global Outdoors,
Inc. and its wholly-owned subsidiaries, LDMA-AU, Inc., Big "M" Mining Company,
Inc., Gold Prospectors' Association of American, Inc and The Outdoor Channel,
Inc. which operates a satellite and cable television channel. All material
intercompany accounts and transactions have been eliminated in consolidation.
Inventories:
Inventories are valued at the lower of cost (first-in, first-out) or market.
Trademarks:
Trademarks are amortized on a straight-line basis over 15 years.
Membership recreational mining properties:
Membership recreational mining properties consist primarily of land, are held
for membership use and are recorded at cost, net of accumulated depreciation on
non-land assets provided on a straight-line basis over 15 years.
Alaska recreational mining properties:
Alaska recreational mining properties consist primarily of land, buildings and
equipment and are recorded at cost, net of accumulated depreciation on the
buildings and equipment provided on a straight-line basis over 10 years.
Outdoor Channel equipment:
Outdoor Channel assets consist primarily of equipment and are recorded at cost,
net of accumulated depreciation provided on a straight line basis over five
years.
Other equipment and leasehold improvements:
Equipment and leasehold improvements are carried at cost net of accumulated
depreciation provided on a straight line basis over five to ten years.
Revenue recognition:
Revenue on the "Alaska trip" income is recognized when trips are taken. Trips
are taken in June through August each year.
The Company has sold memberships in LDMA-AU primarily on an installment basis.
Memberships include contracts that give purchasers recreational prospecting and
mineral rights to the Company's land and rights to use the land and facilities
for camping and recreational vehicle parking. The contracts are
-8-
<PAGE> 10
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
generally noninterest bearing, unsecured and provide for a down payment and
monthly installments of $25 for periods of up to ten years. No deferred revenue
or accounts receivable have been recorded for amounts not yet due under the
contract terms due to uncertainty of collection. Sales revenue is recognized
based upon a weighted average ten year straight line method. The ten year
weighted average method was established based upon historical membership
longevity, taking into consideration member defaults and withdrawals. Deposits
are taken on new sales contracts, and are fully refundable for 10 days.
The Company also sells GPAA memberships for periods varying from one year to
lifetime memberships. For nonlifetime memberships, revenue is recognized over
the life of the membership. Approximately 10% of GPAA members are members of
LDMA-AU referred to in the paragraph above. Based on demographics, the GPAA
members have a longer term than LDMA-AU members. Management estimates the
expected period of time a lifetime member is active in the GPAA to be fifteen
years. Accordingly, for lifetime memberships, revenue is recognized on a
straight line basis over fifteen years.
Advertising revenue for The Outdoor Channel, Inc. is recognized when the
advertisement takes place. Advertising revenue from advertisers in the Company's
bi-monthly magazine is recognized when the magazine is distributed.
Reclassification:
Certain prior year amounts in the consolidated financial statements have been
reclassified to conform to conform to the current year presentation.
Advertising:
Advertising costs are charged to expense as incurred and production costs of
advertising are expensed the first time the advertising takes place.
Impact of recent accounting pronouncements:
Effective in 1997, the Company will be required to adopt Statement of Financial
Accounting Standards No. 128, "Earnings per Share" and No. 129, "Capital
Structure." The impact of the adoptions of these pronouncements is not expected
to be material to the Company's financial position or results of operations.
Income taxes:
Deferred taxes are provided on the liability method whereby deferred tax assets
are recognized for deductible temporary differences and deferred tax liabilities
are recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
basis. Deferred tax assets are reduced by valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of the enactment.
Loss per share:
The computation of loss per share is based on the weighted average number of
common and common equivalent shares outstanding during the year. In 1996, the
weighted average number of shares for computing loss per share was 4,103,141.
For March 31, 1997 and 1996, the weighted average number of shares for computing
loss per share were 4,126,674 and 4,018,676, respectively. The computation of
-9-
<PAGE> 11
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
fully diluted loss per share was antidilutive in each of the periods presented;
therefore, the amounts reported for primary and fully diluted loss are the same.
Use of estimates:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make certain 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. Actual results could differ from those
estimates.
Fair value of financial instruments:
The carrying value of accounts receivable and trade payables approximates the
fair value due to their short-term maturities. The carrying value of the
Company's debt is considered to approximate fair market value as the interest
available to the Company for loans with similar terms.
Accounting for stock based compensation:
The Company accounts for stock-based compensation issued to employees using the
intrinsic value based method as prescribed by The Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25). Under
the intrinsic value based method, compensation is the excess, if any, of the
fair value of the stock at the grant date or other measurement date over the
amount an employee must pay to acquire the stock. Compensation expense, if any,
is recognized over the applicable service period, which is usually the vesting
period.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
(SFAS No. 123). This standard, if fully adopted, changes the methods of
accounting for employee stock-based compensation plans to the fair value based
method. For stock options and warrants, fair value is determined using an option
pricing model that takes into account the stock price at the grant date, the
exercise price, and the expected life of the option or warrant. Compensation
expense, if any, is recognized over the applicable service period, which is
usually the vesting period.
The adoption of the accounting methodology of SFAS No. 123 is optional and the
Company has elected to continue accounting for stock-based compensation issued
to employees using APB No. 25; however, pro forma disclosures, as if the Company
adopted the cost recognition requirements under SFAS No. 123, are required to be
presented (see Note 8).
NOTE 2. STOCKHOLDERS' EQUITY
In February of 1992, the Board of Directors authorized a one-for-twenty reverse
stock split which reduced the number of outstanding common shares from
12,250,435 to 612,521. The par value of the Company's common stock was
simultaneously increased from $.001 a share to $.02 a share. All per share
amounts for prior years have been restated to give retroactive effect to the
reverse stock split.
In August 1994, the Board of Directors authorized a two-for-one forward stock
split which increased the number of outstanding shares from 1,920,955 to
3,841,910. The par value of the Company's common stock was not changed.
-10-
<PAGE> 12
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3. SUBSEQUENT EVENTS
In April, 1997, the Company entered into an agreement with Perry T. Massie,
Thomas H. Massie and Wilma M. Massie (the Principal Stockholders), whereby the
Principal Stockholders agreed to provide for the cash flow requirements of the
Company over the next twelve months by means of loans or equity investments
In April 1997, Perry T. Massie, a principal shareholder of the Company, loaned
the Company $115,000 on a note bearing interest at 10%.
-11-
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This report on Form 10-QSB contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The Company intends that such forward-looking
statements be subject to the safe harbors created thereby. This report should be
read in conjunction with the Company's report on Form 10-KSB for the year ended
December 31, 1996.
COMPARISON OF QUARTERS ENDED MARCH 31, 1997 AND MARCH 31, 1996
Revenues. The Company's revenues include revenues from advertising
fees, GPAA and Lost Dutchman's membership sales, product sales and the Trips
Division sales. Advertising fees result from the sale of advertising time on The
Outdoor Channel and from advertising space in publications such as the Gold
Prospector magazine. Revenues for the quarter ended March 31, 1997 were
$1,310,583, an increase of $165,579 or 14%, compared to revenues of $1,145,004
for the quarter ended March 31, 1996. This increase was the result an increase
in advertising revenue. Advertising increased to $294,670 for the quarter ended
March 31, 1997 from $134,612 for the quarter ended March 31, 1996, primarily due
to an increase in advertising revenue on The Outdoor Channel. Merchandise sales
increased to $251,052 for the quarter ended March 31, 1997 from $172,641 the
quarter ended March 31, 1996 and Membership sales decreased to $747,819 for the
quarter ended March 31, 1997 from $823,911 for the quarter ended March 31, 1996.
Despite management devoting significant time and resources to increasing
distribution and revenues for The Outdoor Channel, in the first quarter of 1997,
the Company was able to maintain the combination of Merchandise sales and
Membership sales at the same level as the first quarter of 1996 while more than
doubling advertising revenue
Expenses. Expenses consist primarily of the cost of the Company's
satellite transponder and uplink facilities, programming, advertising and
promotion, sales and administrative salaries, office expenses and general
overhead. Expenses for the quarter ended March 31, 1997 were $1,697,315 a
decrease of $169,347, or 10%, compared $1,866,662 for the quarter ended March
31, 1996. This decrease was primarily due to a decrease in advertising and
programming to $164,351 for the quarter ended March 31, 1997 from $407,899 for
the quarter ended March 31, 1996, due to the elimination of production costs and
purchased advertising time on The Nashville Network ("TNN") for the Company's
"Gold Prospecting Show." The Cost of these items was several hundred thousand
dollars for the quarter ended March 31, 1996. There was no similar expense for
the quarter March 31, 1997. Cost of merchandise sold increased to $167,451 for
the quarter ended March 31, 1997 compared to $114,117 for the quarter ended
March 31, 1996, due to an increase in Merchandise sales and Cost of membership
sales decreased to $67,625 for the quarter ended March 31, 1997 compared to
$98,710 for the quarter ended 31, 1996 due to a decrease in Membership sales.
Loss Before Income Taxes. Loss before income taxes decreased
substantially as a percentage of revenues to (30)% for the quarter ended March
31, 1997 from (63)% for the quarter ended March 31, 1996. The increase in
advertising revenue and elimination of the expenses incurred for "The Gold
Prospecting Show" on TNN were the primary reasons for this decrease.
Income Tax Benefit. Income tax benefit for the quarter ended March 31,
1997 was $0 compared to $56,760 for the quarter ended March 31, 1996. The
Company has utilized all its carry back losses and there is no present income
tax benefit associated with its current quarter loss. The Company is able to
carry that loss forward for ten years and apply it against future Net income.
-12-
<PAGE> 14
GENERAL
Global Outdoors, Inc. (the "Company" or "Global") owns and operates The
Outdoor Channel, the first national television network devoted solely to outdoor
activities, such as hunting, fishing, scuba diving and recreational gold
prospecting. The Company also owns and operates related businesses which serve
the interests of viewers of The Outdoor Channel and other outdoor enthusiasts.
These related businesses include, LDMA-AU, Inc. ("Lost Dutchman's"), Gold
Prospectors' Association of America, Inc. ("GPAA") and the Trips Division. Lost
Dutchman's is a national recreational gold prospecting campground club with over
5,000 members and properties in California, Alaska, Oregon, Nevada, Arizona,
Colorado, Georgia, South Carolina and North Carolina GPAA is the largest
recreational gold prospecting club in the world with approximately 50,000 active
members. GPAA also sells products and services related to recreational gold
prospecting and is the publisher of the Gold Prospector magazine. Prior to being
a wholly-owned subsidiary of the Company, GPAA was an affiliated company which
owned the Outdoor Channel. As discussed below, the Company acquired 100% of the
stock of GPAA in February 1995. The Company's Trips Division sponsors unique
recreational prospecting trips to Australia and to the Company's 2300 acre camp,
located 11 miles west of Nome, Alaska. Global started a new products division in
1995 called "American Prospecting Equipment Company" and owns a 51% interest
therein.
The Company has been selling its GPAA club memberships since its
incorporation in 1984. From 1968 to 1984, GPAA memberships were sold by the
proprietorship owned by the Company's founders. GPAA membership sales took a
marked upswing in 1992 in conjunction with the airing of the "Gold Prospector
Show," a show the Company has owned and produced since 1990. During 1992, the
"Gold Prospector Show" was broadcast on various television and cable channels,
for which the Company purchased air time. In 1993, GPAA launched The Outdoor
Channel and, since then, broadcasts of the "Gold Prospector Show" and related
sales of GPAA memberships have occurred almost exclusively on The Outdoor
Channel. The Company intends that The Outdoor Channel be used as the primary
vehicle to promote the Company's services and products and anticipates that it
will be the major factor in the future growth of GPAA, Lost Dutchman's and the
Trips Division.
Management of Global continued its emphasis on the growth and
development of The Outdoor Channel during the first and second quarters of 1997.
Although The Outdoor Channel is not aligned with any sizable entertainment or
cable company, as are many emerging channels, it has to date achieved
substantial visibility in the cable industry. The Company is committed to
converting visibility for The Outdoor Channel's programming into greater
distribution into cable households. Greater distribution will allow the Company
to charge higher advertising rates, command subscriber fees from cable
affiliates, attract more advertisers and receive greater revenues for the
Company's products.
A primary objective of the Company is to obtain distribution for The
Outdoor Channel. To accomplish this objective the Channel seeks to sign national
carriage agreements with multiple systems operators ("MSOs") and thereafter
carriage agreements with the MSOs' individual cable affiliates. The Company's
efforts to obtain distribution for The Outdoor Channel to date have largely been
focused on areas where there are the greatest number of outdoor enthusiasts,
mainly in rural areas of the United States. In 1996, the Company entered into
national carriage agreements with 13 of the top 100 MSO's in the United States,
including TCA Cable, the 17th largest MSO, with over 670,000 subscribers; TW
Fanch, the 19th largest MSO, with over 500,000 subscribers; Tele-Media, the 22nd
largest MSO, with approximately 430,000 subscribers; Rifkin & Associates, the
25th largest MSO, with approximately 350,000 subscribers; and Service Electric
Cable Television, the 26th largest MSO, with approximately 300,000 subscribers.
Since the beginning of 1997, the company has added 11 additional top 100 MSO's
bringing the total 24, including Post Newsweek Cable, the 18th largest MSO, with
over 600,000 subscribers; Triax Cable, the 21st largest MSO with over 400,000
subscribers; US Cable, the 30th largest MSO with over 240,000
-13-
<PAGE> 15
subscribers; Galaxy Telecom, the 34th largest MSO with over 200,000 subscribers.
In February, the Company signed an affiliation agreement with the National Cable
Television Cooperative ("NCTC") which represents over 4500 small and mid size
cable systems with over 7,500,000 subscribers. In addition, the company has also
signed an affiliation agreement with People's Choice, a wireless cable operator
serving over 75,000 subscribers. The Company has been launched on additional
cable systems without signed national carriage agreements and is in active
negotiations with systems including Tele-Communications, Inc., the largest MSO
in the country, and Times Warner, the second largest MSO in the country. In
addition, the Company is in active negotiations with many other cable operators.
The Company believes that it will be able to enter into more affiliation
agreements in the future as a result of increased installation of new cable
distribution systems and the expected significant expansion of channel capacity
of existing cable systems. The Company intends to continue its promotional
activities, such as attending regional and local cable trade shows, in order to
increase cable industry awareness of The Outdoor Channel.
Direct-broadcast satellite ("DBS") companies, such as DirecTv, Prime
Star and EchoStar represent an additional, although smaller, means of potential
distribution of The Outdoor Channel. The Company believes that distribution by
means of DBS will increase as market acceptance and the installed base of DBSs
increase. At this time, The Outdoor Channel is negotiating DBS distribution with
several of the major DBS providers but has no executed agreements for such
distribution.
Effective January 20, 1997, the Company restated its financial
statements to among other matters, recognize revenue from its Lost Dutchman's
sales on a straight line basis over ten years and eliminate barter advertising
revenue. This restatement resulted in a substantial reduction of revenue,
income, assets and equity for the Company. The financial statements herein and
all matters related thereto reflect this restatement.
On January 31, 1997, the Company's SB-2 Registration Statement filed
with the Securities and Exchange Commission ("SEC") in 1996 was declared
effective by the SEC. The Registration Statement is for a follow-on public
offering of the Company's Units. The Units consist of two (2) shares of Common
Stock and one (1) Class F Warrant to purchase Common Stock and are presently
being offered at a price of $8.00 per Unit. The offering is for a minimum of
$200,000 and a maximum of $5,000,000 and is being conducted on a best efforts
basis by the Company and Selected Broker-Dealers/Underwriters. The Company
anticipates contributing substantially to the sale of Units by referring persons
to Selected BrokerDealers/Underwriters, in which case, such firms will receive a
lower sales commission. As of May 27, 1997, the Company had raised over $250,000
in this offering. The primary reasons Global is conducting the offering is to
provide additional capital for The Outdoor Channel and the Lost Dutchman's camp
club.
In February 1997, The Outdoor Channel moved to Hughes Communications
satellite, Galaxy 1R, from AT&T satellite, Telstar 402R. Galaxy 1R is considered
a cable channel satellite and contains such other tenants as HBO and The Disney
Channel. It is therefore considered a much better satellite than Telstar 402R.
In connection with this matter the Company pledged 250,000 shares of Common
Stock to USA Networks as collateral for its performance under its sublease of
USA Networks transponder on the Galaxy 1R satellite.
The Company currently does not meet Nasdaq's minimum continued listing
requirement of $1,000,000 in equity. The Company has submitted a proposal to
Nasdaq for achieving compliance. If Nasdaq does not approve of the Company's
proposal, the Company's Common Stock will be delisted from Nasdaq. If the
Company's Common Stock was delisted from trading on Nasdaq, trading would
thereafter be conducted in the over-the counter market so-called "pink sheets"
or the "Electronic Bulletin Board" of the National Association of Securities
Dealers, Inc. and consequently an investor could find it more difficult to
dispose of, or to obtain accurate quotations as to the price of, the Company's
securities.
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<PAGE> 16
The Company is not currently generating sufficient cash flow from its
operation to meet its cash flow requirements. In April, 1997, the Company
entered into an agreement with Perry T. Massie, Thomas H. Massie and Wilma M.
Massie (the Principal Stockholders), whereby the Principal Stockholders agreed
to provide for the cash flow requirements of the Company over the next twelve
months by means of loans or equity investments. In February 1997, Wilma M.
Massie, a principal shareholder of the Company, loaned the Company $125,000 on a
note bearing interest at 10% and in April 1997, Perry T. Massie, a principal
shareholder of the Company, loaned the Company $115,000 on a note bearing
interest at 10%. The Company has received a proposal from Wells Fargo Bank
regarding the renewal of its credit line which expires in June 1997. The
proposal requires a higher interest rate than is presently being paid on the
credit line and a higher interest rate on the Company's long term loan with the
bank which is due in September 1999. The proposal requires that the bank receive
a First Priority Security Interest in all the assets of the Company and its
subsidiaries. The Company intends to renew its credit line with Wells Fargo
Bank.
To achieve modest growth, the Company believed at quarter end that in
addition to its available funds, credit line and expected cash flow to be
generated from operations that it will require an additional $500,000 through
December 31, 1997. The Company's primary source for these funds is either its
present public offering or the Principal Stockholders referred to in the
paragraph above. Thereafter, the Company anticipates that it will not require
outside capital to maintain its current level of operations. In order to have a
higher growth rate, the Company believes it will be necessary to raise in excess
of $500,000 in its public offering or obtain other outside capital. The Company
can place no assurance on receiving equity funding through outside sources. If
cash flow from operations are insufficient or if working capital requirements
are greater than anticipated, the Company could be required to seek other
financing. There can be no assurance that equity or debt financing will be
available if needed, or, if available, will be on terms favorable to the Company
or its shareholders. Significant dilution may be incurred by present
shareholders as a result of any such financing.
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<PAGE> 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number
-------
27 Financial Data Schedule (SEC filing only).
(b) Reports on Form 8-K
None.
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<PAGE> 18
SIGNATURES
In accordance with the requirements 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.
GLOBAL OUTDOORS, INC.
(Registrant)
Dated: May 27, 1997 By: /s/ PERRY T. MASSIE
----------------------------
PERRY T. MASSIE,
President and Chief
Executive Officer
Dated: May 27, 1997 By: /s/ DAVID M. ASHWOOD
----------------------------
DAVID M. ASHWOOD,
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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<PAGE> 19
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended DECEMBER 31, 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 : 0-17287
GLOBAL OUTDOORS, INC.
(Exact name of registrant as specified in its charter)
ALASKA 33-0074499
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
43445 BUSINESS PARK DR. SUITE 113, TEMECULA, CALIFORNIA 92590
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (909) 699-4749
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No
[ ]
<PAGE> 20
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year $5,485,008.
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days.
On April 2, 1997, 772,922 shares of voting Common Stock were held by
non-affiliates of the registrant. On Said date the aggregate market value of
such Common Stock was $3,188,303.
(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15 (d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as latest practicable date:
<TABLE>
<CAPTION>
Number of Shares Outstanding
Class at April 2, 1997
----- ----------------
<S> <C>
Common Stock 4,128,814
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCES
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II,
etc.) into which the document is incorporated: (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any prospectus filed
pursuant to Rule 424 (b) or (c) under the Securities Act of 1933 ("Securities
Act"). The listed documents should be clearly described for identification
purposes (e.g., annual report to security holders for the fiscal year ended
December 24, 1990).
None.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
-2-
<PAGE> 21
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
INTRODUCTORY
The following information includes forward-looking statements. Actual results
could differ materially.
GENERAL
Global Outdoors, Inc. (the "Company" or "Global") owns and
operates The Outdoor Channel, the first national television network devoted
solely to outdoor activities, such as hunting, fishing, scuba diving and
recreational gold prospecting. Launched as a part-time network in June 1993, The
Outdoor Channel progressed to a full-time channel in April 1994 and since then
has continued to develop its management, programming, distribution and revenue.
The Company also owns and operates related businesses which serve the interests
of viewers of The Outdoor Channel and other outdoor enthusiasts. These related
businesses include, LDMA-AU, Inc. ("Lost Dutchman's"), Gold Prospectors'
Association of America, Inc. ("GPAA"), the Trips Division and a 51% interest in
American Prospecting Equipment Company ("APEC"). Lost Dutchman's is a national
recreational gold prospecting campground club with over 5,000 members and
properties in California, Oregon, Alaska, Nevada, Arizona, Colorado, Georgia,
North Carolina and South Carolina. Since January 1993, Lost Dutchman's has added
five properties and approximately 3,500 members. GPAA is the largest
recreational gold prospecting club in the world with approximately 50,000 active
members. GPAA also sells products and services related to recreational gold
prospecting and is the publisher of the Gold Prospector magazine. American
Prospecting Equipment Company markets products related to the recreational
prospector. APEC publishes a products catalog which is distributed to members of
the GPAA. The Company's Trips Division sponsors unique recreational prospecting
trips to California's Motherlode area and to the Company's 2300 acre camp,
located 11 miles west of Nome, Alaska. In February 1995, the Company acquired
100% of GPAA, the shareholders of which are Global's principal shareholders, for
2,500,000 shares of Common Stock valued at $8,750,000 and potential Earn Out
Shares (See Certain Transactions). At the time of the acquisition, GPAA in
addition to its other interests owned The Outdoor Channel. The Company was
incorporated in Alaska on October 22, 1984. Effective July 23, 1996, the Company
changed its name to Global Outdoors, Inc. from Global Resources, Inc. to better
reflect the nature of the Company's business. The Company's NASDAQ trading
symbol "GLRS" remained unchanged.
BUSINESS STRATEGY
The Company's principal business strategy is to establish a
position as a leading provider of entertainment programming relating to outdoor
activities and to leverage that position as a means to market and sell its
products and services. Key elements of the Company's business strategy are as
follows:
Increase the Outdoor Channel's Carriage on Cable Television
Systems: The Company intends to increase The Outdoor Channel's carriage on cable
television systems by improving the quality of the originally produced and
acquired programming on The Outdoor Channel and by increasing the public's
awareness and name recognition of The Outdoor Channel through intensified public
relations and marketing efforts targeting cable operators and potential
subscribers.
Market and Sell Products and Services to Other Specialty or Niche
Markets: The Company intends to utilize The Outdoor Channel to market and sell
outdoor-related products to specialty or niche markets in addition to
recreational gold prospecting, including hunting, fishing and camping. The
Company intends to leverage The Outdoor Channel's increased distribution and
name recognition to market and sell such products and services to those viewers
who identify The Outdoor Channel and related products and services with quality
and integrity.
Increase Advertising Revenue and Subscriber Fees Derived From The
Outdoor Channel: The Company believes that as the quality and popularity of The
Outdoor Channel increase, the Company will be able to increase
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<PAGE> 22
advertising rates on The Outdoor Channel and increase subscriber fees from cable
operators. On June 1, 1996, The Outdoor Channel introduced a five year rate card
which requires new affiliates to begin paying subscriber fees that increase each
year throughout the term. In addition, the Company intends to offer "charter" or
reduced advertising rates to large national advertisers in an effort to attract
reputable, well-known advertisers who will be willing to pay higher rates as The
Outdoor Channel achieves greater distribution.
Increase the Number of Offered Recreational Activities: The
Company intends to increase the number of recreational activities offered to
members of Lost Dutchman's and to customers of the Trips Division, including
hunting, fishing and camping. In addition, the Company may establish new clubs
based on these new activities and may acquire new properties to serve as
campgrounds where members can engage in such activities.
THE OUTDOOR CHANNEL
The Outdoor Channel, Inc. ("The Outdoor Channel") was
incorporated under the laws of the State of Nevada on December 10, 1990, under
the name Gold News Network, Inc., as a wholly owned subsidiary of GPAA.
Initially, The Outdoor Channel produced the "Gold Prospector Show." In early
1993, due to the success of the Gold Prospector Show, the owner of The Outdoor
Channel, GPAA., decided to launch a satellite television network. Not wanting to
limit the scope of the incipient channel to gold prospecting, it was decided to
name the channel, The Outdoor Channel. To reflect the diversity of programming
The Outdoor Channel had achieved, in July 1994, the channel's incorporated name
was changed to The Outdoor Network, Inc. In December 1996, the incorporated name
was changed to its present name, The Outdoor Channel, Inc.
The Outdoor Channel is a premier provider of a full range of
quality programming related to outdoor activities and is one of the only
television networks whose programming specifically targets the interests and
concerns of the huge number of persons interested in the outdoors. The Outdoor
Channel provides the Company, as well as other advertisers, with a cost
effective means to promote goods and services to a large and rapidly increasing
market. In addition, The Outdoor Channel affords cable operators the opportunity
to both attract subscribers from a significant market segment not specifically
targeted by other programming services and respond to cable subscribers' demands
for more outdoor-related programming.
DISTRIBUTION AND CABLE SUBSCRIBERS
The Outdoor Channel's programming is offered mainly by means of
satellite and through contractual relationships with operators of cable
television systems and broadcast stations. The Company estimates that
approximately 65 million households in the United States have cable television
and that the home satellite market has attracted another 5.5 million households.
Industry statistics indicate that approximately 12,000 additional C-Band home
satellite dishes are being installed each month. In addition, "wireless cable"
("MMDS"), new video systems presently being built by telephone companies and the
recent development of direct-broadcast satellite ("DBS") companies provide
additional opportunities for the Company to distribute The Outdoor Channel. The
Company believes that The Outdoor Channel can currently be viewed by
approximately 8 million households.
The Company transmits all of its programs from its production
facility located in Temecula, California by means of a master control room that
is linked via fiber optic cable to an earth station transmitting antenna (an
"uplink"), which the Company leases under a service agreement. The uplink
facility transmits The Outdoor Channel's programming signal over an orbiting
Hughes Communications Galaxy 1R satellite transponder to cable system headend
receiving antennae and satellite dishes throughout the United States and Canada.
The Company has editing equipment at its production facility which is used to
assemble programs that are produced in house, edit acquired programming and
insert advertising spots. The Company also has several filming sets at its
production facility from which some of its in house programming is produced.
Under its current national carriage agreements with multiple
systems operators ("MSOs") and carriage agreements with the MSOs' individual
cable affiliates, the Company typically offers MSOs and their cable affiliates
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<PAGE> 23
the right, for a nominal subscriber fee to broadcast The Outdoor Channel to
their subscribers for five years and the Company provides the MSOs and their
cable affiliates with two minutes per broadcast hour of local advertising time.
In June 1996, the Company ended its charter affiliate offer which gave the cable
operator The Outdoor Channel free for 5 years. A total of 210 cable operators
representing approximately 3,000,000 subscribers signed charter affiliate
contracts, of which approximately 500,000 subscribers have been launched. The
new carriage agreement which calls for modest license fees beginning in 1997 has
been signed by 119 cable operators representing over 7,819,300 subscribers of
which approximately 151,000 have been launched. There are 36 cable operators who
have launched The Outdoor Channel without signed national carriage agreements
representing approximately 16,000,000 subscribers, of which approximately
150,000 have launched. The Company is in active negotiations with such cable
operators including Tele-Communications, Inc. , the largest MSO in the country.
The Company believes that it will be able to enter into more affiliation
agreements in the future as a result of increased installation of new cable
distribution systems and the expected significant expansion of channel capacity
of existing cable systems. In addition, the Company intends to continue its
promotional activities, such as attending regional and local cable trade shows,
in order to increase cable industry awareness of The Outdoor Channel. To date,
The Outdoor Channel is available in a total of approximately 750,000 cable
households.
The Outdoor Channel is also broadcast via satellite to those
homes and businesses that have large analog satellite receivers. Given the fact
that approximately 5,500,000 homes and businesses own satellite receivers, the
Company believes that this means of broadcasting provides an unique opportunity
for the Company to attract advertisers as well as advertise and market the
Company's other outdoor-related products and services. The company intends to
encrypt its signal by the end of 1998 requiring satellite viewers to purchase
subscriptions. The Outdoor Channel is also carried by broadcast stations in
certain markets reaching another 1.2 million households.
DBS providers, such as DirecTv, Prime Star and EchoStar represent
an additional, although smaller, means of potential distribution of The Outdoor
Channel. The Company believes that distribution by means of DBS will increase as
market acceptance and the installed base of DBSs increase. At this time The
Outdoor Channel is seeking DBS distribution but has no agreements for such
distribution.
The Company also plans to increase international distribution of
The Outdoor Channel, and has applied for trademarks in various foreign countries
including Canada, France, Taiwan, Hong Kong, Australia, New Zealand, Germany and
The United Kingdom. The Company recently completed initial negotiations with a
major packager and distributor of cable channels for international markets, and
expects to begin international distribution in 1997.
ADVERTISING
The Company derived $960,462 from advertising revenue for the
year ended December 31, 1996. The Company received $730,305 for cash sales of
advertising time on The Outdoor Channel and received $230,157 for advertising in
its publications such as the Gold Prospector magazine. Compared to most other
television networks, The Outdoor Channel's success is not as dependant upon
obtaining advertising revenue due to the fact that the Company advertises and
markets many of its own products and services on The Outdoor Channel, including
trips offered through the Global Outdoors' Trips Division and memberships
offered in Global Outdoors's GPAA and Lost Dutchman's clubs. The Company
anticipates that it will continue to derive a substantial portion of its revenue
from the sale of products and services to specialty or niche markets; however,
the Company is also focusing its efforts on attracting national and local
advertisers who are interested in reaching these markets. The Company engages in
"barter" advertising transactions under which the Company acquires programming
from third parties in exchange for a portion of the advertising time within such
programming. The Company does not recognize any of the barter advertising as
revenue. The Company will also continue to enter into "barter" advertising
transactions but the long term plan for the Company is to slowly replace the
barter programming with programming that is either produced in house or is
acquired, giving the Company control of 100% of the advertising time within
these programs.
The Company believes that advertising on The Outdoor Channel is
attractive to advertisers because it allows them to execute both a general
market strategy of reaching more cable television viewers and a target market
strategy of reaching consumers interested in outdoor-related activities. The
Company believes that over the past 15 years,
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<PAGE> 24
cable television has captured a greater share of advertising budgets and that
during this period, the overall ratings for the major networks (ABC, CBS and
NBC), and for local broadcast stations, have declined, while over the same
period the overall ratings for basic cable television programming services have
increased. Because ratings are a significant factor in determining both
advertisers' placement strategy and the pricing of advertising time, cable
advertising revenues have grown significantly faster during this period than
those of broadcast networks.
In addition, the Company believes that The Outdoor Channel will
benefit from the trend in advertising strategies toward greater market
segmentation. The Company believes that a significant number of major national
advertisers of outdoor-related products and services are dedicating a larger
share of their advertising budgets to target the consumer interested in
outdoor-related activities, in an effort to increase their share of this large
and rapidly growing market. Industry sources estimate that the outdoor
life-style market is currently worth approximately $190 billion yearly
worldwide. Therefore, the Company believes that advertisers, including
manufacturers and providers of outdoor-related products and services, will
increasingly advertise on The Outdoor Channel because it will provide them with
a cost effective means to reach a significant number of consumers interested in
outdoor-related activities. Many well known companies have advertised on The
Outdoor Channel with much of such advertising revenue belonging to third parties
who provide barter programming for advertising time. Advertisers on The Outdoor
Channel who have paid The Outdoor Channel directly include Subaru Corporation,
Honda Corporation, Sears, Sprint, AT&T, Bushnell Sports Optics, Sorel Boots and
The National Rifle Association.
Advertising time on The Outdoor Channel is marketed and sold by
MediaAmerica, Inc., the Company's exclusive national advertising sales
representative located in New York, and by the Company's advertising sales
director located in Temecula, California. The Company intends on modestly
increasing the size of its advertising sales staff.
PROGRAMMING
The Outdoor Channel produces approximately 9% of its programming
and acquires the remainder from external sources. Program offerings include
shows devoted to hunting, fishing, recreational gold prospecting, rodeo and
scuba diving, as well as talk shows emphasizing issues relating to the outdoors.
The Company's originally produced programming is focused on
providing entertainment, education, consumer values and a balanced approach to
the use of outdoor natural resources. The Company produces its programs with the
outdoor enthusiast in mind, often after considering suggestions and
recommendations of its viewers. Therefore, the Company believes that its
programming, as opposed to its competitors' programming, accurately represents
the values and interests of the outdoor community. Most of the Company's
originally produced programming is produced in a production facility leased by
the Company and located in Temecula, California.
To complement its originally produced programming, the Company
acquires programs from independent film and television production companies.
Typically the programs have previously aired in various regional markets and The
Outdoor Channel is acquiring the national broadcast rights for the programs. The
Outdoor Channel is often one of the few national television outlets for these
types of programs and, therefore, exhibition rights are relatively inexpensive.
In certain instances the Company is able to acquire programming in exchange for
a portion of the advertising time within such programming. The Company exhibits
the acquired productions pursuant to licensing agreements with suppliers who
generally own the copyrights to such programming. Licenses to air acquired
programming generally run for a calendar quarter to one year and entitle the
Company to show each episode several times. Examples of programming acquired
from third parties include "Call of the Wild," "In-Fisherman," and "Exploring
Idaho."
In 1997, the Company plans to produce and acquire higher quality
programming for The Outdoor Channel which the Company believes will enable it to
obtain greater distribution and increase advertising rates. In addition, the
Company plans to offer additional programming which will be of interest to a
wider demographic.
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<PAGE> 25
MARKETING
Because it owns other outdoor-related businesses, The Outdoor
Channel affords the Company the unique opportunity to market and sell its own
outdoor-related products and services. The Company estimates that it has had
several hundred thousand responses to outdoor-related products, services and
memberships as a direct result of the Company's marketing efforts on The Outdoor
Channel. As the network achieves greater name recognition and distribution, the
Company anticipates that it will be able to increase sales of its products and
services, as well as its sales and exclusive distribution of products produced
by third parties. However, there can be no assurance that this will be the
case.
Outdoor-related products and services currently marketed by the
Company on The Outdoor Channel include those of Lost Dutchman's, GPAA, the Trips
Division and the Products Division ("APEC"). In addition, the Company believes
it is close to an agreement in principle with a major producer of "infomercials"
for a marketing partnership to develop private label products under one or more
of the Company's brands, produce infomercials and other marketing materials, and
market the products through The Outdoor Channel and other media.
LOST DUTCHMAN'S
Lost Dutchman's is a national recreational gold prospecting
campground club, with campgrounds in California, Oregon, Alaska, Nevada,
Arizona, Colorado, Georgia, North Carolina and South Carolina. Lost Dutchman's
currently has over 5,000 members, approximately 1,600 and 1,000 of which joined
in 1995 and 1996, respectively. Lost Dutchman's memberships cost up to $4,500
with annual dues presently set at $96; however, significant discounts are
available to those members who purchase memberships at Company sponsored outings
or trade shows.
Lost Dutchman's members are entitled to use any of the fourteen
campgrounds owned by the Company or by an affiliated organization, pursuant to a
mutual use agreement between the Company and such organization. Members are
entitled to keep all gold found while prospecting on any of the Company's
properties. The Company is committed only to those duties which would be
required as an absentee owner of raw land, such as the payment of property
taxes. Five of the properties have a caretaker which the Company has been able
to retain at a minimal stipend which averages about $450 per month. The
caretaker's job it is to provide minor repairs and maintenance such as keeping
the weeds down, cleaning bathrooms and other facilities, if any, and generally
taking care of the property and the campers. It is worthy of note that in the
past when a major improvement has been made to a property such as a building, a
clubhouse or road that Lost Dutchmans members have contributed both labor and
materials towards its construction so that the Company had very little cost in
the project. It is the Company's intention to actively acquire and develop
additional recreational properties and to add recreational facilities and
improvements at current camps.
In addition to advertising on The Outdoor Channel, the Company
markets Lost Dutchman's memberships by advertising at trade conventions and in
the Gold Prospector Magazine published by the Company. In addition, the Company
targets the 150,000 former and present members of GPAA as well as participants
in the Trips Division's expeditions as potential members of Lost Dutchman's. As
funds are available, the Company intends to purchase additional properties for
use by Lost Dutchman's members and to intensify its marketing efforts to recruit
new Lost Dutchman's members.
GPAA
GPAA is the largest recreational gold prospecting club in the
world, with approximately 50,000 active members. In addition, GPAA publishes and
sells the Mining Guide, which contains detailed information on mining claims
comprising approximately 500,000 acres and is updated annually, as well as the
bi-monthly Gold Prospector magazine, which has a distribution of approximately
100,000 copies. GPAA also operates gold prospecting trade shows and conventions,
from which the Company derives revenue from admissions and booth rentals, and
sells recreational gold prospecting-related merchandise, including gold pans,
hats, jackets and belt buckles.
GPAA's initial memberships cost $67.50, and members are entitled
to receive a 14" gold pan, an annual subscription to the Gold Prospector
magazine, an annual subscription to the quarterly Pick & Shovel Gazette, a
current
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<PAGE> 26
GPAA Mining Guide and Prospecting Permit as well as related merchandise. Annual
renewal membership fees range from $20 to $59. The Company markets and
advertises GPAA memberships and products on The Outdoor Channel.
THE TRIPS DIVISION
The Trips Division offers unique recreational gold prospecting
trips to residents of the United States and Canada. The principal trip offered
by the Trips Division is the annual trip to Alaska, the fees for which are up to
$1,950 per week and $950 per additional week, that include round-trip
transportation to and from Seattle, Washington. The Alaska Trip Crew usually
arrives in early June with the camp closing in mid August. The Alaskan
expedition begins in Nome, Alaska where participants are taken to the Company's
2,300-acre camp on the Cripple River adjacent to the Bering Sea. In 1996, the
Alaska trip had approximately 378 participants, and the Company expects that the
number of participants will increase in the future due to the Company's
increased advertising and marketing efforts on The Outdoor Channel, as well as
advertisements in the Gold Prospector magazine and on the Gold Prospector's
Show.
In 1995, the Company augmented the Alaska Trip with a one week
cruise from Seattle to Anchorage. In 1995, approximately 80 people participated
in the Cruise.
The Company introduced an Australia Expedition in 1995. The
expedition's destination is to Leonora, near Kalgoorlie in Western Australia.
The Western Australia gold fields are some of the richest in the world. In 1995,
approximately 10 people participated in the expedition. Beginning April 1
through October 20, 1996 the Australian expedition was expanded and consisted of
6 two week and 6 four week excursions into the Australian outback. The price of
the expedition is $4,950 for four weeks or $3,950 for two weeks and includes
airfare from Los Angeles, accommodations and meals. This trip has been
suspended in 1997 pending the retention of a new trip leader.
AMERICAN PROSPECTING EQUIPMENT COMPANY
American Prospecting Equipment Company ("APEC") markets
recreational prospecting related products. APEC distributes a sales catalog and
has distribution agreements with equipment manufacturers including Homelite, 3M
and various others. The catalog is distributed to members of the GPAA and at
company sponsored conventions.
COMPETITION
There is intense competition for viewers among companies
providing programming services via cable television and through other video
delivery systems. More than 120 programming services are currently distributed
nationwide by satellite to cable systems. The Outdoor Channel competes for
advertising revenues with other national cable programming services, broadcast
networks, local over-the-air television stations, broadcast radio and the print
media. The Outdoor Channel's direct competitors include the Outdoor Life Network
and to a lesser extent, The Nashville Network and ESPN. More generally, The
Outdoor Channel competes with various other leisure-time activities such as home
videos, movie theaters, and other alternative forms of information and
entertainment.
The Outdoor Channel also competes for available channel space on
cable television systems with other cable programming services and nationally
distributed and local television stations. As of the end of fiscal 1996, there
were numerous basic cable programming services and several superstations.
Increased competition in the cable industry may result from
technological advances, such as digital compression, which allows cable systems
to expand channel capacity, and "multiplexing," which allows programming
services to offer more than one feed of their programming. As a result of the
increased segmentation made possible by these advances, other programming
services might be able to provide programming that targets the Company's viewing
audience.
The Company believes that The Outdoor Channel has a competitive
advantage over other outdoor-related programming services in obtaining
distribution, due to the fact that The Outdoor Channel offers cable operators
the
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opportunity to broadcast The Outdoor Channel for low subscriber fees for five
years. The Company also believes that it has an advantage over its competitors
in attracting advertisers of outdoor-related products and services because the
Company, unlike its competitors, broadcasts The Outdoor Channel to approximately
5.5 million satellite receivers, currently charges relatively low advertising
rates and offers its advertisers exposure through a programming format which
focuses exclusively on the traditional outdoor lifestyle of hunting, fishing,
camping and related outdoor activities. In addition, while developments such as
digital compression and new distributors in the cable marketplace may have the
effect of increasing competition for The Outdoor Channel, they also create
tremendous potential for additional distribution for the network.
Global is not aware of any company that is in direct competition
for the type of recreational activity it provides through the Alaska Trip.
Global believes it has an advantage in promoting its trip in Alaska due to its
association with the GPAA and its ability to utilize the Gold Prospector
magazine, The Outdoor Channel and the Company's gold shows. Persons planning an
Alaska gold prospecting venture would be expected to evaluate other camps in
Alaska, as well as the option of undertaking a trip not associated with a group.
The table below lists the approximate number of participants in the "Alaska
Trip" since 1990 by Global.
<TABLE>
<CAPTION>
Year Participants
---- ------------
<S> <C>
1990 172
1991 220
1992 215
1993 579
1994 538
1995 369
1996 378
</TABLE>
In a broad sense, Global's "Alaska Trip" is an expedition for
study in Alaskan geology with equal emphasis on the educational and recreational
aspects of this far northern property. Its competition thus includes other
sources of recreational activities.
While Lost Dutchman's has numerous campground competitors, it is
the only campground club the Company is aware of that has a theme, namely gold
prospecting. It has been estimated that there are approximately 15,000
campgrounds in the United States of which approximately 600 are membership
campgrounds such as Lost Dutchman's. For instance, there is Thousand
Trails/NACO, Outdoor World and Thousand Adventures. It is believed that these
companies compete primarily by quality of facilities and amenities offered. By
contrast, Lost Dutchman's has rustic facilities and few amenities and seeks to
attract persons who are interested in gold prospecting, hands on outdoor
activities and wish to be part of a club.
EMPLOYEES
As of December 31, 1996, the Company had a total of 53 employees
of which 50 were full time. The Company also engages the services of additional
employees during the Alaskan trip offered by the Trips Division. During 1996,
the Company engaged the services of approximately eight such seasonal employees.
None of the Company's employees is covered by a collective bargaining agreement.
The Company considers its relationship with its employees to be good.
GOVERNMENT REGULATION
The Company's operations are subject to various government
regulations. The operations of cable television systems, satellite distribution
systems and broadcast television program distribution companies are subject to
the Communications Act of 1934, as amended, and to regulatory supervision
thereunder by the Federal Communications Commission (the "FCC"). The Company's
leased uplink facility in Perris, California is licensed by the FCC and must
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be operated in conformance with the terms and conditions of that license. Cable
systems are also subjected to local franchise authority regulation.
Local Cable Regulation
The cable television industry is regulated by municipalities or
other local government authorities which have the jurisdiction to grant and to
assign franchises and to negotiate generally the terms and conditions of such
franchises, including rates charged to subscribers, except to the extent that
such jurisdiction is preempted by federal law. Any such rate regulation could
place downward pressure on the potential subscriber fees to be earned by the
Company.
Federal Cable Regulation
In 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"), which provides,
among other things, for a "must carry" regime for local broadcast stations
(which requires the mandatory carriage of certain broadcast stations and
payments by cable operators to other broadcast stations for retransmission of
their signals in some instances), for channel positioning rights for certain
local broadcast stations, for limits on the size of MSOs, for limits on carriage
by cable systems and other video distributors of affiliated program services,
for a prohibition on programmers in which cable operators have an "attributable
interest" from discriminating between cable operators and their competitors, or
among cable operators, and for increased competition in video programming
distribution (both within the cable industry and between cable and competing
video distributors). In addition, the 1992 Cable Act requires the FCC to
establish national guidelines for the rates that cable operators subject to rate
regulation may charge for basic cable service and certain other services and to
establish guidelines for determining when cable programming may not be provided
exclusively to cable system operators. Various cable operators have initiated
litigation challenging certain aspects of the 1992 Cable Act. The
constitutionality of the basic scheme of rate regulation under the 1992 Cable
Act has been upheld by a federal district court, and the FCC's regulation rules
were upheld by a federal appeals court in June 1995. The outcome of the balance
of this litigation cannot be predicted. However, Congress passed and the
President signed in March 1996 the most comprehensive rewrite of
telecommunications law since the Communications Act of 1934, reversing or
modifying many of the provisions of the 1992 Act. Among other things, the new
legislation allows cable and telephone industries into each other's markets and
eliminates federal cable rate regulation, immediately for small systems and
within three years for large operators. The Company believes these developments
are very positive for The Outdoor Channel, as they will result in significantly
expanded channel capacity, new distributors to whom the Company can market the
network, and new pressures on cable operators to launch new programming
services, both for competitive reasons and because they will once again be able
to recover the costs of new programming through rate actions.
Lost Dutchman's Regulations
To operate its campgrounds, the Company must comply with
discretionary permits or approvals issued by local governments under local
zoning ordinances and other state laws. In addition, to construct improvements
at campgrounds, the Company has usually been required to obtain permits such as
building and sanitary sewage permits. Some states in which the Company sells
memberships have laws regulating campground memberships. These laws sometimes
require comprehensive disclosure to prospective purchasers. Some states have
laws requiring the Company to register with a state agency and obtain a permit
to market. The Company has undertaken a comprehensive program to ensure
compliance with applicable laws in all 50 states.
Other Regulations
In addition to the regulations applicable to the cable television
and campground industries in general, the Company is also subject to various
local, state and federal regulations, including, without limitation, regulations
promulgated by federal and state environmental, health and labor agencies. The
Company's mining clubs and Trips Division are subject to various local, state
and federal statutes, ordinances, rules and regulations concerning, zoning,
development, and other utilization of its properties.
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<PAGE> 29
INTELLECTUAL PROPERTY
The Company neither holds nor depends upon any material patent,
trademark, license or other proprietary right except its trademark for "The
Outdoor Channel(TM)" for which the Company has made application for
registration. The Company is, however, researching registration of several names
for the private label products referred to in the "Marketing" section above.
ITEM 2. DESCRIPTION OF PROPERTIES.
Information with respect to the location and general character of
Global's materially important properties is as follows.
CRIPPLE RIVER
The Cripple River property which now includes the Arctic Creek
property consists of approximately 2300 patented (*See definition of "patented,"
below) acres and is located in the Cape Nome area of Alaska. The Cripple River
property is the principal destination of the "Alaska Trip" participants. It is
the former location of a large historic gold mining operation. The Company has
constructed over 130 rooms on the property for trip participants. Also, Global
has constructed a chow hall, Saloon (non-alcoholic), general store, gold
recovery plant, small commercial gold mining plant, drinking and wastewater
treatment facilities and other buildings. In addition to recreational gold
mining the Cripple River property has excellent fishing including yearly runs of
pink and silver salmon.
LOUD MINE
The Loud Mine is located in White County, Georgia, near the
eastern end of Georgia's famous Dahlonega Gold Belt, which stretches diagonally
(southwest to northeast) across the north end of the state. The camp's office is
staffed with a full-time caretaker. Campground facilities include a clubhouse,
bathrooms, showers and a dump station. Camping is available for 250 or more
persons. Approximately one-third mile of Town Creek and one of its smaller
tributaries meander through this 38 deeded acre property. Dredges of up to 4"
intake may be used in Town Creek. Highbanking, sluicing and panning also are
popular. Deep layers of alluvial gravels, separated by dense clay layers,
overlay soft bedrock (saprolite) throughout this region. Numerous gold-bearing
quartz veins run through the Loud Mine property. Some "Loud" gold is smooth, but
coarse gold is mostly found, indicating that it is still relatively close to its
source.
STANTON PROPERTY
The Stanton property consists of 35 patented acres and is located
approximately 50 miles northwest of Phoenix, Arizona. It is contiguous with 85
acres owned by an affiliated organization with which Global has a mutual use
agreement. Either on Global's property or the other organization's property
there are sanitary facilities, showers, club house, pool room, card room,
library, kitchen area with sink, water and electric outlets, 65 sites for
hookups and parking for several hundred self contained units. Gold is present
throughout the property from surface to bedrock.
LEADVILLE PROPERTY
The Leadville property is located in Lake County, Colorado was
acquired in August 1995. The camp is approximately 60 patented acres in the
heart of Colorado's historic mining area. At over 11,000 feet in elevation, it
has spectacular scenery including views of the two highest peaks in Colorado.
This is a primitive campground with no facilities. Future plans include
bathrooms, showers and a clubhouse. Completion of future improvements is
estimated at 1 to 2 years. There is camping for up to 200 self-contained
recreational vehicles.
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<PAGE> 30
OCONEE CAMP
The Oconee Camp is located in the northwest corner of South
Carolina and just north of Walhalla was acquired in June 1995. This camp
consists of 120 acres of deeded property. Oconee is a primitive campground with
no facilities. Future plans include bathrooms, showers, water and a clubhouse.
Completion of future improvements is estimated at 1 to 2 years. There is Camping
for up to 250 self-contained recreational vehicles.
VEIN MOUNTAIN CAMP
The Vein Mountain Camp is located in West Central North Carolina
approximately 7 miles from the town of Marion and was acquired in February 1996.
The Camp consists of 130 deeded acres located in the middle of North Carolina's
motherlode. Between 1829 and 1830 7 pound nuggets were reported to have been
taken from the property. During the same era a 28 pound nugget and 200 pound
mass of gold and quartz were reported to have been taken within several miles of
the property. There are presently no improvements on the property. There is
camping for up to 250 self-contained recreational vehicles.
BURNT RIVER/ CAVE CREEK
The Burnt River Camp consists of 135 patented acres and the
adjacent Cave Creek property consists of 32 patented acres. These properties are
located in eastern Oregon and have a clubhouse, sanitary facilities, dump
station, restrooms and showers. There is dredging and excellent Highbanking
along the Burnt River. The Cave Creek property is a slender parcel of land that
takes in about one mile of Cave Creek, providing abundant ground for
recreational prospecting.
JUNCTION BAR PLACER
The Junction Bar Placer is located at the confluence of the
Klamath and Scott Rivers in northern California. Fourteen of the property's 26
acres of patented land are zoned Highway Commercial. With frontage on both
Highway 96 and Scott River Road, this property has excellent development
potential. Global has begun to develop the Junction Bar Placer. Global has
conducted a survey of the property as well as contracted an architect to draw
plans for a campground facility. Approximately $9,000 was expended on the
project in 1992. Global commenced work on obtaining local approval to construct
facilities in 1995. The camp will only be constructed if the Company has
sufficient cash on hand to complete the project. Members of Lost Dutchman's have
expressed great interest in this property and Membership sales could be enhanced
upon completion of the campground.
AMERICAN CREEK
The American Creek claims consist of five U.S. Federal mining
claims in the Cape Nome area of Alaska. There are certain improvements and
mining equipment thereon including a bucket line gold dredge, machine shop and
airstrip. The dredge was partially operated in the summer of 1988, more fully
operated in 1989 and due to mechanical problems only partially operated in 1990,
1991 and 1992. Operations are not anticipated for 1997. In 1989 the Dredge
produced approximately 8.5 ounces of gold with global's share being 2.5 ounces
and trip participants dividing up 6 ounces. In 1990 the Dredge produced a small
and undetermined amount of gold which was divided up entirely among the Dredge
Crew. The Dredge produced no gold in 1988 and 1991. The Dredge Crew also had the
opportunity to operate small gold recovery machines at American Creek in 1989,
1991 and 1992. In 1996, it is anticipated that only experienced Dredge Crew
members will work at American Creek and will perform limited exploration work on
the claims.
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<PAGE> 31
OMILAK SILVER MINE
The Omilak Silver Mine consists of approximately 40 acres of
patented land and is located about 80 miles northeast of Nome, Alaska. The
property has on it previously existing equipment, mine shafts, rail and mine
cars and several buildings including a two-story bunk house constructed by
Global. The Omilak Silver Mine, in addition to recreational uses, has the
potential for being reactivated as a commercial silver mine. At such time, as
Global has sufficient resources, the price of silver warrants and Global
believes it is timely, the Company intends on evaluating the Omilak property.
HIGH DIVIDE PROPERTY
The High Divide property consists of 20 acres of patented land
and is located in Esmeralda County, Nevada. This property is remote and there
are no facilities. It was patented for lode mining but placer gold is present in
the area.
NEDERLAND PROPERTY
The Nederland property consists of 5 patented acres located in
Boulder County, Colorado. There are no facilities on this property. The area
around the Nederland property has produced over 1 million ounces of gold since
1858. This property has mostly silver with small amounts of gold.
* Patented land is United States public land that has been
transferred to private fee simple ownership. Mining claims can be
perfected into patented land which is what occurred on some of
the Company's properties before the Company acquired those
properties.
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<PAGE> 32
ITEM 3. LEGAL PROCEEDINGS.
From time to time Global is a party to litigation arising in the
normal course of its business, none of which existing on the date hereof in the
opinion of management will have a material effect on Global's operations or
financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) Not Applicable.
(b) Not Applicable.
(c) Not Applicable.
(d) Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Commencing on March 7, 1990, Global's Common Stock was listed on
NASDAQ under the trading symbol "GLRS". The following table sets forth for the
quarters indicated the reported high and low closing sales prices as reported by
NASDAQ.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1995 First Quarter 4.88 3.75
Second Quarter 5.00 4.12
Third Quarter 4.75 3.12
Fourth Quarter 5.75 3.50
1996 First Quarter 5.75 4.62
Second Quarter 5.50 3.75
Third Quarter 5.00 3.75
Fourth Quarter 5.00 1.75
</TABLE>
On September 12, 1994, Global effected a 2 for 1 forward split of its
Common Stock. On March 4, 1992, Global effected a 1 for 20 reverse split of its
Common Stock. Share amounts and prices herein have been restated to reflect the
foregoing splits. On May 1, 1989, Global distributed a special Common Stock
dividend payable at the rate of one share of Common Stock for every ten shares
of Common Stock held.
Shareholders who purchased Common Stock before the aforementioned
stock splits and dividend need to be mindful that their holdings have been
adjusted to reflect these splits and dividend.
In October 1991, February 1993, April 1994, November 1995 and December
1996, Global authorized the paying of a Stock dividend to Global's Preferred
Stockholders to satisfy Global's obligation for the years 1991, 1992, 1993, 1994
and 1995 of paying a dividend to the holders of Global's Preferred Stock.
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<PAGE> 33
No other dividends have been declared with respect to Global's common
shares since inception. Global intends on paying the 10% stock dividend to the
holders of its Preferred Stock as of December 31, 1996, in 1997 payable at the
rate of one share of Common Stock for each ten shares of Preferred stock held
for an aggregate Common stock dividend of approximately 6,078 shares of Common
Stock. It is not likely Global will pay any cash dividends in the foreseeable
future. Global intends to reinvest earnings, if any, in its operations.
There is presently one market maker for the Preferred Stock issued in
Global's second public offering. The NASD has informed Global that in order for
the Preferred Stock to be listed on NASDAQ a minimum of 100,000 shares must be
outstanding. At present, Global has 60,675 shares of Preferred Stock
outstanding. Each share of Preferred Stock is convertible to 1 share of Common
Stock which conversion would afford greater liquidity for a Preferred
shareholder. Global would consider a stock split in order to qualify the
Preferred Stock for NASDAQ if sufficient requests from Preferred shareholders
were received.
In May 1995, Global commenced a private placement of Units consisting
of two shares of Common Stock and one Class E Warrant to purchase Common Stock.
The private placement was closed in January 1996, with 110,984 Units being sold
at $7.50 per Unit to 61 investors for a total of $832,380. In 1996, Global also
issued 27,640 shares of Common Stock to various persons for services rendered to
the Company.
As of March 31, 1997, Global had 893 shareholders of record of its
Common Stock and 210 shareholders of its Preferred Stock.
On January 31, 1997, the Company's SB-2 Registration Statement filed
with the Securities and Exchange Commission ("SEC") in 1996 was declared
effective by the SEC. The Registration Statement is for a follow-on public
offering of the Company's Units. The Units consist of two (2) shares of Common
Stock and one (1) Class F Warrant to purchase Common Stock and are presently
being offered at a price $8.00 per Unit. The offering is for a minimum of
$200,000 and a maximum of $5,000,000 and is being conducted on a best efforts
basis by the Company and Selected Broker-Dealers/Underwriters. The Company
anticipates contributing substantially to the sale of Units by referring persons
to Selected Broker-Dealers/Underwriters, in which case, such firms will receive
a lower sales commission. As of the date hereof, the Company had not raised the
minimum amount. The primary reasons Global is conducting this offering is to
provide additional capital for The Outdoor Channel and Lost Dutchman's camp
club.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following information includes forward-looking statements, the realization
of which may be impacted by certain factors discussed in Item I. Description of
Business-Important Factors Related to Forward-Looking Statements and Associated
Risks.
GENERAL
Global Outdoors, Inc. (the "Company" or "Global") owns and operates
The Outdoor Channel, the first national television network devoted solely to
outdoor activities, such as hunting, fishing, scuba diving and recreational gold
prospecting. The Company also owns and operates related businesses which serve
the interests of viewers of The Outdoor Channel and other outdoor enthusiasts.
These related businesses include, LDMA-AU, Inc. ("Lost Dutchman's"), Gold
Prospectors' Association of America, Inc. ("GPAA") and the Trips Division. Lost
Dutchman's is a national recreational gold prospecting campground club with over
5,000 members and properties in California, Alaska, Oregon, Nevada, Arizona,
Colorado, Georgia, South Carolina and North Carolina. GPAA is the largest
recreational gold prospecting club in the world with approximately 50,000 active
members. GPAA also sells products and services related to recreational gold
prospecting and is the publisher of the Gold Prospector magazine. Prior to being
a wholly-owned subsidiary of the Company, GPAA was an affiliated company which
owned the Outdoor Channel. As discussed below, the Company acquired 100% of the
stock of GPAA in February 1995. The Company's Trips Division sponsors unique
recreational prospecting trips to Australia and to the Company's 2300 acre camp,
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<PAGE> 34
located 11 miles west of Nome, Alaska. Global started a new products division in
1995 called "American Prospecting Equipment Company" and owns a 51% interest
therein.
The Company has been selling its GPAA club memberships since its
incorporation in 1984. From 1968 to 1984, GPAA memberships were sold by the
proprietorship owned by the Company's founders. GPAA membership sales took a
marked upswing in 1992 in conjunction with the airing of the "Gold Prospector
Show," a show the Company has owned and produced since 1990. During 1992, the
"Gold Prospector Show" was broadcast on various television and cable channels,
for which the Company purchased air time. In 1993, GPAA launched The Outdoor
Channel and, since then, broadcasts of the "Gold Prospector Show" and related
sales of GPAA memberships have occurred almost exclusively on The Outdoor
Channel. The Company intends that The Outdoor Channel be used as the primary
vehicle to promote the Company's services and products and anticipates that it
will be the major factor in the future growth of GPAA, Lost Dutchman's and the
Trips Division.
On February 10, 1995, Global acquired 100% of the stock of GPAA in
exchange for 2,500,000 shares of its Common Stock and potential Earn Out Shares
(See "Certain Transactions"). For accounting purposes, the assets of GPAA are
recorded at their historical cost basis in a manner similar to a pooling of
interest. The financial statements included herein and discussed below have been
restated to effect the pooling of interests between the Company and GPAA as of
January 1, 1992.
Although The Outdoor Channel is not aligned with any sizable
entertainment or cable company, as are many emerging channels, it has to date
achieved substantial visibility in the cable industry. The Company is committed
to converting visibility for The Outdoor Channel's programming into greater
distribution into cable households. Greater distribution will allow the Company
to charge higher advertising rates, command subscriber fees from cable
affiliates, attract more advertisers and receive greater revenues for the
Company's products.
In February 1996, Christopher B. Forgy joined the Company as President
and Chief Executive Officer of The Outdoor Channel. Mr. Forgy is a recognized
and highly regarded cable television executive. From 1989 to 1995, he was Senior
Vice President of Marketing, Sales and Programming for Times Mirror Cable
Television. He is Past Chairman of the Cable Television Administration and
Marketing Society (CTAM), the cable industry's professional association of
marketers, with some 5,000 national members. He has also served on the boards of
directors of the Cabletelevision Advertising Bureau (CAB), the National
Association of Minorities in Cable, the NAMIC Foundation and Pay Per View
Holding Company, Inc., which owns and operates the Viewer's Choice networks. It
is anticipated that Mr. Forgy will have a major impact on The Outdoor Channel
and Company as a whole.
In April 1996, The Outdoor Channel executed a media placement
agreement with Frederiksen Television, Inc. for the placement of direct response
programming on The Outdoor Channel, primarily during off hours.
In May 1996, the Company hired James E. Crawford as Vice President for
Sales and Marketing for The Outdoor Channel. Mr. Crawford is also a recognized
cable television executive. From October 1995 to April 1996, he was the Director
of Affiliate Sales Western Division for Outdoor Life Network, a competitor of
The Outdoor Channel, and for Speedvision Network. Mr. Crawford was instrumental
in Outdoor Life's sales and marketing from that network's inception.
A primary objective of the Company is to obtain distribution for The
Outdoor Channel. To accomplish this objective the Channel seeks to sign national
carriage agreements with multiple systems operators ("MSOs") and thereafter
carriage agreements with the MSOs' individual cable affiliates. The Company's
efforts to obtain distribution for The Outdoor Channel to date have largely been
focused on areas where there are the greatest number of outdoor enthusiasts,
mainly in rural areas of the United States. In 1996, the Company entered
into national carriage agreements with approximately 13 of the top 100 MSOs in
the United States, including TCA Cable, the 18th largest MSO ,with over 600,000
subscribers; TW Fanch, the 20th largest MSO, with over 500,000 subscribers;
Rifkin & Associates, the 26th largest MSO, with approximately 350,000
subscribers; Tele-Media, the 28th largest MSO,
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<PAGE> 35
with approximately 300,000 subscribers; and Service Electric Cable Television,
the 29th largest MSO, with approximately 300,000 subscribers. The Company has
been launched on additional cable systems without signed national carriage
agreements and is in active negotiations with such systems including
Tele-Communications, Inc., the largest MSO in the country. In addition, the
Company is in active negotiations with many other cable operators. The Company
believes that it will be able to enter into more affiliation agreements in the
future as a result of increased installation of new cable distribution systems
and the expected significant expansion of channel capacity of existing cable
systems. The Company intends to continue its promotional activities, such as
attending regional and local cable trade shows, in order to increase cable
industry awareness of The Outdoor Channel.
The Company added the Vein Mountain Camp to its Lost Dutchman's
holdings in February 1996. The Vein Mountain Camp is located in West Central
North Carolina approximately 7 miles from the town of Marion. The Camp consists
of 130 deeded acres located in the middle of North Carolina's motherlode.
Between 1829 and 1830, seven pound nuggets were reported to have been taken from
the property. During the same era a 28 pound nugget and 200 pound mass of gold
and quartz were reported to have been taken within several miles of the
property. There are presently no improvements on the property. There is camping
for up to 250 self-contained recreational vehicles. The Company will seek to add
additional properties to Lost Dutchman's in 1997.
Effective January 20, 1997, the Company restated its 1995 and 1994
financial statements to among other matters, recognize revenue from its Lost
Dutchman's sales on a straight line basis over ten years and eliminate barter
advertising revenue. This restatement resulted in a substantial reduction of
revenue, income, assets and equity for the Company. The financial statements
herein and all matters related thereto reflect this restatement. (See financial
statements following "Index to Financial Statements")
On January 31, 1997, the Company's SB-2 Registration Statement filed
with the Securities and Exchange Commission ("SEC") in 1996 was declared
effective by the SEC. The Registration Statement is for a follow-on public
offering of the Company's Units. The Units consist of two (2) shares of Common
Stock and one (1) Class F Warrant to purchase Common Stock and are presently
being offered at a price $8.00 per Unit. The offering is for a minimum of
$200,000 and a maximum of $5,000,000 and is being conducted on a best efforts
basis by the Company and Selected Broker-Dealers/Underwriters. The Company
anticipates contributing substantially to the sale of Units by referring persons
to Selected Broker-Dealers/Underwriters, in which case, such firms will receive
a lower sales commission. As of the date hereof, the Company had not raised the
minimum amount but anticipates doing so in the second quarter of 1997. The
primary reasons Global is conducting this offering is to provide additional
capital for The Outdoor Channel and Lost Dutchman's camp club.
In February 1997, The Outdoor Channel moved to Hughes Communications
satellite, Galaxy 1R, from AT&T satellite, Telstar 402R. Galaxy 1R is considered
a cable channel satellite and contains such other tenants as HBO and The Disney
Channel. It is therefore considered a much better satellite than Telstar 402R.
In connection with this matter the Company pledged 250,000 shares of Common
Stock to USA Networks as collateral for its performance under its sublease of
USA Networks transponder on the Galaxy 1R satellite.
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<PAGE> 36
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
Revenues. The Company's revenues include revenues from advertising
fees, GPAA and Lost Dutchman's membership sales, product sales and the Trips
Division sales. Advertising fees result from the sale of advertising time on The
Outdoor Channel and from advertising space in publications such as the Gold
Prospector magazine. Revenues for the year ended December 31, 1996 were
$5,485,008, an increase of $1,144,041 or 26%, compared to revenues of $4,340,967
for the year ended December 31, 1995. This increase was primarily the result of
increases in three items of revenue. Advertising revenue increased substantially
to $960,462 for the year ended December 31, 1996 compared to $439,817 for the
year ended December 31, 1995, due primarily to an increase in advertising
revenue at The Outdoor Channel. Merchandise sales were $488,973 for the year
ended December 31, 1996, compared to $0 for the year ended December 31, 1995,
due to the Company commencing operations of its merchandise sales division.
Revenues from the Trips Division was up notably at $828,901 for the year ended
December 31, 1996 compared to $656,161 for the year ended December 31, 1995.
Membership sales were $3,137,447 for the year ended December 31, 1996, compared
to a like amount of $3,133,110 for the year ended December 31, 1995. Despite
management devoting significant time and resources to increasing distribution
and revenues for The Outdoor Channel, during 1996, the Company increased its
sales for the Alaska Trip, commenced a revenue producing merchandise division
and kept revenue nearly the same for Lost Dutchman's and other membership sales.
Expenses. Expenses consist primarily of the cost of the Company's
satellite transponder and uplink facilities, programming, advertising and
promotion, sales and administrative salaries, office expenses and general
overhead. Expenses for the year ended December 31, 1996 were $8,252,366, a very
significant increase of $3,830,920, or 87%, compared to $4,421,446 for the year
ended December 31, 1995. This increase was predominately due to major increases
in three items and increases in several other items. Compensation and Related
Payroll Costs increased substantially to $1,700,088, an increase of $916,492 for
the year ended December 31, 1996, compared to $783,596 for the year ended
December 31, 1995. This increase was due to the cumulative addition of
executive, sales and administrative personnel for The Outdoor Channel during the
period after September 30, 1995. Advertising increased during the year ended
December 31, 1996, primarily due to increases in transponder and uplink costs
for The Outdoor Channel and promotion in conjunction with management's focus on
increasing visibility of The Outdoor Channel. Advertising was $945,357 for the
year ended December 31, 1996, an increase of $787,458, compared to $157,899
for the year ended December 31, 1995. The Company's "Gold Prospecting Show"
which was produced for airing on The Nashville Network ("TNN") commencing
January 1996 was popular with viewers. However, production and airing costs per
show were approximately $43,000. Due to the lack of immediate commercial
success, the Company decided to devote its resources to other aspects of the
Company's business with the show ending its run on TNN in May 1996, resulting in
a $574,700 loss to the Company for the year ended December 31, 1996, which is
included under advertising. There was no comparable loss in this category for
the year ended December 31, 1995. There were also significant increases in
Outside labor, Professional services, Shows and Seminars and Telephone and
utilities, which increases were in the range of approximately $60,000 to
$300,000 for each item. These increases were also primarily due to increased
activity at The Outdoor Channel. In addition, there was a new item of expense
not present in 1995 of Cost of merchandise sold which corresponds to the new
line item of revenue, Merchandise sales.
Income Before Income Taxes. Loss before income taxes increased as a
percentage of revenues from 2% for the year ended December 31, 1995 to 53% for
the year ended December 31, 1996. Although revenues increased for the year ended
December 31, 1996, compared to the year ended December 31, 1995, income before
income taxes was affected primarily by the very substantial increase in expenses
discussed above.
Income Tax Expense. Income tax benefit for the year ended December 31,
1996 was $217,658 which was substantially greater than $30,582 for the year
ended December 31, 1995, due to the Company having a significantly greater loss
for 1996 as compared to 1995.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994
Revenues. The Company's revenues include revenues from
advertising fees, GPAA and Lost Dutchman's membership sales, and the Trips
Division. Advertising fees result from the sale of advertising time on The
Outdoor
-18-
<PAGE> 37
Channel and from advertising space in publications such as the Gold Prospector
magazine. Revenues for the year ended December 31, 1995 were $4,340,967, a
marginal decrease compared to revenues of $4,385,102 for the year ended December
31, 1994. This was due to offsetting results in certain items. Advertising
increased substantially to $439,817 for the year ended December 31, 1995,
compared to $338,240 for the year ended December 31, 1994, due primarily to an
increase in advertising revenue at The Outdoor Channel. Membership sales
increased modestly to $3,133,110 for the year ended December 31, 1995, compared
to $2,967,758 for the year ended December 31, 1994. Revenues from the Trips
Division decreased significantly to $656,161 for the year ended December 31,
1995 from $981,671 for the year ended December 31, 1994. Because management has
been devoting substantial time and resources to increasing distribution and
revenues for The Outdoor Channel, revenues from other divisions have decreased
or not changed significantly.
Expenses. Expenses consist primarily of the cost of the Company's
satellite transponder and uplink facilities, programming, advertising and
promotion, sales and administrative salaries, office expenses and general
overhead. Expenses for the year ended December 31, 1995 were $4,421,446, an
increase of $722,246, or 20%, compared to $3,699,200 for the year ended December
31, 1994. This increase was predominately due to increases in specific areas.
Compensation and related payroll costs increased to $825,874 for the year ended
December 31, 1995, compared to approximately $587,643 for the year ended
December 31, 1994. This increase was due to the addition of sales and
administrative personnel for The Outdoor Channel during the year ended December
31, 1995. Advertising and promotion increased during the year ended December 31,
1995, primarily due to increased promotion in conjunction with management's
focus on increasing visibility of The Outdoor Channel. Advertising and promotion
was $1,059,193 for the year ended December 31, 1995, compared to $641,814 for
the year ended December 31, 1994.
Income Before Income Taxes. Income before income taxes decreased
as a percentage of revenues from 16% for the year ended December 31, 1994 to
(2)% for the year ended December 31, 1995. Although revenues remained nearly the
same for the year ended December 31, 1995, compared to the year ended December
31, 1994, income before income taxes was affected primarily by an increase in
expenses resulting from increased promotion of The Outdoor Channel as well as
increased employee and signal transmission costs.
Income Tax Expense. Income tax expense for the year ended
December 31, 1995 was $(30,582), a decrease of $291,225, or 112%, compared to
$260,643 for the year ended December 31, 1994. This was due to a decrease in net
income.
LIQUIDITY AND CAPITAL RESOURCES
With the exception of a private placement of Common Stock
completed in January 1996 and its revolving line of credit, bank and shareholder
loans, the Company has financed its activities in the last five years with cash
flows from operations. The private placement raised gross proceeds of $832,380.
Net proceeds to the Company were approximately $700,000. The private placement
consisted of the sale of Units at a price of $7.50 per Unit, each made up of two
(2) shares of Common Stock and one (1) Class E Warrant to purchase Common Stock.
A total of 110,984 Units were sold.
On February 10, 1995, Global acquired 100% of the stock of GPAA
in exchange for 2,500,000 shares of its Common Stock (the "Acquisition"). The
Acquisition agreement provides for the issuance of up to an additional 1,500,000
shares of Common Stock of Global to the former shareholders of GPAA if GPAA
achieves certain earnings or valuation milestones. For purposes of the
Acquisition, the value of the Global Common Stock was deemed to be $3.50 per
share with the initial total acquisition cost being $8,750,000. For accounting
purposes, the assets of GPAA are recorded at their historical cost basis in a
manner similar to a pooling of interest.
The Company utilized cash from operations of $966,578 in 1996,
compared to utilizing cash from operations of $593,111 in 1995 and had a cash
balance of $82,027 at December 31, 1996, which was an decrease of $376,421 from
the balance of $458,448 at December 31, 1995. Current assets decreased to
$784,494 compared to $1,462,793 in 1995. Current liabilities increased to
$2,929,337 for 1996 compared to $1,384,007 for 1995. Net
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<PAGE> 38
working capital decreased to $(2,144,843) in 1996, compared to $78,786 in 1995.
The Company generated sufficient cash in 1996 and 1995 to acquire the Arctic
Creek property in Alaska for $125,000 in cash, make a $50,000 down payment on
the Stanton property in Arizona, make a $100,000 down payment on the Oconee
property in South Carolina and make transponder and "Gold Prospecting Show"
deposits in 1995, of $270,000 and $363,436, respectively. These deposits
significantly diminished the Company's cash reserves. The Company drew on its
$750,000 credit line for the first time in the fall of 1995.
As of December 31, 1996, the Company had a $750,000 revolving
line of credit with Wells Fargo Bank, $715,322 of which was outstanding. The
line of credit bears interest at 9.25%. In September 1996, the Company converted
$450,000 of its bank line of credit to a long term loan from said bank bearing
interest at 9.75% with $12,500 in principal payable monthly and interest on the
balance payable monthly. The line of credit and loan are unsecured but are
personally guaranteed by Perry T. Massie, Thomas H. Massie and a major
shareholder.
As of December 31, 1996, the Company had four notes payable to
unaffiliated individuals, with balances outstanding as of that date of $63,020,
$89,917, $97,237 and $200,000. The first three notes bear interest rates that
range from 8% to 9.5% and are due in August 1998, January 1997 and January 2001,
respectively. The fourth note bears interest at 7.5% with principal payments of
$50,000 due every January commencing in 1997. The notes due in January 1997, are
being renegotiated for short-term extensions.
The discontinued "Gold Prospecting Show" aired on TNN utilized
significant amounts of available cash in 1995 and the first quarter of 1996. The
Outdoor Channel has used a significant portion of the Company's cash resources
with transponder and uplink costs increasing to $125,000 per month commencing
December 1, 1995, from the previous monthly cost of $85,000 from April 1995
through November 1995, and $60,000 from April 1994 through March 1995.
Transponder costs are presently $115,000 per month increasing to $150,000 per
month in July 1997.
The Company conducted the final closing of a private placement in
January 1996. The private placement consisted of the sale of Units at a price of
$7.50 per Unit, each made up of two (2) shares of Common Stock and one (1) Class
E Warrant to purchase Common Stock. A total of 110,984 Units were sold for
$832,380. Net proceeds to the Company were approximately $700,000.
In February 1997, Wilma M. Massie, a principal shareholder of the
Company, loaned the Company $125,000 on a note bearing interest at 10%.
The Company is presently conducting a public offering of Units
consisting of Common Stock and Warrants to buy Common Stock in order to raise
funds to meet its capital requirements. In the event the Company does not raise
any money in this offering The Company anticipates no capital expenditures in
1997. The amount of these expenditures will vary depending upon the success of
this offering.
As of the date of this report, the Company requires short-term
financing of $200,000 to meet its short-term cash flow requirements. In order to
meet this need, the Company is reviewing avenues for short-term financing
including obtaining collateralized loans from principal shareholders. Management
believes that the Company's existing cash resources and anticipated cash flows
from operations, when combined with the net proceeds of an offering that raises
$1,000,000 in net proceeds, and periodic borrowing under the line of credit,
will be sufficient to fund the Company's operations at currently anticipated
level for such a funding for the next twelve months. To the extent that such
amounts are insufficient to finance the Company's working capital requirements ,
the Company could be required to seek financing in addition to the $200,000 the
Company believes it will require in the short-term. In addition, if the Company
raises less than $1,000,000 in net proceeds it will require additional funding
within the next twelve months. There can be no assurance that equity or debt
financing will be available if needed, or, if available, will be on terms
favorable to the Company or its shareholders. Significant dilution may be
incurred by present shareholders as a result of any such financing.
In April, 1997, the Company entered into an agreement with Perry
T. Massie, Thomas H. Massie and Wilma M. Massie (the Principal Stockholders)
whereby the Principal Stockholders agreed to provide for the cash flow
requirements of the Company over the next twelve months by means of loans or
equity investments.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of."
The Company has adopted SFAS No. 121. SFAS No. 121 establishes recognition and
measurement criteria for impairment losses when the Company no longer expects to
recover the carrying value of a long-lived asset. The effect on the consolidated
financial statements of adopting SFAS was not material.
-20-
<PAGE> 39
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." The accounting or disclosure requirements of this statement are
effective at the Company's fiscal year-ended 1996. The Company will continue to
account for stock-based compensation using Accounting Principles Board Opinion
No. 25 and the impact of SFAS 123 is not material to the Company's financial
statements.
Effective in 1997, the Company will be required to adopt Statement of Financial
Accounting Standards No. 128, "Earnings per Share" and No. 129, "Capital
Structure." The impact of the adoption of these pronouncements is not expected
to be material to the Company's financial position or results of operations.
ITEM 7. FINANCIAL STATEMENTS.
Following are consolidated financial statements of the registrant
for the years ended December 31, 1996 and 1995.
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<PAGE> 40
GLOBAL OUTDOORS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
-22-
<PAGE> 41
TABLE OF CONTENTS
Page
----
Report of Independent Public Accountants.................................. 24
Consolidated Balance Sheets............................................... 26
Consolidated Statements of Operations..................................... 28
Consolidated Statements of Stockholders' Equity........................... 29
Consolidated Statements of Cash Flows..................................... 30
Notes to Consolidated Financial Statements................................ 32
-23-
<PAGE> 42
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Global Outdoors, Inc.:
We have audited the accompanying consolidated balance sheet of GLOBAL OUTDOORS,
INC. (an Alaska corporation) AND SUBSIDIARIES as of December 31, 1996, and
the related consolidated statements of operations, stockholders' equity and
cash flows for the year then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Global Outdoors,
Inc. and subsidiaries as of December 31, 1996, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Orange County, California
April 15, 1997
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<PAGE> 43
KENNETH E. WALSH
CERTIFIED PUBLIC ACCOUNTANT
3820 DEL AMO BLVD.
SUITE 305
TORRANCE, CA 90503
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Global Outdoors, Inc.
Temecula, California
I have audited the accompanying consolidated balance sheet of Global Outdoors,
Inc. and Subsidiaries as of December 31, 1995 and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these statements
based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Global Outdoors,
Inc. and Subsidiaries as of December 31, 1995, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
Kenneth E. Walsh
Certified Public Accountant
January 20, 1997
-25-
<PAGE> 44
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS
1996 1995
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 82,027 $ 458,448
Current portion of stockholder receivable 56,400 40,800
Advertising receivables, net of allowance for
doubtful accounts of $39,242 and $15,104 in
1996 and 1995, respectively 82,334 135,937
Income taxes receivable 230,000 75,281
Inventories 159,361 192,268
Prepaid expenses 174,372 560,059
---------- ----------
Total current assets 784,494 1,462,793
MEMBERSHIP RECREATIONAL
MINING PROPERTIES, NET 995,010 646,717
ALASKA RECREATIONAL
MINING PROPERTIES, NET 1,465,609 1,550,052
OUTDOOR CHANNEL EQUIPMENT, NET 386,584 147,919
OTHER EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, NET 232,703 79,051
STOCKHOLDER RECEIVABLE 223,657 306,874
TRADEMARKS, net of accumulated amortization
of $4,720 and none in 1996 and 1995,
respectively 85,601 41,248
DEPOSITS AND OTHER ASSETS 52,240 342,201
---------- ----------
TOTAL ASSETS $4,225,898 $4,576,855
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
-26-
<PAGE> 45
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Line of credit $ 715,322 $ 33,139
Current maturities of long-term debt 303,593 21,567
Current maturities of capital leases 47,172 17,726
Customer deposits 9,500 16,979
Accounts payable and accrued expenses 420,198 159,802
Deferred revenue, current 1,433,552 1,134,794
----------- -----------
Total current liabilities 2,929,337 1,384,007
DEFERRED REVENUE, Less current portion 424,230 421,814
LONG-TERM DEBT, Less current portion 637,717 252,724
CAPITAL LEASES, Less current portion 192,664 74,831
----------- -----------
Total liabilities 4,183,948 2,133,376
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Convertible preferred stock, non-voting, 10%
noncumulative, no liquidation preference,
$.001 par value; 10,000,000 shares authorized;
shares issued and outstanding: 60,775 in 1996 and
63,195 in 1995 61 63
Common stock, $.02 par value; 50,000,000 and
5,000,000 shares authorized in 1996 and 1995,
respectively; shares issued and outstanding:
4,122,394 in 1996 and 4,074,988 in 1995 82,448 81,500
Additional paid-in capital 2,941,163 2,793,938
Preferred stock dividend payable in common stock 12,640 --
Retained deficit (2,773,112) (210,772)
Common stock subscriptions receivable (221,250) (221,250)
----------- -----------
Total stockholders' equity 41,950 2,443,479
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,225,898 $ 4,576,855
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
-27-
<PAGE> 46
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
REVENUES: 1996 1995
----------- -----------
<S> <C> <C>
Alaska trip $ 828,901 $ 656,161
Merchandise sales 488,973 --
Membership sales 3,137,447 3,133,110
Advertising 960,462 439,817
Interest 23,789 43,039
Other income 45,436 68,840
----------- -----------
Total revenues 5,485,008 4,340,967
----------- -----------
EXPENSES:
Alaska trip expenses 553,596 235,832
Cost of merchandise sold 321,843 --
Cost of memberships sold 268,974 684,072
Satellite transmission fees 1,441,619 901,294
Advertising and programming 945,357 157,899
Selling, general and administrative 4,582,674 2,404,131
Interest 138,303 38,218
----------- -----------
Total expenses 8,252,366 4,421,446
----------- -----------
Loss before income taxes (2,767,358) (80,479)
Income tax benefit 217,658 30,582
----------- -----------
Net loss $(2,549,700) $ (49,897)
=========== ===========
Loss per share $ (0.62) $ (0.01)
=========== ===========
Weighted average number of common
shares outstanding 4,103,141 3,867,517
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-28-
<PAGE> 47
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Common Preferred
Preferred stock Common stock Additional stock stock
------------------ --------------- paid-in Retained subscriptions dividend
Shares Amounts Shares Amounts capital deficit receivable payable TOTAL
--------- ------- ------ ------- ---------- ----------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 65,455 $65 3,843,410 $76,868 $2,060,520 $ (111,780) $(221,250) $ -- $ 1,804,423
Preferred stock
converted to common stock (2,260) (2) 2,260 45 (43) -- -- -- --
Common stock issued for
services -- -- 27,670 553 109,871 (22,911) -- -- 87,513
Common stock issued in
private placement -- -- 195,102 3,902 597,538 -- -- -- 601,440
Common stock issued as
dividend on preferred
stock -- -- 6,546 132 26,052 (26,184) -- -- --
Net loss -- -- -- -- -- (49,897) -- -- (49,897)
------ --- --------- ------- ---------- ----------- --------- ------- -----------
Balance, December 31, 1995 63,195 63 4,074,988 81,500 2,793,938 (210,772) (221,250) -- 2,443,479
Preferred stock converted
to common stock (2,420) (2) 2,420 48 (46) -- -- -- --
Common stock issued for
services -- -- 21,568 431 90,400 -- -- -- 90,831
Common stock issued in
private placement -- -- 26,868 538 75,526 -- -- -- 76,064
Purchase of partial shares -- -- -- -- (9) -- -- -- (9)
Preferred stock dividend
payable in common stock -- -- -- -- -- (12,640) -- 12,640 --
Retirement of treasury stock -- -- (3,450) (69) (18,646) -- -- -- (18,715)
Net loss -- -- -- -- -- (2,549,700) -- -- (2,549,700)
------ --- --------- ------- ---------- ----------- --------- ------- -----------
Balance, December 31, 1996 60,775 $61 4,122,394 $82,448 $2,941,163 $(2,773,112) $(221,250) $12,640 $ 41,950
====== === ========= ======= ========== =========== ========= ======= ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-29-
<PAGE> 48
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(2,549,700) $ (49,897)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 263,144 137,806
Provision for doubtful accounts 24,138 5,906
Deferred income taxes -- (127,352)
Common stock issued for services 90,831 87,513
Application of rent obligation toward reduction of
stockholder note receivable 67,617 20,788
Change in assets and liabilities:
(Increase)/decrease in inventory 32,907 (162,268)
(Increase)/decrease in prepaid expenses 385,687 (428,206)
(Increase)/decrease in income taxes receivable (154,719) 11,384
(Increase)/decrease in advertising receivables 29,465 (64,964)
(Increase)/decrease in deposits and other assets 289,961 (285,226)
(Decrease)/increase in accounts payable and accrued expenses 260,396 (61,754)
(Decrease)/increase in deferred revenue 301,174 311,500
(Decrease)/increase in customer deposits (7,479) 11,659
----------- ---------
Net cash used in operating activities
by operating activities (966,578) (593,111)
----------- ---------
Cash Flows from Investing Activities:
Purchase of property, plant and equipment (919,311) (473,218)
Expenditures for trademarks (44,353) (31,583)
----------- ---------
Net cash used in investing activities (963,664) (504,801)
----------- ---------
Cash Flows from Financing Activities:
Proceeds from private placement 76,064 601,440
Proceeds from long-term debt, net 1,496,481 189,807
Retirement of treasury stock (18,715) --
Purchase of partial shares (9) --
----------- ---------
Net cash provided by financing activities 1,553,821 791,247
----------- ---------
Net decrease in cash (376,421) (306,665)
Beginning cash balance 458,448 765,113
----------- ---------
Ending cash balance $ 82,027 $ 458,448
=========== =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-30-
<PAGE> 49
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid for:
Income taxes $ -- $11,384
======== =======
Interest $132,677 $38,218
======== =======
Supplemental Disclosures of Noncash Investing and
Financing Activities:
Land acquired by incurring note payable $200,000 $93,373
======== =======
Common stock issued as a dividend on preferred stock $ -- $26,184
======== =======
Application of rent obligation toward reduction of
stockholder note receivable $ 73,150 $57,000
======== =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-31-
<PAGE> 50
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
Global Outdoors, Inc. (the Company) owns and operates The Outdoor Channel, Inc.,
the first national television network devoted solely to outdoor activities, such
as hunting, fishing, scuba diving, camping, RV-ing and recreational gold
prospecting. The Company's other business activities consist of the promotion
and sale of an "Alaska trip", a recreational gold mining expedition to the
Company's Cripple River property located near Nome, Alaska, and the sale of Lost
Dutchman's (LDMA-AU) memberships which entitle members to engage in recreational
prospecting on its California, Oregon, Alaska, Nevada, Arizona, Colorado,
Georgia, North Carolina and South Carolina properties. The Company has also
signed a mutual use agreement with another organization whose members are
entitled to engage in recreational mining on certain of each other's properties.
The Company also receives revenues from the sale of memberships in a gold
prospecting club, Gold Prospectors' Association of American, Inc. (GPAA),
revenue from advertisers in a bi-monthly magazine, advertising revenue through
cable television programming d/b/a The Outdoor Channel, Inc. and through
merchandise sales. Effective July 23, 1996, the Company changed its name from
Global Resources, Inc. to Global Outdoors, Inc.
The Company's operations are subject to various government regulations. The
operations of cable television systems, satellite distribution systems and
broadcast television program distribution companies are subject to the
Communications Act of 1934, as amended, and to regulatory supervision
thereunder by the Federal Communications Commission (the FCC). The Company's
leased uplink facility in Perris, California is licensed by the FCC and must be
operated in conformance with the terms and conditions of that license. Cable
systems are also subjected to local franchise authority regulation.
During 1996, the Company experienced significant operating losses, principally
from the operation of The Outdoor Channel, Inc. As a result of losses in 1996
and prior years, at December 31, 1996, the Company has negative working capital.
Furthermore, losses subsequent to December 31, 1996 have resulted in a deficit
stockholders' equity position. The Company is currently conducting a public
offering of common stock, and management is discussing additional
capital-raising efforts with third parties; however, management is unable to
predict the outcome of the discussions or determine to what extent the Company
will increase its capital base. Management is also currently negotiating
carriage agreements with third parties that could result in a significant
increase in the subscriber base for The Outdoor Channel, Inc., which would
result in an increase in advertising revenue for the Company; however,
management is unable to predict the outcome of those negotiations or determine
when the Company's revenues will increase. Under the terms of such carriage
agreements, the Company could be required to pay significant up-front fees.
Management believes the Company will be able to obtain financing to pay any such
fees. In April, 1997, the Company entered into an agreement with Perry T.
Massie, Thomas H. Massie and Wilma M. Massie (the Principal Stockholders),
whereby the Principal Stockholders agreed to provide for the cash flow
requirements of the Company over the next twelve months by means of loans or
equity investments.
SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation:
The consolidated financial statements include the accounts of Global Outdoors,
Inc. and its wholly-owned subsidiaries, LDMA-AU, Inc., Big "M" Mining Company,
Inc., Gold Prospectors' Association of American, Inc. and The Outdoor Channel,
Inc. which operates a satellite and cable television channel. All material
intercompany accounts and transactions have been eliminated in consolidation.
Inventories:
Inventories are valued at the lower of cost (first-in, first-out) or market.
Trademarks:
Trademarks are amortized on a straight-line basis over 15 years.
Membership recreational mining properties:
Membership recreational mining properties consist primarily of land, are held
for membership use and are recorded at cost, net of accumulated depreciation on
non-land assets provided on a straight-line basis over 15 years.
Alaska recreational mining properties:
Alaska recreational mining properties consist primarily of land, buildings and
equipment and are recorded at cost, net of accumulated depreciation on the
buildings and equipment provided on a straight-line basis over 10 years.
Outdoor Channel equipment:
Outdoor Channel assets consist primarily of equipment and are recorded at cost,
net of accumulated depreciation provided on a straight-line basis over five
years.
-32-
<PAGE> 51
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other equipment and leasehold improvements:
Equipment and leasehold improvements are carried at cost net of accumulated
depreciation provided on a straight-line basis over five to ten years.
Revenue recognition:
Revenue on the "Alaska trip" income is recognized when trips are taken. Trips
are taken in June through August each year.
The Company has sold memberships in LDMA-AU primarily on an installment basis.
Memberships include contracts that give purchasers recreational prospecting and
mineral rights to the Company's land and rights to use the land and facilities
for camping and recreational vehicle parking. The contracts are generally
noninterest bearing, unsecured and provide for a down payment and monthly
installments of $25 for periods of up to ten years. No deferred revenue or
accounts receivable have been recorded for amounts not yet due under the
contract terms due to uncertainty of collection. Sales revenue is recognized
based upon a weighted average ten year straight-line method. The ten year
weighted average method was established based upon historical membership
longevity, taking into consideration member defaults and withdrawals. Deposits
are taken on new sales contracts, and are fully refundable for 10 days.
The Company also sells GPAA memberships for periods varying from one year to
lifetime memberships. For nonlifetime memberships, revenue is recognized over
the life of the membership. Approximately 10% of GPAA members are members of
LDMA-AU referred to in the paragraph above. Based on demographics, the GPAA
members have a longer term than LDMA-AU members. Management estimates the
expected period of time a lifetime member is active in the GPAA to be fifteen
years. Accordingly, for lifetime memberships, revenue is recognized on a
straight-line basis over fifteen years.
Advertising revenue for The Outdoor Channel, Inc. is recognized when the
advertisement takes place. Advertising revenue from advertisers in the
Company's bi-monthly magazine is recognized when the magazine is distributed.
Reclassification:
Certain prior year amounts in the consolidated financial statements have been
reclassified to conform to the current year presentation.
Advertising:
Advertising costs are charged to expense as incurred and production costs of
advertising are expensed the first time the advertising takes place.
-33-
<PAGE> 52
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impact of recent accounting pronouncements:
Effective in 1997, the Company will be required to adopt Statement of Financial
Accounting Standards No. 128, "Earnings per Share" and No. 129, "Capital
Structure." The impact of the adoption of these pronouncements is not expected
to be material to the Company's financial position or results of operations.
Income taxes:
Deferred taxes are provided on the liability method whereby deferred tax assets
are recognized for deductible temporary differences and deferred tax liabilities
are recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
basis. Deferred tax assets are reduced by valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of the enactment.
Loss per share:
The computation of loss per share is based on the weighted average number of
common and common equivalent shares outstanding during the year. In 1996 and
1995, the weighted average number of shares for computing loss per share was
4,103,141 and 3,867,517, respectively. The computation of fully diluted loss
per share was antidilutive in each of the periods presented; therefore, the
amounts reported for primary and fully diluted loss are the same.
Use of estimates:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make certain 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. Actual results could differ from those
estimates.
Fair value of financial instruments:
The carrying value of accounts receivable and trade payables approximates the
fair value due to their short-term maturities. The carrying value of the
Company's debt is considered to approximate fair market value as the interest
rates of these instruments are comparable to borrowing rates currently
available to the Company for loans with similar terms.
Accounting for stock-based compensation:
The Company accounts for stock-based compensation issued to employees using the
intrinsic value based method as prescribed by The Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25). Under
the intrinsic value based method, compensation is the excess, if any, of the
fair value of the stock at the grant date or other measurement date over the
amount an employee must pay to acquire the stock. Compensation expense, if any,
is recognized over the applicable service period, which is usually the vesting
period.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
(SFAS No. 123). This standard, if fully adopted, changes the methods of
accounting for employee stock-based compensation plans to the fair value based
method. For stock options and warrants, fair value is determined using an option
pricing model that takes into account the stock price at the grant date, the
exercise price and the expected life of the option or warrant. Compensation
expense, if any, is recognized over the applicable service period, which is
usually the vesting period.
The adoption of the accounting methodology of SFAS No. 123 is optional and the
Company has elected to continue accounting for stock-based compensation issued
to employees using APB No. 25; however, pro forma disclosures, as if the
Company adopted the cost recognition requirements under SFAS No. 123, are
required to be presented. (See Note 6).
-34-
<PAGE> 53
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows at December 31,
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Membership recreational mining properties:
Land $ 926,378 $ 604,477
Buildings and improvements 102,874 66,845
----------- -----------
1,029,252 671,322
Less accumulated depreciation (34,242) (24,605)
----------- -----------
$ 995,010 $ 646,717
=========== ===========
Alaska recreational mining properties:
Land $ 1,129,773 $ 1,202,373
Buildings and improvements 444,549 444,549
Vehicles and equipment 894,103 842,137
----------- -----------
2,468,425 2,489,059
Less accumulated depreciation (1,002,816) (939,007)
----------- -----------
$ 1,465,609 $ 1,550,052
=========== ===========
Outdoor channel equipment:
Equipment $ 433,211 $ 159,635
Furniture and fixtures 64,001 37,289
Leasehold improvements 25,626 4,298
----------- -----------
522,838 201,222
Less accumulated depreciation (136,254) (53,303)
----------- -----------
$ 386,584 $ 147,919
=========== ===========
Other equipment and leasehold improvements:
Furniture and fixtures $ 11,625 $ 1,625
Equipment 287,842 95,624
Vehicles 150,283 94,102
Leasehold improvements 6,578 4,578
----------- -----------
456,328 195,929
Less accumulated depreciation (223,625) (116,878)
----------- -----------
$ 232,703 $ 79,051
=========== ===========
</TABLE>
NOTE 3. DEFERRED REVENUE
As of December 31, 1996 scheduled payments and amounts to be recognized as
income in future years from existing LDMA-AU and GPAA sales contracts are:
<TABLE>
<CAPTION>
Scheduled Revenue to Be
Payments Recognized
---------- -------------
<S> <C> <C>
1997 $2,167,856 $ 1,433,552
1998 1,932,988 1,413,577
1999 1,764,842 1,378,547
2000 1,448,121 1,337,982
2001 1,113,140 1,403,689
Thereafter 411,505 3,728,887
---------- ----------
$8,838,452 $10,696,234
========== ==========
</TABLE>
-35-
<PAGE> 54
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. DEBT
Long-term debt consists of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Note payable to individuals, secured by deed of
trust, payable in monthly installments of $805
including interest at 8.5 percent, balance due
December 2000. $ 97,237 $98,567
Note payable to an individual, secured by first
deed of trust on land, payable in monthly
installments of $746 including interest at
9.5 percent, balance due May 1998. 63,020 65,889
Notes payable to an individual, secured by
first deed of trust on land, payable in
monthly installments of $900 including
interest at 8.0 percent, balance due May 1997. 89,917 93,373
Note payable to individuals, secured by first deed
of trust on land, payable in four annual
installations of $50,000 beginning in 1997,
with an interest at 7.5 percent. 200,000 --
Note payable to the major stockholder, secured by
a motor home, payable at $520 per month
including interest at 9.0 percent. 51,070 --
Note payable to finance companies, secured by
vehicles, payable in monthly installments
including interest ranging from 7.75 to
9.75 percent. 27,566 16,462
</TABLE>
-36-
<PAGE> 55
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
Installment note payable to a bank, secured by
accounts receivable and inventory, guaranteed
by three stockholders, payable in
monthly installments of $12,500 plus
interest at 9.75%. 412,500 --
-------- --------
941,310 274,291
Less current maturities 303,593 21,567
-------- --------
$637,717 $252,724
======== ========
</TABLE>
The aggregate maturities of long-term debt as of December 31, 1996 are as
follows:
<TABLE>
<S> <C>
1997 $303,593
1998 268,864
1999 172,854
2000 150,572
2001 45,427
--------
$941,310
========
</TABLE>
As of December 31, 1996, the Company had a $750,000 revolving line of credit
agreement with a bank, $715,322 of which was outstanding. The line of credit
is guaranteed by three shareholders of the Company. The line of credit agreement
specifies a 9.25 percent interest rate and an expiration date of June 10, 1997.
The Company intends to renew the line of credit.
NOTE 5. CAPITAL LEASES
The Company leases various equipment which is accounted for as capital leases. A
schedule of future minimum lease payments together with the present value of
the minimum lease payments as of December 31, 1996 is as follows:
Minimum lease payments for the year ending:
<TABLE>
<S> <C>
1997 $ 72,314
1998 79,801
1999 79,343
2000 51,752
2001 3,143
--------
286,353
Less amount representing interest 46,517
--------
Present value of minimum lease payments 239,836
Less current portion 47,172
--------
$192,664
========
</TABLE>
At December 31, 1996 the book value of the assets held under capital leases is
approximately $225,000. The amortization of these assets is included in
depreciation expense.
-37-
<PAGE> 56
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. STOCKHOLDERS' EQUITY
Preferred stock:
During 1990, the Company issued 71,835 shares of 10% noncumulative, convertible,
exchangeable, nonvoting preferred stock at $.001 par value for $5 per share. The
preferred shares have no liquidation preference over the Company's common stock.
The preferred shares are convertible at any time at the option of the holder
into common stock at the rate of one share of common stock for one share of
preferred stock. The preferred stock is exchangeable at the option of the Board
of Directors, in whole or in part, at the same rate of one share of common stock
for one share of preferred stock. On December 11, 1996, the Company authorized
the payment of a common stock dividend to holders of the preferred shares as of
December 31, 1996 at a rate of one common stock for every ten shares of
preferred stock. The stock dividend was paid in January 1997 and is reflected as
a dividend payable on December 31, 1996.
Stock option plan:
The Company has three stock option plans, Stock Option Plan 1 (Plan 1), Stock
Option Plan 2 (Plan 2), and the 1995 Stock Option Plan (1995 Plan). As
discussed in Note 1 above, the Company accounts for the above plans under APB
No. 25, under which no compensation cost has been recognized.
Had compensation cost for these plans been determined consistent with
SFAS No. 123, the Company's net income and earnings per share would have
been reduced to the following pro forma amounts for the years ended December
31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C> <C>
Net loss As reported $(2,549,700) $ (49,897)
=========== =========
Pro forma $(2,569,532) $(552,085)
=========== =========
Loss per share As reported $ (0.62) $ (0.01)
=========== =========
Pro forma $ (0.63) $ (0.14)
=========== =========
</TABLE>
The fair value of each option granted to employees and directors is estimated
using the Black-Scholes option-pricing model on the date of grant using the
following assumptions: (i) no dividend yield, (ii) average volatility of 67 and
71 percent for 1996 and 1995, respectively, (iii) weighted-average risk-free
interest rate of approximately 6.3 percent, and (iv) expected life between 1 to
5 years.
-38-
<PAGE> 57
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the status of the Company's three stock option plans at December
31, 1996 and 1995 and changes during the years then ended is presented in the
table and narrative below:
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
Shares Wtd Avg Shares Wtd Avg
(000) Ex Price (000) Ex Price
------ -------- ------ --------
<S> <C> <C> <C> <C>
Outstanding at beg. of year 510 $2.68 350 $2.33
Granted 13 3.83 370 3.33
Exercised -- -- -- --
Expired/Forfeited (20) 3.25 (210) 3.25
----- -----
Outstanding at end of year 503 2.69 510 2.68
===== =====
Exercisable at end of year 493 2.66 510 2.68
===== =====
Weighted average fair value of
options granted $3.13 $2.01
===== =====
</TABLE>
The 503,000 options outstanding at December 31, 1996 have exercise prices
between $2.25 and $4.00 and a weighted average remaining contractual life of 7.6
years.
In addition to the options granted above, a principal shareholder granted
100,000 options to an employee of the Company in October 1995 at an exercise
price of $3.50 per share which vested immediately. The options expire in October
2005.
On November 17, 1994, a principal shareholder granted options to purchase
200,000 shares each to three directors of the Company. In July 1995, two of
these directors subsequently assigned 40,000 shares each to an employee of the
Company. The options all vest immediately, have exercise prices of $2.33 and
expire November 17, 2004.
Common stock subscriptions receivable:
On June 22, 1993 certain stockholders and other individuals exercised a portion
of their options available under the stock option plan above. In connection
therewith, these individuals issued promissory notes to the Company whereby the
individuals are obligated to pay a total of $221,250, plus interest at 4
percent per annum, due on June 30, 1999, secured by the related shares of
common stock.
-39-
<PAGE> 58
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retirement of treasury stock:
During 1996, the Company retired all of its common shares held in treasury.
NOTE 7. IMPAIRMENT OF INVESTMENTS AND LONG-LIVED ASSETS
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standard No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." This statement requires, among other
things, that an impairment loss shall only be recognized when the carrying
amount of a long-lived asset exceeds the expected future cash flows
(undiscounted and without interest charges) and that, when appropriate, the
amount of loss to be recognized shall be measured as the amount by which the
carrying value exceeds the fair value of the asset. The adoption of this
statement did not have a material effect on the financial position or results of
operations of the Company.
NOTE 8. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
The Company is leasing its administrative facilities from a stockholder under an
agreement which requires monthly rent payments of approximately $0.34 per square
foot. The term of this lease is from January 1997 to December 2000. Rent expense
paid to the stockholder totaled $73,150 and $57,000 for the years ended December
31, 1996 and 1995, respectively. The building serves as security under the terms
of the note receivable from the stockholder. The note receivable, in the amount
of $280,057 at December 31, 1996, plus interest at six percent is due in 2000.
The Company initiated an agreement with one of its directors during 1994 to
receive legal services on a monthly basis. The agreement calls for the Company
to pay the director a monthly retainer in the amount of $5,000. In the event
that services rendered by the director on behalf of the Company exceed $5,000 in
any given month, the agreement calls for the director to receive shares of the
Company's common stock at its then current fair market value as payment for the
services in excess of $5,000.
Effective October 1995, the Company entered into an agreement with an employee
of The Outdoor Channel, Inc. which expires in January 2000. Among other
provisions, the agreement provides for a salary of $180,000 per year and bonuses
paid at least once a year as determined by the Compensation Committee of the
Board of Directors.
From time to time Global is a party to litigation arising in the normal course
of its business, none of which existing on the date hereof in the opinion of
management will have a material effect on Global's operations or financial
position.
NOTE 9. INCOME TAXES
The components of the benefit for income taxes for the years ending
December 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Current:
Federal $(847,159) $ --
State (149,499) --
Deferred:
Federal 662,000 (22,952)
State 117,000 (7,630)
--------- --------
Income tax benefit $(217,658) $(30,582)
========= ========
</TABLE>
The following table reconciles the federal statutory income tax rate to the
effective tax rate of the benefit for income taxes:
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Federal statutory income tax rate (34.0)% (34.0)%
State income taxes, net of federal benefit (5.6) (4.0)
Effect of net operating loss carryforward
net utilized 14.0 --
Valuation of temporary differences 15.3 --
Other 2.4 --
----- -----
Effective tax rate (7.9)% (38.0)%
===== =====
</TABLE>
-40-
<PAGE> 59
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets are summarized below:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Bad debts $ 17,000 $ 4,000
Depreciation 95,000 73,000
Accruals 57,000 14,000
Deferred revenue 743,000 413,000
Net operating loss 371,000 --
----------- ---------
1,283,000 504,000
Valuation allowance (1,283,000) (504,000)
----------- ---------
Net deferred tax asset $ -- $ --
=========== =========
</TABLE>
The Company has available for federal and state income tax purposes, net
operating loss carryforwards of approximately $930,000 and $1,640,000,
respectively, which expire in the year 2011.
NOTE 10. BUSINESS COMBINATION
On February 10, 1995, the Company effected a business combination with GPAA by
exchanging 2,500,000 shares of its common stock for all of the common stock of
GPAA. GPAA was 100% owned by the majority stockholders of the Company. The
agreement also calls for an additional 1,500,000 shares of common stock to be
issued if certain earnings or valuation levels are attained. The principal
business of GPAA is the sales of memberships in a gold prospecting club. The
GPAA also generates revenue from advertisers in a bi-monthly magazine and
through merchandise sales. The combination was accounted for in a manner similar
to a pooling of interests. GPAA previously had a year-end of February 28 and as
a result of the combination has adopted a December 31 fiscal year-end.
NOTE 11. LEASE AGREEMENTS
The Company leases its facilities and certain equipment under noncancelable
operating leases which expire at various dates through December, 2000. In 1995,
under the terms of an operating lease,the Company acquired certain rights to
utilize certain satellite equipment. This lease was to expire on July 7, 1998.
The Company terminated this agreement on March 1, 1997 and entered into a new
satellite equipment lease that will expire on June 30, 1998. This agreement
requires monthly payments of $115,000 during the period March 1, 1997 through
June 30, 1997, $150,000 through October 31, 1997, $170,000 through February 28,
1998 and $190,000 through June 30, 1998.
In addition, equipment is leased under two separate operating lease agreements
expiring at various dates through December 2000. Monthly payments on the two
agreements total approximately $1,500.
The total minimum rental commitment under these operating lease agreements
(including the operating lease with a stockholder, see Note 8) is as follows:
1997 $1,764,012
1998 1,214,012
1999 114,012
2000 5,890
----------
$3,097,926
==========
During the years ended December 31, 1996 and 1995, the Company incurred
$1,490,812 and $984,019, respectively, in rental expense.
NOTE 12. SUBSEQUENT EVENTS
In February 1997, the Company pledged 250,000 shares of common stock in lieu of
a deposit under the terms of a satellite equipment lease (see Note 11 above).
In February, 1997, Wilma M. Massie, a principal shareholder of the Company,
loaned the Company $125,000 on a note bearing interest at 10%.
In April, 1997, the Company entered into an agreement with Perry T. Massie,
Thomas H. Massie and Wilma M. Massie (the Principal Stockholders), whereby the
Principal Stockholders agreed to provide for the cash flow requirements of the
Company over the next twelve months by means of loans or equity investments
(see Note 1).
-41-
<PAGE> 60
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. BUSINESS SEGMENT INFORMATION
Business segment information is summarized as follows:
<TABLE>
<CAPTION>
Additions to
Property,
Income Equipment &
(Loss) Before Depreciation Leasehold
Revenues Income Taxes Assets and Amortization Improvements
----------- ------------- ---------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
1995
Alaska trip $ 656,161 $ 315,591 $1,550,052 $ 81,000 $ 45,750
The Outdoor
Channel 314,958 (816,637) 897,041 21,306 135,189
Membership
sales of
recreational
prospecting
and mineral
rights and
merchandise
sales 3,133,110 1,648,575 988,918 9,000 222,158
Other 236,738 (1,228,008) 1,140,844 26,500 70,121
----------- ----------- ---------- -------- --------
$ 4,340,967 $ (80,479) $4,576,855 $137,806 $473,218
=========== =========== ========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Additions to
Property,
Income Equipment &
(Loss) Before Depreciation Leasehold
Revenues Income Taxes Assets and Amortization Improvements
----------- ------------- ---------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
1996
Alaska trip $ 828,901 $ 158,678 $1,465,608 $ 69,700 $ 54,365
The Outdoor
Channel 743,143 (1,983,518) 679,519 100,197 321,616
Membership
sales of
recreational
prospecting
and mineral
rights and
merchandise
sales 3,626,420 377,841 1,047,250 36,667 357,930
Other 286,544 (1,320,359) 1,033,521 56,580 185,400
---------- ----------- ---------- -------- --------
$5,485,008 $(2,767,358) $4,225,898 $263,144 $919,311
========== =========== ========== ======== ========
</TABLE>
-42-
<PAGE> 61
\
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The directors, executive officers and key employees of the Company are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Perry T. Massie 34 Chief Executive Officer, President and Chairman of the Board
Thomas H. Massie 32 Executive Vice President, Secretary and Director
Richard K. Dickson II 51 Senior Vice President, General Counsel and Director
David M. Ashwood 48 Chief Financial Officer and General Manager
Christopher B. Forgy 44 President and Chief Executive Officer of The Outdoor Channel
Andrew J. Dale 41 Senior Vice President Operations of The Outdoor Channel
Jacob B. Hartwick 43 Vice President Sales and Promotions of The Outdoor Channel
and Lost Dutchmans Mining Association
James E. Crawford 43 Vice President Sales and Marketing of The Outdoor Channel
</TABLE>
The term of each director will expire at the 1998 annual meeting of
stockholders and when a successor is elected and qualified or upon his earlier
death, resignation or removal. Officers serve at the discretion of the Board of
Directors.
Perry T. Massie has served as Chief Executive Officer of the Company
since 1986, has served as President and Chairman of the Board since 1994. From
1986 until January 1996, Mr. Massie served as Chief Financial Officer of the
Company. He has been the Managing Editor of the Gold Prospector Magazine since
1988. Mr. Massie earned a Bachelor of Science degree in Mining Engineering from
the University of Alaska, Fairbanks in June 1986. Perry T. Massie is the brother
of Thomas H. Massie.
Thomas H. Massie has served as Secretary and a director of the Company
since 1984, and has served as Executive Vice President of the Company and the
President of Gold Prospectors' Association of America, Inc. since 1994. Mr.
Massie is also the host of the "Gold Prospecting Show." He attended the
University of Alaska, Fairbanks from 1984 to 1986, studying business
administration. Thomas H. Massie is the brother of Perry T. Massie.
Richard K. Dickson II has served as Senior Vice President, General
Counsel and a director of the Company since 1994. From November 1984 until 1994,
Mr. Dickson served as the Company's corporate counsel and has been a practicing
attorney, specializing in corporate and securities law, with his own firm since
1979. Mr. Dickson served as an attorney with the California Department of
Corporations from 1976 to 1979. He earned a Bachelor of Science degree in
Business Administration from the University of California, Berkeley in 1968, a
Masters in Business Administration from the University of Southern California in
1970 and a law degree from the University of the Pacific in 1976.
-43-
<PAGE> 62
David M. Ashwood has served as Chief Financial Officer of the Company
since January 1996. From May 1995 to the present, he has been the General
Manager of the Company. Mr. Ashwood has been the Controller of the Company since
November 1984. From 1984 until February 1996, Mr. Ashwood was the President of
Affiliated Professional Services, a privately-held company that provides
accounting, tax consulting and business management services to small to
medium-sized companies. Mr. Ashwood earned a Bachelor of Science degree in
Business Administration and a Masters in Business Administration, with an
emphasis in Accounting and Finance, from California State University at
Northridge in 1968 and 1969, respectively.
Christopher B. Forgy has served as the President and Chief Executive
Officer of The Outdoor Channel since February 1996. From February 1995 through
January 1996, Mr. Forgy owned Chris Forgy Associates, a television industry
consulting firm. From 1989 through January 1995, he served as Senior Vice
President of Marketing, Sales and Programming for Times Mirror Cable Television.
Mr. Forgy is immediate past Chairman of the Cable Television Administration and
Marketing Society (CTAM). He has served on the board of directors of the
Cabletelevision Advertising Bureau (CAB) and Pay Per View Holding Company, which
owns and operates Viewer's Choice networks. Mr. Forgy was a founding member of
the cable committee of the Academy of Television Arts & Sciences.
Andrew J. Dale has served as Senior Vice President Operations of The
Outdoor Channel since 1994. From 1990 to 1993, he has acted as a video and
television consultant to both Global Outdoors, Inc. and the Gold News Network,
Inc. From 1989 to 1994, Mr. Dale was a production manager at Vidfilm Services, a
major Hollywood post-production facility, whose clients include Disney, MCA,
Columbia and a host of other major studios. Vidfilm provides comprehensive
services from film-to-tape transfer, editing and duplications, to standards
conversion from NTSC to PAL and SECAM. Mr. Dale was born and raised in the
United Kingdom.
Jacob B. Hartwick has served in various position with the Company since
1986. From 1994 to the present Mr. Hartwick has been Vice President Sales and
Promotions for The Outdoor Channel and Lost Dutchmans Mining Association. From
1991 to 1994, he served as a Vice President for Gold Prospector's Association of
America, Inc.
James E. Crawford has served as Vice President Sales and Marketing of
The Outdoor Channel since May 1996. From 1991 to May 1996, Mr. Crawford was
employed by Times Mirror Cable Television. While with Times Mirror, he was the
Director of Affiliate Sales Western Division for Outdoor Life Network, a
competitor of The Outdoor Channel and he was Director of Marketing and Sales for
Times Mirror Cable Television in North San Diego and Sun City, California. He is
a graduate of the University of Minnesota.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Based solely upon its review of the copies of reports furnished to the
Company, or representations that no annual Form 5 reports were required, the
Company believes that all filing requirements under Section 16(a) of the
Exchange Act applicable to its directors, officers and any persons holding ten
percent (10%) or more of the Company's Common Stock with respect to the
Company's fiscal year ended December 31, 1996, were satisfied.
BOARD OF DIRECTORS
The Board of Directors of the Company took action by unanimous written
consent or held meetings fourteen (14) times during the fiscal year ended
December 31, 1996. Each incumbent Director attended at least seventy-five
percent (75%) of the aggregate of the number of meetings of the Board and the
number of meetings held by all committees of the Board on which he or she
served. The Company does not have any standing committees. In July 1996, the
Company amended its Articles of Incorporation to authorize the Board of
Directors to be increased to a maximum of seven directors. The Company
anticipates increasing the size of the Board to five members if it becomes
listed on the National Market System.
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<PAGE> 63
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth compensation received for the fiscal
years ended December 31, 1996, 1995 and 1994 by the Company's Chief Executive
Officer, and the other executive officers whose salary and bonus exceeded
$100,000 for fiscal year 1996, 1995 and 1994 (collectively, the "Named Executive
Officers"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Securities
Other Under-
Annual Restricted laying All Other
Compen- Stock Options/ LTIP Compen-
Name and Principal Position Year Salary($) Bonus($) sation($) Awards /SARS Payouts sation
- --------------------------- ---- --------- -------- --------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Perry T. Massie, CEO 1996 84,000 -- -- -- -- -- --
1995 52,000 10,500 -- -- -- -- --
1994 52,000 43,301 -- -- -- -- --
Christopher B. Forgy 1996 165,000 -- -- -- -- -- --
Richard K. Dickson II 1996 60,000 60,000 -- -- -- -- --
1995 60,000 60,000 -- -- -- -- --
1994 60,000 -- -- -- -- --
</TABLE>
In 1996 and 1995, Mr. Dickson devoted approximately 100% and 80%,
respectively, of his business time to the Company's affairs. Mr. Dickson
received cash payments for 1996 and 1995 of $70,000 and $90,000, respectively,
out of which he paid his office expenses of approximately $1,400 and $2,200 per
month, in 1996 and 1995, respectively. The additional $50,000 due Mr. Dickson
for 1996 may be paid in either cash or stock at such time as is agreed upon by
Mr. Dickson and the Company. The additional $30,000 for 1995 due Mr. Dickson may
be paid in either cash or stock at such time as is agreed upon by Mr. Dickson
and the Company.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
% of Total Potential Realizable
Options Value at Assumed
Number of Granted Annual Rates of Stock
Securities to Exercise Price Appreciation for
Underlying Employees or Base Option Term(2)
Options in Fiscal Price Expiration ----------------------
Name Granted (#) Year(1) ($/Share) Date 5%($) 10%($)
---- ----------- ---------- --------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Perry T. Massie, CEO -- -- -- -- -- --
Christopher B. Forgy 125,000 91% 3.50 October 16, 2005 -- --
</TABLE>
- ---------------
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<PAGE> 64
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of Securities Underlying Value of Unexercised
Unexercised Options in-the-Money Options
Shares at Fiscal Year-End(#) at Fiscal Year-End($)
Acquired On Value ------------------------------- --------------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Perry T. Massie, CEO -- -- 85,000 -- -- --
Thomas H. Massie -- -- 85,000 -- -- --
Richard K. Dickson II -- -- 25,000 -- -- --
David M. Ashwood -- -- 20,000 -- -- --
Christopher B. Forgy -- -- 125,000 -- -- --
</TABLE>
The exercise price of the options listed above for Messrs. Perry T.
Massie and Thomas H. Massie are $2.50 per share for 50,000 shares and $2.25 per
share for 35,000 shares. The exercise price of the options listed above for
Messrs. Dickson and Ashwood are $2.25. The exercise price of the options listed
above for Mr. Forgy is $3.50. The Closing Price of Global's Common Stock at 1996
fiscal year-end was $2.00 per share.
STOCK OPTION PLANS
On May 26, 1993, the Company adopted two stock option plans
("Plan 1 Stock Options" and "Plan 2 Stock Options"). Plan 1 Stock Options are
for persons who held stock options prior to the adoption of Plan 1 Stock
Options. There are presently four persons who hold Plan 1 Stock Options for
115,000 shares of Common Stock exercisable at a price of $2.50 per share. Plan 1
Stock Options are non-qualified stock options and no further grants will be made
under this plan. Plan 2 Stock Options may be granted to provide incentives to
executive officers, employees and independent consultants. Options to purchase
285,000 may be granted under Plan 2 Stock Options. Options to purchase 235,000
shares are outstanding at an exercise price of $2.25 per share leaving options
to purchase 50,000 shares available for grant. Plan 1 Stock Options are
non-qualified stock options.
In September 1995, the Company authorized another stock option
plan (the "1995 Stock Option Plan"). The 1995 Stock Option Plan was approved
by the shareholders of the Company at the Company's 1996 Annual Meeting held on
July 16, 1996. The 1995 Stock Option Plan provides for the grant of options to
purchase up to 500,000 shares of Common Stock in order to enhance the Company's
ability to attract and retain the services of qualified employees, officers,
directors, consultants and other service providers. The Company may grant
incentive stock options and nonqualified stock options under the 1995 Stock
Option Plan. There are options to purchase 153,000 shares of Common Stock
outstanding under the 1995 Stock Option Plan. An option to purchase 125,000
shares of Common Stock exercisable at $3.50 per share was granted to Christopher
B. Forgy, President and Chief Executive Officer of The Outdoor Channel,
effective October 16, 1995 and options to purchase 28,000 shares of Common Stock
exercisable at prices ranging form $3.25 to $4.00 per share were granted and are
outstanding to several employees and service providers. As of the date of this
report, options to purchase 347,000 shares of Common Stock may be granted under
the 1995 Stock Option Plan.
DIRECTOR'S FEES
The directors of the Company are also executive officers of the
Company. For 1996, directors were not compensated separately or reimbursed for
expenses incurred in attending meetings of the Board of Directors.
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<PAGE> 65
BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION
The Board of Directors has responsibility for matters that would
be handled by the Compensation Committee if Global had such a committee. The
Board has attempted to conserve Global's cash. Therefore, Global did not pay any
direct salaries in 1994. With the acquisition of Gold Prospector's Association
of America, Inc. ("GPAA") in 1995, Global commenced paying direct salaries to
Messrs. Perry and Thomas Massie since they were receiving salaries from GPAA.
Global paid GPAA management fees of $30,000 in 1994. Global considers part of
this prior management fee an indirect salary to Global's Chief Executive
Officer, Perry Massie, since this management fee was utilized to pay a portion
of Perry Massie's salary at GPAA. Global paid Richard Dickson for legal services
rendered to the Company in 1996 and it is anticipated that Global will continue
to pay Mr. Dickson for legal services rendered to Global.
The Company considers services rendered, nature of the services,
quality of performance, past practice, conservation of cash and amount of
present stock ownership in determining executive compensation. The Company
desires to encourage performance by stock ownership.
EMPLOYMENT CONTRACTS
The Company has entered into an employment agreement with
Christopher B. Forgy, President and Chief Executive Officer of The Outdoor
Channel, for a four year term commencing on February 1, 1996. If Mr. Forgy's
employment is terminated other than for cause, he will be entitled generally to
one year's salary and upon a change in control to two year's salary
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of December 31, 1996 by
each director and executive officer of the Company, each person known to the
Company to be the beneficial owner of more than 5% of the outstanding Common
Stock, and all directors and executive officers of the Company as a group.
Except as otherwise indicated below, the Company believes that each person
listed below has sole voting and investment power with respect to the shares
owned, subject to applicable community property laws.
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<PAGE> 66
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL SHARES BENEFICIALLY
OWNER OR IDENTITY OF GROUP OWNED(1)
------------------------------ --------------------------
NUMBER PERCENT
--------- -------
<S> <C> <C>
Wilma M. Massie (3) ............................. 1,391,926 33%
Perry T. Massie (4)(5) .......................... 1,239,196 29%
Thomas H. Massie (6)(7) ......................... 1,262,700 30%
Richard K. Dickson II(8) ........................ 301,550 7%
Christopher B. Forgy(9) ......................... 225,000 5%
David M. Ashwood(10) ............................ 114,070 3%
Andrew J. Dale(11) .............................. 25,000 * %
Jacob B. Hartwick(12) ........................... 30,904 * %
All directors and Named
Executive Officers as a
group (7 persons) (13) .......................... 3,198,420 70%
</TABLE>
- -------------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
subject to options or warrants currently exercisable or convertible, or
exercisable or convertible within 60 days of April 10, 1997, are deemed
outstanding for computing the percentage of the persons holding such
options but are not deemed outstanding for computing the percentage of
any other person.
(2) The address of each shareholder is c/o Global Outdoors, Inc., 43445
Business Park Dr., Suite 113, Temecula, California 92590.
(3) Includes 95,000 shares subject to options from the Company exercisable
within 60 days of April 10, 1997.
(4) Includes 85,000 shares subject to options from the Company and 160,000
shares subject to options from Wilma M. Massie exercisable within 60
days of April 10, 1997.
(5) 8,500 of the shares shown are owned jointly by Perry T. Massie and his
wife, Sandy Massie, who share voting and investment power with respect
to such shares.
(6) Includes 85,000 shares subject to options from the Company and 160,000
shares subject to options from Wilma M. Massie exercisable within 60
days of April 10, 1997.
(7) 8,500 of the shares shown are owned jointly by Thomas H. Massie and his
wife, Cindy Massie, who share voting and investment power with respect
to such shares.
(8) Includes 25,000 shares subject to options from the Company and 200,000
shares subject to options from Wilma M. Massie exercisable within 60
days of April 10, 1997.
(9) Includes 125,000 shares subject to options from the Company and 100,000
shares subject to options from Wilma M. Massie exercisable within 60
days of April 10, 1997.
(10) Includes 20,000 shares subject to options from the Company and 80,000
shares subject to options from Wilma M. Massie exercisable within 60
days of April 10, 1997.
(11) Includes 20,000 shares subject to options from the Company exercisable
within 60 days of April 10, 1997.
(12) Includes 20,000 shares subject to options from the Company exercisable
within 60 days of April 10, 1997.
(13) Includes directors' and executive officers' shares listed above,
including 465,000 shares subject to options from the Company and 700,000
shares subject to options from Wilma M. Massie exercisable within 60
days of April 10, 1997.
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<PAGE> 67
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Prior to the acquisition in February 1995 of 100% of the
outstanding stock of Gold Prospectors Association of America, Inc. ("GPAA") by
the Company, GPAA was paid a management fee by the Company which amounted to
$30,000 in 1994, said fee included office rent for the Company. Additionally,
GPAA received a 25% sales commission on all sales of Lost Dutchman's memberships
sold using GPAA mailing lists. The shareholders of GPAA were Perry T. Massie,
Thomas H. Massie and Wilma M. Massie, all of whom were shareholders of the
Company prior to the Company's acquisition of 100% of the outstanding stock of
GPAA. The Company has accounted for its purchase of GPAA as a pooling of
interests. Accordingly, the Company has restated its financial statements to
include those of GPAA for the period prior to February 1995, and the related
management fees and sales commissions have been eliminated upon such
consolidated restatement. No management fees or sales commissions have been paid
since February 1995.
The Company is leasing its administrative facilities from Wilma
M. Massie, a shareholder of the Company and the mother of Perry T. Massie and
Thomas H. Massie, under a lease agreement (the "Lease") currently requiring
monthly rent payments of $8,000. Rent expense totaled $73,150 and $57,000 for
the years ended December 31, 1996 and 1995, respectively. The total rent
commitment at December 31, 1996 is three years.
In conjunction with the Lease, the Company has a note receivable
from Wilma M. Massie, the balance outstanding on which was $280,057 and $347,674
December 31, 1996 and 1995, respectively. The note bears interest at 6%.
On February 10, 1995, the Company acquired 100% of the stock of
GPAA in exchange for 2,500,000 shares of its Common Stock (the "Acquisition").
The acquisition agreement provided for the issuance of up to an additional
1,500,000 shares of Common Stock ("Earn Out Shares") to the former shareholders
of GPAA if GPAA achieved certain earnings or valuation milestones. The former
shareholders of GPAA, Perry T. Massie, Thomas H. Massie, and Wilma M. Massie,
are shareholders of the Company and Messrs. Perry and Thomas Massie are officers
of the Company. For purposes of the Acquisition, the value of the Global Common
Stock was deemed to be $3.50 per share with the initial total acquisition cost
being $8,750,000. For accounting purposes, the assets of GPAA are recorded at
their historical cost basis in a manner similar to a pooling of interest.
The 1,500,000 Earn Out Shares will be unissued or held in escrow
by Global's Transfer Agent for the benefit of the former shareholders of GPAA.
All or part of such shares are to be delivered to the former shareholders of
GPAA in the amounts set forth below if GPAA achieves the cumulative levels of
earnings after deduction of income taxes, set forth below during the period
beginning January 1, 1995 and ending March 31, June 30, September 30 or December
31, in 1995, 1996, 1997, and 1998.
<TABLE>
<CAPTION>
The Number of Earn Out Shares
If Cumulative Earnings to be Delivered to Former
Are Not Less Than GPAA Shareholders
---------------------- -----------------------------
<S> <C>
$1,500,000 500,000
$2,000,000 an additional 500,000
$2,700,000 an additional 500,000
</TABLE>
Alternatively, in recognition of the fact that a significant
expansion of The Outdoor Channel is being conducted and that such expansion,
while potentially increasing the value of GPAA, may not be reflected in
earnings, the below listed valuation earn out formula may be used. The valuation
must be made by an independent certified public accountant or independent
unaffiliated appraiser. The time periods listed above for earnings also apply
for the valuation.
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<PAGE> 68
<TABLE>
<CAPTION>
The Number of Earn Out Shares
If Valuation of GPAA to be Delivered to Former
Is Not Less Than GPAA Shareholders
-------------------- -----------------------------
<S> <C>
$12,000,000 500,000
$16,000,000 an additional 500,000
$21,000,000 an additional 500,000
</TABLE>
After 1998, Earn Out Shares which are not delivered to the former
shareholders of GPAA are to be considered void. While unissued or held in
escrow, the former shareholders of GPAA will not be able to vote such shares and
will not be entitled to receive any dividends thereon.
The Company has an agreement with Richard K. Dickson II, a
director and officer of the Company, to provide legal services for a monthly
retainer of $5,000. In the event services rendered by Mr. Dickson on behalf of
the Company exceed $5,000 in any given month, the agreement calls for Mr.
Dickson to receive shares of the Company's Common Stock at its then current
market value as payment for the services rendered in excess of $5,000. During
1995, Mr. Dickson was paid $90,000 and was entitled to receive $30,000 worth of
Common Stock pursuant to this agreement. During 1996, Mr. Dickson was paid
$70,000 and was entitled to receive $50,000 worth of Common Stock pursuant to
this agreement.
The transactions between the Company and the Company's management
and significant shareholders are believed by management of the Company to have
been on terms no less favorable to the Company than those that could have been
obtained from unaffiliated parties
In connection with an employment agreement entered into between
the Company and Christopher B. Forgy on February 1, 1996, Wilma M. Massie, a
shareholder of the Company, granted to Mr. Forgy an option to purchase an
aggregate of 100,000 shares of common stock of the Company owned by her. The
option to Mr. Forgy to purchase stock is exercisable at a price of $3.50 per
share of Common Stock.
Perry T. Massie and Thomas H. Massie each have an option to
purchase 160,000 shares of the Company owned by Wilma M. Massie and an option to
purchase up to 96,000 shares of Wilma Massie's Earn Out Shares. Mr. Dickson has
an option to purchase 200,000 shares of the Common Stock of the Company owned by
Wilma Massie and has an option to purchase up to 150,000 shares of Wilma
Massie's Earn Out Shares. In January 1996, Mr. Dickson exercised an option to
purchase 50,000 shares of his option from Wilma M. Massie. David M. Ashwood, an
officer of the Company, has an option to purchase 80,000 shares of the Common
Stock of the Company owned by Wilma Massie and has an option to purchase up to
34,000 shares of Wilma Massie's Earn Out Shares.
In February 1997, Wilma M. Massie, a principal shareholder of the
Company, loaned the Company $125,000 on a note bearing interest at 10%.
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<PAGE> 69
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit
Number Description
- ------- -----------
3 Articles of Incorporation and by-laws, as amended*
4 Instruments defining the rights of securityholders, including
debentures*
10.1 Form of Plan 1 Stock Option Agreement (incorporated by reference
to Exhibit 10.1 to the Company's Form 10-Q for the quarter ended
September 30, 1993).
10.2 Form of Plan 2 Stock Option Agreement (incorporated by reference
to Exhibit 10.2 to the Company's Form 10-Q for the quarter ended
September 30, 1993).
10.3 Form of loan agreement for the exercise of Stock Options
(incorporated by reference to Exhibit 10.3 to the Company's Form
10-Q for the quarter ended September 30, 1993).
10.4 Letter of intent dated August 27, 1993, regarding the proposed
acquisition of Gold Prospector's Association of America, Inc. by
the Company (incorporated by reference to Exhibit 10.4 to the
Company's Form 10-Q for the quarter ended September 30, 1993).
10.5 Agreement and Plan of Reorganization dated February 13, 1995, by
and between the Registrant and Gold Prospector's Association of
America, Inc. (incorporated by reference to Exhibit B to the
Company's Form 8-K dated February 13, 1995).
10.6 The Company's 1995 Stock Option Plan (incorporated by reference
to Exhibit 10.6 to the Company's Form 10-KSB for the year ended
December 31, 1995).
10.7 Employment Agreement dated October 16, 1995 between the Company
and Christopher B. Forgy (incorporated by reference to Exhibit
10.7 to the Company's Form 10-KSB for the year ended December 31,
1995).
10.8 Stock Option Agreement dated February 6, 1996 between the Company
and Christopher B. Forgy (incorporated by reference to Exhibit
10.8 to the Company's Form 10-KSB for the year ended December 31,
1995).
16 Letter re change in certifying accountant (incorporated by
reference to Exhibit 16 to the Company's Form 8-K Amendment No.1
dated March 26, 1996).
16.1 Letter re change in certifying accountant (incorporated by
reference to Exhibit 16.3 to the Company's Form 8-K Amendment
No.1 filed December 3, 1996).
21 Subsidiaries of Registrant*
23 Consent of experts and counsel*
27 Financial Date Schedule (SEC only). (filed herewith)
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<PAGE> 70
99.1 Consolidated Financial Statements for Gold Prospector's
Association of America, Inc. ("GPAA") for the years ended
December 31, 1994, and February 28, 1994 and 1993 (incorporated
by reference to Exhibit 99.1 to the Company's Form 10-K for the
year ended December 31, 1994).
99.2 Pro Forma combined Financial Statements for the Registrant and
GPAA for the years ended December 31, 1994, 1993 and 1992
(incorporated by reference to Exhibit 99.2 to the Company's Form
10-K for the year ended December 31, 1994).
* Incorporated by reference from S-1 Registration Statement filed
with the SEC June 21, 1989; Amendment No. 1 thereto filed on
November 28, 1989; Amendment No. 2 thereto filed on January 10,
1990; Amendment No. 3 thereto filed on February 7, 1990; SB-2
Registration Statement filed with the SEC August 5, 1996;
Amendment No. 1 thereto file on January 27, 1997; and Amendment
No. 2 thereto filed January 30, 1997.
(b) The company filed the following reports on Form 8-K during the
quarter ended December 31, 1996, as follows: On October 21, 1996
and December 3, 1996, the Company filed a report on Form 8-K
regarding retaining Arthur Andersen, LLP as its auditor.
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<PAGE> 71
SIGNATURES
In accordance with section 13 or 15 (d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
(Registrant) GLOBAL OUTDOORS, INC.
By: (Signature and Title) s/Perry T. Massie
----------------------------------------------
Perry T. Massie,
Dated: April 30, 1997 President
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated:
By: (Signature and Title) s/Perry T. Massie
----------------------------------------------
Perry T. Massie,
Dated: April 30, 1997 President, CEO, and Director
By: (Signature and Title) s/Thomas H. Massie
----------------------------------------------
Thomas H. Massie,
Dated: April 30, 1997 Executive VP, Secretary and Director
By: (Signature and Title) s/Richard K. Dickson II
----------------------------------------------
Richard K. Dickson II,
Dated: April 30, 1997 Senior VP, General Counsel and Director
By: (Signature and Title) s/David M. Ashwood
----------------------------------------------
David M. Ashwood,
Dated: April 30, 1997 Chief Financial Officer and General Manager
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