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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, 1998
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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
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GLOBAL OUTDOORS, INC.
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(Exact name of registrant as specified in its charter)
ALASKA 33-0074499
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
43445 BUSINESS PARK DR. SUITE 113, TEMECULA, CALIFORNIA 92590
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (909) 699-4749
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Securities registered pursuant to Section 12 (b) of the Act: None
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Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK
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(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 [ ] No
[X]
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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. [X]
State issuer's revenues for its most recent fiscal year $6,685,913.
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 June 25, 1999, 928,027 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 $3,480,101.
(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:
Number of Shares Outstanding
Class at June 24, 1999
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Common Stock 5,253,937
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]
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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") is the principal
owner of The Outdoor Channel, Inc. which owns and operates The Outdoor Channel
("The Outdoor Channel" or "Channel"), the first national television network
devoted primarily to traditional outdoor activities, such as hunting, fishing,
shooting sports, rodeo 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") and
the Trips Division. 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.
GPAA is the largest recreational gold prospecting club in the world with
approximately 35,000 active members. GPAA also sells products and services
related to recreational gold prospecting and is the publisher of the Gold
Prospector magazine. 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 and potential Earn Out Shares
(See "Certain Transactions" and "Note 9 to the Consolidated Financial
Statements"). 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.
BUSINESS STRATEGY
The Company's principal business strategy is for The Outdoor Channel to
establish a position as a leading provider of entertainment programming relating
to traditional outdoor activities and for the Company 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 Outdoor Channel intends to increase its carriage on cable television systems
by continuing to provide quality 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: Based on a long term programming and advertising agreement with The
Outdoor Channel, 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.
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INCREASE ADVERTISING REVENUE AND SUBSCRIBER FEES DERIVED FROM THE
OUTDOOR CHANNEL: The Company believes that as the distribution of The Outdoor
Channel increases, the Channel will be able to increase its advertising rates
and increase subscriber fees from cable operators.
INCREASE THE NUMBER OF OFFERED RECREATIONAL ACTIVITIES: The Company
intends to increase the number of recreational activities offered to members of
GPAA, members of Lost Dutchman's and 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 GPAA
produced the "Gold Prospector Show." In early 1993, due to the success of the
Gold Prospector Show, 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.
In November 1997, The Outdoor Channel added two outside members to its
Board of Directors and in December 1997, the Company instituted a plan to make
The Outdoor Channel self supporting. Since that time, the Company has not
advanced significant funds to the Channel. During 1998 The Outdoor Channel
financed its operations primarily with increasing revenues and outside investor
funds. Since March 1999, the Channel has supported itself solely through its own
revenues. As of May 10, 1999, the Company owned approximately 84% of the Common
Stock of The Outdoor Channel. In the event all outstanding options to purchase
Common Stock in the Channel were exercised the Company would own approximately
68% of The Outdoor Channel.
The Outdoor Channel is a premier provider of a full range of quality
programming related to traditional outdoor activities and is one of the only
television networks whose programming specifically targets the interests and
concerns of millions of persons interested in traditional outdoor activities.
The Outdoor Channel provides the Company, as well as other advertisers, with a
cost effective means to promote goods and services to a large, focused and
rapidly expanding 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
viewers' demands for more outdoor-related programming.
DISTRIBUTION AND CABLE SUBSCRIBERS
The Outdoor Channel's programming is offered mainly by means of
satellite transmissions and through contractual relationships with operators of
cable television systems and broadcast stations. The Company estimates that
approximately 66 million households in the United States have cable television
and that the large C-Band satellite dish ("C-Band") market has attracted another
5 million households. In addition, "wireless cable" ("MMDS"), new video systems
presently being built by telephone companies and the continued development of
direct-broadcast satellite ("DBS") companies provide additional opportunities
for the Company to distribute The Outdoor Channel. New digital programming
services offered by many cable operators has greatly increased the programming
capacity for these operators. The Outdoor Channel has received and is continuing
to receive launches on these digital services including those provided by Time
Warner Cable and AT&T. The Company believes that The Outdoor Channel can
currently be viewed by approximately 9.5 million households.
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The Outdoor Channel 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 Outdoor Channel leases under a service agreement. The
uplink facility transmits The Outdoor Channel's programming signal over an
orbiting PanAmSat Galaxy 9 satellite transponder to cable system headend
receiving antennae and satellite dishes throughout the United States and Canada.
The Outdoor Channel 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 Channel also has several filming sets at its
production facility from which some of its in-house programming is produced.
Commencing October 1, 1998, The Outdoor Channel switched from PanAmSat Galaxy 1R
satellite to PanAmSat Galaxy 9 satellite pursuant to an end of life satellite
lease which is anticipated to run 12 to 15 years. From March 1997 to October
1998, The Outdoor Channel had been transmitting its signal via Galaxy 1R
satellite, are both Galaxy 1R and Galaxy 9 are in "cable neighborhoods" in that
they are satellites that are occupied or intended to be occupied by cable
networks.
The Outdoor Channel is available through approximately 1,500 affiliated
cable systems in a total of approximately 3.5 million cable households and is
available to approximately 6 million C-Band, DBS and broadcast households. The
Outdoor Channel is not dependent on one or a few multiple cable system operators
("MSOs") due to the numerous different cable systems carrying The Outdoor
Channel. 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. The
Company has reserved the right to encrypt its signal requiring satellite viewers
to purchase subscriptions.
DBS providers, such as EchoStar and DirecTv represent an additional,
although smaller, means of potential distribution of The Outdoor Channel. The
Outdoor Channel believes that distribution by means of DBS will increase as
market acceptance and the installed base of DBS subscribers increase. The
Outdoor Channel has entered into a DBS distribution agreement with EchoStar and
was launched on EchoStar's Dish Network in December 1998. Commencing February 1,
1999, The Outdoor Channel has been available on the Dish Network on an al a
carte basis (i.e stand alone) for a fee of $1.99 per month. Through April 1999,
there were approximately 100,000 subscribers to The Outdoor Channel on the Dish
Network. The Channel receives a significant portion of the monthly fees which
has dramatically increased its overall subscriber fees.
The Outdoor Channel has explored international distribution of its
programming. The Outdoor Channel has applied for or received trademarks in
various foreign countries including Canada, France, Taiwan, Hong Kong,
Australia, New Zealand, Germany and The United Kingdom. The Outdoor Channel has
no present agreements for international distribution but will consider
opportunities as they become available.
ADVERTISING
The Company derived approximately $2.3 million in advertising revenue
for the year ended December 31, 1998, from cash sales of advertising time on The
Outdoor Channel and publications such as the Gold Prospector magazine. 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 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, cable television has captured a
greater share of advertising budgets and that during this period, the overall
appeal for the major networks (ABC, CBS and NBC), and for local broadcast
stations, has declined, while over the same period the overall appeal for basic
cable television programming services has increased. Because quality of
viewership is 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.
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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. The Outdoor Channel has numerous advertisers including Troy-Bilt,
Pradco, Sears, Sprint, AT&T, Bushnell Sports Optics and Sorel Boots.
Advertising time on The Outdoor Channel is marketed and sold by The
Outdoor Channel's advertising sales department. The Outdoor Channel also
utilizes the services of independent sales representatives. The Company intends
to increase the size of its advertising sales staff in 1999.
PROGRAMMING
The Outdoor Channel's programming is focused on providing
entertainment, education, consumer values and a balanced approach to the use of
outdoor natural resources. The Outdoor Channel produces its programs with the
outdoor enthusiast in mind, often after considering suggestions and
recommendations of its viewers. Therefore, The Outdoor Channel believes that its
programming, as opposed to its competitors' programming, accurately represents
the values and interests of the outdoor community.
The Outdoor Channel acquires programs from independent film and
television production companies and produces gold prospecting related and other
programs utilizing in-house staff and facilities. The Outdoor Channel exhibits
the acquired productions pursuant to licensing agreements with suppliers who
generally own the copyrights to such programming. The Outdoor Channel has no net
programming costs, as such costs are underwritten by the producers. Licenses to
air acquired programming generally run for a calendar quarter to one year and
entitle The Outdoor Channel to show each episode several times. Examples of
programming acquired from third parties include "America's Outdoor Journal,"
"In-Fisherman," and "American Archer."
In 1999, the Company plans to produce and acquire additional
programming for The Outdoor Channel which the Company believes will enable it to
obtain greater distribution and increase advertising rates.
MARKETING
In 1997, the Company entered a ten year contract with The Outdoor
Channel whereby the Company has the rights to ten hours of programming time and
thirty sixty second advertising spots per week. The Company has the option to
renew this contract for two five year periods. 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. As
the Channel 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 the sale and exclusive distribution of products produced by third
parties. However, there can be no assurance that this will be the case. The
Company believes this contract is presently beneficial to The Outdoor Channel,
but in the future will constitute a significant asset of the Company.
Outdoor-related products and services currently marketed by the Company
on The Outdoor Channel include those of Lost Dutchman's, GPAA and the Trips
Division.
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The Outdoor Channel has entered into several cross marketing agreements
with outdoor related publications and organizations that have recognized the
value of advertising time on the Channel. This provides the Channel with a very
effective means of increasing consumer awareness and demand for The Outdoor
Channel.
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. Lost Dutchman's memberships cost up to $5,000 with annual
maintenance dues presently set at $120; 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. Eight of the properties have a caretaker which the Company has been able
to retain at a minimal monthly expense advance which averages about $550 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 many instances, 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 35,000 active members. GPAA publishes and sells the Mining
Guide, which contains detailed information on mining claims comprising
approximately 100,000 acres and is updated annually, as well as the bi-monthly
Gold Prospector magazine, which has a distribution of approximately 65,000
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.
GPAA's initial memberships cost $67.50. 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, the GPAA Mining
Guide which currently contains over 500 pages of information and a 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. GPAA also produces the Gold Fever television show which
airs on The Outdoor Channel, as well as, several other selected markets. GPAA
also owns approximately 50 hours of original programming of the Gold Prospectors
Show which the Company intends on re-editing and airing on The Outdoor Channel.
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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, including 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 1998, the Alaska trip had
approximately 317 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 Prospectors' Show
and Gold Fever Show.
The Trips Division also offers the Mother Lode Expedition in September
and October. The destination of the Motherlode Expedition is the heart of the
historic motherlode area in central California. Participation is generally
limited to 20 persons per week with a weekly fee of $950. The Motherlode
Expedition runs three to four weeks depending upon demand. Due to the size of
the Motherlode Expedition camp site, it is not anticipated that this trip will
be significantly expanded. As circumstances and opportunities warrant, the
Company will consider offering trips to other locations.
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 closest direct competitors are the Outdoor Life Network and to
a lesser extent, The Nashville Network and ESPN. The Outdoor Channel believes
that while its closest competitor has a similar name there is a substantial
difference between the two networks. The Outdoor Channel emphasizes traditional
outdoor activities such as fishing and hunting while the other network features
a significant amount of outdoor competitive sports and nature observation. The
Outdoor Channel believes that its closest competitor is well funded and well
connected but believes this benefits The Outdoor Channel since it will serve as
a barrier to competition for future programmers in this niche. 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.
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 Outdoor Channel has positioned itself with cable operators as the
lower cost provider in its niche. The Company believes that The Outdoor Channel
is receiving higher advertising rates than its closest competitor due to a
higher percentage of viewership. The Company 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 million direct to home large dish satellite receivers
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.
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The Company is not aware of any other 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 1991 by Global.
Year Participants
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1991 220
1992 215
1993 579
1994 538
1995 369
1996 378
1997 430
1998 317
In a broad sense, the Company'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, 1998, the Company, not including The Outdoor
Channel, had a total of 29 employees of which 28 were full time. The Outdoor
Channel had a total of 18 employees all of which were full time. The Company
also engages the services of additional employees during the Alaskan trip
offered by the Trips Division. During 1998, 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 be
operated in conformance with the terms and conditions of that license.
Cable systems are also subjected to local franchise authority regulation.
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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. In 1996, Congress enacted 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 legislation allows cable and telephone industries into each other's
markets and phased out federal cable rate regulation in most instances. The
Company believes these developments are 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. Congress and the FCC may, in the future, adopt new laws, regulations
and policies regarding a wide variety of matter which could affect The Outdoor
Channel. The Company is unable to predict the outcome of future federal
legislation or the impact of any such laws or regulations on The Outdoor
Channel's operations.
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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INTELLECTUAL PROPERTY
The Company neither holds nor depends upon any material patent,
trademark, license or other proprietary right except "The Outdoor Channel(R)"
which is a registered trademark of The Outdoor Channel.
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 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. The camp's office
is staffed with a caretaker. Gold is present throughout the property from
surface to bedrock. The Stanton camp is presently only partially open while
significant sanitary facility and other improvements are being completed. It is
anticipated that this camp will reopen by the middle of 1999.
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, showers and a caretaker who lives on site. 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.
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VEIN MOUNTAIN CAMP
The Vein Mountain Camp, located in West Central North Carolina
approximately 7 miles from the town of Marion, 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 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 presently are some improvement to the property including two
pole barns, outhouse, water well and telephone. Vein mountain has a caretaker
who lives on site. Future plans include bathrooms, showers, water and a
clubhouse. Completion of some improvements is estimated in 1 to 2 years. There
is camping for up to 250 self-contained recreational vehicles.
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. Future
plans include bathrooms, showers, water and a clubhouse. 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.
Global commenced work on obtaining local approval to construct facilities in
1995. Junction Bar Placer has a caretaker who lives on site. Completion of some
improvements is estimated in 1 to 2 years.
OCONEE CAMP
The Oconee Camp, 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 minimal
facilities including twelve sites for hookups, outhouse and telephones. Oconee
has a caretaker who lives on site. Future plans include bathrooms, showers,
water and a clubhouse. Completion of some improvements is estimated in 1 to 2
years. There is Camping for up to 250 self-contained recreational vehicles.
LEADVILLE PROPERTY
The Leadville property, located in Lake County, Colorado was acquired
in August 1995. The camp is comprised of 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
dependent upon obtaining local regulatory approval. If the Company continues to
have problems obtaining local regulatory approval, it will dispose of this
property. There is camping for up to 200 self-contained recreational vehicles.
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 may evaluate the Omilak property for commercial use.
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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.
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.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Global's Common Stock is listed for trading on the NASD's over the
counter Bulletin Board under the trading symbol "GLRS". The following table sets
forth for the quarters indicated the reported high and low closing sales prices.
High Low
---- ---
1998 First Quarter 3.00 1.38
Second Quarter 3.12 2.00
Third Quarter 2.75 1.50
Fourth Quarter 2.50 1.06
1997 First Quarter 4.25 1.62
Second Quarter 4.25 1.88
Third Quarter 3.25 1.50
Fourth Quarter 3.75 2.00
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, December 1996,
December 1997 and May 1999, Global authorized paying a dividend payable in
Common Stock to Global's Preferred Stockholder
for the years 1991, 1992, 1993, 1994, 1995, 1996, 1997 and 1998.
No other dividends have been declared with respect to Global's common
shares since inception. 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. 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.
In 1998, Global issued 5,376 shares of Common Stock to various persons for
services rendered to the Company. In December 1998, 1,000,000 Earn Out Shares
were issued to the former shareholders of GPAA pursuant to the agreement whereby
the Company acquired GPAA on February 10, 1995 (See "Certain Transactions"). In
November 1998, 250,000 shares of Common Stock issued to USA Networks as
collateral for performance on a transponder sublease were returned to the
Company and cancelled due to the expiration of the sublease.
As of approximately March 31, 1999, Global had 1,112 shareholders of
record of its Common Stock and 208 shareholders of its Preferred Stock.
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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") is the principal
owner of The Outdoor Channel, Inc. which owns and operates The Outdoor Channel
("The Outdoor Channel" or "Channel"), the first national television network
devoted primarily to traditional outdoor activities, such as hunting, fishing,
shooting sports, rodeo 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 35,000 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 the historic Mother Lode area of California and to the Company's 2300
acre camp, located 11 miles west of Nome, Alaska.
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 a primary
vehicle to promote the Company's services and products and anticipates that it
will be a factor in the future growth of GPAA, Lost Dutchman's and the Trips
Division. In that regard, the Company entered into a long term contract with The
Outdoor Channel whereby the Company has the rights to ten hours of programming
time and thirty sixty second advertising spots per week.
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
issuable contingent upon specified levels of earnings or appraised value (See
"Certain Transactions"). In December 1998, 1,000,000 Earn Out Shares were issued
to the former shareholders of GPAA pursuant to the agreement whereby Global
acquired GPAA. The primary basis for issuing the Earn Out Shares was the value
of The Outdoor Channel further described herein. Since GPAA was a commonly
controlled company, its assets and liabilities were recorded in 1995 at their
historical cost basis in a manner similar to a pooling of interests, and the
additional shares issued 1998 were recorded at their par value (See "Note 9 to
the Consolidated Financial Statements").
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 Outdoor Channel is
committed to converting visibility for the Channel's programming into greater
distribution into cable households. Greater distribution will allow The Outdoor
Channel to charge higher advertising rates, command higher subscriber fees from
cable affiliates, attract more advertisers and receive greater revenues for the
Company's products.
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In April 1998, The Outdoor Channel signed an affiliation agreement with
EchoStar Satellite Corporation ("EchoStar"), one of the largest direct broadcast
satellite companies ("DBS") in the U.S. with approximately two million
subscribers. The Outdoor Channel's launch on EchoStar's Dish Network occurred in
December 1998. Commencing February 1, 1999, The Outdoor Channel became available
on the Dish Network on an al a carte basis (i.e stand alone) for a fee of $1.99
per month. Through April 1999, there were approximately 100,000 subscribers to
The Outdoor Channel on the Dish Network. The Channel receives a significant
portion of the monthly subscriber fees. For the month of April 1999 the
Channel's portion was approximately $65,000.
In April 1998, The Outdoor Channel signed a cross promotion agreement
with the Wild Life Fund of America ("WLFA"). The WLFA is affiliated with groups
representing approximately 1.5 million sports men and women and will be
encouraging them to request The Outdoor Channel. The Outdoor Channel will be co-
producing with the WLFA a new show "In the Crosshairs" which will discuss
hunters and anglers' rights. The Outdoor Channel is also promoting memberships
in the WLFA. Cross promotion agreements with the WLFA and other similar
organizations give The Outdoor Channel a very effective means to increase viewer
awareness and demand for The Outdoor Channel at no net cash cost to the Channel.
In August 1998, The Outdoor Channel signed a national carriage
agreement with Time Warner Cable, a division of Time Warner Entertainment
Company ("Time Warner"), one of the two largest multiple cable system operators
("MSOs") in the U.S. The Company believes there will be significant distribution
of The Outdoor Channel on Time Warner systems. As of May 1999, the Channel had
received confirmation that The Outdoor Channel was available or was soon to be
available to approximately 2 million homes serviced by Time Warner's Athena
digital programming service.
A primary objective of the Company is for The Outdoor Channel to obtain
distribution. To accomplish this objective the Channel seeks to sign national
carriage agreements with MSOs and thereafter carriage agreements with the MSOs'
individual cable affiliates. 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. As of
May 1999, The Outdoor Channel was launched on approximately 1,500 cable systems
with approximately 3.5 million subscribers. The Outdoor Channel is under
contract with or has signed national carriage agreements with over 75 of the top
100 multi-system cable operators representing over 40 million potential
households. The Channel's list of affiliates includes AT&T Corp., which recently
merged with Tele-Communications Inc., and Time Warner, the two largest cable
operators in the country. In addition, the Channel is in active negotiations
with many of the other unsigned cable operators. In the future, the Company
believes that the Channel will be able to enter into more agreements with
operators of systems that the Channel is under contract within as a result of
increased installation of new cable distribution systems and the expected
significant expansion of channel capacity of existing cable systems. The Outdoor
Channel 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.
In November 1998, The Outdoor Channel renewed its media placement
agreement with Frederiksen Television, Inc. for the placement of direct response
programming on The Outdoor Channel, primarily during off hours. The Outdoor
Channel receives significant revenues under this agreement.
In December 1997, the Company instituted a plan to make The Outdoor
Channel self supporting. Since that time the Company has not advanced
significant funds to the Channel with The Outdoor Channel supporting itself
primarily with its revenues and outside investor funds. $2,000,502 was raised
from private investors in the Channel's private placement from December 1997
through the closing of the placement on March 5, 1999, at which time, the
Company owned approximately 84% of The Outdoor Channel. Of the total money
raised, approximately $617,00 was raised after December 1998. In the event all
outstanding options to purchase Common Stock in the Channel were exercised, as
of March 5, 1999, the Company would own approximately 68% of The Outdoor Channel
(See Note 9 to the Consolidated Financial Statements).
The Company closed a follow-on public offering in October 1997. The
follow-on public offering consisted of the sale of Units at a price of $8.00 per
Unit, each made up of two (2) shares of Common Stock and one (1) Class F Warrant
to purchase Common Stock. A total of 52,034 Units, comprised of 104,068 shares
of Common Stock and 52,034 Class F Warrants, were sold for $416,272. Net
proceeds to the Company were approximately $314,000 in 1997.
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Since July 30, 1997, the Company's Common Stock has been traded on the
NASD's over the counter Bulletin Board. Price quotes on the Company's Common
Stock can be obtained from any stockbroker. Also, price quotes can be obtained
from a number of other sources including internet sites on America On Line,
Yahoo Finance and Paww's Financial Network.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
REVENUES. The Company's revenues include revenues from advertising
fees, GPAA and Lost Dutchman's membership sales, product sales and the Trips and
Outings 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, 1998 were
$6,685,913, an increase of $758,248 or 13%, compared to revenues of $5,927,665
for the year ended December 31, 1997. This increase was primarily the result of
an increase in advertising revenues. Advertising revenues increased
substantially to $2,338,094 for the year ended December 31, 1998 compared to
$1,563,985 for the year ended December 31, 1997, due primarily to an increase in
advertising revenue at The Outdoor Channel. Membership services increased
modestly to $3,577,522 for the year ended December 31, 1998, compared to
$3,336,326 for the year ended December 31, 1997, due primarily to the average
life of Lost Dutchman's memberships being changed from ten to seven years to
reflect actual operating experience. Revenues from the trips and outings was
down notably at $770,297 for the year ended December 31, 1998 compared to
$1,027,354 for the year ended December 31, 1997, due to decreased participation
on the Alaska trip and Motherlode expedition. Allocation of significant time and
resources to financing, distribution and revenue for The Outdoor Channel
continued to adversely affect revenues of other divisions in 1998.
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, 1998 were $6,646,920, a
significant decrease of $1,202,154, or 15%, compared to $7,849,074 for the year
ended December 31, 1997. This substantial drop in expenses was due primarily to
the Company lowering its selling, general and administrative expenses which
decreased substantially to $3,577,444 for the year ended December 31, 1998,
compared to $4,853,032 for the year ended December 31, 1997. This decrease was
due to the Company's significant efforts to control its personnel and
administrative costs. Satellite transmission fees remained nearly the same at
$2,278,956 for the year ended December 31, 1998, compared to $2,120,369 for the
year ended December 31, 1997, due to the stabilization of transponder and uplink
costs for The Outdoor Channel. Trips and outings decreased significantly to
$516,283 for the year ended December 31, 1998, compared to $655,834 for the year
ended December 31, 1997, due to the decreased participation on the Alaska trip
and Motherlode expedition.
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST IN NET LOSS OF
CONSOLIDATED SUBSIDIARY. Income before income taxes and minority interest in net
loss of consolidated subsidiary increased very substantially as a percentage of
revenues to 11% for the year ended December 31, 1998 from a loss of (31)% for
the year ended December 31, 1997. This was due primarily to the Company having
operating income of $38,993 for the year ended December 31, 1998, compared to an
operating loss of $(1,921,409) for the year ended December 31, 1997. Also, gain
on the sale of common stock of subsidiary increased to $903,423 for the year
ended December 31, 1998, compared to $363,660 for the year ended December 31,
1997, due to the Company selling approximately 9% of The Outdoor Channel common
stock to outside investors in 1998 compared to approximately 4% in 1997.
INCOME TAXES. The Company did not have any income taxes payable for the
year ended December 31, 1998, except state taxes of $800, due to the
availability of its loss carryforward. The income tax credit for the year ended
December 31, 1997 was due to availability of an income tax carryback refund.
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COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
REVENUES. Revenues for the year ended December 31, 1997 were
$5,927,665, an increase of $669,657 or 13%, compared to revenues of $5,258,008
for the year ended December 31, 1996. This increase was primarily due to
advertising revenues increasing substantially to $1,563,985 for the year ended
December 31, 1997 compared to $960,462 for the year ended December 31, 1996, due
principally to an increase in advertising revenues at The Outdoor Channel.
Membership services remained virtually the same with revenues of $3,336,326 for
the year ended December 31, 1997, compared to $3,399,420 for the year ended
December 31, 1996. Revenues from the Trips and Outings Division were up notably
at $1,027,354 for the year ended December 31, 1997 compared to $828,901 for the
year ended December 31, 1996, due to increased participation on the Alaska trip
and the significantly increased participation on the Motherlode expedition.
Despite management devoting significant time and resources to increasing
distribution and revenues for The Outdoor Channel during 1997, the Company
increased its sales for the Trips and outings division and was able to maintain
level revenues for the Membership Services Division.
EXPENSES. Expenses for the year ended December 31, 1997 were
$7,849,074, a decrease of $403,292, or 5%, compared to $8,252,366 for the year
ended December 31, 1996. This relatively even expense level for both years was
due primarily to the combination of a significant decrease in expenses for
advertising and programming and an offsetting increase in expenses for satellite
transmission fees. Advertising and programming decreased dramatically during the
year ended December 31, 1997, primarily due to the discontinuation of the Gold
Prospecting Show on The Nashville Network ("TNN"). The "Gold Prospecting Show"
was produced for airing on TNN and 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. Advertising and programming was $219,839 for the year ended December
31, 1997, a decrease of $725,518 compared to $945,357 for the year ended
December 31, 1996. On the other hand, satellite transmission fees increased
substantially to $2,120,369 for the year ended December 31, 1997, compared to
$1,441,619 for the year ended December 31, 1996, due to increases in transponder
and uplink costs for The Outdoor Channel. Selling, general and administrative
expenses were nearly the same at $4,853,032 for the year ended December 31,
1997, compared to $4,851,648 for the year ended December 31, 1996. Trips and
outings expense increased to $655,834 for the year ended December 31, 1997,
compared to $553,596 for the year ended December 31, 1996, due to the increased
participation on the Alaska trip.
LOSS BEFORE INCOME TAXES AND MINORITY INTEREST IN NET LOSS OF
CONSOLIDATED SUBSIDIARY. Loss before income taxes and minority interest in net
loss of consolidated subsidiary decreased as a percentage of revenues from (57)%
for the year ended December 31, 1996 to (31%) for the year ended December 31,
1997. This was due to increased revenues while expenses, in the aggregate,
remained near the same level for the year ended December 31, 1997, compared to
the year ended December 31, 1996. Also, gain on the sale of subsidiary stock was
$363,660 for the year ended December 31, 1997, compared to $0 for the year ended
December 31, 1996, due to the Company selling approximately 4% of The Outdoor
Channel Common Stock to outside investors with no such sales occurring in 1996.
INCOME TAX BENEFIT. Income tax benefit for the year ended December 31,
1997 was $80,215 which was substantially less than $217,658 for the year ended
December 31, 1996, due to the Company having a significantly smaller loss for
1997 as compared to 1996.
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LIQUIDITY AND CAPITAL RESOURCES
The Company utilized cash from operations of $681,675 in 1998, compared
to utilizing cash from operations of $511,571 in 1997 and had a cash balance of
$326,225 at December 31, 1998, which was a decrease of $47,143 from the balance
of $373,368 at December 31, 1997. Current assets decreased to $788,850 in 1998
compared to $1,001,696 in 1997. Current liabilities decreased to $1,548,037 for
1998 compared to $2,559,154 for 1997. Net working capital deficit decreased to
$(759,187) in 1998, compared to $(1,557,458) in 1997.
In 1998, the Company generated a modest operating profit of $38,993
compared to an operating loss of $(1,921,409) in 1997. The Company also obtained
cash from the sale of a 9% and a 4% interest in The Outdoor Channel, and
recognized gains on such sales of $903,423 and $363,660 in 1998 and 1997,
respectively.
In December 1997, the Company instituted a plan to make The Outdoor
Channel self supporting. Since that time the Company has not advanced
significant funds to the Channel. The Outdoor Channel has financed its
operations with its revenues and outside investor funds. The Outdoor Channel
raised $1,003,000 from private investors in 1998. As of December 31, 1998, The
Outdoor Channel owed the Company approximately $1,000,000.
As of December 31, 1998, the Company had three notes in the aggregate
amount of $833,137 payable to a bank outstanding at interest rates ranging from
10.875% to 12.25%. These notes are secured by substantially all of the Company's
assets and are personally guaranteed by Perry T. Massie, Thomas H. Massie and
Wilma M. Massie.
As of December 31, 1998, the Company had four notes payable to
unaffiliated individuals, with balances outstanding as of that date of $56,523,
$66,260, $93,926 and $95,191. The first three notes bear interest rates that
range from 8% to 9.5% and are due in August 1999, April 2000 and December 2000,
respectively. The fourth note bears interest at 7.5% with principal payments of
$50,000 due every January through 2000.
As of June 1999, management believes the Company is generating
sufficient cash flow from operations to meet its short-term cash flow
requirements. The Outdoor Channel is also meeting its short-term cash flow
requirements and is continuing the trend of increased revenues. Management
believes that the Company's existing cash resources and anticipated cash flows
from operations will be sufficient to fund the Company's operations at current
levels through January 1, 2000. To the extent that such amounts are insufficient
to finance the Company's working capital requirements, the Company could be
required to seek 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 stockholders as a result of any such financing. The primary
source for short-term financing for The Outdoor Channel has been its recently
closed private placement. There can be no assurance that this source will
continue to be available, if needed, in the future. In the event The Outdoor
Channel is required to seek 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 Outdoor Channel or its stockholders. At the current level of
operations, the Company is retiring some existing debt, has made substantial
improvements at its Stanton Camp in 1999 and is planning modest improvements to
its other properties. The Company anticipates that The Outdoor Channel will
commence retiring some of its debt with the Company in 1999. The Company intends
to utilize such funds to be in a position to retire portions of its bank loan
and make Lost Dutchman's and GPAA acquisitions and improvements.
YEAR 2000
Computer systems, computer software and equipment dependent on
microprocessors may cease to function or work incorrectly when the year 2000
arrives. The problem affects those systems and computer products which are
programmed to use a two digit code for the year, and may read the code "00" as
1900 rather than 2000. To prevent critical failures of important computers or
products, this problem, sometimes referred to as the "Year 2000" problem, must
be identified and corrected. Systems and equipment that will not experience this
problem are generally referred to as "Year 2000 compliant."
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The Company has reviewed all its systems, and based on its review,
believes it will not have any material "in house" problems regarding the Year
2000 and is Year 2000 compliant. The Company has not incurred any material
expense regarding this review.
The Company believes that, with respect to technological operations
which are dependent on third parties, the worst case scenario for the Company
would be for critical vendors or service providers to have Year 2000 problems.
These critical vendors and suppliers include bank card processors, long distance
telephone service providers, the full time satellite provider and uplink
service. Although the significant vendors have advised us that they are in
compliance, contingency plans include alternative vendors and suppliers.
ITEM.7 FINANCIAL STATEMENTS
Following are consolidated financial statements of the registrant for
the years ended December 31, 1998 and 1997.
-20-
<PAGE>
GLOBAL OUTDOORS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended December 31, 1998 and 1997
with
INDEPENDENT AUDITORS' REPORTS THEREON
-21-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
INDEX
-----
PAGE
REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS 23
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997 25
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997 27
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1998 AND 1997 28
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 31
-22-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Stockholders and Board of Directors
Global Outdoors, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of GLOBAL OUTDOORS,
INC. AND SUBSIDIARIES as of December 31, 1998, and the related consolidated
statements of operations, stockholders' deficit and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our 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, 1998, and their results of operations
and cash flows for the year then ended, in conformity with generally accepted
accounting principles.
/s/ J.H. Cohn LLP
J.H. COHN LLP
San Diego, California
April 30, 1999
-23-
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors of
Global Outdoors, Inc.
We have audited the accompanying consolidated balance sheet of Global Outdoors,
Inc. and subsidiaries (the "Company") as of December 31, 1997, and the related
consolidated statements of operations, stockholders' deficit and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our 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 consolidated financial position of Global
Outdoors, Inc. and subsidiaries as of December 31, 1997, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Corbin & Wertz
CORBIN & WERTZ
Irvine, California
April 14, 1998
-24-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 326,225 $ 373,368
Accounts receivables, net of allowance for
doubtful accounts of $54,766 and $48,958 405,350 159,069
Inventories 45,454 105,735
Income tax refunds receivable 1,549 310,215
Current portion of receivable from stockholder 8,850 34,200
Other current assets 1,422 19,109
------------ ------------
Total current assets 788,850 1,001,696
------------ ------------
Property, plant and equipment, net:
Membership recreational mining properties 1,025,850 1,020,239
Alaska recreational mining properties 1,452,640 1,466,095
Outdoor Channel equipment and improvements 263,769 317,534
Other equipment and leasehold improvements 168,189 162,313
------------ ------------
Property, plant and equipment, net 2,910,448 2,966,181
------------ ------------
Receivable from stockholder, net of current portion - 160,586
Trademark, net of accumulated amortization of
$18,606 and $6,579 90,992 95,770
Deposits and other assets 42,200 34,000
------------ ------------
Totals $ 3,832,490 $ 4,258,233
============ =============
</TABLE>
Continued
-25-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 547,229 $ 964,812
Current portion of notes and capital lease
obligations payable 999,038 1,131,301
Current portion of stockholder loans 1,770 463,041
------------ ------------
Total current liabilities 1,548,037 2,559,154
Stockholder loans, net of current portion 462,637 47,337
Other notes and capital lease obligations payable,
net of current portion 339,217 502,692
Deferred revenues 1,431,823 2,215,114
Deferred rent obligations 474,920 283,262
Deferred compensation 260,000 200,000
------------ ------------
Total liabilities 4,516,634 5,807,559
------------ ------------
Commitments and contingencies
Minority interest in subsidiary 40,102 16,340
------------ ------------
Stockholders' deficit:
Convertible preferred stock, nonvoting, 10%
noncumulative, no liquidation preference, $.001
par value; 10,000,000 shares authorized; 60,675
shares issued and outstanding 61 61
Common stock, $.02 par value; 50,000,000 shares
authorized; 5,253,937 shares and 4,248,561
shares issued and outstanding 105,079 84,971
Less common stock subscriptions receivable (221,250) (221,250)
Additional paid-in capital 3,313,777 3,316,381
Accumulated deficit (3,921,913) (4,745,829)
------------ ------------
Total stockholders' deficit (724,246) (1,565,666)
------------ ------------
Totals $ 3,832,490 $ 4,258,233
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
-26-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Revenues:
Membership services $ 3,577,522 $ 3,336,326
Advertising 2,338,094 1,563,985
Trips and outings 770,297 1,027,354
------------ ------------
Total revenues 6,685,913 5,927,665
------------ ------------
Expenses:
Satellite transmission fees 2,278,956 2,120,369
Advertising and programming 274,237 219,839
Trips and outings 516,283 655,834
Selling, general and administrative 3,577,444 4,853,032
------------ ------------
Total expenses 6,646,920 7,849,074
------------ ------------
Income (loss) from operations 38,993 (1,921,409)
Other income (expense):
Gain on sale of common stock of subsidiary 903,423 363,660
Interest expense (246,503) (250,964)
Interest income 28,988 18,092
Loss on disposal of equipment - (20,055)
------------ ------------
Income (loss) before provision (credit) for income
taxes and minority interest 724,901 (1,810,676)
Provision (credit) for income taxes 800 (80,215)
------------ ------------
Income (loss) before minority interest 724,101 (1,730,461)
Minority interest in net loss of consolidated
subsidiary 99,815 -
------------ ------------
Net income (loss) $ 823,916 $(1,730,461)
============ ============
Earnings (loss) per common share:
Basic $ 0.18 $ (0.40)
============ ============
Diluted $ 0.15
============
Weighted average number of common shares outstanding:
Basic 4,457,593 4,356,371
============ ============
Diluted 5,541,768
============
</TABLE>
See Notes to Consolidated Financial Statements
-27-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Less Common
Convertible Stock Additional
Preferred Stock Common Stock Subscriptions Paid-in Accumulated
Shares Amount Shares Amount Receivable Capital Deficit Total
------ ------- --------- --------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1997 60,775 $ 61 4,122,394 $ 82,448 $ (221,250) $ 2,941,163 $ (3,000,112) $ (197,690)
Preferred stock
converted to
common stock (100) 100 2 (2)
Common stock issued
as dividend on
preferred stock 12,398 248 27,648 (15,256) 12,640
Common stock issued
for services 9,600 192 35,608 35,800
Net proceeds from
sale of common
stock 104,069 2,081 311,964 314,045
Net loss (1,730,461) (1,730,461)
------ ------- --------- --------- ----------- ----------- ------------- ------------
Balance, December
31, 1997 60,675 61 4,248,561 84,971 (221,250) 3,316,381 (4,745,829) (1,565,666)
Common stock issued
in connection with
"Earn Out" formula 1,000,000 20,000 (20,000)
Common stock issued
for services 5,376 108 21,396 21,504
Return of funds to
investors (4,000) (4,000)
Net income 823,916 823,916
------ ------- --------- --------- ----------- ----------- ------------- ------------
Balance, December
31, 1998 60,675 $ 61 5,253,937 $ 105,079 $ (221,250) $ 3,313,777 $ (3,921,913) $ (724,246)
====== ======= ========= ========= =========== =========== ============= ============
</TABLE>
See Notes to Consolidated Financial Statements
-28-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Operating activities:
Net income (loss) $ 823,916 $ (1,730,461)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 237,850 222,537
Provision for doubtful accounts 5,808 9,716
Common stock issued for services 45,504 35,800
Rent expense paid through offsets against
stockholder note receivable 40,206 85,271
Deferred income taxes (81,015)
Interest on stock subscription receivable (8,850) -
Gain on sale of common stock of subsidiary (903,423) (363,660)
Minority interest in net loss of consolidated
subsidiary (99,815) -
Loss on disposal of equipment - 20,055
Cash supplied (used) by changes in operating
assets and liabilities:
Accounts receivable (252,089) (86,451)
Inventories 60,281 53,626
Income tax refunds receivable 308,666 800
Other current assets 17,686 155,263
Deposits and other assets (8,200) 18,240
Accounts payable and accrued expenses (457,923) 535,114
Deferred revenues (783,292) 130,332
Deferred rent obligations 191,658 283,262
Deferred compensation 100,342 200,000
------------- -------------
Net cash used in operating activities (681,675) (511,571)
------------- -------------
Investing activities:
Purchase of property, plant and equipment (174,809) (92,611)
Expenditures for trademarks (2,529) (12,025)
------------- -------------
Net cash used in investing activities (177,338) (104,636)
------------- -------------
</TABLE>
-29-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------------- --------------
<S> <C> <C>
Financing activities:
Principal payments on long-term debt and capital leases $ (295,738) $ (309,173)
Net proceeds from stockholder loans 108,608 522,676
Return of funds to investors (4,000) -
Net proceeds from sale of common stock - 314,045
Sale of subsidiary stock to the public 1,003,000 380,000
--------------- --------------
Net cash provided by financing activities 811,870 907,548
--------------- --------------
Net increase (decrease) in cash and cash equivalents (47,143) 291,341
Cash and cash equivalents, beginning of year 373,368 82,027
--------------- --------------
Cash and cash equivalents, end of year $ 326,225 $ 373,368
=============== ==============
Supplemental disclosures of cash flow information - interest paid $ 310,031 $ 209,686
=============== ==============
Supplemental disclosures of noncash investing and
financing activities:
Acquisition of equipment under capital lease obligations $ 64,197 $ 34,400
=============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
-30-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and business:
Description of operations:
Global Outdoors, Inc. ("Global Outdoors") was incorporated
under the laws of the State of Alaska on October 22, 1984.
Global Outdoors receives revenues from the sale of memberships
in The Gold Prospectors Association of America, Inc. ("GPAA"),
from advertisements in its bi-monthly magazine, THE GOLD
PROSPECTOR, from merchandise sales and from sponsored outings
to prospect for gold. GPAA also operates gold prospecting
trade shows and conventions from which it derives revenue from
admissions and booth rentals and sells recreational gold
prospecting-related merchandise.
Other business activities of Global Outdoors consist of the
promotion and sale of an "Alaska trip", a recreational gold
mining expedition to the Cripple River property located near
Nome, Alaska, and the sale of memberships in the Lost
Dutchman's Association, Inc. ("LDMA-AU") which entitle members
to engage in recreational prospecting on its California,
Oregon, Alaska, Nevada, Arizona, Colorado, Georgia, North
Carolina and South Carolina properties. Global Outdoors has
also signed an agreement with another organization for the
mutual use of recreational mining properties.
Global Outdoors also owns a majority interest (88% and 96% at
December 31, 1998 and 1997, respectively) in the Outdoor
Channel, Inc. (the "Outdoor Channel"), a national television
network devoted to traditional outdoor activities, such as
hunting, fishing, shooting sports, rodeo and recreational gold
prospecting. The Outdoor Channel was incorporated under the
laws of the State of Nevada in 1990 under the name Gold News
Network, Inc. In 1996, the incorporated name was changed to
its present name.
Note 2 - Summary of significant accounting policies:
Principles of consolidation:
The consolidated financial statements include the accounts of
Global Outdoors, LDMA-AU, GPAA and the Outdoor Channel
(collectively, the "Company"). All material intercompany
accounts and transactions have been eliminated in
consolidation.
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect reported amounts
and disclosures. Accordingly, actual results could materially
differ from those estimates.
-31-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued):
Fair value of financial instruments:
The Company's financial instruments consist of its cash and
cash equivalents, accounts receivable, accounts payable,
long-term debt and related party receivables and payables. The
carrying amounts of the Company's financial instruments
generally approximate their fair values at December 31, 1998.
The fair market value of financial instruments classified as
current assets or liabilities approximate carrying value due
to the short-term maturity of the instruments. It is not
practicable to obtain the fair value of the Company's related
party receivables and payables as market comparable
information is not available for such instruments.
Concentrations of credit risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of temporary
cash investments and accounts receivable. The Company reduces
credit risk by placing its temporary cash investments (which,
at times, may exceed Federally insured limits) with high
credit quality financial institutions.
The Company reduces credit risk related to accounts receivable
by routinely assessing the financial strength of its customers
and maintaining an allowance for doubtful accounts that
management believes will adequately provide for credit losses.
Major customer:
During 1998, one customer generated 17% of total Outdoor
Channel advertising revenues.
Inventories:
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out ("FIFO") method.
Depreciation and amortization:
Depreciation and amortization are provided using the
straight-line method over the estimated useful lives of the
assets which range from five to 15 years.
Trademarks:
The Outdoor Channel has the exclusive right to the trademark
bearing its name. The trademark is being amortized on a
straight-line basis over an estimated useful life of 15 years.
Advertising:
The Company expenses the cost of advertising and promotions as
incurred. Advertising costs charged to operations totaled
$274,237 and $219,839 in 1998 and 1997, respectively.
-32-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued):
Revenue recognition:
The Company generates revenues from membership sales, sale of
television advertising time, Alaska trips, gold shows and
member and prospective member outings.
LDMA-AU memberships are contractual arrangements that provide
members with recreational prospecting and mineral rights and
the use of land and facilities for camping and recreational
vehicle parking. LDMA-AU memberships sold by the Company
generally have payment terms that provide for a down payment
and monthly installments and are non-interest bearing and
unsecured. Revenues are generally recognized on a
straight-line basis over the estimated average life of the
LDMA-AU membership. The Company does not record any
receivables arising under these contracts due to the
uncertainty of collection. Accordingly, revenues recognized do
not exceed the total of the cash payments received and cash
received in excess of revenue recognized is deferred. During
1998, based on a review of membership turnover, the Company
changed its estimate of the average life of the LDMA-AU
memberships from ten years to seven years. Management believes
this term more accurately reflects the economics of the
business and provides a better measure of operating results.
The Company also sells one to four year and lifetime ("Gold
Life") GPAA memberships. The majority of the memberships are
for one year. Multi-year GPAA membership revenues are
recognized on a straight-line basis over the life of a
membership or an estimated life of 15 years for a lifetime
membership.
Advertising revenue for the Outdoor Channel is recognized when
the advertisement takes place. Advertising revenue from
advertisements in the Company's bi-monthly magazine is
recognized when the magazine is distributed.
Revenues from the "Alaska trip" are recognized when trips are
taken in June through August each year. Revenues from outings
and gold shows are recognized at the time of the event.
Income taxes:
The Company accounts for income taxes pursuant to the asset
and liability method which requires deferred income tax assets
and liabilities to be computed annually for temporary
differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted laws and
rates applicable to the periods in which the temporary
differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized. The income
tax provision or credit is the tax payable or refundable for
the period plus or minus the change during the period in
deferred tax assets and liabilities.
-33-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued):
Impairment of long-lived assets:
The Company has adopted the provisions of Statement of
Financial Accounting Standards No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF ("SFAS 121"). Under SFAS 121, the impairment of
long-lived assets, such as property and equipment and
intangible assets, is recognized when events or changes in
circumstances indicate that the undiscounted cash flows
estimated to be generated by such assets are less than their
carrying value and, accordingly, all or a portion of such
carrying value may not be recoverable. Impairment losses are
then measured by comparing the fair value of assets to their
carrying amounts. The Company did not record any charges for
the impairment of long-lived assets in 1998 and 1997.
Earnings (loss) per common share:
The Company has presented "basic" earnings (loss) per common
share in the accompanying consolidated statements of
operations in accordance with the provisions of Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE
("SFAS 128"). Basic earnings (loss) per common share is
calculated by dividing net income or loss applicable to common
stock by the weighted average number of common shares
outstanding during each period. The calculation of diluted
earnings per common share is similar to that of basic earnings
per common share, except that the denominator is increased to
include the number of additional common shares that would have
been outstanding if all potentially dilutive common shares,
such as those that could be issued upon the exercise of stock
options and warrants and the conversion of preferred stock,
were issued during the period.
For the purpose of computing diluted earnings per common
share, the additional 1,000,000 "Earn Out Shares" issued to
the former stockholders of GPAA effective December 31, 1998 as
a result of the resolution of an acquisition contingency (see
Note 9) have been included in the weighted average number of
common shares outstanding for the entire year. In addition,
the computation of diluted earnings per share takes into
account the effects on the weighted average number of common
shares outstanding in 1998 of the assumed exercise of all of
the Company's outstanding stock options and warrants, adjusted
for the application of the treasury stock method, and the
assumed conversion of all of the Company's outstanding shares
of preferred stock, as shown in the table below. The assumed
exercise of all of the Company's outstanding stock options and
warrants and shares of preferred stock in 1997 would have been
anti-dilutive and, accordingly, no diluted per share amount
has been presented in the accompanying 1997 consolidated
statement of operations.
-34-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued):
Earnings (loss) per common share (concluded):
The following table reconciles the calculation of basic
earnings per common share to diluted earnings per common share
in 1998:
<TABLE>
<CAPTION>
Number of Earnings per
Shares Common Share
--------- ------------
<S> <C> <C>
Weighted average common shares outstanding
and basic earnings per common share 4,457,593 $ .18
============
Dilutive effect of potential shares issued in
connection with Earn Out contingency (Note 9) 1,000,000
Dilutive effect of potential shares issuable
upon conversion of preferred stock 60,675
Dilutive effect of potential common shares issuable
upon exercise of stock options and warrants 23,500
---------
Diluted weighted average common shares
outstanding and diluted earnings per
common share 5,541,768 $ .15
========= ============
</TABLE>
Stock-based compensation:
Statement of Financial Accounting Standards No. 123 ("SFAS
123"), "ACCOUNTING FOR STOCK-BASED COMPENSATION", provides for
the use of a fair value based method of accounting for
stock-based compensation. However, SFAS 123 allows an entity
to continue to measure compensation cost related to stock and
stock options issued to employees using the intrinsic value
method of accounting prescribed by Accounting Principles Board
Opinion No. 25 ("APB 25"), "ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES." Entities electing to continue to use the intrinsic
value method must make pro forma disclosures of net income or
loss and earnings or loss per share as if a fair value method
of accounting had been applied. The Company has elected to
continue to account for its stock-based compensation to
employees under APB 25.
Recent accounting pronouncements:
The Financial Accounting Standards Board and the Accounting
Standards Executive Committee of the American Institute of
Certified Public Accountants had issued certain accounting
pronouncements as of December 31, 1998 that will become
effective in subsequent periods; however, management of the
Company does not believe that any of those pronouncements
would have significantly affected the Company's financial
accounting measurements or disclosures had they been in effect
as of December 31, 1998.
-35-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (concluded):
Limitation on dividends:
Pursuant to state laws, the Company is currently restricted,
and may be restricted for the foreseeable future, from paying
dividends to its stockholders as a result of its accumulated
deficit as of December 31, 1998.
Reclassifications:
Certain amounts in the 1997 consolidated financial statements
have been reclassified to conform to the 1998 presentations.
Note 3 - Basis of presentation:
As shown in the accompanying consolidated financial statements at
December 31, 1998, the Company had a working capital deficit of
$759,187, an accumulated deficit from losses since its inception
of $3,921,913 and a resulting stockholders' deficit of $724,246.
The start-up of the Outdoor Channel has been primarily responsible
for the Company's recent losses, negative cash flows and working
capital deficit since the membership businesses have been
consistently profitable. The Company and private investors have
funded the operations of the Outdoor Channel since it was acquired
in 1995. In December 1997, the Company instituted a plan to make
the Outdoor Channel self supporting. Since that time, the Company
has not advanced significant funds to the Outdoor Channel and the
Outdoor Channel has financed its operations primarily with
increased revenues and funds from private investors.
Historically, the Company has offset the cash flows used by
operating activities primarily through sales of its common stock
and borrowings from its principal stockholders. The Outdoor
Channel raised $1,003,000 and $380,000 during 1998 and 1997,
respectively, from sales of its common stock to private investors
that were exempt from registration under the Securities Act of
1933 pursuant to a private placement memorandum.
During the January through April 1999 period, the Outdoor
Channel's revenues continued to increase and it began to generate
positive cash flows from operating activities. Although there is
no assurance such positive cash flows will continue, management
believes both the Outdoor Channel and the Company's other segments
will continue to generate sufficient positive cash flows from
operating activities to enable the Company to continue its
operations through the remainder of 1999. Management believes that
if cash flows from operating activities are not sufficient,
causing the Company to need to obtain alternative sources of
funds, the Company will be able to continue its operations by
raising funds through a private placement of additional equity
securities of the Company and/or the Outdoor Channel. Accordingly,
the accompanying consolidated financial statements have been
prepared on a going-concern basis that contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business.
-36-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Deferred revenues:
As of December 31, 1998, scheduled payments to be recognized as
income assuming such amounts are collected in future years from
existing LDMA-AU sales contracts are as follows:
Year Ending
December 31, Amount
------------ -----------
1999 $1,103,075
2000 1,207,797
2001 1,044,776
2002 725,039
2003 416,359
Thereafter 386,952
-----------
Total $4,883,998
===========
-37-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Note 5 - Equipment and improvements:
Equipment and improvements consist of the following:
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Membership recreational mining properties:
Land $ 926,378 $ 926,378
Buildings and improvements 174,455 137,908
------------ ------------
1,100,833 1,064,286
Less accumulated depreciation and amortization (74,983) (44,047)
------------ ------------
Subtotals 1,025,850 1,020,239
------------ ------------
Alaska recreational mining properties:
Land 1,129,773 1,129,773
Buildings and improvements 531,566 461,481
Vehicles and equipment 950,591 950,591
------------ ------------
2,611,930 2,541,845
Less accumulated depreciation and amortization (1,159,290) (1,075,750)
------------ ------------
Subtotals 1,452,640 1,466,095
------------ ------------
Outdoor Channel:
Equipment 492,520 448,218
Furniture and fixtures 67,551 67,551
Leasehold improvements 25,626 25,626
------------ ------------
585,697 541,395
Less accumulated depreciation and amortization (321,928) (223,861)
------------ ------------
Subtotals 263,769 317,534
------------ ------------
Other equipment and leasehold improvements:
Furniture and fixtures 11,625 11,625
Equipment 229,230 205,353
Vehicles 150,283 150,283
Leasehold improvements 6,578 6,578
------------ ------------
397,716 373,839
Less accumulated depreciation and amortization (229,527) (211,526)
------------ ------------
Subtotals 168,189 162,313
------------ ------------
Totals $ 2,910,448 $ 2,966,181
============ ============
</TABLE>
-38-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Note 6 - Long-term debt:
Long-term debt (including capital lease obligations) at December
31, 1998 and 1997 consists of the following:
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Notes payable to individuals, secured by deed of
trust, payable in monthly installments of $811
including interest at 8.5%, balance due December 2000 $ 93,926 $ 95,605
Note payable to an individual, secured by first
deed of trust on land, payable in monthly
installments of $746 including interest at 9.5%,
balance due August 1999 56,523 59,923
Note payable to an individual, secured by first deed
of trust on land, payable in monthly installments
of $900 including interest at 9%, balance due
April 2000 66,260 85,817
Note payable to individuals, secured by first deed of
trust on land, payable in annual installments
of $50,000 beginning in 1997, with interest at 7.5% 95,191 150,000
Note payable to the major stockholder, secured by
a motor home, payable at $520 per month
including interest at 9% 50,378 50,378
Note payable to two major stockholders, due on
demand, maturing December 31, 2000, with
interest at 10% 414,029 460,000
Note payable to a finance company, secured by a
vehicle, payable in monthly installments of $564
including interest at 10.3% 14,430 19,888
Installment note payable to a bank, secured by
substantially all of the Company's assets,
guaranteed by three major stockholders, payable
in monthly installments of $12,500 plus interest at
12.25% 112,500 262,500
</TABLE>
-39-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Note 6 - Long-term debt (concluded):
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Note payable to a bank, secured by substantially all
of the Company's assets, guaranteed by three
major stockholders, with interest due monthly at
the prime rate plus 3.125% (an effective rate of 10.875% at
December 31, 1998), due July 10, 1999 $ 648,000 $ 648,000
Installment note payable to a bank, secured by
substantially all of the Company's assets, guaranteed
by three major stockholders, payable in monthly
installments of $1,545 plus interest pegged to an index
plus 4.5% (an effective rate of 12.25% at
December 31, 1998) 72,637 91,183
------------ ------------
Total notes payable 1,623,874 1,923,294
Capital lease obligations (see Note 7) 178,788 221,077
------------ ------------
Totals 1,802,662 2,144,371
Less current maturities 1,000,808 1,594,342
------------ ------------
Long-term debt $ 801,854 $ 550,029
============ ============
</TABLE>
The aggregate principal payments of long-term notes and capital
lease obligations in years subsequent to December 31, 1998 are as
follows:
Year Ending
December 31, Amount
------------ -----------
1999 $1,000,808
2000 613,751
2001 40,353
2002 21,688
2003 5,096
Thereafter 120,966
Interest expense on stockholder loans aggregated $54,184 and
$29,371 in 1998 and 1997, respectively.
-40-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Commitments:
Operating leases:
The Company leases its office space from a stockholder under a
lease which expires on December 31, 2001 and requires monthly
rental payments of $8,250. The Company leases other facilities
and equipment, including access to satellites for television
transmission, under non-cancelable operating leases that
expire at various dates through 2012. Generally, the most
significant leases require escalating rental payments. Rent
expense is recognized on a straight-line basis over each lease
term. The excess of the expense accrued over the amounts
currently payable is reflected as deferred rent obligations in
the accompanying consolidated balance sheets.
Rent expense totaled $2,431,524 and $2,082,369 including
charges of $99,000 and $85,271 under leases with related
parties, during 1998 and 1997, respectively.
Total rental commitments under the operating lease agreements
described above for years ending subsequent to December 31,
1998 are as follows:
Year Ending
December 31, Amount
------------ ------------
1999 $ 1,980,791
2000 2,085,181
2001 2,089,737
2002 1,990,542
2003 1,982,636
Thereafter 7,720,000
------------
Total $17,848,887
============
Capital leases:
The Company leases certain equipment under capital leases
which expire in 2001. At December 31, 1998, the Company's
future minimum lease payments are as follows:
Year Ending
December 31, Amount
------------ ------------
1999 $ 116,121
2000 67,510
2001 16,554
------------
200,185
Less amount representing interest
ranging from 11% to 21.7% (21,397)
------------
Present value of minimum lease payments 178,788
Less current portion (98,929)
------------
Long-term portion $ 79,859
============
-41-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Commitments (concluded):
Capital leases (concluded):
The current and long-term portions of capital lease
obligations are included in notes and capital lease
obligations in the accompanying consolidated balance sheet
(see Note 6).
Note 8 - Income taxes:
As of December 31, 1998, the Company has net operating loss
carryforwards available for federal and state income tax purposes
of approximately $1,828,900 and $1,217,900, respectively, which
begin to expire in 2012. Due to the uncertainties related to,
among other things, the extent and timing of its future taxable
income, the Company has offset the deferred tax assets
attributable to the potential benefits from the net operating loss
carryforwards and the other temporary differences by an equivalent
valuation allowance at December 31, 1998 as shown below.
The components of the provision (credit) for income taxes for 1998
and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Current - state $ 800 $ 800
Effect of change in estimate (81,015)
---------- ----------
Totals $ 800 $ (80,215)
========== ==========
</TABLE>
The following table reconciles the federal statutory income tax
rate to the effective tax rate for income taxes:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Federal statutory income tax rate 34.0 % (34.0)%
Effect of net operating loss carryforward (34.0)% 34.5
Effect of change in estimate (4.9)
---------- ----------
Effective tax rate - (4.4)%
========== ==========
</TABLE>
The Company's deferred tax assets at December 31, 1998 and 1997
consisted of the effects of temporary differences attributable to
the following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Bad debts $ 24,000 $ 20,000
Depreciation 60,000 80,000
Accruals 126,000 199,000
Deferred revenues 621,000 889,000
Net operating losses 761,000 712,000
------------ ------------
1,592,000 1,900,000
Valuation allowance (1,592,000) (1,900,000)
------------ ------------
Totals $ - $ -
============ =============
</TABLE>
-42-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Equity transactions:
Convertible preferred stock:
Each share of preferred stock is convertible into one share of
common stock of the Company. Accordingly, at December 31,
1998, 60,675 shares of the Company's common stock are reserved
for issuance on the conversion of the outstanding preferred
shares.
Issuances of common stock by the Company:
During 1997, the Company sold 52,034 units at $8.00 per unit.
Each unit consists of two shares of the Company's common stock
and one warrant to purchase one share of the Company's common
stock at $5.50 per share, subject to adjustments as defined,
over a two-year period expiring on January 31, 1999. The
warrants are subject to redemption, at anytime, by the Company
at $.02 per warrant on 20 days prior notice. Proceeds to the
Company were $314,045, net of offering costs of $102,227.
During 1997, the Company held in escrow 250,000 shares of its
unissued common stock in lieu of a deposit under the terms of
a satellite equipment lease. Under the terms of the lease, the
lessor was to receive the common shares if the Company
defaulted under the terms of the lease. At December 31, 1997,
these shares were not reflected as outstanding. During 1998,
the Company performed as required under the terms of the lease
and the unissued shares were released from escrow.
On February 10, 1995, the Company acquired 100% of the
outstanding common stock of GPAA in exchange for 2,500,000
shares of its common stock ("the Acquisition"). GPAA was 100%
owned at the date of the Acquisition by the majority
stockholders of the Company. Accordingly, the Acquisition was
accounted for in a manner similar to a pooling of interests in
1995 and the assets and liabilities of GPAA were recorded at
their historical carrying values. At the date of the
Acquisition, GPAA owned the Outdoor Channel and also generated
revenues from, among other activities, sales of memberships in
the gold prospecting club and sales of related merchandise.
The Acquisition agreement provided for the issuance of up to
an additional 1,500,000 shares of common stock (the "Earn Out
Shares") to the former stockholders GPAA contingent upon GPAA
achieving certain earnings or valuation milestones subsequent
to its acquisition. Effective as of December 31, 1998, the
Company issued an additional 1,000,000 shares of its common
stock to the former stockholders of GPAA based on the results
of an appraisal, and its obligation to issue the remaining
500,000 shares terminated. Since the Acquisition had been
accounted for as the equivalent of a pooling of interests, the
shares were recorded at their par value of $20,000 and
additional paid-in capital was reduced by an equivalent
amount.
-43-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Equity transactions (continued):
Issuances of common stock by the Company (concluded):
During 1998, the Company issued 5,376 shares of its common
stock primarily for services rendered and recorded $21,504 as
expense for such services. During 1997, the Company issued
9,600 shares of its common stock for services rendered and
recorded $35,800 as expense for such services.
During 1998, the Company returned funds totaling $4,000 to
various investors in connection with a public offering
conducted during 1997 in compliance with state securities
laws.
Common stock subscriptions receivable by the Company:
On June 22, 1993, certain stockholders and other individuals
exercised the stock option for the purchase of a total of
104,069 shares of common stock. 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% per annum, on June 30, 1999. The notes are
secured by the related shares of common stock.
The Company's stock option plans:
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 (the "1995 Plan"). A summary of the status of the
Company's three stock option plans at December 31, 1998 and
1997 and changes during the years then ended is presented in
the table and narrative below:
<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise Price
------------ --------------
<S> <C> <C>
Outstanding at January 1, 1997 503,000 $2.69
Options canceled or expired (125,000) $3.50
------------
Outstanding at December 31, 1997 378,000 $2.42
Options granted 50,000 $3.00
Options canceled or expired (13,000) $2.83
------------ ------------
Options outstanding and exercisable
at December 31, 1998 415,000 $2.45
============ ============
</TABLE>
-44-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Note 9 - Equity transactions (continued):
The Company's stock option plans (concluded):
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Option price range at end of year $2.25 - $3.25 $2.25 - $3.25
Options available for grant at end of year 500,000 537,000
Weighted average fair value of options
granted during the year $.83 N/A
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1998, all of which are at fixed
prices:
<TABLE>
<CAPTION>
Options Options
Outstanding Exercisable
----------- -----------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
------------- ----------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$2.25 - $2.50 350,000 4.5 years $2.33 350,000 $2.33
$3.00 - $3.25 65,000 3.7 years $3.06 25,000 $3.15
</TABLE>
Issuances of common stock by the Outdoor Channel:
Prior to 1997, the Outdoor Channel had been a wholly-owned
subsidiary of the Company. During 1997 the Outdoor Channel was
authorized to issue up to 50,000,000 shares of common stock.
During 1998 and 1997 the Outdoor Channel sold 877,000 and
380,000 shares of its common stock, respectively, at prices
ranging from $1.00 to $1.50 per share, pursuant to a private
placement memorandum that was exempt from registration under
the Securities Act of 1933 and received proceeds of $1,003,000
and $380,000 in 1998 and 1997, respectively. As of December
31, 1998, the Company owned 9,000,000 shares or 88% of the
10,257,000 outstanding shares of the Outdoor Channel.
The Company recognizes non-operating gains or losses from
direct sales of the common stock of a subsidiary to third
parties at a price that is more or less than the Company's
carrying amount per share. The Company recorded gains of
$903,423 in 1998 and $363,660 in 1997 and minority interests
of $99,815 in 1998 and $16,340 in 1997 as a result of sales of
the Outdoor Channel common stock.
-45-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Equity transactions (continued):
Issuances of common stock by the Outdoor Channel (concluded):
Also during 1998, the Outdoor Channel authorized but did not
issue, 21,700 shares of common stock valued at $33,000 as a
syndication fee in connection with the private placement
memorandum, and 16,000 shares of common stock valued at
$24,000 as a bonus to two employees.
During January 1999, the Company and the Outdoor Channel each
sold 110,834 shares of Outdoor Channel common stock at $1.50
per share and in February 1999 each sold 71,250 shares at
$2.00 per share and received net proceeds of approximately
$618,000. The sales reduced the Company's ownership percentage
in the Outdoor Channel to 84%.
The Outdoor Channel's stock option plan:
During 1997, the Outdoor Channel established a stock option
plan (the "1997 Plan") under which it may grant incentive and
non-qualified stock options to employees, directors,
consultants and service providers to purchase up to an
aggregate of 3,000,000 shares of its common stock at an
exercise price determined by the board of directors subject to
the following: (a) the exercise price of an incentive option
shall not be less than 100% of fair market value of the common
stock at the date of the grant; and (b) the exercise price of
a non-qualified option shall not be less than 85% of the fair
market value of the common stock at the date of the grant.
During 1998, the Outdoor Channel granted options to purchase
550,000 shares of common stock at an exercise price of $1.50
per share to various employees and directors of the Company.
The options expire on December 31, 2003.
On December 1, 1998, the terms of the options for the purchase
of 1,750,000 shares of common stock granted to directors and
executive officers in 1997 were modified to extend their
expiration date to December 31, 2007. There was no charge to
operations in 1998 as a result of this modification of terms.
-46-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Equity transactions (continued):
The Outdoor Channel's stock option plan (concluded):
A summary of the status of the Outdoor Channel's stock option
plan at December 31, 1998 and 1997 and changes during the
years then ended is presented in the table below:
<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise Price
----------- --------------
<S> <C> <C>
Options granted during 1997 and
outstanding at December 31, 1997 1,750,000 $ 1.50
Options granted (a) 2,300,000 1.50
Options cancelled (a) (1,750,000) 1.50
-----------
Options outstanding and exercisable
at December 31, 1998 with an average
remaining contractual life of 8.9 years. 2,300,000 $ 1.50
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Option price range at end of year $ 1.50 $ 1.50
Options available for grant at end of year 700,000 1,250,000
Weighted average fair value of options
granted during the year $ .25 $ -
(a) Includes options subject to the modification of terms in 1998.
</TABLE>
-47-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Equity transactions (concluded):
Additional required disclosures related to the stock option plans
of the Company and the Outdoor Channel:
The Company has adopted the disclosure-only provisions of SFAS
123. Accordingly, no earned or unearned compensation cost was
recognized in the accompanying consolidated financial
statements for the stock options granted by the Company and
the Outdoor Channel since they were all issued to employees.
The Company's historical net income (loss) and net earnings
(loss) per common share and pro forma net income (loss) and
net earnings (loss) per common share assuming compensation
cost had been determined in 1998 and 1997 based on the fair
value at the grant date for all awards consistent with the
provisions of SFAS 123 is set forth below.
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Net income (loss):
As reported $823,916 $(1,730,461)
Pro forma $240,616 $(1,792,780)
Basic earnings (loss) per common share:
As reported $ .18 $ (.40)
Pro forma $ .05 $ (.41)
Diluted earnings per common share:
As reported $ .15
Pro forma $ .04
</TABLE>
The fair value of each option granted by the Company in 1998
and 1997 was estimated on the date of grant using the
Black-Scholes option-pricing model with the following
assumptions: risk-free interest rate of 6.3%; dividend yield
of 0%; expected life of the options of 1 to 5 years; and a
volatility factor of 59%.
For options granted by the Outdoor Channel, the fair value was
estimated using the minimum value method, which approximates
the Black-Scholes option-pricing model with no volatility.
-48-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Related party transactions:
The Company has an agreement with a director and officer of the
Company whereby the Company receives legal services at a cost of
$10,000 per month of which $5,000 is paid in cash and an
additional $5,000 is to be paid in cash or common stock of the
Company at a future date as agreed upon by the Company and the
director. In the event it is agreed that the director should
accept stock, the agreement calls for the director to receive
shares of the Company's common stock at the market value of the
stock at the time the legal services were rendered. For both 1998
and 1997, the director was paid $60,000 and was entitled to
receive $60,000 worth of common stock or cash pursuant to the
agreement. Total deferred compensation due the director at
December 31, 1998 and 1997 was $260,000 and $200,000,
respectively.
Note 11 - Segment information:
During 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION ("SFAS 131"). Pursuant to
the provisions of SFAS 131, the Company is reporting segment
information in the same format reviewed by the Company's
management (the "management approach"). The Company segregates its
business activities into the major areas that generate revenues.
LDMA-AU and GPAA membership sales and related activities are
reported separately as they deal with recreational prospecting and
rights to use land and facilities for camping and recreational
vehicle parking. Trips and outings constitute another business
activity of the Company whereby members can participate in a group
prospecting activity at a Company site, usually lasting for a week
or less. The annual Alaska trip, included in this category, allows
members to travel to the Company's Alaska property from one to six
weeks to participate in prospecting activities. The Outdoor
Channel is a separate business activity whereby the subsidiary
broadcasts television programming on the Outdoor Channel 24 hours
a day, seven days a week, and recognizes advertising and
subscription revenues.
-49-
<PAGE>
GLOBAL OUTDOORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Segment information (concluded):
Information with respect to these reportable business segments for
the years ended December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Income
(Loss) before Depreciation
Income Total and Capital
1998 Revenues Taxes Assets Amortization Expenditures
- ---- ----------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Trips and outings $ 770,617 $ 170,991 $ 1,452,640 $ 83,540 $ 70,085
Outdoor Channel 2,533,315 (1,228,522) 960,138 105,373 44,302
Membership sales
of recreational
prospecting and
mineral rights
and merchandise
sales 3,381,981 1,782,432 1,419,712 48,937 60,422
----------- ------------- ------------ ----------- -----------
Totals $6,685,913 $ 724,901 $ 3,832,490 $ 237,850 $ 174,809
=========== ============= ============ =========== ===========
1997
Trips and outings $1,027,354 $ 99,322 $ 1,628,409 $ 72,934 $ 73,420
Outdoor Channel 1,618,870 (2,262,381) 820,516 94,187 18,558
Membership sales
of recreational
prospecting and
mineral rights
and merchandise
sales 2,935,873 859,098 1,020,239 9,805 633
Other 345,568 (506,715) 789,069 45,611 -
----------- ------------- ------------ ----------- -----------
Totals $5,927,665 $ (1,810,676) $ 4,258,233 $ 222,537 $ 92,611
=========== ============= ============ =========== ===========
</TABLE>
-50-
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not Applicable.
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 36 Chief Executive Officer, President and Chairman of the
Board
Thomas H. Massie 34 Executive Vice President, Secretary and Vice Chairman of
the Board
Richard K. Dickson II 53 Chief Operating Officer, General Counsel and Director
Andrew J. Dale 44 President and Chief Executive Officer of The Outdoor
Channel
Jacob J. Hartwick 45 Vice President Sales and Promotions and Executive Vice
President of The Outdoor Channel
Wade E. Sherman 28 Vice President Advertising Sales of The Outdoor Channel
Richard D. Vermeer 60 Chief Financial Officer
Ronald D. Ward 40 Controller
</TABLE>
The term of each director will expire at the 2000 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. He has served as Executive Vice President of the Company and the
President of Gold Prospectors' Association of America, Inc. since 1994 and Vice
Chairman since 1999. Mr. Massie is also the host of the "Gold Fever 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.
-51-
<PAGE>
RICHARD K. DICKSON II has served Chief Operating Officer since April
1999 and has served as General Counsel and a director of the Company since 1994.
>From 1994 to April 1999 he was Senior Vice President of the Company. 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 at
Berkeley, a Masters in Business Administration from the University of Southern
California and a law degree from the University of the Pacific.
ANDREW J. DALE has served as Chief Executive Officer since September
1998 and President since November 1997. He was Chief Operating Officer of The
Outdoor Channel since November 1997. From 1994 to November 1997 he was Senior
Vice President Operations of The Outdoor Channel. From 1990 to 1993, he has
acted as a video and television consultant to both Global Outdoors, Inc. and The
Outdoor Channel. 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. Mr. Dale was born and
raised in the United Kingdom.
JACOB J. HARTWICK has served as Vice President of Sales and Promotions
of the Company since 1994 and Executive Vice President of The Outdoor Channel
since November 1997. From 1994 to November 1997, he was Vice President Sales and
Promotions of The Outdoor Channel. From 1991 to 1994, he served as a Vice
President of the Company. From 1986 through 1991, Mr. Hartwick served in various
sales, marketing and administrative positions with Global Outdoors and its
subsidiaries.
WADE E. SHERMAN has been Vice President Advertising Sales of the
Company since November 1997. In February 1996, he was hired by the Company as an
Advertising Sales Representative and was promoted to Director of Advertising
Sales in July 1996. From April 1995 to February 1996, Mr. Sherman was an
Advertising Sales Representative for Comcast Cablevision. From May 1994 to April
1995, he worked at radio station KMNY, as a news anchor and an advertising sales
representative. From 1993 to April 1994, he worked part-time at radio station
KMNY. He earned a B.S. Degree in Television/Film from California State
University at Fullerton.
RICHARD D. VERMEER has served as the Chief Financial Officer of the
Company since November 1997. From 1994 to the present he has been the President
of The Richards Group, a consulting firm that advises clients on a variety of
financial and management matters. From 1989 to 1994, he served as Senior Vice
President Finance/Administration for International Permalite, Inc., a roofing
manufacturing company. Mr. Vermeer earned a B.S. degree in Business Management
from Fairleigh Dickinson University and an M.B.A. degree in Finance from Lehigh
University.
RONALD D. WARD has served as the Controller of the Company since August
1998. From 1994 to August 1998, he was an independent consultant advising
clients on a variety of accounting and financial matters. From 1978 to 1994, Mr.
Ward was employed by Southern Distributors Corporation, a multi-state building
materials distributor with annual sales of $70 million. From 1993 to 1994, he
was Vice President of Finance and Controller of that company supervising a staff
of twelve. Mr. Ward earned a B.A. degree in Accounting from California State
University at Fullerton.
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, 1998, were satisfied.
-52-
<PAGE>
BOARD OF DIRECTORS
The Board of Directors of the Company took action by unanimous written
consent or held meetings seven (7) times during the fiscal year ended December
31, 1998. 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.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth compensation received for the fiscal
years ended December 31, 1998, 1997 and 1996 by the Company's Chief Executive
Officer, and the other executive officers whose salary and bonus exceeded
$100,000 for fiscal years 1998, 1997 and 1996 (collectively, the "Named
Executive Officers"):
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Securities
Other Under-
Annual Restricted laying All Other
Compen- Stock Options/ LTIP Compen-
Name and Principal Position Year Salary($) Bonus($) sation($) Awards /SARS Payouts ation
- --------------------------- ---- --------- -------- --------- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Perry T. Massie, CEO 1998 68,000 - - - - - -
1997 69,231 - - - - - -
1996 84,000 - - - - - -
Christopher B. Forgy 1997 157,846 - - - - - -
1996 165,000 - - - - - -
Richard K. Dickson II 1998 120,000 - - - - - -
1997 120,000 - - - - - -
1996 120,000 - - - - - -
</TABLE>
Mr. Dickson's compensation has been established at $120,000 per year,
payable $60,000 in cash and $60,000 in either cash or stock which latter amount
may be deferred, in whole or part. For 1998, $60,000 was deferred; for 1997,
$60,000 was deferred; and for 1996, $50,000 was deferred. Such deferred amounts
will be paid in either cash or stock at such time as is agreed upon by Mr.
Dickson and the Company. Mr. Forgy's employment with The Outdoor Channel ended
in November 1997.
-53-
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
% of Total
Options
Number of Granted
Securities to Exercise
Underlying Employees or Base
Options in Fiscal Price Expiration
Name Granted (#) Year(1) ($/Share) Date
---- ----------- ------- --------- ----
Perry T. Massie, CEO - - - -
Richard D. Vermeer, CFO 50,000 100% $3.00 3-31-05
- ---------------
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options in-the-Money Options
Shares at Fiscal Year-End(#) at Fiscal Year-End($)
Acquired On Value --------------------- ---------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Perry T. Massie, CEO - - 85,000 - $12,500 -
Thomas H. Massie - - 85,000 - 12,500 -
Richard K. Dickson II - - 25,000 - 6,250 -
Richard D. Vermeer - - 10,000 40,000 - -
</TABLE>
The exercise price of the options listed above for Messrs. Perry T.
Massie and Thomas H. Massie are $2.25 per share for 50,000 shares and $2.50 per
share for 35,000 shares. The exercise price of the options listed above for Mr.
Dickson is $2.25. The exercise price of the options listed above for Mr. Vermeer
is $3.00. The Closing Price of Global's Common Stock at 1998 fiscal year-end was
$2.50 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
-54-
<PAGE>
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. As of December 31, 1998, there were options to purchase 65,000
shares of Common Stock outstanding under the 1995 Stock Option Plan with options
to purchase 435,000 shares of Common Stock available for grant. The options
granted under the 1995 Stock Option Plan are exercisable at a prices ranging
from $3.00 to $3.25 per share.
DIRECTOR'S FEES
The directors of the Company are also executive officers of the
Company. For 1998 directors were not compensated separately or reimbursed for
expenses incurred in attending meetings of the Board of Directors.
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. 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
As of December 31, 1998 the Company did not have any employment
contracts.
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 March 31, 1999 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.
-55-
<PAGE>
NAME AND ADDRESS OF BENEFICIAL SHARES BENEFICIALLY
OWNER OR IDENTITY OF GROUP OWNED(1)
-------------------------- --------
NUMBER PERCENT
------ -------
Wilma M. Massie (3)......................... 1,728,326 32%
Perry T. Massie (4)(5)...................... 1,581,996 30%
Thomas H. Massie (6)(7)..................... 1,599,500 30%
Richard K. Dickson II (8)................... 401,550 8%
Richard D. Vermeer (9)...................... 20,100 *%
Andrew J. Dale (10)......................... 25,100 *%
Jacob J. Hartwick (11)...................... 20,112 *%
All directors and Named
Executive Officers as a
group (6 persons) (12)...................... 3,648,358 67%
- -------------
(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 June 10, 1999, 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 June 10, 1999.
(4) Includes 85,000 shares subject to options from the Company and 224,000
shares subject to options from Wilma M. Massie exercisable within 60
days of June 10, 1999.
(5) 11,900 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 224,000
shares subject to options from Wilma M. Massie exercisable within 60
days of June 10, 1999.
(7) 11,900 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 300,000
shares subject to options from Wilma M. Massie exercisable within 60
days of June 10, 1999.
(9) Includes 20,000 shares subject to options from the Company exercisable
within 60 days of June 10, 1999.
(10) Includes 20,000 shares subject to options from the Company exercisable
within 60 days of June 10, 1999.
(11) Includes 20,000 shares subject to options from the Company exercisable
within 60 days of June 10, 1999.
(12) Includes directors' and executive officers' shares listed above,
including 255,000 shares subject to options from the Company and
748,000 shares subject to options from Wilma M. Massie exercisable
within 60 days of June 10, 1999.
The following table sets forth certain information regarding the
beneficial ownership of The Outdoor Channel's Common Stock as of March 31, 1999
by each director and executive officer of The Outdoor Channel, 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 Outdoor Channel 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.
-56-
<PAGE>
NAME AND ADDRESS OF BENEFICIAL SHARES BENEFICIALLY
OWNER OR IDENTITY OF GROUP OWNED(1)
-------------------------- --------
NUMBER PERCENT
------ -------
Gold Prospector's Association of
America, Inc. (3)......................... 8,817,916 84%
Elizabeth J. Sanderson Burke (4)............ 862,000 8%
Ray V. Miller (5)........................... 616,668 6%
Jerry R. Berglund (6)....................... 400,000 4%
Andrew J. Dale (7).......................... 250,000 2%
Perry T. Massie (8)......................... 200,000 2%
Thomas H. Massie (9)........................ 200,000 2%
Wilma M. Massie (10)........................ 200,000 2%
Richard K. Dickson II (11).................. 200,000 2%
Jacob J. Hartwick (12)...................... 200,000 2%
Wade E. Sherman (13)........................ 100,000 1%
All directors and Named
Executive Officers as a
group (10 persons) (14)..................... 3,228,668 25%
- -------------
(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 June 10, 1999, 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 The Outdoor Channel, Inc., 43445
Business Park Dr., Suite 103, Temecula, California 92590.
(3) Gold Prospector's Association of America, Inc. is 100% owned by Global
Outdoors, Inc.
(4) Includes 500,000 shares subject to options from The Outdoor Channel
exercisable within 60 days of June 10, 1999. She is a director of The
Outdoor Channel.
(5) Includes 400,000 shares subject to options from The Outdoor Channel
exercisable within 60 days of June 10, 1999 and 50,000 shares owned by
Ray Miller's wife. He is a director of The Outdoor Channel.
(6) Includes 200,000 shares subject to options from The Outdoor Channel
exercisable within 60 days of June 10, 1999 and 110,000 shares owned by
Jerry Berglund's wife and four children. He is a director of The
Outdoor Channel.
(7) Includes 250,000 shares subject to options from The Outdoor Channel
exercisable within 60 days of June 10, 1999. He is a director of The
Outdoor Channel.
-57-
<PAGE>
(8) Includes 200,000 shares subject to options from The Outdoor Channel
exercisable within 60 days of June 10, 1999. He is a director of The
Outdoor Channel.
(9) Includes 200,000 shares subject to options from The Outdoor Channel
exercisable within 60 days of June 10, 1999. He is a director of The
Outdoor Channel.
(10) Includes 200,000 shares subject to options from The Outdoor Channel
exercisable within 60 days of June 10, 1999. She is a director of The
Outdoor Channel.
(11) Includes 200,000 shares subject to options from The Outdoor Channel
exercisable within 60 days of June 10, 1999. He is a director of The
Outdoor Channel.
(12) Includes 200,000 shares subject to options from The Outdoor Channel
exercisable within 60 days of June 10, 1999. He is a director of The
Outdoor Channel.
(13) Includes 100,000 shares subject to options from The Outdoor Channel
exercisable within 60 days of June 10, 1999.
(14) Includes directors' and executive officers' shares listed above,
including 2,450,000 shares subject to options from The Outdoor Channel
exercisable within 60 days of June 10, 1999.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company is leasing its administrative facilities from Wilma M.
Massie, a principal shareholder of the Company and the mother of Perry T. Massie
and Thomas H. Massie, under lease agreements currently requiring monthly rent
payments of $8,250 of which $4,000 is attributable to a separate lease The
Outdoor Channel entered into with the lessor in 1998. Rent expense for the
Company totaled $99,000 and $85,271 for the years ended December 31, 1998 and
1997, respectively. The total rent commitment at December 31, 1998 is two years
for the lease in Global's name and three years for the lease with The Outdoor
Channel.
In November 1996, Wilma M. Massie, obtained a letter of credit for
$80,000 that was utilized as security for performance under the Agreement with
Pan Am Sat for The Outdoor Channel's Galaxy 9 satellite transponder. The Outdoor
Channel has agreed to reimburse Mrs. Massie for expenses in maintaining that
letter of credit. From January 1997 through August 1997, Wilma M. Massie loaned
the Company $324,000 on notes bearing interest at 10%. From January 1997 through
August 1997, Perry T. Massie loaned the Company $136,000 on notes bearing
interest at 10%. In September 1997, Wilma M. Massie invested $40,000 in the
Company's public offering and Perry T. Massie invested $24,000 in the Company's
public offering. They paid the same price as other purchasers which was $8.00
per Unit, each Unit consisting of two (2) shares of Common Stock and one (1)
Class F Warrant to purchase Common Stock. In July 1998, Wilma M. Massie loaned
the Company $30,000 on a note bearing interest at 10% for the purpose of
purchasing two large all terrain vehicles for Alaska. The rent expense owed by
the Company to Wilma M. Massie has been applied as a reduction of a note
receivable from Wilma M. Massie, the balance outstanding on which was $154,579
and $194,786 at December 31, 1998 and 1997, respectively. The note receivable
was issued when George T. Massie, Wilma M. Massie's deceased husband, borrowed
money from GPAA in 1993. The note receivable bears interest at 6%. At the end of
1998, the note receivable from Wilma M. Massie was applied against the above
listed loans amounts plus interest owed to Wilma M. Massie, resulting in
$255,250 owed Wilma M. Massie at December 31, 1998. The amount owed Perry T.
Massie, including accrued interest, at December 31, 1998, was $158,779. Interest
due Wilma M. Massie on loans by her referred to above was $32,400 for 1998 and
$24,779 for 1997. Interest due Perry T. Massie on the loans by him referred to
above was $13,600 for 1998 and $9,179 for 1997. The maturity dates of the loans
from Wilma M. Massie and Perry T Massie are December 31, 2000.
As of December 31, 1998, the Company owed Wilma M. Massie an additional
$50,378, secured by a motor home purchased in October 1996. The Company is
paying this obligation at the rate of $520 per month including interest at 9%.
The maturity date for this loan is November 2011.
In January 1998, the Company entered a ten year contract with the
Outdoor Channel whereby the Company has the rights to ten hours of programming
time and thirty sixty second advertising spots per week. The Company has the
option to renew this contract for two five year periods. For the first five
years of the contract, the Company is paying $7,400 per week under the contract.
The Company believes that the contract is initially beneficial to The Outdoor
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<PAGE>
Channel but that in the future will constitute a significant asset to the
Company. This contract was made in furtherance of the Company's plan of
establishing The Outdoor Channel as an independent and self supporting company.
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 ("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. Since GPAA was commonly
controlled company, its assets and liabilities were recorded in 1995 at their
historical cost basis in a manner similar to a pooling of interests. In December
1998, 1,000,000 Earn Out Shares were issued to the former shareholders of GPAA
pursuant to the Acquisition Agreement. These additional shares were recorded at
their par value (See "Note 9 to the Consolidated Financial Statements"). The
primary basis for issuing the Earn Out shares was the Prospective Fair Market
valuation of The Outdoor Channel made by BIA Consulting, Inc. ("BIA"). BIA
concluded that the Prospective Fair Market Value of the Channel as of December
31, 1998, was $30 million. GPAA owned 88% of The Outdoor Channel as of December
31, 1998.
The relevant part of the Acquisition Agreement provided for Earn Out
Shares as follows:
The Number of Earn Out Shares
If Valuation of GPAA to be Delivered to Former
Is Not Less Than GPAA Shareholders
-------------------- -----------------------------
$12,000,000 500,000
$16,000,000 an additional 500,000
$21,000,000 an additional 500,000
The former shareholders of GPAA elected to limit their Earn Out Shares
to an aggregate of 1,000,000 shares although the valuation of the Channel would
have justified an additional 500,000 shares.
Perry T. Massie and Thomas H. Massie each have an option to purchase
224,000 shares of the Company owned by Wilma M. Massie. Mr. Dickson has an
option to purchase 300,000 shares of the Common Stock of the Company owned by
Wilma M. Massie. In January 1996, Mr. Dickson exercised part of his option from
Wilma M. Massie and purchased 50,000 shares from her. David M. Ashwood, a former
officer of the Company, has an option to purchase 112,000 shares of the Common
Stock of the Company owned by Wilma M. Massie.
As of December 31, 1998, the Company had an agreement with Richard K.
Dickson II, a director and officer of the Company, whereby the Company received
legal services at a cost of $10,000 per month of which $5,000 is to be paid in
cash and an additional $5,000 is to be paid in cash or Common Stock as agreed
upon by the Company and Mr. Dickson. In the event it is agreed that Mr. Dickson
should accept stock, the agreement calls for Mr. Dickson to receive shares of
the Company's Common Stock at the market value of the stock at the time the
services were rendered. For 1998, Mr. Dickson was paid $60,000 and was entitled
to receive $60,000 worth of Common Stock or cash pursuant to this agreement. For
1997, Mr. Dickson was paid $60,000 and was entitled to receive $60,000 worth of
Common Stock or cash pursuant to this agreement. Total deferred compensation due
Mr. Dickson at the end of 1998 was $260,000.
Perry T. Massie, Thomas H. Massie and Richard K. Dickson II are
officers and directors of the Company and The Outdoor Channel, Inc. Jacob J.
Hartwick is an officer of the Company and an officer of The Outdoor Channel,
Inc. Wilma M. Massie is a principal shareholder of the Company and a director of
The Outdoor Channel, Inc. In December 1997, Messrs. P. Massie, T. Massie,
Dickson, Hartwick and Wilma M. Massie were granted options to purchase 200,000
shares, each, of Common Stock in The Outdoor Channel, Inc. The options are
exercisable a $1.50 per share and expire on December 31, 2003. At the time of
the grants, The Outdoor Channel was selling Common Stock in its private
placement at $1.00 per share.
-59-
<PAGE>
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
-60-
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
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).
16.2 Letter re change in certifying accountant (incorporated by reference to Exhibit 16.1 to the Company's
Form 8-K filed March 10, 1998).
21 Subsidiaries of Registrant*
27 Financial Data Schedule (SEC only).
</TABLE>
-61-
<PAGE>
* 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, 1998, as follows: None
-62-
<PAGE>
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, President
Dated: July 23, 1999
-------------
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, President, CEO, and
Director
Dated: July 23, 1999
-------------
By: (Signature and Title) /s/Thomas H. Massie
------------------------------------------------------
Thomas H. Massie, Executive VP, Secretary
and Director
Dated: July 23, 1999
-------------
By: (Signature and Title) /s/Richard K. Dickson II
------------------------------------------------------
Richard K. Dickson II, COO, General Counsel
and Director
Dated: July 23, 1999
-------------
By: (Signature and Title) /s/Richard D. Vermeer
------------------------------------------------------
Richard D. Vermeer, Chief Financial Officer
Dated: July 23, 1999
-------------
-63-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 326,225
<SECURITIES> 0
<RECEIVABLES> 415,749
<ALLOWANCES> 54,766
<INVENTORY> 45,454
<CURRENT-ASSETS> 788,850
<PP&E> 4,696,176
<DEPRECIATION> 1,785,728
<TOTAL-ASSETS> 3,832,490
<CURRENT-LIABILITIES> 1,548,037
<BONDS> 0
0
61
<COMMON> 105,079
<OTHER-SE> (829,386)
<TOTAL-LIABILITY-AND-EQUITY> 3,832,490
<SALES> 6,685,913
<TOTAL-REVENUES> 6,685,913
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,646,920
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 217,515
<INCOME-PRETAX> 824,716
<INCOME-TAX> 800
<INCOME-CONTINUING> 823,916
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 823,916
<EPS-BASIC> 0.18
<EPS-DILUTED> 0.15
</TABLE>
