United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A-1 (Amendment No. 1)
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended November 30, 2000 Commission File Number: 0-24075
NBG RADIO NETWORK, INC.
(Name of small business issuer in its charter)
Nevada 88-0362102
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
520 SW Sixth Avenue, Suite 750
Portland, Oregon 97204
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (503) 802-4624
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were $11,785,831.
Based on the closing sales price of the Common Stock on March 12, 2001, the
aggregate market value of the voting stock of registrant held by non-affiliates
was $22,008,990.
The registrant has one class of Common Stock with 13,526,751 shares
outstanding as of March 12, 2001.
Documents Incorporated By Reference: None
Transitional Small Business Issuer Disclosure Format (check one): Yes [ ]
No [X].
NBG RADIO NETWORK, INC.
TABLE OF CONTENTS
PAGE
PART I ............................................................................ 1
Item 1. Description of Business..................................................... 1
Item 2. Description of Property..................................................... 5
Item 3. Legal Proceedings........................................................... 6
Item 4. Submission of Matters to a Vote of Security Holders......................... 6
PART II ............................................................................ 7
Item 5. Market for Common Equity and Related Stockholder Matters ................... 7
Item 6. Management's Discussion and Analysis or Plan of Operation................... 9
Item 7. Financial Statements........................................................ 13
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................................ 14
PART III ............................................................................ 14
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act...................................... 14
Item 10. Executive Compensation...................................................... 17
Item 11. Security Ownership of Certain Beneficial Owners and Management.............. 22
Item 12. Certain Relationships and Related Transactions.............................. 23
Item 13. Exhibits and Reports on Form 8-K............................................ 23
PART I
Item 1. Description of Business
--------------------------------
General
-------
Nostalgia Broadcasting Corporation was incorporated in March 1996 under the
laws of the State of Nevada. In January 1998, Nostalgia Broadcasting Corporation
changed its name to NBG Radio Network, Inc. (the "Company"). The Company's
principal executive offices are located at 520 SW 6th, Suite 750, Portland, OR
97204, and its telephone number is (503) 802-4624.
The Company creates, produces, distributes and is a sales representative
for national radio programs and offers other miscellaneous services to the radio
industry. The Company offers radio programs to the industry in exchange for
commercial broadcast time, which the Company sells to national advertisers. The
Company has grown from two programs and 150 radio station affiliates at its
inception in 1996 to currently offering 40 programs to over 2,500 radio station
affiliates. The group of radio stations who contract with the Company to
broadcast a particular program constitutes a radio network. The Company derives
a significant part of its revenue from selling the commercial broadcast time on
its radio networks to advertisers desiring national coverage. The Company also
derives a portion of its revenues from its sales representation division. The
sales representation division operates as a sales staff for other nationally
syndicated program producers who do not wish to sell their own product. The
sales representation division generates its revenues by selling network
advertising time for third party program producers and retaining a sales
commission on gross revenue.
The Company currently produces 40 network programs targeting the most
popular radio formats, including Adult Contemporary, Album Oriented Rock,
Contemporary Hit Radio, Country, News/Talk, and Oldies. The Company produces
both short form and long form programs. Short form features, such as COUNTRY
MUSIC MINUTE and TEEIN' IT UP WITH PETER JACOBSEN, are daily two to three minute
vignettes. Long form programs, such as BIGG SNOOP DOGG RADIO and ULTIMATE 80'S,
are programs that range from one to four hours in length. The Company offers
these programs to radio stations free of charge. The radio stations airing these
programs become networks for the Company to sell advertising time. The Company
sells the commercial broadcast time inside of these networks to advertisers
desiring national coverage.
The Company intends to aggressively expand its operations over the next
twelve months. Beginning with radio syndication, the Company's number one goal
is to enhance the value of its current network. In order to do this, the Company
will increase its marketing efforts to radio stations across the United States.
The marketing efforts will focus primarily on the top 50 media markets. By
increasing its network presence in the top 50 media markets, the Company will be
able to charge a higher spot rate for its advertising time. The spot rate is the
price a national advertiser pays per commercial aired on the Company's network.
The Company currently has a network of over 2,500 radio station affiliates and
with over 10,000 radio stations in the United States the Company anticipates
significantly expanding its network. However, there can be no assurance that the
Company will be able to expand its operations.
Another integral part of expanding the Company's network over the next
twelve months will be the addition of new programming. Radio stations rely on
network radio programming and distributors, such as the Company, to provide
national quality programming and other services to enhance their existing
1
programming and ratings. Limited financial and creative resources, among other
matters, typically prevent most radio stations from producing their own national
quality programming. The Company intends to focus its programming growth with
long form programs. The Company has developed a niche in short form programming
and, by developing more long form programming, this will provide the Company
with more broadcast commercial inventory to sell on its network. A typical short
form program will have 2 to 4 commercials available for sale while a typical
long form program has 8 to 48 commercials available for sale. The Company
intends to offer additional programming over the next twelve months through
internal development as well as the acquisition of businesses or assets that
complement the Company's operations.
The creation of a radio network allows the Company to sell the acquired
commercial broadcast inventory to advertisers desiring national coverage. Rates
for the sale of network advertising are established on the basis of audience
delivery or ratings and the demographic composition of the listening audience.
Thus, if the Company expands its network, as previously discussed, it will be
able to charge more for broadcast commercial time on the network. In addition to
being able to charge more for its advertising time, by expanding its programming
there will also be more commercial broadcast inventory available for sale by the
Company.
The Company sells commercial broadcast time by guaranteeing certain
ratings and demographics. There can be no assurance that the guarantee will be
achieved. If the radio network on which the commercial broadcast time is sold
does not achieve the guarantee, the Company may be obligated to offer the
advertiser additional advertising time on the same radio network or on an
alternate radio network. These "make goods" or "bonus spots" are the predominant
means whereby the Company satisfies such obligations to advertisers.
Alternatively, the Company could be obligated to refund or credit a portion of
the advertising revenue derived from such sales. Historically the Company has
not had to refund any cash received as revenues.
According to the National Association of Broadcasters (NAB) there are
approximately 10,000 commercial radio stations in the United States. The Company
currently has broadcast commercial time on over 2,500 of these radio stations.
Radio is one of the most cost effective forms of advertising given its wide
reach and low cost in comparison to print and television media. Radio
advertising is attractive to advertisers for a variety of reasons: short lead
time between commercial production and broadcast time, low cost of commercial
production, and, most importantly, the fact that most radio listening occurs
away from home, closer to the point of purchase.
Radio stations attempt to develop formats, such as news/talk, music, or
other types of entertainment programming, in order to appeal to a target
listening audience that will attract local, regional, and national advertisers
to their station. However, due to consolidation in the industry, most radio
stations do not have the creative and financial resources to produce nationally
accepted programming. As a result, radio stations look to syndicators, such as
the Company, to enhance their existing local programming. As a national network
the Company licenses radio stations to air its programs in exchange for
commercial broadcast time on the station. The Company then resells the
advertising time to advertisers requiring national coverage. The commercial
broadcast time may vary from market to market within a specified time period
depending on the requirements of the particular radio station. The advertising
rates are based upon audience ratings for the specific demographic the
advertiser is trying to reach. These ratings are determined by Arbitron Research
Company which periodically measures the percentage of the radio audience in a
market area listening to a specific radio station during a specific time period.
2
The Company's wholly-owned subsidiary, NBG Solutions, Inc. ("NBG
Solutions"), offers flexible and customizable kiosk platform solutions to a
broad range of customers. Directly and throughout a network of strategic
partnerships, NBG Solutions, Inc. offers customers a single master arrangement
to design, program, integrate, and service installed kiosks. A Kiosk, on a stand
alone or connected basis (through the Internet or phone lines), allows sponsors
and advertisers to cost effectively distribute timely information and can
facilitate direct interaction with consumers including E-commerce through credit
or smart cards. In addition, NBG Solutions is evaluating and developing
ancillary technological marketing services to complement and support radio
entertainment clients. These services include a "Preferred Listener" consumer
data tracking system and certain developing web-based systems including custom
site hosting/development and audio streaming.
New Products
------------
HOLLYWOOD HAMILTON'S WEEKEND TOP 30
-----------------------------------
Hollywood Hamilton's Weekend Top 30 is not your regular cliche countdown show.
Hollywood uses his trademark style to provide a fast-paced, edgy program
counting down the TOP 30 RHYTHMIC hits of the week. The TOP 30 list of hits is
derived from combined affiliate stations total spins, along with national CD
single sales. The program is unusually affiliate friendly and totally
RE-INVENTED, as Hollywood is credited for introducing the concept of "affiliate
interaction" during the show. He involves local stations by featuring backstage
interviews with top artists, and has the local air personalities conduct them.
The show's impressive guest list has evolved into the "Letterman & Leno" of
radio, becoming a `must stop' for all major labels and their artists. Recent
interviews include: Nelly, Janet Jackson, N'Sync, Madonna, Destiny's Child, K-Ci
& Jo Jo, Mya and Britney Spears. Chart-topping hits, backstage interviews, and a
solid superstar guest list help make Hollywood Hamilton's Weekend Top 30 the
most entertaining 3-hour airshift in the format!
BIGG SNOOP DOGG RADIO
---------------------
Bigg Snoop Dogg Radio is a national weekly four-hour radio show hosted by Core
Hip Hop star Snoop Dogg. Airing on some of America's top stations, including
KKBT/Los Angeles, WLLD/Tampa-Clearwater, KBMB/Sacramento and KXJM/Portland, the
show features Snoop's favorite R&B and Hip Hop old-school cuts as well as hits
from some of today's rising stars. Listeners hear world premiere releases of
Snoop Dogg's own material along with world debuts from artists currently signed
on his record label, Dogghouse Records. In its first official ratings book,
Snoop took his affiliates ratings up as much as 3 points in some markets, with a
1.2 share increase in Los Angeles.
ULTIMATE 80S
------------
Ultimate 80s is a weekly three-hour show featuring the music and lifestyle of
one very memorable decade. Ultimate 80s fits several formats, including Hot AC,
AC, CHR, Top 40 and the fastest growing format in radio, the new 80s and More
format. The music heard on the show has been and continues to be extensively
researched to accommodate for changing music trends. Special features include
80s trivia,
3
`Where are they now?', current interviews with artists, flashback interviews
with 80s artists, and much more. Major market talent, writers and producers
combine to make Ultimate 80s the most exciting 80s program on the radio.
Ultimate 80s host is Rick Stacy, who has spent his career programming and
hosting on stations in major markets like Atlanta and Los Angeles. Currently,
Rick is co-host on the very successful morning show on KQKS in Denver.
THE TOUR BUS
------------
Every Saturday Night, The Tour Bus brings listeners 5 hours of the most demanded
music in the Rock World. Launched in January 1999 on WNNJ in New Jersey, the
show exploded onto the scene, selling out its inventory, shooting to #1 with a
bullet in its timeslot and tripling its audience in just 3 months. Since The
Tour Bus moved to a larger station in WDHA 105.5 FM, the #1 rock station in New
Jersey, and the fans have followed. Today, The Tour Bus maintains its #1 slot at
WDHA and even pulls strong numbers in nearby New York City, the largest radio
market in the world. The Tour Bus is hosted and produced by music industry
experts who have used their extensive contacts to showcase some of the biggest
names of the era. Past live guests include Queensyrche, Ratt, Warrant, Great
White, Cinderella, Skid Row's Sebastian Bach, Steve Vai, Tommy Lee and many
more. Additionally, every element of The Tour Bus is unique and original to The
Tour Bus.
THE COMPLETE SHEET
------------------
Arguably the most preferred prep service for live radio personalities today.
Originally a service delivered in exchange for cash, NBG has converted a bulk of
their The Complete Sheet's affiliate base over to barter terms versus cash. The
audience broke the 1 million barrier quickly after starting this conversion
process and is still growing faster than a speeding bullet.
HONKY TONK SUNDAYS
------------------
Honky Tonk Sundays is Country Radio's longest running and most programmed
"Sunday Show". It consistently delivers top quality artists, a variety of hit
music, and an entertaining, slightly wacky host. Ichabod Caine is the talented
host of the program. As a matter of fact, Ichabod is up for Major Market Country
Personality of The Year at this year's Country Radio Seminar Station Awards.
Ichabod hails from KMPS-FM in Seattle and Honky Tonk Sundays is the #1
commercial radio program on the air Sunday Mornings in Seattle and delivers
similar results all across the country in markets as big as Los Angeles on
KFRG-FM.
Competition
Competition for radio advertising is very intense. The industry is made up
of a variety of competitive forces, including: (1) ownership groups, which own
blocks of radio stations across the industry; (2) syndicators, like the Company,
that offer programming and marketing services to radio stations; and, (3)
independent producers and distributors that offer programs or services to radio
stations. Several of the Company's syndicating competitors also are associated
with major radio station group owners. In addition, many of these competitors
have recognized brand names and will pay compensation to radio
4
stations to broadcast their network commercials. The Company's largest
competitors that are associated with an ownership group are AM/FM Radio
Networks, Premiere Radio Networks, CBS Radio Networks, and ABC Radio. The
Company estimates that these competitors account for about 80% of the network
advertising revenues. The Company is a leader of the syndication companies not
associated with an ownership group. The principal competitive factors in the
radio industry are the quality and creativity of programming and the ability to
provide advertisers with a cost-effective method of reaching the target
demographic. In this respect, the Company has positioned itself by adding top
entertainment and sports stars like Snoop Dogg, Dr. Don, The Complete Sheet,
Peter Jacobsen, and Steve Jones to its lineup of program hosts. The Company's
principal operating strategy is to continue to provide high quality programming
in the most popular formats. The Company has developed and expanded its network
through internal operations and will look to continue this in the future as well
as acquire assets and businesses that complement the Company's operations.
Government Regulation
---------------------
Radio broadcasting and station ownership are regulated by the Federal
Communication Commission (FCC). The Company, as a producer and distributor of
radio programs, is generally not subject to regulation by the FCC. The FCC
regulates the radio stations that air the Company's programs. The radio station
affiliates are ultimately responsible for what material is broadcast on their
airwaves.
Significant Customers
---------------------
The Company's customers are located throughout the United States. Each of
three customers represented 10% or more of the Company's revenue during 2000.
Horizon Communications accounted for $1.6 million, or 13.8% of the Company's
revenues, Dial Communications accounted for $4.3 million, or 36.2% of the
Company's revenues, and, Ogilvy & Mather accounted for $3.9 million, or 33.0% of
the Company's revenues. While these customers represent a significant portion of
the Company's revenues, they account for hundreds of different products that are
advertised on the Company's network. A loss of any one of these products would
not materially affect the Company; however, a loss of one of these customers
could have a material adverse effect on the financial condition and the results
of operations of the Company.
Employees
---------
As of March 12, 2001, the Company had 35 full time and 36 total employees.
In addition, the Company maintains continuing relationships with over 40
independent hosts, writers, and producers. The Company is not party to any
collective bargaining agreements. The Company believes its relationship with its
employees and independent contractors is good.
Item 2. Description of Property
--------------------------------
The Company leases approximately 6,500 square feet of office space in
Portland, Oregon in which its corporate headquarters, programming and
subsidiaries are located. The lease expires on March 31, 2003 and the annual
base rent is approximately $88,000. The Company also has a small sales office in
New York and Los Angeles.
5
The Company anticipates that it may require expansion of its current
facilities in the coming year. As a result, the Company has obtained an option
to lease an additional 3,000 square feet of space in its current building.
Item 3. Legal Proceedings
--------------------------
From time to time, the Company may be party to various legal actions and
complaints arising in the ordinary course of business. On January 27, 2000, a
lawsuit was commenced in the state of Oregon (Multnomah County Circuit Court) by
IBTEX, A.G., a Liberian Corporation, against Terry L. Neal, Graham H. Norris,
Donovan C. Snyder and the Company alleging unlawful sale of a franchise and
securities and fraud relating to certain settlement and license agreements
between IBTEX, A.G. and ITEX Corporation in the amount of $2,000,000 and
alleging the Company breached an oral contract to perform under a settlement
agreement in the amount of $800,000. After the Company moved against the
complaint, the court dismissed the lawsuit; however, on November 14, 2000,
IBTEX, A.G. filed an amended complaint in the same court alleging essentially
the same claims against the same parties as the January 27, 2000, complaint.
The Company believes that the action is without merit and that it has
substantial defenses to the claims. The Company intends to vigorously defend the
lawsuit.
Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
During the fourth quarter of 2000, no matters were submitted to a vote of
security holders.
6
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
-----------------------------------------------------------------
The Company's Common Stock has been quoted on the OTC Bulletin Board
since January 23, 1998. Prior to that there was no market for the Common Stock.
The following table sets forth the range of high and low bid prices of the
Company's Common Stock for the quarters indicated through the fourth quarter of
2000:
Calendar Year High Bid Low Bid
------------- -------- -------
1999:
-----
First quarter 4 1 5/16
Second quarter 3 1 3/4
Third quarter 3 5/8 1 5/8
Fourth quarter 3 1 3/8
2000:
-----
First quarter 3 7/32 1 3/8
Second quarter 2 1/2 1 3/16
Third quarter 2 7/16 1 7/16
Fourth quarter 2 5/16 1 1/8
The quotations reflect inter-dealer prices, without retail markups, markdowns,
or commissions and do not necessarily represent actual transactions. The
quotations were derived from the National Quotation Bureau OTC Market Report.
The Company estimates that as of March 12, 2001 there were approximately 1,300
holders of record of the Common Stock.
Dividends
---------
The Company has never declared or paid a cash dividend on its common stock.
The Company currently intends to retain all earnings to finance growth of the
Company's business and does not anticipate paying any cash dividends on its
common stock in the foreseeable future. There are no restrictions on dividend
payments other than restrictions imposed by applicable laws.
7
Unregistered Securities
-----------------------
------------------- ----------------------------- -------------------- ----------------------------- ----------------
Name of Principal
Title and Amount of Underwriter/
Securities Underwriting
Granted/Exercise Price if Discounts or Name or Class of Persons Consideration
Date of Grant Applicable Commissions who Received Securities Received
------------------- ----------------------------- -------------------- ----------------------------- ----------------
January 1998 600,000/Options to purchase None/None Employees and board members $ -0-
Common Stock for $.60 per
share(1)
------------------- ----------------------------- -------------------- ----------------------------- ----------------
January 1998 60,750/Common Stock None/None Shares issued for hosting $36,450*
and producing services
------------------- ----------------------------- -------------------- ----------------------------- ----------------
January 1998 65,000/Common Stock None/None Shares issued for printing $50,000*
services
------------------- ----------------------------- -------------------- ----------------------------- ----------------
January 1998 3,000/Common Stock None/None Shares issued for $6,000*
consulting services
------------------- ----------------------------- -------------------- ----------------------------- ----------------
January 1998 9,000/Common Stock None/None Shares issued for investor $9,000*
relation services
------------------- ----------------------------- -------------------- ----------------------------- ----------------
January 1998 20,260/Common Stock None/None Shares issued in exchange $20,260
for outstanding notes
------------------- ----------------------------- -------------------- ----------------------------- ----------------
January 1998 199,960/Common Stock None/None Shares issued in exchange $99,980
for outstanding notes
------------------- ----------------------------- -------------------- ----------------------------- ----------------
June 1998 520,000/Options to purchase None/None Employees and board members $ -0-
Common Stock for $1.63 per
share(1)
------------------- ----------------------------- -------------------- ----------------------------- ----------------
June 1998 34,000/Common Stock None/None Shares issued for hosting $55,250*
and writing services
------------------- ----------------------------- -------------------- ----------------------------- ----------------
July 1998 250,000/Common Stock None/None Private Placement $500,000
------------------- ----------------------------- -------------------- ----------------------------- ----------------
July 1998 500,000/Common Stock None/None Private Placement $1,500,000
------------------- ----------------------------- -------------------- ----------------------------- ----------------
July 1998 48,000/Common Stock None/None Shares issued for printing $144,000*
services
------------------- ----------------------------- -------------------- ----------------------------- ----------------
July 1998 12,700/Common Stock None/None Shares issued for hosting $38,100*
and producing services
------------------- ----------------------------- -------------------- ----------------------------- ----------------
July 1998 584,230/Common Stock None/None Warrants exercised $584,230
------------------- ----------------------------- -------------------- ----------------------------- ----------------
July 1998 6,993,800/Common Stock None/None Shareholders $ -0-
------------------- ----------------------------- -------------------- ----------------------------- ----------------
January 1999 350,000/Options to purchase None/None Employees and board members $ -0-
Common Stock for $3.10 per
share(1)
------------------- ----------------------------- -------------------- ----------------------------- ----------------
January 1999 350,000/Common Stock None/None Shareholders of Mtek $1,267,000
Technical Services, Inc.
------------------- ----------------------------- -------------------- ----------------------------- ----------------
January 1999 30,000/Common Stock None/None Options exercised $16,200
------------------- ----------------------------- -------------------- ----------------------------- ----------------
June 1999 10,100/Common Stock None/None Options exercised $7,700
------------------- ----------------------------- -------------------- ----------------------------- ----------------
July 1999 12,000/Common Stock None/None Options exercised $6,500
------------------- ----------------------------- -------------------- ----------------------------- ----------------
July 1999 1,267,493/Common Stock None/None Warrants exercised $1,479,762
------------------- ----------------------------- -------------------- ----------------------------- ----------------
September 1999 621,500/Options to None/None Employees and board members $ -0-
purchase Common Stock
8
for $2.00 per share(1)
------------------- ----------------------------- -------------------- ----------------------------- ----------------
* Value of consideration estimated.
(1) The options vest and become exercisable in accordance with the Company's
1998 Stock Incentive Plan.
(2) Options granted do not reflect the three for one stock split effective July
31, 1998. The above unregistered securities were sold or granted in
reliance on an exemption from the registration requirements of the
Securities Act of 1933, as amended ("Act") under Section 4(2) of the Act
and/or Regulation D promulgated under the Act.
Item 6. Management's Discussion and Analysis or Plan of Operation
------------------------------------------------------------------
Forward Looking Statements
--------------------------
The information set forth below relating to matters that are not
historical facts are "forward looking statements" within the meaning of Section
21E of the Securities Exchange Act of 1934 and involve risks and uncertainties
which could cause actual results to differ materially from those contained in
such forward looking statements. Such risks and uncertainties include, but are
not limited to, the following:
o A decline in national and regional advertising
o Preference by customers for other forms of advertising such as newspapers
and magazines, outdoor advertising, network radio advertising, yellow page
directories and point-of-sale advertising
o Loss of executive management personnel
o Ability to maintain and establish new relations with radio stations to
place its programs
o Ability to predict public taste with respect to entertainment programs
Years Ended November 30, 2000 and 1999
--------------------------------------
The following discussion should be read in conjunction with the audited
financial statements for the years ended November 30, 2000 and 1999 and the
related notes thereto.
REVENUES. Total revenues for 2000 were $11.79 million compared to revenues
of $3.62 million for 1999, representing an increase of $8.17 million, or 226%.
This increase was principally due to the Company's acquisition of programming as
well as sales representation contracts over the past year. The sales
representation contracts enable the Company to sell advertising time on behalf
of another program and keep a sales commission as a fee for this service. The
Company also shifted its programming focus to long form programming to
complement its current list of short form programs. Long form programming offers
the Company significantly more commercial broadcast inventory available for
sale. In addition, the Company has been able to charge higher spot rates for its
commercial broadcast time due to the continued growth in the number and quality
of the stations airing the Company's programs.
9
DIRECT COSTS. Direct costs for 2000 and 1999 were $6.75 million and $2.05
million, respectively, representing an increase of $4.70 million, or 229%. The
increase in direst costs in absolute dollars is partially due to a
reclassification of certain items from amortization to direct costs. The 1999
figures for direct costs and amortization have been adjusted to maintain
consistency. The increase in direct costs is primarily due to the increased
production costs of long form programs as compared to short form programs. Long
form programs are more expensive to produce due to the increased cost of
delivering the program via satellite and the extra telephone charges incurred
for caller driven programs. Short form programs are distributed on CD via the
mail, a much less expensive form of distribution. The Company also increased the
number of affiliate stations that it delivers programs to and increased the
number of programs in production. The Company intends to continue increasing the
number of affiliate stations and expanding the number of programs in production.
Finally, the Company's wholly-owned subsidiary NBG Solutions, Inc. increased its
production and integration of automated Kiosks in order to satisfy customer
demand. As a percentage of revenues, direct costs were 57.3% and 56.7% for 2000
and 1999, respectively, representing an increase of 0.6%. As previously
discussed, the cost of producing long form programs has led to an increase in
the Company's direct costs. However, by eliminating programs that have been less
profitable the Company was able to maintain virtually the same percentage of
direct costs compared to revenues.
GROSS MARGIN. Gross margin for 2000 was $5.04 million, an increase of
$3.47 million, or 222%, over 1999 (after adjusting for the reclassification of
certain items from amortization to direct costs in both 1999 and 2000). The
increased operating income was principally due to increased advertising revenues
resulting from the growth of the Company's current radio network, the Company
focus on long form programs, and the acquisition of sales representation
contracts from independent program suppliers. The Company's business plan
focuses on long form programs, which generate more revenue than short form
programs but are also more costly to produce. In order to achieve its mission,
the Company eliminated less profitable programs and was able to maintain its
gross margin percentage from year to year even though long form programs are
more expensive to produce. Gross margin as a percentage of revenue in 2000 was
42.7% and was 43.3% in 1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expense in
2000 was $4.22 million, representing an increase of $1.36 million, or 47.6% over
1999 (after adjusting for the reclassification of certain items from
amortization to direct costs in both 1999 and 2000). By comparison, total
revenues increased 226% for the same period. A portion of the increase in
general and administrative expense resulted from a $0.84 million increase in
wages and employee benefits in 2000 due to the larger staff needed to support
the growth of the Company. As a percentage of total revenues, wages and employee
benefits were 17.8% for 2000 and 33.4% for 1999. The Company is succeeding in
its efforts to control expenses in this growth stage.
The increase in general and administrative expense is also partially
attributable to a $0.25 million increase in professional and consulting fees in
2000 as a result of being a public reporting company. The Company increased its
investor relations presence and increased its shareholder base, which led to an
increase in legal and accounting fees.
General and administrative expenses as compared to revenues were 35.8% for
the twelve months ended November 30, 2000 and 79.1% for the same period in 1999.
This reflects the Company's success at increasing revenue while controlling
costs in this growth stage.
10
INCOME TAXES. Due to loss carry-forwards, there was no provision for
income taxes in 2000. Provision for income taxes for 1999 was not significant.
As of November 30, 2000 the Company has $401,000 to offset future income tax
liability.
NET INCOME AND (LOSS) PER SHARE. Net income for 2000 was $826,000 or $.06
per diluted share as compared to a net loss for 1999 of $1.26 million or $(.11)
per share (diluted). Net income for 2000 was primarily due to the following
factors: (1) increased advertising rates from the growth and development of the
Company's radio network; (2) increased revenue from the development and
acquisition of more long form programs; (3) the acquisition of sales
representation contracts for independent program suppliers; and (4) the
Company's success at controlling costs as a percentage of revenue during this
growth stage. The net loss for 1999 was principally due to reduced revenues as
the Company transitioned from barter transactions to predominantly cash clients.
Earnings per share, which includes the dilutive effects of options and
warrants to purchase common stock, were based upon 14,617,459 and 11,446,483
weighted average shares outstanding on November 30, 2000 and 1999, respectively.
The Company declared a 3-for-1 stock split in June of 1998 payable to all
shareholders of record as of July 31, 1998.
Adjustments to previously issued quarterly reports on form 10Q-SB
-----------------------------------------------------------------
As a result of the audit of the Company's consolidated financial
statements as of November 30, 2000 and the year then ended, certain adjustments
were identified which effect the amounts reported in previous Form 10Q-SB's
filed by the Company during 2000. The adjustments principally involve the manner
and timing in which the Company recognized and recorded expenses related to
sales representation agreements which are reflected as direct costs in the
consolidated income statements. Net income as previously reported, adjusted
amounts, and restated net income are summarized in the following schedule:
For the Three Months Ended
-----------------------------------------------------------
February 28, May 31, August 31,
--------------- ------------- -----------
2000 2000 2000
--------------- ------------- --------------
Net income as previously reported $ 189,785 $ 1,038,527 $ 409,610
Adjustment required (161,238) (263,746) (198,948)
--------------- ------------- ------------
Net income as restated $ 28,547 $ 774,781 $ 210,662
============== ============ ===========
Basic EPS, as reported $ 0.02 $ 0.09 $ 0.04
============== ============ ===========
Basic EPS, restated $ - $ 0.06 $ 0.02
============== ============ ===========
Diluted EPS $ - $ 0.05 $ 0.01
============== ============ ===========
Liquidity and Capital Resources
-------------------------------
Historically, the Company has financed its liquidity requirements through
cash flows generated from operations and financing activities. The Company's
working capital at November 30, 2000 was $4.43
11
million compared to $3.00 million at November 30, 1999. The increase in
working capital was primarily due to an increase in accounts receivable in
connection with the growth in total revenues of the Company.
In June 1998 the Company completed a private placement for 750,000 units
of common stock at $0.67 per unit (after giving effect to the 3-for-1 stock
split declared in June of 1998, payable to all shareholders of record as of July
31, 1998). Each unit consisted of one share of common stock and one warrant to
purchase one additional share of Common Stock, exercisable immediately. The
warrants were exercisable for $0.75 from June 1998 to January 31, 2000. The
warrants then become exercisable for $0.83 after February 1, 2000 and expire on
July 31, 2001. The Company received proceeds of $500,000 from the private
placement.
In July 1998 the Company completed a second private placement of 1,500,000
units at $1.00 per unit (after giving effect to the 3-for-1 stock split declared
in June of 1998, payable to all shareholders of record as of July 31, 1998).
Each unit consisted of one share of Common Stock and one warrant to purchase one
share of Common Stock, exercisable immediately. The warrants were exercisable at
$1.17 and expired on July 31, 1999. The Company received proceeds of $1,500,000
from the private placement.
The Company has no long-term debt. Currently the Company has a line of
credit of up to $500,000 from Western Bank, which is secured by accounts
receivable, inventory, equipment, chattel paper and intangibles. The line of
credit is to be paid back on July 31, 2001 at an interest rate of prime plus
one-half percent. As of November 30, 2000 the Company had advances of $400,000
on the line of credit.
Management believes that its available cash together with operating
revenues will be sufficient to fund the Company's working capital requirements
through November 30, 2001. The Company's management further believes it has
sufficient liquidity to implement its expansion and acquisition strategies.
12
Item 7. Financial statements
NBG RADIO NETWORK, INC.
----------
INDEPENDENT AUDITOR'S REPORT
AND
CONSOLIDATED FINANCIAL STATEMENTS
----------
NOVEMBER 30, 2000 AND 1999
CONTENTS
--------------------------------------------------------------------------------
PAGE
INDEPENDENT AUDITOR'S REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance sheets F-2 - F-3
Statements of operations F-4 - F-5
Statements of stockholders' equity F-6
Statements of cash flows F-7 - F-8
Notes to consolidated financial statements F-9 - F-23
13
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
NBG Radio Network, Inc.
We have audited the accompanying consolidated balance sheets of NBG Radio
Network, Inc. and Subsidiaries as of November 30, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
November 30, 2000 and 1999, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ Moss Adams LLP
Portland, Oregon
March 14, 2001
F-1
NBG RADIO NETWORK, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
November 30,
2000 1999
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 854,623 $ 892,092
Marketable equity securities, at fair value - 468,750
Receivables:
Accounts receivable, net of allowance for doubtful
accounts of $60,000 and $1,200 in 2000 and
1999, respectively 3,913,699 2,121,207
Unbilled receivables 195,739 -
Note receivable 167,200 -
Related-party receivables 82,242 47,462
Barter exchange receivables 81,881 148,136
Sales representation contract agreements, net of
accumulated amortization 3,190,003 1,155,689
Prepaid expenses and other current assets 127,558 30,278
------------ ------------
Total current assets 8,612,945 4,863,614
------------ -------------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization 188,896 202,713
INTANGIBLE ASSETS, net of amortization 1,253,930 1,634,897
------------ ------------
TOTAL ASSETS $ 10,055,771 $ 6,701,224
============ ============
See accompanying notes.
F-2
LIABILITIES AND STOCKHOLDERS' EQUITY
November 30,
2000 1999
------------ ------------
CURRENT LIABILITIES
Line of credit $ 400,000 $ -
Accounts payable 581,130 179,650
Accrued liabilities 163,912 31,615
Deferred programming revenue - 500,000
Sales representation agreement liabilities 3,039,727 1,155,689
------------ ------------
Total current liabilities 4,184,769 1,866,954
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; 5,000,000 shares
authorized and unissued
Common stock, $.001 par value; 50,000,000 shares
authorized; 12,321,831 and 12,160,293 shares
issued and outstanding at November 30, 2000 and
1999, respectively 12,322 12,160
Additional paid-in capital 6,795,719 6,708,411
Retained deficit (922,926) (1,749,038)
Stock subscription receivable (14,113) (106,013)
Accumulated other comprehensive income, net of tax - (31,250)
------------ ------------
Total stockholders' equity 5,871,002 4,834,270
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 10,055,771 $ 6,701,224
============ ============
See accompanying notes.
F-3
NBG RADIO NETWORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended November 30,
2000 1999
---------- ----------
REVENUES $11,785,831 $ 3,616,026
DIRECT COSTS 6,749,179 2,049,621
---------- ----------
Gross margin 5,036,652 1,566,405
---------- ----------
GENERAL AND ADMINISTRATIVE EXPENSES
Wages and employee benefits 2,069,018 1,215,402
Consulting and professional 563,991 310,902
Depreciation and amortization 434,293 373,124
Travel and entertainment 237,954 196,729
Bad debt expense 180,774 90,134
Postage and printing 159,633 185,981
Rent 130,189 99,804
Telephone 106,754 50,946
Advertising 83,156 130,555
Office supplies 65,521 80,785
Other expenses 189,118 125,179
---------- ----------
Total general and administrative expenses 4,220,401 2,859,541
---------- ----------
Operating profit (loss) 816,251 (1,293,136)
---------- ----------
OTHER INCOME (EXPENSE)
Interest income 17,722 24,137
Interest expense (7,861) (5,065)
---------- ----------
Total other income (expense) 9,861 19,072
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 826,112 (1,274,064)
INCOME TAX BENEFIT - 9,789
---------- ----------
See accompanying notes.
F-4
NBG RADIO NETWORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended November 30,
2000 1999
---------- ----------
NET INCOME (LOSS) $ 826,112 $ (1,264,275)
OTHER COMPREHENSIVE INCOME:
Unrealized gains (losses) on marketable equity
securities, net of income tax 31,250 (31,250)
---------- ----------
Comprehensive income (loss) $ 857,362 $ (1,295,525)
========== ==========
Basic income (loss) per share of common stock $ 0.07 $ (0.11)
========== ==========
Diluted income (loss) per share of common stock $ 0.06 $ (0.11)
========== ==========
Weighted average number of shares outstanding, basic 12,230,665 11,446,483
========== ==========
Weighted average number of shares outstanding, diluted 14,617,459 11,446,483
========== ==========
See accompanying notes.
F-5
NBG RADIO NETWORK, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Other
Additional Stock Comprehen-
Common Stock Paid-In Retained Subscription sive
Capital Deficit Receivable Income Total
--------------------- ---------- ----------- ------------ ----------- ----------
Shares Amount
---------- ---------
BALANCE, November 30, 1998 10,490,700 $ 10,490 $3,930,211 $ (484,763) $ (180,757) - $3,275,181
Issuance of common shares for
business acquisition 350,000 350 1,266,650 - - - 1,267,000
Exercise of options and 1,319,593 1,320 1,511,550 - - -
warrants 1,512,870
Services provided for payment
of subscribed shares - - - - 74,744 -
74,774
Net loss for the year - - - (1,264,275) - -
(1,264,275)
Change in unrealized loss on
marketable securities - - - - - (31,250)
(31,250)
---------- --------- ---------- ----------- ------------ ----------- ----------
BALANCE, November 30, 1999 12,160,293 12,160 6,708,411 (1,749,038) (106,013) (31,250) 4,834,270
Exercise of options 161,538 162 87,308 - - - 87,470
Services provided for payment
of subscribed shares - - - - 91,900 - 91,900
Net income for the year - - - 826,112 - - 826,112
Change in unrealized loss on
marketable securities - - - - - 31,250
31,250
---------- --------- ---------- ----------- ------------ ----------- ----------
Balance November 30, 2000
12,321,831 $ 12,322 $6,795,719 $(922,926) $ (14,113) $ - $5,871,002
========== ========= ========== =========== ============ =========== ==========
See accompanying notes.
F-6
NBG RADIO NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended November 30,
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 826,112 $ (1,264,275)
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Sales representation contract agreement amortization 1,618,681 437,437
Depreciation and amortization 434,293 373,124
Bad debt expense 180,774 90,134
Services provided in payment of subscribed shares 91,900 74,744
Deferred tax liability - (9,789)
Changes in assets and liabilities:
Barter exchange receivables 66,255 93,542
Accounts receivable (2,169,005) (969,136)
Prepaid expenses and other current assets (97,280) (27,028)
Accounts payable 401,480 (73,748)
Accrued liabilities 132,297 (36,271)
Payments on programming contract liabilities (1,768,957) (437,437)
----------- -----------
Net cash from operating activities (283,450) (1,748,703)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash paid for investment in subsidiary - (99,800)
Related-party receivables (34,780) (33,000)
Note receivable (167,200) -
Acquisition of property and equipment (39,509) (109,693)
----------- -----------
Net cash from investing activities (241,489) (242,493)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net advances on line of credit 400,000 -
Proceeds from stock options exercised and issuance of
common stock 87,470 1,512,870
Payments on long-term debt - (485,248)
----------- -----------
Net cash from financing activities 487,470 1,027,622
----------- -----------
F-7
NBG RADIO NETWORK
STATEMENTS OF CASH FLOWS
Years Ended November 30,
2000 1999
----------- -----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS $ (37,469) $ (963,574)
CASH AND CASH EQUIVALENTS, beginning of year 892,092 1,855,666
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 854,623 $ 892,092
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest $ 7,861 $ 27,480
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Acquisition (disposition) of marketable equity securities
for future services $ (500,000) $ 500,000
=========== ===========
Capitalization of sales representation contract agree-
ments and recognition of related liabilities $ 3,652,995 $ 1,593,126
=========== ===========
Acquisition of certain M-Tek Technical Services, Inc.
assets less liabilities assumed:
Assets purchased:
Accounts receivable $ 66,875
Covenant-not-to-compete 721,093
Goodwill 656,027
-----------
Less liabilities assumed (77,195)
-----------
Net assets purchased 1,366,800
Issuance of common stock 1,267,000
-----------
Net cash paid $ 99,800
===========
See accompanying notes.
F-8
NBG RADIO NETWORK, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS ACTIVITY
NBG Radio Network, Inc. (the Company) was organized under the laws of
the state of Nevada on March 27, 1996, with the name of Nostalgia Broadcasting
Corporation. In January 1998, stockholders approved the Company's name change to
NBG Radio Network, Inc. The Company creates, produces, distributes and is a
sales representative for national radio programs, and offers other miscellaneous
services to the radio industry. The Company offers radio programs to the
industry in exchange for commercial broadcast time, which the Company sells to
national advertisers.
In January 1999, NBG Radio Network, Inc. completed the acquisition of
M-Tek Technical Services, Inc. (see Note 3), which became NBG Solutions, Inc., a
wholly-owned subsidiary of the Company involved in providing design,
installation, and support for interactive kiosks and card-based customer loyalty
programs. The Company also has two other wholly-owned subsidiaries, NBG Travel
Exclusives, Inc. and NBG Interactive, Inc., which have had no significant
activity during 1999 and 2000. All significant intercompany accounts and
transactions have been eliminated in the preparation of the consolidated
financial statements.
Substantially all operations of the Company and its subsidiaries are
conducted from the Company's headquarters in Portland, Oregon. The Company's
customers are located throughout the United States. However, five customers
accounted for $10,854,162 or approximately 92% of revenues for the year ended
November 30, 2000, and $3,402,618 or approximately 86% of accounts receivable as
of November 30, 2000. Similarly, five customers accounted for $2,726,845 or 75%
of revenues for the year ended November 30, 1999, and $1,561,250 or 73% of
accounts receivable as of November 30, 1999.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Management's estimates and assumptions - Management uses estimates and
assumptions in preparing financial statements in accordance with generally
accepted accounting principles. Those estimates and assumptions affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the reported revenues and expenses. Actual results could
vary from the estimates that were assumed in preparing the consolidated
financial statements.
Cash and cash equivalents - The Company considers all highly liquid
instruments purchased with original maturities of less than three months to be
cash equivalents.
F-9
NBG RADIO NETWORK, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
Concentrations of credit risk - Financial instruments which potentially
subject the Company to credit risk consist principally of cash deposits and
accounts receivable. The maximum loss that would have resulted from the excess
of deposit balances over the amounts that would have been covered by federal
deposit insurance coverage totaled $508,253 and $488,874 at November 30, 2000
and 1999, respectively. Management believes the allowance for doubtful accounts
is sufficient to absorb credit risk associated with outstanding receivable
balances as of November 30, 2000 and 1999.
Marketable securities - The Company classifies its marketable
securities as "available for sale." Securities classified as "available for
sale" are carried in the financial statements at fair value. Realized gains and
losses are included in the statements of operations. Any unrealized holding
gains or losses are included in the balance sheets as a separate component of
stockholders' equity.
At November 30, 1999, the Company held an investment of 500,000 shares
in Kinesys Pharmaceuticals, Inc. (Kinesys), with a cost of $500,000 and a fair
value of $468,750. The Company acquired the shares in exchange for an equivalent
value in advertising services to be provided during 2000. During 2000, the
agreement was terminated, no services were provided, and the 500,000 shares were
returned to Kinesys.
Barter exchange receivables (payables) - The Company holds barter
exchange accounts with ITEX Corporation and Illinois Trade Association;
enterprises specializing in the development and maintenance of a barter network
for its participating members. The Company also holds limited occupancy rights
for available rooms at vacation and resort hotels for which it provides
advertising services in exchange. Revenues and expenses from these barter
exchange transactions are recognized when services are received or provided.
Receivables are recognized at fair value when services are provided before
exchange merchandise or services are received or used. Liabilities are
recognized when exchange merchandise or services are received or used before
services are provided.
Sales representation contract costs - The Company capitalizes the costs
associated with certain noncancellable sales representation contract agreements
when all of the following conditions have been met: (a) the cost of the
agreement to represent a network program is known or reasonably determinable;
(b) the program material has been accepted by the Company, in accordance with
the agreement; and, (c) the program is available for broadcast. Other sales
representation agreements entered into by the Company that require payments
contingent upon the delivery of network programming by a third-party are
generally not capitalized. Capitalized sales representation agreement costs are
being amortized by the straight-line method over the lives of related contract
agreements, which extend from 12 to 36 months. All capitalized amounts
F-10
NBG RADIO NETWORK, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
are recorded as current assets since related sales representation services are
deemed to be fulfilled within the Company's current operating cycle. For the
years ended November 30, 2000 and 1999, the Company recognized, in the
statements of operations as direct costs, $1,618,681 and $437,437 in expenses
related to capitalized sales representation contract costs (see Note 5).
Property and equipment - Property and equipment are stated at cost.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets, which range from seven to ten years. Maintenance and
repairs are charged to operations when incurred. Betterments and renewals are
capitalized. Depreciation and amortization expenses for the years ending
November 30, 2000 and 1999, were $53,326 and $43,151, respectively.
Intangible assets - Intangible assets are comprised of purchased
goodwill and covenants not-to-compete. Purchased goodwill represents the excess
of cost over the fair value of net assets acquired by the Company from business
acquisitions in 1996 and 1999 (see Note 3). Goodwill is being amortized over a
ten-year period using the straight-line method. Covenants not-to-compete are
being amortized over the three-year life of related agreements. For the years
ending November 30, 2000 and 1999, the Company recognized expenses resulting
from the amortization of intangible assets of $380,967 and $329,973,
respectively.
Revenue recognition - The Company recognizes revenue from the sale of
advertising, music, and radio programs when the buyer has made an unconditional
commitment to secure air time through the Company's national network and the
Company has fulfilled its commitment to provide radio advertising during the
secured time. Revenues recognized from the design, installation, and support for
interactive kiosks produced through NBG Solutions, Inc. are recognized when the
product is delivered or services performed.
Income taxes - The Company follows the asset and liability method of
accounting for income taxes whereby deferred tax assets and liabilities are
recognized for the future tax consequences of differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in which the
deferred tax assets or liabilities are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes.
Marketing and advertising costs - All costs relating to marketing and
advertising are expensed in the year incurred. Amounts expensed for the years
ended November 30, 2000 and 1999, were $83,156 and $130,555, respectively.
F-11
NBG RADIO NETWORK, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
Stock option plan - The Company applies Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its stock option plan. Accordingly, no
compensation expense has been recognized for its stock-based incentive plan. Had
compensation cost for the Company's stock option plan been determined based upon
the fair value at grant date for awards under the plan consistent with
methodology prescribed under Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation," additional compensation
expense would have been recognized as described in Note 10.
Income (loss) per share of common stock - Basic income (loss) per share
of common stock is computed by dividing net income (loss) available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted income (loss) per common share reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company. Certain stock option
grants were excluded from the diluted loss per share computation, as their
effect would be antidilutive.
Reclassification - Certain 1999 amounts have been reclassified for
consistency with the current year presentation.
NOTE 3 - ACQUISITION OF M-TEK TECHNICAL SERVICES, INC.
On January 25, 1999, the Company completed its acquisition of M-Tek
Technical Services, Inc. (M-Tek Technical), a kiosk integration company
providing customized technical solutions, bar coding, and alternative
distribution channels for its customers. In the acquisition, the Company
acquired assets and assumed certain liabilities of M-Tek Technical for
$1,366,800. The acquisition was completed through payment of $99,800 in cash,
and distribution of 350,000 shares in Company common stock valued at $1,267,000
or $3.62 per share. In addition, management of M-Tek Technical was provided with
options to purchase 350,000 shares of common stock in the Company for $3.10 per
share. The underlying options will expire November 30, 2001, if not exercised
earlier.
F-12
NBG RADIO NETWORK, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 3 - ACQUISITION OF M-TEK TECHNICAL SERVICES, INC. - (continued)
The acquisition was accounted for as a purchase. Accordingly, the
excess of the fair value of assets acquired over liabilities assumed was
recognized as goodwill, and is being amortized over its expected useful life of
ten years. M-Tek Technical's operations were not significant prior to the date
of its acquisition. The following summarizes the fair value of the assets
acquired and liabilities assumed in the Company's purchase of M-Tek Technical.
Assets acquired:
Accounts receivable $ 66,875
Covenant not-to-compete 721,093
Goodwill 656,027
Liabilities assumed (77,195)
--------------
Net assets acquired $ 1,366,800
===============
NOTE 4 - BARTER EXCHANGE RECEIVABLES
As of November 30, 2000 and 1999, barter exchange receivables consisted
of the following:
2000 1999
--------- ---------
Resort room occupancy rights exchanged for
advertising services $ 96,696 $ 132,556
Barter exchange transaction account balances (14,815) 15,580
-------- ---------
$ 81,881 $ 148,136
======== =========
NOTE 5 - SALES REPRESENTATION AGREEMENTS
During 1999 and 2000, the Company entered into several noncancellable
contractual agreements with third parties through which it became the exclusive
representative for advertising sales involving nationally syndicated talk-radio
programs. Each of the agreements, which extend from 12 to 36 months, either
provides for monthly payments to the program producer, or minimum monthly
payments to the program producer plus the sharing of revenues that exceed
established, aggregate monthly payment amounts. Under these sales representation
agreements, the Company made aggregate payments to the program producers of
$1,768,957,
F-13
NBG RADIO NETWORK, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 5 - SALES REPRESENTATION AGREEMENTS - (continued)
and $437,437 for the years ended November 30, 2000 and 1999, respectively.
During 1999 and 2000, the Company did not meet the levels of revenues from
advertising sales that require revenue sharing and, therefore, did not make any
revenue sharing payments, which range from 50% to 75% of revenues or gross
receipts as defined.
Subsequent to November 30, 2000, the Company entered into additional
noncancellable sales representation contracts with substantially similar terms
and conditions as all prior noncancellable contracts. As a result of entering
into these contracts, the Company recognized additional capitalized assets and
contract liabilities of $288,000 subsequent to year-end.
In addition to the noncancellable contracts described above, the
Company has also entered into other sales representation agreements with
third-party producers of radio network programming and related services. Since
the Company's performance and obligations under these agreements are contingent
upon the delivery of network programming or related services by a third-party,
costs for these contract agreements have not been capitalized. For the year
ended November 30, 2000, expenses recognized pursuant to these sales
representation agreements were $2,063,086. However, cash payments to the
third-party producers are made up to as much as 105 days following the broadcast
month of underlying programs.
The following table summarizes, as of November 30, 2000, the Company's
minimum annual cash payments due to third-party program producers pursuant to
its sales representation agreements and contracts. The schedule does not include
any amounts that may become payable in accordance with revenue sharing
arrangements contained in the agreements or payments on agreements which are
strictly based on the sharing of a percentage of revenues.
Total Sales
Representation
Capitalized Other Agreement
Contracts Contracts Payments
------------- -------------- ----------------
2001 $ 2,332,500 $ 2,339,058 $ 4,671,558
2002 117,163 450,000 567,163
2003 8,333 262,500 270,833
-------------- --------------- ----------------
$ 2,457,996 $ 3,051,558 $ 5,509,554
============== =============== ================
F-14
NBG RADIO NETWORK, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at November 30, 2000
and 1999:
2000 1999
--------- ---------
Office equipment $ 19,151 $ 19,151
Studio equipment 221,393 196,479
Office furniture 98,483 83,888
Leasehold improvements 11,310 11,310
--------- ---------
350,337 310,828
Less accumulated depreciation and amortization (161,441) (108,115)
--------- ---------
$ 188,896 $ 202,713
========= =========
NOTE 7 - REVOLVING LINE OF CREDIT
The Company has a revolving line of credit with a financial institution
for $500,000. Outstanding borrowings of $400,000 at November 30, 2000, are
secured by substantially all of the assets of the Company. The line of credit
expires on July 15, 2001, and carries interest at the bank's prime lending rate
plus .50% (10.00% at November 30, 2000).
NOTE 8 - INCOME TAXES
The income tax benefit consisted of the following for the years ended
November 30, 2000 and 1999:
2000 1999
---------- ----------
Current $ - $ -
Deferred tax benefit (expense) (228,218) 411,519
Change in valuation allowance 228,218 (401,730)
--------- ---------
Total income tax benefit $ - $ 9,789
========= =========
F-15
NBG RADIO NETWORK, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES - (continued)
Deferred tax assets (liabilities) are comprised of the following at
November 30, 2000 and 1999:
2000 1999
--------- ---------
Deferred tax assets:
Allowance for doubtful accounts $ 22,649 $ 408
Net operating loss carryforward 129,193 478,481
Contribution carryforward 5,327 4,764
Amortization of goodwill 58,112 31,974
Amortization of covenant not-to-compete 133,073 54,481
--------- ---------
348,354 570,108
Deferred tax liabilities:
Depreciation differences between (16,406) (9,942)
Valuation allowance (331,948) (560,166)
--------- ---------
Net deferred tax asset $ - $ -
========= =========
The Company has net operating loss and contribution carryforwards of
approximately $401,000 available to offset future income tax liabilities. These
carryforwards will expire over various periods beginning in 2017 if not utilized
earlier to offset taxable income.
Management of the Company has provided a valuation allowance to offset
existing deferred tax assets as of November 30, 2000 and 1999. The valuation
allowance is provided because it is uncertain, based on historical operating
results, if the carryforwards will be utilized prior to their expiration.
F-16
NBG RADIO NETWORK, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Lease commitments - The Company rents its office space and certain
office equipment under operating lease agreements. The following summarizes the
Company's lease commitments for succeeding years:
Years ending November 30, 2001 $ 89,242
2002 93,575
2003 34,510
2004 4,788
2005 2,793
----------
$ 224,908
Rental expense was $130,188 in 2000 and $99,804 in 1999.
Employment Agreements - The Company has entered into various employment
agreements with its executive officers and key employees. Under the agreements,
employees are entitled to annual salary increases and all customary benefits
established by the Company. The employment agreement with the Company's
president also provides that in the event he is terminated or resigns following
a "change in control" (as defined in the employment agreement), the Company will
pay him an amount equal to three times his base salary, currently $147,500, at
the time of his termination or resignation. Employment agreements with the
executive vice president, chief financial officer, and vice president of
operations have similar "change in control" provisions, requiring a payment to
each equal to all or a portion of their annual compensation package currently
approximately $265,000 in the aggregate. The chief executive and the chief
technology officers of NBG Solutions, Inc. (Solutions), each have employment
contracts through November 30, 2002, which provide for annual base salaries of
$120,000.
Legal contingencies - The Company may become involved in certain claims
and legal actions arising in the ordinary course of business. In the opinion of
management, after consultation with legal counsel, there are no current matters
expected to have a material adverse effect on the financial condition of the
Company.
F-17
NBG RADIO NETWORK, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 10 - STOCKHOLDER TRANSACTIONS
Preferred stock - The Company has authorized 5,000,000 shares of $0.001
par value preferred stock, which can be issued in one or more series for such
consideration and on such terms as the Board of Directors determines in its sole
discretion, without further authorization by the Company's stockholders. In
addition, the Board of Directors, in its sole discretion, can designate the
preferences, conversion rights, dividend rights, voting rights, redemption
prices, maturity dates, and all other matters related to the rights of preferred
stock shareholders. As of November 30, 2000, no preferred shares had been
issued.
Private placement offerings - In June and July 1998, the Company raised
$2,000,000 through two private placement transactions. In the first transaction,
the Company raised $500,000 through the issuance of 250,000 common shares at $2
per share. In the second private placement, the Company raised $1,500,000 with
the issuance of 500,000 common shares at $3 per share.
F-18
NBG RADIO NETWORK, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 10 - STOCKHOLDER TRANSACTIONS - (continued)
Stock warrants - Attached to each share purchased through the 1998
private placement offerings were warrants providing the right to acquire one
additional share for each share purchased in the private placement. The
remaining warrants outstanding will expire in July 2001. All warrants became
exercisable upon issuance.
The following summarizes stockholder warrant transactions in 2000 and
1999:
Price
Per
Shares Share
----------- -------------
Warrants outstanding, November 30, 1998 2,250,000 0.75 - 1.17
Warrants granted in 1999 - $ -
Warrants exercised in 1999 (1,267,493) $ 1.17
Warrants expired in 1999 (232,507) $ 1.17
-----------
750,000 $ 0.83
Warrants granted in 2000 - $ -
Warrants exercised in 2000 - $ -
Warrants expired in 2000 - $ -
-----------
Warrants outstanding, November 30, 2000 750,000 $ 0.83
===========
Stock option plan - The Company has adopted a 1998 Stock Incentive Plan
for employees, officers, and directors of the Company. The plan provides for the
issuance of qualified and nonqualified options for up to 3,000,000 shares of
common stock of the Company. Grants of stock options under the plan are approved
by the Company's Board of Directors, which also determines the exercise price,
vesting requirements, and term for exercise of all options.
F-19
NBG RADIO NETWORK, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 10 - STOCKHOLDER TRANSACTIONS - (continued)
The following table summarizes stock option transactions in 2000 and
1999:
Weighted
Average
Option
Shares Price
---------- --------
Stock options outstanding, November 30, 1998 1,560,000 $ 0.54
Stock options granted in 1999:
Issued to owners and management of M-Tek
Technical Services, Inc. 350,000 $ 3.13
Issued to employees, officers, and directors 621,500 $ 2.00
Stock options exercised in 1999 (52,100) $ 0.58
Stock options expired in 1999 (3,000) $ 0.54
----------
Stock options outstanding and exercisable,
November 30, 1999 2,476,400 $ 1.27
Stock options granted in 2000 - $ -
Stock options exercised in 2000 (161,538) $ 0.54
Stock options forfeited and expired in 2000 (61,962) $ 1.07
----------
Stock options outstanding and exercisable,
November 30, 2000 2,252,900 $ 1.32
==========
The fair value of each option granted during 1999 is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
assumptions: (1) no dividend yield; (2) expected volatility of 122.33%; (3)
risk-free rate of 6.55%; and, (4) expected life of three years. The
weighted-average grant-date fair value was $0.94 for options granted in 1999.
For options outstanding at November 30, 2000, the range of exercise prices was
$0.54 - $3.10, and the average remaining contractual life was approximately 12
months.
F-20
NBG RADIO NETWORK, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 10 - STOCKHOLDER TRANSACTIONS - (continued)
Had compensation cost for the Company's 1999 grants for stock-based
compensation plans been determined consistent with SFAS No. 123, the Company's
net loss, and net loss per common share for November 30, 1999, would approximate
the following pro forma amounts. No stock options were granted in 2000.
The effects of applying SFAS No. 123 in this pro forma disclosure are
not indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1996, and additional awards in future years are anticipated.
1999
----------------------------
As Reported Pro Forma
------------ ------------
Net loss $(1,264,275) $(2,181,403)
Basic and diluted loss per common share $ (0.11) $ (0.19)
NOTE 11 - EMPLOYEE BENEFIT PLAN
The Company maintains a SARSEP savings plan for its employees. Under
this plan, employees may elect to make contributions pursuant to a salary
reduction agreement upon meeting age and length of service requirements. The
Company currently has no policy to match employee contributions.
NOTE 12 - SEGMENT INFORMATION
Based on the criteria established by Statement of Financial Accounting
Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and
Related Information," the Company operates in two principal business segments.
In accordance with SFAS No. 131, the Company is required to describe its
reportable segments and provide data that is consistent with the data made
available to the Company's management to assess performance and make decisions.
F-21
NBG RADIO NETWORK, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 12 - SEGMENT INFORMATION - (continued)
The Company's two reportable segments based on products and services
are the radio advertising and interactive kiosk segments. The products and
services offered by each segment are further discussed in Note 1. Substantially
all depreciation and amortization is related to the radio advertising segment.
With the exception of wages and salary expense, the Company does not allocate
any operating costs to the interactive kiosks segment, as management does not
use this information to measure the performance of the operating segment.
Management does not believe that allocating these other operating expenses is
material in evaluating the segment's performance. Information from internal
management reports may differ from the amounts reported under generally accepted
accounting principles
Summarized information by segment for 2000 and 1999, as excerpted from
internal management reports, is as follows:
2000 1999
------------- -------------------
Revenues:
Radio advertising $ 11,152,185 $ 3,242,967
Interactive kiosks 633,646 373,059
------------- -------------
Total $ 11,785,831 $ 3,616,026
============= =============
Net income (loss):
Radio advertising $ 1,092,324 $ (788,173)
Interactive kiosks (266,212) (476,102)
------------- --------------
Total $ 826,112 $ (1,264,275)
============= ==============
Assets:
Radio advertising $ 8,446,577 $ 4,803,080
Interactive kiosks 1,609,194 1,898,144
------------- --------------
Total $10,055,771 $ 6,701,224
============= ==============
F-22
NBG RADIO NETWORK, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 13 - SUBSEQUENT EVENT
On January 19, 2001, the Company completed a private placement of 547,000 units
at $1 per unit. Each unit consisted of one share of common stock and one warrant
to purchase an additional share of common stock, exercisable immediately. The
warrants are exercisable for $1.50 per share and expire on January 19, 2003. The
proceeds from the offering are to be used to fund anticipated growth in
operations.
On March 5, 2001, the Company completed a private placement of 204,920 units at
$1 per unit. Each unit consisted of one share of common stock and one warrant to
purchase an additional share of common stock, subject to certain restrictions.
The warrants are exercisable for $1.50 per share and expire on March 5, 2003.
The proceeds from the offering are to be used to fund anticipated growth in
operations.
F-23
Item 8. Changes in and Disagreements with Accountants on Accounting and
------------------------------------------------------------------------
Financial Disclosure
--------------------
NONE.
PART III
--------
Item 9. Directors, Executive Officers, Promoters and Control Persons;
---------------------------------------------------------------------------
Compliance with Section 16(a) of the Exchange Act
--------------------------------------------------
Set forth below is certain information concerning each person who served
as an executive officer during the year ended November 30, 2000 or is presently
a director of the Company. All officers and directors hold office until their
respective successors are elected and qualified, or until their earlier
resignation or removal.
Directors
Name Position Age
John A. Holmes, III President, Chief Executive Officer, and
Chairman of the Board 30
Peter Jacobsen Director 47
Dick Versace Director 46
Steven R. Sears Director 34
Christopher J. Miller Director 42
The Directors are elected annually at the annual shareholders meeting and
serve until re-elected at the next annual shareholders meeting. All of the
Directors were elected to office on May 16, 2000.
John A. Holmes, age 30, has been President, CEO, and Chairman of the Board
since January 30, 1998. Prior to that, Mr. Holmes served as the General Manager
of the Company since its inception in March of 1996. Before joining the Company,
Mr. Holmes worked in radio syndication with IMS from August 1993 until May 1996.
Previously, he worked for KMOV-CBS TV as a sports producer from January 1991
through May 1993. From June, 1990 until December of 1990, Mr. Holmes worked for
Radio Personalities, Inc. where he was Executive Producer for short form radio
programs - "Offsides with Dan Dierdorf" and "Talkin' Roundball with Dick
Vitale."
Peter Jacobsen, age 47, has been a director with the Company since January
30, 1998. He is currently the host of one of the Company's short form features,
"Teein' It Up with Peter Jacobsen." Mr. Jacobsen, a member of the PGA Tour, has
multiple PGA Tour wins and has participated on two Ryder Cup teams. He has also
been an on course commentator for ABC and ESPN.
Dick Versace, age 46, has been a director with the Company since 1997. Mr.
Versace is currently the President and Director of Operations for the Vancouver
Grizzlies of the National Basketball Association (NBA). Mr. Versace has coached
basketball at all levels, high school, college, and the NBA. Most recently he
coached in the NBA with the Milwaukee Bucks. Prior to taking the position with
the Bucks, Mr. Versace was a television studio host and color analyst for TNT on
the Turner Broadcasting Network.
Steven R. Sears, age 34, has been a director of the Company since
January 30, 1998. He is originally from Long Beach, California where he was
President of the family owned construction business, Sears Roofing Service, Inc.
He also served as Vice President for Robert Kerr & Associates, a real estate
construction company in Portland, Oregon.
14
Christopher J. Miller, age 42, has been a director of the Company since
January 27, 1999. Mr. Miller is also the CEO of NBG Solutions. Prior to joining
the Company, Mr. Miller worked for US Bank in Portland, Oregon as Vice President
and manager of its West Region Client Services Group and Institutional Financial
Services. While at US Bank, Mr. Miller also worked as Senior Project Manager of
Institutional Financial Services and the Project Manager and Consultant for US
Bank Trust Division. Prior to working for US Bank, Mr. Miller worked for Bank of
America as Vice President and Regional Manager of Global Securities Services.
While at Bank of America, Mr. Miller also worked as Vice President and Manager
of Southern California Institutional Client Administration and Global Securities
Services.
Executive Officers
------------------
The names and business backgrounds of Executive Officers of the Company
who are not Directors of the Company are:
Name Position Age
John J. Brumfield Chief Financial Officer and Secretary 33
Oliver J. Holmes Vice President/Operations 28
Dean R. Gavoni Executive Vice President 30
David J. Thibeau Chief Technology Officer, NBG Solutions 41
John J. Brumfield, age 33, has been CFO since January 30, 1998. From
December 1996 to January 1998, he was the Controller for the Company. From
February 1996 to September 1996, he was a staff accountant for ITEX Corporation.
From September of 1994 until February 1996, Mr. Brumfield was a professional
golfer. Prior to that, he worked for the public accounting firm of Bogumil,
Holzgang & Associates as a staff accountant from July 1991 to September 1994.
Oliver J. Holmes, age 28, has been Vice President of Operations since
February 22, 2001. Prior to that time Mr. Holmes was Vice President of Affiliate
Relations for the Company since January 30, 1998. Mr. Holmes has been manager of
the Affiliate Relations department since July 1996. Prior to working for the
Company, Mr. Holmes managed Underwater Safari's dive shop in the Virgin Islands.
Prior to that, he worked in affiliate relations for Radio Personalities, Inc.,
an independent radio syndicator.
Dean R. Gavoni, age 30, has been Executive Vice President of the Company
since June 7, 2000. Prior to that Mr. Gavoni was Vice President of Sales for the
Company since January 30, 1998. Mr. Gavoni has been the national sales manager
since July 1996. Prior to working for the Company, Mr. Gavoni worked in radio
syndication with IMS. Before that, he worked in marketing and sales for
Anheiser-Busch and on many political campaigns in the state of Illinois.
David J. Thibeau, age 41, has been Chief Technology Officer of NBG
Solutions since January 1999. From 1981 to 1997, Mr. Thibeau worked for Sunmark
Data, Inc., a Forms Distributor located in Portland, Oregon. Mr. Thibeau was
primarily engaged in sales and marketing management until September 1997. In
September 1997, he left Sunmark to work for Mtek Technical Services, Inc., a
systems integration firm located in Lake Oswego, Oregon that installed
integrated Kiosks, Inventory Control Systems and Automated Labeling Systems.
MTek Technical, Inc. was acquired by NBG Solutions in January 1999.
15
Family Relationships
John A. Holmes, III, President and CEO is the older brother of the Vice
President of Operations, Oliver J. Holmes. Emily Holmes, spouse of President and
CEO John Holmes, also works for the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16 of the Securities Exchange Act of 1934, the
Company's executive officers, Directors and persons who own more than ten
percent of the Company's common stock, are required to file certain reports,
within specified time periods, indicating their holdings of and transactions in
the common stock and derivative securities. Based solely on written
representations made to the Company and the Company's review of Forms 3, 4, and
5 furnished to the Company pursuant to Section 16 of the Securities Exchange
Act, the Company believes all required Forms 3, 4 and 5 were filed on time.
16
Item 10. Executive Compensation
The following table sets forth all cash compensation, including bonuses
and deferred compensation, paid for the years ended November 30, 2000, 1999, and
1998 by the Company to its President and Chief Executive Officer and all other
executive officers with an annual salary and bonus in excess of $100,000.
SUMMARY COMPENSATION TABLE
-----------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
------------------------------------- ------------------------------------------
Awards Payouts
------------ ----------------- ----------- -------------
Name and Restricted Securities
Principal Other Annual Stock Underlying LTIP All Other
Position Year Salary Bonus Compensation Award(s) Options/SARs Payouts Compensation
($) ($) ($) (f) (#) ($) ($)
(a) (b) (c) (d) (e) (g) (h) (i)
------------------ ------- ---------- ----------- ---------------- ------------ ----------------- ----------- -------------
John A. Holmes, 2000 256,628 $-0- $-0- $-0- -0- $-0- $-0-
III, President 1999 113,306 $-0- $-0- $-0- 270,000 $-0- $-0-
and CEO 1998 53,840 $-0- $-0- $-0- 480,000 $-0- $-0-
------------------ ------- ---------- ----------- ---------------- ------------ ----------------- ----------- -------------
Dean R. Gavoni, 2000 233,299 $-0- $-0- $-0- -0- $-0- $-0-
Executive Vice 1999 107,795 $-0- $-0- $-0- 60,000 $-0- $-0-
President 1998 63,201 $-0- $-0- $-0- 180,000 $-0- $-0-
------------------ ------- ---------- ----------- ---------------- ------------ ----------------- ----------- -------------
Christopher J. 2000 70,000 $-0- $-0- $-0- -0- $-0- $-0-
Miller, CEO - 1999* 100,000 $-0- $-0- $-0- 195,000 $-0- $-0-
NBG Solutions
------------------ ------- ---------- ----------- ---------------- ------------ ----------------- ----------- -------------
David J. 2000 96,250 $-0- $-0- $-0- -0- $-0- $-0-
Thibeau, CTO - 1999* 100,000 $-0- $-0- $-0- 175,000 $-0- $-0-
NBG Solutions
------------------ ------- ---------- ----------- ---------------- ------------ ----------------- ----------- -------------
* Was not employed by the Company prior to 1999.
17
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
------------------------------------------------------------------------------------------------------------------
Number Of Securities Percent Of Total
Underlying Options/SARs Options/SARs
Granted (#) Granted To Exercise or
(b) Employees In Base Price
Name Fiscal Year ($/Sh) Expiration Date
(a) (c) (d) (e)
----------------------------- -------------------------- -------------------- --------------- --------------------
John A. Holmes, III, NONE
President and CEO
----------------------------- -------------------------- -------------------- --------------- --------------------
Dean R. Gavoni, Executive NONE
Vice President
----------------------------- -------------------------- -------------------- --------------- --------------------
Christopher J. Miller, CEO NONE
- NBG Solutions
----------------------------- -------------------------- -------------------- --------------- --------------------
David J. Thibeau, CTO - NBG NONE
Solutions
----------------------------- -------------------------- -------------------- --------------- --------------------
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTIONS/SAR VALUES
----------------------------------------------------------------------------------------------
Number Of
Unexercised Value Of
Securities Unexercised
Underlying In-The-Money
Options/SARs At Option/SARs At
Shares Acquired FY-End (#) FY-End ($)
On Exercise Value Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
(a) (b) (c) (d) (e)
-------------------------------- --------------- -------------- --------------- --------------
John A. Holmes, III, President -0- $-0- 750,000/0 $557,484/$-0-
and CEO
-------------------------------- --------------- -------------- --------------- --------------
Dean R. Gavoni, Executive Vice -0- $-0- 240,000/0 $216,894/$-0-
President
-------------------------------- --------------- -------------- --------------- --------------
Christopher J. Miller, CEO - NBG -0- $-0- 195,000/0 $-0-/$-0-
Solutions
-------------------------------- --------------- -------------- --------------- --------------
David J. Thibeau, CTO - NBG -0- $-0- 175,000/0 $-0-/$-0-
Solutions
-------------------------------- --------------- -------------- --------------- --------------
Employment Agreements
John A. Holmes, III
Effective November 1, 1998, the Company entered into a five year
employment agreement with John A Holmes, III, President and CEO. The employment
agreement provides for a base salary of $122,000 per annum, which will be
increased annually at the rate of the Consumer Price Index (CPI) plus 15%. In
addition, the employment agreement provides that Mr. Holmes will be paid a
minimum of 10% more than the next highest paid employee of the Company and its
subsidiaries. Mr. Holmes current cash
18
compensation level is $147,500 per year (his actual year 2000 compensation was
higher because of the provision in his employment agreement that he will be paid
a minimum of 10% more than the next highest paid employee). Mr. Holmes has the
right to terminate the agreement upon three months' prior written notice. The
Company, at its discretion, has the right to terminate the employment agreement
at any time without reason upon three months' prior written notice or payment in
lieu of notice equaling three months' compensation. The Company may also
terminate Mr. Holmes for cause without prior written notice. The employment
agreement also provides that in the event Mr. Holmes is terminated or resigns
following a "change in control" (as defined in the employment agreement) of the
Company, the Company will pay to Mr. Holmes an amount equal to three times his
annual base salary at the time of his termination or resignation.
Dean R. Gavoni
Effective November 1, 2000, the Company entered into a one-year
employment agreement with Dean R. Gavoni, Executive Vice President. The
employment agreement provides for a base salary of $100,000 per annum, which
will be increased annually at the rate of the Consumer Price Index (CPI). In
addition, the Company has the option of raising his annual salary by up to 10%
of his base salary prior to any CPI adjustment. The agreement also provides for
commissions based on net advertising sales, which contributed to his actual year
2000 compensation of $233,299. The Company has the right to terminate the
agreement for any reason, or without reason, upon three months' prior written
notice or payment in lieu of notice equaling three months compensation. The
Company may also terminate Mr. Gavoni for cause without prior written notice.
Mr. Gavoni has the right to terminate the agreement at any time, for any reason,
by providing three months' prior written notice. The agreement also provides
that in the event Mr. Gavoni is terminated following a "change in control" (as
defined in the employment agreement) of the Company, the Company will pay to Mr.
Gavoni an amount equal to his annual compensation package.
Christopher J. Miller
Effective January 25, 1999, the Company entered into an employment
agreement with Christopher J. Miller, CEO of NBG Solutions. The agreement
terminates on November 30, 2002. The agreement provides for a base salary of
$120,000 per annum and eligibility to participate in the NBG Solutions
Non-Qualified Profit Sharing Plan. In accordance with the agreement, Mr. Miller
was granted non-qualified stock options to purchase 175,000 shares of the
Company's Common Stock for $3.10 per share, exercisable no later than November
30, 2002, in accordance with the Company's 1998 Stock Incentive Plan. The
Company may terminate Mr. Miller for cause upon thirty days' prior written
notice. Under the agreement, Mr. Miller is subject to a worldwide covenant not
to compete for a period of three years after the termination date.
David J. Thibeau
Effective January 25, 1999 the Company entered into an employment
agreement with David J. Thibeau, Chief Technology Officer of NBG Solutions. The
agreement terminates November 30, 2002. The agreement provides for a base salary
of $120,000 per annum and eligibility to participate in the NBG Solutions
Non-Qualified Profit Sharing Plan. In accordance with the agreement, Mr. Thibeau
was granted non-qualified stock options to purchase 175,000 shares of the
Company's Common Stock for $3.10 per share, exercisable no later than November
30, 2002, in accordance with the Company's 1998 Stock Incentive Plan. The
Company may terminate Mr. Thibeau for cause upon thirty days' prior written
notice. Under the agreement, Mr. Thibeau is subject to a worldwide covenant not
to compete for a period of three years after the termination date.
19
Director Compensation
---------------------
Directors of the Company are not currently compensated for their
services other than as provided in the Stock Incentive Plan described below.
However, Directors are reimbursed for all reasonable expenses incurred on behalf
of the Company.
Stock Incentive Plan
The Company has established the NBG Radio Network, Inc. 1998 Stock
Incentive Plan (the "Plan"). The purpose of the Plan is to attract and retain
the services of (1) selected employees, officers and directors of the Company or
of any subsidiary of the Company and (2) selected non-employee agents,
consultants, advisors, persons involved in the sale or distribution of the
Company's products and independent contractors of the Company or any subsidiary.
The Plan has not been submitted to a vote of the stockholders of the Company.
The Plan provides for the grant of options to qualified directors,
employees (including officers), independent contractors and consultants of the
Company to purchase an aggregate of 3,000,000 shares of Common Stock. The Plan
is currently administered by the Board of Directors, which determines, among
other things, the persons to be granted options under the Plan, the number of
shares subject to each option and the option price.
The Plan allows the Company to grant the following types of awards: (i)
Incentive Stock Options, as defined in Section 422 of the Internal Revenue Code
of 1986, as amended ("ISO's"); (ii) options other than ISOs ("Non-Statutory
Stock Options"); (iii) stock bonuses; (iv) stock appreciation rights ("SAR's")
in tandem with ISO's or Non-Statutory Stock Options; (vi) cash bonus rights;
(vii) performance units; and (viii) foreign qualified awards at any time within
10 years from the date the Plan was adopted.
The exercise price of ISO's and SAR's granted in tandem with ISO's, if
any, will be the fair market value of the shares of Common Stock, determined as
specified in the Plan, covered by such option on the date such option is
granted. If at the time an ISO is granted the optionee holds more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company, the purchase price of such options will be one hundred ten percent
(110%) of the fair market value of the shares of Common Stock covered by such
option on the date such option is granted. The exercise price of Non-Statutory
Stock Options and SAR's granted in tandem with Non-Statutory Stock Options will
be determined by the Board of Directors at the time of grant and may be any
amount determined by the Board of Directors.
Each ISO and, unless otherwise determined by the Board of Directors,
each other option granted under the Plan by its terms will be nonassignable and
nontransferable by the optionee, either voluntarily or by operation of law,
except (i) to an optionee's family member by gift or domestic relations order;
or (ii) by will or by the laws of descent and distribution of the state or
country of the optionee's domicile at the time of death.
Non-Statutory Stock Options will have a term fixed by the Board of
Directors. ISOs will have a term of no more than ten years, except that ISOs
granted to an optionee owning more than 10% of the outstanding Common Stock will
have a term of no more than five years and must be granted to and exercised by
employees of the Company (including officers).
The Company did not grant any Non-Statutory Options to directors under
the Plan in 2000. In September 1999, the Company granted Non-Statutory Options
under the Plan to the following directors in the following amounts:
20
Peter Jacobsen 20,000
Dick Versace 20,000
Steven R. Sears 20,000
The exercise price for the options is $2.00 per share and the options
will expire in September 2002, if not exercised earlier. All stock options
became exercisable upon the date of grant.
21
Item 11. Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------
The following table sets forth certain information regarding the
beneficial ownership of common stock of the Company as of November 30, 2000 as
to (i) each person who is known by the Company to own beneficially 5% or more of
the outstanding shares of the Company's common stock, (ii) each named executive
officer and (iii) all Directors and officers as a group. The persons named in
the table have sole voting and investment power with respect to all shares shown
as beneficially owned by them, subject to community property laws where
applicable and to the information contained in the footnotes to the table.
--------------------------------------------------------------------------------
(1) (2) (3) (4)
Name and Address of Amount and Nature of
Title of Class Beneficial Owner Beneficial Ownership Percent of Class
-------------- ------------------------ -------------------- ----------------
Common Stock John A. Holmes 965,900 (1) 6.3%
3728 SW Hillside Drive
Portland, OR 97221
Common Stock Peter Jacobsen 167,000 (2) 1.1%
8700 SW Nimbus Avenue #B
Beaverton, OR 97008
Common Stock Dick Versace 172,000 (3) 1.1%
733 East Maywood
Peoria, IL 61603
Common Stock Steven R. Sears 396,817 (4) 2.6%
13800 Stampher
Lake Oswego, OR 97034
Common Stock Christopher J. Miller 413,000 (5) 2.7%
11888 SW Breyman Avenue
Portland, OR 97219
Common Stock David J. Thibeau 367,100 (6) 2.4%
132 Del Prado
Lake Oswego, OR 97035
Common Stock Dean R. Gavoni 323,334 (7) 2.1%
3503 SW Gale
Portland, OR 97201
Directors and Executive Officers as a
group (9 persons) 3,525,757 (8) 22.9%
(1) Represents 215,900 common shares and 750,000 options without performance or
vesting restrictions.
(2) Represents 87,000 common shares and 80,000 options without performance or
vesting restrictions.
(3) Represents 92,000 common shares and 80,000 options without performance or
vesting restrictions.
(4) Represents 269,317 common shares and 127,500 options without performance or
vesting restrictions.
(5) Represents 175,000 common shares owned directly and 43,000 common shares
held in trust for the benefit of his children and 195,000 options without
performance or vesting restrictions.
(6) Represents 192,100 common shares and 175,000 options without performance or
vesting restrictions.
(7) Represents 83,334 common shares and 240,000 options without performance or
vesting restrictions.
(8) Represents 1,405,257 common shares owned directly, 43,000 common shares
owned indirectly and 2,077,500 options without performance or vesting
restrictions.
22
Item 12. Certain Relationships and Related Transactions
--------------------------------------------------------
On January 25, 1999, the Company completed its acquisition of MTek
Technical Services, Inc., a kiosk integration company providing customized
technical solutions, bar coding, and distribution channels. In the acquisition,
the Company acquired assets and assumed certain liabilities of MTek Technical
Services, Inc. for the purchase price of $1,367,000. The purchase price
consisted of $99,800 in cash and 350,000 shares (175,000 shares of Common Stock
to each of Messrs. Miller and Thibeau). As a result of the acquisition, Mr.
Miller became the Chief Operating Officer of NBG Solutions, Inc., a subsidiary
of the Company was appointed to the Board of Directors of the Company, and was
granted options to purchase 175,000 shares of Common Stock at $3.10 per share.
In addition, Mr. Thibeau became Vice President/Chief Technology Officer of NBG
Solutions, Inc. and was granted options to purchase 175,000 shares of Common
Stock at $3.10 per share.
Item 13. Exhibits and Reports on Form 8-K
------------------------------------------
(a ) The following exhibits are filed as part of this report:
Exhibit
Number Description of Exhibit
------ ----------------------
3.1 Restated Articles of Incorporation, as amended
3.2 Amended and Restated Bylaws of the Company(1)
4.1 Form of Common Stock Certificate(2)
4.2 Form of Warrants - Private Placement #1 (3)
10.1 Employee Agreement of John A. Holmes, III dated November 1, 1998*(2)
10.2 Employee Agreement of John J. Brumfield dated November 1, 1998*(2)
10.3 Employee Agreement of Oliver J. Holmes dated November 1, 1998*(2)
10.4 Employment and Nondisclosure Agreement of Christopher J. Miller dated
January 25, 1999*(5)
10.5 Employment and Nondisclosure Agreement of David J. Thibeau dated
January 25, 1999*(5)
10.6 1998 Stock Incentive Plan*(4)
10.7 Employee Agreement of Dean R. Gavoni dated November 1, 2000*(6)
21 Subsidiaries of the Registrant(5)
23 Consent of Moss Adams LLP, Certified Public Accountants
* Management contract or compensatory plan.
(1) Filed as exhibit to Form 10-QSB filed October 15, 1999.
(2) Filed as exhibit to Form 10-KSB filed March 2, 1999.
(3) Filed as exhibit to Form 10-KSB/A filed June 4, 1999.
(4) Filed as exhibit to Form 10-QSB/A filed November 12, 1999.
(5) Filed as exhibit to Form 10-KSB filed February 28, 2000.
(6) Filed as exhibit to Form 10-KSB filed March 16, 2001.
(b) No reports on Form 8-K were required to be filed during the last quarter
of the period covered by this report.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NBG RADIO NETWORK, INC.,
a Nevada corporation
Date: May 25, 2001 By:/s/JOHN A. HOLMES, III
-----------------------------------------------
John A. Holmes, III, Chief Executive Officer
and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Date: May 25, 2001 By:/s/JOHN A. HOLMES, III
-----------------------------------------------
John A. Holmes, III, Chairman, Board of
Directors; Chief Executive Officer
and President (Principal Executive Officer)
Date: May 25, 2001 By:/s/JOHN J. BRUMFIELD
-----------------------------------------------
John J. Brumfield, Chief Financial
Officer and Secretary
(Principal Financial and Accounting Officer)
Date: May 28, 2001 By:/s/PETER JACOBSEN
-----------------------------------------------
Peter Jacobsen, Director
Date: May 28, 2001 By:/s/DICK VERSACE
-----------------------------------------------
Dick Versace, Director
Date: May 31, 2001 By:/s/ERNIE CAPOBIANCO
-----------------------------------------------
Ernie Capobianco, Director
24
EXHIBIT INDEX
-------------
Exhibit
Number Description of Exhibit
------ ----------------------
3.1 Restated Articles of Incorporation, as amended
3.2 Amended and Restated Bylaws of the Company(1)
4.1 Form of Common Stock Certificate(2)
4.2 Form of Warrants - Private Placement #1 (3)
10.1 Employee Agreement of John A. Holmes, III dated November 1, 1998*(2)
10.2 Employee Agreement of John J. Brumfield dated November 1, 1998*(2)
10.3 Employee Agreement of Oliver J. Holmes dated November 1, 1998*(2)
10.4 Employment and Nondisclosure Agreement of Christopher J. Miller dated
January 25, 1999*(5)
10.5 Employment and Nondisclosure Agreement of David J. Thibeau dated
January 25, 1999*(5)
10.6 1998 Stock Incentive Plan*(4)
10.7 Employee Agreement of Dean R. Gavoni dated November 1, 2000*(6)
21 Subsidiaries of the Registrant(5)
23 Consent of Moss Adams LLP, Certified Public Accountants
* Management contract or compensatory plan.
(1) Filed as exhibit to Form 10-QSB filed October 15, 1999.
(2) Filed as exhibit to Form 10-KSB filed March 2, 1999.
(3) Filed as exhibit to Form 10-KSB/A filed June 4, 1999.
(4) Filed as exhibit to Form 10-QSB/A filed November 12, 1999.
(5) Filed as exhibit to Form 10-KSB filed February 28, 2000.
(6) Filed as exhibit to Form 10-KSB filed March 16, 2001.