Securities and Exchange Commission
Washington, D.C., 20549
FORM 10-QSB
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal quarter ended June 30, 1997
Commission file Number 0-28416
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
SBI Communications, Inc.
------------------------
(Name of small business issuer specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
58-1700840
----------
(I.R.S. Employer
Identification Number)
Post Office Box 597 - 458 Highway 278 By Pass - Piedmont, Alabama 36272
-----------------------------------------------------------------------
(Address of Principal executive offices) (Zip code)
(205) 447-8797
Issuer's telephone number
Securities registered pursuant
to 12(b) of the Act: None
Securities to be registered pursuant
to Section 12(g) of the Act: Common Stock and Preferred Stock
Common Stock $0.001 Par Value - Preferred Stock $5.00 Par Value
---------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [ X ] NO [ ]
As of August 11, 1997 the Registrant had 5,345,430 shares of its $0.001 par
value Common Stock Outstanding.
<PAGE>
Table Of Contents
SBI COMMUNICATIONS, INC.
FORM 10-QSB
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements 3
Consolidated Balance Sheets as of
December 31, 1996 and
and June 30, 1997
Consolidated Statements of Operations 4
for the six months ended
June 30, 1996 and 1997
Consolidated Statement of Changes 4
in Shareholders' Equity for the six
months ended June 30, 1997
Consolidated Statements of Cash Flows 5
for the six months ended June 30,
1996 and 1997
Notes to Consolidated Financial State- 6
ments
Item 2. Management's Discussion and Analysis 7
of Financial Condition and Results
of Operations Condition
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote 10
of Security Holders
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
<PAGE>
PART I. FINANCIAL INFORMATION
Financial Statements
SBI COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 31, Dec. 31,
1997 1996
ASSETS
Current assets:
<S> <C> <C>
Cash $ 16,827 $ 42,327
Accounts receivable, net of allowance for doubtful
accounts of $-0- 30,445 120,306
Notes receivable from affiliates 3,600 3,600
Inventories 94,213 24,391
Prepaid expenses 12,172 -
157,257 190,624
Property and equipment, net of accumulated
depreciation 6,921,856 7,026,112
Other assets:
Accounts receivable - long-term, net of allowance for
doubtful accounts of $550,000 at December 31, 1996 - 100,000
Deferred loan costs 39,891 56,200
Deposits 68,088 68,088
$7,187,092 $7,441,024
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to trust managed by a shareholder $ 200,000 $ 200,000
Mortgage note payable-current portion 6,350 5,873
Accrued wages due to principal
shareholder (Note 2) 240,000 180,000
Advances due to principal shareholder 48,955 14,901
Account payable and accrued expenses 150,099 83,873
645,404 484,647
Mortgage payable, long-term portion 236,425 240,229
Total liabilities 881,829 724,876
Stockholders' equity:
Preferred stock, par value $5.00; 10,000,000 shares
authorized; 1,673,000 and 1,693,000 shares issued and
outstanding at June 30, 1997 and December 31, 1996,
respectively 8,365,000 8,465,000
Common stock, par value $.001; 40,000,000
shares authorized; 5,345,439 shares issued and
outstanding at June 30, 1997 and
December 31, 1996 5,345 5,345
Paid in capital 3,567,343 3,467,343
Accumulated deficit ( 5,632,425) (5,221,540)
6,305,263 6,716,148
$7,187,092 $7,441,024
</TABLE>
See accountants' compilation report and accompanying notes to consolidated
financial statement
<PAGE>
SBI COMMUNICATIONS, INC. AND SUBSIDIARY
STATEMENTS OF LOSS
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
Revenues:
<S> <C> <C>
Bingo hall rent $ 121,171 $ 75,000 $ 196,171 $ 200,000
Kitchen and gift shop revenues 43,704 - 75,892 -
Other income 7 249 360 274
164,882 75,249 272,423 200,274
Expenses:
Cost of sales - kitchen and
gift shop 67,550 - 99,417 -
Administrative salaries and
related expenses 46,299 46,860 79,864 76,860
Facility costs 15,088 5,413 29,415 18,990
Other general and administrative 200,169 94,145 282,151 161,574
Production costs 478 8,198 2,483 8,198
Depreciation and amortization 72,833 135,210 143,874 273,974
Interest and finance expenses 23,278 20,036 46,104 26,911
425,695 309,862 683,308 566,507
Net loss ($ 260,813) ($ 234,613) ($ 410,885) ($ 366,233)
Net loss per share ($ 0.05) ($ 0.04) ($ 0.08) ($ 0.07)
</TABLE>
See accountants' compilation report and accompanying notes to consolidated
financial statement
<PAGE>
SBI COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>
1997 1996
Cash flows from operating activities:
<S> <C> <C>
Net (loss) ($ 410,885) ($ 366,233)
Adjustments to reconcile net loss to cash
provided (used) by operating activities:
Depreciation and amortization 143,874 273,974
Amortization of deferred loan costs 16,309 4,426
Charge offs of long-term receivables 8,178 -
Change in accounts receivable, trade 89,861 ( 86,421)
Change in inventories - 30,000
Change in prepaid expenses ( 12,172) -
Change in accounts payable and accrued expenses 126,226 34,598
Cash (used) by operating activities ( 38,609) ( 109,656)
Cash flows from investing activities:
Cash held in escrow - ( 120,000)
Purchase of property and equipment ( 17,618) ( 31,052)
Cash (used) by investing activities ( 17,618) ( 151,052)
Cash flows from financing activities:
Proceeds from notes payable - 250,000
Loans from shareholders/affiliates 34,054 20,321
Repayments of affiliated loans - -
Mortgage loan and other note repayments ( 3,327) ( 1,255)
Cash flows provided by financing activities 30,727 269,066
Net increase (decrease) in cash ( 25,500) 8,358
Cash at beginning of period 42,327 11,589
Cash at end of period $ 16,827 $ 19,947
Supplemental information:
Income taxes paid $ - $ -
Interest paid $ 32,102 $ 23,264
Significant non-cash transactions:
In June, 1997, $69,822 of inventory and $22,000 of furniture were acquired
through offsets against long-term accounts receivable. During 1996, loan
costs of $20,000 were paid through issuance of preferred stock.
</TABLE>
See accountants' compilation report and accompanying notes to consolidated
financial statement
<PAGE>
SBI COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND DECEMBER 31, 1996
Note 1 - Selected disclosures
The accompanying unaudited consolidated financial statements, which are for
interim periods, do not included all disclosures provided in the annual
consolidated financial statements. These unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the footnotes thereto contained in the Form 10-KSB for the year
ended December 31, 1996 of SBI Communications, Inc. (the "Company"), as filed
with the Securities and Exchange Commission. The December 31, 1996 balance
sheet was derived from the audited consolidated financial statements, but does
not include all disclosures required by generally accepted accounting
principles.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal recurring
nature) necessary for a fair presentation of the financial statements. The
results of operations for the three and six months ended June 30, 1997 are not
necessarily indicative of the results to be expected for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reporting amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Company manages for a charity a bingo hall in Piedmont, Alabama. Rents
charged to charity are unsecured, and generally are paid only as revenues from
the bingo games produce sufficient profit to allow the charity to make
payments. Effective February 1, 1996, the current lease requires minimum rent
of $25,000 per month, with additional contingent rent of $50,000 per month
depending upon the success of the bingo games. Management records contingent
rent revenue only as it is collected.
Certain amounts in the 1996 interim financial statements have been
reclassified to conform with the classifications used in the 1997 interim
financial statements.
Note 2 - Related party transactions
The Company accrued salaries payable to the Company's principal shareholder
totaling $60,000 for each of the six month periods ended June 30, 1997 and
1996, respectively. This shareholder has also advanced funds to the Company as
needed for working capital purposes. All amounts owed to the shareholder are
payable on demand.
Note 3 - Net loss per share
The Company's net loss per share was calculated using 5,345,439 weighted
average shares outstanding for each of the quarters ended and six month
periods ended June 30, 1997 and 1996, respectively. Although convertible
preferred stock is a common stock equivalent, with a conversion rate of
approximately 10 shares of common stock (based upon an approximate market
price for common stock of $0.50) for each share of preferred stock, preferred
stock conversion has not been included in the calculation of earnings per
share in that to do so would be antidilutive.
Note 4 - Preferred stock activity
In 1996, 5,000 shares of preferred stock with a par value of $25,000 were
<PAGE>
to be issued to cover $20,000 in closing costs relating to the mortgage note
receivable. The Company inadvertently issued 25,000 shares rather than 5,000
shares, and both parties agreed that the related certificate would be returned
and reissued. In that the certificate had not been returned as of December 31,
1996, the full 25,000 shares were treated as outstanding at that time, with a
related reduction in paid in capital. In the first quarter of 1997, the
certificate was returned, and a new certificate for 5,000 shares was issued.
The stockholders' equity section of the balance sheet as of June 30, 1997, has
been adjusted to reflect the reduced number of preferred shares outstanding,
with a corresponding adjustment to paid in capital.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SBI Communications, Inc. (the "Company"), was originally organized in the
State of Utah on September 23, 1983, under the corporate name of Alpine
Survival Products, Inc. Its name was subsequently changed to Justin Land and
Development, Inc. during October, 1984, and then to Supermin, Inc. on November
20, 1985. On September 29, 1986, Satellite Bingo, Inc. was the surviving
corporate entity in a statutory merger with Supermin, Inc., a Utah
corporation. In connection with the above merger, the former shareholders of
Satellite Bingo, Inc. acquired control of the merged entity and changed the
corporate name to Satellite Bingo, Inc. Through shareholder approval dated
March 10, 1988, the name was changed to its current name of SBI
Communications, Inc. On January 1, 1993, the Company executed a plan of merger
that effectively changed the Company's state of domicile from Utah to
Delaware. Although the Company is currently a Delaware corporation, on January
31, 1997, the stockholders and Board of Directors approved a plan to change
the Company's corporate domicile to the State of Nevada. Management
anticipates executing the plan during 1997.
In the past several years, while the company was in its development stage, a
great deal of time and resources were spent getting the company prepared to
grow exponentially. In the past year the Company has achieved a registering
its securities pursuant to Section 12(g) of the act; and has aspirations of
becoming NASDAQ listed. The Company currently meets all requirements to
become NASDAQ listed except for the fact that the it's stock is currently
trading below the required price. With this in mind, the company has entered
into negotiations with a public relations firm based in Florida to expose the
company and its shares to the financial community. The Company intends to
inform the public of the plans to develop, with the assistance of MCI, the
Globalot Bingo website. The company currently has two website addresses,
http://www.sbicommunications.com and http://www.bingobingo.com, and they are
currently under development to allow bingo players from around the world to
participate in bingo games 24 hours a day, with a chance to win $1,000,000.
The company expects the websites to be fully operational by the end of 1997,
at which point the company has laid out an intensive marketing plan to promote
the website as well as the other aspects of the Company. The Company also
announced on July 16 that it has joined with Carlsbad, CA based United
Transactive Systems, Inc., in a newly formed enterprise, National Gaming
Network, J.V. to develop interactive, multimedia sporting and gaming networks
and services for the broadcast, cable, and on-line markets in all regions
where legally permissible. The venture is currently working to link a
satellite bingo game across Native American Indian reservations across the
country. The company has also entered into negotiations with U.S. Win, Inc.,
the HBPA, and military bases to bring simulcast parimutuel racing to military
bases in the U.S. and abroad. Management is very excited about the high
potential of all these opportunities to produce significant revenues
immediately. The Company plans to keep the public informed of each step of
this expansion process, as well as the continued improvement of the current
operations. This promotion as well as significantly increased revenues should
result in the planned growth of the Company, however there can be no
assurances of the foregoing.
<PAGE>
Currently, the Company's only operations are the leasing of a bingo hall
located in Piedmont, Alabama. Under local ordinances, the hall must be leased
to a charity in order to conduct and operate bingo games, which is currently
the local Jaycees. The Company believes that the $3.5 billion U. S. bingo
industry is fragmented and inefficient, yet potentially profitable. The
Company's strategy, therefore, is to consolidate a portion of the industry to
build a national chain of bingo centers in lucrative markets. The Company
believes that its industry experience, economies of scale and financial
resources will provide a competitive advantage over competing bingo
operations, which should enable the Company to effectively execute its long-
term growth plan. The Company currently has only one bingo center located in
Piedmont, Alabama. The Company intends to continue its expansion through
acquisitions and developments in other selected markets throughout the United
States.
RESULTS OF OPERATION
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996.
The Company generated revenues of $164,882 during its second quarter of 1997
ended June 30, 1997, as compared to $75,249 in the comparable period of the
prior fiscal year, which represents an increase of approximately 119%
increase. This increase was due to the combination of the successful fourth
quarter last year which significantly lowered the receivables due the company,
and the addition of a second Super game in May that generated revenues to
completely wipe off the receivables due the company by the Jaycees from last
year as well as make a $46,171 payment toward the contingent rent for this
year. The revenue stream also benefitted from the money generated by the
kitchen and gift shop that was not open during the second quarter of last
year. The Company expects quarterly revenues to continue to increase upon the
successful operation of the Company's Web site and broadcasting of it's
interactive programming.
Direct operating costs of the Company's bingo center totaled $425,695 during
the second quarter of 1997 versus $309,862 in the comparable 1996 quarter,
which represents a 37.38% increase. The main reason for the increase is that
the operation of the kitchen and gift shop, which was not in operation in the
second quarter last year, has increased the general operating costs as well as
the expenditures on cost of goods sold. The Company's general and
administrative expenses also increased tremendously. This can be attributed to
increased professional fees due to reporting requirements as well as increased
travel in recent months working to get previously mentioned expansion
opportunities in hand and underway. Further analysis of the direct operating
costs showed that approximately 17% of the current period's costs were
comprised of depreciation and amortization, which are relatively fixed
expenses. The balance is primarily comprised of legal, wages and management
fee costs.
General & Administrative (G&A) expenses totaled $200,169 during the second
quarter of 1997 as compared to $94,145 in the year ago period, an increase of
approximately 112.6%. This expense increase of $106,023 was mainly due to many
things as previously mentioned. The main new expense was the additional
professional fees to assist in preparation of reports to be filed and in
training of current employees of new requirements. The company's travel
expense has also increased by about $15,000 - $20,000 due to increased travel
to work on expansion process.
The Company did not record any tax expense during the current quarter or
comparable year-ago period due to losses incurred. The Company's tax loss
carryforward balance at the end of fiscal 1996 was in excess of $5 million
and, as such, the Company does not expect to incur any federal income tax
liability until this carryforward is depleted by operational profits.
Net loss for the second fiscal quarter of 1997 was $260,813, which equated to
loss per share of ($.05). Net loss for the comparable quarter of 1996 was
<PAGE>
$234,613 which equated to loss per share of ($0.04). The increased loss of
approximately 11% was due to the failure of an attempted restaurant which
operated for approximately two months during the second quarter. The
restaurant was to be open for breakfast and lunch during the week, when the
bingo hall was not in operation. Management determined that the local economy
couldn't support a restaurant and discontinued the weekday breakfasts and
lunches. The Company still maintains the kitchen and gift shop during bingo
games and continues to make a significant profit during those hours. The
company also had significant increases in its general and administrative costs
which outweighed the increases in revenues.
All of the Company's revenue comes from operation of the bingo hall or
interest income on cash therefrom. The following table summarizes revenue
categories in the Company's statement of income (rounded to the nearest whole
dollar).
Amount of Total Revenue
Six Months Ended June 30, 1997 1996
Revenues:
Bingo hall rent/administrative fees 196,171 200,000
Kitchen and gift shop revenues 75,892 -
Other Income 360 274
Total Revenue $272,423 $200,274
In 1995, the Company charged a flat $75,000 per month in rent, plus management
fees as deemed appropriate. In February, 1996, the lease with the current
charity was amended to reflect a minimum payment of $25,000 per month, with
adjustments up to $75,000 per month if the charity generates sufficient annual
cash flow to afford to pay the increased rent. Although the charity generated
cash flow that would allow greater rent, management allow such excess to be
applied toward unpaid rents and did not increase the rent charge for 1996.
Management collected scheduled rent payments of $150,000 and contingent rent
of 46,171 for a total of $196,171 from the Jaycees for six months ended June
30, 1997. Management is assisting the Jaycees in promoting one more super game
in fiscal 1997 (November). Management anticipates that this second large game
could produce $300,000 - $400,000 in rental income. If this proves true the
Company will generate between $700,000 and $900,000 in annual rental income on
this facility. Management believes that due to competition and geographic
factors, two large games per year will likely be the limit for large games for
this facility.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had cash and cash equivalents of $16,827, a
decrease of $25,500 from the end of fiscal 1996. The decrease was mainly due
to the Company investment in over $60,000 in its restaurant and doesn't
foresee substantial further investments required there. The Company does
expect to make further investments in its Piedmont, Alabama facility in order
to meet strong customer demands.
The Company expects its cash position to begin to increase assuming continued
collection of its amounts due from its present charity. There can be no
assurance of the foregoing. The Company intends to finance future acquisitions
primarily through the use of stock and, to a lesser extent, cash and notes.
Accounts receivables totaled $30,445 at June 30, 1997. This was down from
$120,306 at year end 1996. The Company collects most of its receivables from
its participating charities within one to four weeks from the time earned. The
contingent rent will be collected, when earned, during two major months within
the year. The Company also settled its $100,000 long term accounts receivable
account by accepting tables, chairs and bingo paper in lieu of cash.
Current liabilities totaled $645,404 at the end of the quarter, but less than
<PAGE>
10% of this total represented trade payables. Approximately 27% of total
liabilities are comprised of a long-term note payable on which the Company is
currently making payments. The Company has no other long-term debt. The
Company had total assets of over $7.2 million and total liabilities of $881
thousand at the end of the second quarter, with shareholder equity of $6.3
million. The Company believes that its current capital resources, together
with expected positive operational cash flows, will support operational
requirements for the next year.
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings.
ITEM 2. CHANGES IN SECURITIES
In July, 1996, 5,000 shares of preferred stock with a par value of $25,000
were to be issued to cover $20,000 in closing costs relating to the mortgage
note receivable. The Company inadvertently issued 25,000 shares rather than
5,000 shares, and both parties agreed that the related certificate would be
returned and reissued. In the first quarter of 1997, the certificate was
returned, and a new certificate for 5,000 shares was issued in second quarter
of 1997.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
CHANGE IN MANAGEMENT. In April 1997, Mr. Michael McGlothlin resigned as a
officer and director.
EXHIBITS AND REPORTS ON FORM 8-K
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
EXHIBITS DESCRIPTION
11 Statement re: computation of per share
earnings
27 Financial data schedule
(B) REPORTS ON FORM 8-K:
None
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SBI Communications, Inc.
Date: August 11, 1997 By: /s/Ronald Foster
-------------------------------------
Ronald Foster Chairman of the
Board and Chief Executive Officer
(principal executive officer)
Date: August 11, 1997 By: /s/ Thomas Barrett
-------------------------------------
Thomas Barrett, Controller
(Principal Financial and Accounting
Officer)
<PAGE>
EXHIBIT 11
SBI COMMUNICATIONS, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE SIX MONTHS ENDED
JUNE 30 , 1996 AND 1997
Six Months Six Months
Ended Ended
June 30, 1996 June 30, 1997
-------------- --------------
Shares outstanding: 5,345,439 5,345,439
Weighted average shares outstanding 5,345,439 5,345,439
Net loss $ (410,885) $ (366,233)
Preferred Dividend -- --
-------------- --------------
Total (410,885) (366,233)
Net loss per share $ (0.08) $ (0.07)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF SBI COMMUNICATIONS, INC. FOR THE
QUARTERLY PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 16,827
<SECURITIES> 0
<RECEIVABLES> 34,045
<ALLOWANCES> 0
<INVENTORY> 94,213
<CURRENT-ASSETS> 157,257
<PP&E> 7,626,436
<DEPRECIATION> 704,580
<TOTAL-ASSETS> 7,187,092
<CURRENT-LIABILITIES> 645,404
<BONDS> 236,425
0
8,365,000
<COMMON> 5,345
<OTHER-SE> (2,065,082)
<TOTAL-LIABILITY-AND-EQUITY> 7,187,092
<SALES> 75,892
<TOTAL-REVENUES> 272,423
<CGS> 99,417
<TOTAL-COSTS> 355,053
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,104
<INCOME-PRETAX> (410,885)
<INCOME-TAX> 0
<INCOME-CONTINUING> (410,885)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (410,885)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
