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 March 31, 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 58-1700840
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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 May 5, 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:
Consolidated Balance Sheets as of 3
December 31, 1996 and
and March 31, 1997
Consolidated Statements of Loss 4
for the three months ended
March 31, 1996 and 1997
Consolidated Statements of Cash Flows 5
for the three months ended March 31,
1996 and 1997
Notes to Consolidated Financial State- 6
ments
Item 2. Management's Discussion and Analysis 8
of Financial Condition and Results
of Operations Condition
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote 12
of Security Holders
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Page 2
<PAGE>
PART I. FINANCIAL INFORMATION
Financial Statements
SBI COMMUNICATIONS, INC. AND SUBSIDIARY
---------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, Dec. 31,
1997 1996
ASSETS -------- --------
Current assets: ------
<S> <C> <C>
Cash $ 41,252 $ 42,327
Accounts receivable, net of allowance for doubtful
accounts of $-0- 88,649 120,306
Notes receivable from affiliates 3,600 3,600
Inventories 24,391 24,391
---------- ----------
157,892 190,624
Property and equipment, net of accumulated
depreciation 6,962,205 7,026,112
Other assets:
Accounts receivable - long-term, net of allowance for
doubtful accounts of $550,000 at March 31, 1997,
and December 31, 1996 100,000 100,000
Deferred loan costs 48,025 56,200
Deposits 68,088 68,088
---------- ----------
$7,336,210 $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 6,081 5,873
Accrued wages due to principal shareholder (Note 2) 210,000 180,000
Advances due to principal shareholder 14,402 14,901
Account payable and accrued expenses 101,023 83,873
---------- ----------
531,506 484,647
Mortgage payable, long-term portion 238,628 240,229
---------- ----------
Total liabilities 770,134 724,876
---------- ----------
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
March 31, 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 March 31, 1997
and December 31, 1996 5,345 5,345
Paid in capital 3,567,343 3,467,343
Accumulated deficit (5,371,612) (5,221,540)
---------- ----------
6,566,076 6,716,148
---------- ----------
$7,336,210 $7,441,024
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3
<PAGE>
SBI COMMUNICATIONS, INC. AND SUBSIDIARY
---------------------------------------
STATEMENTS OF LOSS
------------------
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
Revenues:
<S> <C> <C>
Bingo hall rent $ 75,000 $ 125,000
Kitchen and gift shop revenues 32,188 -
Other income 352 25
--------- ---------
107,541 125,025
--------- ---------
Expenses:
Cost of sales - kitchen and gift shop 31,867 -
Administrative salaries and related expenses 33,565 30,000
Facility costs 14,327 13,577
Other general and administrative 81,982 67,429
Production costs 2,005 -
Depreciation and amortization 71,041 138,764
Interest and finance expenses 22,826 6,875
--------- ---------
257,613 256,645
--------- ---------
Net loss ($ 150,072) ($ 131,620)
========= =========
Net loss per share ($ 0.03) ($ 0.02)
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4
<PAGE>
SBI COMMUNICATIONS, INC. AND SUBSIDIARY
---------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net (loss) ($150,072) ($131,620)
Adjustments to reconcile net loss to cash
provided (used) by operating activities:
Depreciation and amortization 71,041 138,764
Amortization of deferred loan costs 8,175 -
Change in accounts receivable, trade 31,657 ( 22,338)
Change in inventories - -
Change in accounts payable and accrued expenses 47,150 6,191
-------- --------
Cash (used) by operating activities 7,951 ( 9,003)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment ( 7,134) ( 25,538)
-------- --------
Cash (used) by investing activities ( 7,134) ( 25,538)
-------- --------
Cash flows from financing activities:
Loans from shareholders/affiliates - 39,100
Repayments of affiliated loans ( 499) -
Mortgage loan repayments ( 1,393) -
-------- --------
Cash flows provided by financing activities ( 1,892) 39,100
-------- --------
Net increase (decrease) in cash ( 1,075) 4,559
Cash at beginning of period 42,327 11,589
-------- --------
Cash at end of period $ 41,252 $ 16,148
======== ========
Supplemental information:
Income taxes paid $ - $ -
======== ========
Interest paid $ 14,097 $ -
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5
<PAGE>
SBI COMMUNICATIONS, INC. AND SUBSIDIARY
---------------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
MARCH 31, 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 months ended March 31, 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 various charities a bingo hall in Piedmont, Alabama.
Rents and administrative fees charged to charities are unsecured, and generally
are paid only as revenues from the bingo games produce sufficient profit to
allow the charities 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 and administrative fee income 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. Furthermore, the revenue recorded in the 1996 interim
financial statements included herein has been reduced by $100,000 from amounts
previously reported last year in the 1996 interim financial statements for the
period ending March 31, 1996, to consistently reflect the above stated
accounting policy with respect to revenue recognition.
Page 6
<PAGE>
Note 2 - Related party transactions
- -----------------------------------
The Company accrued salaries payable to the Company's principal shareholder
totaling $30,000 for each of the quarters ended March 31, 1997 and 1996,
respectively. 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 March 31, 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 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 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 March 31, 1997, has
been adjusted to reflect the reduced number of preferred shares outstanding,
with a corresponding adjustment to paid in capital.
Page 7
<PAGE>
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.
The Company plans to lease or operate bingo halls and to provide interactive
satellite delivered bingo games, game shows and other similar telecommunication
gaming products or services to television viewers throughout the United States.
The Company has also developed a system that can be integrated into all standard
communications channels including the World Wide Web for interactive play. Our
Web site address which will be available 24 hours a day is
http://www.sbicommunications.com or http://www.bingobingo.com. 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, which is
currently the local Jaycees.
The Company believes that the $4.4 billion dollar North America 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. Management's goal is to operate 10 bingo
centers by year end 1997.
RESULTS OF OPERATION
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS
ENDED MARCH 31, 1996.
The Company generated revenues of $107,541 during the three months ended March
31, 1997, as compared to $125,025 in the comparable period of the prior fiscal
year, which represents a
Page 8
<PAGE>
14% decrease. The revenue decrease was due to a change in the lease terms of the
Bingo hall lease. Through January, 1996, the Company charged a flat $75,000 per
month in rent, plus management fees as deemed appropriate. In February, 1996,
the lease 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. For February and March of 1996,
as well as January, February and March of 1997, the charity was only charged the
minimum of $25,000 per month. Management anticipates that rental revenues will
be at the minimum level in the first and third quarter of each year; however,
Management is assisting the Jaycees in promoting two large games in fiscal 1997
(one in May and one in October). Only one large game was held last year, in the
fall of 1996. Management anticipates that with the addition of a second large
game, the Company can generate between $750,000 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. Accordingly, management anticipates that a large
percentage of its rental income will be generated in the second and fourth
quarter of each year.
In the fall of 1996, the Company took over operations of the kitchen facility
and gift shop in the Bingo hall. The addition of the kitchen and gift shop
generated revenue in the first quarter of 1997 of $32,188. This new revenue made
up for a great deal of the loss in rental income, and should increase in the
future as operations in this area are fine tuned.
In addition to the above, the Company expects quarterly revenues 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 $257,613 during the
first quarter of 1997 versus $256,645 in the comparable 1996 quarter, which
represents a .04% increase. Interest and finance charges includes $8,175 of
amortization of deferred loan costs. Accordingly, approximately 31% of the
current period's direct operating costs were comprised of depreciation and
amortization, which are relatively fixed expenses. The balance is primarily
comprised of direct costs of operating the kitchen, legal expenses, wages and
management fee costs.
As previously explained, the Company did not operate the kitchen and gift shop
until the fourth quarter of 1996. In that operations of the kitchen and gift
shop are relatively new, and volume has been relatively light, costs of
operations for this area has approximated revenue generated, and accordingly
there has been little profit generated. Management anticipates that this will
improve in the second quarter.
Other general and administrative (G&A) expenses totaled $81,982 during the first
quarter of 1997 as compared to $67,429 in the first quarter of 1996, an increase
of 21.6%. This expense increase of $14,553 was mainly due to the addition of
certain key management personnel paid on a contract basis during the first
quarter of 1997.
Page 9
<PAGE>
Depreciation and amortization expense decreased from $138,764 in the first
quarter of 1996 to $71,041 in the first quarter of 1997. This decrease of
$67,723 (48.8%) is due to the fact that various intangible assets such as
trademarks, shows and computer programs were fully amortized at the end of 1996.
Management anticipates depreciation to remain fairly constant for the remainder
of the year at approximately $70,000 to $75,000 per quarter.
Interest and finance expenses have increased from $6,875 for the first quarter
of 1996 to $22,826 for the first quarter of 1997, for an increase of $15,951
(or 232%). This increase is due to the mortgage note payable, which was not
entered into until the second quarter of 1996. Interest on this note, including
the amortization of deferred loan costs relating to the note, totaled
approximately $16,800 for the three months ended March 31, 1997.
The Company did not record any tax expense during the current quarter or
comparable year-ago period due to tax loss carryforwards. 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 first fiscal quarter of 1997 was $150,072, which equated to
loss per share of ($.03) Net loss for the comparable quarter of 1996 was
$131,620 which equated to loss per share of ($0.02). Virtually all of the
increased loss of nearly 14% was due to legal expenses relating to SEC filing
requirements and equipment and startup operations of the restaurant which was
not open in the first quarter of 1996. Management believes that the Company's
direct operating costs and G&A expenses are relatively fixed. As such,
management will continue to seek expansion opportunities that offer incremental
operating revenues which, in turn, favorably leverage the Company's net income
performance.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had current assets of $157,892, a decrease of
$32,732 from the amount at December 31, 1996. The decrease was mainly due to
collections of accounts receivable which have been used to fund operations. The
Company has also invested 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 receivables 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 $192,249 at March 31, 1997. The Company collects
most of its receivables from its participating charities within one to four
weeks from the time earned. The
Page 10
<PAGE>
accrued rent will be collected, when earned, during two major months within the
year.
Current liabilities totaled $531,506 at the end of the quarter, but less than
10% of this total represented trade payables due within the next quarter.
Accounts payable and accrued liabilities totaled $311,023, but $210,000 of such
represents accrued wages payable to a principal shareholder who does not intend
to demand payments until the Company has sufficient working capital to allow
such payment without hardship to the Company. Such accrued wages are increasing
at $30,000 per quarter in accordance with the compensation agreement with this
shareholder. Also included in accounts payable and accrued liabilities are
amounts owed to attorneys, accruals for franchise and property taxes, and other
amounts whose payment will not be necessary until after adequate cash flow is
generated from the large game anticipated in May.
Total liabilities have increased from $724,876 at December 31, 1996, to $770,134
at March 31, 1997. The majority of the increase is due to items discussed above.
Thirty-eight percent (38%) 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.
Net cash provided by operations totaled $7,951 for the first quarter of 1997, as
opposed to a net use of cash of $9,003 for the first quarter of 1996. This
change is principally due to improved collections on rents receivable, and
increases in accrued expenses. Management anticipates a large increase in cash
provided by operations in the second quarter of 1997 due to the large bingo game
to be held in May.
In the first quarter of 1996, the Company made purchases of property and
equipment of $25,538. It obtained loans from affiliates of $39,100 to fund these
purchases. In the first quarter of 1997, purchases of property and equipment
were only $7,134 , which was funded through cash reserves and cash provided by
operations.
The Company had total assets of over $7.3 million and total liabilities of $770
thousand at the end of the first quarter, with shareholder equity of $6.5
million. The Company believes that its current capital resources, together with
expected positive operational cash flows and receivable collections, will
support operational requirements for the next year.
Page 11
<PAGE>
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.
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 March 1997, Ms. Kathy Hunt 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 12
<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: May 14, 1997 By: /s/Ronald Foster
-------------------------------------
Ronald Foster Chairman of the
Board and Chief Executive Officer
(principal executive officer)
Date: May 14, 1997 /s/ Dennis H. Whitten
-------------------------------------
Dennis H. Whitten, Controller
(Principal Financial and Accounting
Officer)
Page 13
<PAGE>
EXHIBIT 11
SBI COMMUNICATIONS, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997
Three Months Three Months
Ended Ended
March 31, 1996 March 31, 1997
-------------- --------------
Shares outstanding: 5,345,439 5,345,439
Weighted average shares outstanding 5,345,439 5,345,439
Net loss $ (131,620) $ (150,072)
Preferred Dividend -- --
-------------- --------------
Total (131,620) (150,072)
Net loss per share $ (0.02) $ (0.03)
Page 14
<PAGE>
<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 MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 41,252
<SECURITIES> 0
<RECEIVABLES> 742,249
<ALLOWANCES> 550,000
<INVENTORY> 24,391
<CURRENT-ASSETS> 157,892
<PP&E> 7,593,952
<DEPRECIATION> 631,747
<TOTAL-ASSETS> 7,336,210
<CURRENT-LIABILITIES> 531,506
<BONDS> 238,628
0
8,365,000
<COMMON> 5,345
<OTHER-SE> (1,804,269)
<TOTAL-LIABILITY-AND-EQUITY> 7,336,210
<SALES> 32,188
<TOTAL-REVENUES> 107,541
<CGS> 31,867
<TOTAL-COSTS> 152,805
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,826
<INCOME-PRETAX> (150,072)
<INCOME-TAX> 0
<INCOME-CONTINUING> (150,072)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (150,072)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> 0
</TABLE>
