<PAGE> 1
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, 1998
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 729
103 FIRETOWER ROAD
LEESBURG, GA 31763
(Address of Principal executive offices) (Zip code)
(912) 759-0701
Issuer's telephone number
<TABLE>
<CAPTION>
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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
</TABLE>
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, 1998 the Registrant had 5,570,439 shares of its $0.001 par value
Common Stock Outstanding.
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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, 1997 and
and March 31, 1998
Consolidated Statements of Operations
for the three months ended
March 31, 1997 and 1998 4
Consolidated Statement of Changes
in Shareholders' Equity for the three
months ended March 31, 1998 4
Consolidated Statements of Cash Flows
for the three months ended March 31,
1997 and 1998 5
Notes to Consolidated Financial State-
ments 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations Condition 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote
of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
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PART I. FINANCIAL INFORMATION
- -----------------------------
FINANCIAL STATEMENTS
SBI COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, Dec. 31,
1998 1997
---- ----
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ASSETS
------
Current assets:
Cash $ -- $ 22,228
Accounts receivable, net of allowance for doubtful
accounts of $-0- 250 250
Notes receivable from affiliates 4,118 9,617
Inventories 79,444 86,065
----------- -----------
83,812 118,160
Property and equipment, net of accumulated
depreciation 6,709,723 6,782,223
Other assets:
Deferred loan costs 13,090 21,109
Deposits 63,065 63,065
----------- -----------
$ 6,869,690 $ 6,984,557
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Note payable to trust managed by a shareholder $ 150,000 $ 150,000
Mortgage note payable-current portion 239,171 239,701
Capitalized leases-current portion 17,284 17,491
Accrued wages due to principal shareholder (Note 2) 320,000 290,000
Advances due to principal shareholder 12,698 --
Account payable and accrued expenses 163,778 150,442
----------- -----------
902,931 847,634
Capitalized leases, long-term portion 61,459 62,216
Other notes payable 52,438 52,438
----------- -----------
Total liabilities 1,016,828 962,288
----------- -----------
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, 1998 and December 31, 1997, respectively 8,265,000 8,465,000
Common stock, par value $.001; 40,000,000 shares authorized;
5,570,439 shares issued and outstanding at March 31, 1998
and 5,345,439 as of December 31, 1997 5,570 5,345
Paid in capital 3,667,118 3,467,343
Accumulated deficit (6,084,826) (5,915,419)
----------- -----------
5,852,862 6,022,269
----------- -----------
$ 6,869,690 $ 6,984,557
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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SBI COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
1998 1997
---- ----
Revenues:
Bingo hall rent $ -- $ 75,000
Kitchen and gift shop revenues -- 32,188
Other income 172 353
--------- ---------
172 107,541
--------- ---------
Expenses:
Cost of sales - kitchen and gift shop -- 31,867
Administrative salaries and related expenses 38,570 33,565
Facility costs 10,864 14,327
Other general and administrative 32,876 81,982
Production costs -- 2,005
Depreciation and amortization 72,500 71,041
Interest and finance expenses 14,769 22,826
--------- ---------
169,579 257,613
--------- ---------
Net loss $(169,407) $(150,072)
========= =========
Net loss per share $ (0.03) $ (0.03)
========= =========
See accompanying notes to consolidated financial statements.
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SBI COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
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Cash flows from operating activities:
Net (loss) $(169,407) $(150,072)
Adjustments to reconcile net loss to cash
provided (used) by operating activities:
Depreciation and amortization 72,500 71,041
Amortization of deferred loan costs 8,019 8,175
Change in accounts receivable, trade -- 31,657
Change in inventories 6,621 --
Change in accounts payable and accrued expenses 43,336 47,150
--------- ---------
Cash (used) by operating activities (38,931) 7,951
--------- ---------
Cash flows from investing activities:
Proceeds from repayment of notes receivable from affiliate 5,499 --
Purchase of property and equipment -- (7,134)
--------- ---------
Cash (used) by investing activities 5,499 (7,134)
--------- ---------
Cash flows from financing activities:
Loans from shareholders/affiliates 12,698 --
Repayments of affiliated loans -- (499)
Mortgage loan repayments (530) (1,393)
Capital lease repayments (964) --
--------- ---------
Cash flows provided by financing activities 11,204 (1,892)
--------- ---------
Net increase (decrease) in cash (22,228) (1,075)
Cash at beginning of period 22,228 42,327
--------- ---------
Cash at end of period $ -- $ 41,252
========= =========
Supplemental information:
Income taxes paid $ -- $ --
========= =========
Interest paid $ 4,000 $ 14,097
========= =========
Item not requiring use of cash:
Preferred stock converted $(200,000) $ 0.00
Issuance of common stock 200,000 0.00
--------- ---------
Paid in capital -- --
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
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SBI COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND DECEMBER 31, 1997
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, 1997 of SBI Communications, Inc. (the "Company"), as filed
with the Securities and Exchange Commission. The December 31, 1997 balance sheet
was derived from the unaudited 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 and cash flow for the three months ended March 31, 1998
and 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.
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, 1998 and 1997,
respectively. All amounts owed to the shareholder are payable on demand.
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NOTE 3 - NET LOSS PER SHARE
The Company's net loss per share was calculated using 5,570,439 and
5,345,439 weighted average shares outstanding for each of the quarters ended
March 31, 1998 and December 31, 1997, 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.
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 1998.
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
throughout the World. Our Web site address which will be available 24 hours a
day is http://www.sbicommunications.com, http://www.globalot.com or
http://www.abingo.com. Currently, the Company's only operations are the leasing
of a 80,000 square foot facility located in Piedmont, Alabama. Under local
ordinances, the hall must be leased to a charity to operate
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bingo, which was the local Jaycees.
Because the Piedmont Jaycees did not perform as represented, and their
management did not develop business, gross revenues were 50% of their
projections, and agreement in their premises lease: Jaycees salaries exceeded
budgets; operations schedule was not full time. Therefore, their lease was
allowed to not be renewed at the end of 1997.
At the same time, local political influences developed negative local law
changes as a reaction to the Piedmont Jaycees operation. Local ordinances are
being adopted to limit all charity bingo operations and the amount of employees
and establish a requirement of near gross proceeds being donated for charitable
purposes regardless of reasonable and necessary operation expenses with no
revenues to the employees of the charity .
In reaction to the above political/legal trends, management has negotiated two
business leases of the premises. Because management is working with technical
computer advisors and systems designers in the Boca Raton/Fort Lauderdale,
Florida area, management believes that their observations of the local charity
Bingo market appears to be more hospitable in Southeast Florida, rather than
northeast Alabama
Two business enterprises have agreed to lease the premises at a gross rent of
$70,000.00 per month, subject only to the company paying real estate taxes
(approximately $35,000.00 per year, insurance $30,000.00 per year and the usual
exterior, structural maintenance, estimated at no more that $20,000.00 per
year). Gross rental income then is at $840,000.00 per year with estimated
expenses and contingencies at $85,000.00 per year, indication gross income at
$755,000.00
The Company believes that the $5 billion dollar North America charitable 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 open 10 bingo center by end of 1998.
RESULTS OF OPERATION
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS
ENDED MARCH 31, 1997.
The Company generated revenues of $-0- during its first fiscal quarter of 1998
ended March 31, 1998, as compared to $107,541 in the comparable period of the
prior fiscal year, which represents a decrease. The revenue decrease was due to
renovation of facility in Piedmont. The Company expects quarterly revenues to
increase when the new leases are in place. Also, upon the successful operation
of the Company's Web site and broadcasting of it's interactive programming.
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Direct operating costs of the Company's bingo center totaled $169,579 during the
first quarter of 1998 versus $257,613 in the comparable 1997 quarter, which
represents a 34% decrease. Approximately 43% 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 legal, wages
and management fee costs.
General & Administrative (G&A) expenses totaled $32,876 during the first quarter
of 1998 as compared to $81,982 in the year ago period, an decrease of 42%. This
expense decrease of $49,106 was mainly due to the delectation of certain key
management personnel since the first quarter of 1998.
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 1997 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 1998 was $169,407, which equated to
loss per share of ($.03) Net loss for the comparable quarter of 1997 was
$150,072 which equated to loss per share of ($0.03). Virtually all losses was
due to termation of the Jaycess lease and revation of property in Piedmont,
Alabama which was not open in the first quarter of 1998. 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.
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
Three Months Ended March 31, 1998 1997
------------- ------------
Revenues:
Bingo hall rent/administrative fees -0- $75,000
Kitchen and gift shop revenues -0- 32,000
Other Income 352
--------
Total Revenue $ -0- $107,541
======== ========
In general, the Company experienced insignificant revenues in 1994 as it
attempted to expand and develop its operations. At the end of 1994 the
Registrant acquired a bingo hall, which it now leases to charities who sponsor
bingo games. The Company also provides management services to assist the
charities in the operations, for which the Company charges a fee. In late 1996,
the Company was also requested to take over operations of the kitchen and gift
shop portions of the facility. Except for the operation of the bingo hall, there
are no other significant revenue sources of the Company at this time. 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
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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. However, the company
did received $61,033 additional rents in 1997.
Management collected rent payments of $75,000 from the Jaycees for three ended
March 31, 1997. Management has collect no revenues for first quarter 1998 from
the Piedmont facility. Management believes that due to competition and
geographic factors, change in the local regulations, which states that charity
member and employees cannot be paid, the local charity will not be able to
operate and pay its obligations under the lease agreement and therefore in
January the lease with the Piedmont Jaycees was terminated.
The company has a letters of intent to lease the Piedmont facility from Regency
Communications, a telemarketing company and a sign lease from Consolidated
Trust, S.A. which starts August 1, and September 1, 1998. Each company will
lease half of the property for $40,000.00 and $25,000.00 per month each. Total
revenue for the monthly leases will be $65,000.00.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had cash and cash equivalents of $83,812, a
decrease of $34,348 from the end of fiscal 1997. The decrease was due to
renovation of the facility and will not be able to rent the facility until
August of 1998. 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 and requirement of under the new leases.
The Company expects its cash position to begin to increase assuming leases are
place and the Company's Internet website is operational. 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 $ -0- at March 31, 1998. The Company collects most
of its receivables from its participating charities within one to four weeks
from the time earned. The accrued rent will be collected, when earned, during
two major months within the year.
Current liabilities totaled $1,016,828 at the end of the quarter, but less than
10% of this total represented trade payables. Approximately 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. 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 note collections, will support operational
requirements for the next year.
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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 January 1998 the Company issued
25,000 shares of its common stock to cover the cost of software programing
relating to PandaAmerica. The Company also converted 40,000 shares of preferred
shares to 200,000 shares of the company common stock.
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.
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
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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: July 14, 1998 By: /s/Ronald Foster
-------------------------------------
Ronald Foster Chairman of the
Board and Chief Executive Officer
(principal executive officer)
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EXHIBIT 11
SBI COMMUNICATIONS, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998
Three Months Three Months
Ended Ended
March 31, 1997 March 31, 1998
-------------- --------------
Shares outstanding: 5,345,439 5,570,439
Weighted average shares outstanding 5,345,439 5,570,439
Net loss $ (150,072) $ (169,407)
Preferred Dividend -- --
-------------- --------------
Total (150,072) (169,407)
Net loss per share $ (0.03) $ (0.03)
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF SBI COMMUNICATIONS, INC. FOR THE QUARTERLY
PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 79,444
<CURRENT-ASSETS> 83,812
<PP&E> 6,709,723
<DEPRECIATION> 72,500
<TOTAL-ASSETS> 6,869,690
<CURRENT-LIABILITIES> 1,016,828
<BONDS> 239,171
0
8,365,000
<COMMON> 5,570
<OTHER-SE> 5,852,862
<TOTAL-LIABILITY-AND-EQUITY> 6,869,690
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 154,810
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,769
<INCOME-PRETAX> (169,407)
<INCOME-TAX> 0
<INCOME-CONTINUING> (169,407)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (169,407)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> 0
</TABLE>
