<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.20549
FORM 1O-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended: March 31, 1998
Commission File No. 0-27160
CALL NOW, INC.
--------------
(Exact name of small business issuer in its charter)
Florida 65-0337175
- ---------------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
10803 Gulfdale, Suite 222, San Antonio, TX 78216
------------------------------------------------
(Address of principal executive offices)
(210) 349-4141
--------------
(Issuer's telephone number)
P.O. Box 531399, Miami Shores, Fl 33153
----------------------------------------------
(Former address, if changed since last report)
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
---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 8,558,944 shares as of July 29, 1998.
Transitional Small Business Format: No
----
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Registrant's Financial Statements filed herewith following the
signature page.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND LIQUIDITY AND CAPITAL RESOURCES - filed
following the financial statements.
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Financial Data Schedule
(b) REPORTS ON FORM 8-K
Registrant filed a report on Form 8-K on February 19, 1998 reporting agreements
with Compressent Corporation.
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CALL NOW, INC.
By: /s/ William M. Allen
-------------------------------------
William M. Allen
Chairman
By: /s/ James D. Grainger
-------------------------------------
James D. Grainger
Vice President-Finance
July 29, 1998 Principal Accounting Officer
2
<PAGE> 3
CALL NOW, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(UNAUDITED)
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 60,233
MARKETABLE SECURITIES, AT MARKET VALUE
UNRESTRICTED 10,139,112
RESTRICTED 1,319,847
NOTES AND LOANS RECEIVABLE 1,247,838
OTHER 566,411
-----------
TOTAL CURRENT ASSETS 13,333,441
FURNITURE AND EQUIPMENT (LESS ACCUMULATED
DEPRECIATION OF $20,596) 10,256
LAND 2,369,075
LONG TERM NOTES AND RECEIVABLES 703,000
DEFERRED TAX ASSET 801,950
OTHER 87,314
-----------
TOTAL ASSETS $17,305,036
===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 4
CALL NOW, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
CURRENT MATURITY OF MORTGAGE PAYABLE $ 14,168
ACCOUNTS PAYABLE 96,657
NOTE PAYABLE 1,155,000
ACCRUED EXPENSES 439,954
INCOME TAXES PAYABLE 905,594
------------
TOTAL CURRENT LIABILITIES 2,611,373
LONG-TERM LIABILITIES:
DEFERRED INCOME TAXES 124,321
MORTGAGE PAYABLE, LESS CURRENT MATURITY 1,736,787
DEFERRED GAIN FROM BOND DEFEASANCE TRANSACTION 2,150,000
------------
TOTAL LONG-TERM LIABILITIES 4,011,108
------------
TOTAL LIABILITIES 6,622,481
------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 2,599
------------
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, NO PAR, 800,000 SHARES
AUTHORIZED, NONE OUTSTANDING
COMMON STOCK, NO PAR, 50,000,000 SHARES
AUTHORIZED, 8,408,944 SHARES ISSUED, AND
8,318,944 SHARES OUTSTANDING 5,704,965
RETAINED EARNINGS 5,204,984
LESS SUBSCRIPTION NOTES RECEIVABLE FOR
115,000 SHARES OF COMMON STOCK (230,000)
ACCUMULATED OTHER COMPREHENSIVE INCOME 206,057
TREASURY STOCK, AT COST (206,050)
------------
TOTAL STOCKHOLDERS' EQUITY 10,679,956
------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 17,305,036
============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 5
CALL NOW, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
-------------------------------
<S> <C> <C>
REVENUES:
GAIN ON SALE OF MARKETABLE SECURITIES $ -- $ 1,703,087
REIMBURSED OPERATING COSTS 801,125 --
MANAGEMENT FEES 45,000 --
INTEREST INCOME 202,700 71,687
MISCELLANEOUS 1,186 5,135
-------------------------------
TOTAL REVENUES 1,050,011 1,779,909
-------------------------------
COSTS AND EXPENSES:
GENERAL AND ADMINISTRATIVE 1,162,795 314,348
INTEREST 42,039 39,713
DEPRECIATION AND AMORTIZATION 803 4,162
-------------------------------
TOTAL COSTS AND EXPENSES 1,205,637 358,223
-------------------------------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST (155,626) 1,421,686
INCOME TAX (EXPENSE) BENEFIT 95,250 (537,050)
-------------------------------
INCOME(LOSS) BEFORE MINORITY INTEREST (60,376) 884,636
MINORITY INTEREST (2,398)
-------------------------------
NET INCOME (LOSS) (62,774) 884,636
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
UNREALIZED HOLDING GAINS ON SECURITIES (62,503) 1,271,639
-------------------------------
COMPREHENSIVE INCOME (LOSS) $ (125,277) $ 2,156,275
===============================
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED
NET INCOME (LOSS) $ (0.01) $ 0.11
===============================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 6
CALL NOW, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SUBSCRIPTION ACCUMULATED
COMMON STOCK TREASURY STOCK NOTES RECEIVABLE OTHER
-------------------------------------------------------------- UNREALIZED COMPREHENSIVE
NUMBER NUMBER NUMBER HOLDING INCOME RETAINED
OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT GAIN(LOSS) (LOSS) EARNINGS TOTAL
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE -
DECEMBER 31, 1997 8,408,944 $5,704,965 90,000 $(206,050) 115,000 $(230,000) $268,560 $ -- $5,267,758 $10,805,233
-----------
RECLASSIFICATION OF
UNREALIZED HOLDING
GAIN DUE TO ADOPTION
OF FASB 130 (268,560) 268,560
COMPREHENSIVE INCOME:
NET (LOSS) (62,774) (62,774)
UNREALIZED (LOSS) ON
SECURITIES (62,503) (62,503)
-----------
TOTAL COMPREHENSIVE
INCOME (125,277)
-------------------------------------------------------------------------------------------------------------
BALANCE -
MARCH 31, 1998 8,408,944 $5,704,965 90,000 $(206,050) 115,000 $(230,000) $ -- $206,057 $5,204,984 $10,679,956
=============================================================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 7
CALL NOW, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------------------------
<S> <C> <C>
OPERATING ACTIVIES:
- -------------------
NET INCOME (LOSS) $ (62,774) $ 884,636
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH USED IN OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 803 4,162
GAIN ON BOND DEFEASANCE (1,703,087)
FURNITURE AND EQUIPMENT CHARGED OFF 21,765
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
DEFERRED TAX ASSET (801,950)
OTHER CURRENT ASSETS (126,416) (18,468)
OTHER ASSETS (21,896) (6,481)
INCREASE (DECREASE) IN LIABILITIES:
ACCOUNTS PAYABLE 43,080 (424,725)
ACCRUED EXPENSES 111,534 (41,540)
INCOME TAXES PAYABLE (95,250) 939,000
MINORITY INTEREST 2,599
------------------------------
CASH (USED) BY OPERATING ACTIVITIES (148,320) (1,146,688)
------------------------------
INVESTING ACTIVITIES:
- ---------------------
CAPITAL (EXPENDITURES) REFUND 2,334
PURCHASE OF MARKETABLE SECURITIES (14,792) (12,181)
PROCEEDS FROM BOND DEFEASANCE 3,853,087
NOTES AND LOANS RECEIVABLE:
ADVANCES (147,530)
COLLECTIONS 50,000 945,869
------------------------------
CASH PROVIDED BY INVESTING ACTIVITIES 35,208 4,641,579
------------------------------
FINANCING ACTIVITIES:
- ---------------------
FUNDING OBLIGATION 1,075,000
PAYMENT ON LONG TERM DEBT (6,629) (6,071)
------------------------------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES (6,629) 1,068,929
------------------------------
NET INCREASE (DECREASE) IN CASH (119,741) 4,563,820
CASH, BEGINNING OF PERIOD 179,974 1,670,120
------------------------------
CASH, END OF PERIOD $ 60,233 $ 6,233,940
==============================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 8
CALL NOW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
1. The quarter ended March 31, 1998 reflects the operations of Retama
Entertainment Group, Inc., an 80% subsidiary, for the first time. Total
revenues were $846,125 and operating expenses were $834,133.
2. During the quarter, the Company adopted FASB Statement No. 130,
Reporting Comprehensive Income. Statement No. 130 requires the
reporting of comprehensive income in addition to net income from
operations. Comprehensive income is a more inclusive financial
reporting methodology that includes disclosure of certain financial
information that historically has not been recognized in the
calculation of net income.
At December 31, 1997, the Company had unrecognized holding gain from
marketable securities classified as available for sale in the amount of
$268,560, net of tax. During the quarter ended March 31, 1998, a
decrease of $62,503 has been recorded as other comprehensive income in
the statement of operations and the balance has been reclassified as
accumulated other comprehensive Income in the Stockholders' Equity. The
before tax and after tax amount of other comprehensive income is
summarized below:
Before Tax After
Tax benefit tax
--- ------- ---
Unrealized holding loss $100,214 $37,711 $62,503
-------- ------- -------
3. In February 1998, the Company entered into a loan agreement with
Compressent in which the Company was obligated to lend, on or before
July 31, 1998, upon the request of Compressent's Board of Directors, up
to $10,000,000. Amounts loaned were to be due one year from the date of
the loan and would bear interest at 15% a year. In addition, the
Company was to receive a $400,000 commitment fee at the time of the
first loan advance. In connection with the loan agreement, the Company
would receive, warrants to acquire 500,000 shares of the Compressent's
common stock at $6.25 per share.
(continued)
<PAGE> 9
CALL NOW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
3. (continued)
In addition, the Company exchanged $3,500,000 face amount of its
investment in RDC Series A Bonds for 56,000 shares of Compressent,
7.5% cumulative preferred stock, which would be convertible into
560,000 shares of Compressent's common stock and an option to acquire
500,000 shares of Compressent's common stock for $6.25 per share.
On May 20, 1998, the Company and Compressent terminated the loan
agreement before any advance was made thereunder. In addition, the
parties rescinded the preferred stock and warrant purchase by each
party returning to each other the securities originally exchanged.
However, Compressent, upon the original receipt of the RDC bonds,
borrowed approximately $2,000,000, pledging the bonds as collateral. In
connection with the termination of the agreement, the Company assumed
the approximate $2,000,000 loan, and agreed to receive 1,333,333
unregistered shares of Compressent common stock. The Company and the
lender have agreed to extend the due date of the loan to January 1,
1999. In addition, the Company will issue 150,000 shares of its common
stock to the lender and receive 100,000 shares of Compressent common
stock plus warrants to purchase 100,000 shares of Compressent common
stock at $1.00 a share.
In July 1998, the Company entered into an agreement to purchase, for
substantial amounts, three additional thoroughbred racetracks:
Louisiana Downs, Thistledown and Remington Park. The Company paid a
$2,000,000 refundable deposit to the sellers and has until September
24, 1998 to complete the transaction.
In July 1998, the Company sold $3,500,000 face amount of its investment
in RDC Series A Bonds for $2,150,000. The Company has the option to
repurchase the bonds on or before January 1, 1999 for $2,150,000 plus
accrued interest.
<PAGE> 10
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Registrant's Financial Statements filed herewith begin on page 6.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
LIQUIDITY AND CAPITAL RESOURCES.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO 1997.
RESULTS OF OPERATIONS:
a. REVENUES
The Company's revenues for the three months ended March
31,1998 were $1,050,011 as compared to 1,779,909 for the three months
ended March 31, 1997. Revenues for the 1998 quarter were attributable
to the inclusion of revenue from Retama Entertainment Group, Inc., an
80% owned subsidiary, for the first time and the decrease in gain from
the sale of securities in the quarter ended March 31, 1997. There was
also interest income for the three months ended March 31, 1998 of
$202,700 as compared to $71,687 for the three months ended March 31,
1997. The increase in interest income is primarily due to the Series A
bonds.
b. EXPENSES
(1) GENERAL AND ADMINISTRATIVE
Expense for the quarter ended March 31, 1998 was $1,205,637
compared to $358,223 for the March 31, 1997 quarter. The
increase is due to the operating expenses of Retama
Entertainment Group, Inc. for the first time.
(2) INTEREST
Interest expense for the quarter ended March 31, 1998 was
$42,039 compared to $39,713 for the March 31, 1997 quarter,
relating to the debt on the property acquired in Williamson
County, Texas.
<PAGE> 11
(3) INCOME TAX
For the quarter ended March 31, 1998 the Company recorded
income tax benefit of $95,250 due to the effect of a net
operating loss. Income tax expense of $537,050 was due to an
operating profit for the three months ended March 31, 1997,
which was the result of gain on the sale of marketable
securities.
c. NET LOSS VS. NET INCOME
The Company had a net loss of $62,774 for the quarter ended
March 31, 1998 compared to a net income of $884,636 for the
quarter ended March 31, 1997. The decrease in net income of
$947,410 resulted primarily from a decrease in revenues and an
increase in costs and expenses of $847,414.
d. OTHER COMPREHENSIVE INCOME
The Company has adopted FASB No. 130, Reporting Comprehensive
Income. At December 31, 1997, the Company had unrecognized
holding gain from marketable securities classified as
available for sale in the amount of $268,560, net of tax. For
the three months ended March 31, 1998, a decrease of $62,503
was recorded and an increase of $1,271,639 was recorded in the
statement of operations for the quarter ended March 31, 1997.
e. COMPREHENSIVE INCOME
As a result of the adoption of FASB No. 130, Comprehensive
income was a loss of $125,277 for the three months ended March
31, 1998 and income of $2,156,275 for the three months ended
March 31, 1997.
f. EARNINGS PER SHARE
For the three months ended March 31, 1998, the Company
recorded a net loss of $.01 per share compared to a net income
of $.11 per share for the March 31, 1997 quarter.
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES:
During the quarter ended March 31, 1998 the company used
$148,320 for operating activities compared to $1,146,688 for
the three months ended March 31, 1997. The decrease is due
primarily to the operating activities of Retama Entertainment
Group, Inc. beginning January 1, 1998.
Cash flow from investing activities was $35,208 compared to
$4,641,579 for the quarter ended March 31, 1997. The decrease
was due to the proceeds from the defeasance of the Retama
Development Bonds during the three months ended March 31, 1997
and a decrease on collections of notes and loans receivable in
the quarter ended March 31, 1998.
For the three months ended March 31, 1998, cash flow from
financing activities decreased by approximately $1,075,000 due
to the collection of a funding agreement during the quarter
ended March 31, 1997.
The Company has investments in U.S. Treasury Bills and the
common stock of Compressent and Retama Development Corporation
Bonds. The fair market value of the securities at March 31,
1998 was $10,139,112.
In addition, the Company has entered into an agreement with
Barron Chase Securities, Inc., whereby the Company executed a
secured demand note payable to Barron Chase in the amount of
$1,155.000. Under the terms of the agreement Barron Chase has
purchased $1,319,847 in US Treasury Bills as security for the
demand note, The note pays the Company $11,550 per month which
the Company utilizes as working capital. Such arrangement
terminated on March 31, 1998 and the Company has advised
Barron Chase that it will not be extended. Principal
collections of $250,000 have been received by the Company
subsequent to March 31, 1998.
Based on the above information, management of the Company
believes that it has adequate financial resources to fund its
operations for the current fiscal year.
The Company has been advised by the Securities and Exchange
Commission that it may be considered an investment company and
therefore subject to certain
<PAGE> 13
provisions of the Investment Company Act of 1940. The Company
does not believe it is an investment company and has taken the
following actions:
1. On July 15, 1996 the Company acquired 118.34
acres of land for development for $2,363,060.
Such land is located in Williamson County, Texas.
The company executed a purchase money mortgage in
connection with the purchase which is payable in
semiannual installments of $85,721 beginning on
January 15, 1997, including interest at 9% with
the entire unpaid balance of $1,655,056 due on
July 15, 2003. The Company paid $593,060 at
closing from its working capital. The land is
currently vacant and a survey is in progress to
determine the best use of the property.
2. The Company disposed of most of its shares of
Intermedia Communications, Inc. in 1996, which it
received in December 1994 in connection with
disposition of Phone One, Inc. It currently owns
less than 200 of such shares.
3. In August 1996 the Company disposed of its
remaining long distance telephone business for
100,000 shares of the Company's common stock,
plus assumption by Buyer of certain liabilities
of the Company. The business was sold to a former
employee and officer of the Company.
4. In September and October 1996 the Company
acquired certain secured bonds issued by Retama
Development Corporation of Selma, Texas. The
bonds are secured by a lien on real estate which
included the Retama Park Racetrack in suburban
San Antonio,Texas.
5. The balance of the Company's holdings in
Compressent were registered by Compressent in its
recent registration statement on Form 9-1. In
November 1997 the Company disposed of 76,000 of
such shares.
<PAGE> 14
6. On December 1, 1997, the Company's 80% owned
subsidiary, Retama Entertainment Group Inc. was
engaged as the manager of the Retama Park
Racetrack effective January 1, 1998.
In the event the Company is deemed to be an investment
company, the Company may become subject to certain
restrictions relating to the Company's activities including
restrictions on the nature of its investments and the issuance
of securities. In addition, the Investment Company Act imposes
certain requirements on companies deemed to be within its
regulatory scope, including registration as an investment
company, adoption of a specific form of corporate structure
and compliance with certain burdensome reporting, record
keeping, voting, proxy, disclosure and other rules and
regulations. In the event of characterization of the Company
as an investment company, the failure of the Company to
satisfy regulatory requirements, whether on a timely basis or
at all would, under certain circumstances have a materially
adverse effect on the company.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 60,233
<SECURITIES> 11,458,959
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,333,441
<PP&E> 30,852
<DEPRECIATION> 20,596
<TOTAL-ASSETS> 17,305,036
<CURRENT-LIABILITIES> 2,611,373
<BONDS> 1,736,787
0
0
<COMMON> 5,704,965
<OTHER-SE> 4,974,991
<TOTAL-LIABILITY-AND-EQUITY> 17,305,036
<SALES> 0
<TOTAL-REVENUES> 1,050,011
<CGS> 0
<TOTAL-COSTS> 1,163,598
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,039
<INCOME-PRETAX> (155,626)
<INCOME-TAX> (95,250)
<INCOME-CONTINUING> (60,376)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (62,774)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
