<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: September 30, 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
of incorporation or organization) Identification No.)
10803 GULFDALE, SUITE 222, SAN ANTONIO, TX 78216
------------------------------------------------
(Address of principal executive offices)
(210) 349-4141
---------------------------
(Issuer's telephone number)
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: 8,585,444 shares as of December 14,
1998.
Transitional Small Business Format: NO
----
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Registrant's Financial Statements are filed herewith following the
signature page.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - filed
following the financial statements.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS. On December 15, 1998 Registrant was served as
Defendant in a civil case brought by Retama Development Corporation in the 224th
Judicial District of Bexar County, Texas District Court. The suit alleges that
the Registrant's Chairman interfered with Plaintiff's management contract with a
third party by instructing a representative of the management company to engage
a contractor to undertake repairs on a lake owned by Plaintiff, and such conduct
constituted a breach of duty of good faith and fair dealing and fraudulently and
negligently misrepresented the expertise of the contractor. The action seeks the
sum of $600,000 in damages and lost profits resulting from the "failed lake"
which is alleged to have caused the reduction in attendance at the Retama Park
Racetrack, and also seeks exemplary damages.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
None.
2
<PAGE> 3
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 (Chief Executive Officer)
By: /S/ JAMES D. GRAINGER
------------------------------------
James D. Grainger
Vice President-Finance
December 21, 1998 Principal Accounting Officer
3
<PAGE> 4
CALL NOW, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(UNAUDITED)
ASSETS
Current:
Cash and cash equivalents $ 1,061,134
Accounts receivable 65,000
Marketable securities, at market value:
Pledged 3,500,000
Unrestricted 2,250,375
Notes and loans receivable 1,092,838
Other 48,658
-----------
Total Current Assets 8,018,005
Furniture and equipment (less accumulated
depreciation of $22,291) 10,908
Land 2,369,075
Long term notes and receivable 853,000
Deferred tax assets 2,644,254
Other 176,762
-----------
TOTAL ASSETS $14,072,004
===========
See notes to consolidated financial statements
4
<PAGE> 5
CALL NOW, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable $ 2,000,000
Current maturity of mortgage payable 14,806
Accounts payable 59,097
Accrued expenses 362,216
Income taxes payable 146,326
-----------
Total Current Liabilities 2,582,445
-----------
Long-Term Liabilities:
Mortgage payable, less current maturity 1,729,221
Deferred gain from bond defeasance transaction 2,150,000
-----------
Total Long-Term Liabilities 3,879,221
-----------
Total Liabilities 6,461,666
-----------
Minority interest in consolidated subsidiary 16,873
-----------
Stockholders' Equity:
Preferred stock, no par, 800,000 shares
autorized, none outstanding
Common stock, no par, 50,000,000 shares
authorized, 8,585,444 shares issued, and
8,495,444 shares outstanding 6,205,778
Retained earnings 2,171,986
Stock subscription notes receivable (230,000)
Accumulated other comprehensive (loss) (348,249)
Treasury stock, at cost (206,050)
-----------
Total Stockholders' Equity 7,593,465
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $14,072,004
===========
See notes to consolidated financial statements
5
<PAGE> 6
CALL NOW, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
THREE AND NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
THEE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED JUNE 30,
1998 1997 1998 1997(Restated)
----------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
REVENUES:
Gain (loss) on sale of marketable securities $(1,688,236) $(1,688,236) $1,805,341
Reimbursed race track operating costs 1,574,129 -- 3,994,771 --
Management fees 45,000 -- 135,000 --
Interest income 75,805 193,346 334,838 494,320
Miscellaneous 46,187 -- 47,373 5,135
----------- --------- ----------- ----------
Total Revenues 52,885 193,346 2,823,746 2,304,796
----------- --------- ----------- ----------
COSTS AND EXPENSES:
Financing transaction loss 2,181,250 2,181,250
Race track operating costs 1,609,373 -- 4,092,592 --
General and administative 388,866 432,393 1,075,296 1,324,148
Interest 91,967 39,028 183,403 112,587
Depreciation and amortization 892 4,200 2,498 12,524
----------- --------- ----------- ----------
Total Cost and Expenses 4,272,348 475,621 7,535,039 1,449,259
----------- --------- ----------- ----------
Income (Loss) Before Income Taxes
and Minority Interest (4,219,463) (282,275) (4,711,293) 855,537
Income Tax (Expense) Benefit 1,408,884 106,520 1,632,194 (163,427)
----------- --------- ----------- ----------
Income (Loss) Before Minority Interest (2,810,579) (175,755) (3,079,099) 692,110
Minority Interest (11,188) -- (16,673) --
----------- --------- ----------- ----------
Net Income (Loss) (2,821,767) (175,755) (3,095,772) 692,110
Other Comprehensive Income (Loss),
Net of Tax:
Unrealized holding gains (loss) on securities (66,799) 67,187 (616,808) 694,157
----------- --------- ----------- ----------
Comprehensive Income (Loss) $(2,888,566) $(108,568) $(3,712,580) $1,386,267
=========== ========= =========== ==========
Earnings (Loss) per Share
Basic and Diluted:
Net income (loss) per share $ (0.34) $ (0.02) $ (0.44) $ 0.08
=========== ========= =========== ==========
</TABLE>
See notes to consolidated financial statements
6
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CALL NOW, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997 (Restated)
----------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(3,095,772) $ 692,110
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 2,498 12,329
Issue of common stock for litigation settlement 69,563 --
Gain on bond defeasance -- (1,805,341)
Loss on sale of marketable securities 1,688,236 --
Financing transaction loss 2,181,250 --
Furniture and equipment charged off -- 21,960
Issue of common stock for bonuses -- 30,000
Changes in assets and liabilities:
(Increase) Decrease in assets:
Accounts receivable (65,000) --
Deferred tax asset (1,632,194) (801,950)
Other current assets 53,101 (239,594)
Other assets (51,344) (23,629)
Increase (Decrease) in liabilities:
Accounts payable 5,520 (411,265)
Accrued expenses 33,796 (30,140)
Income taxes payable (854,518) (1,133,529)
Minority interest 16,873 --
----------- -----------
Cash (used) by operating activities (1,647,991) (3,689,049)
----------- -----------
INVESTING ACTIVITIES:
Proceeds from sale of marketable securities 2,150,000 --
Proceeds from sale of treasury bills 1,305,055 --
Capital (expenditures) refund (2,347) 85
Purchase of short term securities -- (56,740)
Purchase of marketable securities -- (1,564,942)
Purchase of treasury stock -- (206,050)
Proceeds from bond defeasance -- 3,853,087
Investment in equity stock (60,000) --
Investment in land -- (6,015)
Notes and loan receivable:
Advances (1,450,000) (882,810)
Collections 600,000 1,097,592
----------- -----------
Cash provided by investing activities 2,542,708 2,234,207
=========== ===========
</TABLE>
See notes to consolidated financial statements
7
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CALL NOW, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997 (Restated)
----------- --------------
<S> <C> <C>
FINANCING ACTIVITIES:
Loan receivable (250,000) --
Proceeds from loans 2,000,000 150,000
Issue of stock for financing transaction 431,250 --
Financing transaction loss (2,181,250) --
Funding obligation -- 1,075,000
Application of funding obligation to
purchase of marketable securities -- (1,075,000)
Payment on long term debt (13,557) (12,421)
----------- -----------
Cash provided (used) by financing activities (13,557) 137,579
----------- -----------
Net increase (decrease) in cash and equivalents 881,160 (1,317,263)
Cash and cash equivalents beginning of period 179,974 1,670,120
----------- -----------
Cash and cash equipment, end of period $ 1,061,134 $ 352,857
=========== ===========
</TABLE>
See notes to consolidated financial statements
8
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CALL NOW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
1. The nine months ended September 30, 1998 reflect the operations of
Retama Entertainment Group, Inc. an 80% subsidiary that began
operations January 1, 1998.
2. Effective January 1, 1998, 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 September 30, 1998, a
decrease of $66,799 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 for the
three months ended September 30, 1998 is summarized below:
Before Tax After
Tax Benefit Tax
-------- ------- -------
Unrealized holding loss $107,102 $40,303 $66,799
-------- ------- -------
3. In July 1998, the Company entered into an agreement to purchase, for
substantial amounts, three additional thoroughbred racetracks:
Louisiana Downs, Thistledown and Remington Park. In this connection,
the Company paid a $2,000,000 refundable deposit to the sellers. On
August 24, 1998, the Company declined to complete the transaction and
the deposit was returned with interest.
4. In July 31, 1998, the Company sold $3,500,000 face amount of its
investment in RDC Series A Bonds for $2,150,000 which price included
accrued interest of $338,236. The Company has the option to repurchase
the bonds on or before January 1, 1999 for $2,150,000, plus interest.
(continued)
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CALL NOW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
5. In February 1998 the Company entered into a loan agreement with
Compressent Inc. in which the Company agreed to provide certain
financing to Compressent and to receive a commitment fee along with
warrants to acquire shares of Compressent common stock. This loan
agreement was terminated on May 20, 1998 before any loan was made and
as a result the Company did not receive the commitment fee or warrants
from Compressent.
In addition the Company exchanged $3,500,000 face amount of its RDC
Series A Bonds for specified shares of Compressents convertible
preferred stock and an option to acquire additional shares of
Compressents' common stock.
Compressent subsequently borrowed, from a third party, approximately
$2,000,000, pledging the RDC bonds as collateral. In connection with a
rescission of the purchase of Compressent convertible preferred stock,
the Company assumed the approximate $2,000,000 loan and was to receive
2,000,000 unregistered shares of Compressent common stock. This was
subsequently reduced to 500,000 Compressent shares and a 10% interest
in a business venture between Compressent and a third party. In
addition, the Company agreed to issue 150,000 shares of its common
stock to Compressent's lender. The Company has recorded a loss of
$2,181,250 on the financing transaction.
6. In December 1998 the company and its Chairman, William M. Allen, were
sued by the Retama Development Corporation (RDC), the issuer of the
bonds held by the Company, in connection with the repair of lake at
Retama Race Track by a contractor. The action seeks the sum of $600,000
in damages plus exemplary damages.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS OR
PLAN OF OPERATION
THREE MONTH AND NINE MONTH PERIODS ENDED SEPT. 30, 1998 COMPARED TO 1997.
RESULTS OF OPERATIONS:
a. REVENUES
The Company's revenues for the three months ended
September 30, 1998 were $52,885 as compared to $193,346 for
the three months ended September 30, 1997. For the nine month
period ended September 30, 1998 revenues were $2,823,746
compared to $2,304,496 for the nine months ended September 30,
1997. The decrease in revenues for the three months ended
September 30, 1998 was attributable to the sale of $3,500,000
of Retama Development Corporation Series A Bonds at a net loss
of $1,688,236. The Company has the option to repurchase the
bonds for $2,150,000 plus interest.
Reimbursed racetrack operating costs were $1,574,129
for the three months ended September 30, 1998 compared to
$1,619,517 for the previous quarter. Interest income was
$75,805 for the quarter ended September 30, 1998 and $193,346
for the quarter ended September 30, 1997. The decrease in
interest income was attributable to the redemption of Treasury
Bills and reduction in notes receivable. For the nine months
ended September 30, 1998, interest income was $334,838
compared to $494,320 for the nine months ended September 30,
1997.
b. EXPENSES
(1) RACE TRACK OPERATING COSTS
Racetrack operating costs for the quarter ended
September 30, 1998 were $1,609,373 compared to
$1,649,086 for the quarter ended June 30, 1998. The
decrease is due primarily to the seasonal activity of
the RaceTrack. There were no race track operations in
1997.
(2) GENERAL AND ADMINISTRATIVE
Expense for the quarter ended September 30, 1998 was
$388,866 compared to $432,393 for the September 30,
1997 quarters. For the nine months ended September
30, 1998 expense was $1,075,296 compared to
$1,324,148 for the nine months ended September 30,
1997. The decrease was due to the elimination of
expenses associated with the purchase of the Retama
Bonds in 1997.
11
<PAGE> 12
(3) INTEREST
Interest expense for the quarter ended September 30,
1998 was $91,967 compared to $39,028 for the
September 30, 1997 quarters. For the nine months
ended September 30, 1998 expense was $183,403
compared to $112,587 for the nine months ended
September 30, 1997. Interest expense for 1998
increased as a result of debt service payments on the
property acquired in Williamson County, Texas and
other borrowings.
(4) INCOME TAX
For the quarter ended September 30, 1998 the Company
recorded income tax benefit of $1,408,884 compared to
$106,520 for the quarter ended September 30, 1997.
The increase was due to the loss on the sale of the
marketable securities and the financing transaction.
For the nine months ended September 30, 1998 there
was an income tax benefit of $1,632,194 compared to
an income tax benefit of $163,427 for the nine months
ended September 30, 1997. The reversal was due to an
operating loss for the nine months ended September
30, 1998 and the loss on the sale of marketable
securities and the financing transaction compared to
an operating profit for the nine months ended
September 30, 1997.
c. NET LOSS VS. NET INCOME
The Company had net loss of $2,821,767 for the
quarter ended September 30, 1998 compared to net loss of
$175,755 for the quarter ended September 30, 1997. The
increase in net loss of $1,471,762 resulted primarily from the
loss on the sale of the Retama Development Corp. Series A
bonds, the financing transaction and an increase in costs and
expenses. There was a net loss of $3,095,772 for the nine
months ended September 30, 1998 compared to a net income of
$692,110 for the nine months ended June 30, 1997.
12
<PAGE> 13
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 September 30, 1998, a
decrease in market value of $66,799 was recorded and an
increase of $67,187 was recorded in the statement of
operations for the quarter ended September 30, 1997. For the
nine months ended September 30, 1998 there was a loss in
market value of $616,808 compared to income of $694,157 for
the nine months ended September 30, 1997. The decrease is
primarily the result of a decrease in market value and the
disposal of Compressent Corp's common stock.
e. COMPREHENSIVE INCOME (LOSS)
Comprehensive income was a loss of $2,888,566 for
the three months ended September 30, 1998 and a loss of
$108,568 for the three months ended September 30, 1997. For
the nine months ended September 30, 1998 there was a
comprehensive loss of $3,712,580 compared to comprehensive
income of $1,386,267 for the nine months ended September 30,
1997.
f. EARNINGS PER SHARE
For the three months ended September 30, 1998, the
Company recorded a net loss of $.34 per share compared to a
net loss of $.02 per share for the September 30, 1997 quarter.
For the nine months ended September 30, 1998 loss per share
was $.44 compared to earnings of $.08 per share for the nine
months ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES:
For the nine months ended September 30, 1998 the
company used cash $1,647,991 for operating activities compared
to $3,689,049 for the nine months ended September 30, 1997.
The decrease is due primarily to the elimination of expenses
associated with the purchase of the Retama Bonds and the
reduction of payments for accounts payable and income taxes.
Cash flow from investing activities was $2,542,708
compared to $2,234,207 for the nine months ended September 30,
1997. The increase was due to the proceeds from the sale of
Series A Retama Development bonds, sale of all of the Treasury
Bills, an increase in net notes and loans receivable, and a
decrease in the purchase of marketable securities in the nine
months ended September 30, 1998.
13
<PAGE> 14
For the nine months ended September 30, 1998, cash
flow from financing activities decreased by approximately
$150,000 due to the collection of loan proceeds during the
nine months ended September 30, 1997.
The Company has investments in the common stock of
Compressent and Retama Development Corporation Bonds. The
market value of the securities at September 30, 1998 was
$5,750,375.
In addition, the Company previously 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 purchased US Treasury Bills as security for the
demand note, The note paid the Company $11,550 per month which
the Company utilizes as working capital. Such arrangement
terminated on March 31, 1998 and was replaced by a new note in
the amount of $1,300,000. Principal collections of $550,000
have been received by the Company through to September 30,
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 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 in 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
study is in progress to determine the best use
of the property.
14
<PAGE> 15
2. The Company disposed if most of its shares of
Intermedia Communications, Inc. in 1996, which
it acquired 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 was registered by Compressent in its
registration statement on Form S-1. In November
1997 the Company disposed of 76,000 of such
shares.
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.
7. In Fiscal 1998 the Company disposed of a
substantial portion of the Retama Development
Corporation bonds.
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,061,134
<SECURITIES> 5,750,375
<RECEIVABLES> 65,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,018,005
<PP&E> 33,199
<DEPRECIATION> 22,291
<TOTAL-ASSETS> 14,072,004
<CURRENT-LIABILITIES> 2,582,445
<BONDS> 1,729,221
0
0
<COMMON> 6,205,778
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,072,004
<SALES> 0
<TOTAL-REVENUES> 2,823,745
<CGS> 0
<TOTAL-COSTS> 7,535,039
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 183,403
<INCOME-PRETAX> (4,711,293)
<INCOME-TAX> (1,632,194)
<INCOME-CONTINUING> (3,079,099)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,095,772)
<EPS-PRIMARY> (.44)
<EPS-DILUTED> (.44)
</TABLE>
