<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM [10-QSB/A2]
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(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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Commission file Number 000-24706
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SELECT MEDIA COMMUNICATIONS, INC.
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(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
New York 13-3415331
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(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
</TABLE>
[44 E. 32nd Street], New York, NY [10016]
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(Address of principal executive offices)
(212) [251-8796]
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(Issuer's telephone number)
[666 Third Avenue, New York, NY 10017]
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(Former name, former address and former fiscal year,
if changed since last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12,
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13 or 15(d) of the Exchange Act after the distribution of securities under a
plan confirmed by a court. Yes [ ] No[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: 13,016,592 Shares of Common Stock
-------------------------------------
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
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SELECT MEDIA COMMUNICATIONS INC.
AND SUBSIDIARY
CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2000 and 1999
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SELECT MEDIA COMMUNICATIONS INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
June 30, 2000
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ASSETS
------
<TABLE>
<S> <C> <C>
CURRENT ASSETS
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Cash $ 7,509
Accounts receivable, less allowance for doubtful
accounts of $505,659 148,495
Capital improvement receivable 656,123
Prepaid expenses and other current assets 158,844
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Total Current Assets 970,971
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PROPERTY AND EQUIPMENT, Net 701,024
--------------------------- ---------
OTHER ASSETS
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Intangibles, net 1,018,429
Reorganization value, net 1,751,646
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Total Other Assets 2,770,075
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TOTAL ASSETS $4,442,070
==========
</TABLE>
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SELECT MEDIA COMMUNICATIONS INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
June 30, 2000
--------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES
-------------------
Accounts payable $ 1,565,831
Accrued expenses 2,837,957
Notes payable 941,945
Current portion of capital lease obligation 60,596
Reorganization liabilities, current portion 100,000
Due to stockholders 892,000
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Total Current Liabilities 6,398,329
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OTHER LIABILITIES
-----------------
Capital lease obligation 41,888
Reorganization liabilities 1,384,890
------------
Total Other Liabilities 1,426,778
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TOTAL LIABILITIES 7,825,107
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COMMITMENTS
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STOCKHOLDERS' DEFICIT
---------------------
Common stock - $.001 par value; 35,000,000 shares authorized,
13,016,592 shares issued and outstanding, respectively 13,017
Additional paid-in capital 98,704,222
Accumulated deficit (102,100,276)
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TOTAL STOCKHOLDERS' DEFICIT (3,383,037)
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TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 4,442,070
===========
</TABLE>
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SELECT MEDIA COMMUNICATIONS INC.
AND SUBSIDIARY
UNAUDITED STATEMENTS OF OPERATIONS
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<TABLE>
<CAPTION>
Six Months Ended
June 30, 1999 June 30, 2000
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<S> <C> <C>
SALES $2,042,931 $ 364,057
-----
COST OF SALES 858,681 255,642
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GROSS PROFIT 1,184,250 108,415
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
--------------------------------------------
Selling, general and administrative expenses 1,791,436 2,976,588
Stock based compensation -- 2,805,000
---------- -----------
Total operating expenses 1,791,436 5,781,588
OPERATING LOSS (607,186) (5,673,173)
OTHER INCOME (EXPENSE)
----------------------
Other income -- 25,312
Interest expense (127,221) (79,804)
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TOTAL OTHER INCOME (EXPENSE) (127,221) (54,492)
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LOSS BEFORE INCOME TAXES (734,407) (5,727,665)
INCOME TAXES -- --
------------ ---------- ------------
NET LOSS $ (734,407) $(5,727,665)
========== ===========
PER SHARE DATA
--------------
Basic and diluted net loss per common share:
Net loss $(0.12) $(0.47)
====== ======
Weighted Average Common Shares Outstanding 91,203 12,238,768
====== ==========
</TABLE>
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SELECT MEDIA COMMUNICATIONS INC.
AND SUBSIDIARY
UNAUDITED STATEMENTS OF CASH FLOWS
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<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
1999 2000
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
------------------------------------
Net loss $(734,407) $(5,727,665)
--------- -----------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Stock-based compensation -- 2,805,000
Depreciation and amortization 180,368 284,553
Increase in allowance for doubtful accounts 20,156 262,545
Changes in assets and liabilities:
Increase in accounts receivable (662,327) (11,323)
Increase in capital improvement receivable -- (98,820)
Decrease in note receivable 64,800 --
Increase in prepaid expenses and other current assets (1,152) (18,467)
Increase in accounts payable 364,096 191,169
Increase in accrued expenses 828,151 596,965
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TOTAL ADJUSTMENTS 794,092 4,011,622
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NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES 59,685 (1,716,043)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (265,119) (224,329)
Purchase of Sigma Sound Services Inc., net of cash acquired -- (164,103)
Purchase of intangible assets -- (125,000)
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NET CASH USED IN INVESTING ACTIVITIES $(265,119) $ (513,432)
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</TABLE>
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SELECT MEDIA COMMUNICATIONS INC.
AND SUBSIDIARY
UNAUDITED STATEMENTS OF CASH FLOWS, Continued
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<TABLE>
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
Payments of capital lease obligations $ (25,253) $ (73,230)
Payments of reorganization liabilities -- (95,079)
Proceeds from notes payable 135,000 --
Repayments of notes payable -- (25,555)
Advances from shareholders 528,330 2,264,504
Repayments of advances from shareholders -- 166,000
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NET CASH PROVIDED BY FINANCING ACTIVITIES 638,077 2,236,640
----------- -----------
NET INCREASE IN CASH 432,643 7,165
CASH AT BEGINNING OF PERIOD 118,165 344
--------------------------- ----------- -----------
CASH AT END OF PERIOD $ 550,808 $ 7,509
--------------------- =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
-------------------------------------------------
Cash paid during the years for:
Interest $ 21,306 $ 27,140
Noncash investing and financing activities:
Sigma Sound Services, Inc. acquisition:
Issuance of note payable $ 400,000
Deposit applied to the purchase price $ 400,000
Equipment acquired via Capital lease $ 118,423
</TABLE>
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SELECT MEDIA COMMUNICATIONS INC.
AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1 - The Company and Basis of Presentation
The Company
Select Media Communications Inc. (the "Company") is an integrated media
company engaged in producing and distributing programming.
Basis of Presentation
The accompanying Unaudited Consolidated financial statements reflect all
adjustments, which are in the opinion of management, necessary to a fair
statement of the results of the interim periods presented. All such
adjustments are of a normal recurring nature. The financial statements
should be read in conjunction with the notes to the financial statements
and in conjunction with our audited financial statements contained in
Form 10KSB (filed on July 26, 2000)
Basis of Consolidation
The consolidated financial statements include the accounts of Select
Media Communications ("Select"), and it wholly-owned subsidiary Sigma
Sound Services, Inc. ("Sigma"), collectively referred to as the
("Company"). All significant inter-company transactions and balances have
been eliminated in consolidation.
NOTE 2 - Acquisitions
On January 18, 2000 the Company purchased all of the issued and
outstanding common stock of Sigma Sound Services, Inc. ("Sigma") pursuant
to the terms of a stock purchase agreement (the "Agreement"). The
purchase price for Sigma's common stock was $1,000,000 with $400,000 paid
at the signing of the Agreement, $200,000 paid at closing and a $400,000
10% secured note. The note is payable in two installments of $200,000
plus accrued interest on June 30, 2000 and January 3, 2001. The June 30,
2000 installment payment was not paid and the Company received an
extension of 180 days. The note is secured by all of the Company's
existing and future customer accounts, general intangibles, equipment,
goods, instruments and inventory. The transaction was accounted for under
the purchase method of accounting. Goodwill acquired through this
Agreement amounted to $964,504 and is being amortized over a 15-year
life. Amortization expense for the six months ended June 30, 2000 was
$64,300.
On March 8, 2000 the Company purchased certain contracts, which included
substantially all of the assets of After Hours Productions, Inc ("AHP")
pursuant to the terms of an asset purchase agreement (the "AHP
Agreement"). The purchase price was $125,000 with $25,000 paid as a
deposit on the purchase at the signing of the AHP Agreement and $100,000
paid at closing. The Company recorded an intangible asset of $125,000 as
a result of the purchase. The intangible asset is being amortized over 15
years and amortization expense for the six months ended June 30, 2000 was
$6,775.
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SELECT MEDIA COMMUNICATIONS INC.
AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 3 - Funding Agreement
On January 15, 2000 the Company entered into an agreement with an
Investment Bank to sell shares of the Company's common stock. In exchange
for funding up to $2,000,000 in the aggregate, the Investment Bank's
investors can receive up to 4,000,000 shares of the Company's common
stock at a price of $ .50 per share. At June 30, 2000 the amount due to
the Investment Bank/Stockholder was $892,000.
On April 13, 2000 the Company issued 2,814,000 shares of common stock to
the Investment Bank in settlement of advances made to the Company in the
amount of $1,407,000.
NOTE 4 - Stockholders Equity
On June 30, 2000 the Company issued 450,000 shares of common stock to
Consultants for services provided to the Company. Accordingly, the
Company recorded a consulting expense in the amount of $1,980,000.
NOTE 5 - Commitments
Employment Agreements
On January 1, 2000 the Company entered into two employment agreements.
One of the employees was terminated and the Company entered into a
separation and release agreement on April 28, 2000. Pursuant to the
employment and separation and release agreements, the employees were
issued 100,000 and 50,000, respectively, of restricted shares for past
services performed. As a result of these issuances, the Company
recognized $825,000 ($5.50 per share) of stock based compensation
expense. Future minimum payments under these agreements are $125,000 for
the year ended December 31, 2000 and $100,000 for the years ended
December 31, 2001 and 2002. There is no further commitment to the
terminated employee.
NOTE 6 - Related Party Transaction
In January 2000, the Company reimbursed one of its officers/shareholders
$100,000 for amounts previously contributed by him pursuant to the
Company's Plan of Reorganization.
NOTE 7 - Subsequent Event
On October 30, 2000, the Company decided to cease the operation of its
SITN division.
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<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of financial condition and results of
Operations may be deemed to include forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, that involve risk and
uncertainty, including financial, regulatory environment and trend projections,
estimated costs to complete or possible future revenues from the Company's
expansion plans, the likelihood of successful completion of such plans, as well
as any statements preceded by, followed by, or that include the words "intends,"
"estimates," "believes," "expects," "anticipates," "should," "could," or similar
expressions; and other statements contained herein regarding matters that are
not historical facts. Although the Company believes that its expectations are
based on reasonable assumptions, it can give no assurance that its expectations
will be achieved. The important factors that could cause actual results to
differ materially from those in the forward- looking statements below (the
"Cautionary Statements") include, without limitation: (1) the ability of the
Company to continue its national rollout of its service bureaus; (2) the ability
of the Company to market its suite of telecommunications connectivity services
to small and medium size businesses in its service areas; (3) the effects of
vigorous competition in the markets in which the Company operates; (4) the
impact of technological change on the Company's businesses, new entrants and
alternative technologies in the Company's business; (5) regulatory risks,
including the impact of the Telecommunications Act of 1996; (6) the impact of
competitive services and pricing; (7) risks associated with debt service
requirements and interest rate fluctuations; and (8) other risks referenced from
time to time in the Company's filings with the SEC, including the Form 10-KSB
for the year ended December 31, 1999. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Statements.
The Company does not undertake any obligation to release publicly any revisions
to such forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
The following discussion and analysis relates to the financial condition and
results of operations of the Company for the three and six months ended June 30,
2000, and 1999. The information should be read in conjunction with the
"Management's Discussion and Analysis" and consolidated financial statements and
notes thereto contained herein and in the Form 10-KSB for the year ended
December 31, 1999.
OVERVIEW
Select Media is a New York corporation whose common stock is currently traded in
the "pink sheets" under the symbol "SMTV.OB." Select Media began in the business
of producing and distributing "vignettes," which are short-form (thirty-second)
informational programs distributed by
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<PAGE> 12
particular sponsors for viewing during regular programming. In 1998, Select
Media hired personnel to provide services to worldwide news broadcasters and act
as a television news agency under the name "Select International Television
Network" ("SITN") to produce and distribute news segments for sale to local and
foreign news broadcasters. Because of an inability to use studio space in [their
facility and the subsequent move to new premises on October 30, 2000, the
Company has ceased operations of SITN as of October 30, 2000]. In general, in
the period covered by this report, the Company's sources of revenues consisted
of revenues from the distribution of video news releases, from its international
news division and from the operations of the Company's Sigma subsidiary. Resale
of advertising airtime has never constituted a major source of the Company's
revenues.
In the period from the Company's bankruptcy filing in October 1996 until
September 1998, the Company was essentially dormant. [In 1998, the Company was
dependant on two major customers for 46% and 16% of the Company's revenues,
respectively.] In 1999, the Company was dependent upon one major customer
(General Motors Corporation) for over 35% of its revenues, most of which were
received in the first six months of the year. Beginning in the fall of 1999, the
Company began its restructuring and moved its offices. In the quarter ended June
30, 2000, the Company has not been dependent on any major customers, and does
not reasonably foresee any such dependence for the balance of the current year.
In January 2000, Select Media repositioned itself as the owner of entertainment
content providers whose product can be marketed through traditional media and
over the Internet. In January 2000, Select Media purchased all the outstanding
stock of Sigma Sound Services, Inc. ("Sigma"). Sigma is a full service recording
studio that provides services to record companies, independent artists and
record producers. In March 2000, Select Media purchased contracts and other
assets of After Hours Productions, Inc. ("AHP"), along with the AHP name (the
"AHP Acquisition"). AHP creates custom music and video products. The Sigma
acquisition was accounted for as a purchase and the AHP Acquisition was
accounted for as a purchase of contracts. [The principals of Sigma and AHP were
not affiliated with Select Media of Lloyds prior to their acquisition by Select
Media. Lloyds' financing was not contingent upon these particular acquisitions.]
See Financial Statements and notes to Financial Statements.
[The Company believes that, given the changes in the structure of television
broadcasting, including, but not limited to, the creation of a number of
alternative television networks and the resulting scarcity of advertising
airtime available to local television stations, the Company can better serve its
stockholders by becoming the owner of entertainment content providers. By owning
content providers, the Company can take advantage of the changing distribution
systems offered by broadcast, cable and Internet distribution of its product.]
COMPETITION
Select Media faces competition from some of the largest entertainment companies
in the United States. It is difficult to estimate the size of the vignette
market. The Company is not aware of any other reporting companies involved in
the vignette business. The Company believes that
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<PAGE> 13
competition in its business comes not from other producers of vignettes, but
from other users of scarce airtime. One of the most significant developments in
the broadcast television industry in the 1990's has been the growth of
alternative broadcast networks, such as Fox, WB and UPN. Before this
development, television stations that were not affiliates of the three major
television networks (CBS, NBC and ABC) were independent local stations, each of
which had substantial amounts of airtime to sell to the Company and its
customers. Today, most formerly independent stations are affiliated with one of
the new networks. As a result, the network, in exchange for providing
programming, gets to sell a significant portion of the affiliate's broadcast
airtime. Therefore, the affiliate has less airtime to sell itself. Scarcity of a
commodity tends to increase the price. As a result, the cost of airtime has
dramatically increased.
The entertainment market is rapidly evolving and intensely competitive.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share, any of which could seriously harm Select
Media's net sales and results of operations. Select Media expects competition to
intensify in the future as additional distribution channels for entertainment
product are opened. In particular, Select Media believes that the use of the
Internet for distribution of entertainment product is both an opportunity and a
challenge. With so many entertainment choices, Select Media faces the challenge
of adapting its core business to Internet entertainment. Select Media expects
that its acquisition of content providers will enable it to adapt to the
Internet entertainment challenge, because Select Media believes that Internet
technology is developing faster than content can be produced. Although the
technology exists to provide a rich entertainment experience via the Internet,
Select Media believes that there is not sufficient high quality content
available for users. Select media intends to provide that content.
In line with this strategy, in 2000 Select Media acquired Sigma and AHP. Select
Media has also signed a letter of intent to purchase all the assets and
liabilities of Betelgeuse Productions, LLC. Betelgeuse has the ability to create
entertainment content for broadcast, cable and Internet and to adapt existing
product for use as Internet content. [On December 6, 2000 Select Media signed a
definitive Asset Purchase Agreement (the "Definitive Agreement") to acquire all
the assets and liabilities of Betelgeuse Productions, LLC.]
MARKET STRATEGY
Select Media markets its remaining vignette products to large advertisers
directly to the marketing departments of these companies. Select Media uses its
own internal staff for such marketing. Select Media is developing vignettes for
radio, and is developing a form of vignette for on-line advertising. The cost of
advertising airtime has the greatest impact on whether the Company can sell its
vignette product. For each airing of a vignette, the customer has to purchase
sufficient airtime to broadcast both the vignette and the customer's own
advertisement. The greater the cost of airtime, the higher the cost to the
customer. The Company only resells airtime to its vignette customers to air
vignettes. The Company is not in the business of reselling airtime to third
parties.
Sigma markets its services directly through its principals. Sigma and AHP have
also produced
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<PAGE> 14
compilation albums sold through home shopping channels, direct response
television and direct mail.
Select Media intends to create its own web site on the Internet for sale of
Select Media, Sigma and AHP custom product. The website development is in the
planning stage and completion of this project is contingent upon available
funding.
The Company has its Internet distribution system under development. The Company
is in discussion with another entity for sales of compact disks ("CDs") directly
over the Internet to consumers, but has not entered into any firm agreement or
understandings as of yet. However, the Company does not intend implement any
downloadable music distribution strategy until issues of copyright protection
and payment are standardized in the industry.
Select Media has 11 full time and 2 part time employees and during the period
covered by this report, operated a facility at 666 Third Avenue, New York, New
York, which was used as the principal corporate office and the site of its
studio facilities. [On October 30, 2000, Select Media moved its office to 44 E.
32nd Street in New York, subletting space from Betelgeuse.] As a result of the
Sigma acquisition, Select Media also leases a sound recording studio facility at
North 12th Street in Philadelphia, Pennsylvania.
RESULTS OF OPERATIONS
REVENUES
The following table sets forth certain items from the Registrant's consolidated
statements of operations as a percentage of net revenues for the periods
indicated:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------ ------------------------
1999 2000 1999
---- ---- ----
<S> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0%
Cost of revenues 56.1% 70.2% 42.0%
Gross profit (Loss) 43.9% 29.8% 58.0%
Operating expenses:
Selling, General and administrative 201.2% 907.7% 87.7%
Nonrecurring costs 38.2% 36.2% 0%
Total operating expenses 239.3% 943.9% 87.7%
Operating income (loss) (195.4)% (914.1)% (28.7)%
Other income and expense, net (38.2)% (15.0)% (6.2)%
Income (loss) before income taxes (233.4)% (929.1)% (35.9)%
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Provision for (benefit from)
income taxes 0% 0% 0%
Net income (loss) (233.4)% (929.1)% (35.9)%
----- ----- ----
Net Revenues (233.4)% (929.1)% (35.9)%
</TABLE>
Before the Sigma acquisition, the Registrant's net revenues were derived mainly
from the sales of vignettes, video press releases and SITN. Sigma's revenues
consist of sales of sound recording studio services, editing and post-production
work on recorded musical works. In the six months ended June 30, 2000, net
revenues decreased by $1,678,874, or 82.2%, to $364,057 from $2,042,931 in the
six months ended June 30, 1999. The decrease in net revenues during the first
six months of 2000 was primarily attributable to the end of the Company's video
press release contract with General Motors Corporation, the Company's focusing
on the Sigma and AHP acquisitions and a significant decline in revenues from its
international news operations because of an inability to use studio space in its
new facility. The Registrant expects SITN and video press release revenues in
the coming year to be significantly lower than 1999 levels [due to the Company's
decision to relocate and cease SITN operations on October 30, 2000, and the end
of the General Motors contract for video press releases.] [ ]
GROSS PROFIT
Cost of revenues consists primarily of costs associated with studio time and
transmission of signal for SITN and with producing vignettes and video press
releases and marketing the finished product, including scriptwriting, filming,
salaries and post-production processing and editing. For Sigma, cost of revenues
include studio personnel salaries, rent on the facility and post-production
processing and editing. The resulting gross profit fluctuates based on factors
such as salary expense, editing and marketing. Gross margin decreased to 29.8 %
in the six months ended June 30, 2000, compared to 58.0% in the six months ended
June 30, 1999. The decrease during the six months ended June 30, 2000 was
primarily due to the Company's inability to use the studio space in its new
facility, plus costs of integrating the Sigma acquisition and the AHP
acquisition. The Registrant currently expects gross margins during 2000 to be
lower than the 1999 levels as a result of SITN revenues being significantly
lower than the 1999 levels. In the current year, the Registrant expects the
Sigma and AHP acquisitions to have a positive effect on both revenues and gross
margin.
EXPENSES
Selling, general and administrative expenses were $3,304,626 in the six months
ended June 30, 2000 compared with $1,791,436 in the six months ended June 30,
1999, for an increase of $1,513,190, or 84.5%. This increase was attributable to
expenses for the expansion of the Registrant's business and costs of relocation
of the Registrant's offices, as well as the costs associated with the Sigma and
AHP acquisitions and operations, including payroll and professional fees. The
Registrant's expenses
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<PAGE> 16
in the six months ended June 30, 2000 also include a non-recurring stock based
compensation expense of $33,000 and a loss on capital improvement receivable of
$98,820, which had an impact on expenses for the six months ended June 30, 2000.
LOSSES
The Registrant incurred losses from operations of $(3,328,031) in the six months
ended June 30, 2000 compared to $(607,186) in the six months ended June 30,
1999, for an increase of $(2,720,845) or 448.1%. The substantial increase in
losses was due primarily to the decrease in SITN business caused by its
inability to use its studio space in its new facility, the expenses of the Sigma
and AHP acquisitions and operations and the non-recurring stock based
compensation expense of $33,000 and loss on capital improvement receivable of
98,820 in the six months ended June 30, 2000. [The non-recurring stock-based
compensation expenses were important to the Company's retaining its employees.
These shares were issued to two non-executive employees.] Net other income and
expenses were $(54,492) in the six months ended June 30, 2000 and $(127,221) in
the six months ended June 30, 1999, for a decrease of $(72,729) or (57.2%).
LIQUIDITY AND CAPITAL RESOURCES
The Registrant has significant capital needs, which to date the Registrant has
met through private sales of its equity and loans. The Registrant will continue
to need substantial infusions of capital, which it expects to continue to fund
primarily from private sales of its equity and loans, or by a public offering of
its equity or debt securities. In the six months ended June 30, 2000, the
Registrant has received from Lloyds Bahamas Securities, LTD over $2 million in
additional financing, of which $892,000 consists of convertible notes
outstanding and $1,407,000 in convertible notes, which was converted into
2,814,000 shares of restricted common stock at $0.50 per share. The Registrant
is continuing in efforts to increase its capital resources.
Sales of common stock by the Company at less than the current trading price
could tend to depress prices in the pink sheet market. [Except for the
$9,500,000 needed to close the Betelgeuse transaction for which the Company does
not have a commitment, together] with anticipated revenue, the Company estimates
that this funding will be sufficient to fund the Company's business plan until
March 2001[, not including Betelgeuse]. The Company has received a separate
commitment from Lloyds for an additional [$1.5] million in financing once the
Company's common stock is relisted on the OTC Bulletin Board.
The Company has also received a non-binding letter of intent from Bryn Mawr
Investment Group, Inc. to provide up to $10 million in financing to the Company
through private or public offerings of securities, to be used for working
capital and acquisitions.
None of the Company's committed or proposed financing
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<PAGE> 17
is contingent on removing the "going concern" language from the Company's audit
report. [However, the Company has received a separate commitment from Lloyds for
an additional $1.5 million in financing once the Company's common stock is
relisted on the OTC Bulletin Board.]
[Select Media owes its counsel in its bankruptcy proceeding professional fees of
$798,000. However, under the agreement between select Media and its counsel,
this amount is payable only from the Company's profits. When the Company's
operations become profitable, the Company will begin making payments on this
obligation.]
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In November, 1999, 405 Lexington, L.L.C. (the "Landlord") began an action in New
York City Landlord-Tenant Court alleging that Select Media had breached its
lease and seeking the payment of use and occupancy. The Landlord is seeking up
to $600,000 in additional payments based on an alleged breach of the lease. The
Company is defending this action and believes the allegations of the Landlord
are without merit. On a motion by the Company, this action has been consolidated
with the Supreme Court Action discussed in the following paragraph.
In May, 2000, Select Media began an action in New York Supreme Court against the
Landlord seeking an injunction to permit completion of the build-out of the
studios to be used for SITN and surrounding space in its leased premises, the
release of $706,880 of Landlord's contributions toward build-out already
completed and for damages in excess of $10 million for loss of the SITN
business. On a motion by Select Media, the Court has consolidated this action
with the Landlord-Tenant Court action. The Court has ordered discovery in this
action beginning November 20, 2000.
[As part of the Bankruptcy Proceeding, the New York City Department of Finance
has filed alleged unsecured priority tax claims in the amount of $229,899,
including interest to December 31, 1999.]
ITEM 2. CHANGES IN SECURITIES.
In the quarter ended June 30, 2000, Lloyds Bahamas Securities, LTD
converted $1,407,000 in convertible debt into 2,814,000 shares of the Company's
restricted common stock at a conversion rate of $0.50 per share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable
ITEM 5. OTHER INFORMATION.
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 27.1-Financial Data Schedule-Previously filed on
November 21, 2000.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by
this report.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf of the undersigned, thereunto duly
authorized.
<TABLE>
<S> <C>
SELECT MEDIA COMMUNICATIONS, INC.
---------------------------------
(Registrant)
Date: 12/15/2000 /S/ MITCH GUTKOWSKI
----------------- ---------------------------------
MITCH GUTKOWSKI, Chief Executive Officer
</TABLE>
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