<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
[] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to _________
Commission file Number 000-24706
SELECT MEDIA COMMUNICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
New York 13-3415331
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
</TABLE>
666 Third Avenue, New York, NY
(Address of principal executive offices)
(212) 584-1900
(Issuer's telephone number)
(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, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [x] No [ ]
<PAGE> 2
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: 9,602,592
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<PAGE> 3
SELECT MEDIA COMMUNICATIONS INC.
AND SUBSIDIARY
CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2000 and 1999
<PAGE> 4
SELECT MEDIA COMMUNICATIONS INC.
AND SUBSIDIARY
CONTENTS
Page
----
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets 1-2
Statements of Operations 3-4
Statements of Cash Flows 5-6
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 7-8
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SELECT MEDIA COMMUNICATIONS INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited Audited
March 31, December 31,
2000 1999
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 3,315 $ 344
Accounts receivable, less allowance for doubtful
accounts of $505,659 and $243,114, respectively 107,870 365,200
Capital improvement receivable 557,303 557,303
Prepaid expenses and other current assets 140,926 140,377
Due from stockholders -- 166,000
Deposit on acquisition -- 400,000
---------- ----------
Total Current Assets 809,414 1,629,224
---------- ----------
PROPERTY AND EQUIPMENT, Net 526,189 463,365
---------- ----------
OTHER ASSETS
Intangibles, net 1,072,904 --
Reorganization value, net 1,812,750 1,873,854
---------- ----------
2,885,654 1,873,854
Total Other Assets ---------- ----------
TOTAL ASSETS $4,221,257 $3,966,443
========== ==========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 6
SELECT MEDIA COMMUNICATIONS INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited Audited
March 31, December 31,
2000 1999
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 1,553,445 $ 1,315,977
Accrued expenses 2,283,169 2,194,656
Notes payable 922,500 567,500
Current portion of capital lease obligation 62,996 55,490
Reorganization liabilities, current portion 100,000 100,000
Due to stockholders 1,429,000 --
------------ ------------
Total Current Liabilities $ 6,351,110 $ 4,233,623
------------ ------------
OTHER LIABILITIES
Capital lease obligation 57,249 120,224
Reorganization liabilities 1,384,890 1,479,969
------------ ------------
Total Other Liabilities 1,442,139 1,600,193
------------ ------------
TOTAL LIABILITIES 7,793,249 5,833,816
------------ ------------
COMMITMENTS
STOCKHOLDERS' DEFICIT
Common stock - $.001 par value; 35,000,000 shares
authorized; 9,752,592 and 9,602,592 shares 9,754 9,603
issued and outstanding, respectively
Additional paid-in capital 94,709,979 93,885,130
Accumulated deficit (98,291,725) (95,762,106)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIT (3,571,992) (1,867,373)
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 4,221,257 $ 3,966,443
============ ============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 7
SELECT MEDIA COMMUNICATIONS INC.
AND SUBSIDIARY
UNAUDITED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
2000 1999
---- ----
<S> <C> <C>
SALES $ 164,217 $ 780,723
COST OF SALES 119,372 359,294
----------- -----------
GROSS PROFIT 44,845 421,429
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 1,718,169 782,883
STOCK BASED COMPENSATION EXPENSE 825,000 --
----------- -----------
OPERATING LOSS (2,498,324) (361,454)
OTHER INCOME (EXPENSE)
Other income 12,007 --
Interest expense (43,302) (15,603)
----------- -----------
TOTAL OTHER INCOME (EXPENSE) (31,295) (15,603)
----------- -----------
LOSS BEFORE INCOME TAXES (2,529,619) (377,057)
INCOME TAXES -- --
----------- -----------
NET LOSS $(2,529,619) $ (377,057)
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 8
SELECT MEDIA COMMUNICATIONS INC.
AND SUBSIDIARY
UNAUDITED STATEMENTS OF OPERATIONS, Continued
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
2000 1999
---- ----
<S> <C> <C>
PER SHARE DATA
Basic and diluted net loss per common share:
Net loss $ (.26) $ (4.26)
========= ==========
Weighted Average Common Shares Outstanding 9,752,592 88,585
========= ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 9
SELECT MEDIA COMMUNICATIONS INC.
AND SUBSIDIARY
UNAUDITED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,529,619) $ (377,057)
----------- -----------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Stock-based compensation 825,000 --
Depreciation and amortization 123,184 88,513
Increase in allowance for doubtful accounts 262,545 20,156
Changes in assets and liabilities:
Decrease (Increase) in accounts receivable 29,302 (278,332)
Decrease in note receivable -- 43,200
Decrease in due from stockholder 166,000 --
Increase in prepaid expenses and other current
assets (549) (3,336)
Increase in accounts payable 178,783 117,109
Increase in accrued expenses 42,177 563,211
Decrease in reorganization liability (95,079) (145,406)
----------- -----------
TOTAL ADJUSTMENTS 1,531,363 405,115
----------- -----------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (998,256) 28,058
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (3,704) (225,587)
Purchase of Sigma Sound Services Inc., net of cash acquired (198,600) --
Purchase of intangible assets (125,000) --
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (327,304) (225,587)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of capital lease obligations (55,469) (14,421)
Proceeds from notes payable -- 135,000
Repayments of notes payable (45,000) --
Advances from shareholders 1,429,000 --
----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES $ 1,328,531 $ 120,579
----------- -----------
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 10
SELECT MEDIA COMMUNICATIONS INC.
AND SUBSIDIARY
UNAUDITED STATEMENTS OF CASH FLOWS, Continued
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
2000 1999
---- ----
<S> <C> <C>
NET INCREASE (DECREASE) INCREASE IN CASH $ 2,971 $ (76,950)
CASH AT BEGINNING OF PERIOD 344 118,165
--------- ---------
CASH AT END OF PERIOD $ 3,315 $ 41,215
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the years for:
Interest $ 24,290 $ 15,603
Noncash investing and financing activities:
Acquisition of equipment through capital leases $ -- $ 118,423
Sigma Sound Services, Inc. acquisition:
Issuance of note payable $ 400,000 --
Deposit applied to the purchase price $ 400,000 --
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 11
SELECT MEDIA COMMUNICATIONS INC.
AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 10-SB12G/A (filed on April 11, 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 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 three months ended March 31, 2000 was
$16,075.
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 three months
ended March 31, 2000 was $525.
7
<PAGE> 12
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. The Investment Bank has
advanced $1,429,000 to the Company through March 31, 2000. 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 through
April 13, 2000.
NOTE 4 - 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.
NOTE 5 - 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.
8
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Select Media is a New York corporation whose common stock is currently traded
over-the-counter under the symbol "SMTV." The Registrant previously was in the
business of producing and distributing "vignettes," which are short-form
(thirty-second) informational programs distributed by particular sponsors for
viewing during regular programming. In 1999, the Registrant 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 a new facility,
SITN's business is now limited to distributing news segments produced by others.
In January, 2000, the Registrant repositioned itself as the owner of
entertainment content providers whose product can be marketed through
traditional media and over the Internet. In January, 2000, the Registrant
purchased all the outstanding stock of Sigma Sound Studio, Inc. ("Sigma"). Sigma
is a full service recording studio that provides services to record companies
and independent artists and record producers. In March, 2000, the Registrant
purchased the assets of After Hours Productions, Inc. ("AHP"). AHP creates
custom music and video products. These acquisitions were accounted for as
purchases. See Financial Statements and notes to Financial Statements.
COMPETITION
The Registrant faces competition from some of the largest entertainment
companies in the United States. 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 the Registrant'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, the Registrant
believes that the use of the Internet for distribution of entertainment product
is both an opportunity and a challenge. With so many entertainment choices, the
Registrant 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.
MARKET STRATEGY
The Registrant markets its remaining vignette products to large advertisers
directly to the marketing departments of these companies. The Registrant uses
its own internal staff for such marketing. The Registrant intends to continue
with this strategy for its vignette products. The Registrant is developing
vignettes for radio as well, and is developing a form of vignette for on-
<PAGE> 14
line advertising.
Sigma markets its services directly through its principals. Sigma and AHP have
also produced successful 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. This web site
is expected to provide its customers with an interactive multimedia experience.
The web site is expected to host live web events including concerts, fan
chatrooms and live chat sessions with artists who are featured on the site. Some
of these events will be pay-for-view events. This web site is expected to be an
e-commerce site for Select, Sigma and AHP custom product as well as other
products.
The Registrant has 11 full time and 2 part time employees and operates a
facility at 666 Third Avenue, New York, New York used as the principal corporate
office and the site of its studio facilities. As a result of the Sigma
acquisition, the Registrant 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:
<PAGE> 15
<TABLE>
For the Year ended For the Quarter Ended
December 31, March 31,
------------ ---------
1999 2000 1999
---- ---- ----
<S> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0%
Cost of revenues 56.1% 72.7% 46.0%
Gross profit (Loss) 43.9% 27.3% 54.0%
Operating expenses:
Selling, General and administrative 190.0% 1046.3% 100.3%
Nonrecurring costs 3639.4% 502.4% 0%
Total operating expenses 3829.4% 1,548.7% 100.3%
Operating income (loss) (3785.5 (1521.3)% (46.3)%
Other income and expense, net (14.1)% (19.1)% (2.0)%
Income (loss) before income taxes
and extraordinary items (3799.6)% (1540.4)% (48.3)%
Provision for (benefit from)
income taxes 0% 0% 0%
Net income (loss) before
extraordinary items (3799.6)% (1540.4)% (48.3)%
Extraordinary Items (157.6)% 0% 0%
------- ------- -----
Net Revenues (3957.2)% (1540.4)% (48.3)%
</TABLE>
Before the Sigma acquisition, the Registrant's net revenues were derived mainly
from the sales of vignettes, video press releases and SITN. In the quarter ended
March 31, 2000, net revenues decreased by $616,506, or 79.0%, to $164,217 from
$780,723 in the quarter ended March 31, 1999. The decrease in net revenues
during the first quarter of 2000 was primarily attributable to 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 revenues in the coming
year to be significantly lower than 1999 levels.
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. The resulting gross profit
fluctuates based on factors such as salary expense, editing and marketing.
Re-use of vignettes and portions thereof increases profits. Gross margin
decreased to 27.3 % in the quarter ended March 31, 2000, compared to 54% in the
quarter ended March 31,
<PAGE> 16
1999. The decrease during the quarter ended March 31, 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 acquisition to have a positive
effect on both revenues and gross margin.
EXPENSES
Selling, general and administrative expenses were $1,718,169 in the quarter
ended March 31, 2000 compared with $782,883 in the quarter ended March 31, 1999,
for an increase of $935,286, or 119.5%. 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, including payroll and professional fees. The Registrant's
expenses in the quarter ended March 31, 2000 also include a non-recurring stock
based compensation expense of $825,000, which had a substantial impact on
expenses for the quarter ended March 31, 2000.
LOSSES
The Registrant incurred losses from operations of $(2,498,324) in the quarter
ended March 31, 2000 compared to $(361,454) in the quarter ended March 31, 1999,
for an increase of $(2,136,870) or 591.2%. 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 the non-recurring stock based compensation expense of $825,000
in the quarter ended March 31, 2000, caused by issuances of stock to two of the
Registrant's employees. Net other income and expenses were $(31,295) in the
quarter ended March 31, 2000 and $(15,603) in the quarter ended March 31, 1999,
for an increase of $(15,692) or 100.6%.
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. The Registrant has received a commitment from a
funding source for $2 million in additional financing for the year 2000 and is
continuing in efforts to increase capital resources. Of the $2 million
additional committed financing, the Company has received $1,429,000 in the
quarter ended March 31, 2000, part of which was used in the Sigma and AHP
acquisitions.
<PAGE> 17
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 Company is
defending this action and believes the allegations of the Landlord are without
merit.
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 and surrounding space in its leased premises, the release of
Landlord's contributions toward build-out already completed and for damages in
excess of $10 million for loss of the SITN business.
ITEM 2. CHANGES IN SECURITIES.
Not Applicable
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.
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Not Applicable
<PAGE> 18
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.
SELECT MEDIA COMMUNICATIONS, INC.
(Registrant)
Date:___________________________ ________________________________
MITCH GUTKOWSKI, Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 2000 QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,315
<SECURITIES> 0
<RECEIVABLES> 613,529
<ALLOWANCES> 505,659
<INVENTORY> 0
<CURRENT-ASSETS> 809,414
<PP&E> 526,189
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,221,257
<CURRENT-LIABILITIES> 6,351,110
<BONDS> 0
0
0
<COMMON> 9,752,592
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,221,257
<SALES> 164,217
<TOTAL-REVENUES> 176,224
<CGS> 119,372
<TOTAL-COSTS> 1,837,541
<OTHER-EXPENSES> 868,302
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,302
<INCOME-PRETAX> (2,529,619)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,529,619)
<EPS-BASIC> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
