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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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FORM 10-SB12G/A
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GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(g) of
The Securities Exchange Act of 1934
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SELECT MEDIA COMMUNICATIONS, INC.
(Name of Small Business Issuer in its charter)
New York 13-3415331
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
666 Third Avenue, New York, NY 10017
(Address of principal executive offices) (Zip code)
Issuer's telephone number: (212) 584-1900
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock ($.001 Par Value)
(Title of Class)
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TABLE OF CONTENTS
<TABLE>
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Page
PART I
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Item 1. Description of Business. 1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 7
Item 3. Description of Property. 12
Item 4. Security Ownership of Certain Beneficial Owners and Management 12
Item 5. Directors, Executive Officers, Promoters and Control Persons 14
Item 6. Executive Compensation 16
Item 7. Certain Relationships and Related Transactions 17
Item 8. Description of Securities 17
PART II
Item 1. Market for Common Equities and Related Stockholder Matters 17
Item 2. Legal Proceedings 19
Item 3. Changes in and Disagreements with Accountants 19
Item 4. Recent Sales of Unregistered Securities. 20
Item 5. Indemnification of Directors and Officers. 22
PART F/S
Financial Statements 23
Table of Contents 24
PART III
Item 1. Index to Exhibits. 36
Signatures 36
</TABLE>
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PART I
Item 1. Description of Business
Select Media Communications, Inc. (the "Company" or "Select Media"), a New York
media company, was organized in September, 1981 and specializes in the creation
and production of short-form (thirty-second) television programming, referred to
as "vignettes", designed to wrap around commercials in order to hold the
viewer's interest and improve viewer recall. Select also purchases airtime for
its vignette commercials. Integration enables Select to maximize profitability
by retaining control of the production, distribution, advertising and sales of
its products.
Select has produced vignettes for a wide variety of advertisers including
Campbell Soup Company, Miller Brewing Company, Paramount Pictures, Beatrice
Foods, Hyundai Motors of America, The Prudential, Warner Lambert Company and
L'Oreal. Production and sales of vignettes constitute Select's core business and
entail making the vignettes available to advertisers for their exclusive use for
a period of time for a fee. Select purchases advertising time around which the
vignettes would air and retains the difference between the fees paid by
advertisers and the cost of purchasing required advertising airtime and
producing the vignette. Select is able to purchase advertising time at the best
available rates and maximize profitability.
The Company produces or has under development the following vignette series: (a)
The Business of Sports; (b) Your Health Today; (c) The Beauty Report; and (d)
Fashion Matters. The Company also produces and distributes video press releases
for General Motors Corporation. In 1999, the Company 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. SITN
also provides crewing, transmission and studio facilities, teleconferencing and
video news release production and distribution to the corporate community.
On October 13, 1995, the Company filed a voluntary petition for reorganization
in accordance with and pursuant to Chapter 11 of Title 11 of the United States
Bankruptcy Code. The petition was filed in the United States Bankruptcy Court
for the Southern District of New York and its plan of reorganization was
confirmed on August 28, 1997.
In January, 2000, the Company purchased the assets and business of Sigma Sound
Studio, Inc. ("Sigma"). Sigma is one of the most famous recording studios in
popular music history. Founded in 1968 by Joseph Tarsia, the Company's
president, Sigma is a state of the art recording facility, including both analog
and digital capabilities. Sigma was the birthplace of THE SOUND OF PHILADELPHIA,
and the home of some of the most influential record producers and audio
engineers of the Seventies and Eighties. Sigma and its staff will assist in
record production and sound mixing for CDs, DVDs and videos.
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Select Media's business is subject to numerous risk factors, including, but not
limited to, the following:
RISKS RELATED TO THE COMPANY'S BUSINESS
Select Media Anticipates Future Losses and Negative Cash Flow; Substantial
Accumulated Deficit. Select Media expects operating losses and negative cash
flow to continue for the foreseeable future. Select Media anticipates the
Company's losses will increase significantly from current levels because the
Company expects to incur additional costs and expenses related to:
- brand development, marketing and other promotional activities;
- expansion of the Company's operations;
- integration of the Sigma acquisition;
- potential other acquisitions in the Company's areas of focus; and
- development of relationships with strategic business partners.
As of December 31, 1999, Select Media had an accumulated deficit of $95,762,106.
Select Media incurred net losses of $91,410,341 on gross sales of $2,310,002 for
the fiscal year ended December 31, 1999. The Company's ability to become
profitable depends on the Company's ability to generate and sustain
substantially higher net sales while maintaining reasonable expense levels. If
Select Media does achieve profitability, the Company cannot be certain that the
Company would be able to sustain or increase profitability on a quarterly or
annual basis in the future. See Item 2-"Managements Discussion and Analysis."
The Company's Operating Results are Volatile and Difficult to Predict. If Select
Media Fails to Meet the Expectations of Public Market Analysts and Investors,
the Market Price of the Company's Common Stock May Decrease Significantly. The
Company's annual and quarterly operating results may fluctuate significantly in
the future due to a variety of factors, many of which are outside of the
Company's control, including, among other things, the unpredictability of
consumer trends. Because the Company's operating results are volatile and
difficult to predict, Select Media believes that quarter-to-quarter comparisons
of the Company's operating results are not a good indication of the Company's
future performance. It is likely that in some future quarter the Company's
operating results may fall below the expectations of securities analysts and
investors. In this event, the trading price of the Company's Common Stock may
fall significantly. Factors that may harm the Company's business or cause the
Company's operating results to fluctuate include the following:
- the Company's inability to obtain new customers at reasonable cost and
retain existing customers;
- decreases in the funds available for marketing and promoting the
Company's services;
- the Company's inability to manage integration of acquisitions;
- the Company's inability to adequately maintain, upgrade and develop the
Company's
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technical systems;
- the ability of the Company's competitors to offer competitive services or
products;
- price competition;
- the termination of existing, or failure to develop new, strategic
marketing relationships;
- increases in the cost of marketing; and
- the amount and timing of operating costs and capital expenditures
relating to expansion of the Company's operations.
A number of factors will cause the Company's gross margins to fluctuate in
future periods, including the mix of services provided by the Company and its
subsidiaries, the market for the Company's products, the Company's ability to
keep up with technical innovations and efficiencies and the like. Any change in
one or more of these factors could harm the Company's gross margins and
operating results in future periods.
If Select Media Is Unable To Obtain Contracts for use of its Vignettes From the
Company's Customers, the Company's Net Sales Would Be Adversely Affected. If
Select Media were unable to sell the use of its vignettes to its customers, the
Company's net sales and results of operations would be harmed.
To Manage the Company's Growth and Expansion, Select Media Needs To Integrate
its Acquisitions. If Select Media Is Unable To Do So Successfully, the Company's
Business Would Be Seriously Harmed. The Company's growth in operations and
possible acquisitions will place a significant strain on the Company's
management, information systems and resources. In order to manage this growth
effectively, Select Media needs to continue to improve the Company's financial
and managerial controls and reporting systems and procedures. The Company's
failure to successfully implement, improve and integrate these systems and
procedures would harm the Company's results of operations.
Select Media May Not Be Able To Compete Successfully Against Current and Future
Competitors. The Company 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 Company'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.
Many of the Company's competitors have longer operating histories, larger
customer bases, greater brand recognition and significantly greater financial,
marketing and other resources than does Select Media. Many of these competitors
can devote substantially more resources to marketing and promotion than can
Select Media. In addition, larger, well-established and well-financed
entertainment companies may try to offer competing products. The Company's
competitors may be able to adopt more aggressive pricing policies than can
Select Media.
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If Select Media Does Not Successfully Expand the Company's Product Offerings,
the Company's Business Could be Seriously Harmed. If Select Media does not
successfully expand the Company's product offerings, including new vignette
series, news services and video press releases, Select Media will not be able to
increase the Company's net sales in accordance with the expectations of
securities analysts and investors. In such an event, the Company's business will
be harmed. The Company's success depends on the Company's ability to expand the
Company's product and service offerings rapidly in order to accommodate a
significant increase in customer orders. The Company's planned expansion may
cause disruptions that could harm the Company's business, results of operations
and financial condition.
If Select Media Does Not Respond To Rapid Technological Changes, the Company's
Services Could Become Obsolete and the Company's Business Would Be Seriously
Harmed. If Select Media faces material delays in introducing new services,
products and enhancements, the Company's customers may forego the use of the
Company's services and use those of the Company's competitors. To remain
competitive, Select Media must continue to improve and expend its programming
choices and value-added services. The entertainment industry is rapidly changing
as a result of technology improvements, new distribution channels and new
customer demands. If competitors introduce new products and services embodying
new technologies, or if new industry standards and practices emerge, the
Company's existing products and services may become obsolete. Developing,
enhancing and upgrading the Company's technology entails significant technical
and business risks. Select Media may use new technologies ineffectively or
Select Media may fail to adapt the Company's existing technology and the
Company's computer network to customer requirements or emerging industry
standards.
Intellectual Property Claims Against the Company Could Be Costly and Could
Result In the Loss Of Significant Rights. Other parties may assert infringement
or unfair competition claims against Select Media. The Company cannot predict
whether third parties will assert claims of infringement against Select Media,
or whether any future assertions or prosecutions will harm the Company's
business. If Select Media is forced to defend against any such claims, whether
they are with or without merit or are determined in the Company's favor, then
Select Media may face costly litigation, diversion of technical and management
personnel, or product shipment delays. Because of such a dispute, Select Media
may have to develop non-infringing technology or enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may be
unavailable on terms acceptable to the Company, or at all. If there is a
successful claim of product infringement against the Company and Select Media
are unable to develop non-infringing technology or license the infringed or
similar technology on a timely basis, it could harm the Company's business.
If the Protection of the Company's Technology, Trademarks and Proprietary Rights
Is Inadequate, the Company's Business Will Be Seriously Harmed. The steps Select
Media takes to protect the Company's proprietary rights may be inadequate.
Select Media regards the Company's copyrights, service marks, trademarks, trade
dress, trade secrets
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and similar intellectual property as critical to the Company's success. Select
Media relies on trademark and copyright law, trade secret protection and
confidentiality or license agreements with the Company's employees, customers,
partners and others to protect the Company's proprietary rights.
The Loss of the Services of One Or More of the Company's Key Personnel, or the
Company's Failure To Attract, Assimilate and Retain Other Highly Qualified
Personnel in the Future Would Seriously Harm the Company's Business. The loss of
the services of one or more of the Company's key personnel could seriously harm
the Company's business. Select Media depends on the continued services and
performance of the Company's senior management and other key personnel,
particularly Mitch Gutkowski. All of the Company's officers and key employees
are bound by employment agreements. Select Media does not have "key person" life
insurance policies covering any of the Company's employees.
Select Media May Be Adversely Impacted if the Software, Computer Technology and
Other Systems Select Media Uses are not Year 2000 Compliant. Any failure of the
Company's material systems, the Company's vendors' material systems or the
Internet to be Year 2000 compliant would have material adverse consequences for
the Company. Such consequences would include difficulties in providing switching
or conducting other fundamental parts of the Company's business. Select Media
has determined that all of its material systems are Year 2000 compliant and has
received assurances that its vendors' systems are Year 2000 compliant also.
Select Media also depends on the Year 2000 compliance of the computer systems
and financial services used by consumers and by telecommunications companies
with which its systems operate. A significant disruption in the ability of
consumers to reliably access their telecommunications system or portions of it
would have an adverse effect on demand for the Company's services and would have
a material adverse effect on the Company. See Item 2-"Management's Discussion
and Analysis."
Risks Associated With Potential Acquisitions. If Select Media is presented with
appropriate opportunities, Select Media intends to make investments in
complementary companies, products or technologies. Select Media may not realize
the anticipated benefits of any acquisition or investment. If Select Media buys
a company, Select Media could have difficulty in assimilating that company's
personnel and operations. In addition, the essential personnel of the acquired
company may decide not to work for the Company. If Select Media makes other
types of acquisitions, Select Media could have difficulty in assimilating the
acquired technology or products into the Company's operations. These
difficulties could disrupt the Company's ongoing business, distract the
Company's management and employees and increase the Company's expenses.
Furthermore, Select Media may have to incur debt or issue equity securities to
pay for any future acquisitions or investments, the issuance of which could be
dilutive to the Company or the Company's existing stockholders.
Existing Stockholders Will Be Able to Exercise Significant Control Over Select
Media. Executive officers, directors and entities affiliated with them, if
acting together, would be
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able to significantly influence all matters requiring approval by the Company's
stockholders, including the election of directors and the approval of mergers or
other business combination transactions. These stockholders, taken together,
beneficially own approximately 46% of the Company's outstanding common stock and
can effectively elect all directors and pass any action requiring stockholder
approval at a meeting. See Item 4. "Security Ownership of Certain Beneficial
Owners and Management" and Item 5 "Directors, Executive Officers, Promoters and
Control Persons."
RISKS RELATED TO SECURITIES MARKETS
Select Media May Be Unable to Meet the Company's Future Capital Requirements.
Select Media cannot be certain that additional financing will be available to
the Company on favorable terms when required, or at all. If Select Media raises
additional funds through the issuance of equity, equity-related or debt
securities, such securities may have rights, preferences or privileges senior to
those of the rights of the Company's Common Stock and the Company's stockholders
may experience additional dilution. Select Media requires substantial working
capital to fund the Company's business. Since the Company's emergence from
Chapter 11 bankruptcy proceedings, Select Media has experienced negative cash
flow from operations and expects to experience significant negative cash flow
from operations for the foreseeable future. Select Media currently anticipates
that the Company's available funds will be sufficient to meet the Company's
anticipated needs for working capital and capital expenditures through at least
the next 12 months. Select Media may need to raise additional funds before the
expiration of such period.
The Company's Common Stock Price May Be Volatile, Which Could Result in
Substantial Losses For Individual Stockholders. The market price for the
Company's common stock is likely to be highly volatile and subject to wide
fluctuations in response to factors including the following, some of which are
beyond the Company's control:
- actual or anticipated variations in the Company's quarterly operating
results;
- announcements of new products or services by the Company or the
Company's competitors;
- changes in financial estimates by securities analysts;
- conditions or trends in the telecommunications industry;
- changes in the economic performance and/or market valuations of other
independent telecommunications companies;
- announcements by the Company or the Company's competitors of significant
acquisitions, strategic partnerships, joint ventures or capital
commitments;
- additions or departures of key personnel;
- release of lock-up or other transfer restrictions on the Company's
outstanding shares of common stock or sales of additional shares of
common stock; and
- potential litigation.
If the Company's Stock Price Is Volatile, Select Media Could Face a Securities
Class Action Lawsuit. In the past, following periods of volatility in the market
price of their
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stock, many companies have been the subjects of securities class action
litigation. If disgruntled stockholders sued Select Media in a securities class
action, it could result in substantial costs and a diversion of management's
attention and resources and would harm the Company's stock price.
Substantial Sales of the Company's Common Stock Could Cause the Company's Stock
Price To Fall. If the Company's stockholders sell substantial amounts of the
Company's Common Stock in the public market, the market price of the Company's
Common Stock could fall. Such sales also might make it more difficult for the
Company to sell equity or equity-related securities in the future at a time and
price that Select Media deems appropriate.
Conflicts of Interest. Officers and directors of the Company may in the future
participate in business ventures that could be deemed to compete directly with
the Company. Additional conflicts of interest and non-arms length transactions
may also arise in the future in the event the Company's officers or directors
are involved in the management of any firm with which the Company transacts
business. The Company has adopted a policy that the Company will not seek a
merger with, or acquisition of, any entity in which members of the Company's
management serve as officers, directors or partners, or in which they or their
family members own or hold any material ownership interest.
Reporting Requirements May Delay or Preclude Acquisition. Sections 13 and 5(d)
of the Securities Exchange Act of 1934 (the "1934 Act"), require companies
subject thereto to provide certain information about significant acquisitions,
including certified financial statements for the company acquired, covering one,
two, or three years, depending on the relative size of the acquisition. The time
and additional costs that may be incurred by some target entities to prepare
such statements may significantly delay or essentially preclude consummation of
an otherwise desirable acquisition by the Company. Acquisition prospects that do
not have or are unable to obtain the required audited statements may not be
appropriate for acquisition so long as the reporting requirements of the 1934
Act are applicable.
ITEM 2. 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 on
the Over-the-Counter Bulletin Board under the symbol "SMTV." The Company
currently produces and distributes "vignettes," which are short-form
(thirty-second) informational programs distributed by particular sponsors for
viewing during regular programming. The Company produces or has under
development the following vignette series: (a) The Business of Sports; (b) Your
Health Today; (c) The Beauty Report; and (d) Fashion Matters. The Company also
produces and distributes video press releases for General Motors Corporation. In
1999, the Company hired personnel to provide services to
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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. SITN also
provides crewing, transmission and studio facilities, teleconferencing and video
news release production and distribution to the corporate community.
In January, 2000, the Company purchased the assets and business of Sigma Sound
Studio, Inc. ("Sigma"). The acquisition of Sigma was accounted for as a
purchase. See, Financial Statements.
COMPETITION
The Company 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 Company'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 Company 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 Company
faces the challenge of adapting its core business to Internet entertainment.
MARKET STRATEGY
The Company markets its vignette products to large advertisers directly to the
marketing departments of these companies. The Company uses its own internal
staff for such marketing. The Company intends to continue with this strategy for
its vignette products. The Company is developing vignettes for radio as well,
and is developing a form of vignette for on-line advertising.
Sigma markets its services directly through its principals. Sigma has also
produced successful compilation albums sold through home shopping channels,
direct response television and direct mail. Select Media and Sigma are working
jointly on projects for marketing musical works via the Internet and expects to
develop such a strategy or partner with an Internet retailer for on-line product
distribution of both compact discs and downloadable music files.
The Company 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
Company also leases a sound recording studio facility at North 12th Street in
Philadelphia, Pennsylvania.
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's consolidated
statements of operations as a percentage of net revenues for the periods
indicated:
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<TABLE>
<CAPTION>
For the Year ended
December 31,
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1999 1998
---- ----
<S> <C> <C>
Net revenues ......................... 100.0% 100.0%
------- -------
Cost of revenues ..................... 56.1% 48.9%
------- -------
Gross profit ......................... 43.9% 51.1%
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Operating expenses:
Marketing and selling .............. 0% 0%
General and administrative ......... 190% 291.1%
Nonrecurring costs ................. 3639.4% 453%
Amortization of acquisition-related
intangible assets .................. 0% 0%
Total operating expenses ......... 3829.4% 744.1%
Operating income (loss) .............. (3785.5)% (693)%
Other income and expense, net ........ (14.1)% (259.9)%
Income (loss) before income taxes
and extraordinary items ............ (3799.6)% (952.9)%
Provision for (benefit from)
income taxes ....................... 0% 0 %
Net income (loss) before
extraordinary items ................ (3799.6)% (952.9)%
Extraordinary Items .................. (157.6)% 0%
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Net Revenues ......................... (3957.2)% (952.9)%
</TABLE>
The Company's net revenues have been derived mainly from the sales of vignettes
and video press releases. Net revenues increased by $1.9 (475%) to $2.3 million
in the year ended December 31, 1999 from $0.4 million in 1998. The increase in
net revenues during 1999 was primarily attributable to revenues from its
international news operations and video press releases for General Motors
Corporation. The Company believes it can expand its video press release business
for the current year, but expects SITN revenues to be consistent with 1999
levels.
Gross Profit
Cost of revenues consists primarily of costs associated with the producing the
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 44% in 1999, compared to 51% in 1998. The
decrease during 1999 was primarily due to for expenses
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of starting the international news bureau operation. The Company currently
expects gross margins during 2000 to be consistent with the 1999 levels. In the
current year, the Company expects the Sigma acquisition to have a positive
effect on both revenues and gross margin.
Expenses
Selling, general and administrative expenses were $4,389,803 in 1999 and
$1,304,615 in 1998, for an increase of $3,085,188, or 236%. This increase was
attributable to large salary and rent expenses for the expansion of the
Company's new SITN business and relocation of the Company's offices. The
Company's expenses in 1999 also include a non-recurring stock based compensation
expense of $84,070,333, which had a substantial impact on expenses for the year.
The Company also had extraordinary item of $3,640,000 in 1999, due to
extinguishment of debt costs.
Losses
The Company incurred losses from operations of $(87,445,024) in 1999 compared to
$(3,105,497) in 1998, for an increase of $(84,339,527) or 2,716%. The
substantial increase in losses was due primarily to non-recurring stock based
compensation expense of $84,070,333 in 1999, caused by issuances of stock to the
Company's principals and employees, for extinguishment of debt and for
consultant's compensation. These non-recurring costs were vital to the Company's
remaining viable in its industry. The Company anticipates that it will not be
subject to such substantial non-recurring costs in 2000. Net other expenses were
$(325,317) in 1999 and $(1,164,798) in 1998, for a decrease of $(839,481) or
72%.
LIQUIDITY AND CAPITAL RESOURCES
The Company has significant capital needs, which to date the Company has met
through private sales of its equity and loans. The Company 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 Company 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.
Item 3. Description of Property
The Company leases a facility as its headquarters located at 666 Third Avenue,
New York, New York. This facility contains studio space, editing equipment and
offices. The facility contains approximately 16,700 square feet total, of which
11,000 square feet are used for office space, 4,000 square feet are used for
studios and 1,200 square feet are used to house equipment. The lease on this
facility expires February 15, 2015 and the annual lease payments in 2000 are
$522,951 for the entire facility. In addition, the Company has agreed to rent
additional space from its landlord at the same premises, pending certain
building modifications to be performed by the landlord. When the additional
space is ready, the Company will have an additional annual rental commitment of
$360,665 for years one through five, $387,885 for years six through ten and
$415,105 for years eleven through the expiration date of the lease.
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As part of the Sigma transaction, the Company leases a facility located at North
12th Street, Philadelphia, Pennsylvania as the recording studio and offices of
Sigma Sound. This facility contains recording studio space, editing equipment
and offices. The facility contains approximately 3,000 square feet total, of
which 1,000 square feet are used for office space, and 2,000 square feet are
used for studios. The lease on this facility expires January 31, 2005 and the
annual lease payments are $76,000 for the entire facility.
Item 4. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners.
The following table sets forth the beneficial ownership for the Company's sole
class of Common Stock of the Company beneficially owned by all directors,
officers and 5% or more holders.
<TABLE>
<CAPTION>
Name and
Address of Nature of
Beneficial Beneficial Number of
Owner Ownership Shares Percent
- ----- --------- ------ -------
<S> <C> <C> <C>
Mitch Gutkowski(1) Record 2,000,000 23%
James Mongiardo Not Applicable 0 0%
Chet Simmons (1) Record 11,600 (2)
Dominick Sartorio (1) Record 2,006,667 23%
</TABLE>
(1) Address c/o the Company at 666 Third Avenue, New York, New York.
(2) Less than 1%.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The directors and officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Mitch Gutkowski 45 Chairman of the Board
and Director
James Mongiardo 54 Vice Chairman and Director
Chet Simmons 71 Director
Joseph Tarsia 65 President of Sigma Sound
Billy Terrill 55 Executive Vice President of Sigma
Sound
</TABLE>
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MITCH GUTKOWSKI founded Select Media Communications, Inc. in 1981 and as Co-
Chairman coordinates the efforts of the Company's divisions and oversees
operations. With the Board of Directors as a group, Mr. Gutkowski oversees
strategic planning for the Company. Before founding Select Media, Mr. Gutkowski
was Vice President for Advertising Sales for Pro-Sport Entertainment, Inc.
JAMES MONGIARDO, Vice Chairman of the Board, has extensive experience in
building companies and in the banking and securities business. He has served as
Chief Executive Officer for public biotechnology and healthcare services
companies and as head of United States Marketing for Schering-Plough
Corporation. For the past five years, he has been Managing Director of LBC
Capital, an investment banking firm specializing in institutional private
placements for emerging companies.
CHET SIMMONS, Director, has a distinguished career in helping to shape modern
sports television. In 1957, he joined the group responsible for the American
Broadcasting Company's sports programming, including "ABC's Wide World of
Sports," "The American Sportsman," and ABC's classic Olympic Games coverage. In
1964, he moved to NBC, where rose to the position of the first President of NBC
Sports. During his tenure at NBC, that network acquired the rights to televise
Major League Baseball, the National Hockey League, various Olympic Games and
NCAA football. Mr. Simmons left NBC Sports to become the first President and
Chief Executive Officer of ESPN. Mr. Simmons became commissioner of the United
States Football League in 1982 and then went on to serve as a consultant to a
wide variety of sports/television businesses.
JOE TARSIA started his recording career in 1958, building and maintaining local
Philadelphia recording studios. In 1961, he joined Cameo Parkway Records, where
he quickly rose to the position of Chief Engineer for such artists as Bobby
Rydell, Chubby Checker, the Dovells and the Orlons. In 1968, Mr. Tarsia founded
Sigma Sound Studios as an independent recording studio, which became the home of
major record producers Kenny Gamble, Leon Huff and Thom Bell, and the birthplace
of THE SOUND OF PHILADELPHIA.
Sigma earned Gold and Platinum record awards for recordings by Jerry Butler, The
Intruders, Harold Melvin and The Blue Notes, The Ojays, Teddy Pendergrass, The
Stylistics, The Delfonics, Lou Rawls and The Jacksons. Artists and producers who
recorded at Sigma included Stevie Wonder, B.B. King, Grace Jones, Gladys Knight
and The Pips, David Bowie, Robert Palmer and The Four Tops.
In 1976, Mr. Tarsia expanded Sigma to include three studios in Manhattan's music
district. Sigma New York attracted the likes of Whitney Houston, Madonna, Steely
Dan, The Village People, Talking Heads, Paul Simon, Ashford and Simpson and
Billy Joel.
Mr. Tarsia has won many industry awards for his engineering accomplishments,
including over 150 Gold and Platinum records. Recently, his Philadelphia
recording studio was named as a national rock and roll landmark.
12
<PAGE> 15
Mr. Tarsia is President of Sigma.
BILLY TERRILL, Executive Vice President of Sigma Sound, has spent the last 30
years in the music business. Over the course of his career, he has written,
arranged and produced over 300 works released by Frankie Avalon, Helen Reddy,
David Clayton-Thomas, LeVert, The Manhattans, The Moments and many others. Mr.
Terrill has written and produced works for Columbia Records, Atlantic, Polydor,
Mercury, RCA, Paramount and many others. His hits span many genres, from pop to
R & B to jazz.
The above listed directors will serve until the next annual meeting of the
stockholders or until their death, resignation, retirement, removal, or
disqualification, and until their successors have been duly elected and
qualified. Our executive officers serve at the discretion of the Board of
Directors. Vacancies in the existing Board of Directors are filled by majority
vote of the remaining Directors. Officers of the Company serve at the will of
the Board of Directors. There are no agreements or understandings for any
officer or director to resign at the request of another person and no officer or
director is acting on behalf of or will act at the direction of any other
person. There is no family relationship between any executive officer or
director of the Company.
Board Committees. The Board of Directors has not yet established any committees.
The Board intends to establish a Compensation Committee and an Audit Committee
at the next meeting of the Board of Directors.
Compensation Committee Interlocks And Insider Participation. The Board has not
yet established a Compensation Committee. The Board of Directors as a whole
performs this function.
Director Compensation. Select Media's directors do not receive any cash
compensation for their service as members of the Board of Directors, although
they are reimbursed for travel and lodging expenses in connection with
attendance at Board meetings.
Item 6. Executive Compensation.
Executive Compensation. The following table sets forth the compensation received
for services rendered to the Company during the fiscal year ended December 31,
1999 by our Chief Executive Officer. Except for the CEO, the Company had no
officers who earned more than $100,000 during the fiscal year ended December 31,
1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name And Principal Annual Compensation Other Annual Long-Term All Other
Position Salary($) Bonus($) Compensation Compensation Awards
- -------- --------- -------- ------------ ------------ ------
Compensation
------------
<S> <C> <C> <C> <C>
Mitch Gutkowski $252,000 $ 0 None None $42,000,000
Chief Executive Officer
</TABLE>
13
<PAGE> 16
The Company did not pay to our Chief Executive Officer or any executive officer
any compensation intended to serve as incentive for performance to occur over a
period longer than one year pursuant to a long-term incentive plan in the fiscal
year ended December 31, 1999. The Company does not have any defined benefit or
actuarial plan with respect to our Chief Executive Officer or any executive
officer under which benefits are determined primarily by final compensation and
years of service. On October 25, 1999, Mr. Gutkowski was issued 2,000,000 shares
of Common Stock for prior services to the Company.
Option Grants
The Company made no stock option grants in the fiscal year ended December 31,
1999.
Employment Contracts
The Company has an employment contract with Mr. Gutkowski to act as the
Company's president and chief executive officer, which provides for a yearly
salary of $200,000 in 2000, $300,000 in 2001, $350,000 in 2002, $400,000 in 2003
and $450,000 in 2004, with a bonus of 2% of the Company's net profits,
determined and paid quarterly. This agreement was effective October 25, 1999,
has a term of 5 years and expires October, 2004. Under a prior agreement,
effective until October 24, 1999, Mr. Gutkowski's salary was $300,000 per year.
Members of the Company's management are associated with other firms involved in
a range of business activities. Consequently, there are potential inherent
conflicts of interest in their acting as officers and directors of the Company.
Insofar as the officers and directors are engaged in other business activities,
management anticipates it will devote only a minor amount of time to the
Company's affairs.
The officers and directors of the Company are now and may in the future become
stockholders, officers or directors of other companies that may be engaged in
business activities similar to those conducted by the Company. Accordingly,
additional direct conflicts of interest may arise in the future with respect to
such individuals acting on behalf of the Company or other entities. Moreover,
additional conflicts of interest may arise with respect to opportunities which
come to the attention of such individuals in the performance of their duties or
otherwise. The Company does not currently have a right of first refusal
pertaining to opportunities that come to management's attention insofar as such
opportunities may relate to the Company's business operations.
None of the Company's directors receives any compensation for their respective
services rendered to the Company as directors, nor have they received such
compensation in the past. They all have agreed to act without compensation until
authorized by the Board of Directors. Further, none of the directors is accruing
any compensation under any agreement with the Company.
14
<PAGE> 17
Item 7. Certain Relationships and Related Transactions.
There have been no related party transactions or any other transactions or
relationships required to be disclosed pursuant to Item 404 of Regulation S-B.
Item 8. Description of Securities.
The Company's authorized capital stock consists of 35,000,000 shares, par value
$.001 per share. All share numbers in this Registration Statement have been
adjusted to reflect the Company's 1 for 300 reverse stock split effective
November 30, 1999. There are 9,602,592 shares of Common Stock issued and
outstanding as of the date of this filing. All shares of Common Stock have equal
voting rights and, when validly issued and outstanding, are entitled to one vote
per share in all matters to be voted upon by stockholders. The shares of Common
Stock have no preemptive, subscription, conversion or redemption rights and may
be issued only as fully-paid and non-assessable shares. Cumulative voting in the
election of directors is not permitted, which means that the holders of a
majority of the issued and outstanding shares of Common Stock represented at any
meeting at which a quorum is present will be able to elect the entire Board of
Directors if they so choose and, in such event, the holders of the remaining
shares of Common Stock will not be able to elect any directors. In the event of
liquidation of the Company, each stockholder is entitled to receive a
proportionate share of the Company's assets available for distribution to
stockholders after the payment of liabilities and after distribution in full of
preferential amounts, if any. All shares of the Company's Common Stock issued
and outstanding are fully paid and nonassessable. Holders of the Common Stock
are entitled to share pro rata in dividends and distributions with respect to
the Common Stock, as may be declared by the Board of Directors out of funds
legally available therefor.
PART II
Item 1. Market Price for Common Equity and Related Stockholder Matters.
Price quotations for the Company's Common Stock are posted presently on the OTC
Bulletin Board and have been since August, 1997. As soon as the Company becomes
eligible, the Company intends to request a listing for the Common Stock on the
NASDAQ SmallCap Market (TM). This listing requires certain asset, earnings and
per share price standards that the Company does not now meet. The Company can
give no assurance that it will meet these standards in the foreseeable future,
it at all.
(a) Market Price.
The historical prices for the Company's Common Stock on the OTC Bulletin Board
are as follows:
15
<PAGE> 18
<TABLE>
<CAPTION>
Period High Low
- ------ ---- ---
1997
- ----
<S> <C> <C>
First Quarter $52.50 $33.00
- --------------------------------------------------------------------------------
Second Quarter $46.50 $30.00
- --------------------------------------------------------------------------------
Third Quarter $204.00 $30.00
- --------------------------------------------------------------------------------
Fourth Quarter $144.00 $36.00
- --------------------------------------------------------------------------------
1998
- ----
First Quarter $51.00 $15.00
- --------------------------------------------------------------------------------
Second Quarter $300.00 $16.50
- --------------------------------------------------------------------------------
Third Quarter $267.00 $45.00
- --------------------------------------------------------------------------------
Fourth Quarter $108.00 $30.00
- --------------------------------------------------------------------------------
1999
- ----
First Quarter $84.00 $42.00
- --------------------------------------------------------------------------------
Second Quarter $183.00 $52.50
- --------------------------------------------------------------------------------
Third Quarter $60.00 $27.00
- --------------------------------------------------------------------------------
Fourth Quarter $30.00 $2.00
- --------------------------------------------------------------------------------
2000
- ----
First Quarter (to March 24) $6.50 $5.00
- --------------------------------------------------------------------------------
</TABLE>
For the initial listing in the NASDAQ SmallCap Market(TM), a company must have
net tangible assets of $4 million or market capitalization of $50 million or a
net income (in the latest fiscal year or two of the last fiscal years) of
$750,000, a public float of 1,000,000 shares with a market value of $5 million.
The minimum bid price must be $4.00 and there must be three market makers. In
addition, there must be 300 stockholders holding 100 shares or more, and the
company must have an operating history of at least one year or a market
capitalization of $50 million. For continued listing in the NASDAQ SmallCap
Market(TM), a company must have net tangible assets of $2 million or market
capitalization of $35 million or a net income (in the latest fiscal year or two
of the last fiscal years) of $500,000, a public float of 500,000 shares with a
market value of $1 million. The minimum bid price must be $1.00 and there must
be two market makers. In addition, there must be 300 stockholders holding 100
shares or more. The Company can give no assurances that it will qualify its
securities for listing on NASDAQ or some other national exchange, or be able to
maintain the maintenance criteria necessary to insure continued listing. The
failure of the Company to qualify its securities or to meet the
16
<PAGE> 19
relevant maintenance criteria after such qualification in the future may result
in the discontinuance of the inclusion of the Company's securities on a national
exchange. In such events, trading, if any, in the Company's securities may then
continue in the non-NASDAQ over-the-counter market. As a result, a stockholder
may find it more difficult to dispose of, or to obtain accurate quotations as to
the market value of, the Company's securities.
(b) Holders. There are approximately 258 holders of the Company's Common Stock.
During 1998 and 1999, the Company issued 36,199 shares and 9,515,666 shares,
respectively, to investors for cash, in exchange for services, or to extinguish
debt. The Company's outstanding stock includes shares issued in the Company's
initial public offering in 1994, shares issued as part of the Company's
reorganization under Chapter 11 of the Bankruptcy Code and shares issued in
accordance with exemptions from registration afforded by Sections 3(b) or 4(2)
of the Securities Act of 1933, as amended (the "Securities Act"). As of the date
of this registration statement, 4,603,419 shares of the Company's Common Stock
held by non-affiliates are eligible for sale, including 36,199 shares of
restricted stock eligible under Rule 144 promulgated under the Securities Act of
1933, as amended, subject to certain limitations included in such Rule. In
general, under Rule 144, a person (or persons whose shares are aggregated), who
has satisfied a one year holding period, under certain circumstances, may sell
within any three-month period a number of shares which does not exceed the
greater of one percent of the then outstanding Common Stock or the average
weekly trading volume during the four calendar weeks prior to such sale. Rule
144 also permits, under certain circumstances, the sale of shares without any
quantity limitation by a person who has satisfied a two-year holding period and
who is not, and has not been for the preceding three months, an affiliate of the
Company.
(c) Dividends. The Company has not paid any dividends to date, and has no plans
to do so in the immediate future.
Item 2. Legal Proceedings.
There is no litigation pending or threatened by or against the Company, except
for collections and related maters in the ordinary course of business which
would not have a material impact on the Company if decided adversely to Select
Media.
Item 3. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
The Company has changed accountants since its formation; but there were no
disagreements with the findings of the Company's former accountants.
Item 4. Recent Sales of Unregistered Securities.
(a) Securities sold. The Company sold and issued its securities during the three
year period preceding the date of this registration statement in a series of
private transactions
17
<PAGE> 20
or exempt offerings of securities; as follows:
On August 27, 1997, as part of the Company's reorganization under the Bankruptcy
Code, the Company issued 26,657 shares to certain creditors.
On various dates in 1998, in order to raise additional capital, the Company
issued 36,199 shares of restricted stock to investors in sales exempt under
Section 4(2) of the Securities Act of 1933, as amended. On November 15, 1999,
Select Media approved a 1 for 300 reverse stock split, effective November 30,
1999. On October 22, 1999, the Company issued 4,000,000 shares of restricted
stock to the Company's Chief Executive Officer and an employee in lieu of other
compensation in a private transaction. On December 21, 1999, the Company issued
4,500,000 shares to an investor in an offering exempt under Rule 504 of
Regulation D In connection with that sale, the Company issued 1,000,000 shares
of restricted stock to a finder under Section 4(2) as compensation in a private
transaction. On December 29, 1999, the Company issued 6,667 shares to an
employee in lieu of other compensation in a private transaction.
Certain of the shares of Common Stock of the Company were sold and issued on
various dates, described above, for investment purposes in "private
transactions" and are "restricted" shares as defined in Rule 144 under the
Securities Act of 1933, as amended. These shares may not be offered for public
sale except under Rule 144, or otherwise, pursuant to said Act. In summary, Rule
144 applies to affiliates (that is, control persons) and nonaffiliates when they
resell restricted securities (those purchased from the issuer or an affiliate of
the issuer in nonpublic transactions). Nonaffiliates reselling restricted
securities, as well as affiliates selling restricted or nonrestricted
securities, are not considered to be engaged in a distribution and, therefore,
are not deemed to be underwriters as defined in Section 2(11) of the Securities
Act of 1933, as amended, if six conditions are met:
(1)Current public information must be available about the issuer unless sales
are limited to those made by non-affiliates after two years.
(2)When restricted securities are sold, generally there must be a one-year
holding period.
(3)When either restricted or nonrestricted securities are sold by an affiliate
after one year, there are limitations on the amount of securities that
may be sold; when restricted securities are sold by non-affiliates
between the first and second years, there are identical limitations;
after two years, there are no volume limitations for resales by
non-affiliates.
(4)Except for sales of restricted securities made by non-affiliates after two
years, all sales must be made in brokers' transactions as defined in
Section 4(4) of the Securities Act of 1933, as amended, or a
transaction directly with a "market maker" as that term is defined in
Section 3(a)(38) of the 1934 Act.
(5)Except for sales of restricted securities made by non-affiliates after two
years, a notice of proposed sale must be filed for all sales in excess
of 500 shares or with an aggregate sales price in excess of $10,000.
(6)There must be a bona fide intention to sell within a reasonable time after
the filing of the notice referred to in (5) above.
18
<PAGE> 21
(b) Underwriters and other purchasers. There were no underwriters in the sale
and issuance of any of the Company's securities in the period reported. All
of the purchasers of Common Stock from the Company have had a pre-existing
personal or business relationship with the Company or its officers and
directors.
(c) Consideration.
The Company sold certain shares of stock for cash and others were issued either
for services rendered to the Company or to settle outstanding debts of the
Company or its predecessor. The Company sold shares in 1998 and 1999 at various
prices, ranging from $.22 to $225.00.
(d) Exemptions from Registration Relied Upon.
The sale and issuance of the shares of stock sold in 1997 through 1999 were
exempt from registration under the Securities Act of 1933, as amended, by virtue
of either section 3(b) or 4(2) and, in certain cases, Regulation D promulgated
thereunder. Purchasers in transactions exempt under Section 4(2) and Rule 506
purchased shares from the Company for investment and not with a view to
distribution to the public.
Item 5. Indemnification of Directors and Officers.
Except for acts or omissions which involve intentional misconduct, fraud or
known violation of law or for the payment of dividends in violation of the New
York Business Corporation Law, there shall be no personal liability of a
director or officer to the Company, or its stockholders for damages for breach
of fiduciary duty as a director or officer. The Company may indemnify any person
for expenses incurred, including attorneys fees, in connection with their good
faith acts if they reasonably believe such acts are in and not opposed to the
best interests of the Company and for acts for which the person had no reason to
believe his or her conduct was unlawful. The Company may indemnify the officers
and directors for expenses incurred in defending a civil or criminal action,
suit or proceeding as they are incurred in advance of the final disposition of
the action, suit or proceeding, upon receipt of an undertaking by or on behalf
of the director or officer to repay the amount of such expenses if it is
ultimately determined by a court of competent jurisdiction in which the action
or suit is brought determined that such person is fairly and reasonably entitled
to indemnification for such expenses which the court deems proper. Insofar as
indemnification for liabilities arising under the 1933 Act may be permitted to
officers, directors or persons controlling the Company pursuant to the
foregoing, the Company has been informed that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933, as amended, and is therefore
unenforceable.
19
<PAGE> 22
PART F/S
Financial Statements. The following financial statements are attached to this
report and filed as a part thereof.
1) Table of Contents
2) Independent Auditors' Report
3) Assets
4) Liabilities and Stockholders' Equity
5) Statement of Operations
6) Statement of Stockholders' Equity
7) Statement of Cash Flows
8) Notes to Financial Statements
20
<PAGE> 23
SELECT MEDIA COMMUNICATIONS INC.
FINANCIAL STATEMENTS
For the Years Ended December 31, 1999 and 1998
<PAGE> 24
SELECT MEDIA COMMUNICATIONS INC.
CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2-3
Statements of Operations 4-5
Statement of Stockholders' Deficit 6
Statements of Cash Flows 7-8
NOTES TO FINANCIAL STATEMENTS 9-20
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Select Media Communications Inc.
We have audited the accompanying balance sheet of Select Media Communications
Inc. as of December 31, 1999 and the related statements of operations, changes
in stockholders' deficit and cash flows for the years ended December 31, 1999
and 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Select Media Communications
Inc. as of December 31, 1999, and the results of its operations and cash flows
for the years ended December 31, 1999 and 1998 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $91,410,341 during the year ended December
31, 1999, and, as of that date, had a working capital deficiency of $2,604,399
and a stockholders' deficiency of $1,867,373. Those conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plan in regard to these matters are discussed in Note 15. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Marcum & Kliegman LLP
April 6, 2000
Woodbury, New York
1
<PAGE> 26
SELECT MEDIA COMMUNICATIONS INC.
BALANCE SHEET
December 31, 1999
ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS
<S> <C> <C>
Cash $ 344
Accounts receivable, less allowance for
doubtful accounts of $243,114 365,200
Capital improvement receivable 557,303
Prepaid expenses and other current assets 140,377
Due from stockholders 166,000
Deposit on acquisition 400,000
----------
Total Current Assets $1,629,224
PROPERTY AND EQUIPMENT, Net 463,365
REORGANIZATION VALUE, Net of accumulated
amortization of $570,304 1,873,854
----------
TOTAL ASSETS $3,966,443
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 27
SELECT MEDIA COMMUNICATIONS INC.
BALANCE SHEET
December 31, 1999
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
<TABLE>
<CAPTION>
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 1,315,977
Accrued expenses 2,194,656
Notes payable 567,500
Current portion of capital lease obligation 55,490
Reorganization liabilities, current portion 100,000
------------
Total Current Liabilities $ 4,233,623
OTHER LIABILITIES
Capital lease obligation 120,224
Reorganization liabilities 1,479,969
------------
Total Other Liabilities 1,600,193
------------
TOTAL LIABILITIES 5,833,816
COMMITMENTS
STOCKHOLDERS' DEFICIT
Common stock - $.001 par value;
35,000,000 shares authorized, and
9,602,592 shares issued and outstanding 9,603
Additional paid-in capital 93,885,130
Accumulated deficit (95,762,106)
------------
TOTAL STOCKHOLDERS' DEFICIT (1,867,373)
------------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 3,966,443
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 28
SELECT MEDIA COMMUNICATIONS INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
SALES $ 2,310,002 $ 448,123
COST OF SALES 1,294,890 219,005
------------ ------------
GROSS PROFIT 1,015,112 229,118
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 4,389,803 1,304,615
STOCK-BASED COMPENSATION EXPENSE 84,070,333 2,030,000
------------ ------------
OPERATING LOSS (87,445,024) (3,105,497)
OTHER INCOME (EXPENSE)
Other income 32,476 --
Interest expense (357,793) (1,164,798)
------------ ------------
TOTAL OTHER EXPENSE (325,317) (1,164,798)
------------ ------------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (87,770,341) (4,270,295)
INCOME TAXES -- --
------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (87,770,341) (4,270,295)
EXTRAORDINARY ITEM
Loss on extinguishments of debt (3,640,000) --
------------ ------------
NET LOSS $(91,410,341) $ (4,270,295)
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 29
SELECT MEDIA COMMUNICATIONS INC.
STATEMENTS OF OPERATIONS, Continued
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
PER SHARE DATA
Basic and diluted net loss per common share:
<S> <C> <C>
Loss before extraordinary item $ (45.82) $ (68.57)
========== ==========
Extraordinary item $ (1.90) $ 0.00
========== ==========
Net loss $ (47.72) $ (68.57)
========== ==========
Weighted Average Common Shares Outstanding 1,915,582 62,277
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 30
SELECT MEDIA COMMUNICATIONS INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Additional
Value Paid-in Accumulated
Shares $0.001 Capital Deficit Total
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
BALANCE - January 1, 1998 50,727 $ 51 $ 281,949 $ (81,470) $ 200,530
Issuance of stock for services 10,704 11 2,029,989 2,030,000
Exercise of warrants 5,867 6 479,994 480,000
Conversion of debentures 19,628 20 1,163,702 1,163,722
Net loss -- -- -- (4,270,295) (4,270,295)
----------- ------ ----------- ------------ ------------
BALANCE - December 31,
1998 86,926 88 3,955,634 (4,351,765) (396,043)
Sale of common stock 5,500,000 5,500 994,500 1,000,000
Conversion of debentures 5,000 5 242,995 243,000
Stock compensation 4,006,666 4,007 84,029,323 84,033,330
Issuance of stock for services 666 1 41,957 41,958
Conversion of debt 3,334 2 4,199,998 4,200,000
Reorganization -- 420,723 420,723
Net loss -- -- -- (91,410,341) (91,410,341)
----------- ------ ------------ ------------ ------------
BALANCE - December 31, 1999 $ 9,602,592 $9,603 $ 93,885,130 $(95,762,106) $ (1,867,373)
=========== ====== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 31
SELECT MEDIA COMMUNICATIONS INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $(91,410,341) $ (4,270,295)
------------ ------------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Stock-based compensation 84,033,330 2,030,000
Loss on extinguishments of debt 3,640,000 --
Depreciation and amortization 368,035 250,876
Increase in allowance for doubtful accounts 243,116 --
Changes in assets and liabilities:
Increase in accounts receivable (313,648) (294,666)
Decrease (increase) in note receivable 194,800 (194,800)
Increase in due from stockholder (166,000) --
Increase in capital improvement receivable (503,321) (53,982)
Increase in prepaid expenses and other current
assets (77,022) (63,355)
Increase in accounts payable 926,945 389,032
Increase in accrued expenses 1,894,502 300,154
(Decrease) increase in reorganization liability (603,784) 21,595
------------ ------------
TOTAL ADJUSTMENTS 89,636,953 2,384,854
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (1,773,388) (1,885,441)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (339,706) (69,616)
Deposit on acquisition (400,000) --
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (739,706) (69,616)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in capital lease obligation (8,408) --
Proceeds from notes payable 698,000 1,404,500
Repayments of notes payable -- (375,000)
Proceeds from issuance of common stock 1,705,681 1,043,722
------------ ------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES $ 2,395,273 $ 2,073,222
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 32
SELECT MEDIA COMMUNICATIONS INC.
STATEMENTS OF CASH FLOWS, Continued
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
NET (DECREASE) INCREASE IN CASH $(117,821) $118,165
CASH - Beginning 118,165 --
--------- --------
CASH - Ending $ 344 $118,165
========= ========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- -------------------------------------------------
<TABLE>
<CAPTION>
Cash paid during the years for:
<S> <C> <C>
Interest $ 37,865 $ 27,196
Noncash investing and financing activities:
Acquisition of equipment through capital leases $126,831 $ 55,649
Purchase of equipment with long-term debt $ 83,840 $ --
Conversion of debentures and debt to common shares $560,000 $600,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 33
SELECT MEDIA COMMUNICATIONS INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - Summary of Significant Accounting Policies
Nature of Business
Select Media Communications Inc. ("the Company") is an integrated media
company engaged in producing and distributing programming.
Revenue Recognition
Revenue is recognized upon completion of services performed.
Property and Equipment and Depreciation
Property and equipment is stated at cost and is depreciated using a
straight-line method over the estimated useful lives of the respective
assets. Routine maintenance and repairs are expensed as incurred and
improvements that extend the useful life of the assets are capitalized.
When property and equipment is sold or otherwise disposed of, the cost
and related accumulated depreciation are eliminated from the accounts and
any resulting gain or loss is recognized in income.
Use of Estimates in the Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Net Loss Per Share
The company computes per share amounts in accordance with SFAS No. 128,
"Earnings per Share". SFAS No. 128 eliminates the presentation of the
primary and fully dilutive earnings per share ("EPS") and requires
presentation of the basic and diluted EPS. Basic EPS is computed by
dividing the income (loss) available to common stockholders by the
weighted-average number of common shares outstanding for the period.
Diluted EPS is based on the weighted-average number of shares of common
stock and common stock equivalents outstanding during the periods. All
prior periods' EPS have been restated giving effect to the Company's 1
for 300 reverse stock split (see Note 3). Convertible debt and warrants
have not been included in the computation of diluted EPS as their effect
would be antidilutive.
9
<PAGE> 34
SELECT MEDIA COMMUNICATIONS INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies, continued
Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation". SFAS No. 123 prescribes accounting and reporting standards
for all stock-based compensation plans, including employee stock options,
restricted stock, employee stock purchase plans and stock appreciation
rights. SFAS No. 123 requires compensation expense to be recorded (i)
using the new fair value method or (ii) using the existing accounting
rules prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations with pro forma disclosure of what net income and earnings
per share would have been had the company adopted the new fair value
method. The Company intends to continue to account for future stock based
compensation in accordance with the provisions of APB 25.
Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", effective for fiscal years beginning after December 15, 1997,
with reclassification of earlier periods required for comparative
purposes. SFAS No. 130 establishes standards for the reporting and
presentation of comprehensive income and its components in the financial
statements. The Company adopted this standard in 1998 and the
implementation of this standard did not have any impact on its financial
statements. To date, the Company has not had any transactions that are
required to be reported as other comprehensive income (loss).
NOTE 2 - Private Placement
The Company entered into an agreement on October 22, 1999 and amended
November 1, 1999 with Lloyds Bahamas Securities, Ltd. ("Lloyds") to sell
shares of the Company's common stock with Lloyds as their agent through
an offering exempt under Rule 504 of Regulation D by the SEC under the
Securities Act. In exchange for $1,000,000, Lloyds' investors received
4,500,000 new shares of the Company's common stock after a 1 for 300
reverse stock split (See Note 3). As a condition of the funding the
Company agreed to acquire Nationsmusic.com, Inc. ("Nationsmusic") in
exchange for 3,000,000 shares of the Company's common stock. The Company
had not consummated its transaction with Nationsmusic. In addition,
Lloyds received 1,000,000 shares of the Company's common stock subject to
restrictions under Rule 144 of the Securities Act as agent for this
placement, which has been recorded at the market value on the date of
issuance, net of the proceeds of the sale of the Company's common stock.
At December 31, 1999, $166,000 was still owed to the Company from Lloyds
as result of the private placement. The Company received these funds in
March 2000.
10
<PAGE> 35
SELECT MEDIA COMMUNICATIONS INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - Reverse Stock Split
On November 2, 1999, the Board of Directors authorized a one for three
hundred reverse stock split, with the number of authorized shares of
common stock and the par value per share remaining unchanged. The split
was effective November 30, 1999 and all per share amounts and shares
issued have been adjusted to reflect this reverse stock split.
NOTE 4 - Capital Improvements Receivable
Capital improvements receivable represents amounts paid or accrued by the
Company for leasehold improvements which are to be reimbursed to the
Company by the landlord pursuant to the lease agreement.
The Company is currently in dispute with its landlord in which the
landlord is claiming certain lease payments are due on space occupied by
the Company. The total amount claimed to be due by the landlord is
approximately $300,000. If successful in its claim, the amount receivable
would be reduced by such amounts and amounts attributable to leasehold
improvements would be increased by the same amount.
NOTE 5 - Property and Equipment
<TABLE>
<S> <C>
Property and equipment at December 31, 1999 consist of the following:
Property and equipment $ 593,444
Less: accumulated depreciation (130,079)
--------
Property and Equipment, net $ 463,365
=========
</TABLE>
Depreciation expense for the years ended December 31, 1999 and 1998 was
$123,619 and $6,460, respectively.
NOTE 6 - Capital Leases
The Company is the lessee of equipment under certain capital leases
expiring through the year 2002. The assets are being depreciated over the
life of the lease. Depreciation of assets under capital leases charged to
expense for the year ended December 31, 1999 and 1998 was $58,944 and
$4,010, respectively.
11
<PAGE> 36
SELECT MEDIA COMMUNICATIONS INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - Capital Leases, continued
Minimum future lease payments under capital leases as of December 31,
1999 for each of the next three years, and in the aggregate, are as
follows:
<TABLE>
<CAPTION>
For the Year Ending
December 31, Amount
------------ ------
<S> <C>
2000 $82,811
2001 72,576
2002 61,762
--------
Total minimum lease payments 217,149
Less amount representing interest 41,436
--------
Present value of minimum lease
payments $175,713
--------
Current Portion $55,490
Long-term Portion 120,224
--------
Total $175,714
========
</TABLE>
Interest rates on capitalized leases vary from 7.91% to 29.39% and are
imputed based on the lessor's implicit rate of return.
NOTE 7 - Notes Payable
<TABLE>
<S> <C>
Notes payable at December 31, 1999 consisted of the following:
Note payable non-interest bearing, payable upon
demand. $ 67,500
Note payable non-interest bearing, payable upon
demand. 125,000
Notes payable shareholder 375,000
--------
Total $567,500
========
</TABLE>
12
<PAGE> 37
SELECT MEDIA COMMUNICATIONS INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - Notes Payable, continued
The Company has notes payable to a shareholder for $375,000. The notes
bear interest at 10% and had original maturity dates in November and
December 1999. These maturity dates were subsequently extended and are
currently due upon demand. The individual received, in aggregate 6,667
shares of common stock as compensation. The market value of the shares
issued were treated as debt issuance costs (interest) which was amortized
over the life of the loan. Debt issuance cost recognized in 1999 and 1998
was $243,678 and $11,822 respectively. Interest expense charged to
operations amounted to $37,500 and $2,076 for the years ended December
31, 1999 and 1998, respectively.
NOTE 8 - Letter of Credit
An individual has signed a letter of credit on behalf of the company for
$1,000,000 acting as a security deposit on the office space occupied by
the Company. If the Company defaults on the lease, money will be drawn
from this letter of credit. To date, no consideration has been given to
this individual for signing this letter of credit.
NOTE 9 - Income Taxes
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the deferred tax asset of the Company consist
primarily of the net operating loss, increase in allowance for doubtful
accounts and accrued expenses that are not currently deductible. The
Company has recorded a full valuation allowance against its deferred tax
asset, as it is not assured, it can recognize such an asset in the
future. At December 31, 1999, the Company has significant net operating
loss carryforwards which will expire in 2019.
In accordance with the provisions of the Internal Revenue Code Section
382, utilization of the Company's net operating loss carryforward is
severely limited.
NOTE 10 - Extraordinary Item
In October 1999, the Company extinguished a $560,000 note payable in a
transaction where the note holder exchanged 3,334 unrestricted common
shares owned by him for 200,000 restricted shares held by Lloyds. The
market value of the 200,000 restricted shares was $4,200,000 at the date
of exchange. Accordingly the Company recorded an extraordinary loss of
$3,640,000.
13
<PAGE> 38
SELECT MEDIA COMMUNICATIONS INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - Commitments
Leasing Agreements
The Company leases office space under an operating lease agreement, which
expires on February 15, 2015. Rental expense was $560,241 and $93,373 for
the years ended December 31, 1999 and 1998, respectively.
Minimum future rental commitments under this lease as of December 31,
1999 are as follows:
<TABLE>
<CAPTION>
For the Year Ending
December 31, Amount
------------ ------
<S> <C>
2000 $522,951
2001 522,951
2002 522,951
2003 522,951
2004 522,951
Thereafter 5,921,845
----------
Total $8,536,600
==========
</TABLE>
In addition, as part of the operating lease describe above, the Company
has agreed to lease additional premises at the same facility. Occupation
of the additional premises is pending certain building modifications to
be performed by the landlord. Upon the commencement date of the
additional space, rental commitments will be $360,665 per annum for years
one through five, $387,885 per annum for years six through ten and
$415,105 per annum for years eleven through the expiration date of the
lease.
Sublease Agreement
The Company entered into lease agreements during the fiscal year ended
December 31, 1999 wherein customers sublease space from the Company.
Minimum future payments from subtenants as of December 31, 1999 for each
of the next two years are as follows:
<TABLE>
<CAPTION>
December 31, Amount
------------ ------
<S> <C> <C>
2000 $90,000
2001 7,000
-------
Total $97,000
=======
</TABLE>
In addition, two leases were entered into in February and March 2000.
Minimum future payments for these two leases for the year ending December
31, 2000 and December 31, 2001 is $57,500 and $8,500 respectively.
14
<PAGE> 39
SELECT MEDIA COMMUNICATIONS INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - Commitments, continued
Payroll Taxes
At December 31, 1999, past due amounts have been included in accrued
expenses totaling approximately $879,000 and consist of payroll taxes
owed and estimated penalties and interest.
Employment Agreements
The Company has entered into employment agreements with the chief
executive officer and three employees, two on October 25, 1999 and two on
January 1, 2000. Two of these agreements expire in 2002 and two which
expire in 2004. Two of these agreements provide for bonuses based on
percentages of net profits, as specified in their respective employment
agreements.
Future minimum payments related to these agreements for the next five (5)
years are as follows:
<TABLE>
<CAPTION>
For the Year Ending
December 31, Amount
------------ ------
<S> <C>
2000 $ 633,333
2001 816,667
2002 916,667
2003 833,333
2004 833,333
----------
Total $4,033,333
==========
</TABLE>
For past services performed, the chief executive officer and one of the
employees that entered into the above employment agreements received
4,006,666 shares of the Company's common stock during 1999. As a result
of this issuance, the Company recognized $84,033,333 of compensation
expense.
Pursuant to the agreements entered into on January 1, 2000, the two
employees were granted 100,000 restricted shares each for past services
performed. These shares vest to the employee on the first anniversary of
the agreements. The market value of these shares on the first day of
trading after the granting of the shares was $1,100,000. The value of the
grants has not been included in the statement of operations for the year
ended December 31, 1999.
NOTE 12 - Major Customer
During the year ended December 31, 1999 the Company sold a substantial
portion of its services to one customer. Sales to this customer totaled
$800,000 (35%). The amount due from this customer included in accounts
receivable was $200,000. For the year ended December 31, 1998 the Company
sold a substantial portion of its services to two customers. Sales to
these customers totaled $206,151 (46%) and $72,316 (16%) respectively.
15
<PAGE> 40
SELECT MEDIA COMMUNICATIONS INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 13 - Bankruptcy Proceedings
On August 28, 1997 the United States Bankruptcy Court of the Southern
District of New York confirmed the Company's Plan of Reorganization. The
plan stipulated payments totaling $2,444,158 to be paid to certain
secured, administrative and unsecured creditors. It was determined that
the Company's reorganization value computed immediately before August 28,
1997, the date of plan confirmation, was $2,444,158, which is being
amortized over a period of 10 years. The Company adopted fresh start
reporting because holders of existing voting shares immediately before
filing and confirmation of the plan received less than 50% of the voting
shares of the emerging entity and its reorganization value is less than
its post petition liabilities and allowed claims.
The remaining bankruptcy liabilities at December 31, 1999 consists of the
following:
<TABLE>
<CAPTION>
Class of Creditors
------------------
<S> <C>
Class 1 - Secured $ --
Class 2 - Priority and Administrative 1,129,969
Class 3 - Unsecured 450,000
----------
Total $1,579,969
----------
Short-Term $100,000
Long Term $1,479,969
</TABLE>
The Company owes approximately $798,000 in professional fees rendered in
accordance with the Order entered into by the United States Bankruptcy
Court in the Southern District of New York. Company has agreed with the
Claimant to pay this amount in quarterly installments equal to 3% of the
Company's corresponding quarterly gross receipts less ordinary expenses
before any cash compensation to officers until paid in full. No part of
the stated amount has been paid and is included in the accrued amounts
for class 2 creditors at December 31, 1999.
The New York City Department of Finance has filed alleged unsecured
priority tax claims in the amount of $229,899. Included in this amount is
$37,623 of interest accruing at an annual interest rate of 8.5%. The
entire amount is included in the accrued amounts for class 2 creditors at
December 31, 1999.
All remaining allowed claims will be paid in accordance with the
Company's confirmed Plan of Reorganization in cash.
16
<PAGE> 41
SELECT MEDIA COMMUNICATIONS INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 14 - Subsequent Events
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 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 will be accounted for under the purchase method of
accounting.
Under Rule 11-02(b), pro forma financial information in the form of a
combined balance sheet at December 31, 1999 and combined statement of
operations for the year ended December 31, 1999 is presented below to
reflect what the combined companies might look like had the transaction
been consummated at December 31, 1999 and at January 1, 1999. This is not
necessarily indicative of that which would have been attained had the
transaction actually occurred at those dates. The notes to these proforma
statements set forth the assumptions on which they are based. The
proforma information should be read in conjunction with the December 31,
1999 financial statements for each company used in the preparation of
such pro forma statements. As such no audit procedures have been applied
in the preparation of such pro forma statements.
<TABLE>
<CAPTION>
Proforma
Combined Balance Sheet
December 31, 1999
(Unaudited)
Pro forma Pro forma
Debit Credit Pro forma
Select Sigma Adjustments Adjustments Combined
------ ----- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash $344 $1,400(a) $200,00(b) $(200,000) $1,744
Accounts receivable 365,200 34,517 -- -- 399,717
Capital improvement 3 -- 557,303
receivable 557,30 -- --
Prepaid expenses and other 140,377 -- -- -- 140,377
Due from stockholder 166,000 -- -(a) (166,000) ---
Deposit on acquisition 400,000 --- --(b) (400,000) --
------- --- -- -------- --
Total Current Assets 1,629,224 35,917 200,000 (766,000) 1,099,141
--------- ------ ------- -------- ---------
PROPERTY AND EQUIPMENT,
----------------------
Net 463,365 104,600 -- -- 567,965
Reorganization value , net 1,873,854 -- -- -- 1,873,854
Investment in subsidiary -- --(b) 1,000,00(c) (1,000,000) --
Intangible asset, net -- --(c) 964,50(d) (64,300) 900,204
-- -- ------ ------- -------
Total Assets $3,966,443 $140,517 $2,164,504 $(1,830,300) $4,441,164
========== ======== ========== =========== ==========
</TABLE>
17
<PAGE> 42
SELECT MEDIA COMMUNICATIONS INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 14 - Subsequent Events, continued
Proforma
Combined Balance Sheet, continued
December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Pro forma Pro forma
Debit Credit Pro forma
Select Sigma Adjustments Adjustments Combined
------ ----- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Current Liabilities
Accounts payable $1,315,977 $58,685 $-- $-- $1,374,662
Accrued expenses 2,194,656 46,336 (e) 40,000 2,280,992
Notes payable 567,500 -- -- -- 567,500
Due to stockholder -- -- (a) 34,000 34,000
Current maturities of long --
term debt -- -- (b) 200,000 200,000
Current portion of capital
lease obligation 55,490 -- -- -- 55,490
Reorganization --
liabilities,
current portion 100,000 -- -- -- 100,000
------- -- -- -- -------
Total Current Liabilities 4,233,623 105,021 -- 274,000 4,612,644
Long term debt -- -- (b) 200,000 200,000
Capital lease obligation 120,224 -- -- -- 120,224
Reorganization liabilities 1,479,969 -- -- -- 1,479,969
--------- -- -- -- ---------
Total Liabilities 5,833,816 105,021 -- 474,000 6,412,837
--------- ------- -- ------- ---------
Stockholders' Deficit
Common stock 9,603 1,000 (c) (1,000) -- 9,603
Additional paid in capital 93,885,130 865,002 (c) (865,002) -- 93,885,130
Accumulated deficit (95,762,106) (830,506) (d)&(e) (104,300) 830,506 (95,866,406)
----------- -------- -------- ------- -----------
Total Stockholders'
deficit (1,867,373) 35,496 (970,302) 830,506 (1,971,673)
---------- ------ -------- ------- ----------
Total Liabilities and
Stockholders' deficit $3,966,443 $140,517 $(970,302) $1,304,506 $4,441,164
========== ======== ========= ========== ==========
</TABLE>
18
<PAGE> 43
SELECT MEDIA COMMUNICATIONS INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 14 - Subsequent Events, continued
Proforma
Combined Statement of Operations
For the year ended December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Pro forma Pro forma
Debit Credit Pro forma
Select Sigma Adjustments Adjustments Combined
------ ----- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Sales $ 2,310,002 $ 502,791 $-- $-- $ 2,812,793
Cost of Sales 1,294,890 210,198 -- -- 1,505,088
------------ ------------ ------------ ------------ ------------
Gross Profit 1,015,112 292,593 -- -- 1,307,705
------------ ------------ ------------ ------------ ------------
Selling, General and
Administrative 4,389,803 479,069 64,300 -- 4,933,172
Stock-Based Compensation 84,070,333 -- -- -- 84,070,333
------------ ------------ ------------
Operating Loss (87,445,024) (186,476) (64,300) -- (87,695,800)
Other expense
Other income 32,476 41,850 -- -- 74,326
Interest expense (357,793) -- (40,000) -- (397,793)
------------ ------------ ------------
Total Other Expense (325,317) 41,850 (40,000) -- (323,467)
------------ ------------ ------------
Loss Before (144,626)
Extraordinary Item (87,770,341) 144,626 (104,300) -- (88,019,267)
EXTRAORDINARY ITEM
Loss on extinguishment of
debt (3,640,000) -- -- -- (3,640,000)
------------
Net Loss $(91,410,341) $ (144,626) $ (104,300) $-- $(91,659,267)
============ ============ ============ ============
</TABLE>
19
<PAGE> 44
SELECT MEDIA COMMUNICATIONS INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 14 - Subsequent Events, continued
<TABLE>
<CAPTION>
PER SHARE DATA
<S> <C>
Basic and diluted net loss per common share:
Loss before extraordinary item $(45.95)
-------
extraordinary item $(1.90)
------
Net loss $(47.85)
-------
Weighted Average Common Shares Outstanding 1,915,582
---------
</TABLE>
Notes to proforma financial statements
(a) To record the receipt of $200,000 from a stockholder of the
Company for the purpose of acquiring the common stock of Sigma.
(b) To record the acquisition of all of the issued and outstanding
common stock of Sigma for $1,000,000 with $400,000 paid at the
signing of the Agreement, $200,000 paid at closing and a
$400,000 10% secured noted due in two installments of $200,000
plus accrued interest on June 30, 2000 and January 3, 2001.
(c) To record the allocation of the excess of the purchase price
over the estimated fair value of the net assets acquired.
(d) To record the amortization of goodwill over 15 years.
(e) To record the accrual of interest on the 10% secured note.
NOTE 15 - Going Concern Uncertainty
As shown in the accompanying financial statements, the Company incurred a
net loss of $91,410,341 during the year ended December 31, 1999, and, as
of that date, the Company's current liabilities exceeded its current
assets by $2,604,399, and its total liabilities exceeded its total assets
by $1,867,373. These factors create an uncertainty as to the Company's
ability to continue as a going concern.
The Company is developing a plan to reduce its liabilities through the
issuance of additional common stock through private or public offerings
conforming to the requirements of Securities Acts. The Company received a
commitment on October 14, 1999 to raise $10,000,000 on a best efforts
basis for such offerings. The financial statements do not include any
adjustments to the financial statements that might be necessary should
the Company be unable to continue as a going concern.
20
<PAGE> 45
PART III
EXHIBITS
Item 1. Exhibit Index
Exhibit No
(3) Articles of Incorporation and Bylaws
3.1 Articles of Incorporation*
3.2 Bylaws*
(10) Material Contracts
10.1 Employment Agreement with Mitch Gutkowski**
10.2 Stock Purchase Agreement for the Purchase of all the
outstanding Common Stock of Sigma Sound Studio, Inc.**
(21) Subsidiaries of the Registrant
21.1 Subsidiaries of the Registrant**
(27) Financial Data Schedule
27.1 Financial Data Schedule**
* Incorporated by reference to Exhibits to Registrant's original
Registration Statement Number 33-80412 filed under the Securities Act of 1933
on August 19, 1994.
** Filed as exhibits to Registrant's initial Form 10-SB filed April 3,
2000, File Number 000-24706.
<PAGE> 46
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: April 7, 2000 SELECT MEDIA COMMUNICATIONS, INC.
By: /s/ MITCH GUTKOWSKI.
---------------------------------------------
Mitch Gutkowski, Chief Executive Officer
