<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to _________
Commission file Number 000-24706
SELECT MEDIA COMMUNICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
New York 13-3415331
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
666 Third Avenue, New York, NY
(Address of principal executive offices)
(212) 584-1900
(Issuer's telephone number)
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [x] No[ ]
<PAGE> 2
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 13,016,592 Shares of Common Stock
--------------------------------------
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
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SELECT MEDIA COMMUNICATIONS INC.
AND SUBSIDIARY
CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2000 and 1999
<PAGE> 4
SELECT MEDIA COMMUNICATIONS INC.
AND SUBSIDIARY
CONTENTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet 1-2
Statements of Operations 3-4
Statements of Cash Flows 5-6
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 7-8
</TABLE>
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SELECT MEDIA COMMUNICATIONS INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
June 30, 2000
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ASSETS
<TABLE>
<S> <C> <C>
CURRENT ASSETS
Cash $ 7,509
Accounts receivable, less allowance for doubtful
accounts of $505,659 148,495
Capital improvement receivable 656,123
Prepaid expenses and other current assets 158,844
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Total Current Assets 970,971
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PROPERTY AND EQUIPMENT, Net 701,024
----------
OTHER ASSETS
Intangibles, net 1,018,429
Reorganization value, net 1,751,646
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Total Other Assets 2,770,075
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TOTAL ASSETS $4,442,070
==========
</TABLE>
2
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SELECT MEDIA COMMUNICATIONS INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
June 30, 2000
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LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 1,565,831
Accrued expenses 2,837,957
Notes payable 941,945
Current portion of capital lease obligation 60,596
Reorganization liabilities, current portion 100,000
Due to stockholders 892,000
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Total Current Liabilities 6,398,329
-----------
OTHER LIABILITIES
Capital lease obligation 41,888
Reorganization liabilities 1,384,890
-------------
Total Other Liabilities 1,426,778
-----------
TOTAL LIABILITIES 7,825,107
-----------
COMMITMENTS
STOCKHOLDERS' DEFICIT
Common stock - $.001 par value; 35,000,000 shares authorized,
13,016,592 shares issued and outstanding, respectively 13,017
Additional paid-in capital 98,704,222
Accumulated deficit (102,100,276)
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TOTAL STOCKHOLDERS' DEFICIT (3,383,037)
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 4,442,070
===========
</TABLE>
3
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SELECT MEDIA COMMUNICATIONS INC.
AND SUBSIDIARY
UNAUDITED STATEMENTS OF OPERATIONS
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<TABLE>
<CAPTION>
Six Months Ended
June 30, 1999 June 30, 2000
--------------------------------
<S> <C> <C>
SALES $ 2,042,931 $ 364,057
COST OF SALES 858,681 255,642
------------ ------------
GROSS PROFIT 1,184,250 108,415
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses 1,791,436 2,976,588
Stock based compensation -- 2,805,000
------------ ------------
Total operating expenses 1,791,436 5,781,588
OPERATING LOSS (607,186) (5,673,173)
OTHER INCOME (EXPENSE)
Other income -- 25,312
Interest expense (127,221) (79,804)
------------ ------------
TOTAL OTHER INCOME (EXPENSE) (127,221) (54,492)
------------ ------------
LOSS BEFORE INCOME TAXES (734,407) (5,727,665)
INCOME TAXES -- --
------------ ------------
NET LOSS $ (734,407) $ (5,727,665)
============ ============
PER SHARE DATA
Basic and diluted net loss per common share:
Net loss $ (0.12) $ (0.47)
============ ============
Weighted Average Common Shares Outstanding 91,203 12,238,768
============ ============
</TABLE>
4
<PAGE> 8
SELECT MEDIA COMMUNICATIONS INC.
AND SUBSIDIARY
UNAUDITED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
1999 2000
-----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (734,407) $(5,727,665)
----------- -----------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Stock-based compensation -- 2,805,000
Depreciation and amortization 180,368 284,553
Increase in allowance for doubtful accounts 20,156 262,545
Changes in assets and liabilities:
Increase in accounts receivable (662,327) (11,323)
Increase in capital improvement receivable -- (98,820)
Decrease in note receivable 64,800 --
Increase in prepaid expenses and other current assets (1,152) (18,467)
Increase in accounts payable 364,096 191,169
Increase in accrued expenses 828,151 596,965
----------- -----------
TOTAL ADJUSTMENTS 794,092 4,011,622
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NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES 59,685 (1,716,043)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (265,119) (224,329)
Purchase of Sigma Sound Services Inc., net of cash acquired -- (164,103)
Purchase of intangible assets -- (125,000)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES $ (265,119) $ (513,432)
----------- -----------
</TABLE>
5
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SELECT MEDIA COMMUNICATIONS INC.
AND SUBSIDIARY
UNAUDITED STATEMENTS OF CASH FLOWS, Continued
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of capital lease obligations $ (25,253) $ (73,230)
Payments of reorganization liabilities -- (95,079)
Proceeds from notes payable 135,000 --
Repayments of notes payable -- (25,555)
Advances from shareholders 528,330 2,264,504
Repayments of advances from shareholders -- 166,000
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 638,077 2,236,640
----------- -----------
NET INCREASE IN CASH 432,643 7,165
CASH AT BEGINNING OF PERIOD 118,165 344
----------- -----------
CASH AT END OF PERIOD $ 550,808 $ 7,509
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the years for:
Interest $ 21,306 $ 27,140
Noncash investing and financing activities:
Sigma Sound Services, Inc. acquisition:
Issuance of note payable $ 400,000
Deposit applied to the purchase price $ 400,000
Equipment acquired via Capital lease $ 118,423
</TABLE>
6
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SELECT MEDIA COMMUNICATIONS INC.
AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1 - The Company and Basis of Presentation
The Company
Select Media Communications Inc. (the "Company") is an integrated media
company engaged in producing and distributing programming.
Basis of Presentation
The accompanying Unaudited Consolidated financial statements reflect all
adjustments, which are in the opinion of management, necessary to a fair
statement of the results of the interim periods presented. All such
adjustments are of a normal recurring nature. The financial statements
should be read in conjunction with the notes to the financial statements
and in conjunction with our audited financial statements contained in
Form 10KSB (filed on July 26, 2000)
Basis of Consolidation
The consolidated financial statements include the accounts of Select
Media Communications ("Select"), and it wholly-owned subsidiary Sigma
Sound Services, Inc. ("Sigma"), collectively referred to as the
("Company"). All significant inter-company transactions and balances have
been eliminated in consolidation.
NOTE 2 - Acquisitions
On January 18, 2000 the Company purchased all of the issued and
outstanding common stock of Sigma Sound Services, Inc. ("Sigma") pursuant
to the terms of a stock purchase agreement (the "Agreement"). The
purchase price for Sigma's common stock was $1,000,000 with $400,000 paid
at the signing of the Agreement, $200,000 paid at closing and a $400,000
10% secured note. The note is payable in two installments of $200,000
plus accrued interest on June 30, 2000 and January 3, 2001. The note is
secured by all of the Company's existing and future customer accounts,
general intangibles, equipment, goods, instruments and inventory. The
transaction was accounted for under the purchase method of accounting.
Goodwill acquired through this Agreement amounted to $964,504 and is
being amortized over a 15-year life. Amortization expense for the six
months ended June 30, 2000 was $64,300.
On March 8, 2000 the Company purchased certain contracts, which included
substantially all of the assets of After Hours Productions, Inc ("AHP")
pursuant to the terms of an asset purchase agreement (the "AHP
Agreement"). The purchase price was $125,000 with $25,000 paid as a
deposit on the purchase at the signing of the AHP Agreement and $100,000
paid at closing. The Company recorded an intangible asset of $125,000 as
a result of the purchase. The intangible asset is being amortized over 15
years and amortization expense for the six months ended June 30, 2000 was
$6,775.
7
<PAGE> 11
SELECT MEDIA COMMUNICATIONS INC.
AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 3 - Funding Agreement
On January 15, 2000 the Company entered into an agreement with an
Investment Bank to sell shares of the Company's common stock. In exchange
for funding up to $2,000,000 in the aggregate, the Investment Bank's
investors can receive up to 4,000,000 shares of the Company's common
stock at a price of $ .50 per share. At June 30, 2000 the amount due to
the Investment Bank/Stockholder was $892,000.
On April 13, 2000 the Company issued 2,814,000 shares of common stock to
the Investment Bank in settlement of advances made to the Company in the
amount of $1,407,000.
NOTE 4 - Stockholders Equity
On June 30, 2000 the Company issued 450,000 shares of common stock to
Consultants for services provided to the Company. Accordingly, the
Company recorded a consulting expense in the amount of $1,980,000.
NOTE 5 - Commitments
Employment Agreements
On January 1, 2000 the Company entered into two employment agreements.
One of the employees was terminated and the Company entered into a
separation and release agreement on April 28, 2000. Pursuant to the
employment and separation and release agreements, the employees were
issued 100,000 and 50,000, respectively, of restricted shares for past
services performed. As a result of these issuances, the Company
recognized $825,000 ($5.50 per share) of stock based compensation
expense. Future minimum payments under these agreements are $125,000 for
the year ended December 31, 2000 and $100,000 for the years ended
December 31, 2001 and 2002.
NOTE 6 - Related Party Transaction
In January 2000, the Company reimbursed one of its officers/shareholders
$100,000 for amounts previously contributed by him pursuant to the
Company's Plan of Reorganization.
8
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Select Media is a New York corporation whose common stock is currently traded
over-the-counter under the symbol "SMTV." The Registrant previously was in the
business of producing and distributing "vignettes," which are short-form
(thirty-second) informational programs distributed by particular sponsors for
viewing during regular programming. In 1999, the Registrant hired personnel to
provide services to worldwide news broadcasters and act as a television news
agency under the name "Select International Television Network" ("SITN") to
produce and distribute news segments for sale to local and foreign news
broadcasters. Because of an inability to use studio space in a new facility,
SITN's business is now limited to distributing news segments produced by others.
In January, 2000, the Registrant repositioned itself as the owner of
entertainment content providers whose product can be marketed through
traditional media and over the Internet. In January, 2000, the Registrant
purchased all the outstanding stock of Sigma Sound Studio, Inc. ("Sigma"). Sigma
is a full service recording studio that provides services to record companies
and independent artists and record producers. In March, 2000, the Registrant
purchased the assets of After Hours Productions, Inc. ("AHP"). AHP creates
custom music and video products. These acquisitions were accounted for as
purchases. See Financial Statements and notes to Financial Statements.
COMPETITION
The Registrant faces competition from some of the largest entertainment
companies in the United States. The entertainment market is rapidly evolving and
intensely competitive. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any of which could
seriously harm the Registrant's net sales and results of operations. Select
Media expects competition to intensify in the future as additional distribution
channels for entertainment product are opened. In particular, the Registrant
believes that the use of the Internet for distribution of entertainment product
is both an opportunity and a challenge. With so many entertainment choices, the
Registrant faces the challenge of adapting its core business to Internet
entertainment. Select Media expects that its acquisition of content providers
will enable it to adapt to the Internet entertainment challenge.
MARKET STRATEGY
The Registrant markets its remaining vignette products to large advertisers
directly to the marketing departments of these companies. The Registrant uses
its own internal staff for such marketing. The Registrant intends to continue
with this strategy for its vignette products. The Registrant is developing
vignettes for radio as well, and is developing a form of vignette for on-line
advertising.
<PAGE> 13
Sigma markets its services directly through its principals. Sigma and AHP have
also produced successful compilation albums sold through home shopping channels,
direct response television and direct mail.
Select Media intends to create its own web site on the internet. This web site
is expected to provide its customers with an interactive multimedia experience.
The web site is expected to host live web events including concerts, fan
chatrooms and live chat sessions with artists who are featured on the site. Some
of these events will be pay-for-view events. This web site is expected to be an
e-commerce site for Select, Sigma and AHP custom product as well as other
products.
The Registrant has 11 full time and 2 part time employees and operates a
facility at 666 Third Avenue, New York, New York used as the principal corporate
office and the site of its studio facilities. As a result of the Sigma
acquisition, the Registrant also leases a sound recording studio facility at
North 12th Street in Philadelphia, Pennsylvania.
RESULTS OF OPERATIONS
REVENUES
The following table sets forth certain items from the Registrant's consolidated
statements of operations as a percentage of net revenues for the periods
indicated:
<PAGE> 14
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTHS ENDED
DECEMBER 31, JUNE 301,
----------- ------------------
1999 2000 1999
---- ---- ----
<S> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0%
Cost of revenues 56.1% 70.2% 42.0%
Gross profit (Loss) 43.9% 29.8% 58.0%
Operating expenses:
Selling, General and administrative 190.0% 817.6% 87.7%
Nonrecurring costs 3639.4% 770.5% 0%
Total operating expenses 3829.4% 1,588.1% 87.7%
Operating income (loss) (3785.5)% (1558.3)% (28.7)%
Other income and expense, net (14.1)% (15.0)% (6.2)%
Income (loss) before income taxes
and extraordinary items (3799.6)% (1573.3)% (35.9)%
Provision for (benefit from)
income taxes 0% 0% 0%
Net income (loss) before
extraordinary items (3799.6)% (1573.3)% (35.9)%
Extraordinary Items (157.6)% 0% 0%
-------- ------- ------
Net Revenues (3957.2)% (1573.3)% (35.9)%
</TABLE>
Before the Sigma acquisition, the Registrant's net revenues were derived mainly
from the sales of vignettes, video press releases and SITN. In the six months
ended June 30, 2000, net revenues decreased by $1,678,874, or 82.2%, to $364,057
from $2,042,931 in the six months ended June 30, 1999. The decrease in net
revenues during the first six months of 2000 was primarily attributable to the
Company's focusing on the Sigma and AHP acquisitions and a significant decline
in revenues from its international news operations because of an inability to
use studio space in its new facility. The Registrant expects SITN revenues in
the coming year to be significantly lower than 1999 levels.
GROSS PROFIT
Cost of revenues consists primarily of costs associated with studio time and
transmission of signal for SITN and with producing vignettes and video press
releases and marketing the finished product, including scriptwriting, filming,
salaries and post-production processing and editing. The resulting gross profit
fluctuates based on factors such as salary expense, editing and marketing.
Re-use of vignettes and portions thereof increases profits. Gross margin
decreased to 29.8 % in the six months ended June 30, 2000, compared to 58.0% in
the six months ended June
<PAGE> 15
30, 1999. The decrease during the six months ended June 30, 2000 was primarily
due to the Company's inability to use the studio space in its new facility, plus
costs of integrating the Sigma acquisition and the AHP acquisition. The
Registrant currently expects gross margins during 2000 to be lower than the 1999
levels as a result of SITN revenues being significantly lower than the 1999
levels. In the current year, the Registrant expects the Sigma and AHP
acquisitions to have a positive effect on both revenues and gross margin.
EXPENSES
Selling, general and administrative expenses were $5,781,588 in the six months
ended June 30, 2000 compared with $1,791,436 in the six months ended June 30,
1999, for an increase of $3,990,152, or 222.7%. This increase was attributable
to expenses for the expansion of the Registrant's business and costs of
relocation of the Registrant's offices, as well as the costs associated with the
Sigma and AHP acquisitions, including payroll and professional fees. The
Registrant's expenses in the six months ended June 30, 2000 also include a
non-recurring stock based compensation expense of $2,805,000, which had a
substantial impact on expenses for the six months ended June 30, 2000.
LOSSES
The Registrant incurred losses from operations of $(5,673,173) in the six months
ended June 30, 2000 compared to ($607,186) in the six months ended June 30,
1999, for an increase of ($5,065,987) or 834.3%. The substantial increase in
losses was due primarily to the decrease in SITN business caused by its
inability to use its studio space in its new facility, the expenses of the Sigma
and AHP acquisitions and the non-recurring stock based compensation expense of
$2,805,000 in the six months ended June 30, 2000. Net other income and expenses
were ($54,492) in the six months ended June 30, 2000 and ($127,221) in the six
months ended June 30, 1999, for a decrease of ($72,729) or (57.2%).
LIQUIDITY AND CAPITAL RESOURCES
The Registrant has significant capital needs, which to date the Registrant has
met through private sales of its equity and loans. The Registrant will continue
to need substantial infusions of capital, which it expects to continue to fund
primarily from private sales of its equity and loans, or by a public offering of
its equity or debt securities. In the six months ended June 30, 2000, the
Registrant has received from Lloyds Bahamas Securities, LTD. over $2 million in
additional financing and the Registrant is continuing in efforts to increase its
capital resources.
<PAGE> 16
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In November, 1999, 405 Lexington, L.L.C. (the "Landlord") began an
action in New York City Landlord-Tenant Court alleging that Select Media had
breached its lease and seeking the payment of use and occupancy. The Company is
defending this action and believes the allegations of the Landlord are without
merit.
In May, 2000, Select Media began an action in New York Supreme Court
against the Landlord seeking an injunction to permit completion of the build-out
of the studios and surrounding space in its leased premises, the release of
$706,880 of Landlord's contributions toward build-out already completed and for
damages in excess of $10 million for loss of the SITN business.
ITEM 2. CHANGES IN SECURITIES.
On January 15, 2000, the Company entered into an agreement with Lloyds
Bahamas Securities, LTD. ("Lloyds") to assist in funding the Company. In
exchange for funding up to $2,000,000 in the aggregate, Lloyds may
purchase up to 4,000,000 shares of the Company's restricted common stock
at a price of $ .50 per share. On April 13, 2000, the Company issued
2,814,000 shares of restricted common stock to Lloyds in settlement of
advances made to the Company in the amount of $1,407,000. At June 30,
2000, the amount due to Lloyds was $892,000, which Lloyds may convert
into common stock at the price of $.50 per share.
During the three months ended June 30, 2000, the Company issued 450,000
shares of Restricted Common Stock to three consultants for services
rendered to the Company. The Company valued these services at $1,980,000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable
ITEM 5. OTHER INFORMATION.
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Not Applicable
<PAGE> 17
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf of the undersigned, thereunto duly
authorized.
SELECT MEDIA COMMUNICATIONS, INC.
----------------------------------------
(Registrant)
Date: 8/14/2000 /S/ MITCH GUTKOWSKI
---------- ----------------------------------------
MITCH GUTKOWSKI, Chief Executive Officer
