U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Fiscal Year
Ended December 31, 1997
[ ] Transition Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Transition
Period From ________ to ________
Commission File No. 333-26385
Media Entertainment, Inc.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
NEVADA 75-2293489
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
8748 Quarters Lake Road,
Baton Rouge, Louisiana 70809
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES,
INCLUDING ZIP CODE)
(504) 922-7744
(ISSUER'S TELEPHONE NUMBER,
INCLUDING AREA CODE)
Securities Registered under Section 12(b) of the Exchange
Act:
Name of Exchange
Title of Each Class on Which Registered
- ------------------- -------------------
None None
Securities Registered under Section 12(g) of the Exchange
Act: None
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject of such filing requirements for the past 90
days. Yes [ ] No [ X ]
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained in this
form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [ X ]
Registrant's revenues for its most recent fiscal year were
$1,355.
The aggregate market value of the voting stock held by non-
affiliates computed based on the average of the closing bid
and asked prices of such stock as of May 20, 1998, was
approximately $2,993,596.
The number of shares outstanding of the issuer's common
equity as of May 20, 1998, was 6,962,759 shares of common
stock, par value $.0001.
Documents Incorporated by Reference: Current Report on Form
8-K, Date of Event: 10/10/97.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
------------------------
PART I
Item 1. Description of Business
History
The Company's primary focus is on the development and
exploitation of its proprietary Wireless Internet Access
System. In February 1998, the Company obtained its first
Wireless Internet customer in Baton Rouge. Substantially
all of the Company's business efforts and resources will,
for the foreseeable future, be committed to its Wireless
Internet business segment. In exploiting its Wireless
Internet business opportunity, it is the Company's plan
either (1) to acquire an existing hard-wire dependent, dial-
up Internet Service Provider [ISP] in a particular market
and "plug-in" its proprietary Wireless Internet Access
System or (2) construct a Wireless Internet Access System in
a particular market. The Company is seeking capital with
which to exploit its Wireless Internet technology.
The Company was incorporated on November 1, 1996, to act
as a holding company primarily in the wireless cable and
community (low power) television industries. To this end,
the Company acquired Winter Entertainment, Inc. (WEI), which
owns and operates a community (low power) television station
in Baton Rouge, Louisiana, and Missouri Cable TV Corp.
(MCTV), which owns the licenses necessary to operate
wireless cable systems in Poplar Bluff and Lebanon,
Missouri, has acquired licenses and leases of licenses
necessary to operate wireless cable systems in Port Angeles,
Washington, Astoria, Oregon, Sand Point, Idaho, The Dalles,
Oregon, and Fallon, Nevada, and has acquired licenses
necessary to operate community (low power) television
stations in Monroe/Rayville, Louisiana, Bainbridge, Georgia,
and Natchitoches, Louisiana.
Proposed Acquisitions
Intersurf Online. In March 1998, the Company entered into
a letter of intent to acquire Telepresence, Inc., d/b/a
Intersurf Online ("Intersurf"), the second largest dial-up
ISP in Baton Rouge, Louisiana. The Company anticipates that
it will enter into a definitive acquisition agreement in the
near future, although no assurance can be made that such
will be the case. Should the Company complete is currently
ongoing private offering of its securities, a portion of the
proceeds of such private offering are designated for use in
the acquisition of Intersurf. Without the proceeds of such
private offering, the Company will not possess capital with
which to acquire Intersurf.
Unidentified Dial-up ISP. Recently, the Company reached
an informal understanding with the owner of an additional
dial-up ISP (name undisclosed by agreement) in Baton Rouge,
with respect to the Company's acquisition of such dial-up
ISP. The extent of the understanding is that the owner is
amenable to selling this dial-up ISP to the Company; no
specific terms of acquisition have been negotiated. The
Company believes that this dial-up ISP has approximately 450
customers and is operating profitably, although the Company
has not confirmed its beliefs in this regard. The Company
expects that it will be able to acquire this dial-up ISP for
approximately $60,000 in cash. However, without the
proceeds of its currently ongoing private offering, the
Company will not possess capital with which to acquire this
dial-up ISP.
Business Development Priority and Growth Strategy
Business Development Priority. In October 1997, the
Executive Committee of the Board of Directors of the Company
approved a change in the Company's priority of business
development opportunities.
The Company's former development priority was: (1)
wireless cable television; (2) community (low power)
television; and (3) Wireless Internet.
The Company's new development priority is (1) Wireless
Internet; (2) community (low power) television; and (3)
wireless cable television. The change in development
priority is a result of the unexpectedly rapid completion of
a market-ready version of the Company's proprietary Wireless
Internet Access System.
Growth Strategy. The Company's Wireless Internet growth
strategy is a two-pronged approach: first, it is the
Company's intention to identify suitable markets, acquire a
locally-owned dial-up ISP in each market, essentially "plug-
in" its proprietary Wireless Internet Access System and
start selling its Wireless Internet service; second, the
Company intends to construct Wireless Internet Access
Systems in desirable cities where no suitable dial-up
acquisition can be made. The Company believes that its
growth-through-acquisition strategy will permit it to
achieve necessary economies of scale in the shortest
possible time. However, there is no assurance that the
Company will be successful in implementing its strategy, due
primarily to the Company's current lack of capital.
Business - Wireless Internet
General
Wireless Internet is a new type of communications spectrum
recently designated by the FCC. Wireless Internet requires
a transmission facility maintained by the Wireless ISP
[Internet Service Provider] and the user's modem equipped
with an antenna. Wireless Internet capability allows users
to access the Internet from a stationary computer or from a
mobile, lap-top computer located within the Wireless ISP's
transmission area; that is, a user can travel in a car, bus,
train, etc., within the Wireless ISP's transmission area and
maintain constant Internet access. The Company believes
that businesses, particularly service businesses, once made
aware of the Company's Wireless Internet technology, will
readily subscribe to the Company's Wireless ISP service,
although no assurance can be made in this regard.
Proprietary Wireless Internet Access System
The Company's proprietary Wireless Internet System
operates within a broadcast signal in the 900 or 2400 MHz
band using two-way modems outfitted with antennae. Thus,
the Company's Wireless Internet System differs substantially
in design from the Wireless Internet access available
through cellular telephones and differs substantially from
traditional telephone-line-based ISPs because there is no
reliance on hard wire to transfer data. Yet, the Company's
management believes the Company's Wireless Internet System
is capable of greater utility at lower cost than these other
modes of Internet access.
It is the belief of the Company's management that the
Company's Wireless Internet System provides the following
competitive advantages for attracting potential business
customers over other Internet access modes:
Speed. The Company's Wireless Internet System provides
a minimum data transmission speed of 64kbs, with data
transmission speed capability of up to the equivalent of a
T1 telephone line (that is, the data transmission capability
equivalent of 24 ISDN-telephone lines, an ISDN-telephone
line being the equivalent of 24 standard telephone lines).
The Company intends to guaranty 64kbs transmission speed as
a minimum to all customers.
Lower Cost. The Company's Wireless Internet System
will, depending on the particular market, offer cost savings
of between 30% to 50% less than hard-wire Internet access
currently offered by local telephone companies. In
addition, the Company's Wireless Internet System offers
significant savings over cellular-telephone-based Internet
access methods, inasmuch as the Company's Wireless Internet
System is offered on a monthly flat-rate charge rather than
a per-minute charge.
No Telephone Company Involvement. Because the Company's
Wireless Internet System does not utilize telephone lines,
Company customers will not be required to incur the expense
of a hard-wire telephone line through which to access the
Internet. The Company believes this characteristic will be
especially appealing to potential business customers. Also,
in the many areas where there appears to exist disdain for
the local telephone company, the Company believes it will be
able to gain customers, at least in part, by emphasizing the
fact that the local telephone company will no longer be
needed for Internet access.
Security/Encryption. The Company's Wireless Internet
System is designed to allow the encryption (scrambling) of
its broadcast signal, thereby offering a high degree of
security to potential customers, particularly business
customers, who wish to transmit confidential information
over the Internet. As designed, such encryption capability
does not add significantly to the cost of the Company's
Wireless Internet System to its customers.
Mobility. The Company's Wireless Internet System is
able to permit service personnel of a business to file
contemporaneous reports, request and receive technical
assistance and perform other computer-based functions from a
customer's place of business or from a service vehicle, even
if the service vehicle is traveling to its next destination.
The Company believes this mobility feature, coupled with the
high-speed data transmission feature of its Wireless
Internet System, will be attractive to potential customers,
especially business customers.
Ethernet/Networking Capability. The Company's Wireless
Internet System is compatible with existing so-called
"ethernet" systems. Generally, an ethernet can be described
as a self-contained network of desk-top computers, often
located in the same building, through which individual
computer users can communicate electronically (i.e., via e-
mail), as well as access the Internet. The Company is
capable of designing and installing an ethernet system in
any existing building by installing a wireless
communications system that links all computers, including
computers that are to remain linked via hard wire, to one
another and provides all computer users access to the
Internet. The Company believes that its ability to provide
a wireless ethernet system at substantially lower cost than
that of a hard-wire ethernet system will be a competitive
advantage. There is, however, no assurance in this regard.
The Company believes that its Wireless Internet System is
able to satisfy any other special requirements of a
potential customer, without significantly adding to the
system's cost to that customer. However, there can be no
assurance that such will be the case.
The Company's Wireless Internet System is being marketed
to the business sector, as well as home-based Internet
users.
Currently, it is the Company's long-term objective to
offer a full array of video entertainment via its Wireless
Internet System. The Company believes its plans are easily
achievable, due to the fact that the Company's Internet
connection can be routed to the user's television using
existing, relatively inexpensive technology. Assuming
market conditions permit, the Company expects that, by the
year 2005, each of its Wireless Internet systems would be
able to offer its subscribers the many video services,
including some services that, given the rapid evolution of
technology, may not currently exist. The video
entertainment services that the Company expects to be able
to offer include:
Movies. The Company believes that it will be able to
offer an ever-expanding movie list, all of which would be
available, in real time, at any time, upon request of the
subscriber. It is expected that each movie would be sold,
or "rented", to subscribers at a cost that would be less
than the same movie were it to be rented from the local
video rental store. The primary impediment to the Company's
offering this service is its lack of capital with which to
acquire necessary equipment, as well as digitized copies of
the desired movies.
Pay-Per-View Events. The Company believes that the
Company will be able to offer to its subscribers access to
pay-per-view events, such as concerts and sporting events,
including boxing matches, such as are currently available
from time to time through local cable television systems.
The primary impediment to the Company's offering this
service is its lack of capital with which to purchase
necessary equipment, including satellite dishes.
"Cable" Television. Although the Company expects that
consumer acceptance will be sluggish at first, the Company
believes that, with adequate capital for equipment and
advertising, as well as consumer education, the Company will
be able to provide a competitive offering of "cable"
television channels that would be equal to those offered by
any local cable television company and direct broadcast
satellite systems. It is quite possible that market forces
will dictate that this type of service would not be
introduced to consumers for the foreseeable future. No
prediction in this regard can be made.
The foregoing services that might be offered in the future
by the Company remain in the development stage and no
introduction date has been set by the Company's management.
All of the services described appear to be possible after
initial tests, due to the high-speed data transmission
capabilities of the Company's Wireless Internet system.
Additional applications are currently being developed by the
Company. No prediction as to when any or all of these
services will be ready for commercial exploitation.
Business Strategy
General. It is the Company's intention either (1) to
acquire an existing hard-wire dependent, dial-up Internet
Service Provider in a particular market and "plug-in" its
Wireless Internet System or (2) construct a Wireless
Internet System in a particular market. The Company
believes this strategy gives it flexibility in entering and
exploiting a particular market.
The Company, through a marketing agreement with Intersurf,
has begun to place customers onto its Wireless Internet
System, which marketing agreement will remain in place until
such time as the acquisition of Intersurf is consummated, of
which there is no assurance. (See "Proposed Acquisition"
above). Should the Intersurf acquisition be abandoned, the
Company expects that it will continue to operate under its
marketing agreement with Intersurf. Also, the Company has
entered into a joint venture to develop a Wireless Internet
System in Monroe, Louisiana. The Company expects that the
Monroe, Louisiana, joint venture will begin operations in
June 1998.
Marketing. In marketing its Wireless ISP services, the
Company will emphasize the superior connection to the
Internet offered by its equipment, the low price relative to
the quality of the Internet connection, the mobility of the
Internet connection and the ability to gain access to the
Internet without dealing with the local telephone company.
There is no assurance that this method of marketing will be
successful.
Competition
Traditional (telephone-line dependent) ISPs are currently
engaged in severe competition for market share, particularly
in the larger markets of the U.S. It can be expected that
many competitors will possess far greater resources,
financial and otherwise, than does the Company. It is
possible that the Company will, at first, focus its efforts
on smaller markets, due to the perceived potential for
higher rates of return. However, no final determination in
this regard has been made. There is no assurance that the
Company will be able to compete successfully in any of its
Wireless ISP markets.
Other Wireless Products
In January 1998, the Company delivered its first
proprietary Wireless DataLink System. The Company's
Wireless DataLink System was delivered to the Baton Rouge
refinery of one of the largest international oil companies,
the refinery being the second largest in the U.S. The
Company's Wireless DataLink System was purchased to replace
an existing hard-wire ("T-1" telephone line) data
transmission system. The Company's Wireless DataLink System
transfers data at the rate of 2 megabytes per second.
The Company believes its Wireless DataLink System will
offer businesses a lower cost alternative to hard-wire data
transmission systems. There is no assurance that the
Company's Wireless DataLink System will achieve wide-spread
acceptance.
Business - Community (Low Power) Television
General
Industry History. Community, or low power, television is
a relatively new broadcasting category created by the FCC in
the early 1980's. Community television stations, with their
narrow geographic coverage, usual unaffiliated status and
local programming focus, are becoming a more important part
of the current broadcasting mix. While able to cover, on
average, only between five and 20 miles radius (15-62 square
miles) with their signals, community television stations
have been able to expand greatly their coverage by having
their signals included in local and regional cable systems.
Entry into the community television industry requires
substantially less capital than entry into the high-power
television industry. There are currently approximately
1,700 community television stations licensed by the FCC,
with approximately the same number of applications for new
licenses now pending with the FCC.
Community television stations may be either affiliated
with one of the national networks (ABC, NBC, CBS, FOX, UPN
or WB) or may be independent. The Company does not
anticipate that its community television stations will
become network affiliates in the near term. However, it is
expected that, once operational, each of the Company's
stations will become an affiliate of the Video Catalog
Channel, a merchandise sales operation. The Company's only
operational station, Call sign K13VE, Channel 13, in Baton
Rouge, Louisiana, has been an affiliate of the Video Catalog
Channel since going on the air in January 1996. (See
"Business Strategy" hereunder).
Programming
Lacking a national network affiliation, independent
community (low power) television stations, in general,
depend heavily on independent third parties for programming.
Programs obtained from independent sources consist primarily
of syndicated television shows, many of which have been
shown previously on a network, and syndicated feature films,
which were either made for network television or have been
exhibited previously in motion picture theaters (most of
which films have been shown previously on network and cable
television). Syndicated programs are sold to individual
stations to be broadcast one or more times. Independent
television stations generally have large numbers of
syndication contracts; each contract is a license for a
particular series or program that usually prohibits
licensing the same programming to other television stations
in the same market. A single syndication source may provide
a number of different series or programs.
Licenses for syndicated programs are often offered for
cash sale or on a barter or cash-plus-barter basis to
stations. In the case of a cash sale, the station purchases
the right to broadcast the program, or a series of programs,
and sells advertising time during the broadcast. The cash
price of such programming varies, depending on the perceived
desirability of the program and whether it comes with
commercials that must be broadcast (a cash-plus-barter
basis). Bartered programming is offered to stations without
charge, but comes with a greater number of commercials that
must be broadcast, and, therefore, with less time available
for sale by the station. Recently, the amount of bartered
and cash-plus-barter programming broadcast industry-wide has
increased substantially.
For the foreseeable future, however, the Company
anticipates that each of its community television stations
will be an affiliate of the Video Catalog Channel, deriving
all of its programming therefrom.
Community Television Industry Trends
The Company believes that community television is in the
right position at a very dynamic time in the television
broadcasting market place. With the ever-growing number of
cable (hard-wire and wireless) channels in most markets,
coupled with the lack of programming available for channel
slots past the 70-channel mark, there appears to be room
available on such cable systems for additional stations.
This availability of channel room on cable systems has the
effect of giving community television far greater area
coverage than could be achieved solely by broadcasting a
signal. The potential for community television stations to
achieve historically high revenues exists, if a particular
market and/or region can be exploited effectively. There is
no assurance that the Company will be able to exploit each
of its community television markets.
Business Strategy
It is the Company's current intention for each of its
community television stations, as soon as it becomes
operational, to become an affiliate of the Video Catalog
Channel, a merchandise sales operation. It is the Company's
experience, from the operations of its Baton Rouge,
Louisiana, community television station, that this strategy
generates positive cash flow, from inception of
broadcasting. From such financial position, a station's
advertising sales efforts will be increased in an effort to
exploit such station's coverage area. Also, the Company
will attempt to secure a channel on each of the cable
systems within a particular market. There is no assurance
that the Company will be able to exploit effectively any of
its community television markets. It is possible that one
or more of the Company's community television stations
could, in the future, become an affiliate of one of the
national networks, such as FOX, UPN or WB. However, no
prediction in this regard can be made.
Company Markets
General. The Company currently operates a community
television station in Baton Rouge, Louisiana, and holds the
rights to community television stations in Monroe/Rayville,
Louisiana, Bainbridge, Georgia, and Natchitoches, Louisiana.
The Company currently intends to establish its Community
Television stations in the order listed above. Such order
of development was determined after an assessment of the
business potential of each of the markets based upon the
number of homes within the radius of the proposed transmit
site, as well as other demographic factors. Except where
noted below, the Company will seek additional financing,
either equity or debt, or form partnerships for the
development of its markets. The Company does not currently
have such financing or partners in place. The Company
believes such financing will be available on a
station-by-station basis; however, there can be no assurance
that it will be able to obtain such financing or partners on
a timely basis and on satisfactory terms and conditions, if
at all. The failure to obtain additional funds or partners
on a timely basis could materially adversely affect the
Company and its business.
Baton Rouge, Louisiana. K13VE, Channel 13, the Company's
Baton Rouge, Louisiana, community television station, has
been broadcasting since January 1996, as an affiliate of the
Video Catalog Channel. The Company's current broadcast
signal reaches approximately 30,000 households. Should the
Company obtain necessary funds, of which there is no
assurance, the Company intends to commit $20,000 to increase
the power of such station to its maximum legal limit, which
would permit the Company's broadcast signal to reach
approximately 150,000 households. It is expected that the
commissions earned by K13VE from Video Catalog Channel sales
originating from its broadcast area will increase
proportionately to its increased number of households
reached. There is no assurance that such will be the case.
Other Stations. The Company owns the licenses to
community television stations located in Monroe/Rayville,
Louisiana, Natchitoches, Louisiana, and Bainbridge, Georgia,
which television stations are expected to be constructed in
the order listed, assuming adequate funding is available, of
which there is no assurance. The Company believes it will
require approximately $50,000 to construct each station.
Because the Company intends to have each of its stations
become an affiliate of the Video Catalog Channel immediately
after construction has been completed, the Company does not
expect to require additional funds for marketing. There is
no assurance that funding will be available to the Company
at such times as it attempts to construct any one of its
community television stations. Absent additional funding,
the Company would likely be unable to construct any of its
community television stations.
Competition
Community television stations compete for advertising
revenue in their respective markets, primarily with other
broadcast television stations and cable television channels,
and compete with other advertising media, as well. Such
competition is intense. In addition, competition for
programming, management personnel and network affiliations
is severe. There is no assurance that the Company's
community television channels, once built, of which there
is no assurance, will be able to compete effectively in
their respective markets.
Business - Wireless Cable
General
Industry History - Cable Television. The cable television
industry began in the late 1940's and 1950's to serve the
needs of residents in predominantly rural areas with limited
access to local off-air VHF/UHF broadcasts. The cable
television industry expanded to metropolitan areas by
offering better reception and more programming than
available with off-air broadcasts. Today, cable television
systems offer various types of programming, which generally
include basic service, premium service and, in many
instances, pay-per-view services.
Wireless Cable Technology. Initially, most cable systems
were hard-wire systems, using coaxial cable and amplifiers
to transmit television signals. In 1983, the FCC allocated
a portion of the radio spectrum from 2500 to 2700 MHz, which
had previously been allocated entirely for educational use,
to commercial wireless cable operation. Simultaneously, the
FCC also modified its rules on the usage of the remaining
portion of such spectrum allocated for educational use.
Nevertheless, regulatory and other obstacles impeded the
growth of the wireless cable industry through the remainder
of the 1980's. The FCC maintained burdensome restrictions
on the commercial use of educational channel capacity. In
addition, before enactment of the Cable Act (October 5,
1992), many program suppliers were unwilling to provide
programming to wireless cable operators on terms comparable
to those offered to hard-wire cable operators, if at all.
During the 1990's, several factors have contributed to the
growth of the wireless cable industry, including (I)
Congressional scrutiny of the rates and practices of the
hard-wire cable industry, (ii) improved technology,
particularly signal encryption and signal compression, (iii)
regulatory reforms by the FCC to facilitate the growth and
competitive impact of the wireless cable industry, including
permitting channel aggregation, (iv) increased availability
of programming for wireless cable systems, (v) strong
consumer demand for alternatives to hard-wire cable service
and (vi) increased availability of capital to wireless cable
operators in the public and private markets.
Wireless cable systems, like hard-wire cable systems,
operate from a head-end, consisting of satellite reception
and other equipment necessary to receive the desired
programming. Programming is then transmitted by microwave
transmitters from an antenna located on a tower to a small
receiving antenna located on a subscriber's rooftop. At the
subscriber's location, the microwave signals are converted
to frequencies that can pass through conventional coaxial
cable into an addressable de-scrambling converter located on
top of a television set. Because the microwave frequencies
used by wireless cable will not pass through large trees,
hills, tall buildings or other obstructions, wireless cable
requires a clear line-of-sight from tower to receiving
antenna. However, most signal blockages can be overcome
with the use of signal boosters which retransmit an
otherwise blocked signal over a limited area. Because
wireless cable systems do not require an extensive network
of coaxial cable and amplifiers, wireless cable operators
are able to provide subscribers with a high quality picture
and a reliable signal at a significantly lower
per-subscriber system cost, when compared to hard-wire cable
systems.
Hard-Wire Cable Technology. Hard-wire cable operators
transmit signals from a head-end, delivering local and
satellite-delivered programming through a network consisting
primarily of coaxial cable and amplifiers to subscribers.
As a direct result of the use of coaxial cable to deliver
signals throughout a service area, hard-wire cable systems
are susceptible to signal problems. Because signals can
only be transmitted through coaxial cable a fixed distance
without additional amplification, some degree of noise is
added each time a television signal is so amplified. A
series of amplifiers between the head-end and the viewer
leads to progressively greater noise and, accordingly, for
some viewers, a grainier picture. Also, an amplifier must
be properly balanced or the signal may be improperly
amplified. Failure of any one amplifier in the chain will
black out an area. Substantial regular system maintenance
is required due to water ingress, temperature changes and
other equipment problems, all of which may affect the
quality of signals delivered to subscribers. Some hard-wire
cable companies have begun installing fiber optic cable
networks. While this technology will substantially improve
the transmission and reception problems currently
experienced by most hard-wire cable systems, the high costs
associated with such technology may slow the conversion to
all fiber optic systems and further enhance the typical cost
advantages of wireless cable.
Programming
General. Once a wireless cable operator has obtained the
right to transmit programming over specified frequencies,
the operator must then obtain the right to use the
programming to be transmitted. With the exception of the
retransmission of local off-air VHF/UHF broadcast signals,
programming is made available in accordance with contracts
with program suppliers under which the system operator pays
a royalty based on the number of subscribers receiving
service each month. Individual program pricing varies from
supplier to supplier; however, more favorable pricing for
programming is generally afforded to operators with larger
subscriber bases. The likelihood that program material will
be unavailable to the Company has been significantly
mitigated by the Cable Act and various FCC regulations
issued thereunder, which, among other things, impose limits
on exclusive programming contracts and prohibit cable
programmers, in which a cable operator has an attributable
interest, from discriminating against cable competitors with
respect to the price, terms and conditions of programming.
Because only a few of the industry's programming services
are not currently directly owned by vertically integrated
multiple cable system operators, the Company expects little
difficulty in arranging satisfactory programming contracts.
The basic programming package expected to be offered in each
of the Company's markets can be expected to be comparable to
that offered by the local hard-wire cable operators.
Copyright. Under the Federal copyright laws, permission
from the copyright holder generally must be secured before a
video program may be re-transmitted. Under section 111 of the
Copyright Act, certain "cable systems" are entitled to
engage in the secondary transmission of programming without
the prior permission of the holders of copyrights in the
programming. In order to do so, a cable system must secure
a compulsory copyright license. A license may be obtained
upon the filing of certain reports and the payment of
certain fees set by the Copyright Royalty Tribunal.
Wireless cable operators may rely on section 111 of the Copyright
Act. The Congress recently enacted legislation that
confirmed the ability of wireless cable operators to obtain
the benefit of the compulsory copyright license.
Periodically, Congress has considered proposals to phase out
the compulsory license.
Local broadcasters may require that cable operators obtain
their consent before re-transmitting local off-air VHF/UHF
broadcasts. The FCC has exempted wireless cable operators
from the re-transmission consent rules if the receive-site
antenna is either owned by the subscriber or within the
subscriber's control and available for purchase by the
subscriber upon the termination of service. In all other
cases, wireless cable operators must obtain consent to
re-transmit local broadcast signals. The Company will
attempt to obtain such consents in the markets where it will
be re-transmitting on a wireless cable channel. There can
be no assurance that the Company will be able to obtain such
consents on satisfactory terms, if at all.
Contract Programming. In each of its wireless cable
systems, the Company will be required to enter into
agreements with program suppliers, such as ESPN, CNN, HBO
and MTV. The Company has not yet determined the mix of
programming that will be offered in any of its wireless
cable systems. Thus, no agreements with program suppliers
have been made. It can be expected that such program
agreements will have three-year terms, with provisions for
automatic renewals, and be subject to termination for breach
of the agreement, including non-payment. As a rule, the
programming agreements can be expected to provide for
royalty payments based upon the number of Company
subscribers receiving the programming each month.
Individual program prices vary from supplier-to-supplier,
and more favorable pricing sometimes is afforded to
operators with larger subscriber bases; however, the Cable
Act requires cable programming to be made available for
purchase by all system operators at competitive pricing.
Pay-Per-View Services. The Company intends to offer
"pay-per-view" services that will enable customers to order,
and pay for, one program at a time. Pay-per-view services
have, in the past, been successful for specialty events,
such as wrestling and heavyweight prize fights, concerts and
early-release motion pictures. It is possible that the
Company will promote the purchase of movies on a
pay-per-view basis in competition with video rental stores.
Pay-per-view requires the subscriber to have an "addressable
converter". An addressable converter allows the cable
company to control what the subscriber watches without
having to visit the subscriber location to change equipment.
The Company intends to utilize addressable converters in all
of its systems. However, for customers to order
pay-per-view events conveniently, an impulse pay-per-view
converter is required. An impulse pay-per-view converter,
which has a return frequency (in a wireless system) to the
operator's computer system, enables a subscriber to make a
telephone call to order an event. The Company intends to
have impulse capability in all of its systems, but it does
not intend to offer impulse pay-per-view in the foreseeable
future.
Pay Television Industry Trends
The Company's business will be affected by pay television
industry trends and, in order to maintain and increase its
subscriber base in the years ahead, the Company will need to
adapt rapidly to industry trends and modify its practices to
remain competitive. Due to the limited number of physical
components of the wireless transmission system, the Company
believes it will be less expensive for it to adapt to coming
industry trends than for hard-wire cable operators. The
cost of such adaptation by the Company could, nonetheless,
be substantial.
Signal Compression. Several decoder manufacturing
companies are developing digital compression technology,
which would allow several programs to be carried in the
amount of bandwidth where only one program is carried now.
Manufacturers have projected varying compression ratios for
future equipment, with more conservative estimates ranging
from 3-to-1 to 10-to-1. The Company believes
second-generation 6-to-1 signal compression technology will
be available within three months. It is generally expected
that such digital compression technology would have at least
two major effects: (1) such technology will permit wireless
cable systems to be launched in a particular market with far
fewer channels having been licensed or leased, thereby
reducing start-up and operating costs; and (2) such
technology will permit dramatic expansion of pay-per-view
video services, thereby increasing the potential of greater
revenues for a particular system's operator. The Company
believes hard-wire cable companies will be required to
expend significant funds on upgrading current systems in
order to utilize digitally-compressed signals, the costs of
which may be prohibitive.
Addressability and Pay-Per-View. "Addressability" means
the ability to implement specific orders from, or send other
communications to, each subscriber, without having to modify
a subscriber's equipment. "Impulse addressability" allows a
subscriber to select specialized programming, such as
pay-per-view, on an immediate basis, simply through the
remote control. While the Company, like many wireless cable
operators, expects that it will use impulse-addressable
set-top converters, only approximately 35% of hard-wire
cable operators use addressability and only approximately 5%
use impulse-addressability. Without addressability, a
hard-wire customer not subscribing to a premium channel must
make two trips to the hard-wire cable operator's offices,
once to obtain the de-scrambling device and once to return
it. A customer subscribing to a premium channel must
telephone the hard-wire cable operator in advance. The
Company believes this lack of convenience has substantially
hindered pay-per-view sales. Pay-per-view is expected to
become more popular as additional events become available
for distribution exclusively on pay-per-view. Compression
technology will greatly expand the channel capacity
available for such programming. The Company believes that
the use of digital compression technology will provide an
additional advantage over most hard-wire cable operators,
because impulse-addressable set-top converters provide
greater convenience for subscribers. Hard-wire cable
operators will incur significant expenditures to upgrade
their systems to be able to offer impulse addressability.
Advertising. Until recently, most advertising on cable
has been sold by program suppliers, who sell national
advertising time as part of the signal they deliver to cable
operators. Recently, however, advertisers have begun
placing advertisements on channels dedicated exclusively to
advertising, as well as in local available time (typically,
two minutes each hour) set aside by program suppliers for
local insertions in their programming of advertisements sold
by cable operators. The Company expects that digital
compression technology will allow substantial flexibility in
the expansion of advertising sales, due to the increased
number of programming channels available. (See "Business
Strategy" hereunder).
Interactivity. Certain hard-wire cable operators have
announced their intentions to develop interactive features
for use by their subscribers. Interactivity would allow
subscribers to utilize their televisions for two-way
communications, such as video games and home shopping, among
others. Wireless cable operators will be able to utilize a
frequency which the FCC has made available for interactive
communications. At this time, the Company believes the
commercial viability of interactivity in the Company's
markets is at least several years away.
Business Strategy
The Company's primary business objective in the wireless
cable industry is to develop, own and operate wireless cable
television systems in markets in which the Company believes
it can achieve positive cash flow and operating income
rapidly after system launch. This period of development
would be followed by consolidation of its subscriber base
and expansion of programming.
Rural Market Focus. The Company intends to aggregate
wireless cable channel rights and to locate operations in
small to mid-size markets that have a substantial number of
households not currently passed by hard-wire cable and lack
off-air VHF/UHF broadcast channels. The Company believes
that this size market typically has a stable economic base,
less competition from alternative forms of entertainment and
other conditions conducive to wireless cable transmissions.
Market Penetration. Because the Company's officers will
be involved in each system launch in a hands-on manner, the
Company believes it will be able to achieve positive monthly
operating cash flow upon obtaining between 350 and 400
subscribers within a particular system. Initially, the
Company will direct its marketing at unpassed households.
Accordingly, the Company believes it will be able to launch
service successfully in most of its markets with
approximately 12 channels of programming, allowing it to
contain system launch costs and achieve positive cash flow
with a lower number of subscribers. The Company expects
that it will be able to achieve this level of programming in
each of its markets. It is the Company's plan that, once a
system achieves positive cash flow, the Company would expand
the channel offering and add subscribers. There is no
assurance that any of the Company's proposed systems will
ever generate positive cash flow or earn a profit.
Low Cost Infra-Structure. Wireless cable systems
typically cost significantly less to build and operate than
hard-wire cable systems, for many reasons. First, while
both hard-wire cable operators and wireless cable operators
must construct a head-end, hard-wire cable operators must
also install an extensive network of coaxial cable and
amplifiers in order to transmit signals from the head-end to
subscribers. In a wireless cable system, once the head-end
is constructed, the Company estimates that each additional
wireless cable subscriber will require an incremental
capital expenditure by the Company of approximately $200.
Such incremental capital expenditures are variable costs and
will be partially offset by installation fees to be paid by
subscribers. Second, without an extensive co-axial cable
network to maintain, wireless cable operators typically
incur lower system maintenance costs and depreciation
expense. Third, programming is generally available to
hard-wire and wireless cable operators on comparable terms,
although operators that have a smaller number of subscribers
often are required to pay higher per-subscriber fees.
Finally, the Company expects that it will, based on industry
averages, experience a lower rate of subscriber turnover, as
compared to the "churn" rate of approximately 3% per month
typically experienced by hard-wire cable operators, although
no assurances can be made in this regard. Reduced
subscriber turnover can be expected to reduce installation
and marketing expenses.
Development Priority. The Company currently intends to
exploit its wireless cable markets in the following order:
(1) Poplar Bluff, MO, which is built out and will become
operational at such time as needed marketing funds are
obtained, of which there is no assurance; (2) Lebanon, MO;
(3) Port Angeles, WA; (4) The Dalles, OR; (5) Sand Point,
ID; (6) Fallon, NV; and (7) Astoria, OR. There is no
assurance that the Company will be able to launch any of its
proposed wireless cable systems.
Marketing and Customer Support. The Company intends
primarily to utilize door-to-door marketing, as well as
media advertising, telemarketing and direct mail, to gain a
subscriber base in each of its wireless cable markets. The
Company also intends to run promotional pricing campaigns
and take advantage of public relations opportunities. In
this regard, the Company expects that substantial consumer
education regarding wireless cable will be necessary in each
of its markets, which could slow the growth of its
subscriber base.
The Company believes that it will offer its subscribers
competitively priced installation and subscription fees.
Several points will be emphasized in the Company's
advertising, as discussed below. The Company anticipates
that installation fees will average $49.95 per subscriber
and begin at $5.00 for promotional specials, while monthly
subscription fees are expected to start at $18.95 for basic
programming. Pay-per-view stations may be made available in
the future at no additional charge. It can be expected that
the Company will offer specially-priced packages during
promotional periods. Hard-wire cable customer charges are
subject to local franchise taxes, whereas wireless cable
customers do not pay any franchise taxes. A focus on the
value received for the price paid, together with an emphasis
on increased programming availability, are expected to
provide a competitive choice to potential customers. There
is, however, no assurance that the Company will be
successful in attracting subscribers.
The Company intends to provide 24-hour-per-day service,
with rapid response time on subscriber telephone calls,
uniformed field personnel and flexible installation
scheduling. The Company will emphasize its picture quality
and reliability of its wireless transmission. The Company
believes that, within its signal pattern, its picture
quality will be as good or better than that received by
hard-wire cable subscribers because, absent any
line-of-sight obstruction, there is less opportunity for
signal degradation between transmitter and the subscriber.
Also, wireless cable service has proven very reliable,
primarily due to the absence of certain distribution system
components that can fail and thereby cause outages. The
Company intends to position itself as a reliable,
cost-effective alternative to hard-wire cable operations by
delivering a high-quality signal throughout its signal area
and personal service to its subscribers.
Equipment Reliability and Picture Quality. Several
manufacturers produce the equipment used in the wireless
cable systems, from transmitters to the set-top converters
which feed the signal to the television set. Because the
signal is broadcast over the air directly to a receiving
antenna, wireless cable does not experience the problems
caused by amplifying signals over long distances experienced
by some hard-wire cable subscribers. Amplification of
signals can lead to greater signal noise and, accordingly, a
grainier picture for some subscribers. Also, the
transmission of wireless signals is not subject to the
problems caused by deteriorating underground cables used in
hard-wire cable systems. As a result, wireless cable is
sometimes more reliable than hard-wire cable, and picture
quality is generally equal to or better than hard-wire
cable. In addition, extreme weather conditions typically do
not affect wireless cable transmitters, so customers seldom
experience outages sometimes common with hard-wire cable
systems.
Signal security is provided by encoding each wireless
cable channel and equipping the converter with a unique
decoding device that responds to a pilot signal carrying a
data stream, with authorizations instructions. Thus, the
system is fully "addressable". The converter boxes will not
be usable until they are authorized for service by each
system's central computer. All channels, both basic and
premium, are scrambled. Because the wireless cable system
is addressable, it can also accommodate pay-per-view
service.
Advertising. The Company will attempt to generate
advertising sales revenue in each of its proposed wireless
cable markets, through the use of surplus channels, that is,
channels on which the Company is not broadcasting regular
programming. It is expected that the Company would sell
space on such surplus channels to distributors of so-called
"infomercials", which can be expected to generate additional
revenues for the Company. In addition, it is possible that
the Company will establish a program production unit, which
would produce, among other types of programming,
infomercials for its own use, as well as for sale to other
systems in need of additional programming. There is no
assurance that the Company will be successful in this
regard.
Company Markets
General. The Company currently holds the rights to
wireless cable channels in Poplar Bluff, Missouri, Lebanon,
Missouri, Port Angeles, Washington, The Dalles, Oregon, Sand
Point, Idaho, Fallon, Nevada, and Astoria, Oregon.
The Company currently intends to exploit its wireless
cable markets in the order of the above presentation. Such
order of development was determined after an assessment of
the business potential of each of the markets based upon the
number of homes within the radius of the proposed transmit
site, the number of homes passed by hard-wire cable and
other demographic factors. Except where noted below, the
Company will seek additional financing, either equity or
debt, or form partnerships for the development of its
markets. The Company does not currently have such financing
or partners in place. The Company believes such financing
will be available on a market-by-market basis, especially
for the incremental capital needed as a particular wireless
cable system adds revenue-producing subscribers; however,
there can be no assurance that it will be able to obtain
such financing or partners on a timely basis and on
satisfactory terms and conditions, if at all. The failure
to obtain additional funds or partners on a timely basis
could materially adversely affect the Company and its
business. Nevertheless, the Company believes it will be
able to undertake limited development of one or more of its
markets (that is, with less rapid construction and less
extensive marketing) without such additional financing or
partners.
Poplar Bluff, Missouri. The Company's wireless cable
system in Poplar Bluff is based on low power television
channels rather than on the 2500-2700 MHz channels
specifically allocated by the FCC to wireless cable. That
is, the low power television channels have been built-out
for wireless cable operations, with full encryption and
signal compression capability. The Company believes this
style of wireless cable system to be superior to a
"traditional" wireless cable system, inasmuch as the low
power television broadcast signal is not limited by
"line-of-sight" concerns associated with microwave
(2500-2700 MHz) transmissions. Thus, terrain, large trees
and buildings cause far less signal interference.
Pursuant to separate Assignment and Assumption Agreements,
the Company holds the rights to leases of eight low power
television channels in the Poplar Bluff area. Specifically,
the Company holds the rights to channels 26, 28, 31, 35, 56,
59, 61, 68. The Company is obligated to pay monthly fees of
$.14 per subscriber for channels 26 and 31, and $.10 per
subscriber for the remainder of the channels. The term of
each of such agreements is 10 years, commencing October 17,
1996, which term shall renew automatically for an additional
10 years, at the Company's option.
Should funds be available, of which there is no assurance,
the Company intends to commit $100,000 to the initial
marketing and development efforts in Poplar Bluff. The
Company expects that it will be able to secure approximately
300 subscribers with the expenditure of such funds. There
is no assurance that such will be the case.
The hard-wire cable system in Poplar Bluff carries
approximately 25 channels. The Company will offer 12
channels (including available off-air VHF/UHF channels), and
will charge approximately 20% less per month for programming
services than does the local hard-wire operator. In
addition, there are a large number of unpassed (by hard-wire
cable) residences in the Poplar Bluff area, which is the
market segment on which the Company will concentrate
initially. The Company expects to achieve market
penetration in the unpassed residences in the Poplar Bluff
area at a rate that meets or exceeds the national average.
However, no assurances can be given in this regard.
The Company will utilize door-to-door marketing, newspaper
and radio advertising to advertise its wireless cable
services. Other forms of advertising may be used, should
cost factors be acceptable. The Company's officers expect
to oversee installation and sales efforts. Once the Poplar
Bluff system is established, the Company expects to employ
one full-time and one part-time employee there.
Lebanon, Missouri. The Company's Lebanon, Missouri,
wireless cable system will contain the same feature as its
Poplar Bluff, Missouri, wireless cable system, that is,
transmission of programming will emanate from low power
television stations rather than a microwave transmitter.
Pursuant to separate Assignment and Assumption Agreements,
the Company holds the rights to leases of eight low power
television channels in the Lebanon area. Specifically, the
Company holds the rights to channels 18, 29, 31, 40, 51, 53,
55 and 59. The Company is obligated to pay monthly fees of
$.10 per subscriber. The term of each of such agreements is
10 years, commencing October 17, 1996, which term shall
renew automatically for an additional 10 years, at the
Company's option. The Company is currently unable to
predict when it will begin to construct its Lebanon system,
although the Company does not anticipate that it will
commence construction prior to 1998, at the earliest. The
Company does not currently possess capital sufficient to
commence construction of such wireless cable system. There
is no assurance that the Company will ever possess capital
with which it would be able to construct its Lebanon system.
Port Angeles, Washington. The Company holds the rights to
leases of three wireless cable channels in Port Angeles,
Washington, channels H1, H2 and H3. The Company is
currently unable to predict when it will begin to construct
such wireless cable system. Nevertheless, should funding of
approximately $200,000 be available, the Company anticipates
that it will begin construction of such wireless cable
system during the first quarter of Fiscal 98. There is no
assurance that such level of funding for construction of
such wireless cable system will be available. In addition,
the Company will be required to acquire more channel rights
and/or utilize available signal compression technologies, in
order to be in position to offer a viable wireless cable
alternative. There is no assurance that the Company will be
able to acquire any additional channel rights or acquire the
rights to utilize any signal compression technologies.
The Dalles, Oregon. The Company holds the rights to
leases of six wireless cable channels in The Dalles, Oregon,
channels B1-2-3 and C1-2-3. The Company is currently unable
to predict when it will begin to construct such wireless
cable system, inasmuch as the Company does not currently
possess capital with which to commence construction. There
is no assurance that funding for construction of such
wireless cable system will be available.
Sand Point, Idaho. The Company holds the rights to leases
of six wireless cable channels in Sand Point, Idaho,
channels B1-2-3 and C1-2-3. The Company is currently unable
to predict when it will begin to construct such wireless
cable system, inasmuch as the Company does not currently
possess capital with which to commence construction. There
is no assurance that funding for construction of such
wireless cable system will be available.
Fallon, Nevada. The Company holds the rights to leases of
five wireless cable channels in Fallon, Nevada, channels
E1-2-3-4 and H3. The Company is currently unable to
predict when it will begin to construct such wireless cable
system, inasmuch as the Company does not currently possess
capital with which to commence construction. There is no
assurance that funding for construction of such wireless
cable system will be available.
Astoria, Oregon. The Company holds the rights to leases
of two wireless cable channels in Astoria, Oregon, channels
H2 and H3. The Company is currently unable to predict when
it will begin to construct such wireless cable system,
inasmuch as the Company does not currently possess capital
with which to commence construction. There is no assurance
that funding for construction of such wireless cable system
will be available. In addition, the Company will be
required to acquire more channel rights and/or utilize
available signal compression technologies, in order to be in
position to offer a viable wireless cable alternative.
There is no assurance that the Company will be able to
acquire any additional channel rights or acquire the rights
to utilize any signal compression technologies.
Competition
In addition to competition from established hard-wire
cable television systems, wireless cable television
operators face competition from numerous other sources,
including potential competition from emerging technologies
in the pay-television industry, certain of which are
described below.
Satellite Receivers. Satellite receivers are generally
seven to 12 foot dishes mounted in the yards of homes to
receive television signals from orbiting satellites. Until
the implementation of encryption, these dishes enabled
reception of any and all signals without payment of fees.
Having to purchase decoders and pay for programming has
reduced their popularity, although the Company will, to some
degree, compete with these systems in marketing its wireless
cable services.
Direct Broadcast Satellite (DBS). DBS involves the
transmission of an encoded signal direct from a satellite to
a customer's home. Because the signal is at a higher power
level and frequency than most satellite transmitted signals,
its reception can be accomplished with a relatively small
(18-inch) dish. DBS cannot, for technical and legal
reasons, provide local VHF/UHF broadcast channels as part of
its service, although many DBS subscribers receive such
channels through the use of standard over-air receive
antennas. Moreover, DBS may provide subscribers with access
to broadcast network distant signals only when a subscriber
resides in areas unserved by any broadcast station. The
cost to a DBS subscriber for equipment and service is
generally substantially higher than similar costs to
wireless cable subscribers. Several DBS services currently
are available nationwide. DBS currently has approximately
four million subscribers nationwide. At present, the
Company does not believe that, in the near-term, DBS will
constitute significant competition in the markets in which
the Company operates, due primarily to its cost and failure
to provide access to local VHF/UHF broadcast channels.
Satellite Master Antenna Television (SMATV). SMATV is a
multi-channel television service offered through a wired
plant quite similar to a hard-wire cable system, except that
it operates without a franchise from a local authority.
SMATV operates under an agreement with a private landowner
to service a specific multiple-dwelling unit (e.g.,
apartment complex). The FCC has recently amended its rules
to provide point-to-point delivery of video programming by
SMATV operators and other video delivery systems in the 18
gigahertz band.
Telephone Companies. Under the Communications Act, local
exchange carriers (LECs) are currently prohibited from
providing video programming directly to subscribers in their
respective telephone service areas. The FCC has recently
ruled, however, that LECs may acquire wireless cable
operations. Moreover, certain U.S. District Courts and
Courts of Appeal have held that the "telco-cable
cross-ownership ban" abridges the First Amendment rights of
LECs to free expression under the U.S. Constitution. Such
rulings are currently under appeal or are expected to be
appealed. The Telecommunications Act lifts barriers to the
provision of cable television service by telephone
companies. The FCC already permits LECs to provide "video
dial-tone" service, thereby allowing such carriers to make
available to multiple service providers, on a
nondiscriminatory common carrier basis, a basic platform
that will permit end users to access video program services
provided by others.
While the competitive effect of the entry of telephone
companies into the video programming business is still
uncertain, the Company believes that wireless cable systems
will continue to maintain a cost advantage over video
dial-tone service and fiber optic distribution technologies.
However, due to rapid technological advancements and the
capital resources of LECs, no assurances can be made in this
regard.
Video Stores. Retail stores rent VCRs and/or video tapes,
and are a major participant in the television program
delivery industry. According to Paul Kagan Associates,
Inc., there are over 75.5 million households with VCRs now
in use in the United States. This segment of the television
program delivery industry represents significant competition
for pay-per-view sales and premium programming channels.
Local Off-Air VHF/UHF Broadcasts. Local off-air VHF/UHF
broadcasts (such as ABC, NBC, CBS, FOX, UPN and WB) provide
a free programming alternative to the public. Prior to
October 1993, wireless cable systems could re-transmit these
broadcast signals without permission. However, with the
enactment of the Cable Act, local broadcasters may require
that cable operators obtain their consent before
re-transmitting local off-air VHF/UHF broadcasts. The
Company will attempt to obtain such consents in each of its
markets where the Company is re-transmitting on a wireless
cable channel.
Local Multi-Point Distribution Service. In 1993, the FCC
proposed to re-designate the 28 gigahertz band to create a
new video programming delivery service referred to as local
multipoint distribution service (LMDS). Auctions for the
LMDS-related channels began in February 1998, and the
Company does not possess sufficient capital to participate
in such auction.
Community (Low Power) Television. Community Television
utilizes a limited portion of the spectrum allocated by the
FCC for local off-air VHF/UHF broadcasts, but Community
Television utilizes lower power transmission equipment than
local off-air VHF/UHF broadcasts and its signal may be
encrypted. Community Television requires a separate
transmitter for each channel and a standard antenna at the
receiving site.
Certain Risk Factors
Limited Operating History. The Company has only recently
begun to engage in business activities. The Company's
operations, and proposed operations, are subject to all of
the risks inherent in the establishment of a new business,
particularly one in the highly competitive communications
industry. The likelihood of success of the Company must be
considered in light of the problems, expense, difficulties,
complications and delays frequently encountered in
connection with establishing a new business, including,
without limitation, market acceptance of the Company's
services, regulatory problems, unanticipated expenses and
competition. There is no assurance that the proposed
business activities of the Company will be successful or
that the Company will ever earn a profit from such proposed
activities.
Dependence on Management. The Company is dependent on its
current management for its success. In particular, the
Company is dependent on the efforts of its President, David
M. Loflin, for its success. Mr. Loflin expects to devote
not less than 75% of his time to the business of the Company
during the initial stages of development, which amount of
time is expected to be adequate. On a successful completion
of this Offering, Mr. Loflin will begin to devote his full-
time efforts to the Company's business. The Company and Mr.
Loflin have not entered into an employment agreement, nor
has any key-man life insurance been purchased with respect
to Mr. Loflin or any other members of the Company's
management. However, it is anticipated that the Company and
Mr. Loflin will execute a written employment agreement in
the near future, although no assurance in this regard can be
given. The Company's success is also dependent upon its
ability to attract and retain qualified employees to meet
the Company's needs.
Control of the Company. As of May 20, 1998, the Company's
directors and executive officers owned approximately 69.76%
of the Company's outstanding shares of Common Stock.
Accordingly, these shareholders will continue to be able to
elect the Company's directors and thereby control the
management policies of the Company, as well as determine the
outcome of corporate actions requiring shareholder approval
by majority action, regardless of how other shareholders of
the Company may vote. Such ownership of Common Stock may
have the effect of delaying, deferring or preventing a
change in control of the Company and may adversely affect
the voting rights of other holders of Common Stock.
Conflicts of Interest. It is possible that conflicts of
interest could arise in the negotiation of the terms of any
transaction between the Company and its shareholders,
officers, directors or affiliates. The Company has no plans
or arrangements, such as the hiring of independent
consultants or arbiters, for the resolution of disputes
between the Company and such persons if they arise. The
Company and its shareholders could be adversely affected,
should such individuals choose to place their own interests
before those of the Company. No assurance can be given that
conflicts of interest will not cause the Company to lose
potential opportunities, profits or management attention.
The Company could acquire channel licenses or other assets
from management, principal shareholders or their affiliates
or from entities in which management, principal shareholders
or their affiliates may hold an interest. Such persons or
entities could derive monetary or other benefits from such
transactions. Such benefits could include, without
limitation, the assumption of, or release from, liabilities
incurred by such persons or result in increased control of
the Company by such persons. The Board of Directors of the
Company has adopted a policy regarding transactions between
the Company and any officer, director or affiliate,
including loan transactions, requiring that all such
transactions be approved by a majority of the disinterested
members of the Board of Directors and that all transactions
be for a bona fide business purpose and be structured on
terms at least as favorable to the Company as could be
obtained from unaffiliated, independent third parties.
The Company's President, David M. Loflin, owns a
television station, WTVK Channel 11, in Baton Rouge,
Louisiana, which operates in competition with the Company's
Baton Rouge community television station, K13VE Channel 13.
It is possible that Mr. Loflin's ownership of a competing
television station will result in a conflict of interest for
Mr. Loflin, particularly with respect to obtaining
advertisers. Mr. Loflin intends to resolve any such
conflict that may arise in accordance with his fiduciary
duty and duty of loyalty to the Company. There is no
assurance that Mr. Loflin will be able to resolve any such
conflict of interest to the Company's benefit.
Need for Future Financing. The Company is in need of
additional financing to exploit fully its business
opportunities. There is no assurance that the Company will
be able to locate such additional financing or, if found,
that such financing would be on terms favorable to the
Company.
Uncertainty of Significant Assumptions. The Company's
plans for implementing its proposed business operations and
achieving profitability from its intended operations are
based on the experience, judgment and certain assumptions of
its management, and upon certain available information
concerning the communications industry, in general, and the
Company's proposed plan of operation, in particular. No
independent market studies have been conducted concerning
the extent to which customers will utilize the services and
products to be offered by the Company, nor are any such
studies planned. There can be no assurance that the
Company's plans will materialize, or that the Company's
assumptions will prove correct.
Lack of Patent Protection. The Company has not obtained a
patent relating to its Wireless Internet Access System,
although the Company is investigating the possibility of
obtaining such a patent. There is no assurance that any
such patent will be obtained. As a result, there currently
are no technological or patent barriers to entry by other
companies into the Company's areas of endeavor.
Possible Volatility of Market for Common Stock. The
market prices for securities of newly public companies have,
historically, been highly volatile. Future announcements
concerning the Company or its competitors, including
operating results, technological innovations and government
regulations, could have a significant impact on the market
price of the Common Stock of the Company, increasing
possible volatility.
Dividend Policy. The Company does not anticipate the
payment of cash dividends in the foreseeable future, but
intends to re-invest any profits which may be earned by the
Company's business.
Regulation
Community (Low Power) Television
General. Television broadcasting operations are subject
to the jurisdiction of the FCC under the Communications Act.
The Communications Act empowers the FCC, among other things,
to issue, revoke or modify broadcast licenses, to assign
frequencies, to determine the locations of stations, to
regulate the broadcasting equipment used by stations, to
establish areas to be served, to adopt such regulations as
may be necessary to carry out the provisions of the
Communications Act and to impose certain penalties for
violation of its regulations. The Company's currently
operating community television station, as well as any
future stations, is subject to a wide range of technical,
reporting and operational requirements imposed by the
Communications Act and by FCC rules and policies.
The Communications Act provides that a license may be
granted to any applicant if the public interest, convenience
and necessity will be served thereby, subject to certain
limitations, including the requirement that the FCC allocate
licenses, frequencies, hours of operation and power in a
manner that will provide a fair, efficient and equitable
distribution of service throughout the U.S. Television
licenses generally are issued for five-year terms. Upon
application, and in the absence of a conflicting application
that would require the FCC to hold a hearing, or questions
as to the licensee's qualifications, television licenses
have usually been renewed for additional terms without a
hearing by the FCC. An existing license automatically
continues in effect once a timely renewal application has
been filed until a final FCC decision is issued.
Under existing FCC regulations governing multiple
ownership of broadcast stations, a license to operate a
television or radio station generally will not be granted to
any party (or parties under common control) if such party
directly or indirectly owns, operates, controls or has an
attributable interest in another television or radio station
serving the same market or area. The FCC, however, is
favorably disposed to grant waivers of this rule for certain
radio station-television station combinations in the top 25
television markets, in which there will be at least 30
separately owned, operated and controlled broadcast
licenses, and in certain other circumstances.
FCC regulations further provide that a broadcast license
will not be granted if that grant would result in a
concentration of control of radio and television
broadcasting in a manner inconsistent with the public
interest, convenience or necessity. FCC rules generally
deem such concentration of control to exist if any party, or
any of its officers, directors or shareholders, directly or
indirectly, owns, operates, controls or has an attributable
interest in more than 12 television stations, or in
television stations capable of reaching, in the aggregate, a
maximum of 25% of the national audience. This percentage is
determined by the DMA market ranking of the percentage of
the nation's television households considered within each
market. Because of certain limitations of the UHF signal,
however, the FCC will attribute only 50% of a market's DMA
reach to owners of UHF stations for the purpose of
calculating the audience reach limits. The Company will not
approach such limits for the foreseeable future. To
facilitate minority group participation in radio and
television broadcasting, the FCC will allow entities with
attributable ownership interests in stations controlled by
minority group members to exceed the ownership limits.
The FCC's multiple ownership rules require the attribution
of the licenses held by a broadcasting company to its
officers, directors and certain of its shareholders, so
there would ordinarily be a violation of FCC regulations
where an officer, director or such a shareholder and a
television broadcasting company together hold interests in
more than the permitted number of stations or more than one
station that serves the same area. In the case of a
corporation controlling or operating television stations,
such as the Company, there is attribution only to
shareholders who own 5% or more of the voting stock, except
for institutional investors, including mutual funds,
insurance companies and banks acting in a fiduciary
capacity, which may own up to 10% of the voting stock
without being subject to such attribution, provided that
such entities exercise no control over the management or
policies of the broadcasting company.
The FCC has recently begun a proceeding to consider
liberalization of the various TV ownership restrictions
described above, as well as changes (not all of which would
be liberalizing in effect) in the rules for attributing the
licenses held by an enterprise to various parties. The
Company is unable to predict the outcome of these
proceedings.
The Communications Act and FCC regulations prohibit the
holder of an attributable interest in a television station
from having an attributable interest in a cable television
system located within the coverage area of that station.
FCC regulations also prohibit the holder of an attributable
interest in a television station from having an attributable
interest in a daily newspaper located within the predicted
coverage area of that station.
The Communications Act limits the amount of capital stock
that aliens may own in a television station licensee or any
corporation directly or indirectly controlling such
licensee. No more than 20% of a licensee's capital stock
and, if the FCC so determines, no more than 25% of the
capital stock of a company controlling a licensee, may be
owned or voted by aliens or their representatives. Should
alien ownership exceed this limit, the FCC may revoke or
refuse to grant or renew a television station license or
approve the assignment or transfer of such license.
The Communications Act prohibits the assignment of a
broadcast license or the transfer of control of a licensee
without the prior approval of the FCC. Legislation was
introduced in the past that would impose a transfer fee on
sales of broadcast properties. Although that legislation
was not adopted, similar proposals, or a general spectrum
licensing fee, may be advanced and adopted in the future.
Recent legislation has imposed annual regulatory fees
applicable to the Company.
The foregoing does not purport to be a complete summary of
all of the provisions of the Communications Act or
regulations and policies of the FCC thereunder. Reference
is made to the Communications Act, such regulations and the
public notices promulgated by the FCC.
Other Regulations. The FTC, among other regulatory
agencies, imposes a variety of requirements that affect the
business and operations of broadcast stations. From time to
time, proposals for additional or revised requirements are
considered by the FCC, numerous other Federal agencies and
Congress. The Company is unable to predict future Federal
requirements or what impact, if any, any such requirements
may have on Company television stations.
Wireless Cable
General. The wireless cable industry is subject to
regulation by the FCC pursuant to the Communications Act.
The Communications Act empowers the FCC to issue revoke,
modify and renew licenses within the spectrum available to
wireless cable; to approve the assignment and/or transfer of
control of such licenses; to approve the location of
wireless cable systems; to regulate the kind, configuration
and operation of equipment used by wireless cable systems;
and to impose certain equal employment opportunity and other
reporting requirements on wireless cable operators.
In the 50 largest U.S. markets, 33 channels are available
for wireless cable (in addition to local off-air VHF/UHF
broadcast channels that are not retransmitted over the
microwave channels). In the Company's markets, 32 channels
are available for wireless cable (in addition to local off-
air VHF/UHF broadcast channels that are not retransmitted
over the microwave channels), 12 of which can be owned by
for-profit entities for full-time usage without programming
restrictions (multi-point distribution service [MDS]
channels). Except in limited circumstances, the other 20
wireless cable channels can only be owned by qualified non-
profit educational organizations, and, in general, each must
be used a minimum of 20 hours per week for educational
programming (instructional television fixed service [ITFS]
channels). The remaining excess air time on an ITFS channel
may be leased to wireless cable operators for commercial
use, without further restrictions (other than the right of
the ITFS license holder, at its option, to recapture up to
an additional 20 hours of air time per week per channel for
educational programming). Certain programming (including,
among others, The Discovery Channel and Arts &
Entertainment) qualifies as educational and thereby
facilitates full-time usage of an ITFS channel by commercial
wireless cable operators. Additionally, a technique known
as "channel mapping" permits ITFS licensees to meet their
minimum educational programming requirements by transmitting
educational programming over several ITFS channels at
different times, which the viewer sees as just one channel.
In addition, lessees of ITFS excess air time generally have
the right to transmit to their subscribers the educational
programming provided by the lessor at no incremental cost.
The FCC now permits "channel loading". Channel loading
permits ITFS license holders to consolidate their
educational programming on one or more of their ITFS
channels, thereby providing wireless cable operators leasing
such channels with greater flexibility in their use of ITFS
channels. The FCC's allocation of frequencies to wireless
cable is subject to change and, in the future, the FCC might
propose to alter the present wireless cable allocation to
provide a portion of the spectrum for other emerging
technologies. The FCC has formally inquired as to whether
certain wireless cable frequencies should be reallocated for
new computer-based communications services. It is uncertain
whether any definitive action will be taken with respect to
this inquiry. The Company believes that if any such action
were taken to reallocate these channels, the FCC would
allocate substitute frequency rights to the wireless cable
industry or provide other concessions.
As the Company expands, it may be dependent on leases with
unaffiliated third parties for most of its wireless cable
channel rights. Most wireless cable systems' channel leases
typically cover four ITFS and/or one to four MDS wireless
cable channels each. Generally, ITFS channels may only be
owned by qualified non-profit educational organizations and,
in general, must use a minimum of 20 hours per week per
channel for educational programming. The remaining excess
ITFS channel time may be leased to wireless cable operators
for commercial use without further restriction. MDS
channels may be owned by commercial entities and allow full-
time usage without programming restrictions. The use of
such channels by the license holders is subject to
regulation by the FCC and a wireless cable operator's
ability to continue to enjoy the benefits of its leases with
channel license holders is dependent upon the continuing
compliance by the channel license holders with applicable
regulations, including the requirement that ITFS license
holders must meet certain educational use requirements in
order to lease transmission capacity to wireless cable
operators. Additionally, the FCC licenses also specify
construction deadlines, which, if not met, could result in
the loss of the license. Requests for additional time to
construct may be filed and are subject to review pursuant to
FCC rules.
Applications for wireless cable licenses are subject to
approval by the FCC. There is no limit on the time that may
elapse between filing the application with the FCC for a
modification or new license and action thereon by the FCC.
Once the FCC staff determines that the applications meet
certain basic technical and legal qualifications, the staff
then determines whether each application is proximate to
transmit and receive-site locations of other applications.
Those applications that would result in signal interference
to other pending applications must then undergo a
comparative selection process. The FCC's ITFS application
selection process is based on a set of objective criteria
that include whether an applicant is located in the
community to be served and the number of students that will
receive the applicant's educational programming. Thus, the
outcome of the selection process when two or more qualified
applicants are competing for the same channels lends itself
to a degree of predictability that varies according to the
circumstances.
In 1985, the FCC established a lottery procedure for
awarding MDS licenses. In 1990, the FCC established a
filing "window" system for new multichannel MDS (MMDS)
applications. The FCC's selection among more than one
acceptable MMDS applications filed during the same filing
window was determined by a lottery. Generally, once an MMDS
application is selected by the FCC and the applicant
resolves any deficiencies identified by the FCC, a
conditional license is issued, allowing construction of the
station to commerce. Construction generally must be
completed within one year of the date of grant of the
conditional license, in the case of MMDS channels, or 19
months, in the case of ITFS channels. ITFS and MMDS licenses
generally have terms of 10 years. Licenses must be renewed
and may be revoked for cause in a manner similar to other
FCC licenses. FCC rules prohibit the sale for profit of an
MMDS conditional license or of a controlling interest in the
conditional license holder prior to construction of the
station or, in certain instances, prior to the completion of
one year of operation. The FCC, however, does permit the
leasing of 100% of an MMDS license holder's spectrum
capacity to a third party and the granting of options to
purchase a controlling interest in a license, once the
required license holding period has lapsed and certain other
conditions are met.
Application for renewal of MDS and ITFS licenses must be
filed within a certain period prior to expiration of the
license term, and petitions to deny applications for renewal
may be filed during certain periods following the filing of
such applications. Licenses are subject to revocation or
cancellation for violations of the Communications Act or the
FCC's rules and policies. Conviction of certain criminal
offenses may also render a licensee or applicant unqualified
to hold a license.
Wireless cable transmissions are governed by FCC
regulations governing interference and reception quality.
These regulations specify important signal characteristics
such as modulation (e.g., AM/FM) or encoding formats (e.g.,
analog or digital).
The FCC also regulates transmitter locations and signal
strength. The operation of a wireless cable system requires
the collection of a commercially viable number of channels
operating with common technical characteristics. In order
to commence operations in a particular market, the Company
may be required to file applications with the FCC to modify
licenses for unbuilt stations. In applying for these
modifications, the Company must demonstrate that its
proposed signal does not violate interference standards in
the FCC-protected area of another wireless cable channel
license holder. A wireless cable license holder generally
is protected from interference within 35 miles of the
transmission site. An ITFS license holder has protection to
all of its receive sites, but only a 35 mile protected
service area during excess capacity use by a wireless cable
operator.
The Cable Act. On October 5, 1992, Congress passed the
Cable Act, which imposes greater regulation on hard-wire
cable operators and permits regulation of prices in areas in
which there is no "effective competition". The Cable Act
directs the FCC to adopt comprehensive new federal standards
for local regulation of certain rates charged by hard-wire
cable operators. The legislation also provides for
deregulation of hard-wire cable in a given market once other
multi-channel video providers serve, in the aggregate, at
least 15% of the cable franchise area. Rates charged by
wireless cable operators, typically already lower than hard-
wire cable rates, are not subject to regulation under the
Cable Act.
Under the retransmission consent provisions of the Cable
Act and the FCC's implementing regulations, all multi-
channel video providers (including both hard-wire and
wireless cable) seeking to re-transmit certain commercial
broadcast signals must first obtain the permission of the
broadcast station. Hard-wire cable systems, but not
wireless cable systems, are required under the Cable Act and
the FCC's "must carry" rules to re-transmit a specified
number of local commercial television or qualified community
(low power) television signals.
In May 1993, the FCC issued new regulations implementing
the rate regulation provisions in the Cable Act. Hard-wire
cable operators with rates above a price benchmark average
for basic services were directed to reduce their rates by
approximately 10%. In February 1994, the FCC announced that
it would require hard-wire cable operators to implement a
further reduction in rates of another 7%. On November 18,
1994, the FCC adopted some exceptions to its cable rate
regulations. The FCC has also adopted regulations
implementing the Cable Act that require hard-wire cable
operators to establish standardized levels of customer
service. The Company cannot predict what effect these
regulations may have on the Company's price and service
competitiveness in its proposed wireless cable markets.
In February 1996, the Telecommunications Act was enacted.
Pursuant to the Telecommunications Act, all cable rate
regulation will be eliminated after three years, and for
"small systems", as defined in the Telecommunications Act,
and under certain other circumstances, rate regulation will
be eliminated immediately. Until these sunset provisions go
into effect, hard-wire cable operators will continue to be
subject to rate regulations.
While current FCC regulations are intended to promote the
development of a competitive pay television industry, the
rules and regulations affecting the wireless cable industry
may change, and any future changes in FCC rules,
regulations, policies and procedures could have a material
adverse effect on the industry, as a whole, and on the
Company, in particular. In addition, a number of legal
challenges to the Cable Act and the regulations promulgated
thereunder have been filed, both in the courts and before
the FCC. These challenges, if successful, could
substantially increase the Company's operating costs, make
some programming unavailable to the Company and otherwise
have a material adverse effect on the wireless cable
industry, as a whole, and the Company, in particular.
Specifically, those sections of the Cable Act which prohibit
discriminatory or unfair practices in the sale of satellite
cable and satellite broadcast programming to competing
multi-channel video programming distributors have been
challenged. The Company's costs to acquire satellite cable
and broadcast programming may be affected by the outcome of
those challenges. Other aspects of the Cable Act that have
been challenged are the Cable Act's provisions governing
rate regulation and customer service standards to be met by
hard-wire cable companies. The Cable Act empowered the FCC
to regulate the subscription rates charged by hard-wire
cable operators. As described above, the FCC recently
issued rules requiring such cable operators, under certain
circumstances, to reduce the rates charged for basic
services. The Cable Act also empowered the FCC to establish
certain minimum customer service standards to be maintained
by hard-wire cable operators. These standards include
prompt responses to customer telephone inquiries, reliable
and timely installations and repairs and readily
understandable billing practices. Should these provisions
withstand court and regulatory challenges, the extent to
which wireless cable operators may continue to maintain an
advantage over hard-wire cable operators in price and
customer service practices could be diminished.
Other Regulations. Because the use of coaxial cable by
hard-wire cable operators requires a "right of way" to cross
municipal streets, such operators must acquire a municipal
franchise and pay municipal franchise fees. Since wireless
cable uses FCC approved frequencies, no municipal right of
way is required. Accordingly, wireless cable operators are
not subject to municipal franchise fees. Hard-wire cable
operators are also required to set aside public access
channels for municipal and local resident use. Wireless
cable operators are not subject to such requirements.
Wireless cable license holders are subject to regulation
by the FAA with respect to the construction of transmission
towers and to certain local zoning regulations affecting
construction of towers and other facilities. There may also
be restrictions imposed by local authorities. There can be
no assurance that the Company will not be required to incur
additional costs in complying with such regulations and
restrictions.
Company Employees
The Company currently has no salaried employees. However,
the Company's officers are performing all required business
and administrative functions without pay. Should this
Offering be successful, it is expected that the Company
would employ approximately 25 persons by the close of 1998.
The industries in which the Company operates require a high
level of expertise in many positions. The Company does not
anticipate any difficulty in attracting and retaining
necessary personnel.
Cautionary Statement
This Annual Report on Form 10-KSB contains certain
"forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934. All statements,
other than statements of historical facts included in this
Annual Report on Form 10-KSB, including, without limitation,
those under "Proposed Acquisition", "Business Development
Priority and Growth Strategy", "Business - Wireless
Internet" above. Suct statements are subject to certain
risks and undertainties, such as changes in prices or demand
for the Company's products as a result of competitive
actions or economic factors, changes in the cost of
equipment, changes in operating costs resulting from new
technologies or inflation and the Company's ability to gain
access to capital markets and/or commercial bank financing
on favorable terms. Should one or more of these risks or
uncertainties, among others, materialize, actual results may
vary materially from those estimated, anticipated or
projected. Although the Company believes that the
expectations reflected by such forward-looking statements
are reasonable based on information currently available to
the Company, no assurance can be given that such expectation
will prove to have been correct. Cautionary statements
identifying important factors that could cause actual
results to differ materially from the Company's expectations
are set forth in this Annual Report on Form 10-KSB,
including, without limitation, in conjunction with the
forward-looking statements included in this Annual Report on
Form 10-KSB that are referred to above. All forward-looking
statements included in this Annual Report on Form 10-KSB and
all subsequent oral forward-looking statements attributable
to the Company or persons acting on its behalf are expressly
qualified in their entirety by these cautionary statements.
Item 2. Description of Property
The Company owns small quantities of equipment and
inventory relating to each of its business segments. The
Company leases approximately 650 square feet for its
executive offices in Baton Rouge, Louisiana, for a monthly
rental of $776. The Company expects to lease additional
office space, as well as necessary transmitter space, as it
launches each wireless cable system, each community
television station and Wireless ISP.
Item 3. Legal Proceedings
The Company is not currently engaged in any legal
proceeding, nor, to the Company's knowledge, is any suit or
other legal action pending or threatened.
Item 4. Submission of Matters to Vote of Security Holders
No matters were submitted to a vote of the Company's
security holders during the fourth quarter of the fiscal
year ended December 31, 1997.
PART II
Item 5. Market for Common Equity and
Related Stockholder Matters
Market Information
The Company's Common Stock began to trade on the OTC
Electronic Bulletin Board ("OTCBB") under the symbol "MEME"
in October 1997. Since trading in the Company's Common
Stock began, the high and low bid prices for the Common
Stock have been $2.50 and $.06 per share, respectively.
Such prices represent quotations between dealers without
adjustment for retail mark-ups, retail mark-downs or
commissions, and may not necessarily represent actual
transactions. On May 20, 1998, the last reported bid and
asked prices for the Company's Common Stock, as reported by
the OTCBB, were $1.375 and $1.46875 per share, respectively.
Holders
The approximate number of record holders of the Company's
Common Stock as of May 20, 1998, was 1,250.
Dividends
The Company has never paid cash dividends on its Common
Stock. The Company anticipates that any future earnings, of
which there is no assurance, will be retained for
development of the Company's businesses, and, therefore, it
can be expected that no dividends on the Company's Common
Stock will be declared in the foreseeable future.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information required to furnished under this Item 6
will be furnished by amendment to this Annual Report on Form
10-KSB, which amendment is to be filed in the near future.
Item 7. Financial Statements
The financial statements required to furnished under this
Item 7 will be furnished by amendment to this Annual Report
on Form 10-KSB, which amendment is to be filed in the near
future.
Item 8. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure
No change in, or disagreement with, the Company's
independent auditor occurred during the fiscal year ended
December 31, 1997.
PART III
Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act
Directors and Executive Officers
The following table sets forth the names of the current
officers and directors of the Company.
Name Age Position(s)
David M. Loflin(1) 40 President and Director
Waddell D. Loflin(1) 48 Vice President, Secretary
and Director
Richard N. Gill 40 Director
Ross S. Bravata 39 Director
Michael Cohn 40 Director
- ---------------
(1) David M. Loflin and Waddell D. Loflin are brothers.
The current officers and directors of the Company serve
until the next annual meeting or until their respective
successors are elected and qualified. All officers serve at
the discretion of the Board of Directors. Family
relationships between the Company's officers and directors
are noted above. Certain information regarding the
backgrounds of each of the officers and directors of the
Company is set forth below.
David M. Loflin, President and Director of the Company,
has, for more than the past five years, owned and operated
Gulf Atlantic Communications, Inc. ("Gulf-Atlantic"), a
Baton Rouge, Louisiana-based wireless technology firm
specializing in development of wireless cable systems and
broadcast television stations. Gulf Atlantic has designed,
constructed and operated two wireless cable systems: (1)
Baton Rouge, Louisiana, and (2) Selma, Alabama. Mr. Loflin
developed and currently operates one television station,
WTVK-TV11, Inc. (a Warner Brothers Network affiliate),
Channel 11 in Baton Rouge, Louisiana. For over ten years,
Mr. Loflin has served as a consultant for Wireless One, one
of the largest wireless communications firms in the United
States. Mr. Loflin is a member of the Wireless Cable
Association International and the Community Broadcasters
Association.
Waddell D. Loflin, Vice President, Secretary and Director
of the Company, has, for more than the past five years,
served as Vice President of Operations and Treasurer of Gulf
Atlantic Communications, Inc. and WTVK-TV11, Inc., both in
Baton Rouge, Louisiana. In addition, Mr. Loflin serves as
Production Manager and Film Director for WTVK-TV11, Inc.
Mr. Loflin served as General Manager for Baton Rouge
Television Company, Baton Rouge, Louisiana, a wireless cable
system, where he directed the development and launch of such
wireless cable system. Also, Mr. Loflin has devoted over
five years to demographic research relating to the wireless
cable industry. Mr. Loflin is a member of the Wireless
Cable Association International and the Community
Broadcasters Association. Mr. Loflin holds a B.A. degree in
Social Sciences from Oglethorpe University, Atlanta,
Georgia.
Richard N. Gill, Director of the Company, has, for more
than the past five years, served as Chairman of the Board,
President and General Manager of Campti-Pleasant Hill
Telephone Company, Inc., a Pleasant Hill, Louisiana-based
independent telecommunications company involved in the
cellular telephone service industry, the wireless cable
industry and the Internet service provider industry. Mr.
Gill currently serves on the Board of Directors of Artcrete,
Inc., and is on the Advisory Board of Peoples State Bank,
Pleasant Hill, Louisiana. Mr. Gill received a degree from
the University of Southwestern Louisiana, Lafayette,
Louisiana, where he currently serves as a member of the
Industry Telecommunication Advisory Committee for the
Electrical Engineering Department. Mr. Gill is a
past-Chairman and current member of the Louisiana Telephone
Association. Mr. Gill is also a member of the United States
Telephone Association and the National Telephone Cooperative
Association.
Ross S. Bravata, Director of the Company, has, since 1981,
worked for Novartis (formerly Ciba Corporation), in various
positions, and currently serves as a Senior Control Systems
Technician. In such capacity, Mr. Bravata supervises the
service and maintenance of electronic instrumentation.
Since 1988, Mr. Bravata has served as a director and
principal financial officer of CG Federal Credit Union,
Baton Rouge, Louisiana. Also, Mr. Bravata has, since its
inception in 1994, served as a director of Trinity's
Restaurant, Inc. in Baton Rouge, Louisiana.
Michael Cohn, Director of the Company, has, for 20 years,
owned and operated Arrow Pest Control, Inc., Baton Rouge,
Louisiana. In addition, Mr. Cohn owns Arrow Pest Control of
New Orleans, Wilson and Sons Exterminating in Mobile,
Alabama, and Premier Termite and Pest Control in Florida.
Executive Committee
The Board of Directors of the Company has created an
Executive Committee to facilitate Company management between
regularly scheduled and special meetings of the full Board
of Directors. David M. Loflin, Waddell D. Loflin and Ross
S. Bravata comprise the Executive Committee of the Board of
Directors. The Company's Bylaws (Section 5.1) provide that
the Executive Committee has the authority to exercise all
powers of the Board of Directors, except the power to
declare dividends, issue stock, recommend to shareholders
any matter requiring shareholder approval, change the
membership of any committee, fill the vacancies therein or
discharge any committee member. The Executive Committee has
taken action by unanimous written consent in lieu of a
meeting four times, since its creation.
Executive Compensation
None of the Company's officers received any cash, or
other, compensation during Fiscal 97. Further, no Company
officer will begin to receive cash compensation until such
time as the payment of such compensation would not adversely
affect the Company's operations and proposed development and
expansion. No prediction can be made as to when cash
compensation will begin to be paid to the Company's
officers. It is expected that Mr. David M. Loflin, the
Company's President, will be paid an annual salary of
$120,000, at such time as the Company possesses adequate
funds. Any other cash compensation paid to Company officers
will be determined by the Board of Directors.
Indemnification of Directors and Officers
The Company currently is seeking officer and director
liability insurance, though none has been obtained as of the
date of this Prospectus.
Article X of the Articles of Incorporation of the Company
provides that no director or officer of the Company shall be
personally liable to the Company or its shareholders for
damages for breach of fiduciary duty as a director officer;
provided, however, that such provision shall not eliminate
or limit the liability of a director or officer for (1) acts
or omissions which involve intentional misconduct, fraud or
a knowing violation of law or (2) the payment of dividends
in violation of law. Any repeal or modification of Article
X shall be prospective only and shall not adversely affect
any right or protection of a director or officer of the
Company existing at the time of such repeal or modification
for any breach covered by Article X which occurred prior to
any such repeal or modification. The effect of Article X of
the Company's Articles of Incorporation is that Company
directors and officers will experience no monetary loss for
damages arising out of actions taken (or not taken) in such
capacities, except for damages arising out of intentional
misconduct, fraud or a knowing violation of law, or the
payment of dividends in violation of law.
As permitted by Nevada law, the Company's Bylaws provide
that the Company will indemnify its directors and officers
against expense and liabilities they incur to defend, settle
or satisfy any civil, including any action alleging
negligence, or criminal action brought against them on
account of their being or having been Company directors or
officers unless, in any such action, they are judged to have
acted with gross negligence or willful misconduct. Insofar
as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to
directors, officers or persons controlling the Company
pursuant to the foregoing provisions, 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 and is, therefore,
unenforceable.
Compensation of Directors
In March 1998, four of the Company's directors, Waddell
Loflin, Ross S. Bravata, Richard N. Gill and Michael Cohn,
were issued 20,000 shares each of Company Common Stock as a
bonus for their services as directors, which shares were
valued at $.80 per share. On the date of such issuances,
the most recent closing bid price of the Common Stock of the
Company was $.56 per share. The directors do not receive a
fixed fee for their services as such.
Compliance with Section 16(a) of
the Securities Exchange Act
The Company is not subject to the reporting requirements
of Section 16(a) of the Securities Exchange Act of 1934.
Item 10. Executive Compensation
The following table sets forth in summary form the
compensation received during each of the Company's last
three completed fiscal years by the Chief Executive Officer
of the Company and each executive officer of the Company who
received total salary and bonus exceeding $100,000 during
any of the last three fiscal years.
Summary Compensation Table
Annual Compensation
Long
term
Compen-
sation
on
Awards All
Other of Other
Name and Annual Stock Compen-
Principal Year Salary Bonus Compen- Options sation
Position $ $ $ sation # $
- --------- ---- ------ ----- ------- ------- -------
David M. 1997 $ -0- $ -0- $ -0- 0 $ -0-
Loflin
(Pres-
ident
[Prin-
cipal
Exec-
utive
Officer
and
Chief
Acccount-
ing
Officer])
Waddell 1997 $ -0- $ -0- $ -0- 0 $ -0-
D. Loflin
(Vice
Presi-
dent,
Secre-
tary)
In March 1998, four of the Company's directors, Waddell
Loflin, Ross S. Bravata, Richard N. Gill and Michael Cohn,
were issued 20,000 shares each of Company Common Stock as a
bonus for their services as directors, which shares were
valued at $.80 per share. On the date of such issuances,
the most recent closing bid price of the Common Stock of the
Company was $.56 per share.
Employment Contracts and Termination of Employment and
Change-in-Control Agreements
The Company does not have any written employment contracts
with respect to any of its executive officers. However, the
Company expects to enter into employment contracts with
certain of its key management personnel in the near future,
although the terms of employment have yet to be determined.
The Company has no compensatory plan or arrangement that
results or will result from the resignation, retirement or
any other termination of an executive officer's employment
with the Company and its subsidiaries or from a change in
control of the Company or a change in an executive officer's
responsibilities following a change-in-control.
Option/SAR Grants in Last Fiscal Year
The Company did not grant any options to any person during
the fiscal year ended December 31, 1997. The Company has
never granted any stock appreciation rights ("SARs"), nor
does it expect to grant any SARs in the foreseeable future.
Item 11. Security Ownership of Certain
Beneficial Owners and Management
The following table sets forth certain information as of
May 20, 1998, with respect to the beneficial ownership of
the Company's Common Stock (1) by the Company's officers and
directors, (2) by shareholders known to the Company to own
five percent or more of the Company's Common Stock and (3)
by all officers and directors of the Company, as a group.
On May 20, 1998, there were approximately 6,962,759 shares
of Common Stock issued and outstanding.
Name and Address Shares Owned Percent
of Beneficial Owner Beneficially Owned
- ------------------- ------------ -------
David M. Loflin 4,410,237 63.33%
8748 Quarters Lake Road
Baton Rouge, LA 70809
Waddell D. Loflin 324,249 4.66%
8748 Quarters Lake Road
Baton Rouge, LA 70809
Richard N. Gill 20,000 *
8748 Quarters Lake Road
Baton Rouge, LA 70809
Ross S. Bravata 62,887 *
8748 Quarters Lake Road
Baton Rouge, LA 70809
Michael Cohn 40,000 *
8748 Quarters Lake Road
Baton Rouge, LA 70809
All officers and directors
as a group (5 persons) 4,857,373 69.76%
- -------------------
* Less than 1%.
(1) Based on 6,962,759 shares outstanding.
Item 12. Certain Relationships and Related Transactions
Founders
In November 1996, the Company's officers purchased a total
of 1,800,000 shares of Company Common Stock for cash at $.10
per share, a total consideration of $1,800. Specifically,
David M. Loflin, President and a director of the Company,
purchased 1,600,000 shares and Waddell D. Loflin, Vice
President, Secretary and a director of the Company,
purchased 200,000 shares of Company Common Stock.
Joint Venture
In January 1997, the Company entered into a joint venture
with an affiliated company, Web One, Inc., to operate as a
Wireless Internet Service Provider in Baton Rouge,
Louisiana. This joint venture has been abandoned with no
profit or loss being allocated to the Company.
Loans by Officers
In October 1996, David M. Loflin loaned, on two separate
occasions, a total of $40,000 to MCTV, which loan is
evidenced by a promissory note, bears interest at eight
percent per annum and is payable on demand. In November
1996, Mr. Loflin loaned the sum of $20,000 to MCTV, which
loan is evidenced by a promissory note, bears interest at
eight percent per annum and is payable on demand.
In January 1997, Mr. Loflin loaned the sum of $8,000 to
the Company, which loan is evidenced by a promissory note,
bears interest at eight percent per annum and is payable on
demand. $5,000 of such loan has been repaid.
In June 1997, Mr. Loflin loaned the sum of $13,500 to the
Company, which loan is evidenced by a promissory note, bears
interest at eight percent per annum and is payable on
demand.
Mr. Loflin has advised the Company that he does not intend
to demand payment of such loans until such time as repayment
would not adversely affect the financial position of the
Company.
Subscription Agreements
Effective December 20, 1996, the Company entered into a
Subscription Agreement with its President, David M. Loflin,
whereby the Company issued 1,578,512 shares of Common Stock
to Mr. Loflin in exchange for assignments of licenses and
leases of licenses of television channels and wireless cable
television channels and options to acquire such assets, as
follows: Monroe/Rayville, Louisiana (channel 26),
Natchitoches, Louisiana (channel 38), Port Angeles,
Washington (channels H1-2-3), Astoria, Oregon (channels
H2-3), Sand Point, Utah (channels B1-2-3; C1-2-3), The
Dalles, Oregon (channels B1-2-3; C1-2-3), and Fallon, Nevada
(channels E1-2-3-4; H3)
The assets acquired by the Company under such Subscription
Agreement were valued at $1,826,873, which value was
determined pursuant to a market report and appraisal as of
December 20, 1996 (the "Appraisal"), delivered to the
Company by Broadcast Services International, Inc.,
Sacramento, California. (See "Appraisal" hereunder for a
full discussion of the Appraisal). Mr. Loflin's total
acquisition costs of the assets underlying such Subscription
Agreement are unknown. Accordingly, the financial
statements of the Company attribute no value to such assets.
See the second paragraph under "Appraisal" hereinbelow for a
discussion of Mr. Loflin's acquisition costs of the assets
vis-a-vis the appraised value of such assets.
Effective December 20, 1996, the Company entered into a
Subscription Agreement with its Vice President, Waddell D.
Loflin, whereby the Company issued 104,249 shares of Common
Stock to Mr. Loflin in exchange for an assignment of the
license of television channel 36 in Bainbridge, Georgia.
The assets acquired by the Company under such Subscription
Agreement were valued at $120,652, which value was
determined pursuant to the Appraisal. Mr. Loflin's
acquisition costs of the assets underlying such Subscription
Agreement are unknown. Accordingly, the financial
statements of the Company attribute no value to such assets.
See the second paragraph under "Appraisal" hereinbelow for a
discussion of Mr. Loflin's acquisition costs of the assets
vis-a-vis the appraised value of such assets.
Reorganizations
Effective December 31, 1996, the Company entered into an
Agreement and Plan of Reorganization (the "WEI
Reorganization") among the Company, Winter Entertainment,
Inc., a Delaware corporation (WEI), and David M. Loflin, as
WEI's sole shareholder, pursuant to which transaction WEI
became a wholly-owned subsidiary of the Company. WEI owns
and operates K13VE Channel 13 in Baton Rouge, Louisiana.
Under the WEI Reorganization, Mr. Loflin received 227,336
shares of Company Common Stock in exchange for his shares of
WEI common stock. The shares of WEI common stock acquired
by the Company in the WEI Reorganization were valued at
$263,106, which value was determined pursuant to the
Appraisal. WEI's acquisition costs relating to the rights
to K13VE Channel 13 were $6,750. In addition, WEI has
capitalized a total of $10,587 in exploiting such channel
rights, including station construction costs. See the
second paragraph under "Appraisal" hereinbelow for a
discussion of WEI's acquisition costs relating to K13VE
Channel 13 vis-a-vis the appraised value thereof.
Effective December 31, 1996, the Company entered into an
Agreement and Plan of Reorganization (the "MCTV
Reorganization") among the Company, Missouri Cable TV Corp.,
a Louisiana corporation (MCTV), and the shareholders of
MCTV, pursuant to which transaction MCTV became a
wholly-owned subsidiary of the Company. MCTV owns licenses
and leases of licenses of wireless cable television channels
in Poplar Bluff, Missouri, which system is ready for
broadcast operations, and Lebanon, Missouri, which system
has yet to be developed. Under the MCTV Reorganization,
David M. Loflin, as a shareholder of MCTV, received
1,179,389 shares of Company Common Stock in exchange for his
shares of MCTV common stock. The shares of MCTV common
stock acquired by the Company from Mr. Loflin in the MCTV
Reorganization were valued at $1,364,553. Also under the
MCTV Reorganization, Ross S. Bravata, a director of the
Company, received, as a shareholder of MCTV, 42,887 shares
of Company Common Stock in exchange for his shares of MCTV
common stock. The shares of MCTV common stock acquired by
the Company from Mr. Bravata were valued at $49,620. In
addition, Michael Cohn, a director of the Company,
received, as a shareholder of MCTV, 53,608 shares of Company
Common Stock in exchange for his shares of MCTV common
stock. The shares of MCTV common stock acquired by the
Company from Mr. Cohn were valued at $62,024. The value of
the shares of MCTV common stock acquired by the Company from
Messrs. Loflin, Bravata and Cohn under the MCTV
Reorganization was determined pursuant to the Appraisal.
MCTV acquired substantially all of its assets from Mr. David
Loflin, whose acquisition costs of such assets were
$179,611. The other shareholders of MCTV received their
shares of MCTV common stock for nominal consideration.
Since acquiring its assets from Mr. Loflin, MCTV has
capitalized an additional $22,722 in exploiting such assets.
See the second paragraph under "Appraisal" hereinbelow for a
discussion of Mr. Loflin's acquisition costs relating to
MCTV's assets vis-a-vis the appraised value thereof.
Stock Purchase
In March 1997, one of the Company's directors, Michael
Cohn, purchased 20,000 shares of Company Common Stock for
cash in the amount of $50,000. At the time of such
transaction, Mr. Cohn was not a director of the Company.
Stock Bonus
In March 1998, four of the Company's directors, Waddell
Loflin, Ross S. Bravata, Richard N. Gill and Michael Cohn,
were issued 20,000 shares each of Company Common Stock as a
bonus for their services as directors, which shares were
valued at $.80 per share. On the date of such issuances,
the most recent closing bid price of the Common Stock of the
Company was $.56 per share.
Appraisal
Background. The Appraisal was delivered to the Company by
Broadcast Services International, Inc., a Sacramento,
California-based communications appraisal firm. The report
of BSI was based on 1990 Census Data. With respect to the
wireless cable markets, the engineering studies relied upon
by BSI indicate the number of households within the
broadcast radius using the 1200 MHZ frequency. The 1200 MHZ
frequency was assumed, due to BSI's experience that, given
all of the variables that may be present in a
market-by-market system build-out, the actual benchmark
performance is more truly reflected by using the higher
(1200 MHZ) frequency, such that the signal attenuation is
not over-stated. Valuation formulas for the wireless cable
markets of the Company were based on initial public
offerings within the wireless cable industry during the past
three years. The formulas used in evaluation of the
Company's broadcast channels are based on recent sales and
market evaluation techniques employed by the Community
Broadcasters Association, among others.
Use of Appraisal. At the Company's inception, the
Company's Board of Directors adopted a plan that provided
for the initial capitalization of the Company to be
6,000,000 shares of Common Stock. 1,800,000 of such shares
were sold as founders' stock and the 360,000 shares which
are the subject of this Prospectus were sold to ECA. The
balance of such shares, 3,840,000 shares, were to be
utilized to acquire the Company's assets, which assets were
acquired pursuant to the Subscription Agreements with Mr.
David Loflin and Mr. Waddell Loflin, the WEI Reorganization
and the MCTV Reorganization. The Board of Directors
utilized the Appraisal as a means to allocate the 3,840,000
shares among the assets underlying the referenced
Subscription Agreements, the WEI Reorganization and the MCTV
Reorganization, as follows:
Appraised Value Shares of Common
Historical Costof Assets Acquired Stock Issued of Assets
Shares
Appraised of
Value of Common Historical
Assets Stock Cost of
Transaction Acquired Issued Assets
Subscription
Agreement with
David M. Loflin $1,826,873 1,578,512 Unknown
Subscription
Agreement with
Waddell D. Loflin 120,652 104,249 Unknown
WEI Reorganization 263,106 227,336 $17,337
MCTV Reorganization 2,233,555 1,929,903 $202,333
--------- --------- --------
Total $4,444,186 3,840,000 $219,670
The apparent $1.157 per share value was determined by
dividing the 3,840,000 shares of Company Common Stock
allocated by the Board of Directors for asset acquisition
into the $4,444,186 total appraised value of the assets
acquired. The Board of Directors utilized this apparent per
share value for corporate purposes, that is, the
determination of consideration received for the issuance of
shares of Common Stock. However, the independent appraiser
did not value the shares of Company Common Stock issued in
consideration of the assets acquired. Rather, the
independent appraiser valued only the assets acquired by the
Company in the various transactions. The $1.157 per share
figure was utilized by the Board of Directors primarily as a
means of allocating the 3,840,000 shares among the four
asset acquisition transactions consummated in completing its
plan for the initial capitalization of the Company. Thus,
the $1.157 figure, while utilized in two ways by the Board
of Directors, was determined arbitrarily by the Board of
Directors and is not based on any accounting or other
financial criteria.
The appraised value of the assets described above bears no
relationship to the costs of such assets to the affiliates
from whom they were acquired. Prospective purchasers of
Units should note that it is possible that the Company would
be unable to realize any of such asset's appraised value in
a sale transaction.
Item 13. Exhibits and Reports on Form 8-K
(a)(1) Financial Statements
The financial statements of the Company required to
furnished under this Item 13 will be furnished by amendment
to this Annual Report on Form 10-KSB, which amendment is to
be filed in the near future.
(a)(2) Exhibits
None.
(b) Reports on Form 8-K
During the quarter ended December 31, 1997, the Company
filed a Current Report on Form 8-K, as follows: Date of
Event: 10/10/97, wherein the Company reported a change in
business development priority. Such Current Report on Form
8-K is incorporated herein by this reference.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange
Act, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MEDIA ENTERTAINMENT, INC.
By: /s/ David M. Loflin
David M. Loflin
President
In accordance with the Exchange Act, this report has ben
signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ David M. Loflin Date: May 21, 1998
David M. Loflin
President (Principal
Executive Officer and
Principal Accounting
Officer) and Director
/s/ Waddell D. Loflin Date: May 21, 1998
Waddell D. Loflin
Vice President and
Director
- --------------------- Date: May 21, 1998
Ross S. Bravata
Director
/s/ Richard N. Gill Date: May 21, 1998
Richard N. Gill
Director
/s/ Michael Cohn Date: May 21, 1998
Michael Cohn
Director
