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, 1998
[ ] 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
Internet Media Corporation
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
NEVADA 72-1346591
(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)
(225) 922-7744
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities Registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Exchange 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 $5,440.
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 April 12, 1999, was approximately $49,410,540.
The number of shares outstanding of the issuer's common equity as of April
12, 1999, was 10,890,120 shares of common stock, par value $.0001.
Documents Incorporated by Reference: Current Report on Form 8-K, Date of
Event: 1/29/99, as amended on April 14, 1999.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
<PAGE>
PART I
Item 1. Description of Business
History
In July 1998, the Company changed its name to "Internet Media
Corporation". The Company was incorporated on November 1, 1996, under the
name "Media Entertainment, Inc.", to act as a holding company in the
wireless cable and community (low power) television industries. Due to
current market conditions in the wireless cable industry, the Company has
abandoned its efforts to develop its wireless cable properties. In
furtherance of its plan to focus on the exploitation of its Wireless
Internet access products and expansion of its other Internet services, the
Company has agreed to assign all of its community (low power) television
properties to New Wave Media Corp., in exchange for 1,500,000 shares of
such entity's common stock. The Company's Board of Directors has declared
a dividend with respect to all 1,500,000 New Wave Media Corp. shares. (
See "Dividends" under Item 5).
In September 1998, the Company, through a wholly-owned subsidiary, Santa
Fe Wireless Internet, Inc., acquired the assets and going business of
Desert Rain Internet Services ("DSRT"), a Santa Fe, New Mexico-based
Internet Service Provider (ISP), for $25,000 in cash. DSRT has
approximately 140 subscribers. The Company has continued to operate DSRT
under the "Desert Rain Internet Services" trade name, but intends, in the
near future, to convert DSRT into an affiliate of CyberHighway, Inc.
("CyberHighway"), the Company's other ISP subsidiary. Currently, the
Company is negotiating for the acquisition of another ISP based in Santa
Fe. The Company has reached an oral understanding with the owner of such
ISP, but, as of the date hereof, no definitive acquisition agreement has
been executed. The Company anticipates that a final agreement will be
executed by the end of April 1999, though there is no assurance that such
will be the case.
In January 1999, the Company acquired all of the outstanding capital stock
of CyberHighway, a Boise, Idaho-based ISP with approximately 27,000
subscribers, in exchange for 2,000,000 shares of Company Common Stock.
References herein to the "Company" include CyberHighway, Inc., Santa Fe
Wireless Internet, Inc., Missouri Cable TV Corp. and Winter Entertainment,
Inc., unless the context requires otherwise.
Current Overview
The Company's acquisition of CyberHighway in January 1999 fundamentally
altered the Company's outlook. Prior to this acquisition, the Company's
growth plan called for either (1) the acquisition of small, local ISPs
located in certain key cities, then essentially "plugging-in" the Company's
Wireless Internet access system into the acquired ISP's network system and
marketing the Wireless Internet access system or (2) the establishment of
strategic relationships with local ISPs in certain key cities through which
the Company's Wireless Internet access could be established and marketed.
This growth strategy, while proving effective, proved also to be slow and
relatively expensive.
With the acquisition of CyberHighway, not only did the Company acquire
approximately 27,000 dial-up Internet access subscribers and a
state-of-the-art Network Operations Center, the Company also gained
immediate access to over 230 markets in which CyberHighway has established
a company-owned or affiliate-operated point of presence. The Company
expects to have established a Wireless Internet access system in nearly 50
of these CyberHighway markets by the end of the third quarter of 1999.
Corporate Growth Strategy
General. During the past year, as the Company has refined its growth
strategy, it has determined that, for a provider of Wireless Internet
access to achieve the greatest growth and economies of scale, it is
necessary to offer traditional dial-up Internet access as a means to
facilitate the implementation of the Company's US.RF Wireless Internet
products. Thus, to reach more Internet users, the Company will continue to
provide high quality dial-up Internet access service, as it deploys its
Wireless Internet products in its markets. The Company's growth strategy
is based on its ability to offer high quality Internet access through
traditional, telephone-line based dial-up service, and through its Wireless
Internet access products.
US.RF Wireless Internet/CyberHighway Strategy. In addition to
establishing Wireless Internet access in the CyberHighway markets, the
Company is attempting to expand its Wireless Internet access system market
penetration by (1) licensing local, independent ISPs to utilize the
Company's US.RF Quick-Cell Wireless Internet System in their particular
markets, (2) locating local, independent ISPs willing to become a
CyberHighway affiliate-ISP or (3) locating local, independent ISPs who wish
to license the Company's US.RF Quick-Cell Wireless Internet System and
become a CyberHighway affiliate-ISP. Initial reaction to this growth
strategy from local, independent ISPs has been very positive. However,
there is no assurance that the Company will possess sufficient capital with
which to accomplish its objectives. Currently, the Company is in need of
capital, in order to implement completely its growth plan.
ISP Acquisitions; Hub and Spoke Concept. The Company's growth strategy
includes the acquisition of relatively small local, independent ISPs in a
certain key city (or cities, depending on the size of a state) in each
state. Each of these acquired ISPs would be converted into a CyberHighway
affiliate-ISP and would serve as a hub for the Company's operations in a
particular state. For example, in a state with a small population, the
Company would acquire a single ISP to serve as the hub in that particular
state, whereas, in a heavily populated state with several urban centers,
the Company would likely acquire an ISP in each urban center. An acquired
ISP would serve as a hub to same-state CyberHighway affiliate-ISPs, who
would, through telephone-line connections, become spokes in the
CyberHighway network system of affiliate-ISPs. The Company believes that
this hub and spoke concept is one which will afford the Company the
greatest opportunity to achieve needed economies of scale in each of its
markets.
To facilitate anticipated ISP acquisitions, as well as other potential
Internet-related acquisitions, the Company intends to file with the
Securities and Exchange Commission ("SEC") a shelf registration statement,
wherein the Company would register up to 2,000,000 shares of its Common
Stock for use in acquisitions. There is no assurance that this shelf
registration statement will ever be declared effective or that the Company
will be able to negotiate successfully any business acquisition.
Industry Background
Growth of the Internet; the World Wide Web. The Internet, commonly known
as the World Wide Web, or simply the Web, is a collection of connected
computer systems and networks that link millions of public and private
computers to form, essentially, the largest computer network in the world.
The Internet has experienced rapid growth in recent years and is expected
to continue its impressive growth, based on estimated increases in the
numbers of Web users, Web traffic and the number of Web sites.
International Data Corporation estimates that there were over 38 million
Web users in the United States and over 68 million worldwide at the end of
1997. International Data Corporation projects that the number of Web users
will increase to over 135 million in the United States and over 319 million
worldwide by the end of 2002. In April 1998, the U.S. Department of
Commerce estimated that traffic on the Internet is doubling every 100 days.
It is estimated that the number of Web sites in the United States will
increase from approximately 450,000 in 1997 to nearly four million in 2002.
The following factors, in the Company's estimation, are primarily
contributing to the Internet's continued rapid growth: (1) the Internet has
become, on a global scale, an accepted communication medium, enabling
people to obtain and share information and conduct business electronically,
(2) the proliferation of affordable personal computers, (3) advances in the
performance and speed of personal computers, modems and networking
components, (4) improvements in telecommunication network infrastructures,
(5) ease of access to the Internet and (6) the increasing use of the
Internet by businesses as a competitive tool.
Internet Access. Internet access services represent the means by which
ISPs interconnect business and consumer users to the Internet's resources.
Access services vary from dial-up modem access, like that provided by
CyberHighway, for individuals and small businesses to high speed dedicated
transmission lines for broadband access by large organizations to Wireless
Internet access systems, like the Company's US.RF Wireless Internet
products. An ISP provides Internet access either by developing a
proprietary network infrastructure or by purchasing access service from a
wholesale access vendor, or through a combination of both. The rapid
development and growth of the Internet have resulted in a highly
competitive and fragmented industry consisting of approximately 6,000 ISPs
in the United States, with most having customer bases of less than 5,000
subscribers. The vast majority of U.S.-based ISPs conduct their operations
within a single city or state, with just a small number of ISPs, such as
EarthLink and MindSpring, providing nationwide coverage. Due to the
disparity between the large number of smaller ISPs with limited resources
and the emergence of a limited number of national ISPs with their
associated economies of scale, the ISP industry is expected to undergo
substantial consolidation.
Electronic Commerce Over the Internet. The Internet has created a new
communication and sales channel that enables businesses to interact with
large numbers of geographically dispersed consumers and other businesses.
With the recent growth of the Internet, there have emerged many companies
that focus solely on the Internet as the medium for selling products or
delivering services directly to purchasers, bypassing traditional wholesale
and retail channels. Moreover, businesses are implementing sophisticated
Web sites to effect electronic commerce initiatives that offer competitive
advantages. These businesses are deploying an expanding variety of
Internet-enabled applications, ranging from Web site marketing and
recruiting programs to on-line customer interaction systems,
telecommunications services, integrated purchase order and "just-in-time"
inventory solutions for key customers and suppliers. These on-line
capabilities require increasingly complex Web sites and accompanying
support operations. In addition, advances in on-line security and payment
mechanisms are more adequately addressing consumers' concerns associated
with conducting transactions over the Internet, thereby prompting more
consumers and businesses to use the Internet as a medium for commerce.
Also, businesses continue to offer an ever-greater selection of electronic
commerce services. International Data Corporation estimates that the
number of consumers buying goods and services on the Internet will grow
from 17.6 million in 1997 to over 128 million in 2002, and that the total
value of goods and services purchased over the Internet by consumers and
businesses will increase from approximately $12 billion in 1997 to over
$425 billion by 2002.
Contract Internet Operations. Electronic commerce, or e-commerce, is
growing at an explosive pace. More and more businesses are placing greater
emphasis on their Internet transaction and communication abilities and
operations. Increasingly, traditional businesses, as well as
Internet-based businesses, require non-congested and scalable Internet
operations that will permit them to engage in digital communication and
commercial transactions anywhere in the world, via the Internet.
Due to constraints posed by the lack of technical personnel with Internet
skills or experience, the high cost of advanced networking equipment and
the complexity of innovative Web solutions, many businesses do not possess,
internally, resources required to develop, maintain and update their
Internet facilities and systems, to maintain standards required for these
companies to conduct high levels of Internet-based business. As a result
of these constraints and other factors, many businesses are seeking to
contract out, or "outsource", their Internet facilities and systems
requirements as the preferred means for establishing and maintaining
electronic commerce solutions. To this end, the Company expects an
increasing demand is developing for:
1. Dedicated and broadband Internet access services to support reliable,
high speed and/or constantly connected Internet access and communication;
2. Web hosting and co-location services which enable businesses to obtain
equipment, technical expertise and infrastructure for their Internet needs
on an outsourced basis; and
3. Electronic commerce solutions to sell goods and services on the Web in
a transactionally-secure environment.
By outsourcing Internet facilities and systems needs, businesses can then
focus on improving their business results, rather than expending financial
resources on additional staff and Internet-related assets necessary to
support their Internet operations.
Internet Service Opportunities. The number of businesses and consumers
accessing the Internet is expected to continue to increase significantly in
the foreseeable future. According to Forrester Research, the market for
providing access to the Internet for businesses and consumers is expected
to be approximately $18.4 billion in 2000. Additionally, as businesses and
consumers are developing greater levels of comfort in the use of the
Internet for electronic commerce, businesses are increasingly implementing
sophisticated electronic commerce solutions which, in turn, require
significantly greater bandwidth and other business services. In response
to this demand, an increasing number of ISPs are attempting to augment
their basic Internet access services with a wide range of business
services. According to International Data Corporation, the market for Web
hosting and Internet security business services is the fastest growing
segment of the Internet services market, with revenues expected to increase
from approximately $350 million in 1997 to approximately $7 billion in 2000.
The Company believes that ISPs that offer both Internet access to broad
segments of the population and that offer a broad selection of business
services will be positioned to attain greater economies of scale through
lower network expansion and marketing costs on a per-subscriber basis. The
Company's management believes that only a few national ISPs will be in a
position to benefit fully from this continued growth in Internet usage.
It is the Company's opinion that the ISPs that will be in a position to
benefit most from the expected continued growth of the Internet likely will
be characterized by their (1) ability to respond quickly to market demands,
(2) ability to provide reliable coverage on a nationwide basis, (3)
superior technical skills and customer support capabilities, (4) electronic
commerce expertise and business services capabilities, (5) brand name
recognition and the ability to exploit multiple marketing channels and (6)
relatively lower network costs.
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 an ISP employing such a wireless system 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, inasmuch as the Company's Wireless Internet technology has
only recently begun to be deployed.
The Company's proprietary Wireless Internet Access System is marketed
under the "US.RF Wireless Internet System" (US.RF stands for United States
Radio Frequency) and "Quick-Cell" trade names. The Company's Quick-Cell
product is currently the primary focus of the Company's marketing efforts.
The US.RF Quick-Cell Wireless Internet access system is a turn-key,
plug-and-play, system that is capable of delivering customers Internet
access at burstable T-1 equivalent speeds, at prices that range from 40% to
60% below those charged for traditional T-1 hardwire Internet access
service. Each Quick-Cell
system consists of one US.RF Quick-Cell, one US.RF server modem and five
US.RF wireless, two-way customer modems, all of which can be deployed in
less than one week. Additional Quick-Cells can be added to a local system
on an as-needed basis. The Company receives royalty payments for the use
of its Quick-Cell system, in addition to revenues received from the sale of
hardware components.
Should a local, independent ISP who has licensed the Quick-Cell access
system desire a full-scale Wireless Internet access system, the Company
would execute a license agreement to that effect and construct such a
full-scale system. The construction of a full-scale system, one that
covers an area 12 miles in diameter, takes approximately four to six weeks.
US.RF Wireless Internet Access System. The Company's proprietary US.RF
Wireless Internet System operates within a broadcast signal in the 900MHz
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 consumer and 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 10 Mbs.
Lower Cost. The Company's Wireless Internet System will, depending on
the particular market and desired Internet access speed, offer cost savings
of between 20% to 60% less than available hard-wire Internet access (that
is, less than monthly ISP charges plus monthly telephone line charges)
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 is
especially appealing to 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, 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 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
feasible 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.
Current Markets. The Company has licensed independent ISPs to implement
and operate the Company's US.RF Quick-Cell Wireless Internet System in four
cities, Gillette, Wyoming, and Santa Fe, Los Alamos and Las Vegas, New
Mexico. In Gillette and Santa Fe, the Quick-Cell system has been
implemented and customers have been placed on those systems. The Las Vegas
and Los Alamos Quick-Cell systems are expected to operational within 10
days of the date of this Annual Report on Form 10-KSB. The Company has
received nearly 400 inquiries from local, independent ISPs with respect to
their obtaining licenses for one or more of the Company's US.RF Wireless
Internet access products. Additional markets are expected to be added each
month for the foreseeable future, although no assurance can be given in
this regard, nor can any prediction be made as to the number of markets
that will receive the Company US.RF Wireless Internet access products.
In addition, the Company expects to have established US.RF Quick-Cell
Wireless Internet access systems in nearly 50 CyberHighway markets by the
end of the third quarter of 1999.
All licensees of US.RF Wireless Internet products execute license
agreements that require monthly royalty payments to the Company.
Quick-Cell licensees pay the Company a monthly royalty of between 30% and
40% of gross revenue attributable to a Quick-Cell installation. Licensees
of a full-scale US.RF Wireless Internet system, one that covers an area 12
miles in diameter, would be required to pay the Company a monthly royalty
of between 15% and 20% of gross revenue attributable to the US.RF Wireless
Internet system.
Competition; Consumer Acceptance. The Company's Wireless Internet
business faces the same severe competition for market share as does
CyberHighway, particularly in the larger markets of the U.S. In addition
to the competitive factors described below, the Company's Wireless Internet
products potentially must also overcome an initial lack of consumer
acceptance, given the new and relatively unproven (commercially) nature of
the Company's Wireless Internet products. (See " Competition" hereunder
for a more complete discussion of competitive factors that are expected to
impact the Company's business).
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. Since such time, the Company's management has
determined to focus all available resources on the development of its
Wireless Internet products, as a more efficient means of achieving
short-term profitability. As the Company begins to achieve success in
implementing its growth strategy, the Company expects to begin to devote
resources, if available, to the exploitation of these other proprietary
wireless products. The Company believes its Wireless DataLink System can
address, on a wide-spread basis, the needs of businesses to transmit
ever-increasing volumes of data. However, there is no assurance that the
Company will ever possess sufficient resources to exploit its Wireless
DataLink System or that the Company's Wireless DataLink System will achieve
wide-spread acceptance.
CyberHighway Overview
CyberHighway is a high quality, full service ISP, offering its services,
directly and through affiliate-ISPs, to residential and business customers
located in over 230 cities, in 12 states. CyberHighway has approximately
27,000 customers, including several thousand business customers.
CyberHighway's Internet services include dial-up access, high speed access
and other value-added services, as well as wireless Internet access to less
than 100 customers. CyberHighway's services include, without limitation,
web hosting, e-mail and newsgroups. Because CyberHighway began offering
wireless Internet service before its being acquired by the Company, the
wireless Internet system employed by CyberHighway is not the Company's
US.RF Wireless Internet System. However, because CyberHighway is of the
belief that the Company's Wireless System is vastly superior to its current
system, CyberHighway has begun to implement the Company's system in Boise,
Idaho, and will, over time, transfer all of its current wireless Internet
customers onto the Company's Wireless Internet system.
Customers and Markets
The Company provides Internet access to approximately 27,000 customers,
nearly all of which are CyberHighway customers utilizing its dial-up
Internet access services. The largest concentration of customers is in
Idaho, where approximately 16,500 (61%) customers reside. The bulk of the
remaining Internet access customers of the Company are located as follows:
3,000 (11%) in Wyoming, 1,600 (6%) in Georgia, 1,350 (5%) in Oregon, 1,250
(4.5%) in Nevada, 800 (3%) in Arizona and 500 (2%) in Utah, with the
remaining subscriber base spread among various other markets, including
Denver, Colorado, and Jackson, Mississippi.
The Company's management believes that its growth plan will extend the
Company's potential customer base to include nearly all residents of the
United States. Based on data collected from certain of CyberHighway's
subscribers, the Company believes that the CyberHighway subscribers tend to
reflect the typical Internet user composite which, according to published
surveys, indicates that over half of Internet users are male, approximately
50% are between the ages of 25 and 45, about one-third are college
graduates and the average reported annual income of users is substantially
higher than the median U.S. level.
To date, business customers have generally consisted of small and
medium-sized businesses. However, with the introduction of the Company's
Wireless Internet products, the Company intends to place a strong emphasis
on the acquisition of larger business customers.
Sales and Marketing
Historically, CyberHighway's sales and marketing strategy has been
comprised of three components: (1) direct response marketing, (2)
affiliate-ISP program and (3) corporate direct sales. Direct response
marketing and the affiliate-ISP program have been responsible for most of
CyberHighway's growth in its subscriber base.
Since its acquisition by the Company, CyberHighway has begun, and will
continue, to place increasing emphasis on marketing its Internet services
to businesses. The Company's Wireless Internet products are an important
part of this effort. The Wireless Internet products permit the Company to
compete effectively in its markets on sales of dedicated and high bandwidth
Internet access services to business customers. These strategies are
designed to develop greater brand name recognition, both CyberHighway and
US.RF Wireless Internet brand names, and to generate high levels of
subscriber growth, while minimizing subscriber acquisition costs and
customer turnover.
In its company-owned markets, CyberHighway engages in a variety of direct
response marketing and various promotional activities to stimulate consumer
awareness of the CyberHighway Internet access services. These marketing
efforts are directed both to consumers who have not previously subscribed
to Internet access services and to Internet users who may switch to
CyberHighway's service, after learning of its affordability and
reliability. Radio advertising and direct mail distribution have been the
principal media used for direct response marketing to solicit new
subscribers. In Boise, Idaho, CyberHighway operates a retail store-front
sales office, where potential customers can inquire about CyberHighway
services or subscribe, or where existing customers can receive Internet
training or receive assistance with their accounts.
Because it is the Company's belief that a consumer's selection of an
Internet service provider is most often influenced by a personal referral,
the Company strives always to deliver superior customer service and
support. Historically, CyberHighway has achieved high levels of customer
satisfaction that have led to positive customer referrals.
CyberHighway Affiliate Marketing Program
Since its inception, CyberHighway has employed an affiliate marketing
program, a novel technique within the ISP industry that is designed to
generate rapid expansion of CyberHighway's subscriber base. Under this
program, either an existing ISP or a local entrepreneur who wants to start
an ISP business enter into a license agreement with CyberHighway, wherein
the local ISP obtains the right to use the "CyberHighway" brand name and
the local ISP allows the connection of a Kbps-speed frame relay data
circuit to connect from the local ISP's point of presence to CyberHighway's
Internet Network Operations Center. In addition, CyberHighway provides the
local ISP high quality and uniform Internet services, monitors the local
ISP's network access lines, retains passwords for routers and modems to
ensure the high quality of CyberHighway's system, and provides related
consulting services to the local ISP. In effect, under this license
arrangement, CyberHighway handles the local ISP's "backroom" operations,
that is, hardware and system management, thereby allowing the local ISP's
personnel to concentrate on marketing the CyberHighway Internet services.
In addition to certain monthly circuit fees, the local ISP pays
CyberHighway a monthly per-customer royalty. These per-customer royalties
average approximately $2.00. The average cost to become a CyberHighway
affiliate-ISP is approximately $20,000, which is comprised of a prepaid
royalty to CyberHighway and equipment and telephone-line related expenditures.
To date, CyberHighway has entered into "affiliate" relationships with 29
local ISPs, located in Idaho, Utah, Wyoming, Oregon, Colorado, Nevada,
Mississippi, Arizona and Georgia.
Beginning in April 1999, CyberHighway has, in connection with the
Company's US.RF Wireless Internet marketing strategy, begun to pursue
aggressively additional affiliate-ISPs. The ability of CyberHighway to
offer the Company's US.RF Quick-Cell Wireless Internet System is expected
to assist greatly in achieving subscriber-base growth.
Customer Service and Support
The Company is committed to the highest levels of customer satisfaction.
Indeed, CyberHighway's history of high customer satisfaction, as measured
by a low customer turn-over rate, was one of the most important factors in
the Company's decision to acquire CyberHighway. The Company believes that
maintaining high levels of customer satisfaction will remain as a key
competitive factor that differentiates the Company, including its
subsidiaries, from other purveyors of Internet-related services.
Throughout its history, CyberHighway has regularly reviewed network
utilization rates, and refines and expands its network capabilities as
necessary, to ensure high levels of network performance and reliability.
CyberHighway maintains customer support for telephone inquiries, from 9:00
a.m. to 9:00 p.m., Mountain Time, seven days a week, with technical
personnel available during these times to address customer questions and
concerns. The Company intends to continue to dedicate the resources
necessary to ensure that service calls are promptly answered and addressed
by a customer support representative, and that customer issues are resolved
promptly. Customers also can access customer support services through
e-mail correspondence or access trouble-shooting tips and configuration
information, as well as network status and performance reports, on the
CyberHighway Web site.
Consumer and business customers have very different support needs, as do
Wireless Internet customers, especially as to technical requirements and
the sophistication of the user who makes the customer service inquiry. As
the Company's subscriber base grows, it intends to implement a tiered
customer support system, where simple technical problems or other
miscellaneous issues would be handled by non-technical support staff and
complex and/or time sensitive technical questions would be referred to the
trained technical support staff for resolution.
Network Infrastructure
CyberHighway has designed its network and related systems to provide fast
and reliable, high-quality Internet access services, while minimizing the
capital investment needed for infrastructure development. CyberHighway
continues to re-evaluate its network's structure and design so as to
achieve maximum capacity with available resources. CyberHighway's
affiliate-ISP program is an example of the innovations in network system
construction methods employed by CyberHighway. This technique allowed
CyberHighway to achieve moderate to fast growth, despite a lack of
significant expansion capital. The Company intends to seek innovative,
cost-saving measures as it expands its network, which is expected to
provide maximum flexibility to the Company as it pursues its growth
strategy. The Company further believes that it will be able to take
advantage of market opportunities as they may develop, whether due to
technological advances or regulatory changes. The Company's objective is
to minimize both network costs and exposure to technological obsolescence
of equipment.
CyberHighway's current network consists of a state-of-the-art Network
Operations Center located in Boise, Idaho, through which all subscribers,
whether from company-owned or affiliate-ISPs, log onto the Internet. These
facilities support the 32 CyberHighway points of presence.
The Company will continue to monitor capacity demands on its network, so
that network resources will continue to expand ahead of market demands.
Network Operations Center
CyberHighway's Network Operations Center (NOC) monitors network traffic,
quality of services and security issues, as well as the performance of the
equipment located at each company-owned and affiliate-ISP points of
presence, to ensure reliable service. The CyberHighway NOC is comprised of
state-of-the-art equipment and an uninterruptible power supply. The
CyberHighway NOC currently possesses excess capacity, to the extent that an
additional 10,000 subscribers could be added to the CyberHighway network
without having to add equipment or telephone lines. The CyberHighway NOC
is staffed 24 hours a day, seven days a week, with technical and network
security personnel. When an intruder, or "hacker", enters the CyberHighway
network, the network security personnel are able to monitor the intruder's
activities, create a report about such activities and provide such
information to customers who may have had their proprietary information
tampered with by the intruder. To date, neither CyberHighway nor any
customer has incurred any material loss due to the efforts of hackers.
Network Design
Each of the CyberHighway-owned physical points of presence, as well as
each affiliate-ISP point of presence, includes modern hardware, along with
routing equipment and associated leased-telephone line interface devices.
Modems are interconnected to switched telephone networks serving the local
area, and high-speed telephone lines connect the point of presence router
to other sites within its network. The hardware and software deployed at
each facility permits analysis of the performance of the network and
performance of limited maintenance from the Boise, Idaho, NOC. As new
affiliate-ISPs are added to the CyberHighway network, new high-speed
telephone lines and hardware are integrated into the network. These
procedures ensure the efficient transfer of data over the CyberHighway
network. In addition, the CyberHighway network is designed with high
levels of redundancy as a means of increasing network reliability, so as to
avoid single points of system failure.
Strategic Relationships
The Company has entered into a distribution agreement with Woodcomm, Inc.,
whereby the Company has the right to distribute a line of newly-developed
Internet-enabled telecommunications services, including a pre-paid,
long-distance "virtual-calling-card". The virtual calling card service,
developed by Woodcomm, Inc., is relatively simple. A subscriber selects a
contact name from his on-line address book, then clicks on that name, and
the service connects his personal phone line and the contact's phone line,
the connection being carried over Woodcomm's network, a portion of which
traverses the Internet backbone in a manner that is transparent to users .
This virtual-calling-card service will be available for use to all U.S.
telephone numbers. Under the same distribution agreement, the Company
will also begin to market an additional e-commerce product which connects
customers of a particular company from that company's web site to a
predetermined telephone number (sales, customer service and technical
support, etc.) with a click of a button. Importantly, any business with a
web site is a potential user of this Internet-enabled telecommunications
service. These products are expected to ready for commercial exploitation
during the last half of the second quarter of 1999. These Internet
telephony products will be distributed under private label brand names of
the Company and will be featured on the Company's e-commerce Web site,
www.e-tail.com, which site is currently under construction.
Other Internet Services
In addition to the services usually offered by ISPs, the Company is
currently developing a Web site that will facilitate e-commerce for its
customers. This Web site is to be known as "e-tail.com" and is expected to
be ready for use during May 1999. The Company intends to have its
e-tail.com operations specialize in business-to-business e-commerce
transactions, in addition to its offering certain products to consumers.
The Internet telephony products to be distributed by the Company will be
offered on the e-tail.com Web site.
The Company has determined to focus on business-to-business Internet
solutions, due to its belief that this sector has not, historically, been
well served by Internet access and Internet-related service providers.
There is no assurance that the Company's efforts in this regard will be
successful.
Competition
The market for the provision of Internet access services is extremely
competitive and highly fragmented. As there are no significant barriers to
entry, the Company expects that competition will intensify. It also
believes that the primary competitive factors determining success as an ISP
are (1) a reputation for reliability and high-quality service, (2)
effective customer support, (3) access speed, (4) pricing, (5) effective
marketing techniques for customer acquisition, (6) ease of use and (7)
scope of geographic coverage.
The Company believes that it can, and in the future will, more
effectively, compete in its markets, due to (1) its commitment to providing
fast and reliable, high-quality Internet access and other Internet-related
services, as well as exemplary customer service and support, and (2) the
Company's US.RF Wireless Internet products, which are designed to be highly
cost competitive and are expected to be well-received in each of its
markets. Nevertheless, there is no assurance that the Company will be able
to compete successfully in its markets, such that the Company's business,
operating results and financial condition would not be materially and
adversely affected.
Current and prospective competitors of the Company include many large,
nationally-known companies that possess substantially greater resources,
financial and otherwise, market presence and brand name recognition than
does the Company, including its subsidiaries. With respect to the
Company's Internet access and other Internet-related services, the Company
currently competes, or expects to compete, for the foreseeable future, with
the following: national ISPs, numerous regional and local ISPs, most of
which have significant market share in their markets; established on-line
information service providers, such as America Online, which provide basic
Internet access, as well as proprietary information not available through
public Internet access; providers of web hosting, co-location and other
Internet-based business services; computer hardware and software and other
technology companies that provide Internet connectivity with their
products; telecommunications companies, including global long distance
carriers, regional Bell operating companies and local telephone companies;
operators that provide Internet access through television cable lines;
electric utility companies; communications companies; companies that
provide television or telecommunications through participation in satellite
systems; and, to a lesser extent, non-profit or educational Internet access
providers.
With respect to potential competitors, the Company believes that
manufacturers of computer hardware and software products, media and
telecommunications companies and others will continue to enter the Internet
services market, which will serve to intensify competition. In addition,
as more consumers and businesses increase their Internet usage, the Company
expects existing competitors to increase further their emphasis on Internet
access and electronic commerce initiatives, resulting in even greater
competition for the Company in its markets. The ability of competitors or
others to enter into business combinations, strategic alliances or joint
ventures, or to bundle their services and products with Internet access,
could place the Company at a significant competitive disadvantage.
Moreover, the Company expects to face competition in the future from
companies that provide connections to consumers' homes, such as
telecommunications providers, cable companies and electrical utility
companies. For example, recent advances in technology have enabled cable
television operators to offer Internet access through their cable
facilities at significantly faster rates than existing analog modem speeds.
Such companies could include Internet access in their basic bundle of
services or offer such access for a nominal additional charge. Any such
developments could materially and adversely affect the Company's business,
operating results and financial condition.
Government Regulation
Regulation of Internet Access Services. The Company provides Internet
access, in part, using telecommunications services provided by carriers.
Terms, conditions and prices for telecommunications services are subject to
economic regulation by state and federal agencies. The Company, as an
Internet access provider, is not currently subject to direct economic
regulation by the Federal Communications Commission or any state regulatory
body, other than the type and scope of regulation that is applicable to
businesses generally. In April 1998, the Federal Communications Commission
reaffirmed that Internet access providers should be classified as
unregulated "information service providers" rather than regulated
"telecommunications providers" under the terms of the Federal
Telecommunications Act of 1996. As a result, the Company is not subject to
federal regulations applicable to telephone companies and similar carriers
merely because it provides its services using telecommunications services
provided by third-party carriers. To date, no state has attempted to
exercise economic regulation over Internet access providers.
Governmental regulatory approaches and policies to Internet access
providers and others that use the Internet to facilitate data and
communication transmissions are continuing to develop and, in the future,
the Company could be exposed to regulation by the Federal Communications
Commission or other federal agencies or by state regulatory agencies or
bodies. In this regard, the Federal Communications Commission has
expressed an intention to consider whether to regulate providers of voice
and fax services that employ the Internet or IP switching as
"telecommunications providers", even though Internet access itself would
not be regulated. The Federal Communications Commission is also considering
whether providers of Internet-based telephone services should be required
to contribute to the universal service fund, which subsidizes telephone
service for rural and low income consumers, or should pay carrier access
charges on the same basis as applicable to regulated telecommunications
providers. To the extent that the Company engages in the provision of
Internet or Internet protocol-based telephony or fax services, it may
become subject to regulations promulgated by the Federal Communications
Commission or states with respect to such activities. No assurance can be
given that such regulations will not adversely affect the Company's ability
to offer certain enhanced business services, in the future.
Furthermore, in a rule-making proposal issued in August 1998, the Federal
Communications Commission has proposed that, if an incumbent local exchange
carrier establishes a separate affiliate to pursue the deployment of
advanced telecommunications services, such as those offered by the Company,
and if that affiliate interconnects with the incumbent local exchange
carrier's network on the same terms and conditions as offered to the
incumbent local exchange carrier's competitors, then the affiliate would
not be subject to the unbundling, discounted resale or co-location
obligations in the Federal Telecommunications Act of 1996 that apply to
incumbent local exchange carriers. Rather, the affiliate would be treated
like a competitive local exchange carrier. If the Federal Communications
Commission ultimately adopts this or any similar proposal, the Company
would likely face increased competition from incumbent local exchange
carrier affiliates and the Company's access to providers of high speed data
technology could be curtailed, which could materially and adversely affect
its business, operating results and financial condition.
Regulation of the Internet. Due to the increasing popularity and use of
the Internet by broad segments of the population, it is possible that laws
and regulations may be adopted with respect to the Internet pertaining to
content of Web sites, privacy, pricing, encryption standards, consumer
protection, electronic commerce, taxation, and copyright infringement and
other intellectual property issues. No one is able to predict the effect,
if any, that any future regulatory changes or developments may have on the
demand for the Company's Internet access or other Internet-related
services. Changes in the regulatory environment relating to the Internet
access industry, including the enactment of laws or promulgation of
regulations that directly or indirectly affect the costs of
telecommunications access or that increase the likelihood or scope of
competition from national or regional telephone companies, could materially
and adversely affect the Company's business, operating results and
financial condition.
Intellectual Property
The Company is nearing completion of patent applications relating to its
Wireless Internet access system, which patent applications are to be filed
as soon as they have been completed. Although the Company believes its
Wireless Internet access system, or aspects thereof, to be patentable,
there is no assurance that a patent or patents will be granted with respect
to the Company's invention. Also, no assurance can be given that the steps
taken by the Company and CyberHighway will be adequate to prevent
misappropriation of the Company's proprietary Wireless Internet
technologies or that third parties, including competitors, will not
independently develop technologies that are substantially equivalent or
superior to the Company's proprietary Wireless Internet technologies.
CyberHighway has received authorization to use the products of each
manufacturer of software that is bundled in its software for users with
personal computers operating on the Windows or Macintosh platforms. While
certain of the applications included in the CyberHighway start-up kit for
Internet access services subscribers are shareware that it has obtained
permission to distribute or that are otherwise in the public domain and
freely distributable, certain other applications included in the
CyberHighway start-up kit have been licensed where necessary. CyberHighway
currently intends to maintain or negotiate renewals of all existing
software licenses and authorizations as necessary, although there is no
assurance that such renewals will be available on acceptable terms, if at
all. The Company and/or CyberHighway may also enter into licensing
arrangements for other applications, in the future.
Employees
The Company, including subsidiaries, currently has 36 employees, including
five officers of the Company. Substantially all of the Company's hourly
employees are employed by CyberHighway. The Company's President, David M.
Loflin, and Vice President, Waddell D. Loflin, have served since the
Company's inception without compensation. In the near future, Messrs.
Loflin are expected to enter into employment agreements with the Company
and will, at that time, begin to receive compensation for their services to
the Company. The Company's Chief Operating Officer, Julius W. Basham, II,
the Company's Chief Financial Officer, Alonzo B. See, III, and the
Company's Vice President of Corporate Development, James Kaufman, have
entered into employment agreements with the Company. Messrs. See and
Kaufman may receive a part of their compensation in shares of Common Stock
of the Company, in the Company's discretion. (See "Item 9" herein).
None of the employees of the Company, or any subsidiary, is covered by any
collective bargaining agreement, nor has the Company, or any subsidiary,
ever experienced a work stoppage. The Company believes its relations with
employees to be good. Much of the future success of the Company will
depend, in large measure, upon the ability of the Company to continue to
attract and retain highly skilled technical, sales, marketing and customer
support personnel.
Certain Risk Factors
When evaluating an investment in the Company, the risks and uncertainties
described below should be considered carefully. These risks and
uncertainties described are not the only risks and uncertainties faced by
the Company. Were any of the following risks actually to occur, the
Company's business, financial condition or results of operations could be
materially and adversely affected. In such case, the trading price of the
Company's Common Stock could decline, which could cause an investor to lose
of all or part of his investment in the Company's Common Stock.
This Annual Report on Form 10-KSB contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including the risks described below and
elsewhere in this Annual Report.
Limited Operating History; History of Losses. The Company has a limited
operating history and has never earned a profit from its limited
operations. The Company's operations, including the operations of
CyberHighway, and proposed operations, are subject to all of the risks
inherent in the establishment of a new business, particularly one in the
highly competitive and rapidly evolving Internet industry. These risks
include the Company's ability (1) to achieve customer acceptance of the
Company's Wireless Internet products, (2) to expand its subscriber base and
subscriber-related revenues, (3) to compete successfully in a highly
competitive market, (4) to gain access to sufficient capital with which to
support anticipated growth, (5) to recruit and train qualified employees
and (6) to upgrade the Company's network systems and infrastructure. The
Company cannot be certain that it will successfully address any of these
risks. In addition, the Company's business is subject to general economic
conditions, which may not be favorable in the future. Even if the Company
is successful in addressing these risks, there is no assurance that the
Company will ever earn a profit from its operations.
Potential Pricing Pressure Due to Intense Competition. The Company faces
intense competition in conducting its business and this level of
competition will continue to increase, for the foreseeable future. Many of
the Company's competitors include other ISPs with much larger subscriber
bases and greater resources. Further, a significant number of competitors
offer a broader variety of business services, and may have done so for
longer periods of time. Each local market in which the Company provides
Internet access is served by multiple Internet access providers. The
current and prospective competitors include may large companies, many of
which are better known than the Company and can be expected to possess
greater financial, technical and marketing resources than the Company.
As a result of increased competition within the Internet industry, the
Company expects to encounter significant pricing pressure. The Company
cannot be certain that it will be able to offset the effects of any
competition-induced price reductions through an increase in the number of
its subscribers, increased revenues, cost reductions or otherwise, or that
the Company will have the resources, financial or otherwise, to compete
successfully.
Aggressive Growth Strategy May Strain Resources. The Company is
attempting to expand its Wireless Internet business and CyberHighway has
begun an aggressive effort to increase its customer base, as well as to
pursue existing and potential market opportunities. The Company expects
that its planned rapid growth is expected to place a significant strain on
its managerial, operational and financial resources. In particular, the
Company's planned Wireless Internet expansion will require significant
capital with which to purchase equipment necessary for the construction and
implementation of locations. The Company believes that the growth of its
Wireless Internet access business will be impeded primarily by a lack of
capital, rather than by a lack of customer acceptance.
In order to manage this expected growth, the Company must improve its
operational systems, procedures and controls on a timely basis. Should
these systems not be effective in keeping pace with the Company's growth,
the quality and reliability of the Company's services may decline and
levels of customer satisfaction could be harmed, as a result.
Expected Fluctuations in Quarterly Operating Results. Due to its expected
growth, the Company expects that its revenues and operating results may
fluctuate significantly from quarter to quarter. Several factors are
likely to cause such fluctuations, including, without limitation, (1) the
rate of new subscriber acquisitions, (2) subscriber retention, (3) changes
in Company pricing policies or those of competitors, (4) (5) capital
expenditures and other costs relating to the expansion of Company
operations, (6) the timing of new product introductions and service
announcements made by the Company or competitors, (7) market acceptance of
the Company's Wireless Internet products and enhanced versions of the
Company's dial-up products and services, (8) personnel changes, (9) the
introduction of alternative technologies, (10) the effect of potential
acquisitions; and (11) increased competition in the Company's markets. No
prediction as to the future operating results of the Company can be made.
Potential Inability to Obtain Needed Expansion Capital. The Company's
ability to grow depends, in large measure, on its ability to expand the
market penetration of its Wireless Internet access business and the
operations of CyberHighway by establishing new points of presence, all of
which require significant equipment expenditures and advance expenditures
and commitments for leased telecommunications facilities and advertising.
Since its acquisition of CyberHighway (January 1999), the Company's
operations have provided a level of funds sufficient to permit the Company
to grow at a slow rate. In order for the Company to achieve its aggressive
growth plans, the Company will be required to obtain additional capital,
through debt or equity financing. There is no assurance that the Company
will be able to obtain such additional capital in the future on terms
acceptable to the Company, or at all. Should alternative sources of
financing be insufficient or unavailable, the Company would be required to
reduce the scope of its growth and operating plans in accordance with the
extent of available financing.
Dependence on Third-party Suppliers and Telecommunications Carriers. The
Company, and CyberHighway in particular, depends on third-party suppliers
of hardware components and telecommunications carriers to provide equipment
and networking services. The Company obtains is Wireless Internet-related
equipment from a single source. CyberHighway currently acquires certain
hardware components used in its network system from just a few sources,
including server/processors manufactured by Intel, modems manufactured by
Lucent Technologies and U.S. Robotics and high performance routers, which
are devices that receive and transmit data between different networks,
manufactured by Cisco Systems. CyberHighway currently relies on a few
local telephone companies and others, such as U.S. West, Electric Lightwave
and GST, to lease to it data communications capacity via local
telecommunications lines and leased long-distance lines. CyberHighway's
suppliers and telecommunications carriers also sell or lease products and
services to its competitors and may be, or in the future may become,
competitors to CyberHighway. The anticipated expansion of CyberHighway's
network infrastructure and other competitors' needs will continue to place
a significant demand on suppliers and telecommunications carriers.
CyberHighway cannot be certain that its suppliers and telecommunications
carriers will continue to sell or lease their products and services to it
at commercially reasonable prices, or at all. Should CyberHighway incur
difficulties in developing alternative sources of supply, if required, the
business, future financial condition or operating results of CyberHighway
may be adversely affected. Moreover, failure of CyberHighway's
telecommunications providers to provide the data communications capacity
required, for any reason, could cause interruptions in CyberHighway's
ability to provide Internet access services to its customers, which may
materially and adversely affect the business, financial condition and
operating results of CyberHighway.
Necessity of Expanding Network Infrastructure. CyberHighway's network
infrastructure is composed of a complex system of routers, switches,
transmission lines and other hardware used to provide its subscribers with
Internet access and other services. The future success of CyberHighway's
business will depend on the capacity, reliability and security of this
network infrastructure. CyberHighway will have to expand and adapt its
network infrastructure as the number of subscribers and the amount and type
of information these subscribers wish to transmit over the Internet
increases. Such network infrastructure expansion and adaptation will
require substantial financial, operational and management resources. There
is no assurance that CyberHighway will be able to expand or adapt its
network infrastructure to meet additional demand or changing subscriber
requirements on a timely basis and at a commercially reasonable cost, or at
all.
Network Capacity Constraints Can Impede Service to Subscribers. Capacity
constraints within CyberHighway's network and those of its suppliers have
occurred in the past and will likely occur in the future, due to the
explosive growth of the Internet industry. Such constraints may prevent
subscribers from gaining access to a particular point of presence or may
inhibit a subscriber from connecting to system-wide services, such as
e-mail and newsgroup services. It is possible that CyberHighway may, in
the future, experience delays in the delivery of networking components or
systems from third-party suppliers, which could have the effect of delaying
the delivery of service to customers or cause all incoming modem lines to
become full during peak times, resulting in busy signals for subscribers
who are trying to connect to CyberHIghway's network. Similar problems
could occur, if CyberHighway is unable to expand the capacity of its
information servers for e-mail, newsgroups and the World Wide Web fast
enough to keep up with the demand from an expanding subscriber base. Any
failure of CyberHighway to provide its customers with the requisite network
capacity to enable them to access readily the Internet, CyberHighway
subscribers will experience an overall slow-down in their Internet access,
which more likely than not would injure subscriber relations. Any such
failure of CyberHighway to expand or enhance its network infrastructure on
a timely basis or adapt it to an expanding subscriber base, changing
subscriber requirements or evolving industry standards, CyberHighway's
business, financial condition and operating results could be materially and
adversely affected.
Service Disruptions Could Result in Subscriber Cancellations.
Substantially all of CyberHighway's computer equipment, including critical
equipment dedicated to its Internet access services, is presently located
at a single facility in Boise, Idaho. The occurrence of a natural
disaster, the failure of one or more systems or the occurrence of other
unanticipated problems at this network operations center (NOC) could cause
interruptions in Internet services. In the ISP industry, extensive or
multiple interruptions in Internet services are a primary reason for
customer decisions to cancel the use of a particular Internet access
service. Accordingly, any disruption of CyberHighway's services, due to
system failure, could materially and adversely affect CyberHighway's
business, financial condition and operating results.
Need to Adapt to Technology Trends and Evolving Industry Standards. The
dial-up Internet access market served by CyberHighway is susceptible to
rapid changes, due primarily to technology innovations, as well as evolving
industry standards, changes in subscriber needs and frequent new service
and product introductions. New services and products based on new
technologies or new industry standards expose CyberHighway to risks of
equipment obsolescence. CyberHighway will be required to use leading
technologies effectively, continue to develop its technical expertise and
enhance its existing services on a timely basis to remain competitive in
this industry. While the development of the Company's proprietary Wireless
Internet access and other wireless technologies are expected to aid
CyberHighway in its efforts to remain on the leading edge of
Internet-related technology, there is no assurance that this will be the
case. Specifically, there is no certainty that CyberHighway will
effectively utilize new technologies in its operations.
CyberHighway's ability to compete successfully in its markets also depends
on the continued compatibility of its services with products and systems
utilized and sold by various third parties. Although CyberHighway intends
to support emerging standards in the Internet access market, as well as in
the enhanced business services market, there is no assurance that
CyberHighway will be able to conform to these new standards in a timely
fashion and maintain a competitive position in the market.
Even thought the Company's Wireless Internet access technology is a
leading-edge Internet access delivery system, there is no assurance that
this technology will permit the Company to remain competitive in its
markets. Recently, several companies have introduced cable modems, which
possess the ability to transmit data at substantially faster speeds than
the modems currently employed by CyberHighway, but not at speeds any faster
than can be offered through the Company's Wireless Internet access system.
Nevertheless, though the Company will continue to pursue the development of
faster, more efficient Internet access technologies, there is no assurance
that the Company will be able to support the costs associated with such
product development efforts, which could cause a materially adverse affect
on the Company's operations.
Growth Plans Dependent on Continued Internet Growth. During the past five
or so years, the use of the Internet has grown exponentially. Although the
Company believes its Wireless Internet access technology is positioned as a
replacement for traditional, hard-wire based Internet access, a portion of
the expected growth of the Company's business depends on the continued
growth of the Internet and the continued development of the Internet as a
viable commercial medium. If the use of the Internet does not continue to
grow or evolves in a way that the Company is unable to effectively address,
it is likely that the Company's business, financial condition and operating
results would be materially and adversely affected.
Uncertainty of Subscriber Retention. Because sales, marketing and other
costs of acquiring new subscribers are substantial in relation to the
monthly fees derived from such subscribers, the Company believes that its
long-term success depends largely on its ability to retain existing
subscribers, while continuing to attract new subscribers. The Company
intends to continue to invest significant resources in its network
infrastructure and customer and technical support capabilities, in order to
continue to provide high levels of customer service. There is no assurance
that these efforts will maintain or improve subscriber retention of the
Company. The Company believes that intense competition from competitors,
some of which offer free hours of service or other enticements for new
subscribers, will continue to cause a small percentage of its subscribers
to switch to a competitor's service. In addition, some new subscribers use
the Internet only as a novelty and do not become consistent users of
Internet services and, therefore, may be more likely to discontinue their
service. These factors, among others, adversely affect the Company's
subscriber retention rates. Any decline in subscriber retention rates
could have a materially adverse effect on the Company's business, financial
condition and operating results.
Dependence of Ability to Attract CyberHighway Affiliates. In addition to
establishing company-owned points of presence, CyberHighway employs a
licensing system that entails the use of small, local ISPs who operate as
CyberHighway affiliates to market the CyberHighway brand name and Internet
services. This licensing program has allowed, and will continue to allow,
CyberHighway to expand its "footprint", without large expenditures of
capital. CyberHighway believes its affiliate program is unique in the
Internet industry. The success of this affiliate program is dependent on
CyberHighway's ability to attract local ISPs who are capable of carrying
out effective sales and marketing programs in their respective markets.
For the year ended December 31, 1998, approximately 75% of CyberHighway's
new subscribers were obtained through the efforts of affiliate ISPs. There
is no assurance of the future success of CyberHighway's affiliate program.
CyberHighway's ability to attract and retain dependable local ISPs could be
negatively affected by (1) adverse publicity relating to CyberHighway's
Internet services or operations, (2) non-competitive license fee rates, (3)
the quality and range of CyberHighway's Internet services, (4) the level of
support services offered to affiliate-ISPs, (5) the availability of other
similar opportunities, and (6) adverse trends regarding Internet usage.
Potential State and Federal Government Regulations. CyberHighway provides
Internet access and other Internet-related services, in part, using
telecommunications services provided by carriers that are subject to the
jurisdiction of state and federal regulators. With the increasing
popularity and use of the Internet, state and federal regulators may, with
or without rational bases, adopt additional laws and regulations relating
to content, user privacy, pricing and copyright infringement. The Company
is unable to predict the impact, if any, that any such future regulation or
regulatory changes would have on its business.
Potential Liability for Network Intrusions or Computer Viruses. Although
CyberHighway has implemented, and will continue to implement, high-level
network security measures, its network and computer systems are somewhat
vulnerable to intrusions from "hackers", computer viruses or similar
disruptive problems caused by, or transmitted through, subscribers or other
Internet users. Any such disruptions could lead to interruptions, delays
or cessation in service to subscribers. Inappropriate use of the Internet
by third parties could also potentially jeopardize the security of
confidential information stored in CyberHighway's computer systems or those
of subscribers, which may cause losses either to CyberHighway or its
subscribers. The potential occurrence of such disruptions may deter
certain persons from subscribing to Company (including CyberHighway)
services. Company efforts to alleviate any such problems caused by
computer viruses or other breaches of security likely would cause
interruptions, delays or cessation in service to subscribers, which could
have a materially adverse effect on the Company's business and operations.
As the volume of commercial transactions consummated over the Internet
increases, the Company will face an increase in potential liability arising
from network malfunctions or security breaches that impede the completion
of such transactions or permit completion of transactions at compromised
levels of security. It is possible that subscribers or others could assert
claims of liability against the Company as a result of any such network
malfunctions or security breaches. Moreover, until such time as more
comprehensive security technologies have been developed and implemented,
security and privacy concerns of existing and potential subscribers may
inhibit the growth of the Internet service industry, in general, and the
Company's subscriber base and revenues, in particular.
Acquisition of Internet Access Subscribers May Cause Subscriber
Cancellations. As part of the Company's growth strategy, CyberHighway is
seeking to have local ISPs become network affiliates. The Company also is
seeking to acquire select local, independent ISPs in certain key states and
to convert such acquired ISPs to CyberHighway affiliates. A local ISP's
new affiliation with CyberHighway would appear to that ISP's customers as a
change in their ISP. This perceived change could result in subscriber
cancellations, in the short-term period following the CyberHighway
affiliation, due to the lack of an acquired subscriber's familiarity with
CyberHighway or due to billing issues arising from poor record keeping or
billing administration by the acquired ISP. In acquiring an ISP, it is
possible that the Company could encounter difficulties in assimilating
personnel and operating techniques of the acquired ISP. Any such
difficulties have the potential for disrupting the Company's then-ongoing
business and distracting the attention of management, as well as resulting
in unanticipated costs and difficulty in maintaining Company operating and
service standards, controls and procedures. There can be no assurance
given that the Company would succeed in overcoming any of these risks or
other problems associated with the Company's growth strategy.
Potential Liability for Material Transmitted Over Company Network. Laws
relating to the liability of Internet access providers for information
carried on, or disseminated through their networks are unsettled. Further,
the Federal Telecommunications Act of 1996 imposes fines on any entity that
knowingly permits any telecommunications facility under such entity's
control to be used to make obscene or indecent material available to minors
via an interactive computer service. The Company is unable to predict
whether any claim under such federal statute, similar state statutes or
common law will be asserted against it, or, if asserted, whether it would
be successful. It is possible that, as the law in this area develops, the
Company may be required to expend substantial resources or discontinue
certain services to reduce its exposure to the potential imposition of
liability for information carried on, and disseminated through, its
network. Any costs incurred by the Company as a result of contesting any
such asserted claims or the consequent imposition of any liability could
materially and adversely affect the Company's business, financial condition
and operating results.
In addition, because materials may be downloaded by Company subscribers
and subsequently distributed to others, it is possible that persons could
make claims against the Company for defamation, negligence, copyright or
trademark infringement, personal injury or other causes of action based on
the nature, content, publication and distribution of such materials. The
Company also could be exposed to liability with respect to the offering of
third-party content that may be accessible through its services, including
links to web sites maintained by Company subscribers or other third
parties, or posted directly to a Company web site, and subsequently
retrieved by a third party through the Company's service. It is also
possible that, if any third-party content provided through the Company's
service contains errors, third parties who access such material could make
claims against the Company for losses incurred in reliance on such
information. Because the Company offers e-mail services, it is exposed to
other potential risks, such as liabilities or claims resulting from
unsolicited e-mail, lost or misdirected messages, illegal or fraudulent use
of e-mail or interruptions or delays in e-mail service. Any such claims,
whether such claims are with or without merit, likely would divert
management's time and attention and result in significant costs to
investigate and defend.
Year 2000 Compliance Issues. Many currently installed computer systems
and software products are coded to accept only two digit entries in the
date-code field. These date-code fields will need to accept four digit
entries to distinguish 21st Century dates from 20th Century dates.
Confusion of dates by computer systems and software products may bring
about system failures or miscalculations, causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar business activities. As a
result, many companies' software and computer systems need to be upgraded
or replaced in order to comply with such "Year 2000", or "Y2K",
requirements. The Company, including CyberHighway, has established
procedures for evaluating and managing the risks and costs associated with
this problem. Currently, all components of CyberHighway's Network
Operations Center is Y2K compliant, except for a single server, which is
scheduled to be replaced during the third quarter of 1999. CyberHighway
expects that its computer systems will be Y2K compliant by the end of the
third quarter of 1999. However, many of CyberHighway's customers maintain
their Internet operations on commercially available operating systems,
which may be affected by Y2K complications.
In addition, the Company relies on third-party vendors for certain
telecommunications and information systems equipment and software that may
not be Y2K compliant. The Company is in the early stages of conducting an
audit of its third-party suppliers as to the Y2K compliance of their
respective systems. The failure of the Company's internal computer systems
or of third-party equipment or software to operate without Y2K
complications could require the Company to incur significant and
unanticipated expenses to remedy any problems and could expose the Company
to claims for losses incurred by its users, due to such Y2K complications.
The defense of any such claims, whether such claims are with or without
merit, could require the Company to incur substantial costs and would
divert management's time and attention, which could further the adverse
effects on the Company's business, financial condition and operating
results. Also, the Company is subject to external forces that might,
generally, affect industry and commerce, such as utility company Y2K
compliance failures and related service interruptions.
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
devotes substantially all of his time to the business of the Company. 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 April 12, 1999, the Company's directors and
executive officers owned approximately 55.35% of the Company's outstanding
shares of Common Stock, and certain of the officers and directors of the
Company have entered into a voting agreement relating to the voting in
elections of directors. Currently, 6,040,903 shares, or 55.47% of the
outstanding shares, are subject to this voting agreement. 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.
(See Item 11 and Item 12).
Indebtedness to Affiliate. The Company currently is indebted to its
President, David M. Loflin, in the amount of $146,415, all of which is
payable on demand. Mr. Loflin has advised the Company that he does not
intend to demand repayment of any portion of such indebtedness, until such
time as the Company is able to make such repayment without adversely
affecting its financial condition. However, should Mr. Loflin change his
current intention, the Company would be unable to repay Mr. Loflin, which
could have a materially adverse affect on the Company and its financial
condition.
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
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.
Need for Future Financing. To date, the Company has received a total of
$610,000 under two separate private offerings of securities, one occurring
in June 1998 ($340,000) and one occurring in January 1999 ($270,000).
However, 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.
Dependence on Protection of Proprietary Rights. The Company currently
relies on common law principles for the protection of its copyrights,
trademarks and trade secrets laws to protect our proprietary rights.
CyberHighway has filed for trademark protection of the "CyberHighway" brand
name, as well as the mark associated therewith. The Company is nearing
completion of patent applications relating to certain aspects of its
Wireless Internet access technology and is nearing completion of trademark
applications relating to the "US.RF Wireless Internet" brand name and the
"Quick-Cell" brand name. There is no assurance that the Company's,
including CyberHighway's, efforts to protect its intellectual property
rights have been or will, in the future, be adequate to prevent the
misappropriation of its technology or that third parties, including
competitors, will not independently develop technologies that are
substantially equivalent or superior to the Company's proprietary technology.
Possible Volatility of Market for Common Stock. The market prices for
securities of newly public companies traded on the NASD's OTC Electronic
Bulletin Board 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,
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. Nevertheless, the Company,
during 1998, acquired, or agreed to acquire, shares of common stock of
three private companies. The Board of Directors of the Company has
declared dividends as to all of the shares of each of such companies.
There is no assurance that shareholders will benefit from the payment of
such dividends. (See "Dividends" under Item 5).
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
"Corporate Growth Strategy", "Wireless Internet", "CyberHighway Affiliate
Marketing Program", "Strategic Relationship" and "Other Internet Services"
above are forward looking in nature. Such statements are subject to
certain risks and uncertainties, 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
General. The Company, including its subsidiaries, owns all of the
equipment necessary to conduct its ISP operations, including, without
limitation, servers, routers and modems. In addition, the Company owns
office equipment necessary to conduct its business.
The Company leases approximately 650 square feet for its executive offices
in Baton Rouge, Louisiana, for a monthly rental of $776. CyberHighway
leases three separate facilities in the Boise, Idaho, area. One facility
serves as corporate headquarters, a second houses the entire Network
Operations Center and a third is a retail space located in a strip center,
where customers and potential customers receive personal service. The
monthly rental payments for such facilities total approximately $5,800.
Wireless Cable Properties. 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 has, for the foreseeable future,
abandoned its efforts to develop its wireless cable properties into
operating wireless cable systems, due to current market conditions.
Rather, the Company intends to develop such properties into operating
Wireless Internet systems, at such time as two-way data transmission on
such frequencies is permitted.
Item 3. Legal Proceedings
The Company is not currently engaged in any material legal proceeding,
nor, to the Company's knowledge, is any suit or other legal action pending
or threatened. Since the filing of its last periodic report, the Company
determined not to pursue potential causes of action against an individual
arising out of a consulting agreement.
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, 1998.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Market Information
The Company's Common Stock trades on the OTC Electronic Bulletin Board
("OTCBB") under the symbol "USRF". On April 12, 1999, the last reported
bid and asked prices for the Company's Common Stock, as reported by the
OTCBB, were $4.46875 and $4.53125 per share, respectively. During the past
twelve months, the price for the Company's Common Stock has ranged from
$.25 to $13.50 per share. Since Decmeber 31, 1998, the price has mostly
fluctuated between $4.00 and $8.00, with an average daily trading volume of
approximately 80,000 shares. The prices for the Company's Common Stock
described represent quotations between dealers without adjustment for
retail mark-ups, retail mark-downs or commissions, and may not necessarily
represent actual transactions.
Holders
The approximate number of record holders of the Company's Common Stock as
of April 12, 1999, was 1,077, holding 10,890,120 shares.
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.
Nevertheless, the Company, during 1998, acquired shares of common stock of
three private companies, as follows: (1) the Company agreed to acquire
1,500,000 shares of New Wave Media Corp., in exchange for all of the
Company's community-television-related assets; (2) the Company acquired
400,000 shares of Argo Petroleum Corporation, in exchange for 10,000 shares
of Company Common Stock; and (3) the Company acquired 800,000 shares of
Woodcomm, Inc., in exchange for 7,500 shares of Company Common Stock. The
Board of Directors of the Company has declared dividends as to all of the
shares of each of such companies, with record dates of December 1, 1998,
January 15, 1999, and January 31, 1999, respectively. There is no
assurance that shareholders will benefit from the payment of such
dividends. None of the three dividend distributions will occur unless and
until a registration statement relating to each distribution termination
has been declared effective by the SEC.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Background
In July 1998, the Company changed its name to "Internet Media
Corporation". The Company was incorporated on November 1, 1996, under the
name "Media Entertainment, Inc.", to act as a holding company in the
wireless cable and community (low power) television industries. Due to
current market conditions in the wireless cable industry, the Company has
abandoned its efforts to develop its wireless cable properties. In
furtherance of its plan to focus on the exploitation of its Wireless
Internet access products and expansion of its other Internet services, the
Company has agreed to assign all of its community (low power) television
properties to New Wave Media Corp., in exchange for 1,500,000 shares of
such entity's common stock. The Company's Board of Directors has declared
a dividend with respect to all 1,500,000 New Wave Media Corp. shares. (See
"Dividends" under Item 5).
In September 1998, the Company, through its subsidiary, Santa Fe Wireless
Internet, Inc., acquired the assets and going business of Desert Rain
Internet Services ("DSRT"), a Santa Fe, New Mexico-based Internet Service
Provider (ISP), for $25,000 in cash. DSRF has approximately 140
subscribers. The Company has continued to operate DSRT under the "Desert
Rain Internet Services" trade name, but intends, in the near future, to
convert DSRT into an affiliate of CyberHighway, Inc. ("CyberHighway"), the
Company's other ISP subsidiary. Currently, the Company is negotiating for
the acquisition of another ISP based in Santa Fe. The Company has reached
an oral understanding with the owner of such ISP, but, as of the date
hereof, no definitive acquisition agreement has been executed. The Company
anticipates that a final agreement will be executed by the end of April
1999, though there is no assurance that such will be the case.
In January 1999, the Company acquired all of the outstanding capital stock
of CyberHighway, a Boise, Idaho-based ISP with approximately 27,000
subscribers, in exchange for 2,000,000 shares of Company Common Stock.
The Company's acquisition of CyberHighway in January 1999 fundamentally
altered the Company's outlook. Prior to this acquisition, the Company's
growth plan called for either (1) the acquisition of small, local ISPs
located in certain key cities, then essentially "plugging-in" the Company's
Wireless Internet access system into the acquired ISP's network system and
marketing the Wireless Internet access system or (2) the establishment of
strategic relationships with local ISPs in certain key cities through which
the Company's Wireless Internet access could be established and marketed.
This growth strategy, while proving effective, proved also to be slow and
relatively expensive.
With the acquisition of CyberHighway, not only did the Company acquire
approximately 27,000 dial-up Internet access subscribers and a
state-of-the-art Network Operations Center, the Company also gained
immediate access to over 230 markets in which CyberHighway has established
a company-owned or affiliate-ISP-operated point of presence. The Company
expects to have established a Wireless Internet access system in nearly 50
of these CyberHighway markets by the end of the third quarter of 1999.
Because the Company, WEI and MCTV were combined in a reorganization of
entities under common control, the presentation contained in the financial
statements of the Company has been prepared in a manner similar to the
pooling-of-interests method. In this regard, reference is made to Notes 1
and 3 of the Company's financial statements appearing elsewhere herein.
The following discussion reflects such financial statement presentation.
Results of Operations
Year Ended December 31, 1998, versus Year Ended December 31, 1997.
General. During the year ended December 31, 1997 ("Fiscal 97"),
substantially all of the Company's revenues were generated by the Community
Television Segment. During the year ended December 31, 1998 ("Fiscal 98"),
substantially all of the Company's revenues were generated by the Company's
Internet Segment. As discussed above, during Fiscal 98, the Company
determined to cease, for the foreseeable future, activities in its Wireless
Cable Segment, in addition to agreeing to dispose of all
community-television-related assets.
For Fiscal 98, the Company suffered a net loss of $1,037,626 compared to a
net loss of $624,804 for Fiscal 97. The net loss for each such reporting
period is attributable in large measure to the issuance of shares of
Company common stock pursuant to various consulting agreements. During
Fiscal 98, a total of 1,655,759 shares were issued to consultants, which
shares have been valued for financial accounting purposes at $1,556,900, in
the aggregate. During Fiscal 98, $311,889 was expensed due to Fiscal 97
consulting agreements and $765,865 of the $1,556,900 Fiscal 98 consulting
agreements was expensed. During Fiscal 97, a total of 404,000 shares were
issued to consultants, which shares have been valued for financial
accounting purposes at $750,000, in the aggregate. During Fiscal 97,
$438,111 of such $750,000 was expensed. For the remainder of the year to
end December 31, 1999 ("Fiscal 99"), the Company expects to expense
approximately $92,000 each month, due to the Fiscal 98 consulting
agreements. Also, in March 1998, the Company issued a total of 80,000
shares of common stock to certain of its directors. These shares were
valued at $.80 per share; prior to these issuances, the last closing bid
price for the common stock was $.56 per share.
Internet Segment. The Company formed the Internet Segment during Fiscal
97. During Fiscal 97, the Internet Segment did not generate any revenues
and incurred a net loss of approximately $9,200 for the period. During
Fiscal 98, this segment began to generate material revenues, following the
acquisition of DSRT, in September 1998. For all of Fiscal 98, this segment
operated at a small loss.
CyberHighway Discussion. For all of Fiscal 99, the Company expects that
its Internet Segment will operate at a profit, because of the acquisition
of CyberHighway, in January 1999. For its fiscal years ended January 31,
1999, 1998 and 1997, CyberHighway had total revenues (audited) of
$2,449,156, $2,058,501 and $1,047,515, respectively. CyberHighway had
after tax profits (audited) of $77,995 for Fiscal 99 and $22,254 for Fiscal
98, while it incurred a net loss of $261,066 for Fiscal 97. Without
additional capital, the Company anticipates that CyberHighway will, for the
remainder of 1999, continue to operate at a profit and experience revenue
growth at approximately the same rate as it experienced from Fiscal 98 to
Fiscal 99. However, should the Company be successful in securing capital
with which to pursue its growth strategy on a full-scale basis, the Company
expects that CyberHighway will experience a dramatic increase in revenues
and profits for the period to end December 31,1999. The primary cause of
any such revenue growth will be the result of CyberHighway's aggressive
pursuit of affiliate-ISPs. No accurate prediction can be made as to the
levels of future growth of CyberHighway.
Pro Forma Company/CyberHighway Discussion. Assuming that the CyberHighway
acquisition had occurred on January 1, 1998, the Company would have had, on
a pro forma basis, total revenues of $2,454,596 (unaudited) and a net loss
of $6,124,330 (unaudited), which is primarily attributable to the
amortization of the acquired customer base. See the Notes to the Company's
financial statements included elsewhere herein.
Community Television Segment. For Fiscal 97, the Company's only revenues
were derived from the operations of its community television station in
Baton Rouge, Louisiana, call sign: K13VE, Channel 13, which station has
been engaged in broadcast operations since January 1996. For Fiscal 97,
the Community Television Segment had revenues of approximately $600 and a
net loss of approximately $2,700. During Fiscal 98, this segment had no
material revenues and suffered a nominal loss from operations. As
described above, the Company has agreed to assign all of its community
television properties to New Wave Media Corp.
Wireless Cable Segment. For Fiscal 97 and Fiscal 98, the Wireless Cable
Segment had no activity, other than to acquire certain assets. As
described above under "Item 1. Description of Business", the Company has
determined to cease, for the foreseeable future, its Wireless Cable
activities.
Liquidity and Capital Resources
December 31, 1998. From its inception (November 1996) through June 1998,
the Company required little capital with which to operate and had,
throughout such period of time, a significant working capital deficit. In
June 1998, the Company obtained the first funds of a total of $340,000 in a
private offering of its securities, which drastically improved the
Company's financial condition. At December 31, 1998, the Company's working
capital deficit was $240,806 compared to a working capital deficit of
$198,714 at December 31, 1997. Since inception, the Company's President,
David M. Loflin, has loaned to the Company a total of $176,415, which funds
were used primarily for operating expenses of the Company,$30,000 of which
has been repaid. Such loans bear interest at 8% per annum and are payable
on demand. The Company does not currently possess funds necessary to repay
any of the funds to Mr. Loflin. Mr. Loflin has advised the Company that he
does not intend to make further demand for repayment of such loans for the
foreseeable future. Nevertheless, should Mr. Loflin make such demand for
repayment, the Company could be unable to satisfy such demand, which would
have a materially adverse affect on the Company.
The Company suffered an extreme lack of liquidity, and attendant working
capital deficit, until June 1998, when it obtained the first funds of a
total of $340,000 received under a private offering of its equity
securities. With the infusion of funds, the Company was able to bring its
accounts current and to proceed with the acquisition of DSRT in Santa Fe,
New Mexico, which was acquired for $25,000 in cash. During Fiscal 98, the
Company was unable to accumulate working capital through operations;
rather, the funds obtained in the private offering provided working capital
to the Company for the last half of Fiscal 98.
Subsequent to December 31, 1998, in January 1999, the Company obtained
$270,000 in a private offering of its equity securities. This infusion of
funds allowed the Company again to bring its accounts current and to
purchase needed US.RF Wireless Internet equipment for use in the Company's
growth strategy. Nevertheless, the Company continues to seek capital with
which to implement, on a full-scale basis, its growth strategy. Without
access to additional capital, the Company's expected growth will be
significantly impeded.
In the very near future, the Company intends to call for redemption
170,000 of its currently outstanding warrants, which are exercisable at
$2.00 per share, a total of $340,000. The Company expects that
substantially all of these warrants will be issued. Also, the Company
expects that, prior to the end of the third quarter of 1999, warrants
representing a total of $1,038,334 will be exercised, although there is no
assurance that such will be the case.
Growth Strategy; Proposed Acquisitions. During the past year, as the
Company has refined its growth strategy, it has determined that, for a
purveyor of Internet access to achieve the greatest growth and economies of
scale, it is necessary to offer traditional dial-up Internet access and the
Company's US.RF Wireless Internet access products. Thus, to reach more
Internet users, the Company will continue to provide high quality dial-up
Internet access service, through CyberHighway, as it deploys its Wireless
Internet products in its markets. The Company's growth strategy is based
on its ability to offer high quality Internet access through traditional
means, telephone-line based dial-up service, and through its Wireless
Internet access products.
US.RF Wireless Internet/CyberHighway Strategy. In addition to
establishing Wireless Internet access in certain CyberHighway markets, the
Company is attempting to expand its Wireless Internet access system market
penetration by (1) licensing local, independent ISPs to utilize the
Company's US.RF Quick-Cell Wireless Internet System in their particular
markets, (2) locating local, independent ISPs willing to become a
CyberHighway affiliate-ISP or (3) locating local, independent ISPs who wish
to license the Company's US.RF Quick-Cell Wireless Internet System and
become a CyberHighway affiliate-ISP. Initial reaction to this growth
strategy from local, independent ISPs has been very positive. However,
there is no assurance that the Company will possess sufficient capital with
which to accomplish its objectives. Currently, the Company is in need of
capital, in order to implement completely its growth plan.
ISP Acquisitions; Hub and Spoke Concept. The Company's growth strategy
includes the acquisition of relatively small local, independent ISPs in a
certain key city (or cities, depending on the size of a state) in each
state. Each of these acquired ISPs would be converted into a CyberHighway
affiliate-ISP and would serve as a hub for the Company's operations in a
particular state. For example, in a state with a small population, the
Company would acquire a single ISP to serve as the hub in that particular
state, whereas, in a heavily populated state with several urban centers,
the Company would likely acquire an ISP in each urban center. An acquired
ISP would serve as a hub to same-state CyberHighway affiliate-ISPs, who
would, through telephone-line connections, be spokes in the CyberHighway
network system of affiliate-ISPs. The Company believes that this hub and
spoke concept is one which will afford the Company the greatest opportunity
to achieve needed economies of scale in each of its markets.
To facilitate anticipated ISP acquisitions, as well as other potential
Internet-related acquisitions, the Company intends to file with the ("SEC")
a shelf registration statement, wherein the Company would register up to
2,000,000 shares of its Common Stock for use in acquisitions. There is no
assurance that this shelf registration statement will ever be declared
effective or that the Company will be able to negotiate successfully any
business acquisition.
Currently, the Company is negotiating for the acquisition of another
dial-up ISP based in Santa Fe, New Mexico. The Company has reached an oral
understanding with the owner of an such ISP, but, as of the date hereof, no
definitive acquisition agreement has been executed. The Company
anticipates that a final agreement will be executed by the end of April
1999, though there is no assurance that such will be the case. This
acquisition, if consummated, is to be made solely for shares of the
Company's Common Stock.
Wireless Internet Joint Venture of Monroe, Louisiana. During the second
quarter of 1998, the Company entered into a joint venture agreement to
implement the Company's US.RF Wireless Internet access system in Monroe,
Louisiana. Because of internal problems with the Company's joint venture
partner, no joint venture operations have commenced. It is the Company's
expectation that, later in 1999, it will take over the joint venture
operations and begin Wireless Internet service in Monroe. However, no
prediction in this regard can be made.
Community Television Stations. In furtherance of its plan to focus on the
exploitation of its Wireless Internet access products and expansion of its
other Internet services, the Company has agreed to assign all of its
community (low power) television properties to New Wave Media Corp., in
exchange for 1,500,000 shares of such entity's common stock. The Company's
Board of Directors has declared a dividend with respect to all 1,500,000
New Wave Media Corp. shares. (See "Dividends" under Item 5).
CyberHighway Discussion. During the last fiscal year of CyberHighway, it
operated from a position of liquidity. CyberHighway's current liquidity is
a result of profitable operations for the past 18 months, which status can
be expected to continue for the foreseeable future. At January 31, 1999,
CyberHighway had working capital of $25,992, a figure that periodically
moves upward, depending on the timing of receipt of accounts receivable.
CyberHighway had a working capital deficit of $72,553 at January 31, 1998.
Pro Forma Company/CyberHighway Discussion. Assuming that the CyberHighway
acquisition had occurred on January 1, 1998, the Company would have had, on
a pro forma basis, a working capital deficit of $217,680 (unaudited), total
assets of $21,816,500 (unaudited), total liabilities of $5,792,653
(unaudited) and shareholders' equity of $16,023,847 (unaudited). See the
Notes to the Company's financial statements included elsewhere herein.
Cash Flows from Operating Activities. During Fiscal 98, the Company's
operations used $305,999 in cash compared to cash used of $112,120 during
Fiscal 97. The use of cash in operations is a result of the lack of
revenues compared to the operating expenses of the Company, and the
increased use of cash during Fiscal 98 reflects the Company's increased
activities compared to the prior period. However, because of the
acquisition of CyberHighway, the Company's management expects that
operations for all of Fiscal 99 will generate positive cash flow.
Nevertheless, management is unable to predict the level of cash flow to be
generated during such period of time, due to the uncertainty of the level
and timing of funding, if any, with which to pursue, on a full-scale basis,
the Company's growth strategy.
Cash Flows from Investing Activities. During Fiscal 98, investing
activities of the Company used cash of $49,702 compared to $19,964 in
Fiscal 97. During Fiscal 97, cash used by investing activities was for the
acquisition of licenses and equipment , while cash used in investing
activities during Fiscal 98 was for the acquisition of equipment and the
customer base of DSRT. Management does not anticipate that investing
activities will provide any cash for Fiscal 99, taken as a whole.
Cash Flows from Financing Activities. For Fiscal 98, financing activities
provided $362,933 in cash, $30,133 of which is attributable to loans from
the Company's President and $332,800 of which is attributable to the
private sale of equity securities of the Company. During Fiscal 97,
financing activities provided $117,582, $66,282 through loans from the
Company's President and $50,000 from the private sale of shares of Company
Common Stock. The Company expects that financing activities (sales of
equity securities) will provide substantially all of the Company's cash
during Fiscal 99. However, no prediction as to the level of cash to be
provided by financing activities can be made.
Subsequent to December 31, 1998, in January 1999, the Company's financing
activities provided $270,000 in cash, which is attributable to the private
sale of equity securities of the Company.
Non-Cash Investing and Financing Activities. During Fiscal 98, non-cash
investing and financing activities included the issuance of 1,655,759
shares of Company Common Stock issued in consideration of consulting and
legal services to be performed, valued at $1,556,900. During Fiscal 97,
non-cash investing and financing activities included the issuance of
404,000 shares of common stock issued in consideration of consulting and
legal services to be performed, valued at $750,000. No prediction can be
made with respect to the Company's future non-cash investing and financing
activities.
CyberHighway Discussion. For fiscal years ended January 31, 1999 and
1998, CyberHighway's operating activities provided $266,246 and $89,993 in
cash, respectively. In Fiscal 98, net income ($77,995), depreciation and
amortization ($138,674) and a change in accounts payable ($81,829)
comprised most of the cash provided by the operating activities of
CyberHighway. In Fiscal 97, net income ($22,254) and depreciation and
amortization ($115,784) comprised most of the cash provided by the
operating activities of CyberHighway.
For fiscal years ended January 31, 1999 and 1998, CyberHighway's investing
activities used $198,072 and $125,069 in cash, respectively. During both
periods, cash was used for capital expenditures.
For fiscal years ended January 31, 1999 and 1998, CyberHighway's financing
activities provided $52,366 and $18,604 in cash, respectively. For Fiscal
98, proceeds from stock subscriptions receivable comprised all of the cash
provided by the financing activities of CyberHighway. For Fiscal 97,
proceeds from sales of common stock comprised all of the cash provided by
the financing activities of CyberHighway.
Management's Plans Relating to Future Liquidity
With the acquisition of CyberHighway and the receipt of $270,000 under its
January 1999 private offering, the Company has become substantially liquid
and current operations will be sufficient to maintain the Company's
liquidity. In addition, in the very near future, the Company intends to
call for redemption 170,000 of its currently outstanding warrants, which
are exercisable at $2.00 per share, a total of $340,000. The Company
expects that substantially all of these warrants will be issued. Also, the
Company expects that, prior to the end of the third quarter of 1999,
warrants representing a total of $1,038,334 will be exercised, although
there is no assurance that such will be the case. However, the Company's
current operations, including the operations of its subsidiaries, will not
be insufficient, on their own, to provide expansion capital with which the
Company would be able to pursue its growth strategy on a full-scale basis.
There is no assurance that the Company will ever secure capital necessary
for its planned expansion.
Capital Expenditures
During the remainder of Fiscal 99, the Company expects to apply
substantially all of its available capital to (1) the purchase of US.RF
Wireless Internet equipment and/or (2) the acquisition of one or more
existing local, independent ISPs, to convert to a CyberHighway
affiliate-ISP into which the Company can essentially "plug-in" its US.RF
Wireless Internet access system. The Company currently is seeking between
two and three million dollars with which to implement, on a full-scale
basis, its growth strategy. Although the Company expects that it will be
able to secure sufficient expansion capital, there is no assurance that
such will be the case.
Item 7. Financial Statements
The financial statements required to be furnished under this Item 7 are
attached at the end of this Annual Report on Form 10-KSB. An index to the
Company's financial statements is also included below in Item 13(a).
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, 1998.
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) 41 President and Director
Waddell D. Loflin (1) 49 Vice President, Secretary and
Director
Julius W. Basham, II 51 Chief Operating Officer and
Director
Alonzo B. See, III 50 Chief Financial Officer
James Kaufman 35 Vice President of Corporate
Development
Richard N. Gill 41 Director
Ross S. Bravata 40 Director
Michael Cohn 41 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.
Julius W. Basham, II, Chief Operating Officer and Director of the Company,
has, since January 1996, served as President and a director of
CyberHighway, Inc., the Company's wholly-owned subsidiary. From 1981
through December 1995, Mr. Basham was President and owner of ProData, Inc.,
a data processing contracting and consulting company.
Alonzo B. See, III, received a B.A. degree in Fine Arts from Knox College,
Galesburg, Illinois,and an MBA from Northeastern University, Boston,
Massachusetts. Since 1984, Mr. See has served as President of Steere
Investment, Inc., a Dallas, Texas-based investment management firm. From
July to October 1998, Mr. See was Chief Financial Officer of Steere Tank
Lines, Inc., a Dallas, Texas-based transporter of bulk liquids. Mr. See
also holds Series 2 and 63 securities licenses.
James Kaufman, Vice President of Corporate Development, received a B.S.
degree in Jounalism from the University of Colorado, Boulder, Colorado.
>From 1994 to 1995, Mr. Kaufman was a registered representative with D.E.
Fry, a Denver, Colorado-based broker-dealer. From 1995 to 1996, Mr.
Kaufman was a registered representative with A.G. Edwards, a St. Louis,
Missouri-based broker-dealer. From 1997 to February 1999, Mr. Kaufman
served as Director of Corporate Development for B. Edward Haun & Company, a
Denver, Colorado-based investment banking and research firm.
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 currently serves as a
member of the Industry Telecommunication Advisory Committee for the
Electrical Engineering Department at the University of Southwestern
Louisiana, Lafayette, Louisiana. 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 over 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.
Other Key Employees
The names, positions and backgrounds of certain key employees of the
Company's subsidiary, CyberHighway, Inc., are set forth below.
David W. Brown, Secretary, Director and Network Manager of CyberHighway,
Inc., was a founder of CyberHighway, Inc., and has served CyberHighway,
Inc. in his various capacities, since April 1995. From 1993 to 1995, Mr.
Brown was owner of Horse Publishing, a Boise, Idaho-based publishing company.
Wm. Kim Stimpson, Vice President, Director and Affiliate Sales Manager of
CyberHighway, Inc., was a founder of CyberHighway, Inc. and has served
CyberHighway, Inc., in his various capacities, since April 1995. From 1990
through 1995, Mr. Stimpson was President of Columbia Realty Co., a Boise,
Idaho-based real estate brokerage firm.
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 five times since its creation.
Executive Compensation
None of the Company's officers received any cash or other compensation
during 1998. The Company's President, David M. Loflin, and Vice President,
Waddell D. Loflin, have served since the Company's inception without
compensation. In the near future, Messrs. Loflin are expected to enter
into employment agreements with the Company and will, at that time, begin
to receive compensation for their services to the Company. The Company's
Chief Operating Officer, Julius W. Basham, II, the Company's Chief
Financial Officer and President of CyberHighway, Alonzo B. See, III, and
the Company's Vice President of Corporate Development, James Kaufman, have
entered into employment agreements with the Company. Messrs. See and
Kaufman may receive a part of their compensation in shares of Common Stock
of the Company, in the Company's discretion.
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 Annual Report on Form
10-KSB.
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
Other Awards All
Annual Of Other
Name and Compen- Stock Compen-
Principal Salary Bonus sation Options sation
Position Year $ $ $ # $
David M. 1998 $55,000 $-0- $-0- 0 $-0-
Loflin, 1997 $-0- $-0- $-0- 0 $-0-
President
[Chief
Principal
Officer]
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
Until 1998, the Company's President, David M. Loflin, and Vice President,
Waddell D. Loflin, have served since the Company's inception without
compensation. During 1998, these officers received salaries of $55,000 and
$48,000, respectively. In the near future, Messrs. Loflin are expected to
enter into employment agreements with the Company and will, at that time,
begin to receive compensation for their services to the Company. The
Company's Chief Operating Officer, Julius W. Basham, II, the Company's
Chief Financial Officer, Alonzo B. See, III, and the Company's Vice
President of Corporate Development, James Kaufman, have entered into
employment agreements with the Company. Messrs. See and Kaufman may
receive as part of their compensation in shares of Common Stock of the
Company, in the Company's discretion.
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, 1998. 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 April 12, 1999,
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 April 12,
1999, there were 10,890,120 shares of Common Stock issued and outstanding.
Name and Address Shares Owned Percent
of Beneficial Owner Beneficially Owned(1)
David M. Loflin(2) 3,820,903 35.08%
8748 Quarters Lake Road
Baton Rouge, Louisiana 70809
Waddell D. Loflin(2) 220,000 2.02%
8748 Quarters Lake Road
Baton Rouge, Louisiana 70809
Julius W. Basham, II(2) 1,394,000 12.80%
3350 Americana Terrace
Suite 350
Boise, Idaho 83706
Alonzo B. See, III 7,500 *
6507 Bob-O-Link Drive
Dallas, Texas 75214
James Kaufman 452,500 4.15%
665 W. Velarde Drive
Thousand Oaks, California 91360
Richard N. Gill 20,000 *
8748 Quarters Lake Road
Baton Rouge, Louisiana 70809
Ross S. Bravata 32,000 *
8748 Quarters Lake Road
Baton Rouge, Louisiana 70809
Michael Cohn 82,000 *
8748 Quarters Lake Road
Baton Rouge, Louisiana 70809
All officers and directors
as a group (8 persons) 6,028,403 55.35%
_______________
* Less than 1%.
(1) Based on 10,890,120 shares outstanding.
(2) All of the shares owned by this shareholder are subject to a Voting
Agreement between David W. Loflin, Waddell D. Loflin, Julius W. Basham,
David W. Brown and Wm. Kim Stimpson, whereby all of such persons are
required to vote all shares owned by them for David M. Loflin, Waddell D.
Loflin and Julius W. Basham in all elections of directors of the Company,
for a period of five years from January 29, 1999. (See Item 12).
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
Since its formation, the Company has obtained loans and advances on open
account from David M. Loflin in a total amount of $176,415. These loans
and advances bear interest at eight percent per annum and are payable on
demand. To date, $30,000 of such indebtedness have been repaid to Mr.
Loflin. Mr. Loflin has advised the Company that he does not intend to
demand further payment of any such loans and advances 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.
Securities Purchases
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.
In January 1999, Mr. Cohn purchased 30,000 units of Company securities in
a private offering, at a purchase of $4.50 per unit, or $135,000 in the
aggregate. Each unit purchased by Mr. Cohn consisted of one share of
Company Common Stock and one Common Stock Purchase Warrant to purchase one
share of Company Common Stock at an exercise price of $7.00 per share. Mr.
Cohn purchased units on the same terms and conditions as were offered to
unaffiliated investors.
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.
Employment Agreements
In January 1999, the Company entered into an employment agreement with
Julius W. Basham, II, the Company's Chief Operating Officer and President
of CyberHighway. The employment agreement with Mr. Basham was entered into
in connection with the acquisition of CyberHighway and is for a term of
seven years. Mr. Basham receives $81,600 per year, under the terms of his
employment agreement.
In February 1999, the Company entered into an employment agreement with
Alonzo B. See, III, the Company's Chief Financial Officer. The employment
agreement with Mr. See is for a term of one year. Under the terms of his
employment agreement, Mr. See receives $80,000 per year, up to 80% of
which is payable in shares of Company Common Stock, at the Company's
discretion, based on the market price for the Company's Common Stock.
Also, Mr. See received 7,500 restricted shares of Common Stock, as a bonus,
upon execution of his employment agreement.
In March 1999, the Company entered into an employment agreement with James
Kaufman, the Company's Vice President of Corporate Development. The
employment agreement with Mr. Kaufman is for a term of one year. Under the
terms of his employment agreement, Mr. Kaufman receives $120,000 per year,
up to 80% of which is payable in shares of Company Common Stock, at the
Company's discretion, based on the market price for the Company's Common
Stock.
Voting Agreement
On January 29, 1999, David W. Loflin, Waddell D. Loflin, Julius W. Basham,
David W. Brown and Wm. Kim Stimpson entered into a Voting Agreement,
whereby all of such persons are required to vote all shares owned by them
for David M. Loflin, Waddell D. Loflin and Julius W. Basham in all
elections of directors of the Company, for a period of five years.
Currently, 6,040,903 shares are subject to this voting agreement.
H + N Partners
During 1998, the Company issued a total of 187,000 shares of its Common
Stock to H + N Partners, a fictitious name division of B. Edward Haun &
Company, a Denver, Colorado-based investment banking and research firm in
which James Kaufman, Vice President of Corporate Development of the Company,
was a partner. Mr. Kaufman received a portion of the shares issued to H +
N Partners. 37,000 of such shares were valued at $2.00 per share and
150,000 of such shares were valued at $2.50 per share. All of such shares
were the subject of effective registration statements filed with the SEC.
Mr. Kaufman was not an officer of the Company at the time of the stock
issuances to H + N Partners.
Also during 1998, in connection with a private offering of Company
securities, the Company issued to H + N Partners 56,667 warrants to
purchase a like number of shares of Company Common Stock at an exercise
price of $1.25 per share and 56,667 warrants to purchase a like number of
shares of Company Common Stock at an exercise price of $1.50 per share.
The shares underlying these warrants possess demand rights of registration.
Mr. Kaufman was not an officer of the Company at the time of the warrant
issuances to H + N Partners.
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 360,000 shares were sold to a
public company for distribution as a dividend. 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:
Shares of Historical
Appraised Value Common Cost
Transaction of Assets Acquired Stock Issued of 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.
Item 13. Exhibits and Reports on Form 8-K
(a)(1) Financial Statements
Index to Financial Statements of the Company
Independent Auditor's Report
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996,
and the Period from Inception (December 25, 1995) to
December 31, 1998
Consolidated Statements of Changes in Stockholders' Equity
for the Period from Inception (December 28, 1995) to
December 31, 1995, and Years Ended December 31, 1998, 1997
and 1996
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
(a)(2) Exhibits
Exhibit No. Description
10.1 Employment Agreement, dated February 1, 1999,
between the Company and Alonzo B. See, III.
10.2 Employment Agreement, dated March 19, 1999,
between the Company and James Kaufman.
11 Statement Regarding Computation of Per Share
Earnings.
22 Subsidiaries of the Company.
(b) Reports on Form 8-K
During the quarter ended December 31, 1998, the Company did not file a
Current Report on Form 8-K. Since December 31, 1998, the Company has filed
a Current Report on Form 8-K, date of event reported: January 29, 1999, as
amended April 14, 1999, wherein the Company reported the acquisition of
CyberHighway, Inc. Such Current Report on Form 8-K, as amended, is
incorporated herein by this reference.
<PAGE>
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.
INTERNET MEDIA CORPORATION
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: April 15, 1999
David M. Loflin
President (Principal
Executive Officer)
and Director
/s/ Waddell D. Loflin Date: April 15, 1999
Waddell D. Loflin
Vice President, Secretary
and Director
/s/ Julius W. Basham, II Date: April 15, 1999
Julius W. Basham, II,
Chief Operating Officer
and Director
/s/ Alonzo B. See, III Date: April 15, 1999
Alonzo B. See, III
Chief Financial Officer
(Principal Financial
Officer)
- --------------------- Date: April , 1999
James Kaufman
Vice President of
Corporate Development
/s/ Ross S. Bravata Date: April 15, 1999
Ross S. Bravata
Director
- --------------------- Date: April , 1999
Richard N. Gill
Director
- --------------------- Date: April , 1999
Michael Cohn
Director
Supplemental Information to be Furnished With Reports Filed Pursuant to
15(d) of the Exchange Act by Non-reporting Issuers.
As of the date of this Annual Report on Form 10-KSB, no annual report or
proxy material has been sent to security holders of the Company. It is
anticipated that an annual report and proxy material will be furnished to
security holders subsequent to the filing of this Annual Report on Form
10-KSB.
<PAGE>
Index to Financial Statements of the Company
Independent Auditor's Report
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Operations for the Years Ended December
31, 1998, 1997 and 1996, and the Period from Inception
(December 25, 1995) to December 31, 1998
Consolidated Statements of Changes in Stockholders' Equity for the
Period from Inception (December 28, 1995) to December 31,
1998, and Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended December
31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
INDEPENDENT AUDITOR'S REPORT
To the Board of Director's and Stockholders
Internet Media Corporation
We have audited the accompanying consolidated balance sheets of Internet
Media Corporation and subsidiaries, (a development stage company) as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the years
ended December 31, 1998, 1997 and 1996, and the period from inception
(December 28, 1995) to December 31, 1998. These consolidated financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Internet Media Corporation and subsidiaries as of December 31,
1998 and 1997, and the consolidated results of their operations and their
cash flows for the years ended December 31, 1998, 1997 and 1996, and the
period from inception (December 28, 1995) to December 31, 1998, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed
in Note 1 to the financial statements, the Company is in the development
stage and has insignificant operating revenue. In addition, the Company
has limited capital resources and a loss from operations since inception,
all of which raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also
discussed in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
WEAVER AND TIDWELL, L.L.P.
Fort Worth, Texas
April 9, 1999
<PAGE>
INTERNET MEDIA CORPORATION
AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 and 1997
1998 1997
ASSETS
CURRENT ASSETS
Cash $ 7,232 $ -
Accounts receivable 1,033 224
Total current assets 8,265 224
PROPERTY AND EQUIPMENT, net
of accumulated depreciation
of $1,412 and $706,
respectively 247,267 210,472
INVESTMENTS 43,750 -
INTANGIBLES
Organization costs, net of
accumulated amortization
of $435 and $134,
respectively - 435
Licenses and rights to leases
of licenses, net of
accumulated amortization of
$4,475 and $2,625,
respectively 34,207 25,125
34,207 25,560
OTHER ASSETS 170 -
TOTAL ASSETS $ 333,659 $ 236,256
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Checks issued in excess
of deposits $ - $ 116
Notes payable to majority
stockholder 146,415 116,282
Accounts payable and
accrued expenses 19,652 65,636
Accounts payable -
affiliate 10,069 10,069
Property dividends
payable 57,519 -
Accrued expenses -
majority stockholder 15,416 6,835
Total current liabilities 249,071 198,938
STOCKHOLDERS' EQUITY
Common stock,
$.0001 par value,
100,000,000 shares authorized,
8,497,259 and 6,424,000
shares issued and outstanding
1998 and 1997, respectively 850 642
Additional paid-in capital 2,874,189 998,466
Deficit accumulated during
the development stage ( 1,686,667) ( 649,041)
Subscriptions receivable ( 860) ( 860)
Deferred consulting ( 1,102,924) ( 311,889)
84,588 37,318
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 333,659 $ 236,256
<PAGE>
INTERNET MEDIA CORPORATION
AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
Cumulative
Since Inception
(December 28,
1995) to
Years Ended December 31, December 31,
1998 1997 1996 1998
Revenue $ 5,440 $ 596 $ 3,337 $ 9,373
Expenses:
Depreci-
ation
and
amorti-
zation 4,394 2,721 1,450 8,565
Profes-
sional
fees 813,517 530,669 15,238 1,359,424
Rent 15,823 11,877 1,820 29,520
Salary 154,924 44,733 4,691 204,348
Other 45,806 29,385 3,555 78,746
Total
oper-
ating
expen-
ses 1,034,464 619,385 26,754 1,680,603
Operating
loss (1,029,024) (618,789) (23,417) (1,671,230)
Other
income
(expense)
Interest
expense ( 8,602) ( 6,015) ( 820) ( 15,437)
Net
loss ($1,037,626) ($624,804) ($ 24,237) ($1,686,667)
Net
loss
per
share ($0.14) ($0.10) ($0.04) ($0.36)
Weighted
average
number
of
shares
out-
standing 7,361,275 6,193,678 631,622 4,715,763
<PAGE>
INTERNET MEDIA CORPORATION
AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
AND PERIOD FROM INCEPTION (December 28, 1995)
TO DECEMBER 31, 1998
Deficit
Accumu-
lated
During
Addi- the De-
tional velop- Subscrip-
Common Stock Paid-in ment tions Deferred
Shares Amount Capital Stage Receivable Consulting
BALANCE,
DECEM-
BER 28,
1995 - $ - $ - $ - $ - $ -
Issu-
ance
of
common
stock
for
future
ser-
vices 227,336 23 17,314 - - -
Net
loss - - - - - -
BALANCE,
DECEM-
BER 31,
1995 227,336 23 17,314 - - -
Issu-
ance
of
common
stock
for
assets 1,929,903 193 179,418 - - -
Issu-
ance
of
common
stock
for
sub-
scrip-
tion
re-
ceiv-
able 2,160,000 216 1,944 - (2,160) -
Issu-
ance
of
common
stock
for
assign-
ment
of
licen-
ses
and
leases 1,682,761 168 (168) - - -
Net
loss - - - (24,237) - -
BALANCE,
DECEM-
BER 31,
1996 6,000,000 600 198,508 (24,237) (2,160) -
Issu-
ance
of
common
stock
for
future
ser-
vices 404,000 40 749,960 - - (750,000)
Pay-
ment
on
sub-
scrip-
tion
re-
ceiv-
able - - - - 1,300 -
Issu-
ance
of
common
stock
for
cash 20,000 2 49,998 - - -
Recog-
nition
of
ser-
vices
per-
formed
for
stock - - - - - 438,111
Net
loss - - - (624,804) - -
BALANCE,
DECEM-
BER 31,
1997 6,424,000 642 998,466 (649,041) (860) (311,889)
Issu-
ance
of
common
stock
for
future
ser-
vices 1,655,759 166 1,556,734 - - (1,556,900)
Issu-
ance
of
common
stock
for
cash 400,000 40 332,760 - - -
Issu-
ance
of
common
stock
for
invest-
ments 17,500 2 43,748 - - -
Decl-
ared
divi-
dends - - (57,519) - - -
Recog-
nition
of
ser-
vices
per-
formed
for
stock - - - - - 765,865
Net
loss - - - (1,037,626) - -
BALANCE,
DECEM-
BER 31,
1998 8,497,259 850 2,874,189 (1,686,667) ($860) ($1,102,924)
INTERNET MEDIA CORPORATION
AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cumulative
Since
Inception
(December
28,1995) to
Years Ended December 31, December 31,
1998 1997 1996 1998
CASH FLOWS
FROM OPERATING
ACTIVITIES
Net loss ($1,037,626) ($ 624,804) ($ 24,237) ($1,686,667)
Adjustments
to recon-
cile net
loss to
net cash
used in
operating
activities
Depreciation 1,658 706 706 3,070
Amortization 2,736 2,014 745 5,495
Recognition
of services
performed
for stock 765,865 438,111 - 1,203,976
Changes in
assets and
liabilities,
net of
effects
from
purchase of
Santa Fe
Accounts
receivable (809) 86 (310) (1,033)
Other assets (300) - - (300)
Checks
issued in
excess of
deposits (116) 116 - -
Customer
deposits 1,787 - - 1,787
Accounts
payable
and
accruals (39,194) 71,651 10,889 43,346
Net cash
used in
operating
activities (305,999) (112,120) (12,207) (430,326)
CASH FLOWS
FROM INVESTING
ACTIVITIES
Purchase
of equipment (25,605) (14,964) (6,722) (47,291)
Purchase of
net assets
of Santa Fe,
net of cash
acquired (24,666) - - (24,666)
Payment of
organization
costs 569 - (569) -
Purchase of
licenses and
rights to
leases of
licenses ( -) (5,000) (16,000) (21,000)
Net cash
used in
investing
activities (49,702) (19,964) (23,291) (92,957)
CASH FLOWS
FROM FINANCING
ACTIVITIES
Increase in
note payable
to majority
stockholder $30,133 $66,282 $50,000 $146,415
Sale of
common stock 332,800 50,000 - 382,800
Payment of
subscriptions
receivable - 1,300 - 1,300
Net cash
provided
by finan-
cing
activities 362,933 117,582 50,000 530,515
Net increase
(decrease)
in cash 7,232 (14,502) 14,502 7,232
CASH,
BEGINNING
OF PERIOD - 14,502 - -
CASH,
END OF
PERIOD $ 7,232 $ - $14,502 $ 7,232
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Noncash investing and financing activities for the year ended December 31,
1998 and 1997 include 1,655,759 and 404,000 shares issued for consulting
and legal services to be performed valued at $1,556,900 and $750,000,
respectively. In addition, in December 1998, the Company authorized
issuance of 17,500 shares of common stock for investments in the common
stock of two privately held companies valued at $43,750. The Company then
declared a property dividend payable which will be paid by distribution of
the investments to the Company's shareholders. The property dividends
payable are recorded as a liability at December 31, 1998.
Also, in December 1998, the Company authorized the formation of a new
subsidiary to hold the Company's community television related assets with a
net book value of $13,769. The Company then declared a property dividend
payable, which will be paid by distribution of the company's investment in
the new subsidiary to the Company's shareholders. The property dividend
payable is recorded as a liability at December 31, 1998.
Noncash investing and financing activities for the year ended December 31,
1996 include $179,611 of equipment given as paid-in capital by majority
stockholders, subscriptions receivable of $2,160 for services rendered, and
$16,737 in exchange for common stock to majority stockholder.
INTERNET MEDIA CORPORATION
AND SUBSIDIARIES
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS, ORGANIZATION
AND BASIS OF PRESENTATION
Internet Media Corporation (IMC) was incorporated as Media Entertainment,
Inc. in the State of Nevada on November 1, 1996, to operate as a holding
company in the wireless cable television and community (low power)
television industries, as well as other segments of the communications
industry. In 1998 the Company changed it's focus to concentrate in the
wireless internet communications industry. The Company has ceased efforts
to develop the wireless cable and low power business areas and has
announced that assets from the low power activities will be distributed to
shareholders in 1999. Therefore, management has not provided separate
segment information in these financial statements.
Effective December 31, 1996, IMC acquired all of the outstanding common
stock of Winter Entertainment, Inc., a Delaware corporation incorporated on
December 28, 1995 (WEI), and Missouri Cable TV Corp., a Louisiana
corporation incorporated on October 9, 1996 (MCTV). WEI operates a
community television station in Baton Rouge, Louisiana; MCTV owns wireless
cable television channels in Poplar Bluff, Missouri, which system has been
constructed and is ready for operation, and Lebanon, Missouri. Effective
October 8, 1998, the Company formed Santa Fe Wireless Internet, Inc. (Santa
Fe), a New Mexico corporation, to hold the assets acquired from Desert Rain
Internet Services. Santa Fe was organized to provide wireless internet
access. The acquisition of WEI and MCTV by IMC was accounted for as a
reorganization of companies under common control. The assets and
liabilities acquired were recorded at historical cost in a manner similar
to a pooling of interests. The acquisition of Santa Fe was accounted for
as a purchase whereby the cost is allocated to the assets acquired.
Therefore, these financial statements include the operations of IMC and its
predecessors from inception of WEI on December 28, 1995. WEI had no
operations or cash flows for the period ended December 31, 1995.
The financial statements have been prepared on a going concern basis, which
contemplates realization of assets and liquidation of liabilities in the
ordinary course of business. Since the Company is in the development
stage, it has limited capital resources, insignificant revenue and a loss
from operations since its inception. The appropriateness of using the
going concern basis is dependent upon the Company's ability to obtain
additional financing or equity capital and, ultimately, to achieve
profitable operations. The uncertainty of these conditions raises
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Management plans to raise capital by obtaining financing and, eventually,
through public offerings. Management intends to use the proceeds from any
borrowings to acquire and develop markets to implement its Wireless
Internet Access System and sell its service. The Company believes that
these actions will enable the Company to carry out its business plan and
ultimately to achieve profitable operations.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include all the accounts
of IMC and its wholly owned subsidiaries, WEI, MCTV and Santa Fe. All
intercompany transactions and balances have been eliminated in the
consolidation. The consolidated group is referred to as the "Company".
Broadcast Equipment
Equipment is recorded at cost. Depreciation is calculated using a
straight-line method over the estimated useful lives of the assets, ranging
from 3 to 15 years.
Cash Equivalents
The Company considers all highly liquid investments with original
maturities of ninety days or less from the date of purchase to be cash
equivalents.
Revenue
Revenue is recognized in the period services are provided.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has issued Financial
Accounting Standards (SFAS) No. 130 Reporting Comprehensive Income. This
statement requires an enterprise to display total comprehensive income
(total nonowner changes in equity) in a full set of financial statements.
Currently the Company has no items to be reported as "other comprehensive
income".
In addition, FASB has issued SFAS No. 131 Disclosures about Segments of an
Enterprise and Related Information. This statement requires a "management
approach" as opposed to an industry approach in defining operations to be
shown as separate segments. Currently, the Company plans to operate in one
segment.
The Company has adopted SFAS No. 130 and No. 131 for its fiscal year
beginning January 1, 1998. There were no significant changes in financial
statement presentation as a result of implementing these new accounting
standards.
Loss Per Common Share
The basic loss per common share has been computed by dividing the net loss
by the weighted average number of shares of common stock outstanding
throughout the period. Calculation of diluted loss per common share - is
not presented because the effects of potential common stock issuable upon
exercise of stock options and contingently issuable shares would be
antidilutive.
Amortization
Licenses and rights to leases of licenses are being amortized on a
straight-line basis over the license and lease rights periods of 5 to 15
years.
Long-lived Assets
The Company follows the provisions of the Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 121
Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of. Long-lived assets and certain identifiable
intangibles to be held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The Company continuously
evaluates the recoverability of its long-lived assets based on estimated
future cash flows and the estimated liquidation value of such long-lived
assets, and provides for impairment if such undiscounted cash flows are
insufficient to recover the carrying amount of the long-lived assets.
Advertising
The Company expenses advertising costs as incurred. During the years ended
December 31, 1998, 1997 and 1996, the Company incurred $940, $0 and $0,
respectively, in advertising costs.
Investments
Investments include minority interests held in two non-public companies
recorded at cost, which approximates fair value.
NOTE 3. ACQUISITIONS
Effective December 31, 1996, the Company acquired WEI and MCTV by issuing
2,157,239 shares of common stock in exchange for all the common stock of
each company. The majority stockholder of the Company was also the sole
stockholder of WEI and the majority stockholder of MCTV. Therefore, the
acquisitions have been accounted for at historical cost in a manner similar
to a pooling of interests.
Effective October 8, 1998, the Company acquired Santa Fe by purchasing all
of its common stock for $25,000. The acquisition has been accounted for as
a purchase whereby the cost is allocated to the assets acquired.
Disclosure of what operations would have been as if the transaction had
occurred at the beginning of the period are not shown due to the
transaction being immaterial to the financial statements taken as a whole.
The consolidated statements of operations includes the Company and its
predecessors WEI and MCTV from inception of WEI. The operations of Santa
Fe are included from the acquisition date (October 8, 1998) to December 31,
1998.
NOTE 4. WIRELESS CABLE ASSETS
Property and equipment includes wireless cable station equipment, which is
operational but has not been put into use. The equipment is recorded at
cost of approximately $201,000 and is not being depreciated. In addition,
the Company owns licenses in the wireless cable markets, which operate on
the same frequencies and will be used in the wireless internet market.
Management's strategy is to pursue the wireless internet service market.
Management plans on using the existing wireless cable equipment to provide
interactive wireless internet service and to use its license agreements to
develop wireless internet markets. The Company's ability to provide
two-way interactive internet service on its current channel license
agreements depends on pending Federal Communication Commission (FCC)
approval of two-way communication on the related frequencies. Management
believes approval by the FCC is eminent; however, if such approval is not
obtained, future recoverability of the carrying value may become impaired.
NOTE 5. LICENSES AND RIGHTS TO LEASES OF LICENSES
The Company owns licenses or rights to leases of licenses in the following
wireless cable and community television markets:
Wireless Cable Market Expiration Date
Poplar Bluff, Missouri October 16, 2006
Lebanon, Missouri October 16, 2006
Port Angeles, Washington December 21, 2003
Astoria, Oregon December 21, 2003
Sand Point, Idaho August 09, 2006
The Dalles, Oregon August 09, 2006
Fallon, Nevada August 09, 2006
Community Television Market
Baton Rouge, Louisiana July 01, 2007
Monroe/Rayville, Louisiana July 01, 2007
Natchitoches, Louisiana July 01, 2007
Bainbridge, Georgia July 01, 2007
Application for renewal of licenses must be filed within a certain period
prior to expiration.
NOTE 6. NOTE PAYABLE MAJORITY STOCKHOLDER
1998 1997
Note payable to majority
stockholder, interest accrues at
8%, due on demand and unsecured $146,415 $116,282
NOTE 7. INCOME TAXES
Deferred income tax assets and liabilities are computed for differences
between financial statement and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted
tax laws and rates applicable to the period in which the differences are
expected to affect taxable income. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be
realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets
and liabilities. At December 31, 1998, 1997 and 1996, there was no current
or deferred tax expense.
Deferred tax asset and liability balances are as follows:
1998 1997
Deferred tax asset $573,467 $220,674
Deferred tax liability 0 0
-------- --------
Net deferred tax asset 573,467 220,674
Valuation allowance (573,467) (220,674)
$ 0 $ 0
The net change in the valuation allowance for the periods ended December
31, 1998 and 1997 were $352,793 and $212,433, respectively. The deferred
tax asset results from net operating loss carryovers.
The Company has a net operating loss carryover of approximately $1,686,000
available to offset future income for income tax reporting purposes, which
will ultimately expire between 2011 and 2018 if not previously utilized.
NOTE 8. INVESTMENT IN JOINT VENTURE
During the year ended December 31, 1997, the Company entered into an
agreement with Web One, Inc. forming Web One Wireless I.S.P. - Baton Rouge,
J.V. (the "Joint Venture"). The Joint Venture was created to operate as a
Wireless Internet Service Provider in Baton Rouge, Louisiana. The
agreement gave the Company the option to buy all the outstanding capital
stock of Web One, Inc. at any time on or before August 1, 1998. The option
price was to be based on an appraisal of Web One, Inc. During the year
ended December 31, 1998, the Joint Venture was abandoned, and as a result
the initial investment of $2,500 has been impaired and provided for in the
financial statements.
NOTE 9. STOCK OPTIONS
The Company entered into a stock options agreement effective October 14,
1997. Pursuant to the agreement, the Company issued 300,000 options to
purchase common stock in consideration for consulting services to be
performed for one year from the date of the agreement. Options may be
exercised from the date of the agreement through the expiration dates as
follows: 100,000 shares may be purchased at a price of $3.00 per share and
expire on January 31, 1998, 100,000 shares may be purchased at a price of
$4.00 per share and expire on June 30, 1998 and 100,000 shares may be
purchased at a price of $5.00 per share and expire on September 30, 1998.
Based on the market value of the underlying stock at the date the options
were granted, management has determined that the stock options have no fair
value. Therefore, no compensation expense has been recognized for options
granted for the year ended December 31, 1997. All options expired
unexercised during the year ended December 31, 1998.
NOTE 10. RELATED PARTY
The Company has issued stock pursuant to various consulting agreements.
Deferred consulting costs, which are valued on the stock price on the date
of the agreements, are recorded as a reduction of shareholder's equity and
will be amortized over the life of the agreements.
In March 1998, four directors of the Company were issued 20,000 shares each
of Company common stock as a bonus for their services as directors.
Compensation expense of approximately $45,000 was recorded based on the
fair value of the common stock on the date of issue.
NOTE 11. COMMON STOCK TRANSACTIONS
On April 24, 1998, the Company completed a private placement consisting of
300,000 units. Each unit consists of two shares of common stock and a
warrant to purchase one share of common stock. The per unit price was
$2.00 and was allocated $1.00 to each share of common stock and no value to
the warrant to purchase a share of common stock.
The warrants entitle the holder to purchase one share of common stock for
$2.00 and expire on May 18, 2000. The net proceeds to the Company from the
sale of 160,000 units amounted to $288,000 after deducting offering costs
of $32,000. The 160,000 warrants related to the units sold are still
outstanding at December 31, 1998.
In connection with that offering, the Company agreed to issue to the
placement agent warrants (the "Underwriter's Warrants") to purchase one
share each of common stock. The Warrants are exercisable for $1.25 per
share and expire four years from the date of the offering. At December 31,
1998, 32,000 warrants have been issued and are outstanding.
In addition, the Company agreed to issue Finder's Fee Warrants to purchase
one share each of common stock in connection with that offering. At
December 31, 1998, warrants issued and outstanding were as follows; 56,667
warrants exercisable at $1.25 per share and 56,667 warrants exercisable at
$1.50 per share.
NOTE 12. SUBSEQUENT EVENTS
On January 29, 1999, the Company acquired all of the tangible and
intangible assets and rights used in connection with the Internet services
business operated in the United States by CyberHighway, Inc.
(CyberHighway), a Idaho corporation.
The acquisition was effected pursuant to a Plan and Agreement of
Reorganization dated January 20, 1999 between Media and CyberHighway.
Media paid the shareholders of CyberHighway approximately $15,940,000
through the issuance of 2,000,000 shares of Media common stock. The
purchase price was based upon the weighted average closing price of Media
common stock for five days prior and subsequent to the acquisition date.
The transaction will be accounted for as a purchase. The purchase price
will be allocated to the underlying assets purchased and liabilities
assumed based on their fair market values at the acquisition date.
The following table summarizes the net assets purchased in connection with
the CyberHighway acquisition and the amount attributable to cost in excess
of net assets acquired:
Net assets acquired $ 372,472
Acquired customer base 15,566,787
Other assets 5,260,690
Deferred tax liability (5,260,690)
The preliminary estimate of net assets represents management's best
estimate based on currently available information; however, such estimate
may be revised up to one year from the acquisition date. Acquired customer
bases are amortized over 3 years.
The following shows the unaudited proforma condensed balance sheets of
Media and CyberHighway as if the acquisition occurred on December 31, 1998:
Historical
Internet Cyber- Proforma Proforma
Media Highway Adjustments Consolidated
Current
assets $ 8,265 $306,018 $ - $ 314,283
Property and
equipment,
net 247,267 408,558 (72,692) 583,133
Other assets 43,920 13,480 - 57,400
Intangibles 34,207 - 20,827,477 20,861,684
Total
assets $333,659 $728,056 $20,754,785 $21,816,500
Current
liabilities $249,071 $282,892 $ - $ 531,963
Deferred tax
liability - - 5,260,690 5,260,690
Stockholders'
equity 84,588 445,164 15,494,095 16,023,847
Total
liabil-
ities and
stock-
holders'
equity $333,659 $728,056 $20,754,785 $21,816,500
The following unaudited proforma condensed statements of operations assumes
the CyberHighway acquisition occurred on January 1, 1998. In the opinion
of management, all adjustments necessary to present fairly such unaudited
pro forma condensed statements of operations have been made.
Historical
Internet Cyber- Proforma Proforma
Media Highway Adjustments Consolidated
Revenues $ 5,440 $2,449,156 $ - $2,454,596
Expenses
Internet
access
cost - 510,036 - 510,036
Equipment
cost - 326,488 - 326,488
Deprecia-
tion and
amorti-
zation 4,394 138,674 6,918,262 7,061,330
General
and
admini-
strative 1,030,070 1,292,526 - 2,322,596
Selling - 110,397 - 110,397
Total
operating
expense 1,034,464 2,378,121 6,918,262 10,330,847
Operating
income
(loss) (1,029,024) 71,035 (6,918,262) (7,876,251)
Other income
(expense) (8,602) 6,960 - (1,642)
Income
(loss)
before
taxes (1,037,626) 77,995 (6,918,262) (7,877,893)
Income tax
benefit - - (1,753,563) (1,753,563)
Net
income
(loss) ($1,037,626) $77,995 ($5,164,699) ($6,124,330)
Net
income
(loss)
per
share ($0.14) $31.51 ($0.65)
Weighted
average
number
of shares
outstanding 7,361,275 2,475 9,361,275
Subsequent to year end, the Company authorized a private offering of units
to sell 225,000 units of its securities at an offering price of $4.50 per
unit. Each unit consists of one share of common stock and one warrant to
purchase one share of common stock at an exercise price of $7.00. As of
April 9, 1999, the Company has issued 50,444 shares of common stock for
approximately $227,000.
NOTE 13. YEAR 2000 ISSUES
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date-code field. These date-code
fields will need to accept four digit entries to distinguish 21st Century
dates from 20th Century dates. Confusion of dates by computer systems and
software products may bring about system failures or miscalculations,
causing disruptions of operations, including, among other things, a
temporary inability to process transactions, send invoices or engage in
similar business activities. As a result, many companies' software and
computer systems need to be upgraded or replaced in order to comply with
such "Year 2000" requirements. The Company, including CyberHighway, has
established procedures for evaluating and managing the risks and costs
associated with this problem. Currently, all components of CyberHighway?s
Network Operations Center is Year 2000 compliant, except for a single
server, which is scheduled to be replaced during the third quarter of 1999.
CyberHighway expects that its computer systems will be Year 2000 compliant
by the end of the third quarter of 1999. However, many of CyberHighway?s
customers maintain their Internet operations on commercially available
operating systems, which may be affected by Year 2000 complications.
Because of the unprecedented nature of the Year 2000 issue, its effects and
the success of related remediation efforts will not be fully determinable
until the year 2000 and thereafter. Management cannot assure that the
Company is or will be Year 2000 ready, that the Company's remediation
efforts will be successful in whole or in part, or that parties with whom
the Company does business will be Year 2000 ready.
- ----------------------
Exhibit 10.1
- ----------------------
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made by and between Internet
Media Corporation, a duly organized Nevada corporation ("Employer"), and
Alonzo B. See, III, a resident of the State of Texas ("Employee").
W I T N E S S E T H:
WHEREAS, Employer is in need of a person with expertise in financial and
accounting matters, in general, and corporate comptroller duties, in
particular; and
WHEREAS, Employee has a substantial amount of expertise in financial and
accounting matters, including corporate comptroller duties; and
WHEREAS, Employee is willing to be employed by Employer, and Employer is
willing to employ Employee, on the terms, covenants and conditions
hereinafter set forth; and
WHEREAS, Employer has accumulated valuable and confidential information
including, without limitation, trade secrets and know-how relating to
technology, equipment, marketing plans, acquisition plans, sources of
supply, business strategies and other business records; and
WHEREAS, the giving of the covenants contained herein is a condition
precedent to the employment of Employee by Employer and Employee
acknowledges that the execution of this Agreement and the entering into of
these covenants is an express condition of his employment by Employer and
that said covenants are given in consideration for such employment and the
other benefits conferred upon him by this Agreement; and
NOW, THEREFORE, in consideration of such employment and other valuable
consideration, the receipt and adequacy of which is hereby acknowledged,
Employer and Employee hereby agree as follows:
SECTION I. EMPLOYMENT OF EMPLOYEE
Employer hereby employs, engages and hires Employee as Chief Financial
Officer of Employer, and Employee hereby accepts and agrees to such hiring,
engagement and employment, subject to the general supervision and pursuant
to the orders, advice and direction of the Board of Directors of Employer.
Employee shall perform duties as are customarily performed by one holding
such position in other, same or similar businesses or enterprises as that
engaged in by Employer, and shall also additionally render such other and
unrelated services and duties as may be assigned to him from time to time
by Employer.
Employee shall devote his full-time efforts to the performance of his
duties as Chief Financial Officer of Employer.
SECTION II. EMPLOYEE'S PERFORMANCE
Employee hereby agrees that he will, at all times, faithfully,
industriously and to the best of his ability, experience and talents,
perform all of the duties that may be required of and from him pursuant to
the express and implicit terms hereof, to the reasonable satisfaction of
Employer.
SECTION III. COMPENSATION OF EMPLOYEE
Employer shall pay Employee, and Employee shall accept from Employer, in
full payment for Employee's services hereunder, compensation as follows:
A. Bonus. Upon the execution of this Agreement and as an inducement to
Employee to execute this Agreement, Employer shall deliver to Employee
7,500 shares of Employer's Common Stock. The shares of Employer Common
Stock to be issued to Employee shall be valued at a per share price equal
to the average of the closing bid and asked prices, as reported by the OTC
Electronic Bulletin Board, of Employer's Common Stock on February 1, 1999.
B. Salary. Employee shall be paid as and for a salary the sum of
$80,000.00 per year, which salary shall be payable in equal quarterly
installments on the 1st day of each of May, August and November 1999, and
February 2000, in arrears, subject to deduction of all lawful and required
withholding. Employer may, in its sole discretion, for any payment period
hereunder, elect to pay up to 80% of Employee's salary in shares of
Employer's $.0001 par value Common Stock. Any such shares so issued to
Employee shall be valued as follows: each share of Employer Common Stock
shall be issued at a per share price equal to the average of the closing
bid prices, as reported by the OTC Electronic Bulletin Board or NASDAQ, as
the case may be, for the last five trading days of the pay period. The
compensation due Employee shall be divided by the per share value of
Employer's Common Stock, as determined by the foregoing formula, to
determine the number of shares owed Employee.
C. Insurance and Other Benefits. As further consideration for the
covenants contained herein, Employer will provide Employee with such
insurance, welfare, sick leave and other benefits as may be established by
Employer from time to time with respect to its employees in accordance with
Employer's established procedures. Employee shall be entitled to
Directors' and Officers' indemnification insurance coverage to the same
extent as is provided to other persons employed as officers of Employer.
D. Other Compensation Plans. Employee shall be entitled to participate,
to the same extent as is provided to other persons employed by Employer, in
any future stock bonus plan, stock option plan or employee stock ownership
plan of Employer.
E. Expenses. It is acknowledged that, during the term of employment,
Employee will be required to incur ordinary and necessary business expenses
on behalf of Employer in connection with the performance of his duties
hereunder. Employer shall reimburse Employee promptly the amount of all
such expenses upon presentation of itemized vouchers or other evidence of
those expenditures. Any single expense item in excess of $250.00 shall be
approved by Employer prior to the incurrence of such expense.
F. Vacations. Employee shall be entitled to three (3) weeks paid vacation
each year for the term of this Agreement. Such vacations shall be taken at
such times as Employer designates as to time-of-year. Vacation time can be
accumulated year-to-year up to three years maximum.
SECTION IV. COMPANY POLICIES
Employee agrees to abide by the policies, rules, regulations or usages
applicable to Employee as established by Employer from time to time and
provided to Employee in writing.
SECTION V. CONFIDENTIALITY AGREEMENT; NON-COMPETITION AGREEMENT
A. In consideration of Employer's executing this Agreement, Employee shall
have executed, prior to the execution of this Agreement, a Confidentiality
Agreement (the "Confidentiality Agreement"), in the form attached hereto as
Exhibit "A".
B. In consideration of Employer's executing this Agreement, Employee
agrees, effective as of the date hereof, to sign and be bound by the
obligations of an Agreement Not to Compete (the "Non-Competition
Agreement"), in the form attached hereto as Exhibit "B".
C. The obligations under the Confidentiality Agreement and the
Non-Competition Agreement shall survive the termination of this Agreement.
SECTION VI. RELEASE
In the event Employee becomes entitled to payment pursuant to Section
VII(B) hereof, Employee shall, as a condition to such payments being made,
execute and deliver to Employer a general release in such form as is
reasonably satisfactory to Employer.
SECTION VII. TERM AND TERMINATION
A. Term. The term of this Agreement shall be a period of one year,
commencing on the date hereof, subject, however, to prior termination as
hereinafter provided. At the expiration date, this Agreement shall be
renewed for regular periods of one year, provided neither party hereto
submits a written notice of termination within ninety (90) days prior to
the termination of either the initial term hereof or any renewal term.
B. Termination. Employer may, at any time and in its sole discretion,
terminate this Agreement without liability to Employee, except that
Employer shall be liable for payment of accrued and unpaid salary of
Employee. Thus, Employee shall be considered an employee at will.
If Employee should cease his employment hereunder voluntarily for any
reason, or is terminated, all compensation and benefits payable to Employee
shall thereupon, without any further writing or act, cease, lapse and be
terminated. However, all defined compensation, benefits and reimbursements
which accrued prior to Employee's ceasing employment or termination, will
become immediately due and payable.
Should Employee voluntarily cease his employment, Employee retains the
right to participate for the period of this Agreement in Employee's medical
insurance plan and will be responsible for 100% of the cost of participation.
SECTION VIII. COMPLETE AGREEMENT
This Agreement contains the complete agreement concerning the employment
arrangement between the parties hereto and shall, as of the effective date
hereof, supersede all other agreements between the parties. The parties
hereto stipulate that neither of them has made any representation with
respect to the subject matter of this Agreement or any representations
including the execution and delivery hereof, except such representations as
are specifically set forth herein and each of the parties hereto
acknowledges that he or it has relied on his or its own judgment in
entering into this Agreement. The parties hereto further acknowledge that
any payments or representations that may have heretofore been made by
either of them to the other are of no effect and that neither of them has
relied thereon in connection with his or its dealings with the other.
SECTION IX. WAIVER; MODIFICATION
The waiver by either party of a breach or violation of any provision of
this Agreement shall not operate as, or be construed to be, a waiver of any
subsequent breach hereof. No waiver or modification of this Agreement or
of any covenant, condition or limitation herein contained shall be valid
unless in writing and duly executed by the party to be charged therewith
and no evidence of any waiver or modification shall be offered or received
in evidence of any proceeding or litigation between the parties hereto
arising out of, or affecting, this Agreement, or the rights or obligations
of the parties hereunder, unless such waiver or modification is in writing,
duly executed as aforesaid, and the parties further agree that the
provisions of this Section IX may not be waived except as herein set forth.
SECTION X. SEVERABILITY
All agreements and covenants contained herein are severable, and in the
event any one of them, with the exception of those contained in Sections I,
III, IV and V hereof, shall be held to be invalid in any proceeding or
litigation between the parties, this Agreement shall be interpreted as if
such invalid agreements or covenants were not contained herein.
SECTION XI. NOTICES
Any and all notices will be sufficient if furnished in writing, sent by
registered mail to his last known residence, in case of Employee, or, in
case of Employer, to its principal office address.
SECTION XII. CORPORATE AUTHORITY OF EMPLOYER
The provisions of this Agreement required to be approved by the Board of
Directors of Employer have been so approved and authorized.
SECTION XIII. REPRESENTATIONS OF EMPLOYEE
A. Employee is under no legal disability with respect to his entering into
this Agreement.
B. Employee represents and warrants to the Company that any shares of the
Company that may be acquired by him pursuant to this Agreement are being
acquired for its own account and for investment and not with a view to the
public resale or distribution of such shares and further acknowledges that
any of the shares that may be issued have not been registered under the
Securities Act or any state securities law and are "restricted securities",
as that term is defined in Rule 144 promulgated by the SEC, and must be
held indefinitely, unless they are subsequently registered or an exemption
from such registration is available.
C. Employee represents and warrants that he has investigated the Company,
its financial condition, business and prospects, and has had the
opportunity to ask questions of, and to receive answers from, the Company
with respect thereto. Employee acknowledges that it is aware that the
Company is substantially illiquid and is dependent upon the receipt of
substantial funds in order to complete its business objectives.
D. Employee acknowledges that any share certificate or certificates of the
Company that may be issued to him pursuant to this Agreement will bear a
legend restricting future transfer in the following, or similar, form:
"THE STOCK REPRESENTED BY THIS CERTIFICATE HAS BEEN ISSUED IN RELIANCE
UPON THE EXEMPTION FROM REGISTRATION AFFORDED BY SECTION 4(6) OF THE
SECURITIES ACT OF 1933, AS AMENDED. THE STOCK MAY NOT BE TRANSFERRED
WITHOUT REGISTRATION, EXCEPT IN A TRANSACTION EXEMPT FROM SUCH REGISTRATION."
SECTION XIV. COUNTERPARTS
This Agreement may be executed in duplicate counterparts, each of which
shall be deemed an original and, together, shall constitute one and the
same agreement, with one counterpart being delivered to each party hereto.
SECTION XV. BENEFIT
The provisions of this Agreement shall extend to the successors, surviving
corporations and assigns of Employer and to any purchaser of substantially
all of the assets and business of Employer. The term "Employer" shall be
deemed to include any joint venture, partnership, limited liability
company, corporation or other juridical entity, in which Employer shall
have an interest, financial or otherwise.
SECTION XVI. ARBITRATION
The parties agree that any dispute arising between them related to this
Agreement or the performance hereof shall be submitted for resolution to
the American Arbitration Association for arbitration in the Dallas, Texas,
office of the Association under the then-current rules of arbitration. The
Arbitrator or Arbitrators shall have the authority to award to the
prevailing party its reasonable costs and attorneys fees. Any award of the
Arbitrators may be entered as a judgment in any court competent jurisdiction.
Notwithstanding the provisions contained in the foregoing paragraph, the
parties hereto agree that Employer may, at its election and without
delivering the notice to Employee required in Section VII(B) hereof, seek
injunctive or other equitable relief from a court of competent jurisdiction
for a violation or violations by Employee of the Confidentiality Agreement
or the Non-Competition Agreement.
SECTION XVII. GOVERNING LAW
It is the intention of the parties hereto that this Agreement and the
performance hereunder and all suits and special proceedings hereunder be
construed in accordance with and under and pursuant to the laws of the
State of Texas, and that, in any action, special proceeding or other
proceeding that may be brought arising out of, in connection with or by
reason of this Agreement, the laws of the State of Texas shall be
applicable and shall govern to the exclusion of the law of any other forum,
without regard to the jurisdiction in which any such action or special
proceeding may be instituted.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the 1st day of February, 1999.
"EMPLOYER": "EMPLOYEE":
INTERNET MEDIA CORPORATION
/s/
Alonzo B. See, individually
By: /s/
David M. Loflin
President
<PAGE>
Exhibit "A"
Confidentiality Agreement<PAGE>
February 1, 1999
Internet Media Corporation
8748 Quarters Lake Road
Baton Rouge, Louisiana 70809
Re: Confidentiality Agreement
Gentlemen:
In connection with the execution of an employment agreement (the
"Employment Agreement") between the undersigned and Internet Media
Corporation (together with affiliates, the "Company"), the Company will
furnish to the undersigned certain information concerning its business,
financial position, operations, business contacts, assets and liabilities,
as well as certain items of equipment useful in the Wireless Internet
access business. As a condition to such information's being furnished to
the undersigned and as a condition to the undersigned's entering into an
employment agreement with the Company, the undersigned agrees to treat any
information concerning the Company (whether prepared by the Company, its
advisors, or otherwise, and irrespective of the form of communication)
which is furnished to the undersigned now or in the future by or on behalf
of the Company (together with the material described below, herein
collectively referred to as the "Confidential Material") in accordance with
the provisions of this letter agreement, and to take or abstain from taking
certain other actions hereinafter set forth.
The undersigned understands that the term "Confidential Material" also
includes all notes, analysis, compilations, studies, interpretations or
other documents prepared by the Company or its representatives which
contain, reflect or are based upon, in whole or in part, the information
furnished to the undersigned. The term "Confidential Material" does not
include information which (A) is or becomes generally available to the
public other than as a result of a disclosure by the undersigned, or (B)
was lawfully within the undersigned's possession prior to its being
furnished to the undersigned by or on behalf of the Company, provided that
the source of such information was not known by the undersigned to be bound
by a confidentiality agreement with, or other contractual, legal or
fiduciary obligation of confidentiality to, the Company or any other party
with respect to such information, or (C) is disclosed to the undersigned by
a third party, provided that such third party was not known by the
undersigned to be bound by a confidentiality agreement with, or other
contractual, legal or fiduciary obligation of confidentiality to, the
Company or any other party with respect to such information.
The undersigned hereby agrees that he will use the Confidential Material
solely in connection with the undersigned's performance of his duties under
the employment agreement, that the Confidential Material will be kept
confidential and that the undersigned will not disclose any of the
Confidential Material in any manner whatsoever.
The undersigned hereby agrees that he shall not reverse engineer, reverse
assemble or otherwise attempt to recreate or duplicate any model or working
model capable of performing the functions of any portion or all of the
Company's Wireless Internet access system included in the Confidential
Material.
In addition, the undersigned agrees that, without the prior written
consent of the Company, the undersigned will not disclose to any other
person the fact that the Confidential Material has been made available to
the undersigned, that discussions or negotiations are taking place
concerning a possible transaction involving the Company, or any of the
terms, conditions or other facts with respect thereto (including the status
thereof), unless, in the opinion of the undersigned's counsel, such
disclosure must be made by the undersigned in order that the undersigned
not commit a violation of law. The term "person" as used in this letter
agreement shall be broadly interpreted to include the media and any
corporation, partnership, group, individual or other entity, but shall not
include the Securities and Exchange Commission or the Federal Trade
Commission as to any required filing with either such agency.
In the event that the undersigned is requested or required (by oral
questions, interrogatories, requests for information or documents in legal
proceedings, subpoena, civil investigative demand or other similar process)
to disclose any of the Confidential Material, the undersigned will provide
the Company with prompt written notice of any such request or requirement
so that the Company may seek a protective order or other appropriate remedy
and/or waive compliance with the provisions of this letter agreement. If,
in the absence of a protective order or other remedy or the receipt of a
waiver by the Company, the undersigned is, nonetheless, in the opinion of
counsel, legally compelled to disclose Confidential Material, the
undersigned may, without liability hereunder, disclose only that portion of
the Confidential Material specifically required by an order of Court.
Additionally, the undersigned shall make every reasonable effort and take
every reasonable action, including, without limitation, by cooperating with
the Company, to obtain an appropriate protective order or other reliable
assurance that confidential treatment will be accorded the Confidential
Material.
Upon termination of the Employment Agreement or at any time upon the
request of the Company, the undersigned will promptly deliver to the
Company or certify destruction of, at the Company's direction, all
Confidential Material (and all copies thereof) furnished to the undersigned
by or on behalf of the Company pursuant hereto. All oral Confidential
Material provided to the undersigned shall continue to be held confidential
hereunder. Notwithstanding the return or destruction of the Confidential
Material, the undersigned will continue to be bound by obligations of
confidentiality hereunder.
The undersigned agrees that the Company, without prejudice to any rights
to judicial relief he may otherwise have, shall be entitled to equitable
relief, including injunctive relief and specific performance, in the event
of any breach of the provisions of this letter agreement and that the
undersigned will not oppose the granting of such relief. The undersigned
also agrees that he will not seek and agrees to waive any requirement for
the securing and posting of a bond in connection with the Company's seeking
or obtaining such relief. In the event of litigation relating to this
letter agreement, if a court of competent jurisdiction determines that the
undersigned has breached this letter agreement, then the undersigned will
be liable to pay to the Company the reasonable legal fees incurred in
connection with such litigation, including any appeal therefrom. Also, in
the event a court of competent jurisdiction determines that the undersigned
has not breached this letter agreement, then the Company will be liable to
pay to the undersigned the reasonable legal fees incurred in connection
with such litigation, including any appeal therefrom.
This letter agreement is for the benefit of the Company, and shall be
construed (both as to validity and performance) and enforced in accordance
with, and governed by, the laws of the State of Idaho applicable to
agreements made and to be performed wholly within such jurisdiction. This
letter agreement shall remain in full force and effect until terminated by
the Company.
Please confirm your agreement with the foregoing by signing and returning
one copy of this letter to the undersigned whereupon this letter agreement
shall become a binding agreement.
Very truly yours,
/s/
Alonzo B. See, III
AGREED AND ACCEPTED as
of the date first written above:
INTERNET MEDIA CORPORATION
By: /s/
David W. Loflin
President
<PAGE>
Exhibit "B"
Agreement Not to Compete<PAGE>
AGREEMENT NOT TO COMPETE
THIS AGREEMENT NOT TO COMPETE is entered into by and between Internet
Media Corporation, a Nevada corporation ("Employer"), and Alonzo B. See,
III ("Employee").
WHEREAS, Employee is employed by Employer as Chief Financial Officer,
pursuant to an employment agreement (the "Employment Agreement"); and
WHEREAS, as a condition to such Employment Agreement, Employee has agreed
to sign and be bound by this Agreement Not to Compete; and
NOW, THEREFORE, the parties agree as follows:
Section 1. Covenant Not to Compete. Employee acknowledges that, as a key
management employee of Employer, Employee will be involved, on a high
level, in the development, implementation and management of the national
and international business strategies and plans of Employer, which shall
consist of Employer and such other business, units, divisions, subsidiaries
or other entities of Employer, as Employer shall determine in its sole
discretion from time to time. By virtue of Employee's unique and sensitive
position and special background, employment of Employee by a competitor of
Employer represents a serious competitive danger to Employer, and the use
of Employee's talent and knowledge and information about Employer's
business, strategies and plans can and would constitute a valuable
competitive advantage over Employer. In view of the foregoing, Employee
covenants and agrees that, if Employee's employment with Employer is
terminated for any reason at any time, for a period of one year after the
date of such termination, Employee will not in any capacity, directly or
indirectly, including, but not limited to, as employee, agent, consultant,
manager, executive, owner or stockholder (except as a passive investor
holding less than 1% equity interest in any enterprise the securities of
which are publicly traded) in any business entity engaged in competition
with any business conducted by Employer on the date of termination. This
Agreement Not to Compete shall survive the termination or expiration of the
Employment Agreement. If any court determines that this Agreement Not to
Compete, or any part hereof, is unenforceable because the duration or
geographic scope of such provision, such court shall have the power to
reduce the duration or scope of such provision, as the case may be, and, in
its reduced form, such provision shall then be enforceable.
Section 2. Continuing Obligations. Employee agrees that, for one year
following his termination of employment with Employer, Employee shall keep
Employer informed of the identification of Employee's employer and the
nature of such employment or of Employee's self-employment. Employer
agrees that, within fifteen days after receiving notice pursuant to this
Section 2 of the identification of the prospective employer, the nature of
the employment or self-employment or any change therein, Employer will
advise Employee as to whether such employment constitutes a violation of
Section 1 hereof.
Section 3. Injunctive Relief. Employee acknowledges that the violation
of the covenants contained in this Agreement would be detrimental and cause
irreparable injury to Employer and its affiliates which could not be
compensated by money damages. Employee agrees that an injunction from a
court of competent jurisdiction is the appropriate remedy for these
provisions, and consents to the entry of an appropriate judgment enjoining
Employee from violating these provisions in the event there is a find of
their breach.
Section 4. Severability of Covenants. Each of the covenants contained in
this Agreement are independent covenants, which may be available to or
relied upon by Employer and its affiliates in any court of competent
jurisdiction. If any one of the separate and independent covenants shall
be deemed to be unenforceable under the laws of any state of competent
jurisdiction, each of the remaining covenants shall not be affected
thereby. Notwithstanding the provisions of this Section 4, it is
understood that every benefit received by Employee by virtue of this
Agreement is consideration for each separate covenant contained herein.
Section 5. Governing Law. This Agreement shall be governed by the laws
of the State of Texas.
Section 6. Other Remedies. The undertakings herein shall not be
construed as any limitation upon the remedies Employer might, in the
absence of this Agreement, have at law or in equity.
INTENDING to be legally bound hereby, Employer and Employee hereby duly
execute this Agreement Not to Compete on the date indicated below.
EMPLOYER:
INTERNET MEDIA CORPORATION
Date: February 1, 1999 By: /s/
David M. Loflin
President
EMPLOYEE:
Date: February 1, 1999 /s/
Alonzo B. See, individually
- ----------------------
Exhibit 10.2
- ----------------------
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made by and between Internet
Media Corporation, a duly organized Nevada corporation ("Employer"), and
James Kaufman, a resident of the State of California ("Employee").
W I T N E S S E T H:
WHEREAS, Employer is in need of a person with expertise in corporate
development strategies, in general, and structuring and negotiating
business acquisitions and strategic business alliances and relationships,
in particular; and
WHEREAS, Employee has a substantial amount of expertise in corporate
development strategies, including negotiating business acquisitions and
strategic business alliances and relationships; and
WHEREAS, Employee is willing to be employed by Employer, and Employer is
willing to employ Employee, on the terms, covenants and conditions
hereinafter set forth; and
WHEREAS, Employer has accumulated valuable and confidential information
including, without limitation, trade secrets and know-how relating to
technology, equipment, marketing plans, acquisition plans, sources of
supply, business strategies and other business records; and
WHEREAS, the giving of the covenants contained herein is a condition
precedent to the employment of Employee by Employer and Employee
acknowledges that the execution of this Agreement and the entering into of
these covenants is an express condition of his employment by Employer and
that said covenants are given in consideration for such employment and the
other benefits conferred upon him by this Agreement; and
NOW, THEREFORE, in consideration of such employment and other valuable
consideration, the receipt and adequacy of which is hereby acknowledged,
Employer and Employee hereby agree as follows:
SECTION I. EMPLOYMENT OF EMPLOYEE
Employer hereby employs, engages and hires Employee as Vice President of
Corporate Development of Employer, and Employee hereby accepts and agrees
to such hiring, engagement and employment, subject to the general
supervision and pursuant to the orders, advice and direction of the Board
of Directors of Employer. Employee shall perform duties as are customarily
performed by one holding such position in other, same or similar businesses
or enterprises as that engaged in by Employer, and shall also additionally
render such other and unrelated services and duties as may be assigned to
him from time to time by Employer.
Employee shall devote his full-time efforts to the performance of his
duties as Vice President of Corporate Development of Employer.
SECTION II. EMPLOYEE'S PERFORMANCE
Employee hereby agrees that he will, at all times, faithfully,
industriously and to the best of his ability, experience and talents,
perform all of the duties that may be required of and from him pursuant to
the express and implicit terms hereof, to the reasonable satisfaction of
Employer.
SECTION III. COMPENSATION OF EMPLOYEE
Employer shall pay Employee, and Employee shall accept from Employer, in
full payment for Employee's services hereunder, compensation as follows:
A. Salary. Employee shall be paid as and for a salary the sum of
$120,000.00 per year, which salary shall be payable in equal quarterly
installments on the 1st day of each of May, August and November 1999, and
February 2000, in arrears, subject to deduction of all lawful and required
withholding. Employer may, in its sole discretion, for any payment period
hereunder, elect to pay up to 80% of Employee's salary in shares of
Employer's $.0001 par value Common Stock. Any such shares so issued to
Employee shall be valued as follows: each share of Employer Common Stock
shall be issued at a per share price equal to the average of the closing
bid prices, as reported by the OTC Electronic Bulletin Board or NASDAQ, as
the case may be, for the last five trading days of the pay period. The
compensation due Employee shall be divided by the per share value of
Employer's Common Stock, as determined by the foregoing formula, to
determine the number of shares owed Employee.
B. Insurance and Other Benefits. As further consideration for the
covenants contained herein, Employer will provide Employee with such
insurance, welfare, sick leave and other benefits as may be established by
Employer from time to time with respect to its employees in accordance with
Employer's established procedures. Employee shall be entitled to
Directors' and Officers' indemnification insurance coverage to the same
extent as is provided to other persons employed as officers of Employer.
C. Other Compensation Plans. Employee shall be entitled to participate,
to the same extent as is provided to other persons employed by Employer, in
any future stock bonus plan, stock option plan or employee stock ownership
plan of Employer.
D. Expenses. It is acknowledged that, during the term of employment,
Employee will be required to incur ordinary and necessary business expenses
on behalf of Employer in connection with the performance of his duties
hereunder. Employer shall reimburse Employee promptly the amount of all
such expenses upon presentation of itemized vouchers or other evidence of
those expenditures. Any single expense item in excess of $250.00 shall be
approved by Employer prior to the incurrence of such expense.
E. Vacations. Employee shall be entitled to three (3) weeks paid vacation
each year for the term of this Agreement. Such vacations shall be taken at
such times as Employer designates as to time-of-year. Vacation time can be
accumulated year-to-year up to three years maximum.
SECTION IV. COMPANY POLICIES
Employee agrees to abide by the policies, rules, regulations or usages
applicable to Employee as established by Employer from time to time and
provided to Employee in writing.
SECTION V. CONFIDENTIALITY AGREEMENT; NON-COMPETITION AGREEMENT
A. In consideration of Employer's executing this Agreement, Employee shall
have executed, prior to the execution of this Agreement, a Confidentiality
Agreement (the "Confidentiality Agreement"), in the form attached hereto as
Exhibit "A".
B. In consideration of Employer's executing this Agreement, Employee
agrees, effective as of the date hereof, to sign and be bound by the
obligations of an Agreement Not to Compete (the "Non-Competition
Agreement"), in the form attached hereto as Exhibit "B".
C. The obligations under the Confidentiality Agreement and the
Non-Competition Agreement shall survive the termination of this Agreement.
SECTION VI. RELEASE
In the event Employee becomes entitled to payment pursuant to Section
VII(B) hereof, Employee shall, as a condition to such payments being made,
execute and deliver to Employer a general release in such form as is
reasonably satisfactory to Employer.
SECTION VII. TERM AND TERMINATION
A. Term. The term of this Agreement shall be a period of one year,
commencing on the date hereof, subject, however, to prior termination as
hereinafter provided. At the expiration date, this Agreement shall be
renewed for regular periods of one year, provided neither party hereto
submits a written notice of termination within ninety (90) days prior to
the termination of either the initial term hereof or any renewal term.
B. Termination. Employer agrees not to terminate this Agreement except
for "just cause", and agrees to give Employee written notice of its belief
that acts or events constituting "just cause" exist. Employee has the
right to cure, within thirty (30) days of Employer's giving of such notice,
the acts, events or conditions which led to Employer's notice. For
purposes of this Agreement, "just cause" shall mean (1) the willful failure
or refusal of Employee to implement or follow the written policies or
directions of Employer's Board of Directors, provided that Employee's
failure or refusal is not based upon Employee's belief in good faith, as
expressed to Employer in writing, that the implementation thereof would be
unlawful; (2) conduct which is inconsistent with Employee's position with
Employer and which results in a material adverse effect (financial or
otherwise) or misappropriation of assets of Employer; (3) conduct which
violates the provisions contained in the Confidentiality Agreement or the
Non-Competition Agreement; (4) the intentional causing of material damage
to Employer's physical property; and (5) any act involving personal
dishonesty or criminal conduct against Employer.
Although Employer retains the right to terminate Employee for any reason
not specified above, Employer agrees that if it discharges Employee for any
reason other than just cause, as is solely defined above, Employee will be
entitled to full compensation, including participation in all benefit
programs, for six (6) months or the remainder of the current term, original
or renewal, as the case may be, of employment, whichever is more.
If Employee should cease his employment hereunder voluntarily for any
reason, or is terminated for just cause, all compensation and benefits
payable to Employee shall thereupon, without any further writing or act,
cease, lapse and be terminated. However, all defined compensation,
benefits and reimbursements which accrued prior to Employee's ceasing
employment or termination, will become immediately due and payable.
Should Employee voluntarily cease his employment, Employee retains the
right to participate for the period of this Agreement in Employee's medical
insurance plan and will be responsible for 100% of the cost of participation.
SECTION VIII. COMPLETE AGREEMENT
This Agreement contains the complete agreement concerning the employment
arrangement between the parties hereto and shall, as of the effective date
hereof, supersede all other agreements between the parties. The parties
hereto stipulate that neither of them has made any representation with
respect to the subject matter of this Agreement or any representations
including the execution and delivery hereof, except such representations as
are specifically set forth herein and each of the parties hereto
acknowledges that he or it has relied on his or its own judgment in
entering into this Agreement. The parties hereto further acknowledge that
any payments or representations that may have heretofore been made by
either of them to the other are of no effect and that neither of them has
relied thereon in connection with his or its dealings with the other.
SECTION IX. WAIVER; MODIFICATION
The waiver by either party of a breach or violation of any provision of
this Agreement shall not operate as, or be construed to be, a waiver of any
subsequent breach hereof. No waiver or modification of this Agreement or
of any covenant, condition or limitation herein contained shall be valid
unless in writing and duly executed by the party to be charged therewith
and no evidence of any waiver or modification shall be offered or received
in evidence of any proceeding or litigation between the parties hereto
arising out of, or affecting, this Agreement, or the rights or obligations
of the parties hereunder, unless such waiver or modification is in writing,
duly executed as aforesaid, and the parties further agree that the
provisions of this Section IX may not be waived except as herein set forth.
SECTION X. SEVERABILITY
All agreements and covenants contained herein are severable, and in the
event any one of them, with the exception of those contained in Sections I,
III, IV and V hereof, shall be held to be invalid in any proceeding or
litigation between the parties, this Agreement shall be interpreted as if
such invalid agreements or covenants were not contained herein.
SECTION XI. NOTICES
Any and all notices will be sufficient if furnished in writing, sent by
registered mail to his last known residence, in case of Employee, or, in
case of Employer, to its principal office address.
SECTION XII. CORPORATE AUTHORITY OF EMPLOYER
The provisions of this Agreement required to be approved by the Board of
Directors of Employer have been so approved and authorized.
SECTION XIII. REPRESENTATIONS OF EMPLOYEE
A. Employee is under no legal disability with respect to his entering into
this Agreement.
B. Employee represents and warrants to the Company that any shares of the
Company that may be acquired by him pursuant to this Agreement are being
acquired for its own account and for investment and not with a view to the
public resale or distribution of such shares and further acknowledges that
any of the shares that may be issued have not been registered under the
Securities Act or any state securities law and are "restricted securities",
as that term is defined in Rule 144 promulgated by the SEC, and must be
held indefinitely, unless they are subsequently registered or an exemption
from such registration is available.
C. Employee represents and warrants that he has investigated the Company,
its financial condition, business and prospects, and has had the
opportunity to ask questions of, and to receive answers from, the Company
with respect thereto. Employee acknowledges that it is aware that the
Company is substantially illiquid and is dependent upon the receipt of
substantial funds in order to complete its business objectives.
D. Employee acknowledges that any share certificate or certificates of the
Company that may be issued to him pursuant to this Agreement will bear a
legend restricting future transfer in the following, or similar, form:
"THE STOCK REPRESENTED BY THIS CERTIFICATE HAS BEEN ISSUED IN RELIANCE
UPON THE EXEMPTION FROM REGISTRATION AFFORDED BY SECTION 4(6) OF THE
SECURITIES ACT OF 1933, AS AMENDED. THE STOCK MAY NOT BE TRANSFERRED
WITHOUT REGISTRATION, EXCEPT IN A TRANSACTION EXEMPT FROM SUCH REGISTRATION."
SECTION XIV. COUNTERPARTS
This Agreement may be executed in duplicate counterparts, each of which
shall be deemed an original and, together, shall constitute one and the
same agreement, with one counterpart being delivered to each party hereto.
SECTION XV. BENEFIT
The provisions of this Agreement shall extend to the successors, surviving
corporations and assigns of Employer and to any purchaser of substantially
all of the assets and business of Employer. The term "Employer" shall be
deemed to include any joint venture, partnership, limited liability
company, corporation or other juridical entity, in which Employer shall
have an interest, financial or otherwise.
SECTION XVI. ARBITRATION
The parties agree that any dispute arising between them related to this
Agreement or the performance hereof shall be submitted for resolution to
the American Arbitration Association for arbitration in the Dallas, Texas,
office of the Association under the then-current rules of arbitration. The
Arbitrator or Arbitrators shall have the authority to award to the
prevailing party its reasonable costs and attorneys fees. Any award of the
Arbitrators may be entered as a judgment in any court competent jurisdiction.
Notwithstanding the provisions contained in the foregoing paragraph, the
parties hereto agree that Employer may, at its election and without
delivering the notice to Employee required in Section VII(B) hereof, seek
injunctive or other equitable relief from a court of competent jurisdiction
for a violation or violations by Employee of the Confidentiality Agreement
or the Non-Competition Agreement.
SECTION XVII. GOVERNING LAW
It is the intention of the parties hereto that this Agreement and the
performance hereunder and all suits and special proceedings hereunder be
construed in accordance with and under and pursuant to the laws of the
State of Louisiana, and that, in any action, special proceeding or other
proceeding that may be brought arising out of, in connection with or by
reason of this Agreement, the laws of the State of Louisiana shall be
applicable and shall govern to the exclusion of the law of any other forum,
without regard to the jurisdiction in which any such action or special
proceeding may be instituted.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the 19th day of March, 1999.
"EMPLOYER": "EMPLOYEE":
INTERNET MEDIA CORPORATION
/s/
James Kaufman, individually
By: /s/
David M. Loflin
President
<PAGE>
Exhibit "A"
Confidentiality Agreement<PAGE>
March 19, 1999
Internet Media Corporation
8748 Quarters Lake Road
Baton Rouge, Louisiana 70809
Re: Confidentiality Agreement
Gentlemen:
In connection with the execution of an employment agreement (the
"Employment Agreement") between the undersigned and Internet Media
Corporation (together with affiliates, the "Company"), the Company will
furnish to the undersigned certain information concerning its business,
financial position, operations, business contacts, assets and liabilities,
as well as certain items of equipment useful in the Wireless Internet
access business. As a condition to such information's being furnished to
the undersigned and as a condition to the undersigned's entering into an
employment agreement with the Company, the undersigned agrees to treat any
information concerning the Company (whether prepared by the Company, its
advisors, or otherwise, and irrespective of the form of communication)
which is furnished to the undersigned now or in the future by or on behalf
of the Company (together with the material described below, herein
collectively referred to as the "Confidential Material") in accordance with
the provisions of this letter agreement, and to take or abstain from taking
certain other actions hereinafter set forth.
The undersigned understands that the term "Confidential Material" also
includes all notes, analysis, compilations, studies, interpretations or
other documents prepared by the Company or its representatives which
contain, reflect or are based upon, in whole or in part, the information
furnished to the undersigned. The term "Confidential Material" does not
include information which (A) is or becomes generally available to the
public other than as a result of a disclosure by the undersigned, or (B)
was lawfully within the undersigned's possession prior to its being
furnished to the undersigned by or on behalf of the Company, provided that
the source of such information was not known by the undersigned to be bound
by a confidentiality agreement with, or other contractual, legal or
fiduciary obligation of confidentiality to, the Company or any other party
with respect to such information, or (C) is disclosed to the undersigned by
a third party, provided that such third party was not known by the
undersigned to be bound by a confidentiality agreement with, or other
contractual, legal or fiduciary obligation of confidentiality to, the
Company or any other party with respect to such information.
The undersigned hereby agrees that he will use the Confidential Material
solely in connection with the undersigned's performance of his duties under
the employment agreement, that the Confidential Material will be kept
confidential and that the undersigned will not disclose any of the
Confidential Material in any manner whatsoever.
The undersigned hereby agrees that he shall not reverse engineer, reverse
assemble or otherwise attempt to recreate or duplicate any model or working
model capable of performing the functions of any portion or all of the
Company's Wireless Internet access system included in the Confidential
Material.
In addition, the undersigned agrees that, without the prior written
consent of the Company, the undersigned will not disclose to any other
person the fact that the Confidential Material has been made available to
the undersigned, that discussions or negotiations are taking place
concerning a possible transaction involving the Company, or any of the
terms, conditions or other facts with respect thereto (including the status
thereof), unless, in the opinion of the undersigned's counsel, such
disclosure must be made by the undersigned in order that the undersigned
not commit a violation of law. The term "person" as used in this letter
agreement shall be broadly interpreted to include the media and any
corporation, partnership, group, individual or other entity, but shall not
include the Securities and Exchange Commission or the Federal Trade
Commission as to any required filing with either such agency.
In the event that the undersigned is requested or required (by oral
questions, interrogatories, requests for information or documents in legal
proceedings, subpoena, civil investigative demand or other similar process)
to disclose any of the Confidential Material, the undersigned will provide
the Company with prompt written notice of any such request or requirement
so that the Company may seek a protective order or other appropriate remedy
and/or waive compliance with the provisions of this letter agreement. If,
in the absence of a protective order or other remedy or the receipt of a
waiver by the Company, the undersigned is, nonetheless, in the opinion of
counsel, legally compelled to disclose Confidential Material, the
undersigned may, without liability hereunder, disclose only that portion of
the Confidential Material specifically required by an order of Court.
Additionally, the undersigned shall make every reasonable effort and take
every reasonable action, including, without limitation, by cooperating with
the Company, to obtain an appropriate protective order or other reliable
assurance that confidential treatment will be accorded the Confidential
Material.
Upon termination of the Employment Agreement or at any time upon the
request of the Company, the undersigned will promptly deliver to the
Company or certify destruction of, at the Company's direction, all
Confidential Material (and all copies thereof) furnished to the undersigned
by or on behalf of the Company pursuant hereto. All oral Confidential
Material provided to the undersigned shall continue to be held confidential
hereunder. Notwithstanding the return or destruction of the Confidential
Material, the undersigned will continue to be bound by obligations of
confidentiality hereunder.
The undersigned agrees that the Company, without prejudice to any rights
to judicial relief he may otherwise have, shall be entitled to equitable
relief, including injunctive relief and specific performance, in the event
of any breach of the provisions of this letter agreement and that the
undersigned will not oppose the granting of such relief. The undersigned
also agrees that he will not seek and agrees to waive any requirement for
the securing and posting of a bond in connection with the Company's seeking
or obtaining such relief. In the event of litigation relating to this
letter agreement, if a court of competent jurisdiction determines that the
undersigned has breached this letter agreement, then the undersigned will
be liable to pay to the Company the reasonable legal fees incurred in
connection with such litigation, including any appeal therefrom. Also, in
the event a court of competent jurisdiction determines that the undersigned
has not breached this letter agreement, then the Company will be liable to
pay to the undersigned the reasonable legal fees incurred in connection
with such litigation, including any appeal therefrom.
This letter agreement is for the benefit of the Company, and shall be
construed (both as to validity and performance) and enforced in accordance
with, and governed by, the laws of the State of Idaho applicable to
agreements made and to be performed wholly within such jurisdiction. This
letter agreement shall remain in full force and effect until terminated by
the Company.
Please confirm your agreement with the foregoing by signing and returning
one copy of this letter to the undersigned whereupon this letter agreement
shall become a binding agreement.
Very truly yours,
/s/
James Kaufman
AGREED AND ACCEPTED as
of the date first written above:
INTERNET MEDIA CORPORATION
By: /s/
David W. Loflin
President
<PAGE>
Exhibit "B"
Agreement Not to Compete<PAGE>
AGREEMENT NOT TO COMPETE
THIS AGREEMENT NOT TO COMPETE is entered into by and between Internet
Media Corporation, a Nevada corporation ("Employer"), and James Kaufman
("Employee").
WHEREAS, Employee is employed by Employer as Vice President of Corporate
Development, pursuant to an employment agreement (the "Employment
Agreement"); and
WHEREAS, as a condition to such Employment Agreement, Employee has agreed
to sign and be bound by this Agreement Not to Compete; and
NOW, THEREFORE, the parties agree as follows:
Section 1. Covenant Not to Compete. Employee acknowledges that, as a key
management employee of Employer, Employee will be involved, on a high
level, in the development, implementation and management of the national
and international business strategies and plans of Employer, which shall
consist of Employer and such other business, units, divisions, subsidiaries
or other entities of Employer, as Employer shall determine in its sole
discretion from time to time. By virtue of Employee's unique and sensitive
position and special background, employment of Employee by a competitor of
Employer represents a serious competitive danger to Employer, and the use
of Employee's talent and knowledge and information about Employer's
business, strategies and plans can and would constitute a valuable
competitive advantage over Employer. In view of the foregoing, Employee
covenants and agrees that, if Employee's employment with Employer is
terminated for any reason at any time, for a period of one year after the
date of such termination, Employee will not in any capacity, directly or
indirectly, including, but not limited to, as employee, agent, consultant,
manager, executive, owner or stockholder (except as a passive investor
holding less than 1% equity interest in any enterprise the securities of
which are publicly traded) in any business entity engaged in competition
with any business conducted by Employer on the date of termination. This
Agreement Not to Compete shall survive the termination or expiration of the
Employment Agreement. If any court determines that this Agreement Not to
Compete, or any part hereof, is unenforceable because the duration or
geographic scope of such provision, such court shall have the power to
reduce the duration or scope of such provision, as the case may be, and, in
its reduced form, such provision shall then be enforceable.
Section 2. Continuing Obligations. Employee agrees that, for one year
following his termination of employment with Employer, Employee shall keep
Employer informed of the identification of Employee's employer and the
nature of such employment or of Employee's self-employment. Employer
agrees that, within fifteen days after receiving notice pursuant to this
Section 2 of the identification of the prospective employer, the nature of
the employment or self-employment or any change therein, Employer will
advise Employee as to whether such employment constitutes a violation of
Section 1 hereof.
Section 3. Injunctive Relief. Employee acknowledges that the violation
of the covenants contained in this Agreement would be detrimental and cause
irreparable injury to Employer and its affiliates which could not be
compensated by money damages. Employee agrees that an injunction from a
court of competent jurisdiction is the appropriate remedy for these
provisions, and consents to the entry of an appropriate judgment enjoining
Employee from violating these provisions in the event there is a find of
their breach.
Section 4. Severability of Covenants. Each of the covenants contained in
this Agreement are independent covenants, which may be available to or
relied upon by Employer and its affiliates in any court of competent
jurisdiction. If any one of the separate and independent covenants shall
be deemed to be unenforceable under the laws of any state of competent
jurisdiction, each of the remaining covenants shall not be affected
thereby. Notwithstanding the provisions of this Section 4, it is
understood that every benefit received by Employee by virtue of this
Agreement is consideration for each separate covenant contained herein.
Section 5. Governing Law. This Agreement shall be governed by the laws
of the State of Louisiana.
Section 6. Other Remedies. The undertakings herein shall not be
construed as any limitation upon the remedies Employer might, in the
absence of this Agreement, have at law or in equity.
INTENDING to be legally bound hereby, Employer and Employee hereby duly
execute this Agreement Not to Compete on the date indicated below.
EMPLOYER:
INTERNET MEDIA CORPORATION
Date: March 19, 1999 By: /s/
David M. Loflin
President
EMPLOYEE:
Date: March 19, 1999 /s/
James Kaufman, individually
- ----------------------
Exhibit 11
- ----------------------
EXHIBIT 11
STATEMENT REGARDING COMPUTATION
OF PER SHARE EARNINGS
Cumulative
Number Days Days Cumulative
of Out- Since Out- Since
Shares standing Inception standing Inception
Period from
inception
(December 28,
1995) to
December 31,
1996
December 28 227,336 227,336 731/1,095 227,336
------- -------
December 31 227,336 3/3 227,336
======= =======
Year ended
December 31,
1996
January 1 227,336 61/364 227,336 1,095
November 1 1,800,000 47/364 301,648 789/1,095 1,296,986
November 15 360,000 11/364 46,484 775/1,095 254,795
December 20 1,578,512 11/364 47,702 739/1,095 1,065,315
December 20 104,249 94/364 3,150 739/1,095 70,356
December 31 1,929,903 1/364 5,302 729/1,095 1,284,840
--------- -------
December 31 6,000,000 631,622
========= =======
Year ended
December 31,
1997
January 1 6,000,000 364/364 6,000,000
February 20,000 298/364 137,225 862/1,095 12,091
March 7 150,000 333/364 18,667 867/1,095 95,479
September 22 10,000 101/364 2,775 465/1,095 4,247
October 1 60,000 94/364 15,495 458/1,095 25,096
October 17 40,000 76/364 8,352 440/1,095 16,073
November 6 44,000 56/364 6,769 420/1,095 16,877
December 16 100,000 16/364 4,396 380/1,095 34,703
--------- ---------
December 31 6,424,000 6,193,678
========= =========
Year ended
December 31,
1998
6,424,000 364/364 6,424,000
400,000 333/364 385,934 333/1,095 121,644
36,082 316/364 31,333 316/1,095 10,416
22,667 285/364 17,748 285/1,095 5,900
80,000 284/364 62,418 284/1,095 207,749
37,000 229/364 23,277 229/1,095 7,738
300,000 181/364 149,176 181/1,095 49,589
10,000 138/364 3,791 138/1,095 1,260
10,000 72/364 1,978 72/1,095 658
400,000 120/364 131,868 120/1,095 43,836
300,000 118/364 97,253 118/1,095 32,329
100,000 77/364 21,154 77/1,095 7,032
150,000 57/364 23,489 57/1,095 7,808
17,500 16/364 769 16/1,095 256
60,000 13/364 2,143 13/1,095 712
150,000 12/364 4,945 12/1,095 1,644
-------- --------- ---------
December 31,
1998 8,497,259 7,361,275 4,715,763
- ----------------------
Exhibit 22
- ----------------------
Subsidiaries of Registrant
- --------------------------
CyberHighway, Inc., an Idaho corporation
Santa Fe Wireless Internet, Inc., a New Mexico corporation
Missouri Cable TV Corp., a Louisiana corporation
Winter Entertainment, Inc., a Delware corporation
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