U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the six month period ended December 31, 1999
[X] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
<PAGE>
For the transition period from June 30 to December 31, 1999
Commission file number 000-26011
INTERNET CABLE CORPORATION
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(Name of small business issuer in its charter)
NEVADA
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(State or other jurisdiction of incorporation or organization)
57-0854042
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(I.R.S. Employer Identification No.)
Second Floor, 263 King Street,
Charleston, South Carolina 29401
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(Address of principal executive offices) (Zip Code)
(843) 722-8007
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Issuer's telephone number
Securities registered under Section 12(b) of the Exchange Act:
Title of each class: NONE
Name of each exchange on which registered: NOT APPLICABLE
Securities registered under Section 12(g) of the Exchange Act:
Title of class: COMMON STOCK, $.001 PAR VALUE PER SHARE
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 and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not 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 ]
State issuer's revenues for the transition period - $14,888
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. 10,063,811 shares of common stock at
April 4, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
<PAGE>
The Company's Form 10-KSB for the year ended June 30, 1999 filed on September
28, 1999. The Company's Form 10-KSB as amended for the year ended June 30, 1999
filed on November 30, 1999.
Transitional Small Business Disclosure Format (check one): Yes No X
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<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
OVERVIEW OF BUSINESS DEVELOPMENT SINCE INCEPTION-
Corporate history and prior business during the last five years
Internet Cable Corporation (the "Company") was incorporated in the
State of Nevada on February 15,1995, under the name of Firenze, Ltd. The
Company's founders were B.A. Rothchild, E.J. Rothchild and Charles Ellington
III, none of whom have been associated in any capacity with the Company since
1997. The Company changed its corporate name to Internet Cable Corp. on July
15,1997 and then to Internet Cable Corporation on September 12, 1997. For a
period of approximately two months in 1997, stock certificates for the Company
were issued under the name of Internet Channel Corporation, based upon
management's intent to change the Company's corporate name to Internet Channel
Corporation and a premature notice of name change to the transfer agent, however
such change of name was never filed with the State of Nevada. The Company was
originally organized for the purpose of engaging in the cosmetics business. In
October 1995, the Company changed its business focus to the telecommunications
sector with the acquisition of licenses for cellular telephone software
technology, which were subsequently rescinded. The Company refocused its
business in March 1997 on high speed Internet access via cable television lines,
commonly known as data-over-cable communication.
During the period from October 1999 through January 2000, the
Company raised, through a private placement of its securities, approximately
$9,080,000 of capital. In consideration for the $9,080,000, the Company issued
restricted shares of its common stock at $5.00 per share and a warrant to
purchase 1/2 share of its common stock for each share of common stock purchased.
The warrant is exercisable for a period of 5 years from the date of issuance at
a price of $10.00 per share. The Company used the net proceeds from this
placement to: (A) complete its acquisition of CAD Consultants, Inc., a New
Jersey corporation ("CAD")and Cable Systems Technical Services Inc., a
corporation formed under the laws of the Province of Ontario ("Cable Systems");
(B) install a new management team to lead the Company; (C) incorporate CAD and
Cable Systems into its business of providing broadband services to the cable
industry; and (D) to expand into the wireless communications sector. At its
meeting on January 25, 2000, the Board of Directors of the Company changed the
fiscal year end from a June 30 year end to a December 31 year end effective with
the year ending December 31, 1999.
BUSINESS
The Company is a provider of broadband infrastructure services and
wireless network solutions to the cable industry and emerging markets. Customers
utilize the Company's products and services to implement broadband services
including high speed Internet access, telephony services, digital cable
networks, and other smart home services, as well as fixed point wireless
<PAGE>
networks. The Company's primary market for infrastructure services is the cable
industry. Infrastructure service offerings for cable plant operation and
maintenance include: engineering and plant reconstruction, technology
procurement and installation, node certification, quality assurance, hardening
and ongoing performance monitoring and maintenance for return path networks. The
Company also provides wireless network integration services to a wide range of
markets, including private sector businesses, government organizations,
healthcare institutions and educational entities.
On January 4, 2000, the Company completed the acquisition of Cable
Systems, which resulted in Cable Systems becoming a wholly-owned subsidiary of
the Company. The acquisition was pursuant to a share purchase agreement dated
July 8, 1999. Cable Systems provides infrastructure services for cable plant
operation and maintenance throughout the United States and Canada. Management
believes this acquisition provides the Company with a solid base of experienced
broadband technicians located across North America. These technicians have been
specially trained and are continually retrained in the latest technologies, and
have vast experience in providing infrastructure services.
The Company intends to service the entire cable industry with a
one-stop shopping approach. The Company intends to offer such services on a
complete turnkey basis or on an `a la carte' fee for service basis. The Company
differentiates itself because of its focus on the design, infrastructure and
reliability of the cable system as opposed to the content. The Company believes
that as customers become more dependent upon the cable system and response times
associated with broadband services, the importance of reliability will become
critical to a profitable operation.
On January 11, 2000, the Company completed the acquisition of CAD.
The acquisition was pursuant to an agreement and plan of merger dated October 8,
1999. CAD designs, installs and maintains wireless links utilizing microwave,
laser and other state of the art technologies. CAD serves as the Company's
wireless network services division, offers a high-performance, reliable and
cost-effective bundle of data and telecommunications services to consumers and
businesses. This division also provides other technology services including
printed circuit board design and local area network ("LAN") integration support
services.
Through CAD, the Company operates a wireless Internet access
network in Cape May, New Jersey and plans to provide access through this network
to local businesses and educational institutions.
The Company and Intermark Associates V, LLC ("Intermark")
previously entered into a cable television system/Internet installation
agreement. Pursuant to the agreement, the Company will install, own and operate
a cable television plant, provide a Point of Presence (POP) network, as well as,
other broadband services at the Keswick Apartments, a 180 unit, upscale
apartment project located in suburban Columbia, South Carolina. As this area is
no longer a business focus of the Company, Intermark and the Company are in
discussions to have Intermark take over the contract.
The Company is focused on becoming a leading provider of broadband
infrastructure technology solutions, enabling its customers to implement
scalable and intelligent networks. The Company believes it provides a best of
breed technological solution for network connectivity from varied disciplines of
cable, fiber and wireless. At the time of this annual report, the Company is
focused on two primary markets for its products and services: cable system
operators and emerging business-to-business markets.
<PAGE>
Cable System Operators
The Company provides cable system operators with a host of life
cycle engineering services that enable the deployment of broadband subscriber
services. The Company also offers cable system operators a turnkey system for
node certification and quality assurance called DQMC. This system is offered by
the Company for use on contracted node certification projects and is licensed
directly to cable system operators who wish to perform node certification on an
in-house basis. The Company also provides a wide range of technical training
services to cable operators' in-house engineering professionals. These services
are focused on tasks pertaining to the management, maintenance and
re-engineering of the operators cable plant infrastructure for the delivery of
broadband services.
The Company believes there is a significant market opportunity for
its services within the cable industry. Current market data from industry
sources indicate that there are approximately 64 million cable subscribers
serviced by 5200 cable operators in North America. In order to launch new
broadband services to their subscribers, cable operators must upgrade their
cable plant infrastructure and networks for the bi-directional flow of data and
information (content). Many operators lack capital or in-house skills sets to
upgrade their infrastructure internally and as a result seek a best of breed
services provider. The Company is targeting cable plant operators as its primary
market. The Company believes it provides a value-added solutions set to the
cable industry. The Company's services provide major cable operators with the
resources needed to upgrade their plant infrastructure and networks, enabling
operators to launch reliable broadband subscriber services.
The Company believes that major cable operators have the potential for
capturing a significant share of the consumer market for broadband services via
cable modem, digital set-top and Internet telephony technologies. The number of
consumers connected to the Internet is expected to grow, fueled by growth in
on-line shopping ("electronic commerce"), on-line information gathering
("surfing") and on-line investing ("trading"). In addition, telecommuters and
home-based businesses require high-speed reliable bandwidth with consistent
service levels. This type of broadband network is "always on", unlike switched
technologies, such as a standard dial-up telephone connection. The user is
always connected to the Internet as long as his or her computer and cable modem
are activated. This eliminates the need for a time-consuming connection process,
as with a dial-up service, and changes the way the customer uses the Internet.
The Company believes the cable network design is technically well
suited for the bi-directional flow of data and content into and out of the
consumer household. The North American cable industry has adopted DOCSIS to
support the delivery of data-over-cable services utilizing interoperable cable
modems. DOCSIS is an acronym for "data-over-cable systems interface
specifications". The Company believes this new standard and the distribution of
DOCSIS-compliant modems through computer retailers will facilitate the growth of
the cable modem industry. The Company believes that the growth and acceptance of
cable modem technology as the delivery mechanism for broadband services will
result in continued demand for its engineering services by the North American
cable industry.
Emerging Business-to-Business Markets
The Company is targeting the business-to-business marketplace for
its array of wireless network integration services. Management believes the
sectors that present the most opportunity for the Company include financial
services, healthcare, and transaction-intensive industries which need high
speed, reliable bandwidth to support current and future business applications.
As more businesses set up virtual "store-fronts" to sell goods and services via
electronic commerce, they will require additional telecommunications bandwidth
and network resources. Corporate information technology departments are also
confronted with growing bandwidth requirements to support growing numbers of
telecommuters and remote access workers.
<PAGE>
The Company believes that wireless network technology is
technically and economically well suited to meet the bandwidth demands of the
business-to-business marketplace. The Company believes that wireless technology
can be deployed to business customers rapidly and at a fraction of the cost of
traditional wire-line infrastructure. In addition, to rapid deployment and lower
cost, wireless technology provides higher performance (speed), continuous
access, and scalability of network resources making it technically and
economically well-suited for the business marketplace.
The Company believes that these favorable market climate factors
present an opportunity for it to sell wireless network integration and wireless
Internet access services. Management believes the acquisition of CAD provides
the Company with both a strong technical organization and research and
development capability to compete in the market for wireless network services.
The Company is well skilled at all aspects of wireless network integration
including definition and site surveying, design, equipment procurement,
integration, maintenance and scaling of the network. The Company has installed
wireless wide area networks ("WAN") at several corporate, government and
educational organizations and has deployed a wireless network with Internet
access in Cape May County, New Jersey.
The Company has a reputation for skilled workmanship and quality,
which has enabled it to gain new business for point-to-point wireless network
installation on a referral basis. In addition to referrals, the Company will be
implementing proactive marketing and sales activities to generate increased
demand for its fixed-point wireless services. In the wireless Internet access
area, the Company is investigating potential partnership opportunities with
cable operators and Internet service providers (ISPs) for joint marketing of
wireless Internet services in the business-to-business and consumer markets. The
Company believes that many cable operators have an interest in providing
additional broadband services to their subscribers in order to increase their
revenue potential. The Company believes that wireless technology offers cable
operators the ability to expand their bandwidth into the residential market,
while also enabling them to break into the growing market for business Internet
access services. Because of its expertise and background in the cable industry,
the Company believes it is a logical wireless partner for major cable operators.
Similarly, small to mid tier ISPs are in need of partners who can
supply alternate and redundant high-speed bandwidth to meet under-served
business customers. These providers have constant needs for reliable predictable
network connectivity and class of service to their corporate customers. Not
unlike a cable operator they possess a vast client base that desires better,
faster and cheaper service. The Company believes wireless technology, as a
result of its speed, ease of deployment and scalability, is a natural solution
for the bandwidth needs of ISPs. The Company is investigating the deployment of
a wireless network backbone with POPs throughout the Northeast United States and
into Canada. Once deployed this backbone will form the foundation for
implementation of partnership arrangements with ISPs. Additional financing would
be required to deploy this backbone. There can be no assurance that any such
financing will be available and if available, that it will be on terms
acceptable to the Company.
<PAGE>
SALES AND MARKETING
The Company plans to implement a sales and marketing program aimed at
promoting its two core business lines: cable infrastructure services and
wireless network solutions. At the time of this annual report, the Company is in
the process of creating a new corporate identity through creation of a revised
company logo and website. The Company believes that the new identity and website
will be more consistent with its current business thrust and will form the
foundation of a more focused marketing and corporate communications program
moving forward. The Company plans to implement direct mail, advertising and
trade show programs to create increased awareness and sales lead generation for
its offerings in the area of cable infrastructure services. These activities
will primarily focus on marketing the Company's DQMC system and its array of
training services. The Company utilizes public relations and other publicity
programs to promote its contracts and customer successes in the cable industry.
These activities serve to create general positive awareness for the Company, its
offerings and the customers it serves. To promote its wireless network
integration and wireless Internet access services, the Company is evaluating the
use of public relations, direct mail and telemarketing programs. The Company
plans to promote its wireless integration successes via case studies and other
feature articles on its website, and through public relations programs. The
Company plans to use direct mail and other joint marketing with partners to
promote wireless Internet access services to businesses in regional areas
covered by its planned wireless network backbone. Telemarketing is being
evaluated as a mechanism for qualifying prospect interest in the Company's
wireless Internet access services. The Company also intends to utilize a
strategic corporate communications program aimed at generating awareness and
coverage of the Company in the industry trade and business press, national and
cable broadcast media, and industry analyst community. The Company is putting
together a corporate information presentation that it plans to present to major
media and industry analysts as part of a planned road show during the second
half of 2000. The Company has contracted with a regional marketing consulting
firm in Bala Cynwyd, Pennsylvania as its design agency to create its new company
logo, redesign its website, and to develop its capabilities presentation and new
sales collateral materials. The Company is investigating other external
marketing partners to assist in strategic areas of its marketing program,
including telemarketing and public relations. Internal staff will primarily
handle the overall management and implementation of the Company's marketing
program.
INTELLECTUAL PROPERTY
The Company, through the recently acquired Cable Systems, claims a
common law service mark in DQMC(TM). The Company is aware of another company
using DQM(TM) as a service mark but believes its services are so distinctly
different from the Company's services that there is no opportunity for confusion
between the Company's services and the services of that company.
COMPETITION
The Company competes with other solutions providers in both of its core
business lines: cable infrastructure services and wireless network services. In
servicing the needs of the cable industry, the Company competes for engineering
infrastructure services contracts with small to medium sized cable services
firms; as well as the engineering services units of major cable equipment
manufacturers. Through its acquisition of Cable Systems, the Company believes it
is in a strong position to compete with such companies. Cable Systems provides
the Company with a specialized set of cable technicians. These technicians have
been specially trained, and are continually retrained, in the latest
technologies and have vast experience in providing infrastructure services. The
Company also has serviced major cable operators in multiple geographic locations
across North America. This reputation for proven, predictable workmanship
<PAGE>
enables the Company to win repeat business from major cable operators over
competing cable engineering services firms. Furthermore, cable infrastructure
service is a core competency of the Company. As a result, the Company has served
and continues to serve as a sub-contractor to major cable equipment
manufacturers who require the Company's specialized or proprietary expertise on
particular broadband engineering projects. In this scenario, the Company serves
as a partner with its competitors, augmenting the competitors' own resources and
staff. In servicing the wireless network needs of the business-to-business
marketplace, the Company competes with small to medium sized network integration
service firms. These firms are primarily engaged in the offering of local area
network (LAN) integration services and offer wireless services as an extension
of their business. Through the acquisition of CAD, the Company believes it is in
a strong position against these competitors. Wireless network integration is a
technically challenging business practice, requiring specialized skill-sets. CAD
provides the Company with specially trained staff expertise in wireless
technology, integration and project management. As a result, the Company is able
to win new business contracts against other network services providers who lack
the wireless core competency that the Company possesses. The Company does not
compete at this time for wireless integration services against major wireless
equipment manufacturers and telecommunications carriers. The Company has won
business contracts based on referrals from major wireless equipment
manufacturers (OEMs) and value-added resellers (VARs).
PERSONNEL
At the date of this report, the Company employs 117 persons. The
following table shows the breakdown of these personnel by operating segment as
of the period indicated.
<TABLE>
<CAPTION>
CABLE
WESTCHESTER CHARLESTON CAD SYSTEMS TOTAL
----------- ---------- --- ------- -----
<S> <C> <C> <C> <C> <C>
Executive 4 1 1 2 8
Administrative/
Marketing/
Professional 3 1 1 22 27
Engineering 0 0 2 5 7
Technical 0 2 3 70 75
----------------------------------------------------
Total 7 4 7 99 117
</TABLE>
The Company expects to realize a substantial increase to its employment base as
it continues to expand and grow its number of customers.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company leases 2,000 square feet of general office space in
downtown Charleston, South Carolina, which serves as its office, operations
center and head-end plant for the Charleston, South Carolina area that provides
bandwidth administration and the interface between the cable system and the
Internet. The Company's lease runs through October 2000 at a monthly rental of
$2,000. With the acquisition of Cable Systems, the Company assumed its lease of
3,260 square feet of general office space in Markham, Ontario, Canada that
serves as the principal offices and operations center for Cable Systems. This
Cable Systems lease has a remaining term of one year at a monthly rental of
$1,635. Further, Cable Systems has leased four branch offices at various
locations in the United States and Canada.
<PAGE>
These leases are for approximately 7,940 square feet in aggregate with a
combined monthly rental rate of $3,144. These Cable Systems lease terms will
expire over the next 2 years. These leased spaces are used as field offices for
the operations of Cable Systems. In addition, with the acquisition of CAD, the
Company assumed its lease of 1,675 square feet of general office space in
Parsippany, New Jersey. This CAD lease has a remaining term of 1 year at a
monthly rental of $2,544. The Company expects to relocate its corporate
headquarters to the West Chester, Pennsylvania area. The Company is in
discussions to lease, as its headquarters, approximately 5,000 square feet of
executive office space for a term of five years at an initial rate of twenty
dollars ($20.00) per square foot per year.
ITEM 3. LEGAL PROCEEDINGS.
Currently, the Company is not a party to any material Legal
Proceedings. The Company has been served with a complaint from a vendor which
demands less than $18,000 in past due amounts for alleged services. The Company
disputes any services were provided, is investigating the complaint and will
vigorously pursue its defense of this claim and any counterclaim.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders
during the Fiscal 1999. At the Annual Shareholder meeting held January 25, 2000,
the security holders: (A) approved the 1999 Stock Option Plan; (B) elected
Michael F. Mulholland as Chairman, Mark A. Kearney as a Director and Joseph
Melanson as a Director; and (C) ratified the appointment of Friedman, Alpren &
Green, LLP, as the Company's certified public accountants for 2000.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
As of April 4, 2000, the Company had 10,063,811 shares of common stock
outstanding. The Company's common stock trades under the trading symbol of
"ICBL" on the OTC Bulletin Board operated by the National Association of
Securities Dealers, Inc. The following table sets forth, for the period
indicated, high and low bid quotations for the Company's common stock. These
over-the-counter bid quotations do not reflect retail mark-up, markdown and or
commission and may not necessarily represent actual transactions.
Quarter ended High Bid Low Bid
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March 31, 1998 $4.50 $3.00
June 30, 1998 $5.75 $3.125
September 30, 1998 $4.25 $1.25
December 31, 1998 $5.625 $1.031
March 31, 1999 $20.25 $5.562
June 30, 1999 $12.125 $6.25
September 30,1999 $7.937 $4.25
December 31,1999 $14.125 $4.562
The closing high and low bid quotations for the Company's common stock
on April 4, 2000 were $13.36 and $9.75, respectively.
NUMBER OF STOCKHOLDERS. At December 31, 1999, the Company had 156
stockholders of record and an estimated 700 beneficial stockholders with shares
registered in street name, as determined from the records of Depository Trust
<PAGE>
Company. At June 30, 1999, the Company had 107 stockholders of record and an
estimated 680 beneficial stockholders with shares registered in street name. At
April 4, 2000, the number of stockholders of record was 157 and the estimated
number of stockholders with shares held in street name was 750.
DIVIDENDS. Dividends on the common stock can be paid lawfully only out
of current and retained earnings and surplus of the Company, when, as and if
declared by the Board of Directors. The Company has not declared or paid any
dividends on the common stock since inception and there is no assurance
dividends will be paid in the foreseeable future. The payment of dividends in
the future rests within the discretion of its Board of Directors and will depend
upon, among other things, the Company's earnings, its capital requirements and
its financial condition, as well as other factors that the Board of Directors
deems relevant.
TRANSFER AGENT. The Company's transfer agent and stock registrar is
Interstate Transfer Company, 6084 S. 900 E., Suite 101, Salt Lake City, UT
84121; Telephone (801) 281-9746; web address www.interstatetransfer.com.
RECENT SALE OF UNREGISTERED SECURITIES. During the period October 1999
through January 2000, the Company, through a placement agent, raised
approximately $9,080,000 of gross proceeds through the sale of 1,816,000 shares
of its common stock under a private placement offering (the "Offering"). Of the
total gross proceeds raised in the Offering, approximately $7,550,000 had been
raised as of December 31, 1999 through the sale of 1,510,000 shares. These
shares were sold to a total of 79 Accredited Investors; as such term is defined
in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as
amended. During the fiscal year ended June 30, 1999, the Company sold 419,437
shares of its common stock with aggregate approximate gross proceeds of $847,000
to a total of 17 investors in reliance upon an exemption from registration
pursuant to Rule 504 under the Securities Act of 1933, as amended. The net
proceeds from the sale of the common stock were used for general corporate
purposed and working capital. The common stock was sold directly by the Company
without a placement agent.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL. When used in this Form 10-KSB and in future filings by the
Company with the Securities and Exchange Commission, the words or phrases "will
likely result" and "the company expects," "will continue," "is anticipated,"
"estimated," "project," or "outlook" or similar expressions are intended to
identify "forward-looking statements." The Company wishes to caution readers not
to place undue reliance on any such forward-looking statements, each of which
speak only as of the date made. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
has no obligation to publicly release the result of any revisions, which may be
made to any forward-looking statements to reflect anticipated or unanticipated
events or circumstances occurring after the date of such statements. The Company
is a provider of broadband infrastructure services and wireless network
solutions to the cable industry and business-to-business marketplace. As of this
December Period report, the Company is no longer considered a Development Stage
Company as had been shown in the Fiscal 1999 report. The Company closed a
private placement of its securities, which provided for working capital and
shareholder equity to support ongoing operations.
RESULTS OF OPERATIONS FOR TRANSITION PERIOD SIX MONTHS ENDED DECEMBER 31, 1999
("December Period") AND SIX MONTHS ENDED JUNE 30,1999 ("June Period") AND FISCAL
YEARS ENDED JUNE 30, 1999 ("Fiscal 1999") AND 1998 ("Fiscal 1998")
<PAGE>
SALES. Sales for the December Period were $14,888 as compared to sales
of $21,095 for the June Period. Sales for Fiscal 1999 were $24,016 as compared
to sales for Fiscal 1998 of $50,410. During the December Period and Fiscal 1999
the Company focused its limited resources, both capital and personnel, on the
completion of strategic acquisitions and raising capital. As a result of this
focus, the Company had little resources to pursue current one time revenue. The
Company believes that with the completion of the acquisitions it will be able to
obtain increased revenue growth in the future. The revenue generated during the
year was through the sale of excess bandwidth to businesses located in the
Charleston, South Carolina region that will allow the Company to enjoy a
continued revenue stream, rather than the one time sales revenue experienced in
Fiscal 1998.
COST OF SALES. Cost of sales for the December Period was $37,983 and
for the June Period was $50,445. The decrease in December Period cost of sales
mirrors the decrease in sales when compared to the June Period. Fiscal 1999 cost
of sales were $54,073 as compared to $52,887 for Fiscal 1998. Although the
Company experienced a decrease in sales, cost of sales increased slightly due to
the $15,000 write off of worthless inventory on June 30, 1999, which had been
accumulated during Fiscal 1999. The write off is reflected in cost of sales as a
result of its accumulation during Fiscal 1999 and therefore is not reflected in
the Fiscal 1998 balance sheet.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expense
("G&A") for the December Period was $615,088 as compared to the June Period
expense of $388,732. The largest portion of this increase from the June Period
to the December Period, $208,544 or 92% of the difference, was incurred in
professional fees related to assisting the Company in its private placement
offering and acquiring CAD and Cable Systems. G&A expenses for Fiscal 1999 were
$783,162 compared to the Fiscal 1998 charge of $489,102.
STOCK BASED COMPENSATION. The stock based compensation-employees &
directors was $2,638,085 in the December Period and $219,213 in both the June
Period and Fiscal 1999. There was no stock based compensation-employees &
directors in Fiscal 1998. These expenses were driven by the issuance of stock
warrants and options to members of the new management team. The warrants and
options were issued under the 1999 Stock Option Plan and the expense was based
on an estimate of the fair value of the warrant/option on the date of issuance
using the Black-Scholes Option Valuation Model ("Black-Scholes"). The Company
incurred other stock based compensation; that is stock for services in Fiscal
1999 of $383,750 and $1,142,875 in Fiscal 1998. The Company accounts for stock
warrants and options issued to non-employees under the fair value method. The
fair value of these warrants and options was calculated at the date of issuance
using Black-Scholes.
INTEREST EXPENSE. For the December Period, interest expense was
$127,087 compared to the $16,280 incurred during the June Period. The interest
was incurred when the Company borrowed operating capital in the form of bridge
loans to fund the Company until its placement of securities could be closed.
Interest expense for Fiscal 1999 was $16,280 compared to $15,925 for Fiscal
1998.
PENALTY EXPENSE. Penalty expense for the December Period, June period
and Fiscal 1999 was $0 compared to $68,245 for the Fiscal 1998. The decrease was
due to payment in February 1999 of the outstanding amount due. In addition,
there was an over accrual of penalty expense in Fiscal 1998, which was adjusted
for in Fiscal 1999, as there were no additional amounts due.
NET LOSS. Of the net loss of $3,403,355 for the December Period,
approximately 78% of this amount was incurred in stock based compensation costs
for the installation of the new management team. The net loss for the June
<PAGE>
Period was $1,554,380. The net loss for Fiscal 1999 was $1,657,462 compared to
the net loss of $1,718,633 for Fiscal 1998 fiscal year, a decrease of $61,171,
or approximately four percent. The Company expects a substantial decrease in
losses going forward as the Company completes the integration of the operations
of its acquisitions into the Company.
LIQUIDITY AND CAPITAL RESOURCES. Since inception, the Company had
financed its operations primarily through a combination of private sales of
equity securities and non-interest bearing loans from the Company's executive
officers and interest bearing loans from private investors. At December 31, 1999
the Company had cash of $1,531,708 and at June 30, 1999, the Company's cash was
$51,448. The increase was a result of the additional financing received by the
Company. The Company incurred development stage losses of $3,792,149 since
inception through June 30, 1999. Current assets exceed current liabilities by
$599,483 at December 31, 1999. The Company completed the Offering of its
securities, in January 2000, realizing approximately $9,080,000 in gross
proceeds through the sale of stock at $5.00 per share plus warrants for 1/2
share for each share purchased. These warrants are exercisable over a 5-year
term with a strike price of $10.00 per share. The Company completed a Rule 504
Offering in December of 1998 of approximately $847,000 in gross proceeds through
the sales of the Company's common stock at $2.00 per share. From May through
November 1999, the Company engaged an outside agent to sell $700,000 of 10%
two-year promissory notes. These notes were pre-payable out of any public or
private financing resulting in gross proceeds of $5,000,000, or if the Company
merges with another company with at least $5,000,000 in cash. As of June 30,
1999 the Company had raised a total of $200,000 in gross proceeds of such bridge
loan. The Company raised a total of $650,000 in gross proceeds before the
closing of the private placement. Investors in the promissory notes also
received an aggregate of 325,000 warrants, entitling the holder to purchase an
aggregate of 325,000 shares of common stock for a period of five years at $3.00
per share. The promissory note investors, at June 30, 1999, had warrants to
acquire 100,000 shares of common stock for a period of five years at $3.00 per
share. The Company repaid the bridge loan from the private offering completed in
January 2000.
The Company's capital requirements primarily relate to acquisitions of
Cable Systems and CAD, working capital and investments in the network computer
and cable equipment. In addition, the Company is seeking capital to help
facilitate strategic alliances. For acquisition purposes and for supplemental
strategies, the Company foresees its cash requirements for operations for the
next 12 months to be approximately $3,000,000 to $5,000,000. The Company expects
to satisfy this need through proceeds of a debt placement and additional
security placements, if necessary, within the next 6 months. The Company plans
to finance its capital equipment expenditures from a variety of sources,
including direct vendor leasing programs, third party commercial leasing
arrangements and bank financing. The Company is meeting with various sources of
capital to satisfy its equity requirements as it plans for its growth strategy.
However, there is no assurance that the Company will be able to obtain such
financing on terms acceptable to the Company. The Company believes if it is able
to obtain at least $3,000,000 in financing, it will have the financial resources
necessary to meet its presently anticipated business requirements for the next
12 months. Nonetheless, depending on the market conditions, the Company may seek
to sell additional equity or debt securities or obtain alternative credit
facilities. The sale of additional equity or debt securities may result in
significant dilution to the existing shareholders. There is no assurance that
the Company will be able to raise such capital on terms acceptable to the
Company, or if at all.
<PAGE>
YEAR 2000. As of the date of this report, the Company has not
experienced any Year 2000 related problems. Year 2000 computer issues could have
created certain risks for the Company, although the Company believes that such
risks were less significant than those faced by many companies due to the fact
the Company's current operations commenced in 1997. If the Company's internal
and network information systems do correctly recognize and process date
information beyond the year 1999, there should be no adverse impact on the
Company's operations, except as the Company may experience as a result of
failure of other servers connected to the Internet which are beyond the
Company's control. The Company initiated a comprehensive program (the "Program")
to address Year 2000 readiness in its systems and with its customers' and
suppliers' systems. The Program was designed to gather information regarding the
Year 2000 compliance of products and services that are required by the Company
to deploy its services. Under the Program, assessment and remediation proceeded
in tandem and was completed by the Company as of June 30, 1999. These activities
were intended to encompass all major categories of systems in use by the
Company. The costs incurred related to the Program have not been material. The
total cost estimate does not include potential costs related to any customer or
other claims or the costs of internal software or hardware replaced in the
normal course of business. The total cost estimate is based on the current
assessment of the Company's Year 2000 readiness needs and is subject to change.
The Company also is communicating with its significant suppliers to determine
the extent to which the Company is vulnerable to such suppliers' failure to
remedy their own Year 2000 issue. The Company has already received assurances of
Year 2000 compliance from a number of those suppliers. Most of the suppliers
have no contractual obligations under existing contracts with the Company to
provide such information to the Company. The Company is taking steps with
respect to new supplier agreements to ensure that the suppliers' products and
internal systems are Year 2000 compliant. While the Company currently expects
that the Year 2000 issue will not pose significant operational problems, delays
in the implementation of new information systems or a failure to fully identify
all Year 2000 dependencies in the Company's existing system and in the systems
of its suppliers could have material adverse consequences. Therefore, the
Company has developed contingency plans for continuing operations in the event
such problems arise.
FUTURE IMPLEMENTATION OF NEW ACCOUNTING STANDARDS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was
issued in June 1998, and was subsequently amended by SFAS No. 137 "Accounting
for Derivative Instruments and Hedging Activities-Deferral of Effective Date of
FASB Statement No. 133". SFAS No. 133 addresses the accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts and hedging activities. Adoption of SFAS No. 133 is required as of
July 1, 2000, and will not have a material impact on the results of operations
of the Company.
SFAS No. 131, "Disclosure about Segment of an Enterprise and Related
Information" is not applicable to the Company for the six months ending December
31, 1999 and for the fiscal years ended June 30, 1999 and 1998 as the Company
does not have segments as defined by SFAS No. 131.
ITEM 7. FINANCIAL STATEMENTS. The financial statements appear in a separate
section of this report following item 13.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Durland & Company, CPAs, of Palm Beach, Florida ("Durland") audited the
Company's financial statements at and for the fiscal years ended June 30, 1997
<PAGE>
and 1998. Durland was not engaged to perform and did not commence an audit of
the Company's financial statements at and for the fiscal year ended June 30,
1999.
Durland's audit report covering the Company's financial statements for
the 1997 and 1998 fiscal years contained the following statement: "The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2, the Company has
experienced development stage losses, and has a negative working capital and net
worth, which 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."
During the Company's 1997 and 1998 fiscal years audited by Durland and
during the period subsequent to the last such fiscal year up to and including
the date the Company engaged another independent auditor for the 1999 fiscal
year, there were no disagreements between the Company and Durland on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure. No audit procedures had been undertaken by Durland
for the six-month period ending December 31, 1999 or for the fiscal year ended
June 30, 1999.
At no time during the audit of Company's 1997 and 1998 fiscal years or
subsequent thereto, did Durland advise the Company that (A) the Company's
internal controls necessary for the Company to develop reliable financial
statements did not exist, (B) information had come to Durland's attention that
had led it to no longer be able to rely on management's representations, or that
has made it unwilling to be associated with the financial statements prepared by
management, (C) the scope of the audit would need to be significantly expanded,
or information had come to Durland's attention during that time period that if
further investigated might (i) materially impact the fairness or reliability of
either: a previously issued audit report or the underlying financial statements,
or the financial statements issued or to be issued covering the fiscal periods
subsequent to the date of the most recent financial statements covered by an
audit report (including information that might prevent Durland from rendering an
unqualified audit report on those financial statements), or (ii) cause it to be
unwilling to rely on management's representations or be associated with the
Company's financial statements or (D) (1) information had come to Durland's
attention that it had concluded materially impacted the fairness or reliability
of either (i) a previously issued audit report or the underlying financial
statements, or (ii) the financial statements issued or to be issued covering the
fiscal period(s) subsequent to the date of the most recent financial statements
covered by an audit report and (2) the issue (of which there were none) had not
been resolved to Durland's satisfaction prior to its termination.
The Company engaged Friedman Alpren & Green, LLP certified independent
accountants of New York, New York on July 8, 1999 to audit its financial
statements at and for the six months ended December 31, 1999 and for the fiscal
year ending June 30, 1999. Neither the Company nor anyone on its behalf at any
time consulted the newly engaged accountant regarding (i) either: the
application of accounting principles to a specified transaction, either
completed or proposed; or the type of audit opinion that might be rendered on
the Company's financial statements, or (ii) any matter that was either the
subject of a disagreement (there being none) or a reportable event (there being
none). The change in the Company's independent auditor was approved by the
Company's board of directors committee or by the board of directors.
The Company has provided Durland with a copy of the disclosure in this
Item 8 prior to filing hereof with the Commission, accompanied by a request that
Durland furnish the Company with a letter addressed to the Commission stating
whether it agrees with the foregoing statements made by the Company. The Company
has filed Durland's letter as an exhibit to this annual report.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
The names, ages and terms of office of directors and executive officers
of the Company are set forth in the following table:
NAME AGE ALL POSITIONS WITH COMPANY
- --------------------------------------------------------------------------
Michael F. Mulholland 50 Chairman; Chief Executive
Officer
Joseph M. Melanson 43 Director; President of Cable
Mark A. Kearney, Esq. 37 Director
Robert F. Bronner 60 Chief Operating Officer;
Secretary
Craig Lerman 38 President of CAD
William F. Walsh 49 Chief Financial Officer;
Treasurer
MICHAEL F. MULHOLLAND is the Chairman of the Board of Directors and
Chief Executive Officer of the Company and is responsible for overseeing all
facets of the Company's daily operations and long-term planning. Mr. Mulholland
joined the Company as a consultant in September 1999 and became the Chief
Executive Officer in December 1999. Prior to joining the Company, Mr. Mulholland
spent twelve years in management positions with SunGard Data Systems ("SunGard")
of Wayne, Pennsylvania (NYSE: "SDS") with the last nine years as Chairman, Chief
Executive Officer and President of SunGard Recovery Services, Inc., a division
of SunGard. Before that, he spent twelve years in sales management at McDonnell
Douglas Corporation, St. Louis, Missouri. Mr. Mulholland graduated from Temple
University of Philadelphia, Pennsylvania.
JOSEPH M. MELANSON is a Director of the Company and President of Cable
Systems, the Company's recent acquisition which was completed January 4, 2000.
Mr. Melanson has continuously served as the Chief Executive Officer of Cable
Systems since founding the company in 1995. Prior to that, he was the Chief
Executive Officer of Cansel Software Limited, a database software company he
founded in 1988.
MARK A. KEARNEY, ESQUIRE is a Director of the Company and a shareholder
in the law firm of Elliott Reihner Siedzikowski and Egan, P.C. with offices
throughout Pennsylvania. His national practice is concentrated in commercial and
financial litigation with special emphasis on investor rights and the
representation of business directors, officers and managers in entrepreneurial
enterprises. He received his B.A. with honors and his J.D. from Villanova
University. He is a member of the Bars of the State of Delaware, the
Commonwealth of Pennsylvania, the United States Courts of Appeals for the Third
and Eleventh Circuits and the United States District Courts in Pennsylvania and
Delaware.
ROBERT F. BRONNER is the Chief Operating Officer and Secretary of
the Company. Mr. Bronner joined the Company as a consultant in December 1999 and
became the Chief Operating Officer in January 2000. He is responsible for
directing all facets of the day-to-day operations of the Company. Prior to
joining the Company, Mr. Bronner spent fourteen years in executive positions
with SunGard with his last position as Chief Operating Officer of SunGard
Recovery Services, Inc., a division of SunGard. Before that, he spent three
years in directing the operations and sales for his own software company. Prior
to that, he spent seven years with Sun Company in various marketing, sales and
business development positions. Mr. Bronner graduated with a BA in Economics
from Monmouth College, Monmouth, Illinois and MA in Business from Central
Missouri State University in Warrensburg, Missouri.
<PAGE>
CRAIG LERMAN is the President of CAD, the recently acquired
wireless division of the Company. Mr. Lerman, the founder and sole shareholder
of CAD, served as CAD's Chief Executive Officer since its inception in 1993.
Prior to that Mr. Lerman had worked as an electrical engineer for Becton
Dickinson of Parsippany, New Jersey for two years where he designed medical
diagnostic equipment. He had also worked for AT&T Bell Labs of Holmdel, New
Jersey as a systems engineer. He is an honors graduate of New Jersey Institute
of Technology of Newark, New Jersey.
WILLIAM F. WALSH, CPA is the Chief Financial Officer and Treasurer of
the Company. Mr. Walsh joined the Company as a consultant in December 1999 and
became the Chief Financial Officer in January 2000. He is responsible for
overseeing all facets of the financial and administrative affairs of the
Company. Prior to joining the Company, Mr. Walsh was the sole proprietor of a
consulting firm, which he originally founded in 1986. Mr. Walsh has also served
as the Chief Operating Officer of Brandywine Health Services, Inc. of
Coatesville, Pennsylvania and spent seven years as a consultant and auditor for
Coopers & Lybrand, (now PriceWaterhouseCoopers). He is a graduate of the
Pennsylvania State University.
There is no family relationship between any of the above named officers
or directors.
Each director is elected by holders of a majority of the Common Stock
to serve for a term of one year and until his successor is elected and
qualified, which is generally at the annual meeting of stockholders. The
directors were most recently elected at the annual meeting of stockholders held
on January 25, 2000.
Committees and Meetings of the Board
The Board of Directors has established an Audit Committee and a
Compensation Committee. The responsibilities of the Audit Committee include
recommending to the Board of Directors the firm of independent auditors to serve
the Company, reviewing the independent auditors reports, services and results of
audit, and reviewing the scope, results and adequacy of the Company's internal
control procedures. The Audit committee consists of Directors who are not
officers of the Company or any affiliates thereof. The Compensation Committee is
responsible for periodically reviewing and evaluating officers' compensation and
administering the Company's Stock Options Plan(s).
The Company will pay a stipend of $500 per meeting of the Board, or
any committee thereof, for outside directors and reimburse directors and
committee members for all ordinary and necessary expenses incurred in attending
any meeting of the Board of Directors or any committee thereof. In addition, the
Company will issue to committee members an option to purchase 25,000 shares of
the Company's common stock exercisable at a price equal to the fair market value
of the stock as of the date such directors are appointed to serve on such
committees.
During the year ended December 31, 1999, the Company's Board of
Directors met seven (7) times on the following dates: December 7, 1998, December
24, 1998, January 22, 1999, January 26, 1999, February 25, 1999, April 29, 1999
and May 18, 1999, at which all of the directors were present and acted by
written consent in lieu of a meeting five (5) times on the following date:
December 7, 1998, December 24, 1998, February 25, 1999, April 29, 1999 and May
18, 1999.
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
The Company's registration under Section 12(g) of the Securities
Exchange Act of 1934, as amended, became effective on July 8, 1999. Prior to
that date, directors, officers and holders of more than ten percent of the
Company's common stock were not subject to the beneficial ownership reporting
requirements of Section 16(a) of said act. The following table sets forth the
name of each former director, officer and holder of more than ten percent of the
Company's common stock and for each such person, the number of late reports, the
number of transactions that were not reported on a timely basis (none), and any
known failure to file a required Form 3, 4 (none) or 5 which were required to be
filed after the effective date of the Company's annual report.
FORM 3 FORM 5
------ ------
J. Robert Jones 1 1
Timothy R. Karnes 1 1
Lisa B. Safford 1 1
Mark E. Gould 1 1
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth the cash compensation paid to the
Company's current and former officers during each of the three fiscal years
ended December 31, 1999, 1998 and 1997 paid to the Company's Chief Executive
Officer. There was one other person whose compensation at the end of the above
years was equal or greater than $100,000.
NAME FISCAL YEAR POSITION(S) SALARY
- ---- ----------- ----------- ------
Timothy R. Karnes 1997 President $ 70,000
1998 President $ 70,000
1999 President $ 70,000
Michael F. Mulholland 1999 Consultant $100,000
In addition to cash compensation for 1999, on January 22, 1999 the
Company issued common stock purchase warrants exercisable to purchase 250,000
shares of common stock to Mr. Karnes and common stock purchase warrants
exercisable to purchase 150,000 shares of common stock to Mr. Jones. The
warrants are exercisable for a period of five years from the date of issuance at
a price of $2.50 per share.
The following table sets forth certain information about common stock
purchase warrants or options issued to directors and executive officers during
1999. Prior to 1999, the Company granted 300,000 common stock purchase warrants
to J. Robert Jones. No other warrants or options were issued to management prior
to 1999.
% OF
NUMBER OF TOTAL EXERCISE
NAME SHARES GRANTED PRICE EXPIRE
- -------------- --------- ------- ------- ----------
J. Robert Jones 150,000 3% $2.50 1/21/04
Timothy R. Karnes 250,000 6% $2.50 1/21/04
Michael F.
Mulholland 1,500,000 34% $4.625 8/30/04
Joseph Melanson 1,200,000 27% $6.125 11/10/04
Robert F. Bronner 400,000 9% $5.00 10/31/04
Craig Lerman 200,000 5% $5.50 10/07/04
William F. Walsh 300,000 7% $5.00 10/31/04
<PAGE>
Lisa B. Safford, a former director of the Company, was issued common
stock purchase warrants to purchase 50,000 shares of common stock for her
services as and during the time she was a director of the Company.
Michael Jones, a former director of the Company, was issued common stock
purchase warrants to purchase 50,000 shares of common stock for his services as
and during the time he was a director of the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of the date of April 4, 2000, the
names and beneficial ownership of the Company's common stock beneficially owned,
directly or indirectly, by (i) each person who is a director or executive
officer of the Company, (ii) all directors and executive officers of the Company
as a group, and (iii) all holders of 5% or more of the outstanding shares of
common stock of the Company.
<TABLE>
<CAPTION>
NAMES AND ADDRESS OF AMOUNT AND NATURE PERCENTAGE OF
BENEFICIAL OWNER(1) OF BENEFICIAL OUTSTANDING
OWNERSHIP (2)
- --------------------------------------------------------------------------------
<S> <C> <C>
Timothy R. Karnes...........2,071,600(3) 20.1%
J. Robert Jones.............1,000,375(4) 9.5%
Lisa B. Safford............. 65,000(5) *
Michael F. Mulholland....... 375,000(6) 3.6%
William F. Walsh............ 75,000(7) *
Robert F. Bronner........... 100,000(8) *
Joseph M. Melanson.......... 300,000(9) 2.9%
Craig Lerman................ 500,000(10) 4.9%
Mark Gould
639 Cleveland Street
Clearwater, Fl 33755....... 538,826 5.5%
All directors and officers
As a group (8 persons)
(3)(4)(5)(6)(7)(8)(9)(10).. 4,486,975 38.3%
<FN>
* Less than one %.
(1) Except as set forth above, the address of each individual is 263 King
Street, Charleston, South Carolina 29401.
(2) Based upon information furnished to the Company by either the directors
and executive officers or obtained from the stock transfer books of the
Company. The Company is informed that these persons hold the sole voting
and dispositive power with respect to the common stock except as noted
herein. For purposes of computing "beneficial ownership" and the
percentage of outstanding common stock held by each person or group of
persons named above as of the date of this Proxy, any security which such
person or group of persons has the right to acquire within 60 days after
such date is deemed to be outstanding for the purpose of computing
beneficial ownership and the percentage ownership of such person or
persons, but is not deemed to be outstanding for the purpose of computing
the percentage ownership of any other person.
<PAGE>
(3) Includes 250,000 shares of common stock issuable upon warrants/options
that are currently exercisable or exercisable within the next 60 days.
(4) Includes 450,000 shares of common stock issuable upon warrants/ options
that are currently exercisable or exercisable within the next 60 days.
(5) Includes 50,000 shares of common stock issuable upon warrants that are
currently exercisable or exercisable within the next 60 days.
(6) Includes 375,000 shares of common stock issuable upon the exercise of
options that are currently exercisable or exercisable within the next 60
days.
(7) Includes 75,000 shares of common stock issuable upon the exercise of
options that are currently exercisable or exercisable within the next 60
days.
(8) Includes 100,000 shares of common stock issuable upon the exercise of
options that are currently exercisable or exercisable within the next 60
days.
(9) Includes 300,000 shares of common stock issuable upon the exercise of
options that are currently exercisable or exercisable within the next 60
days.
(10) Includes 50,000 shares of common stock issuable upon the exercise of
options that are currently exercisable or exercisable within the next 60
days.
</FN>
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
At December 31, 1999, notes payable to stockholders of the Company of
$130,000, which bore interest at 10% per annum, were repaid in January 2000
together with accrued interest.
Notes payable to officers and/or stockholders of the Company, for an
aggregate of $55,000, which bore interest at 7% per annum, were repaid in
January 2000 together with accrued interest.
During the year ended June 30, 1998, the Company received advances of
$94,000 from a former director and stockholder, bearing interest at 7% a year,
which was repaid during the year ended June 30, 1999.
Pursuant to the acquisition of CAD, non-interest bearing notes
receivable at December 31, 1999, of $40,000, from an officer/stockholder were
due on various dates through October 15, 1999.
ITEM 13. EXHIBITS LISTS AND REPORTS ON FORM 8-K AND FORM 10G.
1. Exhibits
2.1 Share Purchase Agreement dated July 8, 1999, by and between 1291973
Ontario Limited, Eugene Harbin, Joseph Melanson, Ontario Cable and
Contracting Incoporated, Rupel Holdings Inc., Ryon Future Inc., Vonda
Thompson and Intenet Cable Corporation***
2.2 Agreement and Plan of Merger dated October 8, 1999, by and between
Internet Cable Corporation, ICC Acquisition Corp., CAD Consultants,
Inc. and Craig Lerman***
3.1 Articles of Incorporation, as amended*
3.2 Bylaws*
10.1 Sale and Purchase Agreement Cable Systems, TSI
10.2 Agreements with US Cable Costal-Texas, L.P.
10.3 Cable System Installation Agreement with Intermark Associates V,LLC*
10.4 Agreement with Intermark Management, Inc.*
10.5 Agreement with Shangri'La Vacation & Exchange*
16.1 Letter re: change in certifying accountant**
23.1 Consent of Friedman, Alpren & Green, LLP
23.2 Consent of Durland & Company
27. Financial data schedule
99.1 Cable Systems Technical Services Inc - Financial Statements for the
years ended December 31, 1999 and 1998
99.2 CAD Consultants, Inc. - Financial Statements for the years ended
December 31, 1999 and December 31, 1998
99.3 Unaudited Pro Forma Financial Statements of Internet Cable Corporation,
Cable Systems Technical Services Inc. and CAD Consultants Inc.
* Incorporated by reference to the Company's Form 10-12G, filed on May
10, 1999.
** Incorporated by reference to the Company's Form 8K, as amended, filed
on August 4, 1999
*** Incorporated by reference to the Company's Form 8K, as amended, filed
on January 19, 2000
**** Incorporated by reference to the Company's Form 8K, as amended, filed
on March 17, 2000
<PAGE>
INTERNET CABLE CORPORATION
FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1999 AND
YEARS ENDED JUNE 30, 1999 AND 1998
AND
INDEPENDENT AUDITORS' REPORT
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report 1
Financial Statements
Balance Sheet as of december 31, 1999 and June 30, 1999 2
Statement of Operations
Six Months Ended december 31, 1999 and Years Ended
June 30, 1999 and 1998 3
Statement of Cash Flows
Six Months Ended december 31, 1999 and Years Ended
June 30, 1999 and 1998 4
Statement of Changes in Stockholders' Equity (Deficiency)
Six Months Ended december 31, 1999 and Years Ended
June 30, 1999 and 1998 5
Notes to Financial Statements 6-15
<PAGE>
FRIEDMAN 1700 BROADWAY
ALPREN & NEW YORK, NY 10019
GREEN LLP 212-582-1600
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS FAX 212-265-4761
www.nyccpas.com
INDEPENDENT AUDITORS' REPORT
----------------------------
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
INTERNET CABLE CORPORATION
We have audited the accompanying balance sheet of INTERNET CABLE
CORPORATION as of December 31, 1999 and June 30, 1999, and the related
statements of operations, cash flows and changes in stockholders' equity
(deficiency) for the six months ended December 31, 1999 and the year ended June
30, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The financial statements of INTERNET CABLE
CORPORATION for the year ended June 30, 1998 were audited by other auditors
whose report dated January 18, 1999 expresses an unqualified opinion on those
statements.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the 1999 financial statements referred to above
present fairly, in all material respects, the financial position of INTERNET
CABLE CORPORATION as of December 31, 1999 and June 30, 1999, and the results of
its operations and its cash flows for the six months ended December 31, 1999 and
the year ended June 30, 1999, in conformity with generally accepted accounting
principles.
Friedman Alpren & Green LLP
New York, New York
March 21, 2000
<PAGE>
<TABLE>
<CAPTION>
INTERNET CABLE CORPORATION
BALANCE SHEET
ASSETS
------
December 31, June 30,
1999 1999
-------------- ------------
Current assets
<S> <C> <C>
Cash $ 1,531,708 $ 51,448
Notes receivable 40,000 25,000
Receivable and other current assets 2,385 7,159
Inventories 29,200 --
----------- -----------
Total current assets 1,603,293 83,607
Deposits on acquisitions 5,652,576 --
Property and equipment - at cost, less accumulated
depreciation 52,993 60,833
Other assets 2,000 27,000
----------- -----------
$7,310,862 $ 171,440
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
Notes payable, net of unamortized discount of $400,136
and $158,000 $ 249,864 $ 42,000
Notes payable, stockholders 130,000 55,000
Accounts payable and accrued expenses 623,946 213,059
Loans payable, stockholder -- 4,559
----------- -----------
Total current liabilities 1,003,810 314,618
----------- -----------
Commitments -- --
Stockholders' equity (deficiency)
Preferred stock, $.001 par value; 5,000,000 shares
authorized, none issued -- --
Class A common stock, $.001 par value; 5,000,000
shares authorized, none issued -- --
Common stock, $.001 par value; 50,000,000 shares
authorized, 9,270,311 and 7,703,861 shares issued
and outstanding 9,269 7,703
Additional paid-in capital 13,693,287 3,641,268
Stock subscription receivable ( 200,000) --
Accumulated deficit (7,195,504) (3,792,149)
----------- -----------
Total stockholders' equity (deficiency) 6,307,052 ( 143,178)
----------- -----------
$ 7,310,862 $171,440
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE>
<TABLE>
<CAPTION>
INTERNET CABLE CORPORATION
STATEMENT OF OPERATIONS
SIX MONTHS
ENDED
DECEMBER 31, YEARS ENDED JUNE 30,
---------------------------------
1999 1999 1998
--------------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues
Sales and services $ 14,888 $ 24,016 $ 50,410
------------------ ----------------- -----------------
Costs and expenses
Cost of revenues 37,983 54,073 52,887
General and administrative 615,088 783,162 489,102
Stock issued for services - 383,750 1,142,875
Stock-based compensation 2,638,085 219,213 -
------------------ ----------------- -----------------
1,440,198 1,684,864
------------------ ----------------- -----------------
Loss from operations (3,276,268) ( 1,416,182) ( 1,634,454)
------------------ ----------------- -----------------
Other expenses
Interest 127,087 16,280 15,925
Penalty - - 68,254
Settlement of litigation - 225,000 -
------------------ ----------------- -----------------
127,087 241,280 84,179
------------------ ----------------- -----------------
Net loss (3,403,355) ( 1,657,462) ( 1,718,633)
Accumulated deficit, beginning of period (3,792,149) ( 2,134,687) ( 416,054)
------------------ ----------------- -----------------
Accumulated deficit, end
of period $ (7,195,504) $( 3,792,149) $( 2,134,687)
================== ================= =================
Weighted average common shares
outstanding 7,901,906 7,318,665 4,762,107
================== ================= =================
Basic and diluted loss per share $ (.43) $ (.23) $ (.36)
================== ================= =================
</TABLE>
<PAGE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
INTERNET CABLE CORPORATION
STATEMENT OF CASH FLOWS
SIX MONTHS
ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
-------------------------------
1999 1999 1998
------------------- ---------------- -----------
Cash flows from operating activities
<S> <C> <C> <C>
Net loss $ ( 3,403,355) $ ( 1,657,462) $ ( 1,718,633)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 7,840 13,108 9,370
Amortization of discounts on notes payable 96,114 - -
Provision for doubtful accounts - - 28,968
Franchise rights adjustment - 95,833 -
Accrued expenses adjustment - ( 85,900) -
Common stock issued for services, interest
and litigation settlement 282,250 608,750 1,142,875
Stock-based compensation 2,638,085 219,213 -
Changes in assets and liabilities
Receivable and other current assets 4,774 ( 7,159) -
Inventories ( 29,200) - -
Other assets 25,000 ( 25,000) ( 2,000)
Accounts payable and other current
liabilities 30,887 ( 43,693) 295,059
--------------- --------------- ---------------
Net cash used in operating activities ( 347,605) ( 882,310) ( 244,361)
--------------- --------------- ---------------
Cash flows from investing activities
Note receivable ( 15,000) ( 25,000) -
Deposits on acquisitions ( 5,652,576) - -
Acquisition of property and equipment - ( 26,358) ( 52,786)
Loans receivable - - 1,500
--------------- --------------- ---------------
Net cash used in investing activities ( 5,667,576) ( 51,358) ( 51,286)
--------------- --------------- ---------------
Cash flows from financing activities
Notes payable, stockholders 75,000 55,000 -
Notes payable 450,000 200,000 -
Loans payable, stockholders ( 4,559) ( 98,338) 102,897
Issuance of common stock 7,350,000 847,124 152,500
Stock offering costs ( 375,000) ( 20,000) -
--------------- --------------- -----------
Net cash provided by financing activities 7,495,441 983,786 255,397
--------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents 1,480,260 50,118 ( 40,250)
Cash and cash equivalents, beginning of period 51,448 1,330 41,580
--------------- --------------- ---------------
Cash, end of period $ 1,531,708 $ 51,448 $ 1,330
=============== =============== ===============
Supplemental noncash financing activities
Issuance of common stock for services, interest
and settlement $ 282,250 $ 608,750 $ 1,142,875
Stock-based compensation charged to expense 2,638,085 219,213 -
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
<TABLE>
<CAPTION>
INTERNET CABLE CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
SIX MONTHS ENDED DECEMBER 31, 1999 AND YEARS ENDED JUNE 30, 1999 AND 1998
TOTAL
COMMON STOCK ADDITIONAL STOCK STOCKHOLDERS'
---------------------------- PAID-IN SUBSCRIPTION ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT (DEFICIENCY)
---------------- -------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1997 4,294,050 $ 4,294 $ 545,896 $(109,681) $( 416,054) $ 24,455
Stock subscription 2,400,000 2,400 - ( 2,400) - -
Issuance of common stock
Services 7,995,004 7,995 1,234,880 - - 1,242,875
Cash 543,333 543 151,957 - - 152,500
Reverse stock split (9,509,347) ( 9,509) 9,509 - - -
Cancellation of stock ( 516,420) ( 517) 517 - - -
Stock split 1,757,804 1,758 ( 1,758) - - -
Subscription write-off - - ( 112,081) 112,081 - -
Net loss - - - - ( 1,718,633) (1,718,633)
-------------- ------------ ------------ --------- ------------- ------------
Balance, June 30, 1998 6,964,424 6,964 1,828,920 - ( 2,134,687) ( 298,803)
Issuance of common stock
Services 259,000 259 374,241 - - 374,500
Private placement 386,437 386 772,488 - - 772,874
Cost of private placement - - ( 20,000) - - ( 20,000)
Cash 33,000 33 74,217 - - 74,250
Litigation settlement 45,000 45 224,955 - - 225,000
Interest 21,000 21 10,479 - - 10,500
Cancellation of stock ( 5,000) ( 5) ( 1,245) - - ( 1,250)
Stock-based compensation - - 219,213 - - 219,213
Issuance of common stock warrants in
connection with notes payable - - 158,000 - - 158,000
Net loss - - - - ( 1,657,462) (1,657,462)
-------------- ------------ ------------ --------- ------------- ------------
Balance, June 30, 1999 7,703,861 7,703 3,641,268 - ( 3,792,149) ( 143,178)
Issuance of common stock
Private placement 1,510,000 1,510 7,548,490 - - 7,550,000
Services 56,450 56 282,194 - - 282,250
Discounts on notes - - 338,250 - - 338,250
Cost of private placement - - ( 755,000) - - ( 755,000)
Stock subscription - - - (200,000) - ( 200,000)
Stock-based compensation - - 2,638,085 - - 2,638,085
Net loss - - - - (3,403,355) (3,403,355)
-------------- ------------ ------------ --------- ----------- ------------
Balance, December 31, 1999 9,270,311 $ 9,269 $ 13,693,287 $(200,000) $( 7,195,504) $ 6,307,052
============== ============ ============ ========= ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
INTERNET CABLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1 - ORGANIZATION
Internet Cable Corporation (the "Company"), which was organized
under the laws of the State of Nevada on February 15, 1995, conducts
business from its headquarters in Charleston, South Carolina. The Company
is in the process of entering the market for providing high-speed cable
access to the Internet for businesses and individuals. The Company has
concentrated its activities in the State of South Carolina, and
substantially all of its sales and activities have been with one customer.
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
primarily using accelerated methods over an estimated useful life of seven
years.
Basic and Diluted Loss Per Share
Basic loss per share is computed by dividing the net loss by the
weighted average number of shares of common stock outstanding during the
periods. Stock warrants and options have been excluded from diluted loss
per share and have not been presented because their effect would have been
antidilutive.
Revenue Recognition
The Company, which has no significant operations and revenue,
expects to bill Internet access each month in advance, and recognize
revenues the following month, when services are provided.
Long-Lived Assets
Long-lived assets 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.
(Continued)
-6-
<PAGE>
INTERNET CABLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Company, which accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes", calculates deferred tax assets and liabilities using
the asset and liability method. Deferred income taxes arise from net
operating loss carryforwards and differences between financial reporting
and income tax bases of assets and liabilities, using enacted income tax
rates. Valuation allowances are established until realization of deferred
tax assets is assured.
Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income", requires the
disclosure of comprehensive income (loss), which consists of net income or
net loss and other comprehensive income. Other comprehensive income (loss)
consists of unrealized gains and losses that are not recorded in the
traditional statement of operations and, instead, are presented as a
separate section of stockholders' equity on the balance sheet. During the
years ended December 31, 1999 and 1998, the Company had no other
comprehensive income.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers
all highly liquid investments with original maturities of three months or
less to be cash equivalents.
Fair Value of Financial Instruments
The fair value of the note receivable approximates its carrying
amount, due to the relatively short maturity of that instrument.
The fair value of the notes payable approximates the carrying value
of that instrument and is based on the pro rata allocation of the fair
value of the notes, which were estimated at carrying value due to their
relatively short maturities, and related warrants, which were estimated
using the Black-Scholes method.
(Continued)
-7-
<PAGE>
INTERNET CABLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
New Accounting Standards
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", was issued in June 1998 and was subsequently amended by SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133". SFAS No. 133
addresses the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging
activities. Adoption of these pronouncements by the Company is required as
of July 1, 2000, and will not have a material impact on the results of
operations of the Company.
Reclassifications
Certain reclassifications have been made to the prior year
financial statements to conform to the current year presentation.
3 - PROPERTY AND EQUIPMENT
Property and equipment consist of furniture and equipment of
$79,144 at December 31, 1999 and June 30, 1999, less accumulated
depreciation of $26,151 and $18,311, respectively.
Depreciation expense was $7,840, $13,108 and $5,203 for the six
months ended December 31, 1999 and the years ended June 30, 1999 and 1998,
respectively.
4 - NOTES PAYABLE
The Company engaged an outside agent to sell up to $700,000 of 10%
two-year promissory notes, with 350,000 detachable warrants entitling the
holders to purchase an aggregate of 350,000 shares of common stock for a
period of five years.
(Continued)
-8-
<PAGE>
INTERNET CABLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
4 - NOTES PAYABLE (Continued)
During 1999, the Company issued notes totaling $650,000 to eight
unrelated parties. In connection therewith, the Company issued warrants to
purchase 325,000 shares of the Company's common stock at an exercise price
of $3.00 per share. The warrants are redeemable upon issuance and expire
in 2004. No warrants were redeemed during 1999. The Company has valued the
warrants at $496,250, which was recorded as a debt discount and amortized
over the life of the notes. Amortization expense for the six months ended
December 31, 1999 was $96,114, and was deemed immaterial for the year
ended June 30, 1999. Commission expense relating to these notes was
$58,500 for the six months ended December 31, 1999 and $26,000 for the
year ended June 30, 1999. These notes were repaid in January 2000 together
with accrued interest.
5 - RELATED PARTY TRANSACTIONS
At December 31, 1999 and June 30, 1999, notes payable to
stockholders of $130,000 and $55,000, respectively, bore interest at 10%
and 7% a year, respectively, and were repaid in January 2000 together with
accrued interest.
The noninterest-bearing notes receivable of $40,000 and $25,000
from an employee at December 31, 1999 and June 30, 1999, respectively,
were due on various dates through October 15, 1999.
6 - DEFERRED INCOME TAXES AND LOSS CARRYFORWARDS
Deferred tax assets and the related valuation allowances are as
follows:
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
------------------- ----------------
<S> <C> <C>
Net operating loss carryforwards $ 1,032,000 $ 909,000
Stock-based compensation 1,697,000 74,500
----------------- -----------------
2,729,000 983,500
Less - Valuation allowance (2,729,000) (983,500)
----------------- -----------------
Net deferred tax asset $ -0- $ -0-
================= =================
</TABLE>
(Continued)
-9-
<PAGE>
INTERNET CABLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
6 - DEFERRED INCOME TAXES AND LOSS CARRYFORWARDS (Continued)
At December 31, 1999, the Company has available net operating loss
carryforwards of approximately $3,036,000, which can be applied to Federal
taxable income and expire during the years 2010 to 2019. The Company also
has available net capital loss carryforwards of $268,000, which can be
applied to net capital gains expiring in 2001 ($18,000) and 2002
($250,000).
7 - COMMON STOCK
The Company has authorized 50,000,000 shares of $.001 par value
common stock, 5,000,000 shares of $.001 par value Class A common stock and
5,000,000 shares of $.001 par value preferred stock.
During the year ended June 30, 1999, the Company issued a total of
744,437 restricted shares, of which 325,000 shares, with a fair value of
$610,000, were issued for services, interest and a settlement, and 419,437
shares were issued for $827,124 in cash. In addition, the Company canceled
5,000 restricted shares to be issued to a former employee with a fair
value of $1,250.
During the six months ended December 31, 1999, the Company
commenced a private placement offering which consisted of 1,816,000 units
with a total sales price of $9,080,000. Each unit consists of one share of
restricted common stock and a stock purchase warrant to purchase one-half
share of common stock. In December 1999, the Company issued 1,510,000
units for $7,550,000. This private placement offering was completed on
January 31, 2000.
On December 8, 1999, the Company issued 56,450 restricted shares
with a fair value of $282,250 for legal services rendered in connection
with the acquisitions of two entities. These shares were valued at $5 per
share.
(Continued)
-10-
<PAGE>
INTERNET CABLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
8 - STOCK WARRANTS AND OPTIONS
On August 10, 1999, the Company adopted the 1999 Stock Option Plan
(the "Plan"), which provides that certain options granted thereunder are
intended to qualify as "incentive stock options" under the Internal
Revenue Code. Nonqualified options may also be granted under the Plan. The
Plan authorizes the issuance of qualifying options to purchase up to
2,000,000 shares of common stock. The option price per share will be
determined at the time of grant, but will not be less than 85% of the fair
market value of the common stock on such date or, in the case of a 10%
stockholder, not less than 110% of the fair market value of the stock on
the grant date. On January 12, 2000, the Plan was amended to increase the
total authorized shares from 2,000,000 to 10,000,000.
The Company has issued stock warrants and options to purchase the
Company's common stock to officers, key employees, directors and outsiders
as compensation and for services rendered. The stock warrants and options
are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
WARRANTS SHARES EXERCISE PRICE
-------- ------ --------------
<S> <C> <C>
Outstanding at July 1, 1997 - $ -
Issued 322,000 .12
Exercised - -
Cancelled - -
--------------
Outstanding at June 30, 1998 322,000 .12
Issued 741,000 2.49
Exercised - -
Cancelled - -
--------------
Outstanding at June 30, 1999 1,063,000 1.77
Issued 625,000 3.53
Exercised - -
Cancelled - -
--------------
Outstanding at December 31, 1999 1,688,000 $ 2.42
========= =======
Warrants exercisable at
December 31, 1999 1,688,000 $ 2.42
June 30, 1999 1,063,000 1.77
June 30, 1998 322,000 .12
</TABLE>
(Continued)
-11-
<PAGE>
INTERNET CABLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
8 - STOCK WARRANTS AND OPTIONS (Continued)
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
OPTIONS SHARES EXERCISE PRICE
------- ------ --------------
Outstanding at June 30, 1999 - $ -
<S> <C> <C>
Issued 3,745,000 5.19
Exercised - -
Cancelled - -
----------
Outstanding at December 31, 1999 3,745,000 $ 5.19
========== =======
Options exercisable at
December 31, 1999 3,745,000 $ 5.19
June 30, 1999 - -
June 30, 1998 - -
</TABLE>
Summary information about the Company's stock warrants and options
outstanding at December 31, 1999 is as follows:
<TABLE>
<CAPTION>
OUTSTANDING WEIGHTED
AND AVERAGE
WEIGHTED EXERCISABLE AT CONTRACTUAL
AVERAGE DECEMBER 31, PERIODS
EXERCISE PRICE 1999 IN YEARS
-------------- ---- --------
<S> <C> <C> <C>
Warrants $ .05 - 1.00 328,000 5.00
2.50 - 3.00 1,235,000 5.00
4.25 - 5.57 125,000 5.00
-------------
$ 2.42 5.00
=================== =============
Options $ 5.00 - 5.50 970,000 3.00
4.25 - 4.625 1,550,000 4.00
6.00 - 6.125 1,225,000 4.00
-------------
$ 5.19 3,745,000 3.67
=================== ============= ====
</TABLE>
(Continued)
-12-
<PAGE>
INTERNET CABLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
8 - STOCK WARRANTS AND OPTIONS (Continued)
The Company accounts for stock warrants and options issued to
nonemployees under the fair value method, pursuant to SFAS No. 123,
"Accounting for Stock-Based Compensation". The fair value of these
warrants and options was calculated at the date of issuance using a
black-scholes option Valuation Model assuming risk-free interest rates of
5.77% and 6.26% for five-year and three-year warrants and options and
volatility factors of expected market price of the Company's common stock
of 158.36% and 129.44%. Under the provisions of SFAS No. 123, the
Company's compensation expense arising from the issuance of stock warrants
and options for the six months ended December 31, 1999 was $2,638,085 and
for the year ended June 30, 1999 was $219,213. The related deferred tax
asset of approximately $897,000 recognized in the six months ended
December 31, 1999 and $74,500 in the year ended June 30, 1999 is based on
a 34% tax rate.
Compensation expense chargeable to operations for warrants issued
to nonemployees was not material for the year ended June 30, 1998.
The Company also measures compensation in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25 in
accounting for stock warrants and options issued to employees.
Accordingly, no compensation cost has been recorded for warrants and
options issued to employees for the six months ended December 31, 1999 and
the years ended June 30, 1999 and 1998. The fair value of each warrant and
option issued has been estimated on the issuance date using the
Black-Scholes Option Valuation Model. The following assumptions were made
in estimating the fair value:
Dividend yield 0%
Risk-free interest rate 5.77% and 6.26%
Expected life 3 and 5 years
Expected volatility 158.36% and 129.44%
(Continued)
-13-
<PAGE>
INTERNET CABLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
8 - STOCK WARRANTS AND OPTIONS (Continued)
Had compensation cost been determined under SFAS No. 123, net loss
per share for the six months ended December 31, 1999 and the years ended
June 30, 1999 and 1998 would have been increased as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------
1999 1999 1998
------------------ -------------- -------------
<S> <C> <C> <C>
Net loss
As reported $ ( 3,403,355) $ ( 1,657,462) $ ( 1,718,633)
Pro forma ( 6,966,747) ( 1,979,227) ( 1,818,111)
Basic and diluted loss
per share
As reported $ ( .43) $ ( .23) $ ( .36)
Pro forma ( .88) ( .27) ( .38)
</TABLE>
During the six months ended December 31, 1999 and the year ended
June 30, 1999, the Company also issued warrants in connection with the
issuance of promissory notes (see Note 4) and private placement offering
(see Notes 7 and 10), as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES EXERCISE PRICE
------ --------------
PROMISSORY NOTES
<S> <C> <C>
Outstanding at July 1, 1998 - $ -
Issued 100,000 3.00
Exercised - -
Expired - -
--------------
Outstanding at June 30, 1999 100,000 -
Issued 225,000 3.00
Exercised - -
Expired - -
--------------
Outstanding at December 31, 1999 325,000
--------------
</TABLE>
(Continued)
-14-
<PAGE>
INTERNET CABLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
8 - STOCK WARRANTS AND OPTIONS (Continued)
<TABLE>
<CAPTION>
NUMBER OF
SHARES EXERCISE PRICE
------ --------------
PRIVATE PLACEMENT OFFERING
--------------------------
<S> <C> <C>
Outstanding at July 1, 1999 - $ -
Issued 755,000 10.00
Exercised - -
Expired - -
---------------
Outstanding at December 31, 1999 755,000
---------------
Total outstanding at December 31, 1999 1,080,000
===============
</TABLE>
9 - COMMITMENTS
During the six months ended December 31, 1999, the Company entered
into several three-year employment agreements with various new executives
and key employees as a result of the acquisitions of two companies which
were consummated in January 2000 (see Note 10). The agreements require
total annual compensation of approximately $1,135,000. The agreements also
provide for stock options to be granted to employees, with exercise prices
ranging from $4.625 to $6.125 per share. A total of 3,835,000 stock
options were granted in connection with these employment agreements, with
vesting periods of from one to two years.
10 - SUBSEQUENT EVENTS
In connection with the acquisitions of two companies, which closed
in January 2000, the Company made deposits of $5,652,576 as of December
31, 1999.
On January 4, 2000, the Company completed the acquisition of Cable
Systems Technical Services, Inc. ("Cable TSI"). The Company paid
$4,749,484 in cash and issued 100,000 stock options of Internet Cable
Corporation with a fair value of approximately $386,000. The total
consideration to acquire Cable TSI was $5,135,610, resulting in goodwill
of $4,394,393.
On January 11, 2000, the Company completed the acquisition of CAD
Consultants, Inc. ("CAD"). The Company paid $732,372 in cash and issued
450,000 shares of restricted common stock with a fair value of $2,250,000.
The total consideration for CAD was $2,982,372, resulting in goodwill of
$3,009,664.
-15-
<PAGE>
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Internet Cable Corporation
By: /s/ Michael F. Mulholland Date signed: April 7, 2000
- -----------------------------
Michael F. Mulholland
Chairman and Chief Executive Officer
SIGNATURE CAPACITY IN WHICH SIGNED: DATE SIGNED:
- --------- ------------------------- ------------
/s/ Mark A. Kearney Director April 7, 2000
- -------------------
Mark A. Kearney
/s/ Joseph Melanson Director April 7, 2000
- -------------------
Joseph Melanson
/s/ Michael F. Mulholland Director April 7, 2000
- -------------------------
Michael F. Mulholland
/s/ William F. Walsh Chief Financial April 7, 2000
- -------------------- Officer
William F. Walsh
EXHIBIT 23.1
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
The undersigned, Freidman, Alpren & Green, LLP, hereby consents to the
use of our name and use of our auditor=s report dated March 21, 2000 which
appears in the Form 10-KSB filed of Internet Cable Corporation dated April 7,
2000.
/s/ Friedman, Alpren & Green, LLP
---------------------------------
April 7, 2000 Friedman, Alpren & Green, LLP
EXHIBIT 23.2
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference of our report
dated January 18, 199 in the Financial Statements of Internet Cable Corporation
for the year ended April 30, 1998, which appears in the Form 10-KSB of Internet
Cable Corporation dated April 7, 2000.
/S/ DURLAND & COMPANY, CPAS, P.C.
---------------------------------
April 7, 2000 Durland & Company, CPA's, P.A.
