U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB/A
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ........... to ...........
Commission file number 000-26011
INTERNET CABLE CORPORATION
----------------------------------------------
(Name of small business issuer in its charter)
NEVADA
--------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
57-0854042
------------------------------------
(I.R.S. Employer Identification No.)
1463 Dunwoody Drive, West Chester, PA 19380
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(610) 647-0400
---------------------------
(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
--- ---
<PAGE>
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 its most recent fiscal year. $24,016
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked prices of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.) Note. If determining whether a person is an
affiliate will involve an unreasonable effort and expense, the issuer may
calculate the aggregate market value of the common equity held by non-affiliates
on the basis of reasonable assumptions, if the assumptions are stated.
$47,347,823 based on average of closing bid and asked price as of June 14, 2000.
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes ________ No ________
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. 10,247,757 shares at June 14, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
2. Form 8K - Acquisition of Cable Systems TSi and Acquisition of CAD
Consultants, Inc., as amended
3.1 Articles of Incorporation, as amended
3.2 Bylaws
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
13.1 Form 10QSB for the period ending September 30, 1999
13.2 Form 10QSB for the period ending March 31, 2000
13.3 Form 10KSB40 for the period ending December 31, 1999
13.4 Definitive Form 14A filed January 14, 2000
99.1 Form 8K - Notice of Change in Fiscal Year
99.2 Form 8K - Notice of Change in Registrant's Certifying Accountant, as
amended
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<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.
2
<PAGE>
BUSINESS-
The Company is a broadband solution provider to the Cable Industry, and
other secondary markets. Broadband services include, but are not limited to high
speed Internet access, telephony, smart home services and cable content,
delivered via cable systems. The Company also resells its excess bandwidth to
businesses in the Charleston and Columbia, South Carolina metropolitan areas for
high-speed data transmission. The Company has entered into a definitive
agreement to purchase Cable Systems Technical Services, Inc, a Canadian Company,
("Cable Systems") which provides cable engineering, installation, certification
and monitoring services. The Company has also entered into a Letter of Intent to
acquire CAD Consultants, Inc. a New Jersey Corporation ("CAD") which designs
installs and maintains wireless links utilizing micro-wave, laser and other
state of the art technologies. The Company's use of broadband technology offers
a high-performance reliable and cost-effective bundle of data and
telecommunications services to consumers and businesses.
The Company intends to service the entire cable industry with a one
stop shopping approach (Total Solutions). The Company intends to offer such
services on a complete turnkey basis or on 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 dependant upon the cable system and
response times associated with broadband services, the importance of reliability
will become critical to a profitable operation.
The Company is providing upgrades to a 1,800 subscriber cable system
owned by U.S. Cable in a sub-division known as Wild Dunes in South Carolina,
where the Company currently offers Internet access on a limited basis. The
Company's Internet access is offered under the Company's Cablewave (TM) service,
and will be available system-wide in the near future. The Company has also begun
the installation of a two-way broadband cable television system, which it will
own and operate, in an apartment development in the Columbia, South Carolina
area, which is part of a joint venture with Intermark Realty. The Company
operates points of presence ("POP") in Charleston, Columbia, South Carolina and
Cape May, New Jersey. The Company has executed a contract to evaluate and
supervise the upgrade of cable infrastructure at 65 resort hotels in China, for
which it also will provide Internet content and operate a reservation system,
(the "China Contract"). Such contract has been delayed due to the current
political climate. There is no assurance that the Company will begin
implementation of the China Contract.
Residential subscribers in Wild Dunes access the Company's
Cablewave(TM) service primarily through high-speed cable modems, which attach
their personal computers via a standard Ethernet connection, while businesses
can also connect through telecommunications networks. Although peak data
transmission speed of a cable modem depends on the specific model and can
approach 10-27 megabits per second downstream and 2-10 megabits per second
upstream, the performance subscribers actually experience is often constrained
by the capacity of their personal computers, the capacity of the server being
3
<PAGE>
accessed and the type of network architecture utilized. The Company uses a cable
television return path that eliminates the need for a second telephone line that
is required by most other data-over-cable services. The Company's dependence on
the cable systems it services and its own cable system infrastructure exposes
the Company to significant risk of system failure. The Company also utilizes
certain key technologies from third parties to build and manage the broadband
network. Upon completion of the current acquisitions the Company will perform
all services directly, enabling the Company to build and operate more reliable
systems.
The Company designed its data-over-cable broadband network on the
premise that sustainable, high-performance reliable bandwidth requires a new,
scalable architecture to alleviate bottlenecks and to enable true end-to-end
network management capabilities. The four key principles of the Company's
network strategy are moving data closer to the user, end-to-end network
management, "always-on" service and scalability.
The Company's broadband network utilizes state of the art equipment
including caching and replication technologies to move the information a
subscriber requests close to the subscriber. Local caching reduces network
traffic, enabling the Company's broadband network to overcome a fundamental
weakness of the duplicative data transfers. For example, when a subscriber
downloads a video clip from a Web site, the user must "pull" data across the
Internet from that Web site to the user's Internet service provider and finally
to the user's computer. If the user's neighbor requests the same video clip from
the Web site, the neighbor must pull the same data across a similar path. In
contrast, the Company's approach moves the video clip only once in a given
geographic area and retains it in the Company's local cache near the user's home
where it can be accessed by every subscriber within that area without
retransmission over the Internet. This more cost-effective approach
simultaneously improves the end user's performance and reduces traffic volume
across the Internet.
The Company achieves end-to-end network management and reliability
through a proactive network quality service and performance management system.
The Company's broadband network provides visibility from its servers across the
Internet and all the way to the subscriber's home. Certification and maintenance
techniques enable the Company to improve reliability of the systems.
This 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 is on. 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's service is designed to be scalable to handle increasing
numbers of subscribers without degradation. Although users in the same service
area share high-bandwidth access (much like corporate LANs), which may limit the
effective bandwidth that is available to a given subscriber at a given time,
this shared connection is particularly efficient and well suited to the sporadic
nature of Internet traffic, where browsing tends to consume bandwidth in
discrete bursts intermixed with periods of inactivity. As subscriber penetration
increases, the cable operator has multiple cost-effective alternatives to
increase capacity, including allocating additional 6 MHz channels for the
service or reducing the number of subscribers sharing a given bandwidth by
adding nodes, with each node serving a smaller number of subscribers over the
same infrastructure.
4
<PAGE>
The Company and Intermark Associates V, LLC ("Intermark") have 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 POP, as well as, other broadband services at the Keswick Apartments, a
180 unit, upscale apartment project located in suburban Columbia, South
Carolina. The project is currently scheduled for completion in December 1999.
Under the agreement, the Company is permitted to charge cable television fees
competitive with Time Warner, in addition to Internet access fees and fees for
additional services provided such as telephony, and is obligated to pay
Intermark ten percent of gross revenues. The agreement has a 15 year term, but
may be terminated by Intermark for the Company's failure to provide service and
may be terminated by the Company in certain events. In the event of termination
by Intermark, Intermark is required to pay the Company the fair market value of
the system.
Intermark's parent company, Intermark Management, Inc., is a developer
and owner of apartment communities. The Company has purchased a right of first
refusal to own the cable system and provide cable television and high speed
Internet access services to Intermark Management's existing and future
properties. At the date of this report, Intermark Management operates 43
apartment projects containing an aggregate of 4,575 units. Intermark
Management's properties are located predominantly in North Carolina, South
Carolina and Georgia.
The Company believes significant opportunities exist in installing or
upgrading, owning and operating the coaxial cable infrastructure in residential,
apartment, condominium and resort developments. These opportunities include, but
are not limited to, the small to mid-size cable operators, who lack the capital
and expertise to upgrade their systems and new development. Currently there are
approximately 5,200 cable companies that fit the Company's target market. While
the Company may not own the infrastructure in every such arrangement, its intent
will be to provide cable television programming, high speed Internet access and
other broadband services to residents and guests of such projects. The Company
plans to seek additional opportunities in such projects.
The Company believes that many such operators have an interest in
providing additional broadband services to their subscribers in order to
increase their revenue potential. The Company's Cablewave(TM) service enables
cable television system operators to generate additional revenues from their
coaxial cable infrastructure by offering Internet access along with cable
television programming. The Company plans to offer telephony, smart home
services and other broadband services on upgraded systems.
The Company intends to implement cable system upgrades and improvements
for the larger cable operators at the cable television system operator's
expense. The contemplated acquisitions of Cable Systems and CAD, the Company
intends to provide services to this market. For small to mid-size cable
operators such expense may be paid by the cable operator or the Company
depending on the transaction. The Company can provide the design, installation,
5
<PAGE>
certification, monitoring, maintenance, "head-end plant" for bandwidth and
packet administration as a complete package or on an a la carte basis. The
Company intends to become the Internet service provider and broadband
administrator for the cable television subscribers who elect to use their cable
television company for high-speed access to the Internet and other broadband
services. The Company's monthly subscriber fee for Internet access alone is
typically $45, which is billed and collected by the cable television operator
and/or the Company, and shared between the Company and the operator on a
negotiated basis. The Company sells the cable modems, purchased from a variety
of manufacturers, to the cable system operator for lease or resale to its
subscribers. The Company plans to offer a home page portal, browser and Internet
content in a co-branded joint venture with browser and content providers, at
some point in the future.
The Company intends to focus on small to mid-size cable television
systems that represent approximately fifty-eight percent of all cable television
subscribers in the United States. The Company, through its pending acquisitions
of Cable Systems and CAD, will also enable the company to provide services to
larger cable operators, such as certification, monitoring, maintenance and
installation.
The Company and US Cable of Coastal-Texas, L.P. doing business as US
Cable Coastal Properties Inc. ("US Cable") have entered into a revenue sharing
agreement for the Company's Internet access service at US Cable's system serving
the Wild Dunes residential community in the Charleston, South Carolina area.
Wild Dunes is composed of 1,800 residences. This golf course community caters to
high-income families. US Cable currently has 1,500 subscribers to cable
television in that community. Upgrading and improving the cable infrastructure
for high-speed Internet access at Wild Dunes has recently been completed. At the
date of this annual report, the Company has approximately 96 computers using
cable modem service in the Wild Dunes community before beginning any formal
marketing program. The Company plans to begin marketing its Cablewave(TM)
service to Wild Dunes' homeowners in the near future. The Company expects the
number of subscribers to its Cablewave(TM) service to increase substantially in
response to a marketing campaign, which will utilize both billing inserts and
commercial spots on cable system programming.
At the date of this annual report, the Company is substantially
dependent upon US Cable for fulfillment of its growth strategy in residential
bi-directional high-speed bandwidth service. The Company believes US Cable is
satisfied with its services at the date of this annual report and it will have
an opportunity to service additional US Cable systems, should it choose to do so
in the future. The Company intends to approach additional cable television
system operators on a direct basis to explore their interest in offering high
bandwidth services to their subscribers.
The Company's POPs in Charleston and Columbia, South Carolina have
excess bandwidth, which the Company resells to businesses for high-speed data
transmission. The Company has entered into a marketing agreement with Carolina
Communications Networks, Inc. ("CCN") under which CCN acts as the Company's
independent marketing agent for excess bandwidth. CCN has been in the business
as a reseller of local and long distance telephone service since 1996 and
employs nineteen sales representatives. At the date of this annual report, the
Company has ninety-six users representing ten customer accounts for its excess
bandwidth in Charleston. The Company completed installation of its POP in
Columbia in late March 1999.
6
<PAGE>
The Company previously announced an agreement with Shangri-La Vacation &
Exchange under which the Company is to provide high speed Internet access by
cable modem to up to sixty-five hotels and resorts throughout China. Shangri-La
is a joint venture between Yunnan Tobacco, a state owned tobacco monopoly and
owner of the hotels and resorts, and Silverhawk Development Co. of Hawaii.
Shangri-La's purpose is to increase occupancy of the hotels and resorts, in part
through a time-share sales program. The Company will evaluate the cable
infrastructure presently installed in the facilities, supervise upgrading and
improving the infrastructure, provide Internet content and provide and operate
the reservation system via the Internet. The Company may also be involved in
providing cable television programming. The Company expects to begin the
evaluation process at a cross section of the hotels when the political climate
allows. A time schedule for upgrading and improving the cable infrastructures to
accommodate cable modem access is to be established by the parties at the
completion of the evaluation process. At this time the project has been put on
hold due to political concerns in China. There can be no assurance that this
project will continue.
The Company has filed, since the original filing of this Form 10KSB, and
related Form 10KSB/A, a 10KSB40 as of December 31, 1999, a Definitive Form 14A
filed January 14, 2000 and a 10QSB as of September 30, 1999 and March 31, 2000
as well as Form 8Ks for a change in fiscal year, for the acquisition of Cable
Systems and CAD as well as for a change in certifying accountants. These filings
are incorporated herein by reference herein.
SALES AND MARKETING-
The Company plans to provide a sales and marketing program to the
operators of the cable systems for which the Company provides high speed
broadband access. The cable system operator will work jointly with the Company
to distribute the sales and promotional materials to the subscribers on cable
television systems. Distribution to the subscribers is expected to be primarily
through billing inserts and by commercial spots in the cable television
programming. The cable system operator may have the financial responsibility for
distribution of the sales and promotional materials, or such financing shall be
paid for by the Company as negotiated in particular transactions. The Company
expects to incorporate marketing of the Company Cablewave(TM) and other
broadband services into their marketing programs directed to homes passed by
their coaxial cables which are not subscribers to cable television services. The
Company's marketing to the non-subscribing households within an area served by
the cable system is expected to be distributed primarily by direct mail and
advertising in local newspapers and broadcast media, including both radio and
television. The Company plans to monitor the distribution of these materials to
assure achievement of the Company's sales objectives.
The Company plans to conduct its own marketing program directed to the
potential subscribers to the cable television systems which the Company owns and
operates. This marketing program will be designed to cover both cable television
services and the Company's Cablewave(TM) and broadband services. The Company
expects the initial marketing effort to be conducted by direct mail and paid
advertising local print and broadcast media.
INTELLECTUAL PROPERTY-
The Company claims a common law service mark in Cablewave(TM). The
Company is aware of another company using Cablewave(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.
7
<PAGE>
The Company's pending acquisitions are expected to enhance the
Company's intellectual property. The Company expects to pursue various patents
once such acquisitions are complete. However, such acquisitions require the
completion of additional financing for the Company as well as satisfaction of
other conditions. There can be no assurance that such financing will be
completed or that the acquisitions will be consummated.
COMPETITION-
The Company's core business does not compete with HSA Net, @Home or
RoadRunner, as such competitors are focused on the large cable operators,
although the Company intends to offer services to said cable operators. Although
the Company expects increased competition in its target market, the Company is
positioned to become first to market for the small to mid size cable companies.
The Company also competes with all providers of Internet access and other
broadband service providers to residential and business customers, excluding
other providers of Internet access by cable modem, and intends to compete for
telephony and other broadband services. The competing ISPs use exclusively
dial-up modem technology, which uses conventional telephone lines for
communications, except for the limited number of commercial and business users
who either have installed or have purchased access to a T-1 telephone line or an
ISDN line. New services such as DSL continue to be developed and offer higher
speeds. Dial-up modems, including DSL are still significantly slower than cable
modems, however, the Company expects such services to continue to compete with
the Company for various broadband services. The cable modem is capable of speeds
of up to thirty-seven megabits per second. Furthermore, a cable modem is always
on and there is no additional hourly or incremental charge for the continuous
connection, a dial-up modem must be connected for each session on the Internet,
unless the user stays continuously connected, thereby possibly incurring a
greater charge for the service. Connection by dial-up modem is subject to time
outs, which may occur in the middle of a session and which require the
connection to be reestablished. Consolidation of small to mid-sized cable system
operators under a single ownership with a vested interest in a competing
provider of cable modem Internet access services could result in foreclosing the
Company from an opportunity to provide its Cablewave(TM) services to such cable
system operators.
Although @Home, Road Runner and HSA Net provide cable modem access to
the Internet, the Company does not compete with those companies at the present
time, and does not expect to compete with this market in the future. There is no
assurance that @Home, Road Runner and HSA Net will not compete with the Company
in the future. If they were to do so, they have significantly greater
experience, name recognition and financial resources than the Company.
It should be noted that there is a limit to the amount of broadband
width a coaxial cable can efficiently carry. The larger cable systems often have
a number of subscribers on a single cable node which exceeds the capacity of the
cable to efficiently carry the broadband width at advertised speeds and
reliability. This situation has contributed to temporary and periodic loss of
speed to cable modem subscribers on those systems, at least once producing a
complete shut down of Internet access for subscribers on the system. The Company
believes a smaller number of subscribers on each node of the cable systems in
its target market, certification and ongoing monitoring will inherently prevent
significant slow downs in access speed for the Company's customers, and increase
reliability.
8
<PAGE>
Deregulation of telephone companies could enhance their ability to
compete against the Company's service. The Federal Communications Commission is
also considering whether to provide the Bell operating companies and other
incumbent local exchange carriers with significant relief from existing access,
resale, unbundling, pricing, and cost recovery rules and policies, without
regard to local access and transport boundaries, in order to encourage the
deployment and operations by these carriers of high-capacity, packet-switched
networks and other advanced telecommunications facilities and related services,
including Internet access services. Deregulation of telephone company advanced
services could enhance the ability of these companies to compete against the
Company's delivery of its services by the Company's cable partners.
ADOPTION OF CABLE MODEM TECHNICAL STANDARDS-
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.
PERSONNEL-
At the date of the filing of the original of this annual report, the
Company employed 7 persons, including two executive officers, 2 executive
assistants, 1 engineer, 1 computer technician and 1 office manager. The Company
expects to realize a substantial increase to its employment base upon completion
of the pending acquisitions of Cable Systems and CAD. The Company has been
contracting with outside personal for most of the services required to upgrade
and improve the cable infrastructure at Wild Dunes. The Company plans to use its
own employees and additional contractors to install the cable infrastructure at
the Keswick Apartment project and to make the assessments and upgrades of
additional cable facilities. The Company has retained the services of an interim
chief financial officer and plans to employ a full time chief financial officer,
and additional corporate management and additional support personnel in the
future as its financial condition permits.
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 principal executive
offices, operations center and head-end plant for the Charleston, South Carolina
area, which provides bandwidth administration and the interface between the
cable system and the Internet. The Company's lease has 2 years remaining at a
monthly rental of $2,000. The Company believes this facility is adequate for the
Company's current needs. The current pending acquisitions of Cable Systems and
CAD will add several additional offices to the Company, both in the United
States and Canada. Significant expansion of the Company's business may require
acquisition of additional rental space to accommodate added personnel. There is
no assurance that financing will be available to the Company or that the pending
acquisitions will be completed.
9
<PAGE>
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 filed on
April 18, 2000 in the Court of Common Pleas, Richland County, South Carolina.
The complaint which demands approximately $18,000 in past due amounts for
alleged services. The Company disputes any services were provided, is
investigating the complaint and has filed a counterclaim. The Company will
vigorously pursue its defense against this claim and its 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.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is 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, mark-down and or commission and may
not necessarily represent actual transactions.
Quarter ended High Bid Low Bid
-------------------------------------------------------------------------------
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
The closing high and low bid quotations for the Company's common stock
on September 15, 1999 were $7.375 and $7.00, respectively.
NUMBER OF STOCKHOLDERS. At June 30, 1999, the Company had 107
stockholders of record and an estimated 680 beneficial stockholders with shares
registered in street name, as determined from the records of Depository Trust
Company. At September 26, 1999, the number of stockholders of record was 103 and
the estimated number of stockholders with shares held in street name was 730.
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, among other things, upon the Company's earnings, its capital
requirements and its financial condition, as well as other factors which the
board of directors deems relevant.
10
<PAGE>
TRANSFER AGENT. The Company's transfer agent and stock registrar is
Interstate Transfer Company, 874 East 5900 South, Salt Lake City, UT 84107,
telephone (801) 281-9746.
RECENT SALE OF UNREGISTERED SECURITIES. 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 Rule 504 under the Securities Act of 1933, as amended, for an
exemption from the registration requirements of said act. The proceeds from the
sale of the common stock were used for general working capital purposes. The
common stock was sold directly by the Company without an underwriter.
OTHER MATTERS. During the fiscal year ended June 30, 1999, the Company
cancelled 5,000 shares that had been issued to a former employee who did not
complete the vesting period required to attain full ownership in these shares.
Also during the fiscal year ended June 30, 1999, the Company issued 325,000
shares of its common stock to 9 investors pursuant to negotiated settlements or
who provided services to the Company for these shares. These shares were
restricted under Rule 144 of the Securities Act of 1933, as amended, and were
issued at a fair market value based on the value of the services provided or on
the closing bid price on the date of issuance as follows:
<TABLE>
<CAPTION>
Shares Amount
------- ---------
<S> <C> <C>
Professional services 144,000 $ 198,000
Real estate developer 100,000 155,875
Employees (not officer or director) 15,000 20,625
Litigation settlement 45,000 225,000
Settlement of note payable 21,000 10,500
------- ---------
325,000 $ 610,000
======= =========
</TABLE>
The number of shares, noted above, that were issued for the settlement of
notes payable was derived by negotiation between the lender and the Company.
These shares were for interest, earned at 10%, on various notes that were due to
a shareholder. The principal had been repaid on these notes.
During the fiscal year ended June 30, 1998, the Company approved and
issued 3,500,000 shares of its common stock to the President of the Company in
exchange for current and future services. The Company then approved a reverse 1
for 10 stock split and the 3,500,000 shares (350,000 post split) issued to the
President were returned and cancelled. Another 147,670 shares (post split),
which had been issued pursuant to a stock subscription plan that was never
completed, were also cancelled.
The President was issued 2,000,000 post split shares in exchange for
current and future services. In addition, another 1,145,000 post split shares
were issued to consultants, officers and employees of the Company in exchange
for services rendered. These shares were issued at $.25 per share, which was
determined to be comparable from a recent cash sale of the Company's common
stock at $.38 per share and the quoted bid price of $.17 per share. Stock
options issued to these persons were cancelled at this time.
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 expression 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 Internet and other services over the cable television
infrastructure to consumers. The Company's "Cablewave" service allows
residential subscribers to connect their personal computers via cable modems to
a high-speed Internet backbone network developed and managed by the Company.
This enables subscribers to receive Cablewave over approximately one hundred
times faster that a typical dial-up connection and an "always on" connection
through the Company's broadband Internet portal. The Company also sells excess
bandwidth to businesses in the Charleston and Columbia, South Carolina
metropolitan areas. This excess bandwidth provides high-speed data transmission,
telephony, smart home and other services at competitive rates.
The Company has filed, since the original filing of this Form 10KSB, and
related Form 10KSB/A, a 10KSB40 as of December 31, 1999, a Definitive Form 14A
filed January 14, 2000 and a 10QSB as of September 30, 1999 and March 31, 2000
as well as Form 8Ks for a change in fiscal year, for the acquisition of Cable
Systems and CAD as well as for a change in certifying accountants. These filings
are incorporated herein by reference herein.
RESULTS OF OPERATIONS FISCAL YEARS ENDED JUNE 30, 1999 ("Fiscal 1999") AND
1998 ("Fiscal 1998")
SALES. Sales for the 1999 fiscal year were $24,016 as compared to sales
for Fiscal 1998 of $50,410. During Fiscal 1999 the Company focused its limited
resources, both capital and personnel, on the completion of strategic
acquisitions, raising capital and completing the upgrade to the US Cable
property at Wild Dunes. As a result of this focus, the company had little
resources to pursue current one time revenue. The Company believes that upon
completion of the US Cable property and 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 which will allow the Company to enjoy a
continued revenue stream, rather than the one time sales revenue experienced in
Fiscal 1998.
11
<PAGE>
COST OF SALES. Cost of sales for Fiscal 1999 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
expenses for Fiscal 1999 of $1,386,125 decreased by approximately $245,852
compared to the Fiscal 1998 amount of $1,631,977. The decrease was a result of
reduced stock based compensation issued during Fiscal 1999 which offset the
recognition of the impairment loss of $96,000 that the Company recognized after
determining that the value of the franchise rights could not be recovered.
INTEREST EXPENSE. Interest expense for Fiscal 1999 was $16,280
compared to $15,925 for Fiscal 1998.
PENALTY EXPENSE. Penalty expense for Fiscal 1999 was $0 compared to
$68,245 for the Fiscal 1998. The decrease was due to a 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. There were no
additional amounts incurred in Fiscal 1999.
NET LOSS. The net loss for Fiscal 1999 was $1,657,462 compared to the
net loss of $1,718,633 for Fiscal 1998, a decrease 0f $61,171, or approximately
four percent. The Company expects a substantial decrease in losses going forward
as the Company completes its acquisitions and becomes a marketing and service
company.
GOING CONCERN OPINION. The Company has received a going concern opinion
which states that the Company may be unable to continue as a going concern. As a
result of the current financial condition, the Company's ability to continue as
a going concern is dependent on achieving a profit, and obtaining necessary
financing. The Management is actively seeking additional funding for the Company
to complete its acquisitions and provide working capital for ongoing operations.
There is no assurance that the Company will be able to obtain such financing on
terms acceptable to the Company, or if at all.
LIQUIDITY AND CAPITAL RESOURCES.
Since inception, the Company has 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 June 30, 1999, the Company's cash was $51,448 as
compared to $1,330 at June 30, 1998. The increase was primarily a result of
12
<PAGE>
the additional financing received by the Company. The Company incurred
development stage losses of $3,792,149 since inception through June 30, 1999.
Current liabilities exceed current assets by $159,011. The Company is currently
operating at a cost of approximately $500,000 annually. 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. In
May 1999 the Company began raising capital under a private placement in the form
of a bridge loan, whereby the Company engaged an outside agent to sell up to
$500,000 of 10% promissory notes. These notes are two-year notes, prepayable 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.
Investors in the promissory notes will also receive an aggregate of 250,000
warrants, entitling the holder to purchase an aggregate of 250,000 shares of
common stock for a period of five years. As of June 30, 1999 the Company had
raised a total of $200,000 in gross proceeds of such bridge loan. On May 21,
1999, the Company increased the maximum amount to the bridge loan to $700,000
and increased the aggregate number of warrants to 350,000 warrants, entitling
the holder to purchase an aggregate of 350,000 shares of common stock for a
period of five years. The Company expects to repay the bridge loan from a
private offering currently being offered pursuant to private placement in which
the Company seeks to raise a minimum of $6,000,000 to a maximum of $10,000,000.
Investors in the private placement shall receive stock at a 10% discount to the
market price at the time of the investment, subject to a floor price of $4.50
and a ceiling of $7.00. There can be no assurance that the Company will complete
such financing on the said terms.
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 $6,000,000 to $10,000,000. The Company
expects to satisfy this need through proceeds of a private placement described
above, and additional 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 for its 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, or if at all. The
Company believes if is it able to obtain at least $6,000,000 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.
YEAR 2000 Year 2000 computer issues create certain risks for the
Company, although the Company believes that such risks are 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
13
<PAGE>
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 been
designed to gather information regarding the Year 2000 compliance of products
and services that are required by the Company to deploy its residential and
commercial Internet services. Under the Program, assessment and remediation
proceeded in tandem and has been completed by the Company as of June 30, 1999.
These activities are intended to encompass all major categories of systems in
use by the Company. The costs incurred to date 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 is developing 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. 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 year ended June 30, 1999
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.
14
<PAGE>
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
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 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 has 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 year ended 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 upon a recommendation
by a committee of the board of directors.
15
<PAGE>
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.
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 Director since
--------------------------------------------------------------------------------
J. Robert Jones 45 Director, Secretary and
Chief Technical Officer 1998
Timothy R. Karnes 41 Director and President 1997
Lisa B. Safford 38 Director and Treasurer 1997
David A. Appell, Esq. 36 Interim Chief Financial Officer
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 22, 1999.
J. ROBERT JONES is a director and the Company's Secretary and Chief
Technical Officer. Mr. Jones brings sales and marketing, company startup, Zenith
certification, and technical and cable-modem experience to the Company. As Vice
President of Marketing/Technology at King Communications, Mr. Jones pioneered
the first generation of cable modems to King, North Carolina. Mr. Jones has
eighteen years experience in negotiating multi-million dollar sales contracts
for numerous companies such as Pan American Continental and Transworld Airlines
Mr. Jones has founded two successful companies, one of which, Micro Tech,
implemented Internet service for many of the Caribbean Islands. Mr. Jones
attended Central Piedmont College in Charlotte, North Carolina and the College
of Marin County in Marin County, California.
TIMOTHY R. KARNES is the chairman of the board and the Company's
president. In 1994, Mr. Karnes co-founded Sims Internet, a pioneer in the
Internet service provider industry, which was acquired by Internet Channel, Inc.
Mr. Karnes served as Vice President of Internet Channel, Inc. where his duties
included developing the business direction, raising capital, and working with
securities counsel and auditors. Mr. Karnes became President of the Company in
February 1997 and left Internet Channel, Inc. in March 1997. Mr. Karnes is
16
<PAGE>
certified by Zenith Electronics Corporation in cable modem technologies. Prior
to 1994 Mr. Karnes founded and was president of Palmetto Research Opportunities,
Inc., an employment research firm. Mr. Karnes was the founder and publisher of
AUCTION GUIDE MAGAZINE in 1988 which was distributed on news stands in regional
sections of the United States by Capitol Distributors. In 1991, Mr. Karnes
founded a nonprofit organization, Operation Desert News, Inc., to coordinate
seventy-two national magazine publishers supplying over 200,000 donated
magazines (editorial content pre- approved by the Pentagon and Joint Command) to
the U.S. troops serving in Saudi Arabia. R.J. Reynolds Tobacco Company funded
the project. Mr. Karnes attended Ecole de Monte Rosa in Lausanne, Switzerland,
the College of Charleston and Wake Forest University.
LISA B. SAFFORD is a director and the Company's Treasurer. Mrs. Safford
is a Vice President of Landmark Enterprises, Inc., a family owned commercial and
industrial real estate development company engaged in sales, leasing property
management and development of commercial and industrial real estate. Mrs.
Safford has over fifteen years experience in the accounting and finance industry
and now manages over 500,000 square feet of industrial, distribution and office
space. Since joining Landmark Enterprises, Inc. in 1994, Mrs. Safford has
consistently sold and leased over $1 million worth of property a year. Currently
Mrs. Safford is involved in site acquisition, selecting the architectural
design, arranging favorable financing and leasing of a shopping center in Mt.
Pleasant, South Carolina and several industrial projects in the North Charleston
area. Mrs. Safford earned a Bachelor of Science degree in accounting and
business administration (1993) from the College of Charleston.
DAVID A. APPELL, ESQ. is the Company's interim Chief Financial Officer.
Mr. Appell is also employed as Managing Director of The Regency Group Inc, an
investment banking firm located on Wall Street in New York, which also serves as
investment banker for the Company. Since 1990, he has been engaged in the
private practice of law. Mr. Appell also serves as a director of Allied Capital
Services, L.L.C., a consulting firm which provides financing and real estate
development services. Mr. Appell received a Judicial Doctorate degree from
Cardozo Law School and holds a BBA in Accounting from Pace University. He is a
Member of the New York State Bar and New Jersey State Bar. He is a registered
options principal, general securities representative, uniform securities agent
and general securities principal.
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 for the name
of each 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 that 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
17
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth the cash compensation paid to the
Company's chief executive officer during each of the three fiscal years ended
June 30, 1999.
Name Fiscal Year Position(s) Salary
----------------- ----------- ----------- ------
Timothy R. Karnes 1997 President $70,000
1998 President $70,000
1999 President $70,000
J. Robert Jones 1997 Chief Technical Officer $80,000
1998 Chief Technical Officer $80,000
1999 Chief Technical Officer $80,000
Amounts shown in the table above represent accrued amounts. The Company did not
pay approximately $20,000 per year of these amount but is obligated to pay the
unpaid balance when the Company's financial condition permits. In addition to
cash compensation for 1999, the Company issued to Mr. Karnes on January 22, 1999
common stock purchase warrants exercisable to purchase 250,000 shares of common
stock at a price of $2.50 per share. The warrants are exercisable for a period
of five years from the date of issuance.
The following table sets forth certain information about common stock
purchase warrants issued to directors and executive officers during the 1999
fiscal year. Prior to the 1999 fiscal year, 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.
As % of
Number of total granted to Exercise
Name Shares all employees price Expire
-------------------- ----------- ----------------- -------- -------
J. Robert Jones 150,000 33% $2.50 1/22/04
Timothy R. Karnes 250,000 56% $2.50 1/22/04
Lisa B. Safford 25,000 6% $2.50 1/22/04
Michael Jones, a former director of the Company was issued common stock
purchase warrants to purchase 25,000 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 number of shares of the Company's common stock owned by the
Company's directors and officers and by each person who owns legally and
beneficially more than five percent of the Company's issued and outstanding
common stock at June 30, 1999, the address of each such person and the
percentage of the common stock represented by such shares is set forth in the
following table. Unless otherwise indicated all ownership is both legal and
beneficial.
18
<PAGE>
Name Number of Shares Percentage
----- ---------------- ----------
J. Robert Jones (1)(2) 1,050,000 12%
Timothy R. Karnes (1)(3) 2,335,842 27%
Lisa B. Safford (1)(4) 50,000 0.6%
All directors and officers 3,436,217 39%
as a group (3 persons)
(1) Messrs. Jones and Karnes and Ms. Safford's address is the address of the
Company.
(2) Number of shares and percentage include 450,000 shares which Mr. Jones may
acquire at any time by exercise of common stock purchase warrants.
(3) Number of shares and percentage include 250,000 shares that Mr. Karnes may
acquire at any time by exercise of common stock purchase warrants, such
amount also includes 54,742 shares which were issued to third parties as
and for settlement of certain claims relating to the predecessor of the
Company.
(4) Number of shares and percentage include 25,000 shares that Ms. Safford may
acquire at any time by exercise of common stock purchase warrants.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
A note payable to an officer/stockholder of the Company, for $25,000,
is payable on demand and bears interest at 7% a year. The individual also
advanced $4,559 to the Company, which bears no interest.
A note payable to a stockholder for $30,000 bears interest at 7% a year
and is due in July 2000.
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.
The Company entered into a transaction with Carolina Communication in
which Michael Jones is an Officer. Although Mr. Jones was formerly director of
the Company the transaction was done on an arms length basis.
19
<PAGE>
ITEM 13. EXHIBITS LISTS AND REPORTS ON FORM 8-K AND FORM 10G.
1. Exhibits
2. Form 8K - Acquisition of Cable Systems TSi and Acquisition of CAD
Consultants, Inc., as amended*****
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**
13.1 Form 10QSB for the period ending September 30, 1999***
13.2 Form 10QSB for the period ending March 31, 2000****
13.3 Form 10KSB40 for the period ending December 31, 1999*****
13.4 Definitive Form 14A filed January 14, 2000*********
16.1 Letter re: change in certifying accountant
27. Financial data schedule
99.1 Form 8K - Notice of Change in Fiscal Year*******
99.2 Form 8K - Notice of Change in Registrant's Certifying Accountant, as
amended********
* Incorporated by reference to the Company's Form 10G, filed with the
commission on June 8, 1999.
** Incorporated by reference to the Company's Form 8K, as amended filed with
the commission on August 4, 1999.
*** Incorporated by reference to the Company's current report, filed with the
commission on November 24, 1999.
**** Incorporated by reference to the Company's current report, filed with the
commission on May 15, 2000.
***** Incorporated by reference to the Company's current report, filed with the
commission on April 7, 2000.
****** Incorporated by reference to the Company's current report, filed with the
commission on January 19, 2000, amended on March 17, 2000.
******* Incorporated by reference to the Company's current report, filed with
the commission on February 7, 2000.
******** Incorporated by reference to the Company's current report, filed with
the commission on May 1, 2000, amended on May 9, 2000.
********* Incorporated by reference to the Company's Definitive Form 14A filed
with the Commission January 14, 2000.
20
<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: June 15, 2000
-----------------------------
Michael F. Mulholland
Chief Executive Officer
Signature Capacity in which signed: Date signed:
/s/ Mark A. Kearney Director June 15, 2000
-------------------
Mark A. Kearney
/s/ Joseph M. Melanson Director June 15, 2000
----------------------
Joseph M. Melanson
/s/ Michael F. Mulholland Director June 15, 2000
-------------------------
Michael F. Mulholland
/s/ William F. Walsh Chief Financial Officer June 15, 2000
--------------------
William F. Walsh
21
<PAGE>
<PAGE>
INDEX T0 FINANCIAL STATEMENTS
Independent Auditors' Report 1-2
Financial Statements
Balance Sheet as of June 30, 1999 and 1998 3
Statement of Operations
Years Ended June 30, 1999 and 1998, and the Cumulative Period
February 15, 1995 (Date of Inception) to June 30, 1999 4
Statement of Cash Flows
Years Ended June 30, 1999 and 1998, and the Cumulative Period
February 15, 1995 (Date of Inception) to June 30, 1999 5
Statement of Changes in Stockholders' Deficiency
Years Ended June 30, 1999 and 1998, and the Cumulative Period
February 15, 1995 (Date of Inception) to June 30, 1999 6
Notes to Financial Statements 7-17
<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 (a development stage company) as of June 30, 1999, and the related
statements of operations, cash flows and changes in stockholders' deficiency for
the year then ended and for the period February 15, 1995 (date of inception) to
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 audit. We did not audit the financial
statements of INTERNET CABLE CORPORATION for the period February 15, 1995 (date
of inception) to June 30, 1998. The financial statement amounts of the
statements of operations, cash flows and changes in stockholders' deficiency for
such prior periods are encompassed in the cumulative financial statements for
the period February 15, 1995 (date of inception) to June 30, 1999. The financial
statements for all periods prior to July 1, 1998 were audited by other auditors
whose reports express unqualified opinions on those statements, and our opinion,
insofar as it relates to amounts for the period from inception to June 30, 1998,
included in the cumulative totals for the statements of operations, cash flows
and changes in stockholders' deficiency, is based solely on the reports of the
other auditors.
We conducted our audit 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 audit and the reports of the other auditors provide a
reasonable basis for our opinion.
(Continued)
-1-
<PAGE>
In our opinion, based on our audit and the reports of other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of INTERNET CABLE CORPORATION as of June 30,
1999, and the results of its operations and its cash flows for the year then
ended and for the period February 15, 1995 (date of inception) to June 30, 1999,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring development stage
losses and has a working capital deficiency that 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.
Friedman Alpren & Green LLP
New York, New York
July 23, 1999
-2-
<PAGE>
INTERNET CABLE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS
1999 1998
----------- -----------
Current assets
<S> <C> <C>
Cash $ 51,448 $ 1,330
Note receivable 25,000 --
Accounts receivable 4,028 --
Prepaid expenses and other current assets 3,131 --
----------- -----------
Total current assets 83,607 1,330
Property and equipment - at cost, less accumulated
depreciation 60,833 47,583
Franchise rights, net of amortization -- 95,833
Other assets 27,000 2,000
----------- -----------
$ 171,440 $ 146,746
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Note payable, stockholder $ 25,000 $ --
Accounts payable and accrued expenses 205,647 174,802
Payroll taxes payable 7,412 167,850
Loans payable, stockholder 4,559 102,897
----------- -----------
Total current liabilities 242,618 445,549
Notes payable, net of unamortized discount of $158,000 42,000 --
Note payable, stockholder 30,000 --
----------- -----------
314,618 445,549
----------- -----------
Stockholders' 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, 7,703,861 and 6,964,424 shares issued
and outstanding 7,703 6,964
Additional paid-in capital 3,641,268 1,828,920
deficit accumulated during the development stage (3,792,149) (2,134,687)
----------- -----------
Total stockholders' deficiency (143,178) (298,803)
----------- -----------
$ 171,440 $ 146,746
=========== ===========
</TABLE>
<PAGE>
INTERNET CABLE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
YEARS ENDED JUNE 30, 1999 AND 1998 AND THE PERIOD
FEBRUARY 15, 1995 (DATE OF INCEPTION) TO JUNE 30, 1999
<TABLE>
<CAPTION>
Cumulative,
February 15, 1995
(Date of Inception)
1999 1998 to June 30, 1999
------------ ------------ ------------------
Revenues
<S> <C> <C> <C>
Sales and services $ 24,016 $ 50,410 $ 74,426
------------ ------------ ------------
Costs and expenses
Cost of revenues 54,073 52,887 106,960
General and administrative 1,386,125 1,631,977 3,168,207
------------ ------------ ------------
1,440,198 1,684,864 3,275,167
------------ ------------ ------------
Loss from operations (1,416,182) (1,634,454) (3,200,741)
------------ ------------ ------------
Other expenses
Interest 16,280 15,925 30,154
Penalty -- 68,254 68,254
Loss on disposal of perfume formula -- -- 18,000
Loss on disposal of marketable securities -- -- 250,000
Settlement of litigation 225,000 -- 225,000
------------ ------------ ------------
241,280 84,179 591,408
------------ ------------ ------------
Net loss (1,657,462) (1,718,633) (3,792,149)
Accumulated deficit, beginning of period (2,134,687) (416,054) --
------------ ------------ ------------
Accumulated deficit, end of period $ (3,792,149) $ (2,134,687) $ (3,792,149)
============ ============ ============
Weighted average common shares
outstanding 7,318,665 4,762,107 10,113,393
============ ============ ============
Basic and diluted loss per share $ (.23) $ (.36) $ (.37)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
INTERNET CABLE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
YEARS ENDED JUNE 30, 1999 AND 1998 AND THE PERIOD
FEBRUARY 15, 1995 (DATE OF INCEPTION) TO JUNE 30, 1999
<TABLE>
<CAPTION>
Cumulative,
February 15, 1995
(Date of Inception)
1999 1998 to June 30, 1999
----------- ----------- ------------------
Cash flows from operating activities
<S> <C> <C> <C>
Net loss $(1,657,462) $(1,718,633) $(3,792,149)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 13,108 9,370 23,406
Loss on disposal of perfume formula -- -- 18,000
Loss on disposal of marketable securities -- -- 250,000
Provision for doubtful accounts -- 28,968 119,284
Franchise rights adjustment 95,833 -- 95,833
Accrued expenses adjustment (85,900) -- (85,900)
Common stock issued for services, interest
and litigation settlement 608,750 1,142,875 1,751,625
Stock-based compensation 219,213 -- 219,213
Changes in assets and liabilities
Accounts receivable (4,028) -- (4,028)
Prepaid expenses and other current assets (3,131) -- (3,131)
Other assets (25,000) (2,000) (28,800)
Accounts payable and accrued expenses 116,745 138,353 291,547
Payroll taxes payable (160,438) 156,706 7,412
----------- ----------- -----------
Net cash used in operating activities (882,310) (244,361) (1,137,688)
----------- ----------- -----------
Cash flows from investing activities
Note receivable (25,000) -- (25,000)
Marketable securities -- -- (250,000)
Acquisition of property and equipment (26,358) (52,786) (79,672)
Perfume formula -- -- (18,000)
Loans receivable -- 1,500 (117,884)
----------- ----------- -----------
Net cash used in investing activities (51,358) (51,286) (490,556)
----------- ----------- -----------
Cash flows from financing activities
Notes payable, stockholders 55,000 -- 55,000
Notes payable 200,000 -- 200,000
Loans payable, stockholders (98,338) 102,897 4,559
Issuance of common stock 847,124 152,500 1,440,133
Stock offering costs (20,000) -- (20,000)
----------- ----------- -----------
Net cash provided by financing activities 983,786 255,397 1,679,692
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents
50,118 (40,250) 51,448
Cash and cash equivalents, beginning of period 1,330 41,580 --
----------- ----------- -----------
Cash, end of period $ 51,448 $ 1,330 $ 51,448
=========== =========== ===========
Supplemental noncash financing activities
Issuance of common stock for services, interest
and settlement $ 608,750 $ 1,142,875 $ 1,751,625
=========== =========== ===========
Stock-based compensation charged to expense $ 219,213 $ 0 $ 219,213
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
INTERNET CABLE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
YEARS ENDED JUNE 30, 1999 AND 1998 AND THE PERIOD FEBRUARY 15, 1995
(DATE OF INCEPTION) TO JUNE 30, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional Stock During the Total
Common Stock Paid-In Subscription Development Stockholders'
Shares Amount Capital Receivable Stage Deficiency
------ ------ ------- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock 5,640,000 $ 5,640 $ 16,000 $ -- $ -- $ 21,640
Net loss -- -- -- -- (2,692) (2,692)
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 1995 5,640,000 5,640 16,000 -- (2,692) 18,948
Stock subscription 20,000,000 20,000 (13,000) (7,000) -- --
Reverse stock split (23,309,003) (23,309) 23,309 -- -- --
Issuance of common stock 30,550,000 30,550 15,408,000 -- -- 15,438,550
Net loss -- -- -- -- (31,529) (31,529)
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 1996 32,880,997 32,881 15,434,309 (7,000) (34,221) 15,425,969
Cancellation of stock (14,000,000) (14,000) (15,161,000) -- -- (15,175,000)
Reverse stock split (17,236,947) (17,237) 17,237 -- -- --
Issuance of common stock 1,500,000 1,500 148,500 -- -- 150,000
Stock subscription 1,150,000 1,150 113,850 (109,681) -- 5,319
Subscription write-off -- -- (7,000) 7,000 -- --
Net loss -- -- -- -- (381,833) (381,833)
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 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 $ 0 $ (3,792,149) $ (143,178)
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE>
INTERNET CABLE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1 - ORGANIZATION
Internet Cable Corporation (the "Company") is a development stage
company which conducts business from its headquarters in Charleston, South
Carolina. The Company was organized under the laws of the State of Nevada
on February 15, 1995. Internet Cable Corporation is in the process of
entering the market for providing high-speed cable access to the Internet,
to businesses and to 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 - GOING CONCERN
The Company's financial statements have been presented assuming that
the Company will continue as a going concern. As shown in the accompanying
financial statements, the Company has incurred development stage losses of
$3,792,149 through June 30, 1999, and at June 30, 1999, the Company had a
working capital deficiency of $159,011 and a stockholders' deficiency of
$143,178. These conditions indicate that the Company may be unable to
continue as a going concern. Its ability to do so is dependent on its
ability to achieve profitable operations, and its ability to obtain any
necessary financing. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
3 - 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
year. Stock warrants have been excluded from diluted loss per share and
have not been presented because their effect would have been antidilutive.
(Continued)
-7-
<PAGE>
INTERNET CABLE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
The Company is a development stage company and, accordingly, has no
significant operations and revenue. The Company 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.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes", determining deferred tax assets and liabilities using the 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 is assured.
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)
-8-
<PAGE>
INTERNET CABLE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
3 - 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 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.
4 - NOTE RECEIVABLE
The noninterest-bearing note receivable of $25,000 from an unrelated
party is due on September 23, 1999.
5 - ASSET IMPAIRMENT
At June 30, 1999, the Company determined that the entire carrying
amount of the franchise rights approximating $96,000 could not be
recovered. An impairment loss of approximately $96,000 was recognized by
the Company and is reflected in the financial statements.
6 - PROPERTY AND EQUIPMENT
Property and equipment consist of furniture and equipment of $79,144
and $52,786, less accumulated depreciation of $18,311 and $5,203 at June
30, 1999 and 1998, respectively.
Depreciation expense was $13,108 and $5,203 for the years ended June
30, 1999 and 1998, respectively.
(Continued)
-9-
<PAGE>
INTERNET CABLE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
7 - NOTES PAYABLE
The Company engaged an outside agent to sell up to $700,000 of 10%
two-year promissory notes. The notes are prepayable if the Company
undertakes a 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. Investors in the promissory notes will also receive an
aggregate of 350,000 warrants, entitling them to purchase an aggregate of
350,000 shares of common stock for a period of five years.
In May and June 1999, the Company issued notes totaling $200,000 to
three unrelated parties. In connection therewith, the Company issued
warrants to purchase 100,000 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 fiscal 1999.
The Company has valued the warrants at $158,000, which was recorded as a
debt discount and amortized over the life of the notes. Amortization
expense was deemed immaterial in fiscal 1999. Commission expense relating
to these notes, totaling $26,000, was accrued.
8 - RELATED PARTY TRANSACTIONS
A $25,000 note payable to an officer/stockholder of bthe Company is
payable on demand and bears interest at 7% a year. The individual also
advanced $4,559 to the Company which bears no interest.
A $30,000 note payable to a stockholder bears interest at 7% a year
and is due in July 2000.
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.
(Continued)
-10-
<PAGE>
INTERNET CABLE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
9 - DEFERRED INCOME TAXES AND LOSS CARRYFORWARDS
Components of deferred tax assets are as follows:
Net operating loss carryforwards $ 909,000 $ 529,860
Stock-based compensation 74,500 --
--------- ---------
529,860
Less - Valuation allowance 529,860
--------- ---------
Net deferred tax asset $ -0- $ -0-
========= ==========
At June 30, 1999, the Company has available net operating loss
carryforwards of approximately $2,273,000, which may 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 may be
applied to net capital gains expiring in 2001 ($18,000) and 2002
($250,000).
10 - 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. On February 15, 1995,
the Company issued 4,640,000 shares to the founders in exchange for $4,640
in cash. In May 1995, the Company issued 1,000,000 shares of common stock
for $17,000 in cash, net of offering costs. In early October 1995, the
Company issued 20,000,000 shares of common stock in exchange for a
subscription receivable from a shareholder of $7,000. The Board of
Directors approved a reverse stock split of 1 share for 11, for
stockholders of record October 16, 1995. On October 24, 1995, the Company
issued 13,000,000 shares for $260,000 in cash. The Company then issued
3,550,000 shares for $3,550 in cash. Also in October 1995, the Company
issued 5,000,000 shares and $250,000 in cash in exchange for the shares of
PCT Prepaid Telephone, Inc. and the Company issued 5,000,000 shares in
exchange for 5,000,000 shares of Prime International Products, Inc. In June
1996, the Company issued 4,000,000 shares in exchange for prepaid cellular
telephone rights. The assets received in these transactions were returned
or canceled in the year ending June 30, 1997.
(Continued)
-11-
<PAGE>
INTERNET CABLE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
10 - COMMON STOCK (Continued)
In March, 1997, the Board of directors approved a reverse stock split
of 1 share for 20 shares. In May and June 1997, an additional 2,650,000
shares were issued, of which 1,096,810 shares were subject to shareholder
stock subscriptions receivable of $109,681. At June 30, 1997, the Company
charged a shareholder stock subscription receivable of $7,000 to additional
paid-in capital.
The Board of Directors approved a stock subscription, on July 22,
1997, of 2,400,000 shares with Internet Marketing, Inc. and a previous
acting, interim officer of the Company. In addition, the Board of
Directors, on this date, approved a reverse stock split of 1 share for 2
shares. The Company issued 3,500,000 shares, on July 22, 1997, to the
President of the Company in exchange for current and future services to be
rendered. The Board of Directors approved a reverse stock split of 1 share
for 10 shares on September 12, 1997. The Board of Directors approved a
September 12, 1997 post split cancellation of 497,670 shares. The Board of
Directors, on September 12, 1997, issued 3,145,000 shares to consultants,
employees and officers of the Company, including 2,000,000 shares to the
President, who returned his original 3,500,000 shares to the Company, and
1,000,000 shares to a consultant and acting Secretary in exchange for
services rendered, valued at $.25 per share, or $786,250, comparable to a
recent cash sale of $.38 per share and the quoted bid price per share of
$.17. Stock options issued to these persons were cancelled at this time.
Due to fractional shares, the total issued and outstanding was increased by
4 shares. The Company sold 150,000 shares for $57,500 in cash. The Company,
on December 19, 1997, then issued 33,333 shares for $50,000 in cash. The
Company had a forward split of 3 shares for 2 shares on December 31, 1997.
The Board of Directors, on January 15, 1998, issued 50,000 shares to
various persons in exchange for services rendered, valued at $1.06 per
share, or $53,125. The Company, on February 13, 1998, then issued 350,000
shares for $35,000 in cash. The Company canceled 18,750 post split shares
to PCT Prepaid Telephone on March 30, 1998. In December 1997, the Company
authorized options to purchase 800,000 shares of common stock at $.05 per
share to consultants and key employees, which were subsequently canceled.
The Board of directors, on April 9, 1998, approved 1,000,000 shares for
services rendered to a key Company employee and a member of the Board of
Advisors, valued at $.10 per share, the most recent prior cash price. The
Company issued, on April 23, 1998, 10,000 shares for $10,000 in cash. On
April 25, 1998, the Company issued 200,000 shares to the President valued
at $1.00 per share. The Company entered into a strategic alliance with
Carolina Communications Network, Inc. on April 30, 1998 in exchange for
100,000 shares, valued at $1.00 per share.
(Continued)
-12-
<PAGE>
INTERNET CABLE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
10 - COMMON STOCK (Continued)
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.
11 - STOCK WARRANTS
The Company has issued warrants to purchase the Company's common
stock to officers, key employees, directors and outsiders as compensation
and for services rendered. The warrants are summarized as follows:
Number of Weighted
Shares Average
Exercise Price
Outstanding at July 1, 1997 - $ -
Issued 322,000 .12
Excercised - -
Cancelled - -
-------
Outstanding at June 30, 1998 322,000 .12
Issued 741,000 2.49
Exercised - -
Cancelled - -
-------
Outstanding (held by 10 individuals)
at June 30, 1999 1,063,000 $ 1.77
========= ======
Warrants exercisable at
June 30, 1999 1,063,000 $ 1.77
June 30, 1998 322,000 .12
(Continued)
-13-
<PAGE>
INTERNET CABLE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
11 - STOCK WARRANTS (Continued)
Summary information about the Company's stock warrants outstanding at
June 30, 1999 is as follows:
Outstanding Weighted
and Average
Exercisable at Contractual
June 30, Periods Weighted Average
1999 in Years Exercise Price
------------- ----------- ----------------
10,000 3.3 $ 1.00
6,000 3.1 1.00
6,000 3.2 1.00
15,000 4.2 2.50
6,000 4.3 1.00
470,000 4.6 2.50
300,000 3.3 .05
250,000 4.1 2.50
---------- --- -----
1,063,000 3.8 $1.77
========== === =====
The Company accounts for stock warrants issued to nonemployees under
the fair value method, pursuant to SFAS No. 123, "Accounting for
Stock-Based Compensation". The fair value of these warrants was calculated
at the date of issuance using a Black-Scholes option Valuation Model
assuming a risk-free interest rate of 5.88% for five-year warrants and a
volatility factor of expected market price of the Company's common stock of
158.36%. Under the provisions of SFAS No. 123, the Company's compensation
expense arising from the issuance of stock warrants for the year ended June
30, 1999 was $219,213. The related deferred tax asset of approximately
$74,500 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.
(Continued)
-14-
<PAGE>
INTERNET CABLE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
11 - STOCK WARRANTS (Continued)
The Company also measures compensation in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25 in
accounting for stock warrants issued to employees. Accordingly, no
compensation cost has been recorded for warrants issued to employees in the
year ended June 30, 1999. The fair value of each warrant 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 5.88%
Expected life 5 years
Expected volatility 158.36%
Had compensation cost been determined under SFAS No. 123, net loss per
share for the years ended June 30, 1999 and 1998 would have been increased
as follows:
1999 1998
------------ -------------
Net loss
As reported $ (1,657,462) $ (1,718,633)
Pro forma (1,979,227) (1,818,111)
Basic loss per share
As reported $ ( .23) $ ( .36)
Pro forma ( .27) ( .38)
During the year ended June 30, 1999, the Company also issued warrants
in connection with the issuance of promissory notes (see Note 7), as
follows:
Number of
Shares Exercise Price
Outstanding at July 1, 1998 - -
Issued 100,000 $ 3.00
Exercised -
Expired -
-------
Outstanding at June 30, 1999 100,000
=======
(Continued)
-15-
<PAGE>
INTERNET CABLE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
12 - LITIGATION SETTLEMENT
The Company had been a defendant in a lawsuit filed by certain
individuals. To avoid the expense and disruption of protracted litigation,
during fiscal 1999 the Company and plaintiffs agreed to settle the lawsuit.
The Company agreed to issue 45,000 shares of common stock with a fair value
of $225,000, which is based on market value. The settlement has been
recognized in the accompanying financial statements.
13 - COMMITMENTS AND CONTINGENCIES
Lease Commitments
Minimum annual rental payments under noncancelable operating leases
for office facilities at June 30, 1999 are as follows:
Year Ending
June 30,
2000 $ 24,000
2001 10,000
-----------
$ 34,000
Rent expense for office facilities for the years ended June 30, 1999
and 1998 was approximately $24,000 and $20,000, respectively.
Other
The Company has entered into numerous service agreements with various
owners and agents of multiple dwelling unit properties located in the
United States and hotels located in China. The owners or agents grant to
the Company the right to install, operate and maintain the cable system to
provide services such as cable television, high-speed Internet access and
data communication services. The terms of these agreements range from 1 to
15 years. In exchange, the Company will pay a 10% commission on revenues
generated from the customers.
On March 1, 1999, the Company entered into an agreement with a
consultant. The consultant will provide financial advisory services to the
Company for one year ending February 29, 2000, for a monthly fee of $3,750.
(Continued)
-16-
<PAGE>
INTERNET CABLE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
14 - PROPOSED ACQUISITIONS
During the year ended June 30, 1999, the Company began negotiations
to acquire certain companies. No acquisition agreements were signed as of
June 30, 1999.
On July 8, 1999, the Company signed a "Shares Purchase Agreement"
with a Canadian company, to acquire all of the Canadian company's
outstanding shares for $3,900,000 and 75,000 stock options exercisable at
$2.50 per option within two years from the closing date. The expected
closing date is October 19, 1999. This proposed merger is expected to be
accounted for under the purchase method of accounting.
15 - YEAR 2000 ISSUE (UNAUDITED)
The Company has evaluated the potential impact of the situation
commonly referred to as the "Year 2000 issue". The Year 2000 issue, which
is common to most companies, relates to the inability of information
systems, primarily computer software programs, to properly recognize and
process date-sensitive information related to the Year 2000 and beyond.
Management's assessment of the Company's systems indicates that costs
associated with resolving the Year 2000 issue will be immaterial.
-17-