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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Amendment No. 1 )
ALPHACOM, INC.
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(Exact name of small business issuer in its charter)
NEVADA 7372 34-1868605
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(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
1035 ROSEMARY BOULEVARD, AKRON, OHIO 44306 (330) 785-5555
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(Address and telephone number of principal executive offices)
1035 ROSEMARY BOULEVARD, AKRON, OHIO 44306
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(Address of principal place of business or intended principal place of business)
ROBERT SNYDER, 1035 ROSEMARY BOULEVARD, AKRON, OHIO 44306 (330) 785-5555
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(Name, Address and telephone number of agent for service)
COPIES TO:
MILES GARNETT, ESQ., 66 WAYNE AVENUE, ATLANTIC BEACH, NY 11509 (516) 371-4598
Approximate date of proposed sale to the public: AS SOON AS PRACTICABLE AFTER
THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
-----------------------------
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
-----------------------------
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
-----------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
----
CALCULATION OF REGISTRATION FEE
Common Stock 5,020,000 $5.00 $21,400,000.00 $5,949.20
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Title of each Share Proposed Proposed maximum Amount of
class of amount to maximum aggregate registration
securities to be offering price offering fee
be registered registered per unit price
Total Number of Pages 100
Exhibit List - Page 70
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Note: Specific details relating to the fee calculation shall be furnished in
notes to the table, including references to provisions of Rule 457 (Section
230.457 of this chapter) relied upon, if the basis of the calculation is not
otherwise evident from the information presented in the table. If the filing fee
is calculated pursuant to Rule 457(o) under the Securities Act, only the title
of the class of securities to be registered, the proposed maximum aggregate
offering price for that class of securities and the amount of registration fee
need to appear in the Calculation of Registration Fee table. Any difference
between the dollar amount of securities registered for such offerings and the
dollar amount of securities sold may be carried forward on a future registration
statement pursuant to Rule 429 under the Securities Act.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PROSPECTUS
[AlphaCom LOGO]
AN INITIAL REGISTERED PUBLIC OFFERING AND A SELLING SHAREHOLDER OFFERING OF
ALPHACOM, INC.
5,020,000 SHARES OF COMMON STOCK
THE PURCHASE PRICE FOR 4,120,000 OF OUR SHARES OFFERED TO THE PUBLIC IS
$5.00.
COMMITMENT UNDER RECISSION STOCK FOR 900,000 SHARES AT $1.00
We are selling 5,000,000 shares of common stock which have a par value of $.001
per share (the "Common Stock"). We are a Nevada corporation. Several of our
founding shareholders are simultaneously selling an additional 20,000 shares.
This represents .4% of all the shares being offered. We and the selling
shareholders have fixed the price of the 4,120,000 shares made in this offering
at $5.00 each and 900,000 recission shares at $1.00 each.
We will sell the shares ourselves and do not plan to use underwriters or pay any
commissions. We will be selling our shares in a direct participation offering
and no one has agreed to buy any of our shares. We are offering a minimum of
434,000 shares at the offering price of $5.00 per share and 900,000 recission
shares at the price of $1.00 per share ("Minimum Offering"), for total minimum
offering proceeds of $3,070,000 (Minimum Offering Proceeds"). The Minimum
Offering Proceeds will be held in escrow until we reach the Minimum Offering. If
we reach the Minimum Offering, all escrowed proceeds will be released and used
for the purposes described in Use of Proceeds hereafter. If we do not reach the
Minimum Offering, we will return all proceeds to the subscribers along with the
pro-rata interest earned on their funds. The offering will remain open until
October 31, 2000, unless we decide to cease selling efforts prior to this date.
This is our public offering, and no public market exists for our shares. We hope
to have prices for our shares quoted on the Small Capitalization Market
maintained by the National Association of Securities Dealers, Inc.
after we complete our offering.
Our proposed trading symbol for the Small Capitalization Market is
"ACCI".
Prior to this offering, there has been no public market for the
shares and there can be no assurance that such a market will develop. The
offering price for the common stock has been arbitrarily determined by us. The
minimum subscription is 100 shares and the maximum subscription is 10,000
shares.
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH DEGREE
OF RISK. SEE THE CAPTION "RISK FACTORS" COMMENCING ON PAGE 7.
PER SHARE TOTAL
MINIMUM MAXIMUM
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Public offering price $ 5.00 $2,170,000 $20,500,000
Recission Shares $ 1.00 $900,000 $900,000
Underwriting discounts and commissions...... none none none
Proceeds, before expenses, to us........................$3,070,000 $21,400,000
Proceeds, before expenses, to selling shareholders $0.00 $100,000
================================================================================
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 2000
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[AlphaCom LOGO]
TABLE OF CONTENTS
Summary........................................................................5
Our Company....................................................................5
Risk Factors...................................................................7
Management Discussion of Analysis of Condition and Results of Operations.......9
Year 2000 Readiness Disclosure................................................12
Use of Proceeds...............................................................14
Capitalization................................................................15
Dilution......................................................................16
Business......................................................................18
Selling Securityholders.......................................................26
Principal Shareholders........................................................27
Management....................................................................27
Certain Transactions..........................................................30
Description of Securities.....................................................31
Shares Eligible for Future Sale...............................................32
Available Information.........................................................33
Dividend Policy...............................................................34
Stock Transfer Agent..........................................................34
Experts.......................................................................34
Legal Matters.................................................................34
Index to Financial Statements................................................F-1
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SUMMARY
OUR COMPANY
Our company, AlphaCom, Inc., is an innovator in communication
technology. We were incorporated on December 1, 1997 under the laws of the State
of Nevada. Our offices are located at 1035 Rosemary Boulevard, Akron, Ohio
44306, and the telephone number is (330) 785-5555.
We are selling 5,000,000 shares of common stock, which have a par value
of $.001 per share. We are a Nevada corporation. One of our founding
shareholders is selling an additional 20,000 shares concurrently, which
represents .4% of the shares being offered. We and the selling shareholder have
fixed the price of all the shares made in this offering at $5.00 each.
Unless otherwise indicated, the information in this prospectus,
irrespective of the date referenced, assumes that there is no exercise of
outstanding options or warrants to purchase additional shares.
THE OFFERING
COMMON STOCK OFFERED Up to a maximum of 5,000,000 shares of common
FOR SALE HEREBY stock by us and 20,000 shares of common stock by
one of our founding stockholders.
OFFERING PRICE $5.00 per share offered to the public and $1.00
per share for the 900,000 recission shares. The
shares are being sold on a "best efforts" basis.
TERMS OF THE OFFERING A minimum offering of 434,000 shares at $5.00 per
share, and 900,000 recision shares at $1.00 per
share, for a total of 1,334,000 shares ("Minimum
Offering"), and proceeds of $3,070,000 (Minimum
Offering Proceeds"). Offering proceeds will be
held in escrow until subscriptions reach the
Minimum Offering. If we reach the Minimum
Offering, all escrowed proceeds will be released
and used for the purposes described in Use of
Proceeds hereafter. If we do not reach the Minimum
Offering, we will return all proceeds to the
subscribers along with the pro-rata interest
earned on their funds. The offering will remain
open until October 31, 2000, unless we decide to
terminate the selling efforts prior to this date.
The minimum subscription is 100 shares and the
maximum subscription is 10,000 shares.
COMMON PREFERRED
AUTHORIZED AND Stock Stock
OUTSTANDING ----- -----
SHARES OF Authorized: 60,000,000 none
STOCK Outstanding:
Prior to Offering: 12,198,354 none
After Offering*: 17,198,354 none
*Assuming the maximum amount of the Offering has been subscribed.
PLAN OF DISTRIBUTION This is a direct participation and no minimum offering,
with no commitment by anyone to purchase any shares.
The
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shares will be offered and sold on a "best efforts"
basis by our principal executive officers and
directors, although we may retain the services of one
or more NASD registered broker-dealers as selling
agent(s) to effect offers and sales on our behalf. The
broker-dealers will receive a commission on their
sales. None have been retained as of this date. No
selling shareholder's shares will be sold until 25% of
the offering has been completed. All shares held by
officers, directors and shareholders who own 5% or more
of our stock will be held in escrow pursuant to an
escrow agreement required by the Ohio division of
Securities. Those insider shares may not be sold or
transferred for at least one year and perhaps as long
as four years, depending on the financial performance
of the company.
USE OF PROCEEDS Assuming that the entire offering will be sold then up
to the first $70,000 that we raise will be used to pay
the expenses of the offering. The priority for funds
raised in excess of that amount will be applied in the
following order (i) repayment of debt; (ii) to complete
R & D projects; (iii) to augment working capital; and
(iv) fulfill commitments. See "Use of Proceeds."
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RISK FACTORS
The securities offered hereby are highly speculative and involve
substantial risks. Prospective investors should carefully consider the following
risk factors before making an investment decision.
WE MAY HAVE COMMITTED A VIOLATION OF SECURITIES LAWS.
During the fall of 1998, approximately 970,000 shares of founders stock
were privately sold to our distributors, which were not sold pursuant to a
registration statement on file with the SEC. The federal securities laws require
registration of securities unless an appropriate exemption from the registration
requirements of those laws is available. In an attempt to correct any possible
securities laws violation, a rescission offer for stock purchased by this group
was begun on March 25, 1999. As a result of this rescission offer, purchasers of
approximately 55,000 shares requested and received a cash refund. If an
exemption did not exist for the sale of securities privately sold, we may have
violated the registration requirements. If so, purchasers could seek rescission
of their purchase and recover money paid for the securities. We make no
admission of any violation of federal securities laws.
WE HAVE A LIMITED OPERATING HISTORY AND A HISTORY OF LOSSES AND EXPECTATIONS OF
FUTURE LOSSES, SO THAT THERE IS AN UNCERTAINTY OF PROFITABILITY.
We were formed in December 1997, and therefore have only a limited
operating history upon which an evaluation of our prospects can be made. Such
prospects must be considered in light of the substantial risk, expenses and
difficulties encountered by new entrants into the Internet services industry. We
have incurred net losses from inception through September 30, 1999 in the amount
of $3,677,719, and therefore has accumulated an earnings deficit, as well as
negative working capital. As of September 30, 1999 our equity is ($2,845,502).
We expect to continue to incur net losses as we continue to expend substantial
resources on sales, marketing and administration, and the development of our
products. We do not anticipate operating net income until the end of the second
quarter of the year 2000. In the next twelve months we anticipate an increase in
capital of $21,330,000 as a result of this offering. In addition, we currently
intend to increase our capital expenditures and operating expenses in order to
expand our network to support additional expected subscribers in existing and
future markets and to market and provide services to a growing number of
potential subscribers. There can be no assurance that we will achieve or sustain
profitability or positive cash flow from our operations.
WE EXPECT TO HAVE COMPETITION SOME OF WHICH MIGHT BE SUBSTANTIAL.
Many of our competitors and potential competitors have substantially
larger subscriber bases, longer operating histories, greater name recognition
and more established relationships with application providers than us. Such
competitors may be able to undertake more extensive marketing campaigns, adopt
more aggressive pricing policies and devote substantially more resources to
developing internet services than us. There can be no assurance that we will be
able to compete successfully against current or future competitors or that
competitive pressures faced by us will not materially adversely affect our
business, operating results or financial condition. Further, as a strategic
response to changes in the competitive environment, we may make certain pricing,
service or marketing decisions or enter into acquisitions or new ventures that
could have a material adverse effect on our business, operating results or
financial condition. See "Business--Competition."
WE EXPECT TO HAVE FUTURE ADDITIONAL CAPITAL REQUIREMENTS.
Our capital requirements depend on numerous factors, including the rate
of market acceptance of our products and services, our ability to maintain and
expand our customer base, the rate of expansion of our network infrastructure,
the level of resources required to expand our mar-
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ket and Distributor organization, information systems and research and
development activities, the pricing and timing of acquisitions, the availability
of hardware and software provided by third party venders and other factors. The
timing and amount of such capital requirements cannot be accurately predicted.
If capital requirements vary materially from those currently planned, or if we
are unable to sell the entire amount of the Offering, we may require additional
financing sooner than anticipated. Additional capital requirements are not
anticipated during the next twelve months, assuming a minimum of $3,070,000 is
raised through this offering. We have no commitments for any additional
financing, and there can be no assurance that any such commitments can be
obtained on favorable terms, if at all.
Any additional equity financing may be dilutive to our shareholders,
and debt financing, if available, may involve restrictive covenants with respect
to dividends, raising future capital and other financial and operational
matters. If we are unable to obtain additional financing as needed, we may be
required to reduce the scope of our operations or our anticipated expansion,
which could have a material adverse effect on our business, operating results
and financial condition.
THERE ARE CONSIDERABLE RISKS IN RELYING ON AND RELATING TO OUR ACQUISITION
STRATEGY.
We expect to continue our strategy of acquiring new technologies in our
target markets, including acquisitions which could be material in size and
scope. We believe that our future growth depends, in part, upon the success of
this strategy. Although we are actively pursuing acquisition targets, there can
be no assurance that we will successfully identify and acquire on favorable
terms. We may in the future face increased competition for acquisition
opportunities, which may inhibit our ability to consummate suitable acquisitions
and increase the costs of completing acquisitions. No assurance can be given
that any acquisition by us will occur, and that if an acquisition does occur,
that it will be successful in enhancing our business. There are no pending or
contemplated acquisitions.
EVEN AFTER THE OFFERING IS SOLD, CONTROL WILL BE MAINTAINED BY THE CURRENT
STOCKHOLDERS.
Subject to the limitations of Nevada corporate law, current management
will have control of us through its aggregate stock ownership of approximately
46%, if the entire offering is sold, and will have the right to perpetuate their
status as officers and directors and therefore conduct our business and affairs.
WE HAVE USED OUR OWN ATTORNEY TO DRAW ALL THE DOCUMENTS WITH RESPECT TO THIS
OFFERING AND NO SEPARATE INVESTORS' COUNSEL WAS RETAINED BY US.
We have not retained any independent professionals to review or comment
on this Offering or otherwise protect the interest of the investors hereunder.
Although we have retained our own counsel, neither such firm nor any other firm
has made, on behalf of the investors, any independent examination of any factual
matters represented by management herein, and purchasers of the shares should
not rely on the firm so retained with respect to any matters herein described.
THERE IS NO UNDERWRITER FOR THIS OFFERING AND WE ARE RELYING ON OUR OWN BEST
EFFORTS.
There is no underwriter for this Offering, therefore, offerees will not
have the benefit of an underwriter's due diligence efforts which would typically
include the underwriter to be involved in the preparation of disclosure and the
pricing of the common stock offered hereby among other matters. As we have never
engaged in the public sale of our common stock, it has no experience in the
underwriting of any such offering. Accordingly, there is no prior experience
from which investors may judge our ability to consummate this Offering. In
addition, the common stock is being offered on a "best efforts" basis.
Accordingly, there can be no assurances as to the number of shares that may be
sold or the amount of capital that may be raised pursuant to this Offering.
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THERE ARE RISKS RELATING TO LOW-PRICED STOCKS WHICH MAY AFFECT US.
If our securities were delisted and the trading price of our common
stock were to fall below $5.00 per share on that date, trading in such
securities would also be subject to the requirements of certain rules
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which require additional disclosure by broker-dealers in connection with
any trades involving a stock defined as a penny stock (generally, any non-Nasdaq
equity security that has a market price of less than $5.00 per share, subject to
certain exceptions). Such rules require the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated therewith, and impose various sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors (generally institutions). For these types of
transactions, the broker-dealer must make a special suitability determination
for the purchaser and have received the purchaser's written consent to the
transaction prior to sale. The additional burdens imposed upon broker-dealers by
such requirements may discourage broker-dealers from effecting transactions in
our securities, which could severely limit the market price and liquidity of
such securities and the ability of purchasers in this offering to sell their
securities in the secondary market. Disclosure is also required to be made about
commissions payable to both the broker-dealer and the registered representative
and current quotations for the securities. Finally, monthly statements are
required to be sent disclosing recent price information for the penny stock held
in the account and information on the limited market in penny stocks.
The foregoing penny stock restrictions will not apply to our securities
if such securities have certain price and buying information provided on a
current and continuing basis or meet certain minimum net tangible assets or
average revenue criteria. If we are successful in raising at least $4 million,
now, or at some time in the future, our securities would qualify for the
exemptions from the penny stock restrictions. Otherwise we will remain subject
to Section 15(b)(6) of the Exchange Act governing these penny stock
restrictions. If our securities were subject to the existing rules on penny
stocks, the market liquidity for our securities could be adversely affected.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDI-
TION AND RESULTS OF OPERATIONS
We have experienced substantial changes to, and expansion of
our business and operations since Alph Beta Communications commenced in March
1996. We expect to expand our business and user base, which will require us to
increase our personnel, develop software, purchase equipment and license
content, which will result in increasing costs.
CASH REQUIREMENTS
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In order to finance necessary working capital, fund research and
development projects and retire existing debt, it is the intent of Management to
raise net proceeds of $21,330,000 from this SB-2 public offering. In addition
net income including sale of foreign licenses is projected to be $13,000,000 for
the year ending December 31, 2000. If we are unable to raise sufficient funding
through this offering, projected profits for the next twelve months of
approximately $13,000,000 would be sufficient to provide the necessary operating
funds. The following source and application of funds summarizes cash
requirements and funding thereof:
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INCREASE IN
SOURCE APPLICATION WORKING CAPITAL
---------------------------------------------
Net proceeds from SB-2 offering $21,330,000 $ 21,330,000
Net Loss from Operations $1,911,000 -1,911,000
Retire existing debt $ 2,400,000 -2,400,000
Research and Development costs 3,500,000 -3,500,000
Reduction in Accounts Payable 1,200,000 - 1,200,000
Increase in Inventory 155,000 - 155,000
Equipment Purchases - VMSK 10,000,000 -10,000,000
-------------------------------------------
Increase in Working Capital $21,330,000 $19,166,000 $ 2,164,000
RESEARCH AND DEVELOPMENT
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Completion of NU software is scheduled for mid-July and release of
product for sale in mid-December. Enhancements to the NU consisting of
voice/video is scheduled to be marketable within six months. Costs to complete
these projects are estimated at $250,000.
In connection with the VMSK project (application of expansion
platforms), cost to complete is estimated at $3,250,000.
NEED FOR ADDITIONAL PERSONNEL
- -----------------------------
Since our Sales, Marketing and Distribution System in North America is
MLM (multi level marketing), the projected growth of distribution (independent
Contractors) requires no additional costs to us. However, it is anticipated that
the number of employees will triple during the next twelve months, even with our
outsourcing many tasks.
LIQUIDITY AND CAPITAL RESOURCES
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We have financed our growth by incurring short term debt. We have
extended the due dates on loans and notes payable till the end of December, 1999
and such debt will be retired with the proceeds from this SB-2 Offering.
Accounts payable include $500,000 due telco's for testing data transmission and
will also be retired with proceeds from this offering.
RESULTS OF OPERATIONS
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The operations through September 30, 1999 reflect the combined accounts
of AlphaCom, Inc. and Alpha Beta Communications. As a development stage Company,
our operations do not reflect an accurate trend for future operations. Revenues
generated through September, 1999 reflect sales of wireless modems and internet
access, primarily to our distributors for testing purposes. Our network
utilities or compression software was launched for beta testing in late July
1999, which increases the throughput on the wireless modems by at least three
times. Following are the combined operating results for the years ended December
31, 1997 and 1998, un-audited nine months ended September 30, 1998 and 1999 and
projections for the years ending December 31, 1999 and 2000.
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<TABLE>
<CAPTION>
Unaudited Projections for
Year ended Nine months the year ending
DECEMBER 31, ENDED SEPT. 30, DECEMBER 31,
------------ --------------- ------------
1997 1998 1998 1999 1999 2000
----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 53,009 $ 223,616 $ 165,023 $194,206 $324,000 $42,500,000
Less cost of sales 43,911 82,654 81,778 98,679 165,000 12,305,000
-------- --------- --------- -------- ------- -----------
GROSS MARGIN 9,098 140,962 83,245 95,527 159,000 30,195,000
Selling general and
administrative expenses 369,364 1,933,094 1,353,826 1,287,436 1,900,000 10,339,500
Interest expense 1,606 197,639 135,336 141,016 170,000 40,000
Provision for
Income taxes 0 0 0 0 0 6,767,500
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NET INCOME(LOSS) ($ 361,872)($ 1,980,495)($ 1,405,917)($1,332,925)($1,911,000) $13,048,000
NET INCOME (LOSS)
PER SHARE ($0.05) ($0.19) ($0.14) ($0.11) ($0.16) $0.78
- ----------------------------------------------------------------------------------------------
</TABLE>
YEAR ENDED DECEMBER 31, 1998 AND 1997
SALES
Total 1998 sales increased 421% over 1997. This increase consisted of a 335%
increase in equipment sales and a 100% increase in internet access fees. Sales
were made primarily to distributors who are involved in testing the product
before it is offered to the public. Increases result from the increase in
distributors.
COST OF SALES
Cost of sales, as a percentage of sales, decreased 45% over 1997. This decrease
resulted from redesigning the test equipment and the ability to mass-produce.
SELLING, GENERAL AND ADMINISTRATIVE
As a percentage of sales, selling general and administrative expenses increased
by 168%. The major increases consisted of an increase in wages amounting to
$220,000 and an increase in research and development amounting to $27,000.
INTEREST EXPENSE
Interest expense increased by $196,000 over 1997 reflecting our need to borrow
monies to fund research and development costs.
PROVISION FOR INCOME TAXES
No provision for income taxes was made for 1997 and 1998, as we incurred losses
during these periods.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
SALES
Equipment sales for the nine months ended September 30, 1999 decreased by 26%
over the same period in 1998. This was a direct result of fulfilling the group
of distributors participating in the product test. Internet access for the
nine-month period ended September 30, 1999 increased by 889% over the same
period in 1998.
COST OF SALES
Cost of sales for equipment increased by 9% as a result of new technology and
internet access decreased by 162% for the nine months ended September 30, 1999.
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SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses decreased by 5% over the prior
comparative period primarily due to a reduction in research and development.
INTEREST EXPENSE
Interest expense increased by 4% reflecting the increase in debt.
PROVISION FOR INCOME TAXES
No provision for income taxes was made for the nine-month periods ended on
September 30, 1999 and 1998, as we incurred losses during these periods.
FORWARD LOOKING PROJECTED RESULTS OF OPERATIONS FOR YEARS
ENDING DECEMBER 31, 1999 AND 2000
SALES
Projected sales for the balance of 1999 and year ending December 31, 2000
reflects the launch of our network utilities software in mid-December 1999.
Foreign licensing fees amount to 13% of projected year 2000 sales. Network
utilities represent 84% and 85%, respectively, of projected 1999 and 2000 sales.
COST OF SALES
As a percentage of sales, cost of sales of 51% in 1999 and 29% in the year 2000
reflect discounts available for volume purchases and limited costs related to
foreign licenses. As a percentage of sales, selling general and administrative
expenses amount to 586% in 1999 and 24% in the year 2000.
INTEREST EXPENSES
Upon completion of this SB-2 Offering, all debt will be retired and interest
will be eliminated in early 2000.
PROVISION FOR INCOME TAXES
For the year ending December 31, 1999, no tax provision is required due to
operating losses. For the year ending December 31, 2000, after utilizing NOL,
tax was computed at 42% which includes Federal and State income tax rates.
YEAR 2000 READINESS DISCLOSURE
YEAR 2000 COMPLIANCE. The Year 2000 issue involves the potential for system and
processing failures of date-related data resulting from computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that contain time-sensitive software may recognize a
date using two digits of "00" as the year 1900 rather than the year 2000. This
could result in system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar ordinary business activities.
Our State of Readiness
We have defined Year 2000 compliance as follows:
Information technology time and date data processes, including, but not
limited to, calculating, comparing and sequencing data from, into and between
the 20th and 21st centuries contained in our software and services offered
through the U.S., will function accurately, continuously and without degradation
in performance and without requiring intervention or modification in any manner
that will or could adversely affect the performance of such products or the
delivery of such software and services as applicable at any time.
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Our internal systems include both information technology systems and
noninformation technology systems. We have initiated an assessment of our
proprietary information technology systems, and expect to complete any
remediation and testing of all information technology systems during 1999. With
respect to information technology systems provided by third-party vendors, we
have sought assurances from such vendors that their technology is Year 2000
compliant. All of our material information technology system vendors have
replied to inquiry letters sent by us stating that they either are Year 2000
compliant or expect to be so in a timely manner.
We believe that our internal software and hardware systems will
function properly with respect to dates in the Year 2000 and thereafter.
Nonetheless, there can be no assurance in this regard until such systems are
operational in the Year 2000. We are in the process of contacting all of our
significant suppliers to determine the extent to which our interface systems are
vulnerable to those third parties' failure to make their own systems Year 2000
compliant. Additionally, any Year 2000 problems experienced by our advertising
customers could affect the placement of advertisements on our online services.
Accordingly, to the extent the systems of our suppliers and advertising
customers are not fully Year 2000 compliant, there can be no assurance that
potential system interruptions or the cost necessary to update software will not
have a material adverse affect on our business, results of operation or
financial condition.
We are evaluating our non-information technology systems for Year 2000
compliance. We have not, to date, discovered any material Year 2000 issues with
respect to our non-information technology systems.
We are in the process of contacting our material suppliers whose
products or services are sold through us to determine if they are Year 2000
compliant. To date, all such suppliers have stated that they are, or expect to
be, Year 2000 compliant in a timely manner. Our customers are individual
Internet users, and, therefore, we do not have any individual customers who are
material to an evaluation of Year 2000 compliance issues.
The Costs to Address Year 2000 Issues
We have expensed amounts incurred in connection with Year 2000
compliance since its formation through December 31, 1998. Such amounts have not
been material. The additional costs to make any other software or services Year
2000 compliant by mid-1999 will be expensed as incurred, but are not expected to
be material.
We are not currently aware of any material operational issues or costs
associated with preparing our systems for the Year 2000. Nonetheless, we may
experience material unexpected costs caused by undetected errors or defects in
the technology used in our systems or because of the failure of a material
supplier to be Year 2000 compliant.
Risks Associated with Year 2000 Issues
Notwithstanding our Year 2000 compliance efforts, the failure of a
material system or vendor used in our software and service, or the internet
generally, to be Year 2000 compliant could harm the operation of our software
and services or prevent us from generating advertising or commerce sales through
our software, or have other unforeseen, adverse consequences to us.
Finally, we are also subject to external Year 2000-related failures or
disruptions that might generally affect industry and commerce, such as utility
or transportation company Year 2000 compliance failures and related service
interruptions. Moreover, participating vendors in our services might experience
substantial slow-downs in business if consumers avoid products and services such
as air travel both before and after January 1, 2000 arising from concerns about
reliability and safety because of the Year 2000 issue. All of these factors
could have a material adverse effect on our business, financial condition and
results of operations.
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Contingency Plans
We are engaged in an ongoing Year 2000 assessment and the development
of contingency plans. The results of our Year 2000 simulation testing and the
responses received from third-party vendors and service providers will be taken
into account in determining the nature and extent of any contingency plans. We
have identified our worst-case scenario as the interruption of our business
resulting from Year 2000 failure of the electric company or our internet service
providers to provide services. We have not yet completed our worst-case scenario
contingency plan. Without a worst-case scenario contingency plan we may not have
enough time to complete remedial measures and implement contingency planning for
the worst-case scenario. We do plan to complete our contingency plan in
accordance with our compliance plan and under the guidance of our consultants in
the third quarter of 1999.
USE OF PROCEEDS
We are seeking a new investment through this offering to eliminate
short-term debt and expand our current operations immediately. Achievement of
this primary plan is entirely dependent upon our ability raise a minimum of
$3,070,000 through this offering. We may not be able to raise all or part of the
funds we need to operate our business. If we are unable to raise these minimum
funds, we will not be able to execute our primary plan as presently contemplated
by management and we will return all funds received from subscribers.
The maximum net proceeds from this offering may be as high as
$21,330,000. If we are unable to sell all of the shares offered, the net
proceeds would be lower.
In the table below, we have detailed the minimum amount of capital
required for us to operate our business as currently planned. In addition, we
have outlined in order of priority, the manner in which we intend to use the
funds raised, assuming that we sell all of the shares offered. The net proceeds
we would receive from the sale of all of the 5,020,000 shares offered by this
prospectus are estimated to be approximately $21,330,000. For lesser percentages
of shares sold see the table following. The table also shows how we will use the
proceeds of the offering.
MINIMUM AMOUNT MAXIMUM AMOUNT
REQUIRED OF NET PROCEEDS
-------- ---------------
Company Proceeds from
the Offering $3,070,000 $21,400,000
Less: Offering Expenses 70,000 70,000
---------- -----------
Net Proceeds from
Offering $3,000,000 $21,330,000
---------- -----------
Use of Net Proceeds:
Retire existing debt $1,500,000 $2,400,000
R&D Projects 500,000 3,500,000
Accounts payable and
accrued expenses 400,000 1,200,000
Equipment purchases - VMSK 200,000 10,000,000
Increase in inventory -0- 155,000
General working capital 400,000 4,075,000
---------- -----------
Total Use of Net
Proceeds $3,000,000 $21,330,000
========== ===========
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If the minimum amount required is not raised, we would obtain an
extension on the due date for existing debt, reduce research and development
expenditures and if necessary obtain new borrowings.
The offering price of the shares which were used to solicit the funds
referred to above has been arbitrarily determined by us.
The specific amounts to be allocated for these purposes will be in the
discretion of Management. We reserve the right to alter this stated use of
proceeds depending on business conditions which are unforseen at this time.
Offering Costs: We intend to pay for the costs of this offering.
Repayment of Indebtedness: We intend to retire existing debt in the
amount of $2,400,000. We have already used the proceeds of these loans for
working capital and general corporate purposes.
Accounts payable and accrued expenses: We intend to reduce these
obligations by at least $400,000 and up to $1,200,000 with proceeds from this
offering.
General Working Capital: We may use a portion of the proceeds allocated
to working capital and general corporate purposes to pay a portion of trade
payables incurred from time to time, if cash flow from operations is
insufficient for these purposes. We also expect to hire additional people to
engage in general and administrative activities.
Because we anticipate selling the shares through the efforts of our
officers and directors, the numbers above do not include any deductions for
selling commissions. If broker-dealers are used in the sale of the shares, up to
10% of any gross proceeds raised in this offering will probably be payable to
one or more NASD registered broker-dealers. In such event, net proceeds to us
will be decreased and the use of proceeds may be proportionately reallocated in
management's sole discretion. There are no current agreements, arrangements, or
other understandings in connection with any of the foregoing.
Until we reach the minimum offering, subscription funds will be held in
an interest-bearing escrow account. Once we reach the minimum offering, the
funds will be released from escrow and used as described above. To the extent
the net proceeds of the offering are not utilized immediately, we intend to
invest them in short-term certificates of deposit, interest bearing deposits,
short-term obligations of the United States of America or prime commercial
paper.
CAPITALIZATION
This table represents the capitalization of the Company as of
September 30, 1999 as adjusted to give effect to this offering.
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<TABLE>
<CAPTION>
Shares Shares
100% sold 50% sold
ACTUAL ADJUSTED ADJUSTED
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Stockholders Equity
Common Stock, $.001 par value
Authorized- 60,000,000 Shares
Issued and Outstanding- 12,198,354 Shares Actual $266,748
Shares As Adjusted - 17,198,354 $271,748 $269,248
Additional Paid in Capital $567,122 $21,892,122 $9,394,622
Treasury Stock (1,653) (1,653) (1,653)
Deficit Accumulated during the development stage ($3,677,719) ($3,677,719) ($3,677,719)
------------ ------------ ------------
TOTAL STOCKHOLDERS EQUITY ($2,845,502) $18,484,498 $5,984,498
============ ============ ============
</TABLE>
DILUTION
We were initially capitalized by the sale of common stock to our
founders. The following table sets forth the difference between our founders and
purchasers of the shares in this offering with respect to the number of shares
purchased from us, the total consideration paid and the average price per share
paid. The table below assumes 50% of the shares offered hereby are sold.
SHARES ISSUED TOTAL CONSIDERATION AVERAGE PRICE
------------- ------------------- -------------
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------------- -------------- ---------
Founders(A) 9,297,000 63.25% $ 9,297 .10% $0.001
Investors in
Rule 504 Offering 1,000,000 6.8% $ 385,000 4.05% $0.385
Key Employees 189,000 1.29% $ 161,940 1.70% $0.857
Distributed to Sellers
for acquisition of assets 1,653,354 11.25%
ITM Consulting Contract 59,000 .4% 59,000 .62% 1.00
- --------------------------------------------------------------------------------
Total prior to offering 12,198,354 82.99% $ 615,237 6.47% $0.05
New Investors 2,500,000 17.01% $8,900,000 93.53% $3.56
---------- ------ ---------- ------
Total 14,698,354 100% $9,515,237 100% $0.65
---------- ---- ---------- ----
(A) Founders include 8,025,000 shares issued to the co-founders and 1,272,000
shares issued to key advisors and employees.
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The table below assumes all of the shares offered hereby are sold.
SHARES ISSUED TOTAL CONSIDERATION AVERAGE PRICE
------------- ------------------- -------------
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------------- -------------- ---------
Founders(A) 9,297,000 54.06% $ 9,297 .04% $0.001
Investors in
Rule 504 Offering 1,000,000 5.81% $ 385,000 1.75% $0.385
Key Employees 189,000 1.11% $ 161,940 .74% $0.857
Distributed to Sellers
for acquisition of assets 1,653,354 9.61%
ITM Consulting Contract 59,000 .34% 59,000 .27% 1.00
- --------------------------------------------------------------------------------
Total prior to offering 12,198,354 70.93% $ 615,237 2.80% $0.05
New Investors 5,000,000 29.07% $21,400,000 97.20% $4.28
---------- ------ ---------- ------
Total(1) 17,198,354 100% $22,015,237 100% $1.28
---------- ---- ---------- ----
In March of 1999, we made a commitment to a group of individuals under
a recission to issue up to 900,000 shares offered herein at a discount. The
effect of this commitment is reflected in the above tables.
As of September 30, 1999, the net tangible book value of our common
stock was ($2,845,502) or ($.23) per share based on the 12,198,354 shares
outstanding. "Net tangible book value" per share represents the amount of total
tangible assets less total liabilities, divided by the number of shares. After
giving effect to the sale by us of 5,000,000 shares and after deducting
estimated expenses, our pro-forma net tangible book value as of that date would
be $18,484,498 or $1.07 per share, based on the 17,198,354 shares of common
stock to be outstanding at that time. This represents an immediate dilution
(i.e. the difference between the offering price per share of common stock and
the net tangible book value per share of common stock after the offering) of
$3.93 per share to the new investors who purchase shares in the offering ("New
Investors"), as illustrated in the following table (amounts are expressed on a
per share basis):
(1) Calculations concerning dilution are based on an assumption of the Offering
being fully subscribed.
The following table represents the dilution per share based on the percentage
sold of the total amount of shares being offered.
Shares Shares Shares
50% sold 75% sold 100% sold
-------- -------- ---------
900,000 Recission shares $1.00 $1.00 $1.00
Offering price to public of
4,100,000 shares...................... $5.00 $5.00 $5.00
Net tangible book value before offering ($0.23) ($0.23) ($0.23)
Increase attributable to the Offering... $0.64 $1.00 $1.30
----- ----- -----
Net tangible book value
after giving effect to the Offering.... $0.41 $0.77 $1.07
---------------------------------------
Per share Dilution to new investors.... $4.59 $4.23 $3.93
Percent Dilution per share to public 92% 85% 79%
We do not intend to pay any cash dividends with respect to our common
stock in the foreseeable future. We intend to retain any earnings for use in the
operation of our business. Our Board of Directors will determine dividend policy
in the future based upon, among other things, our results of operations,
financial condition, contractual restrictions and other factors deemed relevant
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at the time. We intend to retain appropriate levels of our earnings, if any, to
support our business activities.
BUSINESS
THE COMPANY
We were incorporated on December 1, 1997 in the State of Nevada. Prior
to that time, Mr. Robert Snyder worked out of his basement developing the
concept and potential solutions encountered by those surfing the World Wide Web.
On July 2, 1998 we purchased certain limited assets of Alpha Beta
Communications, including its distributor base. For presentation purposes the
accounts of Alpha Beta Communications have been combined from April 19, 1996.
We are providing and will continue to introduce and market new and
innovative hi-tech products and services in the rapidly expanding multi-billion
dollar internet, Telecommunications and related industries to individual
consumers, small and large businesses, governments and institutions, both
nationally and internationally.
PRODUCTS AND SERVICES
InSat Wireless(TM): We have marketed this product on a test basis since
the third quarter of 1997. We utilize Cellular Digital Packet Data (CDPD) within
specific regions throughout The United States and Canada that presently offer
CDPD technology. The CDPD System overlays the cellular voice network to provide
a wireless extension of existing packet data networks. It provides secure
wireless packet data connectivity (19.2 kilobits/sec) and is based on Industry
Standard Internet Protocol (IP). Although CDPD pricing varies from carrier to
carrier, we will offer a monthly flat rate service. We will take advantage of
our lead in the marketplace with this pricing plan and offer "one stop shopping"
for all peripherals and enhancements using CDPD and applicable hardware and
software.
GSI-V: Keeping with the wireless market, we became a Value Added
Reseller (VAR) for Technology Guardian, Inc. (NASDAQ OTCBB: TEGI). TEGI provides
an asymmetrical (dial-up outbound), high speed satellite internet solution for
up to 250 simultaneous users or sessions at up to 500 KBPS downloads called
GSI-V. To date, we have limited sales commencing with the first quarter of 1998,
of the GSI-V, but have interest from financial brokerage firms, schools, and
international sales in Canada and the Bahamas.
Wireline Internet Access and Network Utility(NU): We have been
marketing a traditional dial-up internet service or wireline service since the
first quarter of 1998. Moreover, we expect to increase the average throughput
rate by up to 5 times using our NU software which we launched in December, 1999.
International (Exclusive) Licensing: We plan to sell international
(exclusive) licensing privileges to other companies to expand our network
worldwide. Currently, we are in negotiation with various parties in connection
with licensing in other countries including nine countries in Central America,
Israel and Turkey. We are negotiating with various parties for distribution of
our products and services in other countries. License fees are determined on a
country by country basis. In addition, licensee will pay us an ongoing monthly
royalty fee on a per subscriber basis. Other products and services will be
offered on a case by case basis including the anticipated Expressway 2000(TM) FM
wireless modem.
COMMITMENTS AND RESEARCH & DEVELOPMENT
We have entered into two commitments with C-View Technologies,
Inc. to develop video e-mail at 30 frames per second. This product is not ready
to market at this time. We anticipate
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this product will be ready to market in the third quarter of 2000. We have a
consulting agreement with ITM / Jack Craciun to assist us in developing
international licensing. In addition, we have a verbal agreement with a
marketing firm to develop a CD-ROM to market our products. We have a 51%
interest in an inactive joint venture, which will commence operations in the
first quarter of the year 2000. This joint venture owns a licensing agreement
for VMSK.
PRODUCT DEVELOPMENT PLAN
We will continue to market our wireless modems with its low flat rates
in certain areas and incorporate the NU compression with Very-Minimum-Shift-
Keying or Variable-Phase-Shift-Key (VMSK/VPSK) technology to increase their
throughput through our Joint Venture with American Millennium Corporation, Inc.
(NASDAQ OTCBB: AMCI). AMCI's proprietary VMSK/VPSK technology is projected to
increase both the up-link and throughput speed well above 30 bps/Hz. We
anticipate that during the first quarter of the year 2000, after successful beta
testing, we expect to be able to institute a build-out plan for VMSK/VPSK with
the end result being an infrastructure that will offer seamless service
throughout North America and to key locations around the world. To facilitate
the implementation of the VMSK/VPSK technology, we are in the process of
developing a turnkey value added service and revenue center described as
"Wireless ISP In A Box" for existing FM radio operators or private parties doing
business with FM radio operators. In either case, they become internet service
providers in their respective service area featuring VMSK/VPSK high speed
internet access and receive a monthly fee for each customer utilizing the new
service. This product will be called the Expressway 2000 FM Wireless Modem and
Expressway 2000 Services.
Radio stations are looking for new sources of revenue. VMSK provides FM
radio stations with an opportunity to offer high throughput internet access
within their MSA, at a competitive price. As this would add a substantial
ongoing revenue stream without meaningfully adding to the station's cost
structure.
FM radio stations which participate in our VMSK program thus may
experience significant enhancement of the station's bottom line results.
Depending on the station's MSA the additional ongoing revenue stream of $2 per
month per internet access account may indeed be very substantial.
Participating FM stations will be charged a one-time up-front deposit
fee to cover the cost of VMSK hardware, software and installation. As our cost
of equipment and installation are passed on to the participation stations, our
cash flow and working capital positions will be encumbered by or adversely
effected by our anticipated rapid expansion of VMSK.
ISP Partners Program. We have successfully launched its ISP (Internet
Service Provider) Partners Program and have already signed a large number of
ISP's. This program gives new strength to existing ISP's in their fight to
maintain their share of the internet customer base. ISP's are faced with new
technology such as DSL (Digital Subscriber Line) Cable Line Modems and new
wireless technology such as our's that in time will significantly erode their
customer base. Under our Partners Program we make the ISP a distributor of our
hardware and software giving them the high throughputs required to maintain
their customers as well as a favorable competitive price. The ISP Partner
Program also benefits by earning revenue for the sales of our modems, software
and services. We benefit from this program by adding a net $5 per month for
every customer that the ISP converts to our hardware and software products. It
also provides us an almost instant revenue stream and POP's (Point of Presents)
for our distributors to sell hardware and software into areas where we have no
POP or local access to internet dial-up.
"Wireless ISP In A Box", is a combination of new and innovative
technology packaged for easy delivery and installation in FM radio stations. The
fee for purchasing the rights to deliver this service will be subject to a
number of demographic characteristics specific to each location, such as
population, business and economic conditions; local internet and computer
support and projected number of prospective customers. We plan to launch our new
technology and service in
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ten (10) key locations (to be announced) throughout 1999. Each FM radio station
is expected to have the capacity to handle a large number of subscribers. We
project capturing a large market share in each area within a short period of
time. To set this plan into action, we will initiate an aggressive marketing
campaign in advance of said wireless service by conducting seminars in
cooperation with the new service provider in that area. The objective is to
create a pent-up demand for the service and to establish a strong network
marketing presence for future growth.
In addition to the introduction of VMSK/VPSK high speed internet
access, we plan to introduce our full motion Video Conferencing software, which
is projected to provide 30 frames per second for our wireless service as well as
existing twisted copper wires or Plain Old Telephone Service (POTS) line. What
is unique to this application and how it influences not only the marketing
opportunity but also eventual sales of the video conferencing software is that
it automatically encourages a perpetual flow of new sales due to its requirement
for video conferencing software at both ends of the transmission. One could
liken this concept to that of MCI's very successful "Friends and Family"
promotion, whereby customers were enticed to share the service with family,
friends and others in order for each to create his own personal communication
network.
TECHNICAL EXPLANATION OF VMSK/VPSK
Very-Minimum-Shift-Keying or Variable-Phase-Shift-Key ("VMSK/VPSK") is
patented under U.S. Patents 4,742,532 and 5,185,765 High Speed Data
Transmission. These patents cover an encoding and decoding method that
compresses ordinary BPSK modulation to transmit digital data at 10 to 25
bits/see/Hz. Tests have been performed as high as 50 bits/sec/Hz. This method
requires 1/10 as much spectral space or less when compared to ordinary AM or FM.
No other method has ever achieved such high levels of compression. Called VMSK/2
modulation, this method does not lose signal power with increasing compression
since the transmission method is always BPSK. Less than 1% as much power is
required for VMSK/2 as would be required for QAMI024, the only known competitor.
Eb/n values of 12-14dB are being realized for EER = 1 in 1 million. The
equipment exists and can be demonstrated. All measurements are confirmed by
recognized independent labs.
New patents are pending on the VMSK/2 modulation method, which is
particularly adaptable to satellite communication and for wireless LANs using
the power line to avoid wiring for the small business or home. The performance
is about double that of the previously patented VPSK method. The new patents are
applicable to VPSK as well and will extend the life of relevant patents to 2016.
A newly developed modulation method for using the supplementary carrier
authorization over ordinary FM stations makes it possible to transmit two high
speed digital information channels, one at 198 Kb/s and the other at 144 Kb/s.
This technology allows the FM broadcasting station to carry the two additional
or hidden programs in addition to its normal program. The 198 Kb/s data rate of
the primary channel is more than 10 times that being achieved at present by
other services. Time division multiplex and discrete addressing are used to
"peel off" portions to be used by separate customers.
The second hidden channel is a lower data rate channel operating at 144
Kb/s. Video for video conferencing using the MPEG2 compression method requires
only a 144 Kb/s data rate. This standard is excellent for teaching, sales
messages, store casting and other uses requiring video. Control information is
added to insure that only the authorized addressee receives the signal. When not
used for video, sound can be compressed into less than 32 Kb/s with excellent
quality, or the entire channel can be used for data transmission. Sound with the
quality of an AM radio can be carried in the bandwidth along with data. The
space can be dynamically allocated. If there are no video users or sound users
at the moment, the entire 198+144 Kb/s space can be dedicated to data, for
example to internet downloading to addressees, or it can be split to 12-20 audio
voice channels. Compact Disk quality stereo audio can also be transmitted.
Real time video requires a land line capable of carrying data at 160
Kb/s. These so called ISDN lines are now readily available at higher cost than
normal telephone line service, but are not exorbitantly priced and are coming
into general use for internet connections. For the occa-
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sional high data rate down load for most internet users, however this FM-SCA
service is an excellent choice at lower cost than ISDN lines. It compares
favorably with, and may even be superior to Satellite services.
The service is available throughout the coverage area of the FM
station. The extremely good signal to noise ratio for the new APSK sub-carrier
modulation method ensures a very low bit error rate for all users. Error
correction can be built into the receiver for critical applications.
Nationwide coverage is available through the use of satellites
or the internet, with broadcasting at the local site. For users such as churches
and video training providers, the cost compared to cable or satellite use may be
greatly reduced.
HOW VMSK/VPSK WORKS
- -------------------
Two separate high-speed digital channels are available. For video
programs on the separate video channel, one installs a video conferencing camera
on location and an ISDN telephone line of the type now being used for internet
connections. The latest MPEG2 video compression insures the highest video
quality.
There are two types of video service:
(1) Time Cueing. A location is polled for a desired message. If it
has a sales announcement, product release or other short message,
the station will accept it in sequence. If desired, the messages
(Color Video and sound) can be recorded at the station for later
broadcast or sequenced and repeated as often as desired. These
are excellent sales media for department stores and supermarkets.
One pays the normal video rate for the time used. This can be
used for telemarketing to internet download subscribers.
(2) Dedicated. For schools, special training courses, church services
to the home bound etc. A schedule is arranged that will provide
exclusive use to the video channel for the scheduled time. One
pays for the scheduled time and a slight premium.
APPLICATIONS AND HIGHLIGHTS OF VMSK/VPSK AND VMSK/2 TECHNOLOGY
VMSK/VPSK and VMSK/2 technology have the ability to perform the
following applications:
Local area networking over the power line. Low cost LAN carries data at
3400 b/s/Hz over the power lines. 80 times the present rates.
Wireless Platforms. Increased revenue can be obtained by increasing
the number of customers on all wireless platforms by including: PCS, Analogue,
Cell, COMA, TOMA, GSM, Microwave LAN, WAN, TELEMETRY, and FM-SCA Data.
Data users. For bulk data transmission for many users, such as stock
quotes, business record transfer, internet down loads, etc.
Wireline. For applications for Wireline transmissions of data, VMSK can
enhance all existing wireline services, I.E.: Utilizing VMSK as alternative to
ADSL and DSL, VMSK can provide three times the distance with less noise and
interference that can be attained by the new digital line services offered by
the telephone companies.
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The wireline applications that can be expanded with VMSK could be:
- Local Phone Line Service
- ISDN services
- Dual ISDN
- Fractional T-1
- T-1
- Cable Line Fiber Optic Networks
MARKET TRENDS
The Internet. The internet is a collection of computer networks
connecting millions of public and private computers around the world. In its
formative stages, the internet was used by government agencies and academic
institutions to exchange information, publish research and transfer e-mail. A
number of factors, including the proliferation of communication enabled personal
computers, the availability of intuitive graphical user interface software and
the wide accessibility of an increasingly robust network infrastructure, have
combined to allow users to easily access the internet and, in turn, have
produced rapid growth in the number of internet users.
The emergence of the Web, the graphical multimedia environment of the
internet, has resulted in the development of the internet as a new mass
communications medium. The case and speed of publishing, distributing and
communicating text, graphics, audio and video over the internet has led to a
proliferation of internet-based services, including chat rooms, online
magazines, news feeds, interactive games and a wealth of educational and
entertainment information, as well as the development of online communities. In
addition, by eliminating many of the costs involved in executing routine
commercial transactions, such as simple banking services and retail purchases,
the internet is rapidly providing individuals and organizations with a new
medium for conducting business.
Growth of the Internet Market. The consumer online and internet
services industry is now in an early stage of an evolution that is embracing
both consumers and businesses. It is estimated that the today's number of
internet users exceeds 215 million and is projected to reach 327 million by
Global Reach in the year 2000. This growth is created by the internet's ability
to provide, in a more appealing, cost and time effective manner, many of the
functions now provided by mail, telephone and television. It is widely
recognized that the evolution of the internet industry will have enormous
implications for the way individuals communicate, work learn, and entertain
themselves.
Morgan Stanley Research estimates the demand for online and internet
services to closely follow personal computer ("PC") penetration within the home
and office. PC penetration recently reached a rate of nearly one-third of all
United States households. This penetration rate is similar to the household TV
penetration level in the early 1960s and is expected to increase to a level
close to the current TV household penetration level of 98% within the next 10 to
20 years.
Today, the world is populated by some 200 million computers according
to Computer Industry Almanac, Inc. They estimate that by the year end 2001 this
figure will increase to 579 million. Combining these figures with the
dramatically expanding use of the internet, it becomes clear that we are
experiencing a never-before-seen phenomenon: the development of a pervasive
world-wide communication network which transcends borders and which
fundamentally changes the way the world communicates. Matrix Information and
Directory Services estimates that the number of worldwide internet users will
grow to 707 million by the year 2001.
In this environment, with our advanced communication technology and our
broad and expanding network of independent distributor associates and
international licensees, we are well positioned to provide what the world needs:
integrated facilities to provide the hardware, software and services for
reliable, high throughput wireline and wireless internet access elusive goal of
realizing cost effective, broadly affordable computer voice communication and
teleconferencing. We also
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project that apart from a burgeoning market and demand for our products and
services in what we tend to refer to as the developed countries, there will also
be a huge demand by lesser developed countries. As these may lack the wiring
infrastructure for modern communications, our wireless high throughput bandwidth
facilities will enable them to leapfrog into modern 21st century communication
facilities without having to commit to high infrastructure cost investments.
DISTRIBUTION METHODS
Marketing in the United States and Canada: Following a careful analysis
of the marketing strengths of our products and services and its initially
limited available resources for traditional marketing we elected to avail
ourselves of the power and dynamics of the well established multi-billion dollar
per year network marketing industry as the method of distribution in the United
States and Canada. With a steadily expanding network of over 4,000 independent
distributor associates currently in place, our goal is to become a dominant
force in the market place with a ready made marketing and distribution channel
for our products and services. Based on our experience in these markets and our
knowledge of the industry, we believe that the combination of a net-
work of independent distributors motivated by a generous, well though out
compensation package and a range of competitively priced cutting edge electronic
communication products and services will enable us to outperform other companies
in these markets.
Marketing outside of North America: Marketing in countries outside of
North America will be accomplished through licensing agreements with strongly
capitalized parties capable of up-front payments of licensing fees and
financing of initial orders. Licensing agreements for several countries are
already in place.
COMPETITION
The market for consumer and business internet services and online
content are extremely competitive and highly fragmented. There are no
significant barriers to entry and we expect that competition will intensify in
the future. Our most direct competition in these markets are ISPs, national long
distance and local exchange carriers, wireless service providers, OSPs, cable-
based data services and internet content aggregators. Many of these competitors
are offering (or may soon offer) technologies that will attempt to compete with
some or all of our products and services. Such technologies include ISDN and
XDSL. The basis of competition in these markets include transmission speed,
reliability of service, ease of access, price/performance, ease-of-use, content
quality, quality of presentation, timeliness of content, customer support,
operating experience and revenue sharing.
GOVERNMENT REGULATION
FEDERAL
We provide internet services, in part, through data transmissions over
public telephone lines. These transmissions are governed by regulatory policies
establishing charges and terms for wire line communications. We currently are
not subject to direct regulation by the FCC or any other governmental agency,
other than regulations applicable to businesses generally. However, in the
future we could become subject to regulation by the FCC or another regulatory
agency as a provider of basic telecommunication services. For example, a number
of long distance telephone carriers recently filed a petition with the FCC
seeking a declaration that internet telephone service is a "telecommunication
service" subject to common carrier regulation. Such a declaration, if enacted,
would create substantial barriers to our entry into the internet telephone
market. The FCC has requested comments on this position, but has not set a
deadline for issuing a final decision. Also, a number of local telephone
carriers have asked the FCC to levy access charges on "enhanced service
providers," which may be deemed to include ISPs. Although the Chairman of the
FCC has indicated his opposition to levying service charges against ISPs, local
interconnection charges could be levied in the future. Moreover, the public
service commissions of certain states are exploring the adoption of regulations
that might subject ISPs to state regulation.
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The FCC regulates the licensing construction, operation and acquisition
of wireless telecommunications systems in the U.S. pursuant to the 1934 Act, as
amended and the roles, regulations and policies promulgated by the FCC
thereunder. Included in the regulations is the use of the electromagnetic
spectrum in the United States, including the frequency band currently used by
our radio products. Part 15 of the FCC regulations defines frequency bands in
which unlicensed operation of radio equipment that meets certain technical and
operational requirements is permitted. We utilize CDPD for the majority of our
wireless transmissions which is currently under FCC regulations.
In the international markets, there are various categories of
government regulations. In those countries that have accepted certain worldwide
standards, such as the FCC rulings or those from the European Telecommunications
Standards Institute, we are not expected to experience significant regulatory
issues in bringing our products to market. Approval in these markets involves
retaining local testing agencies to verify specific product compliance. However,
many developing countries, including the large markets in India and China, have
not fully developed or have no frequency allocation, equipment certification or
telecommunications regulatory standards. In these types of markets, we will
actively work both directly and with industry standard bodies, to conform
regulations to worldwide standards.
STATE AND LOCAL REGULATION
The scope of the regulatory authority covers such matters as the terms
and conditions of interconnection between Local Exchange Carriers ("LECs") and
wireless carriers with respect to intrastate services, customer billing
information and practices, billing disputes, other consumer protection matters,
facilities construction issues, transfers of control, the bundling of services
and equipment and requirements relating to the availability of capacity on a
wholesale basis. In these areas, particularly, the terms and conditions of
interconnection between LECs and wireless providers, the FCC and state
regulatory authorities share regulatory responsibilities with respect to
interstate and intrastate issues, respectively.
The FCC and a number of state regulatory authorities have initiated
proceedings or indicated their intention to examine access charge obligations,
mutual compensation arrangements for interconnections between local exchange
carriers and wireless providers, the pricing of transport and switching
facilities provided by LECs to wireless providers, the implementation of number
portability to permit customers to retain their telephone numbers when they
change service providers, and alterations in the structure of universal service
funding among other matters.
We may become an active participant in proceedings before the FCC and
before state regulatory authorities. Proceedings with respect to the foregoing
policy issues before the FCC and state regulatory authorities could have
significant impacts on the competitive market structure among wireless providers
and the relationships between wireless providers and other carriers. We are
unable at this point to predict the scope, pace, or financial impact of policy
changes which could be adopted in these proceedings. To keep it apprised of
developments in this area, we will retain special FCC counsel in the event we
deem it necessary.
RECENT EVENTS
The 1996 Act mandates significant changes in existing regulation of
the telecommunications industry to promote competitive development of new
service offerings, to expand public availability of telecommunications services
and to streamline regulation of the industry. The 1996 Act provides that
implementing its legislative objectives will be the task of the FCC, the state
public utilities commissions and a federal-state joint board. The FCC released a
tentative implementation schedule on February 12, 1996. Much of this
implementation must be completed in numerous virtually simultaneous proceedings
with short, 6 to 18 month, deadlines. These proceedings are expected to address
issues and proposals already before the FCC in pending rule making proceedings
affect-
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ing the wireless industry as well as additional areas of telecommunications
regulation not previously addressed by the FCC and the states.
The primary purpose and effect of the new law is to open all
telecommunications markets to competition including the local wireline loop.
The 1996 Act makes all state and local barriers to competition unlawful,
whether they are direct or indirect. It directs the FCC to hold notice and
comment proceedings and to preempt all inconsistent state and local laws and
regulations. Only narrow powers are left to state and local authorities. Each
state retains the power to impose competitively neutral requirements that are
both consistent with the 1996 Act's universal service provision and necessary
for universal service, public safety and welfare, continued service quality and
consumer rights. While a state may not impose requirements that effectively
function as barriers to entry or create a competitive disadvantage, the scope of
state authority to maintain existing or adopt new requirements under this
section is not clearly spelled out. Before it preempts a state or local
requirements as violating the entry barrier prohibition, the FCC must hold a
notice and comment proceeding.
The recently enacted Telecommunications Act contains certain provisions
that lift, or establish procedures for lifting certain restrictions relating to
the RBOCs' ability to engage directly in the internet access business. The
Telecommunications Act also makes it easier for national long distance carriers
such as AT&T to offer local telephone service. In addition, the
Telecommunications Act allows the RBOCs to provide electronic publishing of
information and databases. Competition from these companies could have an
adverse effect on the Company's business.
Due to the increasing use of the internet, it is possible that
additional laws and regulations may be adopted with respect to the internet,
covering issues such as content, user privacy, pricing, libel, intellectual
property protection and infringement and technology export and other controls.
Changes in the regulatory environment relating to the internet access industry,
including regulatory changes that directly or indirectly affect
telecommunications costs or increase the likelihood or scope of competition
from regional telephone companies or others, could have a material adverse
effect on us. See "Risk Factors -- Competition."
PROPRIETARY INFORMATION
We have developed custom designed software for use with internet
access, and relies on a combination of copyright, trademark, patent and trade
secrets and contractual restrictions to establish and protect our licensed and
patented VMSK/VPSK technology. Under the terms of the joint venture for
VMSK/VPSK with AMC, we may market products and services that utilize VMSK/VPSK
in exchange for 20% of royalties to be paid into the Joint Venture.
It is our policy to execute agreements with employees and consultants
upon the commencement of their relationships with us. These agreements provide
that confidential information developed or made known during the course of a
relationship with us is to be owned by the Company or its respective
subsidiaries and kept confidential and not disclosed to third parties except in
specific circumstances. There can be no assurance that the steps taken by us
will be adequate to prevent misappropriation of our technology or that our
competitors will not independently develop technologies that are substantially
equivalent or superior to our technology.
EMPLOYEES
As of September 30, 1999, we employed a total of seventeen employees,
four of whom are in management, one in administration, three in marketing, three
in customer service, three on the technical staff, one in information and two in
consulting.
None of our employees are represented by a labor union. We have not
experienced any work stoppage and consider relations with our employees to be
good.
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YEAR 2000
The Year 2000 issue involves the potential for system and processing
failures of date-related data resulting from computer-controlled systems using
two digits rather than four to define the applicable year. For example, computer
programs that contain time sensitive software may recognize a date using two
digits of "00" as the Year 1900 rather than the Year 2000. This could result in
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send invoices
or engage in similar ordinary business activities.
We believe that our internal software and hardware systems
will function properly with respect to dates in the Year 2000 and thereafter.
Nonetheless, there can be no assurance in this regard until such systems are
operational in the Year 2000. We are in the process of contacting all of our
significant suppliers to determine the extent to which our interface systems are
vulnerable to those third parties' failure to make their own systems Year 2000
compliant. In the event any of our suppliers or vendors prove not to be Year
2000 compliant, we believe that we could find Year 2000 compliant replacement
vendors or suppliers without significant delay or expense. Additionally, any
Year 2000 problems experienced by our advertising customers could affect the
placement of advertisements on our online services. Accordingly, to the extent
the systems of our suppliers and advertising customers are not fully Year 2000
compliant, there can be no assurance that potential system interruptions or the
cost necessary to update software will not have a material adverse affect on our
business, results of operation or financial condition.
FACILITIES
We currently lease our office facility on a year to year basis for
$3,100.00 per month to provide space for administration, technical support, and
customer service.
Our facilities are adequate for our current needs and suitable
additional space, when needed, will be available to accommodate expansion of our
operations on commercially reasonable terms.
SELLING SECURITYHOLDERS
We have agreed to register shares of one of our current stockholders
for resale at the same time we are selling our own shares in this offering and
to pay all offering expenses. This shareholder is selling 20,000 shares.
We will not receive any of the proceeds of this sale.
Although we have fixed the price of our stock, selling stockholders are
free to sell at any price they desire. Sales by selling stockholders at a price
lower than ours could adversely impact our ability to sell our stock and result
in our receiving less proceeds than if there were not such a concurrent
offering.
The following table sets forth the name of the selling shareholder, the
number of shares owned and the number of his shares being sold in connection
with this offering.
NAME Number of Shares Number of Shares
Owned Being Sold
----- ----------
Jack DeVrieze 250,000 20,000
TOTAL 20,000
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of September 30, 1999, by (i) each person
(including any "group" as that term is used in Section 13(d)(3) of the
Securities Act of 1934 (the "Exchange Act") who is known by us to own
beneficially 5% or more of the common stock, (ii) each director of the Company,
and (iii) all directors and executive officers as a group. Unless otherwise
indicated, all persons listed below have sole voting power and investment power
with respect to such shares. The total number of shares authorized is 60,000,000
shares, each of which is $.001 per share par value. 12,198,354 shares have been
issued and are outstanding as follows:
Shares Beneficially Shares Beneficially
Owned Prior to Offering Owned after Offering
----------------------- --------------------
Number Percent Number Percent
------ ------- ------ -------
Robert Snyder(1)(2)(3) 4,025,000 33.0% 4,025,000 23.40%
Dennis Snyder(1)(2)(3) 4,000,000 32.79% 4,000,000 23.26%
Joseph Lechiara(3) 101,500 .83% 101,500 .59%
Barry Gilliland(2)(3) 93,319 .76% 93,319 .54%
---------- ------- ---------- ------
Total Shares Outstanding 12,198,354 100.00% 17,198,354 100.0%
Directors and officers as a group 8,219,819 shares
(1)Related by blood or marriage
(2)Directors
(3)Officers
All shares held by officers, directors and shareholders who own 5% or
more of our stock will be held in escrow pursuant to an escrow agreement
required by the Ohio Division of Securities. Those insider shares may not be
sold or transferred for at least one year and perhaps as long as four years,
depending on the financial performance of the company. Such shares of insiders
are allowed to be released from escrow if the company's audited financial
statements show fully-diluted net earnings, after taxes and exclusive of
extraordinary items, of at least $.60 per share (12% of our public offering
price) for four consecutive quarters, or $.30 per share (6% of our public
offering price) for each of two consecutive periods of four consecutive
quarters. If the escrowed shares are not released under these financial
criteria, then 25% of them will be released automatically on each of the fifth
thru eighth anniversaries of the effective date of the registration of this
offering.
MANAGEMENT
There are currently three (3) occupied seats on the Board of Directors.
The following table sets forth information with respect to the directors and
executive officers.
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DATE SERVICE
NAME AGE OFFICE COMMENCED
---- --- ------ ---------
Robert Snyder* 54 Chairman, President December, 1997
& Chief Executive Officer
Joseph Lechiara 63 Chief Financial Officer August, 1998
& Treasurer
Dennis Snyder* 43 Vice President December, 1997
of Customer Service
Barry Gilliland* 46 Vice President, December, 1997
Operations
*Indicates Board Member
All directors will hold office until the next annual stockholder's
meeting and until their successors have been elected or qualified or until their
death, resignation, retirement, removal, or disqualification. Vacancies on the
board will be filled by a majority vote of the remaining directors. Officers of
the Company serve at the discretion of the Board of Directors. We intend to
increase the Board of Directors from its present three members to a minimum of
six members by adding outside directors at our next shareholders meeting.
The Officers and Directors of the Company are set forth below.
ROBERT SNYDER, President, CEO, and Chairman. Mr. Snyder, as company
co-founder, integrated the resources and technology into the platform that
supports AlphaCom's product rollout to its distributor base. Additionally, he
developed the business model that defines the Company's line of products and
services. Mr. Snyder's business background includes over 34 years of related
experience in establishing and maintaining start-up businesses involved in
manufacturing, sales and marketing network marketing, and finance. In 1964, he
established a company to sell and distribute office supplies and copy machines
that has enjoyed over 34 years of continuous operation. During his career, he
has demonstrated the ability to develop marketing plans and sales strategies
having established five additional companies. With considerable experience in
small business investment ventures, Mr. Snyder brings to AlphaCom the leadership
and financial skills he employed successfully in other businesses. He most
recently was an independent distributor for Quorum International until March of
1996 when he formed Alpha Beta Communications as the forerunner to AlphaCom,
Inc. Mr. Snyder intends to devote full time to the Company acting in an
executive capacity.
JOSEPH LECHIARA, Chief Financial Officer. Mr. Lechiara was an Audit
Partner in a big six accounting firm with 25 years experience. His
responsibilities included working with start-up companies to very large Fortune
500 companies in audit, tax and consulting activities. His experience includes
numerous U.S. Securities and Exchange Commission (SEC) filings and compliance
with other Federal and State Regulatory agencies over a broad spectrum of
industries including manufacturing, life insurance, food processing,
distribution, theme parks and transportation. Before Mr. Lechiara joined the
Company, he had designed and implemented accounting systems for various
companies, as well as owning and operating five companies with 35 employees. Mr.
Lechiara intends to devote full time to the Company acting in an executive
capacity.
DENNIS SNYDER, Vice President Customer Service. Mr. Snyder, company
co-founder, has 18 years of experience in oversight of service and repair of
high tech electronic equipment. He became the lead troubleshooter for an
electronics firm where he performed as assistant service manager. Dennis
Snyder has owned his own software development and computer consulting businesses
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within his career in the computer industry. Most recently he was an independent
distributor for Quorum International until June 1996 when he became service
manager for Andy Sprinkler Services. In December 1997, he became the co-founder
of AlphaCom, Inc. Most recently, he has been directly involved in sales and
marketing of high tech products and services. Mr. Snyder intends to devote full
time to the Company acting in an executive capacity.
BARRY GILLILAND, Vice President of Administration. Mr. Gilliland has an
extensive background in office and manufacturing management. His
responsibilities included supervising over 50 employees as production foreman,
the implementation of several company-wide programs, production scheduling,
inventory control and statistical quality control. He developed and implemented
a purchasing program of new products while maintaining communications with
vendors. He established a corporate fleet and facility management program which
produced substantial savings for the corporation. Mr. Gilliland's
implementation skills are a key asset to the Company and its distributor base.
From 1987 to May 1997, he was involved in corporate purchasing for Kinko's. He
then became an independent consultant before joining AlphaCom in December 1997.
Mr. Gilliland intends to devote full time to the Company acting in an executive
capacity.
EXECUTIVE ADVISORY BOARD
The Company will establish an informal Executive Advisory Board,
appointed by Mr. Robert Snyder. The role of the Executive Advisory Board is to
be available to assist our management with general business and strategic
planning advice upon request from time to time. Accordingly, the Executive
Advisory Board Members intend to devote themselves part-time to the affairs of
the Company, as needed.
EXECUTIVE COMPENSATION
The following table sets forth the annual remuneration for the highest
paid officers and directors of the Company for the annual period ending December
31, 1998.
Name Capacities in Which Aggregate
Remuneration was Received Remuneration
- --------------------------------------------------------------------------------
Robert Snyder Chairman, President and Chief $52,000.00
Executive Officer
Joseph Lechiara Chief Financial Officer (started 8/98) $22,000.00
Dennis Snyder Vice President Customer Service $52,000.00
Barry Gilliland Vice President of Administration $38,220.00
EMPLOYMENT AGREEMENTS
We plan to enter into employment agreements with each of Messrs. Robert
Snyder, Dennis Snyder, Joseph Lechiara and Barry Gilliland which provide for an
annual base compensation of $52,000, $52,000, $52,000, and $38,220,
respectively, and such bonuses as the Board of Directors may from time to time
determine.
STOCK OPTIONS
We have not adopted any formal stock options plans to reward and
provide incentives to its officers, directors, employees, consultants and other
eligible participants, but is anticipated to do so as follows: (a) the Executive
Stock Incentive Plan, (b) the Incentive Stock Option Plan, and (c) the Stock
Incentive Plan. We have reserved 250,000 shares for issuance under the plans.
Awards under each plan may be in the form of incentive stock options or
non-qualified stock options. We will not grant non-qualified stock options with
an exercise price of less than 85% of the fair market value of our common stock
on the date of the grant of the relevant option. The plans will be administered
by our Board of Directors, which is authorized to select the plan recipients,
the time or times at which awards may be granted and the number of shares to be
subject to each option awarded.
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DIRECTORS' COMPENSATION
Our directors receive no compensation for their services as directors.
Members of the Executive Advisory Board will receive payment for their services,
travel and other expenses incurred in connection with attendance at each
meeting.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
At present we have not entered into individual indemnity agreements
with our Officers or Directors. However, our By-Laws and Certificate of
Incorporation provide a blanket indemnification that we shall indemnify, to the
fullest extent under Nevada law, our directors and officers against certain
liabilities incurred with respect to their service in such capabilities. In
addition, the Certificate of Incorporation provides that the personal liability
of our directors and officers and our stockholders for monetary damages will be
limited.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933, as amended,
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by us of expenses incurred or
paid by a director, officer or controlling person in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, we will,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933, as amended, and we will be governed by the final
adjudication of such case.
DIRECTORS AND OFFICERS INSURANCE
We are exploring the possibility of obtaining directors and officers
("D & O") liability insurance. We have obtained several premium quotations but
have not entered into any contract with any insurance company to provide said
coverages as of the date of this Prospectus. There is no assurance that we will
be able to obtain such insurance.
KEYMAN LIFE INSURANCE
Keyman Life Insurance is expected to be purchased after the effective
date of this offering in amounts up to $1 million, 50% payable to the Company
and 50% payable to family beneficiaries. We are planning to purchase such
insurance towards the cross purchase of shares from the estate of an officer or
director and to provide us with the capital to replace the executive loss
(executive search for successor, etc.).
CERTAIN TRANSACTIONS
On December 5, 1997, the Board of Directors authorized the issuance of
an aggregate of 8,025,000 shares as founder's stock at a price of $.001 per
share, to Messrs. Robert Snyder and Dennis Snyder.
On January 30, 1998, the Board of Directors authorized the issuance of
an aggregate of 1,272,000 shares as founder's stock to its employees, and
advisors to the Company at a price of $.001 per share, to approximately 26
individuals. Subsequently, (September 30, 1998) 33,000 shares were issued to
employees at a price of $.18 per share.
As of July 2, 1998, we issued 1,653,354 restricted shares (under Rule
144 to be held for a minimum of one year after issuance before free trading
provided our stock is listed for trading) of
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its common stock to 47 minority shareholders of Alpha Beta Communications, Inc.
(ABC) and we further agreed to make a $200,000 cash payment to ABC's majority
shareholder, Robert Snyder, the Chairman, President and CEO of AlphaCom, Inc.
The $200,000 payment is only to paid upon AlphaCom completing a successful
public Offering of our common stock. We are not liable for any other creditor,
consumer, entity or payables not listed prior to June 1, 1998.
In July 1998, we offered 750,000 units (consisting of one share of our
common stock and a promissory note equal to $1.00) at $1.00 under Regulation D
Rule 504. We successfully closed this Offering September 29, 1998.
In November 1998, the Board of Directors authorized the issuance of
124,000 shares in connection with a consulting contract for services rendered.
The board also reserved 500,000 shares to fund warrants to be issued in
connection with a proposed interim loan of $2,500,000. Warrant holders will be
entitled to purchase common stock at $1.00 a share after holding the warrants
for one year.
We subsequently sold a private placement offering at $1.00 per share,
dated October 8, 1998, to twenty investors in the amount of $250,000.
On April 19, 1999, the Board of Directors reserved 300,000 additional
shares at $1.00 a share to be issued to employees in lieu of cash bonus, of
which 76,000 shares has been issued as of June 30, 1999. In addition, the Board
of Directors authorized the issuance of 80,000 shares to the CFO at $1.00 a
share.
DESCRIPTION OF SECURITIES
All material provisions of our capital stock are summarized in this
prospectus. However the following description is not complete and is subject to
applicable Nevada law and to the provisions of our articles of incorporation and
bylaws. We have filed copies of these documents as exhibits to the registration
statement related to this prospectus.
COMMON STOCK
We are authorized to issue 60,000,000 shares, at a par value $.001 per
share. As of the date of this Prospectus, there are 12,198,354 shares
outstanding. After giving effect to the Offering, the issued and outstanding
capital stock of the Company will consist of 17,198,354 shares.
YOU HAVE THE VOTING RIGHTS FOR YOUR SHARES. You and all other holders
of common stock are entitled to one vote for each share held of record on all
matters to be voted on by stockholders. You have no cumulative voting rights
with respect to the election of directors, with the result that the holders of
more than 50% of the shares voting for the election of directors can elect all
of the directors then up for election.
YOU HAVE DIVIDEND RIGHTS FOR YOUR SHARES. You and all other holders of
common stock are entitled to receive dividends and other distributions when, as
and if declared by the Board of Directors out of funds legally available, based
upon the percentage of our common stock you own. We will not pay dividends. You
should not expect to receive any dividends on shares in the near future. This
investment may be inappropriate for you if you need dividend income from an
investment in shares.
YOU HAVE RIGHTS IF WE ARE LIQUIDATED. Upon our liquidation, dissolution
or winding up of affairs, you and all other holders of our common stock will be
entitled to share in the distribution of all assets remaining after payment of
all debts, liabilities and expenses, and after provision has been made for each
class of stock, if any, having preference over our common stock. Holders of
common stock, as such, have no conversion, preemptive or other subscription
rights, and there are
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no redemption provisions applicable to the common stock. All of the outstanding
common stock are, and the common stock offered hereby, when issued in exchange
for the consideration paid as set forth in this Prospectus, will be, fully paid
and nonassessable. Our directors, at their discretion, may borrow funds without
your prior approval, which potentially further reduces the liquidation value of
your shares.
YOU HAVE NO RIGHT TO ACQUIRE SHARES OF STOCK BASED UPON THE PERCENTAGE
OF OUR COMMON STOCK YOU OWN WHEN WE SELL MORE SHARES OF OUR STOCK TO OTHER
PEOPLE. This is because we do not provide our stockholders with preemptive
rights to subscribe for or to purchase any additional shares offered by us in
the future. The absence of these rights could, upon our sale of additional
shares, result in a dilution of our percentage ownership that you hold.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 17,198,354 shares issued
and outstanding assuming all the shares offered herein are sold. The common
stock sold in this offering will be freely transferable without restrictions or
further registration under the Securities Act, except for any of our shares
purchased by an "affiliate" (as that term is defined under the Act) who will be
subject to the resale limitations of Rule 144 promulgated under the Act.
There will be approximately 10,878,354 shares outstanding that are
"restricted securities" as that term is defined in Rule 144 promulgated under
the Securities Act.
The common stock owned by insiders, officers and directors are deemed
"restricted securities" as that term is defined under the Securities Act and in
the future may be sold under Rule 144, which provides, in essence, that a person
holding restricted securities for a period of one (1) year may sell every three
(3) months, in brokerage transactions and/or market maker transactions, an
amount equal to the greater of (a) one percent (1%) of our issued and
outstanding common stock or (b) the average weekly trading volume of the common
stock during the four (4) calendar weeks prior to such sale. Rule 144 also
permits, under certain circumstances, the sale of common stock without any
quantity limitation by a person who is not an affiliate of the Company and who
has satisfied a two (2) year holding period. Additionally, common stock
underlying employee stock options granted, to the extent vested and exercised,
may be resold beginning on the ninety-first day after the Effective Date of a
Prospectus, or Offering Memorandum pursuant to Rule 701 promulgated under the
Securities Act.
As of the date hereof and upon completion of the offering, none of our
common stock (other than those which are qualified by the SEC in connection with
this offering) are available for sale under Rule 144. Future sales under Rule
144 may have an adverse effect on the market price of the Common stock. Our
officers, directors and certain of our security holders have agreed not to sell,
transfer or otherwise dispose of their common stock or any securities
convertible into common stock for a period of 12 months from the date hereof.
Under Rule 701 of the Securities Act, persons who purchase shares upon
exercise of options granted prior to the date of this Prospectus are entitled to
sell such common stock after the 90th day following the date of this Prospectus
in reliance on Rule 144, without having to comply with the holding period
requirements of Rule 144 and, in the case of non-affiliates, without having to
comply with the public information, volume limitation or notice provisions of
Rule 144. Affiliates are subject to all Rule 144 restrictions after this 90-day
period, but without a holding period.
There has been no public market for our common stock. With a relatively
minimal public float and without a professional underwriter, there is little or
no likelihood that an active and liquid public trading market, as that term is
commonly understood, will develop, or if developed that it will be sustained,
and accordingly, an investment in our common stock should be considered highly
illiquid. Although we believe a public market will be established in the future,
there can be
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no assurance that a public market for the common stock will develop. If a public
market for the common stock does develop at a future time, sales by shareholders
of substantial amounts of our common stock in the public market could adversely
affect the prevailing market price and could impair our future ability to raise
capital through the sale of our equity securities.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 relating to the common stock
offered hereby. This Prospectus, which is part of the Registration Statement,
does not contain all of the information included in the Registration Statement
and the exhibits and schedules thereto. For further information with respect to
us, the common stock offered hereby, reference is made to the Registration
Statement, including the exhibits and schedules thereto. Statements contained in
this Prospectus concerning the provisions or contents of any contract, agreement
or any other document referred to herein are not necessarily complete. With
respect to each such contract, agreement or document filed as an exhibit to the
Registration Statement, reference is made to such exhibit for a more complete
description of the matters involved.
The Registration Statement, including the exhibits and schedules
thereto, may be inspected and copied at prescribed rates at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
DC 20549 and at the Commission's regional offices at 7 World Trade Center,
13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The Commission also maintains a web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission, including the Company.
The address of such site is (http://www.sec.gov).
We intend to furnish to our shareowners annual reports containing
audited consolidated financial statements certified by independent public
accountants for each fiscal year and quarterly reports containing unaudited
consolidated financial statements for the first three quarters of each fiscal
year.
We will provide without charge to each person who receives a Prospectus,
upon written or oral request of such person, a copy of any of the information
that was incorporated by reference in the Prospectus (not including Exhibits to
the information that is incorporated by reference unless the Exhibits are
themselves specifically incorporated by reference). Any such request shall be
directed to the Chief Financial Officer of AlphaCom, Inc., Joseph M. Lechiara,
at 1035 Rosemary Boulevard, Akron, Ohio 44306, Tel.# (330) 785-5555.
Within five days of our receipt of a subscription agreement accompanied
by a check for the purchase price, we will send by first class mail a written
confirmation to notify the subscriber of the extent, if any, to which such
subscription has been accepted. We reserve the right to reject orders for the
purchase of shares in whole or in part. Upon acceptance of each subscriber, we
will promptly provide our stock transfer agent the information to issue shares.
You can also call or write us at any time with any questions
you may have. We would be pleased to speak with you about any aspect of this
offering.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that reflect our
views about future events and financial performance. Our actual results,
performance or achievements could differ materially from those expressed or
implied in these forward-looking statements for various reasons, including those
in the "risk factors" section beginning on page 7. Therefore, you should not
place undue reliance upon these forward-looking statements.
Page 33
<PAGE> 34
Although we believe that the expectations reflected in the forward-
looking statements are reasonable, we cannot guarantee future results, levels
of activity, performance, or achievements.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock and
anticipate that all future earnings will be retained for development of our
business. The payment of any future dividends will be at the discretion of our
Board of Directors and will depend upon, among other things, future earnings,
capital requirements, the financial condition of the Company and general
business conditions.
STOCK TRANSFER AGENT
Our transfer agent and registrar of the common stock is American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10004.
EXPERTS
Our consolidated combined financial statements of AlphaCom, Inc. and
subsidiary and Alpha Beta Communications, Inc. which include the subsidiaries
(development stage companies) as of and for the year ending December 31, 1997
and 1998 have been audited by Spector & Saulino, L.L.C., CPAs, 4040 Embassy
Parkway, Akron, Ohio 44333, independent auditors, as set forth in their report
included herein and incorporated herein by reference. Such consolidated
financial statements have been included in reliance upon such report given
upon their authority as experts in accounting and auditing.
LEGAL MATTERS
There is no past, pending or, to our knowledge, threatened litigation
or administrative action which has or is expected by our management to have a
material effect upon our business, financial condition or operations, including
any litigation or action involving our officers, directors, or other key
personnel. However, Robert Snyder, our president has a Federal Tax Lien filed
against him which could cause his assets to be seized by the IRS, including
AlphaCom's stock, if a payment arrangement is not agreed upon and complied with.
The Law Offices of Miles Garnett, Esq., 66 Wayne Avenue, Atlantic
Beach, N.Y. 11509, Tel. #(516) 371-4598, (http://www.garnett.com), will pass
upon certain legal matters relating to the Offering.
Page 34
<PAGE> 35
ALPHACOM, INC. AND SUBSIDIARY AND AFFILIATE
(DEVELOPMENT STAGE COMPANIES)
INDEX TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Combined Balance Sheets - Unaudited
As of September 30, 1999 and 1998...........................................................................F-2
Consolidated Combined Statements of Operations - Unaudited For the nine months
ended September 30, 1999 and 1998
And for the period from inception through September 30, 1999................................................F-4
Consolidated Combined Statements of Changes in Stockholders' Deficit - Unaudited
For the nine months ended September 30, 1999 and 1998.......................................................F-5
Consolidated Combined Statements of Cash Flows - Unaudited For the nine months
ended September 30, 1999 and 1998
And for the period from inception through September 30, 1999................................................F-6
Notes to Consolidated Combined Financial Statements - Unaudited
As of and for the nine months ended September 30, 1999 and 1998.............................................F-8
Report of Independent Certified Public Accountant..........................................................F-16
Consolidated Combined Balance Sheets
As of December 31, 1998 and 1997...........................................................................F-17
Consolidated Combined Statements of Operations
For the years ended December 31, 1998 and 1997
And for the period from inception through December 31, 1998................................................F-19
Consolidated Combined Statements of Changes in Stockholders' Deficit
For the years ended December 31, 1998 and 1997.............................................................F-20
Consolidated Combined Statements of Cash Flows For the years ended December 31,
1998 and 1997
And for the period from inception through December 31, 1998................................................F-21
Notes to Consolidated Combined Financial Statements
As of and for the years ended December 31, 1998 and 1997...................................................F-23
</TABLE>
F-1
<PAGE> 36
ALPHACOM, INC. AND SUBSIDIARY AND AFFILIATE
(development stage companies)
CONSOLIDATED COMBINED BALANCE SHEETS - UNAUDITED
September 30, 1999 and 1998
-----
<TABLE>
<CAPTION>
ASSETS
1999 1998
---- ----
<S> <C> <C>
Current assets:
Cash $ 16,850 $ 115,684
Accounts receivable, trade less allowance for
doubtful accounts of $5,000 in 1999 1,315 11,648
Accounts receivable, other 19,663 41,040
Prepaid expenses and other current assets 330,100 29,750
Inventories 43,681 19,359
------------- ------------
Total current assets 411,609 217,481
------------- ------------
Property and equipment:
Machinery and equipment 91,408 45,605
Furniture and fixtures 38,132 32,533
Vehicles 54,539 60,597
Leasehold improvements 34,580 35,225
------------- ------------
218,659 173,960
Less accumulated depreciation
and amortization 47,298 25,560
------------- ------------
Total property and equipment 171,361 148,400
------------- ------------
Other assets:
Advance on investment 205,000 205,000
Deposits 7,297 11,779
------------- ------------
Total other assets 212,297 216,779
------------- ------------
Total assets $ 795,267 $ 582,660
============= ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-2
<PAGE> 37
ALPHACOM, INC. AND SUBSIDIARY AND AFFILIATE
(development stage companies)
CONSOLIDATED COMBINED BALANCE SHEETS, Continued - UNAUDITED
September 30, 1999 and 1998
-----
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
1999 1998
---- ----
<S> <C> <C>
Current liabilities:
Notes payable, officer-stockholder $ 693,806 $ 772,156
Notes payable, stockholders, less unamortized
discount of $59,900 in 1998 740,735 690,049
Notes payable, others 776,900 --
Current portion of long-term debt 169,178 8,450
Accounts payable, trade 855,030 345,316
Accrued interest, officer-stockholder 44,242 --
Accrued interest, stockholders 60,726 22,500
Accrued interest, others 20,136 --
Accrued expenses 131,529 2,732
Deferred compensation 129,648 76,300
----------- -----------
Total current liabilities 3,621,930 1,917,503
----------- -----------
Long-term liabilities:
Long-term debt, net of current portion 18,839 26,741
----------- -----------
Total long-term liabilities 18,839 26,741
----------- -----------
Total liabilities 3,640,769 1,944,244
----------- -----------
Stockholders' deficit:
Common stock 266,748 266,283
Additional paid-in capital 567,122 144,002
Treasury stock (1,653) (1,653)
Deficit accumulated during the development
stage (3,677,719) (1,770,216)
----------- -----------
Total stockholders' deficit (2,845,502) (1,361,584)
----------- -----------
Total liabilities and stockholders' deficit $ 795,267 $ 582,660
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-3
<PAGE> 38
ALPHACOM, INC. AND SUBSIDIARY AND AFFILIATE
(development stage companies)
CONSOLIDATED COMBINED STATEMENTS OF OPERATIONS - UNAUDITED
for the nine months ended September 30, 1999 and 1998
and for the period from inception through September 30, 1999
-----
<TABLE>
<CAPTION>
Cumulative
From Inception
April 19, 1996 to
September 30, 1999 1999 1998
------------------ ---- ----
<S> <C> <C> <C>
Net sales, communication equipment $ 346,429 $ 116,098 $ 156,237
Cost of sales, communication equipment 159,718 57,474 62,858
--------------- --------------- ---------------
Gross profit, equipment 186,711 58,624 93,379
--------------- --------------- ---------------
Net sales, communication services 124,402 78,108 8,786
Cost of sales, communication services 65,526 41,205 18,920
--------------- --------------- ---------------
Gross profit (loss), services 58,876 36,903 (10,134)
--------------- --------------- ---------------
Total gross profit 245,587 95,527 83,245
Selling, general and administrative
expenses 3,592,321 1,287,436 1,353,826
--------------- --------------- ---------------
Loss from operations (3,346,734) (1,191,909) (1,270,581)
--------------- --------------- ---------------
Other income (expense):
Other 9,276 -- --
Interest expense (340,261) (141,016) (135,336)
--------------- --------------- ---------------
Total other expense (330,985) (141,016) (135,336)
--------------- --------------- ---------------
Net loss $ (3,677,719) $ (1,332,925) $ (1,405,917)
=============== =============== ===============
Net loss per common share $ (.37) $ (.11) $ (.14)
=============== =============== ===============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-4
<PAGE> 39
ALPHACOM, INC. AND SUBSIDIARY AND AFFILIATE
(development stage companies)
CONSOLIDATED COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT -
UNAUDITED
for the nine months ended September 30, 1999 and 1998
-----
<TABLE>
<CAPTION>
Common Deficit
Stock Par Value Accumulated
Issued and of Additional Treasury During the Total
Date of Outstanding Common Paid-in Stock Development Stockholders'
Transaction Note 16 Stock Capital Note 7 Stage Deficit
----------- ------- ----- ------- ------ ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31,1997 8,025,749 $ 258,175 $ 3,814 $ -- $ (364,299) $ (102,310)
Stock issued 1/30/98 1 4,400 -- -- -- 4,400
Stock issued to key
employees ($.001
per share) 1/30/98 1,272,000 1,272 -- -- -- 1,272
Stock issued for
limited asset purchase
from Alpha Beta Communi-
cations, Inc. ($.001 per
share). See Note 2. 7/2/98 1,653,292 1,653 -- (1,653) -- --
Stock issued in association
with debt. ($.18 per share).
See Note 5. Various 750,000 750 134,281 -- -- 135,031
Stock issued to key
employees ($.18 per
share) 9/3/98 33,000 33 5,907 -- -- 5,940
Net loss for the nine months
ended September 30, 1998 -- -- -- -- (1,405,917) (1,405,917)
---------- ---------- ---------- --------- ------------ -------------
Balances at September 30, 1998 11,734,042 $ 266,283 $ 144,002 $ (1,653) $ (1,770,216) $ (1,361,584)
========== ========== ========== ========= ============ =============
Balances at
December 31, 1998 -- 11,984,042 $ 266,533 $ 393,752 $ (1,653) $ (2,344,794) $ (1,686,162)
Stock issuance costs 3/31/99 -- -- (41,415) -- -- (41,415)
Stock issued to key
employees ($1.00
per share) 4/19/99 156,000 156 155,844 -- -- 156,000
Stock issued in connection
with consulting services
($1.00 per share) 6/1/99 59,000 59 58,941 -- -- 59,000
Net loss for the nine months
ended September 30, 1999 -- -- -- -- (1,332,925) (1,332,925)
---------- ---------- ---------- --------- ------------ -------------
Balances at September 30, 1999 12,199,042 $ 266,748 $ 567,122 $ (1,653) $ (3,677,719) $ (2,845,502)
========== ========== ========== ========= ============ =============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-5
<PAGE> 40
ALPHACOM, INC. AND SUBSIDIARY AND AFFILIATE
(development stage companies)
CONSOLIDATED COMBINED STATEMENTS OF CASH FLOWS - UNAUDITED
for the nine months ended September 30, 1999 and 1998
and for the period from inception through September 30, 1999
Increase (Decrease) in Cash
-----
<TABLE>
<CAPTION>
Cumulative
From Inception
April 19, 1996 to
September 30, 1999 1999 1998
------------------ ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (3,677,719) $ (1,332,925) $ (1,405,917)
------------- ------------- -------------
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 182,298 64,446 91,885
(Increase) decrease in assets:
Accounts receivable, trade (1,315) 7,143 (11,648)
Accounts receivable, employees -- 5,710 --
Accounts receivable, other (19,663) (12,123) (41,040)
Prepaid expenses and other current assets (330,100) (61,595) (28,500)
Inventories (43,681) (23,046) (19,359)
Deposits (7,297) 6,043 13,940
Increase (decrease) in liabilities:
Accounts payable, trade 855,030 164,490 318,842
Accrued interest, officer-stockholder 44,242 28,060 --
Accrued interest, stockholders 60,726 24,269 22,500
Accrued interest, others 20,136 20,136 --
Accrued expenses 131,529 74,881 2,732
Deferred compensation 129,648 28,348 44,800
------------- ------------- -------------
Total adjustments 1,021,553 326,762 394,152
------------- ------------- -------------
Net cash used in operating activities (2,656,166) (1,006,163) (1,011,765)
------------- ------------- -------------
Cash flows from investing activities:
Purchase of property and equipment (218,659) (52,618) (41,498)
Advance on investment (205,000) -- (205,000)
------------- ------------- -------------
Net cash used in investing activities (423,659) (52,618) (246,498)
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-6
<PAGE> 41
ALPHACOM, INC. AND SUBSIDIARY AND AFFILIATE
(development stage companies)
CONSOLIDATED COMBINED STATEMENTS OF CASH FLOWS, Continued - UNAUDITED
for the nine months ended September 30, 1999 and 1998
and for the period from inception through September 30, 1999
Increase (Decrease) in Cash
-----
<TABLE>
<CAPTION>
Cumulative
From Inception
April 19, 1996 to
September 30, 1999 1999 1998
------------------ ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from long-term debt 203,924 160,000 --
Repayment of long-term debt (15,907) (6,421) (6,298)
Proceeds from notes payable, officer-
stockholder 721,306 -- 772,156
Repayment of notes payable, officer-
stockholder (27,500) (27,500) --
Proceeds from notes payable, stockholders 655,000 40,000 454,000
Repayment of notes payable, stockholders (49,265) (49,265) --
Proceeds from notes payable, others 776,900 776,900 --
Purchase of treasury stock (1,653) -- (1,653)
Stock issuance costs (41,415) (41,415) --
Proceeds from the sale of stock 875,285 215,000 148,296
--------------- --------------- ---------------
Net cash provided by financing
activities 3,096,675 1,067,299 1,366,501
--------------- --------------- ---------------
Net increase in cash 16,850 8,518 108,238
Cash, beginning of period -- 8,332 7,446
--------------- --------------- ---------------
Cash, end of period $ 16,850 $ 16,850 $ 115,684
=============== =============== ===============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 80,157 $ 32,331 $ 37,787
=============== =============== ===============
</TABLE>
Included in depreciation and amortization is amortization of a discount on notes
payable, stockholders totaling $36,220 and $75,049 for the period ended
September 30, 1999 and 1998, respectively.
The accompanying notes are an integral
part of these financial statements.
F-7
<PAGE> 42
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS - UNAUDITED
-----
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS
AlphaCom, Inc. ("AlphaCom") was incorporated on December 1, 1997 under the
laws of the State of Nevada and commenced operations on January 1, 1998.
AlphaCom will distribute high-technology communication products and
services to consumers who utilize the internet. Sales and distribution will
be accomplished through a network marketing system in North America and
through authorized distributors and licensees in countries outside of North
America.
The following is a summary of significant accounting policies:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated combined financial statements include the
accounts of AlphaCom and its wholly-owned subsidiary (AlphaCom Canada,
Ltd.) together with Alpha Beta Communication, Inc., a company affiliated
through common management and ownership (the "Company"). All significant
intercompany profits, balances, and transactions have been eliminated in
consolidation.
FOREIGN CURRENCY TRANSLATION
The Company's account balances that are in Canadian currency (which result
from the Canadian subsidiary) have been translated in accordance with SFAS
No. 52, "Foreign Currency Translation." Assets and liabilities have been
translated at exchange rates as of the end of the year. Income and expense
accounts have been translated at the average exchange rates during the
year. Due to limited activity at the Canadian subsidiary, there were no
transaction gains and losses from remeasurement of monetary assets,
liabilities, income and expense.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held
for trading purposes. The Company estimates that the fair value of all
financial instruments at September 30, 1999 does not differ materially from
the aggregate carrying values of its financial instruments recorded in the
accompanying balance sheet. The estimated fair value amounts have been
determined by the Company using available market information and
appropriate valuation methodologies. Considerable judgment is necessarily
required in interpreting market data to develop the estimates of fair
value, and, accordingly, the estimates are not necessarily indicative of
the amounts that the Company could realize in a current market exchange.
INVENTORIES
Inventories consist primarily of computer communication hardware and
software and are stated at lower of cost or market. Cost is determined by
the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Major additions and
betterments are charged to the property accounts while replacements,
maintenance and repairs which do not improve or extend the life of the
respective assets are expensed currently. When property is retired or
otherwise disposed of, the cost of the property is removed from the asset
account, accumulated depreciation is charged with an amount equivalent to
the depreciation provided, and the difference is charged or credited to
income.
F-8
<PAGE> 43
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS, Continued - UNAUDITED
-----
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(Continued)
DEPRECIATION
Depreciation is provided using primarily the straight-line method over the
estimated useful lives of the assets for financial statement purposes;
accelerated methods are primarily used for tax purposes.
INCOME TAXES
Income taxes are provided for the tax effect of transactions reported in
the consolidated combined financial statements and consist of taxes
currently due plus deferred taxes related primarily to differences between
the basis of property and equipment, and various reserves and accruals for
financial and income tax reporting. The deferred tax assets and liabilities
represent the future tax return consequences of those differences, which
will either be taxable or deductible when the assets and liabilities are
recovered or settled.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts
receivable.
The Company grants credit to its customers. The Company performs ongoing
credit evaluations of its customers and does not require collateral.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
EARNINGS PER SHARE
Basic earnings per share is computed by dividing loss available to common
stockholders by the weighted-average number of common shares outstanding
for the year. Diluted earnings per share reflect the potential dilution
that could occur if the dilutive agreement resulted in the issuance of
common stock that then shared in the earnings of the Company.
At September 30, 1999, 32,000 shares of potential common stock related to
detachable warrants on a secured loan agreement (Note 6) were excluded from
the computation of diluted loss per share because their inclusion would
have an antidilutive effect on loss per share.
F-9
<PAGE> 44
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS, Continued - UNAUDITED
-----
2. LIMITED ASSET PURCHASE:
In July of 1998, AlphaCom entered into a Limited Asset Purchase Agreement
(Agreement) with Alpha Beta Communications, Inc. ("ABC"). An officer
stockholder of AlphaCom owned 92% of ABC at the time of the Agreement. The
Agreement provided for the purchase of substantially all of the assets and
assumption of certain liabilities of ABC in exchange for $475,767 due
AlphaCom from ABC and the issuance of 1,653,354 shares of $.001 par value
common stock, issued to the minority stockholders of ABC. The tangible
assets acquired included accounts receivable, inventories, property and
equipment, prepaid and other assets. Management estimated the fair market
value of these assets to be $208,950. In addition, AlphaCom acquired
intangible assets including trade names, client list, distributor base
and/or subscribers. As part of the transaction, AlphaCom also assumed
liabilities of $37,507. In addition, AlphaCom has a commitment to pay
$200,000 to ABC's majority stockholder, who is also a stockholder in
AlphaCom, contingent upon the successful public offering of AlphaCom.
The transaction, between entities under common control, has been recorded
utilizing historical costs for recorded asset and liability accounts and
par value for common stock issued. No value has been assigned to intangible
assets acquired.
AlphaCom exchanged 1,653,354 shares of its common stock for assets of ABC.
The issuance of AlphaCom's shares has been recorded at par value ($.001 per
share). ABC exchanged AlphaCom's stock for the minority shares outstanding
of ABC. The minority shares are held as treasury stock of ABC and valued at
par value of AlphaCom's shares.
3. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following at
September 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Prepaid royalties $ 320,000 $ 10,000
Prepaid rent and expenses 10,100 19,750
----------- ----------
$ 330,100 $ 29,750
=========== ==========
</TABLE>
The Company prepaid royalties due on sales of software made available
through a development firm. These royalties will be amortized as sales of
software and recognized on a per unit basis over the next year.
4. NOTES PAYABLE, OFFICER-STOCKHOLDER:
AlphaCom has notes payable to an officer-stockholder amounting to $693,806
and $772,156 at September 30, 1999 and 1998. The notes bear interest at
rates ranging from 5.1% to 5.6%, are unsecured and are payable in full on
January 31, 2000. The weighted average of the interest rates is 5.54% and
the estimated fair value of these notes equals their book value at
September 30, 1999.
Accrued interest on notes payable, officer-stockholder amounts to $44,242
at September 30, 1999. No interest has been paid on notes payable,
officer-stockholder.
<PAGE> 45
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS, Continued - UNAUDITED
-----
5. NOTES PAYABLE:
In 1998 AlphaCom entered into a number of transactions with individual
creditors and issued unsecured notes payable. The notes payable,
stockholders aggregate $740,735 and $690,049 at September 30, 1999 and
1998, respectively. The terms of the notes include interest at a stated
rate of 12% per annum together with one share of AlphaCom's $.001 par value
common stock for each one dollar borrowed. For purposes of this
transaction, management valued the common stock at $.18 per share at the
time of the stock issuance. The notes mature at various dates in 1999.
The aggregate discount on the notes payable, stockholders was determined by
management to be approximately $135,000 and is being amortized over the
estimated life of the notes stockholders. The estimated fair value of these
notes equals their book value.
Notes payable, others in the amount of $776,900 at September 30, 1999
consists of notes and advances payable to individuals bearing interest at
12%. The notes and advances are unsecured and are due after the Company
obtains additional financing.
6. LONG-TERM DEBT:
Long-term debt consists of the following at September 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Senior secured loan agreement bearing interest at 12%
The note matures March 30, 2000 at which time
a balloon payment for the entire principal is due $160,000 $ --
Note payable, bank, due in monthly installments
of $453, including interest at 8.39%. The note
payable is collateralized by a vehicle and matures
July 2002 13,677 17,781
Note payable, bank, due in monthly installments of $468,
including interest at 10.17%. The note payable is
collateralized by a vehicle and matures July 2002 14,340 17,410
-------- --------
188,017 35,191
Less current maturities 169,178 8,450
-------- --------
$ 18,839 $ 26,741
======== ========
</TABLE>
On March 26, 1999 AlphaCom entered into a senior secured loan agreement
with a lender. Under the terms of the agreement, the lender was to use its
best efforts to loan $2,500,000 to AlphaCom from the sale of participation
interests to investors. The lender required the pledge of all of the assets
of AlphaCom as security for the loan. The loan agreement provided for
detached warrants to the lender for the purchase of up to 500,000 shares of
AlphaCom's common stock, at $1.00 per share, limited to 20% of the dollar
amount loaned to the Company. The warrants cannot be exercised until one
year from the date of the loan and expire after five years from the date of
the loan. The agreement expired July 15, 1999.
At September 30, 1999, under the terms of the agreement, the lender has a
warrant for 32,000 shares of the common stock of AlphaCom.
F-11
<PAGE> 46
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS, Continued - UNAUDITED
-----
6. LONG-TERM DEBT: (Continued)
The book value of these notes equals their estimated fair market value at
September 30, 1999. The following is a schedule of maturities for the next
three years ending September 30 and in the aggregate for long-term debt
owed by AlphaCom at September 30, 1999:
2000 $ 169,178
2001 9,936
2002 8,903
------------
$ 188,017
============
7. STOCKHOLDERS' DEFICIT:
The consolidated combined stockholders deficit at September 30, 1999 and
1998 are composed of:
<TABLE>
<CAPTION>
1999 Number of
---- Common
Shares Par value Additional
Issued and of common Paid in Treasury Accumulated
Outstanding Stock Capital Stock Deficit Total
----------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
AlphaCom, Inc.
and subsidiary 12,198,354 $ 12,198 $ 563,308 $ -- $ (2,752,745) $ (2,177,239)
Alpha Beta
Communica-
tions, Inc. 688 254,550 3,814 (1,653) (924,974) (668,263)
----------- ---------- ----------- ---------- -------------- -------------
12,199,042 $ 266,748 $ 567,122 $ (1,653) $ (3,677,719) $ (2,845,502)
=========== ========== =========== ========== ============== =============
</TABLE>
<TABLE>
<CAPTION>
1998 Number of
---- Common
Shares Par value Additional
Issued and of common Paid in Treasury Accumulated
Outstanding Stock Capital Stock Deficit Total
----------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
AlphaCom, Inc.
and subsidiary 11,733,354 $ 11,733 $ 140,188 $ -- $ (837,619) $ (685,698)
Alpha Beta
Communica-
tions, Inc. 688 254,550 3,814 (1,653) (932,597) (675,886)
----------- ---------- ----------- ---------- -------------- -------------
11,734,042 $ 266,283 $ 144,002 $ (1,653) $ (1,770,216) $ (1,361,584)
=========== ========== =========== ========== ============== =============
</TABLE>
As noted in Note 16, AlphaCom has authorized common shares of 60,000,000.
Alpha Beta Communications, Inc. has authorized common shares of 750.
Treasury shares at September 30, 1999 consist of 62 shares of Alpha Beta
Communications, Inc. acquired in connection with the Limited Asset Purchase
described in Note 2.
F-12
<PAGE> 47
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS, Continued - UNAUDITED
-----
8. OPERATING LEASE COMMITMENTS:
AlphaCom is obligated under non-cancelable leases for the use of the
operating facility, an automobile and a copier. The leases expire at
various dates through 2001 and the facility lease allows for one one-year
renewal beginning in December 2000. Certain of the leases require the
lessee to bear the cost of insurance and maintenance.
Approximate future minimum obligations under non-cancelable lease
commitments for years ending September 30 are as follows:
<TABLE>
<S> <C>
2000 $ 16,500
2001 2,900
---------
$ 19,400
=========
</TABLE>
Rent expense was approximately $48,600 and $34,000 in 1999 and 1998,
respectively.
9. INCOME TAXES:
The following reconciles income taxes (benefit) reported in the
consolidated combined financial statements to taxes that would be obtained
by applying the U.S. federal statutory rate to loss before income taxes
(benefit) at September 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Expected taxes (benefit) using statutory rate of 34% $ (453,194) $ (478,012)
Non-deductible expenses 1,900 1,309
Taxable gain on limited asset purchase -- 106,635
Deductible expenses (7,674) (2,558)
State income tax benefit (77,755) (63,127)
Other (1,277) 1,753
Increase in valuation allowance 538,000 434,000
------------- ------------
Benefit of income taxes $ -- $ --
============= ============
The deferred tax assets consist of the following components:
Deferred federal long-term tax asset $ 1,115,000 $ 495,000
Deferred state long-term tax asset 189,000 84,000
Deferred federal long-term tax liability (7,000) (1,000)
Deferred state long-term tax liability (1,000) --
Valuation allowance (1,296,000) (578,000)
------------- ------------
Total deferred long-term tax asset $ -- $ --
============= ============
</TABLE>
Federal and state deferred tax assets related to net operating loss
carryforwards are approximately $1,115,000 and $189,000, respectively. The
federal net operating loss may be carried forward for twenty years while
the state net operating loss may be carried forward for fifteen years. As
discussed in Note 14, the Company is a development stage entity. As such,
the Company lacks an operating history and therefore, a valuation allowance
has been recorded to offset the deferred tax assets and the benefit of
income taxes. Actual results could differ from this estimate.
F-13
<PAGE> 48
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS, Continued - UNAUDITED
-----
10. RELATED PARTY TRANSACTIONS:
Certain key officers of AlphaCom have agreed to defer a percentage of their
compensation until such time as AlphaCom completes its anticipated public
offering. Amounts deferred through September 30, 1999 and 1998 totaling
$129,648 and $76,300, respectively have been included as current
liabilities in the accompanying consolidated financial statements.
See Notes 2, 4 and 5 for discussion of other related party transactions.
11. JOINT VENTURE AND INVESTMENT AGREEMENTS:
In May 1998, AlphaCom entered into an agreement with a corporation to
establish a joint venture to use, develop, market and/or resell certain
proprietary data transmission technology developed by the corporation.
AlphaCom will own 51% of the joint venture, with the corporation owning the
remaining 49%. Use of the joint venture's technology by end users will
require certain royalties to be paid to the joint venture. As of September
30, 1999, the joint venture has not commenced operations. AlphaCom's and
the joint venture's future operations are dependent on the effectiveness of
this technology and the continuation of this agreement.
AlphaCom also has an agreement whereby it will invest $705,000 directly
into the corporation. In accordance with the agreement, as of September 30,
1999, AlphaCom has advanced $205,000 on this investment and no shares of
the corporation have been issued to AlphaCom. AlphaCom is to remit the
remaining $500,000 commitment upon the completion of its public offering,
at which time the corporation will issue shares to AlphaCom.
12. COMMITMENTS AND CONTINGENCIES:
As of September 30, 1999, AlphaCom has entered into two commitments with a
software provider. The first commitment requires AlphaCom to acquire 40,000
units of software at a total cost of $1,080,000. As of September 30, 1999,
the Company has paid $10,000 towards this commitment. The second commitment
requires AlphaCom to acquire 15,000 units of other software at a total cost
of $945,000. As of September 30, 1999, no money has been paid on this
commitment and no units have been acquired.
Effective December 4, 1998, AlphaCom entered into an agreement with an
entity whereby the entity will provide consulting services to AlphaCom,
Inc. and Subsidiary. As a result of this agreement, AlphaCom is required to
pay $124,000 and to issue 124,000 shares of its stock to the consulting
entity for services rendered over the two year term of the contract. As of
September 30, 1999, AlphaCom has expensed $34,500 of cash payments and
issued 59,000 shares of stock required under the contract. In December of
1999, the Agreement was renewed and amended to provide for a clarification
of consulting services to be provided and the issuance of 73,800 shares of
stock of AlphaCom due for current and future services.
AlphaCom has an agreement with an internet service provider whereby it will
provide internet access to AlphaCom's customers at a fixed monthly fee.
Under the terms of the agreement, AlphaCom is required to sell 25,000 IDT
internet access accounts. As of September 30, 1999 200 such accounts have
been sold.
In November, 1999, AlphaCom entered into consulting and stock purchase and
option agreements with a company. The stock purchase and option agreement
provides for the sale of 20,000 common shares of AlphaCom at $5.00 per
share and an option to purchase up to 980,000 shares at $5.00 per share
during the twelve months following the agreement.
See Notes 2 and 10 for discussion of other commitments.
F-14
<PAGE> 49
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS, Continued - UNAUDITED
------
13. RESEARCH AND DEVELOPMENT COSTS:
Research and development costs related to both future and present products
are charged to operations as incurred. The Company recognized approximately
$52,200 and $584,100 of research and development costs during the nine
months ended September 30, 1999 and 1998, respectively.
14. DEVELOPMENT STAGE ENTITY:
AlphaCom was formed in December 1997 to distribute high-technology
communication products and services to consumers who utilize the Internet.
Activities since that time have primarily been devoted to raising capital,
obtaining financing, product development and administrative functions. The
future viability of AlphaCom is dependent upon its ability to successfully
obtain sufficient capital and market acceptance of its products. AlphaCom
has developed operating plans based upon levels of cash flows and financing
ultimately achieved. There can be no assurance that AlphaCom will achieve
or sustain profitability or positive cash flow from its operations, which,
if not achieved, will materially adversely affect AlphaCom's business,
operating results and financial condition.
15. IMPACT OF YEAR 2000:
Some of AlphaCom's computer programs may have been written using two digits
rather than four to define the applicable year. As a result, those computer
programs may have time-sensitive software that recognize a date using "00"
as the year 1900 rather than the year 2000. This could cause a system
failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices or engage in similar normal business activities.
AlphaCom is utilizing both internal and external resources to identify,
correct or reprogram, and test the systems for year 2000 compliance.
16. INCREASE IN AUTHORIZED COMMON STOCK:
On May 6, 1999, AlphaCom's stockholders held a special meeting where they
approved an increase in the number of authorized common shares from
20,000,000 to 60,000,000. This transaction had no effect on the number of
common shares outstanding or the par value of the common shares.
F-15
<PAGE> 50
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Stockholders and
Board of Directors of AlphaCom, Inc. and Subsidiary and Affiliate:
We have audited the accompanying consolidated combined balance sheets of
AlphaCom, Inc. and Subsidiary and Affiliate (development stage companies) as of
December 31, 1998 and 1997, and the related consolidated combined statements of
operations, changes in stockholders' deficit and cash flows for the years then
ended and for the period from April 19, 1996 (inception) to December 31, 1998.
These consolidated combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated combined financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
combined financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated combined financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion the consolidated combined financial statements referred to above
present fairly, in all material respects, the financial position of AlphaCom,
Inc. and Subsidiary and Affiliate as of December 31, 1998 and 1997, and the
results of its operations and its cash flows for the years then ended and for
the period from April 19, 1996 (inception) to December 31, 1998 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 14 to the
financial statements, the future viability of the Company is dependent upon its
ability to successfully obtain sufficient capital and market acceptance of its
products. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
SPECTOR & SAULINO, CPAs, L.L.C.
Akron, Ohio
December 13, 1999
F-16
<PAGE> 51
ALPHACOM, INC. AND SUBSIDIARY AND AFFILIATE
(development stage companies)
CONSOLIDATED COMBINED BALANCE SHEETS
December 31, 1998 and 1997
------
ASSETS
1998 1997
---- ----
[S] [C] [C]
Current assets:
Cash $ 8,332 $ 7,446
Accounts receivable trade, less allowance for
doubtful accounts of $7,000 in 1998 8,458 --
Accounts receivable, employees 5,710 --
Accounts receivable, other 7,540 --
Prepaid expenses and other current assets 268,505 1,250
Inventories 20,635 --
-------- --------
Total current assets 319,180 8,696
-------- --------
Property and equipment:
Machinery and equipment 38,790 26,377
Furniture and fixtures 38,132 21,905
Vehicles 54,539 60,597
Leasehold improvements 34,580 23,583
-------- --------
166,041 132,462
Less accumulated depreciation
and amortization 19,072 8,724
-------- --------
Total property and equipment 146,969 123,738
-------- --------
Other assets:
Advance on investment 205,000 --
Deposits 13,340 25,719
-------- --------
Total other assets 218,340 25,719
-------- --------
Total assets $684,489 $158,153
======== ========
The accompanying notes are an integral part
of these financial statements.
F-17
<PAGE> 52
ALPHACOM, INC. AND SUBSIDIARY AND AFFILIATE
(development stage companies)
CONSOLIDATED COMBINED BALANCE SHEETS, Continued
December 31, 1998 and 1997
-----
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current liabilities:
Note payable, officer-stockholder $ 721,306 $ --
Notes payable, stockholders, less unamortized
discount of $36,220 at December 31, 1998 713,780 161,000
Current portion of long-term debt 8,648 7,989
Accounts payable, trade 690,540 26,474
Accrued interest, officer-stockholder 16,182 --
Accrued interest, stockholders 36,457 --
Accrued expenses 56,648 --
Deferred compensation 101,300 31,500
----------- -----------
Total current liabilities 2,344,861 226,963
----------- -----------
Long-term liabilities:
Long-term debt, net of current portion 25,790 33,500
----------- -----------
Total long-term liabilities 25,790 33,500
----------- -----------
Total liabilities 2,370,651 260,463
----------- -----------
Stockholders' deficit (Note 7):
Common stock 266,533 258,175
Additional paid-in capital 393,752 3,814
Treasury stock (1,653) --
Deficit accumulated during the development
stage (2,344,794) (364,299)
----------- -----------
Total stockholders' deficit (1,686,162) (102,310)
----------- -----------
Total liabilities and stockholders' deficit $ 684,489 $ 158,153
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
F-18
<PAGE> 53
ALPHACOM, INC. AND SUBSIDIARY AND AFFILIATE
(development stage companies)
CONSOLIDATED COMBINED STATEMENTS OF OPERATIONS
for the years ended December 31, 1998 and 1997
and for the period from inception through December 31, 1998
-----
<TABLE>
<CAPTION>
Cumulative
From Inception
April 19, 1996 to
December 31, 1998 1998 1997
----------------- ---- ----
<S> <C> <C> <C>
Net sales, communication equipment $ 230,331 $ 177,322 $ 53,009
Cost of sales, communication equipment 102,244 58,333 43,911
----------- ----------- -----------
Gross profit, equipment 128,087 118,989 9,098
----------- ----------- -----------
Net sales, communication services 46,294 46,294 --
Cost of sales, communication services 24,321 24,321 --
----------- ----------- -----------
Gross profit, services 21,973 21,973 --
----------- ----------- -----------
Total gross profit 150,060 140,962 9,098
Selling, general and administrative expenses 2,304,885 1,933,094 369,364
----------- ----------- -----------
Loss from operations (2,154,825) (1,792,132) (360,266)
----------- ----------- -----------
Other income (expense):
Other 9,276 9,276 --
Interest expense (199,245) (197,639) (1,606)
----------- ----------- -----------
Net other expense (189,969) (188,363) (1,606)
----------- ----------- -----------
Net loss $(2,344,794) $(1,980,495) $ (361,872)
=========== =========== ===========
Net loss per common share $ (.25) $ (.19) $ (.05)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
F-19
<PAGE> 54
ALPHACOM, INC. AND SUBSIDIARY AND AFFILIATE
(development stage companies)
CONSOLIDATED COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
for the years ended December 31, 1998 AND 1997
-----
<TABLE>
<CAPTION>
Common Deficit
Stock Par Value Accumulated
Issued and of Additional Treasury During the Total
Date of Outstanding Common Paid-in Stock Development Stockholders'
Transaction Note 16 Stock Capital Note 7 Stage Deficit
----------- ------- ----- ------- ------ ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31,1996 688 $ 50 $ -- $ -- $ (2,427) (2,377)
Stock issued Various 8,025,061 258,125 3,814 -- -- 261,939
Net loss for 1997 -- -- -- (361,872) (361,872)
---------- --------- --------- ----------- ----------- -----------
Balances at
December 31, 1997 8,025,749 258,175 3,814 -- (364,299) (102,310)
Stock issued 1/30/98 1 4,400 -- -- -- 4,400
Stock issued to key
employees ($.001
per share) 1/30/98 1,272,000 1,272 -- -- -- 1,272
Stock issued for limited
asset purchase from
Alpha Beta Communi-
cations, Inc.
($.001 per share) See
Note 2. 7/2/98 1,653,292 1,653 -- (1,653) -- --
Stock issued in associ-
ation with debt ($.18
per share). See
Note 5. Various 750,000 750 134,281 -- -- 135,031
Stock issued to key
employees ($.18
per share) 9/30/98 33,000 33 5,907 -- -- 5,940
Stock issued via private
placement ($1.00 per
share) 10/8/98 250,000 250 249,750 -- -- 250,000
Net loss for 1998 -- -- -- -- (1,980,495) (1,980,495)
----------- --------- --------- ---------- ----------- -----------
Balances at December 31, 1998 11,984,042 $ 266,533 $ 393,752 $ (1,653) $(2,344,794) $(1,686,162)
=========== ========= ========= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
F-20
<PAGE> 55
ALPHACOM, INC. AND SUBSIDIARY AND AFFILIATE
(development stage companies)
CONSOLIDATED COMBINED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998 and 1997
and for the period from inception through December 31, 1998
Increase (Decrease) in Cash
----
<TABLE>
<CAPTION>
Cumulative
From Inception
April 19, 1996 to
December 31, 1998 1998 1997
----------------- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,344,794) $ (1,980,495) $ (361,872)
--------------- --------------- ---------------
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 117,852 109,128 8,724
(Increase) decrease in assets:
Accounts receivable, trade (8,458) (8,458) --
Accounts receivable, employees (5,710) (5,710) --
Accounts receivable, other (7,540) (7,540) --
Prepaid expenses and other current
assets (268,505) (267,255) (1,250)
Inventories (20,635) (20,635) --
Deposits (13,340) 12,379 (25,719)
Increase (decrease) in liabilities:
Accounts payable, trade 690,540 664,066 22,660
Accrued interest, officer-stockholder 16,182 16,182 --
Accrued interest, stockholders 36,457 36,457 --
Accrued expenses 56,648 56,648 --
Deferred compensation 101,300 69,800 31,500
--------------- --------------- ---------------
Total adjustments 694,791 655,062 35,915
--------------- --------------- ---------------
Net cash used in operating activities (1,650,003) (1,325,433) (325,957)
--------------- --------------- ---------------
Cash flows from investing activities:
Purchases of property and equipment (166,041) (33,579) (132,462)
Advance on investment (205,000) (205,000) --
--------------- --------------- ---------------
Net cash used in investing activities (371,041) (238,579) (132,462)
--------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
F-21
<PAGE> 56
ALPHACOM, INC. AND SUBSIDIARY AND AFFILIATE
(development stage companies)
CONSOLIDATED COMBINED STATEMENT OF CASH FLOWS, Continued
for the years ended December 31, 1998 and 1997
and for the period from inception through December 31, 1998
Increase (Decrease) in Cash
------
<TABLE>
<CAPTION>
From Inception
Cumulative
April 19, 1996 to
December 31, 1998 1998 1997
----------------- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from long-term debt 43,924 -- 43,924
Repayment of long-term debt (9,486) (7,051) (2,435)
Proceeds from notes payable, officer-
stockholder 721,306 721,306 --
Proceeds from notes payable, stockholders 615,000 454,000 161,000
Purchase of treasury stock (1,653) (1,653) --
Proceeds from the sale of stock 660,285 398,296 261,939
---------------- ---------------- ----------------
Net cash provided by financing
activities 2,029,376 1,564,898 464,428
---------------- ---------------- ----------------
Net increase in cash 8,332 886 6,009
Cash, beginning of period -- 7,446 1,437
---------------- ---------------- ----------------
Cash, end of period $ 8,332 $ 8,332 $ 7,446
================ ================ ================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 47,826 $ 46,220 $ 1,606
================ ================ ================
</TABLE>
Included in depreciation and amortization is amortization of a discount on notes
payable, stockholders of $98,780 for the year ended December 31, 1998.
The accompanying notes are an integral part
of these financial statements.
F-22
<PAGE> 57
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS
-----
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS
AlphaCom, Inc. ("AlphaCom") was incorporated on December 1, 1997 under the
laws of the State of Nevada and commenced operations on January 1, 1998.
AlphaCom will distribute high-technology communication products and
services to consumers who utilize the internet. Sales and distribution will
be accomplished through a network marketing system in North America and
through authorized distributors and licensees in countries outside of North
America.
The following is a summary of significant accounting policies:
PRINCIPLES OF COMBINATION
The accompanying consolidated combined financial statements include the
accounts of AlphaCom and its wholly owned subsidiary (AlphaCom Canada,
Ltd.). together with Alpha Beta Communication, Inc., a company affiliated
through common management and ownership (the "Company"). All significant
intercompany profits, balances, and transactions have been eliminated in
consolidation.
FOREIGN CURRENCY TRANSLATION
The Company's account balances that are in Canadian currency (which result
from the Canadian subsidiary) have been translated in accordance with SFAS
No. 52, "Foreign Currency Translation." Assets and liabilities have been
translated at exchange rates as of the end of the year. Income and expense
accounts have been translated at the average exchange rates during the
year. Due to limited activity at the Canadian subsidiary, there were no
transaction gains and losses from remeasurement of monetary assets,
liabilities, income and expense.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held
for trading purposes. The Company estimates that the fair value of all
financial instruments at December 31, 1998, does not differ materially from
the aggregate carrying values of its financial instruments recorded in the
accompanying balance sheet. The estimated fair value amounts have been
determined by the Company using available market information and
appropriate valuation methodologies. Considerable judgment is necessarily
required in interpreting market data to develop the estimates of fair
value, and, accordingly, the estimates are not necessarily indicative of
the amounts that the Company could realize in a current market exchange.
INVENTORIES
Inventories consist primarily of computer communication hardware and
software and are stated at lower of cost or market. Cost is determined by
the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Major additions and
betterments are charged to the property accounts while replacements,
maintenance and repairs which do not improve or extend the life of the
respective assets are expensed currently. When property is retired or
otherwise disposed of, the cost of the property is removed from the asset
account, accumulated depreciation is charged with an amount equivalent to
the depreciation provided, and the difference is charged or credited to
income.
F-23
<PAGE> 58
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS, Continued
-----
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(Continued)
DEPRECIATION
Depreciation is provided using primarily the straight-line method over the
estimated useful lives of the assets for financial statement purposes;
accelerated methods are primarily used for tax purposes.
INCOME TAXES
Income taxes are provided for the tax effect of transactions reported in
the consolidated combined financial statements and consist of taxes
currently due plus deferred taxes related primarily to differences between
the basis of property and equipment, and various reserves and accruals for
financial and income tax reporting. The deferred tax assets and liabilities
represent the future tax return consequences of those differences, which
will either be taxable or deductible when the assets and liabilities are
recovered or settled.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts
receivable.
The Company grants credit to its customers. The Company performs ongoing
credit evaluations of its customers and does not require collateral.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
EARNINGS PER SHARE
Basic earnings per share is computed by dividing loss available to common
stockholders by the weighted-average number of common shares outstanding
for the year. Diluted earnings per share reflect the potential dilution
that could occur if the dilutive agreement resulted in the issuance of
common stock that then shared in the earnings of the Company.
2. LIMITED ASSET PURCHASE:
In July of 1998, AlphaCom entered into a Limited Asset Purchase Agreement
(Agreement) with Alpha Beta Communications, Inc. ("ABC"). An officer
stockholder of AlphaCom owned 92% of ABC at the time of the Agreement. The
Agreement provided for the purchase of substantially all of the assets and
assumption of certain liabilities of ABC in exchange for $475,767 due
AlphaCom from ABC and the issuance of 1,653,354 shares of $.001 par value
common stock, issued to the minority stockholders of ABC. The tangible
assets acquired included accounts receivable, inventories, property and
equipment, prepaid and other assets. Management estimated the fair market
value of these assets to be $208,950. In addition, AlphaCom acquired
intangible assets including trade names, client list, distributor base
and/or subscribers. As part of the transaction, AlphaCom also assumed
liabilities of $37,507. In addition, AlphaCom has a commitment to pay
$200,000 to ABC's majority stockholder, who is also a stockholder in
AlphaCom, contingent upon the successful public offering of AlphaCom.
F-24
<PAGE> 59
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS, Continued
------
2. LIMITED ASSET PURCHASE: (Continued)
The transaction, between entities under common control, has been recorded
utilizing historical costs for recorded asset and liability accounts and
par value for common stock issued. No value has been assigned to intangible
assets acquired.
AlphaCom exchanged 1,653,354 shares of its common stock for assets of ABC.
The issuance of AlphaCom's shares has been recorded at par value ($.001 per
share). ABC exchanged AlphaCom's stock for the minority shares outstanding
of ABC. The minority shares are held as treasury stock of ABC and valued at
par value of AlphaCom's shares.
3. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following at
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Prepaid royalties $ 250,000 $ --
Prepaid rent and expenses 18,505 1,250
------------- -------------
$ 268,505 $ $1,250
============= =============
</TABLE>
The Company prepaid royalties due on sales of software made available
through a development firm. These royalties will be amortized as sales of
software and recognized on a per unit basis over the next year.
4. NOTES PAYABLE, OFFICER-STOCKHOLDER:
The Company has notes payable to an officer-stockholder amounting to
$721,306 at December 31, 1998. The notes bear interest at rates ranging
from 5.1% to 5.6%, are unsecured and are payable in full on January 31,
2000. The weighted average of the interest rates is 5.54% and the estimated
fair value of these notes equals their book value at December 31, 1998.
Accrued interest on notes payable, officer-stockholder amounts to $16,182
at December 31, 1998. No interest has been paid on notes payable,
officer-stockholder.
5. NOTES PAYABLE, STOCKHOLDERS:
In 1998 AlphaCom entered into a number of transactions with individual
creditors and issued unsecured notes payable. The notes payable,
stockholders' aggregate $713,780 and $161,000 at December 31, 1998 and
1997, respectively. The terms of the notes include interest at a stated
rate of 12% per annum together with one share of AlphaCom's $.001 par value
common stock for each one dollar borrowed. For purposes of this
transaction, management valued the common stock at $.18 per share at the
time of the transaction. The notes mature at various dates through
September 1999.
The aggregate discount on the notes payable has been recorded for financial
statement purposes. The aggregate discount of approximately $135,000 is
being amortized over the estimated life of the notes stockholders. The
estimated fair value of these notes equals their book value at December 31,
1998.
F-25
<PAGE> 60
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS, Continued
--------
6. LONG-TERM DEBT:
Long-term debt consists of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Note payable, bank, due in monthly installments
of $453, including interest at 8.39%. The note
payable is collateralized by a vehicle and matures
July 2002. $ 16,787 $ 20,564
Note payable, bank, due in monthly installments of $468,
including interest at 10.17%. The note payable is
collateralized by a vehicle and matures July 2002. 17,651 20,925
---------- ----------
34,438 41,489
Less current maturities 8,648 7,989
---------- ----------
$ 25,790 $ 33,500
========== ==========
</TABLE>
The book value of these notes equals their estimated fair market value at
December 31, 1998. The following is a schedule of maturities for the next
four years ending December 31 and in the aggregate for long-term debt owed
by AlphaCom at December 31, 1998:
<TABLE>
<S> <C>
1999 $ 8,648
2000 9,362
2001 10,135
2002 6,293
---------
$ 34,438
=========
</TABLE>
7. STOCKHOLDERS' DEFICIT:
The consolidated combined stockholders deficit at December 31, 1998 and
1997 are composed of:
<TABLE>
<CAPTION>
1998 Number of
---- Common
Shares Par value Additional
Issued and of common Paid in Treasury Accumulated
Outstanding Stock Capital Stock Deficit Total
----------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
AlphaCom, Inc.
and subsidiary 11,983,354 $ 11,983 $ 389,938 $ -- $ (1,419,820) $ (1,017,899)
Alpha Beta
Communica-
tions, Inc. 688 254,550 3,814 (1,653) (924,974) (668,263)
------------ ---------- ----------- ---------- -------------- -------------
11,984,042 $ 266,533 $ 393,752 $ (1,653) $ (2,344,794) $ (1,686,162)
============ ========== =========== ========== ============== =============
</TABLE>
F-26
<PAGE> 61
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS, Continued
--------
7. STOCKHOLDERS' DEFICIT: (Continued)
<TABLE>
<CAPTION>
1997 Number of
---- Common
Shares Par value Additional
Issued and of common Paid in Treasury Accumulated
Outstanding Stock Capital Stock Deficit Total
----------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
AlphaCom, Inc.
and subsidiary 8,025,000 $ 8,025 $ -- $ -- $ -- $ 8,025
Alpha Beta
Communica-
tions, Inc. 749 250,150 3,814 -- (364,299) (110,335)
------------ ---------- ----------- ---------- ------------ ------------
8,025,749 $ 258,175 $ 3,814 $ -- $ (364,299) $ (102,310)
============ ========== =========== ========== ============ ============
</TABLE>
As noted in Note 16, AlphaCom has authorized common shares of 60,000,000.
Alpha Beta Communications, Inc. has authorized common shares of 750.
Treasury shares at December 31, 1998 consist of 62 shares of Alpha Beta
Communications, Inc. acquired in connection with the Limited Asset Purchase
described in Note 2.
8. OPERATING LEASE COMMITMENTS:
AlphaCom is obligated under non-cancelable leases for the use of the
operating facility, an automobile and a copier. The leases expire at
various dates through 2001 and the facility lease allows for two one-year
renewals beginning in December 1999. Certain of the leases require the
lessee to bear the cost of insurance and maintenance.
Approximate future minimum obligations under non-cancelable lease
commitments for years ending December 31 are as follows:
<TABLE>
<S> <C>
1999 $ 44,400
2000 7,200
2001 900
---------
$ 52,500
=========
</TABLE>
Rent expense was approximately $44,000 and $18,100 in 1998 and 1997,
respectively.
9. INCOME TAXES:
The following reconciles income taxes (benefit) reported in the
consolidated combined financial statements to taxes that would be obtained
by applying the U.S. federal statutory rate to loss before income tax
(benefit) at December 31, 1998 and 1997:
F-27
<PAGE> 62
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS, Continued
--------
<TABLE>
<CAPTION>
9. INCOME TAXES: (Continued)
1998 1997
---- ----
<S> <C> <C>
Expected taxes (benefit) using statutory rate of 34% $ (673,368) $ (123,036)
Non-deductible expenses 2,237 --
Taxable gain on limited asset purchase 106,635 --
Deductible expenses (5,116) --
State income tax benefit (96,499) (20,844)
Other (1,889) (120)
Increase in valuation allowance 668,000 144,000
---------- ----------
Benefit of income taxes $ -- $ --
========== ==========
The deferred tax assets consist of the following components:
Deferred federal short-term tax asset $ 2,000 $ --
Valuation allowance (2,000) --
---------- ----------
Total deferred short-term tax asset $ -- $ --
========== ==========
Deferred federal long-term tax asset $ 695,000 $ 123,000
Deferred state long-term tax asset 118,000 21,000
Deferred federal long-term tax liability (3,000) --
Valuation allowance (810,000) (144,000)
---------- ----------
Total deferred long-term tax asset $ -- $ --
========== ==========
</TABLE>
Federal and state deferred tax assets related to net operating loss
carryforwards are approximately $661,000 and $112,000, respectively. The
federal net operating loss may be carried forward for twenty years while
the state net operating loss may be carried forward for fifteen years. As
discussed in Note 14, the Company is a development stage entity. As such,
the Company lacks an operating history and therefore, a valuation allowance
has been recorded to offset the deferred tax assets and the benefit of
income taxes. Actual results could differ from this estimate.
10. RELATED PARTY TRANSACTIONS:
Certain key officers of AlphaCom have agreed to defer a percentage of their
compensation until such time as AlphaCom completes its anticipated public
offering. Amounts deferred through December 31, 1998 and 1997 totaling
$101,300 and $31,500, respectively, have been included as current
liabilities in the accompanying consolidated financial statements.
Additionally, as of December 31, 1998, AlphaCom has advanced $5,710 to
employees.
See Notes 2, 4, and 5 for discussion of other related party transactions.
11. JOINT VENTURE AND INVESTMENT AGREEMENTS:
In May 1998, AlphaCom entered into an agreement with a corporation to
establish a joint venture to use, develop, market and/or resell certain
proprietary data transmission technology developed by the corporation.
AlphaCom will own 51% of the joint venture, with the corporation owning the
remaining 49%. Use of the joint venture's technology by end users will
require certain royalties to be paid to the joint venture. As of December
31, 1998, the joint venture has not commenced operations. AlphaCom's and
the joint venture's future operations are dependent on the effectiveness of
this technology and the continuation of this agreement.
F-28
<PAGE> 63
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS, Continued
--------
11. JOINT VENTURE AND INVESTMENT AGREEMENTS: (Continued)
AlphaCom also has an agreement whereby it will invest $705,000 directly
into the corporation. In accordance with the agreement, as of December 31,
1998, AlphaCom has advanced $205,000 on this investment and no shares of
the corporation have been issued to AlphaCom. AlphaCom is to remit the
remaining $500,000 commitment upon the completion of its public offering,
at which time the corporation will issue shares to AlphaCom.
12. COMMITMENTS AND CONTINGENCIES:
AlphaCom has entered into two commitments with a software provider. The
first commitment requires AlphaCom to acquire 40,000 units of software at a
total cost of $1,080,000. As of December 31, 1998, $10,000 has been
deposited on this commitment and no units have been acquired. The second
commitment requires AlphaCom to acquire 15,000 units of other software at a
total cost of $945,000. As of December 31, 1998, no money has been paid on
this commitment and no units have been acquired.
AlphaCom has an agreement with an entity whereby the other entity will
provide consulting services to AlphaCom, Inc. and Subsidiary. As a result
of this agreement, AlphaCom, Inc. is required to pay $124,000 and to issue
124,000 shares of its stock to the consulting entity for services rendered.
As of December 31, 1998, no such services have been rendered and,
accordingly, no funds or shares have been provided to the consulting
entity. In December of 1999, the Agreement was renewed and amended to
provide for a clarification of consulting services to be provided and the
issuance of 73,800 shares of stock of AlphaCom due for current and future
services.
AlphaCom has an agreement with an internet service provider whereby it will
provide internet access to AlphaCom's customers at a fixed monthly fee.
Under the terms of the agreement, AlphaCom is required to sell 25,000 IDT
internet access accounts. As of December 31, 1998 no such accounts have
been sold.
In November, 1999, AlphaCom entered into consulting and stock purchase and
option agreements with a company. The stock purchase and option agreement
provides for the sale of 20,000 common shares of AlphaCom at $5.00 per
share and an option to purchase up to 980,000 shares at $5.00 per share
during the twelve months following the agreement.
See Notes 2 and 10 for discussion of other commitments.
13. RESEARCH AND DEVELOPMENT COSTS:
Research and development costs related to both future and present products
are charged to operations as incurred. The Company recognized approximately
$844,200 and $16,900 of research and development costs during the years
ended December 31, 1998 and 1997.
14. DEVELOPMENT STAGE ENTITY:
AlphaCom was formed in December 1997 to distribute high-technology
communication products and services to consumers who utilize the internet.
Activities since that time have primarily been devoted to raising capital,
obtaining financing, product development and administrative functions. The
future viability of AlphaCom is dependent upon its ability to successfully
obtain sufficient capital and market acceptance of its products. AlphaCom
has developed operating plans based upon levels of cash flows and financing
ultimately achieved. There can be no assurance that AlphaCom will achieve
or sustain profitability or positive cash flow from its operations, which,
if not achieved, will materially adversely affect AlphaCom's business,
operating results and financial condition.
F-29
<PAGE> 64
NOTES TO CONSOLIDATED COMBINED FINANCIAL STATEMENTS, Continued
--------
15. IMPACT OF YEAR 2000:
Some of AlphaCom's computer programs may have been written using two digits
rather than four to define the applicable year. As a result, those computer
programs may have time-sensitive software that recognize a date using "00"
as the year 1900 rather than the year 2000. This could cause a system
failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices or engage in similar normal business activities.
AlphaCom is utilizing both internal and external resources to identify,
correct or reprogram, and test the systems for year 2000 compliance.
16. INCREASE IN AUTHORIZED COMMON STOCK:
On May 6, 1999, AlphaCom's stockholders held a special meeting where they
approved an increase in the number of authorized AlphaCom, Inc. common
shares from 20,000,000 to 60,000,000. This transaction had no effect on the
number of common shares outstanding or the par value of the common shares.
F-30
<PAGE> 65
================================================================================
- --------------------------------------------------------------------------------
No dealer, salesperson or any other person is authorized to give any information
or to make any representations in connection with this Prospectus and, if given
or made, such information or representations must not be relied upon as having
been authorized by us. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the securities offered
by this Prospectus, or an offer to sell or solicitation of an offer to buy any
securities by anyone in any jurisdiction in which such offer or solicitation is
not authorized or is unlawful. The delivery of this Prospectus shall not, under
any circumstances, create any implication that the information herein is correct
as of any time subsequent to the date of the Prospectus.
- --------------------------------------------------------------------------------
Until October 31, 2000 all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
TABLE OF CONTENTS
Summary ..............................................................5
Our Company ..........................................................5
Risk Factors .........................................................7
Management Discussion of Analysis of Condition
and Results of Operations ............................................9
Year 2000 Readiness Disclosure ......................................12
Use of Proceeds .....................................................14
Capitalization ......................................................16
Dilution ............................................................16
Business ............................................................18
Selling Securityholders .............................................26
Principal Shareholders ..............................................27
Management ..........................................................27
Certain Transactions ................................................30
Description of Securities ...........................................31
Shares Eligible for Future Sale .....................................32
Available Information ...............................................33
Dividend Policy .....................................................34
Stock Transfer Agent ................................................34
Experts .............................................................34
Legal Matters .......................................................34
Index to Financial Statements ......................................F-1
<==============================================================================
ALPHA COM, INC.
5,020,000
SHARES COMMON STOCK
(PAR VALUE $.001 PER SHARE)
[LOGO ALPHACOM]
AlphaCom, Inc.
1035 Rosemary Boulevard
Akron, Ohio 44306
__________, 2000
================================================================================
<PAGE> 66
Part II-INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The information required by this item is incorporated by reference to
"indemnification" in the prospectus herein.
At present we have not entered into individual indemnity agreements
with our Officers or Directors. However, our By-Laws and Certificate of
Incorporation provide a blanket indemnification that we shall indemnify, to the
fullest extent under Nevada law, our directors and officers against certain
liabilities incurred with respect to their service in such capabilities. In
addition, the Certificate of Incorporation provides that the personal liability
of our directors and officers and our stockholders for monetary damages will be
limited.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933, as amended,
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by us of expenses incurred or
paid by a director, officer or controlling person in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, we will,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933, as amended, and we will be governed by the final adju-
dication of such case.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC Registration Fee $ 5,949.20
Blue Sky Fees and Expenses $ 10,000.00
Legal Fees and Expenses $ 16,000.00
Printing and Engraving Expenses $ 5,000.00
Accountant's Fees and Expenses $ 30,000.00
------------------
Total $ 66,949.20
The foregoing expenses, except for the SEC fees, are estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
(a) Unregistered Securities Sold within the past three years
The following sets forth information relating to all
previous sales of common stock by the Registrant
which sales were not registered under the Securities
Act of 1933.
Pursuant to the asset acquisition of Alpha Beta in
July, 1998, we issued 1,653,354 shares, which were
exempt from regis-
<PAGE> 67
tration under Section 4(2) of the Securities and
Exchange Act since it was an exchange of assets
between corporations. A copy of the contract is
incorporated by reference from the exhibits in the
SB-2 registration statement.
Pursuant to a public offering of securities effected
between July 27, 1998 and September 9, 1998, we
issued 750,000 shares, at a price of $1.00 per share,
for an aggregate consideration of $750,000. There
were no brokers or underwriters. No sales commissions
were paid in connection with the offering. The
foregoing purchases and sales were exempt from
registration under the Securities Act pursuant to
Rule 504 of Regulation D on the basis that the
transactions involved a public offering of less than
$1,000,000.
Pursuant to a private placement of securities
effected between October 8, 1998 and June 8, 1999, we
sold 250,000 shares to 20 investors, each of whom
subscribed to purchase the shares, at a price of
$1.00 per share, for aggregate consideration of
$250,000. There were no brokers or underwriters. No
sales commissions were paid in connection with the
offering. The foregoing purchases and sales were
exempt from registration under the Securities Act
pursuant to Rule 506 of Regulation D on the basis
that subscriptions for the offering were not
solicited by advertising to the public and the
transactions were private.
All investors had the opportunity to ask questions
and receive answers from all of our officers,
directors and employees. In addition, they had access
to review all of our corporate records and material
contracts and agreements.
<PAGE> 68
<TABLE>
<CAPTION>
(i) List of persons to whom the public offering securities were sold.
- ---------------------------------------------------------------------
Between July 27, 1998 and September 9, 1998
<S> <C> <C>
Acuman Investment Group Mary Ann Jacob Joseph T. Shuster
Troy D. Allen Brett Job Glenn Silverhart
M. Michael Allison Shyam Joshi Jagdish Singh
Alfred Isaac Bageya Cynthia A. Kalman Dorothy M. Sprosty
Shane C. Bailey Andrew Kazmer Ronald R. Sprosty
BC Stone (BC Stone Partners) Trishia M. Sprosty
Rene Becker Peter D. King James Stamp
David P. Bell Brian Kirin Joel W. Stamp
Dan Berkley Steven J. Kosko Willard J. Stamp
Marlene Blaszczyk Chris Kulpinski Thomas J. Terry III
Henry M. Bockman Joseph Lechiara Thomas E. Tomasik
Thomas P. Bonacuse Barbara E. Lee Bac H. Tran
Stacy M. Brandt David Leslie Alan R. Trevarthen
Brimfield (Brimfield Fabrication) Kinson & Victoria Tso
Kevin S. Broderick Jerry Leslie Frank S. Turkovich
Brad Byler Paul D. Loftus Gary A. Viar
Santkumar Chopra Derrick S. Long Rich Vincenti
Mary Ann and George Cloos Rocco Lucadamo Garfield E. Vogen
Brian Cole Sharif Marzouk Frank A. Wahl
Joan Colling Dianne L. McCarthy Marjorie B. Webb
Travis L.Collins Kerri Meeks Michael T. Welsh
Russell A. Cramer Jr. Karen Mendenhall Bradley A. Wertz
Steven R. Cross Juanita Miller Brian E. Wertz
Lee Ann Daher Julie Murray Jonathan R. Wertz
Philip C. Davis Joann Nonno Wertz Enterprises, Inc.
Jon Jacobson & Sharon Denzel Ormsbee (Ormsbee Enterprises)
Donald W. Ellis Jimmy Pappas James T. White
Bill Fernald David C. Parks II Terry A. White
Max & Lisa Fink Barrett F. Parris Robert H. Wilkins III
Richard T. Fontanesi John L. Pearl Charles R. Williams
James Fryar Robbie Pendleton, Jr. Anthony K. Wilson
Masc A. Fugarino Sean A. Wilson Sheila P. Kelley
Luis J. Garcia Robert J. Phillips Sean Wilson
David R. Gorby Nathaniel M. Pine Jeffrey D. Zadra
Ted Gottschallk Edwin J. Pivcevich Jeffrey Dean Zadra II
Richard Grobman Stephen Porter Norbert Seidel
Donald Gross Ken Pridore Mark A. Shapiro
James Gryck Ardith L. Ries Dennis Sega
Gloria Muriel Hall Charles G. Salter Thomas M. Herman
Daniel J. Hardee Nick Santillo Joseph D. Horning
Willie G. Harrison A. Frank Sapper Andrew Inboden
Christine Henry Dr. Baldwin Sawyer Andrew J. Herman
June M.Schaut Shema (Shema Development)
Bruce G. & Lynn Davis Herphy
Daniel L. & Carol D. Petke
(ii) List of persons to whom the private placement offering securities were sold.
- ---------------------------------------------------------------------------------
Between October 8, 1998 and June 8, 1999
</TABLE>
Richard Brandt accredited
Bruce Clement accredited
<PAGE> 69
I. James Cummings sophisticated
Mary Dreiman accredited
Boris Goldstein accredited
Gilbert Hamrick, Jr. accredited
James Heiser accredited
Jimmy Pappas accredited
David Peters sophisticated
Steve Peters sophisticated
Daniel Peters, Sr. sophisticated
John Piscitelli, III accredited
John Piscitelli, Jr. accredited
William R. Shellhase, II accredited
Shema Development accredited
Joel W. Stamp accredited
Willard Stamp accredited
David Styer sophisticated
Bac Tran accredited
Edward J. Unaitis accredited
(iii) November, 1998
The Board of Directors authorized the issuance of 124,000 shares in
connection with a consulting contract for services rendered by ITM. A copy of
the contract is incorporated by reference from the exhibits in the SB-2
registration statement.
(iv) THE FOLLOWING TABLE SETS FORTH THE NAME OF EACH SELLING SHAREHOLDER AND
THE NUMBER OF THEIR SHARES BEING SOLD IN CONNECTION WITH THIS OFFERING.
NAME Number of Shares
Jack DeVrieze 20,000
TOTAL 20,000
<PAGE> 70
ITEM 27. - EXHIBITS
Index to Exhibits
- --------------------------------------------------------------------------------
SEC REFERENCE TITLE OF DOCUMENT LOCATION
NUMBER
- --------------------------------------------------------------------------------
1.1 Subscription Agreement This filing page
- --------------------------------------------------------------------------------
3.1 Articles of Incorporation Previously Filed
w/certification by J.M. Lechiara
- --------------------------------------------------------------------------------
3.2 Amended Articles of Incorporation Previously Filed
- --------------------------------------------------------------------------------
3.3 Bylaws Previously Filed
- --------------------------------------------------------------------------------
10.1 Form of Sales Agreement Previously Filed
for Internet Service Subscribers
- --------------------------------------------------------------------------------
10.2 Limited Asset Purchase Agreement(s) Previously Filed
dated July 2, 1998 by and between
AlphaCom, Inc. and stockholders of
Alpha Beta Communications, Inc.
- --------------------------------------------------------------------------------
10.3 Lease Agreement on the premises Previously Filed
1035 Rosemary B'lvd., Akron, Ohio
- --------------------------------------------------------------------------------
10.4 Addendum to Lease Agreement This filing
at 1035 Rosemary B'lvd., Akron, Ohio page
- --------------------------------------------------------------------------------
10.5 Preliminary Agreement, with ITM Previously Filed
to establish a joint venture.
- --------------------------------------------------------------------------------
10.6 Consulting Agreement with ITM This filing page
- --------------------------------------------------------------------------------
10.7 Joint Venture agreement with Previously Filed
American Millennium Corporation, Inc.
- --------------------------------------------------------------------------------
10.8 Contract with C-View Previously Filed
Technologies, Inc.
- --------------------------------------------------------------------------------
10.9 Addendum to Contract with This filing
C-View Technologies, Inc. page
- --------------------------------------------------------------------------------
10.10 Escrow and Subordination This filing
Agreement (Lockup) page
- --------------------------------------------------------------------------------
10.11 Escrow Agreement This filing page
- --------------------------------------------------------------------------------
23.1 Consent of Spector This filing
& Saulino, L.L.C., CPAs page
- --------------------------------------------------------------------------------
23.2 & Consent of Miles Garnett, Esq. This filing
5.1 page
- --------------------------------------------------------------------------------
27.1 Financial Data Schedule This filing page
- --------------------------------------------------------------------------------
<PAGE> 71
ITEM 28. UNDERTAKINGS
The undersigned registrant undertakes:
(1) To file, during any period in which offer or sales are being made, a
post-effective amendment to this registration statement
To include any prospectus required by section I O(a)(3) of the
Securities Act of 1933;
To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment) which, individually or in the
aggregate, represent a fundamental change in the information
in the registration statement;
To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to the information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of securities at that time shall be deemed to be the
initial bona fide offering.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission any supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred to that section.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to our certificate of incorporation or provisions of
Nevada law, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission the indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. If a claim for
indemnification against liabilities (other than the payment by the Registrant)
of expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit, or proceeding is
asserted by a director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of our
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether the indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of the issue.
<PAGE> 72
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, this
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on our behalf by the undersigned, in the City of Akron,
State of Ohio, on , 1999.
(Registrant) ALPHACOM, INC.
--------------
By
----------------------------------------
Robert Snyder, President and
Chairman of the Board of Directors
In accordance with the Securities Act of 1933 this registration was
signed by the following persons in the capacities and on the dates indicated.
(Signature)
----------------------------------------
Dennis Snyder
Vice President of Customer Service
(Date)
----------------------------------------
(Signature)
----------------------------------------
Barry Gilliland
Vice President Administration
(Date)
----------------------------------------
(Signature)
----------------------------------------
Joseph Lechiara
Chief Financial Officer
(Date)
----------------------------------------
(Signature)
----------------------------------------
(Type or Print Name)
(Title)
----------------------------------------
(Date)
----------------------------------------
Who must sign: the small business issuer, its principal executive
officer or officers, its principal financial officer, its controller or
principal accounting officer and at least the majority of directors or
persons performing similar functions.
<PAGE> 1
Exhibit 1.1
For Office Use Only:
Broker/Dealer Name & Address Investor:
-----------------------------
Investor #:__________________
[LOGO]ALPHACOM
Tomorrow's Communications... Today!
SUBSCRIPTION AGREEMENT
FOR
ALPHACOM, INC.
FORM SB-2 OFFERING
COMMON STOCK ($5.00 PER SHARE)
Persons interested in purchasing shares of the Common Stock of AlphaCom, Inc.
(the "Shares") must complete and return this Subscription Agreement along with
their check or money order to:
ALPHACOM, INC.
1035 ROSEMARY BOULEVARD; SUITE I
Akron, Ohio 44306, ("the Issuer") ("the Company")
Subject only to acceptance hereof by the issuer, in its discretion, the
undersigned hereby subscribes for the number of Common Shares and at the
aggregate subscription price set forth below.
An accepted copy of this Agreement will be returned to the Subscriber as a
receipt, and the physical stock certificates shall be delivered to each Investor
within thirty (30) days of the Close of this Offering.
SECURITIES OFFERED - The Company and selling shareholders are offering
5,020,000 shares (par value $.001 per share) of Common Stock at $5.00 per share.
MINIMUM SUBSCRIPTION - In connection with this subscription the
undersigned hereby subscribes to the number of Common shares shown in the
following table.
ALL SUBSCRIBERS - The Minimum Subscription is 100 shares and
the maximum subscription is 10,000 shares.
NUMBER OF COMMON SHARES = ______________________
MULTIPLY BY PRICE OF SHARES x $5.00 Per Share
------------------------
AGGREGATE SUBSCRIPTION PRICE ________________________
Check or money order shall be made payable to ALPHACOM, INC.
<PAGE> 2
In connection with this investment in the Company, I represent and warrant as
follows:
a) Prior to tendering payment for the Shares, I received a copy of and read your
Prospectus dated __________________, 2000.
b) I am a bona fide resident of the state of ___________________________.
c) The Issuer and the other purchasers are relying on the truth and accuracy of
the declarations, representations and warranties herein made by the
undersigned. Accordingly, the foregoing representations and warranties and
undertakings are made by the undersigned with the intent that they may be
relied upon in determining his/her suitability as a purchaser. Investor agrees
that such representations and warranties shall survive the acceptance of
Investor as a purchaser, and Investor indemnifies and agrees to hold harmless,
the Issuer and each other purchaser from and against all damages, claims,
expenses, losses or actions resulting from the untruth of any of the warranties
and representations contained in this Subscription Agreement.
Please register the Shares which I am purchasing as follows:
Name: _______________________________________ Date:_____________________________
As (check one)
[_] Individual [_] Tenants in Common [_] Existing Partnership
[_] Joint Tenants [_] Corporation [_] Trust
[_] Minor with adult custodian under the Uniform Gift to Minors Act
For the person(s) who will be registered shareholder(s):
- ------------------------------------------- -----------------------------------
Signature of Subscriber Residence Address
- ------------------------------------------- -----------------------------------
Name of Subscriber (Printed) City or Town
- ------------------------------------------- -----------------------------------
Signature of Co-Subscriber State Zip Code
- ------------------------------------------- -----------------------------------
Name of Co-Subscriber (Printed) Telephone
- ------------------------------------------- -----------------------------------
Subscriber Tax I.D. or Co-Subscriber Tax I.D. or
Social Security Number Social Security Number
- -------------------------------------------
E-mail Address (if available)
- --------------------------------------------------------------------------------
ACCEPTED BY: ALPHACOM, INC.
By: Date
------------------------------ -----------------------------------
Officer
<PAGE> 1
Exhibit 10.4
Addendum "B"
to the Lease dated April 14, 1997 for 1035 Rosemary Blvd., Suite I, Akron OH
44306 by and between John J. Piscitelli Jr.(Lessor) and Alpha Beta
Communications(Lessee).
John J. Piscitelli, Jr. (Lessor) and Alpha Beta Communications(Lessee) ACCEPT
AND AGREE to the "Assignment" of the Lease as described above (including
Addendums "A" and "B") to AlphaCom, Inc. from Alpha Beta Communications
effective as of the date of last execution as indicated below.
Lessor and Lessee ACCEPT AND AGREE that as of 9/1/98, AlphaCom, Inc.(Lessee)
shall lease end be given occupancy of Suite A, I, & J.
The monthly rental amount shall be as follows:
9/15/98 - 12/14/98: $2,215.00/month
12/15/98 - 12/14/99: $3,100.00/month
Lessee shall have Two - One year Options to Renew the Lease with Three(3)
months notice in writing to Lessor. The monthly rental amount snall be as
follows:
12/15/99 - 12/14/2000: $3,200.00/month
12/15/2000 - 12/14/2001: $3,300.00/month
All other terms and conditions of the original lease agreement shall be in full
force and effect.
AGREED AND ACCEPTED BY:
/s/ John J. Piscitelli, Jr. 10-15-98 /s/ Bob Snyder Sept. 28, 1998
- ------------------------------------ -------------------------------
John J. Piscitelli, Jr. (Lessor) Alpha Beta Communications
(Assignor - Lessee)
/s/ Bob Snyder Oct. 15, 1998
-------------------------------
AlphaCom, Inc. (Assignee-
Leasee)
Prepared by John J. Piscitelli, Jr.:/s/ John J. Piscitelli 10-15-98
<PAGE> 1
Exhibit 10.6
December 2, 1999
Mr. Robert Snyder
President/CEO
AlphaCom Communications
1035 Rosemary Blvd., Suite I
Akron, Ohio 44306
Ref: Amended and Restated Retainer Agreement
Dated November 27, 1998
Sub: International Consulting Agreement
Client: AlphaCom Communications
Dear Robert;
This letter confirms the terms and conditions upon which Mr. Bob Snyder,
President of the above mentioned Company agrees to appoint International Techno
Marketing, Ltd., and/or its assigns as representative herein referred to as ITM,
its exclusive agent with respect to the development of the Company's request to
produce International sales and marketing activities. ITM shall perform services
as requested by Robert Snyder.
ITM shall serve as the International Consultant for the Company and advise as
requested on such matters as economic development, design and implement
strategies for International development, market research, due diligence,
licensing, product and service marketing/sales programs, USA government agency
support and International credit enhancements and contract negotiations.
In consideration of the above services the Company agrees to the following:
The Chief Executive Officer of ITM or his assigns will be given the
title of Director of International affairs for the Company. Upon completion of
an IPO, the Company agrees to negotiate an employment contract with ITM for the
position of Director of International Affairs.
FEES:
- -----
Upon signing this binding agreement, the Company shall agree to remit Twenty
Thousand Dollars (US$20,000.00) and Twenty Thousand (20,000) shares of the
Company's Common shares (144 stock) to Jack Craciun/ITM as a token retainer
payment. The cash payment will be due and payable by the Company immediately
upon the completion of any Interim financing arrangement originated through the
efforts of ITM.
Upon signing this binding agreement, the Company will remit to Jack Craciun/ITM
US$1,000 cash per week (minimum required cash payment per week - $300.00), and
1,000 shares of the Company's Common shares per week. The accrued cash payment
will be due and payable by the Company immediately upon the completion of an
IPO. These payments are to begin on Friday December 4, 1998 and will continue
for a two year period. The Company and ITM may agree at any time during the term
of this agreement that the Company may issue any or all of the balance of shares
due ITM pursuant hereto, in advance, based upon the performance of ITM. The
share disbursement list is hereto attached as Exhibit A.
Any out of pocket expenses will be paid for by the Company on a pre approved
basis.
RENEWALS:
- ---------
This Agreement is automatically renewed subject to the Termination clause of
this consulting agreement.
<PAGE> 2
TERMINATION:
- ------------
ITM's engagement herein may be terminated at anytime by the Company upon thirty
(30) days' prior formal written notice thereof to ITM, after completion of the
first year payment terms described in the Fee section of this agreement.
However, (a) any termination or completion of ITM's engagement herein shall not
affect the Companies continuing obligation to indemnify ITM as provided above
and (b) if any structured licensing, sales program, etc. are still ongoing,
within twelve (12) months of the termination of this agreement, the Company will
continue to pay, ITM the fees stated herein.
Should ITM's engagement herein be terminated at any time by the Company, as
provided for herein, the Company irrevocably and unconditionally agrees to abide
by the Termination Clause and that such termination is not used as a means to
avoid payment to ITM of all fee income due and owing as provided for herein.
If the Company employees Jack Craciun as Director of International Affairs, as
discussed elsewhere herein, this consulting agreement is automatically
terminated.
ARBITRATION:
- ------------
This agreement, which incorporates the entire understanding with respect to the
engagement of ITM by the Company, shall be governed by and construed and
enforced in accordance with the laws of the State of Ohio as may be applicable
to the contracts made and to be performed in the State of Ohio, notwithstanding
the fact that ITM is neither a corporation resident not doing business in the
State of Ohio. Any dispute or controversy between the party's hereto arising out
of or related to the endorsement of this agreement shall be settled by final
binding arbitration to take place in the State of Ohio.
The Company and ITM shall appoint one (1) arbitrator and the two (2) arbitrators
shall jointly appoint a third (3rd), neutral arbitrator, and the three (3)
shall hear and determine any claim in accordance with the rules of the American
Arbitration Association.
DISCLAIMER:
- -----------
The Company agrees that nothing contained herein shall constitute a commitment
to underwrite, purchase or place securities related to any project financing and
that any financing activity requested to ITM by the Company shall be undertaken
on a best efforts basis only.
STANDARD OF CARE:
- -----------------
ITM and the Company shall only be chargeable with the exercise of good faith in
carrying out the provisions, terms and conditions stipulated herein. It is
agreed that neither party shall incur any liability except for willful gross
misconduct or gross negligence so long as they have acted in good faith. Neither
party shall be bound by any modifications, amendments, termination,
cancellations, recessions or suppressions of this agreement unless the same is
in writing and signed by the parties hereto.
All agreements shall be executed in original hard copy form.
Please confirm that the foregoing is in accordance with your understanding and
agreement with ITM by signing and returning the document to the undersigned.
<PAGE> 3
CONFIDENTIALITY:
- ----------------
The Company shall supply ITM with any relevant non-financial information
reasonably requested by ITM in connection with International Operations. The
Company acknowledges that, in performing its services, ITM shall be relying on
information supplied to it by the Company (collectively referred to as
"information") and that ITM shall not assume responsibility for the accuracy and
completeness of the information, nor shall ITM undertake to independently verify
the information. All information supplied by the Company to ITM shall be deemed
private, insider information and strictly confidential and the property of the
Company.
Such private, insider information and strictly confidential non-financial
information may be given to ITM associates at ITM's own risk. Any financial
information obtained by consultant while on the premise of the Company SHALL NOT
be passed on to any associate, potential investors etc. Any information provided
by ITM to outsiders, must first be approved in writing by the CFO of the
Company.
DISCLOSURE:
- -----------
The Company shall be solely responsible for the preparation of any disclosure
documents in any license, products and/or services, related to the project and
represent that such documentation will not contain any untrue statement of any
material fact, nor will the Company omit to state material facts such as to make
said documentation misleading, in light of the circumstances within which such
documents are proffered.
INDEMNIFICATION:
- ----------------
The Company and ITM hereby agree to indemnify each other and hold each other
harmless within the meaning of Section 15 of the U.S. Securities Act of 1933, as
amended, or Section 20 of the U.S. Securities Exchange Act, as amended, so as to
hold each Indemnified Person harmless from and against any and all losses.
Liabilities, claims, damages and expenses of legal counsel relating to or
arising from any untrue statement or alleged untrue statement of a material fact
or information taken out of context, whether oral or written, contained in any
offering memorandum or any information or other documentation made available to
outsiders.
Notwithstanding the foregoing, the Company and ITM shall not be obligated to
indemnify any Indemnified Person covered above, with respect to any claim,
liability, loss, damage or legal expense that is finally judicially determined
to have arisen primarily from any action or failure to act by such Indemnified
Person (other than an action or failure to act undertaken at the request of the
Company and ITM or with the consent of the Company and ITM) constituting willful
misconduct or negligence.
The foregoing agreement shall be in addition to any rights that any indemnified
Person may have at common law or otherwise, including but not limited to any
rights of contribution, shall remain in full force and effect after and shall
survive any termination or expiration of the terms and conditions of this
agreement or the completion of the services of any Indemnified Person.
NON-CIRCUMVENTION:
- ------------------
The Company agrees that all individual, corporate and banking introductions,
documentation, knowledge, skill and experience made by ITM have been developed
by ITM for the benefit of any qualified Applicant Client including, but not
limited to the Company and as such the Company, unconditionally agree not to
circumvent ITM for the duration of this agreement as a means to avoid making fee
payments to ITM if closure and settlement is made. ITM agrees that contact with
individuals or companies provided to ITM by the Company, for the purpose of a
possible agreement, shall not be used by ITM to further any non-AlphaCom
related Applicant Client.
Should ITM's engagement herein be terminated at any time by the Company, as
provided for herein, the Company irrevocable and unconditionally agrees to abide
by the Non-circumvention clause for a period of five years.
<PAGE> 4
Yours sincerely, ALPHACOM COMMUNICATION
By: /s/ Jack Craciun III By: /s/ Robert Snyder
Mr. Jack Craciun III Mr. Robert Snyder
Chairman/CEO President and CEO
ITM Group
Dated 12/5/99 Dated 12/10/99
-------- --------
<PAGE> 1
Exhibit 10.9
AGREEMENT
October 15, 1998
For and in consideration of the mutual promises contained herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, C.View Technologies, Inc. and AlphaCom Inc. agree as follows:
1) AlphaCom Inc. shall take delivery of 15,000 units of the Professional Version
of C.View Mail over a twelve month period commencing on a mutually agreed
upon date in 1999.
2) The price of the Professional Version shall be $63.00 per copy.
3) The total dollar amount is $945,000.00.
4) A 10% deposit of $94,500.00 will accompany the agreement initialization when
the date in section one is determined and accepted by both parties. The
deposit shall be applied to the payment of the first 7500 units.
5) C.View shall implement it's security system to prevent software piracy.
6) AlphaCom Inc. shall bear the costs of CD production and all private label
collateral material.
7) This pricing applies to the Software only in the MPEG 2 or MPEG 4 versions as
required by your customer needs.
8) The specifications are per Attachment #1.
9) In the event that the AlphaCom Inc. compression technique is operable, C.View
will implement said compression into the Professional Version(s) at a cost
not to exceed $7,500.00 at an accountable service rate of $100.00 per hour.
/s/ Robert Snyder /s/ Chas. P. Smith, Jr.
-------------------------- --------------------------------
Robert Snyder, President Chas. P. Smith Jr., President
AlphaCom Inc. C.View Technologies, Inc.
<PAGE> 2
AGREEMENT
October 15,1998
This agreement between C.View Technologies, Inc. and AlphaCom Inc. is an
addendum to the C.View Technologies, Inc. / AlphaCom Inc. agreement dated
August 29, 1998.
For and in consideration of the mutual promises contained herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, C.View Technologies and AlphaCom Inc. agree as follows:
1) The original quantity of 10,000 units of C.View Mail Version 1.1 shall be
increased to 40,000 units delivered over a 12 month period commencing
December 1, 1998.
2) In consideration for this increase, the per unit price shall be reduced to
$27.00 per copy as opposed to the original $35.00 per copy.
3) The total dollar amount is $1,080,000.00. A 10% deposit of $108,000 will
accompany the initialization of this agreement. The deposit shall be applied
to the payment of the first 4,000 units.
4) It is acknowledged that a deposit of $10,000.00 has already been received by
C.View via AlphaCom Inc. check #1177, dated 9/28/98 and shall be applied to
the deposit of $108,000.00, leaving a balance of $98,000.00 due for deposit.
5) C.View shall implement it's security system to prevent the software piracy.
6) AlphaCom Inc. shall bear the costs of CD production and all private label
collateral material.
/s/ Robert Snyder /s/ Chas. P. Smith, Jr.
- --------------------------- --------------------------------
Robert Snyder, President Chas. P. Smith Jr., President
AlphaCom Inc. C.View Technologies, Inc.
<PAGE> 3
ATTACHMENT ONE
October 15,1998
C.VIEW MAIL - PROFESSIONAL VERSION
Technical and format data
CAPTURE AND PLAYBACK: Full motion video at 27-30 frames per second capture and
view. Full screen delivery and still frame capture included.
CAPACITY PER MINUTE: C.View Professional Version less than or greater than 3.5
MB
VIDEO DIGITIZING FORMAT: Compression video encoded at open MPEG-4 Open MPEG-2
optional
VIDEO DECOMPRESSION: Software only Codec
COMPATIBLE COMPUTER ENVIRONMENTS: WIN95, 98 - WIN NT
HARDWARE REQUIREMENTS:
Display card - 16bit Hi Color capability w/overlay
RAM - 16 MB minimum - 32 MB recommended
CPU - WIN 95 - minimum 200 MHz recommended
STANDARD HARDWARE OPTIONS/NEEDS (EXTRA COST):
Video Capture card with Analog Camera
External plug to EPC parallel port video capture
External PCMCIA card for laptop with analog camera
<PAGE> 4
C.VIEW
TECHNOLOGIES, INC.
- ------------------
August 29, 1998
Robert Snyder
Alphacom, Inc.
1035 Rosemary Blvd. Ste. 1
Akron, Ohio 44360
Dear Mr. Snyder
C.View Technologies, Inc. is pleased to submit the following agreement to you
for the purpose of Alphacom, Inc. to resell the Cview Mail product line.
In the case of Alphacom Private Label your cost is $35.00 per unit for a
quantity of 10,000 systems. You will establish your own reselling pricing
structure to suit your corporate planning and marketing strategies. With the C.
View label, the cost is $45.00 per unit for the 10,000 system quantity.
The above does not include the camera nor any computer hardware. 10,000 aerial
numbers will be assigned to you for distribution on a scheduled release basis to
suit your requirements. This will allow you to sale the system via the Internet.
With the CD media requirement, the additional cost will be $1.50 per copy. All
private label artwork will be supplied by Alphacom.
The term of this agreement is for the 10,000 units to be delivered over a
15-month time frame, which includes a 3-month ramp-up phase. Deposit is
$10,000.00 with this agreement. The payment schedule will be Net-30 per serial
number or CD release after credit requirements have been established.
/s/ Chas. P. Smith Jr. /s/Dennis Fisher /s/Robert Snyder
- ---------------------- ---------------- ----------------
Chas. P. Smith Jr. Dennis Fisher Robert Snyder
President Agent Director President
C.View Technologies, Inc. C.View Technologies, Inc. Alphacom, Inc.
C.View Technologies, Inc Video Mall and Video Conferencing
[Letterhead]
<PAGE> 1
Exhibit 10.10
ESCROW AND SUBORDINATION AGREEMENT
----------------------------------
THIS AGREEMENT, dated as of December 29, 1999, is entered into by and
between AlphaCom, Inc. (the "Company"), National City Bank, Akron, Ohio (the
"Escrow Agent"), and Robert Snyder, Dennis Snyder, Joseph Lechiara and Barry
Gilliland (the "Shareholders").
The Company has filed a registration statement on Form SB-2/A with the
Securities and Exchange Commission ("Commission") under the Securities Act of
1933 ("Registration Statement"), and a copy of such Registration Statement (File
No. _____________________) with the Ohio Division of Securities (the "Division")
pursuant to the Revised Code. As a condition for the approval of the
Registration Statement by the Division, Shareholders have agreed to escrow
certain shares subject to the terms of this Agreement. The terms of this
Agreement commence upon the effectiveness of the Registration Statement with the
Commission.
Therefore, Shareholders have deposited with the Escrow Agent
certificates evidencing 7,619,819 shares of common stock of the Company and the
Escrow Agent acknowledges receipt thereof. See Exhibit A, incorporated in and a
part of this Agreement, which details the Escrowed Shares.
Therefore, with respect to the Escrowed Shares the parties to this
Agreement agree as follows:
1. The Escrowed Share certificates shall bear the following legend:
These shares are subject to certain restrictions, including escrow and
subordination, and may not be transferred without compliance with the
Escrow and Subordination Agreement, dated December 29, 1999. This
legend may be removed only if the shares are released from escrow by
the terms of the Agreement.
2. The Escrowed Shares shall not be assigned, sold, hypothecated, pledged,
transferred, or otherwise disposed (except by will, descent, or
operation of law) until released from escrow.
3. Except as otherwise provided by this Agreement, any dividend, cash,
stock, or property paid or issued with respect to the Escrowed Shares
and any dividend, cash, stock or property paid or issued with respect
to the Escrowed Shares by reason of any exchange of shares, merger,
consolidation, recapitalization, reorganization or similar business
combination shall be subject to the terms of this Agreement.
4. In the event the Company makes a distribution to its shareholders in
connection with the liquidation, dissolution, bankruptcy, receivership,
or sale of all or substantially all of the Company assets, then before
any distribution is made to Escrowed Shares, the Company shall make a
ratable distribution to all non-escrowed shares in an amount up to
$5.00 (Public Offering Price) per share. Any remaining proceeds shall
be distributed ratably to all shares, including those held in escrow.
If the distribution consists of shares of other non-cash items,
<PAGE> 2
the fair market value of the shares or other non-cash items shall be
valued by an independent appraiser.
5. In the case of a tender offer to purchase all or substantially all of
the Company's outstanding shares, or a merger, consolidation, or
reorganization into an unaffiliated entity, the Escrowed Shares shall
be released from escrow and this Agreement shall be terminated if the
majority of the non-escrowed shares (excluding all shares owned or
controlled directly or indirectly by any officer, director, or person
subject to this Agreement) are voted in favor of such tender offer,
merger, consolidation, or reorganization.
6. Other than as specified by this Agreement, the Shareholder shall have
all beneficial rights of ownership of the Escrowed Shares, including
the right to vote the Escrowed Shares for all purposes.
7. All calculations used in this Agreement shall be adjusted should the
Company make a share dividend or distribution of shares, have a stock
split, have a reverse stock split, or otherwise reclassify its shares.
8. All Escrowed Shares shall be released by the Escrow Agent and this
Agreement shall be terminated when:
a. The Company has provided to the Escrow Agent and the
Commissioner of Securities audited financial statements (per
United States Generally Accepted Accounting Principles
consistently applied and signed by a Certified Public
Accountant) showing fully diluted net earnings, after taxes
and exclusive of extraordinary items, for a period of four
consecutive quarters of at least $.60 per share (12% of Public
Offering Price) or for each of two consecutive periods of four
consecutive quarters of at least $.30 per share (6% of Public
Offering Price); and
b. The Escrow Agent has not received written objection from the
Commissioner of Securities within thirty days of receipt of
such audited financial statements by the Commissioner of
Securities.
9. If the Escrowed Shares are not released pursuant to the terms of
paragraph 8 above, then twenty-five percent of the total amount of
shares originally escrowed shall be released automatically on each of
the fifth, sixth, seventh, and eighth anniversaries of the effective
date of the Registration Statement (File No._). Shares shall be
released ratably to all shareholders subject to this Agreement.
10. Any cash dividends paid on Escrowed Shares and held by the Escrow Agent
pursuant to paragraph (3) shall be released upon termination of this
Agreement.
2
<PAGE> 3
11. Other than as specified by this Agreement, the Escrow Shares shall be
released if the offering has been terminated and (i) no securities were
sold thereto, or (ii) all proceeds from the sale of any securities
thereto were returned to prospective investors.
12. In performing any of its duties, the Escrow Agent shall not incur any
liability for any damages, losses, or expenses, except for willful
default or negligence. It shall not incur any liability with respect to
any action taken or omitted in good faith upon advice of counsel or
counsel for the Company given with respect to the duties and
responsibilities of the Escrow Agent under this Escrow Agreement. The
Escrow Agent may in good faith rely on the truth and accuracy of any
information signed and submitted by proper persons which conforms with
the provisions of this Agreement.
13. The Company and the Shareholders jointly and severally agree to
indemnify and hold harmless the Escrow Agent against any and all
losses, claims, liabilities and expenses, including reasonable costs of
investigation, counsel fees and disbursements, which may be imposed
upon or incurred by the Escrow Agent in connection with its acceptance
of appointment as Escrow Agent.
14. The Escrow Agent's fees for serving as Escrow Agent under this
Agreement shall be paid by the Company.
15. This Escrow Agreement may be executed in any number of counterparts
with the same force and effect as if all parties had signed the same
document.
16. All notices, requests, instructions or other communications required or
permitted to be given under this Agreement shall be given in writing
and delivered by Certified Mail or hand-delivered to all parties to
this Agreement and to the Commissioner of the Ohio Division of
Securities.
17. If the Escrow Agent is unable or unwilling to perform its duties, a new
escrow agent shall be appointed, a new Escrow and Subordination
Agreement (identical in all respects to this Agreement) shall be
entered into, and notice shall be given to the Division. The Escrow
Agent must be satisfactory to the Division.
18. This Agreement sets forth the entire understanding of the parties
hereto with respect to the operations contemplated hereby and may not
be amended except by a written instrument executed by the parties
hereto and consented to by the Commissioner of the Ohio Division of
Securities.
3
<PAGE> 4
19. This Agreement shall be governed by and construed and interpreted in
accordance with the laws of Ohio.
/s/ Bob Snyder 12/29/99
-----------------------------------
Shareholder Date
/s/ Dennis Snyder 12/29/99
-----------------------------------
Shareholder Date
/s/ Barry Gilliland 12/29/99
-----------------------------------
Shareholder Date
/s/ Joe Lechiara 12/29/99
-----------------------------------
Shareholder Date
/s/ Joe Lechiara, CFO 12/29/99
-----------------------------------
Company Date
National City Bank
Akron, Ohio
/s/ Richard Amundsem,
Vice President 12/30/99
-----------------------------------
Escrow Agent Date
4
<PAGE> 5
ESCROW AND SUBORDINATION AGREEMENT
----------------------------------
EXHIBIT A
Shareholder Name and Address Number of Shares Escrowed
Robert Snyder 3,725,000
Dennis Snyder 3,700,000
Joseph Lechiara 101,500
Barry Gilliland 93,319
Company Name and Address
AlphaCom, Inc.
1035 Rosemary Boulevard
Akron, OH 44306
Attention: Robert Snyder, President
Escrow Agent Name and Address
National City Bank
1 Cascade Plaza
Akron, Ohio 44308
Attention: Richard S. Amundsen, Vice President, Trust Department
5
<PAGE> 1
Exhibit 10.11
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Agreement") is made and entered into effective
as of the 29th day of December, by and between National City Bank (hereinafter
referred to as the "Escrow Agent"), and AlphaCom, Inc. (the "Company").
RECITALS
A. The Company has prepared and filed a registration statement on Form
SB-2/A with the Securities and Exchange Commission ("Commission") under the
Securities Act of 1933 ("Registration Statement"), and the Ohio Division of
Securities (the "Division") pursuant to the Revised Code. The Registration
Statement relates to the offering by the Company of a minimum of 434,000 shares
of the Company's common stock ("Common Stock") at an offering price of $5.00 per
share, and 900,000 rescission shares of Common Stock at the price of $1.00 per
share ("Minimum Offering"), for total minimum offering proceeds of $3,070,000
("Minimum Offering Proceeds"). The Company is offering a total of 5,000,000
shares of Common Stock, along with 20,000 shares offered by one of the Company's
founding shareholders (the "Offering").
B. As a condition for the approval of the Registration Statement by the
Division, the Company will establish an escrow fund of offering proceeds with
the Escrow Agent, subject to the terms of this Agreement ("Escrow Fund"). The
terms of this Agreement commence upon the effectiveness of the Registration
Statement with the Commission.
C. If subscriptions and funds for the Minimum Offering are received on
or before August 31, 2000 (the "Offering Termination Date"), the Escrow Fund
will be released and used for the purposes described in Use of Proceeds in the
Registration Statement; the Offering will remain open until August 31, 2000.
D. If the Minimum Subscriptions are not received by the Offering
Termination Date, the Offering will terminate and the funds held by the Escrow
Agent will be returned to the investors pursuant to the terms of this Agreement.
NOW, THEREFORE, for valuable consideration, the adequacy and
sufficiency of which are hereby expressly acknowledged, it is agreed as follows:
1. PURCHASE OF SHARES. In accordance with the terms of the Offering,
each subscriber will purchase a minimum of 100 shares, representing a minimum
investment of $500, and a maximum of 10,000 shares, representing a maximum
investment of
$50,000.
Payments for the Shares shall be delivered by the investor to the
Company along with a fully executed Subscription Agreement. The Company shall
promptly deliver such funds and documents to the Escrow Agent. Any check
received that is made payable to a party other than the Escrow Agent shall be
returned to the investor who submitted such check.
2. ESCROW ACCOUNT AND INVESTMENT OF FUNDS. The Escrow Agent shall
deposit such checks in a segregated account (the "Escrow Account"). The Escrow
Agent shall hold the funds deposited in the Escrow Account and shall invest and
reinvest any part thereof and accumulate the interest and earnings thereon in
such Qualified Investments (as defined below) as the Company shall
<PAGE> 2
direct. The Escrow Agent shall hold and safeguard the Escrow Account during the
term hereof and shall treat such funds as a trust fund in accordance with the
terms hereof. The Escrow Agent shall disburse all amounts deposited in such
accounts, and all interest and earnings thereon, in accordance with the terms of
this Agreement.
The parties to this Agreement acknowledge and agree that the Escrow
Agent and its affiliates may receive fees as a participating depository
institution for services relating to the investment of proceeds in an eligible
money market mutual fund.
3. COLLECTION OF FUNDS. The Escrow Agent is hereby authorized to
forward each check for collection and, upon collection of the proceeds of each
check, deposit the collected proceeds in the Escrow Account. As an alternative,
the Escrow Agent may telephone the bank on which the check is drawn to confirm
that the check has been paid. Any check returned unpaid to the Escrow Agent
shall be returned to the investor who submitted the check. In such cases, the
Escrow Agent will promptly notify the Company of such return.
The parties hereto agree that the Escrow Agent does not assume any
responsibility for the failure of any of the parties to make payments or perform
the conditions of this Agreement as set forth herein, nor shall Escrow Agent be
responsible for the collection of any monies provided to be paid to it.
If the Company rejects any subscription for which the Escrow Agent has
already collected funds, the Escrow Agent shall promptly issue a refund check to
the rejected investor. If the Company rejects any subscription for which the
Escrow Agent has not yet collected funds but has submitted the investor's check
for collection, the Escrow Agent shall issue a refund check to the rejected
investor after the Escrow Agent has cleared such funds. If the Escrow Agent has
not yet submitted a rejected investor's check for collection, the Escrow Agent
shall promptly remit the investor's check directly to the investor.
4. CONDITIONS PRECEDENT TO DISTRIBUTION OF FUNDS. It shall be a
condition precedent to any disbursements from the Escrow Account that:
(i) The Company shall have received Subscription Agreements
for at least the Minimum Offering, and the Escrow Agent shall have
received deposits in "collected funds" equal to at least the Minimum
Offering Proceeds ($3,070,000) prior to the Offering Termination Date.
(ii) Funds for at least the Minimum Offering shall have been
received by the Escrow Agent in "collected funds" (solely for purposes
of determining whether the Minimum Offering has been received, the term
"collected funds" shall mean all funds received by the Escrow Agent
which have cleared normal banking channels and are in the form of
cash).
(iii) Legal counsel for the Company shall have advised the
Escrow Agent in writing that it has been informed by the Company that
all conditions have been satisfied, and the Escrow Agent is authorized
to make disbursements in accordance with the terms of this Agreement.
2
<PAGE> 3
The Company is aware and understands that during the period commencing
with the commencement of the Offering to the date on which the Minimum Offering
is attained, it is not entitled to any funds received into the Escrow Account,
and no amounts deposited in the Escrow Account shall become the property of the
Company or any other entity, or be subject to the debts of the Company, or any
other entity.
Upon satisfaction of the conditions set forth in this Section 4, the
Escrow Agent shall, on behalf of the Company: (i) promptly disburse from the
Escrow Account to the parties and in such sums as may be set forth in a written
document furnished to the Escrow Agent and signed by the Company; (ii) deduct
therefrom its escrow fee, if unpaid; and (iii) thereafter transfer to an account
in the name of the Company, as directed by the Company, the balance of such
proceeds.
5. RETURN OF FUNDS. In the event that the conditions set forth in
clauses (i) and (ii) of the first paragraph of Section 4 of this Agreement have
not been satisfied by the close of business on the Offering Termination Date,
the Escrow Agent shall return all funds deposited with it to each investor whose
funds have been deposited with the Escrow Agent with interest earned thereon. In
such event, the Escrow Agent's fee, if unpaid, shall be paid by the Company; no
deductions, penalty, or expense shall be made from or charged to the funds
deposited by the investors. The funds returned to each investor shall be free
and clear of any and all claims of the Escrow Agent, the Company, or any other
party. The Escrow Agent shall notify the Company of its distribution of the
funds.
6. INVESTMENT OF ESCROW FUND. At the written direction of the Company,
delivered to the Escrow Agent, all or any part of the Escrowed Fund shall be
invested by the Escrow Agent for the account and risk of the Company, in any one
or more Qualified Investments. As used herein, "Qualified Investments" shall
mean (i) cash, (ii) obligations of, or obligations fully guaranteed as to timely
payment of principal and interest by, the United States of America with a
maturity date of one year or less from the date of investment, (iii) shares in
investment companies registered as such under the Investment Company Act of
1940, as amended, which value their assets in accordance with Rule 2a-7 (or any
successor rule) under such Act, including in particular the Armada Money Market
Fund, (iv) certificates of deposit with an investment term of one year or less
from the date of investment with any bank or trust company organized under the
laws of the United States of America or the laws of any state thereof which has
a long term debt rating from Moody's Investor's Service, Inc. ("Moody's") of at
least Aaa or from Standard & Poor's Corporation ("S&P") of at least AAA or as
suggested by the Company and as to which the Snyder shall have given its prior
consent, (v) municipal or corporate bonds with a maturity date of one year or
less from the date of investment and rated at lease Aaa by Moody's or AAA by S&P
or as suggested by the Company and as to which the Company shall have given its
prior consent and (vi) commercial paper with a maturity of not more than thirty
days and rated at least P-1 by Moody's or A-1 by S&P or as suggested by the
Company and as to which the Snyder shall have given its prior consent. The
Escrow Agent shall be, and hereby is, fully empowered to sell any Qualified
Investment purchased by it pursuant to this paragraph in order to provide cash
to make payment required or permitted to be made hereunder by the Escrow Agent.
The Escrow Agent shall not be liable for any loss due to fluctuations in market
rates resulting from a sale of Qualified Investments in accordance with the
previous sentence or penalties incurred because of early redemption. The Escrow
Agent will hold any Qualified Investments purchased by it hereunder without any
responsibility other than for the safe keeping thereof.
3
<PAGE> 4
7. PROCEEDS OF INVESTMENTS. All proceeds received by the Escrow Agent
in respect of any investments of the Escrow Fund shall be added to and become
part of the Escrow Fund and may be invested or reinvested in the manner
permitted by Section 6 hereof.
8. FEES. The Escrow Agent's fee for acting as an Escrow Agent in this
transaction shall be (i) in the event the Minimum Offering is attained by the
Offering Termination Date, $10.00 per receipt and deposit of each subscriber's
funds, but in any event not less than $500.00, for the services to be rendered
hereunder; and (ii) in the event the Minimum Offering is not attained by the
Offering Termination Date, $25.00 per each subscriber for the return and
accounting with respect to each subscriber's funds pursuant to Section 4 hereof,
but in any event not less than $2,500.00. The Escrow Agent shall also be
entitled to receive reimbursement for the costs and expenses it directly incurs
in acting as Escrow Agent hereunder. However, no such fee, reimbursement for
costs and expenses, indemnification for any damages incurred by the Escrow
Agent, or any monies whatsoever shall be paid out of or chargeable to the funds
on deposit in the Escrow Account.
9. RESPONSIBILITIES OF THE ESCROW AGENT. The acceptance by the Escrow
Agent of its duties under this Escrow Agreement is subject to the following
terms and conditions, which the parties to this Escrow Agreement hereby agree
shall govern and control with respect to its rights, duties, liabilities and
immunities:
A. The Escrow Agent shall act hereunder as depository only, and it
shall not be responsible or liable in any manner whatever for the
sufficiency of any amount deposited with it.
B. The Escrow Agent may relay and act upon any instrument or other
writing provided by a duly authorized officer of any of the parties
hereto believed by it in good faith to be genuine, and to be signed or
presented by the proper person, and shall not be liable in connection
with the performance by it of its duties pursuant to the provisions of
this Escrow Agreement, except for its own willful misfeasance, gross
negligence or breach by it of the express terms of this Escrow
Agreement.
C. The Company agrees to indemnify the Escrow Agent for, and to hold it
harmless against, any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Escrow Agent or breach by
the Escrow Agent of the terms of this Escrow Agreement, arising out of
or in connection with its entering into this Escrow Agreement and
carrying out its duties hereunder, including the costs and expenses of
defending itself against any claim of liability.
D. The Escrow Agent may consult with, and obtain advice from, legal
counsel in the event of any question as to any of the provisions hereof
or its duties hereunder, and it shall incur no liability and shall be
fully protected in acting in good faith in accordance with the opinion
and instructions of such counsel. The cost of such services shall be
added to and be a part of the Escrow Agent's fee hereunder.
E. The Escrow Agent shall have no duties except those which are
expressly set forth herein, and it shall not be bound by any notice of
a claim, or demand with respect thereto, or any waiver, modification,
amendment, termination or rescission of this Escrow
4
<PAGE> 5
Agreement, unless in writing received by it, and, if its duties herein
are modified, unless it shall have given its prior written consent
thereto.
F. The Escrow Agent may resign at any time by giving thirty (30) days'
written notice thereof to the Company, but such resignation shall not
become effective until a successor Escrow Agent acceptable to all
parties hereunder shall have been appointed and shall have accepted
such appointment in writing. If an instrument of acceptance by a
successor Escrow Agent shall not have been delivered to the Escrow
Agent within 30 days after the giving of such notice of resignation,
the resigning Escrow Agent may petition any court of competent
jurisdiction for the appointment of a successor Escrow Agent.
G. The Escrow Agent shall prepare and deliver to the Company prior to
termination of this Escrow Agreement a written account describing all
transactions with respect to the escrow.
H. In the event of any disagreement or the presentation of any adverse
claim or demand in connection with the disbursement of the escrow
funds, Escrow Agent shall, at its option, be entitled to refuse to
comply with any such claims or demands during the continuance of such
disagreement and may refrain from delivering any item affected hereby,
and in so doing, Escrow Agent shall not become liable to undersigned or
to any other person, due to its failure to comply with such adverse
claim or demand. Escrow Agent shall be entitled to continue, without
liability, to refrain and refuse to act:
(i) until authorized to disburse by a court order from a court
having jurisdiction of the parties and the money, after which time the
Escrow Agent shall be entitled to act in conformity with such
adjudication; or
(ii) until all differences shall have been adjusted by
agreement and Escrow Agent shall have been notified thereof and shall
have been directed in writing, signed jointly or in counterpart by the
undersigned and by all persons making adverse claims or demands, at
which time the Escrow Agent shall be protected in acting in compliance
therewith.
10. GOVERNING LAW. The validity and interpretation of, and the
sufficiency of performance under, this Agreement shall be governed by Ohio law.
11. NOTICE. Any notices or other communications required or permitted
hereunder shall be sufficiently given if sent by certified mail, postage
prepaid, if to the Company, addressed at the following address: 1035 Rosemary
Blvd., Suite I, Akron, Ohio 44306, 330-785-5555 (telephone), 330-785-2767
(telecopy); and if to the Escrow Agent to: Richard S. Amundsen, Vice President,
Trust Department, National City Bank, 1 Cascade Plaza, Akron, Ohio 44308,
330-375-8349 (telephone), 330-375-8434 (telecopy); or in any case to such other
address as shall be furnished in writing by such party. Such notices or other
communications so given shall be deemed to have been given on the date received.
5
<PAGE> 6
12. LEGAL ADVICE. The Company represents to the Escrow Agent that it
has and shall continue to solicit the advice of its legal counsel regarding
compliance with all applicable state and federal securities laws in connection
with the offer and the sale of the Shares and that it will act in accordance
with such advice. The Escrow Agent shall have no responsibility to ensure
compliance with any such securities laws, and such responsibility rests solely
with the Company. The Escrow Agent makes no representations and has no
responsibilities as to the validity, value or genuineness of the offering or of
the Shares.
13. AUTHORIZATIONS. In no event shall the Escrow Agent be required to
notify or obtain the consent, approval, authorization or order of any court or
governmental body pursuant to the transactions contemplated by the provisions of
this Agreement.
14. COUNTERPARTS. This Agreement may be executed in several
counterparts.
15. AMENDMENT. This Escrow Agreement may be amended or modified only in
a writing executed by each party hereto.
16. DEFINITIONS. Unless otherwise stated herein, defined terms shall
have the meanings ascribed to them in the Registration Statement.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be signed
in their respective names by an officer thereof duly authorized on the date
first above written.
ALPHACOM, INC.
By: /s/ Robert Snyder
------------------------------
Title: President & CEO
----------------------------
NATIONAL CITY BANK
By: /s/ Richard S. Amundsen
------------------------------
Title: Vice President
----------------------------
6
<PAGE> 1
EXHIBIT 23.1
------------
ACCOUNTANTS' CONSENT
--------------------
To the Stockholders and
Board of Directors of AlphaCom, Inc. and Subsidiary and Affiliate:
We consent to the inclusion of our report dated December 13, 1999 with respect
to the consolidated combined balance sheets of AlphaCom, Inc. and Subsidiary and
Affiliate as of December 31, 1998 and 1997 and the related consolidated combined
statements of operations, changes in stockholders' deficit and cash flows for
the years then ended included herein and to the reference to our firm under the
heading "Experts" included in the Registration Statement (Form SB-2/A) and the
related prospectus of AlphaCom, Inc.
SPECTOR & SAULINO, CPAs, L.L.C.
Akron, Ohio
January , 2000
<PAGE> 1
Exhibit 23.2
MILES GARNETT
Attorney at Law
66 Wayne Avenue
Atlantic Beach, N.Y. 11509-1537
Tel. (516) 371-4598
-------------------------------
December 28, 1999
AlphaCom, Inc.
1035 Rosemary Boulevard; Suite I
Akron, Ohio 44306
Attention: Board of Directors
Dear Persons,
This letter is in connection with the public offering of up to five
million twenty thousand shares of common stock, par value $.001 per share of
AlphaCom, Inc. a Nevada corporation (the "Company"), under its Form SB-2
Registration Statement under the Securities Act of 1933 (the "Registration
Statement"). Pursuant to such Registration Statement the Company and Selling
Shareholders propose to sell 5,020,000 shares of common stock.
I have examined such corporate records, certificates and other
documents as I have considered necessary and proper for the purpose of this
opinion. In such examination, I have assumed the genuiness of all signatures,
the authenticity of all documents submitted to me as originals, the conformity
to the original documents submitted to me as copies and the authenticity of the
originals of such latter documents. As to any facts material to my opinion, I
have, when relevant facts were not independently established, relied upon the
aforesaid record, certificates and documents.
Based on the foregoing, It is my opinion that when (i) the Registration
Statement shall have become effective under the Securities Act of 1933, as
amended, (ii) the Certificates for the company's shares of the common stock have
been duly executed, countersigned, registered and delivered and the
consideration therefor paid to the Company, then the Stock shall be validly
issued, fully paid and non-assessable.
<PAGE> 2
AlphaCom, Inc.
December 28, 1999
Page 2
I hereby consent to the filing of this opinion with the Securities
and Exchange Commission as an exhibit to the Registration Statement and to the
statement made in reference to me under the caption "Legal Matters" and this
opinion in the Prospectus constituting a part of the Registration Statement.
Very truly yours,
/s/ Miles Garnett
Miles Garnett
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Form SB-2/A
as of September 30, 1999 and for the nine months then ended and as of December
31, 1998 and for the year then ended. The schedule is qualified entirely by
reference to such consolidated combined financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 16,850
<SECURITIES> 0
<RECEIVABLES> 6,315
<ALLOWANCES> (5,000)
<INVENTORY> 43,681
<CURRENT-ASSETS> 411,609
<PP&E> 218,659
<DEPRECIATION> (47,298)
<TOTAL-ASSETS> 795,267
<CURRENT-LIABILITIES> 3,621,930
<BONDS> 0
0
0
<COMMON> 266,748
<OTHER-SE> (3,112,250)
<TOTAL-LIABILITY-AND-EQUITY> 795,267
<SALES> 116,098
<TOTAL-REVENUES> 174,206
<CGS> 57,474
<TOTAL-COSTS> 98,679
<OTHER-EXPENSES> 1,287,436
<LOSS-PROVISION> 7,654
<INTEREST-EXPENSE> 141,016
<INCOME-PRETAX> (1,332,925)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,332,925)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,332,925)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
