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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-QSB
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarter ended September 30, 2000
OR
(_) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the transition period from _______to________
Commission File Number 333-83573
----------------------
ALPHACOM, INC.
(Name of small business issuer as specified in its charter)
--------------------------------------------------------------------------------
NEVADA 34-1868605
------ ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1035 Rosemary Boulevard, Akron, Ohio 44306
(address of principal executive offices)
(330) 785-5555
(Registrant's telephone number, including area code)
Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days. Yes X No __
(effective date was June 30, 2000).
The number of shares outstanding of the registrant's common stock as of
September 30, 2000 was 14,816,430.
Transitional Small Business Disclosure Format (check one): Yes ___ No _N
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ALPHACOM, INC
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
INDEX
Part I. Financial Statements
1. Financial Statements
Unaudited Condensed Consolidated Combined Balance Sheets as December
31, 1999 and September 30, 2000.--------------------------------------3
Unaudited Condensed Consolidated Combined Statements of Operations for
three and nine months ended September 30, 2000 and 1999---------------4
Unaudited Condensed Consolidated Combined Statements of Cash Flows for
the nine months ended September 30, 2000 and 1999---------------------5
Notes to Unaudited Condensed Consolidated Combined Financial
Statements------------------------------------------------------------6
2. Management's Discussion and Analysis or Plan of Operations-----------------8
Part II. Other Information----------------------------------------------------10
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Part I
Item 1--Financial Statements
ALPHACOM, INC. AND SUBSIDIARY AND AFFILIATE
(development stage companies)
UNAUDITED CONDENSED CONSOLIDATED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
Sept. 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash $ 709,189 $ 41,445
Notes receivable 1,015,000 0
Accounts receivable-net 51,868 18,942
Other receivables and advances 252,953 0
Inventories 53,367 21,217
Prepaid expenses 550,780 1,282,278
------------ ------------
2,633,157 1,363,882
Equipment - net 413,215 311,450
Other assets
Patents 655,000 205,000
Note Receivable 500,000 0
Deposits and other 63,079 88,127
------------ ------------
TOTAL ASSETS $ 4,264,451 $ 1,968,459
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Notes payable $ 372,135 $ 2,701,806
Accounts payable -trade 328,948 779,276
Accrued interest 34,227 183,282
Accrued expenses 190,096 361,022
Accrued consulting fee 0 1,000,000
Deferred compensation 0 145,681
Current portion of long-term debt 9,935 169,362
Deferred revenue 135,600 0
------------ ------------
1,070,941 5,340,429
Non-current portion of long-term debt 8,903 16,428
Non-current portion of deferred revenue 1,194,334 0
------------ ------------
Total liabilities 2,274,178 5,356,857
------------ ------------
Shareholders' equity (deficit)
Common stock 269,366 266,849
Additional paid-in capital 10,152,855 747,821
Treasury stock (1,653) (1,653)
Deficit accumulated during the
development stage (8,430,295) (4,401,415)
------------ ------------
Total shareholders' equity ( deficit) 1,990,273 (3,388,398)
------------ ------------
TOTAL LIABILIES AND SHAREHOLDERS'
EQUITY (DEFICIT) $ 4,264,451 $ 1,968,459
============ ============
</TABLE>
SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED COMBINED FINANCIAL STATEMENTS
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ALPHACOM, INC AND SUBSIDIARY AND AFFILIATE
(development stage companies)
UNAUDITED CONDENSED CONSOLIDATED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
Three Months Ended Nine Months Ended From Inception
Sept. 30, Sept. 30, (April 19,1996
2000 1999 2000 1999 to Sept. 30,2000)
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales-licenses $ 27,125 $ 0 $ 71,166 $ 0 $ 71,166
Product sales 76,384 119,054 263,947 194,206 789,757
Cost of sales 37,318 38,635 229,436 98,679 419,884
-----------------------------------------------------------------------------------
Gross profit 66,191 80,419 105,677 95,527 441,039
Operating expenses 2,241,902 409,654 3,901,945 1,287,436 8,235,381
-----------------------------------------------------------------------------------
Operating loss (2,175,711) (329,235) (3,796,268) (1,191,909) (7,794,342)
Interest expense (51,960) (51,142) (232,612) (141,016) (645,229)
Other 9,276
-----------------------------------------------------------------------------------
NET LOSS $ (2,227,671) $ (380,377) $ (4,028,880) $ (1,332,925) $ (8,430,295)
===================================================================================
Net loss per share $ (0.16) $ (0.03) $ (0.31) $ (0.11) $ (0.79)
===================================================================================
Weighted average number of
shares outstanding 13,905,753 12,199,042 12,879,590 12,105,598 10,719,075
===================================================================================
</TABLE>
SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED COMBINED FINANCIAL STATEMENTS.
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ALPHACOM, INC. AND SUBSIDIARY AND AFFILIATE
(development stage companies)
UNAUDITED CONDENSED CONSOLIDATED COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
From Inception
Nine Months Ended Nine Months Ended (April 19, 1996
Sept. 30, 2000 Sept. 30, 1999 to Sept. 30, 2000)
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operations:
Net loss $ (4,028,880) $ (1,332,925) $ (8,430,295)
Adj. to reconcile net
loss to net cash used
in operations:
Depr. and amort 801,426 64,446 1,044,132
Stock issued for
services 1,010,000 215,000 1,313,012
License fee income (71,166) 0 (71,166)
Changes in :
Accounts receivable (32,926) (4,980) (51,868)
Advances (252,953) 0 (252,953)
Prepaid expense (18,502) (61,595) (342,280)
Inventories (32,150) (23,046) (53,367)
Deposits and other 0 6,043 (5,579)
Accounts payable (450,328) 164,490 328,948
Accrued interest (1,055) 72,465 182,227
Accrued expenses (284,422) 61,814 180,866
Deferred revenue 901,100 0 901,100
Total adjustments 1,569,024 494,637 3,173,072
Net cash used in operations (2,459,856) (838,288) (5,257,223)
Cash flows from investing
Distr. of notes receivable (1,015,000) 0 (1,015,000)
Purchase of equipment (153,191) (52,618) (530,847)
Purchase of patents (450,000) 0 (655,000)
Advance on investment (50,000) 0 (57,500)
Net cash used in investing: (1,668,191) (52,618) (2,258,347)
Cash flows from financing:
Proceeds from debt 0 160,000 203,924
Payment of debt (11,952) (6,421) (30,086)
Proceeds from notes payable 975,000 816,900 3,741,306
Payment of notes payable (704,707) (76,765) (904,207)
Stock issuance costs (73,925) 0 (148,973)
Proceeds from sale of stock 4,611,375 0 5,362,795
Net cash provided by financing 4,795,791 893,714 8,224,759
------------------------------------------------------
Net increase in cash 667,744 2,808 709,189
Cash -beginning of period 41,445 8,332 0
Cash - end of period $ 709,189 $ 11,140 $ 709,189
======================================================
</TABLE>
SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED COMBINED FINANCIAL STATEMENTS.
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ALPHACOM, INC. AND SUBSIDIARY AND AFFILIATE
Notes to UNAUDITED Condensed Consolidated Combined Financial Statements
Note 1 Basis of Presentation
The Company has prepared the accompanying condensed consolidated combined
financial statements, without audit, according to the applicable regulations of
the Securities and Exchange Commission. Certain information and disclosures
normally included in those financial statements prepared according to generally
accepted accounting principles have been condensed or omitted. The company
believes that the following disclosures are adequate and not misleading. These
unaudited condensed consolidated combined financial statements reflect all
adjustments (consisting only of normal recurring adjustments) that, in the
Company's opinion, are necessary to present fairly the financial position and
results of operations of the Company for the periods presented. It is suggested
that these unaudited condensed consolidated financial statements are read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's Form SB-2 for the fiscal year ended December 31, 1999.
Note 2 Going Concern
The Company has incurred operating losses since inception and at September 30,
2000 had incurred an unaudited year to date loss of $4,028,880. In addition, the
Company has limited revenues to date and a product for which market acceptance
remains generally untested. Primarily as a result of these factors, the
Company's independent certified public accountants included an explanatory
paragraph in their report on the Company's December 31, 1999 consolidated
combined financial statements which expressed substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments to continue as a going concern.
Management of the Company has undertaken certain actions to attempt to address
these conditions. These actions include seeking new sources of capital to allow
the Company to continue. On June 30, 2000 the Company received an order from the
Securities and Exchange Commission declaring its Registration Statement
effective pursuant to Section 8(a) of the Securities Act of 1933, as amended.
The Company has issued 2,088,261 shares at September 30, 2000 and raised
approximately $ 7,407,449.
Note 3 Sale of Technology
The Company, commencing in the quarter ended June 30, 2000, has begun to license
its technology in specific markets through the world. These agreements require
an initial license fee plus additional license fees upon the grant of
sub-licenses to third parties by the licensee. In addition, the Company receives
royalties based on total users of the technology in each market. The Company
recognizes revenue on these license agreements on a straight-line basis over the
term of the agreements, which is ten years. License fee income recognized on
these agreements during the nine months ended September 30, 2000 and 1999 was
$71,166 and $-0- , respectively. Deferred Revenue recorded on the balance sheet
amounted to $1,329,934 at September 30, 2000.
The Company does not record revenue on the additional license fees to be
received until payments are received, at which time the revenue is recognized
over the remaining term of the original license agreement. The agreements signed
at September 30, 2000 require additional minimum license fees of $19,874,000.
Note 4 Non-Cash Investing and Financing Activities
During the nine months ended September 30, 2000, the Company issued shares as
follows for related non-cash transactions:
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757,464 shares to satisfy obligations for rescission shares at $1 per
share; 605,937 shares to reduce debt by $3,029,685; 29,600 shares to
reduce accrued expenses of $148,000; and 202,000 shares in connection
with certain promotion and advertising expenses of $1,010,000.
Additionally, in March of 2000, the Company recorded a non-current note
receivable in the amount of $500,000 as a partial payment for an initial license
fee.
Note 5 Notes Receivable
The Company made various short-term advances in the form of notes receivable
totaling $1,015,000 during the nine months ended September 30, 2000. The notes
are classified as current assets and include interest ranging from 8% to 10.5%.
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Item 2 Management's Discussion and Analysis or Plan of Operations
This Quarterly Report on Form 10-QSB, including any information incorporated by
reference herein, includes "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). All of the statements contained in this Quarterly Report on Form 10-QSB,
other than statements of historical fact, should be considered forward looking
statements.
General
AlphaCom, Inc. (the "Company" or "AlphaCom"), is a Nevada corporation,
incorporated on December 1, 1997 and has as its current address 1035 Rosemary
Blvd., Akron, Ohio, 44306. On July 1, 1998 AlphaCom 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.
The Company is an innovator in communication technology and will continue to
introduce new hi-tech products and services in the rapidly expanding
multi-billion dollar Internet, telecommunications and related industries to
individual consumers, small and large businesses, government and institutions,
both nationally and internationally.
GSI-5 -Keeping within the wireless market we became a Value Added Reseller (VAR)
for this product. This system provides an asymmetrical (dial-up outbound),
high-speed satellite Internet solution for up to 250 simultaneous users or
sessions at up to 500 KBPS.
Wireline Internet Access and Network Utility (NU)- We have been marketing a
traditional dial-up Internet service or wireline service. We expect our NU
compression software to increase the average throughput speed by 2 to 5 times.
VMSK-Status of Development - Very-Minimum-Shift-Keying (VMSK) is patented. These
patents cover an encoding and decoding method that compresses ordinary
modulation to transmit digital data at 10 to 25 bits/sec/Hz. VMSK has been
demonstrated in the lab to various large companies, our government and foreign
governments. The Company anticipates initial deployment by the middle of next
year.
The VMSK U.S. patents are owned by certain companies owned by Harold Walker. On
December 22, 1999, the Company entered into a stock purchase agreement with Mr.
Walker for all of his affiliated companies providing for the acquisition by the
Company of all proprietary technology related to VMSK for a total purchase price
of three million dollars, requiring certain periodic payments in cash. The
Company already had obtained a non-exclusive license to utilize the VMSK
technology through an earlier agreement with AMC. The Company believes, through
its agreement with Mr. Walker, it is authorized to and has commenced, to
independently procure the exclusive worldwide patent rights to its improvements
in the VMSK technology.
Mr. Walker has notified the Company that he believes they failed to timely
deliver certain payments under his agreements, and that, it is Mr. Walkers
position, the agreement is therefore terminated. The Company totally rejects
this claim, and plans to aggressively and vigorously defend its worldwide
patents and all updates concerning VMSK technology.
International (Exclusive) Licensing - We have commenced licensing markets
outside of North America to sell our products. This activity has picked up
substantially as we demo our VMSK product in anticipation
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of deploying this product. This product expands and/or utilizes "bandwidth" to
provide a solution for the so called last mile problem.
Results of Operations
Three Months Ended September 30, 2000 and 1999
Revenues for the quarter ended September 30, 2000 were $103,509 compared to
$119,054 for the quarter ended September 30, 1999. Operating costs and expenses
totaled $2,241,902 in the quarter ended September 30, 2000 as compared to
$409,654 for the same period in 1999. The increases in operating expenses in
2000 are due to increase in wages of $276,039 (increase in personnel),
consulting fees of $146,011, legal and accounting fees of $81,515 and promotions
of $964,039. Interest expense totaled $51,960 for the quarter ended September
30, 2000 compared to $51,142 for the same period in 1999. The Company expects
expenditures to increase in all areas of its business during the next twelve
months as development and promotion of existing and new products continues
assuming available working capital.
Nine Months Ended September 30, 2000 and 1999
Revenues for the nine months ended September 30, 2000 and 1999 were $335,113 and
$194,206 respectively. An increase in Internet access subscribers accounted for
approximately $69,000 of the increase and the balance of approximately $71,000
results from license revenue. Operating costs and expenses totaled $3,901,945
for the nine months ended September 30, 2000 as compared to $1,287,436 for the
same period in 1999. The 2000 operating costs included increases of $673,824 in
consulting fees, $975,847 in promotions, $209,627 in legal and accounting fees
and $396,524 in wages over the same period in 1999. Interest expense in 2000 was
$232,612 compared to $141,016 in 1999 reflecting higher debt.
Financial Condition
During the nine months ended September 30, 2000 the Company received
approximately $1,401,100 in license fees, which includes $1,329,934 deferred at
September 30, 2000. The Company recognized $71,166 of license fees in income
through September 30, 2000. AlphaCom may issue up to 2,800,000 shares under an
SB-2 Registration Statement (effective June 30, 2000 by the Securities and
Exchange Commission) which could raise up to $10,400,000 if all shares are sold.
Development Stage - Accumulated Deficit
The company is a development stage company and has had only limited revenues
since its inception. There can be no assurance that the Company will be able to
achieve a significant level of sales or attain profitability. The Company's
activity has been limited to developing technology, fund raising, initial sales
and marketing efforts. There can be no assurance that the Company will be able
to grow in the future. As a result, the Company believes that prior results of
operations are not necessarily meaningful and should not be relied upon as an
indication of future performance.
Because of the foregoing factors, among others, the Company is unable to
forecast its revenues or the rate at which it will add new customers with any
degree of accuracy. There can be no assurance that the Company will ever achieve
favorable operating results or profitability.
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Part II - Other Information
ITEM 2 - CHANGES IN SECURITIES
Unregistered sale of equity securities during the quarter.
In July 2000, the Company issued 203,100 shares of Common Stock to four
accredited persons for services rendered.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8 -K
a. Exhibit Index
b. Reports on Form 8 - K ---None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ALPHACOM, INC.
(Registrant)
BY: /s/ Robert Snyder
____________________________
CEO
DATE: November 14 , 2000
------------------
BY: /s/ Joseph M. Lechiara
________________________
CFO
DATE: November 14 , 2000
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EXHIBIT INDEX
Exhibit No. 27 - Financial Data Schedule--------------------------------------11
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