SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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 2-98074-NY
Trident Media Group, Inc.
(Exact name of small business issuer as specified in its charter)
Nevada 11-2751536
(State or other jurisdiction of (IRS. Employer
incorporation or organization) Identification No.)
6349 Palomar Oaks Court, Carlsbad, CA 92009
(Address of principal executive offices)
(760) 438-9080
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to filing requirements for the past 90 days.
Yes X No _____
Issuer's revenue for the most recent fiscal year: $8,538,900
Number of shares outstanding of Issuer's Common Stock as of March 31, 1999:
5,000,152
PART I
Item 1. Description of Business
INTRODUCTION
Trident Media Group, Inc. ("Trident" or the "Company"), a Nevada
corporation, is a full service provider of a broad range of services in the
telecommunications, and network television services industries. Trident
produces, displays, edits and distributes video and audio programming and other
data into various formats, creates graphics animation and other materials all
to support its customer programs. Trident also provides broadcast, and
uplinking satellite and terrestrial distribution services for its own and its
clients programming, including video, audio, data and telephony. Trident
additionally provides prepaid long distance telephone calling card services
distributed through electronic dispensing units and retail sales.
FORMATION
Trident Media Group, Inc. was incorporated in 1984 as International Fire
Prevention Inc. ("IFPI"), a Nevada corporation. IFPI was an inactive public
Company with no operations and had been dormant since 1988. IFPI was renamed
Trident Media Group, Inc. and a plan of merger with Spector Entertainment
Group, Inc. ("SEG"), was effected on January 15, 1998, as a reverse acquisition
with Trident as the surviving entity. Trident is a NASD OTC Electronic Bulletin
Board traded company and has its principal executive offices at 6349 Palomar
Oaks Court, Carlsbad, CA 92009.
DESCRIPTION OF BUSINESS
Trident has concentrated on providing satellite transmission services to
the pari-mutuel racing industry. The Company transmits via a fleet of owned
and leased uplink units video, audio and data of televised wagering events,
such as horse racing, for distribution to venues including racetracks, off
track wagering facilities, casinos, and Indian reservations. The Company
additionally provides encryption and compression services, which enable Trident
to scramble and protect the program from unauthorized third party reception.
Trident also controls, under long term, exclusive lease, satellite transponder
capacity used for both Trident's clients and excess capacity resold for third
party use, including purchase by Globecast, Fox Networks, Vyvx, and major
television networks. The Company's operations also include television
production of pari-mutuel racing events and closed circuit systems. These
services include: live event production; photo finish; post production; closed
circuit audio; public address; television and security systems; and a variety
of other related systems and services. Trident currently provides over 1,000
live - action television events and transmits over 8,000 hours of programming
annually. The company provides its services to a diversified client base
including over 250 of the premiere wagering and entertainment facilities and a
variety of broadcast cable and private networks throughout North America. The
company also provides telephony services including prepaid phone card services
through electronic dispensing equipment and retail sales.
The Company has organized its activities into two (2) operating groups as
follows:
Network Services Group
----------------------
The Network Services Group's focus and the core business of the Company is
to provide simulcasting, television production and related services to
racetracks, casinos, off-track betting locations and to the general sports and
entertainment industries. Simulcasting is the process of uplinking the audio
and video television signal of a live event from a racetrack to a satellite for
reception by wagering locations throughout the country. The Company's
simulcast services enable racetracks to simultaneously send their television
signals to multiple wagering facilities, including other racetracks and off-
track betting facilities.
The Company operates a fleet of transportable Earth Stations licensed by
the Federal Communications Commission ("FCC") which are deployed for the
transmission of audio, video and/or data programming via satellite throughout
North America. The Earth Stations are typically configured on a mobile trailer
and transported to the site where the broadcast event occurs. The Company
obtains its satellite transponder capacity by securing multiple short term and
long term leases with a variety of satellite communications providers. The
Company employs state-of-the-art digital compression technology (which also
effectively scrambles the signal), utilizing General Instruments' DigiCipherTM
encoders and decoders primarily configured for a single-channel-per-carrier
("SCPC") compression system. The SCPC system enables the Company to uplink
digitally compressed signals from diverse locations to a single satellite
transponder. The Company also uses Scientific Atlanta B-MacT scrambling
equipment for its non-compressed signals. Where the Company's transmitted
signal is compressed or scrambled, the Company has contracts that provide that
the Company will be the exclusive provider of decoder equipment to locations
authorized by the content owner to receive the signal. The Company is an "OEM"
(original equipment manufacturer) for a variety of broadcast television
equipment providers, including General Instruments, Scientific Atlanta,
Mitsubishi, Ikegami and others.
Satellite communications can be used to transmit and distribute audio,
video, data information and programming. In providing satellite communication
services, the Company creates a satellite communications "Circuit", which
consists of three basic elements; (1) an uplink "Earth Station" that transmits
a signal to a satellite; (2) an assigned space segment (band width) on a leased
satellite transponder that receives the uplink signal and retransmits it to
earth; and (3) a "downlink" Earth Station that receives the signal from the
satellite. An Earth Station generally consists of a parabolic antenna that
sends or receives the signal, and includes electronic equipment that converts,
amplifies, and transmits the signal to the satellite, or receives and converts
the signal for the display of such broadcast or processing of information.
The downlink, or receive end of the communications circuit may be either a
single Earth Station when providing point to point transmission of live
programming, or a number of Earth Stations, geographically dispersed, when
programming is being distributed for a point to multi point transmission. The
satellite transponder space segment needed to complete the communications
circuit is generally leased by the Company directly from the satellite owner
such as PanAmSat, Loral or GE Americom. During the past twelve month period,
the Company has transmitted over 8,000 hours of live action television
programs. The Company also brokers unused satellite transponder capacity and
provides satellite transmission services to third parties. These services,
which are marketed primarily to the sports and television entertainment
networks enable the Company to capitalize on the Company's excess transponder
capacity and fill scheduling gaps for its uplink fleet. The Company also
provides design, equipment, installation and operational services to several
off-track betting facilities.
GE Americom currently provides transponder services to the Company under a
lease for non-preemptible service. The lease expires in June of 2001, and
provides the Company an option to extend the term. The Company typically
utilizes a transponder in the C-band frequency. The Company utilizes its
satellite transponder capacity to service its own broadcasts and resells both
analog and compressed capacity to third parties for video, audio, data and
voice transmissions. The Company continually evaluates new technologies to
expand the productive utilization of its transponder capacity.
The Company also provides television production services primarily for the
pari-mutuel racing industry, and is capable of providing virtually all of the
television programming production, television equipment, and related service
requirements as an integrated package for a wagering facility. At each site,
the Company typically provides track site cameras, production studios,
television monitors, cabling and related equipment and services. The Company
also operates a fleet of mobile production studios, which can be deployed for
on site service. The Company provides cameramen, producers, editors, and other
trained personnel required to operate its equipment and create its programming.
The Company provides the closed-circuit video systems to enable patrons to see
and hear the live races throughout the racetrack and enable management to
oversee its operations. The Company also produces pre and post-race shows,
replays and gaming information and provides commercial, edit and post-
production services. The Company's simulcasting and television production
services, systems and equipment are typically provided pursuant to multi-year
non-cancelable contracts.
Telecommunications Services
---------------------------
The Company is a non-facilities based reseller of long distance and
international telecommunications services to non-commercial consumers. The
Company offers services primarily through the use of enhanced prepaid phone
cards provided through company owned electronic dispensing units and retail
sales. Trident does not own or operate any of the primary transmission
facilities currently used for its telephone operations. The Company's products
and services are provided under agreements which entitle Trident to obtain
discounted bulk rates which are then resold to Trident's clients. The
Company's operations have historically been located in the Southwestern portion
of the United States.
Within the diversified telephone services industry, prepaid and other type
discount telephone services are relatively new. Phone cards have been widely
used throughout Europe and Asia for more than ten (10) years. Although prepaid
phone cards were not used on a widespread basis in the United States prior to
1994, the market in the United States has been rapidly expanding, with annual
sales of prepaid phone cards growing from an estimated $100 million in 1993, to
an estimated $1.1 billion in 1996. Industry analysts project annual sales of
prepaid and discount phone cards in the United States to reach $2.5 billion by
the year 2000. Analysts also indicate that continued industry growth will be
fueled by: (i) continued consumer acceptance of prepaid phone cards; (ii) a
broader base of consumer segments using prepaid phone services, such as
business employees, students and travelers; and (iii) an increased appeal to,
and greater use by, residential users.
Prepaid phone cards have proven to be a reliable, convenient, and cost-
effective alternative to coin-operated calling, operator-assisted calls and
standard credit calling cards. Unlike credit calling cards, which provide
virtually unlimited credit and impose surcharges on long distance services,
prepaid phone cards are paid for in advance and provide finite amounts of
calling time. Most domestic prepaid phone cards, utilize a remote memory
technology, which permits users to place local, long distance and international
calls from any touch-tone phone by dialing a toll-free or local access number
to connect to a prepaid phone card switching platform. After being prompted to
enter a PIN number, the caller is advised of the value remaining on the card
and is prompted to enter the telephone number to be called. The call is then
routed to its destination. The per-minute charges for the call are
automatically decremented from the prepaid account corresponding to the PIN as
the call progresses.
The Company markets its products and services in telecommunications through
direct sales and a network of independent representatives on a commission
basis. The Company has also utilized field service personnel and has provided
service on a wholesale basis.
Trident intends to actively pursue a strategy of continued growth and seeks
to expand the distribution of its services and products as well as maximize
penetration of existing and complementary geographic markets. To this end, the
Company will continue to: (i) develop strategic marketing relationships, (ii)
regularly evaluate possible acquisition opportunities, and (iii) improve
operating and network efficiencies. The Company's ability to achieve these
objectives will be affected by, and to a certain extent dependent on, numerous
factors beyond the control of the Company. Thus, no assurance can be given,
nor construed that such objective can or will be achieved.
The following table sets forth the percentage of revenues contributed by
each of the Company's operating groups during the last three fiscal years.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Network Services Group 87.5% 100.0% 100.0%
Telecommunications Services 12.5 - -
------ ------ ------
Total Revenue 100.0% 100.0% 100.0%
====== ====== ======
</TABLE>
Merger and Recision with Graff Pay-Per-View, Inc.
-------------------------------------------------
On August 31, 1995, the stockholders of SEG consummated a merger agreement
and plan of reorganization with Graff Pay-Per-View, Inc. ("Graff"). Under this
agreement, Graff acquired all of the issued and outstanding shares of SEG for
shares of common stock in Graff. In addition, certain officers and
stockholders of SEG entered into non-competition agreements and employment
agreements with Graff. On February 7, 1997, SEG finalized an agreement to
split off from Graff, terminating all affiliation with Graff. All stock
transferred back to the original owners at closing.
Acquisitions
------------
Trident operates in a number of highly fragmented industries and has
historically expanded its operations through a combination of internal growth
and acquisitions. The Company regularly evaluates possible acquisition
candidates and may seek to acquire companies to expand the distribution of its
services and products, enhance internal efficiencies, complement existing
operations, or for other operating or strategic considerations. Except as
otherwise disclosed herein, the Company has no agreements, commitments, or
arrangements with respect to any acquisition. There can be no assurance that
the Company will ultimately effect any acquisition, that the Company will be
able to successfully integrate, operate, and/or manage any acquisition, or that
the Company will be able to service any debt or other obligations incurred in
connection with any acquisition.
The following acquisitions were completed during the year ended December
31, 1998. These transactions were all accounted for under the purchase method
of accounting. The allocation of purchase price for these transactions was
based on historic net book values, which in management's opinion approximated
fair value.
Steinley's Photochart Systems, Inc.
-----------------------------------
On April 1, 1998, the Company acquired 100% of the issued and outstanding
common stock of Steinley's Photochart Systems, Inc. ("Steinley's") for
$350,000. In addition, the former owners of Steinley's can earn up to
$250,000, based on achieving certain revenue and earnings targets over the next
two years. Steinley's is a provider of audio-video and photo finish services
to the pari-mutuel racing industry primarily in the Northwest portion of the
United States.
GoldenTel Prepaid, LLC.
-----------------------
On June 2, 1998, the Company acquired 100% of the issued and outstanding
membership units of GoldenTel Prepaid, LLC. ("GoldenTel") for $200,000 in cash
and an earn-out of an additional $30,000 if certain revenue objectives were
achieved for the two months commencing June 2, 1998. These revenue objectives
were met and the earn-out payment was paid on September 2, 1998. GoldenTel
subsequently changed its name to Trident Prepaid, Inc., and markets and sells
prepaid telephone calling cards primarily through electronic dispensing
machines in the State of Nevada.
On Track, Inc.
--------------
On June 24, 1998, the Company acquired 100% of the issued and outstanding
common stock of On Track, Inc. ("OTI") for $200,000. The purchase price was
payable $100,000 at closing and $100,000 less any unrecorded liabilities, as
defined in the agreement, six months after the closing date. On January 15,
1999, $39,600 was paid to the former owners of OTI, as payment for the
remaining purchase obligation. The sellers can also earn additional
compensation based on reaching certain revenue and profit levels over the next
two years. OTI provides video production and related services to the pari-
mutuel racing industry as well as insert advertising to the cable television
industry in the Southwest portion of the United States.
Trident Telecard, Inc.
---------------------
In September 1998, the Company acquired certain assets from an unrelated
third party and formed a new company, Trident Telecard, Inc. ("Telecard").
Telecard's purpose was to develop and distribute through a network of
wholesalers prepaid telephone calling cards primarily focused upon the ethnic
markets, tourists, students and the general public. In the fourth quarter of
1998, the Company determined that Trident Telecard, Inc., was unable to support
and fulfill its business plan, nor were its operations a strategic fit with the
Company's operations. Accordingly, Telecard's operations were curtailed and
ceased by December 1998. Pursuant to a Settlement Agreement dated May 3, 1999
(the "Telecard Settlement Agreement") among the Company, Telecard and Lance
Teren, et al, the Company conveyed certain assets and inventory of the Telecard
operations in exchange for a comprehensive release.
GOVERNMENTAL REGULATIONS
Trident's communications operations and services in the Network Services
Group are generally subject to regulation by the Federal Communications
Commission ("FCC"). All satellite transmission facilities, including mobile
satellite Earth Stations and microwave equipment, must be individually licensed
and renewed by the FCC, historically this occurred on an annual basis. During
1998, the FCC approved the Company's licenses for a period of ten years. The
FCC prescribes technical standards for transmission equipment which may change
from time to time.
The FCC also requires a coordination process and filing for each Earth
Station transmitter operating in the frequency band used by some of the
satellites on which the Company provides services. This process is to
demonstrate that the Earth Station transmitter will not interfere with land-
based microwave systems or other users. This requirement, in some cases,
restricts the proximity that a mobile Earth Station can have to a customer
facility and thus may require a cable or other terrestrial link to be installed
between the customer and the Earth Station. Transmission equipment must also
be installed in a manner that avoids harmful levels of radio frequency
radiation.
Employees
---------
At March 31, 1999, the Company had 37 full-time and 26 seasonal/part-time
employees. Trident believes that its relationship with its employees is
satisfactory.
Item 2. Description of Property
The Company conducts its activities from offices at the following
locations:
Leased Facilities
-----------------
Headquarters (A)
6349 Palomar Oaks Court 26,599 square feet
Carlsbad, CA 92009
Branch Office
6280 S. Valley View Blvd., Suite 330 1,800 square feet
Las Vegas, NV 89118
Owned Facilities
----------------
1889 Highway 70 East 4,300 square feet
Ruidoso Downs, NM 88346
(A) Facility is leased from Margate Associates, a general partnership wholly-
owned by the Company's majority stockholder.
The Company believes the above facilities are adequate and suitable for
the conduct of its current business activities.
Item 3. Legal Proceedings
On January 5, 1999, Lance Teren, et al, commenced an action in the
Superior Court of the State of California. As part of the Telecard Settlement
Agreement dated May 3, 1999, the suit was dismissed.
The Company is not currently involved in any legal proceedings. From time
to time Trident may become a party to legal actions in the normal course of
business.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1998.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Trident's common stock began trading on the OTC Electronic Bulleting Board
on February 23, 1998, under the symbol "TDNT".
The following table sets forth for the calendar periods indicated, the per
share range of the high and low bid price of the Company's common stock.
1998 High Bid Low Bid
--------------- ------------- -------------
First Quarter $0.11 $0.02
Second Quarter 3.50 0.13
Third Quarter 3.00 1.50
Fourth Quarter 1.99 0.87
Trident has never paid cash dividends on its common stock and intends to
retain future earnings to support growth of its business and does not
anticipate paying any cash dividends in the near future.
Item 6. Management' s Discussion and Analysis
The following table is a summary of financial information for the Company
for the periods indicated.
<TABLE>
<CAPTION>
For years ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 8,538,900 $ 6,472,400 $7,885,900
Operating costs and expenses:
Cost of operations 5,579,200 3,347,400 4,777,700
Selling, general and administrative 2,822,500 1,939,500 1,026,800
Depreciation and amortization 1,145,000 948,400 801,000
--------- --------- ---------
Total operating costs and expenses 9,546,700 6,235,300 6,605,500
--------- --------- ---------
Income (loss) from operations (1,007,800) 237,100 280,400
Write-off of related party receivables - - 563,100
Interest expense 300,000 215,000 257,200
Income (loss) before income taxes
and cumulative effect of
accounting change (1,307,800) 22,100 460,100
Income tax provision (benefit) (422,800) 17,700 188,000
Income (loss) before cumulative
effect of accounting change (885,000) 4,400 272,100
Cumulative effect of accounting change,
Net of tax (43,700) - -
--------- --------- ---------
Net income (loss) $(928,700) $ 4,400 $ 272,100
========= =========== ==========
</TABLE>
RESULTS OF OPERATIONS
- ---------------------
The following discussion of the financial condition and operating results
of Trident should be read in conjunction with Trident's Financial Statements
and notes thereto, and other financial information included elsewhere in this
report. This report contains forward-looking statements that involve a number
of risks and uncertainties. In addition to the factors discussed elsewhere in
this report, among the other factors that could cause actual results to differ
materially are the following: business conditions and the general economy;
governmental regulation of the Company's telecommunications services and of the
pari-mutuel and gaming industries in general; competitive factors such as rival
service providers, alternative methods of broadcasting and an increasing
variety of telecommunication products being offered to the general public;
consolidation in the ownership of the Company's principal customers and the
risks associated with providing services to the gaming industry.
1998 COMPARED TO 1997
- ---------------------
For the year ended December 31, 1998 the Company reported a loss before
income taxes and the cumulative effect of a change in accounting of $1,307,800
as compared to income before income taxes of $22,100 for the year ended
December 31, 1997. The 1998 loss was primarily attributable to three main
factors: (i) in May of 1998 the Company's satellite provider pre-empted (due to
the failure of one of the providers other satellites) all clients of the
satellite on which the Company had leased two full-time transponders, thereby
forcing the Company to find alternative transponder capacity in a tighter and
more expensive marketplace (the loss in income from this disruption in
satellite service was in excess of $350,000), (ii) operating losses of
approximately $330,000 in connection with the start-up of the Company's prepaid
telephone calling card business and (iii) a write-off of approximately $200,000
relating to certain equipment and other deferred costs no longer utilized in
the operation of the business. Also, contributing to the 1998 losses were
approximately $80,000 of non-recurring general and administrative expenses
incurred in connection with the Company's acquisition of certain businesses
during 1998. In addition to the start-up of the telephone calling card
business during 1998, the Company also acquired Steinley's Photochart, Systems,
Inc. ("Steinley's") and On Track, Inc. ("OTI"), which operated in the same
business segment as the Company's existing core business. These two
acquisitions contributed approximately $120,000 to pre-tax results within the
Network Service Group for the year ended December 31, 1998.
Revenues
--------
The Company reported revenues of $8.5 million for the year ended December
31, 1998 as compared to $6.5 million for the year ended December 31, 1997. The
increase in revenues was directly related to the start-up of the Company's
telephone calling card business (approximately $1.0 million) and the
acquisition of Steinley's and OTI (approximately $1.1 million). Revenue from
the Company's existing core business activities decreased slightly from $6.5
million in 1997 to $6.4 million in 1998.
Cost of Operations
------------------
Cost of operations amounted to $5.6 million for the year ended December
31, 1998 as compared to $3.3 million for the year ended December 31, 1997. The
increase from 1997 to 1998 relates to three factors: (i) higher satellite
expense in 1998 of $0.7 million caused by the satellite failure discussed
above, and the loss of a favorable sub-lease of transponder space for the first
six months of 1997 from the Company's former parent Graff Pay-Per-View, Inc.
("Graff") (this sub-lease agreement was part of the settlement agreement in the
split-off from Graff in early 1997), (ii) costs of approximately $0.6 million
associated with Steinley's and OTI which didn't exist in 1997 and (iii) costs
of approximately $0.9 million relating to the Company's telephone calling card
business which was started-up during 1998.
Selling, General and Administrative Expenses
--------------------------------------------
The Company reported selling, general and administrative expenses of $2.8
million for the year ended December 31, 1998 as compared to $1.9 million for
the year ended December 31, 1997. The increase is primarily attributable to
the start-up of the telephone calling card business and selling, general and
administrative expenses relating to acquisitions made during 1998 which didn't
exist in 1997. Also, included in selling, general and administrative expenses
for 1998 is a provision of $75,000 relating to the cessation of the Company's
wholesale prepaid calling card business as of December 31, 1998.
Depreciation and Amortization
-----------------------------
Depreciation and amortization amounted to $1.1 million for the year ended
December 31, 1998 as compared to $0.9 million for the year ended December 31,
1997. The increase from 1997 to 1998 primarily relates to acquisitions made
during 1998 ($0.1 million) and the write-off of certain assets no longer
utilized in the business ($0.1 million).
Interest Expense
----------------
Interest expense increased by approximately $85,000 from 1997 to 1998
primarily as a result of borrowings incurred in connection with acquisitions
consummated during 1998.
Change in Accounting
--------------------
As of December 31, 1998, the Company elected early adoption of Statement
of Position 98-5 issued by the Accounting Standards Executive Committee on
April 3, 1998. This pronouncement is effective for financial statements
beginning after December 15, 1998 and requires all costs of start-up activities
to be expensed as incurred. Accordingly, the Company wrote-off approximately
$43,700 (net of tax) of previously capitalized contract start-up and
organization costs.
FACTORS THAT MAY AFFECT FUTURE RESULTS
- --------------------------------------
The Company's primary business of providing services to the pari-mutuel
gaming industry is subject to concentrations of risk. The Company derives a
significant portion of its revenues (approximately 32% in 1998) from four
racetrack operators. The loss of one or more of these customers could have a
material adverse impact on the Company's operating results.
1997 COMPARED TO 1996
- ---------------------
For the year ended December 31, 1997, the Company reported income before
taxes of $22,100 as compared to income before taxes of $460,100 for the year
ended December 31, 1996. The net decrease in income of $0.4 million was the
result of several factors; (i) during the year ended December 31, 1996 the
Company operated as a wholly-owned subsidiary of Graff and certain costs
(principally salaries and benefits of approximately $0.6 million relating to
certain officers who provided services to Graff) were charged to Graff - in
1997 these costs are reflected in the Company's operating results, (ii) as a
result of the January 1997 split off from Graff, legal and related costs of
approximately $0.2 million were incurred, (iii) the Company lost certain
revenue producing contracts at the end of 1996 as a result of the affiliation
and subsequent split off from Graff and (iv) in 1996 receivables amounting to
$0.6 million relating to advances made to related parties were written off.
Revenues
--------
The Company reported revenues of $6.5 million for the year ended December
31, 1997 as compared to $7.9 million for the year ended December 31, 1996. The
decrease was attributable to declines in the use of the Company's services
caused by the loss of certain broadcasting contracts at the end of 1996.
Cost of Operations
------------------
Cost of operations amounted to $3.3 million for the year ended December
31, 1997 as compared to $4.8 million for the year ended December 31, 1996. The
decrease primarily relates to the favorable sub-lease of satellite transponder
space from Graff during the first six months of 1997 ($0.4 million) and lower
salaries, wages and uplink lease expense ($0.7 million) incurred in the
broadcast division during 1997 due to the loss of certain contracts.
Selling, General and Administrative Expenses
--------------------------------------------
The Company reported selling, general and administrative expenses of $1.9
million for the year ended December 31, 1997 as compared to $1.0 million for
the year ended December 31, 1996. An increase in salaries and wages ($0.5
million) and legal expense ($0.2 million) due to the split off from Graff and
increased travel and entertainment expenses ($0.1 million) account for the
increase from 1996 to 1997.
Depreciation and Amortization
-----------------------------
The slight increase in depreciation and amortization of $0.1 million from
1996 to 1997 was the result of an increase in the amount of operating equipment
deployed during 1997.
Interest Expense
----------------
Interest expense was substantially the same for the years ended December
31, 1997 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company had current assets of $2.1 million and current liabilities of
$2.0 million as of December 31, 1998. Stockholder's equity at December 31,
1998 was $1.1 million compared to $2.1 million at December 31, 1997. The
decrease in stockholder's equity was primarily due to the net loss reported for
the year ended December 31, 1998 of $0.9 million.
At December 31, 1998, the Company had a credit facility with its principal
lender consisting of a term loan of $2.6 million and a revolving line of credit
of $0.5 (which was fully drawn down and no further funds are available).
Pursuant to a Loan Agreement Amendment dated July 29, 1999 the lender extended
the maturity date of the term loan and the revolving line of credit from July
15, 1999 to January 15, 2000. The Loan Agreement Amendment also adjusted the
interest rate on the outstanding borrowings from the bank's prime rate plus 2%
to the bank's prime rate plus 3.5% through November 15, 1999, increasing to the
bank's prime rate plus 7% after November 15, 1999. The loan agreement requires
the Company to meet certain financial ratios and maintain certain tangible net
worth levels. The Company was in violation of the financial covenants at
December 31, 1998, which the lender waived in the Loan Agreement Amendment
through the date of the agreement. The Company is currently exploring various
alternatives to replace or satisfy its current credit facility. Based on its
current operating performance and its prior refinancing experience the Company
believes that the credit facility will be satisfied or refinanced.
During the next twelve months, the Company's foreseeable cash requirements
include capital expenditures to support its core business, repairs and
maintenance of its equipment and facilities, and new equipment to support
corporate growth. In addition, the Company operates primarily under long-term
non-cancelable contracts with major establishments in the sports and wagering
industries, which provides a reliable and predictable revenue stream. During
the first three or four months of the calendar year the Company historically
shows negative cash flow due to the cyclical nature of the Network Services
Group's business activities. During the first part of 1999 the Company's
majority shareholder loaned the Company over $500,000 to cover this cash flow
shortfall.
Net cash provided by operating activities was approximately $0.4 million
and $0.3 million for the years ended December 31, 1998 and 1997, respectively.
In 1998 cash provided by operating activities was the result of non-cash
adjustments (primarily depreciation and amortization) which more than offset
net losses for the period. In 1997 cash provided by operating activities was
also primarily the result of depreciation and amortization adjustments to
operating results.
Net cash used by investing activities was approximately $1.2 million and
$0.6 million for the years ended December 31, 1998 and 1997, respectively. The
increase in cash used by investing activities in 1998 as compared to 1997 was
primarily attributable to the use of funds for acquisitions made during 1998.
Net cash provided by financing activities was approximately $0.8 million
and $0.3 million for the years ended December 31, 1999 and 1997, respectively.
The increase in cash provided by financing activities from 1997 to 1998 was
primarily due to increased borrowings utilized to connection with acquisitions
made during 1998.
YEAR 2000 COMPLIANCE
- ---------------------
By modifying existing programs and making conversions to Year 2000 ("Y2K")
compliant software the Company is implementing a Y2K program to ensure that its
computer systems and applications will function properly beyond the year 1999
and believes that adequate resources have been allocated for this purpose. The
Company does not believe that the cost of implementing its Y2K program will
have a material effect on the Company's financial condition or results of
operations. However, expenses of the Company's efforts to address such
problems, or the expenses or liabilities to which the Company may become
subject as a result of such problems, could have a material adverse effect on
the Company's results of operations and financial condition. In addition,
factors outside of the Company's control such as the revenue stream and
financial ability of existing suppliers, service providers or customers may be
adversely impacted by Y2K problems, which could cause fluctuations in the
Company's revenue and operating profitability. There can be no assurance that
the Company will be immune from Y2K difficulties, that there will be no
interruptions of the Company's operations arising from Y2K difficulties, or
that the Company will be able to identify, correct, modify, and/or replace all
aspects of its operations to ensure Y2K compliance.
Item 7. Financial Statements
See the Financial Statements at pages F-1 through F-17.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
As reported on Form 8-K dated March 3, 1999, the Company on March 1, 1999,
terminated its audit relationship with its former auditors, Pritchett, Siler &
Hardy, P.C. ("PSH"), and on March 3, 1999, engaged Grant Thornton LLP as the
Company's new independent accountants. The audit committee of the Board of
Directors approved the decision to change accountants.
PHS's report on the financial statements for the past two years did not
contain an adverse opinion or disclaimer of opinion, and was not qualified or
modified as to audit scope or accounting principles. Their report contained an
explanatory paragraph discussing doubt as to the Company's ability to continue
as a going concern due to the lack of on-going operations and losses, which
resulted in a stockholders' deficit. In January 1998, the Company completed a
merger with Spector Entertainment Group, Inc. (reported on Form 8-K, dated
January 6, 1998), an operating company.
During the Company's two most recent fiscal years and any subsequent
interim period preceding such termination, there were no disagreements with the
former accountant on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreement(s), if not resolved to the satisfaction of the former accountant,
would have caused it to make reference to the subject matter of the
disagreement(s) in connection with its report.
There were no reportable events of the type described in Item 304(a) (1)
(v) (a) through (d) of Regulations S-K.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons,
Compliance With Section 16(a) of the Exchange Act
Name Age Position
----------------- ----- -----------------------------------
Edward M. Spector 64 Chief Executive Officer, President
and Director
Ilene H. Spector 58 Executive Vice President of
Administration, Corporate Secretary,
Treasurer and Director
Eric M. Spector 34 Executive Vice President of Corporate
Development, General Counsel and
Director
Evan M. Spector 32 President Network Services Group and
Director
Edward M. Spector
-----------------
Chief Executive Officer, President and Director. Educated at Rutgers
University in the state of New Jersey, Mr. Spector is the founder of the
Company and has over 30 years of broad experience in the communications, gaming
and entertainment industries. Mr. Spector's knowledge of the
telecommunications, pari-mutuel wagering and pay-per-view industries are
invaluable in the continued expansion and growth of the Company.
Ilene H. Spector
----------------
Executive Vice President of Administration, Corporate Secretary,
Treasurer, and Director. Educated at the University of Miami, in Coral Gables,
Florida. Mrs. Spector has served as a Director and Executive Vice President of
Administration for the Company since the Company was founded. Mrs. Spector is
also a partner in Margate Associates, a real estate development partnership.
Eric M. Spector
---------------
Executive Vice President Corporate Development, General Counsel and
Director. A graduate of Cornell University and the Boston University School of
Law, Mr. Spector has served as a Director and Executive Vice President of the
Company since 1991, and is also responsible for mergers, acquisitions, and
contract negotiations.
Evan M. Spector
---------------
President Network Services Group and Director. Educated at the University
of Arizona, in Tucson, Arizona. Mr. Spector has served as a Director and
Executive Vice President of the Company since 1992, and is responsible for all
aspects of the Network Services Group's day-to-day operations.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. No securities of the
Company are registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934, and the Company files reports under Section 15(d) of the Securities
Exchange Act of 1934; accordingly, executive officers, directors and 10 percent
stockholders are not required to make filings under Section 16 of the
Securities Exchange Act of 1934.
Item 10. Executive Compensation
The following table sets forth for the fiscal years ended December 31,
1998, 1997, and 1996, compensation paid by the Company for services to the
Chief Executive Officer and the other executive officers.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------
Long Term
Annual Compensation Compensation
---------------------------- ------------------------
Other Secur-
Name Annual ities All other
and Compen- Underlying Compensa-
Principal Salary sation Options/ tion (2)
Position Year ($) ($) SARs (#) ($)
- --------------------------------- ------ --------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Edward M. Spector, Chairman & CEO 1998 381,600 (1) 118,375 (3) 30,742
1997 367,500 (1) 30,742
1996 355,400 (1) 15,371
Eric M. Spector, Executive V.P. 1998 60,000 (1) 136,563 (4) 11,455
1997 60,000 (1)
1996 60,000 (1)
Evan M. Spector, President Network
Serv. Group 1998 131,200 (1) 136,563 (5) 8,456
1997 131,200 (1)
1996 126,900 (1)
Ilene H. Spector, Executive VP.
Administration 1998 90,000 (1) 106,500 (6)
1997 130,000 (1)
1996 136,500 (1)
</TABLE>
(1) Other annual compensation is less than 10% of such executive's salary and
bonus compensation for the year.
(2) Consists of premiums for life insurance.
(3) Mr. Edward Spector's securities underlying options for 1998 include: (i)
18,375 options granted on December 30, 1998 with an exercise price of
$1.50 and (ii) 100,000 options granted on February 27, 1998 with an
exercise price of $0.125.
(4) Mr. Eric Spector's securities underlying options for 1998 include: (i)
6,563 options granted on December 30, 1998 with an exercise price of
$1.50 and (ii) 130,000 options granted on February 27, 1998 with an
exercise price of $0.125.
(5) Mr. Evan Spector's securities underlying options for 1998 include: (i)
6,563 options granted on December 30, 1998 with an exercise price of $1.50
and (ii) 130,000 options granted on February 27, 1998 with an exercise
price of $0.125.
(6) Mrs. Ilene Spector's securities underlying options for 1998 include: (i)
6,500 options granted on December 30, 1998 with an exercise price of $1.50
and (ii) 100,000 options granted on February 27, 1998 with an exercise
price of $0.125.
Stock Option Plan
-----------------
In 1998 the Company established a Non-Qualified Stock Option Plan ("Plan")
for officers, employees, directors and consultants of the Company. Options may
be granted under the Plan for the purchase of not more than 850,000 shares of
stock of the Company. The following is a brief description of the Plan.
Each option has a term of six years commencing from the date of its grant
and may not be granted for less than 85% of the Fair Market Value of the shares
at the time an option is granted. All options will terminate three months
after employment is terminated, except if employment is terminated because of
dishonestly or wrongful conduct, in which event the option will terminate
immediately.
The Plan provides that the exercise price of the stock issuable upon
exercise of an option shall be paid in full in cash on exercise. In lieu of
cash payment, an optionee may, with the approval of the Board of Directors, pay
for all or part of the shares to be purchased upon exercise of his or her
option (i) by tendering to the Company shares of Stock owned by such optionee
and having a fair market value equal to the exercise price (or the balance
thereof) applicable to such optionee's option or (ii) by payment to the Company
by certified or bank check, or postal or express money order of a per share
price at least equal to the par value of the Stock, with the remainder of the
exercise price satisfied by the issuance of a promissory note in form
satisfactory to counsel to the Company at the time of exercise, subject to
certain conditions. Twenty five percent of the options will vest one year from
the date of grant. The balance will vest twenty-five percent on the second
anniversary date of the grant and fifty percent on the third anniversary date
of the grant.
The Plan is administered by the Board of Directors. A total of 715,000
options were granted during the year ended December 31, 1998.
The following table sets forth stock options that the Company granted to
the named executive officers in 1998.
<TABLE>
CAPTION
OPTIONS/GRANTS IN LAST FISCAL YEAR
Individual Grants
--------------------------------------------------------------------------------------------
Number of
Share of Total Options
Common Stock Granted to Exercise
Underlying Employees or Base
Options Granted in Fiscal Year Price Expiration
Name (#) (%) ($/Share) Date
- --------------------- ----------------- ---------------- ----------- ----------
<S> <C> <C> <C> <C>
Edward M. Spector 18,375 (1) 2.6 1.50 12/30/04
100,000 (1) 14.0 0.125 02/27/04
Ilene H. Spector 6,500 (1) 0.9 1.50 12/30/04
100,000 (1) 14.0 0.125 02/27/04
Eric M. Spector 6,563 (1) 0.9 1.50 12/30/04
130,000 (1) 18.2 0.125 02/27/04
Evan M. Spector 6,563 (1) 0.9 1.50 12/30/04
130,000 (1) 18.2 0.125 02/27/04
(1) All options will vest in three years following grant.
</TABLE>
<TABLE>
<CAPTION>
AGGREGATE OPTIONS EXERCISED IN LAST FISCAL YEAR
AND YEAR END OPTION VALUES
- ---------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at FY-End Options at FY-End (1)
Shares Acquired Value ------------------------ -------------------------
on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
Name (#) ($) (#) ($)
- ---------------------- ------------ ---------- ------------------------ -------------------------
<S> <C> <C> <C> <C>
Edward M. Spector None None --- ---
118,375 148,750
Ilene H. Spector None None --- ---
106,500 148,750
Eric M. Spector None None --- ---
136,563 193,375
Evan M. Spector None None --- ---
136,563 193,375
(1) Based on the last bid price of $1.50 on December 31, 1998.
</TABLE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the
beneficial ownership of the Company's common stock at March 31, 1999.
<TABLE>
<CAPTION>
Shares
Issuable upon
Exercised of
Options Shares Percentage of
Executive Officer, Directors within Beneficially Shares
and 5% Stockholders 60 Days Owned Outstanding (1)
- -------------------------------- ------------- ------------- ---------------
<S> <C> <C> <C>
Edward M. Spector 25,000 (2) 54.5
Ilene H. Spector 25,000 (2) (3)
Eric M. Spector 32,500 842,500 16.7
Evan M. Spector 32,500 842,500 16.7
</TABLE>
(1) Assumes exercise of options exercisable within 60 days owned by such
person and the exercise of no other options or warrants.
(2) Majority shareholders of Millenium Entertainment LLC which holds 2,700,000
shares of the Company.
(3) Percentage included with Edward M. Spector.
The business address for the individuals named above is c/o Trident Media
Group, Inc., 6349 Palomar Oaks Court, Carlsbad, CA 92009.
Item 12. Certain Relationships and Related Transactions
Lending Relationship
--------------------
The majority shareholder agreed to loan the Company an aggregate of
$595,000 during the first five months of 1999. Interest will be payable six
months in arrears at the rate of 12% per annum. Total borrowings under this
arrangement are payable on demand.
Leasehold Relationship
----------------------
Trident leases 26,599 square feet of improved office and warehouse space for
its headquarters in Carlsbad, California, from Margate Associates, a
partnership owned by the majority shareholder. The lease is scheduled to
expire on May 31,2003, and currently provides for monthly lease payments of
$23,400.
Item 13. Exhibits and Reports on form 8-K
(a) Exhibits -
Exhibit
No. Description
- --------- -----------------------------------------------------------------
2.01 Agreement and Plan of Merger between Registrant and Spector
Entertainment Group, Inc. dated December 30, 1997. Incorporated
by reference to Exhibit 2 of Form 8-K filed January 20, 1998.
3.01 Certificate of Incorporation of the Company. Incorporated by
reference to previous filings.
3.02 By-laws of the Company. Incorporated by reference to previous
filings.
3.03 Certificate of Amendment to the Articles of Incorporation of
International Fire Prevention, Inc., changing the name to Trident
Media Group, Inc. Incorporated by reference to Exhibit 3 of Form
8-K filed January 20, 1998.
10.01 Industrial Lease between Margate Associates and Spector
Entertainment Group, Inc. dated May 31, 1995.
10.02 Transponder Lease Agreement between Spector Entertainment Group,
Inc. and Vista Satellite Communications dated July 1, 1998.
10.03 Stock Subscription Warrant to purchase 80,000 shares of Common
Stock between International Fire Prevention, Inc., and David C.
Merrell dated December 31, 1997. Incorporated by reference to
Exhibit 2 of Form 8-K filed January 20, 1998.
10.04 Stock Subscription Warrant to purchase 20,000 shares of common
stock between International Fire Prevention, Inc. and Leonard W.
Burningham dated December 31, 1997. Incorporated by reference to
Exhibit 2 of Form 8-K filed January 20, 1998.
10.05 1998 Non-Qualified Stock Option Plan.
10.06 Lending Agreement between Trident Media Group, Inc. and Imperial
Bank dated November 17, 1998.
10.07 Revolving Line of Credit between Trident Media Group, Inc. and
Imperial Bank dated August 8, 1997.
10.08 Agreement for Purchase of Stock between Steinley's Photochart
Systems, Inc., Oscar Steinley and Trident Media Group, Inc.
dated April 1, 1998.
10.09 Purchase Agreement between Trident Media Group, Inc. and
GoldenTel Prepaid, LLC dated June 2, 1998.
10.10 Stock Purchase Agreement between Trident Media Group, Inc.,
Cyrus Leland, Denys McCoy and On Track, Inc. effective June
24,1998.
10.11 Stock Exchange and Purchase Agreement between USA
Telecommunications, Inc. and Trident Prepaid, Inc. effective
September 1, 1998.
21.01 Subsidiaries of the Registrant.
27.00 Summary Financial Data Schedule.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the fourth quarter of 1998.
SIGNATURES
In accordance with Section 13 and 15(d) of Securities Exchange Act of
1934, Trident Media Group, Inc. caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
TRIDENT MEDIA GROUP, INC.
Dated: September 15, 1999 By: /s/ Edward M. Spector
----------------------------------
Chief Executive Officer, President
and Director
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of Trident Media Group, Inc., and in the
capacities and on the dated indicated.
Dated: September 15, 1999 By: /s/ Ilene H. Spector
------------------------------
Executive Vice President of
Administration, Corporate
Secretary, Treasurer, Principal
Financial Officer and Director
Dated: September 15, 1999 By: /s/ Eric M. Spector
----------------------------------
Executive Vice President Corporate
Development, and Director
Dated: September 15, 1999 By: /s/ Evan M. Spector
----------------------------------
President Network Services Group
and Director
INDEX TO FINANCIAL STATEMENTS
AND SCHEDULE
TRIDENT MEDIA GROUP, INC. AND SUBSIDIARIES
Page
Numbers
-------
Reports of Independent Accountants F-1
Consolidated Balance Sheet at December 31, 1998 F-2
Consolidated Statement of Operations for the years ended
December 31, 1998 and 1997 F-3
Consolidated Statement of Stockholders' Equity for the years
ended December 31, 1998 and 1997 F-4
Consolidated Statement of Cash Flows for the years ended
December 31, 1998 and 1997 F-5
Notes to the Consolidated Financial Statements F-6 - F-15
Consolidated Financial Statement Schedule F-16
Valuation and Qualifying Accounts and Reserves for the years
ended December 31, 1998 and 1997 F-17
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Trident Media Group, Inc.
We have audited the consolidated balance sheet of Trident Media Group,
Inc. and Subsidiaries (the "Company") as of December 31, 1998, and the related
statements of operations, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Trident Media Group, Inc. and Subsidiaries as of December 31, 1998, and the
consolidated results of their operations and their consolidated cash flows for
the year then ended in conformity with generally accepted accounting
principles.
We also audited Schedule II for the year ended December 31, 1998. In our
opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
/s/ Grant Thornton LLP
- --------------------------------------
GRANT THORNTON LLP
Irvine, California
April 2, 1999, (except for Note 16,
as to which the date is July 30, 1999)
PW'S OPINION
<TABLE>
TRIDENT MEDIA GROUP, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<CAPTION>
December 31,
1998
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 534,800
Accounts receivable, net of allowance for doubtful
accounts of $139,300 638,600
Prepaid expenses and other current assets 274,200
Deferred taxes 649,200
----------
Total current assets 2,096,800
Property and equipment, net 4,154,100
Other assets 233,600
----------
$6,484,500
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $1,163,300
Current portion of bank debt 611,700
Note payable to former shareholder 75,000
Other current liabilities 154,800
----------
Total current liabilities 2,004,800
Bank debt, less current portion 2,455,800
Deferred taxes 905,000
Other long-term liabilities 16,800
----------
Total liabilities 5,382,400
----------
Stockholders' equity:
Common stock, $.001 par value, 100,000,000 shares authorized,
5,000,152 shares issued and outstanding 5,000
Paid in capital 35,000
Retained earnings 1,062,100
----------
Total stockholders' equity 1,102,100
----------
$6,484,500
==========
<FN>
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
<TABLE>
TRIDENT MEDIA GROUP, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
Year Ended
---------------------------
December 31, December 31,
1998 1997
---------- ----------
(Unaudited)
<S> <C> <C>
Revenues $8,538,900 $6,472,400
Operating costs and expenses:
Cost of operations 5,579,200 3,347,400
Selling, general and administrative 2,822,500 1,939,500
Depreciation and amortization 1,145,000 948,400
---------- ----------
Total operating costs and expenses 9,546,700 6,235,300
---------- ----------
Income (loss) from operations (1,007,800) 237,100
Interest expense 300,000 215,000
---------- ----------
Income (loss) before income taxes and
cumulative effect of accounting change (1,307,800) 22,100
Income tax provision (benefit) (422,800) 17,700
---------- ---------
Income (loss) before cumulative effect
of accounting change (885,000) 4,400
Cumulative effect of accounting change, net of $20,700 tax (43,700) -
---------- ---------
Net income (loss) $ (928,700) $ 4,400
========== =========
Per share amounts
Income (loss) before cumulative effect
of accounting change - Basic and diluted $ (0.18) $ 0.00
========== =========
Net income (loss) per share - Basic and diluted $ (0.19) $ 0.00
========== ==========
Weighted average number of shares outstanding
- Basic and diluted 4,856,316 4,856,316
========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
<TABLE>
TRIDENT MEDIA GROUP, INC. and SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1998 and 1997
<CAPTION>
Amounts
Additional Due from
Common Paid-In Related Retained
Stock Capital Parties Earnings Total
--------- ---------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 12,300 $ 50,000 $(69,200) $ 2,004,100 $1,997,200
(Unaudited)
Payment of related party receivable - - 66,900 - 66,900
Net Income - - - 4,400 4,400
---------- -------- -------- ----------- ----------
Balance at December 31, 1997 12,300 50,000 (2,300) 2,008,500 2,068,500
Merger with Spector Entertainment (7,300) (50,000) - (17,700) (75,000)
Group, Inc.
Payment of related party receivable - - 2,300 - 2,300
Issuance of warrants in connection - 35,000 - - 35,000
with SEG merger
Net loss (928,700) (928,700)
---------- -------- -------- ----------- ----------
Balance at December 31, 1998 $ 5,000 $ 35,000 $ - $ 1,062,100 $1,102,100
========== ======== ======== =========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
<TABLE>
TRIDENT MEDIA GROUP, INC. and SUBSIDIARIES
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998 and 1997
<CAPTION >
1998 1997
--------- ----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(928,700) $ 4,400
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,145,000 948,400
Deferred income taxes (449,900) 10,400
(Gain) loss on sale of property and equipment 7,800 (101,400)
Cumulative effect of accounting change 43,700 -
Bad debt expense 80,700 111,000
Expense relating to issuance of warrants 35,000 -
Increase (decrease) in cash resulting from changes in:
Accounts receivable 2,000 (146,600)
Prepaid expenses and other assets (40,000) (333,600)
Accounts payable and accrued liabilities 357,600 (161,100)
Taxes payable 1,600 11,000
Cash flows from operating activities: --------- ---------
Net cash provided by operating activities 254,800 342,500
Cash flows from operating activities: --------- ---------
Cash flows from investing activities:
Change in amounts due from related parties (43,200) (83,900)
Purchase of property and equipment (410,400) (887,100)
Purchase of Steinley's Photochart Systems, Inc. (272,000) -
Purchase of GoldenTel Prepaid, LLC. (230,000) -
Purchase of On Track, Inc.(Net of $13,000 cash acquired) (126,600) -
Proceeds from sale of property and equipment - 347,600
Cash flows from operating activities: --------- ---------
Net cash used by investing activities (1,082,200) (623,400)
Cash flows from operating activities: --------- ---------
Cash flows from financing activities:
Principal payments of bank debt (628,600) (759,800)
Proceeds from bank borrowings 1,443,300 1,100,000
Principal payments on capital leases (9,900) (9,900)
Other (28,700) -
Cash flows from operating activities: --------- ---------
Net cash provided by financing activities 776,100 330,300
Cash flows from operating activities: --------- ---------
Net increase (decrease) in cash and
cash equivalents (51,300) 49,400
Cash and cash equivalents at beginning of year 586,100 536,700
Cash flows from operating activities: --------- ---------
Cash and cash equivalents at end of year $ 534,800 $ 586,100
Cash flows from operating activities: ========= =========
<FN>
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
TRIDENT MEDIA GROUP, INC and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(REFERENCES TO 1997 INFORMATION ARE UNAUDITED)
- -------------------------------------------------------------------------------
1. MERGER WITH SPECTOR ENTERTAINMENT GROUP, INC.:
On January 15, 1998, Spector Entertainment Group, Inc. ("SEG"), which was
formed in 1984, Millenium Entertainment LLC ("Millenium"), a California Limited
Liability Company, and the sole stockholder of SEG, and Trident Media Group,
Inc. ("the Company" or "Trident"), an inactive public company that had been
dormant since 1988, completed an Agreement and Plan of Merger (the
"Agreement"). Pursuant to the Agreement, all of the outstanding shares of SEG
were exchanged for 4,500,000 shares of validly issued, fully paid and non-
assessable common stock of Trident. As a result, the shareholders of Millenium
control approximately 90% of the issued and outstanding shares of Trident.
For accounting purposes, this transaction was recorded as if SEG acquired
Trident (a recapitalization of SEG). The fair value of Trident's net assets,
which approximated cost, was used to determine the value of the previously
outstanding Trident shares. The 1997 financial statements represent the
activities of SEG.
2. THE COMPANY:
Trident, a Nevada corporation, through its wholly-owned subsidiaries,
provides telecommunications services for the broadcast industry and private
satellite networks, video production and management operations services for the
sports and entertainment industries, syndicates sports and entertainment
programming throughout North America and provides telecommunications products
through the sale of prepaid phone cards.
3. MERGER AND RECISION WITH GRAFF PAY-PER-VIEW, INC:
On August 31, 1995, the stockholders of SEG consummated a merger agreement
and plan of reorganization with Graff Pay-Per-View, Inc. ("Graff"). Under this
agreement, Graff acquired all of the issued and outstanding shares of SEG for
shares of common stock in Graff. In addition, certain officers and
stockholders of SEG entered into non-competition agreements and employment
agreements with Graff. On February 7, 1997, SEG finalized an agreement to
split off from Graff, terminating all affiliation with Graff. All stock
transferred back to the original owners at closing.
4. ACQUISITIONS:
The following acquisitions were completed during the year ended December
31, 1998. These transactions were all accounted for under the purchase method
of accounting. Operations for these acquisitions are included in the
consolidated financial statements for the periods after the acquisition dates
for the respective acquisition.
Steinley's Photochart Systems, Inc.
-----------------------------------
On April 1, 1998, the Company acquired 100% of the issued and outstanding
common stock of Steinley's Photochart Systems, Inc. ("Steinley's") for $350,000
($250,000 in cash and the remainder to be paid in monthly installments in
connection with a consulting and non-compete agreement with one of the former
owners). In addition, the former owners of Steinley's can earn an additional
$250,000 based on achieving certain revenue and earnings targets over the next
two years. Steinley's is a provider of audio-video and photo finish services
to the pari-mutuel racing industry.
GoldenTel Prepaid, LLC.
-----------------------
On June 2, 1998, the Company acquired 100% of the issued and outstanding
membership units of GoldenTel Prepaid, LLC. ("GoldenTel") for $200,000 in cash
and an earn-out of an additional $30,000 if certain revenue objectives are
achieved for the two months commencing June 2, 1998. These revenue objectives
were met and the earn-out payment was paid on September 2, 1998. GoldenTel
markets and sells prepaid telephone calling cards primarily through electronic
dispensing machines in the State of Nevada
On Track, Inc.
--------------
On June 24, 1998, the Company acquired 100% of the issued and outstanding
common stock of On Track, Inc. ("OTI") for $200,000. The purchase price was
payable $100,000 at closing and $100,000 less any unrecorded liabilities, as
defined in the agreement, six months after the closing date. On January 15,
1999, $39,600 was paid to the former owners of OTI, as payment for the
remaining purchase obligation. The sellers can also earn additional
compensation based on reaching certain revenue and profit levels over the next
two years. OTI provides video production and related services to the pari-
mutuel racing industry as well as insert advertising to the cable television
industry in the southwest portion of the United States.
Trident Telecard, Inc.
---------------------
In September 1998, the Company acquired certain assets from an unrelated
third party and formed a new company, Trident Telecard, Inc. ("Telecard").
Telecard's purpose was to develop and distribute through a network of
wholesalers prepaid telephone calling cards primarily to the resident alien
ethnic markets, tourists, students and the general public. In December 1998,
the Company determined that the business plan being followed for this entity
was not valid. Accordingly, all operations were discontinued effective as of
December 31, 1998. A reserve to provide for the shut down of operations of
$75,000 has been recorded in the accompanying financial statements.
Supplemental Proforma Results of Operations
--------------------------------------------
The following proforma information presents the consolidated results of
operations for the years ended December 31, 1998 and 1997, as if the above
noted purchases had occurred at the beginning of the periods presented and does
not purport to be indicative of what would have occurred had the acquisitions
actually been made as of such date or of results which may occur in the future.
1998 1997
---------- ----------
[S] [C] [C]
Revenue $9,500,000 $ 8,830,000
Income (loss) from operations (1,175,000) 424,000
Net Income (loss) (1,200,000) 56,000
Income (loss) per share (0.25) 0.01
5. SIGNIFICANT ACCOUNTING POLICIES:
Consolidation
-------------
The consolidated financial statements included the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions
have been eliminated.
Revenue Recognition
-------------------
Revenue from broadcasting and production activities is recognized at the
time services are performed by the Company. Most of the Company's revenue is
generated under long-term contracts with remaining terms from one to five
years. The Company provides services for customers' scheduled events under
these noncancelable contracts for the term of the contract. As of March 31,
1999, contractual revenue for the future periods under these agreements
amounted to approximately $15,600,000.
Revenue from prepaid phone card activities is recognized at the time of
sale.
Fair Value of Financial Instruments
-----------------------------------
The carrying amounts for cash and cash equivalents, accounts receivable,
accounts payable, and accrued expenses reflected in the financial statements
approximated fair value because of the short maturity of these items. The
carrying amount of the Company's long-term debt at December 31, 1998,
approximated fair value because the interest rate is adjusted frequently based
on market conditions.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid debt investments with original
maturities of three months or less to be cash equivalents.
Property and Equipment
----------------------
Property, plant and equipment, including renewals and betterments, are
recorded at cost. Depreciation is provided utilizing the straight-line method
over the estimated useful asset live of 5 to 10 years. Leasehold improvements
are amortized over the shorter of their estimated useful life or the remaining
lease term. Repairs and maintenance are charged to expense as incurred. Gains
or losses from retirements and dispositions of property and equipment are
recognized in the period incurred. The Company evaluates the carrying value of
its long-lived assets to determine if impairment existed due to specific
conditions known to affect the carrying value of its assets. The Company
determined that no adjustment to asset values was necessary.
Goodwill
--------
Goodwill recorded in connection with acquisitions is included in other
assets and is amortized on a straight-line basis over four years.
Income Taxes
------------
The Company records deferred tax assets and liabilities for differences
between the financial statement and tax bases of assets and liabilities
("temporary differences") at enacted tax rates in effect for the year in which
the differences are expected to reverse. The effect on deferred taxes of a
change in tax rates is recognized in income in the period that includes the
enactment date. In addition, valuation allowances are established when
necessary, to reduce deferred tax assets to the amounts expected to be
realized.
Business and Credit Concentrations
----------------------------------
The Company invests its cash in federally insured financial institutions.
Such amounts may, from time to time, be in excess of insured limits.
The Company's customers are not concentrated in any specific geographic
region. During fiscal year 1998, four customers accounted for 32% of total
revenues. During fiscal year 1997, four customers accounted for 39% of total
revenues. The Company reviews a customer's credit history before extending
credit and establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends and other
information.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Reclassifications
-----------------
Certain amounts for 1997 have been reclassified to conform with the 1998
presentation.
6. LOSS PER SHARE:
The computation of basic loss per share of common stock is based on the
weighted average number of shares outstanding during the periods presented.
Options and warrants to purchase common stock of 715,000 and 100,000,
respectively, are outstanding at December 31, 1998, but were not included in
the computation of diluted loss per share for the year ended December 31, 1998,
because their effect was antidilutive.
7. CHANGE IN ACCOUNTING:
The Company historically capitalized certain contract start-up costs,
primarily equipment installation costs, on its long-term television production
and management services contracts and amortized such costs over the life of the
related contract.
Statement of Position 98-5 ("SOP 98-5") issued by the AICPA Accounting
Standards Executive Committee on April 3, 1998, requires all costs of start-up
activities (as defined by SOP 98-5) to be expensed as incurred. The company
has elected early adoption of SOP 98-5 (which is effective for financial
statements beginning after December 15, 1998) and accordingly has written off
as a Change in Accounting start-up costs (as described above) of $46,100 and
organization costs associated with the merger between Trident Media Group and
SEG of $18,300.
<TABLE>
<CAPTION>
8. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1998, consists of the following:
<S> <C>
Operating equipment $ 9,075,200
Electronic dispensing equipment 270,600
Building and leasehold improvements 276,400
Office furniture and equipment 437,500
Automobiles 170,800
-----------
10,230,500
Less accumulated depreciation and amortization (6,076,400)
-----------
$ 4,154,100
===========
</TABLE>
<TABLE>
<CAPTION>
9. BANK DEBT:
Bank debt at December 31, 1998, consists of the following:
<S> <C>
Bank note payable bearing interest at bank's prime rate
plus 2% (8.5% at December 31, 1998). Interest only through
March 1999. Principal payments of $63,800 plus interest due
monthly April through December. Balance due January 15, 2000. $ 2,526,900
Bank revolving note of $500,000 bearing interest at
bank's prime rate plus 2% (8.5% at December 31, 1998). Interest
payments due monthly through January 2000. 500,000
Bank note payable bearing interest at bank's prime rate
plus 2%. Principal payments of $3,125 plus interest due
monthly through January 2000. 40,600
----------
3,067,500
Less current portion 611,700
----------
$ 2,455,800
==========
</TABLE>
Bank debt is collateralized by all of the Company's assets and is
personally guaranteed by the Company's principal stockholders. In conjunction
with the bank notes payable, the Company is restricted from paying dividends,
and is required to meet certain financial ratios and maintain certain tangible
net worth levels. The Company was in violation of the financial covenants at
December 31, 1998. On July 30, 1999, the bank waived the violation of these
covenants (see note 16).
10. INCOME TAXES:
The provision (benefit) for income taxes, excluding $20,700 related to an
accounting change, consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Current:
Federal $ - $ -
State 27,100 7,300
--------- --------
Total Current 27,100 7,300
--------- --------
Deferred:
Federal (504,000) 42,700
State 54,100 (32,300)
--------- --------
Total Deferred (449,900) 10,400
--------- --------
Provision (benefit) for income taxes $ (422,800) $ 17,700
=========== ========
</TABLE>
<TABLE>
<CAPTION>
Temporary differences consist of the following:
As of December 31,
------------------------
1998
----------
<S> <C>
Deferred tax assets:
Net operating loss $ 561,600
Other 87,600
----------
Total current deferred tax assets 649,200
----------
Deferred tax liabilities:
Depreciation/amortization (905,000)
Other -
----------
Total deferred tax liabilities (905,000)
----------
Total net deferred tax liabilities $ (255,800)
==========
</TABLE>
Income tax benefit varies from statutory federal rate primarily due to
state income taxes and adjustment of prior year estimates.
The Company has net operating losses of approximately $1,100,000 which
begin to expire on December 31, 2010.
11. SUPPLEMENTAL DISCLOSURES TO STATEMENT OF CASH FLOWS:
Cash paid for interest was approximately $275,200 and $204,000 during
fiscal years 1998 and 1997, respectively. Cash paid for income taxes was
$32,800 and $0 during fiscal years 1998 and 1997, respectively.
During 1997, in a non-cash transaction, the Company assumed liabilities in
the purchase of fixed assets of approximately $288,000.
12. WARRANTS AND OPTIONS:
Warrants
--------------
In connection with the acquisition of SEG, the Company issued warrants to
purchase 80,000 shares of common stock to a former officer of the Company and
warrants to purchase 20,000 shares of common stock to the Company's legal
counsel. On December 30, 1998, the exercise price of the warrants was set at
$1.875 per share based on (as called for in the warrant agreements) 125% of the
average bid price of the stock as listed on the OTC Bulletin Board for the
period of thirty days immediately prior to the one year anniversary date. The
warrants are exercisable for a period of two years from December 30, 1998.
Options
-------------
In 1998, the Company adopted a stock option plan (the "1998 Non-Qualified
Stock Option Plan") accounted for under APB Opinion 25 and related
Interpretations. The Plan allows the Company to grant options to employees for
up to 850,000 shares of common stock. Options currently outstanding become
exercisable in one to three years from the grant date and expire 6 years after
the grant date. The options are exercisable at no less than 85% of the market
value of the Company's stock on the date of the grant. Options granted to date
have exercise prices equal to the market value of the Company's stock on the
date of the grant, therefore no compensation cost has been recognized for the
Plan. Had compensation cost for the Plan been determined based on the fair
value of the options at the grant dates consistent with the method of Statement
of financial Accounting Standards 123, Accounting for Stock-Based Compensation
(SFAS 123), the Company's net loss and loss per share would have been increased
to the proforma amounts indicated below.
1998
----------
[S] [C]
Net Income As reported $(928,700)
Proforma $(931,650)
Basic loss per share As reported $ (0.19)
Proforma $ (0.19)
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes options-pricing model with the following weighted-
average assumptions: dividend yield of zero percent; expected volatility of
zero percent; risk-free interest rate of 4.0 percent; and expected lives of 6
years.
A summary of the status of the Company's fixed stock option plan as of
December 31, 1998, and changes during the year ending on the date is presented
below.
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Shares Exercise Price Fair Value
------- -------------- ----------
<S> <C> <C> <C>
Outstanding at beginning of year - $ - $ -
Granted 715,000 0.37 0.08
------- ------------- ----------
Outstanding at end of year 715,000 $ 0.37 $ 0.08
======= ============= ==========
</TABLE>
At December 31, 1998, no options were exercisable. The following table
summarizes information concerning options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Weighted
Average Remaining Weighted
Exercise Number Contractual Average
Prices Outstanding Life (years) Exercise Price
-------- ----------- ----------------- --------------
<S> <C> <C> <C>
$ 0.125 590,000 5.20 $ 0.125
$ 1.50 125,000 6.00 $ 1.50
-----------
715,000
===========
</TABLE>
13. TRANSACTION WITH RELATED PARTIES AND COMMITMENTS:
Leases
------
The Company leases office space from Margate Associates, a general
partnership wholly-owned by the majority stockholder of the Company. The lease
which expires May 31, 2003, currently provides for monthly payments of $23,400.
The total office rent expense for the years ended December 31, 1998 and 1997
was approximately $280,800 and $250,000, respectively, and was paid to Margate
Associates.
The Company leased satellite access from Graff during 1997. These leases
were terminated during 1997.
Future payments under the office lease are as follows:
Year ending December 31,
------------------------
1999 $280,800
2000 280,800
2001 280,800
2002 280,800
Thereafter 117,700
--------
$1,240,200
==========
14. COMMITMENTS AND CONTINGENCIES:
Satellite Transponder Lease
---------------------------
The Company leases certain satellite transponder capacity under an
operating lease through June 30, 2001. The Company has an option to extend
this lease for one year at a price to be determined at the time of the
extension. Future minimum payments under this lease are as follows:
Year ending December 31,
------------------------
1999 $1,620,000
2000 1,620,000
2001 810,000
----------
$4,050,000
==========
15. DISCLOSURE OF SEGMENT INFORMATION:
The Company has the following two reportable segments: Network Services
Group and Telecommunications Services (which was commenced during the year
ended December 31, 1998). Network Services Group provides simulcasting,
television production, advertising and related services primarily to
racetracks, casinos and off-track betting locations. The Telecommunications
Services Group offers services primarily through the use of enhanced prepaid
phone cards provided through company owned electronic dispensing units and
retail sales.
The accounting policies used to develop segment information correspond to
those described in the summary of significant accounting policies. The Company
manages segment reporting at a gross profit level. Selling, general and
administrative expenses (including, corporate functions, recruiting and
marketing) are managed at the corporate level separately from the segments.
The following information about the segments is for the year ended
December 31, 1998.
<TABLE>
<CAPTION>
Network Services Telecommunication
Group Services Total
---------------- ---------------- ------------
<S> <C> <C> <C>
Revenues $ 7,470,000 $ 1,068,900 $ 8,538,900
Cost of Operations 4,644,600 934,600 5,579,200
Depreciation and Amortization 1,108,500 36,500 1,145,000
----------- ---------- -----------
Gross Profit $ 1,716,900 $ 97,800 1,814,700
=========== ===========
Selling, General & Administrative 2,822,500
----------
Loss from Operations $(1,007,800)
=========
Identifiable Assets $ 5,985,000 $ 499,500 $ 6,484,500
=========== =========== ===========
</TABLE>
16. SUBSEQUENT EVENT:
The Company's credit facilities with its principal lender amounted to
$3,067,500 as of December 31, 1998. No further funds are available. At
December 31, 1998, the Company had violated the financial covenants called for
in the loan agreement. Pursuant to a Loan Agreement Amendment dated July 30,
1999, the bank has: (i) extended the term of the loans (which had been due on
July 15, 1999) to January 15, 2000; (ii) waived the financial covenant
violations through the date of the agreement; (iii) adjusted the interest rate
from the bank's prime rate plus 2% to the bank's prime rate plus 3.5% through
November 15, 1999, increasing to the bank's prime rate plus 7% after November
15, 1999; and (iv) instituted monthly reporting to the bank of the Company's
financial condition and progress being made by the Company toward obtaining
funds to fully repay the subject loans by January 15, 2000.
During the first part of 1999, the Company's majority shareholder loaned
the Company approximately $500,000.
TRIDENT MEDIA GROUP, INC. and SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
Page
Schedule Number(s)
-------- ---------
II. Valuation and Qualifying Accounts and Reserves F-18
All other schedules are omitted since the required information is not
present or is not presented in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements.
<TABLE>
<CAPTION>
TRIDENT MEDIA GROUP, INC. and SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Years Ended December 31, 1998 and 1997
Column A Column B Column C Column D Column E
-------- ---------- ---------- ---------- ----------
Balance at Additions
Beginning Charged to Balance
of Costs and End
Description Period Expenses Deductions* of Period
----------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Fiscal year ended December 31, 1998
Allowance for Doubtful Accounts $ 184,500 $ 80,600 $ 125,800 $ 139,300
---------- ---------- ----------- ---------
184,500 80,600 125,800 139,300
========== ========== =========== =========
*Write-off of uncollectable trade receivables.
</TABLE>
Exhibit 21.01
TRIDENT MEDIA GROUP, INC.
SUBSIDIARIES OF REGISTRANT
Subsidiary State of Jurisdiction or Incorporation
- --------------------------------- -------------------------------------
Spector Entertainment Group, Inc. California
Steinley's Photochart Systems, Inc. Idaho
On Track, Inc. New Mexico
Trident Prepaid, Inc.
(formerly GoldenTel Prepaid LLC) Nevada
Trident Telecard, Inc. Nevada
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-KSB for the year ended December 31, 1998 of Trident Media Group, Inc. and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 534,800
<SECURITIES> 0
<RECEIVABLES> 777,900
<ALLOWANCES> 139,300
<INVENTORY> 46,600
<CURRENT-ASSETS> 2,096,800
<PP&E> 10,230,500
<DEPRECIATION> 6,076,400
<TOTAL-ASSETS> 6,484,500
<CURRENT-LIABILITIES> 2,004,800
<BONDS> 3,067,500
0
0
<COMMON> 5,000
<OTHER-SE> 1,097,100
<TOTAL-LIABILITY-AND-EQUITY> 6,484,500
<SALES> 0
<TOTAL-REVENUES> 8,538,900
<CGS> 0
<TOTAL-COSTS> 9,546,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 80,600
<INTEREST-EXPENSE> 300,000
<INCOME-PRETAX> (1,307,800)
<INCOME-TAX> (422,800)
<INCOME-CONTINUING> (885,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (43,700)
<NET-INCOME> (928,700)
<EPS-BASIC> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
