<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-K
Annual Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Year Ended June 30, 1996
Commission File No. 33-18050
STONE MEDIA CORPORATION
(Exact name of Registrant as specified in its charter)
Colorado 87-0447213
-------- ----------
State of Incorporation (I.R.S. Employer Identification Number)
634 Preston Royal, Suite 214, Dallas, Texas 75230
------------------------------------------------------------
(Address of Principal Executive Offices) (zip code)
(214) 361-2094
--------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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.
(1) Yes X No (2) Yes X No
------ -------- ------ -------
On June 30, 1996, the average price of Registrant's common stock was
$1.62 per share; and the average market value of the voting stock held by
non-affiliates of Registrant was $11,036,493.00 (6,812,650 shares times $1.62)
As of June 30, 1996, Registrant had outstanding 21,735,350 shares of its $0.001
par value Common Stock.
<PAGE> 2
STONE MEDIA CORPORATION
Form 10-K
Year Ended June 30, 1996
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1 Business . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 2 Properties . . . . . . . . . . . . . . . . . . . . . . . . 2
ITEM 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 2
ITEM 4 Submissions of Matters to a Vote of Security Holders . . . . 2
PART II
- -------
ITEM 5 Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . 2
ITEM 6 Selected Financial Data . . . . . . . . . . . . . . . . . . 3
ITEM 7 Management's Discussion and Analysis of
Financial Conditions and Results of Operation . . . . . . . 3
ITEM 8 Financial Statements and Supplementary Data . . . . . . . . 5
ITEM 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . 5
PART III
- --------
ITEM 10 Directors and Executive Officers . . . . . . . . . . . . . . 5
ITEM 11 Executive Compensation . . . . . . . . . . . . . . . . . . . 8
ITEM 12 Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 13 Certain Relationships and Related Transactions . . . . . . . 10
PART IV
- -------
ITEM 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
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<PAGE> 3
PART I
- --------------------------------------------------------------------------------
ITEM 1. BUSINESS
- --------------------------------------------------------------------------------
GENERAL. Registrant develops and distributes real time interactive
communications and multimedia technologies across networks. Registrant's
business activities include: research and development, marketing and sales of
technologies, design and implementation of broad band networks and related
special projects, distributing multimedia content for networks and providing
Internet access services.
HISTORY. Registrant was organized under the laws of the State of
Colorado, on July 14, 1987, as Harrow Industries, Inc. On April 7, 1994, the
name of Registrant was changed to Stone Media Corporation at which time
Registrant began focusing its business on interactive programs and technologies.
Prior to Fiscal 1996 Registrant was a development stage company.
In Fiscal 1996, Registrant's business activities have primarily focused
on research and development and building a foundation to implement
global access to real time interactive technologies and broad band
communications. In the United States, Registrant began laying the groundwork
for marketing interactive technologies, assisting subscribers in developing
broad band capabilities and installing its Texas network (see below). In Asia
Pacific, Registrant has executed a joint venture shareholders agreement with
its second largest shareholder, Alpha CommSat Public Co., Ltd., ("Alpha
CommSat") a Thai corporation, to distribute real time interactive technologies
in the region. Registrant is currently pursuing a similar focus in Europe.
Registrant has developed and installed a broad band, communications and
video conferencing network for Belton Independent School District ("BISD"),
Bell County, Texas, which is used for "distance learning". Registrant also
offers Internet access services in Bell County, Texas. No other substantive
sales contracts have been executed. It is management's intent to implement an
international marketing strategy in Fiscal 1997 and to hire an experienced
senior vice president of international marketing and sales.
TECHNOLOGY AND CONTENT. EPOCH Communications Corporation ("EPOCH"),
Registrant's wholly owned subsidiary, is the center of Registrant's technology
and content activities. Acquired by merger on July 3, 1995, EPOCH employs an
engineering team which includes a core group which has worked together in
technology and communications for over a decade for the U.S. military and
private industry.
EPOCH develops and owns proprietary technology. The core technology
consists of enhanced information services. Data is digitized and compressed and
then transmitted as "packets" across broad band network access-ways. EPOCH's
control software coordinates the transmission of the data and allows
integration of numerous applications for separate or simultaneous use by an
individual or by multiple participants. Capabilities include: full motion video
conferencing; review and modification of shared data; playback of digitally
stored audio and video and normal PC functions. EPOCH also licenses
technology from third parties for integration into its system.
EPOCH's responsibilities include obtaining and integrating multimedia
content, such as motion pictures, films, music video, games and other
interactive entertainment. An agreement has been executed with Four Media
Company to provide digital compression services and to assist in obtaining film
and audio content.
OFFICES. Registrant has offices in Dallas and Temple, Texas, and
Middlebury, Connecticut. Registrant maintains a presence in Bangkok, Thailand
and Amsterdam, The Netherlands.
REVENUE FORECAST. It is Registrant's intent to initiate an international
marketing campaign and to negotiate with corporations, schools and other public
entities to install broad band networks. There is, however, no assurance that
contracts and subscriptions resulting from Registrant's marketing efforts will
result in sufficient revenues to support Registrant's capital requirements.
Registrant is presently seeking Twenty-Five Million Dollars in convertible debt
financing. (See "Liquidity and Capital Resources".) If Registrant is unable
to obtain sufficient contracts or secure its financing, Registrant may
experience difficulty implementing its current business plan.
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<PAGE> 4
NUMBER OF EMPLOYEES. Registrant, exclusive of Epoch, employees 8
persons, 3 of whom are officers of Registrant and 5 of which are staff. Epoch
employees 8 persons, 3 of whom are officers of Registrant and 5 of which are
staff.
CAPITAL STOCK. The authorized number of shares of Registrant's $0.001
par value Common Stock is 50 million; and the authorized number of shares of
its $1.00 par value Preferred Stock is 20 million. As of June 30, 1996,
Registrant had issued and outstanding 21,735,350 shares of its Common Stock.
Additionally, Registrant had: (i) authorized for issuance 500,000 shares to
the members of its finance committee in consideration for their service on such
committee, (ii) adopted a resolution pursuant to its non-qualified 1994
Employee Stock Option Plan purporting to grant options for an aggregate of
180,000 shares of the Common Stock, and (iii) outstanding an option in favor
of James J. Panipinto, Esq. for 132,900 shares of the Common Stock.
Registrant has not issued any of its Preferred Stock.
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ITEM 2. PROPERTIES
- --------------------------------------------------------------------------------
Neither Registrant nor its subsidiary owns any real properties.
Registrant owns approximately 26 miles of fiber optic cable intended for
installation on the Texas network in Bell County, Texas in the fall of 1996.
Additionally, Registrant owns telecommunications switch. The cable and the
switch are valued at cost, of approximately $900,000.
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ITEM 3. LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
Neither Registrant nor its subsidiary is a party to any legal proceeding.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
- --------------------------------------------------------------------------------
No matters were submitted to the Shareholders of Registrant during the
last quarter of Fiscal 1996.
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ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
- --------------------------------------------------------------------------------
The common stock of Registrant is listed on the Over-the-Counter Bulletin
Board published by the National Quotation Bureau, Inc. ("NQB"). The following
reflects the range of high and low sales prices for each full quarterly period
for each of the past 2 fiscal years:
<TABLE>
<CAPTION>
QUARTER
ENDED 9/30/94 12/31/94 3/31/95 6/30/95 9/30/95 12/31/95 3/31/96 6/30/96
- ------ ------- -------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HIGHS 1.75 7/8 5/16 15/16 1 1/2 1 5/8 1 5/8 2 1/16
LOWS 0.75 0.25 5/32 0.16 0.27 13/16 9/16 11/16
</TABLE>
On June 30, 1996, Alpha CommSat owned approximately 23% of the issued and
outstanding shares of Registrant's common stock and other management and key
employees owned approximately 47.92% of the issued and outstanding shares. (See
Item 10. Directors and Executive Officers for a discussion of the Shareholders
Agreement executed between Alpha CommSat and certain of Registrant's founding
shareholders.
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<PAGE> 5
Since its inception, Registrant has paid no dividends on its stock, and
Registrant does not anticipate that it will pay dividends in the foreseeable
future.
- --------------------------------------------------------------------------------
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
The financial data included in the table shown below has been selected by
Registrant and has been derived from the financial statements for the periods
indicated. The financial statements for the fiscal years ended June 30, 1996,
1995, and 1994 have been examined by J.S. Osborn, P.C., certified public
accountants.
<TABLE>
<CAPTION>
Years Ended June 30 1996 1995 1994 1993 1992
- ------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONAL DATA:
Total Revenue 544,752 -0- 23,722 26,805 9,708
Net Loss (1,789,601) (344,815) (112,633) (9,539) (3,598)
Net Loss Per Share ($0.10) ($0.06) ($0.03) ($0.04) ($0.06)
BALANCE SHEET DATA:
Working Capital 828,988 190,039 19,438 (23,772) (81,260)
Total Assets 3,836,737 197,439 80,916 20,179 40,450
</TABLE>
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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Introduction. Fiscal 1996 represented the beginning of a transition
period for Registrant from a research and development firm to a distributor of
real time interactive communications and multimedia technologies, as Registrant
began developing strategic relationships in Texas, Connecticut, Bangkok, and
Amsterdam. As of the completion of its contract with Belton ISD, Texas,
Registrant ceased to be a development stage company.
Fiscal 1996 began with the completion of its merger with Epoch and the
execution with Texas Utilities Communications, Inc. ("TU Communications"), an
affiliate of Texas Utilities Electric Company, Dallas, Texas ("TU Electric") of
a "Fiber Optics License Agreement for Transmission Structures and Rights of
Way" (the "Transmission Agreement"). (See Registrant's Form 10-K for Fiscal
1995.) In September 1995, the Chairman of Registrant relocated to Bangkok,
Thailand; and developed a relationship with Nithipat Capital P.L.C.
("Nithipat"), a regional investment banking and financial advisory firm. The
relationship with Nithipat resulted in an investment in Registrant of $5
million by Alpha CommSat, a member of the Alphatec Group. (The Alphatec Group is
principally owned and headed by Mr. Charn Uswachoke of Bangkok, Thailand). In
March, 1995, Registrant's Chairman relocated to Amsterdam, The Netherlands, to
establish strategic relationships in western Europe. Registrant believes that
the relationships
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<PAGE> 6
developed during Fiscal 1996 will benefit Registrant in years to come as it
distributes technologies and implements broad band communication networks in
Texas, Asia-Pacific and Europe.
Liquidity and Capital Resources; Material Changes in Financial Condition.
Operations of Registrant have been funded primarily from the sale of
securities.
As of December 31, 1995, Registrant had exhausted virtually all of its
working capital. On January 26, 1996, Registrant and Alpha CommSat entered
into a Stock Purchase Agreement pursuant to which Alpha CommSat purchased, in
installments, Five Million Shares of Registrant's $0.001 common shares at a
price of one dollar ($1.00) per share. The proceeds of such stock purchase
were used, or allocated for use, as follows: to the Chief Executive Officer
and to affiliates of the Chief Executive Officer to reimburse such officer and
affiliates for funds advanced to or on behalf of Registrant, and to make
payments on a note payable from Registrant to the Chief Executive Officer; to
past due and current trade payables (including amounts to settle claims and
litigation thereto); to TU Communications pursuant to the Transmission
Agreement, for the administrative and engineering charges anticipated to be
incurred by TU Communications in connection with its routes from Killeen,
Texas to Temple, Texas, and from Temple, Texas to Waco, Texas; and to current
expenses.
Pursuant to its Transmission Agreement, Registrant has issued and
executed with TU Communications, two Designation Requests to install
approximately seventy (70) miles of fiber optic cable across transmissions
lines: the first commencing in Killeen (Fort Hood) Texas and ending in Temple,
Texas; and the second continuing from Temple to Waco, Texas. Registrant has
expended approximately $1.4 million in engineering and materials (including the
26 miles of fiber cable and switch referenced above) for the first 26.25 mile
phase. It is anticipated that this first phase will be completed in the spring
of 1997. Registrant has paid TU Communications its fee for engineering the
second 43.75 mile phase, which is presently scheduled for installation in the
spring of 1977. Fiber optic cable for the second phase has not been purchased,
nor does the Registrant have adequate moneys to purchase and install such
cable. Installation of the second phase is contingent upon completion of a
proposed twenty-five million dollar capital offering, which may take the form
of convertible debt. If Registrant is not successful in raising such funds,
Registrant will not be able to take advantage of agreements negotiated with TU
Communications.
In Fiscal 1997, Registrant anticipates hiring a Senior Vice President of
Marketing and a national marketing staff. Additionally, Registrant anticipates
engaging, a consulting firm to assist in the positioning of its products and
national marketing.
Material Changes in Results of Operations. The Company has generated no
substantial revenues from operations since completing its contract with Belton
ISD. It is not anticipated that the Company will generate substantial
operating revenues from its fiber network in Bell County, Texas, prior to the
end of Fiscal Year 1997. Registrant anticipates that the international
marketing staff to be recruited will generate revenue to assist in covering the
costs of operations.
Important Considerations Related to Forward-Looking Statements. It
should be noted that this discussion contains forward looking statements which
are subject to substantial risks and uncertainties. There are a number of
factors which could cause actual results to differ materially from those
anticipated by statements made herein. Such factors include, but are not
limited to, changes in general economic conditions, the growth rate of the
market for Registrant's products and services, the timely availability and
market acceptance of these products and services, the effect of competitive
products and pricing, and the irregular pattern of revenues, as well as a
number of other risk factors which could effect the future performance of
Registrant.
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<PAGE> 7
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
The financial statements of Registrant are set forth immediately
following the signature page of this Form 10-K. (See "Item 14. Exhibits,
Financial Statement Schedules, and Reports on Form 8-K" for index to Financial
Statements.)
- --------------------------------------------------------------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON FINANCIAL DISCLOSURE
- --------------------------------------------------------------------------------
Registrant has had no disagreements with its certified public accountants
with respect to accounting practices or financial disclosure.
PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
The following table sets forth, as of June 30, 1996, the name, age, and
position of each executive officer and director and the term of office of each
director of Registrant.
<TABLE>
<CAPTION>
DIRECTOR AND/OR
NAME AGE POSITION OFFICER SINCE
- ---- --- -------- -------------
<S> <C> <C> <C>
Elbert G. Tindell 49 Chairman of the Board March 1994
& Chief Executive Officer
Tommy Stone 63 Director & President March 1994
Robert R. Kincaid 34 Director & Chief July 1995
Operating Officer
Joseph F. Coughlin 44 Director March 1994
James J. Roach 47 Director March 1994
Somkuan Uswachoke 35 Director January 1996
Tarwon Yaowakun 58 Director February 1996
</TABLE>
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<PAGE> 8
TERM OF OFFICE.
Each director of Registrant serves for a term of one year, and thereafter
until his or her successor is elected at Registrant's annual shareholder's
meeting, and is qualified, subject to removal by Registrant's shareholders.
Each officer serves, at the pleasure of the Board of Directors, for a term of
one year.
IN CONNECTION WITH ITS FIVE MILLION DOLLAR INVESTMENT IN REGISTRANT'S
COMMON STOCK, ALPHA COMMSAT ENTERED INTO A SHAREHOLDERS AGREEMENT (THE
"SHAREHOLDERS AGREEMENT") WITH REGISTRANT AND THE FOLLOWING SHAREHOLDERS
(COLLECTIVELY, THE "FOUNDERS"): ELBERT G. TINDELL, TOMMY STONE, RICHARD W.
KINCAID, JAMES J. ROACH, AND JOSEPH F. COUGHLIN. PURSUANT TO THE SHAREHOLDERS
AGREEMENT, THE FOUNDERS ARE REQUIRED TO VOTE THEIR SHARES IN FAVOR OF TWO
DESIGNEES OF ALPHA COMMSAT TO REGISTRANT'S BOARD OF DIRECTORS, AND CERTAIN
MATERIAL MATTERS MAY NOT BE ACTED UPON UNLESS A DESIGNEE OF ALPHA COMMSAT IS
PRESENT. REFERENCE IS MADE TO THE SHAREHOLDERS AGREEMENT WHICH IS ATTACHED
HERETO IN ITS ENTIRETY.
FAMILY RELATIONSHIPS.
Tommy Stone, President of Registrant, is the half-brother of Elbert G.
Tindell, Chairman of the Board of Registrant and Registrant's largest
shareholder. Beneficiaries of The Tindell Children's Trust, of which Robert R.
Kincaid serves as trustee, and beneficiaries of the Tindell Family Limited
Partnership,include members of the family of Elbert G. Tindell. Robert R.
Kincaid, Chief Operating Officer, is the son of Richard W. Kincaid, Registrant's
acting financial officer. Beneficiaries of The Kincaid Family Limited
Partnership include Richard W. Kincaid, Robert R. Kincaid and other family
members.
BIOGRAPHICAL INFORMATION.
Set forth below is certain biographical information regarding each of
Registrant's Directors and Executive Officers.
Elbert G. Tindell. Mr. Tindell is the founder of Stone Media
Corporation. His expertise includes many years working in different aspects
of telecommunications technology, instrumentation engineering and electronics,
including entertainment-on-demand technology for many years. Mr. Tindell
earned his Bachelor of Science degree in Industrial Arts with a minor in
Business Administration from North Texas State University in Denton, Texas in
1974. Mr. Tindell is a former member of the US Marine Corps.
Tommy Stone. Mr. Stone is a seasoned executive with over 36 years in
business and educational management and military leadership. He is a retired
Brigadier General in the National Guard and currently serves as a City
Councilman in Temple, Texas. Mr. Stone served for eight years on the Temple
Civil Service Commission and serves the State of Texas as an active member of
the Texas Legislative Task Force. Mr. Stone earned his Bachelor of Science
degree from Sam Houston State University and his Master of Education from
Hardin-Simmons University. He has attended the Personnel Management for
Executives course and is a graduate of the United States Army War College.
Robert R. Kincaid. Mr. Kincaid is an attorney licensed to practice law
in the State of Texas. He is a 1984 graduate of Trinity University in San
Antonio, Texas, where he earned his Bachelor's Degree with Honors in Business
Administration. He then attended the University of Texas School of Law,
graduating in 1987. From 1987 to 1995, Mr. Kincaid privately praticed law at
a Dallas law firm.
James J. Roach. Mr. Roach is President and owner of a private security
agency. His client base, comprised of financial institutions, insurance
companies, businesses, attorneys and individuals, retains him to perform
various security functions and investigative services. Mr. Roach is a retired
Connecticut State Trooper with over 10 years service as a senior administrator.
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<PAGE> 9
Joseph F. Coughlin. Mr. Coughlin is a businessman residing in North
Carolina.
Somkuan Uswachoke. Mr. Uswachoke is the Chief Executive Officer of the
Alpha Technopolis Group, Bangkok, Thailand ("AlphaTec"). He is currently
pursuing a Masters Degree in Marketing Management at Kasetsart University. Mr.
Uswachoke started his career as the Managing Director of D.S. Plastic Company
Limited. He later joined Micron Precision Manufacturing Co., Ltd. which in
1993, was combined with Micron Ashin and Micron Packaging to form Micron Group
of Companies.
Tarwon Yaowakun. Mr. Yaowakun is the President of Alpha CommSat Co.
Ltd. He has finished the Post Graduate Course of Business Administration from
Goteborg University, Sweden under a Swedish Government Scholarship. He worked
for the Post and Telegraph Office of Thailand for 12 years before transferring
to the Communication Authority of Thailand. Working there for 18 years, his last
position was the Executive Vice President for Economics and Marketing.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS.
To the knowledge of management, during the past five years, no present
or former director, executive officer, person nominated to become a director or
an executive officer of Registrant, promoter, or control person:
(1) filed a petition under the federal bankruptcy laws or any
state insolvency law, nor had a receiver, fiscal agent or similar
officer appointed by a court for the business or property of such
person, or any partnership in which he was a general partner at or
within two years before the time of such filing, or any corporation or
business association of which he was an executive officer at or within
two years before the time of such filing, or any corporation or
business association of which he was an executive officer at or within
two years before the time of such filing;
(2) was convicted in a criminal proceeding or named the subject of
a pending criminal proceeding (excluding traffic violation and other
minor offenses);
(3) was the subject of any order, judgement or decree, not
subsequently reversed, suspended, or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining him from
or otherwise limiting, the following activities: acting as a futures
commission merchant, introducing broker, commodity trading advisor,
commodity pool operator, floor broker, leveraged transaction merchant
associated person of any of the foregoing, or as an investment
advisor, underwriter, broker, or dealer in securities, or as an
affiliate person, director, or employee of any investment company, or
engaging in or continuing any conduct or practice in connection with
such activity; (ii) engaging in any type of business practice; or (ii)
engaging in any activity in connection with the purchase or sale of
any security or commodity or in connection with any violation of
federal or state securities laws or federal commodities laws;
(4) was the subject of any order, judgment, or decree, not
subsequently reversed, suspended, or vacated, of any federal or state
authority barring, suspending, or otherwise limiting for more than 60
days the right of such person to engage in any activity described
above under this item, or to be associated with persons engaged in any
such activity;
(5) was found by a court of competent jurisdiction in a civil
action or by the Securities and Exchange Commission to have violated
any federal or state securities law, and the judgment in such civil
action or finding by the Securities and Exchange Commission has not
been subsequently reversed, suspended, or vacated; or
(6) was found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to have violated
any federal commodities law, and the judgment in such civil action or
finding by the Commodity Futures Trading Commission has not been
subsequently reversed, suspended, or vacated.
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ITEM 11. EXECUTIVE COMPENSATION
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ISSUANCE OF COMMON STOCK.
In the fourth quarter of Fiscal Year 1995, certain Directors and
Executive Officers of Registrant agreed to accept when issued, shares of
Registrant's common stock, at a price of nineteen cents ($0.19) per share, in
lieu of cash payment of the compensation owed to them. The issuance of such
shares was effected pursuant to the Registration on Form S-8 of Registrant's
Employee/Consultant Compensation Plan on January 29, 1996. As members of
Registrant's Finance Committee Elbert G. Tindell, Robert R. Kincaid and Richard
W. Kincaid are entitled to receive 100,000 shares each for their services on
such committee. (As of June 30, 1996, such shares had not been issued.) No
other compensation has been paid to the Directors and Executive Officers of
Registrant or Epoch through the issuance of common stock during Fiscal 1996.
CASH COMPENSATION.
No cash compensation was paid to any director or executive officer of
Registrant during the fiscal years ended June 30, 1994, 1993, 1992, or 1991.
No cash compensation was paid to any director or executive officer of
Registrant during the fiscal year ended June 30, 1995, except for Tommy Stone,
who during such period was paid $18,000. During Fiscal Year 1996, the Officers
and Directors of, and persons affiliated with, Registrant received the
following cash compensation for services from the Company:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Pension or
Retirement
Benefits Estimated
Accruing During Annual Benefits
Aggregate Registrant's upon
Name Capacity Remuneration last Fiscal Year Retirement
---- -------- ------------ ---------------- ----------
<S> <C> <C> <C> <C>
Elbert G. Director & Chief $169,922 none none
Tindell Executive Officer
Tommy Stone Director & $ 52,833 none none
President
Robert R. Kincaid Director & Chief $112,500 none none
Operating Officer
James J. Roach Director none none none
Joe Coughlin Director none none none
Somkuan Director none none none
Uswachoke
Tarwon Yaowakun Director none none none
Richard W. Kincaid Acting CFO $36,000 (paid to none none
Azurite, Inc., a
</TABLE>
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<PAGE> 11
<TABLE>
<S> <C> <C> <C> <C>
company wholly
owned by Mr.
Kincaid, for Mr.
Kincaid's
services)
Robert E. Horstman President of $90,000 none none
Epoch
BONUSES AND DEFERRED COMPENSATION: None.
COMPENSATION PURSUANT TO PLANS: None.
PENSION TABLE: None.
COMPENSATION OF DIRECTORS: See Cash Compensation and Stock Compensation Above.
</TABLE>
EMPLOYMENT CONTRACTS AND
TERMINATION OF EMPLOYMENT AND CHANGES IN CONTROL ARRANGEMENTS
There are no compensatory plans or arrangements, including payments to
be received from Registrant, with respect to any person named in Cash
Compensation set out above which would in any way result in payments to any
such person because of his resignation, retirement, or other termination of
such person's employment by Registrant or its subsidiaries, or any change in
control of Registrant, or a change in the person's responsibilities following a
changing in control of Registrant.
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ITEM 12. SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
The following tables set forth as of June 30, 1996, the address, and the
number of shares of Registrant's Common Stock, par value $0.001 per share, held
of record or beneficially by each person who held of record, or was known by
Registrant to own beneficially, more than 5% of the then 21,735,350 issued and
outstanding shares of Registrant' s Common Stock, and the name and
shareholdings of each director and of all officers and directors as a group:
<TABLE>
<CAPTION>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AS OF JUNE 30, 1995
%of
Class Beneficial Owner Amount Class
----- ---------------- ------ -----
<S> <C> <C> <C>
Common Elbert G. Tindell 6,155,300 28.31
Tindell Family LP
634 Preston Royal
Suite 214
Dallas, Texas 75230
Common Alpha CommSat Co., Ltd. 5,000,000 23.00
142 Two Pacific Place Bldg.
23FL Sukhumvit Road
Bangkok 10110 Thailand
</TABLE>
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SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
AS OF JUNE 30,1996
CLASS BENEFICIAL OWNER(1) AMOUNT % OF CLASS
----- ------------------- ------ ----------
<S> <C> <C> <C>
Common Elbert G. Tindell 6,155,300 28.32
Common Alpha CommSat 5,000,000 23.00
Common Tommy Stone 131,600 0.61
Common James J. Roach 235,000 1.08
Common Richard W. Kincaid 335,000 1.54
Common Robert R. Kincaid 382,700 1.76
Common Robert R. Kincaid, as Trustee
of the Tindell Children's
Trust 509,500 2.35
Common Kincaid Family Limited
Partnership 500,000 2.30
Common Joseph F. Coughlin 650,000 2.99
Common Robert E. Horstman 515,600 2.37
Common William A. Fahle 500,000 2.30
Common Mike Burks 500,000 2.30
------- ----
ALL OFFICERS AND DIRECTORS
AS A GROUP (12 PERSONS): 15,414.700 70.92
========== =====
</TABLE>
(1) All shares owned directly are owned beneficially and of record, and such
Shareholder has sole voting, investment, and dispositive power, unless
otherwise noted.
- --------------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------------------------
TRANSACTIONS WITH AND INDEBTEDNESS OF MANAGEMENT AND OTHERS
Except as described above, there were no material transactions or series
of similar transactions, since the beginning of Registrant's last fiscal year,
or any currently proposed transactions, or series of similar transactions, to
which Registrant was or is to be a party, in which the amount involved exceeds
$60,000 and in which any director or executive officer, or any security holder
who is known to Registrant to own of record or beneficially more than 5% of any
class of Registrant's common stock, or any member of the immediate family of
any of the foregoing persons, has an interest.
-10-
<PAGE> 13
PART IV
- --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
(a)(1) FINANCIAL STATEMENTS. The following financial statements are
included in this report:
<TABLE>
<CAPTION>
Title of Document Page
----------------- ----
<S> <C>
Independent Auditors Report of J.S. Osborn, P.C., Certified Public Accountants F-1
Consolidated Balance Sheets as of June 30, 1996 and 1995 F-2
Consolidated Statements of Operations for the Years Ended June
30, 1996, 1995, and 1994 F-3
Consolidated Statement of Stockholders' Equity and Accumulated Deficit for
the Three Years ended June 30, 1996, 1995 and 1994 F-4
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1996, 1995, and 1994 F-5
Notes to Financial Statements F-8
</TABLE>
(A)(2) FINANCIAL STATEMENT SCHEDULES. None.
(A)(3) EXHIBITS. The following exhibits are included as part of this report:
<TABLE>
<CAPTION>
EXHIBIT NO. SEC REF. NO. TITLE OF DOCUMENT LOCATION
- ----------- ------------ ----------------- --------
<S> <C> <C> <C>
Item 3 Articles of Incorporation and Bylaws
- ------ ------------------------------------
3.01 3 Articles of Incorporation Incorporated by
Reference
3.02 3 Bylaws Incorporated by
Reference
Item 10 Material Contracts
- ------- ------------------
10.01 Shareholders Agreement, executed
January, 1996 and executed by and
between Registrant, Alpha Co., Ltd.
and the Founders as defined above
</TABLE>
FINANCIAL DATA SCHEDULE
-11-
<PAGE> 14
REPORTS ON FORMS 8-K
Registrant filed no reports on Form 8-K during the last quarter of
Fiscal 1996.
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
STONE MEDIA CORPORATION,
a Colorado corporation
-----------------------------------
Robert R. Kincaid, Chief Operating
Officer
Dated:
-----------------------------------
Richard W. Kincaid, Treasurer and
Acting Financial Officer
Dated:
-12-
<PAGE> 15
[J. S. OSBORN, P.C. LETTERHEAD]
=====================================
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Stone Media Corporation
Dallas, Texas
We have audited the accompanying consolidated balance sheets of Stone Media
Corporation and subsidiary as of June 30, 1996 and June 30, 1995 and the
related consolidated statements of operations, stockholders' equity and
accumulated deficit, and cash flows for each of the three years in the period
ended June 30, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provides a
reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Stone Media Corporation and subsidiary as of June 30, 1996 and
1995, and the results of their operations and their cash flows for each of the
three years in the period ended June 30, 1996 in conformity with generally
accepted accounting principles.
/s/ J. S. OSBORN, P. C.
- ---------------------------
J. S. Osborn, P. C.
Dallas, Texas
August 26, 1996
F-1
<PAGE> 16
STONE MEDIA CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and 1995
ASSETS
------
<TABLE>
<CAPTION>
CURRENT ASSETS: 1996 1995
---------- ----------
<S> <C> <C>
Cash $1,710,100 $ 75,054
Accounts Receivable 3,023 0
Accounts Receivable - Related Party $ 33,687 5,315
Costs in excess of billings on uncompleted contract 0 111,214
Interest receivable 2,181 0
Prepaid Expenses and Deposits 30,250 0
---------- ----------
Total Current Assets 1,779,241 191,583
EQUIPMENT:
Equipment (net) 276,510 4,257
---------- ----------
Total Equipment 276,510 4,257
OTHER ASSETS:
License 617,000 0
Cable Equipment 897,928 0
Software Costs (net) 237,638 0
Goodwill (net) 27,061 0
Organization costs (net) 760 1,000
Restricted common stock - Related party 599 599
---------- ----------
Total Other Assets 1,780,986 1,599
---------- ----------
TOTAL ASSETS $3,836,737 $ 197,439
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 782,627 $ 253,800
Accounts payable-Related party 109,400 98,748
Shareholder Advance 45,000 5,000
Payroll taxes payable 12,696 0
Provision for loss on uncompleted contract 0 24,074
Accrued Expenses 530 0
---------- ----------
Total Current Liabilities 950,253 381,622
Commitments and Contingencies (Note G):
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $1.00 par value 0 0
Common stock, $0.001 par value 21,735 5,561
Additional paid-in capital 5,239,977 395,883
Accumulated deficit (2,375,228) (585,627)
---------- ----------
Total Stockholders' Equity (Deficit) 2,886,484 (184,183)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $3,836,737 $ 197,439
========== ==========
</TABLE>
See accompanying notes.
F-2
<PAGE> 17
STONE MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended June 30, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE:
Completed Contract $ 517,542 $ 0 $ 0
----------- ----------- -----------
Total Revenue 517,542 0 0
COST OF SALES:
Cost of Contract 517,037 0 0
----------- ----------- -----------
Total Cost of Sales 517,037 0 0
GROSS MARGIN 505 0 0
OPERATING EXPENSE:
Amortization 62,656 0 0
Consulting fees - Related party 87,791 177,873 38,299
Depreciation 27,493 784 3
General and Administrative 864,756 141,261 29,114
Loss on contract 0 24,074 0
Salaries 768,680 0 0
----------- ----------- -----------
Total Operating Expense 1,811,376 343,991 67,416
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest Income 27,210 0 0
Interest Expense (5,940) 0 0
Loss on sale of marketable security 0 (824) (48,810)
Write down of note 0 0 (20,179)
Forgiveness of accrued expenses 0 0 23,772
----------- ----------- -----------
Total Other Income (Expense) 21,270 (824) (45,217)
NET LOSS $(1,789,601) $ (344,815) $ (112,633)
=========== =========== ===========
Weighted average shares outstanding 18,346,620 5,567,043 3,330,517
LOSS PER SHARE: $ (0.10) $ (0.06) $ (0.03)
=========== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 18
STONE MEDIA CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND ACCUMULATED DEFICIT
For the Three Years Ended June 30, 1996, 1995, and 1994
<TABLE>
<CAPTION>
Preferred Common Paid in Accumulated
Shares Amount Shares Amount Capital Deficit
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993 -0- $ 0 1,081,250 $ 1,081 $ 123,505 $ (128,179)
========== ========== ========== ========== ========== ===========
Shares issued for securities 3,300,000 3,300 149,029
Shares issued for services 5,418,750 5,419 251,972
Shares issued for cash 220,000 220 0
Shares returned and canceled (4,618,750) (4,619) (214,763)
Net loss (112,633)
========== ========== ========== ========== ========== ===========
Balance, June 30, 1994 -0- $ 0 5,401,250 $ 5,401 $ 309,743 $ (240,812)
========== ========== ========== ========== ========== ===========
Shares issued for cash 140,000 140 82,360
Shares issued for services 20,000 20 3,780
Shares issued for services 1,086,500 1,087 205,349
Shares returned and
cancelled (1,086,500) (1,087) (205,349)
Net loss (344,815)
========== ========== ========== ========== ========== ===========
Balance, June 30, 1995 -0- $ 0 5,561,250 $ 5,561 $ 395,883 $ (585,627)
========== ========== ========== ========== ========== ===========
Shares issued for merger 10,000,000 10,000
Shares issued for cash 5,220,500 5,220 5,096,805
Shares issued for payables 953,600 954 180,230
Cost of stock issuance (432,941)
Net loss (1,789,601)
========== ========== ========== ========== ========== ===========
Balance, June 30, 1996 -0- $ 0 21,735,350 $ 21,735 $5,239,977 $(2,375,228)
========== ========== ========== ========== ========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 19
STONE MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended June 30, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,789,601) $ (344,815) $ (112,633)
Adjustments to reconcile net loss to net
cash (used) by operating activities:
Write off of note and interest 0 0 20,179
Loss on sale of marketable securities 0 824 48,810
Shares issued for service-Related party 0 3,800 37,999
Amortization 62,656 0 0
Depreciation 27,493 784 3
Loss on uncompleted contract (24,074) 24,074 0
Changes in working capital:
(Increase) decrease in
Accounts receivable (3,023) (5,315) 0
Costs in excess of billings 111,214 (111,214) 0
Interest receivable (2,181) 0 0
Prepaid expenses and deposits (30,250) 0 0
Increase (decrease) in
Accounts payable 528,827 251,370 (18,876)
Accounts payable-Related party 95,000 0 0
Accrued interest payable-Related party 0 0 (2,466)
Payroll taxes payable 12,696 (1,897) 1,897
Stock Issued for Payables 181,184 0 0
----------- ----------- -----------
NET CASH (USED)
BY OPERATING ACTIVITIES: (830,059) (182,389) (25,087)
</TABLE>
See accompanying notes.
F-5
<PAGE> 20
STONE MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended June 30, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment (234,125) (4,841) (203)
License (617,000) 0 0
Cable Equipment (897,928) 0 0
Cash from merger 5,894 0 0
Merger Accounts receivable 16,467 0 0
Merger Debt (127,851) 0 0
Merger Debt-Related Party (275,199) 0 0
Sale of marketable securities 0 53,272 48,824
Organization costs 0 (1,000) 0
---------- ---------- ----------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES: (2,129,742) 47,431 48,621
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of
common stock 5,102,025 82,500 230
Cost of stock issuance (432,941) 0 0
Employee Advances 1,060 0 0
Loan to Affiliate (62,500) 0 0
Payment from Affiliate 30,000 0 0
Accounts receivable-related party 1,551 0 0
Accounts payable-Related party (84,348) 96,490 2,258
Proceeds from shareholder advances 106,600 5,000 0
Payment of shareholder advances (66,600) 0 0
Proceeds from bank loan 150,000 0 0
Payback bank loan (150,000) 0 0
---------- ---------- ----------
NET CASH PROVIDED
BY FINANCING ACTIVITIES: 4,594,847 183,990 2,488
---------- ---------- ----------
NET INCREASE IN CASH: 1,635,046 49,032 26,022
CASH AT BEGINNING OF YEAR 75,054 26,022 0
---------- ---------- ----------
CASH AT END OF YEAR $1,710,100 75,054 26,022
========== ========== ==========
</TABLE>
See accompanying notes.
F-6
<PAGE> 21
STONE MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended June 30, 1996, 1995, and 1994
SUPPLEMENTAL DISCLOSURE OF
--------------------------
CASH FLOW AND NON-CASH INVESTING ACTIVITIES
-------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOW INFORMATION:
- ----------------------
Interest paid $ 5,940 $ 0 $ 0
Income taxes paid $ 0 $ 0 $ 0
NON-CASH INVESTING ACTIVITIES:
- ------------------------------
Common stock issued for:
Merger $ 10,000 $ 0 $ 0
Marketable securities 0 0 151,730
Restricted Common Stock 0 0 599
======== ======== ========
Total $ 10,000 $ 0 $152,329
======== ======== ========
NON-CASH FINANCING ACTIVITIES:
- ------------------------------
Common stock issued for:
Services $181,184 $ 3,800 $ 37,999
======== ======== ========
Total $181,184 $ 3,800 $ 37,999
======== ======== ========
</TABLE>
See accompanying notes.
F-7
<PAGE> 22
STONE MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
History:
The Company was organized July 14, 1987, as a Colorado corporation under the
name Harrow Industries Inc. On April 7, 1994, the Company changed its name to
Stone Media Corporation.
The Company's wholly owned subsidiary, SMC Acquisition Corp. (SMC), entered
into a merger agreement with Epoch Communications Corporation (Epoch), a
private company and related party of Stone Media Corporation. Epoch was in the
business of designing and developing communication software. The merger was
effective on July 3, 1995, and the results of operations of Epoch is included
in the accompanying financial statements since the date of acqusition. SMC
exchanged 10,000,000 shares of Stone Media Corporation's common stock, valued
at $10,000, for 100% of the outstanding voting common stock of Epoch. This
business combination was accounted for as a purchase. SMC changed its name to
Epoch COmmunications Corporation on the effective date of the merger. A summary
of assets and liabilities acquired is as follows:
<TABLE>
<S> <C>
Cash $ 5,894
Receivables 19,966
Software Costs 297,047
Equipment 65,621
--------
Total Assets $388,528
========
Payables $143,398
Shareholder advances 265,199
--------
Total Liabilities $408,597
========
</TABLE>
The following unaudited proforma summary presents the Company's financial
position and results of operations for the immediately preceding year as though
the acquisition had taken place at the beginning of fiscal year ended June 30,
1995.
<TABLE>
<CAPTION>
Unaudited
-------------
Pro Forma
-------------
1995
--------
<S> <C>
Total Assets $ 469,090
Total Liabilities $ 812,268
Revenues -0-
Net Loss $(404,366)
Loss per Share $ (0.03)
</TABLE>
Before fiscal 1996, the Company was in the development stage.
The Company develops and distributes real time interactive communications and
multimedia technologies across networks. The business activities include
research and development, marketing and sales of technologies, design and
implementation of broad band networks and related special projects,
distributing multimedia content for networks and providing Internet access
services.
Basis of Accounting:
It is the Company's policy to prepare its financial statements on the accrual
basis of accounting in accordance with generally accepted accounting
principles. Receipts are recorded as income in the period in which they are
earned and expenses are recognized in the period in which the related liability
is incurred.
Use of Accounting Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Long-Lived Assets:
In March 1995, the FASB issued Statement of Financial Accounting Standards No.
121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." SFAS 121 requires recognition of
impairment of long-lived assets used in operations when indicators of
impairment are present and in the event of net book value of such assets
exceeds the future undiscounted cash flows attributable to such assets.
F-8
<PAGE> 23
STONE MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED):
Revenue and Cost Recognition:
Revenues are recognized on the completed contract method. A contract is
considered complete when the work has been accepted by the customer. The
Company completed one contract in 1996 and recognized the entire contract
amount in the current year.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor, supplies, tools,
and repairs. General and administrative costs are charged to expense as
incurred.
Principles of Consolidation:
The Company consolidates its financial statements with its wholly owned
subsidiary, Epoch Communications Corporation, formerly SMC Acquisition Corp.
All significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents:
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments with a maturity of three months or less to be cash
equivalents. The Company places its cash with high quality financial
institutions. At times, cash balances may be in excess of the FDIC insurance
limit.
Loss per Common Share:
Loss applicable to common stock is based on the weighted average number of
shares of common stock outstanding during the year. The inclusionn of common
stock equivalents in the loss per share computation have not been included
because they would be anti-dilutive under the treasury stock method.
Property and Equipment:
Property and Equipment are carried at cost. Upon retirement or disposal, the
asset cost and related accumulated depreciation are removed from the accounts
and any resulting gain or loss is included in the determination of net income.
Expenditures for maintenance, repairs and renewals are charged to expense when
incurred. Expenditures which significantly increase value or extend useful
asset lives are capitalized.
F-9
<PAGE> 24
STONE MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED):
Depreciation and Amortization:
The Company depreciates its cost in equipment based on the estimated number of
years benefited using the straight-line method.
Software costs are amortized over five years or less, depending on the
usefulness of the capitalized costs, using the straight-line method.
The license agreement is amortized over ten years using the straight-line
method. In accordance with Company policy the net capitalized costs are
evaluated for impairment on an annualized basis.
Organization costs are amortized over sixty months using the straight-line
method.
Income Tax:
The Company is subject to the greater of federal income taxes computed under
the regular system or the alternative minimum tax (AMT) system.
Effective July 1, 1992, the Company adopted Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" (SFAS 109),which requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statements and tax
basis of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse.
Stock Based Compensation:
In October 1995, the FASB issued Statement No. 123, Accounting for Stock Based
Compensation. Presently, the Company grants stock options for a fixed number of
shares to employees, directors, and officers with an exercise price equal to
the fair value of the shares at the date of grant. As allowed under the new
standard, the Company accounts for stock option grants in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and accordingly,
recognizes no compensation expense for the stock option grants. The Company
will continue to account for stock options in this fashion.
NOTE B - COSTS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS:
In 1995, the Company constructed a cable network system for a school district
for a total contract price of $517,542. At the end of 1995, the excess of
costs over the amount billed was reflected as a current asset on the balance
sheet. The Company estimated and recorded a provision for a loss on its
contract in the amount of $24,074 in fiscal 1995. In 1996, the contract was
completed resulting in an actual loss which was $505 less than that originally
estimated.
F-10
<PAGE> 25
STONE MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995
NOTE C - EQUIPMENT:
Equipment
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Computer equipment $296,934 $4,580
Furniture and fixtures 7,855 463
-------- --------
Less accumulated depreciation (28,279) (786)
-------- --------
$276,510 $4,257
======== ========
</TABLE>
NOTE D - OTHER ASSETS:
License
The Company entered into an agreement with Texas Utilities Communications, Inc.
(TUC) whereby the Company was granted the right subject to certain conditions
to install fiber optic cable to be used for its interactive communications
services. Pursuant to such agreement, title to all equipment passes to TUC as
soon as it is installed. There is also an annual license fee based on linear
feet of cable installed. The primary term of this license agreement is ten
years with a ten year renewal term at the Company's option.
The costs of the equipment and related installation is capitalized as the
initial license fees. The required annual maintenance is treated as a current
year expense. The Company annually compares the unamortized portion of
capitalized costs to the net realizable value of the license. The net
realizable value is the estimated future gross revenue from the product reduced
by estimated future costs of operations and disposition of transmission and
distribution services. The amount by which the unamortized capital costs exceed
the net realizable value is written off to expense in the period in which the
determination is made.
During 1996, the Company capitalized $617,000 toward the initial license fee.
Cable Equipment
During fiscal 1996, the Company purchased $897,928 of fiber optic cable and
related equipment to be installed and capitalized toward the initial license
fee with TU Communications.
F-11
<PAGE> 26
STONE MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995
NOTE D - OTHER ASSETS (CONTINUED):
Software Costs:
The Company capitalized its costs of purchased software. These costs are
associated and are reflected as an asset resulting from the Company's merger.
The Company annually compares the unamortized portion of capitalized costs to
the net realizable value of the related product. The net realizable value is
the estimated future gross revenue from the product reduced by estimated future
costs of operations and disposition of the product. The amount by which the
unamortized capital costs exceed the net realizable value is written off to
expense in the period in which the determination is made. The capitalized costs
amount to $297,047 and the related amortization is $59,409 at June 30, 1996.
Goodwill
Goodwill, in the amount of $30,068 represents the excess of the cost of Epoch
over the fair value of its net assets, is being amortized on the straight-line
method over a period of ten years. The reason for the period adopted is that,
in managememt's opinion, the Company acquired, in addition to the net assets,
the officers and engineering team which include a core group that possess
valuable technological experience. The accumulated amortization at June 30,
1996 was $3,007.
Organization Costs
<TABLE>
<CAPTION>
1996 1995
-------- ---------
<S> <C> <C>
Organization Costs 1,200 1,200
Less Accumulated Amortization 440 200
-------- --------
760 1,000
======== ========
</TABLE>
Restricted Common Stock - Related Party
The Company has restricted common stock - related party in the amount of $599
classified as securities held-to-maturity. The Company will reassess the
appropriateness of this classification and the fair market value of its
securities at each reporting date.
NOTE E - SECURITIES:
The Company sold its marketable securities classified as trading securities at
various times during fiscal 1995 and 1994 to meet cash operating needs. These
sales resulted in net losses of $824 and $48,810 in 1995 and 1994, respectively.
F-12
<PAGE> 27
STONE MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995
NOTE F - ACCOUNTS PAYABLE - RELATED PARTY:
The Company recorded a liability in the amount of $109,400 and $98,748 as of
June 30, 1996 and 1995, respectively, to related parties for expenses advanced
and services rendered. $96,920 of the amount at June 30, 1995 was paid under
the terms of the Company's 1995 Special Employee Benefit Plan. See Note I for
more details.
NOTE G - COMMITMENTS AND CONTINGENCIES:
The Company leases its headquarters under a noncancelable operating lease which
expires in March 1997. The Company also pays for office space leased by a
related party for which the Company has no formal obligation, but plans to
continue paying until the lease for its main office space expires. Total
rental payments for these two leases will total approximately $37,877 through
the end of the leases. The Company also leases an office in Temple, Texas
under a noncancelable operating lease which expires in April 2001. Total
rental payments for the Temple office will be approximately $137,883 through
the end of the lease term. For the years ended June 30, 1996, 1995 and 1994,
rent expense totaled $54,897, $9,296, and $30,127 respectively.
During 1996, the Company began two phases of its license agreement with TUC.
The completion of both of these phases is dependent on the Company obtaining
additional financing.
NOTE H - RELATED PARTY TRANSACTIONS:
Other than discussed in other notes, transactions with relted parties are as
follows:
On March 7, 1994, the Company issued 1,800,000 shares of restricted common
stock to a related party in exchange for 100,000 shares of USA Video
Corporation (USA Video) common stock and 400,000 shares of restricted
Electrical Generation Corporation (EGT) stock.
On March 9, 1994, the Company issued 5,418,750 of its restricted common stock
to a related party for $10.00 cash and professional services representing
unique knowledge of fiber optic technology. On June 27, 1994, upon
reconsideration of the value of services and the Company's common stock,
4,618,750 of these shares were returned to the Company's treasury and were
cancelled.
On June 24, 1994, the Company entered into a stock exchange agreement with a
related party to exchange 1,500,000 shares of its restricted common stock for
301,000 shares of USA Video free-trading common stock and 199,000 shares of EGT
restricted common stock.
On June 16, 1995, the Directors and Executive Officers of the Company agreed to
accept, when issued, shares of the Company's common stock, at a price of
nineteen cents ($0.19) per share, in lieu of cash payment of the compensation
owed to them. Such shares were subject to the Registration on Form S-8 of the
Company's 1995 Special Employee Benefit Plan. In fiscal 1996, 485,100 shares
were issued under the provisions of this plan to related parties.
The Company paid contract costs to related parties in the amount of $10,794 and
$163,000 during 1996 and 1995, respectively.
The Company paid consulting and professional fees to related parties in the
amounts of $87,465, $177,873 and $300 during 1996, 1995 and 1994, respectively.
During fiscal 1996 the Company advanced to a related party $62,500 of which
$30,000 has been repaid. This $30,000 receivable is included in the $33,687
balance at June 30, 1996 and is reflected as a current asset.
During fiscal 1996, the Company agreed to pay the members of its finance
committee $95,000 for services rendered on such committee.
F-13
<PAGE> 28
STONE MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995
NOTE I - STOCKHOLDERS' EQUITY:
Preferred Stock: The Company is authorized to issue 20,000,000 shares of
preferred stock at a par value of $1.00 per share. There were no shares issued
and outstanding as of June 30, 1996 and 1995.
Common Stock: The Company is authorized to issue 50,000,000 common shares at a
par value of $0.001 per share. These shares have full voting rights. There
were 21,735,350 and 5,561,250 shares issued as of June 30, 1996 and 1995
respectively. Of the shares outstanding, there were 19,847,400 and 4,440,000
restricted as of June 30, 1996 and 1995, respectively.
During 1996, the Company authorized issuance of 500,000 shares of its common
stock for payment of accounts payable-related party at $0.19 per share.
1995 Special Employee Benefit Plan: In June 1995, the Company's Board of
Directors adopted the StoneMedia 1995 Special Employee Benefit Plan. The Plan
is administered and terms of stock purchases are established by the Board of
Directors. Under the terms of the Plan, the Company may issue 1,086,500 shares.
The Company negotiated payments to certain employees and non-employees to issue
its stock for services rendered during 1995. The price per share was $0.19. The
shares were issued and subsequently cancelled during fiscal year 1995. The
Company reissued 953,600 shares in February 1996. The remaining shares have not
been issued as of June 30, 1996.
1994 Special Employee Stock Option Plan: In December 1994, the Company's Board
of Directors and Shareholders adopted the StoneMedia Corporation 1994 Special
Employee stock Option Plan. The Plan is administered and terms of option
grants are established by the Board of Directors. Under the terms of the Plan,
options may be granted to the Company's employees and consultants to purchase
shares of common stock. The option price is equal to the fair market value as
determined by the Board of Directors at the date of grant. The Company is
authorized to issue 1,000,000 shares under this plan.
NOTE J - WRITEDOWN OF NOTE:
In 1994, the Company recorded a writedown of a note in the amount of $20,179.
The Company determined that the recoverability of the principal amount or any
associated collateral was remote. Consequently, the Company removed the entire
principle amount, related allowance for bad debt and accrued interest
receivable from the accounts and charged the resulting loss to current expense.
F-14
<PAGE> 29
STONE MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995
NOTE K - INCOME TAXES:
The Company has net operating loss carryforwards totaling $2,325,276 and
capital losses in the amount of $49,634 for 1996 that is available to
offset its future income tax liability.
No deferred tax asset has been recognized for the operating loss carryforward
as it is more likely than not that all or a portion of the net operating loss
will not be realized and any valuation allowance would reduce the benefit to
zero.
NOTE L - SUBSEQUENT EVENTS:
In the first quarter of fiscal 1997, the Company began providing internet
access services to commercial and residential users in Central Texas. Revenues
from these services will be recognized when billed.
The Company is aggressively seeking additional financing to have the ability to
continue their plans to expand their fiber optic interactive software business.
Additional financing may involve the issuance of new shares of the Company's
stock or convertible debentures.
F-15
<PAGE> 30
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.01 SHAREHOLDERS AGREEMENT
27 FINANCIAL DATA SCHEDULE
<PAGE> 1
SHAREHOLDERS AGREEMENT
THIS SHAREHOLDERS AGREEMENT (this "AGREEMENT") is executed by and
between ALPHA COMMSAT CO., LTD., a corporation organized under the laws of
Thailand ("ALPHA") and STONE MEDIA CORPORATION, a corporation organized under
the laws of the State of Colorado, United States of America ("STONEMEDIA").
This Agreement is dated as of June 1, 1996, but is actually executed by the
parties hereto as set forth on the execution pages hereof. ALPHA and StoneMedia
are each hereinafter sometimes individually referred to as a "SHAREHOLDER", and
collectively referred to as the "SHAREHOLDERS".
RECITALS
WHEREAS, the Shareholders have agreed that a corporation to be known
as Alpha Stone International Co., Ltd. ("ASI") shall be organized, capitalized
and financed in accordance with and subject to the provisions of this
Agreement; and
WHEREAS, the Shareholders agree that ASI is the joint-venture
contemplated in the License Agreement, executed between Epoch Communications
Corporation ("EPOCH") and ALPHA, dated as of January 15, 1996 (together with
any amendments thereto, the "LICENSE AGREEMENT"), pursuant to which a license
was granted to certain of Epoch's technology (such technology, as defined in
the License Agreement "TECHNOLOGY"); and
WHEREAS, the primary business purpose of ASI shall include marketing
the Technology and facilitating the deployment of the vision of a network (the
"TRANS-ASIAN NETWORK"), initially in the Kingdom of Thailand and then in the
countries of China, Taiwan, Korea, Malaysia, Singapore, Thailand, Japan,
Vietnam, Philippines, Brunei, India, Srilanka, Cambodia, Laos, Indonesia,
Burma, Bangladesh, Pakistan, Australia and New Zealand. (Thailand and the
other countries, collectively, "ASIA PACIFIC");
WHEREAS, the Trans-Asian Network is envisioned to include similar or
compatible computer networks, control architecture and specialized programming
which will support access to the EPOCH real-time, interactive products; and
WHEREAS, the Shareholders wish to enter into this Agreement to set
forth certain rights and obligations of the Shareholders and other matters as
set forth herein.
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<PAGE> 2
NOW THEREFORE, in consideration of the premises and of the mutual
promises and agreements herein contained, the Shareholders agree as follows:
ARTICLE I
ORGANIZATION AND SUBSCRIPTION FOR SHARES
SECTION 1.01. Activity Pending Organization.
Prior to the organization of ASI, ALPHA (in its name) and StoneMedia
and/or Epoch Communications Corporation (in one or both of their names), as
promoters of ASI, may enter into business arrangements which would otherwise be
a "business opportunity" of ASI; and, upon formation of ASI, said business
arrangements, upon approval thereof by the Board of Directors of ASI, shall be
transferred to and assumed by ASI.
SECTION 1.02. Organization.
(a) ASI shall have an authorized capitalization of Baht 10,000,000
consisting of 1,000,000 shares of Common Stock (the "COMMON STOCK") having a
par value of Baht 10 per share with ALPHA having an ownership interest up to
seventy percent (70%) of such Common Stock and StoneMedia having an ownership
interest up to thirty percent (30%) of such Common Stock;
(b) If the name Alpha Stone International Co., Ltd. shall not be
available for use by ASI, then the corporation to be organized by the parties
hereto shall have such other available name as shall be mutually agreed to by
the Shareholders.
SECTION 1.03. Subscription for Initial Capitalization.
(a) To initially capitalize ASI, the Shareholders hereby
subscribe for and agree to purchase the number of shares of Common
Stock set forth below, opposite its name, at and for a purchase price
of Baht 10 per share, namely:
<TABLE>
<CAPTION>
Shareholder Common Stock
----------- ------------
<S> <C>
ALPHA 175,000
StoneMedia 75,000
</TABLE>
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<PAGE> 3
it being understood that no shares of Common Stock are presently
issued and outstanding or, except as herein provided, subscribed for.
(b) The certificates of shares of Common Stock shall be
issued promptly, but in no event later than thirty (30) business days
following receipt of the Certification Document (herein so called)
issued by the appropriate governmental authority evidencing the
formation of ASI.
(c) The subscription price for the initial shares of Common
Stock shall be paid in full by each Shareholder, as set forth above,
in Baht paid directly into a designated bank account in accordance
with applicable Thai law.
ARTICLE II
MANAGEMENT
SECTION 2.01. Composition of Board of Directors.
(a) The Board of Directors (the "BOARD") of ASI shall consist of five
members, three of whom shall be nominated and designated by ALPHA, two of whom
shall be nominated and designated by StoneMedia.
Within two weeks of executing this Agreement, each Shareholder shall
formally submit its Board nominees to the other Shareholder. Thereafter, Board
members shall be nominated in accordance with applicable law and this
Agreement.
(b) Each Shareholder agrees to vote its respective shares of Common
Stock so that each nominee so designated hereunder shall be elected as a
member of the Board. In the event of the inability, unwillingness, or
resignation of any designee to be a member of the Board, the Shareholder
represented by such person shall have the right to designate the substitute
therefor; and each Shareholder agrees to vote its respective shares of Common
Stock so that such substitute shall be elected as a member of the Board, it
being agreed that the Board shall at all times be comprised of three
representatives of ALPHA, and two representatives of StoneMedia.
(c) The Shareholders agree that: (i) a nominee of ALPHA shall be
elected as the Chairman of the Board of ASI; and (ii) a nominee of StoneMedia
shall be elected as a Vice Chairman of the Board; and (iii) the Board shall
elect its officers.
SECTION 2.02. Quorum. A majority of the Board of Directors shall
constitute a quorum. No quorum for a meeting of the Board shall exist unless
there shall be actually present or by written proxy at any meeting at least two
Directors nominated by ALPHA and one Director nominated by StoneMedia.
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<PAGE> 4
SECTION 2.03. Actions By Board. Except as set forth herein, all
decisions of the Board shall require an affirmative vote of at least a simple
majority of the Directors present (actual or by written proxy) at the meeting.
With respect to the following matters, decisions can be only taken
with respect to such matters if at least one Director representing StoneMedia
is present (actual or by written proxy) at such meeting, and votes in favor of
the decision:
(a) Future financing, either debt or equity;
(b) Declaration and payment of dividends;
(c) Annual business plans and budgets (including, without
limitation, key employee and officer compensation);
(d) Changes in Certificate of Incorporation;
(e) Changes in Articles of Association;
(f) Mergers, consolidations or acquisitions of material assets;
(g) Entering into or material modification of any material
agreement;
(h) Any material change in the business;
(I) Sale of any substantial part of the assets of ASI;
(j) Guarantees and loans;
(k) Future capital contributions; and
(l) Agreements with or between any Shareholder or any Affiliate of
a Shareholder.
For purposes of clause (g) and clause (h) of this Section 2.03, "MATERIAL
AGREEMENT" and "MATERIAL CHANGE IN THE BUSINESS" shall mean any agreement or
change which could have or cause: (A) a material adverse effect on: (i) the
property of the ASI or the business, operations, condition (financial or
otherwise), liabilities or capitalization of ASI, (ii) the ability of ASI to
perform its obligations under any contract to which it is a party, (iii) the
validity or enforceability of any contract to which ASI is a party or (iv) the
availability of any government approval as shall now or hereafter be necessary
to be
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<PAGE> 5
obtained under applicable government rules in connection with the development
of ASI business or ability of ASI to comply with the terms and conditions of
any government approval; or (B) the occurrence of any of the following: (i) the
impairment of any government approval relating to ASI's business or (ii) the
issuance by any government authority of any order, judgment, regulation or
decision or the taking of any other action the effect of which (x) is to impair
any governmental approval or (y) could result in a material adverse effect on
ASI under clause(A) above.
SECTION 2.04. General Conduct of Business. ASI shall be managed and
operated, at all times, in compliance with the policies and procedures adopted
by the Board. The daily conduct of the business of ASI shall be the
responsibility of the management of ASI ("Management") and/or the officers
and/or employees charged with the responsibility by the Board.
SECTION 2.05. Reports and Plans. Management shall prepare
financial reports and operating plans as required by the Board.
SECTION 2.06. Books of Account. Proper and complete books of account
and accounting records shall be kept by ASI in accordance with internationally
recognized Generally Accepted Accounting Principles. The independent auditors
for ASI shall be designated by the Board. ALPHA and StoneMedia shall work with
said auditors to determine the accounting policies of ASI. Financial
statements, including year end audited statements and unaudited quarterly
statements (prepared on a comprehensive basis of accounting for income and tax
reporting) shall be furnished to the Shareholders at such times and in such
forms as may be reasonably requested by ALPHA and StoneMedia.
SECTION 2.07. Bank Accounts. ASI shall maintain accounts in such
banks as may be designated from time to time by Management and the signing
authority on depository accounts and the authority for borrowings shall be as
specified from time to time by the Board; provided however: (i) any such bank
shall not control nor be under the control of any Affiliate of any Shareholder
(except with the unanimous consent of the Board of Directors of ASI); shall be
either a Thai or United States bank subject, respectively, to the rules,
regulations and oversight of the Bank of Thailand and the United States
Comptroller of Currency.
SECTION 2.08. Fiscal Year. Unless otherwise provided in a resolution
adopted by the Shareholders, the fiscal year of ASI shall be a calendar year
except that the first fiscal year of ASI shall commence on the date of its
formation and end on December 31, 1996.
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<PAGE> 6
ARTICLE III
OPERATIONS; BUSINESS PURPOSE
SECTION 3.01. License. The Shareholders acknowledge, agree and
reaffirm that, upon the organization thereof, ASI shall be the lawful assignee
of the license granted by EPOCH to ALPHA in the License Agreement; that the
license (the "LICENSE") granted and defined in, and transferred to ASI, upon
the organization thereof, pursuant to the License Agreement shall be and is
the sole and exclusive property of ASI upon the organization thereof; and
that no Shareholder, upon the organization of ASI, has, nor shall have, any
ownership interest in the License. Within thirty (30) days of ASI being
organized and capitalized, it is agreed that such License Agreement shall be
amended and/or supplemented to set forth an option on ASI's behalf to renew the
License for an additional five (5) years on a fair and equitable, arms-length
transaction basis. Such amendment or supplement shall provide that ASI shall
notify Epoch in writing three (3) months prior to the expiration date of the
License as to whether such renewal will be exercised.
SECTION 3.02. Permissible Undertakings and Contracts. ASI may
undertake projects and contracts where the Technology is a key component
thereof, and where the products incorporating the Technology are intended for
use in Asia Pacific by End-Users (as defined in the License Agreement). ASI
shall use reasonable efforts so as not to allow End- Users or unauthorized
parties to resell the Technology, make any unauthorized modifications to the
Technology, or use the Technology or any product outside Asia Pacific.
SECTION 3.03. Sub-contracts, Payments.
(a) It is contemplated that, during the initial phases of its
development of its business, ASI will sub- contract much of each project to be
performed by the respective staffs of ALPHA, StoneMedia and/or EPOCH. Any
portion of a project which is outside the capabilities of the Shareholders will
be properly sub-contracted to third-parties.
(b) ASI may, and it is contemplated that, ASI will subcontract
projects to Affiliates of the Shareholders of ASI; provided however, any such
subcontract shall be invalid and without force and effect should (i) such
transaction result in any direct or indirect personal gain to any person
controlling, controlled by or under common control with any officer, Directors
or Shareholder of ASI, or any affiliate thereof, and (ii) such transaction,
directly or indirectly, has a material detrimental effect on the business,
affairs or prospects of ASI.
(c) Where staff are seconded to ASI by ALPHA, StoneMedia, or their
respective affiliates, ASI shall issue in advance a written service purchase
order to the entity providing such staffing, and shall pay and reimburse the
entity providing such staffing
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<PAGE> 7
an amount which is agreed in writing as fair and equitable on an arms length
transaction basis.
ARTICLE IV
DIVIDENDS
SECTION 4.01. Dividends. Unless otherwise agreed by the Board, as set
forth in Section 2.03 of the Agreement, the Shareholders agree that no
dividends shall be paid to the Shareholders during the first three fiscal years
of ASI's operation, and that after the fiscal quarter ending on December 31,
1999, dividends shall be declared and paid in an amount not to exceed 50% of
ASI's net after tax profits, as agreed at a Shareholders' meeting.
ARTICLE V
NO DILUTION
SECTION 5.01. Initial Working Capital. The parties hereby acknowledge
that: (a) the working capital requirements of ASI through its first full fiscal
year of operations will exceed the initial capitalization to be funded by the
Shareholders' subscription payments; (b) that the financial positions and
resources of ALPHA and StoneMedia are disparate; and (c) that no financing
arrangement or issuance of securities shall be undertaken by ASI or ALPA on
behalf of ASI which would serve to dilute, or result in a dilution to, below
thirty percent (30%) the interest of StoneMedia in distributions to
shareholders of every form and nature, including without limitation
distributions through the issuance of securities and payments in kind.
ARTICLE VI
TRANSFER OF SHARES
SECTION 6.01. Limitations. Shares of the Common Stock may not be
transferred except as set forth in this Article VI.
SECTION 6.02. Permitted Transfers. Shares of the Common Stock may be
transferred:
(a) At any time, during the term of this Agreement, by any party to
this Agreement to any third party with the consent of the other Shareholder;
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<PAGE> 8
(b) At any time, freely and without limitation, from and after the
third anniversary of the date of this Agreement;
(c) Upon early termination of this Agreement; and
(d) At any time during the term of this Agreement, from any party to
this Agreement to a parent or a wholly- owned subsidiary of such party;
provided, however, notwithstanding any such transfer, the transferor shall
remain bound by its respective agreements contained in this Agreement.
SECTION 6.03. Change in Control.
(a) If at any time while any of ALPHA or StoneMedia owns any shares
of ASI any of the following events (each of which is hereinafter referred to in
this Section 6.03 as a "FORCED SALE EVENT") occurs to ALPHA or StoneMedia (the
one of them to which such event occurs being hereinafter referred to in this
Section 6.03 as the "CHANGED PARTY"), the other party (hereinafter referred to
in this Section 6.03 as the "UNCHANGED PARTIES") shall have the option (the
"FORCED SALE OPTION"), but not the obligation, of causing the Changed Party to
this Agreement (or its successors) to purchase all shares of ASI owned by the
Unchanged Party to this Agreement (or its successors) pursuant to subparagraph
(b) of this Section 6.03:
(i) The Changed Party is merged with and disappears into another
corporation;
(ii) The Changed Party is consolidated with another corporation;
(iii) All or substantially all of the assets of the Changed Party
are transferred to another person or entity; or
(iv) Any person shall acquire directly or indirectly the beneficial
ownership of more than 50% of the outstanding voting stock of
the Changed Party (whether by merger, tender offer, or
otherwise). For purposes of the foregoing, the terms "PERSON"
shall mean any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability
company, trust, unincorporated organization or government or
agency or any political subdivision thereof and "BENEFICIAL
OWNERSHIP" shall mean ownership by a person who, directly or
indirectly, through any contract, arrangement, understanding,
relationship or otherwise has or shares (1) voting power,
which includes the power to vote, or to direct the voting of
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<PAGE> 9
the voting stock and/or (2) investment power, which includes
the power to dispose, or to direct the disposition of, such
voting stock.
For purposes of Section 6.03(a), the terms "ANOTHER CORPORATION",
"PERSON", and "ENTITY" shall not include a corporation, person or entity which
is an affiliate of the Changed Party at the time of the occurrence of the
Forced Sale Event and the term "AFFILIATE" shall mean any other corporation,
person or entity that, directly or indirectly, controls, is controlled by or is
under common control with such Changed Party.
(b) The Changed Party shall give the Unchanged Party written notice
of the occurrence of a Forced Sale Event within twenty days after such
occurrence (such notice being hereinafter referred to in this Section 6.03 as
the "FORCED SALE EVENT NOTICE"). Thereafter, the Unchanged Party shall have
the option to exercise the Forced Sale Option as hereinafter provided by giving
written notice (hereinafter referred to as the "FORCED SALE NOTICE") to the
Changed Party or its successors) of its exercise of the Forced Sale Option
within twenty days after its receipt of the Forced Sale Event Notice. The
Forced Sale Notice shall include an offer of the Unchanged Party to sell all
shares of ASI owned by the Unchanged Party (or its successors) at a price per
share specified therein. The Changed Party must either accept such offer or
offer in writing within twenty days after its receipt of the Forced Sale Notice
to sell all shares of ASI owned by the Changed Party at a price per share
specified in such written offer which is at least 10% lower than the Unchanged
Parties' sale offer. This procedure shall continue, with each party having the
right to either accept the other party's sale offer or make another sale offer
to such other party which is at least 10% lower per share than such other
party's last sale offer, until one of the parties either accepts the other
party's sale offer or fails to make a lower sale offer as aforesaid within
twenty days after receipt of such other party's last sale offer, whereupon the
party willing to accept the highest per share sale price offer (the
"PURCHASER") shall purchase all shares of ASI owned by such other party (or its
successor) (the "SELLER") and the Seller shall sell such shares to the
Purchaser for such price per share. Payment for such shares shall be made by
certified check or wire transfer within twenty days after it is determined who
the Purchaser is against delivery to the Purchaser of the certificates therefor
duly endorsed for transfer or accompanied by a duly executed instrument of
assignment.
(c) If the Unchanged Party fails to exercise the Forced Sale Option
within the twenty day period provided therefor, no party shall have any right
under this Section 6.03 to cause the other party (or its successor) to purchase
or sell shares of ASI.
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<PAGE> 10
SECTION 6.04. First Refusal Procedure.
(a) If any party to this Agreement wishes to sell all or part of its
shares in ASI pursuant to Section 6.02 (a) of this Agreement (such party being
herein referred to as "SELLING SHAREHOLDER') such Selling Shareholder shall
give written notice by registered mail ("FIRST REFUSAL NOTICE") to the other
party to this Agreement ("REMAINING SHAREHOLDER"). The First Refusal Notice
shall state the Selling Shareholder's intention of transferring its shares and
the number of shares to be transferred. The Selling Shareholder, pursuant to
the First Refusal Notice, shall offer to sell to the Remaining Shareholders
such shares for the Transfer Price (and terms) as set forth in Section 6.05 of
this Agreement. Such offer shall be irrevocable for sixty (60) days from the
date of the mailing of the First Refusal Notice.
(b) If the Remaining Shareholder wants to purchase the shares of the
Selling Shareholder which have been offered pursuant to the First Refusal
Notice, such Remaining Shareholder must notify the Selling Shareholder of its
acceptance of the offer by registered mail ("NOTICE OF ACCEPTANCE") on or prior
to the expiration of such sixty (60) day period and must make payment of the
Transfer Price by international wire transfer within thirty (30) days
following the date of the mailing of the Notice of Acceptance.
(c) Any shares offered pursuant to the First Refusal Notice which
have not been purchased and paid for pursuant to Sections 6.04(a) and (b) above
within ninety (90) days of the date of the mailing of the First Refusal Notice
above may thereafter be sold by the Selling Shareholder at any time within 180
days from the date of the mailing of the First Refusal Notice to any person or
persons at a price not less than the Transfer Price and on other terms no less
favorable to the Remaining Shareholder than those set forth in the First
Refusal Notice. Shares not sold by the Selling Shareholder within such 180 day
period shall be subject, thereafter, to the limitations on transferability,
including the First Refusal Procedure provisions of this Agreement.
SECTION 6.05. Third Persons. Notwithstanding anything herein to the
contrary, if a Shareholder, after fulfilling all of its other obligations
hereunder with respect to a transfer of Shares to a third party, transfers
Shares to a third party; the Shares in the hands of such third party shall
remain subject to this Agreement and such third party shall signify its consent
to be bound by the terms of this Agreement by executing the signature page of
this Agreement.
ARTICLE VII
TERM OF AGREEMENT - TERMINATION
SECTION 7.01. Term of Agreement. This Agreement shall continue to be
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binding upon the parties hereto and shall remain in full force and effect, in
accordance with the provisions of this Agreement.
SECTION 7.02. Termination of Agreement. The term of this Agreement
shall terminate upon:
(a) the unanimous written consent of the Shareholders;
(b) the registration of the shares of Common Stock on the
Stock Exchange of Thailand or any United States national exchange;
(c) the dissolution and winding up of the affairs of ASI in
accordance with applicable law.
SECTION 7.03. Force Majeure.
(a) Termination of this Agreement shall not be permitted during any
period that failure to perform any term of this Agreement is caused by
occurrences beyond the control of the party in question, including, but without
limiting the generality of the foregoing, acts of governmental authorities,
local or federal, acts of God strikes, fires, floods, explosions, wars, riots,
storms, earthquakes, accidents, acts of public enemy, rebellion, insurrection,
sabotage, epidemics, quarantine restrictions, shortages of labor, materials or
supplies, failures by contractors or subcontractors, transportation embargoes,
or failure or delays in transportation.
(b) Without prejudice to any other remedies that may then be
available, in the event of the causes referred to in this Section 7.03, the
parties will cooperate in an effort to agree upon establishment of such
alternative arrangements not subject to such failure or delay as will confer
upon them benefits comparable in character and substantially equivalent in
amount to those intended to be conferred by this Agreement on terms and
conditions not materially more burdensome to any party than those herein
provided.
ARTICLE VIII
ASSIGNMENT OF RIGHTS; DEVELOPMENT
SECTION 8.01. Right to Use Development Work. The Technology and work
developed ("DEVELOPMENT WORK") by or on behalf of ASI will be made available on
an on a fair and equitable, arms-length transaction basis (upon execution of a
licensing agreement with respect to such information): (i) to ALPHA for use
within Asia Pacific and (ii) StoneMedia for use outside of Asia Pacific.
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ARTICLE IX
PROTECTIVE COVENANTS
SECTION 9.01. Definitions.
"Competing Business" shall mean a business or venture involving:
(a) within Asia Pacific: (i) the deployment of technology or
of a network which, directly or indirectly, is in competition with the
services provided by ASI on and through the Trans-Asian Network, (ii)
the financing, manufacturing, distribution or marketing of products
which compete with products incorporating ASI's technology, including
the Technology and Development Work; or (iii) a project or venture
which engages in "head to head" commercial, competition with a
substantially similar project or venture of ASI; and
(b) in all parts of the world, other than Asia Pacific, any
business in which StoneMedia is engaged, or within the two preceding
years was engaged, or pursuant to resolutions or a business plan
adopted by StoneMedia, has declared an intent to become engaged.
"Confidential Information" shall mean:
a) Information, data, drawings, computer software and
hardware and other records and materials disclosed to or known to any
Shareholder or its affiliates as a direct or indirect, consequence of
or through its activities with or ownership of the shares of Common
Stock, about any Protected Person or ASI's business, methods, business
plans, operations, services and products (existing and contemplated),
and processes.
(b) All information disclosed to any Shareholder, or to
which any Shareholder has access during the period of his engagement,
for which there is any reasonable basis to believe the information Is
confidential or which information appears to be treated by ASI as
Confidential Information shall be presumed, which presumption may be
rebutted by any Shareholder, to be Confidential Information hereunder.
"Non-Disclosure Period" shall mean, with respect to each Shareholder,
the period commencing as of the date of this Agreement and thereafter for a
period of five (5) years following the date that such Shareholder no longer
owns any shares of the Common Stock.
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SHAREHOLDER AGREEMENT - Page 12 of 20
<PAGE> 13
"Ownership Period" shall mean that period during which a Shareholder
or any affiliate of such Shareholder, or any affiliate of an affiliate owns any
shares of the Common Stock.
"Person" shall mean any individual, proprietorship, partnership,
corporation, association or other entity.
"Protected Person" shall mean any Person which at the time of the
execution of this Agreement, or within the one (1) year period prior to the
date hereof is a Person with whom a Shareholder has conducted business on a
regular, frequent and material basis..
SECTION 9.02 Confidentiality.
(a) Each Shareholder acknowledges that such Shareholder,
pursuant to this Agreement, will have access to and receive certain
Confidential Information. Each Shareholder hereby expressly covenants
and agrees that, during the Ownership Period and for a period of five
(5) years thereafter, it will not use or disclose any Confidential
Information, in whole or in part, to any person or entity without the
prior written approval of ASI and the other Shareholder.
(b) Each Shareholder hereby acknowledges that the
Confidential Information is the sole property of ASI and no
Shareholder shall acquire any ownership interest therein. In
particular, without limiting the generality of the foregoing, each
Shareholder agrees to maintain in confidence and not to disclose to
any third party, without the prior written consent of ASI and the
other Shareholder any information related to: the Technology,
Development work, or the Trans-Asian Network, except to the extent
such information is or becomes public knowledge or is already known to
the party acquiring such information from a source other than a
Shareholder's affiliates or advisors.
SECTION 9.03. Personnel. Each Shareholder recognizes that the staff
personnel of such Shareholder and its affiliates, from time to time, will have
access to and contact and familiarity with certain proprietary data and market
information of the other Shareholder and its affiliates. Each Shareholder
agrees to use its best effort and exercise diligence to protect and safeguard
the trade secrets and confidential or proprietary information of the other
Shareholder and its affiliates. Each Shareholder hereby acknowledges that such
trade secrets and confidential or proprietary information shall remain the sole
property of the other Shareholder or its affiliate and, unless expressly
transferred to ASI, neither ASI nor the other Shareholder shall acquire any
ownership interest therein.
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SHAREHOLDER AGREEMENT - Page 13 of 20
<PAGE> 14
SECTION 9.04. Return Of Confidential Information. Each Shareholder
agrees that immediately following the date, if any, on which such Shareholder
cease to own any share of the Common Stock to deliver to ASI Confidential
Information in its possession, custody or control, or in the care custody or
control of any Affiliate.
Section 9.05 Protection of Goodwill. Each Shareholder acknowledges
that in the course of carrying out, performing, and fulfilling its
responsibilities hereunder, such Shareholder will be given access to and be
entrusted with Confidential Information relating to ASI's business and
Customers and that it will develop, on behalf of ASI, personal acquaintances
with Customers and prospective Customers, which acquaintance may constitute
ASI's only contact with such persons. Each Shareholder recognizes that (i) the
goodwill of ASI depends upon, among other things, its keeping the Confidential
Information confidential and that unauthorized disclosure of such Confidential
Information would irreparably damage ASI, and (ii) disclosure of any
Confidential Information to competitors of ASI or to the media or general
public would be highly detrimental to ASI. Each Shareholder further
acknowledges that in the course of performing its obligations to ASI, each
Shareholder may be, from time to time, both a representative of ASI to many of
ASI's Customers, and, in some instances, a representative on behalf of such
Customers to others. As such, each Shareholder will be responsible for
maintaining or enhancing the business and/or goodwill of ASI with those
Customers and of the Customers with others.
SECTION 9.06. Covenant Not to Compete. During the Ownership Period,
except on behalf of ASI, and for a period of five (5) years thereafter no
Shareholder shall:
(a) Solicit, contact or service any Protected Person which is
known to be a Protected Person at the time of the initial contact of
such Protected Person by such Shareholder;
(b) Give or attempt to give any person or entity assistance
with soliciting, contacting or serving any Protected Person;
(c) Engage in any Competing Business;
(d) Induce or attempt to induce any Protected Person known to
be a Protected Person at the time of the initial contact of such
Protected Person by any Shareholder to withdraw, curtail, divert, or
cancel its business with ASI or in any manner modify or fail to enter
into any actual or potential business relationship with ASI;
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<PAGE> 15
(e) Induce or attempt to induce any employee of ASI or any
independent contractor providing services to or behalf of ASI, to
terminate his or her employment or other business relationship with
ASI; or
(f) Become engaged or otherwise associate (for business
purposes) with any Person, as an employer, consultant, agent,
principal, partner, shareholder (other than through ownership of
publicly-traded security of a Person which represents less than one
percent (1%) of the outstanding capital stock of such Person),
corporate officer, director, investor, financier or in any other
individual or representative capacity, by any Person engaged in (as to
StoneMedia in Asia Pacific and as to any other Shareholder in any area
other than Asia Pacific) a Competing Business.
Section 9.07. Conflicts of Interests. Each person becoming a
Shareholder expressly acknowledges and agrees that it is not presently engaged
in and/or holds interests in any undisclosed businesses and/or ventures
("CONFLICTING INTERESTS") which will either directly compete with or give rise
to irreconcilable conflicts of interest with the business and interests of ASI.
If at any time a Shareholder believes that it may be engaged in and/or
may hold an interest in any business and/or venture which would directly
compete with or give rise to an irreconcilable conflict of interest with the
business and interests of ASI, then such Shareholder shall call a meeting of
the Board of ASI to inform it of such matters.
SECTION 9.08. Survival of Covenants. Each covenant set forth in this
Article shall survive the termination of this Agreement and shall be construed
as an agreement independent of any other provision of this Agreement, and the
existence of any claim or cause of action of any Shareholder against ASI or any
other Shareholder whether predicated on this Agreement or otherwise shall not
constitute a defense to the enforcement by ASI or any other Shareholder of said
covenant.
SECTION 9.09. Remedies. In the event of breach or threatened breach
by any Shareholder of any provision of this Article, ASI and any other
Shareholder on its behalf and on behalf of ASI shall be entitled to relief by
temporary restraining order, temporary injunction, or permanent injunction or
otherwise, in addition to other legal and equitable relief to which it may be
entitled, including any and all monetary damages which it or ASI may incur as a
result of said breach, violation or threatened breach or violation. ASI and any
other Shareholder may pursue any remedy available to it concurrently or
consecutively in any order as to any breach, violation, or threatened breach or
violation, and the pursuit of one of such remedies at any time will not be
deemed an election of remedies or waiver of the right to pursue any other of
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SHAREHOLDER AGREEMENT - Page 15 of 20
<PAGE> 16
such remedies as to such breach, violation, or threatened breach or violation,
or as to any other breach, violation, or threatened breach or violation.
Existence of any claim or cause of action of any Shareholder against ASI or any
other Shareholder, whether predicated on this Agreement or otherwise, will not
constitute a defense to the enforcement by ASI or any Shareholder of this
provision of the Agreement.
ARTICLE X
GENERAL
SECTION 10.01. Entire Agreement. This Agreement constitutes the
entire Agreement between the parties hereto pertaining to the subject matter
hereof and supersedes all prior and contemporaneous agreements and
understandings of the parties in connection therewith.
SECTION 10.02. Counterparts. This Agreement may be signed in any
number of counterparts, all of which are taken together shall constitute one
and the same instrument, and any party hereto may execute this Agreement by
signing one or more counterparts. One complete set of counterparts shall be
lodged with and maintained by ASI.
SECTION 10.03. Notices, All notices required under this Agreement
shall be in writing and shall be deemed to have been duly given upon the
delivery thereof by Federal Express, Airborne Express or such other similarly
recognized courier service employing an electronic tracking system, to the
following address:
(a) If to ALPHA, to;
Alpha CommSat Co., Ltd.
142 Sukhumvit Rd., 23rd Floor
Bangkok 10110
Attention: Chief Executive Officer
Fax: 011-662-653-2287
With a copy to:
Hunton & Williams
200 Park Ave., 43rd Floor
New York, New York 10166
Attn: Edmond P. Murphy, Esq.
Fax: 212-309-1100
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SHAREHOLDER AGREEMENT - Page 16 of 20
<PAGE> 17
(b) If to StoneMedia, to:
StoneMedia Corporation
634 Preston Royal, Suite 214
Dallas, Texas 75230
Attn: Chief Operating Officer
Fax: 214-361-4004
With a copy to:
James J. Panipinto, Esq.
Bennett, Weston & Panipinto
10670 N. Central Expwy.
Dallas, Texas 75231
Fax: 214-373-6810
In case of change of address of any of the parties hereto, such party shall
notify the other party of such change in the manner specified above.
SECTION 10.04. Governing Law. All questions relating to the
validity, construction or performance of this Agreement shall be governed by
the laws of the Kingdom of Thailand.
SECTION 10.05. Arbitration.
(a) It is mutually understood and agreed that all disagreements,
disputes and/or claims arising in connection with this Agreement shall be
fairly settled under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce ("ICC") by three arbitrators (unless a single
arbitrator is unanimously agreed to by the parties) appointed in accordance
with said rules.
(b) Arbitration proceedings hereunder shall be conducted in the
English language in The Netherlands, unless otherwise agreed by the
Shareholders.
(c) Section 10.04 hereof shall govern the law to be applied with
respect to any such dispute.
(d) With respect to arbitration or litigation, reasonable attorneys'
fees, arbitration costs and court costs shall be awarded to the prevailing
party.
(e) Prior to requesting arbitration hereunder, the parties agree to
attempt, in good faith, to resolve any dispute in accordance with the Rules of
Optional Conciliation of the ICC. Any such conciliation proceedings shall be
held in the English language in
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SHAREHOLDER AGREEMENT - Page 17 of 20
<PAGE> 18
The Netherlands, unless otherwise agreed by the Shareholders. With respect to
such conciliation proceeding, reasonable attorneys' fees, arbitration costs and
court costs shall be awarded to the prevailing party.
(f) Prior to requesting conciliation hereunder, an offended party
hereunder shall notify the offending party of the alleged breach of this
agreement. In such case the parties agree to exercise their best, good faith
efforts to resolve such disagreement. If such dispute shall not be resolved
within a timely period, the offended party shall give the offending party
notice that it has thirty (30) days to submit a plan to the offended party to
resolve the dispute. The parties shall then attempt to agree upon such a plan,
and if an agreeable plan is thereafter reached shall immediately implement such
plan. If the parties fail to agree upon a plan or fail to implement such plan
as agreed upon, then one or both of the parties shall immediately be entitled
to seek conciliation and arbitration as set forth in this Section 10.05.
(g) Nothing in this Section 10.05 is intended to preclude the parties
from seeking relief in a proper forum under conditions which require
intervention to address an emergency situation where time is of the essence.
Notwithstanding, a party seeking relief under this provision shall bear the
costs and expenses of the other party having to defend such an action if the
forum ultimately concludes that the action was sought in bad faith.
SECTION 10.06. Amendment and Waivers. This Agreement may be amended,
and compliance with any provision herein may be waived, only by a written
agreement duly executed and delivered by and among all Shareholders.
SECTION 10.07. Non-Waiver. The waiver, express or implied, by any
Shareholder of any right hereunder or of any failure to perform or breach
hereof of any other Shareholder, shall not constitute or be deemed a waiver of
any other right hereunder or of any other failure to perform or breach hereof
by the same or by any other Shareholder, whether of a similar or dissimilar
nature thereof.
SECTION 10.08. Survival of Rights, Duties and Obligations.
Termination of this Agreement for any cause shall not release any party from
any liability which at the time of termination had already accrued to any other
party or which thereafter may accrue in respect of any act or omission prior to
such termination.
SECTION 10.09. Further Assurances. Each of the parties hereto shall,
upon request of the other party, take such further action and execute,
acknowledge and deliver all such instruments, of further assurance as may be
necessary to carry out the provisions of this Agreement.
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SHAREHOLDER AGREEMENT - Page 18 of 20
<PAGE> 19
SECTION 10.10. Legend on Certificates. To insure implementation of
the restrictions on the transfer of the Common Stock contained in this
Agreement, each certificate representing Common Stock which shall be issued by
ASI shall bear the following legend:
The sale, assignment, transfer, pledge or hypothecation of the
securities represented by this certificate is restricted by and
subject to the provisions of a shareholders agreement, dated as of
______________________, 1996, which is on file at the offices of ASI
and a copy of which will be furnished to any shareholder upon request
and without charge.
SECTION 10.11. Severability. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall be ineffective, as to
such jurisdiction, to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof or affecting the validity
or enforceability of such provision in any other jurisdiction.
SECTION 10.12. Assignment. Neither Shareholder may assign this
Agreement, or any interest herein, without the prior written consent of the
other party to this Agreement.
SECTION 10.13. Cooperation Regarding Listing. All parties shall use
their best efforts to conform with the rules and regulations of the Securities
and Exchange Commission ("SEC") and the Stock Exchange of Thailand ("SET") in
order to list ASI on the SET if the Board determines to have ASI listed on the
SET.
SECTION 10.14. Expenses. All expenses incurred in connection with
the preparation of this Agreement and the incorporation and organization of ASI
(including financial advisory, legal and accounting) shall be :
(i) paid by ASI if ASI, is incorporated; and
(ii) paid by the Shareholders, in accordance with the share
holdings of ASI set forth in Article 1 of this Agreement.
SECTION 10.15. Appointment of Auditors. The auditors of ASI shall be
appointed by the Board in accordance with applicable law.
[SIGNATURE PAGE FOLLOWS]
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SHAREHOLDER AGREEMENT - Page 19 of 20
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective duly authorized representatives, as of the day
and year first above written,
ALPHA COMMSAT CO., LTD. STONE MEDIA CORPORATION
By: /s/ TARWORN YAOWAKUN By: ELBERT G. TINDELL
--------------------------------- ---------------------------------
Name: Tarworn Yaowakun Name: Elbert G. Tindell
Title: President Title: Chief Executive Officer
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SHAREHOLDER AGREEMENT - Page 20 of 20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 1,710,100
<SECURITIES> 0
<RECEIVABLES> 38,891
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,779,241
<PP&E> 304,789
<DEPRECIATION> 28,279
<TOTAL-ASSETS> 3,836,737
<CURRENT-LIABILITIES> 950,253
<BONDS> 0
0
0
<COMMON> 21,735
<OTHER-SE> 2,864,749
<TOTAL-LIABILITY-AND-EQUITY> 3,836,737
<SALES> 517,542
<TOTAL-REVENUES> 544,752
<CGS> 517,037
<TOTAL-COSTS> 517,037
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,940
<INCOME-PRETAX> (1,789,601)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
