U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSBA
(Mark One)
[x] Annual report under section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended October 31, 1995.
[ ] Transition report under section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from _________ to __________
Commission file number 20252-NY
Transworld Telecommunications, Inc.
(Name of small business issuer in its charter)
Pennsylvania 52-1546434
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identificaiton No.)
102 West 500 South, Suite 320
Salt Lake City, Utah 84101
(Address of principal executive offices) (Zip Code)
(Issuer's telephone number) (801) 328-5618
Securities to be registered under Section Name of each exchange on
12(b) of the Act: Title of each class which registered
Common Stock, Par Value $.001 Boston Exchange
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes X
No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulations S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State the registrant's net revenue for its most recent fiscal year: $ - 0 -
The aggregate market value of voting stock held by non-affiliates of the
registrant on January 29, 1996, was approximately $13,078,190 calculated using
the average of the bid and ask prices of registrant's Common Stock. On such
date, the bid and ask prices of registrant's Common Stock were $1.125 and $1.250
respectively, per share.
As of January 29, 1996, 28,564,228 shares of registrant's Common Stock, par
value $.001 per share, were outstanding.
<PAGE>
PART F/S
The list of financial statements accompanying this report is set forth
in the index to the financial statements below.
TRANSWORLD TELECOMMUNICATIONS, INC.
INDEX TO THE FINANCIAL STATEMENTS
Independent Auditor's Report F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statement of Stockholders' Equity F-4
Consolidated Statement of Cash Flows F-5 - F-6
Notes to Consolidated Financial Statements F-7 - F-18
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Financial Statements
October 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
The Board of Directors
Transworld Telecommunications, Inc.:
We have audited the accompanying consolidated balance sheets of Transworld
Telecommunications, Inc. and subsidiaries as of October 31, 1995 and 1994, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended. 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 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 provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Transworld
Telecommunications, Inc. and subsidiaries as of October 31, 1995 and 1994, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Salt Lake City, Utah
December 22, 1995, except for notes
2 and 10, which are as of October 22, 1996.
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
October 31, 1995 and 1994
Assets 1995 1994
Current assets:
Cash $ 94,391 265,462
Receivable from investee
company (note 2) 3,672 88,620
Other receivables 15,215 48,230
------------ ----------
Total current assets 113,278 402,312
Furniture and equipment, at cost,
less accumulated depreciation
of $12,965 in 1995 and $3,720 in 1994 33,259 55,503
Deposits and other assets 7,666 8,414
Investment in and advances to investee
companies (notes 2 and 10) 1,457,642 7,155,213
Channel rights/broadcast licenses, at
cost, less accumulated amortization of
56,250 in 1994 (notes 2 and 8) - 1,443,750
----------- -----------
$1,611,845 9,065,192
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 261,442 357,670
Accrued liabilities 323,045 538,053
Notes payable - related party (note 3): 150,000 150,000
Net current liabilities of discontinued
operation (note 4) 825,178 845,277
----------- -----------
Total current liabilities 1,559,665 1,891,000
Stockholders' equity (notes 5, 6 and 10):
Common stock, $.001 par value, 200,000,000
shares authorized; issued and outstanding
28,564,228 in 1995 and 28,484,228 shares
in 1994 28,564 28,484
Additional paid-in capital 12,964,990 13,912,573
Accumulated deficit (12,941,374) (6,766,865)
----------- ----------
Net stockholders' equity 52,180 7,174,192
Commitments and contingencies
(notes 9 and 10)
------------- ------------
$ 1,611,845 9,065,192
============= ============
See accompanying notes to consolidated financial statements.
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended October 31, 1995, and 1994
1995 1994
Revenues $ - -
----------- ----------
Operating expenses:
Contract services 100,565 1,295,579
Channel rights 173,187 95,934
Salaries and related benefits 783,506 1,356,551
Professional fees 767,518 724,127
Depreciation and amortization 121,745 59,971
Other 521,845 641,108
----------- -----------
Total operating expenses 2,468,366 4,183,270
----------- -----------
Loss from operations (2,468,366) (4,183,270)
Other income (expense):
Interest income 207,852 39,675
Interest expense (19,077) (304,258)
Equity in net loss of investee
companies (note 2) (5,865,766) (1,405,350)
Other 75,748 (124,564)
----------- ----------
Total other income (expense) (5,601,243) (1,794,497)
----------- -----------
Loss from continuing operations (8,069,609) (5,977,767)
Income from discontinued operations, net
of income tax expense of $120,964 in 1995
and $135,000 in 1994 (note 4) 1,895,100 2,351,248
----------- -----------
Net loss $(6,174,509) (3,626,519)
============= ============
Net loss per common share:
Continued operations $ (.28) (.22)
Discontinued operations .06 .09
----------- ------------
$ (.22) (.13)
============ ============
See accompanying notes to consolidated financial statements.
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended October 31, 1995 and 1994
<TABLE>
<CAPTION>
Additional Retained Net stock-
Common stock paid-in earnings holders'
Shares Amount capital (deficit) equity
-------- ------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances, October 31, 1993 27,308,853 $ 27,309 $ 4,090,610 $ (3,140,346) $ 977,573
Issuance of common
stock for cash 50,000 50 19,950 - 20,000
Issuance of common
stock for services 833,000 833 1,101,917 - 1,102,750
Adjustment for sale of
interest in TV-Tampa - - 461,481 - 461,481
Issuance of common stock
in connection with the
purchase of channel
leases & licenses 956,813 957 3,516,606 - 3,517,563
Retirement of shares of
major stockholder (2,500,000) (2,500) 2,500 - -
Issuance of options - - 693,750 - 693,750
Conversion of preferred
stock and purchase of
debentures 1,835,562 1,835 4,025,759 - 4,027,594
Net loss - - - (3,626,519) (3,626,519)
----------- -------- ----------- ------------ -----------
Balances, October 31, 1994 28,484,228 $ 28,484 $13,912,573 $(6,766,865) $ 7,174,192
Issuance of stock in
satisfaction of a liability 80,000 80 49,920 50,000
Issuance of options - - 7,500 - 7,500
Spin-off of assets - - (1,005,003) - (1,005,003)
Net loss - - - (6,174,509) (6,174,509)
------------ --------- ----------- ------------- ------------
Balances, October 31, 1995 28,564,228 $ 28,564 $12,964,990 $(12,941,374) $ 52,180
============ ========= ============ ============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended October 31, 1995 and 1994
1995 1994
Cash flows from continuing operating
activities:
Loss from continuing operations $(8,069,609) (5,977,767)
Adjustments to reconcile net income
to net cash used in continuing
operating activities:
Depreciation and amortization 121,745 59,971
Equity in net loss in investee companies 5,865,766 1,405,350
Issuance of stock options 7,500 693,750
Interest income issued in the form of
additional debt (207,852) -
Write-off of WCCI receivable 339,246 -
Common stock issued for services - 1,102,750
Loss on debentures - 172,393
Changes in assets and liabilities:
Receivables 117,963 16,999
Other assets 40,405 (135,680)
Account payable and accrued liabilities (261,236) (470,569)
Notes payable - related party - 105,000
---------- ------------
Net cash used in continuing
operating activities (2,046,072) (3,027,803)
----------- ------------
Cash flows from discontinued operating
activities:
Income from discontinued operations 1,895,100 2,351,248
Change in net liabilities of discontinued
operations (20,099) 599,488
---------- ----------
Net cash provided by discontinued
operating activities 1,875,001 2,950,736
------------ -----------
Net cash used in operating
activities (171,071) (77,067)
------------ -----------
Cash flows used in investing activities:
Capital expenditures - (46,223)
Proceeds from sale of interest in subsidiary - 4,632,193
Investment in Wireless Holdings, Inc. - (4,642,000)
------------ -----------
Net cash used in investing
activities - (56,030)
------------ ------------
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
Years ended October 31, 1995 and 1994
1995 1994
Cash flows from financing activities:
Redemption of preferred stock - (400,690)
Proceeds from payments on debentures - 700,000
Proceeds from sale of preferred stock - 10,000
Proceeds from issuance of common stock - 20,000
--------- ----------
Net cash provided by financing
activities - 329,310
--------- ----------
Increase (decrease) in cash (171,071) 196,213
Cash at beginning of year 265,462 69,249
---------- ---------
Cash at end of year $ 94,391 265,462
=========== ==========
Supplemental Disclosure of Cash Flow Information
Interest paid $ - 3,246
Preferred dividends paid $ - 282,711
Supplemental Schedule of Non-Cash Investing
and Financing Activities
Issuance of common stock for:
Conversion of preferred stock and $ - 4,027,594
purchase of debentures
Purchase of channel leases and licenses $ - 3,667,563
Satisfaction of a liability $ 50,000 -
Spin-off of assets $1,005,003 -
See accompanying notes to consolidated financial statements.
<PAGE>
TRANSWORLD TELECOMMUNICAITONS, INC. AND SUBSIDIARIES
Notes to Consolidatwd Financial Statements
October 31, 1995 and 1994
(1) Summary of Business and Significant Accounting Policies
(a) Summary of Business
Transworld Telecommunications, Inc. (the Company) was incorporated
under the laws of the Commonwealth of Pennsylvania. The Company is
involved in the telecommunications industry with continuing
operations in wireless cable television systems. The Company also
has "Pay-per-Call" services in the entertainment and information
markets, which are currently held for sale and classified as
discontinued operations.
(b) Principles of Consolidation and Equity Investments
The consolidated financial statements include the accounts of
Transworld Telecommunications, Inc. and its wholly owned
subsidiaries, including Carolina Communications, Inc. (Carolina), a
discontinued operation. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The Company accounts for its 20 percent interest in Videotron
Bay Area, Inc. (Videotron Tampa Bay) and its 50 percent interest
in Wireless Holdings, Inc. (WHI) on the equity method, commencing
November 19, 1993 through August 31, 1994 and the fiscal year ended
August 31, 1995.
(c) Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers all
highly liquid investments purchased with a maturity of three
months or less to be cash or cash equivalents.
(d) Furniture and Equipment
Furniture and equipment are stated at cost, less accumulated
depreciation. Depreciation is provided using the straight-line
method on estimated useful lives of five to fifteen years.
(e) Channel Rights and Broadcasting Licenses
Channel rights, licenses, and multiple-dwelling unit agreements
are recorded at cost and are amortized on a straight-line basis
over the initial term of underlying agreements, which range from
seven to fifteen years.
(f) Income Taxes
The Company accounts for income taxes using the asset/liability
method, under which deferred tax assets and liabilities are
established at the balance sheet date in amounts that are
expected to be recoverable or payable when the differences in the
tax and book basis of asset and liabilities (temporary differences)
reverse.
<PAGE>
TANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Finacial Statements
(1) Summary of Business and Significant Accounting Policies (continued)
(g) Loss Per Share
Loss per share is based upon weighted average common shares
outstanding amounting to 28,544,448 and 27,485,673 shares for the
two years ended October 31 1995 and 1994, respectively. Common
equivalent shares from warrants and convertible preferred stock
are excluded from the computation as their effect is antidilutive.
(h) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent liabilities to prepare these
financial statements in conformity with generally accepted
accounting principles. Actua results could differ from those
estimates.
(2) Equity Investments
On November 19, 1993, the Company contributed 800 of its 1,000
shares of Transworld Wireless TV - Tampa Bay, Inc. (TWTV-Tampa)
common stock to Videotron Tampa Bay. Videotron Tampa Bay reissued
the 800 shares to Videotron USA, Inc. (Videotron) for $7 million
in cash. Accordingly, effective October 31, 1993, the accounts of
Videotron Tampa Bay are not included in the consolidated accounts
of the Company. Concurrently with this sale, the Company sold
Videotron 1,000 shares of its Class A Series B convertible
preferred stock for $1.5 million in cash. As a result of these
transactions, the Company recognized a contribution to additional
paid in capital of $461,481 and a purchase of preferred stock
of $10,000. In addition, the Company received the right to put
its remaining shares of Videotron Tampa Bay for a five year period
at anytime after December 31, 1994 to Videotron for the greater of
$2.6 million or the then fair market value. Videotron also holds
a right of first refusal on any sale of the 200 shares of
Videotron Tampa Bay held by the Company.
On November 19, 1993, the Company invested $4,642,000 for a fifty
percent interest in WHI.Videotron invested the other fifty percent
interest in WHI. The business purpose of WHI is to invest in and
develop wireless cable television and private cable systems in the
United States.
In February 1994, WHI acquired an existing wireless cable
television system in Spokane, Washington and wireless cable
television licenses and lease rights and a private cable system
in San Francisco, California. The combined purchase price for
these assets was $22,500,000 comprise $11,360,000 of cash and
$11,140,000 in debt and assumption of liabilities.
In May 1994, WHI, through a series of transactions to which the
Company was a party, acquired license and lease rights in
Victorville and San Diego, California, and Greenville, South
Carolina. The combined purchase price for these assets was
$6,617,313, comprised of $3,814,750 in cash, liabilities of
$635,000 and 619,312 shares of the Company's common stock valued
at $2,167,563. The issuance of the Company's common stock for
the license and lease rights noted above has been accounted for
as an exchange for promissory notes from WHI.
<PAGE>
(2) Equity Investments (continued)
The promissory notes are due January 15, 1999, at an interest rate
equal to the greater of 15 percent per year or prime plus six
percent. In connection with the transactions, the Company issued
800,000 shares of its common stock, to a company of which the
father of the president of the Company is a part owner, for
services and brokerage fees.
On March 31, 1995, the Company recorded accrued interest in the
amount of $207,852 as the promissory notes were reissued,including
accrued interest for a total of $2,375,415, as unsecured
promissory notes with similar terms as the previous notes except
the interest rate was 10.625%. The Company has not accrued any
interest on the notes receivable from WHI after March 31, 1995.
In conjunction with the May 1994 transaction, the Company also
acquired lease and license rights in Auckland, New Zealand. The
combined purchase price for these license and lease rights was
$1,500,000, comprised of 337,500 shares of the Company's common
stock and liabilities of $150,000.
A summary of the Company's investment in and advances to
investee companies at October 31 follows:
1995 1994
Notes receivable $ 2,375,415 2,167,563
Equity investment (917,773) 4,987,650
------------ ----------
Total $ 1,457,642 7,155,213
============ ===========
<PAGE>
(2) Equity Investments (continued)
The Company accounts for its equity in investee companies based on the
investee companies' fiscal year which ends August 31. Summary financial
information for the investee companies as of and for the period from
November 19, 1993 (the date of WHI's inception) through August 31, 1994
follows:
Videotron
WHI Tampa Bay
Revenue $ 2,266,000 700,000
Operating expenses 3,519,000 1,872,000
----------- ---------
Operating loss (1,253,000) (1,172,000)
Net interest expense (1,278,000) (164,000)
Minority interest 39,000 -
Income tax benefit - 520,000
------------ ------------
Net loss $ (2,492,000) (816,000)
============== ============
Assets:
Current assets $ 3,656,000 269,000
Fixed assets 6,549,000 1,969,000
Licenses 21,054,000 11,801,000
Other - 32,000
------------- ------------
Total assets $ 31,259,000 14,071,000
============= ============
Liabilities:
Current liabilities $ 24,183,000 3,885,000
Deferred income taxes - 1,862,000
-------------- ------------
Total liabilities 24,183,000 5,747,000
Minority interest 282,000 -
Total stockholders' equity: 6,794,000 8,324,000
-------------- -----------
Total liabilities and
stockholders' equity $ 31,259,000 14,071,000
============= ===========
<PAGE>
(2) Equity Investments (continued)
Summary financial information for the investee companies as of and for
the fiscal year ended August 31, 1995 follows:
Videotron
WHI Tampa Bay
Revenue $ 4,146,000 942,000
Operating expenses 11,218,000 3,936,000
----------- ----------
Operating loss (7,072,000) (2,994,000)
Net interest expense (4,017,000) (709,000)
Minority interest 227,000 -
Income tax benefit - 1,428,000
Extraordinary gain - 101,000
------------ -----------
Net loss $ (10,862,000) (2,174,000)
Assets:
Current assets $ 1,574,000 1,272,000
Fixed assets 11,113,000 5,565,000
Licenses 29,420,000 11,187,000
Other - 34,000
-------------- -----------
Total assets $ 42,107,000 18,058,000
============== ===========
Liabilities:
Current liabilities $ 46,121,000 11,414,000
Deferred income taxes - 494,000
--------------- -----------
Total liabilities 46,121,000 11,908,000
Minority interest 54,000 -
Total stockholders' equity: (4,068,000) 6,150,000
-------------- -----------
Total liabilities and
stockholders' equity $ 42,107,000 18,058,000
================ ===========
The financial statements of WHI and Videotron Tampa Bay disclose
certain uncertainties related to the possible sale of the companies,
a related arbitration proceeding, and reliance on Videotron USA, Inc.,
the other principal investor of these companies, and its ultimate
parent, Le Groupe Videotron Ltee, to fund the day to day operations of
these companies. These financial statements do not include any
adjustments relating to the recoverability and classification of
recorded asset amounts of the amounts and classification of liabilities
that might be necessary should these investee companies be unable to
continue as going concerns. The financial statements of WHI and
<PAGE>
TRANSWORLD TELECOMMUNICAITONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Videotron Tampa Bay also disclose that continuation as going concerns is
dependent upon the ability of these companies to generate sufficient
cash flow to meet their obligations on a timely basis, to obtain
additional financing or refinancing, and ultimately to attain successful
operations.
(3) Related Party Transactions
In addition to related party transactions disclosed elsewhere herein,
other significant related party transactions are summarized as follows:
During fiscal 1994, the Company awarded 15,000 shares of common stock to
an individual, who is the uncle of the Company's Chairman of the Board,
for serving as a director of Carolina. During fiscal 1995 and 1994, the
Company paid various companies owned by directors of the Company
$71,304 and $72,739, respectively, as reimbursement of travel and
office expenses. At October 31, 1995 and 1994, the Company's accounts
payable included $63,992 and $57,240, respectively, of payables to
officers, directors and companies owned by officers and directors of the
Company. Included in accrued liabilities is a facility fee payable of
$50,000 due to a company of which a director of the Company is a
principal owner. In January 1995, the Company issued 80,000 shares
of the Company's common stock in connection with this transaction. In
addition, the Company paid professional fees to a law firm in the amount
of $33,283 in 1994. A partner in the law firm (and another attorney who
is of counsel) are directors of the Company.During fiscal 1995 and 1994,
the Company paid $5,166 and $3,771, respectively, to Videotron Tampa Bay
for management fees.
The note payable to a related party is due to a company of which the
father of the president of the Company is a major stockholder. The note
is unsecured, bears interest at 12 percent and was originally due on
March 31, 1994. On February 28, 1995, the note payment date was extended
to January 1, 1996 and the Company paid an additional $15,000 extension
fee.
(4) Discontinued Operations
On February 28, 1994, the Board of Directors approved a plan to sell
Carolina, a wholly owned subsidiary involved in the pay-per-call
industry. Accordingly, Carolina is reported as a discontinued operation
in the consolidated financial statements for all periods presented. It
is management's opinion that the sale of Carolina will not result in a
loss. Accordingly, no provision for loss has been recorded.
A summary of operating results and the net liabilities of the
discontinued operation for the years ended October 31, 1995 and 1994 and
the net liabilities as of October 31, 1995 and 1994 are as follows:
1995 1994
Net sales $ 3,714,383 5,810,419
============ ==========
Income before income tax expense $ 2,016,064 2,486,248
Income tax expense (120,964) (135,000)
----------- ----------
Net income $ 1,895,100 2,351,248
=========== ===========
<PAGE>
TRANSWORLD TELECOMMUNICAITONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Discontinued Operations (continued)
1995 1994
Current assets $ 222,179 75,510
Property and equipment, net 29,535 43,718
Accounts payable and accrued
liabilities (1,076,892) (964,505)
------------ ---------
Net current liabilities of
discontinued operations $ (825,178) (845,277)
============ =========
Included in accrued liabilities are accrued management fees due to a
company owned by the Chairman of the Company's Board of Directors. This
company provides management services to Carolina and Carolina is
dependent upon this company for all operations. Management fees related
to company owned by the Chairman amounted to $389,500 in 1995 and
$390,000 in 1994.
(5) Common Stock
In August 1994, the Company's Chairman of the Board contributed to the
Company 2.5 million shares of his common stock of the Company and
options to acquire 358,334 shares of the Company's common stock. In the
opinion of management, the retirement of these shares and options
allowed the Company to complete the conversion of the preferred stock
described in note 6 and certain stock option awards without materially
diluting its other common shareholders' equity positions.
During the year ended October 31, 1994, the Board of Directors canceled
1,383,335 option shares awarded to officers in 1993, none of which were
exercised, and replaced them with options in the aggregate of 925,000
shares at $1.00 per share. The option price set forth was below fair
market value, resulting in a compensation expense to the Company
of $693,750. In June 1995, the Company awarded options in the aggregate
of 15,000 shares at $1.25 per share to the Company's three outside
directors. The option price set forth was below fair market value,
resulting in a compensation expense to the Company of $7,500. All of
these options vest at the date of grant and are exercisable for a
five-year period.
In addition, during 1994 the Company reserved 3,000,000 shares for
issuance under a stock option plan. Options under this plan have an
exercise price which represent the estimated fair market value of the
Company's common stock at the date of grant, vest at the date of grant,
and ar exercisable for a five-year period. The stock options are awarded
by a committee appointed by the Company's Board of Directors. Unoptioned
shares available for granting under the incentive stock option plan at
October 31, 1995 are 2,660,000.
<PAGE>
(5) Common Stock (continued)
A summary of nonqualified stock option activity is set forth below:
Number of Option Price
Options Per Share
- --------------------------------------------------------------------------------
Outstanding at October 31, 1993 1,533,335 $2.00 to $3.00
Granted 1,135,000 $1.00 to $1.75
Canceled (1,383,335) $2.00 to $3.00
-----------
Outstanding at October 31, 1994 1,285,000 $1.00 to $3.00
Granted 145,000 $1.25 to $1.75
Outstanding at October 31, 1995 1,430,000 $1.00 to $3.00
Options exercisable at October 31, 1995
were 1,430,000.
The Company had 1,250,000 each of Class A and B warrants outstanding in
1993. The A warrant gave each warrant holder the right to purchase one
share of common stock at $.30 per share. The B warrant gave the
warrantholder the right to purchase one share of common stock at $.50
per share. The warrants were not exercisable until the Company filed a
registration statement with the Securities and Exchange Commission and
met other requirements. All warrants expired unissued on February 28,
1994.
(6) Class A Redeemable Convertible Cumulative Preferred Stock
The Company has authorized 1,000,000 shares of Class A Series A
Preferred Stock, $0.01 par value. The rights and privileges of the
Series A redeemable convertible cumulative preferred stock are as
follows: (1) they carry no voting rights except as described in (5)
below; (2) divide are calculated at an annual rate of eight percent,
paid in semiannual installments and are cumulative; (3) the stockholders
may "put" shares back to the Company in accordance with a predetermined
schedule at a redemption value of $10 per share; (4) at any time, the
stockholders have the option to convert their principal into the
Company's common stock at a conversion price of $3.75 per common share;
(5) if dividend payments are in default, the preferred stockholders
have the right to elect one-half of the Board of Directors of the
Company until all payments in default have been paid; and (6) in the
event of liquidation, the preferred stockholders receive payment
before any amounts are paid to common stockholders. At October 31, 1995
and 1994, there were no shares outstanding.
During the fiscal year ended October 31, 1994, the Company redeemed
40,069 shares for $400,690 of the Series A redeemable convertible
cumulative preferred stock. In addition, the entire amount remaining of
Series A redeemable convertible cumulative preferred stock was converted
into the Company's common stock in the year ended October 31, 1994 at a
conversion price of $2.75 per common share.
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Fianancial Statements
(6) Class A Redeemable Convertible Cumulative Preferred Stock (continued)
The Company has authorized 2,000,000 shares of Class A Series B
Preferred Stock, $0.01 par value. The rights and privileges of the
Series B stockholders are as follows: (1) the stockholders have voting
rights, one vote per share; (2) dividends are noncumulative and are
payable at $ per annum per share, when declared; (3) in the event
of liquidation, the preferred stockholders shall receive payment
before any amounts are paid to common stockholders; (4) the Company
has the right to redeem in whole or part, at any time, the Series B
preferred stock at a price of $10 per share, plus declared and unpaid
dividends.
In November 1993, the Company issued Videotron, the Company's
co-shareholder in WHI, 1,000 shares of preferred Class A Series B stock.
In September 1994, the Company converted the 1,000 preferred shares into
1,000 shares of the Company's common stock. At October 31, 1995 and
1994, there were no shares outstanding.
(7) Income Taxes
Due to net operating losses the Company has reported no income tax
expense or benefit attributable to continuing operations for the years
ended October 31, 1995 and 1994. The following schedule reconciles the
computed "expected" tax benefit based on U.S. federal corporate tax
rates effect for the year, to the tax benefit reflected in the
accompanying consolidated financial statements based on loss from
continuing operations:
1995 1994
Computed "expected" tax benefit $ (2,744,000) $ (2,032,000)
Discontinued operations 680,000 845,000
Nondeductible dividends - -
TWTV-Tampa disaffiliation - 96,000
Change in beginning-of-year 2,064,000 670,000
valuation allowance
Other - 17,000
------------- ------------
Total tax benefit $ - $ -
============= ============
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Income Taxes (continued)
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities at
October 31, 1995 and 1994 are presented below:
1995 1994
Deferred tax assets:
Deferred compensation, due to accrual $ 275,000 $ 274,000
for financial reporting purposes
Accrued liabilities not deductible 175,000 204,000
until paid for tax reporting
purposes
Fixed assets, due to differences - 5,000
in depreciation methods
Net operating loss carryforward 410,000 288,000
Investment in investee companies 2,070,000 152,000
----------- -----------
Total gross deferred tax assets 2,930,000 923,000
Less valuation allowance 2,930,000 923,000
---------- ----------
Net deferred tax asset $ - $ -
========== ==========
The valuation allowance for deferred tax assets as of November 1, 1994 was
$923,000. The net change in the total valuation allowance for the year ended
October 31, 1995 was an increase of $2,007,000. Ensuing recognized tax benefits,
if any, relating to the valuation allowance for deferred tax assets will be
recognized as an income tax benefit in the consolidated statement of operations.
The Company and its subsidiaries have domestic net operating loss carryforwards
for tax purposes of approximately $1,095,000 expiring between the years 2007 and
2008. These losses are subject to various federal and state limitations.
(8) Spinoff
On July 26, 1995, the Board of Directors of the Company voted to
spinoff to its shareholders two of its subsidiaries into Wireless Cable &
Communications, Inc. ("WCCI"), a Nevada corporation. On August 1, 1995, the
Company and WCCI effected the spinoff by the Company contributing i interest in
the subsidiaries (whose primary assets were channel rights/broadcast licenses in
Auckland, New Zealand and Park City, Utah) to WCCI in exchange for WCCI's
issuance to the Company of 3,500,000 shares of its common stock. The Company
then transferred these shares to an escrow agent to be held for the benefit of
the Company's shareholders. The distribution of the 3,500,000 shares from the
escrow agent will be delayed until the Company and WCCI have complied with
certain requirements of the securities laws. At that time, the 3,500,000 shares
will be distributed to the Company's shareholders of record as of August 1,
1995, on a non-pro rata basis, with the management and principal shareholder
relinquishing a portion of their shares in favor of the public shareholders. The
public shareholders as of record on August 1, 1995 will receive approximately
1.6 shares of WCCI's common stock for each 10 shares of the Company's common
stock.
<PAGE>
TRANSWORLD TELECOMMUNICAITONS, INC. AND SUBSIDIARIES
Notes to Consolidatd Fiancial Statements
(8) Spinoff (continued)
In connection with the spin-off, the Company committed to loan
up to $1,000,000 to WCCI through the one year period following the spin-off for
purposes of funding WCCI's ongoing business operations. The commitment is
subject to a number of conditions including the Company having available
resources to fund its other obligations and commitments. In addition, the
Company retained a receivable from WCCI for approximately $340,000 which was
subsequently written off.
(9) Commitments and Contingencies
The Company leases office space and office equipment under
noncancelable operating lease agreements.
As of October 31, 1995, the Company was involved in various
claims and legal actions arising in the ordinary course of business. In the
opinion of management, the ultimate disposition of these matters will not have a
material adverse effect upon the Company's consolidated financial position,
results of operations or liquidity.
In addition, an action was brought in a Texas State Court in
January 1995 against former officers and directors of Euripides Development
Corporation, the predecessor to the Company, alleging fraudulent actions in
connection with the plaintiff's inability to exercise Class A and Clas warrants
initially sold by the Company as part of its 1989 registration statement. The
suit asks for damages and a punitive award of $400,000. Under the expressed
terms of the Company's registration statement on Form S-18, the Company had no
obligation to register the warrants, the warrants were not exercisable unless
they were registered, and, in any event, the plaintiff acquired the warrants in
the secondary market. Management believes the chances of a successful recovery
by the plaintiff are remote.
At October 31, 1995, the Company's working capital deficit
totaled $1,446,387. However, the Company has an option to require Videotron to
purchase the Company's 20 percent interest in Videotron Tampa Bay at the greater
of $2.6 million cash or its fair market value. However, in management's opinion,
the Company expects to satisfy these current liabilities in the future through a
sale of its investment in equity companies, a sale of its discontinued
operations or cash from the sale of the 20 percent interest in Videotron Tampa
Bay, if needed, will provide sufficient cash allowing it to meet obligations as
they are due.
(10) Subsequent Events
PTG Agreement. On November 9, 1995, the Company entered into an
agreement with Videotron, Le Groupe Videotron Ltee, Videoway Technologies, Ltd.
(Videoway), WHI, Videotron Tampa Bay, certain other affiliates, and Pacific
Telesis Group and a number of its affiliates (collectively, "PTG"), pursuant to
which PTG agreed to acquire, subject to the approval of the Company's
shareholders, the Company's entire interest in WHI and Videotron Tampa Bay (the
"PTG Agreement"). Under the PTG Agreement, PTG would also acquire all of the
stock of Videotron, which holds the stock WHI and Videotron Tampa Bay not held
by the Company. The discussion contained herein regarding the terms of the PTG
Agreement is qualified by reference to the actual terms of the PTG Agreement.
<PAGE>
TRANSWORLD TELECOMMUNICAIOTNS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Subsequent Events (continued)
The PTG Agreement provides that PTG would pay the Company and
Videoway a total of approximately $175 million. The consideration would be paid
by the delivery of approximately $120 million of PTG common stock and the
assumption by PTG of approximately $52.5 million of debt currently payable to
Videotron and $2.4 million of debt owed to the Company (which would be paid at
closing in PTG common stock). PTG would also reimburse the Company and Videoway
for certain expenses associated with subscriber additions and certain other
expenses. The purchase price is subject to a number of adjustments (which may
reduce the consideration ultimately received by the Company) and other
conditions. The PTG Agreement requires that the PTG shares be delivered to the
Company for distribution to its shareholders pursuant to a registration
statement under the Securities Act of 1933, as amended. The Company will seek
the approval of its shareholders for the transactions contemplated by the PTG
Agreement.
PTG would not acquire any private cable or wireline systems held by WHI or
Videotron Bay Area, which would be disposed of by WHI and/or Videotron prior to
the closing of the PTG Agreement. WHI and Videotron Bay Area would distribute
the proceeds from any sale of the excluded assets the Company and Videoway.
Under a plan of liquidation to be adopted upon successful
completion of the exchange, the Company would distribute shares of PTG common
stock to the Company's shareholders, except for $6 million of such shares which
the Company would be required to deliver into an escrow for 11 mont to secure
the Company's indemnification obligation regarding representations and
warranties to PTG set forth in the PTG Agreement. At the termination of the
escrow, the escrow agent would distribute such $6 million of PTG common stock
pro rata to the Company's shareholders (less any amount retained to cover claims
made by PTG). Other assets and liabilities of the Company would be disposed of
or distributed to the Company's shareholders.
The Company has previously entered into employment agreements
with certain key officers and employees of the Company which, among other
provisions, contains provisions that commit the Company to severance payments
under certain circumstances, including termination within 60 days of change of
control, as defined. The transactions contemplated by the PTG Agreement would
constitute a change of control for purposes of the employment agreements.
Arbitration Proceeding. On September 24, 1996, PTG filed a
demand for arbitration (Arbitration Demand) naming the Company, Le Groupe
Videotron Ltee, Videoway, WHI, Videotron and Videotron Tampa Bay alleging breach
of the obligations under the PTG Agreement. The Arbitration Demand requests a
declaration that the Company, Le Groupe Videotron Ltee, Videoway, WHI, Videotron
and Videotron Tampa Bay complete the transaction contemplated by the PTG
Agreement. In addition, the Arbitration Demand requests damages, interest and
attorneys fees. The Company is contesting PTG's claims and intends to defend the
action vigorously. Management believes that the ultimate resolution of the above
Arbitration Demand will not have a material adverse effect on the Company's
financial position, results of operations, and cash flows or on the likelihood
that the proposed transaction with PTG will be consummated.
<PAGE>
TRANSWORLD TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Supplemental Agreement. On January 23, 1996 (effective November
9, 1995), the Company signed an agreement with Videotron and other affiliated
parties to define procedures to completing the PTG Agreement, amend the
Settlement Agreement to conform with the terms of the PTG Agreement, and provide
WHI and Videotron Tampa Bay with operational funding until the transaction
contemplated under the PTG Agreement closes.
As part of this agreement, Videotron agreed to provide funding
to WHI and Videotron Tampa Bay to enable them to perform their respective
obligations under the PTG Agreement until the transactions contemplated under
the PTG Agreement are consummated.
Note Extension. On January 1, 1996, the Company signed an agreement to
extend the payment date of the note due to the father of the president of the
Company to January 1, 1997. The note and accrued interest will continue to bear
interest at 12 percent.
<PAGE>
SIGNATURES
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 thereunto duly authorized.
TRANSWORLD TELECOMMUNICATIONS, INC.
10/25/96 /s/ LANCE D'AMBROSIO
Date Lance D'Ambrosio
President and Chief Executive Officer
(Principal Executive Officer)
10/25/96 /s/ ANTHONY SANSONE
Date Anthony Sansone,
Treasurer and Assistant Secretary
(Principal Accounting Officer)
DIRECTORS
10/25/96 /s/ F. LORENZO CRUTCHFIELD, JR.
Date F. Lorenzo Crutchfield, Jr.
10/25/96 /s/ LANCE D'AMBROSIO
Date Lance D'Ambrosio
10/25/96 /s/ TROY D'AMBROSIO
Date Troy D'Ambrosio
10/25/96 /s/ E. ANDREW LOWE
Date E. Andrew Lowe
10/25/96 /s/ WALLACE T. BOYACK
Date Wallace T. Boyack
10/25/96 /s/ R. BRET JENKINS
Date R. Bret Jenkins
10/25/96 /s/ GEORGE SORENSON
Date George Sorenson
