As filed with the Securities and Exchange Commission on September 15, 1997
File No. 333-7006
SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
TECHNICAL MAINTENANCE CORPORATION
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 3670 87-0485304
- ------------------- ----------------------------- --------------------
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification
incorporation or Number)
organization)
TECHNICAL MAINTENANCE CORPORATION
One Commerce Place - Suite 330
Montreal (Nun's Island)
Quebec, Canada H3E 1A2
(514) 762-6244
--------------------------------------------------
(Address, including zip code, and telephone
number of registrant's principal executive offices)
Tony Mastronardi, President
TECHNICAL MAINTENANCE CORPORATION
c/o Touchtunes Digital Jukebox Inc.
One Commerce Place - Suite 330
Montreal (Nun's Island)
Quebec, Canada H3E 1A2
(514) 762-6244
----------------------------------------------------
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copies to:
Jacques Bourque, Esq. Aaron Karp, Esq.
Guy & Gilbert Karp and Sommers
770 Sherebrooke Street West 950 Third Avenue
Suite 2200 9th Floor
Montreal (Quebec) H3A 1A2 New York, NY
10022
Approximate date of commencement of proposed sale to public:
As soon as practicable after the effective date of this Registration Statement
____________________________________________________
i<PAGE>
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the box. [X]
CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------
Title of Each Amount to Proposed Proposed Amount of
Class of be Maximum Maximum Registration
Securities to Registered Offering Aggregate Fee
be Registered Price Per Offering
Share Price
- ---------------------------------------------------------------------
Class A Common 2,000,000 $3.00 $6,000,000 $1,818.18
Stock
($.001 par
value)
- ---------------------------------------------------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a) may determine.
ii<PAGE>
TECHNICAL MAINTENANCE CORPORATION
Cross Reference Sheet
Pursuant to Rule 404(a)
Item Number of Form SB-2 Location or Caption in Prospectus
1. Front of Registration Statement and Outside Front Cover Page
Outside Front Cover of Prospectus
2. Inside Front and Outside Back Cover Inside Front and Outside Back
Pages of Prospectus Cover Pages
3. Summary Information and Risk Factors Prospectus Summary and Risk
Factors
4. Use of Proceeds Prospectus Summary; Use of
Proceeds and Business
5. Determination of Offering Price Outside Front Cover Page
6. Dilution Not Applicable
7. Selling Security Holders Principal Shareholders and Selling
Shareholders
8. Plan of Distribution Outside Front Cover Page
9. Legal Proceedings Business - Legal Proceedings
10.Directors, Executive Officers, Management - Directors and
Promoters and Control Persons Executive Officers
11.Security Ownership of Certain Principal Shareholders and Selling
Beneficial Owners and Management Shareholders
12.Description of Securities Outside Front Cover Page;
Description of Capital Stock
13.Interest of Named Experts Legal Matters; Experts
14.Disclosure of Commission Position on Part II
Indemnification for Securities Act
Liabilities
15.Organization Within Last Five Years Prospectus Summary; Business and
Management's Discussion and
Analysis of Financial Conditions
and Results of Operations
16.Description of Business Prospectus Summary; Business
17.Management's Discussion and Analysis Prospectus Summary; Business;
or Plan of Operation Management's Discussion and
Analysis of Financial Condition
and Results of Operations
18.Description of Property Business _ Property
iii<PAGE>
19.Certain Relationships and Related Certain Transactions
Transactions
20.Market for Common Equity and Related Risk Factors; Price Range of
Stockholder Matters Common Stock; Dividend Policy and
Description of Capital Stock
21.Executive Compensation Management - Executive
Compensation
22.Financial Statements Financial Statements
23.Changes in and Disagreements with Not Applicable
Accountants on Accounting and
Financial Disclosure
24.Indemnification of Directors and Part II
Officers
25.Other Expenses of Issuance and Part II
Distribution
26.Recent Sales of Unregistered Part II
Securities
27.Exhibits Part II; Exhibits
28.Undertakings Part II
29.Financial Statements Not Applicable
iv<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PROSPECTUS
Subject to Completion, Dated September 15, 1997
TECHNICAL MAINTENANCE CORPORATION
2,000,000 SHARES OF CLASS A COMMON STOCK
(Par Value $.001 Per Share)
This Prospectus relates to the offering of 2,000,000 shares of the
Class A Common Stock ("Common Stock") of Technical Maintenance Corporation (the
"Company"), which may be sold from time to time by selling shareholders named
herein (the "Selling Shareholders"). The Company will receive no part of the
proceeds of such sales (see "Use of Proceeds"). All expenses incurred in
connection with this offering will be borne by the Company.
The Company has been advised by the Selling Shareholders that they
intend to sell all or a portion of the shares offered hereby from time to time
in the over-the-counter market. Such sales will be made through brokers at
prices prevailing at the time the sales are made. The Selling Shareholders and
any brokers executing sell orders on behalf of the Selling Shareholders, may be
deemed "underwriters" within the meaning of the Securities Act of 1933, as
amended, and any commissions received by such brokers may be deemed underwrit-
ing commissions under such Act.
The Company's Common Stock is traded in the over-the-counter market
on the "OTC Bulletin Board" under the symbol TCMN. On September 10, 1997, the
last reported sales price of the Common Stock was $2.00 per share.
Upon completion of this offering, the Company's officers and
directors will own approximately 67.6% of the outstanding shares of Common
Stock. As such, they will have the power to elect all of the Company's direc-
tors, to approve or disapprove all matters requiring stockholders' approval and
to control the Company's management, policies and operations. (See "PRINCIPAL
SHAREHOLDERS").
______________________________
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE RISK FACTORS (Pages 6-10)
______________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
______________________________
1<PAGE>
No person is authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering described herein. The Prospectus does not constitute an
offer to sell securities in any state to any person to whom such offer would be
unlawful.
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files annual and quarterly reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information may be
inspected and copied at the Commission's Public Reference Section, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, as well as at the Commission's
Regional Offices at 7 World Trade Centre, 13th Floor, New York, New York 10048;
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies
of such material can be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N. W., Washington, D.C. 20549.
The Commission also maintains a Website that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The Website address is: http:/www.sec.gov.
DOCUMENTS INCORPORATED BY REFERENCE
The Company has filed with the Commission a registration statement on
Form SB-2 (the "Registration Statement") under the Securities Act of 1933 (the
"Securities Act"), with respect to the securities offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits thereto, as permitted by the rules and regulations
of the Commission. For further information, reference is made to the
Registration Statement and to the exhibits filed therewith. Statements
contained in this Prospectus as to the contents of any contract or other
document which has been filed as an exhibit to the Registration Statement are
qualified in their entirety by reference to such exhibits for a complete state-
ment of their terms and conditions.
The following documents which have also been or will be filed by the
Company with the Commission pursuant to the Exchange Act are incorporated
herein by reference: (1) Annual Reports on Forms 10-K for the fiscal years
ended December 31, 1994; December 31, 1995; and December 31, 1996; (2) quarter-
ly reports on Forms 10-Q for the fiscal quarters ended March 31, 1995; June 30,
1995; September 30, 1995; March 31, 1996; June 30, 1996; September 30, 1996;
March 31, 1997; and June 30, 1997; (3) current reports on Forms 8-K dated March
31, 1995; November 10, 1995; December 21, 1995; January 19, 1996; and April 18,
1997. Prior to the filing of a post effective amendment which indicates that
all securities offered hereby have been sold or which deregisters all
securities then remaining unsold, all such documents shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of
filing of such documents.
2<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial statements appearing elsewhere or
incorporated by reference in this Prospectus.
The Company
The Company was incorporated under the laws of Nevada on August 9,
1990, by persons who are no longer principals. Present management took
control of the Company in December 1994. (See "CERTAIN TRANSACTIONS".) Prior
thereto, the Company did not engage in any business activities. The Company is
still in the development stage and has not generated any revenues. The Company
has a mailing office at 1800 E. Sahara, Suite 107, Las Vegas, Nevada 89104 and
a branch office at 1110 Lake Cook Road, Suite 353, Buffalo Grove, Illinois
60089. Its principal business offices are located at One Commerce Place, Suite
570, Montreal (Nun's Island), Quebec H3E 1A2, Canada. The Company's telephone
number in Canada is 514-762-6244. (See "BUSINESS - Properties").
The Company operates its business through Touchtunes Digital Jukebox
Inc. ("Touchtunes"), a Canadian subsidiary corporation which was organized by
the Company in March 1997, specifically for that purpose and which has been
capitalized in the manner described below under "Initial Funding". On the
effective date of this Prospectus, Touchtunes will become a wholly owned
subsidiary of the Company. (See "CERTAIN TRANSACTIONS - With the Selling
Shareholders").
Business
Since December 8, 1994, the Company has concentrated its efforts on
raising funds for the development and promotion of the technology for a
patented digital jukebox, combining the latest computer systems, telecommunica-
tion peripherals and multimedia hardware (the "Digital Jukebox"). The Digital
Jukebox is a state-of-the-art high tech unit, capable of storing, in compressed
digital format, a minimum of 500 songs, upgradable to virtually unlimited
capacity. The Company's Digital Jukebox is believed by management to be
capable of replacing present conventional jukeboxes which use loading
mechanisms, laser and other high maintenance parts, with a low maintenance,
high powered digital computer system, able to store and reproduce in digital
format, a virtually unlimited selection of music, at its original level of
quality. (See "BUSINESS - Patent Technology".)
Initial Funding
Since taking control of the Company in December 1994, the officers
and principal shareholders of the Company have financed its operations
primarily through their own resources and efforts. (See "CERTAIN TRANSACTIONS"
and "PRINCIPAL SHAREHOLDERS".) On March 21, 1997, two independent Canadian
investors, Societe Innovatech du Grand Montreal and Sofinov Societe Financiere
d'Innovation Inc. (the "Selling Shareholders"), agreed to invest $4,000,000
Canadian Dollars (CDN) for the further development and promotion of the Digital
Jukebox, upon certain terms and conditions described below. To accomplish
this, the Selling Shareholders agreed to invest $4,000,000 CDN in Touchtunes
Digital Jukebox Inc. ("Touchtunes"), a Canadian subsidiary organized by the
Company specifically for that purpose. The Company entered into an agreement
by which Touchtunes agreed to carry out the research and development work for
the Digital Jukeboxes and all such additional services as may be reasonably
requested by the Company in connection with implementation of the Digital
Jukebox project. (See "USE OF PROCEEDS", "BUSINESS" and "CERTAIN
TRANSACTIONS".)
3<PAGE>
The Selling Shareholders purchased 100 Class B shares and 20 Class C
shares of Touchtunes, at a price of $5,000 CDN per share, for an immediate cash
consideration of $600,000 CDN. The Selling Shareholders also subscribed to an
additional 680 Class C shares of Touchtunes, at a price of $5,000 CDN per
share, for a total consideration of $3,400,000 CDN. Both the Class C shares
and the funds were deposited in escrow. The Class B and the Class C shares of
Touchtunes may be exchanged at the option of the Selling Shareholders, into
2,000,000 shares of Series A Preferred Stock of the Company and then converted
share for share into Common Stock. On May 9, 1997, the Selling Shareholders
released an additional $750,000 CDN against delivery of 150 Class C shares,
leaving a balance of $2,650,000 CDN and 530 Class C shares in escrow. On July
17, 1997, the Selling Shareholders released the remaining $2,650,000 CDN to
Touchtunes against delivery to them of the remaining 530 Class C shares of
Touchtunes. These funds are now being used to implement the start-up business
activities of the Company. (See "Business Start-Up Activities" and "BUSINESS -
Marketing Strategy".)
The Selling Shareholders have agreed that when this Prospectus
becomes effective under the Securities Act, they will exercise their option to
exchange all their Class B and Class C shares of Touchtunes into 2,000,000
shares of Series A Preferred Stock of the Company and will immediately convert
all such shares into 2,000,000 shares of Common Stock of the Company.
Business Start-Up Activities
The Company will require the entire $4,000,000 CDN received by the
initial funding to complete its start-up business activities. These funds will
be used to: (i) conduct a market trial test; (ii) register the Company's
patents in the United States, Japan, Canada and member countries of the
European patent office organization; (iii) continue research and development of
the Digital Jukebox; (iv) establish a national sales network; and (v) negotiate
long term contracts with major music label companies for non-exclusive music
rights. Management believes this will be sufficient capital until March 1,
1998. (See "USE OF PROCEEDS".) Thereafter, management estimates that it will
require additional capital of approximately $38,000,000 U.S. to commence full-
scale commercial operations. (See "BUSINESS - Future Financing".)
Management estimates that these start-up business activities will
continue until March 1, 1998, at which time the Company will be ready to
manufacture Digital Jukeboxes. In order to rapidly penetrate the existing
jukebox market, the Company plans to pay the manufacturing costs of the Digital
Jukeboxes and provide them for use by current jukebox operators without cost.
(See "BUSINESS - Jukebox Manufacturers".) The jukebox operators are expected
to install the Digital Jukeboxes in lieu of their existing conventional units,
at their present locations, or in new locations, and provide the necessary
maintenance to keep the Digital Jukeboxes in good working order. The Company
plans to enter jukebox operator agreements with such operators, to be
negotiated individually with each, whereby the Company and the operator will
share in the income generated by each Digital Jukebox. The Company plans to
manufacture and install 5,000 units with jukebox operators by the end of 1998.
(See "BUSINESS - Marketing Strategy".)
Management estimates that manufacturing and distribution costs for
the number of Digital Jukeboxes needed to operate on a commercially profitable
basis will require additional capital estimated at approximately $38,000,000
U.S. (See "BUSINESS - Future Financing".) The Company has no present commit-
ments for raising such additional funds and no assurances can be given that
such funds will be available, when and if needed by the Company. (See "RISK
FACTORS".)
4<PAGE>
The Offering
The Company is the owner of 800 Class A shares of Touchtunes. Class
A shares entitle the holder to one vote per share. The Selling Shareholders
own 100 Class B shares and 700 Class C shares of Touchtunes. Class B shares
entitles the holder to eight votes per share and Class C shares are non-voting.
At present, the Company and the Selling Shareholders have equal voting rights
in Touchtunes.
The Class B and Class C shares of Touchtunes are exchangeable at the
option of the Selling Shareholders into 2,000,000 Series A Preferred shares of
the Company which, in turn, are convertible share for share into 2,000,000
shares of Common Stock of the Company. Once the Selling Shareholders exercise
their exchange rights for Series A Preferred shares of the Company and convert
them into Common Stock, the Company will become the sole remaining shareholder
of Touchtunes. It is anticipated that this will take place on the effective
date of this Prospectus. (See "CERTAIN TRANSACTIONS" and "SELLING
SHAREHOLDERS".)
This Prospectus is intended to register the sale by the Selling
Shareholders of a maximum of 2,000,000 shares of the Company's Common Stock
reserved for issuance to them, upon exercise of their rights to exchange their
100 Class B shares and 700 Class C shares of Touchtunes into 2,000,000 of the
Company's Series A Preferred shares and their conversion of such Series A Pre-
ferred shares (plus 100 shares of Series A Preferred Stock which they already
own) into 2,000,100 shares of the Company's Common Stock. (See "CERTAIN
TRANSACTIONS".)
5<PAGE>
Summary Financial Data
Statement of Operations Data:
Six
Months Ended
Year ended June 30,
December
31,
(Unaudited)
1994 1995 1996 1996 1997
Net sales $ - $ - $ $ - $ -
Depreciation $ - $ 114,776 $ 189,243 $ 64,050 $ 199,686
and amortizati
Operating loss $ - $ (785,063) $ (991,970) $ (319,387) $ (982,961)
Net loss $ - $ (785,063) $ (991,970) $ (319,387) $ (982,961)
Balance Sheet Data:
As At
As At December 31, June 30,
(Unaudited)
1994 1995 1996 1996 1997
Current Assets $ - $ - $ 21,402 $ - $ 795
Total Assets $ 63,539 $ 780,767 $ 1,714,272 $ 797,457 $ 1,626,471
Working Capital $ - $ (123,901) $ (2,027,974)$ (459,978) $ (1,005,423)
(deficiency)
Stockholders' $ 63,539 $ 656,866 $ ( 335,104)$ 337,479 $ 620,253
equity
(deficiency)
Use of Proceeds
The Company will receive no part of the proceeds from the sale of the
2,000,000 shares of Common Stock by the Selling Shareholders. All expenses
incurred in connection with this offering will be borne by the Company. (See
"SELLING SHAREHOLDERS".)
RISK FACTORS
The shares of Common Stock being offered hereby are speculative.
They involve a very high degree of risk. Before considering the purchase of
any shares of Common Stock, a prospective investor should carefully consider,
in addition to the other information contained in this Prospectus, the
following risk factors. No person should purchase any of the shares of Common
Stock if they cannot afford to lose their entire investment.
1. Limited Operating Experience. The Company was incorporated in August
1990. It did not commence business activities until December 1994, when
present management took control. The Company's Digital Jukebox is still in its
development stage and must still undergo a market trial test. No revenues have
been generated from the sale of Digital Jukeboxes, the Company's only current
product. The Company believes that revenues from the Digital Jukeboxes will
constitute a significant portion of its revenues for the foreseeable future.
Accordingly, any factor adversely affecting the introduction, promotion and
6<PAGE>
revenues from the Digital Jukeboxes would have a material adverse effect on the
Company's business and the results of its operations. (See "BUSINESS".)
2. No Financial History. The Company has received no revenues from
operations and has no significant financial history. Future financial perform-
ance will depend on the successful development, promotion and customer
acceptance of its patented Digital Jukebox. There can be no assurance that the
Company will be successful in promoting and marketing any present or enhanced
versions of the Digital Jukebox. At June 30, 1997, the Company had a working
capital deficiency of ($1,005,423). (See "SELECTED FINANCIAL DATA _ Balance
Sheet Data," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Liquidity and Capital Resources" and "BUSINESS".)
3. Dependence on Key Personnel. The Company will be dependent for its
success on the personal, day-to-day efforts and abilities of its two key execu-
tive officers, Tony Mastronardi and Guy Nathan. (See "MANAGEMENT" and
"PRINCIPAL SHAREHOLDERS".) In addition, the Company must employ a chief
financial officer to monitor its finances. Its success will also depend to a
significant extent upon a number of key technical employees. Competition for
such technical personnel is intense. The failure of the Company to hire and
retain talented administrative and technical personnel or the loss of one or
more key employees could have an adverse effect on the Company's business and
results of operations.
4. Further Development Requirements and Possible Obsolescence. The Company's
future success will depend upon its ability to complete the development of its
Digital Jukebox and introduce features and enhancements which meet changing
customer requirements on a timely basis. (See "BUSINESS - Patented Techno-
logy".) Once developed, there can be no assurance that the Digital Jukebox
will achieve market acceptance. In addition, there can be no assurance that
other products or technologies will not render the Digital Jukebox non-
competitive or obsolete. (See "BUSINESS - Industry Background".)
5. Intense Competition and Marketing Risks. The market for jukeboxes is
extremely competitive. There are substantial barriers to entry in this market
due to the large amount of capital required. The Company expects such competi-
tion to intensify in the future. The Company's potential competitors have
significantly greater financial and other resources than the Company. (See
"BUSINESS - Jukebox Manufacturers".) The Company's ability to compete
successfully in this market will depend upon a number of factors, including:
the success of its test marketing plan; the willingness of jukebox operators to
work with the Company; access to capital; the capacity, reliability and
security of the telecommunications network used; the pricing policy of competi-
tors and suppliers; the timing of the introduction of new products and
services; and industry and general economic trends. There can be no assurance
that the Company will be successful in introducing its Digital Jukeboxes into
this market or that the revenues generated will prove profitable. (See
"BUSINESS - Marketing Strategy".)
6. Lack of Revenue; Future Capital Requirements; and the Uncertainty of
Funding. To date, the Company has not generated any revenues from its opera-
tions. Management estimates that start-up costs for the development and
promotion of the Digital Jukebox until March 1, 1998, the projected point of
commercial manufacturing, will approximate $4,000,000 CDN, the total amount the
Company has received. The Company expects that its capital resources will
enable it to maintain its start-up business operations until then. At that
time, the Company will need approximately $38,000,000 U.S. in order to
manufacture and ship its Digital Jukeboxes on a commercial basis. For that
purpose, the Company must seek additional funding through public or private
equity or debt financing. There can be no assurance that such financing will
7<PAGE>
be available on terms favorable to the Company, or at all. If adequate funds
are not available or are not available on acceptable terms, the Company may not
be able to commercialize its Digital Jukeboxes. (See "BUSINESS".)
7. Need For Further Technological Advances. There can be no assurance that
the technological lead, which management believes the Company's Digital Jukebox
presently enjoys, will remain. The Company's future success will depend, in
part, on its ability to effectively use leading technologies, to continue to
develop its technical expertise, to enhance its current Digital Jukebox and
develop new features which will meet changing customer needs on a timely and
cost effective basis. There can be no assurance that the Company can do this.
(See "BUSINESS - Patented Technology".)
8. Limited Patent Protection. The Company has filed eight international
patent applications under the Patent Cooperation Treaty, a worldwide
organization, in order to protect its Digital Jukebox's technology. It will
continue its efforts to protect such patent claims during its start-up business
operations and thereafter. Nevertheless, there can be no assurances concerning
the scope, validity or value of such patents and patent applications; nor as to
freedom from infringement, by the manufacture, use or sale of Digital
Jukeboxes, of patents held by others, although the Company is not aware of any
infringing patents. (See "BUSINESS - Patented Technology".)
9. No Manufacturing Facilities or Experience. The Company has no
manufacturing facilities. The Digital Jukebox has never been manufactured on a
commercial scale. There can be no assurance that the Digital Jukeboxes can be
manufactured at a cost or in quantities necessary to make them profitable. If
the Company is not able to contract with a manufacturer for a sufficient number
of Digital Jukeboxes on acceptable terms, or if it should encounter delays or
difficulties in its relationship with the manufacturer, the introduction of the
Digital Jukeboxes would be delayed, which would have a material adverse affect
on the Company. (See "BUSINESS -Jukebox Manufacturers".)
10. No Marketing Experience. Up until July 1, 1997, the Company had no sales,
marketing or distribution capability. Since July 1, 1997, the Company has
employed a Vice-President of sales and marketing, a sales manager and a service
manager. To market its Digital Jukeboxes, the Company must develop a marketing
and sales force with technical expertise and with supporting distribution capa-
bility. There can be no assurance that the Company will be able to establish
in-house sales and distribution capabilities or that it will be successful in
gaining market acceptance for its Digital Jukebox. There can be no assurance
that the Company will be able to attract suitable personnel to develop
successfully, its marketing strategy. (See "BUSINESS - Marketing Strategy".)
11. Dependence Upon a Sole Equipment Manufacturer. The Company will be
dependent upon a single equipment manufacturer for its Digital Jukeboxes. It
is presently negotiating with Bose Corporation. Once an agreement is entered,
the Company will become subject to Boses' performance and may also be subject
to increases in costs which could adversely affect the Company's business and
results of operations. ("BUSINESS - Jukebox Manufacturers".)
12. No Market for Common Stock. As of September 10, 1997, there were
approximately 500 holders of the Company's Common Stock. Over the past two
years, there has been relatively little activity in the Common Stock, which is
traded over-the-counter on the "OTC Bulletin Board". There can be no assurance
that an active public market will develop or be sustained after the sale of the
Common Stock by the Selling Shareholders. (See "PRICE RANGE OF COMMON STOCK".)
13. Shares Eligible For Future Sale. Future sales by existing shareholders
could have a material adverse effect on the price of the Common Stock. Upon
8<PAGE>
exercise by the Selling Shareholders of their exchange rights and their
conversion rights, the Company will have 16,584,807 shares of Common Stock
issued and outstanding. Of this, 11,215,049 shares (67.6%) are owned by
present management. (See "PRINCIPAL SHAREHOLDERS".) No assurance can be given
as to the effect that future sales of shares held by present shareholders will
have on the market price prevailing from time to time.
14. Control of the Company. Upon completion of this offering, the Company's
officers and directors will own approximately 67.6% of the outstanding shares
of Common Stock, assuming the sale of all 2,000,000 shares by the Selling
Shareholders. As such, they will have the power to elect all of the Company's
directors, to approve or disapprove all matters requiring stockholders'
approval (regardless of the vote of any other stockholders) and to control the
Company's management, policies and operations. (See "PRINCIPAL SHAREHOLDERS".)
15. No Dividends. The Company has never declared or paid dividends on its
Common Stock. It intends to retain future earnings, if any, to support the
growth of its business and does not anticipate paying cash dividends in the
foreseeable future. (See "DIVIDEND POLICY.")
16. Securities Not Listed on NASDAQ. The Company's Common Stock is not listed
for quotation on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") or on any securities exchange. The Common Stock is
subject to certain "Penny Stock Rules" adopted by the Securities Exchange
Commission, relative to transactions in securities with a market price of less
than $5.00. These require a broker to provide his customer with, among other
things: (1) detailed information about the nature and risks of "penny" stocks,
prior to executing a transaction; (2) make a written determination that the
stock is a suitable investment for the purchaser; and (3) receive the
purchaser's prior written agreement to execute the transaction. These
disclosure requirements may have the effect of reducing the level of trading in
the Company's Common Stock. In that event, investors in this offering may find
it more difficult to sell their securities.
9<PAGE>
For all the foregoing reasons, an investment in the Company's Common
Stock involves a high degree of risk. Any person considering such an
investment should be aware of these risk factors.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common
Stock by the Selling Shareholders. However, the Company has already received
$4,000,000 CDN from them. (See "CERTAIN TRANSACTIONS".) These funds are being
used to complete the remaining activities of the Company's business start-up,
including:
1. Conducting a market trial test for its Digital Jukebox (approximately
$100,000 CDN);
2. Continuing the registration of the Company's patents and applications
in the United States, Japan, Canada and the member countries of the European
patent office organization (approximately $300,000 CDN);
3. Continuing the research and development work on the Digital Jukebox
(approximately $1,400,000 CDN);
4. Establishing a national sales network (approximately $800,000 CDN);
5. Negotiating contracts with major music label companies for
non-exclusive music rights and payment of royalties (approximately $250,000
CDN);
6. Administration, salaries and overhead (approximately $550,000 CDN);
7. Advertising and exhibitions (approximately $400,000 CDN); and
8. Miscellaneous expenses (approximately $200,000 CDN).
The Company estimates that its business start-up activities will
continue until March 1, 1998, at which time the Company will be ready to
commence manufacturing the Digital Jukeboxes. These manufacturing activities
will require an additional $38,000,000 U.S. in capital. The Company has no
present arrangement for raising such funds. (See "BUSINESS -Future
Financing".)
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has traded in the over-the-counter market
on the "OTC Bulletin Board" since June 7, 1995, under the symbol TCMN. The
quotations below from the National Quotation Bureau, Inc. represent the high
and low, bid and asked prices, by quarters, since that date. These do not
include retail markups, markdowns or commissions. Nor do they represent actual
transactions.
10<PAGE>
Bid Prices Asked Prices
High Low High Low
1995
June 7 through Unpriced Unpriced
June 30
July 3 through $4.50 $1.125 $4.75 $1.875
September 29
October 2 through $4.50 $.875 $4.875 $1.375
December 29
1996
January 2 through $1.625 $.875 $2.25 $1.125
March 29
April 1 through $3.25 $1.1875 $5.00 $1.375
June 28
July 1 through $3.75 $1.875 $4.25 $3.00
September 30
October 1 through $2.00 $1.00 $3.00 $2.00
December 31
1997
January 2 through $2.75 $1.00 $4.00 $1.50
March 31
April 1 through $2.125 $1.25 $3.00 $2.00
June 30
July 1 through $2.625 $1.625 $3.50 $2.00
August 30
On September 10, 1997, the last reported sales price of the Common
Stock on the OTC Bulletin Board was $2.00 per share. On that date, there were
approximately 500 holders of record of the Common Stock.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common
Stock. It intends to retain future earnings, if any, to support the growth of
its business and does not anticipate paying cash dividends in the foreseeable
future.
11<PAGE>
CAPITALIZATION
The following table sets forth the Company's capitalization at June
30, 1997.
June 30, 1997
Short term debt $ 1,006,218
Long term debt -
-------------
Stockholders Equity:
Preferred Stock - $.001 par value, authorized _ -
10,000,000 shares, 100 shares issued and -------------
outstanding
Common Stock - $.001 par value, authorized _ 14,585
35,000,000 shares, 14,584,707 shares issued and -------------
outstanding
Capital in excess of par value 3,366,662
-------------
Retained earnings (deficit) ( 2,760,994)
-------------
Total stockholders equity 620,253
-------------
SELECTED FINANCIAL DATA
The following selected financial data for the three year period from
January 1, 1994 through December 31, 1996 has been derived from the financial
statements of the Company audited by Armstrong Gilmour, Accountancy
Corporation. Their reports appear elsewhere herein. The Company's operating
results for the six months ended June 30, 1997 may not be indicative of the
operating results to be expected for the full year.
Summary Financial Data
Statement of Operations Data:
Six
Months Ended
Year ended December 31, June 30,
(Unaudited)
1994 1995 1996 1996 1997
Net sales $ - $ - $ - $ - $ -
Depreciation $ - $ 114,776 $ 189,243 $ 64,050 $ 199,686
and amortization
Operating loss $ - $ (785,063) $ (991,970) $ (319,387 $ (982,961)
Net loss $ - $ (785,063) $ (991,970) $ (319,387) $ (982,961)
12<PAGE>
Weighted average
number
Of Class A Common
Stock:
Shares outstanding, 1,000,000 2,000,000 12,909,000 12,909,000 12,909,000
beginning
of period
Share issuance's 1,000,000 10,909,000 - - 1,675,707
during the period
Shares outstanding, 2,000,000 12,909,000 12,909,000 12,909,000 14,584,707
end of period
Weighted average 1,065,753 10,535,844 12,909,000 12,909,000 14,584,707
number
of shares
Net loss per Class $ - $ (0.07) $ (0.08) $ (0.01) $ (0.04)
Common Stock
Balance Sheet Data:
As At
As At December 31, June 30,
(Unaudited)
1994 1995 1996 1996 1997
---------- ---------- ------------- ---------- -------------
Current Assets $ - $ - $ 21,402 $ - $ 795
Total Assets $ 63,539 $ 780,767 $ 1,714,272 $ 797,457 $ 1,626,471
Working Capital $ - $ 123,901 $ (2,027,974) $ (459,978 $ (1,005,423)
(deficiency)
Stockholders' $ 63,539 $ 656,866 $ ( 335,104) $ 337,479 $ 620,253
equity
(deficiency)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the information set forth in "Business Start-Up Activities" in the
"PROSPECTUS SUMMARY," under "Selected Financial Data" and the financial
statements and notes thereto included elsewhere in this Prospectus.
General and Results of Operations
The Company's ongoing development of the Digital Jukebox and its
other intellectual property acquisitions provide it with several future
opportunities for financial success. To date, the Company's financial
resources have been used to fund this development as well as professional costs
relating to patent applications in connection with the Digital Jukebox and
other fees. The Company has generated no revenue to date, and none is expected
until it concludes the start-up phase for the Digital Jukebox, which is
anticipated in approximately 6 months.
13<PAGE>
Seasonality
Management is not aware of any factors or attributes relating to the
Company's business that have caused, or in the future are reasonably likely to
cause, any seasonality which would have a material effect on the Company's
financial condition or results of operations.
Liquidity and Capital Resources
On March 21, 1997, the Selling Shareholders agreed to invest
$4,000,000 CDN for the further development and promotion of the Digital
Jukebox, upon certain terms and conditions previously described. (See "CERTAIN
TRANSACTIONS - With Selling Shareholders"). By July 17, 1997, the entire amount
was delivered to the Company. This will supply the Company with sufficient
capital resources necessary in order to conclude the financing of its start-up
activities, projected to be March 1, 1998. In order to commence full-scale
commercial operations, management estimates that an additional $38,000,000 U.S.
capital will be required at that time. It is anticipated that a combination of
equity and debt financing will be arranged by the Company.
BUSINESS
The Company was incorporated under the laws of Nevada on August 9,
1990, by persons no longer principals. Prior to December 8, 1994, the Company
did not engage in any business activities. The Company is still in the deve-
lopment stage and has still not generated any revenues from the business opera-
tions in which it has engaged and the marketing strategy which it has
developed.
In December 1994, the Company acquired the exclusive rights to a
newly patented technology, the "Digital Jukebox". (See "Patented Technology".)
Since then, the Company has concentrated all of its efforts on the development
of this Digital Jukebox, which combines in a single unit the latest computer
systems, telecommunication peripherals and multimedia hardware. Management
believes the Digital Jukebox is capable of replacing the loading mechanisms,
the laser and the high maintenance parts employed by conventional jukeboxes,
with this low maintenance, high power computer system, capable of storing and
reproducing, in digital format, any music selection at its original level of
quality.
From December 1994 until March 1997, the Company's activities have
been funded by present management through their own resources and efforts.
Subsequently, the Company received $600,000 CDN on March 27, 1997; $750,000 CDN
on May 9, 1997; and $2,650,000 CDN on July 17, 1997; to start-up its business
operations. (See "CERTAIN TRANSACTIONS"). These funds will provide sufficient
capital until March 1, 1998 to complete the Company's start-up activities.
(See "USE OF PROCEEDS".) Thereafter, additional financing of approximately
$38,000,000 U.S. will be needed for commercial operations. No arrangements
have been made as yet, to obtain such additional funds. (See "Future
Financing".)
14<PAGE>
Patented Technology
On December 8, 1994, the Company acquired the exclusive rights to a
patent-pending (PCT/FR94/01185) Digital Jukebox, developed by Touchtunes
Jukebox Joint Venture (See "CERTAIN TRANSACTIONS".) The core of the Digital
Jukebox's technology is a proprietary-programming platform, optimized for high-
speed sound reproduction and video animation. The Digital Jukebox is capable
of storing, in compressed digital format, a minimum of 500 songs, upgradable to
virtually unlimited capacity. The Digital Jukebox is also equipped with a
telecommunication protocol allowing the downloading of music to each individual
Digital Jukebox from a remote central library. The result is a high
performance, low maintenance, remotely configurable, computer controlled unit,
using state-of-the-art technology standards. In the opinion of management,
with its integrated and flexible software program, the Digital Jukebox
outperforms any conventional jukebox on the market today, for simultaneous
sound reproduction, graphics display, video animation and telecommunication
services.
Specifically designed for use in the jukebox industry, the operating
system software will tabulate all played selections and automatically generate
detailed pay-for-play statements, indicating the royalty amounts owing for each
respective artist or record label company. This feature has helped the Company
to obtain performance rights and recording rights from performance rights
societies and music label companies, authorizing the Company to reproduce
copyrighted music on its Digital Jukeboxes. (See "Contractual Arrangements".)
The statistics generated by Digital Jukeboxes can be used to
determine the popularity of artists and titles, together with music preferences
and trends. This information on musical tastes is critical to the music
industry and can be made available by the Company to record label companies.
Furthermore, Digital Jukeboxes can be used to test market new songs, which can
be downloaded on each Digital Jukebox within 24 hours. Consumer response can
be monitored on a daily basis.
To protect its technology, the Company has filed seven international
patent applications under the Patent Cooperation Treaty (PCT), a worldwide
organization. These applications have a priority date of October 12, 1994.
Recently, an eighth patent has been filed with a priority date of September 25,
1996. Four patents cover the Company's downloading network configuration,
operating system technology, title selection and system control methodology as
it applies to the jukebox industry. The other four patents, cover its
application to potential markets outside the jukebox industry, such as resi-
dential and other markets, which can be serviced by the same network
configuration. The initial seven patent applications passed preliminary
international examination. Nevertheless, there can be no assurances concerning
the scope, validity or value of such patents and patent applications; nor their
freedom from infringement by others; although the Company is not aware of any
conflicting patents held by others. The Company has presently entered into the
national phase of processing the applications and has filed all seven initial
patents in each country applied for under the PCT.
15<PAGE>
Marketing Strategy
The Company's marketing and distribution strategy is aimed at
penetrating the jukebox industry through individualized arrangements made with
existing jukebox operators. The Company proposes to arrange for the renewal
and payment of licensing fees to the performing rights societies,
accountability and disbursement of royalty payments to the record label
companies, ongoing provision of music selections and for the manufacture and
delivery of the Digital Jukeboxes to the jukebox operators, all at no cost to
them, and to share with them in the revenue derived from their operation. (See
"Jukebox Manufacturers" and "Future Financing".) Initial responses from
jukebox operators to the use of the Digital Jukebox in this manner have been
favorable, primarily because of its technological advances.
The Company participated in the Amusement Showcase International
trade show held in Las Vegas from March 13 to March 15, 1997, which attracts
most major players in the coin operated industry. For this, the Company
arranged for the construction of 4 prototype Digital Jukeboxes and was the only
participant in this trade show to have a fully operational Digital Jukebox.
MCI Telecommunications Corporation provided the telecommunications services.
Bose Corporation, which manufactured the prototypes for the Company, supplied
its sound system. The Company together with MCI Telecommunications Corporation
and Bose Corporation hosted a seminar during which they presented the Digital
Jukebox to jukebox operators.
By June 30, 1997, the Company had delivered 20 prototype units of the
Digital Jukebox to selected jukebox operators for the purpose of conducting a
trial marketing test. In all, 17 jukebox operators in 11 states were selected
to participate in this commercial marketing test which is scheduled to last 4
months and will be used to gauge consumer response and the practicality of
down-loading music on demand from a central music library to individual Digital
Jukeboxes. The test is being conducted in collaboration with MCI Telecom-
munications Corporation which will provide the telecommunication facilities and
financial resources to cover the costs of storing music data in a central
location, transmitting the compressed music data and installing and maintaining
telephone lines to the Digital Jukeboxes on location. Bose Corporation
manufactured the 20 prototypes of the Digital Jukebox for use in conducting
this commercial market test. The sound system of the Digital Jukeboxes was
also designed and supplied by Bose Corporation.
After an analysis of the marketing test's results, including
recommendations made by the general public as well as the jukebox operators,
the Company will incorporate the suggested refinements in the final version of
the Digital Jukebox to be manufactured for commercial use. Based on early
results of this marketing test, the Company is confident that it will prove
successful and the Digital Jukebox will receive wide market exposure. The data
furnished by the test will also be used in negotiating contracts with the music
label companies. (See "Contractual Arrangements".)
16<PAGE>
Industry Background
According to industry sources, there are an estimated 312,000
conventional jukeboxes presently in use in the United States. These are owned
by approximately 2,300 operators, who own an average of 135 units each. The
locations comprising an operator's group of jukeboxes are called their
"routes". Many larger operators possess more than 300 jukeboxes in their
routes. Some routes with less than the average number of jukeboxes carry a
larger proportion of other amusement/entertainment equipment, in order to
provide an adequate revenue stream. The Company plans to distribute its
Digital Jukeboxes through arrangements made with jukebox operators for the use
of these units, without any initial payments. (See "Marketing Strategy".)
There can be no assurance that this strategy will be successful or profitable
to the Company.
Surveys taken of "consumer impressions", consisting of the number of
times that people hear music played on a jukebox, consistently demonstrate that
jukeboxes make 75-80 million "impressions" on a weekly basis in the United
States. Approximately 120,000 of the 312,000 conventional jukeboxes now in
use are newer CD units. Yearly sales of new CD units in 1996 are estimated at
approximately 20,000 units. These CD units can carry 100 CDs with approxi-
mately 1,000 songs. The remaining 192,000 conventional jukeboxes in use are
old 45 rpm units. These older units carry between 80-100 two-sided records for
a total of 160-200 songs. The Company's Digital Jukebox holds a minimum of 500
songs, upgradable to virtually unlimited capacity.
Each 45-rpm record is individually selected for the popularity of at
least one of its two sides. Although the newer CD jukeboxes have five times
the capacity of the older 45-rpm models, each song is not necessarily well
known or popular. To compensate for this, compilation discs containing a
variety of songs are used to supplement the CD units. For both the old 45 rpm
units and the new CD units, releases featuring the "greatest hits" of a
particular artist, are usually available only after they have reached the
height of their popularity. By contrast, the Company's Digital Jukebox can
deliver the "greatest hits" of a particular artist, or even a brand new song,
within twenty-four hours.
Inventories of CD albums and vinyl records stored in conventional
jukeboxes, must be continuously serviced by the operators, in order to keep
track of the selections within each jukebox at any given time. On a monthly
basis, operators must visit their conventional jukeboxes in order to rotate and
up-date the music selection and to make necessary changes to the title display.
The Digital Jukebox eliminates the need to change CD albums or vinyl records.
All music selections can be supplied completely by telecommunication. Jukebox
operators need not visit each Digital Jukebox to up-date the music selection.
Operators can even permit owners at the various sites where the Digital
Jukeboxes are located, to order the music titles, thereby tailoring the music
selection to the specific tastes of the owner's clientele. With the Digital
Jukebox, they need not maintain an inventory of CD albums and vinyl records.
Jukebox operators who use the Company's Digital Jukebox can order and
receive, on a 24 hour basis, individual music titles, including the newest
releases, from a remote central music library maintained by the Company, merely
by following the instructions on a touch-screen, an integral part of each
Digital Jukebox. (See "Marketing Strategy".) Their selection will be
immediately delivered to the Digital Jukebox via the Company's proprietary
telecommunications downloading network and stored within the memory of the
Digital Jukebox at their desired location. Customers can then browse through
the music repertoire using the same touch-screen and play any selection in the
Digital Jukebox.
17<PAGE>
Jukebox Manufacturers
Manufacturers sell jukeboxes to distributors who, in turn, sell the
units to operators. They range in price from $3,500 to $4,000 per unit and the
distributors sell them in turn to jukebox operators in a price range of $4,500
to $5,000 per unit. In addition to providing warranties and replacement parts
for their units, manufacturers conduct the research and development required to
produce a quality product. The latest advances in technology, the minimization
of moving parts and the all-important aesthetics factor are critical in
producing a commercially successful jukebox. The leading manufacturers are
Rowe International Inc., NSM-America, Wurlitzer Jukebox Company and Rock-
Ola/Antique Apparatus.
The components required to assemble the Company's Digital Jukebox
consist of standard off-the-shelf products utilized to build personal
computers. The Company plans to contract out the design, manufacturing and
delivery of the Digital Jukebox. It is presently negotiating with Bose
Corporation ("Bose") for that purpose. Bose manufactured the 20 prototype
Digital Jukeboxes being used by the Company in conducting its marketing test.
There can be no assurance that the market test will be successful or that, if
successful, a satisfactory agreement can be reached with Bose to manufacture
Digital Jukeboxes.
The Company estimates that the cost of manufacturing, delivering and
installing each unit will be $4,800. A total of 5,000 units are believed
necessary for commercial operations. There can be no assurance that the
Company will be able to raise the estimated $24,000,000 U.S. needed to
manufacture the Digital Jukeboxes on a commercial basis and the additional
$14,000,000 U.S. needed by the Company to continue its business operations.
(See "Future Financing".)
Competition
Competition in the manufacture, distribution and use of conventional
jukeboxes is intense. Some manufacturers have other lines of equipment which
they produce, in addition to conventional jukeboxes, within the
amusement/entertainment industry. However, none of the manufacturers are known
to be involved in the placement or operation of any of their jukebox units.
Through their distribution network, manufacturers sell their equipment, usually
in bulk quantities, to local distributors. All of these manufacturers have far
greater resources than the Company.
Competition for Company's Digital Jukebox can also be expected from
those who seek to design, develop and market, units similar to the Digital
Jukebox for use in the jukebox industry, with comparable or superior features,
technologies and advances. While the Company believes the Digital Jukebox is
currently far superior to any conventional jukebox on the market, there can be
no assurance that other technologically advanced jukeboxes may not be designed
and marketed by existing manufacturers or others, in competition with the
Digital Jukeboxes of the Company.
Contractual Arrangements
Under United States copyright law, the public performance of
copyrighted music in a commercial establishment is subject to royalty payments
to the writers and publishers of the material. In the case of jukebox
operations, a license must be obtained from those societies who own the
copyrights. The three "performing rights societies", who collectively own
18<PAGE>
nearly all of the world's copyrighted music material are ASCAP, BMI and SESAC.
These societies are represented by the Jukebox License Office.
The Jukebox License Office has accepted the Company's downloading
Digital Jukeboxes under its designation and issued its first-ever license for
this type of equipment. Because the downloading Digital Jukeboxes will be
linked to a single proprietary network, the Company has the right to license
its Digital Jukeboxes as if they were part of one big jukebox "route".
A recording artist's rendition of a musical number, recorded under
contract with a record company, is subject to royalty payments. Record label
companies have traditionally included royalty charges in the purchase price of
their music releases, either on CD, vinyl or cassette tape. This gives them
control over the collection and distribution of payments to the artists they
represent.
The Company is negotiating with each record label company for the
right to play their music, based on the payment of a royalty charge each time a
selection is played. To date, PolyGram Records, Capitol Records/EMI, MCA
Records Inc., Virgin Records America Inc. and Warner Music Group have granted
the Company such rights to play their music. For the four month market trial
period (see "Marketing Strategy"), the results of the market trial will be used
to negotiate long term agreements with the record label companies and establish
the amount of royalties to be paid each time a selection is played. These
record companies have also agreed to provide part of their existing music
collections, including all new future releases, free of charge for inclusion in
the Company's central music library for the market trial test. The Company may
download selections to the music repertoires of any Digital Jukebox. A
mechanical right shall be paid each time the Company downloads a selection from
its central music library to an individual jukebox. The recording companies
will rely on the Company's ability to generate pay-for-play statements,
identifying the royalty amounts owing to them.
Future Financing
The $4,000,000 received from the Selling Shareholders will enable the
Company to complete its remaining business start-up activities, including: (1)
conducting a market trial test; (2) registration of the Company's patents in
the United States, Japan, Canada and the member countries of the European
patent office organization; (3) continuing research and development of the
Digital Jukebox; (4) establishing a national sales network; and (5) negotiating
long term contracts with the major music label companies. (See "USE OF
PROCEEDS".) The Company estimates that these start-up activities will continue
until March 1, 1998, at which time the Company will be ready to commence
manufacturing the Digital Jukeboxes. The manufacturing and delivery activities
contemplated by the Company will require an additional $24,000,000 U.S. in
capital. An additional $14,000,000 U.S. will also be needed by the Company,
approximately $10,000,000 U.S. for continued operations and $4,000,000 U.S. for
the development and purchase of a "central server," a computer hardware and
software system for storing, downloading and accounting for music played on the
Digital Jukeboxes.
The $38,000,000 U.S. additional funds will be needed by the Company
by March 1998, to penetrate the market rapidly. The Company plans to pay the
manufacturing costs of the Digital Jukeboxes and to provide them to the opera-
tors. (See "Marketing Strategy".) For their part, the operators will place the
units in their present locations and provide the maintenance needed to keep the
equipment in good working order. The Company plans to enter into agreements
with the jukebox operators, to be negotiated individually, by which the Company
and the operator will share the cashbox income generated by each Digital
19<PAGE>
Jukebox. The Company plans to share the income generated by its Digital
jukeboxes on the basis of approximately 45% to 50% for the Company and
approximately 50% to 55% for the jukebox operator.
There can be no assurances that the Company will be able to raise
this $38,000,000 U.S., as and when needed, on terms satisfactory to the
Company, or at all. Nor can there be any assurances that the Company will
interest enough jukebox operators to enter into arrangements of this nature.
Finally, there can be no assurances that even if all these events take place,
the operations of the Company will prove commercially profitable.
Properties
The Company owns no real estate. Its operations are conducted
through Touchtunes Digital Jukebox Inc. which has entered into a lease for a
term of three years commencing May 1, 1997, for 3,933 square feet of office
space at One Commerce Place, Nun's Island, Verdun (Quebec) Canada H3E 1A2. The
space is divided on two floors, 2,724 square feet in Suite 330 and 1,209 square
feet in Suite 570. The annual rent is $76,438 CDN payable in monthly
installments. The computer programmers are located in Suite 330 while
administration and secretarial services are conducted from Suite 570.
Management believes the leased premises are presently adequate for the
Company's operations. The Company recently rented 1259 square feet of office
space at 1110 Cook Road, Suite 353, Buffalo Grove, Illinois 60089, at an annual
rental of less than $25,000 for use as a sales and marketing office and parts
distribution centre.
Employees
The Company operates its business through Touchtunes Digital Jukebox
Inc., which has a total of sixteen employees. These comprise: 2 executive
officers; 1 sales and marketing executive; 1 sales manager, 1 service manager,
2 research and development directors; 1 administrative manager; 1 secretary; 1
bookkeeper; 1 graphic artist; and 5 computer programmers. The Company has no
collective bargaining agreement with any union and its employee relations are
satisfactory.
20<PAGE>
Legal Proceedings
There are no legal proceedings pending against the Company.
MANAGEMENT
Directors and Executive Officers
The executive officers and directors of the Company are listed below.
Name Office Age
Tony Mastronardi President and Director 37
Guy Nathan Senior Vice-President, 53
Secretary and Director
Tonino Lattanzi Vice-President and 45
Director
Jacques Bourque Assistant-Secretary 46
and
Director
Pierre Pharand Director 55
Andre Duquenne Director 58
Tony Mastronardi resides in Montreal, Canada. Since 1984, Mr. Mastronardi has
been employed by Les Pavages Samacon Inc., a Montreal-based family-owned
construction company. Since April 1993, he has also been active in the
management of Viatel Communications Inc., a Montreal-based cellular phone
distributor. His role with the Company evolved from Director of Sales to
President. He completed his post-secondary school studies at Damson College in
1981.
Guy Nathan currently resides in Montreal, Canada. Mr. Nathan is an inventor,
having patented numerous intellectual property inventions since 1965. He also
founded several companies for the purpose of promoting and marketing his
inventions. Mr. Nathan has a great deal of experience in telecommunications.
He was directly involved in the creation of photovoltaic powered television
transmitters and repeaters and microwave links; created a photovoltaic powered
modular television set for communal and educational tv use in third world
countries; acted as consultant for numerous African countries in matters of
telecommunications, more particularly in setting-up radio and television
networks by satellite; developed satellite dish antennas for direct television
reception in KU band and developed and patented an interactive cable tv.
Tonino Lattanzi resides in France. Mr. Lattanzi has organized and been an
active shareholder in several European corporations since 1975. In 1975, he
organized Bennes Expres, a French corporation specializing in industrial waste
management and residential garbage collection. In 1989, he organized Neturba,
an Italian corporation which performs the same functions in Italy as Bennes
Expres does in France. In 1989, he also organized France Pressions Expres, a
French corporation specializing in construction alteration, road repairs and
cement structures.
Jacques Bourque resides in Montreal, Canada. Mr. Bourque is a lawyer and
senior partner of the law firm of Guy & Gilbert which has offices in Montreal,
Canada. Mr. Bourque graduated from the law faculty of the Universite de
Montreal in 1973 and was admitted to the Bar of the Province of Quebec in 1975.
He also holds a Master in Business Administration from McGill University in
1977. Mr. Bourque has had extensive experience in corporate and commercial
law, specializing in mergers and acquisitions.
Pierre Pharand resides in Montreal, Canada. Mr. Pharand was appointed Vice-
President of Sofinov, Societe Financiere d'Innovation Inc. ("Sofinov") in
September 1996. Sofinov is a venture capital fund and a wholly owned
subsidiary of Caisse de Depot et placement du Quebec, a major pension fund with
57.2 billion dollars CDN of assets under management. Mr. Pharand holds a
Bachelor's degree in industrial relations from the Universite de Montreal in
1972 and a Bachelor's degree in business administration from McGill University
in 1964. He is also a Chartered Administrator. Prior to joining Sofinov, Mr.
Pharand was President of Acero Management International Inc., a consulting firm
specializing in the corporate development of technology-related companies. He
was also Chairman of the Board as well as President and Chief Executive Officer
of Datagram Inc., a communications and technology company. Mr. Pharand has
held a number of managerial positions with the Canadian General Electric
Company, where he was in charge of different subsidiaries.
Andre Duquenne is Senior Vice President of Information Technologies of T2C2, a
venture capital fund organized by the Caisse de Depot, the Business Development
21<PAGE>
Bank of Canada and others. Mr. Duquenne served from 1993 to June 1997 as
Senior Vice President for technology placements at Societe Innovatech du Grand
Montreal, a $300,000,000 CDN fund, specializing in high-tech and biomedical
investments. Since 1993 he has served as a director for a number of public and
private companies including Cognicase Inc., Touchtunes Digital Jukebox Inc.,
Tecsys Inc., Toon Boom Technologies Inc., Systemcorp Inc. and PAD Systems Inc.
Executive Compensation
Until January 1, 1997, the Company had no arrangement for the
remuneration of its officers and directors, except that they received
reimbursement for actual, out-of-pocket expenses, including travel expenses,
made on behalf of the Company. No remuneration was paid to the officers and
directors of the Company for the year ended December 31, 1996.
On March 11, 1997, the Company entered into an employment agreement
with Tony Mastronardi, its President. The term of his employment is for five
years and the salary for his first year of employment was fixed at $125,000
CDN. The salary is payable commencing January 1, 1997. Mr. Mastronardi
entered a non-competition and confidentiality agreement with the Company for as
long as he remains in its employ and for an additional year thereafter. The
non-competition covenant will continue for as long as Mr. Mastronardi owns any
shares, directly or indirectly, in the Company.
On March 11, 1997, the Company also negotiated an employment agreement
with Guy Nathan, its Senior Vice-President and Secretary. The terms of the
employment agreement with Mr. Nathan are identical to those of the employment
agreement entered with Mr. Mastronardi. Mr. Nathan also executed a non-
competition and confidentiality agreement in favor of the Company on terms
identical to those of the non-competition and confidentiality agreement
executed by Mr. Mastronardi.
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial
stock ownership of the Company's executive officers and directors and each
person known by the Company to own five percent or more of the outstanding
shares of its Common Stock as of June 30, 1997.
Name and Address Amount and Nature Percent of
Of Beneficial Owner of Beneficial Ownership Class
Tony Mastronardi 10,001,920 shares (1) 68.58%
President, Director 866,825 shares (2) 5.94%
4973, Felix Mclernan
Pierrefonds QC H8Y
3L2
Guy Nathan 10,001,920 shares (1) 68.58%
Senior Vice-President 866,825 shares (2) 5.94%
Secretary, Director
1, rue Jeanne D'Arc
91330
Yerres France
22<PAGE>
Tonino Lattanzi 328,038 shares 2.25%
Vice President, 10,001,920 shares (1) 68.58%
Director 866,825 shares (2) 5.94%
7, rue Leon Blum 14,666 shares (3) .001%
Z.I. Des Glaises,
91120
Palaiseau France
All officers and 11,215,049 shares 76.896%
Directors as a group
(six persons)
Oraxium International 901,600 shares (4) 6.18%
P.O. Box 159
Hibiscus Square
Pond Street, Grand
Turk
Turks and Caicos
Islands
British West Indies
- --------------------------
(1) Messrs. Mastronardi, Nathan and Lattanzi each own 33% of the capital stock
of Techno Expres, SA, a French corporation with offices at 36, rue Du Marche,
94140 Alfort Ville France, the owner of 10,001,920 shares of the Company's
Common Stock.
(2) Messrs. Mastronardi, Nathan and Lattanzi own 50%; 16.67% and 33.33%
respectively, of the capital stock of Touchtunes Juke Box Inc., a Canadian
corporation with offices at One Commerce Place, suite 330, Nun's Island QC H3E
1A2, the owner of 866,825 shares of the Company's Common Stock.
(3) Mr. Lattanzi indirectly owns Neturba SRL, an Italian corporation with
offices at via Bonafica 26 63040 Malitignano, Italy the owner of 14,666 shares
of the Company's Common Stock.
(4) Oraxium International Inc. is an independent corporation which acquired
901,600 shares of Common Stock from the Company between December 1994 and April
1997 for work involving the Digital Jukebox technology and software. The
Company has been informed that Oraxium International Inc. was organized under
to laws of Turks and Caicos Islands. (See "CERTAIN TRANSACTIONS").
CERTAIN TRANSACTIONS
With Officers,
Directors and Others
On December 8, 1994, Touchtunes Jukebox Joint Venture (the "Joint
Venture"), an informal partnership comprising four corporations and two
individuals, purchased 760,400 shares of Common Stock from the persons who
organized the Company, for a cash consideration of $75,000. Such persons are
no longer affiliated with the Company. An additional 1,000,000 shares of
Common Stock was acquired at that time by the Joint Venture in consideration
for exclusive rights to the patent pending (PCT/FR94/01185) for the Digital
Jukebox. All 1,760,400 shares were acquired for investment. Subsequently, the
partners distributed these shares among themselves and dissolved the Joint
Venture. Tony Mastronardi, President of the Company, was the owner of one
corporation which received 714,950 shares. Another corporation, Touchtunes
Juke Box Inc., which received 216,666 shares, is owned 50% by Tony Mastronardi;
23<PAGE>
16.67% by Guy Nathan; and 33.33% by Tonino Lattanzi, officers and directors of
the Company. Mr. Nathan also received 180,000 shares directly. Oraxium
International Inc., which is now a principal shareholder of the Company,
received 225,000 shares. The other individual and the remaining corporation
were independent third parties, having no affiliation with the Company.
On March 6, 1995, the Company agreed to issue 10,000,000 shares of
Common Stock to S.G.R.M. Inc. ("SGRM"), a corporation incorporated under the
laws of the Turks and Caicos Islands, in exchange for patents, patents pending
and other intellectual property rights. In November 1995, this agreement was
amended and the 10,000,000 shares of Common Stock were issued to Techno Expres,
S.A., a French corporation, owned 33% each, by Messrs. Tony Mastronardi, Guy
Nathan and Tonino Lattanzi, officers and directors of the Company. The
10,000,000 shares were acquired for investment.
During December 1995, the Company issued an aggregate of 909,000
shares of Common Stock as follows: 100,000 shares to Albert Dutour, an
independent third party, in consideration of $150,000; 275,000 shares to
Oraxium International Inc. as part of the consideration for the purchase by the
Company of the "realtime modular multi-process kernel", the platform on which
the software of the Digital Jukebox is built; 300,000 shares to Tonino
Lattanzi, a director of the Company, in consideration for operating money
advanced to the Company in the amount of $300,000; 234,000 shares to Touchtunes
Juke Box Inc. ("Juke Box"), for services rendered to the Company having a value
of $203,337, and for expenses incurred of $31,440. Juke Box is owned 50% by
Tony Mastronardi; 16.67% by Guy Nathan; and 33.33% by Tonino Lattanzi, officers
and directors of the Company. Oraxium International Inc. is a principal
shareholder of the Company. The 909,000 shares were acquired for investment by
the respective subscribers.
On September 25, 1996, the Company authorized the issuance of 900,888
shares of Common Stock to Juke Box for a cash consideration of $477,470 and
75,000 shares to Giovanni D'Andrea, an independent third party, for
professional services valued at $40,000. On December 20, 1996, the Company
authorized the issuance of 400,000 shares of Common Stock to Oraxium Interna-
tional Inc. and 50,000 shares each, to Messrs. Pierre Martineau and Sylvain
Duchesne, employees of Juke Box, in consideration for agreeing to extend the
scope and duration of non-competition covenants given to the Company. On
December 27, 1996, the Company authorized the issuance of 199,819 shares of
Common Stock to Juke Box for a cash consideration of $420,698. All 1,675,707
shares were issued in April 1997 and were acquired for investment by the
respective parties. Juke Box is owned 50% by Tony Mastronardi; 16.67% by Guy
Nathan; and 33.33% by Tonino Lattanzi, officers and directors of the Company.
Oraxium International Inc. is a principal shareholder of the Company.
With the Selling Shareholders
On March 21, 1997, two independent Canadian investors, Societe
Innovatech du Grand Montreal and Sofinov Societe Financiere d'Innovation Inc.
(the "Selling Shareholders") agreed to invest $4,000,000 Canadian Dollars (CDN)
in the Company, upon certain terms and conditions. To accomplish this, they
invested $4,000,000 CDN in Touchtunes Digital Jukebox Inc. ("Touchtunes"), a
Canadian subsidiary organized by the Company specifically for that purpose, in
the manner described below.
The Selling Shareholders purchased 100 Class B shares and 20 Class C
shares of Touchtunes, at a price of $5,000 CDN per share, for an immediate cash
consideration of $600,000 CDN. They also subscribed to an additional 680
Class C shares of Touchtunes, at a price of $5,000 CDN per share, for a total
consideration of $3,400,000 CDN. Both the Class C shares and the funds were
24<PAGE>
deposited in escrow. On May 9, 1997, the Selling Shareholders released an
additional $750,000 CDN from escrow against delivery to them of 150 Class C
shares, leaving a balance of $2,650,000 CDN and 530 Class C shares in escrow.
Payment of this $2,650,000 CDN was released from escrow on July 17, 1997
against delivery of the remaining 530 Class C shares. The Selling Shareholders
also purchased 100 shares of Series A Preferred Stock of the Company. This
Prospectus is intended to cover their sale of a maximum of 2,000,000 shares of
the Common Stock reserved for issuance to them upon exercise of their rights to
exchange their 100 Class B shares and 700 Class C shares of Touchtunes into
2,000,000 of the Company's Series A Preferred shares and their subsequent
conversion of such Series A Preferred shares (and the 100 shares of Series A
Preferred Stock which they already own) into 2,000,100 shares of Common Stock.
The Company is the owner of 800 Class A shares of Touchtunes,
acquired at a price of $1.00 CDN per share. Class A shares entitle the holder
to one vote per share. The Selling Shareholders own 100 Class B shares and 700
Class C shares of Touchtunes. Class B shares entitle the holder to eight votes
per share and Class C shares are non-voting. Thus, the Company and the Selling
Shareholders have equal voting rights in Touchtunes. The Company entered into
has an agreement by which Touchtunes agreed to carry out the research and
development work for the Digital Jukeboxes and all such additional services as
may be reasonably requested by the Company in connection with the Digital
Jukebox project.
The Company and the Selling Shareholders have also entered into a
shareholders agreement governing their relationship in Touchtunes. Each has
the right to appoint three members to the six member Board of Directors of
Touchtunes. In the event of a deadlock, the Board of Directors may be
increased to seven members. The seventh member will be chosen jointly by the
Company and the Selling Shareholders. If the Selling Shareholders exercise all
of their exchange rights, the Company will remain the sole shareholder of
Touchtunes.
All the shares in Touchtunes acquired and to be acquired by the
Selling Shareholders are exchangeable at their option, at a value of $1.50 U.S.
per share, into a maximum of 2,000,0001 Series A Preferred shares of the
Company. Series A Preferred shares are convertible into Common Stock, share
for share. The Selling Shareholders have the right to exchange each of their
Class B and Class C shares of Touchtunes for a maximum of 2,500 Series A
Preferred shares of the Company, for a total of 2,000,000 Series A Preferred
shares.
Based on the present number of shares of Common Stock of the Company
issued and outstanding (14,584,707 shares), assuming the exchange of their
Class B and Class C Touchtunes shares for Series A Preferred Stock of the
Company and their conversion of such Series A Preferred Stock (plus the 100
shares of Series A Preferred Stock which they already own) into 2,000,100
shares of Common Stock, the Selling Shareholders will own 12.06% of the
16,584,807 shares of Common Stock which will then be outstanding. It is
anticipated that this will take place on the effective date of this Prospectus.
On March 21, 1997, the Company and the Selling Shareholders also
entered into a shareholders agreement governing their relationship as
1 The conversion price of $1.50 U.S. per share was arrived at by
converting the $4,000,000 CDN investment into United States dollars, using a
conversion rate of $0.75 U.S. The $4,000,000 CDN investment is deemed a
$3,000,000 U.S. investment. At $1.50 U.S. per share, the maximum number of
shares converted would be 2,000,000.
25<PAGE>
shareholders of the Company. This provided the Selling Shareholders with the
right to appoint two members to the Company's Board of Directors. Their
designees, Pierre Pharand and Andre Duquenne, have since been elected as
Directors. (See "MANAGEMENT".)
SELLING SHAREHOLDERS
This Prospectus is intended to permit the sale by Societe Innovatech
du Grand Montreal and Sofinov Societe Financiere d'Innovation Inc. (the
"Selling Shareholders") of a maximum of 2,000,000 shares of the Company's
Common Stock reserved for issuance to them upon exercise of their rights to
exchange their shares of Touchtunes into 2,000,000 of the Company's Series A
Preferred shares and their subsequent conversion of such Series A Preferred
shares (plus the 100 shares of Series A Preferred Stock which they already own)
into 2,000,100 shares of the Company's Common Stock. (See "CERTAIN TRANSAC-
TIONS".)
The following table sets forth the names of the Selling Shareholders,
the number of shares of Common Stock to be owned beneficially by each of them,
once they exercise their exchange rights and convert their Series A Preferred
shares into Common Stock, and the number of shares which may be offered
pursuant to this Prospectus. This information is based upon information
provided by the Selling Shareholders. This also assumes that the exchange
rights of the Selling Shareholders will be exercised for the maximum of
2,000,000 Series A shares on the effective date of this Prospectus and
immediately converted into Common Stock.
Shares Beneficially Owned Number of Shares
Prior to Offering (1) Shares Beneficially Owned
being After Offering (1)
Offered (3)
Name Number Percent Number Percent
(2) (2)
- -------------- ---------- -------- ----------- ------- ---------
Sofinov 1,200,060 7.2 1,200,000 0 0
Societe-
Financiere
d'Innovation
Inc.
Societe 800,040 4.8 800,000 0 0
Innovatech du
Grand Montreal
___________________________
(1) These independent Canadian entities have sole voting and investment power
with respect to all the shares beneficially owned by them.
(2) Applicable percentage of ownership is based on 16,584,807 shares of Common
Stock issued and outstanding, once their exchange rights and conversion rights
are exercised.
(3) Assumes the sale of all the shares of Common Stock offered hereby.
The Selling Shareholders have advised the Company that they intend to
sell their shares from time to time at prices prevailing in the over-the-
counter market at the time of such sales. They will not pay more than usual
brokerage commission rates.
26<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary description of the Company's capital stock is
qualified in its entirety by reference to the Company's Amended and Restated
Articles of Incorporation.
27<PAGE>
Common Stock
The Company is authorized to issue 35,000,000 shares of Class A
Common Stock ("Common Stock") par value $.001 per share, of which 16,584,707
shares are outstanding as of the date hereof, after giving effect to the
conversion of all Series A Preferred shares into Common Stock.
Holders of Common Stock are entitled to one vote for each share held
of record on each matter submitted to a vote of stockholders. There is no
cumulative voting for elections of directors. Holders of Common Stock are
entitled to receive ratably, dividends when, as, and if declared by the Board
of Directors out of funds legally available therefore and, upon the
liquidation, dissolution, or winding up of the Company, are entitled to share
ratably in all assets remaining after the payment of liabilities.
Holders of Common Stock have no preemptive rights and have no rights
to convert their Common Stock into any other securities. The outstanding
shares of Common Stock are validly authorized and issued, fully paid, and
nonassessable.
Preferred Stock
The Company is authorized to issue 10,000,000 shares of Series A
Preferred Stock, par value $.001 per share. Only 100 shares were issued prior
to the date hereof. An additional 2,000,000 shares will be issued and
outstanding on the effective date hereof, giving effect to the exchange by the
Selling Shareholders of their Class B and Class C shares of Touchtunes for
2,000,000 shares of Series A Preferred Stock.
The Common Stock and the Series A Preferred Stock rank equally in all
respects and have identical rights. Each Series A Preferred share can be
converted into one share of Common Stock at the option of the holder thereof.
An aggregate of 2,000,000 shares of Series A Preferred Stock have been reserved
for issuance to the Selling Shareholders on the effective date of this
Prospectus. On that date, it is anticipated that the Selling Shareholders will
convert their 2,000,100 shares of Series A Preferred Stock into Common Stock.
(See "SELLING SHAREHOLDERS" and "CERTAIN TRANSACTIONS").
Transfer Agent
The Company has appointed National Stock Transfer, Inc. as transfer
agent for the Common Stock.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will
be passed upon for the Company by Karp and Sommers, 950 Third Avenue, New York,
New York 10022.
28<PAGE>
EXPERTS
The financial statements of Technical Maintenance Corporation for the
fiscal years ended December 31, 1996, 1995 and 1994 incorporated by reference
herein, have been audited by Armstrong Gilmour, Accountancy Corporation, as set
forth in their reports thereon included therein. Such financial statements of
Technical Maintenance Corporation are incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as an expert
in accounting and auditing.
29<PAGE>
TECHNICAL MAINTENANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
PAGE
NUMBER
-------
December 31, 1995
Auditors' Report F-2
Balance Sheet F-3
Statement of Operations F-4
Statement of Stockholders' Equity F-4
Statement of Cash Flows F-5
Notes to Financial Statements F-6-7-8
December 31, 1996
Auditors' Report F-9
Balance Sheet F-10
Statement of Operations F-11
Statement of Stockholders' Equity F-12
Statement of Cash Flows F-13
Notes to Financial Statements F-14-15-16-17
F-1
<PAGE>
Armstrong
Gilmour &
Associates
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Technical Maintenance Corporation
(A Development Stage Company).-
We have audited the accompanying balance sheet of Technical
Maintenance Corporation (A Development Stage Company) as of
December 31, 1995, and the related statements of operations,
stock-holders' equity and cash flows for the year then ended.
These financial, statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation, We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Technical Maintenance Corporation (A Development Stage
Company) as of December 31, 1995, and the results of its
operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ Armstrong Gilmour & Assoc.
Walnut Creek, California
May 2, 1996
F-2
<PAGE>
TECHNICAL MAINTENANCE CORPORATION
(A Development Stage Company)
Balance Sheets
December 31, 1995 and 1994
1995 1994
--------- --------
Assets
Fixed assets:
Computer equipment $28,629 28,629
Software 360,000 -
--------- --------
388,629 28,629
Less accumulated depreciation (71,726) -
--------- --------
Net fixed assets 316,903 28,629
Intangibles, net of accumulated amortization
of $43,050 in 1995 463,864 34,910
--------- --------
$780,767 63,539
========= ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 32,940 -
Due to affiliate 87,861 -
Other 3,100 -
--------- --------
Total current liabilities 123,901 -
Stockholders' equity:
Class A common stock, $.001 par value
Authorized: 25,000,000 shares
Issued: 12,909,000 shares in 1995
and 2,000,000 shares in 1994 12,909 2,000
Additional paid-in capital 1,430,020 62,539
Deficit accumulated during the
development stage (786,063) (1,000)
--------- --------
Total stock-holders' equity 656,866 63,539
--------- --------
$780,767 63,539
========= ========
See accompanying notes to financial statements.
(1)
F-3
<PAGE>
TECHNICAL MAINTENANCE CORPORATION
(A Development Stage Company)
Statements of Operations
Years Ended December 31, 1995 and 1994
1995 1994
Net sales - -
---------- ---------
Operating expenses:
Research and development 318,193 -
Professional and consulting fees 238,483 -
Travel and promotion 113,070 -
Depreciation of fixed assets 71,726 -
Amortization of intangibles 43,050
Other 541 -
---------- ---------
Net loss $(785,063) -
========== =========
Net loss per share $ (0.07) -
========== =========
Number of shares used to compute net loss
per share 10,535,844 1,065,753
========== =========
Statements of Stockholders' Equity
Years Ended December 31, 1995 and 1994
Additional Accum-
Paid-in ulated
Shares Amount Capital Deficit Total
---------- ------- --------- -------- ---------
Balances,
January 1, 1994 1,000,000 $1,000 - (1,000) -
Issuance of common stock 1,000,000 1,000 62,539 - 63,539
---------- ------- --------- -------- ---------
Balances,
December 31, 1994 2,000,000 2,000 62,539 (1,000) 63,539
Issuance of common stock 10,909,000 10,909 1,367,481 - 1,378,390
Net loss for 1995 - - - (785,063) (785,063)
---------- ------- --------- -------- ---------
Balances,
December 31, 1995 12,909,000 $12,909 1,430,020 (786,063) 656,866
========== ======= ========= ======== =========
See accompanying notes to financial statements.
(2)
F-4
<PAGE>
TECHNICAL MAINTENANCE CORPORATION
(A Development Stage Company)
Statement of Cash Flows
December 31, 1995 and 1994
1995 1994
---------- ---------
Cash flows from operating activities:
Net loss $ (785,063) -
Adjustments to reconcile net loss to
net cash used by
operating activities:
Depreciation and amortization 114,776 -
Write-off of intangible software development costs 27,996 -
Changes in assets and liabilities:
Accounts payable 32,940 -
Due to affiliates 566,698 -
---------- ---------
Cash used by operations (42,653) -
---------- ---------
Cash flows from investing activities:
Purchase of software (110,447) -
---------- ---------
Cash flows from financing activities:
Increase in other liabilities 3,100 -
---------- ---------
Proceeds from sale of common stock 150,000 -
---------- ---------
Cash provided by financing activities 153,100 -
---------- ---------
Net increase in cash - -
Cash at beginning of year - -
---------- ---------
Cash at end of year $ - -
========== =========
Supplemental cash flow information,
Interest paid $ - -
========== =========
Income taxes paid $ - -
========== =========
Noncash investing and financing activities:
The following were exchanged for common stock:
Patents $500,000 6,914
Software $193,612 -
Computer equipment - 28,629
Software development costs - 27,996
Amounts due to stock-holders and/or affiliates 534,778 -
---------- ---------
$1,228,390 63,539
========== =========
See accompanying notes to financial statements.
(3)
F-5
<PAGE>
TECHNICAL MAINTENANCE CORPORATION
(A Development Stage Company)
Notes to Financial Statements
Years Ended December 31, 1995 and 1994
(1) Summary of Significant Accounting Policies
Nature of Operations
Technical Maintenance Corporation (the Company) is a
development stage company which has not generated any revenue
since it commenced operations in 1994. (A $1,000 organization
expense was incurred in 1990 when the Company was formed. The
Company was inactive until 1994.) The Company's primary
efforts have been directed at the development of a digital
jukebox which will utilize digital audio transfer technology
to distribute music titles through a proprietary distribution
network. The development of the Company's commercial products
will require additional funds. There is no assurance that
commercially successful products will be developed or that the
Company will achieve profitable operations.
The Company has no employees and operating expenses have been
funded by stockholder and/or affiliate advances.
During December 1994, a Canadian joint venture, in an exchange
of assets for stock, acquired ownership of 88% of the issued
stock and effected a change in management.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could
differ from those estimates.
Fixed Assets
Fixed assets consist of computer equipment and purchased
software which are stated at cost and depreciated on a
straight-line basis over an estimated useful life of 5 years;
depreciation commenced in 1995.
Intangibles
(i) Software Development Costs
Costs related to the conceptual formation and design of
internally developed software are expensed as research and
development as incurred. It is the Company's policy that
certain internal software development costs incurred after
technical feasibility has been demonstrated and which meet
recoverability test are capitalized and amortized over the
economic life of the product. The establishment of
technological feasibility and the ongoing assessment of
recoverability of those costs requires judgment by
management with respect to certain external factors,
including but not limited to anticipated future gross
revenue, estimated economic life and changes in
technology.
(Continued)
(4)
F-6
<PAGE>
TECHNICAL MAINTENANCE CORPORATION
(A Development Stage Company)
Notes to Financial Statements
Years Ended December 31, 1995 and 1994
(1) Summary of Significant Accounting Policies, continued
(ii) Patents
Patents consist primarily of processes and systems related to the
operation of a digital jukebox and the interactive program
distribution for telebroadcasting. As discussed in note 3, the
patents were contributed by stockholders in exchange for stock.
The exchange was valued at the stockholder's cost.
The patents and the related intellectual property are amortized on
a straight-line basis over their estimated economic lives of 5 to
10 years. Amortization commenced in 1995.
Income Taxes
The Company accounts for income taxes using the asset and liability
method. Under this method, deferred income tax assets and
liabilities are determined based on the differences, between the
financial reporting and tax basis of assets and liabilities using
currently enacted tax rates and laws.
Net Income Per Share
Net income per share is computed using the weighted-average number of
shares of common stock outstanding.
(2) Intangibles Intangible assets at December 31, 1995 and 1994 are as
follows:
1995 1994
-------- --------
Patents $506,914 6,914
Software development costs - 27,996
-------- --------
506,914 34,910
Less accumulated amortization 43,050 -
-------- --------
$463,864 34,910
======== ========
(3) Income Taxes
No provision for Income taxes is included in the financial statements
since the Company has a loss and there is no assurance that there will
be future taxable income which the current loss may offset.
(Continued)
(5)
F-7
<PAGE>
TECHNICAL MAINTENANCE CORPORATION
(A Development Stage Company)
Notes to Financial Statements
(3) Income Taxes, continued
Accordingly, the Company has a potential deferred tax asset
of approximately $297,000 which results from a net operating
loss carry-forward of $744,000. However, a valuation reserve
has been established to eliminate the defer-red tax assets
since the utilization of the carryforward is not assured.
The carryforward is available to offset future taxable
income, if any, through the year 2010.
(4) Related Party Transaction
The following are the transactions that occurred between the
Company and stockholders and/or affiliates.
Purchases
A computer operating system was purchased from Oraxium
International, Inc. for $360,000. Included in the
compensation was the issuance of 275,000 shares of common
stock valued at $193,612. The balance was paid in cash.
The Company exchanged 10,000,000 shares of the Company's
common stock for patents from its controlling shareholder,
Techno Expres' S.A.. The patents were recorded at $500,000
which approximated Techno Expres' cost.
In 1994, the Company acquired assets valued at $63,539 from
Touchtunes Jukebox Joint Venture in exchange for 1,000,000
shares of common stock.
Expenses
Mr. Tonino Lattanzi, a stockholder and member of the Board of
Directors, received $62,000 in fees and was reimbursed for
$125,000 in professional fees incurred and for $113,000 in
travel and promotional expenses. Mr. Lattanzi received
300,000 shares of common stock as consideration for the fees
and expenses.
Touchtunes Jukebox, Inc., a stockholder, received $290,000
for research and development reimbursements. Included in the
reimbursements was $38,000 as a 15% mark up on actual costs.
In addition, a part of the reimbursed costs included $59,000
of consulting fees paid to Oraxium International, Inc. a
stockholder of the Company. Touchtunes Jukebox, Inc.
received 234,000 shares of common stock, valued at $234,000,
as a part of the consideration.
Due to affiliate
At December 31, 1995, the Company owed Touchtunes Jukebox,
Inc., a stockholder, $87,861 For expense advances which are
due on demand.
(6)
F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Technical Maintenance Corporation
(A Development Stage Company):
We have audited the accompanying balance sheets of Technical Maintenance
Corporation (A Development Stage Company) as of December 31, 1996 and 1995, and
the related statements of operations, stockholders' equity (deficit) and cash
flows for each of the years in the three-year period ended December 31, 1996
and for the development period from December 8, 1994 through December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the 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 financial statements referred to above present fairly, in
all material respects, the financial position of Technical Maintenance
Corporation (A Development Stage Company) as of December 31, 1996 and 1995, and
the results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 1996 and for the development period from
December 8, 1994 through December 31, 1996 in conformity with generally accepted
accounting principles.
/s/Armstrong Gilmour
Accountancy Corporation
Walnut Creek, CA
March 28, 1997
F-9
<PAGE>
TECHNICAL MAINTENANCE CORPORATION
(A Development Stage Company)
Balance Sheets
December 31, 1996 and 1995
1996 1995
---------- -----------
Assets
Current assets:
Cash $ 96 _
Prepaid expenses 21,306 _
---------- -----------
Total current assets 21,402 _
---------- -----------
Fixed assets:
Computer equipment 28,629 28,629
Software 360,000 360,000
---------- -----------
388,629 388,629
Less accumulated depreciation (149,452) (71,726)
---------- -----------
Net fixed assets 239,177 316,903
Intangibles, net of accumulated 1,453,693 463,864
amortization ---------- -----------
$1,714,272 780,767
=========== ===========
Liabilities and Stockholders' Equity
(Deficit)
Current liabilities:
Accounts payable $ 94,415 32,940
Accrued expenses 45,930 _
Accrued non-competition agreement
obligations, including $800,000 1,000,000 _
due to a stockholder
Advances from stockholders 909,031 90,961
---------- -----------
Total current liabilities 2,049,376 123,901
---------- -----------
Stockholders' equity (deficit):
Class A common stock, $.001 par value
Authorized: 25,000,000 shares
Issued and outstanding: 12,909,000 12,909 12,909
Additional paid-in capital 1,430,020 1,430,020
Accumulated deficit (1,000) (1,000)
Deficit accumulated during the (1,777,033) (785,063)
development stage ----------- -----------
Total stockholders' equity (335,104) 656,866
(deficit) ---------- -----------
$1,714,272 780,767
=========== ===========
See accompanying notes to financial statements.
F-10 (1)<PAGE>
<TABLE>
<CAPTION>
TECHNICAL MAINTENANCE CORPORATION
(A Development Stage Company)
Statements of Operations Development
Period
Years Ended December 8, 1994 -
1996 1995 1994 December 31, 1996
---------- --------- ---------- ------------------
<S> <C> <C> <C> <C>
Net sales $ _ _ _
Operating expenses:
Research and development 246,430 148,306 _ 394,736
Professional and consulting fees 223,899 289,619 _ 513,518
Travel and transportation 116,126 147,559 _ 263,685
Management fees 85,847 37,762 _ 123,609
Selling and promotional expenses 65,681 _ _ 65,681
Office expenses 40,165 20,856 _ 61,021
Rent 24,579 26,185 _ 50,764
Depreciation 77,726 71,726 _ 149,452
Amortization 111,517 43,050 _ 154,567
---------- --------- ---------- ----------------
Net loss $(991,970) (785,063) _ 1,777,033
========== ========= ========== ================
Net loss per share $ (0.08) (0.07) _
========== ========= ==========
Number of shares used to compute
net loss per share 12,909,000 10,535,844 1,065,758
=========== =========== ============
</TABLE>
F-11
<PAGE>
<TABLE>
<CAPTION>
Statements of Stockholders' Equity (Deficit)
Years Ended December 31, 1996, 1995 and 1994 Deficit
Accumulated
Class A Additional during the
Common Stock Paid-in Accumulated Development
Shares Amount Capital Deficit Period Total
--------- -------- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances, 1,000,000 $ 1,000 _ (1,000) _ _
January 1, 1994
Issuance of 1,000,000 1,000 62,539 _ _ 63,539
common stock --------- -------- -------- ----------- ----------- ----------
Balances, 2,000,000 2,000 62,539 (1,000) _ 63,539
December 31, 1994
Issuance of
common stock:
Nov 24-$.05 per share 10,000,000 10,000 490,000 _ 500,000
Dec 31-$.70 per share 275,000 275 193,337 _ 193,612
$1.00 per share 300,000 300 299,700 _ 300,000
$1.00 per share 234,000 234 234,544 _ 234,778
$1.50 per share 100,000 100 149,900 _ 150,000
Net loss _ _ _ _ (785,063) (785,063)
--------- -------- -------- ----------- ----------- ----------
Balances, 12,909,000 12,909 1,430,020 (1,000) (785,063) 656,866
December 31, 1995
Net loss _ _ _ (991,970) (991,970)
--------- -------- -------- ----------- ----------- ----------
Balances, 12,909,000 $ 12,909 1,430,020 (1,000) (1,777,033) (335,104)
December 31, 1996 ========== ======== ========= ============ =========== ===========
See accompanying notes to financial statements.
</TABLE>
F-12 (2)<PAGE>
<TABLE>
<CAPTION>
TECHNICAL MAINTENANCE CORPORATION
(A Development Stage Company)
Statements of Cash Flows
Development
Years Ended Period
December 8, 1994 -
1996 1995 1994 December 31, 1996
----------- --------- -------- ------------------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss $ (991,970) (785,063) _ (1,777,033)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation and amortization 189,243 114,776 _ 304,019
Write-off of software _ 27,996 _ 27,996
development costs
Changes in assets and
liabilities:
Prepaid expenses (21,306) _ _ (21,036)
Accounts payable 61,475 32,940 _ 94,415
Accrued expenses 45,930 _ _ 45,930
----------- --------- -------- ------------------
Net cash used by operations (716,628) (609,351) _ (1,325,979)
----------- --------- -------- ------------------
Cash flows from investing
activities:
Increase in costs of intangibles (101,346) _ _ (101,346)
Purchase of software _ (110,447) _ (110,447)
----------- --------- -------- ------------------
Net cash used by investing (101,346) (110,447) _ (211,793)
activities ----------- --------- -------- ------------------
Cash flows from financing
activities:
Advances from stockholders 818,070 569,798 _ 1,387,868
Proceeds from sale of common _ 150,000 _ 150,000
stock ----------- --------- -------- ------------------
Net cash provided by financing 818,070 719,798 _ 1,537,868
activities ----------- --------- -------- ------------------
Net increase in cash 96 _ _ 96
Cash at beginning of year _ _ _ _
----------- --------- -------- ------------------
Cash at end of year $ 96 _ _ 96
=========== ========= ======== ==================
Supplemental cash flow information:
Interest paid $ _ _ _ _
=========== ========= ======== ==================
Income taxes paid $ _ _ _ _
=========== ========= ======== ==================
Noncash investing and financing
activities:
The following were exchanged
for common stock:
Patents $ _ 500,000 6,914 506,914
Software _ 193,612 56,625 250,237
Advances from stockholders _ 534,778 _ 534,778
----------- --------- -------- ------------------
$ _ 1,228,390 63,539 1,291,929
=========== ========= ======== ==================
Accrual of non-competition $ 1,000,000 _ _ 1,000,000
agreement =========== ========= ======== ==================
</TABLE>
See accompanying notes to financial statements.
F-13 (3)<PAGE>
TECHNICAL MAINTENANCE CORPORATION
(A Development Stage Company)
Notes to Financial Statements
Years Ended December 31, 1996, 1995 and 1994
1) The Company and Its Summary of Significant Accounting Policies
Nature of Operations
Technical Maintenance Corporation (the Company) is a development stage
company, which has not generated any revenue since it commenced operations
in 1994. The Company's primary efforts have been directed at the
development of a digital jukebox, which will utilize digital audio transfer
technology to distribute music titles through a proprietary distribution
network. The development of the Company's commercial products will require
additional funds. There is no assurance that commercially successful
products will be developed or that the Company will achieve profitable
operations.
The Company has no employees and operating expenses have been funded by
stockholder advances. Substantially all of the developmental activities are
conducted through a Canadian corporate stockholder, Touchtunes Jukebox, Inc.
Touchtunes Jukebox, Inc. charges the Company for costs incurred plus the
equivalent to a 15% management fee.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Fixed Assets
Fixed assets consist of computer equipment and purchased software which are
stated at cost. Depreciation commenced in 1995 and is provided on a
straight-line basis over estimated useful lives of 5 years.
Intangibles
(i) Software Development Costs
Costs related to the conceptual formation and design of internally
developed software are expensed as research and development as incurred.
It is the Company's policy that certain internal software development
costs, incurred after technical feasibility has been demonstrated and
which meet recoverability tests, are capitalized and amortized over the
economic life of the product. The establishment of technical feasibility
and the ongoing assessment of recoverability of those costs requires
judgment by management with respect to certain external factors,
including but not limited to anticipated future gross revenue, estimated
economic life and changes in technology. No internal software
development costs have been capitalized as of December 31, 1996.
(Continued)
F-14 (4)<PAGE>
TECHNICAL MAINTENANCE CORPORATION
(A Development Stage Company)
Notes to Financial Statements
(1)The Company and Its Summary of Significant Accounting Policies, continued
(ii) Patents
Patents consist primarily of processes and systems related to the
operation of a digital jukebox and the interactive program distribution
for telebroadcasting. Patents contributed by stockholders in exchange
for stock are valued at the stockholder's cost, which was approximately
$507,000.
The patents and related intellectual property are amortized on a
straight-line basis over their estimated economic lives of 5 years.
Amortization commenced in 1995.
(iii) Non-Competition Agreements
The Company has non-competition agreements with the provider of computer
operating systems and several system programmers who assisted in the
development of the system. The agreements are effective January 1, 1997
and cover the succeeding five years. The costs will be amortized on a
straight line basis over the five-year life of the agreements.
Income Taxes
The Company accounts for income taxes using the asset and liability method.
Under this method, deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and tax basis of
assets and liabilities using currently enacted tax rates and laws.
Net Loss Per Share
Net loss per share is computed using the weighted-average number of shares
of common stock outstanding.
Reclassification
Certain 1995 balances have been reclassified to conform to the 1996
presentation.
2) Intangibles
Intangible assets consist of the following at December 31:
1996 1995
------------ ----------
Patents $ 608,260 506,914
Non-competition agreements 1,000,000 _
------------ ----------
1,608,260 506,914
Less accumulated amortization (154,567) (43,050)
------------ ----------
$ 1,453,693 463,864
============ ==========
(Continued)
F-15 (5)<PAGE>
TECHNICAL MAINTENANCE CORPORATION
(A Development Stage Company)
Notes to Financial Statements
3) Income Taxes
No provision for income taxes is included in the financial statements
because the Company has had continuous losses and there is no assurance that
there will be future taxable income toward which the current loss
carryforward might offset.
Accordingly, the Company has a potential deferred tax asset of approximately
$602,000 (based on the 34% Federal tax rate) which results from a net
operating loss carryforward of $1,771,000, which will expire through the
year 2011. However, a valuation reserve has been established against the
deferred tax asset since the utilization of the carryforward is not assured.
The Company incorporated in the state of Nevada, which has no state income
tax.
4) Related Party Transactions
Following are transactions that occurred between the Company and its
stockholders:
Non-Competition Agreement
On December 20, 1996, the Company entered into a five year non-competition
agreement with Oraxium International, Inc., which is a stockholder and the
supplier of the Company's computer operating system. The agreement takes
effect January 1, 1997 and provides for $800,000 of consideration. The
Board of Directors has authorized the issuance of 400,000 shares of
restricted Class A common stock which it valued at $2 per share. At March
28, 1997, the shares had not been issued and the obligation is reflected as
a liability on the balance sheet.
Purchases
In 1995, the Company purchased a computer operating system from Oraxium
International, Inc. for $360,000, which was paid through the issuance of
275,000 shares of common stock valued at $193,612. The balance of the
purchase price was paid in cash.
In 1995, the Company exchanged 10,000,000 shares of its common stock for
patents from its controlling shareholder, Techno Expres S.A.. The patents
were recorded at $500,000 which approximated Techno Expres' cost.
(Continued)
F-16 (6)<PAGE>
TECHNICAL MAINTENANCE CORPORATION
(A Development Stage Company)
Notes to Financial Statements
4) Related Party Transactions, continued
Expenses
Touchtunes Jukebox, Inc., a stockholder, charged the Company approximately
$647,000 in 1996 and $318,000 in 1995 for research and development and
operating expense reimbursements. Included in the reimbursements were fees
to Touchtunes of $85,847 in 1996 and $38,762 in 1995 as a 15% mark-up on
actual costs.
In 1995, Mr. Tonino Lattanzi, a stockholder and member of the Board of
Directors, received $62,000 in fees and was reimbursed $125,000 in
professional fees and $113,000 in travel and promotional expenses. Mr.
Lattanzi received 300,000 shares of common stock as consideration for the
fees and expenses.
In 1995, $59,000 of consulting fees were paid to Oraxium International,
Inc., a stockholder of the Company.
Amounts Owed to Stockholders
At December 31, 1996 and 1995, the Company owed Touchtunes Jukebox, Inc., a
stockholder, $908,031 and $87,861, respectively, for expense advances. The
advances are non-interest bearing and due on demand. In 1996, the Board of
Directors approved the issuance of 1,100,707 shares of common stock in
payment of $898,168 of advances from Touchtunes Jukebox, Inc. The shares
have not been issued as of March 28, 1997 and the amount continues to
carried as an advance from stockholder in the balance sheet. In 1995,
Touchtunes received 234,000 shares of common stock, valued at $234,000, as a
partial settlement of the then outstanding balance of advances.
Other stockholders had advances to the Company of $1,000 and $3,100 at
December 31, 1996 and 1995, respectively.
Included in accrued non-competition agreement obligations at December 31,
1996 is an $800,000 obligation to Oraxium International, Inc.
5) Common Stock
In late 1996, the Board of Directors approved the issuance of 1,675,707
Class A common stock to vendors and stockholders as consideration for
obligations totaling $1,938,168. None of the shares were actually issued in
1996 and the obligations continued to be reported as liabilities in the
balance sheet. Had the shares been issued when approved, the stockholders'
equity would have been increased by $1,938,168. Because the Board's actions
occurred in late 1996, the effect on loss per share, based on weighted-
average shares outstanding, was insignificant.
F-17 (7)<PAGE>
No dealer, salesman or other person has
been authorized to give any information or
to make any representations other than 2,000,000 Shares
those contained in this Prospectus and, if
given or made, such other information and Class A Common Stock
representations must not be relied upon as (par value $.001)
having been authorized by the Company.
This Prospectus does not constitute an TECHNICAL MAINTENANCE
offer or solicitation by anyone in any CORPORATION
state in which such offer or solicitation
is not authorized, or in which the person
making such offer or solicitation is not PROSPECTUS
qualified to do so, or to any person to
whom it is unlawful to make such offer or
solicitation. The delivery of this September 15, 1997
Prospectus at any time does not imply that
the information herein is correct as of
any time subsequent to the date hereof
TABLE OF CONTENTS
Page Page
Available Information .............. 2 Business...................... 14
Documents Incorporated Patented Technology ........ 15
by Reference ..................... 2 Marketing Strategy.......... 16
Prospectus Summary ................. 3 Industry Background ........ 17
The Company ...................... 3 Jukebox Manufacturers ...... 18
Business ......................... 3 Competition ................ 18
Initial Funding .................. 3 Contractual Arrangements ... 19
Business Start-Up Future Financing ........... 19
Activities ..................... 4 Properties ................. 20
The Offering ..................... 5 Employees .................. 20
Summary Financial Data ........... 6 Legal Proceedings .......... 21
Use of Proceeds .................. 6 Management ................... 21
Risk Factors ....................... 6 Directors and
Use of Proceeds .................... 10 Executive Officers ....... 21
Price Range of Common Stock ........ 10 Executive Compensation ..... 22
Dividend Policy .................... 11 Principal Shareholders ....... 23
Capitalization ..................... 12 Certain Transactions.......... 24
Selected Financial Data ............ 12 With Officers, Directors
Statement of Operations Data ..... 12 and Others ............... 24
Balance Sheet Data ............... 13 With Selling Shareholders 25
Management's Discussion and Selling Shareholders ......... 26
Analysis of Financial Description of Capital Stock . 27
Condition and Results Common Stock ............... 28
of Operations .................... 13 Preferred Stock ............ 28
General and Results Transfer Agent ............. 28
of Operations .................... 13 Legal Matters ................ 28
Seasonality ...................... 14 Experts ...................... 29
Liquidity and Index to Financial Statements F-1
Capital Resources .............. 14<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Officers and Directors
Article VIII, Sections 1, 2, 3 and 4 of Registrant's By-laws provide:
"Section 1. Indemnification. No officer or Director shall be personally
liable for any obligations of the corporation or for any duties or obligations
of the corporation or for any duties or obligations arising out of any acts or
conduct of said officer or Director performed for or on behalf of the
corporation. The corporation shall and does hereby indemnify and hold harmless
each person and his heirs and administrators who shall serve at any time
hereafter as a Director or officer of the corporation from and against any and
all claims, judgments and liabilities to which such persons shall become
subject by reason of his having heretofore or hereafter been a Director or
officer of the corporation, or by reason of any action alleged to have
heretofore or hereafter taken or omitted to have been taken by him as such
Director or officer, and shall reimburse each such person for all legal and
other expenses reasonably incurred by him in connection with any such claim or
liability, including power to defend such person from all suits or claims as
provided for under the provisions of the Nevada Business Corporation Act;
provided, however, that no such person shall be indemnified against, or be
reimbursed for, any expense incurred in connection with any claim or liability
arising out of his own negligence or willful misconduct. The rights accruing
to any person under the foregoing provisions of this section shall not exclude
any other right to which he may lawfully be entitled, nor shall anything herein
contained restrict the right of the corporation to indemnify or reimburse such
person in any proper case, even though not specifically herein provided for.
The corporation, its directors, officers, employees and agents shall be fully
protected in taking any action or making any payment, or in refusing so to do
in reliance upon the advice of counsel."
"Section 2. Other Indemnification. The indemnification herein provided
shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer or employee, and shall inure to the benefit of the heirs, executors and
administrators of such person."
"Section 3. Insurance. The corporation may purchase and maintain
insurance on behalf of any person who is or was a Director, officer or employee
of the corporation, or is or was serving at the request of the corporation as a
Director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
liability under the provisions of this section or of the general Corporation
Law of Nevada."
"Section 4. Settlement by Corporation. The right of any person to be
indemnified shall be subject always to the right of the corporation by its
Board of Directors, in lieu of such indemnity, to settle any such claim,
action, suit or proceeding at the expense of the corporation by the payment of
the amount of such settlement and the costs and expenses incurred in connection
therewith."
1<PAGE>
The Nevada Business Corporation Act provides that, subject to restrictions
contained in the statute, a corporation may indemnify any person made or
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding by or in the right of the corporation or other than by or in
the right of the corporation by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise. A
person, who has been successful on the merits or otherwise in any suit or
matter covered by the indemnification statute, must be indemnified against
expenses (including attorneys' fees), actually and reasonably incurred by him
in connection therewith. Indemnification must be authorized upon a
determination, as set forth by statute, that the circumstances are appropriate.
The articles of incorporation, bylaws, or an agreement made by the corporation
may provide that expenses incurred in defense must be paid in advance, as
incurred and prior to final disposition to the person to be indemnified if such
person agrees to repay the amount if it is ultimately determined he is not
entitled to indemnification. The indemnification or advancement of expenses
provided by statute is not exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled. Indemnification or
the advancement of expenses may not be made if a final adjudication establishes
that the director's acts or omissions involved intentional misconduct, fraud,
or a knowing violation of the law and was material to the cause of action.
(Sec. 78.751) Insurance may be purchased by the corporation, or other
financial arrangements made, on behalf of any person entitled to
indemnification against any liability incurred in an official capacity regard-
less of whether the person could be indemnified under the statute. (Sec.
78.752)
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses which will be paid by
Registrant in connection with the issuance and distribution of the securities
being registered. With the exception of the registration fee, all amounts
shown are estimates.
Registration Fee $ 1,818.18
Blue Sky Fee 500.00
Printing and Engraving 4,500.00
Legal fees and expenses 80,000.00
Accounting fees and expenses 10,000.00
Transfer Agent fees and expenses 1,500.00
Miscellaneous expenses 2,500.00
===========
Total $100,818.18
Item 26. Recent Sales of Unregistered Securities
In the past three years, Registrant has made the following sales of
unregistered securities, all of which sales were exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof or as
otherwise indicated herein.
1. On December 8, 1994, Touchtunes Jukebox Joint Venture (the "Joint
Venture"), an informal partnership comprising four corporations and two
individuals, purchased 760,400 shares of Common Stock from the persons who
organized Registrant, for a cash consideration of $75,000. Such persons are no
longer affiliated with Registrant. An additional 1,000,000 shares of Common
2<PAGE>
Stock was acquired from Registrant at that time by the Joint Venture in
consideration for exclusive rights to the patent pending (PCT/FR94/01185) for
the Digital Jukebox. All 1,760,000 shares were acquired for investment by such
persons, none of whom is a resident or citizen of the United States.
Subsequently, the partners dissolved the Joint Venture and distributed the
shares among themselves as follows:
Gestion Chevaux Pur-Sang Inc. 714,950 shares
3098-8026 Quebec Inc. 263,784 shares
Guy Nathan 180,000 shares
Oraxium International Inc. 225,000 shares
Edward Moore 160,000 shares
Touchtune Juke Box Inc. 216,666 shares
Tony Mastronardi, President of Registrant, was the sole shareholder of Gestion
Chevaux Pur-Sang Inc. Touchtune Juke Box Inc. is owned 50% by Mr. Mastronardi;
16.67% by Guy Nathan and 33.33% by Tonino Lattanzi, officers and directors of
Registrant. Oraxium International Inc. is a principal shareholder of
Registrant.
2. On March 6, 1995, the Company agreed to issue 10,000,000 shares of
Common Stock to S.G.R.M. Inc. ("SGRM"), a corporation incorporated under the
laws of the Turks and Caicos Islands, in exchange for patents, patents pending
and other intellectual property rights. In November 1995, this agreement was
amended and the 10,000,000 shares of Common Stock were issued to Techno Expres,
S.A., a French corporation, owned 33% each, by Messrs. Tony Mastronardi, Guy
Nathan and Tonino Lattanzi, officers and directors of the Company. The
10,000,000 shares were acquired for investment by such persons, none of whom is
a resident or citizen of the United States.
3. During December 1995, the Company issued an aggregate of 909,000
shares of Common Stock as follows: 100,000 shares to Albert Dutour, an
independent third party, in consideration of $150,000; 275,000 shares to
Oraxium International Inc., as part of the consideration paid by Registrant for
its purchase of the platform on which the software for the Digital Jukebox is
built; 300,000 shares to Tonino Lattanzi, a director of the Company, in
consideration for operating money advanced to the Company in the amount of
$300,000; 234,000 shares to Touchtunes Juke Box Inc., for services rendered to
the Company having a value of $203,337 and for expenses incurred of $31,440.
Touchtunes Juke Box Inc. is owned 50% by Tony Mastronardi; 16.66% by Guy
Nathan; and 33.33% by Tonino Lattanzi, officers and directors of the Company.
Oraxium International Inc. is a principal shareholder of Registrant. The
909,000 shares were acquired for investment by such persons, none of whom is a
resident or citizen of the United States.
4. On September 25, 1996, the Company authorized the issuance of 900,888
shares of Common Stock to Touchtunes Juke Box Inc. for a cash consideration of
$477,470 and 75,000 shares to Giovanni D'Andrea, an independent third party,
for professional services valued at $40,000. On December 20, 1996, the Company
authorized the issuance of 400,000 shares of Common Stock to Oraxium Interna-
tional Inc., in consideration for agreeing to extend the scope and duration of
a non-competition covenant given to the Company and 50,000 shares each, to
Pierre Martineau and Sylvain Duchesne, employees of Touchtunes Juke Box Inc.,
in consideration for their non-compete covenants. On December 27, 1996, the
Company authorized the issuance of 199,819 shares of Common Stock to Touchtunes
Juke Box Inc. for a cash consideration of $420,698. All 1,675,707 shares were
issued in April 1997 and were acquired for investment by such persons, none of
whom (except for Mr. D'Andrea) is a resident or citizen of the United States.
5. On March 21, 1997, two independent Canadian investors, Societe
3<PAGE>
Innovatech du Grand Montreal and Sofinov Societe Financiere d'Innovation Inc.
(the "Selling Shareholders") agreed to invest $4,000,000 Canadian Dollars (CDN)
in Registrant upon certain terms and conditions. To accomplish this, they
invested $4,000,000 CDN in Touchtunes Digital Jukebox Inc. ("Touchtunes"), a
Canadian subsidiary organized by Registrant specifically for that purpose, in
the following manner. The Selling Shareholders purchased 100 Class B shares
and 20 Class C shares of Touchtunes, at a price of $5,000 CDN per share, for an
immediate cash consideration of $600,000 CDN. They also subscribed to an
additional 680 Class C shares of Touchtunes, at a price of $5,000 CDN per
share, for a total consideration of $3,400,000 CDN. Both the Class C shares
and the funds were deposited in escrow. The Selling Shareholders also
purchased 100 shares of Series A Preferred Stock of the Registrant for $150.
On May 9, 1997, the Selling Shareholders released an additional $750,000 CDN
from escrow to Registrant against delivery to them of 150 Class C shares,
leaving a balance of $2,650,000 CDN and 530 Class C shares in escrow. Payment
of this $2,650,000 CDN was released from escrow on July 17, 1997, against
delivery of the remaining 530 Class C shares. This Registration Statement is
intended to cover their sale of a maximum of 2,000,000 shares of the Common
Stock reserved for issuance to them upon exercise of their rights to exchange
their 100 Class B shares and 700 Class C shares of Touchtunes into 2,000,000
shares of Registrant's Series A Preferred shares and their subsequent conver-
sion of such Series A Preferred shares (with the 100 shares they already own)
into 2,000,100 shares of Registrant's Common Stock. All such shares were
acquired for investment by these two Canadian investors, neither of whom is a
resident or citizen of the United States.
4<PAGE>
Item 27. Exhibits.
(a) The following exhibits are filed herewith:
3. (i) Registrant's Amended and Restated Articles of Incorporation.
Reference is made to Exhibit 8 of Registrant's Form 8-K for the month
of March 1997, which Exhibit is incorporated herein by reference.
3. (ii) Registrant's Bylaws.
4. Form of Registrant's Common Stock certificates.
5. Form of opinion of Karp and Sommers.1
9. Shareholder Agreement between Techno Expres S.A. the majority
shareholder of Registrant and the Selling Shareholders dated March
21, 1997, relative to their shares of Registrant. Reference is made
to Exhibit 7 of Registrant's Form 8-K for the month of March 1997,
which Exhibit is incorporated herein by reference.
10.(i) Agreement of Sale between Touchtunes Jukebox Joint Venture and
Registrant, dated December 9, 1994, relative to transfer of patent
rights in exchange for 1,000,000 shares of Common Stock of
Registrant. Reference is made to Exhibit A of Registrant's Form 10-K
for the fiscal year ended December 31, 1994, which Exhibit is
incorporated herein by reference.
10.(ii) Summary of International Patent Application for the Digital Jukebox.
Reference is made to Exhibit B of Registrant's Form 10-K for the
fiscal year ended December 31, 1994, which Exhibit is incorporated
herein by reference.
10. (iii) Development Agreement between Touchtunes Juke Box Inc. and
Registrant, dated March 8, 1995. Reference is made to Exhibit C of
Registrant's Form 10-K for the fiscal year ended December 31, 1994,
which Exhibit is incorporated herein by reference.
10.(iv) Agreement between Oraxium International, Inc. and Registrant, dated
January 30, 1995, relative to the acquisition of a computer operating
system. Reference is made to Exhibit A of Registrant's Form 8-K for
the month of March 1995, which Exhibit is incorporated herein by
reference.
10.(v) Agreement between S.G.R.M. Inc. and Registrant, dated March 6, 1995,
relative to the acquisition of patent rights in exchange for
10,000,000 shares of Common Stock. Reference is made to Exhibit B of
Registrant's Form 10-K for the fiscal year ended December 31, 1994,
which Exhibit is incorporated herein by reference.
10.(vi) Amended Agreement between S.G.R.M. Inc., Techno Expres, S.A. and
Registrant, dated November 30, 1995, relative to the acquisition of
patent rights in exchange for 10,000,000 shares of Common Stock.
Reference is made to Exhibit C annexed to Registrant's Form 8-K for
the month of November 1995, which Exhibit is incorporated herein by
reference.
10.(vii) Subscription Agreement for the purchase of 100 Class B shares and 20
1 Filed with this Amendment.
5<PAGE>
Class C shares of Touchtunes Digital Jukeboxes Inc. ("Touchtunes"),
dated March 21, 1997. Reference is made to Exhibit 1 of Registrant's
Form 8-K for the month of March 1997, which Exhibit is incorporated
herein by reference.
10.(viii) Escrow Agreement for the deposit of $3,400,000 CDN and 680 Class C
shares of Touchtunes by the Selling Shareholders, dated March 21,
1997. Reference is made to Exhibit 2 of Registrant's Form 8-K for
the month of March 1997, which Exhibit is incorporated herein by
reference.
10.(ix) Agreement between Touchtunes and Registrant, relative to work to be
rendered in connection with Registrant's Digital Jukebox project.
Reference is made to Exhibit 4 of Registrant's Form 8-K for the month
of March 1997, which Exhibit is incorporated herein by reference.
10.(x) Stock Exchange Agreement between Registrant and Selling Shareholders
for the exchange by the Selling Shareholders of their Class B and
Class C shares of Touchtunes for Series A Preferred shares of Regis-
trant. Reference is made to Exhibit 5 of Registrant's Form 8-K for
the month of March 1997, which Exhibit is incorporated herein by
reference.
10.(xi) Subscription Agreement for the purchase of 100 Series A Preferred
shares of Registrant by the Selling Shareholders. Reference is made
to Exhibit 6 of Registrant's Form 8-K for the month of March 1997,
which Exhibit is incorporated herein by reference.
10.(xii) Shareholder Agreement between Techno Expres S.A., the majority
shareholder of Registrant and the Selling Shareholders, relative to
their shares of Common Stock of Registrant. Reference is made to
Exhibit 7 of Registrant's Form 8-K for the month of March 1997, which
Exhibit is incorporated herein by reference.
10.(xiii) Employment and Non-Competition Agreement between Registrant and Tony
Mastronardi. Reference is made to Exhibit 9 of Registrant's Form 8-K
for the month of March 1997, which Exhibit is incorporated herein by
reference.
10.(xiv) Employment and Non-Competition Agreement between Registrant and Guy
Nathan. Reference is made to Exhibit 10 of Registrant's Form 8-K for
the month of March 1997, which Exhibit is incorporated herein by
reference.
10.(xv) Lease for premises at One Commerce Place, Nun's Island, Verdun
(Quebec), Canada, H3E 1A2 between Touchtunes Digital Jukebox Inc. and
landlord of said premises.
10.(xvi) OEM Purchase and Development Agreement with Bose Corporation, dated
March 1997.1
10.(xvii) Jukebox License Office Certificate, dated March 11, 1997.1
10.(xviii)Jukebox License Agreement with the American Society of Composers
Authors and Publishers, Broadcast Music Inc. and SESAC, Inc., dated
March 11, 1997.1
21. Registrant has no subsidiaries. On the effective date of this
Registration Statement, it is anticipated that Touchtunes Digital
Jukebox Inc. will become a wholly owned subsidiary of Registrant.
6<PAGE>
23.(i) Consent of Armstrong Gilmour, Accountancy Corporation, independent
certified public accountants.1
23.(ii) Consent of Karp and Sommers, attorneys at law (contained in their
opinion).1
Item 28. Undertakings
(a)The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and
(iii) To include any additional or changed material information on the plan
of distribution;
(2) that, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be treated
as a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof;
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(d) The Registrant hereby undertakes that it will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A under the
Securities Act and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act as part of this registration statement as of the time
the Securities and Exchange Commission declared it effective.
7<PAGE>
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement relating to the securities offered therein,
and the offering of such securities at that time as the initial bona
fide offering thereof.
8<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and has duly caused this
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Montreal, Canada on September ,
1997.
TECHNICAL MAINTENANCE CORPORATION
By: /s/Tony Mastronardi, President
-------------------------------------
Tony Mastronardi, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/Tony Mastronardi President and Director September 12, 1997
- ------------------------- (Principal Executive,
Tony Mastronardi Accounting
and Financial Officer)
/s/Guy Nathan Senior Vice-President, September 12, 1997
- ------------------------- Secretary and Director
Guy Nathan
/s/Tonino Lattanzi Vice-President and Director September 12, 1997
- -------------------------
Tonino Lattanzi
Assistant-Secretary and September 12, 1997
Director
/s/Jacques Bourque
- -------------------------
Jacques Bourque
Director ________________
- -------------------------
Pierre Pharand
Director ________________
- -------------------------
Andre Duquenne
9<PAGE>
As filed with the Securities and Exchange Commission on September 15, 1997
File No. 33 -7006
EXHIBIT VOLUME
TO AMENDMENT NO. 1
TO FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
OF
TECHNICAL MAINTENANCE CORPORATION<PAGE>
INDEX TO EXHIBIT VOLUME
Item 27. Exhibits.
(a) The following exhibits are filed herewith:
5. Form of Opinion of Karp and Sommers.
10.(xvi) OEM Purchase and Development Agreement with Bose Corporation, dated
March 1997.
10. (xvii) Jukebox License Office Certificate, dated March 11, 1997.
10. (xviii)Jukebox License Agreement with the American Society of Composers
Authors and Publishers, Broadcast Music Inc. and SESAC, Inc., dated
March 11, 1997.
23. (i) Consent of Armstrong Gilmour, Accountancy Corporation, independent
certified public accountants.
23. (ii) Consent of Karp and Sommers, attorneys at law (contained in their
opinion).<PAGE>
Karp and Sommers
Attorneys at Law
950 Third Avenue
New York, N.Y. 10022
212-935-9060
FAX 212-421-1650
Federal Express
September 12, 1997
Mr. Jeffrey Epstein
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Mail Stop 3-8
Re: Technical Maintenance Corporation
Form SB-2 Registration Statement
File No. 333-7006
Dear Mr. Epstein:
In response to the Commission's letter of comment dated July 2, 1997,
the following summary explains the revisions made in Amendment No. 1 of the
Registrant's Registration Statement on Form SB-2, keyed to the comments of that
letter.
Prospectus Cover Page
1. The comment suggested relative to the ownership of shares by officers and
directors has been included as a new paragraph on the cover page.
Available Information, page 2
2. The Commission's Web site address has been added under Available
Information.
Documents Incorporated by Reference, page 2
3. Clauses 4 and 5 have been deleted from this paragraph.
Prospectus Summary (The Company), page 3
4. Touchtunes Digital Jukebox, Inc. ("Touchtunes") is a Canadian corporation
organized in March 1997, through which the Company now operates its business.
Touchtune's function is to develop and promote the Digital Jukeboxes for the
Company. A new paragraph has been added on page 3 of the Prospectus Summary to
explain this and the manner in which Touchtunes was funded. Touchtunes will
become a wholly owned subsidiary of the Company on the effective date of the
Prospectus.
1<PAGE>
Mr. Jeffrey Epstein
September 12, 1997
Page 2
Touchtunes Juke Box Inc. ("Juke Box") is a separate Canadian corporation
owned by Messrs. Tony Mastronardi (50%); Guy Nathan (16.67%); and Tonino
Lattanzi (33.33%). Until March 1997, Juke Box assisted in financing the
Company and conducting its development operations. In March 1997, with
the incorporation of Touchtunes, this function ended. Juke Box is only a
shareholder of the Company.
Appropriate changes have been made in the financial statements and
elsewhere throughout the Prospectus, to clarify the distinction between
these two corporations. Reference is made to Items 18 and 19 below, for
further information about Juke Box and Touchtunes.
Risk Factors, page 6
5. The subheadings in the Risk Factors section have been revised as
suggested, particularly the fourth, fifth, sixth, seventh and eleventh
subheadings.
6. The statements referred to in this section, mitigating the risks, have
been deleted or revised as suggested.
7. The bold face statement at the end of this section has been revised as
suggested.
Managements Discussion and Analysis of
Financial Condition and Results of Operations, page 13
8. Reference has been made in the initial paragraph of this section to the
"Business Start-Up Activities" in the PROSPECTUS SUMMARY.
Business, page 14
9. The Company plans to install approximately 5,000 Digital Jukeboxes during
the calendar year 1998, to commence full scale business operations. At an
estimated cost of $4,800 U.S. for manufacturing, delivering and installing
each unit, the total additional capital needed by the Company for that
purpose is projected to be $24,000,000 U.S. An additional $10,000,000
U.S. will be needed to finance the Company's continuing operations and
approximately $4,000,000 is required for the "central server." This
projection of $38,000,000 U.S. in funds needed in the immediate future has
been noted throughout the Prospectus particularly under "Future Financing"
in the BUSINESS section.
2<PAGE>
Mr. Jeffrey Epstein
September 12, 1997
Page 3
Patented Technology, page 15
10. The statement mentioned made in the Prospectus has been revised to present
it as "management's opinion." The basis for management's belief that the
Company's Digital Jukebox outperforms any conventional jukebox on the
market today is the fact that the Digital Jukebox alone has simultaneous
sound reproduction, graphics display, video animation and
telecommunication capabilities. Conventional jukeboxes offer only sound
reproduction.
Marketing Strategy, page 16
11. The positive initial response received by the Company from jukebox
operators about the Digital Jukebox is the result of conversations between
management and such parties. Virtually all the jukebox operators who are
participating in the market test have indicated orally, their intention to
install Digital Jukeboxes. Because negotiations with Bose Corporation,
the manufacturer, and the record label companies are still ongoing, no
firm orders have been accepted by the Company.
Industry Background, page 17
12. Enclosed as supplemental information are trade articles from which
management gathered certain statistical information included in the first
and second paragraphs of this section of the Prospectus. In the article
entitled "The CD Comfort Zone" published in Replay Magazine, April 1995
Edition, at page 121, Mr. Ed Blankenbeckler, a recognized authority in
this field, estimated that there are 4,300 coin machine operators in the
United States. All of them have amusement or entertainment equipment.
Some of them also have jukeboxes. Based on the Company's experience in
dealing with them, management estimates that approximately 2,300 coin
machine operators also own jukeboxes.
3<PAGE>
Mr. Jeffrey Epstein
September 12, 1997
Page 4
Jukebox Manufacturers, page 18
13. Although a manufacturing price has not yet been established with Bose
Corporation, the Company anticipates its costs per Digital Jukebox for
manufacturing, delivering and installing each unit, will be approximately
$4,800 U.S. per unit. The language in this section has been revised to
reflect this projection by management.
14. Although 20 prototypes have been manufactured for the Company by Bose
Corporation, a contract for the commercial manufacture of Digital
Jukeboxes has not been signed because the final design and specifications
have not been completed. The Company is presently negotiating these
matters with Bose Corporation. Negotiations with Pioneer Electronics
Corporation have ceased. This section of the Prospectus has been revised
to reflect the current situation. A copy of the contract with Bose
Corporation for the purchase and development of 20 prototypes has been
filed as Exhibit 10.(xvi) to Amendment No. 1.
The license issued to the Company by the Jukebox License Office has been
filed as Exhibit 10.(xvii) to Amendment No. 1.
The Jukebox License Agreement between Touchtunes and the American Society
of Composers, Authors and Publishers, Broadcast Music, Inc and SESAC, Inc.
has been filed as Exhibit 10.(xviii) to Amendment No. 1.
The Company is presently negotiating with record label companies for the
right to play their music. Thus far, it has obtained the right to play
their music during the market trial test period only. These companies
are: PolyGram Records, Capitol Records/EMI, MCA Records Inc., Virgin
Records America Inc. and Warner Music Group. The terms and conditions on
which these record label companies will allow the Company to play their
music after the market trial test have not been finalized.
Future Financing, page 19
15. The language in this section has been revised to state that the Company
plans to negotiate separate agreements with each individual jukebox
operator. It plans to share the income generated by its Digital Jukeboxes
on the basis of approximately 45% to 50% for the Company and approximately
50% to 55% for the jukebox operator. This percentage may vary somewhat
from operator to operator.
4<PAGE>
Mr. Jeffrey Epstein
September 12, 1997
Page 5
Opinion of Counsel, Exhibit 5
16. A draft of the legal opinion has been filed as Exhibit 5 to Amendment No.
1. (This also contains the consent).
PART II - Exhibits
17. The Company will prepare and file an Exhibit Index, listing all previous
exhibits filed, with future filings on Form 10-K.
Financial Statements and Related Disclosures
18. Touchtunes Jukebox Joint Venture (the "Joint Venture") was an informal
partnership organized in 1994 for the sole purpose of acquiring control of
the Company and the digital jukebox technology. This Joint Venture had no
operations prior to 1994. It was dissolved by the partners and the shares
of the Company were distributed among them. There is no financial history
of the Joint Venture, before or after that event. This transaction is
noted in the first paragraph of CERTAIN TRANSACTIONS. The Joint Venture
should not be confused with Juke Box or Touchtunes. All three entities,
the Joint Venture, Juke Box and Touchtunes, are distinct and separate from
one another.
Both the Joint Venture and Juke Box have been treated as shareholders of
the Company. For that reason, the Com-any does not believe that reverse
acquisition accounting is appropriate for either.
19. Touchtunes was organized and commenced operations on March 7, 1997. It
was not organized until after the Company's fiscal year ended on December
31, 1996. At that time, Touchtunes acquired certain working assets,
assumed certain liabilities of Juke Box and entered into a development and
operation agreement with the Company.
To avoid confusion, Juke Box plans to surrender the name "Touchtunes" and
become a numbered company under the Canadian Business Corporations Act.
Its official name will be a federally designated number.
5<PAGE>
Mr. Jeffrey Epstein
September 12, 1997
Page 6
Touchtunes is jointly controlled by the Company and the two Canadian
investors. Both have equal votes and appoint an equal number of board
members. On the effective date of the Prospectus, Touchtunes will become
a wholly owned subsidiary of the Company. Touchtunes' accounts have not
been consolidated in the financial statements of the Company for the
periods ending December 31, 1996 because Touchtunes was not organized
until March 1997.
20. Until March 1997, developmental activities of the Company were conducted
by Juke Box. All the costs of doing business incurred by Juke Box were
included in the Company's financial statements. The $647,000 and $318,000
costs for research and development and the operating expenses for 1996 and
1995 respectively, were included in the Company's income statements for
each of those years.
21. The fees and expense reimbursements of $300,000, relating to the stock
issued to Mr. Lattanzi, have been included in the December 1995 results of
operations.
22. The December 31, 1996 financial statements have been revised to reflect
the changes requested.
23. The accountants' report has been expanded as requested.
24. The Company did not have a controlled subsidiary as of March 31, 1997, the
last date of its financial statements. When Touchtunes becomes a wholly
owned subsidiary, upon the effective date of the Prospectus, its assets
and liabilities will be translated into US dollars, using current exchange
rates in effect at the balance sheet date and for revenue and expense
accounts using an average exchange rate for the period. The gains or
losses which may result from translation will be included in shareholders'
equity.
Accountants' Report:
25. The Form 8-K for the month of January 1996, relative to the change in
accountants, was sent to you earlier, on July 23, 1997.
26. The obligations noted in this point will be satisfied by the Company
through the issuance of its stock to the various parties. The total
consideration for the stock will be the amount of the obligations which
have been included on the balance sheet as at December 31, 1996. No cash
will be generated from these planned stock issuances. Since the
transaction will be a non-cash transaction, there is no receivable which
will be collected to offset a Stock Subscriptions Receivable.
6<PAGE>
Mr. Jeffrey Epstein
September 12, 1997
Page 7
27. The requested proforma information, concerning the loss per share, has
been added to the interim financial information.
28. Based on conversations held between the Company's internal accountants and
Mr. Ballard of the SEC, the Company recognizes the inconsistency between
the Form 10-K filed for December 1995 and the December 1995 financial
statements contained in the Registration Statement.
The transaction in question was a non-cash transaction as disclosed in the
financial statements. The Company's amended Form 10-K/A reflects this
correction. A copy is supplied as supplemental information.
Form 10-Q March 31, 1997
29. The Form 10-Q filing has been revised to remove the compilation report of
Ptack Schnarch Basevitz. The financial statements for the quarter ended
March 31, 1997 in that report have been revised to reflect the changes
requested. A copy of the Company's Form 10-Q/A is supplied as
supplemental information.
30. The Form 10-Q/A for March 31, 1997 has also been amended to reflect the
immediate cash consideration received.
31. Note 3 of the Form 10-Q/A for March 31, 1997 has been expanded as
suggested.
32. Notes have been added to the Form 10-Q/A for March 31, 1997 under
Subsequent Events, to reflect the additional funds received by the Company
from the Canadian Investors ($750,000 CDN on May 9, 1997, and $2,650,000
CDN on July 17, 1997).
33. Note 4 of the Form 10-Q/A for March 31, 1997 has been revised as
suggested.
34. The financial statements for the year ended December 31, 1996 have been
revised as suggested in Amendment No. 1 and in the amended Form 10-K/A for
that period.
7<PAGE>
Mr. Jeffrey Epstein
September 12, 1997
Page 8
35. The registration statement has been updated to provide revised interim
financial statements pursuant to Item 310 of Regulation S-B.
Should you have any questions with respect to the foregoing
explanations, feel free to contact the undersigned. Thank you for your
continued courtesy and cooperation.
Sincerely,
/s/Aaron Karp
Aaron Karp
AK/kt
Encl.
cc: Technical Maintenance Corporation
8<PAGE>
Karp and Sommers
Attorneys at Law
950 Third Avenue
New York, N.Y. 10022
212-935-9060
FAX 212-421-1650
Federal Express
September 12, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Technical Maintenance Corporation
Registration Statement on Form SB-2
File No. 333-7006
Gentlemen:
On behalf of Technical Maintenance Corporation, we enclose the following
documents in connection with its registration of 2,000,000 shares of Class A
Common Stock on Form SB-2.
1. Three copies of Amendment No. 1 to the Registration Statement on Form
SB-2, one of which has been manually signed, and three separate Exhibit Volumes
with Exhibits.
2. Ten conformed copies of the Registration Statement, without exhibits,
and
3. One red-lined copy of the Preliminary Prospectus, showing changes
made, with a covering letter responding to the Commission's comments of July 2,
1997 and providing the supplementary information requested.
Please acknowledge receipt of the enclosed material by stamping the
duplicate copy of this letter and returning it in the self-addressed stamped
envelope.
Very truly yours,
/s/Aaron Karp
Aaron Karp
AK/kt
Encl.<PAGE>
April 1995
RePlay Magazine
Monthly journal for the amusement machine industry
"(The) Comfort Zone"
by Ed Blankenbeckler
This article is about the jukebox business, going back 45 years and
winding up in the present. Besides being one of my favorite subjects, this
part of our industry also happens to be the strongest and healthiest of all
today, giving the very best return on the operator's investment dollars of just
about any other segment of the business.
It's been a little over eight years since the first CD jukebox was
introduced to the world. Since then, over 100,000 dedicated CD phonographs
have been purchased by operators around this country.
Through to the end of 1994, operators bought a half billion dollars worth
of CD jukeboxes, and over $120 million in compact discs, and that only
represents around a third of the total number of jukeboxes on location in the
U.S.A. today. In the next five years, operators will again buy around one half
billion dollars in CD jukeboxes and over $250 million worth of CD discs.
In 1994, the gross revenue from operator-owned jukeboxes (including both
vinyl and CD) came to over $1,800 million (1.8 billion dollars). And going
into the 21st century, the gross revenue will hit $2 billion. (Keep in mind
that approximately 50% of that is paid to locations in commissions... that
goeas a long way helping locations pay utilities, rent and their owners' other
expenses.
(Graph) - Caption: The industry was at its peak from 1949-1958 when operators
cycled their equipment about every ten years. While it's understandable why
American Wurlitzer got out of the business in 1976, jukebox manufacturing
really didn't hit its bottom for several more years yet. Then the pendulum
began to swing in the other direction in the late '80s and is moving back up to
the ten year cycling of the late 1950's. As Blankenbeckler says, "that's a
good sign".
<TABLE>
<CAPTION>
total number of avg number total # of industry
machines sold to of jukebox jukeboxes replacement average life
US operators sold/year on US locs turnover of machines
<S> <C> <C> <C> <C> <C>
1949-1953 217,000 43,400 450,000 9.6% 10.4 years
1954-1958 221,000 44,200 470,000 9.4% 10.6 years
1959-1963 187,000 37,400 490,000 7.5% 13.1 years
1964-1968 144,500 28,900 470,000 6.2% 16.3 years
1969-1973 120,000 24,000 425,000 5.7% 17.6 years
1974-1978 82,000 16,400 360,000 4.6% 21.7 years
1979-1983 65,500 13,100 325,000 4.0% 25.0 years
1984-1988 60,000 12,000 300,000 4.0% 25.0 years
1989-1993 79,000 15,800 310,000 5.1% 19.6 years
1993-1994 43,000 21,500 310,000 6.9% 14.5 years
</TABLE>
(Inset) - Although the CD era technically began in 1986, it wasn't until 1989
that all jukebox manufacturers produced a fully dedicated CD phonograph. The
years 1993 and 1994 enjoyed the heaviest purchasing of jukeboxes by operators
since 1972 (although 1994 did not even meet industry projections). 1995 should
be a banner year for the industry, bringing the operator's average life-cycling
of his music route to 13 years (or 7.7% per year). That would be the best
since 1963. -- The figures stated here are accurate +-3%. Statistics presented
are average figures, taking into consideration that some operators who run up
to 60 and 70 jukeboxes do not have tevern locations, that some operators<PAGE>
(roughly 10%) have converted their entire routes to dedicated CD jukeboxes and
that 45% have not bought their first dedicated CD phonograph yet. -- If the
rate of buying new CD boxes remains the same as in 1994, it will take over nine
years (or until after the year 2003) to replace all the vinyl 45rpm jukeboxes
in the United States.
The jukebox industry as we know it today was born during the Depression
(late'20's, early 30's). When electric amplifiers were developed and
Prohibition ended, our industry began to grow. The jukebox was the working
class's entertainment. From the smallest town to the biggest city, it was the
jukebox that carried the entertainment load. It was true then, and it's still
true today.
There has always been talk in the media about new innovations coming that
will obsolete cars, planes, houses and gasoline. It happens in every industry
and ours is no exception. But, as I've mentioned before, our industry is a by-
product of the record industry, or should I say the "disc industry". So, no
matter what vehicle that industry chooses to put its music on, ours will have
to build a unit to play it.
I don't believe the disc industry has plans to change its format. They're
comfortable with the CD. In fact, they've just reached a "comfort zone" after
investing millions and millions in this present format. They are not looking
to spend millions and millions more. Nevertheless, our industry should always
keep in touch with technical developments so we don't get any "surprises". We
should all be alert to outside entrepreneurs who would offer a different format
than the present one.
(Chart - Analysis of total number of domestic jukeboxes to population)
<TABLE>
<S> <C> <C> <C>
year domestic on location jukeboxes
population jukeboxes per persn
1950 151,000,000 420,000 360
1955 165,000,000 455,000 363
1960 179,000,000 490,000 365
1965 191,000,000 475,000 402
1970 203,000,000 460,000 441
1975 215,000,000 400,000 538
1980 227,000,000 340,000 668
1985 238,000,000 300,000 793
1990 249,000,000 310,000 803
1995 261,000,000 312,000 837
</TABLE>
Some History
I'd like to take you back to the 60's and the 70's to discuss some changes
that took place which affected our whole industry. That was a very pivotal
era, as you will see.
(Chart - Breakdown of gross jukebox revenue)
Top Locations - 18% - 55,800 units $200.00+ weekly gross
[illegible] - (20%) - 62,000 $100.00 to $199.00 weekly gross
Lower Income Locations - 40% - 124,000 units $50.00 to $99.00 weekly gross
Bottom Locations - 22% - 68,200 units $20.00 to $49.00 weekly gross
In 1960, personal consumption of beer and alcohol at the jukebox location
began to change drastically. When the decade began, consumption averaged about
80% on premises and 20% at home. Before it ended, on-premises consumption
dropped to 20% and off premises drinking increased to 80%. A complete flip
flop. And that ratio still holds today.<PAGE>
At about the same time (1960), the exodus from urban areas to suburbia
began. It was "country living". Homes by the thousands were build, followed
by the "supply lines" (shopping centers, malls, restaurants, fast food
franchises by the hundreds, convenience store, hotels motels, etc.).
When that was complete, downtowns were devastated. They became ghost
towns with no traffic after 6:00PM. Pubs, bars, lounges all fought back with a
new fad...happy hour. Buy one, get one free. Two for the price of one until
7:00PM.
As if that wasn't enough, another phenomenon struck...the government
started building the Interstate Highway System. From coast to coast, from
Canada to Mexico to Florida, interstates went in, bypassing cities and many
small towns completely. Travelers were routed around and even over familiar
old highways and roads and many small town bars and restaurants lost customer
traffic and went down. Some operators followed by either closing up or selling
their routes to larger operating companies.
As the interstates began to reach completion, the cities had to build
entrances and exits to these big highways. To handle the increase in traffic,
they widened entrance and exit streets and hundreds of small stores, cafes and
taverns were torn down to make room for these wider "feeder" streets.
Urban renewal programs that either facelifted more seedy parts of cities
or replaced blocks with housing projects, office buildings or the like, further
removed many formerly good jukebox locations from the industry's map.
All of this not only had a disastrous effect on the jukebox but on the
game side of the business as well. But it took a much bigger toll on the juke-
box because almost every lost location had had one. Manufacturers,
distributors and operators ended up with tremendous inventory problems. The
distributors, loaded with used equipment, couldn't look to operators to buy it
because those operators had warehouses full of used jukeboxes themselves.
Everybody suffered.
Moving Forward
Between 1985 and 1988, the number of jukeboxes on location in the U.S.
held pretty steady at approximately 300,000. Then because the new CD boxes
came out, the base has been increasing slightly. To date, there has been about
a 4% increase in the number of jukeboxes on location.
If you refer to the chart, you'll see the breakdown of the jukebox
industry's gross revenue on the basis of 310,000 machines. The first panel
shows 55,800 "top locations" (18% of the business) in the U.S. Because of their
higher earnings, these locations have the newer 1992, 1993 and 1994 jukebox
models. The second panel shows the "secondary top locations". There are
approximately 62,000 of these, making up 20% of the jukebox "population" in the
U.S. These locations will gross from $100 to $199 per week. As the new models
move into the top locations, the older machines from those locations are moved
into the secondary top locations.
By the beginning of 1995, there were approximately 45,000 CD jukeboxes in
secondary top locations, leaving about 15,000 of this type of account still
with 45rpm jukeboxes. But by the end of 1995, those locations should be filled
with CD models from the top locations as new models are purchased for the best
accounts. And the equipment continues to be moved down.
The third panel on the chart shows approximately 124,000 locations that
gross from $50 to $99 a week (40%). These phonographs are the old 45rpm vinyl
machines aged ten to 15 years. At the present rate of replacement, it will
take until 2001 to displace those vinyl jukeboxes with a "moved down" CD
phonograph.
The last panel shows 68,200 locations (22%) that gross $20 to $49 per
week. Although these locations are at the bottom of the totem pole, there's
often a sound reason for the operator to hang onto them. You'll hear things
like: "it was an excellent stop at one time", or "things would be better if
they'd replace the bartender", or "if they could only get the liquor license
back" and "they have other machines that do pretty good."
<TABLE>
CAPTION
<PAGE>
U.S. Jukebox industry gross revenue statistical breakdown for 1994
<S> <C> <C> <C>
percentage units weekly gross yearly total
3% 9,300 $375.00 $181,850,000
5% 15,500 $270.00 $217,620,000
10% 31,000 $200.00 $322,400,000
20% 62,000 $155.00 $499,720,000
40% 124,000 $70.00 $451,360,000
22% 68,200 $36.00 $127,670,400
100% 310,000 $36.00 $1,800,536,400
</TABLE>
It is interesting to note here that during the first couple of years after
the CD jukebox came out, most operators who did buy one did not put it on their
top locations, or even at a secondary top location. Due to his natural
skepticism about mechanical problems with any new device, he didn't want to
upset his top locations. So, most of the original CD jukeboxes went out to the
boondocks to low income locations that did between $50 and $80 a week.
The operator knew that if the machine didn't meet his expectations for
some reason, he could return it to his distributor without any obligation on
his part. But to that operators' surprise, the CD jukebox showed an increase
in collections of 200% to 300% over the 45rpm jukebox, and as important, it
maintained that increase.
There are statistics to back up the fact that of the first one thousand or
so CD jukeboxes sold, over half of them were put into lower income locations
and enjoyed the increases I've just stated. So, it proves that given the right
situation and the right vehicle, the revenue is there. That's true even today.
In 1960, the population of this country was 179 million, there was one
jukebox on location for every 365 people and the average gross collection per
machine was $26. Today, the population is 261 million, but there's only one
jukebox for every 837 people while the average weekly gross per jukebox runs
$112.
Right now today, there are over 4,600 music operators in this country
taking care of over 300,000 jukeboxes. It's a good business, so don't let
anyone tell you differently. Hang onto it and the jukebox will treat you
right.
Ed Blankenbecklers' credentials stretch back to the days of the 78rpm
jukebox. During his many years with the various Seeburg organizations, he has
witnessed all (and played a role in many) of the technical innovations that
have changed the interior and exterior appearances of currency activated
phonographs.
Of all, he is most famous for his seminal role in developing the first CD
jukebox... The Crusader. Due to that, we consider him the "father of the CD
jukebox".
Blankenbackler recently resigned from the present Seeburg International
and is devoting much of his time exploring a number of concepts that could
produce yet another new jukebox idea from his creative mind. We thank him for
sharing a bit of his passion about his favorite machine in this article, as
well as a wealth of statistical data to support his conclusions. ed.<PAGE>
Jukebox
A Guide to Jukebox Terminology
CD Jukebox: A jukebox that only plays CDs. Most CD jukeboxes can carry 100CDs.
The designs of these jukeboxes are primarily modern but some of the new CD
jukeboxes use the older - or "Bubbler" - styling.
"Combo" Jukebox: A jukebox that holds both CDs and 45rpm records. Combo boxes
were popular at the outset of the introduction of CD technology as
transitionery alternative, but most new jukeboxes are exclusively CD-only.
*Consumer Impressions: The number of people in a given location during a given
time period when a jukebox is played. For example, some 400 people who might
frequent a restaurant having a jukebox in play during a single evening amounts
to 400 impressions via the jukebox. AMOA estimates that some 75-80 million
Americans hear music at one time or another on a jukebox each week.
45 RPM Jukebox: A jukebox that only plays 45 rpm vinyl (7") records. Many
carry 80-100 two-sided records - or about 160-200 songs.
Home/Collector's Market: Home market is just that: a jukebox in someone's home
for their personal enjoyment. The collector's - or nostalgia market - is also
generally more prevalent with the home market. Resale value of certain antique
"nostalgia" boxes can run into the $10,000-$20,000 - plus range. Neither of
these markets are considered part of the commercial jukebox market.
Licensing: Nationally, required on an annual basis for commercially played
jukeboxes. Licensing is administered by the Jukebox Licensing Office, based in
New York City and maintained by the performing rights societies (ASCAP, BMI and
SESAC). If a jukebox is found to be in non-compliance, penalties can be steep.
Licensing rates vary on a sliding scale depending on how many jukeboxes are
owned. State/local licensing may vary.
Lifespan: A commercially - played jukebox generally has a lifespan of around 10
years.
Location: Any commercial or public establishment where a jukebox could be
placed. (See "Types of Locations" on Jukebox Facts sheet.)
One-Stop: An establishment where a jukebox owner/operator usually purchases
their records or CDs. Many one-stops service a state or region. A few larger
one-stops service nationwide. A good one-stop has an eclectic mix of both new
and old music on both 45 rpm vinyl and CD.
Owner/Operator: A jukebox owner/operator is generally a businessman who
provides locations with jukeboxes and, generally, other coin-operated amusement
equipment (i.e., pinball, video, pool, electronic darts, etc.) This equipment
is owned by the owner/operator with some predetermined agreed upon "split" of
income between the owner/operator of the jukebox and the location's owner or
management. Jukebox owner/operator responsibilities include cleaning,
programming music "type," frequent changing of CDs or records, appropriate
national and local licenses and service repairs. Sometimes an individual
location owns their own jukebox. In this case, they are responsible for all
maintenance, programming, licenses, upkeep, etc.
Pricing: Price per play. For 45 rpm jukeboxes, from one to several selections
can be made for a quarter. For a CD jukebox - which generally accepts $1 or $5
bills - the cost is usually 3 plays per dollar.
Programming (Music): The "type" of music that is on the jukebox, hopefully
appropriate for the location's clientele. Good jukebox programming generally
is a reflection of the taste of the location's patrons - be it pop, country,
R&B, college, etc. - plus (or) a mix of "oldies" (either assorted oldies
compiled on a CD or a "best of... CD).<PAGE>
Split: For commercial jukeboxes, the agreed upon split of jukebox play income.
Varies widely. Often, the jukebox owner/operator has to receive a certain
minimal income before a "split" with the location kicks in.
Title Strip: For 45 rpm jukeboxes, the "titles" of songs that appear on the
jukebox, usually pre-printed on paper. On CD jukeboxes, the title strip lists
all songs from a particular CD. Title strips are used for song selection.
Wallbox: Popular in diners and in some commercial establishments with several
rooms. These units are used for convenient table-side selections and are
connected to a main jukebox.
Amusement & Music Operators Association
401 N. Michigan Avenue - Chicago, IL 60611-4267 - 312.644.6610 FAX 312.321.6869<PAGE>
Exhibit 5. Form of Opinion of Karp and Sommers<PAGE>
KARP AND SOMMERS
ATTORNEYS AT LAW
950 THIRD AVENUE
NEW YORK, N.Y. 10022
212-935-9060
FAX: 212-421-1650
September _, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Technical Maintenance Corporation
Registration Statement on Form SB-2
File No. 333-7006
-------------------------------
Gentlemen:
We have acted as counsel to Technical Maintenance Corporation in
connection with the above-referenced Registration Statement on Form SB-2. In
our opinion, the 2,000,000 shares of Class A Common Stock of Technical
Maintenance Corporation being offered for sale by the selling shareholders
named in the Prospectus, have been validly issued, fully paid and nonassess-
able and may be sold as such in the manner described in said Prospectus.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Prospectus under the
section entitled "Legal Matters."
Very truly yours,
Karp and Sommers
By: /s/Aaron Karp
---------------
Aaron Karp
AK/kt
Exhibits 5 and 23(ii)<PAGE>
Exhibit 10. (xvi) OEM Purchase and Development Agreement With Bose Corporation,
dated March 1997<PAGE>
OEM PURCHASE AND DEVELOPMENT AGREEMENT
BETWEEN
TOUCHTUNES JUKEBOX, INC.
AND
TECHNICAL MAINTENANCE CORPORATION
AND
BOSE CORPORATION
MARCH 1997<PAGE>
TABLE OF CONTENTS
1. INTRODUCTION 1
2. DEVELOPMENT OF THE SYSTEM 1
2.1 The System 1
2.2 System Specifications and Development 1
2.3 Good Faith Cooperation 2
3. TERMS OF PURCHASE AND SALE OF SYSTEMS 2
3.1 Purchase and Sale 2
3.2 Pricing 2
3.3. Purchase Orders 3
Submission of Purchase Order 3
Confirmation of Purchase Order 3
Termination of Purchase Orders 3
3.4 Production Forecasts 3
3.5 Shipment; Title and Risk of Loss 3
4. WARRANTY AND SUPPORT 4
4.1. Warranty 4
General 4
Procedures 4
Limitations 4
4.2 Support and Maintenance 5
5. INTELLECTUAL PROPERTY RIGHTS 5
5.1 Ownership of Patents 5
Patent Rights Unilaterally Originated 5
Ownership of Patent Rights Jointly
Originated 5
Other Rights 5
5.2 Trademarks 5
Trademark License 5
Marketing and Advertising 6
Quality Assurance 6
Trademark Notice 6
Reservation of Rights 6
ii<PAGE>
6. INTELLECTUAL PROPERTY INDEMNIFICATION 7
6.1 By Bose 7
Indemnity 7
Limitations 7
6.2 By TouchTunes 7
7. TECHNICAL AND COMMERCIAL INFORMATION 8
8. TERM OF AGREEMENT; TERMINATION 8
8.1 Term of Agreement 8
8.2 Termination for Cause 8
8.3 Posttermination Rights and Obligations 8
9. MISCELLANEOUS 9
9.1 No Agency 9
9.2 Authorization 9
9.3 Excusable Delays 9
9.4 Assignment 9
9.5 Notices 10
9.6 Governing Law 10
9.7 Official Currency 10
9.8 Waiver 10
9.9 Integration and Interpretation 10
9.10 Amendments 10
9.11 Expenses 11
9.12 Captions 11
9.13 Counterparts 11
9.14 Exclusivity 11
Schedule A: Product Description
Schedule B: Production Systems Pricing
Schedule C: Prototype Part List
iii<PAGE>
OEM PURCHASE AND DEVELOPMENT AGREEMENT
between
TOUCHTUNES, INC.
and
TECHNICAL MAINTENANCE CORPORATION
and
BOSE CORPORATION
This Agreement is made as of March 4, 1997, between TouchTunes Jukebox, Inc.,
and Technical Maintenance Corporation ("TouchTunes"), and Bose Corporation, a
Delaware Corporation ("Bose"), who hereby agree as follows:
1. INTRODUCTION
Bose designs, develops, manufactures, and sells audio equipment, including
speakers, amplifiers, transducers, and other electronic devices and
circuitry
TouchTunes designs, develops, and sells jukebox equipment, including a
device known as the Digital Jukebox.
TouchTunes desires to utilize premium performance jukeboxes developed
jointly by TouchTunes and Bose. Bose desires to work with TouchTunes to
develop customized jukeboxes designed to meet the specifications and
requirements of TouchTunes, and to become a supplier of such jukeboxes to
TouchTunes.
2. DEVELOPMENT OF THE SYSTEM
2.1. The System. For purposes of this Agreement, the "system" shall mean a
"Jukebox" developed jointly by Bose and TouchTunes.
2.2. System Specifications and Development. TouchTunes and Bose shall work
together to develop a detailed set of specifications for the Jukebox.
TouchTunes shall provide to Bose detailed information relating to
electronic content, interior and exterior dimensions, construction
materials, and other data which is relevant to the design and
performance of the Jukebox. Bose shall provide to TouchTunes such
information regarding the physical and electronic characteristics of
the Jukebox as may be required in connection with the design and
construction of the Jukebox. Upon agreement between TouchTunes and
Bose as to the detailed specifications for the Jukebox, Bose shall
commence efforts to develop the Jukebox for TouchTunes. Each party
shall provide, at its own expense, such personnel, facilities, and
other resources as Each party deems necessary and appropriate for the
performance of its obligations under this Section 2. Employees of
each party shall be available for consultation with the other party
during The course of this development.
TouchTunes shall make available to Bose models and prototypes of each
TouchTunes component as specified in TouchTunes parts list (Schedule
C) for purposes of inspection, measurement, and testing by Bose.
If either party wishes to amend or modify the agreed-upon
specifications relating to the Jukebox, such party shall specify the
desired change in writing to the other party. Each party agrees not
to unreasonably withhold its approval of any suggested change. Bose
and TouchTunes shall each have the right to approve the acoustical
performance of the Jukebox, prior to the initiation by Bose of
manufacturing of the Jukebox.
2.3. Good Faith Cooperation. Bose and TouchTunes acknowledge that this
Agreement cannot possibly cover or contemplate all aspects of the<PAGE>
working relationship between Bose and TouchTunes that will develop or
be required in connection with the design and development of the
Jukebox. Accordingly, Bose and TouchTunes each agree to act in good
faith and in a commercially reasonable manner in performing their
respective obligations under this Section 2.
3. TERMS OF PURCHASE AND SALE OF SYSTEMS
3.1. Purchase and Sale. TouchTunes agrees to purchase from Bose, and Bose
agrees to sell to TouchTunes, complete Jukeboxes in such quantities
as are agreed between the parties from time to time. Bose and
TouchTunes agree that for the initial order of 20 prototype units
that TouchTunes shall pay Bose ninety thousand dollars ($90,000) in
U.S. currency in the event TouchTunes does not issue a purchase order
for approximately six thousand (6000) additional jukeboxes by May 31,
1997, for delivery in 1998. TouchTunes will provide Bose with a
letter of credit (or acceptable substitute) for $90,000 conditional
on receipt of the P.O. prior to shipment of the prototypes. In the
event that TouchTunes does not issue a purchase order as described
herein by May 31, 1997, Bose shall be relieved of its obligations
under this Agreement. TouchTunes agrees to pay Bose the entire sum
of ninety thousand dollars ($90,000) without deduction or set-off in
such even of nonperformance by TouchTunes. TouchTunes shall be under
no further obligation to issue a purchase order once the payment of
ninety thousand dollars ($90,000) is made.
3.2. Pricing. The price of each Jukebox purchased by TouchTunes from Bose
shall be as set forth on the Price Schedule attached to this
Agreement as Schedule B. In the event of any change in the Jukebox
design or specifications from that contemplated as of the date of the
Agreement, Bose shall be entitled, with the written consent of
TouchTunes (which consent may not be unreasonably withheld or
delayed), to modify the pricing terms set forth on Schedule B to take
into account such changes. All pricing terms on such Price Schedule
(i) include shipping costs to the destination within the United
States specified by TouchTunes in its purchase order but (ii) exclude
all excise, sales, use, and other taxes, all of which shall be paid
by TouchTunes. TouchTunes is responsible for obtaining and providing
to Bose any certificate of exemption or similar document required to
exempt any sale from sales, use or similar tax liability. Payment
for Jukeboxes shall be determined by mutual agreement of the parties.
3.3. Purchase Orders
Submission of Purchase Order. TouchTunes shall submit to Bose
purchase orders for all Jukeboxes to be purchased by TouchTunes
from Bose. Each purchase order shall specify a requested
delivery date, which shall be at least 90 days following the
date of delivery of the purchase order.
Confirmation of Purchase Order. Within ten days after the
receipt by Bose of all documents comprising each purchase order,
Bose shall provide TouchTunes with a written confirmation notice
relating to the purchase order.
Termination of Purchase Orders. TouchTunes shall have the right
to cancel any purchase order in whole or in part at any time,
subject to the following provisions. Such cancellation shall
become effective upon written notification by TouchTunes to
Bose. TouchTunes agrees to pay Bose all costs which were
incurred by Bose Corporation in performance of the purchase
order up to the date of cancellation and which are property
allocable to such order under recognized commercial accounting
practices.<PAGE>
3.4 Production Forecasts. TouchTunes shall make available to Bose, upon
request, for planning purposes only, an estimate of TouchTunes'
delivery requirements from Bose for the Jukebox for the next 12
months.
3.5 Shipment; Title and Risk of Loss. All packaging and methods and
routes of shipment will be selected by Bose. Bose reserves the right
to ship the products in any order and to make partial shipments.
Bose shall arrange for shipment to TouchTunes, of Jukeboxes in
accordance with the shipment schedule specified by TouchTunes
Delivery of Jukeboxes by Bose to TouchTunes shall be f.o.b. the
United States destination specified in the purchase order. Without
regard to freight being prepaid or collect, title, and risk of loss
shall pass to TouchTunes upon delivery to the carrier. Bose reserves
and TouchTunes grants to Bose a security interest in all Jukeboxes
and all proceeds thereof to secure the full payment and performance
by TouchTunes of its liabilities and obligations to Bose under this
Agreement. TouchTunes acknowledges that this document or copies of
this document may be filed with the appropriate authorities as a
financing statement and agrees to execute and deliver such documents
as Bose may request in order to perfect Bose Corporation's security
interest granted hereby.
4 WARRANTY AND SUPPORT
4.1 Warranty
General. Bose warrants solely to TouchTunes that the Bose content of the
Jukeboxes sold and delivered under this Agreement shall be free from
defects in materials and workmanship under normal and intended usage, for
a period of 12 months from the date of purchase. Bose agrees, during the
applicable warranty period, to repair or replace (at Bose Corporation's
option) all defective Jukeboxes. This warranty does not cover defects or
damages due to water, chemical or sealant intrusion, or defects or damages
resulting from negligence, casualty, accident, fire, disaster, misuse, or
improper installation, nor does it apply to Jukeboxes that have been
modified or repaired by a party other than Bose or a party authorized by
Bose to do so. TouchTunes shall pass through or cause to pass through to
Bose all warranties for equipment supplied by TouchTunes.
Procedures. TouchTunes shall notify Bose of any Jukeboxes which it
believes to be defective during the applicable warranty period. Defective
Jukeboxes shall be returned by TouchTunes to the facility designated by
Bose, whereupon Bose shall examine and test such Jukeboxes, repair or
replace any such Jukeboxes found to be defective, and promptly return such
Jukeboxes to TouchTunes. All replaced parts shall become the property of
Bose. Bose shall make available as required spare parts to TouchTunes.
Bose shall designate the method of shipment required for return of
jukeboxes, and shall reimburse TouchTunes for all cost of shipment except
for such jukeboxes which upon testing by Bose prove not to be defective.
Limitations.
(a) The provisions of the foregoing warranties are in lieu of any
other warranty, whether express or implied, written or oral
(including any warranty of merchantability or fitness for a
particular purpose). The foregoing warranties extend to
TouchTunes only and shall not be applicable to any other person
or entity, including without limitation customers of TouchTunes
(b) Bose Corporation's liability arising out of the design,
manufacture, sale, or delivery of the Jukeboxes or their use or
disposition, whether based upon warranty, contract, tort, or
otherwise, shall not exceed the actual purchase price paid by<PAGE>
TouchTunes to Bose for such jukebox. In no event shall Bose be
liable to TouchTunes or any other person or entity for special,
incidental, or consequential damages (including without
limitation loss of profits, loss of data, or loss of use
damages) arising out of the design, manufacture, sale, or
delivery of the Jukeboxes.
4.2 Support and Maintenance. TouchTunes shall be solely responsible for
providing maintenance and support to users of the Jukeboxes, including
maintenance and support relating to the Jukeboxes included therein. Bose
shall provide technical support to maintenance and support personnel of
the Jukeboxes. Any bugs and defects identified by TouchTunes after the
commencement of commercial shipments of the Jukeboxes and the expiration
of the Bose warranty shall be resolved by Bose at TouchTunes' expense,
within two weeks, to the extent possible using commercially reasonable
efforts. Bose will support TouchTunes with technical seminars for
TouchTunes maintenance personnel or by other methods as determined by
Bose.
5 INTELLECTUAL PROPERTY RIGHTS
5.1 Ownership of Patents
Patent Rights Unilaterally Originated. Patent rights relating to
inventions originated solely by an employee or employees of one party
in connection with the design and development of the Jukebox shall
vest in such party.
Ownership of Patent Rights Jointly Originated. Patent rights
relating to inventions originated jointly by employees of Bose and
TouchTunes in connection with the design and development of the
Jukebox shall vest in Bose and TouchTunes. jointly, each party to
have an equal and undivided interest in such patent rights.
Other Rights. Except as provided above in this Section 5.1,
TouchTunes Inc. and Bose shall each retain ownership of all
intellectual property rights relating to the Jukebox that are already
owned by the respective parties.
5.2 Trademarks
Trademark License. Bose is the owner of the trademark "Bose" (both
in logo form and nonlogo form), which is registered with the United
States Patent and Trademark Off ice and similar offices or agencies
in various foreign countries (the "Trademark"). Bose hereby grants a
limited, nonassignable, nonexclusive license to TouchTunes to use the
Trademark either alone or in conjunction with other names, phrases,
or logos approved in writing by Bose, solely on and in connection
with the Jukebox manufactured by, for or on behalf of TouchTunes.
TouchTunes agrees to prominently display the Trademark on each
Jukebox and in all marketing literature relating to the Jukebox.
This limited license shall terminate on the date of termination of
this Agreement, except with respect to TouchTunes Products
incorporating Jukeboxes that were purchased by TouchTunes from Bose
prior to the date of termination.
Marketing and Advertising. Bose and TouchTunes shall agree upon
guidelines for usage of the Trademark by TouchTunes in connection
with the marketing or advertising of the Jukebox, and TouchTunes
shall comply with such guidelines. TouchTunes Inc. agrees that all
national media advertising and all other advertising copy of first
impression, which contains any usage of the Trademark shall be
subject to Bose approval of such usage, both as to style and context,
prior to release, which approval shall not be unreasonably withheld<PAGE>
or delayed. TouchTunes shall provide Bose a complete list of
contacts and test sites for the Jukebox. TouchTunes and Bose agree to
share marketing information for purposes of obtaining knowledge of
customers and performance of the system for future product
enhancements.
Quality Assurance. TouchTunes shall use its best efforts to provide
Bose with accurate and timely field failure information. In
addition, Bose, as licenser of the Trademark, shall have the right to
inspect the processing, packaging, and installation of all Jukeboxes
in connection with which the Trademark is used, for the limited
purpose of protecting and maintaining the standards of quality
established by Bose for products sold under the Trademark.
TouchTunes shall Permit Bose Corporation's authorized personnel to
enter TouchTunes' premises at all reasonable times, with reasonable
advance notice, to inspect TouchTunes' processing, packaging, and
installation operations relating to Jukeboxes in connection with
which the Trademark is used and to inspect and test Jukeboxes to be
sold under or in connection with the Trademark. If Bose at any time
finds that any Jukeboxes in connection with which the Trademark is
used is not being processed, packaged, or installed in accordance
with this Agreement, Bose may notify TouchTunes in writing of all
deficiencies, and if TouchTunes fails to take prompt action to
correct all such deficiencies Bose may, at its election, terminate
the license granted pursuant to Section 5.2 effective 30 days after
serving written notice of such termination unless such deficiencies
are corrected within such time. TouchTunes will "do its best effort"
to ensure that connections to house systems will be at a sufficiently
acceptable sound quality to be determined by TouchTunes and Bose.
TouchTunes will notify Bose of house systems connected to Jukeboxes
and the brand of product connected. Bose reserves the right to
review such installations.
Trademark Notice. TouchTunes shall cause to appear on products and
advertising materials using the Trademark, reasonable legends,
markings, and notices indicating ownership by Bose of the Trademark,
acceptable in substance and form to both parties.
Reservation of Rights. Bose expressly reserves, and TouchTunes
expressly acknowledges, that Bose possesses the exclusive ownership
of the Trademark and all related statutory and common law rights and
privileges. Use of the Trademark by TouchTunes shall inure to the
benefit of Bose.<PAGE>
6 INTELLECTUAL PROPERTY INDEMNITY
6.1 By Bose
Indemnity. Except as provided below, Bose shall defend and indemnify
TouchTunes from and against any damages, liabilities, costs, and
expenses (including reasonable attorneys' fees and court costs)
arising out of any claim that the Jukebox purchased and/or licensed
hereunder infringes a valid United States or Canadian patent or
copyright or infringes a trade secret of a third party, provided that
(i) TouchTunes shall have promptly provided Bose written notice
thereof and reasonable cooperation, information, and assistance in
connection therewith, and (ii) Bose shall have sole control and
authority with respect to the defense, settlement, or compromise
thereof. Should any Jukebox delivered hereunder become or, in Bose
Corporation's opinion, be likely to become the subject of such a
claim, Bose may, at its option, either pro-cure for TouchTunes the
right to continue purchasing and using such Jukebox, or replace or
modify such Jukebox so that it becomes noninfringing. In such event,
Bose may withhold further shipments of infringing or potentially
infringing Jukeboxes.
Limitations. Bose shall have no liability or obligation to
TouchTunes hereunder with respect to any patent, copyright, or trade
secret infringement or claim thereof based upon (i) compliance with
designs, plans, or specifications of TouchTunes, (ii) use of the
Jukebox by TouchTunes in combination with devices or products where
the Jukebox would not itself be infringing, (iii) use of the Jukebox
by TouchTunes in an application or environment for which it was not
designed or contemplated, (iv) modifications of the Jukebox by
TouchTunes, or (v) any claims infringement of a patent, copyright, or
trade secret in which TouchTunes or any affiliate or customer of
TouchTunes has an interest or license. Bose Corporation's liability
hereunder shall not exceed the purchase price paid by TouchTunes for
the Jukeboxes found to be infringing. The foregoing states the
entire liability of Bose with respect to infringement of patents,
copyrights, and trade secrets by the Jukebox or any part thereof or
by their operation.
6.2 By TouchTunes. Except as provided below, TouchTunes shall defend and
indemnify Bose from and against any damages, liabilities, costs, and
expenses (including reasonable attorneys' fees and court costs)
incurred by Bose as a result of or arising from TouchTunes activities
under the Agreement, including, without limitation, product
liability, customer warranty, and service claims, provided that (i)
Bose shall have promptly provided TouchTunes written notice thereof
and reasonable cooperation, information, and assistance in connection
therewith, and (ii) TouchTunes shall have sole control and authority
with respect to the defense, settlement, or compromise thereof.<PAGE>
7. TECHNICAL AND COMMERCIAL INFORMATION
No proprietary information disclosed by either party to the other in
connection with this Agreement shall be disclosed to any person or entity
other than the recipient party's employees and contractors directly
involved with the recipient party's use of such information who are bound
by written agreement to protect the confidentiality of such information,
and such information shall otherwise be protected by the recipient party
from disclosure to others with the same degree of care accorded to its own
proprietary information. Information will not be subject to this
provision if it is or becomes a matter of public knowledge without the
fault of the recipient party, if it was a matter of written record in the
recipient party's files prior to disclosure to it by the other party, or
if it was or is received by the recipient party from a third person under
circumstances permitting its unrestricted disclosure by the recipient
party. Upon termination of this Agreement, each party shall promptly
deliver to the other all proprietary information of the other party in the
possession or control of such party and all copies thereof.
8. TERM OF AGREEMENT, TERMINATION
8.1 Term of Agreement. This Agreement shall continue in effect until
March 1 1998, and shall be automatically extended for successive one-
year periods unless either party, on or before the date six months
prior to the commencement of any renewal period, provides written
notice to the other party of its election not to extend the Agreement
for an additional renewal period.
8.2 Termination for Cause. Notwithstanding the provisions of Section 9.1,
if either party shall default in the performance of its obligations
under this Agreement the other party may serve written notice to the
defaulting party specifying the claimed default. The defaulting
party shall use its best efforts to correct any such default
promptly. If the claimed default is not corrected within such
reasonable time as is agreed by the parties, within 30 days in the
absence of such agreement, the nondefaulting party shall have the
right to terminate this Agreement by delivering written notice of
termination to the defaulting party within 15 days following the
expiration of such cure period.
8.3 Posttermination Rights and Obligations. The following rights and
obligations shall survive the expiration or termination of this
Agreement to the extent necessary to permit their complete
fulfillment or discharge:
(a) the right of Bose to receive payment for and the obligation
of TouchTunes to pay Bose for any Jukeboxes shipped by Bose
prior to the time of termination;
(b) licenses in favor of customers of TouchTunes in respect of
products sold by TouchTunes prior to the termination of
this Agreement, and licenses in favor of TouchTunes in
respect of Jukeboxes that were purchased by TouchTunes from
Bose prior to the termination of this Agreement;<PAGE>
(c) the right to TouchTunes to perform maintenance and service
on TouchTunes Products sold prior to the termination of
this Agreement;
(d) the obligations regarding confidentiality under Section 8;
and
(e) any cause of action or claim of either party because of any
breach or default by the other party prior to the
termination of this Agreement.
9 MISCELLANEOUS
9.1 No Agency. This Agreement does not constitute Bose the agent or
representative of TouchTunes or of any subsidiary or affiliate of
TouchTunes, and does not constitute TouchTunes the agent or legal
representative of Bose. Neither party is granted any express or
implied right or authority to assume or to create any obligation,
agreement, or undertaking on behalf of or in the name of the other or
to bind the other in any manner or thing whatsoever.
9.2 Authorization. Each party represents to the other that this Agreement
has been duly authorized, executed, and delivered by it and that the
execution, delivery, and performance of this Agreement will not
violate the provisions of any law, regulation, contract, or court
order to which the party making this representation is subject or by
which it is bound.
9.3 Excusable Delays. Neither Bose nor TouchTunes shall be liable for any
loss or damage (including without imitation any special, incidental,
or consequential damage) resulting from any delay in the performance
of any obligation hereunder which is due to any cause beyond its
control, including without limitations acts of nature, unavailability
of sources of energy, riots, wars, floods, epidemics, strikes, or
slowdowns or acts or omission of the other party ("Unavoidable
Causes"). If at any time any party shall have reason to believe that
the performance of any of its obligations will not occur when
scheduled due to any Unavoidable Cause, such party shall provide
written notice to the other party indicating the cause of the delay.
9.4 Assignment. Except as may be otherwise specifically permitted in this
Agreement, neither party may assign any of its rights or delegate any
of its duties under this Agreement without the prior written consent
of the other party (which shall not be unreasonably withheld or
delayed). Any attempt at assignment in violation of this Section 9.4
shall be void. Notwithstanding the foregoing, (a) either party may
cause any of its obligations under this Agreement to be performed by
one or more of its subsidiaries (provided that such party shall
remain responsible for the full performance of all obligations of
such party under this Agreement) and (b) either party may assign this
Agreement in connection with a merger, consolidation, or sale of all
or substantially all of its assets.<PAGE>
9.5 Notices. All notices, requests, consents, and other communications in
connection with this Agreement shall be furnished in writing and
shall be sufficiently given if personally delivered or sent by
telecopy (effective as of the date of delivery) or sent by postage-
prepaid registered or certified mail (effective two days after being
so mailed) to the other party at the address specified below or such
other address as such party shall have specified in writing:
If to TouchTunes:
TouchTunes Jukebox Inc.
1 Commerce Place, Suite 330
Montreal, Canada H3E 1A2
Attn: Tony Mastronardi
If to Bose:
Bose Corporation
The Mountain
Framingham, MA 01701
Attn: Legal Department
9.6 Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Massachusetts.
9.7 Official Currency. Both parties agree that the currency to be used
for all calculations and payments shall be U.S. dollars.
9.8 Waiver. The waiver by either party of a breach or a default of any
provision of this Agreement shall not be construed as a waiver of any
succeeding breach of the same or any other provision, nor shall any
delay or omission of the part of either party to exercise or avail
itself of any right, power, or privilege that it has or may have
under the terms of this Agreement operate as a waiver of any right,
power, or privilege.
9.9 Integration and interpretation. This Agreement contains the full
understanding of Bose and TouchTunes with respect to the development,
purchase, and sale of Jukeboxes and supersedes all prior agreements,
covenants, arrangements, communications, representations,
understandings, or warranties, whether oral or written by or between
the parties relating to the subject matter hereof. In the event of
any inconsistency between the terms of this Agreement and any
purchase order, invoice, or any other written instrument given
hereunder, the terms of this Agreement shall control.
9.10 Amendments. No waiver, alteration, modification, or amendment of any
provisions of this Agreement or any Purchase Order hereunder shall be
binding unless made in writing and signed by authorized
representatives of both TouchTunes and Bose.<PAGE>
9.11 Expenses. Except as otherwise provided in this Agreement, each party
shall be responsible for its own costs and expenses in performing its
obligations under this Agreement.
9.12 Captions. Captions or section headings contained in this Agreement
are for convenience of reference only, and in no way define or limit
the scope of the provisions contained herein.
9.13 Counterparts. This Agreement may be executed in two Counterparts,
both of which together shall constitute one agreement binding on all
parties.
9.14 Exclusivity. Bose and TouchTunes agree that, for the term of this
Agreement, neither party shall contract with a third party to
manufacture or purchase jukeboxes which contain a similar system to
the system contemplated under this Agreement. Bose agrees that it
shall use its best efforts to prevent the use of the Bose trademark
on any other jukebox product. Both parties acknowledge and agree
that Bose products are available on the open market and may be
incorporated into jukeboxes without the knowledge or consent of Bose.
EXECUTED as a sealed instrument as of the date first indicated above.
TECHNICAL MAINTENANCE CORP. TOUCHTUNES, INC.
Signature: /s/Tony Mastronardi Signature: /s/Tony Mastronardi
-------------------- --------------------
Name: Tony Mastronardi Name: Tony Mastronardi
------------------------- -------------------------
Title: CEO-President Title: President
------------------------- -------------------------
BOSE CORPORATION
Signature: /s/(Illegible)
--------------------
Name: (Illegible)
-------------------------
Title: General Manager
-------------------------<PAGE>
SCHEDULE A - PRODUCT DESCRIPTION
TOUCHTUNES DIGITAL JUKEBOX - A coin-operated jukebox that a customer interacts
with using a user-friendly touch screen interface. Jukebox operators will be
able to "order" on a 24-hour basis, any individual music title including the
newest releases from a remote central library. The selection will be
immediately "delivered" via TouchTunes proprietary telecommunications
downloading network and stored within the memory of the jukebox on location.
At a 11:1 compression ratio, 500 songs are planned to be stored on a 1 GB PC.
Future plans call for a 22:1, or 1000-tune capacity PC. Quality sound will be
delivered via a Bose-powered speaker system, integrated into the actual jukebox
design. The jukebox will incorporate a TouchTunes, Sound by Bose logo.<PAGE>
SCHEDULE B - PRODUCTION SYSTEMS PRICING
To be determined<PAGE>
SCHEDULE C - PROTOTYPE PART LIST
Prototype Production
TouchTunes and Bose agree to procure prototypes parts as defined on Schedule C
as follows and deliver them to a specified Bose location in accordance with the
prototype schedule.<PAGE>
Exhibit 10. (xvii) Jukebox License Office Certificate,
Dated March 11, 1997<PAGE>
JUKEBOX LICENSE OFFICE
Thank you for your payment of 1997 license fees. Below are important
facts concerning your Jukebox License Office (JLO) Certificates and other
materials enclosed.
CERTIFICATES:
- - To be properly licensed with the JLO, a certificate must be displayed in each
jukebox own/operate and make available for public performance. The certificate
should be located in the title strip holder of the jukebox.
- - A certificate should be displayed by April 1, 1997 or within 20 days of the
issuance date, whichever is later.
- - All 1997 certificates expire on December 31, 1997.
ADDITIONAL CERTIFICATE REQUEST SCHEDULE A:
- - Use this form if you need additional JLO Certificates throughout calendar
year 1997. Remember, additional boxes are billed at the cumulative rate of
boxes currently licensed. For example if you have already licensed 3
jukeboxes, the next additional certificate would cost $59.
JUKEBOX LICENSE AGREEMENT
- - If this is your first time filing with the JLO, an executed Jukebox License
Agreement is enclosed. Save this Agreement. The JLO also has a copy on file.
QUESTIONS OR COMMENTS:
- - Call or write the JLO. We can be reached at:
JUKEBOX LICENSE OFFICE
1740 Broadway, 2nd Floor
New York, NY 10019-4315
800-955-JUKE
Your package was reviewed by /s/Karen Faccione on 3/11/97
1740 BROADWAY, 2nd FLOOR, NEW YORK, NEW YORK 10019-4315 212 581-0190 800-955-
JUKE FAX 212 956-1214<PAGE>
1997 Additional Certificate Request
SCHEDULE A
STATEMENT OF JUKEBOXES OWNED OR OPERATED AND MADE AVAILABLE FOR PUBLIC
PERFORMANCE
< ACCOUNT # 007784 >
< Please make any >
< address changes below>
TOUCHTUNES JUKEBOX INC.
TONY MASTRONARDI
1 COMMERCE PLACE, SUITE 330
MONTREAL, QC H3E 1A2
Phone: (514)762-6244
Boxes Currently Licensed: 20
Number of 1997
Additional Fee Per
Jukeboxes Jukebox Total
2nd - 10th
Jukeboxes X $59 =
---------- ----------
11th and above
Jukeboxes x $49 =
---------- ----------
Number of
Additional Jukeboxes License Fees Paid $
---------- ----------
CERTIFICATION
I hereby certify that the foregoing Statement of
Jukeboxes Owned or operated and Made Available
for Public Performance is true and correct as of
this _____, 19__ and permit LICENSOR to disclose
the information contained herein as necessary to
verify the jukebox rates calculated in accordance
with Schedule B.
By:
-----------------------------
* Future license fees are subject to change in accordance with Schedule B.
Make Checks Payable to:
Jukebox License Office
1740 Broadway
2nd Floor
New York, NY 10019-4315
(800)955-5853 or (212)581-0190<PAGE>
3/11/97 CERTIFICATE NUMBERS ASSIGNED Page 1
Certificate Operator Name Operator Date Issued
- -------- ------------------------------ --------- -----------
7016050 TOUCHTUNES JUKEBOX INC. 007784 3105197
7016051 TOUCHTUNES JUKEBOX INC. 007784 3105197
7016052 TOUCHTUNES JUKEBOX INC. 007784 3105197
7016053 TOUCHTUNES JUKEBOX INC. 007784 3105197
7016054 TOUCHTUNES JUKEBOX INC. 007784 3105197
7016055 TOUCHTUNES JUKEBOX INC. 007784 3105197
7016056 TOUCHTUNES JUKEBOX INC. 007784 3105197
7016057 TOUCHTUNES JUKEBOX INC. 007784 3105197
7016058 TOUCHTUNES JUKEBOX INC. 007784 3105197
7016059 TOUCHTUNES JUKEBOX INC. 007784 3105197
7016060 TOUCHTUNES JUKEBOX INC. 007784 3105197
7016061 TOUCHTUNES JUKEBOX INC. 007784 3105197
7016062 TOUCHTUNES JUKEBOX INC. 007784 3105197
7016063 TOUCHTUNES JUKEBOX INC. 007784 3105197
7016064 TOUCHTUNES JUKEBOX INC. 007784 3105197
7016065 TOUCHTUNES JUKEBOX INC. 007784 3105197
7016066 TOUCHTUNES JUKEBOX INC. 007784 3105197
7016067 TOUCHTUNES JUKEBOX INC. 007784 3105197
7016068 TOUCHTUNES JUKEBOX INC. 007784 3105197
7016069 TOUCHTUNES JUKEBOX INC. 007784 3105197<PAGE>
Exhibit 10. (xviii) Jukebox License Agreement with the
American Society of Composers Authors and Publishers,
Broadcast Music Inc. and SESAC, Inc.,
Dated March 11, 1997<PAGE>
JUKEBOX LICENSE AGREEMENT
AGREEMENT between AMERICAN SOCIETY OF COMPOSERS, AUTHORS AND PUBLISHERS,
BROADCAST MUSIC, INC. and SESAC, INC. (collectively "LICENSORS"), located at
1740 Broadway, 2nd Floor, New York, New York 10019 and:
TOUCHTUNES JUKEBOX INC.
- ------------------------
(legal name)
("LICENSEE") located at
1 COMMERCE PLACE, SUITE 330, MONTREAL, QUEBEC H3E 1A2
- ------------------------------------------------------------------------
(address)
as follows:
1. Grant and Term of License
(a) LICENSORS grant and LICENSEE accepts for a term of one year (the
"Initial Term"), commencing as of January 1, 1996 and continuing thereafter for
additional terms of one year each (the "Renewal Term") unless terminated by
either party as hereinafter provided, a license to perform publicly by the
"coin-operated phonorecord players" ("jukeboxes") specified in Schedule "A",
annexed hereto and made a part hereof, as said Schedule may be amended as
hereinafter provided, and not elsewhere or by any other means, non-dramatic
renditions of all of the separate musical compositions now or hereafter during
the term hereof in the repertories of LICENSORS and of which LICENSORS shall
have the right to license such performing rights.
(b) LICENSEE agrees to notify LICENSORS and to submit appropriate payment
within 30 days after making any additional jukebox(es) available for public
performance, and Schedule "A" shall thereafter be deemed amended to such
additional jukebox(es). This Agreement shall inure to the benefit of and shall
be binding upon the parties hereto their respective successors and assigns, but
no assignment shall relieve the parties hereto of their respective obligations
hereunder as to performances rendered, acts done and obligations incurred prior
to the effective date of the assignment.
(c) Either party may, on or before thirty days prior to the end of the
initial term or any renewal term, give notice of termination to the other. If
such notice is given, the agreement shall terminate on the last day of such
initial or renewal term.
2. Limitations on License
(a) This license covers only "coin-operated phonorecord players," as
defined in 17 U.S.C. S116(e)(1) on January 1, 1990. This license does not
cover video jukeboxes.
(b) This license does not authorize the broadcasting, telecasting or
transmission by wire or otherwise, of renditions of musical compositions in
LICENSORS' repertories to persons outside of the establishment where the
jukebox is located.
3. License Certificate
(a) Upon LICENSORS' receipt of LICENSEE's executed Jukebox License
Agreement and payment of each year's license fees hereunder, LICENSORS shall
issue LICENSEE an annual license certificate for each jukebox covered by the
Jukebox License Agreement.<PAGE>
(b) The license certificate must be displayed by April 1 of each year, or
20 days after the issuance date, whichever is later.
(c) The license certificate must be displayed in the title strip holder of
the jukebox. For hideaway jukeboxes (multiple mailbox units), the certificate
must be displayed on the title strip holder of the wallbox closest to the
cashier or to the entrance to the establishment where such hideaway jukebox is
located. A license certificate may be transferred by LICENSEE from a jukebox
that is temporarily or permanently removed from public performance to one that
is placed into service for public performance.
(d) If no certificate is affixed to the title strip holder in accordance
with paragraphs 3(b) and (c), the jukebox shall be deemed unlicensed, and all
performances of copyrighted musical works in the repertories of LICENSORS given
means of said Jukebox shall be deemed to be copyright infringements.
(e) The license certificates issued to LICENSEE are only valid for
jukebox(es) owned or operated by the LICENSEE. If the LICENSEE has permitted a
jukebox license obtained in LICENSEE's name to be used on a jukebox not owned
or operated by LICENSEE, LICENSORS may in their sole discretion terminate all
other licenses held by that LICENSEE for the remainder of the year for which
the licenses were issued.
4. License Fee
(a) In consideration of the license granted herein, LICENSEE agrees to pay
LICENSORS by March 15, or 30 days after making the jukebox(es) available for
public performance, whichever is later, the applicable license fee set forth in
the Schedule "B" annexed hereto and made part hereof, based on the number of
Jukeboxes owned or operated by LICENSEE. Payments received after the due date
shall incur a finance charge at the rate of 1-1/2% per month.
(b) There shall be a charge of $25.00 for any check returned unpaid for
any reason. If any of LICENSEE's checks shall be returned unpaid, LICENSEE
shall thereafter pay all license fees due by certified check.
(c) LICENSEE warrants that the Schedule "A" annexed hereto is true and
correct and will be kept current during the term of this license.
5. Breach or Default
Upon any breach or default by LICENSEE of any term or condition herein
contained, LICENSORS may terminate this license by giving LICENSEE thirty days
notice to cure such breach or default, and in the event that such breach or
default has not been cured within said thirty days, this license shall
terminate on the expiration of such thirty-day period without further notice
from LICENSORS.
6. Indemnification
LICENSORS agree to indemnify, hold harmless and defend LICENSEE, its
officers and employees, from and against any and all claims, demands or suits
that may be made or brought against them or any of them with respect to the
non-dramatic public performance of any material licensed under this Agreement
and performed over a jukebox licensed under this Agreement. Such indemnity
shall be limited to the works which are licensed by LICENSORS at the time of
LICENSEE's performances. LICENSEE agrees to give LICENSORS immediate notice of
any such claim, demand, or suit, to deliver to LICENSORS any papers pertaining
thereto and to cooperate with LICENSORS with respect (hereto, and LICENSORS
shall have full charge of the defense of any such claim, demand or suit.
7. Notices
All notices required or permitted hereunder shall be given in writing by
certified United States mail sent to either party at the address stated above.
Each party agrees to inform the other of any change of address and, in the case
of a sale or transfer of the business or jukebox(es), of the name, address,<PAGE>
including, city, state, and zip code, of the new owner and the date of the
transfer.
IN WITNESS WHEREOF, this Agreement has been duly executed by LICENSORS and
LICENSEE this 12th day of September, 1996.
LICENSORS: JUKEBOX LICENSE OFFICE LICENSEE: TOUCHTUNES JUKEBOX INC.
----------------------- -------------------------
BY /s/(Illegible) BY /s/Tony Mastronardi
------------------------------- -------------------------------
TITLE: President
---------------------------
(Fill in capacity in which signed:
(a) If corporation, state corporate
office held;
(b) If partnership, write word
"partner" under signature of signing
partner;
(c) If individual owner, write
"individual owner" under signature.)<PAGE>
Exhibit 23. (i) Consent of Armstrong Gilmour, Accountancy
Corporation, independent certified public accountants<PAGE>
Armstrong Gilmour
- -------------------------------------------------------------------------------
Accountancy Corporation Certified Public Accountants and Business Consultants
Consent of Independent Certified Public Accountants
The Board of Directors and Stockholders
Technical Maintenance Corporation:
We consent to incorporation by reference in the registration statement on Form
SB-2 Registration #333-7006) of Technical Maintenance Corporation (A
Development Stage Company) of our report dated March 28, 1997, relating to the
balance sheets of Technical Maintenance Corporation as of December 31, 1996 and
1995, and the related statements of operations, stockholders' equity (deficit)
and cash flows for each of the years in the three-year period ended December
31, 1996, which report appears in the December 31, 1996, annual report on Form
10-K of Technical Maintenance Corporation.
/s/Armstrong Gilmour
Accountancy Corporation
Walnut Creek, California
September 2, 1997<PAGE>
