U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
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Commission File No. 333-7006
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TECHNICAL MAINTENANCE CORPORATION
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(Name of small business issuer in its charter)
Nevada 87-0485304
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
1800 E. Sahara, Suite 107
Las Vegas, Nevada 89104
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(Address of principal executive offices, including zip code)
Issuer's telephone number, including area code (702)-734-7557
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Issuer's facsimile number, including area code (702)-734-7500
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Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Class A Common Stock (Par Value $.001 per share)
------------------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. (x) Yes ( ) No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part 1II of this Form 10-KSB or any
amendment to this Form 10-KSB. ( )
The issuer's revenues for its most recent fiscal year were $ -0-.
The aggregate market value for the voting and non-voting common equity held by
non-affiliates on March 31, 1998 was approximately $13,920,066.
The total number of shares of Class A Common Stock outstanding on March 31,
1998 was 14,658,644.<PAGE>
PART I
ITEM 1. Description of Business
(a) Organization and Technology.
The Registrant was incorporated under the laws of Nevada on August 9, 1990
by persons no longer principals. Prior to December 8, 1994, the Registrant did
not engage in any business activities. The Registrant is still in the
development stage and has not generated any revenues from the business
operations in which it is engaged and the marketing strategy it has developed.
During 1997, the Registrant employed a total of 12 persons.
On December 8, 1994, the Registrant acquired the exclusive rights to a
newly patented technology for a Digital Jukebox (the "Digital Jukebox"). Since
then, the Registrant has concentrated all of its efforts on the development and
marketing 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. The Registrant has incurred a total of $1,236,390 in
research and development costs relating to the Digital Jukebox from December 8,
1994 through December 31, 1997.
The core of the Digital Jukebox 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 750 songs, upgradable to virtually unlimited capacity. The Digital Jukebox
is also equipped with a telecommunication protocol allowing the downloading of
music to each individual 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 proprietary software program, the Digital
Jukebox outperforms any conventional jukebox on the market today, for
simultaneous sound reproduction, graphics display, video animation and
telecommunication services.
The Digital Jukebox is specifically designed for use in the jukebox
industry. The operating software will account for all songs played and
automatically generate detailed pay-for-play statements indicating royalty
amounts owing to each respective record company. This feature helped the
Registrant obtain performance rights and recording rights for a market trial of
the Digital Jukebox conducted in 1997, from performance rights societies and
record companies, authorizing the Registrant to reproduce and play copyrighted
music on its Digital Jukebox units. 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 Registrant
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.
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(b) Patents.
To protect its technology, the Registrant has filed nine international
patent applications. Seven of these patent applications have a priority date of
October 12, 1994. The eighth patent application has a priority date of
September 25, 1996, and the ninth patent application has a priority date of
September 26, 1997. Four patent applications cover the Registrant's
downloading network configuration, operating system technology, title selection
and system control methodology as it applies to the jukebox sector. Another
four patent applications cover its application to potential markets outside the
jukebox industry (residential and other markets) which can be serviced by the
same network configuration. The ninth patent application covers the digital
technology applicable to wireless speakers. 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
Registrant is not aware of any conflicting patents held by others.
(c) Promotion and Marketing.
To promote the Digital Jukebox, the Registrant participated in the
Amusement Showcase International trade show held in Las Vegas from March 13
through March 15, 1997, which attracts most major participants in the coin
operated industry. For this, the Registrant arranged the construction of four
prototype Digital Jukeboxes. Bose Corporation ("Bose"), which manufactured the
prototypes for the Registrant, supplied its sound system. The Registrant also
attended the Amusement & Music Operators Association (AMOA) exposition in
Atlanta, Georgia during October 1997. The AMOA is the national association of
operators for coin-operated machines. At this exposition, interest in the
Digital Jukebox units was greatest and the Registrant obtained its largest
number of preliminary orders for such units from jukebox operators.
During 1997, the Registrant delivered twenty prototype units of the
Digital Jukebox to selected jukebox operators in major cities throughout the
United States, for the purpose of conducting a market trial. The trial was
conducted in collaboration with MCI Telecommunications Corporation ("MCI"),
which provided 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 also provided financial and technical
resources relating to the engineering and manufacturing of the twenty Digital
Jukebox prototypes for use in conducting this commercial market trial. The
market trial was conducted from May through August 31, 1997. The objectives of
the trial were to: gage receptivity of the concept by all end users; test the
downloading software; ensure accountability of downloaded and pay-for-play
musical numbers; gather information for the final design and accessories of
Digital Jukebox production units; test the reliability of the supplier-
furnished hardware items; and compare the revenue potential of the Digital
Jukebox with traditional jukeboxes. Information gathered during the trial has
been used to improve the Digital Jukebox and to further negotiations with
record label companies.
The Registrant's marketing and distribution strategies are aimed at
penetrating the jukebox industry through individualized arrangements with
existing jukebox operators. The Registrant proposes to arrange for renewal and
payment of licensing fees to the performing rights societies, accountability
and disbursements of royalty payments to the record label companies, ongoing
provision for music selections and the manufacture and delivery of the Digital
Jukeboxes to the jukebox operators. In consideration for this, the Registrant
proposes to share the revenue derived from the operation of Digital Jukeboxes
with jukebox operators under individualized "partnership leasing" arrangements.
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Although the Registrant has received preliminary orders from jukebox operators
for more than 2,000 Digital Jukeboxes on this basis, these orders are subject
to entering into definitive agreements with record label companies for the
right to play their music; finalizing terms of partnership lease arrangements
with the jukebox operators; and their satisfaction with the Digital Jukebox
units to be manufactured and delivered. There can be no assurance that this
strategy will be successful or profitable to the Registrant.
(d) Manufacturing, Assembling and Distribution.
The Registrant is still negotiating with record label companies for the
right to play their music based on a pay-per-play royalty fee structure. There
can be no assurance that it will obtain these rights on terms favorable to the
Registrant. Nevertheless, the Registrant has entered into an agreement with
Bose for the commercial manufacturing of the Digital Jukeboxes. Bose has
agreed to produce such units beginning in May 1998, at quantities to be
mutually agreed upon. The Registrant has also entered into an agreement with
146473 Canada Inc. ("Microsource") to supply assembled and tested computer
units for installation in Digital Jukebox units manufactured by Bose. The
quantity of computer units supplied by Microsource will coincide with the
Digital Jukebox manufacturing schedule of Bose. The Registrant also entered
into an agreement with MCI Telecommunications Corporation ("MCI") for a one
year term by which MCI has agreed to host and maintain the central server,
which will store all the music data. MCI has also agreed to provide
telecommunication facilities for transmitting the compressed music data to the
Digital Jukebox units across the United States.
From the indications of interest received thusfar, the Registrant
estimates that between 4,000 and 6,000 Digital Jukebox units can be
manufactured, assembled and delivered to jukebox operators under its proposed
partnership lease arrangements over an eighteen month period commencing July
1998. There can be no assurance that the Registrant will be able to
successfully conclude its pending arrangements with record label companies for
the use of their music; conclude partnership leasing agreements with jukebox
operators for their use of the Digital Jukeboxes; or finance the substantial
costs needed to manufacture, assemble, distribute and operate such Digital
Jukebox units on a commercially profitable basis.
(e) 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 in
the manner being proposed by the Registrant. Through their distribution
network, manufacturers sell their equipment, usually in bulk quantities, to
local distributors. All of these manufacturers have far greater experience
than the Registrant.
Competition for the Registrant'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 Registrant 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 Registrant.
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(f) Funding of the Registrant's Operations.
From December 1994 until March 1997, officers and principal shareholders
of the Registrant financed its operations primarily through their own
resources. On March 21, 1997, two independent Canadian Investors, Societe
Innovatech du Grand Montreal and Sofinov Societe Financiere D'Innovation Inc.
(the "Canadian Investors"), agreed to invest $4,000,000 Canadian Dollars (CDN)
for the development and promotion of the Registrant's Digital Jukebox, upon
certain terms and conditions. To accomplish this, the Canadian Investors
agreed to invest $4,000,000 CDN in TouchTunes Digital Jukebox Inc.
("TouchTunes"), a Canadian company jointly controlled by the Registrant and the
Canadian Investors, which was organized by the Registrant specifically for that
purpose. The Registrant contracted out to TouchTunes the research and
development work needed for the Digital Jukeboxes and to provide all such
additional services reasonably requested by the Registrant in connection with
the implementation of the Digital Jukebox project.
The Canadian Investors initially 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 consideration of $3,400,000 CDN. Both the Class C shares and the
$3,400,000 CDN were deposited in escrow. The Class B and the Class C shares of
TouchTunes may be exchanged at the option of the Canadian Investors, into
2,000,000 shares of Series A Preferred Stock of the Registrant and then
converted share for share into Common Stock. Subsequently, on May 9, 1997, the
Canadian Investors 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. Finally, on July 17, 1997, the Canadian Investors released the
remaining $2,650,000 CDN to TouchTunes against delivery to them of the
remaining 530 Class C shares of TouchTunes. These funds have been used to
implement the start-up business activities of the Registrant.
The Registrant is the owner of 800 Class A shares of TouchTunes. As a
result of the foregoing transactions, the Canadian Investors own 100 Class B
shares and 700 Class C shares of TouchTunes. The Class A shares entitle the
holder to one vote per share. The Class B shares entitle the holder to eight
votes per share and the Class C shares are non-voting. Therefore, the
Registrant and the Canadian Investors have equal voting rights in TouchTunes.
On February 11, 1998, the Canadian Investors subscribed for a principal
amount of $4,000,000 (US) of debentures ("Debentures") issued by TouchTunes.
The Debentures are payable by TouchTunes on demand, only after the occurrence
of an event of default as defined by the subscription agreement. They bear
interest at the rate of 12% per annum, payable in one single installment,
concurrently with the payment of the principal amount of the Debentures. At
any time prior to February 11, 1999, TouchTunes has the right to require the
Canadian Investors to purchase additional Debentures, up to an additional
principal amount of $6,000,000 (US), bearing the same terms and conditions, in
six increments of $1,000,000 each.
On that same date, February 11, 1998, the Registrant entered into a
"Debenture Put Right Agreement" with the Canadian Investors, providing them
with the right and option to require the Registrant to purchase all or any part
of the principal amount of Debentures they have acquired (up to $10,000,000 in
principal amount), at an exchange rate of $2.00 per share, for the issuance by
the Registrant of up to 5,000,000 shares of Series A Preferred Stock,
convertible at the option of the holders, share for share, into an aggregate of
up to 5,000,000 shares of the Registrant's Common Stock.
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Based on the present number of shares of the Registrant's Common Stock
issued and outstanding (14,658,644 shares), upon the exchange by the Canadian
Investors of their TouchTunes Class B and Class C Shares for Series A Preferred
shares of the Registrant and the conversion of such Series A Preferred shares
into 2,000,000 shares of the Registrant's Common Stock, the Canadian Investors
will own approximately 12% of the Common Stock of the Registrant. Upon the
exchange of their $4,000,000 principal amount of Debentures into an additional
2,000,000 shares of the Registrant's Series A Preferred Stock and their
conversion of such Series A Preferred shares into the Registrant's Common
Stock, the Canadian Investors will own approximately 21.437% of the
Registrant's Common Stock. This would increase to approximately 32.32% if the
Canadian Investors are required to purchase the entire $10,000,000 principal
amount of Debentures and convert all their securities of TouchTunes into shares
of Common Stock of the Registrant.
On February 11, 1998, the Registrant and the Canadian Investors amended
and restated their Shareholders' Agreement of March 21, 1997. Among other
things, the Amended and Restated Agreement provides that the Canadian Investors
collectively are entitled to two seats on the Registrant's Board of Directors,
which shall consist of at least six directors.
Based on the Registrant's estimate that it can partnership lease between
4,000 and 6,000 Digital Jukebox units to prospective jukebox operators over a
period of eighteen months commencing July 1998, the Registrant must raise
between $20,000,000 and $30,00,000 (US) for the manufacturing and distribution
costs of such units. While the Registrant is negotiating with financial
institutions for such funds, there can be no assurances that will be able to
raise this on terms satisfactory to the Registrant, or at all. Nor can there
be any assurances that the Registrant will interest enough jukebox operators to
enter into partnership lease arrangements of this nature. Finally, there can
be no assurances that even if all these events take place, the operations of
the Registrant will prove commercially profitable.
ITEM 2. Description of Property
The Registrant owns no real estate. Its operations are conducted through
TouchTunes, its jointly owned subsidiary. Prior to March 1, 1998, TouchTunes
was party to a three year lease, commencing May 1, 1997, for 3,933 square feet
of office space at 1 Commerce Place Nun's Island, Verdun (Quebec) Canada, H3E
1A2. The annual minimum rent was $76,483 (CDN) payable in monthly
installments. Effective March 1, 1998, TouchTunes entered into a new lease
with the same landlord (thereby replacing the above lease) for a term of 10
years. The new premises comprise 13,724 square feet of office space at 3
Commerce Place, Nun's Island, Verdun, (Quebec) Canada, H3E 1H7, 4th floor. The
annual minimum rental is $233,308 (CDN).
The Registrant also has a lease for 3,934 square feet of office space at
1110 Cook Road, Suite 100, Buffalo Grove, Illinois 60089, at an annual rental
of $65,000 (US), for use as a sales and marketing office and its parts
distribution center, and a lease for an office at 1800 E. Sahara, Suite 107,
Las Vegas, Nevada, at a nominal annual rental.
ITEM 3. Legal Proceedings
As of December 31, 1997, to the knowledge of the Registrant, neither the
Registrant nor any of its officers or directors, was a party to any material
legal proceeding or litigation, which would impact the operations of the
Registrant.
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ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
ITEM 5. Market for Common Equity and Related Stockholder Matters
(a) Market for Common Stock
The Registrant'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.
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
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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 $1.00 $3.50 $1.968
September 30
October 1 through $1.968 $1.562 $2.062 $1.875
December 31
On March 31, 1998, closing bid and asked prices of the Common Stock on the
OTC Bulletin Board were $3.875 and $4.25 per share, respectively. On that
date, there were approximately 500 holders of record of the Common Stock.
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(b) Recent Sales of Unregistered Securities
In the past three years, the 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.
On March 6, 1995, the Registrant 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 Registrant. The
10,000,000 shares were acquired for investment by such persons, none of whom is
a resident or citizen of the United States.
During December 1995, the Registrant 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 the 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 Registrant, in
consideration for operating money advanced to the Registrant in the amount of
$300,000; 234,000 shares to TouchTunes Juke Box Inc., for services rendered to
the Registrant 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
Registrant. Oraxium International Inc. is a principal shareholder of the
Registrant. The 909,000 shares were acquired for investment by such persons,
none of whom is a resident or citizen of the United States.
On September 25, 1996, the Registrant 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
Registrant authorized the issuance of 400,000 shares of Common Stock to Oraxium
International Inc., in consideration for agreeing to extend the scope and
duration of a non-competition covenant given to the Registrant and 50,000
shares each, to Pierre Martineau and Sylvain Duchesne, employees of of
TouchTunes Juke Box Inc., in consideration for their non-compete covenants. On
December 27, 1996, the Registrant 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.
On April 1, 1997, the Board of Directors authorized the issuance of 56,820
shares of Common Stock to repay accounts payable totalling $85,230 and
authorized the issuance of 17,117 shares of Common Stock to a Director for
cash consideration of $31,565. These shares were issued on October 7, 1997 to
such two persons who acquired these shares for investment.
Reference is made to the transactions described in Item 1 (f) above,
between Societe Innovatech du Grand Montreal and Sofinov Societe Financiere
d'Innovation Inc. (the "Canadian Investors"); the Registrant; and TouchTunes
Digital Jukebox, Inc. ("TouchTunes") a Canadian company jointly controlled by
the Registrant and the Canadian Investors, which information is incorporated
herein by such reference. Based on the present number of shares of the
Registrant's Common Stock issued and outstanding (14,658,644 shares), upon the
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exchange by the Canadian Investors of their TouchTunes Class B and Class C
Shares for Series A Preferred shares of the Registrant and the conversion of
such Series A Preferred shares into 2,000,000 shares of the Registrant's Common
Stock, the Canadian Investors will own approximately 12% of the Common Stock of
the Registrant. Upon the exchange of their $4,000,000 principal amount of
Debentures into an additional 2,000,000 shares of the Registrant's Series A
Preferred Stock and their conversion of such Series A Preferred shares into the
Registrant's Common Stock, the Canadian Investors will own approximately
21.437% of the Registrant's Common Stock. This would increase to approximately
32.32% if the Canadian Investors are required to purchase the entire
$10,000,000 principal amount of Debentures and convert all their securities of
TouchTunes into shares of Common Stock of the Registrant.
ITEM 6. Management's Discussion and Analysis or Plan of Operation
(a) Plan of Operations
Management believes the Registrant's on-going development of the Digital
Jukebox provides it with opportunities for future financial success. To date,
the Registrant's financial resources have been used primarily to finance
development and professional costs relating to the patent applications in
connection with the Digital Jukebox. From the indications of interest received
thusfar, the Registrant estimates that between 4,000 and 6,000 Digital Jukebox
units can be manufactured, assembled and delivered to jukebox operators under
its proposed partnership lease arrangements over an eighteen month period
commencing July 1998 (see Item 1(c) "Promotion and Marketing"). The Registrant
has generated no revenue to date, and none is expected until it concludes the
start-up phase for the Digital Jukebox, which is now anticipated in July 1998.
There can be no assurance that this marketing strategy will be successful or
profitable to the Registrant.
(b) Seasonality
Management is not aware of any factors or attributes relating to the
Registrant's business that have caused, or in the future are reasonably likely
to cause, any seasonality which would have a material effect on the
Registrant's financial condition or results of operations.
(c) Liquidity and Capital Resources
On March 21, 1997 and February 11, 1998, the Canadian Investors agreed to
invest $4,000,000 (CDN) and $10,000,000 (US) for the further development and
promotion of the Digital Jukebox, upon certain terms an conditions previously
described. (See Item 1(f) "Funding of the Registrant's Operations"). This
will supply the Company with sufficient capital resources necessary to conclude
the financing of its start-up activities, and commence commercial operations.
Based on the Registrant's estimate that it can partnership lease between 4,000
and 6,000 Digital Jukebox units to prospective jukebox operators over a period
of eighteen months commencing July 1998, the Registrant must raise between
$20,000,000 and $30,00,000 (US) for the manufacturing and distribution costs of
such units. The Registrant is negotiating with financial institutions for such
funds, however, there can be no assurances that it will be able to raise this
on terms satisfactory to the Registrant, or at all.
ITEM 7. Financial Statements
Attached is Appendix A containing the following information:
Independent Auditor's Report
Balance Sheet as of December 31, 1997 and 1996
Statement of Operations for the period of December 8, 1994 through
December 31, 1997
Statement of Stockholders' Equity (Deficiency) for the period of December
8, 1994 through December 31, 1997
Statement of Cash Flows for the period of December 8, 1994 through
December 31, 1997
Notes to Financial Statements
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ITEM 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Registrant has engaged the accounting firm of Ernst & Young to audit its
financial statements for the fiscal year ended December 31,1997, thereby
terminating the engagement of its prior auditor. The Board of Directors made
this decision to change the Registrant's auditors on February 25, 1998. The
principal accountant's report on the financial statements for either of the
past two years did not contain any adverse opinion, nor was it qualified or
modified as to uncertainty, audit scope, or accounting principles.
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act:
(a) Directors and Officers.
The executive officers and directors of the Registrant are listed below.
The term of each director is for one year.
Name Office Age
Tony Mastronardi Chief Executive Officer 37
President and Director
(Since December 1994)
Guy Nathan Senior Vice President,
Secretary, Director 54
(Since December 1994)
Tonino Lattanzi Vice President and Director 46
(Since December 1994)
Jacques Bourque Assistant Secretary 46
And Director
(Since March 1997)
Pierre Pharand Director 55
(Since March 1997)
Caroline Singleton Director 44
(Since February 1998)
Tony Mastronardi resides in Montreal, Canada. Between 1984 to 1994, Mr.
Mastronardi was 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. He completed his post-secondary school studies at Dawson College
in 1981.
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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 KV 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 Netubra,
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 Universite de Montreal in
1973 and was admitted to the Bar of the Province of Quebec in 1975. He also
holds a Masters in Business Administration from McGill University in 1977. Mr.
Bourque has 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 69 billion
dollars Canadian 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 Campagnie Generale D'Electricite de
France, where he was in charge of different subsidiaries.
Caroline Singleton is Project Director, Information Technology for Societe
Innovatech du Grand Montreal ("Innovatech"), a 350 million dollar high-
technology venture capital fund. Prior to joining Innovatech in 1997, Ms.
Singleton was president of Tordion Consulting Inc., a company specializing in
the management of high technology projects in Canada, the United States and the
Far East. She obtained a B.Sc. in Mathematics (Honours) from McGill University
in 1978 and during the course of her career has designed or managed state-of-
the-art software systems in many different areas including astrophysics,
electric power generation, telecommunications, banking and medical technology.
She currently serves on the Board of Directors of a number of leading edge
technology companies and professional organizations and is a former elected
member of the Canadian Executive Board of DECUS (The Digital Computer Users
Society), an international organization which at the time had 50,000 members
world-wide. Ms. Singleton resides in Montreal.
10 <PAGE>
(b) Section 16(a) Beneficial Ownership Reporting Compliance.
All reporting persons of the Registrant have filed the Forms 3 and 4
required by section 16(a) of the Exchange Act during the most recent fiscal
year or prior fiscal years. None of such filings was made timely. The
following are the number of reports and transactions filed late:
Tony Mastronardi: Form 3 and one Form 4
Guy Nathan: Form 3 and one Form 4
Tonino Lattanzi: Form 3 and one Form 4
Techno Expres, SA: Form 3
Jacques Bourque: Form 3
Pierre Pharand: Form 3
Caroline Singleton: Form 3
Andre Duquenne: Form 3*
_____________________
* Mr. Duquenne is no longer a director of the Registrant.
ITEM 10. Executive Compensation
Until January 1, 1997, the Registrant 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 Registrant. No remuneration was paid to the officers and
directors of the Registrant for the year ended December 31, 1996.
On March 11, 1997, the Registrant 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
Canadian. The salary was payable commencing January 1, 1997. Mr. Mastronardi
entered into a non-competition and confidentiality agreement with the
Registrant for as long as he remains in its employ and for an additional year
thereafter. The non-competition covenant will also continue for as long as Mr.
Mastronardi owns any shares, directly or indirectly, in the Registrant.
On March 11, 1997, the Registrant 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 favour of the Registrant on terms
identical to those of the non-competition and confidentiality agreement
executed by Mr. Mastronardi.
ITEM 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the beneficial stock
ownership of the Registrant's executive officers and directors and each person
known by the Registrant to own five percent or more of the outstanding shares
of its Common Stock as of March 31, 1998.
Name and Address Amount and Nature
of Beneficial Owner of Beneficial Percent of
Ownership Class
------------------------ ---------------------- ------------
Tony Mastronardi 10,001,920 shares (1) 68.23%
President, Director 866,825 shares (2) 5.91%
4973, Felix Mclernan
Pierrefonds, QC H8Y 3L2
11 <PAGE>
Guy Nathan 10,001,920 shares (1) 68.23%
Senior Vice President 866,825 shares (2) 5.91%
Secretary, Director
3555 Cote des Neiges, PH 17
Montreal, Quebec
H3H 1V2
Tonino Lattanzi 328,038 shares 2.24%
Vice President, Director 10,001,920 shares (1) 68.23%
12, rue Dubois 866,825 shares (2) 5.91%
92140 14,666 shares (3) 0.10%
Clamart France
Jacques Bourque 20,717 shares 0.14%
Director
770, Sherbrooke Street,
West
Suite 2300
Montreal, QC H3A IG1
All officers and 11,232,166 shares 76.625%
Directors as a group
(four persons)
Oraxium International 751,600 shares (4) 5.13%
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 Alfortville France, the owner of 10,001,920 shares of the Registrant'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 1 Commerce Place, Suite 330, Nuns Island (Quebec)
H3E 1A2, the owner of 866,825 shares of the Registrant'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 Registrant's Common Stock.
(4) Oraxium International Inc. is an independent corporation which acquired
901,600 shares of common Stock from the Registrant between December 1994 and
April 1997 for work involving the Digital Jukebox technology and software. The
Registrant has been informed that Oraxium International Inc. was organized
under the laws of Turks and Caicos Islands.
ITEM 12. Certain Relationships and Related Transactions.
(a) On September 25, 1996, the Registrant authorized the issuance of
900,888 shares of Common Stock to Touchtunes Juke Box Inc. for a cash
consideration of $477,470. On December 20, 1996, the Registrant authorized the
issuance of 400,000 shares of Common Stock to Oraxium International Inc., in
consideration for agreeing to extend the scope and duration of a non-
competition covenant given to the Registrant 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
12 <PAGE>
Registrant authorized the issuance of 199,819 shares of Common Stock to
Touchtunes Juke Box Inc. for a cash consideration of $420,698. On April 1,
1997, the Registrant approved the issuance of 17,117 shares to Jacques Bourque
for a cash consideration of $31,565. Jacques Bourque is a director of the
Registrant. 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 the
Registrant.
(b) Reference is made to the transactions described in Item 1 (f) above,
between Societe Innovatech du Grand Montreal and Sofinov Societe Financiere
d'Innovation Inc. (the "Canadian Investors"); the Registrant; and TouchTunes
Digital Jukebox, Inc. ("TouchTunes") a Canadian company jointly controlled by
the Registrant and the Canadian Investors, which information is incorporated
herein by such reference. Based on the present number of shares of the
Registrant's Common Stock issued and outstanding (14,658,644 shares), upon the
exchange by the Canadian Investors of their TouchTunes Class B and Class C
Shares for Series A Preferred shares of the Registrant and the conversion of
such Series A Preferred shares into 2,000,000 shares of the Registrant's Common
Stock, the Canadian Investors will own approximately 12% of the Common Stock of
the Registrant. Upon the exchange of their $4,000,000 principal amount of
Debentures into an additional 2,000,000 shares of the Registrant's Series A
Preferred Stock and their conversion of such Series A Preferred shares into the
Registrant's Common Stock, the Canadian Investors will own approximately
21.437% of the Registrant's Common Stock. This would increase to approximately
32.32% if the Canadian Investors are required to purchase the entire
$10,000,000 principal amount of Debentures and convert all their securities of
TouchTunes into shares of Common Stock of the Registrant.
(c) By reason of their respective stock ownership in Techno Expres, SA, a
French corporation; Touchtunes Juke Box Inc., a Canadian corporation; and
Neturba SRL, an Italian corporation, Messrs. Tony Mastronardi, Guy Nathan and
Tonino Lattanzi, officers and directors of the Registrant, may be deemed
"parents" of the Registrant. Reference is made to Item 11 above, for the
precise number of shares owned by each of them in each such corporation.
13 <PAGE>
ITEM 13. Exhibits and Reports on Form 8-K
Index To Exhibits
Exhibit
Number Description
- ------- -----------
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. Reference is made to Exhibit 3 (i) of
Registrant's Registration Statement on Form SB-2, File No. 33-7006,
which Exhibit is incorporated herein by reference.
4. Form of Registrant's Common Stock certificates. Reference is made to
Exhibit 3 (ii) of Registrant's Registration Statement on Form SB-2,
File No. 33-7006, which Exhibit is incorporated herein by reference.
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 Jukebox 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.
14 <PAGE>
10. (vii) Subscription Agreement for the purchase of 100 Class B shares and 20
Class C shares of TouchTunes Digital Jukeboxes Inc., 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. Reference is made to Exhibit 10(xv) of
Registrant's Registration Statement on form SB-2, File No. 33-7006,
which Exhibit is incorporated herein by reference.
10. (xvi) OEM Purchase and Development Agreement with Bose Corporation, dated
March 1997. Reference is made to Exhibit 10(xvi) of Registrant's
Registration Statement on Form SB-2, File No. 33-7006, which Exhibit
is incorporated herein by reference.
10. (xvii)Jukebox License Office Certificate, dated March11, 1997.
Reference is made to Exhibit 10(xvii) of Registrant's Registration
15 <PAGE>
Statement on Form SB-2, File No. 33-7006, which Exhibit is
incorporated herein by reference.
10.(xviii)Jukebox License Agreement with the American Society of Composers
Authors and Publishers, Broadcast Music Inc. and SESAC, Inc., dated
March 11, 1997. Reference is made to Exhibit 10(xviii) of
Registrant's Registration Statement on Form SB-2, File No. 33-7006,
which Exhibit is incorporated herein by reference.
10. (xix) Subscription Agreement dated February 11, 1998, by and among Societe
Innovatech du Grand Montreal, Sofinov Societe Financiere d'Innovation
Inc. and TouchTunes Digital Jukebox Inc. for the purchase of up to an
aggregate of $10,000,000 (US) Debentures. Reference is made to
Exhibit 2 of Registrant's Form 8-K for the month of February 1998,
which Exhibit is incorporated herein by reference.
10. (xx) Debenture Put Right Agreement dated February 11, 1998, by and among
Societe Innovatech du Grand Montreal, Sofinov Societe Financiere
d'Innovation Inc. and Technical Maintenance Corporation. Reference
is made to Exhibit 3 of Registrant's Form 8-K for the month of
February 1998, which Exhibit is incorporated herein by reference.
10. (xxi) Amended and Restated Shareholders' Agreement dated February 11, 1998,
by and among Techno Expres S.A., Societe Innovatech du Grand
Montreal, Sofinov Societe Financiere d'Innovation Inc. and Technical
Maintenance Corporation. Reference is made to Exhibit 4 of
Registrant's Form 8-K for the month of February 1998, which Exhibit
is incorporated herein by reference.
16. Letter from prior auditor, Armstrong Gilmour Accountancy Corporation,
relative to the information set forth in Item 4 of Registrant's Form
8-K/A for the month of February 1998, which Exhibit is incorporated
herein by reference.
27. Financial Data Schedule
16 <PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TECHNICAL MAINTENANCE CORPORATION
Dated: April 30, 1998 Per: /s/Tony Mastronardi
----------------------
Tony Mastronardi
President and Director
Dated: April 30, 1998 Per: /s/Guy Nathan
----------------------
Guy Nathan
Secretary and Director
17 <PAGE>
APPENDIX A
TECHNICAL MAINTENANCE CORPORATION
FINANCIAL STATEMENTS
INDEX
-------
Page
Independent Auditor's Report................................ (i)
Balance Sheet as of December 31, 1997 and 1996............. (ii)
Statement of Operations for the period of
December 8, 1994 through December 31, 1997................. (iii)
Statement of Stockholders' Equity (Deficiency)
For the period of December 8, 1994 through December 31, 1997 (iv)
Statement of Cash Flows for the period of
December 8, 1994 through December 31, 1997................. (vi)
Notes to Financial Statements.............................. (vii)
18 <PAGE>
FINANCIAL STATEMENTS
TECHNICAL MAINTENANCE CORPORATION
[A Development Stage Company]
December 31, 1997
ERNST & YOUNG
Membre d'Ernst & Young International, Ltd. / A member of Ernst & Young
International, Ltd.<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Technical Maintenance Corporation [A Development Stage Company]
We have audited the accompanying balance sheet of Technical Maintenance
Corporation (a development stage enterprise) as at December 31, 1997, and the
related statements of operations, stockholders' deficiency, and cash flows for
the year then ended, and for the period December 8, 1994 through December 31,
1997. 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. The financial statements as of December 31,
1996, and for the period December 8, 1994 through December 31, 1996, were
audited by other auditors whose report dated March 28, 1997 expressed an
unqualified opinion on those statements. The financial statements for the
December 8, 1994 through December 31, 1996 includes a net loss of $1,777,033.
Our opinion on the statements of operations, stockholders' deficiency, and cash
flows for the period December 8, 1994 through December 31, 1997, insofar as it
relates to amounts for prior periods through December 31, 1996, is based solely
on the report of other auditors.
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 misstatements. 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 and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Technical Maintenance Corporation, at
December 31, 1997 and the results of its operations and its cash flows for the
year then ended and the period December 8, 1994 through December 31, 1997, in
conformity with accounting principles generally accepted in the United States.
Montreal, Canada /s/Ernst & Young
April 3, 1998. Chartered Accountants
(i)
ERNST & YOUNG<PAGE>
<TABLE>
<CAPTION>
Technical Maintenance Corporation [A Development Stage Company]
BALANCE SHEETS
As at December 31
[in U.S. dollars]
<S> <C> <C>
1997 1996
$ $
- ---------------------------------------------------------------- ------------ -----------
ASSETS
Current
Cash 773 96
Prepaid expenses _ 21,306
- ---------------------------------------------------------------- ------------ -----------
Total current assets 773 21,402
- ---------------------------------------------------------------- ------------ -----------
Investment in jointly controlled company [note 2] 49,735 _
Fixed assets [note 3] 162,887 239,177
Non-competition agreement _ net of accumulated amortization
of $200,000 [1996 _ Nil] [note 5] 800,000 1,000,000
Patents _ net of accumulated amortization of $301,360
[1996 _ $154,567] [note 5] 558,309 453,693
- ---------------------------------------------------------------- ------------ -----------
1,571,704 1,714,272
- ---------------------------------------------------------------- ------------ -----------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Accounts payable 12,985 94,415
Accrued expenses 28,893 45,930
Accrued non-competition agreement obligations [note 5] _ 1,000,000
Advances from stockholders [note 5] 1,000 909,031
Due to jointly controlled company [notes 2 and 5] 2,484,397 _
- ---------------------------------------------------------------- ------------ -----------
Total current liabilities 2,527,275 2,049,376
- ---------------------------------------------------------------- ------------ -----------
Commitments [note 7]
Stockholders' deficiency
Series A preferred stock, $.001 par value
Authorized: 10,000,000 shares
Issued and outstanding: 100 [1996 - Nil] 1 _
Class A common stock, $.001 par value
Authorized: 25,000,000 shares
Issued and outstanding: 14,658,644 [1996 - 12,909,000] 14,659 12,909
Additional paid-in capital 3,483,382 1,430,020
Accumulated deficit (1,000) (1,000)
Deficit accumulated during the development stage (4,452,613) (1,777,033)
- ---------------------------------------------------------------- ------------ -----------
Total stockholders' deficiency (955,571) (335,104)
- ---------------------------------------------------------------- ------------ -----------
1,571,704 1,714,272
- ---------------------------------------------------------------- ------------ -----------
</TABLE>
See accompanying notes
On behalf of the Board:
Director Director
(ii)
<PAGE>
<TABLE>
<CAPTION>
Technical Maintenance Corporation [A Development Stage Company]
STATEMENTS OF OPERATIONS
Years ended December 31
<S> <C> <C> <C> <C>
Development
period
Dec. 8, 1994 -
1997 1996 1995 Dec. 31, 1997
$ $ $ $
- -------------------------------- ---------- ------------ ------------ --------------
Net sales - - - -
- -------------------------------- ---------- ------------ ------------ --------------
Operating expenses
Research and development 841,654 246,430 148,306 1,236,390
Professional and consulting
fees 590,799 223,899 289,619 1,104,317
Travel and transportation 219,953 116,126 147,559 483,638
Management fees 80,493 85,847 37,762 204,102
Selling and promotional
expenses 316,132 65,681 - 381,813
Office expenses 106,576 40,165 20,856 167,597
Rent expense 61,251 24,579 26,185 112,015
Depreciation 76,290 77,726 71,726 225,742
Amortization 346,793 111,517 43,050 501,360
Interest expense 84,790 _ _ 84,790
- -------------------------------- ---------- ------------ ------------ --------------
Net loss before share of
net income in jointly
controlled company 2,724,731 991,970 785,063 4,501,764
Share of net income in
jointly controlled
company [note 2] 49,151 _ _ 49,151
- -------------------------------- ---------- ------------ ------------ --------------
Net loss 2,675,580 991,970 785,063 4,452,613
- -------------------------------- ---------- ------------ ------------ --------------
Per common share [note 6]
Basic net loss per share 0.19 0.08 0.07 _
</TABLE>
See accompanying notes
(iii)
<PAGE>
<TABLE>
<CAPTION>
Technical Maintenance Corporation [A Development Stage Company]
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
Years ended December 31
Series A Class A
Preferred Common Stock
Stock
---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deficit
accumulated
Additional during the
paid-in Accumulated development
Shares Amount Shares Amount capital deficit period Total
$ $ $ $ $ $
- ------------------------------ ------- ------ ----------- ------- ----------- ----------- ------------- ------------
Balances, December 8, 1994 - - 2,000,000 2,000 62,539 (1,000) - 63,539
Issuance of common stock
November 24
$0.05 per share - - 10,000,000 10,000 490,000 - - 500,000
December 31
$0.70 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, December 31, 1995 - - 12,909,000 12,909 1,430,020 (1,000) (785,063) 656,866
Net loss - - - - - - (991,970) (991,970)
- ------------------------------ ------- ------ ----------- ------- ----------- ----------- ------------- ------------
Balances, December 31, 1996 - - 12,909,000 12,909 1,430,020 (1,000) (1,777,033) (335,104)
Issuance of preferred stock
March 15
$1.50 per share 100 1 - - 149 - - 150
</TABLE>
(iv)
<PAGE>
<TABLE>
<CAPTION>
Technical Maintenance Corporation [A Development Stage Company]
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) [Cont'd]
Years ended December 31
Series A Class A
Preferred Common Stock
Stock
-------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deficit
accumulated
Additional during the
paid-in Accumulated development
Shares Amount Shares Amount capital deficit period Total
$ $ $ $ $ $
- ------------------------------------ ------- ------- ------------ -------- ------------ ------------ ------------ ------------
Issuance of common stock
April 21
$0.529999 per share [see note 8] - - 900,888 901 476,569 - - 477,470
$0.533330 per share [see note 8] - - 75,000 75 39,925 - - 40,000
$2.000000 per share [see note 8] - - 500,000 500 999,500 - - 1,000,000
$2.105395 per share [see note 8] - - 199,819 200 420,498 - - 420,698
October 7
$1.50 per share [see note 8] - - 56,820 57 85,173 - - 85,230
$1.50 per share [see note 8] - - 5,337 5 8,000 - - 8,005
$2.00 per share [see note 8] - - 11,780 12 23,548 - - 23,560
Net loss - - - - - (2,675,580) (2,675,580)
- ------------------------------------ ------- ------- ------------ -------- ------------ ------------ ------------ ------------
Balances, December 31, 1997 100 1 14,658,644 14,659 3,483,382 (1,000) (4,452,613) (955,571)
- ------------------------------------ ------- ------- ------------ -------- ------------ ------------ ------------ ------------
</TABLE>
See accompanying notes
(v)
<PAGE>
<TABLE>
<CAPTION>
Technical Maintenance Corporation [A Development Stage Company]
STATEMENTS OF CASH FLOWS
Years ended December 31
<S> <C> <C> <C> <C>
Development
period
Dec. 8/94 -
1997 1996 1995 Dec. 31/97
$ $ $ $
- ------------------------------------------- ----------- ------------- ----------- ------------
OPERATING ACTIVITIES
Net loss (2,675,580) (991,970) (785,063) (4,452,613)
Adjustments to reconcile net loss to net
cash used by operating activities:
Share of net income from jointly
controlled company (49,151) - - (49,151)
Depreciation and amortization 423,083 189,243 114,776 727,102
Write-off of software development costs _ - 27,996 27,996
Changes in assets and liabilities:
Prepaid expenses 21,306 (21,306) - -
Accounts payable 3,800 61,475 32,940 98,215
Accrued expenses 22,963 45,930 - 68,893
- ------------------------------------------- ----------- ------------- ----------- ------------
Cash used in operating activities (2,253,579) (716,628) (609,351) (3,579,558)
- ------------------------------------------- ----------- ------------- ----------- ------------
INVESTING ACTIVITIES
Investment in jointly controlled company (584) - - (584)
Increase in costs of patents (251,409) (101,346) - (352,755)
Purchase of software - - (110,447) (110,447)
- ------------------------------------------- ----------- ------------- ----------- ------------
Cash used in investing activities (251,993) (101,346) (110,447) (463,786)
- ------------------------------------------- ----------- ------------- ----------- ------------
FINANCING ACTIVITIES
Due to jointly controlled company 2,484,397 - - 2,484,397
Advances from stockholders (9,863) 818,070 569,798 1,378,005
Proceeds from sale of common stock 31,565 - 150,000 181,565
Proceeds from sale of preferred stock 150 - - 150
- ------------------------------------------- ----------- ------------- ----------- ------------
Cash provided by investing activities 2,506,249 818,070 719,798 4,044,117
- ------------------------------------------- ----------- ------------- ----------- ------------
Increase in cash 677 96 - 773
Cash, beginning of year 96 - - -
- ------------------------------------------- ----------- ------------- ----------- ------------
Cash, end of year 773 96 - 773
- ------------------------------------------- ----------- ------------- ----------- ------------
Supplemental cash flow information
Interest paid - - - -
Income taxes paid - - - -
- ------------------------------------------- ----------- ------------- ----------- ------------
Non-cash investing and financing activities
The following were exchanged for common
stock:
Patents - - 500,000 500,000
Software - - 193,612 193,612
Advances from stockholders 898,168 - 534,778 1,432,946
Non-competition agreement 1,000,000 - - 1,000,000
Accounts payable 125,235 - - 125,235
- ------------------------------------------- ----------- ------------- ----------- ------------
2,023,403 - 1,228,390 3,251,793
- ------------------------------------------- ----------- ------------- ----------- ------------
Accrual of non-competition agreement - 1,000,000 - 1,000,000
- ------------------------------------------- ----------- ------------- ----------- ------------
</TABLE>
See accompanying notes
(vi)
<PAGE>
Technical Maintenance Corporation [A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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. 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's operating expenses have been funded by TouchTunes Digital
Jukebox, Inc. ["TouchTunes"], a jointly controlled Canadian entity [see note
2]. Substantially all of the developmental activities are conducted through
TouchTunes, for which the Company is charged all costs incurred in addition to
a 5% management fee.
Basis of presentation
Investments in which the Company exercises joint control are accounted for
using the equity method. Under this method, only the Company's share of net
income is recorded. Note 2 to the financial statements summarizes the effect
of the investments on the financial statements.
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 of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
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.
1<PAGE>
Technical Maintenance Corporation [A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Cont'd]
Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are
translated into U.S. dollars at rates of exchange prevailing at the balance
sheet date. Revenues and expenses are translated into U.S. dollars at rates of
exchange in effect at the related transaction dates. Exchange gains and losses
arising from the translation of foreign currency items are included in the
determination of net earnings.
Intangibles
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, 1997.
Patents
Patents consist primarily of processes and systems related to the operation of
a digital jukebox and the interactive program distribution for
telebroadcasting. In 1995, patents contributed by stockholders in exchange for
shares of common stock were valued at the shareholder's cost, which was
approximately $500,000.
The patents and the related intellectual property are amortized on a straight-
line basis over their estimated economic life of 5 years. The Company is in
the process of having these patents registered in various countries. Costs of
registering the patents, consisting primarily of legal fees, are capitalized as
part of the cost of the patents. In 1997, legal costs associated with the
registration of patents were approximately $251,000.
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 are amortized on a straight-line
basis over the five-year life of the agreements.
2<PAGE>
Technical Maintenance Corporation [A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Cont'd]
Currency of measurement
The currency of measurement used in the preparation of these financial
statements is the U.S. dollar.
Income taxes
The Company accounts for income taxes using the 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 during the year.
Reclassification
Certain 1996 balances have been reclassified to conform to the 1997
presentation.
2. INVESTMENT IN JOINTLY CONTROLLED COMPANY
On March 21, 1997, the Company acquired 800 shares of Class A common stock of
TouchTunes for a total consideration of $584.
The Company controls 50% of the votes of TouchTunes and has the ability to
elect 50% of the Board of Directors. Pursuant to an agreement with the other
50% shareholders of TouchTunes [the "Canadian Investors"], such shareholders
can exchange their Class B and Class C common shares in TouchTunes into shares
of the Company [see note 8] at any time. The Company would then own 100% of
TouchTunes.
TouchTunes' revenues are derived solely from development services provided to
the Company.
TouchTunes is involved in one litigation case, the outcome of which is not yet
determinable. However, based on information presently available, management
does not expect any material adverse result and feels the litigation is
groundless.
3<PAGE>
Technical Maintenance Corporation [A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
2. INVESTMENT IN JOINTLY CONTROLLED COMPANY [Cont'd]
This investment is accounted for on the equity basis. The following summarizes
the balance sheet of TouchTunes as at December 31:
$
- ----------------------------------------------------------------
Assets
Cash 99,718
Accounts receivable 37,602
Due from Technical Maintenance Corporation 2,484,397
Accounts receivable - shareholder of the Company 49,685
Accounts receivable - other 42,624
Prepaid expenses 131,985
Fixed assets 279,907
- ----------------------------------------------------------------
3,125,918
- ----------------------------------------------------------------
Liabilities
Accounts payable and accrued liabilities 135,507
Income taxes payable 95,383
- ----------------------------------------------------------------
230,890
- ----------------------------------------------------------------
In the event of the liquidation, dissolution or wind-up of TouchTunes, the
Canadian Investors shall be entitled to receive in preference to the Company's
Class A shareholders, an aggregate amount equal to $2,796,225 [CDN-$4,000,000].
For the period March 21, 1997 to December 31, 1997 the results of TouchTunes'
operations were as follows (in U.S. dollars):
$
- ----------------------------------------------------------------
Development fees 1,619,556
Expenses 1,373,515
- ----------------------------------------------------------------
Earnings from operations 246,041
Income taxes 101,127
- ----------------------------------------------------------------
Net earnings 144,914
- ----------------------------------------------------------------
Subsequent to year-end, TouchTunes entered into a capital lease agreement with
total future minimum lease payments of $402,258 [CDN - $575,477].
4<PAGE>
Technical Maintenance Corporation [A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
2. INVESTMENT IN JOINTLY CONTROLLED COMPANY [Cont'd]
TouchTunes occupies an office facility under an operating lease which expires
in 2008. Future minimum rental commitments are as follows:
$
- --------------------------------------------------------
1998 140,471
1999 168,561
2000 168,561
2001 168,561
2002 168,561
Thereafter 870,898
- --------------------------------------------------------
1,685,613
- --------------------------------------------------------
3. FIXED ASSETS
Fixed assets consist of the following as at December 31:
Accumulated Net book
Cost depreciation value
$ $ $
- --------------------------------------------------------
1997
Computer equipment 28,629 15,742 12,887
Computer operating system 360,000 210,000 150,000
- --------------------------------------------------------
388,629 225,742 162,887
- --------------------------------------------------------
1996
Computer equipment 28,629 11,452 17,177
Computer operating system 360,000 138,000 222,000
- --------------------------------------------------------
388,629 149,452 239,177
- --------------------------------------------------------
5<PAGE>
Technical Maintenance Corporation [A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
4. 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 which might offset the current loss carry-forward.
The Company has unrecognized net operating loss carry-forwards of approximately
$1,407,000 for U.S. federal income tax purposes, expiring as follows:
$
- --------------------------------------------------------
2006 1,000
2009 28,000
2010 290,000
2011 246,000
2012 842,000
- --------------------------------------------------------
1,407,000
- --------------------------------------------------------
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities as at December 31, 1997 are as
follows:
$
- --------------------------------------------------------
Net operating losses 478,736
Depreciation and amortization expense (58,236)
Capitalized start-up costs 1,082,637
Intercompany interest 28,829
- --------------------------------------------------------
1,531,966
Valuation allowance (1,531,966)
- --------------------------------------------------------
Total deferred tax assets (liabilities) _
- --------------------------------------------------------
6<PAGE>
Technical Maintenance Corporation [A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
5. RELATED PARTY TRANSACTIONS
The following transactions were concluded between the Company and its
shareholders:
Non-competition agreement
On December 20, 1996, the Company entered into a five-year non-competition
agreement with Oraxium International, Inc., which is a shareholder and the
supplier of the Company's computer operating system. The agreement takes
effect January 1, 1997 and provides a consideration of $800,000. 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. The shares were issued on April
21, 1997.
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 S.A. cost.
Expenses
Touchtunes Jukebox, Inc., a shareholder, 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 Jukebox, Inc. of $85,847 in 1996 and $38,762 in 1995 as a 15% mark-
up on actual costs.
In 1997, $1,365,937 [1996 - Nil, 1995 - Nil] were charged to the Company by
TouchTunes Digital Jukebox, Inc. for research and development and operating
expense reimbursements. Included in the reimbursements were fees to Touchtunes
Jukebox, Inc. of $80,493 [1996 - Nil, 1995 - Nil] as a 5% mark-up on actual
costs.
In 1995, Mr. Tonino Lattanzi, a shareholder 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.
Due to jointly controlled company
The balance of $2,484,397 [1996 - Nil] is due on demand and bears interest at
the Canadian prime rate plus 6%. At December 31, 1997, this rate was 12.25%.
7<PAGE>
Technical Maintenance Corporation [A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
5. RELATED PARTY TRANSACTIONS [Cont'd]
Amounts owed to stockholders
At December 31, 1996 and 1995, the Company owed Touchtunes Jukebox, Inc. a
shareholder, $908,031 and $87,861, respectively, for expense advances. The
advances were 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.
Included in accrued non-competition agreement obligations at December 31, 1996
is an $800,000 obligation to Oraxium International, Inc.
6. LOSS PER SHARE
1997 1996 1995
$ $ $
- -----------------------------------------------------------------------------
Numerator for basic loss per share -
income available to common shareholders 2,675,580 991,970 785,063
- -----------------------------------------------------------------------------
Denominator for basic loss per share -
weighted-average shares issued and
outstanding 14,092,327 12,909,000 10,535,844
- -----------------------------------------------------------------------------
Basic loss per share 0.19 0.08 0.07
- -----------------------------------------------------------------------------
7. COMMITMENTS
The Company occupies an office facility under an operating lease which expires
in 2003. Future minimum rental commitments are as follows:
$
- --------------------------------------------------------
1998 65,000
1999 70,000
2000 72,000
2001 74,000
2002 76,000
2003 6,000
- --------------------------------------------------------
363,000
- --------------------------------------------------------
8<PAGE>
Technical Maintenance Corporation [A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
8. CAPITAL STOCK
[a] The capital stock of the Company is comprised of the following:
Authorized
Class A common stock, $.001 par value, authorized -
25,000,000 shares. Each common share has the right to one
vote per share.
Series A preferred stock, $.001 par value, authorized -
10,000,000 shares. Each share of Series A preferred stock
can be converted into one share of Class A common stock at
the option of the holder. Each Series A preferred has the
right to one vote per share.
Issued
1997 1996
$ $
- ----------------------------------------------------------------------------
14,658,644 Class A common stock [1996 - 12,909,000] 14,659 12,909
100 Series A preferred stock [1996 - Nil] 1 _
- ----------------------------------------------------------------------------
14,660 12,909
- ----------------------------------------------------------------------------
The holders of the Class A common stock and Series A preferred stock are
entitled to receive any dividend or any distribution declared by the Company,
on an equal basis, without any distinction as to class.
[a] On September 25, 1996, the Board of Directors approved the issuance of
75,000 shares of Class A common stock to repay accounts payable of $40,000
which were issued on April 21, 1997.
[b] On September 25, 1996, the Board of Directors approved the issuance of
900,888 shares of Class A common stock to repay advances from stockholders
totalling $477,470 which were issued on April 21, 1997.
[c] On December 20, 1996, the Board of Directors approved the issuance of
500,000 shares of Class A common stock to repay accounts payable totalling
$1,000,000 which were issued on April 21, 1997.
9<PAGE>
Technical Maintenance Corporation [A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
8. CAPITAL STOCK [Cont'd]
[d] On December 27, 1996, the Board of Directors approved the issuance of
199,819 shares of Class A common stock to repay advances from stockholders
totaling $420,698 which were issued on April 21, 1997.
[e] On October 7, 1997, the Company issued 17,117 shares of Class A common
stock for total proceeds of $31,565.
[f] On October 7, 1997, the Company issued 56,820 shares of Class A common
stock to repay accounts payable totaling $85,230.
[g] The Company has reserved 2,000,000 shares of the Series A preferred stock
for issuance to the Canadian Investors upon the occurrence of certain
events. In addition, 2,000,000 shares of Class A common stock have been
reserved for issuance in the event of the conversion of the Series A
preferred stock.
9. FINANCIAL INSTRUMENTS
Fair value of financial instruments
For the Company's financial instruments, including cash, accounts payable and
other accrued expenses, the carrying amounts approximate the fair value due to
their short maturities.
10.SUBSEQUENT EVENTS
On February 11, 1998, the Canadian Investors subscribed for a principal amount
of $4,000,000 U.S. of debentures ("Debentures") issued by TouchTunes. The
Debentures are payable by TouchTunes on demand, only after the occurrence of an
event of default as defined by the subscription agreement. They bear interest
at the rate of 12% per annum, payable in one single installment, concurrently
with the payment of the principal amount of the Debentures. At any time prior
to February 11, 1999, TouchTunes has the right to require the Canadian
Investors to purchase additional Debentures, up to an additional principal
amount of $6,000,000 U.S. bearing the same terms and conditions, in six
increments of $1,000,000 each.
10<PAGE>
Technical Maintenance Corporation [A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
10.SUBSEQUENT EVENTS [Cont'd]
On that same date, February 11, 1998, the Company entered into a "Debenture Put
Right Agreement" with the Canadian Investors, providing them with the right and
option to require the Registrant to purchase all or any part of the principal
amount of Debentures they have acquired (up to $10,000,000 in principal
amount), at an exchange rate of $2.00 per share, for the issuance by the
Company of up to 5,000,000 shares of its Series A preferred stock, convertible
at the option of the holders, share for share, into an aggregate of up to
5,000,000 shares of the Company's Common Stock.
11<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 773
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 773
<PP&E> 388629
<DEPRECIATION> 225742
<TOTAL-ASSETS> 1571704
<CURRENT-LIABILITIES> 2527275
<BONDS> 0
0
1
<COMMON> 14659
<OTHER-SE> (970231)
<TOTAL-LIABILITY-AND-EQUITY> 1571704
<SALES> 0
<TOTAL-REVENUES> 49151<F1>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2724731
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84790
<INCOME-PRETAX> (2675580)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2724731)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2675580)
<EPS-PRIMARY> (.19)
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<FN>
<F1>Share of net income in jointly controlled company.
</FN>
</TABLE>
