<PAGE> 1
- ------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the year ended DECEMBER 31, 1996
-----------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1943
For the transition period from_____________ to ____________
Commission File No. 0-22322
-------
WIRELESS CABLE OF ATLANTA, INC.
- --------------------------------------------------------------------------------
(Name of small business issuer in its charter)
GEORGIA 58-1489017
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3100 MEDLOCK BRIDGE ROAD, SUITE 340 NORCROSS, GEORGIA 30071
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number (770)409-3570
Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK
------------------
(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
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes[X] No[ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of 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 III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
Revenues for the most recent year were $3,545,611.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the closing sale price as reported on the NASDAQ Small
Cap System on March 14, 1997 was $16,352,350.
As of March 14, 1997, the Registrant had 1,773,400 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Registrant's 1996 Annual Meeting
of Shareholders held May 14, 1996 are incorporated by reference in Part II.
<PAGE> 2
WIRELESS CABLE OF ATLANTA, INC.
ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PART I
<S> <C> <C>
Item 1. Description of Business I-1
Item 2. Description of Properties I-12
Item 3. Legal Proceedings I-13
Item 4. Submission of Matters to a Vote of Security Holders I-13
PART II
Item 5. Market Price for Common Equity and Related
Stockholder Matters II-1
Item 6. Management's Discussion and Analysis of Operations II-1
Item 7. Financial Statements II-3
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure II-3
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act III-1
Item 10. Executive Compensation III-1
Item 11. Security Ownership of Certain Beneficial Owners
and Management III-2
Item 12. Certain Relationships and Related Transactions III-3
Item 13. Exhibits and Reports on Form 8-K III-3
</TABLE>
<PAGE> 3
PART I.
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
Wireless Cable of Atlanta, Inc. ("The Company"), which was founded in
1982, is a corporation organized under the laws of the State of Georgia and
fully qualified and registered to do business in the State of Georgia. The
Company was formed for the purpose of providing private cable television
services for multiple dwelling units, which involves installation of reception
and delivery equipment at each location.
In 1988, Vidcomm, Inc. ("Vidcomm"), also a Georgia corporation, was
formed by the founders of the Company for the purpose of operating a wireless
cable company. Vidcomm became a wholly owned subsidiary of the Company in
December, 1992. The two corporations are operated essentially as a single
company under the auspices of Wireless Cable of Atlanta. Because both entities
share physical facilities, management, personnel and other resources, no
distinction between the operations of the two entities is made. Rather, the
collective operations of the two entities are referred to as those of "the
Company," and all financial information is presented in consolidated form. The
Company has 29 employees.
During the past several years, the Company obtained the FCC rights to
broadcast wireless cable television in Atlanta within a 35 mile zone.
Additionally, it purchased equipment necessary for wireless cable technology.
These two events gave the Company the opportunity to increase its channel
selection and evolve from being a private cable operator serving only multiple
dwelling complexes with off-air broadcast and satellite channels to also
providing wireless cable services to single family television households and to
commercial locations. The Company has also used the wireless technology to
increase the number of channels provided to new and existing private cable
systems in multiple dwelling complexes.
On February 11, 1997, the Company entered into a definitive agreement
with BellSouth Corporation for a merger of the Company with a subsidiary of
BellSouth Corporation. The agreement is noncancelable for a period of six
months and is expected to close within that period of time; however,
stockholder and Federal Communications Commission approval is required. The
agreement provides for a non taxable stock exchange of .49 shares of BellSouth
Corporation stock for each share of Company stock, with a maximum value
attributable to the Company stock of $20.88625 per share and a minimum value of
$15.98625 per share. These valuations are subject to upward adjustment for any
BellSouth distributions, such as cash dividends, prior to closing of the
merger.
The Company currently provides cable television service to multiple
dwelling developments, such as large apartment complexes, commercial
properties, such as office buildings, and a few single family home subscribers.
Prior to its acquisition of wireless cable technology, a typical private cable
television system installed by the Company at an apartment complex had 21
channels, consisting of 9 local off-air broadcast channels and 12 satellite
reception channels. Wireless cable technology has allowed the Company to add 13
more cable channels to the apartment complex service, thereby totaling 34
channels. The Company currently has contracts with 40 apartment complexes to
provide cable television service on an exclusive basis. These contracts
typically have an initial term of ten years.
Depending on the circumstances, the Company can customize the type and
amount of cable service to suit a given subscriber. The Company has two sources
for television
I-1
<PAGE> 4
programming which it packages and sells to subscribers: "wireless cable" and
off-air broadcast. First, wireless cable is television programming transmitted
via microwave frequencies, as opposed to hard-wired cable, from a central
location over FCC-authorized frequencies to subscribers equipped with a special
antenna. For wireless cable, the Company utilizes an initial reception facility
located at 1575 Sheridan Road in Atlanta, Georgia which receives television
signals and then transmits them to the Company's primary, central transmitter
located on top of the NationsBank Plaza in Atlanta, Georgia. This facility then
transmits the wireless cable programming to the Company's subscribers. Second,
off-air broadcast is comprised of the local network television signals
broadcasted to a general area and receivable by any television in the reception
area. In providing this programming source, the Company does not use its
transmitter facilities as done with wireless cable.
For multiple dwelling developments, the Company typically utilizes a
combination of wireless cable and off-air broadcast to create a package of 34
channels for apartment cable television subscribers. The Company installs
special antenna, which receive both the Company's wireless cable and off-air
broadcast television signals, as well as descrambling equipment. The television
programming from the two sources is combined and relayed to each individual
apartment unit by coaxial cable.
For commercial subscribers, the Company typically combines wireless
cable and off-air broadcast reception. The Company installs special antenna
which receive both the wireless cable and off-air broadcast television signals
and relays them to the various outlets or individual subscribers within the
commercial buildings by coaxial cable. The Company's commercial subscribers can
receive up to a total of 34 programming channels.
For single family dwelling subscribers, the Company employs the same
combination of wireless cable and off-air broadcast television as that used
with commercial subscribers. The Company's single family subscribers can
receive up to a total of 34 programming channels.
The cost of adding a new subscriber is approximately $500 and the
recovery period for this cost is approximately two years.
OVERVIEW OF THE WIRELESS CABLE TELEVISION INDUSTRY
A wireless cable television system is capable of transmitting
television programming, including two-way "pay-per-view," high speed computer
data, high definition television and facsimile transmission to subscribers. The
system requires a centrally located "headend" facility, which is equipped with
transmitters, antennas, satellite dishes and scrambling and descrambling
equipment. Each subscriber must be equipped with a rooftop antenna and an
addressable converter. Because the system does not require a hard-wired cable
network, the construction cost per subscriber is significantly less than that
of franchise cable systems, and maintenance costs are lessened.
Wireless cable television systems require line-of-sight transmission
from headend transmission source to subscriber. In other words, the signal must
not be obstructed in any way. This requirement can result in signal quality
problems in areas with uneven terrain. New technology, such as repeaters that
aid in reaching such areas, have been developed and have earned limited FCC
approval. The FCC has placed a power limit of 18 dBW on the repeaters and is
requiring that they be licensed in order to avoid interference with other
signals.
Currently, a total of 33 frequencies are authorized by the FCC for
wireless cable use; 13 of the 33 are general frequencies available for
unrestricted licensure and 20 are partially
I-2
<PAGE> 5
reserved for educational programming. Although the FCC originally allocated
only two wireless cable frequencies per market, the majority of wireless cable
systems, especially those in markets rated below the top 50, offered only one
frequency. By the end of the 1970's, some 530,000 subscribers in over 100
markets were subscribing to single channel wireless cable television systems
that typically offered one premium service such as HBO or Showtime. With the
extension of multi-channel franchise cable television service to much of the
United States, single and dual channel systems were no longer able to compete
and many went out of business. Later, the FCC approved eleven more frequencies
per market for wireless operators so that the industry could better compete
with franchise cable and provide service to areas not yet wired by cable.
Although 13 frequencies existed, no single entity was allowed to own more than
four channels per market. This restriction was lifted in October, 1990, when
the FCC issued a new ruling allowing "multiple ownership," which permits all
thirteen wireless frequencies in a market to be owned by one owner. The Company
has acquired licenses for twelve of these 13 general frequencies.
There are a total of 20 Instructional Television Fixed Service
("ITFS") wireless cable channels intended primarily for the transmission of
educational and cultural programming. These licenses are granted only to
accredited educational institutions or governmental organizations which are
required to televise at least 20 hours of qualified programming per channel per
week.
A wireless cable operator can sublicense from an ITFS licensee either
the excess broadcast capacity or the entire broadcast capacity of the ITFS
frequencies. "Excess" broadcast time or capacity refers to the total amount of
hours in one week minus the 20 hours required to be dedicated to educational
programming on each ITFS frequency. With the use of a technique called
channel-mapping, an operator can create three full-time channels from a group
of four ITFS frequencies. Channel mapping switches the video program to
whichever frequency is not in use. Over the course of a broadcast, numerous
channels may be used. To avoid having a subscriber tune the set-top converter
to match the frequency in use, the box automatically changes channels in
response to a data command transmitted with the video. The converter continues
to show the same number in the channel display to avoid subscriber confusion.
The use of ITFS channels in conjunction with channel mapping is one of the best
ways to substantially increase the number of wireless cable channels.
Nevertheless, the educational programming requirement remains, but the
responsibility shifts to the sublicensee. In these cases, instead of using
qualified programming from the original ITFS licensee, a sublicensee may
instead dedicate such ITFS frequencies exclusively to a different, but also
qualified programming source, such as CNN, C-Span, The Discovery Channel and
The Learning Channel.
The Company is currently the sublicensee of 16 of the 20 ITFS
frequencies in the Atlanta market. Because of the availability of these 20 ITFS
sublicenses, along with the 13 other wireless channels, a wireless cable
operator has the possibility of assembling a 33 frequency wireless cable system
in a given market, plus any off-air broadcast channels. Of the 33 potentially
available wireless cable frequencies, 20 are subject to certain educational
programming requirements and may be used only on an excess capacity basis as
described above. Correspondingly, of the 33 frequency lineup sought by the
Company (28 of which are already acquired), 20 would be subject to the
programming restrictions and excess capacity limitations. The Company believes
that the use of ITFS channels would not adversely impact its programming
capabilities: first, the Company believes that channel-mapping techniques will
allow sufficient unrestricted broadcast time on each ITFS channel, second, the
qualified, third-party programming sources listed above are independently
attractive and sought by subscribers, and thus should not be an impediment to
the Company's programming lineup.
I-3
<PAGE> 6
FCC licenses for wireless cable frequency-channels allow the user to
transmit wireless cable television signals over a designated frequency band.
The FCC licenses are awarded for an initial period of ten years. Each license
currently costs $155. License renewals must be done by application to the FCC
between 30 and 60 days before expiration of the then current term. License
renewals are generally for additional ten year terms unless the FCC dictates
that the public interest would be served by a shorter term. Seven of the
Company's twelve general frequency licenses are directly from the FCC and five
are leased/sublicensed from third party holders. Wireless cable stations must
be constructed and become operational within 12 months of the date of the FCC
grant, although instructional stations must be constructed and become
operational within 18 months. Both periods are extendible if good cause for the
extension is shown.
COMPETITIVE ENVIRONMENT OF THE INDUSTRY
Wireless cable operators face competition from various entertainment
outlets, especially cable television, and to a lesser extent, video cassette
rental stores, broadcast television, direct satellite broadcast service and
radio stations. In general, the success of a wireless cable operation depends
on its ability to offer a competitive programming package at a lower cost than
franchise cable. In the past, wireless operators have been hampered by an
inability to obtain crucial cable programming such as HBO, Showtime and Disney
on the pay tier, and such services as ESPN on the basic tier. Recent
regulations and federal legislation have enabled, or will enable, wireless
operators to obtain virtually all basic satellite and premium programming. In
the few areas where both franchise cable and wireless cable services are
provided, competition can be intense because wireless operators can offer a
lower priced alternative to franchise cable television.
The so-called "Cable Bill" that was passed by Congress in October,
1992 has created a much more favorable market for competition by wireless cable
operators. The FCC recently adopted several rule changes designed to remove
certain barriers to entry to wireless operators and promote more equal
competition with franchise cable operators. These rule changes include the
following: (a) easing of the multiple channel ownership restrictions to allow
thirteen wireless channels to be owned by one owner in a single market; (b)
banning a cable system's ownership of wireless cable systems in its franchise
area, unless the area is otherwise unserved; (c) increasing transmission power
limits to enhance signal quality; (d) allowing wireless cable operators to
displace point-to-point uses by instructional operators grandfathered on eight
of the wireless cable channels if suitable alternative spectrum is available;
(e) establishment of administrative procedures to authorize signal boosters,
which include repeaters; and (f) allowing use of vacant instructional channels
by wireless cable operators.
The FCC has proposed standards by which to measure effective
competition for franchise cable operations. Generally, in order to avoid having
basic rates regulated, cable systems would have to meet one of the following
criteria:
1. An independently owned, competing wireless video delivery system with
multichannel capability must be available to 50% of the homes covered by the
cable system, and subscriber penetration must be at least 10% of the homes
covered.
2. Six unduplicated, over-the-air broadcast television signals must be
available in the cable community, and cable penetration must be below 50%.
3. If there is no competitor in the market, the cable operator must provide a
basic service tier at a price level comparable to areas where competition does
exist.
I-4
<PAGE> 7
The Atlanta market currently does not meet any of the above criteria,
and therefore is potentially subject to cable rate regulation by the FCC.
However, recent federal legislation may affect these standards, although it is
not expected by the Company to impact wireless operators in any way that is
detrimental to their competitive ability. (See Government Regulation)
The Company currently does not have any wireless cable competitors in
Atlanta. However, wireless cable companies may enter the Atlanta market in the
future. Under current regulatory conditions 13 general and 20 ITFS frequencies
exist. Of these, the Company has licenses for 12 general frequencies and 16
ITFS frequencies and hopes to secure licenses for the additional frequencies.
The Company believes that the number of available frequencies remaining may not
be sufficient to provide an adequate amount of programming capacity to compete
with either the Company or franchise cable companies. However, changes in
existing laws, FCC regulations and policies or technology could increase the
number of available frequencies or otherwise make entry into the Atlanta
wireless cable market much more viable and attractive to competitors. Potential
future regulatory changes which affect the allocation as well as number of
wireless channels could also impact the competitive environment. In any event,
the success of a competing wireless cable operator would be determined
primarily by its ability to obtain a satisfactory number of wireless television
channels.
Management believes that the Company's current and future channel
selections, which are and will probably continue to be in the near future fewer
than its franchise cable competitors, will not adversely impact the Company due
to its relatively lower monthly prices and management's belief that the
Company's channel offerings represent most of the channels desired by typical
subscribers. The Company's experience has been that there are typically less
than 25 television channels desired by most subscribers. Thus, although the
Company believes it would benefit from additional channel capacity/offerings,
the Company also believes that additional channels are not required for its
survival and success in its market niche.
Direct broadcast service ("DBS") systems are satellite-based cable
services which package and transmit cable television channels to subscribers
with satellite dishes. DBS services are relatively new in the cable industry,
and thus not many such companies exist. These services target rural and other
areas not served by franchise or wireless cable. They do not carry local
off-air broadcast programming, and require a substantial installation cost to
subscribers.
Wireless cable technology has several important advantages over DBS
services. The most significant is a wireless cable system's ability to transmit
local television signals and local services, such as a sports network. DBS
cannot customize its channel offerings for various metropolitan areas within
the country. In addition, many wireless systems, as well as franchise cable
systems, have a head start of several years in capturing subscriber bases.
Finally, the cost to a subscriber of installing DBS is believed to be
significantly higher than installing wireless cable. DBS's advantage over
wireless and franchise cable is that its broadcast area is unlimited and can
reach subscribers in areas not accessible by wireless or franchise cable.
Based upon the Company's research, the Company's franchise cable
competitors and their approximate numbers of subscribers and available channel
offerings currently in the Atlanta area are:
<TABLE>
<CAPTION>
Company Subscriber Size Channels
------- --------------- --------
<S> <C> <C>
Media One 550,000 60
North Dekalb Cable 30,000 61
Time Warner Cable 70,000 58
</TABLE>
I-5
<PAGE> 8
Government Regulation
On February 1, 1996, the United States Senate and House of Representatives
passed the 1996 Telecom Act which would result in comprehensive changes to the
regulatory environment for the telecommunications industry as a whole. Among
other things, the legislation substantially reduces regulatory authority over
hardwire cable rates. Another provision affords hardwire cable operators
greater flexibility to offer lower rates to certain of its customers, and
thereby permits cable operators to target discounts to the Company's customers
or prospective customers.
The 1996 Telecom Act permits telephone companies to enter the video
distribution business, subject to certain conditions. The entry of local
exchange carriers ("LECs") in the video distribution business within their
telephone service areas, with their greater access to capital and other
resources, could provide significant competition to the wireless cable
industry, including the Company. In addition, the legislation affords relief to
DBS by preempting the authority of local governments to impose certain taxes.
The 1996 Telecom Act delegates to the FCC authority to adopt regulations
implementing certain of its provisions. The Company cannot reasonably predict
the substance of rules and policies to be adopted by the FCC or the effect of
the legislation of any such rules on the Company's operations.
SUMMARY OF THE INDUSTRY
The initiation of the FCC lottery, multiplicity of available channels,
recent relaxation of certain regulatory restraints, a favorable regulatory
environment and recent favorable federal legislation has made the possibility
of assembling a competitive wireless cable system a relatively new phenomenon.
The wireless cable industry was made possible in 1983 when the FCC reallocated
a portion of the broadcast spectrum from 2500 to 2700 Megahertz, and modified
its rules on the usage of this spectrum. This action created the ability for
operators to implement a 33 channel broadcast package. Subsequent FCC rule
modifications have further enhanced this area and spectrum, so that today there
are many wireless cable systems in the United States. According to the Wireless
Cable Association, wireless cable today serves approximately 1,000,000
subscribers in the United States.
INSTALLATIONS AND EQUIPMENT
The Company's services consist of installation of reception and delivery
equipment to provide programming. Equipment requirements vary, depending on the
type of customer. Following are the basic equipment requirements for the
various customers:
Multiple Dwelling Units
Off-Air Processing Equipment - Processes local broadcast television channels
into the system.
Satellite Equipment - Picks up satellite signals from HBO, The Movie Channel,
and other cable channels, and processes the signals into the system.
Receive Equipment - Picks up the signal from the Company's wireless
transmitter, located on the NationsBank Plaza in Atlanta, Georgia, and
processes this signal into the system.
I-6
<PAGE> 9
Distribution Equipment - This is the hard wiring located on the private
property to distribute the signals processed by the off-air, satellite and
receive equipment to the individual units.
Single Family Dwellings
Local Off-Air Antennae - Receives and processes local channels.
MMDS Antenna and Down Converter - Receives and processes the signal from the
"wireless" transmitters located on the NationsBank Plaza, and converts the
signal from microwave frequency to the VHF frequency required by the television
set-top converter.
Set-top Converter - Required for all televisions; decodes the wireless
programming and is addressable, which gives it "pay-per-view" capabilities.
Commercial
Various combinations of the equipment described above are used in commercial
applications, depending on the particular circumstances and requirements of the
commercial customer.
PROGRAMMING
Programming offered by the Company can be classified into two
categories: Off-Air Broadcast Channels and Wireless Cable Channels. The
Company provides a wide variety of programming, detailed below:
<TABLE>
<CAPTION>
Off-Air Broadcast Channels (10 Channels)
<S> <C> <C>
WAGA (FOX) CHANNEL 5 ATLANTA
WATL (IND) CHANNEL 36 ATLANTA
WGNX (CBS) CHANNEL 46 ATLANTA
WSB (ABC) CHANNEL 2 ATLANTA
WTBS (IND) CHANNEL 17 ATLANTA
WVEU (IND) CHANNEL 69 ATLANTA
WXIA (NBC) CHANNEL 11 ATLANTA
WPBA (PBS) CHANNEL 30 ATLANTA
WGTV (PBS) CHANNEL 8 ATHENS/ATLANTA
WHSG (IND) CHANNEL 63 ROME
</TABLE>
These program channels are currently available to the Company at no
cost and without licensure. However, pursuant to the Cable Bill, these
programming providers can now charge for retransmission of their programming.
<TABLE>
<CAPTION>
Wireless Cable Channels (24 Channels)
<S> <C>
Cable News Network Nickelodeon
ESPN C-Span
TNN SportSouth
The Weather Channel Showtime
BET CNBC
Discovery Home Box Office
</TABLE>
I-7
<PAGE> 10
<TABLE>
<S> <C>
WGN Chicago Superstation USA Network
The Atlanta Channel Lifetime
The Family Channel MTV
CNN Headline News Arts & Entertainment Network
Country Music TV TNT
The Movie Channel A&E
</TABLE>
The Company has contracts for the above program channels which vary in
term from one to five years and some of which are automatically renewable. This
programming is generally available either from the originator and/or various
distributors at competitive prices.
TECHNOLOGY
Following are the major components in the wireless cable system:
Program Originators - Transmit programming on microwave frequencies to a
communications satellite.
Communications Satellite - Processes various communications signals and
retransmits to receiving stations on earth.
Satellite Equipment - Receives microwave signals from communications
satellites, which are processed by transmitter equipment to the main subscriber
transmission site.
Transmitters and Tower - Processes signal received by satellite equipment, and
transmits it to reception sites of subscribers.
Wireless Antenna - Located at the site of the subscriber, receives the
microwave signal transmitted by the wireless cable operator.
Off-Air Antenna - Receives signals from local television stations.
Downconverter - Converts the microwave signals into VHF signals, which are
compatible with television set-top converters.
Set-top Converters - Descrambles the wireless programming and is addressable,
which allows for "pay-per-view" capabilities.
The above components of the wireless cable system are readily available
from several manufacturers. The Company purchases most of its components from
the following manufacturers: Channel Master, Conifer Corp. EMCEE Broadcast
Products, General Instruments, and Toner Cable Equipment, Inc.
To date, the Company has been able to obtain the necessary equipment
within reasonable order and delivery time periods.
CUSTOMER PROFILE
The Company has defined its customers based on three classifications:
multiple dwelling units, commercial and single family dwelling units. The
Company has defined its target markets for each of these classes as follows:
I-8
<PAGE> 11
Multiple Dwelling Units
In general, the Company seeks to target residential developments that
cater to mid-to-upper income, young professionals and are well managed and
maintained, which typically results in higher occupancy rates and lower credit
risks. In addition, targeted developments include those which maintain a high
occupancy rate, a large number of tenants, an average tenant turnover time of
two years and those willing to enter into a ten year contract to allow maximum
return on installation costs. Residential complexes in the development stage
are also targeted to take advantage of reduced equipment and wiring
installation costs during the construction phase. Multiple dwelling
developments in the North Atlanta area meet many of the Company's criteria, and
thus will be the focus of much of its marketing and customer development
efforts. The Company currently serves 40 multiple dwelling developments
containing approximately 14,000 total units, of which approximately 8,300 are
currently subscribers.
Commercial
The Company's primary commercial subscribers include hotels and office
buildings; secondary subscribers include hospitals, universities and retirement
homes, which require more extensive marketing due to governmental and
administrative regulations governing these institutions. Typical potential
hotel customers are those operated by smaller franchise operators, such as
Suburban Lodge and Econo Lodge, which typically have 100 to 150 units. These
types of hotel chains are often not viable targets for franchise cable
operators because of the cost of installing hard-wiring to their locations,
which are sometimes in remote areas. Office buildings, especially taller ones,
minimize any line of sight problems. Restaurants, commercial buildings, car
dealerships, doctors' offices and any commercial subscribers who are sensitive
to quality of service and price are also potential commercial subscribers. The
Company currently has approximately 725 commercial subscribers.
Single Family Dwellings
Potential single family dwelling customers are limited to those within
a thirty-five mile radius and with a good line of sight to the transmission
tower, due to signal reception limitations. Otherwise potential customers in
areas with hills or other obstructions may not be accessible. The Company
currently has approximately 25 single family dwelling subscribers and has
deferred further expansion of this market pending further review of digital
transmission.
Approximately 90% of the Company's revenue is derived from multiple
dwelling unit contracts. Although no individual multiple dwelling contract
produces in excess of 10% of the Company's revenue, Post Properties, Inc. and
Wilwat Properties, Inc., multiple dwelling operators, exercise control over
groups of apartment complexes, each of which exceeded 10% of the Company's
revenue.
SOURCES AND DELIVERY OF CABLE TELEVISION PROGRAMMING
The distribution channels for programming, followed by textual
explanations of each, are as follows:
Programming Suppliers
Programming suppliers originate television programming and transmit it
via satellites. They also sell the right to receive and rebroadcast their
programming to cable operators. These
I-9
<PAGE> 12
companies include Home Box Office, Cable News Network, Turner Broadcasting
System, The Movie Channel and Showtime. The general trend is toward servicing
world markets, with CNN representing the market leader in this respect.
Legislation regulates program suppliers, restricting them from discriminating
against private and wireless cable companies in terms of price and program
availability. This legislation allows networks, through their affiliated local
stations, to charge fees to cable companies for the rebroadcast of network
programming to cable subscribers.
Franchise Cable Companies
Franchise cable companies were the original entrants into the market
and have large subscription bases. In addition to programming costs, they must
pay for the use of public right-of-ways for cable wiring to customer locations.
Some of these companies have ownership interests in programming suppliers, but
can no longer affect pricing and distribution for competitive wireless and
private operators, as has been the case in the past. In general, most of these
companies have operated with little competition for several years, resulting in
many cases in high profitability and market penetration. Large initial capital
expenditures required to provide cable for an area effectively limits
distribution to markets with dense populations and high subscription rates. In
metropolitan areas, franchise cable companies have designated territories for
which services are provided. Most municipalities grant franchises to cable
companies to use public right-of-ways, and many have historically granted
exclusive rights to a single cable operator, resulting in exclusive territories
with no competition among franchise cable operators.
Private Cable Companies
Private cable companies operate on private property, such as hotels,
hospitals or apartments. They have the capability of customizing the
programming to their particular community needs. These operators do not serve a
significant part of the Atlanta market.
Other Cable Companies
This category is comprised of various, fragmented cable providers,
including the home satellite dish market and companies that specialize in
pay-per-view events distributed to particular market niches.
Wireless Cable Companies
Wireless cable companies had their inception in 1983 when the FCC
allowed licensing for multichannel distribution of television signals by a
licensee. Prior to this, licensing was only available for single channel
distribution. These companies began entering the urban and suburban markets as
competitors to franchise cable operators approximately ten years ago.
Typically, wireless cable companies penetrate the single family dwelling market
first, then seek entry into other markets, including multiple dwelling units
and commercial properties. These companies compete with franchise cable
companies in existing service areas and also seek to develop areas not serviced
by franchise cable companies. In general, the customer bases of wireless cable
companies are relatively small compared with better established franchise cable
operations.
I-10
<PAGE> 13
DEVELOPMENT PLAN
The channel capacity of the Company is expected to be expandable through
the application of digital compression technology. Digital compression is a
technology that essentially forces more signal over existing spectrum by
dramatically compressing and then reassembling the signal. Compression ratios
of up to 10-to-1 may be achievable. With such ratios, the Company will be able
to provide extensive programming line-ups, with a full channel complement. The
Company could offer 168 channels with a 6-to-1 compression ratio.
As soon as is practical, the Company plans to offer a digital package with
100-150 channels. A basic digital package will be priced, comparable to the
price of the expanded basic package of the Company's primary franchise cable
competitor, MediaOne. As with the franchise cable operator, the Company will
offer premium channels, pay-per-view and other services at an additional charge
to subscribers. The Company believes it will be able to provide a higher
quality, comparably priced product with better channel selection than similar
franchise cable service packages. These development plans will require
significant funds in addition to funds provided from operations. The Company
will have to secure these additional funds to cover the capital needs of
additional growth. The Company has entered into a definitive agreement with
BellSouth Corporation for the acquisition by BellSouth Corporation of the
outstanding stock of the Company. If this transaction should fail to close, it
is anticipated that these additional funds will be available through either the
debt or equity market.
MARKET NICHE
The Company, at present, sells its services almost exclusively to multiple
dwelling units. The Company's expansion plans call for penetration into the
single family dwelling and commercial markets. The Company has a niche in the
cable television market due to the following factors:
Price
The Company plans to compete on a basis of price in all markets. Current
prices are approximately 25% less than franchise cable companies. Development
of wireless cable companies in other cities has shown that price is a factor in
the customer's choice of cable provider in all markets.
Customer Service
The Company plans to continue to place a high priority on customer
service. In the past, the Company's willingness to work with developers during
the development phase of construction projects has allowed it to successfully
compete with the franchise cable companies. The Company also plans to place
that priority on customer service in the single family dwelling and commercial
markets.
Cost Structure of Competitors
Management believes that its competitors have a high cost structure
for providing cable services to low density population areas and in areas where
cable lines have not already been installed. The cost of laying cable for a
franchise cable operator is believed to be up to $2,000 per subscriber which
makes providing cable to certain commercial and single family dwellings
somewhat commercially unfeasible. The Company's cost of providing cable
services to these consumers is approximately $500 for single family dwellings
and up to $1,000 for commercial
I-11
<PAGE> 14
subscribers. Wireless technology eliminates the need for costly wiring employed
by competitors and allows the Company to service subscribers effectively.
Reliability of Service
Because wireless cable technology does not involve miles of wiring which
is subject to various mishaps, wireless cable service is believed to be more
reliable. Due to the elimination of much of the cable wire and other equipment
used by franchise cable, wireless cable operations are typically not subject to
breaks in service caused by weather and other damage.
BARRIERS TO COMPETITION
The Company's management believes that its primary competitors over the
next several years will be the franchise cable companies as a result of the
difficult barriers to other potential wireless cable competitors. Following are
the principal barriers that, in management's judgment, will prevent any other
competitors from entering the market.
Unavailability of Wireless Channels
In addition to the ten off-air broadcast channels offered by the
Company, it has licenses for twenty eight wireless cable frequencies. In total,
there are 33 frequencies designated by the FCC for utilization by wireless
cable operators. Management believes that the remaining 5 frequencies would
most likely not provide enough programming variety for another seriously
competitive wireless operator in the Atlanta metro area.
Capital
Establishment of a cable company typically requires substantial amounts of
capital at start up and for continuing operations.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's present operations are managed from its office and warehouse
facility located in Norcross, Georgia. The 12,000 square foot facility houses
all of the Company's functions, including customer service, technical staff,
marketing staff and administrative functions. This facility is leased under a
lease which expires in November 1997. Comparable facilities are readily
available in the Atlanta area at competitive prices.
The Company has a lease agreement with CSC Associates, L.P. ("CSC") for
placement of its television signal transmission and processing equipment on top
of Nations Bank Plaza, the tallest building in Atlanta, Georgia. The initial
term of the lease is for seven years beginning May 31, 1996 and is
self-renewing from year to year after the initial term, subject to ninety (90)
days written notice of cancellation, by either the Company or CSC, prior to
each anniversary date. The monthly rent during the initial term is $9,115.00
for 28 channels. Additional channels can be added, with rent increasing at a
rate of $300.00 per channel per month. After the first year of the lease, the
monthly lease rate is subject to adjustment based on increases in the Consumer
Price Index.
The Company's satellite and microwave dish facility is located at 1575
Sheridan Road in Atlanta, Georgia. This property is under a lease with Video
Tape Associates, Inc. which began June 7, 1991 and initially expired on June 6,
1994. The lease may be renewed for two additional three year terms and is
currently under a renewal term. The monthly rent during the initial three year
term is $1,500; the rent is increased during the renewal terms according to the
U.S. Department of Labor, Consumer Price Index. The Company may terminate the
lease if the facilities are not satisfactory for its intended purposes, or if
it no longer has all the necessary
I-12
<PAGE> 15
certificates, permits, licenses, zoning and other requirements necessary for
its business operations. The Lessor may terminate the lease if the Company does
not pay rent as specified.
The Company's current properties are suitable and adequate for its
operations.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
I-13
<PAGE> 16
PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on the NASDAQ Small-Cap System under
the symbol WCAI. The high and low sales prices of the common stock, based on
the trade prices, were as follows:
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Quarter Ended March 31, 1995 10.50 7.25
Quarter Ended June 30, 1995 10.75 8.00
Quarter Ended September 30, 1995 12.25 7.75
Quarter Ended December 31, 1995 12.75 10.25
Quarter Ended March 31, 1996 11.50 8.75
Quarter Ended June 30, 1996 18.00 9.50
Quarter Ended September 30, 1996 16.50 13.50
Quarter Ended December 31, 1996 18.50 12.75
</TABLE>
The Company has paid no common stock dividends.
As of March 1, 1997, the approximate number of shareholders of record
was 800.
The Company has no restrictions on its ability to pay dividends on its
common stock, except that all dividends on Series A Preferred Stock declared or
accrued must have been paid or set aside for payment before any dividends can
be paid on common stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
The following table sets forth items from the Company's Statement of
Income as percentages of net revenue:
<TABLE>
<CAPTION>
PERCENT
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Revenue 100% 100% 100%
Service Costs 57.6 65.1 68.1
Selling, general and 52.9 43.0 38.3
administrative
Depreciation and amortization 17.2 22.1 26.0
Other (income) expense (1.7) (1.0) (2.4)
Loss, before income taxes 26.0 29.2 29.9
</TABLE>
Revenue increased 15% to $3,285,000 in 1995. Although the number of
subscribers increased from 8,200 to 8,500 in 1995, the increase in revenue was
due primarily to an increase in subscriptions to premium channels.
Service costs for 1995 increased by 7.5% of revenue. The primary
reason for this increase was increased programming costs related to the
increase in premium channel subscriptions. There was also an increase in tower
rental and channel lease costs due to the addition of 16 new wireless channels
during 1995.
Selling, general and administrative expense decreased by 9.9% of
revenue in 1995. Approximately 7% of this decrease was due to the elimination
of costs related to the advertising sales department and single family home
marketing costs. The Company has deferred single
II-1
<PAGE> 17
family home expansion while it continues to study the improvements associated
with digital signal transmission. The balance of this decrease was primarily
due to reduced professional fees and travel expense.
Revenue increased 8% to $3,545,000 in 1996. This increase was due
primarily to an increase in the number of subscribers from 8,500 to 9,000.
Service costs for 1996 increased by 3.0% of revenue. This increase was
due primarily to an increase in tower rental and channel lease costs due to the
addition of 16 new wireless channels during the fourth quarter of 1995.
Selling, general and administrative expense decreased by 4.7% of
revenue. This decrease was due to a full year's reduction in marketing, selling
and administrative salaries and benefits due to the elimination of the
advertising sales department and single family home marketing costs during
1995. The Company has deferred single family home expansion to study the
improvements associated with digital signal transmission.
The deferred tax benefit increased by $359,147 during 1996. The basis
for deferring tax benefits is an excess of appreciated asset value over the tax
basis of the Company's net assets in an amount sufficient to realize the
deferred tax asset and projected future profitable operations. Management
forecasts that the current cumulative net operating loss carryforward will be
utilized by 2002 when the first net operating loss carryforward expires.
GENERAL
Currently, most of the Company's subscribers result from contracts,
which typically have an initial term of ten years, with 40 apartment complexes.
Upon expiration of the initial term, these contracts automatically convert to
month to month contracts unless they are extended or canceled. Capital costs
related to these contracts are written off during the initial term. The Company
continues to add new contracts and has not had a significant amount of
contracts canceled. Any future contract cancellations should not have a
material impact on operations since the Company is adding new contracts and
should not have a significant number of cancellations in any one year.
The Company currently has agreements to provide a competitive lineup
of 38 channels of programming to its customers. The lineup consists of 28
microwave delivered channels and 10 locally broadcast channels. During the
fourth quarter of 1995, the Company relocated its transmission site to
NationsBank Plaza, the tallest building in Atlanta and increased its
transmission power from 10 to 50 watts.
LIQUIDITY AND CAPITAL RESOURCES
On March 1, 1995, the Company executed an agreement with Applied Video
Technologies, Inc. for the purchase of $3,500,000 of convertible preferred
equity. Under the terms of the agreement, $2,100,000 was invested in 1995 and
$1,400,000 in January 1996.
As soon as is practical, the Company plans to offer a digital package
with 100-150 channels. A basic digital package will be priced comparable to the
price of the basic package of the Company's primary franchise cable competitor.
As with the franchise cable operator, the Company will offer premium channels,
pay-per-view and other services at an additional charge to subscribers. The
Company believes it will be able to provide a higher quality, comparably priced
product than similar franchise cable service packages. These development plans
will require significant funds in addition to funds provided from operations.
The Company will have to secure these additional funds to cover the capital
needs of additional growth after 1996.
II-2
<PAGE> 18
On February 11, 1997, the Company entered into a definitive agreement
with BellSouth Corporation for a merger with BellSouth. Upon signing, BellSouth
made a $1,000,000 non-interest bearing advance to the Company which is
repayable on December 31, 1998. If this transaction should fail to close, it is
anticipated that additional funds for the Company's expansion plans will be
available through either the debt or equity market.
The above statements are based on current expectations. These
statements are forward looking and actual results may differ materially.
ITEM 7. FINANCIAL STATEMENTS
The information required by this item is contained on Pages F-2 to F-12 of
this Annual Report on Form 10KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information required by this item is incorporated by reference to the
Company's 1996 Proxy Statement.
II-3
<PAGE> 19
PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Compliance with Section 16(a) of the Securities Exchange Act of
1934 requires the Company's directors and executive officers,
and persons who own more than ten percent of a registered class
of the Company's equity securities, to file reports of ownership
on Form 3 and changes in owndership on Form 4 or 5 with the
Securities and Exchange Commission (the "SEC") and the National
Association of Securities Dealers. Such officers, directors and
10 percent shareholders are also required by SEC rules to
furnish the Company with copies of all Section 16(a) forms that
they file.
Based solely on its review of copies of such reports received or
written representations from certain reporting persons, the
Company believes that, during the year ended December 31, 1996,
all Section 16(a) filing requirements applicable to its
officers, directors and 10 percent shareholders were complied
with.
ITEM 10. EXECUTIVE COMPENSATION
The following tables set forth the annual compensation of the
Company's Chief Executive Officer and all officers whose total
annual salary and bonus exceeded $100,000 for services to the
Company in all capacities during any year for the three years
ended December 31, 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME & PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ------------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Ricky C. Haney, President 1996 $117,876 $8,500 (1)
1995 102,638 - $11,056 (2)
1994 103,700 1,700 11,516 (3)
Richard L. Kendrick,
Senior Executive
Vice President 1996 117,876 8,500 (1)
1995 102,638 - (1)
1994 103,700 1,700 (1)
Allan H. Rudder
Executive Vice President 1996 110,912 8,500 (1)
1995 96,600 - (1)
1994 97,600 1,700 (1)
</TABLE>
(1) Did not exceed 10% of salary and bonus total.
(2) Includes $6,000 auto allowance and $5,056 health insurance reimbursement.
(3) Includes $6,000 auto allowance and $5,516 health insurance reimbursement.
III-1
<PAGE> 20
EMPLOYMENT CONTRACTS
In September 1993, the Company entered into five year agreements with
Ricky C. Haney, Richard L. Kendrick, and Allan H. Rudder which provide for a
minimum base salary of $102,000, $102,000 and $96,000 respectively. The
agreements provide for a severance payment equal to the remaining contract term
base salary in the event of termination without cause. The agreements also
provide for a $6,000 annual auto allowance and minimum annual base salary
increases of five percent.
STOCK OPTION TABLE
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN-THE-MONEY
NAME & AT DECEMBER 31, 1996 OPTIONS AT DECEMBER 31,1996
PRINCIPAL
POSITION EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Allan H. Rudder
Executive Vice
President 44,000 16,000 $530,000 $182,500
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock and Preferred Stock as of
March 1, 1997 (i) by each person who is known by the Company to own
beneficially more than 5 percent of the Company's Common Stock and Preferred
Stock, (ii) by each of the Company's directors, and (iii) by all directors and
executive officers who served as directors or executive officers at March 1,
1997 as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-------------------------
DIRECTORS, OFFICERS AND 5
PERCENT SHAREHOLDERS COMMON STOCK PREFERRED STOCK
- -------------------- ------------ ---------------
NUMBER PERCENT NUMBER PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C>
PRINCIPAL SHAREHOLDERS
Ricky C. Haney
9235 Mainsail Drive
Gainesville, Georgia 30506 305,000(5) 16.77%
Richard L. Kendrick
2310 Golden Eagle Lane
Lawrenceville, Georgia 30245 294,000(3) 16.17%
R.S. Operators, Inc.
P.O. Box 1857
Cumming, Georgia 30130 278,750(1) 15.33%
Digital Funding of Atlanta,
L.L.C.
230 East High Street
Charlottesville, Virginia 22901 41,734 100%
</TABLE>
III-2
<PAGE> 21
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-------------------------
DIRECTORS, OFFICERS AND 5
- -------------------------
PERCENT SHAREHOLDERS COMMON STOCK PREFERRED STOCK
- -------------------- ------------ ---------------
NUMBER PERCENT NUMBER PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C>
DIRECTORS
Ricky C. Haney 305,000(5) 16.77%
Richard L. Kendrick 294,000(3) 16.17%
Allan H. Rudder 359,750(2) 19.78%
R. Ted Weschler 41,734(4) 100%
All Directors and Executive
Officers as a group (4 persons) 958,750 52.72% 41,734 100%
</TABLE>
(1) Mr. Ray Stevenson, III, President and majority owner of R.S. Operators,
Inc., a real estate and other investment firm, is the beneficial owner of
these shares.
(2) Includes options to purchase 46,000 shares currently exercisable, 2,000
shares owned by Mr. Rudder's wife, and 278,750 shares owned by R. S.
Operators, Inc. Mr. Rudder is Secretary, Treasurer and a Director of R.S.
Operators, Inc. See (1) above.
(3) Includes 26,020 shares owned by Mr. Kendrick's wife and 6,960 shares owned
by his children.
(4) Includes 41,734 shares of Preferred Stock owned by Digital Funding of
Atlanta, L.L.C. Mr. Weschler is the administrative agent of Digital
Funding of Atlanta, L.L.C.
(5) Includes 47,230 shares owned by Mr. Haney's wife and 5,540 shares owned by
his children.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits: The exhibits listed on the following index to
exhibits are contained in separate volume.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
3 Articles of Incorporation and by-laws(2)
3.1 Amendment to Articles of Incorporation Dated
March 1, 1995 (3)
10.1 Communications Site Access Agreement(2)
10.2 Employment Contract-Ricky C. Haney(2)
10.3 Employment Contract-Richard L. Kendrick(2)
10.4 Employment Contract-Allan H. Rudder(2)
10.5 Incentive Stock Option Plan(2)
10.6 Telecommunications Terminal Site Access
Agreement with Assignment (1)
10.7 Letter Agreement - Video Tape Associates,
Inc. (1)
</TABLE>
III-3
<PAGE> 22
<TABLE>
<S> <C>
10.8 Federal Communications Commission licensure
documents (1)
10.9 Satellite Television Programming
Agreement - SMATV Private Cable System(1)
10.10 MMDS Affiliate Agreement - Cable News
Network, Inc. (1)
10.11 Affiliation Agreement - USA Network (1)
10.12 SMATV Private Cable Distribution Agreement -
Cable News Network, Inc. (1)
10.13 SMATV Service Agreement - Showtime (1)
10.14 MMDS Affiliation Agreement - Lifetime (1)
10.15 SMATV Agreement - The Discovery Channel (1)
10.16 SMATV Affiliate Agreement - Arts &
Entertainment Cable Network (1)
10.17 Satellite Television Programming Agreement -
SMATV Private Cable System (1)
10.18 Residential Multipoint Distribution Service
License Agreement - ESPN, Inc. (1)
10.19 MMDS Showtime Service Agreement -
Showtime (1)
10.20 Affiliate Agreement - SportSouth Network,
Ltd. (1)
10.21 12% Cumulative Convertible Redeemable
Preferred Stock, Series A and Warrant
Purchase Agreement Dated March 1, 1995 (3)
10.22 ITFS Excess Capacity Airtime Lease Agreement
Dated September 14, 1995 (4)
10.23 ITFS Excess Capacity Airtime Lease Agreement
Dated November 10, 1994 (4)
10.24 Agreement and Plan of Reorganization among
BellSouth Corporation, BellSouth WCA (5)
22 Subsidiaries of the Company(2)
27 Financial Data Schedule (for SEC use only).
</TABLE>
(1) Filed as an exhibit to the Company's Form 1-A dated May 4, 1993
and is incorporated herein by reference.
(2) Filed as an exhibit to the Company's Form 10KSB for the year
ended December 31, 1993 and is incorporated herein by reference.
(3) Filed as an exhibit to the Company's Form 10KSB for the year
ended December 31, 1994 and is incorporated herein by reference.
(4) Filed as an exhibit to the Company's Form 10KSB for the year
ended December 31,1995 and is incorporated herein by reference.
(5) Filed as an exhibit to Schedule 13D filed February 11, 1997 and
is incorporated herein by reference.
b. Reports on Form 8K: A report on Form 8K was filed by the Company on
November 8, 1996 reporting the signing of a letter of intent with
BellSouth Corporation for the acquisition of the Company by BellSouth
Corporation.
III-4
<PAGE> 23
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Wireless Cable of Atlanta, Inc.
(Registrant)
By: \s\ Ricky C. Haney
---------------------------------
Ricky C. Haney
Chief Executive Officer
Date: March 24, 1997
--------------
In accordance with the Securities Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<S> <C>
By: \s\Ricky C. Haney By:
------------------------------ ----------------------------
Ricky C. Haney R. Stanley Allen
Chief Executive Officer and Director Director
Date: March 24, 1997 Date:
---------------------------- -----------------------------
By: \s\Richard L.Kendrick
----------------------------- By:
Richard L. Kendrick -----------------------------
Senior Executive Vice President and R. Ted Weschler
Director Director
Date: March 24, 1997 Date:
---------------------------- -----------------------------
By: \s\Allan H. Rudder
-----------------------------
Allan H. Rudder
Executive Vice President, Principal
Financial Officer, Principal Accounting
Officer and Director
Date: March 24, 1997
----------------------------
</TABLE>
III-5
<PAGE> 24
WIRELESS CABLE OF ATLANTA, INC. & SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
The following consolidated financial statements of the Registrant and its
subsidiary are submitted herewith in response to Item 7:
<TABLE>
<S> <C>
Reports of independent public accountants F-2
Consolidated balance sheets as of December 31, 1995 and 1996 F-4
Consolidated statements of operations for the years ended
December 31, 1995 and 1996 F-5
Consolidated statements of changes in stockholders' equity for
the years ended December 31, 1995 and 1996 F-5
Consolidated statements of cash flows for the years ended
December 31, 1995 and 1996 F-6
Notes to consolidated financial statements F-7
</TABLE>
F-1
<PAGE> 25
[BLACKWELL, POOLE & COMPANY LETTERHEAD]
Independent Auditor's Report
To the Board of Directors
and Stockholders
Wireless Cable of Atlanta, Inc. and Subsidiary
Atlanta, Georgia
We have audited the accompanying consolidated balance sheet of
Wireless Cable of Atlanta, Inc. and Subsidiary as of December 31, 1995, and the
related consolidated statements of operations, changes in stockholder's 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 consolidated financial position of
Wireless Cable of Atlanta, Inc. and Subsidiary as of December 31, 1995, and the
consolidated results of its operations and its consolidated cash flows for the
year then ended in conformity with generally accepted accounting principles.
Blackwell, Poole & Company
Certified Public Accountants
Atlanta, Georgia
January 31, 1996
F-2
<PAGE> 26
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Wireless Cable of Atlanta, Inc. and subsidiary:
We have audited the accompanying consolidated balance sheet of WIRELESS CABLE OF
ATLANTA, INC. AND SUBSIDIARY (a Georgia corporation) as of December 31, 1996 and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wireless Cable of Atlanta,
Inc. and subsidiary as of December 31, 1996 and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 14, 1997
F-3
<PAGE> 27
WIRELESS CABLE OF ATLANTA, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
ASSETS 1995 1996
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 133,000 $ 147,471
Accounts receivable 69,039 35,212
Other current assets 188,035 171,515
----------- -----------
Total current assets 390,074 354,198
----------- -----------
PROPERTY AND EQUIPMENT:
Cable systems and equipment 5,930,531 7,181,822
Furniture and office equipment 473,551 601,199
----------- -----------
6,404,082 7,783,021
Less accumulated depreciation (2,516,327) (3,316,238)
----------- -----------
3,887,755 4,466,783
----------- -----------
OTHER ASSETS:
Deferred licensing costs 204,000 136,000
Deferred tax benefit 969,941 1,267,754
Other 192,392 107,488
----------- -----------
1,366,333 1,511,242
----------- -----------
Total assets $ 5,644,162 $ 6,332,223
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 184,832 $ 339,893
Accrued expenses and liabilities 229,889 265,850
----------- -----------
Total current liabilities 414,721 605,743
----------- -----------
PREFERRED STOCK 2,121,214 3,733,155
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock of $1 par,
Authorized 10,000,000 shares
Issued and outstanding: 1,770,000 shares
in 1995 and 1,772,600 shares in 1996 1,770,000 1,772,600
Paid in capital 3,494,457 3,516,707
Accumulated deficit (2,156,230) (3,295,982)
--------- ---------
3,108,227 1,993,325
--------- ---------
Total liabilities and stockholders' equity $ 5,644,162 $ 6,332,223
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 28
WIRELESS CABLE OF ATLANTA, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Revenues $ 3,284,816 $ 3,545,611
----------- -----------
Costs and expenses:
Service costs 2,139,431 2,414,484
Selling, general and administrative 1,413,940 1,357,375
Depreciation and amortization 727,400 920,612
----------- -----------
4,280,771 4,692,471
----------- -----------
Loss from operations (995,955) (1,146,860)
----------- -----------
Other income 38,384 85,005
----------- -----------
Loss before income taxes (957,571) (1,061,855)
Deferred income tax benefits 317,903 359,147
----------- -----------
Net loss (639,668) (702,708)
----------- -----------
Preferred dividend requirements (157,600) (437,044)
----------- -----------
Net loss applicable to common shares $ (797,268) $(1,139,752)
=========== ===========
Weighted average number of common shares outstanding 1,740,000 1,771,000
Net loss per common share outstanding $ (0.46) $ (0.64)
=========== ===========
</TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
NUMBER OF $1 PAR PAID-IN ACCUMULATED
SHARES VALUE CAPITAL DEFICIT TOTAL
--------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 1,729,000 $1,729,000 $3,229,207 $(1,358,962) $3,599,245
Stock options and warrants 41,000 41,000 265,250 - 306,250
Preferred stock dividends - - - (157,600) (157,600)
Net (loss) - - - (639,668) (639,668)
--------- ---------- ---------- ----------- ----------
Balance, December 31, 1995 1,770,000 $1,770,000 $3,494,457 $(2,156,230) $3,108,227
Stock options 2,600 2,600 22,250 - 24,850
Preferred stock dividends - - - (437,044) (437,044)
Net (loss) - - - (702,708) (702,708)
--------- ---------- ---------- ----------- ----------
Balance, December 31, 1996 1,772,600 $1,772,600 $3,516,707 $(3,295,982) $1,993,325
========= ========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 29
WIRELESS CABLE OF ATLANTA, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net (loss) $ (639,668) $ (702,708)
Adjustments to reconcile net loss to net cash provided by (used for)
operating activities:
Depreciation and amortization 727,400 920,612
Decrease in receivables 12,439 33,827
Increase in other current assets (149,636) (59,425)
Increase in other assets (391,216) (212,909)
Increase (decrease) in accounts payable and accrued expenses (301,104) 101,135
----------- -----------
Net cash provided by (used for) operating activities (741,785) 80,532
----------- -----------
CASH FLOWS (USED FOR) INVESTING ACTIVITIES:
Purchase of equipment (1,762,482) (1,431,640)
----------- -----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Proceeds from common stock issue 306,250 24,850
Proceeds from preferred stock issue, net of issue costs 1,963,614 1,340,729
----------- -----------
Net cash provided by financing activities 2,269,864 1,365,579
----------- -----------
Net increase (decrease) in cash (234,403) 14,471
Cash and cash equivalents, beginning of year 367,403 133,000
----------- -----------
Cash and cash equivalents, end of year $ 133,000 $ 147,471
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID DURING THE YEAR FOR:
Interest $ -- $ --
=========== ===========
Income taxes $ -- $ --
=========== ===========
FINANCING AND INVESTING ACTIVITIES NOT AFFECTING CASH:
Preferred stock dividends $ 157,600 $ 437,044
Cash paid -- --
----------- -----------
Liabilities incurred $ 157,600 $ 437,044
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 30
WIRELESS CABLE OF ATLANTA, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Wireless Cable of Atlanta, Inc. and Subsidiary ("Company")
provides cable television service to multiple dwelling, single family
and commercial subscribers in the Atlanta, Georgia area. The accounting
and reporting policies of the Company conform with generally accepted
accounting principles and general practice within the Company's
industry. The following is a description of the more significant of
those policies.
The accompanying consolidated financial statements include the
accounts of Wireless Cable of Atlanta, Inc., and its wholly owned
subsidiary Vidcomm, Inc. Intercompany transactions and balances have
been eliminated in consolidation.
Management uses estimates and assumptions in preparing these
financial statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported amounts
and disclosures in the financial statements. Actual results could vary
from the estimates that were used.
The cost of property and equipment is depreciated over the
estimated useful lives of the related assets, generally seven years.
Depreciation is computed on the straight-line method and accelerated
methods for financial reporting purposes and for income tax purposes,
respectively. Depreciation charged to operations amounted to $659,400
and $852,612 in 1995 and 1996, respectively.
The Company has entered into a channel frequency lease agreement
which requires payments based on the greater of a minimum payment or a
cost per subscriber. Costs in excess of the cost per subscriber
component of the lease were capitalized as deferred licensing costs
prior to 1994, consistent with the principles set forth in the
Statement of Financial Accounting Standards ("SFAS") No. 51. These
capitalized costs are being amortized over a five-year period
commencing in 1994. Amortization charged to operations amounted to
$68,000 in 1995 and 1996 each.
Maintenance and repairs are charged to operations when incurred.
Betterments and renewals are capitalized. When property and equipment
is sold or otherwise disposed of, the asset account and related
accumulated depreciation account are relieved, and any gain or loss is
included in operations.
The Company accounts for its stock-based compensation plans
under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25"). Effective in 1996, the
Company adopted the disclosure option of SFAS No. 123,"Accounting for
Stock-based Compensation." SFAS No. 123 requires that companies which
do not choose to account for stock-based compensation as prescribed
by the statement, shall disclose the pro forma effects on earnings
and earnings per share as if SFAS No. 123 had been adopted.
Additionally, certain other disclosures are required with respect to
stock compensation and the assumptions used to determine the pro
forma effects of SFAS No. 123. See Note 3.
F-7
<PAGE> 31
The Company sponsors a 401(k) employee benefit plan. All
employees are eligible for participation after one year of employment
and may contribute the maximum allowable under the plan. The Company
does not contribute to the plan.
Cash equivalents at December 31, 1995 and 1996 was a certificate
of deposit in the amount of $50,000. The Company maintains cash
balances at several banks. Accounts at each institution are insured by
the Federal Deposit Insurance Corporation up to $100,000.
2. Operating Leases:
The Company leases an office and warehouse facility under an
operating lease expiring in November 1997. Rent expense for 1995 and
1996 was $64,962 and $67,854, respectively.
The Company has a lease agreement for its satellite and
microwave dish facility which will expire June 6, 1997 and may be
renewed for an additional three year term. The lease provides for a
monthly rent of $1,500 and is subject to increase based on increases in
the Consumer Price Index. Lease expense for 1995 and 1996 was $18,000
each.
The Company has a lease agreement for placement of its
television signal transmission and processing equipment which will
expire May 31, 2003. The lease provides for a monthly rent of $9,925
which is subject to increase due to the addition of channels and an
increase in the Consumer Price Index. Lease expense for 1995 and 1996
was $55,445 and $110,018, respectively.
The Company has lease agreements for five wireless cable
channels which will expire February 28 and July 16, 2001. The leases
provide for a monthly rent based on the number of subscribers receiving
a signal with a minimum annual rental of $128,544. Lease expense for
1995 and 1996 was $96,000 and $126,542, respectively.
The Company has a lease agreement for excess capacity airtime of
four ITFS wireless cable channels which will expire July 19, 2007. The
lease provides for a monthly rent based on the number of subscribers
receiving a signal with a minimum annual rental of $7,560. Any renewal
is subject to negotiations. There was no lease expense for 1995 and
1996 lease expense was $10,403.
The Company has a lease agreement for excess capacity airtime of
twelve ITFS wireless cable channels which will expire March 31, 2006.
The lease provides for a monthly rent based on the number of
subscribers receiving a signal with a minimum annual rental of $36,000.
Any renewal is subject to negotiation, however, the Company has a right
of first refusal on any competing proposal from any commercial entity.
Lease expense for 1995 and 1996 was $10,500 and $36,000, respectively.
Minimum future rental payments under operating leases having
remaining terms in excess of one year as of December 31, 1996 for the
next five years and in the aggregate are:
F-8
<PAGE> 32
<TABLE>
<CAPTION>
Year Ended December 31: Amount
---------------------- ----------
<S> <C>
1997 $ 362,404
1998 291,204
1999 291,204
2000 291,204
2001 188,408
2002 and thereafter 363,620
----------
Total minimum future rental payments $1,788,044
==========
</TABLE>
3. Stock Options and Warrants:
In 1992, the shareholders approved the formation of a Stock
Option Plan for key employees to be implemented by the Board of
Directors. Under the approved terms of the plan, options to purchase
shares of the Company's common stock will be granted at a price not
less than the fair market value of the stock at the date the key
employee becomes eligible under the plan. Options may be exercised over
a five year period not to exceed 20% per year on a cumulative basis. At
December 31,1996, options had been granted to five key employees for an
aggregate of 71,900 shares at option prices ranging from $6.25 to
$14.00 per share (average $7.21) and 49,100 shares (average $6.85) were
exercisable. At December 31, 1996, there were 24,500 shares available
for future grants under the plan. 1,000 shares were exercised during
1995 and 2,600 during 1996. Also 3,000 shares under option were
canceled in 1996. In addition, warrants to purchase 40,000 shares of
common stock at a price of $7.50 per share were exercised during 1995.
These stock options have not been included in the weighted average
number of shares outstanding as they would be anti-dilutive.
The Company accounts for its stock-based compensation plans
under APB No. 25, under which no compensation expense has been
recognized, as all options have been granted with an exercise price
equal to the fair value of the Company's common stock on the date of
grant. The Company adopted SFAS No. 123 for disclosure purposes in
1996. For SFAS No. 123 purposes, the fair value of each option grant
has been estimated as of the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions
used for grants in 1995: risk-free interest rate of 6.72 percent,
expected life of 5 years, dividend rate of zero percent, and expected
volatility of 55 percent. Using these assumptions, the fair value of
the stock options granted in 1995 is $119,048, which would be amortized
as compensation expense over five years--the vesting period of the
options. There were no stock options granted in 1996. Had compensation
cost been determined consistent with SFAS No. 123, utilizing the
assumptions detailed above, the Company's net loss and net loss per
share would have been increased to the following pro forma amounts:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Net Loss
As reported $797,268 $1,139,752
Pro forma $815,163 $1,169,514
Net loss per share
As reported $ 0.46 $ 0.64
Pro forma $ 0.47 $ 0.66
</TABLE>
F-9
<PAGE> 33
Because SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that expected in future
years.
4. Income Taxes:
Deferred income taxes are provided for temporary differences in the
bases of assets and liabilities between financial reporting and income tax
reporting. The temporary differences result from a basis of accounting for
financial reporting different from that used for income tax reporting and
different methods and periods used to calculate depreciation.
The components of the deferred income tax benefit for 1995 and 1996
are as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Depreciation $ 80,837 $ 95,147
Difference between accrual basis
of accounting and tax basis of
accounting (51,124) (64,950)
Tax benefit of loss carryforward (347,616) (389,344)
--------- ----------
Deferred tax benefit $(317,903) $ (359,147)
========= ==========
</TABLE>
The components of the net noncurrent deferred tax asset in 1995
and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Property and equipment $ (165,648) $ (257,179)
Net operating loss carryforward 1,135,589 1,524,933
---------- ----------
Deferred tax benefit, net $ 969,941 $1,267,754
========== ==========
</TABLE>
The components of the net current deferred tax asset in 1995 and
1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Property and equipment $ (16,824) $(20,440)
Difference between accrual
basis of accounting and tax
basis of accounting 80,397 145,348
--------- --------
Deferred tax benefit, net $ 63,573 $124,908
========= ========
</TABLE>
F-10
<PAGE> 34
Realization of the net operating loss carryforward deferred tax assets is
dependant on the Company either generating sufficient taxable income prior to
expiration of the loss carryforwards, or employing tax-planning strategies to
utilize the excess of appreciated asset value over the tax basis of the
Company's net assets. Although realization is not assured, management believes
it is more likely than not that all of the deferred tax asset will be realized.
The Company used an effective tax rate of 34% (28% for federal and 6% for
state) which is not significantly different from the statutory tax rate.
The net operating loss carryforwards totaling $4,337,752 expire as
follows: 2002, $82,783; 2003, $249,037; 2004, $286,089; 2005, $80,425; 2006,
$408,730; 2007, $138,058; 2008, $154,759; 2009, $899,522; 2010, $893,220 and
2011, $1,145,129. Investment tax credit carryovers in the amount of $6,374
expire in 2000.
5. Preferred Stock:
During 1994, shareholders authorized the issuance of 5,000,000 shares of
undesignated Preferred Stock issuable by the Board of Directors at its
discretion in one or more series.
On March 1, 1995, the Company executed an agreement with Applied Video
Technologies, Inc. ("AVT") for the purchase by AVT of $3,500,000 of Cumulative
Convertible Redeemable Preferred Stock, Series A ("Series A Preferred Stock").
Under the terms of the agreement, AVT invested $2,100,000 in the Series A
Preferred Stock in 1995 and $1,400,000 in January 1996.
Other terms of the Series A Preferred Stock include a dividend rate of 12%
payable in kind for five years at the option of the Company and in cash
thereafter, the right to elect two members to the Board of Directors and the
right to vote, on an as converted basis, on all matters submitted to the common
stockholders with the exception of directors. The Series A Preferred Stock can
be converted into common stock at a conversion price of $11.00 per share, and
the Company is obligated to redeem the Series A Preferred Stock on the eighth
anniversary of its issue. Series A Preferred Stock dividends have a preference
over dividends on common stock.
6. Employment Contracts:
In September 1993, the Company entered into five year agreements with
Ricky C. Haney, Richard L. Kendrick, and Allan H. Rudder which provide for a
minimum base salary of $102,000, $102,000 and $96,000, respectively. The
agreements provide for a severance payment equal to the remaining contract term
base salary in the event of termination without cause. The agreements also
provide for a $6,000 annual auto allowance and minimum annual base salary
increases of five percent.
F-11
<PAGE> 35
7. Subsequent Event:
On February 11, 1997, the Company entered into a definitive agreement with
BellSouth Corporation for a merger of the Company with a subsidiary of
BellSouth Corporation. The agreement is noncancelable for a period of six
months and is expected to close within that period of time; however,
stockholder and Federal Communications Commission approval is required. The
agreement provides for a non taxable stock exchange of .49 shares of BellSouth
Corporation stock for each share of Company stock, with a maximum value
attributable to the Company stock of $20.88625 per share and a minimum value of
$15.98625 per share. These valuations are subject to upward adjustment for any
BellSouth distributions, such as cash dividends, prior to closing of the
merger.
In connection with the agreement, in February 1997, BellSouth
provided $1,000,000 of financing to the Company. Prior to closing the merger,
the proceeds of such financing may be used only a) to fund negative cash flow
from operations not in excess of $150,000 and b) for construction of new
wireless cable facilities for multiple dwelling units, approved by BellSouth.
The financing does not bear interest. In the event the agreement is terminated
by BellSouth, other than as a result of a material misrepresentation or a
material breach of a merger agreement covenant by the Company, the financing
will be forgiven. In the event the agreement is terminated by BellSouth as a
result of a material misrepresentation or a material breach of a merger
agreement covenant by the Company, or by the Company due to the expiration of
the six month noncancelable period of time, or by reason of actions by any
governmental entity which would have the effect of materially restricting the
consummation of the merger, the financing will, as of the date of such event,
convert into an interest-bearing loan with interest accruing from such time at
an annual rate of 10%. The loan will be secured by the stock of the Company
subsidiary and will have a maturity date of December 31, 1998.
F-12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1996, FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
10KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 147,471
<SECURITIES> 35,212
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 354,198
<PP&E> 7,783,021
<DEPRECIATION> 3,316,238
<TOTAL-ASSETS> 6,332,223
<CURRENT-LIABILITIES> 605,743
<BONDS> 0
3,733,155
0
<COMMON> 1,772,600
<OTHER-SE> 220,725
<TOTAL-LIABILITY-AND-EQUITY> 6,332,223
<SALES> 3,545,611
<TOTAL-REVENUES> 3,545,611
<CGS> 0
<TOTAL-COSTS> 4,692,471
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,061,855)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,139,752)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,139,752)
<EPS-PRIMARY> (.64)
<EPS-DILUTED> 0
</TABLE>
