SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 30, 1996
WIRELESS ONE, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-26836 72-1300837
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
11301 Industriplex, Suite 4, Baton Rouge, Louisiana 70809-4115
(Address of principal executive offices)(Zip Code)
(504) 293-5000
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report.)
<PAGE>
Item 5. Other Events
See Exhibits 99.1 and 99.2.
Item 7. Financial Statements and Exhibits.
(a) Exhibits.
99.1 Index to and Unaudited Pro Forma Condensed
Combined Financial Information of Wireless
One, Inc. as of June 30, 1996.
99.2 Index to and Financial Statements of
TruVision Wireless, Inc., Madison
Communications, Inc. and Beasley
Communications, Inc.
99.3 Consent of Arthur Andersen LLP (Jackson,
Mississippi)
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly
authorized.
WIRELESS ONE, INC.
By: /s/ Michael C. Ellis
______________________________
Michael C. Ellis
Vice President and Controller
Dated: October 30, 1996
Exhibit 99.1
INDEX TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION OF
WIRELESS ONE, INC. AS OF JUNE 30, 1996
Explanatory Note to Unaudited Pro Forma Condensed
Combined Financial Information 1
Unaudited Pro Forma Condensed Combined Balance Sheet
as of June 30, 1996 3
Notes to Unaudited Pro Forma Condensed Combined
Balance Sheet 4
Unaudited Pro Forma Condensed Combined Statement of
Operations for the Year Ended December 31, 1995 5
Unaudited Pro Forma Condensed Combined Statement of
operations for the Six Months ended June 30, 1996 6
Notes to Unaudited Pro Forma Condensed Combined
Statements of Operations 7
<PAGE> 1
EXPLANATORY NOTE
TO
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined
financial information consists of an Unaudited Pro Forma
Condensed Combined Balance Sheet as of June 30, 1996 and
Unaudited Pro Forma Condensed Combined Statements of
Operations for the year ended December 31, 1995 and the six
months ended June 30, 1996 (collectively, the "Pro Forma
Statements") for Wireless One, Inc. (the "Company"). The
Unaudited Pro Forma Condensed Combined Statements of
Operations give effect to (i) the initial public offering of
the Company's common stock in October 1995 and the
concurrent issuance of units consisting of the Company's 13%
Senior Notes due 2003 (the "13% Notes") and warrants to
purchase the Company's common stock (collectively, the "1995
Offerings"), (ii) the acquisition of all of the wireless
cable television assets and related liabilities of certain
subsidiaries of Heartland Wireless Communications, Inc.
("Heartland") with respect to certain of Heartland's markets
in Texas, Louisiana, Alabama, Georgia and Florida for
approximately 3.5 million shares of the Company's common
stock in October 1995 (the "Heartland Transaction"), (iii)
the merger in July 1996 of TruVision Wireless, Inc.
("TruVision") with a subsidiary of the Company (the
"TruVision Transaction"), (iv) the acquisition by TruVision
(A) in August 1996 of a wireless cable system and a hard-
wire cable system in the Huntsville, Alabama market for
approximately $6.0 million in cash (the "Madison Purchase"),
(B) in February 1996 of all of the outstanding stock of
BarTel, Inc. for $1.7 million in cash and a $652,000
promissory note (the "BarTel Purchase") and (C) in August
1996 of all the outstanding stock of Shoals Wireless, Inc.
for $1.2 million in cash and a note (the "Shoals Purchase")
and (v) the conversion of the TruVision convertible
preferred stock into TruVision common stock, in each case as
if such transactions had occurred on January 1, 1995.
The Unaudited Pro Forma Condensed Combined Balance
Sheet gives effect to (i) the TruVision Transaction, (ii)
the Madison Purchase, (iii) the Shoals Purchase, (iv) the
conversion of the TruVision convertible preferred stock into
TruVision common stock, (v) the acquisition by TruVision of
rights to cable channels in the Gadsden, Alabama market for
$950,000 in cash, (vi) the consummation of several acquisitions
with respect to which TruVision has entered into definitive
agreements, including agreements (A) to acquire rights to
wireless cable channels in the Jacksonville, Florida market
for approximately $820,000 (the "Jacksonville Purchase"),
(B) to acquire rights to wireless cable channels in the
Chattanooga, Tennessee market for $517,000 (the "Chattanooga
Purchase") and (C) to acquire wireless cable channels and a
transmission facility in the Jackson, Tennessee market and
rights to cable channels in the Hot Springs, Arkansas market
for an aggregate of $4.2 million in cash (the "Sky View
Purchase"), and (vii) the channel rights to be purchased by
the Company in connection with the BTA Auction held by
the Federal Communications Commission in March 1996 and the
incurrence of associated indebtedness. All transactions are
accounted for under the purchase method of accounting.
The Unaudited Pro Forma Condensed Combined Statements
of Operations, as adjusted, give effect to the issuance in
August 1996 of the Company's 13-1/2% Senior Discount Notes
due 2006 (the "Discount Notes") to the extent proceeds
therefrom were used to repay $12.0 million of TruVision
indebtedness outstanding on June 30, 1996. At the time of
the consummation of the TruVision Transaction, there was
$18.0 million of TruVision indebtedness. No pro forma
interest expense has been reflected on indebtedness incurred
to acquire channel rights in the BTA auction. Giving full
effect to (i) the issuance of the 13% Notes and amortization
of the related debt issuance costs, (ii) the issuance of the
Discount Notes and amortization of the related debt issuance
costs and amortization of the debt discount resulting from
the issue price allocated to warrants issued in connection
with the Discount Notes, and (iii) the incurrence of BTA
Auction indebtedness, as if such indebtedness had been
incurred, and the issuance of the 13% Notes and Discount
Notes, as if these had been issued, on January 1, 1995,
interest expense on a pro forma basis would have been $42.7
million and $22.6 million, respectively, for the year ended
December 31, 1995 and for the six months ended June 30,
1996.
The Pro Forma Statements and accompanying notes should
be read in conjunction with the Company's consolidated
financial statements, Heartland Division's financial
statements, TruVision's financial statements, Madison
Communications, Inc. and Beasley Communications, Inc.'s
combined financial statements and BarTel, Inc.'s financial
statements, in each case, including the notes thereto, all
of which have been previously filed with the Commission or
are filed as exhibits to the Company's Current Report on Form
8-K to which this is an exhibit. The Pro Forma Statements do
not purport to represent what the Company's results of
operations or financial position would actually have been if
the aforementioned transactions or events occurred on the dates
specified or to project the Company's results of operations
or financial position for any future periods or at any
future date. The pro forma adjustments are based upon
available information and certain adjustments that the
Company believes are reasonable. In the opinion of the
Company, all adjustments have been made that are necessary
to present fairly the Pro Forma Statements.
<PAGE> 3
<TABLE>
<CAPTION>
WIRELESS ONE, INC.
Unaudited Pro Forma Condensed Combined Balance Sheet
June 30, 1996
TruVision
Wireless One TruVision Madison Shoals Pro Formas
Historical Historical Historical Historical Adjustments
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents $ 73,877,954 $ 241,600 $ 100,644 $ 1,477 $ (10,221,295)(1)
Marketable investment
securities-restricted 17,670,036 --- --- --- ---
Other current assets 1,319,796 708,498 287 670 ---
------------ ------------ ----------- --------- -------------
Total current assets 92,867,786 950,098 100,931 2,147 (10,221,295)
Property and equipment, net 33,066,456 15,933,868 1,046,110 351,015
Intangibles 36,454,732 8,982,332 63,332 20,006 33,352,436(1)
4,015,000(2)
Marketable investment
securities-restricted 27,801,368 --- --- --- ---
Note receivable 5,722,482 --- --- --- (5,722,482)
Other assets 7,627,582 4,791,659 1,835 --- 4,125,000(1)
------------ ------------ ----------- --------- -------------
Total assets $203,540,406 $ 30,657,957 $ 1,212,208 $ 373,168 $ 25,548,659
============ ============ =========== ========= =============
Current liabilities:
Short-term debt $ 392,105 $ 22,485,810 $ 75,000 $ --- $ (10,400,777)
Other current liabilities 9,158,644 6,576,190 411,150 36,622 ---
------------ ------------ ----------- --------- -------------
Total current liabilities 9,550,749 29,062,000 486,150 36,622 (10,400,777)
Deferred income taxes --- --- --- --- 4,015,000(2)
BTA Auction Indebtedness --- --- --- --- ---
Long-term debt 151,116,860 --- --- 423,456
Stockholders' equity:
Preferred stock --- 11,000 --- --- (11,000)(1)
Common stock 134,988 24,000 1,000 300 22,949(1)
(24,000)(1)
Additional paid-in capital 65,631,596 10,698,679 2,475,192 155,521 32,105,721(1)
(10,698,679)(1)
1,401,723
Warrants --- --- --- --- ---
Accumulated deficit (22,893,787) (9,137,722) (1,750,134) (242,731) 9,137,722(2)
------------ ------------ ----------- --------- -------------
Total stockholders' equity 42,872,797 1,595,957 726,058 (86,910) 31,934,436
----------- ------------ ----------- --------- -------------
Total liabilities and
stockholders' equity $203,540,406 $ 30,657,957 $ 1,212,208 $ 373,168 $ 25,548,659
============ ============ =========== ========= =============
</TABLE>
<TABLE>
<CAPTION>
WIRELESS ONE, INC.
Unaudited Pro Forma Condensed Combined Balance Sheet
June 30, 1996
(continued)
Adjustments for
Acquisition
License and 1996 Debt Pro Forma
Channel Rights Pro Forma Offering Combined
Purchases Combined Adjustments Adjustmnets
<S> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents $ (19,315,720)(3) $ 44,582,539 $ 118,625,000 $ 150,733,293
(102,121)(4) (12,474,246)(8)
Marketable investment
securities-restricted --- 17,670,036 --- 17,670,036
Other current assets 32,000(5) 2,061,251 --- 2,061,251
-------------- -------------- -------------- --------------
Total current assets (19,385,841) 64,313,826 106,150,754 170,464,580
Property and equipment, net 580,000(5) 50,977,449 --- 50,977,449
Intangibles 58,018,405(5) 140,906,243 --- 140,906,243
Marketable investment
securities-restricted --- 27,801,368 --- 27,801,368
Note receivable --- --- --- ---
Other assets (1,012,500)(6) 15,533,576 6,375,000(8) 21,908,576
-------------- -------------- -------------- --------------
Total assets $ 38,200,064 $ 299,532,462 $ 112,525,754 $ 412,058,216
============== ============== ============== ==============
Current liabilities:
Short-term debt $ (75,000)(4) $ 12,477,138 $ (12,000,000)(8) $ 477,138
Other current liabilities (447,772)(4) 15,734,834 (474,246)(8) 15,260,588
-------------- -------------- -------------- --------------
Total current liabilities (522,772) 28,211,972 (12,474,246)(8) 15,737,726
Deferred income taxes --- 4,015,000 --- 4,015,000
BTA Auction Indebtedness 23,712,880(6) 23,712,880 --- 23,712,880
Long-term debt (423,456)(4) 151,116,860 119,946,613 (8) 271,063,473
Stockholders' equity:
Preferred stock --- --- --- ---
Common stock 11,480(7) 169,417 --- 169,417
(1,300)(7)
Additional paid-in capital 16,061,080(8) 115,200,120 --- 115,200,120
(2,630,713)(7)
Warrants --- --- 5,053,387 5,053,387
Accumulated deficit 1,992,865(7) (22,893,787) --- (22,893,787)
------------- -------------- -------------- --------------
Total stockholders' equity 15,433,412 92,475,750 5,053,387 97,529,137
------------- -------------- -------------- --------------
Total liabilities and
stockholders' equity $ 38,200,064 $ 299,532,462 $ 112,525,754 $ 412,058,216
============= ============== ============== ==============
</TABLE>
<PAGE> 4
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(1) Represents the elimination of TruVision's historical equity
and the issuance of 2,294,905 shares (excludes the 1,148,040
shares of Common Stock described in Note 7 below) of Common
Stock, at $14 per share, by the Company for the purchase of
all outstanding common stock of TruVision, including the
payment of $1,800,000 to VCI and other expenses related to the
merger including but not limited to bond holder consent fees
with respect to certain amendments to the 1995 Indenture. The
Company issued options to certain TruVision employees in
exchange for the TruVision options as set forth in the
TruVision Merger Agreement. A value of $1,401,723 has been
assigned to these options. For purposes of the Pro Forma
Statements the Company has tentatively considered the fair
value of the acquired tangible assets to approximate their
historical carrying value, with the excess acquisition costs
being attributable to channel rights and license agreements.
It is the Company's intention, subsequent to the acquisition,
to more fully evaluate the acquired assets and, as a result,
the allocation of the acquisition costs among tangible and
intangible assets acquired may change.
(2) Reflects the recognition of deferred income taxes at an
estimated 35% effective tax rate on the excess of book value
over tax basis relating to the TruVision net assets. The
related increase in intangibles will be amortized over an
estimated useful life of 20 years.
(3) Reflects cash to be paid in the Madison Purchase ($5.7
million), Shoals Purchase ($1.2 million), and the TruVision
Transaction, including, the SkyView Purchase ($4.2 million),
the Gadsden Purchase ($1.0 million) and the Jacksonville
Purchase ($0.8 million), and the cash portion of the purchase
price for rights to be obtained via the BTA Auction ($4.6
million).
(4) Reflects the elimination of certain assets and liabilities
that the Company will not acquire as part of the Madison
Purchase and the Shoals Purchase as set forth in the
respective agreements.
(5) This adjustment represents the estimated fair value of the
equipment and the other assets acquired, and the excess of
cost over tangible assets acquired, as part of the TruVision
Transaction ($10.8 million), the Madison Purchase and Shoals
Purchase ($7.0 million), the Gadsden Purchase, and SkyView
Purchase (collectively $10.5 million), and the acquisition of
other channel and license rights primarily through the BTA
Auction ($29.6 million). Also reflects investment to acquire
PCS license ($1.5 million). For purposes of the Pro Forma
Statements, the Company has tentatively considered the fair
value of the acquired tangible assets to approximate their
historical carrying value, with the excess acquisition costs
being attributable to channel rights and license agreements.
It is the Company's intention, subsequent to the acquisition,
to more fully evaluate the acquired assets and, as a result,
the allocation of the acquisition costs among tangible and
intangible assets acquired may change.
(6) Represents debt to the United States government to finance
$23,712,880 of the purchase price of, and the utilization of
$1,012,500 of deposits for, the channel rights to be purchased
via the BTA Auction.
(7) Represents the elimination of Madison's and Shoals'
historical equity and the issuance of 1,148,040 shares of
Common Stock, at $14 per share to be issued in connection with
the Madison Purchase, Shoals Purchase and certain other
license and channel rights purchases.
(8) Reflects the 1996 Debt Offering, net of estimated debt
issuance costs of $6.4 million, and the application of $12.0
million of the proceeds therefrom to repay TruVision
indebtedness outstanding on March 31, 1996. At the time of
the consummation of the TruVision Transaction, there was $18.0
million of TruVision indebtedness. The 1996 Warrants have
been valued at $5.1 million.
<PAGE> 5
<TABLE>
<CAPTION>
WIRELESS ONE, INC.
Unaudited Pro Forma Condensed Combined Statement of Operations
Year Ended December 31, 1995
Heartland
Wireless One Division TruVision Madison BarTel Shoal
Historical Historical Historical Historical Historical Historical
----------- ---------- ------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 1,343,969 $ 632,173 $ 3,081,614 $ 1,582,147 $ 150,000 $ 83,867
Operating Expenses:
Systems operations 841,819 397,574 2,103,053 888,707 67,720 53,015
Selling, general
and administrative 4,431,839 348,447 2,086,200 404,804 59,485 49,915
Depreciation and
amortization 1,783,066 193,962 1,266,301 577,240 42 61,306
----------- ---------- ------------ ----------- --------- ----------
Total operating
expenses 7,056,724 939,983 5,455,554 1,870,751 127,247 164,236
----------- ---------- ------------ ----------- --------- ----------
Operating income (loss) (5,712,755) (307,810) (2,373,940) (288,604) 22,753 (80,369)
----------- ---------- ------------ ----------- --------- ----------
Interest income 2,024,116 --- 15,063 --- --- ---
Interest expense (4,070,184) --- (143,505) (17,440) --- (35,137)
Other 66,349 --- --- 36,271 --- ---
----------- --------- ------------ ----------- --------- ----------
Income (loss) before
income taxes (7,692,474) (307,810) (2,502,382) (269,773) 22,753 (115,506)
Income tax
(expense) benefit --- 113,890 --- --- (5,039) ---
----------- ---------- ------------ ----------- --------- ----------
Net income (loss) (7,692,474) (193,920) (2,502,382) (269,773) 17,714 (115,506)
Preferred stock
dividends and discount
accreation (786,389) --- (687,000) --- --- ---
----------- ---------- ------------- ------------ --------- ----------
Net income (loss)
applicable to common
stock $(8,478,863) $ (193,920) $ (3,189,382) $ (269,773) $ 17,714 $ (115,506)
=========== ========== ============= ============ ========= ==========
Net loss per common
share $ (2.02)
============
Weighted average common
shares outstanding 4,187,736
============
</TABLE>
<TABLE>
<CAPTION>
WIRELESS ONE, INC.
Unaudited Pro Forma Condensed Combined Statement of Operations
Year Ended December 31, 1995
(continued)
Adjustments
Heartland for
Transaction Acquisition
and the Old License and 1996 Debt Pro Forma
Offerings TruVision Channel Rights Pro Forma Offering Combined
Adjustments Adjustments Purchases Combined Adjustments As Adjusted
----------- ----------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues --- $ (486,100)(5) $ --- $ 6,387,670 $ --- $6,387,670
Operating Expenses:
Systems operations 194,541(1) (134,787)(5) --- 4,411,642 --- 4,411,642
Selling, general
and administrative --- --- --- 7,380,690 --- 7,380,690
Depreciation and
amortization --- (35,131)(6) 338,642 (7) 5,152,049 --- 5,152,049
421,354 (7)
545,267(8)
----------- ------------ ----------- ------------ ---------- ------------
Total operating
expenses 194,541 796,703 338,642 16,944,381 --- 16,944,381
----------- ------------ ----------- ------------ ---------- ------------
Operating income (loss) (194,541) (1,282,803) (338,642) (10,556,711) --- (10,556,711)
----------- ------------ ----------- ------------ ---------- ------------
Interest income --- --- --- 2,039,179 --- 2,039,179
Interest expense (668,427)(2) --- --- (4,934,693) (1,885,766)(10) (6,820,459)
Other --- --- --- 102,620 --- 102,620
----------- ------------ ----------- ------------ ---------- -----------
Income (loss) before
income taxes (862,968) (1,282,803) (338,642) (13,349,605) (1,855,766) (15,235,371)
Income tax
(expense) benefit (113,890)(3) 4,481,520(11) 5,039(3) 4,481,520 660,016 (11) 5,141,536
----------- ------------ ----------- ------------ ---------- ------------
Net income (loss) (976,858) 3,198,717 (333,603) (8,868,085) (1,225,750) (10,093,835)
Preferred stock
dividends and discount
accreation 786,389(4) 687,000(9) --- --- --- ---
Net income (loss) ----------- ------------- ------------ ------------- ----------- -------------
applicable to common
stock $ (190,469) $ 3,885,717 $ (333,603) $ (8,868,085) $(1,225,750) $ (10,093,835)
=========== ============= ============ ============= =========== =============
Net loss per common
share $ (1.16) $ (1.32)
============ =============
Weighted average common
shares outstanding 2,294,905 1,148,040 7,630,681 7,630,681
============ ============ ============= ============
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
WIRELESS ONE, INC.
Unaudited Pro Forma Condensed Combined Statement of Operations
Six Months Ended June 30, 1996
Wireless One TruVision Madison BarTel Shoal
Historical Historical Historical Historical Historical
------------- ------------ ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $ 2,372,132 $ 2,807,256 $ 782,283 $ 8,500 $ 79,722
Operating Expenses:
Systems operations 1,266,626 2,015,657 301,840 5,090 19,688
Selling, general
and administrative 5,529,724 2,102,118 374,095 3,351 80,135
Depreciation and
amortization 2,262,506 1,439,974 256,784 17 136,211
------------- ----------- ------------ ---------- ----------
Total operating
expenses 9,058,856 5,557,749 932,719 8,458 236,034
------------- ----------- ------------ ---------- ----------
Operating income (loss) (6,686,724) (2,750,493) (150,436) 42 (156,312)
------------- ----------- ------------ ---------- ----------
Interest income 3,863,777 --- --- --- ---
Interest expense (10,021,497) (728,085) (5,204) --- (28,826)
Other 67,554 (2,515,000) 30,060 --- ---
------------- ----------- ----------- ---------- ----------
Income (loss) before
income taxes (12,776,890) (5,993,578) (125,580) 42 (185,138)
Income tax
(expense) benefit --- --- --- --- ---
------------- ----------- ----------- ---------- ----------
Net income (loss) (12,776,890) (5,993,578) (125,580) 42 (185,138)
Preferred stock
dividends and discount
accreation --- (440,000) --- --- ---
------------- ----------- ------------ ------------ -----------
Net income (loss)
applicable to common
stock $ (12,776,890) $ (6,433,578) $ (125,580) $ 42 $ (185,138)
============= ============ ============ ============ ===========
Net loss per common
share $ (0.95)
==============
Weighted average common
shares outstanding 13,498,752
==============
</TABLE>
<TABLE>
<CAPTION>
WIRELESS ONE, INC.
Unaudited Pro Forma Condensed Combined Statement of Operations
Six Months Ended June 30, 1996
(continued)
Adjustments
for
Acquisition
License and 1996 Debt Pro Forma
TruVision Channel Rights Pro Forma Offering Combined
Adjustments Purchases Combined Adjustments As Adjusted
----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ (308,994)(5) $ -- $ 5,740,899 $ --- $ 5,740,899
Operating Expenses:
Systems operations --- --- 3,608,901 --- 3,608,901
Selling, general
and administrative --- --- 8,089,423 --- 8,089,423
Depreciation and
amortization (35,131)(6) 170,989 (7) 4,911,594 --- 4,911,594
407,611(7)
272,633(8)
------------ ----------- ----------- ----------- ------------
Total operating
expenses 645,113 170,989 16,609,918 --- 16,609,918
------------ ----------- ----------- ----------- ------------
Operating income (loss) (954,107) (170,989) (10,869,019) --- (10,869,019)
------------ ----------- ----------- ----------- ------------
Interest income --- --- 3,863,777 --- 3,863,777
Interest expense --- --- (10,783,612) (515,057)(10) (11,298,669)
Other --- --- 2,417,386 --- (2,417,386)
------------ ----------- ----------- ----------- ------------
Income (loss) before
income taxes (954,107) (170,989) (20,206,240) (515,057) (20,721,297)
Income tax
(expense) benefit 6,508,486(11) --- 6,508,486 180,265(11) 6,688,751
------------ ----------- ----------- ----------- -------------
Net income (loss) 5,554,379 (170,989) (13,697,754) (334,792) (14,032,546)
Preferred stock
dividends and discount
accreation 440,000(9) --- --- --- ---
Net income (loss) ------------ ----------- ------------ ------------ -------------
applicable to common
stock $ 6,355,978 $ (170,989) $(13,697,754) $ (334,792) $ (14,032,546)
============ =========== ============ ============ =============
Net loss per common
share $ (0.81) $ (0.83)
============ =============
Weighted average common
shares outstanding 2,294,905 1,148,040 16,941,697 16,941,697
============ ============ ============ =============
</TABLE>
<PAGE> 7
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(1) Reflects the additional channel lease expense associated
with the Heartland Transaction.
(2) Reflects additional interest expense on the 13% Notes at a
rate of 13%, amortization of debt issuance costs and
amortization of debt discount associated solely with the
portion of the proceeds of the 1995 Offerings utilized to pay
$7 million of notes payable to Heartland.
(3) Reflects the adjustment of income tax benefit as a result
of the Heartland Transaction and the BarTel Purchase.
(4) Reflects the elimination of the preferred stock dividends
and discount accretion related to the redeemable convertible
preferred stock of Old Wireless One which was converted to
Common Stock at the time of the 1995 Offering.
(5) Reflects the elimination of TruVision's, Madison's and
Shoals' installation revenue and direct commissions from the
statement of operations in order to conform accounting
policies for the capitalized costs of subscriber installations
to the Company's accounting policies.
(6) Reflects the reduction in depreciation expense as a result
of the conforming adjustments in Note 5 above.
(7) Reflects the amortization of the intangible assets acquired
in the TruVision Transaction, Madison Purchase, Shoals
Purchase, and certain other channel rights purchases. For
purposes of these Pro Forma Statements, lives of 20 years have
been used for licenses and channel rights. Amortization of
intangible assets has only been recorded in those Markets
acquired which are Operating Systems.
(8) Reflects the amortization of excess purchase price over the
fair value of net identifiable assets acquired in the
TruVision Transaction over 20 years.
(9) Reflects the elimination of the preferred dividend
requirements as a result of the conversion of TruVision's
convertible preferred stock into TruVision common stock.
(10) Reflects additional interest expense on the Discount Notes
and amortization of debt issuance costs and amortization of
debt discount resulting from the issue price allocated to the
1996 Warrants associated solely with the portion of the
proceeds from the 1996 Offering used to repay $10.0 million of
TruVision indebtedness. Giving full effect to (i) the
issuance of the 13% Notes and amortization of the related debt
issuance cost, (ii) the issuance of the Discount Notes and
amortization of the related debt issuance costs, and (iii) the
incurrence of BTA Auction indebtedness as if such indebtedness
had been incurred, and the Existing Notes and the Notes had
been issued, on January 1, 1995, interest expense on a pro
forma basis would have been $42.7 million and $22.6 million,
respectively, for the year ended December 31, 1995 and the six
months ended June 30, 1996.
(11) Reflects adjustment to income tax benefit related to the
pro forma adjustments. Income tax benefit reflects the
recognition of deferred tax assets to the extent such assets
can be realized through reversals of existing taxable
temporary differences.
Exhibit 99.2
INDEX TO FINANCIAL STATEMENTS
TruVision Wireless, Inc.
Report of Independent Public Accountants 1
Balance sheets as of December 31, 1994 and 1995
and unaudited June 30, 1996 2
Statements of Operations for the periods from
Inception (November 2, 1993) to December 31,
1993, January 1, 1994 through August 24, 1994
and August 25, 1994 through December 31, 1994
and for the year ended December 31, 1995 and
unaudited for the six months ended June 30,
1995 and 1996 3
Statements of Partners Capital for the periods
from Inception (November 2, 1995) to December
31, 1993 and January 1, 1994 through August
24, 1994 4
Statements of Changes in Stockholders Equity for
the period from August 25, 1994 through
December 31, 1994 and for the year ended
December 31, 1995 and unaudited for the six
months ended June 30, 1996 5
Statements of Cash Flows for the periods from
Inception (November 2, 1993) to December 31,
1993, January 1, 1994 through August 24, 1994,
and August 25, 1994 through December 31, 1994
and for the year ended December 31, 1995 and
unaudited for the six months ended June 30,
1995 and 1996 6
Notes to Financial Statements 7
Madison Communications, Inc. and Beasley Communications, Inc.
Report of Independent Public Accountants 17
Combined Balance Sheets as of December 31, 1994
and 1995 and unaudited June 30, 1996 18
Combined Statements of Operations and Accumulated
Deficit for the years ended December 31, 1993,
1994 and 1995 and unaudited for the six months
ended June 30, 1995 and 1996 19
Combined Statements of Cash Flows for the years
ended December 31, 1993, 1994 and 1995 and
unaudited for the six months ended June 30,
1995 and 1996 20
Notes to Combined Financial Statements 21
<PAGE> 1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of TruVision Wireless, Inc.:
We have audited the accompanying balance sheets of TruVision Wireless, Inc.
(a Delaware corporation formerly named TruVision Cable, Inc.) as of December
31, 1994 and 1995, and the related statements of operations, changes in
stockholders' equity and cash flows for the period from inception (August 25,
1994) through December 31, 1994 and for the year ended December 31, 1995. We
have also audited the statements of operations, partners' capital and cash
flows of Mississippi Wireless TV L. P. (the predecessor entity to TruVision
Wireless, Inc.) for the period from inception (November 2, 1993) to December
31, 1993 and the period from January 1, 1994 through August 24, 1994. TruVision
Wireless, Inc. and Mississippi Wireless TV L. P. are hereinafter together
referred to as "the Company." These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TruVision Wireless, Inc. as of
December 31, 1994 and 1995, and the results of its operations and its cash
flows for the period from inception (August 25, 1994) through December 31, 1994
and for the year ended December 31, 1995, and the results of operations and
cash flows of Mississippi Wireless TV L. P. for the period from inception
(November 2, 1993) through December 31, 1993 and the period from January 1,
1994 through August 24, 1994, all in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Jackson, Mississippi,
March 26, 1996 (except with respect to
the matter discussed in Note 11,
as to which the date is April 25,
1996).
<PAGE> 2
TRUVISION WIRELESS, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
(Data with respect to June 30, 1996 are unaudited)
December 31, June 30,
------------------------
1994 1995 1996
----------- ------------ ------------
ASSETS (unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $2,712,851 $88,882 $ 193,100
Short-term investments.................................... 75,000 36,300 48,500
Accounts receivable (less allowance for doubtful accounts
of $34,000, $150,426 and $217,211, respectively)........ 41,178 283,656 398,472
Other current assets...................................... 11,005 108,376 310,026
----------- ------------ ------------
Total current assets.................................... 2,840,034 517,214 950,098
----------- ------------ ------------
Property, plant and equipment:
Transmission equipment.................................... 1,197,425 3,029,214 4,487,166
Subscriber premises equipment and installation costs...... 1,841,868 6,866,806 10,603,107
Office furniture and equipment............................ 263,743 437,169 1,007,267
Vehicles.................................................. 223,996 215,344 223,346
Buildings and improvements................................ 204,340 326,090 378,837
----------- ------------ ------------
3,731,372 10,874,623 16,699,723
Less: accumulated depreciation............................ (217,676) (1,375,402) (2,475,099)
----------- ------------ ------------
3,513,696 9,499,221 14,224,624
Uninstalled subscriber premises equipment................. 1,006,854 546,316 1,709,244
----------- ------------ ------------
4,520,550 10,045,537 15,933,868
----------- ------------ ------------
License costs, net-Notes 2 and 3............................ 157,480 179,592 8,803,889
Organizational costs, net................................... 374,654 285,318 178,443
Deferred costs, net and other assets-Note 7................. 90,341 1,849,556 4,791,659
----------- ------------ ------------
Total assets............................................ $7,983,059 $12,877,217 $30,657,957
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................... $813,471 $713,218 $4,791,081
Accrued expenses.......................................... 77,671 43,000 1,785,109
Short-term debt........................................... - 4,531,464 22,485,810
----------- ------------ ------------
Total current liabilities............................... 891,142 5,287,682 29,062,000
----------- ------------ ------------
Commitments and contingencies
Stockholders' equity-Notes 5 and 6:*
Series A, Convertible Preferred Stock, $.01 par value;
800,000 authorized, issued and outstanding;
(liquidation preference of $8,000,000).................. 8,000 8,000 8,000
Series B, Convertible Preferred Stock, $.01 par value;
300,000 authorized, issued and outstanding in 1995
and 1996 (liquidation preference of $3,000,000)......... - 3,000 3,000
Common Stock, $.01 par value; 6,000,000 shares authorized,
2,400,000 shares issued and outstanding................. 24,000 24,000 24,000
Additional paid-in capital................................ 7,701,679 10,698,679 10,698,679
Accumulated deficit....................................... (641,762) (3,144,144) (9,137,722)
----------- ------------ ------------
Total stockholders' equity.............................. 7,091,917 7,589,535 1,595,957
----------- ------------ ------------
Total liabilities and stockholders' equity.............. $7,983,059 $12,877,217 $30,657,957
=========== ============ ============
</TABLE>
- ------
* Restated to reflect the 2-for-1 common stock split. See Note 2.
The accompanying notes are an integral part of these financial statements.
TRUVISION WIRELESS, INC.
<PAGE> 3
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS (NOTE 1)
(Data with respect to June 30, 1995 and 1996 are unaudited)
Mississippi Wireless TV L.P. TruVision Wireless, Inc.
--------------------------------------- --------------------------------------------------------------
Period from
Inception
(November 2, 1993) January 1, 1994 to August 25, 1994 to Year Ended Six Months Ended
to December 31, 1993 August 24, 1994 December 31, 1994 December 31, 1995 June 30,
-------------------- ------------------ ------------------ ----------------- ------------------------
1995 1996
----------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Service revenues...... $ - $ 16,233 $ 264,491 $ 2,595,514 $ 915,833 $ 2,513,555
Installation
revenues............ - 57,137 166,043 486,100 216,606 293,701
-------------------- ------------------ ------------------ ----------------- ----------- -------------
Total revenues...... - 73,370 430,534 3,081,614 1,132,439 2,807,256
-------------------- ------------------ ------------------ ----------------- ----------- -------------
Expenses:
System operating
expenses............ 116,733 278,000 425,603 2,103,053 781,121 2,015,657
Selling, general
and administrative
expenses............ 111,186 668,009 534,431 2,086,200 547,266 2,102,118
Depreciation and
amortization........ - 82,196 167,990 1,266,301 439,355 1,439,974
-------------------- ------------------ ------------------ ----------------- ----------- -------------
Total operating
expenses.......... 227,919 1,028,205 1,128,024 5,455,554 1,767,742 5,557,749
-------------------- ------------------ ------------------ ----------------- ----------- -------------
Loss from operations.... (227,919) (954,835) (697,490) (2,373,940) (635,303) (2,750,493)
Interest income......... - 6,632 55,728 15,063 14,621 -
Interest expense........ - - - (143,505) (8,939) (728,085)
Costs of aborted offering - - - - - (2,515,000)
-------------------- ------------------ ------------------ ----------------- ----------- -------------
Net loss................ (227,919) (948,203) (641,762) (2,502,382) (629,621) (5,993,578)
Preferred dividend
requirement........... - - (227,000) (687,000) (320,000) (440,000)
-------------------- ------------------ ------------------ ----------------- ----------- -------------
Net loss attributable to
common stockholders... $(227,919) $(948,203) $(868,762) $(3,189,382) $(949,621) $(6,433,578)
==================== ================== ================== ================= =========== =============
Loss per common
share*................ N/A N/A $(0.36) $(1.33) $(0.40) $(2.68)
==================== ================== ================== ================= =========== =============
Weighted average
shares outstanding*... N/A N/A 2,400,000 2,400,000 2,400,000 2,400,000
==================== ================== ================== ================= =========== =============
</TABLE>
- ------
* Restated to reflect the 2-for-1 common stock split. See Note 2.
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
MISSISSIPPI WIRELESS TV L.P.
STATEMENTS OF PARTNERS' CAPITAL (NOTE 1)
For the Period from Inception (November 2, 1993) through December 31, 1993 and
the Period from January 1, 1994 through August 24, 1994
Total
General Limited Partners'
Partner Partner Capital
----------- ----------- -----------
Initial investment................ $ - $1,081,000 $1,081,000
Net loss.......................... (2,279) (225,640) (227,919)
----------- ----------- -----------
Balance, December 31, 1993........ (2,279) 855,360 853,081
Net loss.......................... (170,677) (777,526) (948,203)
Partners' contributions........... 229,162 361,000 590,162
----------- ----------- -----------
Balance, August 24, 1994.......... $ 56,206 $ 438,834 $ 495,040
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
TRUVISION WIRELESS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (NOTE 1)
(Data with respect to June 30, 1996 are unaudited)
<TABLE>
<CAPTION>
Series A Series B
Convertible Convertible
Preferred Stock Preferred Stock Common Stock* Additional
--------------- --------------- ------------------ Paid-in Accumulated
Shares Amount Shares Amount Shares Amount Capital* Deficit
-------- ------ -------- ------ ---------- ------- ---------- -----------
<S>
Exchange of the net assets of <C> <C> <C> <C> <C> <C> <C> <C>
Mississippi Wireless TV L.P.
for common stock of the
Company......................... - $ - - $ - 2,400,000 $24,000 $ 471,040 $ -
Sale of preferred stock, net of
issuance costs of $761,361 ..... 800,000 8,000 - - - - 7,230,639 -
Net loss for the period from
inception through December 31,
1994............................ - - - - - - - (641,762)
-------- ------ -------- ------ ---------- ------- ----------- -------------
*Balance, December 31, 1994....... 800,000 8,000 - - 2,400,000 24,000 7,701,679 (641,762)
Net loss.......................... - - - - - - - (2,502,382)
Sale of preferred stock........... - - 300,000 3,000 - - 2,997,000 -
-------- ------ -------- ------ ---------- ------- ----------- -------------
Balance, December 31, 1995........ 800,000 8,000 300,000 3,000 2,400,000 24,000 10,698,679 (3,144,144)
Net loss.......................... - - - - - - - (5,993,578)
-------- ------ -------- ------ ---------- ------- ----------- -------------
Balance, June 30, 1996............ 800,000 $8,000 300,000 $3,000 2,400,000 $24,000 $10,698,679 $(9,137,722)
======== ====== ======== ====== ========== ======= =========== =============
</TABLE>
- ------
* Restated to reflect the 2-for-1 common stock split. See Note 2.
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
TRUVISION WIRELESS, INC.
STATEMENTS OF CASH FLOWS (NOTE 1)
(Data with respect to June 30, 1995 and 1996 are unaudited)
<TABLE>
<CAPTION>
Mississippi Wireless TV L.P. TruVision Wireless, Inc.
----------------------------------- -------------------------------------------------------------
Period from
inception Six Months Ended
(November 2, 1993) January 1, 1994 August 25, 1994 June 30,
through to to Year Ended
December 31, 1993 August 24, 1994 December 31, 1994 December 31, 1995 1995 1996
------------------ --------------- ----------------- ----------------- ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss...................... $ (227,919) $ (948,203) $ (641,762) $ (2,502,382) $ (629,621) $(5,993,578)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Depreciation and
amortization.............. - 82,196 167,990 1,266,301 439,355 1,439,974
Provision for losses on
accounts receivable....... - - 34,000 126,370 22,722 22,038
Changes in operating assets
and liabilities:
Decrease (increase) in
accounts receivable..... - (105,395) (23,783) (368,848) (88,384) (136,854)
Decrease (increase) in other
current assets.......... - (76,969) 63,014 (97,371) (118,923) (201,650)
Increase (decrease) in
accounts payable........ 17,785 431,319 364,367 (100,254) 170,938 4,077,863
Increase (decrease) in
accrued liabilities..... - - 77,671 (34,671) (59,747) 1,742,109
------------------ --------------- ----------------- ----------------- ------------ -------------
Cash provided by (used in)
operating activities: ........ (210,134) (617,052) 41,497 (1,710,855) (263,660) 949,902
------------------ --------------- ----------------- ----------------- ------------ -------------
Cash flows from investing activities:
Capital expenditures.......... (177,000) (2,555,318) (1,896,615) (6,682,712) (3,391,291) (6,988,028)
Payments for license and
organizational costs........ - (541,823) (165,505) - - (8,352,000)
Increase in deferred costs and
other assets................ - - - (1,250,566) (342,370) (1,947,802)
Deposits for acquisitions..... - - - (100,000) - (1,500,000)
Deposit for FCC auction....... - - - (450,000) - -
Proceeds from short-term
investments................. - - - 38,700 38,700 -
Purchase of short-term
investments................. - - (75,000) - - (12,200)
------------------ --------------- ----------------- ----------------- ------------ -------------
Net cash used in investing
activities.................... (177,000) (3,097,141) (2,137,120) (8,444,578) (3,694,961) (18,800,030)
------------------ --------------- ----------------- ----------------- ------------ -------------
Cash flows from financing activities:
Proceeds from issuance of
preferred stock............. - - 8,000,000 3,000,000 - -
Preferred stock issuance
costs....................... - - (761,361) - - -
Principal payments on notes
payable..................... - - (3,308,000) - - -
Proceeds from issuance of
short-term debt............. - 3,308,000 - 4,531,464 1,396,302 17,954,346
Proceeds from partners'
contributions............... 1,081,000 590,162 - - - -
------------------ --------------- ----------------- ----------------- ------------ ------------
Net cash provided by financing
activities.................... 1,081,000 3,898,162 3,930,639 7,531,464 1,396,302 17,954,346
------------------ --------------- ----------------- ----------------- ------------ -------------
Net increase (decrease) in
cash and cash equivalents..... 693,866 183,969 1,835,016 (2,623,969) (2,562,319) 104,218
Cash and cash equivalents at
beginning of period........... - 693,866 877,835 2,712,851 2,712,851 88,882
------------------ --------------- ----------------- ----------------- ------------ -------------
Cash and cash equivalents
at end of period.............. $ 693,866 $ 877,835 $ 2,712,851 $ 88,882 $ 150,532 $ 193,100
================== =============== ================= ================= ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
TRUVISION WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS
(Data with respect to June 30, 1996 and 1995 are unaudited)
NOTE 1: THE COMPANY
History and Organization
TruVision Cable, Inc. ("TruVision" or the "Company"), a Delaware corporation,
was incorporated in April 1994, and began business activities on August 25,
1994. The Company's name was changed to TruVision Wireless, Inc. on February 6,
1996. The Company is engaged in building, managing and owning wireless cable
systems which retransmit television and programming received at a head-end via
encryptic microwave signals from multichannel broadcast towers to subscribers
within an approximate 40 mile radius of each tower. The Company has exclusive
lease rights to substantially all of the ITFS wireless cable channels in the
State of Mississippi licensed by the Federal Communications Commission ("FCC").
Mississippi Wireless TV L. P. ("MWTV"), a Mississippi limited partnership,
was formed on November 2, 1993. For the period from inception through August
24, 1994, MWTV's business activities consisted primarily of development and
initial operational activities related to certain of its wireless cable rights
which had been assigned to it by an affiliate.
TruVision began business activities upon the contribution of all of the net
assets of MWTV in exchange for 1,200,000 shares (2,400,000 after the 2-for-1
common stock split-see Note 2) of common stock in the Company. At the same
time, an unrelated party, Chase Venture Capital Associates ("CVCA") (formerly
Chemical Venture Capital Associates), a California limited partnership,
contributed $8,000,000 cash in exchange for 800,000 shares of Series A
Convertible Preferred Stock. This transfer of the net assets of MWTV to
TruVision has been accounted for as a transfer of net assets between related
parties, and accordingly, the Company has recorded the net assets received in
the exchange at MWTV's historical carrying values.
The Company is developing its Mississippi wireless cable operations in two
phases. Phase I will consist of five markets which cover West, Central and
South Mississippi. In May 1994, the Company placed its first market in
operation in the Jackson, Mississippi area. In July 1995, the Company placed
its second market in operation in the Delta area. A third market, serving
portions of the Gulf Coast, is expected to begin operations in the first
quarter of 1996. Construction plans call for the development of the additional
markets within the Phase I area.
Plans for the development of Phase II, which consists of four markets
primarily in North Mississippi, have not been finalized. Pursuant to a
stockholders' agreement between CVCA and MWTV, the Company has the option to
complete development of Phase II within a five-year period. Under the terms of
the option, each of the parties to the agreement will contribute their
respective portions of the development costs in cash. In the event the Company
participates in an initial public offering or sale prior to commencing
development of each cell of Phase II, Vision Communications, Inc. ("VCI"), an
entity owned primarily by the general partner of MWTV, will be eligible to
receive a payment (the "Phase II Payment") for its contribution of frequency
rights equal to $1,125,000 per market (total of $4.5 million), payable in cash
or in shares of Common Stock of the Company based on the fair value of such
shares at the time of the Phase II Payment. See Note 10.
Risks and Other Factors
The Company has recorded net losses in each period of its operations. At
December 31, 1995, the Company's accumulated deficit was approximately
$3,144,000 ($9,137,722 at June 30, 1996). Losses incurred since inception are
attributable primarily to start-up costs, marketing and sales costs
and depreciation of assets used in the Company's wireless cable systems in
various markets. The Company expects to continue to experience net losses while
it develops and expands its wireless cable systems, although mature individual
systems of the Company may reach profitability sooner than the Company on a
consolidated basis. In the opinion of management, the Company will ultimately
achieve positive cash flow and net income sufficient to realize its investment
in its assets; however, there can be no assurance that the Company will
generate sufficient operating revenues to achieve positive cash flow or net
income.
The growth of the Company's business requires substantial investment on a
continuing basis to finance capital expenditures and related expenses for
expansion of the Company's customer base and system development. Management
expects that the Company will require significant additional financings,
through debt or equity financings, joint ventures or other arrangements, to
achieve its targeted subscriber levels in its current business plans in its
operating systems and target markets and to cover ongoing operating losses.
Additional debt or equity also may be required to finance future acquisitions
of wireless cable companies, wireless cable systems or channel rights. While
management believes the Company will be able to obtain additional debt or
equity capital on satisfactory terms to meet its future financing needs, there
can be no assurance that either additional debt or equity capital will be
available.
The Company is dependent on leases with unaffiliated third parties for
substantially all of its wireless cable channel rights. ITFS licenses generally
are granted for a term of 10 years and are subject to renewal by the FCC. MDS
licenses generally will expire on May 1, 2001 unless renewed. FCC licenses also
specify construction deadlines which, if not met by the Company or extended by
the FCC, could result in the loss of the license. There can be no assurance
that the FCC will grant any particular extension request or license renewal
request. The remaining initial terms of most of the Company's ITFS channel
leases are approximately five to 10 years. The Company's MDS leases generally
are for substantially longer terms and the Company has acquired options to
purchase a majority of the underlying MDS licenses. The use of wireless cable
channels by the license holders is subject to regulation by the FCC and the
Company is dependent upon the continuing compliance by channel license holders
with applicable regulations. The termination or non-renewal of a channel lease
or of a channel license, or the failure to grant an application for an
extension of the time to construct an authorized station, would result in the
Company being unable to deliver programming on the channels authorized pursuant
thereto. Although the Company does not believe that the termination of or
failures to renew a single channel lease other than that with EdNet would
materially adversely affect the Company, several of such terminations or
failure to renew in one or more markets that the Company actively serves or
intends to serve could have a material adverse effect on the Company. In
addition, the termination, forfeiture, revocation or failure to renew or extend
an authorization or license held by the Company's lessors could have a material
adverse effect on the Company.
The Company contracts for the commercial use of 20 ITFS channels in various
markets throughout the state of Mississippi with EdNet. The commercial use of
these channels represents the majority of the Company's channels in Mississippi
and the loss of, or inability to renew, the EdNet Agreement would have a
material adverse effect on the Company's operations. See Note 3.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenues from monthly service charges are recognized as the service is
provided to the customer. Customers are billed in the month services are
rendered. Installation fees are recognized as income to the extent the Company
has incurred direct selling costs.
Allowance for Doubtful Accounts
The Company recognizes an allowance for doubtful accounts to the extent it
believes receivables are not collectible. The provision for doubtful accounts
was approximately $34,000 and $126,000 for 1994 and 1995, respectively. No
writeoffs were made in 1994. Writeoffs of accounts receivable were
approximately $45,000 in 1995.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities
of 90 days or less to be cash equivalents.
Short-term Investments
Short-term investments represent certificates of deposit of approximately
$75,000 in 1994, $36,000 in 1995 and $49,000 in 1996 restricted for use under
a programming contract.
System Operating Expenses
System operating expenses consist principally of programming fees, license
fees, tower rental, maintenance, engineering and other costs incidental to
providing service to customers. Administrative and marketing expenses incurred
by systems during their launch period are expensed as incurred.
System Launch Costs
The costs incurred to prepare a market for launch (marketing, pre-opening
administration, training, etc.) are expensed in the period incurred.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is recorded on
the straight-line basis for financial reporting purposes. Costs incurred for
repair and maintenance of property, plant and equipment are charged to expense
when incurred. Costs incurred for renewals and improvements are capitalized.
Costs of subscriber equipment, including installation labor and other direct
installation costs, are capitalized. Subscriber premises equipment and
installation costs are depreciated using a composite method over five years
which factors in the Company's estimates of useful lives of recoverable
equipment and average subscriber lives of nonrecoverable installation costs.
Materials and supplies used to provide service to customers are included in
office furniture and equipment and are valued at the lower of cost or market.
Depreciation is recorded over the estimated useful lives as follows:
Transmission equipment................................. 5-10 years
Subscriber premises equipment and installation costs... 5 years
Office furniture and equipment......................... 10 years
Vehicles............................................... 5 years
Buildings and improvements............................. 31 years
License and Organizational Costs
License costs include the costs of acquiring the rights to use certain FCC
frequencies to broadcast programming to the Company's customers. These costs,
net of amortization of $6,000 and $25,000 at December 31, 1994, and 1995,
respectively, and $250,000 at June 30, 1996, are being amortized over a
ten-year period beginning with inception of service in a market. The Company
from time to time reevaluates the carrying amounts of the licenses based on
estimated undiscounted future cash flows as well as the amortization period to
determine whether current events or circumstances warrant adjustments to the
carrying amounts or a revised estimate of the useful life.
Organizational costs include legal fees and other professional fees and
expenses incident to organizing the Company. These costs, net of amortization
of $28,000 and $118,000 at December 31, 1994 and 1995, respectively, and
$225,000 at June 30, 1996, are being amortized over a five-year period.
Income Taxes
Income taxes are provided using an asset and liability approach. The current
provision for income taxes represents actual or estimated amounts payable or
refundable on tax returns filed or to be filed for each year. Deferred tax
assets and liabilities are recorded for the estimated future tax effects of (a)
temporary differences between the tax basis of assets and liabilities and
amounts reported in balance sheets, and (b) operating loss and tax credit carry
forwards. The overall change in deferred tax assets and liabilities for the
period measures the deferred tax expense for the period. Effects of changes in
enacted tax laws on deferred tax assets and liabilities are reflected as
adjustments to tax expense in the period of enactment. The measurement of
deferred tax assets may be reduced by a valuation allowance based on judgmental
assessment of available evidence if deemed more likely than not that some or
all of the deferred tax assets will not be realized.
The following summarizes the Company's deferred tax assets and liabilities as
of December 31, 1994 and 1995:
December 31,
---------------------
1994 1995
-------- ----------
Deferred tax assets:
Net operating loss carryforwards........ $287,820 $1,827,540
Allowance for bad debt.................. 13,260 62,400
-------- ----------
Total tax assets..................... 301,080 1,889,940
Valuation allowance.................. 249,990 1,224,210
-------- ----------
51,090 665,730
-------- ----------
Deferred tax liabilities:
Depreciation............................ 25,350 540,150
Deferred cost........................... 25,740 125,580
-------- ----------
Total deferred tax liabilities...... 51,090 665,730
-------- ----------
Net deferred tax asset.................... $ - $ -
======== ==========
The Company recognizes a deferred tax asset to the extent such amounts offset
deferred tax liabilities. The $974,000 change in the valuation allowance from
December 31, 1994 to December 31, 1995 is due primarily to the increase in the
net operating loss carryforwards, which gives rise to deferred tax assets, over
the increase in the temporary differences related to depreciation, which gives
rise to deferred tax liabilities.
The Company has net operating loss carryforwards for Federal income tax
purposes of approximately $4,686,000 as of December 31, 1995. The carryforwards
expire in years 2009 and 2010.
Stock Split
On March 26, 1996, the Board of Directors authorized a 2-for-1 stock split in
the form of a 100% stock dividend which will be distributed on April 15, 1996
to shareholders of record on March 15, 1996. Unless otherwise indicated, all
per share data, number of common shares and the statements of stockholders'
equity have been retroactively adjusted to reflect this stock split.
Net Loss Per Common Share
Net loss per common share is based on the net loss attributable to the
weighted average number of common shares outstanding during the period
presented (2,400,000 as of December 31, 1994 and 1995 and June 30, 1995 and
1996.) Conversion of the Series A and B Convertible Preferred Stock into Common
Stock is not assumed because the impact is antidilutive. Shares issuable upon
exercise of stock options are antidilutive and have been excluded from the
calculation. For all periods presented, fully diluted loss per common share and
primary loss per common share are the same.
Statement of Cash Flows
In 1994, the Company issued 2,400,000 shares of Class B Common Stock to MWTV
in exchange for assets with a carrying amount of $4,252,144 and liabilities of
$3,757,104. This exchange has been treated as a non-cash transaction except for
the cash balances of $877,835 acquired from MWTV. No interest or income taxes
were paid in 1994. Interest of $137,385 was paid during the year ended December
31, 1995 of which approximately $65,000 was capitalized. For the six months
ended June 30, 1996 interest of $152,832 was paid. No interest was paid for the
six months ended June 30, 1995 and no interest was capitalized for the six
month periods ended June 30, 1995 and 1996. No income taxes were paid for any
period presented.
Disclosure about the Fair Value of Financial Instruments
The fair value of the Company's financial instruments (which consist of cash,
accounts receivable and payable, and short-term debt) approximate their
carrying amounts.
Recently Issued Accounting Standards
In 1995, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.
The Statement does not apply to deferred acquisition costs or deferred tax
assets. The Company plans to adopt this statement effective January 1, 1996;
however, management believes that its adoption will not have a material effect
on the Company's financial statements.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock Based
Compensation, which generally requires disclosure of additional information
concerning stock based employee compensation arrangements. The Company plans to
adopt SFAS No. 123 effective January 1, 1996.
Unaudited Interim Financial Statements
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and Rule 10.01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the six months ended June 30, 1996 are not necessarily
indicative of the results that will be expected for the year ending December
31, 1996.
NOTE 3: LICENSE CONTRACTS
In August 1993, VCI signed a renewable long-term agreement with the
Mississippi EdNet Institute, Inc. ("EdNet"), a non-profit, quasi-governmental
body which manages the licenses designated to various state educational
entities. Subsequently, VCI assigned its rights under the EdNet agreement to
the Company. See Note 1. This lease gives the Company exclusive rights to
utilize excess air time (that portion of a channel's airtime available for
commercial broadcasting according to FCC regulations) on the 20 ITFS channels
in Mississippi. The terms of the channel leases are 10 years, commencing in
1992. The contract provides for the monthly payment of $0.05 per subscriber per
channel or, beginning one year after operating the first market, a minimum of
$7,500 per month. Expense for 1994 and 1995 related to this agreement was
$9,300 and $69,000, respectively.
The contract also requires TruVision to make advances to EdNet during the
first 24 months of operations in the amount of $6,000 per month. These advances
are being recovered as a credit against license fees owed to EdNet.
The agreement with EdNet contains the following major provisions and
requirements to be met by TruVision:
* The system is to ultimately cover at least 95% of the population of the
licensed Mississippi geographic coverage area (including the areas designated
as Phase II by the Company).
* The system must be interconnected by a two-way audio/video link between
TruVision/EdNet transmission sites and Mississippi Authority for Educational
Television headquarters in Jackson, Mississippi. The cost of this
interconnection must be borne by TruVision within certain limits.
* TruVision will provide standard installations at locations as EdNet may
designate.
* TruVision will install and equip an electronic classroom in each of its
Mississippi Markets.
* TruVision will complete the network by July 1, 1998.
The Company capitalizes the cost incurred to comply with the facility
installation and interconnection requirements of the EdNet Agreement and
depreciates such cost over the estimated life of the related equipment.
NOTE 4: SHORT-TERM DEBT
Short-term debt consists of the following:
December 31,
--------------- June 30,
1994 1995 1996
---- ---------- ---------
Borrowings under $6,000,000 revolving
line of credit with a bank, due June 30,
1996, with interest due monthly at 1%
above the bank's prime rate (9.50% at
December 31, 1995)........................... $ - $4,531,464 $4,026,795
Borrowings under the Interim Credit
Facility with CVCA, due on demand after
June 30, 1996, with interest of 10% due
at maturity. See Note 10..................... - - 12,000,000
Borrowings under interim credit facility
with Wireless One, Inc. See Note 11.......... - - 5,722,482
Other.......................................... - - 736,533
The borrowings under the revolving line of credit are secured by
substantially all of the assets of the Company, including licenses, accounts
receivable, inventory, property and equipment, and contract rights.
Additionally, the borrowings are guaranteed by the Company's president and a
stockholder. The Company may prepay its obligations without penalty at any
time.
NOTE 5: STOCK OPTION PLANS AND EMPLOYMENT CONTRACTS
The Company has established a stock option plan for executives and other key
employees. The plan provides for a maximum of 250,000 shares of Common Stock to
be reserved for such options. Terms and conditions of the Company's options
generally are at the discretion of the board of directors; however, no options
are exercisable after June 8, 2004.
In August 1994, the Company granted options totaling 191,490 shares to two
key employees at an exercise price of $5.00 per share. In June 1995 and August
1995, options to purchase shares of 30,000 and 20,000, respectively, were
granted to two additional key employees at a price of $5.00 per share. The
options granted in 1995 vest over a five-year period. As of December 31, 1995,
options for 140,426 shares are exercisable. No compensation expense has been
recorded on these options granted since the option price was equal to the
estimated fair market value of the option shares on the date the options were
granted.
NOTE 6: PREFERRED AND COMMON STOCK RIGHTS
In October 1995, the Company issued 300,000 shares of Series B Convertible
Preferred Stock for gross proceeds of $3,000,000. Pursuant to a prior
commitment, CVCA acquired 270,000 shares and 30,000 shares were issued to a
common stockholder. MWTV has pledged its shares of the Company's Common Stock
to CVCA.
Series A and Series B Convertible Preferred Stock is senior to all other
shares of stock. Convertible Preferred Stock dividend rights are cumulative at
8% per annum based on a stated value of $10 per share. As of December 31, 1994
and 1995, the aggregate amount of Convertible Preferred Stock dividends in
arrears was approximately $227,000 and $914,000, respectively ($547,000 and
$1,354,000, respectively, at June 30, 1995 and 1996). No preferred dividends
have been declared. See Note 11.
In the event of any liquidation, holders of Series A and Series B Convertible
Preferred Stock would first be entitled to receive the greater of (i) the total
$11,000,000 liquidation preference ($8,000,000 for Series A and $3,000,000 for
Series B) plus all accrued but unpaid dividends, or (ii) the amount that would
have been paid, or the value of property that would have been distributed if,
prior to liquidation, the shares had been converted to Common Stock plus all
accrued but unpaid dividends.
Each share of Convertible Preferred Stock carries voting rights as if
converted into shares of Common Stock and, at the option of the holder, is
convertible at any point in time into one fully paid, nonassessable share (two
shares after the 2-for-1 common stock split-see Note 2) of Common Stock plus
cash equal to accrued but unpaid dividends. If the conversion is not made
pursuant to an initial public offering, TruVision may, at its option, issue a
promissory note in lieu of paying the dividends.
The holders of Convertible Preferred Stock are also entitled to elect two of
the five member Board of Directors of the Company. Pursuant to the terms of a
stockholder's agreement certain restrictions have been placed on the
stockholders' ability to vote on specified matters.
In October 1995, the corporate charter was amended to combine Class A and
Class B Common Stock into a single class of $0.01 par value, Common Stock.
Holders of Common Stock are not eligible to receive dividends as long as any
shares of Convertible Preferred Stock are outstanding.
In the event of liquidation, after distribution in full of preferential
amounts to be distributed to holders of Convertible Preferred Stock, the
holders of Common Stock would receive distributions in proportion to the number
of shares held.
NOTE 7: DEFERRED COSTS AND OTHER ASSETS
December 31,
------------------
June 30,
1994 1995 1996
------- ---------- ----------
Deferred costs and other assets
consist of:
Deferred merger, financing and
acquisition costs -Note 11............... $ - $1,027,216 $2,464,637
Advances to EdNet-Note 3................... 84,000 132,000 102,924
Deposits for future acquisitions
-Note 10................................. - 100,000 142,153
FCC auction deposit........................ - 450,000 1,450,000
Other...................................... 6,341 140,340 631,945
------- ---------- ----------
$90,341 $1,849,556 $4,791,659
======= ========== ==========
Deferred acquisition costs consist primarily of professional fees,
engineering costs, travel costs and other related costs associated with the
acquisition of channel rights, licenses and related cable systems which are
currently subject to letters of intent or definitive agreements (see Note 10).
Such costs will be amortized over periods ranging from five to 10 years,
beginning when each acquisition is consummated, or, if the acquisition is not
consummated, written off. At June 30, 1996 deferred merger and financing costs
relate to a proposed public offering of common stock and Senior Discount Notes
and the pending merger with Wireless One, Inc. See Note 11.
NOTE 8: COMMITMENTS AND CONTINGENCIES
The Company leases office space, antenna space and certain channel broadcast
rights under noncancelable operating leases with remaining terms ranging from
four to eight and one-half years. The following is a schedule by years of
future minimum rentals due under the leases at December 31, 1995:
1996............................... $369,920
1997............................... 397,744
1998............................... 309,657
1999............................... 190,228
2000............................... 132,502
Thereafter......................... 225,711
Rent under these leases was $55,004 for the period August 25, 1994 to
December 31, 1994 and $254,512 for the year ended December 31, 1995.
The Company is participating in an auction conducted by the FCC for rights to
obtain use of available MDS commercial channels in certain basic trading areas.
The Company's outstanding bids for these rights aggregate approximately $16
million. If the Company is the highest bidder in any, or all, of the areas, the
Company will be required to pay up to $14 million (net of a small business
bidding credit), a portion of which will be financed by the U.S. government.
The Company is involved in certain legal proceedings generally incidental to
its business. While the results of any litigation contain an element of
uncertainty, management believes that the outcome of any known or threatened
legal proceeding will not have a material effect on the Company's financial
position or results of operations.
NOTE 9: CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to concentrations
of credit risk, consist primarily of cash and accounts receivable. The Company
has not experienced any losses on its deposits. Subscriber accounts receivable
collectibility is impacted by economic trends in each of the Company's markets.
Such receivables are typically collected within 30 days, and the Company has
provided an allowance which it believes is adequate to absorb losses from
uncollectible accounts.
NOTE 10: BUSINESS COMBINATIONS AND PROPOSED FINANCING TRANSACTIONS
In February 1996, TruVision acquired all the outstanding common stock of
BarTel, Inc., a company holding wireless cable license rights in the Demopolis
and Tuscaloosa, Alabama Markets for cash of approximately $1.7 million and, if
certain conditions are met, notes payable of $652,000. Accordingly, BarTel,
Inc.'s financial position at June 30, 1996 and the results of its operations
for the period from the date of the consummation of the acquisition to June 30,
1996, are reflected in the Company's results for the six months ended June 30,
1996. Additionally, TruVision has entered into a definitive agreement to
purchase substantially all of the assets of Madison Communications, Inc. and
Beasley Communications, Inc. ("Madison"), a wired and wireless cable provider
located near Huntsville, Alabama, for approximately $6.0 million.
In March 1996, the Company entered into a letter of intent to acquire
substantially all of the assets of Shoals Wireless, Inc., a wireless cable
provider located in Lawrenceburg, Tennessee, for $1,180,000 in cash.
TruVision has also entered into agreements to purchase licenses, channel
rights and equipment in several other markets for cash of approximately $11.9
million. None of these markets is currently operating and no significant
liabilities are expected to be assumed in connection with these asset
acquisitions.
The Company expects to finance the acquisitions described above with the
short-term line of credit discussed in Note 4 and with an Interim Facility of
up to $12.0 million provided by CVCA in the form of a 10% note payable (due on
demand after June 30, 1996). See Notes 4 and 11.
NOTE 11: SUBSEQUENT EVENTS
On April 25, 1996, the Company entered into an agreement and plan of merger
(the "Agreement") with Wireless One, Inc. ("Wireless One"), in which Wireless
One will exchange approximately 3.4 million shares of its common stock for all
of the Company's outstanding shares in a transaction valued at $45 million. The
transaction is expected to close by late July 1996. In connection with the
consummation of the Agreement it is expected that all of the Shares of Series A
and B Convertible Preferred Stock will be converted into shares of Common Stock
and all accrued and unpaid preferred dividends ($1,354,000 at June 30, 1996)
will be paid.
On May 6, 1996, Wireless One issued the Company two short-term lines of
credit, a $1.5 million line of credit which is to be used to fund working
capital purposes and pay off the borrowings under the bank revolving line of
credit ("Working Capital Line of Credit") and a $9 million line of credit to be
used to fund acquisition needs ("Acquisition Line of Credit"), together the
"Lines of Credit". The Acquisition Line of Credit will increase to $15 million
upon repayment of the Working Capital Line of Credit. The Lines of Credit are
secured by substantially all of the assets of the Company and accrue interest
at Wireless One's borrowing rate of 13%. Principal and interest are due on the
tenth business day following the earliest of (1) the date of the consummation
of the Agreement, (2) December 31, 1996, or (3) the date the Agreement is
rescinded.
Prior to the Agreement, the Company was pursuing a public offering of Common
Stock and Senior Discount Notes (the "Offerings"). Concurrent with the
Agreement, the Company withdrew the Offerings. Certain costs related to the
Offerings and the Agreement of approximately $474,000 were deferred at June 30,
1996. Costs related to the Offerings which did not relate to the Agreement or
a related public offering of Wireless One were written off.
<PAGE> 17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Madison Communications, Inc. and
Beasley Communications, Inc.:
We have audited the accompanying combined balance sheets of Madison
Communications, Inc. and Beasley Communications, Inc. (Alabama corporations) as
of December 31, 1994 and 1995 and the related combined statements of operations
and accumulated deficit and cash flows for the years ended December 31, 1993,
1994 and 1995. These combined financial statements are the responsibility of
the Companies' management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Madison
Communications, Inc. and Beasley Communications, Inc. as of December 31, 1994
and 1995 and the combined results of their operations and their combined cash
flows for the years ended December 31, 1993, 1994 and 1995, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Jackson, Mississippi,
January 19, 1996 (except with respect
to the matter discussed in note 6,
as to which the date is February 6,
1996).
<PAGE> 18
MADISON COMMUNICATIONS, INC. AND BEASLEY COMMUNICATIONS, INC.
COMBINED BALANCE SHEETS (Note 1)
(Data with respect to June 30, 1996 are unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
--------------------------- -------------
1994 1995 1996
------------- ------------- -------------
(unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash......................................... $ 5,705 $ 39,711 $ 100,644
Accounts receivable (less allowance for
doubtful accounts of $16,302, $13,888 and
$19,673, respectively)..................... 1,068 3,513 -
Other current assets......................... 7,804 13,401 287
------------- ------------- -------------
Total current assets......................... 14,577 56,625 100,931
------------- ------------- -------------
Property, plant and equipment:
Cable system-wireless...................... 2,337,362 2,462,318 2,500,569
Cable system-wired......................... 1,042,923 1,062,824 1,065,641
Machinery and equipment.................... 155,753 130,494 130,494
Buildings, leasehold improvements, office
furniture and equipment.................. 34,605 40,071 40,071
Land....................................... 50,000 50,000 50,000
------------- ------------- -------------
3,620,643 3,745,707 3,786,775
Less: accumulated depreciation............. (1,944,781) (2,499,752) (2,753,203)
------------- ------------- -------------
1,675,862 1,245,955 1,033,572
Uninstalled subscriber premises equipment.... 18,195 10,431 12,538
------------- ------------- -------------
1,694,057 1,256,386 1,046,110
------------- ------------- -------------
License costs, net-(note 2).................. 73,333 66,666 63,332
Other assets................................. 1,835 1,835 1,835
------------- ------------- -------------
Total assets............................. $ 1,783,802 $ 1,381,512 $ 1,212,208
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................... $ 84,042 $ 64,874 $ 60,613
Accrued expenses, primarily programming
costs.................................... 275,294 319,424 332,977
Deferred income............................ 28,055 20,576 17,560
Borrowings under line of credit (note 3)... 275,000 125,000 75,000
------------- ------------- -------------
Total current liabilities................ 662,391 529,874 486,150
------------- ------------- -------------
Commitments and contingencies (note 4)
Stockholders' equity
Common Stock; $1 par value; 1,000 shares
authorized issued and outstanding........ 1,000 1,000 1,000
Additional paid-in capital................. 2,475,192 2,475,192 2,475,192
Accumulated deficit........................ (1,354,781) (1,624,554) (1,750,134)
------------- ------------- -------------
Total stockholders' equity............... 1,121,411 851,638 726,058
------------- ------------- -------------
Total liabilities and stockholders'
equity................................. $ 1,783,802 $ 1,381,512 $ 1,212,208
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 19
MADISON COMMUNICATIONS, INC. AND BEASLEY COMMUNICATIONS, INC.
COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(Data with respect to June 30, 1995 and 1996 are unaudited)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
----------------------------------------- ---------------------------
1993 1994 1995 1995 1996
------------- ------------- ------------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Service revenues........................ $ 1,426,971 $ 1,493,337 $ 1,543,470 $ 777,592 $ 782,283
Installation revenues................... 68,026 63,400 38,677 - -
------------- ------------- ------------- ------------- -------------
Total revenues........................ 1,494,997 1,556,737 1,582,147 777,592 782,283
------------- ------------- ------------- ------------- -------------
Expenses:
System operating expenses............... 727,124 814,715 888,707 311,901 301,840
General and administrative
expenses.............................. 386,911 402,897 404,804 305,642 374,095
Depreciation and amortization........... 578,739 626,531 577,240 296,193 256,784
------------- ------------- ------------- ------------- -------------
Total operating expenses.............. 1,692,774 1,844,143 1,870,751 913,736 932,719
------------- ------------- ------------- ------------- -------------
Loss from operations...................... (197,777) (287,406) (288,604) (136,144) (150,436)
Other income (expense):
Other income............................ 40,793 43,180 43,414 19,430 30,060
Gain (loss) on sale of assets........... 103,583 - (7,143) - -
Interest (expense)...................... (55,465) (31,090) (17,440) (10,619) (5,204)
------------- ------------- ------------- ------------- -------------
Net loss.................................. (108,866) (275,316) (269,773) (127,333) (125,580)
Accumulated deficit-beginning of period... (970,599) (1,079,465) (1,354,781) (1,354,781) (1,624,554)
------------- ------------- ------------- ------------- -------------
Accumulated deficit-end of period......... $(1,079,465) $(1,354,781) $(1,624,554) $(1,482,114) $(1,750,134)
============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 20
MADISON COMMUNICATIONS, INC. AND BEASLEY COMMUNICATIONS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(Data with respect to June 30, 1995 and 1996 are unaudited)
<TABLE>
<CAPTION> Six Months
Year Ended December 31, Ended June 30,
----------------------------------- ----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows provided by operating activities:
Net loss............................................... $(108,866) $(275,316) $(269,773) $(127,333) $(125,580)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization........................ 578,739 626,531 577,240 296,193 256,784
(Gain) loss on sale of assets........................ (103,583) - 7,143 - -
Provision for losses on accounts receivable.......... 22,500 18,000 15,505 9,000 9,000
(Increase) in other assets........................... (125) (65) - - -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable......... (17,720) (10,184) (17,950) (7,931) (5,487)
(Increase) decrease in other current assets........ (8,110) 16,418 (5,597) 7,804 13,115
Increase (decrease) in accounts payable............ 3,170 39,575 (19,168) (378) (4,261)
Increase in accrued expenses....................... 127,134 91,610 44,130 53,191 13,553
Increase (decrease) in deferred income............. 65 5,165 (7,479) (3,225) (3,016)
----------- ----------- ----------- ---------- ----------
Cash flows provided by operating activities.............. 493,204 511,734 324,051 227,321 154,108
----------- ----------- ----------- ---------- ----------
Cash flows used in investing activities:
Capital expenditures................................... (329,640) (220,778) (143,545) (88,554) (43,175)
Proceeds from sale of assets........................... 180,000 - 3,500 - -
----------- ----------- ----------- ---------- ----------
Net cash used in investing activities.................... (149,640) (220,778) (140,045) (88,554) (43,175)
----------- ----------- ----------- ---------- ----------
Cash flows used in financing activities:
Payment on bank overdraft.............................. (21,815) - - - -
Payments on line of credit............................. (300,000) (307,000) (150,000) (100,000) (50,000)
----------- ----------- ----------- ---------- ----------
Net cash used by financing activities.................... (321,815) (307,000) (150,000) (100,000) (50,000)
----------- ----------- ----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents..... 21,749 (16,044) 34,006 38,767 60,933
Cash and cash equivalents at beginning of period......... - 21,749 5,705 5,705 39,711
----------- ----------- ----------- ---------- ----------
Cash and cash equivalents at end of period............... $ 21,749 $ 5,705 $ 39,711 $ 44,472 $100,644
=========== =========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 21
MADISON COMMUNICATIONS, INC. AND BEASLEY COMMUNICATIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) The Companies
(a) History and Organization
Madison Communications, Inc. ("Madison"), an Alabama corporation, was formed
and began operations on July 26, 1989. Beasley Communications, Inc.
("Beasley"), an Alabama corporation, was formed on June 16, 1994. The
shareholders of Madison and Beasley are the same and the business operations
are generally conducted as if Madison and Beasley were a single entity.
Accordingly, the financial statements of Madison and Beasley are presented on a
combined basis. Madison and Beasley are hereafter referred to as "the Company."
The Company is engaged in building, managing and owning wired and wireless
cable systems. Wired cable systems retransmit television signals to subscribers
over coaxial cable networks from a head-end facility where the signals are
received and processed. Wireless cable systems retransmit television
programming received at the head-end via encrypted microwave signals from
multi-channel broadcast towers to subscribers within an approximate 40 mile
radius of each tower. The Company has licenses for contractual control over 27
wireless cable channels in Madison and Limestone Counties of North Alabama
licensed by the Federal Communications Commission ("FCC").
(b) FCC Licenses
The Company is dependent on leases with unaffiliated third parties for
substantially all of its wireless cable channel rights. ITFS licenses generally
are granted for a term of 10 years and are subject to renewal by the FCC. MDS
licenses generally will expire on May 1, 2001 unless renewed. FCC licenses also
specify construction deadlines which, if not met by the Company or extended by
the FCC, could result in the loss of the license. There can be no assurance
that the FCC will grant any particular extension request or license renewal
request. The use of wireless cable channels by the license holders is subject
to regulation by the FCC and the Company is dependent upon the continuing
compliance by channel license holders with applicable regulations. The
termination or non-renewal of a channel lease or of a channel license, or the
failure to grant an application for an extension of the time to construct an
authorized station, would result in the Company being unable to deliver
programming on the channels authorized pursuant thereto. Although the Company
does not believe that the termination of or failure to renew a single channel
lease would materially adversely affect the Company, several of such
terminations or failures to renew in one or more Markets that the Company
actively serves or intends to serve could have a material adverse effect on the
Company. In addition, the termination, forfeiture, revocation or failure to
renew or extend an authorization or license held by the Company's lessors could
have a material adverse effect on the Company.
(2) Summary of Significant Accounting Policies
(a) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(b) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is recorded on
the straight-line basis for financial reporting purposes. Costs incurred for
repair and maintenance of property, plant and equipment are charged to expense
when incurred. Costs incurred for renewals and improvements are capitalized.
The costs of subscriber equipment, including installation labor and other
direct installation costs, is capitalized. Subscriber premises equipment and
installation costs are depreciated using a composite method over five years
which factors in the Company's estimates of useful lives of recoverable
equipment and average subscriber lives of nonrecoverable installation costs.
Depreciation is recorded over the estimated useful lives as follows:
Cable systems-wireless......................... 3-10 years
Cable systems-wired............................ 5-10 years
Machinery and equipment........................ 5-10 years
Office furniture and equipment................. 7 years
Buildings and improvements..................... 31 years
(c) License Costs
License costs include the costs of acquiring the rights to use certain FCC
frequencies to broadcast programming to the Company's customers. These costs,
net of amortization of $20,001, $26,668 and $33,334 at December 31, 1993, 1994
and 1995 and $36,668 at June 30, 1996, are being amortized over a 15 year
period beginning with inception of service in a market. The Company from time
to time reevaluates the carrying value of the licenses based on estimated
undiscounted cash flows as well as the amortization period to determine whether
current events or circumstances warrant adjustments to the carrying amounts or
a revised estimate of the useful life. In 1993, broadcast licenses to certain
Markets outside of the Company's area of interests were sold to a third party,
resulting in a gain of approximately $100,000.
(d) Revenue Recognition
Revenues from monthly service charges are recognized as the service is
provided to the customer. Customers are billed in the month services are
rendered.
Operating Expenses
Operating expenses consist principally of programming fees, license fees,
tower rental, maintenance, engineering and other costs incident to providing
service to customers.
(e) Income Taxes
Effective March 15, 1990, the Company elected to be taxed as an S Corporation
under provisions of the Internal Revenue Code. As a result, the Company does
not pay federal corporate income taxes or Alabama corporate income taxes on its
taxable income. Instead, the stockholders are liable for individual federal
income taxes and Alabama income taxes on the Company's taxable income. No
distributions of earnings to stockholders have been made or are planned to be
made for payment of income taxes as the Company had a loss for income tax
purposes in 1995.
(f) Statement of Cash Flows
The Company considers all highly liquid investments with remaining maturities
of 90 days or less to be cash equivalents. The Company paid interest of
$55,465, $31,090 and $17,440, for the years ended December 31, 1993, 1994 and
1995, respectively and $5,953 for the six months ended June 30, 1996. No
interest was paid in the six months ended June 30, 1995. No income taxes were
paid in any of the periods presented.
(g) Disclosures about the Fair Value of Financial Instruments
The fair values of the Company's financial instruments (which consist of
cash, accounts receivable, accounts payable and borrowings under the line of
credit) approximate their carrying value.
(h) Recently Issued Accounting Standards
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.
The Statement does not apply to deferred acquisition costs, or deferred tax
assets. The Company has adopted this statement effective January 1, 1995, and
its adoption did not have a material effect on the Company's financial
statements.
(i) Unaudited Interim Financial Statements
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six months ended June 30, 1996 are not necessarily
indicative of the results that will be expected for the year ending December
31, 1996.
(3) Line of Credit Agreement
On April 8, 1992 the Company obtained a $1,000,000 revolving credit facility
(the "Revolver") for working capital and other general corporate purposes.
Borrowings under the Revolver bear interest at the prime rate plus 1.0% (9.5%
at December 31, 1995). Interest is payable quarterly and the Revolver is
renewable on an annual basis. Substantially all of the assets of the Company
are pledged as collateral under the Revolver and the stock of the Company is
pledged as collateral under the guarantee of the Revolver. Total borrowings
outstanding under the Revolver were $125,000 at December 31, 1995.
(4) Commitments and Contingencies
The Company leases office space, antenna space and certain equipment under
noncancelable operating leases with remaining terms ranging from one to five
years. The following is a schedule by years of future minimum rentals due under
the leases at December 31, 1995:
1996..................................... $26,407
1997..................................... 10,560
1998..................................... 6,600
1999..................................... 2,640
2000..................................... 1,540
Rent expense for the years ended December 31, 1993, 1994 and 1995 was
approximately $13,200, $24,800 and $37,200, respectively.
In addition to the noncancelable leases above, the Company has entered into
agreements with certain area schools and colleges to use the ITFS licenses
awarded them. These contracts give the Company exclusive rights to utilize 16
channels awarded as educational frequencies to broadcast commercial
programming. The Company is obligated to reserve a certain number of hours per
week for broadcasting of educational programming for these institutions and to
provide the equipment necessary in the institutions to receive the Company's
transmission. The Company fulfills its educational programming obligation
through assignment of four channels for full-time educational programming. The
contracts provide monthly payments of $0.05 to $0.10 per subscriber per
channel. License expense for the years ended December 31, 1993, 1994 and 1995
was $44,300, $46,900 and $54,300, respectively.
The Company is involved in certain legal proceedings generally incidental to
its business. While the results of any litigation contain an element of
uncertainty, management believes that the outcome of any known or threatened
legal proceeding will not have a material effect on the Company's financial
position or results of operations.
(5): Concentrations of Credit Risk
Financial instruments which potentially expose the Company to concentrations
of credit risk consist primarily of cash and accounts receivable. The Company
has not experienced any losses on its deposits. Subscriber accounts receivable
collectibility is impacted by economic trends in each of the Company's Markets.
Such receivables are typically collected within thirty days, and the Company
has provided an allowance which it believes is adequate to absorb losses from
uncollectible accounts.
(6): Sale of the Company
On February 6, 1996, the Company signed a definitive agreement to sell
substantially all of the assets of Madison and Beasley to TruVision Wireless,
Inc., for $6.0 million in a combination of cash and notes receivable. The sale,
which is contingent upon FCC approval, is expected to be consummated in the
second quarter of 1996.
Exhibit 99.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 8-K, into the Company's previously filed
Form S-3 Registration Statement, File No. 333-12449.
/s/ Arthur Andersen LLP
Jackson, Mississppi
November 1, 1996
