12
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
______________________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 1997
_______________________________
Commission File Number 0-25896
TEL-COM WIRELESS CABLE TV CORPORATION
(Exact name of registrant as specified in its charter)
Florida 59-3175814
(State or other jurisdiction (IRS Employer
of Identification No.)
incorporation or organization)
32118
501 N. Grandview Avenue, Suite (Zip Code)
201
Daytona Beach, Florida
(Address of principal
executive offices)
904-226-9977
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO___
On March 31, 1997, there were 2,196,212 Shares of Common
Stock, $.001 par value per Share, outstanding.
TEL-COM WIRELESS CABLE TV CORPORATION
Index to Form 10-QSB
For Quarter Ended March 31, 1997
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Balance Sheets 3
Statements of Operations
4
Statements of Cash Flows
5
Notes to Financial Statements
6
Item 2. Management's Discussion
10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
12
Item 2. Changes in Securities
12
Item 3. Defaults Upon Senior Securities
12
Item 4. Submission of Matters to a Vote of Security
Holders 12
Item 5. Other Information
12
Item 6. Exhibits and Reports on Form 8-K
12
Index to Exhibits
12
SIGNATURES 12
TEL-COM WIRELESS CABLE TV CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, 1997
December 31, 1996
CURRENT ASSETS
(Unaudited)
Cash and Cash Equivalents $35,636 $26,618
Restricted Cash 0 346,400
Accounts Receivable - Trade 15,398 18,739
Prepaid Consulting Fees 740,997 988,000
Prepaid Expenses 15,007 44,552
TOTAL CURRENT ASSETS 807,038 1,424,309
PROPERTY & EQUIPMENT, NET (Note 3) 1,425,938 1,365,235
LICENSES, NET (Note 4) 5,428,920 5,458,444
OTHER ASSETS, NET (Note 4) 135,848 127,335
TOTAL ASSETS $ 7,797,744 $ 8,375,323
LIABILITIES & STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Accounts Payable $210,309 $153,276
Accrued Liabilities 17,103 16,787
Short Term & Automobile Loans 21,108 22,711
Notes Due to Stockholders 2,050,000 2,008,000
Notes Due to Bank 0 361,000
TOTAL CURRENT LIABILITIES 2,298,520 2,561,774
LONG TERM LIABILITIES 951,479 951,479
STOCKHOLDERS' EQUITY
Preferred Stock 3 1
Common Stock 2,196 2,196
Additional Paid-in Capital 7,344,719 7,544,720
Accumulated Deficit (2,799,172) (2,284,847)
4,547,745 5,262,070
Less: Stock Subscription 0 (400,000)
Receivable
4,547,745 4,862,070
TOTAL STOCKHOLDERS' EQUITY
TOTAL LIABILITIES & STOCKHOLDERS' $7,797,744 $8,375,323
EQUITY
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TEL-COM WIRELESS CABLE TV CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
Three
Months
Ended
March
31,
1997 1996
(Unaudi (Unaudi
ted) ted)
REVENUE $226,10 $83,213
8
COST OF SALES 37,253 15,089
GROSS PROFIT 188,855 68,124
EXPENSES
Total General Expenses 691,495 279,710
OPERATING LOSS (502,64 (211,58
0) 6)
Other Income (Expense)
Interest Income 4,069 27,069
Interest Expense (15,753 (6,000)
)
Total Other Income (Expense) (11,684 21,069
)
NET LOSS ($514,3 ($190,5
24) 17)
WEIGHTED AVG. NO. OF
COMMON SHARES OUTSTANDING 2,196,2 1,923,8
12 89
NET LOSS PER COMMON SHARE ($0.23) ($0.10)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TEL-COM WIRELESS CABLE TV CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three
Months
Ended
March 31,
1997 1996
(Unaudited (Unaudited
) )
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Loss ($514,324) ($190,517)
Adjustments to reconcile net
loss to net cash
used in operating activities
Amortization & Depreciation 78,921 26,612
expense
Increase (Decrease) in (3,209) 4,935
Accounts Receivable
Increase (Decrease) in 276,548 (22,647)
Prepaid Expenses
Increase (Decrease) in 57,033 (61,652)
Accounts Payable
Increase (Decrease) in Other 316 (18,675)
Accrued Liabilities
NET CASH USED IN
OPERATING ACTIVITIES (104,715) (261,944)
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisition of Equipment (111,366) (164,141)
Acquisition of Licenses 0 (1,000,000
)
Acquisition of Investments 0 (505,000)
Proceeds from Sale of 346,400 0
Investments
Increase in Deposits (697) (4,000)
NET CASH USED IN
INVESTING ACTIVITIES 234,337 (1,673,141
)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from Bank Loans 0 1,475,000
Proceeds from Officer Loans 42,000 0
Proceeds from Sale of 200,000 0
Preferred Stock
Repayment of Bank Loans (361,000) 0
Repayment of Short Term Loans (1,604) 0
NET CASH PROVIDED BY
FINANCING ACTIVITIES (120,604) 1,475,000
NET INCREASE(DECREASE) IN CASH 9,018 (460,085)
CASH AT BEGINNING OF PERIOD 26,618 1,767,285
CASH AT END OF PERIOD $35,636 $1,307,200
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 1997
(Unaudited)
NOTE 1 BASIS OF PRESENTATION
In the opinion of management, the accompanying
unaudited, consolidated financial statements include
all adjustments necessary for a fair presentation of
financial position and the results of operations and
cash flows for the periods presented. They include
statements of all company affiliates, domestic and
foreign. Certain information and note disclosures
normally included in financial statements prepared
according to generally accepted accounting principles
have been condensed or omitted.
NOTE 2 SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information:
Three Months
Ended
March 31,
1997 1996
Cash paid during the period:
Interest 15,753
6,000
NOTE 3 PROPERTY & EQUIPMENT
Property and equipment are summarized as follows:
Leasehold improvements $ 12,667
Furniture, fixtures & 246,769
office
Equipment 1,437,184
Subtotal 1,696,620
Less accumulated 270,682
depreciation
Net property & equipment $ 1,425,938
NOTE 4 LICENSES & OTHER ASSETS
Other assets are summarized as follows:
Licensing fees $ 1,560,855
Costa Rican licenses 4,000,000
Deposits 126,698
Organization costs 4,000
Loans to Stockholders 6,550
Subtotal 5,698,103
Less accumulated 133,335
amortization
Net other assets $ 5,564,768
NOTE 5 COMMITMENTS
Licenses
During 1993, the Company entered into agreements for
the lease and purchase of certain channel licenses and
for the lease and purchase of transmitting equipment
and tower site usage in LaCrosse, Wisconsin.
Pursuant to the agreements, the Company has incurred
$366,535 of costs related to the channel licenses. The
cost of the channel licenses is amortized on a straight-
line basis over 40 years beginning when the Company
commenced operations. The Company has satisfied its
lease requirements to the lessors, and the lessors
transferred ownership of licenses and assigned the
tower rights to the Company for $100. The transfer of
ownership of the licenses is subject to approval by the
Federal Communications Commission (FCC). On March 4,
1996, the FCC approved the transfer of ownership of
licenses to the Company. The leases terminated upon
the FCC's approval of the transfers.
On March 28, 1996, the Federal Communications
Commission completed its auction of authorizations to
provide single channel and Multichannel Multipoint
Distribution Service (MDS) in 493 Basic Trading Areas.
The Company won bids in 3 markets; Hickory-Lenoir-
Morganton, NC; Wausau-Rhinelander, WI; and Stevens
Point-Marshfield-Wisconsin Rapids, WI. The total amount
bid for these licenses, after a 15% small business
credit, was $3,046,212. On April 5, 1996, the Company
submitted a payment of $239,502, that, coupled with its
initial deposit of $65,120, made up the initial 10% of
the down payment for acquisition of these licenses. On
June 28, 1996, the Federal Communications Commission
called for the second 10% of the down payment before
the authorizations were issued. The Company had until
July 8, 1996, to submit a balance of payment of
$304,622 to satisfy the initial down payment total.
Under confirmation of receipt of down payment, the FCC
would issue the authorizations. On July 8, 1996,
payment of $118,936 was submitted to the Federal
Communications Commission to cover payment on the two
Wisconsin markets of Stevens Point and Wausau. License
fees payable to the FCC of $951,479 for the two
Wisconsin licenses will be made over the next ten years
in quarterly payments. Interest charged for this
installment plan would be based on the rate of the
effective ten-year US Treasury obligation at the time
of the issuance of the authorization plus two and one
half (2 1/2) percentage.
On September 1, 1996, the unpaid license fee payable of
$1,71,175 for the Hickory, NC, license was defaulted.
According to Section 21.959 in the FCC MDA Audit
Information Package, a maximum default payment of three
percent of the defaulting bidder's bid amount would be
due to the FCC. This amount, $65,544, was charged to
operations in 1996. The remaining amount, $120,142, of
the deposit submitted to the FCC for Hickory, NC, was
recorded as a refundable deposit at December 31, 1996.
In addition, the Company will be liable to the FCC for
the difference between the Company's winning bid and a
lower winning bid received by the FCC in a subsequent
auction of this license. The FCC has not yet announced
plans to re-auction the Hickory, NC, license.
Costa Rica Licenses
On February 7, 1996, the Company signed two agreements
for the acquisition of three companies that together
hold 18 frequency licenses for broadcast of pay
television (or "wireless cable") services in Costa Rica
together with related equipment and contracts with
subscribers for pay television services. These
agreements were amended and restated on February 22,
1996. The closing of the three acquisitions was
consummated on February 23, 1996.
In the first acquisition, the Company, through Fepeca
deTournon, S.A. ("FdT"), a new, wholly owned Costa
Rican subsidiary corporation of the Company, acquired
all of the outstanding shares of common stock of
Televisora Canal Diecinueve, S.A., a Costa Rican
corporation ("Canal 19"), for a total purchase price of
$3 million; $1 million of which was paid at the closing
and the balance to be paid one year after the closing
with interest at the rate of 3.6% per annum. The
payment of this deferred amount is secured by all of
the acquired shares of stock of Canal 19 and of Grupo
Masteri, discussed below.
In the second acquisition, the Company, through FdT,
acquired all of the outstanding shares of common stock
of Grupo Masteri, S.A., a Costa Rican corporation
("Grupo"), for a total purchase price of $1 million
paid at the closing in the form of restricted shares of
the Company's common stock representing approximately
six (6) percent of the company's total outstanding
shares. The Company has agreed to provide the seller
certain registration rights with respect to these
shares.
The Company operates its wireless cable pay television
business in Costa Rica through another wholly owned
subsidiary corporation known as TelePlus, S.A.
("TelePlus"). The Company acquired TelePlus from
Seller on February 23, 1996, and in consideration
thereof, agreed to pay Seller a lump sum amount equal
to $50 times the number of subscribers under contract
with TelePlus in excess of the 1,700 subscribers
purchased from Seller at a date one year after TelePlus
has six pay television channels broadcasting to the
public. TelePlus began broadcasting six pay television
channels in October 1996. Currently, TelePlus has
approximately 3,000 subscribers.
The cost of the channel licenses is amortized on a
straight-line basis over 40 years beginning when the
acquisition of the licenses was consummated.
NOTE 6 COSTA RICAN REVENUES AND EXPENSES
Costa Rican revenues and expenses were calculated
monthly using the currency exchange rate for Costa
Rican Colons into United States Dollars determined at
the close of the business day on the last day of each
applicable month. The exchange rate on March 31, 1997,
was 226.15 Colons per 1 US Dollar.
NOTE 7 LOAN RESTRUCTURE
On February 12, 1997, the Company and Seller entered
into an agreement providing for the restructuring of
the note given by the Company to Seller as payment for
the acquisition of Canal 19. This agreement was
amended and restated by a letter agreement dated
February 21, 1997. The agreement, as amended and
restated, provided for the Company to make a payment of
$625,000 toward reduction of the principal balance of
the note on or before March 7, 1997. The remaining
principal balance, plus accrued interest thereon, was
to be paid on or before February 23, 1998, provided
that, with an additional payment of $100,000, the
Company could extend such maturity date for an
additional period of six months. The Company paid
Seller a deposit of $50,000 on February 24, 1997, and,
as consideration for the restructuring of the note,
agreed to issue to Seller 100,000 shares of its common
stock, par value $.001 per share, having certain piggy
back registration rights. The $50,000 deposit was to
be applied toward the principal balance of the note
provided, however, that if the $625,000 principal
reduction payment was not timely paid, Seller could
retain such deposit. The Company failed to pay the
$625,000 payment, the $50,000 was retained and on April
2, 1997, Seller declared the Note to be in default.
On April 14, 1997, the Company entered into a letter of
understanding with the Seller for the restructuring of
the $2 million debt into a convertible debenture to
mature in 12 months with interest to accrue at 12% per
annum (7% to be paid monthly and 5% at maturity). The
principal amount of the debenture would be $2 million
plus certain expenses owed or reimbursable to Seller at
the issue date of the debenture. At the Company's
option, $1 million of this amount may be extended for
an additional period of 12 months with interest to
accrue on such amount at 15% per annum (8% to be paid
monthly in arrears and 7% to be paid at maturity). The
Seller will have the option, exercisable within six
months of the issue date of the debenture, to elect or
extend the maturity date of the debenture of an
additional 12 months, in which event, commencing on the
first day of the 13th month after the issue date of the
debenture, one-half of the principal amount will accrue
interest at 12% per annum (7% to be paid monthly in
arrears and 5% to be paid at maturity) and one-half of
the principal amount will accrue interest at 15% per
annum (8% to be paid monthly in arrears and 7% to be
paid at maturity).
As consideration for this debt structuring, Seller will
(i) be issued 180,000 shares of the Company's common
stock with piggy back registration rights; (ii) be
entitled to nominate two members to the Company's Board
of Directors until such time as Seller has exercised
the conversion rights under the debenture; and(iii)
receive a release from any liability in connection with
the Costa Rica acquisition.
The debenture will be convertible by Seller into the
Company's common stock at any time after the issue date
prior to payment of the debenture on at least 30 days'
advance notice to the Company. The conversion price is
equal to the lesser of (1) $1.00 per share of common
stock or (2) a price per share of common stock equal to
the average of the closing "bid" for the Company's
common stock as reported on NASDAQ for the five trading
days immediately prior to the conversion date. The
Company also will reserve for issuance upon conversion
a sufficient number of shares of common stock and will
register such reserved shares and maintain an effective
registration statement for such shares.
The Seller will have the option to the return of the 12
microwave frequency licenses held by Canal 19 in
exchange for the Company's use of part of Seller's
Channel 19 offices for an additional sales office and
the provision to the Company of approximately $25,000
to $30,000 per year in advertising on Channel 19 for up
to five years.
If the Company defaults in its obligations under the
debenture, then Seller will be entitled to a transfer
of all stock of Canal 19, Grupo and TelePlus and the
right to purchase all capital assets of the Company in
Costa Rica for fair market value. The capital assets of
TelePlus consist primarily of subscriber contracts,
transmission equipment and subscriber reception
equipment necessary for the operation of the Costa
Rican wireless cable television service.
The Company and Seller are currently negotiating and
drafting the terms of definitive agreements to reflect
the terms of the preliminary understanding. Pending
the execution of definitive agreements, Seller has
agreed to abate any proceedings or remedies for default
of the debt until May 19, 1997. While the Company is
optimistic that definitive agreements on the terms
described above will be executed in due course, no
assurance thereof can be given.
NOTE 8 FINANCING - STOCK PURCHASE
On November 25, 1996, the Company accepted a
Subscription Agreement for a total of 500 shares of its
Series A Convertible Preferred Stock at a price of
$1,000 per share (the "Preferred Shares"), 250 to Amber
Capital Corporation and 250 to Investor Resource
Services, Inc. (the "Buyers") for a total Subscription
price of $500,000. Each Buyer delivered $50,000 at
closing ($100,000 total), and a promissory note for
$200,000. Each buyer paid an addition $50,000
($100,000 total) against the Note on January 8, 1997.
The balance of the Note, which was due on January 31,
1997, was not paid, and the Company and the Buyers have
agreed to terminate the balance of the Subscription
Agreements and cancel the Notes.
On March 14, 1997, Aurora Capital purchased a total of
100 shares of the Company's Series B Convertible
Preferred Stock for a total price of $100,000.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Since the Company started operations in its initial
wireless cable television system in LaCrosse, Wisconsin (the
"LaCrosse System") in September 1994, the Company reached a level
of programming services delivered to approximately 1,300
subscribers on March 31, 1997. On February 23, 1996, the Company
began providing services for approximately 1,712 subscribers in
its newly acquired Costa Rican company TelePlus, S.A. (the "Costa
Rican System"). It relaunched a newly defined system on
September 15, 1996. Installation of new subscribers into the
system began after all existing subscribers who desired
continuing services were upgraded. As of March 31, 1997, the
Costa Rican System had approximately 3,000 subscribers. On March
28, 1996, the company successfully bid for authorizations to 3
markets; Hickory-Lenoir-Morganton, NC; Wausau-Rhinelander, WI;
and Stevens Point-Marshfield-Wisconsin Rapids, WI. The areas in
Wisconsin are designated as future wireless cable television
systems. The NC market has been abandoned
Three Months Ended 1997 versus 1996
The Company had revenues of $226,108 for the three
months ended March 31, 1997, compared to $83,213 during the same
period in 1996. Revenues were primarily generated from
subscription fees, installation charges and subscriber cable
equipment sales. The Costa Rican System generated income of
$120,357 for the 3 months of the first quarter 1997, while the
LaCrosse System had revenues of $98,394 during the same 3 month
period related to subscription services. The Company had a total
interest and miscellaneous income for the same three months of
$11,426 from its various security investments and miscellaneous
income adjustments to outstanding liabilities.
Cost of sales for both the Costa Rica System and the
LaCrosse System for the three months ending March 31, 1997, were
$37,253. This amount reflects the increased costs of programming
for the six channels of pay TV broadcast in Costa Rica added to
the LaCrosse System costs, since December 31, 1996. During the
comparable period of 1996, the Company had a cost of sales of
$15,089.
Expenses for the three months ended March 31, 1997,
consisted primarily of broadcast costs, general and
administrative expenses, and interest expense. The Costa Rican
System, the LaCrosse System and Corporate office had total
operating expenses of $691,496. During the comparable period of
1996, the Company had operating expenses of $279,710. This
increase in operating expenses reflects the increase of costs
relative to cable hardware accessories necessary to accommodate
the increase in subscriber services and the additional expense of
the Costa Rican System in comparison to the previous year. It
also reflects the inherent costs associated with expansion.
The Company had a net loss of $514,324 for the three
months ended on March 31, 1997, in comparison to $190,517 during
the same period in 1996. This increase in net loss reflects the
continued build-up of operations in Costa Rica, the operation of
the LaCrosse System, and the professional services necessary to
assure compliance with FCC, SEC, and Costa Rican regulation.
Liquidity
On March 31, 1997, the Company had property and
transmission equipment valued at a cost of $1,425,938 net of
adjusted depreciation as compared to $857,442 at March 31, 1996,
and $1,365,235 at December 31, 1996. This increase in property
primarily reflects the capitalization of the Costa Rican System.
During the three months ended March 31, 1997, the
Company used cash primarily to fund operating losses, purchase
transmission equipment and for costs accompanying its
capitalization of the Costa Rican System. Cash increased from
$26,618 on December 31, 1996, for the three months ending on
March 31, 1997, to $35,636 primarily due to the receipt of cash
from operating activities, the increased collection of aging
accounts receivable and the sale of Preferred stock.
Although incremental equipment and labor installation
costs per subscriber are incurred after a subscriber signs up for
the Company's wireless cable service, such costs are incurred by
the Company before it receives fees from the subscribers and are
only partially offset by installation charges. To sustain
subscriber growth beyond its initial base in the LaCrosse System
and the Costa Rican System, the Company will need to generate
enough operating revenues to enable it to continue to invest in
subscriber reception equipment and installation or raise
additional debt or equity capital. In addition, to develop and
launch additional wireless cable systems, the Company will need
to raise additional capital. There can be no assurance that
operating revenues will be sufficient to sustain subscriber
growth or that additional financing, if required, will be
available on terms acceptable to the Company, if at all.
Profitability will be determined by the Company's
ability to maximize revenue from subscribers while maintaining
variable expenses. Significant increases in revenues will
generally come from subscriber growth. Currently, the Company
has eight employees domestically and twenty-three employees in
Costa Rica. There are additional plans to increase employees in
the Costa Rican location.
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings: None
ITEM 2 Changes in Securities: None
ITEM 3 Defaults Upon Senior Securities: None
ITEM 4 Submission of Matters to a Vote of Security
Holders: None
ITEM 5 Other Information: None
ITEM 6 Exhibits and Reports on Form 8-K
Reports on Form 8-K. The Company filed the
following Current Reports on Form 8-K during the first quarter of
1997:
Amendment No.3 to Current Report on Form 8-K/A dated
February 12, 1997, as further amended by Amendment No. 4 to
Current Report on Form 8-K/A dated February 27, 1997. These
Amendments amend the Current Report on form 8-K dated February
12, 1996, as amended by Amendment to Current Report on Form 8-K/A
dated February 23, 1996, as further amended by Amendment No. 2 to
Current Report on Form 8-K/A dated May 20, 1996, reporting under
Item 2 acquisitions of stock and/or assets in certain Costa Rican
companies. On February 12, 1997, the Company and Melvin Rosen
("Seller") entered in an agreement providing for the
restructuring of the promissory note (the "Note") dated February
23, 1996, in the original principal amount of $2,000,000, given
by the Company to Seller in connection with the acquisition of
Televisora Canal Diecinueve, S.A. The agreement was amended and
restated by the parties on February 21, 1997.
INDEX TO EXHIBITS
Exhibit 2 Plans of Acquisition:
2.1 Letter Agreement Dated February 12, 1997, between
the Company and Melvin Rosen was filed as Exhibit
2 to the Current Report on form 8-K/A dated
February 14, 1997, and is incorporated herein by
reference.
2.2 Amended and Restated Letter Agreement dated
February 21, 1997, between the Company and Melvin
Rosen Was filed as Exhibit 2 to the Current Report
on Form 8-K/A dated February 27, 1997, and is
incorporated herein by reference.
In accordance with the requirements of the Exchange Act, the
registrant has caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
TEL-COM WIRELESS CABLE TV CORPORATION
Date: May 9, 1997 By: /s/ FERNAND L. DUQUETTE
Fernand L. Duquette, President
and Principal Financial Officer
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<PERIOD-END> MAR-31-1997
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