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FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 1998
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Commission File Number 0-25896
TEL-COM WIRELESS CABLE TV CORPORATION
(Exact name of registrant as specified in its charter)
Florida 59-3175814
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(State or other jurisdiction (IRS Employer
incorporation or organization) Identification No.)
1506 N.E. 162 Street
North Miami Beach, Florida 33162
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(Address of principal (Zip Code)
executive offices)
305-947-3010
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(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 May 12, 1998, there were 4,009,643 Shares of Common Stock, $.001 par
value per Share, outstanding.
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TEL-COM WIRELESS CABLE TV CORPORATION
Index to Form 10-QSB
For Quarter Ended March 31, 1998
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PAGE NO.
PART I. FINANCIAL INFORMATION
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 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of
Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Index to Exhibits 20
SIGNATURES 20
</TABLE>
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TEL-COM WIRELESS CABLE TV CORPORATION
CONSOLIDATED BALANCE SHEETS
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March 31 December 31
1998 1997
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(Unaudited)
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ASSETS
Current Assets:
Cash and Cash Equivalents $ 6,370 $ 113,207
Accounts Receivable-Trade, Net of
Allowance for Doubtful Accounts 87,221 46,269
Prepaid Expenses 39,666 20,761
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Total Current Assets 133,257 180,237
Property & Equipment, Net (Note 3) 1,420,366 1,462,062
Licenses, Net (Note 4) 5,240,434 5,320,225
Other Assets, Net 17,619 14,220
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TOTAL ASSETS $ 6,811,676 $ 6,976,744
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 397,301 304,639
Accrued Liabilities 381,643 308,993
Current Portion of Long-term Debt 6,301 6,301
Advances from Stockholders 384,055 362,479
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Total Current Liabilities 1,169,300 982,412
Convertible Debenture (Note 6) 2,366,000 2,366,000
License Fees Payable 951,479 951,479
Long-term Debt, Less Current Portion 8,105 9,997
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Total Liabilities 4,494,884 4,309,888
STOCKHOLDERS' EQUITY (Notes 7 and 8)
Common Stock 4,010 4,010
Additional Paid-in Capital 8,171,457 8,171,457
Accumulated Deficit (5,858,675) (5,508,611)
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Total Stockholders' Equity 2,316,792 2,666,856
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Total Liabilities & Stockholders Equity $ 6,811,676 $ 6,976,744
</TABLE>
See Notes to Consolidated Financial Statements
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TEL-COM WIRELESS CABLE TV CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended March 31, 1998 and 1997
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<CAPTION>
1998 1997
(Unaudited)
<S> <C> <C>
Revenue $ 341,715 $ 226,108
Cost of Sales 48,281 37,253
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Gross Profit 293,434 188,855
Operating Expenses 627,314 691,495
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Operating Loss (333,880) (502,640)
Other Income (Expense)
Interest Income 843 4,069
Interest Expense (17,027) (65,753)
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Total Other Income (Expense) (16,184) (61,684)
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Net Loss $ (350,064) $ (564,324)
Preferred Stock Dividends -- 161,800
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Net Loss Available to Common Stockholders $ (350,064) $ (726,124)
Weighted Average Number of
Common Shares Outstanding 4,009,643 2,196,212
Net Loss Per Common Share-basic and diluted $ (0.09) $ (0.33)
</TABLE>
See Notes to Consolidated Financial Statements
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TEL-COM WIRELESS CABLE TV CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1998 and 1997
<TABLE>
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1998 1997
(Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $(350,064) $(564,324)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization & Depreciation 147,893 128,921
Increase in Accounts receivable (40,952) (3,209)
Increase(Decrease)in Prepaid Expenses (18,905) 276,548
Increase(Decrease)in Accounts Payable 92,662 57,033
Increase(Decrease)in Accrued Liabilities 72,650 316
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Net Cash Used in Operating Activities (96,716) (104,715)
Cash Flows From(Used In)Investing Activities:
Acquisition of Equipment (26,206) (111,366)
Proceeds from sale of Investments -- 346,400
Increase in Other assets (3,599) (6970)
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Net Cash Used in Investing Activities (29,805) (234,337)
Cash Flows From Financing Activities:
Proceeds from Stockholder Loans 21,576 42,000
Proceeds from Sale of Preferred Stock -- 200,000
Repayment of Bank Loans -- (361,000)
Repayment of Long-Term Debt (1,892) (1,604)
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Net Cash Provided By (Used In)
Financing Activities 19,684 (120,604)
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NET INCREASE(DECREASE) IN CASH (106,837) 9,018
CASH AT BEGINNING OF PERIOD 113,207 26,618
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CASH AT END OF PERIOD $ 6,370 $ 35,636
</TABLE>
See Notes to Consolidated Financial Statements
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TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 1998
(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 the statements of
all subsidiaries. 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 for the three months
ended March 31:
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1998 1997
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Interest paid during the period $16,345 $ 78,890
Non-cash investing and financing
activities:
Cancellation of Subscription agreement $ -- $ 300,000
Preferred stock dividends $ -- $ 161,800
Note 3 Property & Equipment
Property and equipment are summarized
as follows at March 31, 1998:
Leasehold improvements $ 16,346
Furniture & office equipment 105,147
Vehicles 133,315
TV Signal Rebroadcast & receiving equipment 1,672,572
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Total cost 1,927,380
Less accumulated depreciation 507,014
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Net property & equipment $1,420,366
</TABLE>
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Note 4 Licenses and Acquisitions
Licenses are summarized as follows at March 31, 1998:
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LaCrosse Wisconsin $ 371,493
San Jose, Costa Rica 4,174,000
Stevens Point-Marchfield-Wisc.Rapids,
Wisconsin 530,625
Wausau-Rhinelander, Wisconsin 658,736
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Total cost 5,734,854
Less accumulated amortization 494,420
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Net licenses $5,240,434
</TABLE>
On March 28, 1996, the Federal Communications Commission (FCC)
completed its auction of authorizations to provide single
channel and Multi-channel Multi-point 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
Company's total bid for these 3 markets was $3,046,212. The
company made the full 10% down payment of $304,622 for all
three markets but only made the second 10% down payment of
$118,946 on the 2 Wisconsin markets.
The remaining license fees payable to the FCC of $951,479 for
the two Wisconsin licenses are due quarterly over a ten year
period. The interest rate will be the effective rate of
ten-year US Treasury obligations at the time the FCC issues
the authorization plus 2-1/2%. Since the Company has not
received written notification from the FCC that the Wisconsin
licenses have been granted, no interest has been accrued on
the $951,479 licenses payable at March 31, 1998.
On September 1, 1996, the unpaid license fee payable of
$1,671,175 for the Hickory, NC, license was defaulted.
According to Section 21.959 in the FCC MDA Audit Information
Package, a maximum default payment of 3% 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
$120,142 of the deposit submitted to the FCC for Hickory, NC,
was charged to operations in the fourth quarter of 1997.
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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 and no liability is recorded for the potential
shortfall of a re-auction.
Costa Rica Licenses
In February 1996 the Company agreed to acquire three companies
holding a total of 18 frequency licenses for broadcast of pay
television (i.e. "wireless cable") services in Costa Rica
together with related equipment and contracts with
subscribers.
In the first acquisition, the Company acquired 100% of
Televisora Canal Diecinueve, S.A. ("Canal 19"), for $1 million
cash and $2 million due one year later with interest at 3.6%
per annum. The $2 million note payable was secured by the
stock of Canal 19 and of Grupo Masteri, discussed below.
In the second acquisition, the Company acquired all of the
common stock of Grupo Masteri, S.A. ("Grupo") for 121,212
restricted shares of the Company's common stock valued at
$8.25 per share. The Company agreed to provide Melvin Rosen,
(the "Seller") certain registration rights with respect to
these shares.
The third acquisition from Seller was of TelePlus, S.A.
("TelePlus"). As consideration for the purchase of TelePlus
the Company agreed to pay the Seller $50 times the increase in
subscribers for the one year period after TelePlus had six pay
television channels broadcasting to the public. In October
1996, after a significant investment in equipment, TelePlus
began broadcasting six pay television channels to 760
subscribers. Over the next year TelePlus added 3,480
subscribers. As a result, $174,000 was added to licenses and
notes payable to stockholders.
The entire $4,174,000 purchase price of the three Costa Rican
companies was allocated to the 18 licenses since the value of
the other assets acquired was minimal. The cost of the
licenses is amortized on a straight-line basis over 15 years.
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Note 5 Costa Rican Foreign Currency Translation
Costa Rican revenues and expenses were translated using the
currency exchange rate for Costa Rican Colons into United
States Dollars determined at the close of business on the last
day of each month. The exchange rate was 250 and 226 Colons
per 1 US Dollar on March 31, 1998 and 1997, respectively.
Note 6 Loan Restructure
On February 12, 1997, the Company and Seller entered into an
agreement to restructure the $2 million note issued in the
acquisition of Canal 19. The amended agreement required the
Company to pay $625,000 on or before March 7, 1997. The
remaining $1,375,000 principal balance, plus accrued interest
thereon, was to be paid on or before February 23, 1998.
However, with the additional payment of $100,000, the Company
could extend such maturity date for an additional six months.
The Company paid $50,000 of the $100,000 on February 24, 1997.
The Company failed to pay the $625,000 on March 7,1997 and the
$50,000 was retained by the Seller as a penalty. In April 1997
the Seller declared the $2,000,000 note to be in default.
On May 19, 1997, the Company entered into an agreement with
the Seller restructuring the $2 million debt into a
convertible debenture maturing in 12 months and bearing
interest at 12% per annum (7% to be paid monthly and 5% at
maturity). The principal amount of the debenture was increased
$100,000 for expenses owed or reimbursable to Seller at the
issue date of the Debenture.
As consideration for this debt structuring, the Company agreed
to issue to the Seller (i) 180,000 shares of the Company's
common stock with piggy back registration rights, (ii) a
warrant to purchase 500,000 shares at $1.00 per share, and
(iii) a warrant to purchase 500,000 shares at $5.00 per share.
Under the Agreement, the Seller became the President and
Chairman of the Board and received the right to nominate two
members to the Company's Board of Directors until such time as
the President exercised the conversion rights under the
Debenture. The Company released the President from any
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liability in connection with the Costa Rica acquisition. A
value of $78,750 was assigned to the aforementioned stock and
$10,000 to the warrants issued.
The Debenture is 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)
$.50 per share of common stock or (2) 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 is required to reserve a
sufficient number of shares of common stock for such
conversion and maintain an effective registration statement
for such shares.
At either the President's or the Company's option, $1 million
of this amount may be extended for an additional period of 12
months with interest at 15% per annum (8% to be paid monthly
in arrears and 7% to be paid at maturity). No interest was
paid on the Debenture and the $153,033 of interest accrued
from May 19, 1997 to December 31, 1997 was added to the
Debenture balance.
In November, the President notified the Company of his
intention to convert the Debenture into common stock on or
before May 15, 1998. As inducement for the early conversion
and for the President foregoing all interest on the Debenture
after December 31, 1997 an additional $109,967 was added to
the Debenture principal balance. The resulting $2,366,000
Debenture balance will be converted into 4,732,000 restricted
common shares to be issued to the President in May 1998.
The $238,750 total cost of extending and restructuring the
debt and the $109,967 early conversion inducement were
recorded as interest expense in 1997.
Note 7 Financing-Convertible Preferred Stock Purchase and Conversion
The Company is authorized to issue up to 5,000,000 shares of
"blank check" preferred stock and to permit the Board of
Directors, without shareholder approval, to fix the rights,
preferences and privileges including
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dividend rights, conversion rights, terms of redemption or
liquidation preferences.
On November 25, 1996, the Company accepted a Subscription
Agreement from Amber Capital Corporation and Investor Resource
Services, Inc. (the "Buyers") for a total of 500 shares of its
Series A Convertible Preferred Stock at a price of $1,000 per
share (the "Preferred Shares"), for a total subscription price
of $500,000. The Buyers delivered $100,000 and promissory
notes ("Notes") for $400,000 at closing. The Buyers paid an
additional $100,000 against the Notes on January 8, 1997.
After the Notes were not paid on the January 31, 1997 due
date, the Company and the Buyers agreed to terminate the
balance of the Subscription Agreements and cancel the Notes.
On March 14, 1997, Aurora Capital purchased 100 shares of the
Company's Series B Convertible Preferred Stock for $100,000.
The Series A preferred shares are convertible into common
shares at the lesser of $3.25 or 65% of the average bid for
the company's common stock for the five trading days prior to
the conversion. The Series B preferred shares are convertible
at the lesser of $1.00 or 65% of the average bid for the
company's common stock for the five trading days prior to the
conversion. Neither Series A nor Series B of preferred stock
had fixed dividend rights.
During the first quarter of 1997 the company recorded a
preferred stock dividend of $161,800 which represented the 35%
discount off the bid price of the common stock at the time the
preferred shares were issued for a total of $300,000. The
$161,800 was added to additional Paid-in Capital and increased
the Accumulated Deficit in the first quarter of 1997. The
dividend increased the net loss per common share by $.07 for
the first quarter of 1997.
The 300 aggregate shares of Series A and Series B Convertible
Preferred Stock were converted into 1,183,431 shares of common
stock at 65% of the $.39 average bid price per share on the 5
trading days preceding the election to convert. The 1,183,431
common shares were issued on September 16, 1997.
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Note 8 Stock Warrants, Consulting Agreements and Shares Reserved
Publicly Traded Common Stock Purchase Warrants
In connection with its initial public offering on May 10,
1995, the Company sold 1,610,000 redeemable common stock
purchase warrants at a price of $.25 per warrant. Each warrant
entitles the holder to purchase, at any time from the date of
the offering through the fifth anniversary date, one share of
common stock at a price of $5.75 per share. The warrants are
redeemable at a price of $.25 per warrant under certain
circumstances.
Private Placement Warrants
In August 1994 and December 1, 1994, the Company issued an
aggregate of 625,000 common stock warrants as part of the sale
of units of its securities. Such warrants may be exercised
within five years from the date of their issuance at an
exercise price of $5.75 per share. The warrants provide for
adjustment in the number of shares underlying the warrants
upon the occurrence of certain events, such as stock
dividends, stock splits or other reclassifications of the
Company's common stock, a consolidation or merger of the
Company, or a liquidating distribution of the Company's common
stock.
Underwriter Stock Warrants
In connection with the public offering, the Company sold
Underwriter's stock warrants, at a price of $.001 per Warrant.
Warrants to purchase 100,000 shares of common stock and
warrants to purchase an additional 140,000 warrants were sold.
The underwriter's stock warrants are exercisable at a price of
$7.50 per share, and the underwriter's warrants are
exercisable at a price of $.375 per warrant through May 10,
2000. Each warrant underlying the underwriter's warrants is
exercisable for one share of common stock at an exercise price
of $5.75 per share.
Consulting Agreements
On December 23, 1996 the Company engaged four Individuals (the
"Consultants") to provide financial and Public relations
services to the Company. The Company
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issued a total of 200,000 shares of its common stock valued at
$988,000 (fair value) to the Consultants as compensation for
the services to be provided by the Consultants. No costs were
expensed as of December 31, 1996 as no services had been
performed under the agreements. The $988,000 was recorded to
operating expenses at $247,000 per quarter in 1997.
In July 1997, the Company entered into a two-year Consulting
Agreement with an investment banking firm (the "Consultant").
Pursuant thereto the Company granted the Consultant 500,000
one-year warrants exercisable at $1.00 per share, 200,000
one-year warrants exercisable at $2.50 per share and 100,000
three-year warrants exercisable at $2.50 per share. A value of
$128,000 was assigned to the warrants and was recorded to
operating expenses in the second half of 1997. In October 1997
assignees of the Consultant exercised 450,000 of the one year
warrants at $1 per share and the company received $450,000.
See Note 6 for warrants issued to the President in the
Restructuring of the $2,000,000 debt.
Shares Reserved
At March 31, 1998, the Company has reserved 8,997,000 Shares
of common stock for future issuance pursuant to Stock warrant,
stock option and convertible debt agreements. This total is
the maximum shares issuable upon conversion of debt and
includes 177,000 shares reserved under the stock option plan
for options that have not been granted at March 31, 1998.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company operates wireless cable television systems in LaCrosse, Wisconsin
(the "LaCrosse System") and in the Central American country of Costa Rica (the
"Costa Rican System"). As of March 31, 1998 the LaCrosse System had
approximately 1,100 subscribers and the Costa Rican System had approximately
4,600 subscribers.
On March 28, 1996, the Company successfully bid for authorizations to three
markets: Hickory-Lenoir-Morganton, NC; Wausau-Rhinelander, WI; and Stevens
Point-Marshfield-Wisconsin Rapids, WI. The Wisconsin markets are designated as
future wireless cable television systems. The North Carolina authorization has
been abandoned.
The restructure of the loan issued as part of the acquisition of the Costa Rican
licenses resulted in a change in control of the Company and its executive
management in May 1997. See note 4 of Notes to Consolidated Financial
Statements.
In November 1997 the Company agreed to acquire 60% of the capital stock of The
Fifth Avenue Channel, Inc. ("Fifth Avenue"), 45% from Mel Rosen, the Company's
President and controlling shareholder, and 15% from International Broadcast
Corporation ("IBC"). As consideration, the Company will issue 200,000 shares of
its common stock upon the closing of the purchase of the Fifth Avenue capital
stock, which is expected to occur in the second quarter of 1998.
The Fifth Avenue Channel will be a new 24 hour luxury lifestyles television
channel premiering in October 1998. Fifth Avenue has entered into contracts with
Bloomberg LP to broadcast Bloomberg Television on the Fifth Avenue Channel and
with Fashion TV Paris for joint marketing and channel carriage. Fashion TV Paris
broadcasts daily to 100 million households in Europe and Asia. Ivana Trump who
is the Chairwoman and a 10% shareholder of Fifth Avenue will host the Fifth
Avenue Channel.
Fifth Avenue plans to launch its website (5thAvenueChannel.com) featuring
high-end products and services in mid summer 1998. The Company expects its
television programming to drive visitors from around the world to its internet
website.
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RESULTS OF OPERATIONS
Revenues
The Company had revenues of $341,715 for the first three months of 1998 and
$226,108 in the comparable 1997 period. The $115,607 increase in revenues is due
to the significantly increased Costa Rican subscriber base. The Costa Rican
System generated 75% of 1998 revenues and 55% of 1997 revenues and the LaCrosse
System generated approximately 25% of 1998 revenues and 45% of 1997 revenues.
Cost of sales
Cost of sales for 1998 increased $11,028 over the comparable 1997 period, due to
the significant increase in Costa Rican subscribers. Cost of sales as a percent
of revenues declined from 16.5% in 1997 to 14.1% in 1998 because of the lower
programming costs of the Costa Rican System and the increase in Costa Rican
System revenues as a percentage of total revenues from 55% in 1997 to 75% in
1998.
Operating expenses
Operating expenses for 1997 include $247,000 of investment banking and financial
relations consulting expense assigned to a consulting agreement dated December
23, 1996. This agreement was not renewed and similar expense was not incurred in
the first quarter of 1998. The first quarter of 1998 included $66,326 of
expenses starting up the Fifth Avenue Channel which is not expected to have
significant revenues until the fourth quarter of 1998.
Excluding both the non-recurring consulting expenses and the Fifth Avenue
Channel start up expenses, the costs of operating the Costa Rican and LaCrosse
Systems and the corporate office in Florida totaled $560,988 (164% of related
revenues) in 1998 and $444,495 (196% of related revenues) in 1997. The $116,493
increase in comparable operating expenses is due to the increased variable costs
of providing subscriber services to the significantly expanded Costa Rican
System.
The operating expenses as a percent of revenues declined from 196% in 1997 to
164% in 1998 because the company was able to spread fixed and semi-variable
operating expenses over a larger Costa Rican revenue base. The Company intends
to increase the Costa Rican subscriber base in the second half of 1998 which
should
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allow the Costa Rican operating expense ratio to continue to decline.
Interest Expense/Interest Income
Interest expense declined $48,726 in the first quarter of 1998 because of the
following related to the $2 million Rosen loan:
1. $50,000 was paid to extend the maturity of the loan in the first
quarter of 1997, and
2. No interest expense was recorded on the loan in 1998 because in
November of 1997 Rosen agreed to convert the current $2,366,000 balance
into 4,732,000 shares of common stock before May 15, 1998.
Interest income decreased $3,226 in 1998 due to the significant reduction in
cash equivalents during the first quarter of 1997
Net Loss
The $350,064 net loss for the first quarter of 1998 includes $66,326 of Fifth
Avenue Channel start up expenses. The first quarter 1997 net loss of $564,324
(before preferred stock dividends) includes $247,000 of financial consulting
expenses and $50,000 to extend the maturity date of the Rosen loan that did not
recur in 1998. Excluding these expenses the net loss relating to the Costa Rican
and LaCrosse Systems and the corporate office in Florida totaled $283,738 (83%
of related revenues) in 1998 and $267,324 (118% of related revenues) in 1997.
The $66,414 increase in comparable net loss is due to the increased variable
costs of providing subscriber services to the significantly expanded Costa Rican
System.
However, as a percent of revenues, the adjusted net loss declined from 118% in
1997 to 83% in 1998. The higher gross profit from the 1998 Costa Rican
subscriber base covered more of the fixed and semi-variable operating expenses
in 1998 than the gross profit from the 1997 Costa Rican subscriber base could
cover.
With 4,600 subscribers on April 1, 1998 compared with 2,400 subscribers on April
1, 1997 the Company expects 1998 to continue this trend of improved operating
results in Costa Rica.
Inflation and Foreign Currency Fluctuation
Costa Rica continues to experience a decline in the value of the Colon relative
to the US dollar of approximately 1% per month. The government of Costa Rica
mandates minimum salary increases on July 1 and January 1 of each year. The
Company has been able to
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increase its prices to cover the wage increases and the effects of the currency
decline in Costa Rica and believes that it will be able to continue to do so
without significant effect on its subscriber base.
The providers of the programming that the Company rebroadcasts in LaCrosse have
increased the rates charged per subscriber when the contracts were renewed
primarily in the fall of 1997. These increases have not been significant and, as
a low cost provider of alternative cable TV, the Company believes it has the
ability to increase its rates to pass the increase in programming costs on to
its subscribers.
LIQUIDITY
Source and Use of Cash for 1998
In early May 1998 the Company completed a private offering of 12% Convertible
Subordinated Debenture to accredited investors. The debentures are convertible
into common shares at $2 per share. Up to 50% of the debentures can be converted
after February 28, 1999 and the remaining 50% can be converted after July 31,
1999 unless redeemed earlier by the Company. Notwithstanding the early
redemption by the Company, debenture holders may convert no less than 50% of
their original Debenture into common shares. Interest is payable monthly.
The $490,000 of net Debenture proceeds ($545,000 less $55,000 of expenses)
received will be used to pay liabilities and to fund operations for the second
quarter of 1998. The Company will explore alternative sources to finance its
operations for the remainder of 1998. Such sources might include calling
outstanding warrants to purchase common shares (See Note 8 of Notes to
Consolidated financial statements).
The Company used $106,839 of the cash and equivalents at December 31, 1997 to
fund its operations in the first quarter of 1998.
Agreement to Acquire 60% of The Fifth Avenue Channel
In November 1997 the Company agreed to acquire 60% of the capital stock of The
Fifth Avenue Channel, Inc. ("Fifth Avenue"), 45% from Mel Rosen, the Company's
President and controlling shareholder, and 15% from International Broadcast
Corporation ("IBC"). As consideration, the Company will issue 200,000 shares of
its common stock upon the closing of the purchase of the Fifth Avenue capital
stock, which is expected to occur in the second quarter of 1998.
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Up to 400,000 additional Company shares may be issued if Fifth Avenue achieves
certain revenue and net profit milestones in its first two years of operations.
Mel Rosen will retain 20% and IBC will retain 10% of the stock of Fifth Avenue,
which will premiere a new 24-hour luxury lifestyles television channel in
October of 1998. Ivana Trump owns the remaining 10% of Fifth Avenue and will
serve as the hostess for the channel.
Pursuant to the acquisition agreement the Company is obligated to fund the
development of Fifth Avenue. In the first quarter of 1998 the Company advanced
$66,326 to fund the operating expenses of Fifth Avenue. The $66,326 was charged
to operating expenses in 1998.
Working Capital Deficit/Additional Debt or Equity Financing Required
The accompanying Consolidated Balance Sheet reflects current liabilities of
$1,169,300 and current assets of $133,257 resulting in a working capital deficit
of $1,036,043.
Although the Costa Rican and LaCrosse operations generate positive cash flow,
the cash flow does not cover the corporate overhead. After the conversion of the
Rosen debentures and the receipt of the $490,000 net proceeds from the issuance
of Convertible Subordinated Debentures, the Company will continue to show a
working capital deficit with its current subscriber base. Increasing the
subscriber base requires additional capital because the incremental equipment
and labor installation costs per subscriber exceed the installation fees charged
the subscriber. It generally takes between 6 months and a year for the gross
profit from each new subscriber to cover the incremental costs of adding the
subscriber.
The Company intends to substantially increase its current subscriber base in the
Costa Rican System and to moderately grow the LaCrosse System. The Company also
plans to fully develop the Fifth Avenue Channel. The Company needs to raise
additional debt or equity capital for capital expenditures and to fund
operations, including its corporate overhead and the launch of the Fifth Avenue
Channel.
The Company is exploring various sources of additional financing, but has no
commitments in this regard. Failure to secure additional debt or equity
financing could have a material adverse
18
<PAGE> 19
effect on the Company and its ability to continue as a going concern.
Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
(FAS 130), and No. 131, "Disclosure about Segments of an Enterprise and Related
Information" (FAS 131). FAS 130 establishes standards for reporting and
displaying comprehensive income, its components and accumulated balances. FAS
131 establishes standards for the way that public companies report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial statements
issued to the public. Both FAS 130 and FAS 131 are effective for annual periods
beginning after December 15, 1997. The Company intends to adopt FAS 130 and FAS
131 in its 1998 annual report and does not believe the new standards will have a
significant impact on future financial statement disclosures.
Currently, the Company has eleven employees domestically and thirty-six
employees in Costa Rica. There are additional plans to increase employees in the
Costa Rican location.
19
<PAGE> 20
PART II OTHER INFORMATION
ITEM 2 Changes in Securities:
In early May 1998 the Company completed a private offering of $545,000
of 12% Convertible Subordinated Debentures (the "Debentures") to
accredited investors. The Debentures are convertible into common shares
at $2 per share. Up to 50 % of the debentures can be converted after
February 28, 1999 and the remaining 50% can be converted after July 31,
1999 unless redeemed earlier by the Company. Notwithstanding the early
redemption by the Company, debenture holders may convert no less than
50% of their original Debenture into common shares. Interest is payable
monthly.
The foregoing securities were all issued without registration under the
Securities Act of 1933 as amended by reason of the exemption from
registration afforded by the provisions of Section 4(2) thereof, as
transactions by an issuer not involving a public offering, each
recipient of securities having delivered appropriate investment
representations to the Company with respect thereto and having
consented to the imposition of restrictive legends upon the
certificates evidencing such securities. A 10% commission and 3%
unaccountable expenses were paid in connection with the issuance of
some of the Debentures.
ITEM 6 Exhibits and Reports on Form 8-K
Exhibit 27.1 Financial Data Schedule
Reports on Form 8-K. None
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 12, 1998 By: /s/ SAMUEL H. SIMKIN
----------------
Samuel H. Simkin, Vice President
and General Counsel
By: /s/ JAMES R. PEKAREK
----------------
James R. Pekarek, Vice President
and Chief Financial Officer
20
<PAGE> 21
TEL-COM WIRELESS CABLE TV CORPORATION
Index to Exhibits
For Quarter Ended March 31, 1998
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
Exhibit 27.1 Financial Data Schedule
</TABLE>
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TEL-COM WIRELESS CABLE TV FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,370
<SECURITIES> 0
<RECEIVABLES> 87,221
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 133,257
<PP&E> 1,927,380
<DEPRECIATION> 507,014
<TOTAL-ASSETS> 6,811,676
<CURRENT-LIABILITIES> 1,169,300
<BONDS> 2,366,000
0
0
<COMMON> 4,010
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,316,792
<SALES> 341,715
<TOTAL-REVENUES> 341,715
<CGS> 48,281
<TOTAL-COSTS> 48,281
<OTHER-EXPENSES> 627,314
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,184
<INCOME-PRETAX> (350,064)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (350,064)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
