As filed with the Securities and Exchange Commission on February 12, 1998
Registration No. 333-41459
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
ON
FORM SB-2*
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TEL-COM WIRELESS CABLE TV CORPORATION
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(Exact name of registrant as specified in its charter)
FLORIDA 59-3175814
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1506 N.E. 162ND STREET
NORTH MIAMI BEACH, FLORIDA 33162
(305) 947-3010
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(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
-------------------
MELVIN ROSEN
PRESIDENT
TEL-COM WIRELESS CABLE TV CORPORATION
1506 N.E. 162ND STREET
NORTH MIAMI BEACH, FLORIDA 33162
TELEPHONE NO. (305) 947-3010
FACSIMILE NO. (305) 919-8154
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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COPIES OF COMMUNICATIONS TO:
DALE S. BERGMAN, P.A.
BROAD AND CASSEL
201 SOUTH BISCAYNE BOULEVARD, SUITE 3000
MIAMI, FLORIDA 33131
TELEPHONE NO. (305) 373-9400
FACSIMILE NO. (305) 373-9443
-------------------------------
Approximate date of commencement of proposed
sale to the public: From time to time after this
Registration Statement becomes effective.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
* Pursuant to discussions with the staff of the U.S. Securities and Exchange
Commission, this Registration Statement serves as an amendment to the
Registrant's Registration Statement on Form S-3 (File No. 333-41459).
<PAGE>
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
========================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SHARES AMOUNT TO OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED BE REGISTERED PER SHARE(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
Common Stock, 1,934,643 $2.53 $4,894,646 $1,443.00
$.001 par value shares
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Common Stock, 225,000 $5.75 $1,293,750 $381.66
$.001 par value(2) shares
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Common Stock, 350,000 300,000 @ $2.50 $750,000 $221.25
$.001 par value(3) shares 50,000 @ $1.00 $ 50,000 $ 14.75
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TOTAL:.......................................................................... $2,060.66
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) using the average of the high and low prices
reported for the Company's Common Stock as of February 10, 1998 and Rule
457(g)(1) with respect to the various warrants.
(2) Represents shares issuable upon the exercise of certain warrants issued to
the Company's private placement agent, as more fully set forth on the
cover page of the Prospectus included herein. Also includes such
additional shares as may be issuable as a result of the anti-dilution
provisions of said warrants.
(3) Represents shares issuable upon exercise of certain warrants issued to the
Company's financial consultant and subsequently assigned to certain
assignees, as more fully set forth on the cover page of the Prospectus
included herein. Also includes such additional shares as may be issuable
as a result of the anti-dilution provisions of said warrants.
Pursuant to Rule 429, this Registration Statement serves as Post-Effective
Amendment No. 3 to the Registrant's Registration Statement on Form SB-2 (File
No. 33-88788-A) relating to (i) 2,010,000 shares of Common Stock issuable upon
exercise of redeemable Common Stock purchase warrants sold in the Company's May
1995 initial public offering ("IPO") (the "IPO Warrants"), (ii) 100,000 shares
of Common Stock issuable upon exercise of 100,000 Underwriter's Stock Warrants
issued to the underwriter of the IPO, (iii) 140,000 shares of Common Stock and
140,000 IPO Warrants issuable upon exercise of 140,000 Underwriter's Warrants
issued to the underwriter of the IPO, and (iv) 140,000 shares of Common Stock
underlying said 140,000 IPO Warrants.
================================================================================
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED February 12, 1998
PROSPECTUS
4,899,643 SHARES
TEL-COM WIRELESS CABLE TV
CORPORATION
COMMON STOCK
This Prospectus relates to an aggregate of 4,899,643 shares (the
"Shares") of common stock, par value $.001 per share (the "Common Stock"), of
Tel-Com Wireless Cable TV Corporation, a Florida corporation (the "Company")
proposed to be sold from time to time by certain shareholders of the Company
(the "Selling Shareholders"), consisting of the following: (i) 1,934,643 of the
shares consist of issued and outstanding shares of Common Stock of the Company,
(ii) 225,000 of the Shares are issuable upon exercise of certain warrants issued
to the Company's private placement agent in connection with the Company's 1994
Private Placement ("Private Placement Warrants"), and (iii) 50,000 of the Shares
are issuable upon exercise of a like number of one-year warrants having an
exercise price of $1.00 per share, 200,000 of the Shares are issuable upon
exercise of a like number of one-year warrants having an exercise price of $2.50
per share, and 100,000 of the Shares are issuable upon exercise of a like number
of three-year warrants exercisable at $2.50 per share, all such warrants
("Consultants Warrants") having been issued to the Company's financial
consultant pursuant to a Consulting Agreement entered into by the Company and
said consultant as of July 24, 1997 and subsequently assigned to certain
assignees ("Consultant's Assignees"). See "Recent Developments," "Selling
Shareholders" and "Description of Securities." The Company will not receive any
proceeds from the sale of the Shares by the Selling Shareholders but will
receive up to an aggregate of approximately $1,552,500 upon exercise of the
Underwriter's Warrants and the Consultant's Warrants.
The Selling Shareholders have advised the Company that they may from
time to time sell all or a portion of the Shares offered hereby in one or more
transactions in the over-the-counter market, on the Nasdaq SmallCap Market or on
any other exchange on which the Common Stock may then be listed, in privately
negotiated transactions or otherwise, or a combination of such methods of sale,
at market prices prevailing at the time of sale or prices related to such
prevailing market prices or at negotiated prices. The Selling Shareholders may
effect such transactions by selling the Shares to or through broker-dealers, and
such broker-dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Shareholders and/or
purchasers of the Shares for whom they may act as agent (which compensation may
be in excess of customary commissions). The Selling Shareholders and any
participating broker-dealers may be deemed to be "underwriters" as defined in
the Securities Act of 1933, as amended (the "Securities Act"). Neither the
Company nor the Selling Shareholders can estimate at the present time the amount
of commissions or discounts, if any, that will be paid by the Selling
Shareholders on account of their sales of the Shares from time to time. The
Company has agreed to indemnify the Selling Shareholders against certain
liabilities, including certain liabilities under the Securities Act. See "Plan
of Distribution."
<PAGE>
This Prospectus also covers (i) 2,010,000 shares of Common Stock
issuable upon exercise of redeemable Common Stock purchase warrants sold in the
Company's May 1995 initial public offering ("IPO") ("IPO Warrants"), (ii)
100,000 shares of Common Stock issuable upon exercise of 100,000 Underwriter's
Stock Warrants issued to the underwriter of the IPO, (iii) 140,000 shares of
Common Stock and 140,000 IPO Warrants issuable upon exercise of 140,000
Underwriter's Warrants issued to the underwriter of the IPO, and (iv) 140,000
shares of Common Stock underlying said 140,000 IPO Warrants. See "Description of
Securities."
The Common Stock is quoted on the Nasdaq SmallCap Market under the
symbol "TCTV." On February 10, 1998, the last reported sales price of the Common
Stock on the Nasdaq SmallCap Market was $2.625 per share.
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A
DISCUSSION OF CERTAIN RISKS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS FEBRUARY __, 1998
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<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company may be inspected and
copied (at prescribed rates) at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and
at the following regional offices located at Seven World Trade Center, Suite
1300, New York, New York 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and may also be obtained from the Commission's website
located at http://www.sec.gov. Quotations relating to the Company's Common Stock
appear on the Nasdaq SmallCap Market, and reports, proxy statements and other
information concerning the Company can also be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on
Form SB-2 (the "Registration Statement") under the Securities Act with respect
to the Shares. This Prospectus, which is a part of the Registration Statement,
does not contain all the information set forth in, or annexed as exhibits to,
such Registration Statement, certain portions of which have been omitted
pursuant to rules and regulations of the Commission. For further information
with respect to the Company and the Shares, reference is hereby made to such
Registration Statement, including the exhibits thereto. Copies of the
Registration Statement, including exhibits, may be obtained from the
aforementioned public reference facilities of the Commission upon payment of the
fees prescribed by the Commission, or may be examined without charge at such
facilities. Statements contained herein concerning any document filed as an
exhibit are not necessarily complete and, in each instance, reference is made to
the copy of such document filed as an exhibit to the Registration Statement.
Each such statement is qualified in its entirety by such reference.
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<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION, FINANCIAL STATEMENTS AND RELATED NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS. EACH INVESTOR IS URGED TO READ THIS PROSPECTUS IN
ITS ENTIRETY. INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH
UNDER THE HEADING "RISK FACTORS."
THE COMPANY
GENERAL
Tel-Com is a developer, owner and operator of wireless cable television
systems in Costa Rica and Wisconsin. Wireless cable television is provided to
subscribers by transmitting designated frequencies over the air to a small
receiving antenna at each subscriber's location. The Company provides television
and related cable services for multiple dwelling units, commercial locations and
single family residences.
Since wireless cable systems do not require an extensive network of
coaxial cable and amplifiers, their capital cost per installed subscriber is
significantly less than that for hard-wire cable systems. In addition, operating
costs of wireless cable systems are generally lower than those of comparable
hard-wire cable systems due to lower network maintenance and depreciation
expense. As a result of lower capital and operating costs, Tel-Com is generally
able to charge less for its standard cable packages than the amount charged for
comparable service provided by its hard-wire cable competition.
THE COSTA RICAN SYSTEM. The Company acquired certain rights to up to 18
pay television broadcast channels in Costa Rica in February 1996 (the "Costa
Rica Acquisition"). Three channels are UHF frequencies (Channels 56, 58 and 60),
three are "superband" frequencies (Channels 35, 37 and 39), and twelve are
microwave frequencies similar to those used in the LaCrosse system described
below. The Company's transmission equipment is located on a leased tower site on
a mountaintop approximately 12,000 feet above sea level and 10,000 feet above
the San Jose Central Valley. From this site, the Company is capable of
broadcasting its signals over a radius of more than 100 miles.
As of December 31, 1997, the Company had approximately 4,500
subscribers in the Costa Rican System. Costa Rica has a population of over
3,350,000 and over 750,000 households which are capable of receiving the
Company's signals. Unlike most of the United States, Costa Rica has very low
cable penetration. An estimated 60,000 households - less than 10% of the
population - have cable or pay television of any kind. By contrast, in the
United States, over 70% of households have access to cable television. A large
majority of the uncabled households in Costa Rica currently have access to cable
television only through Tel-Com's system.
In addition to the country's 22 "off-air" VHF/UHF channels, the Company
currently offers six channels of pay television in Costa Rica: HBO-Ole, Cinemax,
Sony Entertainment,
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<PAGE>
Warner Brothers Network, Fox Sports International and Discovery Channel. Each
subscriber receives an addressable set-top converter and remote control, as well
as an antenna which is installed on the roof to receive the Company's television
signals. Monthly subscription fees are currently $15 to $19.50 per month,
depending on the programming package.
In Costa Rica, the Company emphasizes its picture quality and the
reliability of its wireless transmission. Because the Company transmits its
television signals via VHF and UHF frequencies instead of microwave frequencies
which are typically used in wireless cable operations, the Costa Rican System
does not require line-of-sight between the transmission point and the
subscriber. The Company believes that it provides a high-quality,
price-competitive alternative to hard-wire cable services in Costa Rica.
The Company plans to undertake efforts to increase its subscriber base
in Costa Rica, although there can be no assurances that the Company will be
successful in such endeavor.
THE LACROSSE, WISCONSIN SYSTEM. The Company operates a wireless cable
television system in LaCrosse, Wisconsin (the "LaCrosse System"). The LaCrosse
System began transmitting programming in December 1994 and, as of December 31,
1997 had approximately 1,200 subscribers. There are approximately 70,000
households within the LaCrosse System's 25-mile signal pattern. The System
currently offers 22 channels, consisting of 17 wireless cable channels and five
(5) local "off-air" (VHF/UHF) broadcast channels. In addition, the Company has
entered into lease agreements for Instructional Television Fixed Service
("ITFS") excess capacity for eight additional channels for use in the LaCrosse
System: four (4) channels with each of the Shekinah Network and the Morningstar
Educational Network.
Monthly subscription fees for the LaCrosse System start at $23.50 for
basic programming, including a premium movie channel. This monthly fee is
significantly below what the two "hard-wire" cable companies in LaCrosse charge
for their equivalent programming packages. In LaCrosse, the Company focuses its
marketing efforts on the reliability of its service. The Company provides
24-hour per day service, with rapid response time on incoming telephone calls,
and flexible installation scheduling. In LaCrosse, the Company has positioned
itself as a reliable, cost-effective alternative to traditional hard-wire cable
operations, which presently serve over 50% of the area's 70,000 households
within the area's 25-mile radius.
The Company's management expects to need additional financing for the
expansion of its business, and to support working capital requirements in future
years. The Company currently is exploring financing alternatives to allow the
Company to finance such expansion, although there can be no assurance that such
financing alternatives will be available to the Company or will be available on
terms favorable to the Company. Such financing may take the form of an
investment in equity securities or convertible debt securities of the Company,
and may result in dilution to the Company's shareholders.
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<PAGE>
The principal executive offices of the Company are located at 1506 N.E.
162nd Street, North Miami Beach, Florida 33162, and its telephone number is
(305) 947-3010.
RECENT DEVELOPMENTS
COSTA RICA ACQUISITION - DEBT RESTRUCTURING. On February 12, 1997, the
Company and the seller under the Costa Rica Acquisition ("Seller") entered into
an agreement providing for the restructuring of the $2 million note given by the
Company to Seller as part of the 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. 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 and the Seller therefore retained the $50,000
deposit.
On May 19, 1997, the Company entered into a Debt Restructuring
Agreement ("Debt Restructuring Agreement") with the Seller for the restructuring
of the $2 million debt into a secured 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 "Convertible Debenture" or "Debenture"). The adjusted principal
amount of the Convertible Debenture is $2.1 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 has the option,
exercisable within six months of the issue date of the Debenture, to extend the
Debenture 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 the debt restructuring described above, 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 (the "$1.00 Warrant"), and (iii) a warrant to purchase
500,000 shares at $5.00 per share (the "$5.00 Warrant") (the $1.00 Warrant and
the $5.00 Warrant collectively referred to as the "Debenture Warrants"). Under
the Agreement, the Seller received the right to nominate two members to the
Company's Board of Directors until such time as Seller exercised the conversion
rights under the Convertible Debenture and received a release from any liability
in connection with the Costa Rica Acquisition.
The Convertible 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
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<PAGE>
notice to the Company. The conversion price is equal to the lesser of (1) $.50
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 is obligated to reserve for issuance upon conversion a sufficient number
of shares of common stock and register such reserved shares and maintain an
effective registration statement for such shares.
Although it is anticipated that the Seller will convert the Convertible
Debenture before its due date, until such conversion, if the Company defaults in
its obligations under the Convertible Debenture, then Seller will be entitled to
a transfer of all stock of the Costa Rican entities involved in the Costa Rica
Acquisition and the right to purchase all capital assets of the Company in Costa
Rica for fair market value. The capital assets of the Company in Costa Rica
consist primarily of subscriber contracts, transmission equipment and subscriber
reception equipment necessary for the operation of the Costa Rican wireless
cable television service.
Upon consummation of the Debt Restructuring Agreement, Fernand Duquette
and Richard Vega resigned from their positions as directors of the Company, and
Fernand Duquette additionally resigned as the Company's President and Chief
Executive Officer. The Seller and his designee, Samuel H. Simkin, were appointed
to the Company's Board of Directors and Seller was appointed the Company's
President and Chief Executive Officer. As a result, a change in control of the
Company is deemed to have taken place.
ACQUISITION OF MAJORITY INTEREST IN FIFTH AVENUE CHANNEL, INC. On
November 20, 1997, the Company reached an agreement in principle to acquire 60%
of the capital stock of The Fifth Avenue Channel, Inc. (the "Channel"), which
plans to premiere a new 24-hour luxury lifestyles television channel in the
Spring of 1998. Although consummation of the transaction is subject to the
execution and delivery of a definitive written agreement, it is anticipated that
the transaction will be structured as follows: Shares of common stock of the
Channel will be purchased from Melvin Rosen, the Company's President and Chief
Executive Officer, and International Broadcast Corporation ("IBC") in exchange
for 200,000 shares of the Company's Common Stock to be issued on a pro-rata
basis at closing and up to an additional 400,000 shares of the Company's Common
Stock which will be issuable to Mr. Rosen and IBC, also on a pro-rata basis,
based upon future performance of the Channel. Following the acquisition, Mr.
Rosen and IBC will continue to be minority shareholders in the Channel along
with Ivana Trump, who will continue to serve as its Chairman of the Board. Ms.
Trump is expected to serve as the hostess of the Channel.
TERMS OF THE OFFERING
SECURITIES OFFERED
Up to 4,899,643 shares of the Company's Common Stock are being
registered hereunder for the account of certain Selling Shareholders, including
(i) 1,934,643 of the shares consist of issued and outstanding shares of Common
Stock of the Company, (ii) 225,000 of the Shares are issuable upon exercise of
the Private Placement Warrants, and (iii) 50,000 of the Shares are issuable upon
exercise of a like number of one-year warrants having an exercise price of $1.00
per share, 200,000 of the Shares are issuable upon exercise of a like number of
one-year
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<PAGE>
warrants having an exercise price of $2.50 per share, and 100,000 of the Shares
are issuable upon exercise of a like number of three-year warrants exercisable
at $2.50 per share, all such warrants collectively constituting the Consultants
Warrants.
USE OF PROCEEDS
The Company will receive no proceeds from the sale of any of or all of
the Shares of Common Stock being offered by the Selling Shareholders hereunder,
but may receive an aggregate of approximately $1,552,500 upon exercise of all of
the Warrants and the Consultant's Warrants. See "Use of Proceeds."
OUTSTANDING SHARES
As of February 10, 1998, the Company had 4,009,643 shares of Common
Stock and no shares of preferred stock outstanding.
FORWARD-LOOKING STATEMENTS
The Company cautions readers that certain important factors may affect
the Company's actual results and could cause such results to differ materially
from any forward-looking statements that may be deemed to have been made in this
Prospectus or that are otherwise made by or on behalf of the Company. For this
purpose, any statements contained in this Prospectus that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the generality of the foregoing, words such as "may," "will," "expect,"
"believe," "anticipate," "intend," "could," "estimate" or "continue" or the
negative variations thereof or comparable terminology are intended to identify
forward-looking statements. Factors which may cause or contribute to such
difference in results include, but are not limited to, those discussed in the
sections captioned "Risk Factors" below as well as those discussed elsewhere in
this Prospectus and from time to time in the Company's filings with the
Commission.
- --------
1. Excludes up to 3,965,000 shares of Common Stock issuable upon
exercise of outstanding warrants and up to 4,732,000 shares of Common Stock
issuable upon conversion of the Company's Convertible Debenture.
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<PAGE>
RISK FACTORS
THE SHARES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. BEFORE INVESTING IN THE COMMON STOCK, PROSPECTIVE PURCHASERS SHOULD
CAREFULLY CONSIDER THE MATTERS SET FORTH BELOW AS WELL AS THE OTHER INFORMATION
SET FORTH IN THIS PROSPECTUS, BEFORE MAKING AN INVESTMENT DECISION.
LIMITED OPERATING HISTORY: OPERATING LOSSES: ACCUMULATED DEFICIT AND
LIMITED FUNDS: GOING CONCERN ISSUES. The Company was organized in May 1993 and
commenced operations, on a limited basis, in September 1994. For the year ended
December 31, 1996, the Company incurred operating losses aggregating $1,382,214.
The Company's accumulated deficit at September 30, 1997 was $3,992,180. The
Company had a net loss of $1,707,332 for the nine months ended September 30,
1997, in comparison to $931,239 during the same period in 1996. This 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. The net loss for the 1997
period also includes $805,000 of non-recurring financial and public relations
consulting service costs that were not incurred in the comparable nine month
period ended September 30, 1996. The Company expects to continue experiencing
net losses while it develops and expands its wireless cable systems and the
to-be acquired Fifth Avenue Channel. The Company's financial resources are
limited and have to date been depleted through expansion and losses sustained by
the Company since its inception. The Company's expansion activities and net
losses have placed substantial pressure on the working capital and liquidity of
the Company. The Company is currently experiencing a cash shortage. These
conditions raise substantial doubt as to the Company's ability to continue as a
going concern. The ability of the Company to finance its activities and growth
will depend on its ability to procure additional financing and achieve a
profitable level of operations. There can be no assurance that such financing
can be obtained. No assurance can be given that the Company will generate
substantial revenues or that the Company's business operations will prove to be
profitable. The Company's operations are subject to all of the risks inherent in
the establishment of a new business, particularly one in the highly competitive
pay television industry. The likelihood of the success of the Company must be
considered in light of its limited financial resources and the problems,
expenses, difficulties, complications and delays. frequently encountered in
connection with establishing a new business, including, without limitation,
market acceptance of the Company's services, regulatory problems, unanticipated
expenses and competition. There can be no assurances that the Company's business
will be successful. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
COMPETITION; PHYSICAL LIMITATIONS OF WIRELESS CABLE TRANSMISSION. The
pay television industry is highly competitive. Wireless cable television systems
face or may face competition from several sources, such as traditional hard-wire
cable companies, satellite receivers, direct broadcast satellites ("DBS") and
other alternative methods of distributing and receiving television
transmissions. Further, premium movie services offered by cable television
systems have encountered significant competition from the home video cassette
recorder industry. In areas where a number of local off-air VHF/UHF broadcast
signals can be received without the benefit of cable television, cable
television systems have also experienced competition from the
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availability of broadcast signals generally and have found market penetration
more difficult. Several actual and potential competitors have greater financial,
marketing, and other resources than the Company.
Wireless cable programming is transmitted through the air via microwave
frequencies that generally require a direct "line-of-sight" from the transmitter
facility to the subscriber's receiving antenna. In communities with dense
foliage, hilly terrain, tall buildings or other obstructions in the transmission
path, transmission may be blocked at certain locations without the use of signal
repeaters known as "beam-benders." Traditional hard-wire cable systems deliver
the signal to a subscriber's location through a network of coaxial cable and
amplifiers and do not require a direct line-of-sight for transmission and,
therefore, may have a competitive advantage over the Company in those areas
where the reception of wireless cable transmissions is difficult or impossible.
In addition, in limited circumstances, extreme adverse weather could damage
wireless cable transmission and receiver antennas as well as transmission site
equipment. Such conditions would not similarly affect hardwire cable systems.
Wireless cable programming can only be transmitted in the United States
on the frequencies made available for wireless cable by the FCC. Currently, and
until the commercial availability of digital compression technology, the number
of channels of cable television programming that can be provided to subscribers
of wireless cable systems is limited to 33. Hard-wire cable systems are not
limited in this regard and frequently offer more channels of cable television
programming than wireless cable systems. Satellite receivers and DBS have the
capability of delivering over 100 channels of programming.
Digital capability is ultimately essential for wireless to compete with
hard-wire cable. The ability to offer substantially more programming utilizing
existing wireless cable channel capacity is dependent on effectively deploying
digital compression technology. Digital compression technology has only recently
become commercially available to the wireless cable industry. The Company does
not expect, for financial and other reasons, to be able to deploy such
technology for several years.
It is expected that the cost of digital compression equipment will
exceed the cost of analog equipment. There can be no assurance that the Company
will have the financial resources to successfully deploy digital technology, or
that cost-effective digital compression equipment will be available to the
Company. Failure by the Company to deploy digital technology could have a
material adverse effect on its operating results and business expansion.
Unlike hard-wire operators, wireless cable operators who do not hold
licenses to the frequencies in their markets have to lease the wireless cable
channels on which they transmit their programming from channel license holders.
Leases generally require the operator to pay the lessor a fee based on a
percentage of subscription revenues, averaging approximately 5%, or, if greater,
a minimum monthly fee. Although hard-wire operators do not have to lease
channels, they do have to pay franchise fees generally on all gross revenues
from cable system operations (as compared to only subscription revenues in the
case of wireless cable), typically in the range of 3% to 5%, an expense that is
not incurred by wireless operators. Programming is generally available to
traditional hard-wire and wireless operators on comparable terms,
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although operators that have a smaller number of subscribers often are required
to pay higher per subscriber fees. Accordingly, operators in the initial
operating stage generally pay higher programming fees on a per subscriber basis.
Certain hard-wire cable operators have announced their intention to
develop interactive features for use by their subscribers, such as shopping via
video catalogs and playing video games with neighbors. Interactive services are
not currently available for wireless cable. The Company believes that the same
manufacturers who currently are developing digital compression converters for
both hard-wire and wireless cable will also make new developments in
interactivity available to both industry segments. The FCC has designated a
return path channel for use in connection with interactive services which may be
offered by wireless cable operators. The Company believes that, if it is
economically feasible to do so, wireless cable systems can include two-way
interactivity. There can be no assurance that interactive services will be made
available for wireless cable systems and, therefore, to the extent such services
are available on hard-wire cable systems, the Company could be at a competitive
disadvantage.
Legislative, regulatory and technological developments may result in
additional and significant new competition, including competition from local
telephone companies. No assurance can be given that the Company will compete
successfully with hard-wire cable and other pay television systems, or
otherwise. See "Business."
NEED FOR ADDITIONAL FINANCING FOR GROWTH. The growth of the Company's
business will require investment on a continuing basis to finance capital
expenditures and related expenses for subscriber growth and new system
development. There can be no assurance that the Company will be able to procure
additional capital or generate sufficient revenues to fund its operations after
such period. Although the Company is actively pursuing additional financing
alternatives, the Company has no arrangements or commitments for additional
capital, and there can be no assurance that the Company will be able to raise
such capital. The development of, and expansion into, new markets will require
additional financing, which may not be available on satisfactory terms, if at
all. Failure to obtain such additional financing could adversely affect the
growth of the Company. The Company does not currently have any available bank
credit facilities. There can be no assurance that any additional required or
desired financing will be available, through bank borrowings, debt or equity
offerings, or otherwise, on acceptable terms, if at all. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company paid part of the purchase price in connection with the
Costa Rica Acquisition by delivery to the Seller of a promissory note in the
principal amount of $2,000,000. Principal, and accrued but unpaid interest if
any, on this note was due and payable on February 23, 1997. The payment of this
promissory note was secured by all of the shares of stock acquired by the
Company in the Costa Rica Acquisition. The Company was unable to raise
additional debt or equity capital to fund the $2,000,000 payment that was due in
February 1997. As a result, the Company entered into negotiations with the
holder of said note, which negotiations ultimately resulted in a restructuring
of this debt pursuant to the terms of the Debt Restructuring Agreement. Although
the holder of the Convertible Debenture has expressed an intention to convert
the Debenture to Common Stock before its due date, until such conversion has
occurred, there
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is the possibility that the Company could lose all of its rights to the
broadcast licenses for the Costa Rica system if the Company defaults under the
Debt Restructuring Agreement. Such loss would have a material adverse effect on
the Company.
In March 1996, the Company was the successful bidder on broadcast
licenses for two (2) additional U.S. wireless cable markets (Wausau and Stevens
Point, Wisconsin) for which it has met its 20% partial payments obligations. The
total price for the licenses will be $1,189,351, plus interest payments. The
Company paid the initial 20% deposit in the total amount of $237,872 for the two
licenses. The balance of the winning bids is payable in quarterly installments
for a 10 year period running from the date that the license is conditionally
issued.
Interest only payments must be made for the first two years.
The grant of the Wisconsin licenses is conditioned on the Company fully
and timely meeting its quarterly payment obligations, and the development of
operating systems within 18 months of the grant of each license. The Company is
unable to predict the exact date by which such systems must be operational,
since it does not know when the licenses will be conditionally issued by the
FCC. The Company estimates that the cost of developing a fully operational
system in each market would be approximately $1,200,000 per system. As of the
date of this Prospectus, the Company has not taken any steps to develop these
systems. Development of these markets, and the funding of the acquisition price
for the licenses, will require additional debt or equity financing, which may
not be available to the Company on acceptable terms, if at all. The Company has
no arrangements or commitments for such future financing, and there can be no
assurance that the Company will be able to raise such capital. Failure to obtain
such additional financing could cause a forfeit of the licenses and could
adversely affect the financial position and growth of the Company.
Additionally, the Company was the successful bidder on the broadcast
license for the Hickory-Lenoir-Morganton North Carolina market (the "Hickory
License"), and made the initial 10% down payment on said license. However, on
September 1, 1996, the balance of the Hickory License deposit was defaulted. As
a result, a maximum default payment of three percent of the defaulting bidder's
bid amount would be due to the FCC. In addition, the Company may 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 License.
To the extent that future financing requirements are satisfied through
the issuance of equity securities, investors may experience significant dilution
in the net book value per share of Common Stock. Additional debt could result in
a substantial portion of the Company's cash flow from operations being dedicated
to the payment of principal and interest on such indebtedness and may render the
Company more vulnerable to competitive pressures and economic downturns. The
Company's future capital requirements will depend upon a number of factors, many
of which are not within the Company's control, including programming costs,
capital costs, marketing expenses, staffing levels, subscriber growth and
competitive conditions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation."
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IMPEDIMENTS TO PROPOSED EXPANSION. The Company has adopted a business
strategy which includes, in part, significant growth through the development of
the Costa Rican System. The Company's proposed expansion will be dependent on,
among other things, the availability of channel license rights on terms and
conditions acceptable to the Company, if at all; successful development and
construction of operating systems; the availability of suitable management and
other personnel; the Company's general ability to manage growth; and the
availability of adequate financing. The Company's management will be responsible
for the selection of expansion opportunities in its sole discretion and
shareholders will not be presented with advance information regarding expansion
opportunities or the ability to approve or disapprove system expansion
opportunities. There can be no assurance that the Company will be successful in
its proposed business strategy. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business."
RISK OF LOSS OF LICENSE RIGHTS. There is a substantial risk of loss of
the Company's rights to the two new Wisconsin licenses. The two new Wisconsin
licenses are conditionally granted subject to the full and timely payment of the
purchase price, and development of operating systems within specified time
periods. The Company does not currently have the capital to fund its purchase or
development obligations. Additionally, the holder of the Convertible Debenture
has indicated his intent to convert the Debenture to Common Stock before its due
date, there is, until such conversion is effectuated, risk of loss of the
Company's rights to its licenses in Costa Rica in the event that the Company is
unable to make the required payments when due pursuant to the Debt Restructuring
Agreement involving part of the purchase price in the Costa Rica Acquisition.
Failure to raise the necessary capital to fund the Company's obligations with
respect to the new Wisconsin licenses and/or the Convertible Debenture may cause
the Company to lose such license rights and could have a material adverse effect
on the Company's financial condition, results of operations and prospects for
growth. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business."
SIGNIFICANT OUTSTANDING INDEBTEDNESS. The Company has incurred
significant indebtedness in connection with the acquisition of its Costa Rican
operations. Of the Company's total indebtedness, $2,000,000 was incurred in
connection with the acquisition of the wireless cable system in Costa Rica. Two
million dollars of the purchase price for the Costa Rica Acquisition was paid in
the form of a promissory note due February 23, 1997, secured by a pledge of all
of the shares of stock acquired by the Company in the Costa Rica Acquisition.
The Company defaulted on its obligations under this promissory note, resulting
in a negotiated restructuring of the debt pursuant to the terms of the Debt
Restructuring Agreement. If the Company defaults under the Debt Restructuring
Agreement, the holder could foreclose on all of the stock acquired by the
Company in the Costa Rica Acquisition. Although the holder of the Convertible
Debenture has indicated his intent to convert the Debenture to Common Stock
before its due date, and although the Company anticipates that it will repay its
outstanding indebtedness out of cash flow from operations, existing cash
resources, the proceeds from the exercise of the Warrants, future debt or equity
financings, or a combination thereof, there can be no assurance that the Company
will have the financial resources to repay such amounts when due or that the
Company will be able to raise additional capital to satisfy its outstanding
indebtedness. The Company does not have a bank line of credit and there can be
no assurance
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that any required or desired financing will be available, through bank
borrowings, debt or equity offerings, or otherwise, on acceptable terms. There
can be no assurance that the Company will receive significant proceeds, if any,
from the exercise of the Warrants, the Debenture Warrants, or the Consultant's
Warrants. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
DEPENDENCE ON KEY INDIVIDUALS. The Company's development and success
depends upon the continued contributions of its newly installed executive
officers, particularly Melvin Rosen, President of the Company and Samuel H.
Simkin, Vice President of the Company. The loss of the services of either Mr.
Rosen or Mr. Simkin could have a material, adverse effect on the Company. The
Company has not entered into employment agreements with either Mr. Rosen or Mr.
Simkin. The Company's success is also dependent upon its ability to attract and
retain qualified employees to meet the Company's needs during its growth. See
"Management."
TERMINATION OR EXPIRATION OF CHANNEL LICENSES. FCC licenses for U.S.
wireless cable channels generally must be renewed every 10 years, and there is
no automatic renewal of such licenses. The U.S. channel licenses owned by the
Company expire at different times beginning in 2001. In the United States,
channel licenses are subject to non-renewal, revocation or cancellation for
violations of the Communications Act of 1934, as amended (the "Communications
Act") or the FCC's rules and policies. Under Costa Rican law, licenses are
granted for a limited time, but are automatically extended by payment of certain
corresponding dues, provided that the functioning and installation of the
station are adjusted to the stipulations of the relevant regulations. The
termination of, or failure to renew, a channel license would result in the
Company's being unable to deliver television programming on any such channel and
could have a material adverse effect on the Company. See "Business-Government
Regulation."
GOVERNMENT REGULATION. The business of the Company in the United
States is subject to regulation by the FCC and other regulatory agencies. The
Company's Costa Rican operations are subject to regulation under Costa Rican
law.
In the United States, the wireless cable industry is subject to
regulation by the FCC pursuant to the Communications Act. The Communications Act
empowers the FCC, among other things: to issue, revoke, modify and renew
licenses within the spectrum available to wireless cable; to approve the
assignment and/or transfer of control over such licenses; to determine the
location of wireless cable systems; to regulate the kind, configuration and
operation of equipment used by wireless cable systems; and to impose certain
equal employment opportunity requirements on wireless cable operators.
Applications for renewal of licenses must be filed within a certain period prior
to expiration and there is no automatic renewal of such licenses. Petitions to
deny applications for renewal may be filed during certain periods following the
filing of such applications. Licenses are subject to revocation, cancellation or
non-renewal for violation of the Communications Act or the FCC's rules and
policies.
The retransmission of local off-air VHF/UHF broadcasts is regulated by
the United States Copyright Office (the "U.S. Copyright Office") pursuant to the
Copyright Act of 1976, as amended (the "Copyright Act"). Secondary transmission
of a broadcast signal is permissible only if approved by the copyright holder or
if subject to compulsory licensing under the
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<PAGE>
Copyright Act. The U.S. Copyright Office has taken the position that, effective
January 1, 1995, wireless cable operators, unlike traditional hard-wire cable
operators, will not be "cable systems" entitled to a compulsory license under
the Copyright Act. Pursuant to the Cable Television Consumer Protection and
Competition Act of 1992 (the "Cable Act"), local broadcasters may require that
cable operators obtain their consent before retransmitting local off- air
VHF/UHF broadcasts. The Company has obtained such consent for the one broadcast
signal in its LaCrosse, Wisconsin system that the Company is retransmitting on a
wireless cable channel. There can be no assurance that such consents will not be
required in the Company's future markets, if any, or that the Company will be
able to obtain such consents on terms satisfactory to the Company, if required.
Television operations in Costa Rica are regulated mainly by the Radio
and Television Law - LEY DE RADIO Y TELEVISION, No. 1758 of 19 June 1954, as
amended (the "Law"); the Regulation of Wireless Stations - REGLAMENTO DE
ESTACIONES INALAMBRICAS, No. 63 of 11 December, 1956,- and the Broadcasting Rule
of Atlantic City and the International Agreements Regarding Broadcasting
executed in Washington, D.C., on March of 1949, which have been ratified by the
Congress of Costa Rica. According to the Law, television operations can only be
established, conducted and exploited by means of a concession granted by the
Radio Control Office ("RCO"), upon payment of the taxes and completion of all
formal requirements imposed by the Law. Once the concession is granted, the RCO
will periodically control and supervise its operation. In order to verify that
the terms and conditions of the concession are being fulfilled, the RCO is
authorized to visit and inspect the place of business of the concessionaire at
any time. If there is any incorrect technical functioning, the licensee, within
forty-eight hours, must reestablish the concession to its original terms under
penalty of cancellation of the license.
The Law establishes that licenses are granted for a limited time, but
they are automatically extended by payment of the corresponding dues, provided
that the functioning and installation of the station are adjusted to the
stipulations of the Law. The transfer or alienation of the right to a frequency
is permitted only with the previous authorization of the RCO, which means that a
formal request has to be submitted to the RCO on these terms.
Article 3 of the Law requires that concessionaires have not less than
65% Costa Rican ownership. The Company has been advised by its Costa Rican
counsel that this provision is not being actively enforced and that there is a
decision from the Constitutional Court declaring a similar provision in a
related law (LEY DE MEDIOS DE DIFUSION Y AGENCIAS DE PUBLICIDAD) to be
unconstitutional. However, based on Costa Rican counsel's recommendation, the
Company structured its ownership of these licenses to be indirect through a
tiered subsidiary structure of Costa Rican corporations to provide for 100%
Costa Rican ownership of the companies holding the licenses, which the Company
believes adequately meets all requirements of Costa Rican law. However, in the
event this structure is not acceptable to the government, an alternate ownership
structure would have to be implemented, which could have a material adverse
effect on the Company.
Wireless cable operators are also subject to regulation by the Federal
Aviation Administration with respect to the construction of transmission towers
and to certain local zoning
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regulations affecting construction of towers and other facilities. There may
also be restrictions imposed by local authorities. There can be no assurance
that the Company will not be required to incur additional costs in complying
with such regulations and restrictions. Due to the regulated nature of the cable
industry, the Company's growth and operations may be adversely impacted by the
adoption of new, or changes to, existing laws or regulations or the
interpretations thereof. See "Business-Government Regulation."
IMPACT OF RECENTLY ENACTED LEGISLATION. The recently enacted
Telecommunications Act of 1996 (the "1996 Act") could have a material impact on
the wireless cable industry and the competitive environment in which the Company
operates. The 1996 Act will result in comprehensive changes to the regulatory
environment for the telecommunications industry as a whole. The legislation
will, among other things, substantially reduce regulatory authority over cable
rates. Another provision of the 1996 Act will afford hard-wire cable operators
greater flexibility to offer lower rates to certain of their subscribers, and
would thereby permit cable operators to offer discounts on hard-wire cable
service to the Company's subscribers or prospective subscribers. The legislation
will permit telephone companies to enter the video distribution business,
subject to certain conditions. The entry of telephone companies into the video
distribution business, with greater access to capital and other resources, could
provide significant competition to the wireless cable industry, including the
Company. In addition, the legislation will afford relief to the Direct Broadcast
Satellite ("DBS") industry by exempting DBS providers from local restrictions on
reception antennas and preempting the authority of local governments to impose
certain taxes. The Company cannot predict the substance of rules and policies to
be adopted by the FCC in implementing the provisions of the legislation. See
"Business-Government Regulation."
RISKS OF INTERNATIONAL OPERATIONS. A significant percentage of the
Company's revenues, on a consolidated basis, is derived from the operations of
its wholly-owned subsidiary in Costa Rica. These revenues are subject to the
risks normally associated with international operations which include, without
limitation, difficulties in staffing and managing foreign operations, losses
from currency conversion and fluctuating exchange rates, limitations (including
taxes) on the repatriation of earnings, slower and more difficult accounts
receivable collection, greater difficulty and expense in administering business
abroad, complications in complying with foreign laws and changes in regulatory
requirements, and cultural differences in the conduct of business. There can be
no assurance that these factors will not have a material adverse effect on the
Company's business, operating results, and financial condition. See "Business."
DEPENDENCE ON PROGRAM MATERIAL AGREEMENTS. In connection with its
distribution of television programming, the Company is dependent on fixed-term
contracts with various program suppliers. Although the Company has no reason to
believe that any such contracts will be canceled or will not be renewed upon
expiration, if such contracts are canceled or not renewed, the Company will have
to seek program material from other sources. There is no assurance that other
program material will be available to the Company on acceptable terms or at all
or, if so available, that such material will be acceptable to the Company's
subscribers. The likelihood that program material will be unavailable to the
Company is significantly mitigated by the Cable Act and various FCC regulations
issued thereunder, which, among other things, impose limits on exclusive
programming contracts and generally prohibit cable programmers in which a cable
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operator has an attributable interest from discriminating against cable
competitors with respect to the price, terms and conditions of sale of
programming. However, no such protections are available in international
markets. See "Business."
CONFLICTS OF INTEREST. Conflicts of interest could arise in the
negotiation of the terms of any transaction between the Company and its
shareholders, officers, directors or affiliates. The Company has no plans or
arrangements, including the hiring of an independent third party, for the
resolution of disputes between the Company and such persons, if they arise. The
Company and its public shareholders could be adversely affected should such
individuals choose to place their own interests before those of the Company. No
assurance can be given that conflicts of interest will not cause the Company to
lose potential opportunities, profits, or management attention. The Board of
Directors of the Company has adopted a policy regarding transactions between the
Company and any officer, director, or affiliate, including loan transactions,
requiring that all such transactions be approved by a majority of the
independent and disinterested members of the Board of Directors and that all
such transactions be for a bona fide business purpose and be entered into on
terms at least as favorable to the Company as could be obtained from
unaffiliated independent third parties. See "Certain Transactions."
UNCERTAINTY OF SIGNIFICANT ASSUMPTIONS AND INFORMATION. The Company's
plans for implementing its proposed business operations and achieving
profitability from its intended operations are based on the experience, judgment
and certain assumptions of its management and upon certain available information
concerning the wireless cable industry in general and the Company's potential
markets. No independent market studies have been conducted concerning the extent
to which customers will subscribe to the Company's wireless cable services nor
are any such studies planned. There can be no assurance that the Company's plans
will materialize, or that the Company's assumptions will prove correct. See
"Business."
VOTING POWER OF PRESENT MANAGEMENT. As of the date of this Prospectus,
the Company's officers and directors own approximately 14.9% of the outstanding
Common Stock of the Company. Additionally, the holder of the Company's
Convertible Debenture as well as the Debenture Warrants, also an officer and
director of the Company, beneficially owns an additional 58.8% of the
outstanding Common Stock of the Company. Consequently, these individuals may be
in a position to influence a majority of the Company's Directors and generally
to exercise control over the Company's affairs. See "Principal Shareholders."
DIVIDENDS UNLIKELY. The Company has not paid any dividends on its
Common Stock and does not intend to declare or pay cash dividends in the
foreseeable future. Earnings are expected to be retained to finance and expand
its business. See "Dividend Policy."
LIMITED TRADING MARKET The Company's Common Stock is quoted on the
Nasdaq SmallCap Market. There currently are a relatively limited number of
shares of Common Stock in the hands of the public and a relatively limited
trading market for the Common Stock. Consequently, purchasers of the Shares may
have a limited ability to dispose of their Shares in the public market.
Furthermore, there can be no assurance that a more active trading market for the
Common Stock will develop or if developed that it will be sustained. See
"Principal Shareholders" and "Description of Securities."
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RISK OF FUTURE SALES OF COMMON STOCK. Future sales of substantial
amounts of Common Stock pursuant to Rule 144 under the Securities Act of 1933,
as amended (the "Securities Act") or otherwise by certain shareholders could
have a material adverse impact on the market price for the Common Stock at the
time. There are presently 598,212 outstanding shares of Common Stock of the
Company beneficially held by members of management and other existing
shareholders of the Company which are deemed "restricted securities" as defined
by Rule 144 under the Securities Act. Under certain circumstances, these shares
may be sold without registration pursuant to the provisions of Rule 144. In
general, under Rule 144, a person (or persons whose shares are aggregated) who
has satisfied a one-year holding period may, under certain circumstances, sell
within any three-month period a number of restricted securities which does not
exceed the greater of one (1%) percent of the shares outstanding or the average
weekly trading volume during the four calendar weeks preceding the notice of
sale required by Rule 144. In addition, Rule 144 permits, under certain
circumstances, the sale of restricted securities by a person who is not an
affiliate of the Company and has satisfied a two-year holding period without any
quantity limitations. Any sales of shares by shareholders pursuant to Rule 144
may have a depressive effect on the price of the Common Stock. See "Shares
Eligible for Future Sale."
RISK OF AUTHORIZATION OF PREFERRED STOCK. The Company's Articles of
Incorporation authorizes the issuance of 5,000,000 shares of "blank check"
preferred stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without stockholder approval (but subject to
applicable government regulatory restrictions), to issue preferred stock with
dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of the Company's Common
Stock. In the event of issuance, the preferred stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company. The Company issued 200 shares of its Series A
Convertible Preferred Stock in November 1996 and 100 shares of its Series B
Convertible Preferred Stock in March 1997, all of which shares have been
converted to shares of Common Stock. Although the Company has no present
intention to issue any additional shares of preferred stock, there can be no
assurance that the Company will not do so in the future. See "Description of
Securities."
EFFECT OF OUTSTANDING WARRANTS AND CONVERTIBLE SECURITIES. As of the
date of this Prospectus, the Company has outstanding warrants to purchase an
aggregate of 3,965,000 shares of Common Stock and the Convertible Debenture
convertible into 4,732,000 shares of Common Stock. As long as such warrants and
convertible securities remain unexercised or are not converted, as the case may
be, the terms under which the Company could obtain additional capital may be
adversely affected. Moreover, the holders of the warrants and convertible
securities may be expected to exercise or convert them at a time when the
Company would, in all likelihood, be able to obtain any needed capital by a new
offering of its securities on terms more favorable than those provided by such
securities.
POSSIBLE APPLICABILITY OF RULES RELATING TO LOW-PRICED STOCKS; NO
ASSURANCE OF CONTINUED LISTING ON NASDAQ. While the Company's Common Stock and
Warrants are listed on the Nasdaq SmallCap Market, there can be no assurance
that such listing will continue. If
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the Common Stock were to be delisted for failure to meet the maintenance
requirements, the shares might be subject to the penny stock rules promulgated
under the Securities Exchange Act of 1934. The Commission has adopted
regulations which generally define a "penny stock" to be any equity security
that has a market price (as defined) of less than $5.00 per share, subject to
certain exceptions. The shares of Common Stock offered hereby may be deemed to
be "penny stocks" and thus become subject to rules that impose additional sales
practice requirements on broker/dealers who sell such securities to persons
other than established customers and accredited investors, unless the Common
Stock is listed on The Nasdaq SmallCap Market. Consequently, the "penny stock"
rules may restrict the ability of broker/dealers to sell the Company's
securities and may affect the ability of purchasers in this offering to sell the
Company's securities in a secondary market.
The Nasdaq Stock Market, Inc. has adopted certain changes to the
maintenance criteria for listing eligibility on The Nasdaq SmallCap Market. The
new maintenance standards require at least $2,000,000 in net tangible assets
(total assets less total liabilities and goodwill) or $500,000 in net income in
two of the last three years, a public float of at least 500,000 shares, a
$1,000,000 market value of public float, a minimum bid price of $1.00 per share,
at least two market makers, at least 300 shareholders and at least two outside
directors. The Commission recently approved these criteria, and a compliance
period for the new maintenance criteria is in the process of being implemented.
If the Company is or becomes unable to meet the listing criteria of The Nasdaq
SmallCap Market and becomes delisted therefrom, trading, if any, in the Common
Stock would thereafter be conducted in the over-the-counter market on the OTC
Electronic Bulletin Board. In such an event, the market price of the Common
Stock may be adversely impacted and an investor may find it difficult to dispose
of, or to obtain accurate quotations as to the market value of the Common Stock.
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company is currently trading on The Nasdaq
SmallCap Market under the symbol "TCTV."
The following table sets forth the range of high and low bid prices for
the Company's Common Stock for each quarterly period indicated, as reported by
brokers and dealers making a market in the Common Stock. Such quotations reflect
inter-dealer prices without retail markup, markdown or commissions, and may not
necessarily represent actual transactions:
COMMON STOCK
QUARTER ENDED HIGH BID LOW BID
- ------------- -------- -------
December 31, 1997 3.8125 1.50
September 30, 1997 3.9375 .375
June 30, 1997 1.28125 .15625
March 31, 1997 4.375 .96875
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COMMON STOCK
QUARTER ENDED HIGH BID LOW BID
- ------------- -------- -------
December 31, 1996 5.50 4.00
September 30, 1996 9.50 4.50
June 30, 1996 8.25 6.875
March 31, 1996 8.375 7.00
December 31, 1995 9.125 7.25
The approximate number of record holders of the Company's Common Stock
is 1,000. The Company believes that its Common Stock is beneficially held by
more than 1,200 holders.
DIVIDEND POLICY. The Company has never paid cash dividends on its
Common Stock and does not intend to do so in the foreseeable future. The Company
currently intends to retain its earnings for the operation and expansion of its
business.
USE OF PROCEEDS
The Company will receive no proceeds from the sale of any of or all of
the Shares of Common Stock being offered by the Selling Shareholders hereunder,
but may receive an aggregate of approximately $1,552,500 upon exercise of all of
the Warrants and the Consultant's Warrants. Such proceeds, if any, will be used
for working capital and other corporate purposes. See "Use of Proceeds."
Expenses expected to be incurred by the Company in connection with the
registration of the Shares are estimated at approximately $40,000.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is an analysis of the Company's results of operations and
its liquidity and capital resources. To the extent that such analysis contains
statements that are not of a historical nature, such statements are
forward-looking statements, which involve risks and uncertainties.
The following should be read in conjunction with the Company's
Consolidated Financial Statements and the related Notes thereto included
elsewhere in this Prospectus.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED WITH THE NINE MONTHS ENDED 1996. The Company had revenues of $783,984
for the nine months ended September 30, 1997, compared to $313,408 during the
same period in 1996. The $470,576 revenue increase is primarily due to a
significantly increased Costa Rican subscriber base. Also, revenues in the 1996
period were negatively impacted by the aforementioned relaunch of the Costa
Rican System. The Costa Rican System generated approximately 62% of 1997
revenues and 21% of 1996 revenues and the LaCrosse System generated
approximately 38% of 1997 revenues and 79% of the 1996 revenues.
Cost of sales for the nine months ended September 30, 1997 increased
$70,582 over the comparable 1996 period due primarily to the significant
increase in Costa Rican subscribers.
Operating expenses for the nine months ended September 30, 1997,
include $805,000 of non-recurring financial and public relations consulting
expenses assigned to the aforementioned consulting agreements. These agreements
will not be renewed and $311,000 will be amortized to expense in the fourth
quarter of 1997. The recurring expenses of operating the Costa Rican and
LaCrosse Systems and the corporate office in Florida totaled $1,258,860 for the
first nine months of 1997. During the comparable period of 1996, the Company had
operating expenses of $1,196,387. This $62,471 increase in recurring operating
expenses is due to the increased variable costs of providing subscriber services
to the significantly expanded Costa Rican System.
Interest expense for the nine months ended September 30, 1997 was
$224,642 above the comparable 1996 period because of the aforementioned
write-off of the $167,248 debt restructuring costs and the higher interest rate.
Interest expense will be almost negligible if or when the Debentures are
converted.
Excluding the $805,000 non-recurring consulting expenses and the
write-off of the $167,248 of debt restructuring costs, the Company's net loss of
$735,084 for 1997 declined $196,155 from the $931,239 during the same period in
1996. The significant increase in gross profit in 1997 covered more of the
general expenses in 1997 than in the 1996 period due to the continued
significant build-up of the subscriber base in Costa Rica in 1997 compared to
1996.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995.
The Company had revenues of $459,185 for the year ended December 31, 1996, as
compared to $155,399 during the comparable period in 1995. This increase of
approximately 300% was attributable
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primarily to the commencement of operations in the Costa Rican System. The Costa
Rican System was in operation for only 35 days of the first quarter of 1996 and
was inactive for most of the second and third quarters during equipment upgrade.
Revenues were primarily generated from subscription fees and installation
charges.
The Company had operating expenses of $1,652,380 and cost of sales of
$96,599 for the year ended December 31, 1996. During the comparable period of
1995, the Company had operating expenses of $777,725 and cost of sales of
$38,244. Expenses for the year ended December 31, 1996, consisted primarily of
broadcast costs, general and administrative expenses, and interest expense. Also
included in expenses for the year was $65,544, representing the anticipated
amount of the partial forfeiture of the Company's deposit for a broadcast
license covering Hickory, North Carolina. The Company incurred $197,468 in
interest expense for the year ended December 31, 1996, as compared to $43,900
during the comparable period of 1995. This increase in total expenses reflects
expenditures for new license acquisitions from the FCC and increased costs
relative to programming and cable hardware necessary to accommodate the increase
in subscriber services. The increase in cost of sales for the year ended
December 31, 1996, reflected an increase in marketing and promotional costs for
Costa Rica as compared to the same period in 1995. The Company had a net loss of
$1,382,214 (or $0.70 per share) for the year ended December 31, 1996, as
compared to $751,959 (or $0.51 per share) during the same period in 1995. The
loss for the year ended December 31, 1996, reflected primarily the commencement
of operations in Costa Rica.
LIQUIDITY AND CAPITAL RESOURCES. The wireless cable television business
is capital intensive. Since its inception, the Company has expended funds to
acquire channel rights in the LaCrosse System, the Costa Rican System and other
domestic markets, and to construct its operating systems in LaCrosse, Wisconsin
and San Jose, Costa Rica. Transmission equipment expenditures and other start-up
expenditures were made by the Company before it could begin the delivery of
programming to its subscribers in the LaCrosse System and the Costa Rican
System.
On September 30, 1997, the Company had property and transmission
equipment valued at a cost of $1,808,999 as compared to $1,409,459 at September
30, 1996, and $1,585,253 at December 31, 1996. This increase in capitalized
property and equipment cost over the past year primarily reflects the increase
in the Costa Rican subscriber base.
During the nine months ended September 30, 1997, the Company used cash
primarily to fund operating losses and purchase subscriber reception equipment
for the significant increase in subscribers in Costa Rica.
See Note 7 of the Notes to the Consolidated Financial Statements for
this period with respect to the Debt Restructuring Agreement and contemporaneous
change in control which occurred in May 1997. The balance sheet at September 30,
1997 reflects the entire $2,100,000 Convertible Debenture as a current
liability. However, the Debenture holder has indicated his intention to convert
the Convertible Debenture into common stock on or before its due date.
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Subsequent to September 30, 1997, the Company received $450,000 of the
$500,000 due from the exercise of 500,000 warrants by assignees of the
investment banking firm to whom the warrants were issued in July, 1997. The
$450,000 will be used primarily to expand the Costa Rican subscriber base and
for general working capital purposes.
The Company must increase its subscriber base without corresponding
increases in corporate overhead to achieve profitability. Incremental equipment
and labor installation costs per subscriber are incurred before the Company
receives fees from the subscribers and such costs are only partially offset by
installation charges. To achieve subscriber growth beyond its current subscriber
base or develop additional wireless cable systems or related products and
services, the Company will need to raise additional debt or equity capital. The
Company is currently exploring various sources of additional financing, but has
no commitments in this regard. Failure to secure additional financing could have
a material adverse effect on the Company.
At December 31, 1995, the Company had an accumulated deficit of
$902,633. The Company's accumulated deficit at December 31, 1996 was $2,284,847.
The Company's financial resources are limited and have to date been depleted
through expansion and losses sustained by the Company since its inception. The
Company's expansion activities and net losses have placed substantial pressure
on the working capital and liquidity of the Company. The Company is currently
experiencing a severe cash shortage. These conditions raise substantial doubt as
to the Company's ability to continue as a going concern. Although the Company
believes that funds expected to be generated from operations and additional debt
or equity financing will be sufficient to fund the Company's working capital
requirements for the next 12 months, there can be no assurance that the Company
will be able to procure additional capital or generate sufficient revenues to
fund its operations currently or after such period. Although the Company is
actively pursuing additional financing alternatives, the Company has no
arrangements or commitments for additional capital at this time and there can be
no assurance that the Company will be able to raise such capital. The Company
does not currently have any available bank credit facilities. There can be no
assurance that any additional required or desired financing will be available
through bank borrowings, debt or equity offerings, or otherwise, on acceptable
terms, if at all. The ability of the Company to finance its activities and
growth will depend on its ability to procure additional financing and achieve a
profitable level of operations. There can be no assurance that such financing
can be obtained or that the Company will achieve profitable operations.
In February 1996, the Company borrowed a total of $1,475,000 in two
loans from Norwest Bank in LaCrosse, Wisconsin. The Company used the $1 million
loan proceeds to cover the initial payment for the acquisition of Canal 19. This
loan was repaid in June 1996. The $475,000 loan proceeds was used for
improvements to the Costa Rican System. This loan was paid in full on February
15, 1997.
No assurance can be given that the Company will generate substantial
revenues from the Costa Rican System or that the Company's business operations
in Costa Rica will prove to be profitable. The Company's operations in Costa
Rica are subject to all of the risks inherent in the establishment of a new
business, particularly one in the highly competitive pay television
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industry. The likelihood of the success of the Company must be considered in
light of the problems, expenses, difficulties, complications and delays
frequently encountered in connection with establishing a new business,
including, without limitation, market acceptance of the Company's services,
regulatory problems, unanticipated expenses and competition. There can be no
assurances that the Company's business in Costa Rica will be successful.
In March 1996, the Company was the successful bidder on broadcast
licenses for three additional U.S. wireless cable markets (Wausau, WI, Stevens
Point, WI, and Hickory, NC) for a total price of $3,046,212. The Company paid
the initial 10% deposit in the total amount of $304,622 for the three licenses
and made the second required deposit equal to 10% of its winning bid only on the
Wisconsin licenses. The licenses were conditionally issued only upon payment in
full of the initial 20% down payment. As the Company did not make the required
additional 10% payment on the North Carolina license, the Company forfeited its
right to acquire such license. In addition, the Company may 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 License. The balance of the winning
bids is payable in quarterly installments for a 10- year period running from the
date that the license is conditionally issued. Payments of interest only, at a
rate based on the rate of the effective 10 year U.S. Treasury obligation plus
2.5%, must be made for the first two years. The remaining principal and interest
is payable during the remainder of the 10-year term.
The licenses are conditioned on full and timely performance of the
licensee's quarterly payments, and the development of operating systems within
18 months of the grant of each license. The Company is unable to predict the
exact date by which such systems must be operational, since it does not know
when the licenses will be conditionally issued by the FCC. The Company estimates
that the cost of developing a fully operational system in each market would be
approximately $1,200,000 per system. The Company intends to fund system
development and the acquisition of these licenses from future debt or equity
financings. The Company has no arrangements or commitments for such future
financings, and there can be no assurance that the Company will be able to raise
such capital on acceptable terms, if at all. Failure to raise the funds needed
for license acquisition costs or system construction would cause a forfeiture of
the license.
In May 1995, the Company closed its initial public offering of Common
Stock and Warrants with net proceeds to the Company (after deducting
underwriting discounts and other expenses of the offering payable by the
Company) of approximately $5,100,000. The Company repaid approximately
$1,400,000 of notes payable and accrued interest payable from the net offering
proceeds. As of November 15, 1996, all of the proceeds from the Company's
initial public offering had been expended. The Company will need to raise
additional capital in order to pay outstanding indebtedness when due, and to
sustain its operations and growth. The Company is actively pursuing additional
capital. The Company has no arrangements or commitments for any additional
capital, and there can be no assurance that the Company will be able to raise
additional capital on acceptable terms, if at all. The failure by the Company to
raise additional capital will have a material adverse effect on its financial
position and results of operations.
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In addition to the repayment of approximately $1,400,000 of
indebtedness, proceeds of approximately $1,200,000 from the Company's initial
public offering were used for facilities build-out, the purchase and
installation of machinery and equipment and working capital for the LaCrosse
System. Approximately $423,000 was used for the initial 20% down-payment for the
newly acquired Wisconsin licenses and the 10% payment on the North Carolina
license which has been forfeited. Proceeds of $1,000,000 were used as part of
the purchase price in the Costa Rica Acquisition and approximately $1,100,000
has been used for facilities build-out, the purchase and installation of
machinery and equipment, and working capital for the Costa Rican System.
Comparing the actual use of proceeds to the estimated use of proceeds
as reflected in the Company's Prospectus dated May 3, 1995, the Company spent
approximately $2,500,000 for new system development in connection with the newly
acquired domestic licenses and the acquisition and development of the Costa
Rican System. The Company used all of the estimated $700,000 allocated for "new
system development" plus the net proceeds from the exercise of the underwriter's
overallotment option of approximately $700,000 to fund these expenditures. An
additional $1,100,000 was shifted from estimated capital expenditures, personnel
and installation expenses and working capital anticipated to be used for the
LaCrosse System. Approximately $1,200,000 was used for facilities build-out, the
purchase and installation of machinery and equipment and working capital for the
LaCrosse System, as compared to the $2,369,500 estimated to be used for such
purposes. Subscriber growth in the LaCrosse System and related expenditures have
been slower than anticipated allowing the Company to use funds allocated for the
LaCrosse System to pursue new markets.
At December 31, 1996, the Company had property, transmission equipment,
and receiving equipment valued at a cost of $1,365,235 net of accumulated
depreciation, as compared to $716,658 at December 31, 1995. Also at December 31,
1996, the Company had channel license rights valued at $5,458,444 net of
accumulated amortization of $102,410 compared to $362,329 and $9,164,
respectively, for the year ended December 31, 1995. This increase in property
reflected equipment purchased for the Costa Rican System and the attending costs
of subscriber growth in the LaCrosse System. The Company has spent approximately
$624,000 to completely replace the transmission (or "head-end") equipment for
the Costa Rican System and for subscriber reception equipment, including
antennas. The Costa Rican System is now fully addressable, which allows for
termination of subscriber services from the Company's offices. The system
upgrade also included the installation of six 1000 watt transmitters and a new
directional antenna. This equipment enables the Company to deliver a clearer
signal over longer distances. With the six transmitters, the Company is
currently broadcasting cable programming over six channels. Subscribers in the
Costa Rican System also receive 22 off-air (VHF/UHF) stations utilizing a
Company-provided antenna.
During the year ended December 31, 1996, the Company used cash
primarily to fund operating losses, purchase transmission equipment and for
costs accompanying its acquisition and development of the Costa Rican System.
Cash decreased from $1,767,285 at December 31, 1995, to $26,618 at December 31,
1996. During the twelve-month period, cash was used primarily to fund operating
losses, to acquire new licenses, and to acquire equipment for the Costa Rican
System.
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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 and Costa
Rican Systems, 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 in areas where the Company holds
additional licenses or to acquire existing wireless cable operations, 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.
The Financial Accounting Standards Board ("FASB") has issued Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets Being Disposed of," which
provides guidance on how and when impairment losses are recognized on long-lived
assets. The Company adopted this SFAS in 1996, and its implementation did not
have a material effect on the consolidated financial statements.
The Financial Accounting Standards Board ("FASB") has issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share," which provides
guidance for computing earnings per share ("EPS"). This statement simplifies the
standards for computing EPS previously found in Accounting Principles Board
("APB") Opinion No. 15, "Earnings per Share." This statement, when adopted, is
not expected to have a material impact on the Company.
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 periods
beginning after December 15, 1997. Because of the recent issuance of the
standards, management has been unable to fully evaluate the impact, if any, they
may have on future financial statement disclosures.
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BUSINESS
PRINCIPAL SERVICES AND MARKETS
LACROSSE. The Company's business began on August 24, 1993, when the
Company entered into an agreement (the "Lease-Purchase Agreement") with Grand
Alliance LaCrosse (F) Partnership and Home/Systems Joint Venture, which
ultimately provided for the lease and purchase of the LaCrosse System. The
Lease-Purchase Agreement also provided for the sublease and assignment to the
Company of a 10-year lease of space on a transmission tower. The tower lease
includes the use of the tower, transmitter building, and space for the Company's
exterior concrete pad, which supports the Company's three satellite dish
receivers.
Pursuant to the Lease-Purchase Agreement, the Company made an initial
deposit of $25,000 upon signing, expended approximately $40,000 to install three
transmitters, and made a final lump-sum payment of $400,000 in August 1994.
Transmission facility construction obligations under the Lease-Purchase
Agreement were satisfied (i) by the $40,000 payment to construct the
transmitters, (ii) as part of the Company's final lump-sum payment of $400,000,
and (iii) by the construction by the Company of transmission facilities for 11
channels. Construction was funded through private financing transactions in
August and December 1994. The lessors subsequently transferred ownership of all
of the licenses to the Company for $100.00, and the FCC approved such transfer
in March 1996.
FCC licenses for wireless cable channels generally must be renewed
every 10 years, and there is no automatic renewal of such licenses. The channel
licenses now owned by the Company expire at different times, with the first
expiring beginning in 2001. Channel licenses are subject to non-renewal,
revocation or cancellation for violations of the Communications Act of 1934, as
amended (the "Communication Act") or the FCC's rules and policies. The
termination of, or failure to renew, a channel lease would result in the
Company's being unable to deliver television programming on any such channel and
could have a material adverse effect on the Company.
The Company began transmitting programming in LaCrosse in December 1994
and, as of December 31, 1997, the Company had approximately 1,200 subscribers in
the LaCrosse System. There are approximately 100,000 households within the
LaCrosse System's 25-mile signal pattern. The Company currently offers 22
channels in the LaCrosse System, consisting of 17 wireless cable channels and 5
local off-air (VHF/UHF) broadcast channels.
In April, 1997, the Company was granted by the FCC licenses to 8
additional channels, which could expand the Company's channel offering to 30
channels. The Company has no immediate plans to broadcast over these additional
channels and would need additional equity or debt funding to purchase necessary
transmission and encoding equipment.
The Company has also entered into lease agreements for ITFS excess
capacity for four channels with each of the Shekinah Network and the Morningstar
Educational Network for use in the LaCrosse System. These companies have filed
applications with the FCC for rights to
such channels. The terms of such leases expire 10 years from the license grant
date and provide
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for the negotiation of new lease agreements upon the expiration of the initial
10-year terms. Although the Company expects such licenses to be granted, there
can be no assurance that the FCC will grant the Shekinah Network or Morningstar
such licenses. The failure to add such licenses to the LaCrosse System could
have a material adverse effect on the Company if additional channels become
necessary to compete effectively with hardwire cable and direct broadcast
satellite providers.
In the event the Company is ultimately successful in leasing any ITFS
channels, each must be used a minimum of 20 hours per week for educational
programming. The remaining "excess air time" on an ITFS channel may be used by
the Company without further restrictions (other that the right of the ITFS
license holder, at its option, to recapture up to an additional 20 hours of air
time per week for educational programming). Certain programs (e.g., C-SPAN and
The Discovery Channel) may qualify as educational and thereby permit full-time
usage of an ITFS channel. Lessees of ITFS "excess air time" generally have the
right to transmit to their subscribers the educational programming provided by
the lessor at no incremental cost. FCC regulations also permit ITFS licensees to
meet all of their minimum educational programming requirements using only one
channel. If the Company is successful in leasing the eight ITFS channels for the
LaCrosse System, two of these ITFS channels could be used by the lessors solely
for educational programming, with the remaining six channels available to the
Company without restriction. In such event, the Company, if it elects to use
these additional channels and has the capital resources available to acquire
necessary broadcast equipment, would increase the number of premium and movie
channels available in the LaCrosse System.
COSTA RICA. At the time the Company acquired rights to the channels
under the Costa Rica Acquisition, the three "superband" channels were in full
operation broadcasting a scrambled signal of pay television programming to
approximately 1,700 subscribers.
As of December 31, 1997, the Company had approximately 4,500
subscribers in the Costa Rican System. There are approximately 750,000
line-of-site households in the San Jose Central Valley that are reachable from
the Company's present transmission facility, and an additional approximately
150,000 households in the remaining regions of Costa Rica that the Company could
service from additional transmission facilities. All 6 of the channel licenses
owned by the Company may be used exclusively by the Company anywhere in the
entire nation of Costa Rica.
The Costa Rica market comprises a total population of approximately
3,350,000 people in approximately 900,000 separate households. In the Central
Valley, there are presently 22 VHF and UHF broadcast channels. While most
programming is in Spanish, a number of channels offer English and other
foreign-language programs for the large number of expatriate residents of, and
foreign visitors to, Costa Rica.
MARKETING
The Company utilizes media advertising, telemarketing, direct mail, and
door-to-door marketing to increase its subscriber base both in the LaCrosse
System and the Costa Rican System. The Company also intends to run promotional
pricing campaigns and take advantage
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of public relations opportunities. The Company emphasizes price-to-value,
reliability of service, quality and reliability of equipment, and picture
quality in its marketing programs.
LACROSSE. With respect to price-to-value relationship, the Company
believes that it is offering its LaCrosse System subscribers competitive
pricing. Subscription fees start at $23.50 per month for basic programming,
including a premium movie channel. Pay-per-view stations may be made available
in the future at an additional charge. Specially-priced packages may also be
made available, and pricing during promotional periods may also be lower. The
monthly fee charged by the Company is significantly below what the two
"hard-wire" cable companies in LaCrosse charge for their equivalent programming
packages. In LaCrosse, the Company focuses its marketing efforts on the
reliability of its service. The Company provides 24-hour per day service, with
rapid response time on incoming telephone calls, and flexible installation
scheduling. In LaCrosse, the Company has positioned itself as a reliable,
cost-effective alternative to traditional hard-wire cable operations, which
presently serve over 50% of the area's 70,000 households within the area's
25-mile radius.
COSTA RICA. The Company currently offers six channels of pay television
in Costa Rica (HBO-Ole, Cinemax, Sony Entertainment, Cartoon Network, Discovery
Channel, and Cine Latino). Movies generally are in English with Spanish
subtitles. Most remaining programming is in Spanish. Each subscriber receives an
addressable set-top converter and a remote control which is also able to operate
the 22 off-air channels available for reception.
Antennas and converters are leased, with the cost included in the
monthly subscription fee. Monthly subscription fees for the Costa Rica System
are currently approximately $15 to $19.50 per month, depending on the
programming package. The Company believes that it provides a high-quality,
price-competitive alternative to hard-wire cable services in Costa Rica. These
services are marketed primarily to the Spanish-speaking indigenous population
who are attracted to the Company's lower-priced, value alternative.
In both systems, the Company focuses on the reliability of its service
in its marketing efforts. The Company provides 24-hour-per-day service, with
rapid response time on incoming telephone calls, uniformed field personnel, and
flexible installation scheduling. Additionally, the Company emphasizes its
picture quality and the reliability of its wireless transmission. Within its
signal coverage pattern, the Company believes that the picture quality of the
Company's service is as good or better than that received by hard-wire cable
subscribers because, absent any line-of-sight obstruction, there is less
opportunity for signal degradation between transmitter and the subscriber. Also,
wireless cable service has proven very reliable, primarily due to the absence of
certain distribution system components that can fail and thereby cause outages.
The Company has positioned itself as a reliable, cost-effective alternative to
traditional hardwire cable operations.
HARDWARE. A number of reputable manufacturers produce the equipment
used in wireless cable systems, from transmitters to the set-top converters
which feed the signal to the television set. Because the signal is broadcast
over the air directly to a receiving antenna, wireless cable does not experience
the problems caused by amplifying signals over long distances experienced by
some hardwire cable subscribers. This is particularly the case for a signal
delivered over
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longer distances. Amplification of signals can lead to greater signal noise and,
accordingly, a grainier picture for some subscribers. Also, the transmission of
wireless signals is not subject to the problems caused by deteriorating
underground cables used in conventional systems. As a result, wireless cable is
sometimes more reliable than conventional cable, and picture quality is
generally equal to or better than ordinary cable. In addition, extreme weather
conditions typically do not affect wireless cable transmitters, so customers
seldom experience outages sometimes common to conventional cable.
In Costa Rica, the Company anticipates even greater market penetration
than in the United States because of the absence of significant hard-wire cable
services and the impediment of significant costs to install cabling to expand
their geographic service areas. Unlike the United States where hard-wire cable
has been in existence and established for many years and cable infrastructure is
in place, no such wide-ranging infrastructure is in place in Costa Rica, and the
Company believes its ability to provide quality pay television services by
wireless transmission will be a very competitive alternative or the only
alternative in the many areas not serviced by hard-wire cable.
Several large U.S. wireless cable providers are currently converting to
digital compression equipment, which allows several programs to be carried in
the amount of bandwidth where only one program is carried now. Manufacturers
have equipment with compression ratios as high as 16 to 1, although compression
ratios of 6 to 1 or 10 to 1 are more common. At such time as the Company is in a
position to deploy digital compression technology, the Company will be able to
increase its channel capacity several fold without having to acquire additional
frequency licenses in both its U.S. markets and Costa Rica. Digital compression
technology would permit the Company to offer as many or more programming options
as its hard-wire competitors. Presently, the Company does not believe digital
compression technology will affect its competitive position in either of its
markets.
Digital capability ultimately will be essential for wireless cable to
compete with hard-wire cable. The ability to offer substantially more
programming utilizing existing wireless cable channel capacity is dependent on
effectively deploying digital technology. Digital technology has only recently
become commercially available to the wireless cable industry. The Company does
not expect, for financial and other reasons, to be able to deploy such
technology in its existing systems for several years. It is expected that, at
such time as the Company may deploy digital technology, the cost of digital
equipment will be closer to the cost of analog equipment. Future systems may be
able to be launched with compression from the start, thereby eliminating the
need to remove older equipment. There can be no assurance that the Company will
have the financial resources to deploy digital technology successfully or that
cost-effective digital equipment will be available to the Company. In addition,
there can be no assurance as to what rules and policies the FCC will adopt to
govern the use of digital technology, when such rules and policies will be
adopted, or the Company's ability to comply with such rules and policies.
Failure by the Company to deploy digital technology could have a material
adverse effect on its operating results and business expansion.
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COMPETITION. The pay television industry is highly competitive.
Wireless cable television systems face or may face competition from several
sources, including established hardwire cable companies.
Wireless cable programming is transmitted through the air via microwave
frequencies that generally require a direct "line-of-sight" from the transmitter
facility to the subscriber's receiving antenna. In communities with dense
foliage, hilly terrain, tall buildings or other obstructions in the transmission
path, transmission may be blocked at certain locations or require additional
repeater equipment to circumvent such obstructions. Traditional hard-wire cable
systems deliver the signal to a subscribers location through a network of
coaxial cable and amplifiers and do not require a direct line-of-sight for
transmission and, therefore, may have a competitive advantage over the Company
in those areas where the reception of wireless cable transmissions is difficult
or impossible. In the Costa Rican System, however, the Company is not
broadcasting its 6 channels over microwave frequencies, so the Company has no
requirement for "line of sight" transmission and can reach virtually all
households within the signal pattern.
Since wireless cable systems do not require an extensive network of
coaxial cable and amplifiers, the systems' capital cost per installed subscriber
is significantly less than that for hard-wire cable systems. In addition,
operating costs of wireless cable systems are generally lower than those of
comparable hard-wire cable systems due to lower network maintenance and
depreciation expense. As a result of lower capital and operating costs, the
Company is able to charge less for its standard service packages than the amount
charged for comparable service provided by hard-wire cable system operators,
thereby enhancing the Company's competitive position.
U.S. wireless cable programming can only be transmitted on the
frequencies made available for wireless cable by the FCC. Currently, and until
the commercial availability of digital compression technology, the number of
channels of cable television programming that can be provided to subscribers of
U.S. wireless cable systems is limited to 33. Costa Rica has no such limits,
but, other than the frequencies owned by the Company, there are no other
frequencies currently available for acquisition. Hard-wire cable systems are not
limited in this regard and frequently offer more channels of cable television
programming than wireless cable systems. The LaCrosse System competes with two
hard-wire cable companies, which currently offer 28 and 40 channels,
respectively, to their subscribers compared to the 22 channels the Company
currently offers. The Costa Rican System currently offers 6 pay channels and the
three local hard-wire cable companies offer from 36 to 40 channels,
approximately one-third of which are re-broadcast of local, off-air programming.
The Company believes that, with its 22 off-air channels plus 6 pay channels, its
channel line-up and service is price competitive.
U.S. programming is generally available to traditional hard-wire and
wireless operators on comparable terms, although operators that have a smaller
number of subscribers often are required to pay higher per-subscriber fees.
Accordingly, operators in the initial operating stage generally pay higher
programming fees on a per subscriber basis. In Costa Rica, there are fewer
programming alternatives than in the U.S. but there are still a substantial
number of Spanish-language and international programs available. The Company
offers a package of what it believes to be the most desirable program
alternatives in Costa Rica.
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Unlike hard-wire operators, wireless cable operators who don't hold
licenses to the frequencies in their markets have to lease the wireless cable
channels on which they transmit their programming from channel license holders.
Leases generally require the Operator to pay the lessor a fee based on a
percentage of subscription revenues, averaging approximately 5%, or, if greater,
a minimum monthly fee. Although hard-wire operators do not have to lease
channels, they do have to pay franchise fees generally on all gross revenues
from cable system operations (as compared to only subscription revenues in the
case of wireless cable), typically in the range of 3% to 5%, an expense that is
not incurred by wireless operators.
Certain hard-wire cable operators have announced their intention to
develop interactive features for use by their subscribers, such as shopping via
video catalogs and playing video games with neighbors. Interactive services are
not currently available for wireless cable. The Company believes that the same
manufacturers who currently are developing digital compression converters for
both hard-wire and wireless cable will also make new developments in
interactivity available to both industry segments. The FCC has designated a
return path channel for use in connection with interactive and Internet services
which may be offered by wireless cable operators. The Company believes that, if
it is economically feasible to do so, wireless cable systems can include two-way
interactivity. However, to the extent such services are available on hard-wire
cable systems, but not available on wireless cable systems, the Company could be
at a competitive disadvantage. The Company does not anticipate demand for
interactive services in Costa Rica for several years as technology demand in
Costa Rica is behind that in the U.S.
In the LaCrosse market, two traditional hard-wire cable companies are
the Company's primary direct competitors. The Company estimates that within its
signal pattern for LaCrosse, over 50% of the households are hard-wire cable
subscribers. The two hard-wire cable companies in LaCrosse currently offer 28
and 34 channels, respectively, to their subscribers compared to the 22 channels
the Company currently offers. Of the approximately 70,000 potential subscribers
within the LaCrosse System's signal pattern, approximately 20,000 are currently
not wired for hard-wire cable and approximately 20,000 more have access to such
services but are not subscribers. The Company is directing its principal
marketing efforts toward potential subscribers who are either not wired for
hard-wire cable or are not presently hard-wire cable customers.
In Costa Rica, three hard-wire cable companies are the Company's
primary, direct competitors. The Company estimates that within its signal
pattern for Costa Rica, fewer than 20% of the households are hard-wire cable
subscribers and no more than an additional 10% have access to hard-wire cable
services. The three hard-wire cable companies in Costa Rica currently offer up
to 46 (11 local, 35 international), 48 (13 local, 35 international), and 36 (9
local, 27 international) channels, respectively, and charge approximately $22,
$25, and $23 per month, respectively, for basic programming (movies are
additional), and approximately $15, $23, and $23, respectively, for installation
services. None offers pay-per-view programming or addressable converters. All
three companies offer discounts for long-term contracts. The Company offers a
package of 28 channels (22 local off-air, 6 international) for a monthly fee of
approximately $15 to $20, plus installation. Based on the Company's existing
subscriber base of approximately 3,000 households that presently pay an average
of $18 per month for six
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channels of programming and the very limited penetration of hard-wire cable into
this market, the Company believes that it has a competitive programming
alternative to hard-wire cable.
In addition to competition from traditional, established hard-wire
cable television systems, wireless cable television operators face competition
from a number of other sources. Premium movie services offered by cable
television systems have encountered significant competition from the home video
cassette recorder industry, a major participant in the television program
delivery industry. In addition, in areas where several off-air television
stations can be received without the benefit of cable television, cable
television systems also have experienced competition from the availability of
broadcast signals generally and have found market penetration to be more
difficult. In particular, in Costa Rica, there are over 20 broadcast channels
available in the San Jose central valley. In addition to the foregoing, wireless
cable systems face potential competition from emerging trends and technologies
in the cable television industry, including satellite receivers, direct
broadcast satellite, telephone companies, satellite master antenna television,
and local multi-point distribution services. Many of these newer technologies
are not available in Costa Rica and may not be available for several years
because the demand for technology in Costa Rica lags behind that of the United
States.
Satellite receivers are generally seven to twelve foot dishes mounted
in the yards or on the roof tops of subscribers to receive a wide range of
television and radio signals from orbiting satellites. Their popularity has been
reduced due to scrambling, which requires users to purchase decoders and pay for
programming. Although these systems are capable of delivering over 100 channels
of programming, equipment and connection currently cost approximately
$1,000-$2,000. Satellite receivers are popular in Costa Rica in wealthier and
outlying communities but do not represent a significant share of the market.
Direct broadcast satellite ("DBS") involves the transmission of an
encoded signal directly from a satellite to the home user using a relatively
small (12 to 36 inch) dish mounted on a rooftop or on the ground. DBS services
are capable of delivering over 100 channels of programming. Such services
currently cost approximately $200-$1,000 for equipment and connection, and
average approximately $35 per month for access to basic programming. Local
broadcast channels are not currently offered by DBS.
The United States Congress recently passed legislation permitting local
telephone exchange carriers ("LECs") to provide video programming directly to
subscribers in their telephone service areas. LEC delivery of video programming
will likely require extensive deployment of fiber-optic transmission facilities
and/or highly sophisticated electronics and substantial capital investment. The
Company believes that numerous regulatory and technological hurdles to the
successful implementation of telephone video service remain.
Satellite master antenna television ("SMATV") is a multi-channel
television service for multiple dwelling units. SMATV operates under an
agreement with a private landowner to service a specific multiple dwelling unit,
such as an apartment complex. The FCC has recently amended its rules to provide
point-to-point delivery of video programming by SMATV operators and other video
delivery systems in the 18 gHz band.
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Off-air local broadcasts (e.g., ABC, NBC, CBS, Fox, UPN, WB, and PBS)
provide a free programming alternative to the U.S. public. Federal legislation
requires the prior consent of certain off-air broadcasters for retransmission of
their signals over wireless cable systems. The Company does not anticipate that
it will have difficulty obtaining necessary consents.
The FCC has proposed certain rules to reallocate the 28 gHz band to
create a new video programming delivery service referred to as local multi-point
distribution service ("LMDS"). If adopted as proposed, such rules would allow
for the entry into each market of at least two new wireless video program
distributors with access to upwards of 49 channels each. If LMDS is adopted by
the FCC, the Company does not anticipate licensing and system construction for
several years. Significant opposition to LMDS currently exists including
opposition from the National Aeronautics & Space Administration ("NASA")
claiming that LMDS will interfere with the transmission to NASA satellites.
SOURCES OF PROGRAMMING
LACROSSE. The Company currently arranges for programming from three
sources for the LaCrosse System: (i) broadcasters of off-air (VHF/UHF) signals,
(ii) an NBC affiliate station for the retransmission of its signal, and (iii)
suppliers of programming typically broadcast over cable systems. Programming
from off-air broadcasters is negotiated on a case-by-case basis and may be
available for no charge or for a minimal royalty payment. The VHF and UHF
broadcasters in LaCrosse, Wisconsin (CBS, ABC, FOX, PBS and Channel 50), allow
the Company's customers to receive their signals through a high-grade antenna
provided by the Company without the assessment of any fee or royalty. There is
no NBC affiliate broadcasting off-air in LaCrosse, but the Company has an
agreement with the NBC affiliate in nearby Eau Claire, Wisconsin, to allow the
Company to retransmit its programming over one of the Company's MMDS frequencies
without any fee provided the Company purchases at least $500 of advertising each
year from this station.
In addition to off-air broadcasters, the Company has agreements with
program suppliers for ESPN, ESPN 2, CNN, CNN Headline News, USA, WGN, WTBS, TNT,
A&E, Nickelodeon, Discovery, TNN, the Family Channel, Lifetime, the Weather
Channel and Showtime for broadcasting in the LaCrosse System. The program
agreements generally have three-year terms, with provisions for automatic
renewals and are subject to termination for breach of the agreement, including
non-payment. The programming agreements generally provide for royalty payments
based upon the number of Company subscribers receiving the programming each
month. Individual program prices vary from supplier to supplier, and more
favorable pricing sometimes is afforded to operators with larger subscriber
bases. If any existing programming contracts are canceled, or not renewed upon
expiration, the Company would have to seek program material from other sources.
COSTA RICA. The Company currently arranges for programming from two
sources in Costa Rica: (i) broadcasters of off-air signals and (ii) suppliers of
programming typically broadcast over cable systems. The VHF/UHF signals
broadcast in Costa Rica are received at no charge through a high-grade antenna.
The six pay television channels offered by the Company include HBO-Ole, Cinemax,
Sony Entertainment, Cartoon Network, Discovery
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Channel/Music Video, and ESPN, with a late-night alternative of Spice on one
channel. Movies generally are broadcast dubbed in Spanish or in English with
Spanish subtitles, and most other programming is in Spanish. The agreements for
such programming are typically indefinite in length, provide for royalty
payments based upon the number of TelePlus subscribers receiving the programming
each month, and are terminable for non-payment. Individual program prices will
vary from subscriber to subscriber, and more favorable pricing may be available
as TelePlus's subscriber base increases.
In addition to the programming alternatives described above, the
Company may introduce a "pay-per-view" service that enables customers to order
and pay for one program at a time. Pay-per-view services have been successful
for specialty events such as wrestling, heavyweight prize fights, concerts, and
early release motion pictures. This service can also be promoted for the
purchase of movies in competition with video rental stores. Pay-per-view
requires the subscriber to have an "addressable" converter which allows the
operator to control what the subscriber watches without having to visit the
subscriber location to change equipment. All subscribers in both the LaCrosse
and Costa Rican Systems are equipped with addressable converters. In order for
customers to order pay-per-view events more conveniently, however, an "impulse"
pay-per-view converter would be desirable because it has a return line via phone
or cable to the cable operator's computer system and enables a subscriber to
order pay-per-view events by pushing a button on a remote control rather than
requiring the subscriber to make a telephone call to order an event.
GOVERNMENT REGULATION
UNITED STATES. The wireless cable industry is subject to regulation by
the FCC pursuant to the Communications Act of 1934, as amended (the
"Communications Act"). The Communications Act empowers the FCC, among other
things: to issue, revoke, modify and renew licenses within the spectrum
available to wireless cable, to approve the assignment and/or transfer of
control over such licenses; to determine the location of wireless cable systems"
to regulate the kind, configuration and operation of equipment used by wireless
cable systems; and to impose certain equal employment opportunity requirements
on wireless cable operators. The FCC has determined that wireless cable systems
are not "cable systems" for purposes of the Communications Act. Accordingly, a
wireless cable system does not require a franchise from a local authority and is
subject to fewer local regulations than a hard-wire cable system. In addition,
utility poles and dedicated easements are not necessary.
Pursuant to the Cable Television Consumer Protection and Competition
Act of 1992 (the "Cable Act"), the FCC adopted rate regulations exclusively for
traditional hard-wire cable systems which provide for, among other things,
reductions in the basic service and equipment rates charged by most hard-wire
cable operators and FCC oversight of rates for all other services and equipment.
The Cable Act also provides for rate deregulation of a traditional hard-wire
cable operator in a particular market once there is "effective competition" in
that market. Effective competition exists, among other circumstances, when
another multi-channel video provider exceeds a 15% penetration in that market.
FCC regulations also require traditional hard-wire cable operators to undertake
various customer service improvements. The Company cannot predict precisely what
effect these regulations or other governmental regulations may
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have on traditional hard-wire cable operators as to price and service. While
current FCC regulations are intended to promote the development of a competitive
pay television industry, the rules and regulations affecting the wireless cable
industry may change, and any future changes in FCC rules, regulations, policies
and procedures could have an adverse effect on the industry as a whole and on
the Company in particular. The Company cannot predict what impact such changes
would have on the industry as a whole or on the Company in particular.
Under the Telecommunications Act of 1996 (the "1996 Act"), Congress has
directed the FCC to eliminate cable rate regulations for "small systems," as
defined in the 1996 Act, and for large systems under certain prescribed
circumstances, and for all cable systems effective three years after enactment
of the 1996 Act. The 1996 Act could have a material impact on the wireless cable
industry and the competitive environment in which the Company operates. The 1996
Act will result in comprehensive changes to the regulatory environment for the
telecommunications industry as a whole. The legislation will, among other
things, substantially reduce regulatory authority over cable rates. Another
provision of the 1996 Act will afford hardwire cable operators greater
flexibility to offer lower rates to certain of their subscribers, and would
thereby permit cable operators to offer discounts on hard-wire cable service to
the Company's subscribers or prospective subscribers. The legislation will
permit telephone companies to enter the video distribution business, subject to
certain conditions. The entry of telephone companies into the video distribution
business, with greater access to capital and other resources, could provide
significant competition to the wireless cable industry, including the Company.
In addition, the legislation will afford relief to DBS by exempting DBS
providers from local restrictions on reception antennas and preempting the
authority of local governments to impose certain taxes. The Company cannot
predict the substance of rules and policies to be adopted by the FCC in
implementing the provisions of the legislation.
With a wireless cable system, the signals are sent from the transmitter
to the subscriber's receiving antenna over microwave frequencies. The wireless
cable TV system programming is in a scrambled format using low-power
transmitters operating in the 2.1 to 2.7 gHz frequency range. These super high
frequency channels are allocated solely to wireless cable TV transmissions and
are licensed by the FCC. In major markets, the frequencies available for
wireless cable consist of up to 33 channels, the maximum permitted by the FCC.
Of these 33 channels, 13 can be held by wireless cable entities and used
full-time for commercial programming delivery, and 20 generally are held by
qualified educational institutions ("ITFS" channels). Commercial use of channel
licenses held by educational institutions is available only through contracts
with such educational institutions and within specifically limited guidelines.
ITFS channel licenses that are not secured by educational institutions may, in
some instances, be acquired directly by commercial broadcasters without
obligation to compensate the educational institutions. Six of the channels
currently owned by the Company in the LaCrosse System were ITFS channels which
were acquired when no educational institution applied for the rights to such
channels. These channels may be used by the Company, without restriction, for
full-time commercial programming.
Applications for renewal of licenses must be filed within a certain
period prior to expiration and there is no automatic renewal of such licenses.
Petitions to deny applications for renewal may be filed during certain periods
following the filing of such applications. Licenses
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are subject to revocation, cancellation or non-renewal for violation of the
Communications Act or the FCC's rules and policies.
COSTA RICA. Television operations in Costa Rica are regulated mainly by
the Radio and Television Law - Ley de Radio y Television, No. 1758 of 19 June
1954, as amended (the "Law"); the Regulation of Wireless Stations - Reglamento
de Estaciones Inalambricas, No. 63 of 11 December, 1956, and the Broadcasting
Rule of Atlantic City and the International Agreements Regarding Broadcasting
executed in Washington, D.C., on March of 1949, which have been ratified by the
Congress of Costa Rica. According to the Law, television operations can only be
established, conducted and exploited by means of a concession granted by the
Radio Control Office ("RCO"), upon payment of the taxes and completion of all
formal requirements imposed by the Law. Once the concession is granted, the RCO
will periodically control and supervise its operation. In order to verify that
the terms and conditions of the concession are being fulfilled, the RCO is
authorized to visit and inspect the place of business of the concessionaire at
any time. If there is any incorrect technical functioning, the licensee, within
forty-eight hours, must reestablish the concession to its original terms under
penalty of cancellation of the license. Concessions for the Company's Costa
Rican System are owned by the Costa Rican operating companies which were
acquired by the Company through its wholly-owned Costa Rican subsidiary in
February 1996.
Furthermore, the owner of a concession is obligated to strive to
increase the cultural level of the population. The owner of the concession is
jointly liable, together with whomever broadcasts or transmits through the
frequency, for any violations of the Law, provided there is intentional conduct
by the concessionaire. In case of negligence, the liability is subsidiary to the
direct offender's. The concessionaire is not liable in the absence of willful
participation or negligence. Any broadcast shall operate free of impurities
(espurias y armabucas) and with the frequency adjusted so that no interference
is caused to other concessionaires. If the operating center does not meet these
requirements, its functioning will not be authorized by the RCO. Other
governmental limitations or restrictions apply, such as a prohibitions against
broadcasting certain information, whether private or official, local or
international, except in situations of emergency; false news; alarm calls
without reason, the broadcasting of programs emanating from other
concessionaires without their previous authorization, and the use of vulgar or
improper language.
The Law establishes that licenses are granted for a limited time, but
they are automatically extended by payment of the corresponding dues, provided
that the functioning and installation of the station are adjusted to the
stipulations of the Law. The transfer or alienation of the right to a frequency
is permitted only with the previous authorization of the RCO, which means that a
formal request has to be submitted to the RCO on these terms. According to the
RCO's current interpretation, a frequency can be leased to a third party without
prior consent from the government. The lessor remains as the concessionaire and,
therefore, continues to be subject to all obligations related to the concession.
Article 3 of the Law requires that concessionaires have not less than
65% Costa Rican ownership. The Company has been advised by its Costa Rican
counsel that this provision is not being actively enforced and that there is a
decision from the Constitutional Court declaring a
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similar provision in a related law (Ley de Medios de Difusion y Agencias de
Publicidad) to be unconstitutional. However, based on Costa Rican counsel's
recommendation, the Company structured its ownership of these licenses to be
indirect through a tiered subsidiary structure, whereby a Costa Rican company,
wholly-owned by the Company, owns 100% of the outstanding capital stock of the
Costa Rican companies holding the licenses. The Company believes that this
structure adequately meets the requirements of Costa Rican law. However, in the
event this structure is not acceptable to the government, an alternate ownership
structure would have to be implemented, which could have a material adverse
effect on the Company.
DEVELOPMENT OF NEW TERRITORIES. On March 28, 1996, the FCC completed
its auction of authorizations to provide single channel and multi-channel
Multipoint Distribution Service ("MDS") wireless cable services in 493 Basic
Trading Areas. The Company won bids in three markets-. Hickory - Lenoir -
Morganton, North Carolina; Wausau - Rhinelander, Wisconsin; and Stevens Point -
Marshfield - Wisconsin Rapids, Wisconsin. 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 down payment for acquisition of these licenses. The
Company has made the second required deposit equal to 10% of its winning bid
only on the Wisconsin licenses. The Wisconsin territories provide approximately
70,000 line-of-sight households and offer markets that the Company believes are
competitively equivalent to or better than that of the LaCrosse System.
The licenses are conditionally issued only upon payment in full of the
initial 20% down payment. The remaining balance of approximately $2,800,000 for
the acquisition of these licenses will be paid over the next ten years. As the
Company did not make the required additional 10% payment on the North Carolina
license, the Company has forfeited its right to acquire such license. In
addition, the Company may 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 License.
The grant of the Wisconsin licenses will be conditioned on the
Company's fully and timely meeting its quarterly payment obligations, and the
development of operating systems within 18 months of the grant of each license.
The Company is unable to predict the exact date by which such systems must be
operational since it does not know when the licenses will be conditionally
issued by the FCC. The Company estimates that the cost of developing a fully
operational system in each market would be approximately $1,200,000 per system.
To date, the Company has not taken any steps to develop these systems.
Development of these markets and the funding of the acquisition price for the
licenses will require additional debt or equity financing, which may not be
available to the Company on acceptable terms, if at all. The Company has made no
arrangements or commitments for such future financing, and there can be no
assurance that the Company will be able to raise such capital on acceptable
terms, if at all. Failure to obtain such additional financing could cause a
forfeiture of the licenses and could adversely affect the financial position and
growth of the Company.
In addition to the material liquidity risks associated with developing
new operating systems utilizing the Wisconsin licenses, the development of such
systems will be dependent on, among other things, successful construction of
operating systems; identification and procurement
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of acceptable tower sites; the availability of suitable management and other
personnel; and the Company's general ability to manage growth. There can be no
assurance that the Company will be able to successfully develop operating
systems utilizing the Wisconsin licenses. If the Company chooses not to develop
an operating system, it may decide to attempt to lease a license or to sell a
license. If the Company decides to attempt to lease a license or to sell a
license, then there is no assurance that there will be a buyer or lessor for
such license or one offering an acceptable price when the Company attempts to
sell or lease it. There is also a risk that other license holders will attempt
to sell or lease their licenses at the same time as the Company. Additionally,
any transfer of a license must be approved by the FCC.
The Company intends to focus its operations, marketing, and service in
regional markets to increase efficiencies and profitability. However, the
Company does not currently have the financial resources to develop operating
systems in the foregoing markets, and there can be no assurance that the Company
will ever develop systems in such markets. To develop and launch additional
wireless cable systems in areas where the Company holds licenses, or otherwise,
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.
In Costa Rica, the Company believes it is well-positioned to compete
effectively with other pay television providers in the San Jose Central Valley
area, principally hardwire cable operators, and to establish a profitable
business. The Company also is evaluating the possibility of directing its
signals into other key metropolitan areas of Costa Rica that aren't served by
any cable or other pay television service by establishing additional
transmission sites and/or utilizing more powerful transmitters.
EMPLOYEES. As of February 10, 1998, the Company had 35 full-time
employees and no part-time employees serving in its executive, LaCrosse, and
Costa Rica offices. The Company maintains various benefit plans and experiences
good employee relations.
FACILITIES. The Company currently shares furnished leased space with
Mel Rosen who, in April, 1997, leased approximately 3,000 square feet of space
in a one-story office building in North Miami Beach, Florida. The lease is for
one year, renewable at the lessee's option. The Company pays approximately
$1,500 per month as its share of this space.
The Company also leases approximately 1,400 square feet in an office
building in Daytona Beach, Florida, at a monthly lease cost of approximately
$1,600 per month. The Daytona Beach office was the corporate headquarters of the
Company from August, 1996 until it was closed in late 1997. The office will be
subleased for the remainder of the three-year lease term.
The Company leases approximately 2,000 square feet of facilities in
LaCrosse, Wisconsin for its Lacrosse System operation. Approximately one-fourth
of such space is warehouse space. The rent is $1,391.00 per month, and the space
is leased on a month-to-month basis.
The Company also leases approximately 4,485 sq. ft. of office and
warehouse facilities in San Jose, Costa Rica for its Costa Rican System
operation. Approximately one-fifth of such space is warehouse space. The rent is
$1,750.00 per month, and the lease expires in April, 1998 and is renewable.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table lists certain information about the directors and
executive officers of the Company.
NAME AGE POSITION
- ---- --- --------
Melvin Rosen 54 President and Director
Samuel H. Simkin 51 Vice President, General Counsel and Director
Dennis J. Devlin 47 Director
James R. Pekarek 45 Vice President, Chief Financial Officer
Each Director of the Company holds such position until the next annual
meeting of shareholders and until his successor is duly elected and qualified.
The officers hold office until the first meeting of the Board of Directors
following the annual meeting of shareholders and until their successors are
chosen and qualified, subject to early removal by the Board of Directors.
MELVIN ROSEN: PRESIDENT AND DIRECTOR
Mel Rosen, 54, is President and Chief Executive Officer of the Company.
Mr. Rosen has considerable experience in a wide range of business activities
including, most prominently, satellite and cable television.
Mr. Rosen is a graduate of Loyola College, Baltimore, Maryland (B.S.,
English, 1965) and an Honors Graduate of the University of Maryland School of
Law (J.D. 1968). He practiced law in New York, specializing in taxation, with
Proskauer, Rose, Goetz & Mendelsohn; Finley, Kumble, Underberg, Persky & Roth;
and Rosen and Mintzer. Mr. Rosen developed an expertise in real estate finance
and development and in the 1970's became a major owner of residential housing.
During the 1980's, Mr. Rosen was a producer of motion pictures and classical
ballet, among other ventures.
In 1987, Mr. Rosen and a partner co-founded TVN Entertainment Corp., a
closely-held company which is currently the owner-operator of the largest
multi-channel pay-per-view satellite television systems and is one of the
largest lessees of television satellite transponders in the United States TVN's
offerings of recent motion pictures, major sporting events (such as championship
boxing) and NFL Football's "Sunday Ticket" account for approximately 90% of the
pay-perview revenue on C-band satellite television. TVN, based in Burbank, CA,
has in excess of 850,000 C-band satellite dish and other subscribers and is in
the forefront of digital
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technology. Mr. Rosen is a major shareholder and a director of TVN, but is not
actively involved in the operations of the Company.
For the past 11 years, Mr. Rosen has owned and operated a national
broadcast television channel in Costa Rica. From 1987 - 1996, he also owned and
operated the wireless cable subscription television system in Costa Rica which,
in February 1996, was sold to and is presently being operated by the Company.
During this time, Mr. Rosen developed extensive knowledge of the wireless cable
television business in Costa Rica and other countries of Latin America.
Other than his position as President, CEO and Chairman of Company, Mr.
Rosen has only one other active business. He is President and CEO of The Fifth
Avenue Channel, Inc., a company owned by Ivana Trump, Mr. Rosen and his
affiliates.
SAMUEL H. SIMKIN: VICE PRESIDENT AND GENERAL COUNSEL
Samuel H. ("Sandy") Simkin, 51, is Vice President and General Counsel
and a Director of the Company. Mr. Simkin has a broad-based legal and business
background. He is a graduate of University of Texas at Austin (BBA, Business
Honors, 1968); University of Texas School of Law (J.D., 1970); and Georgetown
University, Washington, D.C. (LL.M. 1971). He was a practicing tax attorney in
Houston, Texas from 1972 - 1996, specializing during those years in corporate
finance, real estate, mining and minerals and entertainment law. During this
period, he served as Vice President and General Counsel of a large closely-held
coal mining company in the Midwest.
During the period 1986 - 1997, Mr. Simkin was an equity partner in, and
legal advisor to, several business ventures, including a music production and
publishing company in Los Angeles, a real estate and timeshare development
company in Orlando, Florida and, most recently, an Orlando, Florida-based
television production company which produced a series of business newsmagazine
shows.
DENNIS J. DEVLIN: DIRECTOR
Mr. Devlin is a founder and has served as director and Vice President
of the Company since May 1993. Mr. Devlin is the founder and has served as
president of Dennis' Mobile Home Service and Supply, Inc., Wayne, Michigan since
1979. Mobil Home Service and Supply, Inc. is engaged in the construction of
additions, roof systems and specialized products for mobile home owners,
including remodeling, insurance services, parts supply, and repair. Mr. Devlin
received a Bachelor of Arts in Education in 1971 from Eastern Michigan
University.
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<PAGE>
JAMES R. PEKAREK: CHIEF FINANCIAL OFFICER
James Pekarek, 45, is Vice President & Chief Financial Officer of the
Company. A certified public accountant with extensive "Big Six" firm auditing
experience, he has an extensive background in manufacturing, health care, real
estate, insurance and other service industries.
Mr. Pekarek is a Summa Cum Laude graduate of the College of St. Thomas,
St. Paul, Minnesota (B.A. Accounting). From 1976 - 1985, he was with KPMG Peat
Marwick, in St. Paul, where he performed financial audits and consulting
services for over 50 diversified public and private companies, ranging from $5
million to $2 billion in revenues. He served as Chief Financial Officer of the
Merchants Group, in New York, (AMEX: "MGP"), 1985 - 1987; of Homeowners Group
(OTC: "HOMG"), in Florida, 1988 - 1991; and of Med/Waste, Inc. (OTC: "MWDS"), in
Florida, 1992 - 1996.
EXECUTIVE COMPENSATION
DIRECTOR'S REMUNERATION
Commencing in June 1996, each non-employee director received a fee of
$500 for each board and committee meeting they attended. Each director received
at the annual meeting of the directors a non-discretionary grant of a stock
option for 5,000 shares of common stock.
Summary Compensation Table
The following table sets forth a summary of cash and non-cash
compensation awarded or paid to, or earned by, the Company's officers with
respect to services rendered in 1995, 1996 and 1997. No other executive officer
of the Company received compensation in excess of $100,000 during the Company's
last completed fiscal year.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
POSITION ANNUAL COMPENSATION
- -------- -------------------
SECURITIES
UNDERLYING
YEAR SALARY BONUS OPTIONS
---- ------ ----- -------
<S> <C> <C> <C> <C>
Fernand L. Duquette, President(1) 1997 $120,000 -- $ --
------ -----
1996 $120,000 -- $ --
------ -----
1995 $92,000 -- $7,000
------
Melvin Rosen, President, CEO(2) 1997 $150,000(3) -- $ --
</TABLE>
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<PAGE>
(1) Mr. Duquette resigned as the Company's President and Chief Executive
Officer as well as from his position as a director of the Company on
May 19, 1997.
(2) First became an officer or director of the Company in May, 1997.
(3) Deferred.
Option Grants
The following table sets forth for each of the named executive officers
of the Company information with respect to options granted during 1996.
OPTION GRANTS IN 1997
No options were granted in 1997.
Options Exercised
The following table sets forth for each of the named executive officers
of the Company information with respect to option exercises during 1997, and the
status of their options on December 31, 1997, as to (i) the number of shares of
common stock underlying options exercised during 1997, (iii) the total number of
unexercised in-the-money options at December 31, 1997.
-43-
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN 1997
AND OPTION VALUES ON DECEMBER 31, 1997
VALUE OF
NUMBER OF UNEXERCISABLE
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS AT
SHARES 12/31/97 (# SH.)(1) 12/31/97 ($)(2)
ACQUIRED VALUE ----------------------------- -----------------------------
ON REALIZED
NAME EXERCISE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- --- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Fernand L. 0 0 37,000 0 0 0
Duquette
</TABLE>
(1) Exercisable options are those exercisable on December 31, 1997.
Unexercisable options are those not exercisable on December 31, 1997.
(2) Value of exercisable and unexercisable in-the-money options
represents the excess of the fair market value of the stock underlying the
options at December 31, 1997, over the exercise price assuming the options were
exercised at that time.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding beneficial ownership
of the Company's Common Stock by all persons known by the Company to own
beneficially 5% or more of the outstanding shares of the Company's Common Stock,
each director and executive officer, and all executive officers and directors of
the Company as a group, as of February 10, 1998:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE PERCENT OF
BENEFICIAL OWNER OR OF BENEFICIAL OUTSTANDING
IDENTITY OF GROUP OWNERSHIP(1) SHARES(2)
----------------- ------------ ---------
<S> <C> <C>
Fernand L. Duquette 313,000(3)(4) 7.8%
501 Grandview Ave.
Suite 201
Daytona Beach, FL 32118
Dennis J. Devlin 297,000(3)(4) 7.4%
35451 Elm Street
Wayne, MI 48184
Melvin Rosen 6,033,212 61.9%
1506 N.E. 162 Street
N. Miami Beach, FL 33162
Samuel H. Simkin 0 0%
1506 N.W. 162 Street
N. Miami Beach, Florida 33162
James R. Pekarek 0 0%
1506 N.E. 162 Street
N. Miami Beach, FL 33162
Amber Capital Corporation 394,477 9.8%
2 Spur Lane
Rolling Hills, CA 90274
Investor Resource 394,477 9.8%
Services, Inc.
490 North Causeway
New Smyrna Beach, FL 32169
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<PAGE>
<CAPTION>
Aurora Holdings, Inc. 394,477 9.8%
1020 Brookstown Avenue, Suite 14
Winston-Salem, NC 27101
J.W. Barclay & Co., Inc. 225,000(6) 5.3%
One Battery Park Plaza
New York, NY 10004
All officers and directors as a 6,330,212 64.4%
group (3 persons)
</TABLE>
(1) Except as otherwise indicated, all stockholders have sole voting and
investment power with respect to the shares of Common Stock set forth
opposite their respective names.
(2) Based on 4,009,643 shares of Common Stock outstanding on February 10,
1998.
(3) Includes 10,000 shares and warrants to purchase 10,000 shares held
jointly by Messrs. Duquette and Devlin.
(4) Includes currently exercisable stock options or warrants, or both, to
purchase 41,000, 20,000 shares held by Messrs. Duquette and Devlin,
respectively.
(5) Consists of 301,212 shares of Common Stock held by Mr. Rosen, plus
4,732,000 shares of Common Stock issuable upon conversion of the
Convertible Debenture, and 1,000,000 shares of Common Stock issuable
upon exercise of the Debenture Warrants.
(6) Consists of shares of Common Stock issuable upon exercise of Private
Placement Warrants to purchase 225,000 shares of Common Stock at an
exercise price of $5.75 per share.
-46-
<PAGE>
SELLING SHAREHOLDERS
The Company has been advised by the Selling Shareholders that, with the
exception of Melvin Rosen, none of the Selling Shareholders has or had a
position, office or other material relationship with the Company or any of its
affiliates within the past three years. Unless otherwise indicated, the
following table sets forth certain information with respect to the ownership of
the Company's Common Stock by each Selling Shareholder as of the date of this
Prospectus.
<TABLE>
<CAPTION>
OWNERSHIP OF SHARES NUMBER OF OWNERSHIP OF SHARES
NAME AND ADDRESS OF SELLING OF COMMON STOCK SHARES OF COMMON STOCK
SHAREHOLDER PRIOR TO OFFERING OFFERED HEREBY AFTER OFFERING(1)
- -----------------------------------------------------------------------------------------------------------------
SHARES PERCENTAGE SHARES PERCENTAGE
------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Michael Ploshnick(2)................ 80,000(3) 2.0% 80,000 0 *
17346 St. James Court
Boca Raton, FL 33496
Howard Schwartz(2).................. 144,000(4) 3.5% 144,000 0 *
23 Pheasant Run Ln.
Dix Hills, NY 11746
Steven Finkelstein(2)............... 131,000(5) 3.2% 131,000 0 *
6 Horizon Road, #2803
Fort Lee, NJ 07024
Salvatore Marasa(2)................. 144,000(6) 3.5% 144,000 0 *
242 Pondview Lane
Smithtown, NY 11787
David Ganz(2)....................... 144,000(7) 3.5% 144,000 0 *
1220 Terry Rd.
Renkonkoma, NY 11779
Edward Goldner(2)................... 13,000(8) * 13,000 0 *
127 14th Street
W. Babylon, NY 11704
Anthony Imbo(2)..................... 144,000(9) 3.5% 144,000 0 *
1995 Orinoco Drive
West Islip, NY 11795
Melvin Rosen........................ 6,033,212(10) 61.9% 301,212 5,732,000 58.8%
1506 N.E. 162 Street
N. Miami Beach, FL 33162
Amber Capital Corporation........... 394,477 9.8% 394,477 0 *
2 Spur Lane
Rolling Hills, CA 90274
-47-
<PAGE>
<CAPTION>
Investor Resource
Services, Inc...................... 394,477 9.8% 394,477 0 *
490 North Causeway
New Smyrna Beach, FL 32169
Aurora Holdings, Inc................ 394,477 9.8% 394,477 0 *
1020 Brookstown Avenue
Suite 14
Winston-Salem, NC 27101
J.W. Barclay & Co., Inc............. 225,000(11) 5.3% 225,000 0 *
One Battery Park Plaza
New York, NY 10004
</TABLE>
- -------------------------
* Less than 1%.
(1) Assumes that all Shares are sold pursuant to this offering and that no
other shares of Common Stock are acquired or disposed of by the Selling
Shareholders prior to the termination of this offering. Because the
Selling Shareholders may sell all, some or none of their Shares or may
acquire or dispose of other shares of Common Stock, no reliable
estimate can be made of the aggregate number of Shares that will be
sold pursuant to this offering or the number or percentage of shares of
Common Stock that each Selling Shareholder will own upon completion of
this offering.
(2) An assignee of a portion of the Consultant's Warrants.
(3) Consists of shares of Common Stock issuable due to exercise of one-year
warrants for the purchase of 50,000 shares of Common Stock of an
exercise price of $1.00 per share, one-year warrants for the purchase
of 20,000 shares of Common Stock at an exercise price of $2.50 per
share, and three-year warrants for the purchase of 10,000 shares of
Common Stock at an exercise price of $2.50 per share.
(4) Consists of shares of Common Stock issuable due to exercise of one-year
warrants for the purchase of 90,000 shares of Common Stock at an
exercise price of $1.00 per share, one-year warrants for the purchase
of 36,000 shares of Common Stock at an exercise price of $2.50 per
share, and three-year warrants for the purchase of 18,000 shares of
Common Stock at an exercise price of $2.50 per share.
(5) Consists of shares of Common Stock issuable due to exercise of one-year
warrants for the purchase of 77,000 shares of Common Stock at an
exercise price of $1.00 per share, one-
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<PAGE>
year warrants for the purchase of 36,000 shares of Common Stock at an
exercise price of $2.50 per share, and three-year warrants for the
purchase of 18,000 shares of Common Stock at an exercise price of $2.50
per share.
(6) Consists of shares of Common stock issuable due to exercise of one-year
warrants for the purchase of 90,000 shares of Common Stock at an
exercise price of $1.00 per share, one-year warrants for the purchase
of 36,000 shares of Common Stock at an exercise price of $2.50 per
share, and three-year warrants for the purchase of 18,000 shares of
Common Stock at an exercise price of $2.50 per share.
(7) Consists of shares of Common stock issuable due to exercise of one-year
warrants for the purchase of 90,000 shares of Common Stock at an
exercise price of $1.00 per share, one-year warrants for the purchase
of 36,000 shares of Common Stock at an exercise price of $2.50 per
share, and three-year warrants for the purchase of 18,000 shares of
Common Stock at an exercise price of $2.50 per share.
(8) Consists of shares of Common Stock issuable due to exercise of one-year
warrants for the purchase of 13,000 shares of Common Stock at an
exercise price of $1.00 per share.
(9) Consists of shares of Common stock issuable due to exercise of one-year
warrants for the purchase of 90,000 shares of Common Stock at an
exercise price of $1.00 per share, one-year warrants for the purchase
of 36,000 shares of Common Stock at an exercise price of $2.50 per
share, and three-year warrants for the purchase of 18,000 shares of
Common Stock at an exercise price of $2.50 per share.
(10) Consists of an aggregate of 301,212 shares of Common Stock issued in
part as part of the consideration for the Costa Rica Acquisition and in
part as part of the consideration for the Debt Restructuring Agreement,
and also includes shares of Common Stock issuable upon exercise of the
Debenture Warrants and upon conversion of the Convertible Debenture.
Does not include 350,000 additional shares of Common Stock that would
be issuable in the event that the Company repays Mr. Rosen a debt of
approximately $175,000 which may be due him based on an increase in the
number of subscribers in Costa Rica (approximately 3,500 subscribers
multiplied by $50 each), and Mr. Rosen elects to convert said debt to
350,000 shares of Common Stock at a conversion price of $.50 per share.
(11) Consists of shares of Common Stock issuable upon exercise of Private
Placement Warrants to purchase 225,000 shares of Common Stock at an
exercise price of $5.75 per share.
CERTAIN TRANSACTIONS
Upon its incorporation on May 7, 1993, the Company issued 250,000 shares
of its Common Stock to each of Messrs. Duquette and Devlin, officers and
directors of the Company, for total consideration of $124,276. During the
nine-month period ended September 30, 1994, Mr. Devlin made net cash capital
contributions to the Company of approximately $46,550 which were used for
working capital.
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<PAGE>
Mr. Duquette and Mr. Devlin each had a minority interest of less than 1%
in the Grand Alliance LaCrosse (F) Partnership, which sold certain station
licenses for the LaCrosse System to the Company. Mr. Duquette and Mr. Devlin
received less than 1 % of the fees paid by the Company to Grand Alliance
LaCrosse (F) Partnership.
In August 1994, Messrs. Duquette and Devlin jointly purchased a unit of
the Company's securities, for a purchase price of $50,000, as part of a private
placement by the Company of 22.5 units to 29 accredited investors. The units
consisted of secured promissory notes in the principal amount of $50,000, 10,000
shares of Common Stock, and a warrant to purchase 10,000 shares of the Company's
Common Stock.
During August 1994, the Company advanced $50,000 to Messrs. Duquette and
Devlin. The loan was payable on demand, without interest. Proceeds of the loan
were used by Messrs. Duquette and Devlin for personal expenses. The loan was
repaid in full in November 1994.
In February 1996, the Company, through its Costa Rica subsidiaries,
acquired two companies that together hold certain rights to eighteen frequency
licenses for broadcasting wireless cable services in Costa Rica. In the first
acquisition, the Company, through Fepeca de Tournon, S.A., a new, wholly-owned
Costa Rica subsidiary corporation of the Company ("Fepeca de Tournon, S.A."),
acquired from Melvin Rosen all of the outstanding shares of common stock of
Televisora Canal Diecinueve, S.A., a Costa Rica corporation ("Canal 19") for a
total purchase price of $3,000,000, $1,000,000 of which was paid to Mr. Rosen at
the closing, with the balance to be paid on February 23, 1997, with interest
thereon at the rate of 3.6% per annum payable monthly. The payment of this
deferred amount is secured by all of the acquired shares of stock of Canal 19
and of Grupo Masteri, S.A. (see below).
In the second acquisition, the Company, through Fepeca de Tournon, S.A.,
acquired from Mr. Rosen all of the outstanding shares of common stock of Grupo
Masteri, S.A., a Costa Rica corporation ("Grupo"), for a total purchase price of
$1,000,000 paid at the closing by delivery to Mr. Rosen of 121,212 restricted
shares of the Company's common stock, which represented approximately 6% of the
Company's outstanding capital stock at the time of the acquisition. Such shares
are subject to certain registration rights. See "Management's Discussion and
Analysis-Liquidity and Capital Resources," and "Business-Acquisitions."
On December 23, 1996, the Company engaged Kent T. Allen, Carl Caserta,
Richard J. Fixaris and Charles S. Arnold (the "Consultants") to provide
financial and public relations services to the Company for a period of twelve
months. The Company has issued a total of 200,000 shares of its common stock to
the Consultants as compensation for the services to be provided by the
Consultants pursuant to the Consulting Agreements between the Consultants and
the Company (the "Consulting Agreements"). The Consultants have each agreed to
pay for all of the costs and expenses incurred by the Consultants in connection
with rendering financial and public relations services to the Company pursuant
to the Consulting Agreements. The Consultants have agreed to spend not less than
$500,000 in such endeavor. The Company has filed a registration statement on
Form S-8 covering the shares of common stock issued to the Consultants. The
Consultants have disclaimed any affiliation with one another.
-50-
<PAGE>
On February 24, 1997, Mr. Duquette and Mr. Devlin each loaned to the
Company the sum of $25,000 ($50,000 in the aggregate) for use by the Company in
paying a required deposit to Mr. Rosen (see "Business - General Development of
Business - Rosen Debt"). These loans are represented by accounts payable from
the Company with interest at the prime rate. No repayment terms have yet been
determined by the lenders and the Company. The Company believes the loans made
by Mr. Duquette may be subject to setoff for claims by the Company.
On February 12, 1997, the Company and the seller under the Costa Rica
Acquisition ("Seller") entered into an agreement providing for the restructuring
of the $2 million note given by the Company to Seller as part of the 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. 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
and the Seller therefore retained the $50,000 deposit.
On May 19, 1997, the Company entered into a Debt Restructuring Agreement
("Debt Restructuring Agreement") with the Seller for the restructuring of the $2
million debt into a secured 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 "Convertible Debenture" or "Debenture"). The adjusted principal amount of
the Convertible Debenture is $2.1 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 has the option,
exercisable within six months of the issue date of the Debenture, to extend the
Debenture an additional 12 months, in which event, commencing on the first day
of the 13th month after the issue date of the, 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 the debt restructuring described above, 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 (the "$1.00 Warrant"), and (iii) a warrant to purchase
500,000 shares at $5.00 per share (the "$5.00 Warrant"). Under the Agreement,
the Seller received the right to nominate two members to the Company's Board of
Directors until such time as Seller exercised the conversion rights under the
Convertible Debenture and received a release from any liability in connection
with the Costa Rica Acquisition.
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<PAGE>
The Convertible 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) 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 is obligated to reserve
for issuance upon conversion a sufficient number of shares of common stock and
register such reserved shares and maintain an effective registration statement
for such shares.
Although it is anticipated that the Seller will convert the Convertible
Debenture before its due date, until such conversion, if the Company defaults in
its obligations under the Convertible Debenture, then Seller will be entitled to
a transfer of all stock of the Costa Rican entities involved in the Costa Rica
Acquisition and the right to purchase all capital assets of the Company in Costa
Rica for fair market value. The capital assets of the Company in Costa Rica
consist primarily of subscriber contracts, transmission equipment and subscriber
reception equipment necessary for the operation of the Costa Rican wireless
cable television service.
Upon consummation of the Debt Restructuring Agreement, Fernand Duquette
and Richard Vega resigned from their positions as directors of the Company, and
Fernand Duquette additionally resigned as the Company's President and Chief
Executive Officer. The Seller and his designee, Samuel H. Simkin, were appointed
to the Company's Board of Directors and Seller was appointed the Company's
President and Chief Executive Officer. As a result, a change in control of the
Company is deemed to have taken place.
On November 20, 1997, the Company reached an agreement in principle to
acquire 60% of the capital stock of The Fifth Avenue Channel, Inc. (the
"Channel"), which plans to premiere a new 24-hour luxury lifestyles television
channel in the Spring of 1998. Although consummation of the transaction is
subject to the execution and delivery of a definitive written agreement, it is
anticipated that the transaction will be structured as follows: Shares of common
stock of the Channel will be purchased from Melvin Rosen, the Company's
President and Chief Executive Officer, and International Broadcast Corporation
("IBC") in exchange for 200,000 shares of the Company's Common Stock to be
issued on a pro-rata basis at closing and up to an additional 400,000 shares of
the Company's Common Stock which will be issuable to Mr. Rosen and IBC, also on
a pro-rata basis, based upon future performance of the Channel. Following the
acquisition, Mr. Rosen and IBC will continue to be minority shareholders in the
Channel along with Ivana Trump, who will continue to serve as its Chairman of
the Board. Ms. Trump is expected to serve as the hostess of the Channel.
As the requisite conditions of competitive, free-market dealings may not
exist, the foregoing transactions cannot be presumed to have been carried out on
an arms-length basis, nor upon terms no less favorable than had unaffiliated
parties been involved.
Except as set forth herein, there are currently no proposed transactions
between the Company, its officers, directors, shareholders, and affiliates.
Although future transactions between the Company and such parties are possible,
including a transaction relating to a business opportunity, the Board of
Directors of the Company has adopted a policy regarding transactions between the
Company and any officer, director or affiliate, including loan transactions,
requiring
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<PAGE>
that all such transactions be approved by a majority of the independent and
disinterested members of the Board of Directors and that all such transactions
be for a bona fide business purpose and be entered into on terms at least as
favorable to the Company as could be obtained from unaffiliated independent
third parties.
DESCRIPTION OF SECURITIES
GENERAL
The Company's authorized capital stock consists of 10,000,000 shares of
Common Stock, par value $.001 per share, and 5,000,000 shares of preferred
stock, par value $.001 per share (the "Preferred Stock"). As of the date of this
Prospectus, 4,009,643 shares of Common Stock and no shares of Preferred Stock
were outstanding. The transfer agent for the Common Stock is Continental Stock
Transfer & Trust Company, 2 Broadway, New York, New York 10004.
COMMON STOCK
The Company is authorized to issue 10,000,000 shares of Common Stock,
$.001 par value, of which 4,009,643 shares are issued and outstanding as of the
date of this Prospectus. The issued and outstanding shares of Common Stock are
fully paid and non-assessable. Holders of Common Stock are entitled to one vote
for each share held of record on all matters submitted to a vote of stockholders
and may not cumulate their votes for the election of directors. Shares of Common
Stock are not redeemable, do not have any conversion or preemptive rights and
are not subject to further calls or assessments once fully paid.
Holders of Common Stock will be entitled to share pro rata in such
dividends and other distributions as may be declared from time to time by the
Board of Directors out of funds legally available therefore, subject to any
prior rights accruing to any holders of preferred stock of the Company. Upon
liquidation or dissolution of the Company, holders of shares of Common Stock
will be entitled to share proportionally in all assets available for
distribution to such holders.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of Preferred Stock, par value of
$.001 per share, in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences and the
number of shares constituting any series or the designation of such series.
There are currently no issued and outstanding shares of preferred stock. The
issuance of Preferred Stock could adversely affect the voting power of holders
of Common Stock and could have the effect of delaying, deferring or preventing a
change in control of the Company.
PURCHASE WARRANTS AND CONVERTIBLE DEBENTURE
As of the date of this Prospectus, the Company has issued and outstanding
a total of 3,965,000 warrants to purchase a like number of shares of its Common
Stock. Of such total, 1,610,000 were sold by the Company and 400,000 were sold
by certain selling securityholders
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<PAGE>
in the Company's initial public offering in May 1995 (the "IPO Warrants"),
100,000 Underwriters' Stock Warrants and 140,000 Underwriters' Warrants were
sold to the underwriter of such offering, 225,000 warrants (the "Private
Placement Warrants") were sold in a private offering in August 1994, 1,000,000
of the warrants are the Debenture Warrants and 350,000 of the warrants are the
Consultant's Warrants.
The various exercise or conversion prices and the number of shares of
Common Stock purchasable upon the exercise of the warrants and conversion of the
Convertible Debenture are subject to adjustment upon the occurrence of certain
events, including stock dividends, stock splits, combinations or
reclassification of the Common Stock. The warrants and the Convertible Debenture
do not confer upon holders any voting or any other rights as shareholders of the
Company.
The following is a brief summary of certain provisions of the warrants,
but such summary does not purport to be complete and is qualified in all
respects by reference to the actual text of the particular warrant agreement.
IPO WARRANTS
The IPO Warrants are exercisable at a price of $5.75 per share at any
time until May 3, 2003 and are governed by a warrant agreement between the
Company and Continental Stock Transfer & Trust Company as warrant agent.
IPO Warrants are subject to redemption by the Company, upon 30 days'
prior written notice, at a price of $.25 per IPO Warrant, if the closing sale or
bid price per share of the Common Stock equals or exceeds 120% of the
then-current exercise price (initially $5.75, subject to adjustment) per share
for the 20 trading days ending on the third trading day prior to the mailing of
the notice of the redemption.
UNDERWRITER'S WARRANTS AND UNDERWRITER'S STOCK WARRANTS
The 140,000 Underwriter's Warrants and the 100,000 Underwriter's Stock
Warrants were issued to designees of the Company's Underwriter in the Company's
initial public offering of securities in May 1995. The 140,000 Underwriter's
Warrants entitle the holders to purchase a like number of underlying warrants
("Underlying Warrants"), which are identical to the IPO Warrants described
above, i.e., each Underlying Warrant entitles the holder to purchase one share
of Common Stock at an exercise price of $5.75 until May 3, 2000, and is subject
to redemption by the Company upon 30 days prior written notice at a price of
$.25 per Underlying Warrant, provided that the closing sale or bid price per
share of the Company's Common Stock equals or exceeds 120% of the then current
exercise price (initially $5.75, subject to adjustment) to the 20 trading days
ending on the third trading day prior to the mailing of the notice of
redemption. The Underwriter's Warrants are exercisable for a like number of
Underlying Warrants at a price of $.375 per warrant and the Underwriter's Stock
Warrants are exercisable for a like number of shares of Common Stock at a price
of $7.50 per share. The Underwriter's Warrants and the Underwriter's Stock
Warrants are exercisable until May 3, 2000.
-54-
<PAGE>
PRIVATE PLACEMENT WARRANTS
In August 1994, the Company issued an aggregate of 225,000 Private
Placement Warrants as part of the sale of units of its securities. Such warrants
may be exercised no sooner than one year and no later than five years from the
date of their issuance at an exercise price of $5.75 per share. The warrants
provide for adjustment of the number of shares underlying the warrants upon the
occurrence of certain events, 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.
CONVERTIBLE DEBENTURE AND DEBENTURE WARRANTS ISSUED IN CONNECTION WITH
DEBT RESTRUCTURING
As part of the restructuring of the Company's debt for the Costa Rica
Acquisition, the Company issued a Convertible Debenture to the Seller under said
Acquisition.
The Convertible Debenture is set to mature 12 months from its face date
with interest to accrue at 12% per annum (7% to be paid monthly and 5% at
maturity). The principal amount of the Convertible Debenture is $2 million plus
certain expenses owed or reimbursable to Seller at the issue date of the
Convertible 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 has the option, exercisable within six months of the issue
date of the Convertible Debenture, to elect or extend the maturity date of the
Convertible Debenture of an additional 12 months, in which event, commencing on
the first day of the 13th month after the issue date of the Convertible
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 further consideration for the above-described debt restructuring, the
Company agreed to issue to the Seller the Debenture Warrants, which consist of
(i) a warrant to purchase 500,000 shares at $1.00 per share, and (ii) a warrant
to purchase 500,000 shares at $5.00 per share. The Debenture Warrants have a
term of five years and provide for cashless exercise and anti-dilution.
The Convertible Debenture is convertible by the 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) 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 is obligated to reserve for issuance upon
conversion a sufficient number of shares of common stock and to register such
reserved shares and maintain an effective registration statement for such
shares. The Seller has expressed his intent to convert the Convertible Debenture
before its due date, although such conversion has not yet taken place.
-55-
<PAGE>
CONSULTANT'S WARRANTS
The Consultant's Warrants were issued to Meyers, Pollock, Robbins, Inc.,
the Company's financial consultant pursuant to a Consultant Agreement entered
into by the Company and said Consultant as of July 24, 1997. The Consultant's
Warrants have subsequently been assigned to certain individuals.
The Consultant's Warrants consist of the following: (i) one-year warrants
for the purchase of 500,000 shares of Common Stock at an exercise price of $1.00
per share; (ii) one-year warrants for the purchase price of 200,000 shares of
Common Stock at an exercise price of $2.50 per share; and (iii) three-year
warrants for the purchase of 100,000 shares of Common Stock at an exercise price
of $2.50 per share. The one-year warrants for the purchase of 450,000 shares of
Common Stock at an exercise price of $1.00 per share were exercised in October
1997, leaving one-year warrants for the purchase of 50,000 shares of Common
Stock at an exercise price of $1.00 per share unexercised as of the date of this
Prospectus.
CERTAIN ANTI-TAKEOVER EFFECTS
Florida has enacted legislation that may deter or frustrate takeovers of
Florida corporations. The Florida Control Share Act generally provides that
shares acquired in excess of certain specified thresholds will not possess any
voting rights unless such voting rights are approved by a majority vote of a
corporation's disinterested shareholders. The Florida Affiliated Transactions
Act generally requires supermajority approval by disinterested shareholders of
certain specified transactions between a public corporation and holders of more
than 10% of the outstanding voting shares of the corporation (or their
affiliates). Florida law and the Company's Articles of Incorporation also
authorize the Company to indemnify the Company's directors, officers, employees
and agents. Pursuant to such authorization, the Company has entered into
agreements with each of its directors and certain of its officers providing for
indemnification to the fullest extent permitted by law.
Additionally, the authority possessed by the Board of Directors to issue
Preferred Stock could potentially be used to discourage attempts by others to
obtain control of the Company through merger, tender offer, proxy contest or
otherwise by making such attempts more difficult to achieve or more costly. The
Board of Directors may issue Preferred Stock with voting and conversion rights
that could adversely affect the voting power of the holders of Common Stock.
Except as described above, there are no agreements or understandings for the
issuance of Preferred Stock and the Board of Directors has no intention to issue
additional series of Preferred Stock as of the date of this Prospectus.
SHARES ELIGIBLE FOR FUTURE SALE
See "Risk Factors -- Risk of Future Sales of Common Stock."
-56-
<PAGE>
TRANSFER AGENT
The Transfer Agent for the Common Stock is Continental Stock Transfer and
Trust Company, 2 Broadway, New York, New York 10004.
PLAN OF DISTRIBUTION
The Selling Shareholders have advised the Company that they may from
time to time sell all or a portion of the Shares offered hereby in one or more
transactions in the over-the-counter market, on the Nasdaq SmallCap Market, or
on any other exchange on which the Common Stock may then be listed, in privately
negotiated transactions or otherwise, or a combination of such methods of sale,
at market prices prevailing at the time of sale or prices related to such
prevailing market prices or at negotiated prices. The Selling Shareholders may
effect such transactions by selling the Shares to or through broker-dealers, and
such broker-dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Shareholders and/or
purchasers of the Shares for whom they may act as agent (which compensation may
be in excess of customary commissions). The Selling Shareholders and any
participating broker-dealers may be deemed to be "underwriters" as defined in
the Securities Act. Neither the Company nor the Selling Shareholders can
estimate at the present time the amount of commissions or discounts, if any,
that will be paid by the Selling Shareholders on account of their sales of the
Shares from time to time.
Under the securities laws of certain states, the Shares may be sold in
such states only through registered or licensed broker-dealers or pursuant to
available exemptions from such requirements. In addition, in certain states the
Shares may not be sold therein unless the Shares have been registered or
qualified for sale in such state or an exemption from such requirement is
available and is complied with.
The Company will pay certain expenses in connection with this offering,
estimated to be approximately $40,000, but will not pay for any underwriting
commissions and discounts, if any, or counsel fees or other expenses of the
Selling Shareholders. The Company has agreed to indemnify the Selling
Shareholders, their directors, officers, agents and representatives, and any
underwriters, against certain liabilities, including certain liabilities under
the Securities Act. The Selling Shareholders have also agreed to indemnify the
Company, its directors, officers, agents and representatives against certain
liabilities, including certain liabilities under the Securities Act.
The Selling Shareholders and other persons participating in the
distribution of the Shares offered hereby are subject to the applicable
requirements of Rule 10b-6 promulgated under the Exchange Act in connection with
sales of the Shares.
LEGAL MATTERS
The validity of the Shares is being passed upon for the Company by
Broad and Cassel, a partnership including professional associations, 201 South
Biscayne Boulevard, Suite 3000, Miami, Florida 33131.
-57-
<PAGE>
EXPERTS
The financial statements included in this Prospectus have been audited
by BDO Siedman, LLP, independent certified public accountants, to the extent and
for the periods set forth in their report (which contains an explanatory
paragraph regarding the Company's ability to continue as a going concern)
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of said firm as experts in auditing and accounting.
-58-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 1997 (Unaudited)
and December 31, 1996..................................................F-2
Consolidated Statements of Operations for the Three Months
Ended September 30, 1997 and 1996, and the Nine Months
Ended September 30, 1997 and 1996 (Unaudited)..........................F-3
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996 (Unaudited)..........................F-4
Notes to Consolidated Financial Statements for the Nine Months
Ended September 30, 1997 (Unaudited)...................................F-5
Report of Independent Certified Public Accountants ....................F-12
Consolidated Balance Sheets at December 31, 1996 and 1995................F-13
Consolidated Statements of Operations for the Years
Ended December 31, 1996 and 1995......................................F-15
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1996 and 1995......................................F-16
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996 and 1995......................................F-17
Summary of Significant Accounting Principles.............................F-18
Notes to Consolidated Financial Statements...............................F-22
F-1
<PAGE>
<TABLE>
<CAPTION>
TEL-COM WIRELESS CABLE TV CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30, 1997 DECEMBER 31, 1996
(UNAUDITED)
-------------------------- ---------------------------
<S> <C> <C>
Current Assets
Cash and Cash Equivalents $ 6,212 $ 26,618
Restricted Cash 0 346,400
Accounts Receivable - Trade 47,979 18,739
Prepaid Consulting Fees 311,000 988,000
Prepaid Expenses 10,387 44,552
-------------------------- ---------------------------
Total Current Assets 375,578 1,424,309
Property & Equipment, Net (Note 3) 1,428,770 1,365,235
Licenses, Net (Note 4) 5,546,812 5,458,444
Other Assets, Net (Note 4) 135,450 127,335
-------------------------- ---------------------------
Total Assets $ 7,486,610 $ 8,375,323
========================== ===========================
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 336,733 $ 153,276
Accrued Liabilities 126,607 16,787
Current portion of long-term debt 17,902 5,736
Loans and Debentures Due to
Stockholders 2,482,400 2,008,000
Notes Due to Bank 0 361,000
-------------------------- ---------------------------
Total Current Liabilities 2,963,642 2,544,799
License Fees Payable 951,479 951,479
Long-term debt, less current portion --- 16,975
-------------------------- ---------------------------
Total Liabilities 3,915,121 3,513,253
Stockholders' Equity
Preferred Stock 0 1
Common Stock 3,557 2,196
Additional Paid-in Capital 7,560,112 7,544,720
Accumulated Deficit (3,992,180) (2,284,847)
-------------------------- ---------------------------
Less: Stock Subscription Receivable 3,571,489 5,262,070
0 (400,000)
-------------------------- ---------------------------
Total Stockholders' Equity $ 3,571,489 $ 4,862,070
7,486,610 8,375,323
========================== ===========================
</TABLE>
See Notes to Consolidated Financial Statements
F-2
<PAGE>
<TABLE>
<CAPTION>
TEL-COM WIRELESS CABLE TV CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------------------- ---------------------------------------------
1997 1996 1997 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------------- ------------------ -------------------- -------------------
<S> <C> <C> <C> <C>
Revenue $ 295,561 $ 104,963 $ 783,984 $ 313,408
Cost of Sales 59,978 20,157 128,634 58,052
------------------- ------------------ -------------------- -------------------
Gross Profit 235,583 84,806 655,350 255,356
Operating Expense 705,185 470,055 2,063,860 1,196,387
------------------- ------------------ -------------------- -------------------
Other Income (Expense)
Interest Income 367 22,552 4,710 88,682
Interest Expense (237,096) (31,271) (303,532) (78,890)
------------------- ------------------ -------------------- -------------------
Total Other Income (Expense) (236,729) (8,719) (298,822) 9,792
------------------- ------------------ -------------------- -------------------
Net Loss ($706,331) ($393,968) ($1,707,332) ($931,239)
=================== ================== ==================== ===================
Weighted Number of
Common Shares Outstanding 2,556,212 1,996,212 2,345,245 1,979,916
=================== ================== ==================== ===================
Net Loss per Common Share ($0.28) ($0.20) ($0.73) ($0.47)
=================== ================== ==================== ===================
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
<TABLE>
<CAPTION>
TEL-COM WIRELESS CABLE TV CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------------------------
1997 1996
(UNAUDITED) (UNAUDITED)
-------------------- ----------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Loss ($1,707,332) ($ 931,239)
Adjustments to reconcile net loss to net cash
used in operating activities
Amortization & Depreciation expense 412,224 79,835
Increase (Decrease) in Accounts Receivable (29,240) 7,770
Decrease (Increase) in Prepaid Expenses 839,165 6,813
Increase (Decrease) in Accounts Payable 183,457 (23,287)
Increase (Decrease) in Accrued Liabilities 109,820 (22,141)
-------------------- ----------------------
Net Cash used in
Operating Activities (191,906) (882,249)
-------------------- ----------------------
Cash Flows from Investing Activities
Acquisition of Equipment (222,879) (623,929)
Acquisition of Licenses 0 (472,089)
Acquisition of Investments 0 (105,000)
Proceeds from Sale of Investments 346,400 1,000,625
Increase in Deposits and other assets (8,115) (59,442)
-------------------- ----------------------
Net Cash provided by
Investing Activities 115,406 (259,835)
-------------------- ----------------------
Cash Flows from Financing Activities
Proceeds from Bank Loans 0 1,475,000
Proceeds from Stockholder Loans 221,902 (6,500)
Proceeds from Sale of Stock 200,000 0
Repayment of Bank Loans (361,000) (1,114,000)
Repayment of Truck Loans (4,808) 0
-------------------- ----------------------
Net Cash provided by
Financing Activities 56,094 354,500
-------------------- ----------------------
Net Decrease in Cash (20,406) (787,584)
Cash at Beginning of Period 26,618 1,767,285
-------------------- ----------------------
Cash at End of Period $ 6,212 $ 979,701
==================== ======================
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
TEL-COM WIRELESS CABLET TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
These statements should be read in conjunction with the
financial statements and the notes thereto included elsewhere
in this Prospectus. The results of operations for the nine
months ended September 30, 1997 are not necessarily indicative
of results to be expected for the full fiscal year.
NOTE 2 SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information for the nine
months ended September 30, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Interest paid during the period $ 16,345 $ 78,890
Non-cash investing and financing activities
Loan issued to restructure debt $ 78,498 $ -
Warrants and common stock issued to
restructure debt 88,750
Loans issued for Costa Rica licenses
(Grupo Masteri, S.A. in 1996) 174,000 2,000,000
Warrants issued for investment banking
consulting services 128,000 -
Common stock issued to acquire Television
Canal Diecinueve - 1,000,000
</TABLE>
F-5
<PAGE>
TEL-COM WIRELESS CABLET TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 PROPERTY & EQUIPMENT
Property and equipment at September 30, 1997 are summarized as
follows:
Leasehold improvements $ 13,381
Furniture, fixtures & office equipment 74,926
Equipment 1,720,692
Subtotal 1,808,999
Less accumulated depreciation 380,229
Net property & equipment $ 1,428,770
==================
NOTE 4 LICENSES & OTHER ASSETS
Licenses and other assets at September 30, 1997 are summarized
as follows:
Licensing fees $ 1,560,855
Costa Rican licenses 4,174,000
Deposits 126,698
Organization costs 4,000
Loans to Stockholders 6,550
Subtotal 5,872,103
Less accumulated amortization 189,841
Net other assets $ 5,682,262
==================
NOTE 5 COMMITMENTS
LICENSES IN THE UNITED STATES
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.
F-6
<PAGE>
TEL-COM WIRELESS CABLET TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 an 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
(MMDS) 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) percent.
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 three percent of the
defaulting bidder's bid amount would be due to the FCC. Of
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 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
F-7
<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 from Melvin Rosen (the "Seller") 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 an February 23, 1996.
In the first acquisition, the Company, through Fepeca
deTournon, S.A. ("FdT"), a new, wholly owned Costa Rican
subsidiary 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 was 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 'he 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 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 4,200 subscribers and
$174,000 is included in the cost of licenses for the increase
in subscriber base in the year from October 31, 1996 to 1997.
F-8
<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The cost of the Costa Rican channel licenses is amortized on a
straight-line basis over 40 years beginning when the
acquisition of the licenses was consummated.
NOTE 6 FOREIGN CURRENCY TRANSLATION
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 September 30, 1997, was approximately 239 Colons per 1
U.S. Dollar.
NOTE 7 LOAN RESTRUCTURE
On February 12, 1997, the Company and Seller entered into an
agreement providing for the restructuring of the $2 million
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 an 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. 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 and the $50,000 was
retained by the Seller.
On May 19, 1997, the Company entered into a Debt Restructuring
Agreement with the Seller for the restructuring of the $2
million debt into a convertible debenture ("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 is $2 million plus $100,000 for
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 has the option, exercisable within six months of the
issue date of the Debenture, to elect to extend the maturity
date of the debenture for 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
F-9
<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 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 received the right to
nominate two members to the Company's Board of Directors until
such time as Seller exercised the conversion rights under the
Debenture and received a release from any liability in
connection with the Costa Rica acquisition. A value of $88,750
was assigned to the aforementioned stock and warrants issued
to restructure the debt.
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) 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 has notified the Company of his intention to
convert the Debenture into common stock before its due date.
However, until the conversion occurs, there is risk that the
Company could default in its obligations under the Debenture.
In such case the 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.
All of the costs of restructuring the debt totaling $167,248
have been written off as additional interest expense in the
third quarter of 1997 when the Seller indicated his intent to
convert the debt into common stock. Interest continues to
accrue until the debt is converted.
F-10
<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 FINANCING - CONVERTIBLE PREFERRED STOCK PURCHASE
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 for $400,000, at closing. The Buyers paid an additional
$100,000 against the notes on January 8, 1997. The balance of
the notes, which was due on January 31, 1997, was not paid,
and 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 300
aggregate shares of Series A and Series B Convertible
Preferred Stock were converted into 1,183,431 shares of common
stock on September 16, 1997.
NOTE 9 CONSULTING AGREEMENT AND EXERCISE OF WARRANTS IN
OCTOBER, 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
$129,000 was assigned to the warrants and $64,000 per quarter
is being amortized in operating expenses in the third and
fourth quarters of 1997.
In October 1997, assignees of the Consultant exercised the
500,000 one-year warrants at $1 per share and the company
received $450,000 of the proceeds in early October, 1997. The
remaining $50,000 is to be paid before December 31, 1997.
F-11
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors
Tel-Com Wireless Cable TV Corporation
Daytona Beach, Florida
We have audited the accompanying consolidated balance sheets of Tel-Com Wireless
Cable TV Corporation as of December 31, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tel-Com Wireless
Cable TV Corporation at Decem ber 31, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As described in Note 15 to
the financial statements, the Company has experienced significant operating
losses and has negative working capital at December 31, 1996. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 15. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Orlando, Florida
April 4, 1997
F-12
<PAGE>
<TABLE>
<CAPTION>
TEL-COM WIRELESS CABLE TV CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 1995
- ------------ ---- ----
<S> <C> <C>
Assets
Current:
Cash and cash equivalents $ 26,618 $ 1,767,285
Restricted cash (Note 7) 346,400 -
Investment securities (Note 2) - 1,000,625
Accounts receivable - trade, net of allowance
for doubtful accounts of $19,028 and $-0- 18,739 29,667
Prepaid consulting fees (Note 6) 988,000 -
Prepaid other expenses 44,552 83,062
---------- ----------
Total current assets 1,424,309 2,880,639
Property and equipment, net (Note 3) 1,365,235 716,658
Investment securities (Note 2) - 250,000
Licenses, net (Notes 4 and 8) 5,458,444 362,329
Other assets, net (Note 5) 127,335 68,693
---------- ----------
$ 8,375,323 $ 4,278,319
========== ==========
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-13
<PAGE>
<TABLE>
<CAPTION>
TEL-COM WIRELESS CABLE TV CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 1995
- ------------ ---- ----
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable (Note 7) $ 2,369,000 $ 8,000
Accounts payable 153,276 73,054
Accrued liabilities 16,787 40,981
Current portion of long-term debt (Note 9) 5,736 -
----------- ----------
Total current liabilities 2,544,799 122,035
License fees payable (Note 8) 951,479 -
Long-term debt, less current portion (Note 9) 16,975 -
---------- ----------
Total liabilities 3,513,253 122,035
Commitments and contingencies (Notes 6, 8, 14 and 15)
Stockholders' equity (Note 10):
Preferred stock, $.001 par value, shares authorized
5,000,000; 500 shares designated as Series A;
issued and outstanding 500 1 -
Common stock, $.001 par value, shares authorized
10,000,000; issued and outstanding 2,196,212
and 1,875,000 2,196 1,875
Additional paid-in capital 7,544,720 5,057,042
Accumulated deficit (2,284,847) (902,633)
---------- -----------
5,262,070 4,156,284
Less: Stock subscription receivable (400,000) -
---------- -----------
Total stockholders' equity 4,862,070 4,156,284
$ 8,375,323 $4,278,319
=========== =========
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-14
<PAGE>
<TABLE>
<CAPTION>
TEL-COM WIRELESS CABLE TV CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 1995
- ----------------------- ---- ----
<S> <C> <C>
Revenue $ 459,185 $ 155,399
Cost of sales 96,599 38,244
--------- ---------
Gross profit 362,586 117,155
Operating expenses 1,652,380 777,725
--------- ---------
Operating loss (1,289,794) (660,570)
Other income (expense)
Interest income 105,048 116,958
Interest expense (197,468) (43,900)
---------- ----------
(92,420) 73,058
----------- ---------
Loss before extraordinary loss (1,382,214) (587,512)
Extraordinary loss on early
extinguishment of debt (Note 12) - (164,447)
------------ ---------
Net loss $(1,382,214) $(751,959)
=========== =========
Weighted average number of
common shares outstanding 1,983,542 1,460,274
Loss before extraordinary loss
per common share $ (.70) $ (.40)
Extraordinary loss on early extinguishment
of debt per common share $ - $ (.11)
------------ -----------
Net loss per common share $ (.70) $ (.51)
============ ===========
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-15
<PAGE>
<TABLE>
<CAPTION>
TEL-COM WIRELESS CABLE TV CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
TOTAL
ADDITIONAL STOCK STOCKHOLDERS'
COMMON STOCK PREFERRED STOCK PAID-IN ACCUMULATED SUBSCRIPTION EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE (DEFICIT)
------ ----- ------ ------ ------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 725,000 $ 725 - $- $ 170,101 $ (387,215) $ - $ (216,389)
Adjustment (Note 11) - - - - (236,541) 236,541 - -
Initial public offering, net of
offering costs (Note 10) 1,150,000 1,150 - - 5,123,482 - - 5,124,632
Net loss - - - - - (751,959) - (751,959)
--------------------------------------------------------------------------------------
Balance, December 31, 1995 1,875,000 1,875 - - 5,057,042 (902,633) - 4,156,284
Issuance of common stock in
payment of acquisition (Note 1) 121,212 121 - - 999,879 - - 1,000,000
Issuance of common stock in
payment of consulting fees (Note 6) 200,000 200 - - 987,800 - - 988,000
Sale of preferred stock (Note 10) - - 500 1 499,999 - (400,000) 100,000
Net loss - - - - - (1,382,214) - (1,382,214)
-------------------------------------------------------------------------------------
Balance, December 31, 1996 2,196,212 $2,196 500 $1 $7,544,720 $(2,284,847) $ (400,000)$4,862,070
=====================================================================================
</TABLE>
See accompanying summary of significant accounting policies and
notes to consolidated financial statements.
F-16
<PAGE>
<TABLE>
<CAPTION>
TEL-COM WIRELESS CABLE TV CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996 1995
- ----------------------- ---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,382,214) $ (751,959)
Adjustments to reconcile net loss to net
cash used in operating activities:
Loss on disposal of property and equipment 2,851 -
Depreciation and amortization 246,401 79,461
Loss on sale of investment securities 12,688 -
Extraordinary loss from early extinguishment of debt - 164,447
Decrease (increase) in accounts receivable 10,928 (29,667)
Decrease (increase) in prepaid expenses 38,510 (83,062)
Increase in accounts payable 80,222 27,674
(Decrease) in accrued liabilities (24,194) (28,469)
----------- -----------
Net cash used in operating activities (1,014,808) (621,575)
----------- -----------
Cash flows from investing activities:
Purchase of investment securities (655,750) (3,001,195)
Proceeds from sales and maturities of investment securities 1,893,687 1,799,945
Purchase of property and equipment (780,061) (415,324)
Acquisition of licenses (1,000,000) (4,958)
Increase in other assets (59,442) (65,560)
----------- ------------
Net cash used in investing activities (601,566) (1,687,092)
----------- -----------
Cash flows from financing activities:
Increase in restricted cash (346,400) -
Proceeds from sale of preferred stock 100,000 5,174,308
Proceeds from issuance of notes payable 1,475,000 -
Payment of notes payable (1,114,000) (1,325,000)
Payment of long-term debt (238,893) -
----------- ------------
Net cash provided by (used in) financing activities (124,293) 3,849,308
----------- -----------
Net increase (decrease) in cash and cash equivalents (1,740,667) 1,540,641
Cash and cash equivalents, beginning of year 1,767,285 226,644
---------- ----------
Cash and cash equivalents, end of year $ 26,618 $1,767,285
========== ===========
</TABLE>
See accompanying summary of significant accounting policies and
notes to consolidated financial statements.
F-17
<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Principles of
Consolidation
The consolidated financial statements include the accounts of Tel-Com Wireless
Cable TV Corporation and its wholly-owned subsidiaries after elimination of
intercompany accounts and transactions.
Nature of
Organization
Tele Consulting Corporation was incorporated in the State of Florida on May 7,
1993, primarily to complete the development and begin operation of a wireless
cable television transmission facility. The Company subsequently amended its
articles of incorporation changing the name of the corporation to Tel-Com
Wireless Cable TV Corporation ("the Company").
The Company's initial wireless cable television system is located in LaCrosse,
Wisconsin. The Company plans to provide television for multiple dwelling units,
commercial locations and single family residences in LaCrosse, as well as
expanding through the development of additional wireless cable systems.
The Company was a development stage enterprise until January 1995 (at which time
the Company commenced operations) as defined in Statements of Financial
Accounting Standards (SFAS) No. 7 "Accounting and Reporting by Development Stage
Enterprises."
On February 23, 1996, the Company acquired three Costa Rican corporations and
commenced wireless cable operations in the Republic of Costa Rica (see Note 1).
Two of these corporations were acquired through a new, wholly-owned Costa Rican
subsidiary.
Cash and
Cash Equivalents
For financial presentation purposes, the Company considers those short-term,
highly liquid investments with original maturities of three months or less to be
cash and cash equivalents.
Investment
Securities
Investment securities are stated at cost and adjusted for accretion of discount
and amortization of premium. Investment securities are classified as such based
upon the Company's intent and ability to hold to maturity. Gains and losses on
sales of investment securities are computed on a specific identification method
and based upon net proceeds and adjusted book values as of the settlement date.
F-18
<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Generally accepted accounting principles require investment and mortgage-backed
securities that the Company has the positive intent and ability to hold to
maturity to be classified as held-to-maturity securities and reported at
amortized cost. Investment and mortgage-backed securities that are held
principally for selling in the near term are to be classified as trading
securities and reported at fair value, with unrealized gains and losses included
in income. Investment and mortgage-backed securities not classified as either
held-to-maturity or trading securities are to be classified as
available-for-sale securities and reported at fair value, with unrealized gains
and losses excluded from earnings and reported in a separate component of
stockholders' equity. The Company adopted the Statement on January 1, 1994 with
no material effect on the financial statements of the Company.
Property and
Equipment
Property and equipment are stated at cost. Depreciation expense is provided
using the straight-line method for financial statement purposes and accelerated
methods for federal income tax purposes over the estimated useful lives of the
various assets, generally 5 to 25 years.
Licenses
Costs incurred to acquire or develop wireless cable channel licenses are
capitalized and amortized on a straight-line basis over their expected useful
lives of 40 years. Amortization of the licenses begins upon the commencement of
operations.
Organizational
Costs
Organizational costs are stated at cost less accumulated amortization.
Amortization expense is provided using the straight-line method over a five-year
period.
Net Loss per
Common Share
Net loss per common share is computed based upon the weighted average number of
shares outstanding during each period. Common stock equivalents include warrants
and options and have not been included since their effect would be antidilutive.
Reclassifications
Certain amounts from the 1995 financial statements were reclassified to conform
to current year presentations.
F-19
<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income Taxes
The Company accounts for income taxes in accordance with Statements of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109") which
requires recognition of estimated income taxes payable or refundable on income
tax returns for the current year and for the estimated future tax effect
attributable to temporary differences and carryforwards. Measurement of deferred
income tax is based on enacted tax laws including tax rates, with the
measurement of deferred income tax assets being reduced by available tax
benefits not expected to be realized.
Certain
Significant
Risks and
Uncertainties
Operations in the United States of America are regulated by the U.S. Federal
Communications Commission and may be subject to nonrenewal, revocation or
cancellation for violations of the Communications Act of 1934 that may occur.
In connection with the Company's Costa Rican operations (see Note 1), its
operations are regulated mainly by the Radio and Television Law -Ley de Radio y
Television, No. 1758 of June 19, 1954 as amended and the Regulation of Wireless
Stations - Reglamemto de Estaciones Inalambricas, No. 63 of December 11, 1956
and the Broadcasting Rule of Atlantic City and the International Agreements
Regarding Broadcasting executed in Washington, DC in 1949.
The pay television industry is highly competitive. Wireless cable television
systems face or may face competition from several sources, including traditional
and established hard-wire cable companies.
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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period reported. Actual
results could differ from those estimates.
F-20
<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recent
Accounting
Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121").
SFAS No. 121 requires, among other things, impairment loss of assets to be held
and gains or losses from assets that are expected to be disposed of be included
as a component of income from continuing operations before taxes on income. The
Company adopted SFAS No. 121 in 1996, and its implementation did not have a
material effect on the consolidated financial statements.
F-21
<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Acquisitions
On February 23, 1996, the Company acquired 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.
In the first acquisition, the Company, through Fepeca de Tournon, 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
$3,000,000, $1,000,000 of which was paid at the closing and the balance is 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, S.A. and Teleplus, S.A., 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 $1,000,000 which was paid
at the closing in the form of restricted shares of the Company's common stock
valued at fair market value as of the date of closing. 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. TelePlus leases their air-time from the
broadcast channels from Canal 19 and Grupo and has acquired subscriber contracts
and certain
F-22
<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
physical assets, consisting primarily of transmission equipment and subscriber
reception equipment, from Grupo. The Company currently broadcasts cable
programming over six channels in the Costa Rica System and has no present plans
to use the 12 additional microwave channels.
The assets owned by the companies acquired consisted mainly of the frequency
licenses and property and equipment. The entire purchase price of $4,000,000 was
allocated to the frequency licenses and will be amortized over a 40-year period.
Due to the age and technical obsolescence of the property and equipment, no
purchase price was allocated to these assets.
Pursuant to the restructuring of the note payable related to the first
acquisition as described in Note 14, the 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 Company will adjust the purchase price of the first acquisition
by the fair market value of the 180,000 shares of common stock at the date of
issuance.
The following unaudited pro forma summary presents the consolidated results of
operations as if the above acquisitions had occurred at the beginning of 1995,
with pro forma adjustments to give effect to amortization of broadcast licenses
acquired over 40 years, together with related income tax effects, and does not
purport to be indicative of what would have occurred had the acquisition been
made as of these dates or of results which may occur in the future. The results
of operations of the acquired companies for the period of January 1, 1996 to
February 23, 1996, the date of acquisition, were not significant and have been
excluded from the following pro forma information:
F-23
<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995
- ----------------------------
Sales $ 345,992
Net loss $(875,614)
Loss per share $ (.55)
(2) Investment
Securities
As of December 31, 1995, all investments were classified as held to maturity
investments and were stated at amortized cost. The amortized cost and
approximate market values of investment securities were as follows:
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED
AMORTIZED GROSS GROSS FAIR
DECEMBER 31, 1995 COST GAIN LOSS VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and
agency obligations $ 1,250,625 $ 7,465 $ - $1,258,090
- -------------------------------------------------------------------------------------
</TABLE>
AMORTIZED FAIR
DECEMBER 31, 1995 COST VALUE
- -------------------------------------------------------------------------------
Due in one year or less $ 1,000,625 $ 1,008,090
Due after one year through five years - -
Due after five years through ten years 250,000 250,000
- -------------------------------------------------------------------------------
$ 1,250,625 $ 1,258,090
Proceeds from the sales and maturities of investment securities were approxi
mately $1,894,000 and $1,800,000 during 1996 and 1995, respectively.
Due to the acquisition of the Costa Rican operation during 1996 (see Note 1) and
the significant amount of expenditures associated with this acquisition, the
Company transferred one of its investments from held to maturity to available
for sale. The security had an unrealized loss of approximately $3,000 on the
date of the transfer, which was realized upon its immediate sale.
F-24
<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) Property and
Equipment
Property and equipment are summarized as follows:
Useful
Lives 1996 1995
- -------------------------------------------------------------------------------
Leasehold improvements 7 - 10 years $12,667 $ 8,674
Furniture, fixtures and
office equipment 7 years 77,139 50,201
Equipment 5 - 10 years 1,390,442 726,655
Vehicles 5 years 105,005 -
- -------------------------------------------------------------------------------
1,585,253 785,530
Less accumulated depreciation 220,018 68,872
- -------------------------------------------------------------------------------
Net property and equipment $ 1,365,235 $716,658
- -------------------------------------------------------------------------------
The Company had depreciation expense of $152,355 and $68,872 for 1996
and 1995, respectively.
(4) Licenses
Licenses consist of the following:
Location of License 1996 1995
- -------------------------------------------------------------------------------
LaCrosse, Wisconsin $ 371,493 $ 371,493
San Jose, Costa Rica 4,000,000 -
Stevens Point, Wisconsin 530,625 -
Wausau, Wisconsin 658,736 -
- -------------------------------------------------------------------------------
5,560,854 371,493
Less accumulated amortization (102,410) (9,164)
- -------------------------------------------------------------------------------
Net licenses $ 5,458,444 $ 362,329
- -------------------------------------------------------------------------------
F-25
<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Other Assets
Other assets are summarized as follows:
1996 1995
- -------------------------------------------------------------------------------
FCC deposits (Note 8) $ 120,142 $ -
Other deposits 5,860 66,560
Organization costs 4,000 4,000
- -------------------------------------------------------------------------------
130,002 70,560
Less accumulated amortization 2,667 1,867
- -------------------------------------------------------------------------------
Net other assets $ 127,335 $ 68,693
- -------------------------------------------------------------------------------
(6) Commitments
LICENSES LEASE AND PURCHASE OPTION AGREEMENT
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 $371,493 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 com menced
operations. Since the Company has satisfied its lease requirements to the
lessors, the lessors transferred ownership of licenses and assigned the tower
rights to the Company for $100. On March 4, 1996, the FCC approved the transfer
of ownership of licenses to the Company.
OPERATING LEASES
The Company leases its offices, certain operating facilities and equipment under
several operating leases with terms expiring through 2000. The Company is
required to make minimum lease payments under these operating leases
approximately as follows: 1997 - $72,000; 1998 - $47,000; 1999 - $34,000 and
2000 - $4,000.
CONSULTING AGREEMENTS
On December 23, 1996 the Company engaged four individuals (the "Consul
tants") to provide financial and public relations services to the Company. The
F-26
<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company has issued a total of 200,000 shares of its common stock to the
Consultants as compensation for the services to be provided by the Consultants
pursuant to the Consulting Agreements between the Consultants and the Company
(the "Consulting Agreements") for a 12-month period. The Consultants have each
agreed to pay for all of the costs and expenses incurred by the Consultants in
connection with rendering financial and public relations services to the Company
pursuant to the Consulting Agreements. The Consultants have agreed to spend not
less than $500,000 in such endeavors. The cost associated with these Consulting
Agreements has been recorded as prepaid consulting fees at the fair market value
of the 200,000 shares on the date the agreements were signed, which was
approximately $988,000. These costs will be amortized over the 12-month duration
of the agreements. No costs were expensed as of December 31, 1996 as no services
had yet been performed under the agreements.
(7) Notes
Payable
As of December 31, 1996 and 1995, notes payable consist of the following:
1996 1995
- -------------------------------------------------------------------------------
$2,000,000 note payable to an individual,
interest only at 3.6% per annum, payable
monthly, principal and unpaid interest due
in full February 1997, collateralized by
all outstanding stock of its subsidiaries,
Televisora Canal Diecinueve, S.A.; Grupo
Masteri, S.A.; and Teleplus, S.A.
(see Note 14) $ 2,000,000 $ -
$475,000 note payable to a bank, interest
only at prime plus .5% payable quarterly,
principal and unpaid interest was paid in
full February 1997, collateralized by a
certificate of deposit in the amount of
$346,400 361,000 -
Note payable to a related party, no specified
interest or terms of repayment 8,000 8,000
- -------------------------------------------------------------------------------
$ 2,369,000 $ 8,000
- -------------------------------------------------------------------------------
F-27
<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) License
Fees
On March 28, 1996, the Federal Communications Commission completed its auction
of authorization to provide single channel and multichannel Multipoint
Distribution Service ("MDS") in 493 Basic Trading Areas ("BTA"). The Company won
bids in three 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 BTA 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 BTA authorizations. On July 8,
1996, payment of $118,936 was submitted to the Federal Communications Commission
to cover payment on the two Wisconsin BTAs of Sevens 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 U.S.
Treasury obligation at the time of the issuance of the BTA authorization plus
two and one-half percent.
On September 1, 1996, the unpaid license fee payable of $1,671,175 for the
Hickory, NC, BTA was defaulted on. 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, BTA license.
(9) Long-Term
Debt
Long-term debt consists of two loans, principal and interest at 9.7% and 9.25%,
payable monthly through August 2000, collateralized by vehicles. Future required
principal payments under these loans are as follows: 1997 - $5,736; 1998 -
$6,301; 1999 - $6,508 and 2000 - $4,166.
F-28
<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) Stockholders'
Equity
PREFERRED STOCK
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 establish such preferred stock in one or more series and to fix the
rights, preferences, privileges and restriction thereof, including dividend
rights, conversion rights, terms of redemption, liquidation preferences and the
number of shares constituting any series or the designation of such series.
On November 25, 1996, the Company designated and sold 500 shares of Series A
convertible preferred stock at a price of $1,000 per share (the "Preferred
Shares") to two companies (the "Buyers") for $500,000. Under the terms of the
stock subscription agreements, each Buyer delivered $50,000 in cash and a
$200,000 promissory note at closing. Each promissory note provides for four
weekly installments of no less than $50,000 with the final payment due no later
than December 31, 1996. The Preferred Shares are being held in escrow and are
pledged as security for the promissory notes. As of December 31, 1996, the
Company had not received any of the required installment payments according to
the terms of the promissory notes.
The Preferred Shares are convertible into shares of common stock of the Company
at any time by the Buyers and will be automatically converted into common stock
on the effective date of a Registration Statement covering the Preferred Shares.
The conversion rate is equal to the lesser of (i) $3.25 per share of common
stock or (ii) a discount of 35% from the average of the "bid" for five trading
days prior to the effective date of a Registration Statement covering the
Preferred Shares (the "Conversion Price"). The common stock issuable upon
conversion of the Preferred Shares is subject to certain registration rights. In
the event such shares of common stock are not registered and available for sale
pursuant to an effective registration statement within 120 days from November
25, 1996 (except in the event the promissory note described above is not timely
paid or the holder of such shares is not prompt in providing the Company
required information), the Company must issue an additional number of Preferred
Shares equal to 10% of the total number for each additional 30-day delay in
providing an effective registration statement pursuant to which the common stock
underlying the Preferred Shares is registered and delivered to the Buyers. The
Company did not
F-29
<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
complete a Registration Statement, and as discussed above, the Buyers have not
made timely payments on the promissory note. Therefore, the Company has not
issued additional Preferred Shares to the Buyers subsequent to year end.
The Company has agreed not to issue any additional common stock pursuant to
Regulation S of the General Regulations of the Securities and Exchange
Commission or to register any of its securities by means of a Form S-8
registration statement without the prior written consent of the Buyers, whose
consent shall not be unreasonably withheld.
Subsequent to year end, the Company received payments totaling $100,000. The
Company and the Buyers mutually agreed to terminate the subscription agreements
and cancel the notes receivable. As a result, the Buyers were only issued 200 of
the original 500 shares of preferred stock which were being held in escrow
pursuant to the agreements.
STOCK OPTION PLAN
In January 1995, the Company adopted a Stock Option Plan (the "SOP"), pursuant
to which officers, directors and key employees of the Company are eligible to
receive incentive and/or nonqualified stock options. The SOP covers 200,000
shares of the Company's common stock, $.001 par value. The SOP is administered
by the Board of Directors and will expire in 2005. Incentive stock options
granted under the SOP are exercisable for a period of up to ten years from the
date of grant at an exercise price which is not less than the fair market value
of the common stock on the date of grant, except that the terms of an incentive
stock option granted under the SOP to a stockholder owing more than ten percent
of the outstanding common stock may not exceed five years and its exercise price
may not be less than 110 percent of the fair market value of the common stock on
the date of grant.
The Company applies APB Opinion 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for options issued to
employees. Accordingly, no compensation cost has been recognized for
options granted to employees at exercise prices which equal or exceed the
market price of the Company's common stock at the date of grant. Options
F-30
<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
granted at exercise prices below market prices are recognized as compensation
cost measured as the difference between market price and exercise price at the
date of grant.
Statements of Financial Accounting Standards No. 123 (FAS 123) "Account ing for
Stock-Based Compensation," requires the Company to provide pro forma information
regarding net income and earnings per share as if compensation cost for the
Company's employee stock options had been determined in accordance with the fair
value based method prescribed in FAS 123. The Company estimates the fair value
of each stock option at the grant date by using the Black-Scholes option-pricing
model with the following weighted-average assumptions used for grants in 1996
and 1995, respectively: no dividend yield for both years; an expected life of
five years for both years; expected volatility of 130% and 89%; and risk-free
interest rates of 6.3% and 5.7%.
Under the accounting provisions of FAS 123, the Company's net loss and loss per
share would have been reduced to the pro forma amounts indicated below:
1996 1995
- -------------------------------------------------------------------------------
Net loss
As reported $ (1,382,214) $ (751,959)
Pro forma (1,679,484) (913,979)
Loss per share
As reported (.70) (.51)
Pro forma (.85) (.63)
- -------------------------------------------------------------------------------
F-31
<PAGE>
<TABLE>
<CAPTION>
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the status of options under this plan as of December 31, 1996 and
1995 and changes during the years ending on those dates are presented below:
1996 1995
-------------------------- ------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year 20,000 $ 9.85 - $ -
Granted 57,000 6.50 20,000 9.85
-------- --------- ------- -----
Balance at end of year 77,000 $ 7.37 20,000 $ 9.85
-------- --------- ------- -----
Options exercisable at year end 77,000 $ 7.37 20,000 $ 9.85
Options granted during the year at exercise prices which
exceed market price of stock at date of grant:
Weighted average exercise price 40,000 $ 6.60 13,000 $10.18
Weighted average fair value 40,000 5.33 13,000 8.08
Options granted during the year at exercise prices which
equal market price of stock at date of grant:
Weighted average exercise price 17,000 $ 6.45 7,000 $9.25
Weighted average fair value 17,000 5.17 7,000 8.14
</TABLE>
The following table summarizes information about options under the plan
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ------------------------------------
Number Weighted-Average Number Weighted-Average
Range of Outstanding Remaining Weighted-Average Exercisable at Dec. 31, 1996
Exercise Prices at Dec. 31, 1996 Contractual Life Exercise Price Exercise Price
<S> <C> <C> <C> <C> <C> <C>
$ 5.32 to 5.85 37,000 8.9 years $ 5.75 37,000 $ 5.75
$ 7.50 to 8.25 20,000 4.6 7.88 20,000 7.88
$ 9.25 to 10.18 20,000 9.0 9.85 20,000 9.85
------ --- ------- ------ -------
77,000 7.8 $ 7.37 77,000 $ 7.37
------ --- ------- ------ -------
</TABLE>
F-32
<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INITIAL PUBLIC OFFERING
On May 10, 1995, the Company completed its initial public offering. The Company
sold 1,150,000 shares at $5 per share and 1,610,000 redeemable common stock
purchase warrants at $.25 per warrant and received $5,124,632 in proceeds, net
of offering costs. The Company used these proceeds to repay indebtedness in
connection with its private placements, purchase equipment and for working
capital and general corporate purposes.
STOCK WARRANTS
Redeemable Common Stock Purchase Warrants - In connection with the public
offering, 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 no sooner than one year
and no later than 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.
Stock Warrants - In connection with the public offering, the Company sold
underwriter's stock warrants, at a price of $.001 per warrant. A total of
100,000 warrants to purchase a like number of shares of common stock and 140,000
warrants to purchase a like number of warrants were sold. The underwriter's
stock warrants are exercisable at a price of $7.50 per share, and the
underwriter's warrants will be exercisable at a price of $.375 per warrant
for a period of five years commencing on May 10, 1995. Each warrant
F-33
<PAGE>
underlying the underwriter's warrants is exercisable for one share of common
stock at an exercise price of $5.75 per share.
None of these warrants were exercised as of December 31, 1996.
SHARES RESERVED
At December 31, 1996, the Company has reserved 2,675,000 shares of common stock
for future issuance under all of the above arrangements.
(11) Income Taxes
For the period from May 7, 1993 (date of inception) through July 31, 1994, the
Company was taxed under the provisions of Subchapter S of the Internal Revenue
Code. On July 31, 1994, the Company's status as an S corporation was terminated,
and a net operating loss carryforward of approximately $120,000 was generated as
a result of the Company's activity during the months of August through December
1994. A reclassification of $236,541 was made from accumulated deficit to
additional paid-in capital as a result of the Company's activity during the time
that it was an S corporation. This was accomplished through an adjustment during
the year ended December 31, 1995.
The components of net deferred income taxes consist of the following:
1996 1995
- -------------------------------------------------------------------------------
Deferred income tax assets:
Net operating loss carryforwards $ 982,200 $ 365,000
Other 7,400 -
- -------------------------------------------------------------------------------
Gross deferred income tax assets 989,600 365,000
Valuation allowance (826,000) (317,100)
- -------------------------------------------------------------------------------
Total deferred income tax assets 163,600 47,900
- -------------------------------------------------------------------------------
Deferred income tax liabilities:
Depreciation (97,200) (41,800)
Amortization (66,400) (6,100)
- -------------------------------------------------------------------------------
Total deferred income tax liabilities (163,600) (47,900)
- -------------------------------------------------------------------------------
Net deferred income taxes $ - $ -
- -------------------------------------------------------------------------------
F-34
<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The changes in the valuation allowance for deferred income tax assets were
increases of $508,900 and $246,000 during 1996 and 1995, respectively.
The following summary reconciles differences from income taxes at the federal
statutory rate with the effective rate:
Year ended December 31, 1996 1995
- -------------------------------------------------------------------------------
Federal income taxes at statutory rates (34.0%) (34.0%)
Losses without tax benefits 34.0% 34.0%
- -------------------------------------------------------------------------------
Income taxes at effective rates 0% 0%
- -------------------------------------------------------------------------------
Unused net operating losses for income tax purposes, expiring in various amounts
from 2009 through 2011, of approximately $2,505,000 are available at December
31, 1996 for carryforward against future years' taxable income. Under Section
382 of the Internal Revenue Code, the annual utilization of this loss may be
limited due to changes in ownership. A valuation allowance of approximately
$826,000 has been offset against the tax benefit of these losses due to it being
more likely than not that the deferred income tax assets will not be realized.
(12) Extraordinary
Item
The extraordinary loss in 1995 was from early repayment of 8% secured promissory
notes due in 1999 obtained in two separate private placement offerings in 1994
(see Note 10).
F-35
<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) Supplemental
Cash Flow
Information
Certain supplemental disclosure of cash flow information and noncash investing
and financing activities for the years ended December 31, 1996 and 1995 is as
follows:
1996 1995
- -------------------------------------------------------------------------------
Cash paid during the year for:
Interest $ 197,722 $ 82,733
- -------------------------------------------------------------------------------
Noncash investing and financing activities:
Write-off of debt issuance costs $ - $ 164,447
Common stock issued for acquisitions 1,000,000 -
Common stock issued for consulting fees 988,000 -
Preferred stock issued for note receivable 400,000 -
Licenses acquired for notes payable 1,189,361 -
Note payable issued in connection
with acquisition 2,000,000 -
Long-term debt incurred in connection with
the purchase of property and equipment 23,732 -
- -------------------------------------------------------------------------------
(14) Subsequent
Event
On February 12, 1997, the Company and Seller entered in 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
F-36
<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 accrued at 12% per annum (7% to be paid
monthly and 5% at maturity). The principal amount of the debenture will 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 to 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 accrued 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 (a) $1.00 per share of common stock or (b) 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
F-37
<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
for a period of 26 months.
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 to
the right to purchase all capital assets of the Company in Costa Rica for fair
market value. The assets of Canal 19 consist primarily of rights to licenses,
for which applications are pending with the Republic of Costa Rica, for the
exclusive use of these "superband" television frequency channels and twelve
microwave frequency channels. The assets of Grupo consist primarily of licenses
for the exclusive use of three UHF frequency channels. The 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. 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.
(15) Going Concern
Consideration
The Company's financial statements are presented on the going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. However, the Company has suffered recurring
losses from operations. At December 31, 1996, the Company had
F-38
<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
an accumulated deficit of approximately $2,285,000 and a working capital deficit
of approximately $1,120,000.
During the year ended December 31, 1996, the Company was successful in acquiring
two companies with broadcast channel rights in Costa Rica and won FCC bids for
three FCC broadcast channel licenses in the U.S. The Company expended
significant capital to complete these acquisitions and make initial payments
towards the FCC licenses.
The Company's expansion activities and net losses have placed substantial
pressure on the working capital and liquidity of the Company. These conditions
raise substantial doubt as to the Company's ability to continue as a going
concern. Although the Company believes that funds expected to be generated from
operations and additional debt or equity financing will be sufficient to fund
the Company's working capital requirements for at least six months following the
Company's planned registration with the SEC of unissued common stock in the
second quarter of 1997, there can be no assurance that the Company will be able
to procure additional capital through public or private financing efforts or
generate sufficient revenues to fund its operations after such period. The
Company is actively pursuing additional financing alternatives. However, the
Company has no arrangements or commitments for additional capital. The Company
does not currently have any available bank credit facilities. The ability of the
Company to finance its activities and growth will depend on its ability to
procure additional financing, achieve a profitable level of operations,
consummate its agreement to restructure the $2,000,000 note payable related to
the Costa Rica acquisition (see Notes 1 and 14) and meet its financial
obligation to the U.S. government to avoid defaulting on the FCC licenses
purchased at auction.
UNAUDITED
On May 19, 1997, the Company entered into a Debt Restructuring Agreement with
the holder of the $2,000,000 note payable related to the Costa Rica
acquisition for the restructuring of the debt into a secured Convertible
F-39
<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Debenture to mature in 12 months with interest to accrue at 12% per annum (7% to
be paid monthly and 5% at maturity.)
As consideration for the debt restructuring, the Company agreed to issue (i)
180,000 shares of the Company's common stock, (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.
The Convertible Debenture is convertible into the Company's common stock at any
time after the issue date prior to payment of the Debenture at the lesser of (1)
$.50 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 for the five
trading days immediately prior to the conversion date.
F-40
<PAGE>
===============================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND
ANY INFORMATION OR REPRESENTATION NOT CONTAINED OR INCORPORATED HEREIN MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SHARES DESCRIBED IN THE COVER PAGE HEREOF, OR AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES OFFERED HEREBY IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALES MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------------------------
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION...............................3
PROSPECTUS SUMMARY..................................4
FORWARD-LOOKING STATEMENTS..........................8
RISK FACTORS........................................9
PRICE RANGE OF COMMON STOCK........................19
USE OF PROCEEDS....................................20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................21
BUSINESS...........................................27
MANAGEMENT.........................................40
PRINCIPAL SHAREHOLDERS.............................45
SELLING SHAREHOLDERS...............................47
CERTAIN TRANSACTIONS...............................49
DESCRIPTION OF SECURITIES..........................53
PLAN OF DISTRIBUTION...............................57
LEGAL MATTERS......................................57
EXPERTS............................................58
INDEX TO FINANCIAL STATEMENTS.....................F-1
===============================================================================
===============================================================================
4,899,643 SHARES
TEL-COM WIRELESS CABLE TV
CORPORATION
COMMON STOCK
------------------------
PROSPECTUS
------------------------
FEBRUARY ____, 1998
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company estimates that its expenses in connection with this
registration statement will be as follows:
Securities and Exchange Commission registration fee. $ 2,060.66
Legal fees and expenses............................. 30,000.00
Accounting fees and expenses........................ 4,000.00
Miscellaneous....................................... 3,939.34
Total...................................... $ 40,000.00
=========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has authority under Section 607.0850 of the Florida
Business Corporation Act (the "FBCA") to indemnify its directors and officers to
the extent provided for in the FBCA. The Company's Articles of Incorporation
provide that the Company shall indemnify and may insure its officers and
directors to the fullest extent permitted by law. The Company has also entered
into agreements with each of its directors and executive officers wherein it has
agreed to indemnify each of them to the fullest extent permitted by law.
The provisions of the FBCA that authorize indemnification do not
eliminate the duty of care of a director, and in appropriate circumstances
equitable remedies such as injunctive or other forms of nonmonetary relief will
remain available under Florida law. In addition, each director will continue to
be subject to liability for (a) violations of criminal laws, unless the director
had reasonable cause to believe his conduct was lawful or had no reasonable
cause to believe his conduct was unlawful, (b) deriving an improper personal
benefit from a transaction, (c) voting for or assenting to an unlawful
distribution, and (d) willful misconduct or conscious disregard for the best
interests of the Company in a proceeding by or in the right of the Company to
procure a judgment in its favor or in a proceeding by or in the right of a
shareholder. The statute does not affect a director's responsibilities under any
other law, such as the federal securities laws. The effect of the foregoing is
to require the Company to indemnify the officers and directors of the Company
for any claim arising against such persons in their official capacities if such
person acted in good faith and in a manner that he reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission,
II-1
<PAGE>
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
Pursuant to certain registration rights agreements, each of the Company
and the Selling Shareholders has agreed to indemnify the others and their
directors, officers, agents and representatives (and with respect to the
indemnification by the Company, any underwriters) against certain civil
liabilities that may be incurred in connection with this offering, including
certain liabilities under the Securities Act.
ITEM 16. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
5.1 Opinion of Broad and Cassel.
23.1 Consent of Broad and Cassel (included in Exhibit 5.1 hereto).
23.2 Consent of BDO Seidman, LLP.
24.1 Power of Attorney (see page II-4 of the Registration Statement).
- -------------------
ITEM 17. UNDERTAKINGS.
(a) RULE 415 OFFERING. The undersigned Registrant hereby
undertakes to:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section
10(a)(3) of the Securities Act.
(ii) Reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total dollar value
of securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.
II-2
<PAGE>
(iii) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial BONA
FIDE offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(b) REQUEST FOR ACCELERATION OF EFFECTIVE DATE. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of North Miami Beach, State of Florida, on this
12th day of February, 1998.
TEL-COM WIRELESS CABLE TV
CORPORATION
By: /s/ Melvin Rosen
---------------------------------
Melvin Rosen
Chairman of the Board and President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Melvin Rosen and Samuel H. Simkin
his true and lawful attorneys-in-fact, each acting alone, with full powers of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments, including any
post-effective amendments, to this Registration Statement, and to file the same,
with exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact or their substitutes, each acting alone, may lawfully do
or cause to be done by virtue hereof.
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Melvin Rosen Chairman of the Board and President February 12, 1998
- -----------------------------------
MELVIN ROSEN (principal executive officer and principal
financial and accounting officer)
/s/ Samuel H. Simkin Vice President, Director February 12, 1998
- -----------------------------------
SAMUEL H. SIMKIN
/s/ Dennis J. Devlin Director February 12, 1998
- -----------------------------------
DENNIS J. DEVLIN
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
5.1 Opinion and Consent of Broad & Cassel
23.2 Consent of BDO Seidman, LLP
BROAD AND CASSEL
201 South Biscayne Boulevard
Suite 3000
Miami, Florida 33131
February 12, 1998
Tel-Com Wireless Cable TV Corporation
1506 N.E. 162nd Street
North Miami Beach, Florida 33162
Re: TEL-COM WIRELESS CABLE TV CORPORATION
REGISTRATION STATEMENT ON FORM SB-2
Ladies and Gentlemen:
You have requested our opinion with respect to the shares of the
Company's common stock, par value $.001 per share (the "Common Stock"), included
in the Registration Statement on Form SB-2 (the "Form SB-2") filed with the U.S.
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended (the "Securities Act").
As counsel to the Company, we have examined the original or certified
copies of such records of the Company, and such agreements, certificates of
public officials, certificates of officers or representatives of the Company and
others, and such other documents as we deem relevant and necessary for the
opinions expressed in this letter. In such examination, we have assumed the
genuineness of all signatures on original documents, and the conformity to
original documents of all copies submitted to us as conformed or photostatic
copies. As to various questions of fact material to such opinions, we have
relied upon statements or certificates of officials and representatives of the
Company and others.
Based on, and subject to the foregoing, we are of the opinion that the
issued and outstanding shares of Common Stock being registered on behalf of the
Selling Shareholders as described in the Form SB-2 have been duly and validly
issued, and are fully paid and non-assessable. Furthermore, we are of the
opinion that the shares of Common Stock being registered in the Form SB-2 that
are issuable due to or upon exercise or conversion of the Company's warrants,
shall, upon such issuance as described in the Form SB-2, be duly and validly
issued and fully paid and nonassessable.
<PAGE>
Tel-Com Wireless Cable TV Corporation
February 12, 1998
Page 2
In rendering this opinion, we advise you that members of this Firm are
members of the Bar of the State of Florida, and we express no opinion herein
concerning the applicability or effect of any laws of any other jurisdiction,
except the securities laws of the United States of America referred to herein.
This opinion has been prepared and is to be construed in accordance
with the Report on Standards for Florida Opinions, dated April 8, 1991, issued
by the Business Law Section of The Florida Bar (the "Report"). The Report is
incorporated by reference into this opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Form SB-2. We also consent to the use of our name under the caption "Legal
Matters" in the Prospectus constituting part of the Form SB-2. In giving such
consent, we do not thereby admit that we are included within the category of
persons whose consent is required under Section 7 of the Securities Act, or the
rules and regulations promulgated thereunder.
Very truly yours,
/s/ Broad and Cassel
--------------------
BROAD AND CASSEL
EXHIBIT 23.2
Consent of Independent
Certified Public Accountants
Tel-Com Wireless Cable TV Corporation
North Miami Beach, Florida
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated April 4, 1997 relating to the
consolidated financial statements of Tel-Com Wireless Cable TV Corporation and
subsidiaries, which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
-----------------------
BDO Seidman, LLP
Orlando, Florida
February 12, 1998
