FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 1998
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Commission File Number 0-25896
TEL-COM WIRELESS CABLE TV CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 59-3175814
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(State or other jurisdiction (IRS Employer
incorporation or organization) Identification No.)
3957 N.E. 163RD STREET
NORTH MIAMI BEACH, FLORIDA 33160
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(Address of principal (Zip Code)
executive offices)
305-947-3010
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO___
As of November 6, 1998, the Company had issued and outstanding 4,093,143 shares
of its common stock ("Common Stock"), $.001 par value per share. In addition,
the Company was obligated to issue an additional 4,732,000 shares of such Common
Stock in connection with the pending conversion of the Rosen Debenture (See Note
6 to the Consolidated Financial Statements). Therefore, on a fully diluted
basis, the Company has outstanding an aggregate of 8,825,143 Shares of Common
Stock, $.001 par value per Share.
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TEL-COM WIRELESS CABLE TV CORPORATION
Index to Form 10-QSB
For Quarter Ended September 30, 1998
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Consolidated Financial Statements
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 6
Notes to Financial Statements 7
Item 2. Management's Discussion 16
PART II. OTHER INFORMATION
Item 2. Changes in Securities 22
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 23
2
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<TABLE>
<CAPTION>
TEL-COM WIRELESS CABLE TV CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, 1998 and December 31, 1997
ASSETS 1998 1997
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(Unaudited)
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 36,516 $ 113,207
Accounts Receivable-Trade, Net of
Allowance for Doubtful Accounts 43,281 46,269
Prepaid Expenses 9,890 20,761
Other current Assets 304,821 0
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Total Current Assets 394,508 180,237
Property & Equipment, Net (Note 3) 1,382,746 1,462,062
Licenses, Net (Note 4) 5,080,852 5,320,225
Other Assets, Net 35,420 14,220
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TOTAL ASSETS $ 6,893,526 $ 6,976,744
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LIABILITIES & STOCKHOLDERS'EQUITY
---------------------------------
Current Liabilities:
Accounts Payable $ 311,673 $ 304,639
Accrued Liabilities 623,861 308,993
Current Portion of Long-term Debt 6,200 6,301
Advances and loans from Shareholders 569,079 362,479
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Total Current Liabilities 1,510,813 982,412
Convertible Debentures (Note 6) 2,961,000 2,366,000
License Fees Payable (Note 4) 951,479 951,479
Long-term Debt, Less Current Portion 4,440 9,997
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Total Liabilities 5,427,732 4,309,888
SHAREHOLDERS' EQUITY (Notes 7 and 8)
Common Stock 4,094 4,010
Additional Paid-in Capital 8,699,635 8,171,457
Accumulated Deficit (7,238,234) (5,508,611)
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Total Shareholders' Equity 1,465,794 2,666,856
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Total Liabilities & Shareholders Equity $ 6,893,526 $ 6,976,744
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</TABLE>
See Notes to Consolidated Financial Statements
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<TABLE>
<CAPTION>
TEL-COM WIRELESS CABLE TV CORPORATION CONSOLIDATED
STATEMENT OF OPERATIONS
Three Months Ended September 30, 1998 and 1997
1998 1997
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(Unaudited)
<S> <C> <C>
Revenue $388,984 $295,561
Cost of Sales 60,305 59,978
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Gross Profit 328,679 235,583
Operating Expenses 796,805 755,185
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Operating Loss (468,126) (519,602)
Other Income (Expense)
Interest Income 434 367
Interest Expense (266,615) (237,096)
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Total Other Income (Expense) (266,181) (236,729)
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Net Loss ($734,307) ($756,331)
========= =========
Net Loss Per Common Share-basic and diluted ($0.08) ($0.30)
Weighted Average Number of
Common Shares Outstanding 8,781,469 2,556,299
</TABLE>
See Notes to Consolidated Financial Statements
4
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<TABLE>
<CAPTION>
TEL-COM WIRELESS CABLE TV CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 1998 and 1997
1998 1997
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(Unaudited)
<S> <C> <C>
Revenue $1,055,470 $ 783,984
Cost of Sales 161,716 128,634
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Gross Profit 893,754 655,350
Operating Expenses 2,241,501 2,163,860
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Operating Loss (1,347,747) (1,508,510)
Other Income (Expense)
Interest Income 1,762 4,710
Interest Expense (383,638) (353,532)
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Total Other Income (Expense) (381,876) (348,822)
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Net Loss ($1,729,623) ($1,857,332)
Preferred Stock Dividends - 161,800
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Net Loss Available to Common
Stockholders ($1,729,623) ($2,019,132)
Net Loss Per Common Share-
Basic and Diluted ($0.27) ($0.87)
Weighted Average Number of
Common Shares Outstanding 6,347,517 2,325,472
</TABLE>
See Notes to Consolidated Financial Statements
5
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<TABLE>
<CAPTION>
TEL-COM WIRELESS CABLE TV CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1998 and 1997
1998 1997
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(Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss ($1,729,623) ($1,857,332)
Adjustments to reconcile net loss to
net cash used in operating activities:
Amortization & Depreciation 635,373 562,224
Stock and options issued for services 151,938 -
Decrease (Increase) in Accounts
Receivable 2,988 (29,240)
Decrease (Increase) in Prepaid Expenses 10,871 839,165
Increase (Decrease) in Accounts Payable 7,034 183,457
Increase in Accrued Liabilities 314,868 109,820
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Net Cash Used in Operating Activities (606,551) (191,906)
Cash Flows From (Used In) Investing Activities:
Acquisition of Equipment (130,315) (222,879)
Proceeds from sale of Investments - 346,400
Increase in Other assets (114,234) (8,115)
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Net Cash Provided by (Used in)
Investing Activities (244,549) 115,406
Cash Flows From Financing Activities:
Proceeds of Stockholder Loans, Net 206,600 221,902
Proceeds from Sale of Preferred Stock, Net - 200,000
Proceeds from exercise of warrants 50,000 -
Proceeds from Issuance of Convertible
Debentures less $38,918 of costs 556,082 -
Costs of registering common stock (32,615) -
Repayment of Bank Loans - (361,000)
Repayment of Long-Term Debt (5,658) (4,808)
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Net Cash Provided By
Financing Activities 774,409 56,094
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NET INCREASE (DECREASE) IN CASH (76,691) (20,406)
CASH AT BEGINNING OF PERIOD 113,207 26,618
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CASH AT END OF PERIOD $ 36,516 $ 6,212
</TABLE>
See Notes to Consolidated Financial Statements
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TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
Note 1 Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments necessary for a fair
presentation of financial position and the results of operations and
cash flows for the periods presented. They include the statements of
all subsidiaries. Certain information and note disclosures normally
included in financial statements prepared according to generally
accepted accounting principles have been condensed or omitted.
Note 2 Supplemental Cash Flow Information
Supplemental disclosure of cash flow information for the nine months
ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Interest paid during the period $ 10,301 $ 16,345
Non-cash investing and financing
activities:
Discount on 12% Convertible Debentures $ 359,238 -
Cancellation of Subscription agreement - $300,000
Preferred stock dividends - $161,800
</TABLE>
Note 3 Property & Equipment
Property and equipment are summarized as follows at September 30, 1998:
<TABLE>
<S> <C>
Leasehold improvements $ 16,439
Furniture & office equipment 113,923
Vehicles 133,315
TV signal rebroadcast & receiving equipment 1,767,812
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Total cost 2,031,489
Less accumulated depreciation 648,743
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Net property & equipment $ 1,382,746
</TABLE>
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TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 4 Licenses and Acquisitions
<TABLE>
<S> <C>
Licenses are summarized as follows
at September 30, 1998:
LaCrosse, Wisconsin $ 371,493
San Jose, Costa Rica 4,174,000
Stevens Pt-Marshfield-Wisc.Rapids, WI 530,625
Wausau-Rhinelander, Wisconsin 658,736
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Total cost 5,734,854
Less accumulated amortization 654,002
Net licenses $ 5,080,852
</TABLE>
On March 28, 1996, the Federal Communications Commission (FCC)
completed its auction of authorizations to provide single channel and
Multi-Channel Multi-Point Distribution Service (MDS) in 493 Basic
Trading Areas. The Company won bids in 3 markets:
Hickory-Lenoir-Morganton, NC; Wausau-Rhinelander, WI; and Stevens
Point-Marshfield-Wisconsin Rapids, WI. The Company's total bid for
these 3 markets was $3,046,212. The Company made the full 10% down
payment of $304,622 for all three markets but only made the second 10%
down payment of $118,946 on the two Wisconsin markets.
The remaining license fees payable to the FCC of $951,479 for the two
Wisconsin licenses are due quarterly over a ten year period. The
interest rate will be the effective rate of ten-year US Treasury
obligations at the time the FCC issues the authorization plus 2-1/2%.
The Company received written notification from the FCC that the
Wisconsin licenses have been granted in the fall of 1998 and that
$108,000 of interest was due for the period from July 25, 1997 to
September 30, 1998. Although the Company intends to contest the
retroactive interest, the full $108,000 is included in interest expense
in the third quarter of 1998. Quarterly interest payments of $21,701
are required for the first year. Quarterly principal and interest
payments totaling $42,211 start on October 31, 1999.
On September 1, 1996, the unpaid license fee payable of $1,671,175 for
the Hickory, NC, license was defaulted. According to Section 21.959 in
the FCC MDA Audit Information Package, a maximum default payment of 3%
of the defaulting bidder's bid amount would be due to the FCC.
8
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TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
This amount, $65,544, was charged to operations in 1996. The remaining
$120,142 of the deposit submitted to the FCC for Hickory, NC, was
charged to operations in the fourth quarter of 1997.
The Company will be liable to the FCC for the difference between the
Company's winning bid and a lower winning bid received by the FCC in a
subsequent auction of this license. The FCC has not yet announced plans
to re-auction the Hickory, NC, license and no liability is recorded for
the potential shortfall of a re-auction.
COSTA RICA LICENSES
In February 1996 the Company agreed to acquire three companies holding
a total of 18 frequency licenses for broadcast of pay television (i.e.,
"wireless cable") services in Costa Rica together with related
equipment and contracts with subscribers.
In the first acquisition, the Company acquired 100% of Televisora Canal
Diecinueve, S.A. ("Canal 19"), for $1 million cash and $2 million due
one year later with interest at 3.6% per annum. The $2 million note
payable was secured by the stock of Canal 19 and of Grupo Masteri,
discussed below.
In the second acquisition, the Company acquired all of the common stock
of Grupo Masteri, S.A. ("Grupo") for 121,212 restricted shares of the
Company's Common Stock valued at $8.25 per share.
The third acquisition from Seller was of TelePlus, S.A. ("TelePlus").
As consideration for the purchase of TelePlus the Company agreed to pay
the Seller $50 times the increase in subscribers for the one year
period after TelePlus had six pay television channels broadcasting to
the public. In October 1996 TelePlus began broadcasting six pay
television channels to 760 subscribers. Over the next year TelePlus
added 3,480 subscribers. As a result, $174,000 was added to licenses
and notes payable to stockholders.
The entire $4,174,000 purchase price of the three Costa Rican companies
was allocated to the 18 licenses since the value of the other assets
acquired was minimal. The cost of the licenses is amortized on a
straight-line basis over 15 years.
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TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 5 Costa Rican Foreign Currency Translation
Costa Rican revenues and expenses were translated using the currency
exchange rate for Costa Rican Colons into United States Dollars
determined at the close of business on the last day of each month.
Note 6 Loan Restructure In 1997
On May 19, 1997, the Company entered into an agreement with the Seller
restructuring the $2 million note issued in the acquisition of Canal 19
into a convertible debenture ("Rosen Debenture") maturing in 12 months
and bearing interest at 12% per annum. The principal amount of the
Rosen Debenture was increased by $100,000 for expenses owed or
reimbursable to Seller at the issue date of the Rosen Debenture.
As consideration for this debt restructuring, the Company agreed to
issue to the Seller (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. Under the
Agreement, the Seller became the President and Chairman of the Board
and received the right to nominate two members to the Company's Board
of Directors until such time as the President exercised the conversion
rights under the Rosen Debenture. A value of $78,750 was assigned to
the aforementioned stock and $10,000 to the warrants issued.
The Rosen Debenture is convertible by Seller into the Company's Common
Stock at any time after the issue date prior to payment of the Rosen
Debenture. The conversion price was equal to the lesser of (1) $.50 per
share of Common Stock or (2) the average of the closing "bid" for the
Company's Common Stock as reported on NASDAQ for the five trading days
immediately prior to the conversion date. At either the President's or
the Company's option, $1 million of this amount could have been
extended for an additional period of 12 months with interest at 15% per
annum.
No interest was paid on the Rosen Debenture and the $153,033 of
interest accrued from May 19, 1997 to December 31, 1997 was added to
the Rosen Debenture balance.
10
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TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In November, 1997, the President notified the Company of his intention
to convert the Rosen Debenture into Common Stock. As inducement for the
early conversion and for the President foregoing all interest on the
Rosen Debenture after December 31, 1997, an additional $109,967 was
added to the Rosen Debenture principal balance in 1997. The resulting
$2,366,000 Rosen Debenture balance will be converted into 4,732,000
restricted shares of Common Stock as soon as the Company's articles of
incorporation are amended to increase the number of authorized shares.
This amendment is expected to occur at the Company's next annual
shareholders' meeting, tentatively scheduled for mid-January, 1999.
The $238,750 total cost of extending and restructuring the debt and the
$109,967 early conversion inducement were recorded as interest expense
in 1997.
Note 7 Convertible Preferred Stock Purchase & Conversion in 1997
The Company is authorized to issue up to 5,000,000 shares of "blank
check" preferred stock and the Board of Directors has the authority,
without shareholder approval, to fix the rights, preferences and
privileges including dividend rights, conversion rights, terms of
redemption or liquidation preferences.
On November 25, 1996, the Company accepted a Subscription Agreement
from Amber Capital Corporation and Investor Resource Services, Inc.
(the "Buyers") for a total of 500 shares of its Series A Convertible
Preferred Stock at a price of $1,000 per share (the "Preferred
Shares"), for a total subscription price of $500,000. The Buyers
delivered $100,000 and promissory notes ("Notes") for $400,000 at
closing. The Buyers paid an additional $100,000 against the Notes on
January 8, 1997.
After the Notes were not paid on the January 31, 1997 due date, the
Company and the Buyers agreed to terminate the balance of the
Subscription Agreements and cancel the Notes. On March 14, 1997, Aurora
Capital purchased 100 shares of the Company's Series B Convertible
Preferred Stock for $100,000. The Series A preferred shares were
convertible into shares of Common Stock at the lesser of $3.25 or 65%
of the average bid for the Common Stock for the five trading days
prior to the conversion.
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TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The shares of Series B Preferred Stock were convertible at the lesser
of $1.00 or 65% of the average bid for the Company's Common Stock for
the five trading days prior to the conversion. Neither Series A nor
Series B Preferred Stock had fixed dividend rights.
During the first quarter of 1997 the Company recorded a preferred stock
dividend of $161,800 which represented the 35% discount off the bid
price of the Common Stock at the time the preferred shares were issued
for a total of $300,000. The $161,800 was added to additional Paid-in
Capital and increased the Accumulated Deficit in the first quarter of
1997. The dividend increased the net loss per share of Common Stock by
$.07 for the first quarter of 1997.
The 300 aggregate shares of Series A and Series B Convertible Preferred
Stock were converted into 1,183,431 shares of Common Stock at 65% of
the $.39 average bid price per share on the 5 trading days preceding
the election to convert. The 1,183,431 shares of Common Stock were
issued on September 16, 1997.
Note 8 Financing-Issuance of 12% Convertible Debentures in 1998
In the second quarter of 1998, the Company completed a private offering
of 12% Convertible Subordinated Debentures ("the Debentures"), due in
November 1999, to accredited investors. If the Company offers to redeem
the Debentures on or before February 28, 1999, 50% of the Debentures
are convertible into shares of Common Stock at $2 per share. If the
Company does not offer to redeem the Debentures by that date, the
remaining 50% can be converted after July 31, 1999. Notwithstanding the
early redemption by the Company, Debenture holders may convert no less
than 50% of their original Debenture into shares of Common Stock.
Interest is payable monthly.
The Company received $556,082 of net Debenture proceeds ($595,000 less
$38,918 of expenses). The Company recorded Additional Paid in Capital
totaling $359,238 for the difference between the closing price of the
Company's Common Stock on the date the Debenture proceeds were received
and the $2 conversion price for the potential conversion of 50% of the
Debentures into 148,750 shares of Common Stock.
12
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TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The total discount of $359,238 is being amortized as additional
interest expense over the period from receipt of Debenture proceeds to
February 28, 1999, the earliest potential conversion date for 50% of
the Debentures. A total of $175,560 of the discount was amortized as
additional interest expense in the second and third quarters of 1998.
The $183,678 unamortized balance of the discount is included in other
non-current assets in the accompanying Balance Sheet as of September
30, 1998.
Note 9 Issuance of Common Stock for Services
In the second quarter of 1998 the Company issued a total of 9,500
shares of Common Stock for services rendered in 1998 on behalf of The
5th Avenue Channel and issued 10,000 shares in payment of legal
services included in accounts payable at December 31, 1997. The
issuance of the 19,500 shares was recorded at the closing price on the
day preceding the issuance of the shares totaling $98,938.
On April 17, 1998 the Company granted options to purchase 5,000 shares
of the Company's Common Stock per month at $2.25 to an investment
advisor. The options vest monthly as long as the Company utilizes the
services of the advisor. A value of $1 per share was assigned to the
options based on the closing stock price on April 17, 1998. The Company
has recorded the $5,000 assigned value of the options that vest each
month in operating expenses.
On August 31, 1998 the Company issued 14,000 shares of Common Stock to
non employees for services rendered to the 5th Avenue Channel. The
$28,000 value assigned to these restricted shares is included in
operating expenses in the third quarter of 1998.
Note 10 Stock Warrants, Consulting Agreements and Shares Reserved
PUBLICLY TRADED COMMON STOCK PURCHASE WARRANTS
In connection with its initial public offering on May 10, 1995, the
Company sold 1,610,000 redeemable common stock purchase warrants at a
price of $.25 per warrant. Each warrant entitles the holder to
purchase, at any time from the date of the offering through the fifth
anniversary date, one share of Common Stock at a price of $5.75 per
share. The warrants are redeemable at a price of $.25 per warrant under
certain circumstances.
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TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
PRIVATE PLACEMENT WARRANTS
In August 1994 and December 1, 1994, the Company issued an aggregate of
625,000 Common Stock warrants as part of the sale of units of its
securities. Such warrants may be exercised within five years from the
date of their issuance at an exercise price of $5.75 per share. The
warrants provide for adjustment in the number of shares underlying the
warrants upon the occurrence of certain events, such as stock
dividends, stock splits or other reclassifications of the Company's
Common Stock, a consolidation or merger of the Company, or a
liquidating distribution of the Company's Common Stock.
UNDERWRITER STOCK WARRANTS
In connection with the public offering, the Company sold Underwriter's
stock warrants, at a price of $.001 per Warrant. Warrants to purchase
100,000 shares of Common Stock and warrants to purchase an additional
140,000 warrants were sold. The underwriter's stock warrants are
exercisable at a price of $7.50 per share, and the underwriter's
warrants are exercisable at a price of $.375 per warrant through May
10, 2000. Each warrant underlying the underwriter's warrants is
exercisable for one share of Common Stock at an exercise price of $5.75
per share.
CONSULTING AGREEMENTS
On December 23, 1996 the Company engaged four individuals (the
"Consultants") to provide financial and public relations services to
the Company. The Company issued a total of 200,000 shares of its common
stock valued at $988,000 (fair value) to the Consultants as
compensation for the services to be provided by the Consultants. No
costs were expensed as of December 31, 1996 as no services had been
performed under the agreements. The $988,000 was recorded in operating
expenses at $247,000 per quarter in 1997.
In July 1997, the Company entered into a two-year Consulting Agreement
with an investment banking firm (the "Consultant"). Pursuant thereto
the Company granted the Consultant 500,000 one-year warrants
exercisable at $1.00 per share, 200,000 one-year
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TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
warrants exercisable at $2.50 per share and 100,000 three-year warrants
exercisable at $2.50 per share. A value of $128,000 was assigned to the
warrants and was recorded to operating expenses in the second half of
1997. In October 1997 assignees of the Consultant exercised 450,000 of
the one year warrants at $1 per share and the Company received
$450,000. In July 1998, the exercise date for the remaining 50,000
one-year warrants was extended and, in September, 1998, the assignee of
these 50,000 warrants exercised the warrants at $1.00 per share, with
the Company receiving $50,000. See Note 6 for warrants issued to the
President in the restructuring of the $2,000,000 debt.
SHARES RESERVED
At September 30, 1998, the Company has reserved 9,469,500 Shares of
common stock for future issuance pursuant to stock warrant, stock
option and convertible debt agreements. This total is the maximum
shares issuable upon conversion of debt and includes 177,000 shares
reserved under the stock option plan for options that have not been
granted at September 30, 1998.
Note 11 Net Loss Per Share
Net loss per common share (basic and diluted) is based on the net loss
after preferred stock dividends divided by the weighted average of
shares of Common Stock outstanding during each period.
The weighted average shares outstanding include 4,732,000 and 2,322,667
shares for the conversion of the Rosen Debenture into 4,732,000 shares
of Common Stock in the three and nine month periods ended September 30,
1998, respectively. The shares are considered as being outstanding
after Rosen's election to convert the $2,366,000 Debenture balance on
May 19, 1998 even though the shares have not been issued.
The Company's potentially issuable shares of Common Stock pursuant to
outstanding stock purchase options and warrants and convertible
preferred stock and debentures are excluded from the Company's diluted
computation as their effect would be antidilutive to the Company's net
loss.
15
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion contains, in addition to historical information,
"forward-looking statements" with respect to the Company which represent the
Company's expectations or beliefs, including, but not limited to, statements
concerning industry performance, the Company's operations, performance,
financial condition, growth, acquisition and divestiture strategies, margins,
future ventures and expansion plans. For this purpose, any statements contained
in this report 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," "except," "believe," "anticipate," "intend,"
"could," "estimate," or "continue" or the negative or other variations thereof
or comparable terminology are intended to identify forward-looking statements.
These statements by their nature involve substantial risks and uncertainties,
certain of which are beyond the Company's control and actual results may differ
materially depending on a variety of important factors. Such factors include,
but are not limited to, the Company's limited availability of cash and working
capital; operating losses and accumulated deficit; limited operating history;
competition; physical limitations of wireless cable transmission; dependence on
management; dependence on a continuing subscriber base and license rights; risks
of international operations and other factors discussed in the Company's filings
with the Securities and Exchange Commission.
GENERAL
The Company operates wireless cable television systems in LaCrosse, Wisconsin
(the "LaCrosse System") and in the Central American country of Costa Rica (the
"Costa Rican System"). As of September 30, 1998 the LaCrosse System had
approximately 1,100 subscribers and the Costa Rican System had approximately
4,500 subscribers.
On March 28, 1996, the Company successfully bid for authorizations to three
markets: Hickory-Lenoir-Morganton, NC; Wausau-Rhinelander, WI; and Stevens
Point-Marshfield-Wisconsin Rapids, WI. The Wisconsin markets are designated as
future wireless cable television systems. The North Carolina authorization has
been abandoned.
The restructure of the loan resulting in the Rosen Debenture as part of the
acquisition of the Costa Rican licenses resulted in a change in control of the
Company and its executive management in May 1997. See Note 6 of Notes to
Consolidated Financial Statements.
In November 1997 the Company agreed in principle to acquire 60% of the capital
stock of The 5th Avenue Channel, Inc. ("5th Avenue"), 45% from Mel Rosen, the
Company's President and controlling shareholder, and 15% from International
Broadcast Corporation ("IBC"). As consideration for such proposed purchase, the
Company agreed to issue 200,000 shares of its Common Stock at closing and
further agreed to issue as many as 400,000 additional shares of Common Stock
based on 5th Avenue's future generation of revenues and net income ("Earn-out
Shares"). The closing of the purchase of the 60% interest in 5th Avenue has not
yet occurred.
In September, 1998, the Company agreed in principle to acquire an additional 30%
of 5th Avenue, 20% from Mel Rosen and 10% from IBC. The consideration for such
additional purchase will be 100,000 shares of Common Stock at closing and the
further agreement to issue up to 200,000 additional Earn-out Shares based on 5th
Avenue's future revenues and net income. At the closing of the purchase of the
aggregate of 90% of 5th Avenue from Rosen and IBC, the Company will therefore
issue a total of 300,000 shares of Common Stock and will agree to issue, based
on future revenues and net income, up to an additional 600,000 shares of Common
Stock. Such shares will be issued proportionately to Mel Rosen and IBC based on
their respective ownership interests in 5th Avenue being sold to the Company.
The closing is expected to occur in the fourth quarter of 1998.
16
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The 5th Avenue Channel will be a new 24 hour luxury lifestyles television
channel scheduled to premiere in the fourth quarter of 1998. 5th Avenue has
entered into contracts with Bloomberg LP to broadcast Bloomberg Television on
the 5th Avenue Channel and with Fashion TV Paris for joint marketing and channel
carriage. Fashion TV Paris broadcasts daily to approximately 100 million
households in Europe and Asia. Ivana Trump, who is the Chairwoman and a 10%
shareholder of 5th Avenue, will host the 5th Avenue Channel.
In the fourth quarter of 1998, 5th Avenue plans to launch its interactive
website (5thAvenueChannel.com), offering for sale a wide variety of products and
services. The Company expects its television programming to attract visitors
from around the world to its internet website.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 and 1997
REVENUES
The Company had revenues of $388,984 for the quarter ended September 30, 1998
and $295,561 in the comparable 1997 period. The $93,423 increase in revenues is
due to the increased Costa Rican subscriber base. The Costa Rican System
generated 76% of 1998 revenues and 68% of 1997 revenues and the LaCrosse System
generated approximately 24% of 1998 revenues and 32% of 1997 revenues.
OPERATING EXPENSES
Operating expenses for 1997 include $247,000 of investment banking and financial
relations consulting expense assigned to a consulting agreement dated December
23, 1996. This agreement was not renewed and similar expense was not incurred in
the third quarter of 1998. The third quarter of 1998 included $175,562 of
expenses starting up the 5th Avenue Channel which is not expected to have
significant revenues until 1999.
Excluding both the non-recurring consulting expenses from the 1997 quarter and
the 5th Avenue Channel start up expenses from 1998, the costs of operating the
Costa Rican and LaCrosse Systems and the corporate office in Florida totaled
$621,243 (160% of related revenues) in 1998 and $508,185 (172% of related
revenues) in 1997. The $113,058 increase in comparable operating expenses is due
to the increased variable costs of providing subscriber services to the
significantly expanded Costa Rican System and higher administrative costs.
17
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INTEREST EXPENSE
Interest expense increased $29,519 in the third quarter of 1998 primarily
because of the $108,000 of interest the FCC just notified the Company is due on
the undeveloped Wisconsin licenses. Interest expense for 1998 also includes
$65,532 of amortization of discount on the recently issued 12% Convertible
Debentures, $17,850 of interest on the 12% Convertible Debentures and $21,261 of
interest on loans from shareholders. No interest expense was recorded in 1998 on
the $2,366,000 Rosen Debenture because in November, 1997, Rosen agreed to
convert the $2,366,000 balance into 4,732,000 shares of Common Stock before May
15, 1998. See Note 6 to the Consolidated Financial Statements.
The comparable 1997 period included $63,518 of interest and $167,248 of loan
restructuring costs on the Rosen Debenture.
Nine Months Ended September 30, 1998 and 1997
REVENUES
The Company had revenues of $1,055,470 for the nine months ended September 30,
1998 compared with $783,984 in the 1997 period. The $271,486 increase in
revenues is due to the increased Costa Rican subscriber base. The Costa Rican
System generated 76% of 1998 revenues and 62% of 1997 revenues and the LaCrosse
System generated approximately 24% of 1998 revenues and 38% of 1997 revenues.
OPERATING EXPENSES
Operating expenses for 1997 include $741,000 of investment banking and financial
relations consulting expense assigned to a consulting agreement dated December
23, 1996. This agreement was not renewed and similar expense was not incurred in
the first nine months of 1998. The first nine months of 1998 included $428,483
of expenses starting up the 5th Avenue Channel. Excluding the non-recurring
consulting expenses from 1997 and the 5th Avenue Channel start up expenses
from 1998, the costs of operating the Costa Rican and LaCrosse Systems and the
corporate office in Florida totaled $1,813,018 (172% of related revenues) in
1998 and $1,422,860 (181% of related revenues) in 1997. The $390,158 increase in
comparable operating expenses is due to the increased variable costs of
providing subscriber services to the significantly expanded Costa Rican System.
The operating expenses as a percent of revenues declined from 181% in 1997 to
172% in 1998 because the Company was able to spread the fixed costs over a much
larger Costa Rican subscriber base in 1998.
18
<PAGE>
INTEREST EXPENSE
Interest expense in the nine months ended September 30, 1998 included $108,000
of interest billed for the first time on the undeveloped Wisconsin licenses,
$175,560 of amortization of the discount and $10,809 of issuance costs of the
12% Convertible Subordinated Debentures, $29,185 of interest for the period the
12% Convertible Subordinated Debentures were outstanding in 1998 and $51,462 of
unpaid interest on loans and advances from shareholders.
No interest expense was recorded on the Rosen Debenture balance in 1998 because
in November 1997, Rosen agreed to convert the $2,366,000 balance into 4,732,000
shares of common stock on or before May 15, 1998. See Note 6 of Notes to
Consolidated Financial Statements.
The comparable 1997 period included interest of $122,614 on the Rosen Debenture,
the $50,000 cost of extending the Rosen loan maturity date and $167,248 of Rosen
Loan restructuring costs.
INFLATION AND FOREIGN CURRENCY FLUCTUATION
Costa Rica continues to experience a decline in the value of the Colon relative
to the US dollar of approximately 1% per month. The government of Costa Rica
mandates minimum salary increases on July 1 and January 1 of each year. The
Company has been able to increase its prices to cover the wage increases and the
effects of the currency decline in Costa Rica and believes that it will be able
to continue to do so without significant effect on its subscriber base.
The providers of the programming that the Company rebroadcasts in LaCrosse have
increased the rates charged per subscriber when the contracts were renewed
primarily in the fall of 1997. These increases have not been significant and, as
a low cost provider of alternative cable TV, the Company believes it has the
ability to increase its rates to pass the increase in programming costs on to
its subscribers.
LIQUIDITY
SOURCE AND USE OF CASH FOR 1998
In early May 1998 the Company completed a private offering of 12% Convertible
Subordinated Debentures to accredited investors. The $556,082 of net Debenture
proceeds ($595,000 less $38,918 of expenses) was used to pay liabilities and to
fund operations for the second quarter of 1998.
19
<PAGE>
In July 1998 the Company borrowed $300,000 from Mel Rosen on a one-year note
payable with interest at 10% per annum. The proceeds were used to pay operating
expenses in the third quarter.
In October 1998, the Company issued a $500,000 12% Convertible Subordinated
Debenture due in April of 2000 to one accredited investor. The $500,000 will be
used during the fourth quarter of 1998 to pay certain expenses in connection
with the launch of the 5th Avenue Channel and 5thAvenueChannel.com website.
In November, 1998, the Company borrowed $550,000 from Mel Rosen under a
subordinated, unsecured one-year note, payable together with interest at 8% per
annum. The proceeds of such loan will be used to fund certain expenses in
connection with the launching of the 5th Avenue Channel and
5thAvenueChannel.com.
AGREEMENT IN PRINCIPLE TO ACQUIRE 90% OF THE 5TH AVENUE CHANNEL
In November, 1997, the Company agreed in principle to acquire 60% of the capital
stock of The 5th Avenue Channel, Inc. ("5th Avenue"), 45% from Mel Rosen, the
Company's President and controlling shareholder, and 15% from International
Broadcast Corporation ("IBC"). In September 1998, the Company agreed to acquire
an additional 30% of the 5th Avenue capital stock- 20% from Mel Rosen and 10%
from IBC. Under the proposed agreement, the Company is obligated to fund the
development of 5th Avenue. Operating expenses for the nine months ended
September 30, 1998 include the $428,483 the Company advanced 5th Avenue to fund
100% of its operating expenses.
WORKING CAPITAL DEFICIT AND ADDITIONAL FINANCING REQUIRED
The accompanying Consolidated Balance Sheet, as of September 30, 1998, reflects
current liabilities of $1,510,813 and current assets of $394,508 resulting in a
working capital deficit of $1,116,305. Management projects that the funds
obtained from issuing the $500,000 Convertible Debenture in October, 1998 and
the $550,000 unsecured loan from Mel Rosen in November, 1998, will be sufficient
to cover all operating expenses, including corporate overhead and all 5th Avenue
expenses through the first quarter of 1999.
The Company intends to substantially increase its current subscriber base in the
Costa Rican System and to moderately grow the LaCrosse System. The Company also
plans to fully develop the 5th Avenue Channel. Prior to the second quarter of
1999 the Company will need to raise additional debt or equity capital for
capital expenditures and to fund operations, including its corporate overhead
and the launch of the 5th Avenue Channel.
20
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
(FAS 130), and No. 131, "Disclosure about Segments of an Enterprise and Related
Information" (FAS 131). FAS 130 establishes standards for reporting and
displaying comprehensive income, its components and accumulated balances. FAS
131 establishes standards for the way that public companies report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial statements
issued to the public. The adoption of FAS 130 and FAS 131 did not have a
significant impact on the Company's 1998 interim financial statements.
EMPLOYEES
Currently, the Company has eleven employees domestically and thirty-six
employees in Costa Rica. There are plans to increase employees in the United
States both before and after the launch of the 5th Avenue Channel.
YEAR 2000 ISSUES
The Company has initiated, but not completed, its assessment of the impact of
Year 2000 on its business. The majority of the Company's systems consist of
packaged software purchased from vendors, and the critical software is either
already Year 2000 compliant or, based on representations from vendors, on
schedule to be Year 2000 compliant by the end of 1998. Any new software acquired
for the e-commerce Internet business will be Year 2000 compliant. The Company is
not presently aware of any significant expenditures which will be necessitated
in order to be ready for the Year 2000, beyond those already being incurred,
although there can be no assurances that significant expenditures may not be
required in the future.
21
<PAGE>
PART II OTHER INFORMATION
ITEM 2 Changes in Securities:
In July 1998, the exercise date for the remaining 50,000 one-year Consultants
Warrants exercisable at $1 was extended. In September 1998, the assignee of
these 50,000 warrants exercised the warrants and the Company received $50,000.
See Note 10 of Notes to Consolidated Financial Statements.
In August 1998 the Company issued 14,000 shares of Common Stock to non employees
for services rendered to the 5th Avenue Channel. The $28,000 value assigned to
the shares is included in operating expenses for the third quarter.
In October 1998, the Company issued a $500,000 12% Convertible Subordinated
Debenture due April, 2000 to one accredited investor. If the Company offers to
redeem the Debenture on or before July 30, 1999, 50% of the $500,000 Debenture
is convertible into shares of Common Stock at $2.50 per share. If the Company
does not offer to redeem the Debenture by that date, the remaining 50% can be
converted after December 31, 1999. Notwithstanding the early redemption by the
Company, the Debenture holder may convert no less than 50% of its original
Debenture into shares of Common Stock.
The foregoing securities were all issued without registration under the
Securities Act of 1933 as amended by reason of the exemption from registration
afforded by the provisions of Section
22
<PAGE>
4(2) thereof, as transactions by an issuer not involving a public offering, each
recipient of securities having delivered appropriate investment representations
to the Company with respect thereto and having consented to the imposition of
restrictive legends upon the certificates evidencing such securities. No
commissions or fees were paid by the Company in connection with such issuances.
ITEM 6 Exhibits and Reports on Form 8-K
Exhibits. 27.1 Financial Data Schedule
Reports on Form 8-K. None
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
TEL-COM WIRELESS CABLE TV CORPORATION
Date: November 19, 1998 By: /s/ SAMUEL H. SIMKIN
----------------
Samuel H. Simkin, Vice President,
General Counsel and Principal Financial Officer
23
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 35,516
<SECURITIES> 0
<RECEIVABLES> 43,281
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 210,830
<PP&E> 1,382,746
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,893,526
<CURRENT-LIABILITIES> 1,510,813
<BONDS> 0
0
0
<COMMON> 4,099
<OTHER-SE> 8,699,635
<TOTAL-LIABILITY-AND-EQUITY> 6,893,526
<SALES> 0
<TOTAL-REVENUES> 1,055,470
<CGS> 161,716
<TOTAL-COSTS> 161,716
<OTHER-EXPENSES> 2,241,501
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 383,638
<INCOME-PRETAX> (1,729,623)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,729,623)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,729,623)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
