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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________.
Commission File No. 0-25896
TEL-COM WIRELESS CABLE TV CORPORATION
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(Name of small business issuer in its charter)
FLORIDA 59-3175814
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1506 N.E. 162ND STREET
NORTH MIAMI BEACH, FL 33162
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(Address of principal executive offices) (Zip Code)
Issuers telephone number, including area code (305) 947-3010
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SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
Title of Class: COMMON STOCK, PAR VALUE $.001 PER SHARE
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COMMON STOCK PURCHASE WARRANTS
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this Form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. ( )
State issuer's revenues for the reported transition period: $1,085,149
As of April 13, 1998 the aggregate market value of the common stock held by
non-affiliates of the registrant was approximately $5,709,000, based on the
average of the closing bid and asked prices on that date of $2.5625. As of that
date, there were 4,009,643 shares of the issuer's Common Stock outstanding.
Transitional Small Business Disclosure Format. YES NO X
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TEL-COM WIRELESS CABLE TV CORPORATION
FORM 10-KSB
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1997
TABLE OF CONTENTS
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PAGE
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FORWARD-LOOKING STATEMENTS 1
PART I
ITEM 1. DESCRIPTION OF BUSINESS 1
ITEM 2. DESCRIPTION OF PROPERTY 15
ITEM 3. LEGAL PROCEEDINGS 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 16
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 17
ITEM 7. FINANCIAL STATEMENTS 21
ITEM 8. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 21
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT 22
ITEM 10. EXECUTIVE COMPENSATION 24
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 26
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 28
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 31
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FORWARD-LOOKING STATEMENTS
Tel-Com Wireless Cable TV Corporation (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 report or that are otherwise made by or
on behalf of the Company. 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," "except," "believe," "anticipate," "intend," "could,"
"estimate," or "continue" or the negative other variations thereof or comparable
terminology are intended to identify forward-looking statements. The Company is
also subject to risks detailed herein or detailed from time to time in the
Company's filings with the Securities and Exchange Commission.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
PRINCIPAL SERVICES AND MARKETS
The Company was organized as a Florida corporation on May 7, 1993 under
the name Tele Consulting Corp. The Company changed its name to Tel-Com Wireless
Cable TV Corporation on February 14, 1994. 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.
The Company is a developer, owner and operator of wireless cable
television systems in Costa Rica and LaCrosse, 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. As a result of lower capital and operating costs, the
Company 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.
LACROSSE, WISCONSIN. The Company operates a wireless cable television
system in LaCrosse, Wisconsin (the "LaCrosse System"). 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.
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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 and the FCC approved such transfer in March 1996.
FCC licenses for wireless cable channels generally must be renewed
every 10 years. 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. Although renewal of FCC licenses is not automatic, the
company has no reason to believe the LaCrosse licenses will not be renewed. It
is very seldom, if ever, that the licenses of operators actively following their
FCC approved plan of operation and complying with the FCC's rules and procedures
are not renewed.
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 70,000 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.
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 for the negotiation of
new lease agreements upon the expiration of the initial 10-year terms. In
October 1997 the FCC granted Shekinah Network and Morningstar such licenses.
The Company must use the ITFS channels 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 than 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.
The Company could use 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, could increase the number of premium and/or movie channels available
in the LaCrosse System.
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COSTA RICA. The Company acquired certain rights to up to 18 pay
television broadcast channels in Costa Rica in February 1996 (the "Costa Rican
System"). Three channels are UHF frequencies (Channels 56, 58 and 60); three are
"super band" frequencies (Channels 35, 37 and 39); and 12 are microwave
frequencies similar to those used in the LaCrosse System. At the time the
Company acquired these licenses, the three "super band" channels were in full
operation broadcasting a scrambled signal of pay television programming to
approximately 1,700 subscribers. The Company currently broadcasts pay television
programming over the three super band channels and the three UHF channels in the
Costa Rican System, and has no present plans to use the additional 12 microwave
channels.
As of December 31, 1997, the Company had approximately 4,600
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 18 of the channel licenses
may be used exclusively 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. 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, 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 $14 to $17 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.
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 to restructure the $2 million note given by the Company to Seller
as part of the payment for the acquisition of Canal 19. The amended agreement
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 Company
failed to make the $625,000 payment and the Seller therefore retained the
$50,000 deposit.
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On May 19, 1997, the Company entered into a Debt Restructuring
Agreement to restructure 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 adjusted principal amount of the
Convertible Debenture included $100,000 for expenses owed or reimbursable to
Seller at the issue date of the Debenture. At either the Company's or the
Sellers's option, $1 million of the Debenture balance 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).
As consideration for the debt restructuring, 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 the 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 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.
The Seller has agreed to convert the Debenture on or before May 15,
1998 into 4,732,000 shares of common stock. See note 4 of Notes to Financial
Statements included as an exhibit in item 7 of Part II.
Upon consummation of the Debt Restructuring Agreement, Fernand Duquette
and J. Richard Crowley 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. In
November 1997 the Company agreed to acquire 60% of the capital stock of The
Fifth Avenue Channel, Inc. ("Fifth Avenue"), 45% from Mel Rosen, the Company's
President and controlling shareholder, and 15% from International Broadcast
Corporation ("IBC"). As consideration, the Company's will issue 200,000 shares
of its common stock upon the closing of the purchase of the Fifth Avenue shares.
Up to 400,000 additional Company shares may be issued if Fifth Avenue
achieves certain revenue and net profit milestones in its first two years of
operations. Mel Rosen will retain 20% and IBC will retain 10% of the stock of
Fifth Avenue, which will premiere a new 24-hour luxury lifestyles television
channel in the summer of 1998. Ivana Trump owns the remaining 10% of Fifth
Avenue and will serve as the hostess for the channel.
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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 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 Fox Sports). 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 that 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.
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
longer distances. Amplification of signals can lead to greater signal noise and,
accordingly, a grainy 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.
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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 for many years and cable infrastructure is in place, no
such wide-ranging infrastructure is in place in Costa Rica. 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.
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. 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.
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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 is the most desirable program alternatives
in Costa Rica.
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.
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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 $14 to $17, plus installation. Based on the Company's existing
subscriber base of approximately 4,600 households that presently pay an average
of $16 per month for six 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 rooftops 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 inches) 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.
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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.
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 the FCC adopts LMDS,
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.
-9-
<PAGE> 12
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 Channel/Music Video, and Fox
Sports, 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'
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.
-10-
<PAGE> 13
The Company cannot predict precisely what effect these regulations or
other governmental regulations may 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 also 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 that
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 are subject to revocation,
cancellation or non-renewal for violation of the Communications Act or the FCC's
rules and policies.
-11-
<PAGE> 14
Although renewal of FCC licenses is not automatic, the company has no
reason to believe the LaCrosse licenses will not be renewed for several
additional 10 year periods. It is very seldom, if ever, that the licenses of
operators actively following their FCC approved plan of operation and complying
with the FCC's rules and procedures are not renewed.
COSTA RICA. Television operations in Costa Rica are regulated mainly by
the Radio and Television Law - Ley de Radio y Television, No. 1758 of June 19,
1954, as amended (the "Law"); the Regulation of Wireless Stations - Reglamento
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, 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 that 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 whoever 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.
-12-
<PAGE> 15
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, 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
Multi-point 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 $2,600,000 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.
-13-
<PAGE> 16
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 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, the FCC must approve any transfer
of a license.
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 40 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.
MAJOR CUSTOMERS
The Company is not dependent upon one or a few major customers or
suppliers.
COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS
The Company complies with all applicable federal, state, and local
environmental laws and regulations, none of which the Company believes have a
material effect on its operations or business.
-14-
<PAGE> 17
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently shares furnished lease space with Mel Rosen who,
leased approximately 3,000 feet of space in a one-story office building in North
Miami Beach, Florida in April 1997. The lease is for one year, renewable at the
lessee's option. The Company pays approximately $1,500 per month as its share of
the North Miami Beach, Florida lease space.
The Company also leases approximately 1,400 sq. ft. in an office
building in Daytona Beach, Florida, at a monthly lease cost of approximately
$1,600/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 sq. ft. of facilities in
LaCrosse, Wisconsin for its Wisconsin Wireless Cable TV operation. Approximately
one-fourth of such space is warehouse space. The rent is $1,391 per month. The
lease expires in September 1999.
The Company also leases approximately 4,485 sq. ft. of office and
warehouse facilities in San Jose, Costa Rica for its Tele-Plus wireless cable
television operation. Approximately one-fifth of such space is warehouse space.
The rent is $1,750 per month. The lease expires in April 1998 and is renewable.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
-15-
<PAGE> 18
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Common Stock ("Common Stock" of the Company, par value $.001 per
share, has traded on The Nasdaq over-the-counter ("SmallCap") Market under the
symbol "TCTV" since qualification for listing on NASDAQ on May 3, 1995. Warrants
("Warrants") to purchase Common Stock of the Company are traded on the
over-the-counter market under the symbol "TCTVW." The initial offering price for
the Common Stock was $5.00 per share and the initial offering price for each
Warrant to purchase one share of Common Stock at a specified price was $.25 per
Warrant.
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
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
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 intends to retain any future earnings for the operation and
expansion of its business.
-16-
<PAGE> 19
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 December 31, 1997 the LaCrosse System had
approximately 1,200 subscribers and the Costa Rican System had approximately
4,600 subscribers. The Costa Rican System and related licenses were acquired on
February 23, 1996. During the third quarter of 1996, the Company increased the
Costa Rican programming, upgraded the delivery system and launched the new cable
system on September 15, 1996.
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 areas in Wisconsin are designated as
future wireless cable television systems. The North Carolina authorization has
been abandoned.
The restructure of the loan issued as part of the acquisition of the
Costa Rican licenses resulted in a change in control of the Company and its
executive management in May 1997.
RESULTS OF OPERATIONS
REVENUES
The Company had revenues of $1,085,149 for 1997 compared to $459,185 in
1996. The $625,964 increase in revenues 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 64% of 1997 revenues and 23% of
1996 revenues and the LaCrosse System generated approximately 36% of 1997
revenues and 77% of 1996 revenues.
COST OF SALES
Cost of sales for 1997 increased $74,015 over the comparable 1996
period, due primarily to the significant increase in Costa Rican subscribers.
Cost of sales as a percent of revenues declined from 21% in 1996 to 16% in 1997
because of the lower programming costs of the Costa Rican System and the
increase in Costa Rican System revenues as a percentage of total revenues from
23% in 1996 to 64% in 1997.
OPERATING EXPENSES
Operating expenses for 1997 include $988,000 of unusual expenses
regarding investment banking and financial relations consulting expense assigned
to a consulting agreement dated December 23, 1996 and $128,000 assigned to a
consulting agreement made in July 1997 with an investment banking firm. These
agreements will not be renewed and such expenses recorded in 1997 are not
expected to recur in 1998.
-17-
<PAGE> 20
Operating expenses also include charges of $120,142 in 1997 and $65,544
in 1996 related to the default on the North Carolina licenses. The change in
useful lives of licenses from 40 years to 15 years resulted in a $200,000 charge
in 1997 for the additional amortization. Amortization using a 40 year life was
$110,050 in 1997 and $93,246 in 1996.
Excluding the above described unusual operating expenses and the effect
of the change in accounting estimate totaling $1,436,142, the costs of operating
the Costa Rican and LaCrosse Systems and the corporate office in Florida totaled
$1,861,140 (172% of related revenues) in 1997. During 1996, the Company had
comparable operating expenses of $1,679,764 (366% of related revenues). The
$181,376 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 366% to
172% because of the significant increase in subscribers in Costa Rica and the
spreading of fixed and semi-variable operating expenses over a larger revenue
base. An entire year of revenues from the higher Costa Rican subscriber base at
January 1, 1998 should cause the operating expense ratio to decline
significantly in 1998 from the 172% ratio for 1997.
INTEREST EXPENSE/INTEREST INCOME
The $685,396 of interest expense for 1997 was $581,974 higher than 1996
because of the $2 million Rosen loan, as follows:
1. $50,000 was paid to extend the maturity and $188,750 was charged
to restructure the loan;
2. The loan was outstanding for the entire year (compared to 10
months in 1996);
3. The interest rate increased from 3.6% to 12% for the last 7 months
in 1997;
4. $109,967 was included in interest expense for the early conversion
to common stock;
5. $140,000 associated with the conversion of convertible debt at a
discount.
Interest income decreased significantly due to the significant
reduction in cash equivalents in the last half of 1996. The company's cash
equivalents and short term investments at the beginning of 1996 generated
significant interest income in 1996 before they were used to:
1. Pay for the Costa Rican licenses;
2. Purchase equipment for both the Costa Rican and LaCrosse Systems;
3. Make the down payment on the new US licenses; and
4. Fund operating losses for 1996.
NET LOSS
The $3,061,964 net loss for 1997 includes $1,724,859 of expenses and
charges that are not expected to recur in 1998 and future years. The $1,382,214
net loss for 1996 included a $65,544 charge for abandoning the Hickory North
Carolina licenses. After excluding these unusual items from both 1997 and 1996
and the $200,000 additional amortization of licenses in 1997, the net loss for
1997 actually declined by $179,565 from $1,316,670 for 1996 to $1,137,105 for
1997 with comparable amortization of licenses in both years.
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<PAGE> 21
The following table lists the adjustments necessary to reflect a
comparable 40 year license amortization in 1997 and 1996 and to exclude the
charges and expenses that are not expected to recur in 1998 and future years:
<TABLE>
<CAPTION>
1997 1996
------------- --------
<S> <C> <C>
Investment banking consulting services $ 988,000 $ -
Other investment banking consulting services 128,000 -
Loan extension and restructure costs 238,750 -
Additional interest for conversion of debt at a
discount from fair value 140,000 -
Charge for early conversion of Debenture 109,967 -
Write-down deposit on Hickory NC license 120,142 65,544
---------- --------
Total non-recurring expenses 1,724,859 65,544
Effect on 1997 of change in estimate to a 15 year life
for licenses 200,000 -
---------- --------
Total $1,924,859 $ 65,544
========== ========
</TABLE>
The revenues from an increased Costa Rican subscriber base and
operating for a full year in Costa Rica are the principal reasons for the
$179,565 improvement in 1997 operating results, excluding these unusual items
and the $200,000 for the change in accounting estimate. The higher gross profit
from the 1997 Costa Rican subscriber base covered more of the fixed and
semi-variable operating expenses in 1997 than the gross profit from the 1996
Costa Rican subscriber base could cover.
With 4,600 subscribers on January 1, 1998 compared with 1,300
subscribers on January 1, 1997, the Company expects 1998 to continue this trend
of improved operating results in Costa Rica.
INFLATION AND FOREIGN CURRENCY FLUCTUATION
Costa Rica experienced a decline in the value of the Colon relative to
the US dollar of approximately 1% per month in 1997. 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 the low cost provider of alternative cable TV, the Company believes it
has the ability to increase its rates to pass the additional programming costs
onto its subscribers.
LIQUIDITY
SOURCE AND USE OF CASH FOR 1997
During 1997 the Company raised $830,479 of cash/working capital from
the following sources:
<TABLE>
<CAPTION>
<S> <C>
Loans from shareholders $ 180,479
Proceeds from sale of preferred stock 200,000
Exercise of warrants issued to investment banking consultants 450,000
---------
Total cash/working capital added $ 830,479
=========
</TABLE>
-19-
<PAGE> 22
Approximately $316,000 of the cash was used to purchase equipment to
increase the Costa Rican subscriber base from 1,300 at the end of 1996 to 4,600
at the end of 1997. The remaining $514,479 was used to fund operating losses and
increase the cash position by $86,589, from $26,618 at December 31, 1996 to
$113,207 at December 31, 1997.
The Company has reviewed its computer software needs and does not
expect to incur a significant expense in order for the company to comply with
the year 2000 requirements.
RESTRUCTURE ROSEN LOAN AND CONVERSION TO COMMON STOCK
See Note 4 of the Notes to the Consolidated Financial Statements
included in Part II, Item 7 of this report, with respect to the debt
restructuring, the contemporaneous change in control which occurred in May 1997
and the agreement to convert the Debenture and related interest into common
stock in 1998.
WORKING CAPITAL DEFICIT/ADDITIONAL DEBT OR EQUITY FINANCING REQUIRED
The accompanying financial statements reflect current liabilities of
$842,412 and current assets of $180,237 resulting in a working capital deficit
of $662,175.
Although the Costa Rican and LaCrosse operations generate positive cash
flow, the cash flow does not cover the corporate overhead. After the conversion
of the Rosen debentures the Company will continue to show a working capital
deficit with the current subscriber base. Increasing the subscriber base
requires additional capital because the incremental equipment and labor
installation costs per subscriber exceed the installation fees charged the
subscriber. It generally takes between 6 months and a year for the gross profit
from each new subscriber to cover the incremental costs of adding the
subscriber.
The Company intends to substantially increase its current subscriber
base in the Costa Rican System and to moderately grow the LaCrosse System. The
company also plans to fully develop the Fifth Avenue Channel. The Company
believes it needs to raise an additional $1,500,000 of debt or equity capital
for capital expenditures and operations, including its corporate overhead and
its Costa Rican, LaCrosse and Fifth Avenue operations. The Company is exploring
various sources of additional financing, but has no commitments in this regard.
Failure to secure additional debt or equity financing could have a material
adverse effect on the Company and its ability to continue as a going concern.
Reference is made to the Report of Independent Certified Public
Accountants included in the accompanying consolidated financial statements
included in Part II, item 7 of this report regarding their explanatory paragraph
about the Company's ability to continue as a going concern.
AGREEMENT TO ACQUIRE 60% OF THE FIFTH AVENUE CHANNEL
In November 1997 the Company agreed to acquire 60% of the capital stock
of The Fifth Avenue Channel, Inc. ("Fifth Avenue"), 45% from Mel Rosen, the
Company's President and controlling shareholder, and 15% from International
Broadcast Corporation ("IBC"). As consideration, the Company will issue 200,000
shares of its common stock upon the closing of the purchase of the Fifth Avenue
capital stock, which is expected to occur in the second quarter of 1998.
-20-
<PAGE> 23
Up to 400,000 additional Company shares may be issued if Fifth Avenue
achieves certain revenue and net profit milestones in its first two years of
operations. Mel Rosen will retain 20% and IBC will retain 10% of the stock of
Fifth Avenue, which will premiere a new 24-hour luxury lifestyles television
channel in the summer of 1998. Ivana Trump owns the remaining 10% of Fifth
Avenue and will serve as the hostess for the channel.
Pursuant to the acquisition agreement the Company is obligated to fund
the development of Fifth Avenue. In 1997 the Company advanced approximately
$57,000 to fund the operating expenses of Fifth Avenue. The $57,000 was charged
to operating expenses in 1997.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" (FAS 130), and No. 131, "Disclosure about Segments of an Enterprise and
Related Information" (FAS 131). FAS 130 establishes standards for reporting and
displaying comprehensive income, its components and accumulated balances. FAS
131 establishes standards for the way that public companies report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial statements
issued to the public. Both FAS 130 and FAS 131 are effective for 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.
ITEM 7. FINANCIAL STATEMENTS
Financial Statements prepared in accordance with Regulation SB are
attached as exhibits to this report and are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NOT APPLICABLE
-21-
<PAGE> 24
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The following table lists certain information about the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Melvin Rosen 54 President and Director
Samuel H. Simkin 51 Vice President, General Counsel
and Director
Eric Lefkowitz 38 Director*
Dennis J. Devlin 47 Director*
James R. Pekarek 53 Vice President, Chief Financial
Officer
</TABLE>
*Member of Audit Committee
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
since May 1997. Mr. Rosen has a wealth of experience in a wide range of business
activities including, most prominently, satellite and cable television.
Mr. Rosen is a graduate of Loyola College, Baltimore, MD (BS, 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.
-22-
<PAGE> 25
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 system in the U.S. and is one of
the largest lessees of television satellite transponders in the U.S. 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-per-view 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 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 Tel-Com. During
this time, Mr. Rosen developed extensive knowledge of the wireless cable
television business in Costs 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
International Broadcast Corporation.
SAMUEL H. SIMKIN: VICE PRESIDENT AND GENERAL COUNSEL
Samuel H. ("Sandy") Simkin, 51, has served as Vice President and
General Counsel and a Director of the Company since May 1997. 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, FL and, most recently, an Orlando-based television
production company which produced a series of business newsmagazine shows.
ERIC LEFKOWITZ: DIRECTOR
Eric Lefkowitz, 38, is President and CEO of International Broadcast
Corporation (IBC). Mr. Lefkowitz is a graduate of St. Joseph University,
Philadelphia, PA, (BA, Finance, 1983). Mr. Lefkowitz founded IBC in 1987. IBC is
a pioneer in the electronic media field, specializing in new product marketing
on cable TV. Under Mr. Lefkowitz's guidance, IBC's products are aired to TV
viewers in over 43 countries in their respective languages and in 38 states in
the US. Recently, IBC contracted with four networks for 200 hours a month in
five states for home shopping programming. This programming will reach 70
million viewers in the US. IBC also has special studio production arrangements
with QVC and Home Shopping Network.
-23-
<PAGE> 26
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 Art Education degree in 1971 from Eastern Michigan
University.
JAMES R. PEKAREK: CHIEF FINANCIAL OFFICER
James Pekarek, 53, is Vice President & Chief Financial Officer of the
Company since September 1997. A certified public accountant with extensive "Big
6" auditing experience on publicly held companies reporting to the SEC. He has
an extensive background in manufacturing, health care, real estate, insurance,
trucking and other service industries.
Mr. Pekarek is a Summa Cum Laude graduate of the College of St. Thomas,
St. Paul, MN (B.A. Accounting). From 1976 - 1985, he was a partner with KPMG
Peat Marwick, 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, NY, (AMEX: "MGP"), 1985 - 1987; of Homeowners Group (OTC:
"HOMG"), FL, 1988 - 1991; and of Med/Waste, Inc. (OTC: "MWDS"), FL, 1992 - 1995.
During the period of 1996-1997, Mr. Pekarek performed general business
consulting and controller services for a wide range of companies and industries.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Securities and Exchange Commission has implemented a rule that
requires companies to disclose information with respect to reports that are
required to be filed pursuant to Section 16 of the Securities Exchange Act of
1934, as amended, by directors, officers and 10% shareholders of each company,
if any of those reports are not filed timely. Based solely upon a review of
Forms 3 and 4 and amendments thereto furnished to the Company during the fiscal
year ended December 31, 1997 and Form 5, if any, with respect to that year, the
Company is unaware of any delinquent filings.
ITEM 10. EXECUTIVE COMPENSATION
Director's Remuneration
Commencing June 1996, each non-employee Director received a fee of $500
for each board and committee meeting they attended. At the 1996 annual meeting
of the Directors, each Director received a non-discretionary grant of a stock
option for 5,000 shares of common stock. No stock options were granted in 1997.
-24-
<PAGE> 27
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 President 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>
TOTAL COMPENSATION SECURITIES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS
- --------------------------- ---- -------- ----- -------
<S> <C> <C> <C> <C>
Fernand L. Duquette,
Former CEO (1) 1997 $ 37,000 -- $ --
1996 $120,000 -- $ --
1995 $ 92,000 -- $7,000
Melvin Rosen, President, CEO (2) 1997 $ 90,000 -- $ --
</TABLE>
(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.
Option Grants
No options were granted to any officers, directors or employees in
1997.
Options Exercised
No options were exercised in 1996 or 1997, and all of the options
granted to Fernand Duquette in 1995 and 1996 expired in 1997.
-25-
<PAGE> 28
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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(5) 61.9%
1506 N.E. 162 Street
N. Miami Beach, FL 33162
Samuel H. Simkin 0 0%
1506 N.E. 162nd Street
N. Miami Beach, FL 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 Services, Inc. 394,477 9.8%
490 North Causeway
New Smyrna Beach, FL 32169
Aurora Holdings, Inc. 394,477 9.8%
1020 Brookstown Avenue, Suite 14
Winston-Salem, NC 27101
</TABLE>
-26-
<PAGE> 29
<TABLE>
<CAPTION>
<S> <C> <C>
J.W. Barclay & Co., Inc. 225,000(6) 5.3%
One Battery Park Plaza
New York, NY 10004
All officers and directors as a group (3 persons) 6,330,212 64.4%
</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.
-27-
<PAGE> 30
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In February 1996, the Company, through its Costa Rica subsidiaries,
acquired two companies that together hold 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 ("FdT."), acquired from Melvin Rosen all of the
outstanding shares of common stock of Televisora Canal Diecinueve, S.A., a Costa
Rica corporation ("Canal 19"). The $3,000,000 purchase price consisted of
$1,000,000 in cash paid to Mr. Rosen at the closing and a $2,000,000 Note (the
"Rosen Note") maturing on February 23, 1997, with interest thereon at 3.6% per
annum payable monthly. The Rosen Note 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 FdT, 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.
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.
On February 24, 1997, Mr. Duquette and Mr. Devlin each loaned to the
Company the sum of $25,000 ($50,000 in the aggregate) which the Company used to
pay Mr. Rosen to extend the Rosen Debt. The Company accrued interest on these
loans at 9%. No repayment terms were specified and the Company believes the loan
made by Mr. Duquette is subject to setoff for claims by the Company.
In February 1997, the Company and Melvin Rosen ("Rosen") entered into
an agreement to restructure the $2 million Note issued to Rosen for a portion of
the Costa Rican acquisition. The restructure agreement required the Company to
pay $625,000 of the principal balance on or before March 7, 1997. The remaining
$1,375,000 principal balance, plus accrued interest thereon, was due on February
23, 1998; however, with an additional payment of $100,000, the Company could
extend the maturity date for an additional six months.
The Company paid Rosen $50,000 of the $100,000 on February 24, 1997.
The Company failed to pay the $625,000 by March 7, 1997 and Rosen retained the
$50,000. In April 1997 Rosen declared the Note to be in default.
-28-
<PAGE> 31
On May 19, 1997, the Company entered into an agreement with Rosen
restructuring the $2 million Rosen Note into a convertible debenture maturing in
12 months with interest at 12% per annum (7% to be paid monthly and 5% at
maturity). The principal amount of the Debenture was increased by $100,000 for
expenses owed or reimbursable to Rosen at the May 19 issue date of the
Debenture.
As consideration for this debt structuring, the Company agreed to issue
to Rosen (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, Rosen received the right to nominate two members to the Company's
Board of Directors until such time as Rosen exercised the conversion rights
under the Debenture and the company released Rosen from any liability in
connection with the Costa Rican acquisition.
The Debenture is convertible by Rosen into the Company's common stock
at any time prior to payment of the Debenture on at least 30 days notice. The
conversion price is the lesser of (1) $.50 per share of common stock, or (2) the
average of the closing "bid" for the Company's common stock as reported on
NASDAQ for the five trading days immediately prior to the conversion date. The
Company is required to reserve a sufficient number of shares of common stock for
such conversion and maintain an effective registration statement for such
shares.
At either Rosen's or the Company's option, $1 million of this amount
may be extended for an additional period of 12 months with interest at 15% per
annum (8% to be paid monthly in arrears and 7% to be paid at maturity). The
company paid $12,000 of interest on the original Rosen Note in early 1997. No
interest was paid on the Debenture in 1997 and the $156,033 of interest accrued
from May 19, 1997 to December 31, 1997 was added to the Debenture balance.
In November 1997 Rosen notified the Company of his intention to convert
the Debenture into common stock on or before May 15, 1998. As consideration for
the early conversion and for Rosen forgoing all interest on the Debenture after
December 31, 1997, an additional $109,967 was added to the Debenture principal
balance. The resulting $2,366,000 Debenture balance will be converted at $.50
per share into 4,732,000 restricted common shares to be issued to Rosen in 1998.
Upon consummation of the Debt Restructuring Agreement, Fernand Duquette
and J. Richard Crowley resigned from their positions as directors of the
Company, and Fernand Duquette additionally resigned as the Company's President
and Chief Executive Officer. Melvin Rosen and his designee, Samuel H. Simkin,
were appointed to the Company's Board of Directors and Melvin Rosen 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 agreed 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 Summer of 1998. The
Company agreed to purchase 45% of the Channel's stock from Melvin Rosen, the
Company's President and Chief Executive Officer, and 15% from 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.
-29-
<PAGE> 32
Up to 400,000 additional shares of the Company's Common Stock may be
issuable to Mr. Rosen and IBC, also on a pro-rata basis, based upon future
performance of the Channel. Following the acquisition, 20% of the Channel will
be owned by Mr. Rosen, 10% by IBC and 10% by 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 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.
-30-
<PAGE> 33
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1 Amended and Restated Articles of Incorporation.(2)
3.2 By-Laws.(1)
10.1 Debt restructuring Agreement (3)
10.2 Secured Convertible Debenture(3)
10.3 Consulting Agreement.*
10.2 Agreement to convert the Secured Convertible
Debenture.*
11.1 Statement re: Computation of Per Share Earnings.*
21.1 Subsidiaries of the Registrant.(4)
27.1 Financial Data (for Commission use only).
(b) REPORTS ON FORM 8-K
None
- --------------------
*Filed herewith.
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-18 (SEC File No. 33-41164), declared effective September 24,
1991.
(2) Incorporated by reference to the Registrant's Current Report on Form
8-K, dated August 8, 1994.
(3) Incorporated by reference to the Registrant's Current Report on Form
8-K, dated June 27, 1997.
(4) Incorporated by reference to the Registrant's Post Effective Amendment
No. 2 to Form SB-2 (SEC File No. 33-88788-A) declared effective January
21, 1997.
-31-
<PAGE> 34
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused its Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997 to be signed on its behalf by the undersigned, thereunto duly
authorized.
TEL-COM WIRELESS CABLE TV CORPORATION
Dated: April 15, 1998 By: /s/ Melvin Rosen
--------------------------------
Chairman of the Board,
President and CEO
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Melvin Rosen Chairman of the Board April 15, 1998
- ------------------------------------ President and CEO
Melvin Rosen
/s/ Samuel H. Simkin Vice President and Director April 15, 1998
- ------------------------------------
Samuel H. Simkin
/s/ Dennis Devlin Director April 15, 1998
- ------------------------------------
Dennis Devlin
/s/ Eric Lefkowitz Director April 15, 1998
- ------------------------------------
Eric Lefkowitz
/s/ James R. Pekarek Vice President & Chief Financial April 15, 1998
- ------------------------------------ Officer
James R. Pekarek
</TABLE>
-32-
<PAGE> 35
TEL-COM WIRELESS CABLE TV CORPORATION
INDEX TO EXHIBITS*
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
10.3 Consulting Agreement
10.2 Agreement to convert the Secured Convertible Debenture
11.1 Statement re: Computation of Per Share Earnings
</TABLE>
- ------------------------------
* All other exhibits listed in Item 13 of the Form 10-KSB are
incorporated by reference to documents previously filed as indicated
therein.
-33-
<PAGE> 36
TEL-COM WIRELESS
CABLE TV
CORPORATION
================================================================================
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<PAGE> 37
TEL-COM WIRELESS
CABLE TV
CORPORATION
CONTENTS
================================================================================
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS
Consolidated balance sheets F-3 - F-4
Consolidated statements of operations F-5
Consolidated statements of stockholders' equity F-6
Consolidated statements of cash flows F-7
Summary of accounting policies F-8 - F-12
Notes to consolidated financial statements F-13 - F-29
</TABLE>
F-1
<PAGE> 38
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Tel-Com Wireless Cable TV Corporation
Miami, FL
We have audited the accompanying consolidated balance sheets of Tel-Com Wireless
Cable TV Corporation as of December 31, 1997 and 1996 and the related
consolidated statements of operations, stockholders' equity 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 December 31, 1997 and 1996, 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 1 to the
financial statements, the Company has experienced significant operating losses
and has negative working capital at December 31, 1997. 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 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Miami, Florida BDO Seidman, LLP
March 27, 1998
F-2
<PAGE> 39
TEL-COM WIRELESS CABLE TV CORPORATION
CONSOLIDATED BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents $ 113,207 $ 26,618
Restricted cash -- 346,400
Accounts receivable - trade, net of allowance
for doubtful accounts of $124,570 and $19,028 46,269 12,189
Prepaid other expenses 20,761 44,552
Prepaid consulting fees (Note 8) -- 988,000
- ---------------------------------------------------------------------------------------------
Total current assets 180,237 1,417,759
PROPERTY AND EQUIPMENT, net (Note 2) 1,462,062 1,365,235
LICENSES, net (Note 3) 5,320,225 5,458,444
OTHER ASSETS, net of accumulated amortization of $3,467
and $2,667, respectively 14,220 133,885
- ---------------------------------------------------------------------------------------------
$6,976,744 $8,375,323
=============================================================================================
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-3
<PAGE> 40
TEL-COM WIRELESS CABLE TV CORPORATION
CONSOLIDATED BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank note payable $ -- $ 361,000
Note payable to President/Chairman of the Board
(Notes 3 and 4) -- 2,000,000
Advances from and notes payable to stockholders
(Note 5) 362,479 8,000
Accounts payable 304,639 153,276
Accrued liabilities 168,993 16,787
Current portion of long-term debt (Note 6) 6,301 5,736
- ------------------------------------------------------------------------------------------------------
Total current liabilities 842,412 2,544,799
- ------------------------------------------------------------------------------------------------------
Convertible debenture to President/Chairman of the Board
(Note 4) 2,366,000 --
License fees payable (Note 3) 951,479 951,479
Long-term debt, less current portion (Note 6) 9,997 16,975
- ------------------------------------------------------------------------------------------------------
Total liabilities 4,169,888 3,513,253
- ------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 7)
STOCKHOLDERS' EQUITY (Note 8):
Preferred stock, $.001 par value, shares authorized
5,000,000; 500 shares designated as Series A,
issued and outstanding, none and 500, respectively;
1,500 shares designated as Series B, none issued
and outstanding -- 1
Common stock, $.001 par value, shares authorized
10,000,000; issued and outstanding 4,009,643 and
2,196,212, respectively 4,010 2,196
Additional paid-in capital 8,311,457 7,544,720
Accumulated deficit (5,508,611) (2,284,847)
- ------------------------------------------------------------------------------------------------------
Less: Stock subscription receivable -- (400,000)
- ------------------------------------------------------------------------------------------------------
Total stockholders' equity 2,806,856 4,862,070
- ------------------------------------------------------------------------------------------------------
$ 6,976,744 $ 8,375,323
======================================================================================================
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-4
<PAGE> 41
TEL-COM WIRELESS CABLE TV CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C>
REVENUE $ 1,085,149 $ 459,185
COST OF SALES 170,614 96,599
- ---------------------------------------------------------------------------------------
Gross profit 914,535 362,586
OPERATING EXPENSES 3,297,282 1,745,308
- ---------------------------------------------------------------------------------------
Operating loss (2,382,747) (1,382,722)
- ---------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest income 6,179 103,930
Interest expense (685,396) (103,422)
- ---------------------------------------------------------------------------------------
(679,217) 508
- ---------------------------------------------------------------------------------------
NET LOSS (3,061,964) (1,382,214)
PREFERRED STOCK DIVIDENDS (NOTE 8) 161,800 --
- ---------------------------------------------------------------------------------------
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS (3,223,764) (1,382,214)
- ---------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 2,758,112 1,983,542
=======================================================================================
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (1.17) $ (.70)
=======================================================================================
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-5
<PAGE> 42
TEL-COM WIRELESS CABLE TV CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL
------------------------------ ---------------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 1,875,000 $ 1,875 -- -- $ 5,057,042
Issuance of common stock in 121,212 121 -- -- 999,879
payment of acquisition (Note 3)
Issuance of common stock in
payment of consulting fees (Note 8) 200,000 200 -- -- 987,800
Sale of preferred stock (Note 8) -- -- 500 1 499,999
Net loss -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1996 2,196,212 2,196 500 1 7,544,720
Partial payment of subscriptions
receivable for preferred stock (Note 8) -- -- -- -- --
Cancellation of subscriptions
receivable for preferred -- -- (300) -- (300,000)
stock (Note 8)
Sale of preferred stock (Note 8) -- -- 100 -- 100,000
Issuance of common stock in debt
restructuring (Note 4) 180,000 180 -- -- 78,570
Issuance of warrants in debt
restructuring (Note 4) -- -- -- -- 10,000
Issuance of warrants in payment of
consulting fees (Note 8) -- -- -- -- 128,000
Conversion of preferred stock to
common stock (Note 8) 1,183,431 1,184 (300) (1) (1,183)
Exercise of warrants for common
stock (Note 8) 450,000 450 -- -- 449,550
Preferred stock dividends (Note 8) -- -- -- -- 161,800
Conversion discount for debt
convertible to common stock (Note 4) -- -- -- -- 140,000
Net loss -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1997 4,009,643 $ 4,010 -- $ -- $ 8,311,457
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
STOCK TOTAL
ACCUMULATED SUBSCRIPTION STOCKHOLDERS'
DEFICIT RECEIVABLE EQUITY
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, December 31, 1995 $ (902,633) $ -- $ 4,156,284
Issuance of common stock in -- -- 1,000,000
payment of acquisition (Note 3)
Issuance of common stock in
payment of consulting fees (Note 8) -- -- 988,000
Sale of preferred stock (Note 8) -- (400,000) 100,000
Net loss (1,382,214) -- (1,382,214)
- ---------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1996 (2,284,847) (400,000) 4,862,070
Partial payment of subscriptions
receivable for preferred stock (Note 8) -- 100,000 100,000
Cancellation of subscriptions
receivable for preferred -- 300,000 --
stock (Note 8)
Sale of preferred stock (Note 8) -- -- 100,000
Issuance of common stock in debt
restructuring (Note 4) -- -- 78,750
Issuance of warrants in debt
restructuring (Note 4) -- -- 10,000
Issuance of warrants in payment of
consulting fees (Note 8) -- -- 128,000
Conversion of preferred stock to
common stock (Note 8) -- -- --
Exercise of warrants for common
stock (Note 8) -- -- 450,000
Preferred stock dividends (Note 8) (161,800) -- --
Conversion discount for debt
convertible to common stock (Note 4) -- -- 140,000
Net loss (3,061,964) -- (3,061,964)
- ---------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1997 $(5,508,611) $ -- $ 2,806,856
===============================================================================================================
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-6
<PAGE> 43
TEL-COM WIRELESS CABLE TV CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(NOTE 10)
================================================================================
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,061,964) $(1,382,214)
Adjustments to reconcile net loss to net
cash used in operating activities:
Write-off of prepaid consulting fees 988,000 --
Depreciation and amortization 532,113 246,401
Inducement costs and interest accrued to debenture balance 266,000 --
Warrants and stock compensation and other expense incurred
in connection with debt restructure 188,750 --
Interest expense associated with conversion of convertible
debt at a discount 140,000 --
Compensation in form of warrants issued to consultants 128,000 --
Write-off of deposit 120,142 --
Loss on disposal of property and equipment -- 2,851
Loss on sale of investment securities -- 12,688
(Increase) decrease in accounts receivable (34,080) 10,928
Decrease in prepaid expenses 23,791 38,510
Increase in accounts payable and accrued liabilities 303,569 56,028
- ------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (405,679) (1,014,808)
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities -- (655,750)
Proceeds from sales and maturities of investment securities -- 1,893,687
Purchase of property and equipment (315,921) (780,061)
Acquisition of licenses -- (1,000,000)
Increase in other assets (1,277) (59,442)
Decrease (increase) in restricted cash 346,400 (346,400)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 29,202 (947,966)
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants 450,000 --
Proceeds from subscription receivable 100,000 --
Proceeds from sale of preferred stock 100,000 100,000
Proceeds from issuance of notes payable -- 1,475,000
Proceeds from loans from stockholders 255,979 --
Payment of loans from stockholders (75,500) --
Payment of notes payable (361,000) (1,114,000)
Payment of long-term debt (6,413) (238,893)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 463,066 222,107
- ------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 86,589 (1,740,667)
- ------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, beginning of year 26,618 1,767,285
- ------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 113,207 $ 26,618
==================================================================================================================
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-7
<PAGE> 44
TEL-COM WIRELESS CABLE TV CORPORATION
SUMMARY OF ACCOUNTING POLICIES
================================================================================
NATURE The Company's initial wireless cable
OF ORGANIZATION television system is located in LaCrosse,
Wisconsin. The Company rebroadcasts 17
channels of cable programs to approximately
1,200 residential and commercial subscribers
in a 25 mile radius of its tower in
LaCrosse.
On February 23, 1996, the Company acquired
three Costa Rican corporations and commenced
wireless cable operations in the Republic of
Costa Rica (see Note 3). The Company
rebroadcasts 6 channels of cable programs to
approximately 4,600 residential and
commercial subscribers in a 100 mile radius
of the 11,000 foot Mt. Irazu in the center
of Cost Rica.
PRINCIPLES OF The consolidated financial statements
CONSOLIDATION include the accounts of Tel-Com Wireless
Cable TV Corporation and its wholly-owned
subsidiaries ("the Company"), after
elimination of intercompany accounts and
transactions.
ESTIMATES 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
reporting period. Actual results could
differ from the estimates.
CASH For financial presentation purposes, the
AND CASH EQUIVALENTS Company considers those short-term, highly
liquid investments with original maturities
of three months or less to be cash and cash
equivalents.
PROPERTY Property and equipment are stated at cost.
AND EQUIPMENT 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 10 years.
F-8
<PAGE> 45
TEL-COM WIRELESS CABLE TV CORPORATION
SUMMARY OF ACCOUNTING POLICIES
================================================================================
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 (life
of the license and expected renewal period).
Amortization of the licenses begins upon the
commencement of operations. See note 3 for
changes in estimated useful lives of the
licenses from 40 years to 15 years in 1997.
The Company continually evaluates the
carrying value of the licenses. Impairments
are recognized when the expected future
undiscounted operating cash flows to be
derived from such intangible assets are less
than their carrying values.
ORGANIZATIONAL Organizational costs are stated at cost less
COSTS accumulated amortization. Amortization
expense is provided using the straight-line
method over a five-year period.
FAIR VALUE OF The Company's financial instruments consist
FINANCIAL primarily of cash and cash equivalents,
INSTRUMENTS accounts receivable, notes receivable,
accounts payable, accrued liabilities, loans
and debentures due to stockholders, notes
payable and long-term debt. The carrying
amounts of such financial instruments as
reflected in the consolidated balance sheets
approximate their estimated fair value as of
December 31, 1997 and 1996. The estimated
fair value is not necessarily indicative of
the amounts the Company could realize in a
current market exchange or of future
earnings or cash flows.
NET LOSS PER In February 1997, the Financial Accounting
COMMON SHARE Standards Board issued Statement of
Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share", which simplifies
the standards for computing earnings per
share ("EPS") previously found in APB No.
15, "Earnings Per Share". It replaces the
presentation of primary EPS with a
presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS
on the face of the income statement for all
entities with complex capital structures and
requires a reconciliation of the numerator
and denominator of the diluted EPS
computation. The Company adopted SFAS No.
128 in 1997 and its implementation did not
have a material effect on the financial
statements, EPS has been restated for all
prior periods presented.
F-9
<PAGE> 46
TEL-COM WIRELESS CABLE TV CORPORATION
SUMMARY OF ACCOUNTING POLICIES
================================================================================
Net loss per common share (basic and
diluted) is based on the net loss after
preferred stock dividends divided by the
weighted average number of common shares
outstanding during each year.
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.
INCOME TAXES The Company accounts for income taxes in
accordance with Statement of Financial
Accounting Standards No. 109, "Accounting
for Income Taxes" 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.
FOREIGN CURRENCY Foreign currency denominated assets and
TRANSLATION liabilities of subsidiaries with local
functional currencies are translated to
United States dollars at year-end exchange
rates. The effects of translation are
recorded in the cumulative translation
component of stockholders' equity.
Subsidiaries with a United States dollar
functional currency remeasure monetary
assets and liabilities at year-end exchange
rates and non-monetary assets and
liabilities at historical exchange rates.
The effects of remeasurement are included in
income.
Exchange gains and losses arising from
transactions denominated in foreign
currencies are translated at average
exchange rates. The effects of these
exchange adjustments are included in income
and amounted to $7,049 and $2,313 in 1997
and 1996, respectively.
F-10
<PAGE> 47
TEL-COM WIRELESS CABLE TV CORPORATION
SUMMARY OF ACCOUNTING POLICIES
================================================================================
RECLASSIFICATIONS Certain amounts from the 1996 financial
statements were reclassified to conform to
current year presentations.
CERTAIN SIGNIFICANT Operations in the United States are
RISKS AND regulated by the U.S. Federal Communications
UNCERTAINTIES 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 3), 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 Regulamenta de
Estaciones Inalimbrieds, 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.
RECENT ACCOUNTING Statement of Financial Accounting Standards
PRONOUNCEMENTS (SFAS) No. 130, Reporting Comprehensive
Income, establishes standards for reporting
and display of comprehensive income, its
components and accumulated balances.
Comprehensive income is defined to include
all changes in equity except those resulting
from investments by owners and distributions
to owners. Among other disclosures, SFAS No.
130 requires that all items that are
required to be recognized under current
accounting standards as components of
comprehensive income can be reported in a
financial statement that is displayed with
the same prominence as other financial
statements.
Statement of Financial Accounting Standards
(SFAS) No. 131, Disclosures about Segments
of an Enterprise and Related
F-11
<PAGE> 48
TEL-COM WIRELESS CABLE TV CORPORATION
SUMMARY OF ACCOUNTING POLICIES
================================================================================
Information, supersedes SFAS No. 14,
Financial Reporting for Segments of a
Business Enterprise. SFAS No. 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. It also establishes
standards for disclosures regarding products
and services, geographic areas and major
customers. SFAS No. 131 defines operating
segments as components of a company about
which separate financial information is
available that is evaluated regularly by the
chief operating decision maker in deciding
how to allocate resources and in assessing
performance.
These new standards are effective for
financial statements for periods beginning
after December 15, 1997 and require
comparative financial information for
earlier years to be restated. Due to the
recent issuance of these standards,
management has been unable to fully evaluate
the impact, if any, they may have on future
financial statement disclosures.
F-12
<PAGE> 49
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. LIQUIDITY AND GOING The Company's financial statements are
CONCERN CONSIDERATIONS 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, 1997, the
Company had an accumulated deficit of
approximately $5,509,000 and a working
capital deficit of approximately $662,000.
The $3,061,964 net loss for 1997 includes
$1,724,859 of expenses and charges that are
not expected to recur in 1998 and future
years. The $1,382,214 net loss for 1996
included a non recurring $65,544 charge for
abandoning the Hickory North Carolina
licenses.
The following table lists the charges and
expenses that are not expected to recur in
1998 and future years:
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------------------------------------
<S> <C> <C>
Investment banking consulting services $ 988,000 $ --
Other investment banking consulting
services 128,000 --
Interest expense associated with conversion
of convertible debt at a discount 140,000 --
Loan extension and restructure costs 238,750 --
Charge for early conversion of Debenture 109,967 --
Write-down of deposit on Hickory
NC license 120,142 65,544
--------------------------------------------------------------------------
$1,724,859 $65,544
==========================================================================
</TABLE>
ADDITIONAL DEBT OR EQUITY FINANCING REQUIRED
Although the Costa Rican and LaCrosse
operations generate positive cash flow, the
cash flow does not cover the Company's
current corporate overhead. After the
conversion of the President's debentures the
Company will continue to show a working
capital
F-13
<PAGE> 50
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
deficit with the current subscriber base.
Increasing the subscriber base requires
additional capital because the incremental
equipment and labor installation costs per
subscriber exceed the installation fees
charged the subscriber. It generally takes
between six months and a year for the gross
profit from each new subscriber to cover the
incremental costs of adding the subscriber.
The Company intends to substantially
increase its current subscriber base in the
Costa Rican System and to moderately grow
the LaCrosse System. The company also plans
to fully develop the Fifth Avenue Channel,
(See Note 7 for further discussion). The
Company believes it needs to raise
additional debt or equity to achieve
profitable operations.
The Company is exploring various sources of
additional financing, but has no commitments
in this regard. Failure to secure additional
debt or equity financing could have a
material adverse effect on the Company and
its ability to continue as a going concern.
2. PROPERTY AND Property and equipment are summarized as
EQUIPMENT follows:
<TABLE>
<CAPTION>
USEFUL
LIVES 1997 1996
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Leasehold improvements 7-10 years $ 16,058 $ 12,667
Furniture, fixtures and office
equipment 7 years 94,646 71,027
TV signal - equipment 5-10 years 1,657,155 1,396,554
Vehicles 5 years 133,315 105,005
---------------------------------------------------------------------------------
1,901,174 1,585,253
Less accumulated depreciation (439,112) (220,018)
---------------------------------------------------------------------------------
Net property and equipment $ 1,462,062 $ 1,365,235
=================================================================================
</TABLE>
F-14
<PAGE> 51
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The Company had depreciation expense of
$219,094 and $152,355 for 1997 and 1996,
respectively.
3. LICENSES AND Licenses consist of the following:
ACQUISITIONS
<TABLE>
<CAPTION>
LOCATION OF LICENSE 1997 1996
-------------------------------------------------------------------
<S> <C> <C>
LaCrosse, Wisconsin $ 371,493 $ 371,493
San Jose, Costa Rica 4,174,000 4,000,000
Stevens Point, Wisconsin 530,625 530,625
Wausau, Wisconsin 658,736 658,736
-------------------------------------------------------------------
5,734,854 5,560,854
Less accumulated amortization (414,629) (102,410)
-------------------------------------------------------------------
Net licenses $ 5,320,225 $ 5,458,444
===================================================================
</TABLE>
The Company had amortization expense of
$312,219 and $93,123 for 1997 and 1996,
respectively.
In 1997 the Company re-evaluated the useful
lives of all of its licenses and changed the
amortization period from 40 years to 15
years. The Company changed the amortization
period to the life of the license and the
expected renewal period. As a result, an
additional $200,000 of amortization expense
was recorded in 1997 as compared to 1996.
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.
Pursuant to the agreements, the Company
incurred $371,493 of costs related to the
channel licenses.
F-15
<PAGE> 52
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
On March 28, 1996, the Federal
Communications Commission ("FCC") 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 Rapid, WI. The
total amount bid for these licenses, after a
15% small business credit, was $3,046,212.
On April 5, 1996, the Company paid $239,502,
which, 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 FCC called for the
second 10% of the down payment.
The Company had until July 8, 1996, to pay
the second $304,622 down payment. On July 8,
1996, the Company paid $118,946 to the FCC
to cover the second payment on the two
Wisconsin markets of Stevens Point and
Wausau.
The unpaid balance of $951,479 for the two
Wisconsin licenses are to be paid in
quarterly installments over the next ten
years following the issuance of the
authorization. The interest rate will be the
ten-year US Treasury obligation rate at the
time of the issuance of the authorization
plus two and one half percent. Since the
Company has not received written
notification from the FCC that the Stevens
Point and Wausau licenses have been granted,
no interest has been accrued on the $951,479
licenses payable at December 31, 1997.
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 the
$185,686 initial Hickory, NC down payment,
$65,544 was charged to operations in 1996
and the remaining $120,142 remained as a
refundable deposit at December 31, 1996. The
recoverability of
F-16
<PAGE> 53
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
this refundable deposit was re-evaluated in
1997 and the full $120,142 was included in
operating expenses in the accompanying
statements of operations for 1997.
In addition, the Company will be liable to
the FCC for the difference between the
Company's winning bid of $1,856,860 (less
the $120,142 deposit) and a lower winning
bid received by the FCC in a subsequent
auction of this license. The FCC has not yet
announced plans to re-auction the Hickory,
NC, license.
COSTA RICA LICENSES
On February 23, 1996, the Company acquired
three companies from Melvin Rosen (the
"Seller"), who subsequently after default by
the Company on the acquisition debt became
the President and Chairman of the Board,
that together hold 18 frequency licenses for
broadcast of pay television (i.e. "wireless
cable") services in Costa Rica.
In the first acquisition, the Company,
through Fepeca de Tournon, S.A. ("FdT"), a
newly formed, 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, of which $1
million was paid at the closing. A $2
million note payable was to be paid one year
after the closing bearing interest at the
rate of 3.6% per annum. The note was secured
by all of the acquired shares of stock of
Canal 19 and of Grupo Masteri, S.A.
discussed below (Note 4).
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 in the form of 121,212 restricted
shares of the Company's common stock valued
at $8.25 per share. The 121,212 shares
comprised approximately six percent of the
Company's
F-17
<PAGE> 54
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
total outstanding shares. The Company also
agreed to provide the Seller certain
registration rights with respect to these
shares.
The third acquisition from the 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 was broadcasting six
pay television channels to the public. In
October 1996, after significant investment
in equipment, TelePlus began broadcasting
six scrambled pay television channels over a
100 mile radius from Mt. Irazu to
approximately 760 subscribers. Over the next
year TelePlus added 3,480 subscribers. As a
result, $174,000 was recorded to licenses
and notes payable to stockholders during
1997.
The entire $4,174,000 purchase price of the
three companies was allocated to the
licenses since the value of the other assets
acquired was minimal. Proforma results of
operations relating to this acquisition were
not included for 1996 as such results would
not materially differ from historical
results.
4. LOAN RESTRUCTURE In February 1997, the Company entered into
an agreement to restructure the $2 million
note incurred as part of the acquisition of
Canal 19 (Note 3). The restructure agreement
required the Company to pay $625,000 of the
principal balance of the note on or before
March 7, 1997. The remaining $1,375,000
principal balance, plus accrued interest
thereon, was due on or before February 23,
1998. However, with an additional payment of
$100,000, the Company could extend the
maturity date for an additional six months.
The Company paid $50,000 of the $100,000 on
February 24, 1997. The Company failed to pay
the $625,000 by March 7, 1997 and the
$50,000 was retained by the Seller as a
penalty. In April 1997, the Seller declared
the note to be in default.
F-18
<PAGE> 55
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
On May 19, 1997, the Company entered into an
agreement with the Seller restructuring the
$2 million note into a convertible debenture
maturing in 12 months and bearing interest
at 12% per annum (7% to be paid monthly and
5% at maturity). The principal amount of the
debenture was increased $100,000 for
expenses owed or reimbursable to the Seller
at the May 19 issue date of the 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 with piggy back
registration rights, (ii) a warrant to
purchase 500,000 shares at $1.00 per share,
and (iii) a warrant to purchase 500,000
shares at $5.00 per share. Under the
Agreement, the Seller became the President
and Chairman of the Board and received the
right to nominate two members to the
Company's Board of Directors until such time
as the President exercised the conversion
rights under the Debenture. The Company
released the President from any liability in
connection with the Costa Rica acquisition.
A value of $78,750 was assigned to the
aforementioned stock and $10,000 to the
warrants issued.
The Debenture is convertible by the
President into the Company's common stock at
any time 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) $.50 per share of common
stock or (b) 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,
which was $.53 as of the date of this
agreement. In connection with this
agreement, the Company recorded additional
interest expense in the amount of $140,000
for the difference between the fair value of
$.53 and the conversion price of $.50 per
share. The Company is required to reserve a
sufficient number of shares of common stock
for such conversion and maintain an
effective registration statement for such
shares.
F-19
<PAGE> 56
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
At either the President's or the Company's
option, $1 million of the debenture may be
extended for an additional period of 12
months with interest at 15% per annum (8% to
be paid monthly and 7% to be paid at
maturity). The company paid $12,000 of
interest on the original note in early 1997.
No interest was paid on the Debenture in
1997 and the $156,033 of interest accrued
from May 19, 1997 to December 31, 1997 was
added to the Debenture balance.
In November 1997 the President notified the
Company of his intention to convert the
Debenture into common stock on or before May
15, 1998. As inducement for the early
conversion and for the President foregoing
all interest on the Debenture after December
31, 1997, an additional $109,967 was added
to the Debenture principal balance. The
resulting $2,366,000 Debenture balance will
be converted at $.50 per share into
4,732,000 restricted common shares to be
issued to the President in 1998.
All of the costs of restructuring the debt
totaling $188,750 and the $109,967
inducement were recorded as additional
interest expense in 1997.
5. LOANS AND NOTES As of December 31, 1997 and 1996, loans and
PAYABLE notes payable consist of the following:
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------------------------------------------
<S> <C> <C>
Loans payable to the President/Chairman of
the Board, no specified interest rate or
repayment terms $ 262,479 $ --
Note payable to unrelated third party with
interest at 18%. Convertible with piggy back
registration rights to common stock at the
greater of $.50 or 50% of the 5 day average
bid price of the common stock prior to
conversion 50,000 --
</TABLE>
F-20
<PAGE> 57
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<S> <C> <C>
Loan payable to former CEO and director. No
specified interest rate or terms of repayment. 25,000 8,000
Loan payable to current director. No
specified interest rate or terms of repayment 25,000 --
--------------------------------------------------------------------------------
$ 362,479 $ 8,000
--------------------------------------------------------------------------------
</TABLE>
Interest was imputed or accrued at a rate of
18% on the loans to the President and the
related party and at 9% on each of the other
loans from the Company's current director
and from the former CEO. Accrued interest on
all of the above totaled $21,303 ($12,938
due to the President) at December 31, 1997.
6. 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: 1998 - $6,301; 1999 - $6,508 and
2000 - $3,489.
7. COMMITMENTS AGREEMENT TO ACQUIRE 60% OF THE FIFTH AVENUE
CHANNEL
In November 1997 the Company agreed to
acquire 60% of the capital stock of the
Fifth Avenue Channel, Inc. ("Fifth Avenue"),
45% from the President and controlling
shareholder, and 15% from International
Broadcast Corporation ("IBC"). This
transaction is expected to close in the
second quarter of 1998. As consideration,
the Company's will issue 200,000 shares of
its common stock. Up to 400,000 additional
common shares may be issued if Fifth Avenue
achieves certain revenue and net profit
milestones in its first two years of
operations. The President will retain 20%,
and IBC will retain 10%, of the common stock
of Fifth Avenue, which will premiere a new
24-hour luxury lifestyles television channel
in the summer of 1998. Ivana Trump will own
the remaining 10% of Fifth Avenue and likely
serve as the hostess for the channel.
F-21
<PAGE> 58
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Pursuant to the acquisition agreement the
Company is obligated to fund the development
of Fifth Avenue. In 1997 the Company
advanced approximately $57,000 to fund the
operating expenses of Fifth Avenue. The
$57,000 was charged to operating expenses in
1997.
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:
1998 - $71,000; 1999 - $47,000 and 2000 -
$7,000.
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. In October 1997
the FCC granted Shekinah Network and
Morningstar such licenses. The terms of such
leases expire 10 years from the license
grant date and provide for the negotiation
of new lease agreements upon the expiration
of the initial 10-year terms. The Company is
required to pay a monthly subscriber royalty
fee based on the number of subscribers.
8. STOCKHOLDERS' PREFERRED STOCK
EQUITY
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.
During 1996, the Company designated 500
shares as Series A Convertible Preferred
Stock. The stock is convertible at the
option
F-22
<PAGE> 59
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
of the holder or automatically converted on
the effective date of registration statement
filed by the Company with the Securities and
Exchange Commission (SEC). The conversion
rate is the lessor of $3.25 or 65% of the
average bid for the Company's Common stock
for the five trading days prior to the
conversion. The holders of these shares are
preferentially entitled to receive upon
voluntary or involuntary liquidation $1,000
per share plus all declared and unpaid
dividends.
During 1997, the Company designated 1,500
shares as Series B Convertible Preferred
Stock. The stock is convertible at the
option of the holder at a rate of the lessor
of $1.00 or 65% of the average bid for the
Company's common stocks for the five trading
days prior to the conversion. The holders of
these shares are preferentially entitled to
receive upon voluntary or involuntary
liquidation $1,000 per share plus all
declared and unpaid dividends.
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 $300,000 remaining
balance on 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,
cancel the Notes and revert 300 shares of
the preferred stock back to the Company. 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. During 1997, the Company
recorded a preferred stock dividend of
$161,800 which represented
F-23
<PAGE> 60
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
the discounted portion of the conversion
rate into common stock determined at the
time of issuance.
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 to
operating expenses in 1997.
In July 1997, the Company entered into a
two-year Consulting Agreement with an
investment banking firm (the "Consultant").
Pursuant thereto the Company granted the
Consultant 500,000 one-year warrants
exercisable at $1.00 per share, 200,000
one-year warrants exercisable at $2.50 per
share and 100,000 three-year warrants
exercisable at $2.50 per share. A value of
$128,000 was assigned to the warrants and
was recorded to operating expenses in 1997.
In October 1997, assignees of the Consultant
exercised 450,000 of the one year warrants
at $1 per share and the company received
proceeds of $450,000.
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
F-24
<PAGE> 61
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
on the date of grant, expect that the terms
of an incentive stock option granted under
the SOP to a stockholder owning 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 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) "Accounting 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 (no options were granted
in 1997); no dividend yield; an expected
life of five years; expected volatility of
130%, and risk-free interest rate of 6.3%.
F-25
<PAGE> 62
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
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:
<TABLE>
<CAPTION>
1997 1996
---------------------------------------------------------------------------
<S> <C> <C>
NET LOSS
As reported $ (3,223,764) $ (1,382,214)
Pro forma $ (3,223,764) $ (1,679,484)
LOSS PER SHARE - BASIC AND
DILUTED
As reported $ (1.17) $ (.70)
Pro forma $ (1.17) $ (.85)
---------------------------------------------------------------------------
</TABLE>
A summary of the status of options under
this plan as of December 31, 1997 and 1996
and changes during the years ended on those
dates are presented below:
<TABLE>
<CAPTION>
1997 1996
------------------------------- ------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year 77,000 $ 7.37 20,000 $ 9.85
Granted -- -- 57,000 6.50
Expired 54,000 7.04 -- --
- ----------------------------------------------------------------------------------------------------------------------------
Balance at end of year 23,000 7.64 77,000 $ 7.37
============================================================================================================================
Options exercisable at year end 23,000 $ 7.64 77,000 $ 7.37
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
Weighted average fair value -- -- 40,000 5.33
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
Weighted average fair value -- -- 17,000 5.17
</TABLE>
F-26
<PAGE> 63
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The following table summarizes information
about options under the plan outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- ----------------------------------------
NUMBER WEIGHTED -AVERAGE NUMBER
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICES AT DEC. 31, 1997 CONTRACTUAL LIFE EXERCISE PRICE AT DEC. 31, 1997 EXERCISE PRICE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$5.32 to 5.85 9,000 4.0 $ 5.61 9,000 $ 5.61
$8.25 5,000 3.7 8.25 5,000 8.25
$9.25 to 9.35 9,000 8.0 9.32 9,000 9.32
- ----------------------------------------------------------------------------------------------------------------------------------
23,000 5.5 $ 7.64 23,000 $ 7.64
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
STOCK WARRANTS
Redeemable Common Stock Purchase Warrants -
In connection with its initial public
offering on May 10, 1995, the Company sold
1,610,000 redeemable common stock purchase
warrants at a price of $.25 per warrant.
Each warrant entitles the holder to
purchase, at any time from the date of the
offering through the fifth anniversary date,
one share of common stock at a price of
$5.75 per share. The warrants are redeemable
at a price of $.25 per warrant under certain
circumstances.
Private Placement Warrants - In August 1994
and December 1, 1994, the Company issued an
aggregate of 625,000 common stock warrants
as part of the sale of units of its
securities. Such warrants may be exercised
within five years from the date of their
issuance at an exercise price of $5.75 per
share. The warrants provide for adjustment
in the number of shares underlying the
warrants upon the occurrence of certain
events, such as stock dividends, stock
splits or other reclassifications of the
Company's common stock, a consolidation or
merger of the Company, or a liquidating
distribution of the Company's common stock.
Stock Warrants - In connection with the
public offering, the Company sold
underwriter's stock warrants, at a price of
$.001 per
F-27
<PAGE> 64
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
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.
See Note 4 for warrants issued to the
President in the restructuring of the
$2,000,000 debt and consulting agreements
above for warrants issued to consultants in
July 1997.
SHARES RESERVED
At December 31, 1997, the Company has
reserved 8,997,000 shares of common stock
for future issuance pursuant to stock
warrant, stock option and convertible debt
agreements. This total is the maximum shares
issuable upon conversion of debt and
includes 177,000 shares reserved under the
stock option plan for options that have not
been granted at December 31, 1997.
9. INCOME TAXES The components of net deferred income taxes
consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards $ 2,266,200 $ 982,200
Costs associated with conversion
of debt 143,500 --
Other 52,700 7,400
---------------------------------------------------------------------------
Gross deferred income tax assets 2,462,400 989,600
Valuation allowance (2,403,200) (826,000)
---------------------------------------------------------------------------
Total deferred income tax assets 59,200 163,600
---------------------------------------------------------------------------
Deferred income tax liabilities:
Depreciation -- (97,200)
Amortization (59,200) (66,400)
---------------------------------------------------------------------------
Total deferred income tax liabilities (59,200) (163,600)
---------------------------------------------------------------------------
Net deferred income taxes $ -- $ --
---------------------------------------------------------------------------
</TABLE>
F-28
<PAGE> 65
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Unused net operating losses for income tax
purposes, expiring in various amounts from
2009 through 2012, of approximately
$5,780,000 are available at December 31,
1997 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 $2,403,000 has
been offset against the tax benefit of these
losses in 1997 due to it being more likely
than not that the deferred income tax assets
will not be realized.
10. SUPPLEMENTAL CASH FLOW Certain supplemental disclosure of cash flow
INFORMATION information and noncash investing and
financing activities for the years ended
December 31, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
1997 1996
---------------------------------------------------------------------------------
<S> <C> <C>
Cash paid during the year for:
Interest $ 69,344 $ 197,722
=================================================================================
Noncash investing and financing activities:
Cancellation of subscription receivable $ 300,000 --
Additional debt incurred for Costa Rica licenses 174,000 --
Preferred stock dividends 161,800 --
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
</TABLE>
F-29
<PAGE> 1
Exhibit 10.3
CONSULTING AGREEMENT
This Agreement is made as of this 24 day of __July___________, 1997, by
and between TEL-COM WIRELESS CABLE TV CORPORATION, with offices at 1506 N.E.
162nd St., N. Miami Beach, FL 33162 (the "Company") and MEYERS POLLOCK ROBBINS,
INC., with offices at One World Trade Center, Suite 9151, New York, New York,
10048 (the "Consultant").
W I T N E S S E T H
WHEREAS, the Company desires to retain the Consultant, and the
Consultant desires to be retained by the Company, pursuant to the terms and
conditions hereinafter set forth;
1. RETENTION: The Company hereby retains the Consultant to
perform non-exclusive consulting services related to corporate finance and other
matters, and the Consultant hereby accepts such retention and shall undertake
reasonable efforts to perform for the Company the duties described herein. In
this regard, subject to paragraph 9 hereof, the Consultant shall devote such
time and attention to the business of the Company, as shall be determined by the
Consultant, subject to the direction of the President of the Company.
(a) The Consultant agrees, to the extent reasonably required
in the conduct of the business of the Company, and at the Company's request, to
place at the disposal of the Company its judgment and experience and to provide
business development services to the Company, including, without limitation, the
following:
(i) To assist in potential financing
requirements;
(ii) To assist in potential mergers and
acquisitions;
(iii) To provide advice on investor
relations and marketing strategies;
(iv) To provide advice with respect to
corporate finance matters including,
without limitation, changes in
capitalization and corporate structure;
and
(v) To assist in strategic development.
(b) At the Consultant's request, the Company will provide "due
diligence" packages to registered representatives of the Consultant and other
brokerage firms.
(c) Nothing in this Agreement shall impose any obligation upon
the Company to consummate any transactions or to enter into any discussions or
negotiations with respect thereto.
2. TERM: The Consultant's retention hereunder shall be for a term
of two (2) years commencing on the date of this Agreement unless sooner
terminated by either party upon thirty (30) days notice to the other party.
<PAGE> 2
3. COMPENSATION: As full compensation for the consulting services
hereunder, the Company shall grant to the Consultant warrants (the "Warrants")
to purchase an aggregate of 800,000 shares of the Company's common stock
("Common Stock"), as described below:
(a) An aggregate of 500,000 warrants shall be
exercisable for a period of one (1) year
from the date hereof at an exercise price of
$1.00 per share.
(b) An aggregate of 200,000 warrants shall be
exercisable for a period of one (1) year
from the date hereof at an exercise price of
$2.50 per share.
(c) An aggregate of 100,000 warrants shall be
exercisable for a period of three (3) years
from the date hereof at an exercise price of
$2.50 per share.
The Company shall grant to the Consultant demand and "piggy back"
registration rights to include the shares of Common Stock issuable upon exercise
of the Warrants in any registration statement filed by the Company under the
Securities Act of 1933, as amended, except registration statements on Forms S-8
or S-4.
The Warrants shall have anti-dilution provisions for stock dividends,
splits, mergers, sale of substantially all of the Company's assets and for other
unusual events (excluding employee benefit and stock option plans for employees
and advisors of the Company).
4. EXPENSES: The Company agrees to reimburse the Consultant for
reasonable out-of-pocket expenses incurred by the Consultant in connection with
the services rendered hereunder. Any such expenses shall require the prior
written approval of the Company.
5. FEES TO CONSULTANT: The Consultant and/or its affiliates shall
receive a 10% aggregate fee for any funds it is directly responsible for raising
for the Company and a 3% aggregate fee shall be paid for Consultant and/or its
affiliates if Consultant or its affiliates act as a placement agent in a
transaction that leads to a funding consummated by the Company. In the event
that Consultant or its affiliates directly introduces a prospective merger or
acquisition which merger or acquisition is consummated by the Company,
Consultant and/or its assignees shall be entitled to an aggregate fee of 4% of
the purchase price of said merger or acquisition. No fee shall be paid by
Company for any funding, merger or acquisition in the event that the funding
agent or target Company were solicited directly by the Company or in event the
funding agent of target Company solicited the Company without the direct
intervention of the Consultant or its affiliates.
6. CONFIDENTIALITY: In connection with the consulting services
provided by the Consultant to the Company, Company will furnish Consultant with
certain product, financial, marketing, organization, technical and other
information related to the Company (herein collectively referred to as the
"Confidential Information"). Confidential
<PAGE> 3
Information includes not only written information but also information
transferred orally, visually, electronically or by other means. In consideration
of the Company furnishing Consultant with the Confidential Information, and as a
condition to such disclosure, Consultant agrees as follows, (the "Agreement"):
a) Consultant shall keep all Confidential Information
secret and confidential and shall not disclose it to
anyone except to a limited group of Consultant's
employees and directors, representatives, agents,
advisors and assignees ("Representatives") who are
actually engaged in consulting services referred to
above. Consultant may also disclose it to its outside
professional advisors similarly engaged. Each person
to whom such Confidential Information is disclosed
must be advised of its confidential nature and of the
terms of this Agreement and (unless already bound by
obligations of confidentiality) must agree to abide
by such terms.
(b) Upon any termination of this Agreement or upon notice
from the Company to Consultant (i) Consultant will
either destroy or return to the Company the
Confidential Information that is in tangible form,
including copies that it may have made, and
Consultant will destroy all abstracts, summaries
thereof, or references thereto in its documents, and
certify to the Company in writing that it has done
so, and (ii) neither Consultant nor its
Representatives will use any of the Confidential
Information with respect to, or in furtherance of
Consultant's business, any of their respective
businesses, or in the business of anyone else,
whether or not in competition with the Company, or
for any purpose whatsoever.
(c) Confidential information does not include any
information that was available prior to Consultant's
receipt of such information or thereafter became
publicly available not as a result of a breach by
Consultant of this Agreement. Information shall be
deemed "publicly available" if it becomes a matter of
public knowledge or is contained in materials
available to the public or is obtained from any
source other than the Company (or its directors,
officers, employees, agents, representatives or
advisors), provided that such source has not, to
Consultant's knowledge, entered into a
confidentiality agreement with the Company with
respect to such information or obtained the
information from an entity or person party to a
confidentiality agreement with the Company.
(d) Consultant understands that the Company will attempt
to include in the Confidential Information those
materials that it believes to be reliable and
relevant for the purpose of the Consultant's
services, but Consultant acknowledges that neither
the Company, nor any of its respective directors,
officers, agents, advisors or employees make any
representation or warrant as to the accuracy or
completeness of the Confidential Information and
Consultant agrees that such persons shall have no
liability to Consultant or any of its Representatives
resulting from any use of the Confidential
Information. Consultant understands
<PAGE> 4
that the Confidential Information is not being
furnished for the use in an offer or sale of
securities of the Company and is not designated to
satisfy the requirements of federal or state
securities laws in connection with any offer or sale
of such securities to Consultant.
(e) In the event that Consultant or anyone to whom
Consultant transmits the Confidential Information
pursuant to this Agreement becomes legally compelled
to disclose any of the Confidential Information,
Consultant will provide the Company with prompt
notice so that the Company may seek a protective
order or other appropriate remedy and/or waive
compliance with the provisions of this agreement. In
the event the Company is unable to obtain such
protective order or other appropriate remedy,
Consultant will furnish only that portion of the
Confidential Information that Consultant advised by a
written opinion of counsel is legally required and
Consultant will exercise its best efforts to obtain a
protective order or other reliable assurances that
confidential treatment will be accorded with the
Confidential Information so disclosed.
(f) Consultant understands and agrees that money damages
would not be a sufficient remedy for any breach of
this Agreement by Consultant or its Representatives,
and that the Company shall be entitled to specific
performance and/or injunctive relief as a remedy for
any such breach of this Agreement and that these
shall be in addition to all other remedies available
at law or in equity. Consultant further agrees that
this Agreement is made for the benefit of the Company
and that no failure or delay by the Company or its
Representatives in exercising any right, power or
privilege under this Agreement shall operate as a
waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further
exercise thereof or the exercise of any right, power
or privilege under this Agreement.
(g) Consultant's obligations with regard to Confidential
Information shall survive the termination of this
Agreement.
7. INDEMNIFICATION: The Company agrees to indemnify and hold
harmless the Consultant and its affiliates, the respective directors, officers,
partners, agents and employees and each other person, if any, controlling the
Consultant or any of its employees and each other person, if any, controlling
the Consultant or any of its affiliates (collectively the "Consultant Parties"),
from and against all losses, claims, damages, liabilities and expenses incurred
by them (including reasonable attorney's fees and actual disbursements) that
result from the actions taken or omitted to be taken (including any untrue
statements made or any statements omitted to be made) by the Company, its agents
or employees. The Consultant will indemnify and hold harmless the Company and
the directors, officers, agents, and employees of the Company (the "Company
Parties") from and against all losses, claims, damages, liabilities and expenses
that result from bad faith, negligence or unauthorized representations of the
Consultant. Each person or entity seeking indemnification hereunder shall
promptly notify in writing the Company or the Consultant, as applicable, who may
become liable pursuant to this paragraph and shall not pay, settle or
acknowledge liability under any such claim without consent of the party
<PAGE> 5
liable for such indemnification and shall permit the Company or the Consultant,
as applicable, a reasonable opportunity to cure any underlying situation and/or
to mitigate any actual or potential damages. The scope of this indemnification
between the Consultant and the Company shall be limited to, and pertain only to,
those certain transactions contemplated or entered into pursuant to this
Agreement.
The Company or the Consultant, as applicable, shall have the
opportunity to defend any claim for which it may liable hereunder, provided it
notifies the party claiming the right to indemnification within fifteen (15)
days notice of the claim.
The rights stated pursuant to the preceding two paragraphs shall
be in addition to any rights that the Consultant or the Company or any other
person entitled to indemnification may have under common law or otherwise,
including, without limitation, any right to contribution.
8. STATUS OF CONSULTANT: The Consultant shall be deemed to be an
independent contractor and, except as expressly provided or authorized in this
Agreement, shall have no authority to act for or represent the Company.
9. OTHER ACTIVITIES OF CONSULTANT: The Company recognizes that
the Consultant now renders and may continue to render financial consulting and
other investment banking services to other companies which may or may not
conduct business and activities similar to those of the Company. The Consultant
shall not be required to devote its full time and attention to the performance
of its duties under this Agreement but shall devote only so much of its time and
attention as it deems necessary for such purposes in the reasonable exercise of
its discretion, subject to the direction of the President of the Company.
10. CONTROL: Nothing contained herein shall be deemed to require
the Company to take any action contrary to its Certificate of Incorporation or
By-laws, as each may be amended from time to time, or any applicable statute or
regulation, or to deprive its Board of Directors of their responsibility for any
control of the conduct of the affairs of the Company.
11. NOTICES: Any notices hereunder shall be sent to the Company
and the Consultant at their respective addresses above set forth. Any notice
shall be given by registered or certified mail, postage paid, and shall be
deemed to have been given when deposited in the United States mail. Either party
may designate any other address to which, or manner in which, notice shall be
given, by giving written notice to the other of such change of address in the
manner herein provided.
12. GOVERNING LAW: This Agreement has been made in the State of
New York and shall be constructed and governed in accordance with the laws
thereof without regard to conflict of laws.
13. ENTIRE AGREEMENT: This Agreement contains the entire
agreement between the parties, may not be altered or modified, except in writing
and signed by the party to be charged thereby and supersedes any and all
previous agreements between the parties.
<PAGE> 6
14. BINDING EFFECTS; ASSIGNMENT: This Agreement shall be binding
upon the parties hereto and their respective heirs, administrators, successors,
and assigns; provided, however, that this Agreement, and the rights and
obligations hereunder, may not be assigned by either party hereto without the
prior written consent of the other party.
15. COUNTERPARTS: This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
MEYERS POLLOCK ROBBINS, INC.
By: /s/ Michael Ploshnick
----------------------------------
TEL-COM WIRELESS CABLE
TV CORPORATION
By: /s/ Mel Rosen
----------------------------------
<PAGE> 1
Exhibit 10.4
MEL ROSEN
- --------------------------------------------------------------------------------
1506 N. E. 162nd Street, N. Miami, FL 33162 o (305) 947-3010 Fax (305) 919-8154
April 8, 1998
Tel-Com Wireless Cable TV Corporation
1506 NE 162d Street
Miami, FL 33162
Gentlemen:
As the holder of a Convertible Debenture in the original principal sum of
$2,100,000, I agreed with Tel-Com in principle that, at some future date, I
would convert my Debenture to Common Stock, well ahead of the Maturity Date of
the Debenture. We completed the negotiation of an agreement with respect to that
"early" conversion, the terms which agreement were set forth in a Memorandum
dated October 29, 1997 (the "Memorandum). Based on that agreement, interest on
the Debenture was to cease to accrue from and after January 1, 1998. In
November, 1997, the Board of Directors of the Company approved the conversion
under the terms set forth in that Memorandum.
This letter will serve as formal notice of my intent to convert the Debenture to
4,732,000 shares of Common Stock as set forth in the Memorandum, such conversion
to occur on or before May 15, 1998.
Sincerely,
/s/ Mel Rosen
MEL ROSEN
Receipt of the above Notice as of the _____ day of April, 1998.
/s/ Samuel A. Simkin
- --------------------------------------
FOR TEL-COM WIRELESS CABLE
TV CORPORATION
<PAGE> 1
EXHIBIT 11.1
TEL-COM WIRELESS CABLE TV CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
DAYS SHARES
--------- ---------
<S> <C> <C>
SHARES OUTSTANDING AT BEGINNING OF YEAR: 365 2,196,212
ISSUANCE OF 180,000 SHARES ON RESTRUCTURING OF $2 MILLION NOTE
PAYABLE ON MAY 19, 1997 235 115,890
CONVERSION OF ALL PREFERRED SHARES INTO 1,183,431
COMMON SHARES ON SEPTEMBER 16, 1997 106 343,681
EXERCISE WARRANTS FOR 450,000 COMMON SHARES ON
OCTOBER 9, 1997 83 102,329
-----------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 2,758,112
===========
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS $(3,223,764)
===========
NET LOSS PER COMMON SHARE-BASIC DILUTED $ (1.17)
===========
</TABLE>
NOTE:
THE COMMON STOCK EQUIVALENT WARRANTS, OPTIONS AND CONVERTIBLE DEBT HAVE NOT BEEN
INCLUDED BECAUSE THEIR EFFECT WOULD BE ANTIDILUTIVE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 113,207
<SECURITIES> 0
<RECEIVABLES> 46,269
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 180,237
<PP&E> 1,901,175
<DEPRECIATION> 439,112
<TOTAL-ASSETS> 6,976,744
<CURRENT-LIABILITIES> 842,412
<BONDS> 2,366,000
0
0
<COMMON> 4,010
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,806,856
<SALES> 1,085,149
<TOTAL-REVENUES> 1,085,149
<CGS> 170,614
<TOTAL-COSTS> 170,614
<OTHER-EXPENSES> 3,297,282
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 679,217
<INCOME-PRETAX> (3,223,764)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,233,764)
<EPS-PRIMARY> (1.17)
<EPS-DILUTED> (1.17)
</TABLE>
