FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 30, 1998
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Commission File Number 0-25896
TEL-COM WIRELESS CABLE TV CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 59-3175814
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(State or other jurisdiction (IRS Employer
incorporation or organization) Identification No.)
1506 N.E. 162 STREET
NORTH MIAMI BEACH, FLORIDA 33162
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(Address of principal (Zip Code)
executive offices)
305-947-3010
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO___
On August 7, 1998, there were 4,029,143 Shares of Common Stock, $.001 par
value per Share, outstanding.
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TEL-COM WIRELESS CABLE TV CORPORATION
Index to Form 10-QSB
For Quarter Ended June 30, 1998
PART I. FINANCIAL INFORMATION PAGE NO.
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Item 1. Financial Statements
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 6
Notes to Financial Statements 7
Item 2. Management's Discussion 15
PART II. OTHER INFORMATION
Item 2. Changes in Securities 22
Item 6. Exhibits and Reports on Form 8-K 22
Index to Exhibits 23
SIGNATURES 22
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TEL-COM WIRELESS CABLE TV CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30 DECEMBER 31
ASSETS 1998 1997
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(Unaudited)
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Current Assets:
Cash and Cash Equivalents $ 2,869 $ 113,207
Accounts Receivable-Trade, Net of
Allowance for Doubtful Accounts 77,948 46,269
Prepaid Expenses 21,651 20,761
Other current Assets 89,029 0
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Total Current Assets 191,497 180,237
Property & Equipment, Net (Note 3) 1,412,725 1,462,062
Licenses, Net (Note 4) 5,160,576 5,320,225
Other Assets, Net 342,543 14,220
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TOTAL ASSETS $ 7,107,341 $ 6,976,744
LIABILITIES & STOCKHOLDERS'EQUITY
Current Liabilities:
Accounts Payable $ 325,405 $ 304,639
Accrued Liabilities 425,729 308,993
Current Portion of Long-term Debt 6,301 6,301
Advances from Stockholders 324,104 362,479
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Total Current Liabilities 1,081,539 982,412
Convertible Debentures (Note 6) 2,961,000 2,366,000
License Fees Payable 951,479 951,479
Long-term Debt, Less Current Portion 6,223 9,997
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Total Liabilities 5,000,241 4,309,888
STOCKHOLDERS' EQUITY (Notes 7 and 8)
Common Stock 4,030 4,010
Additional Paid-in Capital 8,606,999 8,171,457
Accumulated Deficit (6,503,929) (5,508,611)
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Total Stockholders' Equity 2,107,100 2,666,856
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Total Liabilities & Stockholders Equity $ 7,107,341 $ 6,976,744
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See Notes to Consolidated Financial Statements
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TEL-COM WIRELESS CABLE TV CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended June 30, 1998 and 1997
1998 1997
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(Unaudited)
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Revenue $324,771 $262,314
Cost of Sales 53,130 31,404
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Gross Profit 271,641 230,910
Operating Expenses 817,582 717,178
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Operating Loss (545,941) (486,268)
Other Income (Expense)
Interest Income 484 273
Interest Expense (99,796) (50,682)
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Total Other Income (Expense) (99,312) (50,409)
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Net Loss ($645,253) ($536,677)
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Weighted Average Number of
Common Shares Outstanding 6,405,951 2,279,289
Net Loss Per Common Share-basic and diluted ($0.10) ($0.24)
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See Notes to Consolidated Financial Statements
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TEL-COM WIRELESS CABLE TV CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
Six Months Ended June 30, 1998 and 1997
1998 1997
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(Unaudited)
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Revenue $666,486 $488,422
Cost of Sales 101,411 68,657
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Gross Profit 565,075 419,765
Operating Expenses 1,444,896 1,408,673
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Operating Loss (879,821) (988,908)
Other Income (Expense)
Interest Income 1,328 4,342
Interest Expense (116,823) (116,435)
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Total Other Income (Expense) (115,495) (112,093)
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Net Loss ($995,316) ($1,101,001)
Preferred Stock Dividends - 161,800
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Net Loss Available to Common
Stockholders ($995,316) ($1,262,801)
Weighted Average Number of
Common Shares Outstanding 5,214,416 2,237,980
Net Loss Per Common Share-basic
and diluted ($0.19) ($0.56)
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See Notes to Consolidated Financial Statements
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TEL-COM WIRELESS CABLE TV CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1998 and 1997
1998 1997
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(Unaudited)
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Cash Flows From Operating Activities:
Net Loss ($995,316) ($1,101,001)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization & Depreciation 367,290 257,838
Increase in Accounts Receivable (31,679) (5,563)
Decrease (Increase) in Prepaid Expenses (890) 534,848
Increase (Decrease) in
Accounts Payable 20,766 200,868
Increase (Decrease) in Accrued
Liabilities 116,736 58
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Net Cash Used in Operating Activities (523,093) (112,952)
Cash Flows From (Used In) Investing
Activities:
Acquisition of Equipment (88,630) (185,786)
Proceeds from sale of Investments - 346,400
Increase in Other assets (88,870) (7,247)
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Net Cash Used in Investing Activities (177,500) 153,367
Cash Flows From Financing Activities:
Proceeds (Repayment) of Stockholder Loans (38,375) 115,000
Proceeds from Sale of Preferred Stock - 200,000
Proceeds from Issuance of Convertible
Debentures less $38,918 of costs 556,082 -
Stock and options issued for services 108,937 -
Costs of registering common stock (32,615) -
Repayment of Bank Loans - (361,000)
Repayment of Long-Term Debt (3,774) (3,207)
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Net Cash Provided By (Used In)
Financing Activities 590,255 (49,207)
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NET INCREASE (DECREASE) IN CASH (110,338) (8,792)
CASH AT BEGINNING OF PERIOD 113,207 26,618
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CASH AT END OF PERIOD $ 2,869 $ 17,826
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See Notes to Consolidated Financial Statements
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TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
Note 1 Basis of Presentation
In the opinion of management, the accompanying unaudited
consolidated financial statements include all adjustments
necessary for a fair presentation of financial position and
the results of operations and cash flows for the periods
presented. They include the statements of all subsidiaries.
Certain information and note disclosures normally included in
financial statements prepared according to generally accepted
accounting principles have been condensed or omitted.
Note 2 Supplemental Cash Flow Information
Supplemental disclosure of cash flow information for the six
months ended June 30:
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1998 1997
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Interest paid during the period $ 7,850 $ 12,439
Non-cash investing and financing
activities:
Discount on 12% Convertible Debentures $359,238 -
Cancellation of Subscription agreement - $ 300,000
Preferred stock dividends - $ 161,800
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Note 3 Property & Equipment
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Property and equipment are summarized
as follows at June 30, 1998:
Leasehold improvements $ 16,439
Furniture & office equipment 108,284
Vehicles 133,315
TV Signal Rebroadcast & receiving
equipment 1,731,766
Total cost 1,989,804
Less accumulated depreciation 577,079
Net property & equipment $ 1,412,725
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Note 4 Licenses and Acquisitions
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Licenses are summarized as follows
At June 30, 1998:
LaCrosse, Wisconsin $ 371,493
San Jose, Costa Rica 4,174,000
Stevens Point-Marshfield-Wisc.Rapids,
Wisconsin 530,625
Wausau-Rhinelander, Wisconsin 658,736
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Total cost 5,734,854
Less accumulated amortization 574,278
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Net licenses $ 5,160,576
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On March 28, 1996, the Federal Communications Commission (FCC)
completed its auction of authorizations to provide single
channel and Multi-channel Multi-point Distribution Service
(MDS) in 493 Basic trading Areas. The Company won bids in 3
markets: Hickory-Lenoir-Morganton, NC; Wausau-Rhinelander, WI;
and Stevens Point-Marshfield-Wisconsin Rapids, WI. The
Company's total bid for these 3 markets was $3,046,212. The
Company made the full 10% down payment of $304,622 for all
three markets but only made the second 10% down payment of
$118,946 on the two Wisconsin markets.
The remaining license fees payable to the FCC of $951,479 for
the two Wisconsin licenses are due quarterly over a ten year
period. The interest rate will be the effective rate of
ten-year US Treasury obligations at the time the FCC issues
the authorization plus 2-1/2%. Since the Company has not
received written notification from the FCC that the Wisconsin
licenses have been granted, no interest has been accrued on
the $951,479 licenses payable at June 30, 1998.
On September 1, 1996, the unpaid license fee payable of
$1,671,175 for the Hickory, NC, license was defaulted.
According to Section 21.959 in the FCC MDA Audit Information
Package, a maximum default payment of 3% of the defaulting
bidder's bid amount would be due to the FCC. This amount,
$65,544, was charged to operations in 1996. The remaining
$120,142 of the deposit submitted to the FCC for Hickory, NC,
was charged to operations in the fourth quarter of 1997.
The Company will be liable to the FCC for the difference
between the Company's winning bid and a lower winning bid
received by the FCC in a subsequent auction of this license.
The FCC has not yet announced plans to re-auction the Hickory,
NC, license and no liability is recorded for the potential
shortfall of a re-auction.
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COSTA RICA LICENSES
In February 1996 the Company agreed to acquire three companies
holding a total of 18 frequency licenses for broadcast of pay
television (i.e. "wireless cable") services in Costa Rica
together with related equipment and contracts with
subscribers.
In the first acquisition, the Company acquired 100% of
Televisora Canal Diecinueve, S.A. ("Canal 19"), for $1 million
cash and $2 million due one year later with interest at 3.6%
per annum. The $2 million note payable was secured by the
stock of Canal 19 and of Grupo Masteri, discussed below.
In the second acquisition, the Company acquired all of the
common stock of Grupo Masteri, S.A. ("Grupo") for 121,212
restricted shares of the Company's common stock valued at
$8.25 per share.
The third acquisition from Seller was of TelePlus, S.A.
("TelePlus"). As consideration for the purchase of TelePlus
the Company agreed to pay the Seller $50 times the increase in
subscribers for the one year period after TelePlus had six pay
television channels broadcasting to the public. In October
1996 TelePlus began broadcasting six pay television channels
to 760 subscribers. Over the next year TelePlus added 3,480
subscribers. As a result, $174,000 was added to licenses and
notes payable to stockholders.
The entire $4,174,000 purchase price of the three Costa Rican
companies was allocated to the 18 licenses since the value of
the other assets acquired was minimal. The cost of the
licenses is amortized on a straight-line basis over 15 years.
Note 5 Costa Rican Foreign Currency Translation
Costa Rican revenues and expenses were translated using the
currency exchange rate for Costa Rican Colons into United
States Dollars determined at the close of business on the last
day of each month.
Note 6 Loan Restructure In 1997
On February 12, 1997, the Company and Seller entered into an
agreement to restructure the $2 million note issued in the
acquisition of Canal 19. The amended agreement required the
Company to pay $625,000 on or before March 7, 1997. The
remaining $1,375,000 principal balance, plus accrued interest
thereon, was to be paid
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on or before February 23, 1998. However, with the additional
payment of $100,000, the Company could extend such maturity
date for an additional six months. The Company paid $50,000 of
the $100,000 on February 24, 1997. The Company failed to pay
the $625,000 on March 7,1997 and the $50,000 was retained by
the Seller as a penalty. In April 1997 the Seller declared the
$2,000,000 note to be in default.
On May 19, 1997, the Company entered into an agreement with
the Seller restructuring the $2 million debt into a
convertible debenture ("Rosen Debenture") maturing in 12
months and bearing interest at 12% per annum. The principal
amount of the Rosen Debenture was increased by $100,000 for
expenses owed or reimbursable to Seller at the issue date of
the Rosen Debenture.
As consideration for this debt restructuring, the Company
agreed to issue to the Seller (i) 180,000 shares of the
Company's common stock, (ii) a warrant to purchase 500,000
shares at $1.00 per share, and (iii) a warrant to purchase
500,000 shares at $5.00 per share. Under the Agreement, the
Seller became the President and Chairman of the Board and
received the right to nominate two members to the Company's
Board of Directors until such time as the President exercised
the conversion rights under the Rosen Debenture. A value of
$78,750 was assigned to the aforementioned stock and $10,000
to the warrants issued.
The Debenture was convertible by Seller into the Company's
common stock at any time after the issue date prior to payment
of the Rosen Debenture. The conversion price was equal to the
lesser of (1) $.50 per share of common stock or (2) the
average of the closing "bid" for the Company's common stock as
reported on NASDAQ for the five trading days immediately prior
to the conversion date. At either the President's or the
Company's option, $1 million of this amount could have been
extended for an additional period of 12 months with interest
at 15% per annum.
No interest was paid on the Rosen Debenture and the $153,033
of interest accrued from May 19, 1997 to December 31, 1997 was
added to the Rosen Debenture balance.
In November, the President notified the Company of his
intention to convert the Rosen 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 Rosen
Debenture after December 31, 1997
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an additional $109,967 was added to the Rosen Debenture
principal balance in 1997. The resulting $2,366,000 Rosen
Debenture balance will be converted into 4,732,000 restricted
common shares as soon as the Company's articles of
incorporation are amended to increase the number of authorized
shares.
The $238,750 total cost of extending and restructuring the
debt and the $109,967 early conversion inducement were
recorded as interest expense in 1997.
Note 7 Convertible Preferred Stock Purchase & Conversion in 1997
The Company is authorized to issue up to 5,000,000 shares of
"blank check" preferred stock and the Board of Directors has
the authority, without shareholder approval, to fix the
rights, preferences and privileges including dividend rights,
conversion rights, terms of redemption or liquidation
preferences.
On November 25, 1996, the Company accepted a Subscription
Agreement from Amber Capital Corporation and Investor Resource
Services, Inc. (the "Buyers") for a total of 500 shares of its
Series A Convertible Preferred Stock at a price of $1,000 per
share (the "Preferred Shares"), for a total subscription price
of $500,000. The Buyers delivered $100,000 and promissory
notes ("Notes") for $400,000 at closing. The Buyers paid an
additional $100,000 against the Notes on January 8, 1997.
After the Notes were not paid on the January 31, 1997 due
date, the Company and the Buyers agreed to terminate the
balance of the Subscription Agreements and cancel the Notes.
On March 14, 1997, Aurora Capital purchased 100 shares of the
Company's Series B Convertible Preferred Stock for $100,000.
The Series A preferred shares were convertible into common
shares at the lesser of $3.25 or 65% of the average bid for
the company's common stock for the five trading days prior to
the conversion. The Series B preferred shares were convertible
at the lesser of $1.00 or 65% of the average bid for the
company's common stock for the five trading days prior to the
conversion. Neither Series A nor Series B of preferred stock
had fixed dividend rights.
During the first quarter of 1997 the company recorded a
preferred stock dividend of $161,800 which represented the 35%
discount off the bid price of the common stock at the time the
preferred shares were issued for a total
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of $300,000. The $161,800 was added to additional Paid-in
Capital and increased the Accumulated Deficit in the first
quarter of 1997. The dividend increased the net loss per
common share by $.07 for the first quarter of 1997.
The 300 aggregate shares of Series A and Series B Convertible
Preferred Stock were converted into 1,183,431 shares of common
stock at 65% of the $.39 average bid price per share on the 5
trading days preceding the election to convert. The 1,183,431
common shares were issued on September 16, 1997.
Note 8 Financing-Issuance of 12% Convertible Debentures in 1998
In the second quarter of 1998 the Company completed a private
offering of 12% Convertible Subordinated Debentures (the
"Debentures") to accredited investors. The Debentures are
convertible into common shares at $2 per share. Up to 50% of
the Debentures can be converted after February 28, 1999 and
the remaining 50% can be converted after July 31, 1999 unless
redeemed earlier by the Company. Notwithstanding the early
redemption by the Company, Debenture holders may convert no
less than 50% of their original Debenture into common shares.
Interest is payable monthly.
The Company received $556,082 of net Debenture proceeds
($595,000 less $38,918 of expenses).
The Company recorded Additional Paid in Capital totaling
$359,238 for the difference between the closing price of the
Company's stock on the date the Debenture proceeds were
received and the $2 conversion price for the potential
conversion of 50% of the Debentures into 148,750 common
shares. The total discount of $359,238 is being amortized as
additional interest expense over the period from receipt of
Debenture proceeds to February 28, 1999, the earliest
potential conversion date for 50% of the Debentures. A total
of $65,352 of the discount was amortized as additional
interest expense in the second quarter of 1998. The $293,238
unamortized balance of the discount is included in other
non-current assets in the accompanying Balance Sheet as of
June 30, 1998.
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Note 9 Issuance of Common Stock for Services
In the second quarter of 1998 the company issued a total of
9,500 shares of common stock for services rendered in 1998 on
behalf of The Fifth Avenue Channel and issued 10,000 shares in
payment of legal services included in accounts payable at
December 31, 1997. The issuance of the 19,000 shares was
recorded at the closing price on the day preceding the
issuance of the shares totaling $98,938.
On April 17, 1998 the company granted options to purchase
5,000 Company shares per month at $2.25 to an investment
advisor. The options vest monthly as long as the company
utilizes the services of the advisor. A value of $1 per share
was assigned to the options based on the closing stock price
on April 17, 1998. The company recorded $5,000 in Additional
Paid In Capital and operating expense each month for the
assigned value of the options that vested in May and June of
1998.
Note 10 Stock Warrants, Consulting Agreements and Shares Reserved
PUBLICLY TRADED COMMON STOCK PURCHASE WARRANTS
In connection with its initial public offering on May 10,
1995, the Company sold 1,610,000 redeemable common stock
purchase warrants at a price of $.25 per warrant. Each warrant
entitles the holder to purchase, at any time from the date of
the offering through the fifth anniversary date, one share of
common stock at a price of $5.75 per share. The warrants are
redeemable at a price of $.25 per warrant under certain
circumstances.
PRIVATE PLACEMENT WARRANTS
In August 1994 and December 1, 1994, the Company issued an
aggregate of 625,000 common stock warrants as part of the sale
of units of its securities. Such warrants may be exercised
within five years from the date of their issuance at an
exercise price of $5.75 per share. The warrants provide for
adjustment in the number of shares underlying the warrants
upon the occurrence of certain events, such as stock
dividends, stock splits or other reclassifications of the
Company's common stock, a consolidation or merger of the
Company, or a liquidating distribution of the Company's common
stock.
UNDERWRITER STOCK WARRANTS
In connection with the public offering, the Company sold
Underwriter's stock warrants, at a price of $.001 per Warrant.
Warrants to purchase 100,000 shares of common stock and
warrants to purchase an additional 140,000
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warrants were sold. The underwriter's stock warrants are
exercisable at a price of $7.50 per share, and the
underwriter's warrants are exercisable at a price of $.375 per
warrant through May 10, 2000. Each warrant underlying the
underwriter's warrants is exercisable for one share of common
stock at an exercise price of $5.75 per share.
CONSULTING AGREEMENTS
On December 23, 1996 the Company engaged four Individuals (the
"Consultants") to provide financial and Public relations
services to the Company. The Company issued a total of 200,000
shares of its common stock valued at $988,000 (fair value) to
the Consultants as compensation for the services to be
provided by the Consultants. No costs were expensed as of
December 31, 1996 as no services had been performed under the
agreements. The $988,000 was recorded in operating expenses at
$247,000 per quarter in 1997.
In July 1997, the Company entered into a two-year Consulting
Agreement with an investment banking firm (the "Consultant").
Pursuant thereto the Company granted the Consultant 500,000
one-year warrants exercisable at $1.00 per share, 200,000
one-year warrants exercisable at $2.50 per share and 100,000
three-year warrants exercisable at $2.50 per share. A value of
$128,000 was assigned to the warrants and was recorded to
operating expenses in the second half of 1997. In October 1997
assignees of the Consultant exercised 450,000 of the one year
warrants at $1 per share and the company received $450,000.
See Note 6 for warrants issued to the President in the
Restructuring of the $2,000,000 debt.
SHARES RESERVED
At June 30, 1998, the Company has reserved 9,504,500 Shares of
common stock for future issuance pursuant to Stock warrant,
stock option and convertible debt Agreements. This total is
the maximum shares issuable upon conversion of debt and
includes 177,000 shares reserved under the stock option plan
for options that have not been granted at June 30, 1998.
Note 11 Net Loss Per Share
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share", which simplifies
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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.
Net loss per common share (basic and diluted) is based on the
net loss after preferred stock dividends divided by the
weighted average of common shares outstanding during each
year.
The weighted average shares outstanding include 2,392,000 and
1,202,608 shares for the conversion of the Rosen Debenture
into 4,732,000 common shares. The shares are considered as
being outstanding after Rosen's election to convert the
$2,366,000 Debenture balance on May 15, 1998 even though the
shares have not been issued.
The Company's potentially issuable shares of common stock
pursuant to outstanding stock purchase options and warrants
and convertible preferred stock and debentures are excluded
from the Company's diluted computation as their effect would
be antidilutive to the Company's net loss.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company operates wireless cable television systems in LaCrosse, Wisconsin
(the "LaCrosse System") and in the Central American country of Costa Rica (the
"Costa Rican System"). As of June 30, 1998 the LaCrosse System had approximately
1,100 subscribers and the Costa Rican System had approximately 4,500
subscribers.
On March 28, 1996, the Company successfully bid for authorizations to three
markets: Hickory-Lenoir-Morganton, NC; Wausau-
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Rhinelander, WI; and Stevens Point-Marshfield-Wisconsin Rapids, WI. The
Wisconsin markets are designated as future wireless cable television systems.
The North Carolina authorization has been abandoned.
The restructure of the loan issued as part of the acquisition of the Costa Rican
licenses resulted in a change in control of the Company and its executive
management in May 1997. See note 6 of Notes to Consolidated Financial
Statements.
In November 1997 the Company agreed in principle 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 execution of the definitive agreement for
the purchase of the Fifth Avenue capital stock, which is expected to occur in
the third quarter of 1998.
The Fifth Avenue Channel will be a new 24 hour luxury lifestyles television
channel premiering in October 1998. Fifth Avenue has entered into contracts with
Bloomberg LP to broadcast Bloomberg Television on the Fifth Avenue Channel and
with Fashion TV Paris for joint marketing and channel carriage. Fashion TV Paris
broadcasts daily to approximately 100 million households in Europe and Asia.
Ivana Trump who is the Chairwoman and a 10% shareholder of Fifth Avenue will
host the Fifth Avenue Channel.
Fifth Avenue plans to launch its website (5thAvenueChannel.com) featuring
high-end products and services in mid summer 1998. The Company expects its
television programming to drive visitors from around the world to its internet
website.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1998 and 1997
REVENUES
The Company had revenues of $324,771 for the quarter ended June 30, 1998 and
$262,314 in the comparable 1997 period. The $62,457 increase in revenues is due
to the increased Costa Rican subscriber base. The Costa Rican System generated
75% of 1998 revenues and 58% of 1997 revenues and the LaCrosse System
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generated approximately 25% of 1998 revenues and 42% of 1997 revenues.
COST OF SALES
Cost of sales for 1998 increased $21,726 over the comparable 1997 period, due to
the significant increase in Costa Rican subscribers. Cost of sales as a percent
of revenues increased from 12% in 1997 to 16.4% in 1998 because of increased
programming costs of the Costa Rican System.
OPERATING EXPENSES
Operating expenses for 1997 include $247,000 of investment banking and financial
relations consulting expense assigned to a consulting agreement dated December
23, 1996. This agreement was not renewed and similar expense was not incurred in
the second quarter of 1998. The second quarter of 1998 included $186,595 of
expenses starting up the Fifth Avenue Channel which is not expected to have
significant revenues until the fourth quarter of 1998.
Excluding both the non-recurring consulting expenses and the Fifth Avenue
Channel start up expenses, the costs of operating the Costa Rican and LaCrosse
Systems and the corporate office in Florida totaled $630,987 (194% of related
revenues) in 1998 and $470,178 (179% of related revenues) in 1997. The $160,809
increase in comparable operating expenses is due to the increased variable costs
of providing subscriber services to the significantly expanded Costa Rican
System and higher administrative costs.
INTEREST EXPENSE
Interest expense increased $49,114 in the second quarter of 1998 primarily
because of the $65,532 discount on the 12% convertible Debentures and interest
on the 12% Convertible debentures and on loans from stockholders. No interest
expense was recorded in 1998 on the Rosen debenture because in November, 1997,
Rosen agreed to convert the $2,366,000 balance into 4,732,000 shares of common
stock on or before May 15, 1998. See Note 6 to the Consolidated Financial
Statements. The 1997 period included $50,409 of interest on the $2,100,000 Rosen
Debenture.
Six Months Ended June 30, 1998 and 1997
REVENUES
The Company had revenues of $666,486 for the six months ended June 30, 1998 and
$488,422 in the comparable 1997 period. The $178,064 increase in revenues is due
to the increased Costa Rican
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subscriber base. The Costa Rican System generated 75% of 1998 revenues and 56%
of 1997 revenues and the LaCrosse System generated approximately 25% of 1998
revenues and 44% of 1997 revenues.
COST OF SALES
Cost of sales for 1998 increased $32,754 over the comparable 1997 period, due to
the increase in Costa Rican subscribers. Cost of sales as a percent of revenues
increased from 14.1% in 1997 to 15.2% in 1998 because of increased programming
costs of the Costa Rican System.
OPERATING EXPENSES
Operating expenses for 1997 include $494,000 of investment banking and financial
relations consulting expense assigned to a consulting agreement dated December
23, 1996. This agreement was not renewed and similar expense was not incurred in
the second quarter of 1998. The second quarter of 1998 included $252,921 of
expenses starting up the Fifth Avenue Channel. Excluding both the non-recurring
consulting expenses and the Fifth Avenue Channel start up expenses, the costs of
operating the Costa Rican and LaCrosse Systems and the corporate office in
Florida totaled $1,191,975 (179% of related revenues) in 1998 and $914,673 (167%
of related revenues) in 1997. The $277,302 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 increased from 167% in 1997 to
178% in 1998 because of increased programming and bad debt costs in Costa Rica
and increased corporate overhead. The Company intends to increase the Costa
Rican subscriber base in the second half of 1998 which should allow the Costa
Rican operating expense ratio to resume its decline.
INTEREST EXPENSE
Interest expense in the six months ended June 30, 1998 included interest on the
increased loans from stockholders, $65,532 of amortization of the discount on
the recently issued Convertible Subordinated Debentures and 12% interest for the
period the Convertible Subordinated Debentures were outstanding. The 1997 period
included interest of $66,435 on the Rosen Debenture and a $50,000 cost of
extending the maturity date.
No interest expense was recorded on the Rosen Debenture balance in 1998 because
in November 1997, Rosen agreed to convert the $2,366,000 balance into 4,732,000
shares of common stock on or before May 15, 1998. See Note 6 to the Consolidated
Financial Statements.
18
<PAGE>
INFLATION AND FOREIGN CURRENCY FLUCTUATION
Costa Rica continues to experience a decline in the value of the Colon relative
to the US dollar of approximately 1% per month. The government of Costa Rica
mandates minimum salary increases on July 1 and January 1 of each year. The
Company has been able to increase its prices to cover the wage increases and the
effects of the currency decline in Costa Rica and believes that it will be able
to continue to do so without significant effect on its subscriber base.
The providers of the programming that the Company rebroadcasts in LaCrosse have
increased the rates charged per subscriber when the contracts were renewed
primarily in the fall of 1997. These increases have not been significant and, as
a low cost provider of alternative cable TV, the Company believes it has the
ability to increase its rates to pass the increase in programming costs on to
its subscribers.
LIQUIDITY
SOURCE AND USE OF CASH FOR 1998
In early May 1998 the Company completed a private offering of 12% Convertible
Subordinated Debentures to accredited investors. The $556,082 of net Debenture
proceeds ($595,000 less $38,918 of expenses) received was used to pay
liabilities and to fund operations for the second quarter of 1998. The Company
is exploring alternative sources to finance its operations for the remainder of
1998.
AGREEMENT TO ACQUIRE 60% OF THE FIFTH AVENUE CHANNEL
In November 1997 the Company agreed in principle 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 execution of the definitive agreement for
the purchase of the Fifth Avenue capital stock, which is expected to occur in
the third quarter of 1998.
Up to 400,000 additional Company shares may be issued if Fifth Avenue achieves
certain revenue and net profit milestones in its first two years of operations.
Mel Rosen will retain 20% and IBC will retain 10% of the stock of Fifth Avenue,
which will premiere a new 24-hour luxury lifestyles television channel in
October of
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1998. Ivana Trump owns the remaining 10% of Fifth Avenue and will serve as the
hostess for the channel.
Pursuant to the acquisition agreement the Company is obligated to fund the
development of Fifth Avenue. In the six months ended June 30, 1998 the Company
advanced $252,921 to fund the operating expenses of Fifth Avenue. The $252,921
was charged to operating expenses in 1998.
WORKING CAPITAL DEFICIT/ADDITIONAL DEBT OR EQUITY FINANCING REQUIRED
The accompanying Consolidated Balance Sheet reflects current liabilities of
$1,081,539 and current assets of $191,497 resulting in a working capital deficit
of $890,042.
Although the Costa Rican and LaCrosse operations generate positive cash flow,
the cash flow does not cover the corporate overhead. Increasing the subscriber
base requires additional capital because the incremental equipment and labor
installation costs per subscriber exceed the installation fees charged the
subscriber. It generally takes between 6 months and a year for the gross profit
from each new subscriber to cover the incremental costs of adding the
subscriber.
The Company intends to substantially increase its current subscriber base in the
Costa Rican System and to moderately grow the LaCrosse System. The Company also
plans to fully develop the Fifth Avenue Channel. The Company needs to raise
additional debt or equity capital for capital expenditures and to fund
operations, including its corporate overhead and the launch of the Fifth Avenue
Channel.
The Company is exploring various sources of additional financing, but has no
commitments in this regard. Failure to secure additional debt or equity
financing could have a material adverse effect on the Company and its ability to
continue as a going concern.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
(FAS 130), and No. 131, "Disclosure about Segments of an Enterprise and Related
Information" (FAS 131). FAS 130 establishes standards for reporting and
displaying comprehensive income, its components and accumulated balances. FAS
131 establishes standards for the way that public companies report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial statements
issued to the
20
<PAGE>
public. Both FAS 130 and FAS 131 are effective for annual periods beginning
after December 15, 1997. The Company has adopted FAS 130 and FAS 131 in its 1998
quarterly reports and such new standards have not had a significant impact on
the financial statements.
Currently, the Company has eleven employees domestically and thirty-six
employees in Costa Rica. There are additional plans to increase employees in the
Costa Rican location.
21
<PAGE>
PART II OTHER INFORMATION
ITEM 2 Changes in Securities:
In the second quarter of 1998 the Company completed a private
offering of $595,000 of 12% Convertible Subordinated Debentures
(the "Debentures") to accredited investors. The Debentures are
convertible into common shares at $2 per share. Up to 50 % of the
debentures can be converted after February 28, 1999 and the
remaining 50% can be converted after July 31, 1999 unless redeemed
earlier by the Company. Notwithstanding the early redemption by the
Company, debenture holders may convert no less than 50% of their
original Debenture into common shares. Interest is payable monthly.
On April 17, 1998 the company granted options to purchase 5,000
company shares per month at $2.25 to an investment advisor. The
options vest monthly as long as the company utilizes the services
of the advisor. A value of $1 per share was assigned to the options
based on the closing stock price on April 17, 1998.
The foregoing securities were all issued without registration under
the Securities Act of 1933 as amended by reason of the exemption
from registration afforded by the provisions of Section 4(2)
thereof, as transactions by an issuer not involving a public
offering, each recipient of securities having delivered appropriate
investment representations to the Company with respect thereto and
having consented to the imposition of restrictive legends upon the
certificates evidencing such securities. A 10% commission and 3%
unaccountable expenses were paid in connection with the issuance of
some of the Debentures.
The Company issued 19,000 shares of common stock for services
rendered. A registration statement on Form S-8 was filed with the
SEC registering these shares in June 1998.
ITEM 6 Exhibits and Reports on Form 8-K
Exhibit 27.1 Financial Data Schedule
Reports on Form 8-K. None
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
TEL-COM WIRELESS CABLE TV CORPORATION
Date: August 15, 1998 By: /s/ SAMUEL H. SIMKIN
----------------
Samuel H. Simkin, Vice President,
General Counsel and Principal Financial Officer
22
<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
Index to Exhibits
For Quarter Ended June 30, 1998
EXHIBIT DESCRIPTION
- ------- -----------
Exhibit 27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,869
<SECURITIES> 0
<RECEIVABLES> 77,948
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 191,497
<PP&E> 1,989,804
<DEPRECIATION> 577,079
<TOTAL-ASSETS> 7,107,341
<CURRENT-LIABILITIES> 1,081,539
<BONDS> 0
0
0
<COMMON> 4,030
<OTHER-SE> 2,103,070
<TOTAL-LIABILITY-AND-EQUITY> 7,107,341
<SALES> 666,486
<TOTAL-REVENUES> 666,486
<CGS> 101,411
<TOTAL-COSTS> 101,411
<OTHER-EXPENSES> 1,444,896
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 115,495
<INCOME-PRETAX> (995,316)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (995,316)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
