Here is the low-down on all the upcoming TCTV dilution (from the latest 10-Q). Anthony, you had it right, this is a real mess and a great short-selling candidate.
Loan Restructure In 1997
On May 19, 1997, the Company entered into an agreement with the Seller
restructuring the $2 million note issued in the acquisition of Canal 19
into a convertible debenture ("Rosen Debenture") maturing in 12 months
and bearing interest at 12% per annum. The principal amount of the
Rosen Debenture was increased by $100,000 for expenses owed or
reimbursable to Seller at the issue date of the Rosen Debenture.
As consideration for this debt restructuring, the Company agreed to
issue to the Seller (i) 180,000 shares of the Company's Common Stock,
(ii) a warrant to purchase 500,000 shares at $1.00 per share, and (iii)
a warrant to purchase 500,000 shares at $5.00 per share. Under the
Agreement, the Seller became the President and Chairman of the Board
and received the right to nominate two members to the Company's Board
of Directors until such time as the President exercised the conversion
rights under the Rosen Debenture. A value of $78,750 was assigned to
the aforementioned stock and $10,000 to the warrants issued.
The Rosen Debenture is convertible by Seller into the Company's Common
Stock at any time after the issue date prior to payment of the Rosen
Debenture. The conversion price was equal to the lesser of (1) $.50 per
share of Common Stock or (2) the average of the closing "bid" for the
Company's Common Stock as reported on NASDAQ for the five trading days
immediately prior to the conversion date. At either the President's or
the Company's option, $1 million of this amount could have been
extended for an additional period of 12 months with interest at 15% per
annum.
No interest was paid on the Rosen Debenture and the $153,033 of
interest accrued from May 19, 1997 to December 31, 1997 was added to
the Rosen Debenture balance. 10
<PAGE> TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In November, 1997, the President notified the Company of his intention
to convert the Rosen Debenture into Common Stock. As inducement for the
early conversion and for the President foregoing all interest on the
Rosen Debenture after December 31, 1997, an additional $109,967 was
added to the Rosen Debenture principal balance in 1997. The resulting
$2,366,000 Rosen Debenture balance will be converted into 4,732,000
restricted shares of Common Stock as soon as the Company's articles of
incorporation are amended to increase the number of authorized shares.
This amendment is expected to occur at the Company's next annual
shareholders' meeting, tentatively scheduled for mid-January, 1999.
The $238,750 total cost of extending and restructuring the debt and the
$109,967 early conversion inducement were recorded as interest expense
in 1997.
Note 7 Convertible Preferred Stock Purchase & Conversion in 1997
The Company is authorized to issue up to 5,000,000 shares of "blank
check" preferred stock and the Board of Directors has the authority,
without shareholder approval, to fix the rights, preferences and
privileges including dividend rights, conversion rights, terms of
redemption or liquidation preferences.
On November 25, 1996, the Company accepted a Subscription Agreement
from Amber Capital Corporation and Investor Resource Services, Inc.
(the "Buyers") for a total of 500 shares of its Series A Convertible
Preferred Stock at a price of $1,000 per share (the "Preferred
Shares"), for a total subscription price of $500,000. The Buyers
delivered $100,000 and promissory notes ("Notes") for $400,000 at
closing. The Buyers paid an additional $100,000 against the Notes on
January 8, 1997.
After the Notes were not paid on the January 31, 1997 due date, the
Company and the Buyers agreed to terminate the balance of the
Subscription Agreements and cancel the Notes. On March 14, 1997, Aurora
Capital purchased 100 shares of the Company's Series B Convertible
Preferred Stock for $100,000. The Series A preferred shares were
convertible into shares of Common Stock at the lesser of $3.25 or 65%
of the average bid for the Common Stock for the five trading days
prior to the conversion. 11<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The shares of Series B Preferred Stock were convertible at the lesser
of $1.00 or 65% of the average bid for the Company's Common Stock for
the five trading days prior to the conversion. Neither Series A nor
Series B Preferred Stock had fixed dividend rights.
During the first quarter of 1997 the Company recorded a preferred stock
dividend of $161,800 which represented the 35% discount off the bid
price of the Common Stock at the time the preferred shares were issued
for a total of $300,000. The $161,800 was added to additional Paid-in
Capital and increased the Accumulated Deficit in the first quarter of
1997. The dividend increased the net loss per share of Common Stock by
$.07 for the first quarter of 1997.
The 300 aggregate shares of Series A and Series B Convertible Preferred
Stock were converted into 1,183,431 shares of Common Stock at 65% of
the $.39 average bid price per share on the 5 trading days preceding
the election to convert. The 1,183,431 shares of Common Stock were
issued on September 16, 1997.
Note 8 Financing-Issuance of 12% Convertible Debentures in 1998
In the second quarter of 1998, the Company completed a private offering
of 12% Convertible Subordinated Debentures ("the Debentures"), due in
November 1999, to accredited investors. If the Company offers to redeem
the Debentures on or before February 28, 1999, 50% of the Debentures
are convertible into shares of Common Stock at $2 per share. If the
Company does not offer to redeem the Debentures by that date, the
remaining 50% can be converted after July 31, 1999. Notwithstanding the
early redemption by the Company, Debenture holders may convert no less
than 50% of their original Debenture into shares of Common Stock.
Interest is payable monthly.
The Company received $556,082 of net Debenture proceeds ($595,000 less
$38,918 of expenses). The Company recorded Additional Paid in Capital
totaling $359,238 for the difference between the closing price of the
Company's Common Stock on the date the Debenture proceeds were received
and the $2 conversion price for the potential conversion of 50% of the
Debentures into 148,750 shares of Common Stock.
12<PAGE>
TEL-COM WIRELESS CABLE TV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The total discount of $359,238 is being amortized as additional
interest expense over the period from receipt of Debenture proceeds to
February 28, 1999, the earliest potential conversion date for 50% of
the Debentures. A total of $175,560 of the discount was amortized as
additional interest expense in the second and third quarters of 1998.
The $183,678 unamortized balance of the discount is included in other
non-current assets in the accompanying Balance Sheet as of September
30, 1998. |
