Item 1. Description of Business.
General
CTN Media Group, Inc., a
Delaware corporation formerly known as College Television Network, Inc., (the
“Company”) is a targeted media company specializing in reaching young
adults. The Company commenced
operations in January 1991. As of
December 31, 2001, the Company operated College Television Network and its
related website Collegetelevision.com.
At the beginning of 2001, the Company operated in
television, magazine, newspaper and online sectors. In July 2001, the Company sold Armed Forces Communications, Inc.,
a New York corporation doing business as Market Place Media (“MPM”), a media
placement and promotion specialist in the college, military and minority
segments. In April 2001, the Company
published its last issue of Link Magazine (“Link”) at which time Link was put
on an indefinite hiatus. In April 2001,
the Company integrated the Wetair.com website into Collegetelevision.com and in
January 2002, Wetair.com, L.L.C. was merged into the Company. In addition, on July 31, 2001, the Company
ceased operations of iD8 Marketing (“iD8”), it’s Atlanta-based advertising
agency. Therefore, the remaining
properties of the Company are College Television Network and its related
website Collegetelevision.com.
Prior to the year ended December 31, 2001, the Company
operated as two reportable segments: CTN and MPM. As stated, the Company sold MPM on July 10, 2001. MPM’s separate results are reported in Note
(4) Discontinued Operations in the accompanying audited financial statements. CTN includes the operations of the College
Television Network (the “Network”), Link, iD8 and Wetair.com.
The Network is a proprietary commercial satellite
television network that operates on college and university campuses across the
United States. Its single-channel
television system is placed free of charge in campus public venues, including
dining facilities and student unions.
The Network broadcasts music, news, information and entertainment
programming. As of December 31, 2001,
the Network was installed or contracted for installation in approximately 1,775
locations at approximately 785 colleges and universities. The Company sells advertising on the Network
as its primary source of revenue.
The Company’s principal executive offices are located
at 3350 Peachtree Road, Suite 1500, Atlanta, Georgia 30326 and its telephone
number is 404-256-9630. Atlanta is
where most administrative functions are handled for the Company. The Company maintains its sales headquarters
in New York City. The Company also
maintains satellite offices in Chicago and Los Angeles.
CTN
The College Television
Network System
The Company believes the Network to be the largest
college and university private commercial television network in the United
States. The Network is transmitted via
satellite to many of the nation’s largest colleges and universities, including
among others: The Ohio State University, the Pennsylvania State University,
Arizona State University, New York University, Michigan State University, UCLA,
the University of Florida, the University of Washington, Louisiana State
University, Georgetown University, Florida State University, the University of
Illinois, the University of Maryland, the University of North Carolina, and the
University of Arizona.
The Network’s programming of music, news, information
and entertainment is viewed on monitors placed in strategic locations
throughout the campus site to help ensure exposure and ease of viewership. Each site is equipped with a main processing
unit and from one to ten viewing monitors.
In order to enhance the flexibility and program diversification of the
Network, the Company utilizes a digital video broadcast (“DVB”) delivery
platform. DVB offers the Network a
delivery system that is reliable, cost-efficient and flexible. The DVB platform
enables the Company to expand programming opportunities, as evidenced by the
Network’s ability to broadcast two distinct channels of programming
simultaneously: urban programming and mainstream programming. The Network uses a Columbine Software for
its trafficking system, which is widely used in broadcasting and is regarded as
very reliable in providing broadcast affidavits. Through its Transponder Lease Agreement with Public Broadcasting
Service, Inc. (“PBS”), the Company has the capacity to add a third channel for
additional Network programming. The
Company also receives customized news and sports programming produced by CNN
for the Network through an agreement with Turner Private Networks. The Network airs newscasts twice an hour,
with new newscasts being produced twice daily. In fiscal 2001, the Network also
aired original programming features such as the Gravity Games, Mademoiselle
Connections, PC Magazine “First Looks,” Pay Dirt, Comic Relief, Backstage Pass
and a Network-sponsored Spring Break activity village and events and two
concert tours. For the coming year, the
Network has recently signed agreements with ESPN, The History Channel and
Glamour on Campus (replacing Mademoiselle Connections) to broadcast short
programming segments.
The Network’s revenue is primarily derived from
commercial advertising. The Company
presently allots eight minutes of advertising available per hour, however, if
sales increase it may increase the amount of advertising up to 16 minutes per
hour. The Company believes the Network
is well positioned to offer advertisers a highly targeted and effective way to
reach a highly desirable audience: 18 to 24-year-old college and university
students with significant disposable income.
This demographic group maintains proven attractiveness to national
advertisers. The Network’s cost per
thousand viewers (“CPM”) pricing is highly competitive in the industry. National advertisers on the Network during
fiscal 2001 included AOL / Time Warner (Warner Bros.); AT&T Corporation;
The Andrew Jergens Co. (Biore); Best Buy Company, Inc.; Bristol Meyers Squibb
(Clairol); Burger King Corporation; Duckhead Apparel Company, Inc.; Hershey
Foods Corporation; Johnson & Johnson; Kellogg Company; K-Swiss, Inc.; Levi
Strauss & Co.; New Line Cinema Corporation; Proctor and Gamble Co.; Reebok
International; S.C. Johnson & Son Co.; Sony Corporation; Twentieth Century
Fox Home Entertainment (News America Group); U.S. Army; Visa International
Service Association; The Walt Disney Company; and Wendy’s International. The Company’s mix of advertisers on the
Network changes from time to time.
During the current year and the last fiscal year, the
Company’s strategy regarding the Network has been to expand the number of
advertisers on the Network and maintain our existing affiliate base of
institutions in
which the Network is offered.
The Company believes it has reached a sufficient critical mass of
audience to effectively attract and retain advertisers. Based on our Fall 2001 Nielsen Media
Research study, the Network reaches 8.2 million college students every week in
approximately 1775 college and university locations. The Company will now focus on increasing inventory sell-out
percentages and CPM rates.
Network Programming Content
The Network’s programming consists primarily of music,
news, information and entertainment.
The Network’s music programming is provided to the Company free of
charge by major music companies, including Warner/Elektra/ Atlantic,
Columbia/Epic, Interscope/MCA/Universal, Arista/RCA, Capital and Virgin.
Pursuant to an agreement with Turner Private Networks,
Inc. the Network has a license to broadcast specially produced, college
oriented CNN news and sports programming through December 31, 2002. The Company is exploring options for news
production after the expiration of the Turner Private Networks, Inc. contract. The total license fee pursuant to this
agreement is approximately $3,200,000 and the current annual license fee is
$700,000.
The Network has created and produced numerous
original-programming segments. These
programs include co- sponsorship of the Gravity Games which aired on NBC and
features such as Paydirt, The Final Cut, Backstage Pass and CTN’s Tailgate
Tour. In addition, through various
content agreements, the Network airs segments such as Glamour on Campus,
Cartoon Network’s “Adult Swim” and daily sports highlights provided by ESPN. Additionally, the Network has just entered
into a content agreement with the History Channel.
The Systems - Installation and
Maintenance
Each location at a college containing Network
equipment (“System”) is installed, without charge to the institution, at
designated locations agreed upon between the Company and the institution. Due to the Company’s increased marketing
efforts, the Network is currently installed in 48 states nationwide and reaches
97 of the top 100 Designated Marketing Areas, known as “DMAs.” The Company bears the costs of normal
maintenance and replacement parts for each System.
The Company has obtained liability insurance that
generally covers losses from fire, theft, vandalism and certain other events
for each installed System. The Company
pays insurance premiums on a per System basis and intends to expand coverage to
newly installed Systems each quarter.
There can be no assurance that such insurance can be maintained at
reasonable rates, or at all. Without
such insurance, significant damage to a number of Systems could adversely
affect the Company and its financial condition. To date, the Company has filed only four insurance claims for
losses. The Company has also obtained
insurance for certain of the costs associated with its reliance upon satellite
technology, including the costs of redirecting satellite dishes to a new
satellite transponder, and the lost advertising revenues resulting from any
satellite failure.
The components for each System are generally standard,
and the Company believes, based on its past experience and discussions
regarding proposals with various component part manufacturers and suppliers,
that such components will continue to be available from several different
sources. Based on the stated estimated
mean time to failure provided by component part manufacturers and suppliers,
the expected useful life for each System is approximately five years. The warranties for such components are
generally for 12 months.
Network Markets
There are approximately 3,600 colleges and
universities in the United States.
Since the Network has achieved a substantial viewership, the Company has
shifted its focus away from expanding the Network, other than marquee type
locations. The Company has reduced the
affiliate sales and support staff to nine full-time employees.
Advertising Revenues
As of December 31, 2001, the Company derives its
revenues primarily from advertisements placed on the Network. We believe that
advertisers find the Network’s programming to be current and appealing, the
campus dining hall setting with its captive audience to be desirable, and the
Network’s programming concept to be targeted and innovative.
In fiscal 2001, approximately 20% of the Network advertising
spots were sold. The Network’s strategy
follows three principal methods for increasing its advertising revenue: (i)
increasing the number of advertisers and advertising spots sold to maximize the
use of time available to be sold; (ii) increasing the CPM rate; and (iii)
maintaining audience size through System performance and reliability.
For fiscal 2001, Best Buy, Visa, U.S. Army, Kelloggs and AT&T
accounted for 11%, 7%, 6%, 5% and 5% respectively, of Network advertising
revenues. For fiscal 2000, The Coca
Cola Company, Best Buy, U.S. Army, Mennen and Secret accounted for 12%, 7%, 7%,
5% and 4%, respectively. For fiscal
1999, The Coca-Cola Company, Colgate/Palmolive, Mentos, K-Swiss and Universal
Pictures accounted for 23%, 8%, 6%, 6% and 5%, respectively.
Financing
The Company maintains a $5 million line of credit
facility. After the mandatory permanent
repayment of this credit facility of $10.3 million upon the sale of MPM, which
reduced the borrowing limit to $1.7 million, the Company amended the credit
facility to increase the borrowing limit to $5.0 million. This was done in order to meet the Company’s operating expenses
required to enhance programming and sales efforts in fiscal 2001.
At December 31, 2001, the Company was not in compliance
with all of the financial covenants required under its revolving loan
facility. The financial institution has
granted the Company a waiver for the Company’s current defaults related to
these financial covenants. See Item 7.
“Management’s Discussion and Analysis or Plan of Operation - Financial
Condition and Liquidity” and Note 3 to the attached Financial Statements.
On April 5, 2001, the Company issued 266,666 shares of
Series B Preferred Stock to U-C Holdings L.L.C. (“Holdings”) for an
aggregate purchase price of $3,999,990.
The proceeds for this financing were used to fund operating expense
deficits.
On November 26, 2001, the Company entered into a
subordinated bridge note agreement (“Bridge Note”) with Holdings in the amount
of $3,000,000 to help finance current operating expense deficits. As of December 31, 2001, the Company
borrowed $1,500,000 on this facility.
The Bridge Note is convertible into equity in conjunction with the
securing of new capital. As of March 6,
2002, the facility was fully drawn.
Pursuant to an amendment to the Bridge Facility dated March 19, 2002,
the Company sold Holdings an additional $320,000 in subordinated Bridge
Notes. See Note 6 of the Financial
Statements for a discussion on the terms of this facility.
The Company will require additional capital to meet
its ongoing operational and debt service requirements, including satisfaction
of the $5,000,000 of indebtedness that comes due on January 31, 2003. The Company may secure this needed capital
through the issuance of additional preferred stock or entering into another
debt facility or a combination of both.
The Company’s independent accountants have issued a going concern
opinion in the financial statements at December 31, 2001. See “Report of Independent Accountants” and
Note 2 to the Financial Statements. The
Company is attempting to obtain financing from various sources in an effort to
fund its cash flow deficiencies.
However, there is no assurance that this financing will be obtained.
Competition
The Network competes for advertisers with many other
forms of advertising targeting the 18-24 year-old market. These competing forms of advertising media
include television, Internet, radio, print, direct mail and billboard. The Company is not aware of any other single
channel national television network placed in public venues in colleges and
universities. There is no assurance
that someone with greater resources will not
enter into the market. The Company believes it can successfully compete
against other forms of media because it offers an effective means of reaching a
difficult-to-reach-targeted audience at an efficient cost. In addition, the Company believes that the
time required to secure and contract with each institution is significant.
Employees
As of December 31, 2001, the Company employed 43
full-time salaried personnel, consisting of various managerial, operational,
programming, advertising and affiliate support personnel. The Company also utilizes independent
contractors to perform certain services required in connection with the
production, installation and maintenance of its Systems. The responsibilities of the Company’s
operations and administrative personnel include conducting marketing and
promotional activities, managing campus relations and performing administrative
and financial functions. Ten of the
Company’s employees have employment agreements with the Company. The Company believes that its relationship
with its employees is satisfactory.
Government Regulation
Because the Network is a private network and is
currently not a direct live broadcast the Company is not restricted by
regulations of the Federal Communications Commission, network standards and
practices or traditional format length and content restraints. Regulatory matters relating to the Company’s
satellite transmissions are the responsibility of PBS, pursuant to the
Company’s Transponder Use Agreement with PBS.
The Company believes that the manner in which it presently conducts its
business operations, and intends to conduct its business operations, including
its licensing arrangements with record companies and agreements with location
owners, is in material compliance with all applicable laws.
Proprietary Information
The Company believes that certain of its rights to,
and uses of, its properties may be protectable under applicable patent,
copyright and proprietary information laws.
There can be no assurance as to such fact or that others may not
independently develop the same or similar technology on which the Company’s
properties are based and thereafter directly compete with the Company. The Company intends to pursue copyright and
trademark registrations as necessary.
No assurance can be given, however, that such coverage, even if it can
be obtained, will afford the Company meaningful protection of any of its
proprietary rights. The Company has
obtained trademark registrations for “College Television Network” and “UCTN.”
Publicly Available Information
The Company is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the “Commission”). Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the Commission, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20546. The public may obtain information on the
operation of the Public Reference Room by calling the Commission at
800/SEC-0330. The Commission also
maintains an Internet site that contains reports, proxy and information
statements, and other information regarding the Company and other issuers that
file electronically with the Commission at http:\\www.sec.gov.
Item 2.
Item 2. Description of Property.
The Company presently has facilities in five
cities: Atlanta, New York City, Los
Angeles, Chicago and St. Louis. The
Company currently leases approximately 20,400 square feet of space for its
principal executive office in Atlanta with a lease termination date of August
2005. The Company also leases
approximately 7,140 square feet, 1,800 square feet, and 2,010 square feet for
its regional sales offices in New York, Los Angeles, and Chicago, with
respective lease termination dates of May 2008, September 2002, and February
2003. The Company also leases approximately 5,000 square feet of warehouse
space in St. Louis on a month-to-month basis.
The warehouse is used to store equipment and parts utilized for
installation of Network equipment at
affiliate locations. The aggregate monthly rental for these leased
offices is currently approximately $79,300, and the Company’s management
believes that these facilities are adequate for its intended activities in the
foreseeable future. In an effort to
streamline operational efficiencies, the Company will attempt to downsize its
Atlanta operations into a smaller office location. The Company has retained a broker to attempt to sublet the
current Atlanta office space.
Item
3.
Item
3. Legal Proceedings.
The Company is not a party, nor to its knowledge
threatened to be made a party, to any material litigation or governmental
proceeding, other than a wrongful termination and age discrimination claim
brought by James Harder against the Company and Holdings in the United States
District Court for the Northern District of Illinois, Eastern Division. The lawsuit was commenced on February 12, 2001. Mr. Harder is seeking monetary damages from
the Company for lost pay and punitive damages and is suing Holdings in
connection with his equity ownership in Holdings.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5.
Item 5. Market for Common Equity and Related Stockholder Matters.
(a) The Company’s $.005 par value per share common
stock (the “Common Stock”) is traded and quoted under the symbol “UCTN” on The
Nasdaq SmallCap Market (“Nasdaq”).
Because the bid price for the Company’s common stock as listed on Nasdaq
has been less than $1.00, the Company has until August 13th, 2002 to
be in compliance with the Nasdaq listing requirements or it may be
delisted. The following table sets
forth the high and low sales prices for the Common Stock, as quoted on Nasdaq,
for the periods indicated.
As of March 14, 2002, the Company had 74 owners of
record and approximately 962 beneficial owners of its Common Stock.
Since its inception, the Company has not paid any cash
dividends on its Common Stock. The
Company intends to retain future earnings, if any, that may be generated from
the Company’s operations to help finance the operations and expansion of the
Company and accordingly does not plan, for the reasonably foreseeable future,
to pay cash dividends to holders of its Common Stock. Any decisions as to the future payment of dividends will depend
on the earnings and financial position of the Company and such other factors as
the Company’s Board of Directors deems relevant. The Company’s current credit facility with LaSalle Bank prohibits
the payment of dividends without the bank’s consent.
The terms of the Series A Preferred stock, $.001
par value per share (“Series A Preferred”) and Series B Preferred stock, $.001
par value per share (“Series B Preferred”) (collectively the Series A Preferred
and the Series B Preferred are referred to as “Preferred”) provide that when
and as declared, the Company shall pay preferential dividends in cash to the
holders of the Series A and Series B Preferred. Dividends on each share of the Series A and Series B Preferred accrue on a daily
basis at the rate of 12% per annum on the liquidation value thereof plus all
accumulated and unpaid dividends thereon from and including the date of
issuance of such share. The Company is
not obligated to pay out any cash dividends on the Series A and Series B
Preferred until the first to occur of (i) the date on which the liquidation
value of the Series A and Series B
Preferred (plus all accrued and unpaid dividends thereon) is paid to the holder
thereof in connection with the liquidation of the Company or the redemption of
such stock by the Company, (ii) the date on which the Series A and Series
B Preferred is converted into shares of Common Stock or (iii) the date on which
such stock is otherwise acquired by the Company. In conjunction with the departure of two former executives,
pursuant to a Termination and Purchase Agreement executed by Holdings, the
Company has declared two dividends to be paid on the Preferred to Holdings in
the amounts of $665,000 and $110,000, respectively. The notes evidencing the dividends are payable over eighteen months
beginning November 30, 2001 and February 28, 2002, respectively. In connection with the dividend payments,
the Company was released from its obligations pursuant to the executive’s
employment agreements.
Effective March 31, 2001, the redemption feature of
the Series A Preferred was waived pursuant to an agreement between the Company
and Holdings, which ceased the accretion of Series A Preferred to its highest
redemption value at the end of each reporting period, and the Company is no
longer obligated to redeem, for cash, the outstanding shares of Series A
Preferred at the option of the Series A Preferred holders. This allowed the Company to move the
classification of the Series A Preferred from Mandatorily Redeemable Preferred
Stock to Stockholder’s Equity. The
Series A Preferred and Series B Preferred have been recorded on the Balance
Sheet of the Company at the redemption value locked in at March 31, 2001.
In connection with the Preferred issuances to
Holdings, as of December 31, 2001, the Company has reserved 18,479,890 common
shares for possible conversions of the Series A and Series B Preferred plus
accrued dividends by Holdings.
(b) The Company made no sales of unregistered
securities during the fourth quarter of 2001.
The Company has sold $1,500,000 of Bridge Notes to Holdings in the
fourth quarter in connection with the bridge financing, but the Company
disclaims that such Bridge Notes are unregistered securities.
Item 6.
Item 6. Selected Financial Data.
The following selected consolidated financial data are
derived from the financial statements of the Company. The historical results presented are not necessarily indicative
of future results. The selected
consolidated financial data set forth below should be read in conjunction with
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and CTN’s Consolidated Financial Statements and the related
Notes. All amounts for all periods
presented have been restated to reflect the sale of Market Place Media in July
2001.
Item 7.
Item 7. Management’s Discussion and Analysis or Plan of Operation.
The following discussion and analysis should be read
in conjunction with the Company’s financial statements, beginning on page
and “Item 6: Selected Financial Data”, included elsewhere in this report.
Overview
The Company is a targeted multimedia company whose
principal activities involve operating and marketing the Network. The Company started operations in January
1991.
The majority of the Company’s revenue is derived from
advertising displayed on the Network.
As of December 31, 2001, the Network was installed or contracted for
installation in approximately 1,775 locations in colleges and universities
throughout the United States. Revenue
also includes activity from Link Magazine and iD8, both of which ceased
operations in fiscal 2001.
MPM was purchased on August 31, 1999 and sold on July
10, 2001. Accordingly, the results of
operations of MPM for the three years are consolidated with the Company’s
results and are classified as discontinued operations. Results for 1999 include operations from
August 31, 1999 through December 31, 1999.
Results for 2001 include MPM operations from January 1, 2001 through
July 10, 2001.
The Company’s sales are affected by the pattern of
seasonality common to most school-related businesses. Historically, the Company generates a significant portion of its
sales during September through May and substantially less during the summer
months when colleges and universities do not hold regular sessions.
Critical
Accounting Policy Disclosures
The Company’s significant accounting policies are
described in Note 2 to the consolidated financial statements in the
accompanying audited financial statements.
On an ongoing basis, the Company evaluates its estimates including those
related to bad debts, valuation of property and equipment, investments, income
taxes, long-term service contracts, barter revenue transactions, and customer
programs and incentives. The Company
has identified the policies below as critical to the business operations and
the understanding of the results of operations. The impact and any associated risks related to these policies on
the business operations are discussed throughout Management’s Discussion and
Analysis of financial condition and results of operations where such policies
affect the Company’s reported and expected financial results. Note that the preparation of the financial
statements requires that management of the Company make estimates and
assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reported period. There can be no
assurance that actual results will not differ from those estimates.
Revenue
Recognition
Our revenue recognition policy is significant because
our revenue is a key component of our results of operations. In addition, our revenue recognition
determines the timing of certain expenses such as commissions and licensing
fees. The Company recognizes revenues
from advertising as the commercial spots air on the Company’s network. Barter revenues are recognized only if fair
value of the advertising given is determinable
based on a history of similar transactions being recorded in the past
in which cash was exchanged for the advertising. If the fair value of the advertising cannot be determined, no
revenue is recorded in exchange for the goods or services received from the
customer.
Allowance
for doubtful accounts
The Company manages its credit risk by performing
credit evaluations for customers whom management questions their credit
worthiness. Management of the Company
specifically analyzes accounts receivable and historical bad debts, current
economic trends and changes in customer payment terms when evaluating the
adequacy of the allowance for doubtful debts.
Impairment
of fixed assets
Much of the Company’s fixed assets are in service at
college and university locations subject to wear and obsolescence. The Company evaluates the impairment of its
fixed assets by periodically performing a physical count of its assets at a
location and considering remaining useful life of specific types of
assets. In assessing the recoverability
of the Company’s fixed assets the Company must make assumptions regarding the
estimated future cash flows and other factors to determine the fair value of
the respective assets.
Results
of Operations
The following table sets forth certain financial data
derived from the Company’s statement of operations for the fiscal year ended
December 31, 2001, December 31, 2000 and December 31, 1999.
2001 VS. 2000
Revenue from continuing operations decreased to
$10,110,696 for fiscal 2001 from $16,809,549 for fiscal 2000. Network advertising revenue of $8,678,899
represented a 36% decrease from fiscal 2000.
A soft advertising market and a transition in the Company’s sales force
have contributed to this decrease. The
Company’s fees and commission revenue through iD8 of $1,286,591 represented a
25% decrease from fiscal 2000. This
overall decrease is attributable to ceasing operations of the agency as of July
31, 2001. Publishing revenue consisted
of $145,206 for one issue of Link published for fiscal 2001 as compared to
$1,563,677 for fiscal 2000. The Company
hopes to increase Network sales during the year ending December 31, 2002 by
continuing to expand its advertiser base and sell-out levels and by further
increasing the fee charged for its advertising spots. Although the Company has agreements with national advertisers, no
assurance can be given that these or other advertisers will continue to purchase
advertising time from the Company, or that future
significant advertising revenues will ever be generated. A failure to significantly increase
advertising revenues could have a material impact on the operations of the
Company.
Operating expenses for continuing operations,
including publishing and advertising agency expenses, were $6,993,589 for
fiscal 2001 as compared to $11,769,196 for fiscal 2000. Overall operating expenses at the Company
decreased 41% from fiscal 2000. The
decrease is attributable to the cessation of operations of Link, Wetair.com,
and iD8.
Selling, general and administrative expenses for
continuing operations decreased to $15,780,301 for fiscal 2001 as compared to
$19,427,491 for fiscal 2000. This
decrease is primarily attributable to minimizing expense in various advertising
sales categories such as outside advertising, market research, promotions and
variable costs directly related to revenue.
Due to the scale-back of new installations, considerable expenses in the
affiliate department were reduced.
There were also significant reductions in recruiting fees, bad debt
expense and stock option compensation.
The remaining decrease is due to the reduction of selling, general or
administrative expenses at Wetair.com.
Depreciation and amortization expense from continuing
operations totaled $3,851,687 for fiscal 2001 as compared to $4,082,352 for
fiscal 2000. The minor decrease is
attributable to the suspension of installing new Systems in school locations.
The Company recorded net interest expense from
continuing operations of $870,515 for fiscal 2001 as compared to $1,076,730 for
fiscal 2000. The decrease in interest
expense relates to the lower level of debt due to the paydown of the Company’s
credit facilities in conjunction with the sale of MPM.
The Company incurred a net loss from continuing
operations of $17,212,534 in fiscal 2001 as compared to a net loss of
$19,546,220 in fiscal 2000.
The Company incurred a net loss from discontinued
operations of $1,242,992 for the year-to-date through July 10, 2001. These amounts reflect the results of MPM
reported on a stand-alone basis through the disposition date of July 10, 2001. These amounts are comparable to a net loss
of $2,911,517 for last year’s comparable year-to-date activity for MPM. The Company recognized a gain from the sale
of MPM of $5,025,885 for the current fiscal year.
2000 VS. 1999
Revenue from continuing operations increased to
$16,809,549 for fiscal 2000 from $11,679,029 for fiscal 1999. Network advertising revenue of $13,490,000
represented a 65% increase from fiscal 1999.
Rate increases and increased sellout percentage from 48% to 55%
contributed to this increase. The Network’s advertiser base increased from 30
advertisers in fiscal 1999 to 43 advertisers in fiscal 2000. Magazine publishing revenue of $1,563,677
related to Link represented a 39% decrease from fiscal 1999. This decrease was primarily attributable to
publishing one less issue than in the prior year coupled with a decline in
barter revenue. CTN’s fee and
commission revenue through iD8 of $1,725,375 represented an 81% increase from
fiscal 1999. This increase is primarily
due to two new large customers in fiscal 2000. Wetair.com, which launched its
site in September 2000, reported nominal revenue of $30,000 for the year.
Operating expenses for continuing operations,
including publishing and advertising agency expense, increased to $11,769,196
for fiscal 2000 as compared to $8,360,756
for fiscal 1999. Of this
increase, original programming expense increased $1,206,430, primarily due to
the Politically Incorrect tour to college campuses, sponsorship of the Gravity
Games, and election coverage.
Publishing expenses at CTN decreased to $3,143,218 for fiscal 2000 as
compared to $3,025,686 for fiscal 1999.
The primary reason for the decrease was the decision to publish one less
issue of Link during fiscal 2000. The operating
expenses incurred by CTN’s advertising agency increased to $1,667,540 for
fiscal 2000 as compared to $1,113,833 for fiscal 1999. The increase in expenses for fiscal 2000 is
primarily attributable to the direct costs associated with the increase in
agency revenue, coupled with an increase in personnel required to service the needs
of the Network and additional
accounts generated during 2000.
Operational expenses for 2000 at Wetair.com were $975,903 in connection
with the September 2000 launch of the site.
Selling, general and administrative expenses for
continuing operations remained relatively consistent from $19,427,491 for
fiscal 2000 as compared to $19,610,608 for fiscal 1999.
Depreciation and amortization expense from continuing
operations totaled $4,082,352 for fiscal 2000 compared to $1,611,578 for fiscal 1999. This increase is primarily
attributable to the rapid addition of Systems in school locations. Depreciation and amortization also includes
a charge of $276,000 in 2000 due to the write-off of the remaining intangibles
associated with Link. Depreciation and amortization associated with Wetair.com
was approximately $1,000,000 for the year.
Such amount primarily related to the depreciation of the website
development costs.
The Company recorded net interest expense from
continuing operations of $1,076,730 for fiscal 2000 compared to $63,112 in
fiscal 1999. The increase in interest
expense relates to the higher level of debt incurred in fiscal 2000 utilized
for the rapid increase of the Network and working capital purposes.
The Company incurred a net loss from continuing
operations of $19,546,220 in fiscal 2000 compared to a net loss of $17,967,025
in fiscal 1999.
The Company incurred a net loss from discontinued
operations of $2,911,517 in fiscal 2000 as compared to a net gain of $286,992
in fiscal 1999. These amounts reflect
the results of MPM reported on a stand-alone basis.
In fiscal 2000, the Company recorded adjustments to
net loss available to common stockholders associated with the Beneficial
Conversion Feature on the Series A Preferred issued during the year aggregating
$1,402,000. In connection with the Series A Preferred issuances, at December
31, 2000, the Company had 8,381,541 common shares reserved for possible
conversions. The Company recorded adjustments
(negative accretion) through Stockholders’ Equity of approximately $30,582,768
to accrete these securities to their highest redemption values as of December
31, 2000. This is the full amount the
Preferred would be redeemable for as of December 31, 2000, based upon a
dividend accrual of 12% annually and the Company’s closing stock price of $5.25
as of such date. The negative accretion
is a result of a decline in the Company’s stock price from $10.00 at December
31, 1999 to $5.25 at December 31, 2000.
Since the redemption value is the greater of the original cost plus
accrued dividends or the market value of the underlying common stock at the
time of redemption, as the Company’s stock price changes, the redemption value
and this accretion amount will change; however, the redemption value will never
be less than original cost plus accrued dividends. Although the Company was required to accrete the full redemption
value as of December 31, 2000, the Series A Preferred is not redeemable
until July 23, 2006. As of March 31,
2001, the redemption feature was waived which stops the accretion of the Series
A Preferred to its highest redemption value, although the initial adjustment
for the beneficial conversion feature remains.
Financial Condition and Liquidity
At December 31, 2001, the Company had working capital
of $553,196 as compared to a working deficit of $(7,527,092) as of December 31,
2000. The Company’s cash totaled $145,462 as compared to $2,806,919 as of
December 31, 2000. The Company has no
cash equivalents.
Cash used in operations was $11,042,436 in fiscal 2001
as compared to $16,056,872 in fiscal 2000 and $10,370,471 in fiscal 1999. Net
cash used in operations for 2001 resulted primarily from the net loss of
$17,212,534, offset by non-cash charges of approximately $6,000,000, including
depreciation and amortization of $3,851,683, and loss on investment of
$1,800,000. Net cash used in operations
for 2000 resulted primarily from the net loss of $19,546,220 increased by
changes in working capital which resulted in approximately $2,000,000 use of
cash, offset by non-cash charges of approximately $5,500,000 including
depreciation and amortization of $4,100,000, and $800,000 from compensation
expense relating to equity awards. The
major components of such working capital changes were an increase in accounts
receivable of $1,800,000 and a decrease in accrued expenses and other
liabilities of
$300,000. Net cash used in
operations for 1999 resulted primarily from the net loss of $17,900,000, offset
by non-cash charges of $7,600,000, including depreciation and amortization of
$1,600,000, $4,800,000 from compensation expenses relating to equity awards,
and changes in working capital providing $1,200,000 of cash. The major components of such working capital
changes were $1,300,000 increase in accounts receivable, $1,700,000 increase
accounts payable and $900,000 increase in accrued expenses and liabilities.
Cash received from investing activities was
$26,535,993 in fiscal 2001 compared to cash used in investing activities of
$6,119,315 in fiscal 2000 and $7,200,595 in 1999. The increase is primarily
attributable to the sale of MPM for net proceeds of approximately $27,700,000
in July of 2001. During 2000 and 1999, the Company invested approximately
$6,100,000 and $5,700,000 respectively in purchases of property and equipment,
primarily associated with new installations at colleges and the build-out of
the Wetair.com site. In addition, in
1999 the Company invested $1,500,000 in Omnipod, Inc., for a strategic
partnership, which has subsequently been written off. Since the Network has successfully contracted for locations in 97
of the top 100 DMAs, the Company anticipates minimal capital expenditures in
fiscal 2002 in connection with new school installations.
Cash used in financing activities was $18,647,632 in
fiscal 2001 as compared to cash provided by financing activities of $13,370,564
and $32,947,276 in fiscal 2000 and fiscal 1999 respectively. The cash used in financing activities for
2001 was used to repay the MPM and Company credit facilities in the amount of
$27,170,687, offset by additional borrowings of $4,800,000 on the Company’s
credit facilities and net proceeds from the issuance of Preferred stock to
Holdings of $3,739,798. The proceeds
from two credit facilities of approximately $9,200,000 and net proceeds from
the issuance of Preferred stock to Holdings of $2,724,984 account for a
majority of the financing in 2000. Additional proceeds of $1,445,000 were
derived from the exercise of warrants and stock options. A majority of the cash provided by financing
activities during 1999 consisted of the issuance of approximately $28,700,000
in preferred stock and the proceeds from two credit facilities of approximately
$2,800,000.
At December 31, 2001, the Company had a total of
$5,000,000 of indebtedness outstanding under its bank credit facility. The bank credit facility is secured by a
first lien on all the assets of the Company and bears an average interest rate
of 9% for fiscal 2001. As of such date,
the Company was not in compliance with all of the financial covenants required
under this credit facility. The
financial institution has granted the Company waivers for the Company’s current
defaults related to these financial covenants.
The entire amount outstanding on the credit facility is due on January
31, 2003. The Company believes it is
possible that certain requirements contained in its loan covenants may not be
met during fiscal 2002. If the Company
fails to meet a covenant under the bank loan, the financial institution has the
right to declare the loan due upon demand, although such financial institution
may waive such covenant defaults, as it has done in the past.
In connection with the $5 million of indebtedness due
at January 31, 2003, the Company is currently in discussion with financial
institutions regarding new credit facilities and exploring other
capital-raising alternatives. The Company
can not be certain that any of the alternatives will be consummated or that if
consummated, that the terms will be favorable.
In order to obtain financing to meet its short-term
working capital needs, on November 26, 2001, the Company and Holdings entered
into a Subordinated Bridge Note Purchase Agreement (the “Purchase Agreement”) whereby Holdings agreed to purchase up
to an aggregate of $3.0 million (“Bridge Indebtedness”) of subordinated bridge
notes (with an initial purchase at closing of $1.5 million) and the Company
agreed to grant to Holdings a junior lien on the assets of the Company as
security for the obligations of the Company under the Purchase Agreement. As of March 6, 2002, the facility was fully
drawn. Pursuant to an amendment to the
bridge facility dated March 19, 2002, the Company sold Holdings an additional
$320,000 in subordinated Bridge Notes.
The Bridge Indebtedness accrues interest at a rate of
12% per year on the unpaid principal amount of the Bridge Indebtedness
outstanding on a daily basis. All
principal and accrued interest is due and payable by the Company on the earlier
to occur of 90 days following the scheduled maturity of the indebtedness owed
pursuant to the bank credit
facility or the discharge of the indebtedness owed by the Company
pursuant to the bank credit facility (the “Maturity Date”). However, since the Bridge Indebtedness was
not converted into equity or repaid on or before February 26, 2002, the interest
rate increased to 18% on all Bridge Indebtedness and all accrued but unpaid
interest.
In the event of the sale by the Company to independent
third parties of additional equity or incurrence of subordinated debt, upon the
election by a majority of the holders of the Bridge Indebtedness, the holders
of the Bridge Indebtedness may convert all or any portion of the principal
amount of the Bridge Indebtedness outstanding at the time (including all
accrued but unpaid interest) into the same securities offered in the financing
at the same price at which the securities will be sold.
The Company’s obligations under the Purchase Agreement
are secured by security interests and liens, which are subordinate to the
security interests and liens granted by the Company to LaSalle Bank pursuant to
the bank credit facility.
Disclosures
about Contractual Obligations and Commercial Commitments
Accounting standards require disclosure concerning
obligations and commitments to make future payments under such contracts, such
as debt and lease agreements, and under contingent commitments, such as debt
guarantees. As an aid to presenting the total picture of the Company’s
liquidity and capital resources and the integral role of on- and off-balance
sheet arrangements, below is a schedule of contractual obligations and commercial
commitments as of the latest balance sheet date.
Other long-term obligations are comprised of
committments under employment agreements and other commercial contracts
discussed in Note 11 of the accompanying audited financial statements.
Accounting
Pronouncements
Recently
Issued Accounting Standards. In July 2001,
the FASB issued SFAS No. 141, “Business Combinations” and SFAS No. 142
“Goodwill and other Intangibles”. Under
these new standards the FASB eliminated accounting for certain mergers and
acquisitions as poolings of interests, eliminated amortization of goodwill and
indefinite life intangible assets, and established new impairment measurement
procedures for goodwill. For the Company, the standards become effective for
all acquisitions completed on or after June 30, 2001. Changes in financial
statement treatment for goodwill and intangible assets arising from mergers and
acquisitions completed prior to June 30, 2001 become effective January 1, 2002.
In June of 2001, the FASB issued SFAS No. 143,
“Accounting for Asset Retirement Obligations.”
The statement provides accounting and reporting standards for
recognizing obligations related to asset retirement costs associated with the
retirement of tangible long-lived assets.
Under this statement, legal obligations associated with the retirement
of long-lived assets are to be recognized at their fair value in the period in
which they are incurred if a reasonable estimate of fair value can be
made. The fair value of the asset
retirement costs is capitalized as part of the carrying amount of the
long-lived asset and subsequently allocated to expense using a systematic and
rational method over the assets’ useful life.
Any subsequent changes to the fair value of the liability due to the
passage of time or changes in the amount or timing of estimated cash flows is
recognized as an accretion expense. The
Company will be required to adopt this statement no later then January 1, 2003.
In October of 2001, the FASB issued SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets”, which is
effective for fiscal years beginning after December 15, 2001. This statement supercedes FASB Statement No.
121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of.” However, it
retains the fundamental provisions of SFAS No. 121 for the recognition and
measurement of the impairment of long-lived assets to be held and used and the
measurement of long-lived assets to be disposed of by sale. Impairment on Goodwill is not included in
the scope of SFAS No. 144 and will be treated in accordance with the accounting
standards established in SFAS No. 142, “Goodwill and Other Intangible
Assets.” According to SFAS No. 144,
long-lived assets are measured at the lower of carrying amount or fair value
less cost to sell, whether reported in continuing or discontinued
operations. The statement applies to
all long-lived assets, including discontinued operations, and replaces the
provisions of APB Opinion No. 30, “Reporting the Results of Unusual and
Infrequently Occurring Events and Transactions”, for the disposal of segments
of a business. The Company will be
required to adopt this statement effective as of January 1, 2002.
The Company is currently assessing the impact of
implementing these recently issued statements on its results of operations,
financial position and cash flows.
Item 7A.
Item 7A. Quantitative
and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in
interest rates related to variable-rate debt outstanding under the $5,000,000
loan from a financial institution and the fixed rate debt of $1,500,000 from a
shareholder. This risk arises in the
normal course of business rather than from trading. At December 31, 2001, the Company had $5.0 million in long-term
debt subject to variable rates of interest and $1.5 million subject to an 18%
fixed interest rate and therefore views its market risk as immaterial. In addition, the Bridge Indebtedness bears
interest at a fixed rate and as such the market risk is immaterial.
Item 8.
Item 8. Financial Statements.
See the financial statements and notes related
thereto, beginning on page, included elsewhere in this report.
Item 9.
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure.
No events occurred during the period covered by this
Report that would require a response to this Item.
PART III
Item 10.
Item 10. Directors, Executive Officers, Promoters
and Control Persons; Compliance with Section 16(a) of the Exchange Act.
The information required by this Item 10 is
incorporated by reference from the information contained in the Company’s Proxy
Statement for the Annual Meeting of Stockholders expected to be filed with the
Commission on or about April 10, 2002 (the “2002 Proxy Statement”) under the
captions “Election of Directors,” “Executive Officers” and “Section 16(a)
Beneficial Ownership.”
Item 11.
Item 11. Executive Compensation.
The information required by this Item 11 is
incorporated by reference from the information contained in the 2002 Proxy
Statement under the caption “Executive Compensation.”
Item 12.
Item 12. Security Ownership of Certain Beneficial
Owners and Management.
The information required by this Item 12 is
incorporated by reference from the information contained in the 2002 Proxy
Statement under the caption “Security Ownership of Certain Beneficial Owners
and Management.”
Item 13.
Item 13. Certain Relationships and Related
Transactions.
The information required by this Item 13 is
incorporated by reference from the information contained in the 2002 Proxy
Statement under the caption “Related Party Transactions.”
PART IV
Item 14.
Item 14. Exhibits, Financial Statements,
Schedules and Reports on Form 8-K.
(a)(1)
List of Financial Statements:
See index on page herein.
(a)(2)
List of Schedules:
All schedules to the consolidated
financial statements are omitted because they are not applicable, not required,
or the information required is included in the financial statements or notes
thereto.
(a)(3)
Exhibits:
The Exhibits that are
filed with this report or that are incorporated by reference herein are set
forth in the Exhibit Index included elsewhere in this Report.
(b)
Reports on Form 8-K:
A report on Form 8-K
disclosing the resignation of Mr. Jason Elkin as the Chairman of the Board and
Chief Executive Officer was filed on November 6, 2001.
A report on Form 8-K
disclosing the bridge loan facility between the Company and Holdings was filed
on December 21, 2001.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange
Act, the Registrant caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
In accordance with the Exchange Act, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
Signature
Title
Date
/s/ Patrick G.
Doran
Chief Financial Officer and Secretary
April 1, 2002
Patrick G. Doran
(Principal Financial and Accounting Officer)
/s/ Thomas A.
Rocco
Director, President (Principal Executive
April 1, 2002
Thomas A. Rocco
Officer)
/s/ Jason
Elkin
Director
April 1, 2002
Jason Elkin
/s/ Daniel M.
Gill
Director
April 1, 2002
Daniel M. Gill
/s/ Steven Haft
Director
April 1, 2002
Steven Haft
/s/ Robert
Callahan
Director
April 1, 2002
Robert Callahan
/s/ C. Thomas
McMillen
Director
April 1, 2002
C. Thomas
McMillen
/s/ Hollis W.
Rademacher
Director
April 1, 2002
Hollis W.
Rademacher
/s/ Stephen
Roberts
Director
April 1, 2002
Stephen Roberts
/s/ Avy H. Stein
Director
April 1, 2002
Avy H. Stein
/s/ James W.
Wood
Director
April 1, 2002
James W. Wood
/s/ Christopher
Boehm
Director
April 1, 2002
Christopher
Boehm
/s/ Sergio Zyman
Director
April 1, 2002
Sergio Zyman
CTN MEDIA GROUP, INC.
Consolidated Financial Statements
December 31, 2001, 2000 and 1999
CTN MEDIA GROUP, INC.
Index to Consolidated Financial
Statements
Report of Independent
Accountants
Consolidated Balance Sheets
at December 31, 2001 and 2000
Consolidated
Statements of Operations for the year ended December 31, 2001, 2000 and 1999
Consolidated
Statements of Stockholders’ Equity (Deficit) for the year ended December 31,
2001, 2000, and 1999
Consolidated
Statements of Cash Flows for the year ended December 31, 2001, 2000, and 1999
Notes to
Consolidated Financial Statements
Report
of Independent Accountants
To the Board of Directors and Stockholders of
CTN Media Group, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders’ equity and of cash
flows present fairly, in all material respects, the financial position of CTN
Media Group, Inc. and its subsidiaries at December 31, 2001 and 2000, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America. 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 of these statements in accordance with auditing
standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our
audits provide a reasonable basis for our opinion.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated
financial statements, the Company has incurred losses from inception, has
negative operating cash flows, and has relied upon borrowings and the issuance
of equity to supplement cash flow from operations. Such options may not be available to the Company in the
future. These circumstances raise
substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these
matters are also described in Note 1.
The consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
PricewaterhouseCoopers LLP
Atlanta, Georgia
April 1, 2002
CTN Media Group, Inc.
Consolidated Balance Sheets
CTN Media Group, Inc.
Consolidated Statements of Operations
CTN
Media Group, Inc.
Consolidated
Statements of Stockholders' Equity (Deficit)
CTN Media Group, Inc.
Consolidated Statements of Cash Flows
CTN MEDIA GROUP,
INC.
Notes
to Consolidated Financial Statements
1. Description
of the Business
CTN
Media Group, Inc. and its subsidiary (the “Company”) is a targeted media
company specializing in reaching young adults.
As of December 31, 2001, the Company operated properties in network
television and online media.
Prior
to the year ended December 31, 2001, the Company operated as two reportable
segments: CTN and MPM. CTN sold Armed
Forces Communications, Inc. doing business as Market Place Media (“MPM”) on
July 10, 2001. MPM’s separate results
are reported in Note (4) Discontinued Operations. CTN includes the operations of the College Television Network
(the “Network”), Link Magazine, iD8 Marketing (“iD8”) and Wetair.com.
The
Network is a satellite television network that operates on college and
university campuses across the United States.
Its single-channel television system is placed free of charge in campus
dining facilities and student unions.
The Network’s broadcasts contain music, news, information and
entertainment programming. As of
December 31, 2001, the Network was installed or contracted for installation in
approximately 1,775 locations at approximately 785 colleges and
universities. The Network generates
revenue through the advertising placed on it.
Link
Magazine was a publication distributed to over 650 college campuses. As of April 2001, the Company had elected
not to publish new issues of Link Magazine for an unspecified period of
time. iD8 was a marketing agency
providing creative services and placing media purchases for its clients. iD8 ceased operations on July 31, 2001. Wetair.com is an Internet site for young
adults offering entertainment information; however, Wetair.com has been
integrated into collegetelevision.com.
The
Company maintains a headquarters office in Atlanta, GA and satellite offices in
New York, Chicago and Los Angeles.
The
accompanying financial statements have been prepared on a basis which assumes
that the Company will continue as a going concern and which contemplates the
realization of assets and the satisfaction of liabilities and commitments in
the normal course of business. The
Company has incurred significant losses from operations since its
inception. These circumstances raise substantial
doubt about the Company’s ability to continue as a going concern. Management’s plans with regard to these
matters include continued sales of its advertising inventory as well as seeking
additional financing arrangements.
Although, management continues to pursue these plans, there is no
assurance that the Company will be successful in generating sufficient
advertising revenues from its Network or obtain financing on terms acceptable
to the Company. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
The
Company has incurred losses from inception, has negative operating cash flows,
and has relied upon borrowings and the issuance of equity to supplement cash
flow from operations. Such options may
not be available to the Company in the future.
These circumstances raise substantial doubt about its ability to
continue as a going concern.
Management's plans in regard to these matters are also described in Note
1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
2. Significant
Accounting Policies
Revenue recognition
Advertising revenues for
the Network are recognized in the period in which the advertisements air. Advertising revenues for Link are recognized
in the period in which the publication is distributed. Revenues for iD8 are recognized at the time
in which services are provided. The
Network presents its advertising revenue gross of agency commissions, which are
approximately 15% and are included in operating expenses. Such Network revenue aggregated
approximately $8,678,899, $13,490,497 and $8,147,788 for the years ended
December 31, 2001, 2000 and 1999, respectively.
Advertising barter revenue is recognized only if the
fair value of the advertising given is determinable based on past transactions
involving similar advertising exchanged for cash. A past cash transaction can
only support the recognition of revenue on advertising barter transactions up
to the dollar amount of the specific cash transaction and that cash transaction
can only be used once to value barter advertising. If the fair value of the advertising surrendered in the barter
transaction is not determinable, the barter transaction is recorded based on
the carrying amount of the advertising surrendered, which is zero. The Company recognized barter revenue of
$116,667, $100,000 and $438,000 for the years ended December 31, 2001, 2000 and
1999, respectively. At December 31,
2001, there are no amounts deferred or accrued on the balance sheet related to
barter transactions for which performance has not yet occurred.
Cash and cash equivalents
The
Company considers all deposits in banks, certificates of deposits and
short-term investments with original maturities of three months or less as cash
and cash equivalents. The Company
places its temporary cash investments with high credit quality financial
institutions. Such investments often
exceed the FDIC limits and are not covered by insurance.
Property and equipment
Property
and equipment are carried at cost. Cost
of entertainment systems includes external direct costs of materials and
services incurred in installation.
Depreciation, including amortization of leasehold improvements, is
charged to operations over the useful lives of assets using the straight-line
method. The cost and accumulated
depreciation for property and equipment sold, retired, or otherwise disposed of
are relieved from the accounts, and resulting gains or losses are reflected in
income.
The
Company capitalizes external direct costs of materials and services consumed in
developing or obtaining internal use software and payroll costs for employees
who are directly associated with internal use software projects. Internal use software includes website
development costs.
Intangible assets
Intangible
assets include patents, purchased customer relationships, trademarks and
goodwill resulting from acquisitions, and loan costs. Amortization is computed using the straight-line method based
over the estimated useful lives of the related assets, which range from 2 to
15 years.
Income taxes
Deferred
tax assets and liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
A
valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
Net income (loss) per share
Basic
net income (loss) per common share is based on the weighted average number of
shares of common stock outstanding during the period. Diluted net income or loss per share reflects the potential
dilution from assumed conversion of all dilutive securities such as convertible
preferred stock, stock options, rights and warrants.
Impairment of long-lived assets
The
Company determines whether there has been an impairment of long-lived assets
based on whether certain indicators of impairment are present. In the event that facts and circumstances
indicate that the cost of any long-lived assets may be impaired, an evaluation
of recovery would be performed. If an
evaluation is required, the estimated future gross, undiscounted cash flows
associated with the asset would be compared to the asset’s carrying amount to
determine if a write-down to fair value or discounted cash flow value is
required.
Comprehensive income
Comprehensive
income equals net income plus other comprehensive income. Other comprehensive income refers to
revenue, expenses, gains and losses, which are reflected in stockholders’
equity but excluded from net income.
For all periods presented, comprehensive income equals net loss,
dividends and accretion of preferred stock and amortization of beneficial
conversion features.
Stock based compensation
The
Company accounts for stock option grants and grants of other equity instruments
to employees in accordance with the intrinsic value method prescribed in
Accounting Principles Board Opinion (“APB”) No. 25 “Accounting for Stock Issued
to Employees” and the related interpretations, and has elected the disclosure
option of Statement of Financial Accounting Standards (“FAS”) No. 123
“Accounting for Stock Based Compensation.”
Accordingly, compensation cost for employee stock options and grants of
other equity instruments is measured as the excess, if any, of the estimated
market price of the underlying equity instrument over the amount the employee
must pay to acquire the instrument.
Equity
based compensation to non-employees is accounted for under the provisions of
FAS 123. Equity based compensation to
non-employees is measured at the fair value of the underlying instrument when
the equity instrument is earned.
Principles of consolidation
The
consolidated financial statements include the accounts of the wholly owned
subsidiary of the Company, Wetair.com.
Accordingly, the Company has recorded all of the net operating losses of
Wetair.com for the years ended December 31, 2001, 2000 and December 31,
1999. The Company has subsequently
merged Wetair.com into CTN in January 2002.
New accounting pronouncements
In
July 2001, the Financial Accounting Standards Board (“FASB”) issued Statements
of Financial Accounting Standards No. 141.
“Business Combinations” and No. 142 “Goodwill and Other
Intangibles”. Under these new standards
the FASB eliminated accounting for certain mergers and acquisitions as poolings
of interest, eliminated amortization of goodwill and indefinite life intangible
assets, and established new impairment measurement procedures for
goodwill. For calendar-year reporting
companies, the standards become effective for all acquisitions completed on or
after June 30, 2001. Changes in
financial statement treatment for goodwill and intangible assets arising from
mergers and acquisitions completed prior to June 30, 2001 become effective
January 1, 2002.
In June of 2001, the FASB issued SFAS No. 143,
“Accounting for Asset Retirement Obligations.”
The statement provides accounting and reporting standards for
recognizing obligations related to asset retirement costs associated with the
retirement of tangible long-lived assets.
Under this statement, legal obligations associated with the retirement
of long-lived assets are to be recognized at their fair value in the period in
which they are incurred if a reasonable estimate of fair value can be
made. The fair value of the asset
retirement costs is capitalized as part of the carrying amount of the
long-lived asset and subsequently allocated to expense using a systematic and
rational method over the assets’ useful life.
Any subsequent changes to the fair value of the liability due to the
passage of time or changes in the amount or timing of estimated cash flows is
recognized as an accretion expense. The
Company will be required to adopt this statement no later then January 1, 2003.
In October of 2001, the FASB issued SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets”, which is
effective for fiscal years beginning after December 15, 2001. This statement supercedes FASB Statement No.
121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of.” However, it
retains the fundamental provisions of SFAS No. 121 for the recognition and
measurement of the impairment of long-lived assets to be held and used and the
measurement of long-lived assets to be disposed of by sale. Impairment on Goodwill is not included in
the scope of SFAS No. 144 and will be treated in accordance with the accounting
standards established in SFAS No. 142, “Goodwill and Other Intangible
Assets.” According to SFAS No. 144,
long-lived assets are measured at the lower of carrying amount or fair value
less cost to sell, whether reported in continuing or discontinued
operations. The statement applies to
all long-lived assets, including discontinued operations, and replaces the
provisions of APB Opinion No. 30, “Reporting the Results of Unusual and
Infrequently Occurring Events and Transactions”, for the disposal of segments
of a business. The Company will be
required to adopt this statement effective as of January 1, 2002.
The Company is currently assessing the impact of implementing
these recently issued statements on its results of operations, financial
position and cash flows.
Reclassification
Certain
prior period amounts have been reclassified to conform to the current year
presentation. All significant
intercompany accounts and transactions are eliminated in consolidation.
Use of estimates
The
preparation of the consolidated 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 at
the date of the financial statements and the reported amounts of revenues and
expenses during the reported period.
Actual results could differ from these estimates.
3. Liquidity
During
the years ended December 31, 2001, 2000 and 1999, the Company has incurred
operating losses of approximately $13,430,000, $22,458,000 and
$17,680,000. In addition, the Company’s
debt agreement matures on January 31, 2003.
Further, as discussed in Note 6, the Company has violated certain debt
covenants associated with the Revolver Loan during 2001 for which a waiver has
been received. The Company believes it
is possible that certain requirements contained in its loan covenants may not
be met during fiscal 2002.
The
Company has had many discussions with U-C Holdings, LLC (“Holdings”) about
future financing needs. There is no
assurance Holdings will provide future funds.
The Company is pursuing other alternatives to generate capital, in
addition to any continued investment of Holdings and is currently pursuing
various alternatives. The Company
cannot be certain other alternatives will be consummated.
4. Discontinued
Operations
On July 10, 2001, the Company sold all of the outstanding
shares of common stock, no par value, of MPM to MPM Holding, Inc., a Delaware
Corporation f/k/a MPM Acquisition, Inc., for approximately $28.0 million in
cash, subject to certain adjustments to the purchase price, including a working
capital adjustment based on MPM’s estimated balance sheet as of the closing
date. At the closing, the Company
received, after adjustments, approximately $27.7 million in cash in exchange
for its ownership of all common stock of MPM.
The Company paid a final working capital adjustment of approximately
$151,000 in conjunction with the sale of MPM in January 2002. Accordingly, the results of that business have been reflected as Discontinued
Operations in these notes and the accompanying consolidated financial
statements.
Approximately $16.9 million of the proceeds from the sale
of MPM were used to repay the Term Loan and the Revolver Loan of MPM ("MPM
loans"). Additionally, the Company
used approximately $10.3 million of the proceeds to reduce the indebtedness
under the CTN Loan. The remainder of
the proceeds received by the Company were used for other corporate purposes,
including the payment of expenses incurred in connection with the sale of MPM.
The gain on sale of discontinued operations is
calculated as follows:
The operating results
with respect to discontinued operations are as follows:
5. Property
and Equipment
Property
and equipment consists of the following:
Depreciation
expense for the year ended December 31, 2001, 2000 and 1999, was approximately
$3,612,789, $3,997,980 and $1,567,726, respectively.
6. Debt
As of August 10, 2001, the Company amended a revolving
credit facility from a financial institution (the “CTN Loan”) to a borrowing
capacity of up to $5.0 million. The CTN
Loan previously had a $12.0 million
credit limit of which $10.3 million was paid down as a permanent principal
reduction to the credit limit on July 10, 2001 in conjunction with the sale of
MPM (see Note (4)). As of December 31,
2001, there was a $5.0 million outstanding balance on this facility.
The CTN Loan bears interest at either (i) the Base Rate
which is equal to the greater of (a) the Federal Funds rate plus 0.5% or (b)
the Prime Rate, plus 2.00% per year; or (ii) the Eurodollar Rate, plus 3.50%
per year. The determination of whether
to use the Prime Rate or the Eurodollar Rate is at the option of the
Company. A commitment fee of 0.5% per
year on the unused portion of the facility is required. The CTN Loan is due and payable in full on
January 31, 2003. For the year ended
December 31, 2001, 2000 and 1999, the weighted average interest rate on the CTN
Loan was 9.01%, 9.45% and 9.17%, respectively.
The CTN Loan is guaranteed by a negative pledge of the outstanding
shares of stock of the Company owned by Holdings.
This debt agreement
contains financial covenants that, among other restrictions, require the
maintenance of certain financial ratios and cash flows, restrict asset
purchases, dividend payments or distributions and accelerate the maturities
upon a change in control of the Company.
MPM had a term loan (the
“Term Loan”) and a revolving credit facility (the “Revolver Loan”) from a
separate financial institution and its affiliates. In conjunction with the sale of MPM, both loans have been paid in
full and retired.
In order to obtain financing to meet its short-term
working capital needs, on November 26, 2001, CTN and Holdings entered into a
Subordinated Bridge Note Purchase Agreement
(the “Purchase Agreement”) whereby Holdings agreed to purchase up to an
aggregate of $3.0 million (“Bridge Indebtedness”) of subordinated bridge notes
(with an initial purchase at closing of $1.5 million) and CTN agreed to grant
to Holdings a junior lien on the assets of CTN as security for the obligations
of CTN under the Purchase Agreement. As
of March 6, 2002, the facility was fully drawn. Pursuant to an amendment to the Bridge facility dated March 19,
2002, the Company sold Holdings an additional $320,000 in subordinated Bridge
Notes.
The Bridge Indebtedness accrues interest at a rate of
12% per year on the unpaid principal amount of the Bridge Indebtedness
outstanding on a daily basis. All
principal and accrued interest is due and payable by CTN on the earlier to
occur of 90 days following the scheduled maturity of the indebtedness owed
pursuant to the CTN Loan or the discharge of the indebtedness owed by CTN
pursuant to the CTN Loan (the “Maturity Date”). However, since the Bridge Indebtedness was not converted into
equity or repaid on or before February 26, 2002, the interest rate increased to
18% on all Bridge Indebtedness and all accrued but unpaid interest.
In the event of the sale by CTN to independent third
parties of additional equity or incurrence of subordinated debt, upon the
election by a majority of the holders of the Bridge Indebtedness, the holders
of the Bridge Indebtedness may convert all or any portion of the principal
amount of the Bridge Indebtedness outstanding at the time (including all
accrued but unpaid interest) into the same securities offered in the financing
at the same price at which the securities will be sold.
CTN’s obligations under the Purchase Agreement are
secured by security interests and liens, which are subordinate to the security
interests and liens granted by CTN to LaSalle Bank pursuant to the CTN Loan.
For each of the quarterly periods ended March 31,
2001, June 30, 2001, September 30, 2001, and December 31, 2001, the Company was
in violation of certain financial covenants associated with the CTN Loan for
which a waiver has been received.
Additionally, the Company believes that certain requirements under the
CTN Loan covenants may not be met during fiscal 2002. If the Company fails to meet a covenant under the CTN Loan, the
financial institution has the right to declare the loan due upon demand,
although such financial institution may waive such covenant defaults, as it has
done in the past. The Company is
currently in discussions with financial institutions regarding new credit
facilities and exploring other capital-raising alternatives. The Company can not be certain that any of
the alternatives will be consummated.
7. Investments
On October 29, 1999, the Company purchased 4,147,886
Series A Preferred shares of Omnipod, Inc., f/k/a e-palette, Inc. (“Omnipod”)
for an aggregate purchase price of $1,500,000.
On October 25, 2001, the Company converted a $300,000 receivable into
additional preferred stock in Omnipod.
The investment was recorded on the balance sheet using the cost method,
as the Company did not have significant influence over the operations of Omnipod. Omnipod is the developer and owner of a
proprietary Internet application.
Omnipod has experienced net operating losses since its inception and it
does not currently have sufficient funds to sustain future operations. Omnipod is attempting to raise additional
funds, but we have no assurance
that it will be able to do so. Accordingly, the Company believes an other
than temporary impairment of the value of the stock of Omnipod has occurred during
2001 and has accordingly written down the investment to zero.
8. Stockholders’ Equity and Preferred Stock
Preferred
stock
At December 31, 2001, the
Company’s preferred stock consists of Series A Convertible Preferred Stock
(“Series A”) and Series B Convertible Preferred Stock (“Series B”) of which
Holdings owns (i) all of the 2,176,664 outstanding Series A shares out of the
2,510,000 Series A shares that have been designated and (ii) all of the 266,666
outstanding Series B shares out of the 266,666 Series B shares that have been
designated.
Effective March 31, 2001, the redemption feature of
the Series A was waived pursuant to an agreement between the Company and
Holdings, which ceased the accretion of Series A to its highest redemption
value. The Company is no longer
obligated to redeem, for cash, the outstanding shares of Series A at the option
of the Series A holders. This allowed
the Company to move the classification of the Series A from Mandatorily Redeemable
Preferred Stock to Stockholders’ Equity.
On April 5, 2001, the Company issued 266,666 shares of
Series B to Holdings for $15.00 per share, or an aggregate purchase price of
$3,999,990. The Series B accrues a
cumulative dividend of 12% per annum, compounding on a quarterly basis. The Series B is convertible into shares of
common stock, as determined by multiplying the number of shares of Series B to
be converted by the $15.00 per share purchase price and dividing the product by
the conversion price of the Series B then in effect with respect to such
shares. On the date of issuance, the
conversion price of the Series B was $2.50.
Each share of Series B has voting rights based upon the number of shares
of common stock into which Series B is convertible. At December 31, 2001, 1,599,996
shares of common stock were reserved for conversion of the Series B. There are an additional 117,551 shares of common stock reserved
for the conversion of dividends accrued with respect to the Series B through
December 31, 2001.
The Company filed an Amended and Restated Certificate
of Incorporation on May 9, 2001 that amends the terms of the Series A to, among
other things, (i) eliminate the redemption rights of the holders of the Series
A (such rights had previously been waived by Holdings in an agreement dated
March 31, 2001), (ii) reduce the conversion price of the Series A from $4.50 to
$2.50, and (iii) incorporate into the terms of the Series A the issuance of the
Series B having rights and preferences senior to the Series A. The remaining terms of Series A are
unchanged and include the 12% cumulative accrual of dividends per year,
compounding on a quarterly basis. Each
share of Series A has voting rights based upon the number of shares of common
stock into which Series A is convertible.
Including the effect of the reduction in the conversion price of the
Series A, at December 31, 2001, 13,059,981 shares of the Company’s common stock
were reserved for conversion. There are
an additional 3,702,362 shares of common stock reserved for the conversion of
dividends accrued with respect to the Series A through December 31, 2001.
Various
tranches of Series A have been issued to Holdings during 1999 and 2000 at
conversion prices that have been less than the fair market value of the common
stock at the date of issuance. A
certain amount of the proceeds from each issuance of Series A have been
allocated to these favorable conversion terms (the “beneficial conversion
features”). A beneficial conversion
feature is calculated as the difference between the conversion price of the
security
and the market price of the common stock at the date of issuance. Because these securities are immediately
convertible into shares of common stock, the proceeds allocated to the
beneficial conversion features have been amortized immediately through charges
to Additional Paid-in Capital. These
charges of $0, $1,402,000 and $15,180,454 for the years ended December 31,
2001, 2000 and 1999, respectively, are included as adjustments to arrive at net
income (loss) available to common shareholders.
Summarized in the table
below are the various preferred stock issuances to Holdings during 1999, 2000
and 2001, commencing with the July 1999 offering of Convertible Preferred Stock
(which was subsequently redesignated to Series A).
In
conjunction with an issuance of Convertible Preferred stock in July 1999, the
Company issued a Class D Warrant entitling Holdings to purchase 135,686 shares
of common stock with an exercise price of $6.854 per share. Proceeds of $557,000 were allocated to the
Class D Warrant. These warrants have
been cancelled.
In
October 1999, and after the approval of the Board of Directors and a majority
of the stockholders, the Company effectuated the modification and
reclassification of the then outstanding mandatorily redeemable Convertible
Preferred stock. This modification and
reclassification resulted in the cancellation of the Convertible Preferred
shares and the issuance of Series A to the holders of the Convertible
Preferred. This redemption of the
Convertible Preferred shares resulted in the elimination of the variable
conversion price feature and fixed the conversion price at $4.50 per share,
although this is still subject to anti-dilution rights. The number of common shares in which the
Series A is convertible, increased to 1,033,327 from 678,432 as a result of the
change in the conversion price. The
carrying value
of
the Convertible Preferred was $4,783,219 and the fair value of the Series A,
for which the Convertible Preferred was exchanged, was $6,135,379 on the
October 18, 1999 redemption date.
Additionally, in connection with the modification and reclassification,
the Company and Holdings entered into a Cancellation Agreement, effective
August 31, 1999, whereby the Company cancelled, for no additional
consideration, the Class D Warrant. The
reclassification and warrant cancellation was undertaken in order to have only
one type of preferred stock outstanding, and to eliminate the reset provision
of the Convertible Preferred.
The
Company accounted for this redemption as of October 18, 1999 by removing the Convertible
Preferred and Class D Warrant at their respective carrying values after
consideration of accretion of the Convertible Preferred through the redemption
date. The beneficial conversion feature
associated with the Initial Purchase Agreement was also removed from the equity
accounts. The Series A was initially
recorded at fair value. A loss on
redemption of approximately $527,000 was recognized and is reflected as a charge
to stockholders’ deficit for the period ended December 31, 1999. This amount is included in dividends,
accretion and redemption loss on mandatorily redeemable preferred stock in
determining net loss available to common stockholders on the Company’s 1999
Consolidated Statement of Operations.
Equity protection rights
To
avoid dilution upon the exercise of certain other warrants and options,
Holdings retains certain equity protection rights that allow it to acquire
additional shares of common stock at $2.75 and $3.25 per share. The equity
protection rights become exercisable only upon the exercise of stock warrants
and options held by third parties, as defined in the agreements. At December 31, 2001, approximately
1,384,796 were exercisable at $2.75 per share and 692,398 were exercisable at $3.50
per share. At December 31, 2001, potentially
exercisable equity protection rights were 34,700 at $2.75 per share and 17,350
at $3.50 per share.
Stock purchase warrants
As
of December 31, 2001, the Company had 924,832 warrants outstanding. Each warrant gives the holder the right to
purchase one share of common stock. The
warrants outstanding have an exercise price as follows:
9. Employee
Benefit Plans and Stock Compensation
The
1990 Performance Equity Plan (the “1990 Stock Plan”) as amended provides for
grants of stock options and other equity instruments to officers and
employees. The term of each option is
determined by the Company’s Board of Directors (the “Board”) but shall not exceed
ten years from the date of grant. All
options vest over a period to be determined by the Board at the date of
grant. The Company had originally
authorized 142,833 shares for issuance under the 1990 Stock Plan. As of December 31, 2001, the 1990 Stock Plan
has expired; thus there are no remaining future grants at December 31,
2001. There remains 23,334 shares
issuable upon exercise of outstanding options.
The
1996 Stock Incentive Plan (the “Incentive Plan”), as amended, provides for the
granting of stock options and other equity based instruments to officers,
directors, employees and consultants.
The term of each option is determined by the Board but shall not exceed
ten years from the date of grant. All
options vest over a period to be determined by the Board at the date of
grant. The Company has authorized
3,000,000 shares for issuance under the Incentive Plan, of which 1,583,225
remain available for future grants at December 31, 2001.
The
Outside Directors’ Plan (the “Director Plan”) provides for the granting of
stock options and other equity based instruments to non-employee
directors. The term and vesting period
of each award is determined by the Board at the date of grant. The term of each option is limited to ten
years from the date of grant. The
Company has authorized 910,000 shares for issuance under the Director Plan, of
which 454,000 remain available for future grants at December 31, 2001.
At
December 31, 2001, a total of 3,963,990 authorized and unissued shares are
reserved for exercises under the 1990 Plan, the 1996 Incentive Plan the
Directors’ Plan and for other outstanding options.
In
addition to awards of the Company’s stock, Holdings grants U-C Holdings
“Management Units” to certain members of management and to certain
non-employees in exchange for a nominal purchase price. There are two types of awards consisting of
“Class A” and “Class B” units. The
Management Units represent an equity interest in Holdings whose sole asset is
its investment in the Company. The
purchase price, terms and vesting periods are determined by the Board on an
individual grant basis. At December 31,
2001, there are 2,500 Class A and Class B units outstanding and 2,039 of these
are vested. For grants to employees,
compensation expense is recognized over the vesting period based on the
intrinsic value on the date of grant.
For grants to non-employees, compensation expense is recognized over the
vesting period based on the fair value of the award. The fair value (and related expense) is adjusted over the vesting
period to give effect to changes in fair value. The award to both employees and non-employees are presented as a
contribution of capital by the majority stockholder. The unvested portion is represented by unearned compensation, a
contra-equity account.
Stock compensation
Approximately
$128,000, $777,000 and $4,772,000 of stock compensation expense was recognized
for the years ended December 31, 2001, 2000 and December 31, 1999, respectively.
Other
stock compensation expense of $1,078,000 during the year ended December 31,
1999 related to options granted to employees at exercise prices below fair
market value at the date of grant, and options issued to non-employees.
Summary
of option activity
Option
activity for all of the Company’s stock option plans for the year ended
December 31, 2001 and 2000 is summarized below:
Fair value of stock options
All
options granted during the year ended December 31, 2001 were granted at
exercise prices equal to the fair market value of the stock on the grant
date. The weighted average grant-date
fair value of the options granted during the year was $1.66.
During
the year ended December 31, 2001, 594,279 options were granted at exercise
prices equal to the fair market value of the stock on the grant date and no
options were granted at exercise prices below the fair market value of the
stock on the grant date. The weighted
average grant-date fair value of all options granted during the year was $1.66.
Had
compensation expense for the options discussed above been determined based on
the fair value of the options at the grant dates, consistent with the
methodology prescribed under Statement of Financial Accounting Standards No.
123, “Accounting for Stock-Based Compensation,” the Company’s net loss and net
loss per share would have changed to the pro forma amounts indicated below:
The
fair values of the options granted were estimated as of the date of grant using
the Black-Scholes option-pricing model based on the following weighted-average
assumptions:
10. Income
Taxes
At
December 31, 2001, the Company had net operating loss carryforwards of
approximately $73,000,000 expiring in varying amounts starting in 2006. The amounts of and the benefits from net
operating loss carryforwards may be impaired or limited in certain
circumstances. The Company experienced an ownership change as defined under
Section 382 of the Internal Revenue Code in April 1997. As a result of the ownership change,
utilization of approximately $12,100,000 of the net operating loss
carryforwards is limited to approximately $1,200,000 per year. At December 31, 2001, the Company also had a
capital loss carryforward of $2,300,000 which will expire in 2007 if not
utilized.
The
provision for income taxes differs from the amount computed by applying the
applicable U.S. statutory federal income tax rate (34%) to pre-tax loss as a
result of the following items:
The
components of the deferred income tax assets and liabilities were as follows:
As
of December 31, 2001, a valuation allowance has been established against the
net deferred tax assets as management does not believe these are more likely
than not to be realized.
11. Commitments
and Contingencies
Employment agreements
The
Company has employment agreements through 2004 with certain officers and
employees. The agreements call for
minimum base salaries for the years ending December 31, 2002, 2003 and 2004 of
approximately $1,917,000, $466,000, and $150,000 respectively.
Leases
The
Company leases certain of its office facilities under operating leases at
various dates through 2008. Rent
expense was approximately $876,000, $753,000 and $497,000 for the year ended
December 31, 2001, 2000 and 1999, respectively. Annual lease payments for the years ending December 31, 2002,
2003, 2004, 2005, 2006 and thereafter will approximate $952,000, $926,000, $965,000, $792,000, $330,000, and
$346,000 respectively.
Other commitments and contingencies
In
connection with the Company’s acquisition of the rights to an inventory of
video jukeboxes in 1991, the Company agreed to pay two former stockholders an
aggregate of $100,000, one-half being payable at such time as the Company’s net
pre-tax income equals at least $500,000 and the balance being payable at such
time as the Company has $500,000 in net pre-tax earnings. The Company will provide for these
contingent liabilities when payment is considered probable.
The
Company has an Origination Services Contract with Crawford Communications, Inc.
(“Crawford”). The original agreement
provides for payments of approximately $1,320,000 over a five-year period
ending on July 15, 2003. In accordance with
the Origination Services Contract, Crawford is responsible for the transmission
via satellite of the Network’s daily programming, including encoding signals,
testing, maintaining the Network’s programming library, and obtaining
programming from the Network’s sources.
Crawford is also responsible for the uplink of the programming to a
satellite as well as the downlink of the signal from the satellite at each
installation site. As of December 31,
2001, the Company has paid approximately $968,000 to Crawford pursuant to the
Origination Services Contract.
The
Company has an agreement with Turner Private Networks, Inc. to provide news and
sports programming for the Network through December 31, 2002. The total license
fee is approximately $3,156,250. As of
December 31, 2001, the Company has paid approximately $2,303,750 pursuant to this
agreement.
The
Company has a Transponder Use Agreement with Public Broadcasting Service
(“PBS”). The Company has subleased
capacity on a satellite owned and operated by GE American Communications, Inc.
(“GE”) and leased to PBS by GE. This
agreement provides for payments of approximately $3,924,000 over a five-year
period and terminates on July 31, 2003.
The Company has protected status on this satellite, where in the event
of a satellite failure or performance problem, the Company’s programming will
preempt transmissions of other users on this satellite or on another
satellite. As of December 31, 2001, the
Company has paid approximately $2,681,400 pursuant to this agreement.
12. Related
Party Transactions
Sales
commissions of approximately $86,000, $110,000 and $180,000, were paid to a
company owned in part by a member of the Board of Directors of the Company for
the year ended December 31, 2001, 2000 and 1999, respectively.
In
November 2001, Mr. Elkin resigned his position as Chairman and CEO of the
Company. Total compensation paid to Mr.
Elkin from January 1, 2001 through October 31, 2001 including bonus was
approximately $625,000.
Pursuant
to a Termination and Purchase Agreement executed by Holdings, the Company and
Mr. Elkin, Mr. Elkin will receive $665,000 from Holdings and return his equity
in Holdings. To fund this obligation of
Holdings, the Company declared a $665,000 dividend to Holdings pursuant to a
promissory note, the payment terms of which match Mr. Elkin’s terms. The agreement provides for Mr. Elkin to
receive payments from Holdings over an eighteen-month period commencing on
November 30, 2001. Mr. Elkin receives
2.5% interest on the outstanding balance of this obligation. Additionally, the Company is obligated to
provide health insurance coverage at the Company’s expense until the earlier of
April 25, 2004, or the date Mr. Elkin accepts other employment and obtains
health insurance coverage. Pursuant to
the termination agreement all other financial obligations under Mr. Elkin’s
employment agreement were cancelled.
13. Cash Interest paid The
Company paid interest of $792,076, $1,283,922 and $236,452 in 2001, 2000 and
1999, respectively, on the CTN loan.
14. Concentrations
of Credit Risk
For
the year ended December 31, 2001, approximately 49% of revenues were derived
from the Company’s ten largest customers.
These customers are large domestic corporations engaged in the sale,
manufacture and/or distribution of consumer products and services.
As
of December 31, 2001, approximately 70% of the outstanding accounts receivable
balance is comprised of amounts due from ten large domestic corporations
engaged in the sale, manufacture and/or distribution of consumer products and
services.
15. Fair
Value of Financial Instruments
The
carrying values of cash and cash equivalents, trade receivables and payables,
and other liabilities approximate fair value because of the short-term nature
of those instruments.
The
estimated fair value of debt approximates carrying value since such obligations
are subject to fluctuating market rates of interest and can be settled at their
face amounts. The Company does not
anticipate settlement of debt at other than carrying value and currently intends
to hold such financial instruments through maturity.
EXHIBIT
INDEX
3.1
Amended and Restated
Certificate of Incorporation of the Registrant (incorporated by reference to
Exhibit 10.3 to the Company’s Registration Statement on Form 8-K filed
on April 6, 2001).
3.2
Certificate of
Designation, Powers, References and Rights of the Preferred Stock of College
Television Network, Inc. (incorporated by reference to Exhibit 4.3 to Form
8-K filed August 3, 1999).
3.3
Second Certificate of
Designation, Powers, References and Rights of the Series A Convertible
Preferred Stock of College Television Network, Inc. (incorporated by
reference to Exhibit 5.3 to Form 8-K filed September 15, 1999).
3.4
Plan of
Reclassification, dated August 31, 1999 (incorporated by reference to Exhibit
I to the Schedule 14C Information Statement filed by the Company on September
22, 1999).
3.5
Amended Second
Certificate of Designation, Powers, References and Rights of the Series A
Convertible Preferred Stock of CTN Media Group, Inc. (incorporated by
reference to Exhibit A to the Registrant’s Schedule 14C Information
Statement filed on February 1, 2000).
3.6
Amended and Restated
Bylaws of the Registrant, as amended (incorporated by reference to
Exhibit 3.2 to the Company’s Registration Statement on Form S-3 (File
No. 333-58479) filed on July 2, 1998).
3.7
Amendment to the Bylaws
of the Registrant (incorporated by reference to Exhibit A to the
Registrant’s Schedule 14C Information Statement filed on February 1, 2000).
4.1
Form of Class C Warrant No. C-1, dated April 25,
1997, issued to U-C Holdings, L.L.C. (incorporated by reference to Exhibit
4.1 to the Company’s Form 10-KSB for the fiscal year ended October 31, 1997).
4.2
Form of Class C Warrant No. C-2, issued to U-C
Holdings, L.L.C. pursuant to the Standby Stock Purchase Agreement dated July
2, 1998 (incorporated by reference to Exhibit 4.15 to the Company’s
Registration Statement on Form S-3 (File No. 333-58479) filed July 2,
1998).
4.3
Equity Protection Agreement, dated April 25, 1997,
between the Company and U-C Holdings, L.L.C. (incorporated by reference to
Exhibit 4.2 to the Company’s Form 10-KSB for the fiscal year ended October
31, 1997).
4.4
Equity Protection Agreement, dated April 25, 1997,
between the Company and U-C Holdings, L.L.C. (incorporated by reference to
Exhibit 4.3 to the Company’s Form 10-KSB for the fiscal year ended October
31, 1997).
4.5
Equity Protection Agreement, dated April 25, 1997,
between the Company and U-C Holdings, L.L.C. (incorporated by reference to
Exhibit 4.4 to the Company’s Form 10-KSB for the fiscal year ended October
31, 1997).
4.6
Equity Protection Agreement, dated April 25, 1997,
between the Company and U-C Holdings, L.L.C. (incorporated by reference to
Exhibit 4.5 to the Company’s Form 10-KSB for the fiscal year ended October
31, 1997).
4.7
Agreement dated March 31, 2001, by and between
Company and U-C Holdings, L.L.C. (incorporated by reference to Exhibit 10.1
to the Company’s Form 8-K filed on April 6, 2001).
E-1
4.8
Specimen certificate representing Common Stock
(incorporated herein by reference to Exhibit 4.3 to the Registrant’s
Registration Statement on Form S-1 (No. 33-44935), as amended, declared
effective on June 10, 1992).
10.1
The Company’s
1990 Performance Equity Plan (incorporated by reference to Exhibit 10.4
to the Company’s Registration Statement on Form S-1 (File No. 33-449035)
declared effective on June 10, 1992).
10.2
First Amendment to 1990
Performance Equity Plan (incorporated by reference to Exhibit 10.2 to
the Company’s Quarterly Report on Form 10-QSB for the quarter ended March 31,
1998 (File No. 000-19997) filed on May 15, 1998).
10.3
Second Amendment to
1990 Performance Equity Plan declared effective on May 13, 1999.
10.4
Third Amendment to 1990
Performance Equity Plan declared effective on June 6, 2000.
10.5
The Company’s 1996
Stock Incentive Plan (incorporated by reference to Exhibit A to the
Company’s Definitive Proxy Statement on Form 14A with respect to its 1996
Annual Meeting of Stockholders filed on July 1, 1996).
10.6
First Amendment to 1996
Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the
Company’s Quarterly Report on Form 10-QSB for the quarter ended March 31,
1998 (File No. 000-19997) filed on May 15, 1998).
10.7
Second Amendment to
1996 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to
the Company’s Quarterly Report on Form 10-QSB for the quarter ended June 30,
1998 (File No. 000-19997) filed on August 14, 1998).
10.8
Third Amendment to 1996
Stock Incentive Plan. (incorporated by reference to Exhibit 10.6 to the
Company’s Annual Report on Form 10-KSB for the year ended December 31, 1999
(File No. 000-19997) filed on March 30, 2000).
10.9
Fourth Amendment to
1996 Stock Incentive Plan declared effective June 6, 2000.
10.10
Fifth Amendment to 1996
Stock Incentive Plan (incorporated by reference to Annex D to the Company’s
Schedule 14C Information Statement filed June 18, 2001).
10.11
The Company’s Outside
Directors’ 1996 Stock Option Plan (incorporated by reference to
Exhibit B to the Company’s Definitive Proxy Statement on Form 14A with
respect to its 1996 Annual Meeting of Stockholders filed on July 1,
1996).
10.12
First Amendment to
Outside Directors’ 1996 Stock Option Plan (incorporated by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-QSB for the
quarter ended March 31, 1998 (File No. 000-19997) filed on May 15, 1998).
10.13
Second Amendment to
Outside Directors’ 1996 Stock Option Plan (incorporated by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-QSB for the
quarter ended June 30, 1998 (File No. 000-19997) filed on August 14, 1998).
E-2
10.14
Third Amendment
to Outside Directors’ 1996 Stock Option Plan. (incorporated by reference to
Exhibit 10.10 to the Company’s Annual Report on Form 10-KSB for the year
ended December 31, 1999 (File No. 000-19997) filed on March 30, 2000).
10.15
Fourth Amendment
to Outside Directors’ 1996 Stock Option Plan declared effective May 13, 1999.
10.16
Fifth Amendment
to Outside Directors’ 1996 Stock Option Plan declared effective June 6, 2000.
10.17
Sixth Amendment
to Outside Directors Stock Option Plan (incorporated by reference to Annex E
to the Company’s Schedule 14C Information Statement filed June 18, 2001).
10.18
Non-qualified
Stock Option Agreement between the Company and Richard Lewis dated May 17,
2001 (incorporated by reference to Exhibit 4.9 to the Company’s Registration
Statement on Form S-8 filed August 13, 2001).
10.19
Registration
Rights Agreement, dated as of April 25, 1997, between the Company and U-C
Holdings, L.L.C. (incorporated by reference to Exhibit 10.13 to the
Company’s Annual Report on Form 10-KSB for the year ended October 31, 1997
(File No. 000-19997) filed on January 1, 1998).
10.20
Purchase Agreement,
dated as of April 25, 1997, between the Company and U-C Holdings, L.L.C.
(incorporated by reference to Exhibit 10.14 to the Company’s Annual
Report on Form 10-KSB for the year ended October 31, 1997 (File No.
000-19997) filed on January 1, 1998).
10.21
Standard Form of Office
Lease by and between 32 East 57th Street, LLC and the Company (incorporated
by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form
10-QSB for the quarter ended June 30, 1998 (File No. 000-19997) filed on
August 14, 1998).
10.22
One Capital City Plaza
office lease dated June 1, 2000 between the Company, M.L. Capital City L.L.C.
and Lakes Capital City, L.L.C. (incorporated by reference to Exhibit 10.3 to
Form 10-QSB for the period ended June 30, 2000 filed August 11, 2000).
10.23
Programming and
Services Agreement, dated effective as of January 1, 1998, between the
Company and Turner Private Networks, Inc. (incorporated by reference to Exhibit 10.4
to the Company’s Quarterly Report on Form 10-QSB for the quarter ended March
31, 1998 (File No. 000-19997) filed on May 15, 1998).
10.24
First Amendment of
Programming and Services Agreement, effective as of July 30, 1999, between
The Company and Turner Private Networks, Inc. (incorporated by reference to
Exhibit 10.16 to the Company’s Annual Report on Form 10-KSB for the year
ended December 31, 1999 (File No. 000-19997) filed on March 30, 2000).
10.25
Installation
Agreement (Phase I,) dated March 13, 1998, between the Company and Crawford
Communications, Inc. (incorporated by reference to Exhibit 10.5 to the
Company’s Quarterly Report on Form 10-QSB for the quarter ended March 31,
1998 (File No. 000-19997) filed on May 15, 1998).
10.26
Transponder Use
Agreement between The Company and Public Broadcasting Service dated
April 30, 1998 (incorporated by reference to Exhibit 10.3 to the
Company’s Quarterly Report on Form 10-QSB for the quarter ended June 30, 1998
(File No. 000-19997) filed on August 14, 1998).
10.27
Agreement between
Crawford Communications Inc. and The Company dated July 15, 1998
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-QSB for the quarter ended September 30, 1998 (File No.
000-19997) filed on November 13, 1998).
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10.28
Stock Purchase
Agreement, dated July 16, 1999, among the Company, Armed Forces
Communications, Inc., Kevin West and Colleen Gordon (incorporated by
reference to Exhibit 2.1 to Form 8-K filed September 15, 1999).
10.29
Stock Purchase Agreement, dated as of June 1, 2001,
among MPM Acquisition, Inc., a Delaware corporation, the Company and, with
respect to Section 6.3 and 4.14(b) thereof only, Armed Forces Communications,
Inc., a New York corporation d/b/a Market Place Media (incorporated by
reference to Exhibit 2.1 to the Company’s Form 8-K filed on July 25, 2001).
10.30
Amendment Number One, dated as of July 10, 2001, to
the Stock Purchase Agreement, dated as of June 1, 2001, by and among the
Company, MPM Holding, Inc. (f/k/a MPM Acquisition, Inc.), a Delaware
corporation, and Armed Forces Communications, Inc., a New York corporation
d/b/a Market Place Media (incorporated by reference to Exhibit 2.2 to the
Company’s Form 8-K filed on July 25, 2001).
10.31
Limited Guaranty,
dated as of July 10, 2001, among MPM Holding, Inc., f/k/a MPM Acquisition,
Inc., U-C Holdings, L.L.C., Willis Stein & Partners II, L.P., and Willis
Stein & Partners Dutch, L.P. (Incorporated by reference to Exhibit 2.3 to
the Company’s Form 8-K filed on July 25, 2001).
10.32
Credit Agreement dated
as of July 26, 1999 among the Company and LaSalle Bank National Association
(incorporated by reference to Exhibit 10.2 to Form 10-QSB filed August 16,
1999).
10.33
Third Amendment to
Credit Agreement dated as of June 5, 2000 among the Company and LaSalle Bank
National Association (incorporated by reference to Exhibit 10.5 to Form
10-QSB for the period ended June 30, 2000 filed August 11, 2000).
10.34
Lender Waiver, Consent
and Fourth Amendment to Credit Agreement dated as of November 7, 2000 among
the Company and LaSalle Bank National Association (incorporated by reference
to Exhibit 10.25 to the Company’s Form 10-KSB for the fiscal year ended
December 31, 2000).
10.35
Fifth Amendment to
Credit Agreement dated as of June 5, 2000 among the Company and LaSalle Bank
National Association (incorporated by reference to Exhibit 10.26 to the
Company’s Form 10-KSB for the fiscal year ended December 31, 2000).
10.36
Sixth Amendment to
Credit Agreement dated as of June 5, 2000 among the Company and LaSalle Bank
National Association (incorporated by reference to Exhibit 10.27 to the
Company’s Form 10-KSB for the fiscal year ended December 31, 2000).
10.37
Amended and Restated
Credit Agreement, dated as of August 14, 2001, by and between the Company and
LaSalle Bank National Association (incorporated by reference to Exhibit 2.1
to the Company’s Form 8-K filed on August 23, 2001).
10.38
Purchase
Agreement, dated as of July 23, 1999, between the Company and U-C Holdings,
L.L.C. (incorporated by reference to Exhibit 4.1 to Form 8-K filed
August 3, 1999).
10.39
Purchase Agreement,
dated August 31, 1999, between the Company and U-C Holdings, L.L.C.
(incorporated by reference to Exhibit 5.1 to Form 8-K filed September 15,
1999).
10.40
Cancellation Agreement,
dated August 31, 1999, between the Company and U-C Holdings, L.L.C.
(incorporated by reference to Exhibit 5.2 to Form 8-K filed September 15,
1999).
10.41
Amended and Restated
Purchase Agreement, dated as of October 18, 1999, between the Company and U-C
Holdings, L.L.C. (incorporated by reference to Exhibit 5.1 to Form 8-K filed
October 27, 1999).
10.42
Series B Convertible
Preferred Stock Purchase Agreement, dated as of April 5, 2001, by and between
the
E-4
Company and U-C
Holdings, L.L.C. (incorporated by reference herein to Exhibit 10.2 to the
Issuer’s Form 8-K filed April 6, 2001).
10.43
Employment Agreement,
dated as of April 29, 1997, between the Company and Jason Elkin
(incorporated by reference to Exhibit 10.1 to the Company’s Annual
Report on Form 10-KSB for the year ended October 31, 1997 (File No.
000-19997) filed on January 1, 1998).
10.44
First Amendment
to Employment Agreement, dated May 1, 1999, Between the Company and Jason
Elkin. (incorporated by reference to Exhibit 10.29 to the Company’s
Annual Report on Form 10-KSB for the year ended December 31, 1999 (File No.
000-19997) filed on March 30, 2000).
10.45
Second Amendment
to Employment Agreement dated May 26, 2000 between the Company, U-C Holdings,
L.L.C. and Jason Elkin (incorporated by reference to Exhibit 10.2 to Form
10-QSB for the period ended September 30, 2000 filed November 14, 2000).
10.46
Termination and
Purchase Agreement dated October 31, 2001 by and between U-C Holdings,
L.L.C., the Company and Jason Elkin.
10.47
Subordinated
Promissory Note dated November 30, 2001 from the Company payable to U-C
Holdings, L.L.C.
10.48
Subordination
and Intercreditor Agreement dated November 30, 2001, by and between the
Company, U-C Holdings, L.L.C., LaSalle Bank National Association and Jason
Elkin.
10.49
Amendment No. 1
to the Termination and Purchase Agreement dated November 30, 2001 by and
between the Company, U-C Holdings, L.L.C. and Jason Elkin.
10.50
Employment
Agreement, dated as of April 25, 1997, between the Company and Peter Kauff
(incorporated by reference to Exhibit 10.4 to the Company’s Annual
Report on Form 10-KSB for the year ended October 31, 1997 (File No.
000-19997) filed on January 1, 1998).
10.51
General Release and
Payment Agreement, dated as of January 21, 2000, between the Company and
Peter Kauff (incorporated by reference to Exhibit 10.40 to the Company’s
Annual Report on Form 10-KSB for the year ended December 31, 1999 (File No.
000-19997) filed on March 30, 2000).
10.52
Employment Agreement,
dated as of September 10, 1997, between the Company and Patrick G. Doran
(incorporated by reference to Exhibit 10.5 to the Company’s Annual
Report on Form 10-KSB for the year ended October 31, 1997 (File No.
000-19997) filed on January 1, 1998).
10.53
First Amendment to
Employment Agreement, dated November 1, 1999, between the Company and Patrick
G. Doran. (incorporated by reference to Exhibit 10.32 to the Company’s
on Form filed on March 30, 2000).
10.54
Employment and Equity
Purchase Agreement, dated as of January 1, 1998, among the Company and
Thomas Gatti (incorporated by reference to Exhibit 10.4 to the Company’s
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998
(File No. 000-19997) filed on March 31, 1999).
10.55
Payment Agreement and
General Release, dated February 19, 1999, among the Company, Joseph D.
Gersh and U-C Holdings, L.L.C. (incorporated by reference to
Exhibit 10.1 to the Company’s Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1998 (File No. 000-19997) filed on March 31,
1999).
10.56
Consulting Agreement,
dated as of May 4, 2001, between the Company and C. Thomas McMillen
(incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q
filed on August 14, 2001).
E-5
10.57
Consulting and
Equity Purchase Agreement, dated as of March 26, 1999, among The Company, U-C
Holdings, L.L.C. and Sergio Zyman (incorporated by reference to
Exhibit 10.8 to the Company’s Annual Report on Form 10-KSB for fiscal
year ended December 31, 1998 (File No. 000-19997) filed on March 31, 2001).
10.58
Employment Agreement
dated May 24, 1999 between the Company, U-C Holdings, L.L.C. and Martin Grant
(incorporated by reference to Exhibit 10.1 to Form 10-QSB for the period
ended June 30, 1999 filed August 16, 1999).
10.59
First Amendment to
Employment Agreement, dated October 20, 1999, between the Company and Martin
Grant. (incorporated by reference to Exhibit 10.38 to the Company’s
Annual Report on Form 10-KSB for the year ended December 31, 1999 (File No.
000-19997) filed on March 30, 2000).
10.60
General Release and Payment Agreement, dated as of
January 8, 2001, between the Company, U-C Holdings, L.L.C. and Martin Grant (incorporated
by reference to Exhibit 10.51 to the Company’s Annual Report on Form 10-KSB
for the year ended December 31, 2000 (File No. 000-19997) filed on April 2,
2001).
10.61
Employment
Agreement, dated as of July 16, 1999, between the Company and Geoffrey Kanter
(incorporated by reference to Exhibit 10.8 to Form 10-QSB for the period
ended September 30, 1999 filed November 15, 1999).
10.62
Payment and Release
Agreement by and between Geoffrey Kanter, U-C Holdings, L.L.C. and the
Company dated June 18, 2001.
10.63
Employment Agreement
dated April 15, 2000 between the Company, U-C Holdings, L.L.C. and Neil
Dickson (incorporated by reference to Exhibit 10.1 to Form 10-QSB for the
period ended June 30, 2000 filed August 11, 2000).
10.64
First Amendment to
Employment Agreement dated as of February 1, 2001 between the Company and
Neil H. Dickson (incorporated by reference to Exhibit 10.52 to the Company’s
Annual Report on Form 10-KSB for the year ended December 31, 2000. (File No.
000-19997) filed on April 2, 2001).
10.65
Employment Agreement
dated December 11, 2000 between the Company and Thomas A. Rocco (Incorporated
by reference to Exhibit 10.53 to the Company’s Annual Report on Form 10-KSB
for the year ended December 31, 2000 (File No. 000-19997) filed on April 2,
2001).
10.66
First Amendment to Employment Agreement dated
January 10, 2001 among the Company, Thomas A. Rocco and U-C Holdings, L.L.C.
(incorporated by reference to Exhibit 10.54 to the Company’s Annual Report on
Form 10-KSB for the year ended December 31, 2000 (File No. 000-19997) filed
on April 2, 2001).
10.67
Subordinated Bridge Note Purchase Agreement dated as
of November 26, 2001, by and between the Company and U-C Holdings, L.L.C.
(incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on
December 21, 2001).
10.68
Subordinated Bridge Note payable by the Company to
U-C Holdings, L.L.C., dated as of November 26, 2001 (incorporated by
reference to Exhibit 10.2 to the Company’s Form 8-K filed on December 21,
2001).
10.69
Subordinated Security Agreement, dated as of
November 26, 2001, by and the Company and U-C Holdings, L.L.C (incorporated
by reference to Exhibit 10.3 to the Company’s Form 8-K filed on December 21,
2001).
23.1
Consent of
PricewaterhouseCoopers LLP.
99.1
Safe Harbor Compliance
Statement for Forward-Looking Statements.
E-6