-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OBKX0cawr1LI7mIxdHgw5I2tU8kOWM2hGUC8xWMJIT1b7Wx6Jqp05doLuloaPESg aPOajmFPaZSRyRrIXgNp5Q== 0001231742-03-000110.txt : 20030923 0001231742-03-000110.hdr.sgml : 20030923 20030922185906 ACCESSION NUMBER: 0001231742-03-000110 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20030923 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELECOMMUNICATION PRODUCTS INC CENTRAL INDEX KEY: 0000725929 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 840916299 STATE OF INCORPORATION: CO FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-109030 FILM NUMBER: 03904969 BUSINESS ADDRESS: STREET 1: PO BOX 17013 CITY: GOLDEN STATE: CO ZIP: 80402 BUSINESS PHONE: 3032782725 MAIL ADDRESS: STREET 1: PO BOX 17013 CITY: GOLDEN STATE: CO ZIP: 80402 SB-2 1 doc1.txt As filed with the Securities and Exchange Commission on September 23, 2003 Registration No. _____________ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 TELECOMMUNICATION PRODUCTS, INC. (Name of small business issuer in its charter) Colorado 3661 84-0916299 (State of other (Primary Standard (IRS Employer jurisdiction Industrial Identification of incorporation) Classification Code Number) Number) 9171 Wilshire Blvd., Suite B Beverly Hills, CA 90210 (310) 281-2571 (Address and telephone number of principal executive offices) 9171 Wilshire Blvd., Suite B Beverly Hills, CA 90210 (310) 281-2571 (Address of principal place of business or intended principal place of business) Robert Russell, Chief Executive Officer 9171 Wilshire Blvd., Suite B Beverly Hills, CA 90210 (310) 281-2571 (Name, address and telephone number of agent for service) Copies of communications to: Amy Trombly 80 Dorcar Road Newton, MA 02459 (617) 243-0850 Approximate date of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the offering. [ ] If this Form is post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
Title of each class of . . . . . . . . . Proposed maximum Maximum Amount of securities to be . . . . . . . . . . . . Amount to be Offering Price per Aggregate Registration Fee registered. . . . . . . . . . . . . . . Registered(1) Security(2) Offering Price - ---------------------------------------- ----------------- -------------------- --------------- Common stock, par value $.0001 per share 24,400,000 $ 0.07 $ 1,708,000 $ 138.18 - ---------------------------------------- ----------------- -------------------- --------------- ----------------- (1) Pursuant to Rule 416(a) of the Securities Act of 1933, as amended, this registration statement shall be deemed to cover additional securities that may be offered or issued to prevent dilution resulting from stock splits, stock dividends or similar transactions. (2) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(c). For the purposes of this table, we have used the average of the closing bid and ask prices of the common stock as traded in the over the counter market and reported on the OTC Electronic Bulletin Board on September 18, 2003.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities, in any state where the offer or sale is not permitted. PROSPECTUS TELECOMMUNICATION PRODUCTS, INC. This prospectus relates to the sale of up to 24,400,000 shares of our common stock by current stockholders and by Dutchess Private Equities Fund, L.P., which will become a shareholder pursuant to an Investment Agreement. We are not selling any securities in this offering and therefore will not receive any proceeds from this offering. We will, however, receive proceeds from the sale of securities under the Investment Agreement, also referred to as an Equity Line of Credit, that we have entered into with Dutchess Private Equities Fund, which permits us to "put" up to $5 million in shares of common stock to Dutchess Private Equities Fund. All costs associated with this registration will be borne by us. The selling stockholders consist of: Coast Communications, Inc. 2,000,000 Indigo Consultants, Ltd. 2,400,000 Multimedia Technologies Inc. 4,000,000 Dutchess Private Equities Fund, L.P. 16,000,000 The shares of common stock are being offered for sale by the selling stockholder at prices established on the Over-the-Counter Bulletin Board or in negotiated transactions during the term of this offering. Our common stock is quoted on the Over-the-Counter Bulletin Board under the symbol TCPD.OB. On September 18, 2003, the last reported sale price of our common stock was $0.08 per share. Dutchess is an "underwriter" within the meaning of the Securities Act of 1933, as amended, in connection with the resale of common stock under the Investment Agreement. Dutchess will pay us 94% of the lowest closing bid price of the common stock during the five consecutive trading day period immediately following the date of our notice to them of our election to put shares pursuant to the Equity Line of Credit. The shares issued to Coast Communications, Inc., Indigo Consultants, Ltd., and Mutimedia Technologies Inc. were issued in a prior private placement. ____________________ This investment involves a high degree of risk. You should purchase securities only if you can afford a complete loss. SEE "RISK FACTORS" BEGINNING ON PAGE 4. ____________________ Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Subject to Completion, the date of this Prospectus is September 22, 2003 TABLE OF CONTENTS PROSPECTUS SUMMARY 3 OUR CAPITAL STRUCTURE AND SHARES ELIGIBLE FOR FUTURE SALE 4 RISK FACTORS 4 USE OF PROCEEDS 8 DILUTION 8 CAPITALIZATION 10 DIVIDEND POLICY 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11 DESCRIPTION OF BUSINESS 13 DESCRIPTION OF PROPERTY 19 MANAGEMENT 19 LIMITATIONS ON OFFICER AND DIRECTOR LIABILITY 19 EXECUTIVE COMPENSATION 21 RELATED PARTY TRANSACTIONS 21 MARKET FOR OUR COMMON STOCK 22 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 22 SELLING STOCKHOLDERS 23 DESCRIPTION OF SECURITIES 23 PLAN OF DISTRIBUTION 24 LEGAL PROCEEDINGS 26 LEGAL MATTERS 26 EXPERTS 26 FINANCIAL STATEMENTS 25 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements, including notes thereto, appearing elsewhere in this prospectus. Because it is a summary, it does not contain all of the information you should consider before making an investment decision. OUR COMPANY We provide in-room, on-demand video entertainment and satellite services to the lodging industry. Our technology delivers DVD-quality images via traditional cable networks and satellite channels. We also provide pay-per-view and free-to-guest television service in small hotels in the U.S. and the Caribbean. On March 31, 2003, we entered into a contact for the acquisition of the assets of Hotel Movie Network, Inc., which consist of contract rights with Pay Per View and Cable/Satellite access for approximately 8,000 installed rooms and associated hardware. The purchase transaction closed on August 1, 2003. We expect to show revenues from Hotel Movie Network in the second quarter of 2003. HOW TO CONTACT US Our principal executive offices are located at 9171 Wilshire Blvd., Suite B, Beverly Hills, California 90210. Our phone number is (310) 281-2571. THE OFFERING This prospectus relates to the resale of up to 24,400,000 shares of our common stock by four entities: three current stockholders, a nd Dutchess Private Equities Fund, L.P., which will become a stockholder pursuant to a put right under an Investment Agreement that we have entered into with Dutchess. The table below sets forth the shares that we are registering pursuant to the Registration Statement to which this prospectus is a part:
Shareholder Number of Shares - --------------------------------------- ---------------------- Dutchess Private Equities Fund, L.P 16,000,000(1) Coast Communications, Inc. 2,000,000 Indigo Consultants, Ltd. 2,400,000 Multimedia Technologies Inc. 4,000,000 ----------- Total common stock being registered 24,400,000 (1) Assumes we put 16,000,000 Shares to Dutchess during the term of the Investment Agreement.
We have entered into an Investment Agreement with Dutchess Private Equities Fund L.P., also referred to as an Equity Line of Credit. This agreement provides that, following notice to Dutchess, we may put to Dutchess up to $5 million in shares of our common stock for a purchase price equal to 94% of the lowest closing bid price on the Over-the-Counter Bulletin Board of our common stock during the five day period following that notice. The number of shares that we will be permitted to put pursuant to the Investment Agreement will be either: (A) 200% of the average daily volume in the U.S. market of the common stock for the 20 trading days prior to the notice of our put, multiplied by the average of the three daily closing bid prices immediately preceding the date of the put, or (B) $10,000. No single put can exceed $1,000,000. In turn, Dutchess has indicated that it will resell those shares in the open market, resell our shares to other investors through negotiated transactions or hold our shares in its portfolio. This prospectus covers the resale of our stock by Dutchess either in the open market or to other investors through negotiated transactions. We are also registering for resale 8,400,000 shares of outstanding common stock which were issued in a private placement to Coast Communications, Inc., Indigo Consultants, Ltd., and Multimedia Technologies, Inc. prior to the filing of the registration statement of which this prospectus is a part. OUR CAPITAL STRUCTURE AND SHARES ELIGIBLE FOR FUTURE SALE The following table outlines our capital stock as of September 10, 2003: Common Stock outstanding Before the offering 43,913,805 shares After the offering 62,513,805 shares(1) (1) Assumes we put 16,000,000 shares to Dutchess during the term of the Investment Agreement. SUMMARY FINANCIAL INFORMATION The following summary financial information has been derived from our financial statements and should be read in conjunction with the financial statements and the related notes thereto appearing elsewhere in this prospectus. 3/31/03 6/30/03 --------- ---------- Balance Sheet Data: Total Assets $2,019,106 $2,092,375 Total Liabilities $ 424,637 $ 476,979 Total Stockholders' Equity $1,594,469 $1,615,396 Statement of Operations: Revenues $ 0 $ 0 Expenses $(812,410) $ 323,573 Other income $ 385,935 Net Income (Loss) $(416,475) $ (323,573) Income (Loss) Per Share $ (0.02) $ (0.01) Shares Used In Computing Net Income (Loss) Per Share 27,062,000 33,273,000 RISK FACTORS An investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors, other information included in this prospectus and information in our periodic reports filed with the SEC. If any of the following risks actually occur, our business, financial condition or results of operations could be materially and adversely affected and you may lose some or all of your investment. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements that involve risks and uncertainties. We generally use words such as "believe," "may," "could," "will," "intend," "expect," "anticipate," "plan," and similar expressions to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described below and elsewhere in this report. Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made, and our future results, levels of activity, performance or achievements may not meet these expectations. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We do not intend to update any of the forward-looking statements after the date of this document to conform these statements to actual results or to changes in our expectations, except as required by law. RISKS RELATED TO OUR BUSINESS WE HAVE A HISTORY OF LOSSES AND AN ACCUMULATED DEFICIT WHICH MAY CONTINUE IN THE FUTURE AND WHICH MAY PREVENT US FROM OPERATING AND EXPANDING OUR BUSINESS. We have incurred significant net operating losses in each of the years ended March 31, 2002 and 2003. We realized a net loss of $416,475 for the twelve months ended March 31, 2003, as compared to incurring a net loss of $1,032,582 for the twelve months ended March 31, 2002. Our accumulated deficit through March 2003 was $2,812,775. We may continue to incur losses and may never achieve or sustain profitability. An extended period of losses and negative cash flow may prevent us from operating and expanding our business, especially our Internet-based business. OUR INDEPENDENT AUDITORS HAVE ISSUED A GOING CONCERN OPINION DUE TO OUR RECURRING LOSSES AND WORKING CAPITAL SHORTAGES, WHICH MEANS WE MAY NOT BE ABLE TO CONTINUE OPERATIONS UNLESS WE OBTAIN ADDITIONAL FUNDING. Our audited financial statements for the fiscal year ended March 31, 2003, reflect a net loss of $416,475. These conditions raised substantial doubt about our ability to continue as a going concern if we do not acquire sufficient additional funding or alternative sources of capital to meet our working capital needs. If we do not obtain additional funding, we may not be able to continue operations. WE NEED AND MAY BE UNABLE TO OBTAIN ADDITIONAL FUNDING ON SATISFACTORY TERMS, WHICH COULD DILUTE OUR STOCKHOLDERS' INTERESTS OR IMPOSE BURDENSOME FINANCIAL RESTRICTIONS ON OUR BUSINESS. Historically, we have relied upon cash from financing activities to fund all of the cash requirements of our activities. We have not been able to generate any cash from our operating activities in the past and we may not be able to generate any significant cash in the future. Although we believe our Investment Agreement with Dutchess will provide sufficient funding for at least the next twelve months, we may require new financing commitments. Deteriorating global economic conditions and the effects of ongoing military actions against terrorists may cause prolonged declines in investor confidence in and accessibility to capital markets. Future financing may not be available on a timely basis, in sufficient amounts or on terms acceptable to us. Any future equity financing may also dilute existing stockholders' equity. Any debt financing or other financing of securities senior to common stock will likely include financial and other covenants that will restrict our flexibility. At a minimum, we expect these covenants to include restrictions on our ability to pay dividends on our common stock. If we find additional financing with satisfactory terms, your interests may be diluted an we may have to accept restrictions on our business. WE ONLY RECENTLY ACQUIRED HOTEL MOVIE NETWORK AND IF WE CAN NOT IMPLEMENT OUR PLANS, WE MAY NEVER BECOME PROFITABLE. Our business model includes leveraging the assets we acquired from Hotel Movie Network, Inc. We have just begun to incorporate these assets into our company. Accordingly, we are unable to predict the demand for our services and are therefore unable to predict whether our business model may be sustained. If we are unable to generate significant revenues under our current business model, we may never become profitable and, if we become profitable, we may not be able to sustain it. OUR REVENUES, IF ANY, MAY BE AFFECTED BY THE SEASONAL OCCUPANCY RATES OF HOTELS WE DO BUSINESS WITH. Our revenue, if any, will partly depend on the occupancy rate of the hotel properties we serve. Occupancy rates can vary season to season based on the property's location and attractions nearby. Generally, occupancy rates are higher during the summer and lower during the winter. Occupancy rates affect our potential number of customers, which affects our revenue. Because we do not control occupancy rates, we may not be able to significantly influence negative trends or seasonality in our revenues, if any. OUR REVENUES, IF ANY, WILL BE AFFECTED BY FACTORS OUT OF OUR CONTROL. In addition to occupancy rates, our revenues will be affected by many factors our of our control including: - - the rate at which hotel guests buy our services; - - the popularity of movies we license; - - the amount of marketing studios use to promote their movies; and - - other entertainment options at the hotel property. While we may decide which hotels we enter into contracts with, many factors out of our control will ultimately affect the rate at which guests buy our services. We do not control all of the factors that could influence guests to make a decision to buy our services and therefore we can not control the amount of revenues we generate. WE DEPEND ON THIRD PARTIES FOR OUR PROGRAMMING CONTENT AND IF THEY INCREASE THEIR FEES, OUR PROFITABILITY COULD BE AFFECTED. Our programming content is provided by third parties. We currently pay a fee for the right to broadcast their programming. If these third parties increase their fees, we will have to either pass the increased costs on to our customers which could adversely affect our revenues or our profitability may decrease. IF WE DO NOT MANAGE OUR GROWTH EFFECTIVELY, WE MAY NOT BE ABLE TO IMPLEMENT OUR BUSINESS PLAN AND BECOME PROFITABLE Our business strategy envisions a period of rapid growth that may strain our administrative and operational resources. Our ability to effectively manage growth will require us to continue to expand the capabilities of our operational and management systems and to attract, train, manage and retain qualified engineers, technicians, salespersons and other personnel. We may not be able to manage our growth, particularly if our losses continue or if we are unable to obtain sufficient financing. If we are unable to successfully manage our growth, we may not be able to implement our business plan and become profitable. IF WE CAN NOT PROTECT OUR PROPRIETARY RIGHTS AND INTELLECTUAL PROPERTY, WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY IN THE MARKETPLACE. We will rely on a combination of trade secrets and contractual provisions to protect our proprietary rights and products. These protections may not be adequate and competitors may independently develop technologies that are similar or identical to our products. We may experience delays in the introduction and market acceptance of new products due to various factors. If we can not protect our proprietary rights and intellectual property, we may not be able to compete effectively in the marketplace. IF COMMUNICATIONS TO OUR PRIMARY SERVERS ARE INTERRUPTED, OUR OPERATIONS MAY NOT GENERATE REVENUE. Although our servers are maintained by our host, all of our primary servers are vulnerable to interruption by damage from fire, flood, power loss, telecommunications failure, break-ins, terrorist attacks and other events beyond our control. We do not maintain business interruption insurance. A significant system disruption would adversely affect our business because we would be unable to deliver our services during the disruption and may therefore lose existing and potential customers. WE OPERATE WITHIN A HIGHLY COMPETITIVE MARKET AND IF WE DO NOT SUCCEED IN ATTRACTING CUSTOMERS, WE WILL NOT BE ABLE TO IMPLEMENT OUR BUSINESS PLAN. The market for on-demand video entertainment and satellite services is extremely competitive and can be significantly affected by many factors, including changes in local, regional or national economic conditions, changes in consumer preferences, brand name recognition and marketing and the development of new and competing technologies. We expect that existing businesses that compete with us have greater financial resources than we do and will be able to undertake more extensive marketing campaigns and adopt more aggressive advertising sales policies than we can. If we can not compete successfully, we may not be able to implement our business plan. RISKS RELATING TO OUR CURRENT FINANCING AGREEMENT EXISTING SHAREHOLDERS WILL EXPERIENCE SIGNIFICANT DILUTION FROM OUR SALE OF SHARES UNDER THIS OFFERING. The sale of shares pursuant to our Investment Agreement with Dutchess may have a dilutive impact on our shareholders. As a result, our net income per share could decrease in future periods, and the market price of our common stock could decline. In addition, the lower our stock price at the time we exercise our put option, the more shares we will have to issue to Dutchess to draw down on the full equity line with Dutchess. If our stock price decreases, then our existing stockholders would experience greater dilution. DUTCHESS WILL PAY LESS THAN THE THEN-PREVAILING MARKET PRICE OF OUR COMMON STOCK WHICH MAY CAUSE OUR STOCK PRICE TO DECREASE. Pursuant to our Investment Agreement, we will issue our common stock at a 6% discount to the lowest closing bid price of our common stock during the five day period following our notice to Dutchess of our election to exercise our put right. These discounted sales could cause the price of our common stock to decline. RISKS RELATING TO OUR COMMON STOCK OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE AND YOU MAY FIND IT DIFFICULT TO SELL YOUR SHARES FOR A PROFIT. The trading price of our common stock has been and is likely to continue to be highly volatile. For example, during the 52-week period ended September 18, 2002, the price of our common stock ranged from $2.00 to $.01 per share. Our stock price could be subject to wide fluctuations in response to factors such as: - - actual or anticipated variations in quarterly operating results; - - announcements of technological innovations, new products or services by us or our competitors; - - changes in our financial estimates or recommendations by securities analysts regarding us or our competitors; - - the addition or loss of strategic relationships or relationships with our key customers; - - announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; - - legal, regulatory or political developments; - - additions or departures of key personnel; - - sales of our common stock by insiders or stockholders; and - - general market conditions. In addition, the stock market in general, and the Over-The-Counter Bulletin Board and the market for on demand video entertainment and satellite services companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. These broad market and industry factors may reduce our stock price, regardless of our operating performance. OUR COMMON STOCK IS A "PENNY STOCK," AND COMPLIANCE WITH REQUIREMENTS FOR DEALING IN PENNY STOCKS MAY MAKE IT DIFFICULT FOR HOLDERS OF OUR COMMON STOCK TO RESELL THEIR SHARES. The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in "penny stocks." Penny stocks generally are equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on NASDAQ, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. Prior to a transaction in a penny stock, a broker-dealer is required to: - - Deliver a standardized risk disclosure document prepared by the SEC; - - Provides the customer with current bid and offers quotations for the penny stock; - - Explain the compensation of the broker-dealer and its salesperson in the transaction; - - Provide monthly account statements showing the market value of each penny stock held in the customer's account; - - Make a special written determination that the penny stock is a suitable investment for the purchaser and receives the purchaser's; and - - Provide a written agreement to the transaction. These requirements may have the effect of reducing the level of trading activity in the secondary market for our stock. Because our shares are subject to the penny stock rules, you may find it more difficult to sell your shares. OUR COMMON STOCK HAS BEEN RELATIVELY THINLY TRADED AND WE CANNOT PREDICT THE EXTENT TO WHICH A TRADING MARKET WILL DEVELOP. Our common stock trades on the OTC Bulletin Board. Our common stock is thinly traded compared to larger, more widely known companies in our industry. Thinly traded common stock can be more volatile than common stock trading in an active public market. We cannot predict the extent to which an active public market for the common stock will develop or be sustained after this offering. USE OF PROCEEDS This prospectus relates to shares of our common stock that may be offered and sold from time to time by the selling stockholders. We will not receive proceeds from the sale of shares of common stock in this offering. However, we will receive the proceeds from the sale of shares of common stock to Dutchess under the Investment Agreement. The purchase price of the shares purchased under the Investment Agreement will be equal to 94% of the lowest closing bid price of our common stock on the Over-the-Counter Bulletin Board for the five days immediately following the date of our notice of election to exercise our put. For illustrative purposes, we have set forth below our intended use of proceeds for the range of net proceeds indicated below to be received under the Investment Agreement. The table assumes estimated offering expenses of $25,000.
Proceeds Proceeds If 100% Sold If 50% Sold ------------- ------------ Gross Proceeds $5,000,000 $2,500,000 Estimated remaining accounting, legal and associated expenses of Offering $ 25,000 $ 25,000 ---------- ---------- Net Proceeds $4,975,000 $2,475,000 =========== ========== Priority Proceeds Proceeds ----------------- ---------- Deployment of existing technology $3,504,521 $1,029,521 Short term debt and Interest 1st $ 476,979 $ 476,979 Working capital and general corporate expenses 2nd $ 218,500 $ 218,500 New product development and testing 3rd $ 500,000 $ 500,000 Expansion of internal operations 4th $ 150,000 $ 150,000 Hotel Movie Network 5th $ 75,000 $ 75,000 Facilities and capital expenditures 6th $ 50,000 $ 25,000 ---------- ---------- $4,975,000 $2,475,000 ========== ==========
Proceeds of the offering which are not immediately required for the purposes described above will be invested in United States government securities, short-term certificates of deposit, money market funds and other high-grade, short-term interest-bearing investments. DETERMINATION OF OFFERING PRICE The shares of common stock are being offered for sale by the selling stockholders at prices established on the Over-the-Counter Bulletin Board or in negotiated transactions during the term of this offering. These prices will fluctuate based on the demand for the shares. DILUTION Our net tangible book value as of June 30, 2003 was $815,396 or $0.018 per share of common stock. Net tangible book value is determined by dividing our tangible book value (total tangible assets less total liabilities and preferred stock) by the number of outstanding shares of our common stock. Since this offering is being made solely by the selling stockholders and none of the proceeds will be paid to us, our net tangible book value will be unaffected by this offering. Our net tangible book value, however, will be impacted by the common stock to be issued under our Investment Agreement with Dutchess. The amount of dilution will depend on the offering price and number of shares to be issued under the Investment Agreement. Higher offering prices result in increased dilution to new investors. For example, if we were to issue 16,000,000 shares of common stock under The Investment Agreement at an assumed offering price of 94% of $0.33 per share, less offering expenses of $25,000, our net tangible book value as of June 30, 2003 would have been $5,790,3960 or $0.05 per share. This represents an immediate increase in net tangible book value to existing shareholders of $0.03 per share and an immediate dilution to new shareholders of $0.25 per share, or 80%. The following table illustrates the per share dilution based on this example:
Assumed Public Offering Price Per Share $ 0.330 Net Tangible Book Value Per Share Before This Offering $ 0.018 Increase Attributable To New Investors $ 0.079 ------ Net Tangible Book Value Per Share After This Offering $ 0.097 ------ Dilution Per Share To New Shareholders $ 0.233 ======
The offering price of our common stock is based on the then-existing market price. In order to give prospective investors an idea of the dilution per share they may experience, we have prepared the following table showing the dilution per share at various assumed trading prices (i.e., lowest closing prices during the applicable five day pricing period):
ASSUMED PER SHARE NUMBER OF DILUTION PER SHARE OFFERING PRICE SHARES TO BE ISSUED(1) TO NEW INVESTORS - - -------------- ------------------------ ------------------- 0.05 105,263,158 $ 0.039 0.10 52,631,579 $ 0.060 0.15 35,087,719 $ 0.073 0.20 26,315,790 $ 0.082 0.25 21,052,632 $ 0.089 0.30 17,543,860 $ 0.094 0.35 15,037,594 $ 0.098 0.40 13,157,895 $ 0.101 0.45 11,695,906 $ 0.104 0.50 10,526,316 $ 0.106 (1) We currently have no intent to exercise the put right in a manner that would result in our issuance of more than 16,000,000 shares, but if we were to exercise the put right in such a way that we were to exceed 16,000,000 shares, we would be required to file another registration statement with the SEC to register additional shares.
- ------ CAPITALIZATION The following table sets forth our capitalization as of June 30, 2003. The pro forma information includes and accounts for the effects of the anticipated results of the completion of the sale of 8,000,000 shares of our common stock if 50% are put to Dutchess under our Investment Agreement or 16,000,000 shares of our common stock if 100% are put to Dutchess under our Investment Agreement at an assumed offering price of $.004 per share (after deduction of the estimated expenses of the offering) This table should be read in conjunction with the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements in the accompanying notes and other financial information in this prospectus.
50% or 100% or 8,000,000 16,000,000 shares shares --------------- ------------ June 30, 2003 June 30, 2003 --------------- ------------ Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,000 64,000 --------------- ------------ Liabilities: Current liabilities. . . . . . . . . . . . . . . . . . . . 476,979 476,979 Total liabilities. . . . . . . . . . . . . . . . . . . . 476,979 476,979 --------------- ------------ Shareholders' Equity: Common stock, 100,000,000 shares authorized: 51,913,805 and 59,913,805, respectively, issued. . . . . . . . . 3,983,744 4,015,744 Common stock, 50,000,000 shares authorized: 800,000 issued 800,000 800,000 Accumulated deficit . . . . . . . . . . . . . . . . . . . . (3,136,348) (3,136,348) --------------- ------------ Total shareholders' equity . . . . . . . . . . . . . . . 1,647,396 1,679,396 --------------- ------------ Total capitalization . . . . . . . . . . . . . . . . . . $ 2,124,372 $ 2,156,375 =============== ============
DIVIDEND POLICY We do not pay dividends on our common stock and we do not anticipate paying dividends on our common stock in the foreseeable future. We intend to retain our future earnings, if any, to finance the growth of our business. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The following discussion is intended to provide an analysis of our financial condition and should be read in conjunction with our financial statements and the accompanying notes. STRATEGIC PLAN OVERALL Our primary aim for the next twelve months is to leverage our existing assets and expertise within our newly acquired subsidiary, Hotel Movie Network. Hotel Movie Network already has 8,000 rooms deployed. We acquired from Satellite Systems sufficient equipment to deploy approximately 110,000 operating cable/satellite units. We believe our industry expertise will permit us to continue to enter into contracts to further leverage our assets. In this regard, we have entered into a Letter of Intent with Coast Communications, Inc., Hotel Movie Network, Inc. and the "Palmas del Mar" developers in Puerto Rico to construct and maintain a satellite cable system, a high-speed wireless Internet system, and a telephone and security system. We expect the contract will have a thirty year duration with additional long-term extension options. SALES AND MARKETING Our Sales and Marketing strategy is divided into the following categories: - - SYSTEM SALES: With a large inventory at our disposal, we can offer hotels and multi-dwelling units the opportunity to purchase our systems outright through a lease-purchase program. The up-front cost to the customer is minimal but they then have the advantage of being able to scale the end-user subscription/viewing charges to best exploit the additional line of revenue that a Satellite/Cable system offers them while paying a fixed service cost to us. - - VIDEO-ON-DEMAND: This is the existing line of business we acquired as part of Hotel Movie Network. Our current client base includes 8,000 units. Our goal to deploy another 10,000 units in the next twelve months. - - PAY-PER-STAY: We intend to market our services towards longer stay properties and the increased number of private multi-dwelling communities such as retirement and vacation resorts. The guest demands in longer stay properties are for a wider range of entertainment content for a specific monthly cost. These installations often encompass single billing whereby a property management company collects fees directly from the guest via their hotel invoice or association dues. We believe this pay-per-stay model is attractive because there is (i) elimination of charge-offs inherent in video on demand operation; (ii) an increased and consistent revenue base per unit; and (iii) reduced costs due to centralized bill collection. STRATEGIC ALLIANCE: We will continue the strategy of affiliation with players in the property management and hospitality industry while developing new relationships directly with construction and development corporations. FINANCING We recently entered into an Equity Line with Dutchess Private Equities Fund whereby we can put to them up to $5 million in our common stock for up to 36 months. We believe this financing will be sufficient for the next twelve months. RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 2003 COMPARED TO THE QUARTER ENDED JUNE 30, 2002 We had no revenues during the quarter ended June 30, 2003 and no revenues during the quarter ended June 30, 2002. We incurred general and administrative expenses of $312,473 for the quarter ended June 30, 2003 compared to $40,731 for the quarter ended June 30, 2002. The large increase in general and administrative expenses was due to the increase in consulting fees and an increase of operations expenses as we continue to develop a plan of operations. We incurred $11,000 in interest expense in the quarter in 2003 compared to none in 2002. We incurred an operating loss of ($323,573), for the quarter ended June 30, 2003 as compared to an operating loss of ($65,231) for the quarter ended June 30, 2002. During 2002, liabilities of a previous business venture which totaled $385,935 were written off and recorded as other income. Operating loss per share totaled ($0.01) per share for the quarter ended June 30, 2003 as opposed to a net operating loss per share of less than ($.01) for the quarter ended June 30, 2002. The increase in loss per share for the quarter ended June 30, 2003 was primarily due to increase in general and administrative expenses due to the increase in consulting fees and an increase of operations expenses as the company continue to develop on its plan of operations. We recorded non-recurring other income from written off liabilities in the quarter in 2002 of $385,938. We expect the trend of losses to continue although we expect to show revenues in the second quarter as a result of our acquisition of Hotel Movie Network. Even with the expected revenues, we may not be able to operate the business at a break-even rate. RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED MARCH 31, 2003 COMPARED TO THE FISCAL YEAR ENDED MARCH 31, 2002 general and administrative expenses totaled $712,910 for the fiscal year ended March 31, 2003 compared to $505,818 in the previous fiscal year. The large increase in general and administrative expenses was due to the increase in consulting and an increase of operations expenses as we continue to develop our plan of operations. We incurred a loss of ($351,475), for the fiscal year ended March 31, 2003 as compared to a loss of ($1,032,582) for the fiscal year ended March 31, 2002. During 2003, liabilities of a previous business venture totaling $385,935 were written off to other income. Basic losses per share totaled $0.01 per share for the fiscal year ended March 31, 2003 as opposed to $0.03 net loss per share for the fiscal year ended March 31, 2002. The increase in loss per share for the fiscal year ended March 31, 2002 was primarily due to additional acquisition and research costs related to our business plan. LIQUIDITY AND CAPITAL RESOURCES For the quarter ended June 30, 2003, our cash flow came from the issuance of short term debt instruments, some of which were backed by security instruments issued by us. Additionally, we issued 500,000 shares of common stock for $98,500. We currently estimate that we will need approximately $1,000,000 to continue operations through the end of the fiscal year 2004. These operating costs include general and administrative expenses and the deployment of inventory. We believe our Investment Agreement with Dutchess will be sufficient to fund operations and capital requirements as presently planned over the next twelve months. We are also pursuing additional funds through either debt or equity instruments. We may also pursue a working capital line of credit to be secured by assets. However, such funds may not be available on favorable terms or at all. RECENT ACCOUNTING PRONOUNCEMENTS The FASB issued the following pronouncements, none of which are expected to have a significant affect on the financial statements: In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." Under SFAS No. 4, all gains and losses from extinguishment of debt were required to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. This Statement eliminates SFAS No. 4 and, thus, the exception to applying APB No. 30 to all gains and losses related to extinguishments of debt. As a result, gains and losses from extinguishment of debt should be classified as extraordinary items only if they meet the criteria in APB No. 30. Applying the provisions of APB No. 30 will distinguish transactions that are part of an entity's recurring operations from those that are unusual or infrequent or that meet the criteria for classification as an extraordinary item. Under SFAS No. 13, the required accounting treatment of certain lease modifications that have economic effects similar to sale-leaseback transactions was inconsistent with the required accounting treatment for sale-leaseback transactions. This Statement amends SFAS No. 13 to require that those lease modifications be accounted for in the same manner as sale-leaseback transactions. This statement also makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS No. 146 requires companies to record liabilities for costs associated with exit or disposal activities to be recognized only when the liability is incurred instead of at the date of commitment to an exit or disposal activity. Adoption of this standard is effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of this standard will not have a material impact on our financial statements. In October 2002, the FASB issued SFAS No. 147 - "Acquisitions of Certain Financial Institutions, an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9," which applies to the acquisition of all or part of a financial institution, except for a transaction between two or more mutual enterprises. SFAS No. 147 removes the requirement in SFAS No. 72 and Interpretation 9 thereto, to recognize and amortize any excess of the fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired as an unidentifiable intangible asset. This statement requires that those transactions be accounted for in accordance with SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." In addition, this statement amends SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," to include certain financial institution-related intangible assets. This statement is effective for acquisitions for which the date of acquisition is on or after October 1, 2002, and is not applicable to us. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure, amending FASB No. 123, and "Accounting for Stock-Based Compensation". This statement amends Statement No. 123 to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 amends APB Opinion No. 28 "Interim Financial Reporting" to require disclosure about those effects in interim financial information. We will adopt the disclosure provisions and the amendment to APB No. 28 are effective for interim periods beginning after December 15, 2002. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". FIN45 clarifies and expands on existing disclosure requirements for guarantees, including loan guarantees. It also would require that, at the inception of a guarantee, the Company must recognize a liability for the fair value of its obligation under that guarantee. The initial fair value recognition and measurement provisions will be applied on a prospective basis to certain guarantees issued or modified after December 31, 2002. The adoption of FIN45 will not have a material impact on our financial position, results of operations or cash flows. In November 2002, the Emerging Issues Task Force, EITF reached a consensus on Issue No. 00-21 "Revenue Arrangements with Multiple Deliverables." EITF No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and rights to use assets. The provisions of EITF No. 00-21 will apply to revenue arrangements entered into in the fiscal periods beginning after June 1 5, 2003. We are currently evaluating the impact EITF No. 00-21 will have on its financial position and results of operations. In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." FIN46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN46 is effective for all new interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN46 must be applied for the first interim or annual period beginning after June 15, 2003. Management is currently evaluating the effect that the adoption of FIN46 will have on its results of operations and financial condition. Adequate disclosure has been made for all off balance sheet arrangements that it is reasonably possible to consolidate under FIN46. The American Institute of Certified Public Accountants has issued an exposure draft SOP "Accounting for Certain Costs and Activities Related to Property, Plant and Equipment, or PP&E. This proposed SOP applies to all non-government entities that acquire, construct or replace tangible property, plant and equipment including lessors and lessees. A significant element of the SOP requires that entities use component accounting retroactively for all PP&E assets to the extent future component replacement will be capitalized. At adoption, entities would have to option to apply component accounting retroactively for all PP&E assets, to the extent applicable, or to apply component accounting as an entity incurs capitalizable costs that replace all or a portion of PP&E. We cannot evaluate the ultimate impact of this exposure draft until it becomes final. DESCRIPTION OF BUSINESS OVERVIEW We provide in-room, on-demand video entertainment and satellite services to the lodging industry. Our technology delivers DVD-quality images via traditional cable networks and satellite channels. We also provide pay-per-view and free-to-guest television service in small hotels in the U.S. and the Caribbean. On March 31, 2003, we entered into a contact for the acquisition of the assets of Hotel Movie Network, Inc., which consist of contract rights with Pay Per View and Cable/Satellite access for approximately 8,000 installed rooms, and associated hardware. The purchase transaction closed on August 1, 2003. We expect to show revenues from Hotel Movie Network in the second quarter of 2003. HISTORY We incorporated in the state of Colorado on June 8, 1983. We were administratively dissolved in 1997 and, as a part of winding up of our affairs, the directors acting as trustees, entered into a Plan of Merger in 1999 with Telecommunication Products, Inc. a newly formed entity and merged into it. The predecessor business was to act as a developer of data compression technology and video-conferencing software but ventured into other market opportunities. We failed in our business efforts prior to 2002. AGREEMENT TO ACQUIRE HOTEL MOVIE NETWORK, INC. On March 31, 2003, we entered into an agreement with Coast Communications, Inc. for the acquisition of the assets of privately-held Hotel Movie Network, Inc., a Nevada Corporation domiciled in Mesa, Arizona. Such assets consist of inventory, contracts and contract rights with certain production studios. To satisfy the full value of the acquisition, we paid $75,000 cash consideration, $75,000 is due and owing and we issued 2 million shares of our common stock and agreed to issue 1 million shares of Preferred Series A shares at a par value of $1.00 convertible into common stock and to issue Series B Preferred Stock to fulfill the fair market value of the assets acquired. This Series B Preferred Stock shall be convertible into restricted shares of our common stock commencing two years from the date of issuance at the rate of fifty percent(50%) of the total Preferred Shares issued per annum at an agreed to value of $2.00 per share for the first year and $3.00 per share for the second year subsequent to the Closing Date. The holder shall have the right to redeem the Series B Preferred Stock at anytime prior to conversion into our common stock upon a mutual agreement by all parties as to the value of said stock. We will not yet to authorized the Series A and B shares. We have 50,000,000 authorized shares of preferred stock with rights and preferences to be designated by the board of directors at the time of issuance. In order to comply with its requirement to acquire Hotel Movie Network, Inc. the board is planning to designate one million shares as Series A Preferred. This series shall be entitled to dividends proportionate to common shares that the preferred shares are convertible into common shares. In the event of liquidation, the preferred shares have a preference over the common shares. In addition, Class B Preferred Shares are intended to be designated to satisfy other contractual requirements. If this transaction closes, the former shareholders of Hotel Movie Network will receive 2,000,000 shares of our common stock and $75,000 cash with $75,000 payable and 1,000,000 preferred stock which are due to be issued and will pay 7.5% interest per annum upon completion of audited financials. Through the purchase of assets of Hotel Movie Network, we supply Video On Demand and Satellite Guest Entertainment systems to the mid-market hospitality industry. The purchase includes a customer base of over 8,000 rooms through contract rights and gross revenues of approximately $75,000 per month. These contracts consist mainly of "Free-to-Guest" or "Pay-per-Stay" guest services. The purchase of the assets of Hotel Movie Networks, Inc. provides affiliation with an established network of professional guest systems installation contractors who are experienced and familiar with the Hotel Movie Network business model. The acquisition transaction will be recorded by us as follows:
Assets purchased from Hotel Movie Network, Inc.: Cash $5,185 Accounts receivable 104,046 Inventory 1,276,809 Property and equipment 1,474,757 Total assets acquired 2,860,797 Liabilities assumed from Hotel Movie Network, Inc.: Accounts payable and accruals 34,188 Total liabilities assumed 34,188 Net purchase price $2,826,809
The following unaudited pro forma summary presents the results of operations for the year ended March 31, 2003. The transaction has not yet closed as of July 23, 2003 if the asset purchase of Hotel Movie Network had occurred on April 1, 2002.
Revenues $ 546,377 Net income (loss) $(957,672) Earnings (loss) per share $(.03)
The above amounts are based upon certain assumptions and estimates which we believe are reasonable. The pro forma results do not necessarily represent results which would have occurred if the business combination had taken place at the date and on the basis assumed above. OUR OTHER ASSETS On January 20, 2003, we purchased the complete inventory of guest entertainment systems from of Omega Funding, Inc. consisting of hardware and peripherals for $2 million in cash and common stock. This inventory can supply the necessary hardware for deployment into over 100,000 guest rooms at a savings over the current industry average installation cost per room. INDUSTRY BACKGROUND The provision of in-room entertainment and information services to the lodging industry includes offering pay-per-view motion pictures, archived television content, games, music, internet connectivity, guest programming of select pay cable channels, and an increasing array of interactive programs and information services. Pay-per-view services were introduced in the early 1970s and have since become a standard amenity offered by many hotels to their guests. Historically, providers of programming to hotels delivered their content on a fixed time schedule that did not provide the hotel guest flexibility in choosing when to watch a movie. Typically, a guest would be offered a choice of four to eight movies, each of which would be shown once every two to four hours. The development of video switches enabled providers of pay-per-view services to offer scheduling flexibility to the viewer. Depending on the type of system installed and the size of the hotel, guests can choose up to 50 different movies with an on-demand system. Changes in technology have also led to the ability to provide a number of on-demand interactive services such as guest folio review, automatic checkout, survey completion, guest messaging, video games, and internet service. OUR VIDEO SYSTEM PLATFORM The Video System will be our primary platform. It consists of a microprocessor controlling the television in each room and a central video rack and system computer located elsewhere in the hotel. Programming signals originate from videocassette players located within the head-end rack and are transmitted to individual rooms by way of video technology. The system computer controls movie starts automatically. The system computer also records the purchase by a guest of any title and reports billing data to the hotel's accounting system, which posts the charge to the guest's bill. In order to install our system in a hotel property, we must undertake a significant investment, sometimes including rewiring part or all of the hotel. Depending on the size of the hotel property, the quality of the cabling and antenna system at the hotel, and the configuration of the system installed, the installation cost of a new, on-demand system with movies, guest services, including the head-end equipment averages from approximately $80 to $120 per room. The installation cost of a system with digital content storage is approximately $45 per room higher than the system in the same size hotel. The system can be modified to enable On Call functionality for movies, games, Internet, and guest services at a cost of $280 per room. Video On Call will only be installed in association with videocassette players, rather than digital content storage, in certain markets due to constraints placed on us by most movie studios that provide us with movie content. For example, in a typical hotel with 200 rooms, the central video rack would consist of approximately 30 videocassette recorders containing up to four copies of the most popular movies and a total of up to 15 different titles. The system includes a computerized in-room on-screen menu that offers guests a list of only those movie selections available to the guest at that time. As a result, even though the on-screen menu may not include a list of all titles available in the particular hotel, the list includes all movies currently available to the guest, thus eliminating the possibility of a guest being disappointed when the guest's selection is not available. SERVICES Pay-Per-View Movie Services Through the acquisition of Hotel Movie Network assets, we provide on-demand and, in some cases, scheduled in-room television viewing of major motion pictures and independent non-rated motion pictures for mature audiences, for which a hotel guest pays on a per-view basis. Depending on the type of system installed and the size of the hotel, guests can choose up to 30 different movies with a Video On Call system, or from eight to twelve movies with a scheduled system. We obtain the non-exclusive rights to show recently released motion pictures from major motion picture studios generally pursuant to a master agreement with each studio. The license period and fee for each motion picture are negotiated individually with each studio, which typically receives a percentage of that picture's gross revenues generated by the pay-per-view system. Typically, we obtain rights to exhibit major motion pictures during the "Hotel/Motel Pay-Per-View Window," which is the time period after initial theatrical release and before release for home video distribution or cable television exhibition. Our attempts to license pictures as close as possible to motion pictures' theatrical release date to benefit from the studios' advertising and promotional efforts. We also obtain independent motion pictures, most of which are non-rated and are intended for mature audiences, for a one-time flat fee that is nominal in relation to the licensing fees paid for major motion pictures. We offer service under contracts with hotels that generally provide for a term of five to seven years. Under these contracts, we install our system into the hotel at our cost and we retain ownership of all our equipment used in providing the service. We require the hotels to provide televisions. Our contracts with hotels generally provide that we will be the exclusive provider of in-room, pay-per-view video entertainment services to the hotel and generally permit us to set the movie price. Under certain circumstances, hotels may have the right to prior approval of the price increases, which approval may not be unreasonably withheld. The hotels collect movie-viewing charges from their guests and retain a commission equal to a negotiated percentage of the total pay-per-view revenue, which varies in relationship with the size and profitability of the system. Some contracts also require us to upgrade systems to the extent that new technologies and features are introduced during the term of the contract. At the scheduled expiration of a contract, we generally seek to extend the agreement on terms that are based upon the competitive situation in the market. The revenue which may be generated from pay-per-view service is dependent on the occupancy rate at the property, the "buy rate" or percentage of occupied rooms that buy movies or other services at the property, and the price of the movie or service. Occupancy rates vary based on the property's location, its competitive position within the marketplace, seasonal factors and general economic conditions. For instance, occupancy rates and revenues per room typically are higher during the summer months and lower during the winter months due to seasonal travel patterns. Buy rates generally reflect the hotel's guest mix profile, the popularity of the motion pictures or services available at the hotel, and the guests' other entertainment alternatives. Buy rates also vary over time with general economic conditions and our business is closely related to the performance of the business and mid-sized hotel segments of the lodging industry. Movie price levels are set based on the guest mix profile at each property and overall economic conditions. Currently, movie prices typically range from $8.95 to $9.95 for a purchase by the hotel guest. Guest Programming Services We market guest-programming services pursuant to which a hotel may elect to receive one or more programming channels, such as HBO, CNN, ESPN, TBS, Disney Channel, Discovery Channel, and other cable networks, which the hotel provides to guests at no additional cost. We will provide hotels with guest programming services through a variety of arrangements, including having the hotel pay the company a monthly fee per room for each programming channel selected or including the cost or part of the cost of such programming within our overall contractual arrangements with the hotel or hotels. We have a unique contract with each network vendor including approximately 30 vendors, serving 50-60 channels. Payment to network vendors is based on subscriber/room count but also use variables such as the combination of channels received, occupancy, volume, and penetration. The term of the contracts with network vendors average three to five years. SALES AND MARKETING As a result of our acquisition of Hotel Movie Network, substantially all of our revenue will be derived from obtaining contracts with hotels in the United States not under contract with existing vendors or whose contracts with other vendors are expiring or have expired. We believe that opportunities for additional growth in the markets in the United States are more limited than in the past. Our strategy for new customers will be to target both smaller hotels lower cost hotels as well. Management anticipates that the lower costs and flexibility afforded by our products will make marketing to smaller hotels and some lower cost hotels economically attractive than in the past. INSTALLATION AND SERVICE OPERATIONS Our installation and servicing consists primarily of independent installation and service contractors in the United States. Contract installation and service personnel will be responsible for all of the hotel rooms served by us including system maintenance and distribution of video and audio content. Installation personnel also will prepare site surveys to determine the type of equipment to be installed at each hotel, install systems and train the hotel staff to operate the systems, and perform quality control tests. We will also use local installation subcontractors supervised by our full-time personnel to install its systems. We maintain a toll-free technical support hot line that is monitored 24 hours a day by trained support technicians. The on-line diagnostic capability of the systems, enables the technician to identify and resolve a majority of the reported system malfunctions from our service control center without visiting the hotel property. Should a service visit be required, the modular design of the systems rather than removing the entire system permits service personnel to replace defective components at the hotel site. HOTEL CONTRACTS We will typically negotiate and enter into a separate contract with each hotel for the services provided. However, for some of the large hotel management companies, we will negotiate and enter into a single master contract for the provision of services for all of the corporate-managed hotels of such management company. In the case of franchised or independently owned hotels, the contracts are generally negotiated separately with each hotel. Existing contracts generally have a term of five to seven years from the date the system becomes operational. At expiration, we typically seek to extend the term of the contract on then current market terms. SUPPLIERS In some cases, we contract directly with various electronics firms for the manufacture and assembly of its systems hardware. Historically, these suppliers have been dependable and able to meet delivery schedules on time. We believe that, in the event of a termination of any of our sources, alternate suppliers could be located without incurring significant costs or delays. However, certain electronic component parts used with our products are available from a limited number of suppliers and can be subject to temporary shortages. In such event, we could experience a temporary reduction in the rate of new installations and/or an increase in the cost of such installations. If we were to experience a shortage of any given electronic part we believe that alternative parts could be obtained or system design changes could be made. The head-end electronics for our systems will be assembled at our facilities for testing prior to shipping. Following assembly and testing of equipment designed specifically for a particular hotel, the system is shipped to each location, where our trained technicians install the system, typically assisted by independent contractors. We will, through our acquisition of assets of Hotel Movie Network, maintain direct contractual relations with various suppliers of pay-per-view and guest programming services, including the motion picture studios and/or their domestic and international distributors and programming networks. We believe our relationships with all suppliers are adequate. COMPETITION In the U.S., taking into account the various providers of cable television services, there are numerous providers of in-room video entertainment to the lodging industry, at least three of which provide on-demand pay-per-view, guest programming and guest services by means of in-room television. Internationally, there are more companies competing in the pay-per-view lodging industry than in the United States. Pay-per-view, the most profitable component of the services currently offered, competes for a guest's time and entertainment resources with broadcast television, guest programming, and cable television services. In addition, there are a number of competitors that are developing ways to use their existing infrastructure to provide in-room entertainment and/or information services to the lodging industry, including cable and wireless cable companies telecommunications companies, internet and high-speed connectivity companies, and direct-to-home and direct broadcast satellite companies. Some of these competitors have been providing guest programming services to hotels and are beginning to provide video-on-demand, Internet and high-speed connectivity to hotels. We intend to be a competitive provider of in-room video entertainment services to the United States lodging industry. Domestically, we will compete with smaller providers for the mid to small lodging market. Competition with respect to the provision of in-room video entertainment and information systems centers on a variety of factors, depending upon the circumstances important to a particular hotel. We believe the more important factors are (i) the features and benefits of the entertainment and information systems,(ii) the quality of the vendor's technical support and maintenance services, and (iii) the financial terms and conditions of the proposed contract. With respect to hotel properties already receiving in-room entertainment services, the current provider may have certain informational and installation cost advantages compared to outside competitors. We believe our competitive advantages will include: (i) low price; and (ii) system reliability and high quality service. We believe that the acquisition of the Hotel Movie Networks assets will provide a customer base which reflects the competitive position of our products and services. We anticipate substantial competition in obtaining new contracts with hotel chains. We believe that hotels view the provision of in-room on-demand entertainment and information both as a revenue source and as a source of competitive advantage because sophisticated hotel guests are increasingly demanding a greater range of quality entertainment and information alternatives. At the same time, we believes that certain major hotel chains have awarded contracts based primarily on the level and nature of financial and other incentives offered by the service provider. While we believe our competitive position could enable us to continue to enter into contractual arrangements that are attractive to hotels, our competitors may attempt to maintain or gain market share at the expense of profitability. We may not always be willing to match incentives provided by our competitors. REGULATION The Communications Act of 1934, as amended by the Cable Communications Policy Act of 1984, the Cable Television Consumer Protection and Competition Act of 1992 and the Telecommunications Act of 1996, governs the distribution of video programming by cable, satellite or over-the-air technology, through regulation by the Federal Communications Commission, or FCC. However, because our video distribution systems do not use any public rights of way, they are not classified as cable systems and are subject to minimal regulation. Thus, the FCC does not directly regulate the pay-per-view or free-to-guest services provided by us to hotel guests. Various laws and governmental regulations may affect the internet-based services potentially offered by us. There are currently few laws or regulations directly applicable to access to or commerce on commercial online services or the Internet. However, because of the increasing popularity and use of commercial online services and the Internet, a number of laws and regulations may be adopted with respect to commercial online services and the Internet. The adoption of such laws or regulations in the future may slow the growth of commercial online services and the internet, which could in turn cause a decline in the demand for our internet-based services and products or otherwise have an adverse effect on us. Moreover, the applicability to commercial online services and the internet of existing laws governing issues such as property ownership, libel, personal privacy and taxation is uncertain and could expose us to liability. On January 18, 2001, the FCC released a Notice of Inquiry regarding interactive television services, or ITV, over cable television. The FCC seeks comment on, among other things, an appropriate definition of ITV services, whether access to a high -speed connection is necessary to realize ITV capabilities, and whether a nondiscrimination rule is necessary and/or appropriate. The outcome of this proceeding and any rules ultimately adopted by the FCC could affect the ITV services currently offered by us and the ITV services which we may offer in the future. Although the FCC generally does not directly regulate the services provided by us, the regulation of video distribution and communications services is subject to the political process and has been in constant flux over the past decade. Further material changes in the law and regulatory requirements must be anticipated and our business could be adversely affected by future legislation or new regulations. Because most music is copyrighted, license agreements are required for the DMN service. Agreements and arrangements with major rights holders and/or organizations permit the distribution of music. However, such licensing has been the subject of industry-wide arbitration and/or litigation for a number of years. Depending upon the outcome of on-going proceedings, the license fees for such distribution may increase. We do not purport to describe all present and proposed federal, state and local regulations and legislation relating to the video programming industry applicable to us. Other existing federal, state and local laws and regulations currently are, or may be, the subject of a variety of judicial proceedings, legislative hearings, and administrative and legislative proposals that could change in varying degrees the manner in which private cable operators, other video programming distributors, and Internet service providers operate. We cannot predict the outcome of these proceedings or their impact upon our operations at this time. PATENTS, TRADEMARKS AND COPYRIGHTS We have one patent registered in the Dominican Republic for our video technology. We do not have patents, trademarks or copyrights for our other property and rely on contractual rights to protect it. EMPLOYEES As of September 9, 2003, we employed 8 full-time employees. None of these employees are subject to a collective bargaining agreement, and there is no union representation. We believe our employee relationships are good. DESCRIPTION OF PROPERTY Our principal executive office address is 9171 Wilshire Boulevard, Suite B, Garden Level, Beverly Hills, California 90120. We lease our facilities month to month. Our rent expense was $12,000 for the year ended March 31, 2003. The facilities are of adequate size to allow us to grow to approximately eight people, after which time we will need to seek larger space. Our month-to-month agreement will allow us flexibility in moving if we employ more personnel. We took over a lease through the acquisition of Hotel Movie Networks. The facilities are located at 1030 S. Mesa Drive, Mesa, Arizona 85210. These premises have 30,000 square feet of storage and 5,000 square feet of offices and work shops. We believe these facilities are adequate in size to handle all operations the United States and the Caribbean for the foreseeable future. MANAGEMENT DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS Our executive officers and directors and their ages as of the date of this prospectus are as follows:
Name Age Position - ----------------- -------------- --------------------------------- -------- Robert C. Russell 35 Chief Executive Officer, Director and Acting Chief Financial Officer Igor Loginov 43 Chief Technical Officer, Director Dennis H. Johnson 50 Legal Counsel, Secretary and Director
Biographies of executive officers and directors Robert C. Russell has been our Chief Executive Officer and director since January 2002 and is responsible for managing our overall business affairs. He is a native of Northern Ireland and attended Damelin College in South Africa, where he obtained a National Diploma in finance and management sciences. Mr. Russell spent over ten years working in the leisure and entertainment industry, including service as Managing Director of Selective Leisure Holdings, where he directed South African operations. Mr. Russell expanded the entertainment and casino operations to build a profitable chain of entertainment complexes spread throughout the region. During this period, he was instrumental in the deployment and successful development of technology programs, which underpinned security, financial and state of the art communication and conference systems. In 1995, he purchased the entertainment and casino operations from the Intercontinental Hotel group for the Caribbean nation of the Dominican Republic. In 1998, Mr.Russell sold his interests in the entertainment industry to concentrate his efforts upon development of our business. Igor Loginov, PhD has been our Chief Technological Officer since May 2002 and is responsible for the design, development, and deployment of our technology. Before joining us, Mr. Loginov was the senior software engineer for Semantica, Ltd., where he led the development of accounting and business software applications for clients in Germany and Switzerland. Mr. Loginov has over fifteen years of experience in computer and Internet-related technologies and a Doctorate degree in physics obtained from the world renowned and prestigious Belarussian State University. Dennis H. Johnston, Esq. has been our Legal Counsel, Secretary and director since January 2002. Mr. Johnston is a practicing attorney in California and for more than 25 years has acted as legal counsel to various public companies, assisting in organizing, acquiring, selling, reorganizing and structuring financing for both public and privately held companies. A graduate of UCLA with degrees in both business and economics, and a former partner at the nationally recognized law firms of Manatt, Phelps, Rothenberg, & Tunney, and Wyman, Bautzer, Kuchel & Silbert, Mr. Johnston has handled mergers and acquisitions with a total value in excess of three billion dollars. ELECTION OF DIRECTORS We elect our directors each year. EMPLOYMENT AGREEMENTS WITH KEY PERSONS We entered into formal written employment agreements with Mr. Russell and Mr. Johnston effective January 25, 2002 which provide payments aggregating $125,000 per year. The agreements have been suspended and are not accruing due to lack of revenues and may be reinstated in the future. LIMITATIONS ON OFFICER AND DIRECTOR LIABILITY Our Articles of Incorporation, as amended, provide that the Board of Directors has the power to: - - indemnify our directors, officers, employees and agents to the fullest extent permitted by the Colorado Business Corporate Act; - - authorize payment of expenses incurred in defending a civil or criminal action; and - - purchase and maintain insurance on behalf of any director, officer, employee or agent. On September 5, 2003, we entered into an Investment Agreement with Dutchess Private Equities Fund, L.P., in which we agreed to defend, protect, indemnify and hold harmless Dutchess', officers, directors, employees, counsel, and direct or indirect investors, agents or other representatives, from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and reasonable expenses including reasonable attorneys' fees and disbursements, incurred by Dutchess as a result of, or arising out of, or relating to (I) any misrepresentation or breach of any representation or warranty made by the us or any other certificate, instrument or document; (II) any breach of any of our covenants, agreements or obligations or (III) any cause of action, suit or claim brought or made against Dutchess by a third party, except insofar as any such misrepresentation, breach or any untrue statement, alleged untrue statement, omission or alleged omission is made in reliance upon and in conformity with information furnished to Dutchess which is specifically intended for use in the preparation of any such Registration Statement, preliminary prospectus, prospectus or amendments to the prospectus. On September 5, 2003, we entered into a Registration Rights Agreement with Dutchess in which we agreed to indemnify, hold harmless and defend Dutchess and its officers, partners, employees, counsel, agents, and representatives against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, attorneys' fees, amounts paid in settlement or expenses, joint or several, incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not Dutchess is or may be a party thereto, to which any of them may become subject insofar as such claims or actions or proceedings, whether commenced or threatened, arise out of or are based upon: (I) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other "blue sky" laws of any jurisdiction in which Dutchess has requested in writing that we register or qualify the common stock, or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which the statements therein were made, not misleading, (II) any untrue statement or alleged untrue statement of a material fact contained in the final prospectus or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, or (III) any violation or alleged violation us of the 1933 Act, the 1934 Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the common stock pursuant to a Registration Statement. The indemnification agreement shall not apply to a claim arising out of or based upon a violation which is due to the inclusion in the Registration Statement of the information furnished to us by Dutchess expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto; (II) shall not be available to the extent such claim is based on (A) a failure of Dutchess to deliver or to cause to be delivered the prospectus made available by us or (B) Dutchess' use of an incorrect prospectus despite being promptly advised in advance by us in writing not to use such incorrect prospectus; (III) any claims based on the manner of sale of the common stock by Dutchess or of Dutchess' failure to register as a dealer under applicable securities laws; (IV) any omission of Dutchess to notify us of any material fact that should be stated in the Registration Statement or prospectus relating to Dutchess or the manner of sale; and (V) any amounts paid in settlement of any claim if such settlement is effected without the prior written consent of us, which consent shall not be unreasonably withheld. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling us under the foregoing provisions, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act, and is unenforceable for that reason. EXECUTIVE COMPENSATION Set forth in the following table is certain information relating to the approximate remuneration we paid during the past fiscal years to our Chief Executive Officer and each of our most highly compensated executive officers whose total compensation exceeded $100,000. SUMMARY COMPENSATION TABLE The following table presents a summary of the compensation paid to Mr. Russell, our President, Chief Executive Officer and Director during the last three fiscal years. Except as listed below, there are no bonuses, other annual compensation, restricted stock awards or stock options/SARs or any other compensation paid to executive officers. Annual Compensation
Year Salary Bonus All Other Compensation ------ --------------------------- 2001 Robert C. Russell, President, CEO and Director $ 0 $ 0 $ 0 - ---------------------------------------------- ------- ------ --------------------------- 2002 Robert C. Russell, President, CEO and Director $ 0 $ 0 $ 0 - ---------------------------------------------- ------- ------ --------------------------- 2003 Robert C. Russell, President, CEO and Director $ 0 $ 0 $ 0 - ---------------------------------------------- ------- ------ ---------------------------
DIRECTOR COMPENSATION Currently, we do not compensate directors, although we intend to do so in accordance with industry standards when cash flow permits us to do so. There are no stock options, stock grants, plans or Stock Appreciation Rights in which any directors, have participated in the past fiscal year. OPTIONS We have not issued options to our executive officers or directors in the last three fiscal years and they did not exercise any options. RELATED PARTY TRANSACTIONS In 2001, we entered into a $12,500 loan arrangement with Dennis H. Johnston, our officer and director. The note bears interest at 12% per annum and was due and payable on or before July 31, 2002. The note was reduced to $3,500 after payment of $9,000 was received by Mr. Johnson. In 2002, we issued 800,000 shares of Series A Preferred Stock to Robert Russell, our President, CEO and Director in conversion of cash advances of $800,000 he had made to us. In 2002, we issued 19,231,092 shares of our common stock to Robert Russell as part of the merger with Interleisure, SA. MARKET FOR OUR COMMON STOCK Our common stock began trading on the Over-The-Counter Bulletin Board under the symbol "TCPD" on November 10, 2001. Prior to November 10, 2001, our common stock was quoted under the symbol "TLCR." The following table sets forth the high and low bid prices for shares of our common stock for the periods noted, as reported by the National Daily Quotation Service and the Over-The-Counter Bulletin Board. Quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
LOW HIGH --- ---- 2002 - ---- First Quarter .01 .04 Second Quarter .01 .04 Third Quarter .01 2.00 Fourth Quarter .70 2.00 2003 - ---- First Quarter .14 .55 Second Quarter .02 .22 Third Quarter .23 .50 Fourth Quarter .26 .44 2004 - ---- First Quarter .16 .26 Second Quarter .04 .15 Through September 9, 2003
As of September 9, 2003, our common stock was held by approximately 848 stockholders of record. The transfer agent of our common stock is Manhatten Transfer Registrar Company. Their phone number is (631)585-7341. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, to our knowledge, certain information concerning the beneficial ownership of our common stock as of September 3, 2003 by each stockholder known by us to be (i) the beneficial owner of more than 5% of the outstanding shares of common stock, (ii) each current director, (iii) each of the executive officers named in the Summary Compensation Table who were serving as executive officers at the end of the 2002 fiscal year and (iv) all of our directors and current executive officers as a group:
AMOUNT AND ----------- NATURE OF BENEFICIAL PERCENTAGE NAME AND ADDRESS OF BENEFICIAL OWNER(1). . . . . . OWNERSHIP OF CLASS(2) Robert C. Russell. . . . . . . . . . . . . . . . . 19,031,092(3) 37.5% Igor Loginov . . . . . . . . . . . . . . . . . . . 40,000 * Dennis H. Johnson. . . . . . . . . . . . . . . . . 750,000 1.9% All directors and current executive officers as a group (3 persons). . . . . . . . . . . . . . . . 19,821,092 39.1% * Less than 1% of outstanding shares of Common Stock. (1) The address of all individual directors and executive officers is c/o Telecommunication Products, Inc., 9171 Wilshire Boulevard, Suite B, Beverly Hills, California 90210. (2) There were 43,913,805 shares of common stock issued and outstanding on September 9, 2003. The calculation of percentage ownership for each listed beneficial owner is based upon the number of shares of common stock issued and outstanding on September 9, 2003 , plus shares of common stock subject to options held by such person on September, 2003 and exercisable within 60 days thereafter. The persons and entities named in the table have sole voting and investment power with respect to all shares shown as beneficially owned by them, except as noted below. (3) Includes 800,000 shares of Series A Preferred Stock that can be converted into common stock at the holder's discretion.
SELLING STOCKHOLDERS Based upon information available to us as of September 9, 2003, the following table sets forth the name of the selling stockholders, the number of shares owned, the number of shares registered by this prospectus and the number and percent of outstanding shares that the selling stockholders will own after the sale of the registered shares, assuming all of the shares are sold. The selling stockholders may have sold, transferred or otherwise disposed of, or may sell, transfer or otherwise dispose of, at any time or from time to time since the date on which it provided the information regarding the shares beneficially owned, all or a portion of the shares of common stock beneficially owned in transactions exempt from the registration requirements of the Securities Act of 1933. As used in this prospectus, "selling stockholder" includes donees, pledgees, transferees or other successors-in-interest selling shares received from the named selling stockholder as a gift, pledge, distribution or other non-sale related transfer. Beneficial ownership is determined in accordance with Rule 13d-3(d) promulgated by the Commission under the Securities Exchange Act of 1934. Unless otherwise noted, each person or group identified possesses sole voting and investment power with respect to the shares, subject to community property laws where applicable.
Name and address Number of Shares of beneficial owner Number of Shares Number of Shares Owned After Beneficially Owned Offered Offering(1) Dutchess Private Equities Fund, L.P (3). . . . . . . . -0- 16,000,000(2) -0- Coast Communications, Inc. . . . . . . . . . . . . 2,000,000 2,000,000 -0- Indigo Consultants, Ltd.. . . 2,400,000 2,400,000 -0- Mutimedia Technologies Inc. . . . . . . . . . . . . 4,000,000 4,000,000 -0- (1) These numbers assume the selling shareholders sell all of their shares prior to the completion of the offering. (2) Consists of shares that may be issued pursuant to an Equity Line Agreement. (3) Dutchess is a private limited partnership whose business operations are conducted through its general partner, Dutchess Capital Management, LLC. Michael Novielli and Douglas H. Leighton, are Managing Members of Dutchess Capital Management, LLC, and have voting and dispositive power with respect to securities held by Dutchess Private Equities Fund, L.P.
DESCRIPTION OF SECURITIES Common Stock We have authorized 100,000,000 shares of common stock, $.001 par value per share. As of September 9, 2003 there were 43,913,805 issued and outstanding shares of common stock. Following the offering, there will be up to 62,513,805 shares issued and outstanding. All shares are of the same class and have the same rights, preferences and limitations. Holders of shares of common stock are entitled to one vote for each share on all matters to be voted on by the stockholders. Holders of common stock have cumulative voting rights. Holders of shares of common stock are entitled to share ratably in dividends, if any, as may be declared, from time to time by the Board of Directors in its discretion, from funds legally available therefor. In the event of a liquidation, dissolution, or winding up of the Company, the holders of shares of common stock are entitled to share pro rata all assets remaining after payment in full of all liabilities. Holders of common stock have no preemptive or other subscription rights, and there are no conversion rights or redemption or sinking fund provisions with respect to such shares. PLAN OF DISTRIBUTION This prospectus relates to the resale of up to 24,400,000 shares of our common stock by current stockholder, Coast Communications, Inc., Indigo Consultants, Ltd., and Multimedia Technologies, Inc. Additionally, Dutchess Private Equities Fund, L.P. will become a stockholder pursuant to a put right under an Investment Agreement that we have entered into Dutchess. DUTCHESS PRIVATE EQUITIES FUND, L.P. On September 5, 2003, we entered into an Investment Agreement with Dutchess Private Equities Fund, L.P. Pursuant to the Investment Agreement, we may, at our discretion, periodically "put to" or require Dutchess shares of our common stock. The aggregate amount that Dutchess is obligated to pay for our shares shall not exceed $5 million. For each share of common stock purchased under the Investment Agreement, Dutchess will pay 94% of the lowest closing bid price on the Over-the-Counter Bulletin Board or other principal market on which our common stock is traded for the five days immediately following the date on which we give notice to Dutchess of our intention to put such stock. Dutchess is a private limited partnership whose business operations are conducted through its general partner, Dutchess Capital Management, LLC. Our ability to put the shares under the Investment Agreement is conditioned upon us registering the shares of common stock with the Securities and Exchange Commission. The costs associated with this registration will be borne by us. The number of shares that we will be permitted to put pursuant to the Investment Agreement will be either: (A) 200% of the average daily volume in the U.S. market of the common stock for the 20 trading days prior to the notice of our put, multiplied by the average of the three daily closing bid prices immediately preceding the date of the put, or (B) $10,000. No single put can exceed $1,000,000. Subject to a variety of limitations, we may put shares pursuant to the Investment Agreement once the underlying shares are registered with the Securities and Exchange Commission. Thereafter, we may continue to put shares to Dutchess until Dutchess has paid a total of $5 million or until 36 months after the effectiveness of the accompanying Registration Statement, whichever occurs first. We cannot predict the actual number of shares common stock we will issue pursuant to the Investment Agreement, in part because the volume and purchase price of the shares will fluctuate based on prevailing market conditions and we have not determined the total amount of advances we intend to draw. You should be aware that there is an inverse relationship between our stock price and the number of shares to be issued under the Investment Agreement. That is, if our stock price declines, we would be required to issue a greater number of shares under the Investment Agreement for a given advance. We engaged Park Capital Securities as our placement agent with respect to the securities to be issued under the Equity Line of Credit and for these services will be paid 1% upon each put. Park Capital Securites has no affiliation or business relationship with Dutchess. PLAN OF DISTRIBUTION The selling stockholders will act independently of us in making decisions with respect to the timing, manner and size of each sale. The selling stockholders may sell the shares from time to time - - at market prices prevailing on the OTC Bulletin Board at the time of offer and sale, or - - at prices related to such prevailing market prices, or - - in negotiated transactions, or - - in a combination of such methods of sale. The selling stockholders may effect such transactions by offering and selling the shares directly to or through securities broker-dealers, and such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the selling stockholders and/or the purchasers of the shares for whom such broker-dealers may act as agent or to whom the selling stockholders may sell as principal, or both, which compensation as to a particular broker-dealer might be in excess of customary commissions. Dutchess and any broker-dealers who acts in connection with the sale of their shares may be deemed to be "underwriters" within the meaning of the Securities Act, and any discounts, concessions or commissions received by them and profit on any resale of the shares as principal may be deemed to be underwriting discounts, concessions and commissions under the Securities Act. On or prior to the effectiveness of the registration statement to which this prospectus is a part, we will advise the selling stockholders that they and any securities broker-dealers or others who may be deemed to be statutory underwriters will be governed by the prospectus delivery requirements under the Securities Act. Under applicable rules and regulations under the Securities Exchange Act, any person engaged in a distribution of any of the shares may not simultaneously engage in market activities with respect to the common stock for the applicable period under Regulation M prior to the commencement of such distribution. In addition and without limiting the foregoing, the selling security owners may be governed by the applicable provisions of the Securities and Exchange Act, and the rules and regulations thereunder, including without limitation Rules 10b-5 and Regulation M, which provisions may limit the timing of purchases and sales of any of the shares by the selling stockholder. All of the foregoing may affect the marketability of our securities. On or prior to the effectiveness of the registration statement to which this prospectus is a part, we will advise the selling stockholders that the anti-manipulation rules under the Securities Exchange Act may apply to sales of shares in the market and to the activities of the selling security owners and any of their affiliates. We have informed the selling stockholders that they may not: - - engage in any stabilization activity in connection with any of the shares; - - bid for or purchase any of the shares or any rights to acquire the shares, or attempt to induce any person to purchase any of the shares or rights to acquire the shares other than as permitted under the Securities Exchange Act; - - effect any sale or distribution of the shares until after the prospectus shall have been appropriately amended or supplemented, if required, to describe the terms of the sale or distribution. We have informed the selling stockholders that they must effect all sales of shares in broker's transactions, through broker-dealers acting as agents, in transactions directly with market makers, or in privately negotiated transactions where no broker or other third party, other than the purchaser, is involved. The selling stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act. Any commissions paid or any discounts or concessions allowed to any broker-dealers, and any profits received on the resale of shares, may be deemed to be underwriting discounts and commissions under the Securities Act if the broker-dealers purchase shares as principal. In the absence of the registration statement to which this prospectus is a part, certain of the selling stockholders would be able to sell their shares only pursuant to the limitations of Rule 144 promulgated under the Securities Act. LEGAL PROCEEDINGS Mr. John M. Brazier filed a lawsuit against us, Mr. Russell and our transfer agent in May, 2003, in the District Court of Denver, State of Colorado. Mr. Brazier, purchased certain accounts receivable and received an assignment of a pledge of share collateral held by Grimshaw & Harring that was allegedly due and owing from us in the amount of approximately $26,000. If Mr. Brazier is successful, he would own and control 19,231,092 common shares currently owned by Robert Russell. In addition, the plaintiff seeks compensatory damages in the amount of approximately $350,000. We believe these claims are without merit and intend to vigorously defend this lawsuit. We have brought a third party complaint and will seek appropriate damages from various parties. In July 2003, we were served with a lawsuit from William B. Krushenski in United States District court for Southern District of California. The complaint seeks in excess of $75,000 on a note allegedly due and $135,000 in other compensatory damages. We believe these claims are without merit and intend to vigorously defend this lawsuit. Other than the legal matters disclosed above, we are not aware of any litigation or potential litigation affecting us or our assets. LEGAL MATTERS The legality of our shares of common stock being offered hereby is being passed upon by Amy Trombly, Esq. Ms. Trombly will not receive a direct or indirect interest in the small business issuer and has never been a promoter, underwriter, voting trustee, director, officer, or employee of our company. Nor does Ms. Trombly have any contingent based agreement with us or any other interest in or connection to us. EXPERTS The financial statements included in this prospectus, have been audited by Larry O Donnell, CPA, P.C. an independent auditor, and have been included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. Larry O Donnell, CPA, P.C. has no direct or indirect interest in us, nor were they a promoter or underwriter. ADDITIONAL INFORMATION We filed with the Securities and Exchange Commission a registration statement on Form SB-2 under the Securities Act of 1933 for the shares of common stock in the offering, of which this prospectus is a part. This prospectus does not contain all of the information in the registration statement and the exhibits and schedule that were filed with the registration statement. For further information with respect to us and the Units, we refer you to the registration statement and the exhibits and schedule that were filed with the registration statement. Statements contained in this prospectus about the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and we refer you to the full text of the contract or other document filed as an exhibit to the registration statement. A copy of the registration statement and the exhibits and schedules that were filed with the registration statement may be inspected without charge at the Public Reference Room maintained by the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from the Securities and Exchange Commission upon payment of the prescribed fee. Information regarding the operation of the Public Reference Room may be obtained by calling the Securities and Exchange Commission at 1-800-SEC-0330. We intend to furnish our shareholders with annual reports containing audited financial information The Securities and Exchange Commission maintains a web site that contains reports, proxy and information statements, and other information regarding registrants that file electronically with the SEC. The address of the site is www.sec.gov. Telecommunication Products, Inc. Index to Financial Statements March 31, 2003 and June 30, 2003 (Unaudited) REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Larry O'Donnell, CPA, P.C. Telephone (303) 745-4545 2228 South Fraser Street Unit 1 Aurora, Colorado 80014 Board of Directors Telecommunication Products, Inc. Beverly Hills, California I have audited the accompanying balance sheet of Telecommunication Products, Inc. as of March 31, 2003 and the related statements of operations, stockholders' equity and cash flows for the two years then ended. This financial statement is the responsibility of the Company's management. My responsibility is to express an opinion on this financial statement based on my audits. I conducted my audit in accordance with generally accepted auditing standards in the United States of America. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits provide a reasonable basis for my opinion. In my opinion, based on my audits and the report of other auditors, the financial statements referred to above fairly present in all material respects, the financial position of Telecommunication Products, Inc. as of March 31, 2003 the results of its operations and cash flows for the two years then ended in conformity with generally accepted accounting principles in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 9 to the financial statements, the Company's significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Larry O'Donnell, CPA, P.C. July 8, 2003
Telecommunication Products, Inc. Balance Sheet March 31, 2003 Assets June 30, March 31, 2003 2003 (Unaudited) Current Assets Inventories $2,000,000 $2,000,000 Payment for Home Movie Network 75,000 ---------- Total current assets 2,075,000 2,000,000 ----------- ---------- Property and equipment Office furniture and equipment 36,974 36,974 Less accumulated depreciation 19,599 17,868 ----------- ---------- 17,375 19,106 ----------- ---------- 2,092,375 $2,019,106 =========== ========== Liabilities and Stockholders' Equity Current Liabilities Accounts payable and accrued expenses $ 106,479 $ 145,137 Related party loans payable 253,500 162,500 Loans payable 42,000 42,000 Bond payable 75,000 75,000 ----------- ---------- Total current liabilities 476,979 424,637 Commitments and contingency Stockholders' Equity Preferred stock, $1 par value, 50,000,000 shares authorized, 800,000 shares issued and outstanding 800,000 800,000 Common stock, no par value, 100,000,000 shares authorized, 33,273,805 and 30,723,805 respectively shares issued and outstanding 3,951,744 3,607,244 Accumulated deficit (3,136,348) (2,812,775) ----------- ---------- 1,615,396 1,594,469 ----------- ---------- $2,092,375 $2,019,106 =========== ========== See Notes to Financial Statements
Telecommunication Products, Inc. Statements of Operations Three Months ended June 30 Years ended March 31 (Unauditied) 2003 2002 2003 2002 General and Administrative expenses 312,473 40,731 $ 787,910 $ 505,818 Research and development 24,500 24,500 525,000 Foreign currency translation 1,764 Interest 11,100 ------- --------- ---------- Operating expenses 812,410 1,032,582 Other income - write off of liabilities _______ 385,938 385,935 ______ Net Income (Loss) $(323,573) $320,704 $(416,475) $(1,032,582) ========= ======== ========= =========== Basis and Diluted Earnings (Loss) Per Share $(.01) $.02 $(.02) (.03) ====== ====== ======= ====== Weighted average shares outstanding 33,273,000 16,073,805 27,062,000 23,122,685 See Notes to Financial Statements
Telecommunication Products, Inc. Statements of Stockholders' Equity Years Ended March 31, 2003 and 2002 And Three Months ended June 30, 2003 (Unaudited) Common Stock Preferred Stock Accumulated Total Shares Amount Shares Amount Deficit Balance, March 31, 2001. . . . . . . . 2,000,000 $ 250,000 ($1,353,718) ($1,103,718) Contribution of capital. . . . . . . . 235,294 235,294 Exchange of Interleisure common stock for Telpro common stock . . . . . . . 20,492,800 Issuance of common stock for services. 3,381,000 749,450 749,450 Net loss for the year. . . . . . . . . (1,032,582) (1,032,582) Balance, March 31, 2002. . . . . . . . 25,873,800 1,234,744 (2,386,300) (1,151,556) Issuance of common stock for services. 1,950,000 292,500 292,500 Common stock issued for inventory. . . 1,900,000 1,900,000 1,900,000 Conversion of debt . . . . . . . . . . 1,000,000 180,000 800,000 800,000 980,000 Net loss for the year. . . . . . . . . (426,475) (426,475) Balance, March 31, 2003. . . . . . . . 30,723,800 $ 3,607,244 800,000 $ 800,000 ($2,812,775) $1,594,469 Issuance of common stock for services. 2,050,000 246,000 246,000 Common stock issued for cash . . . . . 500,000 98,500 98,500 Net loss for the period. . . . . . . . (323,573) (323,573) Balance, June 30, 2003 (Unaudited). . . . . . . . . . . . . . 33,273,800 $ 3,951,744 800,000 $ 800,000 ($31,136,348) $1,615,396 See Notes to Financial Statements
Telecommunication Products, Inc. Statements of Cash Flows Years Ended March 31, 2003 and 2002 2003 2002 ---------------------------- ---------------------------------- Cash Flows from Operating Activities Net income (loss) ($323,573) $320,704 $(426,475) $(1,032,582) Adjustments to reconcile net income to net cash from operating activities Depreciation 1,731 1,731 6,924 6,924 Stock issued for services 246,000 24,500 92,500 749,450 Write off of liabilities (385,935) (385,935) Decrease (increase) in: Accounts receivable 112,305 (43,486) Inventory (100,000) Other assets 60,812 (55,868) Increase (decrease) in: Accounts payable and accrued expenses 52,342 (6,000) (110,126) (13,639) ------- ------- -------- ------- Net cash provided (used) By operating Activities (23,500) (45,000) (549,995) (389,201) ------- -------- -------- -------- Cash Flows From Investing Activities Payments towards Acquisition Home Movie Network, Inc. (75,000) ----- ---- ---- Net cash provided (used) in investing activities (75,000) ----- ---- ---- Cash Flows From Financing Activities Increase in bond payable 55,000 75,000 Increase in loans payable 20,000 294,995 154,791 Proceeds from sale of stock 98,500 180,000 Contribution of capital 235,924 Bank overdraft (1,720) ------- -------- -------- -------- Net cash used by financing Activities 98,500 75,000 549,995 388,995 ------- -------- -------- -------- Net increase (decrease) in cash ---- 30,000 ---- (206) Cash, beginning ---- ---- ---- 206 ------- -------- -------- -------- Cash, ending $ ---- $30,000 $ ---- $ ---- ======= ======= ======== ======= Schedule of noncash investing and financing transactions Common stock issued to inventory $1,900,000 Converted Amounts Payable To preferred stock $800,000 $800,000 See Notes to Financial Statements
Nature of operations - Telecommunication Products, Inc. (referred to herein as "Telecommunication Products," the "Company" or "Telpro"), a technological development corporation, was incorporated in Colorado on June 8, 1983, The company was established as a developer of data compression technology. The pending acquisition of Hotel Movie Networks Inc in under an agreement dated March,31 2003 provided a revenue-positive operations infrastructure and an extensive network of contractors throughout the United States to both deploy new technology and expand product lines. Operations consist of on going pay-per-view movie rentals from hotel establishments and related services with these hotel establishments. Prior to the acquisition of Hotel Movie Networks Inc the Company was a development state enterprise. Cash and cash equivalents - For purposes of the statement of cash flows, the Company considers all highly liquid debt with original maturities of ninety days or less, to be cash equivalents. Accounts receivable - The Company follows the allowance method of recognizing uncollectible accounts receivable. The allowance method recognizes bad debt expense as a percentage of accounts receivable based on a review of accounts receivable outstanding and the Company's prior history of uncollectible accounts receivable. Fair value of financials instruments - The Company's financial instruments includes accounts receivable, accounts payable, notes payable and long-term debt. The fair market value of accounts receivable and accounts payable approximate their carrying values because their maturities are generally less than one year. Long-term notes receivable and debt obligations are estimated to approximate their carrying values based upon their stated interest rates. Inventories - Inventories are stated at the lower of cost (first-in, first-out) or market. Property and equipment - Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is provided primarily by the straight-line method over the estimated useful lives of the related assets generally of five to seven years. Income taxes - The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", which requires an asset and liability approach to financial accounting and reporting or income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce the deferred tax assets to the amount expected to be realized. Income tax expense is payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue recognition - The Company's revenues are derived principally from the sale of satellite systems and pay-per-view movies to hotels. Revenue from the sale of satellite systems is recognized after the system has been installed, and there are no longer any material commitments to the customer. The Company recognizes revenue from the pay-per-view movies on the accrual basis. The Company bills its customers for the month that services are performed. Stock options - The Company accounts for stock options issued to employees in accordance with APB No.25. The Company has elected to adopt the disclosure requirements of SFAS No.123 "Accounting for Stock-based Compensation". This statement requires that the Company provide proforma information regarding net income (loss) and income (loss) per share as if compensation cost for the Company's stock options granted had been determined in accordance with the fair value based method prescribed in SFAS No. 123. Additionally, SFAS No. 123 generally requires that the Company record options issued to non-employees, based on the fair value of the options. Income (Loss) per share - Basic earnings per share includes no dilution and is computed by dividing net earnings (loss) available to stockholders by the weighted number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the Company's earnings. During the years ended March 31, 2002 and 2001, there were no dilutive securities. Recent accounting pronouncements - In April of 2002, FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64,Amendment of FASB Statement No. 13, and Technical Corrections," which is effective for fiscal years beginning after May 15, 2002. Under SFAS No. 145, gains and losses from the extinguishment of debt should be classified as extraordinary items only if they meet the criteria of APB Opinion No. 30. SFAS No. 145 also addresses financial accounting and reporting for capital leases that are modified in such a way as to give rise to a new agreement classified as an operating lease. The Company believes that the adoption of SFAS No. 145 will not have a material impact on the consolidated financial position or results of the operations of the Company. In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal Activities". SFAS No. 1446 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for under EITF No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit and Activity (including Certain Costs Incurred in a Restructuring)." The scope of the SFAS No. 146 also includes costs related to terminating a contract that is not a capital lease and termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. SFAS No. 146 will be effective for exit or disposal activities that are initiated after December 31, 2002, but early application is encouraged. The provisions of EITF No. 94-3 shall continue to apply for an exit activity initiated under an exit plan that met the criteria of EITF No. 94-3 prior to the adoption of SFAS No. 146. Adopting the provision of SFAS No. 146 will change, on a prospective basis, the timing of when restructuring charges are recorded from a commitment date approach to when the liability is incurred. SFAS No. 147 -- In October 2002, the FASB issued Statement No. 147 "Acquisitions of Certain Financial Institutions - an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9" (SFAS 147). SFAS 147 removes acquisitions of financial institutions from the scope of both Statement 72 and Interpretation 9 and requires that those transactions be accounted for in accordance with FASB Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. Thus, the requirement in paragraph 5 of Statement 72 to recognize (and subsequently amortize) any excess of the fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired as an unidentifiable intangible asset no longer applies to acquisitions within the scope of this Statement. In addition, this Statement amends FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets. Consequently, those intangible assets are subject to the same undiscounted cash flow recoverability test and impairment loss recognition and measurement provisions that Statement 144 requires for other long-lived assets that are held and used. SFAS 147 is effective October 1, 2002. The adoption of SFAS 147 did not have a material effect on the Company's financial statements. SFAS No. 148 -- In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure"(SFAS 148"). SFAS 148 amends SFAS No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"), to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS 148 is effective for fiscal years beginning after December 15, 2002. The Company is currently evaluating the effect that the adoption of SFAS 148 will have on its results of operations and financial condition. SFAS No. 149 - In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149 ("SFAS 149"), "Amendment of Statement 133 on Derivative Instruments and Hedging Activities", to provide clarification on the meaning of an underlying, the characteristics of a derivative that contains financing components and the meaning of an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors. This statement will be applied prospectively and is effective for contracts entered into or modified after June 30, 2003. The statement will be applicable to existing contracts and new contracts relate to forward purchases or sales of when-issued securities or other securities that do not yet exist. The Company does not expect that the adoption of SFAS 149 will have a material effect on the Company's financial statements. SFAS No. 150 - In May 2003, the FASB issued Statement of Financial Accounting Standards No 159 ("SFAS 150"), Accounting for certain financial instruments with characteristics of both liabilities and equity. This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement will be effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. It is to be implemented by reporting the cumulative effect of a change in an accounting principal for financial instruments created before the issuance date of the statement and existing at the beginning of the interim period of adoption. The Company does not expect that the adoption of SFAS 150 will have material effect on the Company's financial statements. 2. Purchase of assets of Home Movie Network, Inc. On March 31, 2003 the Company agreed to purchased of Home Movie Network, Inc. The transaction has not closed. The acquisition will be recorded as a purchase. The Company will pay $150,000 and issued the securities. The securities will be two million shares of common stock, a promissory note convertible into one million shares of Series A Preferred Stock, and a promissory note convertible for $1,276,809 convertible into an amount of preferred stock which has net to be determined (approximately 1,276,809 shares). The transaction will be recorded as follows:
Assets purchased from Home Movie Network, Inc.: Cash $ 5,185 Accounts receivable 104,046 Inventory 1,276,809 Property and equipment 1,474,757 Total assets acquired 2,860,797 Liabilities assumed from Home Movie Network, Inc.: Accounts payable and accruals 34,188 Total liabilities assumed 34,188 Net purchase price $2,826,809 The following unaudited pro forma summary presents the results of operations for the year ended March 31, 2003 of the Company as if the business combination had occurred on April 1, 2002. Revenues $ 546,377 Net income (loss) $ (957,672) Earnings (loss) per share $ (.03) The above amounts are based upon certain assumptions and estimates which the Company believes are reasonable. The pro forma results do not necessarily represent results which would have occurred if the business combination had taken place at the date and on the basis assumed above.
3. Inventories Inventories consist of finished goods. On January 20, 2003 the Company acquired inventory for $100,000 ($95,000 is included in accounts payable) in cash and 1.9 million shares of common stock. 4. Note payable The Company has a promissory note which bears interest at six percent and is unsecured. The note is due September, 2003. If the note is not paid at maturity, the unpaid balance and accrued interest shall bear interest at twelve percent. 5. Bond payable The Company has a bond payable which bears interest at ten percent and is unsecured. The bond is due July, 2003. The Company has the right to extend the bond for another year under the same terms. 6. Preferred stock The Company has 100,000,000 authorized shares of $1 par value preferred stock with rights and preferences as designated by the board of directors at the time of issuance. In order to comply with its requirement to acquire Home Movie Network, Inc. the board is planning to designate one million shares as Series A. This series shall be entitled to dividends proportionate to common shares that the preferred shares are convertible into common shares. In the event of liquidation, the preferred shares have a preference over the common shares. 7. Income taxes There is no provision for income taxes since the Company has incurred net operating losses. Income taxes at the federal statutory rate is reconciled to the Company's actual income taxes as follows:
2003 2002 Federal income tax benefit at statutory rate (34%) $(120,000) $(322,000) State income tax benefit net of federal tax effect (11,000) (31,000) Deferred income tax valuation allowance 131,000 353,000 ---------- --------- $ -- $ -- The Company's deferred tax assets are as follows: Net operating loss carryforward $ 442,000 $ 353,000 Valuation allowance (442,000) (353,000) ---------- --------- $ -- $ -- At March 31, 2002, the Company has net operating loss carryforwards of $1.3 million which may be available to offset future taxable
8. Litigation The Company is a defendant in two lawsuits filed in May, 2003. The Company, Robert Russell and the Company's transfer agent are defendants in a lawsuit filed in May, 2003, in the District Court of Denver, State of Colorado. The plaintiff, John M. Brazier, purchased certain accounts receivable and received an assignment of a pledge of share collateral held by Grimshaw & Harring that was allegedly due and owing from the Corporation in the amount of approximately $26,000. If Plaintiff is successful, he would own and control 19,000,000 common shares currently owned by Robert Russell. In addition, the plaintiff seeks compensatory damages in the amount of approximately $350,000. The Company intend to vigorously defend this suit and has brought a third party complaint and will seek appropriate damages from various parties. In July 2003 the Company was served with a lawsuit from William B. Krushenski in US District court for Southern District of California. The complaint seeks in excess of $75,000 on a note due and $135,000 in other damages. 9. Going Concern The Company's financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred losses from operations which have resulted in an accumulated deficit of $2,812,775 at March 31, 2003, which together raises substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty. Management believes that the Company will generate sufficient revenue and commissions through its licensing agreements and hotel pay-per-view to cover operating expenses in the future, although no assurance of this can be given. 10. Merger with Telecommunication Products, Inc. On January 23, 2002 Telecommunication Products, Inc. ("Telpro") completed its acquisition of all outstanding shares of common stock of Interleisure, S.A. ("Interleisure"), pursuant to an Agreement and Plan of Merger and Reorganization, dated as of June 25, 2001 (the "Merger Agreement"), by and among Telpro, Interleisure and the shareholders of Interleisure. Pursuant to the Merger Agreement, Interleisure was merged into Telpro, with Telpro being the surviving corporation (the "Merger"). As a result of the transaction, the former shareholders of Interleisure received 10.68 shares of Telpro common stock per for each share of Interleisure common stock. Telpro issued 21,368,160 shares of its common stock to the former Interleisure shareholders. As a result, immediately following the merger, former Interleisure shareholders held 95.0% of the then-outstanding shares of Telpro common stock. For accounting purposes, the transaction has been treated as an Acquisition of Telpro by Interleisure and as a recapitalization of Interleisure.
Telecommunication Products, Inc. Unaudited Proforma Consolidated Balance Sheet June 30, 2003 Telpro Home Movie Adjustments Consolidated Assets Current assets. . . . . . . . . . . . . $ 2,075,000 $ 1,376,134 (75,000) 1 $3,376,134 (1,471,132) 2 (45,600) 4 Property and equipment, net . . . . . . 17,375 169,832 2,826,809 1 1,497,284 ------------ ------------ ------------- ------------ Total . . . . . . . . . . . . . . . . . $ 2,092,375 $ 1,545,966 $ 1,235,077 $4,873,418 Liabilities and Stockholders Deficiency Current liabilities . . . . . . . . $476,979 $ 74,834 75,000 1 $ 626,813 Total liabilities . . . . . . . . . . . 476,979 74,834 75,000 626,813 ------------ ------------ ------------- ------------- Common and preferred stock . . . . . . 4,751,744 1,898,072 (1,898,072) 2 7,428,553 2,276,809 1 400,000 1 Accumulated deficit . . . . . . . . . . (45,600) 3 (3,136,348) (426,940) 426,940 2 (3,181,948) ------------ ------------ ------------ ----------- Total stockholders' equity. . . . . . . 1,615,396 1,471,132 1,160,077 4,246,605 ------------ ------------ ------------ ----------- Total . . . . . . . . . . . . . . . . . $ 2,092,375 $1, 545,966 $ 1,235,077 $4,873,418
Unaudited Proforma Consolidated Statement of Operations Year ended March 31, 2003 Telpro Home Movie Adjustments Consolidated Revenues . . . . . . . . . . . . . . . . . . . . . . . . $ 0 $ 174,212 $ 174,212 Cost of sales. . . . . . . . . . . . . . . . . . . . . . 75,639 75,639 ----------- ------------ Gross profit . . . . . . . . . . . . . . . . . . . . . . 0 98,573 98,573 General and administrative . . . . . . . . . . . . . . . 312,473 176,876 (45,600) 3 534,949 Interest expense . . . . . . . . . . . . . . . . . . . . 11,100 11,100 ----------- Net income (loss). . . . . . . . . . . . . . . . . . . . ($323,573) ($78,303) ($45,600) $ (447,476) Earnings (loss) per share. . . . . . . . . . . . . . . . $ (.014) See notes to unaudited proforma financial statements
Telecommunication Products, Inc. Notes to the Unaudited Proforma Financial Statements The proforma statement of operations assumes that the Home Movie Network transaction occurred on April 1, 2003. For the purposes of the proforma statement of operations for the year ended Juneh 30, 2003, Telecommunication Products, Inc.'s statement of operations for the year and Home Movie Networks's statement of operations for the year were combined. The acquisition of Home Movie Network was accounted for by the purchase method of accounting. Under purchase accounting, the total purchase price was allocated to the tangible and intangible assets and liabilities of Home Movie Network based on their respective fair values as of the closing date based upon valuations and other studies. Property and equipment are being depreciated over the estimated useful lives. Intangible assets relating to licensing agreements are amortized over the license period. The cost in excess of the net value of the assets is not being amortized, but will be tested for impairment annually. Note 1 To reflect the issuance of two million common shares, preferred shares and $150,000 for cash for the acquisition. Note 2 To eliminate investment in Home Movie Network, Inc. against the equity accounts of Home Movie Network, Inc. Note 3 To record depreciation on increase in value of assets of Home Movie Network, Inc. recorded using the purchase method. No dealer, salesman or any other person has been authorized to give any information or to make any representations other than those contained in this Prospectus, and, if given or made, such information or representations must not be relied on as having been authorized by Telecommunication Products, Inc. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy, by any person in any jurisdiction in which it is unlawful for such person to make such offer or solicitation. Neither the delivery of this Prospectus nor any offer, solicitation or sale made hereunder, shall under any circumstances create an implication that the information herein is correct as of any time subsequent to the date of the Prospectus. All dealers effecting transactions in the registered securities, whether or not participating in the distribution thereof, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as underwriters. TELECOMMUNICATION PRODUCTS, INC. 24,400,000 Shares of Common Stock _____________ PROSPECTUS _____________ September 22, 2003 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable, In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted against the Registrant by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the various costs and expenses in connection with the sale and distribution of the common stock being registered, other than the underwriting discounts and commissions. All amounts shown are estimates except the Securities and Exchange Commission registration fee and the NASD filing fees. Amount to Be paid -------- SEC Registration Fee $ 245 Printing and Edgarizing expenses $ 3,000 Legal fees and expenses $ 10,000 Accounting fees and expenses $ 5,000 Blue Sky Fees $ 3,000 Transfer agent $ 1,000 Stock certificates $ 200 Miscellaneous $ 2,555 Total $ 25,000 ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES In January 2002, we issued 19,231,092 shares of our common stock to our Chief Executive Officer, Robert C. Russell. In January 2002, we issued 381,000 shares of our common stock to Donald E. Ranniger for $.12 per share In January 2002, we issued 1,068,000 shares of our common stock to Indigo Consultants, Ltd. In January 2002, we issued 1,068,000 shares of common stock to Baltic Ventures, Ltd. In January 2002, we issued 1,068 shares of our common stock to Paul Egan. In February 2003, we issued 95,000 shares of our common stock to Worldnet Communications, Inc. for $1.00 per share. In February 2003, we issued 835,000 shares of our common stock to Omega Funding, Inc. for $1.00 per share. In February 2003, we issued 470,000 shares of our common stock to Christina Arenella for $1.00 per share. In February 2003, we issued 250,000 shares of our common stock to Larry Baker for $1.00 per share. In February 2003, we issued 250,000 shares of our common stock to Sophia Riddell for $1.00 per share. In February 2003, we issued 1,000,000 shares of common stock to Christian LaVarone for $.20 per share. In February 2003, we issued 2,000,000 shares of common stock to CSI Partners. In April 2003, we issued 2,000,000 shares of common stock to Coast Communications, Inc. as part of our acquisition of Hotel Movie Network, Inc. In April 2003, we issued 50,000 shares of our common stock to Jackie Giroux for $.20 per share. In September 2003, we issued 4,000,000 shares of our common stock to Multimedia Technology for $.04 per share In September 2003, we issued 2,400,000 shares of common stock to Indigo Consultants for $.04 per shar The securities issued in the foregoing transactions were either (i) offered and sold in reliance upon exemptions from the Securities Act of 1933 ("Securities Act") registration requirements set forth in Sections 3(b) and 4(2) of the Securities Act, and any regulations promulgated thereunder, relating to sales by an issuer not involving any public offering, or (ii) in the case of certain options to purchase shares of common stock and shares of common stock issued upon the exercise of such options, such offers and sales were made in reliance upon an exemption from registration under Rule 701 promulgated under Section 3(b) of the Securities Act. No underwriters were involved in the foregoing sales of securities. EXHIBITS 3.1 Restated Articles of Incorporation (filed as Exhibit 3.3 to the Company's Form 8-K filed on October 19, 2001 and incorporated by reference herein). 3.2 Bylaws (filed as Exhibit 3.2 to the Company's Registration Statement on Form S-18, Registration No. 2-86781-D and incorporated herein by reference). 4.1 Non-Employee Directors and Consultants Retainer Stock Plan, dated January 22, 2002 (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-8 filed on January 29, 2002 and incorporated herein by reference). 4.2 Employee Stock Incentive Plan, dated January 22, 2002 (filed as Exhibit 4.2 to the Company's Registration Statement on Form S-8 filed on January 29, 2002 and incorporated herein by reference). 5.1* Opinion of Counsel 10.1 Employment Agreement dated January 25, 2002, with Robert C. Russell (filed as Exhibit 10.1 to the Company's Form 10-KSB filed on July 1, 2002 and incorporated herein by reference). 10.2 Employment Agreement dated January 25, 2002, with Dennis H. Johnston (filed as Exhibit 10.2 to the Company's Form 10-KSB filed on July 1, 2002 and incorporated herein by reference). 10.3 Consulting Agreement between the Registrant and CSI Partners, Ltd. (filed as Exhibit 11.2 to the Company's Form 10-KSB filed on July 1, 2002 and incorporated herein by reference). 10.4 Acquisition Agreement between the Company and Coast Communications, Inc. dated March 31, 2003 (filed as Exhibit 10.1 to the Company's Form 8-K filed on April 18, 2003 and incorporated herein by reference). 10.5 Schedule 1 Employment Agreements with Paul La Barre and Ernest McKay; (filed as Exhibit 10.2 to the Company's Form 8-K filed on April 18, 2003 and incorporated by reference to 8-K filed April 18, 2003) 10.6 Promissory Note between the Company and Coast Communications, Inc. dated dated March 31, 2003 (filed as Exhibit 11.2 to the Company's Form 10-KSB filed on July 25, 2002 and incorporated herein by reference). 10.7 Agreement between the Company and Benchmark Securities, Inc., dated January 16, 2003 (filed as Exhibit 11.1 to the Company's Form 10-KSB filed on July 1, 2002 and incorporated herein by reference). 10.8 Asset Purchase Agreement between the Registrant and Omega Funding, Inc., dated January 20, 2003 (filed as Exhibit 2.1 to the Company's Form 8-K on January 31, 2003 and incorporated herein by reference). 10.9 Asset Purchase Agreement between the Registrant and Hotel Movie Network, Inc., dated March 31, 2003 (incorporated by reference to Exhibit 10 of the Form 8-K filed on April 18, 2003). 10.10 Investment Agreement between the Company and Dutchess Private Equities Fund, LP dated September 5, 2003 (filed as Exhibit 10.1 to the Company's Form 8-K on September 9, 2003 and incorporated herein by reference). 10.11 Registration Rights Agreement between the Company and Dutchess Private Equities Fund, LP dated September 5, 2003 (filed as Exhibit 10.2 to the Company's Form 8-K on September 9, 2003 and incorporated herein by reference). 10.12 Placement Agent Agreement between the Company and Park Capital Securities, LLC and Dutchess Private Equities Fund, LP dated August 28, 2003 (filed as Exhibit 10.2 to the Company's Form 8-K on September 9, 2003 and incorporated herein by reference). 23.1* Consent of Counsel (contained in Exhibit 5.1) 23.2 Consent of Larry O'Donnell, CPA, P.C. ____________________________ * To be filed by amendment. UNDERTAKINGS The Registrant hereby undertakes that it will: (1) File, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to: (i) Include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) Include any additional or changed material information on the plan of distribution. (2) For determining any liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering. (3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers, and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (1) For determining any liability under the Securities Act, treat the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant under Rule 424(b)(1), or (4) or 497(h) under the Securities Act as part of this registration statement as of the time the Commission declared it effective. (2) For determining any liability under the Securities Act, treat each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement, and that offering of the securities at that time as the initial bona fide offering of those securities. SIGNATURES ---------- In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all the requirements of filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, in the city of Beverly Hills, California on September 23, 2003. TELECOMMUNICATION PRODUCTS, INC. By:_ /s/ Robert C. Russell ---------------------- Robert C. Russell, President, CEO and Director Each person whose signature appears below appoints Robert C. Russell as his attorney-in-fact, with full power of substitution and re-substitution, to sign any and all amendments (including post-effective amendments) to this Registration Statement on Form SB-2 of Telecommunication Products and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, herby ratifying and confirming all the said attorney-in-fact and agent or his or her substitute or substitutes may lawfully do or cause to be done by virtue hereof. In accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following persons in the capacities and in the dates stated: Signature Title Date - --------- ----- ---- /s/ Robert C. Russell - -------------------- President, Chief Executive Robert C. Russell Officer, and Director September 23, 2003 /s/ Robert C. Russell - ------------------- Interim Financial Officer Robert C. Russell September 23, 2003 /s/ Igor Loginau - ------------------- Director Igor Loginau September 23, 2003 /s/ Dennis H. Johnson - ------------------- Director Dennis H. Johnson September 23, 2003 EX-23.2 3 doc2.txt EXHIBIT 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT I consent to the incorporation of my report dated July 8, 2003 on the financial statements of Telecommunication Products, Inc. as of March 31, 2003 and for the years ended March 31, 2003 and 2002, which is included in this Form SB-2 dated September 22, 2003 of Telecommunication Products, Inc. and to the reference to my Firm under the caption "Experts" in the Form SB-2. /s/ Larry O'Donnell LARRY O'DONNELL, CPA, P.C. September 22, 2003 Aurora, Colorado -----END PRIVACY-ENHANCED MESSAGE-----