EXHIBIT 99.1
SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS
You should consider carefully the following factors in evaluating us and our
business. The risks and uncertainties described below are not the only ones we
face. Additional risks and uncertainties not presently known to us, which we
currently deem immaterial or that are similar to those faced by other companies
in our industry or business in general, may also impair our business operations.
If any of the following risks actually occurs, our business, financial condition
or results of future operations could be materially and adversely affected.
We have experienced, and continue to experience, net losses.
Since our inception, we have experienced, and are continuing to experience,
operating losses and negative cash flow from operations. Our statements of
operations for the fiscal year ended October 31, 1997, for the two-month
transition period ended December 31, 1997, for the fiscal year ended December
31, 1998, and for the six-month period ended June 30, 1999, reflect net losses
of approximately $4,003,590, $1,135,927, $8,453,903, and $6,511,537,
respectively, or approximately $.77, $.14, $.89 and $.46 per share,
respectively. In addition, we expect to incur operating losses in the near
future and until such time as operations generate sufficient revenues to cover
our costs.
We may require additional working capital or financing to meet our operating
demands in 1999 and 2000.
The rapid development of our business will continue to require substantial
capital expenditures for additional installations. Our future financial results
will depend primarily on our ability to increase our number of affiliate
locations, maintain our existing installations and increase advertising
revenues. We cannot assure that we will achieve or sustain profitability or
positive cash flows from future operating activities. If we fail to increase
the number of installation sites or experience operating difficulties, or if
advertising revenues do not increase substantially, it is likely that we may be
required to raise additional capital or obtain additional financing to fund our
operations.
We depend upon our advertising revenues.
We primarily derive our revenues from advertisers displaying their commercials
on CTN. Although we have agreements with certain national advertisers and have
held discussions or had prior agreements with other national advertisers, we
cannot assure that these advertisers will continue to purchase advertising from
us, that new advertisers will purchase advertising from us, or that future
significant advertising revenues will be generated. Because certain advertisers
may discontinue or reduce advertising on CTN from time to time, we anticipate
that we could experience fluctuations in operating results and revenues. The
failure to attract and enter into new and/or additional agreements with national
advertisers and to derive significant revenues from these advertisers would have
a material adverse effect on our business and financial results.
We must secure new installations and maintain existing installations.
Our growth is dependent upon our ability to increase the number of
installation sites at colleges and universities. If we increase our
installation sites, we will have increased viewership and should be able to
increase our advertising revenue. In addition, we believe that if we are able
to increase our installation sites, it will become more difficult for a
competitor to enter the market. We have increased our number of installations,
including contracts for future installations, from 265 as of December 31, 1997,
to 736 as of December 31, 1998 and to 1,182 as of June 30, 1999. Although we
have been successful in increasing our
installation sites, we cannot assure that this growth will continue and that
colleges and universities will not require the removal of our system from
current locations. Our contracts with colleges and universities for installation
sites typically have a three-year term. The failure to increase installation
sites would have a material adverse effect on our business and financial
results.
We depend upon satellite technology.
The ability of CTN to transmit our programming, and thereby derive advertising
revenue, is dependent upon proper performance of the satellite transmission
equipment upon which CTN's programming delivery is based. Our contract with
Public Broadcasting Service, Inc. provides for our sublease of transponder
capacity on a satellite owned and operated by GE American Communications, Inc.
We are entitled to limited protected service under the sublease in the event the
satellite fails, which would enable CTN's programming to be redirected to a
different satellite under certain circumstances and subject to certain
limitations. However, in the event that CTN's programming is required to be
redirected to a different satellite, our satellite dishes installed in each of
our affiliate locations would be required to be redirected in order for the
programming signals to be received from the satellite. This redirection
procedure could take up to 21 days for completion and would involve significant
cost to us. We have obtained insurance for certain of the costs associated with
such a satellite failure, including the costs of redirecting the satellite
dishes and securing a new satellite transponder, and the lost advertising
revenues resulting from the interruption in programming.
We depend on our agreements with third parties.
The ability of CTN to transmit our programming and to maintain and install our
equipment is dependent upon performance by certain third parties under contracts
with us. We are substantially dependent upon performance by unaffiliated
companies for our day-to-day programming operations and system installation and
maintenance.
Any failure to maintain or improve market acceptance for CTN would adversely
affect our business.
Our prospects will be significantly affected by the success of our affiliate
marketing efforts, the acceptance of our programming by potential viewers and
our ability to attract advertisers. Achieving market acceptance for CTN will
require significant effort and expenditures by us to enhance awareness and
demand by viewers and advertisers. Our current strategy and future marketing
plans may be subject to change as a result of a number of factors, including
progress or delays in our affiliate marketing efforts, the nature of possible
affiliation and other broadcast arrangements that may become available to us in
the future and factors affecting the direct broadcast industry. We cannot assure
that our strategy will result in initial or continued market acceptance for CTN.
We depend upon our access to programming.
We believe that our ability to maintain access to music videos and other
programming on a regular, long-term basis, on terms favorable to us is important
to our future success and profitability. We obtain music videos pursuant to
oral agreements with music companies. We have such agreements or arrangements
with a number of the major music company labels, which include Sony, Warner
Elektra, EMI, Columbia, MCA and BMG. We also receive CNN news and sports
programming pursuant to our agreement with Turner Private Networks, Inc.
Termination of substantially all or a large number of our programming agreements
would have a material adverse effect on our business and financial results.
We depend upon our key executives.
We are substantially dependent on the efforts of Jason Elkin, our Chairman and
Chief Executive Officer, Peter Kauff, our Vice Chairman, and Martin Grant, our
President. The loss of any of these executives could have a material adverse
effect on our business and financial results. All of these executives have
entered into multi-year employment agreements with us.
We may not be able to compete successfully with other companies.
CTN competes for advertisers with many other forms of advertising media,
including television, radio, print, direct mail and billboard. There are no
meaningful intellectual property barriers to prevent competitors from entering
into this market, and we cannot assure that a competitor with greater resources
than us will not enter into the market. We believe that competition could
increase as other organizations perceive the potential for commercial
application of our product or service.
We must continue to advance our technology.
We expect technological developments and enhancements to continue at a rapid
pace in the direct broadcast satellite network industry and related industries,
and we cannot assure that technological developments will not require us to
switch to a different transmission technology or cause our technology and
products to be dated. Our future success could be largely dependent upon our
ability to adapt to technological change and remain competitive.
Our principal stockholder continues to control our affairs.
U-C Holdings, L.L.C. beneficially owns approximately 80.3% of our outstanding
common stock. As a result of its ownership, U-C Holdings has, and will continue
to have, sufficient voting power to determine our direction and policies, the
election of our directors, the outcome of any other matter submitted to a vote
of stockholders and to prevent or cause a change in our control. See "We may be
subject to conflicts of interest and related party transactions."
We may be subject to conflicts of interest and related party transactions.
Certain conflicts of interest may arise as a result of the beneficial
ownership interests in U-C Holdings that are held by a majority of our
directors, including our chairman and chief executive officer. Several members
of our Board of Directors may be deemed to be an indirect beneficial owner of
the securities beneficially owned by U-C Holdings. Conflicts of interest may
arise as a result of these affiliated relationships. Although no specific
measures to resolve such conflicts of interest have been formulated, our
management has a fiduciary obligation to deal fairly and in good faith with us
and will exercise reasonable judgment in resolving any specific conflict of
interest that may occur.
The holders of our common stock could be materially diluted under certain
circumstances.
On July 23, 1999, U-C Holdings purchased 309,998 shares of our convertible
preferred stock for $4,649,970. U-C Holdings also was issued a Class D Warrant
which entitles it to purchase 135,686 shares of our common stock. The
convertible preferred stock provides that the conversion price for the stock
will adjust at the end of each fiscal quarter if the average trading price of
the common stock for the 30 days prior to the end of the fiscal quarter is less
than the then current conversion price of the convertible preferred stock
($6.854 at the time of the purchase); however, the conversion price cannot be
reduced below $2.75. The exercise price of the Class D Warrant contains a
nearly identical provision. The conversion of the shares of convertible
preferred stock into common stock and the exercise of the Class D Warrant will
result in dilution of voting rights of the currently outstanding public holders
of the common stock. If the conversion price of the convertible preferred stock
and the exercise price of the Class D Warrant are adjusted due to decreases in
the average trading price of the common stock and the price of the common stock
later increases, the public holders of the common stock will be financially
diluted as well.
The funding for the MPM Acquisition (see "There are several risks associated
with our acquisition strategy" below) will likely require us to incur additional
debt and to issue additional equity in the Company. This will result in
additional dilution of the voting power of the public holders of our common
stock and may result in financial dilution to such holders as well.
Our stock price has been volatile, and declines could cause us to lose our
listing on Nasdaq.
The market price for our common stock could be subject to significant
fluctuations in response to our business and financial results. We currently
satisfy the conditions for continued listing on The Nasdaq SmallCap Market.
However, we cannot assure that the market price of the common stock will not
decline to a level where it does not satisfy these listing conditions.
Our revenues are subject to seasonality.
Our revenues are affected by the pattern of seasonality common to most school-
related businesses. Historically, we generate a significant portion of our
revenues during the period of September through May and substantially less
revenues during the summer months when most colleges and universities do not
hold regular classes.
Our stock price and ability to raise capital or obtain financing could be hurt
by our outstanding warrants and options.
As of June 30, 1999, there are outstanding options to purchase 1,216,958
shares of our common stock granted to certain of our officers and directors
pursuant to our stock option plans. In addition, there are warrants outstanding
that permit their holders to purchase 2,080,258 shares of our common stock. U-C
Holdings has entered into certain Equity Protection Agreements, dated April 25,
1997, which allow U-C Holdings to purchase additional shares of our common stock
upon the exercise of options or warrants that were outstanding on April 25, 1997
at a price of $2.75 per share (as adjusted). U-C Holdings also received a
warrant to purchase 152,100 shares of our common stock in connection with the
standby commitment U-C Holdings made to us pursuant to the rights offering we
completed in October 1998. Certain other holders of options and warrants also
have demand and piggy-back registration rights. While such rights, warrants and
options are outstanding, they may (i) adversely affect the market price of our
common stock and (ii) impair our ability to, and the terms on which we can,
raise additional equity capital or obtain debt financing.
Sales of our shares could cause our stock price to fall.
Sales of a substantial number of shares of common stock in the public market
could adversely affect the market price of our common stock prevailing from time
to time. All shares of our common stock, including shares held by U-C Holdings,
are freely tradable without restriction, or may be sold pursuant to Rule 144
under the Securities Act. The sale of the shares of our common stock acquired
by U-C Holdings are subject to certain limitations set forth in Rule 144 under
the Securities Act. As of June 30, 1999, options to purchase 1,216,958 shares
and warrants to purchase 2,080,258 shares of our common stock were outstanding,
of which options to purchase 685,389 shares and warrants to purchase 2,080,258
shares were exercisable.
There are several risks associated with our acquisition strategy.
On July 16, 1999, we entered into a stock purchase agreement to acquire all of
the issued and outstanding capital stock of Armed Forces Communications, Inc., a
New York corporation d/b/a Market Place Media and having its primary place of
business in Santa Barbara, California ("MPM"), for a purchase
price of approximately $30,000,000 cash, subject to adjustment. Upon
consummation of the MPM Acquisition, MPM will be our wholly-owned subsidiary.
The closing of the MPM Acquisition is subject to conditions such as no material
adverse change in MPM. We intend to finance the acquisition through additional
senior debt (excluding debt recently obtained from the LaSalle Bank National
Association) and/or additional equity financing.
We believe that the MPM Acquisition represents an excellent opportunity to
further expand our business. However, our Board of Directors and senior
management face a significant challenge in their efforts to integrate the
businesses of MPM and CTN so that the different cultures and operations can be
effectively managed to continue to grow. The dedication of management resources
to such integration may detract attention from the day-to-day business of CTN.
There can be no assurance that there will not be substantial costs associated
with such activities or that there will not be other material adverse effects as
a result of these integration efforts, either of which could have a material
adverse effect on the financial results of CTN. Further, while the management
of CTN believes that the diverse experience of the combined companies will serve
to strengthen CTN, there can be assurance that this or any other of the
anticipated benefits of the MPM Acquisition will be fully realized.
In addition to the MPM Acquisition, we may seek to expand or complement our
operations through the possible acquisition of other companies or through the
licensing of programs that we believe are compatible with our business. While
we explore acquisition opportunities from time to time, as of the date of this
report, we have no definitive plans, agreements, commitments, arrangements or
understandings with respect to any significant acquisition other than the MPM
Acquisition. We have not established any minimum criteria for any other
acquisition, and our management and Board of Directors will have complete
discretion in determining the terms of any such acquisition. We cannot assure
that we will be able to ultimately effect any acquisition, including the MPM
Acquisition, or successfully integrate into our operations any business that we
may acquire, including MPM. Under Delaware law, various forms of business
combinations can be effected without stockholder approval and, accordingly,
stockholders will, in all likelihood, neither receive nor otherwise have the
opportunity to evaluate any financial or other information which may be made
available to us in connection with any acquisition and must rely entirely upon
the ability of management in selecting, structuring and consummating
acquisitions that are consistent with our business objectives.
Year 2000 risks may result in material adverse effects on our business.
Many currently-installed computer systems and software products are coded to
accept only two-digit entries in the date code field. Beginning in the Year
2000, these date code fields will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. As a result, over the
next six months, computer systems and/or software used by many companies will
need to be upgraded to comply with such "Year 2000" requirements. Because we
are dependent on vendor compliance, our ability to assure Year 2000 compliance
is limited. We have required certain of our computer system and software
vendors to represent that the services and products provided are, or will be,
Year 2000 compliant.
Our ability to issue preferred stock may inhibit a takeover of our company.
Our Board of Directors has the authority to issue up to 2,000,000 shares of
preferred stock and to fix the rights, preferences, privileges and restrictions,
including voting rights, of the preferred stock without further vote or action
by our stockholders. The rights of the holders of our common stock will be
subject to, and may be adversely affected by, the rights of the holders of a
preferred stock that may be issued in the future. While we have no present
intention to issue shares of preferred stock, such issuance, while providing
desired flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire a majority of our outstanding voting stock.