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.
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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 nine-month period ended September 30, 1999, reflect net
losses of approximately $4,003,590, $1,135,927, $8,453,903, and $9,344,011,
respectively, or approximately $.77, $.14, $.89 and $1.20 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
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demands in 1999 and 2000.
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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.
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We derive a significant portion 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.
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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 1,387 as of September 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.
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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.
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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
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affect our business.
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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.
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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.
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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.
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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.
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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.
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U-C Holdings, L.L.C. beneficially owns approximately 80.3% of our
outstanding common stock. As a result of its ownership, 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.
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Certain conflicts of interest may arise as a result of the beneficial
ownership interests in 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 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
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circumstances.
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The conversion of the shares of convertible preferred stock into common
stock will result in dilution of voting rights of the currently outstanding
public holders of the common stock.
Our revenues are subject to seasonality.
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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
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by our outstanding warrants and options.
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As of September 30, 1999, there are outstanding options to purchase
1,554,413 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 2,158,337 shares of our common
stock. Holdings has entered into certain Equity Protection Agreements, dated
April 25, 1997, which allow 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). Holdings also received a
warrant to purchase 152,100 shares of our common stock in connection with the
standby commitment 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.
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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
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 Holdings are subject to certain limitations set forth in Rule 144
under the Securities Act. As of September 30, 1999, options to purchase
1,554,413 shares and warrants to purchase 2,158,337 shares of our common stock
were outstanding, of which options to purchase 685,389 shares and warrants to
purchase 2,158,337 shares were exercisable.
There are several risks associated with our acquisition strategy.
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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.
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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.