UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): October 9, 2003
Telecommunication Products, Inc.
(Exact name of Registrant as specified in its charter)
Colorado 0-11882 84-0916299
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of Identification No.)
incorporation)
9171 Wilshire Blvd., Suite B, Beverly Hills, CA 90210
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 281-2571
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
As previously reported on From 8-K filed with the Securities and Exchange
Commission on April 18, 2003, on March 31, 2003, the Company entered
into an agreement with Coast Communications, Inc. for the acquisition of the
assets of privately-held Hotel Movie Network, Inc, a Nevada Corporation of Mesa
Arizona. Such assets consist of inventory, contracts and contract rights over
the course of two months. The Company agreed to make two payments of
$75,000 and satisfy the full value of the acquisition in the form of a 2
million common shares of the Company and 1 million shares of Preferred
Series A shares convertible to common stock and issuance of two
Promissory Notes, one for $1,000,000 convertible to Series A Preferred
Stock (subject to adjustment per the Purchase contract) and one for
$400,000 convertible to Series B Preferred Stock of the Registrant.
This Series B Preferred Stock shall be convertible into restricted shares of
Company's common stock commencing two years from the date of issuance at the
rate of fifty percent of the total Preferred Shares (50%) per annum at a
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 Company shall have the
right to redeem the Series B Preferred Stock at anytime prior to conversion
into common stock upon an agreement by all Parties as to the value of
said stock.
The foregoing description of such documents and the transactions contemplated
therein are qualified in their entirety by reference to the exhibit to this
report.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
ITEM 7(a). FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The following financial statements of Hotel Movie Network are set forth
below: (i) The audited balance sheet as of March 31, 2003, the audited
statements of operations, stockholders' equity and cash flows for the year
ended March 31, 2003 , the notes related
thereto and the related auditors' reports.
CONTENTS
Independent Auditors' Report 3
Balance Sheet 4
Statement of Operations 5
Statement of Stockholders' Equity 6
Statement of Cash Flows 7
Notes to the Financial Statements 8
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Hotel Movie Network, Inc.
Mesa, Arizona
We have audited the accompanying balance sheet of Hotel Movie Network, Inc. as
of March 31, 2003 and the related statement of operations, stockholders' equity
and cash flows for the year ended March 31, 2003. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hotel Movie Network, Inc. as of
March 31, 2003, and the results of its operations and its cash flows for the
year ended March 31, 2003, in conformity with accounting principles generally
accepted 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 5 to the
financial statements, the Company has suffered losses from operations. This
raises substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 5. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
HJ & Associates, LLC
Salt Lake City, Utah
July 8, 2003
HOTEL MOVIE NETWORK, INC.
Balance Sheet
ASSETS
----------
CURRENT ASSETS
Cash $ 5,185
Accounts receivable - net (Note 2) 104,046
Inventory (Note 7) 1,276,809
----------
Total Current Assets 1,386,040
----------
PROPERTY AND EQUIPMENT, NET 197,452
----------
TOTAL ASSETS $1,583,492
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
CURRENT LIABILITIES
Accounts payable $ 179,868
Accrued expenses 4,100
----------
Total Current Liabilities 183,968
----------
Total Liabilities 183,968
----------
COMMITMENTS AND CONTINGENCIES (NOTE 9)
STOCKHOLDERS' EQUITY
Common stock; $0.001 par value, 25,000,000 shares
authorized, 25,000,000 shares issued and outstanding 25,000
Additional paid-in capital 1,873,072
Accumulated deficit (498,548)
----------
Total Stockholders' Equity 1,399,524
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,583,492
===========
The accompanying notes are an integral part of these financial statements.
HOTEL MOVIE NETWORK, INC.
Statement of Operations
For the Year
Ended
March 31,
2003
-----------
REVENUE
Net sales $ 546,377
Cost of goods sold 407,561
----------
Gross Margin 138,816
----------
EXPENSES
General and administrative 463,882
Bad debt 57,020
Depreciation 116,462
----------
Total Expenses 637,364
----------
LOSS BEFORE INCOME TAXES (498,548)
----------
Income tax expense -
----------
NET LOSS $ (498,548)
============
BASIC LOSS PER SHARE $ (0.03)
============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 16,643,836
============
The accompanying notes are an integral part of these financial statements.
HOTEL MOVIE NETWORK, INC.
Statement of Stockholders' Equity
Additional
Common Stock Paid-in Accumulated
-------------------------
Shares Amount Capital Deficit
-----------------------------------------------------
Balance, March 31, 2002 - $ - $ - $ -
Common stock issued for
Assets (Note 9) 25,000,000 25,000 1,873,072
Net loss for the year
ended March 31, 2003 - - - (498,548)
----------- ------- -------- ---------
Balance, March 31, 2003 25,000,000 25,000 $ 1,623,500 $(498,548)
========== ========= ============ ==========
HOTEL MOVIE NETWORK, INC.
Statement of Cash Flows
For the Year
Ended
March 31,
2003
----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(498,548)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 116,462
Bad debt 57,020
Impairment of inventory 200,000
Changes in assets and liabilities
(Increase) in accounts receivable (9,358)
(Increase) in inventory (26,122)
Increase in accounts payable 167,007
Increase in accrued expenses 4,100
--------------
Net Cash Provided by Operating Activities 10,561
==============
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (5,976)
--------------
Net Cash (Used) in Investing Activities (5,976)
--------------
CASH FLOWS FROM FINANCING ACTIVITIES -
NET INCREASE IN CASH 4,585
CASH AT BEGINNING OF YEAR 600
--------------
CASH AT END OF YEAR $ 5,185
==============
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR
Interest $ -
Income taxes $ -
NON-CASH INVESTING AND FINANCING ACTIVITIES
Common stock issued for assets $1,898,072
The accompanying notes are an integral part of these financial statements.
HOTEL MOVIE NETWORK, INC.
Notes to the Financial Statements
March 31, 2003
NOTE 1 - COMPANY BACKGROUND
In September 2000 the Company was incorporated in the State of Nevada. The
Company did not initiate any transactions since inception and has been idle
until August of 2002. In August 2002 the Company obtained the assets of the
operations known as Hotel Movie Network and officially began operations (See
Note 9). Operations consist of on going pay-per-view movie rentals from hotel
establishments and related services with these hotel establishments.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
a. Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting. The Company has elected a March 31 year-end.
b. Property and Equipment
Property and equipment are recorded at cost. Major additions and improvements
are capitalized. The cost and related accumulated depreciation of equipment
retired or sold are removed from the accounts and any differences between the
undepreciated amount and the proceeds from the sale are recorded as a gain or
loss on sale of equipment. Depreciation is computed using the straight-line
method over the estimated useful lives as follows:
Useful
Description Lives
------------------ -----
Pay-per-view equipment 5-7 years
Leasehold improvements
Life of Lease
c. Accounts Receivable
Accounts receivable are shown net of the allowance for doubtful accounts of
$24,000 at March 31, 2003.
HOTEL MOVIE NETWORK, INC.
Notes to the Financial Statements
March 31, 2003
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
d. Provision For Taxes
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax assets are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Net deferred tax assets consist of the following components as of March 31,
2003:
2003
------------
Deferred tax assets:
NOL Carryover $58,000
------------
58,000
Deferred tax liabilities: -
Valuation allowance (58,000)
------------
Net deferred tax asset $ -
============
The income tax provision differs from the amount of income tax determined
by applying the U.S. federal income tax rate to pretax income from continuing
operations for the year ended March 31, 2003 due to the following:
2003
------------
Book income $(194,450)
Accrued compensation 58,400
Other 50
Impairment 78,000
Valuation allowance 58,000
------------
$ -
============
<FN>
At March 31, 2003, the Company had net operating loss carryforwards of
approximately $147,000 that may be offset against future taxable income
from the year 2003 through 2023. No tax benefit has been reported in the
March 31, 2003 financial statements since the potential tax benefit is offset
by a valuation allowance of the same amount.
d. Provision For Taxes (Continued)
Due to the change in ownership provisions of the Tax Reform Act of 1986, net
operating loss carryforwards for Federal income tax reporting purposes are
subject to annual limitations. Should a change in ownership occur, net
operating loss carryforwards may be limited as to use in future years.
e. Cash Equivalents
For the purposes of the Statement of Cash Flows, the Company considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents.
f. Basic Loss Per Share
For the Year Ended
March 31, 2003
- -----------------------------------------------------
(Denominator)
Weighted
(Numerator) Average Basic
Loss Number of Loss Per
Amount Shares Share
----------- -------------- ----------------
$(498,548) 16,643,836 $(0.03)
=========== ============ ================
The basic loss per share of common stock is based on the weighted average number
of shares issued and outstanding at the date of the financial statements.
g. Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the 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.
h. 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.
i. Newly Issued Accounting Pronouncements
SFAS NO. 145 -- On April 30, 2002, the FASB issued FASB Statement No. 145
(SFAS 145), "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections." SFAS 145 rescinds both FASB
Statement No. 4 (SFAS 4), "Reporting Gains and Losses from Extinguishment of
Debt," and the amendment to SFAS 4, FASB Statement No. 64 (SFAS 64),
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." Through
this rescission, SFAS 145 eliminates the requirement (in both SFAS 4 and SFAS
64) that gains and losses from the extinguishment of debt be aggregated and, if
material, classified as an extraordinary item, net of the related income tax
effect. However, an entity is not prohibited from classifying such gains and
losses as extraordinary items, so long as it meets the criteria in paragraph 20
of Accounting Principles Board Opinion No. 30, Reporting the Results of
Operations Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions.
Further, SFAS 145 amends paragraph 14(a) of FASB Statement No. 13, "Accounting
for Leases", to eliminate an inconsistency between the accounting for
sale-leaseback transactions and certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. The amendment requires
that a lease modification (1) results in recognition of the gain or loss in the
9 financial statements, (2) is subject to FASB Statement No. 66, "Accounting
for Sales of Real Estate," if the leased asset is real estate (including
integral equipment), and (3) is subject (in its entirety) to the sale-leaseback
rules of FASB Statement No. 98, "Accounting for Leases: Sale-Leaseback
Transactions Involving Real Estate, Sales-Type Leases of Real Estate, Definition
of the Lease Term, and Initial Direct Costs of Direct Financing Leases."
Generally, FAS 145 is effective for transactions occurring after May 15, 2002.
The adoption of FAS 145 did not have a material effect on its financial
performance or results of operations.
SFAS NO. 146 -- In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit
or Disposal Activities" (SFAS 146). SFAS 146 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 an Activity
(including Certain Costs Incurred in a Restructuring)." The scope of SFAS 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 146
will be effective for exit or disposal activities that are initiated after
December 31, 2002 and 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 146.
The effect on adoption of SFAS 146 will change on a prospective basis the timing
of when the restructuring charges are recorded from a commitment date approach
to when the liability is incurred. The adoption of SFAS 146 did not have a
material effect on the Company's financial performance or results of operations.
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 interim disclosure provisions are
effective for financial reports containing financial statements for interim
periods 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.
HOTEL MOVIE NETWORK, INC.
Notes to the Financial Statements
March 31, 2003
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of the following:
March 31,
2003
--------------
Office furniture and equipment $ 409,665
Hotel equipment 470,313
Leasehold improvements 28,300
--------------
908,278
Accumulated depreciation (710,826)
--------------
Net property and equipment $ 197,452
==============
<FN>
Depreciation expense for the year ended March 31, 2003 was $116,462.
NOTE 4 - LICENSING AGREEMENTS
The Company has several licensing agreements with major movie distribution
companies, whereby the Company is granted the right to show the movies for
profit within the contracted hotels. The Company is required to pay a license
fee for every movie viewed. The fees paid vary depending on the movie. License
fees are determined on a movie by movie basis and are expensed to cost of goods
when incurred.
NOTE 5 - 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 $498,548 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.
NOTE 6 - MATERIAL EVENTS
On March 31, 2003 the Company entered into a Master Asset Purchase Agreement to
sell all of the assets properties and business relating to the pay-per-view
business. In consideration the Company would receive $150,000 in cash,
2,000,000 shares of the buyer's publicly traded restricted Common stock and
1,000,000 shares of the buyer's Series A Preferred stock. In addition, the
Company would receive sufficient Series B Preferred stock to bring the total
purchase price to $3,500,000. As of the date of this report, the agreement has
not closed.
NOTE 7 - INVENTORY
Inventory consisted of the following:
March 31,
2003
-----------
Finished goods $ 1,276,809
============
The Company values its inventory at the lower of cost
(first-in, first-out method) on market.
NOTE 8 - RELATED PARTY TRANSACTIONS
In July 2002 two officers of the Company contributed a note receivable
valued at $1,898,072 in exchange for the issuance of 25,000,000 shares of common
stock. The note consisted of funds due from an entity, which had acquired the
pay-per-view operations from the officers. The note contributed was valued at
its predecessor cost. The note has a collateral clause securing all of the
assets of the pay-per-view operations. The note was in default and the Company
immediately foreclosed on the note and acquired all of the pay-per-view assets
and related liabilities. The assets and liabilities were recorded at the
carrying value of the note.
The Company has accrued salaries to the two officers in the amount of $159,780
which is included in accounts payable.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company entered into a new lease agreement on March 31, 2003. The lease
expires on March 31, 2011. The future minimum lease payments are as follows:
2004 $ 38,400
2005 38,400
2006 40,800
2007 40,800
2008 and thereafter 177,600
-----------
Total $ 336,000
==========
Exhibits:
Exhibits included are set forth in the Exhibit Index pursuant to Item 601 of
Regulation S-B
Exhibit Number Exhibit Description
- ------------- --------------------
*10.1 Acquisition Agreement between the
Registrant and Coast Communications,
Inc. dated March 31, 2003
*10.2 Schedule 1 Employment Agreements with
Paul La Barre and Ernest McKay
*10.3 and Schedule 2, Promissory Notes
*10.4 Schedule 3 Security Agreement
- ----------------
* previously filed on our Form 8-K on April 18, 2003
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TELECOMMUNICATION PRODUCTS, INC.
Date: October 9, 2003 /s/ Robert Russell
------------------------------
Name: Robert Russell
Title: President