Liquidity and Capital Resources

The Company’s financial statements are presented on a going-concern basis. This contemplates the realization of assets and liquidation of liabilities in the normal course of business. At June 30, 2003, the Company had a working capital deficit of approximately $9,667,000. In their opinion,

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the Company’s independent auditors, Hein & Associates, LLP, have expressed substantial concern regarding the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern depends on its ability to increase revenues, raise the capital necessary to successfully implement its business plan and ultimately achieve profitable operations.

Asset Sales

During its fiscal year ended June 30, 2003, the Company focused on cutting its costs and selling certain of its non-core assets. To increase operational efficiency, focus on geographic concentration of its operations to Mexico and California, and dispose of assets that are not consistent with its business plan, the Company used the proceeds of asset sales to repay debt and other obligations, and to reinvest the remaining net proceeds, if any, in existing or new assets. During the fiscal year the Company disposed of the following assets:

DSI Sale

On December 23, 2002 Cable Concepts entered into a contract for the sale of certain Rights of Entry Agreements to Digital Service, Inc. (DSI). The transaction was effective as of December 1, 2002, and covered 55 cable properties in several states with approximately 1,900 subscribers.

The aggregate purchase price for the right of entry agreements was $1,995,000 which is comprised primarily of debt assumption by DSI. DSI assumed its note payable to Pacifica Bank in the amount of $1,592,000, and assumed a credit card debt in the amount of $15,000. They also assumed other liabilities and assets relating to the operations of the properties which netted to approximately $116,000. Due to a decrease in the number of subscribers under the Right of Entry Agreements, the Company issued a promissory note to DSI in the amount of $376,000 in April, 2003.In addition, Cable Concepts Inc. (CCI) transferred a property in Washington to DSI in exchange for the assumption of a debt to a third party in the amount of $121,000. The carrying amount of the assets relating to this sale was $2,435,000.

Dakotas

In January 2003, Cable Concepts sold several Right of Entry Agreements for cable properties located in North Dakota, which had a total of 129 basic subscribers. The sale was for a total of $129,000 and the net proceeds were used to pay down bank debt. The carrying value of the assets sold was $266,000, resulting in a net loss of $179,000.

Belmont

The Cable Concepts sold Right of Entry Agreements for a small bulk property located in Memphis, TN for $32,000 and the proceeds were used as working capital. The carrying value of the assets sold was $46,000.

Memphis Properties

On April 7, 2003 Cable Concepts completed a sale of assets consisting of three Right of Entry Agreements, serving 352 private cable subscribers in Memphis, Tennessee to Time Warner Cable for $432,000 in cash, or $1,207 per subscriber. Adjusted carrying value of this property was $499,000.

La Salle Acquires Direct Digital Midwest

On September 29, 2000, two of our indirect subsidiaries, Direct Digital Midwest, Inc. (DDM) and CP Dakotas MDU, LLC (CPD) borrowed an aggregate of $2 million from LaSalle Bank National Association.  The loan

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was evidenced by a promissory note and secured by the assets of each of DDM and CPD.  Additionally, as additional collateral for the loan, Cable Concepts pledged all of the stock of DDM to LaSalle Bank. Neither the Company nor Cable Concepts guaranteed the loan to LaSalle Bank. After DDM and CPD defaulted on the loan, LaSalle foreclosed on all of the assets of DDM and CPD and the stock of DDM to satisfy the loan. On May 9, 2003, LaSalle Bank auctioned all of the shares of DDM to satisfy the loan. LaSalle Bank was the highest bidder at auction. The value of the collateral securing the loan was insufficient to cover the entire amount then due under the loan. To date, LaSalle Bank has not pursued any action or made any claim against the Company or Cable Concepts for the amount of any shortfall.

Sale of Notes Receivable

In April 2003, USAB completed a sale of a $500,000 note receivable from Las Americas collateralized by all of the assets of Las Americas, Inc. A firm purchased the note for $500,000. The note assigns the security interest of all of the assets of Las Americas Broadband that were held by the Company. Interest on the note is for one year at 15%. Additionally the Company is liable for up to $250,000 if Las Americas defaults on the note and there are not sufficient assets to cover the note.  The Company issued 300,000 shares of common stock as additional consideration for this note and paid $50,000 and issued 1,500 shares of common stock as a commission.

Financing Operations

The Company has had limited access to investment capital to support working capital deficits or to expand existing operations. Consequently, the Company’s financial condition has deteriorated. As a result the Company has focused on negotiations with prospective lenders and investors as the Company seeks to refinance all outstanding loans and liabilities and to seek new investments in order to provide working capital.

Between October 2002 and July 2003, the Company issued bridge notes having a total principal amount of $2,050,000 to sophisticated investors.  In connection with the bridge loans evidenced by these notes, the Company issued to the bridge note investors, warrants to purchase a total of 1,025,000 shares of the Company’s common stock. Each warrant expires five years from its date of issuance. Each bridge note bears interest at 18% per annum and matures on the earlier of: (i) the last day of the sixth month following the signing of the promissory note or (ii) on the date the Company receives permanent financing in the amount of at least $3,000,000. If the Company obtains permanent financing, each note holder has the right to convert all, but not part, of the outstanding principal and accrued interest on the note into shares of the Company’s common stock or preferred stock issued in connection with the permanent financing at a discount of 10% to the offering price. Additionally, for every month that any principal payment is overdue, each note holder will receive an additional warrant to purchase 10,000 shares of the Company’s common stock per $100,000 in principal amount outstanding under the note, or pro-rata portion thereof, having an exercise price of the lesser of $1.00 or the average bid price of the Company’s common stock for the preceding 20 trading days.  The indebtedness evidenced by the bridge notes is secured by certain of the Company’s assets and the assets of the Company’s subsidiaries.  See “Management’s Discussion and Analysis Or Plan Of Operation – Subsequent Events.”

Below is a summary of the bridge note transactions as of June 30, 2003:

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(1)           This bridge loan was made by Mr. Theodore Swindells, one of the Company’s significant stockholders. See “Stock Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

(2)           In August 2003, the holders of these notes elected to convert outstanding principal and accrued interest into shares of common stock. See “Recent Sales of Unregistered Securities.” Therefore, these notes are no longer outstanding.

On September 8, 2003, the Company obtained secured debt financing in an amount of $4 million. The financing is evidenced by a promissory note and

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secured by substantially all of the Company’s assets. A portion of the proceeds of the financing were used to repay a portion of the outstanding principal and accrued interest owed on the above-described bridge notes.  See “Subsequent Events” included in this Section for a more detailed description of this financing and partial repayment of the bridge notes

In addition to the bridge loans, the Company is subject to the following obligations:

As of June 30, 2003 the Company had an unsecured note payable outstanding in the amount of $130,000. The holder of this note, Theodore Swindells, beneficially owns over 5% of the Company’s common stock. The note was issued on March 4, 2002 and bore interest at a rate of 10% per year with a due date of October 31, 2002. On October 18, 2002, the Company entered into a new loan agreement with Mr. Swindells, which extended the due date to April 30, 2003, under the same terms and conditions as the original note.  In September 2003, the Company and Mr. Swindells agreed to extend the due date of this loan agreement to April 30, 2004 under the same terms and conditions as the original note.

As of June 30, 2003 the Company owed a total of approximately $1,376,000 to Geneva Associates Merchant Banking Partners, an entity in which Russell Myers, one of the Company’s directors, has an interest. The $1,376,000 owed to Geneva Associates Merchant Banking Partners is due under a reimbursement agreement under which Geneva Associates Merchant Banking Partners, through a financial institution, issued a letter of credit to a bank to be used as security for a line of credit the Company had with the bank. Of this $1,376,000, $1,050,000 represents principal on the two lines of credit, and $326,000 represents accrued and unpaid interest and fees. The outstanding balance under the reimbursement agreement bears interest at a rate of 16% per year.  The Company is currently in default under the reimbursement agreement. In July 2003, Geneva Merchant Bank committed to convert $1,247,310 of the debt into shares of common stock. The Company is negotiating an agreement to convert Series B Preferred and Series C Preferred shares into Series A Preferred shares.

As of June 30, 2003 the Company had a note payable and accounts payable to its outside counsel in connection with unpaid legal fees in the aggregate amount of approximately $630,000. The note was issued in September 2002 and bears interest at a rate of 10% per year. The note is secured by all of the assets of USAB Video Corp. II, Inc., one of the Company’s subsidiaries. Subsequent to year end the Company’s counsel agreed to convert the outstanding debt to shares of common stock, subject to the outside counsel’s ability to sell such shares without disrupting the market place as determined by an independent advisor to the Company. (See Subsequent Events.)

The Company’s contractual obligations as of June 30, 2003 and the periods in which payments are due are set forth below:

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This table does not include the $4 million secured debt funding obtained by the Company in September 2003. (See Subsequent Events)

Obligations

In March 2002, USAB Video Corp. II, Inc., a wholly-owned subsidiary of the Company, entered into an asset purchase agreement with Verizon Media Ventures, Inc. and GTE Southwest Incorporated. After purchasing a portion of the assets pursuant to the agreement, in June 2002, USAB Video Corp. did not complete the purchase of the remaining assets. In connection therewith, the Company accrued a $250,000 liability on its financial statements for the fiscal year ending June 30, 2003.

Cash Flows from Operating Activities

The Company’s most liquid asset is cash and cash equivalents which consist of cash and short-term investments. Cash and cash equivalents at June 30, 2003 and June 30, 2002, were $79,000 and $88,000, respectively.  Income generated from the Company’s provision of cable services is its primary source of cash. Other sources of cash include amounts raised from the sale of its assets, sales of its common or preferred stock and other debt or equity financings. The Company’s operations utilized net cash of approximately $1,547,000 for the year ended June 30, 2003. The use of cash was related primarily to funding the net losses from its operations and changes in deferred assets offset by adjustments for non-cash expenses of depreciation, stock based compensation, impairment of long lived assets and losses on disposal of assets.

The Company’s operations utilized net cash of approximately $1,589,000 for the nine-month period ended June 30, 2002.  The use of cash was related primarily to funding the net losses from its operations, reduction of accounts receivable and other liabilities and reduction of deferred revenues, offset by adjustments for non-cash expenses such as impairment of long-lived assets, loss on disposal of fixed assets, stock-based compensation, depreciation, amortization and allowance for bad debt and an increase in accounts payable and accrued liabilities.

Cash Flows from Investing Activities

During the year ended June 30, 2003, investing activities resulted in a reduction of cash of approximately $249,000. Cash was utilized in the purchase of the investment in Cable California and in funding of operating expenses evidenced by a note receivable from Las Americas   Broadband. These investment outflows were offset by the sale of the note receivable to a third party.

During the nine-month period ended June 30, 2002, investing activities resulted in a reduction of cash of approximately $477,000. This was the result of the Company’s purchases of property and equipment and

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payment of a note receivable during the period, offset by net proceeds of asset sales.

Cash Flows from Financing Activities

During the year ended June 30, 2003, financing activities generated cash of approximately $1,787,000. This resulted from net proceeds from the issuance of common stock, the issuance of options and warrants, and advance on bridge notes. This was offset by payments made on long term debt and notes payable.

During the nine-month period ended June 30, 2002, financing activities generated cash of approximately $1,973,000.  This resulted from proceeds from the sale of stock and from net borrowings on long-term capital, offset by reductions in a line of credit and reductions in principal on long-term debt and capital lease obligations. On September 8, 2003, the Company obtained secured debt financing in an amount of $4 million.  The financing is evidenced by a promissory note and secured by substantially all of its assets.  See “Subsequent Events” included in this Section for a more detailed description of this financing.

Impact of Recently Issued Accounting Principles

In July 2002, the FASB issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“SFAS 146”). SFAS 146 requires a company to recognize costs associated with exit or disposal activities when they are incurred rather than when the company makes a commitment to an exit or disposal plan. Examples of costs covered by SFAS 146 include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. SFAS 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company does not expect the adoption of SFAS 146 to have a material effect on the financial position or results of operations.

In August 2002, the FASB issued Statement of Financial Accounting Standards No. 147, “Acquisitions of Certain Financial Institutions” (SFAS 147). SFAS 147 requires financial institutions to follow the guidance in SFAS 141 and SFAS 142 for business combinations and goodwill and intangible assets, as opposed to the previously applied accounting literature. This statement also amends SFAS 144 to include in its scope long-term customer relationship intangible assets of financial institutions. The provisions of SFAS 147 do not apply to the Company.

In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based compensation-Transition and Disclosure-an amendment of FASB Statement 123” (SFAS 123). For entities that change their accounting for stock-based compensation from the intrinsic method to the fair value method under SFAS 123, the fair value method is to be applied prospectively to those awards granted after the beginning of the period of adoption. This is known as the “prospective method.” The amendment permits two additional transition methods for adoption of the fair value method. In addition to the prospective method, the entity can choose to either restate all periods presented, which is known as the “retroactive restatement method” or recognize compensation cost from the beginning of the fiscal year of adoption as if the fair value method had been used to account for awards, which is known as the “modified prospective method.” For fiscal years beginning December 15, 2003, the prospective method will no longer be allowed.  the Company currently account for its stock-based compensation using the intrinsic value method as prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and plan on

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continuing using this method to account for stock options. Therefore, the Company does not intend to adopt the transition requirements as specified in SFAS 148.   The Company adopted the new disclosure requirements in these financial statements.

SFAS No. 149, Amendment of Statement 133 on “Derivative Instruments and Hedging Activities,” was issued in April 2003 and amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The Company does not believe that the adoption of SFAS No. 149 will have a material impact on the Company’s financial position or results of operations.

SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” was issued in May 2003 and requires issuers to classify as liabilities (or assets in some circumstances) three classes of freestanding financial instruments that embody obligations for the issuer. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The Company believes the adoption of SFAS No. 150 will have no immediate impact on the Company’s financial position or results of operations.

The FASB issued Interpretation (“FIN”) No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, in November 2002 and FIN No. 46, Consolidation of variable Interest Entities, in January 2003. FIN No. 45 is applicable on a prospective basis for initial recognition and measurement provisions to guarantees issued after December 2002; however, disclosure requirements are effective immediately. FIN No. 45 requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligations undertaken in issuing the guarantee and expands the required disclosures to be made by the guarantor about its obligation under certain guarantees that it has issued. The adoption of FIN No. 45 did not have a material impact on the Company’s financial position or results of operations. FIN No. 46 requires that a company that controls another entity through interest other than voting interest should consolidate such controlled entity in all cases for interim periods beginning after June 15, 2003.  The Company does not believe the adoption of FIN No. 46 will have a material impact on the Company’s financial position or results of operations.

Subsequent Events

The Board of Directors elected Arturo Alemany, President of MIR International, to the Board of Directors and as Chairman of the Board and Chief Executive Officer, effective September 16, 2003. MIR has been contracted by the Company to provide management consulting support to the Company to assist with legal and operational matters in Mexico. Consulting fees accrue at the rate of $25,000 a month with $12,500 due and payable monthly, and the remaining balance due the earlier of six months or upon significant financing. In connection with this agreement the Company granted Mr. Alemany 300,000 options to purchase common stock at $1.10 per share, 75,000 of these shares vest immediately and the remainder vest in three equal traunches over the next three quarters.

On July 1, 2003 the Board of Directors granted options under the Directors Compensation Plan to the following Directors

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On September 8, 2003, the Company obtained secured debt financing in the amount of $4,000,000 from a private investor. The financing is evidenced by a convertible promissory note and secured by a first priority lien in all or substantially all of its assets. As additional consideration for the $4,000,000 financing, the Company issued to the lender a warrant to purchase 525,000 shares of common stock at $.01 per share and a warrant to purchase up to 1,250,000 shares of common stock at $1.10 per share.  The promissory note bears interest at a rate equal to the prime rate plus 2% and matures on March 4, 2004, subject to the Company’s ability to extend the maturity for up to 60 days, provided, however, that if the Company extend the maturity date, the interest rate increases 1% each month the loan is outstanding after March 4, 2004, up to a maximum of 12%. The outstanding principal and accrued interest under the note is convertible, in whole or in part, at the election of the lender, into that number of shares of common stock equal to the outstanding principal and accrued interest divided by $1.00. The documents executed in connection with the financing generally contain customary covenants including, among others, provisions:

•                   relating to the maintenance of the Company’s assets and the assets of its subsidiaries securing the indebtedness;

•                   restricting the Company’s ability to sell or transfer its assets or create other liens on its assets securing the debt (other than in the ordinary course of business);

•                   restricting the Company from authorizing or paying any dividends;

•                   restricting the Company from paying any bonus or making extraordinary payments to any of the Company’s employees, officers or directors or otherwise increasing compensation or benefits paid to any of the Company’s employees, officers or directors (other than increases resulting from a cost of living adjustment or changes of benefits applicable to all of the Company’s employees);

•                   restricting the Company and the Company’s subsidiaries from granting any lien, security interest, pledge or other encumbrance on the Company’s interests in Cable California, or the assets of Cable California; and

•                   restricting the Company’s use of any proceeds received from any additional funding, regardless of whether any additional funding is structured as debt or equity, received from the exercise of options or warrants or arising from the sale of its assets outside the ordinary course of business.

In connection with this financing, the Company’s existing bridge note holders subordinated their security interests in certain of its assets and the assets of its subsidiaries. As consideration for the subordination, the Company issued to the holders of bridge notes warrants to purchase up to 390,000 shares of common stock at a price of $1.10 per share.

The Company used $1,046,000 of the proceeds of the financing to repay

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a portion of the outstanding principal and accrued interest owed to the Company’s existing bridge note holders, and paid $155,000 to a note holder in exchange for its agreement to subordinate its security interest in assets of its subsidiary.  The Company intends to use the remaining proceeds of the financing as working capital to fund its cable build in Mexico. See “Factors Affecting Future Performance.”

The Company had a note payable and accounts payable to its outside counsel in connection with unpaid legal fees in the aggregate amount of approximately $630,000.  In October 2003, the outside counsel agreed to convert the note payable and account payable due to the outside counsel into approximately 686,000 shares of common stock, subject to the outside counsel’s ability to sell such shares without disrupting the market place as determined by an independent advisor to the Company.

On September 24, 2003, Verizon Media Ventures, Inc. and GTE Southwest Incorporated filed a complaint against the Company and USAB Video Corp. in the Supreme Court of the Sate of New York, County of New York. In the complaint, Verizon and GTE allege that USAB Video Corp. breached the purchase agreement and that the Company, by guaranteeing USAB Video Corp.’s performance under the agreement, was also liable for USAB Video Corp.’s breach. The complaint further alleges that Verizon and GTE suffered losses and damages in excess of $1.023 million dollars. Neither the Company nor USAB Video Corp. has yet to file an answer to the complaint, but the Company intends to vigorously defend against the lawsuit.

Factors Affecting Future Performance

The Company’s financial condition raises substantial doubt about its ability to continue as a going concern.  The Company may not have sufficient resources to operate its business in the future.

As of June 30, 2003, the Company had a net working capital (current assets minus current liabilities) deficit of $9,467,000.  As the Company’s capital needs are greater than the current working capital, the Company must raise additional capital in order to implement its business plan.  In September 2003, the Company obtained a secured debt financing in the amount of $4 million from a private investor, the proceeds of which the Company used to repay certain indebtedness and as working capital to implement its business plan in Mexico through Cable California.  The $4 million investment in the Company will not be sufficient to complete its business plan in Mexico. The Company will need additional financing in the future to meet its operating needs. No assurance can be given that the Company will be able to organize debt or equity financing, or that, if available, it will be available on terms and conditions satisfactory to the Company and might dilute current shareholders.

The Company’s financial statements are prepared assuming that the Company will continue as a going concern.  There is substantial doubt that the Company may continue to operate as a going concern.

The Company’s consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  However, The Company’s independent auditors, in their most recent report, stated that “the Company has suffered recurring losses from operations and has a working capital deficiency” which raises substantial doubt about its ability to continue as a going concern.  The Company’s consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty. If the Company are not sufficiently successful in generating cash from its operating activities, the Company may need to sell additional common stock or other securities, or the Company may need to sell assets outside the ordinary course of business, or obtain additional financing. If the Company needs to dispose of assets outside of the ordinary course of business to generate cash, the Company may not be able to realize the carrying values of those assets upon liquidation. If the Company is unable to generate the necessary cash, the Company could be unable to continue its operations.

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As a result of the Company’s incurring indebtedness, the Company is obligated to comply with financial and other covenants that could restrict its future operating activities.

On September 8, 2003, the Company received a loan from a private investor of $4 million (the “Financing”). The Financing is evidenced by a promissory note and secured by substantially all of its assets including the assets of its subsidiaries.  The promissory note bears interest at a rate equal to the prime rate plus 2% and matures on March 4, 2004, subject to the Company’s ability to extend the maturity for up to 60 days, provided, however, that if the Company extend the maturity date, the interest rate increases 1% each month the loan is outstanding after March 4, 2004, up to a maximum of 12%.  The Financing documents generally contain customary covenants including, among others, provisions:

•               relating to the maintenance of the Company’s assets and the assets of its subsidiaries securing the indebtedness;

•               restricting the Company’s ability to sell or transfer its assets or create other liens on its assets securing the debt (other than in the ordinary course of business);

•               restricting the Company from authorizing or paying any dividends;

•               restricting the Company from paying any bonus or making extraordinary payments to any of the Company’s employees, officers or directors or otherwise increasing compensation or benefits paid to any of its employees, officers or directors (other than increases resulting from a cost of living adjustment or changes of benefits applicable to all of its employees);

•               restricting the Company and the Company’s subsidiaries from granting any lien, security interest, pledge or other encumbrance on its interests in Cable California, or the assets of Cable California; and

•               restricting the Company’s use of any proceeds received from any additional funding, regardless of whether any additional funding is structured as debt or equity, received from the exercise of options or warrants or arising from the sale of its assets outside the ordinary course of business.

In addition to the Financing, from October 2002 to June 2003, the Company obtained bridge loans totaling approximately $2,000,000 from other investors. See “Management Discussion and Analysis on Plan of Operation”.

The covenants contained in the Financing documents, as well as those covenants contained in the bridge loans and other loan documents to which the Company are a party, may restrict its operations and ability to pursue potentially advantageous business opportunities. The Company’s failure to comply with these covenants could also result in an event of default that, if not cured or waived, could result in the acceleration of all or a substantial portion of its indebtedness.

The Company’s ability to repay indebtedness when due, will depend upon its ability to generate sufficient revenues or to renegotiate or replace any such indebtedness on terms and conditions favorable to the Company.

If the Company are unable to repay or replace the indebtedness when due, its creditors will be permitted to exercise their rights under security agreements securing the indebtedness and take possession of all or substantially all of its assets and dispose of such assts to satisfy the indebtedness.

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The Company has continued to incur substantial losses and if the Company fails to reduce its costs or increase its revenues, the Company will be unable to achieve and maintain profitability and may be unable to continue its operations.

The Company has incurred significant losses since its inception and expects to incur losses in the future. As of June 30, 2003, the Company had an accumulated deficit of $35.84 million.  The Company’s revenues have decreased to $1.055 million in the twelve months ended June 30, 2003 from $2.082 million for the nine months ended June 30, 2003.  The Company cannot be certain that the Company will be successful in reducing its costs, that the Company will be able to increase its revenues or that the Company will achieve sufficient revenues to become profitable. The Company expects to continue to incur expenses in order to, among other things, fund Cable California’s construction of the cable build in Mexico, and maintains its equipment and infrastructure in California and Mexico and to attract and retain customers. As a result, the Company will need to generate significantly higher revenues to achieve and maintain profitability. If the Company fails to significantly reduce its costs or to generate higher revenues, the Company may continue to incur operating losses and net losses and may be unable to continue its operations.

Implementation of the Company’s business plan depends upon the ability of Cable California to complete the cable build in Mexico and to provide multi-channel cable television to residents and businesses in the greater Tijuana, Mexico area.

On March 7, 2003, the Company acquired all of the class B stock of Cable California.  The class B stock represents 49.0% of the voting and economic interests in Cable California.  Cable California possesses a 30-year advanced telecommunications broadband concession (the “Concession”) from the Mexican government to construct and operate a 750 MHz fiber optic network providing multi-channel cable television (the “Cable Services”) to residents and businesses in the greater Tijuana, Mexico metropolitan area.   In connection with the Company’s acquisition of an ownership interest in Cable California, the Company has changed its business plan to focus on providing Cable Services solely within its core market – California and Mexico.  The success of its business plan is dependent upon Cable California’s ability to complete the cable build in Mexico, comply with the terms and conditions of the Concession, and successfully market and provide Cable Services to residents and businesses in Mexico. If Cable California is unable to successfully complete these items, the Company may not be able to implement its business plan which will have a material adverse effect on its business, business prospects, financial condition and results of operations.

The Company has a minority ownership interest in Cable California and, therefore, the Company does not control Cable California.

The Company’s business plan is dependent upon the success of Cable California.  The Company owns a 49.0% economic and voting interest in Cable California.  The remaining economic and voting interest in Cable California is owned by Mr. Carlos Bustamante. Accordingly, currently the Company is unable to exercise control over Cable California. While the Company is currently involved in negotiations with Mr. Bustamante to purchase from Mr. Bustamante his interests in Cable California, there can be no assurance that the Company will reach an agreement with Mr. Bustamante or, if the Company reach an agreement, that the Company will have sufficient funds or be able to acquire funds sufficient to purchase such interests. As a minority owner of Cable California, the Company may be unable to appoint management, determine or implement policies, implement business strategies, acquire or liquidate assets, select or terminate business relationships or liquidate, dissolve, sell or re-capitalize Cable California on such terms and conditions favorable to the Company, if at all.

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Cable California’s Mexican concession is regulated by the Mexican government.

While the Company is unaware of any similar concessions granted to other parties for the Tijuana, Mexico area, the Mexican government could grant similar concessions to the Company’s competitors, or take other actions to affect the value of the Concession. In addition, the Mexican government also has (1) the authority to temporarily seize all assets related to the Concession in the event of a natural disaster, war, significant public disturbance and/or threats to internal peace and for other reasons of economic or public order in Mexico, and (2) the statutory right to expropriate any concession and claim all related assets for public interest reasons. Although Mexican law provides for compensation in connection with losses and damages related to temporary seizure or expropriation, there can be no assurance that the compensation will be adequate or timely. There can be no assurance that:

•                   Cable California will be able to obtain sufficient financing to complete the Mexican cable build;

•                   If Cable California obtains financing, it will be in a timely manner or on favorable terms; or

•                   Cable California will be able to comply with the terms and conditions of the Mexican Concession.

If Cable California cannot obtain funds sufficient to complete the Mexican cable build, it will have a material adverse effect on its business, business prospects, financial condition and results of operations. Additionally, if Cable California fails to comply with the terms of the Concession, the Mexican government may terminate the Concession without compensation to Cable California. A termination of the Concession would prevent the Company from completing its business plan and engaging in its proposed business.

Regulators in Mexico may challenge Cable California’s compliance with laws and regulations causing considerable expense and possibly leading to a temporary or permanent shut down of Cable California’s operations

Government enforcement and interpretation of the telecommunications laws and licenses is unpredictable and is often based on informal views of government officials and ministries in Mexico. This means that Cable California’s compliance with Mexican laws may be challenged. It could be very expensive to defend this type of challenge and the Company might not be successful in such challenges. If Cable California was found to have violated the laws that govern Cable California’s business, Cable California could be fined or denied the right to offer Cable Services.

Cable California’s operations may be affected by political changes in Mexico.

The Company’s business plan focuses on its ability to provide, through Cable California, Cable Services in Mexico. The political and economic climate in Mexico is more uncertain than in the United States and unfavorable changes could have a direct impact on the Company’s operations in Mexico. The Mexican government exercises significant influence over many aspects of the Mexican economy. For example, a newly elected set of government officials could decide to quickly reverse the deregulation of the Mexican cable and telecommunications industry economy and take steps such as seizing the Company’s property, revoking its licenses, or modifying its contracts. Furthermore, a period of poor economic performance could reduce the demand for Cable Services in Mexico.  The Mexican government might decide to restrict the conversion of pesos into dollars or restrict the transfer of dollars out of Mexico into U.S. entities. These types of changes, whether they occur or are only threatened, could have a material adverse effect on the Company’s business, financial condition, results of

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operations and would also make it more difficult for the Company to obtain financing in the United States.

If Cable California begins providing cable services in Mexico, fees for such services will be collected in Mexican Pesos.

If the value of the Mexican peso declines relative to the dollar, the Company will have decreased revenues as stated in dollars. Under the Company’s current business plan, it expects a significant amount of its revenues to be derived from residents and businesses in Mexico. Revenue collected in Mexico will be in Mexican pesos. If the value of the peso relative to the dollar declines, that is, if pesos are convertible into fewer dollars, then its revenues, which are stated in dollars, will decline. The Company does not expect to engage in any type of hedging transactions to minimize this risk and do not intend to do so.

The market for the Company’s common stock is limited and price changes may be volatile.

The shares of the Company’s common stock are not traded on an exchange or through the Nasdaq National Market or the Nasdaq SmallCap Market. Instead, the Company’s shares are traded over-the-counter and the market for these shares is not as developed as it would be if the Company’s shares were listed on an exchange or included in the NASDAQ National or SmallCap markets.

The market price of the Company’s common stock is expected to be volatile for the foreseeable future. Factors such as quarterly fluctuations in results of operations, the announcement of new contracts or changes in either earnings estimates or investment recommendations by stock market analysts, among others, may cause the market price of the Company’s common stock to fluctuate, perhaps substantially. In addition, in recent years the stock market in general, and the shares of companies in the technology sector in particular, have experienced extreme price fluctuations which may continue for the foreseeable future. These broad market and industry fluctuations may adversely affect the market price of the Company’s common stock. Further, a share of the Company’s common stock currently falls within the SEC’s definition of a “penny stock.” The SEC has special disclosure requirements which broker-dealers must follow for most transactions in penny stocks. In addition, many broker-dealers will not deal in penny stocks. These factors may further limit the market for the Company’s common stock.

The Company’s substantial indebtedness could adversely affect any investment in securities outstanding from time to time

The Company has incurred significant indebtedness and may incur significant additional amounts of indebtedness in acquiring other assets or companies. The Company’s operations do not provide enough cash to service its indebtedness. The Company’s indebtedness could have important consequences. For example, it could:

•                   make it more difficult for the Company to pay its obligations;

•                   increase The Company’s vulnerability to general adverse economic and industry conditions;

•                   require the Company to dedicate a substantial portion of The Company’s cash flow from operations to payments on its indebtedness, thereby reducing the availability of its cash flow to fund working capital, capital expenditures, acquisitions and other activities;

•                   limit the Company’s flexibility in planning for, or reacting to,

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changes in its business and the industries in which the Company operate; and

•                   place the Company at a competitive disadvantage compared to its competitors that have less debt.

The Company’s ability to make payments on and to refinance its indebtedness or preferred stock and to fund capital expenditures and other activities depends on its ability to generate cash either from operations or from investing or other financing activities. To date, the Company has generated the bulk of its cash flow from the sale of securities or by borrowing money. There is no assurance that the Company will be able to continue generating cash in this fashion, particularly if its operating subsidiaries do not begin generating cash. The Company’s ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond its control.  The Company may need to refinance all or a portion of its indebtedness on or before maturity.  The Company cannot assure you that the Company will be able to refinance any of its indebtedness, including its credit facilities, on commercially reasonable terms, if at all.

A change of control may be difficult

The Company’s certificate of incorporation contains, among other things, provisions authorizing the issuance of “blank check” preferred stock.  The Company is also subject to provisions of Delaware law which affect merger and other change of control transactions. These provisions could delay, deter or prevent a merger, consolidation, tender offer, or other business combination or change of control involving the Company that its stockholders may consider to be in their best interests.

The sale of a substantial number of shares of The Company’s common stock in the public market could adversely affect the market price of its common stock

As of October 10, 2003, a total of approximately 14 million shares of the Company’s common stock were issuable on exercise of options or warrants previously issued by the Company or on conversion of outstanding preferred stock or reserved for issuance under the Company’s Stock Grant Plan approved by its board of directors in June 2002. See the information under the heading “Long-Term Incentive, Director Option, and Stock Grant Plans” in Item 10 of this Form 10-KSB. Sales or the expectation of sales of a substantial number of shares of the Company’s common stock, including shares issuable upon exercise or conversion of outstanding options, warrants or preferred stock, likely would have an adverse effect on the prevailing trading price of the Company’s common stock.

Satellite and direct broadcast satellite technology could fail or be impaired

Direct broadcast satellite technology is highly complex and is still evolving. As with any similar product or system, this technology might not function as expected or may not last for its expected life. If any of the DIRECTV satellites are damaged or stop working partially or completely for any of a number of reasons, DIRECTV customers would lose programming. In turn, the Company likely would lose customers, which could materially and adversely affect the Company’s operations, financial performance and the trading price of its common stock.

The Company does not control DIRECTV

The Company is an intermediary for DIRECTV and does not control DIRECTV or have any input on its programming. DIRECTV generally purchases its programming from third parties. DIRECTV’s success, and therefore the

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Company’s, depends in large part on DIRECTV’s making good judgments about programming sources and ability to obtain programming on favorable terms.  The Company has no control or influence over DIRECTV.

Increases in programming costs could adversely affect the Company’s direct broadcast satellite business

Programmers could increase the rates that DIRECTV pays for programming. As a result, the Company’s costs would increase.  The Company would be faced with either increasing its rates and potentially losing customers or suffering a reduction in its margins. Further, the rules implementing the law requiring programming suppliers that are affiliated with cable companies to provide programming to all multi-channel distributors, including DIRECTV, on nondiscriminatory terms are scheduled to expire in 2002. If these rules are not extended, these programmers could increase DIRECTV’s costs, and therefore the Company’s costs. If the Company’s costs increase and the Company therefore increase its rates, the Company may lose customers. If the Company does not increase its rates, its costs, revenues and financial performance could be adversely affected.

Replacement of the current DIRECTV satellites could adversely affect the Company’s business

The Company may or may not be able to continue in the direct broadcast satellite business after the current DIRECTV satellites are replaced. If the Company can continue, the Company cannot predict what it will cost the Company to do so. The Company’s revenues and financial performance would be adversely affected if the Company is not able to continue in the direct broadcast business or if the Company cannot locate suitable replacement programming for its customers.

The Company could lose money because of signal theft.

Each year, the unauthorized receipt of direct broadcast or cable signals, or “signal theft,” costs the industry significant revenues. To date, signal theft has been contained. If, however, signal theft becomes widespread, the Company’s revenues likely would suffer. DIRECTV uses encryption technology in an effort to prevent people from receiving programming without paying for it. However, the technology is not foolproof, and there is no assurance that the Company will be protected from signal theft.

Direct broadcast satellite equipment shortages could adversely affect the Company’s direct broadcast business

There have been periodic shortages of direct broadcast satellite equipment. These shortages may occur in the future. During periods of shortage, the Company may be unable to accept new subscribers and, as a result, potential revenue could be lost. If the Company is unable to obtain direct broadcast satellite equipment in the future, or if the Company cannot obtain this equipment on favorable terms, the Company’s business and results of operations could be adversely affected.

The Company faces significant competition; the competitive landscape changes constantly

The Company competes with other multichannel programming distributors, including other direct broadcast satellite operators, direct-to-home distributors, cable operators, wireless cable operators, Internet providers and local and long-distance telephone companies. These competitors

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may be better capitalized than the Company are and may be able to offer more competitive packages or pricing than the Company or DIRECTV can offer. Many of the Company’s competitors have substantially greater financial, technical and marketing resources, larger customer bases, longer operating histories, greater name recognition and more established relationships in the industry. In addition, a number of these competitors may combine or form strategic partnerships. As a result, the Company’s competitors may be able to offer, or bring to market earlier, products and services that are superior to the Company’s own in terms of features, quality, pricing or other factors. The Company’s failure to compete successfully with any of these companies would have a material adverse effect on its business and the trading price of its common stock.

Increased competition also may result in reduced commissions and loss of market share. Further, as a strategic response to changes in the competitive environment, the Company may from time to time make certain pricing, service or marketing decisions or acquisitions that could have a material adverse effect on the Company’s business and the trading price of its common stock.

The Company has recently changed its strategy to focus on a limited number of markets, which increases the its regulatory risk and will cause any downturn in these markets to have a greater adverse effect on its operations than is currently the case.

The Company has changed its strategy to focus on providing video, data and Internet service in the State of California and in the Northern Baja region of Mexico. As part of this strategy, the Company has sold assets located in the Pacific Northwest, Midwest and Southeastern United States. As a result, the Company’s success will be tied more closely to the economic prospects of a relatively small number of regions. If the economies of these regions experience difficulties, this will have a greater adverse effect on its operations and financial condition than would be the case if the Company continued to serve more markets. In addition, the Company has not previously operated in Mexico, and operating there involves regulatory hurdles not present in the United States and with which the Company are not familiar. If the Company is unable to overcome these hurdles, the Company will not be able to achieve its anticipated revenues from its operations in Mexico, which will have a material adverse effect on its financial condition and results of operations.