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AVALON CABLE OF MICHIGAN INC/ filed this Form S-4/A on 07/22/1999
Entire Document
 Accounting for impairments
   The Company follows the provisions of Statement of Financial Accounting
Standards No. 121--"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS 121").
   SFAS 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. In performing the review for
recoverability, the Company estimates the net future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of
the expected net future cash flows (undiscounted and without interest charges)
is less than the carrying amount of the asset, an impairment loss is
recognized. Measurement of an impairment loss for long-lived assets and
identifiable intangibles expected to be held and used is based on the fair
value of the asset.
   No impairment losses have been recognized by the Company pursuant to SFAS
 Fair value of Financial Instruments
   The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
     a. The Company estimates that the fair value of all financial
  instruments at December 31, 1998 does not differ materially from the
  aggregate carrying values of its financial instruments recorded in the
  accompanying balance sheet. The fair value of the notes payable-affiliate
  are considered to be equal to carrying values since the Company believes
  that its credit risk has not changed from the time this debt instrument was
  executed and therefore, would obtain a similar rate in the current market.
     b. The fair value of the cash and temporary cash investments
  approximates fair value because of the short maturity of these instruments.
 Income taxes
   The Company and Mercom file separate consolidated federal income tax
returns. The Company accounts for income taxes using Statement of Financial
Accounting Standards No. 109--"Accounting for Income Taxes". The statement
requires the use of an asset and liability approach for financial reporting
purposes. The asset and liability approach requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of
temporary differences between financial reporting basis and tax basis of assets
and liabilities. If it is more likely than not that some portion or all of a
deferred tax asset will not be realized, a valuation allowance is recognized.
3. Merger and Acquisitions
   The Merger was accounted for using the purchase method of accounting.
Accordingly, the consideration was allocated to the net assets acquired based
on their fair market values at the date of the Merger. The purchase price was
allocated as follows: current assets and liabilities at fair values of $470,
approximately $94,000 to property, plant and equipment, $315,000 to cable
franchises and the excess of consideration paid over the fair market value of
the net assets acquired, or goodwill, of $81,705, offset by deferred taxes, net
of $60,000.     
   The Merger agreement between Michigan Holdings and the Company permitted the
Company to agree to acquire the 1,822,810 shares (approximately 38% of the
outstanding stock) of Mercom that it did not own (the "Mercom Acquisition"). On
September 10, 1998 the Company and Mercom entered into a definitive agreement
(the "Mercom Merger Agreement") providing for the acquisition by the Company of
all of such