<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 13, 1997
REGISTRATION NO. 000-23105
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM 10-SB
GENERAL FORM FOR
REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(G) OF
THE SECURITIES EXCHANGE ACT OF 1934
-----------------
AMERICAN INDEPENDENT NETWORK, INC.
(Exact name of small business issuer in its charter)
------------------
DELAWARE 752504551
(State or Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6125 AIRPORT FREEWAY, SUITE 200
HALTOM CITY, TX 76117
(817) 222-1234
(Address and telephone number of principal executive offices)
-----------------
DR. DONALD T. SHELTON
CHIEF EXECUTIVE OFFICER
AMERICAN INDEPENDENT NETWORK, INC.
6125 AIRPORT FREEWAY, SUITE 200
HALTOM CITY, TX 76117
TELEPHONE (817) 222-1234
FACSIMILE (817) 222-9809
(Name, address and telephone number of agent for service of process)
------------------
Copies to:
ROBERT E. GYEMANT, Esq.
PAMELA HICKS, Esq.
KNAPP, PETERSEN & CLARKE
A Professional Corporation
500 N. Brand Blvd., 20th Floor
Glendale, California 91203
Telephone (818) 547-5000
Facsimile (818) 547-5329
Securities to be issued under Section 12(g) of the Act: COMMON STOCK
<PAGE> 2
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
Management's discussion and analysis is designed to provide a better
understanding of the Company's financial condition, results of operations,
liquidity, and capital resources. The discussion should be read in conjunction
with, and is qualified in its entirety by, the financial statements of the
Company and the Notes thereto included elsewhere herein for the Company's fiscal
years ended December 31, 1995 and 1996, the nine months ended September 30, 1997
and 1996, and the six months ended June 30, 1996 and 1997.
The Company was founded on December 11, 1992 and provides programming, media
production and syndication services to television and cable stations, as well as
satellite uplink services to certain cable channels. The Company has a
wholly-owned subsidiary, Eureka Media & Trading, Inc., formed in the State of
Nevada on September 6, 1995, which has not commenced operations.
The Company originally broadcast its programs via analog transmission and, at
one time, had over 150 affiliates, however, in early 1997, the Company converted
to digital transmission and currently provides family-oriented television to a
network of thirty-three (33) television stations and cable systems nationwide.
The stations serviced by the Company are primarily "independent" stations,
meaning that they have no affiliation with the major network organizations (NBC;
ABC; CBS; FOX; WB Network; and Paramount). The Company maintains a library of
over 2,000 programs covering a wide array of topics and interests, and includes
cartoons, sports, sitcoms, movies, news and weather, comedy, science and health
shows, documentaries, and public interest programs. The Company also offers
original programs, celebrity golf tournaments, live professional boxing, fishing
expeditions and interactive programming.
RESULTS OF OPERATIONS
Revenues
Revenues are derived from the Company's programming services, sales of
advertising and programming time, leasing of digital satellite channels, direct
response marketing of products advertised on the network, and in-house
production of various programs and commercials. Revenues for 1996 were
$1,092,399 compared to $1,277,999 for 1995, a decrease of $185,600 or 15%. The
decrease in revenues resulted from a reduction in the number of Affiliate
Stations.
For the six months ended June 30, 1997, revenues were $723,194 and for the
comparable six month period in 1996, revenues were $632,445.
For the nine months ended September 30, 1997 revenues from Network Operations
were $952,631, however, net revenues were $852,631 as the result of $100,000
allowance for doubtful accounts. Net revenues for the nine months ended
September 30, 1996 were 862,764.
<PAGE> 3
Cost of Operations
Costs of operations were $987,715 for the 1996 fiscal year and $861,395 for the
1995 fiscal year. The increase in 1996 was due to the Company's conversion to
digital transmission and the attendant lease of digital compression equipment,
as well as an increase in satellite rental and programming expenses. The cost
for satellite rental increased industry-wide and the Company experienced an
increase of approximately 12% during fiscal year 1996 for satellite rental as
compared to fiscal year 1995. Programming expenses, which include costs for
program development, editing, videotapes and other miscellaneous expenses,
increased by approximately 264% for fiscal year ended 1996 as compared to the
1995 fiscal year. Net rental expenses, which include office space, office
equipment, and company vehicles increased by 89% in 1996 primarily as a result
of the increased cost for office lease which the Company incurred upon execution
of a new lease for its offices.
For the six months ended June 30, 1997 and June 30, 1996, cost of operations
were $458,912 and $509,742, respectively.
For the nine months ended September 30, 1997, cost of operations were $566,115
and for the nine months ended September 30, 1996, cost of operations were
$703,380.
General and Administrative
General and administrative expenses for the fiscal year ended December 31, 1996
were $482,858, an increase of 17% over administrative expenses of $411,795 for
fiscal year 1995. The stated general and administrative expenses represent 44%
and 32% of revenues for fiscal years 1996 and 1995, respectively. The Company's
general and administrative expenses consist of operating costs for the Company's
headquarters, the salaries of corporate officers and office staff, travel,
accounting, legal and other professional expenses, advertising and promotional
costs, rent and occupancy costs. Although the Company was associated with fewer
affiliates during 1996, the administrative expenses increased as a result of
increased travel, marketing and legal expenses.
Interest expense for the fiscal year 1996 was $204,757 and for fiscal year 1995
was $76,834, an increase of $127,923 or 166%. This increase was due to interest
paid on the outstanding balance on various bridge loans and a nine percent (9%)
interest factor payment on Series B Preferred Stock.
For the six months ended June 30, 1997 general and administrative expenses were
$231,730 and for the six months ended June 30, 1996, general and administrative
expenses were $247,933.
For the nine months ended September 30, 1997 and September 30, 1996, general and
administrative expenses were $305,469 and $366,472, respectively.
<PAGE> 4
Operating Loss
The operating loss of the Company for the fiscal year 1996 was $786,169 as
compared to $59,130 for the fiscal year 1995. The operating loss for 1996
equaled approximately 72% of revenues and the loss for 1995 equaled 5% of
revenues. The operating loss for 1996 was largely due to an increase in
programming and rental expenses, interest on bridge loans, and interest factor
payments to Series B Preferred stock holders.
For the six month period ended June 30, 1997, the Company's operating losses
were $351,461 and for the comparable period in 1996, the Company realized a
profit of $264,896.
The Company's operating loss for the nine months ended September 30, 1997 was
$464,508, as compared to $281,916 for the nine months ended September 30, 1996.
Net Loss
Net loss per share of common stock was $0.08 and $0.01 for the 1996 and 1995
fiscal years, respectively, and is based upon the weighted average of
outstanding common stock and convertible preferred stock. The outstanding
warrants that accompany the preferred stock are not dilutive, therefore, they
are not included in the weighted average. The Company believes that the losses
for both years are consistent with the development of the Company. Further, the
increased loss for fiscal year 1996 is reflective of the increased debt and
other expenses of the Company resulting from acquisition of a digital
compression system and satellite equipment.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations through a combination of the issuance of
equity securities to private investors, issuance of private debt, loans from
affiliates, and cash flow from operations. Through fiscal year 1995, the
Company's revenues had been sufficient to fund operations, however, with
acquisition of the digital compression and satellite equipment and increases in
general and administrative expenses, revenues from operations were insufficient
to satisfy operating expenses. Accordingly, the Company was dependent upon the
private placement of its securities. The Company has incurred cumulative losses
from inception through December 31, 1996 of $837,264, including net losses of
$786,169 and $59,130 during the fiscal years 1996 and 1995, respectively.
Current liabilities for fiscal year 1996 were $2,141,559, which exceeded current
assets of $213,312 by $1,928,247. For fiscal year ended 1995, current
liabilities exceeded current assets by $1,055,294. The increase in current
assets in 1996 as compared to 1995 were primarily a result of certain prepaid
expenses. The current liabilities for 1996 increased significantly as compared
to 1995 due to an increase in notes payable of $624,944 and an increase in
accrued interest of $99,665, as well as $20,000 in customer deposits, $15,972
interest due to preferred shareholders, and $139,380 for equipment lease
payments.
The Company has been able to generate funds from private placements to finance
operations,
<PAGE> 5
however, in the event the Company requires additional capital investments, there
can be no assurance that a sufficient amount of the Company's securities can be
sold to fund the continuing operating needs of the Company.
During fiscal year 1995, the Company issued an aggregate of 47,841 Units
consisting of one share of Convertible Redeemable Series A Preferred Stock and
one Warrant at $6.50 per Unit ("Series A Units") and 95 15% Guaranteed
Promissory Notes with a face value of $1,000 ("Notes") for an aggregate cash
consideration of approximately $405,967 pursuant to private placements.
During fiscal year 1996, the Company completed private placements for 42,918
Series A Units, 109,854 Units consisting of one share of 9% Convertible
Redeemable Series B Preferred Stock and one Warrant ("Series B Units"), and an
aggregate of 1,028 Notes. In addition, Dr. Shelton and Mr. Moseley exercised
options for 2,000,000 shares of the Company's common stock at $0.10 per share.
The Company received total cash proceeds of approximately $2,220,764.
For the six months ended June 30, 1997, the Company received the sum of
$1,274,009 from private placements of 176,770 shares of Series B Units and 15%
Promissory Notes with an aggregate face value of $125,000.
Management believes that anticipated cash flows from operations will be
sufficient to meet the Company's expected cash needs and to finance future
operations, however, in the event that future revenues are not sufficient, the
Company will conduct private and/or public offerings of its equity stock to
raise the necessary capital.
IMPACT OF INFLATION
Management does not believe that general inflation has had or will have a
material effect on operations.
<PAGE> 6
AMERICAN INDEPENDENT NETWORK, INC.
Balance Sheet (Unaudited)
September 30, 1997
<TABLE>
<S> <C>
Assets
Current Assets
Cash and cash equivalents $ 26,364
Accounts receivable 513,680
Due from affiliates 3,925
Trade credits receivable 30,000
Common stock 18,588
Prepaid expenses 112,736
----------
Total Current Assets 705,293
Plant, Property and Equipment
Leasehold improvements 22,851
Equipment and furnishings 122,379
Digital compression equipment 671,753
----------
816,983
Accumulated depreciation (122,700)
Total Plant, Property and Equipment 694,283
Other Assets
Deferred tax benefits 327,477
Trade credits receivable 422,128
Other assets 1,038,380
Inventory 1,426,933
Prepaid expense 322,500
----------
Total Other Assets 3,537,418
Total Assets $4,936,994
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 201,350
Notes payable 2,069,745
Accrued interest - notes 165,788
Advances from affiliates 1,717
Interest due preferred shareholders 16,399
Equipment lease payments 139,380
----------
Total Current Liabilities 2,594,379
Long term debt
Equipment lease payments 174,223
Total Liabilities 2,768,602
Stockholders' Equity
Preferred Stock - 1,000,000 shares $1 Par
Authorized - 282,700 shares issued 282,700
Common Stock - 20,000,000 shares $.01 Par
Authorized -15,716,680 shares issued 157,167
Additional Paid in Capital 3,030,297
Retained Earnings (1,301,772)
----------
Total Stockholders' Equity 2,168,392
Total Liabilities and Stockholders Equity $4,936,994
</TABLE>
The Accompanying "Notes to Financial Statements" are
An Integral Part of this Financial Statement
<PAGE> 7
AMERICAN INDEPENDENT NETWORK, INC.
Statement of Operations (Unaudited)
For the Nine Months Ended September 30, 1997
<TABLE>
<S> <C>
Revenues
Income from Network Operations $ 952,631
---------
Less allowance for doubtful accounts (100,000)
Net Revenues 852,631
Cost and Expenses:
Satellite rental 475,500
Programming expenses 11,379
Production expenses 79,236
Depreciation 70,000
Rental Expense (Net) 49,948
Administrative expenses 305,469
---------
Total Cost and Expenses 991,532
Net Income (Loss) from operations (138,901)
Other Expenses:
Interest expense (net) 221,198
Amortization of debt issue cost 224,409
Total Other Expense 445,607
Loss Before Income Taxes (584,508)
Income tax benefit 120,000
Net Loss $(464,508)
---------
</TABLE>
The Accompanying "Notes to Financial Statements" are
An Integral Part of this Financial Statement
<PAGE> 8
AMERICAN INDEPENDENT NETWORK, INC.
Statement of Stockholders' Equity (Unaudited)
For The Nine Months Ended September 30, 1997
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-in Retained
Shares Amount Shares Amount Capital Earnings
--------- ------ ------ ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994 10,000,000 $100,000 $2,800,678 $ 8,037
Reduce investment in
other assets (1,324,201)
Preferred A Shares
Issued 47,841 $47,841 263,124
Issue cost of Preferred A (75,260)
Net loss for the
year ended
December 31, 1995 (59,130)
--------------------------------------------------------------------
Balance, December 31,1995 47,841 47,841 10,000,000 100,000 1,664,341 (51,093)
Preferred A Shares
Issued 42,918 42,918 229,546
Issue cost of Preferred A (82,793)
Conversion of Preferred A
Shares to Common (90,759) (90,759) 181,518 1,815 88,944
Preferred B Shares
Issued 107,546 107,546 591,504
Issue cost of Preferred B (255,808)
Common Issued to Bridge Loan
Investors 201,230 2,012
Issuance of Common Stock
for contributed capital 1,462,520 14,626
Issuance of Common Stock
for exercise of stock options 2,000,000 20,000 180,000
Sale of common stock 200,000 2,000 98,000
Net loss for the year ended
December 31, 1996 (786,169)
-----------------------------------------------------------------------
Balance December 31, 1996 107,546 107,546 14,045,268 140,453 2,513,734 (837,264)
Preferred B Shares
Issued 175,154 175,154 963,855
Issue cost of Preferred B (530,578)
Sale of common stock 200,000 2,000 98,000
Issuance of common stock
to Bridge Loan Investors 274,990 2,750
Issuance of common stock
to investment bankers 1,196,422 11,964
Net loss for the nine months
September 30, 1997 (464,508)
----------------------------------------------------------------------
Balance September 30, 1997 282,700 $282,700 $15,716,680 $157,167 $3,045,011 $(1,301,772)
</TABLE>
The Accompanying "Notes to Financial Statements" are
An Integral Part of this Financial Statement
<PAGE> 9
AMERICAN INDEPENDENT NETWORK, INC.
Statement of Cash Flow (Unaudited)
For The Nine Months Ended September 30, 1997
<TABLE>
<S> <C>
Cash Flows Provided (used)
by Operating Activities:
Net loss $(464,508)
Adjustment to reconcile net income to net
cash from operating activities:
Depreciation 70,000
Accounts receivable (502,950)
Trade credits receivable 10,000
Deferred tax benefit (120,000)
Investment in common stocks ( 18,588)
Accounts payable ( 82,986)
Notes payable 535,878
Accrued interest 23,253
Advances from affiliates ( 7,250)
Customer deposits (20,000)
---------
Total Cash used by Operating Activities (577,151)
---------
Cash Flows from Investing Activities
Investment in equipment (100,488)
Investment in prepaid assets 15,000
Investment in other assets ( 1,380)
Decrease in long term equipment lease payments ( 77,394)
(164,762)
Cash Flows Provided by Financing Activities:
Preferred stock increase 175,154
Common stock increase 16,714
Additional paid-in capital increase 516,563
---------
Total Cash provided by Financing Activity 708,431
---------
Net Cash Increase (Decrease) (33,482)
Cash, beginning of Period 59,846
Cash September 30, 1997 $ 26,364
---------
</TABLE>
The Accompanying "Notes to Financial Statements" are
An Integral Part of this Financial Statement
<PAGE> 10
AMERICAN INDEPENDENT NETWORK, INC.
Notes To Financial Statements (Unaudited)
September 30, 1997
Note 1 Summary of Significant Accounting Policies Cash and Cash Equivalents
- Consist of cash balances. Cash Cash equivalents consisting of highly
liquid investments with an original maturity date of ninety days or
less. The company does not have any cash equivalents.
Trade credits receivables - the company owns trade credits in the
amount of $152,128 at September 30, 1997, $462,128 at December 31, 1996
and $493,128 at December 31, 1995. As defined by the International
Reciprocal Trade Association, a trade dollar is a unit of account that
denotes the right to receive (receivable) or the obligation to pay (a
payable), one US dollar worth of goods and services within a barter
system or network. While all of the trade credits may be used by the
company at any time, the company has shown a pattern of using $25,000
to $30,000 worth of the credits in each of the past two years.
Therefore the company's trade credits are being classified as current
$30,000 and other assets of $422,128, at September 30, 1997.
Accounts receivable - Allowance for doubtful accounts. The company has
accounts receivable at September 30, 1997 of $613,680 owed by regular
customers. An allowance for doubtful accounts of $100,000 has been
established at September 30, 1997.
Inventory - consist of television advertising time of affiliate
television stations available for sale. The company did not sell any of
the advertising time last year but is planning to aggressively market
this advertising time in the near future.
Plant, Property and equipment is recorded at cost.
Depreciation - the cost of plant, property and equipment is depreciated
over the estimated useful life of the assets ranging from equipment at
5 years to building and leasehold improvements at 20 years. Book
depreciation is on a straight line basis while income tax depreciation
is accelerated. For income tax information see Note 3.
Other Assets - In the year ended December 31, 1995 the company wrote
down other assets. These assets were sold or traded in the year ended
December 31, 1996. The assets written down in 1995 were fine arts of
$2,000,000 which were exchanged for prepaid telephone cards amounting
to $750,000. The investment in common stocks were written down
$1,748,000 and were sold in 1996 for $37,762, resulting in a loss of
$14,238. These transactions are summarized in the table below;
<TABLE>
<CAPTION>
Original 1995 Write Book Value Disposition
Asset Book Value Down 12/31/95 Amount
----- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Fine Arts $2,000,000 $2,000,000 -0- $750,000
Common Stock
(Restricted) $1,800,000 $1,748,000 $52,000 $ 37,762
</TABLE>
<PAGE> 11
AMERICAN INDEPENDENT NETWORK, INC.
Notes To Financial Statements (Unaudited)
September 30, 1997
The remaining asset the prepaid telephone cards have been recorded at a
discounted value of $450,000. The company has four years to use or
liquidate these prepaid telephone cards. One fourth of the recorded
value $112,500 has been classified classified as a current asset with
the remainder of $337,500 classified as other assets. The entire
$450,000 was realized as income in 1996. As the cards are utilized the
$450,000 will be charged to telephone expense or used to obtain other
assets and capitalized on a prorated basis. In 1997 $15,000 of the
phone cards have been traded for computers ($15,000).
The company also owns advertising time from commercial television
stations recorded at $1,426,933. The company also holds television
trade due bills with advertising time with a face value of $1,100,000.
The trade due bills were recorded at a discounted value of $836,000.
These assets have been enhanced by the digitizing of the network's
signal to its affiliates where this advertising time is available. The
company is currently negotiating with another party to market this time
in these markets on a commission basis. The inventory time valued at
$1,426,933 has unlimited utilization time and the time to utilize the
trade due bills has been extended from its original expiration date of
September 22, 1998 to December 31, 1999. The company believes all of
this time can be sold in the allotted time.
Advertising revenues are generally generated by entering into an
advertising contract accompanied by full payment. The company is
required to perform on the contract generally within a few days. The
company records the income when payment is received. The company has
some customers which it bills after performing the advertising
function.
Note 2 Notes Payable
Notes Payable at September 30, 1997 consist of the following notes;
<TABLE>
<CAPTION>
Due Accrued
Creditor Date Interest Principal Interest
-------- ------- -------- ---------- --------
<S> <C> <C> <C> <C>
Lyn Broadcasting Corp (1) 8/31/98 10% $ 4,500 $17,272
Shelley Media Marktg (1) 9/30/98 10% 51,100 12,948
Cleveland
Broadcasting Co. (1) 9/30/98 10% 29,968 9,387
ATN Network, Inc. (1) 9/30/98 10% 289,927 23,189
Advances from
Affiliates (1) Demand 10% 1,717 1,545
Pacific Acq. Group 12/31/97 11% 250,500 63,101
Bridge Loans 10/31/97 15% 1,443,750 39,891
--------- -------
Total 2,071,462 165,788
Less amount classified as advances
from affiliates 7,717
---------
Total $2,069,745 $165,788
--------- -------
</TABLE>
(1) Affiliated Companies
<PAGE> 12
AMERICAN INDEPENDENT NETWORK, INC.
Notes To Financial Statements (Unaudited)
September 30, 1997
Note 3 Income Taxes - Net Operating Loss
The company has a tax asset of $$327,477 at September 30, 1997 due to
te estimated tax asset to be generated by NOL carryover from net
operating losses (NOL) of $4840508 for the nine months ended September
30, 1997, $982,169 in 1996 and $80,368 in 1995. The reconciliation of
book and tax losses for the years ended are;
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- ------
<S> <C> <C> <C>
Book loss $464,508 $982,169 $72,025
Add: Additional Depreciation
per tax return 0 0 8,342
------- ------- -------
Net Operating loss per tax return 464,508 982,169 80,368
------- ------- -------
Tax benefit computation as follows
Tax refund generated by the
carry-back of the NOL to 1994 0 0 1,418
------- ------- -------
Deferred tax asset computation:
Deferred tax liability generated by
timing difference of depreciation 0 0 ( 1,251)
------- -------- -------
Estimated tax asset to be generated
by NOL carryover 120,000 196,000 12,728
------- ------- -------
Net Deferred Tax Assets $120,000 $196,000 $11,477
------- ------- -------
</TABLE>
If not used the 1996 NOL will expire in 2011 and the 1995 will expire in
2010.
<PAGE> 13
AMERICAN INDEPENDENT NETWORK, INC.
Notes To Financial Statements (Unaudited)
September 30, 1997
Note 4 Supplemental Cash Flow Information
<TABLE>
<CAPTION>
1997 1996 1995
------ -------- ------
<S> <C> <C> <C>
Cash used for
Interest $197,945 $ 91,724 $ 76,834
Taxes $ 1,418
Non Cash Investment and Financing
Transactions
Write off of Fine Arts $2,000,000
Write off of Investments of
Common Stocks $1,748,000
Trade of unrecorded assets
(fine art) for prepaid
telephone costs. Recorded
as income and prepaid assets
to be amortized to expense
when used or liquidated $450,000
</TABLE>
Note 5 Disbursements from Bridge Loan Proceeds
and Preferred Stock Sales
Financing activities during 1995, 1996 and 1997 consisted of bridge
loans ($1,397,750) and preferred stock sales ($2,602,988). The
disbursements from the financing escrows were $1,928,577 to the
operating account, $1,417,222 for issue costs and $649,000 for debt
repayment.
Note 6 Disclosure about fair value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for where it is practicable
to estimate that value.
Cash and Accounts Receivable:
The carrying amount approximates fair value because of the short
maturity of those instruments.
Long Term Investments:
The fair value of these investments are estimated based on quoted
market prices for those and similar investments.
The estimated Fair Values of the Company's Financial Instruments are as
follows:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Cash and Accounts
Receivable $590,044 $590,044 $134,187 $134,187
Long Term Investment $836,000 $836,000 $836,000 $836,000
</TABLE>
<PAGE> 14
AMERICAN INDEPENDENT NETWORK, INC.
Notes To Financial Statements (Unaudited)
September 30, 1997
Note 7 Lease Obligations and Long Term Debt Disclosure
The Company is obligated on three leases. The leases are as follows:
Building. The Company utilizes the spaces as both corporate
offices and studios. The lease is $5,400 per
month through May 31, 1998.
Equipment: The Company has entered a master equipment lease
(digital compression equipment) for a period of
thirty-six months ending December 31, 1999. The lease
has a fair market value purchase option at the end of
the lease. Total remaining lease obligation is $374,997
and the lease has been treated as a capital lease.
Satellite: The Company leases satellite transponder space
under an operating lease. The lease is for three
years ending July 31, 1999 with a total lease
obligation of $1,875,000.
Details of lease obligations are as follows:
<TABLE>
<CAPTION>
Capitalized Operating
Equipment Transponder
Lease Lease
----------- -----------
<S> <C> <C>
1997 $ 36,000 $ 187,500
1998 139,380 750,000
1999 123,851 437,500
</TABLE>
Note 8 Digital Compression System
The company installed a digital compression system during 1996 and
1997, which, as compared to one channel analog transmission, allows for
the transmitting of multiple signals (in the company's case 5 signals)
to the satellite transponder. Utilizing state-of- the-art technology,
the en-coders digitize and compress the video and audio signals which
then enter the multiplexer which combines and encrypts the information
and outputs the multiplexed information to the modulator which controls
the variability of the signal strengths being up-linked to the
satellite transponder that has been divided into 5 sections (channels).
The multiplexer and modulator also will provide continuous and dynamic
allocation of bandwidth to each channel, optimizing the video quality
across every channel sharing the system.
The company believes that the revenue from leasing these additional
channels will be greater than the monthly cost of the satellite and
compression equipment.
The company's conversion to digital will require its affiliates to have
a decoder box to convert the digital signal back to analog for local
broadcasting. The company will supply the affiliates with the decoders
which will give the company a monitoring mechanism in determining what
programming the affiliates are airing, since the company has control
over the codes necessary to make the decoder equipment operate.
<PAGE> 15
AMERICAN INDEPENDENT NETWORK, INC.
Balance Sheet (Unaudited)
September 30, 1996
Assets
<TABLE>
<S> <C>
Current Assets
Cash and cash equivalents $ 246,975
Accounts receivable 19,076
Trade credits receivable 27,407
Prepaid expenses 51,417
----------
Total Current Assets 344,875
----------
Plant, Property and Equipment
Leasehold improvements 22,851
Equipment and furnishings 148,144
----------
170,995
Accumulated depreciation ( 41,014)
----------
Total Plant, Property and Equipment 129,981
----------
Other Assets
Deferred tax benefits 133,477
Trade credits receivable 465,721
Other assets 836,000
Inventory 1,426,933
Prepaid expense 400,000
----------
Total Other Assets 3,262,131
----------
Total Assets $3,736,987
----------
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 279,019
Notes payable 1,110,272
Accrued interest - notes 129,254
Advances from affiliates 1,987
----------
Total Current Liabilities 1,520,532
----------
Total Liabilities 1,520,532
----------
Stockholders' Equity
Preferred Stock - 1,000,000 shares $1 Par
Authorized - 60,423 shares issued 60,423
Common Stock - 20,000,000 shares $.01 Par
Authorized -13,845,268 shares issued 138,453
Additional Paid in Capital 2,350,588
Retained Earnings ( 333,009)
----------
Total Stockholders' Equity 2,216,455
----------
Total Liabilities and Stockholders Equity $3,736,987
----------
</TABLE>
The Accompanying "Notes to Financial Statements" are
An Integral Part of this Financial Statement
<PAGE> 16
AMERICAN INDEPENDENT NETWORK, INC.
Statement of Operations (Unaudited)
For the Nine Months Ended September 30, 1996
<TABLE>
<S> <C>
Revenues
Income from Network Operations $ 862,764
-----------
Cost and Expenses:
Satellite rental 507,085
Uplinking 90,000
Programming expenses 21,955
Production expenses 84,340
Depreciation 7,000
Rental Expense (Net) 41,207
Administrative expenses 366,472
-----------
Total Cost and Expenses 1,118,059
-----------
Net Income (Loss) from operations (255,295)
-----------
Other Expenses:
Interest expense (net) 134,383
Amortization of debt issue cost 14,238
-----------
Total Other Expense 148,621
-----------
Loss Before Income Taxes (403,916)
Income tax benefit 122,000
-----------
Net Loss $ (281,916)
-----------
</TABLE>
The Accompanying "Notes to Financial Statements" are
An Integral Part of this Financial Statement
<PAGE> 17
AMERICAN INDEPENDENT NETWORK, INC.
Statement of Stockholders' Equity (Unaudited)
For The Nine Months Ended September 30, 1996
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-in Retained
Shares Amount Shares Amount Capital Earnings
--------- ------ ------ ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 10,000,000 $100,000 $2,800,678 $ 8,037
Reduce investment in
other assets (1,324,201)
Preferred A Shares
Issued 47,841 $47,841 263,124
Issue cost of Preferred A (75,260)
Net loss for the
year ended
December 31, 1995 (59,130)
---------------------------------------------------------------
Balance, December 31,1995 47,841 47,841 10,000,000 100,000 1,664,341 (51,093)
Preferred A Shares
Issued 42,918 42,918 229,546
Issue cost of Preferred A (82,793)
Conversion of Preferred A
Shares to Common (90,759) (90,759) 181,518 1,815 88,944
Preferred B Shares
Issued 60,423 60,423 332.327
Issue cost of Preferred B (61,777)
Common Issued to Bridge Loan
Investors 201,230 2,012
Issuance of Common Stock
for contributed capital 1,462,520 14,626
Issuance of Common Stock
for exercise of stock options 2,000,000 20,000 180,000
Net loss for the nine months
September 30, 1996 (281,916)
---------------------------------------------------------------
Balance September 30, 1996 60,423 $ 60,423 13,845,268 138,453 2,350,588 (333,009)
</TABLE>
The Accompanying "Notes to Financial Statements" are
An Integral Part of this Financial Statement
<PAGE> 18
AMERICAN INDEPENDENT NETWORK, INC.
Statement of Cash Flow (Unaudited)
For The Nine Months Ended September 30, 1996
<TABLE>
<S> <C>
Cash Flows Provided (used)
by Operating Activities:
Net loss $(281,916)
Adjustment to reconcile net income to net
cash from operating activities:
Depreciation 7,000
Accounts receivable 4,000
Prepaid expenses (451,417)
Deferred tax benefit (122,000)
Income tax due (1,418)
Income tax refund 1,418
Accounts payable (712)
Notes payable 201,349
Accrued interest 85,957
Advances from affiliates (8,270)
---------
Total Cash used by Operating Activities (551,770)
---------
Cash Flows from Investing Activities
Investment in equipment (60,000)
Purchase of common stock (5,254)
Sale of common stock 43,016
---------
(22,238)
---------
Cash Flows Provided by Financing Activities:
Preferred stock increase 520,644
Exercise of stock options 200,000
Issuance of common stock for contributed capital 16,638
---------
Total Cash provided by Financing Activity 737,282
---------
Net Cash Increase (Decrease) 163,274
Cash, beginning of Period 83,701
---------
Cash September 30, 1996 $ 246,975
---------
</TABLE>
The Accompanying "Notes to Financial Statements" are
An Integral Part of this Financial Statement
<PAGE> 19
AMERICAN INDEPENDENT NETWORK, INC.
Notes To Financial Statements (Unaudited)
September 30, 1996
Note 1 Summary of Significant Accounting Policies Cash and Cash Equivalents
- Consist of cash balances. Cash Cash equivalents consisting of highly
liquid investments with an original maturity date of ninety days or
less. The company does not have any cash equivalents.
Trade credits receivables - the company owns trade credits in the
amount of $493,129 at September 30, 1996 and December 31, 1995. As
defined by the International Reciprocal Trade Association, a trade
dollar is a unit of account that denotes the right to receive
(receivable) or the obligation to pay (a payable), one US dollar worth
of goods and services within a barter system or network. While all of
the trade credits may be used by the company at any time, the company
has shown a pattern of using $25,000 to $30,000 worth of the credits in
each of the past two years. Therefore the company's trade credits are
being classified as current $27,407 and other assets of $465,721, at
September 30, 1996.
Accounts receivable - Allowance for doubtful accounts. The company has
accounts receivable at September 30, 1996 of $19,076 owed by regular
customers. Management deems this amount to be fully collectible. No
allowances for doubtful accounts is necessary.
Inventory - consist of television advertising time of affiliate
television stations available for sale. The company did not sell any of
the advertising time last year but is planning to aggressively market
this advertising time in the near future.
Plant, Property and equipment is recorded at cost.
Depreciation - the cost of plant, property and equipment is depreciated
over the estimated useful life of the assets ranging from equipment at
5 years to building and leasehold improvements at 20 years. Book
depreciation is on a straight line basis while income tax depreciation
is accelerated. For income tax information see Note 3.
Other Assets - In the year ended December 31, 1995 the company wrote
down other assets. These assets were sold or traded in the nine months
ended September 30, 1996. The assets written down in 1995 were fine
arts of $2,000,000 which were exchanged for prepaid telephone cards
amounting to $750,000. The investment in common stocks were written
down $1,748,000 and were sold in 1996 for $37,762, resulting in a loss
of $14,238. These transactions are summarized in the table below;
<TABLE>
<CAPTION>
Original 1995 Write Book Value Disposition
Asset Book Value Down 12/31/95 Amount
------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Fine Arts $2,000,000 $2,000,000 -0- $750,000
Common Stock
(Restricted) $1,800,000 $1,748,000 $52,000 $ 37,762
</TABLE>
<PAGE> 20
AMERICAN INDEPENDENT NETWORK, INC.
Notes To Financial Statements (Unaudited)
September 30, 1996
The remaining asset the prepaid telephone cards have been recorded at a
discounted value of $400,000. The company has four years to use or
liquidate these prepaid telephone cards. The recorded has been
classified classified as other assets. The entire $400,000 was realized
as income in 1996. As the cards are utilized the $400,000 will be
charged to telephone expense or used to obtain other assets and
capitalized on a prorated basis.
The company also owns advertising time from commercial television
stations recorded at $1,426,933. The company also holds television
trade due bills with advertising time with a face value of $1,100,000.
The trade due bills were recorded at a discounted value of $836,000.
These assets have been enhanced by the digitizing of the network's
signal to its affiliates where this advertising time is available. The
company is currently negotiating with another party to market this time
in these markets on a commission basis. The inventory time valued at
$1,426,933 has unlimited utilization time and the time to utilize the
trade due bills has been extended from its original expiration date of
September 22, 1998 to December 31, 1999. The company believes all of
this time can be sold in the allotted time.
Advertising revenues are generally generated by entering into an
advertising contract accompanied by full payment. The company is
required to perform on the contract generally within a few days. The
company records the income when payment is received. The company has
some customers which it bills after performing the advertising
function.
Note 2 Notes Payable
Notes Payable at September 30, 1996 consist of the following notes;
<TABLE>
<CAPTION>
Due Accrued
Creditor Date Interest Principal Interest
-------- ---- -------- --------- --------
<S> <C> <C> <C> <C>
Lyn Broadcasting Corp (1) 8/31/97 10% $ 4,500 $16,935
Shelley Media Marktg (1) 9/30/97 10% 51,100 9,120
Cleveland
Broadcasting Co. (1) 9/30/97 10% 38,284 6,697
ATN Network, Inc. (1) 9/30/97 10% 29,576 21,105
Advances from
Affiliates (1) Demand 10% 1,987 1,419
Pacific Acq. Group 12/31/96 11% 385,500 31,875
Bridge Loans 12/31/96 15% 1,122,750 42,103
Less Cost of Bridge
Loan Acuisition (521,428)
---------
Total 1,112,259
Less amount classified as advances
from affiliates 1,987
----------
Total $1,110,272 $129,254
---------- --------
</TABLE>
(1) Affiliated Companies
<PAGE> 21
AMERICAN INDEPENDENT NETWORK, INC.
Notes To Financial Statements (Unaudited)
September 30, 1996
Note 3 Income Taxes - Net Operating Loss
The company has a tax asset of $133,477 at September 30, 1996 due to te
estimated tax asset to be generated by NOL carryover from net operating
losses (NOL) of $403,916 for the nine months ended September 30, 1996
and $80,368 in 1995. The reconciliation Of book and tax losses for the
periods ended are;
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Book loss $403,916 $ 72,025
Add: Additional Depreciation
per tax return 0 8,342
-------- --------
Net Operating loss per tax return 403,916 80,368
-------- --------
Tax benefit computation as follows
Tax refund generated by the
carry-back of the NOL to 1994 0 1,418
-------- --------
Deferred tax asset computation:
Deferred tax liability generated by
timing difference of depreciation 0 (1,251)
-------- --------
Estimated tax asset to be generated
by NOL carryover 122,000 12,728
-------- --------
Net Deferred Tax Assets $122,000 $ 11,477
-------- --------
</TABLE>
If not used the 1996 NOL will expire in 2011 and the 1995 will expire in
2010.
Note 4 Supplemental Cash Flow Information
<TABLE>
<CAPTION>
1996 1995
-------- ------
<S> <C> <C>
Cash used for
Interest $50,694 $76,834
Taxes $ 1,418
Non Cash Investment and Financing
Transactions
Write off of Fine Arts $2,000,000
Write off of Investments of
Common Stocks $1,748,000
Trade of unrecorded assets
(fine art) for prepaid
telephone costs. Recorded
as income and prepaid assets
to be amortized to expense
when used or liquidated $400,000
</TABLE>
<PAGE> 22
AMERICAN INDEPENDENT NETWORK, INC.
Balance Sheet (Unaudited)
June 30, 1997
Assets
<TABLE>
<S> <C>
Current Assets
Cash and cash equivalents $ 27,389
Accounts receivable 452,503
Trade credits receivable 30,000
Common stock 18,588
Prepaid expenses 112,736
-----------
Total Current Assets 641,216
-----------
Plant, Property and Equipment
Leasehold improvements 22,851
Equipment and furnishings 122,379
Digital compression equipment 622,253
-----------
767,483
Accumulated depreciation (102,700)
-----------
Total Plant, Property and Equipment 664,783
-----------
Other Assets
Deferred tax benefits 306,477
Trade credits receivable 422,128
Other assets 1,038,380
Inventory 1,426,933
Prepaid expense 322,500
-----------
Total Other Assets 3,516,418
-----------
Total Assets $ 4,822,417
-----------
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 293,682
Notes payable 1,636,993
Accrued interest - notes 165,788
Advances from affiliates 942
Interest due preferred shareholders 61,399
Equipment lease payments 139,380
-----------
Total Current Liabilities 2,298,184
-----------
Long term debt
Equipment lease payments 208,917
-----------
Total Liabilities 2,507,101
-----------
Stockholders' Equity
Preferred Stock - 1,000,000 shares $1 Par
Authorized - 286,624 shares issued 286,624
Common Stock - 20,000,000 shares $.01 Par
Authorized -14,810,717 shares issued 148,108
Additional Paid in Capital 3,069,309
Retained Earnings (1,188,725)
-----------
Total Stockholders' Equity 2,315,316
-----------
Total Liabilities and Stockholders Equity $ 4,822,417
===========
</TABLE>
The Accompanying "Notes to Financial Statements" are
An Integral Part of this Financial Statement
F-2
<PAGE> 23
AMERICAN INDEPENDENT NETWORK, INC.
Statement of Operations (Unaudited)
For the Six Months Ended June 30, 1997
<TABLE>
<S> <C>
Revenues
Income from Network Operations $ 723,194
---------
Cost and Expenses:
Satellite rental 393,000
Programming expenses 10,437
Production expenses 55,475
Depreciation 50,000
Rental Expense (Net) 29,815
Administrative expenses 231,730
---------
Total Cost and Expenses 770,457
---------
Net Income (Loss) from operations (47,263)
---------
Other Expenses:
Interest expense (net) 190,789
Amortization of debt issue cost 212,409
---------
Total Other Expense 403,198
---------
Loss Before Income Taxes (450,461)
Income tax benefit 99,000
---------
Net Loss $(351,461)
=========
</TABLE>
The Accompanying "Notes to Financial Statements" are
An Integral Part of this Financial Statement
F-3
<PAGE> 24
AMERICAN INDEPENDENT NETWORK, INC.
Statement of Stockholders' Equity (Unaudited)
For The Six Months Ended June 30, 1997
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-in Retained
Shares Amount Shares Amount Capital Earnings
------- -------- ---------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 10,000,000 $100,000 $2,800,678 $ 8,037
Reduce investment in
other assets (1,324,201)
Preferred A Shares
Issued 47,841 $ 47,841 263,124
Issue cost of Preferred A (75,260)
Net loss for the year ended
December 31, 1995 (59,130)
------- -------- ---------- -------- ---------- -----------
Balance, December 31,1995 47,841 47,841 10,000,000 100,000 1,664,341 (51,093)
Preferred A Shares Issued 42,918 42,918 229,546
Issue cost of Preferred A (82,793)
Conversion of Preferred A
Shares to Common (90,759) (90,759) 181,518 1,815 88,944
Preferred B Shares Issued 107,546 107,546 591,504
Issue cost of Preferred B (255,808)
Common Issued to Bridge Loan
Investors 201,230 2,012
Issuance of Common Stock
for contributed capital 1,462,520 14,626
Issuance of Common Stock
for exercise of stock options 2,000,000 20,000 180,000
Sale of common stock 200,000 2,000 98,000
Net loss for the year ended
December 31, 1996 (786,169)
------- -------- ---------- -------- ---------- -----------
Balance December 31, 1996 107,546 107,546 14,045,268 140,453 2,513,734 (837,264)
Preferred B Shares Issued 179,078 178,078 606,367
Issue cost of Preferred B (280,437)
Sale of common stock 200,000 2,000 98,000
Issuance of common stock
to Bridge Loan Investors 565,449 5,655
Net loss for the six months
June 30, 1997 (351,461)
------- -------- ---------- -------- ---------- -----------
Balance June 30, 1997 286,624 $286,624 14,810,717 $148,108 $2,937,664 $(1,188,725)
</TABLE>
The Accompanying "Notes to Financial Statements" are
An Integral Part of this Financial Statement
F-4
<PAGE> 25
AMERICAN INDEPENDENT NETWORK, INC.
Statement of Cash Flow (Unaudited)
For The Six Months Ended June 30, 1997
<TABLE>
<S> <C>
Cash Flows Provided (used)
by Operating Activities:
Net loss $(351,461)
Adjustment to reconcile net income to net
cash from operating activities:
Depreciation 50,000
Accounts receivable (441,773)
Trade credits receivable 10,000
Deferred tax benefit (99,000)
Investment in common stocks (18,588)
Accounts payable 9,346
Notes payable 103,126
Accrued interest 68,253
Advances from affiliates (4,100)
Customer deposits (20,000)
---------
Total Cash used by Operating Activities (694,197)
---------
Cash Flows from Investing Activities
Investment in equipment (51,488)
Investment in prepaid assets 45,000
Investment in other assets (1,380)
Decrease in long term equipment lease payments (42,700)
---------
(80,568)
---------
Cash Flows Provided by Financing Activities:
Preferred stock increase 179,078
Common stock increase 7,655
Additional paid-in capital increase 555,575
---------
Total Cash provided by Financing Activity 742,308
---------
Net Cash Increase (Decrease) (32,457)
Cash, beginning of Period 59,846
Cash June 30, 1997 $ 27,389
---------
</TABLE>
The Accompanying "Notes to Financial Statements" are
An Integral Part of this Financial Statement
F-5
<PAGE> 26
AMERICAN INDEPENDENT NETWORK, INC.
Notes To Financial Statements (Unaudited)
June 30, 1997
Note 1 Summary of Significant Accounting Policies
Cash and Cash Equivalents - Consist of cash balances. Cash Cash
equivalents consisting of highly liquid investments with an original
maturity date of ninety days or less. The company does not have any
cash equivalents.
Trade credits receivables - the company owns trade credits in the
amount of $152,128 at June 30, 1997, $462,128 at December 31, 1996 and
$493,128 at December 31, 1995. As defined by the International
Reciprocal Trade Association, a trade dollar is a unit of account that
denotes the right to receive (receivable) or the obligation to pay (a
payable), one US dollar worth of goods and services within a barter
system or network. While all of the trade credits may be used by the
company at any time, the company has shown a pattern of using $25,000
to $30,000 worth of the credits in each of the past two years.
Therefore the company's trade credits are being classified as current
$30,000 and other assets of $422,128, at June 30, 1997.
Accounts receivable - Allowance for doubtful accounts. The company has
accounts receivable at June 30, 1997 of $452,503 owed by regular
customers. Management deems this amount to be fully collectible. No
allowances for doubtful accounts is necessary.
Inventory - consist of television advertising time of affiliate
television stations available for sale. The company did not sell any of
the advertising time last year but is planning to aggressively market
this advertising time in the near future.
Plant, Property and equipment is recorded at cost.
Depreciation - the cost of plant, property and equipment is depreciated
over the estimated useful life of the assets ranging from equipment at
5 years to building and leasehold improvements at 20 years. Book
depreciation is on a straight line basis while income tax depreciation
is accelerated. For income tax information see Note 3.
F-6
<PAGE> 27
AMERICAN INDEPENDENT NETWORK, INC.
Notes To Financial Statements (Unaudited)
June 30, 1997
Other Assets - In the year ended December 31, 1995 the company wrote
down other assets. These assets were sold or traded in the year ended
December 31, 1996. The assets written down in 1995 were fine arts of
$2,000,000 which were exchanged for prepaid telephone cards amounting
to $750,000. The investment in common stocks were written down
$1,748,000 and were sold in 1996 for $37,762, resulting in a loss of
$14,238. These transactions are summarized in the table below;
<TABLE>
<CAPTION>
Original 1995 Write Book Value Disposition
Asset Book Value Down 12/31/95 Amount
----- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Fine Arts $2,000,000 $2,000,000 -0- $750,000
Common Stock
(Restricted) $1,800,000 $1,748,000 $52,000 $ 37,762
</TABLE>
The remaining asset the prepaid telephone cards have been recorded at a
discounted value of $450,000. The company has four years to use or
liquidate these prepaid telephone cards. One fourth of the recorded
value $112,500 has been classified classified as a current asset with
the remainder of $337,500 classified as other assets. The entire
$450,000 was realized as income in 1996. As the cards are utilized the
$450,000 will be charged to telephone expense or used to obtain other
assets and capitalized on a prorated basis. In 1997 $5,000 of the phone
cards have been traded for computers ($15,000).
The company also owns advertising time from commercial television
stations recorded at $1,426,933. The company also holds television
trade due bills with advertising time with a face value of $1,100,000.
The trade due bills were recorded at a discounted value of $836,000.
These assets have been enhanced by the digitizing of the network's
signal to its affiliates where this advertising time is available. The
company is currently negotiating with another party to market this time
in these markets on a commission basis. The inventory time valued at
$1,426,933 has unlimited utilization time and the time to utilize the
trade due bills has been extended from its original expiration date of
September 22, 1998 to December 31, 1999. The company believes all of
this time can be sold in the allotted time.
Advertising revenues are generally generated by entering into an
advertising contract accompanied by full payment. The company is
required to perform on the contract generally within a few days. The
company records the income when payment is received. The company has
some customers which it bills after performing the advertising
function.
F-7
<PAGE> 28
AMERICAN INDEPENDENT NETWORK, INC.
Notes To Financial Statements (Unaudited)
June 30, 1997
Note 2 Notes Payable
Notes Payable at June 30, 1997 consist of the following notes;
<TABLE>
<CAPTION>
Due Accrued
Creditor Date Interest Principal Interest
-------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Lyn Broadcasting Corp (1) 8/31/97 10% $ 4,500 $ 17,272
Shelle Media Marktg (1) 9/30/97 10% 51,100 12,948
Cleveland
Broadcasting Co. (1) 9/30/97 10% 34,668 9,387
ATN Network, Inc. (1) 9/30/97 10% 33,475 23,189
Advances from
Affiliates (1) Demand 10% 942 1,545
Pacific Acq. Group 12/31/97 11% 250,500 63,101
Bridge Loans 10/31/97 15% 1,262,750 39,891
---------- --------
Total 1,637,935 165,788
Less amount classified as advances
from affiliates 942
----------
Total $1,636,993 $165,788
---------- --------
</TABLE>
(1) Affiliated Companies
Note 3 Income Taxes - Net Operating Loss
The company has a tax asset of $$306,477 at June 30, 1997 due to the
estimated tax asset to be generated by NOL carryover from net operating
losses (NOL) of $450,461 for the six months ended June 30, 1997,
$982,169 in 1996 and $80,368 in 1995. The reconciliation of book and
tax losses for the years ended are;
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- ------
<S> <C> <C> <C>
Book loss $450,461 $982,169 $72,025
Add: Additional Depreciation
per tax return 0 0 8,342
-------- -------- -------
Net Operating loss per tax return 450,461 982,169 80,368
-------- -------- -------
Tax benefit computation as follows
Tax refund generated by the
carry-back of the NOL to 1994 0 0 1,418
-------- -------- -------
Deferred tax asset computation:
Deferred tax liability generated by
timing difference of depreciation 0 0 ( 1,251)
-------- -------- -------
Estimated tax asset to be generated
by NOL carryover 99,000 196,000 12,728
-------- -------- -------
Net Deferred Tax Assets $ 99,000 $196,000 $11,477
-------- -------- -------
</TABLE>
If not used the 1996 NOL will expire in 2011 and the 1995 will expire
in 2010.
F-8
<PAGE> 29
AMERICAN INDEPENDENT NETWORK, INC.
Notes To Financial Statements (Unaudited)
June 30, 1997
Note 4 Supplemental Cash Flow Information
<TABLE>
1997 1996 1995
------- -------- ----------
<S> <C> <C> <C>
Cash used for
Interest $68,216 $ 91,724 $ 76,834
Taxes $ 1,418
Non Cash Investment and Financing
Transactions
Write off of Fine Arts $2,000,000
Write off of Investments of
Common Stocks $1,748,000
Trade of unrecorded assets
(fine art) for prepaid
telephone costs. Recorded
as income and prepaid assets
to be amortized to expense
when used or liquidated $450,000
</TABLE>
Note 5 Disbursements from Bridge Loan Proceeds and Preferred Stock Sales
Financing activities during 1995, 1996 and 1997 consisted of bridge
loans ($1,397,750) and preferred stock sales ($2,602,988). The
disbursements from the financing escrows were $1,928,577 to the
operating account, $1,417,222 for issue costs and $649,000 for debt
repayment.
Note 6 Disclosure about fair value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for where it is practicable
to estimate that value.
Cash and Accounts Receivable:
The carrying amount approximates fair value because of the short
maturity of those instruments.
Long Term Investments:
The fair value of these investments are estimated based on quoted
market prices for those and similar investments.
The estimated Fair Values of the Company's Financial Instruments are as
follows:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash and Accounts
Receivable $479,892 $479,892 $134,187 $134,187
Long Term Investment $836,000 $836,000 $836,000 $836,000
</TABLE>
F-9
<PAGE> 30
AMERICAN INDEPENDENT NETWORK, INC.
Notes To Financial Statements (Unaudited)
June 30, 1997
Note 7 Lease Obligations and Long Term Debt Disclosure
The Company is obligated on three leases. The leases are as follows:
Building. The Company utilizes the spaces as both corporate
offices and studios. The lease is $5,400 per
month through May 31, 1998.
Equipment: The Company has entered a master equipment lease
(digital compression equipment) for a period of
thirty-six months ending December 31, 1999. The lease
has a fair market value purchase option at the end of
the lease. Total remaining lease obligation is $374,997
and the lease has been treated as a capital lease.
Satellite: The Company leases satellite transponder space under an
operating lease. The lease is for three years ending
July 31, 1999 with a total lease obligation of
$1,875,000.
Details of lease obligations are as follows:
<TABLE>
<CAPTION>
Capitalized Operating
Equipment Transponder
Lease Lease
----------- -----------
<S> <C> <C>
1997 $ 63,882 $375,000
1998 139,380 750,000
1999 123,851 437,500
</TABLE>
Note 8 Digital Compression System
The company installed a digital compression system during 1996 and
1997, which, as compared to one channel analog transmission, allows for
the transmitting of multiple signals (in the company's case 5 signals)
to the satellite transponder. Utilizing state-of- the-art technology,
the en-coders digitize and compress the video and audio signals which
then enter the multiplexer which combines and encrypts the information
and outputs the multiplexed information to the modulator which controls
the variability of the signal strengths being up-linked to the
satellite transponder that has been divided into 5 sections (channels).
The multiplexer and modulator also will provide continuous and dynamic
allocation of bandwidth to each channel, optimizing the video quality
across every channel sharing the system.
The company believes that the revenue from leasing these additional
channels will be greater than the monthly cost of the satellite and
compression equipment.
The company's conversion to digital will require its affiliates to have
a decoder box to convert the digital signal back to analog for local
broadcasting. The company will supply the affiliates with the decoders
which will give the company a monitoring mechanism in determining what
programming the affiliates are airing, since the company has control
over the codes necessary to make the decoder equipment operate.
F-10
<PAGE> 31
AMERICAN INDEPENDENT NETWORK, INC.
Balance Sheet (Unaudited)
June 30, 1996
Assets
<TABLE>
<S> <C>
Current Assets
Cash and cash equivalents $ 124,854
Accounts receivable 24,492
Trade credits receivable 30,000
Common stock 37,354
Prepaid expenses 113,917
-----------
Total Current Assets 330,621
-----------
Plant, Property and Equipment
Leasehold improvements 22,851
Equipment and furnishings 88,144
-----------
110,995
Accumulated depreciation (40,014)
-----------
Total Plant, Property and Equipment 70,981
-----------
Other Assets
Deferred tax benefits 75,477
Trade credits receivable 463,128
Other assets 836,000
Inventory 1,426,933
Prepaid expense 337,500
-----------
Total Other Assets 3,139,038
-----------
Total Assets $ 3,540,640
-----------
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 279,020
Notes payable 1,433,087
Accrued interest - notes 113,794
Advances from affiliates 5,737
-----------
Total Current Liabilities 1,831,638
-----------
Stockholders' Equity
Preferred Stock - 1,000,000 shares $1 Par
Authorized - no shares issued
Common Stock - 20,000,000 shares $.01 Par
Authorized -11,845,268 shares issued 118,453
Additional Paid in Capital 1,906,538
Retained Earnings (315,989)
-----------
Total Stockholders' Equity 1,709,002
-----------
Total Liabilities and Stockholders Equity $ 3,540,640
===========
</TABLE>
The Accompanying "Notes to Financial Statements" are
An Integral Part of this Financial Statement
F-1
<PAGE> 32
AMERICAN INDEPENDENT NETWORK, INC.
Statement of Operations (Unaudited)
For the Six Months Ended June 30, 1996
<TABLE>
<S> <C>
Revenues
Income from Network Operations $ 632,445
---------
Cost and Expenses:
Satellite rental 443,257
Programming expenses 6,830
Production expenses 59,655
Depreciation 6,000
Rental Expense (Net) 37,560
Administrative expenses 247,933
---------
Total Cost and Expenses 801,235
---------
Net Income (Loss) from operations (168,790)
---------
Other Expenses:
Interest expense (net) 85,106
Amortization of debt issue cost 75,000
---------
Total Other Expense 160,106
---------
Loss Before Income Taxes (328,896)
Income tax benefit 64,000
---------
Net Loss $(264,896)
=========
</TABLE>
The Accompanying "Notes to Financial Statements" are
An Integral Part of this Financial Statement
F-2
<PAGE> 33
AMERICAN INDEPENDENT NETWORK, INC.
Statement of Stockholders' Equity (Unaudited)
For The Six Months Ended June 30, 1996
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-in Retained
Shares Amount Shares Amount Capital Earnings
------ ------ ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 10,000,000 $100,000 $2,800,678 $ 8,037
Reduce investment in
other assets (1,324,201)
Preferred A Shares Issued 47,841 $47,841 263,124
Issue cost of Preferred A (75,260)
Net loss for the year ended
December 31, 1995 (59,130)
-----------------------------------------------------------------
Balance, December 31,1995 47,841 47,841 10,000,000 100,000 1,664,341 (51,093)
Preferred A Shares Issued 42,918 42,918 236,046
Issue cost of Preferred A (82,793)
Conversion of Preferred A
Shares to Common (90,759) (90,759) 181,518 1,815 88,944
Common Issued to Bridge Loan
Investors 201,230 2,012
Issuance of Common Stock
for contributed capital 1,462,520 14,626
Net loss for the six months
June 30, 1996 (264,896)
-----------------------------------------------------------------
Balance June 30, 1996 107,546 107,546 11,845,268 118,453 1,906,538 (815,989)
</TABLE>
The Accompanying "Notes to Financial Statements" are
An Integral Part of this Financial Statement
F-3
<PAGE> 34
AMERICAN INDEPENDENT NETWORK, INC.
Statement of Cash Flow (Unaudited)
For The Six Months Ended June 30, 1996
<TABLE>
<S> <C>
Cash Flows Provided (used)
by Operating Activities:
Net loss $(264,896)
Adjustment to reconcile net income to net
cash from operating activities:
Depreciation 6,000
Prepaid expenses (1,418)
Deferred tax benefit (64,000)
Investment in common stocks 14,646
Accounts payable (711)
Notes payable 524,164
Income tax due (1,418)
Accrued interest 70,497
Advances from affiliates (4,520)
---------
Total Cash used by Operating Activities 278,344
---------
Cash Flows from Investing Activities
Investment in prepaid assets (450,000)
---------
Cash Flows Provided by Financing Activities:
Preferred stock decrease (47,841)
Common stock increase 18,453
Additional paid-in capital increase 242,197
---------
Total Cash provided by Financing Activity 212,809
---------
Net Cash Increase 41,153
Cash, beginning of Period 83,701
---------
Cash June 30, 1996 $ 124,854
---------
</TABLE>
The Accompanying "Notes to Financial Statements" are
An Integral Part of this Financial Statement
F-4
<PAGE> 35
AMERICAN INDEPENDENT NETWORK, INC.
Notes To Financial Statements (Unaudited)
June 30, 1996
Note 1 Summary of Significant Accounting Policies
Cash and Cash Equivalents - Consist of cash balances. Cash Cash
equivalents consisting of highly liquid investments with an original
maturity date of ninety days or less. The company does not have any
cash equivalents.
Trade credits receivables - the company owns trade credits in the
amount of $24,492 at June 30, 1996 and $23,076 at December 31, 1995. As
defined by the International Reciprocal Trade Association, a trade
dollar is a unit of account that denotes the right to receive
(receivable) or the obligation to pay (a payable) one US dollar worth
of goods and services within a barter system or network. While all of
the trade credits may be used by the company at any time, the company
has shown a pattern of using $25,000 to $30,000 worth of the credits in
each of the past two years. Therefore the company's trade credits are
being classified as current $30,000 and other assets of $463,128, at
June 30, 1996.
Accounts receivable - Allowance for doubtful accounts. The company has
accounts receivable at June 30, 1996 of $24,492 owed by regular
customers. Management deems this amount to be fully collectible. No
allowances for doubtful accounts is necessary.
Inventory - consist of television advertising time of affiliate
television stations available for sale. The company did not sell any of
the advertising time last year but is planning to aggressively market
this advertising time in the near future.
Plant, Property and equipment is recorded at cost.
Depreciation - the cost of plant, property and equipment is depreciated
over the estimated useful life of the assets ranging from equipment at
5 years to building and leasehold improvements at 20 years. Book
depreciation is on a straight line basis while income tax depreciation
is accelerated. For income tax information see Note 3.
Other Assets - In the year ended December 31, 1995 the company wrote
down other assets. These assets were sold or traded in the six months
ended June 30, 1996. The assets written down in 1995 were fine arts of
$2,000,000 which were exchanged for prepaid telephone cards amounting
to $750,000. The investment in common stocks were written down
$1,748,000 to $37,354 in 1996. These transactions are summarized in the
table below;
<TABLE>
<CAPTION>
Original 1995 Write Book Value Disposition
Asset Book Value Down 12/31/95 Amount
------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Fine Arts $2,000,000 $2,000,000 -0- $750,000
Common Stock
(Restricted) $1,800,000 $1,748,000 $52,000 $ 37,762
</TABLE>
F-5
<PAGE> 36
AMERICAN INDEPENDENT NETWORK, INC.
Notes To Financial Statements (Unaudited)
June 30, 1996
The remaining asset the prepaid telephone cards have been recorded at a
discounted value of $450,000. The company has four years to use or liquidate
these prepaid telephone cards. One fourth of the recorded value $112,500 has
been classified classified as a current asset with the remainder of $337,500
classified as other assets. The entire $450,000 was realized as income in 1996.
As the cards are utilized the $450,000 will be charged to telephone expense or
used to obtain other assets and capitalized on a prorated basis.
The company also owns advertising time from commercial television stations
recorded at $1,426,933. The company also holds television trade due bills with
advertising time with a face value of $1,100,000. The trade due bills were
recorded at a discounted value of $836,000. The company is currently negotiating
with another party to market this time in these markets on a commission basis.
The inventory time valued at $1,426,933 has unlimited utilization time and the
time to utilize the trade due bills has been extended from its original
expiration date of September 22, 1996 to December 31, 1999. The company believes
all of this time can be sold in the allotted time.
Advertising revenues are generally generated by entering into an advertising
contract accompanied by full payment. The company is required to perform on the
contract generally within a few days. The company records the income when
payment is received. The company has some customers which it bills after
performing the advertising function.
Note 2 Notes Payable
Notes Payable at June 30, 1996 consist of the following notes;
<TABLE>
<CAPTION>
Due Accrued
Creditor Date Interest Principal Interest
-------------------- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Lyn Broadcasting Corp (1) 8/31/97 10% $ 104,500 $ 15,072
Shelley Media Marktg (1) 9/30/97 10% 51,100 10,448
Cleveland
Broadcasting Co. (1) 9/30/97 10% 38,274 8,187
ATN Network, Inc. (1) 9/30/97 10% 132,391 16,456
Advances from
Affiliates (1) Demand 10% 5,737 1,045
Pacific Acq. Group 12/31/97 11% 193,300 22,695
Bridge Loans 10/31/97 15% 1,122,750 39,891
Less Cost of Bridge
Loan Acquisition (209,228)
---------- --------
Total 1,538,824 113,794
Less amount classified as advances
from affiliates 5,737
----------
Total $1,433,087 $113,794
---------- --------
</TABLE>
(1) Affiliated Companies
F-6
<PAGE> 37
AMERICAN INDEPENDENT NETWORK, INC.
Notes To Financial Statements (Unaudited)
June 30, 1996
Note 3 Income Taxes - Net Operating Loss
The company has a tax asset of $$75,477 at June 30, 1996 due to the
estimated tax asset to be generated by NOL carryover from net operating
losses (NOL) of $328,896 for the six months ended June 30, 1996 and
$80,368 in 1995. The reconciliation of book and tax losses for the
periods ended are;
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Book loss $328,896 $72,025
Add: Additional Depreciation
per tax return 0 8,342
-------- -------
Net Operating loss per tax return 328,896 80,368
-------- -------
Tax benefit computation as follows
Tax refund generated by the
carry-back of the NOL to 1994 0 1,418
-------- -------
Deferred tax asset computation:
Deferred tax liability generated by
timing difference of depreciation 0 (1,251)
-------- -------
Estimated tax asset to be generated
by NOL carryover 75,000 12,728
-------- -------
Net Deferred Tax Assets $ 75,000 $11,477
-------- -------
</TABLE>
If not used the 1996 NOL will expire in 2011 and the 1995 will expire
in 2010.
Note 4 Supplemental Cash Flow Information
<TABLE>
<CAPTION>
1996 1995
-------- ----------
<S> <C> <C>
Cash used for
Interest $ 14,609 $ 76,834
Taxes
Non Cash Investment and Financing
Transactions
Write off of Fine Arts $2,000,000
Write off of Investments of
Common Stocks $1,748,000
Trade of unrecorded assets
(fine art) for prepaid
telephone costs. Recorded
as income and prepaid assets
to be amortized to expense
when used or liquidated $450,000
</TABLE>
F-7
<PAGE> 38
AMERICAN INDEPENDENT NETWORK, INC.
COMPARATIVE BALANCE SHEET
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 59,846 $ 83,701
Accounts Receivable 10,730 23,076
Trade credits receivable 30,000 27,407
Prepaid expenses 112,736
Investment in common stock 52,000
Income tax refund 1,418
----------- -----------
Total Current Assets 213,312 187,702
----------- -----------
Plant, Property and Equipment
Leasehold improvements 22,851 22,851
Equipment and furnishings 88,144 88,144
Digital compression equipment 605,000
-----------
715,995 110,995
Accumulated depreciation (52,700) (34,014)
----------- -----------
Total Plant, Property and Equipment 663,295 76,981
----------- -----------
Other Assets
Deferred tax benefits 207,477 11,477
Trade credits receivable 432,128 465,721
Other assets 1,037,000 836,000
Inventory 1,426,933 1,426,933
Prepaid expenses 337,500 0
----------- -----------
Total Other Assets 3,441,038 2,740,131
----------- -----------
Total Assets $ 4,317,645 $ 3,004,714
=========== ===========
</TABLE>
The Accompanying "Notes to Financial Statements" are An
Integral Part of these Financial Statements.
F-1
<PAGE> 39
AMERICAN INDEPENDENT NETWORK, INC.
COMPARATIVE BALANCE SHEET
DECEMBER 31, 1996 AND 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Current Liabilities
Accounts payable $ 284,336 $ 279,731
Notes payable 1,533,867 908,923
Income tax due 1,418
Accrued interest - notes 142,962 43,297
Advances from affiliates 5,042 10,257
Customer deposits 20,000
Interest due preferred shareholders 15,972
Equipment lease payments 139,380
----------- -----------
Total Current Liabilities 2,141,559 1,243,626
Long term debt 251,617
----------- -----------
Total Liabilities 2,393,176 1,243,626
----------- -----------
Stockholders' Equity
Preferred Stock - 1,000,000
Shares $1 Par - 1995 47,841 shares issued
Shares $1 Par - 1996 107,546 shares issued 107,546 47,841
Common Stock - 20,000,000
Shares $.01 Par Authorized,
1995 10,000,000 shares issued,
1996 14,045,300 shares issued, 140,453 100,000
Additional Paid in Capital 2,513,734 1,664,341
Retained Earnings (837,264) (51,094)
----------- -----------
Total Stockholders' Equity 1,924,469 1,761,088
----------- -----------
Total Liabilities and Stockholders Equity $ 4,317,645 $ 3,004,714
=========== ===========
</TABLE>
The Accompanying "Notes to Financial Statements" are An
Integral Part of these Financial Statements.
F-2
<PAGE> 40
AMERICAN INDEPENDENT NETWORK, INC.
COMPARATIVE STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1996
------------ ------------
<S> <C> <C>
Income from Network Operations $ 1,092,399 $ 1,277,999
------------ ------------
Cost and Expenses
Satellite rental 598,590 553,960
Uplinking of programming 115,802 140,100
Programming expenses 81,849 22,513
Production expenses 110,802 113,090
Depreciation 18,686 18,901
Rental expense (Net) 61,986 32,831
Administrative expenses 482,858 411,795
------------ ------------
Total Cost and Expenses 1,470,573 1,273,190
------------ ------------
Net Income (Loss) from Operations (378,174) 4,809
------------ ------------
Other Expenses
Interest expense (net) 204,757 76,834
Amortization of debt issue cost 385,000
Loss on sale of assets 14,238
------------
Total Other Expense 603,995 76,834
------------ ------------
Loss Before Income Taxes (982,169) (72,025)
Income Tax Benefits 196,000 12,895
------------ ------------
Net Loss $ (786,169) $ (59,130)
============ ============
Weighted average of common stock
and common stock equivalents 10,235,733 10,047,972
Net loss per share (0.08) (0.01)
</TABLE>
The Accompanying "Notes to Financial Statements" are An
Integral Part of these Financial Statements.
F-3
<PAGE> 41
AMERICAN INDEPENDENT NETWORK, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Retained
Shares Amount Shares Amount Paid-in Capital Earnings
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 10,000,000 $100,000 $2,800,678 $ 8035
Reduce investment in
other assets (1,324,201)
Preferred A Shares Issued 47,841 $ 47,841 263,124
Issue cost of Preferred A (75,260)
Net loss, December 31, 1995 (59,130)
------- -------- ---------- -------- ---------- ---------
Balance, December 31, 1995 47,841 47,841 10,000,00 $100,000 1,664,341 (51,095)
Preferred A Shares Issued 42,918 42,918 229,546
Issue cost of Preferred A (82,793)
Conversion of Preferred A
Shares to Common (90,759) (90,759) 181,518 1,815 88,944
Preferred B Shares Issued 107,546 107,546 591,504
Issue cost of Preferred B (255,808)
Common Issued to
Bridge Loan Investors 201,230 2,012
Issuance of Common Stock
for contributed capital 1,462,520 14,626
Issuance of Common Stock
for exercise of stock options 2,000,000 20,000 180,000
Sale of Common Stock 200,000 2,000 98,000
Net Loss for the Twelve Months
ended December 31, 1996 (786,169)
------- -------- ---------- -------- ---------- ---------
Balance, December 31, 1996 107,546 $107,546 14,045,268 140,453 $2,513,734 $(837,264)
======= ======== ========== ======= ========== =========
</TABLE>
The Accompanying "Notes to Financial Statements" are An
Integral Part of these Financial Statements.
F-4
<PAGE> 42
AMERICAN INDEPENDENT NETWORK, INC.
COMPARATIVE STATEMENT OF CASH FLOW
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996 AND 1995
CASH FLOW PROVIDED (USED) BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Net Loss $(786,170) $ (59,130)
Adjustment to reconcile net income to net cash
from operating activities:
Depreciation 18,686 18,901
Amortization of deferred income (900,000)
Accounts receivable 12,346 (23,076)
Trade credits receivable 31,000 27,407
Deferred tax benefit (196,000) (11,477)
Income tax refund (1,418)
Investment in stocks 52,000
Prepaid assets (112,736)
Accounts payable 4,605 160,840
Notes payable 624,944 704,742
Accrued interest 115,637 39,296
Advances from affiliates (5,215) (3,250)
Customer deposits 20,000
Equipment lease payments capitalized 139,380
--------- ---------
Total Cash Used by Operating Activities (81,523) (47,165)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in equipment (605,000) (17,559)
Increase in long term equipment lease payments 251,617
Investment in film library (1,000)
Investment in common stock (200,000
Investment in prepaid assets (337,500)
--------- ---------
Total Cash Flows by Investing Activities (891,883) (17,559)
--------- ---------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Long term notes decrease (112,067)
Preferred stock increase 59,705 235,705
Common stock increase 40,453
Additional paid-in capital increase 849,393
--------- ---------
Total Cash Provided by Financing Activity 949,551 123,638
--------- ---------
Net Increase (Decrease) in Cash (23,855) 58,914
Cash, Beginning of Period 83,701 24,787
--------- ---------
Cash, December 31, 1996 $ 59,846 $ 83,701
========= =========
</TABLE>
The Accompanying "Notes to Financial Statements" are An
Integral Part of these Financial Statements.
F-5
<PAGE> 43
AMERICAN INDEPENDENT NETWORK, INC.
NOTES TO COMPARATIVE FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
Note: Summary of Significant Accounting Policies
Cash and Cash Equivalents - Consist of cash balances. Cash equivalents
consist of highly liquid investments with an original maturity date of
ninety days or less. The company does not have any cash equivalents.
Trade credits receivable - the company owns trade credits in the amounts
of $462,128 at December 31, 1996 and $493,128 at December 31, 1995. As
defined by the International Reciprocal Trade Association, a trade
credit is a unit of account that denotes the right to receive
(receivable) or the obligation to pay (payable) one U.S. dollars worth
of goods and services within a barter system or network. While all of
the trade credits may be used by the company at any time, the company
has shown a pattern of using $25,000 to $30,000 worth of the credits in
each of the past two years. Therefore, the company's trade credits are
being classified as current $30,000 and other assets of $432,128, at
December 31, 1996.
Accounts Receivable - Allowance for Doubtful Accounts. The company has
accounts receivable at December 31, 1996 of $10,730 owed by regular
customers. Management deems this amount to be fully collectable. No
allowance for doubtful accounts is necessary. At December 31, 1995, the
total was $23,076.
Inventory - Consists of television advertising time of affiliated
television stations available for sale. The company did not sell any of
the advertising time last year but is planning to aggressively market
this advertising time in the near future.
Plant, Property and Equipment is recorded at cost.
Depreciation - the cost of plant, property and equipment is depreciated
over the estimated useful life of the assets ranging from equipment at 5
years to leasehold improvement at 20 years. Book depreciation is on a
straight line basis, while income tax depreciation is accelerated. For
income tax information see Note 3.
Other Investments - in the year ended December 31, 1995, the Company
wrote down other assets. These assets were sold or traded in the year
ended December 31, 1996. The assets written down in 1995 were Fine Arts
of $2,000,000. They were exchanged for prepaid telephone cards with a
face value of $750,000. The investment in common stocks were written
down $1,748,000 and were sold in 1996 for $37,762, resulting in a loss
of $14,238. These transactions are summarized in the table below:
F-6
<PAGE> 44
Note: Summary of Significant Accounting Policies (Continued)
<TABLE>
<CAPTION>
Original Write Down Book Value Disposition
Asset Book Value 1995 12/31/95 Amount
<S> <C> <C> <C> <C>
Fine Arts $2,000,000 $2,000,000 0 $750,000
Common Stock $1,800,000 $1,748,000 $52,000 $ 37,762
(Restricted)
</TABLE>
The remaining asset consisting of the prepaid telephone cards have been
recorded at a discounted value of $450,000. The Company has four years
to liquidate these prepaid telephone cards. One-fourth of the recorded
value $112,500 has been classified as a current asset with the remainder
of $337,500 classified as other assets. The entire $450,000 was realized
as income in 1996. As the cards are utilized, the $450,000 will be
charged to telephone expense on a prorated basis.
The company owns advertising time from commercial television stations
recorded at $1,426,933. The company also holds television trade due
bills with advertising time with a face value of $1,100,000. The trade
due bills were recorded at a discounted value of $836,000. These assets
have been enhanced by the digitizing of the network's signal to its
affiliates where this advertising time is available. The company is
currently negotiating with another party to market this time. The
inventory time valued at $1,426,933 has unlimited utilization time and
the time to utilize the trade due bills has been extended from its
original expiration date of September 22, 1998 to December 31, 1999. The
company believes all of this time can be sold in the allotted time.
Advertising revenues are generally generated by entering into an
advertising contract accompanied by full payment. The company is
required to perform on the contract generally within a few days. The
company records the income when payment is received. The company has
some customers which it bills after performing the advertising function.
F-7
<PAGE> 45
Note 2: Notes Payable
Notes Payable at December 31, 1996 consist of the following notes:
<TABLE>
<CAPTION>
Accrued
Creditor(1) Due Date Rate Principal Interest
<S> <C> <C> <C> <C>
Lyn Broadcasting
Corporation(1) 08/31/97 10% $ 4,500 $ 17,047
Shelly Media
Marketing(1) 09/30/97 10% 51,100 10,398
Cleveland
Broadcasting Co.(1) 09/30/97 10% 38,274 7,654
ATN Network,
Inc.(1) 09/30/97 10% 25,366 21,739
Advances from
Affiliates(1) Demand 10% 5,042 1,545
Pacific Acquisition
Group 12/31/97 11% 485,500 42,476
Bridge Loan 06/30/97 15% 1,122,750 42,103
Less Cost of Bridge
Loan Acquisition (193,623)
----------
Total 1,538,909 142,962
---------- --------
Less amount classified
as advances from affiliates 5,042
Total $1,533,867 $142,962
========== ========
</TABLE>
Notes Payable at December 31, 1995 consist of the following notes:
<TABLE>
<S> <C> <C> <C> <C>
Lynn Broadcasting
Corporation(1) 08/31/96 10% $104,500 $ 9,097
Shelly Media
Marketing(1) 09/30/96 10% 52,531 5,253
Cleveland
Broadcasting Co.(1) 09/30/96 10% 38,274 3,827
ATN Network,
Inc.(1) 09/30/96 10% 141,152 10,994
Advances from
Affiliates(1) Demand 10% 10,257 1,226
Pacific Acquisition
Group 12/31/96 11% 500,500 12,900
Bridge Loan 12/31/96 15% 95,000
Less Cost of Bridge
Loan Acquisition (23,034)
--------
Total 919,180 43,297
Less amount classified
as advances from affiliates 10,257
--------
Total $980,923 $ 43,297
======== ========
</TABLE>
(1) Affiliated companies
F-8
<PAGE> 46
Note 3: Income Taxes - Net Operating Loss
The company has a tax asset at December 31, 1996 due to the net
operating loss (NOL) of $982,169 (Book loss of $982,169) in 1996 and net
operating loss of $80,386 (Book loss of $72,025) in 1995. The
reconciliation of book and tax losses for the years ended are:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Book loss $982,169 $ 72,025
Add: Additional depreciation
per tax return 0 8,342
-------- ---------
Net operating loss per tax return 982,169 80,368
-------- ---------
Tax benefit computation as follows:
Tax refund generated by the carryback
of the Net Operating Loss to 1984 0 1,418
-------- ---------
Deferred tax asset computation:
Deferred tax liability generated by
timing difference of depreciation 0 (1,251)
-------- ---------
Estimated tax asset to be generated by
Net Operating Loss carryforward 196,000 12,728
-------- ---------
Net Deferred Tax Assets $196,000 $ 11,417
======== =========
Note 4: Supplemental Cash Flow Information
Cash used for:
Interest $ 91,724 $ 76,834
Taxes 1,418
Non cash Investment and Financing
Transactions:
Write off of Fine Art 2,000,000
Write off of Common Stock Investments 1,748,000
Trade of unrecorded assets
Trade of unrecorded asset (fine art) for
prepaid telephone cost. Recorded as Income
and Prepaid Assets to be amortized to
expense when used 450,000
</TABLE>
F-9
<PAGE> 47
Note 5: Disbursements from Bridge Loan Proceeds
and Preferred Stock Sales
Financing Activities during 1995 and 1996 consisted of bridge loans
($1,122,750) and preferred stock sales ($1,288,979). The
disbursements from the financing escrows were $1,331,500 to the
operating account, $829,767 for issue costs and $249,000 for debt
repayment.
Note 6: Disclosure about fair value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for where it is
practicable to estimate that value.
Cash and Accounts Receivable:
The carrying amount approximates fair value because of the
short maturity of those instruments.
Long Term Investments:
The fair value of these investments are estimated based on
quoted market prices for those and similar investments.
The estimated Fair Values of the Company's Financial Instruments are
as follows:
<TABLE>
<CAPTION>
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Cash and Accounts
receivable $134,187 $134,187 $100,576 $100,576
Long Term Investments $836,000 $836,000 $1,037,000 $1,037,000
</TABLE>
Note 7: Lease Obligations and Long Term Debt Disclosure
The Company is obligated on three leases. The leases are as follows:
Building. The Company utilizes the space as both corporate offices and
studios. The lease is $4883 per month and expires May 31,
1997.
Equipment. The Company has entered a master equipment lease (digital
compression equipment) for a period of thirty-six months
ending December 1, 1999. The lease has a fair market value
purchase option at the end of the lease. Total lease
obligation is $390,996 and the lease has been treated as a
capital lease.
Satellite. The Company leases satellite transponder space under an
operating lease. The lease is for three years ending July
31, 1999, with a total lease obligation of $2,250,000.
F-10
<PAGE> 48
Note 7: Lease Obligations and Long Term Debt Disclosure (continued)
Details of lease obligations are as follows:
<TABLE>
<CAPTION>
Capitalized Operating
Equipment Transponder
Lease Lease
<S> <C> <C>
1997 $127,765 $750,000
1998 139,380 750,000
1999 123,851 437,500
</TABLE>
Note 8: Digital Compression System
The company installed a digital compression system during 1996, which,
as compared to one channel analog transmission, allows for the
transmitting of multiple signals (in the company's case 5 signals) to
the satellite transponder. Utilizing state-of-the-art technology, the
encoders digitize and compress the video and audio signals which then
enter the multiplexer which combines and encrypts the information and
outputs the multiplexed information to the modulator which controls the
variability of the signal strengths being uplinked to the satellite
transponder that has been divided into 5 sections (channels). The
multiplexer and modulator also will provide continuous and dynamic
allocation of bandwidth to each channel, optimizing the video quality
across every channel sharing the system.
The company believes that the revenue from leasing these additional
channels will be greater than the monthly cost of the satellite and
compression equipment.
The company's conversion to digital will require its affiliates to have
a decoder box to convert the digital signal back to analog for local
broadcasting. The company will supply the affiliates with the decoders
which will give the company a monitoring mechanism in determining what
programming the affiliates are airing, since the company has control
over the codes necessary to make the decoder equipment operate.
Note 9: Earnings (loss) per Share
The weighted average of common shares includes issued common stock and
common stock equivalents consisting of convertible preferred stock
outstanding. The warrants that accompany the preferred stock is
antidilutive and are not included in the weighted average.
F-11
<PAGE> 49
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this Pre-Effective Amendment No. 1 to the Registration
Statement on Form 10-SB to be signed on its behalf by the undersigned, thereunto
duly authorized.
AMERICAN INDEPENDENT NETWORK, INC.
Date: November 13, 1997 /s/ Donald Shelton
----------------------- ----------------------------------------
Dr. Don Shelton, Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this
Pre-Effective Amendment No. 1 to the Registration Statement on Form 10-SB has
been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Donald Shelton Chairman of the Board of November 13, 1997
- ------------------------- Directors, Chief Executive
Dr. Donald Shelton Officer, and Director
/s/ Randy Moseley President, Chief Financial November 13, 1997
- ------------------------- Officer, Secretary, and
Randy Moseley Director
</TABLE>
<PAGE> 50
PART III
ITEM 1. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Title of Exhibit
- -------------- ----------------
<S> <C>
2.1 Articles of Incorporation of the Company, as amended(1)
2.2 Bylaws of the Company, as amended (1)
3.1 Form of Warrant Agreement(1)
6.1 Lease for Offices(1)
6.2 Employment Agreement with Dr. Donald Shelton(1)
6.3 Employment Agreement with Randy Moseley(1)
6.4 Stock Option Agreement with Dr. Donald Shelton(1)
6.5 Stock Option Agreement with Randy Moseley(1)
6.6 Form of License Agreement (Affiliate Agreement)(1)
6.7 GE Americom Lease Agreement(1)
6.8 Master Lease with Insight Investments(1)
6.9 Promissory Note Extension Agreement with Lyn
Broadcasting Corporation(1)
6.10 Promissory Note Extension Agreement with
Shelly Media Marketing(1)
6.11 Promissory Note Extension Agreement with Cleveland
Broadcasting Co.(1)
6.12 Promissory Note Extension Agreement with ATN
Network, Inc.(1)
6.13 Promissory Note with Super Six, Inc.(1)
6.14 Promissory Note with Jim Thornbro(1)
6.15 Promissory Note with Logistic Services International, Inc.(1)
6.16 Promissory Note with Rajendra Shah(1)
6.17 Promissory Note with Gary Lamberg(1)
6.18 Promissory Note with Frank Lyons(1)
6.19 Loan and Security Agreement with Midas Fund(1)
6.20 United State Federal Communications Commission Radio
Station Authorization(1)
10.1 Consent of Jack F. Burke, Jr., Certified Public Accountant(1)
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
27.4 Financial Data Schedule
27.5 Financial Data Schedule
</TABLE>
1. Previously filed as an exhibit to the Company's Registration Statement on
Form 10-SB (File No. 000-23105), filed with the Securities and Exchange
Commission on September 19, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
FINANCIAL STATEMENTS FOR 6 MONTHS ENDED JUNE 30, 1997 AND THE AUDITED FINANCIAL
STATEMENTS FOR 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
PRE-EFFECTIVE AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM 10-SB.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> APR-01-1997 JAN-01-1996
<PERIOD-END> JUN-30-1997 DEC-31-1996
<CASH> 27,389 59,846
<SECURITIES> 0 0
<RECEIVABLES> 452,503 10,730
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 641,216 213,312
<PP&E> 767,483 715,995
<DEPRECIATION> 102,700 52,700
<TOTAL-ASSETS> 4,822,417 4,317,645
<CURRENT-LIABILITIES> 2,298,184 2,141,559
<BONDS> 0 0
0 0
286,624 107,546
<COMMON> 148,108 140,453
<OTHER-SE> 1,880,584 1,676,470
<TOTAL-LIABILITY-AND-EQUITY> 4,822,417 4,317,645
<SALES> 723,194 1,092,399
<TOTAL-REVENUES> 723,194 1,092,399
<CGS> 0 0
<TOTAL-COSTS> 770,457 1,470,573
<OTHER-EXPENSES> 403,198 603,995
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 190,789 204,757
<INCOME-PRETAX> (450,461) (982,169)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (351,461) (786,169)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (351,461) (786,169)
<EPS-PRIMARY> 0 (0.08)
<EPS-DILUTED> 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH PRE-EFFECTIVE AMENDMENT NO. 1 TO THE
REGISTRATION STATEMENT ON FORM 10-SB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 124,854
<SECURITIES> 0
<RECEIVABLES> 24,492
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 330,621
<PP&E> 110,995
<DEPRECIATION> 40,014
<TOTAL-ASSETS> 3,540,640
<CURRENT-LIABILITIES> 1,831,638
<BONDS> 0
0
0
<COMMON> 118,453
<OTHER-SE> 1,590,549
<TOTAL-LIABILITY-AND-EQUITY> 3,540,640
<SALES> 632,445
<TOTAL-REVENUES> 632,445
<CGS> 0
<TOTAL-COSTS> 801,235
<OTHER-EXPENSES> 160,106
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85,106
<INCOME-PRETAX> (328,896)
<INCOME-TAX> 0
<INCOME-CONTINUING> (264,896)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (264,896)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH PRE-EFFECTIVE AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT ON FORM 10-SB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 83,701
<SECURITIES> 0
<RECEIVABLES> 23,076
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 187,702
<PP&E> 110,995
<DEPRECIATION> 34,014
<TOTAL-ASSETS> 3,004,714
<CURRENT-LIABILITIES> 1,243,626
<BONDS> 0
0
47,841
<COMMON> 100,000
<OTHER-SE> 1,613,247
<TOTAL-LIABILITY-AND-EQUITY> 3,004,714
<SALES> 1,277,999
<TOTAL-REVENUES> 1,277,099
<CGS> 0
<TOTAL-COSTS> 1,273,190
<OTHER-EXPENSES> 76,834
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76,834
<INCOME-PRETAX> (72,025)
<INCOME-TAX> 0
<INCOME-CONTINUING> (59,130)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (59,130)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
UNAUDITED FINANCIAL STATEMENTS FOR THE 9 MONTHS ENDED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) PRE-EFFECTIVE AMENDMENT NO. 1
TO REGISTRATION STATEMENT ON FORM 10-SB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 26,364
<SECURITIES> 0
<RECEIVABLES> 513,680
<ALLOWANCES> 100,000
<INVENTORY> 0
<CURRENT-ASSETS> 705,293
<PP&E> 816,983
<DEPRECIATION> 122,700
<TOTAL-ASSETS> 4,936,994
<CURRENT-LIABILITIES> 2,594,379
<BONDS> 0
0
282,700
<COMMON> 157,167
<OTHER-SE> 1,728,525
<TOTAL-LIABILITY-AND-EQUITY> 4,936,994
<SALES> 952,631
<TOTAL-REVENUES> 852,631
<CGS> 0
<TOTAL-COSTS> 991,532
<OTHER-EXPENSES> 445,607
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 221,198
<INCOME-PRETAX> (584,508)
<INCOME-TAX> 0
<INCOME-CONTINUING> (464,508)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (464,508)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
FINANCIAL STATEMENTS FOR THE 9 MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED
IN ITS ENTIRETY REFERENCE TO SUCH PRE-EFFECTIVE AMENDMENT NO. 1 TO THE
REGISTRATION STATEMENT ON FORM 10-QSB
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 246,975
<SECURITIES> 0
<RECEIVABLES> 19,076
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 344,875
<PP&E> 170,995
<DEPRECIATION> 41,014
<TOTAL-ASSETS> 3,736,987
<CURRENT-LIABILITIES> 1,520,532
<BONDS> 0
0
60,423
<COMMON> 138,453
<OTHER-SE> 2,017,579
<TOTAL-LIABILITY-AND-EQUITY> 3,736,987
<SALES> 862,704
<TOTAL-REVENUES> 862,764
<CGS> 0
<TOTAL-COSTS> 1,118,059
<OTHER-EXPENSES> 148,621
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134,383
<INCOME-PRETAX> (403,916)
<INCOME-TAX> 0
<INCOME-CONTINUING> (281,916)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (281,916)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
