U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _________ to _________
Commission file number: 000-23105
AMERICAN INDEPENDENT NETWORK, INC.
(Exact name of small business issuer in its charter)
Delaware 75-2504551
(State or Jurisdiction of I.R.S. Employer
Incorporation or Organization) Identification No.)
6125 Airport Freeway, Suite 200
Haltom City, Texas 76117
(817) 222-1234
(Address and telephone number of principal executive offices)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months ( or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. As of August 13, 1999, there
were approximately 15,418,093 shares of the Company's Common Stock issued and
outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Balance Sheet at June 30, 1999 (Unaudited) and June 30, 1998 Unaudited)
Statement of Operations (Unaudited) for the Six Months
ended June 30, 1999 and 1998
Statement of Cash Flows (Unaudited) for the Six Months ended June 30, 1999
and 1998
Notes to Comparative Financial Statements (Unaudited)
1
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INDEPENDENT NETWORK, INC.
Comparative Balance Sheet (Unaudited)
June 30,
Assets
1999 1998
------------ ------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 845 $ 4,543
Accounts receivable 18,088 4,743
Trade credits receivable 30,000 30,000
Note receivable, net of
doubtful account of $700,000 0 700,000
------------ ------------
Total Current Assets 48,933 739,286
------------ ------------
Plant, Property and Equipment
Leasehold improvements 22,851 22,851
Equipment and furnishings 134,642 130,317
Digital compression equipment 845,452 844,719
------------ ------------
1,002,945 997,887
Accumulated depreciation (233,008) (141,622)
------------ ------------
Total Plant, Property and Equipment 769,937 856,265
------------ ------------
Other Assets
Deferred tax benefits 0 0
Trade credits receivable, net of
allowance of $125,138 211,990 241,990
Other investments 495,521 737,485
Note receivable, net of doubtful
account of $884,595 0 884,595
------------ ------------
Total Other Assets 707,511 1,864,070
------------ ------------
Total Assets $ 1,526,381 $3,459,621
------------ ------------
</TABLE>
THE ACCOMPANYING "NOTES TO FINANCIAL STATEMENTS" ARE
AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
2
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INDEPENDENT NETWORK, INC.
Comparative Balance Sheet (Unaudited)
June 30,
1999 1998
----------- -----------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 436,917 $ 264,163
Notes payable 1,564,979 2,194,740
Accrued interest - notes 403,254 255,349
Advances from affiliates 31,038 27,903
Interest due preferred shareholders 37,440 37,440
Equipment lease payments 175,380 175,380
----------- -----------
Total Current Liabilities 2,649,008 2,954,975
----------- -----------
Long Term Debt
Deferred income tax 0 661,824
Equip lease payments 79,003 153,444
----------- -----------
Total Long term debt 79,003 815,268
----------- -----------
Total Liabilities 2,743,736 3,770,243
----------- -----------
Stockholders' Equity
Preferred Stock - 1,000,000 shares $1 Par
Authorized - 1998 42,427 shares issued,
1999 42,427 shares issued 42,427 42,427
Common Stock - 20,000,000 authorized
1998 issued 18,465,199 @ $.01 par 184,650
1999 issued 6,105,229 @ $.05 par 305,261
Additional Paid in Capital 5,338,743 4,788,714
Retained Earnings (Deficit) (6,888,061) (4,857,663)
Note Receivable 0 (468,750)
----------- -----------
Total Stockholders' Equity (1,201,630) (310,622)
----------- -----------
Total Liabilities and Stockholders Equity $1,526,381 $3,459,621
----------- -----------
</TABLE>
THE ACCOMPANYING "NOTES TO FINANCIAL STATEMENTS" ARE
AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
3
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INDEPENDENT NETWORK, INC.
Comparative Statement of Operations (Unaudited)
For the Six Months Ended June 30,
1999 1998
---------- ----------
<S> <C> <C>
Revenues
Income from network operations $ 73,464 $130,385
---------- ----------
Cost and Expenses:
Satellite rental 180,000 180,000
Programming expenses 542 1,926
Production expenses 67,456 52,144
Depreciation 39,000 27,240
Amortization of leasehold 1,000 2,400
Amortization of Senior Channel 68,968 68,968
Rental Expense (Net) 36,068 32,400
Administrative expenses 95,740 267,207
---------- ----------
Total Cost and Expenses 488,774 632,285
---------- ----------
Net (Loss) from operations (415,310) (501,900)
Other Expenses:
Interest expense (net) 140,850 185,572
Gain on disposal of assets (15,953) 0
---------- ----------
Total Other Expense 124,897 185,572
---------- ----------
(Loss) Before Income Taxes and
Extraordinary Item (540,207) (687,472)
Income tax benefit (expense) 0 0
---------- ----------
Net (Loss)Before Extraordinary Item ( 540,207) (687,472)
Extraordinary Item
Cost of Conversion of Bridge Loans
To Common Stock 39,624 34,468
---------- ----------
Net (Loss) $(579,831) $(721,940)
---------- ----------
Earnings Per Share of Common Stock $ (0.11) $ (0.04)
Weighted Average Shares 5,438,860 18,344,782
</TABLE>
THE ACCOMPANYING "NOTES TO FINANCIAL STATEMENTS" ARE
AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
4
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<TABLE>
<CAPTION>
AMERICAN INDEPENDENT NETWORK, INC.
Comparative Analysis of Stockholders' Equity (Unaudited)
For The Six Months Ended June 30, 1999
Preferred Stock Common Stock Additional
----------------- -------------------- Paid-in Note Retained
Shares Amount Shares Amount Capital Receivable Earnings
------- -------- ---------- -------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1996 107,546 $107,546 14,045,268 $140,453 $2,513,734 $ 0 $(1,494,741)
Preferred B Shares Issued 175,154 175,154 963,347
Issue cost of Preferred B (547,999)
Conversion of Preferred B
Shares to Common (229,273)(229,273) 458,546 4,585 224,688
Common Issued to Bridge
Loan Investors 1,521,039 15,210 380,260
Conversion of Bridge Loans 132,652 1,327 429,791
Sale of Common Stock 200,000 2,000 98,000
Sale of Common Stock for
a Note Receivable 1,875,000 18,750 450,000 (468,750)
Net Loss for the Year Ended
December 31, 1997 (2,640,982)
------------------------------------------------------------------------------
Balance December 31, 1997 53,427 $53,427 18,232,715 $182,325 $4,511,821 (468,750) ($4,135,723)
Preferred Stock Conversions (11,000)(11,000) 22,000 220 10,780
Conversion of Bridge Loans 72,610 726 233,024
Reverse Sale of Common Stock
for Note Receivable (1,875,000) (18,750) (450,000) 468,750
Common Issued for Financing 3,400,000 34,000 ( 34,000)
Adjustment to Reflect Reverse
Split of Common of 1 for 5 (15,990,005)
Affiliate Debt Forgiveness 688,726
Net Loss for the Year Ended
December 31, 1998 (2,172,507)
Post Split Bridge Loan
Conversions 378,102 18,905 260,618
------------------------------------------------------------------------------
Balance December 31, 1998 42,427 $42,427 4,375,623 $218,780 $5,073,750 $ -0- ($6,308,230)
Conversion of Bridge Loans 62,500 3,125 46,875
Common Stock Issued Upon
Conversion of Bridge Loans
and Preferred Stock to
Equalize Prior Conversions 415,472 20,774 18,850
Common stock transactions
relating to settlement of
receivership:
Issued 1,650,000 82,500
Canceled (1,398,366) (69,918) (12,582)
Common stock purchase agreement
with Field of Cotton, L.P. 1,000,000 50,000 211,850
Loss for Six Months Ended
June 30, 1999
( 579,831)
------------------------------------------------------------------------------
Balance June 30, 1999 42,427 $42,427 6,105,229 $305,261 $5,338,743 $ -0- ($6,888,061)
</TABLE>
THE ACCOMPANYING "NOTES TO FINANCIAL STATEMENTS" ARE
AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
5
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INDEPENDENT NETWORK, INC.
Comparative Statement of Cash Flow (Unaudited)
For The Six Months Ended June 30,
1999 1998
----------- ----------
<S> <C> <C>
Cash Flows Provided (used)
by Operating Activities:
Net (Loss) $( 579,831) $(721,940)
Adjustment to reconcile net income to net
cash from operating activities:
Cost of loan conversion to common stock 39,624 34,468
Depreciation 39,000 27,240
Amortization of leasehold 1,000 2,400
Trade credits receivable 20,000 20,000
Amortization of Senior Channel 68,968 68,968
Accounts receivable (15,300) ( 2,493)
Investment in common stocks 0 91,525
Accounts payable 54,362 86,759
Accrued interest 124,275 135,819
Advances from affiliates 0 18,301
----------- ----------
Total Cash used by Operating Activities (247,902) (238,953)
----------- ----------
Cash Flows from Investing Activities:
Investment in equipment ( 4,360) (18,549)
Investment in film library 0 ( 4,320)
----------- ----------
Total Cash Flow from Investing Activities ( 4,360) (22,869)
----------- ----------
Cash Flows Provided by Financing Activities:
Notes payable increase 11,450 294,560
Long term lease decrease (30,000) ( 62,963)
Common stock increase 50,000 0
Additional paid-in capital increase 211,850 0
----------- ----------
Total Cash provided by Financing Activities 243,300 231,597
----------- ----------
Net Cash Increase ( 8,962) (30,225)
Cash, beginning of Period 9,807 34,768
----------- ----------
Cash at End of Period $ 845 $ 4,543
----------- ----------
</TABLE>
The Accompanying "Notes to Financial Statements" Are
An Integral Part of These Financial Statements
6
<PAGE>
AMERICAN INDEPENDENT NETWORK, INC.
Notes To Comparative Financial Statements (Unaudited)
June 30, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS - Consist of cash balances. Cash and 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 RECEIVABLES - The Company owns trade credits in the amount of
$367,128 at June 30, 1999 and $397,128 at June 30, 1998. 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 $211,990 at June 30,
1999. The Trade Credits were obtained in 1994 in exchange for an Investment in
Common Stock and was valued at the fair value of the asset investment in common
stock. The Company uses the credits primarily for travel expense. The Company,
also exchanged Trade Credits for computer equipment and Fine Art. Management
does not consider impairment under FAS 121 is appropriate as management intends
to fully utilize the credits and the credits do not have an expiration date.
Due to the slow rate of usage the Company has established a valuation account of
$125,138. The trade group, the Company is a member of, currently has over
twenty four hundred participants.
ACCOUNTS RECEIVABLE - Allowance for doubtful accounts. The company has accounts
receivable at June 30, 1999 of $18,088 owed by regular customers. Management
deems this amount to be fully collectible. No allowances for doubtful accounts
is necessary. At June 30, 1998 the total was $4,743.
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 improvements at 20 years. Depreciation is on a straight line basis.
7
<PAGE>
Depreciation and amortization was $40,000 for the six months ended June 30, 1999
and $29,640 for the six months ended June 31, 1998.
INCOME TAXES - The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 is an asset and liability approach that requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences
of events that have been recognized in the company's financial statements or tax
returns. In estimating future tax consequences, SFAS 109 generally considers
all expected future events other than enactments of changes in the tax law or
rates. Income tax accounting information is disclosed in Note 3 to the
comparative financial statements.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
OTHER INVESTMENTS - Consist of the following:
1999 1998
------- --------
Investment in stocks $ 0 $104,930
Film Library 12,745 11,843
Investment in Senior Channel 482,776 620,712
------- --------
Total Other Investments $495,521 $737,485
------- -------
NOTE 2 - NOTES PAYABLE
Notes Payable at June 30, 1999 consist of the following notes;
<TABLE>
<CAPTION>
Due Accrued
Creditor Date Interest Principal Interest
- ---------------------------------- -------- ----------- ---------- --------
<S> <C> <C> <C> <C>
Shelley Media
Marketing* 9/30/98 10% 97,229 5,100
Cleveland
Broadcasting Co.* 9/30/98 10% 1,132 1,000
Pacific Acquisition
Group, Inc. 12/31/98 11% 250,500 31,925
Bridge Loan 10/31/97 15% 1,216,118 357,434
---------- --------
Total $1,564,979 $ 397,959
Advances from Other
Affiliated Companies Demand 10% 31,038 5,295
---------- --------
Total $1,596,017 $ 403,254
---------- --------
<FN>
* Affiliated Companies
</TABLE>
Notes Payable at June 30, 1998 consist of the following notes;
8
<PAGE>
<TABLE>
<CAPTION>
Due Accrued
Creditor Date Interest Principal Interest
- --------------------- -------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Shelley Media
Marketing* 9/30/98 10% $ 50,650 $ 2,532
Cleveland
Broadcasting Co.* 9/30/98 10% 157014 1,000
ATN Network, Inc.* 9/30/98 10% 571,450 27,550
Pacific
Acquisition Group 12/31/98 11% 250,500 12,525
Bridge Loan 10/31/98 15% 1,307,126 211,742
---------- ---------
Total 2,194,740 255,349
Advances from Other
Affiliated Companies Demand 10% 27,903 0
----------- ---------
Total $2,222,643 $ 255,349
----------- ----------
<FN>
* Affiliated Companies
</TABLE>
NOTE 3 - INCOME TAXES
Deferred income tax liability consist of the following components:
<TABLE>
<CAPTION>
1999 1998
---- ----------
Provision for Income Taxes:
<S> <C> <C>
Current 0 0
Deferred Liability 0 1,137,548
Less Provision for Income Taxes 0 ( 475 724)
---- ----------
Total Provision for Income Taxes 0 661,824
---- ----------
</TABLE>
The tax effects of temporary
differences which give rise
to deferred income by assets and
liabilities consist of the following:
9
<PAGE>
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Deferred income tax assets:
Net operating loss 0 683,201
Valuation allowance 0 (207,477)
----------- ----------
0 475,724
----------- ----------
Deferred income tax liabilities
Installment sale method
on Notes Payable 0 1,137,548
Valuation allowance ( 0) (475,724)
----------- ----------
Net deferred tax asset liability 0 661,827
----------- ----------
</TABLE>
The Company has net operating losses (NOLs) at
December 31, 1998 of approximately $4,730,842.
These NOLs expire as follows:
2010 $ 70,912
2011 1,191,269
2012 635,367
2018 2,833,294
----------
$4,730,842
----------
The Company has capital loss carryover of $46,036
which will expire as follows:
2002 $14,238
2003 31,798
----------
$46,036
----------
Realization of deferred tax assets associated with the NOLs
and net capital loss carryover is dependent on generating
sufficient taxable income prior to their expiration. Due
to the uncertainty of the Company's ability to generate
such income with the possibility that these carryovers may
expire unused, management has established a valuation
account against them.
10
<PAGE>
NOTE 4 - SUPPLEMENTAL CASH FLOW INFORMATION
1999 1998
-------- ---------
Cash used for:
Interest $16,575 $ 17,520
Income Taxes $ 0 $ 0
NOTE 5 - 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:
Notes Receivable - The carrying amount approximates fair value because each is
valued at estimated discounted future cash flows.
Long Term Investments - The fair value of these investments are estimated based
on quoted market prices for those and similar investments.
Notes Payable - The carrying value approximates fair value because of the short
maturity date of these investments.
The estimated Fair Values of the Company's Financial Instruments are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Note Receivable $ 0 $ 0 $1,584,595 $1,584,595
Long Term
Investments $ 0 $ 0 $ 104,930 $ 104,930
Accounts Payable $ 436,917 $ 436,917 $ 264,163 $ 264,163
Equipment Lease
Payments $ 254,383 $ 225,945 $ 360,353 $ 324,318
Notes Payable $1,564,979 $1,564,979 $2,194,740 $2,194,740
</TABLE>
NOTE 6 - 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 $6,350 per month and expired February 28, 2002.
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 lease obligation is $390,996 and the lease has been treated as a
11
<PAGE>
capital lease. In May 1997, the Company entered into a lease for additional
digital equipment for a period of 36 months with payments of $4,302 per month.
The lease period is from June 1, 1997 to May 1, 2000. The lease has been
capitalized.
Satellite - The Company leased satellite transponder space under an initial
operating lease. The lease is for three years ending July 31, 1999 with a total
lease obligation of $2,250,000. The Company has modified its lease reducing its
satellite band width from 24 MHZ to 8 MHZ which reduces its future lease cost
from $1,187,500 to $619,848 under the lease modification. The Company pays the
new lease balance at the rate of $30,000 per month during the period January 1,
1998 through July 31, 1999 when the lease terminates.
Details of lease obligations are as follows:
Capitalized Capitalized Operating
Equipment Equipment Transponder Building
Lease #1 Lease #2 Lease Lease
------------ ----------- ------------ ------------
1999 $119,380 $54,530 $ 30,000 $38,100
2000 $ 18,706 $21,510 76,200
2001 $ 18,706 76,200
2002 19,050
NOTE 7 - RELATED PARTIES
The Company has engaged in transactions with certain other enterprises that are
affiliated companies. These companies are controlled by the management and
principal stockholders of American Independent Network. The controlled
companies transactions are as follows:
1999 1998
Funds Funds
----------------------------------
Borrowed Repaid Borrowed Repaid
--------- ---------- --------- ----------
Cleveland Broadcasting $ 500 $ 0 $ 0 $ 8,156
San Antonio Broadcasting $ 0 $ 0 $ 0 $ 3,700
TV Channel 22 $ 0 $ 0 $ 22,500 $ 0
ATN Network $ 0 $ 0 $334,500 $168,826
Shelley Media Marketing $29,950 $ 18,000 $ 0 $ 450
12
<PAGE>
NOTE 8- PREFERRED STOCK
Preferred stockholders' may convert one share of preferred stock into two shares
of common. Preferred stockholders' also receive nine percent interest per annum
in lieu of dividends. Summary of preferred stock transactions are as follows:
Number of Preferred B Shares outstanding
at December 31, 1997 53,427
Number of Preferred B Shares converted
to Common Stock
in 1998 at the rate of two common for each Preferred B,
which would equal 22,000 shares of common stock (11,000)
------
Number of Preferred B Shares outstanding
at December 31, 1998 42,427
------
NOTE 9 - SENIOR CHANNEL
The Company acquired the Copyright to the Senior Channel in exchange for
accounts receivable in the amount of $689,680 due to the Company from the owners
of the Senior Channel Copyright. The Senior Channel has twenty four hour
programming per day. There was no gain or loss recognized when accounts
receivable for the Senior Channel was converted into Investment in Senior
Channel. The Company's projections indicate that the cost will be recovered in
four to five years. The Company continues to evaluate this asset quarterly and
will amortize the cost over five years. The amortization during the Six months
ended June 30, 1999 was $68,968 and the cumulative amortization at June 30, 1999
was $206,904.
NOTE 10 - INVESTMENT IN COMMON STOCK
The Company owned 193,100 shares of Quick Tent, Inc. (NASD Small Cap QTNT)at
June 30, 1998. The Company sold Quick Tent, Inc. stock in 1998 resulting in a
loss of $31,748. This investment is included in Other Assets at June 30, 1998
at a value of $104,930.
13
<PAGE>
NOTE 11- FILM LIBRARY
The Film Library consists of approximately 2,000 films and television produced
tapes at a cost of $12,745.
NOTE 12 - BRIDGE LOAN
In the quarter ended March 31, 1999, Bridge Loans in the amount of $50,000 were
converted into 62,500 shares of common stock of the Company at an average price
of $0.80 per share. In 1998 Bridge Loans in the amount of $333,750 were
converted into 450,731 Common Shares at an average price of $0.74 per share. An
additional 134,602 shares were issued to equalize the conversion price with the
market price in 1998, and 372,880 shares were issued to equalize the conversion
price with the market price in 1999.
NOTE 13 - RECONCILIATION OF CHANGES IN NOTES PAYABLE TO CASH FLOW GENERATED BY
INCREASE IN NOTES PAYABLE
Notes Payable 1998 $1,603,529
Notes Payable 1999 1,564,979
-----------
Net Change (38,550)
Notes paid by Conversion to Common Stock 50,000
-----------
Cash Flow generated by Note Payable $ 11,450
-----------
NOTE 14 - CAPITAL STOCK
During 1998, the Company declared a 1 for 5 reverse split in its common stock.
At the time of the reverse in November 1998, there were 19,987,526 shares
outstanding. After adjusting the outstanding shares for the 1 for 5 reverse
split, there were 3,997,521 shares outstanding.
NOTE 15 - STOCK ISSUED FOR FINANCING
The Company issued 3,400,000 shares (680,000 post-split shares) of common stock
for no consideration for which the Company was to receive financing. As
financing has not materialized, the Company is in the process of retrieving the
stock.
NOTE 16 - DEBT FORGIVENESS BY AFFILIATE
An affiliated company forgave its debt from American Independent Network, Inc.
in the amount of $688,734 in 1998. Pursuant to Accounting Principal Board
Opinion Number 26, the amount was treated as a contribution to capital. There
was no tax effect as the Company has no tax asset or liability.
14
<PAGE>
NOTE 17 - LEGAL MATTERS
The Company has had several judgments rendered against it. Judgments in place at
June 30, 1999 are as follows:
Judgment Entered For
----------------------
Witner, Poltraock, Giampietro 11,921
Hall, Estill, Hardwick & Gable 29,862
New Image Video 90,000
Ira Weingarten/Equity Communications 60,000
---------
$191,783
---------
These amounts have been accounted for in accounts payable.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.
The following discussion should be read in conjunction with American
Independent Network, Inc.'s (the "Company's") financial statements and related
notes included elsewhere in this Report.
Information Regarding and Factors Affecting Forward-looking Statements
The Company is including the following cautionary statement in this Form
10-QSB to make applicable and take advantage of the safe harbor provision of the
Private Securities Litigation Reform Act of 1995 for any forward-looking
statements made by, or on behalf of, the Company. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future
events or performance and underlying assumptions and other statements which are
other than statements of historical facts. Certain statements in this Form
10-QSB are forward-looking statements. Words such as "expects",
"anticipates","estimates" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected. Such risks and uncertainties are set forth below. The Company's
expectations, beliefs and projections are expressed in good faith and are
believed by the Company to have a reasonable basis, including without
limitation, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectation, beliefs or
projections will result, be achieved, or be accomplished. In addition to other
factors and matters discussed elsewhere herein, the following are important
factors that, in the view of the Company, could cause material adverse affects
on the Company's financial condition and results of operations: demographic
changes; existing government regulations and changes in, or the failure to
comply with government regulations; the loss of any significant numbers of
subscribers or viewers; changes in business strategy or development plans;
technological developments or obsolescence, and difficulties (including any
associated with the Year 2000); the ability to attract and retain qualified
personnel; significant indebtedness of the Company; the ability of the Company
to obtain acceptable forms and amounts of financing for current operations and
expansion; the demand for, and price level of, the Company's services;
competitive factors; evolving industry and technology standards; dependence on
key personnel. The Company has no obligation to update or revise these
forward-looking statements to reflect the occurrence of future events or
circumstances.
General
The Company was founded on December 11, 1992 and provides programming,
media production and syndication services to television arid 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. In 1998, the
Company changed the name of its subsidiary to "Senior Channel, Inc."
The Company originally broadcast its programs via analog transmission and,
in 1996, had Affiliate Agreements with over 150 Affiliate Stations. However, in
late 1996, the Company converted from analog to digital transmission and in
connection with the conversion, was required to provide digital decoding
equipment to each of its Affiliate Stations. Due to the cost of providing the
16
<PAGE>
decoding equipment, the Company was not able to furnish the equipment to all of
its then existing Affiliate Stations. Accordingly, upon conversion, the Company
initially entered into Affiliate Agreements with 33 Affiliate Stations. The
Company has since entered into Affiliate Agreements to provide family-oriented
television to a network of 35 broadcast television stations and cable systems
nationwide. The stations serviced by the Company are primarily "independent"
broadcast 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.
professional boxing, fishing expeditions and interactive programming.
Result of Operations--Six Months Ended June 30, 1999 and 1998
Revenues
For the six months ended June 30, 1999, revenues were $73,464 and for the
comparable six month period in 1998, revenues were $130,385. The decrease in
1999 revenues was due primarily to a decrease in 1999 in satellite channel lease
revenues.
Cost of Operations
For the six months ended June 30, 1999 and June 30, 1998, cost of
operations were $393,034 and $365,078, respectively. The increase in cost of
operations for the six months ended June 30, 1999, is due primarily to an
increase in production expenses and depreciation and amortization.
General and Administrative
For the six months ended June 30, 1999 general and administrative expenses
were $95,740 and for the six months ended June 30, 1998, general and
administrative expenses were $267,207. The decrease in general and
administrative expenses for the six months ended June 30, 1999 is due primarily
to decreases in legal expenses, labor, telephone, transportation, office
supplies and sales tax.
Operating Loss
For the six months ended June 30, 1999, the Company's operating losses were
$415,310 and for the comparable period in 1998, the Company's operating losses
were $501,900. The loss before income taxes and extraordinary items for the six
months ended June 30, 1999 was $540,207 as compared to a loss before income
taxes and extraordinary items for the six months ended June 30, 1998 of
$687,472. Net loss for the six months ended June 30, 1999 was $579,831 as
17
<PAGE>
compared to a net loss for the six months ended June 30, 1998 of $721,940. The
decrease in the loss before income taxes and extraordinary item in 1999 is due
primarily to a decrease in general and administrative expenses and a decrease
in other expenses being more than the decrease in revenues (caused by the
decrease in satellite channel lease revenues). There was also an increase in
cost of conversion of bridge loans and preferred stock.
Net Loss
For the six months ended June 30, 1999 and March 31, 1998, net loss per
share was $.11 and $.04, respectively.
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. The Company has
cumulative losses of $6,888,061 from inception through June 30, 1999.
Current liabilities at June 30, 1999 were $2,649,008 which exceed current
assets of $48,933 by $2,600,075. Current liabilities at June 30, 1998 exceeded
current assets by $2,215,689. The decrease in current assets in the second
quarter of 1999 compared to the second quarter of 1998 was primarily the result
of the removal of the note receivable. The current liabilities at June 30, 1999
decreased compared to June 30, 1998 due primarily to decreases in notes payable.
Management believes that cash flow from operations will not be sufficient
to meet the Company's immediate cash needs and to finance future operations. In
the past, the Company has been able to generate funds from private placements of
debt and equity securities to finance operations. Presently, the company
requires additional capital investment in order to sustain it's operations,
and it is engaged in discussion with a media company for this purpose. However,
there can be no assurance that the Company will be successful in obtaining
the necessary operating capital. See, Part II Item 5 - Other Information below.
Impact of Inflation
Management does not believe that general inflation has had or will have a
material effect on operations.
Year 2000 Issues and Y2K
The Company has conducted a comprehensive review of its computer systems to
identify any business functions that could be affected by the "Year 2000" issue.
As the millennium ("Year 2000 or Y2K") approaches, businesses may experience
problems as the result of computer programs being written using two digits
rather than four to define the applicable year. The Company has conducted a
comprehensive review of its computer systems to identify those areas that could
18
<PAGE>
be affected by the "Year 2000" issue. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. If not corrected, this could result in extensive
miscalculations or a major system failure.
The Company relies on industry standard software. Certain manufacturers
have already provided the Company with upgraded software to address the "Year
2000" issue and the Company believes that its remaining software manufacturers
will modify their programs accordingly. In the event the remaining
manufacturers do not upgrade their software packages, the Company will replace
such software with programs that address the "Year 2000" issue. The Company
believes that by modifying existing software and converting to new software, the
"Year 2000" issue will not pose significant operational problems and is not
anticipated to require additional expenditures that would materially impact its
financial position or results of operations in any given year.
The Company is presently assessing its Year 2000 compliance status and the
status of its hardware and service providers and its network affiliates. Based
on these assessments, management believes that significant exposure does not
exist with respect to known third parties.
However, since the Company's revenues are materially dependent on each network
affiliate being able to use their own technology systems to broadcast, there can
be no assurance that the Company will escape the consequences of a Year 2000
compliance deficiency.
Year 2000 Contingency Plans. In the event that the Company's computers
ultimately are shown not to be Y2K compliant, the Company will seek to make its
software compliant.
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
The following unregistered share issuances were effectuated by the Company
in reliance upon exemptions from registration under the Securities Act of 1933
as amended (the "Act") as provided in Section 4(2). Each certificate issued for
unregistered securities contained a legend stating that the securities have not
been registered under the Act and setting forth the restrictions on the
transferability and the sale of the securities. No underwriter participated in,
nor did the Company pay any commissions or fees to any underwriter in connection
with any of these transactions. None of the transactions involved a public
offering. These issuances were the result of negotiations between the Company
and the shareholders.
In April, 1999, the Company issued 500,000 shares of common stock to
Richard Halden as compensation as an employee of the Company. The Company
believes he had knowledge and experience in financial and business matters which
allowed him to evaluate the merits and risk of the receipt of these securities
of the Company. Mr. Halden is the operations manager of the Company in such
capacity he was knowledgeable about the Company's operations and financial
condition.
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<PAGE>
In April, 1999, the Company issued 500,000 shares of common stock to Fred
Hoelke, who provided professional services to the Company. The Company believes
he had knowledge and experience in financial and business matters which allowed
him to evaluate the merits and risk of the receipt of these securities of the
Company. Mr. Hoelke provided professional services to the Company and in such
capacity he was knowledgeable about the Company's operations and financial
condition.
In April, 1999, the Company issued 150,000 shares of common stock to
Jonathan Moseley, the son of Randy Moseley. Randy Moseley is a Director and
Officer of the Company. As a result of a matter decided in binding arbitration,
the Company had been a judgment debtor in a judgment styled as Showplace Video
v. American Independent Network, Inc., No. 98-2154-E, County Court At Law No. 5,
Dallas County, Texas. In 1998, Alan Luckett purchased the judgment and released
it in exchange for 500,000 shares of common stock of the Company, and for access
to the digital uplink equipment of the Company, certain bandwidth of the
satellite transponder the Company leases, and the right of first refusal on the
Company's transponder rights and equipment leases in the event that the Company
ceases operations. Also in connection with the release of judgment by Alan
Luckett, Randy Moseley agreed to turnover 728,748 shares which he owned to the
Company for cancellation in 1999, and, Don Shelton, a former director and
executive officer of the Company, agreed to turnover 669,618 shares which he
owned to the Company for cancellation in 1999. Further in connection with the
release of judgment, the Company agreed to issue 150,000 shares of common stock
of the Company to Jonathan Moseley, the son of Randy Moseley. The Company
believes that Jonathan Moseley was being advised in this matter by his father,
Randy Moseley and that he had knowledge and experience in financial and business
matters which allowed him to evaluate the merits and risk of the receipt of
these securities of the Company and he was knowledgeable about the Company's
operations and financial condition.
On July 29, 1999, the Company effectuated an agreement with Field of
Cotton, L.P. whereby Field of Cotton, L.P. purchased 6,500,000 shares of common
stock of the Company for a total consideration of $4,250,000, in the form of a
promissory note in the principal amount of $4,022,600, and $227,400 in cash in
the form of funds previously provided to the Company by Field of Cotton, L.P. in
1999. As a result of this agreement, Field of Cotton, L.P. now owns 48.9% of
the common stock of the Company. Of these 6,500,000 shares, Field of Cotton,
L.P. owns 1,000,000 shares outright free and clear, and the remaining 5,500,000
million shares are subject to an escrow agreement and a security interest
agreement in favor of the Company. The terms of the promissory note are that
eleven payments are due commencing September 1, 1999 in the amount of $100,000
per payment, and a balloon payment in the amount of $3,190,213 is due September
1, 2000 for the remaining principal balance. The promissory note bears
interest at the rate of 8% per annum in arrears. For each $100,000 payment that
Field of Cotton L.P. makes to the Company, 200,000 shares are released from
escrow to Field of Cotton, L.P. and are no longer subject to the security
agreement. The Company believes that Field of Cotton, L.P. had knowledge and
experience in financial and business matters which allowed it to evaluate the
merits and risk of the purchase of these securities of the Company. The Company
believes that Field of Cotton, L.P. was knowledgeable about the Company's
operations and financial condition. Each certificate issued for unregistered
20
<PAGE>
securities contained a legend stating that the securities have not been
registered under the Act and setting forth the restrictions on the
transferability and the sale of the securities. No underwriter participated in,
nor did the Company pay any commissions or fees to any underwriter in connection
with any of these transactions. This transaction did not involve a public
offering. Subsequently, on August 20, 1999, Field of Cotton, L.P. announced
that it would not be able to provide the financing. The 5,500,000 million
shares will be canceled.
In August, 1999, the Company issued 600,000 shares to Randy Moseley in
consideration of debt forgiven in 1998 (of approximately $600,000), for
introducing the Company to investors and assisting the Company in obtaining
financing. Mr. Moseley is Director and Officer of the Company. The Company
believes that Mr. Moseley had knowledge and experience in financial and business
matters which allowed him to evaluate the merits and risk of the receipt of
these securities of the Company. The Company believes that Mr. Moseley was
knowledgeable about the Company's operations and financial conditionEach
certificate issued for unregistered securities contained a legend stating that
the securities have not been registered under the Act and setting forth the
restrictions on the transferability and the sale of the securities. No
underwriter participated in, nor did the Company pay any commissions or fees to
any underwriter in connection with any of these transactions. This transaction
did not involve a public offering.
ITEM 5. OTHER INFORMATION.
On July 29, 1999, the Company effectuated an agreement with Field of
Cotton, L.P. whereby Field of Cotton, L.P. purchased 6,500,000 shares of common
stock of the Company for a total consideration of $4,250,000, in the form of a
promissory note in the principal amount of $4,022,600, and $227,400 in cash in
the form of funds previously provided to the Company by Field of Cotton, L.P. in
1999. As a result of this agreement, Field of Cotton, L.P. now owns 48.9% of
the common stock of the Company. Of these 6,500,000 shares, Field of Cotton,
L.P. owns 1,000,000 shares outright free and clear, and the remaining 5,500,000
million shares are subject to an escrow agreement and a security interest
agreement in favor of the Company. The terms of the promissory note are that
eleven payments are due commencing September 1, 1999 in the amount of $100,000
per payment, and a balloon payment in the amount of $3,190,213 is due September
1, 2000 for the remaining principal balance. The promissory note bears
interest at the rate of 8% per annum in arrears. For each $100,000 payment that
Field of Cotton L.P. makes to the Company, 200,000 shares are released from
escrow to Field of Cotton, L.P. and are no longer subject to the security
agreement. The General Partner of Field of Cotton L.P. is Kris Lamans. In
August, 1999, shortly after this transaction, Mr. Lamans was appointed as a
Director of the Company, and Walter Morgan was appointed as the President of the
Company. Randy Moseley continues to be a Director and Chief Financial Officer
of the Company.
Subsequently, on August 20, 1999, Field of Cotton, L.P. announced that it
would not be able to provide the financing set forth in the stock purchase
agreement. Kris Lamans then resigned as a Director of the Company. The
5,500,000 million shares will be canceled. Mr. Morgan was then appointed as a
Director. The Company and Field of Cotton, L.P. also agreed in principal that
21
<PAGE>
Field of Cotton, L.P. would have the right to air programming on the Company's
network under certain conditions during the next three years, with one-half of
the Company's advertising time being given to Field of Cotton, L.P. The
agreement in principal further provides that 275,000 shares of common stock of
the Company be issued to Kris Lamans as compensation for his efforts on the
Company's behalf from April through August, 1999, and that Mr. Lamans be granted
an option to purchase up to 275,000 shares at an exercise price of $1.50 per
share expiring on the earlier of August 20, 2001 or six months after the bid
price of the stock is $1.50 or greater. This agreement in principal is subject
to a definitive agreement.
Biography of Kris Lamans
Kris Lamans, age 61, was appointed as the Chairman and Director of the
Company in August, 1999. Mr. Lamans is the general partner of Field of Cotton,
L.P., which owns approximately 48% of the Company. From 1980 until 1985, Mr.
Lamans was the Executive Producer for Lichen Production, Inc., a motion picture
production company. From 1985 until 1994, Mr. Lamans was the Executive Producer
of Tallman Productions Company.
From 1994 through the present, Mr. Lamans has been the General Partner of
Field of Cotton, Limited Partnership in Canyon Country, California, which
provides financing, development, production, marketing and distribution for
motion pictures, television, video and recording projects.
Mr. Lamans has acted in a leading role in the films "One of the Missing"
and "The Evil", and in a supporting role in the film "Melinda." Mr. Lamans has
acted in leading roles in stage productions of Plaza Suite, Barefoot in the
Park, Raisin in the Sun, The Rainmaker, Tea and Sympathy, The Amen Corner, No
Exit, and the Glass Menagerie. Mr. Lamans is a member of the Broadcast Music
Company, the Screen Actor's Guild (SAG), the American Federation of Television
and Radio Artists (AFTRA), The National Teacher's Association, the National
Entertainment Conference and Omega PSI PHI Fraternity. Mr. Lamans holds a B.S.
Degree (1962) from Grambling University, a Teacher Certification (1966) and
Motion Picture, Television and Video Certification (1969) from Lamar University.
Biography of Walter Morgan
Walter Morgan, age 36, was appointed as CEO and President of the Company in
August, 1999. From 1991 until 1996, Mr. Morgan was an entertainment agent with
The Agency, representing television and film creative talent, such as actors,
directors, writers and producers. From 1996 until 1999, Mr. Morgan was the
owner of Global Entertainment Management, where he was a talent manager and
producer for film and television. Mr. Morgan also has been a film producer for
Interlight Pictures and Film Roman, where he developed, packaged and sold
entertainment media properties for film and television production. Mr. Morgan
has also managed product licensing and product tie-ins for international retail
distribution. Mr. Morgan holds a B.A. Degree (1985) from Princeton University,
and an M.B.A. (1989) from Harvard University.
Transaction with Hispano Television Ventures, Inc.
22
<PAGE>
In August, 1999, the Company entered into an Asset Transfer Agreement (the
"HTV Agreement") with Hispano Television Ventures, Inc. ("HTV") whereby HTV
agreed to pay certain obligations of the Company totaling $82,500, and the
Company agreed to repay this amount to HTV on or before August 20, 1999 and to
give HTV eight months of free use of the satellite uplink equipment and the
satellite transponder, both of which the Company leases from third parties.
The HTV Agreement provides that if the Company does not meet the terms of
the HTV Agreement, then the Company is obligated to immediately transfer and
assign (the "Asset Transfer") to HTV: (i) the leases to the uplink equipment and
the satellite transponder; and, (ii) the Company's FCC Radio Station
Authorization (the "Earth Station License"), which was granted to the Company in
1997. The Earth Station License authorizes the Company to build and operate a
domestic fixed transmit/receive C-band earth station uplink system on the
Company's premises. The Earth Station License expires in July, 2007. The
Company has not yet built the earth station uplink system.
The HTV Agreement provides that if the Asset Transfer is effectuated, HTV
would allow the Company to use the transferred assets for a fee of $22,500 per
month, with one month of free usage, and the Company would be able to continue
providing its programming to its network affiliates.
The leases to the uplink equipment and the satellite transponder, and the
Earth Station License are material and major assets of the Company.
At August 23, 1999, the Company has not repaid HTV and therefore the
Company is in default. The Company and HTV are presently renegotiating the
repayment terms of the
HTV Agreement and for HTV to make a further capital infusion into the Company.
There is no assurance that these negotiations will be successful.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit Number Title of Exhibit
10.1 (*) Stock Purchase Agreement with Field of Cotton, L.P.
10.2 (**) Asset Transfer Agreement
27.1 (**) Financial Data Schedule
______________________
(*) Previously provided as an exhibit to the Company's Form 10-KSB filed
with the Commission on July 29, 1999.
(**) Provided herewith.
(b) The Company did not file any Reports on Form 8-K during the fiscal
quarter ended June 30, 1999.
23
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
American Independent Network, Inc.
August 24, 1999 /s/ Walter Morgan
------------------------------------
Walter Morgan
Director, CEO and President
August 24, 1999 /s/ Randy Moseley
------------------------------------
Randy Moseley
Director, Chief Financial Officer
24
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule Contains Summary Financial Information Extracted from (A)
Unaudited Financial Statements for six months ended June 30, 1999 and Is
Qualified in its Entirety by Reference to Such (B) Quarterly Report on Form
10-QSB.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 845
<SECURITIES> 0
<RECEIVABLES> 18088
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 48933
<PP&E> 1002945
<DEPRECIATION> 233008
<TOTAL-ASSETS> 1526381
<CURRENT-LIABILITIES> 2649008
<BONDS> 0
<COMMON> 305261
0
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<TOTAL-LIABILITY-AND-EQUITY> 1526381
<SALES> 0
<TOTAL-REVENUES> 73464
<CGS> 247998
<TOTAL-COSTS> 488774
<OTHER-EXPENSES> 124897
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 140850
<INCOME-PRETAX> (540207)
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<EXTRAORDINARY> 39624
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</TABLE>
