U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 1996
Commission file number 0-18612
TV COMMUNICATIONS NETWORK, INC.
(Name of small business issuer in its charter)
Colorado 84-1062555
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10020 E. Girard Avenue, Suite 300
Denver, Colorado 80231
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (303) 751-2900
Securities registered pursuant to Section 12 (b) of the Act:
(Name of each exchange
(Title of each class) on which registered)
Common Stock None
Securities registered pursuant to Section 12 (g) of the Act: None
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 _____
Check here if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this
form, and no disclosure will be contained, to the best of the
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. [x]
Issuer's operational revenues for its most recent fiscal year
ending March 31, 1996, were $1,195,368.
The aggregate market value of the issuer's voting stock held
by non-affiliates computed by reference to the average bid and
asked prices of such stock as of June 14, 1996, is $1,498,940
(based on 3,997,174 shares and on average of bid and asked prices
of $0.375).
The number of shares outstanding of each of the issuer's
classes of common equity as of June 15, 1996: 17,981,133 shares
of common stock
Transitional Small Business Disclosure Format (check one): Yes ___
No [x]
<PAGE>
P A R T I
Item 1. DESCRIPTION OF BUSINESS.
Business Development
TV Communications Network, Inc. ("TVCN" or the "Company") was
organized as a Colorado corporation on July 7, 1987. Its
executive offices are at 10020 E. Girard Avenue, Suite 300,
Denver, Colorado 80231, and its telephone number is (303) 751-
2900. The Company was formed to seek business opportunities that
in the opinion of management will provide profit to the Company in
any industry in general and the Wireless Cable TV ("WCTV")
industry in particular.
The WCTV industry was presaged in 1974 when the first
commercial TV station broadcasting on the microwave spectrum began
operating in New York. By 1980 the Federal Communications
Commission ("FCC") had authorized a total of 131 commercial
microwave TV stations, and these stations had an estimated 725,000
subscribers. In most instances, these pre-WCTV microwave stations
provided pay-TV service to the public, although they were also
used for data transmission, educational and non-pay TV purposes.
Prior to 1983 the FCC limited commercial microwave TV stations to
the MDS (Multipoint Distribution Service) band (i.e., 2150 to 2162
Mhz). The stations were thus limited to one or two TV channels.
The majority of these stations were in uncabled metropolitan areas
and other markets where cable TV services were not available. As
cable TV services were introduced to more uncabled areas, the
number of MDS-only stations declined as subscribers began to
switch to cable TV because of the severe limitation on the number
of channels an MDS-only station could carry.
The WCTV industry was created in 1983 when the FCC began
licensing WCTV stations to broadcast multiple TV channels per
station on microwave frequencies. The WCTV frequency spectrum is
now divided by the FCC into groups of frequencies such as MMDS
(Multichannel Multipoint Distribution Service), ITFS
(Instructional Television Fixed Service), OFS (Operational Fixed
Service), as well as the MDS band previously available. MMDS,
MDS, and OFS frequencies are licensed to commercial entities for
commercial use, while ITFS frequencies are licensed to educational
institutions for educational, instructional and cultural TV
programs. However, educational institutions are allowed to lease
any excess capacity on their ITFS channels to commercial entities
for commercial use. A television station that employs MMDS, MDS,
OFS and/or leased ITFS microwave TV channels to broadcast cable TV
programming to subscribers for monthly fees is referred to as a
WCTV station.
The FCC regulates the construction, operation, and reporting
requirements of WCTV stations, which transmit from 4 to 33 TV
channels of programming and have a range of 25 to 50 miles from
the transmitting station. A WCTV station can deliver a variety of
signals, including subscription television, data, and other
related entertainment and communications services. WCTV station
subscribers capture the microwave signals by means of a specially
designed partial parabolic antenna. The captured microwave
signals are then converted down to frequency levels recognizable
by a standard television set.
<PAGE>
Wireless Cable Operations
Salina, Kansas. On June 17, 1994 TVCN leased the WCTV
station in Salina, Kansas to Midas Media of Salina, Inc.
("Midas"). On September 13, Midas filed for Chapter 11 bankruptcy
protection in the United States Bankruptcy Court. As part of its
bankruptcy proceeding, Midas decided to sell all of its assets,
and TVCN was the successful bidder in the bankruptcy court.
TVCN's bid was $200,000 in cash and a waiver of all its claims
against Midas, which claims totaled approximately $115,000. The
bankruptcy court approved the sale of all of the assets of the
Salina station to TVCN free and clear of all encumbrances on March
12, 1996. TVCN is currently operating the Salina station. The
Salina operation broadcasts on 15 channels to a base of 489
subscribers and has two employees.
Mobile, Alabama. The Company's Mobile, Alabama license is
leased to Mobile Wireless TV. For the use of this license the
Company received a promissory note in the amount of $100,000. The
note bears interest at the rate of ten percent, with interest
payable quarterly. The principal is due on May 9, 1997. In
addition, the Company receives a transmission fee which is the
greater of $2,000 per month; $0.50 per subscriber per month; or
two percent of the gross monthly revenues of the station.
Woodward, Oklahoma. The Company's Woodward, Oklahoma license
is leased to Pioneer Telephone Cooperative. The channel lease
provides for transmission fees of $1,000 per month and expires on
March 31, 1997.
San Luis Obispo, California. The Company leased the San Luis
Obispo, California WCTV station to Wireless Telecommunications,
Inc. ("WTCI") on June 15, 1995. On January 1, 1996 WTCI defaulted
on its agreements with the Company, and the Company terminated the
lease on February 14, 1996. On February 28, 1996 the Company
filed suit to repossess the station. ("See "Legal Proceedings"
herein). On June 18, 1996 the Sheriff of San Luis Obispo County
repossessed the station on behalf of the Company, and the Company
has begun operating the station.
Other Stations. The Company owns a station in Hays, Kansas.
In addition, on behalf of its affiliate, Multichannel Distribution
of America, Inc. ("MDA"), the Company constructed three other
stations. These stations of four channel licenses are in Myrtle
Beach, South Carolina; Quincy, Illinois; and Rome, Georgia. In
consideration for building the stations, MDA appointed TVCN as the
operator of the stations. None of these stations has been leased,
and the Company and MDA are considering offering a premium
programming package such as HBO, ESPN, Showtime, and CNN at the
stations as test markets for this strategy. The Company is also
investigating cooperating with other channel operators or leasing
out the stations.
<PAGE>
The FCC Spectrum Auction
From November 13, 1995 to March 28, 1996 the FCC conducted an
auction of a certain portion of the microwave spectrum used by
WCTV stations. In this auction the FCC divided the country into
Basic Trading Areas ("BTAs"), according to certain geographic WCTV
markets. The successful bidder on each BTA acquired the right to
obtain the licenses for all parts of the commercial WCTV spectrum
in the BTA which were not already under license. In order to
qualify to participate in the auction each bidder was required to
pay an up-front payment to the FCC. The Company's up-front
payment was $300,000 with a small business bidding credit of
$400,000.
The FCC conducted the auction as an electronic "simultaneous
multiple round" auction through a specially prepared automated
auction software program. The auction closed after 181 rounds.
Sixty-seven auction participants made successful bids on one or
more BTAs. CAI Wireless Systems, Inc. was the largest participant
in terms of dollar volume, purchasing 32 BTAs for $48.8 million.
Heartland Wireless Communications, Inc. purchased the most BTAs,
acquiring 93 BTAs for a total of $19.8 million.
The Company was the successful bidder on the following 12
BTAs: Clarksburg-Elkins, Fairmount, Logan, Morgantown,
Steubenville and Wheeling, West Virginia; Dickinson and Williston,
North Dakota; Scranton-Wilkes Barre-Hazleton and Stroudsburg,
Pennsylvania; Scottsbluff, Nebraska and Watertown, New York. The
Company's net bid was $1,276,000 (taking into account the 15%
"small business" credit TVCN received). This made TVCN the tenth
largest participant in terms of the number of BTAs acquired, and
the 22nd largest participant in terms of dollar volume. The total
amount outstanding on this obligation is $975,000, which the
Company is financing over ten years as described in the notes to
the Company's financial statements. The Company has not yet
finalized its plans with respect to development of WCTV stations
in these BTAs, and there is no assurance that the Company will
have sufficient resources to develop such stations.
<PAGE>
Sale of WCTV Stations
Washington, D.C.
In 1993 the Company sold its WCTV station in Washington, D.C.
to Eastern Cable Networks of Washington, Inc. ("ECNW"), a
subsidiary of Eastern Cable Network Corp. ("ECNC"). The following
consideration was received by TVCN: (1) a non-refundable deposit
of $50,000.00; (2) payment upon closing of $550,000.00; (3)
payment of $600,000.000 six months after closing; and (4) a $1.3
million dollar promissory note. On August 30, 1995 ECNW sold the
Washington, D.C. system to People's Choice TV Corp. ("PCTV"). At
that time PCTV paid the remaining amounts due to TVCN in the
amount of $1,040,990, and TVCN released its lien on the station.
Detroit, Michigan
In 1994 the Company sold its WCTV station in Detroit,
Michigan to Eastern Cable Networks of Michigan, Inc. ("ECNM"),
another subsidiary of ECNC. The consideration received by TVCN
was $11,000,000.00 payable as follows: (1) a deposit of $250,000;
(2) $2.25 million cash at closing; (3) $500,000 90 days after
closing; (4) up to $2.0 million payable as a function of ECNM's
ability to successfully expand its services; (5) $500,000 nine
months after closing; and (6) a $5.5 million promissory note
secured by a lien upon the entire station.
On August 30, 1995, ECNM sold the Detroit station to a
subsidiary of PCTV. In September 1995 the Company filed a lawsuit
in the District of Columbia Superior Court seeking damages and to
set aside the transaction on the ground that it violated the
agreement pursuant to which TVCN sold the Detroit station to ECNM
in 1994. On January 12, 1996 the parties settled the lawsuit
effective December 31, 1995. Pursuant to the settlement the
Company released ECNC from all liability and consented to PCTV's
assumption of the note secured by the Detroit station (the
"Original Detroit Note"). In return, ECNC and PCTV paid the
Company $614,120 in cash; PCTV assumed the Original Detroit Note;
and one of PCTV's wholly-owned subsidiaries executed a second note
(the "Additional Detroit Note") in favor of the Company in the
amount of $2.15 million. As of March 31, 1996 the total
outstanding deferred purchase price of the Detroit station was
$5,470,358, consisting of the $3,320,358 principal balance of the
Original Detroit Note and the $2,150,000 principal balance of the
Additional Detroit Note. Due to the uncertainty of collection,
the receivable has been written down by $2,392,2333.
Denver, Colorado
In December 1993 the Company sold its Denver, Colorado WCTV
station to American Telecasting, Inc. (ATI), of Colorado Springs,
Colorado. The gross purchase price was determined pursuant to a
contractual formula to be $6,073,500.00. After adjustments, the
net purchase price was $5,868,434.00, payable as follows: (1)
$250,000 at execution of the sales agreement (2) $1,500,000.00 at
closing (3) $250,000 30 days after closing, (4) the balance of
$3,868,634.00 is payable at eight percent (8%) interest in monthly
interest only payments for the first year, $50,000.00 per month
plus interest for the second year, $125,000.00 per month plus
interest for the third year, $83,333.00 per month plus interest
for the fourth year, and $64,036.50 per month plus interest for
the fifth year.
After the closing a dispute arose between the Company and ATI
concerning a number of post-closing contractual price adjustments.
On October 2, 1995 ATI and the Company settled this dispute, and
pursuant to the settlement agreement ATI paid the Company $47,500,
and the parties released one another from all liabilities, except
ATI is still liable to the Company for the promissory note secured
by the Denver station. As of March 31, 1996 the outstanding
principal amount of this note was $2,892,415.
<PAGE>
Mining Business
Mining and Energy International Corp./Liberty Hill Mine
The Company, through its subsidiary Mining and Energy
International Corp. signed an option agreement with Big Trees'
Trust to obtain the right to develop the Liberty Hill Mine in
Nevada County, California. The term of the option is one year
expiring December 8, 1996, with an additional opportunity to sign
a lease for a term of thirty years. During the option period, the
Company is required to pay $40,000 per month as advance royalty or
15% of the ores mined and sold, whichever is greater.
The Company has begun developing the mine. Approximately
$350,000 of the budget has been expended to date, and it is
estimated that it will take another $250,000 to complete, to be
funded by the company. In addition to gold, the mine operator
hopes to produce and sell substantial amounts of silica. The
Company is relying on the expertise of Ray Naylor (who is an
officer in the Company's Century 21 subsidiary) in developing this
mining opportunity.
Century 21/Mountain House Mine
In December 1989, the Company acquired an interest in Century
21 Mining, Inc., a Utah corporation ("Century 21"), whose
principal asset is the Mountain House Mine in exchange for options
to purchase TVCN stock. The Mine is not yet in operation. The
Company's options exchanged with Century 21 shareholders
originally would have expired as of November 30, 1994. The
Company extended the options for three years from November 30,
1994 to November 30, 1997. The Company intends to either lease
the Mountain House Mine to a mining operator or, if financially
feasible, operate the mine. Although TVCN management has no
experience in the operation of a mining property, Century 21
management does have such experience. As of March 31, 1996, the
Company has advanced approximately $387,000 for the assessment
work to maintain the validity of the title to the mine and other
expenses. Since the mine is not yet in operation, the Company
expensed all amounts advanced to
Century 21 in the current year. Although the Company cannot
predict whether adequate financing will become available to
operate the Mine, Management believes that because of the higher
viability of the gold market and the promise the Mountain House
Mine holds, further investment in Century 21 might be warranted.
<PAGE>
Reema International Corp.
Reema International Corp. ("Reema") is a wholly-owned
subsidiary of TVCN incorporated to explore for and develop
business opportunities in the oil and gas industry. Specifically,
Reema is in the business of developing projects designed to
convert natural gas into transportation fuels ("Gas Conversion
Project").
A Gas Conversion Project represents a significant step
forward into the next generation of technology for the production
of transportation fuels. To date, transportation fuels such as
diesel, kerosene and gasoline have been produced primarily from
petroleum. However, as petroleum reserves have declined,
replacement and development costs have increased; and as market
demand has increased and environmental regulations have become
more stringent, the production of transportation fuels from
natural gas has become more economically attractive. In response,
Reema has initiated a project to produce premium-value diesel,
kerosene and gasoline pool material from natural gas and is in the
process of selecting the best location for building its first
facility. The project will be designed and constructed over a
three year period.
The Gas Conversion Project will use proven technologies to
produce approximately 10,000 barrels per day (bpd) of
transportation fuels from 100 million standard cubic feet per day
(mmscfd) of natural gas. The principal process involved utilizes
the FischerTropsch technology which has undergone more than seven
decades of research, development and production. This technology
was used to produce transportation fuels in Germany during World
War II and remains in continuous commercial use today. Currently,
it is being used to make transportation fuels from both coal and
natural gas feedstocks. Diesel fuel produced by this process has
no sulfur, no aromatics, a high cetane number, and a higher
combustion rate (is faster starting) than conventionally produced
diesels.
The demand for clean diesel is substantial now and growing
rapidly in Europe, Asia and the United States. Meeting the higher
quality standards and stricter environmental regulations generally
requires expensive modifications and additions to conventional
refineries using petroleum feedstock. Products from the Gas
Conversion Project represent an economical alternative for meeting
the new standards. In addition, refiners and blenders can use
these products as premium-value blending stock in refineries,
thereby allowing the expanded use of less environmentally
acceptable products without additional processing. In many cases
this use will allow refineries to avoid costly capital
expenditures for upgrading petroleum derived products. Initial
market analyses indicate significant premiums will be paid for
transportation fuels derived from natural gas. Preliminary
evaluations of the technology, capital cost, operating cost and
product revenues have been completed by Reema. Information from
prospective licensors who have actual operating experience with
this technology has been utilized in these evaluations. The
economics are based on a plant that will produce 10,000 barrels
per day of product and cost $275 million (U.S.) to design,
construct and put into operation.
Total investment requirements for the project are estimated
at $275 million, including costs for working capital, spare parts,
licenses, start-up, escalation and interest during construction.
Reema anticipates funding 70% by borrowed funds and 30% by equity
participation. The debt portion may be obtained as supplier
credits, bond issues, bank loans or from other sources. It is
anticipated that the equity portion will be obtained from program
participants including Reema, and potentially the gas supplier,
licensor(s), engineering and construction contractor(s), product
customers and other investors. There can be no assurance that
such financing will be obtained.
Reema is currently evaluating technologies, proceeding with
preliminary process design, evaluating funding alternatives and
prospective investment bankers, analyzing project economics and
negotiating agreements (gas supply, product sales, project
financing). It is anticipated that a consortium will be formed to
develop, construct, own and operate the facility. The consortium
participants will consist of Reema and other equity participants
with a vested interest in the project's success. The consortium
participants will nominate and select representatives to form a
management committee to provide overall direction, and to
represent the owners' and investors' interests. Reema will be the
project manager and plant operator. It will make and implement
the day to day decisions required to design, procure, construct
and operate the facility and to market the products.
Reema's day-to-day operations are managed by its Senior Vice
President, Glen Clark. Mr. Clark has over 44 years experience,
both domestic and international, in the process industry. His
expertise includes operations, technical, quality control,
environmental/regulatory issues, project development, and
marketing. He has a BS in chemical engineering from Pennsylvania
State University and a MBA from New York State University. Mr.
Clark's prior experience includes positions as manager of the
Environmental Department at Ford Bacon & Davis Technologies, Inc.,
manager of the Engineering and Design Drafting group of Gulf
Interstate Engineering, manager of world wide operations at M.W.
Kellogg, and manager of synfuel project activities at Bechtel
Petroleum. Prior to joining Bechtel Mr. Clark spent 27 years with
Allied Chemical Corporation, where he progressed from an entry
level shift foreman to vice-president of the company.
<PAGE>
Internet Business Opportunities
On February 16, 1996 the Company incorporated its wholly-
owned subsidiary, Planet Internet Corp. to explore business
opportunities on the internet and the world wide web. Currently,
though Planet Internet has looked at a number of opportunities,
management has not decided to pursue any at this time. The day-
to-day operations of Planet Internet are managed by Jad Duwaik,
who is Omar Duwaik's son.
Middle East Investment Authorization
At a special meeting of the Company's board of directors held
on December 13, 1995, Omar Duwaik was authorized to explore
investment opportunities in the Middle East. Mr. Duwaik was
authorized to enter into such agreements as were necessary and to
invest in a holding company on behalf of the Company if he deemed
such an investment to be in the best interests of the Company. To
date Mr. Duwaik has explored numerous investment opportunities.
However, none have met the criteria he has established for making
such an investment. Therefore, although Mr. Duwaik was authorized
to commit up to $3 million, no funds have been expended to date
pursuant to the board's authorization. Pursuant to its general
policy of seeking shareholder approval of major investments, the
Company will seek shareholder approval of any investment made
pursuant to this authority.
Jordanian Communications Company
The Jordanian Communications Company ("JCC") was
incorporated by a Jordanian group representing three banks in
Jordan and is headed by a former Jordanian minister. JCC's
primary purpose is to provide data communications services to
banks and commercial entities. Through extensive lobbying efforts
Mr. Duwaik was able to secure TVCN's participation in JCC, and the
Company made a $179,826 investment.
Prior to making the TVCN investment, JCC was negotiating with
another company for a possible contract for the construction of a
data communications system in Jordan. By making its investment,
TVCN was hoping to receive the award of said contract. However,
TVCN has requested a refund of its investment.
<PAGE>
Convention Network 96
The Company has agreed to invest approximately $100,000 in a
limited liability company named Convention Network 96, LLC
("CN96"). CN96 has acquired from Spectadyne, Inc. (the producer
of Spectravision seen in hotels around the world) an option to
broadcast a "convention" channel to the guests staying at the
hotels serving the Republican National Convention in San Diego and
the Democratic National Convention in Chicago. The other
principals of CN96 are Jay Fetner and Christine Dolan. Mr. Fetner
and Ms. Dolan are currently in the process of securing sponsors
for the program. If sufficient sponsors commit to the program,
Ms. Dolan will be in charge of producing the programming for the
channel. TVCN is entitled to half of the profits of the venture
after the return of the original $100,000 investment. However,
there is no assurance that sufficient sponsorship revenues will be
received to make TVCN's investment in CN96 successful.
Qatari WCTV Station
In 1992 the Company received a contract from Qatari
Government
Telecommunications Corporation ("Q-Tel") to build a WCTV station
in Doha, Qatar and train operations personnel. The Company built
the station in 1993, and a provisional acceptance certificate for
the station was issued on August 14, 1993. Through May 1996 TVCN
personnel assisted in the management and operation of the station
and trained Qatari personnel. TVCN has guaranteed the supply of
all compatible equipment and spare parts that may be needed for
the maintenance, and refurbishment of the equipment, and the
continuation of the WCTV operation without interruption over a
period of 10 years. The Company does not expect any material
expenses associated with the guaranteed supply. The Qatari cable
system was awarded "Cable Operator of the Year" honors at the
CABSAT '95 (cable and satellite exhibition).
<PAGE>
Business of Issuer
Principal Services and Markets
The Company owns MMDS licenses in Mobile, Alabama, San Luis
Obispo, California, Salina, Kansas, and Hays, Kansas. The
Company's MMDS license in Mobile is leased to an independent WCTV
operator. The Company constructed stations in Myrtle Beach, South
Carolina; Quincy, Illinois; Rome, Georgia; and Woodward, Oklahoma
under authority from MDA.
Currently, the only WCTV stations the Company is operating
are in the Salina, Kansas and San Luis Obispo, California areas.
The Company is leasing its Mobile, Alabama license as well as the
Woodward, Oklahoma license (under authority from MDA).
The Company offers its services to private homes, apartments
and commercial properties including stores, bars, restaurants,
office buildings, and hotels/motels.
Distribution Methods
In any given market, the number of channels a WCTV station is
able to offer to its subscribers is limited by the number of WCTV
channels available to the operator (including any channels leased
from other licensees) and the terms of the leases under which
leased channels are used. In addition, the nature of the
subscribers' receiving equipment and the availability of funds for
the necessary capital investment affects the quality of the
station's services.
The so-called "head-end" equipment at a WCTV broadcast
station typically includes satellite receiving equipment,
descramblers, transmitters, combiners, waveguides and
omnidirectional or cardiode antennae located at the tower site in
each location. Television programming, received via satellite at
each broadcast facility is retransmitted over microwave
frequencies in a scrambled mode over the WCTV channels owned or
leased by the WCTV operator. The signal is received by the
subscriber's reception equipment. The scrambled signal is then
decoded at each television outlet by an authorized set-top
converter.
Subscriber reception equipment typically consists of a
television antenna designed to provide reception of VHF/UHF off-
air programming (provided as an option to consumers), a microwave
receive antenna (about 27" tall and 18" wide), a downconverter, a
set-top converter (descrambler and channel selector) and various
other component parts.
<PAGE>
Competition
The Company competes for viewers with the television
networks, independent television stations and other video media
such as cable television, satellite television program services
and video cassettes.
The most common source of competition to a WCTV station is
traditional cable television. Most cable television systems are
able to offer a greater number of channels to their audiences than
most WCTV stations. In addition, most cable television systems
supply some programming that is not available on WCTV stations,
including a wide range of advertiser-supported and subscription-
supported video programming services. New compression technology
is presently being tested which could allow WCTV operators to
offer many more channels by compressing more than one TV channels
of programming onto each licensed channel. However, the same
technology is being developed for cable usage and DBS usage, so
the effect of the technology cannot be predicted with certainty at
this time. In addition, there is no certainty that deployment of
such technology for any of its present or future stations will be
within the Company's financial capacity.
Other sources of competition include low power television
stations and direct satellite-to-home transmissions. Wireless and
traditional cable communication systems face substantial
competition from alternative methods of distributing and receiving
television signals and from other sources of entertainment such as
movie theaters and home video rentals.
Finally, in most areas of the country, including areas served
by the Company, off-air programming, can be received by viewers
who use their own antenna. The extent to which a WCTV operator
competes with off-air programming depends upon the quality and
quantity of the broadcast signals available by direct antenna
reception compared to the quality and diversity of the operator's
WCTV programming.
Advances in communications technology and changes in the
marketplace are constantly occurring. Thus, it is not possible to
predict the effect that ongoing or future developments might have
on the cable communications industry. The ability of the
Company's systems to compete with present, emerging and future
distribution media will depend to a great extent on obtaining
attractive programming. The continued availability of sufficient
quality programming may in turn be affectedby the developments in
regulation or copyright law. In addition to management and
experience factors, which are material to the Company's
competitive position, other competitive factors include authorized
broadcast power allowance, number of leased channels, access to
programming, and the strength of local competition. The Company
competes with a great number of other firms in all phases of its
operations, many of which have substantially greater resources
than the Company.
<PAGE>
Agreements with Program Suppliers
A WCTV operator can offer its subscribers a broad range of
television programming, including popular channels like ESPN, CNN,
WTBS, DISCOVERY, LIFETIME, CNBC, WGN, NICKELODEON, WWOR, A&E, USA,
CMTV, MTV, SCOLA, SHOWTIME, as well as the local ABC, NBC, CBS,
and FOX affiliates, PBS stations independent stations, and local
UHF channels. The Company has agreements with World Satellite
Network to provide programming for its Salina and San Luis Obispo
stations.
Patents, Trademarks and Licenses
The Company owns MMDS licenses in Mobile, Alabama, San Luis
Obispo, California, Salina, Kansas, and Hays, Kansas. All
licenses issued by the FCC are subject to renewal. The Company
has also constructed stations in Myrtle Beach, South Carolina,
Quincy, Illinois, Rome, Georgia, and Woodward, Oklahoma under
authority from MDA, an affiliate which holds the MMDS licenses for
these stations.
In addition, the Company successfully bid on twelve Basic
Trading Areas (BTAs) in the recent FCC auction of a portion of the
microwave spectrum (see "FCC Auction" herein). The Company
anticipates that the FCC will issue licenses for these BTAs in due
course.
The Company's wholly-owned subsidiary, Planet Internet
Corporation, recently registered the trademark "fun.edu" with the
Colorado Secretary of State (see "Internet Business Opportunities"
herein).
The Company holds no patents.
Governmental Regulation/FCC Licensing
The operations of the Company are not subject to regulation
by any state or local government. However, the WCTV portion of
the Company's activities are subject to FCC regulations. The
Company's ability to continue providing WCTV programming is
dependent upon continued FCC qualification of the Company as the
licensee (or lessee) of the channels comprising such system. In
any given market the microwave broadcast spectrum is divided into
33 channels.
These channels are further divided into groups as follows:
<PAGE>
<TABLE>
<CAPTION>
No. of
Channel Group Channels
_____________ _________
<C> <C>
A Group 4
B Group 4
C Group 4
D Group 4
E Group 4
F Group 4
G Group 4
H Group 3
Channel 1 1
Channel 2 1
_____
Total 33
</TABLE>
<PAGE>
Of the 33 channels in this part of the spectrum a commercial
WCTV operator can own directly the licenses for the eight MMDS
channels (groups E and F), the OFS channels (group H) and the MDS
channels (channels 1 and 2). This allows a WCTV operator to own
directly up to thirteen (13) channels. In addition, the FCC has
authorized educational licensees of ITFS channels (groups A, B, C,
D and G) to lease their excess capacity for commercial use,
including subscription television service.
Broadcasting licenses for WCTV facilities are granted for a
maximum period of ten years, and are renewable upon application.
Prior to the expiration of a license, the licensee must submit an
application for renewal of the license evidencing that the
licensee has been complying with the FCC's rules and regulations.
While there can be no assurance that renewal of a license will be
granted, historically, such licenses have been renewed if the
licensee has complied with the FCC's rules and regulations for the
operation of the facilities, as well as the rules relating to the
types and nature of transmission equipment.
From time to time legislation may be introduced in Congress
which, if enacted, might affect the Company's operations.
Proceedings, investigations, hearings and studies are periodically
conducted by Congressional committees and by the FCC and other
government agencies with respect to problems and practices of, and
conditions in the subscription TV industry.
On February 8, 1996, President Clinton signed into law the
Telecommunications Act of 1996 ("the Act"), the most sweeping
overhaul in the 60 year history of the Communications Act. The
Act does not completely replace the older law, but rather deletes
some parts, adds new ones and augments others. The Act's primary
purpose is to open the entire range of telecommunications services
to greater competition and cross service providers. The Act is
not completely self-executing, however, so the FCC must enact
regulations to implement the Act's provisions.
Two actions taken by the FCC as a result of the Act are
particularly important to the Company's ongoing business in the
wireless cable industry. First, the FCC has proposed a rule that
would preempt the local zoning regulation of MMDS antennas, thus
allowing the placement of antennas in areas in which they had been
prohibited. The rule would establish a rebuttable presumption
that state or local regulations are unreasonable if they effect
the installation, maintenance or use of MMDS antennas. The FCC
has also streamlined its ITFS application process by delgating
processing authority to the FCC staff. As many WCTV systems rely
on leasing excess ITFS channel capacity, the new procedures should
benefit the wireless cable industry by making more such licenses
available.
The information contained under this section does not purport
to be a complete summary of all the provisions of the
Communications Act and the rules and regulations of the FCC
thereunder, or of pending proposals for other regulation of MMDS
stations and related activities. For a complete statement of such
provisions, reference is made to the Communications Act, and to
such rules, regulations and pending proposals thereunder.
<PAGE>
Employees
As of March 31, 1996, the Company had 15 employees, with one
stationed in Qatar.
Capital
Providing television programming requires substantial initial
capital outlays. While contracts with respect to the providing of
such services are intended to have terms sufficient to provide for
the recovery of the Company's investment, together with a
favorable return on its investment, the Company's continued
expansion is largely dependent on its ability to raise capital for
the costs of any of its new business endeavors.
Since inception, the Company financed its capital and
operating cash requirements through loans and advances from the
Company's president, and the sale of common and preferred stock.
The Company is now considering different debt financing options.
There is no certainty that the Company will be able to obtain all
required financing.
Summary
The most dominant industry about which financial information
is presented elsewhere in this report is the construction, sale,
lease and operation of WCTV stations. The principal service is
the providing of subscription TV programs to commercial and
private subscribers. The method of distribution is by over-the-
air microwave signals. The leasing of MMDS and other microwave TV
channels is essential to this business. The practice of the
Company relating to working capital is to have an adequate amount
of inventory and in particular the receiving equipment for the
installation of new subscribers. The Company's competitive
position is second to the cable TV operators. The Company's
principal methods of competition includes lower price, better
service, and product performance (better picture quality).
Another advantage is the ability of the microwave signal to reach
subscribers in areas not economically feasible for the cable TV
operators. Increasingly, satellite television program services
are competing with the Company. The negative factors include a
lesser number of channels and consequently a lesser number of
programs. As disclosed above, the Company is also exploring other
business opportunities, including mining, internet, and gas
conversion projects.
<PAGE>
Item 2. DESCRIPTION OF PROPERTIES.
The Company retains ownership of substantially all system
equipment necessary to provide its services to subscribers. Such
system equipment includes all reception and transmission equipment
located at the tower (i.e., the head-end equipment), reception
equipment located at each subscriber location (i.e., subscriber
equipment) and related computers, diagnostic equipment and service
vehicles and facilities. The Salina, Kansas system equipment is
valued at $200,00. The Company's WCTV facilities are, in the
opinion of management, suitable and adequate by industry
standards.
The Company owns its executive offices in Denver, Colorado.
The Company also owns a warehouse in Detroit, which is leased to
PCTV at the rate of $4,000 per month until March 1999, and vacant
land in Arapahoe and Jefferson Counties in Colorado, which is
being held for future development. Physical assets of the
Company, except for the mortgage on corporate headquarters, are
not held subject to any major encumbrance.
Item 3. LEGAL PROCEEDINGS.
(1) TVCN is the Defendant in a class action suit by two
shareholders of TVCN filed on April 2, 1996 in the United States
District Court for the District of Colorado under Case No. 94-D-
837. MERTON FREDERICK, as Trustee of the M&M Frederick, Inc.
Profit Sharing Plan, f/k/a M&M Frederick, Inc. Defined Benefit
Pension Plan; and F.S. WORKMAN; on Behalf of Themselves and All
Others Similarly Situated, are the Plaintiffs, and the Defendants
are TV COMMUNICATIONS NETWORK, INC., TVCN OF MICHIGAN, INC., TVCN
OF WASHINGTON, D.C., INC., INTERNATIONAL INTEGRATED SYSTEMS, TVCN
INTERNATIONAL, INC., INTERNATIONAL EXPORTS, INC., OMAR DUWAIK,
JACOB A. DUWAIK, KENNETH D. ROZNOY, SCOTT L. JENSON, AND SCOTT L.
JENSON, P.C.
The Plaintiffs allege that the Company incorrectly stated the
value of its assets. The class action suit alleges that had the
financial condition of TVCN been fully and fairly disclosed to the
Plaintiffs and other shareholders they would not have purchased
TVCN securities. On March 8, 1996 the court certified a class,
and notice to the class has been sent. Defendants have filed
three motions for summary judgment on different issues. One
motion has been denied and the other two are pending. No trial
date has been set. Discovery is being conducted in the case, and
the Company is vigorously defending the case.
<PAGE>
(2) The Company is the plaintiff in TV Communications Network,
Inc. v. Wireless Telecommunications Network, Inc. filed February
28, 1996 in the Superior Court of San Luis Obispo County,
California. In this case TVCN alleges that Wireless
Telecommunications, Inc. ("WTCI") defaulted under certain
agreements it entered into with TVCN in June 1995 and is seeking
to obtain a money judgment against WTCI and repossess the San Luis
Obispo WCTV station. No trial date has been set and discovery is
under way. TVCN expects to prevail in this litigation. As part
of its litigation strategy WTCI attempted to sue TVCN on the
identical issues in Pennsylvania, the home of WTCI. TVCN
considers the Pennsylvania action to be frivolous and expects it
to be dismissed. On June 18, 1996 the Sheriff of San Luis Obispo
County repossessed the station on behalf of the Company, and the
Company has begun operating the station.
(3) The Company knows of no other litigation pending, threatened
or contemplated, or unsatisfied judgment against it, or any
proceedings in which the Company is a party. The Company knows of
no legal actions pending or threatened or judgments entered
against any Officers or Directors of the Company in their capacity
as such in connection with any matter involving the Company or the
business.
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
SHAREHOLDERS.
No matters were submitted for a vote of security holders of
the Company during the fourth quarter of the fiscal year ended
March 31, 1996.
P A R T II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
The Company's common stock has traded on the over-the-counter
market (OTC) since January 11, 1988. As of March 31, 1996, there
were seven stock brokerage firms making a market in the Company's
common stock. The high bid and low asked prices of the common
stock of the Company have been as follows:
<PAGE>
<TABLE>
<CAPTION>
High Bid Low Ask
Quarter Ending Per Share Per Share
______________ _________ _________
<C> <C> <C>
3/31/94 .19 .14
6/30/94 .50 .20
9/30/94 .50 .20
12/31/94 .25 .19
3/31/95 .13 .15
6/30/95 .10 .05
9/30/95 .08 .03
12/31/95 .06 .02
3/31/96 .07 .02
</TABLE>
<PAGE>
The above quotations reflect inter-dealer prices, without
retail mark-up, mark-down, or commission and may not necessarily
represent actual transactions.
As of March 31, 1996, there were 2,127 record holders of the
Company's common stock.
The Company has not paid cash dividends on its common stock
and does not anticipate paying cash dividends for the foreseeable
future. The Company anticipates that all earnings, if any, will
be retained for development of the Company's business.
NASDAQ Listing
The Company made an application to have its common stock
listed and quoted on the NASDAQ System. The application was
denied. One of the requirements for listing on NASDAQ is that the
common stock of the company requesting inclusion have a minimum
bid price of $3.00 per share. The current price of the stock does
not meet the requirements of NASDAQ. The Company intends to
reapply for listing when the listing requirements are met.
<PAGE>
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The total primary operating revenue for 1996 was $1.2 million
compared to $1.6 million in 1995. The decrease is due to the
lower commitment fees from channel leases. The net income for
1996 was $512,000 compared to $777,000 last year. The difference
is due to the recognition of revenue from the payment in its
entirety of the note for the sale of the Washington, D.C. station
less the write off of advances. Expenses for 1996 were $3.8
million compared to $2.9 million in 1995. The difference is due
to the write off of advances to Century 21 and Reema
International.
Salaries and wages were $742,000 in 1996 compared to $568,000
in 1995. Staffing has remained relatively constant, but is
expected to increase due to the re-acquisition of the Salina and
San Luis Obispo systems and anticipated operations relating to the
internet.
<PAGE>
<TABLE>
SUMMARY INCOME STATEMENT
HIGHLIGHTING NET OPERATING INCOME
BEFORE INTEREST, DEPRECIATION & AMORTIZATION
<CAPTION>
1996 1995
____ ____
<S> <C> <C>
Revenues $1,195,368 $1,592,475
Operating expenses $3,364,863 $2,514,549
$(2,169,495) $(922,074)
Interest, depreciation and
amortization before gain on the
sale of cable operations and
cumulative effect of a change
in accounting method $404,724 $336,597
OPERATING LOSS $(2,574,219) $(1,258,671)
============ ============
</TABLE>
<PAGE>
This table shows the effect of operating expenses on net
income, interest expense and the non-cash items, depreciation and
amortization. This presentation is not an alternative to GAAP
operating income as an indicator of operating performance, but
will show net operating income before non-cash items and interest.
As set forth in the attached audited financial statements,
the assets of the Company at the end of March, 1995 and 1996
respectively, were $14,168,587 and $15,287,790. Similarly, the
Company's revenues for the foregoing fiscal years of 1995 and 1996
were $1,592,475 and $1,195,368, respectively. The foregoing
operating activities during fiscal years 1995 and 1996 resulted in
losses of $1,258,671 and $2,574,219, respectively. The gain
recognized on the sale of operations for fiscal year 1995 and 1996
was $2,813,017 and $3,589,919, respectively. The increase
represents the recognition of revenue resulting from the payment
of the note for the sale of the Washington, D.C. station. The
operating revenue decreased by $397,107 from 1995 to 1996, due
primarily to lower revenues from overseas operations and the write
off of commitment fees from Midas Media in Salina, Kansas.
Management fees in Qatar accounted for $90,000 in 1995 while the
remaining revenues were generated from channel lease fees, the
sale of the wireless operations, and interest income from the
notes receivable. The gain recognized on the sale of operations
for fiscal year 1995 and 1996 was $2,813,017 and $3,589,919,
respectively. The increase represents the recognition resulting
from the payment in full of the note for the sale of the
Washington, D.C. station.
<PAGE>
Liquidity and Capital Resources
The business of the Company requires substantial capital
investment on a continuing basis and the availability of a
sufficient credit line or access to capital financing is essential
to the Company's continued expansion. The Company's cash flows
for the years ended March 31, 1996, and 1995, are summarized as
follows:
<PAGE>
<TABLE>
<CAPTION>
March 31 March 31
Cash Provided By (Used In) 1996 1995
__________________________ __________ ____________
<C> <C> <C>
Operations $(2,049,974) $(2,258,342)
Investing activities 2,719,968 (370,217)
Financing activities (243,941) 145,917
---------- -----------
Net increase (decrease) $426,053 $(2,482,642)
========== ============
</TABLE>
<PAGE>
The sale of the Denver, Colorado, Washington, D.C., and
Detroit, Michigan, systems for approximately $17.5 million with a
resulting gain of $15.5 million are expected to adequately cover
the Company's current liabilities along with helping the Company
develop other wireless cable TV markets in the United States, and
explore other business opportunities domestically and
internationally.
Currently, the Company has $1,543,941 in long term debt which
is primarily for the purchase of the TVCN corporate headquarters
building in Denver, Colorado and the purchase of 12 BTAs from the
FCC (see FCC Spectrum Auction herein).
The Company's current assets and liabilities are $7,136,684
and $4,742,525 respectively. The Company's cash position is such
that management anticipates no difficulty in its ability to meet
its current obligations.
<PAGE>
Cash Investments
The president and a shareholder have advanced loans to the
Company totaling $1,362,902. No equity transactions occurred in
1994, 1995 or 1996.
Income Tax Developments
Since its inception the Company has incurred operating losses
through March 31, 1996, which include certain accrued expenses
that are not deductible for tax purposes until paid. The Company
has net operating loss carry forwards available to offset future
year taxable income. The following summarizes these losses.
Net Operating
Loss Carryforward Year of Expiration
----------------- ------------------
As of March 31, 1996 $1,700,000 2008
Inflation:
Inflation did not significantly impact the Company's
operations in the periods discussed above since many of the costs
incurred by the Company are fixed in nature.
<PAGE>
<TABLE>
Selected Financial Data:
<CAPTION>
Year ended
March 31: 1996 1995 1994 1993 1992
____ ____ ____ ____ ____
Unaudited
<S> <C> <C> <C> <C> <C>
Revenues $1,195,368 $ 1,592,475 $ 4,503,078 $ 8,287,517 $ 1,728,093
Net income
(loss) $512,387 $777,439 $2,256,961 $(2,342,374) $(1,867,574)
Per Share:
Net income
(loss) $.03 $.04 $.13 $(.13) $(.13)
At year end:
Total
assets $15,287,790 $14,168,587 $20,664,798 $7,185,002 $5,321,281
Plant and
Equipment,
net $2,5433,499 $2,064,733 $1,226,090 $3,028,571 $3,472,283
Current
assets $7,136,684 $6,560,906 $8,785,659 $3,482,585 $1,186,729
Total
liabi-
lities $9,610,028 $9,003,212 $16,276,862 $5,054,027 $ 1,941,699
Long term
debt $1,510,240 $512,560 $662,728 $528,082 $645,130
</TABLE>
<PAGE>
The Company has not paid cash dividends on its common stock
and does not anticipate paying cash dividends for the foreseeable
future. The Company anticipates that all earnings, if any, will
be retained for the development of the Company's business.
Capitalization
The capitalization of the Company as of March 31, 1996 is as
set forth in the following table and as more detailed in the
attached audited financial statement:
<PAGE>
<TABLE>
<CAPTION>
Description March 31, 1996 March 31, 1995 March 31, 1994
___________ ______________ ______________ ______________
<C> <C> <C> <C>
Stockholders'
Equity (Deficit):
Common Stock $9,016 $9,016 $ 9,016
Preferred Stock $960,813 $960,813 $960,813
Additional
Paid-In Capital $6,575,211 $6,575,211 $6,575,211
Deficit accumulated $(1,867,279) $(2,379,665) $(3,157,104)
____________ ____________ ____________
Total Stockholders'
equity $5,677,761 $5,165,375 $4,387,936
</TABLE>
<PAGE>
Statement of Financial Accounting Standards No. 107
Disclosures about Fair Value of Financial Instruments
This statement is effective for financial statements issued
for fiscal years ending after December 15, 1992, except for
entities with less than $150 million in total assets in the
current statement of financial position. For those entities, the
effective date is for fiscal years ending after December 15, 1995.
Accounting Standards Not Yet Adopted
Statement of Financial Accounting Standards No. 121 -
Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of is effective for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used and for long-lived
assets and certain identifiable intangibles to be disposed of.
Statement of Financial Accounting Standards No. 123 -
Accounting for Stock-Based Compensation is effective for
transactions entered into after December 15, 1995. This Statement
establishes financial accounting and reporting standards for
stock-based employee compensation plans, including stock purchase
plans, stock options, restricted stock and stock appreciation
rights.
Management believes the adoption of these standards will not
have a material impact on the consolidated financial statements.
Certain oral and written statements of management of the
Company included in the Form 10-KSB and elsewhere may contain
forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 19343, which are intended to be covered by the
safe harbors created thereby. These statements include the plans
and objectives of management for future operations. The forward-
looking statements included herein and elsewhere are based on
current expectations that involve judgments which are difficult or
impossible to predict accurately and many of which are beyond the
control of the Company. In particular the assumptions assume the
collectibility of the notes receivable from the sale of cable
operations, the ability to produce a salable product from the
conversion of natural gas to petroleum products, and the
profitable mining of ores from the Liberty Hill Mine, the ability
to develop the BTA's and markets in which to operate them,
satisfactory resolution of legal maters, and economic, competitive
and market conditions for the Company business operations.
Although the Company believes that the assumptions could be
inaccurate and, therefore, there can be no assurance that the
forward-looking statements will prove to be accurate. In light of
the significant uncertainties inherent in the forward-looking
statements, the inclusion of such information should not be
regarded as a representation by the Company or any other person
that the objectives and plans of the company will be achieved.
Item 7. Financial Statements and Supplementary Data.
The consolidated financial statements of the Company are
filed under this Item, and are included herein by reference.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
On March 31, 1996, the Company signed an engagement letter
with the auditing firm of Ehrhardt, Keefe, Steiner & Hottman, P.C.
of 7979 East Tufts Avenue, Suite 400, Denver, CO 80237 (EKSH or
"Auditor") (Telephone Number: (303) 740-9400; Fax Number: (303)
740-9009.) EKSH also audited the Company's financial records for
fiscal years 1995, 1994 and 1993. The Auditor agreed to audit the
Company's financial records for fiscal year 1996 and assist the
Company in the preparation of the Company's Annual Report on Form
10-KSB.
A representative(s) of the firm will be available at the
annual meeting to respond to any questions and make a statement.
The accountants' report on the financial statements for the
fiscal years 1994, 1995 and 1996 contained no adverse opinions,
disclaimers of opinion, or qualifications as to uncertainty, audit
scope, or accounting principles.
<PAGE>
<TABLE>
P A R T III
Item 9. Directors and Executive Officers.
The following sets forth the name, age, salary and business
experience for the last five years of the Directors and Executive
Officers of TVCN as of March 31, 1996. Unless otherwise noted,
the positions described are positions with the company or its
subsidiaries.
<CAPTION>
Period
Name Age Position Served
____ ___ _________ _______
<C> <C> <C> <C>
Omar A. Duwaik 52 Chairman of the Board,
Chief Executive Officer
and President(1) 1987 to present
Armand DePizzol 64 President, Alert Systems
and CEO of National Direct 1986 to present
Connect Corp.; Director(2) 1989 to present
Dennis J. Horner 49 Vice President-Treasurer,
Director(1) 1994 to present
<FN>
(1) Mr. Omar Duwaik also serves in the same capacities in each of
the Company's wholly- owned subsidiaries; TVCN of Washington,
D.C.,Inc. (1991 to Present); TVCN of Michigan, Inc. (1991 to
present); TVCN Kansas, Inc. (1996), TVCN of California, Inc.
(1996), International Exports, Inc. (1992 to present),
International Integrated Systems (19933 to present), Mining
and Energy International, Inc. (1995 to present), Reema
International Corp. (1993 to present); and Planet Internet
Corp. (1996)
Mr. Dennis Horner also serves in the same capacities in the
Company's wholly-owned subsidiaries.
(2) Armand DePizzol became a director of the Company in September
of 1989.
</TABLE>
<PAGE>
The Company is not aware of any filings on Forms 3 or 4.
All Directors hold office until the next annual shareholders
meeting or until their successors have been elected and qualified.
Vacancies in the existing Board are filled by majority vote of the
remaining directors. Officers of the Company are appointed by the
board of directors. Omar Duwaik and Dennis Horner are employed by
the Company on a full-time basis. Omar Duwaik should be
considered a "founder" and "parent" of the Company (as such terms
are defined by the Securities Act of 1933).
Omar Duwaik, has been the President, CEO and Director of TVCN
since its inception in 1987. Mr. Duwaik has been involved in the
telecommunications, aerospace and electronic industries for the
past 20 years. In 1980, Mr. Duwaik joined Multichannel
Distribution of America ("MDA"), Inc. in Denver as its president.
In 1983, MDA submitted 413 MMDS applications to the FCC, of which
71 were granted to MDA, with no competition, and through a lottery
process, about forty more conditional licenses were granted by the
FCC. For MDA, Mr. Duwaik constructed the first MMDS station in
San Luis Obispo, CA. Under his direction, three more MMDS
stations were constructed in Kansas and Alabama. Mr. Duwaik
received a B.S. Degree in Electrical Engineering, and a B.S.
Degree in Computer Science and an M.S. Degree in Electrical
Engineering Communications from Oregon State University in 1971.
Mr. Duwaik owns 10,023,356 shares of common stock. Mr. Duwaik is
employed on a full time basis with the Company and is compensated
at the rate of $100,000 a year. Mr. Duwaik receives $2,800 per
year in non-cash compensation for the Company-sponsored health
care package.
Dennis J. Horner - Vice President of Finance, Controller,
Director, and Treasurer. Mr. Horner joined the Company in
February, 1994. Mr. Horner received his Bachelor of Science
Degree in December, 1970, from Metropolitan State College. Mr.
Horner received his Master of Business Administration from the
University of Colorado in December, 1974. Mr. Horner continued
his education at the University of Colorado from September, 1977
to June, 1980 majoring in accounting. Mr. Horner became a
Certified Public Accountant in the State of Colorado in 1983. Mr.
Horner also studied at the Colorado School of Mines from
September, 1965, to June, 1968. Mr. Horner has twenty years
working experience. He has four years as assistant controller and
five years as controller for Ryan-Murphy, Inc., BCS, Inc., and
American Medco. Mr. Horner is employed on a full-time basis with
the Company and is compensated at the rate of $43,656 per year.
<PAGE>
Armand L. DePizzol - President of Alert Systems and CEO of
National Direct Connect Corp.. Mr. DePizzol has been a director
since 1989. Mr. DePizzol holds an M.A. in Economics and a B.S. in
Business Administration. He was President of American Technology
& Information, Inc. ("AT&I") from 1984 to 1987 and was in charge
of all operations for that company. Prior to that, Mr. DePizzol
spent seven years overseas with the International Department of
City Bank of New York. During this period he conducted extensive
credit and operational examinations of some thirty foreign bank
branches. Mr. DePizzol was also employed by the Federal Reserve
Bank. He was the first bank examiner to uncover a major
defalcation in the international department of a foreign bank
branch located on the West Coast. He acted as a consultant to the
First of Denver Bank, currently First Interstate Bank. Mr.
DePizzol is also a financial advisor. Recently, he directed the
growth of a transportation company from nine units to more than
forty units within a six month period. He has helped obtain
financing for several turn-around companies and he also holds
various patents.
<PAGE>
Item 10. Executive Compensation.
The following table sets forth the cash remuneration paid or
accrued by the Company and its subsidiaries for services to the
Company in all capacities during the fiscal year ended March 31,
1995, to (i) each of the two most highly compensated officers of
the company, and (ii) all executive officers of the Company as a
group (includes compensation only for those periods of the fiscal
year ended March 31, 1995, for which each such individual was an
executive officer). Following are the salaries of individuals who
are officers receiving a salary from the Company:
Capacities Cash
Name of Individual in Which Served Compensation
- ------------------ --------------- ------------
Omar Duwaik Chairman of the Board of
Directors, President and
Chief Executive Officer $100,000
Dennis J. Horner Vice President, Treasurer,
Director $43,656
Barry K. Arrington Vice President, General
Counsel $80,000
Stock Option Plan
The Company has in effect an incentive Stock Option Plan and
has reserved a total of 2,000,000 shares of the Company's Common
Stock for issuance pursuant to the Plan, designed as an incentive
for key employees, and for acquisitions of business opportunities,
and is to be administered by the compensation committee of the
board of directors, which selects optionees and determines the
number of shares subject to each option. The plan provides that
no option may be granted at an exercise price less than the fair
market value of the shares of the common stock of the Company on
the date of grant. Fair market value is determined by calculation
of an average of the highest and lowest sale prices of the stock,
as reported by a responsible reporting service the committee may
select. The committee is also empowered to determine fair market
value in such other manner as is deemed equitable for purposes of
the plan. The committee expects to determine fair market value in
accordance with quotations of share prices maintained by the
market makers in the Company's shares, if any. Unless otherwise
specified, the options expire five years from date of grant and
may not be exercised during the initial one-year period from date
of grant. Thereafter, options may be exercised in whole or in
part, depending on terms of the particular option. The board of
directors has not selected the compensation committee. As of
March 31, 1996, no options under this stock option plan were
issued. The total number of shares allocated to the plan is
2,000,000.
Compensation Pursuant to Plans
No compensation was paid to executive officers pursuant to
any plan during the fiscal year just ended, and the Company has no
agreement or understanding, express or implied, with any officer
or director concerning employment or cash compensation for
services.
Other Compensation
For the fiscal year ended March 31, 1996, executive officers
received reimbursement of out-of-pocket expenses incurred on
behalf of the Company.
Compensation of Directors
None.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
The following table sets forth certain information regarding
the beneficial ownership of Common Stock by each director and
nominee and by all directors and officers of the Company as a
group and of certain other beneficial owners of more than 5% of
any class of the Company's voting securities as of March 31, 1996
unless otherwise noted. The number of shares beneficially owned
is deemed to include shares of common Stock which directors or
officers have a right to acquire pursuant to the exercise of
options within sixty days of March 31, 1996. Each such person has
sole voting and dispositive power with respect to such securities,
except as otherwise indicated.
Amount of
Name and Position with TVCN, or Name Beneficial Percent
and Address of Greater-than 5% Holders* Ownership of Class
- --------------------------------------- ---------- --------
Omar A. Duwaik
Chairman of the Board of Directors,
President and Chief Executive Officer 10,023,356 55.74%
Dennis Horner: Vice President, Treasurer
and director 1,000 0.01%
All officers and
directors as a group
(Three in number) 10,024,356 55.75%
Taher M. Aldweik**
12483 E. Cedar Circle
Aurora, CO 80012 950,233 5.29%
CEDE & Company
Box 20
Bowling Green Station
NY, NY 10004 1,841,606 10.24%
Total as a Group
(Five in Number) 12,816,195 71.28%
*All informatin refers to common stock.
**Taher Aldweik is a brother of Omar A. Duwaik.
Item 12. Certain Relationships and Related Transactions.
The assignment from MDA to TVCN of four channel licenses in
San Luis Obispo, California; Mobile, Alabama; Salina, Kansas and
Hays, Kansas was approved by the FCC, and the FCC has transferred
the licenses to TVCN.
<PAGE>
P A R T I V
Item 13. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.
The audited financial statements as of March 31, 1996, and
March 31, 1995, are attached hereto.
Page
----
Independent Auditor's Report................................ F-1
Financial Statements
Consolidated Balance Sheet as of March 31, 1996, & 1995..... F-2
Consolidated Statement of Operations for years ended:
March 31, 1996, & 1995...................................... F-3
Consolidated Statement of Cash Flows for years ended:
March 31, 1996, & 1995...................................... F-4
Consolidated Statement of Stockholders Equity for years ended:
March 31, 1996, & 1995...................................... F-5
Notes to Consolidated Financial Statements.................. F-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates
indicated.
Date: June 29, 1996
TV COMMUNICATIONS NETWORK, INC.
By:
Omar A. Duwaik
President/CEO/Chairman of the Board
By :
Dennis J. Horner
Treasurer/Vice President/Director
By :
Armand DePizzol
Director
<PAGE>
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934,
this report has been signed below by
the following persons on behalf of
the registrant and in the capacities
and on the dates indicated.
Date: June 28, 1996
TV COMMUNICATIONS NETWORK,
INC.
By: ss/ Omar A. Duwaik
Omar A. Duwaik
President/CEO/Chairman of
the Board
By: ss/ Dennis J. Horner
Dennis J. Horner
Treasurer/Vice
President/Director
By: ss/ Armand DePizzol
Armand DePizzol
Director
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
March 31, 1996
<PAGE>
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Table of Contents
Page
____
Independent Auditors' Report.................................F - 1
Consolidated Financial Statements
Consolidated Balance Sheets.............................F - 2
Consolidated Statements of Operations...................F - 3
Consolidated Statements of Cash Flows...................F - 4
Consolidated Statement of Changes
in Stockholders' Equity...............................F - 5
Notes to Consolidated Financial Statements...................F - 6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
TV Communications Network, Inc.
Denver, Colorado
We have audited the accompanying consolidated balance sheet of TV
Communications Network, Inc. as of March 31, 1996 and the related
consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the two years in the period
ended March 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of TV Communications Network, Inc. at March 31, 1996 and
the results of their operations and their cash flows for each of
the two years in the period ended March 31, 1996 in conformity
with generally accepted accounting principles.
Ehrhardt Keefe Steiner & Hottman PC
May 1, 1996
Denver, Colorado
[FN]
See notes to consolidated financial statemensts
F-1
<PAGE>
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Consolidated Balance Sheet
March 31, 1996
<TABLE>
<CAPTION>
Assets
<S> <C>
Current assets
Cash $ 1,517,449
Investments 2,186,883
Accounts receivable 111,616
Prepaid expenses 47,855
Inventory 160,030
Current portion of notes receivable (Note 8) 2,505,013
Deferred income taxes (Note 6) 607,838
___________
Total current assets 7,136,684
Property and equipment - net (Notes 2 and 3) 2,543,500
Other assets
Notes receivable (Note 8) 3,667,415
License agreements - net of accumulated
amortization of $408,746 1,359,556
Deferred income taxes (Note 6) 119,503
Other assets (Note 9) 461,131
___________
Total other assets 5,607,605
Total assets $15,287,789
===========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 690,779
Accrued expenses 477,721
Current maturities of long-term debt (Note 3) 33,701
Deferred gain (Note 8) 2,021,245
Income taxes payable 131,722
Advances from stockholder (Note 3) 1,362,902
Subscriber deposits 24,455
___________
Total current liabilities 4,742,525
Long-term liabilities
Long-term debt (Note 3) 1,510,240
Long-term deferred gain (Note 8) 3,357,263
___________
Total liabilities 9,610,028
Commitments (Note 4)
Stockholders' equity (Note 5)
Class A preferred stock, $1 par value;
none issued or outstanding -
Class B preferred stock, $1 par value;
28,813 shares issued and outstanding 28,813
Class C preferred stock, $1 par value;
780,000 shares issued and outstanding 780,000
Class D preferred stock, $1 par value;
4,864,000 shares issued and outstanding 152,000
Common stock, $.0005 par value; 100,000,000
shares authorized,
17,981,133 shares issued and outstanding 9,016
Additional paid-in capital 6,575,211
Accumulated (deficit) (1,867,279)
___________
Total stockholders' equity 5,677,761
___________
Total liabilities and stockholders' equity $15,287,789
===========
<FN>
See notes to consolidated financial statemensts
F-2
</FN>
</TABLE>
<PAGE>
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years Ended
March 31,
1996 1995
__________ __________
<S> <C> <C>
Revenues (Note 11)
Lease income and management fees $ 230,557 $ 511,917
Interest income 874,488 931,527
Other revenue 90,323 149,031
_________ _________
Total revenue 1,195,368 1,592,475
_________ _________
Operating expenses
General and administrative 3,364,863 2,514,549
Depreciation and amortization 218,833 156,431
Interest expense 185,891 180,166
_________ _________
Total expenses 3,769,587 2,851,146
_________ _________
Operating (loss) (2,574,219) (1,258,671)
Gain on sale of cable operations (Note 8) 3,589,919 2,813,017
_________ _________
Income before income taxes 1,015,700 1,554,346
Income tax expense (Note 6)
Current 142,706 123,237
Deferred 360,608 653,670
_________ _________
Net income $ 512,386 $ 777,439
========= =========
Income per weighted average share
of common stock
Primary $ .03 $ .04
========= =========
Fully diluted $ .02 $ .03
========= =========
Common shares and equivalents outstanding
Primary 17,981,133 17,981,133
========== ==========
Fully diluted 23,249,540 23,249,540
========== ==========
<FN>
See notes to consolidated financial statemensts
F-3
</FN>
</TABLE>
<PAGE>
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended
March 31,
1996 1995
__________ __________
<S> <C> <C>
Cash flows from operating activities
Net income $ 512,386 $ 777,439
__________ __________
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities -
Gain on sale of cable operations (3,589,919) (2,813,017)
Depreciation and amortization 218,833 156,431
Deferred income taxes 360,591 653,670
Issuance of notes receivable - (210,000)
Write off of development of mine 309,213 -
Change in certain assets and
liabilities -
Receivables (55,356) 880,228
Inventory 9,115 (169,145)
Prepaid expenses (39,775) 52,593
Other assets (870) (4,135)
Accounts payable (60,055) (1,302,139)
Accrued expenses 270,435 (109,655)
Income taxes payable 15,099 (181,604)
Subscriber deposits 329 10,992
_________ __________
(2,562,360) (3,035,781)
__________ __________
Net cash flows used in
operating activities (2,049,974) (2,258,342)
__________ __________
Cash flows from investing activities
Proceeds from notes receivable 3,766,427 3,176,237
Investments (31,513) (2,155,370)
Other assets (456,126) -
Property and equipment purchases (600,137) (897,490)
Development of mine (71,821) (75,406)
Licenses (300,180) (4,870)
Advances 413,318 (413,318)
_________ __________
Net cash flows provided
by (used in) investing
activities 2,719,968 (370,217)
_________ __________
Cash flows from financing activities
Proceeds from stockholder advances 365,888 329,148
Payments on stockholder advances (515,216) (165,421)
Payments on long-term debt (94,613) (17,810)
_________ __________
Net cash flows (used in)
provided by financing
activities (243,941) 145,917
_________ __________
Net increase (decrease) in cash 426,053 (2,482,642)
Cash - beginning of year 1,091,396 3,574,038
_________ __________
Cash - end of year $1,517,449 $1,091,396
========== ==========
Supplemental disclosure of cash flow information
Cash paid during the year for interest was $191,300
(1996) and $67,205 (1995).
Cash paid during the year for income taxes was $128,597
(1996) and $419,934 (1995).
Supplemental disclosure of noncash investing activities
During the year ended March 31, 1996, the Company was
awarded several Basic Trade Areas (BTA's) by the FCC.
$975,556 of the BTA's were financed by the FCC.
<FN>
See notes to consolidated financial statemensts
F-4
</FN>
</TABLE>
<PAGE>
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders'
Equity
For the Years Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-In Accumulated
Shares Amount Shares Amount Capital (Deficit) Total
_________ __________ __________ _________ ___________ ____________ ___________
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at March 31, 1994 5,672,813 $ 960,813 17,981,133 $ 9,016 $ 6,575,211 $(3,157,104) $ 4,387,936
Net income for the year
ended March 31, 1995 - - - - - 777,439 777,439
_________ __________ __________ _________ ___________ ____________ ___________
Balances at March 31, 1995 5,672,813 960,81 317,981,133 9,016 6,575,211 (2,379,665) 5,165,375
Net income for the year
ended March 31, 1996 - - - - - 512,386 512,386
_________ __________ __________ _________ ___________ ____________ ___________
Balances at March 31, 1996 5,672,813 $ 960,813 1,798,133 $ 9,016 $ 6,575,211 $(1,867,279) $ 5,677,761
========= =========== ========= ========= =========== ============ ===========
<FN>
See notes to consolidated financial statemensts
F-5
</FN>
</TABLE>
<PAGE>
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant
Accounting Policies
Organization
TV Communications Network, Inc. (the "Company") is engaged
primarily in the business of leasing Wireless Cable TV (WCTV)
licenses. In addition, the Company engages in research regarding
the conversion of natural gas and mining for various minerals and
metals through its various subsidiaries.
Principles of Consolidation
The Company's consolidated financial statements include the
accounts of TV Communications Network, Inc. (TVCN) and its wholly-
owned subsidiaries International Integrated Systems, TVCN
International, Inc., and International Exports, Inc., Mining and
Energy International Corp., REEMA International (Note 10), Planet
Internet Corp., and its majority-owned stock position in Century
21 Mining, Inc. All material intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of cash flow reporting, cash equivalents include
repurchase arrangements and certificates of deposit with initial
maturities of less than three months.
Investments
Investments consist of funds invested in government bonds which
are redeemable at the option of the Company and cash secured by
U.S. governmental securities. Investments are recorded at the
lower of cost or market. Cost of the investments approximates
market value.
Investments currently owned by the Company are classified as
available for sale securities. Unrealized holding gains and
losses, when they occur, will be reported as a separate component
of stockholders' equity.
Minority Interest
Minority interest is reflected in consolidation and is the portion
of Century 21 Mining, Inc. stock that is not owned by the Company.
The aggregate loss attributable to the minority interest is in
excess of the minority interest investment and accordingly, the
Company is recognizing 100% of the operating losses.
Revenue Recognition
The Company recognizes revenue when it has substantially completed
all its obligations and has earned the revenue.
F-6
<PAGE>
Note 1 - Summary of Significant Accounting Policies
(continued)
Revenue Recognition (continued)
Profits with respect to sale of the Company's Denver Cable
operations are being recorded on the installment sale method while
profit with respect to the Detroit and Washington D.C. sales are
being recorded using the cost recovery method (Note 8).
Licenses
The Company purchased several Multichannel Distribution Service
Basic Trading Areas in December of 1995, with a value of
$1,275,556. The initial amount recorded was $300,000 related to
the deposit. The Company recorded the difference in the assets
purchased, in addition to the related liability of approximately
$975,000.
Net Income Per Common Share
Net income per common share is based on the weighted average
number of common shares outstanding inclusive of common stock
equivalents. Common share equivalents included in the computation
assumes the conversion of convertible preferred shares for fully
diluted purposes.
Depreciation and Amortization
Property and equipment are recorded at cost. Depreciation is
provided using the straight-line method over estimated useful
lives of three to seven years. Buildings are being depreciated
over a 31 year life using the straight-line method. It is the
policy of the Company to charge operations for maintenance and
repairs, and to capitalize expenditures for renewals and
betterments. Licenses are recorded at cost which includes
equipment. Amortization is provided using the straight-line
method over the life of the licenses from 5-10 years.
Inventory
Inventories are carried at the lower of cost, determined on the
weighted average method, or market. Inventory consists of
installation materials which are held for resale or expected to be
used in the next year.
Concentration of Credit Risk
Cash accounts potentially subject the Company to concentration of
credit risk. The Company places its cash with high credit quality
financial institutions and, by policy, limits the amount of credit
exposure to any one financial institution. At March 31, 1996,
there was approximately $1,202,000 in one bank in excess of the
federally insured limit.
F-7
<PAGE>
Note 1 - Summary of Significant Accounting Policies
(continued)
Accounting Standards Not Yet Adopted
Statement of Financial Accounting Standards No. 121 - Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of is effective for fiscal years beginning after
December 15, 1995. This Statement establishes standards for the
impairment of long-lived assets, certain identifiable intangibles,
and goodwill related to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be
disposed of.
Statement of Financial Accounting Standards No. 123 - Accounting
for Stock-Based Compensation is effective for transactions entered
into after December 15, 1995. This Statement establishes
financial accounting and reporting standards for stock-based
employee compensation plans, including stock purchase plans, stock
options, restricted stock and stock appreciation rights.
Management believes the adoption of these standards will not have
a material impact on the consolidated financial statements of the
Company.
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 reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Note 2 - Property and Equipment
The following summarizes the property and equipment:
<TABLE>
<CAPTION>
March 31,
1996
___________
<S> <C>
Office furniture and equipment $ 509,743
Transportation equipment 202,206
Transmission equipment 200,123
Land 1,207,926
Office building 726,849
___________
2,846,847
Less accumulated depreciation (303,348)
___________
Total $ 2,543,499
===========
</TABLE>
F-8
<PAGE>
Note 3 - Long-Term Debt and Stockholder Advances
<TABLE>
<CAPTION>
Long-Term Debt March 31,
______________ 1996
_________
<S> <C>
Mortgage payable in connection with
the purchase of an office building
and related land, maturing in 2000.
Interest at 10% with monthly payments
of $6,168. Collateralized by land and
building with a net book value of $882,433. $ 512,283
Note payable in connection with purchase
of a vehicle maturing in 1998. Interest
at 9% with monthly payments of $2,383.
Collateralized by a vehicle. 56,102
Note payable in connection with the purchase
of several Basic Trade Areas maturing in
2006. Interest at the effective 10 year
treasury obligation at the time of issuance
(6.34% at March 31, 1996), plus 2.5%.
Quarterly interest payments are due commencing
at the time of issuance, with principal and
interest payments to begin two years subsequent
to issuance, due ten years after issuance. 1,020,556
_________
1,588,941
Less current maturities (33,701)
_________
Long-term debt $ 1,588,941
===========
</TABLE>
The aggregate annual maturities of long-term debt principal at
March 31, 1996 are as follows:
<TABLE>
<CAPTION>
Year Ending March 31,
_____________________
<S> <C>
1997 $ 33,701
1998 36,963
1999 87,255
2000 584,566
2001 112,121
Thereafter 734,335
__________
$1,588,941
==========
</TABLE>
F-9
<PAGE>
Note 3 - Long-Term Debt and Stockholder Advances
(continued)
Stockholder Advances
Stockholder advances bear interest at 8%. Interest expense on
stockholder advances totaled $100,333 (1996) and $96,415 (1995).
Note 4 - Commitments and Contingencies
Leases
The Company leases radio towers with leases expiring through 1997.
Total lease expense for the years ended March 31, 1996 and 1995
was $19,480 and $5,436, respectively.
The Company is a lessor of real property under an operating lease
which commenced on March 16, 1994 and expires April 14, 1999.
The five year minimum lease receipts are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 51,000
1998 50,250
1999 44,000
__________
$ 145,250
==========
</TABLE>
Commitments
The Company has guaranteed the supply of all compatible equipment
and spare parts that may be needed for the maintenance, and
refurbishment of the equipment and the continuation of the WCTV
operations in Qatar without interruption over a period of ten
years, ending in 2006.
Liberty Hill Mine
During the year ended March 31, 1996, a wholly owned subsidiary of
the Company entered into an agreement with an unrelated Company
where it has an option to enter into a 30 year lease in order to
explore and mine during the term of the lease. The option
provides for the greater of $40,000 per month, or 15% of the
monthly gold production of the mine. The option terminates upon
execution of the lease, default of the option payments or December
8, 1996, whichever occurs first. The lease agreement requires a
$500,000 non-refundable advance royalty payment, and a minimum
monthly royalty payment of the greater of $40,000, 15% of the
monthly gold production of the mine unless the average
concentration of gold produced is greater than .03 ounces per
short ton, when the share of gold production is increased to 20%
of production. In addition, the Company would be required to pay
$3.00 per ton for silica and barite sold from the premises.
F-10
<PAGE>
Note 4 - Commitments and Contingencies (continued)
Contingencies
TVCN is the defendant in a class action suit by a shareholder of
TVCN. The case is in the United States District Court wherein
Merton Frederick, on behalf of himself and all others similarly
situated is the plaintiff and the defendants are TV Communications
Network, Inc. TVCN of Michigan, Inc., TVCN International, Inc.,
International Exports, Inc., Omar Duwaik, Jacob A. Duwaik, Kenneth
D. Roznoy, Scott L. Jenson, and Scott L. Jenson, P.C. The class
action suit alleges that had the financial condition of TVCN been
fully and fairly disclosed to the plaintiff and other
shareholders, they would not have purchased TVCN securities. The
plaintiff is requesting to represent the other shareholders,
receive an award for damages plus interest and be reimbursed for
attorney fees. The outcome of this litigation is not currently
predictable.
Note 5 - Stockholders' Equity
Class A Preferred Stock
Class A Preferred Stock entitles the holder to convert the
Preferred Stock at the rate of one Class A Preferred Share for
4.167 shares of Common Stock of the Company. Class A Preferred
Stock is participating stock, and carries a cumulative dividend of
nine percent (9%) per annum, compounded quarterly, on the issued
and outstanding Class A Preferred Stock. Holders of the Class A
Preferred Stock are not entitled to convert their Class A
Preferred Stock into Common Stock in the event the Company calls
such Preferred Stock to redemption at $1.00 per share, plus any
unpaid dividends, if any. No Class A Preferred Shares have been
issued to date.
Class B Preferred Stock
Class B Preferred Stock is participating but non-cumulative stock.
The holders of Class B Preferred Stock are entitled to receive
non-cumulative dividends from the Company's net profits at the
rate of up to nine percent (9%) when and if declared by the Board
of Directors. Holders of Class B Preferred Stock are not entitled
to receive dividends if profit is not allocated for such
distribution by the Board of Directors. Class B holders are
entitled to convert their Preferred Stock into Common Stock at the
rate of two shares of Class B Preferred Stock for one share of
Common Stock, and are given a thirty day (30) notice to convert if
such Preferred Stock is called for redemption by the Company.
Pursuant to the Century 21 Mining acquisition, 28,813 Class B
Preferred Shares were issued.
F-11
<PAGE>
Note 5 - Stockholders' Equity (continued)
Class C Preferred Stock
Class C Preferred Stock is non-participating and non-cumulative.
Holders of Class C Preferred Stock are entitled to receive non-
cumulative dividends of up to six percent (6%) per annum from the
net profits of the Company, when and if declared by its Board of
Directors. The conversion rate is two shares of Class C Preferred
Stock for one share of Common Stock. Similar to Class B Preferred
Stock, a thirty day (30) notice is given to holders of Class C
Preferred Stock upon a call for redemption by the Company, during
which thirty day (30) period the holders of Class B or Class C
Preferred Stock are entitled to convert their Preferred Stock into
Common Stock. Other rights and restrictions may apply on any
class of Preferred Stock as agreed upon prior to issuance. The
Company issued 400,000 Class C Preferred Shares to MDA (a company
related by virtue of having several mutual stockholders, officers
and directors) in exchange for Transmission Equipment, and 380,000
Class C Preferred Shares to AT&I (a company related by virtue of
having several mutual stockholders, officers and directors) as
partial payment for the acquisition of the Company's Headquarters
Building. The headquarters building had a fair market value of
$930,000 and the Company assumed a $550,000 mortgage.
Class D Preferred Stock
The Class D Preferred Stock is convertible into common stock of
TVCN at the rate of one Class D Preferred Share for one Common
Share of TVCN, provided that such conversion is not made for a
period of four (4) years from October 1991; and holders of Class D
Preferred Stock shall be entitled to receive non-cumulative and
non-participating dividends from TVCN's net profits at the rate of
up to nine percent (9%) when and if declared by TVCN. The Company
issued 4,864,000 Class D Preferred Shares pursuant to the asset
acquisition from Microband.
The Company bid on certain assets and businesses of Microband
together with MDA, a company related by virtue of having some
mutual stockholders, officers, and directors. When TVCN and MDA
became the successful bidders, it was partially due to the fact
that MDA had collateralized the bid with a number of licenses.
Consequently, when the opportunity came to buy back the TVCN
preferred stock from Microband for $152,000, it was mutually
agreed that MDA should derive the benefit from the discount as
consideration for its part in making the winning bid. TVCN
received the assets and businesses for its part. The Class D
Preferred Stock was recorded at the repurchase price.
F-12
<PAGE>
Note 5 - Stockholders' Equity (continued)
Loyalty Shares
The Company has allocated 1,120,000 shares of its common stock for
distribution to qualified shareholders. In order to receive these
Loyalty Shares, persons that purchase units and/or shares of
common stock of the Company on or before five months after the
effective date of the Company's prospectus and hold some or all of
the units continuously for a period of eight months from the date
of purchase, will be entitled to receive, at no additional cost,
one share of common stock of the Company for every five units so
purchased and continuously held. During the years ended March 31,
1996 and 1995 no shares were issued, and none is expected to be
issued, to stockholders under this plan.
Incentive Stock Option Plan
Effective July 14, 1987, the Company adopted an Incentive Stock
Option Plan for Company executives and key employees. The Company
has reserved 2,000,000 common shares for issuance pursuant to the
plan. The plan provides that no option may be granted at an
exercise price less than the fair market value of the common
shares of the Company on the date of grant. To date, no options
have been granted pursuant to the plan. Under current terms, the
plan will terminate in 1997.
Subsidiary Stock
The Company is disputing the potential issuance of 5,000,000
shares (5% interest) of its wholly owned subsidiary TVCN
International, Inc. The dispute arose as a result of a previous
letter agreement. The Company believes requirements of the letter
were not met and therefore the 5,000,000 shares have not been
issued.
Note 6 - Income Taxes
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included
in the financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on the
difference between the financial statements and tax basis of
assets and liabilities using the enacted tax rates in effect for
the year in which the differences are expected to reverse. The
measurement of deferred tax assets is reduced, if necessary, by
the amount of any tax benefits that, based on available evidence
are not expected to be realized. Although realization is not
assured, management believes it is more likely than not that all
of the deferred tax asset will be realized. The amount of the
deferred tax asset is considered realizable; however, could be
reduced in the near term if estimates of future taxable income are
reduced.
F-13
<PAGE>
Note 6 - Income Taxes (continued)
As a result of the sale of operations in 1994, the Company was
able to utilize a significant portion of the net operating loss in
1996 and 1995. Additionally, the Company expects to utilize the
remainder of the net operating loss in the next fiscal years.
Deferred taxes are recorded based upon differences between the
financial statement and tax basis of assets and liabilities and
available tax credit carryforwards. Cumulative temporary
differences and carryforwards which give rise to the deferred tax
asset for 1996 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Net operating loss $(1,292,656)
Recognition of gain on sale of stations (434,107)
Alternative minimum tax credit (113,532)
Shareholder interest and bonus (127,265)
Depreciation 48,706
___________
$(1,918,854)
===========
</TABLE>
The net current and long-term deferred tax assets in the
accompanying balance sheet includes the following deferred tax
assets.
<TABLE>
<CAPTION>
March 31,
1996
________
<S> <C>
Current deferred tax asset 607,838
Current deferred tax liability -
________
Net current deferred tax asset $607,838
________
Long-term deferred tax asset $136,063
Long-term deferred tax liability (16,560)
________
Net long-term deferred tax asset $119,503
========
</TABLE>
The Company has incurred losses, which include certain accrued
expenses that are not deductible for tax purposes until paid,
since its inception, July 7, 1987, and has loss carryforwards
available to offset future taxable income. The Company utilized
approximately $900,000 and $300,000 of the net operating loss in
1995 and 1996, respectively. The Company has a net operating loss
carryforward of approximately $1,300,000 which expires in 2008.
F-14
<PAGE>
Note 6 - Income Taxes (continued)
The following is a reconciliation of income taxes at the Federal
Statutory rate with income taxes recorded by the Company.
<TABLE>
<CAPTION>
Years Ended
March 31,
1996 1995
________ ________
<S> <C> <C>
Computed income taxes at statutory rate $345,338 $528,478
State income taxes, net of Federal income
tax benefit 39,612 60,619
Section 453A interest 63,739 96,666
Non deductible items and net operating loss 54,625 91,144
________ ________
$503,314 $776,907
======== ========
</TABLE>
Note 7 - Purchase of Mountain House Mine
In 1990, the Company exchanged its preferred shares and/or options
for stock representing a 69.12% interest in Century 21 Mining, a
Utah corporation whose major asset is the Mountain House Mine.
Located in Sierra County, California, the 1,060 acre mine is not
yet in operation. Based on the previously reported market value
of the mine of $5,000,000, the Company effectuated its purchase by
offering Century 21 stockholders either of two options. Option A
required five shares of $1 par value TVCN preferred stock be
issued for each 32 shares of Century 21 stock. Option B was to
provide the option to purchase five shares of TVCN common stock
for $.37 each in exchange for each 32 shares of Century 21. Most
of the stockholders chose Option B. Since the majority of
stockholders chose Option B and these options were granted at the
market value of the underlying stock on the date of grant, no cost
is assigned to this purchase. Involved with the purchase is a
lawsuit in which a former officer, an individual, claimed to own
an additional 2,000,000 shares of Century 21. The matter was
settled in the year ended March 31, 1996 resulting in a reduced
interest in the Mine by the Company to 54.25%. In addition,
during the year ended March 31, 1996, the Company determined the
mine to be worthless, and accordingly, expensed all costs
capitalized to date.
F-15
<PAGE>
Note 8 - Sale of Domestic Wireless Cable Operations
During the year ending March 31, 1994, the Company sold three of
its domestic wireless cable operations for approximately
$5,100,000 in cash and $12,268,000 in notes receivable, due in
monthly installments from 1994 through 1998. The sales resulted
in a pretax gain of approximately $15,460,000, of which
approximately $11,475,000 was deferred at March 31, 1994. On
December 31, 1995, the Company entered into a agreement to receive
$500,000 cash and an additional $2,150,000 note receivable for the
Detroit WCTV System due in 2001. The Company continually assesses
the collectibility of the notes receivable and adjusts the
estimated deferred gain accordingly. The estimated deferred gain
at March 31, 1996 is approximately $5,400,000.
Long-Term Receivables
<TABLE>
<CAPTION>
March 31,
1996
__________
<S> <C>
Note receivable from Peoples Choice
TV of Detroit, Inc. in connection
with the sale of the Detroit WCTV
System maturing through 2001.
Including accrued interest ranging
from 8% to 9% of $70,511; and
secured by the assets of the systems. $3,148,536
Note receivable (unsecured) from
American Telecasting, Inc. in
connection with the sale of
TVCN's Denver cable operations
maturing in 1998. Interest at 8%.
Including accrued interest at 8% of $19,290. 2,911,704
Notes receivable from Midas Media,
Inc. in connection with the lease
of certain FCC licenses, maturing
in 1997. Interest at 10% and
secured by equipment. 100,000
Notes receivable - other. 12,188
__________
6,172,428
Less current portion (2,505,013)
__________
$3,667,415
==========
</TABLE>
F-16
<PAGE>
Note 8 - Sale of Domestic Wireless Cable Operations
(continued)
The aggregate maturities of notes receivable principal of March
31, 1996 are as follows:
<TABLE>
<CAPTION>
Year Ending March 31,
<S> <C>
1997 $2,505,013
1998 942,107
1999 575,308
2000 -
2001 2,150,000
__________
$6,172,428
==========
</TABLE>
Due to the inherent uncertainties in the estimation process, the
Company feels that it is reasonably possible that the allowance
for notes receivable may be further revised.
Note 9 - Other Assets
During the year ended March 31, 1996, the Company invested
$179,826 in the Jordanian Communications Company (JCC) with a
commitment to invest an additional $176,300 as a founder for
250,000 shares of common stock. As of March 31, 1996, the Company
owns less than 5% of the issued and outstanding shares of JCC.
The Company has requested a refund of its initial investment,
although it is unclear as to whether or not the refund will be
made.
During the year ended March 31, 1996, the Company entered into a
joint venture agreement to provide closed circuit TV for the
Democratic and Republican National Conventions during the Summer
of 1996. The agreement requires an initial investment by the
Company of $100,000. Profits from the Joint Venture, if any,
would then be distributed equally between the two parties of the
Joint Venture after the return of the initial investment.
Also included are $5,005 of miscellaneous other assets.
Note 10 - REEMA
REEMA was incorporated on October 27, 1993 with the primary
purpose of converting natural gas into usable petroleum products.
On April 1, 1995, the Company purchased 100% of the outstanding
shares of REEMA. Accordingly, during the year ended March 31,
1995, the Company considered all expenses of REEMA advances.
During the year ended March 31, 1996, the Company consolidated the
operations of REEMA consisting of a net loss of approximately
$351,000. In addition, the Company wrote off the advance to REEMA
recorded on the prior years books, amounting to an additional net
loss of approximately $312,000.
F-17
<PAGE>
Note 11 - Business Segments
Operating results and other financial data are presented for the
principal business segments of the Company for the years ended
March 31, 1996 and 1995. Total revenue by business segment
includes wireless cable TV (WCTV) station leases and WCTV
international station construction contracts, as reported in the
Company's consolidated financial statements. Operating profit by
business segment is total revenue less cost of sales, where
appropriate, and other operating expenses. In computing operating
profit by business segment, the following items were considered in
the Corporate and Other category: portions of administrative
expenses, interest expense, income taxes and any unusual items.
Identifiable assets by business segment are those assets used in
Company operations in each segment. Corporate assets are
principally cash, notes receivable, investments, intangible assets
and deferred charges.
F-18
<PAGE>
Note 11 - Business Segments (continued)
<TABLE>
<CAPTION>
March 31,
1996
WCTV
WCTV Station Natural Mining Corporate
License Constr. Gas Fuel and Jordan and
Leases Contracts Conver. Explor. Comm. Other Adjust. Consol.
________ _________ __________ __________ __________ ___________ ________ __________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lease income $128,759 $ - $ - $ - $ - $ - $ - $ 128,759
Management
fees and
contract
income - 101,798 - - - - - 101,798
Other income - - - - - 979,814 (15,003) 964,811
________ _________ __________ __________ __________ ___________ ________ __________
Total
revenue 128,759 101,798 - - - 979,814 (15,003) 1,195,368
Operating
profit (loss) $13,752 $ 21,458 $(674,746) $(307,887) $(340,687) $(1,286,109) $ - $(2,574,219)
Identifiable
assets $1,986,777 $ 94,965 $ 43,751 $ 74,457 $ 385,551 $12,702,288 $ - $15,287,789
Depreciation $ 20,987 $11,592 $ 17,177 $ - $ - $ 169,077 $ - $ 218,833
Capital
expenditures $300,180 $ - $ 59,335 $ 74,457 $ 29,425 $ 508,741 $ - $ 972,138
March 31,
1995
Lease income $419,998 $ - $ - $ - $ - $ - $2,754 $ 422,752
Management
fees and
contract
income - 89,165 - - - - - 89,165
Other income - - - - - 1,083,312 (2,754) 1,080,558
________ _________ __________ __________ __________ ___________ ________ __________
Total
revenue 419,998 89,165 - - - 1,083,312 - 1,592,475
Operating
profit (loss) $312,835 $(644,202)$ - $ - $ - $ (927,304) $ - $(1,258,671)
Identifiable
assets $321,551 $ 109,655 $ - $ - $ - $13,737,381 $ - $14,168,587
Depreciation $2,694 $ 11,592 $ - $ - $ - $ 142,145 $ - $ 156,431
Capital
expenditures $140,269 $ 29,770 $ - $ - $ - $ 727,451 $ - $ 897,490
</TABLE>
F-19
<PAGE>
Note 12 - Significant Fourth Quarter Adjustments
In the fourth quarter for the year ended March 31, 1996, the
Company made the following adjustments to the financial
statements:
The Company determined that certain receivable were
uncollectible and wrote off approximately $115,000.
The Company recognized certain expenses related to overseas
activities and expensed approximately $670,000, including expenses
related to the operation of the office in Jordan, an investment in
Jordanian Communications Company and consulting fees incurred
related to the feasibility of obtaining an internet and data
communications license in Jordan in addition to other consulting
fees.
REEMA was accounted for as an investment in the year ended
March 31, 1995 was converted to a wholly owned subsidiary of the
Company during the year, and the cumulative net loss of
approximately $312,000 of the third party company was recognized
in the Consolidated financial statements.
The Company adjusted its deferred gain on sale of cable
operations, and decreased the previously reported interest income
from the notes receivable related to the purchase by approximately
$632,000.
Note 13 - Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value. Fair value estimates are made
at a specific point in time for the Company's financial
instruments; they are subjective in nature and involve
uncertainties, matters of significant judgment and, therefore,
cannot be determined with precision. Fair value estimates do not
reflect the total value of the Company as a going concern.
Cash
The carrying value approximates fair value due to its liquid or
short-term nature.
Investments
For those investments, which consist primarily of money market
investments, the carrying amount is a reasonable estimate of fair
value.
F-20
<PAGE>
Note 13 - Fair Value of Financial Instruments
(continued)
Notes Receivables
Interest rates on notes receivable are consistent with the
interest rates on current purchases by the Company of contracts
with similar maturities and collateral. Notes receivable are
continually assessed as to the collectibility of the notes and
adjusted to approximate the estimated collectible amount,
accordingly the fair value is net of the related deferred gain on
the notes receivable.
Long-Term Debt
Rates currently available to the Company for debt with similar
terms and remaining maturities are used to estimate the fair value
of existing debt.
The estimated fair values of the Company's financial instruments
at March 31, 1996 were as follows:
Carrying Fair
Amount Value
___________ ___________
Financial Assets
Cash $ 1,517,449 $ 1,517,449
Investments 2,186,883 2,186,883
Notes receivable (net of deferral) 793,920 793,920
___________ ___________
Total $ 4,498,252 $ 4,498,252
=========== ===========
Financial Liabilities
Long-term debt $ 1,543,941 $ 1,543,941
=========== ===========
F-21
