QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ending September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission file number 0-18612
I.R.S. Employer Identification Number 84-1062555
TV COMMUNICATIONS NETWORK, INC.
(a Colorado Corporation)
10020 E. Girard Avenue, #300
Denver, Colorado 80231
Telephone: (303) 751-2900
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
and Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
report(s), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date:
41,188,454 shares of the Company's Common Stock ($.0005 par value)
were outstanding as of September 30, 1997.
<PAGE>
TV COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet as of September 30, 1997
(unaudited) . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Operations for the Three and
Six months ending September 30, 1997 (unaudited). . . 6
Statements of Cash Flow for the Six
months ending September 30, 1997(unaudited) . . . . . 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 9
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . 12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
<PAGE>
TV COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
September 30, 1997
<TABLE>
<CAPTION>
Unaudited Audited
Sept. 30,1997 Mar. 31,1997
_____________ ____________
<S> <C> <C>
Current Assets:
Cash $ 2,206,778 $ 490,985
Investments 483,335 1,589,831
Accounts Receivable 49,433 27,727
Prepaid Expenses 155,989 74,991
Inventory 107,028 107,028
Current Portion of Notes 829,027 1,381,427
Current Portion of Def. Tax 1,091,149 1,215,517
Total Current Assets $ 4,922,739 $ 4,887,506
____________ ____________
Property and Equipment-Net $ 3,728,093 $ 3,265,350
____________ ____________
Other Assets:
Notes Receivable $ 2,535,610 $ 2,919,829
License Agreements - Net 1,505,970 1,239,075
Other Assets 117,188 107,896
____________ ____________
Total Other Assets $ 4,158,768 $ 4,266,800
____________ ____________
Total Assets $12,809,600 $12,419,656
============ ============
</TABLE>
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unaudited Audited
Sept. 30,1997 Mar.31, 1997
_____________ ____________
<S> <C> <C>
Current Liabilities:
Account Payable $ 210,151 $ 329,976
Accrued Expenses 589,361 722,276
Current portion of Long-Term Debt 152,755 99,566
Current Deferred Gain 1,407,504 1,077,273
Taxes Payable 90,936 61,409
Advance from Stockholders 908,247 1,013,700
Subscribers Deposits 24,840 25,140
___________ ___________
Total Current Liabilities $ 3,383,794 $ 3,329,340
Long-term Liabilities:
Long-term Debt $ 2,078,814 $ 1,518,165
Long-term Deferred Gain 2,343,500 2,801,723
Deferred Income Tax 51,746 51,746
___________ ___________
Total Long-Term Liabilities $ 4,474,060 $ 4,371,634
Stockholders' Equity
Class A preferred stock, $1 par
value; none issued or
outstanding -0- -0-
Class B preferred stock, $1 par
value; 28,813 shares issued and
outstanding 28,813 28,813
Class C preferred stock, $1 par
value; no shares outstanding -0- 780,000
Class D preferred stock, $1 par
Value; shares outstanding -0- 152,000
Common Stock, $.0005 par value;
100,000,000 shares authorized;
41,188,454 outstanding 20,594 9,016
Additional Paid in Capital 7,495,633 6,575,211
Accumulated (Deficit) <2,593,294> <2,826,358>
____________ ___________
Total Stockholders's Equity $ 4,951,746 $ 4,718,682
____________ ___________
Total Liabilities and Stockholder's
Equity $12,809,600 $12,419,656
============ ============
</TABLE>
<PAGE>
TV COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
Three Months Ending September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Unaudited Unaudited
3 Months Ending 3 Months Ending
Sept. 30, 1997 Sept. 30, 1996
________________ ______________
<S> <C> <C>
Revenue - Operations $ 260,873 $ 66,625
Revenue - Sold Cable
Operations 224,900 576,160
Total Revenue $ 485,773 $ 642,785
=========== ===========
Operating Expenses: Profit
Salaries and Wages $ 308,832 374,774
Programming Fees 20,165 8,000
Cost of Goods Sold 15,078 -0-
Mine Development 559,513 201,387
General and Administrative 401,400 461,977
Depreciation and Amortization 125,569 102,515
Interest $ 68,565 $ 33,827
____________ ___________
Total Expenses $ 1,499,122 $ 1,182,480
Income Before Income Taxes $<1,013,348> $ <539,695>
____________ ___________
Estimated Income Taxes <351,632> 77,872
____________ ___________
Income After Income Tax <661,716> <617,567>
____________ ___________
Net Income Per Common Share $ <.02> $ <.03>
____________ ___________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TV COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
Six Months Ending September 30, 1997 (Unaudited)
<S> <C> <C>
Unaudited Unaudited
6 Months Ending 6 Months Ending
Sept. 30, 1997 Sept. 30, 1996
________________ _______________
Revenue - Operations $ 578,813 $ 310,216
Revenue - Sold Cable
Operations 553,133 1,120,366
Revenue - Sold Station $ 2,000,000 $ -0-
Total Revenue $ 3,131,946 $ 1,430,582
============ ============
Operating Expenses: Profit
Salaries and Wages $ 604,414 $ 630,751
Programming Fees 46,345 18,629
Cost of Goods Sold 45,517 -0-
Mine Development 992,253 463,887
General and Administrative 729,117 692,059
Depreciation and Amortization 232,183 199,417
Interest 124,686 70,768
___________ ___________
Total Expenses $ 2,774,515 $ 2,075,511
___________ __________
Income Before Income Taxes $ 357,431 $<644,929>
___________ __________
Estimated Income Taxes $ 124,368 $ 77,822
___________ __________
Income After Income Tax $ 233,063 $<722,751>
___________ __________
Net Income Per Weighted Common Share $ .01 $ <.04>
=========== ==========
</TABLE>
<PAGE>
TV COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
Six Months Ending September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Unaudited Unaudited
6 Months Ending 6 Months Ending
Sept. 30, 1997 Sept. 30, 1996
______________ ______________
Cash Flow From Operating Activities
Net Income (loss) $ 233,063 $ <722,751>
Adjustment to reconcile net income
(loss) to net cash used in operating
activities
Depreciation and Amortization 232,183 199,417
Change in certain assets and liabilities
Accounts Receivable <21,706> 48,545
Taxes Payable 29,527 4,647
Inventory -0- 7,666
Prepaid Expenses <80,998> <135,785>
Accounts Payable <119,825> <70,205>
Accrued Expenses <132,914> <103,409>
Subscriber Deposits <300> -0-
Deferred Gain <127,992> <135,450>
Deferred Taxes 124,368 -0-
___________ _________
Cash flows used in operating Activities $ 135,406 $ <907,326>
___________ __________
Cash Flows From Investing Activities:
Investments $ 1,106,496 $ <88,244>
Development of Mine -0- -0-
Property & Equipment <609,688> <367,144>
Notes Receivable 936,618 848,386
Other <9,292> 100,000
__________ __________
Cash Flows provided by investing
activities: $ 1,424,134 $ 492,998
___________ ___________
Cash Flows From Financing Activities:
Payments of Stockholder Advances $ <105,453> $ <181,756>
Long-term Debt 613,839 28,871
License Agreements <352,133> <30,000>
_________ __________
Cash flows used in financing
Activities 156,253 <182,885>
_________ _________
Net Increase (decrease) In Cash 1,715,793 <597,213>
Cash - Beginning of Year $ 490,985 $1,517,449
__________ __________
Cash - End of Period $2,206,778 $ 920,236
=========== ===========
</TABLE>
<PAGE>
TV COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
Notes to Financial Statements
September 30, 1997 and 1996 (Unaudited)
Summary of Significant Accounting Policies
The summary of the Company's significant accounting policies
are incorporated by reference from TV Communications Network, Inc.,
Annual Report on Form 10-KSB dated June 29, 1997 for Fiscal Year
ending March 31, 1997.
The accompanying unaudited consolidated financial statements
include the accounts of TV Communications Network, Inc., and its
wholly-owned subsidiaries. All material and inter-company accounts
and transactions have been eliminated in consolidation.
Interim Unaudited Financial Statements
Information with respect to September 30, 1997, and September
30, 1996, and the periods then ended have not been audited by the
Company's independent auditors, but, in the opinion of management,
reflect all adjustments (which include only normal recurring
adjustments) necessary for the fair presentation of the operations
of the Company. The results of operations for the three and six
months ending September 30, 1997, and September 30, 1996, are not
necessarily indicative of the results of the entire fiscal year.
The preparation of the interim report is based on the same
accounting standards, and the statements are in conformity with
Generally Accepted Accounting Principles (GAAP). Management
believes there are no material misstatements.
Earnings Per Share
Net income per common share is based on the weighted average
number of 33,462,680 and 17,981,133 common shares outstanding for
1997 and 1996, respectively.
Income Tax
From its inception on July 7, 1987, the Company incurred
operating losses through March 31, 1993, which included certain
accrued expenses that are not deductible for tax purposes until
paid, and has net operating loss carry forwards available to offset
future year taxable income. The following summarizes these losses
and their expiration after the utilization of $1.3 million of the
net operating loss carry forward in the year ended March 31, 1995.
Net Operating Year of
Loss Carry forward Expiration
Year ended March 31, 1993 $2,950,000 2009
ITEM 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
Wireless Cable Operations
Salina, Kansas. TVCN is currently operating the Salina station
which broadcasts on 19 channels to a base of 482 subscribers and
has three employees. Zenith scrambling equipment was introduced
into the Salina head-end equipment in November and December, 1996,
each subscriber's household received a new descrambler (set-top
converter), and the Company added ESPN, Showtime and Flix to its
programming package.
Mobile, Alabama. The Company's Mobile, Alabama license is
operated by Mobile Wireless TV. For the use of this license the
Company received a cash payment of $100,000, and a promissory note
in the amount of $100,000. The note was paid on May 22, 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 the fifth license acquired by the Company from MDA, Inc., an
affiliated company. The other four licenses are those of Salina
and Hays, Kansas; San Luis Obispo, California; and Mobile Alabama.
The Company temporarily leased the station to a non-affiliated
entity at the rate of $500 per month for a period of one year,
ending March 31, 1998.
San Luis Obispo, California. The Company repossessed the San
Luis Obispo, California WCTV station from Wireless Telecommunica-
tions, Inc. (WTCI) in 1996 and has been operating it since that
time. As part of a settlement with WTCI, WTCI conveyed all of its
assets in the San Luis Obispo station to the Company, and the
Company agreed to purchase the San Luis Obispo Basic Trading Area
(BTA) from WTCI. The purchase price for the BTA was $452,168.
Of this amount $90,000 was paid in cash, and $362,168 was paid in
the form of the Company's assumption of an obligation in that
amount payable to the FCC over 10 years, with interest only
payments for the first two years and principal and interest
payments for the final eight years. The FCC approved the transfer
of the BTA on May 23, 1997, and the Company is in the process of
applying for six additional channels in San Luis Obispo. In
addition, the Company purchased the rights to all three of the H
channels for a total of $20,000 and is awaiting FCC approval of the
transfer of these channels. Currently, the Company is broadcasting
on seven channels to 42 subscribers in the San Luis Obispo area.
Other Stations. The Company also owns a WCTV station in Hays,
Kansas. In cooperation with its affiliate, Multichannel
Distribution of American, Inc. (MDA) the Company has constructed
four channel WCTV stations in Myrtle Beach, South Carolina; Quincy,
Illinois; and Scottsbluff, Nebraska. None of these stations has
been leased.
In addition, in an effort to expand its concentration of WCTV
stations in the West Virginia and Pennsylvania areas, the Company
has received the licenses for four vacant channels and is waiting
for approval on the fifth in the Scranton/Wilkes-Barre/Hazelton
BTA.
Sale of WCTV Stations
Detroit, Michigan
In 1994 the Company sold its WCTV station in Detroit, Michigan
to Eastern Cable Networks of Michigan, Inc. (ECNM), a 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
People's Choice TV (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 grounds
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 September 30, 1997
the total outstanding deferred purchase price of the Detroit
station was $3,751,004, consisting of the $1,407,504 principal
balance of the Original Detroit Note and the $2,343,500 principal
balance of the Additional Detroit Note. Due to the uncertainty of
collection, the receivable has been written down by $1,407,504.
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. After adjustments, the net
purchase price was $5,868,434, payable as follows: (1) $250,000 at
execution of the sales agreement (2) $1,500,000 at closing (3)
$250,000 30 days after closing, and (4) the balance of $3,868,634
is payable at eight percent (8%) interest in monthly interest only
payments for the first year, $50,000 per month plus interest for
the second year, $125,000.00 per month plus interest for the third
year, $83,333 per month plus interest for the fourth year, and
$64,036.50 per month plus interest for the fifth year. As of
September 30, 1997 the outstanding principal amount of this note
was $1,018,437.
Mining Business
Mining and Energy International Corp./Liberty Hill Mine
On September 2, 1997 the Company's subsidiary, Mining and
Energy International Corp. (MEICO) leased certain portions of
the Liberty Hill Mine in Nevada County, California from Big Trees
Trust. Big Trees Trust is controlled by Ray Naylor, who is also
one of the beneficiaries of the trust. Mr. Naylor is an officer of
the Company's Century 21 Mining, Inc. subsidiary, and the Company
is relying on his expertise in developing the Mine. The portions
of the mine not leased are held by MEICO under option for the next
30 years. The option payments necessary to exercise MEICO's option on the
optioned parcels are nominal.
Pursuant to the Lease Agreement MEICO must pay Big Trees Trust
a royalty of 15% (or 20% if the gold recovery rate from the mine is
more than .03 ounces per short ton) of the value of gold mined plus
$3 per short ton of all silica and barite mined from the mine. At
the beginning of each month MEICO must pay the trust a non-
refundable advance against royalties of $40,000 for that month.
The advance for each month is specific to that month, and if the
actual royalties for the mine for a given month are less than an
advance, the shortfall may not be recovered in subsequent months.
On September 26, 1997 the trust agreed to reduce the monthly
advance against royalties to $15,000 per month through May 31,
1998. In connection with executing the lease agreement for the
mine, MEICO executed a promissory note in favor of the trust in the
amount of $500,000. The note is payable in-kind from production
from the mine in the amount of $43,494 per month. If production
from the mine is insufficient to pay the in-kind payments due on
the note, the shortfall shall be paid in subsequent months. All
principal and accrued interest on the note that has not previously
been paid in-kind shall be due in cash on September 3, 1998.
Prior to leasing the mine MEICO had the mine under option from
December 8, 1995. During the option period (December 8, 1995 to
August 31, 1997) MEICO paid the trust non-refundable advance
royalties in the amount of $840,000 and incurred expenses to
develop the mine and construct the ore processing plant in the
amount of $1,763,266. From the time it executed the lease to
September 30, 1997 MEICO paid the trust advance royalties in the
amount $40,000 and promissory note payments in the amount of $-0-.
From the time it executed the lease through September 30, 1997
MEICO incurred $203,896 in out-of-pocket expenses related to
bringing the mine into operation. Under the lease, MEICO has no
obligation to incur operational expenses in any minimum amount.
In September 1997 MEICO placed the mine's ore processing plant
into operation and processed several tons of ore. At that time it
was discovered that the clay content of the ore was much higher
than had been anticipated, and disposal of the clay mixed with
water (i.e., slimes) generated by the processing plant would
exceed that permitted by the Forest Service permit for the mine.
Accordingly, MEICO has made the determination to dramatically slow
down operations to reduce expenses at the mine pending resolution
of this issue, and negotiations with the Forest Service to modify the
permit have begun. The Company is hopeful that this problem can be
resolved in the next few months. In the meantime, however,
the company has dramatically reduced its expenditures and operations
at the mine and put in place a skeleton crew to maintain and safeguard
the equipment.
When the clay disposal problem is resolved and the mine is
placed in operation, MEICO hopes to produce economic quantities of
gold and silica. Through September 10, 1997, 560 tons of ore had
been processed at the mine, yielding 75.42 ounces of placer gold,
including a 46 ounce nugget. It should be emphasized, however,
that this recovery rate is based on very limited experience, and
there can be no assurance that economic quantities of minerals will
be produced from the mine or that future recovery rates will be
consistent with the recovery rates experienced to date.
Century 21/Mountain House Mine
The Company acquired a controlling interest in Century 21
Mining, Inc. in December 1989. Century 21's principal asset is the
Mountain House Mine. The mine is not yet in operation. The status
of this mine has not changed since the last fiscal year. For more
information, see the Company's previous annual reports, which are
incorporated herein by reference.
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).
For more information, see the company's previous annual reports,
which are incorporated herein by reference.
Internet Business Opportunities
On February 16, 1996 the Company incorporated its wholly-owned
subsidiary, Planet Internet Corp. as an Internet Service Provider
(ISP). Planet Internet provides internet service to subscribers.
During the first year of testing and operation, Planet Internet
concentrated its efforts on local individual accounts. Recently,
Planet Internet has begun concentrating on commercial accounts and
expanding its services nationwide.
Individual dial-up subscribers are charged an average of
$19.95 per month per subscriber with a certain discount for a paid-
up yearly subscription. Planet Internet offers a wide range of
services to commercial accounts for as little as $50.00 per month
for dial-up subscribers to as high as $350.00 per month per
subscriber for accounts with high speed digital modems and other
internet services. As of September 30, 1997, Planet Internet had
850 subscribers.
As of September 30, 1997, Planet Internet has purchased
internet equipment worth $548,728, and has spent $466,485 for the
development of its internet services. On May 7, 1997, Planet
Internet has placed a purchase order of $746,445 worth of internet
equipment, half of which has been received.
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.
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 Qatari Wireless cable system was awarded
Cable Operator of the Year honors at the CABSAT '95 (cable and
satellite exhibition).
Frederick Case Settlement
The Company is a Defendant in a class action suit by two
shareholders of TVCN filed on April 2, 1994 in the United States
District Court for the District of Colorado under Case No.
94-WM-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 alleged in their suit that the Company's
financial statements from July 1990 through August 1993 were
materially misstated. On March 8, 1996 the court certified a class
in the case. On October 31, 1997 the plaintiffs and defendants
agreed to settle the case subject to the Court's preliminary and
final approval of the settlement. Under the terms of the
settlement the plaintiffs have agreed to dismiss all of their
claims against the defendants in return for $1,500,000. All
members of the class who participate in the settlement and who own
shares of TVCN acquired during the class period will relinquish
such shares as part of the settlement. It is anticipated that
approximately $690,000 of the settlement fund will go to pay the
fees and expenses of class counsel and the remainder will be
distributed to the class members who agree to participate in the
settlement.
On November 4, 1997 the Court granted preliminary approval to
the settlement. On November 5, 1997 the Company placed $1,500,000
in escrow at Colorado National Bank. A hearing on final approval
of the settlement is scheduled for February 20, 1998. If final
approval is granted at that time, the escrowed funds and accrued
interest will be delivered to plaintiffs' counsel for distribution
in accordance with the settlement agreement. If the Court does not
approve the settlement, the funds will be returned to the Company.
Property, Plant and Equipment
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 $435,000. 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.
Total Revenues
The total revenue for the three and six months periods ending
September 30, 1997, was $485,773 and $3,131,946 respectively, as
compared to $642,785 and $1,430,582 for the same periods ending
September 30, 1996. The increase was due to the sale of the Rome,
Georgia station.
Operating Expenses
Total operating expenses for the three and six months periods
ending September 30, 1997, are $1,499,122 and $2,774,515
respectively as compared to $1,182,480 and $2,075,511 during the
same period ending September 30, 1996. The change in expenses of
$699,004 is summarized as follows:
Decrease in Salaries and Wages $<26,337>
Increase in Programming Fees 27,716
Increase in Cost of Goods Sold 45,517
Increase in Mine Development 528,366
Increase in General & Administrative Expense 37,058
Increase in Depreciation and Amortization 32,766
Increase in Interest Expense 53,918
NET INCREASE IN TOTAL EXPENSES $ 699,004
The increase in cost of Goods Sold, General and Administrative
Expenses is due to the increased efforts to increase Operating
Revenues. The increase in Mine Development expenses is due to the
increased activity in developing the Liberty Hill Mine.
Net Gain
The net gain <loss> after income tax estimate for the three
and six month periods ending September 30, 1997 was $<661,716> and
$233,063, compared to a loss of $<617,567> and $<722,751> during
the same periods ending September 30, 1996. The increased income
during the same periods ending September 30, 1997, is due to the
sale of the station in Rome, Georgia, offset by the lower interest
from the sales of Cable Operations in Detroit and Denver during
1997. The increase operating costs were due to the increased costs
of mine development.
Income Taxes
See Page 8 Income Tax note.
Estimated income taxes are calculated at 35% for federal
obligations.
Liquidity and Capital Resources
The Company initially financed its growth through loans and
the sale of stock. The Company will finance its future growth
primarily from the sale of domestic operations.
To date, the Company has not engaged in any debt financing,
with the exception of the BTA's funded through the FCC, and the
purchase of the internet equipment. Instead, it has relied on
individual or group investments. The company's cash flow for the
three months ended September 30, 1997, and September 30, 1996, are
summarized as follows:
Sept. 30, 1997 Sept. 30, 1996
Unaudited
Cash Flow From Operating
Activities $ 135,406 $ <907,326>
Cash Flow From Investing
Activities $ 1,424,134 $ 492,998
Cash Flow From Financing
Activities $ 156,253 $ <182,885>
Cash - Beginning of Period $ 490,985 $ 1,517,449
Cash - End of Period $ 2,206,778 $ 920,236
The sales of the Denver, Colorado, Washington, D.C., and
Detroit, Michigan systems for approximately $17.5 million with a
resulting gain of $15.5 million and the sale of the Rome, Georgia
station are expected to adequately continue covering the Company's
current liabilities along with allowing the Company develop other
wireless cable TV markets in the United States and explore other
business opportunities domestically and internationally.
Currently, the Company has $2,231,569 in long term debt which
is primarily for the purchase of the TVCN corporate headquarters
building in Denver, Colorado, for the Basic Trade Area rights
purchased during the FCC BTA Auction, and for Equipment Purchases.
The Company's current assets and liabilities are $4,922,739
and $3,383,794, respectively. The Company's cash position is such
that management anticipates no difficulty in its ability to meet
its current obligations. The company currently has $483,335
investments in government securities.
The President, a shareholder, and a Director, have advanced
loans to the Company totaling $908,247.
Accounts Receivable and Payable
The decrease in notes receivable, and accounts payable as of
September 30, 1997, is due mainly to the receipt of note payment
and the payment of invoices.
Advance from Stockholders
During the period from March 31, 1997 to September 30, 1997,
the Company repaid advances from stockholders totaling $105,453.
Subscriber Deposits
The purchasers of the Denver and Detroit stations limited the
subscriber deposits assumed by purchasers to $50,000 and $114,000,
respectively. TVCN is responsible for subscriber deposits above
these amounts.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Except as noted under the heading Frederick Case
Settlement, the Company knows of no material 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 material 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.
ITEM 2. Changes in Securities
There were no changes in Securities during the second
quarter ending September 30, 1997. Refer to 10QSB dated
June 30, 1997 for changes in securities during the first
quarter ending June 30, 1997.
ITEM 3. Default Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company held its annual Shareholders Meeting on
October 16, 1997. Approximately 37,592,436 shares of the
41,188,454 shares outstanding attended the meeting in
person or by proxy. The management suggested slate of
three Directors was elected, the MDA Stock Trade was
ratified, sale of the Rome, Georgia station was approved,
and the firm of Erhardt Keefe Steiner & Hottman, P.C. was
ratified as independent auditors.
The votes in person or proxy were:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Directors For Against Abstain
Omar Duwaik 37,550,246 25,320 16,870
Armand DePizzol 37,549,866 24,220 18,350
Dennis Horner 37,550,166 23,920 18,350
MDA Stock Trade 319,598 29,490 37,243,348
Rome Station Sale 37,559,596 23,040 9,800
Auditors EKS&H 37,567,506 15,820 9,110
</TABLE>
ITEM 5. Other Information
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TV COMMUNICATIONS NETWORK, INC.
Date: November 14, 1997
/ss/Omar A. Duwaik
Omar A. Duwaik
PRESIDENT/CEO
/ss/Dennis J. Horner
Dennis J. Horner
VICE PRESIDENT/TREASURER
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TV COMMUNICATIONS NETWORK, INC.
Date: November 14, 1997
Omar A. Duwaik
PRESIDENT/CEO
Dennis J. Horner
VICE PRESIDENT/TREASURER
