U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 1997
Commission file number 0-18612
TV COMMUNICATIONS NETWORK, INC.
(Name of small business issuer in its charter)
Colorado 841062555
(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)
Issuers 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 SB is not contained in this form, and no disclosure
will be contained, to the best of the registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10KSB or any amendment to this Form 10KSB. [x]
Issuers operational revenues for its most recent fiscal year ending March
31, 1997, were $1,146,144.
The aggregate market value of the issuers voting stock held by non-
affiliates computed by reference to the average bid and asked prices of such
stock as of May 23, 1997, is $ 719,491 (based on 3,997,174 shares and on
average of bid and asked prices of $0.18).
The number of shares outstanding of each of the issuers classes of common
equity as of June 4, 1997: 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 portended 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 payDTV service to the public, although they were also used for data
transmission, educational and nonDpay 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 analog TV channels of
programming and have a range of 25 to 50 miles from the transmitting station.
With new digital equipment coming to the marketplace, each 6MHz channel will
be able to deliver up to six different TV programs. The costs involved in
digital transmissions is very prohibitive now, but as demand increases, these
costs should become more affordable. 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 to frequencies
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, 1995 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. TVCNs 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 435
subscribers and has three employees. Zenith scrambling equipment was
introduced into the Salina head-end equipment in November and December, 1996,
each subscribers household received a new descrambler (set-top converter), and
the Company added ESPN, Showtime and Flix to its programming package.
Mobile, Alabama. The Companys 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 Companys 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 Woodward station was leased to Pioneer
Telephone Cooperative at the rate of $1,000.00 per month, which lease expired
on March 31, 1997. Since then, the Company temporarily leased the station to
a non-affiliated entity at the rate of $500.00 per month for a period of one
year.
San Luis Obispo, California. The Company leased the San Luis Obispo,
California WCTV station to Wireless Telecommunications, Inc. ("WTCI") in 1995.
In January 1996 WTCI defaulted on its agreements with the Company. The
Company repossessed the station in June 1996 and has been operating it since
that time. As part of the 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 59 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; Rome, Georgia; 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 applied for five
vacant channels in the Scranton/Wilkes-Barre/Hazelton BTA and has made a bid
in the amount of $500,000 on a WCTV station in Wheeling, West Virginia, where
the Company owns the BTA.
<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, West Virginia; Steubenville,
Ohio/Wheeling, West Virginia; Dickinson and Williston, North Dakota; Scranton-
Wilkes Barre-Hazleton and Stroudsburg, Pennsylvania; Scottsbluff, Nebraska and
Watertown, New York. The CompanyOs net bid was $1,276,000 (taking into
account the 15% Osmall 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 $1,020,445, which the Company is financing
over ten years as described in the notes to the CompanyOs 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
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 ECNMs 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
Peoples 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
PCTVs 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 PCTVs 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, 1997 the total
outstanding deferred purchase price of the Detroit station was $4,414,035,
consisting of the $2,070,535 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
$1,742,301.
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.
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, 1997 the
outstanding principal amount of this note was $1,518,435.
<PAGE>
Mining Business
Mining and Energy International Corp./Liberty Hill Mine
The Company's subsidiary, Mining and Energy International Corp.
("MEICO"), entered into an option agreement with Big Trees Trust to obtain the
right to develop the Liberty Hill Mine in Nevada County, California. Big
Trees Trust is controlled by Ray Naylor, who is also one of two 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.
MEICO has an option to lease the mine for 30 years. Originally, the
option for the mine was to expire on December 8, 1996. However, due to
torrential rainfall in the area construction of the mine was delayed for many
months. Therefore, the option was extended to June 8, 1997 and then extended
again to December 7, 1997. The original option also required MEICO to pay Big
Trees Trust a fee of $500,000 to exercise the option. However, due to the
additional advance royalties that have been paid because of the delays in
bringing the mine into operation, the $500,000 option payment has also been
delayed, by mutual consent.
As of May 28, 1997 the processing plant at the mine has been constructed
and is ready to be placed into operation as soon as sufficient overburden has
been removed from over the ore-bearing channel. Due to the torrential rains
mentioned above, the subsurface soil is saturated with water. Because of the
difficulty in determining when the subsurface soil will be dried sufficiently
to commence operation, it is extremely difficult to predict with any certainty
the date when the mine will be fully operational. When the mine is fully
operational MEICO hopes to produce economic quantities of gold and silica.
Initial tests have been run and the results are encouraging. There can be no
assurance, however, that economic quantities of minerals will be produced from
the mine.
Under the terms of the option, as amended, MEICO is responsible for
paying the out-of-pocket costs of bringing the mine into operation. In
addition to these out-of-pocket expenses MEICO must pay Big Trees Trust a non-
refundable advance against royalties of $40,000 per month (or 15% of the ores
mined and sold, whichever is greater). As of March 31, 1997 MEICO had
expended a total of $1,239,009 in out-of-pocket expenses to bring the mine
into operation. In addition to these expenses, MEICO has paid Big Trees Trust
a total of $640,000 in advance royalties. Thus the total of expenditures of
all kinds through March 31, 1997 was $1,879,009. The mining expenditures are
currently averaging about $140,000 per month. Mr. Naylor has agreed to allow
MEICO to use all of his mining equipment necessary to bring the mine into
operation and to supervise the development of the mine at no additional
charges.
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 companys previous annual
reports, which are incorporated by reference.
<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-grade diesel, kerosene and gasoline pool material from natural
gas and is in the process of selecting the best location for building its
first facility. When a site has been selected, the process plant design and
construction will take approximately three years.
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 Fischer-Tropsch 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 proposed 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 sufficient 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.
Clarks 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. as an Internet Service Provider (ISP).
Planet provides internet service to subscribers. During the first year of
testing and operation Planet concentrated its efforts on local individual
accounts. Recently, Planet 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 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 May 30, 1997, Planet had 785 subscribers.
As of March 31, 1997, Planet Internet has purchased internet equipment
worth $124,741, and has spent $255,871 for the development of its internet
services. On May 7, 1997, Planet has placed a purchase order of $746,445
worth of internet equipment.
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 boards 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. JCCs primary purpose is to provide data communications
services to banks and commercial entities. Through extensive lobbying efforts
Mr. Duwaik was able to secure TVCNs participation in JCC, and the Company made
a $179,826 investment. No contracts have been awarded. TVCN has received a
refund of the entire amount of $179,826. No further investment is
anticipated.
<PAGE>
Convention Network 96
In 1996 the Company invested $138,115 in Convention Network 96, LLC
(CN96). CN96, which was managed by Jay Fetner and Christine Dolan, was
organized to establish a convention channel for guests staying in hotels
serving the Republican National Convention in San Diego and the Democrat
National Convention in Chicago. Mr. Fetner and Ms. Dolan were unable to
obtain any sponsorship revenues for the project and the Company lost its
entire investment.
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).
<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 Companys MMDS license in
Mobile is leased to an independent WCTV operator. The Company constructed
stations in Myrtle Beach, South Carolina; Quincy, Illinois; Rome, Georgia;
Woodward, Oklahoma and Scottsbluff, Nebraska 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 has had inquiries concerning the leasing of
the channels in Quincy, Illinois; Scottsbluff, Nebraska; Hays, Kansas and
Mytrtle Beach, South Carolina.
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 stations
services.
The so-called head-end equipment at a WCTV broadcast station typically
includes satellite receiving equipment, descramblers, transmitters, encoders
(scramblers), combiners, waveguides and omnidirectional or cardioid 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 subscribers reception equipment.
The scrambled signal is then decoded at each television outlet by an
authorized settop converter.
Subscriber reception equipment typically consists of a television antenna
designed to provide reception of VHF/UHF offair programming (provided as an
option to consumers), a microwave receive antenna (about 27 tall and 18 wide),
a downconverter, a settop 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 suppliers such as cable
television, satellite television program services, Direct Broadcast Satellite
(DBS) 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 channel 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
Companys financial capacity.
Other sources of competition include low power television stations and
direct satellite to home transmissions (DBS). 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 operators 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 Companys 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 affected by the developments in regulation
or copyright law. In addition to management and experience factors, which are
material to the Companys 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, FOX, Warner Brothers TV and United
Paramount Network and FOX affiliates, PBS stations, independent stations, and
local UHF channels. The Company has agreements with World Satellite Network
to provide certain programming for its Salina and San Luis Obispo stations,
and directly with the programming sources ESPN, The Family Channel and the
Nashville Network.
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, Woodward,
Oklahoma , and Scottsbluff, Nebraska 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 Spectrum Auction herein). The Company received these 12 BTA licenses in
October of 1996 with grant dates of August 16, 1996 and build out dates of
August 16, 2001. The company applied for the transfer of the San Luis Obispo,
California BTA license and received FCC approval of the transaction on May 23,
1997.
The Companys wholly-owned subsidiary, Planet Internet Corporation,
recently registered the trade names fun.edu and TVCN.NET with the Colorado
Secretary of State (see Internet Business Opportunities herein).
The Company holds no patents.
Governmental Regulation/FCC Licensing
The licenses of the Company are not subject to regulation by any state or
local government. However, the WCTV portion of the Companys activities are
subject to FCC regulations. The Companys 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>
Channel Group No. of Channels
_____________ _______________
<C> <C>
A Group 4
B Group 4
C Group 4
D Group 4
E Group 4
F Group 4
G Group 4
H1, H2, and/or H3 3
Channel 1 1
Channel 2 (or 2A) 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 (H1, H2 and/or H3) and the MDS channels (1 and 2 or
2A). This allows a WCTV operator to directly own 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 FCCs
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 FCCs 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 Companys 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 Acts 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 Acts provisions.
Two actions taken by the FCC as a result of the Act are particularly
important to the Companys 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 affect
the installation, maintenance or use of MMDS antennas. The FCC has also
streamlined its ITFS application process by delegating 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.
On March 14, 1997 over 100 industry participants submitted a proposal to
the FCC for a petition for rulemaking. The petition suggests some sweeping
changes, such as: 1)allowing an operator to cellularize transmissions within
its market; 2) allowing neighboring operators to police their own borders to
prevent unwanted interference, with the FCC being called in only if such co
operation fails; 3) allowing an operator the right to turn a channel or parts
of a channel around for two way communications; 4) allowing an operator to put
all required educational programming on any channel within a system instead of
on a certain channel licensed to the educator; and 5) allow that if an
operator sets up some twenty transmission points within its market that the
sum of the output power of all twenty transmitters does not exceed the
authorized power of the original license.
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 and are incorporated
herein by reference.
<PAGE>
Employees
As of March 31, 1997, the Company had 35 employees.
Capital
Providing television programming requires substantial initial capital
outlays. While contracts with respect to providing such services are intended
to have terms sufficient to provide for the recovery of the Companys
investment, together with a favorable return on its investment, the Companys
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 Companys president, other
shareholders, 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 business 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 Companys competitive position is second to the cable TV operators. The
Companys 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 involved in 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 $417,617. The Companys 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, 1994 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. Discovery has been conducted in
the case, and the Company is vigorously defending the case. A trial date has
been set for May 11, 1998.
<PAGE>
(2) The Company knows of no other 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 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, 1997.
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, 1997 there were seven stock
brokerage firms making a market in the Companys common stock. The high bid
and low asked prices of the common stock of the Company have been as follows:
<PAGE>
<TABLE>
<CAPTION>
Quarter Ending Low Ask High Bid
Per Share Per Share
__________ __________
<C> <C> <C>
3/31/95 .13 .02
6/30/95 .10 .05
9/30/95 .08 .03
12/31/95 .06 .02
3/31/96 .07 .02
6/30/96 .75 .06
9/30/96 .19 .13
12/31/96 .13 .06
3/31/97 .17 .08
</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, 1997, there were 2,067 record holders of the Companys
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
Companys 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.
Conversion of Preferred Stock
Class C Preferred Stock. Class C Preferred Stock is 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. A
thirty day (30) notice was given as required to holders in a call for
redemption by the Company, during which thirty day (30) period the holders of
Class C Preferred Stock are entitled to convert their Preferred Stock into
Common Stock. The Company had issued 400,000 Class C Preferred Shares to MDA
(a company related by virtue of having several mutual stockholders, officers
and directors), including Omar Duwaik in exchange for Transmission Equipment
and MDA requested the conversion the conversion of its Class C Preferred
Stock. The Company issued 200,000 Restricted Common Shares to MDA on May 29,
1997. Another 380,000 Class C Preferred Shares were issued to AT&I ( a
company related by virtue of having mutual stockholders, officers and
directors), including Omar Duwaik as partial payment for the acquisition of
the Companys Headquarters Building. The headquarters building had a fair
market value of $930,000 and the Company assumed a $550,000 mortgage. AT&I
requested the conversion of its Class C Preferred Stock and the Company issued
190,000 Restricted Common Shares to AT&I on May 29, 1997.
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 TVCNs
net profits at the rate of up to nine percent (9%) when and if declared by
TVCN.
In 1991, the Company made a successful bid on certain assets and
businesses of Microband together with MDA, an affiliated company substantially
owned and controlled by TVCNOs president, in addition to having some mutual
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. The Company issued 4,864,000 Class D Preferred Shares
pursuant to the asset acquisition from Microband. 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. MDA requested this preferred stock to
be converted into common stock, and the company issued to MDA 4,864,000
Restricted Common Shares on May 29, 1997.
<PAGE>
Item 6. Managements Discussion and Analysis of Financial Condition and
Results of Operations.
The total primary operating revenue for 1997 was $1.1 million compared to
$1.2 million in 1996. The decrease is due to the lower interest income
despite higher revenues from operations. The net income for 1996 was a loss
of $959,000 compared to again of $512,000 last year. Expenses for 1997 were
$4.8 million compared to $3.8 million in 1996. The difference was primarily
due to expenses for developing the mine.
Salaries and wages were $1,368,000 in 1997 compared to $742,000 in 1996.
Staffing has increased due to the re acquisition of the Salina and San Luis
Obispo systems, operations relating to the Internet, and developing the
Liberty Hill Mine.
<PAGE>
<TABLE>
SUMMARY INCOME STATEMENT
HIGHLIGHTING NET OPERATING INCOME
BEFORE INTEREST, DEPRECIATION & AMORTIZATION
<CAPTION>
1997 1996
____ ____
<S> <C> <C>
Revenues $1,146,144 $1,195,368
Operating expenses $4,108,282 $3,364,863
$(2,962,138) $(2,169,495)
Interest, depreciation and
amortization before gain on
the sale of cable operations
and cumulative effect of a change
in accounting method $ 690,857 $404,724
OPERATING LOSS ($3,652,995) ($2,574,219)
============== ==============
</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 nonDcash
items and interest.
As set forth in the attached audited financial statements, the assets of
the Company at the end of March, 1997 were $12,419,656. Similarly, the
Company's revenues for the foregoing fiscal years of 1996 and 1997 were
$1,195,368 and $1,146,144, respectively. The operating revenue decreased by
$49,224 from 1996 to 1997, due primarily to lower revenues from lower interest
income despite higher revenues from Operations. The revenues were generated
from channel lease fees, the subscriber fees from the wireless operations, the
subscriber fees from Internet operations, and interest income from the notes
receivable and investments. The foregoing operating activities during fiscal
years 1996 and 1997 resulted in losses of $2,574,219 and $3,652,995
respectively. The decrease represents the recognition resulting from the
payment in full of the note for the sale of the Washington, D.C. station. The
gain recognized on the sale of operations for fiscal year 1996 and 1997 was
$3,589,919 and $2,343,043, respectively.
<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 CompanyOs continued expansion. The
Companys cash flows for the years ended March 31, 1997, and 1996, are
summarized as follows:
<PAGE>
<TABLE>
<CAPTION>
March 31 March 31
Cash Provided By (Used In) 1997 1996
_________________________ ________ _________
<C> <C> <C>
Operations $(2,599,654) $(2,049,974)
Investing activities $ 1,911,102 $ 2,719,968
Financing activities $ (337,912) $ (243,941
------------ ------------
Net increase (decrease) $(1,026,464) $ 426,053
============ ============
</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 $1,617,731 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 $4,887,506 and
$3,329,340 respectively. The Companys 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 $1,013,700. No equity transactions occurred in 1996 or 1997.
Income Tax Developments
Since its inception the Company has incurred operating losses through
March 31, 1997, 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 Carry Forward Year of Expiration
------------------- ------------------
As of March 31,
1997 $2,950,000 2009
Inflation:
Inflation did not significantly impact the Companys 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: 1997 1996
____ ____
<S> <C> <C>
Revenues $1,146,144 $1,195,368
Net income
(loss) $(959,079) $512,387
Per
Share:
Net income
(loss) ($.05) $.03
At year end:
Total
assets $12,419,656 $15,287,790
Plant and
Equipment,
net $3,265,350 $2,543,499
Current
assets $7,136,684 $6,560,906
Total
liabi-
lities $7,700,974 $9,610,028
Long term
debt $1,518,165 $1,510,240
cont. below cont. below
Year ended
March 31, 1995 1994
- --------- ---- ----
<S> <C> <C>
Revenues $1,592,475 $4,503,078
Net income $ 777,439 $2,256,961
Per
Share:
Net income
(loss) $.04 $.13
Total
assets $14,168,587 $20,664,798
Plant and
Equipment,
net $2,064,733 $1,226,090
Current
assets $8,785,659 $3,482,585
Total
liabi-
lities $9,003,212 $16,276,862
Long term
debt $ 512,560 $ 662,728
cont. below cont. below
Year ended
March 31, 1993
- ---------- ----
<S> <C>
Revenues $ 8,287,517
Net income $(2,342,374)
Per
Share:
Net income
(loss $(.13)
Total
assets $7,185,002
Plant and
Equipment,
net $3,028,571
Current
assets -
Total
liabi-
lities $5,054,027
Long term
debt $528,082
</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 Companys business.
Capitalization
The capitalization of the Company as of March 31, 1997 is as set forth in
the following table and as more detailed in the attached audited financial
statement:
<PAGE>
<TABLE>
<CAPTION>
Description March 31, 1997 March 31, 1996
___________ _______________ ______________
<S> <C> <C> Stockholders
Equity
(Deficit):
Common Stock $9,016 $9,016
Preferred Stock $960,813 $960,813
Additional Paid
In Capital $6,575,211 $6,575,211
Deficit
accumulated $(2,826,358) $(1,867,279)
_____________ ____________
Total
Stockholders
equity $4,718,682 $5,677,761
cont. below cont. below
Description March 31, 1995
___________ ______________
<S> <C>
Stockholders
Equity
(Deficit):
Common Stock $9,016
Preferred Stock 960,813
Additional Paid
In Capital $6,575,211
Deficit
accumulated $(2,379,665)
____________
Total
Stockholders
equity $5,165,375
</TABLE>
<PAGE>
Forward Looking 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 1934, 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 BTAs and markets in which to
operate them, satisfactory resolution of legal maters, and economic,
competitive and market conditions for the Companys business operations.
Although the Company believes that the assumptions are accurate, 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, 1997, 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 Companys
financial records for fiscal years 1996, 1995, 1994 and 1993. The Auditor
agreed to audit the Companys financial records for fiscal year 1997 and assist
the Company in the preparation of the Companys 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 1996 and 1997 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, 1997. Unless otherwise noted, the positions described are positions
with the company or its subsidiaries.
Name Age Position Period Served
____ ___ ________ _____________
<C> <C> <C> <C>
Omar A. Duwaik 53 Chairman of the Board, 1987 to present
Chief Executive
Officer and
President(1)
Armand DePizzol 65 President, Alert 1989 to present
Systems and CEO of
National Direct Connect
Corp.; since 1986
Director (2)
Dennis J. Horner 50 Vice President 1994 to present
Treasurer,
Director(1)
<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 of Kansas, Inc.
(1996), TVCN of California, Inc. (1996), International
Exports, Inc.(1992 to present), Integrated Systems
(1993 to present), Mining Energy International, Inc.
(1995 to present), Reema International Corp. (1993 to
present); and Planet Internet. (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 of TVCN, and also owns the majority of MDA,
an affiliated company. Mr. Duwaik is employed on a full time basis with the
Company and is compensated at the rate of $108,157 a year.
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 experience 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 $50,791 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, 1997, 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, 1997, for which each such individual was an
executive officer). Following are the salaries of individuals who are
officers receiving a salary from the Company:
<TABLE>
Capacities Cash
Name of Individual in Which Served Compensation
___________________ _______________ ____________
<C> <C> <C>
Omar Duwaik Chairman of the Board of $108,157
Directors, President and
Chief Executive Officer
Dennis J. Horner Vice President, Treasurer, $50,791
Director
Barry K. Arrington Vice President, General $70,000
Counsel
</TABLE>
<PAGE>
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 Companys 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 Companys
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, 1997, 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, 1997, 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 Companys voting
securities as of March 31, 1997. 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, 1997. Each such person has sole voting and dispositive power with
respect to such securities.
<TABLE>
Name and Position with TVCN, Amount of
or Name and Address of Beneficial Percent
Greater-than 5% Holders* Ownership1 of Class
___________________________ __________ ________
<C> <C> <C>
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 1,937,524 10.77%
Total as a Group
(Five in Number) 12,912,113 71.81%
*All information refers to common stock.
**Taher Aldweik is a brother of Omar A. Duwaik.
</TABLE>
<PAGE>
1On May 29, 1997 MDA became greater than a 5% Shareholder of TVCNs
Common Stock by converting its Preferred Stock to Common. As of that date the
total outstanding shares of TVCN Common Stock was 23,235,133. MDA holds
5,892,571 shares of TVCN Common Stock, representing a 25.36% interest. MDA is
substantially owned and controlled by Omar Duwaik, its President. See
Conversion of Preferred Stock on Page 13.
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, 1997, and March 31,
1996, are attached hereto.
<PAGE>
Page
----
Independent Auditors Report . . . . . . . . . . . . F-1
Financial Statements
Consolidated Balance Sheet as of March 31, 1997 . . F-2
Consolidated Statement of Operations for years ended:
March 31, 1997, & 1996 . . . . . . . . . . . . . . F-3
Consolidated Statement of Stockholders Equity for years ended: March 31,
1997, & 1996 . . . . . . . . . . F-4
Consolidated Statement of Cash Flows for years ended:
March 31, 1997, & 1996 . . . . . . . . . . . . . . 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 17, 1997
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 17, 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
Revision 2
12
<PAGE>
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
March 31, 1997
Table of Contents
Page
____
Independent Auditors' Report . . . . . . . . . . F - 1
Consolidated Financial Statements
Consolidated Balance Sheet . . . . . . . . . . . F - 2
Consolidated Statements of Operations. . . . . . F - 3
Consolidated Statement of Changes in
Stockholders' Equity . . . . . . . . . . . . . . F - 4
Consolidated Statements of Cash Flows. . . . . . F - 5
Notes to Consolidated Financial Statements . . . F - 6
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, 1997 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, 1997. 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, 1997 and the results of their
operations and their cash flows for each of the two years in the period ended
March 31, 1997 in conformity with generally accepted accounting principles.
Ehrhardt Keefe Steiner & Hottman PC
May 30, 1997
Denver, Colorado
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Consolidated Balance Sheet
March 31, 1997
<TABLE>
<CAPTION>
Assets
<S> <C>
Current assets
Cash and cash equivalents $490,985
Investments 1,589,831
Accounts receivable, net of allowance
for doubtful accounts of $42,000 27,727
Inventory 107,028
Current portion of notes
receivable (Note 8) 1,381,427
Deferred income taxes (Note 6) 1,215,517
Other current assets 74,991
---------
Total current assets 4,887,506
Property and equipment - net (Note 2) 1,265,350
Other assets
Notes receivable (Note 8) 2,919,829
License agreements - net of accumulated
amortization of $652,212 (Note 3) 1,239,075
Other assets (Note 9) 107,896
---------
Total other assets 4,266,800
---------
Total assets $12,419,656
===========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $329,976
Accrued expenses 722,276
Current maturities of
long-term debt (Note 3) 99,566
Deferred gain (Note 8) 1,077,273
Income taxes payable (Note 6) 61,409
Advances from stockholder (Note 3) 1,013,700
Subscriber deposits 25,140
---------
Total current liabilities 3,329,340
Long-term liabilities
Long-term debt (Note 3) 1,518,165
Long-term deferred gain (Note 8) 2,801,723
Deferred income taxes (Note 6) 51,746
---------
Total liabilities 7,700,974
---------
Commitments and contingencies
(Notes 3, 4 and 5) -
Stockholders' equity (Notes 5 and 14)
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 (2,826,358)
-----------
Total stockholders' equity 4,718,682
-----------
Total liabilities and
stockholders' equity $12,419,656
===========
</TABLE>
See notes to financial statements.
F-2
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years Ended
March 31,
- ---------- 1997 1996
---- ----
<S> <C> <C>
Revenues (Note 11)
Lease income (Note 4) $363,296 $230,557
Interest income 519,340 874,488
Other revenue 263,508 90,323
-------- ---------
Total revenue 1,146,144 1,195,368
========= =========
Operating expenses
General and administrative 2,579,049 3,056,976
Mine development costs
(Note 4) 1,529,233 307,887
Depreciation and
amortization 461,583 218,833
Interest expense 229,274 185,891
--------- ----------
Total expenses 4,799,139 3,769,587
========= ==========
Operating loss (3,652,995) (2,574,219)
Gain on sale of cable
operations Note 8) 2,343,043 3,589,919
----------- -----------
(Loss) income before
income taxes (1,309,952) 1,015,700
Income tax expense
(benefit) (Note 6)
Current 85,556 142,706
Deferred (436,429) 360,608
----------- -----------
Net (loss) income $(959,079) $512,386
=========== ===========
(Loss) income per weighted average share of common stock
Primary $(0.05) $.03
======= =====
Fully diluted $(0.05) $.02
======= =====
Common shares and common share equivalents outstanding
Primary 17,981,133 17,981,133
========== ==========
Fully diluted 17,981,133 23,249,540
========== ==========
</TABLE>
See notes to consolidated financial statements.
F - 3
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the Years Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------- ------------
Shares Amount Shares Amount ------
- ------ ------ ------
<S> <C> <C> <C> <C>
Balances at
March 31,
1995 5,672,813 $960,813 17,981,133 $9,016
Net income for
the year ended
March 31, 1996 - - - -
Balances at
March 31,
1996 5,672,813 960,813 17,981,133 9,016
Net (loss) for
the year ended
March 31, 1997 - - - -
Balances at
March 31,
1997 5,672,813 $960,813 17,981,133 $9,016
cont. below cont. below
Additional
Paid In Accumulated
Capital (Deficit) Total
Balances at
March 31,
1995 $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 $6,575,211 $(1,867,279) $5,677,761
Net (loss) for
the year ended
March 31,
1997 - (959,079) (959,079)
---------- ------------ ----------
Balances at
March 31,
1997 $6,575,211 $(2,826,358) $4,718,682
========== ============ ==========
See notes to financial statements.
F-4
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
</TABLE>
<TABLE>
<CAPTION>
Years Ended
March 31,
-------------
1997 1996
- ---- ----
<S> <C> <C>
Cash flows from
operating activities
Net (loss) income $(959,079) $512,386
Adjustments to reconcile
net (loss) income to net
cash used in operating activities -
Gain on sale of
cable operations (1,963,043) (3,589,919)
Loss on sale of
fixed assets 20,201 -
Depreciation and
amortization 461,583 218,833
Deferred income taxes (436,429) 360,591
Write off of
development of mine - 309,213
Change in certain assets and liabilities -
Accounts receivable 83,889 (55,356)
Inventory 53,002 9,115
Prepaid expenses and
other current assets 62,664 (39,775)
Other assets 353,235 (870)
Accounts payable (360,804) (60,055)
Accrued expenses 244,555 270,435
Income taxes payable (70,313) 15,099
Subscriber deposits 685 329
-------- -------
(1,640,575) (2,562,360)
----------- -----------
Net cash flows used in
operating activities (2,599,654) (2,049,974)
----------- -----------
Cash flows from investing activities
Payments on notes
receivable 2,624,903 3,766,427
Net investing activity 597,052 (31,513)
Other assets - (456,126)
Property and equipment
purchases (897,667) (600,137)
Development of mine - (71,821)
Purchases of broadcasting
licenses (122,986) (300,180)
Proceeds from advances - 413,318
-------- --------
Net cash flows provided
by investing activities 1,911,102 2,719,968
--------- ---------
Cash flows from
financing activities
Proceeds from stockholder
advances 110,477 365,888
Payments on stockholder
advances (459,679) (515,216)
Proceeds from issuance
of long-term debt 44,888 (94,613)
Payments on long-term debt (33,598) -
---------- ----------
Net cash flows used by
financing activities (337,912) (243,941)
--------- ----------
Net (decrease) increase
in cash and cash
equivalents (1,026,464) 426,053
Cash and cash equivalents
- - beginning of year 1,517,449 1,091,396
----------- ----------
Cash and cash equivalents
- - end of year $490,985 $1,517,449
=========== ==========
</TABLE>
Supplemental disclosure of cash flow information
Cash paid during the year for interest was $178,396 (1997) and $191,300
(1996).
Cash paid during the year for income taxes was $15,617 (1997) and $128,597
(1996).
Supplemental disclosure of noncash investing activities
During 1997, the Company acquired equipment valued at $62,500 under a capital
lease agreement.
During 1997, the Company capitalized $193,500 of interest receivable and
deferred the gain.
During 1997, the Company recognized additional notes receivable on the sale of
wireless cable systems of $650,031 and deferred the gain.
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.
See notes to consolidated financial statements.
F - 5
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 into
alternative fuels, mining for various minerals and metals, providing internet
access services, and retail sale of paging equipment and the related access
service through its various subsidiaries.
Principles of Consolidation
The Company's consolidated financial statements include the accounts of TV
Communications Network, Inc. (TVCN), 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. and Page TVCN, 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 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 and Page TVCN, Inc. stock that is not owned by the
Company. The aggregate losses attributable to the minority interests are in
excess of the minority interests investments and accordingly, the Company is
recognizing 100% of the operating losses generated.
F - 6
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies (continued)
Revenue Recognition
The Company recognizes revenue when it has substantially completed all its
obligations and has earned the revenue.
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).
Net (Loss) Income Per Common Share
Net (loss) income per common share is based on the weighted average number of
common shares outstanding inclusive of common stock equivalents. Common stock
equivalents included in the computation assumes the conversion of convertible
preferred shares for fully diluted purposes in 1996 but does not include the
conversion of convertible preferred shares in 1997, as the effect would be
anti-dilutive.
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, 1997, there was approximately $312,000 in excess of
the federally insured limit.
F-7
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies (continued)
Reclassifications of Prior Year Amounts
Certain amounts from the 1996 financial statements have been reclassified to
conform to the 1997 presentation.
Use of Estimates
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain 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>
<S> <C>
Land $1,207,926
Office building and improvements 828,168
Office furniture and equipment 552,288
Mining equipment 398,588
Transmission equipment 602,209
Transportation equipment 175,925
----------
3,765,104
Less accumulated depreciation (499,754)
----------
Total $3,265,350
==========
</TABLE>
F-8
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 3 - Long-Term Debt and Stockholder Advances
<TABLE>
<CAPTION>
<S> <C>
Long-Term Debt
Mortgage payable in connection with the
purchase of an office building and related
land, maturing July 2000. Interest at 10%,
with monthly principal and interest payments
of $6,526. Collateralized by land and
building with a net book value of $896,208. $503,125
Note payable in connection with purchase of a
vehicle maturing in 1998. Interest at 9%,
with monthly payments of $2,383.
Collateralized by the vehicle. 31,661
Notes payable in connection with the purchase
of several Basic Trade Areas (BTA's) maturing
2006. Interest at 9.5%. Debt service began
with quarterly interest payments totaling $24,236,
with principal and interest payments to begin
November 1998 totaling $45,886. 1,020,445
Capital lease in connection with the purchase
of mining equipment maturing in 1998. Monthly
payments of $5,000. Collateralized by the
equipment. 62,500
---------
1,617,731
Less current maturities (99,566)
---------
Long-term debt $1,518,165
==========
</TABLE>
F-9
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 3 - Long-Term Debt and Stockholder Advances (continued)
The aggregate annual maturities of long-term debt at March 31, 1997 are as
follows:
<TABLE>
<CAPTION>
Year Ending March 31,
- ---------------------
<S> <C>
1998 $99,566
1999 59,705
2000 106,396
2001 572,792
2002 113,476
Thereafter 665,796
$1,617,731
</TABLE>
Stockholder Advances
Stockholder advances bear interest at 8%. Interest expense on stockholder
advances totaled $102,062 (1997) and $100,333 (1996).
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, 1997 and 1996 was $65,819 and
$19,480, respectively.
The Company is a lessor of multiple real properties. The lease of the
Michigan property commenced on March 16, 1994 and expires April 14, 1999. The
remaining operating leases are at the Denver location. Leases commenced in
the 1997 fiscal year and expire between 1998 and 2001.
F-10
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4 - Commitments and Contingencies (continued)
Leases (continued)
Future minimum lease receipts are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $132,634
1999 127,050
2000 55,165
2001 10,766
$325,615
========
</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 a lease agreement with an unrelated Company where it has an
option to enter into a 30 year lease to explore and mine certain mining claims
held by this unrelated company during 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 on December 8, 1996, whichever occurs first. During the
year ended March 31, 1997, the option was extended until December 9, 1997.
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-11
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4 - Commitments and Contingencies (continued)
Contingencies
The Company is the defendant in a class action suit by a shareholder of TV
Communications Network, Inc. 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 the Company been fully and fairly disclosed to the plaintiff and
other shareholders, they would not have purchased TV Communications Network,
Inc. 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 profits are 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-12
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 (Note
14).
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 (Note 14).
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-13
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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, 1997 and
1996, 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 assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities 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-14
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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. 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
statements 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 1997 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Net operating loss $(2,925,348)
Recognition of gain on
sale of stations (172,491)
Alternative minimum tax credit (113,532)
Shareholder interest and bonus (202,842)
Depreciation 217,973
Other (6,232)
----------
$(3,202,472)
============
</TABLE>
The net current and long-term deferred tax assets and liabilities in the
accompanying balance sheet includes the following deferred tax assets and
liabilities.
<TABLE>
<CAPTION>
<S> <C>
March 31,
1997
---------
Current deferred tax asset $1,215,517
Current deferred tax liability -
-----------
Net current deferred tax asset $1,215,517
===========
Long-term deferred tax asset $22,365
Long-term deferred tax liability (74,111)
----------
Net long-term deferred tax liability $(51,746)
==========
</TABLE>
F-15
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 6 - Income Taxes (continued)
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 $0 and $900,000 of the net operating loss
in 1997 and 1996, respectively. The Company has net operating loss
carryforwards totaling approximately $2,950,000 which expire through 2009.
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,
-----------
1997 1996
---- ----
<S> <C> <C>
Computed income taxes at
statutory rate $(445,384) $345,338
State income taxes, net of
Federal income tax benefit (51,088) 39,612
Section 453A interest 70,842 63,739
Non deductible items and
net operating loss 74,757 54,625
---------- -------
$(350,873) $503,314
</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 their choice 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, claimed to own an additional 2,000,000 shares of the Company Century
21 stock. 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 made the decision not to
proceed with production, as a suitable operator for the mine could not be
found. Accordingly, all costs capitalized to date were expensed because the
Company was unable to predict when, if ever, production would begin.
F-16
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
On December 31, 1996, the Company revised this agreement, incorporating
$193,500 of unpaid interest into the note receivable balance 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, 1997 is approximately $3,900,000.
Long-Term Receivables
<TABLE>
<CAPTION>
<S> <C>
Note receivable from Peoples Choice
TV of Detroit, Inc. in connection
with the sale of the Detroit WCTV
System maturing through 2001.
Interest ranging from 8% to 9%; secured
by the assets of the systems. $2,671,734
Note receivable (unsecured) from
American Telecasting, Inc. in connection with
the sale of TVCN's Denver cable operations
maturing in 1998. Interest at 8%. 1,518,435
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. 11,087
---------
4,301,256
Less current portion (1,381,427)
------------
$2,919,829
============
</TABLE>
F-17
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 8 - Sale of Domestic Wireless Cable Operations (continued)
The aggregate maturities of notes receivable at March 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ending March 31,
<S> <C>
1998 $1,381,427
1999 576,329
2000 -
2001 2,343,500
2002 -
-----------
$4,301,256
===========
</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, 1997, the Company purchased approximately
$70,000 of reclamation bonds related to its mine development efforts (Note 4),
in addition to the $27,000 purchased in prior years. The bonds are held for
the purpose of offsetting the cost of restoration following completion of the
related mining efforts. Cost of the reclamation bonds will be amortized over
the necessary reclamation period.
Also included is approximately $11,000 of other miscellaneous assets.
Note 10 - REEMA International
REEMA International (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. Operations during March 31, 1997 generated an additional loss of
$202,621 and as of that date the Company has limited development efforts
pending arrangements to purchase cost efficient raw materials.
F-18
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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, 1997 and 1996.
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-19
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 11 - Business Segments (continued)
March 31, 1997
<TABLE>
<CAPTION>
WCTV Station
March 31, 1997 WCTV License Construction
Leases Contracts
------------ ------------
<S> <C> <C>
Lease income $171,930 $ -
Contract income - -
Other income - 263,320
-------- ---------
Total revenue 171,930 263,320
Operating
(loss) profit $(69,466) $188,558
Identifiable
assets $1,673,727 $69,342
Depreciation $833 $14,020
Capital
expenditures $326,488 $(55,481)
March 31, 1996
Lease income $128,759 $ -
Contract income 101,798 -
Other income - -
-------- ----------
Total revenue 128,759 101,798
Operating
profit (loss) $13,752 $21,458
Identifiable
assets $1,986,777 $94,965
Depreciation $20,987 $11,592
Capital
expenditures $300,180 $ -
cont. below cont. below
March 31, 1996 Natural Gas Fuel Mining and
Conversion Exploration
---------------- -----------
Lease income - -
Contract income - -
Other income - -
---------------- ------------
Total revenue - -
Operating
(loss) profit (202,621) (1,571,122)
Identifiable
assets 77,644 448,754
Depriciation 13,100 41,890
Capital
expenditures - 325,690
March 31, 1996
Lease income - -
Contract income - -
Other income - -
-------- ----------
Total revenue - -
Operating
profit (loss) (674,746) (307,887)
Identifiable
assets 43,751 74,457
Depriciation 17,177 -
Capital
expenditures 59,335 74,457
cont. below cont. below
March 31, 1997
Internet Access
Jordan Service
Communications Provider
-------------- --------------
Lease income - -
Contract income - -
Other income - 34,621
------------- ---------------
Total revenue - 34,621
Operating
(loss) profit - (221,251)
Identifiable
assets - 117,260
Depriciation - 9,482
Capital
expenditures - 124,742
March 31, 1996
Lease income - -
Contract income - -
Other income - -
------------- --------------
Total revenue - -
Operating
profit (loss) (340,687) -
Identifiable
assets 385,551 -
Depriciation - -
Capital
expenditures 29,425 -
cont. below cont. below
March 31, 1997
Pager Corporate
Rental and other
------ ---------
Lease income - -
Contract income - -
Other income 20,500 655,773
------- -------
Total revenue 20,500 655,773
Operating
(loss) profit (30,514) (1,746,579)
Identifiable
assets 69,294 9,963,365
Depriciation - 382,258
Capital
expenditures 62,334 236,880
March 31, 1996
Lease income - -
Contract income - -
Other income - 979,814
--------- ----------
Total revenue - 979,814
Operating
(loss) profit - (1,286,109)
Identifiable
assets - 12,702,288
Depriciation - 169,077
Capital
expenditures - 508,741
cont. below cont. below
March 31, 1997
Adjustments Consolidated
----------- ------------
Lease income - 171,930
Contract income - -
Other income - 974,214
----------- -----------
Total revenue - 1,146,144
Operating
(loss) profit - (3,652,995)
Identifiable
assets - 12,419,656
Depriciation - 461,583
Capital
expenditures - 1,020,653
March 31, 1996
Lease income - 128,759
Contract income - 101,798
Other income (15,003) 964,811
------------ ----------
Total revenue (15,003) 1,195,368
Operating
profit (loss) - (2,574,219)
Identifiable
assets - 15,287,789
Depriciation - 218,833
Capital
expenditures - 972,138
</TABLE>
F-20
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 12 - Significant Fourth Quarter Adjustments
In the fourth quarter for the year ended March 31, 1997, the Company made the
following adjustments to the 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 for a net increase in income of approximately
$2,343,000.
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.
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.
F-21
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 14 - Subsequent Events
Subsequent to year end, the Company converted 400,000 shares of Class C
Preferred Stock, previously issued to MDA (a related company), into 200,000
shares of TV Communications Network, Inc. common stock; 380,000 shares of
Class C Preferred Stock, previously issued to AT & I (a related company), into
190,000 shares of TV Communications Network, Inc. common stock; and 4,864,000
shares of Class D preferred stock to 4,864,000 shares of TV Communications
Network, Inc. common stock (Note 5).
F-22
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
F - 1
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
F - 23
