QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended June 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission file number 0-18612
I.R.S. Employer Identification Number 84-1062555
TV COMMUNICATIONS NETWORK, INC.
(a Colorado Corporation)
10020 E. Girard Avenue, #300
Denver, Colorado 80231
Telephone: (303) 751-2900
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities and Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such report(s), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
41,188,454 shares of the Company's Common Stock ($.0005 par value)
were outstanding as of June 30, 1997.<PAGE>
<PAGE>
TV COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet as of June 30, 1997
(unaudited) . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Operations for the Three
months ended June 30, 1997
(unaudited) . . . . . . . . . . . . . . . . . 6
Statements of Cash Flow for the Three
months ended June 30, 1997
(unaudited) . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . 8
PART II. OTHER INFORMATION . . . . . . . . . . . . . . 12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<PAGE>
TV COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
June 30, 1997 (Unaudited)
<TABLE>
<PAGE>
<CAPTION>
June 30, 1997 March 31, 1997<PAGE>
Unaudited
<S> <C> <C>
Current Assets:
Cash $ 2,296,093$ 490,985
Investments 1,230,230 1,589,831
Accounts Receivable 22,275 27,727
Prepaid Expenses 209,230 74,991
Inventory 107,028 107,028
Current Portion of Notes 803,784 1,381,427
Current Portion of Def. Tax 739,517 1,215,517
Total Current Assets $5,408,157 $ 4,887,506
---------- ---------
Property and Equipment-Net $3,317,737 $ 3,265,350
--------- ---------
Other Assets:
Notes Receivable $ 2,727,718 $ 2,919,829
License Agreements - Net 1,550,311 1,239,075
Other Assets 112,188 107,896
Total Other Assets $ 4,390,217 $ 4,266,800
Total Assets $13,116,111 $ 12,419,656
============ ===========
</TABLE>
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, 1997 March 31,1997
Unaudited
<S> <C> <C>
Current Liabilities:
Account Payable $ 268,146 $ 329,976
Accrued Expenses 573,656 722,276
Current portion of
Long-Term Debt 83,075 99,566
Current Deferred Gain 1,077,273 1,077,273
Taxes Payable 95,254 61,409
Advance from Stockholders 982,090 1,013,700
Subscribers Deposits 24,990 25,140
--------- ---------
Total Current Liabilities $ 3,104,484 $ 3,329,340
Long-term Liabilities:
Long-term Debt $ 1,872,930 $ 1,518,165
Long-term Deferred Gain $ 2,473,489 $ 2,801,723
Deferred Income Tax 51,746 51,746
--------- ---------
Total Long-term Liabilities $ 4,398,165 $ 4,371,634
Stockholders' Equity
Class A preferred stock, $1 par
value; none issued or outstanding $ -0- $ -0-
Class B preferred stock, $1 par
value; 28,813 shares issued and
outstanding 28,813 28,813
Class C preferred stock, $1 par
value; 780,000 shares issued and
outstanding -0- 780,000
Class D preferred stock, $1 par
value; 4,864,000 shares issued and
outstanding -0- 152,000
Common Stock, $.0005 par value;
100,000,000 shares authorized,
41,188,454 outstanding 20,594 9,016
Additional Paid in Capital $ 7,495,633 $ 6,575,211
Accumulated (Deficit) <$1,931,578> <$2,826,358>
---------- ---------
Total Stockholders's Equity $ 5,613,462 $ 4,718,682
--------- ---------
Total Liabilities and Stockholder's
Equity $13,116,111 $12,419,656
=========== ===========
</TABLE>
<PAGE>
TV COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
Three Months Ended June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Unaudited Unaudited
3 Months Ended 3 Months Ended
June 30, 1997 June 30, 1996
-------------------------------
<S> <C> <C>
Revenue - Operations $ 317,940 $ 243,591
Revenue - Sold Cable
Operations 328,233 544,206
Revenue - Sold Station 2,000,000 -0-
--------- --------
Total Revenue $ 2,646,173 $ 787,797
========= =========
Operating Expenses: Profit
Salaries and Wages 295,582 255,977
Programming Fees 26,180 10,629
Cost of Goods Sold 30,439 -0-
Mine Development 432,740 262,500
General and Administration 327,627 230,082
Depreciation and Amortization 106,704 96,902
Interest 56,121 36,941
------- ---------
Total Expenses $ 1,275,393 $ 893,031
--------- --------
Income Before Income Taxes $ 1,370,780 $ <105,234>
--------- -----------
Estimated Income Taxes 476,000 -0-
---------- ----------
Income After Income Tax $ 894,780 $ <105,234>
========== ==========
Net Income Per Common Share $ .02 $ <.01>
Total Outstanding =========== ==========
Net Income Per Common share
Weighted Average $ 0.04
===========
<PAGE>
TV COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
Three Months Ended June 30, 1997 (Unaudited)
<PAGE>
Three Months Ended
June 30
<PAGE>
1997 Unaudited 1996 Unaudited
Cash Flow From Operating Activities
Net Income (loss) $ 894,780 $<105,234>
Adjustment to reconcile net income (loss)
to net cash used in operating activities
Depreciation and Amortization 106,614 96,902
Change in certain assets and liabilities
Accounts Receivable 5,452 67,489
Taxes Payable 33,845 11,915
Inventory -0- <7,759>
Prepaid Expenses <134,238> <65,978>
Accounts Payable <61,830> <70,647>
Accrued Expenses <148, 620> <18,882>
Subscriber Deposits <151> -0-
Deferred Gain <328,233> <163,206>
Deferred Taxes $ 476,000 -0-
---------- ----------
Cash flows used in operating
activities $ 843,619 $ <255,220>
----------- -----------
Cash Flows From Investing
Activities:
Investments 359,601 <61,012>
Property & Equipment <118,104> <94,555>
Notes Receivable 769,753 597,787
Other <4,292> 1,549
-------- --------
Cash Flows provided by
investing activities $ 1,006,958 $ 443,769
------------ -----------
Cash Flows From
Financing Activities:
Payments of Stockholder Advances <31,610> <114,207>
Long-term Debt 338,274 164,722
License Agreements <352,133> <37,000>
--------- ---------
Cash flows used in
financing activities <45,469> 13,515
-------- --------
Net Increase (decrease) In Cash 1,805,108 202,064
Cash - Beginning of Year 490,985 1,517,449
-------- ---------
Cash - End of Period $ 2,296,093 $ 1,719,513
=========== ===========
<PAGE>
TV COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1997 and 1996 (Unaudited)
Summary of Significant Accounting Policies
The summary of the Company's significant accounting policies are
incorporated by reference from TV Communications Network, Inc.,
Annual Report on Form 10!KSB dated June 30, 1997 for Fiscal Year
ended March 31, 1997.
The accompanying unaudited consolidated financial statements
include the accounts of TV Communications Network, Inc., and its
wholly-owned subsidiaries. All material and inter-company accounts
and transactions have been eliminated in consolidation.
Interim Unaudited Financial Statements
Information with respect to June 30, 1997, and June 30, 1996, and
the periods then ended have not been audited by the Company's
independent auditors, but, in the opinion of management, reflect
all adjustments (which include only normal recurring adjustments)
necessary for the fair presentation of the operations of the
Company. The results of operations for the three months ended June
30, 1997, and June 30, 1996, are not necessarily indicative of the
results of the entire fiscal year.
The preparation of the interim report is based on the same
accounting standards, and the statements are in conformity with
Generally Accepted Accounting Principles (GAAP). Management
believes there are no material misstatements.
Earnings Per Share
Net income per common share is based on the weighted average number
of 22,940,855 and 17,981,133 common shares outstanding for 1997 and
1996, respectively.
Income Tax
From its inception on July 7, 1987, the Company incurred operating
losses through March 31, 1993, which included certain accrued
expenses that are not deductible for tax purposes until paid, and
has net operating loss carry forwards available to offset future
year taxable income. The following summarizes these losses and
their expiration after the utilization of $1.3 million of the net
operating loss carry forward in the year ended March 31, 1995.
<PAGE>
Stockholders' Equity
The options granted by the Company to Century 21 shareholders
originally expired as of November 30, 1994. However, the Company
extended said options to November 30, 1997.
The Option Certificate provides that the option deadline to either
convert Preferred Shares to Common Stock or to purchase Common
Stock has been extended three years from November 30, 1994 to
November 30, 1997. These Option Certificates are not transferable.
TVCN extended the Options for three years, and the underlying
common shares are restricted from public sale for two years from
the date of issuance of common stock under the options or the
effective date of registration of such shares with the SEC,
according to which event occurs first. TVCN may, but is not
obligated to, register these shares for public trading through the
SEC.
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 were 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. MDA
requested 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 Company's 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 TVCN's 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.
MDA of Georgia, Inc.
In January, 1997, TVCN and MDA, an affiliated company, began to
negotiate the acquisition of MDA of Georgia, Inc. by TVCN in
exchange for stock of TVCN. On June 17, 1997, the two companies
completed the transaction. Pursuant to the acquisition agreement,
TVCN acquired all issued and outstanding stock of MDA of Georgia,
Inc. (a wholly owned subsidiary of MDA, Inc.). In exchange, TVCN
agreed to issue 17,953,321 shares of its common stock. The only
asset of MDA of Georgia is a four-channel MMDS station in Rome,
Georgia with a market value of about $2.0 million.
The number of shares issued to MDA was calculated as follows: the
highest bid prices of TVCN stock at the close on each of the
previous four Fridays were $0.14, $0.13, $0.15 and $0.15, as
reported by the National Quotation Bureau. The average of such
high bids is $0.1425 per share. Since the shares issued by TVCN
are restricted shares, and TVCN has historically discounted
restricted shares by 20%, the average of $0.1425 was discounted by
20% to $0.114 per share. Accoudingly, in exchange for all of the
issued and outstanding shares of MDA of Georgia, Inc., TVCN issued
17,953,321 shares to MDA
Both TVCN and MDA are owned and/or controlled by more than 80% by
Mr. Omar Duwaik, who is the president and CEO of both companies.
This transaction is a non-arms length transaction and is subject to
the approval of the shareholders of both TVCN and MDA. In the
event shareholders of either company do not approve it, the
transaction will be terminated and the exchange will be reversed.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
Wireless Cable Operations
Salina, Kansas. TVCN is currently operating the Salina station
which broadcasts on 15 channels to a base of 440 subscribers and
has three employees. Zenith scrambling equipment was introduced
into the Salina head-end equipment in November and December, 1996,
each subscriber's household received a new descrambler (set-top
converter), and the Company added ESPN, Showtime and Flix to its
programming package.
Mobile, Alabama. The Company's Mobile, Alabama license is operated
by Mobile Wireless TV. For the use of this license the Company
received a cash payment of $100,000, and a promissory note in the
amount of $100,000. The note was paid on May 22, 1997. In
addition, the Company receives a transmission fee which is the
greater of $2,000 per month; $0.50 per subscriber per month; or two
percent of the gross monthly revenues of the station.
Woodward, Oklahoma. The Company's Woodward, Oklahoma license is
the fifth license acquired by the Company from MDA, Inc., an
affiliated company. The other four licenses are those of Salina
and Hays, Kansas; San Luis Obispo, California; and Mobile Alabama.
The Company temporarily leased the station to a non-affiliated
entity at the rate of $500 per month for a period of one year,
ending March 31, 1998.
San Luis Obispo, California. The Company repossessed the San Luis
Obispo, California WCTV station from Wireless Telecommunications,
Inc. ("WTCI") in 1996 and has been operating it since that time.
As part of a settlement with WTCI, WTCI conveyed all of its assets
in the San Luis Obispo station to the Company, and the Company
agreed to purchase the San Luis Obispo Basic Trading Area ("BTA")
from WTCI. The purchase price for the BTA was $452,168. Of this
amount $90,000 was paid in cash, and $362,168 was paid in the form
of the Company's assumption of an obligation in that amount payable
to the FCC over 10 years, with interest only payments for the first
two years and principal and interest payments for the final eight
years. The FCC approved the transfer of the BTA on May 23, 1997,
and the Company is in the process of applying for six additional
channels in San Luis Obispo. In addition, the Company purchased
the rights to all three of the "H" channels for a total of $20,000
and is awaiting FCC approval of the transfer of these channels.
Currently, the Company is broadcasting on seven channels to 50
subscribers in the San Luis Obispo area.
Rome, Georgia On June 18, 1997, TVCN sold its four-channel MMDS
station in Rome, Georgia to Bell South for $2.0 million. This is
the station that was previously acquired from TVCN's affiliate MDA.
Other Stations. The Company also owns a WCTV station in Hays,
Kansas. In cooperation with its affiliate, Multichannel
Distribution of American, Inc. ("MDA") the Company has constructed
four channel WCTV stations in Myrtle Beach, South Carolina; Quincy,
Illinois; and Scottsbluff, Nebraska. None of these stations has
been leased.
In addition, in an effort to expand its concentration of WCTV
stations in the West Virginia and Pennsylvania areas, the Company
has applied for five vacant channels in the
Scranton/Wilkes-Barre/Hazelton BTA.
Sale of WCTV Stations
Detroit, Michigan
In 1994 the Company sold its WCTV station in Detroit, Michigan to
Eastern Cable Networks of Michigan, Inc. ("ECNM"), a subsidiary of
ECNC. The consideration received by TVCN was $11,000,000.00
payable as follows: (1) a deposit of $250,000; (2) $2.25 million
cash at closing; (3) $500,000 90 days after closing; (4) up to
$2.0 million payable as a function of 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 People's Choice TV ("PCTV"). In September 1995 the Company
filed a lawsuit in the District of Columbia Superior Court seeking
damages and to set aside the transaction on the grounds that it
violated the agreement pursuant to which TVCN sold the Detroit
station to ECNM in 1994. On January 12, 1996 the parties settled
the lawsuit effective December 31, 1995. Pursuant to the
settlement, the Company released ECNC from all liability and
consented to PCTV's assumption of the note secured by the Detroit
station (the "Original Detroit Note"). In return, ECNC and PCTV
paid the Company $614,120 in cash; PCTV assumed the Original
Detroit Note; and one of PCTV's wholly-owned subsidiaries executed
a second note (the "Additional Detroit Note") in favor of the
Company in the amount of $2.15 million. As of June 30, 1997 the
total outstanding deferred purchase price of the Detroit station
was $4,085,801, consisting of the $1,742,301 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 June 30, 1997 the outstanding
principal amount of this note was $1,185,103.
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 August 8, 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. An
additional delay was caused in July and August 1997 due to problems
with filtering the water at the plant which required the
construction of an extensive water filtration facility. 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 June 30, 1997 MEICO had expended a total of
$1,542,750 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 $760,000 in advance royalties. Thus the total of
expenditures of all kinds through June 30, 1997 was $2,302,750.
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 company's previous annual reports, which are
incorporated herein by reference.
Reema International Corp.
Reema International Corp. (" Reema") is a wholly-owned subsidiary
of TVCN incorporated to explore for and develop business
opportunities in the oil and gas industry. Specifically, Reema is
in the business of developing projects designed to convert natural
gas into transportation fuels ("Gas Conversion Project"). For more
information, see the company's previous annual reports, which are
incorporated herein by reference.
Internet Business Opportunities
On February 16, 1996 the Company incorporated its wholly-owned
subsidiary, Planet Internet Corp. as an Internet Service Provider
("ISP"). Planet Internet provides internet service to subscribers.
During the first year of testing and operation Planet Internet
concentrated its efforts on local individual accounts. Recently,
Planet Internet has begun concentrating on commercial accounts and
expanding its services nationwide.
Individual dial-up subscribers are charged an average of $19.95 per
month per subscriber with a certain discount for a paid-up yearly
subscription. Planet Internet offers a wide range of services to
commercial accounts for as little as $50.00 per month for dial-up
subscribers to as high as $350.00 per month per subscriber for
accounts with high speed digital modems and other internet
services. As of June 30, 1997, Planet Internet had 785 subscribers.
As of June 30, 1997, Planet Internet has purchased internet
equipment worth $139,232, and has spent $343,015 for the
development of its internet services. On May 7, 1997, Planet
Internet has placed a purchase order of $746,445 worth of internet
equipment.
Middle East Investment Authorization
At a special meeting of the Companys 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.
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).
Property, Plant and Equipment
The Company retains ownership of substantially all system equipment
necessary to provide its services to subscribers. Such system
equipment includes all reception and transmission equipment located
at the tower (i.e., the head-end equipment), reception equipment
located at each subscriber location (i.e., subscriber equipment)
and related computers, diagnostic equipment and service vehicles
and facilities. The Salina, Kansas system equipment is valued at
$417,617. The Company's WCTV facilities are, in the opinion of
management, suitable and adequate by industry standards.
The Company owns its executive offices in Denver, Colorado. The
Company also owns a warehouse in Detroit, which is leased to PCTV
at the rate of $4,000 per month until March 1999, and vacant land
in Arapahoe and Jefferson Counties in Colorado, which is being held
for future development. Physical assets of the Company, except for
the mortgage on corporate headquarters, are not held subject to any
major encumbrance.
<PAGE>
Total Revenues
The total revenue for the first quarter ended June 30, 1997,
was $2,646,173 as compared to $787,797 for the first quarter ended
June 30, 1996. The increase was due to the sale of the Rome,
Georgia station.
Operating Expenses
Total operating expenses for the first quarter ended June 30, 1997,
are $1,275,393 as compared to $893,031 during the first quarter
ended June 30, 1996. The increase in expenses of $382,362 is
summarized as follows:
Increase in Salaries and Wages $ 39,605
Increase in Programming Fees 15,551
Increase in Cost of Goods Sold 30,439
Increase in Mine Development 170,240
Increase in General & Administrative Expense 97,545
Increase in Depreciation and Amortization 9,802
Increase in Interest Expense 19,180
NET INCREASE IN TOTAL EXPENSES $ 382,362
=========
The increase in salary & wages and General and Administrative
Expenses is due to the increased time spent in developing new areas
of operations and defending lawsuits. The increase in mine
development expenses is due to the increased activity in developing
the Liberty Hill Mine.
Net Gain
The net gain after income tax estimate for the three months ended
June 30, 1997 was $894,780, compared to a loss of $<105,234> during
the first quarter ended June 30, 1996. The increased income during
the first quarter ended June 30, 1997, is due to the sale of the
station in Rome, Georgia, offset by the lower interest from the
sales of Cable Operations in Detroit and Denver during 1997. The
increase operating costs were due to the increased costs of mine
development.
Income Taxes
See page 8 "Income Tax" note.
Estimated income taxes are calculated at 35% for federal
obligations.
Liquidity and Capital Resources
The Company initially financed its growth through loans and the
sale of stock. The Company will finance its future growth
primarily from the sale of domestic operations.
<PAGE>
To date, the Company has not engaged in any debt financing, with
the exception of the BTAs funded through the FCC, and the
purchase of the internet equipment. Instead, it has relied on
individual or group investments. The company's cash flow for the
three months ended June 30, 1997, and June 30, 1996, are summarized
as follows:
June 30, 1997 June 30, 1996
Unaudited Unaudited
Unaudited
Cash Flow From Operating
Activities $ 843,619 $ <255,220>
Cash Flow From Investing
Activities $ 1,006,958 $ 443,769
Cash Flow From Financing
Activities $ <45,469> $ 13,515
Cash - Beginning of Period $ 490,985 $ 1,517,449
----------- -----------
Cash - End of Period $ 2,296,093 $ 1,719,513
=========== ===========
The sales of the Denver, Colorado, Washington, D.C., and
Detroit, Michigan systems for approximately $17.5 million with a
resulting gain of $15.5 million and the sale of the Rome, Georgia
station are expected to adequately continue covering the Company's
current liabilities along with allowing the Company develop other
wireless cable TV markets in the United States and explore other
business opportunities domestically and internationally.
Currently, the Company has $ 1,956,005 in long term debt which is
primarily for the purchase of the TVCN corporate headquarters
building in Denver, Colorado, and for the Basic Trade Area rights
purchased during the FCC BTA Auction.
The Company's current assets and liabilities are $ 5,408,157
and $ 3,104,184, respectively. The Company's cash position is such
that management anticipates no difficulty in its ability to meet
its current obligations. The company currently has $1,230,230
investments in government securities.
The President, a shareholder, and a Director, have advanced loans
to the Company totaling $ 982,090. On May 29, 1997, 4,864,000
shares of Class D Preferred Stock were exchanged for 4,864,000
shares of Restricted Common Stock (1 for 1). On May 29, 1997,
780,000 shares of Class C Preferred Stock were exchanged for
390,000 shares of Restricted Common Stock (2 for 1). For a more
complete description refer to Form 10KSB dated March 31, 1997. On
June 17, 1997, TVCN exchanged 17,953,321 shares of common stock for
the stock of MDA of Georgia, Inc.
Accounts Receivable and Payable
The decrease in notes receivable, and accounts payable as of June
30, 1997, is due mainly to the receipt of note payment and the
payment of invoices.
Advance from Stockholders
During the period from March 31, 1997 to June 30, 1997, the Company
repaid advances from stockholders totaling $31,610.
Subscriber Deposits
The purchasers of the Denver and Detroit stations limited the
subscriber deposits assumed by purchasers to $50,000 and $114,000,
respectively. TVCN is responsible for subscriber deposits above
these amounts.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
(A) Shareholder Class Action Suit
TVCN is a defendant in a class action suit entitled Merton
Frederick, et.al. v. TVCN, et.al. more fully discussed in the
Company's latest 10!KSB filed on June 30, 1996. The class of
plaintiffs has been certified by the court, and discovery has been
closed. Motions for summary judgment have been filed by the
Company, but are still pending. The trial is set to commence on
May 11, 1998. TVCN is vigorously defending the case.
(B) The Company knows of no other litigation pending,
threatened or contemplated, or unsatisfied judgment against it, or
any proceedings in which the Company is a party. The Company knows
of no legal actions pending or threatened or judgments entered
against any officers or directors of the Company in their capacity
as such in connection with any matter involving the Company or the
business.
Item 2. Changes in Securities
See p. 9 for a discussion of the Conversion of Preferred Stock to
Common Stock.
See p. 9 for a discussion of Century 21, Inc., and potential
future changes.
See p. 10 for a discussion of issuance of common Stock in exchange
for MDA of Georgia, Inc. stock.
Item 3. Default Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Security Holders during
the first quarter of fiscal 1997.
ITEM 5. Other Information
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TV COMMUNICATIONS NETWORK, INC.
Date: August 14, 1997 /ss/Omar A. Duwaik
Omar A. Duwaik
PRESIDENT/CEO
/ss/Dennis J. Horner
Dennis J. Horner
VICE PRESIDENT/TREASURER
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TV COMMUNICATIONS NETWORK, INC.
Date: August 14, 1997
Omar A. Duwaik
PRESIDENT/CEO
Dennis J. Horner
VICE PRESIDENT/TREASURER
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