QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the period ending December 31, 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 December 31, 1997.
<PAGE>
TV COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet as of December 31, 1997
(unaudited) . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Operations for the Three and
Nine months ending December 31, 1997 (unaudited). . . 6
Statements of Cash Flow for the Nine
months ending December 31, 1997(unaudited) . . . . . 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 9
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . 12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
<PAGE>
TV COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1997
<TABLE>
<CAPTION>
Unaudited Audited
Dec. 31, 1997 Mar. 31, 1997
<S> <C> <C>
Current Assets:
Cash $ 2,446,726 $ 490,985
Investments 85,659 1,589,831
Accounts Receivable 71,327 27,727
Prepaid Expenses 127,374 74,991
Inventory 107,028 107,028
Current Portion of Notes 575,234 1,381,427
Current Portion of Def. Tax 1,074,265 1,215,517
Total Current Assets $ 4,487,613 $ 4,887,506
___________ ___________
Property and Equipment-Net $ 3,656,974 $ 3,265,350
___________ ___________
Other Assets:
Notes Receivable $ 2,343,500 $ 2,919,829
License Agreements - Net 1,654,073 1,239,075
Other Assets $ 117,188 $ 107,896
___________ ___________
Total Other Assets $ 4,114,761 $ 4,266,800
___________ ___________
Total Assets $12,259,348 $12,419,656
___________ ___________
</TABLE>
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unaudited Audited
Dec. 31, 1997 Mar. 31, 1997
_____________ _____________
<S> <C> <C>
Current Liabilities:
Account Payable $ 207,103 $ 329,976
Accrued Expenses 613,397 722,276
Current portion of Long-Term Debt 154,304 99,566
Current Deferred Gain 1,066,010 1,077,273
Taxes Payable 64,668 61,409
Advance from Stockholders 867,707 1,013,700
Subscribers Deposits 24,750 25,140
__________ __________
Total Current Liabilities $ 2,997,940 $ 3,329,340
___________ ___________
Long-term Liabilities:
Long-term Debt $ 2,051,402 $ 1,518,165
Long-term Deferred Gain 2,343,500 2,801,723
Deferred Income Tax 51,746 51,746
____________ ___________
Total Long-term Liabilities $ 4,446,648 $ 4,371,634
____________ ___________
Stockholders' Equity
Class A preferred stock, $1 par
value; none issued or
outstanding -0- -0-
Class B preferred stock, $1 par
value; 28,813 shares issued and
outstanding 28,813 28,813
Class C preferred stock, $1 par
value; no shares outstanding -0- 780,000
Class D preferred stock, $1 par
value; shares outstanding -0- 152,000
Common Stock, $.0005 par value;
100,000,000 shares authorized;
41,188,454 outstanding 20,594 9,016
Additional Paid in Capital 7,495,633 6,575,211
Accumulated (Deficit) <2,730,280> <2,826,358>
__________ ___________
Total Stockholders's Equity $ 4,814,760 $ 4,718,682
___________ ___________
Total Liabilities and
Stockholder's Equity $12,259,348 $12,419,656
___________ ___________
</TABLE>
<PAGE>
TV COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
Three Months Ending December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Unaudited Unaudited
3 Months Ending 3 Months Ending
Dec. 31, 1997 Dec. 31, 1996
_______________ _______________
<S> <C> <C>
Revenue - Operations $ 397,158 $ 83,269
Revenue - Sold Cable
Operations 451,392 500,928
Total Revenue $ 848,550 $ 584,197
___________ __________
Operating Expenses: Profit
Salaries and Wages $ 297,587 $ 423,082
Programming Fees 21,528 9,038
Cost of Goods Sold 40,944 -0-
Mine Development 150,941 171,216
General and Administrative 297,967 432,502
Depreciation and Amortization 156,925 108,204
Interest $ 92,437 $ 69,612
__________ __________
Total Expenses $1,058,329 $1,213,654
Income Before Income Taxes $ <209,779> $ <629,457>
__________ __________
Estimated Income Taxes $ <72,793> $ 10,012
__________ __________
Income After Income Tax $ <136,986> $ <639,469>
__________ __________
Net Income Per Common Share $ <.004> $ <.04>
__________ ___________
</TABLE>
<PAGE>
TV COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
Nine Months Ending December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Unaudited Unaudited
9 Months Ending 9 Months Ending
Dec. 31, 1997 Dec. 31, 1997
_______________ ______________
<S> <C> <C>
Revenue - Operations $ 975,971 $ 393,485
Revenue - Sold Cable
Operations 1,004,525 1,621,294
Revenue - Sold Station $ 2,000,000 $ -0-
Total Revenue $ 3,980,496 $ 2,014,779
____________ _____________
Operating Expenses: Profit
Salaries and Wages $ 902,001 $ 1,053,833
Programming Fees 67,873 27,677
Cost of Goods Sold 86,460 -0-
Mine Development 1,143,194 532,262
General and Administrative 1,027,084 1,227,132
Depreciation and Amortization 389,108 307,621
Interest $ 217,123 $ 140,640
____________ _____________
Total Expenses $ 3,832,843 $ 3,289,165
____________ _____________
Income Before Income Taxes $ 147,652 $ <1,274,386>
____________ _____________
Estimated Income Taxes $ 51,575 $ 87,834
____________ _____________
Income After Income Tax $ 96,077 $ <1,362,220>
____________ _____________
Net Income Per Weighted Common Share $ .002 $ <.08>
____________ _____________
</TABLE>
<PAGE>
TV COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
Nine Months Ending December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Unaudited Audited
9 Months Ending 9 Months Ending
Dec. 31, 1996 Dec. 31, 1997
_______________ ______________
<S> <C> <C>
Cash Flow From Operating Activities
Net Income (loss) $ 96,077 $<1,362,220>
Adjustment to reconcile net income
(loss) to net cash used in operating
activities
Depreciation and Amortization $ 389,107 $ 307,622
Change in certain assets and
liabilities
Accounts Receivable $ <43,600> $ 80,668
Taxes Payable 144,511 9,012
Inventory -0- 7,666
Prepaid Expenses <52,383> <183,174>
Accounts Payable <122,873> 411
Accrued Expenses <108,879> <93,736>
Subscriber Deposits <390> 240
Deferred Gain <469,486> <135,450>
Deferred Taxes $ -0- $ -0-
___________ ____________
Cash flows used in operating
Activities $ <167,915> $ <1,368,961>
___________ ____________
Cash Flows From Investing Activities:
Investments $ 1,504,172 $ <177,630>
Development of Mine -0- -0-
Property & Equipment <647,891> <530,281>
Notes Receivable 1,382,523 1,307,020
Other $ <9,292> $ 100,000
___________ ____________
Cash Flows provided by investing
Activities $ 2,229,512 $ 699,109
____________ ____________
Cash Flows From Financing Activities:
Payments of Stockholder Advances $ <145,993> $ <191,756>
Long-term Debt 587,975 20,378
License Agreements $ <547,838> $ <120,036>
___________ ___________
Cash flows used in financing
Activities $ <105,856> $ <291,414>
Net Increase (decrease) In Cash 1,955,741 <961,266>
Cash - Beginning of Year $ 490,985 $ 1,517,449
Cash - End of Period $ 2,446,726 $ 556,183
___________ ___________
</TABLE>
<PAGE>
TV COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1997 and 1996 (Unaudited)
The summary of the Company's significant accounting policies
are incorporated by reference from TV Communications Network, Inc.,
Annual Report on Form 10-KSB dated June 29, 1997 for Fiscal Year
ending March 31, 1997.
The accompanying unaudited consolidated financial statements
include the accounts of TV Communications Network, Inc., and its
wholly-owned subsidiaries. All material and inter-company accounts
and transactions have been eliminated in consolidation.
Interim Unaudited Financial Statements
Information with respect to December 31, 1997, and December 31,
1996, and the periods then ended have not been audited by the
Company's independent auditors, but, in the opinion of management,
reflect all adjustments (which include only normal recurring
adjustments) necessary for the fair presentation of the operations
of the Company. The results of operations for the three and nine
months ending December 31, 1997, and December 31, 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 36,031,272 and 17,981,133 common shares outstanding for
1997 and 1996, respectively.
Income Tax
From its inception on July 7, 1987, the Company incurred
operating losses through March 31, 1993, which included certain
accrued expenses that are not deductible for tax purposes until
paid, and has net operating loss carry forwards available to offset
future year taxable income. The following summarizes these losses
and their expiration after the utilization of $1.3 million of the
net operating loss carry forward in the year ended March 31, 1995.
Net Operating Year of
Loss Carry forward Expiration
Year ended March 31, 1993 $2,950,000 2009
ITEM 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
Wireless Cable Operations
Salina, Kansas. TVCN is currently operating the Salina station
which broadcasts on 19 channels to a base of 502 subscribers and has
two 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. Mobile
Wireless TV has filed for reorganization under Chapter 11
Bankruptcy. All fees have been paid in a timely manner.
Woodward, Oklahoma. The Company's Woodward, Oklahoma license
is the fifth license acquired by the Company from MDA, Inc., an
affiliated company. The other four licenses are those of Salina and
Hays, Kansas; San Luis Obispo, California; and Mobile Alabama. The
Company temporarily leased the station to a non-affiliated entity at
the rate of $500 per month for a period of one year, ending
March 31, 1998.
San Luis Obispo, California. The Company repossessed the San
Luis Obispo, California WCTV station from Wireless Telecommunica-
tions, Inc. ("WTCI") in 1996 and has been operating it since that
time. As part of a settlement with WTCI, WTCI conveyed all of its
assets in the San Luis Obispo station to the Company, and the
Company agreed to purchase the San Luis Obispo Basic Trading Area
(BTA) from WTCI. The purchase price for the BTA was $452,168. Of
this amount $90,000 was paid in cash, and $362,168 was paid in the
form of the Company's assumption of an obligation in that amount
payable to the FCC over 10 years, with interest only payments for
the first two years and principal and interest payments for the
final eight years. The FCC approved the transfer of the BTA on
May 23, 1997, and the Company has received construction permits for
six additional channels, with completion dates of August, 2001. In
addition, the Company purchased the rights to all three of the "H"
channels for a total of $20,000. The Company has applied for new
licenses on these channels. Currently, the Company is broadcasting
on seven channels to 42 subscribers in the San Luis Obispo area.
Other Stations. The Company also owns a WCTV station in Hays,
Kansas. In cooperation with its affiliate, Multichannel
Distribution of American, Inc. ("MDA") the Company has constructed
four channel WCTV stations in Myrtle Beach, South Carolina; Quincy,
Illinois; and Scottsbluff, Nebraska. None of these stations has
been leased.
In addition, in an effort to expand its concentration of WCTV
stations in the West Virginia and Pennsylvania areas, the Company
has received the licenses for four vacant channels and is waiting
for approval on the fifth in the Scranton/Wilkes-Barre/Hazelton BTA.
The Company acquired the lease for the F-Group channels in Scranton,
PA from American Telecasting, Inc. See Sale of WCTV Stations,
Denver, Colorado for payment information.
Sale of WCTV Stations
Detroit, Michigan
In 1994 the Company sold its WCTV station in Detroit, Michigan
to Eastern Cable Networks of Michigan, Inc. (ECNM), a subsidiary of
ECNC. The consideration received by TVCN was $11,000,000.00 payable
as follows: (1) a deposit of $250,000; (2) $2.25 million cash at
closing; (3) $500,000 90 days after closing; (4) up to $2.0 million
payable as a function of ECNM's ability to successfully expand its
services; (5) $500,000 nine months after closing; and (6) a $5.5
million promissory note secured by a lien upon the entire station.
On August 30, 1995, ECNM sold the Detroit station to a
subsidiary of People's Choice TV (PCTV). In September 1995 the
Company filed a lawsuit in the District of Columbia Superior Court
seeking damages and to set aside the transaction on the grounds that
it violated the agreement pursuant to which TVCN sold the Detroit
station to ECNM in 1994. On January 12, 1996 the parties settled
the lawsuit effective December 31, 1995. Pursuant to the
settlement, the Company released ECNC from all liability and
consented to PCTV's assumption of the note secured by the Detroit
station (the "Original Detroit Note"). In return, ECNC and PCTV
paid the Company $614,120 in cash; PCTV assumed the Original Detroit
Note; and one of PCTV's wholly-owned subsidiaries executed a second
note (the "Additional Detroit Note") in favor of the Company in the
amount of $2.15 million. As of December 31, 1997 the total
outstanding deferred purchase price of the Detroit station was
$3,409,510 consisting of the $1,066,010 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 $1,066,010.
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. The Company purchased
the lease for the F-Group channels in Scranton, PA and the attendant
equipment from ATI for $200,000.00. The original Denver Note was
thereby reduced by $195,705.17 of principal and $4,294.83 of
interest as payment for the Scranton acquisition. All reductions
will be made from the last four payments, September, 1998 through
December, 1998. As of December 31, 1997 the outstanding principal
amount of this note was $572,733.
Mining Business
Mining and Energy International Corp./Liberty Hill Mine
On September 2, 1997 the Company's subsidiary, Mining and
Energy International Corp. (MEICO) leased certain portions of the
Liberty Hill Mine in Nevada County, California from Big Trees Trust.
Big Trees Trust is controlled by Ray Naylor, who is also one of the
beneficiaries of the trust. Mr. Naylor is an officer of the
Company's Century 21 Mining, Inc. subsidiary, and the Company is
relying on his expertise in developing the Mine. The portions of
the mine not already leased are held by MEICO under option for the
next 30 years. The option payments necessary to exercise MEICO's
option (for the optioned parcels) are nominal.
Pursuant to the Lease Agreement MEICO must pay Big Trees Trust
a royalty of 15% (or 20% if the gold recovery rate from the mine is
more than .03 ounces per short ton) of the value of gold mined plus
$3 per short ton of all silica and barite mined from the mine. At
the beginning of each month MEICO must pay the trust a non-
refundable advance against royalties of $40,000 for that month. The
advance for each month is specific to that month, and if the actual
royalties for the mine for a given month are less than an advance,
the shortfall may not be recovered in subsequent months. On
September 26, 1997 the trust agreed to reduce the monthly advance
against royalties to $15,000 per month through May 31, 1998. In
connection with executing the lease agreement for the mine, MEICO
executed a promissory note in favor of the trust in the amount of
$500,000. The note is payable in-kind from production from the mine
in the amount of $43,494 per month. If production from the mine is
insufficient to pay the in-kind payments due on the note, the
shortfall shall be paid in subsequent months. All principal and
accrued interest on the note that has not previously been paid in-
kind shall be due in cash on September 3, 1998.
Prior to leasing the mine, MEICO had the mine under option from
December 8, 1995. During the option period (December 8, 1995 to
August 31, 1997) MEICO paid the trust non-refundable advance
royalties in the amount of $840,000 and incurred expenses to develop
the mine and construct the ore processing plant in the amount of
$1,763,266. From the time it executed the lease to December 31,
1997 MEICO paid the trust advance royalties in the amount $85,000
and promissory note payments in the amount of $-0-. From the time
it executed the lease through December 31, 1997 MEICO incurred
$300,838 in out-of-pocket expenses related to bringing the mine into
operation. Under the lease, MEICO has no obligation to incur
operational expenses in any minimum amount.
In September 1997 the mine operator reportedly placed the
mine's ore processing plant into operation and processed several
tons of ore. At that time, MEICO was informed that the gold
concentration was lower than anticipated and that the clay content
of the ore was much higher than had been anticipated, and disposal
of the clay mixed with water (i.e., "slimes") generated by the
processing plant would exceed that permitted by the Forest Service
permit for the mine. Accordingly, MEICO has made the determination
to dramatically slow down operations to reduce expenses at the mine
pending resolution of these and other issues. Negotiations with the
Forest Service to modify the permit have begun. In the meantime,
however, the company has dramatically reduced its expenditures and
operations at the mine and put in place a "skeleton" crew to
maintain and safeguard the equipment.
When the clay disposal problem is resolved and the mine is
placed in operation, MEICO hopes to produce economic quantities of
gold and silica, of which there can be no assurance. Through
September 10, 1997, 560 tons of ore had been processed at the mine,
yielding 75.42 ounces of placer gold, including a 46 ounce nugget.
It should be emphasized, however, that this recovery rate is based
on very limited experience, and there can be no assurance that
economic quantities of minerals will be produced from the mine or
that future recovery rates will be consistent with the recovery
rates experienced to date.
Century 21/Mountain House Mine
The Company acquired a controlling interest in Century 21
Mining, Inc. in December 1989. Century 21's principal asset is the
Mountain House Mine. The mine is not yet in operation. The status
of this mine has not changed since the last fiscal year. For more
information, see the Company's previous annual reports, which are
incorporated herein by reference.
Reema International Corp.
Reema International Corp. ("Reema") is a wholly-owned
subsidiary of TVCN, Incorporated to explore for and develop business
opportunities in the oil and gas industry. Specifically, Reema is
in the business of developing projects designed to convert natural
gas into transportation fuels ("Gas Conversion Project"). For more
information, see the company's previous annual reports, which are
incorporated herein by reference. Reema has entered into a
Memorandum of Agreement with the government of Trinidad and Tobago
for the construction of a Gas Conversion Plant in that country. No
definitive agreement has been entered into.
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 December 31, 1997, Planet Internet had 880
subscribers.
As of December 31, 1997, Planet Internet has purchased internet
equipment worth $569,851, and has spent $658,008 for the development
of its internet services. On May 7, 1997, Planet Internet has
placed a purchase order of $746,445 worth of internet equipment,
half of which has been received.
Middle East Investment Authorization
At a special meeting of the Company's board of directors held
on December 13, 1995, Omar Duwaik was authorized to explore
investment opportunities in the Middle East. Mr. Duwaik was
authorized to enter into such agreements as were necessary and to
invest in a holding company on behalf of the Company if he deemed
such an investment to be in the best interests of the Company. To
date Mr. Duwaik has explored numerous investment opportunities.
However, none have met the criteria he has established for making
such an investment. Therefore, although Mr. Duwaik was authorized
to commit up to $3 million, no funds have been expended to date
pursuant to the board's authorization. Pursuant to its general
policy of seeking shareholder approval of major investments, the
Company will seek shareholder approval of any investment made
pursuant to this authority.
Qatari WCTV Station
In 1992 the Company received a contract from Qatari Government
Telecommunications Corporation (Q-Tel) to build a WCTV station in
Doha, Qatar and train operations personnel. The Company built the
station in 1993, and a provisional acceptance certificate for the
station was issued on August 14, 1993. Through May 1996 TVCN
personnel assisted in the management and operation of the station
and trained Qatari personnel. TVCN has guaranteed the supply of all
compatible equipment and spare parts that may be needed for the
maintenance, and refurbishment of the equipment, and the
continuation of the WCTV operation without interruption over a
period of 10 years. The Qatari Wireless cable system was awarded
"Cable Operator of the Year" honors at the CABSAT `95 (cable and
satellite exhibition).
Frederick Case Settlement
The Company is a Defendant in a class action suit by two
shareholders of TVCN filed on April 2, 1994 in the United States
District Court for the District of Colorado under Case No.
94-WM-837. MERTON FREDERICK, as Trustee of the M&M Frederick, Inc.
Profit Sharing Plan, f/k/a M&M Frederick, Inc. Defined Benefit
Pension Plan; and F.S. WORKMAN; on Behalf of Themselves and All
Others Similarly Situated, are the Plaintiffs, and the Defendants
are TV COMMUNICATIONS NETWORK, INC., TVCN OF MICHIGAN, INC., TVCN OF
WASHINGTON, D.C., INC., INTERNATIONAL INTEGRATED SYSTEMS, TVCN
INTERNATIONAL, INC., INTERNATIONAL EXPORTS, INC., OMAR DUWAIK, JACOB
A. DUWAIK, KENNETH D. ROZNOY, SCOTT L. JENSON, AND SCOTT L. JENSON,
P.C.
The Plaintiffs alleged in their suit that the Company's
financial statements from July 1990 through August 1993 were
materially misstated. On March 8, 1996 the court certified a class
in the case. On October 31, 1997 the plaintiffs and defendants
agreed to settle the case subject to the Court's preliminary and
final approval of the settlement. Under the terms of the settlement
the plaintiffs have agreed to dismiss all of their claims against
the defendants in return for $1,500,000. All members of the class
who participate in the settlement and who own shares of TVCN
acquired during the class period will relinquish such shares as part
of the settlement. It is anticipated that approximately $690,000 of
the settlement fund will go to pay the fees and expenses of class
counsel and the remainder will be distributed to the class members
who agree to participate in the settlement.
On November 4, 1997 the Court granted preliminary approval to
the settlement. On November 5, 1997 the Company placed $1,500,000
in escrow at Colorado National Bank. A hearing on final approval of
the settlement is scheduled for February 20, 1998. If final
approval is granted at that time, the escrowed funds and accrued
interest will be delivered to plaintiffs' counsel for distribution
in accordance with the settlement agreement. If the Court does not
approve the settlement, the funds will be returned to the Company.
Property, Plant and Equipment
The Company retains ownership of substantially all system
equipment necessary to provide its services to subscribers. Such
system equipment includes all reception and transmission equipment
located at the tower (i.e., the head-end equipment), reception
equipment located at each subscriber location (i.e., subscriber
equipment) and related computers, diagnostic equipment and service
vehicles and facilities. The Salina, Kansas system equipment is
valued at $435,000. The Company's WCTV facilities are, in the
opinion of management, suitable and adequate by industry standards.
The Company owns its executive offices in Denver, Colorado.
The Company also owns a warehouse in Detroit, which is leased to
PCTV at the rate of $4,000 per month until March 1999, and vacant
land in Arapahoe and Jefferson Counties in Colorado, which is being
held for future development. Physical assets of the Company, except
for the mortgage on corporate headquarters, are not held subject to
any major encumbrance.
Total Revenues
The total revenue for the three and nine months periods ending
December 31, 1997, was $848,550 and $3,980,496 respectively, as
compared to $584,197 and $2,014,779 for the same periods ending
December 31, 1996. The increase was due to the sale of the Rome,
Georgia station. For further information, refer to 10Q dated
June 30, 1997, which is incorporated herein by reference.
Operating Expenses
Total operating expenses for the three and nine months periods
ending December 31, 1997, are $1,058,329 and $3,832,843 respectively
as compared to $1,213,654 and $3,289,165 during the same period
ending December 31, 1996. The change in expenses of $543,678 is
summarized as follows:
Decrease in Salaries and Wages $<151,832>
Increase in Programming Fees 40,196
Increase in Cost of Goods Sold 86,460
Increase in Mine Development 610,932
Decrease in General & Administrative Expense <200,048>
Increase in Depreciation and Amortization 81,487
Increase in Interest Expense 76,483
NET INCREASE IN TOTAL EXPENSES $ 543,678
The increase in Cost of Goods Sold and Programming Fees is due
to the increased efforts to increase Operating Revenues. The
increase in Mine Development expenses is due to the increased
activity in developing the Liberty Hill Mine. The decrease in
Salaries and Wages, and General and Administrative Expenses is a
result of management's efforts to reduce costs.
Net Gain
The net gain <loss> after income tax estimate for the three
and nine month periods ending December 31, 1997 was $<136,986> and
$96,077, compared to a loss of $<639,469> and $<1,362,220> during
the same periods ending December 31, 1996. The increased income
during the same periods ending December 31, 1997, is due to the sale
of the station in Rome, Georgia, offset by the lower interest from
the sales of Cable Operations in Detroit and Denver during 1997.
The increase operating costs were due to the increased costs of mine
development.
Income Taxes
See Page 8 "Income Tax" note.
Estimated income taxes are calculated at 35% for federal
obligations.
Liquidity and Capital Resources
The Company initially financed its growth through loans and the
sale of stock. The Company will finance its future growth primarily
from the sale of domestic operations.
To date, the Company has not engaged in any debt financing,
with the exception of the BTA's funded through the FCC, and the
purchase of the internet equipment. Instead, it has relied on
individual or group investments. The company's cash flow for the
three months ended December 31, 1997, and December 31, 1996, are
summarized as follows:
<TABLE>
<S> <C> <C>
Dec. 31, 1997 Dec. 31, 1996
_____________ _____________
Unaudited
Cash Flow From Operating
Activities $ <167,915> $<1,368,961>
Cash Flow From Investing
Activities $ 2,229,512 $ 699,109
Cash Flow From Financing
Activities $ <105,856> $ <291,414>
Cash - Beginning of Period $ 490,985 $ 1,517,449
Cash - End of Period $ 2,446,726 $ 556,183
</TABLE>
<PAGE>
The sales of the Denver, Colorado, Washington, D.C., and
Detroit, Michigan systems for approximately $17.5 million with a
resulting gain of $15.5 million and the sale of the Rome, Georgia
station are expected to adequately continue covering the Company's
current liabilities along with allowing the Company develop other
wireless cable TV markets in the United States and explore other
business opportunities domestically and internationally.
Currently, the Company has $2,205,706 in long term debt which
is primarily for the purchase of the TVCN corporate headquarters
building in Denver, Colorado, for the Basic Trade Area rights
purchased during the FCC BTA Auction, and for Equipment Purchases.
The Company's current assets and liabilities are $4,487,613 and
$2,997,940, 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 $85,659 investments
in government securities.
The President, a shareholder and a Director, have advanced
loans to the Company totaling $867,707.
Accounts Receivable and Payable
The decrease in notes receivable, and accounts payable as of
December 31, 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 December 31, 1997, the
Company repaid advances from stockholders totaling $145,993.
Subscriber Deposits
The purchasers of the Denver and Detroit stations limited the
subscriber deposits assumed by purchasers to $50,000 and $114,000,
respectively. TVCN is responsible for subscriber deposits above
these amounts.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Except as noted under the heading "Frederick Case
Settlement", the Company knows of no material litigation
pending, threatened or contemplated, or unsatisfied judgment
against it, or any proceedings in which the Company is a party.
The Company knows of no material legal actions pending or
threatened or judgments entered against any officers or
directors of the Company in their capacity as such in
connection with any matter involving the Company or the
business.
ITEM 2. Changes in Securities
There were no changes in Securities during the third
quarter ending December 31, 1997. Refer to 10QSB dated June
30, 1997 for changes in securities during the first quarter
ending June 30, 1997.
ITEM 3. Default Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of shareholders during
the quarter ended December 31, 1997.
ITEM 5. Other Information
None.
<PAGE>
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: February 13, 1998 /ss/Omar A. Duwaik
__________________________
Omar A. Duwaik
PRESIDENT/CEO
/ss/ Dennis J. Horner
__________________________
Dennis J. Horner
VICE PRESIDENT/TREASURER
<PAGE>
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: February 13, 1998 /ss/Omar A. Duwaik
__________________________
Omar A. Duwaik
PRESIDENT/CEO
/ss/ Dennis J. Horner
__________________________
Dennis J. Horner
VICE PRESIDENT/TREASURER
<PAGE>
