ANNUAL 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-KSB\A2
[X] Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934 [Fee
Required] For the fiscal year ended March 31, 1999
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. ("TVCN")
(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: 50,835,954 shares of TVCN's
Common Stock ($.0005 par value) were outstanding as of March 31, 1999.
<PAGE>
TV COMMUNICATIONS NETWORK, INC.
AND SUBSIDIARIES
Forward Looking Statements
Certain oral and written statements of management of TVCN included in the Form
10 KSB and elsewhere 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 harbor
created thereby. These statements include the plans and objectives of
management for future operations, Gas-To-Liquid ("GTL") Technology based on
TVCN's GTL process, anticipated capital and operating costs of GTL plants,
signing a definitive agreement, obtaining required financing for such plants,
the continued development of TVCN's GTL process and the projected economic use
of GTL plants. In addition, these statements include but are not limited to
such words as "intent", "believe", "estimate", "choice", "projection",
"potential", "expect", "should", "might", "could" and other similar
expressions. 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 TVCN. Actual results may differ substantially from these statements. In
particular the assumptions assume the collectability of the note receivable
from the sale of cable operations, the ability to sign a definitive
agreement, obtain required financing, construct and successfully operate
commercial GTL plants, and produce a salable product from the proposed GTL
plant, and the ability to successfully develop the BTAs and markets,
satisfactory resolution of legal maters, and economic, competitive and market
conditions for TVCN's business. Although TVCN 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 TVCN or any other person that
the objectives and plans of TVCN can or will ever be achieved.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Business Development
TV Communications Network, Inc. ("TVCN") was organized as a Colorado
corporation on July 7, 1987. Its executive offices are at 10020 E. Girard
Avenue, Suite 300, Denver, Colorado 80231, its telephone number is
(303)751 2900 and its fax number is (303) 751-1081. TVCN was formed to seek
business opportunities that, in the opinion of management, will provide
profit to TVCN in any industry in general and the Wireless Cable TV ("WCTV")
industry in particular. During its early years, TVCN focused its attention
on WCTV operations. After early success, TVCN began to diversify. Since
then, TVCN has been a diversified holding enterprise with operations in gas
and oil refining; WCTV; Internet; mining; auto salvage and wireless
communications. However TVCN recently sold its Internet operations, and is
considering the sale of other operations in order to focus on its gas and oil
business.
Wireless Cable TV ("WCTV") Operations
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 Multi-Point 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 channels to broadcast cable TV programming
to subscribers for monthly fees, is referred to as a WCTV station.
The capacity of a channel is defined in terms of frequency and time. When all
the frequencies of a particular channel are utilized 24 hours a day seven-
days a week, it is said that the channel capacity is full or fully utilized.
When the frequencies (or any part of them) are not used 24 hours a day,
seven-days a week, then it is said that the channel capacity is not full, and
in that event the channel has an excess capacity. An educational institution
normally leases its excess channel capacity (i.e., the use of the
frequencies) to a commercial operator during the time(s) when such
frequencies are not used or utilized for educational purposes by the
educational Institution.
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 6 MHz channel will be able
to deliver up to six different TV programs. The costs involved in digital
transmissions are 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.
Wireless Cable Stations
Salina, Kansas. TVCN is currently operating a wireless cable TV ("WCTV")
system in Salina. The system broadcasts on 19 channels to a base of 447
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 TVCN added ESPN, Showtime and Flix to its programming package. The
number of subscribers remain limited because of the limited number of TV
channels. With only 19 TV channels, TVCN has been unable to compete
effectively against conventional cable TV operators. Through the agreement
with Heartland Communications, which agreement is awaiting FCC approval, TVCN
hopes to increase the number of TV channels to as much as 33.
Mobile, Alabama. TVCN's 4-TV channel station (E1, E2, E3, E4) in Mobile,
Alabama was leased to Mobile Wireless TV, Inc. ("Mobile Wireless") pursuant to
a lease agreement dated May 9, 1994. The lease was for an initial period of
five years at the greater of $2,000.00 per month, 0.50 per month per subscriber
or 2.0% of the gross monthly revenues of the station. Mobile Wireless was
hoping to lease many additional TV channels from other licensees in order to
offer a reasonable alternative to conventional cable TV in Mobile. However,
Mobile Wireless was able to lease only seven more channels in addition to
TVCN's four channels. With only 11 TV channels, Mobile was unable to mount a
viable commercial wireless cable TV system that could compete adequately
against cable TV systems. The revenues of the station remained limited, and
the maximum monthly transmission fees received by TVCN was $2,000.00 during
the last five years. The lease expired in May, 1999. Mobile Wireless
expressed its interest to renew the lease for five more years under the same
terms and conditions. TVCN declined to enter into a long term lease because
of its desire to sell its rights and interest in the station. However, TVCN
agreed to lease the station on a month-to-month basis at the rate of
$1,200.00 per month. TVCN is considering the sale of its assets in this
Mobile market.
San Luis Obispo, California. TVCN owns a 4-TV channel station (E1, E2, E3, E4)
in San Luis Obispo, California which was leased to Wireless Telecommunications,
Inc. ("WTCI") in 1995. In January, 1996, WTCI defaulted on its payments to
TVCN. TVCN repossessed the station in June 1996 and has been operating it
since that time. As part of the settlement with WTCI, TVCN agreed to
purchase the Basic Trading Area ("BTA") of SLO from WTCI. In exchange, WTCI
conveyed and transferred all of its assets and interest in SLO BTA to TVCN.
See "The FCC Spectrum Auction". 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
TVCN'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. Since TVCN needs more TV channels to be
competitive, TVCN acquired from non-affiliated entities, the three H-Group
channels licenses (H1, H2, and H3) for $20,000.00. The FCC approved the
acquisition. Currently, TVCN is broadcasting on seven channels (3 H-Group
channels and 4 E-Group channels) to 59 subscribers. As the new owner of the
BTA, TVCN applied for the 4 F-Group channels (F1, F2, F3, and F4) and for the
two channels MDS1 and MDS2. The FCC approved TVCN's applications for the
last six channels. TVCN has not yet constructed the transmission facilities
for said six additional channels. TVCN has until August, 2001 to complete
such construction. The construction of those six channels would expand the
station capacity to 13 channels, which is still not commercially viable to
compete against conventional cable TV systems. TVCN is negotiating with
other licensees in SLO for the purpose of leasing additional channels. In
the meantime, TVCN is considering selling all of its assets in this SLO market.
Other stations. TVCN owns 4-TV channel stations in each of Hays, Kansas;
Woodward, Oklahoma; and Quincy, Illinois. In cooperation with its affiliate,
Multichannel Distribution of America, Inc. (MDA) TVCN has constructed four-
channel station in Myrtle Beach, South Carolina; Rome, Georgia; and
Scottsbluff, Nebraska. MDA is owned and controlled by TVCN's president. The
Quincy station is involved in a three-way transaction. TVCN acquired the
station from its affiliate MDA and entered into an agreement with Heartland
Communications to transfer and assign its rights and interest in the Quincy
station to Heartland in exchange for transferring certain of Heartland's
rights and interest in its BTA in Salina, Kansas to TVCN. The agreement with
Heartland is awaiting a final approval from the FCC (see the discussion under
"Quincy, Illinois and Salina, Kansas"). The Woodward station is being leased
to Heartland for $500.00 per month for a period of two years expiring April
2001. TVCN's stations in Myrtle Beach and Scottsbluff have not been placed
in commercial operations, nor are they the subject of any lease because no
reasonable lease has been offered. Because of the limited number of channels
(4-channel each) of these stations, TVCN has no immediate plans to place
such two stations in commercial operations. TVCN is considering the sale of
these and other stations.
In addition, in an effort to expand its concentration of WCTV stations in the
West Virginia and Pennsylvania areas, TVCN has applied for five vacant channels
in the Scranton/Wilkes-Barre/Hazelton BTA. In order to increase the channel
capacity of the stations, TVCN purchased the F Group lease and station
equipment from American Telecasting, Inc. for $200,000. The lease entitles
TVCN to utilize the F-Group frequencies 24-hours a day, seven-days a week
during the term(s) of the lease. The lease is for $750.00 per month for five
year, renewable every five years thereafter at TVCN's option. For more
information on the relative significance of a 4-channel stations or lease,
see the sections entitled "Mobile, Alabama" and "San Luis Obispo, California"
The FCC Spectrum Auction
Until November, 1995, the FCC used to grant licenses in the Wireless Cable TV
("WCTV") frequency spectrum to qualified applicants on a first-come
first-served basis. From November 13, 1995 to March 28, 1996 the FCC
conducted an auction of the frequency spectrum used by WCTV stations. In
this Auction, the FCC divided the country into Basic Trade 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. Prior to
the Auction, a licensee could be granted a license for up to four commercial
TV channels only. Now, a BTA winner can receive a license for up to 13
commercial TV channels. In order to qualify to participate in the Auction,
each bidder was required to pay an up-front payment to the FCC. TVCN's up-
front payment was $300,000 with a small business bidding credit of $400,000.
TVCN was the successful bidder on the following 12 BTAs: Clarksburg-Elkins,
Fairmount, Logan, Morgantown, Wheeling, West Virginia; Steubenville,
Ohio/Weirton, West Virginia; Dickinson and Williston, North Dakota;
Scranton/Wilkes Barre/Hazleton and Stroudsburg, Pennsylvania; Scottsbluff,
Nebraska; and Watertown, New York. TVCN's net bid was $1,276,000 (taking into
account the 15% small business credit TVCN received). This made TVCN the tenth
largest participant in terms of the number of BTAs acquired, and the 22nd
largest participant in terms of dollar volume. The total amount outstanding on
this obligation is $1,020,445, which TVCN is financing over ten years as
described in the notes to TVCN's financial statements. TVCN has not yet
finalized its plans with respect to development of WCTV stations in these
BTAs. The development is dependent on TVCN's ability to obtain substantial
capital resources. There is no assurance that TVCN will obtain sufficient
financing to develop such stations. In the meantime, TVCN will attempt to
sell its rights and interest in the BTAs, of which there can be no assurance
of success.
Purchase/Sale of Wireless Cable TV "WCTV" Stations
In 1991, TVCN, together with its affiliate Multichannel Distribution of America
("MDA"), Inc., made a successful bid in the U.S. Bankruptcy Court in New York
to purchase the WCTV station in Washington, D.C., and the WCTV station in
Detroit, Michigan. MDA is substantially owned and controlled by TVCN's
president. The two acquired WCTV stations were owned by Microband Companies,
Inc. which were under bankruptcy proceedings. The purchase price for the two
stations was $6,264,000.00 of which the amount of $4,864,000 was paid in the
form of issuing to Microband 4,864,000 shares of TVCN's Class D, preferred
stock, and the remaining balance of $1,400,000 was paid in cash and a short
term note. A few months later, MDA purchased from Microband Companies the
foregoing 4,864,000 shares of preferred shares for a cash payment of $152,000.
The acquisition cost of the two WCTV stations in Detroit and Washington, D.C.
was initially recorded on TVCN's books at the purchase price of $6,264,000.
However, in TVCN's 10-KSB of March 31, 1994 the recorded purchase price of the
two WCTV stations was adjusted to $1,552,000 instead of the original
$6,264,000. Subsequently, the two stations were sold for a total of $13.5
million payable in cash and notes that carried an annual interest of 8.0% as
follows:
The WCTV station in Washington, D.C., was sold in 1993 to Eastern Cable Network
Corp. ("ECNC") for $2,500,000.00 payable as follows: (1) a non-refundable
deposit of $50,000.00; (2) payment upon closing of $550,000.00; (3) payment of
$600,000.00 six months after Closing; and (4) balance of $1.3 million dollars
under a promissory note at eight percent (8%) interest payable in sixteen (16)
equal quarterly installments, commencing November 22, 1994, secured by a lien
upon the entire System.
In 1994, TVCN also sold the foregoing WCTV station in Detroit, Michigan to
Eastern Cable Networks of Michigan, Inc. ("ECNM"), a subsidiary of Eastern
Cable Network Corp. ("ECNC"). The consideration received by TVCN was
$11,000,000 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, Eastern Cable Network Corp. ("ECNC") sold the Detroit
station to a subsidiary of Peoples Choice TV ("PCTV"). In September 1995 TVCN
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, TVCN released ECNC from all liability and
consented to PCTV's assumption of the note secured by the Detroit station.
In return, ECNC and PCTV paid TVCN $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 TVCN in the amount of
$2.15 million. As of March 31, 1999, all payments under the Washington
station sale, and the original Detroit Note have been received, and the
remaining balance in the amount of $2,448,957.50, as required under the
Additional Detroit Note is due to TVCN by December 30, 2000. The Latter Note
carries an annual interest of 9%, payable semiannually until the Note is
fully paid. All interest payments under this Additional Detroit Note have
been timely received.
Denver, Colorado - In December 1993 TVCN sold its Denver, Colorado Wireless
Cable TV ("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. As of March 31, 1999 all payments under the sale of
the Denver station were received.
Quincy, Illinois and Salina, Kansas
TVCN is operating a Wireless Cable TV ("WCTV") station with a limited number of
TV channels in Salina, Kansas, (see "Wireless Cables stations". During the FCC
auction (see "The Fcc Spectrum Auction"), Heartland Communications Corp. was
the successful bidder of the Salina Basic Trading Area ("BTA"). That limited
TVCN's ability to lease additional TV licenses in Salina. That also gave
Heartland the exclusive right to obtain the remaining licenses which had not
been used by TVCN in the Salina market. These remaining licenses were also
limited in number. Specifically, the Salina system of TVCN has been limited to
19 TV channels, hardly adequate to compete against conventional cable TV
systems. Since Heartland is the FCC auction winner for the Salina BTA,
Heartland has the exclusivity over the remaining 14 TV channels in Salina.
Dividing the frequency spectrum in Salina, with 14 channels under Heartland's
control, and 19 channels under TVCN's control, severely limits the ability of
either Heartland or TVCN to independently develop the Salina market to its
growth potential. As a result, TVCN and Heartland began to discuss the
possibility of finding a solution.
At one point during the negotiations, Heartland offered to purchase the Salina
19-TV channel system from TVCN for $750,000. The book value of the Salina
system as of March 31, 1999 was $ 548,829. TVCN rejected the offer and
instead asked for a purchase price of $2.1 million, which was rejected by
Heartland. Heartland then offered to partition the Salina market whereby
Heartland would operate exclusively in certain area of the market, and TVCN
would operate exclusively in the remaining area. After rounds of negotiations,
Heartland gave TVCN an acceptable offer, i.e., the two companies would
partition the BTA off so that TVCN would receive 40.6% of the BTA that
covers the central part, and Heartland would keep the 59.4%. According to
the offer, the two companies would share payments to the FCC in those
percentages. As a condition, TVCN had to transfer a 4 channel TV licenses in
another market to Heartland. To meet this condition, TVCN offered Heartland
TVCN's E-Group license in Hays, Kansas. Heartland rejected TVCN's offer, but
was willing to accept the transfer of the E-Group license in Quincy,
Illinois. But, TVCN did not own the Quincy license/station. The 4-channel
Quincy station and license were owned by MDA - Illinois which is a wholly-
owned subsidiary of Multichannel Distribution of America ("MDA") Inc. MDA is
substantially owned and controlled by TVCN's president.
The foregoing partition is favorable to TVCN. First, it allows TVCN to assume
only 40.6% of the remaining payments to the FCC, or the balance amount of
$59,909.36 payable in quarterly payments of $2,693.81 to the FCC over the
next 8 years. Second, the 40.6% of the BTA covers the vast majority of the
population in the Salina market. Third, it enables TVCN to obtain the
remaining 14 TV channels in Salina, which should increase the commercial
value of the Salina system and increase the likelihood of its development to
its growth potential.
However, before the partition agreement with Heartland could be concluded, TVCN
had to buy the Quincy station and license from MDA. Since Mr. Duwaik owns and
controls the majority of both TVCN and MDA, any business between the two
entities would not be an arm-length transaction. Mr. Horner, a former TVCN's
board director, and Mr. Roznoy, a current director of TVCN's board, cooperated
in evaluating the Quincy transaction without Mr. Duwaik's involvement. Since
the Quincy license was applied for by MDA in 1983, among other factors, the
documents concerning the actual cost associated with the issuance of the
License and construction of the Quincy station/license were not readily
available.
Based on cost of comparable station's construction and licensing, and market
values, the Quincy station and license were evaluated at $425,373 for which
TVCN offered to issue, and Mr. Duwaik agreed to receive restricted shares of
TVCN common stock. An evaluation of the common stock of TVCN had been
conducted by an independent appraiser (Houlihan Valuation Advisors of Denver,
Colorado). Based on such factors as similarly situated companies, book
value, thinly traded stock, pink-sheet listing limitation, TVCN's liability,
cash flow and liquidity, etc., the appraiser determined that the restricted
shares of TVCN common stock in such a transaction would be worth $0.05 per
share. Accordingly, TVCN issued 8,507,460 shares of its restricted common
stock to MDA (at the rate of $0.05/sh) for the acquisition of MDA's Quincy
station and license. The trading quoted price of TVCN stock at the time of
the transaction had an asking and bidding price of $ 0.09/sh and $ 0.07/sh
respectively. Had the quoted asking or bidding price of TVCN stock been used
in the transaction, the number of shares of TVCN's stock issued to Mr. Duwaik
would have been only 4,764,178 or 6,040,297 shares. Since Mr. Duwaik is
already in control of both TVCN and MDA, no change in control is affected.
The Quincy transaction was submitted to and approved by a vote of the majority
of shareholders of TVCN during the 1998 Annual Meeting of TVCN's shareholders.
The majority of the votes counted, excluding those of Mr. Duwaik's, were
also in favor of the transaction.
As a result, the partition agreement was submitted to the FCC in December 1998.
It went on public notice on May 26, 1999. TVCN is awaiting final FCC approval,
which is totally unpredictable, and can take between two months and two years.
Rome, GA
On June 18, 1997, TVCN concluded the sale of its 4-channel E-Group station in
Rome, GA ("Rome Station") to Bell South for $2,000,000.00 in cash. Previously,
TVCN had acquired the Rome Station from Multichannel Distribution of America
("MDA"), Inc., Inc. through the acquisition of all outstanding shares of its
wholly owned subsidiary MDA of Georgia. MDA, Inc. is owned and controlled by
TVCN's president. In exchange for the acquisition of the Rome Station, TVCN
issued 17,953,321 restricted shares of TVCN's common stock to MDA. The number
of shares issued in the transaction was derived by averaging the high bid price
of TVCN's stock at the close on each of the previous four Fridays, which were
$0.14, $0.13, $0.15 and $0.15, as reported by the National Quotation Bureau.
The average of those high bids was $0.1425 per share. Since the shares issued
by TVCN are restricted shares, and TVCN historically discounted restricted
shares by 20%, the stock price used in the transaction was adjusted to $0.114
per share. The $2.0 million was then divided by $0.114. The resulting number
was the 17,953,321 restricted shares. The transaction was approved by the
shareholders of TVCN during their annual meeting in 1977.
Principal Services and Markets
TVCN owns MMDS licenses in Mobile, Alabama; San Luis Obispo, California;
Salina, Kansas; Hays, Kansas; and Scranton/Wilkes-Barre, PA. TVCN's MMDS
license in Mobile is leased to an independent WCTV operator. TVCN
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 TVCN is operating are in the Salina,
Kansas and San Luis Obispo, California areas. TVCN is leasing its Mobile,
Alabama license as well as the Woodward, Oklahoma license (under authority
from MDA). TVCN has had inquiries concerning the leasing of the channels in
Scottsbluff, Nebraska; Hays, Kansas; and Myrtle Beach, South Carolina, but no
serious lease offer was ever submitted to TVCN. The license in Rome,
Georgia was sold to BellSouth. The Quincy, IL license was assigned to
Nucentrix Broadband networks, Inc (formerly Heartland). Nucentrix in turn,
entered into a "Partition Agreement" with TVCN to allow TVCN the same
protections and channel rights for TVCN's Salina wireless system. The
Agreement was filed with the FCC in late December 1998 and went on public
notice on May 26, 1999. TVCN is awaiting final FCC approval.
TVCN 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 Wireless Cable TV ("WCTV")
station is able to offer to its subscribers is limited by the number of WCTV
channels available to the operator (including any channels leased from other
licensees) and the terms of the leases under which leased channels are used.
In addition, the nature of the subscribers receiving equipment and the
availability of funds for the necessary capital investment affects the
quality of the station's services.
The so-called head-end equipment at a WCTV broadcast station typically includes
satellite receiving equipment, descramblers, transmitters, encoders
(scramblers), combiners, waveguides and omni-directional or cardioid antenna
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 set-top converter.
Subscriber reception equipment typically consists of a television antenna
designed to provide reception of VHF/UHF off-air programming (provided as an
option to consumers), a microwave receive antenna (about 27" tall and 18"
wide), a down-converter, a set-top converter (descrambler and channel selector)
and various other component parts.
Competition
TVCN 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 Wireless Cable TV ("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 TVCN's financial capacity.
Other sources of competition include low power television stations and DBS
transmissions to homes. 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 TVCN, 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 programming offered by
WCTV operators.
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 TVCN's systems to compete with present, emerging
and future distribution media will depend to a great extent on obtaining
attractive programming. The continued availability of sufficient quality
programming may in turn be affected by the developments in regulation or
copyright law. In addition to management and experience factors, which are
material to TVCN's competitive position, other competitive factors include
authorized broadcast power allowance, number of leased channels, access to
programming and the strength of local competition. TVCN competes with a
great number of other firms in all phases of its operations, many of which
have substantially greater resources than TVCN.
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, A&E, USA, CMTV, MTV, and SHOWTIME. As well
as offering the local ABC, NBC, CBS, FOX, Warner Brothers TV, United Paramount
Network and FOX affiliates, PBS stations, independent stations and local UHF
channels. TVCN 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.
Governmental Regulation/FCC Licensing
The licenses of TVCN are not subject to regulation by any state or local
government. However, the WCTV portion of TVCN's activities are subject to FCC
regulations. TVCN's ability to continue providing WCTV programming is
dependent upon continued FCC qualification of TVCN 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:
Channel Group No. of Channels FCC Designation & Usage
A Group 4 ITFS (educational)
B Group 4 ITFS (educational)
C Group 4 ITFS (educational)
D Group 4 ITFS (educational)
E Group 4 MMDS (commercial)
F Group 4 MMDS (commercial)
G Group 4 ITFS (educational)
H1, H2, and/or H3 3 MMDS (commercial)
Channel 1 1 MDS1 (commercial)
Channel 2 (or 2A) 1 MDS2 (commercial)
Total 33
Of the 33 channels in this part of the spectrum a commercial Wireless Cable TV
("WCTV") operator can directly own 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 FCC's rules and
regulations. While there can be no assurance that renewal of a license will be
granted, historically, such licenses have been renewed if the licensee has
complied with the FCC's rules and regulations for the operation of the
facilities, as well as the rules relating to the types and nature of
transmission equipment.
From time to time legislation may be introduced in Congress, which, if enacted,
might affect TVCN's operations. Proceedings, investigations, hearings and
studies are periodically conducted by congressional committees and by the
FCC and other government agencies with respect to problems and practices of,
and conditions in the subscription TV industry.
On February 8, 1996, President Clinton signed into law the Telecommunications
Act of 1996 ("The Act"), the most sweeping overhaul in the 60 year history of
the Communications Act. The Act does not completely replace the older law, but
rather deletes some parts, adds new ones and augments others. The Act's
primary purpose is to open the entire range of telecommunications services to
greater competition and cross service providers. The Act is not completely
self-executing, however, so the FCC must enact regulations to implement the
Act's provisions.
Two actions taken by the FCC as a result of The Act are particularly important
to TVCN's ongoing business in the wireless cable industry. First, the FCC has
proposed a rule that would preempt the local zoning regulation of MMDS
antennas, thus allowing the placement of antennas in areas in which they had
been prohibited. The rule would establish a rebuttal 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 nwanted interference, with the FCC being called in only if such
cooperation 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.
In October 1998, the FCC approved most of the aforementioned changes, in effect
giving operators "two-way" capability, and the ability to offer voice, data,
internet, TV and any other broadband services. TVCN is considering the sale of
its remaining TV properties to concentrate its energies on Reema's Gas to
Liquid project. Sprint, MCI Worldcom and several other telecommunications
companies have recently purchased other wireless cable operators. TVCN is
also in discussions with these purchasers.
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.
Reema International Corp.
In 1993, TVCN incorporated a wholly-owned subsidiary under the name Reema
International Corporation ("Reema") for the purpose of evaluating and
developing a gas-to-liquid ("GTL") process. The GTL process converts natural
gas into finished products such as diesel, jet fuels and other specialty
products. Additionally, Reema began to negotiate with various gas producing
countries around the world the possibility of constructing and operating
commercial GTL plants at gas fields.
As of this date, Reema's activities have been limited to the research and
development of the GTL technology, and the negotiations with various
governments of gas producing countries. Reema has generated no revenues from
these activities, nor does it expect to generate any revenues any time soon,
and does not have any GTL plants under operation or construction. Reema is
simply negotiating with various entities the possibility of constructing its
first GTL plant, of which there can be no assurance of success.
As a wholly-owned subsidiary, Reema is under the control of TVCN's management.
TVCN's president also is Reema's president. Glen Clark, who manages Reema's
day to day activities, is Vice President for Reema. Mr. Clark is not
involved in the decision-making process for TVCN or Reema. Prior to joining
Reema in 1993 Mr. Clark had some 40 years broad-management experience in
chemical plants in such industries as LNG, regasification, amonia,
fertilizer, methanol, cogeneration, carbon dioxide, catalytical cracking,
refinery and other related process industries. Mr. Clark has a BS degree in
Chemical Engineering from Pennsylvania State, and a master of business
administration ("MBA") degree from New York State University.
GTL Plant
A typical GTL conversion plant consists of three major units. The first
section is a gasification or gas reforming unit for converting natural gas
into syngas (a mixture of hydrogen and carbon monoxide). The second step is
the F-T process unit in which the syngas from the first step is converted
into "soupy" waxy hydrocarbon products. The last unit is for hydrocracking/
hydroisomerization of the wax into the desired product mix such as diesel,
jet fuel, naphtha, etc. The front end (gasification) and the back end
(hydrocracking) units of a GTL plant are relatively standard commercial units
that are commercially available today and have been in use for about 40
years. The F-T process itself is not new. It was used by the Germans since
the 1920's to convert coal into syngas, which was then fed into the F-T
process for conversion into transportation fuels. South Africa used the F-T
process in the 1950's. However, because of the inefficiency of the early F-T
processes, the old GTL technology was not commercially viable. In 1992,
Sasol of South Africa began to experiment on a 2,500 bpd GTL plant. The
initial focus was on the production of the high-value wax. It is believed
that Sasol is now working on the production of transportation fuels, but no
information is currently available on such work.
It wasn't until 1993 that Shell built the first commercial GTL plant in
Malaysia. However, the Shell plant reportedly focused on the production of
high-value products such as solvents, detergents, lubricants and wax, instead
of transportation fuels. The capital cost of the Shell plant reportedly was in
excess of $850 Million, and the production capacity was 12,500 bpd. A recent
fire destroyed part of the plant and that the plant is not currently in
operation. The giant oil company Exxon announced recently that it has
completed the construction of a pilot GTL plant for the production of 250 bpd
of transportation fuels. As of this date, other than the foregoing, neither
Exxon nor others have built any other commercial GTL plant anywhere in the
world.
Memorandum of Understanding
After years of negotiations, Reema and the government of Trinidad and Tobago
signed in December, 1997 a Memorandum of Understanding ("MOU") for the
construction and operation of a GTL plant in Trinidad. The proposed GTL
conversion plant will be employing Reema's propriety technological
information. Reema's GTL plant in Trinidad will be using natural gas from
Trinidad. On June 11, 1999, The National Gas Company of Trinidad and Tobago
Limited (a government agency) and Reema International Corporation signed a
"Term Sheet For Supply of Natural Gas Agreement". The Agreement sets forth
the terms and conditions for a definitive agreement, and the obligations of
both parties that must be satisfied before the signing of a definitive
agreement. No assurance can be given that the definitive agreement will be
executed. If and when the proposed plant is constructed successfully, of
which there can be no assurance, the natural gas will be converted into
approximately 10,000 barrels per day (bpd) of quality finished petroleum
products such as sulfar-free diesel, jet fuel, naphtha and others.
The initial capitalization of Reema's proposed GTL plant in Trinidad is
expected to be between $275 and $300 million, for a production capacity of
10,000 bpd over a period of at least 20 years. Reema is discussing various
financing options with financial institutions and interested parties, of
which there can be no assurance of success.
GTL Competition
While the GTL technology is at its infancy, the competition in this new
emerging technology and industry is expected to be intense. TVCN does not
expect the competition to adversely affect the implementation of the first
GTL project in Trinidad. But, in its attempt to negotiate similar agreements
with other gas producing countries around the world, TVCN will be competing
against giant companies such as Exxon, Shell and others which have vastly
greater resources and capabilities. Even with the success of constructing
the first GTL plant in Trinidad, TVCN will be facing extremely tough
competition for constructing additional GTL plants. There is no assurance
that TVCN will be able to succeed in constructing any GTL plant.
Premium Quality of GTL Produced Products
It is frequently reported that the major cause of pollution in most major
cities throughout the world is the presence of sulfur and other impurities in
crude oil-derived products. Additionally, aromatics are the major cause of
engine wear and tear. Governments are constantly limiting the contents of
sulfur and other impurities in crude oil-based products in order to curb the
rising levels of pollution. The recent announcement in California regarding
the danger of diesel produced from crude oil underscores the significance of
the GTL process. On August 27, 1998, UPI reported that "California has
become the first state to declare that soot emitted in diesel exhaust is a
cancer threat that requires new controls. "On August 28, 1998, the Rocky
Mountain News reported eleven members of the California Air Resources Board
("ARB") "voted unanimously to declare 40 chemicals found in (crude oil-
derived) diesel exhaust as toxic air pollutants."
In contrast, diesel and jet fuel processed and produced by the GTL process
will have zero sulfur, zero aromatics, higher cetane, and a higher smoke
point. The quality of the finished products of the GTL process is expected
to be so premium that it can be used as a blend with the products derived
from crude oil in order to improve their quality and meet an ever-increasing
stringent pollution standard requirements.
Pager Business
In February 1997, TVCN purchased the assets of a pager business in Georgia for
$100,000. The business sells pagers, cellular phones, airtime for pagers, and
accessories from locations in Calhoun and Dalton, Georgia. This business
currently has about 1,000 airtime customers, who are charged $12.95 or more per
month. The stores have three employees. Since TVCN is attempting to focus on
its gas project, TVCN is considering the sale of this pager business.
Auto Salvage and Parts Recycling Business
In November of 1998, TVCN entered into an agreement with JBA Wholesalers, Inc.
("JBA") to acquire all of the issued and outstanding stock of JBA Wholesalers,
Inc. JBA owns an auto salvage and parts recycling business in Calhoun, Georgia.
The appraised market value of JBA at the time of the transaction was $125,000.
Omar Duwaik, TVCN's president, had a 60 % private interest in JBA prior to the
transaction. The Board of Directors of TVCN approved a resolution for TVCN to
acquire the remaining 60% of the stock in JBA to go along with the 40% which
TVCN already owned from an April 1998 transaction.
TVCN issued 1,500,000 shares of restricted Common Stock to Omar Duwaik based
upon a share price of $.05 per share, which is the value per share estimated by
Houlihan Valuation Advisors in a report dated March 25, 1998.
The business maintains an inventory of used autos and parts to be sold to the
public in Calhoun, Georgia. The grounds and buildings are on a Lease Purchase
Agreement payment plan of $1,500 per month. The last payment is due in March of
2006, at which time the property and buildings will be conveyed to JBA for $1.
The business has 3 employees. Because of TVCN's attempt to focus on its gas
project, TVCN is considering the sale of JBA.
Mining Business
TVCN invested in two mines, but neither was ever brought into commercial
operation. After considerable development losses, TVCN has decided not to make
any further mining investment, and to discontinue the mining operations. TVCN
has no current commercially viable mining operations, and that the mining
activities are considered "discontinued operation." The following is a summary
of these operations:
Mining and Energy International Corp./Liberty Hill Mine -
On September 2, 1997 TVCN's subsidiary, Mining and Energy International Corp.
("MEICO") entered into two agreements with "Big Trees' Trust" and "Naylor 1996
Charitable Remainder Trust under date of December 30, 1996," of Applegate,
California (collectively, "Big Trees Trust") concerning the Liberty Hill Mine
in Nevada County, California. Under the first agreement MEICO agreed to
lease ten unpatented mining claims, consisting of about 200 acres of the
Liberty Hill Mine, for thirty years. Under the second agreement, MEICO
acquired an option to lease 109 other unpatented mining claims, consisting of
approximately 1,750 acres of the Liberty Hill Mine, for a nominal option
price. Big Trees Trust is controlled by Ray Naylor, who for many years was
an officer of TVCN's Century 21 mining subsidiary.
Under the terms of the lease agreement, MEICO agreed to lease the subject
mining property for thirty years, with an option to terminate the lease without
penalty. MEICO agreed to pay the out-of-pocket costs of operating the mine. In
addition to these out-of-pocket expenses MEICO agreed to pay Big Trees Trust a
nonrefundable advance against royalties of $40,000 per month (or 15% of the
ores mined and sold, whichever is greater). As of March 31, 1999 MEICO had
expended a total of $2,110,224 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 $955,000 in advance royalties. Capital expenditures on the mine
amounted to $433,399. Thus total expenditures of all kinds through March 31,
1999 were $3,498,624. An additional $33,800 was spent on Century 21 mining
equipment used at the Liberty Hill Mine. No funds were spent for development or
operations in fiscal year 98/99. The U.S. Forest Service performed limited
remediation (erosion control) activities on the site in the fall of 1998. An
existing money market bond payable to the U.S. Forest Service was the source of
funds for this expenditure.
Development of the Liberty Hill Project began in the winter of 1996. MEICO
contracted with Ray Naylor to be the operator of the mine and to develop the
project. Beginning in the summer of 1996, Ray Naylor assured MEICO that
the mine was on the verge of production. However, for one reason or another,
including inclement weather, inadequate water purification equipment,
unanticipated clay content of the ore, etc., Mr. Naylor never actually
brought the mine into operation. Therefore, in the fall of 1997 MEICO began to
suspect that Mr. Naylor was unable or unwilling to bring the mine into
production. On March 5, 1998 TVCN and MEICO sued, inter alia, Big Trees
Trust and Ray Naylor in a dispute over the lease and operation of the Liberty
Hill Mine. In its complaint MEICO alleges that it was fraudulently induced to
enter into the mining lease and that Ray Naylor breached his contract to
operate the mine on MEICO's behalf in a good and miner-like fashion. MEICO and
TVCN claim damages in excess of $3.5 million. While no answer has been filed
in the case, Mr. Naylor has informed MEICO that he believes it is in default
under the lease and has served a notice of termination of the lease on TVCN.
On May 20, 1998 the Court entered an order on the parties' stipulated motion
submitting the matter to binding arbitration. The parties have agreed to the
appointment of Mr. Murray Richtel of the Judicial Arbiter Group, Inc. as the
arbitrator in this matter, and an arbitration hearing had been set for
September 10, 1998. However, before the arbitration hearing the parties met
on September 1, 1998 and entered into a preliminary agreement to settle the
dispute by selling the mine at auction and splitting the proceeds. However,
Mr. Naylor subsequently attempted to disavow this settlement agreement. TVCN
has placed Mr. Naylor on notice that it intends to file a second court action
to enforce the settlement agreement if he does not follow through with his
obligations thereunder. At this preliminary stage it is not possible to
predict with any certainty the probable outcome of this matter. However,
TVCN intends to prosecute its claims vigorously.
Century 21/Mountain House Mine - TVCN 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 in operation. TVCN held this mine
without development for investment purposes. The decision as to whether or
not to commercially develop that mine was contingent upon the success of the
mining operation of the Liberty Hill Mine. Since the development of the latter
was not successful, TVCN decided to sell its interest in this Century 21 mine,
but no offer has been made to buy the mine. If the sale is successful, TVCN
does not expect such sale to have any material effect on TVCN's financial
statements.
Internet Business Opportunities
On February 16, 1996 TVCN incorporated its wholly-owned subsidiary, Planet
Internet Corp. as an Internet Service Provider (ISP). Planet Internet provided
internet service to subscribers. By March 31, 1999, Planet had 836
subscribers, and was running a negative cash flow of about $40,000 per month.
On May 18, 1999, TVCN signed an agreement to sell Planet to BeWell Net Corp.,
another ISP. The net sale price was $1,508,640 payable in common stock of
BeWell Net at the rate of $5.00 per share. Accordingly, TVCN received
301,728 shares of the common stock of BeWell Net. As part of the sale, TVCN
has allocated 80,000 shares for distribution to various employees as
performance bonuses. None of the officers or directors of TVCN received any
of said stock other than Kenneth Roznoy who received 5,000 shares of said
stock. BeWell Net is a private company and has no public trading market for
its stock. As of March 31, 1999, Planet had liabilities of approximately
$283,000 and assets of $282,000. In connection with the sale, the entire
assets will be transferred to BeWell Net, and about $230,000 of the
liabilities will be transferred to and assumed by BeWell Net.
InterOmni Services - The InterOmni Wallet
TVCN had incorporated a wholly-owned subsidiary, InterOmni Services, Inc., in
order to develop the InterOmni Wallet, a digital profile that tracks and
records information about individuals. TVCN attempted to sell InterOmni, but
the sale did not go through. TVCN has ceased any further development in
InterOmni, and considers it discontinued.
Middle East Investment Authorization
At a special meeting of TVCN'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 TVCN if he deemed
such an investment to be in the best interests of TVCN. To date Mr. Duwaik
has explored numerous investment opportunities. However, none have met the
criteria he thought of for making such an investment. No specific criteria
has been established, other than reasonable degree of risk and rate of return
as determined by Duwaik on a project by-project basis. Although Mr. Duwaik was
authorized to commit up to $3 million, no funds have been expended to date
pursuant to the Board's authorization, and no current plans to expend any
funds. Pursuant to its general policy of seeking shareholders' approval of
major investments, TVCN will seek shareholder approval of any investment made
pursuant to this authority.
Qatar WCTV Station
In 1992 TVCN received a contract from the Qatari Government Telecommunications
Corporation ("Q-Tel") to build a WCTV station in Doha, Qatar and train
operations personnel. TVCN 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 Qatar wireless cable
system was awarded Cable Operator of the Year honors at the CABSAT 95 (cable
and satellite exhibition).
Patents, Trademarks and Licenses
TVCN owns MMDS licenses in Mobile, Alabama; San Luis Obispo, California;
Salina, Kansas; Hays, Kansas; and Scranton/Wilkes-Barre, Pennsylvania. All
licenses issued by the FCC are subject to renewal. TVCN has also constructed
stations in Myrtle Beach, South Carolina; Quincy, Illinois; Rome, Georgia;
Woodward, Oklahoma; and Scottsbluff, Nebraska under authority from MDA, an
affiliate that holds the MMDS licenses for these stations. TVCN subsequently
sold the Rome, Georgia station and license to BellSouth Wireless, Inc. TVCN
has acquired the MMDS license and station in Quincy from MDA, and is in the
process of assigning same to Heartland as part of a business deal with
Heartland to enhance the Salina, KS wireless system.
In addition, TVCN successfully bid on twelve BTAs in the recent FCC auction
of a portion of the microwave spectrum (see FCC Spectrum Auction herein). TVCN
received these 12 BTA licenses in October of 1996 with grant dates of August
16, 1996 and build-out dates of August 16, 2001. TVCN applied for the
transfer of the San Luis Obispo, California BTA license and received FCC
approval of the transaction on May 23, 1997.
TVCN's wholly owned subsidiary, Planet Internet Corporation, registered the
trade names fun.edu and TVCN.NET with the Colorado Secretary of State (see
Internet Business Opportunities herein). TVCN sold Planet, but the trade
names remain with TVCN.
TVCN holds no patents. However, TVCN has filed a patent application concerning
its GTL technology. The application is pending.
Employees
As of March 31, 1999, TVCN had 19 employees. None of TVCN's employees are the
subject of a collective bargaining agreement. TVCN believes that relations with
its employees are good.
TVCN's ability to carry out its proposed activities is dependent, to a
substantial degree on a limited number of personnel. There can be no assurance
that TVCN will be able to retain such personnel. TVCN's success is also
dependent on TVCN's ability to recruit and motivate high quality personnel. If
TVCN fails to retain the services of one or more of these persons or if TVCN is
unable to attract a sufficient number of skilled employees, TVCN's operations
may be adversely affected. TVCN does not currently maintain any key man
insurance on any of its officers, directors, or significant employees.
ITEM 2. DESCRIPTION OF PROPERTIES
TVCN 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 $566,579 TVCN's WCTV facilities are, in the opinion of management, suitable
and adequate by industry standards. Except the office building mortgage, and
the internet equipment, all equipment and assets are not subject to any lease
or encumbrance. Subsequent to March 31, 1999, TVCN sold its subsidiary, Planet
Internet, to BeWell Net, and assigned and transferred the internet equipment
lease and certain liabilities in the approximate amount of $230,000 to BeWell
Net. The sale included all the internet equipment.
TVCN owns its executive offices in Denver, Colorado. The office building has
an outstanding mortgage with a balloon payment due in July of 2000. The
mortgage balance at year-end was $481,783. In July of 1999, TVCN accepted an
offer for sale of the building subject to closing. The contracted sale price
is $1,200,000. The net book value of the building is $896,208. If the sale is
successfully completed, of which there can be no assurance, the net sale
proceeds are expected to be about $1,135,000, which will result in a gain of
about $240,000. Under the terms of the sale agreement, TVCN will enter into a
three year lease for the rental of its' executive offices of approximately
3,600 square feet at the rate of $3,625/month.
TVCN also owns a warehouse in Detroit, MI not subject to any mortgage. This
warehouse was leased to PCTV at the rate of $4,000 per month until March 1999.
In July 1999, TVCN accepted an offer for sale of the warehouse and associated
land subject to closing. The net book value at year-end of the building and
land was $158,379. The net selling price is about $180,000, which will result
in a gain of about $22,000.00.
TVCN owns undeveloped acreage on two lots in Cherry Hills Village, Colorado not
subject to any mortgages. The book value of these lots at year-end was
$633,113. Both lots have been listed for sale. On April 15, 1999, one of the
lots was sold for $630,000 (See Note 16 - to TVCN's audited consolidated
financial statements).
TVCN also owns undeveloped acreage in Jefferson County, Colorado not subject to
any mortgages. The book value of this acreage at year-end was $64,700. The
acreage has also been listed for sale for $1,100,000n.
ITEM 3. LEGAL PROCEEDINGS
(1) Mining and Energy International Corporation ("MEICO") and TV Communications
Network, Inc. ("TVCN") v. Big Trees Trust et al., Case No. 98 WM 537 in the
United States District Court for the District of Colorado. On March 5, 1998
TVCN and its wholly-owned subsidiary MEICO sued, inter alia, Big Trees Trust
and Ray Naylor in a dispute over the lease and operation of the Liberty Hill
Mine in Nevada County, California. In its complaint MEICO alleges that it was
fraudulently induced to enter into the mining lease and that Ray Naylor has
breached his contract to operate the mine on MEICO's behalf in a good and miner-
like fashion. MEICO and TVCN claim damages in excess of $3.5 million. While
no answer has been filed in the case, Mr. Naylor has informed MEICO that he
believes it is in default under the lease and has served a notice of
termination of the lease on TVCN. On May 20, 1998 the Court entered an order
on the parties' stipulated motion submitting the matter to binding
arbitration. The parties have agreed to the appointment of Mr. Murray
Richtel of the Judicial Arbiter Group, Inc. as the arbitrator in this matter,
and an arbitration hearing had been set for September 10, 1998. The
arbitration proceeding was in its initial stages, and no discovery had been
conducted. However, before the arbitration hearing the parties met on
September 1, 1998 and entered into a preliminary agreement to settle the
dispute by selling the mine at auction and splitting the proceeds. However,
Mr. Naylor subsequently attempted to disavow this settlement agreement. TVCN
has placed Mr. Naylor on notice that it intends to file a second court action
to enforce the settlement agreement if he does not follow through with his
obligations thereunder. At this preliminary stage it is not possible to
predict with any certainty the probably outcome of this matter. However,
TVCN intends to prosecute its claims vigorously.
(2) TVCN knows of no other material litigation pending, threatened or
contemplated, or unsatisfied judgment against it, or any proceedings in which
TVCN is a party. TVCN knows of no material legal actions pending or threatened
or judgments entered against any officers or directors of TVCN in their
capacity as such in connection with any matter involving TVCN or the business.
Settlement of Class Action
On April 2, 1994, two TVCN shareholders filed a class action suit against TVCN
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, were the
Plaintiffs, and the Defendants were 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.
TVCN has always emphatically denied the plaintiffs' allegations in this legal
action and was vigorously defending the case. However, because of the
continued drain on TVCN's resources caused by nearly four years of protracted
and expensive litigation, on October 31, 1997 TVCN agreed to settle the case.
Pursuant to the terms of the settlement agreement, TVCN agreed to pay the
plaintiffs the sum of $1.5 million in full settlement of all their claims of
any nature whatsoever. On March 3, 1998 the Court approved the settlement and
dismissed the class action with prejudice.
Of the $1.5 million paid pursuant to the settlement agreement, $705,268.82 was
paid as fees and expense to the plaintiff class's counsel. The remaining funds
were ordered distributed to the members of the class that had filed valid
proofs of claim. In addition, pursuant to the settlement agreement, those
class members who had purchased shares of TVCN stock during the class period
and who still retained the stock at the time of the settlement, were required
to relinquish those shares back to TVCN in order to participate in the
settlement. Pursuant to this provision, TVCN received 359,960 shares of
stock from class members participating in the settlement. TVCN canceled the
shares of common stock returned as a result of the settlement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
SHAREHOLDERS
No matters were submitted for a vote of security holders of TVCN during the
fourth quarter of the fiscal year ended March 31, 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
TVCN's common stock has traded on the over the counter market ("OTC") since
January 11, 1988. As of March 31, 1999, there were eleven stock brokerage
firms making a market in TVCN's common stock. The high bid and low asked
prices of the common stock of TVCN have been as follows:
Quarter High Bid Per Low Ask Per
Ending Share Share
3/31/92 3.88 4.00
3/31/93 .25 .38
3/31/94 .19 .14
3/31/95 .13 .15
3/31/96 .02 .07
3/31/97 .08 .17
6/30/97 .07 .12
9/30/97 .056 .09
12/31/97 .31 .39
3/31/98 .17 .19
6/30/98 .39 .41
9/30/98 .47 .56
12/31/98 .19 .24
3/31/99 .16 .19
The above quotations reflect inter-dealer prices, without retail mark-up,
markdown, or commission and may not necessarily represent actual transactions.
As of March 31, 1999, there were 1,715 record holders of TVCN's common stock.
As of March 31, 1999 there were 50,835,954 shares of common stock outstanding.
TVCN has not paid cash dividends on its common stock and does not anticipate
paying cash dividends for the foreseeable future. TVCN anticipates that all
earnings, if any, will be retained for development of TVCN's business.
Low Volume Trading; Possible Volatility of Stock Price
In 1989, TVCN 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 TVCN requesting inclusion have a
minimum bid price of $5.00 per share. The current price of the stock does not
meet the requirements of NASDAQ. TVCN intends to reapply for listing when and
if the listing requirements are met, of which there can be no assurance of
success.
TVCN's Common Stock is subject to certain "penny stock" rules promulgated by
the Securities and Exchange Commission. Under such rules, broker-dealers who
recommend "penny stocks" to persons other than established customers and
accredited investors must make a special written suitability determination for
the purchases and receive the purchaser's written agreement to a transaction
prior to sale. Securities are exempt from this rule if the market price is at
least $5.00 per share.
The SEC has adopted regulations that generally define a "penny stock" to be an
equity security that has a market price of less than $5.00 per share, subject
to certain exceptions. Such exceptions include equity securities listed on
NASDAQ and equity securities of a company that has: (a) net tangible assets
of at least $2,000,000, if such company has been in continuous operation for
more than three years, or (b) net tangible assets of at least $5,000,000, if
such company has been in continuous operation for less than three years, or
(c) average revenue of at least $6,000,000 for the proceeding three years.
Unless an exemption is available, the regulations require the delivery,
prior to any transaction involving a penny stock, of a risk of disclosure
schedule explaining the penny stock market and the risks associated therewith.
Control by Management
The officers and directors own and or control approximately 92.8% of TVCN's
currently outstanding Common stock. As a result, if the officers and directors
act together, they will have significant influence on the outcome of all
matters requiring shareholder approval (including the election and removal of
directors and any merger, consolidation or sale of all or substantially all
of TVCN's assets) and significant influence on the management and affairs of
TVCN. Such influence could discourage others from initiating potential
merger, takeover or other changes of control transactions. As a result, the
market price of TVCN's Common Stock would be adversely affected.
Description of Securities
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 TVCN, 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 is given as required to holders in a call for redemption by TVCN,
during which thirty day (30) period the holders of Class C Preferred Stock
are entitled to convert their Preferred Stock into Common Stock. In exchange
for Transmission Equipment, TVCN had issued 400,000 Class C Preferred Shares
to Multichannel Distribution of America ("MDA"), Inc. (a company
substantially owned and controlled by TVCN's president, Omar Duwaik). After
MDA requested the conversion of its Class C Preferred Stock, TVCN 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 TVCN's Headquarters Building. The
headquarters building had a fair market value of $930,000 and TVCN assumed a
$550,000 mortgage. AT&I requested the conversion of its Class C Preferred
Stock and TVCN 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 TVCN's net profits at the rate of up to nine percent (9%), when and if
declared by TVCN.
In connection with the acquisition of the two WCTV stations in Washington, D.C.
and Detroit, Michigan (see "Purchase/Sale of Two WCTV stations" herein), in
1991, TVCN issued to Miroband Companies, a non-affiliated company, 4,864,000
shares of TVCN class D Preferred stock, which shares were subsequently
purchased by MDA, an affiliated company substantially owned and controlled by
TVCN's president. Pursuant to MDA's request for converting the 4,864,000
preferred shares to common stock, TVCN issued to MDA 4,864,000 shares of
TVCN's common stock on May 29, 1997.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The operating revenue for 1999 was $1,035,000 compared to $1,202,000 in 1998, a
decrease of $167,000. The decrease is due to lower interest income of $218,000
in 1999. Other income was less by $13,000 in 1999. Lease income, management
fees, operations revenue and wireless revenue increased by $64,000 in 1999.
Total operating expenses were $3,913,000 in 1999 compared to $5,053,000 in
1998, a decrease of $1,141,000. The decrease is due to a substantial
reduction in litigation expenses, downsizing personnel, streamlining
operations and reduction in general and administrative expenses. For
example, litigation settlement expenses were $117,000 in 1999 compared to
$1,286,000 in 1998, a decrease of $1,169,000. General and administrative
expenses were $2,698,000 in 1999 compared to $2,995,000 in 1998, a decrease
of $297,000. Depreciation and amortization expenses were $812,000 in 1999
compared to $618,000, an increase of $194,000, due to the timing and useful
life assigned to the WCTV assets. Interest expense was $286,000 in 1999
compared to $154,000 in 1998, an increase of $132,000, due to an increase in
the BTAs' interest expense.
The loss from operations in 1999 was $2,878,000 compared to a loss of
$3,851,000 in 1998, a decrease of $973,000, due largely to reduced operating
expenses.
Non-operating gains, primarily from the sale of cable operations and licenses,
in 1999 were $1,320,000 compared to $4,257,000 in 1998, a decrease of
$2,937,000. There were more sales of cable operations and licenses posted in
1998 than 1999.
The net loss for 1999 was $1,076,000 million compared to a loss of $571,000
in 1998. This is due to the fact that there were more non-operating gains in
1998 than 1999.
The foregoing operating revenues do not include the revenues that are generated
from the activities of buying and selling WCTV stations. For example, the
buying/selling of WCTV station activities resulted in a gain of $1,020,388
in fiscal year 1999 as compared to gains of $4,257,409; $2,343,043; $3,589,919;
$2,813,017 and $3,980,847 in fiscal years 1998, 1997, 1996, 1995 and 1994
respectively. Thus, the total revenues for fiscal year 1999 are $2,054,961 as
compared to $5,459,238 a year earlier.
Discontinued Operations.
TVCN invested in two mines, but neither was ever brought into commercial
operation. After considerable losses, the two mines were discontinued. TVCN
does not expect to recover any money from the assets of either mine, and if any
money is recovered, it will not have any material effect on TVCN's financial
statements. For more details, see "Mining Business".
Income tax benefits generated were $554,227 and $1,234,816 in 1999 and 1998,
respectively.
Business Segments - TVCN maintains accounting records for TV Communications
Network, Inc. and each of its subsidiaries. Schedule F-23, which follows,
reflects the results of operations for the years 1999 and 1998. The salvage
yard was consolidated into TVCN's operations in 1999. Expenses exceeded revenue
by $110,000 and the operating loss was $80,000. Reema's natural gas fuel
conversion expenditures were less by $1,163,000 in 1999 than in 1998 due to
streamline operations and less travel expenses. Legal expenses were less in
1999 than 1998 and included legal settlement income of $300,000 in 1999.
Mining and exploration expenditures were $1,163,000 less in 1999 than 1998.
The mining activities have been shutdown and are now considered as
discontinued operations. Planet Internet's access service provider business,
which was sold after year-end, had increased revenue of $25,000 and increased
expenses of $93,000, resulting in an increase loss of $67,000 in 1999.
Corporate and other segment expenses decreased by $1,223,000 in 1999.
Headcount reductions, less travel expenditures and lower legal expenses were
the primary reasons for the reductions in 1999.
While revenues from the gas project are not expected to materialize for at
least three years, TVCN intends to manage the proceeds from the sale of
assets such that TVCN anticipates no difficulty in maintaining its existence
and meeting its obligations for years to come.
Capital
Constructing and developing WCTV stations, and providing television programming
require substantial initial capital outlays. While contracts with respect to
providing programming are intended to have terms sufficient to provide for the
recovery of TVCN's investment, together with a favorable return on its
investment, TVCN's continued expansion is largely dependent on its ability to
raise capital for the costs of any of its new business endeavors.
Since inception, TVCN has financed its capital and operating cash requirements
through loans and advances from TVCN's president, other shareholders, and the
sale of common and preferred stock. TVCN is now considering different debt
financing options as well as continued asset sales. There is no certainty that
TVCN will be able to obtain all required financing.
Liquidity and Capital Resources
TVCN's primary source of liquidity has been from the sale of appreciated
assets. The business of TVCN requires substantial capital investment on a
continuing basis and the availability of a sufficient credit line or access
to capital financing is essential to TVCN's continued expansion. TVCN's cash
flows for the years ended March 31, 1999, and 1998, are summarized as follows:
Cash provided by (used in) March 31,
1999 1998
Operations $ (1,049,013) $ (1,315,000)
Investing activities $ 639,921 $ 2,167,185
Financing activities $ 18,887 $ (490,808)
Net increase (decrease) $ (390,025) $ 361,377
Currently, TVCN has $1,798,121 in long-term debt, which is primarily for the
purchase of the TVCN corporate headquarters building in Denver, Colorado, the
purchase of 12 BTAs from the FCC (see FCC Spectrum Auction herein), and the
acquisition of the BTA license from WTCI of Pennsylvania. The office building
is under sale contract.
TVCN's current assets and liabilities are $887,393 and $1,616,368
respectively. TVCN's cash position is such that management anticipates no
difficulty in its ability to sell appreciated assets to continue meeting its
current obligations. See "Business Development Strategies", herein.
Management's plans to maintain sufficient future cash flows for continued
existence include the sale of TVCN's internet operations and certain real
property (Note 16). In addition, management is also actively marketing other
real property and buildings, and reducing general and administrative costs by
downsizing personnel and operations. Management is also looking into the sale
of TVCN's basic trade area (BTA) license rights. Based on a review of all
possible options available to TVCN and the estimated related resulting cash
flows management believes that sufficient cash flow will be provided to ensure
confirmed existence through the fiscal year 2000.
Cash Investments
The president and a shareholder have advanced loans to TVCN totaling $1,100,334.
Business Development Strategies
The dominant business activities of TVCN since its inception in 1987 has been
the acquisition, obtaining TV channel leases, and the development and sale of
Wireless Cable TV (WCTV) licenses and stations. The development of WCTV
stations to their full growth potentials requires substantial capital resources
which have not been satisfactorily available to TVCN. As a result, TVCN has
been able to only partially developed certain of its WCTV stations, while
holding other stations and/or licenses without development, and sell such
stations and/or licenses to potential buyers at a profit.
Over the last several years, TVCN has been successful in selling sufficient
number of stations and licenses to reasonably finance its activities. See
"Purchase/Sale of WCTV Stations" herein. Until October, 1998, the WCTV
stations have been limited to a one-way transmission: broadcasting cable TV
programming over the air to potential subscribers. However, in October, 1998,
the FCC changed its rules such that it allowed the use of the WCTV channels for
two-way communications (see "Governmental Regulation FCC Licensing" herein).
Using the concept of "cellular phone" or "cellular communications", the WCTV
frequencies can now be used for two way communication connecting customers
directly with long-distance telephone networks, circumventing local telephone
lines.
As a result, long-distance telecommunications companies such as Sprint and MCI-
World Com began to acquire WCTV companies. During 1999, it has been reported
that Sprint and MCI have acquired most of the large WCTV companies in the USA
paying a total of about 1.84 billion. This is a rate of up to $54.00 per
household.
Based upon the foregoing, TVCN believes that this is an opportune time to sell
TVCN's WCTV stations, licenses and rights and interest in its BTAs. TVCN has
approximately 1.1 million households in its markets. TVCN has commenced
discussions with Sprint, MCI and others about the possibility of selling TVCN's
WCTV assets. It is impossible to predict as to the outcome of such
discussions, or the amount that may be generated, if any, from the possible
sale of such assets. Based on TVCN's experience in selling WCTV stations,
and if potential buyers continue to pay the foregoing $54.00/household,
TVCN's WCTV assets may be worth as much as $55 million. However, there is no
assurance that TVCN will succeed in selling any of its WCTV assets, or if any
of them was sold, the selling price would be anything close to the $54.00/
household.
TVCN intends to focus its future activities on the gas project. The proposed
GTL plant in Trinidad is expected to cost TVCN about $300 million. TVCN is
discussing with various financial institutions obtaining the necessary
financing for the plant. TVCN is also discussing with different entities the
possibility of entering into a partnership agreement for the purpose of
financing and implementing the proposed GTL plant. There is no assurance that
TVCN will succeed in obtaining the necessary financing or entering into any
partnership agreement with any entity.
If TVCN is successful in selling any of its WCTV assets, or in obtaining the
GTL project financing, neither of which there can be assurance, it is
anticipated that the proceeds from said sale or financing will be sufficient
to fund TVCN's activities and meet TVCN's obligations over the next several
years.
With the reduction in TVCN's expenditures, and streamlining its operations, the
proceeds from the sale of its residential land, the Detroit warehouse and
office building should be sufficient to fund TVCN's activities and meet its
current obligations. The receivable Additional Detroit Note in the
approximate amount of $2.4 million is due December 30, 2000.
In the event that TVCN is not successful in selling any of its WCTV assets, or
obtaining the necessary Gas to Liquid's ("GTL") financing, or that the proceeds
from the sale of other assets are not adequate to meet TVCN's current
obligations or fund its activities, then in that event TVCN will consider
selling its $2.4 million receivable note at a discount.
Stockholder Advances
The president has been advancing loans to TVCN since its inception. The loans
carry an annual interest of 8%. The advances are long-term loans, and are
expected to be paid back at such time when TVCN has sufficient funds to do
so. As of March 31, 1999, the loans totaled $1,100,334. Interest expense on
shareholder's advances totaled $68,464 in 1999, and $77,956 in 1998.
Currently, TVCN has no intentions of repaying such loans within the next
twelve months.
Income Tax Developments
Since its inception TVCN has incurred operating losses through March 31, 1999,
which include certain accrued expenses that are not deductible for tax purposes
until paid. TVCN has net operating loss carry-forward available to offset
future year taxable income. The following summarizes these losses.
Net Operating
Loss Carry- Year of
Forward Expiration
As of March 31, 1999 $ 5,300,000 2014
TVCN believes that with the sale of appreciated assets that it will be able to
utilize the net operating loss carry-forward in the near future to reduce cash
outflows for income tax expenses. Based on its track record of its ability to
sell WCTV stations at substantial profits, and current favorable market
conditions, TVCN anticipates no difficulty in selling WCTV stations. See
"Purchase/Sale of WCTV stations". As shown therein, the value of TVCN's WCTV
assets could be substantial if potential buyers continue to pay premium prices,
of which there can be no assurance. See "Business Development Strategies".
Further, TVCN is optimistic about its gas project. However, no assurance
can be given that TVCN will succeed in selling WCTV stations nor recognizing
any profit from its proposed gas project in order to utilize the loss carry-
forward.
<TABLE>
<CAPTION>
Selected Financial Data
1999 1998 1997 1996 1995
Year ended
March 31,
<S> <C> <C> <C> <C> <C>
Revenues $ 1,034,573 $ 1,201,829 $ 1,146,144 $ 1,195,368 $ 4,503,078
Net income (loss) (1,075,848) (571,143) (959,079) 512,387 777,439
Per share: net
income (loss) (.03) (.02) (.05) .03 .04
Total assets $ 9,907,925 $11,012,467 $12,419,656 $15,287,790 $14,168,587
Plant and
equipment, net $ 3,252,830 $ 3,579,109 $ 3,265,350 $ 2,543,499 $ 2,064,733
Current assets $ 887,393 $ 2,071,619 $ 7,136,684 $ 6,560,906 $ 8,785,659
Total liabilities $ 6,858,322 $ 7,079,069 $ 7,700,974 $ 9,610,028 $ 9,003,212
Long-term debt $ 1,798,121 $ 2,173,678 $ 1,518,165 $ 1,510,240 $ 512,560
</TABLE>
Capitalization
The capitalization of TVCN as of March 31, 1999 is as set forth in the
following table and as more detailed in the attached audited financial
statement:
<TABLE>
<CAPTION>
Stockholders equity (deficit)
March 31
Description 1999 1998 1997 1996
<S> <C> <C> <C> <C>
Common stock $ 25,418 $ 20,197 $ 9,016 $ 9,016
Preferred stock $ 28,813 $ 28,813 $ 960,813 $ 960,813
Additional paid-in
Capital $ 7,468,721 $ 7,281,889 $ 6,575,211 $ 6,575,211
Deficit accumulated $(4,473,349) $(3,397,501) $(2,826,358) $(1,867,279)
Total stockholders
Equity $ 3,049,603 $ 3,933,398 $ 4,718,682 $ 5,677,761
</TABLE>
<PAGE>
Year 2000 Readiness Disclosure
Based upon TVCN's assessment to date, TVCN believes the current versions of its
software products and services are "Year 2000 compliant". In order to insure
further compliance, the software is being upgraded at an estimated cost of
about $7,400.00. Although TVCN believes that any potential 2000 related
problems will not materially affect TVCN's business, operations or financial
condition, there can no assurance that TVCN will timely identify and remedy all
significant Year 2000 problems, that remediation efforts will not involve
significant time and expense, or that such problems will not have a material
adverse effect on TVCN's business, results of operations and financial
condition.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of TVCN are filed under this Item, and
are included herein by reference.
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 TVCN of contracts with similar maturates and collateral.
Notes receivable are continually assessed as to the collectability 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 TVCN for debt with similar terms and remaining
maturates are used to estimate the fair value of existing debt.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On April 12, 1999, TVCN 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 ("EKS&H or Auditor") (Telephone Number: (303) 740-9400, Fax
Number: (303) 740-9009). EKS&H also audited TVCN's financial records for
fiscal years 1998, 1997, 1996, 1995, 1994 and 1993. The Auditor agreed to
audit TVCN's financial records for fiscal year 1999 and assist TVCN in the
preparation of TVCN's Annual Report on Form 10 KSB.
A representative(s) of the firm may 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, 1997 and 1998 contained no adverse opinions, disclaimers of
opinion, or qualifications as to uncertainty, audit scope, or accounting
principles.
PART 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,
1999. Unless otherwise noted, the positions described are positions with TVCN
or its subsidiaries.
Mr. Dennis J. Horner, Vice President Finance, Treasurer, and Director resigned
from TVCN, and is no longer an officer or director of TVCN effective February
10, 1999. Mr. Horner cited personal reasons and other career opportunities as
his reason for his resignation. TVCN has no disagreements with Mr. Horner. His
letter of resignation did not disclose, nor did he request the disclosure of,
any disagreements with TVCN regarding operations, policies, or practices.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name Age Position Period Served
Omar A. Duwaik 55 Chairman of the Board, Chief
Executive Officer and
President (1) 1987 to present
Armand DePizzol
67 Director (2) 1989 to present
Kenneth D. Roznoy 51 Vice President, Secretary
Director (1) 1998 to present
</TABLE>
(1) Mr. Omar Duwaik also serves in the same capacities in each of TVCN'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 until sold in May, 1999).
Mr. Kenneth Roznoy also serves in the same capacities in TVCN's wholly owned
subsidiaries.
(2) Armand DePizzol became a director of TVCN in September of 1989.
TVCN 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. The Board of
Directors appoints officers of TVCN. Omar Duwaik and Kenneth Roznoy are
employed by TVCN on a full-time basis. Omar Duwaik should be considered a
founder and parent of TVCN (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 21 years. In 1980, Mr.
Duwaik joined 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, the FCC granted about forty more
conditional licenses. For MDA, Mr. Duwaik constructed the first MMDS station
in San Luis Obispo, California. Under his direction, three more MMDS
stations were constructed in Kansas and Alabama. Mr. Duwaik received a BS
Degree in Electrical Engineering, a BS Degree in Computer Science and an MS
Degree in Electrical Engineering Communications from Oregon State University
in 1971. Mr. Duwaik owns 20,030,816 shares of common stock of TVCN, and also
owns the majority of MDA, an affiliated company, which owns 23,845,892 shares
of common stock. Mr. Duwaik also owns a majority of American Technology and
Information, which owns 190,000 shares of common stock. Mr. Duwaik is
employed on a full-time basis with TVCN and is compensated at an annual
salary of $91,720 of which $54,079 are paid in cash and the remaining balance
is deferred until such time as TVCN has more funds. See Item 11. "Security
Ownership" herein.
Kenneth D. Roznoy - Vice President, Assistant Secretary and Director. Mr.
Roznoy returned to TVCN on a free-lance basis in September of 1996 and was re-
hired on a full-time basis on February 9, 1997 as Vice President of Business
Development. During his two-year sabbatical he worked as a consultant for
Elitches Garden in Denver and CHILDRENS CABLE NETWORK in Denver and Burbank,
California. Mr. Roznoy served as a Director from 1989 - October 1994. Prior
to joining TVCN in 1987, Mr. Roznoy had been employed by American Technology
and Information, Inc. ("AT&I") in Denver, Colorado since January 1, 1987 as
its Vice President and Public Relations Director. From 1981 to 1987, Mr.
Roznoy was working for KDR Productions providing entertainment-related
services for businesses and non-profit organizations in Denver, Colorado.
From 1978 to 1981, Mr. Roznoy worked for Commonwealth Theaters in Denver,.
Colorado and Dallas, Texas as Advertising Director. At Mulberry Square
Productions, in Dallas, Texas from 1975 to 1978, Mr. Roznoy helped promote
"Benji" into an international movie star with films and TV shows grossing in
excess of $100 million. Mr. Roznoy is employed on a full-time basis with
TVCN and is compensated at the temporarily reduced rate of $29,250 a year.
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 the
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.
Glen Clark, Mr. Clark is the senior vice president of Reema International in
charge of the Gas-To-Liquid ("GTL") project. Reema is a wholly-owned
subsidiary of TVCN. Prior to joining Reema in 1993, Mr. Clark was
responsible for managing a 300-person Engineering and Design Drafting Group
at Gulf Interstate Engineering, where they provided design and drafting
services to the pipeline (Liquid & Gas) and related process industries.
At M.K. Kellogg, Mr. Clark was responsible for world-wide start-up to
completion operations of an average of over 30 projects employing over 2,500
people around the world. The projects included LNG (and regasification),
ammonia, fertilizer, methanol, cogeneration, carbon dioxide (recover,
purification and reinjection), catalytic cracking and refinery operations
and maintenance. At Bechtel Petroleum, Mr. Clark was responsible for all
synfuel project activities. The projects included coal gasification, heavy
oils, tar sands, oil shale, biomas conversion and coal liquefication. At
Allied Chemical, for over 27 years, Mr. Clark Progressed from an entry-level
foreman to become the vice president with a wide range of responsibilities
that included managing the operations of 20 chemical plants. Mr. Clark has
a Bachelor of Science ("B.S.") degree in chemical engineering from Penn State
and a master of business administration ("MBA") degree from New York state
University. He has completed graduate marketing and management courses at
Columbia University and an advanced management program at Harvard University.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the cash remuneration paid or accrued by TVCN
and its subsidiaries for services to TVCN in all capacities during the fiscal
year ended March 31, 1999, to (i) each of the two most highly compensated
officers of TVCN, and (ii) all executive officers of TVCN as a group
(includes compensation only for those periods of the fiscal year ended
March 31, 1999, for which each such individual was an executive officer).
Following are the salaries of individuals who are officers receiving a
salary from TVCN:
Cash
Name of Individual Capacity in Which Served Compensation
Omar A. Duwaik Chairman of the Board of Directors,
President and Chief Executive Officer $ 91,720
Dennis J. Horner Vice President, Treasurer, and Director $ 46,615
Barry K. Arrington Vice President, General Counsel $ 67,793
Kenneth D. Roznoy Vice President, Secretary, and Director $ 30,161
Mr. Barry K. Arrington, Vice President and General Counsel resigned from TVCN
effective February 28, 1999. Mr. Arrington continued to provide legal services
for TVCN on an hourly basis. Mr. Arrington cited personal reasons and other
career opportunities as his reason for his resignation. TVCN has no
disagreements with Mr. Arrington. His letter of resignation did not disclose,
nor did he request the disclosure of, any disagreements with TVCN regarding
operations, policies, or practices. Mr. Arrington continues to represent TVCN,
for an hourly fee, on limited legal matters. Mr. Horner resigned from TVCN,
see "Directors and Executive Officers", herein. Mr. Duwaik currently does not
receive in cash all his $91,720 compensation. Mr. Duwaik's current cash
compensation is $54,079 and the remaining balance is defferred until such time
as more funds become available to TVCN.
Stock Option Plan
TVCN has in effect an incentive Stock Option Plan and has reserved a total of
2,000,000 shares of TVCN's common stock for issuance pursuant to the plan,
designed as an incentive for key employees, and for acquisitions of business
opportunities, and is to be administered by the compensation committee of the
Board of Directors, which selects optionees and determines the number of shares
subject to each option. The plan provides that no option may be granted at an
exercise price less than the fair market value of the shares of the common
stock of TVCN 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 TVCN's shares, if any.
Unless otherwise specified, the options expire five years from date of grant
and may not be exercised during the initial one-year period from date of
grant. Thereafter, options may be exercised in whole or in part, depending
on terms of the particular option. The Board of Directors has not selected
the compensation committee. As of March 31, 1999, 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 TVCN 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, 1999, executive officers received
reimbursement of out of pocket expenses incurred on behalf of TVCN.
On February 14, 1995, the Board Directors granted Mr. Omar Duwaik a cash bonus
of $100,000. Because of cash
flow constraints, the bonus has not been paid. This transaction is reflected
as a liability on the balance sheet.
Compensation of Directors
None.
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 TVCN as a group and of certain other beneficial owners of more than
5% of any class of the Companies voting securities as of March 31, 1999. 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 (60) of March 31, 1999. Each such person has sole
voting and dispositive power with respect to such securities.
Name and Position with TVCN, or Name and Amount of Beneficial Percent of
Address of Greater than 5% Holders Ownership Class
Omar A. Duwaik **
Chairman of the Board of
Directors, President and
Chief Executive Officer 22,354,223* 44.0%
10020 E. Girard Ave., #300
Denver, CO 80231
Multichannel Distribution **
Of America, Inc. (MDA)
10020 E. Girard Ave., #300
Denver, CO 80231 23,845,892 46.9%
Taher Aldweik **
10020 E. Girard Ave., #300
Denver, CO 80231 950,233 1.9%
Total shares under Duwaik's Ownership/
Control 47,150,348 92.8%
* All information refers to common stock.
** On May 29,1997 MDA became greater than a 5% Shareholder of TVCN's
Common Stock by converting its
Preferred Stock to Common. MDA is substantially owned and controlled by Omar
Duwaik, its President. Mr. Taher
Aldweik is Mr. Duwaik's brother. Adding all shares that are under Mr. Duwaik's
ownership and/or control, the total
will be 47,150,348 shares or 92.8% of the outstanding and issued shares of
TVCN's common stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain related transactions were entered into between TVCN and its president,
Omar Duwaik and other companies
owned/controlled by him. For a specific transaction, see the following titles
elsewhere herein: "Conversion of
Preferred Stock", "Quincy, Illinois and Salina, Kansas", "Auto Salvage and
Parts Recycling Business", and "Rome,
GA".
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8 K
- - Financial Statements
- Included under this Item:
* Independent Auditors' Report
* Consolidated Balance Sheet
* Consolidated Statements of Operations
* Consolidated Statements of Changes in Stockholder Equity
* Consolidated statements of Cash Flow
* Notes to Financial statements
- - Exhibits
3.1 Copy of Certificate of Incorporation of the corporation (incorporated by
reference to the Exhibits filed with the Registration Statement dated
September 28, 1987, File No. 33-16113-D), which was amended on March 23, 1989,
and on December 17, 1994. The amended copies were filed with the Commission,
and incorporated herein by this reference.
3.2 Copy of By Laws of the corporation (incorporated by reference to the
Exhibits filed with the Registration Statement dated September 28, 1987, file
No. 33-16113-D)
10. Material Contracts (were filed with the 10-KSB/A which was filed on
September 9, 1999, and incorporated herein by this reference):
10.1 Memorandum of Understanding (page 1).
10.2 Acquisition Agreement (page 13)
21. Subsidiaries of the Registrant ( page 22)
27. Financial Data Schedules were filed with the 10-KSB/A which was filed
on September 9, 1999 for the period ended March 31, 1999, and
incorporated herein by this reference.
All other Exhibits are either not applicable, not required or incorporated by
reference to the Exhibits filed with the Registration Statement dated September
28, 1987, File No. 33-16113-D.
<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: October 1, 1999
_/S/ JACKIE PORTER
Jackie Porter
Assistant Controller
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 date indicated:
/s/ OMAR A. DUWAIK /S/ KENNETH D. ROZNOY
Omar A. Duwaik Kenneth D. Roznoy
President, CEO & Vice President &
Director Director
Dated: October 1, 1999
Exhibit 10
Material Contracts
10.1 MEMORANDUM OF UNDERSTANDING
Between
The National Gas Company of Trinidad Arm Tobago Limited
And
Reema International Corporation
MEMORANDUM OF UNDERSTANDING
INTRODUCTION
This Memorandum of Understanding ("MOU") is made this 17th
day of December, 1997 between Reema International Corporation
(Reema), a wholly-subsidiary of TV Communications Network, Inc.
(TVCN) located in Denver, Colorado, and The National Gas Company
of Trinidad and Tobago Limited (NGC) located in Point Lisas,
Trinidad.
PURPOSE
Reema is desirous of financing, building and operating a
gas conversion plant in Trinidad for the production of liquid
transportation fuels ("the Project"). Both parties agree to
develop the Project based on this MOU.
The major activity which will follow the execution of the
MOU will be the development of a Detailed Project Feasibility
Study by Reema as described below under Section 13, Schedule of
Activities.
Sections 1 to 13 below have. been identified by Reema to
describe the major aspects and activities of the Project.
1. Project Description
Reema proposes to build and operate a plant ("the
Plant") in Trinidad that would convert natural gas into high
quality liquid transportation fuels. The Plant will
initially convert about 100 million standard cubic feet of
natural gas per day into approximately 10,000 barrels per
day of finished products. These products will consists of
about 6,500 barrels per day of diesel, 2,500 barrels per day
of jet fuel (kerosene) and 1,500 barrels per day of naphtha.
Reema is prepared, once the Plant is on stream, to increase
the capacity of the Plant by installing additional modules
as more gas becomes available.
It is estimated that the initial site of the Plant will
require about 100 acres and access to facilities for loading
ocean-going tankers.
Approximately 130 people will be required to operate
and maintain the Plant.
2. Process Description
The Plant will utilize three basic operations to
convert the natural gas into high quality, finished
products. The three steps are syngas generation, Fischer
Tropsch ("FT") synthesis and hydrocracking/ hydroisome-
rization. Each are discussed briefly below:
Syngas generation - operation consists of passing the
feedstock natural gas through a "guardcase" to remove any
trace sulfur compounds. The sulfur-free gas is then fed
into a partial oxidation reactor along with pure oxygen from
an air separation plant. This reactor, which operates at
high temperature, produces a mixture of hydrogen and carbon
monoxide syngas in the proper ratio for use in the next step
of the process. High energy value steam is generated by
cooling the reactor effluent This steam is used to provide
motive power for the operation of the Plant.
Fischer-Tropsch S ynthesis - The cooled syngas stream is fed
into a slurry bed reactor containing an iron-based catalyst.
The highly exothermic reaction that takes place polymerizes
the hydrogen/carbon monoxide gas mixture into hydrocarbons
with chain lengths up to about 200 carbon atoms. Heat is
removed from this reactor by generating steam for use in the
process. Water produced in the reactor is separated from
the hydrocarbon products and purified for use in the Plant
and for discharge from the Plant for other uses or disposal.
The crude wax-like product from the reactor is
fed into the next section of the Plant.
Hydrocracking/Hydroisomerization - The crude wax is fed into
a fixed catalyst bed reactor along with hydrogen recovered
from either the Fischer-Tropsch off gas stream or from the
syngas stream. All the unsaturated hydrocarbons are
saturated with hydrogen. in this reactor and the hydrocarbon
chains are broken to yield hydrocarbons with chain lengths
limited to the product range. Some of the hydrocarbons are
also isomerized into highly desirable branched chain
compounds. Products from the reactor are separated into
finished products by distillation while any remaining long
hydrocarbon chains are recycled back to the reactor for
further cracking.
3. Technology
The Plant will be designed and constructed by a major
engineering, procurement and construction (EPC) contractor
experienced in the refining/petrochemical industry and
capable of handling a project of this size and complexity.
The Plant will be designed using state of the art
demonstrated technology and equipment that meets all United
States and/or Trinidad standards and regulations, whichever
are more stringent, including operating (safety, health,
etc.) as well, as environmental standards.
The syngas generating technology will consist primarily
of a partial oxidation reactor that will be licensed from a
major international oil company. Preliminary discussions
have been held with the proposed licensor and preliminary
design data have been evaluated.
Secrecy agreements have been executed with two
potential licensors of the Fischer-Tropsch technology. Both
of the technologies available for license have been
evaluated along with catalyst systems developed by the U.S.
Department of Energy (MOE") and demonstrated in a scale-up
pilot plant at LaPorte, Texas. Reema has an agreement
already negotiated with the entity responsible for
developing the best state-of-the-art catalyst for the DOE.
Reema intends to make a confirmation run once a specific gas
source and content have been identified. At the conclusion
of this demonstration run, Reema will make a decision on
whether to use licensor technology or DOE developed
technology. If additional data are required, runs will be
scheduled to ensure availability when needed by the EPC
contractor.
The technology for hydrocracking/hydroisomerization of
the crude wax into finished products will be licensed from
an EPC contractor who has licensing rights for technology
developed by a major international oil company. Preliminary
licensing discussions have been held and preliminary
performance data has been evaluated.
4. Environmental
Reema is dedicated to designing, building and operating
a plant that will protect the environment and the citizens
of the Republic of Trinidad and Tobago. It will design,
build and operate the proposed plant to U.S. Environmental
Protection Agency standards or Republic of Trinidad and
Tobago standards, whichever are more stringent.
There are no known hazardous materials contained in the
products from the Plant or intermediate products in the
various process steps. Periodically, however, sorbents and
catalysts will need to be replaced. These materials contain
metals (zinc and platinum) which may be considered
hazardous. Reema intends to recycle these spent materials to
smelters or catalyst manufacturers for recovery of the
metals.
The major effluent from the Plant other than carbon
dioxide is water produced in the Fischer-Tropsch reaction.
This water will amount to about 10,000 barrels per day. It
will be treated within the Plant by removing particulates,
removing organics through steam stripping/distillation and
then biotreating to remove any residual organics. Part of
the treated water will be used in the plant water system and
the remainder will be discharged into the ocean or made
available for other uses such as agricultural.
5. Capital Cost Estimate
The preliminary capital cost estimate for the Plant has
been prepared by developing a process flowsheet, calculating
equipment sizes and operating requirements and then applying
factors to the major equipment costs which in many cases
were obtained by vendor quotes.
On this basis, the capital cost for the Plant has been
estimated at US$275 million. This estimate compares very
favorably to recently built methanol plants of similar size
and configuration thereby increasing confidence in the
preliminary estimate.
6. Marketing
Products from the Plant will be exported to the U.S. or
the European markets where they will be sold for use
primarily in environmentally sensitive areas to meet
increasingly stringent environmental standards. The
California market represents the initial target market area
where the products will be either sold directly into
existing distribution outlets or as blend stock to upgrade
petroleum based products.
Products from the Plant will be accumulated in on-shore
tanks of sufficient size to load ocean-going tankers.
7. Project Financing
Financing for the project has been structured on the
basis of a 70%-30% debt to equity ratio.
The proposed financing structure and the concept of a
project to convert natural gas into high quality liquid
transportation fuels have been reviewed with financial
entities such as Merrill Lynch and the International Finance
Corporation (IFC), an affiliate of the World Bank, to
determine willingness to finance such a project and to
identify parameters that will be used to evaluate the
viability of the Project.
Reema will maintain a controlling interest in the
equity financing with the remainder of 'the equity capital
coming from Reema's financial investor partners.
The debt portion of the Project will be provided by
financial institutions such as Merrill Lynch and IFC, as
well as possible participation by major equipment vendors or
major contractors.
8. Business Structure
Development of the Project through the Detailed
Feasibility Study will be conducted solely by Reema.
As soon as the Detailed Feasibility Study is completed
and a decision to proceed is made, a corporation will be
formed to own and manage the Plant.
Reema anticipates that this corporation will execute a
contract with Reema to manage all future operations of die
project including development design, construction,
operation and product marketing.
The corporate entity will consist of the equity
investors with voting Power directly related to their
proportion of the equity investment. This group will
function as a board of directors who, win establish policy,
guidelines and direction for day-to-day conduct of the
operation by Reema. The corporate entity will also be
responsible for representing the interests of the debt
financing group.
9. Gas Supply and Pricing
Reema proposes to enter into a 20 year gas supply
agreement with NGC for purchase of natural gas required for
the Plant and is requesting that NGC dedicate reserves of
0.75 trillion standard cubic feet of natural gas which can
deliver at least 33 billion standard cubic feet each year.
Reema has also requested a floor purchase price of US
$0.80 per million BTUs for the first seven years of plant
operation (or until the capital investment has been
recovered, whichever is first) increasing to US$1.00 per
million BTUs for the next five years and then o US$ 1. 10
per million BTUs for the remainder of. the 20 year contract.
Both NGC and Reema shall negotiate a mutually
acceptable agreement regarding the supply of natural gas by
NGC to the Plant.
10. Site Location and Land Requirements
Reema is interested in selecting a potential plant site at
an early date in order to develop a site specific capital cost
estimate for off-site and infrastructure requirements. A site
containing at least 100 acres win be needed for the Plant.
Prime considerations in selecting the site will include
space availability for future expansion potential, access to
existing ocean-going tanker loading facilities, gas availability
at the plant battery limits, good soil load beating
characteristics which will minimize or eliminate the need for
piling' access by sea or rail for plant and construction
equipment or alternatively, access roads capable of handling the
required loads and reasonable access for the workforce.
Preliminary site visits have been made to the Point Lisas
area and the
La Brea area. Other potential locations such as adjacent to the
refinery have been considered but not investigated.
11. Infrastructure Requirements
Preliminary design for the Plant indicates that the Plant
will be self sufficient in power and Plant water.
Potable water will be needed for sanitary and drinking purposes.
The preliminary design has incorporated a septic waste
treatment system for sanitary waste, but external sewage
treatment will be utilized if available.
Reema anticipates that normal solid waste (non-hazardous)
generated in office, laboratory and maintenance facilities will
be disposed of in existing solid waste disposal sites on the
island. If not available, onsite facilities such as
incinerators, etc. will be provided.
Reema anticipates that road connections to the Plant site
will be capable of handling normal truck shipments and that
adequate communication systems will be available.
Access to facilities for loading products on the
ocean-going tankers will be required.
12. Financial Considerations Related to Trinidad
In order to build and operate a plant in Trinidad, Reema
recognizes that it will be necessary to enter into agreements
with several different entities and that these agreements will
have a financial impact on the proposed project.
The agreements which will be required include the
following:
Dock Usage, - Reema anticipates that it will be able to obtain
the rights to use dock facilities at several sites available by
paying a nominal dock charge of about US$1.00 per metric ton
handled. If dock facilities are not available at the site
selected, then Reema would have to consider the possibility of
building suitable facilities at additional cost.
Land Rental - Reema anticipates that it Will be able to enter
into a long lease agreement with the proper group for use of the
Plant site. Reema understands that this lease will cost about
US$1.26 per square meter -with a to-be-negotiated front-end
payment and an escalation schedule.
Tax Depreciation - It is Reema's understanding that the existing
tax depreciation schedule in Trinidad will allow an initial
depreciation of 20% followed by an annual allowance on the
declining balance of 15%.
Corporation Tax - it is Reema's understanding that Corporation
Tax will be
no more than 30%, by the time the Plant is placed in operation
and is requesting a Waiver of Corporation Tax for the first
seven years of operation or until the investment capital is
recovered whichever occurs first.
13. Schedule of Activities
As soon as the. MOU is signed, Reema will assign a team to the
Project that will be responsible for developing a Detailed
Project Feasibility Study. This study, which will take about six
months to complete, will include the following steps:
Negotiate gas supply agreement with NGC;
Identify specific Plant sites and negotiate terms and
conditions;
Prepare Detailed Market Study and obtain Letters of Intent
Finalize process technology selection and initiate license
Agreement negotiations;
Initiate selection of EPC contractor;
Complete detailed Project economic analysis;
Initiate action to obtain debt and equity financing subject to
final review of Project economics; and
Initiate action to form corporation to own and manage the
Project.
Assuming that the Project's Detailed Feasibility Study is
acceptable and that the definitive agreements are executed, the
following action will be taken by Reema:
Complete financial arrangements; Select EPC contractor; Conclude
market agreements: Conclude site Lease agreement; Conclude
processing technology license agreements; and Initiate
engineering design.
It is estimated that three (3) years will. be required to design
and build the Plant after engineering design is initiated.
14. Responsibilities
Reema will be principally responsible for the activities
described in Section 13. Reema shall also be responsible for
identifying and complying with laws, permits and requirements of
governmental agencies and private entities of the Republic of
Trinidad and Tobago necessary to construct and operate the Plant
and NGC shall provide any assistance it can in this regard. NGC
shall be responsible for supplying natural gas to the Plant upon
terms and conditions to be agreed between the parties.
15. Confidentiality
The parties agree not to disclose to any person any
Confidential Information during a period of five years from
the date of this MOU. Confidential Information shall me= all
information, technology and data acquired or obtained by a
Party from the other party relating to the Project
(including, in particular but without limitation, all
financial and other information), as well as the terms of
this MOU; provided, however, that Confidential information
shall not include information which is available or which
becomes available to the public (other than as a result of a
disclosure by the party asserting the right to disclose the
Confidential Information). This agreement not to disclose
shall not apply to the following disclosures:
(a) disclosures required (1) in compliance with applicable
Laws or any order of any court; or (ii) by any securities
exchange or regulatory or other governmental body to which a
party is subject or submits, wherever situated, whether or
not the requirement for information has the force of Law;
(b) disclosures required to any employees, officers, directors,
affiliates (according to the relevant national legislation),
professional advisers, contractors or auditors Of Or to the
Parties in each case for the proper performance of their
restive obligations, duties or services; provided that (i) the
parties shall ensure that such employees, o lee , direct
affiliates.
Professional advisers, contractors and auditors will act as if
bound by the provisions of this Section 15 and (ii) any further
disclosure by such employees, officers. directors, affiliates,
professional advisers, contractors and all ditcjrs pursuant to
sub-sections (a), (b) or (c) shall be made only after the other
Party has given prior written consent; an
(c) disclosures whereby the other party has given prior written
consent: provided that (i) all such persons to whom this
information is disclosed are informed in writing in advance of
the confidential nature of such information; (ii) such party
shall procure that such persons will art as if bound by the
provisions of this Section 15; and (iii) any further disclosure
by such persons pursuant to sub-section (a), (b) or (c) shall be
made only after consultation with the other party.
Nothing in this MOU shall be construed as granting any party
any rights of any kind in any Confidential Information. Each
party shall Iftnit its use of the Confidential Information to
activities connected to the Project.
16. Term of MOU
This MOU shall be valid for a period of one (1) year
from the dale Of this MOU provided, however, that the
provisions set out in Section 15 above shall remain in force
and effect for a eriod of five (5) years from the date of
this MOU.
17. Status of MOU
This MOU sets forth the understandings of the parties
hereto, and, except for the provisions of Section 15 which
shall be legally binding between the parties, does not
create and is not intended to create any legally binding
obligations between the arties. The parties agree that this
MOU does not confer any binding commitments on the parties
and either party is free to withdraw from the MOU a any time
without liability or obligation to the other party. Further,
the parties agree that. notwithstanding the results to be
obtained from the feasibility studies referred to herein or
any other matters or studies pertaining to this MOU or
arising therefrom, nothing herein shall be construed as
creating a binding commitment (either expressly or by
implication) to proceed 4 with the Project. Any action taken
by either party herein in reliance on his MOU shall be at
that party's own risk.
This MOU sets forth the entire discussions and
understandings between the parties or any of them is
relation to and inconnection with the Project and supersedes
and negates any previous understandings between all or any
of the parties in relation to all or any of the matters
mentioned herein and the parties acknowledge that none of
them has been induced to execute this MOU by any
representation or warranty other than as are contained
herein.
IS. Amendment
This MOU shall not be amended except with the consent
of the parties herein.
19. Community Participation
Reema recognizes that construction and operation of
the Project will have a significant impact on the local
economy and communities.
As a matter of policy, Reema will provide training for
residents of the Republic of Trinidad and Tobago involved
in constructing and operating the Plant. Residents will be,
employed to the fullest extent possible.
In addition, Reema is prepared to discuss with the
appropriate government officials, the possibility of
providing assistance in areas such as schools, roads,
environmental, training, safety, security, emergency
services, etc. that way be impacted by the Project.
This Agreement is entered into this 17 'day of
Der-ember, 1997 on behalf of The National Gas Company of
Trinidad and Tobago, Limited and Reema International
Corporation by:
President Senior Vice President
The National Gas Company Reema International
of Trinidad and Tobago Limited Corporation
ACQUISITION AGREEMENT
This Agreement is entered into this of May, 1999 by and between
BeWell Net Corporation ("Buyer"), whose main office is at 19555
East Parker Square Drive, Parker, Colorado 80134, and TV
Communications Network, Inc. ("TVCN"), whose main office is at
10020 East Girard Avenue, Denver, Colorado 80231 1, and Planet
Internet Corporation "Planet"), whose main office is at 910
16th Street, Suite 801, Denver, Colorado 80202. TVCN and Planet
may be referred to after herein as "Sellers".
WITNESSETH
Whereas Planet has developed an ISP business and owns certain
assets that include, bid not limited to, domain names, customer
base, equipment, etc ("Assets"). Planet also has certain
liabilities and obligations that, include, but not limited to,
lease payments to Ascend Credit and an unpaid balance to ICG;
and
Whereas, Planet, a Colorado corporation, is an ISP offering
Internet services in Colorado; and
Whereas, Planet is a wholly owned subsidiary of TVCN, also a
Colorado corporation; and
Whereas, BeWelL a privately held Colorado corporation, is an ISP
offering internet services nationwide; and
Whereas, BeWell is desirous of acquiring, and TVCN is desirous
of selling all of the outstanding shares of Planet's common
stock; and
Whereas the acquisition will include all assets of Planet, and
certain lease obligations, but
will exclude other liabilities. I
NOW THEREFORE, in consideration of the above said desires and
expressions, the terms and conditions set forth herein, and for
other valuable considerations, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as
follows:
BeWell shall acquire from TVCN, and TVCN shall sell to BeWell
all of the shares of no par value cornmon stock of Planet, which
shares are the total issued and outstanding shares of Planet. In
exchange, BeWell shall issue to TVCN, and TVCN` shall receive
- -an equivalent purchase price of $1,746,515.00 ("Purchase
Price") as follows:
As of April 30, 1999, Planet has an outstanding unpaid balance
due to ICG in the approximate amount of $42,469.25 ("ICG Debt").
Upon the signing of this Agreement, TVCN shall pay to BeWell 50%
of the ICG Debt or $21,234.63. BeWell shall assume the
responsibility of paying off the entire ICG Debt. The Purchase
Price shall be reduced by an amount equal to 50% of the ICG
Debt, or $21,234.63.
TVCN/Planet have purchased certain equipment from Ascend
Communications Corp. ("Ascend") pursuant to a lease ("Ascend
Lease") with Ascend Credit, as more described in item 2.3 as
shown in Exhibit C. The exact amount of the unpaid and pay off
balance due to Ascend Credit is not known at this time, but it
is estimated to be approximately $208,642.63. BeWell shall
assume the Ascend Lease and be responsible for making all -lease
payments. The Purchase Price shall be further reduced by an
amount equal to the --,unpaid and pay off balance of the Ascend
Lease as of the date of this Agreement.
The Purchase Price resulting from the assumption of the ICG Debt
and the Ascend Lease above shall be referred to as the Net
Purchase Price. BeWell shall issue to TVCN restricted shares of
BeWell's $0.001 par value common stock in an amount equal to the
Net Purchase Price divided by five dollars ($5.00).
Planet is renting office space pursuant to a lease expiring on
June 4, 1999. All office rents under such lease are current.
Upon expiration, the lease will go from month to month. BeWell
shall assume said lease and comply with its terms upon the
signing of this Agreement. TVCN/Planet have made a deposit with
the owner of the office. It is not clear at this time whether
this deposit is $3,000.00 or less. Upon the termination of the
office lease or vacating the office space, any refund on such
deposit shall be paid to TVCN.
1.5 TVCN/Planet may have other leases and obligation that are
related or incidental to carrying on the daily operations of its
internet services. TVCN shall be responsible for all liabilities
and obligations that have accumulated as of the date of this
Agreement. Thereafter, BeWell shall assume such liabilities and
obligations.
All other obligations and liabilities that have accumulated as
of the date of this Agreement shall be the responsibility of
TVCN. All cash received, and benefits from depreciation,
amortization, losses, or tax credits, etc. as of the closing day
and date of this Agreement shall be vested in TVCN.
Any obligations, debts and liabilities not disclosed buy TVCN
within this remain the obligations, debts and liabilities of
TVCN after the close of this transaction.
Whereas TVCN is a publicly traded company. and therefore may be
required by the SEC or other governmental agencies to make
certain filings relevant to the sale of Planet Internet. TVCN
agrees to assume all financial and legal obligations and
liabilities' regarding any such regulatory requirements
All cash and benefits received, and all liabilities and
obligations after the date of this Agreement shall be vested in
BeWell.
Certain payments may be made before or after the signing of
this Agreement for services rendered before and after this
Agreement. Such payments shall be prorated between the parties.
SELLER'S COVENANTS, & WARRANTIES AND REPRESENTATIONS
Planet is 'a wholly owned subsidiary of TVCN. All of Planet's
known assets and liabilities
are listed in Planet's balance sheet attached herewith as
Exhibit A, and incorporated herein
by this reference.
Planet has about 780 subscribers of dial-up customers and
business accounts. They generated revenues of $20,3 83.25,
$26,872.98 and $2 7,67 9.09 during the months of February, March
and April, 1999, respectively. A summary of the revenues and
assets are shown in Exhibit B, which is attached herewith and
incorporated herein by this reference.
Planet has purchased equipment from Ascend at a cost of
approximately $550,150.00, of which certain equipment was
purchased pursuant to a lease ("Ascend Lease") dated 7/14/97
between Ascend Credit and TVCN/Planet for $361,050.00. The
equipment underlying the Lease had a market value of S722,050.00
and was purchased for $361,050.00, of which more than
S201,445.24 has already been paid as of this date. The Lease is
for 37 months. The Lease and the underlying equipment is
attached herewith as Exhibit C, and incorporated herein by this
reference.
In connection with the Ascend equipment, Planet returned
certain equipment to Ascend in December 1997, for which a
Credit Memo was issued by Ascend in favor of TVCN for the
amount of $256,250.00 as shown in Exhibit D attached herewith
and incorporated by this reference. The Credit Memo was
discovered recently by TVCN accounting and is being discussed
between TVCN and Ascend and Ascend Credit. It is too early to
determine the outcome of the discussion. The following are
possible scenarios:
Ascend may deny issuing the Credit Memo, in which event the
unpaid balance of the Lease (Exhibit C), will not be affected.
Pursuant to the Credit Memo, Ascend may give TVCN/Planet a full
or partial credit ("Memo Credit"). The Memo Credit may be
applied towards the Lease, or towards purchasing additional
equipment from Ascend, or may reimburse TVCN in cash as
negotiated and agreed upon between TVCN and Ascend. In the
event that the Memo Credit is in cash, the amount shall be paid
to TVCN without any effect on the Lease. In the event that the
Memo Credit is applied to the Lease, the lease payments will be
either reduced or eliminated depending upon the amount of the
Memo Credit applied. In this event, the amount of the Memo
Credit applied shall be treated as equity investment by TVCN
into BeWell for which BeWell shall issue additional shares to
TVCN at the rate of $5.00 per share. In the event the Memo
Credit is applied towards the purchase of additional equipment
from Ascend, TVCN shall transfer such credit to BeWell to allow
BeWell to utilize such credit for buying equipment from Ascend,
in which event, the credit transferred to BeWell shall be
treated as a further investment by TVCN into BeWell, for which
BeWell shall issue to TVCN restricted shares of BeWell's common
stock at the rate of $5.00 per share.
BEWELL'S COVENANTS, WARRANTIES AND REPRESENTATIONS
BeWell represents and warrants that it is a privately-held
Colorado Corporation duly authorized to do business in the state
of Colorado and many other states. The total authorized shares
of BeWell consist of 20 million shares of $0. 00 1 par value
common stock, of which approximately seven (7) million shares
are issued and outstanding.
BeWell has a customer base of approximately 28,000 subscribers.
BeWell had received an offer to be acquired by a third party
at an acquisition price of about $30.0 million, which offer
was rejected by BeWell management
BeWell is presently contemplating a private offering of one
million shares of its common stock to raise up to $ five
million at an offering price of $5.00 per share. BeWell may
file in the future a registration statement for a possible
public offering, in which event the restricted shares issued to
TVC`N under this Agreement shall be included in the
registration statement so as to remove the restricted status.
Planet currently host a web site for TVCN and offers TVCN
several e-mail addresses. BeWell hereby agrees to continue to
host of TVCN's web site and seven e-mail addresses at no charge
to TVCN for 3 years.
BeWell will use its best efforts to effectuate the transaction
contemplated by the Agreement and to fulfill all the conditions
of the Buyer under this Agreement, and will do a acts and things
as may be required to carry out its obligations under this
Agreement. If for any reason, this Agreement is not closed,
neither BeWell or TVCN will not disclose to third parties any
confidential information received from TVCN and obtained by
BeWell in the course of investigating, negotiating, and
performing the transaction contemplated by this Agreement
4. COMPLIANCE WITH LAW
The Sellers' use and ownership of the Assets have been and
continue to be in compliance with all applicable federal, state,
local or other governmental laws or ordinances, the non- with
which, or the violation of which, might have a material adverse
affect on he Assets, and the Sellers have received no claim or
notice of violation with respect hereto.
5. TITLE TO ASSETS
Other than the assets underlying the Ascend Lease, The Sellers
warrant to the Buyer that the Sellers hold good and marketable
title to the Assets, free and clear of restrictions on or
conditions to transfer or assignment, and free and clear of all
liens pledges, charges, or encumbrances of any kind.
INTELLECTUAL PROPERTY RIGHTS
The Sellers represent to Buyer that Sellers own, possess, or
have the right to use all intellectual property rights necessary
to or required for the use of the Assets. Sellers further
represent that no royalties or other amounts are payable by the
Sellers to other persons, or entitled by reason of the ownership
or the use of the Assets.
LITIGATION
The Sellers represent to the Buyer that Sellers have no
knowledge of any claim, litigation, proceeding, or
investigation pending or threatened against the Sellers that
might result in any material adverse change in the condition or
subsequent use of the Assets being conveyed under this
Agreement.
8. EFFECTIVE DATE:
This Agreement shall go into effective upon its execution and
become binding upon the parties herein and their successors,
assignees and heirs.
9. SELLERS' INDEMNIFICATION
The Sellers hereby agree to indemnify and hold the Buyer, its
successors, and assignees harmless from and against (i) any and
all damages, losses, claims, liabilities, deficiencies and
obligations of every kind and description, contingent or
otherwise arising out of or related to the use of the Assets
purchased by the Buyer resulting from Sellers' prior or
subsequent breach of contract, negligent, or intentional bad
action; (ii) any and all damages or deficiency resulting from
any material misrepresentation, breach of warranty or covenant,
or nonfulfillment of any provision of the Agreement by the
Sellers, and (iii) any and all actions, suits, claims,
proceeding, investigations, audits, demands, assessments, fines,
judgements, costs and other expenses (including, without
limitation, reasonable audit and attorney's fees) incident to
any of the foregoing.
10. BUYER'S INDEMNIFICATION
The Buyer hereby agrees to indemnify and hold TVCN, its
successors, and assignees harmless from and against (i) any and
ail damages, losses, claims, liabilities, deficiencies and
obligations of every kind and description, contingent or
otherwise arising out of or related to the business of Planet,
which may result after the date of this Agreement; (ii) any and
all damages or deficiency resulting from any material
misrepresentation, breach of warranty or covenant, or
nonfulfillment of any provision of the Agreement by the Buyer,
and (iii) any and all actions, suits, claims, proceedings,
investigations, audits, demands, assessments, fines, judgements,
costs and other expenses (including, without limitation,
reasonable audit and attorney's fees) incident to any of the
foregoing.
NOTICES
Any notices permitted or required under this Agreement shall be
deemed given upon the date of personal delivery or 48 hours
after deposit in the United States mail, postage fully prepaid,
return receipt requested, addressed to: SELLER: TVCN 10020 E.
Girard Ave Denver, CO 80231
BUYER: BEWELL NET, CORPORATION
P.O. Box 126
Parker, CO 80134
WAIVER
Failure of either party at any time to require performance of
any provision of this Agreement shall not limit the parry's
right to enforce the provision, nor shall any waiver of any
breach of any provision be a waiver of any succeeding breach of
any provision or a waiver of the provision itself or any other
provision.
LAW GOVERNING
This Agreement shall be governed by and construed in accordance
with the laws of the State of Colorado.
ATTORNEY FEES
In the event an arbitration, mediation, suit or action is
brought by any party under this Agreement to enforce any of its
terms, or in any appeal therefrom, it is agreed that the
prevailing party shall be entitled to reasonable attorney's
fees.
ENTIRE A
This Agreement contains the entire understanding between the
parties and supersedes any prior understandings and agreements
between the parties representing the subject matter of the
Agreement.
SUBSEQUENT AGREEMENTS
All subsequent agreements between the parties involving any or
part of this Agreement shall be in writing.
AG BINDING
This Agreement shall be binding upon the hem, executors,
administrators, successors, and assignees of the parties
hereto.
FURTHER ACTION
The parties hereto shall execute and deliver all documents,
provide all information, and take or forbear from all such
action as may be necessary or appropriate to achieve the
purposes of this Agreement.
PARTS COUNTER
This Agreement may be executed in several parts counter, and all
so executed shall constitute one Agreement, binding on all of
the parties here to even though all the parties are not
signatories to the original or the same part counter.
PARTIES IN INTEREST
Nothing herein shall be construed to be to the benefit of any
third party, nor is it intended that any provision shall be for
the benefit of any third Party.
SAVINGS CLAUSE
If any provision of this Agreement, or the application of such
provision to any person, entity or circumstances, shall be held
invalid, the remainder of this Agreement, or the application of
such provision to persons, entities or circumstances other than
those as to which it is held invalid, shall not be affected
thereby.
In WITNESS WHEREOF, the parties have executed this Agreement
the date and day above written.
Be Well Net or Buyer TVCN
By: By:
Title: CEO Title:
EXHIBIT 21
TV Communications Network, Inc.
Subsidiary Schedule State of. Incorporation Operates As:
Century 21 Mining, Inc CA Century 21 Mining [inactive]
International Exports, Inc. DE International Exports[inactive]
International Integrated International Integrated
Systems, Inc. DE Systems (inactive]
JBA Wholesalers, Inc. GA JBA Wholesalers
Mining and Energy
International DE MEICO Corporation
Page TVCN, Inc. DE Page TVCN or Airtek
Planet Internet Corporation CO Planet Internet [sold]
Reema International, Inc. DE REEMA
TVCN International, Inc. DE TVCN International
TVCN of California, Inc. CA TVCN of California
TVCN of Kansas, Inc. CO TVCN of Kansas
TVCN of Michigan, Inc. DE TVCN of Michigan [inactive]
TVCN of Washington D.C., Inc. DE TVCN of Washington D.C.[inactive]
