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\A4
[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-Liquids Technology based on TVCN's
Gas-To-Liquids process, anticipated capital and operating costs of Gas-To-
Liquids plants, signing a definitive agreement, obtaining required financing
for such plants, the continued development of our Gas-To-Liquids process and
the projected economic use of it. 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
our control. 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 Gas-
To-Liquids plants, and produce a salable product from the proposed Gas-To-
Liquids plant, and the ability to successfully develop the BTAs and markets,
satisfactory resolution of legal maters, and economic, competitive and market
conditions for our business. Although we believe 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 we or any other person that our objectives
and plans can or will ever be achieved.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Business Development
TV Communications Network, Inc. ("TVCN" or "the Company") was organized
as a Colorado corporation on July 7, 1987. Its executive offices are at 10020
E. Girard Avenue, Suite 300, Denver, Colorado 80231, its telephone number is
(303) 751 2900 and its fax number is (303) 751-1081. The Company was formed
to seek business opportunities that, in the opinion of management, will provide
profit to the Company in any industry in general and the Wireless Cable TV
industry in particular. During its early years, TVCN focused its attention
on these Wireless TV operations. After early success, we began to diversify.
Since then, TVCN has been a diversified holding enterprise with operations in
gas and oil refining; Wireless Cable TV; Internet; mining; auto salvage and
wireless communications. However, we recently sold our Internet operations,
and we are considering the sale of other operations in order to focus on our
gas and oil business.
Wireless Cable TV Operations
The Wireless Cable TV industry was created in 1983 when the FCC began
licensing Wireless Cable TV stations to broadcast multiple TV channels per
station on microwave frequencies. The Wireless Cable 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 (single channel) 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, the educational institutions
are allowed to lease any excess capacity on their channels to commercial
entities for commercial use. A television station that employs any microwave
channels to broadcast cable TV programming to subscribers for monthly fees,
is referred to as a Wireless Cable TV 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
Wireless Cable 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 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 Wireless Cable station can deliver a variety
of signals, including subscription television, data, and other related
entertainment and communications services. Wireless Cable 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. We are currently operating a wireless cable TV 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 we added ESPN,
Showtime and Flix to the programming package. The number of subscribers
remain limited because of the limited number of TV channels. With only 19 TV
channels, we have been unable to compete effectively against conventional
cable TV operators. Through an agreement with Nucentrix Broadband (formerly
known as Heartland), which agreement is awaiting FCC approval, we hope to
increase the number of TV channels to as many as 33.
Mobile, Alabama. TVCN's 4-TV channel station 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 or buy only seven more channels in addition to our four
channels. With only 11 TV channels, Mobile Wireless 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
only the minimum monthly transmission fees were received by us 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. We declined to enter into a long term lease because of our
desire to sell our rights and interest in the station. However, we agreed to
lease the station on a month-to-month basis at the rate of $1,200.00 per month.
We are considering the sale of the assets in the 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. in 1995. In January, 1996, Wireless
Telecommunications defaulted on its payments. We repossessed the station in
June 1996 and have been operating it since that time. As part of the
settlement with Wireless Telecommunications, we agreed to purchase the Basic
Trading Area License of San Luis from Wireless Telecommunications. In
exchange, Wireless Telecommunications conveyed and transferred all of its
assets and interest in the License to us. (See "The FCC Spectrum Auction" on
page 5.) The purchase price for the Basic Trading Area License was $452,168.
Of this amount $90,000 was paid in cash, and $362,168 was paid in the form of
our 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 License to us on May 23, 1997. Since we need more TV channels to be
competitive, we also acquired from non-affiliated entities, the three
individual H-Group channel licenses (H1, H2, and H3) for $20,000.00. The FCC
also approved this acquisition. Currently, we are broadcasting on seven
channels (3 H-Group channels and 4 E-Group channels) to 59 subscribers. As
the new owner of the Basic Trading Area License, we applied for the 4 F-Group
channels (F1, F2, F3, and F4) and for the two single channels MDS1 and MDS2.
The FCC approved TVCN's applications for the last six channels. We have not
yet constructed the transmission facilities for these six additional channels.
We have 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. We are negotiating with other licensees in San Luis for the purpose
of leasing additional channels. In the meantime, we are considering selling
all of our assets in this market.
Other stations. TVCN owns 4-TV channel stations in each of Hays, Kansas;
Woodward, Oklahoma; and Quincy, Illinois. In cooperation with our affiliate,
Multichannel Distribution of America, Inc., we have also constructed four-
channel stations in Myrtle Beach, South Carolina; Rome, Georgia; and
Scottsbluff, Nebraska. MDA is owned and controlled by our president. The
Quincy station is involved in a three-way transaction. We acquired the station
from our affiliate MDA and entered into an agreement with Heartland
Communications to transfer and assign the rights and interest in the Quincy
station to Heartland in exchange for transferring certain of Heartland's rights
and interest in its Basic Trading Area License in Salina, Kansas to us. 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. Our stations in Myrtle Beach and Scottsbluff have
not been placed into commercial operation yet, 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, We have no immediate
plans to place these two stations into commercial operations. We are
considering the sale of these and other stations.
In addition, in an effort to expand our concentration of Wireless Cable
stations in the West Virginia and Pennsylvania areas, we applied for five
vacant channels in the Scranton/Wilkes-Barre/Hazelton Basic Trading Area
License. Also in order to increase the channel capacity of the Scranton
station, TVCN purchased the F Group lease and station equipment from American
Telecasting, Inc. for $200,000. This lease entitles us to utilize the Four
Channels of 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 years, renewable
every five years thereafter at our option.
Governmental Regulation/FCC Licensing
The licenses of TVCN are not subject to regulation by any state or local
government. However, the Wireless Cable Frequencies are subject to FCC
regulations. Our ability to continue providing programming is dependent upon
our continued FCC qualification 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
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 an operator to directly own up to thirteen (13) channels. In
addition, the FCC has authorized educational licensees (groups A, B, C, D and
G) to lease their excess capacity for commercial use, including subscription
television service.
The FCC Spectrum Auction
Until November, 1995, the FCC used to grant licenses in the Wireless Cable TV
frequency spectrum to qualified applicants on a first-come first-served basis.
From November 13, 1995 to March 28, 1996 the FCC changed policy and
conducted an auction of the frequency spectrum used by these stations. In this
Auction, the FCC divided the country into Basic Trading Areas adopting the same
487 geographic areas as defined by Rand McNally's Commercial Atlas and
marketing guide. plus 6 other areas not so defined. The successful bidder on
each area acquired the right to obtain the licenses for all parts of the
commercial Wireless Cable spectrum in the area, 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, an area 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, which included a
small business bidding credit of $400,000.
TVCN was the successful bidder on the following 12 Basic Trading Areas:
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. Our net bid was $1,276,000
(taking into account the 15% small business credit TVCN received). This made
us 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 our financial statements. We have not yet
finalized plans with respect to the development of Wireless Cable stations in
these areas. The development is dependent on our ability to obtain substantial
capital resources. There is no assurance that we will obtain sufficient
financing to develop these stations. In the meantime, we will attempt to
sell our rights and interest in the Area Licenses, of which there can be no
assurance.
Purchase/Sale of Wireless Cable TV 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 Wireless Cable station in Washington, D.C., and another station
in Detroit, Michigan. MDA is substantially owned and controlled by our
president. The two acquired Wireless stations were owned by the 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 Wireless Cable stations in Detroit and
Washington, D.C. was initially recorded on TVCN's books at the purchase price
of $6,264,000. However, in our 10-KSB of March 31, 1994 the recorded
purchase price of the two 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 Wireless Cable station in Washington, D.C., was sold in 1993 to Eastern
Cable Network Corp. 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 Wireless Cable station in Detroit, Michigan to
Eastern Cable Networks of Michigan, Inc. EASTERN, a subsidiary of Eastern
Cable Network Corp. ("EASTERN"). The consideration received by us 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 EASTERN'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. sold the Detroit station to a
subsidiary of Peoples Choice TV. 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 EASTERN in 1994. On January 12, 1996 the
parties settled the lawsuit effective December 31, 1995. Pursuant to the
settlement, we released EASTERN from all liability and consented to Peoples
Choice assumption of the note secured by the Detroit station. In return,
EASTERN and Peoples Choice paid us $614,120 in cash; Peoples Choice assumed the
Original Detroit Note; and one of Peoples Choice 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 the Company 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 we sold our Denver, Colorado Wireless
Cable TV station to American Telecasting, Inc., 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
As mentioned on page 3, we are operating a Wireless Cable TV station with a
limited number of TV channels in Salina, Kansas. During the FCC auction (see
"The FCC Spectrum Auction" on page 5), Heartland Communications Corp. (now
known as Nucentrix Brodband) was the successful bidder for the Salina Basic
Trading Area. That limited our ability to lease or license additional TV
channels in Salina. That also gave Heartland the exclusive right to obtain
the remaining licenses which we had not applied for in the Salina market.
These remaining licenses were also limited in number. Specifically, our
Salina system had been effectively limited to 19 TV channels, hardly adequate
to compete against conventional cable TV systems. Since Heartland was the
FCC auction winner for the Salina Area License, Heartland got 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,
the two companies began to discuss the possibility of finding a solution.
After several rounds of negotiations, Heartland gave us what we deemed to be 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 license in another market to Heartland. To meet
this condition, we offered Heartland our E-Group license in Hays, Kansas.
Heartland rejected TVCN's offer, but was willing to accept the transfer of
the 4-Channel E-Group license in Quincy, Illinois. But, TVCN did not own the
Quincy license/station. The 4-channel Quincy station and license was owned by
MDA - Illinois which is a wholly-owned subsidiary of Multichannel Distribution
of America ("MDA") Inc., and is substantially owned and controlled by TVCN's
president.
The aforementioned Salina partition is favorable to TVCN. First, it allows us
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 Area License 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 and its growth potential.
However, before the partition agreement with Heartland could be concluded, we
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
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 the cost of a 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 our common stock was 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 liabilities, 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
instead of the evaluation method, 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 our shareholders.
The majority of the votes counted, excluding those of Mr. Duwaik's holdings,
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
our 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 Company's shareholders of during their annual meeting in 1997.
Principal Services and Markets
TVCN offers its Wireless Cable 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 station is
able to offer to its subscribers is limited by the number of 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 Wireless Cable broadcast station
typically includes satellite receiving equipment, descramblers, transmitters,
encoders (scramblers), combiners, waveguides and an omni-directional or a
cardioide 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 Wireless
Cable channels owned or leased by the 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 and video cassettes.
The most common source of competition to a Wireless Cable TV station is
traditional cable television. Most cable television systems are able to
offer a greater number of channels to their audiences than most Wireless
Cable stations. In addition, most cable television systems supply some
programming that is not available on our stations, including a wide range of
advertiser supported and subscription supported video programming services.
New compression technology is presently being tested which could allow
operators like us to offer many more channels by compressing more than channel
of programming onto each licensed channel. However, the same technology is
being developed for cable usage and Direct Broadcast Satellite 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 our financial capacity.
Other sources of competition include low power television stations and the Dish
Network and DIRECTV. 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 we serve, off-air
programming can be received by viewers who use their own antenna. The extent
to which a Wireless Cable 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 us.
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 Wireless cable communications
industry. The ability of our 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 our
competitive position, other competitive factors include authorized broadcast
power, 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 we do.
Agreements with Program Suppliers
A Wireless Cable 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.
Broadcasting licenses for Wireless Cable 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, our licenses have been renewed because
we, as the licensee, have 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 our ongoing business in the wireless cable industry. First, the FCC has
proposed a rule that would preempt the local zoning regulation of Wireless
Cable antennas, thus allowing the placement of antennas in areas in which they
once 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 our antennas. The FCC has also streamlined
its Educational application process by delegating processing authority to the
FCC staff. As many Wireless Cable systems rely on leasing excess Educational
channel capacity, the new procedures should benefit the wireless cable
industry by making more such licenses available.
On March 14, 1997 over 100 industry participants submitted a proposal to the
FCC for a petition for rulemaking. The petition suggests some sweeping
changes, such as: 1) allowing an operator to cellularize transmissions within
its market; 2) allowing neighboring operators to police their own borders to
prevent unwanted interference, with the FCC being called in only if such
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 our subsidiary
Reema's Gas-To-Liquid project. Sprint, MCI Worldcom and several other
telecommunications companies have recently purchased other wireless cable
operators. We are 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 Wireless Cable 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 for the purpose of evaluating and developing a Gas-To-
Liquids process. The 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 Gas-To-Liquids plants at
gas fields.
As of this date, Reema's activities have been limited to the research and
development of the 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 Gas-To-Liquids plants under operation or construction.
Reema is simply negotiating with various entities the possibility of
constructing its first 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 either the parent
company nor the subsidiary. Prior to joining Reema in 1993 Mr. Clark had
some 40 years broad-management experience in chemical plants in such industries
as Liquified-Natural-Gas, 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 degree
from New York State University.
GTL Plant
A typical Gas-To-Liquids 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 Fisher-Tropsche 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 the plant are relatively standard commercial units
that are commercially available today and have been in use for about 40 years.
The Fisher-Tropsche 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
Fisher-Tropsche process for conversion into transportation fuels. South
Africa used the Fisher-Tropsche process in the 1950's. However, because of
the inefficiency of the early processes, the old Gas-To-Liquids technology
was not commercially viable. In 1992, Sasol of South Africa began to
experiment on a 2,500 bpd Gas-To-Liquids 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 Gas-To-Liquids 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 barrels per day. 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 Gas-To-
Liquids plant for the production of 250 barrels per day of transportation
fuels. As of this date, other than the foregoing, neither Exxon nor others
have built any other commercial Gas-To-Liquids plant anywhere in the world.
Memorandum of Understanding
After years of negotiations, in December of 1997, our subsidiary, Reema, and
the government of Trinidad and Tobago signed a Memorandum of Understanding for
the construction and operation of a Gas-To-Liquids plant in Trinidad. The
proposed Gas conversion plant will be employing Reema's propriety
technological information. Reema's 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 of quality finished petroleum products
such as sulfar-free diesel, jet fuel, naphtha and others.
The initial capitalization of our proposed Gas-To-Liquids plant in Trinidad is
expected to be between $275 and $300 million, for a production capacity of
10,000 barrels per day 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.
Gas-To-Liquids Competition
While the Gas-To-Liquids 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 Gas-
To-Liquids project in Trinidad. But, in its attempt to negotiate similar
agreements with other gas producing countries around the world, we will be
competing against giant companies such as Exxon, Shell and others which have
vastly greater resources and capabilities. Even with what we hope will be the
success of constructing the first Gas-To-Liquids plant in Trinidad, we will be
facing extremely tough competition for constructing additional plants. There
is no assurance that TVCN will be able to succeed in constructing any Gas-To-
Liquids plant.
Premium Quality of Gas-To-Liquids Produced Products
It is frequently reported that one cause of air pollution in some regions 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 Gas-To-Liquids process.
On August 27, 1998, United Press International 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 Denver
Rocky Mountain News reported eleven members of the California Air Resources
Board "voted unanimously to declare 40 chemicals found in (crude oil-derived)
diesel exhaust as toxic air pollutants."
In contrast, we are unaware of any material negative environmental aspects of
the gas to liquids process. Diesel and jet fuel processed and produced by
the Gas-To-Liquids process will have zero sulfur, zero aromatics, higher
cetane, and a higher smoke point. The quality of the finished products of
Reema's 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. Reema
is a wholly-owned subsidiary of TVCN.
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 we are now attempting to focus
on the gas project, we are 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. 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, our 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 his 60% of the stock in JBA to go along with the 40% which TVCN
already owned from an April 1998 transaction.
We 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 our intent to now focus on the gas
project, we are considering the sale of JBA.
Mining Business
TVCN invested in two mines, but neither was ever brought into commercial
operation. After considerable development losses, we have decided not to make
any further mining investment, and to discontinue the mining operations. We
have no current commercially viable mining operations, and 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 wholly-owned 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
we agreed to lease ten unpatented mining claims, consisting of about 200 acres
of the Liberty Hill Mine, for thirty years. Under the second agreement, we
also 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. We agreed to pay the out-of-pocket costs of operating the mine. In
addition to these out-of-pocket expenses we 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 we had
expended a total of $2,110,224 in out-of-pocket expenses to bring the mine
into operation. In addition, to these expenses, we have 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 us 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 we 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 our complaint we
allege that we were fraudulently induced to enter into the mining lease and
that Ray Naylor breached his contract to operate the mine on our 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
us that he believes we are in default under the lease and has served a notice
of termination of the lease on us. 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. We have placed Mr. Naylor on notice that we intend
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. we 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, we decided to sell our interest in the 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 our financial statements.
Internet Business Opportunities
On February 16, 1996 TVCN incorporated its wholly-owned subsidiary, Planet
Internet Corp. as an Internet Service Provider. 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, we 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 the stock
other than Kenneth Roznoy who received a no value bonus of 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 another wholly-owned subsidiary, InterOmni Services,
Inc., in order to develop the InterOmni Wallet, a digital profile that tracks
and records information about individuals. We attempted to sell InterOmni,
but the sale did not go through. We ceased any further development in
InterOmni, and consider 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 our behalf if he deemed such
an investment to be in the Company's best interests. 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, we 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 to build a Wireless Cable TV 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, our 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
Qatari Wireless station (without interruption) for a period of 10 years. The
Qatar wireless cable system was awarded Cable Operator of the Year honors at
CABSAT 95 (the cable and satellite show).
Patents, Trademarks and Licenses
(See discussion about licensing in "Wireless Cable TV" operations on pages 3
and 4; see also "The FCC Spectrum Auction" on page 5.)
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" on page 15). TVCN sold Planet, but the trade
names remain ours.
We hold no patents. However, TVCN has filed a patent application concerning \
its Gas-To-Liquids technology. The application is pending.
Employees
As of March 31, 1999, we had 19 employees. None of our employees are the
subject of a collective bargaining agreement. we believe that relations with
our employees are good.
Our ability to carry out our proposed activities is dependent, to a substantial
degree, on a limited number of personnel. There can be no assurance that we
will be able to retain such personnel. TVCN's success is also dependent on
our ability to recruit and motivate high quality personnel. If we fail to
retain the services of one or more of these key persons or if we are unable
to attract a sufficient number of skilled employees, our operations may be
adversely affected. We do not currently maintain any key man insurance on
any of our officers, directors, or significant employees.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company retains ownership of substantially all system equipment necessary
to provide its Wireless Cable 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. Our facilities are, in the opinion of
management, suitable and adequate by industry standards. All equipment and
assets are not subject to any lease or encumbrance.
The Company 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, we
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, we will
enter into a three year lease for the rental of our executive offices of
approximately 3,600 square feet at the rate of $3,625/month, with the first
two years being written off as part of the purchase price.
The Company also own a warehouse in Detroit, MI not subject to any mortgage.
This warehouse was leased to People's Choice TV at the rate of $4,000 per month
until March 1999. In July 1999, we 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.
The Company 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 our audited
consolidated financial statements).
The Company also own 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 $1,100,000.
ITEM 3. LEGAL PROCEEDINGS
(1) Mining and Energy International Corporation ("MEICO") and TV
Communications Network, Inc. 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) On November 2, 1993, the Securities and Exchange Commission filed a Civil
Action No. 93-M-2295 in US District Court in Denver, Colorado against the
Company, its president, Omar Duwaik, and one of its vice presidents, Jacob
Duwaik. The SEC alleged among other things, that the Company improperly
inflated its balance sheet by overstating the value of certain assets acquired
by the Company. The SEC also alleged that the Duwaiks were involved in
"sham" stock transactions. The SEC asked the Federal Court in Denver to
permanently enjoin TVCN and the Duwaiks from repeating such violations,
barring Omar Duwaik from serving as an officer or director of TVCN, and
imposing unspecified monetary penalties. The Company and the principals
involved denied the allegations and vigorously defended against the court
action.
After the Court rejected the SEC's argument for a temporary restraining order,
the SEC made an offer for a settlement. The attorneys representing the
Company and other defedants recommended acceptance of the settlement
offer. The Company and its officers and directors accepted the SEC
settlement offer in order to avoid further expensive litigations. The terms of
the settlement agreement were approved by the various attorneys and the
principal parties including TVCN, the SEC in Denver and the SEC in
Washington, D.C.. Pursuant to the terms of the settlement agreement, TVCN
and the Duwaiks would pay a total of $225,000, be enjoined from committing
violations of certain laws, and not be held to have admitted any allegations of
the Complaint, except as to jurisdiction. Omar Duwaik's position with the
Company would not be affected by the settlement agreement. The settlement
agreement was submitted to the Court and the final judgment was entered on
March 3, 1994.
(3) 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 us 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.
We have always emphatically denied the plaintiffs' allegations in this legal
action and were vigorously defending the case. However, because of the
continued drain on our resources caused by nearly four years of protracted
and expensive litigation, on October 31, 1997 we 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' 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 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 the Company in order to participate in the
settlement. Pursuant to this provision, the Company received 359,960 shares
of stock from class members participating in the settlement. TVCN then
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 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 our common stock. The high bid and low asked prices
of the common stock 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. We anticipate that all
earnings, if any, will be retained for development of the Company's business.
Low Volume Trading; Possible Volatility of Stock Price
In 1989, the Company made an application to have its common stock listed and
quoted on the NASDAQ System. The application was denied. One of the
requirements for listing on NASDAQ is that the common stock 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. We intend 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. Such
influence could discourage others from initiating potential merger, takeover
or other changes of control transactions. As a result, the market price of
TVCN 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 Company net profits, 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 must be given as required to holders in a call for redemption, 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 the Company's president, Omar Duwaik). After MDA
requested the conversion of its Class C Preferred Stock, the Company issued
200,000 Restricted Common Shares to MDA on May 29, 1997. Another 380,000
Class C Preferred Shares were issued to AT&I (a company related by virtue of
having mutual stockholders, officers and directors, including Omar Duwaik),
as partial payment for the acquisition of the Company Headquarters Building.
The headquarters building had a fair market value of $930,000 and we assumed
a $550,000 mortgage. AT&I requested the conversion of its Class C Preferred
Stock and the Company issued 190,000 Restricted Common Shares to AT&I on May
29, 1997.
Class D Preferred Stock - The Class D Preferred Stock is convertible into
common stock of TVCN at the rate of one Class D Preferred Share for one
Common Share, 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 our
net profits at the rate of up to nine percent (9%), when and if declared.
In connection with the acquisition of the two Wireless Cable TV stations in
Washington, D.C. and Detroit, Michigan (see "Purchase/Sale of Two WCTV
stations" on page 5), 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 the Company's president. Pursuant to MDA's request for
converting the 4,864,000 preferred shares to common stock, the Company issued
to MDA 4,864,000 shares of its 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 Wireless Cable stations. For
example, the buying/selling of Wireless Cable 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.
As discussed under the "Purchase/Sale of Wireless Cable TV Station" section, in
connection with the sale of the Company's wireless cable TV station in Detroit,
Michigan, the Company has a promissory note receivable in the approximate
amount of $2.4 million due and payable to the Company by December 30, 2000.
The note can be prepaid at any time without penalty. The debtor is People's
Choice TV, and the note is collateralized by the entire Detroit Wireless cable
TV station. Recently, Sprint Corporation acquired People's Choice, and
expressed its interest in paying off the note before its maturity.
Income tax benefits generated were $554,227 and $1,234,816 in 1999 and 1998,
respectively.
Business Segments - We maintain 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 our 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, we intends to manage the proceeds from the sale of assets
such that we anticipate no difficulty in maintaining our operations and
meeting our obligations for years to come.
The capital cost of the proposed Gas-To-Liquids Plant in Trinidad is estimated
at $300 million. The Company has contacted and discussed potential financing
of the proposed Plant with many foreign investors, financial institutions,
manufacturers, vendors, suppliers and other entities. As of March 31, 2000 no
bona-fide offer has been executed or negotiated. The discussions concerning
the financing of the Plant have been preliminary in nature. No assurance can
be given that the necessary financing can be successfully completed.
Capital
Constructing and developing Wireless Cable 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 our investment, together with a favorable return on
its investment, our continued expansion is largely dependent on our 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 the Company's president, other shareholders,
and the sale of common and preferred stock. We are now considering different
debt financing options as well as continued asset sales. There is no certainty
that we 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. Our business requires substantial capital investment on a continuing
basis and the availability of a sufficient credit line or access to capital
financing is essential to our 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, 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, we have $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 Basic Trading Area Licenses from the FCC (see FCC Spectrum
Auction on page 5), and the acquisition of the Area license from Wireless Tele-
Communications of Pennsylvania. The office building is under sale contract.
Our current assets and liabilities are $887,393 and $1,616,368 respectively.
The 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" below).
Management's plans to maintain sufficient future cash flows for continued
existence include the sale of TVCN's real property (Note 16). In addition,
management is also actively marketing other real property and buildings, and
reducing general and administrative expenses by downsizing personnel and
operations. Management is also looking into the sale of our Basic Trade Area
license rights. Based on a review of all possible options available to us and
the estimated related resulting cash flows management believes that sufficient
cash flow will be provided to ensure continued existence and operations.
Cash Investments
The Company's president and a shareholder have advanced loans to the Company
totaling $1,100,334.
Business Development Strategies
The Company's dominant business activity since inception in 1987 has been the
acquisition of licensees, obtaining TV channel leases, and the development and
sale of Wireless Cable TV licenses and stations. The development of Wireless
Cable stations to their full growth potentials requires substantial capital
resources which have not been satisfactorily available to the Company. As a
result, we have been able to only partially develop certain of our Wireless
Cable 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", on page 5) herein. Until October, 1998, our
stations have been limited to a one-way transmission: broadcasting cable TV
programming over the air to potential subscribers. However, in October, 1998,
with the FCC changing its rules such that it now allows the use of the wireless
cable TV channels for two-way communications (see "Governmental Regulation
FCC Licensing", on page 9). Using the concept of "cellular phone" or "cellular
communications", the Wireless Cable frequencies can now be used for two way
communications 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 Wireless Cable companies. During 1999, it
has been reported that Sprint and MCI have acquired most of the large Wireless
Cable companies in the USA.
Based upon the foregoing, we believe that this might be an opportune time to
sell the Company's Wireless Cable stations, licenses and rights and interest
in its Basic Trading Areas. The Company has approximately 1.1 million
households in its markets. We have commenced preliminary discussions with
Sprint, MCI and others about the possibility of selling our Wireless Cable
assets. There has been no agreement signed or negotiated. 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. There is no
assurance that we will succeed in selling any of our Wireless Cable assets.
As mentioned earlier, we intend to focus our future activities on the gas
project. The proposed Gas-To-Liquids plant in Trinidad is expected to cost
about $300 million. We are discussing with various financial institutions
obtaining the necessary financing for the plant. We are also discussing with
different entities the possibility of entering into a partnership agreement
for the purpose of financing and implementing the proposed plant, but no
agreement has been signed. There is no assurance that we will succeed in
obtaining the necessary financing or entering into any partnership agreement
with any entity.
With the reduction in expenditures, and the streamlining of operations, the
proceeds from the sale of the residential land, the Detroit warehouse and
office building should be sufficient to fund our activities and meet current
obligations. The receivable Additional Detroit Note in the approximate amount
of $2.4 million is due December 30, 2000, and it may be paid off sooner.
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 we have 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. The
Company has no intentions of repaying these 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. We have a 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
We believe that with the sale of appreciated assets we 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 our track record in selling Wireless Cable
stations at substantial profits, and current favorable market conditions, we
anticipate no difficulty in selling some or all of our stations. (See
"Purchase/Sale of WCTV stations", on page 5.) As shown therein, the value of
TVCN's Wireless Cable assets could be substantial if potential buyers continue
to pay premium prices, of which there can be no assurance. (See "Business
Development Strategies", on page 22.) Further, we are optimistic about the
gas project. However, no assurance can be given that we will succeed in
selling the stations nor recognize any profit from the 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
Our capitalization 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 the Company's assessment to date, we believe the current versions of
our 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 we believe that any potential 2000 related
problems will not materially affect our business, operations or financial
condition, there can no assurance that we 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 our 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 us 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 our financial records for
fiscal years 1998, 1997, 1996, 1995, 1994 and 1993. The Auditor agreed to
audit our financial records for fiscal year 1999 and assist us in the
preparation of our 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 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,
and is no longer an officer or director 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 the Company 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 the company's
wholly-owned subsidiaries: TVCN of Washington, D.C., Inc. (1991 to Present);
TVCN of Michigan, Inc. (1991 to present); TVCN of Kansas, Inc. (1996); TVCN
of California, Inc. (1996); International Exports, Inc. (1992 to present);
Integrated Systems (1993 to present); Mining Energy International, Inc. (1995
to present); Reema International Corp. (1993 to present); and Planet Internet
(1996 until sold in May, 1999).
Mr. Kenneth Roznoy also serves in the same capacities in the Company'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 our officers. Omar Duwaik and Kenneth Roznoy are employed
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 TVCN common stock, and also owns the
majority of MDA, an affiliated company, which also owns 23,845,892 shares of
TVCN common stock. Mr. Duwaik also owns a majority of American
Technology and Information, which owns 190,000 shares of TVCN common
stock. Mr. Duwaik is employed on a full-time basis and is compensated at an
annual salary of $108,000 of which $54,079 are paid in cash and the remaining
balance is deferred until such time as we have more funds. (See Item 11.
"Security Ownership", on page 29.) On March 3, 1994, a settlement agreement
imposing a permanent civil injunction from violating certain provisions of the
federal securities laws and a civil fine against Mr. Duwaik was jointly
submitted to a U.S. federal district court by the Securities and Exchange
Commission. As part of this settlement agreement, which the Court accepted,
Mr. Duwaik neither admitted nor denied any of the allegations of the SEC's
complaint against him.
Kenneth D. Roznoy - Vice President, Assistant Secretary and Director. Mr.
Roznoy returned to us 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 previously as the Company's Directors
from 1989 - October 1994. Prior to joining TVCN in July 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 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-Liquids 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 the Company, and (ii) all its executive officers 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 $ 108,000
Dennis J. Horner Vice President, Treasurer, and
Director $ 46,615 (1)
Barry K. Arrington Vice President, General Counsel $ 67,793 (1)
Kenneth D. Roznoy Vice President, Secretary, and
Director $ 30,161
(1) Mr. Barry K. Arrington, Vice President and General Counsel resigned
effective February 28, 1999. 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 the Company
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," on page 26.)
Stock Option Plan
TVCN has in effect an incentive Stock Option Plan and has reserved a total of
2,000,000 shares of 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 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 market
makers. 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.
Compensation Pursuant to Plans
No compensation was paid to executive officers pursuant to any plan during the
fiscal year just ended, and there is no agreement or understanding, express or
implied, with any officer or director concerning employment or cash
compensation for services other than their aforementioned salaries.
Other Compensation
For the fiscal year ended March 31, 1999, executive officers received
reimbursement of out of pocket expenses incurred on the Company's behalf.
On February 14, 1995, the Board of Directors had 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.
All information refers to common stock.
Name and Position with TVCN, or Name and Amount of Percent of
Address of Greater than 5% Holders Beneficial Class
Ownership
Omar A. Duwaik
Chairman of the Board of
Directors, President and
Chief Executive Officer 47,150,348(1) 92.8%
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%
All other officers
or beneficial owners of
of 5% or more -0- Less than
.001%
Total shares owned by management
As a group (1) 47,150,348 92.8%
(1) Mr. Duwaik owns 22,223 shares directly and 23,845,892 shares
beneficially by virtue of his controlling stake in Multichannel Distribution of
America, and 950,233 shares beneficially by virtue of his voting control by
Power of Attorney of 950,233 shares which are owned by his brother Taher
Aldweik. 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. 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
3.1.1 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). *
3.1.2 Copy of Amendment No. 1 to the Certificate of Incorporation
(incorporated by reference to the 10 KSB for the period ended
March 31, 1989, File No. 33-16113-D.) *
3.1.3 Copy of Amendment No. 2 to the certificate of Incorporation
(incorporated by reference to the 10 KSB for the period ended
March 31, 1995. File No. 33-16113-D) *
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.
10.1 Memorandum of Understanding dated December 17, 1997
between The National Gas Company of Trinidad and
Tobago Limited and Reema International Corp. *
10.2 Acquisition Agreement dated May 18, 1999 between
BeWell Net Corporation ("Buyer") and TV
Communications Network, Inc./Planet Internet Corporation
("Seller").*
21. Subsidiaries of the Registrant.
27. Financial Data Schedule. *
99. Additional Exhibits
99.1(P) Copy of a report by Houlihan Valuation Advisors titled
"Valuation of a 10,000,000 Shares Block of Restricted Common
Stock of TV Communications Network, Inc. as of March 25,
1998." *
* Previously 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.
(P) This designation on Exhibit 99.1 indicates that this exhibit, previously
filed with the SEC in paper format only, is not available through the EDGAR
System.
<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: September 11, 2000
/s/ OMAR A. DUWAIK
Omar A. Duwaik
President, CEO &
Director
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
_/S/ JACKIE PORTER
Jackie Porter
Acting Controller
Dated: September 11, 2000
