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\\A3
[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 ("GTL") 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 ("WCTV") 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 ("WCTV") Operations
The WCTV 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. ("WTCI") 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. (MDA), 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:
<TABLE>
<CAPTION>
<S> <C> <C>
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
</TABLE>
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. 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. ("EASTERN") 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.,
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 ("WCTV")
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
("DBS") 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 ("Reema") for the purpose of
evaluating and developing a Gas-To-Liquids ("GTL") 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 ("MBA") 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 ("MOU") 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, 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. ("JBA") to acquire all of the issued and
outstanding stock of JBA Wholesalers, Inc. JBA owns an auto salvage
and parts recycling business in Calhoun, Georgia. The appraised
market value of JBA at the time of the transaction was $125,000.
Omar Duwaik, 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 (ISP). Planet
Internet provided internet service to subscribers. By March 31, 1999,
Planet had 836 subscribers, and was running a negative cash flow of
about $40,000 per month. On May 18, 1999, TVCN signed an agreement
to sell Planet to BeWell Net Corp., another ISP. The net sale price
was $1,508,640 payable in common stock of BeWell Net at the rate of
$5.00 per share. Accordingly, 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 ("Q-Tel") to build a WCTV station in
Doha, Qatar and train operations personnel. TVCN built the station
in 1993, and a provisional acceptance certificate for the station
was issued on August 14, 1993. Through May 1996, 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
dversely 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.
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. ("TVCN") v. Big Trees Trust et al.,
Case No. 98 WM 537 in the United States District Court for the
District of Colorado. On March 5, 1998 TVCN and its wholly-owned
subsidiary MEICO sued, inter alia, Big Trees Trust and Ray Naylor
in a dispute over the lease and operation of the Liberty Hill Mine
in Nevada County, California. In its complaint MEICO alleges
that it was fraudulently induced to enter into the mining lease
and that Ray Naylor has breached his contract to operate the mine
on MEICO's behalf in a good and miner-like fashion. MEICO and TVCN
claim damages in excess of $3.5 million. While no answer has been
filed in the case, Mr. Naylor has informed MEICO that he believes
it is in default under the lease and has served a notice of termination
of the lease on TVCN. On May 20, 1998 the Court entered an order
on the parties' stipulated motion submitting the matter to binding
arbitration. The parties have agreed to the appointment of Mr. Murray
Richtel of the Judicial Arbiter Group, Inc. as the arbitrator in
this matter, and an arbitration hearing had been set for September 10,
1998.The arbitration proceeding was in its initial stages, and no
discovery had been conducted. However, before the arbitration
hearing the parties met on September 1, 1998 and entered into a
preliminary agreement to settle the dispute by selling the mine at
auction and splitting the proceeds. However, Mr. Naylor subsequently
attempted to disavow this settlement agreement. TVCN has placed
Mr. Naylor on notice that it intends to file a second court action to
enforce the settlement agreement if he does not follow through
with his obligations thereunder. At this preliminary stage it is
not possible to predict with any certainty the probably outcome
of this matter. However, TVCN intends to prosecute its claims vigorously.
(2)\tab On November 2, 1993, the Securities and Exchange Commission
("SEC") 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. The judgment was limited in
nature such that it did not enjoin, bar, suspend or otherwise limit
the Duwaiks' involvement in securities or banking activities or any
type of business.
(3)\tab 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
Ending
3/31/92\tab 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 pennystock, 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 CommonStock 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 ofAmerica ("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, officersand 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
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
ncome 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
perating 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, supplies
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,
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 andoperations.
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 Expirationb
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>
Name Age Position Period Served
<S> <C> <C> <C>
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.)
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
y all directors and officers of TVCN as a group and of certain other
eneficial 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.
Amount of
Name and Position with TVCN, or Name and Beneficial Percent of
Address of Greater than 5% Holders Ownership Class
Omar A. Duwaik
Chairman of the Board of
Directors, President and
Chief Executive Officer 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\tab 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").*
* Previously Filed.
21. Subsidiaries of the Registrant.
99.\tab 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."
Financial Data Schedule
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: June 21, 2000
/s/ JACKIE PORTER\tab \tab \tab
Jackie Porter
Acting Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
/s/ OMAR A. DUWAIK /S/ KENNETH D. ROZNOY
Omar A. Duwaik Kenneth D. Roznoy
President, CEO &b Vice President &
Director Director
Dated: June 21, 2000
