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File Number 333-1806
Rule 424(b)(3)
PROSPECTUS
TESCORP, INC.
148,500 SHARES OF SERIES 1995 8% CONVERTIBLE PREFERRED STOCK
5,986,726 SHARES OF COMMON STOCK
This Prospectus concerns the offer and sale by Selling Shareholders, from
time to time, of 5,986,726 shares of the common stock, $.02 par value (the
"Common Stock") and 148,500 shares of 1995 8% convertible preferred stock, par
value $1.00 per share (the "Series 1995 Preferred Stock," and together with the
Common Stock, the "Securities"), of Tescorp, Inc., a Texas corporation (the
"Company"). Of the 5,986,726 shares of Common Stock to be offered and sold by
Selling Shareholders, 4,752,000 shares represent shares issuable upon conversion
of the Series 1995 Preferred Stock, 466,200 represent shares issuable upon
conversion of outstanding stock purchase warrants (the "Stock Purchase
Warrants") and 768,526 shares represent shares issued and outstanding. See
"Selling Shareholders." This Prospectus also covers the issuance of Common
Stock upon conversion of the Series 1995 Preferred Stock by holders of such
stock other than the initial holders thereof. The Company will not receive any
of the proceeds from the sale of Preferred Stock or the Common Stock by the
Selling Shareholders.
The Series 1995 Preferred Stock was issued by the Company to such Selling
Shareholders on December 20 and 21, 1995. Each share of Series 1995 Preferred
Stock is immediately convertible into the number of shares of Common Stock as is
determined by dividing $100.00 by a conversion price of $3.125 per share,
subject to certain adjustments (the "Conversion Rate"). See "Selling
Shareholders." In the event that the quoted price (as reported by any principal
national exchange or NASDAQ or as determined by the board of directors, as
applicable) of the Common Stock exceeds $4.6875, subject to certain adjustments,
for a period of twenty (20) trading days beginning on any trading day on or
after December 15, 1998, the Company shall have the right to compel the
conversion of all but not less than all of the Series 1995 Preferred Stock into
Common Stock at the Conversion Rate.
The Company's Common Stock is traded over-the-counter and quoted by the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
under the symbol TESC. On April 30, 1996, the closing sale price for the
Company's Common Stock as quoted on NASDAQ, was $3.75 per share. The Series
1995 Preferred Stock is not listed or quoted on any exchange or automated
quotation system, and there is no regular trading market for such shares.
It is presently anticipated that sales of Securities by the Selling
Shareholders hereunder will be effected, from time to time, (i) through dealers
or in ordinary broker transactions on the NASDAQ Smallcap Market or the NASDAQ
National Market, or otherwise; (ii) "at the market" to or through market makers
or into an existing market for the Securities; (iii) in other ways not involving
market makers or established trading markets, including direct sales to
purchasers or sales effected through agents; (iv) through transactions in
options (whether exchange-listed or otherwise); or (v) in combinations of any
such methods of sale. The Securities held by the Selling Shareholders may also
be sold hereunder by brokers, dealers, banks or other persons or entities who
receive such Securities as a pledgee of the Selling Shareholders. The Selling
Shareholders and brokers and dealers through whom sales of Securities may be
effected may be deemed to be "underwriters," as defined under the Securities Act
of 1933 (the "Securities Act"), and any profits realized by them in connection
with the sale of the Securities may be considered to be underwriting
compensation.
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 5 HEREOF.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
Underwriting Discounts Proceeds to the Proceeds to the Selling
Price to the Public(1) and Commissions(2) Company(3) Shareholders(4)
---------------------- ---------------------- --------------- -----------------------
<S> <C> <C> <C> <C>
Per Share of Common Stock
Total $____________ $__________ N/A $__________
$____________ $__________ N/A $__________
Per Share of Preferred
Stock $____________ $__________ N/A $__________
Total $____________ $__________ N/A $__________
</TABLE>
(1) It is anticipated that the Securities registered for resale by the Selling
Shareholders hereunder will be sold in market or private transactions at
prevailing prices, from time to time.
(2) No underwriting discounts or commissions will be incurred by the Company in
connection with sales of Securities by the Selling Shareholders hereunder.
(3) The Company will not receive any proceeds from the sale of the Securities
by the Selling Shareholders.
(4) The Company will pay all expenses of the offering of the Securities to
which this Prospectus relates, other than commissions and discounts of
underwriters, brokers, dealers or agents agreed to be paid by the Selling
Shareholders in connection with sales of the Securities hereunder.
THE DATE OF THIS PROSPECTUS IS MAY 15, 1996.
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AVAILABLE INFORMATION
The Company is subject to the reporting and informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information can be inspected and copied at public reference
facilities of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Regional Offices of the SEC located at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and 7 World Trade Center, Suite 1300, New York, New
York 10048. Reports, proxy statements and other information concerning the
Company may be inspected at the offices of NASDAQ Operations, 1735 K Street,
N.W., Washington, D.C. 20006.
The Company has filed with the SEC a Registration Statement on Form S-2 (of
which this Prospectus is a part) under the Securities Act with respect to the
securities offered hereby. For further information with respect to the Company
and the securities offered by this Prospectus, reference is made to such
Registration Statement and the exhibits thereto. This Prospectus does not
contain all the information set forth in the Registration Statement on Form S-2
(the "Registration Statement") or the exhibits thereto. Statements contained in
this Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission for a full statement of the provisions
thereof. Each such statement contained herein is qualified in its entirety by
such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the SEC pursuant to the
Exchange Act are hereby incorporated by reference into this Prospectus:
(1) Annual Report on Form 10-KSB and Form 10-KSB/A for the fiscal
year ended March 31, 1995 (copies of which are attached hereto as
Annex 1);
(2) Quarterly Reports on Form 10-QSB and Form 10-QSB/A for the
quarterly period ended June 30, 1995 and Form 10-QSB for the
quarterly periods ended September 30, 1995 and December 31, 1995
(a copy of the latter is attached hereto as Annex 2);
(3) Current Reports on Form 8-K, Form 8-K/A and Form 8-K/A No. 2 for
an event dated March 27, 1995; Current Report on Form 8-K for an
event dated April 21, 1995; Current Reports on Form 8-K, Form 8-
K/A and Form 8-K/A No. 2 for an event dated July 3, 1995;
Current Reports on Form 8-K and 8-K/A for an event dated December
20, 1995; and Current Reports on Form 8-K and 8-K/A for an event
dated February 27, 1996;
(4) Form 10-C dated May 11, 1995 reporting an increase in the number
of shares of Common Stock resulting from the Company's May 1995
private placement of Common Stock;
(5) Form 10-C dated May 1, 1996 reporting an increase in the number
of shares of Common Stock resulting from the conversion of
certain interests, stock dividends on Series 1995 Preferred Stock
and the exercise of certain warrants.
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Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed to
constitute a part of this Prospectus, except as so modified or superseded.
The Company will provide without charge to each person who receives a
Prospectus, upon written or oral request of such person, a copy of any of the
information that is incorporated by reference in this Prospectus (not including
exhibits to the information that is incorporated by reference unless the
exhibits are themselves specifically incorporated by reference). Such a request
should be directed to Neil R. Austrian, Jr. at the principal executive offices
of the Company which are located at 327 Congress Avenue, Suite 200, Austin,
Texas 78701, or if by telephone, (512) 476-2995.
DESCRIPTION OF SECURITIES TO BE REGISTERED
Tescorp's Restated Articles of Incorporation filed July 11, 1990 and
amended effective December 18, 1995 and March 8, 1996 (the "Restated Articles")
authorize the issuance of 55,000,000 shares of capital stock divided into
50,000,000 shares of common stock, par value $.02 per share ("Common Stock"),
and 5,000,000 shares of preferred stock, par value $1.00 per share ("Preferred
Stock"), of which two series are outstanding: one designated Series 1990 10%
Convertible Preferred Stock (the "1990 Preferred Stock") consisting of 704,684
shares authorized and another designated Series 1995 8% Convertible Preferred
Stock (the "Series 1995 Preferred Stock") consisting of 200,000 shares
authorized. The descriptions of the Common Stock, the Preferred Stock and the
Series 1995 Preferred Stock herein are summaries only and are subject to the
provisions of the Restated Articles and the Statement of Resolution Establishing
and Designating the Series 1995 Preferred Stock filed as exhibits hereto.
Common Stock. The Common Stock entitles its holders to one vote per share
and will be entitled to dividends at such times and in such amounts as may be
legally declared by the Board of Directors. The Common Stock, the 1990
Preferred Stock and the Series 1995 Preferred Stock vote together as a single
class on all matters upon which the Common Stock may vote, except that the 1990
Preferred Stock votes as a separate class in certain circumstances described
below. The affirmative vote of the holders of a majority of the shares entitled
to vote on any matter and represented in person or by proxy at a meeting of
shareholders at which a quorum is present shall be the act of the shareholders,
except (a) directors shall be elected by a plurality of the votes cast by the
holders of shares entitled to vote in the election of directors at a meeting of
shareholders at which a quorum is present and (b) the amendment of the Company's
articles of incorporation, the sale of all or substantially all of the Company's
assets otherwise than in the usual and regular course of business, a merger and
a share exchange require the affirmative vote of the holders of at least two-
thirds of the outstanding shares within each class entitled to vote thereon.
The Common Stock will be subject and subordinate to the rights and preferences
of any series of Preferred Stock to the extent set forth in the resolution
establishing the series, and will not be convertible, redeemable or assessable.
The Restated Articles deny cumulative voting and preemptive rights to
shareholders. Subject to the rights of the holders of any series of Preferred
Stock, the holders of Common Stock will be entitled to share ratably in all net
assets available for distribution to shareholders upon liquidation of the
Company.
Preferred Stock. Tescorp's Board of Directors may, without further
shareholder authorization, issue shares of the Preferred Stock in one or more
series. Shares of each series shall be identical except for the relative rights
and preferences which may be varied between series as determined by the
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Board of Directors, including the following: (a) the number of shares in and the
designation of the series; (b) the dividend rate, the dividend payment dates,
whether the dividends are cumulative and the relative rights of priority of the
dividends; (c) the price payable upon redemption thereof and the terms and
conditions on which the shares may be redeemed; (d) the amount payable to the
holders thereof upon any voluntary or involuntary liquidation of Tescorp; (e)
the provisions of the sinking fund, if any, for the redemption or purchase
thereof; (f) the terms and conditions, if any, on which such shares may be
converted into other securities, property or indebtedness of Tescorp; (g) the
voting rights, if any, of the shares of the series, and (h) any other special
rights and qualifications, limitations or restrictions permitted by law to be
granted to or imposed on the series.
The Series 1995 Preferred Stock was established by the Board of Directors
and was issued pursuant to a private placement to accredited investors on
December 20 and 21, 1995. The dividend rate for each share of Series 1995
Preferred Stock is $8 per share per annum. Cash dividends at that rate are
payable in quarterly installments on each March 18, June 18, September 18 and
December 18. In addition, holders of Series 1995 Preferred Stock may elect to
have dividends paid in Common Stock, and not in cash. The number of shares of
Common Stock payable in lieu of cash dividends is established according to the
Market Value determined immediately prior to the dividend payment date.
The holders of Series 1995 Preferred Stock are entitled to vote on all
matters for which holders of the Common Stock may vote and are entitled to 32
votes per share of Series 1995 Preferred Stock held at the record date for the
determination of shareholders entitled to vote on such matters. Except as
otherwise provided below or as required by law, the holders of shares of the
Series 1995 Preferred Stock, the 1990 Preferred Stock and the Common Stock and
any other stock having voting rights vote as one class and shall not be
entitled to vote separately as a class on any matters. If the full amount of
cumulative dividends on the Series 1995 Preferred Stock has not been paid, or
declared and a sum sufficient for payment set apart, for three consecutive
quarterly dividend periods, the number of directors of the Company is to be
increased by one and the holders of the Series 1995 Preferred Stock have the
right, voting separately and as a single class, to vote for and elect such
additional director. If such occurrence continues for six consecutive quarterly
dividend periods, the number of directors is to be increased by one additional
director and the holders of the Series 1995 Preferred Stock have the exclusive
right to elect such additional director. In addition, so long as Series 1995
Preferred Stock is outstanding, the affirmative vote of two-thirds of the votes
cast in any meeting at which a quorum of the Series 1995 Preferred Stock is
present in person or by proxy is necessary to: (i) adopt an amendment to the
Articles of Incorporation if such amendment would: authorize, create or
increase the authorized amount of any class of stock which is entitled to
dividends or assets in priority to or on a parity with the Series 1995 Preferred
Stock, increase the authorized number of shares of Series 1995 Preferred Stock,
change any of the rights or preferences of the then outstanding Series 1995
Preferred Stock, or authorize the issuance of any Preferred Stock which would
grant the holders thereof materially superior voting rights in the event of a
failure to pay dividends or with respect to the election of directors or
materially superior anti-dilution adjustments; or (ii) issue any shares of any
other series of Preferred Stock that are entitled to dividends or assets in
priority to or on a parity with the Series 1995 Preferred Stock.
In the event of liquidation, the holders of 1990 Preferred Stock are
entitled to receive $5 per share, plus accrued and unpaid dividends thereon
before any amounts may be paid with respect to the Series 1995 Preferred Stock.
Upon such distribution to the 1990 Preferred Stock, the holders of the Series
1995 Preferred Stock are entitled to receive $100 per share plus all accrued and
unpaid dividends before any amounts may be paid to the holders of Common Stock.
The Series 1995
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Preferred Stock ranks junior to the 1990 Preferred Stock, and senior as to the
Common Stock, as to dividends.
RISK FACTORS
Prior to making an investment decision, prospective investors should
carefully consider, together with other matters discussed in the Prospectus,
each of the following factors regarding the Company.
FINANCIAL REPORTING - COMPARABILITY. Effective as of April 1994, the
Company entered into a contractual joint venture (the "Joint Venture") to
acquire cable television and communications operations in Latin America (the
"Latin American Operations"), and to date, the Latin American Operations consist
of the Argentine Cable Companies and Argentine Joint Venture Companies as
defined in the Company's periodic reports and Current Reports referenced in
"Incorporation of Certain Information by Reference" above. Prior to March 31,
1995, the Company reported its holdings in the Latin American Operations as
"Notes Receivable," and did not consolidate the financial results of those
operations because the requirements for consolidation, as set forth in FASB No.
94, had not been met. The Company began preparing its balance sheet on a
consolidated basis to include the Latin American Operations in its annual report
on Form 10-KSB for the fiscal year ended March 31, 1995, and consolidated the
statement of income for these operations in the periods beginning April 1, 1995.
This resulted in the elimination of the line item for Notes Receivable and
significantly different balance sheet presentation for the Company's Latin
American Operations beginning with the Form 10-KSB for the year ended March 31,
1995, and on subsequent periodic reports. Beginning April 1, 1995, the Company
began reporting revenue and expenses of the Latin American Operations, which are
earned and paid in Argentine pesos, in U.S. dollars for purposes of financial
presentation. The Company will continue to report its Latin American Operations
in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), but
has acquired, and expects to continue to acquire, communications properties
whose records have not been maintained according to those standards or according
to accounting standards typically seen at equivalent systems in the United
States. This lack of comparability complicates management's evaluations of
potential acquisitions as well as forecasts prepared for internal purposes for
systems that have been acquired. It also requires that management engage in the
labor intensive process of converting financial results to make comparisons of
post-acquisition performance with pre-acquisition performance. In addition, if
a material acquisition is contemplated for a property with inadequate financial
records, the Company may be required to forego the acquisition in order to
maintain compliance with SEC reporting requirements. However, it is not
contemplated that the implementation of GAAP will have a material adverse effect
on the operations of systems that have been or may be acquired.
NATURE OF INTERNATIONAL BUSINESS. The Company operates in Latin America
and its performance is largely tied to factors over which it has no control
including but not limited to the economic environment for foreign investment,
exchange rates (including devaluation), inflation and general economic and
regulatory conditions. Accordingly, there is a significant degree of risk that
a purchaser of the Securities will lose all or a substantial portion of his
investment if foreign investors are discriminated against or economic conditions
significantly worsen in the foreign markets.
COMPETITION. Cable television systems, such as the systems operated by the
Argentine Cable Companies, are subject to competition from several alternative
means of signal transmission including but not limited to Microwave Multi-Point
Distribution System ("MMDS"), ultra high frequency
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("UHF"), Microwave Master Antenna Television Systems ("MATV"), Satellite Master
Antenna Television Systems ("SMATV"), Direct Broadcast Satellite ("DBS"), Home
Satellite Television Systems ("HSTV"). Additionally, cable television systems
are also subject to competition from other cable television competitors, the
telephone companies and videocassettes.
In MMDS, satellite transmissions of television signals are received via
antenna at a central "head end" facility. The signal is transmitted via
microwave on a "line of sight" basis to an antenna situated on or near the
subscriber's home. The microwave signal is converted into a lower frequency and
transmitted via coaxial cable to the converter installed on the subscriber's
television. The signal is de-scrambled by the converter and transmitted to the
television. In Argentina, MMDS commonly competes with cable television. The
advantages of MMDS compared to cable television include the ability to transmit
programming on a line-of-sight basis to a large market area without the
necessity of building a cable infrastructure. The disadvantages of MMDS
compared to cable television include but are not limited to the cost of
equipment, potential reception problems caused by changing weather conditions,
and the need to maintain a "line of sight" between the subscriber and the "head
end" or "beam bender".
UHF systems operate in a manner similar to MMDS but at different
frequencies. As with MMDS, UHF commonly competes with cable television in
Argentina. The same advantages and disadvantages of MMDS apply to UHF.
In MATV, satellite transmissions of television signals are received via
antenna at a central "head end" facility. The signal is transmitted via
microwave or coaxial cable to a master antenna at the subscribers home
(typically, MATV is used to provide service to apartment complexes, condominium
complexes or townhouse clusters). The master antenna serves all the homes in
the complex or cluster. At the master antenna, the signal is converted into a
lower frequency and transmitted via coaxial cable to the subscriber's residence.
In Argentina, MATV is used in certain circumstances; however, it is not
generally considered to be a major competitor to cable television. In certain
circumstances, MATV operations obtain signal from cable television operators.
SMATV is similar to MATV. The major difference is that the television
signal is transmitted to the "master antenna" by satellite rather than by
microwave or coaxial cable. In Argentina, SMATV is used in certain
circumstances; however, it is not generally considered to be a major competitor
to cable television. In certain circumstances, SMATV operations obtain signal
from cable television operators.
In DBS, the television signal is transmitted to an antenna installed at the
subscribers residence or office. The signal is transmitted via coaxial cable to
a down converter which changes the frequency of the signal and then via coaxial
cable to a converter installed on the subscriber's television. The signal is
descrambled by the converter and transmitted to the television. DBS will
reportedly be made available throughout Latin America by at least three
competitive providers beginning in early 1996. The advantages of DBS include
the quality of signal and quantity of channel offerings. Management of the
Company believes that disadvantages of DBS, especially with regard to Argentina,
are: the high subscriber equipment costs; the lack of local programming offered
(e.g. local news weather and sports) which has been historically produced and
delivered by cable television operators; the relatively high penetration of
cable into Argentine households (approximately 45.0 percent); and the relatively
low penetration of telephones into households which will likely inhibit impulse
purchases of "pay per view" programming.
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HSTV is transmitted in a manner similar to that of DBS. HSTV is not a
major competitor due to the cost of the necessary equipment, the necessity to
subscribe to many scrambled channels distributed via satellite, and the
complexity and unreliability of the equipment.
In Argentina, competition among multiple cable television operators in a
given market is not uncommon. Competing against a well-established cable
television operator is sometimes economically difficult and can reduce market
share and pricing flexibility.
In the United States, regional telephone companies have announced plans to
begin offering cable television service through fiber optic trunk lines and
coaxial or copper drops or distribution networks. Such services have not yet
been offered in Argentina; however, it has been reported that an affiliate of an
Argentine telephone company has acquired a minority interest in a majority
Argentine cable television operator. At present, Argentine telephone companies
are prohibited from supplying video programming to subscribers. However, active
discussions are reportedly occurring in the executive and legislative branches
of the Argentine government with regard to a possible deregulation of the
telecommunications industry, including deregulation of providers of voice, data
and video services. Management of the Company believes that the Argentine
telecommunications industry may be deregulated by the year 2000, and that such
deregulation could lead to direct competition among telephone companies and
cable television companies with regard to the supply of voice, data and video
signals. Such competition, if it materializes, could adversely affect the
business of the Company, but may also create new opportunities.
Videocassettes obtained through purchase or rental are an entertainment
alternative to cable television. While users must incur the cost of acquiring a
videocassette player, the price of such players has declined significantly in
recent years. Management of the Company believes that videocassettes are not
significant competitive threats to cable television. To the contrary,
management of the Company believes that high videocassette player penetration in
certain markets is indicative of a potentially strong cable television market.
ENFORCEABILITY OF LEGAL STRUCTURE. Because of the regulatory environment
in Argentina, the Company entered into the Joint Venture with two Argentine
citizens (collectively, the "Joint Venture Partners") for the purpose of
acquiring indirect economic interests in Argentine cable television systems.
Austral Communications Corp. ("Austral"), a wholly-owned subsidiary of the
Company, loaned to the Joint Venture Partners the funds necessary to acquire the
cable systems, and the Company obtained an indirect 84.0 percent economic
interest in the Argentine Cable Companies acquired through the Joint Venture.
The Company has converted this indirect joint venture interest to an indirect
96.0 percent joint venture interest in the cable television systems while
preserving the Joint Venture structure by exchanging 534,616 shares of Common
Stock in return for the 12.0 percent Joint Venture and profits interests
transferred to the Company by its Joint Venture Partners and certain of its
consultants. In conjunction with this exchange, the Joint Venture Partners are
required to transfer legal title in the Argentine Cable Companies to a 97.0
percent owned subsidiary of the Company which is the new Managing Venturer. See
"--Conversion of Certain Interests."
In Argentina, joint ventures are not recognized as distinct legal entities,
and accordingly, the Joint Venture was organized in accordance with the laws of
the United States. In the event that the Company had a dispute with the Joint
Venture Partners, a possibility exists that the Company would be required to
seek legal remedies in U.S. courts. The principal assets pertaining to the
Joint Venture are located in Argentina, and the Company would be required to
seek enforcement of judgments awarded in the United States through the Argentine
legal system. Such process would likely be expensive and time consuming, and no
assurance can be given that the Company would be able to enforce such
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judgments in an economical or timely manner, if at all. However, this risk
should diminish because the Company converted its ownership interest as
described above and the Joint Venture Partners are in the process of
transferring legal title to the Argentine Cable Companies and the Argentine
Joint Venture Companies to a subsidiary of the Company. See "Conversion of
Certain Interests" below.
RELIANCE ON KEY MANAGEMENT PERSONNEL. The operations and financial
performance of the Company are highly dependent upon the continued involvement
of Jack R. Crosby, the Chairman and Chief Executive Officer of the Company, Jack
S. Gray, Jr., the President and Chief Operating Officer of the Company and the
Joint Venture Partners. The Company does not have employment agreements with
Messrs. Gray or Crosby, however, there are certain continuing obligations
imposed upon the Joint Venture Partners by virtue of the Joint Venture
Agreement. The death, departure or incapacity of any of those persons could
have a material, adverse impact on the operations and financial performance of
the Company, and there is no assurance that the Company could replace any or all
of those executive officers or partners with persons having comparable
management and operating skills. In addition, while Jack R. Crosby has
extensive experience in the cable industry, none of the executive officers of
the Company has extensive business experience in Argentina or Latin America. It
was primarily for this reason that the Company entered into the Joint Venture
with the Joint Venture Partners. If that relationship were terminated, there
can be no assurance that the Company would be able to find qualified local Joint
Venture Partners to monitor the operations.
PREFERRED STOCK DIVIDENDS, LIQUIDATION PREFERENCES AND CONVERSION FEATURES.
There are currently 693,864 shares of Series 10% 1990 Convertible Preferred
Stock ("1990 Preferred Stock") outstanding. The 1990 Preferred Stock calls for
the payment of annual dividends of $.50 per share, payable on a quarterly basis.
In addition, in the event of liquidation, the holders of 1990 Preferred Stock
are entitled to receive $5.00 plus accrued and unpaid dividends before the
holders of Common Stock and Series 1995 Preferred Stock are entitled to receive
any of the liquidation proceeds. Moreover, each share of 1990 Preferred Stock
is currently convertible into approximately 1.25 shares of Common Stock.
The Series 1995 Preferred Stock carries annual dividends of $8.00 per share
payable on a quarterly basis, except that holders who have so elected may have
such dividends paid in shares of Common Stock. In the event of liquidation, the
holders of Series 1995 Preferred Stock are entitled to receive $100.00 plus
accrued and unpaid dividends before the holders of Common Stock are entitled to
receive any of the liquidation proceeds. Each share of Series 1995 Preferred
Stock is convertible into 32 shares of Common Stock, subject to certain
adjustments. In addition, the Company may incur significant levels of financial
debt, trade debt and other obligations that will have priority over all classes
of the Company's stock. Because of such priorities, in the event of the
Company's insolvency, liquidation, reorganization, dissolution or other winding
up, creditors and holders of the 1990 Preferred Stock must be satisfied in full
before any distributions will be made with respect to the Series 1995 Preferred
Stock, and holders of both the 1990 Preferred Stock and the Series 1995
Preferred Stock must be satisfied in full before any distributions will be made
with respect to the Common Stock. Consequently, in light of the fact that the
1990 Preferred Stock is entitled to receive preferential dividends and,
effectively, the option of receiving preferential treatment on liquidation or
converting into Common Stock if it appears that the Common Stock will recover
more than the 1990 Preferred Stock in the event of liquidation, there is a risk
that the 1990 Preferred Stock would recover disproportionately higher returns
than the Common Stock and the Series 1995 Preferred Shares, particularly if the
proceeds of a liquidation were not significantly greater than the aggregate
liquidation preference for the 1990 Preferred Stock. The same is true with
respect to the Series 1995 Preferred Stock liquidation preference over Common
Stock, particularly if the proceeds of a liquidation were not
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significantly greater than the aggregate liquidation preference for the 1990
Preferred Stock and Series 1995 Preferred Stock.
RELIANCE ON SUPPLIERS. The Company is dependent in several respects on the
Joint Venture's suppliers for television content, equipment and parts. While
the Company believes that the Joint Venture has good relationships with all of
its major suppliers, there can be no assurance that the Joint Venture will be
able to maintain these relationships.
SECURITIES MARKET FACTORS. There have been periods of volatility in the
market for the Company's securities, which in many cases were unrelated to the
operating performance of or announcements concerning the Company. During such
periods, the market prices of the Company's securities have fluctuated
substantially (within the twelve months ending April 30, 1996, the market price
of the Common Stock has ranged from $4.375 to $2.25). General market price
declines or market volatility in the future could adversely affect the price of
the Securities. The lack of a significant public float may also limit the
ability of stockholders to liquidate their investment in a timely fashion. At
April 30, 1996, the aggregate number of shares of Common Stock and the market
value of Common Stock held by non-affiliates was 9,204,903 shares and
$34,518,386, respectively. There can be no assurance that the Common Stock will
not continue to be subject to periods of extreme volatility. The Series 1995
Preferred Stock will not be listed on any exchange or quoted on any automated
quotation system. In addition, it is held by a relatively small number of
shareholders. Accordingly, it is not likely that any significant trading market
will develop for the Series 1995 Preferred Shares.
SHARES OF COMMON STOCK ELIGIBLE FOR SALE. The Company has in the past
registered for offer and sale under the Securities Act certain of the issued and
outstanding shares of Common Stock and certain of the shares of Common Stock
issuable upon the exercise or conversion, as applicable, of outstanding options,
warrants and convertible securities held by the Company's shareholders,
including certain officers, directors, employees and "affiliates" of the Company
(as such term is defined pursuant to the Exchange Act). The sale of such shares
would have been subject to substantial limitations in the absence of such
registration. A substantial number of such shares may still be held by the
registered holders thereof and available for resale under currently effective
registration statements. In addition, certain shareholders of the Company, in
addition to the Selling Shareholders, hold the right (subject to certain
conditions) to require that the Company register for offer and sale issued and
outstanding shares of Common Stock. Sales of substantial amounts of such
shares, and sales of shares pursuant to this registration, could adversely
affect the market value of the Common Stock and the Series 1995 Preferred Stock.
FOREIGN GOVERNMENTAL ACTIONS. Governmental entities with jurisdiction over
the cable systems acquired may impose regulations relating to the ownership,
pricing and availability of cable services which would significantly impact the
Latin American cable television industry. Because the governments of most Latin
American countries are not considered to be as stable as the government of the
United States, any investment in those countries necessarily involves greater
risk than similar investments in the United States or other, more politically
and economically stable countries. While the Company considers that such risks
may create many opportunities, there can be no assurance in this regard.
LIMITATIONS ON REMEDIES AND INDEMNIFICATION. The Company's Amended and
Restated Articles of Incorporation provide that a director shall not be
personally liable to the Company or its shareholders for any monetary damages
for any act or omission in his capacity as a director, except to the extent
otherwise expressly provided by the laws of the State of Texas. In addition,
the Company's
9
<PAGE>
Bylaws provide that officers and directors are liable to the Company only for
acts or omissions that constitute actual fraud, or willful or intentional
misconduct. Therefore, the Company may be unable to recover damages for certain
alleged errors or omissions by officers and directors. The Bylaws also provide
that the Company will indemnify its officers and directors, in their capacities
as such, for liabilities incurred in connection with their good faith acts if
they reasonably believe their conduct is in the Company's best interests. In
instances in which officers and directors are not acting in their official
capacities, the Bylaws provide for indemnification if such persons reasonably
believe their conduct is not opposed to the Company's best interests. The Bylaws
provide for indemnification in criminal proceedings if officers and directors
have no reasonable cause to believe their conduct is unlawful.
DILUTION. There were 12,595,091 shares of Common Stock outstanding as of
april 25, 1996. Accordingly, the 4,752,000 shares of Common Stock issuable upon
conversion of the 148,500 Shares of Series 1995 Preferred Stock, together with
the 534,616 shares of Common Stock issued upon conversion of minority Joint
Venture interests (see "Conversion of Certain Interests" below) and 466,200
shares of Common Stock issuable upon the exercise of the Stock Purchase
Warrants, would constitute 32.3 percent of all issued and outstanding shares of
Common Stock. Warrants for the purchase of 792,550 shares of Common Stock
(including the Stock Purchase Warrants) and options for the purchase of 358,334
of such shares are currently exercisable and in-the-money. If all exercisable,
in-the-money warrants and options were exercised and all 1990 Preferred Stock
and Series 1995 Preferred Stock were converted, the number of shares of Common
Stock outstanding would increase to 19,367,479, reducing the percentage of
shares of Common Stock represented by this offering to 30.9 percent. If all
warrants and options were exercised, the 1990 Preferred Stock and the Series
1995 Preferred Stock were converted, the number of shares of Common Stock
outstanding would increase to 20,95 8,180, reducing the percentage of shares of
Common Stock represented by this offering to 28.6 percent. In addition, the
book value of the Common Stock, after giving effect to the liquidation
preference of the 1990 Preferred Stock, is substantially below the current
trading price of the Common Stock.
CONVERSION OF CERTAIN INTERESTS. Management believes that the Company is
now legally permitted to hold direct interests in the Argentine Cable Companies
and Argentine Joint Venture Companies as a result of two recent developments:
first, the October 1994 ratification of a Bi-Lateral Trade Agreement by and
between the United States of America and the Republic of Argentina (the "Trade
Treaty"); and second, the March 1995 promulgation by the Argentine government of
definitive rules and regulations pertaining to the ownership of cable television
properties. See "--Regulation." Accordingly, the Company is converting its
96.0 percent indirect economic interest in the Argentine Cable Companies and
Argentine Joint Venture Companies into 96.0 percent direct equity interests,
while preserving the Joint Venture. To effect this conversion, the Company
acquired approximately 75.0 percent of the 16.0 percent joint venture and
profits interests held by the Joint Venture Partners and certain other parties
in the Argentine Cable Companies and Argentine Joint Venture Companies. The
Company paid as consideration for this acquisition 534,616 shares of its newly
issued Common Stock (the "Conversion Shares") and 3.0 percent of the stock of
the Company's subsidiary which will hold legal title in the Argentine Cable
Companies and Argentine Joint Venture Companies on behalf of the Joint Venture.
One of the Company's Latin American cable television consultants will retain a
1.0 percent profits interest in the Joint Venture. The conversion to a direct
equity interest will be completed when the Argentine legal requirements
governing such conversion, including the transfer of COMFER licenses, have been
fulfilled, and approved by Argentine regulatory authorities. However, no
assurance can be given that such approvals shall be forthcoming.
10
<PAGE>
The issuance of the Conversion Shares resulted in dilution of the potential
Common Stock ownership of then-existing shareholders; however, it increased the
Company's percentage ownership of the Argentine Cable Companies and Argentine
Joint Venture Companies.
ABSENCE OF DIVIDENDS ON COMMON STOCK. The Company has not historically
declared or paid dividends on its Common Stock and has no plans to do so in the
foreseeable future. In addition, the Company's Articles of Incorporation
preclude the declaration or payment of dividends on the Common Stock unless 1990
Preferred Stock dividends and Series 1995 Preferred Stock dividends have been
declared and paid in full or declared and a sum sufficient to pay such declared
dividends set aside.
REGULATION. The Comite Nacional de Radiodifusion ("COMFER"), an Argentine
governmental agency which is similar to the Federal Communications Commission in
the United States, licenses and regulates cable television operations in
Argentina. Prior to October 20, 1994, Argentine law was unclear as to whether
persons or entities other than Argentine citizens could legally hold licenses to
operate cable television systems, and management was advised that COMFER would
likely reject applications to operate such systems submitted by non-Argentine
citizens.
Effective October 20, 1994, the United States and Argentina ratified the
Trade Treaty which provided, among other things, for the ownership of Argentine
cable television systems by companies domiciled in the United States. Effective
March 27, 1995 COMFER promulgated regulations relating to the licensure and
approval of companies domiciled in the United States to own and operate
Argentine cable television systems, and a representative of COMFER has indicated
to the Company management that COMFER no longer will distinguish between
Argentine and U.S. applicants in the licensure process.
Based on advice it has received, management is of the opinion that U.S.
companies will be licensed to own and operate Argentine cable television
systems. To date and to the best knowledge of the management of the Company,
COMFER has formally approved or licensed only two U.S. companies; however, the
Company has no assurance that COMFER will approve its licensure. Management is
currently seeking licensure of the Company or its subsidiaries with the
assistance of the Joint Venture Partners and local counsel. A decision by
COMFER to deny the licensure of the Company or its affiliated entities to own
and operate cable television systems in Argentina could have a material adverse
impact on the operations and value of the Company.
ARGENTINE ECONOMY. Recent events in Mexico have had an unsettling effect
on Latin American financial markets, including Argentina's, which in turn has
had an unsettling effect on domestic businesses in those countries. The
liquidity of Argentine banks has deteriorated as a result of the withdrawal of
significant deposits; many holders of Argentine pesos have converted them into
U.S. dollars and withdrawn them from the Argentine banking system; Argentine
foreign reserves have declined; and the Argentine central bank has significantly
increased interest rates in an effort to support the Argentine peso and
discourage the outflow of funds from the country. The events in Mexico coupled
with the domestic response in Argentina resulted in the Argentine economy, as
measured by real Gross Domestic Product, contracting by an estimated 3.9 percent
in calendar year 1995. During that same period, unemployment rose to a historic
high of approximately 20 percent.
The Argentine government responded to the economic problems triggered by
events in Mexico by increasing the value added tax to 21.0 percent from 18.0
percent, reducing government spending, and exerting pressure on provincial
governments to increase fiscal responsibility. As a result of these actions and
the subsequent restoration of confidence, as of the end of 1995: the Argentine
banking
11
<PAGE>
system has reportedly recouped most of the deposit withdrawals (although
deposits are now concentrated in a significantly smaller number of banks);
Argentine foreign reserves have stabilized; and the unemployment rate was
recently reported to have declined to approximately 16.4 percent.
It is possible that the Argentine government will be unable to maintain
control over inflation and sustain the current peso to U.S. dollar conversion
ratio. Economic contraction and sustained high unemployment could diminish the
ability of subscribers to pay for service, resulting in an increase in bad debts
and reductions in the number of subscribers. In addition, a prolonged or severe
deterioration of the economy may result in a devaluation of the peso and a
return to the hyperinflation experienced in Argentina prior to 1992. While the
Argentine Cable Companies would attempt to increase their subscription rates to
offset increases in operating costs, there is no assurance they would be able to
do so. Accordingly, operating costs could rise faster than associated revenue,
resulting in a material negative impact on reported earnings. Any cash and
current receivables maintained in Argentine pesos could decline in value before
such amounts are converted to hard assets or U.S. dollars. In addition, the
government could impose price freezes, prohibit the transfer of funds outside
the country and adopt other measures which alone, or together with those
previously mentioned could have a material adverse impact on the Company.
While management will monitor the exchange rates and take appropriate
measures in response to perceived risks, the Company has no plan to implement a
policy of hedge transactions to reduce the Company's exposure to foreign
currency exchange rate risks. Accordingly, the Company could experience losses
and a negative impact on earnings with respect to its holdings solely as a
result of devaluation against the dollar.
Argentina and the other Latin American countries targeted by the Company
for cable system acquisition do not restrict the removal or conversion of local
or foreign currency. However, there can be no assurance that such policies will
not be adopted in the future in reaction to a sustained deterioration of their
financial markets.
LOCAL ORDINANCE. Through the Joint Venture, the Company owns a 96.0
percent economic interest in Televisora Austral S.A. ("Televisora"), an
Argentine Sociedad de Anonima that owns and operates the cable television system
in Ushuaia, Tierra del Fuego Province, Argentina. The Secretary General of the
Government of Tierra del Fuego issued an ordinance (the "Ordinance") for the
purpose of regulating the operation of businesses, including but not limited to
cable television companies, using radio frequencies in the Province of Tierra
del Fuego. Among other things, the Ordinance prohibits the granting of cable
television licenses to persons who have not been legal residents of the Province
of Tierra del Fuego for two or more years.
The Ordinance was promulgated by the Province of Tierra del Fuego. The
Company's management has been advised that the Argentine federal government has
exclusive jurisdiction over all matters pertaining to the use of radio
frequencies, and the Ordinance is in direct contravention to the Treaty, the
Argentine Constitution and Argentine federal laws which supersede Provincial
laws and ordinances. The Company's management has also been advised that at
least one other Argentine Province has previously passed laws and/or ordinances
seeking to extend Provincial jurisdiction over radio frequency regulation;
however, Argentine courts struck down such laws and ordinances. The Company's
management believes the Ordinance ultimately will be repealed or determined to
be invalid, and federal regulation will prevail. Successful enforcement of the
Ordinance by the Province of Tierra del Fuego would likely have a material
adverse economic impact on the Company's economic interests in Tierra del Fuego.
12
<PAGE>
RECENT DEVELOPMENTS
In December, 1995, the Company exercised an option to acquire an indirect
84.0 percent economic interest in the outstanding equity of SIR TV, S.R.L. ("SIR
TV"), the company that provides cable television service to the communities of
Trelew, Rawson and Puerto Madryn, which are all located in the Chubut Province,
Argentina. The Company has committed to loan $6.7 million to its joint venture
partners to acquire the outstanding equity of SIR TV. The Joint Venture
acquired SIR TV for approximately $6.5 million including the assumption of
certain liabilities, of which approximately $4.7 million has been identified as
franchise costs (and will be amortized over a 20-year period). In addition to
the $6.5 million purchase price, the joint venture has paid approximately
$155,000 of closing costs. This acquisition was accounted for using the
purchase method of accounting and the sellers were not affiliated with the
Company. Accordingly, the assets and liabilities of SIR TV have been recorded
at their estimated fair market value at the date of acquisition.
The Company agreed to transfer to Televisora, one of the Argentine Joint
Venture Companies, an option (the "TV Nieve Option") to purchase for
approximately $174,000 a minority interest in the equity of TV Nieve S.A. ("TV
Nieve") which provides MMDS television service in the city of Ushuaia,
Argentina. On April 1, 1996, Televisora purchased the remaining majority
interest in the equity of TV Nieve for approximately $1.2 million less the
outstanding balance of TV Nieve liabilities pursuant to an agreement (the
"Purchase Agreement"). Concurrent with the execution of the Purchase Agreement
on February 27, 1996, Televisora made a down payment to the sellers in the
amount of $450,000 which was advanced to Televisora by the Company. On April 1,
1996, the Company advanced to Televisora the balance of the purchase price.
Accordingly, Televisora now owns or effectively controls all of the outstanding
equity of TV Nieve.
The aggregate purchase price for TV Nieve is approximately $1.3 million
including the price paid for the TV Nieve Option and the down payment paid
concurrent with the execution of the Purchase Agreement, which was applied
against the purchase price. In addition to the purchase price, the Company
anticipates that Televisora will incur $50,000 to $100,000 of closing costs
relating primarily to the payment of legal and accounting fees and the funds
needed to pay such fees will likely be advanced to Televisora by the Company.
The price of the TV Nieve Option and the aggregate TV Nieve purchase price
was determined through arms length negotiations and was based upon an analysis
of fair market value considering prices being paid in similar markets for
similar systems as well as the historical performance of the systems under
current management and potential performance under new management. Management
of the Company believes that the historical financial performance of TV Nieve is
not necessarily indicative of future financial performance because most of the
operations will be consolidated with, and become a part of, Televisora. It is
contemplated that TV Nieve's employees will be terminated and most of TV Nieve's
subscribers will be converted to Televisora's cable system.
As described above under "Risk Factors--Conversion of Certain Interests,"
in February 1996, the Company began the process of converting its Joint Venture
interests to direct ownership by issuing to the Joint Venture Partners and two
other individuals Common Stock of the Company and an aggregate 3.0 percent
interest in the subsidiary which would own legal title to the systems directly
as a new member of the Joint Venture.
13
<PAGE>
SELLING SHAREHOLDERS
The Selling Shareholders are listed below. Included below concerning each
Selling Shareholder is the total amount and percentage of the Company's Common
Stock beneficially owned by such person, the amount subject to sale hereunder
and the resulting amount and percentage if all Shares offered hereby which are
owned by such person or entity are sold. Except as described herein, none of
the Selling Shareholders has held any position or office, or had any other
material relationship with the Company during the past three years. The
following table reflects ownership of Series 1995 Preferred Stock assuming none
of such shares are converted to Common Stock.
<TABLE>
<CAPTION>
==================================================================================================================================
SHARES OF SERIES 1995
SHARES BENEFICIALLY OWNED PREFERRED STOCK TO BE SOLD SHARES OF SERIES 1995 PREFERRED STOCK
NAME PRIOR TO THE OFFERING IN OFFERING BENEFICIALLY OWNED AFTER OFFERING
==================================================================================================================================
# # # %
==================================================================================================================================
<S> <C> <C> <C> <C>
Argentina Equity Investments Partnership 30,000 30,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Banque Nationale de Paris 20,000 20,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
SC Fundamental Value Fund L.P. (1) 13,000 13,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
First Eagle Fund N.V. (2) 10,000 10,000 0
- ----------------------------------------------------------------------------------------------------------------------------------
Clarex Limited 10,000 10,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
The South America Fund N.V. 10,000 10,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
SC Fundamental Value BVI Fund, LTD 7,000 7,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
George Weiss (2) 5,000 5,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
A.I.M. Overseas Ltd. 5,000 5,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Arnhold and S. Bleichroeder 4,000 4,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Amadeus Offshore Fund 3,350 3,350 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Chicago Trust Talon Fund 3,000 3,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Senvest International LLC 2,500 2,500 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
The Kolber Trust 2,500 2,500 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
SNR Group N.V. 2,000 2,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Keith S. Wellin 2,000 2,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Equipont Partners LP 2,000 2,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Samuel A. Plum 1,600 1,600 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
The Diamond Family Foundation 1,500 1,500 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Gary Fuhrman 1,350 1,350 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Winston J. Churchill(3) 1,250 1,250 0 0
==================================================================================================================================
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================================
SHARES OF SERIES 1995
SHARES BENEFICIALLY OWNED PREFERRED STOCK TO BE SOLD SHARES OF SERIES 1995 PREFERRED STOCK
NAME PRIOR TO THE OFFERING IN OFFERING BENEFICIALLY OWNED AFTER OFFERING
==================================================================================================================================
# # # %
==================================================================================================================================
<S> <C> <C> <C> <C>
Dan Tocatly 1,000 1,000 0 0
- -----------------------------------------------------------------------------------------------------------------------------
Victor Elmaleh 1,000 1,000 0 0
- -----------------------------------------------------------------------------------------------------------------------------
Bob Birch (2) 1,000 1,000 0 0
- -----------------------------------------------------------------------------------------------------------------------------
The Intergroup Corporation 1,000 1,000 0 0
- -----------------------------------------------------------------------------------------------------------------------------
Lawrence E. Golub 1,000 1,000 0 0
- -----------------------------------------------------------------------------------------------------------------------------
Diversified Strategies Fund, L.P. 1,000 1,000 0 0
- -----------------------------------------------------------------------------------------------------------------------------
Amadeus Fund, L.P. 650 650 0 0
- -----------------------------------------------------------------------------------------------------------------------------
Larja Company 500 500 0 0
- -----------------------------------------------------------------------------------------------------------------------------
Arnhold Foundation 500 500 0 0
- -----------------------------------------------------------------------------------------------------------------------------
Patricia Capone 500 500 0 0
- -----------------------------------------------------------------------------------------------------------------------------
Jamie Coulter (2) 500 500 0 0
- -----------------------------------------------------------------------------------------------------------------------------
Hardy Bowen 500 500 0 0
- -----------------------------------------------------------------------------------------------------------------------------
Jacob Michonik 500 500 0 0
- -----------------------------------------------------------------------------------------------------------------------------
Leonard M. Klehr 500 500 0 0
- -----------------------------------------------------------------------------------------------------------------------------
Arthur Seeligson III 300 300 0 0
- -----------------------------------------------------------------------------------------------------------------------------
The Edgehill Company, LLC 250 250 0 0
- -----------------------------------------------------------------------------------------------------------------------------
Randa Bishop (2) 250 250 0 0
- -----------------------------------------------------------------------------------------------------------------------------
William D. Birch 250 250 0 0
- -----------------------------------------------------------------------------------------------------------------------------
Rick Kaminer 250 250 0 0
- -----------------------------------------------------------------------------------------------------------------------------
Total 148,500 148,500 0 0
=============================================================================================================================
</TABLE>
(1) See Footnotes after next table
15
<PAGE>
The following table reflects the assumption that all shares of Series 1995
Preferred Stock would be converted to Common Stock at the rate of 32 shares of
Common Stock per share of Series 1995 Preferred Stock.
<TABLE>
<CAPTION>
=================================================================================================================================
SHARES(4) BENEFICIALLY SHARES OF COMMON STOCK SHARES OF COMMON STOCK BENEFICIALLY OWNED
NAME OWNED PRIOR TO THE OFFERING TO BE SOLD IN OFFERING AFTER OFFERING
==================================================================================================================================
# # # %
==================================================================================================================================
<S> <C> <C> <C> <C>
Argentina Equity
Investments Partnership 1,855,000 960,000 895,000 6.7
- ----------------------------------------------------------------------------------------------------------------------------------
Winston J. Churchill(3) 1,241,711 40,000 1,201,711 9.6
- ----------------------------------------------------------------------------------------------------------------------------------
Banque Nationale de Paris
(Switzerland), Ltd. 647,163 640,000 7,163 *
- ----------------------------------------------------------------------------------------------------------------------------------
Arnhold and S.
Bleichroeder, Inc. (5) 577,400 577,400 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
SC Fundamental Value Fund
L.P.(1) 462,470 416,000 46,470 *
- ----------------------------------------------------------------------------------------------------------------------------------
A.I.M. Overseas N.V. 351,790 160,000 191,790 1.5
- ----------------------------------------------------------------------------------------------------------------------------------
Clarex Limited 320,000 320,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
First Eagle Fund N.V. (2) 320,000 320,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
The South America Fund N.V. 320,000 320,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
SC Fundamental Value BVI
Fund, LTD 277,530 224,000 53,530 *
- ----------------------------------------------------------------------------------------------------------------------------------
Media Financing Corp. Inc. 233,910 233,910 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Carlos Jose Saba 188,462 188,462 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Osvaldo Rossi 188,462 188,462 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
George Weiss (2) 160,000 160,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Jerry Caddy 107,692 107,692 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Amadeus Offshore Fund 107,200 107,200 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Gary Fuhrman 103,200 43,200 60,000 *
- ----------------------------------------------------------------------------------------------------------------------------------
Chicago Trust Talon Fund 97,534 96,000 1,534 *
- ----------------------------------------------------------------------------------------------------------------------------------
Senvest International LLC 80,000 80,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
The Kolber Trust 80,000 80,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Keith S. Wellin 65,023 64,000 1,023 *
- ----------------------------------------------------------------------------------------------------------------------------------
Equipont Partners LP 64,000 64,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
SNR Group N.V. 64,000 64,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Arthur Seeligson III 59,600 9,600 50,000 *
- ----------------------------------------------------------------------------------------------------------------------------------
Samuel A. Plum 51,200 51,200 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Brian Owens 50,000 50,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
The Diamond Family
Foundation 48,767 48,000 767 *
- ----------------------------------------------------------------------------------------------------------------------------------
Bob Birch (2) 32,000 32,000 0 0
==================================================================================================================================
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================================
SHARES(4) BENEFICIALLY SHARES OF COMMON STOCK SHARES OF COMMON STOCK BENEFICIALLY OWNED
NAME OWNED PRIOR TO THE OFFERING TO BE SOLD IN OFFERING AFTER OFFERING
==================================================================================================================================
# # # %
==================================================================================================================================
<S> <C> <C> <C> <C>
Dan Tocatly 32,000 32,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Diversified Strategies
Fund, L.P. 32,000 32,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Lawrence E. Golub 32,000 32,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
The Intergroup Corporation 32,000 32,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Victor Elmaleh 32,000 32,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Leonard M. Klehr 28,500 16,000 12,500 *
- ----------------------------------------------------------------------------------------------------------------------------------
Larja Company 26,000 16,000 10,000 *
- ----------------------------------------------------------------------------------------------------------------------------------
Amadeus Fund, L.P. 20,800 20,800 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Arnhold Foundation 16,000 16,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Hardy Bowen 16,000 16,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Jacob Michonik 16,000 16,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Jamie Coulter (2) 16,000 16,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Patricia Capone 16,000 16,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
William D. Birch 8,126 8,000 126 *
- ----------------------------------------------------------------------------------------------------------------------------------
Randa Bishop (2) 8,000 8,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Rick Kaminer 8,000 8,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
The Edgehill Company, LLC 8,000 8,000 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Helene Klausner (6) 4,800 4,800 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
William Bourne (6) 4,800 4,800 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Kristina McCormack (6) 4,800 4,800 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Irwin Shubert (6) 2,112 2,112 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Samuel Fitting (6) 288 288 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Total 8,518,340 5,986,726 2,531,614 20.1
==================================================================================================================================
</TABLE>
* Less than one percent.
(1) On May 16, 1995, SC Fundamental Value Fund, L.P. filed a Schedule 13D to
reflect their acquisition of the shares indicated in the private placement
completed in May, 1995. The Fund indicated they had acquired for
investment purposes only and without an intent to control the Company.
(2) Such shares are held by Arnhold and S. Bleichroeder, Inc. on behalf of such
Selling Shareholder in a discretionary account. See Footnote (5).
17
<PAGE>
(3) Mr. Churchill is a director of the Company. On July 10, 1995, Mr.
Churchill filed Amendment No. 1 to Schedule 13D filed on behalf of himself,
Frederick M. Danziger, John Fletcher, W&M Management Company, Inc. and K-G,
L.P. to reflect the shares acquired in the Company's private placement
completed in May, 1995, which shares were registered in a previous
registration. Together with the group, Mr. Churchill reported voting and
dispositive power over 1,201,072 shares.
(4) The conversion rate of the shares is one share of Series 1995 Preferred
Stock to 32 shares of Common Stock. However, such conversion rate is
subject to adjustment.
(5) 449,400 of these shares consist of Common Stock issuable upon the exercise
of outstanding warrants. Arnhold and S. Bleichroeder, Inc. has
discretionary accounts for First Eagle Fund N.V., George Weiss, Bob Birch,
Jamie Coulter and Rhonda Bishop containing the shares listed separately for
those Selling Shareholders in these tables. In addition, it has a
discretionary account for DEF Associates, N.V. containing 192,500 shares of
Common Stock. Arnhold and S. Bleichroeder disclaims beneficial ownership
of all such shares.
(6) Represents shares issuable upon the exercise of outstanding warrants.
EXPERTS AND COUNSEL
The consolidated financial statements of the Company as of March 31, 1995
and for each of the years ended March 31, 1995 and 1994 have been incorporated
by reference herein and in the registration statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing. The financial statements of the Argentine Cable
Companies as of their respective fiscal year ends and for each of the fiscal
years then ended have been incorporated by reference herein and in the
registration statement in reliance upon the reports of KPMG Finsterbusch
Pickenhayn Sibille, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
The validity of the securities offered hereby have been passed on for the
Company by Jenkens & Gilchrist, A Professional Corporation, Austin, Texas.
18
<PAGE>
ANNEX 1
As filed with the Securities and Exchange Commission on June 29, 1995.
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended March 31, 1995
OR
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 0-18663
TESCORP, INC.
(Name of small business issuer in its charter)
Texas 74-2129403
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
327 Congress Avenue, Suite 200 78701
Austin, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number: (512) 476-2995
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $0.02 per share
(Title of class)
Series 1990 10% Convertible Preferred Stock
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES [X] NO [_]
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Issuer's revenues for the fiscal year ended March 31, 1995: $-0-
At June 19, 1995 the aggregate market value of Common Stock, $0.02 par value
of the Registrant held by non-affiliates was $27,107,884.
At June 19, 1995, the aggregate market value of Series 1990 Convertible
Preferred Stock, $1.00 par value, held by non-affiliates was $3,327,256.
At June 19, 1995, the registrant had 11,947,433 outstanding shares of Common
Stock, $0.02 par value.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
The Company
General. Tescorp, Inc. (referred to herein collectively with its subsidiaries
as "Tescorp" or the "Company"), is a Texas corporation that was organized in
1980. The Company is engaged in the business of acquiring and developing cable
television systems and communications properties in Latin America.
During the fiscal year ended March 31, 1995, the Company concentrated its
operations in Argentina. Effective as of April 1994, the Company entered into a
contractual joint venture (the "Joint Venture") to acquire cable television and
communications properties in Latin America. To facilitate the Company's
participation in the Joint Venture, two new subsidiaries were formed: Austral
Communications Corp. ("Austral"), a Texas corporation which is wholly owned by
the Company, and Communicaciones Austral, S.A. ("CASA"), an Argentine Sociedad
Anonimases, the equity interests of which are being held by nominees for the
benefit of Austral and Metserco Holdings, Inc. another wholly-owned subsidiary
of the Company. During the fiscal year ended March 31, 1995, the Company loaned
or committed to loan an aggregate of $16 million to its partners in the Joint
Venture (the "Joint Venture Partners") to acquire five Argentine companies
owning cable television systems in Argentina (the "Argentine Cable Companies").
The Argentine Cable Companies are listed below:
Name of Company Location
- --------------- --------
Televisora Austral S.A. Ushuaia, Tierra Del Fuego
Canal 2 TV Austral S.A. Rio Gallegos, Santa Cruz Province
Reconquista Televisora Color S.R.L. Reconquista, Santa Fe Province
Avellaneda Video Cable S.R.L. Avellaneda, Santa Fe Province
Cable Vision Gallegos S.R.L. Rio Gallegos, Santa Cruz Province
To facilitate the activities of the Joint Venture in Argentina, the Company
and the Joint Venture Partners formed two new Argentine Sociedad Anonimases:
CableDifusion S.A. ("CableDifusion") and SMR S.A. ("SMR") (CableDifusion and SMR
are collectively referred to as the ("Argentine Joint Venture Companies").
CableDifusion was formed for the purpose of providing management services to the
Argentine Cable Companies. SMR was formed to pursue licenses to own and operate
businesses deploying Enhanced Specialized Mobile Radio and/or other related
technologies in Argentina. There were no material operations at either
CableDifusion or SMR during the fiscal year ended March 31, 1995.
Through the Joint Venture, the Company indirectly holds an 84.0 percent
economic interest in each of the Argentine Cable Companies and Argentine Joint
Venture Companies. See "Latin American Cable Operations" below.
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The Company had four wholly owned subsidiaries (in addition to Austral) that
had limited operations during fiscal 1995: Metserco Holdings, Inc. ("Metserco
Holdings") which is the sole stockholder of Metserco Corporation ("Metserco"),
TSP Cable Company, Limited ("TSP Cable) and Tescorp International, B.V.
("Tescorp International"). Metserco Holdings, a Delaware corporation (formerly
Clif Mock Company) and Metserco Corporation, were engaged in the business of
selling oilfield exploration equipment, but since July 1993 have been inactive
and conduct no material operations. TSP Cable, a United Kingdom company, which
formerly manufactured, repaired and sold geophysical equipment in international
markets, has no independent operations nor any material assets. Tescorp
International, a Netherlands corporation, was formed to facilitate international
business activities of the Company; however, at the present time, it is inactive
and conducts no material operations. GeoCapital Corporation, a Texas
corporation, which was dissolved on March 31, 1995, held certain notes issued by
the customers of Tescorp Seismic for the payment of goods and services purchased
before the sale of the business.
The overall operations of the Company are supervised by a corporate office
("Tescorp Corporate") located in Austin, Texas. Tescorp Corporate is
responsible for preparing and implementing strategic plans, making investment
and capital allocation decisions, managing shareholder relations, coordinating
financial reporting activities, administering employee benefit plans, and
managing the general business affairs of the Company. The following is an
organizational chart for the Company, excluding the Argentine Cable Companies
and the Argentine Joint Venture Companies.
The original filing on Form 10-KSB graphically illustrates the organizational
chart for Tescorp, Inc., as follows:
(1) parent corporation: Tescorp, Inc.;
(2) immediate subsidiaries of parent corporation: (i) Metserco Holdings, Inc.
f/k/a Clif Mock Company, (ii) Austral Communications Corporation, (iii)
Tescorp International, B.V., (iv) TSP Cable Company Ltd.;
(3) indirect subsidiaries of parent corporation: (i) Metserco Corporation
(direct subsidiary of Metserco Holdings, Inc.), (ii) Comunicaciones
Austral, S.A. (owned directly by Metserco Holdings, Inc. and Austral
Communications Corporation).
History. The Company was formed in 1980 to acquire small, growing businesses
in the oil service industry. The Company was successful in consummating
acquisitions; however, by 1983, worldwide oil and gas exploration activities had
declined significantly. As a consequence, the Company began to incur significant
operating losses, and acquisition activities were curtailed. In mid-1983, the
Company retained new corporate managers with significant industry experience,
and efforts were commenced to restructure the Company operationally and
financially.
The operational restructuring of the Company entailed a streamlining and
consolidation of the Company's business activities. This was accomplished
through a series of divestitures, asset sales, and internal mergers.
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Concurrent with the operational restructuring, the Company restructured
financially by reducing outstanding debt balances, extending loan maturities,
and selling additional equity. Jack R. Crosby, the principal stockholder of the
Company, facilitated the financial restructuring by infusing significant amounts
of new capital into the Company through the acquisition of equity securities and
the assumption and/or guaranty of certain debt obligations. By the end of 1985,
the financial stability of the Company had been restored. In 1986, Mr. Crosby
merged Metserco, which had been operated by the Company since its acquisition by
Mr. Crosby in 1984, into Metserco Holdings.
American Century Corporation Asset Acquisition. On July 11, 1990, the Company
acquired substantially all of the assets (the "ACC Assets") of American Century
Corporation ("ACC"), a publicly held Delaware corporation. The Company
consummated the asset acquisition by issuing to the creditors and shareholders
of ACC 694,015 shares of Series 1990 Convertible Preferred Stock, 721,783 shares
of $.02 Par Value Common Stock, and 1993 Warrants to purchase 2,828,922 shares
of $.02 Par Value Common Stock. Additionally, the Company issued to John C.
Kerr and Crandall S. Connors options to purchase 396,432 shares of Common Stock
as compensation for services rendered in connection with the transaction.
Concurrent with its issuance of the securities, the Company filed a Form 10 with
the Securities and Exchange Commission and obtained the approvals necessary for
its stock to be publicly traded. Thus, immediately after the Company's
acquisition of the ACC Assets, the Company's securities began trading publicly
on the National Association of Securities Dealers Automated Quotation System.
ACC, which was headquartered in San Antonio, Texas, had previously acted as
the parent corporation of Commerce Savings Association. In 1989, Commerce was
closed by Federal regulatory authorities, and the aggregate value of ACC's
remaining assets was less than the aggregate outstanding balance of its
indebtedness. Due to its insolvency, ACC sought to reorganize its debts in the
United States Bankruptcy Court for the Western District of Texas, San Antonio
Division under the protection of Chapter 11 of the United States Bankruptcy
Code.
The ACC Assets acquired by the Company consisted of approximately $2.1 million
of cash, approximately $1.0 million of mortgages receivable (net of a discount
of $119,000 to reflect prevailing rates of interest at the time of the
transaction), and other assets having a value of approximately $30,000. No
stock or other interest in Commerce was acquired by the Company in connection
with its acquisition of the ACC Assets.
The Company used the ACC Assets to consummate acquisitions, pay preferred
dividends, and meet general corporate obligations. The Company did not
experience any material change in the operation of any portion or segment of its
business as a result of its acquisition of the ACC Assets.
Tescorp Seismic Acquisitions. Subsequent to its acquisition of the ACC Assets,
the Company consummated two acquisitions for the benefit of Tescorp Seismic. In
September 1990, the Company acquired substantially all of the assets of Electro-
Technical Laboratories, Inc., a manufacturer of geophones and geophone
accessories. In December 1990, the Company acquired Reed Products, Inc. ("Reed")
which manufactured and sold molded electrical connectors used primarily in
geophysical systems deployed underwater. In fiscal 1993, Tescorp formed TSP
Cable to manufacture, repair and sell geophysical equipment in international
markets.
Sale of Metserco Holdings. Effective July 8, 1993, substantially all of the
assets of Metserco Holdings, which was formerly known as Clif Mock Company
("Clif Mock") and certain assets of its wholly owned Metserco subsidiary were
sold to a wholly owned subsidiary of Wheatley*TXT. The consideration paid for
such assets of
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Metserco Holdings and its subsidiary was $5.0 million in cash and a promissory
note (the "Wheatley*TXT Note") executed by Wheatley*TXT payable to Metserco
Holdings in the principal amount of $1.0 million.
The $1,000,000 balance of the Wheatley*TXT Note was convertible into Common
Stock of Wheatley*TXT at a conversion price of $13.11 per share of Wheatley*TXT
Common Stock, which was equal to 125.0 percent of the average closing price of
the Wheatley*TXT Common Stock as reported on NASDAQ for the fifteen trading days
immediately preceding the closing. Wheatley*TXT was sold to Dresser Industries
("Dresser"), a New York Stock Exchange traded company, which resulted in the
Wheatley*TXT Note being converted into Dresser Common Stock instead of
Wheatley*TXT Common Stock. The Company sold the Dresser Common Stock in August
1994 and realized net proceeds from the sale of approximately $1,125,325.
In conjunction with the sale of the assets, the Company conveyed to
Wheatley*TXT the right to use the "Clif Mock Company" name. Subsequent to the
sale and in accordance with the terms thereof, the Company changed the name of
Clif Mock to Metserco Holdings, and all references herein to Metserco Holdings
shall refer to the Company's subsidiary that was formerly known as Clif Mock.
The assets sold to Wheatley*TXT consisted of inventory, equipment, certain
accounts receivable, leases and contracts used in connection with the business
of Metserco Holdings. Accounts receivable of Metserco Holdings in the aggregate
amount of $500,000, certain other intangibles and a parcel of real estate owned
by Metserco, were excluded from the sale. In determining the amount of
consideration paid by the buyer for the assets of Metserco Holdings and
Metserco, the Company reviewed the historical financial statements of Metserco
Holdings and Metserco and considered the book value and historical cash flow,
the nature of the industry, the reliance of Metserco Holdings on a single
supplier for a significant portion of its business, and the value of the
goodwill of the businesses being sold. Such consideration was determined as a
result of arms length negotiations between representatives of the Company and
the buyer.
The purchase price was adjusted to reflect changes in the balance of asset and
liability accounts subsequent to closing. The Company recognized a gain on this
sale in the amount of $973,797, net of closing adjustments and provisions for
federal income taxes.
Sale of Tescorp Seismic. Effective February 9, 1994, the Company sold
substantially all of the assets of Tescorp Seismic Products Company ("Tescorp
Seismic") and the stock of Reed to a wholly owned subsidiary of Input/Output,
Inc. ("I/O"). The consideration paid for such assets of Tescorp Seismic and the
stock of Reed was $4.4 million in cash and a promissory note executed by I/O
payable to the Company in the principal amount of $2.0 million which was paid in
full on June 1, 1994.
The assets sold to I/O included the stock of Reed and substantially all of the
assets of Tescorp Seismic and TSP Cable Company, Limited ("TSP Cable"). The
assets of Tescorp Seismic sold included the inventory, property, plant and
equipment, goodwill, and certain prepaid expenses, deposits, leases and
contracts used in connection with the business. The Company retained all of the
accounts and notes receivable of Tescorp Seismic and certain of its prepaid
expenses, deposits and liabilities. In determining the amount of consideration
paid by the buyer for the assets of Tescorp Seismic (including TSP Cable) and
the Common Stock of Reed, the Company reviewed the historical financial
statements of Tescorp Seismic and Reed and considered the book value and
historical cash flow, the nature of the industry, the reliance of Tescorp
Seismic on certain large customers and products, and the value of the goodwill
of the businesses being sold. Such consideration was determined as a result of
arms length negotiations between representatives of the Company and competing
buyers.
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The purchase price was adjusted to reflect changes in certain account
balances, including but not limited to inventory and property, plant and
equipment, which occurred between November 30, 1993 and the closing date. The
Company recognized a gain on this sale in the amount of $1.2 million, net of
closing adjustments and provisions for federal income taxes.
Latin American Cable Operations. During the fiscal year ended March 31, 1995,
the Company and the Joint Venture Partners entered into the Joint Venture to
acquire cable television and communications properties in Latin America. The
Company has committed to loan to the Joint Venture Partners an aggregate of
approximately $16 million. Proceeds from the loans were used to acquire the
five Argentine Cable Companies that own cable television systems in Ushuaia, the
capital of Tierra del Fuego Province, Rio Gallegos, the capital of the Santa
Cruz Province, and Reconquista and Avellaneda in the Santa Fe Province. In
addition, the Company has financed the formations and initial costs of the
Argentine Joint Venture Companies.
Austral, which is a venturer in the Joint Venture, holds an indirect 90.0
percent interest in each of the Argentine Cable Companies and Argentine Joint
Venture Companies. The Company has two domestic partners each of whom holds an
indirect 3.3 percent interest in Austral's interest in each of the Argentine
Cable Companies and Argentine Joint Venture Companies. Thus, the Company holds
an indirect 84.0 percent interest in the economic benefits of each of the
Argentine Cable Companies and Argentine Joint Venture Companies which is subject
to the loans from Austral.
Austral and the Joint Venture Partners entered into a contractual joint
venture arrangement (the "Joint Venture Agreement") to acquire, develop and
operate cable television and communications properties in Latin America. The
Joint Venture Agreement provides for the Joint Venture Partners to manage the
Joint Venture and the properties acquired in connection with the Joint Venture.
However, Austral has the contractual authority to replace the Joint Venture
Partners as managers of the Joint Venture and the properties acquired in
connection with the Joint Venture, and Austral has significant influence and
control over the affairs of the Joint Venture pursuant to the terms of the Joint
Venture Agreement. Moreover, Austral may elect not to finance any proposed
acquisition and may require that a property acquired in connection with the
Joint Venture be sold.
Argentine Cable Companies
The principal assets of the Company are its interests in the Joint Venture.
Through Austral, the Company loaned to the Joint Venture Partners the funds
necessary to acquire the Argentine Cable Companies which consist of the
following companies: Televisora Austral S.A. ("Televisora Austral"), Canal 2 TV
Austral S.A. ("Canal 2"), Cable Vision Gallegos S.R.L. ("CVG"), Reconquista
Televisora Color S.R.L. ("RTC") and Avellaneda Video Cable S.R.L. ("AVC"). Each
of the Argentine Cable Companies, which are wholly owned by the Joint Venture
Partners, is subject to the Joint Venture. Through the Joint Venture, the
Company holds an indirect 84.0 percent economic interest in the Argentine Cable
Companies. The Joint Venture Agreement provides that 90.0 percent of the equity
of the Argentine Cable Companies is to be assigned to the Company, with the
remaining 10.0 percent being held by the Joint Venture Partners, and that the
regulatory licenses required for the operation of Argentine cable television
systems are to be transferred to the Argentine Cable Companies. The Joint
Venture is in the process of effecting these transfers. See "Regulation" below.
A description of each of the Argentine Cable Companies follows below.
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<TABLE>
<CAPTION>
TOTAL ESTIMATED NET
PURCHASE SUBSCRIBERS ECONOMIC
NAME OF COMPANY LOCATION OF OPERATIONS PRICE* 3/31/95 INTEREST
--------------- ---------------------- -------- ----------- --------
<S> <C> <C> <C> <C>
Televisora Austral S.A. Ushuaia, Tierra del Fuego $1,500,000 3,950 84%
Canal 2 TV Austral S.A. Rio Gallegos, Santa Cruz $5,500,000 13,000 84%
Reconquista Televisora Reconquista, Santa Fe $4,757,000 11,500 84%
Color, S.R.L.
Avellaneda Video Cable, Avellaneda, Santa Fe $1,320,000 Included 84%
S.R.L. with
Reconquista
Cable Vision Gallegos, Rio Gallegos, Santa Cruz $1,850,000 Included 84%
S.R.L. with Canal 2
</TABLE>
* For the purposes of this table, the calculation of total purchase price
includes the total amount of funds paid to the sellers at closing , the
estimated amount of seller notes or deferred payments which will be owed to
the sellers in the future in connection with the acquisition, and the
estimated amount of funds contributed or to be contributed to the acquired
company on or about the date of closing for the purpose of paying certain
outstanding liabilities of the acquired company.
Televisora Austral. On April 5, 1994, Austral committed to loan to the Joint
Venture Partners $1.5 million (the "Televisora Austral Loan") to acquire 100.0
percent of the outstanding equity of Televisora Austral subject to the Joint
Venture. Televisora Austral operates the cable television system serving
Ushuaia, the capital of the Argentine Province of Tierra del Fuego.
On April 7, 1994, the Joint Venture Partners acquired Televisora Austral for
$1.5 million payable as follows: $750,000 at closing and $750,000 payable over
the succeeding 12 month period (the "Televisora Deferred Payment"). At March
31, 1995, the balance of the Televisora Austral Loan and the balance owed to
the seller pursuant to the Televisora Deferred Payment was $1.5 million and
$62,500, respectively.
At March 31, 1995, Televisora Austral provided cable television service to
approximately 3,950 subscribers. Ushuaia has a population of approximately
29,000 persons residing in approximately 10,000 households. The rate charged
for basic cable television service is A$P 45.00 (Argentine Pesos are denoted by
the symbol "A$P").
Televisora Austral, which is the only provider of cable television service in
Ushuaia, competes against a local Microwave Multi-Point Distribution System
("MMDS") which provides a service similar to cable television. See
"Competition". Management believes that the MMDS competitor provides poorer
service, operates at a loss and has fewer subscribers than Televisora Austral.
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Canal 2/CVG. On August 16, 1994, Austral committed to loan to the Joint
Venture Partners $5.5 million (the "Canal 2 Loan") to acquire 100.0 percent of
the outstanding equity of Canal 2 subject to the Joint Venture. On that same
day, the Joint Venture Partners acquired Canal 2 for $4.9 million payable as
follows: $4.5 million in cash at closing with adjustments for certain changes in
asset and liability balances. Canal 2 operates a cable television system serving
Rio Gallegos, the capital of the Argentine Province of Santa Cruz. At the time
of the acquisition, Canal 2 provided cable television service to approximately
9,500 subscribers at a basic rate of A$P 35.00 per month.
In February 1995, Austral committed to loan to the Joint Venture Partners $1.9
million (the "CVG Loan") to acquire 100.0 percent of the outstanding equity of
CVG subject to the Joint Venture. Effective March 1, 1995, the Joint Venture
Partners acquired CVG, subject to the Joint Venture, for $1.9 million payable as
follows: $450,000 payable in cash at closing and $1.4 million payable in the
succeeding 14 months (the "CVG Deferred Payment"). CVG operated a cable
television system which competed against Canal 2 in Rio Gallegos. At the time
of the acquisition, CVG provided cable television service to approximately 3,300
subscribers at a basic rate of A$P 30.00 per month.
Concurrent with the acquisition of CVG, the operations of CVG were
consolidated into Canal 2. At March 31, 1995, Canal 2 and CVG provided cable
television service to approximately 13,000 subscribers. Rio Gallegos has a
population of approximately 65,000 persons residing in approximately 18,600
households. The rate charged by Canal 2 and CVG for basic cable television
service is A$P 35.00.
At present, Canal 2 and CVG are the only providers of cable television service
in Rio Gallegos, and no MMDS competitor provides service in the community. See
"Competition". At March 31, 1995, the balance owed on the Canal 2 Loan, CVG
Loan and the amount owed to the seller pursuant to the CVG Deferred Payment was
$5,500,000, $350,000 and $1.4 million, respectively.
RTC/AVC. On December 9, 1994, Austral committed to loan to the Joint Venture
Partners $4.8 million (the "RTC Loan") to acquire 100.0 percent of the
outstanding equity of RTC subject to the Joint Venture. On that same date, the
Joint Venture Partners acquired RTC for $4.6 million payable as follows: $2.8
million payable in cash at closing and $1.8 million payable in the succeeding 12
months (the "RTC Deferred Payment"). RTC operates a cable television system
serving Reconquista, which is located in the Argentine Province of Santa Fe. At
the time of the acquisition, RTC provided cable television service to
approximately 8,600 subscribers, and the basic rate for services was A$P 24.00
per month.
On or about February 7, 1995, Austral committed to loan to the Joint Venture
Partners $1.3 million (the "AVC Loan") to acquire 100.0 percent of the
outstanding equity of AVC subject to the Joint Venture. On February 7, 1995,
the Joint Venture Partners acquired AVC, subject to the Joint Venture, for $1.3
million payable as follows: $900,000 payable in cash at closing and $420,000
payable in the succeeding ten months (the "AVC Deferred Payment"). AVC operates
a cable television system serving Avellaneda, which is in very close proximity
to Reconquista in the Argentine Province of Santa Fe. At the time of the
acquisition, AVC provided cable television service to approximately 2,900
subscribers, and the basic rate for service was A$P 24.00 per month.
Concurrent with the acquisition of AVC, the operations of AVC and CVG were
consolidated. At March 31, 1995, RTC and AVC provided cable television service
to approximately 11,500 subscribers. Reconquista has a population of
approximately 50,300 persons residing in approximately 13,377 households.
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Avellaneda has a population of approximately 13,100 persons residing in
approximately 3,600 households. The rate charged by RTC and AVC for basic cable
television service is A$P 24.00 per month.
At present, both RTC and AVC have a cable television competitor and a
competitor that provides television programming services through an Ultra High
Frequency (UHF") delivery system. See "Competition". Management believes that
RTC and AVC have, on a combined basis, significantly more subscribers than the
cable television and UHF competitors. On a combined basis, RTC and AVC have
penetrated approximately 67.7 percent of the total households in Reconquista and
Avellaneda, and this is indicative of their strong competitive position.
At March 31, 1995, the balance owed on the RTC Loan, AVC Loan and the balance
owed to the sellers pursuant to the RTC Deferred Payment and AVC Deferred
Payment was $3,380,900, $942,000, $1.3 million and $348,333, respectively.
Argentine Joint Venture Companies
To facilitate the activities of the Joint Venture in Argentina, the Company
and the Joint Venture Partners formed CableDifusion and SMR. Through the Joint
Venture, the Company indirectly holds an 84.0 percent economic interest in
CableDifusion and SMR. CableDifusion was formed for the purpose of providing
management services to the Argentine Cable Companies. Effective April 1, 1995,
CableDifusion assumed direct responsibility for the management of the Argentine
Cable Companies. SMR was formed for the purpose of pursuing licenses to own and
operate businesses utilizing Enhanced Specialized Mobile Radio and/or other
technologies in Argentina. To date, there have been no significant operations at
SMR.
Regulation
The Comite Nacional de Radiodifusion ("COMFER"), an Argentine governmental
agency which is similar to the Federal Communications Commission in the United
States, licenses and regulates cable television operations in Argentina. Prior
to October 20, 1994, Argentine law was unclear as to whether persons or entities
other than Argentine citizens could legally hold licenses to operate cable
television systems, and management was advised that COMFER would likely reject
applications to operate such systems submitted by non-Argentine citizens.
Effective October 20, 1994, the United States and Argentina ratified a Bi-
Lateral Trade Agreement (the "Trade Treaty") which provided, among other things,
for the ownership of Argentine cable television systems by companies domiciled
in the United States. Effective March 27, 1995, COMFER promulgated regulations
relating to the licensure and approval of companies domiciled in the United
States to own and operate Argentine cable television systems, and a
representative of COMFER has indicated to Tescorp management that COMFER will
not distinguish between Argentine and U.S. applicants in the licensure process.
Based on advice it has received, management is of the opinion that U.S.
companies will be licensed to own and operate Argentine cable television
systems. However, to date and to the best knowledge of management, COMFER has
not formally approved or licensed any U.S. company, and Tescorp has no assurance
that COMFER will approve its licensure. Management plans to seek licensure in
the near future subject to the advice of its Argentine counsel, and it is
monitoring activity at COMFER to determine the most effective and cost efficient
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manner to submit an application and secure licensing. A decision by COMFER to
deny the licensure of Tescorp or its affiliated entities to own and operate
cable television systems in Argentina could have a material adverse impact on
the operations and value of Tescorp.
Competition
General. Cable television systems, such as the systems operated by the
Argentine Cable Companies, are subject to competition from several alternative
means of signal transmission including but not limited to MMDS, UHF, Microwave
Master Antenna Television Systems ("MATV"), Satellite Master Antenna Television
Systems ("SMATV"), Direct Broadcast Satellite ("DBS") and Home Satellite
Television Systems ("HSTV"). Additionally, cable television systems are also
subject to competition from other cable television competitors, the telephone
companies and videocassettes.
In MMDS, satellite transmissions of television signals are received via
antenna at a central "head end" facility. The signal is transmitted via
microwave on a "line of sight" basis to an antenna situated on or near the
subscriber's home. The microwave signal is converted into a lower frequency and
transmitted via coaxial cable to the converter installed on the subscriber's
television. The signal is de-scrambled by the converter and transmitted to the
television. In Argentina, MMDS commonly competes with cable television. The
disadvantages of MMDS compared to cable television include but are not limited
to the cost of equipment, potential reception problems caused by changing
weather conditions, and the need to maintain a "line of sight" between the
subscriber and the "head end" or "beam bender".
In MATV, satellite transmissions of television signal is received via antenna
at a central "head end" facility. The signal is transmitted via microwave or
coaxial cable to a master antenna at the subscribers home (typically, MATV is
used to provide service to apartment complexes, condominium complexes or
townhouse clusters). The master antenna serves all the homes in the complex or
cluster. At the master antenna, the signal is converted into a lower frequency
and transmitted via coaxial cable to the subscriber's residence. In Argentina,
MATV is used in certain circumstances; however, it is not generally considered
to be a major competitor to cable television. In certain circumstances, MATV
operations obtain signal from cable television operators.
SMATV is similar to MATV. The major difference is that the television signal
is transmitted to the "master antenna" by satellite rather than by microwave or
coaxial cable. In Argentina, SMATV is used in certain circumstances; however, it
is not generally considered to be a major competitor to cable television. In
certain circumstances, SMATV operations obtain signal from cable television
operators.
UHF systems operate in a manner similar to MMDS but at different frequencies.
As with MMDS, UHF commonly competes with cable television in Argentina. The
same disadvantages of MMDS apply to UHF.
In DBS, the television signal is transmited via satellite to an antenna
installed at the subscribers residence or office. The signal is transmitted via
coaxial cable to a down converter which changes the frequency of the signal and
then via coaxial cable to a converter installed on the subscriber's television.
The signal is descrambled by the converter and transmitted to the television.
DBS will reportedly be made available throughout Latin America beginning in
September 1995. The advantages of DBS are the quality of signal and quantity of
channel offerings. Management believes that disadvantages of DBS, especially
with regard to Argentina, are the high subscriber equipment costs, the lack of
local programming (e.g. local news, weather and sports) which has been
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historically produced and delivered by cable television operators, the
relatively high penetration of cable into Argentine households (approximately
45.0 percent), and the relatively low penetration of telephones into households
(approximately 15.0 percent) which will likely inhibit impulse purchases of "pay
per view" programming.
HSTV is transmitted in a manner similar to that of DBS. HSTV is not a major
competitor due to the cost of the necessary equipment, the necessity to
subscribe to many scrambled channels distributed via satellite, and the
complexity and unreliability of the equipment.
In Argentina, competition among multiple cable television operators in a given
market is not uncommon. Competing against an entrenched cable television
operator is sometimes economically difficult, and such competition can reduce
market share and pricing flexibility.
In the United States, regional telephone companies have announced plans to
begin offering cable television service through fiber optic trunk lines and
coaxial or copper drops or distribution networks. Such services have not yet
been offered in Argentina. Management believes that competition from telephone
companies is possible but not likely in the immediate future due to the
technological obsolescence of the overall telephone systems and regulatory
prohibitions.
Videocassettes obtained through purchase or rental are an entertainment
alternative to cable television. Users must have a videocassette player;
however, the price of such players has declined significantly in recent years.
Management believes that videocassettes are not significant competitive threats
to cable television. To the contrary, management believes that high
videocassette player penetration in certain markets is indicative of a
potentially strong cable television market.
Business Strategy
The Company is seeking to maximize shareholder value by acquiring direct and
indirect interests in Latin American cable television and communications
properties, and enhancing the value of those properties through capital
improvements, technological enhancements and the implementation of improved
operating procedures. The Company is combining the experience of its management
with the Joint Venture Partners who have extensive cable television and
communications experience in Latin America.
The Company is presently contemplating the acquisition of other cable
television and communications properties in Latin America. Management believes
that the cable television and communications industries have not matured or
consolidated in Latin America to the same extent that they have matured and
consolidated in the United States. Management also believes that the value of
the properties acquired will increase as the Latin American markets mature and
consolidate.
The operating characteristics of Latin American cable television and
communications businesses are significantly different than those of Tescorp
Seismic and Metserco Holdings which the Company previously operated.
Additionally, the associated business, political and economic risks are
significantly different. Accordingly, investors should consider that the
historical performance of the Company is not indicative of its future prospects
and is not necessarily indicative of its future performance.
11
<PAGE>
Employees
In March 1995, the Company had three full-time employees, and it contracted
with an affiliate of Jack R. Crosby, the Chairman of the Board, for services
provided on a part-time basis by four other persons. The Company considers its
relations with its employees to be satisfactory. None of the Company's
employees are represented by a labor union. The Company has not experienced any
work stoppages or strikes as a result of labor disputes.
The Argentine Cable Companies employ 123 persons and the Argentine Joint
Venture Companies employ one person. The employee of the Argentine Joint
Venture Companies is not represented by a union. Certain employees of the
Argentine Cable Companies are members of the Sindicato Argentino de Television
("SAT"), which is a union representing employees of the cable television
industry. A summary of the number of employees and their status with SAT at
March 31, 1995, follows below:
<TABLE>
<CAPTION>
NAME OF COMPANY NUMBER OF EMPLOYEES NUMBER OF SAT MEMBERS
--------------- ------------------- ---------------------
<S> <C> <C>
Televisora Austral S.A. 19 18
Canal 2 TV Austral S.A. 36 29
Reconquista Televisora Color S.R.L. 20 17
Avellaneda Video Cable S.R.L. 7 7
</TABLE>
SAT: Sindicato Argentino de Television (Argentine Television Union).
The Asociacion Argentine de Television Por Cable ("ATVC") is the Argentine
cable television trade association. Certain members of ATVC and SAT entered
into the Convencion Colectiva de Trabajo Nacional Para Ciruitos Cerrados No.
223/75 (the "Convencion") which prescribes work rules for employees of cable
television companies. The Argentine Cable Companies are required by law to
adhere to the Convencion whether or not their employees are members of SAT.
Management believes that the Argentine Cable Companies have fully complied with
the terms of the Convencion and that the relationship between the Argentine
Cable Companies, their employees and SAT are satisfactory.
Employees have the option of becoming members of SAT, and membership gives
employees access to certain SAT sponsored programs pertaining to insurance,
travel and other services outside of the scope of employment. Even if an
employee is not a member of SAT, Argentine law provides for SAT to represent
that cable employee with regard to disputes pertaining to the Convencion. Given
this arrangement, membership in SAT is not necessarily indicative of employee
unrest.
12
<PAGE>
Proprietary Information
The Company currently owns no material patents.
Research and Product Development
The Company's research efforts were related primarily to the improvement of
existing products and development of new products for Metserco Holdings and
Tescorp Seismic. The costs thereof were charged to operations as incurred.
Research and development costs for discontinued operations for the years ended
March 31, 1995 and 1994 totaled approximately $-0- and $61,000, respectively.
Governmental Regulation
The Company and its properties are subject to certain federal, state and
local regulatory requirements relating to environmental, waste management,
health, safety and other matters. A risk of costs and liabilities related to
these matters exists and is inherent in most businesses and properties.
Management believes that the Company's properties are maintained in general
compliance with applicable environmental, waste management, health and safety
laws and regulations, the violation of which could have a material adverse
effect on the Company. In the event of violation, these requirements provide for
civil and criminal fines, injunctions and other sanctions, and in certain
instances, allow third parties to sue to enforce compliance. In addition, new
or modified requirements could be adopted which may adversely affect the
Company.
At the time of this report, the Company was responding to certain
governmental inquiries regarding the environmental condition of a property
formerly leased by Metserco Holdings. Additionally, the Company had initiated
actions to insure that two of its properties were in compliance with applicable
environmental rules, regulations and laws. The Company does not anticipate any
material adverse effects in the foreseeable future as a result of its compliance
with federal, state and local regulatory requirements relating to environmental,
waste management, health, safety and other matters.
In the past, the Company generated and temporarily handled limited amounts
of materials that were considered hazardous waste under applicable law. The
Company contracted for the off-site disposal of these materials.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases its corporate offices located in Austin, Texas at a cost
of approximately $4,400 per month, and the lease expires on May 14, 2000.
Metserco owns a vacant sales/manufacturing facility located in Odessa, Texas,
and the Company owns a vacant sales and service facility located in Houma,
Louisiana. The two properties owned by the Company and Metserco, neither of
which are utilized by the Company in any of its on-going operations, have been
pledged to secure the payment of dividends which have accrued on the Company's
Series 1990 Convertible Preferred Stock. See Note 8 of the Notes to
Consolidated Financial Statements.
13
<PAGE>
Each of the facilities leased by the Company is in good condition and
adequately maintained. The facilities owned by the Company and Metserco are
presently vacant, and they will likely require improvements prior to lease or
occupancy. The following table describes the properties leased and owned by the
Company as of March 31, 1995.
<TABLE>
<CAPTION>
MONTHLY
LEASED/ RENT
LESSEE/OWNER OWNED PROPERTY LOCATION PROPERTY USAGE EXPENSE LEASE EXPIRATION DATE
<S> <C> <C> <C> <C> <C>
Tescorp, Inc. Leased Austin, Texas Corporate Office $4,400 5/14/00
Tescorp, Inc. Owned Houma, Louisiana Vacant N/A N/A
Metserco Corporation Owned Odessa, Texas Vacant N/A N/A
</TABLE>
The Argentine Cable Companies and the Argentine Joint Venture Companies
lease and/or own certain properties. Management believes that all of the
properties are in good condition and adequately maintained. The following table
describes the properties leased and owned by the Argentine Cable Companies and
the Argentine Joint Venture Companies as of March 31, 1995.
14
<PAGE>
<TABLE>
<CAPTION>
MONTHLY RENT
LESSEE/OWNER LEASED/ OWNED PROPERTY LOCATION PROPERTY USAGE EXPENSE LEASE EXPIRATION DATE
<S> <C> <C> <C> <C> <C>
Televisora Austral S.A. Leased Ushuaia Customer Service Dish $3,000 03/31/97
Site
Headend
Televisora Austral S.A. Leased Ushuaia Customer Service $ 500 03/30/95
Not renewed
Televisora Austral S.A. Leased Ushuaia Manager's House $1,700 05/23/96
Televisora Austral S.A. Leased Ushuaia Poles $1,661 10/31/06
Televisora Austral S.A. Leased Ushuaia Headend None* 05/30/99
Dish Site
Canal 2 TV Austral S.A. Leased Rio Gallegos Customer Service $1,200 11/14/95
Canal 2 TV Austral S.A. Leased Rio Gallegos Headend $2,500 08/18/97
Canal 2 TV Austral S.A. Owned Rio Gallegos Dish Site N/A N/A
Canal 2 TV Austral S.A. Leased Rio Gallegos Poles $6,305 Occupied and in
negotiation
Cable Vision Gallegos, Leased Rio Gallegos Customer Service $1,700 3/31/95
S.R.L. Headend not renewed
Cable Vision Gallegos, Leased Rio Gallegos Dish Site $ 350 07/04/96
S.R.L.
Cable Vision Gallegos, Leased Rio Gallegos Poles $3,173 07/31/96
S.R.L.
Reconquista Televisora Leased Reconquista Customer Service $1,500 09/30/95
Color S.R.L. Headend
Reconquista Televisora Leased Reconquista Dish Site $ 800 07/31/95
Color S.R.L.
Reconquista Televisora Leased Reconquista Warehouse $ 800 5/31/95
Color S.R.L.
Reconquista Televisora Leased Reconquista Poles $1,566 No Contract Signed
Color S.R.L.
Avellaneda Video Cable Leased Avellaneda Customer Service $ 450 No Contract Signed
S.R.L. Headend
Dish Site
Avellaneda Video Cable Lease Avellaneda Poles None No charge. Compensated
S.R.L. with advertising
(approx. $300/month)
CableDifusion S.A. Leased Buenos Aires Management Office $4,000 02/08/98
CableDifusion S.A. Leased Buenos Aires Officer's Apartment $ 540 04/11/97
Comunicaciones Austral S.A. None N/A N/A N/A N/A
SMR S.A. None N/A N/A N/A N/A
</TABLE>
* This property is leased from the Argentine military. In exchange for
the long-term lease of the property, Televisora Austral S.A. provides
military personnel in Ushuaia, Tierra del Fuego Province with cable
television service at a monthly rate of 65.0 percent of the market rate
charged to non-military subscribers. This arrangement results in a
reduction of revenue of less than $5,000 per month.
15
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any formal legal proceedings pending against
it. From time to time, the Company is involved in routine litigation that is
incident to its business. Given that litigation is becoming increasingly common
in any business endeavor, the Company reasonably anticipates that it will be
involved in litigation in the future. At the present time, the Company has no
ability to predict the consequences, if any, of any legal proceedings which may
arise.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of the Company,
through solicitation of proxies or otherwise, during the fourth quarter of the
fiscal year ended March 31, 1995.
16
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock and Series 1990 Convertible Preferred Stock are
traded in the over-the-counter market and quoted by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") under the symbols TESC
and TESCP, respectively. Such trading began on July 12, 1990, coincident with
the issuance of securities in connection with the acquisition of the ACC Assets.
The Series 1990 Convertible Preferred Stock was not outstanding prior to that
time, and no public market existed for the Common Stock prior to the acquisition
of the ACC Assets. The high and low bid prices as reported by NASDAQ each
quarter for the past two fiscal years ended March 31 are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
---------------------------
1995 1994
----- -----
High Low High Low
------ ----- ----- -----
<S> <C> <C> <C> <C>
Common Stock
First quarter 2.13 1.13 0.75 0.63
Second quarter 3.13 1.69 1.38 0.75
Third quarter 3.25 2.50 2.38 1.06
Fourth quarter 2.88 1.88 1.75 1.19
Preferred Stock
First quarter 4.50 4.25 3.50 3.50
Second quarter 5.13 4.50 4.63 3.25
Third quarter 5.13 4.50 4.63 4.50
Fourth quarter 5.25 4.38 4.50 4.00
</TABLE>
These quotations may reflect inter-dealer prices, without retail mark-up,
mark-down or commissions and may not necessarily represent actual transactions.
At June 19, 1995, the (i) 11,947,433 shares of Common Stock outstanding
were held by 359 shareholders of record, and (ii) 693,864 shares of Series 1990
Convertible Preferred Stock outstanding were held by 291 shareholders of record.
No dividends have been declared on the Company's Common Stock during the past
two fiscal years and the Company has no plans to pay dividends on its Common
Stock in the foreseeable future. The Articles of Incorporation restrict the
Company's ability to declare or pay dividends on the Common Stock unless full
cumulative dividends on the Preferred Stock have been paid or declared and a sum
sufficient for the payment thereof set apart for such payment.
17
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations for the Year Ended March 31, 1995
as Compared to the Year Ended March 31, 1994
Revenues. During fiscal 1994, the sales of the assets of Tescorp Seismic and
Metserco Holdings were consummated. Therefore, the results of their operations
were recorded as discontinued operations. Accordingly, for the fiscal years
ended March 31, 1995 and 1994, the Company recorded no net sales. The Company
will consolidate the earnings from its Latin America operations beginning with
the first quarter of fiscal 1996. Therefore, period-to-period comparability for
fiscal 1996 compared to fiscal 1995 will be distorted. See Note 2 to the Notes
to Consolidated Financial Statements.
Cost of Sales. For the years ended March 31, 1995 and 1994, the Company
recorded no cost of sales as a result of the classification of the operations of
Tescorp Seismic and Metserco Holdings as discontinued operations separate from
the continuing operations of the Company.
Selling, General & Administrative Expense. In fiscal 1995, selling, general
and administrative expenses increased 73.9 percent to $1.5 million primarily as
a result of higher insurance costs, increases in expenses incurred with
professional service providers, increases in shareholder relations costs, higher
travel related expenses and the consolidation of $200,825 of expenses incurred
by CASA, CableDifusion and SMR in connection with the Company's activities in
Latin America. The results of CASA, CableDifusion and SMR met the requirements
for consolidation as outlined in FAS 94 in fiscal 1995. No selling, general and
administrative expenses were recorded for Tescorp Seismic or Metserco Holdings
due to their classification as discontinued operations separate from the
continuing operations of the Company.
Unusual Items. The Company reported no unusual items for fiscal 1995 or 1994.
Other Income and Expense. During fiscal 1995, other income increased
significantly to $1.1 million from $212,755. Interest income increased
significantly to $1.0 million from $208,380 primarily as a result of the
increase in the balance of interest bearing cash and cash equivalents, short-
term investments, the notes received by the Company from Wheatley*TXT and I/O
and the notes received by the Company from the Joint Venture Partners in
connection with its financing of the acquisition of the cable systems in Latin
America. In fiscal 1995, the Company reported a gain from the sale of
marketable securities in the amount of $125,334. The Company's other income
decreased to $1,263 from $19,385 and interest expense declined 81.5 percent to
$2,775.
Income Taxes. In fiscal 1995 and 1994, the Company recorded income tax expense
of $177,000 and $811,000, respectively. In fiscal 1994, the Company began
accounting for income taxes in accordance with FAS 109 which was issued in
February 1992. Because of the adoption of FAS 109, the Company recorded in
fiscal 1994 a benefit of approximately $785,000 as a result of the cumulative
effect of the change in accounting principle and a net deferred tax asset of
$729,000. At March 31, 1995, the Company had a net deferred tax liability of
$146,595. See Note 7 to the Consolidated Notes to Financial Statements.
18
<PAGE>
Discontinued Operations. In fiscal 1995 and 1994, income from discontinued
operations was $584,692 and $3.5 million, respectively. In fiscal 1995, the
income from discontinued operations pertained primarily to the collections on a
financing lease and the subsequent exercise of a purchase option contained in
the lease which had been retained by the Company in connection with the sale of
Tescorp. In fiscal 1994, income from discontinued operations included $973,797
and $1.2 million of gains (net of income taxes) on the disposal of substantially
all of the assets of Metserco Holdings and Tescorp Seismic, respectively, and
the balance represented the combined income of their operations for the periods
that they were owned by the Company.
In fiscal 1995, revenues from discontinued operations, which totaled $690,880,
consisted primarily of proceeds from the lease of certain geophysical equipment
which was excluded from the assets conveyed to I/O in connection with the sale
of substantially all of the assets of Tescorp Seismic. The operating profit
from discontinued operations, which totaled $677,855, consisted of $747,264 of
operating profit relating to the discontinued operations of Tescorp Seismic
(operating profit exceeded revenues from this business segment primarily due to
the recovery of $156,237 of bad debt) and $69,409 of operating loss relating to
the discontinued operations of Metserco. The $584,692 of income from
discontinued operations was net of $177,000 of income tax expense.
In fiscal 1994, revenues from discontinued operations, which totaled $17.2
million, consisted of $13.5 million and $3.7 million of revenues from Tescorp
Seismic and Metserco, respectively. Operating profit from discontinued
operations, which totaled $1.9 million, consisted of $1.7 million and $184,461
of operating profits from Tescorp Seismic and Metserco, respectively. The $1.4
million of income from discontinued operations, which excluded gains on the
disposal of substantially all of the assets of Metserco and Tescorp Seismic, was
net of $603,000 of income tax expense.
IMPACT OF INFLATION
Inflation has not had a material impact on the operations of the Company
during the past three years. In the opinion of management, inflation will not
have a material impact on the results of operation in fiscal 1996. However,
Argentina experienced hyperinflation prior to 1992, and there can be no
assurance that the Argentine government will continue to maintain control over
inflation. Management is unable to predict with any degree of certainty the
future rate of inflation or its financial impact on the Company.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1995, the balance sheets of the Argentine Cable Companies and
Argentine Joint Venture Companies were consolidated in the Company's balance
sheet. At March 31, 1994, none of those companies were consolidated. A direct
comparison of the line items on the balance sheets for the two years may result
in a distorted analysis of changes in the financial condition of the Company.
Management encourages the reader to consider independently the following
analyses of liquidity and capital reserves as of March 31, 1995 and March 31,
1994.
At March 31, 1995 and 1994, the Company held $2.8 million and $6.1 million of
cash and cash equivalents, respectively. The $3.4 million decline in cash and
cash equivalents resulted primarily from the
19
<PAGE>
funding of loans to the Joint Venture Partners for the purpose of financing the
acquisition of the Argentine Cable Companies. The cash and cash equivalents
consisted of securities offering a high degree of principal safety. These
securities are generally not subject to or impacted by changes in conditions or
trends in any single industry. However, they may be subject to significant
changes in overall economic conditions, and funds held in accounts outside of
the United States may be subject to a diminution in value caused by foreign
currency devaluation or governmental action.
At March 31, 1995 and 1994, working capital balances totaled negative $2.7
million and positive $13.7 million, respectively. The ratio of current assets-
to-current liabilities was 0.6 times and 32.4 times, respectively. The ratio of
long-term debt-to-total assets was negligible in both years. The decline in
working capital balances and the ratio of current assets-to-current liabilities
related primarily to the decline in cash and cash equivalents caused by the
funding of loans to the Joint Venture Partners for the purpose of financing the
acquisitions of the Argentine Cable Companies and the consolidation of the
balance sheets of the Argentine Cable Companies into the balance sheet of the
Company.
In fiscal 1995 and 1994, the Company used $95,606 and $841,470 of cash in
operating activities. In fiscal 1995: $593,098 of cash was provided by
operating activities from net income ($229,046), the decrease in prepaid
expenses and other assets ($285,218), provision for bad debt expense ($66,913)
and the adjustment for depreciation and amortization ($11,921); and $688,704 of
cash was used in operating activities to adjust for income from discontinued
operations ($584,692), acquire other assets ($21,913), reduce other current
liabilities ($12,473) and increase accounts and notes receivable ($69,626). In
fiscal 1994: $4.5 million of cash was provided by operating activities from net
income ($3.9 million), the decrease in other assets ($562,382) and the
adjustment for depreciation and amortization ($10,980); and $5.3 million of cash
was used in operating activities to reflect the reclassification of income from
discontinued operations ($3.5 million), reflect the cumulative change in
accounting principle ($785,252), increase net accounts and notes receivable
($496,963), increase prepaid expenses and other current assets ($283,931),
decrease other current liabilities ($185,423) and reflect the gain on the sale
of property ($16,008).
In fiscal 1995, $4.1 million of net cash was used in investing activities
compared to $4.3 million of net cash provided by investing activities in fiscal
1994. In fiscal 1995: $8.2 million of cash was provided by investing
activities from proceeds from the maturity of short-term investments ($5.2
million), proceeds from note received on sale of discontinued operations of
Tescorp Seismic ($3.0 million) and proceeds from the principal repayment on
mortgages ($16,483); and $12.3 million was used in investing activities to fund
proceeds to the Joint Venture Partners for the purpose of acquiring the
Argentine Cable Companies ($12.2 million) and make property additions
($134,705). In fiscal 1994: $9.5 million of cash was provided by investing
activities from proceeds from the sale of discontinued operations ($9.4
million), proceeds from the principal repayment on mortgages ($48,315) and
proceeds from the sale of assets ($41,571); and $5.2 million of cash was used in
investing activities to purchase short-term investments ($5.2 million) and make
property additions ($14,631).
In fiscal 1995 and 1994, $413,977 and $531,269 of net cash was used in
financing activities, respectively. In fiscal 1995: $6,087 of net cash was
provided from financing activities from the exercise of warrants, and $420,064
of net cash was used in financing activities to pay dividends on the Company's
Series 1990 Preferred Stock ($346,936) and make principal payments on long-term
debt ($73,128). In fiscal 1994: $157 of net cash was provided from financing
activities from the exercise of warrants; and $531,426 of net cash was used in
financing activities to pay dividends on the Company's Series 1990 Preferred
Stock ($346,936), make principal payments on long-term debt ($114,990) and make
payments to acquire Treasury Stock ($69,500).
20
<PAGE>
In fiscal 1995 and 1994, $1.3 million and $2.4 million of net cash was
provided, respectively, by the discontinued operations of Metserco and Tescorp
Seismic. Management is not anticipating that Metserco or Tescorp Seismic will
impact the results of the Company in fiscal 1996.
The Company's Series 1990 Convertible Preferred Stock provides for cumulative,
annual dividends in the amount of $0.50 per share payable on a quarterly basis.
The Company has not paid dividends on its Common Stock, and it has no plans to
make any such payments in the future.
Southwest Bank of Texas, N.A. ("Southwest") has issued (i) a letter of credit
(the "Preferred Letter of Credit") in the amount of $500,000 to secure the
payment of dividends and the liquidation preference on the Company's Series 1990
Convertible Preferred Stock, and (ii) a letter of credit (the "Televisora Letter
of Credit") in the original amount of $750,000 to secure the balance of the
purchase price owed to the seller of Televisora. At March 31, 1995, the balance
of the Preferred Letter of Credit and Televisora Letter of Credit was $500,000
and $75,000, respectively.
Working capital requirements vary with business conditions and the nature of
the business being conducted. Management minimizes working capital requirements
to the extent practicable. In April 1995, the Company received $9.6 million of
proceeds from the private placement sale of 4.8 million shares of common stock
at $2.00 per share. In the opinion of management, the Company possesses adequate
cash flow from operations and working capital to meet its on-going operating
requirements through the current fiscal year which will end on March 31, 1996.
Management anticipates that additional credit facilities will be required to
expand the Company via acquisition.
PLAN OF OPERATION
On a continuous and ongoing basis, the Board of Directors and management
investigates alternative means of maximizing shareholder value including but not
limited to acquisition of various types of companies and businesses. At the
date that this report was issued, the Company was actively pursuing
opportunities to own, operate and/or control communications and cable television
properties in international markets with special emphasis on Latin America. All
prospective acquisitions will be subject to numerous factors including but not
limited to the satisfactory completion of due diligence efforts and the
arrangement of all necessary financing.
The operating characteristics of Latin American cable television and
communications businesses are significantly different than those of Tescorp
Seismic and Metserco Holdings which the Company previously operated.
Additionally, changes in the business, political and economic conditions of
Latin America could materially impact the financial performance of the Company.
Investors should consider that the historical performance of the Company is not
necessarily indicative of its future prospects or performance.
21
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Tescorp, Inc.:
We have audited the accompanying consolidated balance sheets of Tescorp, Inc.
and subsidiaries as of March 31, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tescorp, Inc. and
subsidiaries as of March 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the years in the two year period ended March
31, 1995, in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 7 to the consolidated financial statements, the
Company changed its method of accounting for income taxes effective April 1,
1994 to adopt the provisions of Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes.
/s/ KPMG PEAT MARWICK LLP
-------------------------------
KPMG Peat Marwick LLP
Houston, Texas
June 26, 1995
22
<PAGE>
TESTCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994
------ ------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 2,778,564 $ 6,147,583
Short-term investments - 5,175,594
Accounts receivable 691,059 -
Current maturities of notes receivable - 2,500,000
Prepaid expenses and other current assets 128,149 339,699
------------ ------------
Total current assets 3,597,772 14,162,876
Notes receivable - 500,000
Plant and equipment, net 2,294,454 18,951
Franchise costs 16,682,536
Net assets related to discontinued operations 200,575 919,895
Other assets 243,107 156,287
------------ ------------
Total assets $ 23,018,444 $ 15,758,009
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Accounts payable $ 879,945 $ -
Accrued taxes 1,170,665 82,736
Income taxes payable 95,672 80,500
Current maturities of long-term debt-related parties - 73,128
Current maturities of long-term debt 2,958,185 -
Other current liabilities 1,186,049 200,233
------------ ------------
Total current liabilities 6,290,516 436,597
------------ ------------
Long-term debt 288,265 -
------------ ------------
Total liabilities 6,578,781 436,597
------------ ------------
Minority interest 1,230,054 -
------------ ------------
Convertible preferred stock, $1 par value,
$5 redemption value per share, 704,684 shares
authorized and 693,864 shares issued and
outstanding with an aggregate preference on
liquidation of $3,469,320 693,864 693,864
Common stock, $.02 par value, 25,000,000 shares
authorized and 7,147,433 and 7,096,715 issued
and outstanding at March 31, 1995 and 1994,
respectively 142,949 141,934
Additional paid-in capital 41,270,000 41,264,928
Accumulated deficit (26,827,704) (26,709,814)
------------ ------------
15,279,109 15,390,912
Less treasury stock, 100,000 shares of common,
at cost (69,500) (69,500)
------------ ------------
Total stockholders' equity 15,209,609 15,321,412
Commitments and contingencies - -
------------ ------------
Total liabilities and stockholders' equity $ 23,018,444 $ 15,758,009
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
TESCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended March 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Net sales $ - $ -
Cost of sales - -
----------- ----------
Gross profit - -
Selling, general and administrative expenses 1,480,039 851,262
----------- ----------
Operating loss (1,480,039) (851,262)
----------- ----------
Other income (expense):
Interest income 1,000,571 208,380
Gain on sale of marketable securities 125,334 -
Other income 1,263 19,385
Interest expense (2,775) (15,010)
----------- ----------
Total other income 1,124,393 212,755
----------- ----------
Loss from continuing operations before
provision for income taxes (355,646) (638,507)
Income tax benefit - (206,000)
----------- ----------
Loss from continuing operations (355,646) (432,507)
----------- ----------
Discontinued operations (see Note 13):
Income from discontinued operations
(net of income tax expense of
$177,000 and $603,000, respectively) 584,692 1,353,611
Gain on disposal of substantially all
of the assets of Metserco Holdings, Inc.
(net of income tax benefit of $205,000) - 973,797
Gain on disposal of substantially all of
the assets of Tescorp Seismic Products
division (net of income tax expense of
$619,000) - 1,201,339
----------- ----------
Income from discontinued operations 584,692 3,528,747
----------- ----------
Income before cumulative effect of change
in method of accounting for income taxes 229,046 3,096,240
Cumulative effect as of April 1, 1993, of
change in method of accounting for income taxes - 785,252
----------- ----------
Net income 229,046 3,881,492
Preferred stock dividends (346,936) (346,936)
----------- ----------
Net income (loss) applicable to common stock $ (117,890) $3,534,556
=========== ==========
Earnings (loss) per common share
Loss from continuing operations $ (0.10) $ (0.11)
Income from discontinued operations 0.08 0.49
Cumulative effective of accounting change - 0.11
----------- ----------
Earnings (loss) per common share $ (0.02) $ 0.49
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
TESTCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years Ended March 31, 1995 and 1994
<TABLE>
<CAPTION>
Convertible Common stock
preferred stock par value $.02 Additional Total
--------------------- ------------------------ paid-in Accumulated Treasury stockholders'
Shares Amount Shares Amount capital deficit Stock equity
-------- ----------- ----------- ----------- ----------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
March 31, 1993 693,864 $693,864 7,096,678 $141,933 $41,264,772 $(30,243,808) $ - $11,856,761
Net income 3,881,492 3,881,492
Exercise of warrants
and other 37 1 156 157
Purchase of treasury
stock (69,500) (69,500)
Translation adjustment (562) (562)
Dividends on convertible
preferred stock (346,936) (346,936)
------- -------- --------- -------- ----------- ------------ -------- -----------
Balances at
March 31, 1994 693,864 $693,864 7,096,515 $141,934 $41,264,928 $(26,709,814) $(69,500) $15,321,412
Net income 229,046 229,046
Exercise of warrants
and other 50,718 1,015 5,072 6,087
Dividends on convertible
preferred stock (346,936) (346,936)
------- -------- --------- -------- ----------- ------------ -------- -----------
Balances at
March 31, 1995 693,864 $693,864 7,147,433 $142,949 $41,270,000 $(26,827,704) $(69,500) $15,209,609
======= ======== ========= ======== =========== ============ ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
TESCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended March 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 229,046 $ 3,881,492
------------ -----------
Adjustments to reconcile net income to net cash
used in operating activities
Cumulative effect of change in accounting
principle - (785,252)
Income from discontinued operations (584,692) (3,528,747)
Provision for bad debt expense 66,913 -
Depreciation and amortization 11,921 10,980
Gain on sale of property - (16,008)
Increase in accounts and notes receivable, net (69,626) (496,963)
Decrease (increase) in prepaid expenses and
other current assets 285,218 (283,931)
Decrease (increase) in other assets (21,913) 562,382
Increase in accounts payable - -
Decrease in other current liabilities (12,473) (185,423)
------------ -----------
(324,652) (4,722,962)
------------ -----------
Net cash used in operating activities (95,606) (841,470)
------------ -----------
Cash flows from investing activities:
Proceeds from sale of assets - 41,571
Property additions (134,705) (14,631)
Proceeds from the maturity of short term
investments 5,175,594 -
Purchase of short term investments - (5,175,594)
Proceeds from the sale of discontinued
operations - 9,433,454
Proceeds from note received on sale of
discontinued operations 3,000,000 -
Proceeds from principal repayment on
mortgages 16,483 48,315
Loans to the Joint Venture Partners used
in acquisitions (12,200,225) -
------------ -----------
Net cash provided by (used in) investing
activities (4,142,853) 4,333,115
------------ -----------
Cash flows from financing activities:
Principal payments on long-term debt (73,128) (114,990)
Dividends paid on preferred stock (346,936) (346,936)
Payments to acquire treasury stock - (69,500)
Exercise of warrants 6,087 157
------------ -----------
Net cash used in financing activities (413,977) (531,269)
------------ -----------
Net cash provided by discontinued operations 1,283,417 2,396,302
------------ -----------
Net increase (decrease) in cash and cash
equivalents (3,369,019) 5,356,678
Cash and cash equivalents:
Beginning of year 6,147,583 790,905
------------ -----------
End of year $ 2,778,564 $ 6,147,583
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
TESCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1995 and 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICES:
Business and principles of consolidation
The accompanying consolidated financial statements include the accounts of
Tescorp, Inc. ("Tescorp"), its wholly-owned subsidiaries and companies in which
it holds majority, indirect joint venture interests (collectively referred to as
the "Company"). The wholly owned subsidiaries of Tescorp are the following
companies: Metserco Holdings, Inc. (formerly known as Clif Mock Company),
Metserco Corporation, Austral Communications Corp. ("Austral"), and
Comunicaciones Austral S.A. ("CASA"). The companies in which it holds majority,
indirect joint venture interests are the following: Televisora Austral S.A.
("Televisora"), Canal 2 TV Austral S.A. ("Canal 2"), Cable Vision Gallegos
S.R.L. ("CVG"), Reconquista Televisora Color S.R.L. ("RTC"), Avellaneda Video
Cable S.R.L. ("AVC"), SMR S.A. ("SMR") and CableDifusion S.A. ("CableDifusion").
All significant intercompany profits, accounts and transactions have been
eliminated in consolidation.
Revenue recognition
Revenues were recognized when products were shipped or services performed.
Revenue related to leasing of cables was recognized over the life of the lease.
Monthly cable service revenue is recognized in the period in which services
are provided. Cable installation revenue is recognized in the period the
related services are provided to the extent of direct selling costs. Any
remaining amount is deferred and recognized over the average period that
subscribers are expected to remain connected to the cable television system.
Plant and equipment
Plant and equipment are stated at historical cost net of accumulated
depreciation. Expenditures for maintenance and repairs are charged to earnings
as incurred. Improvements or betterments of a permanent nature are capitalized.
The cost of assets retired or otherwise disposed of and the related accumulated
depreciation are eliminated from the accounts in the year of disposal. Gains or
losses resulting from property disposals are credited or charged to operations.
The Company computes depreciation using the straight-line method over estimated
useful lives, ranging from 5 to 20 years, of the related asset (see Note 3).
Income taxes
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting for Income
Taxes." FAS 109 requires a change from the deferred method of accounting for
income taxes under the Accounting Principles Board Opinion No. 11 ("APB Opinion
11") to the asset and liability method of accounting for income taxes. The
Company adopted FAS 109 as of April 1, 1993.
In adopting FAS 109, the Company recorded a benefit of approximately
$785,000 as a result of the cumulative effect of the change in accounting
principle and a net deferred tax asset of $729,000. Based on numerous factors
including but not limited to the Company's historical earnings and the sale of
substantially all of the assets of Metserco Holdings, the Company believed that
it was more likely than not that it would not fully realize all of the benefits
of the net operating losses existing and available to carryforward at April 1,
1993, before they begin to expire in 1999.
27
<PAGE>
In fiscal 1994, a valuation allowance was established pursuant to FAS 109
because management concluded that it was more likely than not that some portion
of the deferred tax asset would not be realized. In calculating the valuation
allowance, management considered numerous factors including but not limited to
the (i) timing of the expiration of the Company's federal regular tax operating
loss carryforwards, (ii) historical financial performance of the Company, (iii)
recent financial performance of the Company, (iv) future financial prospects of
the Company, and (v) other factors which could affect the amount by which the
Company utilizes the net deferred tax asset.
Research and product development
Research and product development costs (excluding amounts charged on
specific customer contracts which are expensed as cost of sales) are charged to
operations as incurred. Research and development costs totaled approximately
$61,000 for the year ended March 31, 1994.
Earnings per common share
Earnings per common share are calculated by dividing net income applicable
to common stock by the weighted average number of shares outstanding during the
year.
The computations of earnings per common share for each of the fiscal years
presented assume the exercise of dilutive stock options and warrants, all of
which are considered to be common stock equivalents. The number of shares that
would be issued from the exercise of stock options and warrants has been reduced
by the number of shares that could have been purchased from the proceeds at the
estimated average fair value of the Company's stock. Assumed conversion of
convertible preferred stock is antidilutive. Fully diluted earnings per share
amounts are not presented for fiscal 1995 or 1994 because they do not materially
differ from primary earnings per share.
Cash equivalents
For purposes of the consolidated statements of cash flows, the Company
considers cash equivalents to include time deposits, certificates of deposit and
highly liquid debt instruments with original maturities of three months or less.
Short-term investments
Short-term investments consist of highly liquid U. S. Government
instruments with original maturities in excess of three months. These
investments are carried at cost, which approximates market.
Franchise costs
Franchise costs include the difference between the cost of acquiring cable
television systems and amounts assigned to their tangible assets. Such amounts
are amortized on a straight-line basis over its estimated life, not to exceed 20
years. The Company's policy is to periodically evaluate such cost to determine
whether there has been any impairment in value. Franchise cost consists of the
value of the license to own and operate the cable television system and the
value of the cable television subscribers that existed as of the acquisition
date.
Reclassifications
Certain reclassifications have been made to conform the fiscal year 1995
presentation.
28
<PAGE>
Foreign currency translation
Foreign currency assets and liabilities are translated into U. S. dollars
at current rates in effect at the balance sheet date. Since April 1991, the
Argentine government has maintained an exchange rate of one Argentine peso to
one U. S. dollar.
NOTE 2 - LATIN AMERICAN OPERATIONS
During the fiscal year ended March 31, 1995, the Company concentrated its
operations in Argentina. Effective as of April 1994, the Company entered into a
contractual joint venture (the "Joint Venture") to acquire cable television and
communications properties in Latin America. To facilitate the Company's
participation in the Joint Venture, two new subsidiaries were formed: Austral
and CASA (the equity interests of which are being held by nominees for the
benefit of Austral and Metserco Holdings, Inc.). During the fiscal year ended
March 31, 1995, the Company, through Austral, loaned or committed to loan an
aggregate of approximately $16 million to its partners in the Joint Venture (the
"Joint Venture Partners"), for the purpose of acquiring five Argentine companies
owning cable television systems in Argentina (the "Argentine Cable Companies").
The Argentine Cable Companies are as follows: Televisora, Canal 2, CVG, RTC and
AVC.
To facilitate the activities of the Joint Venture in Argentina, the Company
and the Joint Venture Partners formed two new Argentine Sociedad Anonimases: SMR
and CableDifusion (collectively referred to as the "Argentine Joint Venture
Companies"). CableDifusion was formed for the purpose of providing management
services to the Argentine Cable Companies. SMR was formed to pursue licenses to
own and operate businesses deploying Enhanced Specialized Mobile Radio and/or
related technologies in Argentina.
Austral, which is a venturer in the Joint Venture, holds an indirect 90.0
percent interest in each of the Argentine Cable Companies and Argentine Joint
Venture Companies. The Company has two domestic partners each of whom holds an
indirect 3.3 percent interest in the Company's interest in each of the Argentine
Cable Companies and Argentine Joint Venture Companies. However, the interest
of the two domestic partners is subject to certain conditions, and only after
those conditions are met are they entitled to the indirect 3.3 percent interest.
Thus, the Company holds an 84.0 percent joint venture interest in each of the
Argentine Cable Companies which is subject to the loans from Austral.
In April 1994, the Company committed to loan to the Joint Venture Partners
$1.5 million (the "Televisora Loan") to acquire Televisora, the Argentine
company that owns and operates the cable television system in Ushuaia, the
provincial capital of Tierra del Fuego, Argentina. Through the Joint Venture,
the Company indirectly holds an 84.0 percent economic interest in Televisora.
Televisora was acquired for $1.5 million payable as follows: $750,000 at
closing with the balance payable over 12 months. At March 31, 1995, the Company
had advanced approximately $1.5 million of the Televisora Loan.
In August 1994, the Company committed to loan to the Joint Venture Partners
$5.5 million (the "Canal 2 Loan") to acquire 100 percent of the outstanding
equity and pay certain obligations of Canal 2, the Argentine company that owns
and operates a cable television system in Rio Gallegos, the capital of Santa
Cruz Province, Argentina. Through the Joint Venture, the Company indirectly
holds an 84.0 percent economic interest in Canal 2. The acquisition price was
$4.9 million payable as follows: $4.5 million at closing with a $400,000 balance
payable in 30 days subject to certain closing adjustments. At March 31, 1995,
the Company had advanced the entire $5.5 million of the Canal 2 Loan, and all
proceeds of the Canal 2 Loan in excess of the purchase price were contributed to
Canal 2 as equity. The Company anticipates providing additional loans to the
Joint Venture Partners over the next six to 12 months for the purpose of
financing Canal 2 capital expenditures.
29
<PAGE>
In December 1994, the Company committed to loan to the Joint Venture
Partners $4.8 million (the "RTC Loan") to acquire RTC, the Argentine Company
that owns and operates the cable television system in Reconquista, which is in
Santa Fe Province, Argentina. Through the Joint Venture, the Company indirectly
holds an 84.0 percent economic interest in RTC. The acquisition price was $4.6
million payable as follows: $2.8 million at closing with the $1.8 million
balance payable over the following 12 months. At March 31, 1995, the Company
had advanced approximately $3.4 million of the RTC Loan and anticipates
advancing the balance of the loan commitment over the next nine months.
In February 1995, the Company committed to loan to the Joint Venture
Partners $1.3 million (the "AVC Loan") to acquire AVC, the Argentine Company
that owns and operates the cable television system in Avellaneda, which is in
Santa Fe Province, Argentina. Through the joint venture, the Company indirectly
holds an 84.0 percent economic interest in AVC. The acquisition price was $1.3
million payable as follows: $900,000 cash at closing and the balance payable
over the following 10 months. At March 31, 1995, the Company had advanced
approximately $942,000 of the AVC Loan and anticipates advancing the balance of
the commitment over the next nine months. Avellaneda is within close proximity
to Reconquista, and concurrent with the acquisition of AVC, the operations of
AVC and RTC were consolidated.
In February 1995, the Company committed to loan to the Joint Venture
Partners $1.9 million (the "CVG Loan") to acquire CVG, the Argentine Company
that owns and operates a cable television system in Rio Gallegos, which is in
Santa Cruz Province, Argentina. Through the Joint Venture, the Company
indirectly holds an 84.0 percent economic interest in CVG. The acquisition
price was $1.9 million payable as follows: $350,000 at closing with the balance
payable over the next 14 months. At March 31, 1995, the Company had advanced
approximately $350,000 of the CVG Loan and anticipates advancing the balance of
the commitment over the next 13 months. CVG competed directly against Canal 2,
and concurrent with the acquisition of CVG, the operations of CVG and Canal 2
were consolidated.
The Company's economic interests derived through the Joint Venture are
indirect and contractual in nature. Given this legal structure and the
governmental uncertainties regarding the control and ownership of Argentine
cable television systems by foreign entities, the requirements for consolidating
the financial statements of the Argentine Cable Companies as outlined in
Statement of Financial Accounting Standards No. 94 were not met until March 27,
1995. On that date, the Comite Nacional de Radiofusion ("COMFER"), an Argentine
governmental entity which is similar to the Federal Communications Commission in
the United States, promulgated the rules and regulations for companies domiciled
in the United States to own and operate cable television companies in Argentina.
Prior to March 27, 1995, the Company had recorded the Televisora Loan, Canal 2
Loan, RTC Loan, AVC Loan and CVG Loan as a note receivable, and no further
accounting entries were made to reflect its indirect 84.0 percent economic
interest in Televisora, Canal 2, RTC, AVC and CVG. At March 31, 1995, in
response to the rules and regulations promulgated by COMFER, the Company
consolidated for financial reporting purposes the balance sheets of the Company,
the Argentine Cable Companies and the Joint Venture Companies. Beginning April
1, 1995, the Company will consolidate for financial reporting purposes the
statements of income of the Company, the Argentine Cable Companies and the
Argentine Joint Venture Companies.
The acquisitions of the Argentine Cable Companies were accounted for under
the purchase method. For financial reporting purposes, the Argentine Cable
Companies were deemed to have been acquired on March 27, 1995, the date on which
(i) COMFER promulgated definitive rules and regulations for companies domiciled
in the United States to own and operate cable television systems in Argentina,
and (ii) the Company met the requirements of FAS 94 for consolidating for
financial reporting purposes. The Joint Venture Partners have obtained
valuations of the tangible assets of the Argentine Cable Companies, and the
franchise costs have been calculated as the difference between the cost of
acquiring the cable television systems and the amounts assigned to their
tangible assets pursuant to the valuations.
30
<PAGE>
The Argentine Cable Companies had fiscal year ends for financial reporting
purposes that were different from that of the Company. The following unaudited
pro forma summary results of operations was prepared based upon (i) the
assumption that the acquisitions of the Argentine Cable Companies were
consummated at the beginning of each fiscal year, and (ii) the aggregation of
financial results, as adjusted, of the Argentine Cable Companies as of the
fiscal year ends which most closely correspond to the fiscal year end of the
Company.
Fiscal Year
Ending
3/31/95
(Unaudited)
-----------
Revenues $10,334,110
Net income applicable to common stock $ 39,568
Earnings per share $ --
The unaudited pro forma summary results of operations presented above are
not necessarily indicative of results of operations that would have occurred had
the acquisitions been made at the beginning of the year or of future results of
operations of the combined businesses.
NOTE 3 - PLANT AND EQUIPMENT:
Plant and equipment at March 31, 1995 and 1994 consisted of the following:
March 31, 1995 March 31, 1994
-------------- --------------
Cable systems and related assets $1,540,934 $ --
Support Equipment 591,195 --
Leasehold Improvements 104,499 --
Machinery, furniture and equipment 77,191 79,686
---------- --------
2,313,819 79,686
Less: Accumulated depreciation (19,365) (60,735)
---------- --------
$2,294,454 $ 18,951
========== ========
NOTE 4 - OTHER CURRENT LIABILITIES:
Other current liabilities at March 31, 1995 and 1994 consisted of the
following:
March 31, 1995 March 31, 1994
-------------- --------------
Accrued payroll and social charges $ 515,804 $ --
Net deferred tax liability 146,595 --
Advances from subscribers 157,950 --
Accrued preferred stock dividends 86,734 86,734
Accrued group health insurance -- 53,785
Other accrued liabilities 278,966 59,714
---------- --------
$1,186,049 $200,233
========== ========
31
<PAGE>
NOTE 5 - LONG-TERM DEBT UNRELATED PARTIES:
The long-term debt of the Company at March 31, 1995 and 1994 consisted of
the following:
March 31, 1995 March 31, 1994
-------------- --------------
Note payable to an individual in monthly
installments of $152,900 including principal
and imputed interest. In calculating the
imputed interest, the note has been discounted
20%, and is scheduled to mature in
December 1995. $1,268,097 $ --
Note payable to an individual in monthly
installments of $100,000 including principal
and interest. The stated rate of interest is
10% and is scheduled to mature in May 1996. 1,400,000 --
Note payable to an individual in monthly
installments of $42,000 including principal
and imputed interest. In calculating the
imputed interest, the note has been
discounted 20%, and is scheduled to mature
in December 1995. 348,333 --
Note payable to a bank, at an average fixed
rate of 19.55%, with variable annual payments
with the final maturity in March 2000 167,520 --
Note payable to an individual in monthly
installments of $70,000 including principal
and interest. The stated rate of interest
is 14%, including principal and interest
and is scheduled to mature in April 1995. 62,500 --
---------- ----
3,246,450 --
Less current portion 2,958,185 --
---------- ----
$ 288,265 $ --
---------- ----
NOTE 6 - LONG-TERM DEBT - RELATED PARTIES:
Long-term debt - related parties of the Company at March 31, 1995 and 1994
consisted of a severance agreement payable to a former officer in monthly
installments of $10,833 commencing November 1989 and ending October 1994. Based
upon an imputed interest rate of 11%, the outstanding balance was $0 and $73,128
(of which $0 and $73,128 was classified as the current portion of long-term debt
- - related parties) at March 31, 1995 and 1994, respectively. During fiscal 1995
and 1994, interest expense on this note totaled approximately $3,000 and
$15,000, respectively.
32
<PAGE>
NOTE 7 - INCOME TAXES:
As previously discussed, the Company prospectively adopted FAS 109 as of
April 1, 1993. Total income tax expense for the years ended March 31, 1995 and
1994 consisted of the following:
March 31, 1995 March 31, 1994
-------------- --------------
Current $195,000 $ 82,000
Deferred (18,000) 729,000
-------- --------
Total $177,000 $811,000
======== ========
The provision for income taxes differs from that computed at the federal
statutory corporate tax rate as follows:
March 31, 1995 March 31, 1994
-------------- --------------
Statutory rate 34% 34%
Alternative minimum tax -- 5%
Tax effect of permanent differences
and other 9% (18%)
-- ---
Total 43% 21%
== ==
In fiscal 1995, the rate differential related primarily to timing differences
associated with certain assets of the discontinued operations. In fiscal 1994,
the difference related primarily to (i) Metserco Holdings recognizing a loss on
the sale of substantially all of its assets for federal income tax reporting
purposes and a gain for financial reporting purposes; and (ii) the change in the
valuation allowance.
The income tax expense for the years ended March 31, 1995 and 1994 was
allocated as follows:
March 31, 1995 March 31, 1994
-------------- --------------
Loss from continuing operations $ -- $(206,000)
Income from discontinued operations 177,000 603,000
Gain on sale of substantially all the assets
of Metserco Holdings -- (205,000)
Gain on sale of substantially all the assets
of Tescorp Seismic Products -- 619,000
-------- ---------
$177,000 $ 811,000
======== =========
33
<PAGE>
The components of and changes in the net deferred tax asset were as
follows:
March 31, 1995 March 31, 1994
-------------- --------------
Federal regular tax operating loss
carryforwards $ 2,655,000 $ 2,845,000
Bad debt deduction 117,000 147,000
Foreign tax credit 84,000 --
Alternative minimum tax 10,000 --
Accrued health insurance -- 21,000
Deferred gain on sale -- (173,000)
Other 8,000 1,000
----------- -----------
2,874,000 2,841,000
Valuation allowance (2,856,000) (2,841,000)
----------- -----------
18,000 --
Deferred tax liability-plant and equipment (164,595) --
----------- -----------
Net deferred tax liability $ (146,595) $ --
=========== ===========
At March 31, 1994, the Company had net operating loss carryforwards that
could be utilized to offset future taxable income of an estimated $8.4 million
for federal income tax purposes. However, as a result of a change in control as
defined under Section 382 of the Internal Revenue Code, the annual utilization
of the net operating loss carryforward is estimated to be limited to $1.4
million of annual taxable income.
NOTE 8 - CAPITAL STOCK:
Annual dividends of $0.50 per share of Series 1990 10% Convertible
Preferred Stock (Series 1990 Preferred Stock) are payable on a quarterly basis.
Each share of Series 1990 Preferred Stock is convertible into shares of the
Company's common stock determined by dividing $5.00 by an initial conversion
price of $3.50 per share. Such conversion price has been adjusted as follows:
Date Conversion Price
- ---- ----------------
July 12, 1991 $3.00
July 12, 1992 3.30
July 12, 1993 3.63
July 12, 1994 3.99
The conversion price established on July 12, 1994 will remain in effect
thereafter.
Shares of Series 1990 Preferred Stock are redeemable at the option of the
Company at a price equal to $5.00 per share plus any accrued and unpaid
dividends. Terms of the Series 1990 Preferred Stock provide that the Company
may redeem no fewer than 70,000 shares at any one time unless all outstanding
shares are being redeemed. Only one redemption per quarter is permitted and the
Company is precluded from making a partial redemption if there are fewer than
200,000 shares of Series 1990 Preferred Stock outstanding. Holders of Series
1990 Preferred Stock shares are entitled to one vote per share on all matters
for which holders of common stock may vote (voting as a single class with the
shares of common stock) and are entitled to a liquidation preference of $5.00
per share plus any accrued or unpaid dividends.
34
<PAGE>
An escrow account arrangement was created at the time of the issuance of
the Series 1990 Preferred Stock to provide an alternative source of funds for
payment of dividends and liquidation preferences in the event of a default by
the Company. The escrow account arrangement includes a $500,000 irrevocable
letter of credit, 100,000 shares of the Company's common stock and first lien
mortgages on certain real restate owned by the Company.
NOTE 9 - STOCK OPTIONS AND WARRANTS:
The following paragraphs summarize the outstanding options and warrants of
the Company. Unless otherwise stated, the exercise price was equal to or
greater than the fair market price of the stock at the date of grant.
The Company has issued stock options to purchase 396,432 shares of common
stock (the "1993 Options"). The 1993 Options were exercisable upon issuance
and expire on July 11, 1995. The exercise price under these options was $3.50
per share at the time of issuance, increasing by 2.5% on a quarterly basis
commencing October 1, 1991. Effective September 30, 1994, these options were
amended to freeze the exercise price at $4.70 per share (the price in effect at
the time of amendment).
Pursuant to the Company's 1991 Incentive Plan, the Board of Directors may
grant stock options and limited stock appreciation rights with respect to an
aggregate of 1,400,000 shares of common stock. In October 1993, 650,000
options were granted at an exercise price of $1.25 per share. All of the
options granted are exercisable based on a four year vesting schedule. None of
the options granted pursuant to the 1991 Incentive Plan were exercised during
fiscal 1994. At March 31, 1995, 650,000 options were outstanding, and 162,500
were exercisable.
Pursuant to the Company's 1993 Non-Employee Director Stock Option Plan
("NEDSOP"), the Company may grant options with respect to an aggregate of
150,000 shares of common stock. In October 1993, 66,666 options were granted at
an exercise price of $1.21 per share. Effective as of March 4, 1994, 8,334
options were granted at an exercise price of $1.63 per share. All of the
options granted are exercisable based on a three year vesting schedule. None of
the options granted pursuant to the NEDSOP were exercised during fiscal 1995.
At March 31, 1995, 50,000 options were outstanding, 16,667 shares were
exercisable.
The Company has additional stock options and warrants which had been issued
prior to fiscal 1991. In connection with the recapitalization of the Company,
the number of shares of common stock issuable upon exercise of the warrants and
options and the related exercise price were adjusted to reflect the exchange of
$.01 par value common stock for $.02 par value common stock. The amounts
discussed in the following three paragraphs have been adjusted for the effect of
such change.
The stock options and warrants issued prior to fiscal 1991 include stock
options issued to certain employees to purchase 36,405 shares of the Company's
common stock at $6.18 per share. These options expire in 1998 and were
exercisable at March 31, 1991. On March 31, 1992, 4,045 of these options were
canceled upon the resignation of an officer of the Company under the terms of
the option. During fiscal 1994, 8,090 of the options were canceled upon
resignation of two employees of the Company. At March 31, 1995, 24,270 options
were outstanding and exercisable.
The Company has 326,350 of additional warrants outstanding to purchase
shares of the Company's common stock at an exercise price of $1.24 per share.
These warrants expire in June 1996.
On April 24, 1991 the Company issued warrants to a director and to an
affiliated party to purchase 50,000 shares each of the Company's common stock at
$2.00 per share as compensation for certain investment banking services. These
warrants, which expire in April 1996, were exercisable at March 31, 1995.
35
<PAGE>
In October 1994, the Company issued stock warrants to purchase 100,000
shares of common stock (the "1994 Warrants"). The 1994 Warrants are only
excercisable upon the occurrence of certain events and expire in October 1996.
The exercise price is $2.00 per share.
A summary of Warrants and Options outstanding at March 31, 1995, is as
follows:
Number of Average
Shares Exercise Price
--------- --------------
Outstanding at March 31, 1993 3,775,432 $3.84
Issued during fiscal year 1994 716,666
Exercised, expired or canceled during fiscal
year 1994 (2,858,795)
----------
Outstanding at March 31, 1994 1,633,303 $2.12
Issued during fiscal year 1995 108,334
Exercised, expired or canceled during fiscal
year 1995 (94,585)
----------
Outstanding at March 31, 1995 1,647,052 $2.24
==========
NOTE 10 - RELATED PARTY TRANSACTIONS:
Certain expenses have been allocated to the Company for administrative and
other services provided by an entity affiliated with the Company's principal
stockholder. Such expenses totaled approximately $91,000 and $74,000 during
fiscal 1995 and 1994, respectively.
NOTE 11 - OPERATING LEASES:
The Company leases various buildings, equipment and office facilities under
operating leases ranging from one year to 12 years. The total minimum future
lease payments under these lease payments under non-cancelable operating leases
having an initial term of one year or more are as follows:
Lease
Fiscal Year Ended Expense
----------------- -------
March 31, 1996 $279,688
March 31, 1997 223,104
March 31, 1998 129,772
March 31, 1999 72,732
Thereafter 192,819
--------
Total 898,115
========
Total rental expense under operating leases for the years ended 1995 and
1994 was approximately $15,000 and $268,000, respectively. Rent expense for
years ended 1995 and 1994 included approximately $0 and $26,000 of payments to
related parties, respectively.
36
<PAGE>
NOTE 12 - EARNINGS PER SHARE DATA:
A reconciliation of the weighted average number of shares outstanding with
the number of shares used in the computation of primary earnings per share is as
follows:
Fiscal Year Ended March 31,
---------------------------
1995 1994
-------- --------
Weighted average number of shares outstanding 7,111,712 7,096,741
Stock warrants and options 250,053 47,146
--------- ---------
Weighted average number of common and common
equivalent shares 7,361,765 7,143,887
========= =========
NOTE 13 - DISCONTINUED OPERATIONS:
Effective February 9, 1994, the Company sold substantially all of the
assets of its Tescorp Seismic Products Company division and the stock of its
Reed Products, Inc. subsidiary (collectively referred to as "Tescorp Seismic")
to a wholly-owned subsidiary of Input/Output, Inc. ("I/O"). At closing the
Company received $4.4 million of cash and a $2.0 million promissory note
guaranteed by I/O (paid in full on June 1, 1994). In addition to the proceeds
payable at closing, the Company retained all of the accounts and notes
receivable of Tescorp Seismic and certain of its prepaid expenses, deposits and
liabilities. The purchase price was adjusted to reflect changes in certain
account balances, including but not limited to inventory and property, plant and
equipment, which occurred between November 30, 1993, and the closing date. The
Company recognized a gain on this sale in the amount of approximately $1.2
million, net of closing adjustments and provision for federal income taxes.
Effective July 8, 1993, the Company sold substantially all of the assets of
its Metserco Holdings, Inc. ("Holdings") subsidiary and the Metserco Corporation
("Metserco") subsidiary of Holdings to a wholly-owned subsidiary of Wheatly*TXT
Corporation ("Wheatley*TXT"). In conjunction with the sale of the Holdings
assets, the Company conveyed to Wheatley*TXT the right to use the "Clif Mock
Company" name. All references herein to Metserco Holdings shall refer to the
Company's subsidiary which was previously know as Clif Mock Company or Clif
Mock.
At closing, the Company received $5.0 million of cash and a two-year,
$1.0 million note issued by Wheatley*TXT and convertible at the Company's option
into Wheatley*TXT common stock. In addition to the proceeds payable at closing,
the Company received the first $500,000 of Metserco Holdings' accounts
receivable collected by Wheatley*TXT. The Company retained certain liabilities
of Metserco Holdings, Inc. and Metserco, and the purchase price paid by
Wheatley*TXT was subject to closing costs and adjustments based upon changes in
the balance of asset and liability accounts subsequent to closing. The Company
recognized a gain on this sale in the amount of $973,797, net of closing
adjustments and income tax benefit.
Because a sale of the assets of Tescorp Seismic, Metserco Holdings and
Metserco has been consummated, the Company has reflected the results from their
operations as discontinued operations separate from the continuing operations of
the Company.
37
<PAGE>
Revenues and operating income by each discontinued business segment are as
follows:
For the Year Ended March 31,
----------------------------
1995 1994
-------- --------
Revenues:
Geophysical products $690,880 $13,500,653
Oil and gas production products -- 3,734,895
-------- -----------
Total $690,880 $17,235,548
======== ===========
Operating profit (loss):
Geophysical products 747,264 1,738,097
Oil and gas production products (69,409) 184,461
-------- -----------
Total 677,855 1,922,558
======== ===========
Income before income taxes 761,692 1,956,611
Income tax expense 177,000 603,000
-------- -----------
Income from discontinued operations $584,692 $ 1,353,611
======== ===========
The net assets related to discontinued operations consisted of the
following and are reflected in the accompanying balance sheet:
March 31, 1995 March 31, 1994
-------------- --------------
Accounts and notes receivable, net $ -- $ 966,976
Property, plant & equipment, net 322,234 349,749
Accounts payable (17,095) (6,563)
Accrued liabilities (104,564) (390,267)
--------- ---------
$ 200,575 $ 919,895
========= =========
NOTE 14 - SUBSEQUENT EVENTS
On May 4, 1995, the Company completed a $9.6 million private placement of
common stock at $2.00 per share. Proceeds from the private placement will be
used to fund the acquisition of additional interests in Argentine cable
television companies and provide working capital.
On May 8, 1995, the Company announced that it had acquired for $300,000 an
option (the "Bariloche Option") to finance the acquisition of and obtain an
indirect 84.0 percent economic interest in 80.0 percent of the outstanding
equity of Teveca S.R.L. ("Teveca") and Cable Plus S.A. ("Cable Plus"), the
companies that provide cable television service to San Carlos de Bariloche which
is located in Rio Negro Province, Argentina. On June 20, 1995, the company
provided a "bridge loan" to the Joint Venture Partners in the amount of $2.1
million to finance their acquisition of a 30.0 percent interest in Teveca and
Cable Plus. Management of the Company believes that a significant likelihood
exists that the Company will exercise all or part of the Bariloche Option, as
amended, and fund an additional amount of $4.0 million to finance the
acquisition by the Joint Venture Partners of an additional 50.0 percent interest
in Teveca and Cable Plus and obtain an indirect 84.0 percent economic interest
in the Joint Venture Partners' interests in Teveca and Cable Plus.
38
<PAGE>
NOTE 15 - COMMITMENTS AND CONTINGENCIES
From time to time, the Company may have contingent liabilities resulting
from claims and commitments incident to the ordinary course of business.
Management believes that the probable resolution of any such contingencies will
not materially affect the financial position or results of operations of the
Company.
In connection with the private placement described in Note 14, the Company
agreed to use its best efforts to cause the shares to be registered by August
31, 1995. If the Company is not successful, the it will be required to issue
approximately 1.9 million warrants to acquire shares of common stock at a
exercise price of $2.25 per share.
NOTE 16 QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
Revenues $ -- $ -- $ -- $ --
Income (loss) from continuing operations (112,681)* 55,192 * (134,265)* (163,892)
Net income (loss) from discontinued operations 30,102 * (40,525)* 345,492 * 249,624
Net income (loss) (82,579) 14,667 211,227 85,732
Preferred stock dividends (86,734) (86,734) (86,734) (86,734)
Net income (loss) applicable to common stock (169,313) (72,067) 124,493 (1,002)
Earnings (loss) per common share
Loss from continuing operations $ (0.02) $ -- $ (0.04) $ (0.03)
Income from discontinued operations -- (0.01) 0.05 0.03
--------- -------- -------- --------
Earnings (loss) per common share $ (0.02) $ (0.01) $ 0.01 $ --
========= ======== ======== ========
</TABLE>
Items marked with an "*" have been reclassified from previously reported
Form 10Q's to conform with current period presentation.
39
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Directors, Executive Officers and Key Employees
All of the persons listed below are members of the present Board of
Directors and have consented to be named in the Proxy Statement for the next
annual meeting of shareholders and to serve as directors, if elected. Please
refer to Item 11 under the caption "Security Ownership of Certain Beneficial
Owners and Management" which sets forth certain additional information with
respect to each of the members of the Board of Directors as of June 19, 1995.
Jack R. Crosby, age 68, has been Chairman of the Board of Directors of the
Company since its inception in 1980, and became Chief Executive Officer in 1991.
Mr. Crosby is also Managing General Partner of Rust Group, L.P. ("Rust"), a
Texas limited partnership holding certain of Mr. Crosby's business assets. Mr.
Crosby serves on the board of directors of Battle Mountain Gold and National
Dentex Corporation.
J. Kelly Elliott, age 64, has served as a director of the Company since
1983. Since 1990, Mr. Elliott has been Chairman of the Board and Chief
Executive Officer of Sigma Electronics, a manufacturer and distributor of
electrical transformers. Mr. Elliott has also served since 1992 as Chairman and
Chief Executive Officer of Omnicomp Graphics, Inc., a computer graphics company,
and Seaboard-Avval, Inc., an oilfield equipment manufacturer. From 1983 through
1989 Mr. Elliott was President and Chief Executive Officer of the Company. From
1976 to 1983, Mr. Elliott served as President and Chief Executive Officer of
several wholly-owned subsidiaries of Hughes Tool Company, including Brown Oil
Tools and BJ-Hughes, each of which was engaged in oilfield services. In June of
1993, Mr. Elliott was elected Chairman of the Board of Grant Tensor Geophysical
Corporation, a publicly traded oilfield service company, and he continues to
serve in that capacity.
Jack S. Gray, Jr., age 38, has been a director of the Company since 1989.
Since April 1992, Mr. Gray has been the President and Chief Operating Officer of
the Company. From August 1991 until April 1992, Mr. Gray was President of J&J
Mercantile, an investment firm in Austin, Texas. From April 1991 until August
1991, Mr.
40
<PAGE>
Gray was Deputy Director of Appointments in the Office of the Governor, State of
Texas. From 1985 to 1991, he was the Chief Financial Officer of the "Rust Group"
(which collectively refers to the business activities of Mr. Crosby), and in
this capacity, he served as an officer or director of numerous entities in which
Mr. Crosby held direct and indirect ownership interests. Prior to 1985, Mr. Gray
was an investment banker with Duncan, Smith & Co., San Antonio, Texas. Mr. Gray
serves on the board of directors of Worthen National Bank of Austin, Texas, N.A.
Lee A. Lahourcade, age 38, has been a director of the Company since March
1992. Mr. Lahourcade was president of Rust Capital, Ltd. ("Rust Capital"), a
small business investment corporation with its headquarters in Austin, Texas
from June 1988 to June 1992. Since then, Mr. Lahourcade has served as a
principal at Vaughn, Nelson, Scarborough, McConnell, Inc., a money management
firm. Prior to joining Rust Capital, Mr. Lahourcade was a vice president of
Merrill Lynch & Co. in the investment banking area.
Involvement of Directors in Certain Legal Proceedings
From 1983 to the present, Mr. Crosby participated in the management and
ownership either directly or through indirect ownership, of One American Center
Associates, L.P., a Delaware limited partnership ("One American"). In 1990, One
American filed for protection under Chapter 11 of the United States Bankruptcy
code. One American owned certain commercial real property in Austin, Texas.
Because of the deterioration of the Texas real estate market, One American
became unable to meet its debt obligations as they became due. Also in 1990,
Mr. Gray was appointed to serve as managing director of the partnerships with
management responsibility for One American. In 1991 One American was discharged
from bankruptcy.
ITEM 10. EXECUTIVE COMPENSATION
Compensation of Directors
Each director who is not an employee of the Company receives $300 for each
board meeting attended, plus $150 for each committee meeting attended.
Employees of the Company are not paid directors fees. No member of the Board of
Directors was paid any compensation in the Company's 1995 fiscal year for his
service as a director of the Company other than pursuant to the standard
compensation arrangement for directors.
At the annual meeting of shareholders held in October 1993, the 1993 Non-
Employee Directors Stock Option Plan (the "1993 NEDSOP") was approved. Pursuant
to the 1993 NEDSOP, non-employee directors are entitled to receive one option to
purchase 8,333 shares of Company Common Stock upon becoming director, a second
option to purchase an additional 8,333 shares at the completion of one full year
of service, and a third option to purchase an additional 8,334 shares at the
completion of two full years of service. Because each of the non-employee
directors of the Company completed two years of service as directors before
March 31, 1994, each of them received options to acquire a total of 25,000
shares of Company Common Stock at the fair market value of
41
<PAGE>
the stock on the date of grant during fiscal year 1994. All options were granted
at an exercise price of $1.21, except for an option for 8,334 shares granted to
Mr. Lahourcade as of March 1994 (when he completed two full years of service as
a director) which were issued at an exercise price of $1.625.
The 1993 NEDSOP was adopted in order to further the goal of attracting and
retaining highly qualified non-employee directors of the Company and to motivate
them to assert their best efforts for the Company. Non-employee directors are
not eligible to participate in the Company's 1991 Incentive Plan, and, as
employees, neither Mr. Gray nor Mr. Crosby is eligible to participate in the
1993 NEDSOP.
Compensation of Executive Officers
The following table sets forth certain information for the fiscal years
ended March 31, 1995, 1994 and 1993, with respect to the Chief Executive Officer
(Mr. Crosby) and the President (Jack S. Gray, Jr.) as of March 31, 1995. There
were no other executive officers of the Company who received annual compensation
(including salary and bonuses earned) which exceeded $100,000 during fiscal year
1995.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION(B)
FISCAL ------------------------------ (NO. OF STOCK ALL OTHER
YEAR NAME PRINCIPAL POSITION SALARY BONUS OTHER(A) OPTIONS) COMPENSATION
- ------ ---- ------------------ ------ ----- -------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1995 Jack R. Crosby Chairman and CEO $100,000 -- -- N/A --
Jack S. Gray, Jr. President $125,000 -- -- N/A --
1994 Jack R. Crosby Chairman and CEO $100,000 -- -- N/A --
Jack S. Gray, Jr. President $125,000 -- -- N/A --
1993 Jack R. Crosby Chairman and CEO $ 37,500(c) -- -- N/A --
Jack S. Gray, Jr. President $ 79,167 -- -- N/A --
</TABLE>
(a) This column includes benefits (not properly categorized as salary or bonus)
that are in excess of 10% of the annual salary and bonus reported.
(b) During fiscal years 1993 and 1992, the Company did not pay or award any
long-term compensation within the meaning of that term (restricted stock
awards, options and long-term incentive payouts) to any of the named
executive officers.
(c) During fiscal year 1993, Mr. Crosby took a leave of absence to serve as
acting Chief Operating Officer of Imagine Films, Ltd., a company in the
entertainment industry. During that time, his salary was abated and the
duties and responsibilities of the office were performed by Jack S. Gray,
Jr., President and Chief
42
<PAGE>
Operating Officer. Effective March 1, 1993, Mr. Crosby's leave of absence
ended and he resumed the responsibilities of Chief Executive Officer, at
which time his salary was restored.
Stock Option Grants in 1995
The following table shows information concerning individual grants of stock
options during fiscal year 1995 to the named executive officers.
<TABLE>
<CAPTION> POTENTIAL REALIZABLE VALUE
NO. OF AT ASSUMED ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK PRICE APPRECIATION FOR
UNDERLYING OPTIONS OPTION TERM
OPTIONS GRANTED TO EXERCISE EXPIRATION ----------------------------
NAME GRANTED EMPLOYEES PRICE DATE 5% 10%
- ---- ---------- ---------- -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Jack R. Crosby -0- N/A N/A N/A N/A N/A
Jack S. Gray, Jr. -0- N/A N/A N/A N/A N/A
</TABLE>
Stock Option Exercises and Holdings
The following table shows information regarding stock option exercises and
unexercised options held as of the end of fiscal year 1995 by the named
executive officers.
<TABLE>
<CAPTION>
AT MARCH 31, 1995
--------------------------------------------------------------
NUMBER OF UNEXERCISED OPTIONS VALUE OF IN-THE-MONEY OPTIONS
------------------------------- -----------------------------
NAME OPTIONS EXERCISED EXERCISABLE UNEXERCISABLE EXERCISABLE* UNEXERCISABLE*
- ---- ----------------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Jack R. Crosby 0 81,250 243,750 $192,969 $578,906
Jack S. Gray, Jr. 0 81,250 243,750 $192,969 $578,906
</TABLE>
* Based on closing price of $2.375 on March 31, 1995.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the number of shares of the Company's Common
Stock, and Preferred Stock that may be deemed beneficially owned on June 19.
1995 by each person known to the Company to be the beneficial owner of more than
5% of the Company's outstanding voting securities, along with information with
respect to each of the nominees for director and all directors and officers as a
group as of June 19, 1995.
43
<PAGE>
<TABLE>
<CAPTION>
COMMONS STOCK PREFERRED STOCK
-------------------------------------- -------------------------
AMOUNT AMOUNT
AND AND
NATURE OF PERCENT PERCENT NATURE OF PERCENT
BENEFICIAL OF OF BENEFICIAL OF
BENEFICIAL OWNER OWNERSHIP CLASS (1) CLASS (2) OWNERSHIP CLASS(3)
- ----------------------------- ---------------- --------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Jack R. Crosby 532,870(4) 4.4% 4.1% -- --
200 Norwood Tower
114 W. 7th Street
Austin, Texas 78701
Fred Lieberman 1,893,060(5) 15.8% 14.8% -- --
6251 B Park of Commerce
Blvd.
Boca Raton, FL 33487
John C. Kerr and 771,335(6) 6.2% 5.8% 14,794 2.1%
Crandall S. Connors
Kerr, Connors & Co.
One Oak Park, Suite 812
1020 NE Loop 410
San Antonio, TX 78209
J. Kelly Elliott 97,834(7) * * -- --
Jack S. Gray, Jr. 417,472(8) 3.4% 3.2% 9,850 1.4%
Lee A. Lahourcade 10,214(9) * * 2,066 *
K-G, L.P. 1,363,572(10) 11.4% 10.6% -- --
Winston J. Churchill
Frederick M. Danziger
John Fletcher
W&M Management
Company, Inc.
6541 Lexington Avenue
29th Floor
New York, NY 10022
Harvey Sandler 1,000,000(11) 8.4% 7.8% -- --
c/o Sandler Capital
767 Fifth Avenue
45th Floor
New York, NY 10153
Argentina Equity Investment 1,000,000 8.4% 7.8% -- --
Partnership
c/o Citibank N.A.
20 Exchange Place
Level C; Global Custody
Attn: Marti Monti
The SC Fundamental 750,000(12) 6.3% 5.9% -- --
Value Fund, L.P.
SC Fundamental, Inc.
Gary N. Seigler
Peter M. Collery
712 Fifth Avenue
New York, NY 10019
All directors and
officers as a group 1,058,390 8.5% 8.0% 11,350 1.6%
(four persons)
</TABLE>
* Less than one percent
44
<PAGE>
(1) Calculated as the fraction of which the numerator is the total number of
Common Stock shares or Common Stock equivalent shares owned by the
director, officer or holder of 5% or more of the Company's shares (the
"Beneficial Owner") which is calculated as the sum of the number of shares
of Common Stock owned, the number of shares of Common Stock into which the
Preferred Stock owned could be converted, and the number of shares of
Common Stock which could be acquired within 60 days by the exercise of
warrants or options, and the denominator of which is the sum of the total
number of shares of Common Stock outstanding, the number of shares of
Common Stock into which the Preferred Stock owned by the Beneficial Owner
could be converted, and the number of shares of Common Stock which could be
acquired by the Beneficial Owner within 60 days by the exercise of warrants
and options.
(2) Calculated as the fraction of which the numerator is the total number of
Common Stock shares or Common Stock equivalent shares owned by the
Beneficial Owner which is calculated as the sum of the number of shares of
Common Stock owned, the number of shares of Common Stock into which the
Preferred Stock owned could be converted, and the number of shares of
Common Stock which could be acquired within 60 days by the exercise of
warrants or options, and the denominator of which is the sum of the total
number of shares of Common Stock outstanding, the total number of shares of
Common Stock into which the aggregate outstanding Preferred Stock could be
converted, and the number of shares of Common Stock which could be acquired
by the Beneficial Owner within 60 days by the exercise of warrants or
options.
(3) Based on 693,864 shares outstanding.
(4) Excludes 147,773 shares held by the Jack R. Crosby Intervivos Trust as to
which members of Mr. Crosby's immediate family are the beneficiaries and as
to which Mr. Crosby disclaims any voting or investment power. Excludes
801,072 shares and warrants for an additional 52,500 shares held indirectly
by the Sharpe Irrevocable Intervivos Trust as to which Mr. Crosby's wife is
the sole beneficiary and as to which Mr. Crosby disclaims any voting or
investment power. See footnote 10 below. Includes 370,370 shares held
directly by Mr. Crosby but pledged to secure the indebtedness incurred to
obtain the release of the shares from a previous lender and options to
acquire 162,500 shares. Mr. Crosby holds additional options to acquire
162,500 shares that are not exercisable within 60 days. In October 1994,
Mr. Crosby sold 770,979 shares of Common Stock and options and warrants to
acquire an aggregate of 82,593 shares.
(5) Mr. Lieberman filed a Schedule 13D dated March 17, 1992 in which he stated
that he has no current definitive plan to gain control of the Company or to
cause the Company to change its current board of directors or management,
capitalization, dividend policy, business or corporate structure. Mr.
Lieberman acquired such shares pursuant to an Assignment of Stock in Lieu
of Foreclosure pursuant to which certain debt of Mr. Crosby to Mr.
Lieberman was partially satisfied.
(6) Mr. Kerr and Mr. Connors filed a Schedule 13D dated August 27, 1990 with
the SEC in which they indicated, without so admitting, that they may
constitute a "group" for purposes of Section 13(d) of the Securities
Exchange Act of 1934 and the regulations promulgated thereunder. With
respect to Mr. Kerr, this amount includes 99,027 shares held directly,
16,054 shares into which Mr. Kerr's Preferred Stock may be converted,
248,216 shares subject to currently exercisable warrants and options,
51,616 shares held directly by Mr. Kerr's spouse, and 2,485 shares into
which Mrs. Kerr's Preferred Stock may be converted. With respect to Mr.
Connors, the amount includes 105,721 shares held directly, and 248,216
shares subject to currently exercisable warrants and options.
45
<PAGE>
(7) Includes 40,961 shares held directly and 56,873 shares subject to currently
exercisable warrants and options.
(8) Calculated as the sum of the number of shares of Common Stock owned
directly (149,593), plus the following number of shares of Common Stock
into which the shares of Preferred Stock could be converted: 11,341 shares
held by Mr. Gray directly and 1,003 shares held in trust for the benefit of
Mr. Gray's child. Also includes 93,035 shares subject to currently
exercisable warrants. Mr. Gray holds options to acquire 325,000 shares, of
which 162,500 are currently exercisable.
(9) Includes 1,880 shares into which shares of Preferred Stock held directly by
Mr. Lahourcade may be converted and 8,334 shares subject to options granted
to Mr. Lahourcade on October 4, 1994.
(10) K-G, L.P., John Fletcher, W&M Management Company, Inc., Frederick M.
Danziger and Winston J. Churchill, Jr. filed a Schedule 13D on October 26,
1994 in which they indicated they were members of a "group" for the
purposes of Section 13(d) of the Securities Exchange Act of 1934 and the
regulations promulgated thereunder. Includes 801,072 shares held directly
and 52,500 shares subject to warrants, all of which are currently
exercisable by K-G, L.P., 285,000 shares held by Mr. Churchill and his
wife, Barbara G. Churchill, 62,500 shares held by the Winston J. Churchill
Retirement Plan of which Mr. Churchill is a beneficiary, 100,000 shares
held by affiliates of K-G, L.P. other than Mr. Churchill and 62,500 shares
held by Lucy C. Danziger, Trustee U/I/D 6/30/54. The Sharpe Irrevocable
Intervivos Trust holds a limited partnership interest in the 801,072 shares
and the 52,500 shares subject to warrants held directly by K-G, L.P.
(11) Mr. Sandler, 21st Century Communications Partners, L.P., 21st Century
Communications T-E Partners, L.P., 21st Century Communications Foreign
Partners, L.P., Sandler Investment Partners, L.P., Sandler Capital
Management and ARH Media Corp. filed a Schedule 13D dated May 5, 1995 in
which they indicated that they were members of a "group" for the purposes
of Section 13(d) of the Securities Exchange Act of 1934 and the regulations
promulgated thereunder, and that they held directly as a group 1,000,000
shares of Common Stock.
(12) The SC Fundamental Value Fund, L.P., S.C. Fundamental, Inc., Gary N.
Neigler and Peter M. Collery filed a Schedule 13D dated May 2, 1995 in
which they indicated that The SC Fundamental Value Fund, L.P. and S.C.
Fundamental, Inc. were members of a "group," and that Mr. Seigler and Mr.
Collery may, without so admitting, be members of a "group," in each case,
for the purposes of Section 13(d) of the Securities Exchange Act of 1934
and the regulations promulgated thereunder.
46
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As part of the consideration for the purchase by the Company of
substantially all of the assets of American Century Corporation (the "Asset
Purchase"), on July 11, 1990, the Company assigned to Mr. John Kerr, a security
holder of more than 5% of the outstanding Common Stock of the Company, its right
to receive up to 50,000 shares of Common Stock issued to an escrow agent for the
holders of the Preferred Stock upon the release of such shares from escrow. On
February 10, 1994, Metserco Holdings, Inc., the wholly-owned subsidiary of the
Company, purchased the right to receive these shares from Mr. Kerr at $.695 per
share. The Company has also granted Mr. Kerr an option exercisable immediately
and expiring July 11, 1995 to purchase an additional 198,216 shares of Common
Stock at an initial purchase price of $3.50 per share, to be adjusted upward
quarterly by a factor of 2.5% beginning October 1, 1991. In September 1994, the
option was amended to freeze the exercise price at $4.70 per share. Also in
connection with the Asset Purchase, the Company agreed to pay Mr. Kerr an annual
retainer of $40,000 for his service as a director of the Company for the three
years ending June 30, 1993.
In March 1991, the Company retained Kerr, Connors & Co., of which Mr. Kerr
is a general partner, to provide various investment banking services to the
Company. Kerr, Connors & Co. received warrants to purchase 100,000 shares of
the Company's Common Stock at $2.00 per share and $50,000 payable over two years
from the date of engagement, which amount was paid prior to fiscal year 1993.
Management believes that these amounts represent the fair value of the services
rendered.
On October 10, 1989, the Company and J. Kelly Elliott executed a letter
agreement pursuant to which Mr. Elliott's employment with the Company was
terminated effective October 31, 1989. In return for the termination of his
employment agreement and certain agreements respecting future consulting
services, the Company was obligated to make payments under the letter agreement
to Mr. Elliott or his designees of $130,000 per year for five years. During the
fiscal years ended March 31, 1995 and 1994 payments to Mr. Elliott under the
letter agreement were $75,831 and $130,000, respectively.
Rust Management Services, Inc., a Texas corporation ("RMSI") of which Jack
R. Crosby is the sole shareholder, has provided the part-time services of
several of its employees to the Company. Pursuant to this arrangement, the
Company's pro rata share of the expenses associated with RMSI's employment of
these individuals is reimbursed by the Company at RMSI's cost. During the
fiscal years ended March 31, 1995 and March 31, 1994, payments to RMSI pursuant
to this arrangement were approximately $91,000 and $74,000, respectively.
47
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Financial Statements
The following financial statements are set forth under Part II, Item 7
of this Annual Report on Form 10-KSB on the pages indicated
<TABLE>
<CAPTION>
PAGE IN THIS
FORM 10-KSB
------------
<S> <C>
Independent Auditors' Report 22
Consolidated Balance Sheets at March 31, 1995 and 1994 23
Consolidated Statements of Income for the years
ended March 31, 1995 and 1994 24
Consolidated Statements of Stockholders' Equity for the
years ended March 31, 1995 and 1994 25
Consolidated Statements of Cash Flows for the years
ended March 31, 1995 and 1994 26
Notes to Consolidated Financial Statements 27
</TABLE>
Exhibits
--------
(Asterisk indicates exhibits previously filed with the Securities and
Exchange Commission which are incorporated herein by reference to this
Annual Report on Form 10-KSB for the fiscal year ended March 31,
1995.)
EXHIBIT NO. DESCRIPTION
----------- -----------
* 3.1 Restated Articles of Incorporation of Tescorp,
Inc. filed July 11, 1990 [Exhibit 3.1 to Form 8
dated July 18, 1990]
* 4.1 Statement of Resolution Establishing and
Designating the Series 1990 10% Convertible
Preferred Stock of Tescorp, Inc. filed July 11,
1990 [Exhibit 4.1 to Form 8 dated July 18, 1990]
* 4.2 Warrant Agreement dated July 11, 1990 between
Tescorp, Inc. and First Interstate Bank of Texas,
N.A., as Warrant Agent [Exhibit 4.2 to Form 8
dated July 18, 1990]
48
<PAGE>
* 4.3 Escrow Agreement dated July 11, 1990 between
Tescorp, Inc. and First Interstate Bank of Texas,
N.A., as Escrow Agent [Exhibit 4.3 to Form 8 dated
July 18, 1990]
*10.1 Agreement dated March 29, 1985 among Tescorp,
Inc., Trucena American Investments N.V., National
City Venture Corporation, Jack R. Crosby, Jack A.
Morgan, Jr., Jeffery C. Garvey, RC Energy, Ltd.
and Rust Investment Company [Exhibit 10.1 to Form
10 dated June 27, 1990]
*10.2 Tescorp, Inc. Incentive Stock Option Plan [Exhibit
10.2 to Form 10 dated June 27, 1990]
*10.3 Form of Stock Option Agreements between Tescorp,
Inc. and Incentive Stock Option Plan Participants
[Exhibit 10.3 to Form 10 dated June 27, 1990]
*10.4 Registration Rights Agreement dated July 11, 1990
[Exhibit 10.4 to Form 8 dated July 18, 1990]
*10.5 Option Agreement between Tescorp, Inc. and John C.
Kerr [Exhibit 10.5 to Form 8 dated July 18, 1990]
*10.6 Severance Agreement dated November 1, 1989 between
Tescorp, Inc. and J. Kelly Elliott [Exhibit 10.6
to Form 10 dated June 27, 1990]
*10.7 Warrant dated July 11, 1990 issued to National
City Venture Corporation [Exhibit 10.7 to Form 8
dated July 18, 1990]
*10.8 Warrant dated July 11, 1990 issued to Mid-West
Holdings Limited Partnership [Exhibit 10.8 to Form
8 dated July 18, 1990]
*10.9 Warrant dated July 11, 1990 issued to Jack A.
Morgan, Jr. [Exhibit 10.9 to Form 8 dated July 18,
1990]
*10.10 Warrant dated April 18, 1985 issued to Jack R.
Crosby, L.P. [Exhibit 10.10 to Form 8 dated July
18, 1990]
*10.11 Warrant dated July 11, 1990 issued to Rust Group,
L.P. [Exhibit 10.11 to Form 8 dated July 18, 1990]
*10.12 Lease Agreement dated June 30, 1989 by and between
Gerald Hazelhurst and Tescorp, Inc. [Exhibit 10.12
to Form 10-K dated June 28, 1991]
*10.13 Agreement dated January 12, 1978 by and between
A.C. Mock and Clif Mock Company [Exhibit 10.13 to
Form 10-K dated June 28, 1991]
49
<PAGE>
*10.14 Renewal and Modification of Lease Agreement dated
October 21, 1983 by and between A.C. Mock and Clif
Mock Company [Exhibit 10.14 to Form 10-K dated
June 28, 1991]
*10.15 Renewal and Modification of Lease Agreement dated
August 5, 1987 by and between A.C. Mock and Clif
Mock Company [Exhibit 10.15 to Form 10-K dated
June 28, 1991]
*10.16 Renewal and Modification of Lease Agreement dated
December 28, 1987 by and between A.C. Mock and
Clif Mock Company [Exhibit 10.16 to Form 10-K
dated June 28, 1991]
*10.17 Agreement between C. Robert Bunch and Tescorp,
Inc. dated July 26, 1991 [Exhibit 10.17 to Form
10-K dated June 28, 1991]
*10.18 Employment Contract between James H. Miller and
Tescorp, Inc. effective April 1, 1992
*10.19 Asset Purchase Agreement among Input/Output, Inc.,
Tescorp Seismic Products, Inc. and Tescorp, Inc.
dated February 4, 1994 [Exhibit 10.19 to Form 10-
QSB dated February 11, 1994]
*10.20 Asset Purchase Agreement among Tescorp, Inc. Clif
Mock Company, Metserco Corporation, Wheatly*TXT
Corp. and Mock Holdings, Inc. dated July 8, 1993
[Exhibit 2 to Form 8-K dated July 21, 1993]
*10.21 Tescorp, Inc. 1993 Non-Employee Directors Stock
Option Plan [Exhibit 10.21 to Form 10-KSB dated
July 1, 1994]
*10.22 Form of Stock Option Agreements between Tescorp,
Inc. and Non-Employee Directors Stock Option Plan
Participants [Exhibit 10.22 to Form 10-KSB dated
July 1, 1994]
*10.23 Tescorp, Inc. 1991 Incentive Plan [Exhibit 10.23
to Form 10-KSB dated July 1, 1994]
*10.24 Form of Incentive Stock Option Agreements between
Tescorp, Inc. and Tescorp, Inc. 1991 Incentive
Plan Participants [Exhibit 10.24 to Form 10-KSB
dated July 1, 1994]
*10.25 Form of Subscription Agreements between Tescorp,
Inc. and subscribers of common stock, $0.02 par
value, of Tescorp, Inc. [Exhibit 4.1 to Form 8-K
dated May 5, 1995]
50
<PAGE>
*22.1 Subsidiaries of the registrant [Exhibit 22.1 to
Form 8 dated August 24, 1990]
24.1 Auditors' Consent
(b) Reports on Form 8-K
-------------------
The following is the date and description of the events reported on
Form 8-K covering events in the fourth quarter of fiscal year 1995:
DATE OF EARLIEST
DATE EVENT REPORTED
FILED ON FORM 8-K DESCRIPTION
----- ----------- -----------
May 5, 1995 April 21, 1995 Sale of Common Stock
51
<PAGE>
As filed with the Securities and Exchange Commission on August 28, 1995.
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended March 31, 1995
OR
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 0-18663
TESCORP, INC.
(Name of small business issuer in its charter)
Texas 74-2129403
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
327 Congress Avenue, Suite 200 78701
Austin, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number: (512) 476-2995
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $0.02 per share
(Title of class)
Series 1990 10% Convertible Preferred Stock
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES [X] NO [_]
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Issuer's revenues for the fiscal year ended March 31, 1995: $-0-
At June 19, 1995 the aggregate market value of Common Stock, $0.02 par value
of the Registrant held by non-affiliates was $27,107,884.
At June 19, 1995, the aggregate market value of Series 1990 Convertible
Preferred Stock, $1.00 par value, held by non-affiliates was $3,327,256.
At June 19, 1995, the registrant had 11,947,433 outstanding shares of Common
Stock, $0.02 par value.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations for the Year Ended March 31, 1995
as Compared to the Year Ended March 31, 1994
Revenues. During fiscal 1994, the sales of the assets of Tescorp Seismic and
Metserco Holdings were consummated. Therefore, the results of their operations
were recorded as discontinued operations. Accordingly, for the fiscal years
ended March 31, 1995 and 1994, the Company recorded no net sales. The Company
will consolidate the earnings from its Latin America operations beginning with
the first quarter of fiscal 1996. Therefore, period-to-period comparability for
fiscal 1996 compared to fiscal 1995 will be distorted. See Note 2 to the Notes
to Consolidated Financial Statements.
Cost of Sales. For the years ended March 31, 1995 and 1994, the Company
recorded no cost of sales as a result of the classification of the operations of
Tescorp Seismic and Metserco Holdings as discontinued operations separate from
the continuing operations of the Company.
Selling, General & Administrative Expense. In fiscal 1995, selling, general
and administrative expenses increased 73.9 percent to $1.5 million primarily as
a result of higher insurance costs, increases in expenses incurred with
professional service providers, increases in shareholder relations costs, higher
travel related expenses and the consolidation of $200,825 of expenses incurred
by CASA, CableDifusion and SMR in connection with the Company's activities in
Latin America. The results of CASA, CableDifusion and SMR met the requirements
for consolidation as outlined in FAS 94 in fiscal 1995. No selling, general and
administrative expenses were recorded for Tescorp Seismic or Metserco Holdings
due to their classification as discontinued operations separate from the
continuing operations of the Company.
Unusual Items. The Company reported no unusual items for fiscal 1995 or 1994.
Other Income and Expense. During fiscal 1995, other income increased
significantly to $1.1 million from $212,755. Interest income increased
significantly to $1.0 million from $208,380 primarily as a result of the
increase in the balance of interest bearing cash and cash equivalents, short-
term investments, the notes received by the Company from Wheatley*TXT and I/O
and the notes received by the Company from the Joint Venture Partners in
connection with its financing of the acquisition of the cable systems in Latin
America. In fiscal 1995, the Company reported a gain from the sale of
marketable securities in the amount of $125,334. The Company's other income
decreased to $1,263 from $19,385 and interest expense declined 81.5 percent to
$2,775.
Income Taxes. In fiscal 1995 and 1994, the Company recorded income tax expense
of $177,000 and $811,000, respectively. In fiscal 1994, the Company began
accounting for income taxes in accordance with FAS 109 which was issued in
February 1992. Because of the adoption of FAS 109, the Company recorded in
fiscal 1994 a benefit of approximately $785,000 as a result of the cumulative
effect of the change in accounting principle and a net deferred tax asset of
$729,000. At March 31, 1995, the Company had a net deferred tax liability of
$146,595. See Note 7 to the Consolidated Notes to Financial Statements.
2
<PAGE>
Discontinued Operations. In fiscal 1995 and 1994, income from discontinued
operations was $584,692 and $3.5 million, respectively. In fiscal 1995, the
income from discontinued operations pertained primarily to the collections on a
financing lease and the subsequent exercise of a purchase option contained in
the lease which had been retained by the Company in connection with the sale of
Tescorp. In fiscal 1994, income from discontinued operations included $973,797
and $1.2 million of gains (net of income taxes) on the disposal of substantially
all of the assets of Metserco Holdings and Tescorp Seismic, respectively, and
the balance represented the combined income of their operations for the periods
that they were owned by the Company.
In fiscal 1995, revenues from discontinued operations, which totaled $690,880,
consisted primarily of proceeds from the lease of certain geophysical equipment
which was excluded from the assets conveyed to I/O in connection with the sale
of substantially all of the assets of Tescorp Seismic. The operating profit
from discontinued operations, which totaled $677,855, consisted of $747,264 of
operating profit relating to the discontinued operations of Tescorp Seismic
(operating profit exceeded revenues from this business segment primarily due to
the recovery of $156,237 of bad debt) and $69,409 of operating loss relating to
the discontinued operations of Metserco. The $584,692 of income from
discontinued operations was net of $177,000 of income tax expense.
In fiscal 1994, revenues from discontinued operations, which totaled $17.2
million, consisted of $13.5 million and $3.7 million of revenues from Tescorp
Seismic and Metserco, respectively. Operating profit from discontinued
operations, which totaled $1.9 million, consisted of $1.7 million and $184,461
of operating profits from Tescorp Seismic and Metserco, respectively. The $1.4
million of income from discontinued operations, which excluded gains on the
disposal of substantially all of the assets of Metserco and Tescorp Seismic, was
net of $603,000 of income tax expense.
IMPACT OF INFLATION AND FOREIGN CURRENCY EXCHANGE RATE RISKS
Inflation has not had a material impact on the operations of the Company
during the past three years. In the opinion of management, inflation will not
have a material impact on the results of operation in fiscal 1996. However,
Argentina experienced hyperinflation prior to 1992, and there can be no
assurance that the Argentine government will continue to maintain control over
inflation. Management is unable to predict with any degree of certainty the
future rate of inflation or its financial impact on the Company.
Since April 1991, the Argentine government has maintained an exchange rate of
one Argentine peso to one U. S. dollar. Given this fact, the Company does not
execute hedge transactions to reduce the Company's exposure to foreign currency
exchange rate risks. However, the Company can not predict with any degree of
certainty whether the Argentine government will continue this policy.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1995, the balance sheets of the Argentine Cable Companies and
Argentine Joint Venture Companies were consolidated in the Company's balance
sheet. At March 31, 1994, none of those companies were consolidated. A direct
comparison of the line items on the balance sheets for the two years may result
in a distorted analysis of changes in the financial condition of the Company.
Management encourages the reader to consider independently the following
analyses of liquidity and capital reserves as of March 31, 1995 and March 31,
1994.
3
<PAGE>
At March 31, 1995 and 1994, the Company held $2.8 million and $6.1 million of
cash and cash equivalents, respectively. The $3.4 million decline in cash and
cash equivalents resulted primarily from the funding of loans to the Joint
Venture Partners for the purpose of financing the acquisition of the Argentine
Cable Companies. The cash and cash equivalents consisted of securities offering
a high degree of principal safety. These securities are generally not subject
to or impacted by changes in conditions or trends in any single industry.
However, they may be subject to significant changes in overall economic
conditions, and funds held in accounts outside of the United States may be
subject to a diminution in value caused by foreign currency devaluation or
governmental action.
At March 31, 1995 and 1994, working capital balances totaled negative $2.7
million and positive $13.7 million, respectively. The ratio of current assets-
to-current liabilities was 0.6 times and 32.4 times, respectively. The ratio of
long-term debt-to-total assets was negligible in both years. The decline in
working capital balances and the ratio of current assets-to-current liabilities
related primarily to the decline in cash and cash equivalents caused by the
funding of loans to the Joint Venture Partners for the purpose of financing the
acquisitions of the Argentine Cable Companies and the consolidation of the
balance sheets of the Argentine Cable Companies into the balance sheet of the
Company.
In fiscal 1995 and 1994, the Company used $95,606 and $841,470 of cash in
operating activities. In fiscal 1995: $593,098 of cash was provided by
operating activities from net income ($229,046), the decrease in prepaid
expenses and other assets ($285,218), provision for bad debt expense ($66,913)
and the adjustment for depreciation and amortization ($11,921); and $688,704 of
cash was used in operating activities to adjust for income from discontinued
operations ($584,692), acquire other assets ($21,913), reduce other current
liabilities ($12,473) and increase accounts and notes receivable ($69,626). In
fiscal 1994: $4.5 million of cash was provided by operating activities from net
income ($3.9 million), the decrease in other assets ($562,382) and the
adjustment for depreciation and amortization ($10,980); and $5.3 million of cash
was used in operating activities to reflect the reclassification of income from
discontinued operations ($3.5 million), reflect the cumulative change in
accounting principle ($785,252), increase net accounts and notes receivable
($496,963), increase prepaid expenses and other current assets ($283,931),
decrease other current liabilities ($185,423) and reflect the gain on the sale
of property ($16,008).
In fiscal 1995, $4.1 million of net cash was used in investing activities
compared to $4.3 million of net cash provided by investing activities in fiscal
1994. In fiscal 1995: $8.2 million of cash was provided by investing
activities from proceeds from the maturity of short-term investments ($5.2
million), proceeds from note received on sale of discontinued operations of
Tescorp Seismic ($3.0 million) and proceeds from the principal repayment on
mortgages ($16,483); and $12.3 million was used in investing activities to fund
proceeds to the Joint Venture Partners for the purpose of acquiring the
Argentine Cable Companies ($12.2 million) and make property additions
($134,705). In fiscal 1994: $9.5 million of cash was provided by investing
activities from proceeds from the sale of discontinued operations ($9.4
million), proceeds from the principal repayment on mortgages ($48,315) and
proceeds from the sale of assets ($41,571); and $5.2 million of cash was used in
investing activities to purchase short-term investments ($5.2 million) and make
property additions ($14,631).
In fiscal 1995 and 1994, $413,977 and $531,269 of net cash was used in
financing activities, respectively. In fiscal 1995: $6,087 of net cash was
provided from financing activities from the exercise of warrants, and $420,064
of net cash was used in financing activities to pay dividends on the Company's
Series 1990 Preferred Stock ($346,936) and make principal payments on long-term
debt ($73,128). In fiscal 1994: $157 of net cash was provided from financing
activities from the exercise of warrants; and $531,426 of net cash was used in
financing activities to pay dividends on the Company's Series 1990 Preferred
Stock ($346,936), make principal payments on long-term debt ($114,990) and make
payments to acquire Treasury Stock ($69,500).
4
<PAGE>
In fiscal 1995 and 1994, $1.3 million and $2.4 million of net cash was
provided, respectively, by the discontinued operations of Metserco and Tescorp
Seismic. Management is not anticipating that Metserco or Tescorp Seismic will
impact the results of the Company in fiscal 1996.
The Company's Series 1990 Convertible Preferred Stock provides for cumulative,
annual dividends in the amount of $0.50 per share payable on a quarterly basis.
The Company has not paid dividends on its Common Stock, and it has no plans to
make any such payments in the future.
Southwest Bank of Texas, N.A. ("Southwest") has issued (i) a letter of credit
(the "Preferred Letter of Credit") in the amount of $500,000 to secure the
payment of dividends and the liquidation preference on the Company's Series 1990
Convertible Preferred Stock, and (ii) a letter of credit (the "Televisora Letter
of Credit") in the original amount of $750,000 to secure the balance of the
purchase price owed to the seller of Televisora. At March 31, 1995, the balance
of the Preferred Letter of Credit and Televisora Letter of Credit was $500,000
and $75,000, respectively.
Working capital requirements vary with business conditions and the nature of
the business being conducted. Management minimizes working capital requirements
to the extent practicable. In April 1995, the Company received $9.6 million of
proceeds from the private placement sale of 4.8 million shares of common stock
at $2.00 per share., of which approximately $6 million will be used to fund a
probable acquisition. In the opinion of management, the remainning $3.6 million
together with the cash flow from operations and working capital provide the
Company with sufficient cash to meet its on-going operating requirements through
the current fiscal year which will end on March 31, 1996. Management anticipates
that additional credit facilities will be required to expand the Company via
acquisition.
PLAN OF OPERATION
On a continuous and ongoing basis, the Board of Directors and management
investigates alternative means of maximizing shareholder value including but not
limited to acquisition of various types of companies and businesses. At the
date that this report was issued, the Company was actively pursuing
opportunities to own, operate and/or control communications and cable television
properties in international markets with special emphasis on Latin America. All
prospective acquisitions will be subject to numerous factors including but not
limited to the satisfactory completion of due diligence efforts and the
arrangement of all necessary financing.
The operating characteristics of Latin American cable television and
communications businesses are significantly different than those of Tescorp
Seismic and Metserco Holdings which the Company previously operated.
Additionally, changes in the business, political and economic conditions of
Latin America could materially impact the financial performance of the Company.
Investors should consider that the historical performance of the Company is not
necessarily indicative of its future prospects or performance.
5
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Tescorp, Inc.:
We have audited the accompanying consolidated balance sheets of Tescorp, Inc.
and subsidiaries as of March 31, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tescorp, Inc. and
subsidiaries as of March 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the years in the two year period ended March
31, 1995, in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 7 to the consolidated financial statements, the
Company changed its method of accounting for income taxes effective April 1,
1994 to adopt the provisions of Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes.
/s/ KPMG PEAT MARWICK LLP
-------------------------------
KPMG Peat Marwick LLP
Houston, Texas
June 26, 1995
6
<PAGE>
TESTCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994
------ ------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 2,778,564 $ 6,147,583
Short-term investments - 5,175,594
Accounts receivable 691,059 -
Current maturities of notes receivable - 2,500,000
Prepaid expenses and other current assets 128,149 339,699
------------ ------------
Total current assets 3,597,772 14,162,876
Notes receivable - 500,000
Plant and equipment, net 2,294,454 18,951
Franchise costs 16,682,536
Net assets related to discontinued operations 200,575 919,895
Other assets 243,107 156,287
------------ ------------
Total assets $ 23,018,444 $ 15,758,009
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Accounts payable $ 879,945 $ -
Accrued taxes 1,170,665 82,736
Income taxes payable 95,672 80,500
Current maturities of long-term debt-related parties - 73,128
Current maturities of long-term debt 2,958,185 -
Other current liabilities 1,186,049 200,233
------------ ------------
Total current liabilities 6,290,516 436,597
------------ ------------
Long-term debt 288,265 -
------------ ------------
Total liabilities 6,578,781 436,597
------------ ------------
Minority interest 1,230,054 -
------------ ------------
Convertible preferred stock, $1 par value,
$5 redemption value per share, 704,684 shares
authorized and 693,864 shares issued and
outstanding with an aggregate preference on
liquidation of $3,469,320 693,864 693,864
Common stock, $.02 par value, 25,000,000 shares
authorized and 7,147,433 and 7,096,715 issued
and outstanding at March 31, 1995 and 1994,
respectively 142,949 141,934
Additional paid-in capital 41,270,000 41,264,928
Accumulated deficit (26,827,704) (26,709,814)
------------ ------------
15,279,109 15,390,912
Less treasury stock, 100,000 shares of common,
at cost (69,500) (69,500)
------------ ------------
Total stockholders' equity 15,209,609 15,321,412
Commitments and contingencies - -
------------ ------------
Total liabilities and stockholders' equity $ 23,018,444 $ 15,758,009
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
TESCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended March 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Net sales $ - $ -
Cost of sales - -
----------- ----------
Gross profit - -
Selling, general and administrative expenses 1,480,039 851,262
----------- ----------
Operating loss (1,480,039) (851,262)
----------- ----------
Other income (expense):
Interest income 1,000,571 208,380
Gain on sale of marketable securities 125,334 -
Other income 1,263 19,385
Interest expense (2,775) (15,010)
----------- ----------
Total other income 1,124,393 212,755
----------- ----------
Loss from continuing operations before
provision for income taxes (355,646) (638,507)
Income tax benefit - (206,000)
----------- ----------
Loss from continuing operations (355,646) (432,507)
----------- ----------
Discontinued operations (see Note 13):
Income from discontinued operations
(net of income tax expense of
$177,000 and $603,000, respectively) 584,692 1,353,611
Gain on disposal of substantially all
of the assets of Metserco Holdings, Inc.
(net of income tax benefit of $205,000) - 973,797
Gain on disposal of substantially all of
the assets of Tescorp Seismic Products
division (net of income tax expense of
$619,000) - 1,201,339
----------- ----------
Income from discontinued operations 584,692 3,528,747
----------- ----------
Income before cumulative effect of change
in method of accounting for income taxes 229,046 3,096,240
Cumulative effect as of April 1, 1993, of
change in method of accounting for income taxes - 785,252
----------- ----------
Net income 229,046 3,881,492
Preferred stock dividends (346,936) (346,936)
----------- ----------
Net income (loss) applicable to common stock $ (117,890) $3,534,556
=========== ==========
Earnings (loss) per common share
Loss from continuing operations $ (0.10) $ (0.11)
Income from discontinued operations 0.08 0.49
Cumulative effective of accounting change - 0.11
----------- ----------
Earnings (loss) per common share $ (0.02) $ 0.49
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
TESTCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years Ended March 31, 1995 and 1994
<TABLE>
<CAPTION>
Convertible Common stock
preferred stock par value $.02 Additional Total
--------------------- ------------------------ paid-in Accumulated Treasury stockholders'
Shares Amount Shares Amount capital deficit Stock equity
-------- ----------- ----------- ----------- ----------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
March 31, 1993 693,864 $693,864 7,096,678 $141,933 $41,264,772 $(30,243,808) $ - $11,856,761
Net income 3,881,492 3,881,492
Exercise of warrants
and other 37 1 156 157
Purchase of treasury
stock (69,500) (69,500)
Translation adjustment (562) (562)
Dividends on convertible
preferred stock (346,936) (346,936)
------- -------- --------- -------- ----------- ------------ -------- -----------
Balances at
March 31, 1994 693,864 $693,864 7,096,515 $141,934 $41,264,928 $(26,709,814) $(69,500) $15,321,412
Net income 229,046 229,046
Exercise of warrants
and other 50,718 1,015 5,072 6,087
Dividends on convertible
preferred stock (346,936) (346,936)
------- -------- --------- -------- ----------- ------------ -------- -----------
Balances at
March 31, 1995 693,864 $693,864 7,147,433 $142,949 $41,270,000 $(26,827,704) $(69,500) $15,209,609
======= ======== ========= ======== =========== ============ ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE>
TESCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended March 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 229,046 $ 3,881,492
------------ -----------
Adjustments to reconcile net income to net cash
used in operating activities
Cumulative effect of change in accounting
principle - (785,252)
Income from discontinued operations (584,692) (3,528,747)
Provision for bad debt expense 66,913 -
Depreciation and amortization 11,921 10,980
Gain on sale of property - (16,008)
Increase in accounts and notes receivable, net (69,626) (496,963)
Decrease (increase) in prepaid expenses and
other current assets 285,218 (283,931)
Decrease (increase) in other assets (21,913) 562,382
Increase in accounts payable - -
Decrease in other current liabilities (12,473) (185,423)
------------ -----------
(324,652) (4,722,962)
------------ -----------
Net cash used in operating activities (95,606) (841,470)
------------ -----------
Cash flows from investing activities:
Proceeds from sale of assets - 41,571
Property additions (134,705) (14,631)
Proceeds from the maturity of short term
investments 5,175,594 -
Purchase of short term investments - (5,175,594)
Proceeds from the sale of discontinued
operations - 9,433,454
Proceeds from note received on sale of
discontinued operations 3,000,000 -
Proceeds from principal repayment on
mortgages 16,483 48,315
Loans to the Joint Venture Partners used
in acquisitions (12,200,225) -
------------ -----------
Net cash provided by (used in) investing
activities (4,142,853) 4,333,115
------------ -----------
Cash flows from financing activities:
Principal payments on long-term debt (73,128) (114,990)
Dividends paid on preferred stock (346,936) (346,936)
Payments to acquire treasury stock - (69,500)
Exercise of warrants 6,087 157
------------ -----------
Net cash used in financing activities (413,977) (531,269)
------------ -----------
Net cash provided by discontinued operations 1,283,417 2,396,302
------------ -----------
Net increase (decrease) in cash and cash
equivalents (3,369,019) 5,356,678
Cash and cash equivalents:
Beginning of year 6,147,583 790,905
------------ -----------
End of year $ 2,778,564 $ 6,147,583
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE>
TESCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1995 and 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICES:
Business and principles of consolidation
The accompanying consolidated financial statements include the accounts of
Tescorp, Inc. ("Tescorp"), its wholly-owned subsidiaries and companies in which
it holds majority, indirect joint venture interests (collectively referred to as
the "Company"). The wholly owned subsidiaries of Tescorp are the following
companies: Metserco Holdings, Inc. (formerly known as Clif Mock Company),
Metserco Corporation, Austral Communications Corp. ("Austral"), and
Comunicaciones Austral S.A. ("CASA"). The companies in which it holds majority,
indirect joint venture interests are the following: Televisora Austral S.A.
("Televisora"), Canal 2 TV Austral S.A. ("Canal 2"), Cable Vision Gallegos
S.R.L. ("CVG"), Reconquista Televisora Color S.R.L. ("RTC"), Avellaneda Video
Cable S.R.L. ("AVC"), SMR S.A. ("SMR") and CableDifusion S.A. ("CableDifusion").
Televisora, Canal 2, CVG, RTC, and AVC are operating cable companies, none of
which are in the prematurity period as defined in the Statement of Financial
Accounting Standards No. 51. All significant intercompany profits, accounts and
transactions have been eliminated in consolidation.
Revenue recognition
Revenues were recognized when products were shipped or services performed.
Revenue related to leasing of cables was recognized over the life of the lease.
Monthly cable service revenue is recognized in the period in which services
are provided. Cable installation revenue is recognized in the period the related
services are provided to the extent of direct selling costs. Any remaining
amount is deferred and recognized over the average period that subscribers are
expected to remain connected to the cable television system.
Plant and equipment
Plant and equipment are stated at historical cost net of accumulated
depreciation. Expenditures for maintenance and repairs are charged to earnings
as incurred. Improvements or betterments of a permanent nature are capitalized.
The cost of assets retired or otherwise disposed of and the related accumulated
depreciation are eliminated from the accounts in the year of disposal. Gains or
losses resulting from property disposals are credited or charged to operations.
The Company computes depreciation using the straight-line method over estimated
useful lives, ranging from 5 to 20 years, of the related asset (see Note 3).
Income taxes
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting for Income
Taxes." FAS 109 requires a change from the deferred method of accounting for
income taxes under the Accounting Principles Board Opinion No. 11 ("APB Opinion
11") to the asset and liability method of accounting for income taxes. The
Company adopted FAS 109 as of April 1, 1993.
11
<PAGE>
In adopting FAS 109, the Company recorded a benefit of approximately
$785,000 as a result of the cumulative effect of the change in accounting
principle and a net deferred tax asset of $729,000. Based on numerous factors
including but not limited to the Company's historical earnings and the sale of
substantially all of the assets of Metserco Holdings, the Company believed that
it was more likely than not that it would not fully realize all of the benefits
of the net operating losses existing and available to carryforward at April 1,
1993, before they begin to expire in 1999.
In fiscal 1994, a valuation allowance was established pursuant to FAS 109
because management concluded that it was more likely than not that some portion
of the deferred tax asset would not be realized. In calculating the valuation
allowance, management considered numerous factors including but not limited to
the (i) timing of the expiration of the Company's federal regular tax operating
loss carryforwards, (ii) historical financial performance of the Company, (iii)
recent financial performance of the Company, (iv) future financial prospects of
the Company, and (v) other factors which could affect the amount by which the
Company utilizes the net deferred tax asset.
Research and product development
Research and product development costs (excluding amounts charged on
specific customer contracts which are expensed as cost of sales) are charged to
operations as incurred. Research and development costs totaled approximately
$61,000 for the year ended March 31, 1994.
Earnings per common share
Earnings per common share are calculated by dividing net income applicable
to common stock by the weighted average number of shares outstanding during the
year.
The computations of earnings per common share for each of the fiscal years
presented assume the exercise of dilutive stock options and warrants, all of
which are considered to be common stock equivalents. The number of shares that
would be issued from the exercise of stock options and warrants has been reduced
by the number of shares that could have been purchased from the proceeds at the
estimated average fair value of the Company's stock. Assumed conversion of
convertible preferred stock is antidilutive. Fully diluted earnings per share
amounts are not presented for fiscal 1995 or 1994 because they do not materially
differ from primary earnings per share.
Cash equivalents
For purposes of the consolidated statements of cash flows, the Company
considers cash equivalents to include time deposits, certificates of deposit and
highly liquid debt instruments with original maturities of three months or less.
Short-term investments
Short-term investments consist of highly liquid U. S. Government
instruments with original maturities in excess of three months. These
investments are carried at cost, which approximates market.
12
<PAGE>
Franchise costs
Franchise costs consist of the value of the license to own and operate the
cable television system and the value of the cable television subscribers that
existed as of the acquisition date. Franchise costs include the difference
between the cost of acquiring cable television systems and amounts assigned to
their tangible assets. The amounts assigned to tangible assets were determined
based upon an appraisal of such assets conducted by an independent, third party
engineer with expertise in the cable television and communications industries.
The Franchise costs Such amounts are amortized on a straight-line basis over
their its estimated life, not to exceed 20 years.
The Company's policy is to periodically evaluate the franchise costs such cost
to determine whether there has been any impairment in value. This evaluation
will include, among other things, a review of the fair market, going concern
value of the cable television systems and the value of the tangible assets of
such systems.
Fair market, going concern value will be estimated by applying the cash flow
multiple or price per subscriber valuation methods commonly used in the cable
television industry. The valuation method applied will be determined based upon
the type and amount of information available regarding the sale of comparable
cable television companies owned by independent third parties. Using the cash
flow method, the Company will determine the fair market, going concern value of
its cable television companies by calculating the product of the aggregate
amount of undiscounted cash flow provided by the operations of the cable
television systems and the estimated average multiple of cash flow paid by
independent third parties for cable television systems which are comparable to
those in which the Company has an ownership interest. Using the price per
subscriber method, the Company will determine the fair market, going concern
value of the cable television companies by calculating the product of the number
of subscribers served by the cable television systems which are comparable to
those in which the Company has ownership interests. Franchise cost consists of
the value of the license to own and operate the cable television system and the
value of the cable television subscribers that existed as of the acquisition
date.
Reclassifications
Certain reclassifications have been made to conform the fiscal year 1995
presentation.
Foreign currency translation
Foreign currency assets and liabilities are translated into U. S. dollars
at current rates in effect at the balance sheet date. Since April 1991, the
Argentine government has maintained an exchange rate of one Argentine peso to
one U.S. dollar.
NOTE 2 - LATIN AMERICAN OPERATIONS
During the fiscal year ended March 31, 1995, the Company concentrated its
operations in Argentina. Effective as of April 1994, the Company entered into a
contractual joint venture (the "Joint Venture") to acquire cable television and
communications properties in Latin America. To facilitate the Company's
participation in the Joint Venture, two new subsidiaries were formed: Austral
and CASA (the equity interests of which are being held by nominees for the
benefit of Austral and Metserco Holdings, Inc.). During the fiscal year ended
March 31, 1995, the Company, through Austral, loaned or committed to loan an
aggregate of approximately $16 million to its partners in the Joint Venture (the
"Joint Venture Partners"), for the purpose of acquiring five Argentine companies
owning cable television systems in Argentina (the "Argentine Cable Companies").
The Argentine Cable Companies are as follows: Televisora, Canal 2, CVG, RTC and
AVC.
13
<PAGE>
To facilitate the activities of the Joint Venture in Argentina, the Company
and the Joint Venture Partners formed two new Argentine Sociedad Anonimases: SMR
and CableDifusion (collectively referred to as the "Argentine Joint Venture
Companies"). CableDifusion was formed for the purpose of providing management
services to the Argentine Cable Companies. SMR was formed to pursue licenses to
own and operate businesses deploying Enhanced Specialized Mobile Radio and/or
related technologies in Argentina.
Austral, which is a venturer in the Joint Venture, holds an indirect 90.0
percent interest in each of the Argentine Cable Companies and Argentine Joint
Venture Companies. The Company has two domestic partners each of whom holds an
indirect 3.3 percent interest in the Company's interest in each of the Argentine
Cable Companies and Argentine Joint Venture Companies. However, the interest
of the two domestic partners is subject to certain conditions, and only after
those conditions are met are they entitled to the indirect 3.3 percent interest.
Thus, the Company holds an 84.0 percent joint venture interest in each of the
Argentine Cable Companies which is subject to the loans from Austral.
In April 1994, the Company committed to loan to the Joint Venture Partners
$1.5 million (the "Televisora Loan") to acquire Televisora, the Argentine
company that owns and operates the cable television system in Ushuaia, the
provincial capital of Tierra del Fuego, Argentina. Through the Joint Venture,
the Company indirectly holds an 84.0 percent economic interest in Televisora.
Televisora was acquired for $1.5 million payable as follows: $750,000 at
closing with the balance payable over 12 months. At March 31, 1995, the Company
had advanced approximately $1.5 million of the Televisora Loan.
In August 1994, the Company committed to loan to the Joint Venture Partners
$5.5 million (the "Canal 2 Loan") to acquire 100 percent of the outstanding
equity and pay certain obligations of Canal 2, the Argentine company that owns
and operates a cable television system in Rio Gallegos, the capital of Santa
Cruz Province, Argentina. Through the Joint Venture, the Company indirectly
holds an 84.0 percent economic interest in Canal 2. The acquisition price was
$4.9 million payable as follows: $4.5 million at closing with a $400,000 balance
payable in 30 days subject to certain closing adjustments. At March 31, 1995,
the Company had advanced the entire $5.5 million of the Canal 2 Loan, and all
proceeds of the Canal 2 Loan in excess of the purchase price were contributed to
Canal 2 as equity. The Company anticipates providing additional loans to the
Joint Venture Partners over the next six to 12 months for the purpose of
financing Canal 2 capital expenditures.
In December 1994, the Company committed to loan to the Joint Venture
Partners $4.8 million (the "RTC Loan") to acquire RTC, the Argentine Company
that owns and operates the cable television system in Reconquista, which is in
Santa Fe Province, Argentina. Through the Joint Venture, the Company indirectly
holds an 84.0 percent economic interest in RTC. The acquisition price was $4.6
million payable as follows: $2.8 million at closing with the $1.8 million
balance payable over the following 12 months. At March 31, 1995, the Company
had advanced approximately $3.4 million of the RTC Loan and anticipates
advancing the balance of the loan commitment over the next nine months.
In February 1995, the Company committed to loan to the Joint Venture
Partners $1.3 million (the "AVC Loan") to acquire AVC, the Argentine Company
that owns and operates the cable television system in Avellaneda, which is in
Santa Fe Province, Argentina. Through the joint venture, the Company indirectly
holds an 84.0 percent economic interest in AVC. The acquisition price was $1.3
million payable as follows: $900,000 cash at closing and the balance payable
over the following 10 months. At March 31, 1995, the Company had advanced
approximately $942,000 of the AVC Loan and anticipates advancing the balance of
the commitment over the next nine months. Avellaneda is within close proximity
to Reconquista, and concurrent with the acquisition of AVC, the operations of
AVC and RTC were consolidated.
14
<PAGE>
In February 1995, the Company committed to loan to the Joint Venture
Partners $1.9 million (the "CVG Loan") to acquire CVG, the Argentine Company
that owns and operates a cable television system in Rio Gallegos, which is in
Santa Cruz Province, Argentina. Through the Joint Venture, the Company
indirectly holds an 84.0 percent economic interest in CVG. The acquisition price
was $1.9 million payable as follows: $350,000 at closing with the balance
payable over the next 14 months. At March 31, 1995, the Company had advanced
approximately $350,000 of the CVG Loan and anticipates advancing the balance of
the commitment over the next 13 months. CVG competed directly against Canal 2,
and concurrent with the acquisition of CVG, the operations of CVG and Canal 2
were consolidated.
The Company's economic interests derived through the Joint Venture are
indirect and contractual in nature. Given this legal structure and the
governmental uncertainties regarding the control and ownership of Argentine
cable television systems by foreign entities, the requirements for consolidating
the financial statements of the Argentine Cable Companies as outlined in
Statement of Financial Accounting Standards No. 94 were not met until March 27,
1995. On that date, the Comite Nacional de Radiofusion ("COMFER"), an Argentine
governmental entity which is similar to the Federal Communications Commission in
the United States, promulgated the rules and regulations for companies domiciled
in the United States to own and operate cable television companies in Argentina.
Prior to March 27, 1995, the Company had recorded the Televisora Loan, Canal 2
Loan, RTC Loan, AVC Loan and CVG Loan as a note receivable, and no further
accounting entries were made to reflect its indirect 84.0 percent economic
interest in Televisora, Canal 2, RTC, AVC and CVG. At March 31, 1995, in
response to the rules and regulations promulgated by COMFER, the Company
consolidated for financial reporting purposes the balance sheets of the Company,
the Argentine Cable Companies and the Joint Venture Companies. Beginning April
1, 1995, the Company will consolidate for financial reporting purposes the
statements of income of the Company, the Argentine Cable Companies and the
Argentine Joint Venture Companies.
The acquisitions of the Argentine Cable Companies were accounted for using
the purchase method of accounting. All of the acquisitions were purchased from
entities not affiliated with the Company. Accordingly, the purchased assets and
liabilities of the individual systems have been recorded at their estimated fair
value at the date of acquisition. The following is a summary of the purchase
price by system and the amount of franchise costs (which is amortized over 20
years - See Note 1) recognized as a result of the purchase:
Date Purchase Franchise
Acquired Price Costs
Televisora Apr-94 1,791,976 1,606,191
Canal 2 Aug-94 6,549,158 6,385,358
CVG Mar-95 3,313,294 2,593,595
RTC Dec-94 6,355,357 4,874,160
AVC Feb-95 1,755,475 1,223,232
19,765,260 16,682,536
15
<PAGE>
For financial reporting purposes, the Argentine Cable Companies were
deemed to have been acquired on March 27, 1995, the date on which (i) COMFER
promulgated definitive rules and regulations for companies domiciled in the
United States to own and operate cable television systems in Argentina, and (ii)
the Company met the requirements of FAS 94 for consolidating for financial
reporting purposes. The Joint Venture Partners have obtained valuations of the
tangible assets of the Argentine Cable Companies, and the franchise costs have
been calculated as the difference between the cost of acquiring the cable
television systems and the amounts assigned to their tangible assets pursuant to
the valuations.
The Argentine Cable Companies had fiscal year ends for financial reporting
purposes that were different from that of the Company. The following unaudited
pro forma summary results of operations was prepared based upon (i) the
assumption that the acquisitions of the Argentine Cable Companies were
consummated at the beginning of each fiscal year, and (ii) the aggregation of
financial results, as adjusted, of the Argentine Cable Companies as of the
fiscal year ends which most closely correspond to the fiscal year end of the
Company.
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
Ending Ending
3/31/95 3/31/94
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Revenues $10,802,475 $8,080,828
Net income applicable to
common stock $ (89,493) $3,609,911
Earnings per share $ (0.01) $ 0.50
</TABLE>
The unaudited pro forma summary results of operations presented above are
not necessarily indicative of results of operations that would have occurred had
the acquisitions been made at the beginning of the year or of future results of
operations of the combined businesses.
NOTE 3 - PLANT AND EQUIPMENT:
Plant and equipment at March 31, 1995 and 1994 consisted of the following:
<TABLE>
<CAPTION>
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
Cable systems and related assets $1,540,934 $ -
Support Equipment 591,195 -
Leasehold Improvements 104,499 -
Machinery, furniture and equipment 77,191 79,686
---------- --------
2,313,819 79,686
Less: Accumulated depreciation (19,365) (60,735)
---------- --------
$2,294,454 $ 18,951
========== ========
</TABLE>
16
<PAGE>
NOTE 4 - OTHER CURRENT LIABILITIES:
Other current liabilities at March 31, 1995 and 1994 consisted of the
following:
<TABLE>
<CAPTION>
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
Accrued payroll and social charges $ 515,804 $ -
Net deferred tax liability 146,595 -
Advances from subscribers 157,950 -
Accrued preferred stock dividends 86,734 86,734
Accrued group health insurance - 53,785
Other accrued liabilities 278,966 59,714
---------- --------
$1,186,049 $200,233
========== ========
</TABLE>
Social charges represent the employer's portion of the mandatory
contribution to the national health and welfare schemes (in Argentina), as well
as corresponding amounts withheld on behalf of employees.
NOTE 5 - LONG-TERM DEBT UNRELATED PARTIES:
The long-term debt of the Company at March 31, 1995 and 1994 consisted of
the following:
<TABLE>
<CAPTION>
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
Note payable to an individual in
monthly installments of $152,900
including principal and imputed
interest. In calculating the
imputed interest, the note has been
discounted 20%, and is scheduled to
mature in December 1995 $1,268,097 $ -
Note payable to an individual in
monthly installments of $100,000
including principal and interest. The
stated rate of interest is 10% and is
scheduled to mature in May 1996 1,400,000 -
Note payable to an individual in
monthly installments of $42,000
including principal and imputed
interest. In calculating the imputed
interest, the note has been discounted
20%, and is scheduled to mature in
December 1995 348,333 -
Note payable to a bank, at an average
fixed rate of 19.55%, with variable
annual payments with the final maturity
in March 2000 167,520 -
Note payable to an individual in monthly
installments of $70,000 including
principal and interest. The stated rate
of interest is 14% including principal
and interest and is scheduled to mature
in April 1995 62,500 -
---------- --------
3,246,450 -
Less current portion 2,958,185 -
---------- --------
$ 288,265 $ -
========== ========
</TABLE>
17
<PAGE>
NOTE 6 - LONG-TERM DEBT - RELATED PARTIES:
Long-term debt - related parties of the Company at March 31, 1995 and 1994
consisted of a severance agreement payable to a former officer in monthly
installments of $10,833 commencing November 1989 and ending October 1994. Based
upon an imputed interest rate of 11%, the outstanding balance was $0 and $73,128
(of which $0 and $73,128 was classified as the current portion of long-term debt
- - related parties) at March 31, 1995 and 1994, respectively. During fiscal 1995
and 1994, interest expense on this note totaled approximately $3,000 and
$15,000, respectively.
NOTE 7 - INCOME TAXES:
As previously discussed, the Company prospectively adopted FAS 109 as of
April 1, 1993. Total income tax expense for the years ended March 31, 1995 and
1994 consisted of the following:
<TABLE>
<CAPTION>
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
Current $195,000 $ 82,000
Deferred (18,000) 729,000
-------- --------
Total $177,000 $811,000
======== ========
</TABLE>
The provision for income taxes differs from that computed at the federal
statutory corporate tax rate as follows:
<TABLE>
<CAPTION>
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
Statutory rate 34% 34%
Alternative minimum tax - 5%
Tax effect of permanent differences
and other 9% (18%)
-- ---
Total 43% 21%
== ===
</TABLE>
In fiscal 1995, the rate differential related primarily to timing differences
associated with certain assets of the discontinued operations. In fiscal 1994,
the difference related primarily to (i) Metserco Holdings recognizing a loss on
the sale of substantially all of its assets for federal income tax reporting
purposes and a gain for financial reporting purposes; and (ii) the change in the
valuation allowance.
The income tax expense for the years ended March 31, 1995 and 1994 was
allocated as follows:
<TABLE>
<CAPTION>
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
Loss from continuing operations $ - $(206,000)
Income from discontinued operations 177,000 603,000
Gain on sale of substantially all the
assets of Mesterco Holdings - (205,000)
Gain on sale of substantially all the
assets of Tescorp Seismic Products - 619,000
-------- ---------
$177,000 $ 811,000
======== ========
</TABLE>
18
<PAGE>
The components of and changes in the net deferred tax asset were as
follows:
<TABLE>
<CAPTION>
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
Federal regular tax operating
loss carryforwards $ 2,655,000 $ 2,845,000
Bad debt deduction 117,000 147,000
Foreign tax credit 84,000 -
Alternative minimum tax 10,000 -
Accrued health insurance - 21,000
Deferred gain on sale - (173,000)
Other 8,000 1,000
----------- -----------
2,874,000 2,841,000
Valuation allowance (2,856,000) (2,841,000)
----------- -----------
18,000 -
Deferred tax liability-plant
and equipment (164,595) -
----------- -----------
Net deferred tax liability $ (146,595) $ -
=========== ===========
</TABLE>
At March 31, 1994, the Company had net operating loss carryforwards that
could be utilized to offset future taxable income of an estimated $8.4 million
for federal income tax purposes. However, as a result of a change in control as
defined under Section 382 of the Internal Revenue Code, the annual utilization
of the net operating loss carryforward is estimated to be limited to $1.4
million of annual taxable income.
NOTE 8 - CAPITAL STOCK:
Annual dividends of $0.50 per share of Series 1990 10% Convertible
Preferred Stock (Series 1990 Preferred Stock) are payable on a quarterly basis.
Each share of Series 1990 Preferred Stock is convertible into shares of the
Company's common stock determined by dividing $5.00 by an initial conversion
price of $3.50 per share. Such conversion price has been adjusted as follows:
<TABLE>
<CAPTION>
Date Conversion Price
---- ----------------
<S> <C>
July 12, 1991 $3.00
July 12, 1992 3.30
July 12, 1993 3.63
July 12, 1994 3.99
</TABLE>
The conversion price established on July 12, 1994 will remain in effect
thereafter.
Shares of Series 1990 Preferred Stock are redeemable at the option of the
Company at a price equal to $5.00 per share plus any accrued and unpaid
dividends. Terms of the Series 1990 Preferred Stock provide that the Company
may redeem no fewer than 70,000 shares at any one time unless all outstanding
shares are being redeemed. Only one redemption per quarter is permitted and the
Company is precluded from making a partial redemption if there are fewer than
200,000 shares of Series 1990 Preferred Stock outstanding. Holders of Series
1990 Preferred Stock shares are entitled to one vote per share on all matters
for which holders of common stock may vote (voting as a single class with the
shares of common stock) and are entitled to a liquidation preference of $5.00
per share plus any accrued or unpaid dividends.
19
<PAGE>
An escrow account arrangement was created at the time of the issuance of
the Series 1990 Preferred Stock to provide an alternative source of funds for
payment of dividends and liquidation preferences in the event of a default by
the Company. The escrow account arrangement includes a $500,000 irrevocable
letter of credit, 100,000 shares of the Company's common stock and first lien
mortgages on certain real restate owned by the Company.
NOTE 9 - STOCK OPTIONS AND WARRANTS:
The following paragraphs summarize the outstanding options and warrants of
the Company. Unless otherwise stated, the exercise price was equal to or
greater than the fair market price of the stock at the date of grant.
The Company has issued stock options to purchase 396,432 shares of common
stock (the "1993 Options"). The 1993 Options were exercisable upon issuance
and expire on July 11, 1995. The exercise price under these options was $3.50
per share at the time of issuance, increasing by 2.5% on a quarterly basis
commencing October 1, 1991. Effective September 30, 1994, these options were
amended to freeze the exercise price at $4.70 per share (the price in effect at
the time of amendment).
Pursuant to the Company's 1991 Incentive Plan, the Board of Directors may
grant stock options and limited stock appreciation rights with respect to an
aggregate of 1,400,000 shares of common stock. In October 1993, 650,000
options were granted at an exercise price of $1.25 per share. All of the
options granted are exercisable based on a four year vesting schedule. None of
the options granted pursuant to the 1991 Incentive Plan were exercised during
fiscal 1994. At March 31, 1995, 650,000 options were outstanding, and 162,500
were exercisable.
Pursuant to the Company's 1993 Non-Employee Director Stock Option Plan
("NEDSOP"), the Company may grant options with respect to an aggregate of
150,000 shares of common stock. In October 1993, 66,666 options were granted at
an exercise price of $1.21 per share. Effective as of March 4, 1994, 8,334
options were granted at an exercise price of $1.63 per share. All of the
options granted are exercisable based on a three year vesting schedule. None of
the options granted pursuant to the NEDSOP were exercised during fiscal 1995.
At March 31, 1995, 50,000 options were outstanding, 16,667 shares were
exercisable.
The Company has additional stock options and warrants which had been issued
prior to fiscal 1991. In connection with the recapitalization of the Company,
the number of shares of common stock issuable upon exercise of the warrants and
options and the related exercise price were adjusted to reflect the exchange of
$.01 par value common stock for $.02 par value common stock. The amounts
discussed in the following three paragraphs have been adjusted for the effect of
such change.
The stock options and warrants issued prior to fiscal 1991 include stock
options issued to certain employees to purchase 36,405 shares of the Company's
common stock at $6.18 per share. These options expire in 1998 and were
exercisable at March 31, 1991. On March 31, 1992, 4,045 of these options were
canceled upon the resignation of an officer of the Company under the terms of
the option. During fiscal 1994, 8,090 of the options were canceled upon
resignation of two employees of the Company. At March 31, 1995, 24,270 options
were outstanding and exercisable.
The Company has 326,350 of additional warrants outstanding to purchase
shares of the Company's common stock at an exercise price of $1.24 per share.
These warrants expire in June 1996.
On April 24, 1991 the Company issued warrants to a director and to an
affiliated party to purchase 50,000 shares each of the Company's common stock at
$2.00 per share as compensation for certain investment banking services. These
warrants, which expire in April 1996, were exercisable at March 31, 1995.
20
<PAGE>
In October 1994, the Company issued stock warrants to purchase 100,000
shares of common stock (the "1994 Warrants"). The 1994 Warrants are only
excercisable upon the occurrence of certain events and expire in October 1996.
The exercise price is $2.00 per share.
A summary of Warrants and Options outstanding at March 31, 1995, is as
follows:
<TABLE>
<CAPTION>
Number of Average
Shares Exercise Price
---------- --------------
<S> <C> <C>
Outstanding at March 31, 1993 3,775,432 $3.84
Issued during fiscal year 1994 716,666
Exercised, expired or canceled during
fiscal year 1994 (2,858,795)
----------
Outstanding at March 31, 1994 1,633,303 $2.12
Issued during fiscal year 1995 108,334
Exercised, expired or canceled during
fiscal year 1995 (94,585)
----------
Outstanding at March 31, 1995 1,647,052 $2.24
==========
</TABLE>
NOTE 10 - RELATED PARTY TRANSACTIONS:
Certain expenses have been allocated to the Company for administrative and
other services provided by an entity affiliated with the Company's principal
stockholder. Such expenses totaled approximately $91,000 and $74,000 during
fiscal 1995 and 1994, respectively.
NOTE 11 - OPERATING LEASES:
The Company leases various buildings, equipment and office facilities under
operating leases ranging from one year to 12 years. The total minimum future
lease payments under these lease payments under non-cancelable operating leases
having an initial term of one year or more are as follows:
Lease
Fiscal Year Ended Expense
----------------- --------
March 31, 1996 $279,688
March 31, 1997 223,104
March 31, 1998 129,772
March 31, 1999 72,732
Thereafter 192,819
--------
Total 898,115
========
Total rental expense under operating leases for the years ended 1995 and
1994 was approximately $15,000 and $268,000, respectively. Rent expense for
years ended 1995 and 1994 included approximately $0 and $26,000 of payments to
related parties, respectively.
21
<PAGE>
NOTE 12 - EARNINGS PER SHARE DATA:
A reconciliation of the weighted average number of shares outstanding with
the number of shares used in the computation of primary earnings per share is as
follows:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
------------------------------------
1995 1994
---------------- ---------------
<S> <C> <C>
Weighted average number of shares
outstanding 7,111,712 7,096,741
Stock warrants and options 250,053 47,146
--------- ---------
Weighted average number of common and
common equivalent shares 7,361,765 7,143,887
========= =========
</TABLE>
NOTE 13 - DISCONTINUED OPERATIONS:
Effective February 9, 1994, the Company sold substantially all of the
assets of its Tescorp Seismic Products Company division and the stock of its
Reed Products, Inc. subsidiary (collectively referred to as "Tescorp Seismic")
to a wholly-owned subsidiary of Input/Output, Inc. ("I/O"). At closing the
Company received $4.4 million of cash and a $2.0 million promissory note
guaranteed by I/O (paid in full on June 1, 1994). In addition to the proceeds
payable at closing, the Company retained all of the accounts and notes
receivable of Tescorp Seismic and certain of its prepaid expenses, deposits and
liabilities. The purchase price was adjusted to reflect changes in certain
account balances, including but not limited to inventory and property, plant and
equipment, which occurred between November 30, 1993, and the closing date. The
Company recognized a gain on this sale in the amount of approximately $1.2
million, net of closing adjustments and provision for federal income taxes.
Effective July 8, 1993, the Company sold substantially all of the assets of
its Metserco Holdings, Inc. ("Holdings") subsidiary and the Metserco Corporation
("Metserco") subsidiary of Holdings to a wholly-owned subsidiary of Wheatly*TXT
Corporation ("Wheatley*TXT"). In conjunction with the sale of the Holdings
assets, the Company conveyed to Wheatley*TXT the right to use the "Clif Mock
Company" name. All references herein to Metserco Holdings shall refer to the
Company's subsidiary which was previously know as Clif Mock Company or Clif
Mock.
At closing, the Company received $5.0 million of cash and a two-year,
$1.0 million note issued by Wheatley*TXT and convertible at the Company's option
into Wheatley*TXT common stock. In addition to the proceeds payable at closing,
the Company received the first $500,000 of Metserco Holdings' accounts
receivable collected by Wheatley*TXT. The Company retained certain liabilities
of Metserco Holdings, Inc. and Metserco, and the purchase price paid by
Wheatley*TXT was subject to closing costs and adjustments based upon changes in
the balance of asset and liability accounts subsequent to closing. The Company
recognized a gain on this sale in the amount of $973,797, net of closing
adjustments and income tax benefit.
Because a sale of the assets of Tescorp Seismic, Metserco Holdings and
Metserco has been consummated, the Company has reflected the results from their
operations as discontinued operations separate from the continuing operations of
the Company.
22
<PAGE>
Revenues and operating income by each discontinued business segment are as
follows:
<TABLE>
<CAPTION>
For the Year Ended March 31,
------------------------------------
1995 1994
---------------- ---------------
<S> <C> <C>
Revenues:
Geophysical products $690,880 $13,500,653
Oil and gas production products - 3,734,895
-------- -----------
Total $690,880 $17,235,548
======== ===========
Operating profit (loss):
Geophysical products 747,264 1,738,097
Oil and gas production products (69,409) 184,461
-------- -----------
Total 677,855 1,922,558
======== ===========
Income before income taxes 761,692 1,956,611
Income tax expense 177,000 603,000
-------- -----------
Income from discontinued operations $584,692 $ 1,353,611
======== ===========
</TABLE>
The net assets related to discontinued operations consisted of the
following and are reflected in the accompanying balance sheet:
<TABLE>
<CAPTION>
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
Accounts and notes receivable, net $ - $ 966,976
Property, plant & equipment, net 322,234 349,749
Accounts payable (17,095) (6,563)
Accrued liabilities (104,564) (390,267)
--------- ---------
$ 200,575 $ 919,895
========= =========
</TABLE>
23
<PAGE>
NOTE 14 - SUBSEQUENT EVENTS
On May 4, 1995, the Company completed a $9.6 million private placement of
common stock at $2.00 per share. Proceeds from the private placement will be
used to fund the acquisition of additional interests in Argentine cable
television companies and provide working capital.
On May 8, 1995, the Company announced that it had acquired for $300,000 an
option (the "Bariloche Option") to finance the acquisition of and obtain an
indirect 84.0 percent economic interest in 80.0 percent of the outstanding
equity of Teveca S.R.L. ("Teveca") and Cable Plus S.A. ("Cable Plus"), the
companies that provide cable television service to San Carlos de Bariloche which
is located in Rio Negro Province, Argentina. On June 20, 1995, the company
provided a "bridge loan" to the Joint Venture Partners in the amount of $2.1
million to finance their acquisition of a 30.0 percent interest in Teveca and
Cable Plus. Management of the Company believes that a significant likelihood
exists that the Company will exercise all or part of the Bariloche Option, as
amended, and fund an additional amount of $4.0 million to finance the
acquisition by the Joint Venture Partners of an additional 50.0 percent interest
in Teveca and Cable Plus and obtain an indirect 84.0 percent economic interest
in the Joint Venture Partners' interests in Teveca and Cable Plus.
NOTE 15 - COMMITMENTS AND CONTINGENCIES
From time to time, the Company may have contingent liabilities resulting
from claims and commitments incident to the ordinary course of business.
Management believes that the probable resolution of any such contingencies will
not materially affect the financial position or results of operations of the
Company.
In connection with the private placement described in Note 14, the Company
agreed to use its best efforts to cause the shares to be registered by August
31, 1995. If the Company is not successful, the it will be required to issue
approximately 1.9 million warrants to acquire shares of common stock at a
exercise price of $2.25 per share.
NOTE 16 QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
Revenues $ - $ - $ - $ -
Income (loss) from continuing
operations (112,681)* 55,192 * (134,265)* (163,892)
Net income (loss) from
discontinued operations 30,102 * (40,525)* 345,492 249,624
Net income (loss) (82,579) 14,667 211,227 85,732
Preferred stock dividends (86,734) (86,734) (86,734) (86,734)
Net income (loss) applicable to
common stock (169,313) (72,067) 124,493 (1,002)
Earnings (loss) per common
share
Loss from continuing
operations $ (0.02) $ - $ (0.04) $ (0.03)
Income from discontinued
operations - (0.01) 0.05 0.03
--------- -------- --------- ---------
Earnings (loss) per common
share $ (0.02) $ (0.01) $ 0.01 $ -
========= ======== ========= =========
</TABLE>
- ------------------
Items marked with an "*" have been reclassified from previously reported
Form 10QSB's to conform with current period presentation.
24
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
Tescorp, Inc.
(Registrant)
By /s/ Jack S. Gray, Jr.
-------------------------------------------
Jack S. Gray, Jr., President
DATE: August 23, 1995
25
<PAGE>
ANNEX 2
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended December 31, 1995
Commission File Number 0-18663
TESCORP, INC.
(Exact name of small business issuer as specified in its charter)
TEXAS 74-2129403
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
327 Congress Avenue, Suite 200
Austin, Texas 78701
(Address of principal executive offices)
(512) 476-2995
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Shares Outstanding at February 8, 1996
Common Stock, $ .02 par value 11,947,433
Transitional Small Business Disclosure Format (check one):
Yes No X
------ ------
================================================================================
Page one of 16 sequentially numbered pages.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
TESCORP, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, 1995
Assets (Unaudited) March 31, 1995
------ ------------------ --------------
<S> <C> <C>
Cash and cash equivalents $ 9,608,985 $ 2,778,564
Notes receivable 174,000 --
Accounts receivable, net 1,510,911 691,059
Prepaid expenses and other assets 1,402,587 571,831
Plant and equipment, net 6,883,663 2,294,454
Franchise costs 25,729,385 16,682,536
------------ ------------
Total assets $ 45,309,531 $ 23,018,444
============ ============
Liabilities and Stockholders' Equity
Accounts payable $ 1,379,927 $ 879,945
Accrued taxes 2,843,154 1,170,665
Income taxes payable 311,440 95,672
Notes payable 198,737 3,246,450
Other liabilities 1,336,587 1,186,049
------------ ------------
Total liabilities 6,069,845 6,578,781
------------ ------------
Minority interests 2,710,418 1,230,054
------------ ------------
Convertible preferred stock, $1 par value, 200,000 shares authorized
and 148,500 and 0 shares issued and outstanding at
December 31, 1995 and March 31, 1995, respectively. 148,500 --
Convertible preferred stock, $1 par value, $5 redemption
value per share, 704,684 shares authorized and 693,864 shares
issued and outstanding with an aggregate preference on
liquidation of $3,469,320 at December 31, 1995 and March 31,
1995, respectively. 693,864 693,864
Common stock, $.02 par value, 25,000,000 shares authorized;
11,947,433 and 7,147,433 issued and outstanding at
December 31, 1995, and March 31, 1995, respectively. 238,949 142,949
Additional paid-in capital 63,415,500 41,270,000
Accumulated deficit (27,898,045) (26,827,704)
------------ ------------
36,598,768 15,279,109
Less treasury stock, 100,000 shares of common, at cost (69,500) (69,500)
------------ ------------
Total stockholders' equity 36,529,268 15,209,609
Commitments and contingencies -- --
------------ ------------
Total liabilities and stockholders' equity $ 45,309,531 $ 23,018,444
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
TESCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
December 31
---------------------------
1995 1994
------------- ------------
<S> <C> <C>
Revenues $4,319,897 $ --
---------- ---------
Operating costs and expenses
Operating costs 2,692,204 --
Selling, general and administrative expenses 1,258,346 437,904
Depreciation and amortization 899,603 4,865
---------- ---------
Total operating costs and expenses 4,850,153 442,769
---------- ---------
Operating loss (530,256) (442,769)
Other income
Interest income 126,267 308,602
Other income 92,698 --
Interest expense (109,956) (98)
---------- ---------
Total other income 109,009 308,504
---------- ---------
Loss from continuing operations before
provision for income taxes (421,247) (134,265)
Income tax benefit (116,000) --
---------- ---------
Loss from continuing operations (305,247) (134,265)
---------- ---------
Discontinued operations
Income from discontinued operations
(net of income tax benefit of $ 0 and $112,000) -- 345,492
---------- ---------
Income from discontinued operations -- 345,492
---------- ---------
Income (loss) before minority interests (305,247) 211,227
Minority interest in the loss of consolidated subsidiaries (9,987) --
---------- ---------
Net income (loss) (295,260) 211,227
Preferred stock dividends (86,734) (86,734)
---------- ---------
Net income(loss) applicable to
common stock $(381,994) $ 124,493
========== =========
Income (loss) per common share
Loss from continuing operations $(0.03) $(0.03)
Income from discontinued operations -- $0.04
---------- ---------
Income (loss) per common share $(0.03) $0.01
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
TESCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
December 31
--------------------------
1995 1994
------------- -----------
<S> <C> <C>
Revenues $ 10,914,664 $ --
----------- ---------
Operating costs and expenses
Operating costs 6,537,296 --
Selling, general and administrative expenses 3,319,849 938,735
Depreciation and amortization 1,976,074 12,233
----------- ---------
Total operating costs and expenses 11,833,219 950,968
----------- ---------
Operating loss (918,555) (950,968)
----------- ---------
Other income
Interest income 266,677 635,322
Gain on sale of marketable securities -- 125,334
Other income 178,681 1,263
Interest expense (307,198) (2,705)
----------- ---------
Total other income 138,160 759,214
----------- ---------
Loss from continuing operations before
provision for income taxes (780,395) (191,754)
Income tax expense 27,000 --
----------- ---------
Loss from continuing operations (807,395) (191,754)
----------- ---------
Discontinued operations
Income (loss) from discontinued operations
(net of income tax benefit of $ 0 and $98,000) (8,572) 335,069
----------- ---------
Income (loss) from discontinued operations (8,572) 335,069
----------- ---------
Income (loss) before minority interests (815,967) 143,315
Minority interest in the loss of consolidated subsidiaries (5,828) --
----------- ---------
Net income (loss) (810,139) 143,315
Preferred stock dividends (260,202) (260,202)
----------- ---------
Net loss applicable to
common stock $(1,070,341) $(116,887)
=========== =========
Loss per common share
Loss from continuing operations $(0.09) $(0.06)
Income (loss) from discontinued operations -- $0.04
----------- ---------
Loss per common share $(0.09) $(0.02)
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
TESCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
December 31
-------------------------
1995 1994
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (810,139) $ 143,315
------------ -----------
Adjustments to reconcile net income loss to net cash provided by
operating activities
Loss (income) from discontinued operations 8,572 (335,069)
Minority interest in the loss of consolidated subsidiaries (5,828) --
Depreciation and amortization 1,976,074 12,233
Amortization of discount on notes payable to sellers 137,670 --
(Increase) decrease in accounts and notes receivable (458,378 1,047,056
Increase in prepaid expenses and other assets (917,276) (513,108)
Decrease in assets related to discontinued operations (13,643) (24,581)
Increase (decrease) in accounts payable and other liabilities 655,825 (90,350)
------------ -----------
Net cash provided by operating activities 572,877 239,496
------------ -----------
Cash flows from investing activities:
Property additions (1,190,722) (37,000)
Proceeds from matured short-term investments -- 2,183,035
Proceeds from note received on sale of discontinued operations -- 3,000,000
Proceeds from principal repayment on mortgages 23,916 13,697
Loans and advances to the Joint Venture Partners 126,125 (9,849,200)
Acquisition of Teveca, CablePlus and SIR TV, net of cash acquired (11,861,284) --
------------ -----------
Net cash used in investing activities (12,901,965) (4,689,468)
------------ -----------
Cash flows from financing activities:
Borrowings of bank debt 55,433 --
Repayments of seller and bank debt (3,126,600) (73,128)
Decrease in cash overdraft (84,138) --
Exercise of warrants -- 3,611
Dividends paid on preferred stock (260,202) (260,202)
Issuance of common stock, net of expenses 8,540,000 --
Issuance of preferred stock, net of expenses 13,850,000 --
------------ -----------
Net cash provided by (used in) financing activities 18,974,493 (329,719)
------------ -----------
Net increase (decrease) in cash and cash equivalents 6,645,405 (4,779,691)
Net cash provided by discontinued operations 185,016 457,650
Cash and cash equivalents:
Beginning of period 2,778,564 6,147,583
------------ -----------
End of period $ 9,608,985 $ 1,825,542
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
TESCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
December 31, 1995
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:
Tescorp, Inc. (referred to herein collectively with its subsidiaries as
"Tescorp" or the "Company") is a Texas corporation that was organized in 1980.
The Company is engaged in the business of acquiring and developing cable
television systems and communication properties in Latin America.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) have been made that are considered necessary for a fair
presentation of the financial condition of the Company as of December 31, 1995,
and of the results of its operations for the three month and nine month periods
ended December 31, 1995, and 1994. These consolidated statements should be read
in conjunction with the financial statements and the notes thereto included in
the Company's Form 10-KSB and Form 10-KSB/A which includes audited financial
statements for the fiscal year ended March 31, 1995.
Effective as of April 1994, the Company entered into a contractual joint
venture (the "Joint Venture") to acquire cable television and communication
properties in Latin America. To facilitate the Company's participation in the
Joint Venture, two new subsidiaries were formed: Austral Communications Corp.
("Austral"), a Texas corporation wholly owned by the Company, and
Communicaciones Austral, S. A. ("CASA"), an Argentine Sociedad Anonima, the
equity interests of which are being held by nominees for the benefit of Austral
and Metserco Holdings, Inc. ("Metserco"), another wholly owned subsidiary of the
Company. During fiscal 1995, and the first nine months of fiscal 1996, the
Company loaned or has committed to loan an aggregate of approximately $27
million to its partners in the Joint Venture (the "Joint Venture Partners") to
acquire eight Argentine companies owning cable television systems in Argentina
(the "Argentine Cable Companies"). The Argentine Cable Companies are listed
below:
Name of Company Location
- --------------- --------
Televisora Austral S.A. Ushuaia, Tierra Del Fuego Province
Cablemax S. A. Rio Gallegos, Santa Cruz Province
Reconquista Televisora Color S.R.L. Reconquista, Santa Fe Province
Avellaneda Video Cable S.R.L. Avellaneda, Santa Fe Province
CableVision Gallegos S.R.L. Rio Gallegos, Santa Cruz Province
Teveca, S. R. L. Province San Carlos de Bariloche, Rio Negro
CablePlus, S. A. Province San Carlos de Bariloche, Rio Negro
SIR TV, S. R. L. Chubut Province Trelew, Rawson & Puerto Madryn,
The Company began consolidating the operations from the Argentine Cable
Companies and the Argentine Joint Venture Companies as of March 27, 1995. To
facilitate the activities of the Joint Venture in Argentina, the Company and the
Joint Venture Partners formed two new Argentine Sociedad Anonimases:
CableDifusion S.A. ("CableDifusion") and SMR S.A. ("SMR") (CableDifusion and SMR
are collectively referred to as the ("Argentine Joint Venture Companies").
CableDifusion was formed for the purpose of providing management services to the
Argentine Cable Companies. SMR was formed to pursue licenses to own and operate
businesses deploying Enhanced Specialized Mobile Radio and/or other related
technologies in Argentina.
6
<PAGE>
In June 1995, the Company loaned $174,000 to its Joint Venture Partners for
the purpose of acquiring an option to acquire an indirect economic interest in
the outstanding equity of TV Nieve S. A., the company that provides microwave
multipoint distribution service in Ushuaia, Argentina. At December 31, 1995, the
Company had not yet elected to exercise these options to include these interests
in the Joint Venture. Accordingly, the Company has reflected notes receivable
in the amount of approximately $174,000 on its balance sheet at December 31,
1995.
In July 1995, the Company exercised an option to acquire an indirect 84.0
percent economic interest (the "Bariloche Interest") in 80.0 percent of the
outstanding equity of Teveca S. R. L. ("Teveca") and CablePlus, S. A.
("CablePlus"), the companies that provide cable television service to San Carlos
de Bariloche, which is located in Rio Negro Province. As a result of the
exercise of the option, the Company holds a net 67.2 percent joint venture
interest in Teveca and CablePlus. The Company had committed to loan $6.6
million to its joint venture partners to acquire the Bariloche Interest. The
Joint Venture acquired the Bariloche Interest for approximately $6.5 million
including the assumption of certain liabilities, of which approximately $5.8
million has been identified as franchise costs (and will be amortized over a 20
year period). In addition to the million purchase price, the joint venture has
paid approximately $55,000 of closing costs. This acquisition was accounted for
using the purchase method of accounting and the sellers were not affiliated with
the Company. Accordingly, the assets and liabilities of Teveca and CablePlus
have been recorded at their estimated fair market value at the date of
acquisition. The assets of CablePlus have been contributed to Teveca and
CablePlus is being liquidated.
In December 1995, the Company exercised an option to acquire an indirect
84.0 percent economic interest in the outstanding equity of SIR TV, S. R. L.
("SIR TV"), the company that provides cable television service to the
communities of Trelew, Rawson, & Puerto Madryn, which are all located in the
Chubut Province, Argentina. The Company has committed to loan $6.7 million to
its joint venture partners to acquire the outstanding equity of SIR TV. The
Joint Venture acquired SIR TV for approximately $6.5 million including the
assumption of certain liabilities, of which approximately $4.7 million has been
identified as franchise costs (and will be amortized over a 20 year period). In
addition to the million purchase price, the joint venture has paid approximately
$155,000 of closing costs. This acquisition was accounted for using the purchase
method of accounting and the sellers were not affiliated with the Company.
Accordingly, the assets and liabilities of SIR TV have been recorded at their
estimated fair market value at the date of acquisition.
NOTE 2 - PREFERRED STOCK
In December 1995, the Company issued 148,500 shares of its Series 1995
Preferred Stock in a private placement transaction in which the Company raised
$14,850,000 before expenses. In connection with this private placement, the
Company will use its best efforts to cause the Preferred Stock and the
underlying common stock to be registered, under the Securities Act of 1933, on
or before April 28, 1996. If the registration is not effective by April 28,
1996, warrants exerciseable for 712,800 shares of Common Stock exerciseable at
approximately $3.4375 per share will be issued to the Investors. If the
registration is not effective by August 31, 1996, warrants for an additional
712,800 shares of Common Stock exercisable at approximately $3.4375 will be
issued to the Investors.
NOTE 3 - EARNINGS PER SHARE DATA:
Earnings (loss) per common share is calculated by dividing net income
(loss) applicable to common stock by the weighted average number of shares
outstanding during the respective periods.
7
<PAGE>
The assumed exercise of the outstanding, vested and in the money options
and warrants for the three and nine month periods ending December 31,1995, and
the nine month period ended December 31, 1994, was antidilutive and therefore,
was excluded from the calculation of the common stock equivalents. However, for
the three month period ended December 31, 1994, assumed the exercise of dilutive
stock options and warrants, all of which are considered to be common stock
equivalents. The number of shares that would be issued from the exercise of
stock options and warrants has been reduced by the number of shares that could
have been purchased from the proceeds at the estimated average fair market value
of the Company's stock. The assumed conversion of the Company's convertible
preferred stock for all periods presented is antidilutive and therefore,
excluded from this calculation. The weighted average number of shares used in
the computation was 11,947,433 and 7,412,459 for the three month periods ended
December 31, 1995 and 1994, respectively. Whereas, for the nine month periods
ended December 31, 1995 and 1994, the weighted average number of shares used in
the computation was 11,387,197 and 7,361,980 respectively. Fully diluted
earnings per share amounts are not presented for the periods ending December
31, 1995 or 1994 because they do not materially differ from primary earnings per
share or they are antidilutive.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Company's
consolidated financial statements and the related notes thereto, included
elsewhere herein, and the Company's annual report on Form 10-KSB and Form 10-
KSB/A for the fiscal year ended March 31, 1995. The annual report and the
consolidated financial statements provide additional information regarding the
Company's financial activities and condition.
The Company's economic interests derived through the Joint Venture are
indirect and contractual in nature. Given this legal structure and the
governmental uncertainties regarding the control and ownership of Argentine
cable television systems by foreign entities, the requirements for consolidating
the financial statements of the Argentine Cable Companies as outlined in
Statement of Financial Accounting Standards No. 94 were not met until March 27,
1995. On that date, the Comite Nacional de Radiofusion ("COMFER"), an Argentine
governmental entity which is similar to the Federal Communications Commission in
the United States, promulgated the rules and regulations for companies domiciled
in the United States to own and operate cable television companies in Argentina.
Prior to March 27, 1995, the Company had recorded its interests in the Argentine
Cable Companies at cost as a note receivable, and no further accounting entries
were made to reflect its indirect 84.0 percent economic interest in the
Argentine Cable Companies. At March 31, 1995, in response to the rules and
regulations promulgated by COMFER, the Company consolidated for financial
reporting purposes the balance sheets of the Company, the Argentine Cable
Companies and the Argentine Joint Venture Companies. As of April 1, 1995, the
Company began consolidating for financial reporting purposes the statements of
operations of the Company, the Argentine Cable Companies and the Argentine Joint
Venture Companies.
The Company is seeking to convert its interest to a direct 96% interest
while retaining the Joint Venture structure by exchanging 536,286 shares of
Common Stock in return for the 12.0 percent Joint Venture and profits interests
transferred by its Joint Venture Partners and certain of its consultants. In
conjunction with this exchange, the Joint Venture Partners will transfer legal
title in the Argentine Cable Companies to a subsidiary of the Company which is
the new Managing Venturer.
RESULTS OF OPERATIONS.
THREE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1994
For the three month period ended December 31, 1995, the operations of the
Argentine Cable Companies and Argentine Joint Venture Companies (collectively
referred to as the "Latin American Operations") were consolidated in the
Company's consolidated statement of operations. For the three month period
ended December 31, 1995, the Latin American Operations consisted of the eight
Argentine Cable Companies and the two Argentine Joint Venture Companies. A
direct comparison of the line items on the statements of operations for the two
periods may result in a distorted analysis of changes in the results of
operation of the Company. Management encourages the reader to consider
independently the following analyses of the results of operation for the periods
ended December 31, 1995 and December 31, 1994. In December 1995, the Company
acquired a joint venture interest in another Argentine cable television company,
and it is contemplated that additional systems will be acquired. Accordingly,
the Company's results of operations may continue to change materially from
period to period
Revenue. In the fiscal quarter ended December 31, 1995, the Company
reported revenues of $4.3 million as a result of the Latin American Operations
being consolidated into its results of operations beginning April 1, 1995.
During the same period of the prior year, the Company's interests in the Latin
American Operations were accounted for at cost; therefore, those results were
not consolidated for financial accounting purposes.
9
<PAGE>
Operating Costs. In the fiscal quarter ended December 31, 1995, the
Company incurred $2.7 million of operating costs in connection with the
operation of the Latin American Operations. No operating costs were incurred in
the same period of the prior year because the Company's interests in the Latin
American Operations were accounted for at cost; therefore, those results were
not consolidated for financial accounting purposes.
Selling, General and Administrative Expense. In the fiscal quarter ended
December 31, 1995, selling, general and administrative expenses increased to
$1,258,346 from $437,904. The primary reason for the increase was the
inclusion of selling, general and administrative costs which pertained to the
Latin American Operations -- those costs were not included in the results of
the same period of the prior year because the Company's interests in the Latin
American Operations were accounted for at cost for that period. Increases in
expenditures at the Company's corporate offices also contributed to the increase
in overall selling, general and administrative expenses. This increase resulted
primarily from increases in costs relating to insurance, salaries, shareholder
relations and travel and entertainment expenditures primarily associated with
financing and operational activities.
Other Income (Expense). In the fiscal quarter ended December 31, 1995,
other income decreased to $109,009 from $308,504 as a result of the decline in
interest income, increase in interest expense and recognition of $92,698 of
other income. Interest income declined 59.1 percent to $126,267 primarily as a
result of a decline in the amount of interest-bearing assets held primarily as a
result of the acquisition of the Argentine Cable Companies. Interest expense
increased to $109,956 primarily as a result of the increase in the amount of
interest-bearing liabilities resulting from the consolidation of the operations
of the Argentine Cable Companies. The Company recognized other income of
$92,698 from consideration given to it from its health insurance carrier. The
health insurance carrier converted from a mutual life insurance company to a
stockholder owned company. In connection with this restructuring, the Company
was awarded shares of freely tradable stock based upon several factors, but not
limited to the premiums paid. The Company sold these securities in the open
market during the quarter ended December 31, 1995.
NINE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1994
For the nine month period ended December 31, 1995, the Latin American
Operations were consolidated in the Company's consolidated statement of
operations. For the period ended December 31, 1995, the Latin American
Operations consisted of the eight Argentine Cable Companies and the two
Argentine Joint Venture Companies. A direct comparison of the line items on the
statements of operations for the two periods may result in a distorted analysis
of changes in the results of operation of the Company. Management encourages
the reader to consider independently the following analyses of the results of
operation for the periods ended December 31, 1995 and December 31, 1994. In
July 1995 and December 1995, the Company acquired a joint venture interest in
other Argentine cable television companies, and it is contemplated that
additional systems will be acquired. Accordingly, the Company's results of
operations may continue to change materially from period to period.
Revenue. For the nine month period ended December 31, 1995, the Company
reported revenues of $10.9 million as a result of the Latin American Operations
being consolidated into its results of operations beginning April 1, 1995.
During the same period of the prior year, the Company's interests in the Latin
American Operations were accounted for at cost; therefore, those results were
not consolidated for financial accounting purposes.
Operating Costs. In the nine month period ended December 31, 1995, the
Company incurred $6.5 million of operating costs in connection with the
operation of the Latin American Operations. No operating costs were incurred in
the same period of the prior year because the Company's interests in the Latin
American Operations were accounted for at cost; therefore, those results were
not consolidated for financial accounting purposes.
10
<PAGE>
Selling, General and Administrative Expense. In the nine month period ended
December 31, 1995, selling, general and administrative expenses increased to
$3.3 million from $938,735. The primary reason for the increase was the
inclusion of selling, general and administrative costs which pertained to the
Latin American Operations -- those costs were not included in the results of
the same period of the prior year because the Company's interests in the Latin
American Operations were accounted for at cost for that period. Increases in
expenditures at the Company's corporate offices also contributed to the increase
in overall selling, general and administrative expenses: This increase resulted
primarily from increases in costs relating to insurance, salaries, shareholder
relations and travel and entertainment expenditures primarily associated with
financing and operational activities.
Other Income. In the nine month period ended December 31, 1995, other
income declined 81.8 percent to $138,160 as a result of the decline in interest
income and increase in interest expense. Interest income declined 58.0 percent
to $266,677 primarily as a result of declines in the rates earned on interest-
bearing assets and the amount of interest-bearing assets held. Other income
increased to $178,681 from $1,263 as a result of a reduction in the liability of
certain of the Argentine Cable Companies achieved by the payment of such
liability with government securities purchased at a discount to face value but
honored for payment purposes at face value. Interest expense increased to
$307,198 from $2,705 primarily as a result of the increase in the amount of
interest-bearing liabilities resulting from the consolidation of the operations
of the Argentine Cable Companies. Additionally, the Company recognized other
income of $178,681 from consideration given to it from its health insurance
carrier. The health insurance carrier converted from a mutual life insurance
company to a stockholder owned company. In connection with this restructuring,
the Company was awarded shares of freely tradable stock based upon several
factors, but not limited to the premiums paid. The Company sold these
securities in the open market during the quarter ended December 31, 1995.
Discontinued Operations. During the nine months ended December 31, 1995,
the Company had a net loss pertaining to discontinued operations in the amount
of $8,572. In the same period of fiscal 1994, the Company reported net income
from discontinued operations in the amount of $335,069.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995 the Company had $9.6 million of cash and cash
equivalents, $12.5 million of current assets and $6.5 million of working
capital. At March 31, 1995, the Company had $2.8 million of cash and cash
equivalents, $3.6 million of current assets and negative $2.7 million of working
capital.
In the first nine months of fiscal 1996, the Company generated a net
increase in its cash and cash equivalents of approximately $6.8 million.
During this period, $572,877 of cash was provided by operating activities,
approximately $12.9 million was used in investing activities and approximately
$19.0 million was provided by financing activities.
The operating activities of the Company consist primarily of the operations
of the Latin American Operations which are involved in the ownership, operation
and management of cable television and communications properties in Argentina.
To achieve and maintain positive cash flow from operations and profitable
operating results, the Latin American Operations must, among other things,
effectively implement their business plans. Management believes that the
Company has substantially all of the resources necessary to effectively
implement the business plans of the existing Latin American Operations in the
present economic, political and regulatory environments.
In June 1995, the Company loaned $174,000 to its Joint Venture Partners for
the purpose of acquiring an option to acquire an indirect economic interest in
the outstanding equity of TV Nieve S. A., the company that provides microwave
multipoint distribution service in Ushuaia, Argentina. At December 31, 1995, the
Company had not yet elected to exercise these options to include these interests
in the Joint Venture. Accordingly, the Company has reflected notes receivable
in the amount of approximately $174,000 on its balance sheet at December 31,
1995.
11
<PAGE>
In July 1995, the Company exercised an option to acquire an indirect 84.0
percent economic interest (the "Bariloche Interest") in 80.0 percent of the
outstanding equity of Teveca S. R. L. ("Teveca") and CablePlus, S. A.
("CablePlus"), the companies that provide cable television service to San Carlos
de Bariloche, which is located in Rio Negro Province. As a result of the
exercise of the option, the Company holds a net 67.2 percent joint venture
interest in Teveca and CablePlus. The Company had committed to loan $6.6
million to its joint venture partners to acquire the Bariloche Interest. The
Joint Venture acquired the Bariloche Interest for approximately $6.5 million
including the assumption of certain liabilities, of which approximately $5.8
million has been identified as franchise costs (and will be amortized over a 20
year period). In addition to the million purchase price, the joint venture has
paid approximately $55,000 of closing costs. This acquisition was accounted for
using the purchase method of accounting and the sellers were not affiliated with
the Company. Accordingly, the assets and liabilities of Teveca and CablePlus
have been recorded at their estimated fair market value at the date of
acquisition. The assets of CablePlus have been contributed to Teveca and
CablePlus is being liquidated.
In December 1995, the Company exercised an option to acquire an indirect
84.0 percent economic interest in the outstanding equity of SIR TV, S. R. L.
("SIR TV"), the company that provides cable television service to the
communities of Trelew, Rawson, & Puerto Madryn, which are all located in the
Chubut Province, Argentina. The Company has committed to loan $6.7 million to
its joint venture partners to acquire the outstanding equity of SIR TV. The
Joint Venture acquired SIR TV for approximately $6.5 million including the
assumption of certain liabilities, of which approximately $4.7 million has been
identified as franchise costs (and will be amortized over a 20 year period). In
addition to the million purchase price, the joint venture has paid approximately
$155,000 of closing costs. This acquisition was accounted for using the purchase
method of accounting and the sellers were not affiliated with the Company.
Accordingly, the assets and liabilities of SIR TV have been recorded at their
estimated fair market value at the date of acquisition.
In May 1995, the Company completed a $9.6 million private placement of
common stock at $2.00 per share. Proceeds from the private placement are being
used to fund the acquisition of additional interests in Argentine cable
television companies and provide working capital.
In December 1995, the Company completed a $14.85 million private placement
of a new class of preferred stock, $1 par value, at $100 per share. The 10%
preferred stock is convertible into common stock at a price of $3.125 per share.
The proceeds from this private placement are being used to fund the acquisition
of additional interests in Argentine cable television companies and provide
working capital.
The Company's Series 1990 Convertible Preferred Stock provides for
cumulative, annual dividends in the amount of $0.50 per share payable on a
quarterly basis. The Company's Series 1995 Convertible Preferred Stock provides
for cumulative, annual dividends in the amount of $8.00 per share payable on a
quarterly basis. The Company has not paid dividends on its Common Stock, and it
has no plans to make any such payments in the future.
Southwest Bank of Texas, N.A. ("Southwest") has issued a letter of credit
(the "Preferred Letter of Credit") in the amount of $500,000 to secure the
payment of dividends and the liquidation preference on the Company's Series 1990
Convertible Preferred Stock. At December 31, 1995, there had been no draws
against the Preferred Letter of Credit issued in the amount of $500,000.
Working capital requirements vary with business conditions and the nature
of the business being conducted. Management minimizes working capital
requirements to the extent practicable. In the opinion of management, the
Company possesses adequate cash flow from operations and working capital to meet
the on-going operating requirements of the existing Latin American Operations
through the current fiscal year which will end on March 31, 1996. Management
anticipates that additional financings will be required to expand the Company
via acquisition.
12
<PAGE>
The Company continues to be actively involved in the acquisition and
development of cable television and communications properties in Latin America,
and it incurs expenses in identifying and pursuing opportunities before any
acquisition decision is made. The Company anticipates attempting to obtain
additional debt and equity financing to fund its participation in future
projects. The Company is unable to predict with any degree of certainty the
cost of its future projects or the amount of funds which will be available to
fund those projects. Therefore, the Company is unable to determine with any
degree of certainty its future funding requirements.
PLAN OF OPERATION
On a continuous and ongoing basis, the Board of Directors and management
investigate alternative means of maximizing shareholder value including but not
limited to acquisition of various types of companies and businesses. The
Company continues to actively pursue opportunities to own, operate and/or
control communications and cable television properties in international markets
with special emphasis on Latin America. All prospective acquisitions will be
subject to numerous factors including but not limited to the satisfactory
completion of due diligence efforts and the arrangement of all necessary
financing.
The operating characteristics of Latin American cable television and
communications businesses are significantly different than the businesses which
the Company previously operated. Additionally, changes in the business,
political and economic conditions of Latin America could materially impact the
financial performance of the Company. Investors should consider that the
historical performance of the Company is not necessarily indicative of its
future prospects or performance.
13
<PAGE>
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of the Shareholders of the Company was held on December 12,
1995. At the meeting, each of the existing directors was re-elected by the
following votes:
<TABLE>
<CAPTION>
SHAREHOLDER VOTES
----------------------
WITHHELD OR
DIRECTORS: FOR ABSTAIN
- ---------------------- --------- -----------
<S> <C> <C>
Winston J. Churchill 9,012,123 23,678
Jack R. Crosby 9,012,959 22,842
J. Kelly Elliott 9,010,006 25,795
Jack S. Gray, Jr. 9,012,230 23,571
Lee A. Lahourcade 9,009,591 26,210
</TABLE>
Additionally, the proposal to increase the number of authorized shares of Common
Stock from 25,000,000 to 50,000,000 was approved by the following votes:
FOR 8,963,441 AGAINST 72,360
ITEM 5. OTHER INFORMATION.
On December 20 and 21, 1995, the Registrant consummated the private placement of
a total of 148,500 shares of the Registrant's Series 1995 Preferred Stock, $1.00
par value, to accredited investors at $100 per share. The securities have not
been registered under the Securities Act of 1933, and may not be offered or sold
in the United States absent registration or an applicable exemption from
registration requirements. Under the terms of the placement, the Registrant is
obligated to use good faith best efforts to register the shares and the
underlying Common Stock on or before April 28, 1996. If a registration
statement is not effective by that date, the Registrant is required to issue
warrants for 712,800 shares of Common Stock sold at an exercise price of $3.7375
per share, which warrants have a term of two years from the date of issuance.
If a registration statement is not effective on or before August 31, 1996, the
Registrant is required to issue additional warrants for 712,800 shares of Common
Stock sold at an exercise price of $3.4375 per share, which warrants have a term
of two years from the date of issuance. The purpose of the placement was to
raise additional capital for acquisitions of cable systems in Latin America and
for working capital.
14
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None.
(b) Reports filed on Form 8-K filed during this quarter.
1. Form 8-K, for an event dated December 20, 1995
15
<PAGE>
SIGNATURE
- ---------
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.
TESCORP, INC.
By: /s/ Jack S. Gray, Jr.
---------------------
Jack S. Gray, Jr.
President and Chief Operating
Officer
By: /s/ John D. Becker
------------------
John D. Becker
Controller and
Principal Accounting Officer
Austin, Texas
February 13, 1996
16
<PAGE>
No person is authorized to give any information or to make any representation
not contained or incorporated by reference in this Prospectus, and if given or
made, such information or representation must not be relied upon as having been
authorized by the Company. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create an implication that there
has been no change in the facts set forth in this Prospectus or in the affairs
of the Company since the date hereof. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any securities other than
those to which it relates or an offer to sell or a solicitation of an offer to
buy any securities in any jurisdiction in which such offer or solicitation is
not authorized, or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such an
offer or solicitation in such jurisdiction.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PROSPECTUS.................. 1
AVAILABLE INFORMATION....... 2
INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE.. 2
DESCRIPTION OF SECURITIES
TO BE REGISTERED.......... 3
RISK FACTORS................ 5
RECENT DEVELOPMENTS......... 13
SELLING SHAREHOLDERS........ 14
EXPERTS AND COUNSEL......... 18
</TABLE>
148,500 SHARES OF
PREFERRED STOCK
AND
5,986,726 SHARES OF
COMMON STOCK
OF
TESCORP, INC.
__________________
PROSPECTUS
__________________
MAY 15, 1996
