<PAGE>
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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 September 30, 1996
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 November 4, 1996
Common Stock, $ .02 par value 13,000,261
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
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<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
TESCORP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1996
Assets (Unaudited) March 31, 1996
------ ------------------ --------------
<S> <C> <C>
Cash and cash equivalents $ 4,852,873 $ 8,529,100
Accounts receivable-subscribers, net 1,847,275 1,596,676
Prepaid expenses and other assets 1,676,981 2,348,648
Plant and equipment, net 8,915,041 7,132,938
Franchise costs, net of amortization 25,766,552 24,949,470
------------ ------------
Total assets $ 43,058,722 $ 44,556,832
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Accounts payable $ 1,593,655 $ 1,311,578
Accrued license and copyright fees 1,084,978 1,840,526
Income taxes payable 807,095 492,687
Accrued payroll and social charges 545,077 422,734
Accrued taxes 484,539 661,176
Other liabilities 670,792 938,821
Long-term debt 1,059,287 447,651
------------ ------------
Total liabilities 6,245,423 6,115,173
------------ ------------
Minority Interest 995,231 1,018,702
------------ ------------
Stockholders' Equity:
Series 1990 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
Series 1995 Convertible preferred stock, $1 par value, $100 redemption
value per share, 200,000 shares authorized and 146,062 and 148,500 shares
outstanding at September 30 and March 31, 1996, respectively, with an
aggregate preference on liquidation of
$14,062,000 and $14,850,000, respectively 146,062 148,500
Common stock, $.02 par value, 50,000,000 shares authorized
and 12,814,277 and 12,495,091 issued and outstanding at
September 30, and March 31, 1996, respectively 256,286 249,902
Additional paid-in capital 65,945,517 65,359,628
Accumulated deficit (31,223,661) (28,959,437)
------------ ------------
35,818,068 37,492,457
Less treasury stock, 100,000 shares of common, at cost -- (69,500)
------------ ------------
Total stockholders' equity 35,818,068 37,422,957
Commitments and contingencies -- --
------------ ------------
Total liabilities and stockholders' equity $ 43,058,722 $ 44,556,832
============ ============
</TABLE>
<PAGE>
TESCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
September 30,
1996 1995
----------- -----------
<S> <C> <C>
Revenues $ 5,527,433 $ 3,867,058
----------- -----------
Operating costs and expenses
Operating costs 3,922,088 2,756,480
General and administrative expenses 1,052,541 795,172
Depreciation and amortization 1,229,223 662,001
----------- -----------
Total operating costs and expenses 6,203,852 4,213,653
----------- -----------
Operating loss (676,419) (346,596)
----------- -----------
Other income
Interest income 71,691 40,076
Other income (expense) 2,834 (8,572)
Interest expense (57,925) (123,190)
----------- -----------
Total other income 16,600 (91,686)
----------- -----------
Loss before provision for income taxes (659,819) (438,281)
Income tax expense 129,014 116,000
----------- -----------
Net loss before minority interests (788,833) (554,281)
Minority interest in the loss of
consolidated subsidiaries 8,859 17,440
----------- -----------
Net loss (779,974) (536,841)
Preferred stock dividends (378,858) (86,734)
----------- -----------
Net loss applicable to
common stock $(1,158,832) $ (623,575)
=========== ===========
Loss per share applicable to common stock $ (0.09) $ (0.05)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
TESCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION> For the Six Months Ended
September 30,
1996 1995
------------ ------------
<S> <C> <C>
Revenues $ 10,929,345 $ 6,594,767
------------ ------------
Operating costs and expenses
Operating costs 7,837,453 4,594,267
General and administrative expenses 1,930,994 1,312,329
Depreciation and amortization 2,367,458 1,076,470
------------ -----------
Total operating costs and expenses 12,135,905 6,983,066
------------ -----------
Operating loss (1,206,560) (388,299)
------------ -----------
Other income
Interest income 159,236 140,410
Other income 9,582 77,411
Interest expense (96,723) (197,242)
------------ ------------
Total other income 72,095 20,579
------------ ------------
Loss before provision for income taxes (1,134,465) (367,720)
Income tax expense 242,377 143,000
------------ -----------
Net loss before minority interests (1,376,842) (510,720)
Minority interest in the (income)
loss of consolidated subsidiaries 23,155 (4,159)
------------ -----------
Net loss (1,353,687) (514,879)
Preferred stock dividends (762,592) (173,468)
------------ -----------
Net loss applicable to
common stock $ (2,116,279) $ (688,347)
============ ===========
Loss per share applicable to common stock $ (0.17) $ (0.06)
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
TESCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
September 30,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($1,353,687) ($514,879)
----------- -----------
Adjustments to reconcile net income
loss to net cash provided by operating
activities, net ofassets and liabilities
of acquired businesses:
Minority share of net income (loss)
of consolidated subsidiaries (23,155) 4,159
Depreciation and amortization 2,367,458 1,076,470
Amortization on note payable to sellers - 118,863
Increase in accounts and notes receivable,
net (250,600) (279,223)
(Increase) decrease in prepaid expenses
and other assets 646,603 (652,643)
Increase in accounts payable 182,200 106,521
Increase (decrease) in other liabilities (792,205) 136,348
----------- -----------
2,130,301 510,495
----------- -----------
Net cash provided by (used in)
operating activities 776,614 (4,384)
----------- -----------
Cash flows from investing activities:
Proceeds from sale of assets - 182,471
Property additions (1,550,734) (825,308)
Proceeds from principal repayment on
mortgages 5,608 21,514
Loans to Joint Venture Partners - (18,052)
Acquisition of cable television systems,
net of cash acquired (2,548,025) (6,266,855)
----------- -----------
Net cash used in investing activities (4,093,151) (6,906,230)
----------- -----------
Cash flows from financing activities:
Borrowings of bank debt - 267,792
Repayments of seller and bank debt (189,365) (1,831,900)
Decrease in cash overdraft - (84,138)
Dividends paid on preferred stock (660,611) (173,468)
Proceeds from the exercise of stock
purchase warrants and options 490,286 -
Private placement proceeds, net of
issuance costs - 8,540,000
----------- -----------
Net cash provided by (used in)
financing activities (359,690) 6,718,286
----------- -----------
Net decrease in cash and cash equivalents (3,676,227) (192,328)
Cash and cash equivalents:
Beginning of period 8,529,100 2,778,564
----------- -----------
End of period $ 4,852,873 $ 2,586,236
=========== ===========
Significant non-cash financing activities
are as follows:
Distribution of common stock to holders
of Series 1995 Preferred Stock
electing to receive dividends in
the form of common stock $ 101,980 $ -
=========== ===========
Retirement of treasury stock $ 150,376 $ -
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
TESCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 1996
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 September 30, 1996,
and of the results of its operations for the three and six month periods then
ended. These consolidated statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's Form 10-KSB
which includes audited financial statements for the fiscal year ended March 31,
1996. Please note that certain amounts have been reclassified for comparability
with the current year presentation.
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, the Company organized two new subsidiaries: Austral
Communications Corp. ("Austral"), a Texas corporation which is a wholly owned
subsidiary of the Company, and Comunicaciones Austral S.A. ("CASA"), an
Argentine Sociedad Anonima which is a 97 percent owned subsidiary of Austral.
To facilitate the activities of the Joint Venture in Argentina, the Company and
its partners in the Joint Venture (the "Joint Venture Partners") have organized
two new Argentine Sociedades Anonimas each of which is or will be 97 percent
owned by Austral: CableDifusion S.A. ("CableDifusion") and SMR S.A. ("SMR").
(CableDifusion and SMR are collectively referred to herein as the "Argentine
Joint Venture Companies").
CableDifusion is responsible for the management of the Argentine Cable
Companies (as defined below). SMR, which was originally organized to pursue
licenses to own and operate businesses deploying Enhanced Specialized Mobile
Radio and/or related technologies in Argentina, has been utilized to facilitate
Austral's acquisition of direct ownership interests in certain Argentine cable
companies.
7
<PAGE>
For the two fiscal years ended March 31, 1996, the Company loaned or
committed to loan to the Joint Venture Partners, CASA and SMR an aggregate of
approximately $29.1 million (the "Partner Loans") for the purpose of acquiring,
pursuant to the Joint Venture, the following eight Argentine companies which own
and operate cable television systems in Argentina: Televisora Austral S.A.
("Televisora"), CableMax S.A. which was formerly known as Canal 2 TV Austral
S.A. ("CableMax"), ARTV S.A. ("ARTV") which was formerly known as Reconquista
Televisora Color S.A., Avellaneda Video Cable S.A. ("AVC"), Cable Vision
Gallegos S. A. ("CVG"), Teveca S.R.L. ("Teveca"), CablePlus S.A. ("CablePlus"),
and SIR TV S.R.L. ("SIR TV"). Additionally, during the first six months of
fiscal 1997, the Company loaned or has committed to loan approximately $6.8
million to finance the acquisition activity described in the following
paragraphs.
In the first quarter of fiscal 1997, Televisora acquired substantially all
of the outstanding equity of TV Nieve, S. A. ("TV Nieve"). During this period
the Company and the Joint Venture Partners formed Transcable, S. A.
("Transcable" which is effectively 97 percent owned by the Company) to acquire
substantially all of the assets of a cable television system in Rawson, Chubut
Province, Argentina (see Note 2).
In the second quarter of fiscal 1997, the Company purchased substantially
all of the assets of TV SIS, S. R. L. Additionally, the Company entered into a
contract to purchase certain cable television assets of Comodoro Rivadavia
Sociedad Comercial Colectiva de Television y Radiodifusion ("Comodoro"), which
is located in the Chubut province (see Note 2).
Hereinafter, TV Nieve, Transcable and the eight cable companies are
hereinafter referred to as the Argentine Cable Companies. The location of the
cable television systems operated by the Argentine Cable Companies follows
below:
Name of Company Location (City-Province)
--------------- ------------------------
Televisora/TV Nieve Ushuaia-Tierra Del Fuego Province
CableMax Rio Gallegos-Santa Cruz Province
ARTV Reconquista-Santa Fe Province
AVC Avellaneda-Santa Fe Province
CVG Rio Gallegos-Santa Cruz Province
Teveca San Carlos de Bariloche-Rio Negro Province
CablePlus San Carlos de Bariloche-Rio Negro Province
SIR TV Trelew, Rawson and Puerto Madryn-Chubut Province
Transcable Rawson-Chubut Province
8
<PAGE>
Ownership of the Argentine Joint Venture Companies and Argentine Cable
Companies (other than Transcable) is held subject to the Joint Venture Agreement
by the Joint Venture Partners or nominees of the Company. Pursuant to the Joint
Venture Agreement, the Company owns 97 percent of the economic interests held by
the Joint Venture Partners and nominees in the Argentine Cable Companies,
subject to a one percent profits interest granted by the Company to an
individual. The Joint Venture structure was adopted to comply with Argentine
regulatory policies in effect prior to March 31, 1995. In response to changes
in regulatory conditions, the Company has undertaken a reorganization of its
interests in the Argentine Joint Venture Companies and Argentine Cable
Companies. Austral will acquire or has acquired direct record ownership of 97
percent of each of the Argentine Joint Venture Companies and 99 percent of the
record ownership interests in Televisora, CableMax, ARTV, AVC, CVG and SIR TV,
and 80 percent of Teveca and CablePlus.
The Joint Venture will continue to hold the equitable, or economic
interests in the Argentine Cable Companies (other than Transcable). Through the
Joint Venture, and after giving effect to the one percent contractual profits
interest in Austral granted by the Company, the Company will hold approximately
96 percent of the economic interests in Televisora Austral, CableMax, ARTV, AVC,
CVG and SIR TV, and approximately 77 percent of Teveca and CablePlus.
NOTE 2 - ACQUISITIONS
- ---------------------
On April 1, 1996, the Company agreed to transfer to Televisora, an option
(the "TV Nieve Option") to purchase for approximately $174,000 a minority
interest in the equity of TV Nieve which provides MMDS television service in the
city of Ushuaia, Argentina. On the same day, Televisora purchased the remaining
majority interest in the equity of TV Nieve for approximately $1.15 million
less the outstanding balance of the TV Nieve liabilities pursuant to an
agreement (the "Purchase Agreement"). Concurrent with the execution of the
Purchase Agreement, Televisora made a downpayment to the sellers in the amount
of $450,000 which was advanced to Televisora by the Company on February 27,
1996. Accordingly, Televisora now owns or effectively controls all of the
outstanding equity of TV Nieve and the Company holds a 96 percent Joint Venture
interest in Televisora.
The aggregate purchase price for TV Nieve was approximately $1.3 million
including the price paid for the TV Nieve Option and downpayment made concurrent
with the execution of the Purchase Agreement, which was applied against the
purchase price. The Company advanced to Televisora the additional funds
necessary to consummate the acquisition of TV Nieve contemplated in the Purchase
Agreement. In addition to the purchase price, Televisora incurred approximately
$50,000 of closing costs relating primarily to the payment of legal and
accounting fees.
9
<PAGE>
Transcable acquired substantially all of the assets of Canal 4 Rawson Video
Cable ("Canal 4") for approximately $500,000 on May 31, 1996. Canal 4 provides
cable television service to the city of Rawson in the Chubut Province in
Argentina. The Company currently provides cable television services to the tri-
city area of Trelew, Rawson and Puerto Madryn. In addition to the purchase
price, the Company anticipates that Transcable incurred approximately $15,000
of closing costs in connection with this transaction.
Effective August 30, 1996, the Company closed its purchase of substantially
all of the assets of TV SIS S. R. L. ("TV SIS"), for approximately $1.45
million. The Company has paid approximately $725,000 of the aggregate purchase
price, and the balance will be paid upon the fulfillment of certain conditions
of the purchase agreement, and incurred approximately $ 50,000 of closing
costs in connection with this transaction
The acquisition of TV Nieve and the assets of Canal 4 and TV SIS was
accounted for using the purchase method of accounting. Accordingly, the
acquired assets and assumed liabilities were recorded at their estimated fair
values, which resulted in franchise costs of approximately $1.5 million that
will be amortized over 20 years. The allocation of the purchase price below is,
in certain instances, based on preliminary information and is therefore subject
to revision when additional information concerning asset and liability
valuations is obtained. In the opinion of the Company's management, the asset
and liability valuations for the purchases discussed above should not be
materially different than the allocations shown below. A summary of the
purchase price allocation is as follows:
<TABLE>
<CAPTION>
<S> <C>
Accounts Receivable and other assets $ 145,000
Property and equipment 1,922,000
Franchise costs 1,488,000
Accounts payable and other liabilities (1,007,000)
-----------
$ 2,548,000
===========
</TABLE>
In September 1996, the Company entered into a contract to purchase
substantially all of the cable television assets of Comodoro , a company that
provides cable television service to approximately 5,000 to 6,000 subscribers in
the Argentine city of Comodoro Rivadavia, which is located in the Chubut
Province. The purchase price is approximately $3.5 million, subject to certain
adjustments. In accordance with the terms of the contract, the Company has made
a downpayment in the amount of approximately $388,000 and the balance of the
purchase price will be payable upon fulfillment by the sellers of certain
conditions necessary to effect a final sale of the assets. The Company
anticipates closing on this transaction prior to December 31, 1996 and in
addition to the purchase price, the Company anticipates paying approximately
$100,000 of closing costs.
10
<PAGE>
NOTE 3 - EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
- ---------------------------------------------------------------
Earnings (loss) per common and common equivalent share attributable to
common shareholders was computed by dividing net earnings attributable to common
shareholders by the weighted average number of common and common equivalent
shares outstanding (12,800,764 and 12,488,343 for the three months ended
September 30, 1996 and 1995, respectively and 12,702,826 and 11,646,458 for the
six months ended September 30, 1996, respectively). For the both the three and
six month periods ended September 30, 1996 and 1995, common stock equivalents
were not included in the computation of weighted average shares outstanding
because their inclusion would be antidilutive. Fully diluted earnings per
share amounts are not presented for the periods ending September 30, 1996 and
1995, because they are antidilutive.
11
<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 for the fiscal
year ended March 31, 1996. The annual report and the consolidated financial
statements provide additional information regarding the Company's financial
activities and condition.
RESULTS OF OPERATIONS.
- ----------------------
For the three and six month periods ended September 30, 1996 and 1995, the
operations of the Argentine Cable Companies and Argentine Joint Venture
Companies (collectively referred to as the "Latin American Operations") were
included in the Company's consolidated statement of operations. For the period
ended September 30, 1996, the Latin American Operations consisted of the ten
Argentine Cable Companies operating cable TV systems in five markets and the
three Argentine Joint Venture Companies. The results of operations for the
period ended September 30, 1995 included seven Argentine Cable Companies
operating cable TV systems in four markets. Two companies were acquired after
September 30, 1995; one of which, TV Nieve, S.A. ("TV Nieve") was acquired after
the fiscal year ended March 31, 1996. In addition, during the first quarter the
Company and the Joint Venture Partners formed Transcable.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995
Revenue. For the fiscal quarter ended September 30, 1996, the Company
-------
reported revenues of $5.53 million, a 42.9 percent increase compared to $3.87
million for the same period of the prior year. This increase was primarily a
result of revenues from the acquired companies: SIR TV (approximately $1.16
million); and TV Nieve (approximately $170,000). Also the acquisition of the
assets of two competing cable TV systems in Rawson (May, 1996) and in
Reconquista and Avellaneda (August, 1996) contributed approximately $190,000 to
the increase. Revenues from the companies in operation during both periods
increased approximately 3.3 percent. This increase in revenues resulted from
sales of premium pay services which more than offset a decline in basic service
subscriptions.
Operating Costs. In the fiscal quarter ended September 30, 1996, the
---------------
Company incurred $3.92 million of expenses in connection with the operation of
the Argentine Cable Companies, a 42.3 percent increase compared to $2.76 million
for the same period of the prior year. This increase related primarily to the
operations of SIR TV which was acquired after September, 1995(approximately
$1.04 million). The acquisition and subsequent consolidation of other Cable TV
systems has resulted in a decrease in personnel cost and some operating
expenses. However, programming cost, bad debts and other expenses directly
related to revenues have increased as a result of additional revenues from the
newly acquired Cable TV systems.
12
<PAGE>
General and Administrative Expenses. In the fiscal quarter ended September
-----------------------------------
30, 1996, general and administrative expenses increased 32.4 percent to
approximately $1.05 millioncompared to the same period of the prior year.
Expenses of the Argentine Joint Venture Companies increased by approximately
$170,000 as a result of expanded operations and acquisition activity in
Argentina. Increases in expenditures at the Company's corporate offices also
contributed to the increase in overall general and administrative expenses.
This increase resulted primarily from increases in costs relating to insurance,
salaries of additional personnel, shareholder relations and travel and business
development expenditures primarily associated with financing and operational
activities.
Depreciation and amortization. In the fiscal quarter ended September 30,
-----------------------------
1996 depreciation and amortization increased to $1.23 million from approximately
$662,000 due primarily to (i) the amortization of franchise costs of the new
acquisitions of SIR TV, Teveca and TV Nieve, and (ii) the depreciation of
capital expenditures in existing cable TV systems and the additional cable TV
plant of the acquired companies.
Other Income (Expense). In the fiscal quarter ended September 30, 1996,
----------------------
other income increased to approximately $17,000 from an expense of approximately
$92,000 primarily as a result of a decline in interest expense paid in
connection with the acquisitions of the cable television systems.
Income taxes. For the quarter ended September 30, 1996, the Company
-------------
recorded income tax expense of approximately $129,000 compared to $116,000 for
the quarter ended September 30, 1995. Although the Company recognized a net loss
for the quarters ended September 30, 1996 and 1995, it has income tax expense
due to income from certain of its foreign subsidiaries. Under the income tax
regulations of Argentina, losses of one subsidiary may not offset income from
another in a consolidated tax return.
SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1995
Revenue. For the six months ended September 30, 1996, the Company reported
-------
revenues of $10.93 million, a 65.7 percent increase compared to $6.59 million in
the same period of the prior year. This increase was primarily a result of
revenues from the acquired companies: SIR TV (approximately $2.38 million);
Teveca (approximately $1.12 million); and TV Nieve (-approximately $350,000).
Also the acquisition of the assets of two competing cable TV systems in Rawson
(May, 1996) and in Reconquista and Avellaneda (August, 1996) contributed
approximately $260,000 to the increase. Revenues from the companies in operation
during both periods increased approximately 3.4 percent. This increase in
revenues resulted from sales of premium pay services which more than offset a
decline in basic service subscriptions.
13
<PAGE>
Operating Costs. In the six months ended September 30, 1996, the Company
---------------
incurred $7.84 million of expenses in connection with the operation of the
Argentine Cable Companies, a 70.6 percent increase compared to $4.59 million for
the same period of the prior year. This increase resulted primarily from
approximately $1.99 million of costs related to the operations of SIR TV which
was acquired after September, 1995 and approximately $870,000 of expenses
related to the first quarter operations of Teveca which was acquired in July
1995 and is not comparable until the second quarter. The acquisition and
subsequent consolidation of other Cable TV systems has resulted in a decrease in
personnel cost and some operating expenses. However, programming cost, bad debts
and other expenses directly related to revenues have increased as a result of
additional revenues from the newly acquired Cable TV systems. The operations of
TV Nieve were being merged into the operations of Televisora Austral during the
first quarter and a significant portion of the increased expenses incurred
during the first quarter did not recur in the second quarter.
General and Administrative Expenses. In the six months ended September 30,
-----------------------------------
1996, general and administrative expenses increased to approximately $1.93
million from approximately $1.31. Expenses of the Argentine Joint Venture
Companies increased by approximately $425,000 as a result of expanded operations
and acquisition activity in Argentina. Increases in expenditures at the
Company's corporate offices also contributed to the increase in overall general
and administrative expenses. This increase resulted primarily from increases in
costs relating to insurance, salaries of additional personnel, shareholder
relations and travel and business development expenditures primarily associated
with financing and operational activities.
Depreciation and amortization. In the six months ended September 30, 1996
-----------------------------
depreciation and amortization increased to $2.37 million from approximately
$1.08 million due primarily to (i) the amortization of franchise costs of the
new acquisitions of SIR TV, Teveca and TV Nieve. (ii) the depreciation of
capital expenditures in existing cable TV systems and the additional cable TV
plant of the acquired companies.
Other Income (Expense). In the six months ended September 30, 1996, other
----------------------
income increased from approximately $21,000 to approximately $72,000 primarily
as a result of a decline in interest expense primarily as a result of a decline
in interest expense paid in connection with the acquisitions of the cable
television systems. During the six months ended September 30, 1995, the Company
reported other income in the amount of approximately $80,000 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, which did
not recur in the quarter ended June 30, 1996.
Income taxes. For the six months ended September 30, 1996, the Company
-------------
recorded income tax expense of approximately $243,000 compared to approximately
$143,000 for the six months ended September 30, 1995. Although the Company
recognized a net loss for the six month periods ended September 30, 1996 and
1995, it has income tax expense due to income from certain of its foreign
subsidiaries. Under the income tax regulations of Argentina, losses of one
subsidiary may not offset income from another in a consolidated tax return.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30 and March 31, 1996, the balance sheets of the Argentine
Cable Companies and the Argentine Joint Venture Companies were consolidated in
the Company's balance sheet and the Company held $4.9 million and $8.5 million
of cash and cash equivalents, respectively. The $3.6 million decrease related
primarily to the acquisition of TV Nieve and the assets of Canal 4, TV SIS and
Rawson (approximately $2.5 million in the aggregate) and the $1.5 million of
property additions during the six month period. The cash and cash equivalents
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 the funds held in accounts outside of the
United States (approximately $1.19 million at September 30, 1996) may be subject
to diminution in value caused by foreign currency devaluation or governmental
action.
At September 30, and March 31, 1996 working capital balances totaled
approximately $1.9 million and $6.1 million, respectively. The ratio of current
assets to current liabilities was approximately 1.3 times and 2.0 times,
respectively. The ratio of long-term debt to total assets was approximately
2.5% and 1.0%, at September 30, and March 31, 1996, respectively. The decrease
in working capital balances was primarily a result of the decrease in cash and
cash equivalents resulting from the acquisition of TV Nieve and the payment of
dividends on the Series 1995 and Series 1990 preferred stock.
In the first six months of fiscal 1997, the Company used $1.6 million of
cash and cash equivalents. During this period approximately $567,000 was
provided by operating activities, $2.3 million was used in investing activities
and approximately $73,000 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 communication properties in Argentina.
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.
On April 1, 1996, the Company agreed to transfer to Televisora Austral, S.
A., 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 the same day,
Televisora purchased the remaining majority interest in the equity of TV Nieve
for approximately $1.15 million less the outstanding balance of the TV Nieve
liabilities pursuant to an agreement (the "Purchase Agreement"). Concurrent
with the execution of the Purchase Agreement, Televisora made a downpayment to
the sellers in the amount of $450,000 which was advanced to Televisora by the
Company on February 27, 1996. Accordingly, Televisora now owns or effectively
controls all of the outstanding equity of TV Nieve and the Company holds a 96
percent Joint Venture interest in Televisora.
15
<PAGE>
The aggregate purchase price for TV Nieve was approximately $1.3 million
including the price paid for the TV Nieve Option and downpayment made concurrent
with the execution of the Purchase Agreement, which was applied against the
purchase price. The Company advanced to Televisora the additional funds
necessary to consummate the acquisition of TV Nieve contemplated in the Purchase
Agreement. In addition to the purchase price, Televisora incurred approximately
$50,000 of closing costs relating primarily to the payment of legal and
accounting fees.
Transcable acquired substantially all of the assets of Canal 4 Rawson Video
Cable ("Canal 4") for approximately $500,000 on May 31, 1996. Canal 4 provides
cable television service to the city of Rawson in the Chubut Province in
Argentina. The Company currently provides cable television services to the tri-
city area of Trelew, Rawson and Puerto Madryn. In addition to the purchase
price, the Company anticipates that Transcable incurred approximately $15,000
of closing costs in connection with this transaction.
Effective on August 30, 1996, the Company closed its purchase of
substantially all of the assets of TV SIS S. R. L. ("TV SIS"), for approximately
$1.45 million. The Company has paid approximately $725,000 of the aggregate
purchase price, and the balance will be paid upon the fulfillment of certain
conditions of the purchase agreement.
In September 1996, the Company entered into a contract to purchase
substantially all of the cable television assets of Comodoro Rivadavia Sociedad
Comercial de Television Radiodifusion , a company that provides cable television
service to approximately 5,000 to 6,000 subscribers in the Argentine city of
Comodoro Rivadavia, which is located in the Chubut Province. The purchase price
is approximately $3.5 million, subject to certain adjustments. In accordance
with the terms of the contract, the Company has made a downpayment in the amount
of approximately $388,000 and the balance of the purchase price will be payable
upon fulfillment by the sellers of certain conditions necessary to effect a
final sale of the assets. The Company anticipates closing on this transaction
prior to December 31, 1996 and anticipates paying approximately $100,000 of
closing costs in addition to the purchase price
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's Series 1990 Convertible Preferred Stock provides
for cumulative, annual dividends in the amount of $.50 per share payable on a
quarterly basis. For the six months ended September 30, 1996, this resulted in
approximately $712,000 of cash outflow compared to $173,000 for the comparable
period in the prior year, principally as a result of the issuance of the Series
1995 Convertible Preferred Stock in December 1995. The Company has not paid
dividends on its Common Stock, and it has no plans to make any such payments in
the future.
16
<PAGE>
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 ending on March 31, 1997. Management
anticipates that additional financings will be required to expand the Company
via acquisition.
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 in connection with any
potential acquisition.
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. In light of the recent and potential
acquisitions of cable television systems in Argentina, investors should consider
that the historical performance of the Company is not necessarily indicative of
its future prospects or performance.
FOREIGN INVESTMENT RISK
The Argentine Cable Companies and the Argentine Joint Venture Companies are
directly affected by Argentina's government, economic and fiscal policy and
other political factors. The Company believes that its financial condition and
its results of operations have not been adversely affected by these factors to
date. However, the Company can not predict with any degree of certainty the
likelihood that these elements will remain stable. Policy changes imposed by the
Argentine government in any of these areas could have a material adverse affect
on the Company.
Management is currently seeking licensure of the Company or its
subsidiaries with the assistance of the Joint Venture Partners and legal
counsel. To date and to the best knowledge of the management of the Company,
COMFER has formally approved or licensed two U. S. companies; however, the
Company has no assurance that COMFER will approve its licensure. 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.
17
<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 October
11, 1996. At the meeting, each of the existing directors was re-elected by the
following votes:
<TABLE>
<CAPTION>
SHAREHOLDER VOTES
-------------------------
WITHHELD OR
FOR ABSTAIN
---------- -----------
<S> <C> <C>
DIRECTORS:
- ----------
Winston J. Churchill 10,522,749 41,345
Jack R. Crosby 10,521,724 42,370
J. Kelly Elliott 10,510,314 53,780
Jack S. Gray, Jr. 10,520,994 43,100
Lee A. Lahourcade 10,521,749 42,345
</TABLE>
Additionally, the proposal to increase the number of authorized shares of Common
Stock available for option grants under the Company's 1991 Incentive Plan from
1,400,000 to 2,000,000 was approved by the following votes:
FOR 10,415,988 AGAINST OR ABSTAIN 148,106
ITEM 5. OTHER INFORMATION.
None
18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit
No. Description
------- -----------
27.1 Financial Data Schedule
(b) Reports filed on Form 8-K filed during this quarter.
None.
19
<PAGE>
SIGNATURE
- ---------
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.
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
November 12, 1996
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE CONSOLIDATED
BALANCE SHEET AND STATEMENT OF OPERATION FILED AS PART OF THE INTERIM REPORT ON
FORM 10QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,852,873
<SECURITIES> 0
<RECEIVABLES> 2,310,755
<ALLOWANCES> 463,480
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 12,508,451
<DEPRECIATION> 3,593,410
<TOTAL-ASSETS> 43,058,722
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
839,926
<COMMON> 256,286
<OTHER-SE> 34,721,856
<TOTAL-LIABILITY-AND-EQUITY> 43,058,722
<SALES> 0
<TOTAL-REVENUES> 10,929,345
<CGS> 0
<TOTAL-COSTS> 7,837,453
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 589,361
<INTEREST-EXPENSE> 96,723
<INCOME-PRETAX> (1,134,465)
<INCOME-TAX> 242,377
<INCOME-CONTINUING> (1,376,842)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,353,687)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
<FN>
<F1>The company does not have a classified balance sheet.
</FN>
</TABLE>
