<PAGE>
- --------------------------------------------------------------------------------
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, 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 February 6, 1997
Common Stock, $ .02 par value 13,143,347
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>
December 31, 1996
Assets (Unaudited) March 31, 1996
------ ----------------- --------------
<S> <C> <C>
Cash and cash equivalents $ 1,217,823 $ 8,529,100
Accounts receivable-subscribers, net 1,828,299 1,596,676
Prepaid expenses and other assets 1,278,965 2,348,648
Plant and equipment, net 9,100,808 7,132,938
Franchise costs, net of amortization 28,404,647 24,949,470
------------ ------------
Total assets $ 41,830,542 $ 44,556,832
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Accounts payable $ 1,087,077 $ 1,311,578
Accrued license and copyright fees 1,069,416 1,840,526
Income taxes payable 921,550 492,687
Accrued payroll and social charges 537,369 422,734
Accrued taxes 577,951 661,176
Other liabilities 584,162 938,821
Long-term debt 1,137,818 447,651
------------ ------------
Total liabilities 5,915,343 6,115,173
------------ ------------
Minority Interest 989,450 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
139,250 and 148,500 shares outstanding at December 31 and March
31, 1996, respectively, with an aggregate preference on liquidation of
$13,925,000 and $14,850,000, respectively 139,250 148,500
Common stock, $.02 par value, 50,000,000 shares authorized
and 13,043,347 and 12,495,091 issued and outstanding at
December 31, and March 31, 1996, respectively 260,867 249,902
Additional paid-in capital 65,992,440 65,359,628
Accumulated deficit (32,160,672) (28,959,437)
------------ ------------
34,925,749 37,492,457
Less treasury stock, 100,000 shares of common, at cost - (69,500)
------------ ------------
Total stockholders' equity 34,925,749 37,422,957
Commitments and contingencies - -
------------ ------------
Total liabilities and stockholders' equity $ 41,830,542 $ 44,556,832
============ ============
</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,
1996 1995
---------- ----------
<S> <C> <C>
Revenues $5,480,270 $4,319,897
---------- ----------
Operating costs and expenses
Operating costs 3,777,617 3,140,895
General and administrative expenses 874,863 809,655
Depreciation and amortization 1,249,669 899,603
---------- ----------
Total operating costs and expenses 5,902,149 4,850,153
---------- ----------
Operating loss (421,879) (530,256)
---------- ----------
Other income (expense)
Interest income 39,230 126,267
Other income (expense) (12,017) 92,698
Interest expense (62,198) (109,956)
---------- ----------
Total other income (expense) (34,985) 109,009
---------- ----------
Loss before provision for income taxes (456,864) (421,247)
Income tax expense (benefit) 118,694 (116,000)
---------- ----------
Net loss before minority interests (575,558) (305,247)
Minority interest in the loss of consolidated subsidiaries 5,781 9,987
---------- ----------
Net loss (569,777) (295,260)
Preferred stock dividends (367,234) (86,734)
---------- ----------
Net loss applicable to
common stock $ (937,011) $ (381,994)
========== ==========
Loss per share applicable to common stock $ (0.07) $ (0.03)
========== ==========
</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,
1996 1995
----------- -----------
<S> <C> <C>
Revenues $16,409,615 $10,914,664
----------- -----------
Operating costs and expenses
Operating costs 11,615,070 7,735,163
General and administrative expenses 2,805,857 2,121,982
Depreciation and amortization 3,617,127 1,976,074
----------- -----------
Total operating costs and expenses 18,038,054 11,833,219
----------- -----------
Operating loss (1,628,439) (918,555)
----------- -----------
Other Income
Interest income 198,466 266,677
Other income (expense) (2,435) 170,109
Interest expense (158,921) (307,198)
----------- -----------
Total other income 37,110 129,588
----------- -----------
Loss before provision for income taxes (1,591,329) (788,967)
Income tax expense 361,071 27,000
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Net loss before minority interests (1,952,400) (815,967)
Minority interest in the loss of consolidated subsidiaries 28,936 5,828
----------- -----------
Net loss (1,923,464) (810,139)
Preferred stock dividends (1,129,826) (260,202)
----------- -----------
Net loss applicable to
common stock $(3,053,290) $(1,070,341)
=========== ===========
Loss per share applicable to common stock $ (0.24) $ (0.09)
=========== ===========
</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,
1996 1995
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,923,464) $ (810,139)
----------- ------------
Adjustments to reconcile net income loss to net cash
provided by operating activities, net of assets and
liabilities of acquired businesses:
Minority share of net loss of consolidated subsidiaries (28,936) (5,828)
Depreciation and amortization 3,617,127 1,976,074
Amortization of discount on note payable to sellers - 137,670
Increase in accounts and notes receivable, net (73,994) (458,378)
(Increase) decrease in prepaid expenses and other assets 967,317 (917,276)
Decrease in accounts payable (324,378) (13,643)
Increase (decrease) in other liabilities (771,351) 655,825
----------- ------------
3,385,785 1,374,444
----------- ------------
Net cash provided by operating activities 1,462,321 564,305
----------- ------------
Cash flows from investing activities:
Proceeds from sale of assets - 193,588
Property additions (2,089,207) (1,190,722)
Proceeds from principal repayment on mortgages 8,571 23,916
Loans to Joint Venture Partners - 126,125
Acquisition of cable television systems, net of cash acquired (5,956,909) (11,861,284)
----------- ------------
Net cash used in investing activities (8,037,545) (12,708,377)
----------- ------------
Cash flows from financing activities:
Borrowings of bank debt - 55,433
Repayments of seller and bank debt (243,184) (3,126,600)
Decrease in cash overdraft - (84,138)
Dividends paid on preferred stock (983,155) (260,202)
Proceeds from the exercise of stock purchase warrants and options 490,286 -
Private placement proceeds, net of issuance costs - 22,390,000
----------- ------------
Net cash provided by (used in) financing activities (736,053) 18,974,493
----------- ------------
Net increase (decrease) in cash and cash equivalents (7,311,277) 6,830,421
Cash and cash equivalents:
Beginning of period 8,529,100 2,778,564
----------- ------------
End of period $ 1,217,823 $ 9,608,985
=========== ============
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. $ 146,672 $ -
=========== ===========
Retirement of treasury stock $ 150,376 $ -
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
TESCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
December 31, 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 December 31, 1996,
and of the results of its operations for the three and nine 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 Delaware 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 97 percent owned by
Austral: CableDifusion S.A. ("CableDifusion") and SMR S.A. ("SMR").
(CableDifusion, CASA and SMR are hereinafter collectively referred to as the
"Argentine Joint Venture Companies").
CableDifusion is responsible for the management of the Argentine Cable
Companies (as defined below). SMR was originally organized to pursue
licenses to own and operate businesses deploying Enhanced Specialized Mobile
Radio and/or related technologies in Argentina. However, currently both CASA
and SMR are being utilized to facilitate Austral's acquisition of direct
ownership interests in certain Argentine cable companies.
6
<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 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. (merged into ARTV in
December 1996), Cable Vision Gallegos S.A. ("CVG"), BTC S.A. which was formerly
known as Teveca S.R.L. ("BTC"), CablePlus S.A. ("CablePlus"), and SIR TV
S.R.L. ("SIR TV").
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") to acquire substantially all of the assets of a cable television
system in Rawson, Chubut Province, Argentina (see Note 2). Transcable is
effectively 97 percent owned by the Company
In the second quarter of fiscal 1997, the Company purchased substantially
all of the assets of TV SIS, S.R.L. Additionally, Transcable 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 Comodoro Rivadavia, Chubut Province,
Argentina (see Note 2).
In the third quarter of fiscal 1997, Transcable closed on its
purchase of substantially all of the assets of Comodoro. Additionally, the
Company entered into a contract to acquire the stock of Cable Viedma, S.R.L.,
which provides cable television service to subscribers in the provinces of Rio
Negro and Buenos Aires, Argentina (see Note 2).
Hereinafter, the companies operating cable television systems in the
locations listed below are referred to as the Argentine Cable Companies.
Name of Company Location (City, Province)
--------------- -------------------------
Televisora/TV Nieve Ushuaia, Tierra Del Fuego Province
CableMax/CVG Rio Gallegos, Santa Cruz Province
ARTV Reconquista, Santa Fe Province
Avellaneda, Santa Fe Province
BTC/CablePlus San Carlos de Bariloche, Rio Negro Province
SIR TV Trelew, Rawson and Puerto Madryn,
Chubut Province
Transcable Rawson, Chubut Province
Comodoro Rivadavia, Chubut Province
7
<PAGE>
Ownership of the Argentine Joint Venture Companies and Argentine Cable
Companies (other than Transcable) was until recently 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
through CASA and SMR 99 percent of the record ownership interests in Televisora,
CableMax, ARTV, CVG and SIR TV, and 80 percent of BTC 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, CVG
and SIR TV, and approximately 77 percent of BTC 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, a company 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. 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. The Company advanced to
Televisora the funds necessary to consummate the acquisition of TV Nieve.
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 Rawson") for approximately $500,000 on May 31, 1996.
Canal 4 Rawson provides cable television service to the city of Rawson in
the Chubut Province, 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, Transcable incurred approximately $15,000 of
closing costs in connection with this transaction.
8
<PAGE>
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
On December 23, 1996, Transcable acquired substantially all of the assets
of Comodoro, a company that provides cable television service to approximately
5,500 subscribers in the Argentine city of Comodoro Rivadavia, which is located
in the Chubut Province. The purchase price was approximately $3.5 million,
subject to certain adjustments. In addition to the purchase price, the Company
anticipates that it will incur approximately $50,000 of closing costs.
The acquisitions of TV Nieve and the assets of Canal 4 Rawson, TV SIS and
Comodoro were 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 $4.5
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 2,480,000
Franchise costs 4,471,000
Accounts payable and other liabilities (206,000)
Long-term debt (933,000)
----------
$5,957,000
==========
</TABLE>
On December 27, 1996, the Company entered into a contract to acquire the
stock of Cable Viedma S.R.L. ("Cable Viedma"), a company that provides
cable television service to approximately 6,000 subscribers in the Argentine
cities of Viedma, Rio Negro Province and Carmen de Patagones, Buenos Aires
Province. The purchase price is approximately $4.0 million, subject to certain
adjustments. In accordance with the terms of the contract, the Company has made
a downpayment of $100,000. The Company anticipates closing this transaction
prior to March 31, 1997 and anticipates that it will incur approximately
$175,000 of closing costs in addition to the purchase price.
9
<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 (12,853,853 and 11,947,433 for the three months ended
December 31, 1996 and 1995, respectively and 12,753,351 and 11,387,197 for the
nine months ended December 31, 1996 and 1995, respectively). For both the
three and nine month periods 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 ended December 31, 1996 and 1995, because they are antidilutive.
NOTE 4 - SUBSEQUENT EVENTS
- --------------------------
On February 7, 1997, the Company issued 13% Senior Notes ("Notes") in the
aggregate amount of $5,400,000. Interest is payable in arrears semi-annually
beginning on August 7, 1997 and is calculated based on a 360-day year. The Notes
are not subject to prepayment (except at the holder's option in the event the
Company issues securities or debt sufficient to retire the Notes) and are due
and payable in full on February 7, 1998. In connection with the issuance of the
Notes the Company granted warrants to purchase 189,000 shares of common stock of
the Company at an exercise price of $4.00 per share. The warrants are
exercisable at any time and expire on February 7, 2002. In conjunction with the
issuance of the Notes, the Company incurred approximately $50,000 of costs and
issued as a financial advisory fee 20,250 shares of its common stock and
warrants to purchase 81,000 shares of common stock of the Company at an exercise
price of $4.00 per share.
On February 11, 1997, the Company acquired the stock of Televiedma S.R.L.
("Televiedma"), a company that provides cable television service to
approximately 3,800 subscribers in the Argentine cities of Viedma, Rio Negro
Province and Carmen de Patagones, Buenos Aires Province. The purchase price was
approximately $2.3 million, subject to certain adjustments. The Company
anticipates that it will incur approximately $75,000 of closing costs in
addition to the purchase price. The Company plans to merge the operations of
Televiedma and Cable Viedma as both companies operate in the same market.
10
<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 nine month periods ended December 31, 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. The Latin
American Operations for all periods include cable TV systems operating in five
markets. SIR TV was acquired in December 1995; therefore the three and nine
month periods ended December 31, 1995 include only one month of its operations.
TV Nieve, which operated in the same market as Televisora, was acquired in
April, 1996; therefore the three and nine month periods ended December 31,
1995 do not include its operations. Comodoro was acquired on December 23,
1996; therefore the results of operations do not include the cable television
system in Comodoro Rivadavia.
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1995
Revenue. In the fiscal quarter ended December 31, 1996, the Company
-------
reported revenues of $5.48 million. During the same period of the prior year,
the Company reported revenues of $4.32 million. The increase in the amount of
$1.16 million was primarily a result of revenues from the acquired companies:
SIR TV and TV Nieve in the amounts of $727,000 and $165,000, respectively.
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 $360,000 to the increase. Basic cable TV revenues from the
companies in operation for all three months of both periods declined by
approximately $311,000. The decrease was due to a decline in the number of
basic subscribers, which was partially offset by a rate increase implemented in
Reconquista and Avellaneda coinciding with the acquisition in August, 1996 of
the competing cable TV system in that market. The rate increase
(together with cost reductions noted below) has enabled the Company to improve
its operating margin when compared to the same period of the prior year.
Revenues from a premium service launched in August 1995, offering in
all systems exclusive soccer coverage, increased by approximately $107,000
over the same period the prior year.
11
<PAGE>
Operating Costs. In the fiscal quarter ended December 31, 1996, the
---------------
Company incurred $3.78 million of expenses in connection with the operation of
the Argentine Cable Companies, while for the same period of the prior year the
Company incurred $3.14 million of operating costs. Approximately $700,000 of
increased costs can be attributed to the operations of SIR TV which included
only one month of operations in the three month period ended in 1995.
Programming, copyright fees, franchise taxes and other expense directly related
to revenue increased by approximately $158,000 due the increased revenue in the
current quarter. However, personnel costs, program guides, bad debts and other
expenses were reduced by a total of approximately $221,000 when compared to the
same period of the prior year. The acquisition and subsequent consolidation
of competing Cable TV systems in Ushuaia, Rawson and Reconquista/Avellaneda have
enabled the Company to reduce cost and increase operating margins.
General and Administrative Expenses. In the fiscal quarter ended December
------------------------------------
31, 1996, general and administrative expenses increased to approximately
$875,000 from approximately $810,000 for the prior year period. Expenses of the
Argentine Joint Venture Companies for the quarter remained at approximately the
same level when compared to the prior year. Whereas, expenditures at the
Company's corporate offices increased by approximately $62,000, primarily in
connection with the investigation of possible strategic and financing
opportunities.
Depreciation and Amortization. In the fiscal quarter ended December 31,
-----------------------------
1996, depreciation and amortization increased to $1.25 million from
approximately $900,000 for the prior year period due primarily to (i) the
amortization of franchise costs of the new acquisitions of SIR TV, BTC 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 December 31, 1996,
----------------------
other income decreased by approximately $144,000 compared to the same
period of the prior fiscal year due to a decline in interest income, a decline
in other income and a decline in interest expense. Interest income declined by
approximately $87,000 due to a reduction in the amount of interest-bearing
assets held, primarily as a result of the Company's acquisition activities.
During the quarter ended December 31, 1995, the Company received approximately
$93,000 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 , which were sold in the open market during the quarter ended
December 31, 1995. The Company did not receive any similar consideration during
the quarter ended December 31, 1996, which is the primary reason that other
income has decreased approximately $105,000. The decrease in interest
and other income was offset by an approximate $48,000 decrease in interest
expense. The decrease in interest expense was a result of a reduction in the
amount of interest-bearing liabilities resulting from the debt incurred in
connection with the acquisition of certain of the Argentine Cable Companies
being paid off or substantially reduced during fiscal 1997.
12
<PAGE>
Income taxes. For the quarter ended December 31, 1996, the Company
-------------
recorded income tax expense of approximately $119,000 compared to an
income tax benefit of $116,000 for the quarter ended December 31, 1995.
Although the Company has a net loss for the quarter ended December 31, 1996, it
has income tax expense due to income earned from certain of its foreign
subsidiaries. Under the income tax regulations of Argentina, losses of one
subsidiary may not offset income from another subsidiary in a consolidated
return.
NINE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1995
Revenue. For the nine months ended December 31, 1996, the Company reported
-------
revenues of $16.41 million. During the same period of the prior year, the
Company reported revenues of $10.91 million. The increase in the amount of
$5.50 million was primarily a result of revenues from the acquired companies:
SIR TV, BTC and TV Nieve in the amounts of approximately $3.11 million,
$1.12 million and $515,000, respectively. 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 $620,000 to the increase.
Basic cable TV revenues from the companies in operation for all nine months of
both periods declined by approximately $460,000. The decrease was due to a
decline in the number of basic subscribers. However, in August 1996, the
Company, in connection with the acquisition of the competing cable TV system in
the Reconquista/Avellaneda market, implemented a rate increase which provided an
increase of approximately $110,000 in revenues for the current period. Revenues
from a premium service launched in August 1995, offering in all systems
exclusive soccer coverage, increased by approximately $485,000 over the same
period of the prior year, which more than offset the decline in basic
service subscriptions
Operating Costs. In the nine months ended December 31, 1996, the Company
---------------
incurred $11.62 million of expenses in connection with the operation of the
Argentine Cable Companies, while for the same period of the prior year the
Company incurred $7.74 million of operating costs. Of the $3.88 million
increase, approximately $2.69 million of costs can be attributed to the
operations of SIR TV which was acquired in December, 1995. Also, approximately
$870,000 of the increase can be attributed to the first quarter operating
expenses of BTC which was acquired in July 1995 and is not comparable until
the second and third quarters. Programming, copyright fees, franchise taxes and
other expense directly related to revenue increased by approximately $270,000
due the increased revenue in the current period. Other operating expenses were
maintained during the current nine month period at approximately the same level
as the same period of the prior year.
General and Administrative Expenses. In the nine months ended December 31,
-----------------------------------
1996, general and administrative expenses increased to approximately $2.81
million from approximately $2.12 million for the prior year period. Expenses of
the Argentine Joint Venture Companies increased by approximately $430,000 as a
result of expanded operations and acquisition activity in Argentina. Whereas,
expenses increased by approximately $253,000 at the Company's corporate offices,
primarily relating to expenditures incurred in connection with the investigation
of possible strategic and financing opportunities.
13
<PAGE>
Depreciation and Amortization. In the nine months ended December 31, 1996
-----------------------------
depreciation and amortization increased to $3.62 million from approximately
$1.98 million for the prior year period due primarily to (i) the amortization of
franchise costs of the new acquisitions of SIR TV, BTC 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 nine months ended December 31, 1996, other
----------------------
income decreased from approximately $130,000 for the prior year period to
approximately $37,000. This decrease was due to a decrease in interest income,
other income and interest expense. Interest income declined by approximately
$68,000 due to a reduction in the amount of interest-bearing assets held,
primarily as a result of the Company's acquisition activities. Other income
decreased by approximately $173,000 due to two transactions that occurred during
the period ended December 31, 1995, that were not duplicated in the period ended
December 31, 1996. First, the Company received approximately $80,000 from the
reduction in the liabilities 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; and
second, the Company received approximately $93,000 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, which were sold in the
open market during the quarter ended December 31, 1995. The decrease in interest
and other income was offset by an approximate $148,000 decrease in interest
expense. The decrease in interest expense was a result of a reduction in the
amount of interest-bearing liabilities resulting from the debt incurred in
connection with the acquisition of certain of the Argentine Cable Companies
being paid off or substantially reduced during fiscal 1997.
Income taxes. For the nine months ended December 31, 1996, the Company
-------------
recorded income tax expense of approximately $361,000 compared to approximately
$27,000 for the nine months ended December 31, 1995. Although the Company had a
net loss for the periods ended December 31, 1996 and 1995, it had income tax
expense due to income earned from certain of its foreign subsidiaries. Under the
income tax regulations of Argentina, losses of one subsidiary may not offset
income from another subsidiary in a consolidated return.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At December 31 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 $1.2 million and $8.5 million
of cash and cash equivalents, respectively. The $7.3 million decrease related
primarily to the acquisition of TV Nieve and the assets of Canal 4
Rawson, TV SIS and Comodoro (approximately $6.0 million in the aggregate)
and the $2.1 million of property additions during the nine 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 $776,000 at December 31,
1996) may be subject to diminution in value caused by foreign currency
devaluation or governmental action.
At December 31, and March 31, 1996 working capital balances totaled
approximately negative $1.8 million and $6.1 million, respectively. The ratio
of current assets to current liabilities was approximately .7 times and 2.0
times, respectively. The ratio of long-term debt to total assets was
approximately 2.7% and 1.0%, at December 31, 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 activity and the
payment of dividends on the Series 1995 and Series 1990 preferred stock.
In the first nine months of fiscal 1997, the Company used approximately
$7.3 million of cash and cash equivalents. During this period approximately
$1.5 million was provided by operating activities, $8.0 million was used in
investing activities and approximately $736,000 was used in 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 an option
(the "TV Nieve Option") to purchase for approximately $174,000 a minority
interest in the equity of TV Nieve, a company 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. 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. The Company advanced to
Televisora the additional funds necessary to consummate the acquisition of TV
Nieve. 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 for
approximately $500,000 on May 31, 1996. Canal 4 Rawson 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, 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 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.
On December 23, 1996, Transcable acquired substantially all of the
assets of Comodoro, a company that provides cable television service to
approximately 5,500 subscribers in the Argentine city of Comodoro
Rivadavia, which is located in the Chubut Province. The purchase price
was approximately $3.5 million, subject to certain adjustments. In
addition to the purchase price, the Company anticipates that it will incur
approximately $50,000 of closing costs.
On December 27, 1996, the Company entered into a contract to acquire the
stock of Cable Viedma, a company that provides cable television service to
approximately 6,000 subscribers in the Argentine cities of Viedma, Rio Negro
Province and Carmen de Patagones, Buenos Aires Province. The purchase price is
approximately $4.0 million, subject to certain adjustments. In accordance with
the terms of the contract, the Company has made a downpayment of $100,000. The
Company anticipates closing this transaction prior to March 31, 1997 and
anticipates that it will incur approximately $175,000 of closing costs in
addition to the purchase price.
On February 11, 1997, the Company acquired the stock of Televiedma, a
company that provides cable television service to approximately 3,800
subscribers in the Argentine cities of Viedma, Rio Negro Province and Carmen de
Patagones, Buenos Aires Province. The purchase price was approximately $2.3
million, subject to certain adjustments. The Company anticipates that it will
incur approximately $75,000 of closing costs in addition to the purchase price.
The Company plans to merge the operations of Televiedma and Cable Viedma as both
companies operate in the same market.
16
<PAGE>
On February 7, 1997, the Company issued 13% Senior Notes ("Notes") in the
aggregate amount of $5,400,000. Interest is payable in arrears semi-annually
beginning on August 7, 1997 and is calculated based on a 360-day year. The Notes
are not subject to prepayment (except at the holder's option in the event the
Company issues securities or debt sufficient to retire the Notes) and are due
and payable in full on February 7, 1998. In connection with the issuance of the
Notes the Company granted warrants to purchase 189,000 shares of common stock of
the Company at an exercise price of $4.00 per share. The warrants are
exercisable at any time and expire on February 7, 2002. In conjunction with the
issuance of the Notes, the Company incurred approximately $50,000 of costs and
issued as a financial advisory fee 20,250 shares of its common stock and
warrants to purchase 81,000 shares of common stock of the Company at an exercise
price of $4.00 per share.
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 nine months ended December 31, 1996, this resulted in
approximately $983,000 of cash outflow compared to approximately $260,000 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.
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 ending on March 31, 1997. Management anticipates
that additional financing 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 is presently pursuing 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.
17
<PAGE>
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 cannot 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 effect
on the Company.
With the assistance of the Joint Venture Partners and legal counsel,
management is currently seeking licensure of the Company or its subsidiaries to
own and operate cable television systems in Argentina. 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 could have a material adverse impact on the
operations and value of the Company.
18
<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.
None.
ITEM 5. OTHER INFORMATION.
None
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
February 12, 1997
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> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,217,823
<SECURITIES> 0
<RECEIVABLES> 2,208,958
<ALLOWANCES> 380,659
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 13,604,942
<DEPRECIATION> 4,504,134
<TOTAL-ASSETS> 41,830,542
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
833,114
<COMMON> 260,867
<OTHER-SE> 33,831,768
<TOTAL-LIABILITY-AND-EQUITY> 41,830,542
<SALES> 0
<TOTAL-REVENUES> 16,409,615
<CGS> 0
<TOTAL-COSTS> 11,615,070
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 825,381
<INTEREST-EXPENSE> 158,921
<INCOME-PRETAX> (1,591,329)
<INCOME-TAX> 361,071
<INCOME-CONTINUING> (1,923,464)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,923,464)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
<FN>
<F1>The Company does not have a classified balance sheet.
</FN>
</TABLE>
