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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1997
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)
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities 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 August 8, 1997
Common Stock, $ .02 par value 13,189,785
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
TESCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Assets March 31, 1997 June 30, 1997
-------------- -------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 1,623,375 $ 796,508
Accounts receivable-subscribers, net 2,208,417 2,265,348
Prepaid expenses and other assets 1,306,904 1,137,539
Plant and equipment, net 11,639,281 11,344,331
Franchise costs, net of amortization 32,848,985 32,456,905
------------ ------------
Total assets $ 49,626,962 $ 48,000,631
============ ============
Liabilities and Stockholders' Equity
Accounts payable $ 1,435,522 $ 1,687,413
Accrued license and copyright fees 1,795,300 1,693,619
Income taxes payable 1,384,833 1,540,684
Accrued payroll and social charges 738,476 742,824
Accrued taxes 273,020 213,701
Other liabilities 2,229,614 1,846,017
Debt 7,262,237 7,226,842
------------ ------------
Total liabilities 15,119,002 14,951,100
------------ ------------
Minority Interest 887,303 871,713
------------ ------------
Stockholders' Equity:
Preferred stock, $1 par value, 5,000,000 shares authorized: Series 1990
Convertible preferred stock, $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, $100 redemption value per
share, 200,000 shares authorized and 139,250 shares issued and
outstanding with an aggregate preference on liquidation of
$13,925,000 139,250 139,250
Common stock, $.02 par value, 50,000,000 shares authorized and 13,178,007
and 13,189,785 issued and outstanding at March 31 and
June 30, 1997, respectively 263,560 263,796
Additional paid-in capital 66,508,484 66,552,931
Accumulated deficit (33,984,501) (35,472,023)
------------ ------------
Total stockholders' equity 33,620,657 32,177,818
Commitments and contingencies -- --
------------ ------------
Total liabilities and stockholders' equity $ 49,626,962 $ 48,000,631
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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TESCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Quarters Ended June 30, 1996 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Revenues $ 5,401,912 $ 7,128,763
Operating costs and expenses:
Operating costs 3,915,365 5,202,358
General and administrative expenses 878,453 861,780
Depreciation 805,515 1,330,078
Amortization of franchise costs 332,720 443,596
----------- -----------
Total operating costs and expenses 5,932,053 7,837,812
----------- -----------
Operating loss (530,141) (709,049)
----------- -----------
Other income (expense):
Interest income 87,545 2,258
Other income 6,748 3,019
Interest expense (38,798) (319,874)
----------- -----------
Total other income (expense), net 55,495 (314,597)
----------- -----------
Loss before provision for income taxes (474,646) (1,023,646)
Income tax expense 113,363 114,232
----------- -----------
Loss before minority interests (588,009) (1,137,878)
Minority interest in the loss of consolidated subsidiaries 14,296 15,590
----------- -----------
Net loss (573,713) (1,122,288)
Preferred stock dividends (383,734) (365,234)
----------- -----------
Net loss applicable to common stock $ (957,447) $(1,487,522)
=========== ===========
Loss per share applicable to common stock $ (0.08) $ (0.12)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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TESCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Quarters Ended June 30, 1996 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (573,713) $(1,122,288)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation expense 805,515 1,330,078
Amortization of franchise costs 332,720 443,596
Amortization of debt issuance costs -- 45,800
Deferred income tax expense (33,740) (41,295)
Minority interest in the loss of consolidated subsidiaries (14,296) (15,590)
Changes in operating assets and liabilities excluding effects of acquired
businesses:
Accounts receivable from subscribers (183,575) (56,931)
Prepaid expenses and other assets 440,939 108,334
Accounts payable (185,291) 251,891
Accrued expenses and other liabilities (21,444) (343,103)
----------- -----------
Net cash provided by operating activities 567,115 600,492
----------- -----------
Cash flows from investing activities:
Property additions (454,030) (1,035,128)
Proceeds from principal repayment on mortgage receivable 2,655 15,231
Acquisition of cable television systems, net of cash acquired (1,831,930) (51,516)
----------- -----------
Net cash used in investing activities (2,283,305) (1,071,413)
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Cash flows from financing activities:
Principal payments on debt (85,033) (35,395)
Dividends paid on preferred stock (332,745) (320,551)
Exercise of warrants 490,286 --
----------- -----------
Net cash provided by (used in) financing activities 72,508 (355,946)
----------- -----------
Net decrease in cash and cash equivalents (1,643,682) (826,867)
Cash and cash equivalents at beginning of period 8,529,100 1,623,375
----------- -----------
Cash and cash equivalents at end of period $ 6,885,418 $ 796,508
=========== ===========
Significant non-cash financing activities are as follows:
Acquisition of Company's common stock in satisfaction of an
outstanding obligation $ 80,876 $ --
=========== ===========
Distribution of common stock to holders of Series 1995 preferred
stock electing to receive dividends in the form of common stock $ 50,989 $ 44,683
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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TESCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 1997
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:
Business and principles of consolidation
Tescorp, Inc. ("Tescorp") is a Texas corporation that was organized in
1980. The accompanying consolidated financial statements include the accounts
of Tescorp, its subsidiaries and companies in which it holds majority joint
venture interests (referred to herein collectively as the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
The Company is engaged in the business of acquiring and developing
cable television systems and communications properties in Latin America. The
Company continues to concentrate its operations in Argentina. The Company
presently provides cable television service to eleven Argentine cities in six
provinces.
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 June 30, 1997,
and of the results of its operations for the three month period 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, and any
amendments thereto, which includes audited financial statements for the fiscal
year ended March 31, 1997. Please note that certain amounts have been
reclassified for comparability with the current year presentation.
NOTE 2 - LOSS PER COMMON AND COMMON EQUIVALENT SHARE
Loss per common and common equivalent share attributable to common
shareholders was computed by dividing net loss attributable to common
shareholders by the weighted average number of common and common equivalent
shares outstanding (12,603,811 and 13,179,560 for the three months ended June
30, 1996 and 1997, respectively). For the period ended June 30, 1996 and 1997,
common stock equivalents were not included in the computation of weighted
average shares outstanding because their inclusion would cause an antidilutive
effect.
Fully diluted earnings per share amounts are not presented for the
periods ending June 30, 1996 and 1997, because they do not materially differ
from primary earnings per share or they are antidilutive.
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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. The consolidated financial statements provide
additional information regarding the Company's financial activities and
condition. Moreover, this discussion contains forward looking statements that
include risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward looking statements.
RESULTS OF OPERATIONS.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1997
During the period ended June 30, 1997, the Company operated cable
television systems serving 11 cities, principally in southern Argentina. During
the same period of the prior year the Company provided cable television service
to eight Argentine cities. The Company acquired a competing cable television
system serving Reconquista and Avellaneda, Santa Fe Province in August 1996,
acquired another system serving Comodoro Rivadavia, Chubut Province in December
1996 and acquired two companies operating cable television systems serving the
adjoining cities of Viedma, Rio Negro Province and Carmen de Patagones, Buenos
Aires Province in February 1997. In March 1997, the Company also acquired a
company operating an ultra high frequency system competing with the Company in
San Carlos de Bariloche, Rio Negro Province. The results of the operations of
these acquired systems are included in the Company's Consolidated Financial
Statements from the dates of their respective acquisition.
Revenues. Revenues increased 32.0% from $5.4 million in the period
ending in 1996 to $7.1 million in the period ending in 1997 primarily as a
result of the acquisitions listed above. Aggregate subscriber revenue from the
cable television systems in operation during both periods increased by
approximately 5.0% over the same period in 1996 primarily as a result of a rate
increase implemented in the Reconquista/Avellaneda market and from an increase
in the number of basic subscribers served.
Operating Costs. Operating costs increased 32.9% from $3.9 million in
the period ending in 1996 to $5.2 million in the period ending in 1997
primarily as a result of the acquisitions listed above. As a percentage of
revenues, Argentine cable television system operating costs increased from
72.5% in the period ending in 1996 to 73.0% in the period ending in 1997.
Franchise and gross receipts taxes increased primarily as a result of the
expiration of the Company's exemption from franchise fees payable to the Comite
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Nacional de Radiodifusion ("COMFER"), the Argentine governmental agency that is
analogous to the television broadcast division of the Federal Communication
Commission, in Rio Gallegos and Ushuaia during fiscal 1997 and the
implementation by the Province of Tierra del Fuego of a gross receipts tax equal
to 3% of revenues in late fiscal 1997. The Company has requested extensions of
the franchise fee exemptions retroactive to the original expiration dates from
COMFER. However, the Company is not able to predict whether the extensions will
be granted. Operating costs for the cable television systems in operation during
both periods declined in 1997 when compared to 1996 as a result of reductions in
personnel expenses, bad debts and other expenses achieved under the Company's
management. One of the new systems incurred operating losses before depreciation
and amortization, which reduced the Company's overall operating margins. The
Company expects the financial performance of this system to improve
significantly as restructuring and rebuilding measures are implemented.
General and Administrative Expenses. General and administrative
expenses decreased 1.9% from $878,000 for the period ending in 1996 to $862,000
for the period ending in 1997. As a percentage of revenues, general and
administrative expenses decreased from 16.3% for the period ending in 1996 to
12.1% for the period ending in 1997.
Depreciation and Amortization. Depreciation and amortization increased
55.8% from $1.1 million for the period ending in 1996 to $1.8 million in the
period ending in 1997 due primarily to the amortization of franchise costs of
the acquisitions listed above and the depreciation of capital expenditures in
existing cable television systems and the additional cable television plant of
the newly acquired companies.
Other Income (Expense). The Company had net other income of $55,000 in
the period ending in 1996, while it had net other expense of $315,000 in the
period ending in 1997. This change was due primarily to an $85,000 decrease in
interest income and a $281,000 increase in interest expense associated with debt
incurred in the last quarter of the fiscal year ended March 31, 1997.
Income Tax Expense. The Company experienced a net loss before provision
for income taxes and minority interests for both periods. However, it incurred
income tax expense in both periods primarily due to Argentine income tax
regulations that prohibit the deduction of losses from one subsidiary against
income from another subsidiary in a consolidated return.
Preferred Stock Dividends. Preferred stock dividends decreased 4.8%
from $383,000 in the period ending in 1996 to $366,000 in the period ending in
1997 due to the conversion of certain shares of the Company's Series 1995 8%
Convertible Preferred Stock.
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LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company held $797,000 of cash and cash
equivalents, all of which are held in accounts outside of the United States.
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 funds held in accounts
outside of the United States may be subject to diminution in value because of
foreign currency devaluation or governmental action.
The Company's primary source of liquidity for the period was cash
provided by operations. Cash provided by operations for the first quarter of
fiscal 1997 was $600,000. The Company anticipates that cash provided by
operations will increase during the year as the operating efficiencies are
attained in the most recently acquired cable television systems.
Cash used in investing activities for the period ending in 1997 was
$1.1 million. Cash used in investing activities related primarily to capital
expenditures to connect additional subscribers and to upgrade cable television
systems.
Cash used in financing activities in 1997 was $356,000. Cash used in
financing activities during this period was primarily due to the repayment of
debt and payment of dividends on preferred stock in the amount of $321,000.
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.
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 has adequate cash flow from operations to meet the on-going operating
requirements of the existing cable television systems through the fiscal year
ending on March 31, 1998. The Company continues to be actively involved in the
acquisition and development of cable television and communications properties
in Argentina and Latin America, and it incurs expenses in identifying and
pursuing opportunities before any acquisition decision is made. The Company is
unable to predict 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 its future funding requirements in connection with any potential
acquisition.
In August 1997, the Jack R. Crosby Inter Vivos Trust, a shareholder of
the Company, made available to the Company a $500,000 unsecured revolving
credit facility for working capital. Amounts outstanding under this facility
are due and payable on demand and bear interest at the rate of 11.0% per annum.
Jack R. Crosby, the Chairman
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of the Board and Chief Executive Officer of the Company, established the Trust,
but is neither a trustee nor a beneficiary of the Trust. He disclaims
beneficial ownership of the assets of the Trust, including the common stock of
the Company. The loan from the Jack R. Crosby Inter Vivos Trust was approved
by all of the disinterested directors of the Company who determined that the
loan was on terms no less favorable to the Company than those which could have
been obtained from unaffiliated third parties.
The Company has filed a Registration Statement on Form S-2 with the
Securities and Exchange Commission to register the offering for sale of the
Company's common stock and the additional sale of shares held by certain
selling shareholders (the "Underwritten Offering"). Proceeds from the
Underwritten Offering would be used to consummate acquisitions, fund working
capital requirements, retire the $6.0 million of Senior Notes at their maturity
in February 1998, retire any amounts outstanding under the revolving credit
agreement with the Trust and retire the Credit Facility (defined below) which
may be incurred prior to consummation of the Underwritten Offering. The Company
cannot predict whether it will be able to consummate the Underwritten Offering.
The Company and an affiliate of one of the underwriters of the
Underwritten Offering are negotiating the terms of a credit facility, in an
amount between $10.0 million and $15.0 million (the "Credit Facility"), to be
closed prior to the closing of the Underwritten Offering. The net proceeds of
the Credit Facility, if any, will be used by the Company to repay the Interim
Loan, for capital expenditures, including purchases of converter boxes,
possible acquisitions and general working capital purposes, pending the closing
of the Underwritten Offering. Any and all principal and interest outstanding
under the Credit Facility will be repaid out of the Underwritten Offering and
the Credit Facility will terminate as of the closing of the Underwritten
Offering.
IMPACT OF INFLATION; EXCHANGE RATES
Inflation has not had a material impact on the operations of the
Company. In the opinion of management, inflation should not have a material
impact on the results of operations in fiscal 1998. However, management is
unable to predict future rates of inflation in Argentina or its financial
impact on the Company.
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While management will monitor the exchange rates and take appropriate
measures in response to perceived risks, the Company has no current 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 of the Argentine Peso against the U.S. Dollar. Argentina
does 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.
FOREIGN INVESTMENT RISK
The Company's Argentine operations 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.
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 Company, COMFER has issued licenses to two
companies controlled by United States 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 effect on the business, results of operations and financial condition of
the Company.
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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
None
(b) Reports filed on Form 8-K filed during this quarter.
None
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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/ Neil R. Austrian, Jr.
--------------------------
Neil R. Austrian, Jr.
Senior Vice President
and Chief Financial
Officer
(Principal Financial
Officer)
Austin, Texas
September 11, 1997
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