<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 000-21463
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MURDOCK COMMUNICATIONS CORPORATION
-----------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Iowa 42-1337746
- --------------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1112 29th Avenue S.W., Cedar Rapids, Iowa 52404
-----------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: 319-362-6900
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- -----
On April 30, 1997, there were outstanding 4,152,494 shares of the Registrant's
no par value common stock.
Transitional Small Business Disclosure Format (check one):
Yes No X
---- -----
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MURDOCK COMMUNICATIONS CORPORATION
FORM 10-QSB
March 31, 1997
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C>
Item 1. Balance Sheets as of March 31, 1997 and
December 31, 1996 (Unaudited)........... 3
Statements of Operations for the Three
Months Ended March 31, 1997 and March
31, 1996 (Unaudited)..................... 4
Statements of Cash Flows for the Three
Months Ended March 31, 1997 and March
31, 1996 (Unaudited)..................... 5
Notes to Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings........................ 16
Item 2. Changes in Securities.................... 16
Item 3. Defaults Upon Senior Securities.......... 16
Item 4. Submission of Matters to a Vote
of Security Holders...................... 16
Item 5. Other Information........................ 16
Item 6. Exhibits and Reports on Form 8-K......... 16
Signatures............................... 18
</TABLE>
2
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MURDOCK COMMUNICATIONS CORPORATION
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 70,145 $ 1,241,897
Accounts receivable, net of allowance for doubtful accounts 1,080,874 726,282
AT&T commission receivable 250,000 500,000
Current portion of lease receivable, net of unearned portion 13,381 12,378
Inventory 55,461 51,091
Prepaid expenses 164,879 167,261
Deposit 150,000 -
-------------- ----------------
Total current assets 1,784,740 2,698,909
-------------- ----------------
PROPERTY AND EQUIPMENT:
Land and building 455,463 432,472
Telecommunications equipment 7,139,668 7,490,209
Furniture and equipment 264,395 242,168
Vehicles 27,843 27,843
-------------- ----------------
7,887,369 8,192,692
Accumulated depreciation and amortization (6,378,547) (6,234,203)
-------------- ----------------
1,508,822 1,958,489
Telecommunications equipment under capital lease, net of accumulated amortization 1,603,055 1,845,437
-------------- ----------------
Property and equipment, net 3,111,877 3,803,926
-------------- ----------------
OTHER ASSETS:
Lease receivable, less current portion and net of unearned portion 87,606 91,352
Deposits 16,589 16,509
Investment in joint venture 387,207 -
Cost of purchased equipment location contracts, net of accumulated amortization 656,169 626,723
Technology license from a related party, net of accumulated amortization 216,667 241,667
-------------- ----------------
Total other assets 1,364,238 976,251
-------------- ----------------
Total $ 6,260,855 $ 7,479,086
============== ================
LIABILITIES, REDEEMABLE SECURITIES AND COMMON SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Notes payable $ 150,000 $ -
Accounts payable 343,791 530,482
Accrued expenses 679,091 537,962
Current portion of capital lease obligations principally with a related party 1,003,868 895,526
Current portion of long-term debt with related parties 150,455 133,541
Current portion of long-term debt, others 15,542 15,217
-------------- ----------------
Total current liabilities 2,342,747 2,112,728
LONG-TERM LIABILITIES:
Capital lease obligations principally with a related party, less current portion 2,419,637 2,608,952
Long-term debt with a related party 1,174,096 1,206,117
Long-term debt, others, less current portion 274,348 278,358
Deferred income 77,962 73,875
-------------- ----------------
Total liabilities 6,288,790 6,280,030
-------------- ----------------
REDEEMABLE SECURITIES:
10% Series A Redeemable Preferred Stock, no par or stated value
Authorized: 45,000 shares
Issued and outstanding: 200 24,990 24,480
-------------- ----------------
COMMON SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, no par or stated value
Authorized: 7,500,000 shares
Issued and outstanding: 4,152,494 shares 10,820,898 10,820,898
Common stock warrants
Authorized 45,000 detachable warrants
Authorized - 920,000 detachable warrants
Issued and outstanding: 883,089 13,336 13,336
Additional paid-in capital 224,000 224,000
Accumulated deficit (11,111,159) (9,883,658)
-------------- ----------------
Total common shareholders' equity (deficit) (52,925) 1,174,576
-------------- ----------------
Total $ 6,260,855 $ 7,479,086
============== ================
</TABLE>
See notes to financial Statements
3
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MURDOCK COMMUNICATIONS CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
REVENUES:
Call processing revenues $ 1,561,696 $ 1,439,898
AT&T commissions - -
Sales and rental of equipment 94,504 15,535
Recognition of gains deferred from equipment sales
with a related party 13,724 35,774
Other income 24,818 17,730
----------- -----------
Total revenues 1,694,742 1,508,937
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COST OF SALES:
Call processing 1,294,791 939,056
Equipment inventory and rentals 78,457 7,970
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Total cost of sales 1,373,248 947,026
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GROSS OPERATING PROFIT 321,494 561,911
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE (771,121) (590,145)
DEPRECIATION AND AMORTIZATION EXPENSE (505,381) (526,264)
SHARE OF LOSS FROM JOINT VENTURE (83,214) -
----------- -----------
OPERATING LOSS (1,038,222) (554,498)
INTEREST EXPENSE (184,044) (275,061)
----------- -----------
LOSS BEFORE INCOME TAXES (1,222,266) (829,559)
INCOME TAXES (4,726) (4,428)
----------- -----------
NET LOSS $(1,226,992) $ (833,987)
=========== ===========
PRO FORMA NET LOSS $(1,226,992) $ (827,219)
=========== ===========
PRO FORMA NET LOSS PER COMMON SHARE $ (0.30) $ (0.71)
=========== ===========
PRO FORMA WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 4,152,494 1,168,986
=========== ===========
</TABLE>
See notes to financial statements
4
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MURDOCK COMMUNICATIONS CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1997 March 31, 1996
-------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,226,992) $ (833,987)
Adjustments to reconcile net loss
to net cash flows from operating activities:
Depreciation and amortization 530,380 560,923
Noncash interest expense 11,218 29,002
Noncash consulting expense 16,667 -
Recognition of deferred income (13,724) (35,774)
Share of loss from joint venture 83,214 -
Changes in operating assets and liabilities:
Receivables (93,732) 445,085
Inventory (4,370) 5,400
Prepaid expenses (14,285) (77,609)
Accounts payable (186,691) (36,606)
Accrued expenses 141,129 198,871
Deferred income 9,694 12,554
-------------- -------------
Net cash flows from operating activities (747,492) 267,859
-------------- -------------
INVESTING ACTIVITIES:
Purchases of property and equipment (56,277) (93,434)
Payments for site acquisition (136,047) (92,401)
Investment in joint venture (120,874) -
Deposits (150,080) (487)
-------------- -------------
Net cash flows from investing activities (463,278) (186,322)
-------------- -------------
FINANCING ACTIVITIES:
Borrowings on note payable 150,000 -
Payments on notes payable - (225,000)
Borrowings on capital lease obligations 25,169 105,876
Payments on capital lease obligations (109,568) (86,410)
Borrowings of long-term debt with related parties - 6,768
Payments on long-term debt, related party (22,899) (15,000)
Payments on long-term debt, others (3,684) (3,385)
-------------- -------------
Net cash flows from financing activities 39,018 (217,151)
-------------- -------------
NET DECREASE IN CASH (1,171,752) (135,614)
CASH AT BEGINNING OF PERIOD 1,241,897 159,007
-------------- -------------
CASH AT END OF PERIOD $ 70,145 $ 23,393
============== =============
SUPPLEMENTAL DISCLOSURES:
Noncash contribution of property to joint venture $ 349,547 $ -
Cash paid during the period for interest 173,863 140,091
Cash paid during the period for income taxes 4,726 4,428
</TABLE>
See notes to financial statements
5
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MURDOCK COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Unaudited Financial Statements
The accompanying unaudited interim financial statements have been prepared
by the Company in accordance with generally accepted accounting principles for
interim financial reporting and the regulations of the Securities and Exchange
Commission for quarterly reporting. Accordingly, they do not include all
information and footnotes required by generally accepted accounting principles
for complete financial information. The accompanying unaudited interim
financial statements reflect all adjustments which, in the opinion of
management, are necessary to reflect a fair presentation of the financial
position and results of operation of Murdock Communications Corporation for the
interim periods presented. All adjustments, in the opinion of management, are
of a normal and recurring nature. For further information, refer to the
financial statements and footnotes thereto for the year ended December 31,
1996, included in the Company's Annual Report on Form 10-KSB, Commission File #
000-21463 as filed with the Securities and Exchange Commission on March 31,
1997.
Pro Forma Per Share Information
Due to the conversion of the 10% Series A Redeemable Preferred Stock and
related Common Stock warrants and of certain shareholder notes upon closing of
the Company's initial public offering, historical per share information is not
considered relevant. The Company's 1996 pro forma net loss per common share is
based on the weighted average number of common shares outstanding during the
periods presented and the shares issued upon the conversion of the 10% Series A
Redeemable Preferred Stock and related Common Stock warrants and of certain
shareholder notes. Equivalent shares in the form of stock options and other
warrants are excluded from the calculations during loss periods since they are
antidilutive.
6
<PAGE> 7
Debt
In March 1997, the Company borrowed $150,000 under a $250,000 revolving
credit facility with a financial institution due in December 1997. Interest on
the outstanding balance of the revolving credit facility is payable monthly at
2.0% over the prime rate.
Income Taxes
At December 31, 1996, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $4.5 million to use to offset
future taxable income. These net operating losses will expire, if unused, from
December 31, 2008 through 2011. For the three months ended March 31, 1997, the
Company had a pretax loss of $1.2 million. A valuation allowance for the
entire balance of deferred tax assets has been recorded because of uncertainty
over their future realization.
Certain restrictions under the Tax Reform Act of 1986, caused by a change
in ownership resulting from the sales of common stock, limit the annual
utilization of net operating loss carryforwards. The initial public offering
of the Company's common stock resulted in such a change in ownership. The
Company estimates that the post-change taxable income that may be offset with
the pre-change net operating loss carryforward will be limited annually to
approximately $600,000. The annual limitation may be increased for any
built-in gains recognized within five years of the date of the ownership
change.
The Company has recorded current income tax expense in the amount of
approximately $4,700. This relates primarily to certain state income taxes.
Initial Public Offering
On October 21, 1996, the Company completed an initial public offering of
the Company's common stock and common stock warrants. The Company sold 800,000
units, comprised of two shares of common stock and one warrant to purchase
common stock, at $10.01 per unit. The Company has received proceeds as
follows:
<TABLE>
<S> <C>
Sale of 800,000 units $8,008,000
Offering expenses 1,481,629
----------
Net proceeds to Company $6,526,371
==========
</TABLE>
7
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Equity
The Company does not believe that its existing capital and anticipated
funds from operations will be sufficient to meet its anticipated cash needs for
working capital and capital expenditures. At March 31, 1997, the Company had a
total common shareholders' deficit of approximately $53,000. The current
listing criteria for the Nasdaq SmallCap Market requires shareholders' equity
of at least $1.0 million. Subsequent to the end of the quarter, the Company
negotiated the conversion of notes payable held by Berthel, Fisher & Company,
Inc. and its affiliates ("Berthel"), with a face value of $1.7 million and a
book value of approximately $1.3 million into 465,265 shares of the Company's
common stock. Additionally, the Company has agreed to issue up to 187,067 in
"adjustment shares" to Berthel should the lowest average closing trading price
of the shares for any 30 day period during the 90 days after the shares become
registered fall below $4.00 per share. These "adjustment shares" would be
issued on a prorata basis with the maximum being issued if the aforementioned
average closing price decreases to $2.50 per share or less. This transaction
will increase equity by approximately $1.3 million. The Company also
anticipates issuing additional equity securities through either a public or
private offering in 1997. Although there can be no assurance such equity
offering will be completed as planned, the Company believes that these
transactions should enable the Company to meet the Nasdaq listing requirement
and provide sufficient capital to meet its cash flow needs for the foreseeable
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Forward-Looking Statements" below.
WorldQuest
On January 7, 1997, the Company paid a $150,000 refundable security
deposit for a technology license, related to international faxing over the
Internet, to WorldQuest Network Services, Inc., a company managed by a member
of the Company's Board of Directors. The right to execute the agreement
expired March 31, 1997. Until refund of the deposit, the deposit will accrue
interest at 12%. The Company has decided not to proceed with the license and
the Company expects that the deposit will be refunded in the second quarter of
1997.
Link*Star
On January 31, 1997, the Company entered into a joint venture agreement
with an unrelated third party to form a limited liability company, Link*Star,
LLC. The Company has contributed interactive voice response ("IVR") platforms
and other assets with a carrying value of $456,904 in exchange for a 50%
ownership interest and a preferential distribution of $496,934. The other
party contributed $209,970 in cash in exchange for a 50% ownership interest.
The limited liability company will provide consumer telecommunications services
related to the IVR platforms.
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Under the agreement, cash shall be distributed first, in an amount equal
to 95% of the net distributable cash to the Company until the preferential
distribution is repaid and the remainder shall be distributed in accordance
with the ownership interests.
At any time during the 90-day period immediately following the second,
third and fourth anniversaries of the execution of the agreement, either party
may purchase the other entity's ownership interest. The purchase price shall
be the greater of $4.5 million plus the other entity's capital account or the
balance of the other entity's capital account plus five times the sum of the
limited liability company's income before income taxes for the most recently
completed fiscal year.
Contingencies
The Company received a notice and demand dated September 20, 1996 (the
"Demand") from the trustee for the Value-Added Communications Litigation Trust,
as successor-in-interest to the bankruptcy estate of Value-Added
Communications, Inc. (collectively, "VAC"), relating to revenues received by
the Company for providing telecommunications services to the hotels managed by
Larken, Inc., a related party. The Demand alleges that all revenues received
by the Company for providing telecommunications services to the Larken, Inc.
managed hotels constitute avoidable transfers under the federal Bankruptcy Code
and demands payment to VAC of all such amounts. The amount of revenues subject
to the Demand is not specified. The Company generated revenues of $1,316,571
and $1,458,805 for the years ended December 31, 1996 and 1995, respectively, in
connection with such telecommunications services. The Company believes that
the Demand is without merit, that it has meritorious defenses to VAC's
allegations as set forth in the Demand and that a loss with respect to this
matter is not probable, primarily because the Company's agreements to provide
telecommunications services to Larken, Inc. were made by the Company in good
faith, for value and without knowledge as to the alleged avoidable nature of
such agreements. In addition, Larken, Inc. and its 50% owner (a minority
shareholder), have acknowledged that the VAC matter is covered by an
indemnification agreement and the minority shareholder's guarantee, and that
such indemnification agreement with Larken, Inc. will cover any losses, costs
or expenses incurred by the Company in connection with this threatened claim.
Pursuant to the indemnification agreement, Larken, Inc. has assumed the defense
of the VAC claims. VAC's attorney sent a second threatening letter, but has
not yet filed a lawsuit. Nonetheless, such a lawsuit could be filed at any
time. Pursuant to the indemnification agreement, Larken, Inc. will defend any
such lawsuit and indemnify the Company for any costs, damages or expenses
relating to the lawsuit, including attorney's fees. The indemnification
agreement requires Larken, Inc. to keep the Company informed regarding the
status of the litigation, if any. The Company intends to actively monitor this
matter, and any litigation that might be
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commenced, to be sure that the Company's interests are being adequately
represented by Larken, Inc. and the attorneys retained by Larken, Inc. on the
Company's behalf pursuant to the indemnification agreement. The Company has
not made an independent investigation of the minority shareholder's financial
position or net worth, although the minority shareholder has previously
represented to the Company that he is an accredited investor as defined in
Regulation D under the Securities Exchange Act, with net worth in excess of $1
million. The outcome of this matter cannot presently be determined and no
assurance can be given that the Company will not incur liability or expenses in
connection with the allegations contained in the Demand. Also, no assurance
can be given that either Larken, Inc. or the minority shareholder will have
sufficient assets to meet their respective obligations in the event that the
Company incurs liability pursuant to this matter. No provision for any loss
that may result upon the resolution of this matter has been made in the
financial statements.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following is a discussion of the Company's financial condition, results of
operations and capital resources. The discussion and analysis should be read
in conjunction with the Company's financial statements and notes thereto
included elsewhere within.
RESULTS OF OPERATIONS
Three Months ending March 31, 1997 and 1996
The following table sets forth statements of operations items and the
percentages that such items bear to revenues:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1997 1996
-------- --------
<S> <C> <C>
Revenues 100% 100%
Cost of sales 80% 63%
Selling, general and administrative 46% 39%
Depreciation and amortization 30% 35%
-------- --------
Total operating expenses 156% 137%
Share of loss from joint venture 5% 0%
-------- --------
Operating loss (61%) (37%)
Interest expense 11% 18%
Income taxes 0% 0%
-------- --------
Net loss (72%) (55%)
======== ========
</TABLE>
REVENUES. Call processing revenues increased to $1.6 million for the three
months ended March 31, 1997 from $1.4 million for the three months ended March
31, 1996, representing an increase of $.2 million, or 14%. This increase was
primarily caused by the increase in revenues derived from the Lodging
Partnership program with AT&T. Calling commissions from AT&T increased to
$861,000 for the three months ended March 31, 1997 from $670,000 for the three
months ended March 31, 1996, an increase of $191,000 or 28%. This increase was
caused primarily by an increase in the number of rooms enrolled in the Lodging
Partnership program and an increase in commissions paid per call. Monthly
bonuses from AT&T remained constant at $280,000 for the three months ended
March 31, 1997 and 1996. OSP revenues decreased to $212,000 for the three
months ended March 31, 1997, from $273,000 for the three months ended March 31,
1996, representing a decrease of $61,000 or 22%. OSP revenues
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decreased because the Company moved hotel and motel rooms from its OSP services
to the Lodging Partnership program with AT&T. One-plus revenues decreased to
$184,000 for the three months ended March 31, 1997 from $217,000 for the three
months ended March 31, 1996, representing a decrease of $33,000 or 15%. The
decrease was attributable to a decrease in the number of hotel or motel
properties provided one-plus services from 27 to 21, resulting from a reduction
in the number of properties owned by Larken, the hotel management company that
purchases the Company's one-plus services.
The Company believes that the movement of its hotel and motel customers from
the Company's OSP program to the Lodging Partnership program will provide more
consistent recurring revenues over a longer period of time. However, the
Company's experience with the new payment criteria is limited, and no assurance
can be given that the Company will be able to successfully replace nonrecurring
signing bonuses with revenues derived from monthly bonuses based on call
volume. Furthermore, the Company to date has not been profitable during its
transition from its OSP program to the Lodging Partnership program and no
assurance can be given that this business will become profitable.
The Company provided services to a total of 109,000 hotel and motel rooms
as of March 31, 1997, as compared to 90,000 hotel and motel rooms as of March
31, 1996.
Equipment sales and rentals generated a net profit of $16,000 for the
three months ended March 31, 1997, and a net profit of $8,000 for the three
months ended March 31, 1996, for an increase of $8,000 or 100%.
COST OF SALES. Cost of sales for call processing increased to $1.3
million for the three months ended March 31, 1997, from $.9 million for the
three months ended March 31, 1996, an increase of $400,000 or 44%. This
increase was primarily due to an increase in the cost of commissions resulting
from the Company's decision to move hotels and motels to the Lodging
Partnership program. Commissions paid to hotels and motels increased to $1.0
million for the three months ended March 31, 1997, from $.7 million for the
three months ended March 31, 1996, and increased as a percent of revenues to
59% for the three months ended March 31, 1997, from 47% for the three months
ended March 31, 1996. Commissions paid to certain hotels and motels which were
transferred to the Lodging Partnership program from the Company's OSP program
are based on historical gross profits derived with respect to that property
regardless of whether services are provided through the Company's OSP program
or the Lodging Partnership program. The commission expense paid to these
certain hotels and motels was approximately $90,000 more than if these
properties were paid under a typical Lodging Partnership program. The Company
intends to enter into discussions to renegotiate these agreements during the
second quarter of 1997. Costs of transmission associated with providing OSP
and one-plus services
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decreased to $148,000 for the three months ended March 31, 1997, from $184,000
for the three months ended March 31, 1996, for a decrease of $36,000 or 20%.
The cost of providing platform services to access phones was $59,000 for the
three months ended March 31, 1997, and $0 for the three months ended March 31,
1996.
GROSS OPERATING PROFIT. Gross operating profit decreased to $321,000 for
the three months ended March 31, 1997, from $562,000 for the three months ended
March 31, 1996, representing a decrease of $241,000 or 43%. This decrease was
primarily due to the higher commissions of approximately $90,000 paid to
certain hotels and motels described above and the lower margins derived from
rooms in the Lodging Partnership program of approximately $150,000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, increased to $771,000 for the three months ended March
31, 1997, from $590,000 for the three months ended March 30, 1995, an increase
of $181,000 or 31%. This increase is due primarily to normal increases in
salary and the addition of four full-time employees, increases in professional
fees, and increases in travel expenses associated with increased sales.
Selling, general and administrative expenses include expenses incurred as the
Company expands its customer base. Adding new customers to the Company's base
generally requires up-front selling expenses and equipment installation
expenses which may vary significantly depending on the customer.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased to
$505,000 for the three months ended March 31, 1997 from $526,000 for the three
months ended March 31, 1996.
INTEREST EXPENSE. Interest expense decreased to $184,000 for the three
months ended March 31, 1997, from $275,000 for the three months ended March 31,
1996, a decrease of $91,000 or 33%. The decrease is attributable to the
decrease in outstanding debt instruments, primarily $2.2 million in capital
lease obligations repaid in October of 1996 with proceeds from the Company's
initial public offering.
EQUITY. The Company does not believe that its existing capital and
anticipated funds from operations will be sufficient to meet its anticipated
cash needs for working capital and capital expenditures. At March 31, 1997,
the Company had a total common shareholders' deficit of approximately $53,000.
The current listing criteria for the Nasdaq SmallCap Market requires
shareholders' equity of at least $1.0 million. Subsequent to the end of the
quarter, the Company negotiated the conversion of notes payable held by Berthel
with a face value of $1.7 million and a book value of approximately $1.3
million into 465,265 shares of the Company's common stock. Additionally, the
Company has agreed to issue up to 187,067 in "adjustment shares" to Berthel
should the lowest average closing trading price of
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the shares for any 30 day period during the 90 days after the shares become
registered fall below $4.00 per share. These "adjustment shares" would be
issued on a prorata basis with the maximum being issued if the aforementioned
average closing price decreases to $2.50 per share or less. This transaction
will increase equity by approximately $1.3 million. The Company also
anticipates issuing additional equity securities through either a public or
private offering in 1997. Although there can be no assurance such equity
offering will be completed as planned, the Company believes that these
transactions should enable the Company to meet the Nasdaq listing requirement
and provide sufficient capital to meet its cash flow needs for the foreseeable
future. See "Forward-Looking Statements" below.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company's current liabilities of $2.3 million
exceeded current assets of $1.8 million resulting in a working capital deficit
of $.5 million. During the three month period ended March 31, 1997, the
Company used $747,000 in cash for operating activities, and used $463,000 in
cash for investing activities, primarily for site acquisitions and deposits.
The Company received proceeds from new debt and capital lease financing of
$175,000 and repaid long-term debt and payments on capital lease obligations of
$136,000, resulting in a decrease in available cash of $1.2 million for the
three months ended March 31, 1997.
The Company's principal sources of capital to date have been cash flow
from operations, private and public offerings of debt and equity securities and
lease financing arrangements with Berthel, Fisher & Company, Inc., and certain
of its affiliates, ("Berthel") to purchase telecommunications equipment. The
total amount of lease financing with Berthel at March 31, 1997 was $3.4
million. The Company currently makes monthly lease payments of approximately
$83,000 in the aggregate pursuant to these lease financing arrangements.
Berthel also holds a 48 month $750,000 term note, collateralized by certain
equipment and contracts owned by the Company, which is part of the indebtedness
that Berthel has agreed to convert into 465,265 shares of the Company's common
stock. See "Equity" above.
The Company has $250,000 available under a revolving credit facility
ending December 1, 1997. As of March 31, 1997, the Company had borrowed
$150,000 under this facility.
The Company does not believe that its existing capital and anticipated
funds from operations will be sufficient to meet its anticipated cash needs for
working capital and capital expenditures. The Company intends to sell equity
securities in 1997 through either a private or public offering. The Company
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believes the proceeds from this offering, together with anticipated funds from
operations, will be sufficient to meet its cash needs for the foreseeable
future. However, no assurance can be given that the Company will be able to
raise adequate funds through public or private equity financings to meet the
Company's cash needs on terms acceptable to the Company. Insufficient funds
may require the Company to delay, scale back or eliminate some or all of its
market development plans or otherwise may have a material adverse effect on the
Company. See "Forward-Looking Statements."
FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements and is subject to
certain risks and uncertainties that could cause actual future results and
developments to differ materially from those currently projected. Such
statements include statements identified as based on the Company's belief or
expectation. Such risks and uncertainties include, but are not limited to,
general economic conditions in the geographical areas and markets that the
Company is targeting for its services, the availability of adequate equipment
to meet the Company's marketing plans and customer demand, the successful
development, testing and deployment of new technology, access to sufficient
debt or equity capital to meet the Company's operating and financial needs, and
the quality and price of similar or comparable communications services offered
by the Company's competitors.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not a party to any material pending legal proceedings.
Item 2. Changes in Securities.
There have been no changes in the status of the securities of the Company
during the first quarter of 1997. In January, 1997, the Company issued a
warrant to purchase up to 50,000 shares of the Company's common stock to
Blalock & Company ("Blalock") with an exercise price of $2.50 per share.
The warrant was issued pursuant to a consulting agreement dated December
20, 1996, between the Company and Blalock providing for advisory services
by Blalock to the Company. The Company has assigned a fair value of
$100,000 to the warrant. The warrant was issued in reliance upon
exemption from registration provided by section 4(2) of the Securities
Act of 1933.
Item 3. Defaults Upon Senior Securities.
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders.
None in the first quarter of 1997.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
Exhibits:
3.1 Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 of the Company's
Registration Statement on Form SB-2 (Registration No. 333-05422C)
filed by the Company with the Securities and Exchange Commission
on August 13, 1996.)
3.2 Amended and Restated By-Laws of the Company
27 Financial Data Schedule
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Reports on Form 8-K: The Company filed a report on Form 8-K
on March 26, 1997, with respect to the formation of the
Link*Star LLC joint venture.
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SIGNATURES
In accordance with 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.
Dated this 15th day of May, 1997.
MURDOCK COMMUNICATIONS CORPORATION
BY /s/ Guy O. Murdock
-----------------------------------
Guy O. Murdock, Chairman of the
Board (Principal Executive Officer)
BY /s/ David F. Schultz
-----------------------------------
David F. Schultz, Chief Financial
Officer and Secretary
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AMENDED AND RESTATED
BY-LAWS
OF
MURDOCK COMMUNICATIONS CORPORATION
(as amended on April 29, 1997)
ARTICLE I
OFFICES
The principal office of the Corporation in the State of Iowa shall be
located in the City of Cedar Rapids, County of Linn. The Corporation may have
such other offices, either within or without the State of Iowa, as the Board of
Directors may designate or as the business of the Corporation may require from
time to time.
The registered office of the Corporation required by the Iowa Business
Corporation Act to be continuously maintained in the State of Iowa shall be
initially as provided in the Articles of Incorporation, subject to change from
time to time by resolution of the Board of Directors and filing of statement of
said change as required by the Iowa Business Corporation Act.
ARTICLE II
SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders shall
be held on the second Tuesday in the month of May in each year, beginning with
the year 1997 at the hour of 2:00 P.M., provided the Board of Directors may fix
some other date which is within thirty (30) days before or after said date and
may fix some time other than said above time for such meeting, for the purpose
of electing Directors and for the transaction of such other business as may
come before the meeting. If the day designated above or fixed by the Board of
Directors for the annual meeting shall be a legal holiday in the State where
held, such meeting shall be held on the next succeeding business day. If the
election of Directors shall not be held on the day designated herein for any
annual meeting of the shareholders, or at any adjournment thereof, the Board of
Directors shall cause the election to be held at a special meeting of the
shareholders as soon thereafter as conveniently may be.
<PAGE> 2
Section 2. Special Meetings. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute, may be called
by the Chairman of the Board or the Chief Executive Officer or by the Board of
Directors, and shall be called by the Chairman of the Board at the request of
the holders of not less than one-tenth (1/10) of all of the outstanding shares
of the Corporation entitled to vote at the meeting.
Section 3. Place of Shareholders' Meeting. The Board of Directors may
designate any place, either within or without the State of Iowa, as the place
of meeting of any annual meeting or for any special meeting called by the Board
of Directors. A waiver of notice signed by all shareholders entitled to vote
at a meeting may designate any place, either within or without the State of
Iowa, as the place of holding of such meeting. If no designation is made, or
if a special meeting be otherwise called, the place of meeting shall be the
registered office of the Corporation in the State of Iowa.
Section 4. Notice of Meeting. Written or printed notice stating the
place, day and hour of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not
less than ten (10) nor more than sixty (60) days before the date of the
meeting, either personally or by mail, by or at the direction of the Chairman
of the Board, the Chief Executive Officer, the Secretary, or the officer or
persons calling the meeting, to each shareholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the shareholder at his
address as it appears on the stock transfer books of the Corporation, with
postage thereon prepaid.
Section 5. Closing of Transfer Books and Fixing Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adornment thereof, or entitled to receive
payment of any dividend, or in order to make a determination of shareholders
for any other proper purposes, the Board of Directors may provide that the
stock transfer books shall be closed for a stated period but not to exceed, in
any case, fifty (50) days. If the stock transfer books shall be closed for the
purpose of determining shareholders entitled to notice of or to vote at a
meeting of shareholders, such books shall be closed for at least ten (10) days
immediately preceding such meeting. In lieu of closing the stock transfer
books, the Board of Directors may fix in advance a date as the record date for
any such determination of shareholders, such date in any case to be not more
than fifty (50) days and, in case of a meeting of shareholders, not less than
ten (10) days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of
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shareholders, or shareholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination
shall apply to any adjournment thereof.
Section 6. Voting List. The officer or agent having charge of the stock
transfer books for shares of the Corporation shall make, at least ten (10) days
before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
which list, for a period of ten (10) days prior to such meeting, shall be kept
on file at the registered office of the Corporation and shall be subject to
inspection by any shareholder at any time during usual business hours. Such
list shall also be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any shareholder during the whole time
of the meeting. The original stock transfer books shall be prima facie
evidence as to who are the shareholders entitled to examine such list or
transfer books or to vote at any meeting of shareholders.
Section 7. Quorum of Shareholders. A majority of the outstanding shares
of the Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of
the outstanding shares are represented at a meeting, a majority of the shares
so represented may adjourn the meeting from time to time without further
notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. The shareholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
Section 8. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney-in-fact. Such proxy shall be filed with the Secretary of the
Corporation before or at the time of the meeting. No proxy shall be valid
after eleven (11) months from the date of its execution, unless otherwise
provided in the proxy.
Section 9. Voting of Shares. Subject to the provisions of Section 10 of
this Article, each outstanding share, regardless of class, shall be entitled to
one vote upon each matter submitted to vote at a meeting of
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shareholders, except to the extent that the voting rights of the shares of any
class or classes are limited or denied by the Articles of Incorporation.
Section 10. Voting of Shares by Certain Holders. Neither treasury shares
nor, unless the Articles of Incorporation otherwise provide, shares held by
another corporation if a majority of the shares entitled to vote for the
election of Directors of such other corporation is held by this Corporation,
shall be voted at any meeting or counted in determining the total number of
outstanding shares at any given time.
Subject to the provisions of the foregoing paragraph of this section,
shares standing in the name of another corporation, domestic or foreign, may be
voted by such officer, agent or proxy as the By-Laws of such corporation may
prescribe or, in the absence of such provision, as the Board of Directors of
such corporation may determine.
Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do be
contained in an appropriate order of the Court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter, the pledgee shall be entitled to vote the shares so transferred.
Section 11. Informal Action by Shareholders. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of the shareholders, may be taken without a meeting if a consent
in writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
Section 12. Voting by Ballot. Voting by shareholders on any question or
in any election may be by voice vote unless the presiding officer shall order
or any shareholder shall demand that voting be by ballot.
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Section 13. Conduct of Meetings. The Chairman of the Board, or in his
absence, the Chief Executive Officer, and in the Chief Executive Officer's
absence, any officer or director chosen by the shareholders present or
represented by proxy, shall call meetings of the shareholders to order and
shall preside at the meeting. The Secretary shall act as secretary of all
meetings of shareholders, but in the absence of the Secretary, the presiding
officer may appoint any other person present to act as secretary of the
meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the Corporation
shall be managed by its Board of Directors.
Section 2. Number, Tenure and Qualifications. The number of Directors of
the Corporation shall be at least one (1) but not more than seven (7), as may
be designated from time to time by the Board of Directors. At the first annual
meeting of shareholders and at each annual meeting thereafter the shareholders
shall elect Directors. Each Director shall hold office until the next annual
meeting of shareholders and until his successor shall have been elected and
qualified, unless removed at a meeting called expressly for that purpose by a
vote of the holders of a majority of the shares then entitled to vote at an
election of Directors. Directors need not be residents of the State of Iowa or
shareholders of the Corporation.
Section 3. Regular Meetings. A regular meeting of the Board of Directors
shall be held without other notice than this Bylaw immediately after, and at
the same place as, the annual meeting of shareholders. The Board of Directors
may provide, by resolution, the time and place, either within or without the
State of Iowa, for the holding of additional regular meetings without other
notice than such resolution.
Section 4. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the Chairman of the Board, the Chief
Executive Officer, the President or any one (1) Director. The person or
persons authorized to call special meetings of the Board of Directors may fix
any place, either within or without the State of Iowa, as the place for holding
any special meeting of the Board of Directors called by them.
Section 5. Notice. Notice of any special meeting shall be given at least
two (2) days prior thereto by written notice delivered personally or mailed to
each Director at his business address, or by telegram. If mailed, such notice
shall
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be deemed to be delivered when deposited in the United States mail, so
addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company. Any Director may waive notice of any meeting. The
attendance of a Director at a meeting shall constitute a waiver of notice of
such meeting, except where a Director attends a meeting for the express purpose
of objecting to the transactions of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
Section 6. Quorum. A majority of the number of Directors fixed in
accordance with Section 2 of this Article III shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors, but if less
than such majority is present at a meeting, a majority of the Directors present
may adjourn the meeting from time to time without further notice.
Section 7. Manner of Acting. The act of the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors. A Director shall be considered present at a meeting of the Board
of Directors or of a committee designated by the Board if he participates in
such meeting by conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other.
Section 8. Vacancies. Any vacancy occurring in the Board of Directors and
any directorship to be filled by reason of an increase in the number of
Directors may be filled by the affirmative vote of a majority of the Directors
then in office, even if less than a quorum of the Board of Directors, except
that where any vacancy is caused by the removal of a Director or Directors from
office by the shareholders, such vacancy shall be filled by the affirmative
vote of a majority of the shareholders constituting a quorum at any meeting of
the shareholders. A Director so elected shall be elected for the unexpired
term of his predecessor in office or the full term of such new directorship.
Section 9. Compensation. The Board of Directors, by the affirmative vote
of a majority of Directors then in office, and irrespective of any personal
interest of any of its members, shall have authority to establish reasonable
compensation of all Directors for services to the Corporation as Directors,
officers or otherwise. By resolution of the Board of Directors the Directors
may be paid their expenses, if any, of attendance at each meeting of the Board.
Section 10. Presumption of Assent. A Director of the Corporation who is
present at a meeting of the Board of Directors at which action on any
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corporate matter is taken shall be presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the Secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered or certified mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a Director who voted in favor of such action.
Section 11. Informal Action by Directors. Any action required by the Iowa
Business Corporation Act to be taken at a meeting of Directors of the
Corporation, or any action which may be taken at a meeting of the Directors or
of a committee of Directors, may be taken without a meeting if a consent in
writing setting forth the action so taken, shall be signed by all of the
Directors or all of the members of the committee of Directors, as the case may
be.
Section 12. Conduct of Meetings. The Chairman of the Board, or in his
absence, the Chief Executive Officer, and in the Chief Executive Officer's
absence, any director chosen by the directors present, shall call meetings of
the Board of Directors to order and shall preside at the meeting. The
Secretary shall act as secretary of all meetings of the Board of Directors, but
in the absence of the Secretary, the presiding officer may appoint any
assistant secretary or any director or any other person present to act as
secretary of the meeting.
Section 13. Committees. The Board of Directors from time to time by
resolution adopted by a majority of the full Board of Directors may appoint
from its members a committee or committees, temporary or permanent, and, to the
extent permitted by law and these By-Laws, may designate the duties, powers and
authorities of such committee. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
Section 14. Indemnification. The Corporation may indemnify directors and
officers of the Corporation to the full extent allowed from time to time by the
Iowa Business Corporation Act. Indemnification of directors and officers may
be provided for in any manner allowed by law.
Section 15. Conduct of Meetings by or Through the Use of Communications
Equipment.
(a) Participation. Any or all directors may participate in a regular
or special meeting of the Board of Directors or in a committee meeting of the
Board of Directors by, or may conduct the meeting through the use of, any
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means of communication by which any of the following occurs: (i) all
participating directors may simultaneously hear each other during the meeting;
or (ii) all communication during the meeting is immediately transmitted to each
participating director, and each participating director is able to immediately
send messages to all other participating directors. A director participating
in such a meeting is deemed to be present in person at the meeting.
(b) Nature of the Meeting. If a meeting is conducted pursuant to
this section 15, the presiding officer at the meeting shall inform each
participating director that a meeting is taking place at which official
business may be transacted.
(c) Minutes of the Meeting. If requested by a director, the
Secretary of the Corporation shall prepare minutes of a meeting pursuant to
this section and distribute such minutes to each director.
ARTICLE IV
OFFICERS
Section 1. Number. The principal officers of the Corporation shall be a
Chairman of the Board, a Chief Executive Officer, a President, one or more Vice
Presidents (the number, precedent and duties thereof to be determined by the
Board of Directors), a Secretary and a Treasurer, each of whom shall be elected
by the Board of Directors. Such other officers and assistant officers as may
be deemed necessary may be elected or appointed by the Board of Directors. Any
two (2) or more offices may be held by the same person.
Section 2. Election and Term of Office. The officers of the Corporation
to be elected by the Board of Directors shall be elected annually by the Board
of Directors at the first meeting of the Board of Directors held after each
annual meeting of the stockholders. If the election of officers shall not be
held at such meeting, such election shall be held as soon thereafter as
conveniently may be. The Board of Directors may create a new principal office,
including the addition of a new Vice President, and elect an officer thereto at
any regular or special meeting of the Board of Directors. Each officer shall
hold office until his successor shall have been duly elected or until his prior
death, resignation or removal.
Section 3. Removal. Any officer or agent may be removed by the Board of
Directors whenever in its judgment the best interests of the Corporation will
be served thereby, but such removal shall be without prejudice to the contract
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rights, if any, of the person so removed. Election or appointment shall not of
itself create contract rights.
Section 4. Vacancies. A vacancy in any principal office because of death,
resignation, removal, disqualification or otherwise, including a vacancy caused
by the creation of a new principal office by the Board of Directors, shall be
filled by the Board of Directors for the unexpired portion of the term.
Section 5. The Chairman of the Board. The Board of Directors may choose a
Chairman of the Board. If appointed and present, the Chairman of the Board
shall preside at all meetings of the shareholders and the Board of Directors.
The Chairman of the Board shall have the authority to supervise the Chief
Executive Officer and the President in the performance of their respective
duties. He shall have the authority to sign, execute and acknowledge, on
behalf of the Corporation, all contracts, deeds, mortgages, bonds, stock
certificates, leases, reports and all other documents or instruments necessary
or proper to be executed in the course of the Corporation's regular business,
or which shall be authorized by resolution of the Board of Directors. He may
execute any such documents or instruments without the attestation of any other
corporate officer unless required by the Board of Directors, the transaction or
operation of law. The Chairman of the Board shall have such other powers and
duties as he may from time to time be called upon to perform by the Board of
Directors.
Section 6. Chief Executive Officer. The Chief Executive Officer shall be
the principal executive officer of the Corporation and, subject to the control
of the Chairman of the Board or the Board of Directors, shall in general
supervise and control all the business and affairs of the Corporation. In the
absence of the Chairman of the Board or in the event of his inability or
refusal to act, he shall preside at all meetings of the stockholders and the
Board of Directors. He shall have authority, subject to such rules as may be
prescribed by the Chairman of the Board or the Board of Directors, to appoint
such agents and employees of the Corporation as he shall deem necessary, to
prescribe their powers, duties and compensation, and to delegate authority to
them. Such agents and employees shall hold office at the discretion of the
Chief Executive Officer. He shall have the authority to sign, execute and
acknowledge, on behalf of the Corporation, all contracts, deeds, mortgages,
bonds, stock certificates, leases, reports and all other documents or
instruments necessary or proper to be executed in the course of the
Corporation's regular business, or which shall be authorized by resolution of
the Board of Directors. He may execute any such documents or instruments
without the attestation of any other corporate officer unless required by the
Board of Directors, the transaction or operation of law. Except as otherwise
provided by law or the Board of Directors, he may authorize any Vice
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President or other officer or agent of the Corporation to sign, execute and
acknowledge such documents or instruments in his place and stead. In general,
he shall have such other powers and duties as he may be called upon to perform
by the Chairman of the Board or the Board of Directors.
Section 7. President. The President shall have responsibility for the
general and active management of the business of the Corporation and shall see
that all orders and resolutions of the Board of Directors are carried into
effect, and in the absence of the Chairman of the Board and the Chief Executive
Officer or in the event of their inability or refusal to act shall preside at
all meetings of the stockholders and the Board of Directors. He shall have the
authority to sign, execute and acknowledge, on behalf of the Corporation, all
contracts, deeds, mortgages, bonds, stock certificates, leases, reports and all
other documents or instruments necessary or proper to be executed in the course
of the Corporation's regular business, or which shall be authorized by
resolution of the Board of Directors. He may execute any such documents or
instruments without the attestation of any other corporate officer unless
required by the Board of Directors, the transaction or operation of law. The
President shall be subject to the control of the Chairman of the Board and the
Chief Executive Officer. In the absence of the Chairman of the Board or the
Chief Executive Officer or in the event of either's death, disability or
refusal to act, the President shall perform the duties of the Chairman of the
Board or Chief Executive Officer and when so acting shall have all the powers
and duties of the Chairman of the Board or Chief Executive Officer. In
general, he shall perform all duties incident to the office of President and
such other duties as may be assigned to him from time to time by the Board of
Directors, the Chairman of the Board or the Chief Executive Officer.
Section 8. Chief Operating Officer. The Board of Directors may from time
to time appoint a Chief Operating Officer who shall, subject to the control of
the Board of Directors, have responsibility for the operations and functioning
of the Corporation's operating units and programs and the allocation among the
Corporation's operating units and programs of other officers and principal
executive personnel of the Corporation. The Chief Operating Officer
shall also perform such other duties and have such other powers as may be
assigned to him by the Board of Directors. He shall possess the power to sign
all certificates, contracts and other instruments which may be authorized by
the Board of Directors, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the Corporation. The Chief Operating Officer may combine
his duties with those of any other office assigned to him by the Board of
Directors.
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Section 9. Chief Financial Officer. The Board of Directors may from time
to time appoint a Chief Financial Officer who shall, subject to the control of
the Board of Directors, have responsibility for the Corporation's finances and
financial planning, the allocation among the Corporation's operating units and
programs of the Corporation's financial resources and the Corporation's
internal accounting, auditing and financial controls. The Chief Financial
Officer shall also perform such other duties and have such other powers as may
be assigned to him by the Board of Directors. He shall possess the power to
sign all certificates, contracts and other instruments which may be authorized
by the Board of Directors, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the Corporation. The Chief Financial Officer may combine
his duties with those of any other office assigned to him by the Board of
Directors.
Section 10. Vice President(s). In the absence of the President or in the
event of his death, inability or refusal to act, or in the event for any reason
it shall be impracticable for the President to act personally, the Vice
President (or in the event there be more than one Vice President, the Vice
Presidents in the order designated by the Board of Directors, or in the absence
of any designation, then in the order of their election) shall perform the
duties of the President, and when so acting, shall have all the powers of and
be subject to all the restrictions upon the President. Any Vice President may
sign, if required by the Board of Directors, the transaction or operation of
law, with the Secretary or Assistant Secretary, certificates for shares of the
Corporation; and shall perform such other duties and have such authority as
from time to time may be delegated or assigned to him by the President or by
the Board of Directors. The execution of any instrument of the Corporation by
any Vice President shall be conclusive evidence, as to third parties, of his
authority to act in the stead of the President.
Section 11. Secretary. The Secretary shall (a) keep the minutes of the
meetings of the stockholders and of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these By-Laws or as required by law; (c) be
custodian of the corporate records; (d) keep or arrange for the keeping of a
register of the post office address of each stockholder which shall be
furnished to the Secretary by such stockholder; (e) if required by the Board of
Directors, the transaction or operation of law, sign with the Chairman of the
Board, the Chief Executive Officer, the President or a Vice President,
certificates for shares of the Corporation, the issuance of which shall have
been authorized by resolution of the Board of Directors; (f) have general
charge of the stock transfer books of the Corporation; and (g) in general,
perform all duties and exercise such authority as
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from time to time may be delegated or assigned to him by the President, the
Chief Operating Officer or by the Board of Directors.
Section 12. Treasurer. The Treasurer shall (a) have charge and custody of
and be responsible for all funds and securities of the Corporation; (b) receive
and give receipts for monies due and payable to the Corporation from any source
whatsoever, and deposit all such monies in the name of the Corporation in such
banks, trust companies or other depositaries as shall be selected in accordance
with the provisions of Article VI; and (c) in general, perform all of the
duties incident to the office of Treasurer and have such other duties and
exercise such other authority as from time to time may be delegated or assigned
to him by the President or by the Board of Directors. If required by the Board
of Directors, the Treasurer shall give a bond for the faithful discharge of his
duties in such sum and with such surety or sureties as the Board of Directors
shall determine.
Section 13. Assistant Secretaries and Assistant
Treasurers. There shall be such number of Assistant Secretaries and Assistant
Treasurers as the Board of Directors may from time to time authorize. If
required by the Board of Directors, the transaction or operation of law, the
Assistant Secretaries may sign with the Chairman of the Board, the Chief
Executive Officer, the President or a Vice President certificates for shares of
the Corporation the issuance of which shall have been authorized by a
resolution of the Board of Directors. The Assistant Treasurers shall
respectively, if required by the Board of Directors, give bonds for the
faithful discharge of their duties in such sums and with such sureties as the
Board of Directors shall determine. The Assistant Secretaries and Assistant
Treasurers, in general, shall perform such duties and have such authority as
shall from time to time be delegated or assigned to them by the Secretary or
the Treasurer, respectively, or by the President or the Board of Directors.
Section 14. Other Assistants and Acting Officers. The Board of Directors
shall have the power to appoint any person to act as assistant to any officer,
or as agent for the Corporation in his stead, or to perform the duties of such
officer whenever for any reason it is impracticable for such officer to act
personally, and such assistant or acting officer or other agent so appointed by
the Board of Directors shall have the power to perform all the duties of the
office to which he is so appointed to be assistant, or as to which he is so
appointed to act, except as such power may be otherwise defined or restricted
by the Board of Directors.
Section 15. Salaries. The salaries of the other principal officers shall
be fixed from time to time by the Board of Directors or a committee
12
<PAGE> 13
designated by the Board for that purpose. No officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
Corporation.
ARTICLE V
CONTRACTS BETWEEN
CORPORATION AND RELATED PERSONS
Any contract or other transaction between the Corporation and one or more
of its directors, or between the Corporation and any firm of which one or more
of its directors are members or employees, or in which he or they are
interested, or between the Corporation and any corporation or association of
which one or more of its directors are shareholders, members, directors,
officers or employees, or in which he or they are interested, shall be valid
for all purposes, notwithstanding his or their interest in such contract or
transaction, if any of the following is true:
(a) the material facts of the transaction and the director's interest
were disclosed or known to the Board of Directors or a committee of the Board
of Directors and the Board of Directors or committee authorized, approved or
specifically ratified the transaction in the manner provided below;
(b) the material facts of the transaction and the director's interest
were disclosed or known to the shareholders entitled to vote and they
authorized, approved or specifically ratified the transaction by the
affirmative vote of a majority of the shares entitled to be counted in the
manner provided below; or
(c) the transaction was fair to the Corporation.
For purposes of (a) above, a contract or a transaction is authorized,
approved or specifically ratified if it received the affirmative vote of a
majority of the directors on the Board of Directors or on the committee acting
on the transaction who have no direct or indirect interest in the transaction.
If a majority of the directors who have no direct or indirect interest in the
transaction vote to authorize, approve or ratify the transaction, a quorum is
present for purposes of taking the action under this Article V. The presence
of, or a vote cast by, a director with a direct or indirect interest in the
transaction does not affect the validity of any action taken under this Article
V if the transaction is otherwise authorized, approved or ratified as provided
in this Article V.
For purposes of (b) above, a contract or transaction is authorized,
approved or specifically ratified if it receives the vote of a majority of the
shares
13
<PAGE> 14
entitled to be counted under this Article V. Shares owned by or voted
under the control of a director who has a direct or indirect interest in the
contract or transaction, and shares owned by or voted under the control of an
entity in which the director has a material financial interest or in which the
director is a general partner, may not be counted in a vote of shareholders to
determine whether to authorize, approve or ratify a contract or transaction.
The vote of those shares shall be counted in determining whether the
transaction is approved under other sections of these By-Laws. A majority of
the shares, whether or not present, that are entitled to be counted in a vote
on the transaction under this Article V constitutes a quorum for purposes of
taking action under this Article V.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
Section 3. Checks, Drafts, Etc. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or officers, agent or
agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
Section 4. Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors may
select.
Section 5. Execution of Instrument. Subject always to the specific
directions of the Board of Directors, all deeds and mortgages made by the
Corporation and all other written contracts and agreements to which the
Corporation shall be a party shall be executed in its name by the Chairman of
the Board, the Chief Executive Officer, the President or any Vice President.
14
<PAGE> 15
ARTICLE VII
CERTIFICATES FOR SHARES
Subject to the provisions of Section 625 of the Iowa Business Corporation
Act, certificates representing shares of the Corporation shall be in such form
as may be determined by the Board of Directors. Such certificates shall be
signed by the Chairman of the Board, Chief Executive Officer, President or a
Vice President and the Secretary or an Assistant Secretary of the Corporation.
The signatures of the Chairman of the Board, Chief Executive Officer, President
or Vice President and the Secretary or Assistant Secretary upon a certificate
may be facsimiles if the certificate is countersigned by a transfer agent or
registered by a registrar, other than the Corporation itself or an employee of
the Corporation. All certificates for shares shall be consecutively numbered
or otherwise identified. The name of the person to whom the shares represented
thereby are issued with the number of shares and date of issue shall be entered
on the books of the Corporation. All certificates rendered to the Corporation
for transfer shall be cancelled and no new certificate shall be issued until
the former certificate for a like number of shares shall have been surrendered
and cancelled, except that in case of a lost, destroyed or mutilated
certificate a new one may be issued therefor upon such terms and indemnity to
the Corporation as the Board of Directors may prescribe.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall begin on the 1st day of January
in each year and end on the 31st day of December in each year.
ARTICLE IX
DIVIDENDS
The Board of Directors may, from time to time, declare and the Corporation
may pay dividends on its outstanding shares in the manner, and upon the terms
and conditions provided by the Iowa Business Corporation Act and its Articles
of Incorporation.
15
<PAGE> 16
ARTICLE X
CORPORATE SEAL
The Corporation shall have no seal.
ARTICLE XI
VOTING OF SHARES OWNED BY CORPORATION
Subject always to the specific directions of the Board of Directors, any
share or shares of stock issued by any other corporation and owned or
controlled by the Corporation may be voted at any shareholders' meeting of such
other corporation by the Chairman of the Board if he be present, or in his
absence by the Chief Executive Officer, the President or any Vice President of
the Corporation who may be present. Whenever, in the judgment of the Chairman
of the Board, or in his absence, of the Chief Executive Officer, the President
or any Vice President, it is desirable for the Corporation to execute a proxy
or give a shareholders' consent in respect to any share or shares of stock
issued by any other corporation and owned by the Corporation, such proxy or
consent shall be executed in the name of the Corporation by the Chairman of the
Board or the Chief Executive Officer, the President or one of the Vice
Presidents of the Corporation and shall be attested by the Secretary or an
Assistant Secretary of the Corporation without necessity of any authorization
by the Board of Directors. Any person or persons designated in the manner
above stated as the proxy or proxies of the Corporation shall have full right,
power and authority to vote the share or shares of stock issued by such other
corporation and owned by the Corporation, the same as such share or shares
might be voted by the Corporation.
ARTICLE XII
WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or Director
of the Corporation under the provisions of these By-Laws or under the
provisions of the Articles of Incorporation or under the provisions of the Iowa
Business Corporation Act, a waiver thereof in writing signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
16
<PAGE> 17
ARTICLE XIII
AMENDMENTS
These By-Laws may be altered, amended or repealed and new By-Laws may be
adopted at any meeting of the Board of Directors of the Corporation by a
majority vote of the Directors present at the meeting.
ARTICLE XIV
REIMBURSEMENT OF DISALLOWED COMPENSATION
Any payments made to an officer, employee or Director of this Corporation,
including but not limited to salary, commission, bonus, interest, or rent or
entertainment expense incurred by him or any other compensation which shall be
disallowed in whole or in part as a deductible expense by this Corporation by
the Internal Revenue Service shall be reimbursed by such officer, employee or
Director to the Corporation to the full extent of such allowance. It shall be
the duty of the Directors of this Corporation to enforce payment of each such
amount disallowed. In lieu of payment by the officer, employee or Director,
subject to the determination of the Directors, proportionate amounts may be
withheld from such officer, employee or Director's future compensation payments
until the amount owed to the Corporation has been recovered in full.
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE UNAUDITED INTERIM
FINANCIAL STATEMENTS OF MURDOCK COMMUNICATIONS CORPORATION FOR THE THREE MONTHS
ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS AND THE ACCOMPANYING FOOTNOTES.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 70
<SECURITIES> 0
<RECEIVABLES> 1,344
<ALLOWANCES> 0
<INVENTORY> 55
<CURRENT-ASSETS> 1,785
<PP&E> 15,058
<DEPRECIATION> 9,946
<TOTAL-ASSETS> 6,261
<CURRENT-LIABILITIES> 2,343
<BONDS> 6,289
25
0
<COMMON> 10,821
<OTHER-SE> (10,874)
<TOTAL-LIABILITY-AND-EQUITY> 6,261
<SALES> 1,657
<TOTAL-REVENUES> 1,695
<CGS> 1,373
<TOTAL-COSTS> 2,732
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 184
<INCOME-PRETAX> (1,222)
<INCOME-TAX> 5
<INCOME-CONTINUING> (1,227)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,227)
<EPS-PRIMARY> (.30)
<EPS-DILUTED> (.30)
</TABLE>
