UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-KSB

[MARK ONE]

[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934

                   For the fiscal year ended December 31, 2003

[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934

        For the transition period from July 1, 2003 to December 31, 2003.

                          Commission file no.: 0-22848

                          TNX TELEVISION HOLDINGS, INC.
                          -----------------------------
                 (Name of small business issuer in its charter)

            Delaware                                   95-4868287
 ------------------------------            ----------------------------------
(State or other jurisdiction of           (I.R.S. Employer Identification No.)
 incorporation or organization)

        1811 Chestnut Street, Suite 120, Philadelphia, Pennsylvania 19103
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (215) 972-8191

        Securities registered pursuant to Section 12(b) of the Act: None

          Securities registered under Section 12(g) of the Exchange Act

                          $.001 Par Value Common Stock
                          ----------------------------
                                (Title of Class)


      Check  whether  the issuer (1) filed all  reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the 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[ ]

      Check if there is no disclosure  of delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

      The issuer's revenues for the fiscal year ended December 31, 2003 were $0.
The aggregate market value of the issuer's voting common equity held as of March
31, 2004 by non-affiliates of the Issuer was approximately  $39,541,366 based on
the closing price of $2.20 as of March 31, 2004.

      As of March 31, 2004, the issuer had  45,815,924  shares of its $0.001 par
value common stock outstanding.

      Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

DOCUMENTS INCORPORATED BY REFERENCE:

      The following documents (or parts thereof) are incorporated by reference
into the following parts of this Form 10-KSB: Items 9-12 and 14 of Part III of
this Annual Report on Form 10-KSB are incorporated from the Registrant's Proxy
Statement for the 2004 Annual Meeting of Stockholders.

================================================================================




<PAGE>



                               TABLE OF CONTENTS

PART I
                                                                            Page
                                                                            ----
Item 1.    DESCRIPTION OF BUSINESS ..........................................  2
Item 2.    DESCRIPTION OF PROPERTY...........................................  8
Item 3.    LEGAL PROCEEDINGS ................................................  8
Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ..............  8

                                    PART II

Item 5.    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS .........  8
Item 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION......... 11
Item 7.    FINANCIAL STATEMENTS ............................................. 23
Item 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                FINANCIAL DISCLOSURE ........................................ 25
Item 8A.   CONTROLS AND PROCEDURES........................................... 25

                                    PART III

Item 9.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................ 25
Item 10.   EXECUTIVE COMPENSATION ........................................... 25
Item 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
                   AND RELATED STOCKHOLDER MATTERS........................... 26
Item 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................... 26
Item 13.   EXHIBITS AND REPORTS ON FORM 8-K.................................. 26
Item 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES............................ 27



<PAGE>




SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

      We may,  in  discussions  of our future  plans,  objectives  and  expected
performance  in periodic  reports filed by us with the  Securities  and Exchange
Commission (or documents  incorporated by reference  therein) and in written and
oral  presentations  made by us, include  projections  or other  forward-looking
statements  within the meaning of Section 27A of the Securities  Exchange Act of
1934,  as amended,  the Exchange  Act, or Section 21E of the  Securities  Act of
1933, as amended,  the  Securities  Act. Such  projections  and  forward-looking
statements are based on assumptions, which we believe are reasonable but are, by
their  nature,   inherently  uncertain.  In  all  cases,  results  could  differ
materially from those projected.  Some of the important factors that could cause
actual  results to differ  from any such  projections  or other  forward-looking
statements  are  discussed  below,  and in other  reports  filed by us under the
Exchange Act. Risks and uncertainties relating to forward-looking statements are
set forth in Item 6 under the caption "Risk Factors," below. Our forward looking
statements  are  based on  information  available  to us  today,  and  except as
required by law,  we  undertake  no  obligation  to update any  forward  looking
statement, whether as a result of new information, future events or otherwise.

PART I

ITEM 1.  DESCRIPTION OF BUSINESS

      Unless otherwise indicated,  or unless the context otherwise requires, all
references  below  to the  term  "TNX,"  "we,"  "our"  or "us"  shall  mean  TNX
Television  Holdings,  Inc. (a  publicly-traded  company  formerly  known as SZM
Distributors,  Inc.),  which  acquired  all of the assets and assumed all of the
liabilities  of  the  privately-held  company,  TNX  Television,  Inc.  and  its
consolidated  subsidiary,  TNCI UK Ltd., in a reverse acquisition transaction on
November 13, 2003,  and  succeeded to the business of TNX  Television,  Inc. and
TNCI UK Ltd.

COMPANY OVERVIEW

      We  are  engaged  in  the  development,   installation  and  operation  of
in-carriage  broadcast  systems on commuter  railway lines. We have developed an
integrated  solution for railway commuter  services that delivers  entertainment
and  information  programming  to passengers via the operation of an in-carriage
broadcast  system,  or the TNX system.  We believe  that we are the only company
currently  with a  total  solution  to  in-train  television  broadcasting.  Our
business  model is designed  to make the  adoption of the system very simple for
railway  companies.  We  develop,  install,  maintain  and  finance  all  of the
necessary  equipment on the trains. We also provide all content  programming and
revenue  generation  management.  In  return,  we  pay  the  train  operator  an
agreed-upon  fee for the  concession  rights to install  the TNX system on their
trains.  We believe  that  installation  of our TNX system  offers  considerable
benefits to train operators  beyond the additional  revenues they would receive,
including  the ability to offer a more  entertaining  passenger  experience  and
enhanced  communication  of  information  to  passengers.  We intend to generate
revenues  by selling  commercial  time to  advertisers  that would be  broadcast
during the programming similar to conventional television broadcasting.

      Our initial focus is on commuter train lines in the United Kingdom,  where
we already have exclusive commercial  relationships for the provision of our TNX
system with a number of the privately owned Train Operating Companies,  or TOCs.
We have entered into a six year agreement with Central Trains Ltd.  beginning in
March  2004 to  install  our  system  in  Central  Trains'  Birmingham  commuter
services,  representing approximately 18 million passenger journeys per year. We
have also  entered  into  letters  of  intent,  giving us  12-month  negotiating
exclusivity,   with  Thameslink,  South  Central,  Connex  South  Eastern,  C2C,
Silverlink,  WAGN and Arriva Trains Wales.  Collectively,  these TOCs  represent
over 50% of the UK commuter train market and 70% of the London commuter  market.
We are in the process of seeking to enter into  definitive  agreements  with the
TOCs that have entered into letters of intent.

      Our broadcast  programming is delivered via satellite to railway  stations
across the UK, and is then uploaded onto trains at regular  intervals during the
day when trains  pass  through the railway  stations  with our  installed  radio
nodes.  Typically,  train  carriages  will be  fitted  with six to eight  liquid
crystal  display,  or LCD,  screens.  The  broadcasts  will be designed for a 30
minute average journey, and will be broken into short segments,  including news,
entertainment,  sports,  weather,  music videos,  special  interest  programming
(food,  travel,  fashion),  all of  which we  expect  will be  supplied  through
relationships  to be  established  with third party content  providers.  We have
entered into a content supply contract with Independent  Television News Limited
of London  (ITN),  a leading


                                       2
<PAGE>

international  news  organization,  to provide  us  comprehensive  national  and
international  news service on an exclusive  basis to be shown on TNX's commuter
rail  television  service in the UK. We have  conducted a pilot phase of the TNX
system on both the Birmingham and London  commuter  train  networks,  from which
customer feedback has been extremely  positive.  A quiet zone will be designated
in each carriage for passengers desiring not to hear the audio from the system.

      We expect to generate revenues by selling  commercial time to advertisers.
We believe that our in-train captive audience programming represents a major new
potential advertising medium. At a time of increasing channel proliferation as a
result of  digitalization,  our medium offers a captive audience that on average
spends  thirty  minutes  in the  train  twice a day,  five  days  per  week  and
two-thirds  of which  travel the same journey  every day. The audience  also has
highly appealing demographic characteristics that have traditionally appealed to
advertisers.  We are currently  working  together with the UK independent  media
sales house,  Digital Media Sales Ltd., to market the  opportunity to both media
buyers and outdoor media specialists. We expect to receive our first commitments
from  advertisers  for the Central Trains  contract  during the second  calendar
quarter of 2004.

INDUSTRY BACKGROUND

      The UK railways were privatized  between 1995 and 1997. The infrastructure
was placed in a public company, Railtrack Group, and the operation of the trains
was  divided  into 25  franchised  TOCs.  The  passenger  rail cars were sold to
specialist  leasing  companies  and then leased  back to the TOCs.  The TOCs won
their franchises through a competitive  process which focused on performance and
subsidies  to be paid by the TOCs to the UK  government.  Most  franchises  were
awarded for seven years,  but some franchises were awarded for longer periods in
cases  where the  purchase  of new  trains was  necessary.  The  franchises  are
structured in such a way that the TOC  effectively  has no assets but is focused
on providing the train service.  Some of the TOCs are in the process of renewing
their franchises.

      Entertainment  systems  are a new area  for the  TOCs.  Entertainment  and
information  systems  have been  limited  in  railway  applications  because  of
technological  problems in  communicating  with the trains.  An information  and
entertainment  system represents a potential new source of revenue for the TOCs.
Additionally,  the  introduction of such systems provides an opportunity for the
TOCs to communicate more effectively with their passengers, which is a key issue
for the  Strategic  Rail  Authority,  the  governing UK agency that controls the
TOCs' franchise.

OUR SOLUTION

      The  introduction  of public  frequency  radio systems in recent years has
provided an opportunity to overcome the  technological  limitations of providing
broadband radio communications to trains. We have developed what we believe is a
unique  business  proposal that  simplifies  the adoption of  entertainment  and
information  systems  by the  TOCs by  offering  a  complete  solution  which is
tailored  to  the  railway  environment   utilizing  the  commercial   standards
especially  adapted to our application and providing a turnkey system at no cost
to the TOC. We manage  installation,  maintenance,  provision of content and are
responsible for generating  advertising  revenues by selling  commercial time to
advertisers.  In  return,  the TOC  receives  a payment  based on the  number of
passenger journeys and the utilization of space on their trains. In addition, we
can provide enhanced passenger information systems and improved security through
closed circuit television, or CCTV.

      We believe that the turnkey  solution is very  attractive to TOCs,  first,
because  of their  lack of  technical  expertise  in our  type of  entertainment
system,  and secondly,  we absorb for them the costs of buying,  installing  and
maintaining  the systems.  This allows TOCs to focus on their core  competencies
instead of installing and maintaining entertainment systems.

OUR STRATEGY

      Our  strategy  has been to focus  initially  on the UK  market,  where the
privatized environment has made train operators more innovative and receptive to
offering  the  railway  passenger  a  better  travel  experience  than in  other
countries  where the train system is  government  operated.  We entered into our
first  agreement  with Central Trains Ltd, the train operator for the Birmingham
commuter services.  We are now focusing on the London commuter  services,  which
provide  large numbers of passengers  with an extremely  attractive  demographic
profile to  advertisers.  Our  strategy is to have our TNX system  deployed  and
accessible to an audience  attractive to  advertisers  in the


                                       3
<PAGE>

shortest  possible time. By  broadcasting  our  programming to a large number of
passengers,  we believe that we can create better opportunities for advertisers,
thereby increasing our potential revenues from advertising.

      We expect to enter into agreements with additional UK-based TOCs with whom
we currently have letters of intent during the second  calendar  quarter of 2004
and begin  installation  and  operations  with  these TOCs soon  thereafter.  If
successful  in the UK, we  intend to expand  our  efforts  into  other  suitable
markets outside the UK, such as in continental Europe, the United States or East
Asia. We expect once we have successfully established TNX systems in the UK, the
sales cycle in other markets would become  shorter.  We intend to pursue markets
based on several market  factors,  including,  passenger  demographics,  average
commute time, strategic partnerships, content availability, regulatory and legal
issues, and technology and infrastructure requirements.

      We intend to conduct regular  independent market surveys on the impact on,
and retention by,  passengers  viewing TNX  system-delivered  advertising.  Such
surveys  will be used to evaluate  and market the strength of the medium and, if
needed, to fine tune the content offering.  We believe that regular  measurement
of  ridership  and  demographics  should  allow us to maximize  our  advertising
potential  and provide  advertisers  with a current  assessment of the impact of
their  advertisements and an indication of the value generated by the particular
campaign.

OUR TECHNOLOGY - THE TNX SYSTEM

      Our TNX  system  provides  passengers  with  access to news,  information,
entertainment  and advertising  through video and audio streams displayed on LCD
flat  panel  screens  installed  at  key  locations  within  the  rail  vehicle.
Multimedia  content  programming  is delivered  from a play-out  center across a
satellite  network  to the rail  depots  or  stations  for  automatic  update by
wireless technology to the rail vehicles overnight, and as the trains arrive and
leave the stations.

      The TNX  system  integrates  technologies  that have been  tested  and are
available  in other  applications.  We will be using  third party  companies  to
manufacture  and supply the TNX systems under  contract,  using our  proprietary
network architecture and specifications.  The system's network architecture will
use technology in the 2.4 GHz ISM licensed  exempt band,  which is currently the
most widely available technology for our application and licensed for use in the
UK and  United  States  and  currently  rolling  out  throughout  Europe,  where
approvals for its use have recently been granted

      The TNX system has been  designed to easily  retrofit  into a rail vehicle
and addresses key issues of size,  weight,  power  consumption and  maintenance.
Maintenance is a critical issue given the harsh  environment;  as a result,  the
TNX system uses rugged equipment to increase reliability.

      The TNX system is designed to allow the content  played  during the day to
be varied to suit the interests of the demographic  population that is using the
train at different times.  Thus,  advertising can be targeted more  effectively,
thereby maximizing advertising impact and revenues.

PROGRAMMING

      Content  programming  acquired  by us can be  divided  into  two  distinct
categories:  (1) news,  weather and sports  programming and (2) general interest
features. On March 24, 2004 we announced that TNCI UK had entered into a content
supply  contract with  Independent  Television  News Limited of London (ITN),  a
leading international news organization.  Under the contract, ITN will provide a
comprehensive  national and international  news service on an exclusive basis to
be shown on TNX's  commuter rail  television  service in the UK. The term of the
contract is three years and can be extended by mutual agreement.  We expect that
the general interest items will be sourced from a range of production companies,
mostly based in the UK, where there is a wide choice and competitive pricing. We
expect  that the  content  will be  procured  on the basis of  captive  audience
pricing.

      As we expand into other countries,  we will need to establish  appropriate
sources of content for such countries.

CUSTOMERS


                                       4
<PAGE>

      Our initial  strategy is to target TOCs  operating  commuter rail lines in
the UK. We have entered  into a six year  agreement  with  Central  Trains Ltd.,
beginning  in March 2004,  to install our system in Central  Trains'  Birmingham
commuter trains,  representing  approximately 18 million passenger  journeys per
year.  We  have  also  entered  into  letters  of  intent,  giving  us  12-month
negotiating exclusivity,  with Thameslink,  South Central, Connex South Eastern,
C2C, Silverlink, WAGN and Arriva Trains Wales. Collectively these TOCs represent
over 50% of the UK commuter train market and 70% of the London commuter  market.
We have also begun  discussions  with the majority of the remaining  TOCs in the
UK.

      We expect to enter into agreements with additional UK-based TOCs with whom
we currently  have letters of intent during the second quarter of 2004 and begin
installation  and operations with these TOCs soon  thereafter.  If successful in
the UK, we intend to expand our efforts into other suitable  markets outside the
UK, such as in  continental  Europe,  the United  States or East Asia. We do not
expect to reach  this  point  until  calendar  year  2005.  We expect  that with
successful  TNX systems in operation in the UK, the sales cycle in other markets
would  become  shorter.  We intend to pursue  markets  based on  several  market
factors,  including  passenger  demographics,  average  commute time,  strategic
partnerships, content availability,  regulatory and legal issues, and technology
and infrastructure requirements.

SALES AND MARKETING

      We are  currently  engaged  in  securing  agreements  with  TOCs  for  the
installation of our systems and soliciting  advertisers for the commercial slots
available during the content programming.  We have one employee directly engaged
in securing agreements with the TOCs and one employee managing the activities of
third  party  specialist   advertising  sales  house  engaged  in  the  sale  of
advertising space during our content programming.

      Prior to entering into the first contract, we conducted a demonstration in
July 2003 to assess passenger reaction, generate market research data in support
of sales, fine tune content and resolve any outstanding technical issues. One of
the UK's largest  independent  market  research  firms oversaw the collection of
passenger   feedback.   Such  firm  received   nearly  one  thousand   completed
questionnaires and also conducted follow-up face-to-face interviews,  as well as
telephone calls with passengers.  Results of the findings from these surveys are
shared with prospective TOCs and advertisers as part of our marketing efforts.

      We are seeking  advertisers for the  advertising  slots during our content
programming. We expect to initially pay commissions to advertising agencies that
we have engaged to sell  advertising  space. We are currently  working  together
with Digital  Media Sales Ltd.,  a UK-based  independent  media sales house,  to
market the opportunity to both media buyers and outdoor media specialists.

MANUFACTURING

      We do not manufacture any of the equipment used in the TNX system. We are,
however,  responsible for the overall integration of the various elements of the
system.

      We  purchase  most of the  hardware  for our system,  manufactured  to our
specification, from Linsang Manufacturing,  Inc., a company based in Beltsville,
Maryland, pursuant to a supply agreement entered into in September 2003. Linsang
is an  integrated  provider  of  electronic  manufacturing  services,  which was
founded by a group of professionals from Yurie Systems and Lucent  Technologies,
which  provides  us with a nimble,  single,  "turn-key"  source for the  design,
development, integration and delivery of interactive broadband entertainment and
information  systems on trains.  Linsang's  services include design  realization
services and quality  production  services  including  integration  and testing,
repair and maintenance and field asset management. Pursuant to the agreement, we
are guaranteed certain pricing through December 31, 2005. The agreement provides
us favorable payment terms for up to $6 million worth of equipment if ordered by
September 30, 2004. In addition,  we have an exclusive  arrangement with Linsang
whereby it cannot  enter the railway  market with any  products  competitive  to
ours,  assuming  that we are  compliant  with the terms of the  agreement.  This
stipulation applies for the duration of our relationship with Linsang which at a
minimum will be until December 2005.

      Other railway related  hardware is sourced from  established  providers of
such equipment within the railway industry.


                                       5
<PAGE>

RESEARCH AND DEVELOPMENT

      Our research and development  activities are focused on the development of
wireless  communication and data  transmission  systems with particular focus on
integrating the encoding of digital data with satellite transmission  technology
to achieve  broadcast  quality  programming.  We are currently  working to adapt
established  technology to meet the stringent  regulatory  requirements  of both
rail vehicles and the railroad infrastructure.

COMPETITION

      Currently, we have not identified any direct competitors to our company in
the UK commuter  rail market.  There is a system  installed on Heathrow  Express
(serving  London to Heathrow  Airport),  which  employs DVD,  rather than server
based technology.  We do not view DVD-based technology as true competition as it
is unable to provide near "real-time" programming. To the best of our knowledge,
the Heathrow  system has not been updated  since  installation  nearly six years
ago. The railway industry has historically been divided into equipment suppliers
and train operators.  The TNX system is a hybrid and, as a result, unique in its
offering as it brings together hardware,  support,  communications,  content and
advertising in a single package.

      We may face potential  future  competition as the market  develops for our
products.  There are no  meaningful  intellectual  property  barriers to prevent
competitors  from  entering  into  this  market,  and we  cannot  assure  that a
competitor with greater resources than us will not enter into the market.  These
competitors may have vastly larger technical staffs, more established and larger
marketing  and  sales   organizations,   and  significantly   greater  financial
resources.

INTELLECTUAL PROPERTY

      We will rely on  copyright,  trade  secret and  trademark  law, as well as
provisions in our license,  supply and other  agreements in order to protect our
intellectual  property rights.  We have registered the TNX name and logo as a UK
trademark.  As part of the supply  agreement  with  Linsang  which  requires the
supply of hardware according to our specifications and the development  contract
with  NIIT  Ltd.,  a  diversified  global IT  services  company,  we retain  the
intellectual  property rights for the system developed for the TNX system. We do
not have any patents or pending patent applications. All of our employees have a
non-disclosure provision included in their service agreements.

GOVERNMENT REGULATION

      We are not  classified  as a  broadcaster,  but as the provider of captive
audience programming.  As a result, we are not subject to government legislation
designed to control broadcasters. As we offer advertising, however, we will have
to comply with the  self-regulation  standards relating to advertising in the UK
and,  if we  expand  to other  countries,  we may have to  comply  with  similar
regulations in other countries.

EMPLOYEES

      As of March 1, 2004, we had a total of 22 full-time employees. Of these 22
employees,  we have three employees,  including our Chief Executive  Officer and
Vice  President  of  Business  Development,  based in the United  States and the
others are located in the United Kingdom. In the UK, in addition to the Managing
Director   of  TNCI   UK,   a  total   of  12   individuals   are   engaged   in
Operations/Engineering,  three are in finance,  two in sales and  marketing  and
media management and one provides administrative support.


                                       6
<PAGE>

      We also have a license for office  facilities  for two staff members based
in London.  The accommodation is terminable on three months' notice. We are also
seeking to enter into a five-year lease for a warehouse and workshop facility in
Derby, England.

CORPORATE HISTORY

      TNX  Television  Holdings,  Inc., is a Delaware  corporation  and operates
through its wholly-owned  subsidiary,  TNCI UK, Ltd. ("TNCI").  In October 2003,
TNX  Television,  Inc. ("TNX TV") was established and on October 23, 2003 merged
with TNCI UK, Ltd.  TNCI was  formally  established  in the United  Kingdom as a
corporation registered under the laws of England and Wales in September, 1999 to
develop,  install and operate screens providing captive audience information and
entertainment based programming specifically for the passenger rail market.

      Pursuant to TNCI's merger with TNX TV, the  shareholders  of TNCI received
25,136,708  shares of TNX TV in exchange  for all of the  outstanding  shares of
TNCI or  21,349,884  shares.  In  addition,  options  and  warrants  to purchase
5,366,833  common  shares of TNCI were  exchanged  for options  and  warrants to
purchase  6,334,076  shares of common  stock of TNX TV. Upon  completion  of the
merger,  TNCI became a  wholly-owned  subsidiary  of TNX TV. At the merger date,
100,000 shares of TNX TV common stock were issued to an unaffiliated  consultant
for services  rendered in conjunction with the merger.  As a result, a charge of
$25,000 was recorded for these services.

      On November 13, 2003, a wholly-owned subsidiary of SZM Distributors,  Inc.
("SZMD"),  a  Nevada  corporation,  SZMD  Acquisition  II,  Inc.,  ("Acquisition
Subsidiary"),  merged  with  and  into  TNX TV.  TNX TV  became  a  wholly-owned
subsidiary of SZMD in a transaction  accounted for as a reverse  acquisition  of
SZMD by TNX TV. Prior to the reverse  merger,  SZMD was a  non-operating  public
shell  corporation  with nominal  assets.  In  accordance  with the terms of the
merger,  the  stockholders of TNX TV exchanged all of the issued and outstanding
shares of TNX TV at a one for one ratio for  28,665,924  shares of SZMD's common
stock.  The holders of options and warrants to acquire  6,334,076  shares of TNX
TV's common stock  exchanged their options and warrants for options and warrants
to acquire  6,334,076  shares of SZMD's common  stock,  and the 1,000 issued and
outstanding  shares of Acquisition  Subsidiary  common stock were converted into
1,000 shares of TNX TV common stock.

      Prior to the merger  with TNX TV,  loans to TNCI  amounting  to  $857,305,
which included accrued interest of $31,305, were converted into 3,429,216 shares
of common stock of SZMD at a rate of $.25 per share.

      TNX TV's stockholders acquired direct and beneficial ownership and control
of  approximately  67% of SZMD's  outstanding  common stock. The transaction was
accounted for as a reverse acquisition whereby, for accounting purposes,  TNX TV
is considered the accounting acquirer and the historical financial statements of
TNX TV became the historical financial statements of SZMD.

      In conjunction with the merger, SZMD completed a $1,000,000 equity private
placement of  4,000,000  shares of SZMD's  common  stock at $.25 per share.  The
private  placement  was issued  pursuant to Rule 506 of  Regulation  D under the
Securities  Act of 1933,  as amended.  The  proceeds,  net of expenses  totaling
$111,963,  were used to satisfy  outstanding  liabilities of SZMD and to provide
working capital for the combined entity.

RECENT DEVELOPMENTS

      On January 7, 2004,  we  completed a private  placement in which we issued
3,150,000  shares of our common  stock in exchange for  $2,850,000.  The private
placement was exempt from the registration requirements pursuant to Regulation S
under the Securities  Act. The proceeds were used to repay certain loans made to
us in December 2003 and to provide working capital for the combined entity.

      On  February  12,  2004,  at  a  special  meeting  of  stockholders,   our
stockholders  approved (i) the change of our state of incorporation  from Nevada
to Delaware and our corporate name to TNX Television Holdings,  Inc. by means of
a merger with and into TNX Television Holdings, Inc., a Delaware corporation and
our newly formed wholly-owned subsidiary,  and (ii) the 2004 Employee,  Director
and Consultant Stock Option Plan. The reincorporation  merger was consummated on
February 17, 2004.


                                       7
<PAGE>

      In addition,  we changed our Over-the-Counter  Bulletin Board stock symbol
for our common  stock from "SZMD" to "TNXT." We plan to initiate  the process of
applying to list our common stock on the American Stock  Exchange  (AMEX) in the
United  States and are  considering  the  benefits a listing on the  Alternative
Investment Market (the AIM) of the London Stock Exchange.  The AIM is the London
Stock Exchange's global market for small growing companies.

ITEM 2.   DESCRIPTION OF PROPERTY

      Our  corporate  headquarters  are  located in the Center  City  section of
Philadelphia,  Pennsylvania in approximately  2,094 sq. ft of office space based
on a tenancy at will agreement. Monthly lease payments are $3,315 per month plus
electric  and  operating  charges.  Our  operating  subsidiary,  TNCI UK,  Ltd.,
occupies approximately 6,000 square feet of office space in Derby, England based
on a tenancy at will  agreement.  Monthly  lease  payments  under this lease are
approximately $8,750 per month. We are currently negotiating with the landlord's
agent to enter into a more formal  lease for a period of five  years.  If we are
unsuccessful  in  negotiating  for a more permanent  lease at such location,  we
believe that suitable space will be readily available at other locations.

ITEM 3.   LEGAL PROCEEDINGS

      We are not currently subject to any material legal  proceedings.  However,
we may from  time to time  become a party to legal  proceedings  arising  in the
ordinary course of our business.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      No matter was  submitted to a vote of our  stockholders  during the fourth
quarter of our fiscal year ended December 31, 2003.

PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a) MARKET INFORMATION

      Our $0.001 par value common stock is traded in the over-the-counter market
and quoted on the OTC Electronic  Bulletin Board (the Bulletin  Board) under the
symbol "TNXT" (formerly "SZMD").  The following table sets forth, for the fiscal
quarters  indicated,  the range of high and low bid  quotations  for the  common
stock.  The bid  quotations  reflected  prior to November 12, 2003,  the date on
which we merged with SZMD Acquisition II, Inc., a wholly-owned subsidiary of SZM
Distributors, Inc., which was traded under the symbol "SZMD", represent the high
and low bid  quotations  of the common  stock of SZM  Distributors,  Inc. on the
Bulletin  Board.  The prices  reflected on and after November 12, 2003 represent
the high and low bid quotations of our common stock on the Bulletin Board. These
quotations  have been obtained from the Bulletin Board and reflect  inter-dealer
prices (in dollars), without any retail mark-up,  mark-down or commissions,  and
may not necessarily represent actual transactions.

-----------------------------------------------------------------
Calendar Year 2004              High              Low
------------------           --------          --------
First quarter                $   3.00          $   1.90

Calendar Year 2003              High              Low
------------------           --------          --------
Fourth quarter               $   2.50          $   0.55

Third quarter                    0.74              0.55

Second quarter                   0.02              0.02

First quarter                    0.01              0.01

Calendar Year 2002              High              Low
------------------           --------          --------
Fourth quarter               $   0.00          $   0.00

Third quarter                    0.00              0.00

Second quarter                   0.00              0.00

First quarter                    0.00              0.00

         On March 31, 2004, the high and low bid prices per share of common
stock reported by the Bulletin Board were $2.20 and $2.20, respectively.

(b)  HOLDERS



                                       8
<PAGE>

      As of March 29, 2004, there were 50 holders of record of the Common Stock.
There  were also an  undetermined  number of  holders  who hold  their  stock in
nominee or "street" name.

(c)  DIVIDENDS

      We do not anticipate  paying any cash dividends on our common stock in the
foreseeable  future.  We intend to retain  all  available  funds and any  future
earnings to fund the development and expansion of our business.

(d)  SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

      The following table sets forth information  regarding outstanding options,
warrants and rights,  and shares reserved for future issuance under our existing
equity compensation plans as of December 31, 2003. Our stockholders approved the
2004 Employee, Director and Consultant Stock Option Plan in February 2004.

<TABLE>
<CAPTION>
---------------------------- --------------------------- --------------------------- ------------------------------

       Plan Category           Number of securities to   Weighted average exercise       Number of securities
                              be issued upon exercise       price of outstanding        remaining available for
                              of outstanding options,      options, warrants and         future issuance as of
                             warrants and rights as of             rights            December 31, 2003 (excluding
                                 December 31, 2003                                      securities reflected in
                                                                                              column (a))
---------------------------- --------------------------- --------------------------- ------------------------------
<S>                          <C>                          <C>                        <C>
                                        (a)                         (b)                           (c)
---------------------------- --------------------------- --------------------------- ------------------------------

Equity compensation plans                0                           --                            0
approved by security
holders

---------------------------- --------------------------- --------------------------- ------------------------------

Equity compensation plans                0                           --                            0
not approved by security
holders

---------------------------- --------------------------- --------------------------- ------------------------------

TOTAL                                  0 (1)                        (1)                            0
---------------------------- --------------------------- --------------------------- ------------------------------
</TABLE>

---------------
(1)   The  above  table  does not  include  options  to  purchase  an  aggregate
      5,909,378  shares of our common stock at a weighted average exercise price
      of $.147 per share which were assumed by us in connection with the reverse
      merger  between  TNX TV and SZMD.  Pursuant to the merger  agreement,  all
      outstanding options and warrants to purchase shares of TNX TV common stock
      were exchanged or converted  into options and warrants to purchase  shares
      of SZMD's common stock on the same terms and  conditions as were in effect
      prior to the effective time of the merger. The options and warrants issued
      with respect to such exchanged  options and warrants are  exercisable  for
      such number of shares of SZMD's  common stock equal to the number of whole
      shares of TNX TV common  stock  subject to each such  exchanged  option or
      warrant  immediately prior to the effective time of the merger.  Following
      the merger,  options and  warrants to purchase an  aggregate  of 6,334,076
      shares  of common  stock at  prices  ranging  from  $0.129  to $0.25  were
      outstanding,  all of which were  exchanged or converted in the merger.  Of
      such options and warrants converted in the merger, options and warrants to
      purchase an aggregate of 5,909,378 shares of common stock were outstanding
      as of December 31, 2003.  In the future,  we intend to only issue  options
      under  our 2004  Employee,  Director  and  Consultant  Stock  Option  Plan
      approved by our stockholders in February 2004.

      Prior to the merger,  TNCI UK Ltd.  issued the options and warrants listed
below  without the approval of security  holders.  All such options and warrants
were subsequently  converted into options and warrants to purchase shares of TNX
Television,  Inc,  common  stock.  Pursuant to the merger,  all such options and
warrants  converted  into options and warrants to purchase  shares of our common
stock.  The number of shares and the exercise prices set forth below relating to
such options and warrants reflect such conversions.


                                       9
<PAGE>

      On July 1, 2002,  Ocean Castle Partners ("Ocean  Castle"),  of which Irwin
Gross, our Chairman and Chief Executive  Officer,  is the principal and has sole
voting and dispositive power, was issued options to purchase 1,745,000 shares of
common stock at an exercise price of $.129, representing,  at the time, for a 5%
interest in TNCI UK, in connection  with the  rendering of consulting  services.
The warrants  expire on June 30, 2009. As part of such  consulting  arrangement,
Ocean  Castle  subsequently  transferred  248,211 and 170,589 of such options to
David Shevrin and Lance Silver,  respectively,  employees of Ocean Castle at the
time.

      On January 2, 2002,  certain  key  employees  of TNCI UK Ltd were  granted
warrants  to  purchase  an  aggregate  of 20,575  shares  of common  stock at an
exercise  price of $0.129 per share.  The options  expire on January 1, 2009. On
July 1, 2002,  certain  key  employees  of TNCI UK Ltd were  granted  options to
purchase an aggregate of 2,505,536  shares of common stock at an exercise  price
of $0.129 per share. The options expire on June 30, 2009.

      On July 2, 2002,  warrants to purchase 887,830 shares of common stock were
granted  to a now  former  director  as  compensation  for board and  consulting
services. The warrants vested equally over a 36 month period, are exercisable at
$0.25 per share and expire on July 1, 2008. Upon the director's resignation from
the board in November 2003, 463,132 shares of common stock had vested.

      In May 2003,  Ocean Castle was issued warrants to purchase  398,103 shares
of common stock at an exercise price of $0.129 per share.  Such warrants  expire
on October 1, 2008.  In  September  2003,  Ocean  Castle was issued  warrants to
purchase 327,047 shares of common stock at an exercise price of $0.25 per share.
Such  warrants  expire on August 30, 2009.  All of such  warrants were issued in
consideration for introducing investors to TNCI UK Ltd.

      In September  2003, a consultant was issued  warrants to purchase  135,039
shares of common stock at an exercise price of $0.25 per share in  consideration
for  introducing  investors to TNCI UK Ltd. Such  warrants  expire on August 30,
2009.

      In August  2003,  David  Shevrin,  one of our current  officers was issued
warrants  to purchase  270,795  shares of common  stock at an exercise  price of
$0.129 per share as compensation for consulting  services.  Such warrants expire
on August 30, 2006.

      In  consideration  for a loan made to TNCI UK Ltd, which was  subsequently
repaid,  Stephen Ollier, one of our directors and an officer of TNCI UK Ltd, was
issued  warrants in August 2001 to purchase  44,151 shares of common stock at an
exercise price of $0.130 per share. Such warrants expire on July 31, 2007.

      Except for the  transactions  with Gross  Investments,  Platinum  Partners
Global  Macro Fund,  LP  ("Platinum"),  Ocean  Castle and  Belgravia  Investment
Partners,  LP ("Belgravia"),  there have been no transactions between us and any
officers,  directors or five percent security holders. To our knowledge,  except
for  the  transactions  with  Gross  Investments,  Platinum,  Ocean  Castle  and
Belgravia,  there are no business  relationships between any of our directors or
nominees for director and us, nor have any such relationships existed during our
last fiscal year. To our  knowledge,  no directors or nominees for director have
been in debt to us.

      We believe that all of the  transactions  above were made on terms no less
favorable to us than could have been obtained from  unaffiliated  third parties.
All future  transactions,  including  loans between us, our officers,  principal
stockholders  and our affiliates  will be approved by a majority of the board of
directors,  including a majority of the independent and disinterested  directors
and will continue to be on terms no less  favorable to us than could be obtained
from unaffiliated third parties.

(e) RECENT SALES OF UNREGISTERED SECURITIES.

      During the fiscal  year  ended  December 31, 2003,  we sold the  following
unregistered securities:

      In  connection  with the  merger,  we  completed  a private  placement  of
4,000,000  shares of our common stock at a price of $0.25 per share. We received
gross  proceeds from the private  placement of $1,000,000 and net of expenses of
$111,963.  These  securities  were issued in  reliance  upon an  exemption  from
registration  set forth in Section  4(2) of the  Securities  Act and Rule 506 of
Regulation D promulgated thereunder.


                                       10
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS

      You should read the  following  discussion  and analysis of our  financial
condition and results of operations  together with "Selected Financial Data" and
our financial  statements and related notes  appearing  elsewhere in this Annual
Report on Form 10-KSB.  This  discussion and analysis  contains  forward-looking
statements that involve risks, uncertainties and assumptions. The actual results
may differ materially from those anticipated in these forward-looking statements
as a result of certain factors,  including,  but not limited to, those set forth
under "Risk Factors" and elsewhere in this Annual Report on Form 10-KSB.

OVERVIEW

      Our financial  statements are prepared in accordance  with U.S.  generally
accepted accounting principles, or GAAP.

      In  this  Section,  "Management's  Discussion  and  Analysis  or  Plan  of
Operation,"  references to "we," "us," "our," and "ours" refer to TNX Television
Holdings, Inc., and our consolidated subsidiary TNCI UK, Ltd.

BUSINESS OVERVIEW

      We  are  engaged  in  the  development,   installation  and  operation  of
in-carriage  broadcast  systems  on  commuter  railways.  We have  developed  an
integrated   solution  for  railway   commuter   services  that  delivers  news,
entertainment and information  programming to passengers via the operation of an
in-carriage  broadcast system (the TNX system).  We believe that we are the only
company in the UK,  currently  with a total  solution  for  in-train  television
broadcasting.  Our business model is designed to make the adoption of the system
very simple for railway companies. We develop, install, maintain and finance all
of  the  necessary  equipment  on  the  trains.  We  also  provide  all  content
programming and revenue generation management. We intend to generate revenues by
selling  commercial  time to  advertisers  that  would be  broadcast  during the
programming similar to conventional television  broadcasting.  In return, we pay
the train operator a negotiated fee for the concession rights to install the TNX
system on their trains.  We believe that  installation  of our TNX system offers
considerable  benefits to train  operators  beyond the additional  revenues they
would  receive,  including  the ability to offer a more  entertaining  passenger
experience and enhanced communication of information to passengers.

      We believe that the success of our business  model is predicated  upon the
accomplishment   of  the  following   objectives  by  us:  (1)   implementing  a
cost-effective  technology  system that meets  regulatory  approval and performs
reliably on the trains,  (2) securing  contracts with train operating  companies
(TOCs),   (3)  sourcing   compelling  and  engaging  content  and  (4)  securing
advertisers at competitive market rates.

      Our initial focus is on commuter train lines in the United Kingdom,  where
we already have exclusive commercial  relationships for the provision of our TNX
system  with a number  of the  privately  owned  TOCs,  including  a  definitive
six-year  agreement with Central Trains Ltd.  ("Central  Trains") and letters of
intent with other TOCs. We have focused on the UK market, because the privatized
environment  has made train  operators more innovative and receptive to offering
the railway passenger a better travel experience.

      If the implementation of our system is successful,  we plan to expand into
other markets in the second half of 2005, with targeted  installation  beginning
in 2006. Other markets will be evaluated based on several  criteria,  including:
number  of  passenger  journeys  per year,  average  journey  length,  passenger
demographics,  concentration  of riders  per  journey,  regulatory  environment,
competition, technology issues, strategic partnership opportunities and strength
of advertising market, among others.

      Currently,  we have entered into a six year  agreement with Central Trains
beginning  in March 2004 to install  our  system in Central  Trains'  Birmingham
commuter services,  representing approximately 18 million passenger journeys per
year.  We  have  also  entered  into  letters  of  intent,  giving  us  12-month
negotiating  exclusivity,  with  seven  other  TOCs.  Collectively,  these  TOCs
represent  over 50% of the UK commuter  train  market and over 70% of the London
commuter market.



                                       11
<PAGE>

      We are in the process of seeking to enter into definitive  agreements with
the TOCs that have  signed  letters  of intent  (LOI).  Once the system is fully
operational  with our first  TOC,  we  believe  that we will be able to  convert
several of our existing LOIs into definitive agreements on an accelerated basis.
We believe that as a "first mover" we have a significant  competitive  advantage
in the market. Additionally,  as we gain critical mass, we expect advertisers to
show a greater interest in showing commercials or sponsoring programming content
on our system.

      We have  conducted a pilot phase of the TNX system on both the  Birmingham
and London  commuter  train  networks,  from which  customer  feedback  has been
extremely positive. Based on the results of a leading independent research firm,
we found that the advertising  recall rate during the pilot phase compared quite
favorably with other mediums, including television. Furthermore, the UK commuter
market  is  made  up   disproportionately  of  passengers  with  very  desirable
demographics  - upscale,  well-educated,  18 to 44 years old, who in general are
more difficult for  advertisers to reach because they watch less television than
the population,  as a whole.  We believe the TNX system  presents  advertisers a
new,   effective   means  to  reach  a  captive  group  with  highly   desirable
demographics.  We are currently  working  together with a leading UK independent
media sales  house to market the  opportunity  to both media  buyers and outdoor
media specialists.

      We have  entered  into a  content  supply  contract  with  ITN,  a leading
international  news  organization,  to provide  us  comprehensive  national  and
international  news service on an exclusive  basis to be shown on TNX's commuter
rail  television  service in the UK. The term of the contract is three years and
can be extended by mutual agreement. The content provided to us pursuant to this
agreement  will  represent  a  significant  portion of the  content we expect to
procure for the UK commuter  market.  We expect that the general  interest items
will be sourced from a range of  production  companies,  mostly based in the UK,
where there is a wide choice and competitive pricing.

      At the  present  time we are  purchasing  and plan to purchase in the near
term the on-train  equipment  with equity  raised from  investors.  Based on our
discussions with leading equipment  financing  companies,  we expect that by the
first half of 2005 to have demonstrated to their  satisfaction that our business
model is sustainable and will generate sufficient funds to pay for the equipment
on a financing basis out of cash flows from operations.

RESULTS OF OPERATIONS

      SIX MONTHS ENDED  DECEMBER 31, 2003 COMPARED TO SIX MONTHS ENDED  DECEMBER
31, 2002

      REVENUES

      During the six months ended  December  31, 2003 and December 31, 2002,  we
recorded no operating revenues.  We expect to begin generating revenues from our
advertising-based  sales model by the second quarter of 2004. We expect that our
revenues  will  initially  consist of sales of  commercial  time to  advertisers
interspersed during our general programming content shown to train passengers.

      OPERATING EXPENSES

      During the six months ended  December 31, 2003,  our direct and  operating
expenses were  $2,077,042,  as compared to  $1,205,578  for the six months ended
December 31,  2002,  an increase of 72%.  This  increase  was  primarily  due to
additional  expenditures  related  to our first  TOC  contract,  which  included
increased staff required and associated  overhead,  increased  market  research,
which included two on-train product trials, and added corporate costs associated
with becoming a public entity,  including increased  professional services fees,
such as legal and accounting fees.

      Our general and administrative  expenses for the six months ended December
31, 2003  totaled  $1,229,028,  as compared to $740,065 for the six months ended
December 31, 2002,  a 66%  increase.  Such  increase  was  primarily  due to the
expansion of general and administrative  expenses to meet the needs of our first
and future TOC contracts.  We do not believe that a proportionate  increase will
be required for future  contracts with TOCs.  However,  we do expect our general
and  administrative  expenses to increase in future  periods due to higher costs
for our directors and officers'  liability  insurance and  significantly  higher
legal and accounting costs relating to our being a public company.


                                       12
<PAGE>

      During the six months ended  December  31, 2003 and December 31, 2002,  we
did not have any research and development costs. We currently have no budget for
research and development.  We are, however, looking into new products to support
our existing product line. Funding sources,  however, would need to be developed
to support those activities.

      During the six months ended  December 31,  2003,  our sales and  marketing
costs were  $178,369,  as compared to $92,884 for the six months ended  December
31, 2002, an increase of 92%. This increase was primarily due to expanded market
research and product trials that we conducted with three TOCs.

      During the six months ended  December 31, 2003, we did not grant any stock
options.  During the six months ended  December 31, 2002, we granted  options to
purchase a total of 4,713,668  shares of our common  stock,  of which  3,139,257
options  were  granted to key  employees  and current and former  directors  and
1,574,411 options were granted to Ocean Castle Partners, an entity controlled by
Irwin Gross, our Chairman,  Chief Executive  Officer and President,  and certain
other unaffiliated consultants. The options granted to Ocean Castle Partners and
other  consultants were valued at $81,000,  the fair market value of the options
based on the Black-Scholes option pricing model.

      During the six months  ended  December 31,  2003,  we granted  warrants to
purchase an  aggregate of 732,881  shares of our common  stock to the  following
parties:  Ocean Castle  Partners,  David  Shevrin,  one of our officers,  and an
unaffiliated consultant.  These warrants were valued at $37,000, the fair market
value of the warrants based on the  Black-Scholes  option pricing model. We also
issued  100,000  shares  of stock to an  unaffiliated  consultant  for  services
related to the merger.  These  shares  were  valued at  $25,000.  During the six
months ended December 31, 2002, we did not grant any warrants.

      INTEREST EXPENSE AND INTEREST INCOME, NET

      During the six months ended  December 31, 2003,  our interest  expense and
interest income, net, were $37,525 and $705,  respectively,  as compared to $345
and $1,481 for the six months ended  December 31,  2002.  Our interest  expenses
were related to interest paid on our investor and corporate office loans and our
interest income, net, was comprised of accrued interest on our bank deposits.

      YEAR ENDED JUNE 30, 2003 COMPARED TO YEAR ENDED JUNE 30, 2002

      REVENUES

      During the year ended June 30, 2003, we recorded $0 in operating revenues,
as compared to $44,474 during the year ended June 30, 2002, a 100% decrease. Our
revenues  during the period  ending June 30, 2002 were derived  from  recharging
certain costs to a supplier.

      OPERATING EXPENSES

      During  the year ended  June 30,  2003,  our  operating  expenses  totaled
$2,571,346,  as  compared to  $1,450,834  for the year ended June 30,  2002,  an
increase  of 77%.  This  increase  was  primarily  due to the  expansion  of our
operations  through  the  procurement  of our first  contract  and the hiring of
additional engineering and project management personnel.

      Our general and  administrative  expenses for the year ended June 30, 2003
totaled $1,634,520, as compared to $769,926 for the year ended June 30, 2002, an
increase of 112%. Our general and  administrative  expenses during these periods
mostly  consisted of  expenditures on office rent, and  professional  fees. This
increase over the comparable  period was primarily due to the use of consultants
and marketing research related to our initial TOC contract.

      During the years  ended June 30, 2003 and June 30,  2002,  we did not have
any research and development costs. We currently have no budget for research and
development.  We are, however, looking into new products to support our existing
product line.  Funding sources,  however,  would need to be developed to support
those activities.


                                       13
<PAGE>

      During the year ended June 30, 2003, our sales and marketing expenses were
$75,692,  as compared to $93,683 during the year ended June 30, 2002, a decrease
of 19%. This  decrease was primarily due to the untimely  death of our Sales and
Marketing Director and the time it took to fill his position.

      During the year  ended June 30,  2003,  we granted  options to  purchase a
total of 4,713,668  shares of our common stock, of which 3,139,257  options were
granted to key employees and current and former directors and 1,574,411  options
were  granted  to  Ocean  Castle   Partners  and  certain   other   unaffiliated
consultants.  The options granted to Ocean Castle Partners and other consultants
were  valued at  $81,000,  the fair  market  value of the  options  based on the
Black-Scholes  option pricing model. During the year ended June 30, 2002, we did
not grant any stock options.

      During the year ended June 30,  2003,  we  granted  warrants  to  purchase
398,103  shares of our common stock to Ocean Castle.  These warrants were valued
at $20,000,  the fair market  value of the  options  based on the  Black-Scholes
option pricing model.  During the year ended June 30, 2002, we granted  warrants
to purchase a total of 64,726 shares of our common stock to employees.

      INTEREST EXPENSE AND INTEREST INCOME, NET

      During the year ended June 30,  2003,  our  interest  expense and interest
income,  net,  were $3,711 and $2,513,  respectively,  as compared to $1,244 and
$4,313 for the year ended June 30, 2002.  Our interest  expenses were related to
interest  paid  on our  commercial  loans  and our  interest  income,  net,  was
comprised of accrued interest on our bank deposits.

LIQUIDITY AND CAPITAL RESOURCES

      Since our inception, we have incurred significant operating and net losses
due in large part to the start-up and development of our operations. At December
31,  2003,  we had a working  capital  deficiency  (current  assets less current
liabilities)  of  $1,543,460,  as compared to a working  capital  deficiency  of
$110,882 as of December 31, 2002.  At June 30,  2003,  we had a working  capital
deficiency  of $846,607,  as compared to working  capital of $211,163 as of June
30, 2002. We anticipate  that we will continue to incur operating and net losses
for the foreseeable future.

      At  December  31,  2003,  we had cash,  cash  equivalents  and  short-term
deposits of $90,947,  as compared to $57,544 at December 31,  2002.  At June 30,
2003, we had cash,  cash  equivalents  and short-term  deposits of $127,865,  as
compared to $421,165 at June 30, 2002. As of June 30, 2002, we had just recently
secured a significant  equity infusion of $1,100,000 from an unaffiliated  third
party investor.

      Capital  expenditures  for the six months  ended  December  31,  2003 were
$369,140, as compared to capital expenditures of $4,241 for the six months ended
December  31, 2002.  This capital  investment  represents  expenditures  made on
product  development  and equipment  required for the first TOC  contract.  This
increase was primarily  due to our  investment  in computer  equipment.  We have
outstanding  capital  commitments  of $1,900,000 for the purchase of product and
equipment required for our first TOC contract. Capital expenditures for the year
ended June 30, 2003 were $4,388, as compared to capital  expenditures of $39,731
for the year ended June 30, 2002. This decrease was primarily due to a change in
our policy with respect to small items of office  equipment,  which was due to a
change in tax laws in the UK.

      We generated  negative cash flow from  operating  activities of $1,284,953
during the six months ended  December 31, 2003,  as compared to $961,664  during
the six months ended December 31, 2002.  This increase in negative cash flow was
primarily  due to our  expansion of the  organization  and  associated  overhead
related to performing our initial TOC contract, increased market research, which
included two on-train product trials,  and added corporate costs associated with
becoming a public entity,  including increased  professional services fees, such
as legal and  accounting  fees. We generated  negative cash flow from  operating
activities of $1,911,853 during the year ended June 30, 2003 and $992,436 during
the year ended June 30, 2002.  This increase in negative cash flow was primarily
due  to  increased  general  and  administrative  expenditures  associated  with
expanding the organization to deliver on our first TOC contract.


                                       14
<PAGE>

      To  date,  we have  financed  our  operations  with  cash  from  financing
activities totaling approximately  $5,407,570. As of December 31, 2003 we had no
bank line of credit and had $485,000 in commercial  loans. The principal,  which
amounted to $435,000 plus applicable  interest fees and transaction  charges was
repaid in January 2004.

      We are currently negotiating a private placement of $10 million of a newly
issued  Series A  convertible  preferred  stock and warrants to purchase  common
stock, which we expect to close by the end of April 2004. Until we close on such
equity  financing,  we are funding  operations  through  bi-weekly  bridge loans
obtained  by  management.   We  expect  to  begin  to  generate  cash  from  our
advertising-based  sales  model in the third  quarter  of fiscal  2004 and these
revenues  will grow as our  installation  base  increases  and a greater  market
acceptance of our medium as a viable outlet for advertisers  exists.  We believe
the combination of the equity  financing and cash generated from operations will
provide  sufficient  cash  resources  to finance our  operations  and  projected
expansion of our marketing and research and development  activities for the next
twelve months. If, however,  we are in a position to accelerate the installation
of equipment in  connection  with new  contracts  with other TOCs that we do not
currently  anticipate and/ or the revenues generated from our  advertising-based
sales model are less than our  current  forecast,  it is possible  that we would
require more funds sooner than presently  anticipated.  In such event,  we would
need to obtain additional funds and cannot assure you that we will be able to do
so on favorable terms, if at all.

      The Company's  financial  statements have been prepared  assuming that the
Company  will  continue as a going  concern.  As  discussed  in the notes to the
financial  statements,  the  Company,  which is in the  development  stage,  has
suffered  recurring  losses from  operations  and has a net capital  deficiency.
These factors raise  substantial doubt about whether the Company has the ability
to continue as a going concern.

TABLE OF CONTRACTUAL OBLIGATIONS

      The following  table sets forth our future  contractual  obligations as of
December 31, 2003. Such obligations include the purchase of equipment to satisfy
our initial TOC contract and automotive lease payments.

                                PAYMENTS DUE BY PERIOD
                      -----------------------------------------
     CONTRACTUAL                  LESS THAN 1   1-3      3-5       MORE THAN 5
     OBLIGATIONS      TOTAL       YEAR          YEARS    YEARS     YEARS
     -------------    --------    -----------   -------- -------   -------
     Notes Payable    $485,000    $485,000           $0       $0       $0
     Operating Lease   $91,253     $41,954      $43,044   $6,255       $0
     Obligations
     Purchase       $1,900,000  $1,900,000           $0       $0       $0
     Obligations
          TOTAL     $2,476,253  $2,426,954      $43,044   $6,255       $0

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any material off balance sheet arrangements.

RECENT ACCOUNTING PRONOUNCEMENTS

      There are no  accounting  standards  issued  before  December 31, 2003 but
effective after December 31, 2003 that are expected to have a material impact on
our financial reporting.

CRITICAL ACCOUNTING POLICIES

      Our  Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations section discusses our consolidated  financial  statements,
which have been  prepared in accordance  with  accounting  principles  generally
accepted in the United States of America.  The  preparation  of these  financial
statements requires management to make estimates and assumptions that affect the
reported  amounts  of  assets  and  liabilities  at the  date  of the  financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. On an on-going basis,


                                       15
<PAGE>

management  evaluates its estimates and  judgments,  including  those related to
accrued  expenses,  financing  operations,  and contingencies and litigation and
bases its estimates and judgments on historical  experience and on various other
factors that are believed to be reasonable under the circumstances,  the results
of which form the basis for making  judgments about the carrying value of assets
and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.

      The most significant  accounting  estimates inherent in the preparation of
our financial  statements include estimates as to the appropriate carrying value
of income tax assets and liabilities.

IMPAIRMENT OF LONG-LIVED ASSETS

      Long-lived  assets are reviewed  for  impairment  whenever  events such as
product discontinuances,  product dispositions or other changes in circumstances
indicate that the carrying amount may not be recoverable.  An impairment loss is
recognized  when the carrying  amount of a long-lived  asset  exceeds the sum of
nondiscounted  cash flows  expected to result from the asset's use and  eventual
disposition.  An impairment loss is measured as the amount by which the carrying
amount exceeds its fair value,  which is typically  calculated  using discounted
expected  future cash flows.  The  discount  rate applied to these cash flows is
based on the Company's  weighted  average cost of capital,  which represents the
blended after-tax costs of debt and equity.

ACCOUNTING FOR INCOME TAXES

      We account for income taxes in  accordance  with FASB  Statement  No. 109,
"Accounting  for Income  Taxes," or SFAS 109,  which  requires that deferred tax
assets and  liabilities be recognized  using enacted tax rates for the effect of
temporary  differences  between  the book and tax basis of  recorded  assets and
liabilities.  SFAS 109 also  requires  that  deferred tax assets be reduced by a
valuation  allowance  if it is more likely than not that some  portion of all of
the deferred tax asset will not be realized.

      The ability to recognize the deferred tax assets is evaluated quarterly by
assessing the valuation  allowance and by adjusting the amount of the allowance,
if necessary.  The factors used to assess the likelihood of realization  are the
forecast of future  taxable  income and available tax planning  strategies  that
could be  implemented  to realize  the net  deferred  tax  assets.  We have used
tax-planning  strategies to realize or renew net deferred tax assets in order to
avoid the potential loss of future tax benefits.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      EXCHANGE RATE SENSITIVITY

      We incur  expenses  for our  operations  in the United  Kingdom in British
pounds  sterling and  translate  these  amounts into United  States  dollars for
purposes  of  reporting  consolidated  results.  We have not  engaged in foreign
currency hedging transactions for the fiscal year ended December 31, 2003. There
can be no assurance  that a sudden and  significant  decline in the value of the
British pound sterling would not have a material adverse effect on our financial
condition and results of operations.

      INTEREST RATE SENSITIVITY

      We have not invested in marketable  securities.  We had outstanding  notes
payable of  $485,000 as  December  31,  2003,  of which  $435,000  was repaid in
January 2004.

RISK FACTORS

In addition to the other information  included in this annual report, you should
consider the following risk factors. This annual report contains forward-looking
statements  covered by the safe  harbor  provisions  of the  Private  Securities
Litigation Reform Act of 1995. These  forward-looking  statements  involve risks
and  uncertainties  that may affect our business and prospects.  Our results may
differ   significantly  from  the  results  discussed  in  the   forward-looking
statements  as a result of certain  factors  that are listed  below or discussed
elsewhere in this annual  report and our other filings with the  Securities  and
Exchange Commission.




                                       16
<PAGE>

WE HAVE A LIMITED OPERATING HISTORY WHICH MAKES IT DIFFICULT FOR YOU TO EVALUATE
US.

      TNCI UK Ltd., our operating  subsidiary,  was formally  established in the
United Kingdom in September 1999. As a result,  we have only a limited operating
history on which you can evaluate us and our  potential.  Our revenue and income
potential  are unproven.  An investor  must  consider the risks,  uncertainties,
expenses and  difficulties  frequently  encountered  by companies in their early
stages of  development,  particularly  companies with limited capital in new and
rapidly evolving markets. These risks and difficulties include our ability to:

      o     execute business and marketing strategies;

      o     secure  necessary  advertising  revenues  to achieve  business  plan
            targets;

      o     develop or upgrade our products, technology or business processes to
            meet market demand;

      o     develop  our   infrastructure   and  attract  and  retain  qualified
            personnel; o attract and maintain TOCs and other customers;

      o     provide  customer  support,  personnel and facilities to support our
            business;

      o     establish and maintain strategic relationships;

      o     respond  effectively to competitive and technological  developments;
            and

      o     anticipate and respond to delays in the  development of products and
            systems,   unanticipated  costs,  uncertain  market  conditions  and
            adverse changes in technology.

      We cannot predict with any certainty the degree of success we will have in
achieving our business objectives.

WE HAVE A  HISTORY  OF  OPERATING  LOSSES  AND WE MAY NOT BE  PROFITABLE  IN THE
FUTURE.

      We have  incurred  substantial  losses and  negative  cash flows since our
inception. We had an accumulated deficit of approximately $7,689,408 at December
31, 2003 and incurred net losses of approximately  $2,572,544 for the year ended
June 30, 2003 and  $2,113,862  for the six months ended  December  31, 2003.  We
expect to have net operating  losses and negative cash flows for the foreseeable
future,  and expect to spend significant  amounts of capital to purchase capital
equipment,  install and  operate  our TNX  systems,  enhance  our  products  and
services,  develop further sales and operations, and fund expansion. Our success
will  ultimately  depend on our ability to generate  revenues from  advertising,
sufficient to finance our business  development  and marketing  activities  with
revenues from operations instead of outside financing.  We will need to generate
significant advertising revenue to break even or achieve profitability.  Even if
we do  achieve  profitability,  we may  not  be  able  to  sustain  or  increase
profitability on a quarterly or annual basis.

      The Company's  financial  statements have been prepared  assuming that the
Company  will  continue as a going  concern.  As  discussed  in the notes to the
financial  statements,  the  Company,  which is in the  development  stage,  has
suffered  recurring  losses from  operations  and has a net capital  deficiency.
These factors raise  substantial doubt about whether the Company has the ability
to continue as a going concern.

BECAUSE THERE CAN BE NO GUARANTEE  THAT FUTURE  FINANCINGS  WILL BE AVAILABLE TO
US, WE CANNOT  ENSURE  THAT WE WILL BE ABLE TO OBTAIN THE CAPITAL  NECESSARY  TO
IMPLEMENT OUR PLAN OF OPERATION.

      We do not currently generate cash to fund our operations.  Therefore,  for
the foreseeable  future,  we will have to fund all of our operations and capital
expenditures from net proceeds of recent private placements and future public or
private  financings.  Accordingly,  we contemplate seeking to raise funds in the
future  through,  or from  other  sources.  There can be no  assurance  that the
necessary  additional  financing  will  be  available  to  us  or  available  on
acceptable  terms. If additional  funding is not available to us when needed, we
may be required to curtail our installation plans and our business and financial
condition could be materially  adversely  affected.  We cannot guarantee that we
will be  able to  obtain  any  additional  financing  or  that  such  additional
financing,  if available,  will be on terms and conditions  acceptable to us. If
additional  funds are raised  through  the  issuance of equity  securities,  the
percentage  of ownership of our  then-current  stockholders  will be reduced and
such equity  securities  may have rights,  preferences  or privileges  senior to
those of the existing holders of our common stock. Further, we may have to raise
substantial  additional  capital  thereafter if changes in our commuter  railway
installation plans cause unexpected large future capital expenditures.


                                       17
<PAGE>

WE NEED ADDITIONAL CAPITAL IN THE IMMEDIATE FUTURE.

      Since our inception, we have incurred significant losses and negative cash
flow from operations.  As of December 31, 2003, we had an accumulated deficit of
approximately  $7.7  million.  At  December  31,  2003 our  principal  source of
liquidity  was  approximately  $91,000  in cash  and cash  equivalents.  We need
additional capital in the immediate future in order to continue operations.

      We are  currently  negotiating  the private sale of $10 million of a newly
issued  Series A  convertible  preferred  stock and warrants to purchase  common
stock.  Management has arranged for bridge  financing loans to carry the company
until the closing of the anticipated  private  placement.  Such bridge financing
will be obtained on a bi-weekly  basis until the funding is concluded,  which is
expected to occur by the end of April 2004.

      There  can  be no  assurance  that  the  contemplated  financing  will  be
completed on the terms  currently being  negotiated or at all. The  contemplated
financing is subject to a number of conditions,  including,  but not limited to,
the execution of definitive financing documentation.

      These conditions raise  substantial doubt about our ability to continue as
a going concern and if we are unable to obtain additional  capital as needed, we
may be required  to cease  operations  altogether.  The  consolidated  financial
statements do not include any  adjustments  that might result from our inability
to continue as a going concern.

WE DO NOT HAVE A  DIVERSE  PORTFOLIO  OF  PRODUCTS  AND IF OUR  LIMITED  PRODUCT
OFFERINGS  ARE  NOT  ACCEPTED  BY THE  MARKET,  OUR  BUSINESS  MAY BE  ADVERSELY
AFFECTED.

      Our success will be determined by the market acceptance of our TNX system.
Demand for our TNX system  could be  affected by  numerous  factors  outside our
control,   including,   among  others,  market  acceptance  by  TOCs  and  other
prospective   customers,   the   introduction  of  new  or  superior   competing
technologies or products that are available on more favorable pricing terms than
those being offered by us, and the general condition of the economy.  Any market
acceptance  for our  products  may not develop in a timely  manner or may not be
sustainable.  New or increased competition may result in market saturation, more
competitive  pricing,  and lower margins.  Our business,  operating  results and
financial condition would be materially and adversely affected if the market for
our products and services fails to grow, grows more slowly than anticipated,  or
becomes more competitive or if targeted customers do not accept our products and
we experience a corresponding reduction in revenues, a higher loss and a failure
to generate substantial revenues in the future.

OUR SUCCESS IS DEPENDENT UPON ADVERTISING  REVENUES,  THE ABSENCE OF WHICH WOULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

      We expect to  derive  most of our  revenues  from  advertisers  purchasing
commercial  time during our  content  programming  displayed  on the TNX system.
Although we are currently working with a UK-based  independent media sales house
and believe that the "captive audience" and their attractive demographic profile
should be attractive to  advertisers,  we cannot  assure that  advertisers  will
purchase  advertising  from us. Because  certain  advertisers may discontinue or
reduce  advertising on our programming  from time to time, we anticipate that we
could experience  fluctuations in operating results and revenues. The failure to
attract and enter into new and/or additional  agreements with advertisers and to
derive significant revenues from these advertisers would have a material adverse
effect on our business and financial results.

IN ORDER TO GROW OUR  BUSINESS,  WE MUST  SECURE NEW  INSTALLATIONS  ON COMMUTER
TRAINS AND MAINTAIN EXISTING INSTALLATIONS.

      Our  growth is  dependent  upon our  ability  to  increase  the  number of
installation  sites of the TNX system on commuter railway trains. If we increase
our installation sites, we will have increased  viewership and should be able to
increase our advertising revenue. In addition, we believe that if we are able to
increase our installation  sites on commuter railway trains, it will become more
difficult  for a  competitor  to enter the  market.  The  failure to increase or
maintain installation sites would have a material adverse effect on our business
and financial results.

WE RELY ENTIRELY ON OUTSIDE MANUFACTURERS FOR OUR KEY COMPONENTS.



                                       18
<PAGE>

      All of the LCD screens and other key components utilized in the TNX system
are  manufactured  by outside  companies.  Our  ability to enter new markets and
sustain  satisfactory  levels of sales in each market will depend in significant
part upon the ability of these  companies  to  manufacture  the  components  for
introduction  into  our  markets.  There  can be no  assurance  that  we will be
successful in entering into agreements with all of the manufacturers to maintain
a constant  supply of our key components.  In addition,  once we enter into such
manufacturing contracts, we face the possibility that such contracts will not be
extended  or  replaced.  We  anticipate  that we can  obtain in a timely  manner
alternative  sources of supply for  substantially all of our components and that
the failure to extend or replace  existing  contracts  would not have a material
adverse effect on us, although there can be no assurance in this regard.

IF WE CANNOT ACQUIRE  PROGRAMMING ON FAVORABLE  TERMS TO US, OUR BUSINESS MAY BE
ADVERSELY AFFECTED.

      We have  entered  into a  content  supply  contract  with  ITN,  a leading
international  news  organization,  to provide  us  comprehensive  national  and
international  news service on an exclusive  basis to be shown on TNX's commuter
rail  television  service in the UK. The term of the contract is three years and
can be extended by mutual agreement. The content provided to us pursuant to this
agreement  will  represent  a  significant  portion of the  content we expect to
procure  for the UK  commuter  market.  We believe  that our ability to maintain
access to news,  weather and sports content and other  programming on a regular,
long-term  basis,  on terms  favorable to us, is important to our future success
and  profitability.  Our  programming  will consist  primarily  of music,  news,
information and entertainment. We are currently in negotiation with providers of
local news and  weather  reporting  in the UK, as well as general  entertainment
content.  Our inability to acquire this  programming on terms favorable to us or
the termination of substantially all or a large number of programming agreements
would have a material adverse effect on our business and financial results.

WE WILL HAVE TO KEEP PACE WITH NEW  PRODUCTS AND RAPID  TECHNOLOGICAL  CHANGE IN
ORDER TO REMAIN COMPETITIVE IN THE MARKETPLACE.

      To  remain   competitive,   we  may  need  to  enhance   and  improve  our
responsiveness,  functionality and the features of the TNX system. The software,
hardware,   media  and   communications   markets  are  characterized  by  rapid
technological change, changes in user requirements and preferences, frequent new
product and service introductions  embodying new technologies,  and the frequent
and rapid  emergence of new industry  standards and practices any of which could
render our products, technology or business model obsolete. Our success depends,
in large part, on our ability to develop new technologies, products and services
to enhance our existing  products and to attend to the needs of an  increasingly
sophisticated  marketplace.  We may also need to  respond to  emerging  industry
standards and technological  advances.  Any failure to successfully  develop and
market products and services and product and service  enhancements  could have a
material  adverse  effect  on our  business,  operating  results  and  financial
condition.

OUR BUSINESS  DEPENDS UPON THE  PERFORMANCE OF OUR CUSTOMERS AND MEDIA PARTNERS,
WHICH IS UNCERTAIN.

      Economic, governmental and industry factors outside our control affect us.
Material risks relating to our customer companies include the following:

      o     passenger traffic declines;

      o     downturns in advertising spending; and

      o     lack of acceptance of our concept by the TOCs.

      If any of the  foregoing  items  were to  occur,  we would  generate  less
revenue from advertising than we anticipated.

WE MAY NOT BE ABLE TO MANAGE OUR GROWTH TO  SUCCESSFULLY  IMPLEMENT OUR BUSINESS
PLAN AND SUCH MISMANAGEMENT  COULD ADVERSELY AFFECT OUR BUSINESS AND OUR ABILITY
TO GROW.

      We anticipate a period of significant  growth in connection with expansion
of our marketing  efforts and business.  The resulting strain on our managerial,
operational,  financial,  and other  resources  could be  significant  and


                                       19
<PAGE>

could render our increased marketing efforts useless.  Our ability to manage our
growth  effectively  will  require us to  continue  to improve  our  operations,
financial and managerial controls,  reporting systems and procedures.  If we are
successful  in achieving  our growth  plans,  such growth is likely to result in
increased responsibility for our management.  Our anticipated future growth will
place  a  significant  demand  on  our  managerial,  operational  and  financial
resources due to:

      o     The need to manage relationships with various strategic partners and
            other third parties;

      o     Difficulties in hiring and retaining skilled personnel  necessary to
            support our business;

      o     The need to train and manage a growing employee base; and

      o     Pressures  for  the  continued  development  of  our  financial  and
            information management systems.

      If we have not made adequate allowances for the costs and risks associated
with this  expansion or if our systems,  procedures or controls are not adequate
to support our operations, our business could be harmed.

WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY WITH OTHER COMPANIES.

      We face  potential  future  competition  as the  market  develops  for our
products. We compete for advertisers with many other forms of advertising media,
including television,  Internet, radio, print, direct mail and billboard.  There
are no meaningful  intellectual  property  barriers to prevent  competitors from
entering into this market,  and we cannot assure that a competitor  with greater
resources  than us will not enter into the market.  These  competitors  may have
vastly larger technical staffs,  more established and larger marketing and sales
organizations,  and significantly greater financial resources. The rapid pace of
technological  change constantly  creates new opportunities for existing and new
competitors and can quickly render existing  technologies less valuable.  In the
event that the market for our  products  develops,  additional  competitors  may
enter the  market and  competition  may  intensify.  Inability  to compete  with
respect to the  following  factors could have a material  adverse  affect on our
business: product performance, product features, reliability,  hardware, product
reputation, pricing, levels of advertising, availability and quality of customer
support, and timeliness of product upgrades.

OUR   TECHNOLOGY-ORIENTED   SUPPLIERS'   PRODUCTS  COULD  EXPERIENCE   TECHNICAL
DIFFICULTIES, WHICH COULD ADVERSELY AFFECT OUR BUSINESS.

      The products of certain of our  technology-oriented  suppliers  are highly
specialized and involve  intricate  technologies and electronic  components that
may be subject to technical  difficulties.  These technical  difficulties  could
occur at any time as a result of  component  malfunction  or some other  reason.
Although our  technology-oriented  suppliers  generally  utilize quality control
procedures and test products before  marketing them,  there is no assurance that
all defects will be identified. We believe that reliability will be an important
consideration  for  customers  of our  suppliers.  Failure to detect and prevent
defects and design  flaws in the  products of these  suppliers  could  adversely
affect our business, financial condition and operating results.

WE ARE  ENTERING A NEW INDUSTRY AND ARE  UNCERTAIN OF MARKET  ACCEPTANCE  OF OUR
BUSINESS MODEL.

      We, as  opposed  to the  TOCs,  are  bearing  most of the  financial  risk
associated with the economics of our system. We are offering the TNX system free
to our customers.  Additionally, we expect to pay an annual fee to our customers
tied to the number of passengers  that view the system.  In order to pay for the
system  and to  earn  profits,  we  will  be  seeking  advertisers  to  purchase
commercial time at certain rates. These rates are based on information collected
by market  professionals  for  mainstream  and  alternative  or "ambient"  media
channels and are used for making  forecasts for pricing our  advertising  on our
system.  There  is no  guarantee,  however,  that we will be able to sell  these
advertising  slots or sell them at the  rates we  anticipate.  Failure  to do so
could have a material adverse effect on our business and result in losses.


                                       20
<PAGE>

INTELLECTUAL  PROPERTY  ISSUES,  GOVERNMENT  REGULATION AND LEGAL  UNCERTAINTIES
COULD AFFECT OUR SUPPLIERS WHICH MAY HAVE AN ADVERSE AFFECT ON US.

      Intellectual   Property.   Our  suppliers   utilize  certain   proprietary
technologies  and other  intellectual  property that are valuable to them.  They
protect this intellectual property in a variety of ways, such as through patent,
trademark and copyright law. In addition,  our suppliers rely on confidentiality
agreements  with key employees to prevent  disclosure of important  intellectual
property to third parties.  There is no assurance that any of these  protections
will  prove  sufficient  to prevent  third  parties  from  using our  suppliers'
intellectual  property  either  through  legal or  illegal  means.  Use by third
parties of intellectual  property of one of our suppliers could adversely affect
that  supplier's  business.  In  addition,  we can  give no  assurance  that any
particular  aspect of any of our  suppliers'  intellectual  property will not be
claimed  to  infringe  the  intellectual  property  rights  of  a  third  party.
Intellectual  property  infringement  litigation  for  or  against  any  of  our
suppliers would likely have an adverse effect on that supplier's business.

      Government Regulation and Legal Uncertainties.  Our suppliers are subject,
both  directly  and  indirectly,  to various laws and  governmental  regulations
relating to their  businesses.  Our suppliers that operate abroad are subject to
the laws and regulations of foreign countries with which we are not familiar. We
believe that our suppliers maintain  compliance with these laws and regulations,
and  that,  while  there  is  expense  incurred  in  doing  so,  these  laws and
regulations  do not have a material  impact on the  operations of our suppliers;
however, as a result of rapid technology growth and other related factors,  laws
and  regulations  may be  adopted  which  significantly  impact  our  suppliers'
businesses, and, in turn, our business.

WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS.

      We will rely on  copyright,  trade  secret and  trademark  law, as well as
provisions in our license,  supply and other  agreements in order to protect our
intellectual  property  rights.  Although we intend to protect our  intellectual
property rights  vigorously,  there can be no assurance that these measures will
be  successful.  Additionally,  no assurance can be given that our  intellectual
property rights will not be challenged, invalidated or circumvented or that such
rights will provide  competitive  advantages to us. The loss of protection  with
respect to our technology or other  intellectual  property could have a material
adverse effect on our ability to compete successfully in our business.

IF WE RELY ON A BASE OF ONLY A FEW OF THE  MAJOR TOC  CUSTOMERS  TO SERVE AS OUR
VEHICLE FOR THE GENERATION OF A SIGNIFICANT PORTION OF OUR ADVERTISING REVENUES,
THE LOSS OF ANY SUCH CUSTOMERS COULD ADVERSELY AFFECT OUR BUSINESS.

      We anticipate being  substantially  dependent on a relatively small number
of TOC customers  during the next few years.  Accordingly,  the loss of any such
customer, or any other customer,  that accounts for a significant portion of our
revenues  from time to time,  could  adversely  affect our  business,  operating
results and financial  condition due to the substantial  decrease in advertising
revenue such loss would represent.

OUR TOC CUSTOMERS MAY NOT HAVE THEIR FRANCHISES RENEWED OR EXTENDED, WHICH COULD
ADVERSELY AFFECT OUR BUSINESS.

      Our business  prospects could be adversely  affected if one or several key
UK TOCs with which we are currently negotiating have their franchises rescinded,
not extended or not renewed.  This action could cause delay in implementation of
our  business  plan  or  even  put  at  risk  our   investment  in  the  capital
infrastructure of a contract with the particular TOC.

FLUCTUATIONS  IN THE  EXCHANGE  RATE  BETWEEN THE UNITED  STATES  DOLLAR AND THE
BRITISH POUNDS STERLING MAY AFFECT OUR OPERATING RESULTS.

      We incur  expenses  for our  operations  in the United  Kingdom in British
pounds sterling ((pound)) and translate these amounts into United States dollars
for purposes of reporting  consolidated  results.  As a result,  fluctuations in
foreign currency exchange rates may adversely affect our expenses and results of
operations, as well as the value of our assets and liabilities. Fluctuations may
adversely affect the comparability of period-to-period  results. In addition, we
hold foreign currency  balances,  primarily  pounds  sterling,  that will create
foreign  exchange  gains or


                                       21
<PAGE>

losses,  depending  upon the  relative  values of the  foreign  currency  at the
beginning and end of the reporting period, affecting our net income and earnings
per share.  Although  we may use  hedging  techniques  in the  future  (which we
currently do not use),  we may not be able to eliminate  the effects of currency
fluctuations.  Thus,  exchange rate  fluctuations  could have a material adverse
impact on our operating  results and stock price.  In addition,  future currency
exchange  losses  may  increase  if  we  become  subject  to  exchange   control
regulations  restricting  our ability to convert  local  currencies  into United
States dollars or other currencies.

RISKS RELATED TO OUR COMMON STOCK

THERE HAS  PREVIOUSLY  BEEN A LIMITED ACTIVE PUBLIC MARKET FOR OUR COMMON STOCK,
AND OUR  STOCKHOLDERS  MAY NOT BE ABLE TO  RESELL  THEIR  SHARES AT OR ABOVE THE
PRICE AT WHICH THEY PURCHASED THEIR SHARES, OR AT ALL.

      There has been  active  public  market for our common  stock for a limited
time. An active  public  market for our common stock may not be  sustained.  The
market  price of our common  stock may  fluctuate  significantly  in response to
factors, some of which are beyond our control.

      These factors include:

      o     competitors  entering  the  market  of  distribution  of  television
            programming on commuter railway trains;

      o     the  announcement  of new products or product  enhancements by us or
            our competitors;

      o     changes in  earnings  estimates  or  recommendations  by  securities
            analysts;

      o     developments in our industry; and

      o     general  market  conditions  and other  factors,  including  factors
            unrelated to our own operating performance.

      The stock market in general has  recently  experienced  extreme  price and
volume  fluctuations.  Continued  market  fluctuations  could  result in extreme
volatility in the price of our common stock,  which could cause a decline in the
value of our common stock.  Price  volatility may be worse if the trading volume
of our common stock is low.

      Additional  risks may  exist  since we became  public  through a  "reverse
acquisition."  Securities  analysts  of major  brokerage  firms may not  provide
coverage of us since there is no incentive to brokerage  firms to recommend  the
purchase of our common  stock.  No assurance can be given that  brokerage  firms
will want to conduct any secondary offerings on behalf of us in the future.

THERE ARE SIGNIFICANT  COSTS  ASSOCIATED WITH BEING A PUBLIC COMPANY,  AND THOSE
COSTS MAY BE MATERIAL TO OUR ABILITY TO BE PROFITABLE.

      As a result  of the  reverse  acquisition,  we  became  a  publicly-traded
company  and,  accordingly,   are  subject  to  the  information  and  reporting
requirements of the United States  securities  laws. The public company costs of
preparing and filing annual and quarterly  reports,  proxy  statements and other
information  with the  Securities and Exchange  Commission  (SEC) and furnishing
audited reports to  stockholders  will cause our expenses to be higher than they
would be if we  remained  privately-held  and did not  enter  into  the  reverse
acquisition.  In addition, we will incur substantial expenses in connection with
the preparation of the registration statement and related documents with respect
to the  registration  of the shares  issued in the reverse  acquisition  and the
recent private placements.

OUR COMMON STOCK MAY BE CONSIDERED A "PENNY STOCK" AND MAY BE DIFFICULT TO SELL.

      The SEC has adopted regulations which generally define "penny stock" to be
an equity  security  that has a market  price of less than $5.00 per share or an
exercise price of less than $5.00 per share, subject to specific exemptions. The
market  price of our  common  stock  has been  less  than  $5.00  per  share and
therefore  may be


                                       22
<PAGE>

designated as a "penny stock" according to SEC rules. This designation  requires
any broker or dealer selling these  securities to disclose  certain  information
concerning the  transaction,  obtain a written  agreement from the purchaser and
determine that the purchaser is reasonably  suitable to purchase the securities.
These  rules may  restrict  the ability of brokers or dealers to sell our common
stock and may affect the ability of investors to sell their shares. In addition,
since our common  stock is  currently  traded on the  Over-the-Counter  Bulletin
Board,  stockholders may find it difficult to obtain accurate  quotations of our
common  stock and may  experience  a lack of buyers to purchase  such stock or a
lack of market makers to support the stock price.

A SIGNIFICANT  NUMBER OF OUR SHARES ARE ELIGIBLE FOR SALE,  AND THEIR SALE COULD
DEPRESS THE MARKET PRICE OF OUR STOCK.

      Sales of a significant  number of shares of our common stock in the public
market could harm the market price of our common stock. As additional  shares of
our common stock become  available for resale in the public  market  pursuant to
the registration of those shares or Rule 144, the number of shares of our common
stock which are freely  tradable will increase,  which could decrease its price.
Some or all of the shares of our common  stock may be offered  from time to time
in the open market  pursuant to Rule 144,  and these sales may have a depressive
effect on the market for our common stock.  The shares of common stock issued in
the reverse  acquisition  and the recent  private  placement  are not subject to
so-called  "lock-up"  agreements,  which would  restrict open market  sales.  In
general,  a person who has held restricted  shares for a period of one year may,
upon the filing with the SEC of a notification on Form 144, sell into the market
common stock in an amount equal to the greater of 1% of the  outstanding  shares
or the average weekly number of shares sold in the last four weeks prior to such
sale.  Such  sales  may be  repeated  once  each  three  months,  and any of the
restricted  shares may be sold by a non-affiliate  after they have been held two
years.

OUR PRINCIPAL  STOCKHOLDERS  HAVE SIGNIFICANT  VOTING POWER AND MAY TAKE ACTIONS
THAT MAY NOT BE IN THE BEST INTEREST OF OTHER STOCKHOLDERS.

      Our officers,  directors and principal  stockholders control approximately
33% of our outstanding  shares. If these stockholders act together,  they may be
able to exert  significant  control over our  management  and affairs  requiring
stockholder approval,  including approval of significant corporate transactions.
This  concentration of ownership may have the effect of delaying or preventing a
change in control  and might  adversely  affect  the market  price of our common
stock.  This  concentration of ownership may not be in the best interests of all
our stockholders.

WE DO NOT ANTICIPATE PAYING DIVIDENDS IN THE FORESEEABLE FUTURE, AND THE LACK OF
DIVIDENDS MAY HAVE A NEGATIVE EFFECT ON THE STOCK PRICE.

      We currently  intend to retain our future  earnings to support  operations
and to  finance  expansion  and  therefore  do not  anticipate  paying  any cash
dividends on our common stock in the foreseeable future.

WE ARE  SUBJECT  TO  CRITICAL  ACCOUNTING  POLICIES,  AND WE  MAY  INTERPRET  OR
IMPLEMENT REQUIRED POLICIES INCORRECTLY.

      We follow generally accepted  accounting  principles for the United States
in preparing our financial  statements.  As part of this work, we must make many
estimates  and  judgments  about  future  events.  These affect the value of the
assets and  liabilities,  contingent  assets and  liabilities,  and  revenue and
expenses that we report in our financial statements.  We believe these estimates
and judgments are reasonable, and we make them in accordance with our accounting
policies based on  information  available at the time.  However,  actual results
could differ from our estimates, and this could require us to record adjustments
to expenses or revenues  that could be material to our  financial  position  and
results of operations in future periods.

ITEM 7.  FINANCIAL STATEMENTS

Report of Independent Certified Public Accountants                           F-1

Balance Sheets                                                               F-2

Statements of Operations                                                     F-3

Statements of Stockholders' Equity                                           F-4


                                       23
<PAGE>

Statements of Cash Flows                                                     F-5

Notes to Consolidated Financial Statements                              F-6-F-20


                                       24
<PAGE>




<PAGE>



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
TNX Television Holdings, Inc.
Philadelphia, PA.

      We have  audited  the  accompanying  consolidated  balance  sheets  of TNX
Television  Holdings,  Inc. and subsidiaries (a development stage enterprise) as
of June 30, 2003 and December 31, 2003 and the related  consolidated  statements
of operations,  changes in stockholders' equity (deficiency), and cash flows for
the  years  ended  June 30,  2003 and 2002 and for the six  month  period  ended
December 31, 2003. We have also audited the statements of operations, cash flows
and changes in stockholders'  equity  (deficiency) for the period from September
23, 1999 (inception)  through June 30, 2001. These financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

      We conducted our audits in accordance  with auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

      In our opinion,  the consolidated  financial  statements referred to above
present  fairly,  in  all  material  respects,  the  financial  position  of TNX
Television  Holdings,  Inc. and subsidiaries (a development stage enterprise) as
of June 30, 2003 and December 31, 2003 and the results of their  operations  and
their cash flows for the years  ended June 30,  2003 and 2002 for the six months
ended December 31, 2003 and for the period from  September 23, 1999  (inception)
through  June  30,  2001 in  conformity  with  accounting  principles  generally
accepted in the United States of America.

      The accompanying financial statements have been prepared assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial statements,  the Company has suffered recurring losses from operations
and has working  capital and net capital  deficiencies at December 31, 2003 that
raise  substantial  doubt  about its  ability to  continue  as a going  concern.
Management's plans in regard to these matters are also described in Note 10. The
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.

BDO Seidman, LLP
Philadelphia, PA
February 17, 2004


                                       F-1
<PAGE>

<TABLE>
<CAPTION>

                          TNX TELEVISION HOLDINGS, INC.

                        (A Development Stage Enterprise)

                                 BALANCE SHEETS

                                                                                             June 30              December 31
       ASSETS                                                                                 2003                   2003
                                                                                        ------------------     ------------------
Current assets

    <S>                                                                                <C>                    <C>
       Cash and cash equivalents                                                        $         127,865      $          90,947
       Prepaid expenses and VAT receivable                                                         76,250                143,556
                                                                                        ------------------     ------------------

       TOTAL CURRENT ASSETS                                                                       204,115                234,503

PROPERTY AND EQUIPMENT, net                                                                        45,970                407,044
                                                                                        ------------------     ------------------

TOTAL ASSETS                                                                            $         250,085      $         641,547
                                                                                        ==================     ==================

       LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

CURRENT LIABILITIES

       Accounts payable and accrued expenses                                            $         604,423      $       1,292,963
       Notes payable                                                                              446,299                485,000
                                                                                        ------------------     ------------------

       TOTAL LIABILITIES                                                                        1,050,722              1,777,963
                                                                                        ------------------     ------------------

COMMITMENTS

STOCKHOLDERS' EQUITY (DEFICIENCY)
       Common stock, $.001 par value
            Authorized                                 50,000,000 shares
            Issued and outstanding as of
                 June 30, 2003                         25,136,709 shares
                 December 31, 2003                     42,665,924 shares                           25,137                 42,666
       Additional paid-in capital                                                               4,595,396              6,522,818
       Deficit accumulated during the development stage                                        (5,575,546)            (7,689,408)
       Accumulated other comprehensive income (loss)                                              154,376                (12,492)
                                                                                        ------------------     ------------------

       TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY)                                                   (800,637)            (1,136,416)
                                                                                        ------------------     ------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)                                 $         250,085      $         641,547
                                                                                        ==================     ==================

</TABLE>

                        See notes to financial statements


                                       F-2
<PAGE>

                          TNX TELEVISION HOLDINGS, INC.

                        (A Development Stage Enterprise)

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                                                  September 23,
                                                                                                                     1999
                                                                                                                  (inception)
                                                     Years ended June 30        Six months ended December 31        through
                                                ----------------------------    ----------------------------       December 31,
                                                    2003            2002            2003            2002              2003
                                                ------------    ------------    ------------    ------------    ------------
                                                                                                (Unaudited)

<S>                                             <C>             <C>             <C>             <C>             <C>
SALES                                           $       --      $     44,474    $       --      $       --      $     55,335
                                                ------------    ------------    ------------    ------------    ------------

DIRECT EXPENSES                                       44,260          61,132         142,111            --           378,592

OPERATING EXPENSES

       Salaries and employee related expenses        892,566         619,776         705,903         465,513       2,967,399
       General and administrative                  1,634,520         769,926       1,229,028         740,065       4,363,803
                                                ------------    ------------    ------------    ------------    ------------

       TOTAL DIRECT AND OPERATING EXPENSES         2,571,346       1,450,834       2,077,042       1,205,578       7,709,794
                                                ------------    ------------    ------------    ------------    ------------

LOSS FROM OPERATIONS                              (2,571,346)     (1,406,360)     (2,077,042)     (1,205,578)     (7,654,459)
                                                ------------    ------------    ------------    ------------    ------------

OTHER INCOME (EXPENSE)

       Interest income                                 2,513           4,313             705           1,481           7,531
       Interest expense                               (3,711)         (1,244)        (37,525)           (345)        (42,480)
                                                ------------    ------------    ------------    ------------    ------------

       TOTAL OTHER INCOME (EXPENSE), net              (1,198)          3,069         (36,820)          1,136         (34,949)
                                                ------------    ------------    ------------    ------------    ------------

NET LOSS                                        $ (2,572,544)   $ (1,403,291)   $ (2,113,862)   $ (1,204,442)   $ (7,689,408)
                                                ============    ============    ============    ============    ============

BASIC AND DILUTED LOSS PER SHARE                $      (0.12)   $      (0.14)   $      (0.07)   $      (0.06)
                                                ============    ============    ============    ============

WEIGHTED AVERAGE SHARES OUTSTANDING               22,330,206       9,714,278      31,820,928      20,164,098
                                                ============    ============    ============    ============

                        See notes to financial statements
</TABLE>


                                       F-3
<PAGE>

                          TNX TELEVISION HOLDINGS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
           STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------
                                                                      Common Stock            Additional
                                                                 -------------------------    Paid-in
                                                                     Shares       Amount      Capital
                                                                 -----------   -----------   -----------


<S>                                                                 <C>      <C>           <C>             <C>
BALANCE, SEPTEMBER 23, 1999 (INCEPTION)                               11,774   $         3   $      --

FOREIGN CURRENCY TRANSLATION ADJUSTMENT                                 --            --            --

NET LOSS                                                                --            --            --
                                                                 -----------   -----------   -----------

BALANCE, JUNE 30, 2000                                                11,774             3          --



COMMON STOCK ISSUED MARCH 1, 2001                                  5,875,075         5,884     2,038,646

FOREIGN CURRENCY TRANSLATION ADJUSTMENT                                 --            --            --

NET LOSS                                                                --            --            --
                                                                 -----------   -----------   -----------

BALANCE, JUNE 30, 2001                                             5,886,849         5,887     2,038,646



COMMON STOCK ISSUED FEBRUARY 12, 2002                             10,122,614        10,123     1,389,877

FOREIGN CURRENCY TRANSLATION ADJUSTMENT                                 --            --            --

NET LOSS                                                                --            --            --
                                                                 -----------   -----------   -----------

BALANCE, JUNE 30, 2002                                            16,009,463        16,010     3,428,523



COMMON STOCK ISSUED DURING THE YEAR                                9,127,246         9,127     1,065,873

STOCK OPTIONS AND WARRANTS ISSUED AS COMPENSATION                       --            --         101,000

FOREIGN CURRENCY TRANSLATION ADJUSTMENT                                 --            --            --

NET LOSS                                                                --            --            --
                                                                 -----------   -----------   -----------

BALANCE, JUNE 30, 2003                                            25,136,709        25,137     4,595,396



ISSUANCE OF SHARES FOR SERVICES, OCTOBER 23, 2003                    100,000           100        24,900

SHARES EXCHANGED FOR LOANS, NOVEMBER 13, 2003                      3,429,215         3,429       853,876

COMMON STOCK ISSUED, NOVEMBER 13, 2003                             4,000,000         4,000       884,037

SHARES ISSUED TO SHAREHOLDERS OF SZMD, INC., NOVEMBER 13, 2003    10,000,000        10,000       127,609

STOCK WARRANTS ISSUED AS COMPENSATION                                   --            --          37,000

FOREIGN CURRENCY TRANSLATION ADJUSTMENT                                 --            --            --

NET LOSS                                                                --            --            --
                                                                 -----------   -----------   -----------

BALANCE, DECEMBER 31, 2003                                        42,665,924   $    42,666   $ 6,522,818
                                                                 ===========   ===========   ===========



                                                                  Deficit
                                                                 Accumulated   Accumulated
                                                                 During the       Other
                                                                 Development  Comprehensive                   Comprehensive
                                                                    Stage      Income (Loss)      Total       Income (Loss)
                                                                 -----------    -----------    -----------    -----------

BALANCE, SEPTEMBER 23, 1999 (INCEPTION)                          $      --      $      --      $         3

FOREIGN CURRENCY TRANSLATION ADJUSTMENT                                 --           (2,312)        (2,312)   $    (2,312)

NET LOSS                                                            (573,540)          --         (573,540)      (573,540)
                                                                 -----------    -----------    -----------    -----------

BALANCE, JUNE 30, 2000                                              (573,540)        (2,312)      (575,849)   $  (575,852)
                                                                                                              ===========

COMMON STOCK ISSUED MARCH 1, 2001                                       --             --        2,044,530

FOREIGN CURRENCY TRANSLATION ADJUSTMENT                                 --          (12,594)       (12,594)   $   (12,594)

NET LOSS                                                          (1,026,171)          --       (1,026,171)    (1,026,171)
                                                                 -----------    -----------    -----------    -----------

BALANCE, JUNE 30, 2001                                            (1,599,711)       (14,906)       429,916    $(1,038,765)
                                                                                                              ===========

COMMON STOCK ISSUED FEBRUARY 12, 2002                                   --             --        1,400,000

FOREIGN CURRENCY TRANSLATION ADJUSTMENT                                 --           55,339         55,339    $    55,339

NET LOSS                                                          (1,403,291)          --       (1,403,291)    (1,403,291)
                                                                 -----------    -----------    -----------    -----------

BALANCE, JUNE 30, 2002                                            (3,003,002)        40,433        481,964    $(1,347,952)
                                                                                                              ===========

COMMON STOCK ISSUED DURING THE YEAR                                     --             --        1,075,000

STOCK OPTIONS AND WARRANTS ISSUED AS COMPENSATION                       --             --          101,000

FOREIGN CURRENCY TRANSLATION ADJUSTMENT                                 --          113,943        113,943    $   113,943

NET LOSS                                                          (2,572,544)          --       (2,572,544)    (2,572,544)
                                                                 -----------    -----------    -----------    -----------

BALANCE, JUNE 30, 2003                                            (5,575,546)       154,376       (800,637)   $(2,458,601)
                                                                                                              ===========

ISSUANCE OF SHARES FOR SERVICES, OCTOBER 23, 2003                       --             --           25,000

SHARES EXCHANGED FOR LOANS, NOVEMBER 13, 2003                           --             --          857,305

COMMON STOCK ISSUED, NOVEMBER 13, 2003                                  --             --          888,037

SHARES ISSUED TO SHAREHOLDERS OF SZMD, INC., NOVEMBER 13, 2003          --             --          137,609

STOCK WARRANTS ISSUED AS COMPENSATION                                   --             --           37,000

FOREIGN CURRENCY TRANSLATION ADJUSTMENT                                 --         (166,868)      (166,868)   $  (166,868)

NET LOSS                                                          (2,113,862)          --       (2,113,862)    (2,113,862)
                                                                 -----------    -----------    -----------    -----------

BALANCE, DECEMBER 31, 2003                                       $(7,689,408)   $   (12,492)   $(1,136,416)   $(2,280,730)
                                                                 ===========    ===========    ===========    ===========
</TABLE>

                              See notes to financial statements


                                       F-4
<PAGE>

<TABLE>
<CAPTION>

                          TNX TELEVISION HOLDINGS, INC.

                        (A Development Stage Enterprise)

                            STATEMENTS OF CASH FLOWS



                                                                                                          September 23,
                                                                                                              1999
                                                                                      Six Months          (inception)
                                                    Years Ended June 30            Ended December 31         through
                                                                                                           December 31,
                                                   2003          2002           2003           2002           2003
                                               -----------    -----------    -----------    -----------    -----------
                                                                                             (Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES

<S>                                            <C>            <C>            <C>            <C>            <C>
Net loss                                       $(2,572,544)   $(1,403,291)   $(2,113,862)   $(1,204,442)   $(7,689,408)
Adjustments to reconcile net loss to
 net cash used in operating activities
Depreciation                                       241,520        200,009          8,066        112,505        636,935
Stock options and
 warrants issued as compensation                   101,000           --           62,000           --          163,000
(Increase) decrease in
 prepaid expenses and VAT receivable                22,108         22,504        (67,306)        66,772       (143,556)
Increase in accounts
 payable and accrued expenses                      296,063        188,342        826,149         63,501      1,430,572
                                               -----------    -----------    -----------    -----------    -----------

NET CASH USED IN OPERATING ACTIVITIES           (1,911,853)      (992,436)    (1,284,953)      (961,664)    (5,602,457)
                                               -----------    -----------    -----------    -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditures                                (4,388)       (39,731)      (369,140)        (4,241)    (1,043,979)
                                               -----------    -----------    -----------    -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of common stock           1,075,000      1,400,000        888,037        600,000      5,407,570
Net proceeds from issuance of notes payable        446,299           --          896,006           --        1,342,305
                                               -----------    -----------    -----------    -----------    -----------

NET CASH PROVIDED BY FINANCING ACTIVITIES        1,521,299      1,400,000      1,784,043        600,000      6,749,875
                                               -----------    -----------    -----------    -----------    -----------

EFFECT OF EXCHANGE RATE CHANGES ON CASH            101,642         30,990       (166,868)         2,285        (12,492)
                                               -----------    -----------    -----------    -----------    -----------

NET CHANGE IN CASH AND CASH EQUIVALENTS           (293,300)       398,823        (36,918)      (363,620)        90,947

CASH AND CASH EQUIVALENTS

Beginning of period                                421,165         22,342        127,865        421,165           --
                                               -----------    -----------    -----------    -----------    -----------

End of period                                  $   127,865    $   421,165    $    90,947    $    57,545    $    90,947
                                               ===========    ===========    ===========    ===========    ===========

SUPPLEMENTAL DISCLOSURE
 OF CASH FLOW INFORMATION

Cash paid during the period for interest       $     3,711    $     1,244    $      --      $      --      $     4,955
                                               ===========    ===========    ===========    ===========    ===========

SUPPLEMENTAL DISCLOSURE OF
 NONCASH FINANCING ACTIVITIES

Increase in additional paid in capital
 as a result of stock options and
 warrants issued as compensation               $   101,000            --      $    62,000   $    81,000    $   163,000
                                                ===========    ===========    ===========   ===========    ===========
Capital stock issued in exchange
 for notes payable and
 related accrued interest                                                     $   857,305                  $   857,305
                                                                              ===========                  ===========
</TABLE>

                        See notes to financial statements

                                       F-5
<PAGE>




                          TNX TELEVISION HOLDINGS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                       Years Ended June 30, 2003 and 2002
                       Six Months Ended December 31, 2003
       Information for the Six Months Ended December 31, 2002 is unaudited

================================================================================

NOTE 1
ORGANIZATION      TNX Television Holdings,  Inc. ("TNX" or "the Company"),  is a
                  Delaware  corporation  and operates  through its  wholly-owned
                  subsidiary,  TNCI UK,  Ltd.  ("TNCI").  In October  2003,  TNX
                  Television, Inc. ("TNX TV") was established and on October 23,
                  2003 merged with TNCI.  TNCI was formally  established  in the
                  United Kingdom as a corporation  registered  under the laws of
                  England and Wales in September,  1999 to develop,  install and
                  operate screens  providing  captive  audience  information and
                  entertainment based programming specifically for the passenger
                  rail market.

                  Since   inception,   the   Company   has   been   engaged   in
                  organizational  activities,   including  raising  capital  and
                  research  and  development  activities.  The Company is in the
                  development stage and has not generated  significant  revenues
                  and has not yet  achieved  profitable  operations,  nor has it
                  ever-generated  positive cash flows from operations.  There is
                  no assurance that profitable operations, if achieved, could be
                  sustained on a continuing basis. Further, the Company's future
                  operations  are  dependent  on the  success  of the  Company's
                  efforts  to  raise  additional   capital,   its  research  and
                  commercialization   efforts,   and   ultimately,   the  market
                  acceptance  of  the  Company's  products.  Accordingly,  these
                  factors raise substantial doubt about the Company's ability to
                  continue   as  a  going  concern.   The  Company   anticipates
                  commencing  operations in the third quarter of 2004.  See Note
                  10 for additional information.

                  Pursuant  to TNCI's  merger with TNX TV, the  shareholders  of
                  TNCI received  25,136,708 shares of TNX TV in exchange for all
                  of the  outstanding  shares of TNCI or 21,349,884  shares.  In
                  addition,  options and warrants to purchase  5,366,833  common
                  shares of TNCI were  exchanged  for  options  and  warrants to
                  purchase  6,334,076  shares  of common  stock of TNX TV.  Upon
                  completion   of  the  merger,   TNCI  became  a   wholly-owned
                  subsidiary  of TNX TV. At the merger date,  100,000  shares of
                  TNX TV common stock were issued to an unaffiliated  consultant
                  for services  rendered in  conjunction  with the merger.  As a
                  result, a charge of $25,000 was recorded for these services.

                  On  November  13,  2003,  a  wholly-owned  subsidiary  of  SZM
                  Distributors,   Inc.  ("SZMD"),  a  Nevada  corporation,  SZMD
                  Acquisition II, Inc., ("Acquisition Subsidiary"),  merged with
                  and into TNX TV. TNX TV became a  wholly-owned  subsidiary  of
                  SZMD in a transaction  accounted for as a reverse  acquisition
                  of SZMD by TNX TV.  Prior to the  reverse  merger,  SZMD was a
                  non-operating public shell corporation with nominal assets. In
                  accordance with the terms of the merger,  the  stockholders of
                  TNX TV exchanged all of the issued and  outstanding  shares of
                  TNX TV at a one for one ratio for 28,665,924  shares of SZMD's
                  common  stock.  The holders of options and warrants to acquire
                  6,334,076 shares



                                       F-6
<PAGE>



                          TNX TELEVISION HOLDINGS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                       Years Ended June 30, 2003 and 2002
                       Six Months Ended December 31, 2003
       Information for the Six Months Ended December 31, 2002 is unaudited

================================================================================


NOTE 1            of TNX TV's common stock  exchanged their options and warrants
ORGANIZATION      for options and warrants to acquire 6,334,076 shares of SZMD's
(continued)       common stock,  and the 1,000 issued and outstanding  shares of
                  Acquisition  Subsidiary common stock were converted into 1,000
                  shares of TNX TV common stock.

                  Prior to the merger with TNX TV,  loans to TNCI  amounting  to
                  $857,305,  which included  accrued  interest of $31,305,  were
                  converted into  3,429,216  shares of common stock of SZMD at a
                  rate  of  $.25  per   share   (see   Note  3  for   additional
                  information.)

                  TNX TV's stockholders acquired direct and beneficial ownership
                  and control of approximately 67% of SZMD's  outstanding common
                  stock.   The  transaction  was  accounted  for  as  a  reverse
                  acquisition  whereby,  for  accounting  purposes,  TNX  TV  is
                  considered   the   accounting   acquirer  and  the  historical
                  financial statements of TNX TV became the historical financial
                  statements of SZMD.

                  In  conjunction  with the merger,  SZMD completed a $1,000,000
                  equity private  placement of 4,000,000 shares of SZMD's common
                  stock at $.25 per  share.  The  private  placement  was issued
                  pursuant to Rule 506 of Regulation D under the  Securities Act
                  of 1933, as amended.  The proceeds,  net of expenses  totaling
                  $111,963, were used to satisfy outstanding liabilities of SZMD
                  and to provide working capital for the combined entity.

                  On January 7, 2004, SZMD completed a private placement whereby
                  it issued  3,150,000  shares in exchange for  $2,850,000.  The
                  private  placement  was issued  pursuant to Regulation S under
                  the Securities Act of 1933, as amended.

                  On February  17,  2004,  SZMD merged with and into TNX TV with
                  TNX TV becoming the surviving corporation.  Concurrently,  the
                  name  of  the  surviving   corporation   was  changed  to  TNX
                  Television Holdings, Inc. As a result of such transaction, TNX
                  Television Holdings, Inc. became the successor issuer to SZMD.
                  TNCI  continues  to  be  a  wholly  owned  subsidiary  of  TNX
                  Television Holdings, Inc.



                                       F-7
<PAGE>

                          TNX TELEVISION HOLDINGS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                       Years Ended June 30, 2003 and 2002
                       Six Months Ended December 31, 2003
       Information for the Six Months Ended December 31, 2002 in unaudited

================================================================================


NOTE 2            REVENUE RECOGNITION
SUMMARY OF
SIGNIFICANT       Planned  principal  operations have not commenced and revenues
ACCOUNTING        since inception have not been significant.
POLICIES
                  When  planned  principal  operations  commence,   the  Company
                  expects to  generate  revenues by selling  commercial  time to
                  advertisers.  The commercials  will be  interspersed  with the
                  general  programming  content shown to train passengers during
                  their journey. Revenues will be recognized based on the period
                  of time the commercials are actually aired. As such,  revenues
                  from  all  contracts   covering   multiple   periods  will  be
                  recognized over the term of the contract.

                  RECENT ACCOUNTING PRONOUNCEMENTS

                  There are no accounting  standards  issued before December 31,
                  2003 but effective  after  December 31, 2003 that are expected
                  to have a material impact on our financial reporting.

                  UNAUDITED INFORMATION

                  The  accompanying  statements of operations  and of cash flows
                  for the six months  ended  December  31,  2002 and the related
                  disclosures in the  accompanying  notes have not been audited.
                  However,  in  the  opinion  of  management,   all  adjustments
                  (consisting of normal  recurring  accruals) have been included
                  to present fairly,  in all material  respects,  the results of
                  operations and cash flows for period then ended.

                  Operating  results for the six month period ended December 31,
                  2003 are not necessarily indicative of the results that may be
                  expected for a full year.

                  CASH AND CASH EQUIVALENTS

                  Cash and cash  equivalents  includes  amounts  held in  demand
                  deposit  accounts and in certificates of deposit.  The Company
                  considers all highly liquid investments  maturing within three
                  months to be cash equivalents.

                  RESEARCH AND DEVELOPMENT

                  Research  and  development  costs are  charged to  expenses as
                  incurred.  There were no significant  research and development
                  expenses in any of the periods.



                                       F-8
<PAGE>

                          TNX TELEVISION HOLDINGS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                       Years Ended June 30, 2003 and 2002
                       Six Months Ended December 31, 2003
       Information for the Six Months Ended December 31, 2002 is unaudited

================================================================================


NOTE 2            PROPERTY AND EQUIPMENT AND DEPRECIATION
SUMMARY OF
SIGNIFICANT       Property and  Equipment  are stated at cost.  Depreciation  is
ACCOUNTING        computed  using the  straight-line  method over the  following
POLICIES          estimated useful lives of the assets:
(continued)

                  Passenger train simulator and portable simulator       3 Years
                  Furniture, fixtures and equipment                      5 Years

                  When assets are retired or otherwise disposed of, the cost and
                  related   accumulated   depreciation   are  removed  from  the
                  accounts, and any resulting gain or loss is included in income
                  for the period. The cost of maintenance and repairs is charged
                  to income as incurred;  significant  renewals and  betterments
                  are capitalized.

                  Property and equipment comprise the following:

                                            June 30          December 31
                                              2003               2003
                                        --------------   ----------------

  Simulator and portable simulator          $655,426           $ 655,426
  Furniture, fixtures and equipment           82,683              86,997
  Computer equipment                         -                   364,826
                                        --------------   ----------------
                                             738,109           1,107,249
  Less accumulated depreciation              692,139             700,205
                                        --------------   ----------------

  Net                                     $   45,970          $  407,044
                                        ==============   ================




                                       F-9
<PAGE>



                          TNX TELEVISION HOLDINGS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                       NOTES TO FINANCIAL STATEMENTS Years
                          Ended June 30, 2003 and 2002
                       Six Months Ended December 31, 2003
       Information for the Six Months Ended December 31, 2002 is unaudited

================================================================================


NOTE 2            IMPAIRMENT OF LONG-LIVED ASSETS
SUMMARY OF
SIGNIFICANT       Long-lived assets are reviewed for impairment  whenever events
ACCOUNTING        such as product discontinuances, product dispositions or other
POLICIES          changes in circumstances indicate that the carrying amount may
(continued)       not be recoverable.  An impairment loss is recognized when the
                  carrying  amount  of a  long-lived  asset  exceeds  the sum of
                  nondiscounted  cash flows  expected to result from the asset's
                  use and eventual  disposition.  An impairment loss is measured
                  as the amount by which the  carrying  amount  exceeds its fair
                  value, which is typically calculated using discounted expected
                  future cash flows.  The  discount  rate  applied to these cash
                  flows is  based  on the  Company's  weighted  average  cost of
                  capital,  which represents the blended after-tax costs of debt
                  and equity. There were no indications of impairment as of June
                  30, 2003 or December 31, 2003.

                  ESTIMATES

                  The  preparation  of financial  statements in conformity  with
                  accounting  principles generally accepted in the United States
                  of America requires management to make assumptions that affect
                  certain reported amounts and disclosures.  Accordingly, actual
                  results could differ from those estimates.

                  CONCENTRATION OF CREDIT RISK

                  The Company's policy is to limit the amount of credit exposure
                  to any one financial  institution.  It places its  investments
                  with financial institutions evaluated as being credit worthy.

                  FOREIGN CURRENCY TRANSLATION

                  All balance  sheet  accounts of the Company are  translated at
                  the  current  exchange  rate as of the  end of the  accounting
                  period.  Statement  of  operations  items  are  translated  at
                  average  currency  exchange rates.  The resulting  translation
                  adjustments are presented as accumulated  other  comprehensive
                  income (loss) for all periods presented.  Substantially all of
                  the Company's operations are located in the United Kingdom.


                                      F-10
<PAGE>



                          TNX TELEVISION HOLDINGS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                       Years Ended June 30, 2003 and 2002
                       Six Months Ended December 31, 2003
       Information for the Six Months Ended December 31, 2002 is unaudited

================================================================================


NOTE 2            NET LOSS PER SHARE
SUMMARY OF
SIGNIFICANT       Basic and diluted net loss per share are calculated  using the
ACCOUNTING        weighted average number of shares of common stock  outstanding
POLICIES          during each  period.  Historical  shares of common  stock have
(continued)       been retroactively  restated to give effect to the exchange of
                  shares with shares of TNX Television,  Inc. in November, 2003.
                  Since the effect of an  assumed  exercise  of all  outstanding
                  stock options and warrants would be  anti-dilutive,  basic and
                  diluted loss per share are the same.

                  INCOME TAXES

                  The Company  follows the  provisions of Statement of Financial
                  Accounting  Standards No. 109,  "Accounting  for Income Taxes"
                  ("SFAS No. 109"). SFAS No. 109 requires a company to recognize
                  deferred tax  liabilities  and assets for the expected  future
                  tax  consequences  of events that have been  recognized in its
                  financial  statements  or  tax  returns.  Under  this  method,
                  deferred tax assets and  liabilities  are determined  based on
                  the  differences  between  the  financial  statement  carrying
                  amounts and tax bases of assets and liabilities  using enacted
                  tax rates in effect in the years in which the  differences are
                  expected to reverse.

                  STOCK-BASED COMPENSATION

                  The Company follows  Accounting  Principles  Board Opinion No.
                  25,  "Accounting  for  Stock  Issued  to  Employees,"  for its
                  stock-based  compensation plans and does not recognize expense
                  for  stock  option  grants if the  exercise  price is at least
                  equal to the market  value of the common  stock at the date of
                  grant.  Stock-based  compensation  expense  included in the as
                  reported net loss includes expense for awards of stock options
                  and warrants issued for services (Note 8).


                                      F-11
<PAGE>


                          TNX TELEVISION HOLDINGS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                       Years Ended June 30, 2003 and 2002
                       Six Months Ended December 31, 2003
       Information for the Six Months Ended December 31, 2002 is unaudited

================================================================================


NOTE 2            The  following  table  summarizes  the  pro  forma  effect  of
SUMMARY OF        stock-based  compensation on net loss and loss per share as if
SIGNIFICANT       the fair value expense recognition  provisions of Statement of
ACCOUNTING        Financial   Accounting   Standards   ("SFAS")  SFAS  No.  123,
POLICIES          "Accounting for Stock-Based  Compensation,"  had been adopted.
(continued)       No tax benefits were  attributed to the  stock-based  employee
                  compensation   expense  for  the  periods   presented  due  to
                  providing  a full  valuation  allowance  on net  deferred  tax
                  assets.


<TABLE>
<CAPTION>

                                                                          Six Months            Six Months
                                      Year Ended June 30                     Ended                 Ended
                              -----------------------------------
                                                                         December 31           December 31
                                  2003                 2002                  2003                  2002
                              --------------       --------------       ---------------       ----------------
                                                                                                (Unaudited)
<S>                            <C>                 <C>                   <C>                  <C>
Net loss as reported
                           (     $2,572,544  )   (    $1,403,291  )   (     $2,113,862  )   ( $  1,204,442     )

Add stock-based service
    expense included in
    reported net loss
                                    101,000              -                      62,000                 81,000

Deduct total

    stock-based
    employee
    compensation
    expense determined
    under the fair
    value based method     (        161,509  )   (         2,500  )            -            (         161,509  )
                              --------------       --------------       ---------------       ----------------

Pro forma net loss         (     $2,633,053  )   (    $1,405,791  )   (     $2,051,862  )   (      $1,284,951  )
                              ==============       ==============       ===============       ================
Loss per share
    applicable to
    common shareholders:
    Basic and
       diluted - as
       reported                      $(.12)               ($.14)                ($.07)                 ($.06)
    Basic and
       diluted -
       pro forma                     $(.12)               ($.14)                ($.06)                 ($.06)

</TABLE>



                                      F-12
<PAGE>



                          TNX TELEVISION HOLDINGS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                       Years Ended June 30, 2003 and 2002
                       Six Months Ended December 31, 2003
       Information for the Six Months Ended December 31, 2002 is unaudited

================================================================================


NOTE 2            The fair value of stock  options used to compute pro forma net
SUMMARY OF        loss and pro forma  loss per share  disclosures  is  estimated
SIGNIFICANT       using  the  Black-Scholes   option-pricing  model,  which  was
ACCOUNTING        developed  for use in  estimating  the fair  value  of  traded
POLICIES          options  that  have no  vesting  restrictions  and  are  fully
(continued)       transferable.  In addition,  this model  requires the input of
                  subjective   assumptions,   including   the   expected   price
                  volatility of the underlying stock.  Projected data related to
                  the expected  volatility and expected life of stock options is
                  based upon historical and other information.  Changes in these
                  subjective  assumptions  can materially  affect the fair value
                  estimate,  and therefore the existing  valuation models do not
                  provide a precise  measure of the fair value of the  Company's
                  employee stock  options.  The following  table  summarizes the
                  Black-Scholes option-pricing model assumptions used to compute
                  the  weighted  average  fair  value of stock  options  for all
                  periods.

                  Dividend yield                                             -0-
                  Expected volatility                                        -0-
                  Risk-free interest rate                                   6.5%
                  Expected holding period (in years)                      6 to 7
                  Weighted average fair value of options granted            $.05


NOTE 3
NOTES PAYABLE     Prior to the  reverse  merger  transaction,  TNCI UK  borrowed
                  $550,000 from Belgravia Investment Partners, LP ("Belgravia"),
                  a related  party  between  April,  2003 and  September,  2003,
                  $100,000  from  an  unrelated  individual  on July  23,  2003,
                  $100,000 from an unrelated United States investor on August 7,
                  2003 and $126,000 from an unrelated United Kingdom investor on
                  June 27,  2003.  Each note  carried  an  interest  rate of ten
                  percent per annum.  As of June 30, 2003 and December 31, 2003,
                  the unpaid  balance of these  notes and related  interest  was
                  $446,299 and $50,000, respectively. Notes and accrued interest
                  totaling  $857,305 were converted into 3,429,215  shares ($.25
                  per share) of the Company's  common stock in November 2003. As
                  of  December  31,  2003,  the  Company  still owed  $50,000 to
                  Belgravia.



                                      F-13
<PAGE>




                          TNX TELEVISION HOLDINGS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                       Years Ended June 30, 2003 and 2002
                       Six Months Ended December 31, 2003
       Information for the Six Months Ended December 31, 2002 is unaudited

================================================================================


NOTE 3            During December,  2003, the Company borrowed $185,000 from two
NOTES PAYABLE     related  parties (see Note 4) and $250,000  from two unrelated
(continued)       parties.  The notes  accrued  interest  at 10% per annum.  The
                  balances of all of these  notes,  plus  accrued  interest  and
                  related transaction fees were repaid in January, 2004.


NOTE 4            TNCI  UK,  Ltd.  entered  into  a  management  and  consulting
RELATED PARTY     agreement  (the  "Management  Agreement")  with  Ocean  Castle
TRANSACTIONS      Partners  ("Ocean  Castle") in February,  2002. The Management
                  Agreement  provided  for the  payment of $33,000  per month to
                  Ocean  Castle  for 24 months  and the  delivery  of options to
                  purchase  1,745,000 shares of common stock of TNCI UK. TNCI UK
                  has issued and  delivered the warrants but only paid the first
                  nine of the 24 monthly  installments.  The management services
                  included, but were not limited to, strategic planning,  legal,
                  financial analysis and planning and helping the Company obtain
                  additional  sources of financing.  Expenses of $87,000 for the
                  year ended June 30, 2003 for options  granted to Ocean  Castle
                  and its employees  are included in general and  administrative
                  expenses.  $264,000  and $462,000 is due to Ocean Castle as of
                  June 30, 2003 and  December  31,  2003,  respectively,  (which
                  amounts are included in accounts payable and accrued expenses)
                  under the Management Agreement. The principal of Ocean Castle,
                  Irwin Gross became the Company's  Chairman,  CEO and President
                  on November 13, 2003.

                  The Company  issued a  promissory  note (the "Gross  Note") on
                  December  3, 2003 to Gross  Investments  Company,  LP  ("Gross
                  Investments")  for  $85,000.  The  managing  partner  of Gross
                  Investments is Irwin Gross. The Gross Note accrued interest at
                  a rate of 10% per annum and  included a  one-time  transaction
                  fee of $1,500 owed to Gross  Investments.  The note was repaid
                  on January 9, 2004 in the amount of $87,361.

                  The  Company  issued a  promissory  note  (the "PP  Note")  on
                  December 16, 2003 to Platinum  Partners  Global Macro Fund, LP
                  ("Platinum") for $100,000. Platinum is the beneficial owner of
                  3,370,177  shares of the Company's  common stock.  The PP Note
                  accrued  interest  at a rate of 10% per annum and  included  a
                  one-time transaction fee of $1,500 owed to Platinum.  The note
                  was repaid on January 9, 2004 in the amount of $102,130.



                                      F-14
<PAGE>




                          TNX TELEVISION HOLDINGS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                       Years Ended June 30, 2003 and 2002
                       Six Months Ended December 31, 2003
       Information for the Six Months Ended December 31, 2002 is unaudited

================================================================================


NOTE 4
RELATED PARTY
TRANSACTIONS
(continued)       Prior to the  reverse  merger  transaction,  TNCI UK  borrowed
                  $550,000 from Belgravia Investment Partners,  LP ("Belgravia")
                  between April, 2003 and September,  2003 with an interest rate
                  of 10% per annum. Interest expense totaled $3,915 for the year
                  ended  June 30,  2003 and  $14,292  for the six  months  ended
                  December  31,  2003.   Belgravia  converted  $500,000  of  the
                  principal and the interest of the loan into  2,081,259  shares
                  of  the  Company's  common  stock  on  November  13,  2003  in
                  connection  with the merger.  The Company also contracted with
                  Belgravia to provide management  services.  As of December 31,
                  2003, the Company had paid  Belgravia a total of $25,000.  The
                  managing partner of Belgravia is Irwin Gross.


NOTE 5            LEASES
COMMITMENTS
                  The Company occupies office space in Derby,  England. The term
                  of lease  for the Derby  office is based on a tenancy  at will
                  agreement.  The  Company  is  currently  negotiating  with the
                  landlord's  agent  to enter  into a more  formal  lease  for a
                  period of five years.  Monthly lease payments under this lease
                  are expected to be about $8,750 per month.

                  The Company also has a license for office  facilities  for two
                  staff members based in London. The accommodation operates on a
                  three months notice.

                  The rent expense was as follows:

<TABLE>
<CAPTION>
                                                                         September 23
          Year Ended                       Six Months Ended                  1999
         December 31                           June 30                    (inception)
-------------------------------     ------------------------------          through
                                                                          December 31
     2003              2002            2003              2002                2003
----------------    -----------     -----------     --------------     ------------------
<S>                 <C>             <C>              <C>               <C>
                                                     (Unaudited)

       $105,000        $43,000         $77,000         $51,000              $278,000
================    ===========     ===========      ===========           ============

</TABLE>




                                      F-15
<PAGE>




                          TNX TELEVISION HOLDINGS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                       Years Ended June 30, 2003 and 2002
                       Six Months Ended December 31, 2003
       Information for the Six Months Ended December 31, 2002 is unaudited

================================================================================


NOTE 5
COMMITMENTS
(continued)       The Company has entered  into various  leases for  automobiles
                  expiring  through 2007.  Minimum  annual lease payments are as
                  follows:

                  Year Ending December 31

                  2004                           $41,954
                  2005                            25,197
                  2006                            17,847
                  2007                             6,255
                                              ------------
                                                 $91,253
                                              ============

                  PURCHASE CONTRACT

                  In September 2003,  TNCI entered into a Supply  agreement with
                  Linsang Manufacturing,  Inc. ("LMIC"). LMIC provides TNCI with
                  a  nimble,   single,   "turn-key"   source  for  the   design,
                  development,    integration    and   delivery   of   broadband
                  entertainment  and  information  systems on trains.  Under the
                  agreement which expires  December 31, 2005, the companies will
                  work  together  to  aggressively  develop and market TNCI UK's
                  turnkey  solutions to client  specification  in the  passenger
                  rail  market.   TNCI  has  currently   committed  to  purchase
                  approximately $1,900,000 of equipment.

NOTE 6
INCOME TAXES      The Company has net operating loss carry forwards  aggregating
                  approximately $5,965,000 as of June 30, 2003 and $8,054,000 as
                  of December 31, 2003,  expiring  through 2014.  All of the net
                  operating  losses  were  generated  in the UK.  SFAS  No.  109
                  requires  the  establishment  of a deferred  tax asset for all
                  deductible  temporary  differences  and  operating  loss carry
                  forwards.  Because of the  uncertainty  that the Company  will
                  generate income in the future sufficient to fully or partially
                  utilize  these carry  forwards,  the  deferred tax asset as of
                  December 31, 2003 of  approximately  $1,329,000 is offset by a
                  valuation  allowance  of  the  same  amount.  Accordingly,  no
                  deferred tax asset is included in these financial  statements.
                  The valuation allowance  increased by approximately  $424,000,
                  $230,000 and $345,000 for the fiscal years ended June 30, 2003
                  and 2002 and the six month  period  ended  December  31, 2003,
                  respectively.





                                      F-16
<PAGE>


                          TNX TELEVISION HOLDINGS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                       Years Ended June 30, 2003 and 2002
                       Six Months Ended December 31, 2003
       Information for the Six Months Ended December 31, 2002 is unaudited

================================================================================


NOTE 7
EMPLOYEE BENEFITS
PLAN              The Company has a defined  contribution  plan. Amounts charged
                  to expense for  contributions  to the plan were  $63,524 and $
                  27,897  for  the  years   ended   June  30,   2003  and  2002,
                  respectively,  and $52,281 and 24,494  (unaudited) for the six
                  months ended December 31, 2003 and 2002, respectively.  Unpaid
                  contributions  as of June  30,  2003  and  December  31,  2003
                  amounted to $32,842 and $52,281, respectively.


NOTE 8
OPTIONS
AND WARRANTS      Number of options exercisable into shares of common stock:

<TABLE>
<CAPTION>
                                     Year Ended June 30, 2003                   Six Months Ended December 31, 2003
                          --------------------------------------------     ---------------------------------------------
                                                         Weighted                                          Weighted
                                                         Average                                           Average
                                         Option          Exercise                         Option           Exercise
                          Shares         Price           Price             Shares         Price            Price
                          -----------    -------------   -------------     -----------    -------------    -------------
<S>                       <C>            <C>             <C>               <C>            <C>              <C>
  Outstanding,
     beginning of
     period                5,138,366                                        5,138,366      $.129 - .25         $.14
        Granted            5,138,366      $.129 - .25        $.14              -
        Cancelled             -                                               424,698         $.25             $.25
        Exercised             -                                                -
                          -----------                                      -----------
  Outstanding,

     end of period                        $.129 - .25        $.14           4,713,668      $.129 - .25         $.14
        Exercisable        5,138,366      $.129 - .25        $.14           4,713,668      $.129 - .25         .$14
     Weighted
        average
        remaining
        contractual
        life (years)         5.9                                              5.4
  Exercised in
     current and
     prior years              -                                                -
  Available for
     future grants                                                            424,698

</TABLE>



                                      F-17
<PAGE>




                          TNX TELEVISION HOLDINGS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                       Years Ended June 30, 2003 and 2002
                       Six Months Ended December 31, 2003
       Information for the Six Months Ended December 31, 2002 is unaudited

================================================================================


NOTE 8
OPTIONS AND
WARRANTS
(continued)       Number of warrants exercisable into shares of common stock:

<TABLE>
<CAPTION>

                                                               Year Ended June 30
                          ----------------------------------------------------------------------------------------------
                                             2002                                              2003
                          --------------------------------------------     ---------------------------------------------
                                                           Weighted                                          Weighted
                                                           Average                                           Average
                                           Warrant         Exercise                         Warrant          Exercise
                            Shares          Price           Price            Shares          Price            Price
                          -----------    -------------   -------------     -----------    -------------    -------------
<S>                       <C>            <C>             <C>               <C>            <C>              <C>
  Outstanding,
     beginning of
     year                     -                                                64,726        $.129            $.129
        Granted               64,726        $.129           $.129             398,103        $.129            $.129
        Cancelled             -                                                -
        Exercised             -                                                -
                          -----------                                      -----------
  Outstanding,

     end of year              64,726        $.129           $.129             462,829        $.129            $.129
        Exercisable           64,726        $.129           $.129             462,829        $.129            $.129
     Weighted
        average
        remaining
        contractual

        life (years)         5.54                                             5.15

                                                   Six Months Ended December 31, 2003

                                             ------------------------------------------------
                                                                                  Weighted
                                                                                   Average
                                                                 Warrant          Exercise
                                                Shares            Price             Price
                                             -------------    ---------------    ------------
Outstanding, beginning of period                  462,829         $.129             $.129
   Granted                                        732,881      $.129 - $.25         $.205
   Cancelled                                      -
   Exercised                                      -
                                             -------------
Outstanding, end of period                      1,195,710      $.129 - $.25         $.176
   Exercisable                                  1,195,710      $.129 - $.25         $.176
   Weighted average remaining
      contractual life (years)                   4.6

</TABLE>


                                      F-18
<PAGE>


                          TNX TELEVISION HOLDINGS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                       Years Ended June 30, 2003 and 2002
                       Six Months Ended December 31, 2003
       Information for the Six Months Ended December 31, 2002 is unaudited

================================================================================


NOTE 8
OPTIONS AND
WARRANTS
(continued)       The following table summarizes information about stock options
                  outstanding as of June 30, 2003 and December 31, 2003:


<TABLE>
<CAPTION>


                                                         June 30, 2003
                                       --------------------------------------------------
                                                                               Total
                                                                           --------------
<S>                                     <C>                <C>            <C>
Exercise price                            $.129              $.25

Outstanding                               4,250,536           463,132          4,713,668
   Exercisable                            4,250,536           463,132          4,713,668
Weighted average remaining
   contractual life (years)                6.0               5.0                5.9
Weighted average exercise price          $.129              $.25               $.14

                                                       December 31, 2003
                                       --------------------------------------------------
Outstanding                               4,250,536           463,132          4,713,668
   Exercisable                            4,250,536           463,132          4,713,668
Weighted average remaining
   contractual life (years)                5.55              4.5                5.4
Weighted average exercise price           $.129              $.25              $.14

                  During  the year  ended June 30,  2003,  the six months  ended
                  December  31,  2002  (unaudited)  and  the  six  months  ended
                  December 31, 2003, the Company issued 1,973,000, 1,574,000 and
                  733,000, respectively,  options and warrants to consultants of
                  the  Company.  As a result,  the Company  recorded a charge of
                  $101,000,  $81,000 and $37,000 during each period representing
                  the  fair  value  of  the  options  and  warrants  issued  for
                  services.

NOTE 9
SUBSEQUENT EVENTS On January 7, 2004, the Company  completed a private placement
                  whereby it issued 3,150,000 shares in exchange for $2,850,000.
                  The private  placement  was issued  pursuant to  Regulation  S
                  under the  Securities  Act of 1933,  as amended.  The proceeds
                  were used to repay loans made to the Company in December, 2003
                  of $444,684,  which  included  accrued  interest.  The balance
                  provided working capital for the Company.

</TABLE>


                                      F-19
<PAGE>

                          TNX TELEVISION HOLDINGS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                       Years Ended June 30, 2003 and 2002
                       Six Months Ended December 31, 2003
       Information for the Six Months Ended December 31, 2002 is unaudited

================================================================================


NOTE 10
MANAGEMENT'S
PLAN              The Company is currently  negotiating  a private  placement of
                  $10 million of a newly issued Series A  convertible  preferred
                  stock and warrants to purchase common stock,  which it expects
                  to close by the end of April 2004. Until the Company closes on
                  such  equity  financing,  it  is  funding  operations  through
                  bi-weekly  bridge loans  obtained by  management.  The Company
                  expects to begin to generate  cash from its  advertising-based
                  sales  model in the third  quarter  of  fiscal  2004 and these
                  revenues  will  grow  as  the  Company's   installation   base
                  increases and a greater  market  acceptance of its medium as a
                  viable outlet for advertisers exists. The Company believes the
                  combination  of the equity  financing and cash  generated from
                  operations  will provide  sufficient cash resources to finance
                  its  operations  and projected  expansion of its marketing and
                  research  and  development  activities  for  the  next  twelve
                  months.  If,  however,   the  Company  is  in  a  position  to
                  accelerate the  installation  of equipment in connection  with
                  new  contracts  with  other  TOCs  that the  Company  does not
                  currently  anticipate,  or if the revenues  generated from its
                  advertising-based  sales  model  are  less  than  our  current
                  forecast  or if the private  placement  referred to above does
                  not close,  it is possible that the Company would require more
                  funds sooner than presently  anticipated.  In such event,  the
                  Company  would  need to obtain  additional  funds  and  cannot
                  assure that it will be able to do so on favorable terms, if at
                  all.



                                      F-20
<PAGE>


ITEM 8. CHANGES IN AND DISAGREEMENTS  WITH ACCOUNTANTS AND ACCOUNTING  FINANCIAL
DISCLOSURE

      On  December  29,  2003,  our  Board of  Directors  voted to  replace  our
independent accountant, Hall & Company, certified public accountants.  Effective
as of December 29, 2003, our new independent  accountants  are BDO Seidman,  LLP
(BDO).  We authorized  Hall & Company to respond fully to any inquiries from BDO
and to make its work papers available to BDO.

      The reports of Hall & Company from November 11, 2002 through  December 29,
2003,  did  not  contain  any  adverse  opinion,   disclaimer  of  opinion,   or
qualification  or  modification  as to  uncertainty,  audit scope or  accounting
principles.  From  November  11, 2002 through  December 29, 2003,  there were no
disagreements  between  us  and  Hall &  Company  on any  matter  of  accounting
principles or practices,  financial  statement  disclosure or auditing  scope or
procedure.  In addition, from November 11, 2002 through December 29, 2003, there
were no "reportable events" within the meaning of Item 304 of the Regulation S-B
promulgated under the Exchange Act.

ITEM  8A. CONTROLS AND PROCEDURES

      (a)  Evaluation  of  Disclosure  Controls and  Procedures.  Our  principal
executive  officer  and  principal  financial  officer,   after  evaluating  the
effectiveness of our disclosure  controls and procedures (as defined in Exchange
Act Rules  13a-15(e) and  15d-15(e)) as of the end of the period covered by this
Annual Report on Form 10-KSB, have concluded that,  based on such  evaluation,
our  disclosure  controls and  procedures  were adequate and effective to ensure
that  material   information   relating  to  us,   including  our   consolidated
subsidiaries,   was  made  known  to  them  by  others  within  those  entities,
particularly  during the period in which this  Annual  Report on Form 10-KSB was
being prepared.

      (b) Changes in Internal  Controls.  There were no changes in our  internal
control over  financial  reporting  that occurred  during our most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report)
that have materially  affected,  or are reasonably likely to materially  affect,
our internal control over financial reporting.

PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS

      The  information  required  by this  Item  will be  included  in our Proxy
Statement  for the  2004  Annual  Meeting  of  Stockholders  under  the  caption
"Directors and Executive  Officers"  which will be filed with the Securities and
Exchange  Commission  no later than 120 days after the close of the fiscal  year
ended December 31, 2003, and is incorporated herein by reference.

      On March 25,  2004,  we adopted a  Corporate  Code of  Conduct  and Ethics
applicable  to all of our  employees  and  directors,  including  our  principal
executive officer and principal financial officer. A copy of the Code of Conduct
and Ethics is attached as an exhibit to this Annual Report. We intend to post on
our website any amendment  to, or waivers  from,  the Code of Conduct and Ethics
that apply to our principal executive officer and principal financial officer.

ITEM 10.  EXECUTIVE COMPENSATION

      The  information  required  by this  Item  will be  included  in our Proxy
Statement  for the  2004  Annual  Meeting  of  Stockholders  under  the  caption
"Executive  Compensation"  which will be filed with the  Securities and Exchange
Commission  no later  than 120 days  after the close of the  fiscal  year  ended
December 31, 2003, and is incorporated herein by reference.



                                       25
<PAGE>

ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

      The  information  required  by this  Item  will be  included  in our Proxy
Statement  for the  2004  Annual  Meeting  of  Stockholders  under  the  caption
"Security  Ownership of Certain  Beneficial Owners and Management" which will be
filed with the Securities  and Exchange  Commission no later than 120 days after
the close of the fiscal year ended December 31, 2003, and is incorporated herein
by  reference.  The  information  required by this Item with  respect to Section
201(d) of Regulation S-B of the Act,  "Securities  Authorized for Issuance Under
Equity Compensation Plans," is included in Item 5 of Part II hereof.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this Item will be included in our Proxy
Statement for the 2004 Annual Meeting of Stockholders under the caption "Certain
Relationships and Related Transactions" which will be filed with the Securities
and Exchange Commission no later than 120 days after the close of the fiscal
year ended December 31, 2003, and is incorporated herein by reference.

ITEM 13.  EXHIBITS, LIST AND REPORTS ON FORM 8-K

(a) EXHIBITS

EXHIBIT
NUMBER            DESCRIPTION OF EXHIBIT
-----------       --------------------------------------------------------------

  2.1             Agreement and Plan of Merger dated November 12, 2003 among the
                  Registrant, SZMD Acquisition II, Inc. and TNX Television, Inc.
                  (1)

  2.2             Certificate  of Merger  filed with the  Delaware  Secretary of
                  State (2)

  3.1             Certificate of Incorporation *

  3.2             Bylaws *

  4.1             Specimen Common Stock Certificate *

  4.2             TNX Television Holdings, Inc.  2004   Employee,  Director  and
                  Consultant Stock Option Plan*

  4.3             Form of  Incentive  Stock  Option  Agreement  under 2004 Stock
                  Option Plan *

  4.4             Form of Nonqualified  Stock Option  Agreement under 2004 Stock
                  Option Plan *

  4.5             Form  of  Warrant  to  purchase   common  stock   between  the
                  Registrant   and   certain   employees,   directors   4.5  and
                  consultants  prior to the merger  effectuated  on November 12,
                  2003 *

  4.6             Form of Stock  Option  Agreement  between the  Registrant  and
                  certain  employees,  directors  and  consultants  prior to the
                  merger effectuated on November 12, 2003 *

  10.1            Form of Subscription  Agreement in connection with the private
                  placement of common stock completed in January 2004 *

  14              Corporate Code of Conduct and Ethics *

  16              Letter  from Hall &  Company  regarding  change in  certifying
                  accountant (3)

  21.1            Subsidiaries of the Registrant *


                                       26
<PAGE>

  31.1            Certification of Chief Executive Officer *

  31.2            Certification of Chief Financial Officer *

  32.1            Certification  of  Principal  Executive  Officer  pursuant  to
                  U.S.C. Section 1350 *

  32.2            Certification  of  Principal  Financial  Officer  pursuant  to
                  U.S.C. Section 1350 *

---------------
 *    Filed herewith.

(1)   Incorporated  by  reference  to Exhibit 2.1 of our Current  Report on Form
      8-K/A filed on December 31, 2003.

(2)   Incorporated  by  reference  to Exhibit 2.2 of our Current  Report on Form
      8-K/A filed on December 31, 2003.

(3)   Incorporated  by  reference  to Exhibit 16 of our  Current  Report on Form
      8-K/A filed on December 31, 2003.

(b)   REPORTS ON FORM 8-K

      (i)   On October 16, 2003, we filed a Current Report on Form 8-K reporting
            on Items 1, 2 and 7 the announcement that SZM Distributors, Inc. had
            entered  into a binding  letter of intent  with TNCI UK Ltd.,  which
            contemplated  a merger  between TNCI and a wholly owned  acquisition
            subsidiary of SZM as part of a triangular merger.

      (ii)  On  November  26,  2003,  we  filed a  Current  Report  on Form  8-K
            reporting   on  Items  1,  4  and  7  the   announcement   that  SZM
            Distributors,  Inc. had entered into an Agreement and Plan of Merger
            dated  November  12,  2003  with  TNX  Television,   Inc.  and  SZMD
            Acquisition  II, Inc. and had closed on the  transaction on November
            13, 2003.

      (iii) On  December  31,  2003,  we filed a Current  Report  on Form  8-K/A
            amending  our Current  Report on Form 8-K filed on November 26, 3003
            to reflect  that our new fiscal year would end on June 30th and that
            we had  replaced  our  former  accountant,  Hall & Company  with BDO
            Seidman, LLP.

      (iv)  On January 26, 2004, we filed a Current Report on Form 8-K/A further
            amending  our Current  Report on Form 8-K filed on November 26, 2003
            with respect to Items 5 and 7.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES.

      The  information  required  by this  Item  will be  included  in our Proxy
Statement  for the  2004  Annual  Meeting  of  Stockholders  under  the  caption
"Principal Accountant Fees and Services" which will be filed with the Securities
and  Exchange  Commission  no later  than 120 days after the close of the fiscal
year ended December 31, 2003, and is incorporated herein by reference.



                                       27
<PAGE>


                                   SIGNATURES

      In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Dated: April 14, 2004                     TNX TELEVISION HOLDINGS, INC.


                                          By: /s/  Irwin L. Gross
                                             -----------------------------------
                                             Irwin L. Gross
                                             President & Chief Executive Officer

In accordance with the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following  persons in the  capacities and on
the dates indicated.

<TABLE>
<CAPTION>

             SIGNATURE                         TITLE                            DATE
--------------------------       -------------------------------        ---------------
<S>                              <C>                                   <C>
/s/  Irwin L. Gross              President, Chief Executive              April 14, 2004
--------------------------
Irwin L. Gross                   Officer and Chairman (principal
                                 executive officer)

/s/  Norman Fetterman            Chief Financial Officer                 April 14, 2004
--------------------------
Norman Fetterman                 (principal financial and
                                 accounting officer)


/s/  Stephen J. Ollier           Director                                April 14, 2004
--------------------------
Stephen J. Ollier

/s/  Nicolas Rogerson            Director                                April 14, 2004
--------------------------
Nicolas Rogerson

/s/  S. Lance Silver             Director                                April 14, 2004
--------------------------
S. Lance Silver

/s/  Howard Silverstone
--------------------------
Howard Silverstone               Director                                April 14, 2004


</TABLE>



                                       28
<PAGE>