<PAGE>
FORM 10-QSB
(Adopted in Release No. 34-30968 (72,439), effective August 13, 1992, 57 F.R.
36442; and amended in Release No. 34-31326 ( 85,051), effective October 22,
1992, 57 F.R. 48276.)
U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
-----------------
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
EXCHANGE ACT
For the transition period from ______________ to _________________
Commission file number 0-7762
--------
AUDIO COMMUNICATIONS NETWORK, INC.
------------------------------------------------------------------
(Exact name of small business issuer as
specified in its charter)
FLORIDA 52-0690530
- --------------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No. )
1000 Legion Place, Suite 1515, Orlando, Fl. 32801
-------------------------------------------------------------
(Address of principal executive office)
(407) 649-8877
-----------------
(Issuer's telephone number)
__________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
______
report)
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 ___
---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after distribution of
securities under a plan confirmed by court. Yes ____ No ____ Not Applicable X
---
APPLICABLE ONLY TO CORPORATE ISSUERS
------------------------------------------
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 2,233,360
-------------
<PAGE>
AUDIO COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
UNAUDITED STATEMENT OF CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
FIRST QUARTER
-------------
THE 3 MONTHS ENDED
------------------
PART I - FINANCIAL INFORMATION 3/31/95 3/31/94
- ------------------------------ ------------ -------------
<S> <C> <C>
Music Sales................................. $ 1,423,942 $ 1,216,330
Installations............................... 234,008 125,386
Equipment Sales............................. 108,970 81,463
Labor & Service............................ 55,837 38,853
------------ -------------
TOTAL REVENUE............................... 1,822,757 1,462,032
COST AND EXPENSES
- -----------------
Cost of Sales............................... 739,654 630,035
Selling, General and
Administrative Expenses..................... 575,539 448,856
Depreciation and Amortization............... 280,458 260,255
------------- ------------
TOTAL....................................... 1,595,651 1,339,146
------------- ------------
Income before Other Income
(Expense) and Income Taxes.................. 227,106 122,886
OTHER INCOME (EXPENSE):
- -----------------------
Interest Income............................. 1,605 920
Interest Expense............................ (132,507) (92,344)
Other....................................... 29,694 13,080
------------- -------------
OTHER NET................................... (101,208) (78,344)
------------- -------------
Income before Income Taxes.................. 125,898 44,542
Provision for Income Taxes.................. 11,400 5,800
------------- -------------
Net Income.................................. $ 114,498 $ 38,742
============== ==============
Net Income Per Common Share $ .05 $ .02
- --------------------------- ============== ==============
Number of Common Shares.................... 2,233,360 1,983,462
============== ==============
Dividends Per Share -0- -0-
============== ==============
</TABLE>
<PAGE>
AUDIO COMMUNICATIONS NETWORK, INC. & SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
3/31/95 12/31/94
--------------- ---------------
(Unaudited) (Condensed from
PART I - FINANCIAL INFORMATION Audited Financial
- ------------------------------ Statemnets)
<S> <C> <C>
ASSETS
Current Assets:
Cash & Cash Equivalents........................... $ 505,483 $ 509,064
Accounts Receivable............................... 501,842 558,353
Inventories....................................... 187,394 228,242
Prepaid Expenses & Other.......................... 217,436 78,140
--------------- ---------------
Total - Current Assets............................ 1,412,155 1,373,799
--------------- ---------------
Property - Net.................................... 3,140,570 2,896,512
Subscriber Contracts & Other
Intangibles....................................... 1,855,847 1,826,977
Goodwill.......................................... 2,102,316 2,138,407
Deposits & Other.................................. 12,730 5,915
--------------- ---------------
Total Other Assets................................ 3,970,893 3,971,299
--------------- ---------------
TOTAL............................................. $ 8,523,618 $ 8,241,610
=============== ===============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Current - Long Term Debt.......................... $ 1,012,289 $ 824,902
Current Portion of Obligation
Under Capital Leases.............................. 54,033 58,936
Accounts Payable.................................. 691,714 629,426
Accrued Liabilities............................... 162,308 137,859
--------------- ---------------
Total Current Liabilities......................... 1,920,344 1,651,123
--------------- ---------------
Long - Term Debt.................................. 4,252,204 4,366,763
--------------- ---------------
Obligations Under Capital Leases.................. 25,586 12,738
--------------- ---------------
Deferred Compensation............................. 50,000 50,000
--------------- ---------------
Stockholders' Equity:
Common Stock, $.25 par value
8,000,000 shares, authorized,
2,233,360 shares issued and
outstanding in 1994 and 1995...................... 558,340 558,340
Capital Contributed in Excess
of Par Value...................................... 4,996,992 4,996,992
Accumulated Deficit............................... (3,279,848) (3,394,346)
--------------- ---------------
Stockholders' Equity.............................. 2,275,484 2,160,986
--------------- ---------------
TOTAL............................................. $ 8,523,618 $ 8,241,610
=============== ================
</TABLE>
<PAGE>
PART I
- ------
AUDIO COMMUNICATIONS NETWORK, INC. & SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE 3 MONTHS ENDED
----------------------
3/31/95 3/31/94
---------------- -----------------
CASH FLOWS FROM OPERATIONS ACTIVITIES:
- ------------------------------------------
<S> <C> <C>
Cash Received From Customers............. $ 1,856,236 $ 1,422,079
Cash Paid To Suppliers & Employees....... (1,617,621) (932,231)
Interest Received........................ 1,605 920
Interest Paid............................ (130,638) (82,752)
Income Tax Paid.......................... (24,390) -0-
Other-Net................................ 21,025 -0-
----------------- -----------------
Net cash provided by (used in)
Operating Activities..................... 106,217 408,016
----------------- -----------------
CASH FLOWS FROM INVESTMENTS ACTIVITIES:
- ---------------------------------------
Capital Expenditures..................... (7,875) (106,782)
Purchase of Baltimore Acquisition......... -0- (461,964)
Deferred Contract Costs.................. (10,053) -0-
----------------- -----------------
Net Cash Provided by (used in)
Investing Activities..................... (17,928) (568,746)
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Proceeds from issurance of long-term
debt.................................... -0- 553,580
Principal payments under Capital lease
obligations............................. (18,232) (28,611)
Repayment of Long-Term Debt............. (73,638) (204,437)
----------------- -----------------
Net Cash Provided By (used in)
Financing Activities.................... (91,870) 320,532
----------------- -----------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS........................ (3,581) 159,802
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR.................................... 509,064 363,252
----------------- -----------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD.................................. $ 505,483 $ 523,054
================= =================
</TABLE>
<PAGE>
PART I
- ------
AUDIO COMMUNICATIONS NETWORK, INC. & SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
1995 1994
------------------ ------------------
<S> <C> <C>
RECONCILIATION OF NET INCOME
TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Net Income ............................ $ 114,498 $ 38,742
------------------- -------------------
Adjustments to Reconcile Net Income
To Net Cash Provided by Operations:
Depreciation and Amortization........ 292,926 271,860
Valuation Allowance.................. (7,000) (22,000)
Deferred Commissions................. (12,092) (11,605)
Gain on sale of equipment............
Employee Stock Bonus in lieu of
Cash................................. -0- (5,000)
Accounts Receivable.................. 63,511 (5,876)
Inventories.......................... (271,929) 50,238
Prepaid and Other Current Assets..... (139,296) (169,882)
Accounts Payable..................... 62,288 184,537
Accruals............................. 24,449 77,002
Other - Net.......................... (21,138) -0-
------------------- -------------------
Total Adjustments.................... (8,281) 369,274
------------------- -------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES........................... $ 106,217 $ 408,016
=================== ===================
</TABLE>
Supplemental Schedule of Noncash Investing and Financial Activities:
During the quarter ending March 31, 1995 and 1994 approximately $313,000 and
$71,000, respectively, of inventory was leased to customers and reclassified to
property equipment.
Capital lease obligations of approximately $18,000 and loans of approximately
$67,000 for vechicles were incurred during 1995.
<PAGE>
PART I
- ------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS & RESULTS OF OPERATIONS
SUMMARY
- -------
The following table sets forth for the period indicated, certain items from the
Company's Consolidated Statements of Operations expressed as a percentage of
operating revenues.
RELATIONSHIP TO TOTAL REVENUES
<TABLE>
<CAPTION>
1ST. QUARTER
------------
FOR THE 3 MONTHS ENDED
----------------------
3/31/95 3/31/94
--------- ---------
<S> <C> <C>
Revenues from Operations 100.0% 100.0%
Operating Costs and Expenses (72.2) (73.8)
--------- ---------
Income from Operations before
Depreciation and Amortization 27.8 26.2
Depreciation and Amortization (15.4) (17.8)
--------- ---------
Income before Other Income (Expense),
and Income Taxes 12.4 8.4
Other Income (Expense) Net (5.5) (5.3)
--------- ---------
Income before Income Taxes 6.9 3.1
Provision for Income Taxes (0.6) (0.4)
--------- ---------
Net Income 6.3 2.7
========== ==========
</TABLE>
<PAGE>
PART I
- ------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
NET REVENUES:
- -------------
Consolidated net revenues for the 1st. Quarter of 1995 were $1,823,000 as
compared to $1,462,000 for the comparable period of 1994 an increase of $361,000
or 25%. Approximately 55% of this increase is attributable to the acquisitions
in the 1st. Quarter of '94. The subscriber accounts from an independent supplier
in the Baltimore/Delmarva Peninsula area were purchased in January '94 and the
purchase of the Muzak(R) franchise in Central California was consumated in March
'94. The remainder of the increase is due to the continued growth in the
recurring billing and an increase in installation sales. This growth is expected
to continue in the coming year.
COST AND EXPENSES:
- -----------------
Operating cost and expenses as a percentage of revenue primarily decreased over
the like period of '94 due to the increase in the recurring billing base due to
the acquisitions in the 1st. Quarter of '94 and the Company's own continued
growth. The increase in installation and equipment sales requires additional
costs but are offset by this recurring revenue that does not require additional
expense other than royalties and commissions (which are amortized over the life
of the contract).
<PAGE>
DEPRECIATION & AMORTIZATION:
- ----------------------------
There was a net increase in depreciation and amortization expense as a
percentage of sales over the 1st. Quarter of '94 due to the previously mentioned
1994 acquisitions, irrespective of certain assets and intangibles related to
previous acquisitions becoming fully depreciated and amortized.
There was an increase due to the purchase of subscriber accounts in the
Baltimore/Delmarva area that required DBS equipment and the purchase of the
California franchise.
OTHER INCOME AND EXPENSE:
- -------------------------
Other Income and Expense remained relatively the same as a percentage of sales
for both years. Interest expenses increased in '95 due to the increase in the
prime rate and the three month moratorium on Audio's loan principal payment.
The current year also has three months of Fresno's interest expense vs. one
month in the first quarter of '94. Other than interest expense there is an
admixture of cancellation fees, bad debt recoveries, commissions earned or
allowed, bank service charges and interest income.
INCOME TAXES:
- -------------
At March 31, 1995, the Company had net operating loss carryforwards for federal
tax purposes of approximately $3.8 million. Such loss carryforwards expire in
2002 through 2006. The provisions for income taxes in 1995 and 1994 are related
to state income taxes (net of the effect of the extraordinary item in 1992).
<PAGE>
NET INCOME :
- ------------
Net income for the 1st. Quarter of '95 was $114,000 or $.05 per share as
compared to $39,000 or $.02 per share for the 1st. Quarter of '94. This is an
increase of 196% or $75,000. This increase is attributable in great part to
certain assets and intangibles becoming fully depreciated and amortized on
previous acquisitions in addition to the Company's continued growth.
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
The operating cash flows (computed as net income plus interest, taxes,
depreciation and amortization) were $539,000 in '95 as compared to '94's
$397,000.
On January 28, 1994 the Company borrowed an additional $554,000 from Sun Bank,
N.A. for the purchase of subscriber contracts and for DBS equipment to be
installed in the locations acquired in the Baltimore/Delmarva area. On March 4,
1994 the Company assumed the Sun Bank, N.A. California franchise debt of
$1,186,000 with an interest rate of 1% above prime and lease obligation of
approximately $71,000. On November 1, 1994 the Sun Bank, N.A. granted the
Company a moratorium on its principal payments for four months for the purpose
of converting its Fresno franchise from SCA to DBS.
All payments on lease obligations have been made on a timely basis. The 1995
projection shows the Company can continue to meet its debt obligations.
<PAGE>
ACQUISITION:
- ------------
In January 1994 the Company purchased for cash in the amount of $461,000 various
subscriber accounts from an independent music supplier in the Baltimore/Delmarva
area which more than doubled the Company's presence in the Delmarva Peninsula
area. The additional recurring revenue, although not material, has had an
immediate positive effect on the Company's net income.
In March 1994, the Company acquired American Music Network, Inc. the exclusive
Muzak(R) franchise for Central California, including Fresno, Modesto, Salinas
and the Monterey Peninsula. Positive growth has been experienced within the
state of California and this trend is expected to continue.
The Company was acquired from A. J. Schell Chairman, President and CEO of Audio
Communications Network, Inc. The new acquisition compliments Audio's plans to
operate in major metropolitan areas.
Traditionally Muzak(R) franchises generate substantial profit and sufficient
cash flow and the Company has no reason to believe that the California franchise
will not meet the Company's expectations.
American Music Network, Inc. operates as a wholly owned subsidiary of Audio
Communications Network, Inc.
LEGAL PRECEDING:
- ----------------
In prior reports, the Company has disclosed certain litigation instituted in the
United States District Court for the Eastern District of Missouri by AEI Music
Network, Inc. against BMA and the Company. The litigation related to BMA's sale
of certain assets to the Company in 1992.
<PAGE>
By agreement of the parties, the litigation was settled and dismissed with
prejudice on June 23, 1994, without any contribution or liability on the part of
the Company.
<PAGE>
AUDIO COMMUNICATIONS NETWORK, INC. & SUBSIDIARIES
PART II OTHER INFORMATION
Item 2. CHANGES IN SECURITIES
---------------------
Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
This item is not applicable. There have been
no defaults in any of the Company's securities.
Item 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY
------------------------------------------
HOLDERS
-------
Not Applicable
Item 5. OTHER INFORMATION
-----------------
None
Item 6. EXHIBITS & REPORTS ON FORM 8K (17 CFR 249.308)
---------------------------------------------
(27) Financial Data Schedule
<PAGE>
Form 10-QSB
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AUDIO COMMUNICATIONS NETWORK, INC.
(Registrant)
Date May 10, 1995 /s/ Doris K. Krummenacker
------------------ -------------------------
Doris K. Krummenacker
Vice President/Finance &
Treasurer
Date May 10, 1995 /s/ A. J. Schell
------------------ -------------------------
A. J. Schell
Chairman and
Chief Executive Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM.1st Qtr 1995
10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 505,483
<SECURITIES> 0
<RECEIVABLES> 501,842
<ALLOWANCES> 0
<INVENTORY> 187,394
<CURRENT-ASSETS> 1,412,155
<PP&E> 3,140,570
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,523,618
<CURRENT-LIABILITIES> 1,920,344
<BONDS> 4,252,204
<COMMON> 558,340
0
0
<OTHER-SE> 1,717,144
<TOTAL-LIABILITY-AND-EQUITY> 8,523,618
<SALES> 0
<TOTAL-REVENUES> 1,822,757
<CGS> 739,654
<TOTAL-COSTS> 1,595,651
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 132,507
<INCOME-PRETAX> 125,898
<INCOME-TAX> 11,400
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 114,498
<EPS-PRIMARY> .05
<EPS-DILUTED> 0
</TABLE>
