<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 September 30, 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: 2,234,884
---------
<PAGE>
AUDIO COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
UNAUDITED STATEMENT OF CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
THIRD QUARTER
----------------------------
FOR THE 3 MONTHS ENDED
----------------------------
PART I - FINANCIAL INFORMATION 9/30/95 9/30/94
- ------------------------------ ----------- -----------
<S> <C> <C>
Music Sales .................... $ 1,412,296 $ 1,373,872
Installations .................. 275,215 192,591
Equipment Sales ................ 162,182 184,393
Labor & Service ................ 55,984 69,875
----------- -----------
TOTAL REVENUE................... 1,905,677 1,820,731
COST AND EXPENSES
- -----------------
Cost of Sales................... 776,265 784,659
Selling, General and
Administrative Expenses....... 537,736 565,196
Depreciation and Amortization... 289,697 321,437
----------- -----------
TOTAL .......................... 1,603,698 1,671,292
----------- -----------
Income before Other Income
(Expense) and Income Taxes.... 301,979 149,439
OTHER INCOME (EXPENSE):
- -----------------------
Interest Income ................ 2,414 1,048
Interest Expense................ (140,369) (123,439)
Other .......................... 13,789 24,682
----------- -----------
OTHER NET ...................... (124,166) (97,709)
----------- -----------
Income before Income Taxes...... 177,813 51,730
Provision for Income Taxes ..... 16,400 9,700
----------- -----------
Net Income...................... $ 161,413 $ 42,030
=========== ============
Net Income Per Common Share $ .07 $ .02
- --------------------------- =========== ============
Number of Common Shares ........ 2,239,446 2,225,990
=========== ============
Dividends Per Share -0- -0-
=========== ============
</TABLE>
2
<PAGE>
AUDIO COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
UNAUDITED STATEMENT OF CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
FIRST NINE MONTHS
---------------------------
FOR THE 9 MONTHS ENDED
---------------------------
PART I - FINANCIAL INFORMATION 9/30/95 9/30/94
- ------------------------------ ----------- -----------
<S> <C> <C>
Music Sales ................... $4,250,374 $3,980,007
Installations ................. 794,196 524,855
Equipment Sales ............... 419,474 380,187
Labor & Service ............... 163,092 158,019
---------- ----------
TOTAL REVENUE.................. 5,627,136 5,043,068
COST AND EXPENSES
- -----------------
Cost of Sales ................. 2,256,744 2,116,962
Selling, General and
Administrative Expenses ....... 1,681,268 1,567,443
Depreciation and Amortization.. 854,925 899,886
---------- ----------
TOTAL ......................... 4,792,937 4,584,291
---------- ----------
Income before Other Income
(Expense) and Income Taxes..... 834,199 458,777
OTHER INCOME (EXPENSE):
- -----------------------
Interest Income ............... 5,827 3,306
Interest Expense............... (404,357) (336,591)
Other ......................... 62,607 63,900
---------- ----------
OTHER NET ..................... (335,923) (269,385)
---------- ----------
Income before Income Taxes..... 498,276 189,392
Provision for Income Taxes .... 36,500 24,500
---------- ----------
Net Income..................... $ 461,776 $ 164,892
========== ==========
Net Income Per Common Share $ .21 $ .08
- --------------------------- ========== ==========
Number of Common Shares ....... 2,239,009 2,105,321
========== ==========
Dividends Per Share -0- -0-
========== ==========
</TABLE>
3
<PAGE>
AUDIO COMMUNICATIONS NETWORK, INC, & SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
9/30/95 12/31/94
------------- ------------------
(Unaudited) (Condensed from
PART I - FINANCIAL INFORMATION Audited Financial
- ------------------------------ Statements)
<S> <C> <C>
ASSETS
Current Assets:
Cash & Cash Equivalents.............. $ 597,379 $ 509,064
Accounts Receivable.................. 534,677 558,353
Inventories.......................... 339,498 228,242
Prepaid Expenses & Other............. 171,622 78,140
------------ ------------
Total - Current Assets............... 1,643,176 1,373,799
------------ ------------
Property - Net....................... 3,324,775 2,896,512
------------ ------------
Subscriber Contracts & Other
Intangibles.......................... 1,655,605 1,826,977
Goodwill............................. 2,030,132 2,138,407
Deposits & Other..................... 12,730 5,915
------------ ------------
Total Other Assets................... 3,698,467 3,971,299
------------ ------------
TOTAL................................ $ 8,666,418 $ 8,241,610
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Current - Long Term Debt............. $ 851,592 $ 824,902
Current Portion of Obligation
Under Capital Leases............... 28,657 58,936
Accounts Payable..................... 633,889 629,426
Accrued Liabilities.................. 135,678 137,859
------------ ------------
Total Current Liabilities............ 1,649,816 1,651,123
------------ ------------
Long - Term Debt..................... 4,326,965 4,366,763
------------ ------------
Obligations Under Capital Leases..... 13,829 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 2,234,884
in 1995............................ 558,721 558,340
Capital Contributed in Excess
of Par Value....................... 4,999,658 4,996,992
Accumulated Deficit.................. (2,932,571) (3,394,346)
------------ ------------
Stockholders' Equity................. 2,625,808 2,160,986
------------ ------------
TOTAL................................ $ 8,666,418 $ 8,241,610
============ ============
</TABLE>
4
<PAGE>
PART I
- ------
AUDIO COMMUNICATIONS NETWORK, INC. & SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE 9 MONTHS ENDED SEPTEMBER 30TH
-------------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Cash Received From Customers.............. $ 5,590,384 $ 4,885,761
Cash Paid To Suppliers & Employees........ (4,738,348) (3,333,207)
Interest Received......................... 5,827 3,306
Interest Paid............................. (403,550) (338,965)
Income Tax Paid........................... (54,545) (21,702)
Other-Net................................. 6,778 (12,640)
----------- -----------
Net cash provided by
Operating Activities.................... 406,546 1,182,553
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Net Proceeds from surrender of officer's
life insurance.......................... -0- 42,585
Proceeds from sale of equipment........... 2,050 1,250
Capital Expenditures...................... (11,530) (391,298)
Purchase of Baltimore Acquisition......... -0- (461,964)
Deferred Acquisition Costs................ -0- (56,979)
Deferred Charges.......................... (65,075) (15,994)
Purchase of Subscription Contract Rights.. (33,041) -0-
Employee Stock Purchase................... 3,047 -0-
----------- -----------
Net Cash used in Investing Activities..... (104,549) (882,400)
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Proceeds from issuance of long-term debt.. 5,200,000 553,580
Principal payments under Capital lease
obligations............................. (56,967) (85,981)
Repayment of Long-Term Debt............... (5,356,715) (690,065)
----------- -----------
Net Cash Used in Financing Activities..... (213,682) (222,466)
----------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS........................ 88,315 77,687
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR.................................... 509,064 363,252
----------- -----------
CASH AND CASH EQUIVALENTS, END OF
PERIOD.................................. $ 597,379 $ 440,939
=========== ===========
</TABLE>
5
<PAGE>
PART I
- ------
AUDIO COMMUNICATIONS NETWORK, INC. & SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net Income................................ $ 461,776 $ 164,892
----------- -----------
Adjustments to Reconcile Net Income
To Net Cash Provided by Operations:
Depreciation and Amortization............. 860,245 933,484
Valuation Allowance....................... 3,650 42,500
Deferred Commissions - Net................ (41,947) (42,363)
Gain on sale of equipment................. -0- (1,250)
Employee Stock Bonus in lieu of Cash...... -0- 5,000
Accounts Receivable....................... 20,026 (254,508)
Prepaid and Other Current Assets.......... (93,482) (15,901)
Inventories............................... (806,004) (93,090)
Other-Net................................. -0- -0-
Accounts Payable.......................... 4,463 379,336
Accruals.................................. (2,181) 64,453
----------- -----------
Total Adjustments......................... (55,230) 1,017,661
----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES.............................. $ 406,546 $ 1,182,553
=========== ===========
</TABLE>
Supplemental Schedule of Noncash Investing and Financial Activities:
During the 9 mos. ending September 30th, 1995 and 1994, approximately $695,000
and $374,000, respectively, of inventory was leased to customers and
reclassified to property and equipment.
Capital lease obligations of approximately $18,000 were incurred during 1995.
Loan obligations of approximately $104,000 and $46,000 were incurred during the
9 mos. of 1995 and 1994, respectively for service equipment vehicles.
6
<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 Statement of Operations expressed as a
percentage of operating revenues.
<TABLE>
<CAPTION>
RELATIONSHIP TO TOTAL REVENUES
------------------------------------
FOR THE PERIOD ENDING SEPTEMBER 30TH
------------------------------------
THIRD QUARTER FIRST NINE MONTHS
--------------- ------------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues from Operations 100.0% 100.0% 100.0% 100.0%
Operating Costs and Expenses (68.9) (74.1) (70.0) (73.1)
----- ----- ----- -----
Income from Operations before
Depreciation and Amortization 31.1 25.9 30.0 26.9
Depreciation and Amortization (15.2) (17.7) (15.2) (17.8)
----- ----- ----- -----
Income before Other Income (Expense),
and Income Taxes 15.9 8.2 14.8 9.1
Other Income (Expense) Net (6.5) (5.4) (6.0) (5.3)
----- ----- ----- -----
Income before Income Taxes 9.4 2.8 8.8 3.8
Provision for Income Taxes (0.9) (0.5) (0.6) (0.5)
----- ----- ----- -----
Net Income 8.5 2.3 8.2 3.3
===== ===== ===== =====
</TABLE>
7
<PAGE>
PART I
- ------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
NET REVENUES:
- -------------
Consolidated Net Revenues for the 3rd. Quarter of 1995 were $1,906,000 as
compared to $1,821,000 for the like period of 1994 an increase of 5% or $85,000.
Revenue for the 3rd. Quarter remained relatively the same as the 2nd. Quarter of
'95. Whereas the Baltimore and Fresno franchises had exceptional large
installations and equipment sales in the previous quarter it was Baltimore and
Kansas City who had significant equipment and installation sales in the 3rd.
Quarter of '95. This is an increase of 34% for the 9 Months of '95 over the
like period of '94. The recurring base also increased by 7%. Overall the 9
Months of '95's total operations increased by 12% over '94's 9 Months total
revenues. Audio still has a considerable backlog of installations and it is
anticipated that the Company will finish the year strong.
COST AND EXPENSES:
- ------------------
There was a decrease in Cost and Expenses as a percentage of sales for the 3rd.
Quarter and 9 Months of '95 over the 3rd. Quarter and 9 Months of '94 due
primarily to the increase in installation sales. Cost and Expense as a
percentage of sales remained relatively the same as the 2nd. Quarter of '95 due
to the same increase in installation sales.
8
<PAGE>
DEPRECIATION AND AMORTIZATION:
- ------------------------------
Depreciation and amortization decreased as a percentage of sales for the 3rd.
Quarter and 9 Months of '95 versus the like periods of '94 and remained
comparatively the same as the 2nd. Quarter of '95 due to certain assets and
intangibles related to previous acquisitions becoming fully depreciated and
amortized.
OTHER INCOME AND EXPENSE:
- -------------------------
Other Income and Expense increased in the 3rd. Quarter and 9 Months of '95 over
the like period of '94 and the 2nd. Quarter of '95 due to the increase in the
prime rate, the moratorium on Audio's loan principal payment and the reduction
of the Company's principal payment when the loan was restructured in June of
'95, thereby increasing interest expense. 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 September 30, 1995, the Company had net operating loss carryforwards for
federal tax purposes of approximately $3.4 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 INCOME:
- -----------
Net income for the 3rd. Quarter of '95 was $161,000 or $.07 a share as compared
to $42,000 or $.02 a share for the comparable period last year. This is an
increase of 284% or $119,000. Net income decreased from a high of $185,000 in
the 2nd. Quarter of '95 to $161,000 in the 3rd. Quarter of
9
<PAGE>
'95. The net decrease is due to additional overhead expense incurred,
additional depreciation on capital equipment and an increase in interest expense
due to the reduction in principal payments discussed below.
Net income for the 9 Months of '95 was $462,000, or $.21 per share, as compared
to $165,000, or $.08 per share. This is an increase of $297,000 or 180%. This
increase is due to the Company's continued growth with revenues of $5,627,000 in
'95 versus $5,043,000 for the 9 Months of '94 and, as mentioned previously, the
reduction in depreciation and amortization expense due to certain assets and
intangibles related to previous acquisitions becoming fully depreciated and
amortized.
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
The operating cash flows (computed as net income plus interest, taxes,
depreciation and amortization) were $1,758,000 in '95 as compared to '94's
$1,426,000.
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. On June 7, 1995 Audio
Communications Network, Inc. and Sun Bank, N.A. entered into a 7th Amendment to
its existing loan agreement. The new amendment is for $5,200,000 and it is
called a "consolidated loan." It paid off Audio's and American Music's
indebtedness of $4,899,000. The following covenants
10
<PAGE>
supercede all other covenants: 1) Debt Service Coverage Ratio; 2) Debt to Net
Worth Ratio; and 3) A Minimum Monthly Recurring Billing Required.
All payments on debt obligations have been made on a timely basis. The 1995
projection shows the Company can continue to meet its debt obligations.
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 PROCEEDINGS:
- ------------------
None
11
<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
Form S-8 filed May 17, 1995. Audio Communications Network, Inc.
1993 Employee Stock Purchase and Stock Bonus Plan
12
<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 November 7, 1995
------------------- ---------------------------
Doris K. Krummenacker
Vice President/Finance &
Treasurer
Date November 7, 1995
------------------- ---------------------------
A. J. Schell
Chairman and
Chief Executive Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
3rd Quarter 1995 10-QSB and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 597,379
<SECURITIES> 0
<RECEIVABLES> 534,677
<ALLOWANCES> 0
<INVENTORY> 339,498
<CURRENT-ASSETS> 1,643,176
<PP&E> 6,309,158
<DEPRECIATION> 2,984,383
<TOTAL-ASSETS> 8,666,418
<CURRENT-LIABILITIES> 1,649,816
<BONDS> 4,326,965
<COMMON> 558,721
0
0
<OTHER-SE> 2,067,087
<TOTAL-LIABILITY-AND-EQUITY> 8,666,418
<SALES> 0
<TOTAL-REVENUES> 5,627,136
<CGS> 2,256,744
<TOTAL-COSTS> 4,792,937
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 404,357
<INCOME-PRETAX> 498,276
<INCOME-TAX> 36,500
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 461,776
<EPS-PRIMARY> .21
<EPS-DILUTED> 0
</TABLE>
