<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, 1997
--------------
( ) 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: 2,333,191
---------
<PAGE>
AUDIO COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FIRST QUARTER
----------------------------
FOR THE 3 MONTHS ENDED
----------------------------
PART I - FINANCIAL INFORMATION 3/31/97 3/31/96
- ------------------------------ --------- ---------
<S> <C> <C>
Music Sales........................... $ 1,780,063 $ 1,828,138
Installations......................... 177,651 183,642
Equipment Sales....................... 200,875 262,053
Labor & Service....................... 104,197 115,006
Pro Sound Installations............... 156,548 210,263
--------- ---------
TOTAL REVENUE......................... 2,419,334 2,599,102
COST AND EXPENSES
- -----------------
Cost of Sales......................... 983,598 1,074,862
Selling, General and
Administrative Expenses............... 808,311 718,661
Depreciation and Amortization......... 410,180 389,916
--------- ---------
TOTAL................................. 2,202,089 2,183,439
--------- ---------
Income before Other Income
(Expense) and Income Taxes............ 217,245 415,663
OTHER INCOME (EXPENSE):
- -----------------------
Interest Income....................... 2,420 7,532
Interest Expense...................... (235,378) (271,851)
Other................................. 34,055 22,203
--------- ---------
OTHER NET............................. (198,903) (242,116)
--------- ---------
Income before Income Taxes............ 18,342 173,547
Provision for Income Taxes............ 13,700 22,100
--------- ---------
Net Income............................ $ 4,642 $ 151,447
========= =========
Net Income Per Common Share $ -0- $ .07
- --------------------------- ========= =========
Number of Common Shares............... 2,413,814 2,260,733
========= =========
Dividends Per Share -0- -0-
========= =========
</TABLE>
<PAGE>
AUDIO COMMUNICATIONS NETWORK, INC, & SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
3/31/97 12/31/96
------------ ----------------
PART I - FINANCIAL INFORMATION (Unaudited) (Condensed from
- ------------------------------ Audited Financial
Statements)
<S> <C> <C>
ASSETS
- ----------------------------------
Current Assets:
Cash & Cash Equivalents............. $ 937,532 $ 995,810
Accounts Receivable................. 871,828 1,044,562
Inventories......................... 470,683 473,771
Prepaid Expenses & Other............ 366,007 50,138
------------ ------------
Total - Current Assets.............. 2,646,050 2,564,281
------------ ------------
Property - Net...................... 5,142,188 4,961,462
------------ ------------
Subscriber Contracts & Other
Intangibles......................... 2,377,901 2,487,096
Goodwill............................ 4,339,273 4,408,520
Deposits & Other.................... 225,511 171,761
------------ ------------
Total Other Assets.................. 6,942,685 7,067,377
------------ ------------
TOTAL............................... $ 14,730,923 $ 14,593,120
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Current - Long Term Debt............ $ 1,584,828 $ 1,303,265
Accounts Payable.................... 675,419 700,276
Royalties Payable................... 157,760 80,757
Accrued Liabilities................. 133,727 85,079
------------ ------------
Total Current Liabilities........... 2,551,734 2,169,377
------------ ------------
Long - Term Debt.................... 8,518,120 8,814,969
------------ ------------
Stockholders' Equity
Common Stock, $.25 par value
8,000,000 shares, authorized,
2,309,203 shares issued and
outstanding in 1996 and
2,333,191 shares in 1997............ 583,298 577,301
Capital Contributed in Excess
of Par Value........................ 5,158,914 5,117,258
Accumulated Deficit................. (2,081,143) (2,085,785)
------------ ------------
Stockholders' Equity................ 3,661,069 3,608,774
------------ ------------
TOTAL............................... $ 14,730,923 $ 14,593,120
============ ============
</TABLE>
<PAGE>
PART I
- ------
AUDIO COMMUNICATIONS NETWORK, INC. & SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 3 MONTHS ENDED
----------------------
<TABLE>
<CAPTION>
3/31/97 3/31/96
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Cash Received From Customers................... $ 2,610,148 $ 2,547,108
Cash Paid To Suppliers & Employees............. (2,332,966) (1,996,986)
Interest Received.............................. 2,420 7,532
Interest Paid.................................. (237,547) (223,468)
Income Tax Paid................................ (13,077) (19,519)
Other-Net...................................... 2,153 8,060
------------- -------------
Net cash provided by
Operating Activities........................... 31,131 322,727
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Capital Expenditures........................... (2,081) (2,234)
Purchase of Florida Sound Assets............... -0- (5,750,000)
Deferred Acquisition Costs..................... -0- (101,941)
Deferred Charges............................... (56,152) -0-
------------- -------------
Net Cash used in Investing Activities.......... (58,233) (5,854,175)
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Proceeds from issuance of long-term
debt........................................... 270,000 11,000,000
Principal payments under Capital lease
obligations.................................... -0- (10,505)
Repayment of Long-Term Debt.................... (315,079) (5,007,163)
Proceeds from sale of stock to employees....... 13,903 -0-
------------- -------------
Net Cash Provided By
Financing Activities........................... (31,176) 5,982,332
------------- -------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS............................... (58,278) 450,884
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR........................................... 995,810 590,107
------------- -------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD......................................... $ 937,532 $ 1,040,991
============= =============
</TABLE>
<PAGE>
PART I
- ------
AUDIO COMMUNICATIONS NETWORK, INC. & SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
3/31/97 3/31/96
----------- -----------
<S> <C> <C>
RECONCILIATION OF NET INCOME
TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Net Income............................................................. $ 4,642 $ 151,447
----------- -----------
Adjustments to Reconcile Net Income
To Net Cash Provided by Operations:
Depreciation and Amortization.......................................... 410,180 408,206
Valuation Allowance.................................................... 1,525 16,098
Deferred Commissions................................................... (35,823) (32,219)
Stock issued to Directors and
Employees in lieu of Cash Compensation................................. 33,750 -0-
(Increase) decrease in operating assets
and increase (decrease) in operating
liabilities:
Accounts Receivable.................................................... 171,734 (51,994)
Inventories............................................................ (343,261) (355,718)
Prepaid and Other Current Assets....................................... (315,869) (128,756)
Accounts Payable....................................................... (24,857) 89,893
Accruals............................................................... 125,651 229,728
Other - Net............................................................ 3,459 (3,958)
----------- -----------
Total Adjustments...................................................... 26,489 171,280
----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES............................................................. $ 31,131 $ 322,727
=========== ===========
</TABLE>
Supplemental Schedule of Noncash Investing and Financial Activities:
During the quarters ending March 31, 1997 and 1996 approximately $346,000 and
$554,000, respectively, of inventory was leased to customers and reclassified to
property and equipment.
During the quarters ending March 31, 1997 and 1996 service vehicles totaling
approximately $48,000 and $18,000 respectively were acquired through the
issuance of long-term debt.
<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.
<TABLE>
<CAPTION>
RELATIONSHIP TO TOTAL REVENUES
1ST. QUARTER
------------
FOR THE 3 MONTHS ENDED
----------------------
3/31/97 3/31/96
--------- --------
<S> <C> <C>
Revenues from Operations 100.0% 100.0%
Operating Costs and Expenses (74.0) (69.0)
------- -------
Income from Operations before
Depreciation and Amortization 26.0 31.0
Depreciation and Amortization (17.0) (15.0)
------- -------
Income before Other Income (Expense),
and Income Taxes 9.0 16.0
Other Income (Expense) Net (8.2) (9.3)
------- -------
Income before Income Taxes 0.8 6.7
Provision for Income Taxes (0.6) (0.9)
------- -------
Net Income 0.2 5.8
========== =========
</TABLE>
<PAGE>
PART I
- ------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
REVENUES:
- ---------
Consolidated net revenues for the 1st. Quarter of 1997 were $2,419,000 as
compared to $2,599,000 for the 1st. Quarter of 1996. This is a decrease of
$180,000 or 7%. It was an overall decrease starting with recurring revenues. The
slight reduction in continuing revenues was due to consolidation and
restructuring of various national accounts. In 1996 the Company had unusually
large installation and equipment sales which resulted in a greater increase than
projected.
These revenues have not yet occurred in 1st. Quarter 1997. Sound revenue for
completion of various large equipment contracts did not take place as
anticipated in the 1st. Quarter.
COST AND EXPENSES:
- ------------------
Cost of sales remained relatively the same in both years as a percentage of
sales. The increase in cost and expenses were due primarily to a greater
emphasis on sales. Additional marketing personnel were hired in each franchise
to expand the recurring revenue base.
DEPRECIATION AND AMORTIZATION:
- ------------------------------
Depreciation and amortization increased as a percentage of sales in 1997 due to
certain recurring contracts initiated in 1996 that required the installation of
subscriber equipment that is being depreciated.
<PAGE>
OTHER INCOME AND EXPENSE (NET):
- -------------------------------
The decrease in Other Income and Expense is due primarily to the reduction in
interest expenses due to principal payments on its existing loan. Other "Net" is
a compilation of gain or loss on fixed assets, commission earned or allowed,
cancellation fees, bad debt recoveries, bank service charges, discounts earned
or allowed.
INCOME TAXES:
- -------------
At March 31, 1997 the Company had net operating loss carryforwards for federal
tax purchases of approximately $2,000,000. Such loss carryforwards expire in
2004 through 2006.
NET INCOME:
- -----------
The 1st. Quarter of 1997 was a break even point vs $151,000 or $.07 a share for
the 1st. Quarter of 1996.
The decrease in earnings were due in part to the decrease in revenue as
explained under Revenues. Increased expenses were incurred in operations by an
increase in sales personnel which should show positive results in the future.
ACQUISITION:
- ------------
On January 2, 1996 the Company acquired the assets of Florida Sound Engineering
Company holder of the Jacksonville, Florida Muzak(R) franchise. In addition to
the Muzak(R) franchise, the Company also acquired the assets of Florida Sound's
Pro Sound Division (with its accounts receivable, inventory and other equipment)
enabling it to install complex and extensive communication systems. The area of
operations extends beyond Jacksonville to Gainesville, Ocala, St. Augustine, and
into southern Georgia, including Brunswick. The Jacksonville company's name
remained the same, and it
<PAGE>
operates as a wholly owned subsidiary of Audio Communications Network, Inc.
Traditionally Muzak(R) franchises generate substantial and sufficient cash flow
and the Company has no reason to believe that the Florida franchise will not
meet the Company's expectations. It already has generated adequate cash flow to
pay the principal and interest on that portion of the loan required to purchase
the Jacksonville franchise.
Subsequent to March 31, 1997 Audio Communications Network, Inc. purchased for
cash ($177,989) all of the assets of Central California Electronics, Inc. a
California corporation located in Fresno. Central California Electronics, Inc.
was a 3M music subscription competitor of Audio Communications Network, Inc.'s
California franchise.
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
Operating cash flows (computed as net income plus interest, taxes, depreciation
and amortization) have decreased from $835,000 in 1996 to $664,000 in 1997 or
approximately 21%.
On January 2, 1996, the Company and SunTrust entered into a Second Amended and
Restated Loan amendment to this existing loan agreement. This new amendment was
for $11,000,000 and is called a "consolidated loan." It paid off the Company's
indebtedness of $4,810,000 at December 31, 1995 and gave the Company the ability
to purchase for cash the assets of the Muzak(R) franchise in Jacksonville,
Florida and to purchase additional inventory for the Pro Sound Division acquired
in the acquisition. In the new covenants, Funded Debt to EBITDA Ratio replaces
the Debt to Net Worth Ratio.
On March 4, 1997 SunTrust Bank, Central Florida, N.A. agreed to extend an
additional term loan in the principal amount of $270,000 to Audio Communications
Network, Inc. The new loan will be secured by the existing
<PAGE>
Security Documents. The purpose of the loan was made to acquire a business in
California (see Acquisition) and to convert those subscribers from SCA to DBS.
In November 1996, the Company entered into an Asset Purchase Agreement (the
"Suncom Asset Purchase Agreement") to acquire substantially all of the assets
and assume the liabilities of Suncom Communications, L.L.C. ("Suncom"). Suncom
owns and operates MUZAK(R) franchises in Hillsborough and Charlotte, North
Carolina and Phoenix, Arizona.
In connection with this transaction, which is expected to be consummated in the
second quarter of 1997, the Company expects that its existing banking facilities
and the current bank facilities of Suncom will be replaced with a combined
banking facility covering both the Company and Suncom.
All payments of interest and principal on loans outstanding have been made on a
timely basis.
<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 9, 1997 /s/ Doris K. Krummenacker
-------------------- -------------------------
Doris K. Krummenacker
Vice President/Finance &
Treasurer
Date May 9, 1997 /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
1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 937,532
<SECURITIES> 0
<RECEIVABLES> 871,828
<ALLOWANCES> 0
<INVENTORY> 470,683
<CURRENT-ASSETS> 2,646,050
<PP&E> 9,333,525
<DEPRECIATION> 4,191,337
<TOTAL-ASSETS> 14,730,923
<CURRENT-LIABILITIES> 2,551,734
<BONDS> 8,518,120
0
0
<COMMON> 583,298
<OTHER-SE> 3,077,771
<TOTAL-LIABILITY-AND-EQUITY> 14,730,923
<SALES> 0
<TOTAL-REVENUES> 2,419,334
<CGS> 983,598
<TOTAL-COSTS> 2,202,089
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 235,378
<INCOME-PRETAX> 18,342
<INCOME-TAX> 13,700
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,642
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
