FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ................. to ......................
Commission file number 0-15392
Faircom Inc.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 87-0394057
------------------------------ ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Glen Head Road, Old Brookville, New York 11545
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(Address of principal executive offices)
(516) 676-2644
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of May 6, 1996:
Common Stock, par value $.01 7,378,199
- ---------------------------- ------------------
(Title of each class) (Number of Shares)
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
--------------------
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Three months ended
March 31, 1996 March 31, 1995
------------------ -------------------
Gross broadcasting
revenues $1,042,819 $1,091,603
Less: agency
commissions (106,866) (123,280)
---------- ----------
Net broadcasting
revenues 935,953 968,323
---------- ----------
Programming and
technical expenses 289,111 263,943
Selling, general and
administrative
expenses 414,670 417,074
Depreciation and
amortization 78,480 60,000
Corporate expenses 90,310 71,531
---------- ----------
Total operating expenses 872,571 812,548
---------- ----------
Income from operations 63,382 155,775
Interest expense (186,430) (203,997)
Other income 3,275 2,534
---------- ----------
Loss before
provision for appraisal
rights and income taxes (119,773) (45,688)
Taxes on income (16,692) --
----------- ----------
Net loss $ (136,465) $ (45,688)
=========== ==========
Primary net loss per share
of common stock $ (.02) $ (.01)
========== ==========
Weighted average shares
outstanding-primary 7,378,199 7,378,199
========== ==========
2
<PAGE>
FAIRCOM INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
1996 1995
-------- ------------
ASSETS
- ------
Current assets:
Cash and cash equivalents $223,266 $363,532
Accounts receivable, less allowance
of $20,000 for possible losses in
1996 and 1995 724,447 942,601
Prepaid expenses 58,097 5,783
--------- ---------
Total current assets 1,005,810 1,311,916
--------- ---------
Property and equipment, at cost 6,283,889 6,283,289
Less accumulated depreciation and
amortization (5,006,443) (4,956,222)
---------- ----------
Property and equipment, net 1,277,446 1,327,067
---------- ----------
Intangible assets, net of accumulated
amortization of $476,583 in 1996 and
$458,553 in 1995 1,666,854 1,684,884
Other assets:
Deferred financing costs 157,411 167,641
Other 55,000 55,000
--------- ---------
1,879,265 1,907,525
---------- ----------
$4,162,521 $4,546,508
========== ==========
LIABILITIES AND CAPITAL DEFICIT
- -------------------------------
Current liabilities:
Accounts payable $ 53,458 $ 58,946
Accrued expenses and liabilities 208,395 208,635
Taxes payable 15,150 20,150
Current portion of interest payable 231,828 235,458
Current portion of long-term debt 507,000 493,250
Current portion of obligations under
capital leases 16,303 20,800
------------ ----------
Total current liabilities 1,032,134 1,037,239
------------ ----------
Long-term debt, less current portion 7,690,884 7,828,883
Interest payable, less current portion 413,249 509,167
Deferred rental income 127,500 136,000
Appraisal right liability 800,000 800,000
------------ ----------
Total liabilities 10,063,767 10,311,289
------------ ----------
Capital deficit:
Common stock--$.01 par value, 35,000,000
shares authorized; 7,378,199 shares
issued and outstanding 73,782 73,782
Additional paid-in capital 2,605,813 2,605,813
Deficit (8,580,841) (8,444,376)
------------ -----------
Total capital deficit (5,901,246) (5,764,781)
------------ -----------
$ 4,162,521 $ 4,546,508
============ ===========
3
<PAGE>
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended
March 31, 1996 March 30, 1995
-------------- --------------
Cash flows from operating activities:
Net loss $(136,465) $(45,688)
---------- ---------
Adjustments to reconcile net
loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 78,480 60,000
Amortization of deferred
rental income (8,500) --
Increase(decrease) in cash flows
from changes in operating assets
and liabilities:
Accounts receivable 218,154 229,066
Prepaid expenses (52,314) (10,644)
Accounts payable (5,488) 2,886
Accrued expenses and
liabilities (240) (38,690)
Taxes payable (5,000) (44,793)
Interest payable (99,548) 21,737
---------- --------
Total adjustments 125,544 219,562
---------- --------
Net cash provided by (used in)
operating activities $ (10,921) $173,874
---------- --------
4
<PAGE>
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
Three months ended
March 31, 1996 March 31, 1995
-------------- --------------
Cash flows from investing activities:
Capital expenditures $ (600) $(127,145)
-------- ---------
Net cash used in
investing activities (600) (127,145)
-------- ---------
Cash flows from financing activities:
Principal payments on long-term
debt (124,248) (148,605)
Principal payments under capital
lease obligations (4,497) (5,452)
-------- ---------
Net cash used in
financing activities (128,745) (154,057)
-------- ---------
Net decrease in cash and cash
equivalents (140,266) (107,328)
Cash and cash equivalents,
beginning of period 363,532 252,276
-------- ---------
Cash and cash equivalents,
end of period $223,266 $ 144,948
======== =========
5
<PAGE>
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for completed
financial statements. In the opinion of management, the statements include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for the interim periods. The results of
operations for any interim period are not necessarily indicative of the results
for a full year.
It is suggested that these consolidated financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995, as filed with the Commission.
2. Net Loss Per Common Share
-------------------------
Fully diluted net loss per common share is not presented because the
effects of the assumed conversion of the Company's Subordinated Senior
Convertible Note would be antidilutive.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
The Company's net broadcasting revenues decreased 3.3% to $936,000 in the
three months ended March 31, 1996 from $968,000 in the three months ended March
31, 1995. Net revenues decreased primarily due to lower national advertising
activity in the Flint, Michigan radio market and resulting lower national
advertising revenues at the Company's Flint, Michigan radio stations.
Operating expenses before depreciation, amortization and corporate expenses
increased by 3.3% to $704,000 in the three months ended March 31, 1996 from
$681,000 in the three months ended March 31, 1995. This increase resulted
primarily from higher promotional and programming expenses in the Company's
Flint radio stations.
Net broadcasting revenues in excess of operating expenses before
depreciation, amortization and corporate expenses (operating cash flow)
decreased 19.2% to $232,000 in the three months ended March 31, 1996 from
$287,000 in the three months ended March 31, 1995. This decrease resulted from
the decrease in net broadcasting revenues and the increase in operating expenses
described above.
Depreciation and amortization increased by 30.8% to $78,000 in the three
months ended March 31, 1996 from $60,000 in the comparable period of 1995 as a
result of additions to plant and equipment made in 1995.
Corporate expenses increased by 26.3% to $90,000 in the three months ended
March 31, 1996 from $72,000 in the comparable period of 1995 as a result of
higher payments for employee compensation and professional fees in the 1996
period. Such employee compensation for the 1996 period included incentive
payments indexed to 1995 operating results.
Interest expense decreased by 8.6% to $186,000 in the three months ended
March 31, 1996 from $204,000 in the comparable period in 1995. This decrease
resulted from lower principal amounts of interest bearing debt outstanding and
lower interest rates during the 1996 period.
As a result principally of lower net broadcasting revenues and higher
operating, depreciation and amortization and corporate expenses, offset in part
by lower interest expense, net loss increased to $136,000 in the three months
ended March 31, 1996 from a net loss of $46,000 in the first quarter of 1995.
7
<PAGE>
Liquidity and Capital Resources
- -------------------------------
In the three months ended March 31, 1996, net cash used in operating
activities was $11,000 compared with $174,000 provided by operating activities
in the comparable 1995 period. Net decrease in cash and cash equivalents was
$140,000 in 1996 compared with a net decrease of $107,000 in 1995.
Historically, the Company's net cash provided by operating activities is
lower in its first and second quarters, and the Company expects such net cash to
increase in the balance of 1996.
Based upon current interest rates, the Company believes its interest
expense for the balance of 1996 will be approximately $679,000. Scheduled debt
principal payments are $369,000. Corporate expenses and capital expenditures for
the remainder of 1996 are estimated to be approximately $270,000 and $79,000,
respectively. The Company expects to be able to meet such interest expense, debt
repayment, corporate expenses and capital expenditures, aggregating $1,397,000,
from net cash provided by operations and current cash balances.
The Company is examining various alternatives for obtaining funds for
station acquisitions. No assurance can be given that the Company will
successfully consummate any such financing.
8
<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 Financial Data Schedule
All other items of this Part are inapplicable.
9
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FAIRCOM INC.
(Registrant)
/s/ JOEL M. FAIRMAN
--------------------------------
Joel M. Fairman
Chairman of the Board
President and Treasurer
(Principal Executive Officer
and Chief Financial Officer)
Date: May 13, 1996
10
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<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 223,266
<SECURITIES> 0
<RECEIVABLES> 744,447
<ALLOWANCES> 20
<INVENTORY> 0
<CURRENT-ASSETS> 1,005,810
<PP&E> 6,283,889
<DEPRECIATION> 5,006,443
<TOTAL-ASSETS> 4,162,521
<CURRENT-LIABILITIES> 1,032,134
<BONDS> 7,690,884
0
0
<COMMON> 73,782
<OTHER-SE> 2,605,813
<TOTAL-LIABILITY-AND-EQUITY> 4,162,521
<SALES> 0
<TOTAL-REVENUES> 1,042,819
<CGS> 0
<TOTAL-COSTS> 979,437
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 186,430
<INCOME-PRETAX> (119,773)
<INCOME-TAX> 16,692
<INCOME-CONTINUING> (136,465)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (136,465)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> 0
</TABLE>
