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 September 30, 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
(Address of principal executive offices)
(516) 676-2644
(Registrant's telephone number, including area code)
Not Applicable
----------------------------------------------------
(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 November 10, 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)
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
---------------------- ----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross broadcasting
revenues $ 3,798,007 $ 4,249,348 $ 1,390,130 $ 1,469,828
Less: agency commissions (435,100) (500,578) (169,990) (177,155)
----------- ----------- ----------- -----------
Net broadcasting
revenues 3,362,907 3,748,770 1,220,140 1,292,673
----------- ----------- ----------- -----------
Programming and
technical expenses 900,703 899,815 292,565 313,881
Selling, general and
administrative expenses 1,283,006 1,288,735 456,987 449,833
Depreciation and
amortization 235,440 180,000 78,480 60,000
Corporate expenses 248,757 219,419 77,040 67,476
----------- ----------- ----------- -----------
Total operating expenses 2,667,906 2,587,969 905,072 891,190
----------- ----------- ----------- -----------
Income from operations 695,001 1,160,801 315,068 401,483
Interest expense (527,777) (612,721) (173,876) (201,966)
Other income 5,197 5,957 440 2,038
----------- ----------- ----------- -----------
Income before provision for
appraisal right and provision
for income taxes 172,421 554,037 141,632 201,555
Provision for appraisal right (55,000) (438,000) (55,000) (438,000)
----------- ----------- ----------- -----------
Income (loss) before taxes on income 117,421 116,037 86,632 (236,445)
Taxes on income (37,692) (55,000) (5,000) (20,000)
----------- ----------- ----------- -----------
Net income (loss) $ 79,729 $ 61,037 $ 81,632 $ (256,445)
=========== =========== =========== ===========
Primary net income
(loss) per share of
common stock $ .01 $ .01 $ .01 $ (.03)
====== ====== ===== ======
Weighted average shares
outstanding-primary 7,378,199 7,378,199 7,378,199 7,378,199
=========== =========== =========== ===========
Fully diluted net income
(loss) per common share $ .01 $ -- $ .01 $ (.03)
====== ====== ===== ======
Weighted average shares
outstanding-fully
diluted 16,459,701 16,459,701 16,459,701 16,459,701
========== ========== ========== ==========
</TABLE>
2
<PAGE>
FAIRCOM INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
--------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 83,594 $ 363,532
Accounts receivable, less allowance
of $20,000 for possible losses in
1996 and 1995 954,101 942,601
Prepaid expenses 45,139 5,783
----------- -----------
Total current assets 1,082,834 1,311,916
----------- -----------
Property and equipment, at cost 6,308,515 6,283,289
Less accumulated depreciation and
amortization (5,106,883) (4,956,222)
----------- -----------
Property and equipment, net 1,201,632 1,327,067
----------- -----------
Intangible assets, net of accumulated
amortization of $512,643 in 1996 and
$458,553 in 1995 1,630,794 1,684,884
Other assets:
Deferred financing costs 161,766 167,641
Other 55,000 55,000
----------- -----------
1,847,560 1,907,525
----------- -----------
$ 4,132,026 $ 4,546,508
=========== ===========
LIABILITIES AND CAPITAL DEFICIT
Current liabilities:
Accounts payable $ 92,975 $ 58,946
Accrued expenses and liabilities 198,112 208,635
Taxes payable 5,150 20,150
Current portion of interest payable 225,625 235,458
Current portion of long-term debt 537,000 493,250
Current portion of obligations under
capital leases 6,843 20,800
----------- -----------
Total current liabilities 1,065,705 1,037,239
----------- -----------
Long-term debt, less current portion 7,414,884 7,828,883
Interest payable, less current portion 370,992 509,167
Deferred rental income 110,497 136,000
Appraisal right liability 855,000 800,000
----------- -----------
Total liabilities 9,817,078 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 (8,309,647) (8,444,376)
----------- -----------
Total capital deficit (5,630,052) (5,764,781)
----------- -----------
$ 4,132,026 $ 4,546,508
=========== ===========
</TABLE>
3
<PAGE>
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
----------------------------------------
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 79,729 $ 61,037
--------- ---------
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 235,440 180,000
Amortization of deferred
rental income (25,503) --
Provision for appraisal right 55,000 438,000
Increase (decrease) in cash flows
from changes in operating
assets and liabilities:
Accounts receivable (11,500) (4,891)
Prepaid expenses (39,356) (6,665)
Accounts payable 34,029 24,953
Accrued expenses and
liabilities (10,523) (12,754)
Taxes payable (15,000) (65,918)
Interest payable (148,008) (38,242)
--------- ---------
Total adjustments 74,579 514,483
--------- ---------
Net cash provided by
operating activities $ 154,308 $ 575,520
--------- ---------
</TABLE>
4
<PAGE>
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
----------------------------------------
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Cash flows from investing activities:
Capital expenditures $ (25,226) $(170,055)
--------- ---------
Net cash used in
investing activities (25,226) $(170,055)
--------- ---------
Cash flows from financing activities:
Principal payments on long-term
debt (370,249) (393,049)
Principal payments under capital
lease obligations ( 13,957) (15,707)
Increase in other assets (24,814) --
--------- ---------
Net cash used in
financing activities (409,020) (408,756)
--------- ---------
Net decrease in cash and cash
equivalents (279,938) (3,291)
Cash and cash equivalents,
beginning of period 363,532 252,276
--------- ---------
Cash and cash equivalents,
end of period $ 83,594 $ 248,985
========= =========
</TABLE>
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.
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 10.3% to
$3,363,000 in the nine months ended September 30, 1996 from $3,749,000 in the
nine months ended September 30, 1995, and 5.6% to $1,220,000 in the three
months ended September 30, 1996 from $1,293,000 in the three months ended June
30, 1995. Net revenues in the nine months and three months ended September 30,
1996 as compared with the 1995 periods decreased primarily due to lower
regional and national advertising activity in the Flint, Michigan radio market
and resulting lower regional and national advertising revenues at the Company's
Flint radio stations. Such decreases moderated in the three months ended
September 30, 1996 as compared with the first six months of 1996 and were
further offset by increased local sales in the third quarter of 1996 as
compared with the third quarter of 1995.
Operating expenses before depreciation, amortization and
corporate expenses decreased by 0.2% to $2,184,000 in the nine months ended
September 30, 1996 from $2,189,000 in the comparable 1995 period, and decreased
by 1.9% to $750,000 in the three months ended September 30, 1996 from $764,000
in the three months ended September 30, 1995.
Net broadcasting revenues in excess of operating expenses
before depreciation, amortization and corporate expenses (broadcast cash flow)
decreased 24.4% to $1,179,000 in the nine months ended September 30, 1996 from
$1,560,000 in the comparable 1995 period, and 11.0% to $471,000 in the three
months ended September 30, 1996 from $529,000 in the 1995 period. These
decreases resulted from the above-described net broadcasting revenue decreases
in the 1996 periods compared with 1995.
Corporate expenses increased by 13.4% to $249,000 in the nine
months ended September 30, 1996 from $219,000 in the comparable 1995 period,
primarily as a result of higher payments for employee compensation,
professional fees and rental expense in the 1996 period. Such employee
compensation for the 1996 period included incentive payments indexed to 1995
operating results.
Interest expense decreased by 13.9% to $528,000 in the first
nine months of 1996 from $613,000 in the corresponding period in 1995, and by
13.9% to $174,000 in the third quarter of 1996 from $202,000 in the comparable
period in 1995. These decreases resulted from lower principal amounts of
interest bearing debt outstanding and lower interest rates during the 1996
periods.
In the nine months and three months ended September 30, 1996
a provision for appraisal right of $55,000 was recorded to increase the
appraisal right liability from $800,000 to $855,000. This resulted from
management's opinion that the value of its Flint stations, to which the
appraisal right relates, increased during the 1996 nine month and three month
periods. Such liability was increased by $438,000 during the comparable periods
in 1995.
7
<PAGE>
As a result principally of lower provision for appraisal
rights and lower interest expense, offset in part by lower net broadcasting
revenues and higher depreciation and amortization expense, net income increased
to $80,000 in the nine months ended September 30, 1996 from net income of
$61,000 in the first nine months of 1995, and to $82,000 in the three months
ended September 30, 1996 from a loss of $256,000 in the comparable period of
1995.
Liquidity and Capital Resources
In the nine months ended September 30, 1996, net cash
provided by operating activities was $154,000 compared with $576,000 provided
by operating activities in the comparable 1995 period. Such decrease resulted
principally from lower net revenues in the 1996 period. Net decrease in cash
and cash equivalents was $280,000 in 1996 compared with a net decrease of
$3,000 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 $200,000.
Scheduled debt principal payments are $123,000. Corporate expenses and capital
expenditures for the remainder of 1996 are estimated to be approximately
$112,000 and $54,000, respectively. The Company expects to be able to meet such
interest expense, debt repayment, corporate expenses and capital expenditures,
aggregating $489,000, 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: November 11, 1996
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-1-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 83,594
<SECURITIES> 0
<RECEIVABLES> 974,101
<ALLOWANCES> 20,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,082,834
<PP&E> 6,308,515
<DEPRECIATION> 5,106,883
<TOTAL-ASSETS> 4,132,026
<CURRENT-LIABILITIES> 1,065,705
<BONDS> 7,414,884
0
0
<COMMON> 73,782
<OTHER-SE> 2,605,813
<TOTAL-LIABILITY-AND-EQUITY> 4,132,026
<SALES> 0
<TOTAL-REVENUES> 3,798,007
<CGS> 0
<TOTAL-COSTS> 3,103,006
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 527,777
<INCOME-PRETAX> 117,421
<INCOME-TAX> 37,692
<INCOME-CONTINUING> 79,729
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79,729
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
