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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _________ to __________
Commission file number 0-15392
FAIRCOM INC.
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(Exact name of registrant as specified in its charter)
Delaware 87-0394057
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Glen Head Road, Old Brookville, N.Y. 11545
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 676-2644
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, $.01 Par Value Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
NONE
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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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 15, 1996, the aggregate market value of the registrant's voting
stock held by non-affiliates was approximately $1,123,000.
The number of outstanding shares of Common Stock as of March 15, 1996 was
7,378,199.
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PART I
ITEM 1. BUSINESS
The Company
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Faircom Inc., a Delaware corporation ("Faircom" or the "Company"), owns and
operates three radio stations, WFNT-AM and WCRZ-FM in Flint, Michigan, and
WWBN-FM in Tuscola, Michigan, a community north of Flint.
In August 1994, the Company sold WHFM-FM, its station in Southampton, Long
Island, New York, and purchased WWBN-FM. The Company is actively pursuing
acquisitions of additional radio stations.
The Company was founded by Joel M. Fairman in April 1984 and began
operations with the objective of acquiring broadcasting properties at prices
considered attractive by the Company, financing them on terms satisfactory to
the Company, managing them in accordance with the Company's operating strategy
and building a significant broadcasting group. The Company has sought to acquire
radio properties which have a history of growing revenues and broadcast cash
flow, capable operating management and are in communities with good growth
prospects or which have attractive competitive environments. Faircom has not
purchased, and does not foresee purchasing in the near future, properties with
negative cash flows, or so-called "under-performing" or "turnaround" properties.
The Company continuously reviews radio properties for possible acquisition,
and several acquisitions are currently being actively pursued. No assurance can
be given that the Company will successfully consummate any of such acquisitions.
The Company's predecessor was founded in April 1984. In July 1984, a plan
of merger was consummated pursuant to which the Company became the surviving
entity of a merger between its predecessor and Comtron, Inc., a public company
incorporated in December 1982.
The Company's executive offices are located at 333 Glen Head Road, Suite
220, Old Brookville, New York 11545 and its telephone number is (516) 676-2644.
All of the Company's properties are owned and operated through subsidiary
corporations, and references to the term "Faircom" or "Company" herein include
such subsidiaries unless the context otherwise requires.
Restructuring and Refinancing of the Company
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During 1992 and 1994, the Company restructured its senior debt and
preferred stock. The Company is examining various alternatives for obtaining
funds
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for station acquisitions. No assurance can be given that the Company will
successfully consummate any such financing.
Acquisitions and Dispositions of Radio Stations
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The Company was a development stage company until June 1985, when it
acquired through a subsidiary its first broadcasting property, WHFM-FM,
Southampton, Long Island, for $2.1 million in cash. In August 1985, a subsidiary
of the Company acquired WTMA-AM and WSSX-FM in Charleston, South Carolina for
$6.4 million, of which $6.2 million was in cash and $200,000 was in the form of
a 10% three year secured subordinated note issued to the seller. In December
1986 a subsidiary of the Company acquired WKMF-AM and WCRZ-FM in Flint, Michigan
for $7.3 million. WKMF-AM changed its call letters to WFNT-AM in October 1993.
The purchase price consisted of $6.3 million in cash and a $1.0 million 8%
secured subordinated note to the sellers due October 1, 1991. Both the
Charleston and Flint seller notes were subsequently paid in full. In August
1994, the Company purchased WKMF-FM for $450,000, consisting of $400,000 cash
and an 8% note for $50,000 payable in 16 monthly installments. The final
installment of the 8% seller note was paid in December 1995. WKMF-FM changed its
call letters to WWBN-FM in September 1994.
The Company's Charleston stations, WTMA-AM and WSSX-FM, were sold in 1989
and 1993 for $458,000 and $1,125,000 cash, respectively. In August 1994, the
Company sold its Southampton station for $1,850,000 cash, reduced by credits of
$150,000 for certain payments made by the purchaser prior to closing.
Operating Strategy
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The Company's strategy has been to purchase radio properties that exhibit
growing revenues and broadcast cash flow, and have experienced, in-place
operating personnel. After acquiring a radio station, the Company reviews the
station's operations and attempts to realize economies associated with ownership
of multiple stations by centralizing such functions as accounting and other
administrative activities. A minimal staff is maintained at the corporate level
reflecting the Company's strategy of minimizing corporate expenses while giving
considerable autonomy to its station managers.
The Company relies on experienced station managers who are given the
authority for decision making at the station level, subject to guidance by the
Company's management. The Company's station managers are partially compensated
on the basis of their ability to meet or exceed budgeted operating results.
Consequently, operating personnel can benefit by meeting the revenue and expense
objectives of the Company.
Each station targets specific demographic groups based upon advertiser
demand, the format of the station and the competition in the market. Through
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program selection, promotion, advertising and the use of selected on-air
personnel, each station attempts to attract a target audience which it believes
is attractive to advertisers. The Company retains consultants to assist the
Company's programming personnel by evaluating and suggesting improvements for
programming. The Company also conducts research through outside consultants to
evaluate and improve its programming and also uses its own personnel for such
research.
The Radio Broadcasting Industry and Company Operations
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At January 31, 1996, there were approximately 4,909 commercial AM and 5,306
commercial FM stations authorized and operating in the United States. An
increasing number of persons listen to FM radio because of clearer sound
characteristics and stereo transmission. In the spring of 1995, FM listenership
was about 76% of total radio audience.
Radio station revenue is derived predominantly from local and regional
advertising and to a lesser extent from national advertising. Network
compensation also provides some revenue. Virtually all of the Company's
broadcasting revenues are derived from the sale of advertising. In 1995,
approximately 76% of the Company's consolidated station advertising revenues
were from local and regional sales, 23% from national sales and about 1% from
network or syndication compensation. Local and regional sales generally are made
by a station's sales staff. National sales are made by "national rep" firms,
specializing in radio advertising sales on the national level. These firms are
compensated on a commission-only basis. Local and regional sales are made
primarily to businesses in the market covered by a station's broadcast signal
and to some extent to businesses in contiguous or nearby markets. Such
businesses include auto dealers, soft drink, beer and wine distributors, fast
food outlets and financial institutions. National sales are made to larger,
nationwide advertisers, such as soft drink producers, automobile manufacturers
and airlines. Most advertising contracts are short-term, generally running only
for a few weeks. Advertising rates charged by a radio station are based
primarily on the station's ability to attract audiences in the demographic
groups which advertisers wish to reach and on the number of stations competing
in the market area. Rating service surveys quantify the number of listeners
tuned to the station at various times. Rates are generally highest during
morning and evening drive-time hours. The Company's stations' advertising sales
are made by its sales staff under the direction of the general manager or sales
managers. The sales staffs utilize written sales presentations, some of which
incorporate computer-generated visual and statistical materials. Television,
billboard, newspaper and direct mail advertising, as well as special events and
promotions, are used to supplement direct contact by the sales staff in
developing advertising clients.
The primary costs incurred in operating a radio station are salaries,
programming, promotion and advertising expenditures, occupancy costs of premises
for studios and offices, transmitting and other equipment expenses and music
license royalty fees.
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Radio broadcasting revenues are spread over the calendar year. The first
quarter generally reflects the lowest and the third and fourth quarters the
highest revenues for the year, due in part to increases in retail advertising in
the summer and in the fall in preparation for the holiday season and, in
election years, to political advertising.
The radio industry is continually faced with technological changes and
innovations, the possible rise in popularity of competing entertainment and
communications media, changes in labor conditions, governmental restrictions and
actions of federal regulatory bodies, including the Federal Communications
Commission ("FCC"), any of which could have a material effect on the Company's
business. However, broadcasting stations have generally enjoyed growth in
listeners and value within the past several decades. Population increases and
greater availability of radios, particularly car and portable radios, have
contributed to this growth.
Competition
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The Company's radio broadcasting stations compete with the other
broadcasting stations in their respective market areas, as well as with other
advertising media such as newspapers, television, magazines, outdoor
advertising, transit advertising and mail marketing. Competition within the
radio broadcasting industry occurs primarily in the individual market areas so
that a station in one market does not generally compete with stations in other
market areas. In addition to management experience, factors which are material
to competitive position include the station's ratings in its market, rates
charged for advertising time, broadcast signal coverage, assigned frequency,
audience characteristics, the ability to create and execute promotional
campaigns for clients and for the station, local program acceptance and the
number and characteristics of other stations in the market area. The Company
attempts to improve its competitive position by continuously reviewing its
programming and the programming of its competitors, upgrading its technical
facilities where appropriate, attempting to expand sales to its existing
advertising clients and developing new client relationships, and by promotional
campaigns aimed at the demographic groups targeted by its stations.
In order to provide additional opportunity for persons interested in
obtaining radio broadcasting licenses, including minorities, the FCC in 1984
proposed new licenses for new full service FM broadcast stations in 684
communities. This FCC program is referred to as the "Docket 80-90" proceeding.
Where these stations have commenced commercial broadcasting, they have increased
competition in these markets. Also, it has been customary in the industry for
experienced operators to buy stations in markets they consider attractive and
attempt to improve the performance of these stations by additional investment
and better management, thus increasing competition in these markets.
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FCC Regulation
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The FCC regulates radio stations under the Communications Act of 1934, as
amended (the "Communications Act") which, together with FCC rules and policies
promulgated thereunder, governs the issuance, renewal and assignment of
licenses, technical operations, employment practices and, to a limited extent,
business and program practices of radio stations and other communications
entities. Radio station licenses are renewable for terms of seven years upon the
grant by the FCC of an application for renewal. Any person is entitled to
challenge license renewals and may file applications that compete with an
incumbent's renewal application. The FCC may be required to hold hearings to
resolve such conflicts.
In August 1992, the FCC voted to adopt revisions to its broadcast multiple
ownership rules that permit a single licensee to own up to 18 AM stations and 18
FM stations nationwide. It further voted to relax, to a certain degree, the
local ownership restrictions of its multiple ownership rules in a manner which
is keyed to the number of stations in a local market area. In markets with fewer
than 15 stations, the revised rules allow a single licensee to own up to three
stations, no more than two of which are FM stations, provided that the licensee
owns fewer than 50% of the stations in the market. AM-FM combinations are
allowed. In markets with 15 or more stations, the revised rules allow a single
licensee to own up to two AM stations and two FM stations, provided that the
combined audience share of stations owned by the licensee in the market does not
exceed 25%. The rule revisions became effective in September 1992. In September
1994, permissible nationwide ownership by a single licensee was increased to 20
AM and 20 FM stations.
The rules also generally prohibit the acquisition of ownership in, or
control of, a television station and either an AM or an FM radio station serving
the same market. Such prohibition is subject to waiver for stations in the 25
largest television markets under certain conditions. There are also prohibitions
relating to ownership in or control of a daily newspaper and a broadcast station
in the same market and limitations on the extent to which aliens may own an
interest in broadcast stations.
Over the past four years, a number of radio stations, including the
Company's stations, have entered into what have commonly been referred to as
"Local Market Agreements", or "LMAs". While these agreements may take varying
forms, under a typical LMA, separately owned and licensed radio stations agree
to enter into cooperative arrangements of varying sorts, subject to compliance
with the requirements of antitrust laws and with the FCC's rules and policies.
Under these types of arrangements, separately owned stations could agree to
function cooperatively in terms of programming, advertising sales, etc., subject
to the licensee of each station maintaining independent control over the
programming and station operations of its own station. One typical type of LMA
is a programming agreement among two separately owned radio stations serving a
common service area, whereby the licensee of one station programs substantial
portions of the broadcast day on the other
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licensee's station, subject to ultimate editorial and other controls being
exercised by the latter licensee, and sells advertising time during such program
segments. Such arrangements are an extension of the concept of "time brokerage"
agreements, under which a licensee of a station sells blocks of time on its
station to an entity or entities which program the blocks of time and which sell
their own commercial advertising announcements during the time periods in
question.
In the past, the FCC has determined that issues of joint advertising sales
should be left to antitrust enforcement and has specifically revised its
so-called "cross-interest" policy to make that policy inapplicable to time
brokerage arrangements. Under the cross-interest policy, the FCC may prohibit
one party from acquiring certain economic interests in two broadcast stations in
the same market. Furthermore, the staff of the FCC's Mass Media Bureau has, over
the past four years, held that LMAs are not contrary to the Communications Act
provided that the licensee of the station which is being substantially
programmed by another entity maintains complete responsibility for and control
over operations of its broadcast station and assures compliance with applicable
FCC rules and policies.
On February 8, 1996, the President signed into law the Telecommunications
Act of 1996 (the "Telecom Act"). This legislation (a) permits foreign nationals
to serve as officers and directors of broadcast licensees and their parent
companies, (b) directs the FCC to eliminate its national ownership limits on
radio station ownership, (c) requires the FCC to relax its numerical
restrictions on local radio ownership, (d) extends the FCC's radio and
television common ownership waiver policy to the top 50 markets, (e) extends the
license renewal period for radio and television stations to eight years and (f)
affords renewal applicants significant new protections from competing
applications for their broadcast licenses.
The Telecom Act's provisions regarding local radio ownership limits would
create a sliding scale of permissible ownership, depending on market size. In
radio markets with 45 or more commercial radio stations, a licensee may own up
to eight stations, no more than five of which can be in a single radio service
(i.e. no more than five AM or five FM). In radio markets with 30 to 44
commercial radio stations, a licensee may own up to seven stations, no more than
four of which are in a single radio service. In radio markets having 15 to 29
commercial radio stations, a licensee may own up to six radio stations, no more
than four of which are in a single radio service. Finally, with respect to radio
markets having 14 or fewer commercial radio stations, a licensee may own up to
five radio stations, no more than three of which are in the same service;
provided that the licensee may not own more than one half of the radio stations
in the market.
The Telecom Act affords renewal applicants additional protection from
renewal challenges by (a) changing the standard for grant of license renewal and
(b) precluding the FCC from considering the relative merits of a competing
applicant in connection with making its determination on a licensee's renewal
application. The new standard for license renewal is that a station's license
will be renewed if (x) the station
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has served the public interest, convenience and necessity, (y) there have been
no serious violations of the Communications Act or FCC rules by the licensee and
(z) there have been no other violations of the Communications Act or FCC rules
which, taken together, would establish a pattern of abuse by the licensee.
The Company's Flint AM and FM licenses expire October 1, 1996. The Company
does not anticipate any material difficulty in renewing the licenses of these
stations.
The foregoing does not purport to be a complete summary of all of the
provisions of the Communications Act, the Telecom Act or the regulations or
policies of the FCC thereunder. Reference is made to such Acts, regulations, and
policies for further information.
Employees
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At the corporate level, the Company employs its President and Treasurer,
Mr. Fairman, and its Senior Vice President, who also utilize the services of
consultants, a bookkeeping service and the Company's attorneys. The Company's
President and Senior Vice President assist the general managers of the Company's
stations in developing strategies to increase the profitability of the Company's
broadcasting properties and in the operation of the stations. The Company plans
to continue its present policy of utilizing only a small number of persons at
the corporate level. Each market in which the Company owns and operates radio
stations has its own complement of employees, including a general manager, a
sales manager, a business manager, advertising sales staff, on-air personalities
and engineering and operating personnel. In the aggregate, the Company's
subsidiaries employ 32 people on a full-time basis and 24 people on a part-time
basis.
The Company has never experienced a strike or work stoppage and believes
that its relations with its employees are good.
ITEM 2. PROPERTIES
The Company leases approximately 800 square feet of office space for its
corporate offices in Old Brookville, New York. The lease expires November 1996.
Annual rental is approximately $20,400. The Company is negotiating an extension
of this lease and a new lease in the same building for additional space of
approximately the same size as its present space.
The Flint stations occupy studio and office space in a building of
approximately 6,000 square feet located on 10 acres in southeastern Flint,
Michigan. The AM towers and antennas are also located on this land. An FM tower,
antenna,
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transmitter building and equipment are located on 19 acres of land located
nearby. The land, buildings, towers and antennas are owned by a subsidiary of
the Company.
The Tuscola station occupies studio and office space in leased premises in
Frankenmuth, Michigan, at an annual rental of $1,920 under a lease that expires
June 1997. The station's tower, antenna and transmitter building are owned by a
subsidiary of the Company. Those facilities are located on leased land in
Millington, Michigan. The lease expires in June 1997 and has renewal options
through June 2042. Current rental is $1,920 annually.
The Company owns substantially all of its studio and general office
equipment. The Company believes that its properties are in good condition and
are adequate for its operations, although opportunities to upgrade facilities
are constantly reviewed.
All the tangible and intangible property of the Company's subsidiaries is
pledged as security for senior debt of the subsidiaries. See Notes 2 and 4 to
the Company's 1995 Consolidated Financial Statements for a description of
encumbrances against the Company's properties and the Company's rental
obligations.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any lawsuit or legal proceeding that, in the
opinion of the Company, is likely to have a material adverse effect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market For Common Stock
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The Company's Common Stock was admitted to trading on the Boston Stock
Exchange (the "Exchange") on December 30, 1987. Prior to that date, the
Company's Common Stock was traded in the over-the-counter market, and stock
price quotations appeared in the "pink sheets" published by the National
Quotation Bureau, Inc. In April 1993, the Exchange changed its requirements for
continued listing with respect to stockholders' equity. In December 1993, the
Exchange notified the Company that it was not in compliance with the
stockholders' equity requirement. The Company requested a waiver of this
requirement based on the nature of the Company's business. The Exchange denied
the Company's request and trading on the Exchange in the Company's common stock
ceased on May 23, 1994.
On March 2, 1994, the Company's common stock was listed for trading on the
National Association of Securities Dealers, Inc. Over-the-Counter Bulletin Board
(the "OTC Bulletin Board") with the symbol "FXCM."
The following table reflects the high and low prices of the Common Stock on
the Exchange for the first quarter of 1994 and on the OTC Bulletin Board for the
remaining quarters in 1994 and each quarter during 1995.
Fiscal Year High Low
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1994
First Quarter....................... 3/16 1/16
Second Quarter...................... 1/8 3/32
Third Quarter....................... 1/8 3/32
Fourth Quarter...................... 5/32 3/32
1995
First Quarter....................... 1/8 3/32
Second Quarter...................... 7/32 3/32
Third Quarter....................... 10/32 3/32
Fourth Quarter...................... 10/32 4/32
On March 15, 1996, the bid and asked prices of the Company's Common Stock
on the OTC Bulletin Board were 5/32 and 7/32, respectively. There were 370
holders of record of the Company's Common Stock on March 15, 1996.
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Dividend Policy
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The Company has never paid dividends on its Common Stock. It is the
Company's current policy to retain future earnings for the capital requirements
of its business. The Company and its subsidiaries are subject to certain
restrictions under existing agreements with their lenders which limit dividends
on their Common Stock. See Note 2 to the Company's 1995 Consolidated Financial
Statements.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
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1994
1995 (As restated) 1993 1992 1991
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<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net Broadcasting Revenues $5,113,582 $4,983,513 $5,015,265 $6,061,729 $6,509,879
Income from Operations 1,511,481 1,470,355 854,514 1,017,423 798,176
Income (Loss)
Before Extraordinary Item 244,816 992,079 (796,843) (2,278,749) (2,394,684)
Extraordinary Item 787,201 3,216,605 337,247
Net Income (Loss) 244,816 1,779,280 2,419,762 (1,941,502) (2,394,684)
Primary Income (Loss)
Per Common Share
Income (Loss)
Before Extraordinary Item .03 .13 (.11) (.31) (.32)
Extraordinary Item .11 .44 .05
Primary Net Income (Loss)
Per Common Share .03 .24 .33 (.26) (.32)
Fully Diluted Income (Loss)
Per Common Share
Income (Loss)
Before Extraordinary Item .02 .06 (.11) (.31) (.32)
Extraordinary Item .05 .44 .05
Fully Diluted Net Income (Loss)
Per Common share .02 .11 .33 (.26) (.32)
BALANCE SHEET DATA AT
YEAR END:
Total Current Assets 1,311,916 1,246,104 1,771,069 1,456,027 1,474,726
Total Current Liabilities 1,037,239 1,150,537 2,771,126 4,853,686 21,933,259
Total Assets 4,546,508 4,488,913 4,515,236 6,307,862 6,466,868
Long-Term Debt and
Obligations Under Capital
Leases 7,828,883 8,367,345 6,010,018 12,255,864 195,214
Redeemable Preferred Stock of
Subsidiaries at Liquidation Value 1,968,544 7,909,341 5,611,961
Total Capital Deficit (5,764,781) (6,009,597) (11,624,571) (19,034,961) (17,093,189)
</TABLE>
The Company has not declared or paid Common Stock cash dividends since
inception.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
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Year ended December 31, 1995 compared to year ended December 31, 1994
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The Company's net broadcasting revenues increased 2.6% in 1995 compared to
1994 (to $5,114,000 from $4,984,000). Increased net revenues at the Company's
Flint, Michigan radio stations in 1995 more than offset the absence of any net
revenues in 1995 from a radio station in Southampton, New York, formerly owned
by the Company and sold in August 1994. Net revenues increased in the Flint
stations as a result of higher local and national advertising revenues generated
by increased economic activity in the market and nationally.
Operating expenses before depreciation, amortization and corporate expenses
increased by 3.3% in 1995 compared to 1994 (to $2,946,000 from $2,853,000).
Expenses increased as a result of increased operating expenses at the Flint
stations, offset in part by the absence of operating expenses in the Southampton
station formerly owned by the Company. The increases in Flint operating expenses
consist principally of increases in promotion and advertising expense, the cost
of new syndicated programming and higher sales and administrative expense.
Net broadcasting revenues in excess of operating expenses before
depreciation, amortization and corporate expenses ("broadcast cash flow")
increased 1.7% (to $2,167,000 from $2,131,000) in 1995 compared to 1994. This
increase resulted from higher broadcast cash flow in Flint, offset by the
absence of any broadcast cash flow from Southampton in 1995.
Corporate expenses increased by 12.4% in 1995 from 1994 (to $305,000 from
$271,000) primarily as a result of higher payments for employee compensation,
including incentive compensation.
Interest expense increased by 5.4% in 1995 from 1994 (to $811,000 from
$770,000) due to higher principal amounts of interest bearing debt outstanding
and higher interest rates during 1995.
The year 1995 contained no gain from sale of radio stations. Such gain, in
the amount of $965,000, was contained in the year 1994, reflecting the sale in
August 1994 of the Southampton radio station formerly owned by the Company.
Preferred stock dividend requirement of subsidiaries decreased by 100.0% in
1995 from 1994 (to zero from $149,000) as a consequence of the extinguishment of
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the preferred stock in a former subsidiary of the Company resulting from the
sale of the Company's former station in Southampton in August 1994.
As a result principally of the absence in 1995 of the $965,000 gain from
sale of a radio station and the $787,000 gain from troubled debt restructuring
recognized in 1994, net income declined to $245,000 in 1995 from $1,779,000 in
1994. The gain from sale of a radio station and the gain from troubled debt
restructuring accounted for $.13 and $.11 of the primary and $.06 and $.05 of
the fully diluted per share earnings, respectively, in 1994.
Year ended December 31, 1994 compared to year ended December 31, 1993
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The Company's net broadcasting revenues declined slightly by 0.6% in 1994
compared to 1993 (to $4,984,000 from $5,015,000). Net revenues decreased as a
result of the absence in 1994 of any net revenues from a radio station in
Charleston, South Carolina, formerly owned by the Company and sold in September
1993 and the sale of the Company's Southampton, New York radio station in August
1994. The absence of the Charleston and Southampton net revenues for all and a
portion of 1994, respectively, was almost totally offset by increased net
revenues at the Company's Flint, Michigan radio stations. Net revenues increased
in the Flint stations as a result of higher local and national advertising
revenues generated by increased economic activity in the market.
Operating expenses before depreciation, amortization and corporate expenses
decreased by 18.1% in 1994 compared to 1993 (to $2,853,000 from $3,483,000).
Expenses decreased as a result of the absence of operating expenses in the
Charleston and Southampton stations formerly owned by the Company, offset in
part by increased operating expenses at the Flint stations. The increases in
Flint operating expenses consist principally of increases in programming
personnel and promotional expenses.
Net broadcasting revenues in excess of operating expenses before
depreciation, amortization and corporate expenses ("broadcast cash flow")
increased 39.0% (to $2,131,000 from $1,532,000) in 1994 compared to 1993. This
increase resulted from the above-described increases in net broadcasting
revenues in the Flint stations, which exceeded the operating expense increases
of those stations, and the absence in 1994 of the former Charleston station
operations, which incurred operating losses in 1993. This increase was offset
somewhat by the absence of operating profits from the former Southampton station
after its sale.
Interest expense decreased by 12.2% in 1994 from 1993 (to $770,000 from
$877,000). This decrease resulted from lower average principal amounts of
interest bearing debt outstanding during 1994.
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Preferred stock dividend requirement of subsidiaries decreased by 84.3% in
1994 from 1993 (to $149,000 from $949,000). These decreases resulted from the
extinguishment of the preferred stock in former subsidiaries of the Company as a
result of the sale of the Company's former stations in Charleston and
Southampton.
Provision for appraisal rights increased 49.9% in 1994 from 1993 (to
$402,000 from $268,000) as a result of the estimated increase in the value of
the Company's Flint stations and changes in other components of the computation
of such provision.
As a result principally of the above-described increases in net revenues in
Flint, gain from the sale of the Company's Southampton radio station,
elimination of operations in Charleston, and lower preferred stock dividend
requirement and interest expense, offset by higher provision for an appraisal
right, income before extraordinary item increased to $992,000 in 1994 from a
loss of $(797,000) in 1993.
Liquidity and Capital Resources
- -------------------------------
In 1995, net cash provided by operating activities was $820,000 compared
with $621,000 in 1994. Net increase in cash and cash equivalents was $111,000 in
1995 compared with a net increase of $41,000 in 1994.
Based upon current interest rates, the Company believes its interest
expense for 1996 will be approximately $865,000. Scheduled debt principal
payments are $493,000. Corporate expenses and capital expenditures for 1996 are
estimated to be approximately $360,000 and $80,000, respectively. The Company
expects to be able to meet such interest expense, debt repayment, corporate
expenses and capital expenditures, aggregating $1,798,000, 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.
Inflation
- ----------
The Company does believe the effects of inflation have had a significant
impact on its consolidated financial statements.
Recent Accounting Standards Pronouncements
- -------------------------------------------
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121").
SFAS No. 121 requires, among other things, that losses resulting from impairment
of assets expected to be held, and gains or losses from assets expected to be
disposed of, be included as a component of income from continuing operations
before taxes on
-14-
<PAGE>
income. The Company will adopt SFAS No. 121 in Fiscal 1996 and its
implementation is not expected to have a material effect on its consolidated
financial statements.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 123, "Accounting for Stock Based
Compensation" ("SFAS No. 123"). SFAS No. 123 encourages entities to adopt that
method in place of the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"), for all arrangements
under which employees receive shares of stock or other equity instruments of the
employer or the employer incurs liabilities to employees in amounts based on the
price of its stock. The Company does not anticipate adopting SFAS No. 123 and
will continue to account for such transactions in accordance with APB No. 25.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data required pursuant to this Item
begin on page F-1 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
-15-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names of the directors and executive officers of Faircom Inc. (the
"Company") and certain information about them are set forth below:
<TABLE>
<CAPTION>
Principal Occupation
Name Age for Past Five Years
- ---- --- --------------------
<S> <C> <C>
Joel M. Fairman 67 Founder, President, Treasurer and Chairman
of the Board of the Company since its
inception in April 1984. From September 1965
until June 1984, Mr. Fairman was employed in
an executive capacity by investment banking
firms.
Anthony Pantaleoni 56 Secretary and director of the Company since
its inception in April 1984. Mr. Pantaleoni has
been a partner in the law firm of Fulbright &
Jaworski L.L.P. and a predecessor firm since
1970. Mr. Pantaleoni also currently serves as
a director of Universal Health Services, Inc.,
AAON Inc. and Westwood Corporation.
Stephen C. Eyre 73 Director of the Company since May 1984.
Since June 1985, Dr. Eyre has been Executive
Director of The John A. Hartford Foundation.
From March 1983 through June 1985 he was
Distinguished Professor, Citicorp Chair of
Finance at Pace University, New York City.
Prior to March 1983, Dr. Eyre was a director
of Citibank, N.A. (December 1981 - March
1983), Senior Vice-President and Secretary
(1980 - 1983) and Comptroller (1973 - 1980) of
Citibank and Citicorp. Dr. Eyre currently
serves as a director of Prudential Global Fund,
Inc., Prudential Short-Term Global Income
Fund, Inc., and Prudential Pacific Growth
Fund, Inc., and as a trustee of Prudential U.S.
Government Fund.
John C. Jansing 70 Director of the Company since May 1984.
From January 1975 to February 1992, Mr.
Jansing was Chairman of the Board of
Directors of The Independent Election
Corporation of America, a proxy solicitation,
</TABLE>
-16-
<PAGE>
<TABLE>
<S> <C>
tabulation and services firm. Mr. Jansing also
serves as a director of Vestaur Securities, Inc.
and Alpine Group Corporation. In addition,
Mr. Jansing currently serves as a director of
the following investment funds: Affiliated
Fund, Inc.; Lord Abbett Value Appreciation
Fund, Inc.; Lord Abbett Bond-Debenture Fund,
Inc.; Lord Abbett Cash Reserve Fund, Inc.;
Lord Abbett Development Growth Fund, Inc.;
Lord Abbett Income Fund, Inc.; and the Lord
Abbett Tax Free Income Fund, Inc.
John E. Risher 56 Senior Vice President of the Company since
January 1996 and Vice President of the
Company from July 1991 to January 1996.
Mr. Risher is also President and General
Manager, since January 1996, of the
Company's subsidiary, Faircom Flint Inc.
Prior to January 1996, Mr. Risher was Vice
President and General Manager of the
subsidiary since its acquisition of the
Company's radio stations in Flint, Michigan in
December 1986. For 20 years prior to 1986,
Mr. Risher was employed in sales, sales
management and as a general manager for
radio stations.
</TABLE>
Directors of the Company are elected annually and hold office until the
Annual Meeting of stockholders or until their successors have been elected and
have duly qualified.
Executive officers of the Company are elected annually and hold office
until the first meeting of the Board of Directors following the Annual Meeting
of stockholders or until their successors have been elected and have duly
qualified.
Compensation Pursuant to Stock Option Plan
- ------------------------------------------
On September 18, 1984 the Board of Directors of the Company adopted a stock
option plan (the "Plan"), which was subsequently approved by the stockholders of
the Company on September 12, 1985. The Plan provides for the granting of
incentive stock options as well as options not qualifying as incentive stock
options (non-statutory stock options). Under the terms of the Plan, the
Company's right to grant additional incentive stock options terminated September
18, 1994, ten years from the date the Plan was adopted by the Company's Board of
Directors.
-17-
<PAGE>
The Plan was adopted for the purpose of advancing the interests of the
Company and furthering its growth and development by encouraging and enabling
directors, officers and key employees of the Company and its subsidiaries and
other persons, who are presently making and are expected to continue to make
substantial contributions to the successful growth of the Company, to acquire an
increased and proprietary interest in its continued success and progress.
Incentive stock options granted pursuant to the Plan provide certain
restrictions concerning to whom and upon what basis the grant and exercise of
options may be made and on the disposition of stock issued upon exercise of
options as required by the tax laws.
An aggregate of 900,000 shares of the Common Stock, par value $.01 per
share, is available and reserved for issuance under the Plan.
Eligibility
- -----------
Employees (either full or part-time), directors and consultants to the
Company and its subsidiaries, who are deemed to have the potential to contribute
to the future success of the Company, are eligible to receive non-statutory
stock options under the Plan. Until September 1994, full-time and part-time
employees (including employees who are also directors of the Company or a
subsidiary) and salaried directors, were eligible to receive incentive stock
options. Approximately 57 employees of the Company and its subsidiaries are
entitled to participate in the Plan.
Administration of the Plan
- --------------------------
The Plan may be administered by the Board of Directors or by a committee
appointed by the Board of Directors of the Company (the "Committee"). Currently,
the Board of Directors is administering the Plan. Subject to the provisions of
the Plan, either the Board of Directors or the Committee, whichever is then
acting with respect to the Plan, possesses the authority in its discretion (i)
to determine, upon review of relevant information, the fair market value of the
Common Stock; (ii) to determine the exercise price per share of stock options to
be granted; (iii) to determine the Eligible Participants to whom, and time or
times at which, awards shall be granted and the number of shares to be
represented by each stock option; (iv) to construe and interpret the Plan; (v)
to prescribe, amend and rescind rules and regulations relating to the Plan; (vi)
to determine the terms and provisions of each award (which need not be
identical) and (vii) to make all other determinations necessary to or advisable
for the administration of the Plan.
The Plan provides for the issuance of shares of Common Stock for any nature
of consideration, including a promissory note, as determined by the Board of
Directors or the Committee. The Board of Directors or the Committee may also
determine the conditions which it deems appropriate to assure that such
consideration will be received by, or accrued to, the Company. The consideration
may be different for different options.
-18-
<PAGE>
Grants and Exercises
- --------------------
During the fiscal year ended December 31, 1995, options to purchase an
aggregate of 309,318 shares of Common Stock at an exercise price of $.156 per
share were granted pursuant to the Plan. As of March 15, 1996, no options
granted pursuant to the Plan had been exercised. On that date the bid and asked
prices for the Common Stock on the OTC Bulletin Board were $.156 and $.219,
respectively.
Compliance with Section 16(a) of the Exchange Act
- -------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's directors and certain officers and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities file with
the Securities and Exchange Commission initial reports of ownership and reports
of changes in ownership of Common Stock and other equity securities of the
Company. Stephen C. Eyre, Joel M. Fairman, John C. Jansing, Anthony Pantaleoni
and John E. Risher each failed to timely file a Report on Form 5 with respect to
options granted to each of them on May 23, 1995 pursuant to the Plan. Each of
them is preparing the required Report and the Company expects that all such
Reports will be filed shortly.
ITEM 11. EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary of Cash and Certain Other Compensation
- ----------------------------------------------
The following table sets forth certain summary information concerning
compensation paid or accrued by the Company and its subsidiaries to, or on
behalf of, the Company's Chief Executive Officer for the fiscal years ended
December 31, 1993, 1994 and 1995.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
Long Term Compensation
--------------------------------------------------------
Annual Compensation Awards Payouts
------------------------------------------ --------------------------- ---------
Option/
Other Stock Long Term
Annual Restricted Appreciation Incentive All Other
Name and Compen- Stock Rights Plan Compensa-
Principal Position Year Salary($) Bonus ($) sation ($) Award(s) ($) ("SARs") (#) Payouts ($) tion ($)
- ------------------ ---- --------- --------- ---------- ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joel M. Fairman, 1995 90,000 15,000 --- --- 181,818(1) --- ---
Chairman of the
Board, President and 1994 70,000 21,000 --- --- --- --- ---
Treasurer
1993 70,000 --- --- --- --- --- ---
</TABLE>
- -------------
(1) Represents grant of stock options under the Company's Stock Option Plan.
-19-
<PAGE>
The following table sets forth certain information concerning stock options
granted to Joel M. Fairman under the Company's Stock Option Plan in the fiscal
year ended December 31, 1995.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
-------------------------------------
Individual Grants
---------------------------------
Number of Percent of Total Potential Realizable Value at
Securities Options/SARs Assumed Annual Rates of Stock
Underlying Granted to Exercise or Price Appreciation for Option Term
Name and Option/SARs Employees in Base ----------------------------------
Principal Position Granted (#) Fiscal Year Price ($/Sh) 5% ($) 10% ($)
- ------------------ ----------- --------------- ------------ ------ -------
<S> <C> <C> <C> <C> <C>
Joel M. Fairman, 181,818 72.9 .156 8,000 17,455
Chairman of the
Board, President and
Treasurer
</TABLE>
The following table sets forth certain information concerning unexercised
stock options granted to Joel M. Fairman under the Company's Stock Option Plan:
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES
-----------------------------------------
Number of Unexercised Value of Unexercised In-
Options/SARs at FY- the-Money Options/SARs
End(#) at FY-End
Value Realized --------------------------------- -------------------------------
Shares (Market Price at
Acquired on Exercise Less
Name Exercise (#) Exercise Price) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ----------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joel M. Fairman None --- 300,000 --- None None
</TABLE>
-20-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 15, 1996, the number of shares
of Common Stock of the Company and the percentage owned beneficially, within the
meaning of Securities and Exchange Commission Rule 13d-3, by (i) all
stockholders known by the Company to own more than 5% of the Common Stock; (ii)
all directors of the Company who are stockholders; and (iii) all directors and
officers as a group. Except as otherwise specified, the named beneficial owner
has sole voting and investment power.
Number of Shares
Name and Address of Beneficially
Beneficial Owners Owned Percent of Class
-------------------- ---------------- ----------------
Joel M. Fairman
333 Glen Head Road
Old Brookville, New York 11545 1,500,000(1) 19.5%
Anthony Pantaleoni
666 Fifth Avenue
New York, New York 10103 125,000(2) 1.7%
Stephen C. Eyre
55 East 59th Street
New York, New York 10022 154,500(2) 2.1%
John C. Jansing
162 South Beach Road
Hobe Sound, FL 33455 168,500(2) 2.2%
Don G. Hoff and Sandra Hoff
1 Via Capistrano
Tiburon, CA 94920 430,000 5.8%
Ido Klear
111 Great Neck Road
Great Neck, New York 11021 380,000 5.2%
Citicorp Venture Capital, Ltd.
399 Park Avenue
New York, New York 10043 9,081,502(3) 55.2%
All officers and directors as
a group (five (5) persons) 2,015,400(4) 24.9%
- -------------------------
(1) Includes 300,000 shares issuable pursuant to currently exercisable stock
options held by Mr. Fairman under the Company's Stock Option Plan ("Plan").
-21-
<PAGE>
(2) Includes 115,000 shares issuable pursuant to currently exercisable stock
options held by each of Messrs. Eyre, Jansing and Pantaleoni under the Plan.
(3) Represents 9,081,502 shares issuable upon conversion of the Company's 8.65%
Senior Convertible Note.
(4) Includes 706,000 shares issuable pursuant to currently exercisable stock
options under the Plan held by officers and directors of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year ended December 31, 1995, Anthony Pantaleoni,
Secretary and a Director of the Company, was a partner in the law firm of
Fulbright & Jaworski L.L.P., which firm was retained by the Company during such
fiscal year.
-22-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1 and 2. Index to financial statements and related schedules.
See the Index to Consolidated Financial Statements and Consolidated
Financial Statement Schedules beginning on page F-1 of this report.
(a) 3. Exhibits.
* 3.1 Certificate of Incorporation, as amended.
* 3.2 By-Laws of the Company.
11.1 Computation of Net Income (Loss) Per Common Share.
* 21 Subsidiaries of the registrant.
27 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the period October 1, 1995
through December 31, 1995.
- --------
* Previously filed as an exhibit to the Company's registration of
securities on Form 10, dated February 12, 1987, pursuant to Section
12(g) of the Securities Exchange Act of 1934.
-23-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By s/ Joel M. Fairman
-----------------------------------
Joel M. Fairman
President
March 26, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
By s/ Joel M. Fairman President, Treasurer March 26, 1996
----------------------- and Chairman of the
Joel M. Fairman Board (Chief Executive,
Financial and
Accounting Officer)
By s/ Anthony Pantaleoni Secretary and Director March 26, 1996
------------------------
Anthony Pantaleoni
By s/ Stephen C. Eyre Director March 26, 1996
------------------------
Stephen C. Eyre
By s/ John C. Jansing Director March 26, 1996
------------------------
John C. Jansing
-24-
<PAGE>
FAIRCOM INC.
===============================================================================
CONSOLIDATED FINANCIAL STATEMENTS
Form 10-K - Item 8 and Items 14(a)(1) and (2)
Year Ended December 31, 1995
F-1
<PAGE>
FAIRCOM INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
CONSOLIDATED BALANCE SHEETS:
December 31, 1995 and 1994 F-4
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE
YEARS ENDED DECEMBER 31, 1995:
Statements of income F-5
Statements of capital deficit F-6
Statements of cash flows F-7
SUMMARY OF ACCOUNTING POLICIES F-8 - F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-11 - F-25
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Faircom Inc.
We have audited the consolidated balance sheets of Faircom Inc. as of December
31, 1995 and 1994 and the related consolidated statements of income, capital
deficit and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Faircom Inc. at
December 31, 1995 and 1994 and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 1995
in conformity with generally accepted accounting principles.
s/BDO Seidman, LLP
--------------------
BDO Seidman, LLP
Mitchel Field, New York
January 16, 1996
F-3
<PAGE>
<TABLE>
FAIRCOM INC.
CONSOLIDATED BALANCE SHEETS
===================================================================================================================================
<CAPTION>
1994
(As restated)
December 31, 1995 (Note 2(d))
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (NOTE 2)
CURRENT ASSETS:
Cash and cash equivalents $ 363,532 $ 252,276
Accounts receivable, less allowance of $20,000 for possible
losses in 1995 and 1994 942,601 956,321
Prepaid expenses 5,783 37,507
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,311,916 1,246,104
- -----------------------------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, less accumulated depreciation and
amortization (Note 1) 1,327,067 1,182,002
- -----------------------------------------------------------------------------------------------------------------------------------
INTANGIBLE ASSETS, net of accumulated amortization of $458,553
and $401,435 1,684,884 1,742,002
OTHER ASSETS:
Deferred financing costs 167,641 248,805
Other 55,000 70,000
- -----------------------------------------------------------------------------------------------------------------------------------
1,907,525 2,060,807
- -----------------------------------------------------------------------------------------------------------------------------------
$ 4,546,508 $ 4,488,913
===================================================================================================================================
LIABILITIES AND CAPITAL DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 58,946 $ 45,039
Accrued expenses and liabilities 208,635 285,651
Taxes payable 20,150 121,068
Current portion of interest payable (Note 2 (b)) 235,458 187,975
Current portion of long-term debt (Note 2) 493,250 490,142
Current portion of obligations under capital leases (Note 4) 20,800 20,662
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,037,239 1,150,537
LONG-TERM DEBT, less current portion (Note 2) 7,828,883 8,347,547
INTEREST PAYABLE, less current portion (Note 2 (b)) 509,167 618,628
OBLIGATIONS UNDER CAPITAL LEASES, less current portion (Note 4) - 19,798
DEFERRED RENTAL INCOME (Note 3) 136,000 -
APPRAISAL RIGHT LIABILITY (Note 2 (d)) 800,000 362,000
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 10,311,289 10,498,510
- -----------------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 2 (d) and 4)
CAPITAL DEFICIT (Notes 2 (c), 6 and 7):
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 (8,444,376) (8,689,192)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL DEFICIT (5,764,781) (6,009,597)
- -----------------------------------------------------------------------------------------------------------------------------------
$ 4,546,508 $ 4,488,913
===================================================================================================================================
See accompanying summary of accounting policies
and notes to consolidated financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF INCOME
===================================================================================================================================
<CAPTION>
Year ended December 31, 1995 1994 1993
(As restated)
(Note 2(d))
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BROADCASTING REVENUES:
Gross broadcasting revenues $5,785,963 $5,607,940 $5,588,344
Less: agency commissions (672,381) (624,427) (573,079)
- ------------------------------------------------------------------------------------------------------------------------------------
NET BROADCASTING REVENUES 5,113,582 4,983,513 5,015,265
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Programming and technical expenses 1,229,333 1,161,600 1,324,259
Selling, general and administrative expenses 1,716,858 1,690,994 2,158,511
Depreciation and amortization 351,257 389,489 463,323
Corporate expenses 304,653 271,075 214,658
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 3,602,101 3,513,158 4,160,751
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 1,511,481 1,470,355 854,514
Interest expense (811,298) (770,009) (876,722)
Gain from sale of Charleston radio station (Note 8) - - 504,356
Gain from sale of Southampton radio station (Note 9) - 964,859 -
Other income (expense) 10,633 16,255 (27,907)
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE PREFERRED STOCK DIVIDEND REQUIREMENT OF
SUBSIDIARIES, PROVISION FOR APPRAISAL RIGHTS, TAXES
ON INCOME AND EXTRAORDINARY ITEM 710,816 1,681,460 454,241
Preferred stock dividend requirement of subsidiaries
(Notes 2(c), 8 and 9) - (149,225) (949,116)
Provision for appraisal rights (Note 2 (d)) (438,000) (402,000) (268,221)
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE TAXES ON INCOME AND EXTRAORDINARY ITEM 272,816 1,130,235 (763,096)
TAXES ON INCOME (Note 10) 28,000 138,156 33,747
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 244,816 992,079 (796,843)
EXTRAORDINARY ITEM:
Gain from troubled debt restructuring (Note 11) - 787,201 3,216,605
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 244,816 $1,779,280 $2,419,762
====================================================================================================================================
PRIMARY INCOME (LOSS) PER SHARE OF COMMON STOCK - ASSUMING
NO DILUTION:
Income (loss) before extraordinary item $.03 $.13 $(.11)
Extraordinary item - .11 .44
- ------------------------------------------------------------------------------------------------------------------------------------
PRIMARY NET INCOME PER COMMON SHARE $.03 $.24 $ .33
====================================================================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 7,378,199 7,378,199 7,378,199
====================================================================================================================================
FULLY DILUTED INCOME (LOSS) PER COMMON SHARE - ASSUMING ISSUANCE
OF ALL DILUTIVE CONTINGENT SHARES:
Income (loss) before extraordinary item $.02 $.06 $(.11)
Extraordinary item - .05 .44
- ------------------------------------------------------------------------------------------------------------------------------------
FULLY DILUTED NET INCOME PER COMMON SHARE $.02 $.11 $ .33
====================================================================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 16,459,701 16,459,701 7,378,199
====================================================================================================================================
See accompanying summary of accounting policies
and notes to consolidated financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF CAPITAL DEFICIT
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
===================================================================================================================================
<CAPTION>
Common Stock
---------------------------
Additional
Shares Amount paid-in capital Deficit Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1992 7,378,199 $73,782 $2,605,813 $(21,714,286) $(19,034,691)
Extinguishment of
Charleston's
preferred stock
(Notes 2 (c) and 8) - - - 4,990,358 4,990,358
Net income for the
year ended
December 31, 1993 - - - 2,419,762 2,419,762
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31,
1993 7,378,199 73,782 2,605,813 (14,304,166) (11,624,571)
Extinguishment of
Southampton's
preferred stock
(Notes 2 (c) and 9) - - - 2,117,769 2,117,769
Extinguishment of
subordinated claim
and related stock
option (Note 2 (c)) - - - 1,717,925 1,717,925
Net income for the
year ended
December 31, 1994
(as restated) (Note
2(d)) - - - 1,779,280 1,779,280
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31,
1994 (as restated) 7,378,199 73,782 2,605,813 (8,689,192) (6,009,597)
NET INCOME FOR THE
YEAR ENDED
DECEMBER 31, 1995 - - - 244,816 244,816
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31,
1995 7,378,199 $73,782 $2,605,813 $(8,444,376) $ (5,764,781)
====================================================================================================================================
See accompanying summary of accounting policies
and notes to consolidated financial statements.
F-6
</TABLE>
<PAGE>
<TABLE>
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(NOTE 12)
===================================================================================================================================
<CAPTION>
1994
(As restated)
Year ended December 31, 1995 (Note 2(d)) 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $244,816 $1,779,280 $ 2,419,762
- ------------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 351,257 389,489 463,323
Amortization of deferred rental income (34,000) - -
Provision for doubtful accounts 16,428 22,997 25,483
Gain from sale of radio station - (964,859) (504,356)
Preferred stock dividend requirement of subsidiaries - 149,225 949,116
Provision for appraisal rights 438,000 402,000 268,221
Gain from troubled debt restructuring - (787,201) (3,216,605)
Increase (decrease) in cash flows from changes in
operating assets and liabilities, net of effects of sales
of radio stations:
Accounts receivable (2,708) (198,313) 152,864
Prepaid expenses 31,724 (23,359) 48,509
Other assets - (75,000) (90,831)
Accounts payable 13,907 (9,746) (35,359)
Accrued expenses and liabilities (77,016) (136,753) (178,467)
Taxes payable (100,918) 121,068 -
Interest payable (61,978) (47,787) (14,015)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS 574,696 (1,158,239) (2,132,117)
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 819,512 621,041 287,645
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets used to satisfy secured claims - 1,700,000 347,423
Capital expenditures (172,805) (375,904) (53,020)
Intangible assets related to purchase of radio station - (152,796) -
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES (172,805) 1,171,300 294,403
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment for deferred financing costs (235) (210,340) -
Proceeds from long-term debt - 720,578 -
Principal payments on long-term debt (515,556) (2,228,943) (740,964)
Principal payments under capital lease obligations (19,660) (32,539) (63,923)
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (535,451) (1,751,244) (804,887)
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 111,256 41,097 (222,839)
CASH AND CASH EQUIVALENTS, beginning of year 252,276 211,179 434,018
- ------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $363,532 $ 252,276 $ 211,179
====================================================================================================================================
See accompanying summary of accounting policies
and notes to consolidated financial statements.
F-7
</TABLE>
<PAGE>
FAIRCOM INC.
SUMMARY OF ACCOUNTING POLICIES
===============================================================================
ORGANIZATION AND BUSINESS
Faircom Inc. (the "Company") owns and operates radio stations through its
wholly-owned subsidiary in Flint, Michigan.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts of
Faircom Inc. and its subsidiaries, Faircom Flint Inc. ("Flint"), and Faircom
Evansville Inc., all of whose common stock is owned by the Company. All
intercompany accounts and transactions are eliminated. Faircom Evansville Inc.
is currently inactive. The assets of Faircom Charleston Inc. ("Charleston") were
sold in 1993 (see Note 8). The assets of Faircom Southampton Inc.
("Southampton") were sold in 1994 (see Note 9). Charleston and Southampton,
which were wholly-owned subsidiaries of the Company, were both dissolved in
1994.
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that may affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual results
could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid financial instruments purchased with an original maturity of three months
or less to be cash equivalents. The carrying amount reported in the consolidated
balance sheets for cash and cash equivalents approximates its fair value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. For financial reporting purposes,
depreciation is determined using the straight-line method based upon the
estimated useful lives of the various classes of assets, ranging from three to
nineteen years. Leasehold improvements are amortized over the shorter of their
useful lives or the terms of the related leases. Both straight-line and
accelerated methods are used for federal and state income tax purposes.
F-8
<PAGE>
FAIRCOM INC.
SUMMARY OF ACCOUNTING POLICIES
===============================================================================
INTANGIBLE ASSETS
Intangible assets consist of the excess of the purchase price (including related
acquisition costs) over the fair value of tangible assets of acquired radio
stations, a substantial portion of which represents the value of Federal
Communications Commission licenses. These assets are amortized on a
straight-line basis over forty years. Management evaluates the continuing
realizability of the intangible assets by assessing projected future cash flows
and obtaining independent appraisals of the value of its radio stations.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized on a straight-line basis over the term of
the related debt.
REDEEMABLE PREFERRED STOCK AND APPRAISAL RIGHTS
The Company carried the redeemable preferred stock of its former subsidiaries
(see Note 9) at their redemption values. Dividends on such stock were accrued
currently and charged to operations. At such time that the appraisal rights of
the preferred stockholders had greater than a nominal value, an accrual and
corresponding charge to preferred stock requirements were reflected in the
consolidated financial statements. Adjustments were made to this accrual based
on the passage of time and change in appraisal values.
The value of the appraisal right given to Citicorp Venture Capital, Ltd. ("CVC")
for its guaranty of certain debt interest (see Note 2 (d)) was accounted for in
a manner similar to the appraisal rights of the preferred stockholders.
The value of the appraisal right given to CVC in connection with its
subordinated exchangeable note (see Note 2 (d)) is accrued at a discounted
amount, based on the interest rate of the related note and the date on which the
appraisal right becomes exercisable. Adjustments are made to this accrual based
on the passage of time and change in appraisal values.
TAXES ON INCOME
Income taxes are calculated using the liability method specified by Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
F-9
<PAGE>
FAIRCOM INC.
SUMMARY OF ACCOUNTING POLICIES
===============================================================================
REVENUE RECOGNITION
Revenue from radio advertisements, including barter transactions (advertising
provided in exchange for goods and services), is recognized as income when the
advertisements are broadcast. The merchandise or services received as barter for
advertising are charged to expense when used or provided.
ADVERTISING COSTS
Costs Advertising costs are charged to expense as incurred and amounted to
$149,469, $118,770 and $113,429 for the years ended December 31, 1995, 1994 and
1993, respectively.
NET INCOME PER COMMON SHARE
Net income per common share is based on the weighted average number of shares of
common stock outstanding during each period. The effect on per share data from
the assumed exercise of outstanding options or conversion of preferred stock was
not dilutive or material for 1993. In 1994 and 1995, the effects of the assumed
conversion of a convertible note on per share data have been reflected in the
fully diluted calculation only (see Note 2 (c)). The effects of the assumed
exercise of outstanding options were not dilutive and, accordingly, have been
excluded from both the primary and fully diluted per share calculations (see
Notes 6 and 7).
F-10
<PAGE>
- ------------------------------------------------------------------------------
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
1. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
1995 1994
- -------------------------------------------------------------------------------
Land $ 116,000 $ 116,000
Buildings and building improvements 626,722 494,566
Leasehold improvements 3,445 3,445
Towers and antenna systems 1,180,620 1,010,620
Studio, technical and transmitting
equipment 3,422,652 3,419,074
Office equipment, furniture and fixtures 933,850 896,780
- -------------------------------------------------------------------------------
6,283,289 5,940,485
Less: accumulated depreciation and
amortization (4,956,222) (4,758,483)
- -------------------------------------------------------------------------------
Net property and equipment $ 1,327,067 $1,182,002
================================================================================
2. LONG-TERM DEBT
Long-term debt consists of the following:
1995 1994
- --------------------------------------------------------------------------------
Senior secured term note (see (a) below) $6,131,916 $6,509,317
Senior secured term note (see (b) below) 834,000 900,000
Senior secured time note (see (b) below) 673,337 700,000
Subordinated senior convertible note (see (c)
below) 181,630 181,630
Subordinated senior exchangeable note (see (d)
below) 500,000 500,000
Notes payable for purchase of radio station 1,250 46,742
- --------------------------------------------------------------------------------
8,322,133 8,837,689
Less: Current portion of long-term debt (493,250) (490,142)
- --------------------------------------------------------------------------------
$7,828,883 $ 8,347,547
================================================================================
F-11
<PAGE>
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
(a) Senior secured term note
On December 22, 1994, Flint entered into an amended and restated loan
agreement (the "1994 loan agreement"), under which certain existing
indebtedness was consolidated, creating three new loans (see also Note 2
(b)). A portion of the "first loan" proceeds under the 1994 loan agreement
was used to repay in full two existing term loans, with the balance used to
fund loan closing costs and certain capital expenditures. The "first loan"
is evidenced by a term note for $6,509,317, with interest payable monthly at
the prime rate plus 2-3/4% (base rate), which may be reduced if certain
conditions are met. The base rate can also be increased by a maximum of 4%
if Flint is in default for non-payment of principal or interest. The
principal balance is payable in varying monthly installments, ranging from
$31,450 to $48,450, from January 1, 1995 through November 1, 1999, with the
balance due on December 1, 1999. Flint has the option, subject to certain
terms and conditions, to extend the "first loan" maturity date for an
additional 60 months beyond December 1, 1999.
The borrowings are secured by all tangible and intangible property of Flint
and all outstanding Flint common stock held by the Company, and are
guaranteed by the Company.
The 1994 loan agreement contains certain financial and restrictive
covenants, including maintenance of minimum operating income levels and debt
coverage ratios, and limitations on capital expenditures, additional
indebtedness, mergers and dividend payments.
F-12
<PAGE>
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
(b) Senior secured term note and time note
Under the 1994 loan agreement described in Note 2 (a), Flint became
obligated for a term note of $900,000 under the "second loan" and a time
note of $700,000 under the "third loan". The "second loan" and "third loan"
arose from the acquisition by Flint's senior lender of the $3,180,564
subordinated secured claim against Flint, which Flint had recorded in
connection with its guaranty of certain indebtedness of Charleston (see Note
8). The senior lender, which had acquired the claim from the Resolution
Trust Corporation at a discounted amount, forgave all but $1,600,000 of this
claim and recast it as senior secured indebtedness of Flint. An
extraordinary gain of $787,201 was recorded in 1994 by Flint in connection
with this troubled debt restructuring (see Note 11). The gain represents the
principal amount of the subordinated secured claim which was forgiven, less
the estimated interest of $793,363 payable over the term of the "second
loan" and "third loan", assuming a prime rate of 8.5%.
The principal balance of the term note under the "second loan" is payable in
varying monthly installments, ranging from $5,500 to $8,550, from January 1,
1995 through November 1, 1999, with the balance due on December 1, 1999.
Flint has the option, subject to certain terms and conditions, to extend the
"second loan" maturity date for an additional 60 months beyond December 1,
1999. Interest on the term note is payable monthly at the prime rate plus
2-3/4% (base rate), which may be reduced if certain conditions are met. The
base rate can also be increased by a maximum of 4% if Flint is in default
for non-payment of principal or interest.
F-13
<PAGE>
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
Both principal and interest, at the prime rate plus 3%, on the time note
under the "third loan" are payable in a single payment on December 1, 1999.
However, to the extent that Flint has excess cash flow, as defined in the
1994 loan agreement, a quarterly payment is required, to be applied first to
accrued interest and then to principal. Flint made a required quarterly
principal payment of $26,663 on March 1, 1995. Flint was also required to
make quarterly payments from excess cash flow as of September 1 and December
1, 1995, but such payments were waived by the lender.
The collateral and covenants in connection with the "second loan" and "third
loan" are the same as those described for the "first loan" in Note 2 (a).
(c) Subordinated senior convertible note
The Company and Flint entered into a securities exchange agreement with
Citicorp Venture Capital, Ltd. ("CVC") on December 22, 1994 (the "1994 CVC
agreement"). Under the 1994 CVC agreement, the Company issued a senior
convertible note to CVC for $181,630, with interest payable quarterly at a
rate of 8.65% per annum. The interest rate may be increased to 10% per annum
if the Company is in default for non-payment of principal or interest.
Principal is payable on December 1, 2004.
The senior convertible note, which is subordinated to the debt described in
Notes 2 (a) and 2 (b), was issued in exchange for the extinguishment of a
subordinated claim payable to CVC in the amount of $1,899,555 related to the
former Charleston Preferred Stock (extinguished and credited against deficit
in 1993 in the amount of its liquidation value), which CVC had the option of
converting into 6,963,733 shares of the Company's common stock; and the
extinguishment in 1994 of the former Southampton Preferred Stock, with a
liquidation value of $2,117,769, which CVC had the option of converting into
2,117,769 shares of the Company's common stock (see Notes 8 and 9). The
liquidation value of the former Southampton Preferred Stock, and the
difference between the subordinated claim and the principal amount of the
new senior convertible note, were credited against deficit in 1994.
F-14
<PAGE>
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
CVC has the option at any time prior to December 1, 2004 to convert all or
any portion of the senior convertible note into up to 9,081,502 shares of
the Company's common stock, at a conversion rate of 50,000 shares of stock
for each $1,000 of note principal, equivalent to a conversion price of $.02
per share, subject to antidilution adjustments upon stock splits and other
events.
The senior convertible note contains certain restrictive covenants,
including limitations on capital expenditures, additional indebtedness,
mergers and dividend payments.
(d) Subordinated senior exchangeable note
Under the 1994 CVC agreement (see Note 2 (c)), the Company also issued a
senior exchangeable note to CVC for $500,000, with interest payable
quarterly at a rate of 10% per annum. The interest rate may be increased to
12% per annum if the Company is in default for non-payment of principal or
interest. Principal is payable on December 1, 2004.
The senior exchangeable note, which is subordinated to the debt described in
Notes 2 (a) and 2 (b), was issued in exchange for the extinguishment of an
appraisal right with respect to Flint held by CVC, valued for purposes of
the exchange at $310,000 at December 31, 1993 and $350,000 at December 22,
1994, the date of the 1994 CVC agreement; and for the extinguishment of the
Company's subordinated obligation to CVC, valued at $150,000 at December 22,
1994, which was related to CVC's payment of certain accrued interest under
an interest guaranty on one of the Company's notes payable.
At any time after December 1, 1999, CVC may request a determination of the
appraised value (as defined in the 1994 CVC agreement) of Flint, and elect
to exchange $350,000 of the principal amount of the senior exchangeable note
for a payment of 19.99% of such appraised value. Management estimates that
the present value of this appraisal right at December 31, 1995 and 1994 was
approximately $800,000 and $362,000, respectively, net of the $350,000
principal amount that would be exchanged at each such date and based on a
10% discount rate. If at any time Flint is disposed of by the Company, CVC
is entitled to elect to exchange $350,000 of the principal amount of the
senior exchangeable note for a payment of 19.99% of the net proceeds (as
defined) received.
F-15
<PAGE>
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
During the fourth quarter of 1995, a review of the calculation of the
December 31, 1994 appraisal right liability discovered that such liability
was overstated by $350,000 for the purposes of the Company's 1994
consolidated financial statements, as it did not reflect the debt
cancellation that would occur if CVC were to elect to exercise its appraisal
right. Accordingly, the 1994 consolidated financial statements have been
restated to reduce the 1994 year-end appraisal right liability to $362,000
from $712,000 and increase both 1994 income before extraordinary item and
net income by $350,000. Such restatement increased primary and fully diluted
net income per common share by $.05 and $.02, respectively. There was no
income tax effect from this restatement, as the provision for appraisal
right is a non-deductible expense.
The senior exchangeable note has the same restrictive covenants as described
in Note 2 (c) for the senior convertible note.
Minimum annual maturities of the Company's long-term debt for the next five
years and thereafter are approximately as follows: 1996 - $493,000; 1997 -
$552,000; 1998 - $612,000; 1999 - $5,983,000; 2000 - $0; and $682,000
thereafter.
The Company estimates that the carrying amount of its long-term debt
approximates its fair value.
3. DEFERRED RENTAL INCOME
Effective January 1995, Flint, as lessor, entered into an operating lease
agreement with a telecommunications company. The lessee agreed to arrange for
the construction of a new radio tower and antenna at one of Flint's tower sites,
at lessee's expense, and transfer title to those assets to Flint, in exchange
for the right to use a portion of the new tower and related building facilities
in its operations on a rent-free basis for five years. The lessee has three
successive five-year renewal options, providing for no rent in the sixth year, a
total of $18,000 rent in the seventh year, and annual increases of 4% beginning
with the eighth year.
F-16
<PAGE>
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
Flint has recorded as an advance minimum lease payment an amount equal to the
fair value of the tower and antenna constructed for its benefit, based on the
lessee's construction costs, aggregating approximately $170,000. The assets
received were capitalized, the advance lease payment is being amortized as
rental income on a straight-line basis over the five year initial lease term,
and the unamortized portion of the lease payment is recorded as deferred rental
income.
4. COMMITMENTS
The Company has entered into operating lease agreements for office space and
certain equipment. The Company also obtained equipment under capital leases.
The following is a schedule of approximate future minimum lease payments
required under these leases:
Operating Capital
- -------------------------------------------------------------------------------
1996 $18,700 $22,527
Less amount representing
interest - 1,727
- -------------------------------------------------------------------------------
Present value of net
minimum lease payments $18,700 $20,800
===============================================================================
Rent expense was approximately $32,000, $54,000 and $133,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
5. RETIREMENT PLANS
Effective January 1, 1995, the Company established a qualified salary reduction
plan under Section 401(k) of the Internal Revenue Code for eligible employees.
Under the plan, the Company may, but is not required to, make matching and
discretionary contributions to participants' accounts. Matching contributions
charged against operations amounted to $4,600 for the year ended December 31,
1995.
F-17
<PAGE>
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
6. STOCK OPTION PLAN
The Company has a stock option plan (the "Plan") under which 900,000 shares of
common stock have been reserved for issuance. Under this Plan, the Company may
grant options to purchase up to 900,000 shares of common stock in the form of
either nonqualified stock options or incentive stock options ("ISOs"). The Plan
provides that the option price for the nonqualified options be determined by the
Board of Directors at or prior to the time the option is granted (but in no
event at a price below par value of the common stock) and for ISOs, at a price
not less than 100% of the fair market value of the common stock at the date the
option is granted, except for those individuals possessing more than 10% of the
total combined voting power of all classes of stock of the Company or its
subsidiaries, for which the price is not less than 110% of the fair market value
of the common stock.
The term of each option granted shall be determined by the Board of Directors,
provided that the term for each ISO granted under the Plan not be more than 10
years from the date of the grant and the term for each option granted to an
individual owning more than 10% of the combined voting power, as described
above, not be more than five years.
Under the terms of the Plan, the Company's right to grant additional ISOs
terminated September 18, 1994, ten years from the date the Plan was adopted by
the Company's Board of Directors.
F-18
<PAGE>
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
Transactions involving options granted under the Plan are summarized below:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, January 1 533,882 747,800 755,200
Granted 309,318 100,000 112,500
Cancelled 43,200 313,918 119,900
- -----------------------------------------------------------------------------------------------
Outstanding, December 31 800,000 533,882 747,800
===============================================================================================
Price range, December 31 $.125 to $.156 $.125 to $.31 $.125 to $.50
Exercisable, December 31 661,000 438,442 571,100
- -----------------------------------------------------------------------------------------------
Available for grant, December
31 100,000 366,118 152,200
===============================================================================================
</TABLE>
Of the 800,000 options outstanding at December 31, 1995, 589,318 are
nonqualified options and 210,682 are ISOs.
7. COMMON STOCK SHARES RESERVED
At December 31, 1995, shares of the Company's authorized and unissued common
stock were reserved for issuance upon conversion of a subordinated senior
convertible note and exercise of options, as follows:
Subordinated senior convertible note (Note 2 (c)) 9,081,502
Stock option plan (Note 6) 900,000
- -----------------------------------------------------------------------------
9,981,502
=============================================================================
F-19
<PAGE>
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
8. SALE OF CHARLESTON RADIO STATION
In September 1993, Charleston exchanged substantially all of its assets for
another station, which was then sold by Charleston. The aggregate consideration
received by Charleston for the exchange and sale was $1,125,000, of which
$813,500 was used to repay a portion of Charleston's existing revolving
credit/term loan and accrued interest. The Charleston Preferred Stock was
extinguished because there were no funds for payment to the Charleston preferred
stockholder available from the sale of Charleston. All funds derived by
Charleston from the exchange and sale were disbursed to secured and judgment
creditors of Charleston in February 1994, and Charleston was subsequently
dissolved in the same month. The remaining balance of $3,180,564 of the
revolving credit/term loan, after giving effect to accrued interest through the
date of fund disbursement and payment of $825,000 in reduction of the loan,
became a subordinated secured claim against the assets of Flint and Southampton,
payable if Flint or Southampton was sold. As the proceeds of the 1994 sale of
Southampton were insufficient to satisfy this claim, the entire liability was
recorded by Flint. In December 1994, this claim was purchased from the
Resolution Trust Corporation by Flint's senior lender and recast as senior
secured indebtedness of Flint at a discount from its face value, resulting in an
extraordinary gain of approximately $787,000 (see Notes 2 (b) and 11).
The operations of the Charleston subsidiary prior to the sale of the radio
station were included in the statement of operations for 1993 and the sale
resulted in a gain of $504,356. The Charleston operations which were included in
the 1993 statement of operations are summarized as follows:
Net broadcasting revenues $ 515,000
Total operating expenses 1,062,000
- ---------------------------------------------------------------------------
Loss from operations (547,000)
Interest expense (8,000)
Gain from sale of station 504,000
Other expenses (34,000)
- ---------------------------------------------------------------------------
Loss before preferred stock dividend requirement
and extraordinary item (85,000)
Preferred stock dividend requirement (738,000)
Extraordinary item - gain from troubled debt
restructuring 396,000
- ---------------------------------------------------------------------------
Net loss $ (427,000)
===========================================================================
F-20
<PAGE>
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The gain from sale of the Charleston radio station was calculated as follows:
Proceeds from sale of station $1,125,000
Net assets sold:
Broadcasting property, net $101,000
Intangible assets 877,000 (978,000)
- ----------------------------------------------------------------------
147,000
Other expenses (10,000)
Write-off of remaining liabilities 367,000
- ----------------------------------------------------------------------
Gain from sale of station $ 504,000
======================================================================
9. SALE OF SOUTHAMPTON RADIO STATION
In January 1994, Southampton entered into a contract to sell substantially all
of its assets. The Southampton Preferred Stock was extinguished because there
were no funds for payment to the Southampton preferred stockholder available
from the sale of Southampton.
The operations of the Southampton subsidiary prior to the sale of the radio
station, which closed in August 1994, were included in the statement of
operations for 1994 and the sale resulted in a gain of $964,859. The Southampton
operations which were included in the statement of operations are summarized as
follows:
Net broadcasting revenues $269,000
Total operating expenses 165,000
- --------------------------------------------------------------------------------
Income from operations 104,000
Interest expense (122,000)
Gain from sale of station 965,000
Other income 10,000
- --------------------------------------------------------------------------------
Income before preferred stock dividend requirement
and taxes on income 957,000
Preferred stock dividend requirement (149,000)
Taxes on income (39,000)
- --------------------------------------------------------------------------------
Net income $769,000
================================================================================
F-21
<PAGE>
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The gain from sale of the Southampton radio station is calculated as follows:
Proceeds from sale of station $1,700,000
Net assets sold:
Broadcasting property, net $272,000
Intangible assets 407,000 (679,000)
- --------------------------------------------------------------------------------
1,021,000
Capital lease assumed by buyer 44,000
Other expenses (86,000)
Write-off of remaining assets (14,000)
- --------------------------------------------------------------------------------
Gain from sale of station $ 965,000
================================================================================
10. TAXES ON INCOME
The provision for federal and state income taxes consists of the following:
1995 1994 1993
- --------------------------------------------------------------------------------
Current:
Federal $157,000 $1,021,000 $ 765,000
State 70,000 97,156 323,747
- --------------------------------------------------------------------------------
227,000 1,118,156 1,088,747
Benefits of net operating loss
carryforwards 199,000 980,000 1,055,000
- --------------------------------------------------------------------------------
$ 28,000 $ 138,156 $ 33,747
================================================================================
The net deferred tax asset consists of the following:
1995 1994
- --------------------------------------------------------------------------------
Gross deferred asset for:
Net operating loss carryforwards $ 2,502,000 $2,800,000
Excess gain on debt restructuring for tax
reporting purposes 274,000 303,000
Alternative minimum tax credit
carryforwards 35,000 87,000
- --------------------------------------------------------------------------------
Subtotal 2,811,000 3,190,000
Less: valuation allowance (2,811,000) (3,190,000)
- --------------------------------------------------------------------------------
Net $ - $ -
================================================================================
F-22
<PAGE>
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The Company has provided valuation allowances equal to its deferred tax assets
because of the uncertainty as to future utilization.
The Company and Flint file consolidated federal and separate state income tax
returns. At December 31, 1995, consolidated net operating loss carryforwards
("NOL's") for income tax purposes were $6,950,000. The tax NOL's expire during
the years 1999 to 2008.
The difference between the Company's effective tax rate on income (loss) before
taxes on income and extraordinary item and the federal statutory tax rate arises
from the following:
1994
(As restated)
1995 (Note 2(d)) 1993
- -------------------------------------------------------------------------------
Federal tax expense
(benefit) at statutory rate 34.0% 34.0% (34.0)%
Operating losses which did
not provide a tax benefit - - 34.0%
Federal taxes, based on
alternative minimum
calculation 1.8% 7.7% -
Non-deductible expenses 47.6% 26.7% -
Benefit of net operating
losses (72.8)% (61.9)% -
State taxes, net of federal
benefit 16.9% 5.7% 4.4%
Prior year's federal tax
overaccrual (17.2)% - -
- -------------------------------------------------------------------------------
Effective tax rate 10.3% 12.2% 4.4%
===============================================================================
F-23
<PAGE>
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
11. GAIN FROM TROUBLED DEBT RESTRUCTURING
Gain from troubled debt restructuring consists of the following:
1995 1994 1993
- --------------------------------------------------------------------------------
Gain from restructuring of
subordinated secured
claim (see Note 2 (b)) $ - $787,201 $ -
Gain from restructuring of
subordinated note (see
(a) below) - - 2,820,888
Gain from restructuring of
revolving credit/term
loan agreement (see (b)
below) - - 395,717
- -------------------------------------------------------------------------------
$ - $787,201 $3,216,605
===============================================================================
(a) In 1993, the Company paid $100,000 to settle in full both the principal of
$2,000,000 and the accrued interest of $920,888 on a note payable to Price
Communications Corporation that had arisen from 1986 borrowings. As a
result, the Company recognized a gain of $2,820,888 from this troubled debt
restructuring.
(b) In 1993, as a result of the sale of the Charleston station, the remaining
balance of a credit/term loan agreement became a subordinated secured claim
against the assets of Flint and Southampton, payable if Flint or Southampton
were sold (see Notes 8 and 9). The remaining estimated interest payable was
reversed and resulted in a gain of $395,717 from this troubled debt
restructuring.
12. SUPPLEMENTAL CASH FLOW INFORMATION
(a) Supplemental disclosure of cash flow information:
Year ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------
Interest paid during the
year $873,276 $788,746 $890,736
===============================================================================
Income taxes paid during
the year $133,257 $ 15,429 $ 35,131
===============================================================================
F-24
<PAGE>
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(b) Supplemental disclosures of non-cash investing and financing activities:
In December 1994, the subordinated claim against Flint of $1,899,555 and a
related stock option were extinguished and exchanged as partial
consideration for the Company's $181,630 subordinated senior convertible
note. The difference of $1,717,925 was credited against deficit (see Note 2
(c)). In December 1994, the former Southampton Preferred Stock and a related
stock conversion right were extinguished and exchanged as partial
consideration for the above-mentioned convertible note (see Note 2 (c)).
In December 1994, the Company issued a $500,000 subordinated senior
exchangeable note in exchange for the extinguishment of CVC's appraisal
right to Flint, valued at $350,000, and the extinguishment of the Company's
$150,000 subordinated obligation to CVC (see Note 2 (d)).
In December 1994, a $3,180,564 subordinated secured claim against Flint was
acquired by Flint's senior lender from the Resolution Trust Corporation,
reduced to $1,600,000, and recast as senior secured indebtedness of Flint,
resulting in an extraordinary gain of $787,201 (see Notes 2 (b), 8 and 11).
In January 1995, Flint received a tower and antenna, valued at $170,000, as
an advance lease payment under the terms of an operating lease agreement
(see Note 3).
F-25
<PAGE>
FAIRCOM INC.
================================================================================
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Form 10-K Item 14(d) -
December 31, 1995
S-1
<PAGE>
FAIRCOM INC.
INDEX TO CONSOLIDATED FINANCIAL
STATEMENT SCHEDULES
================================================================================
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS S-3
Consolidated financial statement schedules:
Schedule I - Condensed financial information of registrant S-4 - S-7
Schedule II - Valuation and qualifying accounts S-8
S-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors and Stockholders
Faircom Inc.
The audits referred to in our report dated January 16, 1996, relating to the
consolidated financial statements of Faircom Inc., which is contained in Item 8
of this Form 10-K, included the audit of the financial statement schedules
listed in the accompanying index. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statement schedules based upon our audits.
In our opinion such financial statement schedules present fairly, in all
material respects, the information set forth therein.
S/BDO Seidman, LLP
------------------
BDO Seidman, LLP
Mitchel Field, New York
January 16, 1996
S-3
<PAGE>
FAIRCOM INC.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS (COMPANY ONLY)
================================================================================
<TABLE>
<CAPTION>
1994
December 31, 1995 (As restated)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 20,110 $ 53,861
Other current assets 2,410 -
Interest receivable from subsidiary 14,502 -
Advance to subsidiary 8,000 -
- ------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 45,022 53,861
OFFICE EQUIPMENT, FURNITURE AND FIXTURES - NET 629 629
NOTE RECEIVABLE FROM SUBSIDIARY (NOTE 2) 1,243,000 1,243,000
OTHER ASSETS 9,052 12,087
- ------------------------------------------------------------------------------------------------------------------
$1,297,703 $1,309,577
==================================================================================================================
LIABILITIES AND CAPITAL DEFICIT
CURRENT LIABILITIES:
Accrued expenses and liabilities $ 132,747 $ 168,348
Taxes payable 150 44,068
Interest payable - 1,663
Loan from subsidiary - 85,850
- ------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 132,897 299,929
LONG-TERM DEBT 681,630 681,630
APPRAISAL RIGHT LIABILITY 800,000 362,000
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,614,527 1,343,559
- ------------------------------------------------------------------------------------------------------------------
EXCESS OF LOSSES AND PREFERRED STOCK DIVIDENDS AND
PROVISION FOR APPRAISAL RIGHTS OF SUBSIDIARIES OVER
COST (NOTE 1) 5,447,957 5,975,615
- ------------------------------------------------------------------------------------------------------------------
CAPITAL DEFICIT:
Common stock 73,782 73,782
Additional paid-in capital 2,605,813 2,605,813
Deficit (8,444,376) (8,689,192)
- ------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL DEFICIT (5,764,781) (6,009,597)
- ------------------------------------------------------------------------------------------------------------------
$ 1,297,703 $1,309,577
==================================================================================================================
</TABLE>
S-4
<PAGE>
FAIRCOM INC.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS (COMPANY ONLY)
================================================================================
<TABLE>
<CAPTION>
1994
Year ended December 31, 1995 (As restated) 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME:
Management fees from subsidiaries (Note 3) $354,328 $ 335,000 $ 373,155
Interest 174,024 174,150 116,665
Other 367 11 -
- ---------------------------------------------------------------------------------------------------------------------------
528,719 509,161 489,820
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Depreciation and amortization 3,035 1,834 1,251
General and administrative 304,653 271,075 214,658
Interest 65,873 30,709 104,647
- ---------------------------------------------------------------------------------------------------------------------------
373,561 303,618 320,556
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR APPRAISAL RIGHT;
EQUITY IN INCOME (LOSSES), PREFERRED STOCK
DIVIDENDS, PROVISION FOR APPRAISAL RIGHTS
AND EXTRAORDINARY GAIN OF SUBSIDIARIES;
TAXES ON INCOME AND EXTRAORDINARY ITEM 155,158 205,543 169,264
PROVISION FOR APPRAISAL RIGHT (438,000) (362,000) -
EQUITY IN INCOME (LOSSES), PREFERRED STOCK
DIVIDENDS, PROVISION FOR APPRAISAL RIGHTS
AND EXTRAORDINARY GAIN OF SUBSIDIARIES
(NOTE 1) 527,658 1,942,737 (570,390)
- ---------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE TAXES ON INCOME AND
EXTRAORDINARY ITEM 244,816 1,786,280 (401,126)
TAXES ON INCOME - 7,000 -
- ---------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 244,816 1,779,280 (401,126)
EXTRAORDINARY ITEM (Note 4) - - 2,820,888
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $244,816 $1,779,280 $2,419,762
===========================================================================================================================
</TABLE>
S-5
<PAGE>
FAIRCOM INC.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS (COMPANY ONLY)
================================================================================
<TABLE>
<CAPTION>
1994
Year ended December 31, 1995 (As restated) 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 244,816 $ 1,779,280 $ 2,419,762
- ------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,035 1,834 1,251
Provision for appraisal right 438,000 362,000 -
Equity in (income) losses, preferred
stock dividends, provision for
appraisal rights and extraordinary gain
of subsidiaries (527,658) (1,942,737) 570,390
Extraordinary gain - - (2,820,888)
Increase (decrease) in cash flows from
changes in operating assets and
liabilities:
Other current assets (2,410) 1,990 1,310
Other assets - (6,000) (5,836)
Interest receivable from subsidiary (14,502) - -
Accrued expenses and liabilities and
taxes payable (79,519) (9,129) (28,134)
Interest payable (1,663) 1,663 164,220
- ------------------------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS (184,717) (1,590,379) (2,117,687)
- ------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 60,099 188,901 302,075
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances and loans to subsidiaries (8,000) (11,000) (326,865)
Payment of loan receivable-subsidiary - 1,832 140,000
- ------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (8,000) (9,168) (186,865)
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt - 29,046 -
Payment of long-term debt - - (100,000)
Payment of loan from subsidiary (85,850) (174,150) -
- ------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (85,850) (145,104) (100,000)
- ------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (33,751) 34,629 15,210
CASH AND CASH EQUIVALENTS, beginning of year 53,861 19,232 4,022
- ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 20,110 $ 53,861 $ 19,232
========================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
Interest paid during the year $ 67,537 $ - $ -
========================================================================================================================
</TABLE>
S-6
<PAGE>
FAIRCOM INC.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
================================================================================
1. INVESTMENTS IN SUBSIDIARIES
The financial statements account for the Company's investment in its
subsidiaries on the equity method of accounting and have been prepared for the
purpose of presenting the financial position and operating results of the
Company as a separate entity. The Company has also prepared consolidated
financial statements of the Company and its subsidiaries which represent the
primary financial statements.
2. NOTE RECEIVABLE FROM SUBSIDIARY
In connection with the Company's borrowing of $2,000,000 from Price
Communications Corporation ("Price") (see Note 4 below), the Company advanced
$2,000,000 to Flint in exchange for Flint's 14% exchangeable subordinated note
("Note"), which is due January 31, 1997. The Note was pledged to Citicorp
Venture Capital, Ltd. ("CVC") in connection with CVC's guaranty of interest
payments on the Price note. In connection with a securities exchange agreement
entered into in December 1994 by the Company and Flint with CVC, the pledge of
the Note was cancelled and all rights and claims of CVC with respect to the Note
were extinguished. At December 31, 1995 and 1994, the principal balance of the
Note was $1,243,000.
3. MANAGEMENT FEES
The Company received $354,328, $335,000 and $373,155 from its
subsidiaries for management and administrative services for the years ended
December 31, 1995, 1994, and 1993, respectively.
4. EXTRAORDINARY ITEM
On December 31, 1986, the Company borrowed $2,000,000 from Price in the form of
a 14% Subordinated Note. Such note was due on January 31, 1990 and was extended
to August 1, 1990. Interest was payable quarterly commencing on March 31, 1987.
Interest installments on such note through January 31, 1990 were guaranteed by
CVC.
In 1993, the Company paid $100,000 to settle in full both the Price note and the
accrued interest of $920,888 on the note. As a result, the Company recognized an
extraordinary gain of $2,820,888 from troubled debt restructuring.
S-7
<PAGE>
FAIRCOM INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
================================================================================
<TABLE>
<CAPTION>
Balance at Additions Balance at
beginning charged to end of
of year expense Deductions * year
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful receivables:
Years ended December 31,
1995 $20,000 $16,428 $16,428 $20,000
==================================================================================================================================
1994 $20,000 $22,997 $22,997 $20,000
==================================================================================================================================
1993 $44,500 $25,483 $49,983 $20,000
==================================================================================================================================
</TABLE>
(*) Represents accounts written off against the reserve.
S-8
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
*3.1 Certificate of Incorporation, as amended.
*3.2 By-Laws of the Company.
11.1 Computation of Net Income (Loss) Per Common Share.
*21 Subsidiaries of the registrant.
27 Financial Data Schedule.
- --------------------
* Previously filed as an exhibit to the Company's registration of securities
on Form 10, dated February 12, 1987, pursuant to Section 12(g) of the
Securities Exchange Act of 1934.
FAIRCOM INC.
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
================================================================================
<TABLE>
<CAPTION>
1994
Year ended December 31, 1995 (As restated) 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM -
PRIMARY $ 244,816 $ 992,079 $ (796,843)
ADDBACK:
INTEREST FROM SUBORDINATED SENIOR
CONVERTIBLE NOTE (NET OF TAX EFFECT) 14,093 14,580 -
- ----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM -
FULLY DILUTED $ 258,909 $ 1,006,659 $ (796,843)
======================================================================================================================
EXTRAORDINARY ITEM - PRIMARY AND FULLY
DILUTED $ - $ 787,201 $3,216,605
======================================================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING
COMMON STOCK - PRIMARY 7,378,199 7,378,199 7,378,199
SHARES ISSUABLE UPON ASSUMED CONVERSION
OF SUBORDINATED SENIOR CONVERTIBLE NOTE 9,081,502 9,081,502 -
- ----------------------------------------------------------------------------------------------------------------------
COMMON SHARES - FULLY DILUTED 16,459,701 16,459,701 7,378,199
======================================================================================================================
PRIMARY INCOME (LOSS) PER SHARE OF COMMON
STOCK - ASSUMING NO DILUTION:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ .03 $ .13 $ (.11)
EXTRAORDINARY ITEM - .11 .44
- ----------------------------------------------------------------------------------------------------------------------
PRIMARY NET INCOME PER COMMON SHARE $ .03 $ .24 $ .33
======================================================================================================================
FULLY DILUTED INCOME (LOSS) PER COMMON
SHARE - ASSUMING ISSUANCE OF ALL DILUTIVE
CONTINGENT SHARES:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ .02 $ .06 $ (.11)
EXTRAORDINARY ITEM - .05 .44
- ----------------------------------------------------------------------------------------------------------------------
FULLY DILUTED NET INCOME PER COMMON
SHARE $ .02 $ .11 $ .33
======================================================================================================================
</TABLE>
NOTE: THE EFFECTS OF THE ASSUMED EXERCISE OF OUTSTANDING OPTIONS WERE NOT
DILUTIVE AND, ACCORDINGLY, HAVE BEEN EXCLUDED FROM BOTH THE PRIMARY AND
FULLY DILUTED PER SHARE CALCULATIONS.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 364
<SECURITIES> 0
<RECEIVABLES> 963
<ALLOWANCES> 20
<INVENTORY> 0
<CURRENT-ASSETS> 1,312
<PP&E> 6,283
<DEPRECIATION> 4,956
<TOTAL-ASSETS> 4,547
<CURRENT-LIABILITIES> 1,037
<BONDS> 7,829
<COMMON> 74
0
0
<OTHER-SE> (5,839)
<TOTAL-LIABILITY-AND-EQUITY> 4,547
<SALES> 0
<TOTAL-REVENUES> 5,786
<CGS> 0
<TOTAL-COSTS> 1,902
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 16
<INTEREST-EXPENSE> 811
<INCOME-PRETAX> 273
<INCOME-TAX> 28
<INCOME-CONTINUING> 245
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 245
<EPS-PRIMARY> .03
<EPS-DILUTED> .02
</TABLE>
