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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ............. to ...............................
Commission file number 0-15392
Faircom Inc.
(Exact name of registrant as specified in its charter)
Delaware 87-0394057
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Glen Head Road, Old Brookville, New York 11545
(Address of principal executive offices)
(516) 676-2644
(Registrant's telephone number, including area code)
Not Applicable
-----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of August 6, 1996:
Common Stock, par value $.01 7,378,199
- ----------------------------- ----------------
(Title of each class) (Number of Shares)
<PAGE>
FAIRCOM INC.
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
----------------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C>
Gross broadcasting
revenues $2,407,877 $2,779,520 $1,365,058 $1,687,917
Less: agency commissions (265,110) (323,423) (158,244) (200,143)
----------- ----------- ----------- -----------
Net broadcasting
revenues 2,142,767 2,456,097 1,206,814 1,487,774
----------- ----------- ----------- ----------
Programming and
technical expenses 608,138 585,934 319,027 321,991
Selling, general and
administrative expenses 826,019 838,902 411,349 421,828
Depreciation and
amortization 156,960 120,000 78,480 60,000
Corporate expenses 171,717 151,943 81,407 80,412
----------- ----------- ----------- ---------
Total operating expenses 1,762,834 1,696,779 890,263 884,231
----------- ----------- ----------- ---------
Income from operations 379,933 759,318 316,551 603,543
Interest expense (353,901) (410,755) (167,471) (206,758)
Other income 4,757 3,919 1,482 1,385
----------- ----------- ----------- ----------
Income before provision for
income taxes 30,789 352,482 150,562 398,170
Taxes on income (32,692) (35,000) (16,000) (35,000)
----------- ------------ ----------- -----------
Net income (loss) $ (1,903) $ 317,482 $ 134,562 $ 363,170
=========== ============ =========== ==========
Primary net income
(loss) per share of
common stock $ -- $ .04 $ .02 $ .05
====== ======= ======= ======
Weighted average shares
outstanding-primary 7,378,199 7,378,199 7,378,199 7,378,199
========== ========== ========== =========
Fully diluted net income
(loss) per common share $ -- $ .02 $ .01 $ .02
======= ======= ======= ======
Weighted average shares
outstanding-fully
diluted 16,459,701 16,459,701 16,459,701 16,459,701
========== ========== ========== ==========
</TABLE>
2
<PAGE>
FAIRCOM INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------------- --------------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 72,629 $ 363,532
Accounts receivable, less allowance
of $20,000 for possible losses in
1996 and 1995 926,966 942,601
Prepaid expenses 43,615 5,783
---------------- --------------
Total current assets 1,043,210 1,311,916
-------------- ------------
Property and equipment, at cost 6,295,462 6,283,289
Less accumulated depreciation and
amortization (5,056,663) (4,956,222)
--------------- ------------
Property and equipment, net 1,238,799 1,327,067
--------------- -----------
Intangible assets, net of accumulated
amortization of $494,613 in 1996 and
$458,553 in 1995 1,648,824 1,684,884
Other assets:
Deferred financing costs 147,181 167,641
Other 55,000 55,000
--------------- --------------
1,851,005 1,907,525
--------------- -------------
$ 4,133,014 $ 4,546,508
============== ============
LIABILITIES AND CAPITAL DEFICIT
Current liabilities:
Accounts payable $ 55,021 $ 58,946
Accrued expenses and liabilities 204,194 208,635
Taxes payable 16,150 20,150
Current portion of interest payable 226,580 235,458
Current portion of long-term debt 522,000 493,250
Current portion of obligations under
capital leases 11,653 20,800
---------------- -------------
Total current liabilities 1,035,598 1,037,239
--------------- -----------
Long-term debt, less current portion 7,552,884 7,828,883
Interest payable, less current portion 392,217 509,167
Deferred rental income 118,999 136,000
Appraisal right liability 800,000 800,000
---------------- ------------
Total liabilities 9,899,698 10,311,289
--------------- -----------
Capital deficit:
Common stock-$.01 par value, 35,000,000
shares authorized; 7,378,199 shares
issued and outstanding 73,782 73,782
Additional paid-in capital 2,605,813 2,605,813
Deficit (8,446,279) (8,444,376)
--------------- ------------
Total capital deficit (5,766,684) (5,764,781)
--------------- ------------
$ 4,133,014 $ 4,546,508
=============== ===========
</TABLE>
3
<PAGE>
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,903) $ 317,482
------------ ----------
Adjustments to reconcile net income
(loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 156,960 120,000
Amortization of deferred
rental income (17,000) --
Increase (decrease) in cash flows
from changes in operating
assets and liabilities:
Accounts receivable 15,635 (141,472)
Prepaid expenses (37,832) 4,845
Accounts payable (3,925) 6,218
Accrued expenses and
liabilities (4,441) (50,305)
Taxes payable (4,000) (9,793)
Interest payable (125,828) (10,490)
------------ -----------
Total adjustments (20,431) (80,997)
------------- -----------
Net cash provided by (used in)
operating activities $ (22,334) $ 236,485
------------ ---------
</TABLE>
4
<PAGE>
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Cash flows from investing activities:
Capital expenditures $ (12,173) $ (151,112)
---------- -----------
Net cash used in
investing activities (12,173) $ (151,112)
----------- -----------
Cash flows from financing activities:
Principal payments on long-term
debt (247,249) (270,729)
Principal payments under capital
lease obligations (9,147) (10,306)
----------- ------------
Net cash used in
financing activities (256,396) (281,035)
---------- -----------
Net decrease in cash and cash
equivalents (290,903) (195,662)
Cash and cash equivalents,
beginning of period 363,532 252,276
---------- ----------
Cash and cash equivalents,
end of period $ 72,629 $ 56,614
========== ==========
</TABLE>
5
<PAGE>
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for completed financial statements. In the opinion of management, the
statements include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for the interim
periods. The results of operations for any interim period are not necessarily
indicative of the results for a full year.
It is suggested that these consolidated financial statements be read
in conjunction with the financial statements and the notes thereto included in
the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995, as filed with the Commission.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company's net broadcasting revenues decreased 12.8% to
$2,143,000 in the six months ended June 30, 1996 from $2,456,000 in the six
months ended June 30, 1995, and 18.9% to $1,207,000 in the three months ended
June 30, 1996 from $1,488,000 in the three months ended June 30, 1995. Net
revenues in the six months and three months ended June 30, 1996 as compared
with the 1995 periods decreased primarily due to lower regional and national
advertising activity in the Flint, Michigan radio market and resulting lower
regional and national advertising revenues at the Company's Flint radio
stations.
Operating expenses before depreciation, amortization and corporate
expenses increased by 0.7% to $1,434,000 in the six months ended June 30, 1996
from $1,425,000 in the comparable 1995 period, and decreased by 1.8% to
$730,000 in the three months ended June 30, 1996 from $744,000 in the three
months ended June 30, 1995.
Net broadcasting revenues in excess of operating expenses before
depreciation, amortization and corporate expenses (broadcast cash flow)
decreased 31.3% to $709,000 in the six months ended June 30, 1996 from
$1,031,000 in the comparable 1995 period, and 36.0% to $476,000 in the three
months ended June 30, 1996 from $744,000 in the 1995 period. These decreases
resulted from the above-described net broadcasting revenue decreases in the
1996 periods compared with 1995.
Corporate expenses increased by 13.0% to $172,000 in the six months
ended June 30, 1996 from $152,000 in the comparable 1995 period, primarily as
a result of higher payments for employee compensation, professional fees and
rental expense in the 1996 period. Such employee compensation for the 1996
period included incentive payments indexed to 1995 operating results.
Interest expense decreased by 13.8% to $354,000 in the first six
months of 1996 from $411,000 in the corresponding period in 1995, and by 19.0%
to $167,000 in the second quarter of 1996 from $207,000 in the comparable
period in 1995. These decreases resulted from lower principal amounts of
interest bearing debt outstanding and lower interest rates during the 1996
periods.
As a result principally of lower net broadcasting revenues and
higher depreciation and amortization expense, offset in part by lower interest
expense, net income declined to a loss of $1,900 in the six months ended June
30, 1996 from net income of $317,000 in the first six months of 1995, and to
$135,000 in the three months ended June 30, 1996 from $363,000 in the
comparable period of 1995.
7
<PAGE>
Liquidity and Capital Resources
In the six months ended June 30, 1996, net cash used in operating
activities was $22,000 compared with $236,000 provided by operating activities
in the comparable 1995 period. Net decrease in cash and cash equivalents was
$291,000 in 1996 compared with a net decrease of $196,000 in 1995.
Historically, the Company's net cash provided by operating
activities is lower in its first and second quarters, and the Company expects
such net cash to increase in the balance of 1996.
Based upon current interest rates, the Company believes its interest
expense for the balance of 1996 will be approximately $400,000. Scheduled debt
principal payments are $246,000. Corporate expenses and capital expenditures
for the remainder of 1996 are estimated to be approximately $189,000 and
$67,000, respectively. The Company expects to be able to meet such interest
expense, debt repayment, corporate expenses and capital expenditures,
aggregating $902,000, from net cash provided by operations and current cash
balances.
The Company is examining various alternatives for obtaining funds
for station acquisitions. No assurance can be given that the Company will
successfully consummate any such financing.
8
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 Financial Data Schedule
All other items of this Part are inapplicable.
9
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FAIRCOM INC.
(Registrant)
/s/ Joel M. Fairman
---------------------------
Joel M. Fairman
Chairman of the Board
President and Treasurer
(Principal Executive Officer
and Chief Financial Officer)
Date: August 7, 1996
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 72,629
<SECURITIES> 0
<RECEIVABLES> 946,966
<ALLOWANCES> 20,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,043,210
<PP&E> 6,295,462
<DEPRECIATION> 5,056,663
<TOTAL-ASSETS> 4,133,014
<CURRENT-LIABILITIES> 1,035,598
<BONDS> 7,552,884
<COMMON> 73,782
0
0
<OTHER-SE> 2,605,813
<TOTAL-LIABILITY-AND-EQUITY> 4,133,014
<SALES> 0
<TOTAL-REVENUES> 2,407,877
<CGS> 0
<TOTAL-COSTS> 2,027,944
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 353,901
<INCOME-PRETAX> 30,789
<INCOME-TAX> 32,692
<INCOME-CONTINUING> (1,903)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,903)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
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