<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997.
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 May 6, 1997:
Common Stock, par value $.01 7,378,199
- ---------------------------- ---------------------
(Title of each class) (Number of Shares)
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1997 March 31, 1996
--------------- ---------------------
<S> <C> <C>
Gross broadcasting
revenues $1,030,277 $1,042,819
Less: agency
commissions (126,097) (106,866)
----------- ------------
Net broadcasting
revenues 904,180 935,953
---------- ------------
Programming and
technical expenses 293,856 289,111
Selling, general and
administrative
expenses 436,459 414,670
Depreciation and
amortization 78,624 78,480
Corporate expenses 115,534 90,310
---------- -------------
Total operating expenses 924,473 872,571
---------- ------------
Income (loss) from operations (20,293) 63,382
Interest expense (173,042) (186,430)
Other income 1,584 3,275
----------- -------------
Loss before taxes on income (191,751) (119,773)
Taxes on income (16,000) (16,692)
------------ --------------
Net loss $ (207,751) $ (136,465)
=========== ============
Primary net loss per common share $ (.03) $ (.02)
=========== ============
Weighted average shares
outstanding-primary 7,378,199 7,378,199
========== ===========
</TABLE>
2
<PAGE>
FAIRCOM INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $95,869 $123,221
Accounts receivable, less allowance
of $20,000 for possible losses in
1997 and 1996 786,733 1,169,772
Prepaid expenses 60,461 12,592
----------- -----------
Total current assets 943,063 1,305,585
----------- -----------
Property and equipment, at cost 6,354,775 6,344,519
Less accumulated depreciation and
amortization (5,208,083) (5,159,965)
----------- -----------
Property and equipment, net 1,146,692 1,184,554
----------- -----------
Intangible assets, net of accumulated
amortization of $529,464 in 1997 and
$515,670 in 1996 1,613,973 1,627,767
Other assets:
Deferred financing costs 206,877 167,222
Escrow deposit for purchase of radio stations 400,000 0
Other 37,575 41,325
----------- -----------
2,258,425 1,836,314
----------- -----------
$4,348,180 $4,326,453
=========== ===========
LIABILITIES AND CAPITAL DEFICIT
Current liabilities:
Accounts payable $68,158 $76,853
Accrued expenses and liabilities 192,930 199,054
Taxes payable 21,468 10,150
Current portion of interest payable 229,235 226,417
Current portion of long-term debt 567,000 552,000
Current portion of obligations under
capital leases 0 3,547
Secured note payable 400,000 0
----------- -----------
Total current liabilities 1,478,791 1,068,021
Long-term debt, less current portion 7,123,884 7,276,884
Interest payable, less current portion 330,704 350,494
Deferred rental income 93,493 101,995
Appraisal right liability 1,015,000 1,015,000
----------- -----------
Total liabilities 10,041,872 9,812,394
----------- -----------
Capital deficit:
Common stock-$.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 (8,373,287) (8,165,536)
----------- -----------
Total capital deficit (5,693,692) (5,485,941)
----------- -----------
$ 4,348,180 $ 4,326,453
=========== ===========
</TABLE>
3
<PAGE>
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31, 1997 March 30, 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (207,751) $ (136,465)
----------- -----------
Adjustments to reconcile net
loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 78,625 78,480
Amortization of deferred
rental income (8,502) (8,500)
Increase (decrease) in cash flows
from changes in operating assets
and liabilities:
Accounts receivable 383,039 218,154
Prepaid expenses (47,869) (52,314)
Accounts payable (8,695) (5,488)
Accrued expenses and
liabilities (6,124) (240)
Taxes payable 11,318 (5,000)
Interest payable (16,972) (99,548)
------------- ------------
Total adjustments 384,820 125,544
------------ ----------
Net cash provided by (used in)
operating activities $ 177,069 $ (10,921)
----------- -----------
</TABLE>
4
<PAGE>
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Cash flows from investing activities:
Capital expenditures $ (10,256) $ (600)
Escrow deposit for purchase of radio stations (400,000) 0
------------ ------------
Net cash used in
investing activities (410,256) (600)
------------ -------------
Cash flows from financing activities:
Payments for deferred financing costs (52,618) 0
Principal payments on long-term
debt (138,000) (124,248)
Principal payments under capital
lease obligations (3,547) (4,497)
Proceeds from secured note payable 400,000 0
---------- ------------
Net cash provided by (used in)
financing activities 205,835 (128,745)
----------- -------------
Net decrease in cash and cash
equivalents (27,352) (140,266)
Cash and cash equivalents,
beginning of period 123,221 363,532
----------- ------------
Cash and cash equivalents,
end of period $ 95,869 $ 223,266
=========== ============
</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, 1996, as filed with the Commission.
2. Net Loss Per Common Share
Fully diluted net loss per common share is not presented because the
effects of the assumed conversion of the Company's Subordinated Senior
Convertible Note would be antidilutive.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company's net broadcasting revenues decreased 3.4% to $904,000 in
the three months ended March 31, 1997 from $936,000 in the three months ended
March 31, 1996. Net revenues decreased at the Company's Flint, Michigan radio
stations primarily due to lower local advertising activity in the Flint radio
market, offset in part by higher national advertising revenues.
Operating expenses before depreciation, amortization and corporate
expenses increased by 3.8% to $730,000 in the three months ended March 31,
1997 from $704,000 in the three months ended March 31, 1996. This increase
resulted primarily from higher employee sales compensation and compensation
paid on national sales.
Net broadcasting revenues in excess of operating expenses before
depreciation, amortization and corporate expenses (operating cash flow)
decreased 25.1% to $174,000 in the three months ended March 31, 1997 from
$232,000 in the three months ended March 31, 1996. This decrease resulted from
the decrease in net broadcasting revenues and the increase in operating
expenses described above.
Corporate expenses increased by 27.9% to $116,000 in the three months
ended March 31, 1997 from $90,000 in the comparable period of 1996 as a result
principally of higher employee compensation, travel expenses and professional
fees in the 1997 period.
Interest expense decreased by 7.2% to $173,000 in the three months
ended March 31, 1997 from $186,000 in the comparable period in 1996. This
decrease resulted from lower principal amounts of interest bearing debt
outstanding and lower interest rates during the 1997 period.
As a result principally of lower net broadcasting revenues and higher
operating and corporate expenses, offset in part by lower interest expense,
net loss increased to $208,000 in the three months ended March 31, 1997 from a
net loss of $136,000 in the first quarter of 1996.
Liquidity and Capital Resources
In the three months ended March 31, 1997, net cash provided by
operating activities was $177,000 compared with $11,000 used in operating
activities in the comparable 1996 period. Net decrease in cash and cash
equivalents was $27,000 in 1997 compared with a net decrease of $140,000 in
1996.
7
<PAGE>
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 1997.
Based upon current interest rates, the Company believes its interest
expense for the balance of 1997 will be approximately $636,000. Scheduled debt
principal payments are $414,000. Corporate expenses and capital expenditures
for the remainder of 1997 are estimated to be approximately $270,000 and
$47,000, respectively. The Company expects to be able to meet such interest
expense, debt repayment, corporate expenses and capital expenditures,
aggregating $1,367,000, from net cash provided by operations and current cash
balances.
In January 1997 a subsidiary of the Company borrowed $400,000 by
increasing its existing senior secured debt to make an escrow deposit under a
contract to acquire two radio stations. The loan matures January 1, 1998. The
Company is negotiating the refinancing of all its existing indebtedness,
increasing such indebtedness and obtaining additional equity capital in
connection with such acquisition. No assurance can be given that the Company
will successfully consummate any such financing.
8
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 Financial Data Schedule
All other items of this Part are inapplicable.
9
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FAIRCOM INC.
(Registrant)
/s/ Joel M. Fairman
Joel M. Fairman
Chairman of the Board
President and Treasurer
(Principal Executive Officer
and Chief Financial Officer)
Date: May 13, 1997
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 95,869
<SECURITIES> 0
<RECEIVABLES> 806,733
<ALLOWANCES> 20,000
<INVENTORY> 0
<CURRENT-ASSETS> 943,063
<PP&E> 6,354,775
<DEPRECIATION> 5,208,083
<TOTAL-ASSETS> 4,348,180
<CURRENT-LIABILITIES> 1,478,791
<BONDS> 7,123,884
0
0
<COMMON> 73,782
<OTHER-SE> (5,767,474)
<TOTAL-LIABILITY-AND-EQUITY> 4,348,180
<SALES> 0
<TOTAL-REVENUES> 1,030,277
<CGS> 0
<TOTAL-COSTS> 419,953
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 173,042
<INCOME-PRETAX> (191,751)
<INCOME-TAX> 16,000
<INCOME-CONTINUING> (207,751)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (207,751)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> 0
</TABLE>
