<PAGE>
FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 November 12, 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>
Nine months ended Three months ended
September 30, September 30
-------------------------- --------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross broadcasting
revenues $ 4,559,193 $ 3,798,007 $ 2,104,737 $ 1,390,130
Less: agency commissions (495,587) (435,100) (199,390) (169,990)
----------- ----------- ----------- -----------
Net broadcasting
revenues 4,063,606 3,362,907 1,905,347 1,220,140
----------- ----------- ----------- -----------
Programming and
technical expenses 1,058,111 900,703 441,150 292,565
Selling, general and
administrative expenses 1,576,616 1,283,006 712,157 456,987
Depreciation and
amortization 458,783 235,440 301,535 78,480
Corporate expenses 297,166 248,757 86,952 77,040
----------- ----------- ----------- -----------
Total operating expenses 3,390,676 2,667,906 1,541,794 905,072
----------- ----------- ----------- -----------
Income from operations 672,930 695,001 363,553 315,068
Interest expense (836,404) (527,777) (486,129) (173,876)
Other income 16,609 5,197 14,645 440
----------- ----------- ----------- -----------
Income (loss) before provision for appraisal
right and taxes on income (146,865) 172,421 (107,931) 141,632
Provision for appraisal right -- (55,000) -- (55,000)
----------- ----------- ----------- -----------
Income (loss) before taxes on
income (146,865) 117,421 (107,931) 86,632
Taxes on income (49,542) (37,692) (16,000) (5,000)
----------- ----------- ----------- -----------
Income (loss) before extraordinary items (196,407) 79,729 (123,931) 81,632
----------- ----------- ----------- -----------
Extraordinary gain from debt extinguishment 370,060 -- -- --
Extraordinary loss from debt extinguishment (4,703,370) -- -- --
----------- ----------- ----------- -----------
Extraordinary items (4,333,310) -- -- --
----------- ----------- ----------- -----------
Net income (loss) $(4,529,717) $ 79,729 $ (123,931) $ 81,632
=========== =========== =========== ===========
Primary income
(loss) per common share-assuming
no dilution:
Income (loss) before extraordinary items $ (.02) $ .01 $ (.02) $ .01
Extraordinary items (.59) -- -- --
----------- ----------- ----------- -----------
Primary net income (loss)
per common share $ (.61) $ .01 $ (.02) $ .01
=========== =========== =========== ===========
Weighted average shares
outstanding-primary 7,378,199 7,378,199 7,378,199 7,378,199
=========== =========== =========== ===========
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30 September 30,
------------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Fully diluted income per common
share-assuming full dilution:
Income before extraordinary items $ .01 $ .01
Extraordinary items -- --
----- -----
Fully diluted net income per common share $ .01 $ .01
===== =====
Weighted average shares
outstanding-fully diluted 16,459,701 16,459,701
========== ==========
</TABLE>
3
<PAGE>
FAIRCOM INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 495,530 $ 123,221
Accounts receivable, less allowance
of $20,000 for possible losses in
1997 and 1996 1,238,116 1,169,772
Prepaid expenses 86,805 12,592
------------ ------------
Total current assets 1,820,451 1,305,585
------------ ------------
Property and equipment, at cost 9,629,351 6,344,519
Less accumulated depreciation and
amortization (5,400,590) (5,159,965)
------------ ------------
Property and equipment, net 4,228,761 1,184,554
------------ ------------
Intangible assets, net of accumulated
amortization of $634,189 in 1997 and
$512,643 in 1996 5,937,878 1,627,767
Other assets:
Deferred financing costs 964,531 167,222
Escrow deposit for purchase of radio station 100,000 --
Other 30,075 41,325
------------ ------------
7,032,484 1,836,314
------------ ------------
$ 13,081,696 $ 4,326,453
============ ============
LIABILITIES AND CAPITAL DEFICIT
Current liabilities:
Accounts payable $ 112,262 $ 76,853
Accrued expenses and liabilities 190,132 199,054
Taxes payable 4,089 10,150
Interest payable-secured note 102,716 --
Current portion of interest payable -- 226,417
Current portion of senior secured term notes 400,004 552,000
Current portion of obligations under capital leases -- 3,547
------------ ------------
Total current liabilities 809,203 1,068,021
------------ ------------
Long-term debt, less current portion: --
Senior secured term notes 12,036,662 6,595,254
Convertible and exchangeable
subordinated promissory notes 10,000,000 681,630
Interest payable, less current portion -- 350,494
Interest payable-convertible notes 175,000 --
Deferred rental income 76,489 101,995
Appraisal right liability -- 1,015,000
------------ ------------
Total liabilities 23,097,354 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 (12,695,253) (8,165,536)
------------ ------------
Total capital deficit (10,015,658) (5,485,941)
------------ ------------
$ 13,081,696 $ 4,326,453
============ ============
</TABLE>
4
<PAGE>
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended
Sept. 30, 1997 Sept. 30, 1996
-------------- --------------
Cash flows from operating activities:
Net income (loss) $(4,529,717) $ 79,729
----------- -----------
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization 458,783 235,440
Amortization of deferred
rental income (25,506) (25,503)
Provision for appraisal right -- 55,000
Extraordinary items 4,333,310 --
Increase (decrease) in cash flows
from changes in operating
assets and liabilities:
Accounts receivable (68,344) (11,500)
Prepaid expenses (74,213) (39,356)
Accounts payable 35,409 34,029
Accrued expenses and
liabilities (8,922) (10,523)
Taxes payable (6,061) (15,000)
Interest payable 70,865 (148,008)
----------- -----------
Total adjustments 4,715,321 74,579
----------- -----------
Net cash provided by
operating activities $ 185,604 $ 154,308
----------- -----------
5
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FAIRCOM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
Nine months ended
September 30, 1997 September 30, 1996
------------------ ------------------
Cash flows from investing activities:
Acquisition of radio stations $ (7,650,000) $ --
Capital expenditures (69,832) (25,226)
Escrow deposit (100,000) --
------------ ------------
Net cash used in
investing activities (7,819,832) (25,226)
------------ ------------
Cash flows from financing activities:
Payments for deferred financing costs (879,328) (24,814)
Principal payments on long-term debt (12,595,588) (370,249)
Payment of appraisal right liability (1,015,000) --
Principal payments under capital
lease obligations (3,547) (13,957)
Proceeds from long-term debt 22,500,000 --
------------ ------------
Net cash provided by (used in)
financing activities 8,006,537 (409,020)
------------ ------------
Net increase (decrease) in cash and cash
equivalents 372,309 (279,938)
Cash and cash equivalents,
beginning of period 123,221 363,532
------------ ------------
Cash and cash equivalents,
end of period $ 495,530 $ 83,594
============ ============
6
<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 for the
nine months and the three months ended September 30, 1997 is not presented
because the effects of the assumed conversion of the Company's Convertible
Subordinated Promissory Notes and the Company's Subordinated Senior
Convertible Note would be antidilutive in those periods. 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.
3. Acquisition of Radio Stations
As of June 30, 1997, the Company, through a
wholly-owned subsidiary, Faircom Mansfield Inc. ("Faircom Mansfield"),
acquired the assets and operations of two radio stations, WMAN-AM and WYHT-FM,
both located in Mansfield, Ohio (the "Mansfield Stations") for aggregate cash
consideration of $7,650,000. The acquisition has been accounted for as a
purchase, and accordingly the operating results of the Mansfield Stations have
been included in the Consolidated Statements of Operations from the
acquisition date.
The following are the Company's estimates of
selected pro forma unaudited consolidated results as if the Mansfield Stations
had been acquired as of the beginning of the periods presented:
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<PAGE>
<TABLE>
<CAPTION>
($000s except per share amounts) 9 months ended 3 months ended
------------------ ----------------
9/30/97 9/30/96 9/30/97 9/30/96
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net broadcasting
revenues $5,216 $5,043 $1,905 $1,800
Less: operating expenses before
depreciation, amortization and
corporate expenses 3,310 3,240 1,153 1,108
------- ------- ------- -------
Broadcast cash flow $1,906 $1,803 $752 $692
======= ======= ======= =======
Net loss $(4,838) $(626) $(124) $(233)
======= ======= ======= =======
Primary net loss per
common share $(.66) $(.08) $(.02) $(.03)
======= ======= ======= =======
</TABLE>
4. Related Additional Financing and Refinancing
As of June 30, 1997, the Company completed the sale of
$10,000,000 aggregate principal amount of its convertible subordinated
promissory notes due July 1, 2002 (the "Notes"). The Notes consist of
Class A and Class B convertible subordinated promissory notes, each in the
aggregate principal amount of $5,000,000. The Class A Notes are convertible
into 11,242,500 shares of the Company's common stock, $.01 par value (the
"Common Stock"), and the Class B Notes into 7,769,500 shares of Common Stock.
The aggregate 19,012,000 of such shares on full conversion of the Notes would
represent 67.1% of the Company's outstanding Common Stock on a fully diluted
and adjusted basis. The Notes bear interest at 7% per annum, compounded
quarterly, payable at the maturity of the Notes. The Notes have not been
registered under the Securities Act of 1933, as amended, and may not be offered
or sold in the United States absent registration under the Act or an applicable
exemption from registration. The terms of the Securities Purchase Agreement
applicable to the Class A and Class B Notes provide that if the Company does
not, on or before January 1, 1998, consummate a merger of the Company with
another corporation on terms acceptable to the holders of the Notes, then upon
notice from such holders, the Company shall take all action necessary to
liquidate the Company and each of its subsidiaries on terms and conditions
acceptable to such holders, such approval not to be unreasonably withheld.
Any such liquidation shall provide for the payment in full of all senior debt.
The proceeds from the sale of the Notes were used (i) to
purchase for $6,400,000 from Citicorp Venture Capital, Ltd. ("Citicorp") the
Company's 8.65% Senior Convertible Note ("Convertible Note") in the principal
amount of $181,630 due December 1, 2004 and the Company's 10% Senior
Exchangeable Note ("Exchangeable Note") in the principal amount of $500,000
due December 1, 2004, representing all of Citicorp's interests in the
Company, and (ii) to pay a portion of the purchase price for the acquisition
of the Mansfield Stations and the legal and other fees and expenses of such
acquisition. The Convertible Note was convertible into 9,081,502 shares of
Common Stock, which would have represented 52.5% of the Company's fully
diluted outstanding Common Stock prior to the acquisition and the financing
activities described in this report. The Exchangeable Note gave Citicorp the
right to request, at any time afer December 1, 1999, that $350,000 principal
amount of such Note be exchanged for a payment equal to 19.99% of the
appraised value, as defined, of the Company's subsidiary which owns and
operates radio stations in Flint, Michigan.
The Company also refinanced its existing senior secured term
loan credit facility with AT&T Commercial Finance Corporation ("AT&T"). As
part of the refinancing, the Company increased its outstanding debt to AT&T
from $7,371,000 to $12,500,000. The additional borrowing was used for the
acquisition of the Mansfield Stations and related expenses. The term loan
matures July 1, 2002 with optional renewal by the Company under certain
circumstances for an additional five years. Interest on the term loan
initially is at the rate of 4.50% over 90 day commercial paper rates.
5. Extraordinary Gain and Loss from Debt Extinguishment
In connection with the AT&T refinancing, certain related
accrued interest was extinguished, resulting in an extraordinary gain of
$370,060.
In connection with the purchase by the Company of its
$181,630 Convertible Note and its $500,000 Exchangeable Note for $6,400,000
from Citicorp, the Company's appraisal right liability of $1,015,000 was also
extinguished, resulting in an extraordinary loss of $4,703,370 from such debt
extinguishment.
The related current income tax effect of these extraordinary
items was not material.
6. Proposed Acquisition of Radio Station
On September 25, 1997, Faircom Mansfield filed an
application with the Federal Communications Commission ("FCC") to acquire the
assets and operations of radio station WSWR-FM, Shelby, Ohio, for $1,125,000
in cash. Faircom Mansfield deposited $100,000 in escrow pursuant to the
contract to acquire the Shelby station. Subject to FCC approval and the
satisfaction of contractual conditions, a closing is anticipated in December
1997.
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The results of the Company's operations from
period-to-period are not comparable or necessarily indicative of results in
the future due to the significance of acquisitions.
The increase in the Company's net broadcasting revenues for
the nine months and the three months ended September 30, 1997 resulted
principally from the ownership and operation of the Mansfield Stations during
both periods. Net broadcasting revenues increased to $4,064,000 from
$3,363,000, or 20.8%, and to $1,905,000 from $1,220,000, or 56.2%,
respectively, in such nine and three month periods in 1997 as compared with
the corresponding 1996 periods.
Operating expenses before depreciation, amortization and
corporate expenses also increased in the nine and three month periods ended
September 30, 1997, primarily as a result of the acquisition of the Mansfield
Stations. Such increases were to $2,635,000 from $2,184,000, or 20.7%, and to
$1,153,000 from $750,000, or 53.9%, in the 1997 nine and three month periods,
respectively, as compared with the 1996 periods.
Net broadcasting revenues in excess of operating expenses
before depreciation, amortization and corporate expenses (broadcast cash flow)
increased 21.2% to $1,429,000 in the nine months ended September 30, 1997 from
$1,179,000 in the comparable 1996 period and 59.8% to $752,000 in the three
months ended September 30, 1997 from $471,000 in the 1996 period. These
increases resulted primarily from the acquisition of the Mansfield Stations as
described above.
Depreciation and amortization and interest expense increased
in the nine months and three month periods ended September 30, 1997, as
compared with the 1996 periods, as a result of the addition of assets and debt
incurred in connection with the acquisition of the Mansfield Stations.
As a result principally of an extraordinary loss from debt
extinguishment of $4,703,000, offset in part by an extraordinary gain from
debt extinguishment of $370,000, net loss was $4,530,000 for the nine months
ended September 30, 1997 compared to net income of $80,000 in the first nine
months of 1996.
Liquidity and Capital Resources
In the nine months ended September 30, 1997, net cash
provided by operating activities was $186,000 compared with $154,000 provided
by operating activities in the comparable 1996 period. Net increase in cash
and cash equivalents was $372,000 in 1997 compared with a net decrease of
$280,000 in 1996.
Based upon current interest rates, the Company believes its
interest payments for the balance of 1997 will be approximately $318,000.
Scheduled debt principal payments are $95,000. Corporate expenses and capital
expenditures for the remainder of 1997 are estimated to be approximately
$100,000 and $55,000, respectively. The Company expects to be able to meet
such interest expense, debt repayment, corporate expenses and capital
expenditures, aggregating $568,000, from net cash provided by operations and
current cash balances.
The terms of the Securities Purchase Agreement applicable to
the Class A and Class B Notes provide that if the Company does not, on or
before January 1, 1998, consummate a merger of the Company with another
corporation on terms acceptable to the holders of the Notes, then upon notice
from such holders, the Company shall take all action necessary to liquidate
the Company and each of its subsidiaries on terms and conditions acceptable to
such holders, such approval not to be unreasonably withheld. Any such
liquidation shall provide for the payment in full of all senior debt.
The Company is currently negotiating with respect to
additional radio station acquisitions. Such acquisitions would require
additional debt and equity
-9-
<PAGE>
financing. In addition, the Company has engaged in discussions regarding
various forms of combinations with other group broadcasters.
On October 22, 1997, the Company announced that it had
signed a letter of intent to merge with Regent Communications, Inc., another
group radio broadcaster. The Company expects to pay the fees and expenses of
this transaction for which the Company is responsible from net cash provided
by operations and current cash balances. The Company is unable to estimate, at
present, the amount of such fees and expenses.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule*
(b) Reports on Form 8-K
During the quarter for which this report is filed, the Company filed
the following reports on Form 8-K:
1. Report on Form 8-K filed July 14, 1997, reporting (a) the
acquisition by Faircom Mansfield Inc. of the Mansfield Stations from
Treasure Radio Associates L.P. and (b) the sale by the Company of
$10,000,000 aggregate principal amount of its convertible subordinated
promissory notes due July 1, 2002 and certain other transactions
related thereto.
2. Amended Report on Form 8-K/A filed July 15, 1997, amending
certain share numbers contained in Item 5 of the Report on Form 8-K
dated July 14, 1997.
3. Amended Report on Form 8-K/A filed September 12, 1997,
providing (a) the audited balance sheets of Treasure Radio Associates
L.P. as of November 30, 1996 and 1995, and the related statements of
income, partners' deficit and cash flows for the years then ended,
(b) the unaudited balance sheets of Treasure Radio Associates L.P. as
of June 30, 1997 and 1996 and the related statements of income and
cash flows for the six months ended May 31, 1997 and 1996 and (c) the
unaudited pro forma consolidated statements of operations of the
Company, which assume the acquisition of the assets of the Mansfield
Stations took place on January 1, 1996, for the year ended December
31, 1996 and the six months ended June 30, 1997, and the notes
thereto.
-----------
* previously filed.
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<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: February 17, 1998
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