<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.20549
FORM 1O-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended: March 31, 1996
Commission File No. 0-27160
CALL NOW, INC.
--------------
(Exact name of small business issuer in its charter)
Florida 65-0337175
- --------------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
P.O.Box 531399, Miami Shores, FL 33153
----------------------------------------
(Address of principal executive offices)
(305) 751-5115
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 7,243,700 shares as of June
__, 1996.
Transitional Small Business Format: No
--
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Registrant's Financial Statements filed herewith begin on page 6.
Item 2. Management's Discussion and Analysis of Results of Operations and
Liquidity and Capital Resources
The Company, through its wholly-owned subsidiary, is engaged in the
transmitting of long distance telephone calls through arrangements with other
long distance carriers. Profits are based upon the Company's ability to charge
a rate in excess of the Company's cost of transmitting calls through the
carriers transmitting the calls and other costs of business operations.
Strategic Plan
The Company's objective is to achieve profitability by increasing call
volume. The Company is seeking to focus on adding sales representatives as
independent agents who will establish their own sub-representative networks by
offering attractive commissions to such representatives. Added volume of calls
will also enable the Company to provide service at competitive rates. Of
course, it is vital that the Company offer rates competitive with its
competition and the Company is continually seeking to obtain the lowest
available rates. The Company has recently initiated a new commission program
on a test basis to pay advance commission to representatives upon the
initiation of service to a new customer. The Company believes this program
will enable it to increase call volume by making its service more attractive to
sales representatives. The Company's agreements with its sales representatives
are non-exclusive in that the representatives can represent more than one long
distance carrier at the same time. Accordingly, it is important that the
Company's commission structure is attractive to its representatives.
Additionally, the Company will seek to acquire other long distance telephone
customers through purchase of accounts and possibly purchase of other long
distance telephone companies.
The Company cannot predict when or if its plan to achieve
profitability by increasing call volume will be successful in view of the
competitive environment in the long distance industry.
2
<PAGE> 3
Results of Operations
Three Months Ended March 31
1996 compared to 1995
Long distance service revenue for the three months ended March 31,
1996 were $106,950 compared to $423,260 for the three months ended March 31,
1995. Revenues fell due to loss of accounts to competitors, without
corresponding acquisition of new accounts. Line costs in 1996 were $82,750,
representing 73% of long distance revenue compared to $338,930 or 80% of
revenue in 1995. In 1996 the Company was able to receive better rates from its
long distance providers, resulting in lower line costs.
This is a key element determining profitability which is governed by
competition in rates the Company can charge for its services and the line costs
it incurs in providing its services. Selling and general and administrative
expense reflected not only the direct costs of its ARN long distance operations
but the considerable overhead of the parent corporation, including legal,
accounting and consulting expenses. The provision for doubtful accounts
decreased from $21,030 in 1995 to $6,302 due to more efficient credit
management. The Company is seeking to reduce credit risks by dealing with
customers with monthly billings in the $250 to $2,500 range so that no one
customer can unduly affect the Company's business. Additionally, slow paying
customers are terminated sooner.
Depreciation and amortization relates primarily to amortization of
customer list and is based upon higher turnover of customers.
Interest expended in 1995 was primarily related to a margin loan.
This was paid off in the first quarter of 1996. Interest income was from a
loan to a securities firm.
There was a loss from the Company's investment in an unconsolidated
entity (Cable-Sat) in 1996. There was no comparable item in 1995. In 1996 the
Company distributed a substantial portion of its stock in Cable-Sat to the
Company's shareholders.
There was a loss from continuing operations before income taxes of
$1,019,064 in 1995 compared to a loss of $1,337,684 in 1994.
Liquidity and Capital Resources
As of December 31, 1995, the Company borrowed $1,304,265 from Merrill
Lynch using ICI stock as collateral. In 1996 the Company sold 280,000 shares
of ICI stock for $5,261,317. The Merrill Lynch loan was paid off in March
1996.
3
<PAGE> 4
During 1996, the Company's operating activities used cash of
approximately $175,350 compared to $553,360 in 1995. The Company's long
distance telephone business is currently operating at a loss.
Net cash was provided primarily from sale of ICI stock. 84,000 shares
were sold in 1995 and 280,000 shares in 1996.
Cash flow from operations reflects cash used in 1996 of $175,353
versus net income of $989,187. The difference represents the result of
adjustments for various non-cash entries as reflected in the Consolidated
Statements of Cash Flows.
Cash flow from investing activities in 1996 primarily reflected
proceeds of sale of ICI common stock reduced by investment in Cable-Sat. Net
cash provided was $4,265,608
Cash used in financing activities in 1996 was $1,306,575 and primarily
resulted from payment of a margin loan. In 1995 $62,121 was provided from
financing activities reflecting borrowing activities.
The Company has investments in common stock of Intermedia
Communications of Florida, Inc. and Cable-Sat Compression, Inc. Such
investments do not generate revenues for the Company directly. However, the
Company has been meeting its working capital requirements through sale from
time-to-time of ICI stock. In addition, the Company has borrowed money
utilizing shares of ICI as collateral for such loan. In addition the Company
has entered into an agreement with Barron Chase Securities, Inc. under which it
has lent 175,000 shares of its ICI stock to such firm for which such firm has
agreed to pay the Company $11,550 per month which the Company utilizes as
working capital. The Company is required to provide additional shares of ICI
in the event the market price of ICI stock falls below a certain level. Such
arrangement terminates on March 31, 1997 at which time the Company receives
back its ICI shares. The Company entered into this agreement in order to
generate revenue from its holdings of ICI common stock which does not currently
pay any dividend.
Since the sale of Phone One in December 1994, the Company has been
borrowing against and selling the ICI stock for working capital and other cash
needs and has considerable equity in such stock available to meet future cash
needs.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
Registrant filed no reports on Form 8-K during the quarter ended March 31,
1996.
4
<PAGE> 5
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CALL NOW, INC.
By: s/William M. Allen
--------------------------------
William M. Allen
President
June 13, 1996 By: s/James Grainger
--------------------------------
Chief Financial Officer
5
<PAGE> 6
CALL NOW, INC AND SUBSIDIARIES
Consolidated Balance Sheet as of March 31, 1996
ASSETS
<TABLE>
<CAPTION>
1996
CURRENT ASSETS: UNAUDITED
-----------
<S> <C>
Cash $ 3,024,936
Accounts receivable (less $92,094 allowance for doubtful accounts) 78,798
Marketable securities, at market value - unrestricted 3,737,750
Marketable securities, at market value - pledged 3,307,500
Notes receivable 1,305,000
Other 30,888
-----------
TOTAL CURRENT ASSETS 11,484,871
-----------
Furniture and equipment (less $92,323 accumulated depreciation) 72,963
-----------
Customer list (less $250,209 accumulated amortization) 57,232
-----------
Other Assets
Investments (less amortization & equity loss of $5,475) 488,214
Other 64,554
-----------
Total other assets 552,768
-----------
TOTAL ASSETS $12,167,834
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of capital lease obligations $23,868
Accounts payable 847,235
Notes Payable 1,155,000
Accrued expenses 69,660
Income taxes payable 961,685
Deferred income taxes 2,081,645
-----------
TOTAL CURRENT LIABILITIES 5,139,094
-----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, no par, 800,000 shares authorized, none outstanding
Common stock, no par, 50,000,000 shares authorized, 7,243,700 issued
and outstanding 3,130,477
Retained earnings 2,611,943
Less subscription notes receivable for 250,000 shares of common stock (200,000)
Unrealized holding gain on marketable securities 1,486,320
-----------
TOTAL STOCKHOLDERS' EQUITY 7,028,740
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,167,834
===========
</TABLE>
See notes to Consolidated Financial Statements
<PAGE> 7
CALL NOW, INC AND SUBSIDIARIES
Consolidated Statements of Operations for the three months ended March 31, 1996
and 1995
<TABLE>
<CAPTION>
1996 1995
UNAUDITED UNAUDITED
--------- ---------
<S> <C> <C>
REVENUES:
Long distance services $ 113,359 $ 423,259
Gain on sale of marketable securities 1,780,814 -
Interest 43,485 8,889
---------- ----------
TOTAL REVENUES 1,937,658 432,148
---------- ----------
COST AND EXPENSES:
Line costs 82,753 338,930
Selling, general, and administrative 155,447 126,052
Provision for doubtful accounts 6,302 21,031
Depreciation and amortization 21,165 31,790
Interest 25,746 30,593
Loss from unconsolidated entity 60,247 -
---------- ----------
TOTAL COSTS AND EXPENSES 351,660 548,396
---------- ----------
Income/(loss) from continuing operations before income taxes 1,585,998 (116,248)
Income tax (expense)/benefit (596,811) 43,500
---------- ----------
NET INCOME/(LOSS) $ 989,187 ($72,748)
========== ==========
NET INCOME (LOSS) PER SHARE $0.14 ($0.01)
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - PRIMARY AND FULLY DILUTED 7,243,700 7,243,700
========== ==========
</TABLE>
See notes to Consolidated Financial Statements
<PAGE> 8
CALL NOW, INC AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the three months ended March 31,1996
(UNAUDITED)
<TABLE>
<CAPTION>
SUBSCRIPTION
COMMON STOCK NOTES RECEIVABLE
------------------ ----------------- UNREALIZED
NUMBER OF NUMBER OF HOLDING RETAINED
SHARES AMOUNT SHARES AMOUNT GAIN EARNINGS TOTAL
--------- ---------- ----------------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31,1995 7,243,700 $3,130,477 250,000 ($200,000) $2,250,000 $2,030,156 $7,210,633
Unrealized holding (loss) net of
income taxes (763,680) ($763,680)
Dividend distribution (724,370 shares of
Cable-Sat Systems, Inc. common stock) (407,400) (407,400)
Net income 989,187 989,187
--------- ---------- ------- --------- ---------- ---------- ----------
BALANCE, MARCH 31,1996 7,243,700 $3,130,477 250,000 ($200,000) $1,486,320 $2,611,943 $7,028,740
========= ========== ======= ========= ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 9
CALL NOW, INC AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three months ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
OPERATING ACTIVITIES: UNAUDITED UNAUDITED
--------- ---------
<S> <C> <C>
Net income (loss) $989,187 ($641,223)
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 24,291 233,600
Reduction in stock subscription notes receivable - 152,000
Provision for doubtful accounts - 167,267
Deferred income taxes (310,514) (377,841)
Gain on sale of securities (1,780,814) (229,715)
Loss from unconsolidated entity 60,247 71,515
(Increase) decrease in assets:
Accounts receivable 1,617 127,282
Other current assets (8,037) (13,190)
Other assets (5,422) (18,767)
Increase (decrease) in liabilities:
Accounts payable (8,209) 9,208
Accrued expenses (45,024) (33,784)
Income taxes payable 907,325 -
--------- --------
CASH (USED) BY OPERATING ACTIVITIES (175,353) (553,648)
--------- --------
INVESTING ACTIVITIES:
Capital expenditures (3,126) (4,932)
Purchase of marketable securities (270,433) (202,140)
Proceeds from sale of marketable securities 5,261,317 1,439,855
Investment in Cable-Sat Systems, Inc. (546,000) (500,000)
Note receivable (150,000) -
Payment for acquisition of customer base (26,150) -
--------- --------
CASH PROVIDED BY INVESTING ACTIVITIES 4,265,608 732,783
--------- --------
FINANCING ACTIVITIES:
Cash overdraft - (324,491)
Proceeds from margin loan 24,852 1,637,764
Payments on margin loan (1,329,117) (1,235,120)
Payment on long term debt and capital lease obligations (2,310) (16,032)
--------- --------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES (1,306,575) 62,121
--------- --------
NET INCREASE IN CASH 2,783,680 241,256
CASH, BEGINNING OF PERIOD 241,256 -
--------- --------
CASH, END OF PERIOD $3,024,936 $241,256
========== ========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 10
CALL NOW, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1996
1. MARKETABLE Marketable securities are carried at their fair value. The
SECURITIES carrying value and approximate market value at March 31, 1996
are as follows:
Marketable securities, at cost
Unrestricted 2,502,000
Restricted 2,160,000
Unrealized holding gain 2,383,250
---------
Market and carrying value 7,045,250
------------------------- ---------
2. NOTE On March 24, 1996 the Company entered into an agreement
RECEIVABLE with broker-dealer whereby the Company executed a secured
demand note payable to the broker-dealer in the amount of
$1,155,000 without interest, payable on demand,
collateralized by the pledge of 150,000 shares of ICI stock
which is owned by the Company; simultaneously, the
broker-dealer signed a note payable to the Company in a like
amount bearing interest at 12% per annum, maturing March 31,
1997. Upon maturity, the ICI shares will be returned to the
Company. In the event the value of the shares is less than
the unpaid balance of the note, the Company will be required
to pledge additional collateral or the broker-dealer may sell
all or any part of the collateral and apply the proceeds to
the unpaid principal. At March 31, 1996, 120,000 shares of
ICI stock were held by the broker-dealer as collateral and
were valued at $2,205,000.
3. INVESTMENT IN The Company acquired 550,000 shares (25.2%) of the outstanding
UNCONSOLIDATED common stock of Cable-Sat Systems, Inc. (Cable-Sat) at a
ENTITY purchase price of $500,000. The purchase included
warrants allowing Call Now, Inc. to acquire an additional
320,000 shares (13%) of Cable-Sat common stock exercisable at
$.92 per share for a period of ten years. Cable-Sat, a
Florida corporation whose principal office is located in San
Jose, California is a development stage company specializing
in high order data compression products for telecommunication,
computer, satellite TV and video applications.
4. INCOME TAXES The components for the provision for federal income taxes are
as follows:
Current $ 907,325
Deferred (310,514)
---------
Net income tax expense $ 596,811
=========
<PAGE> 11
5. STOCKHOLDER'S On March 5, 1996 the board of directors of Call Now,
EQUITY Inc. declared a stock dividend from the Company's holdings
of Cable-Sat Systems, Inc.'s common stock. The
distribution was made on the basis of one share of
Cable-Sat Systems, Inc. common stock for each ten shares of
Call Now, Inc.'s common stock held on the declaration date.
The distribution to Call Now, Inc.'s shareholders
aggregated 724,370 shares of Cable-Sat Systems, Inc. common
leaving the Company's holdings of Cable-Sat Systems, Inc.
common shares at 145,630 on March 31, 1996.
On March 1996 the Company purchased 320,000 shares of
Cable-Sat Systems' Class A preferred stock for $3.00. the
Shares are redeemable out of the proceeds of an initial
public offering or private placement of Cable-Sat Systems'
securities at $3.00 per share plus one share of Cable-Sat
Systems common stock.
6. CONTINGENCIES In 1994, a former director, filed a lawsuit in Florida
against the Company seeking damages of approximately
$500000 for breach of an oral employment agreement. The
Company has filed a motion for summary judgment;
management believes there is a good likelihood of
prevailing since the statute of fraud requires that any
agreement that cannot be completed within one year must be
in writing to be enforceable. This action is in the early
stages of litigation and the ultimate outcome of this
matter cannot presently be determined. Management does not
believe that this matter will have a material adverse
effect on the financial statements.
The Company is defendant in suits seeking to collect
$750,000 which is alleged to be due to a long distance
telephone service provider. The Company disputes the
amount of the liability. The company has provided $525,000
for such liabilities in the accompanying financial
statements which is its best estimate of the amount
payable.
ICI gave notice to the Company of certain claims for
indemnification arising from the sale of Phone One, Inc. to
which the Company objected. ICI is seeking damages for
alleged errors in Phone One, Inc.'s unaudited September
1994 financial statements and the uncollectibility of an
account receivable of Phone One, Inc. ICI is seeking the
return of 37,643 of its shares and $585,321 as damages.
The Company filed an action against ICI seeking damages in
excess of those sought by ICI for failure to comply with
the terms of the agreement. In addition, the action
alleges that ICI and Phone One, Inc. refused to enter into
certain contracts with ARN at discounted rates. The
parties have agreed to binding arbitration which began in
July 1995 and is pending before the American Arbitration
Association. In management's opinion, the claims
<PAGE> 12
for indemnification are not justified, and the ultimate
resolution of this matter is not expected to have a
materially adverse effect on the Company's financial position
or results of operation.
7. SUBSEQUENT The Company sold an additional 100,000 shares of its
EVENTS investment in ICI stock for proceeds of $2,400,000.
In April 1996, National Communications Network, Inc. a wholly
owned subsidiary of Call Now, Inc. signed an agreement with
Liberty Mint, Inc. (Liberty) a Utah corporation, which grants
NCNI the exclusive rights to purchase and resell certain
specified products of Liberty throughout the world, NCNI is
also granted the unconditional first right to purchase any
and all new additional products of Liberty with specific
exceptions. The company agreed to make available up to
$400,000 in its sole discretion, responsibilities at the
time of execution of the agreement. The company executed a
note with Liberty for $100,000 for six months at 6% interest.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,024,936
<SECURITIES> 7,045,250
<RECEIVABLES> 1,305,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,484,871
<PP&E> 72,963
<DEPRECIATION> 92,323
<TOTAL-ASSETS> 12,167,834
<CURRENT-LIABILITIES> 5,139,094
<BONDS> 0
0
0
<COMMON> 7,028,740
<OTHER-SE> 7,028,740
<TOTAL-LIABILITY-AND-EQUITY> 12,167,834
<SALES> 0
<TOTAL-REVENUES> 1,937,658
<CGS> 0
<TOTAL-COSTS> 351,660
<OTHER-EXPENSES> (596,811)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,746
<INCOME-PRETAX> 1,585,998
<INCOME-TAX> 596,811
<INCOME-CONTINUING> 989,187
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 989,187
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
