UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (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, 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 0-16841 OSBORN COMMUNICATIONS CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 06-1142367 (State or other jurisdiction of (I.R.S.Employer incorporation or organization Identification No.) 130 Mason Street, Greenwich, Connecticut 06830 (Address of principal executive offices)(Zip Code) (203) 629-0905 Registrant's telephone number, including area code ____________________________________________________________ (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______ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE LAST FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No______ APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding in each of the issuer's classes of common stock, as of the latest practicable date. Outstanding Class at May 6, 1996 Common stock, $.01 par value 5,409,847 Non-voting common stock, $.01 par value - PART I FINANCIAL INFORMATION Item 1. Financial Statements (1) Consolidated Balance Sheets at March 31, 1996 (unaudited) and December 31, 1995 (2) Consolidated Statements of Operations for the three months ended March 31, 1996 and 1995 (unaudited) (3) Consolidated Statements of Cash Flows for the three months ended March 31, 1996 and 1995 (unaudited) (4) Consolidated Statement of Changes in Stockholders' Equity for the three months ended March 31, 1996 (unaudited) (5) Notes to Unaudited Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations OSBORN COMMUNICATIONS CORPORATION CONSOLIDATED BALANCE SHEETS March 31, December 31, 1996 1995 ASSETS (Unaudited) Current assets: Cash and cash equivalents $1,255,071 $12,994,779 Accounts receivable, less allowance for doubtful accounts of $505,960 in 1996 and $518,157 in 1995 4,451,689 5,759,562 Inventory 1,073,267 889,942 Prepaid expenses and other current assets 1,575,920 1,525,308 Total current assets 8,355,947 21,169,591 Investment in affiliated companies 524,952 524,084 Property, plant and equipment, at cost, less accumulated depreciation of $16,117,195 in 1996 and $18,624,021 in 1995 13,889,513 15,358,070 Intangible assets, net of accumulated amortization of $14,313,410 in 1996 and $15,238,193 in 1995 35,715,934 40,463,595 Other noncurrent assets 457,926 118,753 Total assets $58,944,272 $77,634,093 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $5,346,457 $4,509,292 Accrued wages and sales commissions 195,195 434,309 Accrued interest payable 205,201 459,114 Accrued income taxes 1,614,893 825,712 Current portion of long-term debt 2,700,000 2,718,000 Total current liabilities 10,061,746 8,946,427 Long-term debt 20,050,000 44,482,000 Deferred income taxes 2,275,711 2,275,711 Other noncurrent liabilities 441,307 432,916 Commitments and contingencies - - Stockholders' equity: Preferred stock, par value $.01 per share; authorized 5,000,000 shares, none issued and outstanding - - Common stock, par value $.01 per share; authorized 7,425,000 shares, issued and outstanding shares: 5,287,347 and 5,277,347, respectively, in 1996; 5,286,347 and 5,276,347, respectively, in 1995 52,774 52,764 Non-voting common stock, par value $.01 per share; authorized 75,000 shares, none issued and outstanding - - Additional paid-in capital 39,701,591 39,694,601 Accumulated deficit (13,638,857) (18,250,326) Total stockholders' equity 26,115,508 21,497,039 Total liabilities and stockholders' equity $58,944,272 $77,634,093 See accompanying notes. OSBORN COMMUNICATIONS CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS For the three months ended March 31, 1996 and 1995 (Unaudited) 1996 1995 Net revenues $6,814,656 $7,671,595 Operating expenses: Selling, technical and program 1,934,269 2,884,893 Direct programmed music and entertainment 2,212,649 1,533,184 General and administrative 1,684,282 1,875,640 Depreciation and amortization 1,210,538 1,456,031 Corporate expenses 456,792 425,615 Total operating expenses 7,498,530 8,175,363 Operating loss (683,874) (503,768) Other income (expense) (92,682) 1,773,632 Interest expense 635,181 1,413,520 Gain on sale of stations 6,874,434 - Income (loss) before income taxes 5,462,697 (143,656) Provision for income taxes 851,228 93,205 Net income (loss) $4,611,469 ($236,861) Primary earnings per common share: Net income (loss) per common share $0.83 ($0.04) Fully diluted earnings per common share: Net income (loss) per common share $0.82 ($0.04) Weighted average common shares outstanding: Primary shares 5,531,540 5,265,773 Fully diluted shares 5,597,471 5,265,773 See accompanying notes. OSBORN COMMUNICATIONS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS For the three months ended March 31, 1996 and 1995 (Unaudited) 1996 1995 Cash flows from operating activities: Net income (loss) $4,611,469 ($236,861) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 1,210,538 1,456,031 Gain on sale of stations (6,874,434) - Deferred income taxes - 50,000 Non-cash interest expense 57,293 103,983 Distributions from affiliated companies - (1,653,634) Changes in current assets and current liabilities: Decrease in accounts receivable 596,253 646,262 Increase in inventory (183,325) (4,184) Increase in prepaid expenses and other (50,612) (54,771) current assets Increase (decrease) in accounts payable 837,165 (167,227) and accrued expenses (Decrease) increase in accrued wages (239,114) 131,973 sales commissions Decrease in accrued interest payable (253,913) (1,352,083) Increase in accrued income taxes 789,181 (30,000) Total adjustments (4,110,968) (873,650) Net cash provided by (used in) operating 500,501 (1,110,511) activities Cash flows from investing activities: Distributions from affiliated companies - 3,918,186 Payments for business acquisitions (1,269,173) - Net proceeds from sale of stations 14,068,614 - Proceeds from note receivable - 1,620,455 Capital expenditures (590,864) (399,696) Reclassification of other noncurrent assets - 31,749 Expenditures for intangible assets (5,786) (41,486) Net cash provided by investing 12,202,791 5,129,208 activities Cash flows from financing activities: Proceeds from exercise of stock options 7,000 - Purchase and retirement of treasury stock - (750,203) Principal payments on long-term debt (24,450,000) - Net cash used in financing activities (24,443,000) (750,203) Net (decrease) increase in cash and cash (11,739,708) 3,268,494 equivalents Cash and cash equivalents at beginning of 12,994,779 6,368,473 period Cash and cash equivalents at end of period $1,255,071 $9,636,967 Supplemental cash flow information: Cash paid for interest $831,801 $2,661,620 Cash paid for income taxes $62,047 $73,205 See accompanying notes. OSBORN COMMUNICATIONS CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY For the three months ended March 31, 1996 (Unaudited) Voting Non-voting Additional Par Par paid-in Accumulated Shares value Shares value capital deficit Balance at December 5,276,347 $52,764 - - $39,694,601 ($18,250,326) 31, 1995 Exercise of stock 1,000 10 - - 6,990 - options Net income - - - - - 4,611,469 Balance at March 5,277,347 $52,774 - - $39,701,591 ($13,638,857) 31, 1996 See accompanying notes. OSBORN COMMUNICATIONS CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 1. Basis of presentation The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations, and cash flows for the interim periods presented. Prior year amounts have been reclassified to conform with the current year's presentation. 2. Acquisitions and dispositions On March 29, 1996, the Company acquired substantially all the assets of radio station WHLX-FM, Wheeling, West Virginia for $0.8 million plus transaction costs. The Company already owns radio stations WWVA-AM/WOVK-FM in Wheeling and has agreed to acquire two additional stations in the market (see Note 3). On April 1, 1996, the Company acquired substantially all the assets of radio stations WKII-AM/WEEJ-FM, Port Charlotte, Florida for $2.85 million plus transaction costs. In the event that the Company is able to relocate WEEJ-FM's broadcast antenna to the Company's Pine Island, Florida tower in order to better serve the Port Charlotte/Ft. Myers market, additional consideration of $750,000 will be paid. Pending the closing of the acquisition, the stations were managed by the Company pursuant to a Local Marketing Agreement ("LMA") since September 1995. The Company already owns radio station WOLZ-FM, Ft. Myers and has a 50% non- voting ownership interest in radio station WDRR-FM, San Carlos Park/Ft. Myers. On May 3, 1996, the Company acquired substantially all the assets of radio stations KNAX-FM/KRBT-FM, Fresno, California. Consideration for the acquisition consisted of $6.0 million plus 120,000 shares of the Company's common stock and transaction costs. In addition, the seller received an option to purchase shares of the Company's common stock at $8.00 per share contingent upon future increases in operating cash flow by KNAX-FM/KRBT-FM. Pending the closing of the acquisition, the stations were managed by the Company since January 1996 pursuant to an LMA. On January 31, 1996, the Company sold substantially all the assets of radio station WWRD-FM, Jacksonville, Florida/Brunswick, Georgia for $2.5 million, resulting in a pre-tax gain of $0.8 million. The net cash proceeds were used principally to repay long-term debt and fund transaction costs. On February 2, 1996, the Company sold substantially all the assets of radio stations WNDR-AM/WNTQ-FM, Syracuse, New York for $12.5 million, resulting in a pre-tax gain of $6.0 million. Pending the closing of the disposition, the stations were managed by the purchaser pursuant to an LMA. The net cash proceeds were used principally to repay long- term debt and fund transaction costs. On December 22, 1995, the Company entered into an option agreement with Allbritton Communications Company for the sale of television station WJSU-TV, Anniston, Alabama, and an associated 10-year LMA. In consideration for the option, the Company received a nonrefundable cash payment of $10.0 million. The net cash proceeds were used principally to repay long-term debt. In addition, upon the exercise of the option and the necessary FCC consent, the Company will receive an additional cash payment of $2.0 million. If the necessary approvals to relocate the station's broadcast transmitter to maximize broadcast coverage of the facility are received, the Company will receive additional cash payments of up to $7.0 million. All of the acquisitions have been accounted for using the purchase method of accounting. Accordingly, the purchase price of each acquisition has been allocated to the assets based upon their fair values at the date of acquisition. The results of operations of the properties acquired are included in the Company's consolidated results of operations from the respective dates of acquisition and until the date of disposition for properties disposed. Prior to the grant of the waiver of the FCC's cross- ownership regulations, the Gadsden acquisition was accounted for using the equity method of accounting. Accordingly, prior year financial statements have been reclassified to reflect the consolidation of the Gadsden radio stations. 3. Pending transactions In September 1995, the Company agreed to sell substantially all the assets of radio station WFKS-FM, Daytona Beach/Palatka, Florida to Renda Broadcasting Corporation, the purchaser of radio station WWRD-FM (see Note 2), for $4.0 million. The transaction is expected to close in the second quarter of 1996. Pending the closing of the transaction, the stations have been managed by the purchaser pursuant to an LMA. In February 1996, the Company entered into an agreement to sell substantially all the assets of radio station WAYV- FM, Atlantic City, New Jersey to Equity Communications, L.P. for $3.1 million, subject to FCC approval. Pending the closing of the transaction, which is expected in the second quarter of 1996, the purchaser is managing the stations pursuant to an LMA. In February 1996, the Company entered into an agreement to acquire substantially all the assets of radio stations WKWK-AM/FM, Wheeling, West Virginia from WKWK Radio, Inc. for $2.7 million, subject to FCC approval. Pending the closing of the transaction, which is expected in the second quarter of 1996, the Company is managing the stations pursuant to an LMA. In February 1996, the Company entered into an agreement to sell substantially all the assets of radio station WFXK- FM, Raleigh/Tarboro, North Carolina to Pinnacle Broadcasting Corporation for $5.9 million, subject to FCC approval. Pending the closing of the transaction, which is expected in the second quarter of 1996, the purchaser is managing the station pursuant to an LMA. 4. Pro forma financial information (unaudited) Three months ended March 31, 1996 1995 Net revenues $6,638,000 $6,131,000 Net loss (1,338,000) (1,527,000) Net loss per share ($0.25) ($0.28) The unaudited pro forma information for the three months ended March 31, 1996 and 1995 assumes that the Anniston, Syracuse and Jacksonville/Brunswick dispositions, as described in Note 2, had occurred on January 1, 1995. The gains on the sales of stations in 1996 and the distribution from Northstar Television Group in 1995 are excluded from the pro forma results. The pro forma information is not necessarily indicative either of the results of operations that would have occurred had these transactions been made at the beginning of the period, or of future results of operations. Net assets of properties to be disposed in Anniston, Daytona Beach, Raleigh/Tarboro and Atlantic City aggregated $10.4 million at March 31, 1996, consisting of current assets of $0.1 million, net property, plant and equipment of $2.3 million, and net intangible assets of $8.0 million. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The performance of a broadcasting company is customarily measured by its ability to generate operating cash flow. Operating cash flow is defined as operating income before depreciation, amortization and corporate expenses. Although operating cash flow is not a measure of performance calculated in accordance with Generally Accepted Accounting Principles ("GAAP"), the Company believes that operating cash flow is useful to investors because it is accepted by the radio broadcasting industry as a generally recognized measure of performance and is used by securities analysts who report publicly on the performance of broadcasting companies. Operating cash flow should not be considered in isolation or as a substitute for net income, cash flows from operating activities and consolidated income or cash flow statement data prepared in accordance with GAAP, or as a measure of the Company's profitability or liquidity. Acquisitions and Dispositions Given the less restrictive regulatory environment following the passage of the Telecommunications Act of 1996, the Company intends to own multiple radio stations in certain of its markets in order to attain a more dominant position in the respective market. If the Company determines that opportunities to acquire additional stations in a particular market are not satisfactory, it may dispose of its existing stations in such market. The Company also intends to pursue the acquisition of multiple stations in other markets. Consistent with its strategy of owning multiple stations in a market or leaving markets where opportunities to acquire additional stations are not satisfactory, the Company has entered into several transactions for the acquisition or disposition of broadcast properties in 1995 and early 1996. On March 29, 1996, the Company acquired substantially all the assets of radio station WHLX-FM, Wheeling, West Virginia for $0.8 million plus transaction costs. The Company already owns radio stations WWVA-AM/WOVK-FM in Wheeling and has agreed to acquire two additional stations in the market. On April 1, 1996, the Company acquired substantially all the assets of radio stations WKII-AM/WEEJ-FM, Port Charlotte, Florida for $2.85 million plus transaction costs. In the event that the Company is able to relocate WEEJ-FM's broadcast antenna to the Company's Pine Island, Florida tower in order to better serve the Port Charlotte/Ft. Myers market, additional consideration of $750,000 will be paid. Pending the closing of the acquisition, the stations were managed by the Company pursuant to a Local Marketing Agreement ("LMA") since September 1995. The Company already owns radio station WOLZ-FM, Ft. Myers and has a 50% non- voting ownership interest in radio station WDRR-FM, San Carlos Park/Ft. Myers. On May 3, 1996, the Company acquired substantially all the assets of radio stations KNAX-FM/KRBT-FM, Fresno, California. Consideration for the acquisition consisted of $6.0 million plus 120,000 shares of the Company's common stock and transaction costs. In addition, the seller received an option to purchase shares of the Company's common stock at $8.00 per share contingent upon future increases in operating cash flow by KNAX-FM/KRBT-FM. Pending the closing of the acquisition, the stations were managed by the Company since January 1996 pursuant to an LMA. On January 31, 1996, the Company sold substantially all the assets of radio station WWRD-FM, Jacksonville, Florida/Brunswick, Georgia for $2.5 million, resulting in a pre-tax gain of $0.8 million. The net cash proceeds were used principally to repay long-term debt and fund transaction costs. On February 2, 1996, the Company sold substantially all the assets of radio stations WNDR-AM/WNTQ-FM, Syracuse, New York for $12.5 million, resulting in a pre-tax gain of $6.0 million. Pending the closing of the disposition, the stations were managed by the purchaser pursuant to an LMA. The net cash proceeds were used principally to repay long- term debt and fund transaction costs. On December 22, 1995, the Company entered into an option agreement with Allbritton Communications Company for the sale of television station WJSU-TV, Anniston, Alabama, and an associated 10-year LMA. In consideration for the option, the Company received a nonrefundable cash payment of $10.0 million. The net cash proceeds were used principally to repay long-term debt. In addition, upon the exercise of the option and the necessary FCC consent, the Company will receive an additional cash payment of $2.0 million. If the necessary approvals to relocate the station's broadcast transmitter to maximize broadcast coverage of the facility are received, the Company will receive additional cash payments of up to $7.0 million. All of the acquisitions have been accounted for using the purchase method of accounting. Accordingly, the purchase price of each acquisition has been allocated to the assets based upon their fair values at the date of acquisition. The results of operations of the properties acquired are included in the Company's consolidated results of operations from the respective dates of acquisition and until the date of disposition for properties disposed. Prior to the grant of the waiver of the FCC's cross- ownership regulations, the Gadsden acquisition was accounted for using the equity method of accounting. Accordingly, prior year financial statements have been reclassified to reflect the consolidation of the Gadsden radio stations. Pending transactions In September 1995, the Company agreed to sell substantially all the assets of radio station WFKS-FM, Daytona Beach/Palatka, Florida to Renda Broadcasting Corporation, the purchaser of radio station WWRD-FM, for $4.0 million. The transaction is expected to close in the second quarter of 1996. Pending the closing of the transaction, the stations have been managed by the purchaser pursuant to an LMA. In February 1996, the Company entered into an agreement to sell substantially all the assets of radio station WAYV- FM, Atlantic City, New Jersey to Equity Communications, L.P. for $3.1 million, subject to FCC approval. Pending the closing of the transaction, which is expected in the second quarter of 1996, the purchaser is managing the stations pursuant to an LMA. In February 1996, the Company entered into an agreement to acquire substantially all the assets of radio stations WKWK-AM/FM, Wheeling, West Virginia from WKWK Radio, Inc. for $2.7 million, subject to FCC approval. Pending the closing of the transaction, which is expected in the second quarter of 1996, the Company is managing the stations pursuant to an LMA. In February 1996, the Company entered into an agreement to sell substantially all the assets of radio station WFXK- FM, Raleigh/Tarboro, North Carolina to Pinnacle Broadcasting Corporation for $5.9 million, subject to FCC approval. Pending the closing of the transaction, which is expected in the second quarter of 1996, the purchaser is managing the station pursuant to an LMA. Results of Operations Three months ended March 31, 1996 and 1995 Net revenues of $6,815,000 in the first quarter of 1996 represent an 11% decrease from 1995 quarterly net revenues of $7,672,000. The reduction in net revenues is attributable to the disposition of the Syracuse, Anniston, and Jacksonville properties and the Daytona Beach and Atlantic City LMAs. Total operating expenses decreased 8%, from $8,175,000 in 1995 to $7,499,000 in 1996. The decrease is primarily attributable to the disposition of the Syracuse, Anniston, and Jacksonville properties and the Daytona Beach and Atlantic City LMAs, partially offset by the increased level of activity at the programmed music division and certain start-up costs associated with the acquisition of radio stations in Ft. Myers/Port Charlotte. Operating cash flow (operating income before depreciation, amortization and corporate expenses) decreased 29%, to $983,000 in 1996 from $1,378,000 in 1995. The decrease is primarily attributable to the disposition of the Syracuse and Anniston properties and the Atlantic City LMA. EBITDA (earnings before interest, taxes, depreciation and amortization) of $527,000 in the first quarter of 1996 decreased 45%, from $952,000 in 1995. Operating loss of $684,000 in 1996 compares to $504,000 in 1995. Other income in 1995 includes a distribution of $1,572,000 from Northstar Television Group relating to the sale of its television stations. Interest expense decreased $778,000, or 55%, to $635,000 in 1996 from $1,414,000 in 1995, primarily attributable to the repayment of debt and lower cost of capital related to the August 1995 debt refinancing. Interest expense in 1996 includes $57,000 of non-cash interest relating to deferred financing cost and debt discount amortization. Results include pre-tax gains on the sales of the assets of the Syracuse and Jacksonville radio stations totalling $6,874,000. Net income of $4,611,000 in 1996, or $0.82 per share on a fully diluted basis, compares to net loss of $237,000, or $0.04 per share, in 1995. Liquidity and Capital Resources Cash flows from operating activities In 1996, net cash provided by operating activities was $501,000, compared to net cash used by operating activities of $1,111,000 in 1995 (see Results of Operations). The difference is primarily attributable to the amount and timing of interest payments. Cash flows from investing activities The Company made payments of $1,269,000 relating to the acquisition of radio stations and received net proceeds of $14,069,000 for the sales of radio stations in the first quarter of 1996 (see Acquisitions and dispositions). The Company received distribution payments in the first quarter of 1995 from Fairmont Communications Corporation and Northstar Television Group totalling $3,918,000, of which $2,265,000 related to income accrued in 1994 (see Results of Operations). The note receivable of $1,620,000 relating to the 1988 disposition of the Toledo, Ohio radio station and Muzak franchise was received in the first quarter of 1995. In addition to debt service requirements, the Company's remaining liquidity demands will be for capital expenditures and to meet working capital needs. The Company made capital expenditures of $591,000 and $400,000 in the first three months of 1996 and 1995, respectively, which are primarily attributable to equipment installations related to its programmed music franchises and improvements to technical facilities of certain of the stations. For the remainder of 1996, capital expenditures made by the Company will be a function of the number of installations by the programmed music franchises, as well as routine expenditures for the Company's broadcasting properties. In addition, the Company is in the process of relocating the newly-acquired FM radio station in Port Charlotte to its studios in Ft. Myers, and anticipates relocating the radio station acquisitions in Wheeling to its owned facility in that market. For those acquisitions, as well as the Fresno radio stations, the Company expects to make additional capital expenditures as necessary. Cash flows from financing activities The Company made net principal payments of long-term debt totalling $24,450,000 in the first quarter of 1996, primarily with the proceeds from the Anniston, Syracuse and Jacksonville dispositions. In January 1995, the Company repurchased and subsequently retired 107,059 unregistered shares of its common stock which were held by an institution for $642,000. Also in January 1995, the Company paid $107,000 for the common shares repurchased in December 1994. Long-term debt Long-term debt to total capitalization decreased between December 31, 1995 and March 31, 1996 from 69% to 47%. The repayments of senior bank debt associated with the Anniston and Syracuse transactions permanently reduced the Company's revolving credit facility from $46.0 million to $26.0 million. In addition, the Company has an acquisition facility of $10.0 million at March 31, 1996. Working capital At March 31, 1996, cash and cash equivalents totalled $1,255,000, compared to $12,995,000 at December 31, 1995. Working capital decreased from $12,223,000 to a working capital deficit of $1,706,000 during the period, primarily due to the repayment of long-term debt. The current portion of long-term debt includes $2.7 million of debt, net of unamortized debt discount of $700,000, associated with the Atlantic City radio station. The Atlantic City debt is secured by the capital stock and assets of Atlantic City, and is otherwise non-recourse to the Company or its other assets. In February 1996, the Company entered into an agreement to sell substantially all the assets of the Atlantic City radio station (see Pending transactions). The Atlantic City debt will be repaid with the proceeds from the sale. The Company believes that cash flows from operations and existing funds will be sufficient to meet the Company's current cash requirements for the foreseeable future. It is not possible to ascertain the effect on the Company's liquidity that would result from potential future acquisitions, dispositions or debt repayments. The Company expects to evaluate all viable forms of financing when examining potential future acquisitions or its capital structure. This could take the form of, among other things, additional sales of stock or notes, bank and/or institutional borrowings, or seller financing, as well as internally generated funds. Management Agreements The Company currently owns 25% of the stock of Fairmont Communications Corporation ("Fairmont"). Fairmont is currently managed by the Company pursuant to a management agreement, for which the Company receives a modest management fee plus reimbursement of out-of-pocket expenses and allocated overhead costs. All of Fairmont's stations were sold by the second quarter of 1994. The Company will continue to manage Fairmont pursuant to the management agreement which expires upon the liquidation of Fairmont, which is expected to occur in 1996. The Company held a 32% interest in Northstar Television Group, Inc. ("Northstar") and managed Northstar's four television stations pursuant to a management agreement in return for reimbursement of out-of-pocket expenses and allocated overhead costs. In 1994, Northstar's creditors and equity investors reached an agreement with respect to restructuring Northstar's highly leveraged capital structure pursuant to which, among other things, the Company received a portion of accrued and unpaid management fees and retains an economic interest. The Company's management agreement with Northstar terminated following the restructuring. In January 1995, three of Northstar's four television stations were sold and the Company received a distribution of approximately $1.6 million (see Results of Operations). Osborn Healthcare The Company's credit agreements allow for additional investment in Osborn Healthcare by the Company of up to $2.0 million, of which approximately $500,000 has been invested. Osborn Healthcare continues to experience marginal operating cash flow losses. Consistent with the Company's previously stated intention to evaluate options to increase shareholder value, management is in the process of assessing the strategic direction of the healthcare cable operations and changes, if any, that can be made to enhance its profitability. This assessment includes a review of existing technology and products, as well as the need for additional investment. At March 31, 1996, Osborn Healthcare's assets consist primarily of net goodwill of $1.1 million and net property, plant and equipment of $0.2 million. Seasonality For broadcasting properties, the first quarter is expected to reflect the lowest revenues and net income of the year, while the fourth quarter has historically had the highest revenues and net income. This is due in part to increases in retail advertising in the fall in preparation for the holiday season, with a subsequent reduction of business after the holidays. The Company's entertainment properties are expected to reflect the lowest revenues and net income of the year in the first quarter due to the planned scheduling of the most popular performers during the peak spring, summer and fall seasons. Also, the Company's country music festival, Jamboree in the Hills, takes place in the third quarter. PART II OTHER INFORMATION Item 1. Legal Proceedings Not applicable Item 2. Changes in Securities Not applicable Item 3. Defaults upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Securities Holders Not applicable Item 5. Other information Not applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K Form 8-K filed on February 16, 1996. SIGNATURES 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. OSBORN COMMUNICATIONS CORPORATION (Registrant) Date: May 9, 1996 /s/ Frank D. Osborn (Signature) Frank D. Osborn President and Chief Executive Officer Date: May 9, 1996 /s/ Thomas S. Douglas (Signature) Thomas S. Douglas Principal Financial Officer