FORM 10-QSB
(Adopted in Release No. 34-30968 (72,439), effective August 13, 1992, 57
F.R. 36442; and amended in Release No. 34-31326 ( 85,051), effective October
22, 1992, 57 F.R. 48276.)
U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
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( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE
EXCHANGE ACT
For the transition period from to
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Commission file number 0-7762
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AUDIO COMMUNICATIONS NETWORK, INC.
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(Exact name of small business issuer as specified in its charter)
FLORIDA 52-0690530
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1000 Legion Place, Suite 1515, Orlando, Fl. 32801
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(Address of principal executive office)
(407) 649-8877
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
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 No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after distribution of
securities under a plan confirmed by court. Yes No Not Applicable X
---- --- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
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State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 2,233,360
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AUDIO COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
SECOND QUARTER
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FOR THE 3 MONTHS ENDED
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PART I - FINANCIAL INFORMATION 6/30/95 6/30/94
------------------------------ ----------- -----------
Music Sales..................................... $ 1,414,136 $ 1,389,805
Installations................................... 284,973 206,878
Equipment Sales................................. 148,322 114,331
Labor & Service................................. 51,271 49,291
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TOTAL REVENUE................................... 1,898,702 1,760,305
COST AND EXPENSES
----------------
Cost of Sales................................... 740,825 702,268
Selling, General and
Administrative Expenses......................... 567,993 553,391
Depreciation and Amortization................... 284,770 318,194
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TOTAL........................................... 1,593,588 1,573,853
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Income before Other Income
(Expense) and Income Taxes...................... 305,114 186,452
OTHER INCOME (EXPENSE):
-----------------------
Interest Income................................. 1,808 1,338
Interest Expense................................ (131,481) (120,808)
Other........................................... 19,124 26,138
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OTHER NET....................................... (110,549) (93,332)
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Income before Income Taxes...................... 194,565 93,120
Provision for Income Taxes...................... 8,700 9,000
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Net Income...................................... $ 185,865 $ 84,120
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Net Income Per Common Share $ .08 $ .04
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Number of Common Shares......................... 2,233,360 2,225,990
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Dividends Per Share -0- -0-
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AUDIO COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
UNAUDITED STATEMENT OF CONSOLIDATED OPERATIONS
FIRST SIX MONTHS
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FOR THE 6 MONTHS ENDED
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PART I - FINANCIAL INFORMATION 6/30/95 6/30/94
------------------------------ ----------- -----------
Music Sales..................................... $ 2,838,078 $ 2,606,135
Installations................................... 518,981 332,264
Equipment Sales................................. 257,292 195,794
Labor & Service................................. 107,108 88,144
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TOTAL REVENUE................................... 3,721,459 3,222,337
COST AND EXPENSES
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Cost of Sales................................... 1,480,479 1,332,303
Selling, General and
Administrative Expenses......................... 1,143,532 1,002,247
Depreciation and Amortization................... 565,228 578,449
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TOTAL........................................... 3,189,239 2,912,999
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Income before Other Income
(Expense) and Income Taxes...................... 532,220 309,338
OTHER INCOME (EXPENSE):
-----------------------
Interest Income................................. 3,413 2,258
Interest Expense................................ (263,988) (213,152)
Other........................................... 48,818 39,218
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OTHER NET....................................... (211,757) (171,676)
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Income before Income Taxes...................... 320,463 137,662
Provision for Income Taxes...................... 20,100 14,800
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Net Income...................................... $ 300,363 $ 122,862
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Net Income Per Common Share $ .13 $ .06
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Number of Common Shares......................... 2,233,360 2,043,987
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Dividends Per Share -0- -0-
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AUDIO COMMUNICATIONS NETWORK, INC, & SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
6/30/95 12/31/94
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(Unaudited) (Condensed from
Audited Financial
Statements)
PART I - FINANCIAL INFORMATION
------------------------------
ASSETS
Current Assets:
Cash & Cash Equivalents........... $ 557,954 $ 509,064
Accounts Receivable .............. 472,753 558,353
Inventories....................... 249,681 228,242
Prepaid Expenses & Other.......... 200,016 78,140
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Total - Current Assets............ 1,480,404 1,373,799
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Property - Net.................... 3,282,692 2,896,512
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Subscriber Contracts & Other
Intangibles....................... 1,786,375 1,826,977
Goodwill.......................... 2,066,224 2,138,407
Deposits & Other.................. 6,315 5,915
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Total Other Assets................ 3,858,914 3,971,299
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TOTAL............................. $ 8,622,010 $ 8,241,610
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LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Current - Long Term Debt......... $ 834,826 $ 824,902
Current Portion of Obligation
Under Capital Leases ............ 43,808 58,936
Accounts Payable................. 518,521 629,426
Accrued Liabilities.............. 128,160 137,859
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Total Current Liabilities........ 1,525,315 1,651,123
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Long - Term Debt................. 4,569,187 4,366,763
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Obligations Under Capital Leases. 16,159 12,738
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Deferred Compensation............ 50,000 50,000
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Stockholders' Equity:
Common Stock, $.25 par value
8,000,000 shares, authorized,
2,233,360 shares issued and
outstanding in 1994 and 1995..... 558,340 558,340
Capital Contributed in Excess
of Par Value..................... 4,996,992 4,996,992
Accumulated Deficit.............. (3,093,983) (3,394,346)
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Stockholders' Equity............. 2,461,349 2,160,986
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TOTAL............................ $ 8,622,010 $ 8,241,610
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PART I
AUDIO COMMUNICATIONS NETWORK, INC. & SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 6 MONTHS ENDED JUNE 30TH
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1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Cash Received From Customers...............$ 3,764,120 $ 3,102,305
Cash Paid To Suppliers & Employees......... (3,345,692) (2,341,363)
Interest Received.......................... 3,413 2,258
Interest Paid ............................. (271,288) (215,890)
Income Tax Paid ........................... (46,780) (12,500)
Other-Net.................................. 25,717 -0-
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Net cash provided by
Operating Activities....................... 129,490 534,810
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Net Proceeds from surrender of officer's
life insurance............................. -0- 42,585
Proceeds from sale of equipment............ 2,050 1,250
Capital Expenditures....................... (7,875) (115,268)
Purchase of Baltimore Acquisition.......... -0- (461,964)
Deferred Acquisition Costs................. -0- (31,508)
Deferred Charges........................... (65,075) (15,994)
Purchase of Subscription Contract Rights... (21,592) -0-
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Net Cash used in Investing Activities...... (92,492) (580,899)
CASH FLOWS FROM FINANCING ACTIVITIES:
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Proceeds from issuance of long-term
debt....................................... 5,200,000 553,580
Principal payments under Capital lease
obligations ............................... (39,807) (57,694)
Repayment of Long-Term Debt................ (5,148,301) (447,251)
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Net Cash Provided By
Financing Activities....................... 11,892 48,635
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NET INCREASE IN CASH AND
CASH EQUIVALENTS........................... 48,890 2,546
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR....................................... 509,064 363,252
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CASH AND CASH EQUIVALENTS, END OF
PERIOD.....................................$ 557,954 $ 365,798
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PART I
AUDIO COMMUNICATIONS NETWORK, INC. & SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(CONTINUED)
1995 1994
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RECONCILIATION OF NET INCOME
TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Net Income.................................$ 300,363 $ 122,862
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Adjustments to Reconcile Net Income
To Net Cash Provided by Operations:
Depreciation and Amortization.............. 567,109 601,360
Valuation Allowance........................ 3,000 (14,516)
Deferred Commissions - Net................. (27,417) (23,645)
Gain on sale of equipment ................. -0- (1,250)
Employee Stock Bonus in lieu of Cash ...... -0- 5,000
Accounts Receivable........................ 82,600 (120,032)
Prepaid and Other Current Assets........... (121,876) (160,344)
Inventories................................ (528,794) (124,336)
Other-Net.................................. (24,891) -0-
Accounts Payable........................... (110,905) 181,819
Accruals................................... (9,699) 67,892
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Total Adjustments.......................... (170,873) 411,948
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NET CASH PROVIDED BY OPERATING
ACTIVITIES.................................$ 129,490 $ 534,810
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Supplemental Schedule of Noncash Investing and Financial Activities:
During the 1st 6 mos. ending June 30th, 1995 and 1994, approximately
$507,000 and $270,000, respectively, of inventory was leased to
customers and reclassified to property equipment.
Capital lease obligations of approximately $18,000 were incurred during
1995.
Loan obligations of approximately $104,000 and $46,000 were incurred
during the 1st. 6 mos. of 1995 and 1994, respectively for service
equipment vehicles.
PART I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS & RESULTS OF OPERATIONS
SUMMARY
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The following table sets forth for the period indicated, certain items from the
Company's Consolidated Statement of Operations expressed as a percentage of
operating revenues.
RELATIONSHIP TO TOTAL REVENUES
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FOR THE PERIOD ENDING JUNE 30TH
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SECOND QUARTER FIRST SIX MONTHS
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1995 1994 1995 1994
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Revenues from Operations 100.0% 100.0% 100.0% 100.0%
Operating Costs and Expenses (68.9) (71.3) (70.5) (72.4)
------- ------ ------ ------
Income from Operations before
Depreciation and Amortization 31.1 28.7 29.5 27.6
Depreciation and Amortization (15.0) (18.1) (15.2) (18.0)
------- ------ ------ ------
Income before Other Income (Expense),
and Income Taxes 16.1 10.6 14.3 9.6
Other Income (Expense) Net (5.8) (5.3) (5.7) (5.3)
------- ------ ------ ------
Income before Income Taxes 10.3 5.3 8.6 4.3
Provision for Income Taxes (0.5) (0.5) (0.5) (0.5)
------- ------ ------ ------
Net Income 9.8 4.8 8.1 3.8
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PART I
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS
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NET REVENUES:
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Consolidated Net Revenues for the 2nd. Quarter of 1995 were $1,899,000
increasing over the comparable period of 1994 and the 1st. Quarter by
approximately $139,000 or 8% and $76,000 or 4% respectively. The increase over
'94 was in the recurring base and the installation and equipment sales. The
increase over the 1st. Quarter of '95 was due to exceptionally large
installation and equipment sales in the Baltimore and Fresno franchises.
Overall, the Company's 1st. 6 months of '95 revenues of $3,721,000 over the 1st.
6 months of '94 revenues of $3,222,000 increased approximately $499,000 or 16%.
The Company has a substantial backlog of installations and it is expected that
the Company will continue its growth in the last 6 months of '95.
COST AND EXPENSES:
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There was a slight decrease in Cost and Expenses as a percentage of sales from
the 1st. Quarter of '95 and the like period of '94 due to the increase in
installation and equipment sales. In many cases it required labor that was
capitalized but it was offset by commission expense that in all cases is a
period cost and is not amortized.
DEPRECIATION & AMORTIZATION:
----------------------------
Depreciation and amortization remained relatively the same as a percentage of
sales in the 1st. Quarter of '95 and the 2nd. Quarter of '94. It is comprised
of new assets and the purchase of contract rights being added and certain assets
and intangibles related to previous acquisitions being fully depreciated and
amortized.
OTHER INCOME AND EXPENSE:
-------------------------
Other Income and Expense remained relatively the same as a percentage of sales
for both 6 month periods and the 1st. Quarter of '95. Interest expense
increased in '95 due to the increase in the prime rate and the moratorium on
Audio's loan principal payment. Other than interest expense there is an
admixture of cancellation fees, bad debt recoveries, commissions earned or
allowed, bank service charges and interest income.
INCOME TAXES:
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At June 30, 1995, the Company had net operating loss carryforwards for federal
tax purposes of approximately $3.6 million. Such loss carryforwards expire in
2002 through 2006. The provisions for income taxes in 1995 and 1994 are related
to state income taxes.
NET INCOME:
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Net income for the 2nd. Quarter of '95 was $186,000 or $.08 per share as
compared to $84,000 or $.04 per share for the 2nd. Quarter of '94. This is an
increase of 121% or $102,000. This increase is attributable in great part to
certain assets and intangibles becoming fully depreciated and amortized on
previous acquisitions in addition to the Company's continued growth. Net income
increased over the 1st. Quarter of '95 by 72,000 or $.03 per share. This
increase was due as previously mentioned to the Baltimore and Fresno franchises
having an exceptionally profitable 2nd. Quarter.
Net income for the 1st. 6 months of '95 was $300,000, or $.13 per share, as
compared to $123,000, or $.06 per share, in the comparable prior period; an
increase of $178,000 or 145%.
LIQUIDITY AND CAPITAL RESOURCES:
--------------------------------
The operating cash flows (computed as net income plus interest, taxes,
depreciation and amortization) were $1,150,000 in '95 as compared to '94's
$929,000.
On January 28, 1994 the Company borrowed an additional $554,000 from Sun Bank,
N.A. for the purchase of subscriber contracts and for DBS equipment to be
installed in the locations acquired in the Baltimore/Delmarva area. On March 4,
1994 the Company assumed the Sun Bank, N.A. California franchise debt of
$1,186,000 with an interest rate of 1% above prime and lease obligation of
approximately $71,000. On November 1, 1994 the Sun Bank, N.A. granted the
Company a moratorium on its principal payments for four months
for the purpose of converting its Fresno franchise from SCA to DBS. On June 7,
1995 Audio Communications Network, Inc. and Sun Bank, N.A. entered into a 7th
Amendment to its existing loan agreement. The new amendment is for $5,200,000
and it is called a "consolidated loan." It paid off Audio's and American Music's
indebtedness of $4,899,000. The following covenants supercede all other
covenants: 1) Debt Service Coverage Ratio; 2) Debt to Net Worth Ratio; and 3) A
Minimum Monthly Recurring Billing Required. All payments on lease obligations
have been made on a timely basis. The 1995 projection shows the Company can
continue to meet its debt obligations.
ACQUISITION:
------------
In January 1994 the Company purchased for cash in the amount of $461,000 various
subscriber accounts from an independent music supplier in the Baltimore/Delmarva
area which more than doubled the Company's presence in the Delmarva Peninsula
area. The additional recurring revenue, although not material, has had an
immediate positive effect on the Company's net income.
In March 1994, the Company acquired American Music Network, Inc. the exclusive
Muzak(R) franchise for Central California, including Fresno, Modesto, Salinas
and the Monterey Peninsula. Positive growth has been experienced within the
state of California and this trend is expected to continue.
The Company was acquired from A. J. Schell Chairman, President and CEO of Audio
Communications Network, Inc. The new acquisition compliments Audio's plans to
operate in major metropolitan areas.
Traditionally Muzak(R) franchises generate substantial profit and sufficient
cashflow and the Company has no reason to believe that the California franchise
will not meet the Company's expectations.
American Music Network, Inc. operates as a wholly owned subsidiary of Audio
Communications Network, Inc.
LEGAL PROCEEDINGS:
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None
AUDIO COMMUNICATIONS NETWORK, INC. & SUBSIDIARIES
PART II OTHER INFORMATION
Item 2. CHANGES IN SECURITIES
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Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
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This item is not applicable. There have been
no defaults in any of the Company's securities.
Item 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
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Not Applicable
Item 5. OTHER INFORMATION
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None
Item 6. EXHIBITS & REPORTS ON FORM 8K (17 CFR 249.308)
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(27) Financial Data Schedule
Form S-8 filed May 17, 1995. Audio Communications Network, Inc.
1993 Employee Stock Purchase and Stock Bonus Plan
FORM 10-QSB
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.
AUDIO COMMUNICATIONS NETWORK, INC.
(Registrant)
Date August 7, 1995 /s/ Doris K. Krummenacker
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Doris K. Krummenacker
Vice President/Finance &
Treasurer
Date August 7, 1995 /s/ A. J. Schell
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A. J. Schell
Chairman and
Chief Executive Officer