U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997.
( ) 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 0-7762.
AUDIO COMMUNICATIONS NETWORK, INC.
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(Exact name of small business issuer as specified in its charter)
FLORIDA 59-0690530
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(State or other jurisdiction (I.R.S. Employer
of incorporation of organization) Identification Number)
1000 Legion Place, Suite 1515
Orlando, Florida 32801
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (407) 649-8877.
Not Applicable
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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
--- ---
As of August 15, 1997, 4,453,191 Common Shares were outstanding.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
AUDIO COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
UNAUDITED STATEMENT OF CONSOLIDTED OPERATIONS
SECOND QUARTER
------------------------------
FOR THE 3 MONTHS ENDED
------------------------------
PART I - FINANCIAL INFORMATION 6/30/97 6/30/96
----------- ------------
Music Sales .................... $ 2,483,173 $ 1,653,741
Installations .................. 534,420 371,270
Equipment Sales ................ 453,835 502,858
Miscellaneous................... 44,769 77,157
----------- -----------
TOTAL REVENUE................... 3,516,197 2,605,026
COST AND EXPENSES
Cost of Sales .................. 1,070,510 760,430
Selling, General and
Administrative Expenses ........ 1,257,591 969,495
Depreciation and Amortization .. 797,421 596,567
----------- -----------
TOTAL .......................... 3,125,522 2,326,492
----------- -----------
Income before Other Income
(Expense) and Income Taxes...... 390,675 278,534
OTHER INCOME (EXPENSE):
Interest Income ................ 1,672 -0-
Interest Expense................ (574,317) (470,925)
Other .......................... 2,410 -0-
----------- -----------
OTHER NET ...................... (570,235) (470,925)
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Loss before Income Taxes........ (179,560) (192,391)
Provision for Income Taxes ..... 4,600 -0-
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Net Loss........................ $ (184,160) $ (192,391)
=========== ===========
Net Loss Per Common Share
(Proforma)..................... $ (.04) $ (.04)
=========== ===========
Weighted Average Number of
Common Shares................... 4,516,080 4,516,080
=========== ===========
Dividends Per Share............. -0- -0-
=========== ===========
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AUDIO COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
UNAUDITED STATEMENT OF CONSOLIDATED OPERATIONS
FIRST SIX MONTHS
------------------------------
FOR THE 6 MONTHS ENDED
------------------------------
6/30/97 6/30/96
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PART I - FINANCIAL INFORMATION
Music Sales .................... $ 4,389,025 $ 3,270,024
Installations .................. 846,153 745,121
Equipment Sales ................ 843,232 1,061,613
Miscellaneous................... 100,213 141,167
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TOTAL REVENUE................... 6,178,623 5,217,925
COST AND EXPENSES
Cost of Sales .................. 1,783,996 1,506,668
Selling, General and
Administrative Expenses ........ 2,158,405 1,962,833
Depreciation and Amortization .. 1,428,770 1,193,134
------------ -----------
TOTAL .......................... 5,371,171 4,662,635
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Income before Other Income
(Expense) and Income Taxes...... 807,452 555,290
OTHER INCOME (EXPENSE):
Interest Income ................ 1,672 -0-
Interest Expense................ (1,054,890) (945,712)
Other .......................... 2,410 -0-
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OTHER NET ...................... (1,050,808) (945,712)
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Loss before Income Taxes........ (243,356) (390,422)
Provision for Income Taxes ..... 4,600 -0-
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Net Loss........................ $ (247,956) $ (390,422)
============ ===========
Net Loss Per Common Share
(Proforma) $ (.06) $ (.09)
============ ===========
Weighted Average Number of
Common Shares................... 4,516,080 4,516,080
============ ===========
Dividends Per Share -0- -0-
============ ===========
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AUDIO COMMUNICATIONS NETWORK, INC, & SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
6/30/97 12/31/96
--------------- ------------------
(Unaudited) (Condensed from
Audited Financial
Stmts of Suncom
Communications,LLC)
PART I - FINANCIAL INFORMATION
ASSETS
Current Assets:
Cash & Cash Equivalents........... $ 1,635,732 $ 132,565
Accounts Receivable .............. 1,230,165 839,442
Inventories....................... 950,930 443,969
Prepaid Expenses & Other.......... 261,410 124,372
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Total - Current Assets............ 4,078,237 1,540,348
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Property - Net.................... 11,896,458 5,908,432
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Subscriber Contracts & Other
Intangibles....................... 16,372,920 14,921,299
Goodwill.......................... 12,469,230 653,666
Deposits & Other.................. 17,761 80,349
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Total Other Assets................ 28,859,911 15,655,314
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TOTAL............................. $ 44,834,606 $ 23,104,094
============= ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Current - Long Term Debt......... $ 50,363 $ 1,400,000
Current Portion of Obligation
Under Capital Leases ............ 13,278 68,420
Accounts Payable................. 3,039,710 1,482,758
Due A. J. Schell................. 414,475 -0-
Accrued Liabilities.............. 893,615 406,871
Deferred Revenue................. 224,784 -0-
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Total Current Liabilities........ 4,636,225 3,358,049
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Long - Term Debt................. 25,332,810 12,600,000
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Subordinate Debt................. 4,750,000 4,584,146
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Obligations Under Capital Leases. 32,168 13,719
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Due A. J. Schell................. 828,951 -0-
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Stockholders' Equity:
Common Stock, $.25 par value
8,000,000 shares, authorized,
4,453,191 outstanding as of
June 30, 1997..................... 1,113,298 -0-
Capital Contributed in Excess
of Par Value..................... 9,784,576 -0-
Members Invest. & Contrib. Capital -0- 3,943,646
Accumulated Deficit.............. (1,643,422) (1,395,466)
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Stockholders' Equity............. 9,254,452 2,548,180
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TOTAL............................ $ 44,834,606 $ 23,104,094
============= ============
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AUDIO COMMUNICATIONS NETWORK, INC. & SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 6 MONTHS ENDED JUNE 30TH
--------------------------------
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss............................... $ (247,956) $ (390,422)
Adjustments to Reconcile Net Cash
Provided by Operating Activities
Depreciation and Amortization.......... 1,428,770 1,193,134
Amortization of Debt Discount.......... -0- 1,793
Change in Operating Assets and Liabilities
Increase in Accounts Receivable....... 222,580 (90,302)
Increase in Inventories............... (531,142) (550,873)
Increase in Prepaid Expenses.......... (105,556) 27,350
Decrease in Deferred Commission Expense -0- -0-
Decrease in Deposits.................. 62,588 (7,486)
Increase in Deferred Revenue.......... -0- -0-
Increase in Accounts Payable.......... 573,466 (144,847)
Increase in Accrued Expenses.......... 278,128 (164,873)
Other,Net............................. (28,422) (1,778)
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Net Cash Provided By Operating Activities 1,652,456 (128,304)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquistion of Certain Assets and
Liabilities of ACN.................... (2,130,889) -0-
Capital Expenditures................... (738,328) (560,804)
Change in Accumulated Depreciation..... -0- -0-
Acquisition of Intangible Assets -0-
and Goodwill.......................... -0- -0-
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Net Cash Used in Investing Activities.. (2,869,217) (560,804)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds From Issuance of Debt......... 26,493,426 -0-
Repayment of Long Term Debt............ (23,755,000) -0-
Principal Payments Under Capital
Lease Obligations..................... (18,498) (21,420)
Addition to Capital.................... -0- -0-
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Net Cash Provided by Financing Activities 2,719,928 (21,420)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 1,503,167 (710,528)
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CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD 132,565 800,256
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CASH & CASH EQUIVALENTS, END OF PERIOD $ 1,635,732 $ 89,728
============= =============
Cash Paid During the Period For Interest $ 1,137,826 $ 1,016,690
Supplemental Schedule of Noncash Investing
& Financing Activities:
Inventory leased to customers and
reclassified to property.............. $ 527,548 $ 433,623
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AUDIO COMMUNICATIONS NETWORK, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.
The accompanying unaudited interim consolidated financial statements and related
notes should be read in conjunction with the financial statements and related
notes included in the Company's 1996 Annual Report on Form 10-K. In the opinion
of management, all material adjustments, consisting of normal recurring
adjustments, considered necessary for a fair presentation have been included in
the accompanying unaudited interim consolidated financial statements. Operating
results for the six months ended June 30, 1997, are not necessarily indicative
of the results that may be expected for the year ending September 30, 1997.
NOTE 2 - ACQUISITION
On May 30, 1997, the Company completed a business combination with Suncom
Communications L.L.C. a Delaware limited liability company. Under the terms of
the agreement, the Company, through its wholly owned subsidiary, Suncom, Inc.,
acquired the assets and business of Suncom, in exchange for which the Company
issued 2.1 million Common Shares to Suncom, which represented approximately
47.5% of the Company's outstanding Common Shares.
Also on May 30, 1997, Suncom consummated an agreement with A. J. Schell
acquiring substantially all of his equity position in the Company. As a result,
Suncom is the owner of 2,697,986 Common Shares, representing approximately 60.7%
of the outstanding Common Shares of the Company resulting in a reverse
acquisition.
The transaction has been accounted for as a reverse acquisition therefore the
financial statements presented herein represent the historical results of Suncom
and the results of operation of Audio Communications Network, Inc. from the date
of acquisition.
Assuming the reverse acquisition had occurred on January 1, 1996 the Company's
(unaudited) net revenues, net income (loss) per share, and earnings (loss) per
share would have been approximately as follows:
2nd. Quarter First 6 Months
1997 1996 1997 1996
---- ---- ---- ----
Net Revenue $5,269,441 $5,554,783 $10,351,201 $10,766,784
Net Income (Loss) $ (872,941) $ 103,039 $ (932,095) $ 56,455
Earnings (Loss)
Per Share $ (.19) $ .02 $ (.21) $ .01
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AUDIO COMMUNICATIONS NETWORK & SUBSIDIARIES
CONDENSED CONSOLIDATED INTERIM STATEMENT OF SHAREHOLDERS' EQUITY
Six Months Ending June 30, 1997
Additional Contributed
Paid-in Capital Retained
Common Stock Amount Investments Capital Pf. Warrants Earnings
_____________________________________________________________________________________________________________
Balance 1/1/96 -0- -0- 3,750,000 -0- 193,646 (850,123)
Net Loss for the 12 mos.
ending 12/31/96 -0- -0- -0- -0- -0- (545,343)
--------- ------- ---------- --------- -------- ----------
Balance 12/31/96 -0- -0- 3,750,000 -0- 193,646 (1,395,466)
========= ======= ========== ========= ======== ==========
Balance 1/1/97 -0- -0- 3,750,000 193,646 (1,395,466)
Increase of Common
Stock on Reverse
Acquisition on 5/30/97
with ACNI & Suncom 2,100,000 525,000 (3,750,000) 4,565,662 (193,646) -0-
Common Shares Acquired
on Reverse Acquisition
from ACNI 2,353,191 588,298 -0- 5,218,914 -0- -0-
Net Loss for the Period
Ending 6/30/97 -0- -0- -0- -0- -0- (247,956)
--------- ------- ---------- --------- -------- ----------
Balance 6/30/97 4,453,191 1,113,298 -0- 9,784,576 -0- (1,643,422)
========= ======= ========== ========= ======== ==========
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Item 2. Management's Discussion and Analysis or Plan of Operation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS & RESULTS OF OPERATIONS
SUMMARY
The following table sets forth for the periods indicated, certain items
from the Company's Consolidated Statement of Operations expressed as a
percentage of operating revenues.
RELATIONSHIP TO TOTAL REVENUES
-------------------------------------
FOR THE PERIOD ENDING JUNE 30TH
-------------------------------------
SECOND QUARTER FIRST SIX MONTHS
---------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues from Operations 100.0% 100.0% 100.0% 100.0%
Operating Costs and Expenses (66.2) (66.4) (63.8) (66.5)
------ ------ ------ ------
Income from Operations before
Depreciation and Amortization 33.8 33.6 36.2 33.5
Depreciation and Amortization 22.7 (22.9) (23.1) (22.9)
------ ------ ------ ------
Income before Other Income (Expense),
and Income Taxes 11.1 10.7 13.1 10.6
Other Income (Expense) Net (16.2) (18.1) (17.0) (18.1)
------ ------ ------ ------
Income before Income Taxes (5.1) (7.4) (3.9) (7.5)
Provision for Income Taxes (0.1) 0.0 (0.1) 0.0
------ ------ ------ ------
Net Income (5.2) (7.4) (4.0) (7.5)
====== ====== ====== ======
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
On May 30, 1997, Audio Communications Network, Inc. acquired the assets of
Suncom Communications, L.L.C. ("Suncom acquisition") subject to the assumption
of $18.75 million of liabilities. In addition, the members of Suncom received
2,100,000 shares of Audio stock representing approximately 48% of the shares on
a fully diluted basis. In a separate transaction, the members of Suncom
purchased 597,698 shares of Audio Stock from Al Schell, President, CEO, and
Chairman of the Board. Suncom's franchise areas of operation include specified
areas in the states of North and South Carolina as well as Arizona. Suncom will
operate as a wholly owned subsidiary of Audio Communications Network, Inc.
The transaction has been accounted for as a reverse acquisition therefore the
financial statements presented herein represent the historical results of Suncom
and the results of operation of Audio Communications Network, Inc. from the date
of acquisition.
NET REVENUES:
Consolidated Net Revenues for the 2nd. Quarter of 1997 were $3,516,197
increasing over the comparable period of 1996 and the 1st. Quarter of 1997 by
$911,171 or 35% and $853,771 or 32% respectively. Ninety three percent of the
increase over '96 is attributable to the reverse acquisition of ACN and the
balance to the growth in the Suncom franchises. One hundred percent of the
increase over the 1st Quarter of 1997 is attributable to the reverse acquisition
of ACN.
-9-
Overall, the Company's first 6 months of 1997 revenues of $6,178,623 as compared
to the first 6 months of 1996 revenues of $5,217,925 increased $960,698. Eighty
eight percent of that increase is directly related to the reverse acquisition of
ACN with the remaining representing growth from the Suncom franchises.
COST AND EXPENSES:
Cost and Expenses for the 2nd. Quarter of 1997 were $2,328,101 increasing over
the comparable period of 1996 and the 1st. Quarter of 1997 by $598,176 or 35 %
and $713,801 or 44% respectively. Ninety four percent of the increase over '96
is attributable to the reverse acquisition of ACN and the balance to the
increase operating expenses of the Suncom franchises. Eighty five percent of the
increase over the 1st. Quarter of 1997 is attributable to the reverse
acquisition of ACN and the balance to the growth in the Suncom franchises.
Overall, the Company's first 6 months of 1997 Costs and Expenses of $3,942,401
as compared to the first 6 months of 1996 $3,469,501 increased $482,900. The
entire increase is directly related to the reverse acquisition of ACN.
DEPRECIATION AND AMORTIZATION:
The increase in Depreciation and Amortization in the 2nd. Quarter of 1997 and
the first 6 months of 1997 over like periods is due primarily to the assets
acquired in the reverse acquisition.
OTHER INCOME AND EXPENSE (NET):
The increase in Other Income and Expense (Net) in the 2nd Quarter of 1997 and
the first 6 months of 1997 over their like periods is due primarily to the
additional senior and subordinated debt resulting from the reverse acquisition.
-10-
INCOME TAXES:
At June 30, 1997 the Company had operating loss carryforwards for federal tax
purchases of approximately $2,000,000. Such loss carryforwards expire in 2004
through 2006.
NET INCOME/LOSS:
Net Loss for the Company's 2nd. Quarter of 1997 was $184,160 decreased from a
loss for the comparable period of 1996 of $192,391 by $8,231 or 4%. The net loss
for the 6 month period of 1997 was $247,956 compared to a loss for the
comparable period in 1996 of $390,422, an improvement of $142,466 or 36%. These
improvements in operating results are primarily attributable to the reverse
acquisition of ACN.
LIQUIDITY AND CAPITAL RESOURCES:
Operating cash flows (computed as net income plus interest, taxes, depreciation
and amortization) for the first 6 months of 1997 have increased from $1,748,424
in 1996 to $2,236,222 in 1997 an increase of $487,798 or 28%.
On May 30, 1997, in conjunction with the Suncom transaction, the Company repaid
all its bank debt obligations to SunTrust Bank, Central Florida, N.A. as well as
$18.75 million of debt obligations of Suncom and entered into a $32 million
credit facility with PNC Bank with SunTrust and Lehman Brothers as participating
lenders in the facility. As of June 30, 1997 the Company had an outstanding loan
balance of $25.25 million and an unused credit facility of $6.75 million. The
credit facility is subject to various covenants including: (1) Debt Service
Coverage Ratio; (2) Debt to Cash Flow Ratio; and (3) Debt to Minimum Monthly
Recurring Billing Required.
-11-
In addition at that time, the Company and Midwest Mezzanine Fund entered into a
$4,750,000 subordinated debt agreement. The agreement requires the Company to
pay quarterly interest at a rate of 12.27%. Audio Communications Network, Inc.
was in compliance with all covenants at June 30, 1997. All payments of interest
and principal on loans outstanding and payments on lease obligations have been
made on a timely basis.
-12-
PART II
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.2 Amended and Restated Bylaws.
10.15 Employment Agreement dated May 30, 1997, with A.J. Schell.
10.16 Employment Agreement dated May 30, 1997, with Mitchell
Kleinhandler.
10.17 Employment Agreement dated May 30, 1997, with David Unger.
27.1 Financial Data Schedule.
(b) Reports of Form 8-K.
A report on Form 8-K dated May 30, 1997 was filed on June 16,
1997, reporting the Company's completion of the business combination (the
"Combination") with Suncom Communications L.L.C., and the ancillary agreements
thereto. In addition, the Company reported that contemporaneously with the
consummation of the Combination, it entered into a new $32,000,000 credit
facility. The required financial statements of the business acquired and the
pro-forma information were subsequently filed by amendment within sixty days
therefrom.
-13-
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.
Date: August 15, 1997 By: /s/ David Unger
-------------------------------
David Unger
Chief Financial Officer and
Executive Vice President
Date: August 15, 1997 By: /s/ Mitchell Kleinhandler
-------------------------------
Mitchell Kleinhandler
President and
Chief Operating Officer
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