-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IlKMEijq5h6rtQaDzTiGcnpPWMakQmZc2m1tYUyMpfZds0mWEANxvR0Pjx9rNSqe AeJnmHXAeIKgXFGe7LbXjg== 0000897101-98-000647.txt : 19980605 0000897101-98-000647.hdr.sgml : 19980605 ACCESSION NUMBER: 0000897101-98-000647 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980604 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHILDRENS BROADCASTING CORP CENTRAL INDEX KEY: 0000882160 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 411663712 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: SEC FILE NUMBER: 000-21534 FILM NUMBER: 98642473 BUSINESS ADDRESS: STREET 1: 724 1ST ST N STREET 2: 4TH FLOOR CITY: MINNEAPOLIS STATE: MN ZIP: 55401 BUSINESS PHONE: 6123383300 MAIL ADDRESS: STREET 1: 724 FIRST STREET NORTH STREET 2: FOURTH FLOOR CITY: MINNEAPOLIS STATE: MN ZIP: 55401 10QSB/A 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB/A (Mark One) [X] Quarterly report under to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarterly period ended March 31, 1998 or [ ] Transition report under to section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition period from _________ to _________ Commission File No. 0-21534 Children's Broadcasting Corporation (Exact name of small business issuer as specified in its charter) Minnesota 41-1663712 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 724 First Street North-4th Floor, Minneapolis, MN 55401 (Address of principal executive office, including zip code) (612) 338-3300 Issuer's telephone number, including area code 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 May 13, 1998, there were outstanding 6,673,516 shares of common stock, $.02 par value, of the registrant. INDEX CHILDREN'S BROADCASTING CORPORATION PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets - March 31, 1998 and December 31, 1997. Consolidated Statements of Operations -- Three months ended March 31, 1998 and 1997. Consolidated Statements of Cash Flows -- Three months ended March 31, 1998 and 1997. Notes to Consolidated Financial Statements -- March 31, 1998. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations SIGNATURES PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CHILDREN'S BROADCASTING CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31 DECEMBER 31, 1998 1997 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 664,258 $ 545,258 Accounts receivable 857,514 1,696,756 Allowance for doubtful accounts (345,691) (472,000) Accounts receivable - affiliates 123,855 142,868 Prepaid expenses 61,725 108,174 ------------ ------------ TOTAL CURRENT ASSETS 1,361,661 2,021,056 Investment in Harmony 5,808,887 6,281,728 Property & equipment, net 4,541,922 4,708,327 Broadcast license, net 19,365,869 19,679,154 Intangible assets, net 1,771,511 1,550,100 Deferred debt issue costs 1,272,275 1,173,209 ------------ ------------ TOTAL ASSETS $ 34,122,125 $ 35,413,574 ============ ============ LIABILITIES & SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,049,456 $ 1,688,832 Accrued interest 387,540 324,994 Other accrued expenses 1,269,045 1,203,331 Line of credit 356,161 453,838 Short-term debt 1,900,000 1,172,500 Long-term debt - current portion 23,800,688 22,857,386 Obligation under capital lease - current portion 28,387 26,367 ------------ ------------ TOTAL CURRENT LIABILITIES 29,791,277 27,727,248 Long-term debt - net of current portions 2,480,145 2,508,819 Obligation under capital lease 44,369 48,836 ------------ ------------ TOTAL LIABILITIES 32,315,791 30,284,903 ------------ ------------ Shareholders' equity: Common stock, $.02 par value: Authorized shares - 50,000,000 Issued & outstanding shares - voting: 6,484,475 1998 and 5,842,460-- 1997; Issued and outstaning shares - 189,041 nonvoting - 1998 and 1997 133,470 132,997 Additional paid-in capital 46,743,575 46,387,536 Stock subscription receivable (529,563) (529,563) Accumulated deficit (44,541,148) (40,862,299) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 1,806,334 5,128,671 ------------ ------------ TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 34,122,125 $ 35,413,574 ============ ============
CHILDREN'S BROADCASTING CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31 ----------------------------- 1998 1997 ----------- ----------- REVENUES Owned, Operated and LMA Stations $ 744,680 $ 944,255 Network 91,315 206,466 ----------- ----------- REVENUES $ 835,995 $ 1,150,721 OPERATING EXPENSES: Owned, Operated and LMA Stations: General and Administrative 529,376 757,640 Technical and Programming 253,579 240,273 Selling 108,264 341,515 ----------- ----------- 891,219 1,339,428 Network General and Administrative 109,758 150,820 Programming 125,101 206,980 Selling 150,912 454,588 Marketing 7,991 119,295 ----------- ----------- 393,762 931,683 Corporate 1,207,726 887,244 Depreciation & Amortization 546,891 458,563 ----------- ----------- TOTAL OPERATING EXPENSES 3,039,598 3,616,918 ----------- ----------- LOSS FROM OPERATIONS (2,203,603) (2,466,197) Equity Loss in Harmony 472,841 -- Interest Expense (Net of Interest Income) 1,002,405 313,996 ----------- ----------- NET LOSS ($3,678,849) ($2,780,193) =========== =========== NET LOSS PER SHARE ($ 0.55) ($ 0.47) =========== =========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 6,656,000 5,905,000 =========== ===========
CHILDREN'S BROADCASTING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31 ------------------------------ 1998 1997 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ($3,678,849) ($2,780,193) Adjustments to reconcile net loss to net cash from operating activities: Provision for doubtful accounts (126,309) 19,381 Depreciation & amortization 546,891 458,563 Amortization of deferred debt issue costs 176,934 -- Net barter activity 16,708 (36,102) Issuance of common stock for payment of attorney fees -- 183,184 Issuance of common stock for payment of interest 27,710 21,084 Equity loss in Harmony 472,841 -- Decrease (Increase) in: Accounts Receivable 822,534 84,164 Other Receivables 19,013 -- Prepaid Expenses 46,449 (100,810) Increase (Decrease) in: Accounts Payable 360,624 (116,459) Accrued Interest 62,546 27,720 Other Accrued Expenses 65,714 94,011 ----------- ----------- NET CASH USED IN OPERATIONS (1,187,194) (2,145,457) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Sale/Purchase of Property & Equipment (26,705) (271,014) Sale/Purchase of Intangible Assets (122,906) (1,623,080) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (149,611) (1,894,094) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of Capital Lease Obligation (2,447) (10,528) Payment of Debt (57,748) (1,359,051) Proceeds from Debt Financings 1,511,000 3,905,000 Proceeds from Issuance of Common Stock 5,000 36,119 ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 1,455,805 2,571,540 ----------- ----------- Increase (Decrease) in Cash 119,000 (1,468,011) Cash - Beginning of Period 545,258 3,370,038 ----------- ----------- CASH - END OF PERIOD $ 664,258 $ 1,902,027 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash Paid During the Period for Interest $ 762,039 $ 317,297 =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: During the three months ended March 31, 1998: The Company recognized revenues of $58,555 and expenses of $44,614 through barter activity. The Company issued 21,151 shares of common stock valued at $75,510 for the payment of a principal and interest installment due in February 1998 totaling $47,800 and $27,710 respectively, for the note payable outstanding to the seller of WAUR (AM). The Company incurred debt issuance costs aggregating $276,000 as a result of the issuance and repricing of warrants related to the Foothill financing. CHILDREN'S BROADCASTING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 1998 NOTE 1--BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310 of Regulation SB. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals with the exception of the adjustments discussed in Note 2) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Form 10-KSB for the year ended December 31, 1997. NOTE 2--SIGNIFICANT TRANSACTIONS DURING 1998 The following significant transactions occurred during the first three months of 1998 and are considered non-recurring: A. In January 1998, the Company received proceeds totaling $611,000 and paid debt issue costs of $39,000 through the issuance of a note payable to Harmony Holdings, Inc. ("Harmony") with a face amount of $650,000. The note payable bears interest at 15%, is unsecured and due upon demand. B. In February 1998, the Company adopted a Shareholder Rights Plan designed to enable the Company and its board to develop and preserve long-term values for shareholders and to protect shareholders in the event an attempt is made to acquire control of the Company through certain coercive or unfair tactics or without an offer of fair value to all shareholders. The plan provides for distribution of a common share purchase right to each shareholder of record of the Company's common stock on February 27, 1998. Under the plan, these rights to purchase common shares will generally be exercisable a certain number of days after a person or group acquires or announces an intention to acquire 20% or more of the Company's common stock. Each right entitles the holder, after the rights become exercisable, to receive shares of Company's common stock having a market value of two times the exercise price of the right or securities of the acquiring entity at one-half their market value at that time. C. On March 13, 1998, the Credit Agreement with Foothill Capital Corporation ("Foothill") was amended. Pursuant to the amendment, Foothill issued an additional term note payable advance of $1,000,000 of which the Company received proceeds totaling $900,000 and paid a loan fee of $100,000. The provisions of the Credit Agreement remained substantially unchanged as a result of the amendment, except that the variable interest rate was increased by 1%, a principal installment of $500,000 due March 31, 1998 was deferred until April 16, 1998, and the Company received a waiver of certain debt covenants which the Company had not met as of March 31, 1998. As additional consideration for the amendment, the Company issued Foothill an additional warrant to purchase 100,000 shares of the Company's common stock at a purchase price of $3.68 and amended the exercise price of a previously granted warrant from $5.29 per share to $3.68 per share. D. In April 1998, the Company signed a definitive purchase agreement with Catholic Radio Network, LLC ("CRN") to sell the assets of ten of its owned and operated stations including the stock of Children's Radio New York, Inc. a subsidiary of the Company for $57.0 million. The total purchase price includes $52 million in cash and a $5 million subordinated secured promissory note. The note will carry interest at the rate of 10% per annum and will be payable in two years. The Company will have the option to convert the note to equity in CRN after 18 months. CRN deposited $3 million into an escrow account, of which, $1 million was released to the Company on April 27, 1998, and $1 million is scheduled to be released on May 17, 1998 and June 17, 1998 each. The consummation of the transaction is subject to regulatory and shareholder approvals and customary closing conditions. E. In April 1998, the Company signed a definitive purchase agreement with Salem Communications Corporation to sell the assets of two of its owned and operated stations for a total purchase price of $2.7 million cash. On April 27, 1998, $135,000 was deposited into an escrow account. The Company simultaneously entered into a pre-closing time brokerage agreement regarding the stations until the transaction is consummated. The consummation of the transaction is subject to regulatory and shareholder approvals and customary closing conditions. F. In May 1998, the Company signed a definitive purchase agreement with 1090 Investments, LLC to sell the assets of WCAR(AM) in Detroit for a purchase price of $2.0 million cash. The purchase agreement requires the buyer to deposit $100,000 into an escrow account to be held until closing. The Company simultaneously entered into a pre-closing time brokerage agreement to operate WCAR(AM) until the transaction is consummated. The transaction is subject to regulatory and shareholder approvals and customary closing conditions. G. The Credit Agreement with Foothill is currently being amended effective April 17, 1998. Pursuant to the amendment, the Company will obtain an additional term note payable advance of $2,000,000, of which the Company will receive proceeds totaling $1,000,000, pay a loan origination fee of $200,000, and establish an interest reserve of $800,000 to be used for payment of future interest. Also, pursuant to the amendment, the variable interest rate will be increased by 1% on the entire outstanding loan balance, and the Company will receive a forbearance of all principal payments and certain covenant requirements through September 30, 1998. As additional consideration for the amendment, the Company will issue Foothill an additional warrant to purchase 200,000 shares of the Company's common stock. NOTE 3--INVESTMENT IN HARMONY In 1997, the Company acquired an equity interest in Harmony Holdings, Inc. ("Harmony") by purchasing 2,188,731 shares of Harmony's common stock and options to acquire an additional 750,000 shares of Harmony's common stock exercisable at $1.50 per share and expiring at various dates through October 2001. The Company's investment represents 33.7% of the outstanding common stock of Harmony at March 31, 1998. Harmony's most recent fiscal year end was June 30, 1997, and Harmony's operations are summarized as follows for the three and nine months ended March 31, 1998: Three Months Nine Months ------------ ----------- Ended 3/31/98 ended 3/31/98 Contract revenues $ 14,750,601 $ 37,470,837 Cost of production 11,861,074 30,115,564 ------------ ------------ Gross profit 2,889,526 7,355,272 Operating expenses 3,886,887 9,625,796 ------------ ------------ Income (loss) from Operations (997,361) (2,270,524) Interest income 4,466 21,717 ------------ ------------ Income (loss) before (992,896) (2,248,808) Income Taxes 23,142 Net income (loss) $ (992,896) $ (2,271,950) ------------- ------------- ITEM 2. This discussion and analysis contains certain forward-looking terminology such as "believes," "expects," "anticipates," and "intends," or comparable terminology. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Potential purchasers of the Company's securities are cautioned not to place undue reliance on such forward-looking statements which are qualified in their entirety by the cautions and risks described herein. GENERAL The Board of Directors of Children's Broadcasting Corporation unanimously approved the sale of the Company's assets to Global Broadcasting Company, Inc. ("Global"), subject to shareholder approval for $72.5 million in cash. Shareholder approval for the sale was obtained in January 1998. However, on January 27, 1998, the Company announced that Global had failed to close on the purchase of the Company's radio stations within the time provided under the purchase agreement between the parties. On January 30, 1998, the Company discontinued operation of Aahs World Radio, its 24-hour children's radio programming, which it began broadcasting by satellite in late 1992. The primary sources of the Company's broadcast revenue, prior to the discontinuation of Aahs World Radio, were from the sale of local advertising and air time and network revenue. The cessation of such broadcasting has negatively impacted the Company's broadcast revenue. On April 20, 1998, the Company signed a definitive purchase agreement with Catholic Radio Network, LLC ("CRN") to sell the assets of ten of its owned and operated stations, including the stock of Children's Radio New York, Inc., a subsidiary of the Company, for $57.0 million. On April 29, 1998 the Company signed a definitive purchase agreement with Salem Communications Corporation to sell the assets of two additional owned and operated stations for a total purchase price of $2.7 million cash. On May 7, 1998, the Company signed a definitive purchase agreement with 1090 Investments, LLC to sell the assets of its remaining station in Detroit for a purchase price of $2.0 million cash. Radio stations frequently barter unsold advertising time for products or services, such as hotels, restaurants and other goods used principally for promotional, sales and other business activities. Barter revenues and expenses are included in the financial presentation below. The revenue and expenses related to barter do not have a material effect on the Company's operating profit in a given period. RESULTS OF OPERATIONS: THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997. Revenue: Owned, Operated and LMA Station Revenues: Total revenues from the Company's owned, operated and LMA stations decreased $199,000 or 21% from $944,000 in the first quarter of 1997 to $745,000 for the same period in 1998. This decrease in revenue can be attributed to the cessation of broadcasting the Aahs World Radio format and the reduction of sales force at various stations in anticipation of the sale of the Company's owned and operated stations. Network: Total revenues of $91,000 were produced by the network during the first quarter of 1998, a decrease of $115,000 or 56% compared to the first quarter of 1997 revenues. This decrease in network revenues was due to the cessation of broadcasting the Aahs World Radio programming on January 30, 1998. OPERATING EXPENSES: Owned, Operated and LMA Station Expenses: General and administrative expenses decreased 30% to $529,000 for the first quarter of 1998 from $758,000 in the same period of 1997. This decrease was due to the Company's reduction in staff at the stations, which eliminated not only personnel but also general office overhead expenses. Expenses will continue to diminish as stations are sold or Local Marketing Agreements ("LMA"'s) are entered into. Technical and programming expenses increased to $254,000 in the first quarter of 1998 from $240,000 during the same period in 1997, an increase of 6%. Expenses will diminish as stations are sold or LMA'd. Sales expenses totaled $108,000 in the first quarter of 1998 compared to $342,000 in the first quarter of 1997. This decrease is due to the reduction of sales personnel in anticipation of the sale of the Company's stations. Expenses will continue to diminish as stations are sold or LMA'd. Network Expenses: General and administrative expenses decreased $41,000 in the first quarter of 1998 to $110,000 as compared to $151,000 for the first quarter of 1997 due to the reduction in general overhead expenses tied to the cessation of the broadcasting of Aahs World Radio programming. Programming expenses decreased $82,000 to $125,000 in the first quarter of 1998 compared to $207,000 in the same period of 1997 because of the reduction of staff due to the discontinuation of the broadcasting of Aahs World Radio programming and in anticipation of the sale of the Company's owned and operated stations. Sales expenses decreased 67% from $455,000 in the first quarter of 1997 to $151,000 in the same period of 1998. This decrease was due to the reduction of sales personnel in conjunction with the discontinuation of broadcasting the Aahs World Radio format. Marketing expenses were $8,000 during the first quarter of 1998 compared to $119,000 in that same period in 1997, a decrease of 93% due to the elimination of the Company's marketing effort in conjunction with the cessation of the broadcasting of Aahs World Radio programming on January 30, 1998. Corporate charges were $1,208,000 in the first quarter of 1998 compared to $887,000 in the first quarter of 1997, representing an increase of 36%. This increase is attributable to the increase in legal fees incurred relating to the ABC/Disney litigation. Such litigation is anticipated to continue to utilize the Company's working capital. Further, professional services required in connection with the sale of the Company's owned and operated stations will reduce the Company's working capital. Depreciation and amortization increased to $547,000 in the first quarter of 1998 from $459,000 in that same period of 1997 due to a full quarter of depreciation and amortization on all the Company's radio broadcast licenses ("RBLS") and certain related assets. Net interest expense for the first quarter of 1998 increased $688,000 as a result of the additional interest incurred related to the financing provided in by Foothill Capital Corporation ("Foothill"). The net loss increased 32% in the first quarter of 1998 to $3,679,000 from $2,780,000 in the first quarter of 1997. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity, as measured by its working capital, was a deficit of $28,430,000 at March 31, 1998 compared to a deficit of $25,706,000 at December 31, 1997. A portion of the Company's negative net working capital position for the first quarter of 1998 and 1997 was the result of the reclassification of the long-term portion of the Foothill term loan as the Company has historically not met certain restrictive financial covenants contained in its credit agreement with Foothill. The failure to meet these covenants was principally due to the Company's continued operating losses. Foothill has waived its rights pursuant to these violations through September 30, 1998. Pursuant to generally accepted accounting principles (EITF No. 86-30), if similar restrictive covenants must be met at future interim periods, the debt must continue to be classified as current unless it is probable that the Company will satisfy the covenants in the future or if Foothill agrees to waive its rights to such potential future covenant violations. Foothill would not provide the Company with such a waiver and accordingly, the principal balances outstanding at March 31, 1998 have been entirely classified as current obligations. During the first quarter of 1998, the Company experienced a cash working capital loss of approximately $439,000. While the sale by the Company of its stations is expected to further reduce future broadcast revenue, the Company has implemented plans to decrease its expenses to offset the loss of revenue. Additionally, the Company ceased producing and distributing its full-time Aahs World Radio programming format as of January 30, 1998. Concurrent with the announcement of this termination of network programming, the Company initiated certain reductions in its workforce related to the operation of the network and the stations. In January 1998, the Company received proceeds totaling $611,000 and paid debt issue costs of $39,000 through the issuance of a note payable to Harmony Holdings, Inc. ("Harmony") with a face amount of $650,000. The note payable bears interest of 15%, is unsecured and due upon demand. The Company entered into a second amendment to its credit agreement with Foothill on March 13, 1998 pursuant to which the Company obtained $1,000,000 of additional financing. In connection with this additional financing, the rate of interest payable on all of the Company's indebtedness to Foothill was adjusted to 4.75% over prime. Additionally, the Company provided Foothill with a warrant to purchase 100,000 shares of its Common Stock at $3.68 per share and repriced a previously issued warrant to purchase 100,000 shares of Common Stock from $5.29 per share to $3.68 per share. Currently, the Credit Agreement with Foothill is being amended effective retroactively to April 17, 1998. Pursuant to the third amendment, the Company will obtain an additional term note payable advance of $2,000,000, of which the Company will receive proceeds totaling $1,000,000, pay a loan origination fee of $200,000, and establish an interest reserve of $800,000 to be used for payment of future interest (see Note G). The Company believes that the financing it received from Foothill in connection with the second and third amendments to the credit agreement and the $3 million escrow releases from CRN will be sufficient to operate the Company through September 1998. The sale of the Company's radio stations is expected to provide the Company with sufficient working capital to meet its cash requirements. If any such sale is delayed or does not occur, or the additional Foothill financing is not consummated, the Company believes it will need to obtain alternative financing. Because the credit agreement with Foothill requires the Company to grant liens and security interests on substantially all of its assets, the Company's ability to incur additional indebtedness may be limited. If the Company is not able to obtain adequate financing, or financing on acceptable terms, it could be forced to reduce or terminate its operation, curtail future acquisitions or other projects, sell or lease its current assets under unfavorable circumstances, delay certain capital projects or potentially default on obligations to creditors, all of which may be materially adverse to the Company's operation and prospects. Consolidated cash was $664,000 at March 31, 1998 and $545,000 at December 31, 1997, an increase of $119,000. Accounts receivable at March 31, 1998 decreased $713,000 from December 31, 1997, other receivables decreased $19,000, and prepaid expenses at March 31, 1998 decreased $46,000 from December 31, 1997. Accounts payable at March 31, 1998 increased $361,000 from December 31, 1997, accrued interest increased $63,000 from December 31, 1997 to March 31, 1998 and other accrued expenses increased $66,000 during that same period. The $1,187,000 cash used for operations was provided by the proceeds obtained through the Foothill financing. During the first quarter of 1998, $150,000 cash was used for investing activities. This cash was used primarily for miscellaneous studio equipment and tower projects. Cash obtained through financing activities amounted to $1,456,000 during the first quarter of 1998. This cash represents the $900,000 term loan advance from Foothill, the $611,000 loan from Harmony and $5,000 obtained through the issuance of common stock through the exercise of stock options, less the repayment of debt. SEASONALITY AND INFLATION The Company's revenues generally follow retail sales trends, with the fall season (September through December) reflecting the highest revenues for the year, due primarily to back-to-school and holiday season retail advertising, and the first quarter reflecting the lowest revenues for the year. The Company does not believe inflation has affected the results of its operations, and does not anticipate that inflation will have an impact on its future operation. 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 on June 4, 1998. CHILDREN'S BROADCASTING CORPORATION By: /s/ Patrick D. Grinde ------------------------ Patrick D. Grinde Its: Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----