-----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, F+eOJRfthujPrppCccUzwu1/P7ciInb3q66MM8vU2ltZo9zrNJmLqBbERe0eg0Ql HRKfhwYktUwHy1xLQqVgWQ== 0000912057-96-026130.txt : 19961115 0000912057-96-026130.hdr.sgml : 19961115 ACCESSION NUMBER: 0000912057-96-026130 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 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 SEC ACT: 1934 Act SEC FILE NUMBER: 000-21534 FILM NUMBER: 96662412 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 1 10-QSB FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarterly period ended SEPTEMBER 30, 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 No. 0-21534 CHILDREN'S BROADCASTING CORPORATION ----------------------------------------------------- (Exact name of registrant 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 zip code) (612) 338-3300 --------------------------------------------- Registrant's telephone number, including area code FORMER ADDRESS: - --------------------------------------------------------------------- (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 ISSUER INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PRECEDING 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 of each of the issuer's classes of common stock, as of October 31, 1996. 5,996,410 --------- INDEX CHILDREN'S BROADCASTING CORPORATION PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets -- September 30, 1996 and December 31, 1995. Consolidated Statements of Operations -- Three and nine months ended September 30, 1996 and 1995. Consolidated Statements of Cash Flows -- Nine months ended September 30, 1996 and 1995. Notes to consolidated financial statements -- September 30, 1996. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K This Form 10-QSB for the quarter ended September 30, 1996 contains certain forward-looking statements as defined in the Private Securities Litigation of 1995, which may be identified by the use of such forward-looking terminology 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 risk factors contained in the Company's Form 8-K Report filed on July 3, 1996 (File No. 0-21534). PART I. FINANCIAL INFORMATION Item 1. Financial Statements CHILDREN'S BROADCASTING CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30 DECEMBER 31 1996 1995 ------------ ----------- ASSETS Current assets: Cash and Cash Equivalents $ 885,525 $ 587,292 Accounts Receivable 1,241,642 876,487 Allowance For Bad Debts (54,894) (71,490) Accounts Receivable-Other 179,410 49,576 Prepaid Expenses 276,718 707,689 Trade Activity, Net 116,494 23,435 Inventory 78,885 74,046 ----------- ----------- TOTAL CURRENT ASSETS 2,723,780 2,247,035 Deferred Expenses -- 2,288,141 Property & Equipment, Net 4,247,759 3,083,769 Broadcast License, Net 17,139,865 4,969,573 Intangible Assets, Net 2,067,011 738,220 ----------- ----------- TOTAL ASSETS $26,178,415 $13,326,738 ----------- ----------- ----------- ----------- LIABILITIES & SHAREHOLDERS' EQUITY Current Liabilities: Accounts Payable $ 687,967 $ 749,742 Accrued Interest 1,644 301,389 Other Accrued Expenses 735,860 733,371 Short-Term Debt -- 3,650,000 Short-Term Debt - Officers and Directors -- 900,000 Long-Term Debt - Current Portion 377,227 297,365 Obligation Under Capital Lease - Current Portion 12,935 36,173 ----------- ---------- TOTAL CURRENT LIABILITIES 1,815,633 6,668,040 Long-Term Debt - Net of Current Portions 1,910,625 872,338 Obligation Under Capital Lease - Net of Current Portions 2,478 52,847 ----------- ---------- TOTAL LIABILITIES 3,728,736 7,593,225 Convertible Preferred Stock Authorized Shares - 290,213 Issued and outstanding Shares - 290,213 redeemable at $10 Per Share on August 29, 1999 2,367,587 2,246,838 Shareholders' Equity: Common Stock, $.02 Par Value: Authorized shares - 12,500,000 Issued & outstanding shares - Voting: 5,586,743 1996 and 2,909,610-- 1995; Issued and outstanding shares - 189,041 nonvoting - 1996 and 1995 115,515 62,683 Additional Paid-In Capital 42,836,416 19,491,302 Accumulated Deficit (22,869,839) (16,067,310) ----------- ---------- TOTAL SHAREHOLDERS' EQUITY 20,082,092 3,486,675 TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $26,178,415 $13,326,738 ----------- ---------- ----------- ----------
CHILDREN'S BROADCASTING CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 -------------------------- --------------------------- 1996 1995 1996 1995 ----------- ---------- ----------- ----------- REVENUES: Owned, Operated and LMA Stations $ 957,596 $1,036,502 $ 2,898,254 $ 3,066,628 Network 427,425 181,951 1,034,257 817,927 ----------- ----------- ----------- ----------- REVENUES 1,385,021 1,218,453 3,932,511 3,884,555 OPERATING EXPENSES: Owned, Operated and LMA Stations: General and Administrative 599,946 511,060 1,594,158 1,552,762 Technical and Programming 259,711 289,864 681,586 815,765 Selling 391,169 535,290 1,073,338 1,439,598 ----------- ----------- ----------- ----------- 1,250,826 1,336,214 3,349,082 3,808,125 Network: General and Administrative 238,508 209,696 686,648 467,770 Programming 220,140 156,258 651,267 438,327 Selling 268,249 177,366 696,319 760,590 Marketing 60,030 5,358 303,979 18,602 Magazine -- 41,189 125,542 98,747 ----------- ----------- ----------- ----------- 786,927 589,867 2,463,755 1,784,036 TOTAL BROADCASTING OPERATING EXPENSES 2,037,753 1,926,081 5,812,837 5,592,161 Stock Option & Stock Award Compensation -- 68,025 -- 68,025 Corporate 296,118 223,643 953,007 651,607 Corporate expenses paid to affiliated management company 150,000 150,000 450,000 450,000 Depreciation & Amortization 483,061 228,235 1,574,146 685,426 Loss on Exchange of Assets -- -- -- 28,687 *Write Off of Deferred Warrant Expense -- 1,662,378 -- ----------- ----------- ----------- ----------- TOTAL OPERATING EXPENSES 2,966,932 2,595,984 10,452,368 7,475,906 ----------- ----------- ----------- ----------- LOSS FROM OPERATIONS (1,581,911) (1,377,531) (6,519,857) (3,591,351) Interest Income (41,196) (1,827) (211,387) (9,276) Interest Expense (103,598) 663,468 373,310 968,959 ----------- ----------- ----------- ----------- NET LOSS ($1,437,117) ($2,039,172) ($6,681,780) ($4,551,034) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- NET LOSS PER SHARE ($0.33) ($0.76) ($1.52) ($1.69) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Weighted Average Number of Shares Outstanding 4,470,500 2,696,500 4,470,500 2,696,500 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
* This write off is the result of the July 1996 decision by ABC Radio Networks, Inc. to terminate its joint operating agreement with the Company, effective October 1996. CHILDREN'S BROADCASTING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30 ------------------- 1996 1995 ---- ---- OPERATING ACTIVITIES: Net Loss ($6,681,780) ($4,551,034) Adjustments to Reconcile Net Loss to Net Cash Used In Operating Activities: Depreciation & Amortization 1,574,146 685,426 Trade Activity (93,059) 69,647 Stock Option & Stock Award Compensation 68,025 Interest Expense on Bridge Loan Warrants 309,251 641,907 Amortization and Write-Off of Deferred Warrant Expense 1,978,890 -- Decrease (Increase) in: Accounts Receivable (381,751) (165,174) Other Receivables (129,834) 4,853 Prepaid Expenses 430,971 (123,726) Inventory (4,839) (1,908) Increase (Decrease) in: Accounts Payable (61,775) 168,187 Accrued Interest (299,745) 321,683 Other Accrued Expenses 2,489 (244,375) ---------- ---------- NET CASH USED IN OPERATING ACTIVITIES (3,357,036) (3,126,489) ---------- ---------- INVESTING ACTIVITIES: Sale of Property & Equipment 3,460 209,770 Purchase of Property & Equipment (1,317,220) (141,659) Sale of Intangible Assets -- 514,254 Purchase of Intangible Assets (10,430,304) (112,213) ---------- ---------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (11,744,064) 470,152 ---------- ---------- FINANCING ACTIVITIES: Repayment of Capital Lease Obligation (73,607) (19,783) Proceeds from Short-Term Debt 900,000 Repayment of Short-Term Debt (5,450,000) Repayment of Long-Term Debt (204,135) (419,614) Proceeds from Long-Term Debt -- 2,904,629 Proceeds from Issuance of Common Stock 20,227,075 17,130 ---------- ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES 15,399,333 2,482,362 ---------- ---------- Increase in Cash 298,233 (173,975) Cash - Beginning of Period 587,292 243,733 ---------- ---------- CASH - END OF PERIOD $885,525 $69,759 ---------- ---------- ---------- ---------- Supplemental Disclosure of Cash Flow Information: Cash Paid During the Period for Interest $548,544 $47,569 ---------- ---------- ---------- ----------
Supplemental Disclosure of Non-Cash Investing and Financing Activities: In conjunction with the purchase of WJDM in the New York market, the Company recognized intangible assets and incurred long term debt of $1,072,284 through a non-competition agreement. Additionally, assets aggregating $2,670,871 were purchased by issuing 270,468 shares of common stock, and assuming debt of $518,192 which was subsequently paid off in July 1996. In conjunction with the purchase of WPWA in the Philadelphia market, the Company issued 79,052 shares of common stock in exchange for $500,000 in assets. A note payable of $250,000 was issued for real estate in Denver. CHILDREN'S BROADCASTING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 1996 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 nine month period ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the annual report or Form 10-KSB for the year ended December 31, 1995. NOTE 2--SIGNIFICANT TRANSACTIONS DURING 1996 The following significant transactions occurred during the first nine months of 1996 and are considered non-recurring: A. In January 1996, the Company obtained financing of $750,000 from lenders, evidenced by notes bearing an interest rate of 6% per annum, payable July 8, 1996. The Company also granted warrants to the lenders to purchase 57,500 shares of common stock at $13.00 per share. Proceeds from this financing were used in conjunction with the purchase of WJDM-AM in the New York market (see section F below). The note was subsequently paid off in July 1996. B. The Company effected a one-for-two reverse stock split effective for shareholders of record January 23, 1996. Management believes this action will enhance acceptability and marketability of the Company's stock by the financial community and investing public. C. In March 1996, the Company completed a public offering of 2.2 million shares of common stock at $10 per share. Proceeds from the Offering were used to acquire radio stations in the New York, Detroit and Philadelphia markets, to reduce debt and for working capital. D. With the proceeds obtained as a result of its public offering, the Company repaid $4,700,000 of principal on short term debt as well as approximately $408,000 of related interest. E. In June 1996, the Company purchased the assets of radio station WCAR-AM in Detroit, Michigan for $1.5 million cash. F. In June 1996, the Company purchased the stock of Radio Elizabeth, Inc. in order to obtain WJDM-AM in the New York market. The purchase price was $11,500,000, $2,500,000 of which was paid by the issuance of 270,468 shares of the Company's common stock. G. In July 1996, ABC Radio Networks, Inc. (ABC) terminated its joint operating agreement with the Company. Under the agreement, which was entered into during the fourth quarter of 1995, ABC agreed to provide the Company with services in connection with the sale of national advertising, affiliate development, research, marketing and promotion. At June 30, 1996, the Company wrote off $1,972,000 of deferred expenses previously recorded on the balance sheet relating to this agreement. H. In September 1996, the Company purchased the assets of radio station WAPA-AM in Philadelphia, Pennsylvania for $1,320,000 of which $500,000 was paid by the issuance of the Company's common stock. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995. REVENUE: The Company's total revenues increased 14% in the third quarter of 1996 to $1,385,000 compared to third quarter 1995 revenues of $1,218,000. For the first nine months, total revenues of $3,933,000 were $48,000 or 1% higher than the same period in 1995. Trade/Barter revenues decreased $123,000 during the third quarter of 1996 compared to the third quarter of 1995, while cash revenues increased $289,000 for the same period. Network revenues for the quarter increased 135% compared to the third quarter of 1995. OPERATING EXPENSES: Owned, Operated and LMA Station Expenses: General and administrative expenses increased 17% to $600,000 for the third quarter of 1996 from $511,000 during the same period of 1995, due to the addition of the Detroit and New York stations in June 1996. Expenses increased 3% in the nine months ended September 30, 1996 to $1,594,000 from $1,553,000 in the nine months ended September 30, 1995. Technical and programming expenses decreased $30,000 in the third quarter of 1996 from $290,000 in the third quarter of 1995 to $260,000. During the first three quarters of 1996, these expenses decreased $134,000 or 16% compared to the same period in 1995. The technical expenses have decreased as equipment has been upgraded, requiring less maintenance and repair, and programming expenses have been reduced as the Radio AAHS formatted stations are able to depend more fully on the network to provide their programming needs. Sales expenses decreased from $535,000 in the third quarter of 1995 to $391,000 in the third quarter of 1996, a decrease of 27%. For the first nine months of 1996, selling expenses of $1,073,000 were 25% lower than the same period in 1995, due primarily to the 57% reduction of trade/barter expenses during that time period. Increases in cash expenses for the period are due to the increase in billboard and print advertising used for clients as sales incentives. Commissions, which are accounted for in sales expense, vary with sales. Network Expenses: General and administrative expenses increased $29,000 in the third quarter of 1996 to $239,000 as compared to $210,000 for the same period of 1995. These expenses increased $219,000 or 47% for the first nine months of 1996 compared to the same period in 1995 due primarily to the monthly payment of $25,000 to ABC for services provided under the joint operating agreement which has now been terminated. General and administrative expenses have grown as the scope of the network's activities has increased. Programming expenses increased $64,000 to $220,000 in the third quarter of 1996 compared to $156,000 in the third quarter of 1995. For the first nine months, programming expenses increased 49% or $213,000 compared to the same period in 1995 due primarily to the implementation of an integrated telephone system designed to enhance programming and encourage active listener participation. There has also been an increase in programming salaries and an increase in remote live broadcasts which carry line charge, talent fee and rights fee expenses. Sales expenses in the third quarter of 1996 were $268,000 compared to $177,000 during the same period of 1995, a decrease of $91,000. Sales expenses decreased 8% to $696,000 in the first three quarters of 1996 compared to $761,000 in the same three quarters of 1995. These sales expenses relate to both advertising sales and affiliate relations sales. This decrease is due primarily to the reduction of advertising sales salaries as well as the reduction of travel and lodging expenses as a result of the Company utilizing the ABC advertising team under its joint operating agreement. With the termination of the joint marketing agreement with ABC, the Company will rebuild its advertising sales staff and discontinue paying ABC, which will result in increased sales expense and decreased general and administrative expenses. Commissions, which are accounted for in the sales expense, vary with sales. Marketing expenses were $60,000 during the third quarter of 1996 compared to $5,000 in the third quarter of 1995, while during the nine months ended September 30, 1996, marketing expenses increased $285,000 over the same period for 1995. The Company has begun to develop this department and anticipates expenses will remain at current levels as it becomes fully operational. Corporate charges were $446,000 in the third quarter of 1996 compared to $374,000 in the third quarter of 1995, representing an increase of 19%. Corporate charges increased 27% in the first nine months of 1996 over the same period in 1995. This increase is attributable to an increase in outside service fees including investor relations and professional fees related to stock, trademark and employee matters. Depreciation and amortization increased to $483,000 in the third quarter of 1996 from $228,000 in the third quarter of 1995. For the first nine months depreciation and amortization of $1,574,000 was $889,000 or 130% higher than the same period in 1995, due in part to the acquisition of the assets of the Denver station acquired in November 1995 and the acquisition of the assets of the Detroit and New York stations acquired in June 1996. Additionally, the value of the warrant to purchase the Company's common stock issued to ABC as part of a joint operations agreement was amortized throughout the first quarter of 1996 and written off in the second quarter of 1996. Net interest expense for the quarter decreased $806,000 as a result of the repayment of debt from the proceeds of the public offering. Net interest expense for the first three quarters of 1996 decreased 83% from $960,000 to $162,000. The net loss decreased 30% in the third quarter of 1996 to $1,437,000 down $602,000 from the third quarter of 1995. For the first nine months of 1996, the net loss of $6,682,000 was $2,131,000 or 47% higher than the same period in 1995. Much of this increased loss was due to the write off of the deferred warrant expense in conjunction with the termination of the joint operating agreement with ABC. Consistent with its business plan and network strategy, the Company anticipates that its coverage of the United States will continue to expand during the year either through affiliation or acquisition of additional radio stations. The Company expects to incur operating losses as such network expansion increases, and that the losses will continue throughout 1996 and 1997. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity, as measured by its working capital, was $908,000 at September 30, 1996 compared to negative working capital of $4,421,000 at December 31, 1995. The increase in net working capital during the first three quarters of 1996, was the result of the Company receiving net proceeds from a public offering of common stock and repaying approximately $4,500,000 of short term debt and related accrued interest. At present, the Company has experienced a cash working capital loss of approximately $300,000 per month. The Company anticipates that its network advertising and owned and operated station revenues will continue to fall short of expenses from operations for the remainder of 1996 and throughout 1997. Given the Company's cash balance as of September 30, 1996 of $886,000 and accounts receivable as of September 30, 1996 of $1,187,000, the Company must obtain financing by November 30, 1996. If the Company is not able to obtain proper financing or financing on terms acceptable to the Company, it may (a) be forced to reduce or terminate its operations, (b) curtail acquisitions or other projects, (c) sell current assets or (d) potentially default on obligations to creditors, all of which would be materially adverse to the Company's operations and prospects. The Company has signed a purchase agreement to acquire a radio station in the Chicago market in January 1997. This acquisition will require approximately $2 million of capital at the time of closing. The Company is seeking additional capital as noted above to complete this acquisition as well as to fund additional potential acquisitions and its working capital requirements through the end of 1996 and for 1997. No assurance can be given that the financing required for the acquisition in the Chicago market will be available, or if available, that the same will be on terms acceptable to the Company. Further, the acquisition is contingent upon approval by the Federal Communications Commission. The Company recently signed a commitment letter with Foothill Capital Corporation ("Foothill") to address the Company's working capital requirements. The transaction contemplated will provide the Company with working capital through (a) a $10,000,000 term loan to be collateralized by the assets of the Company, payable over four years at a rate of 2.75% above prime rate, (b) a $1,000,000 line of credit secured by the Company's accounts receivable and (c) a $4,000,000 acquisition facility secured by future assets acquired by the Company. Additionally, the Company will grant Foothill a warrant to purchase 50,000 shares of the Company's common stock. The Company will be required to pay various service and commitment fees as are standard within the industry. Substantially all due diligence has been completed and funding is expected to occur in November 1996 subject to customary lender closing conditions. Part of the Company's strategy for development and expansion of its network includes acquiring and/or operating radio properties in key U.S. markets. Financing will be required to fund future operations and the expansion of its radio network through acquisitions, including the acquisition of a radio station in the Chicago market, WAUR-AM. There can be no assurance that the above financing or any other such financing will be available to the Company when required, or if available, that it would be on terms acceptable or favorable to the Company. The Company is hopeful, however, the above described financing from Foothill will provide the financing needed to implement its strategy. The Foothill financing requires the Company to grant liens and security interests to the lender in substantially all of the assets of the Company. The Foothill financing may limit the Company's ability to incurr additional indebtedness in connection with future financings in the event future funding is required by the Company. The Foothill financing also requires the Company to meet various operating covenants and there can be no assurance that the Company will be able to perform in accordance with such covenants. Any additional capital the Company may require may necessitate the sale of equity securities, which could result in significant dilution to the Company's shareholders. Failure of the Company to obtain additional financing when required could materially and adversely affect its acquisition and operational strategy. Consolidated cash was $886,000 at September 30, 1996 and $587,000 at December 31, 1995, an increase of $299,000. The change in cash can be attributed to the cash raised at the completion of the public offering of common stock less the cash used to purchase stations in the Detroit, New York and Philadelphia markets and to pay back debt. Accounts receivable at September 30, 1996 increased $382,000 from $805,000 at December 31, 1995. Prepaid expenses at September 30, 1996 decreased $431,000 from December 31, 1995 while other receivables and inventory increased a total of $135,000. Accounts payable at September 30, 1996 decreased $62,000 to $688,000 compared to the $750,000 balance at December 31, 1995. Other accrued expenses at September 30, 1996 increased only $2,500 from December 31, 1995 and accrued interest decreased $300,000 in the first nine months of 1996. The increased amount of cash used for operations was a result of using the monies received through the Company's public offering of common stock to pay down interest and accounts payable. During the first nine months of 1996, $11,744,000 cash was used for investing activities. This cash was used to purchase stations in the New York, Detroit and Philadelphia markets. Cash obtained through financing activities amounted to $15,399,000 during the first three quarters of 1996. This cash represents the monies received from the Company's public offering of common stock 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. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company filed a lawsuit in the United States District Court for the District of Minnesota on September 26, 1996, against the Walt Disney Company and ABC Radio Networks, Inc., for injunctive relief and to recover significant damages for Defendants' alleged deliberate attempts to misappropriate the Company's unique radio programming format and force the Company out of the children's radio market. The Company alleges that ABC and Disney used their strategic relationship with the Company to obtain confidential business information of the Company which the Company alleges is being unlawfully used by ABC and Disney to develop and market a competing children's radio network in substantially the same format marketed by the Company. The Company also alleges that as part of its strategic relationship with the Company, ABC agreed to serve as the national advertising sales representative for the Company, had been responsible for all scheduling and billing of network commercial time on the Radio AAHS network, and further agreed to work with the Company to strengthen and expand the Radio AAHS network. The Company has alleged that ABC and Disney have gained an unfair competitive advantage at a time when they were serving in a capacity of trust, with a duty of loyalty to the Company, and engaged in other tortious conduct. The Company is seeking recovery of damages in excess of $50,000, and certain statutory damages, including legal fees, as well as injunctive relief. ITEMS 2 - 3. Not applicable. ITEM 4. (a) The following matters were submitted to a vote of security holders at the Company's annual meeting held on September 30, 1996. (b) The election of five directors to serve for the ensuing year and until their successors shall be qualified and duly elected.
Director Nominee For Withhold Broker Name Nominee Authority Non-Votes ---- ------- --------- --------- Christopher T. Dahl 4,466,231 16,349 0 Richard W. Perkins 4,466,231 16,349 0 Rodney P. Burwell 4,465,931 16,649 0 Mark Cohn 4,465,731 16,849 0 Russell Cowles II (1) 4,465,949 16,631 0
(c)(1) To approve an amendment to the Articles of Incorporation of the Company to increase the Company's authorized shares from 12,500,000 to 50,000,000 shares. 4,411,672 votes for the proposal 57,625 votes against the proposal 8,283 votes abstained on the proposal 5,000 broker non-votes (c)(2) To adopt the Company's 1996 Stock Purchase Plan. 2,820,093 votes for the proposal 45,721 votes against the proposal 7,475 votes abstained on the proposal 1,662,065 broker non-votes (c)(3) To approve an amendment to the Company's 1994 Stock Option Plan which increases the number of shares reserved thereunder for issuance of stock options from 250,000 to 1,000,000 shares. 2,422,203 votes for the proposal 438,873 votes against the proposal 12,213 votes abstained on the proposal 1,662,065 broker non-votes (c)(4) To ratify and approve the appointment of BDO Siedman, LLP as independent accountants for the fiscal year ending December 31, 1996. 4,458,237 votes for the proposal 14,915 votes against the proposal 9,428 votes abstained on the proposal 0 broker non-votes (1) Mr. Cowles' election as director is contingent upon the Company's ability to obtain a waiver from the Federal Communications Commission as to its rules regarding cross-ownership. ITEM 5. Not applicable. ITEM 6. (a) Exhibit 27 FINANCIAL DATA SCHEDULE (b) The Company filed the following documents with the Commission (File No. 0-21534) during the quarter for which this report is filed: (1) The Company's 8-K Report filed on July 3, 1996 (File No. 0-21534), relating to changes in the Company's certifying accountant; (2) The Company's 8-K Report filed on July 8, 1996 (File No. 0-21534), relating to the safe harbor for forward-looking statements; (3) The Company's 8-K Report filed on July 30, 1996 (File No. 0-21534), relating to ABC Radio Networks' termination of its joint operations agreement with the Company; and (4) The Company's 8-K Report filed on July 31, 1996 (File No. 0-21534), relating to the Company's engagement of Southcoast Capital Corporation. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf of the undersigned thereunto duly authorized. CHILDREN'S BROADCASTING CORPORATION Date: 11-13-96 BY: /s/ JAMES G. GILBERTSON ----------------- ------------------------------- Treasurer (Chief Operating Officer and Chief Financial Officer EX-27 2 EXHIBIT 27
5 0000882160 CHILDRENS BROADCASTING CORP 9-MOS DEC-31-1996 SEP-30-1996 885,525 0 1,241,642 (54,894) 78,885 2,723,780 5,697,293 (1,449,534) 26,178,415 1,815,633 0 2,367,587 0 115,515 41,963,086 26,178,415 1,385,021 1,385,021 0 2,037,753 929,179 0 (103,598) (1,437,117) 0 (1,437,117) 0 0 0 (1,437,117) (.33) 0
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