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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended March 31, 2000 |
OR
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________________ to ___________________
Commission file number: 0-27575
NETRADIO CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota | 41-1819471 | |
(State of incorporation or organization) | (I.R.S. Employer Identification No.) | |
43 Main Street, SE, Suite 149,Minneapolis, Minnesota |
55414 |
|
Address of principal executive offices) | (Zip Code) | |
(612) 378-2211 |
||
(Registrants telephone number, including area code) |
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. [X] Yes [ ] No
The number of shares outstanding of each of the registrants classes of capital stock, as of May 11, 2000 was: Common Stock, no par value, 10,011,700 shares.
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NETRADIO CORPORATION
Index
Part I. Financial Information | ||
Item 1. | Financial Statements | |
Balance Sheets - | ||
March 31, 2000 and December 31, 1999 | ||
Statements of Operations - | ||
Three months ended March 31, 2000 and 1999 | ||
Statements of Cash Flows - | ||
Three months ended March 31, 2000 and 1999 | ||
Notes to Condensed Consolidated Financial Statements March 31, 2000 | ||
Item 2. | Managements Discussion and Analysis of Financial Condition | |
and Results of Operations | ||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |
Part II. Other Information | ||
Item 1. | Legal Proceedings | |
Item 2. | Change in Securities and Use of Proceeds | |
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 | |
Signatures |
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PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
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NetRadio Corporation
Balance Sheets
March 31, | December 31, | ||||||||||||||
2000 | 1999 | ||||||||||||||
(Unaudited) |
|||||||||||||||
Assets | |||||||||||||||
Current assets: | |||||||||||||||
Cash and cash equivalents | $ | 6,517,595 | $ | 11,721,536 | |||||||||||
Short-term investments | 16,702,371 | 17,845,905 | |||||||||||||
Accounts receivable, less allowance for doubtful accounts of $60,000 at March 31, 2000 and $55,000 at December 31, 1999, respectively |
208,210 | 146,863 | |||||||||||||
Prepaid advertising | 970,955 | 802,793 | |||||||||||||
Prepaid expenses | 50,141 | 97,420 | |||||||||||||
Other current assets | 304,266 | 372,220 | |||||||||||||
Total current assets | 24,753,538 | 30,986,737 | |||||||||||||
Property and equipment, net | 3,150,822 | 2,626,227 | |||||||||||||
Note receivable officer | 63,349 | 62,141 | |||||||||||||
Goodwill, net | | 106,000 | |||||||||||||
Other assets | 120,254 | ||||||||||||||
$ | 28,087,963 | $ | 33,781,105 | ||||||||||||
Liabilities and shareholders equity | |||||||||||||||
Current Liabilities | |||||||||||||||
Accounts payable | $ | 1,886,150 | $ | 3,152,859 | |||||||||||
Accrued expenses | 569,993 | 853,435 | |||||||||||||
Deferred advertising revenue | 172,149 | 4,764 | |||||||||||||
Current maturities of capital lease obligation | 117,587 | 115,223 | |||||||||||||
Total current liabilities | 2,745,879 | 4,126,281 | |||||||||||||
Note payable | 9,596,827 | 9,596,827 | |||||||||||||
Capital lease obligations, less current portion | 59,331 | 89,630 | |||||||||||||
Shareholders equity: | |||||||||||||||
Preferred stock, | |||||||||||||||
Authorized shares - 10,000,000 | |||||||||||||||
Issued and outstanding shares none at March 31, 2000 and December 31, 1999 |
|||||||||||||||
Common stock, no par value; | |||||||||||||||
Authorized shares - 50,000,000 | |||||||||||||||
Issued and outstanding shares - 10,011,700 at March 31, 2000 and | |||||||||||||||
10,007,900 at December 31, 1999, respectively | 40,943,643 | 40,930,243 | |||||||||||||
Accumulated deficit | (25,257,717 | ) | (20,961,876 | ) | |||||||||||
Total shareholders equity | 15,685,926 | 19,968,367 | |||||||||||||
Total liabilities and shareholders equity | $ | 28,087,963 | $ | 33,781,105 | |||||||||||
See accompanying notes.
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NetRadio Corporation
Statements of Operations
Three Months Ending | ||||||||
March 31, | ||||||||
2000 | 1999 | |||||||
(unaudited) | ||||||||
Net revenues | ||||||||
Product sales | $ | 223,341 | $ | 95,497 | ||||
Internet advertising | 341,481 | 76,302 | ||||||
Total net revenues | 564,822 | 171,799 | ||||||
Cost of revenues | 197,907 | 91,546 | ||||||
Gross profit | 366,915 | 80,253 | ||||||
Operating expenses: | ||||||||
Operations and technical support | 2,522,364 | 804,104 | ||||||
Sales and marketing | 1,506,748 | 375,274 | ||||||
General and administrative | 773,923 | 1,529,214 | ||||||
Total operating expenses | 4,803,035 | 2,708,592 | ||||||
Loss from operations | (4,436,120 | ) | (2,628,339 | ) | ||||
Other (income) expenses | ||||||||
Interest (Income) | (361,252 | ) | | |||||
Interest Expense | 220,972 | 11,977 | ||||||
Net loss | $ | (4,295,840) | $ | (2,640,316) | ||||
Loss per share-basic and dilluted: | $ | (0.43 | ) | $ | (0.45 | ) | ||
Weighted average shares outstanding | 10,009,081 | 5,922,500 | ||||||
See accompanying notes
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NetRadio Corporation
Statements of Cash Flows
Three Months Ended | |||||||||||
March 31, | |||||||||||
2000 | 1999 | ||||||||||
(unaudited) | |||||||||||
Operating activities | |||||||||||
Net loss | $ | (4,295,840 | ) | $ | (2,640,316 | ) | |||||
Adjustment to reconcile net loss to net cash provided by (used in) operating activities: |
|||||||||||
Depreciation and amortization | 507,277 | 219,396 | |||||||||
Stock option compensation | | 879,625 | |||||||||
Change in operating assets and liabilities: | |||||||||||
Accounts receivable | (61,346 | ) | (51,984 | ) | |||||||
Prepaid expenses | (120,883 | ) | 150,000 | ||||||||
Trade accounts payable | (1,266,710 | ) | 289,030 | ||||||||
Accrued liabilities and other | (283,443 | ) | 110,584 | ||||||||
Deferred revenue | 167,385 | | |||||||||
Other assets | (52,300 | ) | (3,175 | ) | |||||||
Net cash used in operating activities | (5,405,860 | ) | (1,046,840 | ) | |||||||
Investing activities | |||||||||||
Note receivable officer | (1,208 | ) | (1,202 | ) | |||||||
Purchase of property and equipment | (925,872 | ) | (183,193 | ) | |||||||
Purchase of short-term investments | (10,717,583 | ) | | ||||||||
Sale of short-term investments | 11,861,117 | | |||||||||
Net cash provided by (used in) investing activities | 216,454 | (184,395 | ) | ||||||||
Financing activities | |||||||||||
Payment on capital lease obligations | (27,935 | ) | (18,343 | ) | |||||||
Deferred offering costs | | (326,973 | ) | ||||||||
Proceeds from stock issuances | 13,400 | | |||||||||
Advances from Navarre | | 1,598,141 | |||||||||
Net cash provided by (used in) financing activities | (14,535 | ) | 1,252,825 | ||||||||
Net (decrease) increase in cash and cash equivalents | (5,203,941 | ) | 21,590 | ||||||||
Cash and cash equivalents at beginning of period | 11,721,536 | 50,756 | |||||||||
Cash and cash equivalents at end of period | $ | 6,517,595 | $ | 72,346 | |||||||
See accompanying notes
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NETRADIO CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. They should be read in conjunction with the financial statements for the year ended December 31, 1999 included in the Companys 1999 10K. In the opinion of management, the interim condensed financial statements include all adjustments (consisting of normal recurring accruals) necessary for the fair presentation of the results for interim periods presented. Operating results for the three months ended March 31, 2000 are not necessarily indicative of the operating results for the year ending December 31, 2000.
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Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
GENERAL
We are a leading broadcaster of originally programmed audio entertainment over the Internet through our Web site, www.netradio.com. We use content to attract a large, diverse audience and retain them on our site for extended periods of time. In March 2000, over 2.5 million unique listeners accessed our more than 100 channels of music and information on demand, available 24 hours a day, seven days a week, and spent an average of 1 1/2 hours per daily visit.
The site connects music enthusiasts with 15 interactive music lifestyle communities ranging from Jazz, Modern Rock and New Age to Vintage Rock, Country and Classical. With our on-screen player, listeners can see the title and artist of every song as it plays. Users can simply click at any time to seamlessly purchase what theyre hearing from an inventory of more than 250,000 music titles and 1 million sound samples at our on-line music store.
Through our music and information channels, we provide our advertising and marketing partners the ability to reach focused segments of users defined by specific demographic and lifestyle characteristics. In addition, our site allows advertisers to utilize the combined strength of audio messaging with banner advertising, thus closing the loop between message and action.
RESULTS OF OPERATIONS
Net Revenues
Net revenues consist of product sales and Internet advertising revenues. Net revenues increased to $565,000 for the three months ended March 31, 2000 from $172,000 for the three months ended March 31, 1999, a 228% increase. The increase in revenues over the prior year was mostly attributable to the increase in traffic to the site. Unique listeners grew by 127% to 2.5 million at March 31, 2000 from 1.1 million at March 31, 1999.
Product Sales. Product sales include sales of audio merchandise, including shipping and handling costs. Product sales for the three months ended March 31, 2000 were $223,000 compared with $95,000 for the three months ended March 31, 1999, an increase of 134%. The increase in product sales over the prior year was due to the increase in site traffic coupled with an increase in our shopper and buyer conversion rates.
Internet Advertising. Internet advertising revenues reflect audio and banner advertising sales as well as promotional advertising revenues. Internet advertising revenues for the three months ended March 31, 2000 were $341,000 compared to $76,000 for the three months ended March 31, 1999, an increase of 348%. The increase in advertising revenue was due to more available ad inventory resulting from the greater site traffic, higher sell through and an increase in average CPM rates.
Cost of Revenues
Cost of revenues primarily consists of the cost of audio merchandise that we sell, including fulfillment costs through third party vendors which ship directly to our customers, and include costs incurred in connection with the development of specific advertising or promotional campaigns. Costs of revenues increased to $198,000 for the three months ended March 31, 2000 from $92,000 for the three months ended March 31, 1999. The increase in cost of revenues was due to the increased product sales associated with our online music store.
Operating Expenses
Operations and Technical Support. Operations and technical support expenses consist primarily of data communications expenses, personnel expenses associated with broadcasting, software and content license fees, operating supplies and overhead. Operations and technical support expenses were $2,522,000 for the three months ended March 31, 2000, compared to $804,000 for the three months ended March 31, 1999. The increase in operations and technical support expenses were due primarily to the increase
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in bandwidth costs associated with our growth in traffic and building of the technology and personnel infrastructure necessary to meet listener demand and provide e-commerce opportunities to listeners.
Sales and Marketing. Sales and marketing expenses consist primarily of personnel expenses associated with Internet advertising and the marketing of our Web site. Sales and marketing expenses were $1,507,000 for the three months ended March 31, 2000, compared to $375,000 for the three months ended March 31, 1999, an increase of 304%. The increase in sales and marketing expenses was due primarily to $1 million in online advertising incurred for the three months ended March 31, 2000 that did not occur in the prior year period.
General and Administrative. General and administrative expenses consist primarily of administrative personnel expenses, professional fees, goodwill amortization, and expenditures for facility costs. General and administrative expenses were $774,000 for the three months ended March 31, 2000, compared to $1,529,000 for the three months ended March 31, 1999. The decrease in general and administrative expenses was due to the recognition of $880,000 in the three months ended March 31, 1999, in non-cash compensation expense associated with the issuance of stock options to employees and directors with exercise prices below the estimated fair market value of our common stock on the date of grant that did not occur in the three months ended March 31, 2000, offset by increases in costs associated with adding key personnel and building infrastructure.
Interest expense for the three months ended March 31, 2000 was $221,000, compared to $12,000 for the three months ended March 31, 1999. The increase was due to interest expense associated with the Navarre Corporation note payable that was not in place in the prior year period.
LIQUIDITY AND CAPITAL RESOURCES
Since inception we have incurred significant net losses primarily due to the costs of developing our infrastructure, and hiring management and personnel to establish our audio channels and programming.
The Company had working capital of $22 million at March 31, 2000, compared to working capital of $26.9 million at December 31, 1999.
Net cash used in operating activities was $5,406,000 and $1,047,000 for the three months ended March 31, 2000 and 1999, respectively. Net cash used in operating activities for the three months ended March 31, 2000 was primarily comprised of our net losses and a decrease in accounts payable and accrued expenses, offset in part by depreciation and amortization.
Accounts receivable grew to $208,000 at March 31, 2000 from $147,000 at December 31, 1999 and consisted primarily of agency-placed advertising revenue accounts. Advertising revenues placed by an agency typically are collected in 60 to 90 days. We expect advertising revenue accounts generally to be collected within 60 to 90 days in the future.
The increase in prepaid advertising to $971,000 at March 31, 2000 from $803,000 at December 31, 1999 was primarily due to required prepayments of future consumer and trade advertising placements.
The decrease in accounts payable to $1,886,000 at March 31, 2000 from $3,153,000 at December 31, 1999 was due primarily to payments for capital expenditures and other business expenses that became due in the quarter ended March 31, 2000.
We generated $216,000 and used $185,000 in net cash from investing activities for the three months ended March 31, 2000 and 1999, respectively. The $216,000 in net cash provided by investing activities for the three months ended March 31, 2000 was the net result of short-term investment purchases and sales offset by the purchases of property and equipment. We used $185,000 in net cash for investing activities for the purchase of property and equipment for the three months ended March 31, 1999.
We used net cash in financing activities of $15,000 and generated $1,253,000 in net cash from financing activities for the three months ended March 31, 2000 and 1999, respectively. Net cash provided by financing activities for the three months ended March 31, 1999 was primarily due to the $1,598,000 in advances from Navarre.
We believe that the net proceeds from our October 14, 1999 initial public offering, together with our current cash and cash equivalents, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for the next 12 months. To fund future operations, we may need to raise additional funds, through public or private financing, or other arrangements. There
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can be no assurance that additional financing, if needed, will be available on terms attractive to us, if at all. Our failure to raise capital when needed could have a material adverse effect on our business, results of operations and financial condition. If additional funds are raised through the issuance of equity securities, the percentage ownership of our then current shareholders will be reduced. Furthermore, these equity securities might have rights, preferences or privileges senior to those of our common stock.
Cautionary Statement
This Form 10-Q contains forward-looking statements within the meaning of federal securities laws. These statements include statements regarding intent, belief, or current expectations of the Company and its management. These forward-looking statements are not guarantees of the future performance and involve a number of risks and uncertainties that may cause the Companys actual results to differ materially from the results discussed in these statements. These risks and uncertainties, together with certain other factors, are discussed in the Risk Factor section of our prospectus dated October 14, 1999 (Reg. Statement No. 333-73261).
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have no derivative financial instruments or derivative commodity instruments. We invest our cash and cash equivalents and marketable securities in investment grade, highly liquid investments, consisting of money market instruments, bank certificates of deposit, overnight investments in commercial paper, and short term government and corporate bonds.
We are exposed to market risk from changes in the interest rate on borrowings under our term note that bears interest from time to time at prime plus 0.5%. We do not believe that changes in interest rates on the maximum borrowings outstanding under this term note would have a material effect on our results of operations or liquidity.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Change in Securities and Use of Proceeds
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 are included
3.1 Articles of Incorporation, as amended (1)
3.2 Bylaws (1)
27 Financial Data Schedule
(1) Incorporated by reference to the
Registrations
previously filed Form S-1 Registration Statement
No. 333-73261
B. Report on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: _5/11/00_ | NETRADIO CORPORATION | |
By /s/ Edward A Tomechko | ||
Edward A. Tomechko Chief Executive Officer and President (Principal Executive Officer) |
||
By /s/ Michael P. Wise | ||
Michael P. Wise Chief Financial Officer and Vice President (Principal Financial and Accounting Officer) |
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