Date Filed: March 23, 1999 SEC File No.333-72097
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
AMENDMENT NO. 1 TO FORM SB-2
Registration Statement Under the Securities Act of 1933
AMERICAN COMMUNICATIONS ENTERPRISES, INC.
(Exact Name of Issuer as Specified in Its Charter)
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Nevada 4832 74-2897368
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State of Incorporation Primary Standard I.R.S. Employer
Industrial Identification Number
Classification Code
Number
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7103 Pine Bluffs Trail, Austin, TX 78729 (512) 249-2344
(Address and Telephone Number of Issuer's Principal Offices and Place
of Business)
Corporate Service Center, Inc.
1475 Terminal Way
Suite E
Reno, Nevada 89502
( ) -
(Name, Address and Telephone Number of Agent for Service)
Approximate date of proposed sale to the public: As soon as this Registration
Statement becomes effective.
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the Prospectus is expected to be made pursuant to
Rule 434, please check the box. |_|
CALCULATION OF REGISTRATION FEE
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Title of Amount to Proposed Proposed Amount of
class of be Maximum maximum Registration
securities registered offering aggregate Fee
to be price per offering
registered unit price
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Common Stock 11,000,000 $0.05 $550,000 $162.25
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The registrant hereby amends this registration statement on such date oar dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a) ,
may determine.
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PROSPECTUS
AMERICAN COMMUNICATIONS ENTERPRISES, INC
Maximum of 11,000,000 shares of common stock
Price per share: $0.05.
Total proceeds if maximum sold: $550,000.
This is American Communications's initial public offering so there is no public
market for American Communications's shares. However, we hope to have prices for
our shares quoted on the bulletin board maintained by the National Association
of Securities Dealers after we complete our offering.
An investment in American Communications is risky, especially given the young
age of our company. Only people who can afford to lose the money they invest in
American Communications should invest in our shares. A full discussion of the
risks of owning our shares begins at page 2 of this Prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of our shares or determined if this
prospectus is truthful of complete. Any representation to the contrary is a
criminal offense.
Price to Public Underwriting DiscouProceeds to Issuer
and Commissions or other Persons
Per Share $0.05 None $0.05
Total Maximum $550,000 None $550,000
We will probably sell the shares ourselves and do not plan to use underwriters
or pay any commissions. We will be selling our shares using our best efforts and
no one has agreed to buy any of our shares. There is no minimum amount of shares
we must sale so no money raised from the sale of our stock will go into escrow,
trust or another similar arrangement. We expect to end our offering no later
than June 30, 2000.
The information in this Prospectus is not complete and may be changed. We may
not sell our shares until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to sell
our shares and it is not soliciting an offer to buy our shares in any state
where the offer or sale is not permitted.
March 22, 1999
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SUMMARY OF THE OFFERING...........................................1
RISK FACTORS......................................................2
Development stage company...................................2
Failure of American Communications to remain a going concern2
Operating losses............................................2
No assurances of radio station acquisitions.................3
Lack of diversification.....................................3
No assurance of continued programming acceptance of radio stations desired
to be purchased........................................3
"Best efforts" offering.....................................4
Dependence on marketing and promotion.......................4
Dependence on management....................................4
FCC regulation regarding radio broadcasting.................5
Voting control by management................................5
Compensation of officers....................................5
Dilution....................................................5
Shares Available For Resale Under Rule 144..................6
No dividends on common stock................................6
Illiquidity of investment in shares.........................6
Penny stock regulation......................................6
USE OF PROCEEDS...................................................7
DETERMINATION OF OFFERING PRICE..................................10
DILUTION.........................................................11
PLAN OF DISTRIBUTION.............................................11
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.....12
SECURITIES OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT...........................14
DESCRIPTION OF SECURITIES........................................14
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES.............15
DESCRIPTION OF BUSINESS..........................................16
MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.........21
DESCRIPTION OF PROPERTY..........................................34
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................34
MARKET FOR COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS................................34
EXECUTIVE COMPENSATION...........................................36
FINANCIAL STATEMENTS.............................................36
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SUMMARY OF THE OFFERING
THE COMPANY: American Communications is a recently incorporated
Nevada corporation. American Communications expects
to develop music programming products for use on both
radio stations and the Internet and to locate radio
stations for possible acquisition. American
Communications' goal is to acquire, consolidate and
operate small-to-medium sized market radio stations,
initially in Texas, and then in other geographic
regions of the United States. With the proceeds of
this offering, American Communications plans
to build the studios necessary to create this music
programming and to sign letters of intent on as many
as four (4) radio stations in Texas. American
Communications maintains its executive offices at 7103
Pine Bluffs Trail, Austin, Texas 78729, telephone
number (512) 249-2344.
SECURITIES OFFERED: Up to a maximum of 11,000,000 shares of common stock,
no par value per share. The shares are offered at
$0.05 per share for total gross offering proceeds of
$550,000.
SHARES OF COMMON 10,500,000 shares
STOCK OUTSTANDING
BEFORE OFFERING:
SHARES OF COMMON 21,500,000 shares
STOCK OUTSTANDING
AFTER OFFERING,
ASSUMING MAXIMUM
AMOUNT SOLD:
TERMS OF THE OFFERINGThere is no minimum offering. Accordingly,
as shares are sold, American Communications will use the
money raised for its activities. The offering will remain
open until June 30, 2000, unless American Communications
decides to cease selling efforts prior to this date.
USE OF PROCEEDS: American Communications intends to use the net
proceeds of this offering primarily for creation of music
programming services, station acquisitions and for working
capital and general corporate purposes.
PLAN OF DISTRIBUTION: This is a best efforts underwriting, with no commitment
by anyone to purchase any shares. The shares will be
offered and sold by American Communications' principal
executive officers and directors, although American
Communications may retain the services of one or more
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NASD registered broker-dealers as selling agent(s) to
effect offers and sales on behalf of American
Communications.
RISK FACTORS
An investment in the shares involves a high degree of risk, including a
risk of loss of an investor's entire investment in American Communications.
Prospective investors should consider carefully, in addition to the other
information contained in this prospectus, the following risk factors before
purchasing any shares.
Development stage company. American Communications was incorporated in
October 1998, and is, therefore, a development stage company with no operating
history or revenues. American Communications needs to receive substantially all
of the maximum proceeds
of this offering to proceed with its business plan and will require substantial
additional capital, for which no agreements or arrangements are currently in
place, to implement its business plan. If additional capital is not subsequently
available, American Communications and its planned operations could be
materially adversely affected. No assurances can be given that American
Communications' business will ultimately be successful or that American
Communications will ever be or remain profitable.
Failure of American Communications to remain a going concern. American
Communications' independent certified public accountants have pointed out that
American Communications has an accumulated deficit and negative working capital
such that its ability to continue as a going concern is dependent upon obtaining
additional capital and financing for its planned principal operations. American
Communications is conducting this offering to generate the capital necessary to
finance at least its initial operations. As a result, American Communications'
ability to continue as a going concern is dependent upon it receiving the
maximum proceeds of this offering and securing additional conventional
financing.
Operating losses. As with most development stage companies, American
Communications has experienced losses since inception. As set forth in American
Communications' financial statements, the total stockholders' deficit of
American Communications is -$70,730 such that American Communications is
currently essentially insolvent. If only limited funds are raised in this
offering, the risk of financial failure by American Communications is high.
American Communications has been dependent upon loans from members of management
in the aggregate amount of $6,140, to sustain its development activities to
date. In American Communications' discretion, if American Communications
receives the Maximum Proceeds, the entire principal amount of this loan,
including interest, may be repaid.
No assurances of radio station acquisitions. While American Communications
has targeted approximately 4 radio stations in the state of Texas for
acquisition over approximately the next six (6) months after the effective date
of this Prospectus, no assurances are given that American Communications will be
successful in acquiring any of such radio stations. While American
Communications' management has had and continues to have ongoing discussions
with the owners of such stations who have expressed a
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willingness to sell such stations to American Communications, American
Communications does not currently have any binding agreements or understandings
concerning the acquisition of any radio stations. The acquisition of radio
stations will require significant funding beyond the proceeds sought in this
offering, for which there are no financing arrangements currently in place.
While American Communications believes that the radio stations it has currently
targeted in the Texas market are not currently being targeted by radio
consolidation companies having significantly greater financial and other
resources than American Communications in view of their focus on larger markets,
no assurances are given that such companies may not in fact target the specific
radio stations that American Communications is currently targeting and acquire
one or more of such stations prior to American Communications' ability to close
on any of such transactions. In the event of American Communications' inability
to acquire one or more of the radio stations currently sought, American
Communications will seek to acquire one or more other radio stations in
small-to-medium sized markets in other areas of the United States. Management
has not, as of this time, expended any significant time, effort or resources in
reviewing or analyzing other potential radio station candidates for acquisition
in other parts of the United States and therefore, would have to devote
significant time and energy to do so.
Lack of diversification. If American Communications is successful in
selling the maximum number of shares offered, American Communications will only
have enough money to obtain rights to a handful of radio stations. As a result,
American Communications will have no real diversification of operations, at
least initially. This will mean that American Communications' fortunes will
depend significantly upon the performance of a limited number of formats; if the
public does not like American Communications' few radio stations, American
Communications will not succeed.
No assurance of continued programming acceptance of radio stations desired
to be purchased. American Communications has conducted only limited market
research concerning consumer tastes and preferences in the
markets of the radio stations it intends to acquire and does not anticipate
conducting any significant marketing research, studies or surveys itself on a
going forward basis. Instead, American Communications has relied and will
continue to rely upon the programming currently aired by such stations due to
their perceived success as evidenced by the marketing success these stations
have enjoyed, as well as industry research firms and their published data
regarding industry and market trends in those geographic areas where it plans to
operate and acquire radio stations when and where applicable. Due to changes in
consumer taste and preferences, there can be no assurance that any programming
continued by American Communications or introduced will continue to or otherwise
achieve any significant degree of market acceptance, or that such acceptance
will be sustained for any significant period. Failure to sustain or achieve
market acceptance would have a material adverse effect on American
Communications' operating results and financial condition as American
Communications' revenues from advertising will undoubtedly will be adversely
impacted.
"Best efforts" offering This offering is being conducted on a "best
efforts" basis. As such, no assurances are given as to what level of proceeds,
if any, will be obtained. In the event American Communications fails to obtain
all or substantially all of the proceeds sought in
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this offering, its ability to effectuate its business plan will be materially
adversely effected, and investors may lose all or substantially all of their
investment. No assurances are given that the subscription proceeds that may be
received by American Communications will be sufficient to sustain the operations
of American Communications prior to its anticipated receipt of revenues from
advertisers.
Dependence on marketing and promotion . American Communications plans to
market and promote its stations as unique and "fun to listen to" in their
respective markets with the goal to increase station awareness and "dial
position recognition" among retailers, buyers and listeners. American
Communications expects to market and promote its stations through its own sales
and marketing personnel as well as through advertising in recognized trade
publications and on a proposed Internet web site. Depending upon the level and
timing of funding received in this offering, such marketing and promotional
efforts will commence by the end of second or third quarter, 1999. No assurances
are given that such marketing and promotional efforts will prove or continue to
be successful.
Dependence on management. American Communications' future success is
materially dependent on the continued services of Mr. Dain Schult, its chief
executive officer, president and chairman of the board, who intends to devote
full time to the business of American Communications and of Mr. Robert Ringle,
its chief marketing officer and vice president, who also intends to devote full
time to the affairs of American Communications. American Communications' success
is also dependent on its ability to attract, motivate and retain
highly-qualified employees. The loss of the services of Mr. Schult or Mr. Ringle
could have a material adverse effect upon American Communications' business and
operations until a suitable replacement may be located, of which no assurances
are given. While American Communications intends to obtain key man life
insurance on each of Mr. Schult and Mr. Ringle for approximately $1,000,000,
with American Communications to be named as beneficiary, no assurances are given
that such insurance will in fact be obtained.
FCC regulation regarding radio broadcasting. The Federal Communications
Commission ("FCC" or "Commission") is the federal regulatory body that oversees
the operation of all radio and television stations in the United States. The
Commission is responsible for granting licenses to all stations and insuring
that its rules and regulations are complied with at each station. In both the
license renewal process and the license transfer process which takes place when
a company buys a radio station from a current owner (and license holder), the
Commission is interested in knowing the makeup of the station ownership.
Although American Communications is not aware or any reason the FCC should fail
to approve the transfer of any radio stations to American Communications, if the
FCC failed to approve a proposed acquisition of a radio station by American
Communications, American Communications' ability to effectively complete its
business plan will be jeopardized.
Voting control by management. After completion of this offering, assuming
all of the shares offered hereby are sold, management of American
Communications, inclusive of its board of directors, will own 10,500,000 shares
of American Communications' outstanding common stock. Thus, management will
control approximately 49% of the voting securities of American Communications if
all shares offered hereby are sold, without giving
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effect to (i) any stock option plan if adopted by management and approved by a
majority of the shareholders or (ii) any additional issuances of common stock or
other securities of American Communications to management and/or others, in
management's sole discretion. As a result, management of American Communications
will effectively control the affairs of American Communications, including the
election of all of its board of directors, the issuance of additional shares of
common stock for a stock option plan or otherwise, the distribution and timing
of dividends, if any, and all other matters.
Compensation of officers.
Because Messrs. Schult and Ringle collectively will own at least 49% of American
Communications, they will continue to control the board of directors of American
Communications. As a result, Messrs. Schult and Ringle will be entitled to
establish the amount of their own compensation, including the amount of any
bonuses paid to them. In addition, because American Communications does not have
any independent directors, there will be no oversight of the reasonableness of
any bonuses paid to Messrs. Schult or Ringle.
Dilution. American Communications is authorized to issue a substantial
number of shares of common stock in addition to the shares comprising the shares
offered hereby, as well as potentially shares of preferred stock in such series
and with such designating rights and preferences as may be determined by
American Communications' board of directors in its sole discretion. American
Communications will require significant additional financing to fully implement
its business plan, which funding could entail the issuance of a substantial
number of additional securities which could in turn cause material dilution to
investors in this offering.
This offering itself involves immediate and substantial dilution to
investors. Any securities issuances in the future, including issuances to
management, could reduce the proportionate ownership, economic interests and
voting rights of any holders of shares of American Communications' common stock
purchased in this offering.
Shares Available For Resale
Under Rule 144. All of American
Communications' presently outstanding
shares of common stock, aggregating
10,500,000 shares of common stock, are
"restricted securities" as defined under Rule 144 promulgated under the
Securities Act and may only be sold pursuant thereto or otherwise pursuant to an
effective registration statement or an exemption from registration, if
available. Rule 144, as amended, generally provides that a person who has
satisfied a one year holding period for such restricted securities may sell,
within any three month period (provided American Communications is current in
its reporting obligations under the Exchange Act) subject to certain manner of
resale provisions, an amount of restricted securities which does not exceed the
greater of 1% of a company's outstanding common stock or the average weekly
trading volume in such securities during the four calendar weeks prior to such
sale. Messrs. Schult and Ringle, American Communications' principal executive
officers, own an aggregate of 10,500,000 restricted shares for which the one
year holding period expires on October 30, 1999. A sale of shares by such
security holders, whether pursuant to Rule 144 or otherwise, may have a
depressing effect upon the price of American Communications' common stock in any
market that might develop.
No dividends on common stock.
American Communications intends for the
foreseeable future to retain earnings, if any,
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for the future operation and expansion of its business and does not anticipate
paying dividends on its shares of common stock for the foreseeable future.
Illiquidity of investment in shares. There is currently no market for any
of American Communications' shares and no assurances are given that a public
market for such securities will develop or be sustained if developed. While
American Communications plans following the termination of this offering to take
affirmative steps to request or encourage one or more broker/dealers to act as a
market maker for American Communications' securities, no such efforts have yet
been undertaken and no assurances are given that any such efforts will prove
successful. As such, investors may not be able to readily dispose of any shares
purchased hereby.
Penny stock regulation. Broker-dealer practices in connection with
transactions in "penny stocks" are regulated by certain penny stock rules
adopted by the Commission. Penny stocks generally are equity securities with a
price of less than $5.00. The penny stock rules require a broker-dealer, prior
to a transaction in a penny stock not otherwise exempt from the rules, to
deliver a standardized risk disclosure document that provides information about
penny stocks and the risks in the penny stock market. The broker-dealer also
must provide the customer with current bid and offer quotations for the penny
stock, the compensation of the broker-dealer and its salesperson in the
transaction, and monthly account statements showing the market value of each
penny stock held in the customer's account. In addition, the penny stock rules
generally require that prior to a transaction in a penny stock, the
broker-dealer make a special written determination that the penny stock is a
suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for a stock
that becomes subject to the penny stock rules. As American Communications'
shares immediately following this offering will likely be subject to such penny
stock rules, investors in this offering will in all likelihood find it more
difficult to sell their securities.
USE OF PROCEEDS
The net proceeds to American Communications from the sale of the Shares
offered hereby, assuming all of the Shares offered hereby are sold, of which no
assurances are given, are estimated to be $450,000, giving effect to the
estimated expenses of the Offering of approximately $50,000 and exclusive of
selling commissions, if any.
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The following table sets forth the anticipated use of the net proceeds of
this Offering in the event that all 11,000,000 Shares offered hereby are sold.
American Communications may not be able to sell all of the Shares and thus
generate $550,000. The receipt by American Communications of no or nominal
proceeds will have a material adverse effect upon American Communications and
investors.
The entry in the table for station purchase options are amounts that would
be paid to existing station owners giving American Communications 180 days to
arrange financing to purchase the stations or to put into place leases on the
stations that are acceptable by the FCC. These amounts will be paid to
non-affiliated third-parties. The entry below for administrative costs includes
costs expected to be incurred for leasing office space, furniture, fixtures,
equipment, licensing agreements to use certain broadcast programing, office
expenses, long distance calls, and related expenses.
Programming Development $ 50,000
Station Purchase Options $130,000
Administrative Costs $123,360
Repay Loan Made by President
to American Communications $ 6,140
Salary to President of American
Communications $ 63,000
Salary to Vice President of
American Communications $ 57,500
Working Capital $ 70,000
Offering Costs $ 50,000
Total Offering Proceeds $550,000
Because American Communications presently anticipates selling the shares
strictly through the efforts of its officers and directors, the above numbers do
not include any deductions for selling commissions. If broker/dealers are used
in the sale of the shares, up to 10% of any gross proceeds raised in this
offering will probably be payable to one or more NASD registered broker-dealers.
In such event, net proceeds to American Communications will be decreased and the
use of proceeds may be proportionately reallocated in management's sole
discretion. Concurrent with this offering, American Communications may seek to
obtain debt financing in the form of senior bank debt as well as subordinated
seller financing from the radio station owners. In the event of American
Communications' receipt of any such debt financing, American Communications may
seek to convert a part of such debt financing to shares of American
Communications' common stock
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or some other class of securities which may have a dilutive effect on investors
in this offering. There are no current agreements, arrangements or other
understandings in connection with any of the foregoing.
American Communications may borrow relatively small amounts from various
persons to pay expenses while this offering is completed. American Communication
anticipates that the agreements by which these funds may be borrowed may provide
that the persons who loan the money may have the right to convert the amounts
due to them into common stock of the Company on the basis of 1 share of common
stock for each $0.05 loaned. If the lenders decide to convert their debt into
common stock, the Company may issue shares of the common stock offered hereby to
the lenders in satisfaction of the loan agreements on the basis of one share of
common stock for each $0.05 of debt so converted. In the alternative, the
Company may take part of the proceeds of the offering to pay these debts.
In the event American Communications' receives the Maximum Proceeds of
$550,000, management believes that the net proceeds therefrom, together with
anticipated funds from operations, will provide American Communications with
sufficient funds to meet American Communications' cash requirements for
approximately twelve (12) months following the receipt of this maximum amount.
This will provide the necessary funding for creation of the music programming
services and provide the initial capital necessary to locate additional
potential station acquisitions. In such event, management believes American
Communications will in all likelihood only have sufficient funds to commence
production of Internet music programming and possibly certain other Internet
products as well as establishing a FCC-acceptable lease of the initially
proposed station acquisitions. If American Communications' receives net proceeds
in amounts less than the maximum proceeds, this twelve month time frame will be
diminished and American Communications' business operations will be curtailed to
an extent not presently determinable by Management. The receipt of no or nominal
proceeds will have a material adverse effect upon American Communications and
investors. No assurances are given that American Communications will sell any of
the shares offered hereby, or raise any proceeds or consummate any other
financing.
If American Communications receives less than the maximum proceeds,
American Communications' only two employees, its president/chief executive
officer and the vice president/chief marketing officer have agreed in principle
to temporarily reduce their salaries until such time as American Communications
may be in a financial position to commence full payment of their salaries.
Specifically, the president and vice president of American Communications
understand that until American Communications has sold shares in this offering,
it is not likely that the president and vice president will receive any
salaries. The president and vice president also understand and have agreed to
provide services to American Communications for up to six months without
expecting to receive any salaries. However, if American Communications is
successful in completing this offering prior to the end of this six month
period, the president and vice president would be paid a salary and accrued back
salary. Given the annual salaries promised to the president and vice president,
American Communications may be required to devote up to a total of $120,500 to
this six months of salary. None of the offering proceeds that American
Communications may receive will be used to make loans to officers, directors
and/or
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affiliates.
The estimated allocation of net proceeds of this offering set forth above
is based upon American Communications' present plans and its assumptions and
estimates regarding its intended operations, anticipated expenditures and
revenues and general economic and broadcast industry conditions. The actual
allocation of net proceeds of this offering may be shifted at the discretion of
American Communications' board of directors, if American Communications'
assumptions and estimates concerning anticipated expenditures and revenues prove
to be inaccurate. The allocation may also be changed if problems, expenses and
delays frequently encountered in growing a new business within the radio
industry, implementing new business strategies, as well as changes in the
economic climate and/or American Communications' planned business operations are
experienced by American Communications.
Proceeds not immediately required for the foregoing purposes will be
invested principally in federal and/or state government securities, short-term
certificates of deposit, money market funds or other short term interest-bearing
investments as well as repay Mr. Schult for his loan of $6,140 to American
Communications.
DETERMINATION OF OFFERING PRICE
There is no established public market for the shares of common stock being
registered. As a result, the offering price and other terms and conditions
relative to the shares of common stock offered hereby have been arbitrarily
determined by American Communications and do not necessarily bear any
relationship to assets, earnings, book value or any other objective criteria of
value. In addition, no investment banker, appraiser or other independent, third
party has been consulted concerning the offering price for the shares or the
fairness of the price used for the shares.
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DILUTION
At December 31, 1998, American Communications had a net tangible book
value of - $70,730. The following table sets forth the dilution to persons
purchasing shares in this offering without taking into account any changes in
the net tangible book value of American Communications, except the sale of
11,000,000 shares at the offering price and receipt of $550,000, less offering
expenses. The net tangible book value per share is determined by subtracting
total liabilities from the tangible assets of American Communications divided by
the total number of shares of common stock outstanding.
December 31, 1998 11,000,000 shares
sold
Public offering price n/a $0.05
per share
Net tangible book <0 n/a
value per share of
common stock before
the offering(1)
Pro forma net tangible n/a $0.02
book value per share
of common stock after
the offering
Increase to net n/a at least $0.02
tangible book value
per share
attributable to
purchase of common
stock by new investors
Dilution to new n\a $0.03
investors
(1) American Communications' net tangible book value per share is determined
by dividing the number of shares of Common Stock outstanding into the net
tangible book value of American Communications and is significantly less
than zero prior to this offering.
PLAN OF DISTRIBUTION
American Communications is offering up to a maximum of 10,000,00 shares at
a price of $0.05 per share to be sold by its executive officers and directors
namely, Messrs. Schult and Ringle. If the shares are sold through its executive
officers and directors, no compensation will be paid with respect to such sales.
However, American Communications may retain a NASD registered broker-dealer to
act as the selling agent in connection with all or part of this offering and
will pay a cash commission of up to an aggregate of 10% of the proceeds of this
offering. Since the offering is conducted on a "best efforts" basis, there is no
assurance that any of the shares offered hereby will be sold.
The offering will remain open until
June 30, 2000, unless American
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Communications determines, in its sole discretion, to cease selling efforts. The
officers, directors and stockholders of American Communications and their
affiliates may purchase shares in this
offering.
There is no minimum number of shares that must be sold to complete the
offering. As a result, there will no escrow of any of the proceeds of this
offering. Accordingly, American Communications will have use of such funds once
it accepts a subscription and funds have cleared. Such funds shall be
non-refundable except as may be required by applicable law.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors and executive officers of American Communications are as follows:
Name Position Age
Dain L. Schult President and Chief 44
Executive Officer,
Secretary, Chairman of the
Board
Robert E. Ringle Vice President of Internet 55
Operations, Director of
Sales, Treasurer and
Director
Dain L. Schult - President and Chief
Executive Officer: Mr. Dain Schult has
served as both President and Chief
Executive Officer of American
Communications since its inception . Mr.
Schult is a broadcast veteran of over 30
years in the radio industry.
For the period from 1996 to the inception of American Communications, Mr.
Schult was President and Chief Executive Officer for Equicom, Inc., a group
consolidator of radio stations in Texas.
For the period from 1977 to 1996, Mr. Schult was President of
Radioactivity, Inc., a full-service radio broadcast consulting firm located in
Atlanta, Georgia serving over 150 radio stations in various parts of the U.S..
While there, Mr. Schult participated in the turnaround of several stations,
created a unique turn-key management service for new station owners, conducted
station appraisals and market analysis projects for sellers and buyers, and
developed specific music formats for on-air use by client stations.
Concurrently, Mr. Schult was Chief Operating Officer for Sunbelt Radio Group,
Inc., a radio station group created to acquire and operate radio stations in
Texas.
Prior to 1977, Mr. Schult held
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various program manager, operating manager, and on-air personality positions at
several radio stations in the Southeast and Southwest.
Mr. Schult holds an A.S. degree in
Commercial Music-Recording from Georgia
State University. Mr. Schult is married to
Sherry Schult, the sister of Robert E.
Ringle, a director and executive officer of
American Communications. As a result, Mr.
Schult is Mr. Ringle's brother-in-law.
Robert E. Ringle - Vice President Internet
Operations/Director of Sales: Mr. Ringle
has served as Vice President, Director of
Sales an Treasurer of American
Communications since its inception. Mr.
Ringle has more than 20 years experience
in owning and operating advertising
agencies and marketing companies.
For the period from1997 to the inception of American Communications, Mr.
Ringle served as the Chief Marketing Officer and Director of Sales for Equicom
Inc., a regional radio broadcasting network.
For the period from 1995 to 1997, Mr. Ringle served as the Chief Executive
Officer of Quadra Group, Inc., a small consulting company specializing in
marketing and management.
For the period from 1993 to 1995, Mr. Ringle served as the Marketing
Director and Sales Manager for Pell Automotive Group, a car dealership in
Tucson, Arizona.
Mr. Ringle has a B.S. degree in
Marketing from Wayne State University.
As stated previously, Mr. Ringle is
Mr. Schult's brother-in-law.
Directors. All of the Directors serve for one year periods. American
Communications presently expects to conduct its first annual meeting of
shareholder and directors in October, 1999 at which time directors will again be
elected. All directors serve for a period of one year unless removed in
accordance with the bylaws of American Communications.
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SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of American Communications' common stock before and after
giving effect to the sale of the maximum number of shares of common stock
offered. All shareholders have sole voting and investment power over the shares
beneficially owned.
Beneficial Ownership
of Common Stock
Shares Owned Percentage of Class
Before Offering After Offering
Dain L. Schult 8,400,000 80% 39.0698%
Robert E. Ringle 2,100,000 20% 9.7674%
- --------- -------
All directors and 10,500,000 100% 48.8372%
officers as a group
(2 persons)
DESCRIPTION OF SECURITIES
Common Stock
American Communications is authorized to issue 30,000,000 shares of common
stock, no par value per share, of which 10,500,000 shares are issued and
outstanding. The outstanding shares of common stock are fully paid and
non-assessable. The holders of common stock are entitled to one vote per share
for the election of directors and with respect to all other matters submitted to
a vote of stockholders. Shares of common stock do not have cumulative voting
rights, which means that the holders of more than 50% of such shares voting for
the election of directors can elect 100% of the directors if they choose to do
so the common stock does not have preemptive rates meaning that the common
shareholders ownership interest in American Communications would be diluted if
additional shares of common stock are subsequently issued in the existing
shareholders are not granted the right, in the discretion of the Board of
Directors, to maintain their ownership interest in American Communications.
Upon any liquidation, dissolution or winding-up of American
Communications, the assets of American Communications, after the payment of
debts and liabilities and any liquidation preferences of, and unpaid dividends
on, any class of preferred stock then outstanding, will be distributed pro-rata
to the holders of the common stock. The holders of the common stock do not have
preemptive or conversion rights to subscribe for any securities of American
Communications and have no right to require American Communications to redeem or
purchase their shares.
The holders of Common Stock are entitled to share equally in dividends,
if, as and when declared by the Board of Directors of American Communications,
out of funds legally available therefor, subject to the priorities given to any
class of preferred stock which may be issued.
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Preferred Stock
American Communications is not presently authorized to issue shares of
preferred stock However, the majority of the shareholders of American
Communications may later determine to establish preferred stock for American
Communications. If done, the preferred stock may be created and issued, in one
or more series and with such designations, rights, preference and restrictions
as shall be stated and expressed in the resolution(s) providing for the creation
and issuance of such preferred stock. If preferred stock is authorized and
issued and if American Communications is subsequently liquidated or dissolved,
the preferred stock would be entitled to assets of American Communications, to
the exclusion of the common stockholders, to the full extent of the preferred
stockholders interest in American Communications.
Dividend Policy
To date, American Communications has not paid any dividends. The payment
of dividends, if any, on the common stock in the future is within the sole
discretion of the Board of Directors and will depend upon American
Communications' earnings, its capital requirements and financial condition, and
other relevant factors. The Board of Directors does not intend to declare any
dividends on the common stock in the foreseeable future, but instead intends to
retain all earnings, if any, for use in American Communications' business
operations.
Transfer Agent and Registrar
American Communications intends to use Signature Stock Transfer, Inc., in
Dallas, Texas as its transfer agent for the common stock.
DISCLOSURE OF COMMISSION
POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Article V of the Bylaws of American Communications provides that American
Communications shall indemnify its officer or directors against expenses
incurred in connection with the defense of any action in which they are made
parties by reason of being officers or directors of American Communications,
except in relation to matters as to which such director or officer shall be
adjudged in such action to be liable for negligence or misconduct in the
performance of his duty. An officer or director of American Communications could
take the position that this duty on behalf of American Communications to
indemnify the director or officer may include the duty to indemnify the officer
or director for the violation of securities laws.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of American Communications pursuant to American Communications' Articles
of Incorporation, Bylaws, Nevada law or otherwise, American Communications has
been advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by American Communications of expenses
incurred or payed by a director, officer or controlling person of American
Communications and the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, American Communications will, unless in the opinion
of its counsel the matter has been settled by a controlling precedent,
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<PAGE> 17
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
DESCRIPTION OF BUSINESS
General
American Communications Enterprises, Inc., a recently formed Nevada
corporation, based in Austin, Texas, was created to acquire, consolidate and
operate small-to-medium-sized market radio stations, initially in Texas and then
in other geographic regions of the United States. American Communications hopes
to develop related "state-of-the industry" Internet services to network American
Communications' planned regional clusters of radio stations in such markets,
American Communications believes that such cross-marketing strategy will allow
it to offer greater advertising capabilities to potential advertisers, and
therefore avail itself of possibly greater revenue opportunities than available
to radio stations on a "stand alone" basis or other consolidators who do not
follow such strategy.
American Communications plans to lease or acquire radio stations in
Brownwood and Coleman, Texas, with the proceeds of this Offering, assuming the
maximum proceeds are received, and plans to eventually acquire up to
approximately 15 stations in the Southwestern section of the United States.
Assuming the continued availability of additional small-to-medium sized radio
stations in other parts of the U.S., the availability of financing and American
Communications' ability to integrate the operations of additional radio
stations, none of which assurances may be given, American Communications intends
to acquire, consolidate, and operate additional radio stations beginning by
Third Quarter 1999. American Communications plans to pursue a regionally focused
acquisition strategy adding clusters of stations across the country when and
wherever possible. The total number of stations acquired will be a function of
availability, American Communications' financing capability and marketing
feasibility and could result in American Communications operating as many as 100
stations. American Communications is currently looking for additional
acquisition targets in Texas, New Mexico, Oklahoma, Arkansas and Louisiana.
Based on Management's prior experience in operating radio stations in
consolidated group, American Communications believes that these stations can be
linked together for efficient operation in a reasonable time frame. American
Communications also intends to develop a unique entertainment web site on the
Internet. By combining the small to medium market broadcast radio stations with
the Internet, American Communications believes it can eventually create a
network presence across the country and internationally. The strategy is a
hybrid of a small-to-medium-market radio station consolidation and an Internet
approach that is cross-market oriented.
Acquisition and Operating Strategy
American Communications will pursue a regionally focused acquisition
strategy. American Communications proposes to initially purchase
small-to-medium-sized radio stations in non-major metropolitan areas in Texas
and then expand to surrounding states. American Communications' management
believes that many of the non-major metropolitan areas currently offer many
attractively priced acquisition candidates compared to the larger cities.
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Besides its regional focus, American Communications's growth strategy is
planned to be founded upon the achievement of synergies and economies of scale,
including but not limited to, the generation of incremental sales through
network marketing for greater national and regional advertising, the reduction
of overhead expenses and the realization of operational cost savings.
Assuming the completion of the initial station acquisitions by American
Communications and the successful integration of such operations by Third
Quarter 1999, American Communications believes it will be able to offer regional
advertisers the ability to access a population base of approximately 300,000
people in Central/West Texas. As American Communications acquires more stations,
advertisers will be able to purchase the entire American Communications group as
a network with one media buy which will also include advertising capabilities on
the Internet. Under current market conditions, an advertiser would not be able
to roll out a campaign targeting non-major Texas areas without entering into a
number of separate media purchases which is both time consuming and non-cost
effective due to having to contact each station separately instead of as a group
.
Based upon, the prior personal, professional experiences of Messrs. Schult
and Ringle as well as the success of other regional consolidators, management
believes American Communications' ability to market its entire network will
result in a consolidated advertising approach with a distinctly higher component
of national and regional advertising versus local direct retail advertising.
This is favorable because national and regional advertising often command
premiums over local ad rates by as much as 50% and 100% in smaller cities.
American Communications plans to utilize a blend of WAN (Wide Area
Network) music programming coupled with centralized satellite voice programming
from a centrally located control location. Additionally, all American
Communications' stations are planned to operate with centralized accounting,
billing, marketing and promotions systems, an in-house sales group that will be
utilized for group advertising for the radio stations as well as for Internet
advertising, and specialized in-house sales training programs for all American
Communications salespeople. Due to such planned centralization of services, it
is believed that each station's general manager will have more time to focus on
sales instead of administration responsibilities. American Communications
expects that it will also eventually utilize "super regional managers" each of
whom will serve on-site as general manager in one market but also oversee the
operation of other stations within their designated region.
Current Radio Industry Conditions
American Communications will compete in an industry that has undergone
deregulation and innovation. Deregulation by the Federal Communications
Commission ("FCC") which, in general, has permitted the elimination of station
ownership limits, has given rise to widespread opportunities within the radio
industry but competitive pressures have also increased. Consolidation activity
has swept through the larger-market radio stations and is now working its way
through the small-to- medium-sized markets. These smaller markets provide
opportunities for consolidation without the expense of large market or major
city acquisitions.
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Overview of the Radio Business
Radio station revenues are derived from the sale of advertising spots or
programs to national, regional, and local advertisers of commercials.
Advertising rates charged by a station are predicated on its performance in the
ratings based on estimates of the number of persons listening to a station as
well as the number of homes in a station's service area.
The only national radio audience measuring service, Arbitron, serves the
entire country and provides even the smallest markets with annual ratings
service. Ultimately, the success of a radio station (or group of stations)
depends on its ability to develop popular programming and promotions, thus
generating higher rates and allowing the station to charge more for airing
commercials.
Historical Trends in Radio Ad Revenues
As evidenced by Interep (a group of national radio rep firms), radio
industry revenues have consistently grown faster than the Gross National Product
and have historically demonstrated an ability to be somewhat recession
resistant.
Radio advertising expenditures have declined only twice in its history-in
1961 revenues declined 1% due to a recession and in 1991, the combination of the
Persian Gulf War and economic recession led to a 3% decline in revenues. Interep
reports that over the last 40 years, radio advertiser spending has grown at a
compound annual rate of 8.3%, somewhat higher than total ad spending for other
forms of advertising (television, cable, outdoor and print) which has grown at a
7.5% annual rate.
Economic downturns can have an impact on broadcasting, as it would any
other form of advertising or business in a recession, but not to the same degree
that they affect consumer discretionary spending in general. As reported by the
Radio Advertising Bureau, many national and regional brand advertisers have
found by experience that they must maintain their broadcasting advertising
budgets during periods of recession if they do not wish to lose market share
when the economy recovers.
The Radio Advertising Bureau reports that the main factor for radio's
growth is radio's unique ability for "narrowcasting" or reaching specific
demographic groups. By offering specialized audiences for advertisers, radio has
become more cost-effective, versus television or newspapers, which tend to sweep
a broader demographic scale.
Industry Consolidation
The radio broadcast industry is currently subject to consolidation
activity which is having a major impact on the competitive landscape. In
general, and as further discussed below, such consolidation activity has been
triggered by the Telecommunications Act of 1996. Up until the mid-1980s, there
was no public market for radio stocks. Local ownership limits by the FCC of one
AM and one FM station per market and a total limit of 14 total stations
prevented radio groups from amassing greater size to attract outside capital.
Because of these strict limits, radio station ownership was highly fragmented
and characterized by "mom and pop" operations in even the largest markets. By
1984, however, FCC ownership rules had begun to be relaxed, with major
relaxation of such rules occurring in 1992 and 1994.
The passage of the 1996 Telecommunications Act (the "Telecom Act")
eliminated the national limits on the number of radio stations that one entity
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could own and eased local ownership rules so as to allow 1 operating entity to
control up to 8 stations in most medium and major markets. Much of the
consolidation activity to date has been centered on major markets, resulting in
increased competition and higher valuations in such markets.
The mid-sized markets (generally defined to mean US markets ranked #50 to
#265 based on population) have recently begun to see upward price pressure, with
10.0x to 14.0x EBITDA (Earnings before Income Taxes, Depreciation and
Amortization) multiples not uncommon (vs. 8.0x to 10.0x EBITDA multiples as
recently as 1997). The consolidation activity of large market operators such as
Chancellor/Capstar Communications (Hicks, Muse), Sunburst (Bain Capital), and
Cumulus (Wisconsin State Teachers Retirement/Quaestus Capital) all of whom have
consolidated stations across the US, have begun the process in some of the same
markets that American Communications is exploring for acquisitions thus tending
to indicate that consolidation has begun in the smaller markets. American
Communications believe that it will only encounter these larger mid-market
consolidators at the upper end of its target markets in rated medium sized
markets but not in the smaller, non-regularly rated markets. Few groups have
ventured beyond focusing on the top 100 markets, which has kept acquisition
multiples in American Communications' markets low but that could change should
other consolidators follow American Communications' small market strategy.
Competition
Competition within the radio broadcasting industry has historically been
and will continue to be very intense. Overall, the principal factor affecting
competition in this industry is the number of audience members reached with one
advertising medium. With the advent of deregulation, competition has increased
since the key to success is no longer how many listeners can an independent firm
reach in one market, but rather, how many listeners can a consolidator reach in
multiple markets. Competition with newspapers and television for advertising
dollars is also high. However, radio's audience has held up well over time. In
the past five years listenership has actually increased as reported by the Radio
Advertising Bureau. In addition, with the bulk of radio listening taking place
outside of the home and on the road, where competition with other mediums is
limited, and the audience somewhat "captive" (unable to access television,
newspapers, or the Internet), radio appears to be well positioned for continued
growth.
Regulation
The radio broadcast industry is subject to extensive regulation at the
federal level. Any change in existing statutes and regulations, or the adoption
of new statutes and regulations, could force stations to alter their methods of
operation at substantial costs.
All firms, whether large or small, are affected by these changes. Also, as
seen in recent legislative action (the 1996 Telecom Act), changes in
regulations, especially, deregulation, can drastically shift the competitive
landscape. Going from being able to own 7 AM and 7 FM stations in 1992 to 18 and
18 to 20 and 20 to now no limits, the FCC has now allowed for a free and open
market on radio station ownership. Additionally the FCC has continued a pattern
of reducing paperwork requirements of its license holders and eliminating
outdated rules and26
regulations.
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Overview of the Internet Industry
The Internet's brief and meteoritic existence provides little historic
performance data. From a few hundred thousand users seeking information,
entertainment and commerce in the early 1990's the Internet community has grown
to millions today. Only a few short years ago, Internet companies were
struggling to carve out revenue and many Internet sites offered free information
posted by various entities with links to related and unrelated sites. Now, as
reported by Advertising Age, billions of dollars in revenue are generated from
advertising, website development and retailing.
Major electronic manufacturers have products and/or are developing
integrated Internet products for next generation home systems and mobile
systems. Future delivery of the Internet is slated to arrive via increased cable
usage and/or satellite to multi-purpose home entertainment systems that will
function as Internet links, computers, radios and TV sets. Cellular phones
currently can connect to the Internet as well as automobile radios. There
appears to be little or no limit to the ways and means one can and will be able
to access the "Net".
Trends in Ad Revenues
Currently, as reported by Advertising Age, the most lucrative Internet
advertising comes from banner advertising. Banner advertisers pay for "hits" or
"impressions" based on the number of user exposures to their ads. National
brands in every industry are now using the Internet as part of an integrated
approach to marketing. Although difficult to exactly quantify, it is estimated
that national Internet ad revenues reach into the billions of dollars. According
to Advertising Age, local and regional web sites offer similar opportunities to
local and regional advertisers.
The Internet has become a global market place for commercial and consumer
goods from banking to soft goods. Entrepreneurs and national brands are also
enjoying phenomenal growth through "catalog", retail sales on the Internet. The
Internet user can access VAR (Value Added Retailer) and factory direct products
over secure sites using most types of credit cards and generally save time and
money in the process.
Competition
Competition within the Internet community will be fierce. Internet
"audiences" will continue to be exposed to newspaper, TV, radio, direct mail,
etc. The advantages of the Internet lie in the totality of content and the
ability to deliver messages in audio and visual media twenty-four hours a day
seven days a week. Furthermore, studies by Arbitron have indicated that the
Internet is the media of choice for the 24 to 35 age group with increasing
numbers of users in the affluent 35 to 55 age group.
Regulation
The Internet is under no enforceable broadcast or entertainment content
regulation at this time. Although the U.S. Government may prevail in regulating
some functions of U.S. based web sites and portals, there is good reason to
believe it will be many years before regulation will be enforceable.
Summary of Industry Attractiveness
American Communications believes the Internet industry will prevail as the
media of choice for the aforementioned demographics groups in the foreseeable
future. The almost unlimited opportunities
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for growth and expansion are the key points for selection of the Internet as a
component of American Communications' planned sales and marketing strategy. The
ability to access users across the country and even internationally may offer
the opportunity for increased revenues in national and regional advertising.
MANAGEMENTS DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION
American Communications' success is largely dependent on its ability to
sell all of the shares offered. Assuming the receipt of these funds, management
believes that it will be able to acquire at least the right to operate up to
four radio stations that have been tentatively identified for acquisition. The
two general conditions which will effect the ability of the company to survive
are the ability to find willing sellers of existing radio stations and American
Communications' ability to operate acquired stations at a profit. If either or
these conditions become impossible, American Communications will probably not be
capable of continuing in business.
Management has significant experience in the radio industry and has
conducted significant research as to the availability of stations and the
methods in which to achieve profitability once obtained. Management, therefore,
plans to utilize this expertise to take such steps are necessary to see that the
conditions to the success of American Communications are satisfied.
Upon receipt of the funds generated from the sale of shares, American
Communications expects to immediately begin negotiations to acquire the radio
stations that have been identified for acquisition. Although the period between
the receipt of such funds and the date by which American Communications will be
actually able to complete the purchase of these stations is difficult to
estimate, management thinks that this process can be completed in no more than
four months after the receipt of proceeds under this offering. American
Communications currently expects that when it acquires a radio station, it will
also acquire its accounts receivable such that immediately upon acquisition,
American Communications should be entitled to begin receiving revenues from
advertisers for the existing radio stations. Although difficult to quantify,
management expects that the four stations proposed to be acquired should
collectively generate a total of $750,000.00 in annual net income or
approximately $62,500.00 per month in net income.
The result of the foregoing is that within four months of the completion
of the offering, American Communications expects to be generating net income
with the expectation that, by the completion of the first twelve months of
American Communications' operations, American Communications could have
generated up to $500,000.00 in net income from operations. Management believes
that the foregoing plan is viable and that it will be able to continue as a
going concern; however, if American Communications is unable to fully effectuate
its plan such that it is not accomplished, it is probable that American
Communications will not be able to continue as a viable, going concern.
Overview of Operating Model and
Growth Strategy
The key elements of American Communications' operating model and growth
strategy, which incorporates concepts utilized by other radio broadcast
consolidators as well as in other industries, are highlighted below:
Station/Market Selection.
American Communications' initial strategy is
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to acquire radio assets in small-to-middle-market areas throughout the Southwest
including Texas, with additional American Communications clusters to be formed
in adjoining states and/or in close proximity with such strategy to be financed
with the proceeds of this offering, seller debt financing, when and where
applicable, and other potential equity funding sources.
By avoiding the major metropolitan areas (ie. Dallas, Houston, San Antonio
and Austin), American Communications believes it may be able to acquire stations
at very attractive prices. Medium-to-major-market radio stations have been
selling for 12.0x to 17.0x EBITDA. In contrast, American Communications
believes, based upon its management's personal, professional experiences in
locating and acquiring radio stations, that it may acquire its small market
radio assets at between 7.5x -10x EBITDA.
Assuming American Communications' success in its acquisition strategy,
American Communications believes it may itself become an attractive acquisition
candidate in the future to a
larger market consolidator.
Clustering by State/Region. In addition to focusing on smaller markets,
American Communications plans to also pursue a regional clustering strategy.
Accordingly, American Communications' first planned acquisitions of radio
stations (approximately four (4)) is only focused in Texas. By clustering
stations within a tight, regional market, American Communications believes it
can achieve certain back office cost benefits. Management's plan for the Texas
regional cluster evolves into a centralized hub where the major managerial and
administrative functions will be housed to where American Communications should
be able to serve up to approximately 70 stations in local markets throughout the
state.
Localization. A key element of American Communications' strategy is to be
able to "sound live - sound local" in every market. American Communications
plans to present a live morning show in each local market, the popularity of
which is viewed as material to the success of a radio station's operation as
live morning shows serve to perpetuate a strong local image in a market. The
concept of "localization" is complementary to American Communications' regional
focus and extends past the morning drive period to the rest of the broadcast
day. Unlike nationally syndicated formats, American Communications plans to make
its regional flagship announcers available for promotional campaigns or on-site
advertising engagements throughout the region and state. The ability to utilize
well known radio personalities is a major selling point to advertisers in
smaller-market areas.
Centralized Operating Cost Savings. American Communications plans to
centralize much of its administrative and operating functions at one of its
station locations (to be determined later) while maintaining an office in Austin
to serve as corporate headquarters and marketing center for regional and
national advertising. Programming is one of the key areas targeted for cost
savings by elimination of separate programming staffs at each station, replaced
with one consolidated network programming staff which will provide greater
programming quality. Radio voice programming is planned to be created at the
flagship stations for each format featured by the American Communications
network. By satellite transmission and use of WANs and integrated computers,
American Communications will be able to minimize redundant equipment used at
each individual station and more efficiently utilize on-air talent by having one
centralized programming staff. In addition, accounting and bookkeeping is also
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planned to be located at the flagship station site. One billing/traffic person
at the flagship headquarters can handle 4 stations at once which is a great
savings over having a billing/traffic person located at each individual station.
Other functions such as engineering, advertising, purchasing, and human
resources will also be handled from the flagship site. As new stations may be
added into the regional cluster, it is believed that the achievement of
economies of scale will result in increasing levels of operating profitability.
Generating Incremental Growth in Ad Revenues. Management believes that
American Communications will achieve incremental revenue growth out of the
planned combined American Communications radio group compared to the sales level
that such stations have generated on a stand-alone basis. In many small markets,
the general manager is often the head salesperson, in addition to being the
overseer of the day-to-day operations, on which the majority of such person's
time is frequently spent.
The size of the sales staffs at each American Communications station is
planned to be adequate to handle the flow of business allowing salespeople to
handle between 30-50 accounts each while the programming, traffic/billing and
technical staffs will be pared down to reflect American Communications'
centralized operating structure. Importantly, employees who face the possibility
of having their job functions reduced due to centralization will be given
opportunities to move into a sales role.
Attracting National and Regional
Advertisers
As reported by the Radio Advertising Bureau, national and regional
advertising accounts for approximately 10% to 25% of the revenue mix for a
typical radio station in the market sizes that American Communications has
identified with local advertising representing the balance of the sales mix.
Historically, it has been difficult for national/regional advertisers to
target the small-to-middle-market areas due to the large number of separate
purchases of advertising spots that would be required. American Communications
intends to market its entire network of stations within a region to national and
regional advertisers and thereby offer the convenience of the opportunity to
reach an aggregate substantial population in smaller cities and rural areas. In
such fashion, American Communications believes it may attract national and
regional advertising which often commands a 50% to 100% premium over local
advertising income.
The Internet Component
American Communications recognizes the growth potential within the
Internet market. While large consolidators such as Capstar broadcasting group
and Cumulus broadcasting group dominate the major markets and continue to
compete with each other for market control in the major metropolitan areas,
American Communications' cross-market approach is to look past this hotly
contended arena towards the expanding opportunities on the Internet.
Currently, radio sites on the Internet are focused on duplicating standard
broadcast type programming and formats. American Communications plans to create
a unique entertainment site utilizing every technological advance and
revenue-generating feature available. American Communications plans to deliver
content in both streaming audio and video and to utilize a major portal such as
Yahoo to lead
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users to American Communications' site.
Once there, American Communications
plans to offer a wide array of entertainment
and products including
o several music formats ranging from
country to jazz.
o MTV-like videos of their favorite
artists.
o contests.
o gaming.
o shopping carts of VAR merchandise
from CD's and concert tickets to A/V
equipment.
o American Communications branded
merchandise.
o Entertainment news.
o special programming including
music and travel features.
o links to points of interest.
Proposed Potential Radio Station
Investments
Assuming the continued availability of the following radio stations and
American Communications' success in obtaining additional financing for such
acquisitions (owner offered of otherwise), neither of which assurances are
given, American Communications plans to acquire the stations identified below,
with such acquisitions including the assets of each station which normally
include the broadcast equipment, broadcasting tower and antenna, transmitter,
office furnishings, office furniture, accounts receivable, station vehicles,
station promotional items, station advertising accounts, FCC Station License and
real estate including studio/office space as well as land upon which the tower
and transmitter is located or leases for that space instead. Because American
Communications will be making asset purchases, it does not intend to acquire any
existing liabilities of these stations. Following the assumed successful
completion of this offering, American Communications plans to negotiate purchase
option agreements with some of the station's owners. American Communications
proposes to acquire each of such stations within approximately six (6) to nine
(9) months from the execution of a definitive agreement. No assurances are
given:
o as to the continued availability of
such stations.
o that American Communications and each of such station owners will agree on
price and other material terms.
o that American Communications will be able to timely secure required
financing for such acquisitions on terms satisfactory to American
Communications.
o that American Communications will be able to successfully operate and
integrate any of such stations' operations into its then operations.
o that the FCC will approve of any
such transfers.
23
<PAGE> 26
The following is a breakdown of the estimated costs by American
Communications to acquire the two AM and two FM stations described below. All of
these costs will be paid to third-parties and not to members of management of
American Communications.
Proposed purchase price to be paid $1,600,000.00
existing owners of KXYL AM and FM,
Brownwood, Texas and KSTA
AM and FM, Coleman, Texas
Estimated closing costs $140,000.00
Estimated equipment costs associated with $76,000.00
creation of satellite network
Initial working capital to be used for $184,000.00
expenses incurred until advertising
revenues are generated
Total Funding Requirement: $2,000,000.00
The table above contains an entry of $140,000.00 for estimated closing
costs. This $140,000.00 consists of the following estimated expenses that are
anticipated to be incurred in the acquisition of each radio station.
Additionally, this estimate does not include any extraordinary due-diligence in
the form of any engineering studies or protracted negotiations both of which
would increase related closing cost expenditures. Based upon American
Communications' personal knowledge of these stations and the communities of
Brownwood and Coleman, Texas, American Communications does not anticipate any
such expenses with these proposed station purchases.
Local Legal Counsel $3,500
Communication (FCC) Law Counsel $10,000
Accounting Expenses $10,000
Long Distance Phone Calls $1,000
Overnight Delivery Services $300
Travel and Lod$2,500
On-site Market Research/Due-Diligence $3,500
Miscellaneous Expenses $4,200
Total Estimated Closing Costs per station acquired: $35,000
Acquisition and Closing Process
American Communications plans to streamline the negotiating and closing
process on the proposed station transactions by, among other things,
"standardizing" a form of purchase option agreement and purchase agreement and
related documents which will nevertheless be subject to at least some
negotiation and revision and the FCC station license transfer process.
Subject to the availability of financing
and the continued availability of targeted
stations, American Communications
24
<PAGE> 27
anticipates staging the closing of the transaction over approximately a six (6)
month period so as to provide the opportunity for a successful integration of
such radio station operations. Notwithstanding the fact that additional time has
been "built-in" to such timetable, no assurances are given that American
Communications will successfully operate and integrate any of such acquisitions,
assuming the successful completion thereof.
Initial Acquisition Plans
Management believes that a major consideration in accomplishing its planned
acquisitions is to do so in as timely and low profile a manner as possible.
Normally, the sale of stations in the market sizes as proposed by American
Communications would be a significant event within their respective
marketplaces.
To maintain stability and consistency of these stations under American
Communications' planned ownership, it is important that the perception, as well
as the reality, at least initially during the ownership transition period, be of
little if any change to the current operation. During the ownership transition
period, it is expected that American Communications management will spend time
with each station's employees to discuss with and assure personnel about the
pending transfer, with little, if any, outside contacts with community civic or
business leaders concerning such matter. Emphasis will be placed in staff
meetings that additional stations are planned to be added, and that there will
be opportunities for employees to move into future management openings at other
Company owned stations so that they can experience personal professional growth
inside the organization.
After ownership transfer of a station is effected, American Communications
plans to implement minor operational changes which it believes will enhance
financial performance, including the following:
o The introduction of major-market-style
promotions and contests.
o Modification of rate cards to better exploit a station's remote commercial
broadcast capabilities and increase national/regional advertising.
o Negotiating with interested third parties
to lease for the station's sub-carrier
frequencies such as CUE Paging (a
national paging service that is on the
lookout for additional radio stations to
work with) that could use a station's use
the sub-carrier frequency for national
paging services. Such lease will not
effect the station's main signal and may
generate between approximately $6,000
to $20,000 a year in fees.
o The leasing of portable music system
through Disc Jockeys Unlimited of
Atlanta, Georgia, a service provider who
builds portable music systems for disc
jockeys and radio stations at a cost of
$225 a month This will allow the station
to earn equipment rentals as an
additional revenue stream and the
staff's disc jockeys the opportunity to
earn extra money weekly by performing
at wedding receptions, company and
private parties, etc.
o The development of a firm (proposed to be referred to as ACENET) that will
literally represent the group for all of its national and regional
advertising and will include Internet advertising connections.
o The introduction of an internal, ongoing research system to allow the station
to track listener patterns between Arbitron
25
<PAGE> 28
ratings periods (where applicable in markets that are rated). Such research
will be conducted by telephone utilizing existing staff personnel.
o A review and update of as appropriate with current music selections added as
necessary for the WAN music programming network element.
After Acceptance Of An Offer
Following execution of a definitive purchase agreement (subject to FCC
approval, and completion by American Communications of satisfactory due
diligence), American Communications, in cooperation with the seller of a
station, will submit the appropriate transfer documents to the FCC. While the
FCC has the authority, in its sole discretion, to approve or reject a transfer
request, transfer requests are, in the normal course, generally approved within
approximately three (3) to six (6) months of submission of all required
applications and related documents.
Preceding the FCC filing, a comprehensive due diligence investigation
including at least the following steps will be undertaken:
o A thorough inspection of station facilities including offices, studios and
transmitting sites.
o An independent engineering inspection of the station's facilities. Age and
condition of all equipment including transmitters and towers will be
recorded. A comprehensive program of schedule maintenance will be designed
and implemented after the closing.
o A survey will be conducted of the
market to analyze existing and potential
competition, market growth trends,
current marketing trends, past and
future programming, promotions, and
advertising plans along with listener and
advertiser perceptions of the station.
Included will be an independent ratings
survey for each market as well.
o Meetings with present management to
gain insight into the stations' current
operations. This is expected to include
written assessments of station
employees, job responsibility lists for
themselves and their staff, budget
projections, plus any other input they
can offer regarding the stations.
o A review of all station contracts with
vendors and clients. All existing station
trade/barter agreements will be
reviewed with the sellers to determine
their current status and disposition.
Retention preference is expected to be
given to any trade agreements that
directly benefit the stations in the form
of promotional considerations and
advertising with other media.
o General staff meetings will be
conducted to help minimize anxiety
caused by the pending transfer. Each
employee will be asked to submit in
writing a description of their job
responsibilities as they perceive them
with comparisons then made by
management to the station manager's
views. American Communications will
then compare the employee's lists
against those submitted by the
managers.
o Review of staff members' levels of experience and expertise, job
responsibilities, station/market tenure and future potential.
o Review of existing standards and
practices. A system-wide company
operations manual will be distributed
post closing, that will set forth operating
26
<PAGE> 29
rules and regulations, Company
benefits and vacation policies.
o Investigating peripheral station revenue
enhancement (ie. renting tower space
for use by one or more
telecommunications service providers,
utilizing the air staff for remote
broadcasts or private parties using a
portable music system or other similar
methods.)
Closing and Post Closing Matters
Assuming receipt of final FCC notification of transfer approval, American
Communications will immediately proceed to closing, and then commence
implementing those operational changes earlier discussed as deemed appropriate.
Corporate Operating Controls
Upon the completion of an acquisition, corporate operating controls are
planned to be implemented at each station. In addition, all station computer
systems are planned to be networked with headquarters in order to produce
station-level information on a real time and on request basis. American
Communications plans to generate financial reports within 30 days of month end
for review by senior and station management. Administrative and accounting
controls will be centralized in American Communications' Austin headquarters.
Corporate staff at both headquarters and each station should be kept to a
minimum.
The majority of commercials and station promotions productions are planned to
be created at the flagship stations and then "fed" to the other stations in the
group via the satellite link that will be created at the flagship stations.
Marketing, Advertising and Promotion
Company stations are planned to be
marketed, advertised and promoted as the leading "fun-to-listen-to-station" in
each market, with the goal to increase station awareness and "dial position
recognition" among retailers, buyers and listeners.
Being viewed as a truly local station is highly valued by both advertisers
and listeners in the mid-size and smaller markets in which American
Communications plans to operate. American Communications, therefore plans to
aggressively promote its stations in their respective markets independently as
well as cooperatively with client retailers and companies with whom American
Communications may establish joint marketing/sales relationships through on-air
contests, local promotions, direct mail, website and e-mail promotion, local
publications, outdoor advertising and "word-of-mouth" advertising endorsements.
American Communications' sales force, will be trained on an ongoing basis in
marketing their respective stations. In order to attract and retain qualified
personnel, American Communications recognizes that it is imperative to structure
a compensation plan for its sales staff that is both fair and appealing. As
such, compensation is expected to be both salary and incentive based. Management
also plans to selectively use bonus programs as a method of rewarding
outstanding salespeople. The sales force at each station will handle local
advertising, with National and regional advertising to be handled by ACENET or
another rep firm.
Assuming American Communications successfully executes its acquisition
strategy of a planned American Communications group of stations, management
believes it will be possible to increase group revenues over the current
operators' level for the following reasons:
27
<PAGE> 30
o Because not currently existing as a
group, none of these stations are
currently offered as a total advertising
package. Therefore, any regional
and/or national desiring to advertise in
such markets presently must effect
separate media buys with each
individual station and thus deal with
sales people in each of such markets
Under American Communications' plan,
this same advertiser will be able to
contact any one of such stations and
buy advertising time from the whole
group or any of its component parts by
contacting just one marketing
consultant
o As American Communications may add
affiliate stations to its programming
network (i.e., stations that buy American
Communications' planned satellite
programming content but in which
American Communications has no
financial interest), such relationships
may also enhance its ability to sell
network advertising and increase
revenues.
o Generally speaking, the size of the sale staffs at each American
Communications station will grow while the programming staffs will be
downsized to reflect American Communications' satellite programming approach.
o Greater emphasis will be placed on the actual in-house production of
advertiser's commercials to improve the quality of the commercial for each
client.
o All Company marketing consultants will
be thoroughly trained in marketing their
respective stations without reliance on
ratings because stations which build
relationships with its clients to buy
advertising based on results and not
just ratings tend to do better than
stations which rely strictly on ratings as
their selling point.
o American Communications expects to develop, through on-going market research,
specific information to help clients develop immediate and long-term
marketing plans.
o American Communications expects to coordinate sales literature, telemarketing
programs and direct response promotions with the goal to increase Company
billings.
o American Communications' marketing
strategy includes offering multiple
broadcast formats in each of the
markets it serves. American
Communications believes that cross-
selling synergies can be achieved with
this approach as all formats do not
appeal to all types of advertisers. For
example, an independent station owner
broadcasting a big-band format would
not be able to sell advertising to a
retailer that targets the teenage
demographic sector. However, by
offering a CHR (Top 40) format in many
of its markets, American
Communications believes it will be able
to capture sales that the individual
operator could not.
Other Revenue Opportunities
Each FM station has one sub carrier "frequency" beneath the main frequency
upon which it broadcasts which may be leased to such types of entities as CUE
Paging or Muzak franchises, local data-processing sources and pager services.
The lessee would be responsible for all costs of setting up the equipment for
use of the sub carrier as well as covering all its own expenses including
utilities and maintenance. Such leasing arrangements
28
<PAGE> 31
could potentially net American
Communications approximately $1,000 per month per FM station.
While certain of the stations American Communications intends to acquire do
not own the towers on which their antennas are located, on those stations which
do own their own towers, American Communications, can offer space on a rental
basis to pager services and other telecommunications vendors. As with the sub
carrier, all start-up costs, utilities and maintenance are borne by the lessee.
American Communications estimates that tower space leases could generate
approximately $1,000 per month, per lease.
As American Communications plans to produce specialized satellite programming
for its own stations each day, American Communications will have the capability
of selling that programming concept to affiliate stations. In markets too small
for American Communications to consider for acquisition, American Communications
will be able to provide more localized satellite programming than any of the
large nationally syndicated satellite services can offer because the national
syndicators are not able to localize each individual commercial break the way
American Communications will be able to. Additionally, American Communications
will be able to offer affiliates the opportunity to "tie into" American
Communications' centralized bookkeeping system and become an affiliate of its
ACENET sales force, allowing the affiliate stations to be marketed as a part of
the overall American Communications network. These are services for which
American Communications plans to charge additional fees.
American Communications plans to market not only its own stations but also
affiliates with which it may enter into joint marketing relationships. Such
joint marketing plan, if successful, is expected to provide American
Communications the size and marketing strength necessary to eventually operate
its own in-house rep "firm" eliminating the need to outsource such business, and
the 15%+ commissions that go with it, to some other rep firm.
Programming
Strong, consistent programming is important for American Communications'
success. Regardless of the format offered, American Communications plans to take
a relatively conservative approach to its programming by at least initially
operating each acquired station with the format it is currently using since all
acquisition targets are planned to be generating positive cash flow.
Music for each format will be stored on hard drives inside computers located
in the control rooms of each individual station. This music will be format
specific to that particular station.
Each station will feature a live morning show. Depending on the needs of the
market, this may be a one or two person show. In most markets, there will be a
local newscaster for presenting local news, events, etc. These local air talents
will also be responsible for local commercial production and public appearances.
Each station's music programming computer will be wired to American
Communications' Satellite Network, which literally serves as a pipeline for
sending specific programming and disc jockey patter
to each individual station in the group. All music and programming logs will be
sent directly to each station's programming computer from the flagship uplink
site. When the live morning show is finished, the disc jockey merely has to flip
a switch and
29
<PAGE> 32
the on-site music computer takes over the
programming for unattended walk-away
capabilities.
The planned uplink site will provide the voice tracks to go with the music
being played by the local music computers at each station. Instead of having a
disc jockey actually sit in a control room for a full 4 or 6 hour airshift, the
satellite disc jockey can pre-record a full 4 hour show in less than 30 minutes
and send it on its way to the respective station receiving it. The on-site music
computer will insert the actual recorded breaks by the disc jockey at the
appropriate times.
The capability exists of breaking into regular programming with any urgent
weather forecast or breaking news story. The technology is now here to allow for
a pre-recorded show to sound perfectly live even down to actual time checks.
Because of this system, American Communications is planning for one "super
staff" of announcers to be located at its uplink center capable of handling a
variety of formats. Such staff of approximately 12 full-time announcers will be
capable of producing formats ranging from country, adult contemporary, classic
rock, contemporary hit radio and oldies. Depending on the mix of stations
available for acquisition, a specific Hispanic (Tejano) format may also be
available. These announcers will also be capable of producing all network
commercials as well as local commercials for specific stations. It is believed
such system will afford American Communications the widest possible format range
and allow it to seek out a number of available properties in its proposed
markets.
Broadcast Equipment.
American Communications plans to utilize the acquired stations' existing
transmitters, audio chain equipment, and tower space wherever possible or
feasible, based on American Communications' initial due-diligence. American
Communications will upgrade particular station equipment on an as-needed basis.
All other equipment required to network each station into headquarters will
either be purchased or leased.
To establish the in-house satellite network, American Communications intends
to install its satellite uplink/downlink systems at its planned flagship
stations. American Communications will then install satellite downlink systems
at its other stations.
To establish the satellite network connection, the following expenses will be
incurred:
30
<PAGE> 33
Equipment necessary to create uplink portion $67,335.00
of satellite network
Equipment necessary to enable control center $2,870.00
to receive signal
Installation charges $4,800.00
Preparation for FCC License Application $800.00
Project Total: $75,805.00
The above amounts are based upon an estimate received by American
Communications for the creation of a satellite uplink center. These amounts
would be paid to a company experienced in the installation of satellite uplink
centers. None of these amounts would be paid to officers or directors of
American Communications.
DESCRIPTION OF PROPERTY
American Communications is newly organized and has only conducted
organizational activities. As a result, American Communications has acquired no
property.
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
Since inception of American
Communications, American
Communications' President, Mr. Schult has loaned American Communications
approximately $6,140 pursuant to an oral agreement. This agreement generally
provides for the repayment of the loan with interest at 10% per annum within
twelve(12) months from the time of the loan to American Communications. In the
event American Communications' receives the maximum proceeds, American
Communications may, in its discretion, repay the entire amount of such loan.
MARKET FOR COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS
American Communications is newly organized and this is American
Communications' initial public offering so there is currently no public trading
market for American Communications' common stock. American Communications hopes
to have American Communications' common stock prices listed on the bulletin
board maintained by the National Association of Securities Dealers. To be
eligible to have American Communications' common stock quoted on the bulletin
board, American Communications will be required to file with the Securities and
Exchange Commission periodic reports required by the Securities and Exchange Act
of 1934 and thus be a "reporting" company, a step American Communications will
attempt to accomplish after the effective date of this registration statement.
None of American Communications' common stock is subject to outstanding
options or rights to purchase nor does American Communications have any
securities that are convertible into common stock of American Communications.
American Communications has not agreed to register any stock of American
Communications for anyone nor does American Communications presently have in
effect employee stock options or benefit plan that would involve the issuing of
additional shares of the common stock of American Communications.
Dain Schult, the President of American
31
<PAGE> 34
Communications and Bob Ringle, the Vice President of American Communications,
collectively own 10,500,000 shares of the common stock of American
Communications. Messrs Schult and Ringle's common stock is "founder stock" and
was issued to Messrs Schult and Ringle without registration under the Securities
Act. Because the stock owned by Messrs Schult and Ringle is not registered, it
is "restricted stock" within the meaning of Rule 144 under the Securities Act
and may only be sold in accordance with the various rules and regulations of
Rule 144. Specifically, after Mr. Schult and Ringle have held their common stock
for a period of at least one year, Messrs Schult and Ringle could begin to sell
part of their common stock. Generally speaking, the amount of stock that each of
Messrs Schult and Ringle could sell could not exceed one percent (1%) of the
outstanding common stock of American Communications during any ninety (90) day
period. If the maximum number of shares are sold under this offering, the total
number of shares of common stock outstanding after the offering will be
21,500,000 shares. As a result, each of Messrs Schult and Ringle could sell up
to 205,000 shares during any ninety (90) day period. Although neither of Messrs
Schult or Ringle have any present intention to sell any of their shares, the
sale of the large block of American Communications' common stock could depress
the per share price of American Communications' common stock.
Rule 144 is conditioned upon American Communications making public certain
information concerning American Communications. Although American Communications
does not currently make information publically available that would allow
American Communications or Messrs Schult or Ringle to use Rule 144, American
Communications anticipates making such information available so that Messrs
Schult and Ringle could sell the amount set forth in Rule 144.
Dividends
American Communications has never paid dividends and does not expect to
declare any in the foreseeable future. Instead, American Communications expects
to retain all earnings for growth of American Communications. Although American
Communications has no specific limitations on its ability to pay dividends, the
corporate law of Nevada, the State under which American Communications is
organized, limits the ability to pay dividends to those instances in which
American Communications has earnings and profits. If American Communications is
unable to achieve earnings and profits in a sufficient amount to satisfy the
statutory requirements of Nevada, no dividends will be made, even if the Board
of Directors of American Communications otherwise wanted to pay dividends.
Investors should not purchase shares in this offering if their intent is to
receive dividends.
32
<PAGE> 35
EXECUTIVE COMPENSATION
The following table sets forth the compensation of American Communications'
two employees. Because American Communications was only incorporated in October,
1998, the amounts set forth below are the only amounts that have ever been
proposed to be paid to the officers of American Communications.
Name Position Annual Salary
Dain L. Schult Chief Executive Officer$126,000
President, Chairman of the
Board and Secretary
Robert E. Ringle Vice President of Inter$115,000
Operations Director of Sales,
Treasurer and Director
Mr. Schult is currently employed by American Communications at an annual
salary of $126,000 per annum pursuant to a three (3) year written employment
agreement dated as of October 29, 1998. Mr. Schult's employment agreement
generally provides for a monthly vehicle allowance of $500, for reimbursement of
business related expenses, and for bonuses as may be determined in management's
sole discretion.
Mr. Ringle is currently employed by American Communications at an annual
salary of $115,000 per annum pursuant to a three (3) year written employment
agreement dated as of October 29, 1998. Mr. Ringle's employment agreement
generally provides for a monthly vehicle allowance of $500, for reimbursement of
business related expenses, and for bonuses as may be determined in management's
sole discretion.
American Communications does not presently have a stock option plan but
intends to develop an incentive-based stock option plan for its officers and
directors in the future and may reserve up to approximately ten (10%) percent of
its then outstanding shares of Common Stock for such purpose.
FINANCIAL STATEMENTS
The following are the financial statements of American Communications, with
independent auditor's report, for the period ending December 31, 1998.
33
<PAGE> 36
American Communications Enterprises, Inc.
(A Development Stage Enterprise)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Independent Auditors' Report F-2
Financial Statements as of and for the period October 29, 1998 (date of
incorporation) to December 31, 1998:
Balance Sheet F-3
Statement of Operations F-4
Statement of Stockholders' Deficit F-5
Statement of Cash Flows F-6
Notes to Financial Statements F-7
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-1
<PAGE> 37
{Letterhead of BEARD NERTNEY KINGERY CROUSE & HOHL P.A.}
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of American Communications Enterprises, Inc:
We have audited the accompanying balance sheet of American Communications
Enterprises, Inc. (the "Company"), a development stage enterprise, as of
December 31, 1998, and the related statements of operations, stockholders'
deficit and cash flows for the period October 29, 1998 (date of incorporation)
to December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and the disclosures in the financial statements. An audit also
includes assessing the accounting principles used and the significant estimates
made by management, as well as the overall financial statement presentation. We
believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1998, and the results of its operations and its cash flows for the period
October 29, 1998, (date of incorporation) to December 31, 1998 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B to the
financial statements, the Company is experiencing difficulty in generating
sufficient cash flow to meet its financing needs. This factor, along with its
negative working capital and deficit positions, raises substantial doubt about
its ability to continue as a going concern. Management's plans in regard to this
matter are also described in Note B. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
BEARD NERTNEY KINGERY CROUSE & HOHL P.A.
January 25, 1999
F-2
<PAGE> 38
American Communications Enterprises, Inc.
(A Development Stage Enterprise)
BALANCE SHEET AS OF DECEMBER 31, 1998
<TABLE>
<S> <C>
TOTAL ASSETS $ 0
==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accrued payroll $ 64,590
Advances from shareholder 6,140
-----------
Total liabilities 70,730
-----------
STOCKHOLDERS' DEFICIT:
Common stock - no par value: 30,000,000 shares
authorized; 10,500,000 shares issued and outstanding 100
Deficit accumulated during the development stage (70,830)
--------------
Total stockholders' deficit (70,730)
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 0
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-3
<PAGE> 39
American Communications Enterprises, Inc.
(A Development Stage Enterprise)
STATEMENT OF OPERATIONS
for the period October 29, 1998 (date of incorporation)
to December 31, 1998
<TABLE>
<S> <C>
EXPENSES:
Salary $ 60,000
Payroll taxes 4,590
Office expense 2,451
Travel and lodging 2,062
Organization costs 606
Meals & entertainment 716
Telephone & internet 405
-----------
NET LOSS $ 70,830
==============
NET LOSS PER SHARE $ 0.01
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-4
<PAGE> 40
American Communications Enterprises, Inc.
(A Development Stage Enterprise)
STATEMENT OF STOCKHOLDERS' DEFICIT
for the period October 29, 1998 (date of incorporation)
to December 31, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Common Stock Development
Shares Value Stage Total
--------------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Balances, October 29, 1998
(date of incorporation) 0 $ 0 $ 0 $ 0
Proceeds from the issuance
of common stock 10,500,000 100 100
Net loss for the period,
October 29, 1998
(date of incorporation)
to December 31, 1998 (70,830) (70,830)
--------------- ------------- --------------- ------------
Balances December 31, 1998 10,500,000 $ 100 $ (70,830) $ (70,730)
=============== ============= =============== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-5
<PAGE> 41
American Communications Enterprises, Inc.
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
for the period October 29, 1998 (date of incorporation)
to December 31, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (70,830)
Adjustments to reconcile net loss to net cash
used in operating activities - increase in accrued
payroll 64,590
--------------
NET CASH USED IN OPERATING ACTIVITIES (6,240)
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from shareholder 6,140
Proceeds from the issuance of common stock 100
--------------
CASH PROVIDED BY FINANCING ACTIVITIES 6,240
--------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 0
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 0
-------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 0
==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 0
==============
Taxes paid $ 0
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-6
<PAGE> 42
American Communications Enterprises, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
NOTE A - FORMATION AND OPERATIONS OF THE COMPANY
American Communications Enterprises, Inc. (the "Company") was incorporated under
the laws of the state of Nevada on October 29, 1998. The Company is considered
to be in the development stage, as defined in Financial Accounting Standards
Board Statement No. 7. The Company intends to purchase and operate radio
stations throughout the United States. The planned principal operations of the
Company have not commenced, therefore accounting policies and procedures have
not yet been established.
NOTE B - GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has an accumulated
deficit and negative working capital position of $70,730 as of December 31,
1998, and accordingly its ability to continue as a going concern is dependent on
obtaining capital and financing for its planned principal operations. The
Company plans to secure financing for its acquisition strategy through the sale
of its common stock (see Note D) and issuance of debt. However, there is no
assurance that they will be successful in their efforts to raise capital. These
factors among others may indicate that the Company will be unable to continue as
a going concern for a reasonable period of time. The financial statements do not
include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
NOTE C - RELATED PARTY TRANSACTION
The Company's president, who is also a shareholder, has advanced $6,140 to the
Company. As of December 31, 1998 the Company had not repaid any of the advances,
which are unsecured, non-interest bearing and due on demand.
NOTE D - PROPOSED COMMON STOCK OFFERING
During the first quarter of 1999, the Company intends to file a registration
statement for the sale of up to 10,000,000 shares of the Company's common stock
at $0.05 per share. The existing shareholders do not intend to offer any shares
for sale. The offering is on a best efforts, no minimum basis, and any proceeds
will be used to finance the Company's acquisition strategy as well as provide
working capital. The Company's acquisition strategy includes the identification
of radio stations and the relative size of such acquisitions, however,
management believes that such acquisitions are not currently probable.
- -------------------------------------------------------------------
F-7
<PAGE> 43
34
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article V of the Bylaws of American Communications provides that American
Communications shall indemnify its officer or directors against expenses
incurred in connection with the defense of any action in which they are made
parties by reason of being officers or directors of American Communications,
except in relation to matters as to which such director or officer shall be
adjudged in such action to be liable for negligence or misconduct in the
performance of his duty. An officer or director of American Communications could
take the position that this duty on behalf of American Communications to
indemnify the director or officer may include the duty to indemnify the officer
or director for the violation of securities laws.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of American Communications pursuant to American Communications's
Articles of Incorporation, Bylaws, Nevada law or otherwise, American
Communications has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by American
Communications of expenses incurred or payed by a director, officer or
controlling person of American Communications and the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, American
Communications will, unless in the opinion of its counsel the matter has been
settled by a controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
<PAGE> 44
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized list of the estimate by American
Communications of the expenses of the offering:
Type of Expense Amount
Accounting Fees $ 2,000.00
Filing Fees $ 1,500.00
Attorneys Fees $ 35,000.00
Transfer Agent Fees $ 3,500.00
Printing Costs $ 3,000.00
Standard & Poor Listing $ 5,000.00
TOTAL $ 50,000.00
RECENT SALES OF UNREGISTERED SECURITIES
On or about October29, 1998, American Communications was incorporated
under the laws of the State of Nevada. Effective as of October 29, 1998,
American Communications issued a total of 10,500,000 shares of its stock to the
two founders of American Communications, Dain L. Schult and Robert E. Ringle.
The federal exemption American Communications relied upon in issuing the
securities was Section 4(2) of the Securities Act. The Section 4(2) exemption
was available to American Communications because American Communications did not
solicit any investment in American Communications and instead simply issued
shares to Messrs Schult and Ringle who are related to each other. In addition,
given Messrs Schult and Ringle's involvement in the establishment of American
Communications, Messrs Schult and Ringle each had access to such information as
he deemed necessary to fully evaluate an investment in American Communications.
In addition, the issuance of the shares of stock to Messrs Schult and Ringle was
exempt under the laws of the State of Texas, the State in which both persons
resided at the time of the commencement of American Communications, pursuant to
Section 5 I. (a) of the Texas Securities Act. Section 5 I. (a) of the Texas
Securities Act provides that the provisions of the Texas Securities Act shall
not apply to the sale of any security by the issuer thereof so long as the total
number of security holders of the issuer thereof does not exceed thirty-five
(35) persons after taking such sale into account; and such sale is made without
any public solicitation or advertisements:
The actual consideration paid for the shares issued to Messrs Schult and
Ringle was $100 in cash. Because of the extremely limited nature of the
transaction by which the shares were issued to Messrs Schult and Ringle, no
underwriters were used.
<PAGE> 45
EXHIBITS
Attached to this registration are the exhibits required by Item 601 of
Regulation S-B.
UNDERTAKINGS
American Communications does not presently anticipate using an underwriter
in conducting this offering; if American Communications changes its plan and
utilizes an underwriter, American Communications will provide to the
underwriter, at the closing specified in any underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of American Communications pursuant to American Communications's
Articles of Incorporation, Bylaws, Nevada law or otherwise, American
Communications has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by American
Communications of expenses incurred or payed by a director, officer or
controlling person of American Communications and the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, American
Communications will, unless in the opinion of its counsel the matter has been
settled by a controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
American Communications will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement; and notwithstanding the forgoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospects
filed with the Commission pursuant to Rule 424(b) (ss.230.424(b) of this
chapter) if, in the aggregate, the changes in the volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
<PAGE> 46
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Austin,
State of Texas on March 22, 1999.
(Registrant) American Communications Enterprises, Inc.
By /s/Dain L. Schult
Dain L. Schult, President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
(Signature)/s/Dain L. Schult
Dain L. Schult
(Title) President, Chief Executive Officer, Secretary, Chairman of the Board
of Directors
(Date) March 22, 1999
(Signature)/s/Robert E. Ringle
Robert E. Ringle
(Title) Vice President, Treasurer and Director
(Date) March 22, 1999
<PAGE> 47
Date Filed: March 22, 1999 SEC File No.333-72097
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
REGISTRATION STATEMENT
ON FORM SB-2
UNDER
THE SECURITIES ACT OF 1933
AMERICAN COMMUNICATION ENTERPRISES, INC.
(Consecutively numbered pages 49 through 52 of this Registration Statement)
<PAGE> 48
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. SEC REFERENCE TITLE OF DOCUMENT LOCATION
<S> <C> <C> <C>
NUMBER
1 3 Charter and Bylaws Original Filing
2 5 Consent of Hoge, Evans, Holmes, Original Filing
Carter & Ledbetter, PLLC,
Attorneys and Counselors at Law
3 10 Employment Contract of Dain L. Original Filing
Schult
4 10 Employment Contract of Robert E. Original Filing
Ringle
5 23 Consent of Beard, Nertney, This Filing
Kingery, Crouse & Hohl, P.A. Page
6 23 Consent of Hoge, Evans, Holmes, This Filing
Carter & Ledbetter, PLLC, (See Page
Exhibit 2)
</TABLE>
<PAGE> 49
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-2 of our report dated January 25, 1999
relating to the financial statements of American Communications Enterprises,
Inc., which appear in such Prospectus.
Tampa Bay, Florida
March 22, 1999
BEARD NERTNEY KINGERY CROUSE & HOHL P.A.
<PAGE> 50
HOGE, EVANS, HOLMES, CARTER & LEDBETTER, PLLC
ATTORNEYS AND COUNSELORS
HAMPTON COURT
SUITE 600
4311 OAKLAWN
DALLAS, TEXAS 75219
----------------
Steven B. Holmes
Licensed In TELEPHONE (214) 765-6000
Texas and Oklahoma TELECOPIER (214) 765-6020
E-MAIL [email protected]
March 22, 999
Board of Directors
American Communications Enterprises, Inc.
7103 Pine Bluffs Trail
Austin, Texas 78729
Re: American Communications Enterprises, Inc.
Registration Statement on Form SB-2
Gentlemen:
We have been retained by American Communications Enterprises, Inc. (the
"Company") in connection with the Registration Statement (the "Registration
Statement") on Form SB-2, to be filed by the Company with the Securities and
Exchange Commission relating to the offering of securities of the Company. You
have requested that we render our opinion as to whether or not the securities
proposed to be issued on terms set forth in the Registration Statement will be
validly issued, fully paid, and nonassessable.
In connection with the request, we have examined the following:
1. Articles of Incorporation of the Company;
2. Bylaws of the Company;
3. The Registration Statement; and
4. Unanimous consent resolutions of the Company's Board of Directors.
We have examined such other corporate records and documents and have made
such other examinations as we have deemed relevant.
<PAGE> 51
HOGE, EVANS, HOLMES, CARTER & LEDB---------------------------------
Board of Directors
March 22, 1999
Page 2
Based on the above examination, we are of the opinion that the securities
of the Company to be issued pursuant to the Registration Statement are validly
authorized and, when issued in accordance with the terms set forth in the
Registration Statement, will be validly issued, and fully paid, and
non-assessable under the corporate laws of the State of Nevada.
We consent to our name being used in the Registration Statement as having
rendered the foregoing opinion and as having represented the Company in
connection with the Registration Statement.
Sincerely,
HOGE, EVANS, HOLMES,
CARTER & LEDBETTER PLLC
Steven B. Holmes
SBH
<PAGE>52
