cc: Information Network Radio, Inc.
Hollander, Lumer & Co. LLP
As filed with the Securities and Exchange Commission on July 9, 1999
CIK: 0001084718
Registration No. 333-77691
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
PRE-EFFECTIVE AMENDMENT No. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
Information Network Radio, Inc.
(Name of small business issuer in its charter)
California 4832 94-3323226
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
114 Sansome Street, Suite 1410
San Francisco, California 94104
415.434.1220
(Address and telephone number of principal executive
offices and principal place of business)
N. John Douglas, Chairman/Chief Executive Officer
Information Network Radio, Inc.
114 Sansome Street, Suite 1410
San Francisco, California 94104
415.434.1220
(Name, address and telephone of agent for service)
---------------------
Copies to:
Drew Field
534 Pacific Avenue
San Francisco, CA 94133
415.296.9795
---------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
---------------------
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
==============================================================================================================
Title of each Dollar Proposed maximum Proposed maximum
class of securities Amount to be offering price aggregate offering Amount of
to be registered registered per share price registration fee
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, without par value $8,000,000 $100.00 $8,000,000 $2,224
==============================================================================================================
</TABLE>
The registrant hereby amends this registration statement on such date or
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.
3
<PAGE>
If any of the securities on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following: X
---
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<TABLE>
INFORMATION NETWORK RADIO, INC.
Cross-reference Sheet Showing Location in Prospectus of:
PART I -- INFORMATION REQUIRED IN PROSPECTUS
<CAPTION>
Form SB-2 Item Number and Caption Caption in Prospectus
--------------------------------- ---------------------
<S> <C>
1. Front of Registration Statement and
Outside Front Cover of Prospectus......... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus....................... Inside Front Cover Page of Prospectus
3. Summary Information and Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds............................. Use of Proceeds
5. Determination of Offering Price............. Plan of Distribution -- Determination of Offering Price
6. Dilution.................................... Dilution
7. Selling Security Holders.................... Not applicable
8. Plan of Distribution........................ Plan of Distribution
9. Legal Proceedings........................... Business -- Legal Proceedings
10. Directors, Executive Officers, Promoters
and Control Persons....................... Management
11. Security Ownership of Certain Beneficial
Owners and Management..................... Principal Shareholders
12. Description of Securities................... Description of Common Stock
13. Interest of Named Experts and Counsel....... Not applicable
14. Disclosure of Commission Position on Management -- Indemnification of
Indemnification for Securities Act ....... Officers and Directors
15. Organization Within Last Five Years......... Organization of the Company
16. Description of Business..................... Prospectus Summary; Risk Factors;
Business; Certain Transactions
17. Management's Discussion and Analysis
or Plan of Operation ..................... Management's Plan of Operations
18. Description of Property................... Business - Properties/Facilities
19. Certain Relationships and Related
Transactions.............................. Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters Risk Factors; Shares Eligible
for Future Resale
21. Executive Compensation...................... Management: Executive Compensation
22. Financial Statements........................ Index to Financial Statements
23. Changes In and Disagreements With
Accountants on Accounting and
Financial Disclosure...................... None
</TABLE>
4
<PAGE>
80,000 SHARES
[logo, consisting of block letters "IN," with a globe on top of
the I, with "RADIO" on one side of the block letters and
"Information Network Radio" on the other side]
IN Radio
COMMON STOCK
---------
Information Network Radio, Inc. is offering these 80,000 shares of common
stock directly to investors, through designated executive officers who will
register as sales representatives, where required, and will not receive any
commission. There has been no public trading market for the shares and we do not
expect there to be one after this offering. Our management has determined this
initial public offering price. The terms "IN Radio," "we" or "our" all mean the
corporation, Information Network Radio, Inc, its subsidiaries and its
predecessor, Information Network Radio, LLC.
This offering will end when all the shares have been purchased or an
earlier date, if we decide to close the offering. The minimum purchase for each
investor is 250 shares. We reserve the right to reject any share order form in
full or in part.
---------
This offering involves a high degree of risk.
See "Risk Factors" beginning on page 4.
---------
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved the shares or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
================================================================================
Public Underwriting
Offering Discounts and Proceeds to
Price Commissions IN Radio
- --------------------------------------------------------------------------------
Per Share $100.00 None $100.00
- --------------------------------------------------------------------------------
Total $8,000,000 None $8,000,000
================================================================================
---------
The date of this Prospectus is___________, 1999
5
<PAGE>
We have not authorized anyone to give you any information or make any
representation that is not in this prospectus. The information in this
prospectus is current and correct only as of the date of this prospectus,
regardless of the time of its delivery or of any sale of the shares. We are
offering to sell, and seeking offers to buy the shares only in jurisdictions
where offers and sales are permitted.
-----------------------
TABLE OF CONTENTS
Page Page
---- ----
Prospectus Summary.................. 3 Certain Transactions............... 19
Risk Factors........................ 4 Principal Shareowners.............. 20
Use of Proceeds..................... 5 Description of Capital Stock....... 20
Dilution............................ 6 Shares Eligible for Future Resale.. 21
Management's Plan of Operation...... 7 Plan of Distribution............... 21
Business............................ 8 Experts............................ 22
Management.......................... 17 Additional Information............. 22
Index to Financial Statements...... 22
---------------------
Until , 1999 (90 days after the date of this Prospectus), all
dealers that buy, sell or trade our common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This requirement is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
-----------------------
6
<PAGE>
PROSPECTUS SUMMARY
This is a brief overview of the key aspects of the offering:
Our business:
o IN Radio's business is designing and originating talk-formatted
programming for satellite radio broadcasting.
o We have contracts with the two companies licensed to provide digital
satellite transmission directly to vehicles and homes.
o Satellite radio will provide a new generation of radio service, with
signal coverage throughout the continental United States and compact
disc quality programming.
o We are to provide seven channels of talk-formatted programming 24
hours a day, seven days a week.
o Our revenues will come primarily from selling commercial advertising
messages and sponsored programs.
Our development plan:
o We will build and equip our San Francisco studio, hire and train
employees and create programming content.
o Our contracts require us to send a test signal to the satellite radio
companies by June 2000.
o We are to begin operations in October 2000, after satellites are to
have been launched and tested.
How to communicate with us:
Our office is at 114 Sansome Street, Suite 1410, San Francisco, California
94104. Our telephone number is 415.434.1220, the fax number is 415.434.1280 and
our email address is [email protected].
How to become a shareowner:
We are offering shares of our common stock directly to selected investors,
for a minimum investment of 250 shares at $100 per share, or $25,000. You may
become a shareowner by filling out the share order form and returning it with
your check for the amount of your investment. When your order has been accepted,
we will return a signed copy to you, with an acknowledgment letter. Within a few
weeks, you will receive a certificate for your shares. You are invited to call
or write John Douglas with any questions.
7
<PAGE>
RISK FACTORS
We need the funds from this offering to start the business on time.
Cost overruns or failure to sell sufficient shares in this offering, or to
secure other equity or debt financing on a timely basis could cause us not to be
ready when the radio satellites are launched. This would violate our agreements
with the satellite radio companies. There is no minimum amount required to be
sold in this offering. It could close with less than all $8 million having been
sold. We estimate that $4.2 million will be needed to commence commercial
operation by the end of 2000.
We expect to have losses and negative cash flow for at least the next four
years.
Our business is in an early development stage. We do not expect to begin
generating revenues from operations until late 2000. We expect that positive
cash flow from operations will not occur before 2002. The satellite radio
companies may never commence operations. Even if they do, we may never achieve
or sustain profitability. Financial statements in this prospectus have been
prepared assuming that we will continue as a going concern.
We may need more money to operate until we reach breakeven. It could be
unavailable or costly.
Additional funding may be necessary to reach the point when we would be
generating positive cash flow from operations. We could be unable to raise
additional capital. Payments of interest and principal on any additional debt or
lease financing could delay the time when we are generating positive cash flow.
Our estimates of cash flow are based upon assumptions, particularly when
satellite radio service will begin and how quickly it is accepted in the market.
Actual results may be very different from our assumptions. Whether and how much
money we may need will depend upon the actual timing of satellite launches and
consumer subscriptions to the satellite services.
Your investment depends upon CD Radio and XM Satellite Radio, companies that
have not commenced operations, and our agreements with them.
IN Radio's success is dependent upon the financial strength and ability of CD
Radio and XM Satellite Radio to commence and maintain satellite radio service.
No one else has the FCC authority to operate a similar service. We have
five-year agreements with CD Radio and with XM Satellite Radio. Each agreement
has options to extend but extension is not totally within our control and may
not be granted. They also have conditions which could cause early termination.
Our business could be destroyed or severely harmed by termination of or
significant change in these agreements.
Delay in the start of satellite radio operations would increase your risk of
loss.
A significant delay in the commencement of operations by CD Radio or XM
Satellite Radio would have a material adverse effect on IN Radio. CD Radio
announced in February 1999 that its projected start of operations was postponed
from April 2000 to the fourth quarter of 2000 because of a shortage in launch
vehicles for the satellites, as well as delays and cost increases for the
integrated circuits used in its customers' receivers. Further delays could
result from any one or more of many causes, such as unanticipated delays
associated with obtaining additional FCC authorizations, coordinating use of
radio spectrum with Canada and Mexico, inability of the satellite radio
companies to obtain necessary financing in a timely manner, delays in or
modifications to the design, development, construction or testing of radio
satellites, the national broadcast studios or other aspects of the satellite
radio system, changes of technical specifications, delay in commercial
availability of radio cards, S-band radios or miniature satellite dish antennas,
failure of the satellite radio's vendors to perform as anticipated or a delayed
or unsuccessful satellite launch or deployment.
If satellite radio technology fails, you will lose your investment.
Satellite radio is designed to be broadcast from two or three satellites in
geosynchronous or elliptical orbits that transmit identical signals to radio
cards or S-band radios through miniature satellite dish antennas. This design
involves new applications of existing technology and the satellite radio system
may not work as planned. The necessary radio cards, S-band radios and miniature
satellite dish antennas are not currently available in production quantities.
Signals from both satellites will be blocked and satellite radio reception will
diminish in areas with high concentrations of tall buildings and other
obstructions, such as in large urban areas, or in tunnels. In urban areas, the
satellite radio companies plan to install terrestrial repeating transmitters to
rebroadcast the satellite radio signal. Certain areas with impediments to
satellite line-of-sight may still experience "dead zones." However, parts of the
technologies to be employed by these companies have been used successfully in
direct satellite television broadcasting and cable radio. One or more of the
technologies to be used by satellite radio companies may become obsolete or
their services may not be in demand at the time they are offered. More advanced
satellite radio technologies, or broadcast technologies other than satellite
radio may be used by media competitors.
8
<PAGE>
Our operating results could be harmed if the initial satellites fail, or have
significantly shorter useful lives than 15 years, and if the satellite radio
companies have not launched replacement satellites.
Random failure of satellite components could result in damage to or loss of a
satellite. In rare cases, satellites could also be damaged or destroyed by
electrostatic storms or collisions with other objects in space. If the satellite
radio company is required to launch a spare satellite, due to failure of the
launch or in-orbit failure of one of the operational satellites, its operational
timetable would be delayed for approximately six months or more. The launch or
in-orbit failure of two satellites would require the satellite radio company to
arrange for additional satellites to be built and could delay the commencement
or continuation of the satellite radio's operations for three years or more. The
satellites are designed to have useful lives of approximately 15 years, after
which their performance is expected to deteriorate. A number of factors will
affect the useful lives of the satellites, including the quality of
construction, the expected gradual environmental degradation of solar panels,
the amount of fuel on board and the durability of component parts.
Radio cards, S-band radios or miniature satellite dish antennas may not be
available, delaying our flow of revenue.
The satellite radio companies' business strategies require that subscribers to
the service purchase radio cards or S-band radios as well as the associated
miniature satellite dish antennas in order to receive the signal. Our revenues
could be delayed by a failure to have those products available in sufficient
quantities, in a timely manner and at an affordable price. These products are
not now available in production quantities, although major consumer electronics
manufacturers have contracted to manufacture them for retail sale in the United
States. The FCC satellite radio licenses are conditioned upon receivers being
available which will operate on both of the significantly different transmission
technologies planned by the two satellite radio companies.
There may not be enough demand for satellite radio to make us profitable.
The consumer demand for satellite radio service may not be sufficient for IN
Radio to achieve significant revenues or positive cash flow or profitable
operations. There is currently no satellite radio service in commercial
operation for consumers in the United States. As a result, the extent of the
potential demand for such a service and the degree to which the proposed service
will meet the demand is difficult to estimate. Factors beyond our control will
affect the success of satellite radio in gaining market acceptance, including
the willingness of consumers to pay subscription fees to obtain satellite radio
broadcast; the cost, availability and consumer acceptance of radio cards, S-band
radios and miniature satellite dish antennas; the marketing and pricing
strategies of audio media competitors; the development of alternative
technologies or services and general economic conditions.
Development and operation of the business are highly dependent on the services
of N. John Douglas, with whom we have no employment contract.
N. John Douglas, Chairman and Chief Executive Officer, is responsible for IN
Radio's overall direction and strategic planning. The loss of the services of
Mr. Douglas would have a material adverse effect upon our business and
prospects. Mr. Douglas does not have an employment agreement with IN Radio and
we have no insurance on his life. He is the major shareowner.
Satellite radio could be subject to signal theft.
The satellite radio signal, like all broadcasts, is subject to piracy. Signal
theft, if widespread, could be commercially harmful to the satellite radio
companies and IN Radio. The satellite radio companies plan to use
state-of-the-art encryption technology to mitigate signal theft. They do not
believe that this technology is infallible.
USE OF PROCEEDS
The net proceeds to IN Radio from this offering are estimated to be
approximately $7.85 million after deducting estimated expenses of $150,000 for
registration fees, legal and accounting fees, costs of printing, copying and
postage and other offering costs. We plan to use these proceeds to pay for
pre-operational development expenses, working capital and to cover expected net
cash outflow from the date our operations begin through our projected 2002
breakeven point and self-supporting positive cash flow. If less than all the
shares offered are sold, these areour planned allocations:
9
<PAGE>
<TABLE>
<CAPTION>
Planned Use of Proceeds Allocation if These Percentages of the Offering are Sold
----------------------- --------------------------------------------------------
25% 50% 75% 100%
--- --- --- ----
<S> <C> <C> <C> <C>
Pre-operational development expenses $1,500,000 $1,500,000 $1,500,000 $1,500,000
Working Capital 350,000 500,000 500,000 500,000
Net operating cash outflow to breakeven --- 1,850,000 3,850,000 5,850,000
</TABLE>
The components of our pre-operational development expenses are: employee
compensation - 73%, rent - 10%, leased equipment - 5%, advertising -1% and other
expenses - 11%. Working capital includes rent deposits - 20%, advances on leases
- - 60% and miscellaneous items and reserves - 20%. The components of the expected
net operating cash outflow to breakeven, and the percentages of proceeds (and
any other financing that may be used) are: employee compensation - 69%, rent -
4%, leased equipment - 4%, advertising - 10% and other expenses -13%. If less
than 100% of this offering is sold, or if our cash outflows are higher than our
estimate, we plan to fund the shortfall by a further share offering or by debt.
DILUTION
The public offering price per share is substantially higher than the
net tangible book value per share of our common stock. Purchasers of shares in
this offering will experience immediate and substantial dilution in the pro
forma net tangible book value per share. The issuance of additional equity
securities could also cause substantial dilution of the ownership interest of
purchasers of the shares offered by this prospectus.
On March 31, 1999 IN Radio had a net tangible book value of ($23,749) or
($.20) per share. The net tangible book value per share is equal to its total
tangible assets, less its total liabilities and divided by its total number of
shares of common stock outstanding. We have computed a pro forma net tangible
book value on the same date, by giving effect to the sale of all the shares in
this offering and the application of the estimated net offering proceeds. That
pro forma net tangible book value would have been $7,826,251, or $39.17 per
share. This represents an immediate increase in net tangible book value of
$39.37 per share to existing shareowners and an immediate dilution of $60.83 per
share to new shareowners in this offering. The following table illustrates this
dilution to new shareowners:
Public offering price per share...................... $100.00
Net tangible book value per share (0.20)
Increase in net tangible book value per share
attributed to new investors................... 39.37
-------
Pro forma net tangible book value per share
after this offering............................. 39.17
-------
Net tangible book value dilution per share
to new investors................................ $ 60.83
=======
<TABLE>
The following table shows, on a pro forma basis as of March 31, 1999, the
difference between existing shareowners and new shareowners in this offering,
with respect to the number of shares purchased, the total consideration paid and
the average price paid per share:
<CAPTION>
Shares Purchased Total Consideration
------------------------- ---------------------- Average Price
Number Percent Amount Percent Per Share
----------- ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing Shareowners...... 119,825 60.00 $ 10,000 0.12% $ 0.08
New Shareowners........... 80,000 40.00 8,000,000 99.88 100.00
----------- ------------ ---------- ----------- ---------
Total.................. 199,825 100.00% $8,010,000 100.00%
=========== ============ ========== ===========
</TABLE>
The calculations in these tables include our issuance of shares for intangible
assets and services. The effect of this was to increase the number of shares
held by existing shareowners, with no change in the amount of net tangible
assets. This increased the dilution to new shareowners by nearly $.02 per share.
10
<PAGE>
MANAGEMENT'S PLAN OF OPERATION
Our plan of operation is linked to the schedules of the satellite radio
companies. We are planning to be ready for transmitting a test signal to them by
June 2000 and programming by October 2000, when CD Radio has projected its
service will begin. XM Satellite Radio is forecasted to commence no later than
six months after CD Radio's initial satellite broadcast service.
Development of the Business Up to Now. We began as a limited liability company
on September 18, 1998 and incorporated the business March 9, 1999. The financial
statements in this Prospectus are for the period from September 18, 1998 through
March 31, 1999. Our development during that time has primarily included creating
the working relationships with XM Satellite Radio, CD Radio and
Nightingale-Conant and completing the agreements with them. We have also been
working with a marketing consultant and others in planning, locating studio
facilities and equipment, formulating programs and identifying prospective
employees and suppliers.
Plan for Development Until we Begin Operations. We must be ready to deliver
programming when the satellite radio companies begin operations, or our
agreements with them terminate. CD Radio currently expects that to be October 1,
2000 and XM Satellite Radio in early 2001. Our agreement with Nightingale-Conant
will terminate if we do not begin broadcasting by June 30, 2001. Our development
from now until we are scheduled to begin operations will focus on designing and
constructing the studio facility, hiring and training about 165 employees,
designing the programming schedules, creating and acquiring programming content,
contracting with numerous suppliers and testing all parts of the proposed
operation. We need to go from no employees or facilities to a full complement
for operating seven channels of radio broadcasting 24 hours a day, seven days a
week.
Our Cash Requirements. Proceeds from sale of all the shares in this offering
would satisfy our expected cash requirements during our pre-operational period
and also fund the business until 2002, when we plan to be receiving more cash
from operations than we are paying. We would not need to raise additional funds
to meet our commitments. If the proceeds from this offering are less than
$2,000,000, we would need money from another source to begin operations on time.
Proceeds from this offering of more than $2,000,000, but less than the full
$8,000,000 would require us to raise additional capital to cover net cash
outflow during the first two years of operations. Our Chief Executive Officer
and Chief Financial Officer have committed to providing any funding necessary
during the next twelve months, to the extent it is not available from this
offering or other sources. We currently plan a second public offering of common
stock after operations commence. Our financial statements are presented as a
going concern on the basis that funding will be available.
<TABLE>
The following table describes our estimated uses of funds through 2002,
when we project reaching positive cash flow from operations. This projection is
forward-looking and could vary, perhaps substantially, from actual results, due
to events outside our control, including unexpected costs and unforeseen delays.
<CAPTION>
Uses of Funds (in millions)
From this Total uses
Offering of funds
-------- -----------
<S> <C> <C>
Leasehold capital improvements and equipment $ 2.20(a)
Estimated costs of this offering $0.15 0.15
Working capital 0.50 0.50
Operating expenses until operations commence 1.50 1.50
Losses until there is positive cash flow from operations 5.85(b) 5.85(b)
---- -----
Total uses $8.00 $10.20
==== =====
<FN>
(a) We expect to finance these through debt and/or lease financing.
(b) This includes our estimate of funds needed to cover negative cash flow until
the projected breakeven in 2002.
</FN>
</TABLE>
11
<PAGE>
BUSINESS
IN Radio is a satellite radio network programming company. We will
provide talk-formatted programming to a new multi-channel radio service that
broadcasts directly from satellites to vehicles and homes.
IN Radio was formed September 18, 1998 as Information Network Radio,
LLC, a Delaware limited liability company. Information Network Radio, Inc. was
incorporated under California law on March 9, 1999 and is the successor to
Information Network Radio, LLC. IN Radio has two wholly-owned subsidiaries,
Personal Achievement Live, LLC, formed as a Delaware limited liability company
March 4, 1998 and AsiaOne Network, LLC, formed as a Delaware limited liability
company August 10, 1998.
In October 1997, two companies were granted licenses from the Federal
Communication Commission after an auction process to build, launch and operate
national satellite radio broadcast systems. The FCC licenses cost CD Radio $83
million and XM Satellite Radio $89 million. Each company plans to have up to 100
channels of which 50 channels will be commercial-free, compact disc quality
music programming and up to 50 will be advertiser-supported channels of
non-music programming including news, sports, and talk.
<TABLE>
We have agreements to broadcast five channels on CD Radio and two
channels on XM Satellite Radio. (The agreement for two channels with CD Radio
was initially with our subsidiary, Personal Achievement Live, LLC and the
agreement with XM Satellite Radio was initially with our subsidiary, AsiaOne,
LLC. These subsidiaries have had no activity and the agreements have been
assigned to the parent company, with required consents.) We plan to develop and
offer the following wide range of informational talk programming on a 24-hour,
7-day/week basis:
<CAPTION>
- --------------------------------------------- -------------------------------- ------------------------------
Programming Format Target Demographics Satellite Operator
- --------------------------------------------- -------------------------------- ------------------------------
<S> <C> <C>
BEST 25 - 54 CD Radio
- --------------------------------------------- -------------------------------- ------------------------------
Cruisin'(And Having Fun) 45+ CD Radio
- --------------------------------------------- -------------------------------- ------------------------------
China Wave Chinese Americans XM Satellite Radio
- --------------------------------------------- -------------------------------- ------------------------------
Especially Women... Women, 25 - 54 CD Radio
- --------------------------------------------- -------------------------------- ------------------------------
Information First!
(Success Tools For African Americans) African Americans CD Radio
- --------------------------------------------- -------------------------------- ------------------------------
Personal Achievement Live 25 - 54 CD Radio
- --------------------------------------------- -------------------------------- ------------------------------
Taj Radio Network
(Home Away From Home) Asian Indians XM Satellite Radio
- --------------------------------------------- -------------------------------- ------------------------------
</TABLE>
IN Radio will have multiple state-of-the-art radio production studios in our San
Francisco national broadcast facility. We will be able to create, edit, store,
and transmit high-quality, digital programming to either the CD Radio (New York
City) or XM Satellite Radio (Washington, D.C.) national studios. We will also
have eight regional "micro" studios in New York, Washington D.C., Atlanta,
Chicago, Dallas, Detroit, Los Angeles, and Denver for regional/national sales
departments, local/regional news bureaus and talk interview studios.
The Satellite Radio Opportunity
The last major advance in radio technology was the introduction of FM
broadcasts and FM multiplexed sound in the 1940's and 1950's. Television
technology has meanwhile advanced steadily, from black and white to color, from
broadcast to cable, and from ordinary to high-definition television. Satellite
radio could provide a new generation of radio service, offering a wide variety
of music formats available on demand, nearly seamless signal coverage throughout
the United States and commercial-free, compact disc quality music programming.
In addition, this service will provide a wide variety of targeted talk formats
that may not be economically viable in local markets, yet could have a strong
national following. The satellite radio industry's planned multiplicity of
formats is currently not available in any market within the United States.
CD Radio's service is primarily for motorists and XM Satellite Radio's
service is primarily for radios in
12
<PAGE>
homes or other buildings. The Yankee Group, a Boston-based market research
organization, estimates that there will be approximately 200 million registered
private motor vehicles in the United States by the end of 2000, when CD Radio
expects to commence broadcasting. At present, approximately 89% of all private
vehicles have a radio that could easily receive satellite radio type broadcasts,
according to a Bear Stearns & Co., Inc. Equity Research Report, "CD Radio,
Inc.," dated September 2, 1998. CD Radio, in its November 20, 1997 common stock
prospectus, targeted a number of demographic groups among the drivers of these
vehicles. The group included 110 million commuters, 34 million of whom spend
between one and two hours commuting daily, three million truck drivers and three
million owners of recreational vehicles. This Prospectus also stated that almost
all vehicles contain either a cassette or a compact disc player, but 87% of
automobile commuters still listened to the radio an average of 50 minutes a day
while commuting. Between 95% and 98% of all Americans age 12 and up listen to
radio every week, and 75% listen on a daily basis, according to The Arbitron
Company, a New York City broadcast industry ratings organization, as reported in
an October 10, 1998 press release from XM Satellite Radio. A typical listener
spends three hours and 20 minutes each day listening to the radio, which is more
than 22 hours a week and more than 1,200 hours a year, according to the Radio
Advertising Bureau, and there are about 104 million listeners outside of radio's
top 50 markets. That includes markets like Dayton, Ohio (#54 with 28 stations),
Richmond, Virginia (#56 with 26 stations) and Tucson, Arizona (#61 with 28
stations) according to the third edition of BIA Research's publication,
"Investing in Radio Market Report, 1998."
We expect that the satellite radio industry's wide choice of
programming will appeal to a large number of currently underserved listeners.
The economics of the existing advertiser-supported local radio industry dictate
that radio stations generally program for the greatest potential audience in
their limited geographic range. Even in the largest metropolitan areas, station
formats are limited. According to Item 1 of CD Radio's 1998 Form 10-K, filed
with the SEC:
o Nearly half of all commercial radio stations in the United States offer
one of only three formats: country, adult contemporary and news/talk,
and the next three most prevalent formats account for another 30% of
all stations.
o Approximately 30% of sales of recorded music in 1996 were in niche
music categories such as classical, jazz, rap, gospel, oldies,
soundtracks, new age and children's. Those formats are generally
unavailable on existing radio stations.
According to XM Satellite Radio, based on Nashville's M Street Radio Directory
Data, over half of the 30 most popular music formats are not even available in
New York City, the largest radio market in the United States.
Due to the limited coverage area of conventional radio broadcasting,
listeners often travel beyond the range of any single station. Conventional FM
stations have an average range of only approximately 30 miles before reception
fades. Satellite radio's signal is designed to cover the entire continental
United States, enabling listeners almost always to remain within its broadcast
range. Delivery systems are designed to permit satellite radio to be received by
motorists in all outdoor locations where a vehicle has an unobstructed
line-of-sight with one of the satellites or are within range of one of the
terrestrial repeating transmitters located in major markets.
The satellite radio industry will also be able to serve underserved
geographic radio markets. According to CD Radio's 1998 Form 10-K, there are more
than 45 million people in the United States aged 12 and over living in areas
with such limited radio station coverage that the areas are not monitored by
Arbitron. CD Radio believes that approximately 22 million people receive five or
fewer FM stations, 1.6 million receive only one FM station and at least one
million people receive no FM stations. This segment of the population also has a
limited choice of radio music formats and is one of the satellite radio
industry's primary target markets.
The Satellite Radio Service
The satellite radio industry will offer consumers: (i) a wide range of
finely focused music and talk programs in digital form; (ii) nearly seamless
signal coverage throughout the continental United States; (iii) commercial-free
or very low commercial inventory music programming; and (iv) plug and play
convenience and/or replacement radios. The following description of the service
is summarized from the 1998 Form 10-K filed with the SEC by CD Radio.
Wide Choice of Programming. Both CD Radio and XM Satellite Radio will have 50
music channels, each with distinctive formats, such as opera, reggae, classic
jazz, and children's entertainment, intended to cater to specific subscriber
tastes. The talk channels will also have a wide range of programming. In most
markets, radio broadcasters target their programming to broad audience segments.
Even in the largest metropolitan markets the
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<PAGE>
variety of station formats generally is limited, and many of the satellite radio
industry's planned formats are not available.
"Seamless" Signal Coverage. The satellite radio service will be available
throughout the continental United States, enabling listeners almost always to be
within its broadcast range. We expect that its nearly seamless signal will
appeal to motorists who frequently travel long distances, including truck
drivers and recreational vehicle owners, as well as commuters and others who
outdrive the range of their FM signals. Satellite radio broadcasts are expected
to appeal to the 45 million consumers who live in areas that currently receive
only a small number of FM stations. Even in dense, urban cores with skyscraper
buildings, satellite radio, with digital signals and terrestrial repeaters, will
probably outperform local stations which often suffer from "ghosting" and
"shadowing" effects.
Commercial-Free Music Programming. CD Radio and probably XM Satellite Radio will
provide commercial-free music programming. A principal complaint of radio
listeners concerning conventional broadcast radio is the frequency of
commercials. Satellite radios, unlike most commercial AM and FM stations, will
probably be on a subscription of about $9.95/month and not an
advertiser-supported service. Music channels will most likely not contain
commercials. Talk channels will include commercials. The success models for this
concept are the premium services on satellite television and cable that are
commercial free, but subscriber based.
The Receivers. Subscribers will receive satellite radio programming initially by
purchasing specially designed radio receivers for their existing vehicles and
later through a new generation of three-band radios installed in new vehicles by
major automotive manufacturers. In the automotive aftermarket, subscribers will
initially have the choice of one of three different receiving devices for their
cars -- an FM modulated receiver, a three-band receiver and a radio card. All
these receivers will visually display the channel and format selected, as well
as the title, recording artist and album title of the musical selection being
played.
o FM Modulated Receivers. The FM modulated receiver will be usable in all
vehicles which have an FM radio, or approximately 95% of all U.S.
vehicles. Each FM modulated receiver will operate with a downlink
processor, or 'DLP,' that will be approximately the size of a 35mm
camera, and will be mounted either in the vehicle's trunk, behind the
dashboard or under a seat. The retail price of this FM modulated
receiver (including the DLP), with a hard-wired satellite antenna and
professional installation, will be approximately $299.
o Three-Band Receivers. A receiver capable of receiving AM, FM and
satellite radio broadcasts is expected to be available. In appearance,
this three-band receiver will be nearly identical to existing
aftermarket car stereos and will permit the user to listen to AM, FM,
or satellite radio with the push of a button. Like existing
conventional radios, a number of these three-band receivers may also
incorporate cassette or compact disc players. The retail price of these
receivers, including the DLP, antenna and professional installation, is
expected to be approximately $150 more than similar receivers which are
not capable of receiving satellite radio broadcasts.
o Radio Cards. CD Radio's wireless adapter, or radio card, will not
require professional installation and will be usable by all vehicles in
the United States equipped with a cassette player, which represent
approximately 65% of all vehicles on the road. Each radio card will
include two components -- the radio card adapter, which will insert
into existing cassette slots, and a wireless version of the satellite
radio antenna. The radio card will be designed so that it can be
removed by pushing the cassette player's 'eject' button. We expect the
radio card, including the wireless satellite antenna, will be sold
though electronics superstores, mass merchant stores and direct
marketing channels, such as the Internet, for approximately $199.
XM Satellite Radio has announced that Sharp Corp., Pioneer Electronics
Corp., and Alpine Electronics, Inc. will build the receiver units for its
service. CD Radio has Delphi Electronics Systems (Delco brand) and Recoton Corp.
(Jensen, Advent, AR/Acoustic Research and Interact brands) as suppliers of their
receiver units. XM Satellite Radio and CD Radio have both recently announced
exclusive agreements with General Motors and Ford brands, respectively, for
installing the three-band receivers in new cards and trucks as early as the
first quarter of 2001.
The Satellite Radio Delivery System
XM Satellite Radio and CD Radio have designed delivery systems to transmit
an identical signal from two satellites placed in geosynchronous and low
attitude, elliptical orbits, respectively. In the case of CD Radio, a third
satellite will also be in a low altitude, elliptical orbit, but only two of the
three satellites will have a "footprint" of the continental United States at any
one time. The two-satellite systems will permit both operators to provide
"seamless" signal coverage throughout the continental United States. This means
that listeners will almost always
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<PAGE>
be within the broadcast range of satellite radio, unlike current FM and AM radio
broadcasts, which have a limited range. The systems are designed to provide
clear reception in most areas despite variations in terrain, buildings and other
obstructions. The systems are designed to enable motorists to receive satellite
radio in all outdoor locations where the vehicle has an unobstructed
line-of-sight with one of the satellites or is within range of one of the
terrestrial repeating transmitters. These broadcast repeaters will supplement
the satellites with a terrestrial network that will fill in gaps in satellite
coverage caused by tall buildings and other obstructions in urban areas.
The portion of the S-band located between 2320 MHz and 2345 MHz has
been allocated by the FCC exclusively for national satellite radio broadcasts.
This portion of the spectrum was selected because there are virtually no other
users of this frequency band in the United States, thus minimizing potential
signal interference. In addition, this frequency band is relatively immune to
weather-related attenuation, which is not the case with higher frequencies. XM
Satellite Radio's three satellites (two for launch and one spare) will be built
by Hughes Space & Communications and Alcatel Espace, while CD Radio's four
satellites (three for launch and one spare) will be built by Loral Space &
Communications. CD Radio has contracted with Lucent Technologies to design and
build the microchips for its satellite radio system, while XM Satellite Radio
will be using STMicroelectronics.
The Satellite Radio Programming Service
CD Radio and XM Satellite Radio will each have 50 music channels. Each channel
will be operated as a "separate radio station" with a distinct format. Certain
music channels will offer continuous music while others will have program hosts,
depending on the type of music programming. CD Radio will offer a wide range of
music categories, such as:
- --------------------------------------------------------------------------------
50 MUSIC CHANNELS
- --------------------------------------------------------------------------------
o Symphonic o Tropical
- ---------------------------------------- ---------------------------------------
o Chamber Music o Latin Contemporary
- ---------------------------------------- ---------------------------------------
o Opera/Classical Voices o Merengue
- ---------------------------------------- ---------------------------------------
o Top of the Charts o Boleros
- ---------------------------------------- ---------------------------------------
o 50's Hits o Mexicana
- ---------------------------------------- ---------------------------------------
o 60'S Hits o Rock en Espanol
- ---------------------------------------- ---------------------------------------
o 70's Hits o Tex Mex
- ---------------------------------------- ---------------------------------------
o 80's Hits o Cumbia
- ---------------------------------------- ---------------------------------------
o 90's Hits o Latin Jazz
- ---------------------------------------- ---------------------------------------
o Soft Rock o Today's Country
- ---------------------------------------- ---------------------------------------
o Love Songs o Country Gold
- ---------------------------------------- ---------------------------------------
o Singers & Songs o Traditional Country
- ---------------------------------------- ---------------------------------------
o Beautiful Instrumentals o Folk Rock
- ---------------------------------------- ---------------------------------------
o Broadway's Best o Alternative Rock I
- ---------------------------------------- ---------------------------------------
o Big Band/Swing o Alternative Rock II
- ---------------------------------------- ---------------------------------------
o Classic Jazz o Classic Rock I
- ---------------------------------------- ---------------------------------------
o Contemporary Jazz o Classic Rock II
- ---------------------------------------- ---------------------------------------
o NAC Jazz o Album Rock
- ---------------------------------------- ---------------------------------------
o New Age o Hard Rock/Metal
- ---------------------------------------- ---------------------------------------
o Soul Ballads o Blues
- ---------------------------------------- ---------------------------------------
o Classic Soul Hits o Reggae
- ---------------------------------------- ---------------------------------------
o R&B Oldies o World Beat
- ---------------------------------------- ---------------------------------------
o Urban Contemporary o Gospel
- ---------------------------------------- ---------------------------------------
o Rap/Hip Hop o Contemporary Christian
- ---------------------------------------- ---------------------------------------
o Dance o Children
- ----------------------------------------- --------------------------------------
Information Network Radio's Programming Channels
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There will be 50 non-music formats on CD Radio and 20 to 50 on XM Satellite
Radio. We will have five of those channels on CD Radio and two on XM Satellite
Radio. This is a description of our planned programming formats for these
satellite radio channels:
Especially Women...
This format is aimed at women (25-54), who constitute as a whole
approximately 52% of the total population. According to the Small Business
Administration, the number of women-owned businesses increased 89% between 1987
and 1997. They increased revenues by 209% and increased their total number of
employees by 262%.
The programming will be directed at women in a similar manner as cable
TV's Lifetime Channel. Subjects of particular interest to women will be
programmed through a talk format. IN Radio anticipates creating alliances with a
cross section of the nation's most successful magazine publishers and women's
Internet sites, such as women.com.
Personal Achievement Live (PAL)
PAL is primarily targeted at adults aged 25 to 54. The format will be
talk with subject matter aimed at positive thinking, self-help, motivation,
improving success and business skills, and healthy lifestyles. Speakers on the
air will be well-known, national motivational speakers in different segments,
ranging from health to wealth. In addition, PAL has the exclusive satellite
radio rights to Nightingale-Conant's library of audio tape material, as
described under "Programming Content Agreements." Nightingale-Conant, located in
Niles, Illinois, has been the leader in the development and syndication of
personal development audio tapes for decades, as reported in Marketdata
Enterprises, Inc. February 1997 research report, "The U.S. Market for
Self-Improvement Products and Services."
Information First! (Success Tools for African Americans)
This format is aimed at upwardly mobile African Americans.
Approximately 12% of the U.S. population is African American. Approximately 41%
of African Americans have an annual income over $35,000. The programming format
of Information First! will be talk. The content is anticipated to include topics
ranging from relationships, business, money management, careers, investment
strategies, politics, education, history, entertainment and the arts. The format
will program an array of features aimed at African Americans. IN Radio plans to
form a strategic relationship with NetNoir Online, the leading African American
web site, which is partially owned by America Online, and with Black Enterprise
Magazine.
Cruisin' (And Having Fun)
Cruisin' is primarily aimed at the 45 plus age group and particularly
the baby boomers who started to turn fifty in 1996. "Seniors," usually defined
as over 50, is a growing demographic group that will control more spending power
than any other group in the near future. There are currently 93 million seniors
in the U.S. and 76 million baby boomers will join this group between 1996 -
2002. Approximately 77% of all assets in the U.S.
belong to people over the age of 55.
The programming on Cruisin' will include a wide variety of formats:
talk, lectures, debates, call-ins, entertainment, sports, etc. The content is
expected to include politics, estate planning, travel, health, and books.
However, throughout the programming the focus will be on the viewpoint of the
targeted age group. IN Radio plans to form strategic alliances with key
organizations, magazines, and Internet providers.
BEST
"BEST." This channel will be formatted with sponsored programming only.
The programs will range from special events to live business broadcasts.
Taj Radio Network (Home Away From Home)
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This channel will be programmed in English and Hindi targeting listeners in the
United States with ties to India. They are highly educated, with 52% of Asian
Indians having college degrees, and their leading professions are medicine,
research, technology, and academia. There are over one million Asian Indians in
the U.S. and this population figure grew by 126% between 1980 and 1990. This
demographic group has a median household income more than 22% above the general
population with strong values on education and entrepreneurship. IN Radio will
have Cyrus Bharucha, former President of TV Asia, to head the channel and plan
the programming content.
China Wave
China Wave will program a wide variety of talk and music subjects programmed
primarily in Mandarin. The format will be specially tailored to the interest and
needs of the Chinese population of the U.S. The largest segment of the Asian
American population is of Chinese descent. The only larger ethnic groups are
Hispanic and African American. In 1990, according to the U.S. Census, the
population numbered more than 1.6 million, an increase of 104% from 1980. The
current level is estimated to be greater than 3 million. In 91% of Chinese
American households, a language other than English was spoken at home. IN Radio
has targeted Jay "Stone" Shih, a leading producer and syndicator of Chinese
American programming to China, to head this channel.
Other Talk Format Programmers
CD Radio and XM Satellite Radio have signed lease agreements with other
companies to program other non-music channels. A selection of these programming
agreements are:
o USA TODAY, the nation's largest-selling daily newspaper, will provide,
exclusively for XM Satellite Radio, its expertise for a news and
information channel.
o Salem Communications, the nation's premier Christian broadcaster, will
create three distinctive, high-quality channels exclusively for XM
Satellite Radio, including contemporary general interest Christian talk
focusing on current events and traditional Christian themes.
o Bloomberg L.P. entered into agreements in which both CD Radio and XM
Satellite Radio will carry Bloomberg's 24-hour news and information
service on one of its broadcast channels and Bloomberg will
custom-design a second channel for CD Radio.
o CD Radio also signed an agreement with C-SPAN in which CD Radio will
carry C-SPAN 24-hours on one of its channels. C-SPAN currently provides
video-programming services related to national, literary, cultural and
international affairs.
o Classic Radio, recently acquired by Audio Books, also entered into an
agreement with CD Radio. Classic Radio will provide 24-hour programming
of exclusively old time radio programs such as "The Shadow", "Dragnet",
"Gunsmoke", and many others.
o CD Radio entered an agreement with Sports Byline USA. Sports Byline USA
will program national sports programming, including live talk shows,
interviews and features 24 hours a day.
o Hispanic Radio Network will program on two of CD Radio's channels. La
Red Hispana and the Hispanic Radio Network will also be carried 24
hours a day.
o National Public Radio will have up to four channels on CD Radio, on an
exclusive basis.
o CD Radio and Public Radio International have signed an agreement to
develop exclusive programming.
<TABLE>
This is a description of the talk and some music formats that will be programmed
by third party sources:
<CAPTION>
- ---------------- ---------------------------------------------- -------------------------- --------------------------
# of
Channels Programmer Format Satellite Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C>
5 IN Radio Various Talk CD Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
2 IN Radio (Asia One Network) Asian XM Satellite Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
1 USA Today News XM Satellite Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
2 Fox/Liberty Networks; Cox Communications; Speedvision/Outdoor
Comcast and MediaOne Life CD Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
5 Heftel Broadcasting Spanish Music XM Satellite Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
2 Bloomberg News Radio Business News CD Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
1 Bloomberg News Radio Business News XM Satellite Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
3 Salem Communications Religion (includes 2 XM Satellite Radio
music channels)
- ---------------- ---------------------------------------------- -------------------------- --------------------------
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- ---------------- ---------------------------------------------- -------------------------- --------------------------
1 C-SPAN Radio Public Affairs XM Satellite Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
2 C-SPAN Radio Public Affairs CD Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
2 World Radio Network World News World News CD Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
4 BET/Radio One African American Talk XM Satellite Radio
(includes 3 music
channels)
- ---------------- ---------------------------------------------- -------------------------- --------------------------
1 One-on-One Sports Sports XM Satellite Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
3 Time Warner CNN (Sports Illustrated) XM Satellite Radio
CNN fn (Financial)
CNN en Espanol
- ---------------- ---------------------------------------------- -------------------------- --------------------------
2 Hispanic Radio Network Spanish CD Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
1 Sports Byline U.S.A. Sports CD Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
1 Audio Books Classical Radio CD Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
4 National Public Radio Talk CD Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
1 Public Radio International Talk CD Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
Total - 43
- ---------------- ---------------------------------------------- -------------------------- --------------------------
</TABLE>
Essential Contracts
Our business is developing and producing audio programming for digital
satellite transmission. We have signed contracts with each of the two companies
licensed by the FCC for satellite radio transmission. We also have signed
contracts with certain suppliers of program content.
Broadcast Contracts. CD Radio has licensed programming from us for five of its
50 channels of news, sports and talk channels. (CD Radio's other 50 channels are
commercial-free music formats, which CD Radio will produce itself.) XM Satellite
Radio and IN Radio have a "Programming Partner Agreement" for two of their
channels (they may transmit as many as 100 channels, including 50 music
channels.)
<TABLE>
This is a brief description of the contracts we have with both CD Radio
and XM Satellite Radio:
<CAPTION>
Subject CD Radio XM Satellite Radio
- --------- --------------------------------------- -----------------------------
<S> <C> <C>
Length Five years from when service Five years from when service begins,
of begins, with automatic two-year with two one-year renewals, if XM's
contract* renewals, unless either terminates revenue share meets agreed levels
Cost CD Radio gets time for com- XM gets a percentage of net adver-
to mercials, increasing to 50% tising revenues, increasing to 50%
IN Radio of all commercial inventory in the third, fourth and fifth years
in year 5
</TABLE>
*All these contracts may be terminated earlier by a failure to perform, such as
our ceasing to furnish programming or changing the programming format without
their consent. The agreements may also be terminated by us if the necessary
regulatory approvals are not available for operating the satellite radio
service.
CD Radio. Our agreements with CD Radio have us providing formatting for five
channels of satellite radio broadcasting, 24 hours a day, seven days a week. We
pay CD Radio in broadcasting time allocated for commercials. They can either
sell that commercial time or use it internally for promotional purposes. The
amount of commercial time graduates from one minute per hour in the first and
second years of operations, to three in the third, four in the fourth, five in
the fifth and to half of all commercial time after the fifth year.
CD Radio was incorporated in 1990 as Satellite CD Radio, Inc. and
changed to its current name in 1992. It is publicly traded on the NASDAQ
National Market System under the symbol CDRD. On May 18, 1999, CD Radio
announced the closing of a $200 million debt offering, which brought its total
pre-operational funding to $1 billion. On June 15, 1999, CD Radio and Ford Motor
Company issued a news release announcing a "partnership" to have
factory-installed satellite radio receivers in all Ford, Lincoln, Mercury,
Mazda, Jaguar, Aston
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<PAGE>
Martin and Volvo cars and trucks. Additional information is in CD Radio's June
15, 1999 Form 8-K, filed with the SEC.
XM Satellite Radio. We have one agreement with XM Satellite Radio to broadcast
two formats, China Wave and Taj Radio Network (Asian Indian). The contract has a
five-year term commencing the day XM Satellite Radio starts broadcasting. We
have all rights to advertising and sponsorship and may have a maximum twelve
minutes per hour of advertising.
XM Satellite Radio is based in Washington, D.C. and was founded in 1992 as
American Mobile Radio corporation. XM Satellite Radio is owned by American
Mobile Satellite Corp. (publicly traded on the NASDAQ National Market System
under the symbol SKYC). On June 8, 1999, XM Satellite Radio issued a press
release, announcing a combined investment commitment of $250 million from Clear
Channel Communications Inc.; DIRECTTV, Inc., a unit of Hughes Electronics
Corporation; General Motors Corporation and a private investment group comprised
of Columbia Capital, Telcom Ventures L.L.C. and Madison Dearborn Partners. XM
Satellite also announced a long-term distribution agreement, which will factory
install receivers manufactured by XM Satellite Radio's consumer electronics
partners, in GM cars and trucks. Additional information is in American Mobile
Satellite Corp.'s June 9, 1999 Form 8-K, filed with the SEC and in the
description of XM Satellite in its Form 10-K for 1998.
Programming Content Agreements. Most of the programming for the seven satellite
radio channels will be created by our own staff. In addition, we expect to have
agreements from time to time with the owners of audio and other media content
that fits within our formats.
We have an exclusive agreement for programming content with
Nightingale-Conant, the leading publisher of sound recordings on personal
achievement subjects such as success, health, inner self, wealth and business.
(As reported by Marketdata Enterprises, Inc., Tampa, Florida, in its February
1997 "The U.S. Market for Self-Improvement Products and Services.") The
agreement's initial term is for seven years, provided we begin broadcasting by
June 30, 2001. They will make available to us, for satellite radio broadcasting,
at least 3,800 audio segments of their program archive. They will also provide
other programs for which they have broadcast rights. We have rights and
obligations to sell Nightingale-Conant recordings, handling purchases through an
800 number call-in. In return for providing this content, Nightingale-Conant was
issued 12,500 shares of our common stock.
Management Services Agreement. We have contracted with MDW, an independent
management consultant based in Lake Buff, Illinois., for assistance in
developing, recording, editing and delivering our programming to the satellite
radio companies. We will pay consulting fees and commissions on certain
promotion sales. They have been paid 625 shares of our common stock.
Competition
IN Radio will be seeking market acceptance of its proposed service in a
new, untested market and will compete with established conventional radio
stations, which do not charge subscription fees or require the purchase of radio
cards or S-band radios and associated miniature satellite dish antennas to
receive their services. Many radio stations also carry information programming
of a local nature such as local news or traffic reports which we will not be
able to offer. We expect that, prior to the commercial launch of satellite
radio, some traditional FM and/or AM radio broadcasting stations could begin to
transmit digital, compact disc quality signals. In addition, the FCC could grant
new licenses which would enable further competition to broadcast satellite
radio. New media such as Internet broadcasts could cut into our market. There
are many portions of the electromagnetic spectrum that are currently licensed
for other uses and certain other portions for which licenses have been granted
by the FCC without restriction as to use. These portions of the spectrum could
be used for satellite radio broadcasting in the future. The number of
competitors in the satellite radio industry could increase in the future and
someone may design a satellite radio broadcast system that is superior to the
current systems.
Employees
We have no employees now, other than John Douglas, the Chairman and Chief
Executive Officer. Upon closing this offering, we intend to employ the other
executives shown under "Management." We have identified experienced people in
several of the needed areas. We plan to have 165 employees immediately after we
commence digital satellite broadcasting operations. We need to hire a broad
range of employees to program our broadcast service, manage operations and
engineering, handle sales and promotions, marketing efforts and perform finance,
administrative and accounting functions. We expect significant and rapid growth
in the scope and complexity of the
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<PAGE>
business as we proceed with the satellite radio system and the commencement of
broadcasting.
Properties/Facilities
We are currently located in a temporary facility that has a lease expiring
December 31, 1999 (with options to extend.) Our plan is to secure a 18,000 to
20,000 square foot location in San Francisco.
Legal Proceedings
IN Radio is not currently involved in any material litigation or legal
proceedings and is not aware of any material litigation or proceeding pending or
threatened against it.
Government Regulation
We do not require any FCC license or other regulatory authority to
operate our business as planned. However, the satellite radio companies were
required to obtain a license from the FCC to launch and operate their
satellites. If they have any serious regulatory difficulties with the FCC, it
would probably hurt our business. The term of the FCC License with respect to
each satellite is eight years, commencing from the date each satellite is
declared operational after having been inserted into orbit. Upon the expiration
of the term with respect to each satellite, the satellite radio companies will
be required to apply for a license renewal. The satellite radio companies
believe that the FCC will grant renewals absent significant misconduct on their
part. Our business will also be affected by the results of other FCC actions.
FCC authorization is necessary for the satellite radio companies to install
terrestrial repeating transmitters to rebroadcast the signal in certain urban
and other areas where signals from the satellites will be blocked and reception
will be adversely affected. The satellite radio companies also need to obtain
the rights to use the roofs of certain structures and other strategically
positioned towers where the repeating transmitters will be installed. The FCC
has also required that the satellite radio companies complete frequency
coordination with Canada and Mexico before starting service. The FCC has
indicated that it may in the future impose public service obligations on
satellite radio licensees, such as channel set-asides for educational
programming. Changes in law, FCC regulations or international agreements
relating to communications policy generally or to matters relating specifically
to the services to be offered by satellite radio could affect their ability to
retain the FCC Licenses or the manner in which satellite radio would be offered
or regulated.
Forward-Looking Statements
This prospectus contains forward-looking statements, based on our current
expectations. Our actual results could differ materially from those anticipated
in these forward-looking statements, as a result of various factors, including
the risks described in this prospectus.
MANAGEMENT
Directors and Executive Officers
20
<PAGE>
<TABLE>
Our executive officers and directors and their ages and positions with
IN Radio are:
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Divakar R. Kamath.............................. 51 Board of Directors
J. Peter Thompson.............................. 56 Board of Directors
Edgar W. Hirst................................. 56 Board of Directors
Suzanne M. Lopez............................... 49 Board of Directors
N. John Douglas................................ 60 Board of Directors, Chairman
and Chief Executive Officer
Gregory J. Douglas............................. 28 Board of Directors, President
and Chief Operating Officer
C. Andrew Whatley.............................. 46 Executive Vice President-
Sales and Marketing
Walter E. Thill................................ 62 Vice President Finance and
Chief Financial and
Administrative Officer
William E. Green............................... 62 Vice President, General
Counsel and Secretary
</TABLE>
The term of office for all directors is until the annual meeting of
shareholders in 2000. John Douglas and Gregory Douglas have served as directors
since the March 9, 1999 incorporation and the other four have served as
directors since April 20, 1999. The independent directors and William Green are
expected to attend four meetings a year and be available as advisors on request.
Members of the audit committee will have one additional meeting a year. From now
on, the other officers will devote these percentages of their productive time to
IN Radio's business: John Douglas - 90% from now on; Gregory Douglas and Andrew
Whatley - 80% from now to the end of this year and 95% from the beginning of
2000; Walter Thill - 70% from now to the end of this year and 80% after that.
Background of Directors and Executive Officers
Divakar Kamath is Executive Vice President of Mesbic Ventures Holding Company.
He is a Co-founder and Managing Director of Pacesetter Growth Fund and of two
specialized investment companies which have combined assets under management of
$56 million. He has 18 years of venture capital experience. Before joining
Mesbic Ventures in 1995, Mr. Kamath held various leadership positions with
Equico Capital Corporation and Fulcrum Venture Capital Corporation. Mr. Kamath
is a former Chairman of the Board of Directors of the National Association of
Investment Companies. He received a B. Tech. in Metallurgical Engineering from
the Indian Institute of Technology in Bombay, India in 1970, an M.S. in
Materials Science from Stanford University in 1971, and an M.B.A. in Finance and
General Management from the Graduate School of Management at UCLA in 1973.
Peter Thompson, President of Opportunity Capital Corporation, is a Venture
Capitalist with over 25 years of experience in providing investment financing to
various start-up and later-stage companies. He began as Vice President of
Opportunity Capital at its inception in 1971 and has been its President since
1979. He served as a member of the Board of Directors of several of its
portfolio companies, of the National Association of Investment Companies, the
Bay Area's Small Business Development Corporation and as a member of the Board
of Trustees of the Entrepreneurial Growth and Investment Institute. He has an
undergraduate degree from Hampton University and an MBA from Wharton School of
Business.
Edgar Hirst, is Vice President - Production of Illusion, Inc., which develops
and markets interactive extreme sports and other customized attractions for the
entertainment industry. Until he accepted that position, he was a consultant to
the electronic media industry, from 1995 to 1997, and before that he was with
ABC Television for over twenty years as a senior-level executive in television
program production, operations, and administration. He was Vice
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<PAGE>
President - Production for ABC Daytime and Entertainment responsible for the
management of such programs as Good Morning America, General Hospital, The
Academy Awards, America's Funniest Home Videos, Primetime Emmy Awards, American
Music Awards, Comedy Awards, and American Bandstand. Previously, he was
Executive-In-Charge of Production for Paramount Domestic Television. In
addition, he was the Director, Olympic Operations and Production Control for the
1994 Summer Olympics on ABC Sports and Unit Manager of Broadcast Operations &
Engineering in the ABC News Bureau. Mr. Hirst has a B.A. degree from Dartmouth
College and a M.S. degree in Business from Columbia University and is a graduate
of the Executive Entrepreneur Institute Program.
Suzanne Lopez, Director of the Institute for Unlimited Human Potential since
1985, is a talk show host, guest, columnist, author, lecturer and professor
involved in such subjects as relationships, work, family, personal growth,
children, and women's issues. She has appeared as a guest expert in a wide range
of national shows, such as NBC-TV, Lifetime, ABC-TV, Hard Copy, Leeza, Ricki
Lake, Montel Williams, Jenny Jones, Geraldo, Donahue, Sally Jesse Raphael and
Gordon Elliot shows. In addition, she is the author of a recently released book
by Putnam Books and has been in private practice for almost 20 years. She has a
B.F.A. degree from the University of California at Santa Cruz and a M.S. degree
in Psychology from California State University at Los Angeles.
John Douglas is the Founder and Chairman/CEO of Information Network Radio, Inc.
He has been the Chairman/CEO of OIA, LLC, which includes KBZS-AM (Palo Alto),
since 1997. From 1988 to 1998, he was President/CEO of Douglas Broadcasting/PAR
Holding, Inc., the 24th largest radio broadcast group in the U.S. in 1997, with
19 stations primarily in major markets. This group included the production and
broadcast of the Personal Achievement Radio programming syndicated nationally by
ABC Radio Network. He also created AsiaOne Network, the largest group of radio
stations broadcasting in Asian languages outside of Asia. Mr. Douglas was also
the Founder and Chairman of National Group Television, licensee of KSTS-TV (San
Francisco TV market). He was the Creator and News Director of "Business Today",
the Nation's first nationally syndicated morning business news TV show and the
Executive Producer of "Front Page", a daily, 2-minute news highlight broadcast
by the Black Entertainment Television, a major cable programming company. He has
37 years of experience in broadcasting, finance, communications, strategic
planning, and technology. Mr. Douglas has served as a member on several boards,
including California Broadcasters Association and Z-Spanish Media. He is
currently a board member for Radio Advertising Bureau, Comerica Bank -
California, and Broadcast Music Industries ("BMI"). He was a Trustee of Bates
College until this year. Mr. Douglas has a B.S. degree and M.S. degree in
Physics from Bates College and Howard University respectively, and is a graduate
of the Executive Program of Darden Graduate School of Business Administration,
University of Virginia.
Gregory Douglas is the President/COO of Information Network Radio Inc. Since
1998, he has been President/COO of OIA, LLC and a Partner of Q2 Broadcast,
syndicator of Personal Achievement Radio. From 1996 to 1998, he was the Director
of Network Operations for Personal Achievement Radio in Los Angeles responsible
for the production, operation and distribution of the PAR format. In 1996, he
was the General Manager of the two-station Seattle operations of Douglas
Broadcasting, Inc. and Station Manager at WBPS - AM in Boston from 1994 to 1996.
He was also the Management Information System Manager for DBI, responsible for
the traffic/business computer functions as well as the computer networking of
DBI/PAR radio outlets. Mr. Douglas has been involved in almost all areas of
broadcasting, including traffic, talk-format programming, network automation
systems, business, engineering, promotion, production, syndication, marketing,
and sales. He has sixteen years of experience in radio, television and computer-
related areas. He has a B.A. degree from the University of California at
Berkeley, California. He is the son of John Douglas.
Andy Whatley is the Executive Vice President - Marketing and Sales of
Information Network Radio, Inc. He is also Partner of Q2 Broadcast (since 1998)
and Vice President of OIA, LLC (beginning January, 1999.) He was the General
Manager of KYPA-AM in Los Angeles from 1996 to 1998. He has more than 25 years
of media experience including radio, television, print and media brokerage,
including 19 years of broadcast management experience, and 15 years of radio
ownership. He established a joint venture media group (Great Electric Media
Group) and was its Vice President and General Manager from 1987 to 1996. It
included four radio stations, a weekly television program and a visitor market
publication. He attended the University of Texas at El Paso majoring in Mass
Communications/Radio and Television and holds a Bachelor of Arts Degree.
Walter Thill is the Vice President - Finance and Administration and CFO of
Information Network Radio, Inc. Since 1997, he has been controller of Ally
Capital and consultant to NationsBanc Montgomery Securities LLC and its
predecessor. He was the Vice President of Operations and Finance and also
General Manager of Healthcare for the California College of Podiatric Medicine
from 1995 to 1997. He also acted as the interim General Manager at
22
<PAGE>
Serrano Irrigation District. In addition, he was an Independent Management
Consultant to companies in the mergers and acquisitions, distressed situations,
and leveraged buyouts areas. During that time, he also served as interim CFO for
six other companies. Mr. Thill was Director of Strategic Planning at Castle &
Cooke, Inc. (now Dole Foods), a NYSE company, responsible for the review of the
food industry for acquisitions and strategic planning for the company's food and
other businesses. He was also the former President of the Corporate Planners
Association. Mr. Thill has an AB from Cornell University and a MBA from the
University of Michigan and he earned his CPA while in Michigan.
William Green is the Vice President, General Counsel and Secretary for
Information Network Radio, Inc. Since 1974, he has had a private law practice,
William Green & Associates, located in Palo Alto, California. He was the
Corporate Secretary and Legal Counsel for Douglas Broadcasting, Inc. and
Personal Achievement Radio. Formerly, he was the Assistant General Counsel for
Boise Cascade Corp. He was also Associate Counsel and Associate Patent Counsel
of Sybron Corp., a Fortune 500 Company, representing the Corporation in its
general legal affairs, mergers and acquisitions activity and patent and
trademark matters. He was also employed as a patent coordinator at the Applied
Research Laboratories of United States Steel Corp. He is a former member on the
Executive and Audit Committees of the National Board of Governors of the
American Red Cross and Mr. Green was also on the Executive Committee of the
Board of Governors of United Way of America. He is a graduate of the University
of Pittsburgh with a B.S. degree in Chemistry. He has a L.L.B. degree from
Duquesne University School of Law and was Managing Editor of the Law Review. Mr.
Green passed the Bar in California, Pennsylvania and New York. He is a member of
the Charles Houston, State of California, American, and National Patent Law Bar
Associations. He is a Director of the Williams Companies, A NYSE and Fortune 500
Company.
Indemnification of Directors and Officers
Our Articles of Incorporation provide that the liability of the directors
for monetary damages shall be eliminated to the fullest extent permissible under
California law. We have been advised that, in the opinion of the Securities and
Exchange Commission, permitting indemnification to directors, officers and
controlling persons for liabilities arising under the federal securities laws is
against public policy and unenforceable.
Board Committees
An audit committee of nonemployee directors meets with our independent
public accountants and reviews our internal accounting procedures. Divakar R.
Kamath and J. Peter Thompson currently constitute the audit committee.
Director Compensation
We do not currently compensate directors for their services, except to
reimburse them for their travel expenses in attending board and committee
meetings. After we begin satellite radio service, each director who is not a
full-time employee of IN Radio will receive options to purchase shares under the
stock incentive compensation plan to be adopted, as well as quarterly payments.
Executive Compensation
No compensation has yet been paid to any of our executives. We expect to
pay a $100,000 salary to John Douglas in 1999. We intend to hire the other
executive officers upon closing of this offering, each one at a salary not to
exceed $100,000 a year. We have planned no other forms of compensation, such as
bonuses or stock options, to be paid to executives in 1999.
Stock Option Plan
The Board of Directors has reserved shares equal to 10% of our outstanding
common stock for issuance to employees, officers, directors and consultants
pursuant to a stock incentive option plan they expect to adopt.
CERTAIN TRANSACTIONS
106,700 of the shares outstanding before this offering were issued in
exchange for ownership in the predeccessor limited liability company and in
Personal Achievement Live, LLC and AsiaOne Network, LLC, which are both now
completely owned by IN Radio. Each of the persons to whom the shares were issued
are officers and are listed in the "Principal Shareholders" table in this
prospectus.
It is our policy that all material related party transactions will be on
terms that are no less favorable to IN Radio than those that can be obtained
from unaffiliated third parties and must be approved by a majority of our
independent, disinterested directors.
PRINCIPAL SHAREHOLDERS
23
<PAGE>
The founding executive officers and directors of IN Radio will own 106,700
shares, or approximately 53.4% of its outstanding common stock, after sale of
all the shares in this offering. They will be able to control election of a
majority of the board of directors and other corporate action. Such a
concentration of ownership may have the effect of delaying or preventing a
change of control.
<TABLE>
The following table shows the beneficial ownership of IN Radio's common
stock immediately prior to this offering, and as adjusted to reflect the sale of
the shares being offered, for shares owned by (i) each of IN Radio's directors
and executive officers , (ii) each shareowner we know to own beneficially 5% or
more of the outstanding shares of our common stock and (iii) all directors and
officers as a group. We believe that the beneficial owners of the common stock
listed below, based on information they furnished, have sole investment and
voting power over their shares, subject to community property laws where
applicable.
<CAPTION>
Name and Address of Owner Number of Percentage of Total Common Stock Beneficially Owned
Shares
Beneficially
Owned
Before Offering After Offering
<S> <C> <C> <C>
N. John Douglas 89,500 74.7% 44.8%
114 Sansome Street, Suite 1410
San Francisco, CA 94104
Gregory J. Douglas 7,700 3.9 6.4
114 Sansome Street, Suite 1410
San Francisco, CA 94104
C. Andrew Whatley 7,700 6.4 3.9
114 Sansome Street, Suite 1410
San Francisco, CA 94104
Walter E. Thill 1,500 1.3 0.8
114 Sansome Street, Suite 1410
San Francisco, CA 94104
William E. Green 300 0.2 0.2
550 Hamilton Avenue
Palo Alto, CA 94301
Nightingale-Conant 12,500 10.4 6.3
7300 Lehigh Avenue
Niles, IL 60714
All directors and executive 106,700 89.0 53.4
officers as a group (5 Persons)
<FN>
* Does not include any additional dilution from shares issued in additional
financings or upon exercise of any options issued under the proposed stock
incentive option plan.
</FN>
</TABLE>
DESCRIPTION OF COMMON STOCK
IN Radio has authorized 10,000,000 shares of common stock, without par
value. There were 119,825 shares of common stock outstanding immediately prior
to this offering, which were held of record by seven shareowners. Owners of
common stock are entitled to one vote for each share held of record on all
matters to be voted on by shareowners, except that, upon giving the legally
required notice, shareowners may cumulate their votes in the election of
directors. The shareowners are entitled to receive dividends when, as and if
declared by the board of directors out of funds legally available. Our board of
directors does not currently anticipate paying any dividends. Any debt or
preferred stock financing we may use would probably restrict dividend payments.
In the event of
24
<PAGE>
liquidation, dissolution or winding up of the corporation, the shareowners are
entitled to share ratably in all assets remaining which are available for
distribution to them after payment of liabilities. Shareowners, as such, have no
conversion, preemptive or other subscription rights, and there are no redemption
provisions applicable to the common stock. All of the outstanding shares of
common stock, and the shares issued in this offering, will be fully paid and
nonassessable. The transfer agent and registrar for our common stock is American
Securities Transfer & Trust, Inc.
SHARES ELIGIBLE FOR FUTURE RESALE
Legal ability to sell. The shares sold in this offering will be freely
tradable without restriction or registration under federal securities laws.
Sales of shares to residents of certain states or jurisdictions may require
registration or an applicable exemption from registration provisions of the
shares in those states or jurisdictions. The 119,825 shares of common stock
previously issued are "restricted securities" and may not be sold in a public
distribution except in compliance with those securities laws. After those shares
have been held for more than a year, they could, under applicable securities
laws, be offered for sale through any trading market, if reporting and other
requirements were met. They could also be sold in a transaction negotiated
directly with a buyer. This ability to sell could have the effect of keeping any
investor demand from increasing the price at which shares may be sold after this
offering is over. All of the executive officers have agreed not to sell any of
their 106,700 shares for a year after completion of this offering. In return, IN
Radio has agreed to include, in any registered public offering we make, any of
their shares they ask to be included, and to pay the costs of registration and
sale (except any commissions or underwriting fees.)
Absence of any trading market. Investors in this offering should be
prepared for there being no liquid trading market or other mechanics for
converting their shares back into cash. We have no plans to apply for exchange
listing or interdealer market making immediately after this offering. The number
of shareowners after this offering will probably be too limited to attract any
securities dealers into creating a trading market. We plan a second public
offering after the launch of broadcasting on satellite radio. We expect there
would be a trading market after that, but any further offering and trading
market may be delayed or may not happen. Shareholders would have to arrange
their own private sale of shares, until a trading market existed or there was
another way to convert their shares back into cash. Acquisitions of or by IN
Radio, or some other event, could also result in cash payment to shareowners or
in a trading market.
Tax effects of selling "Small Business Stock." Individuals buying shares in
this offering, and holding them for at least five years, would pay a maximum 14%
effective tax rate on any gain from their sale, under existing tax laws. Or, no
tax at all would be payable on the sales proceeds "rolled over" into the
purchase of other "small business stock," within 60 days of the sale. This
favorable tax treatment could be changed. Various conditions and limitations
apply. Shareholders will want to consult their own tax advisor if this tax
effect is important in their investment decision.
PLAN OF DISTRIBUTION
General
Announcements of this offering will be communicated to persons selected by
our officers and directors. A copy of this prospectus will be delivered to those
who request it, together with the share purchase order. All shares will be sold
at the public offering price of $100.00 per share and a minimum purchase of 250
shares is required. We reserve the right to reject any share purchase order in
full or in part.
IN Radio will only effect offers and sales of shares through N. John
Douglas, its Chairman and Chief Executive Officer, or Walter E. Thill, its Vice
President Finance and Chief Financial and Administrative Officer. Only Messrs.
Douglas or Thill will sign share purchase orders on our behalf and they will be
the only individuals who will conduct activities that involve making oral
solicitations or approval of written communications. They will not receive,
directly or indirectly, any commissions or other remuneration based either
directly or indirectly on transactions in securities. Their activities are
intended to be within Rule 3a4-1 of the federal Securities Exchange Act of 1934
and the securities regulations of certain states. Some states may require Mr.
Douglas or Mr. Thill to be registered or licensed as an issuer representative or
sales agent.
This direct offering by IN Radio differs from a "firm commitment
underwriting," in which one or more registered securities dealers either
purchase all of the shares, for resale to their customers, or no shares are sold
at all. In our direct offering, we may not sell all of the shares offered. That
means that we may receive only a portion
25
<PAGE>
of the offering proceeds that we intend to use for development of our business
and operation until we reach positive cash flow from operations. When a
securities dealer acts as an underwriter, it assumes certain legal
responsibilities under the federal securities laws. To create a defense against
potential liability to persons who buy shares in the underwriting, the dealer
may perform a "due diligence" investigation of the business issuing shares. In
this direct offering, there is no securities dealer performing that
investigation.
Determination of Offering Price
Prior to this offering there has been no market for our shares of common
stock. Our Board of Directors has determined the public offering price. Among
factors considered in determining the public offering price were IN Radio's
future prospects, the state of the markets for its services, the experience of
management and the economics of the industry in general.
EXPERTS
IN Radio's Financial Statements as of and for the period ended March 31,
1999, audited by Hollander, Lumer & Co. LLP, independent auditors, have been
included in this Prospectus in reliance upon their report, which is also
included in this Prospectus.
AVAILABLE INFORMATION
This prospectus is part of a registration statement on Form SB-2 filed
under the Securities Act of 1933. This prospectus does not contain all of the
information in the Registration Statement and its exhibits. Statements in this
prospectus about any contract or other document are just summaries. You may be
able to read the complete document as an exhibit to the Registration Statement.
IN Radio will have to file reports under the Securities Exchange Act of
1934. You may read and copy the Registration Statement and our reports at the
Commission's public reference rooms at 450 Fifth Street, N.W., Washington, D.C.
20549, Seven World Trade Center, 13th Floor, New York, New York 10048, and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. (You may
telephone the Commission's Public Reference Branch at 800-SEC-0330.) Our
Registration Statement and reports are also available on the Commission's
Internet site at http://www.sec.gov.
We intend to furnish our shareowners with annual reports containing
financial statements audited by an independent public accounting firm after the
end of each fiscal year.
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report F-1
Balance Sheet F-2
Statement of Operations F-3
Statement of Stockholders' Deficiency F-4
Statement of Cash Flows F-5
Notes to Financial Statements F-6
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Information Network Radio, Inc.
San Francisco, California
We have audited the accompanying balance sheet of Information Network Radio,
Inc. (A Development Stage Company), a successor to Information Network Radio,
LLC, as of March 31, 1999, and the related statements of operations,
stockholders' deficiency, and cash flows for the period from September 18, 1998
(inception) through March 31, 1999. 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 disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that 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 Information Network Radio, Inc.
as of March 31, 1999, and the results of its operations and its cash flows for
the initial period then ended 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 1 to the
financial statements, there is a substantial doubt about the ability of the
Company to continue as a going concern. The Company is a development stage
company that has incurred a net loss for the initial period ended March 31,
1999. The Company has significant capital requirements to continue with its
development plan. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
HOLLANDER, LUMER & CO. LLP
Los Angeles, California
April 6, 1999
F-1
<PAGE>
INFORMATION NETWORK RADIO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
BALANCE SHEET
MARCH 31, 1999
ASSETS
CURRENT ASSETS
Cash $ 3,651
Deferred offering costs 12,000
--------------
TOTAL CURRENT ASSETS 15,651
--------------
TOTAL ASSETS $ 15,651
==============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 1,400
Loans payable 26,000
--------------
TOTAL CURRENT LIABILITIES 27,400
STOCKHOLDERS' DEFICIENCY
Common stock, no par value; authorized 10,000,000 shares;
issued and outstanding - 106,700 shares 10,000
Deficit accumulated during the development stage (21,749)
--------------
TOTAL STOCKHOLDERS' DEFICIENCY (11,749)
==============
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 15,651
==============
See accompanying Notes to Financial Statements
F-2
<PAGE>
INFORMATION NETWORK RADIO, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM SEPTEMBER 18, 1998 (INCEPTION) TO MARCH 31, 1999
REVENUES $ -
OPERATING EXPENSES 21,749
--------------------
NET LOSS $ (21,749)
====================
LOSS PER SHARE $ (0.18)
====================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 123,785
====================
See accompanying Notes to Financial Statements
F-3
<PAGE>
INFORMATION NETWORK RADIO, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE PERIOD FROM SEPTEMBER 18, 1998 (INCEPTION) TO MARCH 31, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock During The
------------------------------- Development
Shares Amount Stage Total
-------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Common stock issued 106,700 $ 10,000 $ - $ 10,000
Net loss incurred during the period - - (21,749) (21,749)
-------------- --------------- ---------------- ---------------
Balance, March 31, 1999 106,700 $ 10,000 $ (21,749) $ (11,749)
============== =============== ================ ===============
</TABLE>
See accompanying Notes to Financial Statements
F-4
<PAGE>
INFORMATION NETWORK RADIO, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM SEPTEMBER 18, 1998 (INCEPTION) TO MARCH 31, 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (21,749)
Adjustments to reconcile net loss to net
cash used in operating activities:
Increase in accounts payable 1,400
------------
NET CASH USED IN OPERATING ACTIVITIES (20,349)
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Deferred offering costs (12,000)
Proceeds from loans payable 26,000
Capital contributions 10,000
------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 24,000
------------
CASH AT END OF PERIOD $ 3,651
============
See accompanying Notes to Financial Statements
F-5
<PAGE>
INFORMATION NETWORK RADIO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Information Network Radio, Inc. (the "Company") was incorporated in
California on March 9, 1999. On March 10, 1999, the Company issued
106,700 shares of common stock to the members of Information
Network Radio, LLC, its predecessor, pursuant to an Agreement of
Merger. Information Network Radio, LLC was a Delaware Limited
Liability Company formed on September 18, 1998. The accompanying
financial statements include the results of operations of the
Company's predecessor for the period from inception to March 9,
1999.
The Company is involved in developing and producing unique
talk-formatted audio programming for a new service providing
digital satellite transmission directly to vehicles and homes.
Revenues are projected to begin on October 1, 2000 when the
satellites are to have been launched. Revenues will come primarily
from selling up to 12 minutes an hour of commercial advertising
messages and company-sponsored programs.
Going Concern
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. As
shown in the financial statements, from inception through March 31,
1999, the Company incurred net loss of $21,749, which was funded by
the initial capital contributions and advances from the principal
stockholder. Management is currently preparing for a direct public
offering of the Company's common stock to obtain additional funds
so that the Company can meet its obligations and sustain its
development activities. If the Company is unable to successfully
complete an offering or obtain funding from other sources, the
Company will not be able to continue as a going concern. The
financial statements do not include any adjustments relating to the
recoverability of the recorded assets or the classification of the
liabilities that might be necessary should the Company be unable to
continue as a going concern.
Deferred Offering Costs
The Company records incremental costs directly attributable to the
proposed offering of securities as deferred offering costs. These
costs will be charged against the gross proceeds of the offering,
upon its completion. If the offering is not completed, these costs
will be expensed.
Use of Estimates
The preparation of financial statements in accordance with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses. Actual results
could differ from those estimates.
Fair Value of Financial Instruments
The fair value of financial instruments is determined by reference
to various market data and other valuation techniques as
appropriate. Considerable judgment is required to develop estimates
of fair values; therefore, the estimates are not necessarily
indicative of the amounts that could be realized or would be paid
in a current market exchange. The effect of using different market
assumptions and/or estimation methodologies may be material to the
estimated fair value amounts. The Company estimates that the fair
value of its financial instruments approximates their carrying
value.
F-6
<PAGE>
INFORMATION NETWORK RADIO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
Broadcast Rights
The Company owns the right to utilize a satellite network over an
agree-upon license period. The Company capitalizes certain costs to
acquire these rights. The Company's policy is to amortize the cost
of these rights on a straight-line basis over the term of the
contract.
Income Taxes
The Company elected to be taxed as a partnership for federal income
tax purposes for the period from inception through March 9, 1999.
Accordingly, the members, in their individual tax returns, report
any tax on income of the Company.
Effective March 10, 1999, the Company is subject to corporate tax
rates. The Company utilizes the asset and liability method for
income taxes. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Earnings (Loss) Per Share
Effective March 31, 1999, the Company adopted Statement of
Financial Accounting Standards No.128 ("SFAS No. 128"), Earnings
Per Share ("EPS") which established simplified standards for
computing and presenting earnings per share information. Basic
earnings (loss) per common share is based upon the net earnings
(loss) applicable to common shares after preferred dividend
requirements and upon the weighted average number of common shares
outstanding during the period. Diluted earnings per common share
adjusts for the effect of convertible securities, stock options and
warrants only in the periods presented in which such effect would
have been dilutive.
Staff Accounting Bulletin No. 98 ("SAB 98") describes the
Securities and Exchange Commission ("SEC") staff's interpretations
and practices on EPS computations in an initial public offering. In
applying the requirements of SFAS No. 128, the staff believes that
nominal issuances are recapitalizations in substance. In computing
basic EPS for the periods covered by income statements included in
the registration statement and in subsequent filings with the SEC,
nominal issuances of common stock should be reflected in a manner
similar to a stock split or stock dividend for which retroactive
treatment is required by paragraph 54 of SFAS No. 128. In computing
diluted EPS for such periods, nominal issuances of common stock and
potential common stock should be reflected in a manner similar to a
stock split or stock dividend.
Pursuant to SAB 98, the Company accounted for the subsequent
issuance of 17,085 shares of common stock as outstanding for the
historical period presented.
NOTE 2 - COMMITMENTS
On January 28, 1999, the Company entered into an agreement for
legal and related services for its direct public offering of common
stock. The agreement requires sixteen semi-monthly payments of
$3,000 each followed by one payment of $2,000. Consulting fees paid
during the period ended March 31, 1999 totaled $12,000. Upon
completion of the contemplated public offering, for at least any
minimum amount offered, the agreement also requires a payment of
$25,000, of which half would be in the Company's shares of common
stock, at the public offering price.
F-7
<PAGE>
INFORMATION NETWORK RADIO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
During the period ended March 31, 1999, the Company entered into
contracts with providers of satellite radio transmission granting
them a license to transmit the Company's programming. The contracts
expire five years after service begins and have provisions for
renewals. The contracts allow the licensees the right to use, or to
dispose of the right to use, commercial time beginning with one
minute per hour in the first year of the contract and increasing to
50% of the net commercial time available (however no less than five
minutes) per each hour. Modifications to these agreements are
currently being negotiated.
NOTE 3 - RELATED PARTY TRANSACTIONS
The majority stockholder made advances to the Company, bearing
interest at 6.00% and payable on demand. At March 31, 1999,
aggregate advances were $26,000.
The Company's principal stockholder and companies owned and/or
controlled by him have provided corporate services at no cost to
the Company.
NOTE 4 - SUBSEQUENT EVENTS
The Company issued 17,085 shares to certain companies for
management consulting services, programming content and for
extension of satellite radio transmission contracts. These
additional shares were valued at $1,708,500 based on the public
offering price of $100 per share.
<TABLE>
Pro forma unaudited financial information of the Company is as
follows:
<CAPTION>
Pro Forma
Balance Sheet: ----------------------------------
Historical Adjustments Pro Forma
-------------------------------------------------
<S> <C> <C>
Total Current Assets $ 15,651 $ 15,651
Intangible Assets $ 1,646,000 (1) $ 1,646,000
Total Assets $ 15,651 $ 1,646,000 (1) $ 1,661,651
Total Liabilities $ 27,400 $ 27,400
Stockholders' Equity (Deficiency) $ (11,749) $ 1,646,000 (1) $ 1,634,251
Statement of Operations:
Net loss $ (21,749) $ (62,500)(2) $ (84,249)
Loss per share $ (0.18) (.50) $ (0.68)
Weighted average number of common shares
outstanding $ 123,785 $ 123,785
Pro forma adjustments are as follows:
<FN>
1. Issuance of 16,460 shares of common stock for programming and
satellite broadcast rights.
2. Issuance of 625 shares of common stock
for marketing services.
</FN>
</TABLE>
F-8
<PAGE>
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The Registrant's Articles of Incorporation, Article V, and Bylaws, Article
VI, provide that the Registrant shall indemnify any officer, director or former
officer or director, to the fullest extent permitted by California law.
We have been advised that, in the opinion of the Securities and Exchange
Commission, permitting indemnification to directors, officers and controlling
persons for liabilities arising under the federal securities laws is against
public policy and unenforceable.
Item 25. Other Expenses of Issuance and Distribution.
Expenses of the Registrant in connection with the issuance and distribution
of the securities being registered are estimated as follows, assuming the
Maximum offering amount is sold:
Securities and Exchange Commission filing fee................. $ 2,224
Blue sky fees and expenses.................................... 3,000
Accountant's fees and expenses................................ 12,000
Special Counsel's fees and expenses........................... 75,000
General Counsel's fees and expenses........................... 15,000
Printing and Edgar filer ..................................... 5,000
Postage and other delivery media.............................. 1,000
Marketing expenses, including travel.......................... 10,000
Miscellaneous................................................. 26,776
----------
Total.................................................... $ 150,000
==========
(The Registrant will bear all these expenses.)
Item 26. Recent Sales of Unregistered Securities.
(a) The following information is given for all securities that the Registrant
sold within the past three years without registering the securities under the
Securities Act.
Date Title Amount
---- ------ ------
(1) March 22, 1999 common stock 106,700 shares
(2) June 24, 1999 common stock 12,500 shares
(3) June 24, 1999 common stock 625 shares
(b) No underwriters were used in connection with any of the issuances of shares.
The classes of persons to whom the Registrant issued shares were:
(1) The five founding officers of the Registrant
(2) Nightingale Conant, a major contractor of content for Registrant's
programming.
(3) MDW, a management, marketing, sales and product fulfillment
consultant.
(c) There were no underwriting discounts or commissions. The transactions and
the types and amounts of consideration received by the Registrant were:
(1) Transfer of contractual rights and development, as owners of
Information Network Radio, LLC.
(2) Agreement to provide programming content for Registrant's PAL
satellite radio channels.
(3) Agreement to consult on Registrant's marketing, sales and product
fulfillment.
(d) The sections of the Securities Act under which the Registrant claims
exemption from registration and the facts relied upon to make the exemption
available are:
35
<PAGE>
(1) Section 4(2). This was a transaction between the Registrant and its
founding officers, who continue to own all the shares.
(2) Section 4(2). The transaction was between the Registrant and its
major provider to date of content for the Registrant's digital
satellite radio programming.
(3) Section 4(2). The transaction was between the Registrant and its
management consulting firm.
Item 27. Exhibits
The exhibits listed below are filed as part of this Registration
Statement pursuant to Item 601 of Regulation S-B.
Exhibit
Number Description
- ------- -----------
3.1 Articles of Incorporation of the Registrant, dated March 9, 1999
3.2 By-laws of the Registrant
4.1 Article II, pages 2-15, of the By-laws (Reference is made to Exhibit 3.2)
4.2 Form of common stock certificate
5 Opinion and consent of counsel with respect to the legality of the shares
being registered
10.1 Radio License Agreement with CD Radio Inc.
10.2 Programming Partner Agreement with XM Satellite
10.3 Programming Services and Equity Agreement with Nightingale-Conant
Corporation
21 List of Registrant's subsidiaries, states of organization and names under
which they do business.
23.1 Consent of Hollander, Lumer & Co. LLP.
23.2 Consent of counsel (Reference is made to Exhibit 5.)
24 Power of Attorney
27 Financial Data Schedule
99.1 Share Purchase Order
99.2 Agreement Not to Sell Shares
- ---------------------------
Note: All exhibits have been filed with the Registration Statement and its
Amendment No. 1.
Item 28. Undertakings.
(a) The Registrant hereby undertakes that it 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
(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.
(e) The registrant has been advised that, in the opinion of the Securities
and Exchange Commission, indemnification to directors, officers and
controlling persons of the registrant for liabilities arising under the
Securities Act is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
36
<PAGE>
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 authorizes this Pre-Effective
Amendment No. 2 to Registration Statement to be signed on its behalf by the
undersigned, in San Francisco, California, on July 8, 1999.
INFORMATION NETWORK RADIO, INC. (Issuer)
By S/N. John Douglas
----------------------------------------
N. John Douglas, Chief Executive Officer
<TABLE>
In accordance with the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 2 to registration statement was signed by the
following persons in the capacities and on the dates stated.
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
S/N. John Douglas Chief Executive Officer and July 8, 1999
- -------------------------------------------- Chairman of the Board of Directors
N. John Douglas
S/Gregory D. Douglas* President, Chief Operating Officer July 8, 1999
- -------------------------------------------- and Director
Gregory D. Douglas
S/Walter E. Thill* Vice President Finance and Chief July 8, 1999
- -------------------------------------------- Financial and Administrative Officer
Walter E. Thill (Principal financial and accounting officer)
S/Divakar R. Kamath* Director July 8, 1999
- --------------------------------------------
Divakar R. Kamath
S/J. Peter Thompson* Director July 8, 1999
- --------------------------------------------
J. Peter Thompson
S/Edgar W. Hirst* Director July 8, 1999
- --------------------------------------------
Edgar W. Hirst
S/Suzanne M. Lopez* Director July 8, 1999
- --------------------------------------------
Suzanne M. Lopez
* S/N. John Douglas July 8, 1999
- --------------------------------------------
N. John Douglas
Attorney-in-fact
</TABLE>
