<PAGE>
As filed with the Securities and Exchange Commission on November 15, 1996
Registration No. 333-14483
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CHILDREN'S BROADCASTING CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 5961 41-1663712
(State or other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Identification Number)
Organization) Code Number)
724 FIRST STREET NORTH
MINNEAPOLIS, MINNESOTA 55401
(612) 338-3300
(Address and telephone number, including area code, of
registrant's principal executive offices)
CHRISTOPHER T. DAHL, PRESIDENT
CHILDREN'S BROADCASTING CORPORATION
724 FIRST STREET NORTH
MINNEAPOLIS, MINNESOTA 55401
(612) 338-3300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
AVRON L. GORDON, ESQ. LANCE W. RILEY, ESQ.
BRIGGS AND MORGAN, P.A. CHILDREN'S BROADCASTING
2400 IDS CENTER CORPORATION
MINNEAPOLIS, MINNESOTA 55402 724 FIRST STREET NORTH
(612) 334-8455 MINNEAPOLIS, MINNESOTA 55401
(612) 330-9521
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
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If any of the securities being registered 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 box: /x/
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box: / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
--------------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED NOVEMBER __, 1996
PROSPECTUS
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1,125,580 SHARES
CHILDREN'S BROADCASTING CORPORATION
COMMON STOCK
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This Prospectus relates to 1,125,580 shares of Common Stock (the
"Shares"), par value $.02 per share (the "Common Stock"), of Children's
Broadcasting Corporation (the "Company") that may be offered for sale for the
account of certain shareholders of the Company as stated herein under the
heading "Selling Shareholders." No period of time has been fixed within
which the Shares may be offered or sold. The Company's Common Stock is
traded on the Nasdaq National Market under the symbol "AAHS." On October 31,
1996, the average of the high and low prices of the Common Stock on the
Nasdaq National Market was $4.4375 per share.
The Selling Shareholders have advised the Company that sales of the Shares
by them, or by their pledgees, donees, transferees or other successors in
interest, may be made from time to time in the over-the-counter market, through
negotiated transactions or otherwise at market prices prevailing at the time of
sale or at negotiated prices. The Shares may be sold by one or more of the
following methods: (a) a block trade in which the broker or dealer so engaged
will attempt to sell the Shares as agent but may position and resell a portion
of the block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; and (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers. Sales may be made
pursuant to this Prospectus to or through broker-dealers who may receive
compensation in the form of discounts, concessions or commissions from the
Selling Shareholders or the purchasers of Common Stock for whom such
broker-dealer may act as agent or to whom they may sell as principal, or both
(which compensation as to a particular broker-dealer may be in excess of
customary commissions). One or more supplemental prospectuses will be filed
pursuant to Rule 424 under the Securities Act of 1933, as amended (the
"Securities Act") to describe any material arrangements for the sales of the
Shares when such arrangements are entered into by any of the Selling
Shareholders and any other broker-dealers that participate in the sale of the
Shares.
The Selling Shareholders and any broker-dealers or other persons acting on
their behalf in connection with the sale of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commissions
received by them and any profit realized by them on the resale of the Shares as
principals may be deemed to be underwriting commissions under the Securities
Act. As of the date hereof, there are no special selling arrangements between
any broker-dealer or other person and any Selling Shareholder.
The Company will not receive any part of the proceeds of any sales of
Shares pursuant to this Prospectus. Pursuant to the terms of registration
rights granted to the Selling Shareholders, the Company will pay all the
expenses of registering the shares, except for selling expenses incurred by the
Selling Shareholders in connection with this offering, including any fees and
commissions payable to broker-dealers or other persons, which will be borne by
the Selling Shareholders. In addition, such registration rights provide for
certain other usual and customary terms, including indemnification by the
Company of the Selling Shareholders against certain liabilities arising under
the Securities Act.
THE SHARES INVOLVE CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 7
OF THIS PROSPECTUS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS _________________, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company pursuant to the Exchange
Act may be inspected and copied at the public reference facilities maintained by
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the Commission located at Seven World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
can also be obtained from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a Web site that contains reports, proxy
statements and other information regarding registrants that file electronically
with the Commission at http://www.sec.gov. In addition, the Company's Common
Stock is quoted on the NASDAQ National Market System. Reports, proxy statements
and other information concerning the Company can be inspected and copied at the
Public Reference Room of the National Association of Securities Dealers, Inc.,
1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a registration statement on Form
S-3 as amended (the "Registration Statement") under the Securities Act. This
Prospectus does not contain all of the information, exhibits and undertakings
set forth in the Registration Statement, certain parts of which are omitted as
permitted by the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement which may be
inspected and copied in the manner and at the sources described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
pursuant to the Exchange Act are incorporated into this Prospectus by reference:
(a) The Company's Annual Report on Form 10-KSB for the year ended December
31, 1995 (File No. 0-21534) filed on March 28, 1996.
(b) The Company's Quarterly Reports on Form 10-QSB for the fiscal quarters
ended March 31, 1996, June 30, 1996 and September 30, 1996 (File
No. 0-21534) filed on May 3, 1996, August 12, 1996 and November 13,
1996, respectively, and amended by Form 10-QSB/A for the fiscal
quarter ended June 30, 1996 (File No. 0-21534) filed on October 17,
1996.
(c) The description of the Company's Common Stock contained in its
Registration Statement on Form S-2 (No. 33-80721) as filed with the
Commission on December 21, 1995 and amended by Amendment Nos. 1, 2, 3
and 4 filed on February 1, February 20, February 27 and February 28,
1996, respectively.
(d) The Company's 8-K Report filed on January 16, 1996 (File No. 0-21534),
relating to the bridge loans from Special Situations Fund III, L.P.
and Special Situations Cayman Fund, L.P.
(e) The Company's 8-K Report filed on June 19, 1996 (File No. 0-21534),
relating to acquisition of Radio Elizabeth, Inc.
(f) The Company's 8-K/A Report filed on June 21, 1996 (File No. 0-21534),
relating to acquisition of Radio Elizabeth, Inc.
(g) The Company's 8-K/A Report filed on November 12, 1996 (File
No. 0-21534), relating to acquisition of Radio Elizabeth, Inc.
(h) The Company's 8-K Report filed on June 18, 1996 (File No. 0-21534),
relating to acquisition of the assets of Radio Station WCAR-AM.
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(i) The Company's 8-K/A Report filed on June 21, 1996 (File No. 0-21534),
relating to acquisition of the assets of Radio Station WCAR-AM.
(j) The Company's 8-K Report filed on July 3, 1996 (File No. 0-21534),
relating to changes in the Company's certifying accountant.
(k) The Company's 8-K Report filed on July 8, 1996 (File No. 0-21534),
relating to the safe harbor for forward-looking statements.
(l) The Company's 8-K Report filed on July 30, 1996 (File No. 0-21534),
relating to ABC Radio Networks' termination of its joint operations
agreement with the Company.
(m) The Company's 8-K Report filed on July 31, 1996 (File No. 0-21534),
relating to the Company's engagement of Southcoast Capital
Corporation.
(n) The Company's 8-K Report filed on October 3, 1996 (File No. 0-21534),
relating to the Company filing a lawsuit in United States District
Court for the District of Minnesota against The Walt Disney Company
and ABC Radio Networks, Inc.
(o) The Company's 8-K Report filed on October 17, 1996 (File No.
0-21534), relating to the Company filing Form 10-QSB/A regarding the
write-off of a deferred warrant expense resulting from the termination
by ABC RAdio Networks, Inc. of its joint operating agreement with the
Company.
(p) The Company's 8-K Report filed on November 12, 1996 (File
No. 0-21534), relating to the Company signing a commitment letter
for a $15 million loan from Foothill Capital Corporation.
(q) The Company's Definitive Schedule 14A (Proxy Statement) filed on
August 26, 1996 (File No. 0-21534), relating to the Company's Annual
Meeting of Shareholders scheduled for September 30, 1996.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering hereunder shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents.
Any statement contained herein or in a document all or any portion of which
is incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide, without charge, to each person to whom this
Prospectus is delivered, upon written or oral request of any such person, a copy
of any or all of the foregoing documents (other than exhibits to such documents
which are not specifically incorporated by reference in such documents).
Written requests for such copies should be directed to the Company at 724 First
Street North, Minneapolis, Minnesota 55401, Attention: Chief Financial Officer.
Telephone requests may be directed to the office of the Chief Financial Officer
of the Company at (612) 338-3300.
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<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED BY THE MORE DETAILED INFORMATION AND
CONSOLIDATED FINANCIAL STATEMENTS APPEARING ELSEWHERE OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, INFORMATION IN THIS
PROSPECTUS GIVES EFFECT TO A ONE-FOR-TWO REVERSE STOCK SPLIT WITH RESPECT TO THE
COMMON STOCK EFFECTED ON JANUARY 23, 1996.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. PURCHASERS OF THE COMPANY'S COMMON STOCK ARE CAUTIONED THAT THE
COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN
THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE THOSE FACTORS DISCUSSED HEREIN UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
Children's Broadcasting Corporation is the only full-time national
broadcaster of children's radio programming in the United States. The Company
develops, produces and distributes programming that is entertaining and
informative, and directed to the interests and radio listening patterns of
pre-teenage children and their families. The Company's Radio AAHS-Registered
Trademark-(*) format provides 24-hour programming featuring music, stories,
call-in segments, quizzes and current events features. The programming varies
by time of day in order to attract that component of its prospective audience
most likely to be listening. The programming originates at the Company's
flagship station, WWTC-AM in Minneapolis, Minnesota and is distributed via
satellite to a network of radio stations around the country, which includes
stations owned or operated by the Company as well as affiliated stations owned
by third parties.
The Company's strategy is to acquire radio stations in the top 15 markets,
thereby securing the network's presence and continuity in those key markets.
Pursuant to that strategy, the Company has acquired stations serving the New
York City, Los Angeles, Dallas, Detroit and Philadelphia markets and entered
into a purchase agreement on September 11, 1996, to acquire radio station
WAUR-AM in the Chicago market. During the nine months ended September 30, 1996,
the Company acquired or contracted to acquire radio stations covering the
New York City, Detroit, Philadelphia and Chicago markets. Assuming completion
of the pending acquisition of a radio station serving the Chicago market and
commencement of broadcasting under the signed affiliation agreements, the
Company will distribute its programming to markets representing approximately
40% of the United States' population and will have a presence in the top four
markets and seven of the top ten markets in the United States.
The Company engaged Southcoast Capital Corporation ("Southcoast") on
July 26, 1996 to explore strategic alternatives to enhance shareholder value.
Southcoast has and continues to hold discussions with various potential
strategic partners with a view toward entering into a joint venture, sale or
merger. There can be no assurance that the Company will be successful in
completing any transaction with a prospective strategic partner.
The Company signed a commitment letter with Foothill Capital Corporation
("Foothill") on November 7, 1996 to address the Company's working capital
requirements. The transaction contemplated thereby will provide the Company
with working capital through (a) a $10,000,000 term loan to be collateralized
by the assets of the Company, payable over four years at a rate of 2.75%
above prime, (b) a $1,000,000 line of credit secured by the Company's
accounts receivable and (c) a $4,000,000 acquisition facility secured by
future assets acquired by the Company. Additionally, the Company will grant
Foothill a warrant to purchase 50,000 shares of the Company's Common Stock.
The Company will be required to pay various service and commitment fees as
are standard within the industry. Substantially all due diligence has been
completed and funding is expected to occur in November 1996 subject to
customary lender closing conditions.
(*) Radio AAHS is the registered Trademark of Children's Broadcasting
Corporation.
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The Company seeks to attract listeners and advertisers to the Radio AAHS
programming format by continually refining its content and expanding the
distribution network. Elements of this strategy include (i) attracting a loyal
listenership by maintaining high quality, distinctive programming directed to
its target audience, (ii) reinforcing this loyalty by creating a brand identity
through the creation of characters which are integrated into its programming,
(iii) delivering this listenership base to national advertisers by expanding its
radio network to obtain a critical mass of U.S. population coverage, and (iv)
making opportunistic acquisitions of radio stations in key markets.
The Company derives its revenue primarily from the sale of local and
network time to advertisers. The Company believes that as its coverage of the
U.S. continues to expand, it will be able to sell national advertising time in
greater quantities and at significantly higher rates with no significant
additional operating costs. To a large extent, the Company is already incurring
the production, operating and administrative costs necessary to broadcast the
network to the entire U.S. Incremental costs as the network continues to expand
are expected to be minimal, excluding the costs of any station acquisitions or
local marketing agreements ("LMAs") which the Company may complete or enter
into.
Radio AAHS is a music-driven format which was developed and is produced for
pre-teens. In addition to this primary target market, the format has also been
strategically designed to appeal to parents and care givers. This is
accomplished through a blend of music, stories, call-in segments, interactive
quiz features, interviews and current events. Approximately two-thirds of Radio
AAHS programming consists of music which is a combination of children's music
and a mix of popular, classical, folk, jazz and other genres of music, including
adult-tested current hits and "oldies" which have also tested well with kids.
Conversely, kids' music is also tested with adults. Research conducted by the
Company, including focus groups and analysis of listener feedback, has shown
that having music as the core element of its programming is the best way to
attract and retain its target audience. The Company develops and continually
conducts focus groups and written and telephonic surveys in order to enhance its
understanding of its target audience and ensure that its programming is meeting
the demands of both kids and their parents. Management believes that
non-musical programming is appealing as well and contributes to the
"personality" of the format and to its differentiation from competing formats.
Prior to the Company's development of the Radio AAHS format, there were not
any full-time radio formats which targeted the pre-teen market. It is estimated
that over $1.0 billion in advertising dollars is directed toward children
annually, yet only a small percentage of these advertising dollars are currently
spent on radio. The Company believes that advertisers trying to reach children
have not utilized radio due to the lack of children's programming on the radio.
By providing quality programming which is appealing to both pre-teens and their
parents and by pursuing vigorous sales and marketing efforts, the Company
believes it will be able to attract an increasing portion of the annual
advertising dollars aimed at this previously underserved market segment.
The Company believes that developing a well-recognized brand identity will
enhance its network's visibility and create opportunities for the Company to
expand beyond the scope of its broadcast operations. The Company has created
characters within its programming, including AAHSIE-TM-, the Company's animated
mascot, which it has integrated into its merchandising and Internet enterprises.
The characters play roles within the programming and also interact with
listeners through telephone call-ins. The Company has developed and intends to
continue to develop strategic relationships to assist it in its brand
development efforts, and to allow the Company to exploit business opportunities
without detracting from management's focus upon the Company's core business.
Pursuant to this strategy, the Company recently entered into three year
agreements with NetRadio Network, Inc. ("NetRadio") and Precision Tapes, Inc.
which will expand the Company's interactive Internet presence and give Radio
AAHS programming Internet distribution worldwide. The Company distributes the
full 24-hour Radio AAHS format over the Internet pursuant to an agreement with
NetRadio. The Web site at which this format can be heard is www.netradio.net.
5
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In November 1995, the Company entered into a Joint Operations Agreement
(the "Operations Agreement") with ABC Radio Networks, Inc. ("ABC") pursuant
to which ABC's affiliate development and national advertising sales staffs
would augment the Company's efforts to market the Radio AAHS format to
broadcasters and advertisers. The parties operated under the Operations
Agreement until July 25, 1996, when ABC notified the Company that ABC would
terminate such agreement effective October 24, 1996. At the time of such
notice, ABC also indicated its intent to pursue other opportunities in
children's radio. On September 26, 1996, the Company filed a lawsuit in the
United States District Court for the District of Minnesota against The Walt
Disney Company, which recently acquired Cap Cities/ABC, parent company of
ABC, and ABC for injunctive relief and to recover damages for their alleged
attempts to misappropriate the Company's confidential information and trade
secrets acquired through their strategic relationship with the Company in
order to unfairly compete with the Company in the children's radio market.
See "Risk Factors - Disney/ABC Litigation."
The Company was incorporated under the Minnesota Business Corporation Act
on February 7, 1990. All references to the Company herein include its
subsidiaries, unless otherwise noted. The Company's executive office is located
at 724 First Street North, Minneapolis, Minnesota 55401, and its telephone
number is (612) 338-3300. Its World Wide Web site is www.netradioaahs.net.
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING
RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS,
IN CONNECTION WITH AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY.
WHEN USED BELOW AND ELSEWHERE IN THIS PROSPECTUS, INCLUDING DOCUMENTS
INCORPORATED HEREIN BY REFERENCE, THE WORDS "BELIEVES," "ANTICIPATES"
AND "INTENDS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. POTENTIAL
PURCHASERS OF THE COMPANY'S COMMON STOCK ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE
HEREOF.
COMPANY DEVELOPMENT; HISTORY OF OPERATING LOSSES. The Company is
continuing to develop its radio network and is generally subject to the risks
attendant to a new or emerging business venture. The Company has incurred net
losses since its inception in 1990 and has not generated positive cash flow
sufficient to fund its ongoing operations. For the three years ended December
31, 1993, 1994, 1995 and the nine months ended September 30, 1996, the
Company incurred net losses of $3,247,000, $4,519,000, $6,108,000 and
$6,682,000 respectively, and anticipates that it will continue to operate at
a loss from operations for the remainder of 1996 and throughout 1997. Due to
such losses, and because the Company has not generated positive cash flow
from operations, the Company has had frequent working capital shortages.
Working capital requirements have been met by short-term borrowings from
investors, including affiliates of the Company, and from the proceeds of
public offerings of the Company's Common Stock. The Company has signed a
commitment letter for a $15,000,000 loan from Foothill Capital Corporation
for its working capital needs and for acquisitions. Funding is expected to
occur under this loan in November 1996 subject to customary lender closing
conditions. The Company continues to seek other sources of financing for its
working capital needs and for acquisitions. Such arrangements could include
the leveraging of Company radio station properties under agreements with
asset-based lenders. If the Company should be unable to obtain working
capital when required, its operations and prospects would be materially and
adversely affected.
THIRD QUARTER OPERATING RESULTS; CAPITAL REQUIREMENTS. The Company's
results of operations for the third quarter of 1996 included revenues of
approximately $1,385,000 and a net loss of approximately $1,437,000. The
Company's liquidity, as measured by its working capital, was approximately
$908,000 at the end of the third quarter. The Company paid off $1,268,000 of
short term debt during the third quarter and used $820,000 in cash to
purchase its Philadelphia radio station property.
The Company has signed a purchase agreement to acquire a radio station in
the Chicago market in January 1997. This acquisition will require approximately
$2,000,000 of capital at the time of closing. The Company is seeking additional
capital to complete this acquisition as well as to fund additional potential
acquisitions and its working capital requirements through the end of 1996 and
for 1997. While the Company does own several radio properties with relatively
little debt on its balance sheet, no assurance can be given that the required
financing will be available, or if available, that the same will be on terms
acceptable to the Company. The failure to obtain such additional capital
could result in a default by the Company under the purchase agreement and
would result in the loss of the escrow deposit and this opportunity to
acquire a station in this key market. Further, the acquisition is contingent
upon approval by the Federal Communications Commission (the "FCC").
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<PAGE>
RISKS RELATED TO ACQUISITION OF RADIO ELIZABETH. On June 4, 1996, the
Company acquired all of the issued and outstanding stock of Radio Elizabeth,
Inc. ("REI"), which holds an FCC license for WJDM-AM Radio Station licensed
to Elizabeth, New Jersey on the 1530 kHz frequency. REI, in addition to its
license for operation on 1530 kHz, presently has issued to it a special
temporary authorization ("STA") for operation on 1660 kHz at 10 kw power,
which provides coverage of a significant portion of the New York City market.
WJDM has been broadcasting the Company's Radio AAHS programming in the
nation's largest city radio market since February 1, 1996, over its 1660 kHz
frequency. The STA frequency is located in a portion of the spectrum
referred to as the expanded band ("Expanded Band") recently allocated by the
FCC and assigned to certain AM broadcasters in order to implement
Congressional policy. REI and other Expanded Band licensees are expected to
be allowed to operate on both their original frequencies and the Expanded
Band frequencies for a period of five years, after which time the licensee
must elect which frequency on which it will continue broadcasting. There can
be no assurance that REI will ever receive a permanent license to an Expanded
Band frequency, and failure to obtain such a license would leave the Company
broadcasting from only the existing licensed frequency, which at 1 kw power
does not cover the New York City market, thereby resulting in a substantial
diminution of the value of the Company's investment in REI. Most radio
receivers produced prior to 1990 cannot receive Expanded Band frequencies.
DISNEY/ABC LITIGATION. Following the termination by ABC of the Operations
Agreement, the Company filed a lawsuit in the United States District Court for
the District of Minnesota against The Walt Disney Company and ABC for injunctive
relief and to recover damages for their alleged attempts to misappropriate the
Company's confidential information and trade secrets acquired through their
strategic relationship with the Company in order to unfairly compete with the
Company in the children's radio market. As a result of the termination by ABC
of its Operations Agreement with the Company, the Company has had to rebuild its
own affiliate development and national advertising sales staff and is in the
process of rebuilding that capability. Further, there can be no assurance that
the Company will prevail in the Disney/ABC litigation or recover any of the
damages sought. Such litigation is costly to the Company and may require the
expenditure of Company funds reducing its working capital or cause the Company
to issue securities to finance the litigation which would result in dilution to
the Company's present shareholders.
VOLATILITY OF MARKET PRICE OF COMMON STOCK. The market price of the
Company's Common Stock has been subject to significant fluctuations in response
to numerous factors, including variations in the annual or quarterly financial
results of the Company or its competitors, changes by financial research
analysts in their estimates of the earnings of the Company or its competitors,
conditions in the economy in general or in the radio industry in particular,
unfavorable publicity or changes in applicable laws and regulations (or judicial
or administrative interpretations thereof) affecting the Company or the radio
industry. There can be no assurance that purchasers of the Shares can sell the
Shares at or above the prices at which they were purchased.
ADDITIONAL FINANCING REQUIREMENTS. Part of the Company's strategy for
development and expansion of its network includes acquiring and/or operating
radio properties in key U.S. markets. There can be no assurance that the
Company will be able to complete suitable acquisitions on terms favorable or
acceptable to the Company. In the event the Company purchases additional
stations, the Company will require additional financing. Additional financing
will be required to fund future operations and the expansion of its radio
network, including the acquisition of a radio station in the Chicago market,
WAUR-AM. There can be no assurance that such additional financing will be
available to the Company when required, or if available, that it would be on
terms acceptable or favorable to the Company. Additional financing could
require the sale of equity securities, which could result in significant
dilution to the Company's shareholders.
ACCEPTANCE OF RADIO FORMAT. The Company produces and distributes a unique
24-hour children's radio format. There can be no assurance that the Company's
programming will gain acceptance by listeners and advertisers. In addition, the
Company's primary target audience is not rated by a recognized rating service.
Such ratings are generally used by potential advertisers in making advertising
decisions. The Company is working with ratings services to attempt to develop
such ratings for the pre-teen market. However, there can be no assurance that
such ratings can be developed or that the Company will be able to attract
additional national advertisers.
8
<PAGE>
IMPACT OF SALE OF SHARES; SHARES ELIGIBLE FOR FUTURE SALE. The Company had
approximately 5.9 million shares of Common Stock outstanding as of October 31,
1996 and had warrants and options to purchase additional Common Stock
outstanding totaling approximately 2.6 million common shares exercisable at
prices ranging from $2.20 to $13.80 per share. On July 11, 1996, the Commission
declared effective the Company's Registration Statement on Form S-3 which
registered for a secondary offering 1.6 million common shares. The sale of the
Shares and the sale of additional Common Stock which may become eligible for
sale in the public market from time to time upon exercise of warrants and stock
options could have the effect of depressing the market prices for the Company's
Common Stock.
DEVELOPMENT OF NATIONAL RADIO NETWORK. Since late 1992, the Company has
been developing a network of affiliated and owned or operated radio stations to
carry its satellite-transmitted programming to domestic radio markets. The
Company's affiliation agreements have terms varying from one to three years.
There can be no assurance that the Company will be able to retain existing
affiliates or attract additional affiliates. Since the inception of the network
a total of 10 former affiliate stations have discontinued their affiliation. In
cases where the Company deems it appropriate, the Company intends to seek
alternate affiliates by entering into affiliation agreements or LMAs, through
which third-party owned stations broker broadcast time to the Company, or by
acquiring stations in key markets. In addition, the Company could encounter
substantial delays, expenses or other unforeseen difficulties in establishing
its network. The Company also risks the potential loss of strategic alliances
which it has developed in connection with its strategy to develop the Company's
brand, to assist in growth of the Company's network and to pursue ancillary
business opportunities. Furthermore, the signal of the Company's affiliates and
of its owned and operated stations may not cover households in certain portions
of the markets in which such stations broadcast. In addition, the Company's
management has limited experience in the development or operation of a national
radio network.
The success and viability of the Company's network will depend upon its
ability to generate substantial revenue from network advertisers. For the year
ended December 31, 1995 and for the nine months ended September 30, 1996, the
Company's network, which is in a development phase, generated $1,059,000 and
$1,034,000 in revenue, respectively. For the years ended December 31, 1993,
1994 and 1995 and for the nine months ended September 30, 1996, approximately
45%, 51%, 42% and 39% respectively, of the Company's revenue was derived from
its radio stations which do not carry the Radio AAHS format: KTEK-AM,
Houston, Texas, KCNW-AM, Kansas City, Kansas, WZER-AM, Milwaukee, Wisconsin
and KYCR-AM, Minneapolis, Minnesota. For each of the years in the three year
period ended December 31, 1995 and for the nine months ended September 30,
1996, the Company derived approximately 13%, 16%, 13% and 12% respectively,
of its revenue from KTEK-AM; approximately 10%, 11%, 9% and 9% respectively,
of its revenue from KCNW-AM; approximately 11%, 12% 11% and 9% respectively,
of its revenue from WZER-AM; and approximately 11%, 12%, 9% and 9%
respectively, of its revenue from KYCR-AM. If the Company converts any of
these stations to the Radio AAHS format, its revenue may be negatively
affected until a new advertising base is developed for the Radio AAHS format
in those markets. No assurance can be given that the Company will be able to
acquire additional stations in major markets or to increase the number of
network affiliates to a level which would enable it to increase network
advertising, even if desired additional acquisitions are made or affiliate
relationships are created, or that the Company will be able to generate
sufficient advertising revenue to operate profitably in the future.
RELIANCE ON CURRENT MANAGEMENT. The Company is dependent on the management
services of its current management team. If the Company were to lose the
services of these individuals, its business could be adversely affected. None
of the members of the Company's current senior management team, except Barbara
A. McMahon, is subject to an employment contract with the Company. The Company
does not maintain insurance on the lives of its key employees.
9
<PAGE>
POTENTIAL CONFLICTS OF INTEREST. The Company leases certain broadcast
and office facilities from its President, Christopher T. Dahl, and another
director, Richard W. Perkins, and the WWTC and KYCR radio transmission tower
site from Mr. Dahl. The Company also shares with Community Airwaves
Corporation ("CAC"), a corporation owned by the Company's President,
Christopher T. Dahl, a director, Richard W. Perkins, and a shareholder,
Russell Cowles II, certain management services which are provided by another
entity, Radio Management Corporation ("RMC"), owned by Messrs. Dahl, Perkins
and Cowles. The management services consist of administrative, legal and
accounting services. Such arrangements involve potential conflicts of
interest in connection with the pricing of services provided. In addition,
CAC may acquire interests in additional stations. Such ownership would,
under current FCC regulations, limit the number of additional radio stations
which the Company may acquire. In addition, the Company has entered into an
agreement with CAC whereby the Company is required to obtain the consent of
CAC for any acquisition of an FM station or of an AM station located outside
the largest 125 U.S. markets. Such agreement may result in conflicts of
interest with members of the Company's management and could be detrimental to
the Company.
COMPETITION. The Company currently derives the majority of its revenue
from the sale of local radio advertising time on its owned and operated stations
to advertisers in their respective metropolitan markets and faces substantial
competition from other radio and television stations as well as other media in
those markets. Factors contributing to the Company's ability to attract local
advertisers include the success of a station in attracting listeners and the
perceived quality of the Company's programming, There can be no assurance that
the Company can successfully compete for listeners and advertising revenues with
other radio and television networks and other entertainment organizations. The
Company may also experience competition from developing technologies in the
radio industry.
In addition to the Company's current competition for local advertising, the
Company also competes for network advertising. Other entertainment
organizations, including but not limited to radio syndicators and radio
stations, many of which have greater resources than the Company, could develop a
children's radio format similar to Radio AAHS. The Walt Disney Company, which
recently acquired CapCities/ABC, parent company of ABC Radio Networks, Inc. has
announced its intention to test its own children's radio programming in certain
markets to be announced, thereby entering into direct competition with the
Company. Although radio stations must be licensed by the FCC, there are no
significant impediments to the entry of new competitors into the Company's
markets. While the Company continues to seek protection for its original
programming, where appropriate, under applicable copyright and trademark laws,
the Radio AAHS format could be imitated by others seeking to enter the
children's radio field.
FCC REGULATION. Although the radio broadcast licenses of the stations
owned by the Company are already granted, their continuation and the continued
licensing of any radio station acquired by the Company depend upon compliance
with the laws, rules and regulations of the FCC. The FCC can revoke licenses
for serious misconduct, subject to the right to an evidentiary hearing, or it
may fail to renew a license or impose monetary fines for breach of its rules.
Neither the Company nor CAC has ever been denied any FCC license or renewal, or
had a fine imposed by the FCC. In recent years, a number of competing
applications and formal and informal objections have been filed with respect to
broadcast renewal applications. Even though the vast majority of all license
renewal applications are granted, and under the Telecommunication Act of 1996
(the "1996 Act") competing applications in license renewal proceedings are no
longer allowed, there can be no assurance that renewal of the Company's licenses
will be granted. Furthermore, approvals are required for the transfer of
ownership. Three directors and attributable shareholders of the Company have
interests in AM and FM radio stations unrelated to the Company. Under current
FCC regulations, these interests are attributed to the Company and may limit the
markets in which the Company can acquire stations. The 1996 Act eliminated the
limit upon the number of stations that can be under common ownership or control
nationally. Local ownership was substantially relaxed according to market size.
See "Risk Factors -- Risks Related to Acquisition of Radio Elizabeth."
10
<PAGE>
ANTI-TAKEOVER PROVISIONS. The Board of Directors, without any action by
the Company's shareholders, has the authority to issue the remaining
undesignated and unissued authorized shares and to fix the powers, preferences,
rights and limitations of such shares or any class or series thereof, without
shareholder approval. Persons acquiring such shares could have preferential
rights with respect to voting, liquidation, dissolution or dividends over
existing shareholders. The Company is subject to certain provisions of the
Minnesota Business Corporation Act which limit the voting rights of shares
acquired in "control share acquisitions" and restrict certain "business
combinations." Such provisions, as well as the ability to issue undesignated
shares, could have the effect of deterring or delaying a takeover or other
change in control of the Company, deny shareholders the receipt of a premium on
their Common Stock and depress the market price of the Company's Common Stock.
CONTROL BY PRINCIPAL SHAREHOLDERS. Approximately 34% of the Company's
outstanding Common Stock is beneficially owned by the Company's current officers
and directors. Accordingly, such persons may be able to significantly influence
the Company's business and affairs. This concentration of ownership may have
the effect of delaying, deferring or preventing a change in control of the
Company.
NO ASSURANCE AS TO LIQUIDITY ON THE NASDAQ NATIONAL MARKET. The Common
Stock is currently listed on the Nasdaq National Market. There can be no
assurance that the Common Stock will be actively traded on such market or that,
if active trading does develop, it will be sustained.
ABSENCE OF DIVIDENDS. The Company has not paid any cash dividends since
its inception and does not anticipate paying cash dividends in the foreseeable
future. The Company presently expects to retain its earnings to finance the
development and expansion of its business. The declaration or payment by the
Company of dividends, if any, on its Common Stock in the future is subject to
the discretion of the Board of Directors and will depend on the Company's
earnings, financial condition, capital requirements and other relevant factors.
The Company issued 290,213 shares of convertible preferred stock in connection
with its merger with a California corporation, licensee of radio station
KPLS-AM, Orange, California. The convertible preferred stock ranks senior to
Common Stock and all other series of preferred stock as to payment of dividends
and as to distribution of assets upon liquidation, dissolution or winding up of
the Company, voluntary or involuntary.
11
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth, as of the date hereof, the name of each
Selling Shareholder, certain beneficial ownership information with respect to
the Selling Shareholders, and the number of Shares that may be sold from time to
time by each pursuant to this Prospectus. There can be no assurance that the
shares offered hereby will be sold.
<TABLE>
<CAPTION>
SHARES SHARES PERCENTAGE OF
BENEFICIALLY BENEFICIALLY OUTSTANDING SHARES
OWNED SHARES OWNED UPON BENEFICIALLY OWNED
PRIOR TO OFFERED COMPLETION OF THE UPON COMPLETION OF
SELLING SHAREHOLDER OFFERING HEREBY OFFERING THE OFFERING
- ------------------------------------ ------------ ----------- ------------------ ------------------
<S> <C> <C> <C> <C>
Christopher T. Dahl 548,252 25,000 523,252 9.4
Richard W. Perkins, Trustee UA
Dated 6-14-78 FBO Richard W.
Perkins 471,459 266,146 205,313 3.6
Russell Cowles II, Marguerite
Cowles, and First Bank National
Association as Trustees of the John
Cowles Family Trust FBO Russell
Cowles 214,042 214,042 0 0
Hessian, McKasy & Soderberg, P.A. 200,000 200,000 0 0
John G. Kinnard and Company,
Incorporated 98,300 86,250 12,050 *
Lloyd B. Roach, Inc. 79,052 79,052 0 0
Nelson Broadcasting, Inc. 75,000 75,000 0 0
Russell Cowles II 69,098 69,098 0 0
Rodney P. Burwell 68,750 25,000 43,750 *
Pyramid Partners, L.P. 46,344 46,344 0 0
Mark A. Cohn 27,500 20,000 7,500 *
Perkins Capital Management, Inc.
Profit Sharing Plan and Trust 7,759 7,759 0 0
Fernando Niebla and Olga Niebla,
Co-Trustees of the Niebla Family
Trust Dated 8-30-90 7,255 7,255 0 0
Perkins Foundation 4,634 4,634 0 0
</TABLE>
- -----------------
*Less than 1%.
Christopher T. Dahl, Richard W. Perkins, Rodney P. Burwell, and Mark A.
Cohn are all members of the Company's Board of Directors. Russell Cowles II is
a member of the Board of Directors of the Company whose election remains
contingent upon either obtaining a waiver from the FCC of the application of its
cross-ownership rules or the amendment of such rules to remove existing
restrictions. The Prospectus includes shares owned directly by Mr. Perkins,
shares beneficially owned by Mr. Perkins through the Richard W. Perkins, Trustee
UA Dated 6/14/78 FBO Richard W. Perkins, Pyramid Partners, L.P., Perkins Capital
Management, Inc. Profit Sharing Plan and Trust and Perkins Foundation. This
Prospectus also includes shares owned directly by Mr. Cowles and shares
beneficially owned by Mr. Cowles through Russell Cowles II,
12
<PAGE>
Marguerite Cowles, and First Bank National Association as Trustees of the John
Cowles Family Trust FBO Russell Cowles.
John G. Kinnard and Company, Incorporated, the underwriter of the Company's
1993 public offering, is the owner of shares included in this Prospectus.
This Prospectus includes shares owned by Lloyd B. Roach, Inc. Such shares
were issued to Lloyd B. Roach, Inc. in connection with its sale to the Company
of radio station WPWA-AM, Chester, Pennsylvania, which closed on September 25,
1996. Lloyd B. Roach, Inc. has exercised its demand registration right with
respect to such shares.
This Prospectus also includes shares owned by Nelson Broadcasting, Inc.
Such shares were issued to Nelson Broadcasting, Inc. on September 11, 1996 in
connection with the escrow agreement associated with its pending sale to the
Company of radio station WAUR-AM, Sandwich, Illinois.
Up to 200,000 shares of common stock may be sold from time to time for the
account of Hessian, McKasy & Soderberg, P.A. ("HMSPA") pursuant to a retainer
agreement with the Company. In September 1996, the Company paid 200,000 shares
as a retainer to HMSPA for legal fees incurred and to be incurred in connection
with the ABC/Disney Litigation. Under the retainer agreement, HMSPA will
periodically invoice the Company for legal fees and costs incurred in connection
with the litigation. The Company will determine at such time whether it desires
to pay the billing in cash with the Company's funds or whether it will authorize
HMSPA to sell shares in satisfaction of the invoice. The number of shares which
may be sold will be equal to the amount of the particular billing divided by the
bid price of the Company's stock on Nasdaq as of the date the Company notifies
HMSPA of its authorization to pay a particular legal fee billing in shares. In
the event of the sale of shares by HMSPA to satisfy billings, any shortfall in
proceeds received from such sale shall be added to the Company's obligation to
such firm and carried forward to a future billing. In the event the proceeds
from the sale of shares by HMSPA exceed the amount of the billing for which such
shares are to be sold, such excess shall be credited to future legal fees due
such firm. In lieu of selling shares following the submission of a billing to
the Company, HMSPA may elect to retain shares in satisfaction of a billing, in
which case the market risk from the sale of such shares would be borne by the
firm. Lance W. Riley, the Company's Secretary and General Counsel, has an of
counsel relationship with HMSPA.
The Company has agreed to bear all expenses (other than selling commissions
and fees) in connection with the registration and sale of the Shares being
offered by the Selling Shareholders in over-the-counter market transactions or
in negotiated transactions. See "Plan of Distribution." The Company has filed
with the Commission a Registration Statement with respect to the resale of the
Shares from time to time in the over-the-counter market transactions or in
negotiated transactions. This Prospectus forms a part of such Registration
Statement.
USE OF PROCEEDS
The Shares offered hereby will be sold by the Selling Shareholders. The
Company will not receive any of the proceeds from the sale of the Shares by the
Selling Shareholders. See "Selling Shareholders."
PLAN OF DISTRIBUTION
The Shares offered hereby may be offered by the Selling Shareholders from
time to time. The Company will receive no proceeds from the sale of the Shares.
Sales may be effected by the Selling Shareholders in transactions on the Nasdaq
Stock Market, in negotiated transactions, or in a combination of such methods of
sale, at prices relating to prevailing market prices or at negotiated prices.
The Selling Shareholders may effect such transactions by selling the Shares to
or through broker-dealers, and such broker-dealers may receive compensation in
the form of discounts or commissions from the Selling Shareholders and/or the
purchasers of the Shares for whom such broker-dealers may act as agents or to
whom they sell as principal, or both (which compensation as to a particular
broker-dealer may be in excess of customary commissions).
13
<PAGE>
The Selling Shareholders and any persons who participate in the sale of the
Shares from time to time, may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act. Any commissions paid or discounts or
concessions allowed to any such persons and any profits received on resale of
the Shares, may be deemed to be underwriting compensation under the Securities
Act.
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available.
In accordance with the terms of Warrants exercisable or exercised to
purchase Common Stock by certain of the Selling Shareholders, the Company has
agreed to indemnify such Selling Shareholders and their control persons with
respect to certain liabilities in connection with the sale of the Shares
pursuant to this Prospectus, including liabilities under the Securities Act of
1933, as amended (the "Securities Act") and the Exchange Act. In addition,
certain Selling Shareholders have agreed to indemnify the Company, its
directors, officers, agents and control persons against certain liabilities
incurred as a result of information provided by the Selling Shareholders for use
in this Prospectus. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted pursuant to the foregoing provisions, the
Company has been informed that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
LEGAL MATTERS
The validity of the Shares offered hereby and certain legal matters
pertaining to the Company, including matters incorporated herein by reference
relating to the regulation of the Company by the FCC and related matters, were
passed upon on behalf of the Company by Lance W. Riley, Esq., Secretary and
General Counsel to the Company.
EXPERTS
The consolidated financial statements as of December 31, 1994 and 1995 and
for each of the three years in the period ended December 31, 1995 of Children's
Broadcasting Corporation, incorporated by reference in this Prospectus have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon (which contain an explanatory paragraph with respect to
substantial doubt about the Company's ability to continue as a going concern and
management's plans described in Note 2 to the consolidated financial
statements). Such consolidated financial statements are incorporated by
reference herein in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The financial statements of Radio Elizabeth, Inc. for the eleven months
ended March 31, 1996 and 1995 and for the years ended April 30, 1993, 1994
and 1995, incorporated by reference in this Prospectus have been audited by
Smolin, Lupin & Co., P.A., Certified Public Accountants, independent
auditors, as set forth in their report thereon. Such financial statements
are incorporated by reference herein in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
The financial statements of Wolpin Broadcasting Company as of December 31,
1994 and 1995 and for each of the three years in the period ended December 31,
1995, incorporated by reference in this Prospectus, have been audited by
Kleiman, Carney & Greenbaum, P.C., Certified Public Accountants, independent
auditors, as set forth in their report thereon. Such financial statements are
incorporated by reference herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
14
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER DESCRIBED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE SELLING SHAREHOLDERS. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE UNDER THIS PROSPECTUS SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR SINCE THE DATE OF ANY DOCUMENTS
INCORPORATED HEREIN BY REFERENCE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES, OR AN OFFER OR SOLICITATION IN ANY STATE TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH STATE.
---------------------
TABLE OF CONTENTS
---------------------
Page
----
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents
by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Selling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
1,125,580 SHARES
CHILDREN'S BROADCASTING
CORPORATION
COMMON STOCK
--------------------
PROSPECTUS
--------------------
_______________, 1996
<PAGE>
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses payable by the Company
in connection with the sale and distribution of the Shares being registered.
All amounts shown are estimates, except the registration fee.
SEC registration fee. . . . . . . . . . . . . . . . . . . . .$ 1,791
Legal fees and expenses . . . . . . . . . . . . . . . . . . . 15,000
Accounting fees and expenses. . . . . . . . . . . . . . . . . 10,000
Blue sky and related fees and expenses. . . . . . . . . . . . 2,000
Miscellaneous (including listing fees, if applicable) . . . . 5,000
-------
Total. . . . . . . . . . . . . . . . . . . . . . . . . .$33,791
-------
-------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant is a Minnesota corporation. Reference is made to Minnesota
Statutes Section 302A.521 which provides that a Minnesota business corporation
shall indemnify any director, officer, employee or agent of the corporation made
or threatened to be made a party to a proceeding, by reason of the former or
present official capacity (as defined) of the person, against judgments,
penalties, fines, settlements and reasonable expenses incurred by the person in
connection with the proceeding if certain statutory standards are met.
"Proceeding" means a threatened, pending or completed civil, criminal,
administrative, arbitration or investigative proceeding, including one by or in
the right of the corporation. Section 302A.521 contains detailed terms
regarding such right of indemnification and reference is made thereto for a
complete statement of such indemnification rights.
Article 6.2 of the Company's Amended and Restated Bylaws, as amended,
provides that directors, officers, employees and agents, past or present, of the
Company, and persons serving as such of another corporation or entity at the
request of the Company, shall be indemnified by the Company for such expenses
and liabilities, in such manner, under such circumstances, and to such extent as
permitted under Minnesota Statutes 302A.521.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
5.1 Opinion of Lance W. Riley, Esq.*
10.1 Asset Purchase Agreement re WPWA-AM, Chester, Pennsylvania.*
10.2 Asset Purchase Agreement re WAUR-AM, Sandwich, Illinois.*
23.1 Consent of Lance W. Riley, Esq. (included in Exhibit 5.1).*
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Smolin, Lupin & Co., P.A.
23.4 Consent of Kleiman, Carney & Greenbaum, Certified Public
Accountants.
24 Power of Attorney (included on signature page to the Registration
Statement).*
- -------------------------
* Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
II-1
<PAGE>
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
provided, however, that the undertakings set forth in paragraphs (i) and (ii)
above do not apply if the information required to be included in a post-
effective amendment by those paragraphs is contained in periodic reports filed
by the Registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions summarized in Item 15 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel, the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that (1) for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this Registration Statement
in reliance on Rule 430A and contained in the form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the time it was
declared effective and (2) for the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has duly caused Amendment No. 1 to this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Minneapolis and State of Minnesota,
on November 14, 1996.
CHILDREN'S BROADCASTING CORPORATION
By /s/ Christopher T. Dahl
---------------------------------
Christopher T. Dahl, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on the dates and
in the capacities indicated.
Signature Title Date
--------- ----- ----
/s/ Christopher T. Dahl President, Chief Executive Officer November 14, 1996
- -------------------------- and Director (Principal Executive
Christopher T. Dahl Officer)
/s/ James G. Gilbertson Chief Operating Officer and November 14, 1996
- -------------------------- Treasurer (Principal Accounting
James G. Gilbertson Officer and Principal Financial
Officer)
* Director November 14, 1996
- --------------------------
Richard W. Perkins
* Director November 14, 1996
- --------------------------
Rodney P. Burwell
* Director November 14, 1996
- --------------------------
Mark A. Cohn
*By: /s/ James G. Gilbertson
------------------------------
James G. Gilbertson
Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
Number Description
- -------- ----------------------------------------------------------------------
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Smolin, Lupin & Co., P.A.
23.4 Consent of Kleiman, Carney & Greenbaum, Certified Public
Accountants.
<PAGE>
Exhibit 23.2
Consent of Ernst & Young LLP
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement (Form S-3) of Children's
Broadcasting Corporation for the registration of 1,125,580 shares of its
common stock and to the incorporation by reference therein of our report
dated January 31, 1996, with respect to the consolidated financial statements
of Children's Broadcasting Corporation included in its Annual Report (Form
10-KSB) for the year ended December 31, 1995, filed with the Securities and
Exchange Commission.
Minneapolis, Minnesota
November 14, 1996
/s/ ERNST & YOUNG LLP
<PAGE>
EXHIBIT 23.3
[Smolin, Lupin & Co., P.A. letterhead]
Children's Broadcasting Corporation
724 First Street North, 4th Floor
Minneapolis, Minnesota 55401
Gentlemen:
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports for the eleven months ended March 31, 1996 and 1995
and the reports for the years ended April 30, 1993, 1994, and 1995, with
respect to the financial statements of Radio Elizabeth, Inc. incorporated by
reference in the Registration Statement (Form S-3) and related Prospectus of
Children's Broadcasting Corporation for the registration of shares of its
common stock.
/s/SMOLIN, LUPIN & CO., P.A.
- -----------------------------------
SMOLIN, LUPIN & CO., P.A.
West Orange, New Jersey
November 12, 1996
<PAGE>
EXHIBIT 23.4
[Kleiman, Carney & Greenbaum, P.C. letterhead]
November 13, 1996
Consent of Independent Auditors
We consent to the reference of our firm under the caption "Experts" and to the
use of our reports dated January 19, 1996, February 2, 1996 and May 30, 1996,
with respect to the financial statements of Wolpin Broadcasting Company
incorporated by reference in the Registration Statement (Form S-3) and related
Prospectus of Children's Broadcasting Corporation for the registration of shares
of its common stock.
Very truly yours,
KLEIMAN, CARNEY & GREENBAUM
/s/ MARK CARNEY
---------------------------------------
MARK CARNEY
Certified Public Accountant
Farmington Hills, Michigan
November 13, 1996
