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PROSPECTUS
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493,895 SHARES
CHILDREN'S BROADCASTING CORPORATION
COMMON STOCK
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This Prospectus relates to 493,895 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." Certain of the Shares are issuable or were
issued upon the exercise of options and warrants held by the 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 January 31, 1997, the average of the high
and low prices of the Common Stock on the Nasdaq National Market was $5.0625
per share. Current market quotations are listed in THE WALL STREET JOURNAL
and many other newspapers of general circulation.
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 8
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.
________________
THE DATE OF THIS PROSPECTUS IS FEBRUARY 12, 1997.
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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 Northwestern Artrium 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 (herein, together with all amendments and exhibits, referred to as 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 (File No. 0-21534)
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, 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, 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,
filed on October 17, 1996.
(c) The Company's Current Report on Form 8-K filed on January 16, 1996,
relating to the bridge loans from Special Situations Fund III, L.P.
and Special Situations Cayman Fund, L.P.
(d) The Company's Current Report on Form 8-K filed on June 18, 1996,
relating to acquisition of the assets of Radio Station WCAR-AM.
(e) The Company's Current Report on Form 8-K filed on June 19, 1996,
relating to acquisition of Radio Elizabeth, Inc.
(f) The Company's Current Report on Form 8-K/A filed on June 21, 1996,
relating to acquisition of the assets of Radio Station WCAR-AM.
(g) The Company's Current Report on Form 8-K/A filed on June 21, 1996,
relating to acquisition of Radio Elizabeth, Inc.
(h) The Company's Current Report on Form 8-K filed on July 3, 1996,
relating to changes in the Company's certifying accountant.
(i) The Company's Current Report on Form 8-K filed on July 8, 1996,
relating to the safe harbor for forward-looking statements.
(j) The Company's Current Report on Form 8-K filed on July 30, 1996,
relating to the termination by ABC Radio Networks, Inc. of its joint
operations agreement with the Company.
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(k) The Company's Current Report on Form 8-K filed on July 31, 1996,
relating to the Company's engagement of Southcoast Capital
Corporation.
(l) The Company's Definitive Schedule 14A (Proxy Statement) filed on
August 22, 1996, relating to the Company's Annual Meeting of
Shareholders held on September 30, 1996.
(m) The Company's Current Report on Form 8-K filed on October 3, 1996,
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.
(n) The Company's Current Report on Form 8-K filed on October 17, 1996,
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 operations agreement with the
Company.
(o) The Company's Current Report on Form 8-K/A filed on November 12, 1996,
relating to acquisition of Radio Elizabeth, Inc.
(p) The Company's Current Report on Form 8-K filed on November 12, 1996,
relating to the Company signing a commitment letter for a $15,000,000
loan from Foothill Capital Corporation.
(q) The Company's Current Report on Form 8-K filed on December 20, 1996,
relating to the Company closing on a $16,500,000 loan from Foothill
Capital Corporation.
(r) The Company's Current Report on Form 8-K/A filed on January 31, 1997,
relating to acquisition of the assets of Radio Station WCAR-AM.
(s) The Company's Current Report on Form 8-K/A filed on January 31, 1997,
relating to acquisition of Radio Elizabeth, Inc.
(t) The Company's Current Report on Form 8-K filed on February 3, 1997,
relating to the Company acquiring an AM radio broadcast license and
certain other broadcasting equipment in the Chicago metropolitan area.
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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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 THE PROSPECTUS.
THE COMPANY
Children's Broadcasting Corporation is a 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.
Since the inception of the Company, the primary sources of the Company's
revenue have been from the sale of local advertising and air time and network
revenue, primarily on Company-owned stations which do not broadcast the Radio
AAHS format. These stations, which broadcast primarily non-Radio AAHS
programming in the Houston, Kansas City, Milwaukee and Minneapolis markets, were
acquired by the Company in 1994. See "Risk Factors -- Development of National
Radio Network."
The Company's growth strategy includes the acquisition of AM radio
broadcast licenses ("RBLs") 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 RBLs which serve the New York City, Los
Angeles, Dallas, Detroit, Philadelphia and Chicago markets. During the nine
months ended September 30, 1996, the Company has acquired RBLs covering the
New York City, Detroit and Philadelphia markets. With the acquisition of the
RBL and certain other assets of radio station WAUR-AM in the Chicago market,
the Company distributes its programming to markets representing approximately
40% of the United States' population has a presence in the top four markets
and seven of the top ten markets in the United States.
On July 26, 1996, the Company engaged Southcoast Capital Corporation
("Southcoast") 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 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.
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* Radio AAHS-Registered Trademark- is the registered Trademark of
Children's Broadcasting Corporation
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BROADCAST STRATEGY
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 U.S. population coverage, and (iv) making opportunistic
acquisitions of RBLs 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 is merchandising and Internet enterprise.
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.netradioaahs.net.
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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. Subsequent to the operations agreement, ABC's parent, Cap
Cities/ABC was acquired by the Walt Disney Company ("Disney"). 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.
On September 26, 1996, the Company filed a lawsuit in the United States District
Court for the District of Minnesota against Disney 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. On November 18, 1996, ABC and Disney
commenced broadcast of "Radio Disney," a competing format directed toward
children age 12 and under in four markets across the country. See "Risk
Factors -- Disney/ABC Litigation."
RECENT FINANCING
The Company entered into an agreement (the "Credit Agreement") with
Foothill Capital Corporation ("Foothill") to address the Company's working
capital requirements through the creation of three credit facilities (the
"Facilities") on November 25, 1996. The Credit Agreement provides the Company
with working capital through (a) a $11,500,000 senior secured term loan (the
"Term Loan") collateralized by the assets of the Company, payable over four
years, (b) a $1,000,000 senior secured reducing/revolving line of credit (the
"Revolving Loan") secured by the Company's accounts receivable, and (c) a
$4,000,000 acquisition facility (the "Acquisition Loan") secured by future
assets acquired by the Company. The Facilities mature on November 26, 2000.
The Company's indebtedness under the Facilities is secured by a first priority
lien on substantially all the assets of the Company and its subsidiaries, by a
pledge of its subsidiaries' stock and by a guarantee of its subsidiaries.
Additionally, the Company granted Foothill a warrant to purchase 50,000 shares
of the Company's Common Stock. The Company was required to pay various service
and commitment fees as are standard within the industry. Approximately
$4,000,000 of the loan proceeds were held back by Foothill pending performance
by the Company of certain post-closing conditions. The conditions remaining
to be satisfied include the obtaining of certain landlord consents, which the
Company expects will be obtained in the ordinary course of business in
February or March 1997, and the completion of certain restructuring transactions
required pursuant to the Credit Agreement. The restructuring transactions
include the requirement that the Company's radio station assets be
transferred to separate wholly-owned subsidiaries and that each RBL be owned
by a second tier subsidiary of each wholly-owned corporate subsidiary. The
Company is in the process of accomplishing such restructuring and anticipates
completion thereof in the first quarter of 1997.
Funds available from the Term Loan may be and have been used for working
capital needs and acquisitions, including the purchase of the RBL and certain
other assets of WAUR-AM in the Chicago market. The Revolving Loan may be
used for working capital needs and for acquisitions. Advances are not to
exceed 80% of eligible accounts receivable less reserves determined by
Foothill as determined by material adverse changes. The Term Loan is to be
repaid monthly in 42 installments of principal in the amount of 1/54 of the
term loan amount beginning in month seven of the Credit Agreement. The
Acquisition Loan is to be repaid monthly based upon a five-year amortization
schedule, commencing on the first month following funding. Interest rates
under the Facilities are payable at the prime rate plus 2.75%. The Credit
Agreement contains a number of financial covenants which, among other things,
require the Company to maintain specified financial ratios and impose certain
limitations on the Company with respect to the amount of funding available
for each acquisition under the Acquisition Loan.
As of January 29, 1997, approximately $7,900,000 was borrowed pursuant to
the Credit Agreement. These proceeds have been used as follows: $1,700,000
in connection with the acquisition of an RBL in the Chicago market,
$2,600,000 to retire preferred stock, $1,000,000 to retire debt, $250,000 for
capital expenditures, $400,000 related to loan costs, $100,000 to repay
miscellaneous interest and principal, and approximately $1,850,000 for
working capital and cash reserves. The Company completed the acquisition of
an RBL in the Chicago market (WAUR-AM) in January 1997 at a total cost of
$3,900,000, consisting of
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$350,000 of common stock (75,000 shares), $1,650,000 in cash at closing,
delivery of a $1,400,000 six-year note bearing interest at prime plus one
percent, and a $500,000 ten-year non-interest bearing non-compete note.
Under certain conditions, the Company may have the right to pay some or all
of the principal or interest on the $1,400,000 note in common stock.
Foothill, a subsidiary of Norwest Corporation, is a provider of asset based
financing to middle market companies for growth/expansion,
refinancings/recapitalizations, turnarounds, debtor-in-possession financings,
and leveraged acquisitions. In its over 25 years of service, Foothill has
completed financings for many innovative, "non-traditional," secured lending
transactions, and offers loans ranging from $5,000,000 to $200,000,000.
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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.
ACQUISITIONS. One of the Company's strategies used to expand its national
network of radio stations broadcasting Radio AAHS is to acquire RBLs in key
markets. To date, the Company has acquired 12 RBLs through the acquisition of
securities or assets of radio stations and intends to continue to acquire RBLs
in the future. Unless the acquisition is of an existing affiliate, the Company
will generally convert an acquired station to the Radio AAHS format. Although
the Company believes it has identified a number of potential acquisitions, there
can be no assurance that the Company will be successful in acquiring additional
RBLs. The Company expects to face competition in acquiring additional RBLs as
it seeks to build its national radio network. In the event the Company is
unable to continue to acquire RBLs, the Company may not achieve market
penetration levels required by major advertisers and the Company's ability to
attract national advertising and maximize the rates charged for advertising and
air time could be materially adversely affected. See "-- Development of
National Radio Network."
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 continued to incur losses from operations through the
remainder of 1996. The Company expects to continue to incur operating losses
for 1997 and that it will continue to experience negative cash flow from
operations. The Company has not generated positive cash flow from operations
and 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, and by the Facilities. The Company continues to seek other sources of
financing for its working capital needs and for acquisitions. If the Company
should be unable to obtain working capital when required, its operations and
prospects would be materially and adversely affected. In connection with its
audit report on the Company's financial statements as of and for the year ended
December 31, 1995, Ernst & Young LLP, the Company's independent auditors as of
such date, expressed substantial doubt about the Company's ability to continue
as a going concern without obtaining additional capital. See "Prospectus
Summary -Recent Financing."
Since inception, the Company has experienced substantial net losses as a
result of its efforts to develop its national radio network. As of September
30, 1996, the Company had an accumulated deficit of $22,900,000 and has used
approximately $15,900,000 of cash to fund its losses. The difference at
September 30, 1996 between accumulated deficit and cumulative net cash used in
operations since inception was primarily attributable to $3,400,000 of
depreciation and amortization, $1,600,000 of accrued interest, and $1,700,000
due to the write-off of deferred warrant expense.
The Company recently raised a total of $12,500,000 through its Credit
Agreement with Foothill to meet the cash needs of the Company throughout
1997. Additionally, as a part of the Credit Agreement the Company expects to
borrow an additional $4,000,000 to acquire future assets. The Company
believes this agreement will meet the working capital needs of the Company
and provide adequate resources for acquisitions in 1997. Beyond 1997, the
Company's ability to obtain funding to meet its future capital requirements
will depend upon a number of factors including, but not limited to, (i) the
ability of the Company to generate cash flow from operations, (ii) the
acceptance of the Company's children's radio format, (iii) the relative
profitability of the format on a local and national basis and (iv) the
general availability of debt and equity
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financing to the Company. The Company continues to seek additional sources
for its working capital and long-term capital requirements, including debt
and equity financing and strategic partnership activities.
SUBSTANTIAL LEVERAGE; ADDITIONAL FINANCING REQUIREMENTS. As of December
31, 1996, the Company's consolidated indebtedness approximated 14% of the sum of
its shareholders' equity and consolidated indebtedness, assuming performance by
the Company of certain post-closing conditions resulting in full funding under
the Facilities. Based on current interest rates, the debt service obligations
associated with the $16,500,000 Credit Agreement with Foothill necessitate
payments of principal and interest of approximately $3,300,000 per year.
Further, substantially all assets of the Company serve to secure this loan.
This degree of leverage increases the Company's vulnerability to adverse general
economic and broadcasting industry conditions and to increased competitive
pressures, including pressure from better capitalized competitors. Issuance of
additional debt, including the Debt Securities, would increase this degree of
leverage and, therefore, could exacerbate the Company's vulnerability to such
market conditions. In the event that the Company should default on its
obligations under the Credit Agreement, all or substantially all of its assets
would be at risk. There can be no assurance that the Company will be able to
repay or refinance such indebtedness when due, or that the Company would be able
to sell all or any portion of its assets or raise additional capital to make
required payments on maturing indebtedness. An inability to make payments when
due or to comply with covenants and restrictions associated with such
indebtedness could give Foothill the right to foreclose on properties securing
payment obligations, which would have a material adverse effect upon the
Company. Further, approximately $4,000,000 of the loan proceeds were held back
by Foothill pending performance by the Company of certain post-closing
conditions. See "Prospectus Summary - Recent Financing." Part of the
Company's strategy for development and expansion of its network includes
acquiring RBLs and/or operating radio properties in key U.S. markets. It is
the Company's desire to purchase RBLs in each of the top 15 markets; however,
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 RBLs, the limitations on the Credit
Agreement may require the Company to seek additional financing for
acquisitions and to fund future operations. 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.
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 generated $1,059,000 and $1,034,000 in revenue,
respectively. Since the inception of the Company, the primary sources of the
Company's revenue have been from the sale of local advertising and air time
and network revenue, primarily on Company-owned stations which do not
broadcast the Radio AAHS format. Although the Company expects this trend to
continue, it believes that the percentage of Radio AAHS revenue compared to
total revenue will increase in 1997. The percentage of non-Radio AAHS
revenue has consistently decreased from approximately 42% at December 31,
1993 to approximately 39% at September 30, 1996. The Company expects this
trend to continue due to increased network revenue and an increase in the
number of owned and operated stations selling Radio AAHS advertising time.
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
9
<PAGE>
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.
One of the Company's primary methods of expansion has been to acquire RBLs
through the acquisition of assets of broadcasters in such major markets as New
York City, Los Angeles, Dallas, Detroit and Philadelphia. The Company's
expansion strategy is to acquire additional RBLs which would enable it to
broadcast in each of the top 15 United States markets. Such strategy is
designed to achieve market penetration levels required by major advertisers
who may be reluctant or unwilling to purchase advertising time until the
Company's geographic penetration is extended. The Company believes
additional market penetration, in turn, improves the Company's ability to
maximize the rates charged for advertising and air time.
ACCEPTANCE OF RADIO FORMAT. The Company produces and distributes a 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 research companies 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.
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 Federal Communications
Commission (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. In November 1995, the Company entered into an
Operations Agreement with 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.
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
10
<PAGE>
has had to rebuild its own affiliate development and national advertising
sales staff and is in the process of rebuilding that capability. The Company
has commenced rebuilding of its national sales and affiliate development
organizations and has hired eight individuals to staff its national sales and
affiliate development departments. The Company expects to have its national
sales and affiliate development programs in place during the first half of
1997. The Company is, however, unable to determine the full impact of
damages it has sustained as a result of the actions by ABC, which are the
basis of the Company's claims in the Disney/ABC litigation. Further, there
can be no assurance that the Company will be able to rebuild its national
sales and affiliate development organizations or that it will prevail in the
Disney/ABC litigation or recover any of the damages sought. Such litigation
is costly to the Company and legal fees and costs associated with the
litigation have reduced and may continue to reduce the Company's working
capital. Further, the Company may issue securities to finance the litigation
which could result in dilution to the Company's existing shareholders.
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. Disney has commenced test
broadcasting of its own children's radio programming in four U.S. markets,
thereby entering into direct competition with the Company. Further, 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. 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 can be and
has been imitated by others seeking to enter the children's radio field.
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. During fiscal year 1996, the market price of the Company's Common
Stock has ranged from a high of $14.00 on January 31 and February 22, 1996 to a
low of $3.25 on November 20, 1996. There can be no assurance that purchasers of
the Shares can sell the Shares at or above the prices at which they were
purchased.
IMPACT OF SALE OF SECURITIES; SECURITIES ELIGIBLE FOR FUTURE SALE. The
Company had approximately 6.0 million shares of Common Stock outstanding as
of December 31, 1996, and had warrants and options outstanding 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. On November 15, 1996, the Commission declared effective the
Company's registration statement on Form S-3, as amended, which registered
for a secondary offering 1.1 million common shares. On February 11, 1997,
the Commission declared effective the Company's registration statement on
Form S-4, as amended, which registered 5.0 million common shares and $5.0
million of promissory notes that may be offered for sale and issued by the
Company from time to time, together or separately, in connection with future
acquisitions of the assets or securities of other businesses or properties in
amounts, at prices and on terms to be determined at the time of the offering.
The sale of such securities, the Common Stock offered pursuant to this
Prospectus, 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.
11
<PAGE>
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. Most
of the members of the Company's current senior management team are not subject
to employment contracts with the Company. The Company does not maintain
insurance on the lives of its key employees.
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,
owned by Messrs. Dahl, Perkins and Cowles. The management services consist of
administrative, legal and accounting services. Such arrangements present
potential conflicts of interest in connection with the pricing of services
provided. In addition, CAC may acquire interests in additional stations. Such
ownership may, under current FCC regulations, limit the markets in which the
Company could acquire additional radio stations. 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.
FCC REGULATION. Although the radio broadcast licenses of the stations
owned by the Company are already granted, their continuation and the continued
validity of any RBL 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."
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 SYSTEM. The
Common Stock is currently listed on the Nasdaq National Market System. 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.
12
<PAGE>
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 declaration or payment by the Company of dividends is also subject to the
Company's Credit Agreement with Foothill. Without Foothill's prior written
consent, the Company cannot declare or pay any cash dividends.
13
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth, as of the date of this Prospectus, 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>
PERCENTAGE OF
OUTSTANDING
SHARES SHARES SHARES
BENEFICIALLY BENEFICIALLY BENEFICIALLY
OWNED SHARES OWNED UPON OWNED UPON
PRIOR TO OFFERED COMPLETION OF THE COMPLETION OF THE
SELLING SHAREHOLDER OFFERING HEREBY OFFERING OFFERING
- ------------------------------------- ------------ -------- ----------------- -----------------
<S> <C> <C> <C> <C>
Brenner Securities Corporation 125,000 125,000 0 0
Capital Kids' Radio Company 125,000 125,000 0 0
Oklahoma Sports Properties, Inc. 82,051 82,051 0 0
Nelson Broadcasting, Inc. 70,000 70,000 0 0
Southcoast Capital Corporation 37,500 37,500 0 0
Piper Jaffray as Custodian
FBO Anne M. Donahoe IRA 23,172 23,172 0 0
Piper Jaffray as Custodian
FBO Mark T. Donahoe IRA 23,172 23,172 0 0
Communication Enterprises, Inc. 8,000 8,000 0 0
</TABLE>
- ---------------
Brenner Securities Corporation, co-representative of the several
underwriters in the Company's February 1996 public offering, is the owner of
125,000 shares included in this Prospectus. Such shares are issuable pursuant
to a warrant. Capital Kids' Radio Company, the owner of 125,000 shares
included in this Prospectus, is a broadcast affiliate of the Company serving
the Washington, D.C. metropolitan area. Of such shares, 35,000 are issuable
pursuant to an option. This Prospectus includes 82,051 shares owned by
Oklahoma Sports Properties, Inc. Such shares were issued in connection with
its sale to the Company of Radio Station KMUS-AM, licensed to Muskogee,
Oklahoma. This Prospectus also includes 70,000 shares owned by Nelson
Broadcasting, Inc. Such shares are issuable or were issued in connection with
its sale to the Company of an RBL and certain other broadcasting equipment in
the Chicago metropolitan area. Southcoast Capital Corporation is the owner of
37,500 shares included in this Prospectus. Such shares are issuable or were
issued in lieu of cash payments in connection with the provision to the
Company of advisory services concerning strategic alternatives designed to
enhance shareholder value. The shares owned for the benefit of Anne and Mark
Donahoe were issued in connection with a 1994 private placement, exempt under
Section 4(2) of the Securities Act. Such shares include shares issuable upon
the exercise of warrants. Communication Enterprises, Inc., the owner of 8,000
shares included in this Prospectus, is a broadcast affiliate of the Company
serving the Easley, North Carolina area. The Selling Shareholders have
exercised their registration rights with respect to such Shares.
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 on Form S-3 under the Securities
Act with respect to the resale of the Shares from time to time in over-the-
counter market transactions or in negotiated transactions. This Prospectus
forms a part of such Registration Statement.
14
<PAGE>
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).
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.
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 three-year period ended December 31, 1995 of
Children's Broadcasting Corporation, incorporated by reference in this
Prospectus have been audited by Ernst & Young LLP, independent certified public
accountants, 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.
15
<PAGE>
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, 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.
16
<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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Selling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
493,895 SHARES
CHILDREN'S BROADCASTING
CORPORATION
COMMON STOCK
____________________
PROSPECTUS
____________________
February 12, 1997
