SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: January 14, 1999
CHILDREN'S BROADCASTING CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 0-21534 41-1663712
(State or other (Commission File No.) (IRS Employer ID No.)
jurisdiction
of incorporation)
5501 EXCELSIOR BOULEVARD, MINNEAPOLIS, MINNESOTA 55416
(Address of principal executive offices)
(612) 925-8840
(Registrant's telephone number, including area code)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
The Registrant announced on January 14, 1999 that it completed the sale
of its last three radio stations to Radio Unica Corp. ("Radio Unica"). Radio
Unica paid approximately $29.25 million in cash for WJDM/WBAH-AM, Elizabeth, New
Jersey, KAHZ-AM, Fort Worth, Texas and KIDR-AM, Phoenix, Arizona.
ITEM 5. OTHER EVENTS.
(a) Reference is made to the Press Release issued to the public by the
Registrant on February 2, 1999, and attached hereto as an exhibit, relating to
the redemption of all 606,061 shares of Registrant's Series B Convertible
Preferred Stock.
(b) Reference is made to the cautionary statements of the Registrant,
presented in the Registrant's Form 10-KSB, as amended, for the year ended
December 31, 1997.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) Financial Statements of Business Acquired
Not applicable.
(b) Pro Forma Financial Information
The following unaudited pro forma condensed financial
statements are filed with this report:
Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1998
Pro Form Condensed Consolidated Statements of Income:
Year Ended December 31, 1997
Nine Months Ended September 30, 1998
This unaudited pro forma financial information sets forth the impact of
the Radio Unica Corporation, Salem Communications Corporation and Catholic Radio
Network transactions and the Company's termination of its network affiliation
agreements and cessation of distribution of its 24-hour Aahs World Radio format
on January 31, 1998. The Salem and CRN transactions were consummated on October
30, 1998 and the Radio Unica transaction was consummated on January 14, 1999.
The unaudited pro forma statements of operations and balance sheets do not
purport to present the Company's consolidated results of operations and
financial position as they might have been, or as they may be in the future, had
the transactions and affiliation agreement termination occurred on the assumed
dates.
2
<PAGE>
The Company's remaining assets, including AAHS trademarks and network
production equipment, will be utilized to develop and create other business
opportunities related to short form network syndication programming. The Company
has not developed a revenue stream associated with these business opportunities.
The company has increased its ownership position in Harmony and may choose to
increase it further. The Company initially expects to utilize its core
management expertise to improve and enhance the performance of Harmony. In
addition to the potential investment in the business opportunities described
above, the Company seeks to reposition itself through acquisitions in the
television commercial production industry.
The Company sold three of its radio stations to Radio Unica for $29.5
million, two of its radio stations to Salem Communications for $2.7 million and
seven of its radio stations to CRN for $21.9 million cash and a $15.0 million,
18 month promissory note with 10% annual interest to be paid quarterly. The
Company has used the proceeds in the following manner: a) approximately $31.7
million to repay debt and accrued interest, b) approximately $1.9 million to pay
down outstanding accounts payable, c) approximately $2.5 million to redeem
outstanding preferred stock, and d) approximately $5.8 million related to
transaction and miscellaneous costs.
The pro forma adjustments are based upon information currently
available and on certain assumptions, described within the footnotes to the pro
forma financial statements, that management of the Company believes are
necessary and reasonable for a fair presentation of the pro forma financial
information. The pro forma financial information and accompanying notes should
be read in conjunction with the historical consolidated financial statements of
the Company for the fiscal year ended December 31, 1997 and for the interim
period ended September 30, 1998.
The objective of the unaudited pro forma financial information is to
show what the significant effects on the historical financial statements might
have been had the sale of the stations occurred, for balance sheet purposes, on
September 30, 1998, and, for statement of operations purposes, on January 1,
1997. However, the pro forma balance sheets are not necessarily indicative of
the effects of the Company's financial position that would have been attained
had the transaction occurred earlier.
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<PAGE>
STATEMENTS OF OPERATIONS:
<TABLE>
<CAPTION>
Pro Forma Adjustments Pro Forma After
for Radio Unica, Salem Radio Unica, Salem &
Children's & CRN transactions and CRN transactions and
Broadcasting Termination of Affiliation Termination of Affiliation
Corporation Agreements Agreements
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nine months ended
September 30, 1998:
Revenues $ 1,971,248 (1,971,248)(1) --
Operating Expenses 9,006,885 (5,065,020)(1) 3,941,865
----------------------------------------------------------------------
Income (loss) from operations (7,035,637) 3,093,772 (3,941,865)
Gain on sale of assets 542,297 -- 542,297
Equity loss in Harmony (1,803,871) -- (1,803,871)
Interest income (expense), net (3,414,533) 3,971,000 (2) 556,467
----------------------------------------------------------------------
Net loss (11,711,744) 7,064,772 (4,646,972)
Accretion of preferred stock 544,189 (544,189)(3) --
----------------------------------------------------------------------
Net loss to common shareholders $ (12,255,933) $ 7,608,961 $ (4,646,972)
======================================================================
Net loss per share $ (1.83) $ (0.69)
================ ================
Weighted average number of shares outstanding 6,692,000 6,692,000
================ ================
</TABLE>
- ----------------------------------------------
(1) To eliminate the revenue and operating expenses related to the network,
and stations sold in the Radio Unica, Salem and CRN transactions.
(2) To eliminate the interest expense totaling $2,846,000 related to the
debt expected to the repaid utilizing proceeds from the Radio Unica,
Salem and CRN transactions and add interest income of $1,125,000
related to the CRN note receivable.
(3) To eliminate the accretion of preferred stock which was redeemed
utilizing proceeds from the Radio Unica transaction.
<TABLE>
<CAPTION>
Pro Forma Adjustments Pro Forma After
for Radio Unica, Salem Radio Unica, Salem &
Children's & CRN transactions and CRN transactions and
Broadcasting Termination of Affiliation Termination of Affiliation
Corporation Agreements Agreements
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Year ended
December 31, 1997
Revenues $ 5,854,441 $ (5,854,441)(1) $ --
Operating Expenses 17,260,112 (11,241,440)(1) 6,018,672
----------------------------------------------------------------------
Income (loss) from operations (11,405,671) 5,386,999 (6,018,672)
Gain on sale of assets -- -- --
Equity loss in Harmony (540,994) -- (540,994)
Interest income (expense), net (2,611,688) 5,295,000 (2) 2,683,312
----------------------------------------------------------------------
Net loss (14,558,353) 10,681,999 (3,876,354)
Accretion of preferred stock -- -- --
----------------------------------------------------------------------
Net loss to common shareholders $ (14,558,353) $ 10,681,999 $ (3,876,354)
======================================================================
Net loss per share $ (2.33) $ (0.62)
================ ================
Weighted average number of shares outstanding 6,246,000 6,246,000
================ ================
</TABLE>
- ----------------------------------------------
(1) To eliminate the revenue and operating expenses related to the network,
and stations sold in the Radio Unica, Salem and CRN transactions.
(2) To eliminate the interest expense totaling $3,795,000 related to the
debt repaid utilizing proceeds from the Radio Unica, Salem and CRN
transactions and add interest income of $1,500,000 related to the CRN
note receivable.
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<PAGE>
BALANCE SHEET:
<TABLE>
<CAPTION>
Pro Forma Adjustments Pro Forma After
for Radio Unica, Salem Radio Unica, Salem &
Children's & CRN transactions and CRN transactions and
Broadcasting Termination of Affiliation Termination of Affiliation
Corporation Agreements Agreements
-------------------------------------------------------------------------------
<S> <C> <C> <C>
September 30, 1998
Current assets $ 648,404 $ 11,075,982(2) $ 11,724,386
Property and equipment 3,990,985 (3,770,824)(1) 220,161
Broadcast licenses 17,704,703 (17,704,703)(1) --
Investment in Harmony 6,035,357 -- 6,035,357
Note receivable -- 15,000,000(2) 15,000,000
Other assets 3,077,650 (2,979,871)(1) 97,779
-----------------------------------------------------------------------
Total assets $ 31,457,099 $ 1,620,584 $ 33,077,683
=======================================================================
Current liabilities $ 33,068,357 (27,994,177)(3) $ 5,074,180
Long-term debt 2,253,407 (1,229,782)(3) 1,023,625
Redeemable convertible preferred stock 2,312,439 (2,312,439)(3) --
Shareholders' equity (deficit) (6,177,104) 33,156,982 26,979,878
-----------------------------------------------------------------------
Total liabilities and shareholders'
equity (deficit) $ 31,457,099 $ 1,620,584 $ 33,077,683
=======================================================================
</TABLE>
- --------------------------------------------------
(1) To eliminate the assets of the stations sold in the Radio Unica, Salem
and CRN transactions, capitalized debt issue costs related to the
repaid debt.
(2) To reflect the gross proceeds from the Radio Unica, Salem and CRN
transactions consisting of cash payments of approximately $53 million
and a $15.0 million note receivable, net of payments of approximately
$31.7 million for of debt and accrued interest, $1.9 million of
outstanding accounts payable, $2.5 million for the redemption of
outstanding preferred stock, and approximately $5.8 million of
transaction and other miscellaneous costs.
(3) To reflect payment of approximately $31.7 million of debt and accrued
interest, $1.9 million of outstanding accounts payable, and $2.5
million to redeem outstanding preferred stock utilizing proceeds from
the Radio Unica, Salem and CRN transactions net of approximately $4.5
million of income taxes payable as a result of the transactions.
(c) Exhibits
10.1 Asset Purchase Agreement by and between the Company
and Radio Unica Corp. dated October 26, 1998
(incorporated by reference to Registrant's Quarterly
Report on Form 10-QSB filed on November 16, 1999).
10.2 First Amendment to Asset Purchase Agreement by and
between the Company and Radio Unica Corp. dated
October 27, 1998 (incorporated by reference to
Registrant's Quarterly Report on Form 10-QSB filed
on November 16, 1999).
99.1 Press Release dated February 2, 1999.
5
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: February 4, 1999 CHILDREN'S BROADCASTING CORPORATION
BY: /s/ James G. Gilbertson
-----------------------------------
James G. Gilbertson
ITS: Chief Operating Officer and
Chief Financial Officer
6
<PAGE>
EXHIBIT INDEX
10.1 Asset Purchase Agreement by and between the Company and Radio Unica
Corp. dated October 26, 1998 (incorporated by reference to Registrant's
Quarterly Report on Form 10-QSB filed on November 16, 1999).
10.2 First Amendment to Asset Purchase Agreement by and between the Company
and Radio Unica Corp. dated October 27, 1998 (incorporated by reference
to Registrant's Quarterly Report on Form 10-QSB filed on November 16,
1999).
99.1 Press Release dated February 2, 1999.
EXHIBIT 99.1
CHILDREN'S BROADCASTING CORPORATION
5501 Excelsior Boulevard
Minneapolis, Minnesota 55416
Telephone (612) 925-8840
Facsimile (612) 925-8845
NEWS
Contact: Christopher T. Dahl, Chief Executive Officer (612) 925-8840
MINNEAPOLIS, Children's Broadcasting Corporation (Children's, Nasdaq
NMS: AAHS) announced on Friday, January 29, 1999 that it redeemed all of its
606,061 shares of Series B Convertible Preferred Stock at an aggregate price of
$2,450,001.50 pursuant to the terms of that Securities Purchase Agreement, dated
June 25, 1998, as amended on October 22, 1998.
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