United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended May 31, 2001
Commission File Number: 0-24075
NBG RADIO NETWORK, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 88-0362102
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
520 SW Sixth Avenue, Suite 750
Portland, Oregon 97204
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (503) 802-4624
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The registrant has one class of Common Stock with 14,385,651 shares
outstanding as of July 13, 2001.
Transitional Small Business Issuer Disclosure Format (check one): Yes [ ]
No [X].
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
----------------------------- NBG RADIO NETWORK, INC.
BALANCE SHEETS
ASSETS
------
May 31 May 31 November 30
(Unaudited) (Unaudited) (Audited)
------------------ ----------------- -----------------
2001 2000 2000
------------------ ----------------- -----------------
CURRENT ASSETS
Cash and cash equivalents $ 548,832 $ 480,948 $ 854,623
Marketable equity securities, at fair
value - 468,750 -
Receivables:
Accounts receivable, net of allowance
for doubtful accounts of $60,000 in
2001 and $1,200 in 2000 4,766,063 3,536,402 3,913,699
Unbilled receivable 152,865 - 195,739
Note receivable 167,200 167,200 167,200
Related-party receivable 5,790 99,742 82,242
Barter exchange receivables 81,880 171,494 81,881
Sales representation agreements, net of
amortization 2,243,920 1,633,670 3,190,003
Prepaid expenses and other current
assets 457,539 28,724 127,558
------------------ ----------------- -----------------
Total current assets 8,424,089 6,586,930 8,612,945
------------------ ----------------- -----------------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation 170,482 209,923 188,896
INTANGIBLE ASSETS, net of
amortization 1,063,446 1,444,413 1,253,930
------------------ ----------------- -----------------
Total assets $ 9,658,017 $ 8,241,266 $ 10,055,771
================== ================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Line of credit $ 500,000 $ - $ 400,000
Accounts payable 536,490 252,197 581,130
Accrued liabilities 3,216 10,323 163,912
Deferred programming revenue - 500,000 -
Sales representation agreement
liabilities 1,751,915 1,327,559 3,039,727
------------------ ----------------- -----------------
Total current liabilities 2,791,621 2,090,079 4,184,769
------------------ ----------------- -----------------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value;
50,000,000 common shares authorized
14,321,651 and 12,220,293 common shares
issued and outstanding and
5,000,000 preferred shares authorized
0 issued and outstanding at May 31,
2001 and 2000, respectively 14,322 12,220 12,322
Additional paid-in-capital 9,016,881 6,740,852 6,795,719
Retained deficit (1,937,267) (520,726) (922,926)
Stock subscription receivable (227,540) (49,909) (14,113)
Unrealized loss on marketable equity
securities, net of tax - (31,250) -
------------------ ----------------- -----------------
Total stockholders' equity 6,866,396 6,151,187 5,871,002
------------------ ----------------- -----------------
Total liabilities and stockholders'
equity $ 9,658,017 $ 8,241,266 $ 10,055,771
================== ================= =================
See Accompanying Notes
NBG RADIO NETWORK, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MAY SIX MONTHS ENDED MAY 31, 2001
31, 2001 and MAY 31, 2000 and MAY 31, 2000
(Unaudited) (Unaudited)
------------------------------- -------------------------------
2001 2000 2001 2000
------------- -------------- ------------- --------------
REVENUES
Advertising income $ 3,322,821 $ 3,414,227 $ 6,149,719 5,263,234
Kiosk income 432,684 42,630 522,184 118,346
Interest income 531 32 4,118 5,292
------------- -------------- -------------- -------------
Total revenues 3,756,036 3,456,889 6,676,021 5,386,872
DIRECT COSTS 2,780,662 1,858,824 4,885,516 3,006,469
------------- -------------- -------------- -------------
GROSS MARGIN 975,374 1,598,065 1,790,505 2,380,403
------------- -------------- -------------- -------------
GENERAL AND ADMINISTRATIVE EXPENSES
Wages and employee benefits 921,620 397,394 1,547,228 764,638
Travel and entertainment 81,099 52,812 172,779 88,614
Consulting and professional 394,528 114,024 503,624 208,705
Advertising 9,198 12,208 23,107 22,511
Depreciation and amortization 107,648 110,366 215,164 216,906
Postage and printing 31,355 41,330 61,666 70,195
Rent 15,893 24,689 46,952 49,036
Interest 4,357 857 20,678 1,490
Office supplies 10,253 14,690 33,049 27,343
Telephone 27,965 28,301 52,864 40,077
Other expenses 34,909 26,613 127,735 87,560
------------- -------------- -------------- -------------
Total general and
administrative expenses 1,638,825 823,284 2,804,846 1,577,075
------------- -------------- -------------- -------------
Net income (loss) before
provision for income taxes (663,451) 774,781 (1,014,341) 803,328
Provision for income taxes (125,000) - - -
------------- -------------- -------------- -------------
Net income (loss) $(538,451) $ 774,781 $(1,014,341) $ 803,328
============= ============== ============== =============
Basic loss per share of common
stock $ (0.04) $ 0.06 $ (0.08) $ 0.07
============= ============== ============== =============
Weighted average number of
shares outstanding 13,897,275 12,190,293 13,500,106 12,175,293
============= ============== ============== =============
See Accompanying Notes
NBG RADIO NETWORK, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Stock Other
Additional Retained Subscription Comprehen-
Common Stock Paid-In Deficit Receivable sive Total
Capital Income
----------------------- ------------ ------------ ------------ ------------ -----------
Shares Amount
----------- ----------
BALANCE, November 30, 1998 10,490,700 $ 10,490 $ 3,930,211 $ (484,763) $ (180,757) - $3,275,181
Issuance of common shares for
business acquisition 350,000 350 1,266,650 - - - 1,267,000
Exercise of options and 1,319,593 1,320 1,511,550 - - - 1,512,870
warrants
Services provided for payment
of subscribed shares - - - - 74,744 74,744
Net loss for the year - - - (1,264,275) - - (1,264,275)
Change in unrealized loss on
marketable securities - - - - - (31,250) (31,250)
----------- ---------- ------------ ------------ ------------ ------------ -----------
BALANCE, November 30, 1999 12,160,293 12,160 6,708,411 (1,749,038) (106,013) (31,250) 4,834,270
Exercise of options 161,538 162 87,308 - - - 87,470
Services provided for payment
of subscribed shares - - - - 91,900 - 91,900
Net income for the year - - - 826,112 - - 826,112
Change in unrealized loss on
marketable securities - - - - - 31,250 31,250
----------- ---------- ------------ ------------ ------------ ------------ -----------
Balance November 30, 2000 12,321,831 $ 12,322 $ 6,795,719 $ (922,926) $ (14,113) $ - $5,871,002
Issuance of common shares 1,351,920 1,352 1,713,279 - - 1,714,631
Exercise of options 517,900 518 280,013 - - 280,531
Services provided for payment
of subscribed shares 130,000 130 227,870 - (213,427) - 14,573
Net Income (Loss) - - - (1,014,341) - - (1,014,341)
----------- ---------- ------------ ------------ ------------ ------------ -----------
Balance May 31, 2001 14,321,651 $ 14,322 $ 9,016,881 $ (1,937,267) $ (227,540 $ - $ 6,866,396
=========== ========== ============ ============ ============ ============ ===========
See Accompanying Notes
NBG RADIO NETWORK, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MAY 31
(Unaudited)
-----------------------------
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income/Loss $ (1,014,341) $ 803,328
Adjustments to reconcile net income/loss to cash from
operating activities:
Depreciation and amortization 215,164 216,906
Services provided in payment of subscribed shares 14,573 56,104
Changes in assets and liabilities:
Accounts receivable (852,364) (1,415,195)
Loan receivable - (167,200)
Unbilled receivable 42,874 -
Related party receivable 76,452 (52,280)
Barter exchange receivable 1 (23,358)
Prepaid expenses and other current assets (329,981) 1,554
Sales representation agreements 946,083 (477,981)
Payments on programming contract liabilities (1,287,812) 596,854
Accounts payable (44,640) 72,548
Accrued liabilities (160,696) (21,292)
------------ ------------
Net cash from operating activities (2,394,687) (410,012)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Issuance of common stock $ 1,714,631 $ 32,500
Stock options exercised 280,531 -
Acquisition of property and equipment (6,266) (33,632)
------------ ------------
Net cash from investing activities 1,988,896 (1,132)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net advances on line of credit 100,000 -
------------ ------------
Net cash from financing activities 100,000 -
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(305,791) (411,144)
CASH, beginning of year 854,623 892,092
------------ ------------
CASH, end $ 548,832 $ 480,948
============ ============
NBG RADIO NETWORK, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MAY 31
(Unaudited)
-----------------------------
2001 2000
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 20,678 $ 1,490
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Capitalization of programming contract assets and
recognition of related liabilities $ 288,000 $ 1,354,994
============ ============
Issuance of common stock for services, net of stock
subscription receivable (($227,540) and
($55,125)) $ 14,573 $ 56,104
============ ============
See Accompanying Notes
NOTE 1 - ORGANIZATION AND BUSINESS ACTIVITY
NBG Radio Network, Inc. (the Company) was organized under the laws of the state
of Nevada on March 27, 1996, with the name of Nostalgia Broadcasting
Corporation. In January 1998, stockholders approved the Company's name change to
NBG Radio Network, Inc. The Company creates, produces, distributes and is a
sales representative for national radio programs, and offers other miscellaneous
services to the radio industry. The Company offers radio programs to the
industry in exchange for commercial broadcast time, which the Company sells to
national advertisers.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
The interim consolidated financial statements include the accounts of NBG Radio
Network, Inc. and its wholly owned subsidiaries, NBG Solutions, Inc., NBG Travel
Exclusives, Inc. and NBG Interactive, Inc., after elimination of inter-company
transactions and balances.
The interim financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The financial
information included in this interim report has been prepared by management
without audit by independent public accountants who do not express an opinion
thereon. The Company's annual report will contain audited financial statements.
In the opinion of management, all adjustments, including normal recurring
accruals necessary for fair presentation of results of operations for the
interim periods included herein have been made. The results of operations for
the three months anfd six months ended May 31, 2001 are not necessarily
indicative of results to be anticipated for the year ending November 30, 2001.
NOTE 3 - EARNINGS PER COMMON SHARE
Earnings per common share is calculated by dividing net income by the weighted
average shares outstanding.
NOTE 4 - SUBSEQUENT EVENTS
On June 29, 2001 the Company completed its acquisition (the "Acquisition") of
Glenn Fisher Entertainment Corporation, a California corporation ("Fisher
Entertainment"). The Acquisition was made pursuant to a Stock Purchase Agreement
dated October 6, 2000, as amended (the "Agreement"), among the Company, Fisher
Entertainment, and Glenn Fisher.
The Company acquired Fisher Entertainment by purchasing the outstanding stock
held by its founder and sole shareholder, Glenn Fisher, for approximately $5.3
million in cash. The amount and terms of the consideration were determined
through arms-length negotiations among the parties. The acquisition was financed
through a $6.2 million credit facility with MCG Finance Corporation. The credit
facility is secured by all of the assets of the Company - including the stock of
the Company's subsidiaries - and is structured to allow for the possibility of
an additional $10 million in funding to finance future strategic acquisitions.
Fisher Entertainment is engaged in the business of creating, producing and
distributing syndicated radio programs and services and affiliating radio
stations and providing related products and services. The assets of Fisher
Entertainment include advertising rights, radio syndication rights, and
employment contracts. The Acquisition also includes certain physical property
used by Fisher Entertainment in the operation of its business. The Company
intends that Fisher Entertainment continue to use the physical property in the
operation of its business.
Glenn Fisher will hold no formal management position with the Company or Fisher
Entertainment, but has signed a three-year exclusive consulting contract with
Fisher Entertainment.
Item 2. Management's Discussion and Analysis or Plan of Operation
-----------------------------------------------------------------
Forward Looking Statements
--------------------------
The information set forth below relating to matters that are not
historical facts are "forward looking statements" within the meaning of Section
21E of the Securities Exchange Act of 1934 and involve risks and uncertainties
which could cause actual results to differ materially from those contained in
such forward looking statements. Such risks and uncertainties include, but are
not limited to, the following:
o A decline in national and regional advertising
o Preference by customers of other forms of advertising such as newspapers
and magazines, outdoor advertising, network radio advertising, yellow page
directories and point of sale advertising
o Loss of executive management personnel
o Ability to maintain and establish new relations with radio stations
o Ability to predict public taste with respect to entertainment programs
Three Months and Six Months Ended May 31, 2001 and 2000
-------------------------------------------------------
Reference is made to Item 6, "Management's Discussion and Analysis or Plan
of Operation" included in the Company's annual report on Form 10-KSB for the
year ended November 30, 2000, as amended, on file with the Securities and
Exchange Commission. The following discussion and analysis pertains to the
Company's results of operations for the three-month and six-month periods ended
May 31, 2001, compared to the results of operations for the three-month and
six-month periods ended May 31, 2000, and to changes in the Company's financial
condition from November 30, 2000 to May 31, 2001.
REVENUES. Total revenues for the three months ended May 31, 2001 were
$3,756,036 compared to revenues of $3,456,889 for the same period in 2000,
representing an increase of $299,147, or 8%. This increase was principally due
to NBG Solutions, Inc. increasing its total sales from $42,630 for the three
months ended May 31, 2000 to $432,684 for the three months ended May 31, 2001.
Total revenues for the six months ended May 31, 2001 were $6,676,021 compared to
total revenues of $5,386,872 for the same period in 2000, representing an
increase of $1,289,149, or 24%. This increase was due to the Company's
acquisition of sales representation agreements and new programming over the last
six months. Sales representation agreements are a great way for the Company to
complement its current programming lineup. The sales representation agreements
allow the Company to sell commercial broadcast inventory on behalf of an
independent third party program producer. In exchange for this service the
Company keeps a commission based upon the advertising time sold within the
program. Thus, through these new agreements and new programming there has been
an increase in inventory available for sale by the Company. In addition to this,
the Company's has continued to grow its network of radio station affiliates
airing their programs. Not only has the Company been able to increase its
listening audience it has been successful in adding stations in the top media
markets. The combination of more listeners in top markets has enabled the
Company to charge more for its commercial broadcast time. The increase in rates
has led to an increase in revenues. Finally, the Company's wholly owned
subsidiary NBG Solutions, Inc. has increase it's revenue from $118,346 in 2000
to $522,184 in 2001.
DIRECT COSTS. Direct costs for the three months ended May 31, 2001 and
2000 were $2,780,662 and $1,858,824, respectively, representing an increase of
$921,838 , or 50% . Direct costs for the six months ended May 31, 2001 and 2000
were $4,885,516 and $3,006,469, respectively, representing an increase of
$1,879,047, or 63%. The increase for the 3-month and six-month periods is due
primarily to the increase in the number of programs and services the Company
currently provides. Since September of 2000 the Company has added 16 new
programs or services to its lineup. These additions have lead to the increase in
the total cost of producing the Company's programs. Long-form programs are more
expensive to produce due to the increase cost of delivery of the program via
satellite and the extra telephone charges incurred for caller driven programs.
Short-form programs are distributed on CD via the mail, a much less expensive
form of distribution.
GROSS MARGIN. Gross margin for the three months ended May 31, 2001 was
$975,374, a decrease of $622,691, or 39%, compared to the same period in 2000.
Gross margin for the six months ended May 31, 2001 was $1,790,505, a decrease of
$589,898, or 25%, compared to the same period in 2000. The primary reason for
the decrease for the three-month and six-month periods is that the Company
acquired a majority of its new programs and services during the fourth quarter
of 2000. In the Company's industry it is typical to sell commercial advertising
six to twelve months in advance. As a result, the Company will begin to
recognize revenues for these new programs in the third quarter of 2001. However,
the Company has and will continue to have production costs associated with these
programs in the interim periods. Gross margin percentage will be reduced until
revenues are recognized for the remainder of 2001.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the three months ended May 31, 2001 was $1,638,825, representing an increase
of $815,541, or 99%, over the same period in 2000. For the six months ended May
31, 2001 general and administrative expenses increased $1,227,771, or 78%, over
the same period in 2000. The increase for the three-month and six-month periods
is due to increased wages and employee benefits and professional fees. This
increase is mainly due to the increase in staff size necessary to support the
growth of the Company. Management also decided to provide additional benefits to
its employees, including life insurance, disability insurance, and an increase
in health and medical benefits. In addition, professional fees have increased
due to a new investor relations campaign and additional legal and accounting
fees related to the acquisition of new programming.
INCOME TAXES. During the three months ended February 28, 2001, the Company
paid $125,000 in estimated income taxes. Due to loss carry forwards there was no
provision for income taxes during the three months and six months ended May 31,
2001
NET LOSS AND EARNINGS PER SHARE. Net loss for the three months ended May
31, 2001 was $538,451, or $.04 per share, compared to net income of $774,781, or
$.06 per share, for the same period in 2000. Net loss for the six months ended
May 31, 2001 was $1,014,341, or $.08 per share, compared to net income of
$803,328, or $.07 per share, for the same period in 2000. The loss for the
three-month and six-month periods in 2001 was mainly due to the addition of many
new programs that will not recognize any revenue until later in 2001 but will
continue to have production expenses in the interim periods.
Earnings per share are based upon a weighted average of 13,897,275 and
12,190,293 shares outstanding on May 31, 2001 and May 31, 2000, respectively.
Liquidity and Capital Resources
-------------------------------
Historically, the Company has financed its cash flow requirements through
cash flows generated from operations and financing activities. The Company's
working capital at May 31, 2001 was $5.63 million compared to $4.50 million at
May 31, 2000. The increase in working capital was primarily due to an increase
in accounts receivable in connection with the growth in total revenues of the
Company.
In January 2001 the Company completed a private placement of 547,000 units
at $1.00 per unit. Each unit consisted of one share of common stock and one
warrant to purchase one share of common stock, exercisable immediately. The
warrants are exercisable for $1.50 and expire on January 19, 2003. The Company
received proceeds of $547,000 from the private placement.
In March of 2001 the Company completed a private placement of 204,920
units at $1.00 per unit. Each unit consisted of one share of common stock and
one warrant to purchase one share of common stock, exercisable September 5,
2001. The warrants are exercisable for $1.50 and expire on March 5, 2003. The
Company received proceeds of $204,920 from the private placement.
In March of 2001 the Company completed a private placement of 600,000
units at $1.75 per unit. Each unit consisted of one share of common stock and
one warrant to purchase one share of common stock exercisable immediately. The
warrants are exercisable for $2.00 and expire on March 31, 2003. The Company
received $1,050,000 from the private placement.
On June 29, 2001, the Company acquired Glenn Fisher Entertainment
Corporation for approximately $5.3 million in cash. The acquisition was financed
through a $6.2 million credit facility with MCG Finance Corporation. The credit
facility retired the Company's $500,000 line of credit with Western Bank. The
credit facility is secured by all of the assets of NBG - including the stock of
NBG's subsidiaries - and is structured to allow for the possibility of an
additional $10 million in funding to finance future strategic acquisitions.
Amounts outstanding under the credit facility accrue interest at a variable
rate, currently 14.71% per annum. Under the terms of the credit facility, the
Company is prohibited from paying dividends on its common stock. The credit
facility terminates in June 2006.
Management believes that its available cash together with operating
revenues will be sufficient to fund the Company's working capital requirements
through November 30, 2001. The Company's management further believes it has
sufficient liquidity to implement its expansion and acquisition strategies.
PART II - OTHER INFORMATION
---------------------------
Item 2. Changes in Securities
-----------------------------
(c) In March 2001, the Company completed a private placement of 204,920
units at $1.00 per unit. Each unit consisted of one share of common stock and
one warrant to purchase one share of common stock, exercisable after September
5, 2001. The warrants are exercisable for $1.50 per share and expire on March 5,
2003. The private placement was made to four accredited investors, who are
currently officers with the Company, and was exempt from registration under
Sections 4(2) and 4(6) of the Securities Act of 1933 and under Rule 506 of
Regulation D.
In March 2001, the Company completed a private placement of 600,000 units
at $1.75 per unit. Each unit consisted of one share of common stock and one
warrant to purchase one share of common stock, exercisable immediately. The
warrants are exercisable for $2.00 per share and expire on March 31, 2003. The
private placement was made to five accredited investors and was exempt from
registration under Sections 4(2) and 4(6) of the Securities Act of 1933 and
under Rule 506 of Regulation D.
Item 6. Exhibits and Reports on Form 8-K
----------------------------------------
(b) No reports on Form 8-K were required to be filed during the quarter
ended May 31, 2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NBG RADIO NETWORK, INC.,
a Nevada corporation
Date: July 16, 2001 By:/s/JOHN J. BRUMFIELD
-------------------------------------------
John J. Brumfield, Chief Financial Officer
Vice President, Finance
(Principal Financial and Accounting Officer)