-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J1o15iMo6hN5Ws+SleU/3qXxk5tHUL3201y12/wX1cf8EKAs+ho0Z7jjyOHmPeJ/ 86EKvxZFbtuCd16hEDwxgQ== 0000912057-01-506027.txt : 20010409 0000912057-01-506027.hdr.sgml : 20010409 ACCESSION NUMBER: 0000912057-01-506027 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIG CITY RADIO INC CENTRAL INDEX KEY: 0001046284 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 133790661 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13715 FILM NUMBER: 1589088 BUSINESS ADDRESS: STREET 1: 11 SKYLINE DR CITY: HAWTHORNE STATE: NY ZIP: 01532 BUSINESS PHONE: 9145921071 MAIL ADDRESS: STREET 1: 11 SKYLINE DR CITY: HAWTHORNE STATE: NY ZIP: 10532 FORMER COMPANY: FORMER CONFORMED NAME: ODYSSEY COMMUNICATIONS INC DATE OF NAME CHANGE: 19970917 10-K 1 a2043476z10-k.txt 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR FISCAL YEAR ENDED DECEMBER 31, 2000
OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 001-13715 -------------------------- BIG CITY RADIO, INC. (Exact name of registrant as specified in its charter) DELAWARE 13-3790661 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 11 SKYLINE DRIVE, HAWTHORNE, N.Y. 10532 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 592-1071 Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED: -------------------- ------------------------------------------ Class A Common Stock, par value $.01 per share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: 11 1/4% Senior Discount Notes Due 2005, Series B -------------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 [ ] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] On February 27, 2001 the aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, using the closing price of the Registrant's Class A Common Stock, as reported by the American Stock Exchange on such date, was $23,071,100 The number of shares of the Registrant's Class A Common Stock and Class B Common Stock outstanding as of February 27, 2001 was 6,226,817 and 8,250,458 respectively. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Definitive Proxy Statement to be used in connection with the Registrant's Annual Meeting of Stockholders to be held on May 11, 2001 are incorporated by reference into Part III of this report. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- BIG CITY RADIO, INC. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000 TABLE OF CONTENTS
ITEM NO. DESCRIPTION PAGE - -------- ----------- -------- PART I Item 1. Business.................................................... 3 Item 2. Properties.................................................. 18 Item 3. Legal Proceedings........................................... 19 Item 4. Submission of Matters to a Vote of Security Holders......... 20 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....................................... 20 Item 6. Selected Financial Data..................................... 22 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 23 Item 7A. Quantitative and Qualitative Disclosures About Market Risk...................................................... 31 Item 8. Financial Statements and Supplementary Data................. 32 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................. 58 PART III Item 10. Directors and Executive Officers of the Registrant.......... 58 Item 11. Executive Compensation...................................... 58 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................ 58 Item 13. Certain Relationships and Related Transactions.............. 58 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................................. 58
2 PART I ITEM 1. BUSINESS GENERAL Big City Radio, Inc. ("Big City Radio" or the "Company") was formed in 1994 to acquire radio broadcast properties in or adjacent to major metropolitan markets and utilize innovative engineering techniques and low-cost, ratings-driven operating strategies to develop these properties into successful metropolitan radio stations. In order to accomplish this objective, the Company applies a variety of innovative broadcast engineering techniques to the radio broadcast properties it acquires, including Synchronized Total Market Coverage-TM- ("STMC-TM-"). STMC-TM- consists of acquiring two or more stations which broadcast on the same frequency and simulcasting their signals to achieve broad coverage of a targeted metropolitan market. In addition to STMC-TM-, the Company intends to employ other broadcast engineering techniques to enter major metropolitan markets at attractive valuations. These engineering techniques include acquiring suburban radio stations and moving the station's broadcast antenna closer to the metropolitan market ("move-ins") and acquiring high-power stations adjacent to major metropolitan markets and focusing such stations' broadcast signal into the metropolitan area. The Company's acquisition and engineering strategies enable it to provide near seamless coverage of major metropolitan markets at a significantly lower acquisition cost than is typically required to acquire a major market Class B station. Class B radio stations are defined by the Federal Communications Commission (the "FCC") as those facilities whose signal is predicted to cover a regional urban area. The Company currently owns and operates one STMC-TM- station combination in each of New York, Los Angeles, and Phoenix, and two STMC-TM- station combinations in Chicago. The Company also owns and operates one stand-alone radio station in Phoenix. New York, Los Angeles, Chicago, and Phoenix are four of the largest radio markets in the United States in aggregate advertising revenues. The Company's first targeted market was Los Angeles where the Company operates a three-station combination, which broadcasts as Viva 107.1, featuring a Hispanic contemporary hit radio format on the 107.1-FM frequency (the "Los Angeles Stations"). Viva 107.1 covers approximately 90% of the Arbitron diaries in the Los Angeles Arbitron Metro Survey Area ("MSA") as a result of an increase in its transmission power pursuant to the FCC Power Increase (as defined herein) which the Company implemented in the first quarter of 1998. The Company debuted Viva 107.1 in December 1999 as its first Hispanic station, and it earned a 1.4% share in the 12+ category as of the Fall 2000 Arbitron book. The Company acquired the Los Angeles Stations in May 1996 for a combined purchase price significantly lower than the reported purchase prices of Class B stations in the Los Angeles MSA, as evidenced by reported transactions consummated since the deregulation initiated by the passage of the Telecom Act of 1996 (the "Telecom Act.") See "Business Strategy" below. The Company's four stations in the New York MSA collectively broadcast as New CountryY107 ("Y-107 NY") on the 107.1-FM frequency (the "New York Stations"). Y-107 NY commenced operations in December 1996 as the only country music station covering the New York City market. Y-107 NY earned a 1.0% share in the 12+ category as of the Fall 2000 Arbitron book. Y-107 NY currently covers approximately 90% of the Arbitron diaries in the New York MSA as a result of an increase in its transmission power pursuant to the FCC Power Increase and implementation of other technical improvements, which the Company implemented during the third quarter of 1998. The Company acquired the four New York Stations for a combined purchase price significantly lower than the reported purchase prices of Class B stations in the New York MSA, as evidenced by reported transactions consummated since the passage of the Telecom Act. See "Business Strategy" below. The Company owns two groups of stations in the Chicago MSA, forming its first duopoly (the "Chicago Stations"). Two stations collectively broadcast as Viva 103.1 on the 103.1-FM frequency. Viva 3 103.1 commenced operations in January 2001, broadcasting a Hispanic contemporary hit radio format. Throughout 2000, it operated as "The EightiesChannel." Viva 103.1 currently covers approximately 85% of the Arbitron diaries in the Chicago MSA as a result of an increase in its transmission power pursuant to the FCC Power Increase and implementation of other technical improvements, which the Company implemented during the third quarter of 1999. This coverage is anticipated to approach 90% when further engineering enhancements that would be permitted by certain rule changes under consideration by the FCC take effect. The Company acquired the two stations comprising FM 103.1 for a combined purchase price which is significantly less than the reported purchase prices of Class B stations in the Chicago MSA, as evidenced by transactions consummated since the passage of the Telecom Act. See "Business Strategy" below. The second group of stations in the Chicago area currently comprises three stations, collectively broadcasting as Energy 92.7 and 5 ("Energy92") on the 92.7 and 92.5 FM frequencies. Energy92 commenced operations in January 2001 broadcasting a contemporary dance hit radio format. Throughout 2000, it operated as 92 KISS FM, broadcasting a contemporary hit radio format. In April 1998, the Company signed a definitive asset purchase agreement to acquire substantially all the assets of WDEK-FM and WLBK-AM, DeKalb, Illinois. The Company completed the acquisition in February 1999. The Company added WDEK-FM, which broadcasts on the 92.5 FM frequency, to the 92.7 stations. Together with the 92.7 FM frequency stations, WDEK-FM forms Energy92 in the Chicago area. Through use of the Company's STMC-TM- technology, WDEK-FM 92.5 was engineered to form part of the Energy92 synchronized station group. Energy92 currently covers approximately 90% of the Arbitron diaries in the Chicago MSA and is expected to increase its coverage to above this as a result of further engineering enhancements, subject to FCC approval. The Company operates two formats in the Phoenix MSA (the "Phoenix Stations"). The first format is broadcast on a group comprising three stations, KEDJ-FM on 106.3 FM, KDDJ-FM on 100.3 FM, and KBZR-FM on 106.5, all trimulcasting the modern rock format known as "The Edge" with the Howard Stern morning show. "The Edge" earned a 3.1% share in the 12+ category as of the Fall 2000 Arbitron book. "The Edge" currently covers approximately 95% of the Arbitron diaries in the Phoenix MSA. KEDJ-FM and KDDJ-FM were acquired on July 30, 1999. On September 22, 1999 the Company acquired KBZR-FM and added it to "The Edge" station group. The second format in the Phoenix area is currently broadcast on KSSL-FM. It is a Hispanic contemporary hit radio format, known as "Que Buena", on the 105.3 FM frequency. KSSL-FM commenced operations in February 2000. The Company acquired KSSL-FM on September 28, 1999. KSSL-FM currently covers approximately 65% of the Arbitron diaries in the Phoenix MSA and will increase its coverage to approximately 90% as a result of the planned increase in its transmission power pursuant to the FCC Power Increase and other technical improvements, which the Company plans to implement during 2001 pending receipt of FCC approval. The Company has plans to effect engineering enhancements to the KBZR-FM signal. These improvements are subject to FCC approval, but are anticipated to occur in the year 2001. After these changes, KDDJ-FM 100.3 FM will broadcast the "Que Buena" format, which together with the existing KSSL-FM, will form a simulcast combo in Phoenix whose signal will cover approximately 90% of the Arbitron diaries in the Phoenix MSA. The Company acquired the four stations in Phoenix for a combined purchase price significantly less than the reported purchase price of a Class C station combo in the Phoenix MSA as evidenced by 1999 transactions. On November 1, 1999 the Company consummated the acquisition, in an all stock transaction, all the issued and outstanding stock of Hispanic Internet Holdings, Inc. ("The Internet Company"), a privately held bilingual Online Service Provider for the U.S. Hispanic and Latin American markets. The transaction was accounted for as a purchase. The Company issued 400,000 shares of its Class A Common Stock at a value of $4.00 per share. Under the terms of the Agreement, an additional 600,000 shares will be issued, (i) over the next five years contingent upon the successful achievement of certain 4 annual revenue goals, or (ii) in the event of a sale or spin-off of the Internet company, prior to the fifth anniversary of the merger, for a valuation of at least $10 million, or (iii) in the event of a sale of Big City Radio prior to the fifth anniversary of the merger at a price of at least $4.00 per share. The Company, through the acquisition of Hispanic Internet Holdings, Inc., owns TodoAhora.com, a bilingual internet portal, which delivers a range of internet programming to the Hispanic community including news, entertainment, finance, culture, and e-commerce opportunities. TodoAhora.com will serve the Hispanic community both in the U.S. and overseas. On November 8, 2000 the Company consummated a transaction in which the Company acquired substantially all of the assets and properties of (i) United Publishers of Florida, Inc., which owned and operated a Hispanic music trade magazine, (ii) "Disco", a graphic design business and (iii) the LatinMusicTrends.com website ((i), (ii), (iii) are collectively referred to herein as "the acquired businesses"). This acquisition was accounted for as a purchase. The Company paid $250,000 at closing, and a second installment of up to $250,000 is due at the one year anniversary of the acquisition, subject to certain operating cash flow targets of the acquired businesses in the first twelve months following the acquisition. In November 2000, the Company formed Independent Radio Reps, LLC, a wholly-owned subsidiary. This in-house agency was formed to compete for Hispanic National radio advertising business. The Company is controlled by Stuart Subotnick, a general partner of Metromedia Company, a Delaware general partnership ("Metromedia"), who, through the beneficial ownership of 100% of the Company's Class B Common Stock, par value $.01 per share (the "Class B Common Stock"), owns approximately 57% of the Company's outstanding common stock, representing 93% of the voting power of the Company's outstanding common stock (without giving effect to the exercise of any options to acquire shares of the Company's Class A Common Stock, par value $.01 per share (the "Class A Common Stock") or the conversion of the Class B Common Stock which is convertible into shares of Class A common Stock on a one for one basis). MANAGEMENT Mr. Stuart Subotnick, Chairman, is a founder of the Company. Mr. Subotnick contributes his financial, strategic and operational expertise gained through the development and operation of the numerous media and communications businesses that he and longtime partner John W. Kluge have controlled through Metromedia and its predecessor. Charles M. Fernandez is the President and Chief Executive Officer of the Company. Mr. Fernandez has also served as a director of the Company since November 1999. Previously, Mr. Fernandez served as Chairman of Hispanic Internet Holdings, Inc. from 1998 until its merger with Big City Radio, Inc. Mr. Fernandez served as Executive Vice President and Director of Heftel Broadcasting Corp, up until its purchase by Clear Channel in late 1995. In addition to Mr. Subotnick and Mr. Fernandez, the Company has numerous experienced radio executives involved in all aspects of its operations, including engineering, sales, marketing, programming and finance. The Company believes that its quality management team will be instrumental in successfully implementing its business strategy. The principal executive offices of the Company are located at 11 Skyline Drive, Hawthorne, New York 10532. Its telephone number is (914) 592-1071. STATIONS OPERATIONS The Company currently owns station groups in Los Angeles, New York, Chicago, and Phoenix, four of the largest markets in the United States in terms of aggregate radio revenues. Los Angeles and Phoenix are two of the top U.S. Hispanic markets. Y-107 NY has reported significant increases in Arbitron ratings and net revenue since its launch. Viva 107.1, a Hispanic contemporary hit radio format in Los Angeles launched in December 1999, has also reported significant Arbitron ratings growth in its 5 first year of operation. "Que Buena" commenced operations in February 2000 and is being operated as a stand-alone signal pending implementation of the Company's planned engineering enhancements in the Phoenix market. In January 2001, the Company changed the format of both its Chicago station groups in response to market competition and strategic opportunities. LOS ANGELES The Los Angeles market is the second largest Arbitron market in terms of population and the largest in terms of aggregate radio market revenues in the United States, with 2000 revenues of $846 million. From 1996 to 2000, radio advertising revenue in the Los Angeles MSA grew from $495 million to $846 million, a compound annual growth rate of 14.3%. Los Angeles is the first market in which the Company implemented STMC-TM-, with its acquisitions of three radio stations for an aggregate purchase price of $26.8 million. Viva 107.1 initially covered approximately 75% of the Arbitron diaries in the Los Angeles MSA and, as a result of an increase in its transmission power, which the Company implemented in the first quarter of 1998, Viva 107.1 increased its coverage to approximately 90%. The Company believes that this coverage is substantially similar to the Arbitron diary coverage of many of the highest-ranked Los Angeles Class B stations. In addition to its coverage of the Los Angeles market, Viva 107.1 covers parts of the Ventura, Orange, Riverside-San Bernardino and San Diego markets. The Company believes that identifying the appropriate format in a particular market is crucial to the station's ability to achieve meaningful penetration of the market's listening audience and aggregate advertising revenues. After an extensive updated research study of the Los Angeles market in 1999, the Company launched a Hispanic contemporary hit radio format. The Company believes that to achieve Class B station equivalent Arbitron coverage and broadcast quality requires extensive engineering expertise. In Los Angeles, the Company uses several advanced techniques to achieve what the Company believes to be substantially full coverage. In addition to the three stations, the Company uses a booster located in the San Fernando Valley to enhance its coverage of the market. The Company believes these engineering solutions have resulted in significantly broader coverage than traditional simulcasting. NEW YORK The New York MSA is the largest Arbitron market in terms of population and the second largest in terms of aggregate radio market revenues in the United States, with 2000 revenues of $810 million. From 1996 to 2000, radio advertising revenue in the New York MSA grew from $467 million to $810 million, a compound annual growth rate of 14.8%. New York is the second market which the Company entered with its acquisitions of four radio stations for an aggregate purchase price of approximately $25 million. The Company has implemented STMC-TM- in New York as well and believes that it has created the equivalent of a New York Class B station. Subsequent to the implementation of the planned power increase of the New York Stations and implementation of other technical improvements, which the Company completed by the end of the third quarter of 1998, the Arbitron diary coverage of Y-107 NY increased to approximately 90%. The Company believes that this coverage is substantially similar to the Arbitron diary coverage of many of the highest-ranked New York Class B stations. Y-107 NY has an exclusive format presence in New York, as the Company believes there are no other country music stations covering substantially all of the New York MSA. Country music is traditionally a very strong 25-54 demographic format, which routinely generates high power ratios relative to other formats. 6 CHICAGO The Chicago MSA is the third largest Arbitron market in terms of population and aggregate radio market revenues in the United States with 2000 revenues of $541 million. From 1996 to 2000, radio advertising revenue in the Chicago MSA grew from $350 million to $541 million, a compound annual growth rate of 11.5%. The Company has acquired five radio stations in the Chicago MSA for an aggregate purchase price of $34.2 million. Viva 103.1 broadcast throughout the year 2000 as The EightiesChannel, an Eighties music format. Viva 103.1 began broadcasting its contemporary Spanish music format in January 2001. Energy92 broadcast throughout the year 2000 as 92Kiss FM, a contemporary hit radio format on two 92.7 frequencies and one 92.5 frequency. In January 2001, the Company changed 92Kiss to a contemporary dance hit format, Energy92. Subsequent to certain technical improvements, subject to FCC approval, the Company expects both Chicago Stations to cover approximately 90% of the Arbitron diaries in the Chicago MSA. PHOENIX The Phoenix MSA is the sixteenth largest Arbitron market in terms of population and fifteenth in aggregate radio market revenues in the United States with 2000 revenues of $189 million. From 1996 to 2000, radio advertising revenue in the Phoenix MSA grew from $106 million to $189 million, a compound annual growth rate of 15.6%. The Company has to date acquired four radio stations in the Phoenix MSA for an aggregate purchase price of $32 million. The Edge broadcasts its modern rock format with the Howard Stern morning show. "Que Buena" began broadcasting its Hispanic contemporary hit radio format in February 2000. The Company has plans to effect engineering enhancements to the KBZR-FM signal. These improvements are subject to FCC approval, but are anticipated to occur in the year 2001. After these changes, KDDJ-FM 100.3 FM will cease broadcasting "The Edge" programming, but will broadcast the "Que Buena" format. Together with KSSL-FM, it will form a simulcast combo whose signal will cover approximately 90% of the Arbitron diaries in the Phoenix MSA. The Company acquired the four stations in Phoenix for a combined purchase price significantly less than the reported purchase price of a Class C station combo in the Phoenix MSA as evidenced by 1999 transactions. ADVERTISING SALES The rates a station can charge are in large part dictated by the station's ability to attract audiences in the demographic groups targeted by its advertisers, as measured principally by Arbitron Radio Market Reports. The Company believes that identifying the appropriate format in a particular market is crucial to the station's ability to achieve meaningful penetration of the listening audience of the market. In each market entered by the Company, the Company performs an extensive competitive analysis to select the format with the greatest audience and revenue potential. The Company generates virtually all of its revenues from the sale of local and national advertising for broadcast on its radio stations. The Company believes that radio is one of the most efficient and cost-effective means for advertisers to reach specific demographic groups. Advertising rates charged by radio stations depend primarily on (i) a station's share of the audience in the demographic groups targeted by advertisers, (ii) the number of stations in the market competing for the same demographic groups, and (iii) the supply of and demand for radio advertising time. Rates are generally highest during morning and afternoon commuting hours. The format of a particular station limits, in part, the number of advertisements that the station can broadcast without jeopardizing listening levels (and the resulting ratings). The Company's stations strive to maximize revenue by constantly managing the number of commercials available for sale and adjusting prices based upon local market conditions. In the broadcasting industry, radio stations often utilize trade (or barter) agreements to generate advertising time sales in exchange for goods or services (such as travel and lodging) instead of for cash. The Company minimizes its use of trade agreements. 7 The Company determines the number of advertisements broadcast hourly so as to maximize available revenue dollars without jeopardizing listening levels. Although the number of advertisements broadcast during a given time period varies, the total number of advertisements broadcast on a particular station generally does not vary significantly from year to year. As is typical of the radio broadcasting industry, the Company's stations respond to changing demand for advertising inventory by varying prices rather than by varying the target inventory level for a particular station. Most advertising contracts are short-term and run only for a few weeks. The Company generates approximately 84% of its gross revenue from local advertising, which is sold primarily by a station's sales staff. To achieve greater control over advertising dollars, the Company's sales force focuses on establishing direct relationships with local advertisers. The Company has engaged national representative firms and recruited in-house staff to represent it in generating national business in the largest national sales markets of Los Angeles, New York City, Boston, Philadelphia, Chicago, Atlanta, Dallas, Detroit and San Francisco. INTERNET AND PUBLISHING REVENUES Internet revenues are derived principally from the sale of various forms of advertisements, including sponsorships, endorsements and product placements, and from electronic commerce activities related to its programming on pages delivered to users of our Internet channel. Advertising programs are generally delivered on either an "impression" based program or a "performance" based program. An impression based program earns revenues when an advertisement is delivered to a user of our internet network. A performance based program earns revenues when a user of our internet network responds to an advertisement by linking to an advertiser's internet network. Advertising revenues are recognized in the period in which the advertisements are delivered. Publishing revenues are derived principally from the sale of advertising announcements. Furthermore, the magazine company derives revenues from contract graphic design projects. Publishing revenues, both from advertisements and design projects, are recognized in the period in which the advertisements are published, or when the design project is rendered. TodoAhora.com was formally launched on May 5, 2000. The magazine publishing business was acquired on November 8, 2000. Total internet and publishing revenue for the year 2000 was $75,000. COMPETITION RADIO BROADCASTING Radio broadcasting is a highly competitive business. Within their respective markets, each of the Company's radio stations competes for audience share and advertising revenue directly with other radio stations, as well as with other media such as television, print media, billboards, compact discs and music videos. Several better-capitalized companies, including Clear Channel Communications, Inc., Infinity Broadcasting Corporation, and Hispanic Broadcasting Corporation compete in the same geographic markets as the Company, many of which have greater financial resources. In addition, recently the radio industry has experienced significant consolidation which has resulted in several radio station groups that have a large number of radio stations throughout the United States and vastly greater financial resources and access to capital than the Company. The financial success of each of the Company's radio stations depends principally upon its share of the overall radio advertising revenue within its geographic market, its promotion and other expenses incurred to obtain that revenue and the economic health of the geographic market. Radio advertising revenues are, in turn, highly dependent upon audience share. Radio station operators are subject to the possibility of another station changing programming formats to compete directly for listeners and advertisers or launching an aggressive promotional campaign in support of an already existing competitive format. If a competitor, particularly one with substantial financial resources, were to attempt to compete in either of these fashions, the broadcast cash flow of the Company's affected 8 station could decrease due to increased promotional and other expenses and/or lower advertising revenues resulting from lower ratings. There can be no assurance that any one of the Company's radio stations will be able to maintain or increase its current audience ratings and radio advertising revenue market share. The Company will also face competition from other radio stations that attempt to replicate the engineering techniques of the Company to cover a metropolitan area and from stations that simply simulcast on the same or first adjacent frequencies. While simulcasting has been employed by other broadcast radio operators in the past, the primary purpose has been to reduce programming costs for the individual stations. The Company believes that most broadcast radio operators that have employed simulcasting have done so on different frequencies. The Company believes that few operators have successfully used simulcasting to effectively cover an entire MSA. Radio broadcasting is also subject to competition from new media technologies that are being developed or introduced, such as the delivery of audio programming by cable television systems or the introduction of a new technology known as Digital Audio Broadcasting ("DAB"). DAB may deliver by satellite or terrestrial means multi-channel, multi-format digital radio services with sound quality equivalent to compact discs to nationwide and regional audiences. The Company cannot predict the effect, if any, that any such new technologies may have on the radio broadcasting industry. INTERNET AND PUBLISHING The market for Internet and publishing products and services is highly competitive. There are no substantial barriers to entry in these markets, and Disco, TodoAhora.com, and LatinMusicTrends.com expect that competition will continue to intensify. Disco magazine competes with other magazine and print products that feature, news and information on the Latin music industry. These include a Spanish language version of "Billboard" magazine which is produced by a competitor with greater financial resources. LatinMusicTrends.com is designed to complement the information provided to Latin music industry professionals and is under development. TodoAhora.com competes with other Hispanic and bilingual providers of online navigation, information and community services. TodoAhora.com believes that the principal competitive factors in its markets are: - brand recognition; - ease of use; - comprehensiveness; - personalization; - independence; - quality and responsiveness of search results and other services; - the availability of high-quality, targeted content and focused value-added products and services; - access to end users; and - with respect to advertisers and sponsors, the number of users, duration and frequency of visits, and user demographics. Many of its existing competitors, as well as a number of potential new competitors, have significantly greater financial, technical, marketing and distribution resources than TodoAhora.com does. 9 ACQUISITIONS Since its incorporation in August 1994, the Company has acquired the assets of twenty radio stations, an internet company, and related internet and publishing businesses. It has disposed of four stations. The following is a summary of the acquisitions and dispositions of radio stations which the Company has consummated since its incorporation. All of these transactions were with non-affiliated persons. NEW YORK In December 1994, the Company acquired the assets of radio station WRGX-FM (now WYNY-FM), Briarcliff Manor, New York, from West-Land Communicators, Inc. ("West-Land") for a purchase price of $2.5 million and the issuance of a promissory note in the amount of $1.0 million to West-Land. In April 1997, the Company acquired the assets of radio station WWHB-FM (now WWXY-FM), Hampton Bays, New York, from South Fork Broadcasting Corporation ("South Fork") for a purchase price of $4.0 million. In June 1997, the Company acquired the assets of radio station WZVU-FM (now WWZY-FM), Long Branch, New Jersey, including a radio tower, a radio antenna and a building from K&K Radio Broadcasting L.L.C. and K&K Tower, L.L.C. for an aggregate purchase price of $12.0 million and certain payments under existing leases of the building facilities. K&K Radio Broadcasting, L.L.C., K&K Tower, L.L.C. and each of their controlling members and the general manager of WZVU-FM entered into a covenant not to compete with the Company for a period of three years. In August 1998, the Company acquired all of the stock of Radio New Jersey, owner of the FCC licenses of WRNJ-FM, Belvedere, New Jersey (now WWYY-FM) and WRNJ-AM, Hackettstown, New Jersey. The aggregate purchase price for WRNJ-FM was $5.4 million excluding acquisition-related expenses, of which $3.0 million was paid in cash and the remainder was satisfied by the issuance of two promissory notes. Simultaneously, the Company sold substantially all of the assets of WRNJ-AM to one of the existing stockholders of Radio New Jersey. Also, in December 1994, the Company acquired the assets of radio station WRKL-AM, Pomona, New York, from Rockland Communicators, Inc. for a purchase price of $1.0 million. The Company sold this station in March 1999 to Polnet Communications, Ltd. for a price of $1.6 million. LOS ANGELES In May 1996, the Company acquired four radio stations in the Los Angeles area from Douglas Broadcasting, Inc. ("Douglas"). The Company acquired the assets of radio station KMAX-FM (now KLYY-FM), Arcadia, California, KAXX-FM (now KVYY-FM), Ventura, California, KBAX-FM (now KSYY-FM) Fallbrook, California, and KWIZ-FM, Santa Ana, California, for an aggregate purchase price of $38.0 million. The Company also acquired FM Translator station K252BF, Temecula, California, which rebroadcasts on 98.3 MHz the signal of KSYY-FM, and FM Booster station KLYY-FM, Burbank, California, which boosts on 107.1 MHz the broadcast of the signal of KLYY-FM. In December 1996, the Company sold radio station KWIZ-FM to Liberman Broadcasting, Inc. for a price of $11.2 million. CHICAGO In August 1997, the Company acquired the assets of radio station WVVX-FM (now WXXY-FM), Highland Park, Illinois, from WVVX License, Inc., for a purchase price of $9.5 million. Douglas, WVVX, Inc. and WVVX License, Inc. agreed not to compete for a period of eighteen months. In August 1997, the Company acquired the assets of radio station WJDK-FM (now WYXX-FM), Morris, Illinois, from DMR Media, Inc., for a purchase price of $1.1 million. In addition, the Company agreed not to compete with DMR Media, Inc.'s operations of radio station WCSJ-AM, Morris, Illinois, for a period of five years. In August 1998, the Company closed two transactions in which it acquired substantially all of the assets of WCBR-FM (now WKIE-FM), Arlington Heights, Illinois from Darrel 10 Peters Productions, Inc. and WLRT-FM (now WKIF-FM), Kankakee, Illinois from STARadio Corp. for an aggregate purchase price of $19.5 million. In February 1999, the Company acquired substantially all of the assets of radio stations WDEK-FM and WLBK-AM, DeKalb, Illinois, from DeKalb Radio Studios, Inc. for a purchase price of $4.5 million. The Company added WDEK-FM, which operates on the 92.5 FM frequency, together with two existing 92.7 FM stations in the Chicago metropolitan area, collectively know as Energy92. The Company sold the operating assets of WLBK-AM on April 12, 2000. No gain or loss was recorded on this transaction. PHOENIX In July 1999, the Company acquired the assets of radio stations KEDJ-FM, Sun City, Arizona and KDDJ-FM, Globe, Arizona from New Century Arizona for a purchase price of $22.0 million. In September 1999, the Company acquired the assets of radio station KBZR-FM, Arizona City, Arizona from Brentlinger Broadcasting, Inc. for a purchase price of $3.9 million. In September 1999, the Company acquired the assets of radio station KMYL-FM (now KSSL-FM), Wickenburg, Arizona, from Interstate Broadcasting Systems of Arizona, Inc. for a purchase price of $5.6 million. INTERNET AND PUBLISHING On November 1, 1999 the Company consummated a transaction in which the Company acquired, in an all stock transaction, all the issued and outstanding stock of Hispanic Internet Holdings, Inc., a privately held bilingual Online Service Provider for the U.S. Hispanic and Latin American markets. The Company, through the acquisition of Hispanic Internet Holdings, Inc. owns TodoAhora.com, a bilingual Internet portal, which will deliver a full range of world wide web programming to the Hispanic community including news, entertainment, finance, culture, and e-commerce opportunities. TodoAhora.com will serve the Hispanic community both in the U.S. and overseas. TodoAhora.com was formally launched on May 5, 2000. In November 2000, the Company acquired the assets of United Publishers of Florida, Inc., owner of Disco Magazine, and LatinMusicTrends.com and producers of Enterese, a leading U.S. Hispanic magazine. The Company has merged its existing Internet operations together with the United Publishers publishing and Internet operations. EMPLOYEES At December 31, 2000, the Company had approximately 179 full-time employees and 91 part-time employees. The Company believes that its relations with its employees are good. None of the Company's employees is represented by a labor union. The Company employs several on-air personalities and generally enters into employment agreements with certain of these personalities to protect its interests in those relationships that it believes to be valuable. The loss of certain of these personalities could result in a short-term loss of audience share, but the Company does not believe that any such loss would have a material adverse effect on the Company. PATENTS AND TRADEMARKS The Company owns registered trademark rights for STMC-TM- and domestic trademark registrations related to the business of the Company. The Company does not believe that any of its trademarks are material to its business or operations. The Company does not own any patents or patent applications. FEDERAL REGULATION OF RADIO BROADCASTING The ownership, operation and sale of radio stations are subject to the jurisdiction of the FCC, which acts under authority granted by the Communications Act of 1934, as amended (the "Communications Act"). Among other things, the FCC assigns frequency bands for broadcasting; 11 determines the particular frequencies, locations and power of stations; issues, renews, revokes and modifies station licenses; determines whether to approve changes in ownership or control of station licenses; regulates equipment used by stations; imposes regulations and takes other action to prevent harmful interference between stations; adopts and implements regulations and policies that directly or indirectly affect the ownership, management, programming, operation and employment practices of stations; and has the power to impose penalties for violations of its rules or the Communications Act. In February 1996, Congress enacted the Telecom Act to amend the Communications Act. The Telecom Act, among other measures, directed the FCC, which has since conformed its rules, to (a) eliminate the national radio ownership limits; (b) liberalize the local radio ownership limits as specified in the Telecom Act; (c) issue broadcast licenses for periods of up to eight years; and (d) eliminate the opportunity for the filing of competing applications against broadcast license renewal applications. Congress, via the Balanced Budget Act of 1997, authorized the FCC to conduct auctions for the awarding of initial broadcast licenses or construction permits for commercial radio and television stations. To facilitate the settlement without auctions of already pending mutually exclusive applications, Congress directed the FCC to waive existing rules as necessary. While the Company is not a participant in any such proceeding, this action has resulted in the awarding of construction permits for additional radio stations, some of which might have the potential to compete with the Company's radio stations. LICENSE GRANTS AND RENEWALS The Communications Act provides that a broadcast license may be granted to an applicant if the grant would serve the public interest, convenience and necessity, subject to certain limitations referred to below. In making licensing determinations, the FCC considers the legal, technical, financial and other qualifications of the applicant, including compliance with the Communications Act's limitations on alien ownership, compliance with various rules limiting common ownership of broadcast, cable and newspaper properties, and the "character" of the licensee and those persons holding "attributable" interests in the licensee. Broadcast licenses are granted for specific periods of time and, upon application, are renewable for additional terms. The Telecom Act amended the Communications Act to provide that broadcast licenses be granted, and thereafter renewed, for a term not to exceed eight years, if the FCC finds that the public interest, convenience, and necessity would be served. Generally, the FCC renews broadcast licenses without a hearing. The Telecom Act amended the Communications Act to require the FCC to grant an application for renewal of a broadcast license if: (1) the station has served the public interest, convenience and necessity; (2) there have been no serious violations by the licensee of the Communications Act or the rules and regulations of the FCC; and (3) there have been no other violations by the licensee of the Communications Act or the rules and regulations of the FCC which, taken together, would constitute a pattern of abuse. Competing applications against broadcast license renewal applications are therefore not entertained. The Telecom Act provided that if the FCC, after notice and an opportunity for a hearing, decides that the requirements for renewal have not been met and that no mitigating factors warrant lesser sanctions, it may deny a renewal application. Only thereafter may the FCC accept applications by third parties to operate on the frequency of the former licensee. The Communications Act continues to authorize the filing of petitions to deny against broadcast license renewal applications during particular periods of time following the filing of renewal applications. Petitions to deny can be used by interested parties, including members of the public, to raise issues concerning the qualifications of the renewal applicant. The Company's Chicago Stations' broadcast licenses were renewed in 1996 and will expire in 2003. The Los Angeles Stations' broadcast licenses were renewed on November 25, 1997 and will expire on December 31, 2005. The New York Stations' broadcast licenses were renewed on January 25, 1999 (in 1998 for WWYY-FM) and will expire on June 1, 2006. The Phoenix Stations' broadcast licenses were renewed in 1997 and 1999 and will expire on October 1, 2005. The Company does not anticipate any material difficulty in obtaining license renewals for full terms in the future. 12 LICENSE ASSIGNMENTS AND TRANSFERS OF CONTROL The Communications Act prohibits the assignment of an FCC license or the transfer of control of a corporation holding such a license without the prior approval of the FCC. Applications to the FCC for such assignments or transfers are subject to petitions to deny by interested parties and must satisfy requirements similar to those for renewal and new station applicants. In reviewing assignment and transfer applications, the FCC has indicated that in evaluating whether a proposed transaction would serve the public interest, the FCC may consider, among other things, whether the transaction would result in the acquiring party obtaining an excessive share of the radio advertising revenues in a given market or would otherwise result in excessive concentration of media ownership. The U.S. Department of Justice ("DOJ") also reviews proposed acquisitions of radio stations. The DOJ has, in some instances, obtained consent decrees requiring radio station divestitures in a particular market based on allegations that acquisitions would lead to unacceptable concentration levels. OWNERSHIP RULES Rules of the FCC limit the number and location of broadcast stations in which one licensee (or any party with a control position or attributable ownership interest therein) may have an attributable interest. The FCC, pursuant to the Telecom Act, eliminated the previously existing "national radio ownership rule." Consequently, there now is no limit imposed by the FCC to the number of radio stations one party may own nationally. The "local radio ownership rule" limits the number of stations in a radio market in which any one individual or entity may have a control position or attributable ownership interest. Pursuant to the Telecom Act, the FCC revised its rules to set the local radio ownership limits as follows: (a) in markets with 45 or more commercial radio stations, a party may own up to eight commercial radio stations, no more than five of which are in the same service (AM or FM); (b) in markets with 30-44 commercial radio stations, a party may own up to seven commercial radio stations, no more than four of which are in the same service; (c) in markets with 15-29 commercial radio stations, a party may own up to six commercial radio stations, no more than four of which are in the same service; and (d) in markets with 14 or fewer commercial radio stations, a party may own up to five commercial radio stations, no more than three of which are in the same service, provided that no party may own more than 50% of the commercial stations in the market. FCC cross-ownership rules also limit or prohibit one party from having attributable interests in a radio station as well as in a local television station or daily newspaper, although such restrictions are waived by the FCC under certain circumstances. The FCC is undertaking biennial reviews of its ownership rules, including a pending reconsideration of how it defines the number of radio stations in a market for purposes of the local radio ownership rule. The Company cannot predict whether the FCC will adopt any changes in its ownership rules or, if so, what the new rules will be or how they might affect the Company. ATTRIBUTION RULES All holders of attributable interests must comply with, or obtain waivers of, the FCC's multiple and cross-ownership rules. Under the current FCC rules, an individual or other entity owning or having voting control of 5% or more of a corporation's voting stock is considered to have an attributable interest in the corporation and its stations, except that banks holding such stock in their trust accounts, investment companies, and certain other passive interests are not considered to have an attributable interest unless they own or have voting control over 20% or more of such stock. An officer or director of a corporation or any general partner of a partnership also is deemed to hold an attributable interest in the media license. A new FCC rule--termed the "Equity-Debt Plus" or "EDP" rule--provides for the attribution of otherwise non-attributable equity or debt interests in a licensee. The EDP rule is triggered when a party holds equity or debt in excess of 33% of the total assets (defined as equity plus debt) of a licensee and such party also holds an attributable (non-EDP) interest in another media 13 entity in the same market or is a major programmer supplier to another media entity in the market. Subject to the EDP rule, the FCC does not consider holders of non-voting stock or of minority stock interests when there is a single majority stockholder to be attributable parties. Moreover, subject to the EDP rule, holders of warrants, convertible debentures, options, or other non-voting interests with rights of conversion to voting interests generally will not be attributed such an interest unless and until such conversion is effected. When a single shareholder holds a majority of the voting stock of a corporate licensee, the FCC considers other shareholders, unless they are also officers or directors, exempt from attribution. Holders of attributable interests must comply with or obtain waivers of the FCC's multiple and cross-ownership rules. At present, none of the attributable stockholders, officers and directors of the Company have any other media interests besides those of the Company that implicate the FCC's multiple ownership limits. In the event that the Company learns of a new attributable stockholder and if such stockholder holds interests that exceed the FCC limits on media ownership, under the Company's Amended and Restated Certificate of Incorporation (as defined herein), the Board of Directors of the Company has the corporate power to redeem stock of the Company's stockholders to the extent necessary to be in compliance with FCC and Communications Act requirements, including limits on media ownership by attributable parties. The FCC will consider a radio station providing programming and sales on another local radio station pursuant to a LMA (as defined herein) to have an attributable ownership interest in the other station for purposes of the FCC's multiple ownership rules. In particular, a radio station is not permitted to enter into a LMA giving it the right to program more than 15% of the broadcast time, on a weekly basis, of another local radio station which it could not own under the FCC's local radio ownership rules. ALIEN OWNERSHIP LIMITS Under the Communications Act, broadcast licenses may not be granted, transferred or assigned to any corporation of which more than one-fifth of the capital stock is owned of record or voted by non-U.S. citizens or foreign governments or their representatives or by foreign corporations. Where the corporation owning the license is controlled by another corporation, the parent corporation cannot have more than one-fourth of the capital stock owned of record or voted by Aliens, unless the FCC finds it in the public interest to allow otherwise. The FCC has issued interpretations of existing law under which the Alien ownership restrictions in slightly modified form apply to other forms of business organizations, including general and limited partnerships. Recently, the FCC decided that it is in the public interest to allow up to 100% indirect Alien ownership by citizens of or corporations organized under the laws of WTO member nations. The FCC also prohibits a licensee from continuing to control broadcast licenses if the licensee otherwise falls under Alien influence or control in a manner determined by the FCC to be in violation of the Communications Act or contrary to the public interest. At present, one of the Company's officers is known by the Company to be an Alien and no other officers, directors or stockholders are known to be aliens. In the event that the Company learns that Aliens own, control or vote stock in the Company in excess of the limits set in the Communications Act and the FCC's rules, under the Amended and Restated Certificate of Incorporation, the Board of Directors of the Company has the corporate power to redeem stock of the Company's stockholders to the extent necessary to be in compliance with FCC and Communications Act requirements on alien ownership. PROGRAMMING AND EEO REQUIREMENTS While the FCC has relaxed or eliminated many of its regulatory requirements related to programming and content, radio stations are still required to broadcast programming responsive to the problems, needs and interests of the stations' service areas and must comply with various rules promulgated under the Communications Act that regulate political broadcasts and advertisements, 14 sponsorship identifications, indecent programming and other matters. In addition, the FCC has recently adopted EEO rules requiring broadcast licensees to file employment data annually with the FCC and to implement outreach efforts designed to broaden the pool of employment applicants. Failure to observe these or other FCC rules can result in the imposition of monetary forfeitures, in the grant of a "short" (less than full term) license term or, where there have been serious or a pattern of violations, license revocation. TECHNICAL AND INTERFERENCE RULES FCC rules specify technical and interference requirements and parameters that govern the signal strength and coverage area of radio stations, and which, unless waived, must be complied with in order to obtain FCC consent to modify a station's service area or other technical operations. The FCC allots specific FM radio frequencies and class designations to particular communities of license. The FM class designations, which vary by geographic location, include (in order of increasing potential coverage area) Class A, B1, C3, B, C2, C1, C0 and C. (The C Class designations are generally not allocated to communities in the more densely-populated regions of the United States, such as the Northeast and California.) Each FM class has minimum and maximum power specifications and must not cause interference to the protected service areas of other radio stations, domestic or international, operating on the same or adjacent frequencies. Under FCC rules, a radio station must transmit a minimum predicted signal strength to its allocated community of license, and therefore must locate its transmitting antenna at a site providing such coverage while also being within a specified power and height range for that station's class designation, and at specified minimum distances from the transmitting sites of nearby radio stations operating on the same or adjacent frequencies. The Company must also comply with certain technical, reporting, and notification requirements imposed by the FAA with respect to the installation, location, lighting, and painting of the transmitter antennas used by the Company's radio stations. The combination of these requirements sets limits on the ability of a particular radio station to relocate in certain directions and to increase signal coverage. Stations may petition the FCC to change a particular station's community of license and/or class, which changes are granted by the FCC when its service priorities are met and conflicting re-allotment proposals, if any, are resolved. As to minimum distance separation requirements designed to afford interference protection to other FM stations, the FCC rarely waives such specifications. However, the FCC permits radio stations in certain circumstances to relocate to a site not meeting the minimum distance separation rule when the station demonstrates that the service contours of neighboring radio stations will be protected from interference. Because STMC-TM- uses radio stations that operate on the same or adjacent frequencies, the STMC-TM- stations' transmitting sites must be sufficiently distant from each other to comply with the FCC's interference protection guidelines, unless such stations are exempt from compliance by their grandfathered status. FCC POWER INCREASES AND OTHER ENGINEERING ENHANCEMENTS In most instances, changes to the technical specifications of radio stations, such as increases in the power (effective radiated power, or "ERP") and subsequent increased coverage area, may be made only after application to the FCC, and grant by the FCC of a construction permit for the modification of the station. The FCC has granted applications for modifications of WYNY-FM, Briarcliff Manor, New York, WWXY-FM, Hampton Bays, New York, and WWZY-FM, Long Branch, New Jersey, KLYY, Arcadia, California, WXXY-FM, Highland Park, Illinois, and WYXX, Morris, Illinois. Each of these stations requested increases in the authorized power of the stations from the previous three-kilowatt ERP level to the present six-kilowatt ERP level. These changes were implemented as a result of the FCC adoption of a change in policy in August 1997 dealing with grandfathered short-spaced FM radio stations. Grandfathered short-spaced stations are those that do not meet the FCC's current requirements for distance separation of FM radio stations operating on the same or adjacent frequencies as the stations were authorized before the adoption of the current rules. In the past, power 15 increases or relocations of such grandfathered stations often did not comply with the FCC's technical rules, and would be authorized by the FCC only in limited circumstances. Pending before the FCC is a proposed change in the current rules that would allow certain other of the Company's stations to increase their power or move their transmitter sites to provide improved coverage within the desired metro area. Until the FCC adoption of such a change and the approval of the license modifications is granted, the Company cannot be certain that the new policy will serve to permit the increases in the Company's coverage areas. AGREEMENTS WITH OTHER BROADCASTERS Over the past several years a significant number of broadcast licensees, including the Company, have entered into cooperative agreements with other stations in their markets. One typical example is a local marketing agreement ("LMA") between two separately or co-owned stations, whereby the licensee of one station programs substantial portions or all of the broadcast day on the other licensee's station, subject to ultimate editorial and other controls being exercised by the latter licensee, and sells advertising time during such program segments for its own account. The FCC has held that LMAs do not per se constitute a transfer of control and are not contrary to the Communications Act provided that the licensee of the station maintains ultimate responsibility for and control over operations of its broadcast station. As in the case of the Company, typically licensees enter into the LMA in anticipation of the sale of the station, with the proposed acquirer providing programming for the station while the parties are awaiting the necessary regulatory approvals to the transaction. The FCC's rules also prohibit a radio licensee from simulcasting more than 25% of its programming on other radio stations in the same broadcast service (i.e., AM-AM or FM-FM), whether it owns both stations or operates one or both through a LMA, where such stations serve substantially the same geographic area as defined by the stations' principal community contours. The Company's stations are not subject to this limitation. PROPOSED REGULATORY CHANGES AND RECENT DEVELOPMENTS The Congress and the FCC have under consideration, and may in the future consider and adopt new laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly, (i) affect the operation, programming, technical requirements, ownership and profitability of the Company and its radio broadcast stations, (ii) result in the loss of audience share and advertising revenues of the Company's radio broadcast stations, (iii) affect the ability of the Company to acquire additional radio broadcast stations or finance such acquisitions, (iv) affect cooperative agreements and/or financing arrangements with other radio broadcast licensees, (v) affect the Company's competitive position in relationship to other advertising media in its markets, or (vi) affect the Company's ability to exploit its unique technical capabilities and innovative approach to acquiring and using radio broadcast stations. Such matters include, for example, changes to the license, authorization and renewal process; spectrum use fees; revisions of the FCC's equal employment opportunity rules and other matters relating to minority and female involvement in broadcasting; proposals to change rules or policies relating to political broadcasting; proposals to restrict or prohibit the advertising of beer, wine and other alcoholic beverages on radio; proposals to allow telephone companies to deliver audio and video programming to the home through existing phone lines; changes in the FCC's multiple ownership, alien ownership and cross-ownership policies; and proposals to limit the tax deductibility of advertising expenses by advertisers. Other matters that could affect the Company include technological innovations and developments generally affecting competition in the mass communications industry. The FCC has licensed two entities to provide a new technology, digital audio radio service or DARS, to deliver audio programming by satellite. The FCC is also considering various proposals for terrestrial DARS. DARS may provide a 16 medium for the delivery of multiple new audio programming formats to local and national audiences with sound quality equivalent to compact discs. It is not known at this time whether this technology also may be used in the future by existing radio broadcast stations either on existing or alternate broadcasting frequencies. The FCC currently is also considering authorizing the use of in-band, on-channel, or IBOC technology for radio stations. IBOC technology would permit an AM or FM station to transmit radio programming in both analog and digital formats, or in digital only formats, using the bandwidth that the radio station is currently licensed to use. Such IBOC operations might not be consistent with STMC-TM- operations. It is unclear what regulations the FCC will adopt regarding IBOC technology and what effect such regulations would have on the Company's business or the operations of its radio stations. The FCC has recently adopted new rules authorizing the operation of low power radio stations within the existing FM band. Low power radio stations will operate at power levels below that of full power FM radio stations, such as those owned by the Company. It is not possible to predict what effect, including interference effect, low power radio stations will have on the operations of the Company's radio stations. Although the Company believes the foregoing discussion is sufficient to provide the reader with a general understanding of all material aspects of FCC regulations that affect the Company, it does not purport to be a complete summary of all provisions of the Communications Act or FCC rules and policies. Reference is made to the Communications Act, FCC rules, and the public notices and rulings of the FCC for further information. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements in this report, including those utilizing the phrases "will," "expects," "intends," "estimates," "contemplates," and similar phrases, are "forward-looking" statements (as such term is defined in Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), including statements regarding, among other items, (i) the Company's growth strategy, (ii) the Company's intention to acquire additional radio stations and to enter additional markets, including its ability to do so at attractive valuations, (iii) the Company's expectation of improving the coverage areas of its radio stations and the areas effectively served by TodoAhora.com, and (iv) the Company's ability to successfully implement its business strategy. Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance and achievements of the Company and its subsidiaries to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the following: (i) changes in the competitive market place, including the introduction of new technologies or formatting changes by the Company's competitors, (ii) changes in the regulatory framework, including the possibility that U.S. or non-U.S. governments will increase regulation of the Internet, (iii) changes in audience tastes, and (iv) changes in the economic conditions of local markets. Other factors which may materially affect actual results include, among others, the following: general economic and business conditions, industry capacity, demographic changes, changes in political, social and economic conditions and various other factors beyond the Company's control. The Company does not undertake and specifically declines any obligation to publicly release the results of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. 17 ITEM 2. PROPERTIES The Company leases approximately 3,200 square feet in Hawthorne, New York, where its corporate offices are located, and approximately 5,939 square feet in New York, NY which is used as a temporary New York sales office. The Company has entered into a lease for approximately 10,500 square feet in New York, NY, and is currently constructing studios, and offices to house Y-107 NY and the corporate offices. It is anticipated that this facility will be ready to occupy by mid 2001, at which time the Company will vacate its studios and corporate offices in Hawthorne and its temporary sales offices in New York. The type of properties required to support each of the Company's radio stations includes offices, studios, transmitter sites, booster sites, translator sites and antenna sites. The Company owns, leases or licenses the properties required to operate its radio stations. The Company owns facilities for the New York Stations in Long Branch (approximately 6,500 square feet) and for WDEK-FM and WLBK-AM in DeKalb, Illinois (approximately 4,500 square feet). The Company leases or licenses facilities for the Los Angeles Stations in Century City (approximately 16,048 square feet), Arcadia, Fallbrook, Ventura (approximately 758 square feet), Temecula and Burbank. The Company leases facilities for the New York Stations in Hampton Bays (approximately 1,260 square feet), Hawthorne, New York, East Quogue and Westchester. The Company leases facilities for the Chicago Stations in Chicago (approximately 18,698 square feet), Highland Park (approximately 2,120 square feet), Arlington Heights (approximately 2,800 square feet), Kankakee, and Morris. The Company leases facilities for the Phoenix Stations in Phoenix (approximately 8,700 square feet), Apache Junction (approximately 600 square feet), Casa Grande (approximately 1,200 square feet), Globe, Arizona City and Wickenberg. The Company leases facilities for the Internet and publishing operation in Coral Gable (approximately 12,600 square feet). The Company considers its facilities to be suitable and of adequate sizes for its current and intended purposes and does not anticipate any difficulties in renewing those leases or licenses or in leasing or licensing additional space, if required. The Company owns substantially all of its other equipment, consisting principally of transmitting antennae, transmitters, studio equipment and general office equipment. The Company owns towers in Arcadia, CA, Ventura, CA, Long Branch, NJ, Highland Park, IL, Morris, IL and DeKalb, IL. The towers, antennae and other transmission equipment used in the Company's stations are generally in good condition. 18 The following table sets forth the location of the Company's principal properties:
LOCATION FACILITY - -------- -------- LOS ANGELES Arcadia, CA.................................. FM tower (3) Fallbrook, CA................................ FM tower, studio, transmitter site (1) Ventura, CA.................................. FM tower (3), studio, transmitter site (1) Temecula, CA................................. Translator site (1) Century City, CA............................. Studio, business offices (1) Burbank, CA.................................. Booster site (1) NEW YORK Hampton Bays, NY............................. Business offices (1) Hawthorne, NY................................ Studio, corporate offices (1) New York, NY................................. Studio, business offices (1) Long Branch, NJ.............................. FM tower, studio (2) Westchester, NY.............................. FM tower (1) East Quogue, NY.............................. FM tower, transmitter site (1) CHICAGO Highland Park, IL............................ FM tower (3), studio (1) Morris, IL................................... FM tower, transmitter site (2) Arlington Heights, IL........................ Studio, FM tower (1) Kankakee, IL................................. Studio, antenna (1) Chicago, IL.................................. Studio, business offices (1) Arlington Heights, IL........................ FM tower (1) DeKalb, IL................................... Tower, studio, business offices (2) PHOENIX Globe, AZ.................................... Tower (1) Phoenix, AZ.................................. Studio, business offices (1) Arizona City, AZ............................. Tower (1) Wickenberg, AZ............................... Tower (1) Apache Junction, AZ.......................... Studio (1) Casa Grande, AZ.............................. Studio (1) FLORIDA Coral Gable, FL.............................. Business offices (1)
- ------------------------ (1) Leased. (2) Owned. (3) Tower owned by the Company while the property is leased. ITEM 3. LEGAL PROCEEDINGS The Company is involved in litigation from time to time in the ordinary course of its business. In management's opinion, the outcome of all pending legal proceedings, individually and in the aggregate, will not have a material adverse effect on the Company. 19 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's stockholders, through the solicitation of proxies or otherwise, during the fourth quarter of the year ended December 31, 2000. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Class A Common Stock is listed and traded on the American Stock Exchange (the "AMEX") under the symbol "YFM" since December 19, 1997. There is no established public trading market for the Company's Class B Common Stock. The following table sets forth the high and low sales prices per share of the Class A Common Stock as reported by the AMEX for each quarterly periods during the years ended December 31, 2000 and 1999:
HIGH LOW ---- --- 2000: First Quarter............................................... 9 1/4 4 11/16 Second Quarter.............................................. 5 3/4 3 15/16 Third Quarter............................................... 5 1/16 3 5/8 Fourth Quarter.............................................. 4 7/16 1 HIGH LOW ---------- ----------- 1999: First Quarter............................................... 5 1/2 3 3/16 Second Quarter.............................................. 4 5/8 3 3/8 Third Quarter............................................... 4 5/8 3 1/4 Fourth Quarter.............................................. 5 3/8 3 3/8
On February 27, 2001, the last reported sales price for the Company's Class A Common Stock by the AMEX was $4.450 per share. As of February 27, 2001, there were approximately 35 registered holders of record of Class A Common Stock, which number includes nominees for an undeterminable number of beneficial owners, and 8 holders of Class B Common Stock. The Company has never declared or paid any cash dividends on its common stock and does not expect to do so in the foreseeable future. The Company anticipates that all future earnings, if any, generated from operations will be retained to finance the expansion and continued development of its business. Any future determination with respect to the payment of dividends will be within the sole discretion of the Company's Board of Directors and will depend upon, among other things, the Company's earnings, capital requirements, the terms of then existing indebtedness, applicable requirements of the Delaware General Corporations Law, general economic conditions and such other factors considered relevant by the Company's Board of Directors. The Company's Revolving Credit Facility (defined below) and its 11 1/4% Senior Discount Notes due 2005 (the "Notes") also contain certain restrictions on the payment of dividends. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." On December 24, 1997, the Company successfully completed the initial public offering (the "Initial Public Offering" or "IPO") of 4,600,000 shares of Class A Common Stock at an offering price of $7.00 per share, lead managed by Donaldson, Lufkin, & Jenrette Securities Corporation and Furman Selz LLC, generating $28.5 million of net proceeds. In connection with the IPO, the Company filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-1 (file no. 333-36449) for the registration of shares of Class A Common Stock for an aggregate offering price of $46,000,000, which registration statement was declared effective by the Commission on December 18, 1997. The Company paid $1,960,000 ($0.49 per share) in underwriting discounts and commissions and 20 approximately $1,400,000 in registration fees, NASD filing fees, AMEX listing fees, printing, engraving, legal, accounting, Blue Sky and other fees and expenses for the offering. The net proceeds of $28.5 million after deducting underwriting discounts and commissions and offering expenses were used to repay certain outstanding indebtedness of the Company under its credit agreement dated as of May 30, 1996 with The Chase Manhattan Bank (as amended, the "Old Credit Facility"). On December 19, 1997, the Company's old common stock was reclassified into Class A Common Stock and Class B Common Stock and Stuart and Anita Subotnick (the "Principal Stockholders") contributed approximately $13.3 million of stockholder loans to the Company (the "Equity Contribution"), and the Principal Stockholders exchanged all their shares of Class A Common Stock for a like number of shares of Class B Common Stock (collectively, the "Reclassification"). These transactions were effected without registration under the Securities Act in reliance on the exemption from registration provided pursuant to Section 3(a)(9) or Section 4(2) and Regulation D promulgated thereunder. The rights of holders of Class A Common Stock and Class B Common Stock are identical, except that each share of Class A Common Stock entitles its holder to one vote per share on all matters voted upon by the Company's stockholders, whereas each share of Class B Common Stock entitles its holder to ten votes per share on all matters voted upon by the Company's stockholders. In addition, holders of Class B Common Stock vote as a separate class to elect up to 75% of the members of the Company's Board of Directors. Each share of Class B Common Stock is convertible at any time into one share of Class A Common Stock. The Principal Stockholders own all of the outstanding shares of Class B Common Stock. 21 ITEM 6. SELECTED FINANCIAL DATA The following table presents selected financial data and should be read in conjunction with the Company's financial statements and the related notes thereto and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein. The selected balance sheet data as of December 31, 1996, 1997, 1998, 1999 and 2000 and statement of operations data for the years ended December 31, 1996, 1997, 1998, 1999 and 2000 are derived from the Company's financial statements which have been audited by KPMG LLP, Independent Certified Public Accountants. The historical financial results of the Company are not comparable from period to period because of the acquisition and sale of various broadcasting properties by the Company during the periods covered.
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1996(1)(2) 1997(3) 1998(4)(5) 1999(6)(7) 2000(8) ---------- -------- ---------- ---------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Gross revenues.................................... $ 8,567 $ 11,731 $ 15,883 $ 23,296 $ 26,895 Net revenues...................................... 7,944 10,460 14,202 20,604 23,841 Station operating expenses........................ 12,253 12,979 17,525 23,566 26,047 Internet and publishing........................... -- -- -- 51 1,569 Corporate, general and administrative expenses.... 1,201 1,745 2,527 4,371 3,845 Employment incentives............................. -- 3,863 808 -- -- Cost of abandonment of station acquisition agreement....................................... -- -- -- -- 550 Depreciation and amortization..................... 1,326 1,791 2,528 3,812 4,867 Operating loss.................................... (6,836) (9,918) (9,186) (11,196) (13,037) Gain on sale of stations.......................... 6,608 -- -- 663 -- Interest expense.................................. (2,889) (4,488) (12,608) (16,953) (18,392) Income tax benefit, net........................... -- 1,050 1,988 63 63 Deferred income taxes resulting from conversion to C corporation status............................ -- (3,350) -- -- -- Extraordinary loss on extinguishment of debt, net of income taxes................................. -- (313) (495) -- -- Net (loss)........................................ (3,098) (16,918) (17,449) (25,808) (31,168) BASIC AND DILUTIVE INCOME (LOSS) PER COMMON SHARE:.......................................... (0.39) (1.77) (1.24) (1.83) (2.15)
AS OF DECEMBER 31, ---------------------------------------------------- 1996 1997 1998 1999 2000 -------- -------- -------- -------- -------- BALANCE SHEET DATA: Cash................................................. $ 234 $ 80 $ 5,285 $ 2,431 $ 862 Intangibles, net..................................... 29,230 54,115 80,309 113,873 110,476 Total assets......................................... 38,963 60,108 152,082 144,511 129,846 Notes payable to stockholders........................ 12,544 -- -- -- -- Long-term liabilities................................ 28,200 30,142 138,227 153,094 170,917 Stockholder's equity (deficiency).................... (3,800) 25,032 8,391 (15,935) (46,929)
- -------------------------- (1) The Company acquired substantially all of the assets of the Los Angeles Stations and KWIZ-FM on May 30, 1996 and commenced operations of these stations under a LMA on March 26, 1996. The financial statements include the operations of these stations from commencement of the LMA period. KWIZ-FM was sold on December 20, 1996. No gain or loss was recognized on the sale of KWIZ-FM. (2) The Company acquired WSTC-AM and WKHL-FM during 1992. The financial statements include the operations of these stations from their date of acquisition to May 30, 1996, the date on which they were sold. For the year ended December 31, 1996, the gain on sale of stations represents the gain on sale of WSTC-AM and WKHL-FM. 22 (3) The Company acquired substantially all of the assets of WWHB-FM on April 1, 1997 and WZVU-FM on June 5, 1997 and commenced operations of these stations under a LMA during December 1996. WWHB-FM and WZVU-FM together with WRGX-FM form Y-107 NY. The financial statements include the operations of Y-107 NY since December 1996. (4) The Company acquired all of the stock of Radio New Jersey, owner of the FCC licenses of WRNJ-FM, Belvedere, NJ and WRNJ-AM, Hackettstown, NJ on August 14, 1998. Simultaneously at the closing, the Company sold substantially all of the assets of WRNJ-AM to one of the existing stockholders of Radio New Jersey. The remaining WRNJ-FM operates on 107.1 FM and was added to the Company's New Country Y-107 trimulcast under a LMA, effective April 28, 1998. The financial statements include the operations of WRNJ-FM since April 1998. (5) The Company acquired substantially all of the assets of WCBR-FM, Arlington Heights, Illinois and WLRT-FM, Kankakee, Illinois on August 4 and 7, 1998, respectively. The operations of these stations have been included in the consolidated statements of operations from these dates. (6) The Company acquired substantially all of the assets of WDEK-FM and WLBK-AM on February 25, 1999. The financial statements include the operations of these stations since February 25, 1999. (7) The Company acquired substantially all of the assets of KEDJ-FM and KDDJ-FM on July 31, 1999, KBZR-FM on September 22, 1999 and KMYL-FM on September 29, 1999. The operations of these stations have been included in the consolidated statements of operations from these dates. (8) The Company acquired substantially all of the assets of United Publishers of Florida, Inc. on November 8, 2000. The financial statements include the operations of United Publishers of Florida, Inc. since November 8, 2000. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The following discussion should be read in conjunction with "Selected Financial Data" and the other financial data appearing elsewhere in this report. Certain information included herein contains statements that constitute "forward-looking statements" containing certain risks and uncertainties. See "Business--Special Note Regarding Forward-Looking Statements." GENERAL The Company was incorporated in August 1994 and commenced operations on January 1, 1995, having acquired WRGX-FM, Briarcliff Manor, New York, and WRKL-AM, Pomona, New York (together, the "Original New York Stations"), on December 31, 1994. On May 30, 1996 the Company merged with Q Broadcasting, Inc. ("Q") in a transaction accounted for as a combination of entities under common control. As a result of this merger the two entities are deemed to be combined since inception (see the Notes to Consolidated Financial Statements included elsewhere in this report). Q owned and operated the Q stations in Stamford, Connecticut, from July 1992 up to the date of the combination with the Company. The Company reports on the basis of a December 31 year-end and Q reported on the basis of a September 30 year-end. As a result, the December 31, 1996 financial statements reflect the operations of Q on the basis of the eight-month period ended May 30, 1996 (the date of sale of the Q stations). The Q stations were operated in one facility, with one sales and support staff. Their financial performance is combined for purposes of the discussions that follow. The Los Angeles stations, WRKL-AM, and the stand-alone operations of WRGX-FM were operated with separate staffs and facilities; therefore their performance is separately identified. Between March 26, 1996 and May 30, 1996, when the stations were acquired, the Company operated the Los Angeles Stations and KWIZ-FM under a LMA. On March 26, 1996 all of the existing operations of the Los Angeles Stations were terminated, and the Company debuted Y-107 LA under a modern rock format with new staffing and no existing advertiser base. Although it commenced 23 operation with no revenues, Y-107 LA revenues had surpassed all other Company revenues combined by November 1996. During the LMA period, station operating expenses included significant LMA fees and other reimbursed expenses to the seller. In December 1999, the Los Angeles Stations began broadcasting as Viva 107.1 under its current format of Hispanic contemporary hit radio. The Company sold KWIZ-FM on December 20, 1996. On December 5, 1996, the Company commenced operation of WWZY-FM (formerly, WZVU-FM), Long Branch, New Jersey, under a LMA, changing its format to country music. On that date, WYNY-FM (formerly, WRGX-FM), Briarcliff Manor, New York, which the Company had operated as a stand-alone FM station since its acquisition on January 1, 1995, changed format to broadcast Y-107 NY as a new country music station with WWZY-FM. Furthermore, on December 30, 1996 the Company began operating WWXY-FM (formerly, WWHB-FM), Hampton Bays, New York, under a LMA. Since that date, the New York Stations have operated as Y-107 NY. Y-107 NY retained certain advertisers and staff from all three of the previously stand-alone stations. The Company acquired WWXY-FM and WWZY-FM on April 1, 1997 and June 5, 1997, respectively. On April 27, 1998, the Company commenced operations of WWYY-FM (formerly WRNJ-FM) under a LMA as part of the Y-107 NY country music station. The Company completed its acquisition of WWYY-FM on August 14, 1998. On August 8, 1997 the Company acquired WXXY-FM (formerly WVVX-FM), Highland Park, Illinois and WYXX-FM (formerly WJDK-FM) Morris, Illinois. The Company operated WXXY-FM as a stand-alone, brokered-programming FM station and leased WYXX-FM to a previous owner under a LMA until "FM 103.1 Chicago Heart and Soul" commenced operation in early February 1998. In August 1999, 103.1 FM broadcast its format of "The EightiesChannel". In January 2001, these stations began broadcasting as Viva 103.1 under its current format of Hispanic contemporary hit radio. On August 4 and 7, 1998, the Company completed the acquisitions of WKIE-FM (formerly WCBR-FM) and WKIF-FM (formerly WLRT-FM) and launched its second station group in the Chicago area. These stations commenced operation as 92 KISS FM, a contemporary hit radio format in November 1998. In February 1999, the Company acquired WDEK-FM and WLBK-AM, DeKalb, Illinois and added WDEK-FM to the 92 KISS FM stations. The Company sold WLBK-AM in April 2000. In January 2001, these stations began broadcasting as Energy92 under its current format of contemporary dance hit radio. On July 30, 1999, the Company completed the acquisition of KEDJ-FM, Sun City, Arizona and KDDJ-FM, Globe, Arizona. The Company operated KEDJ-FM and KDDJ-FM, simulcasting as The Edge with its modern rock format and Howard Stern morning show. On September 22, 1999, the Company acquired KBZR-FM, Arizona City, Arizona, which was added to The Edge stations to form a trimulcast. On September 29, 1999, the Company acquired KSSL-FM (formerly KMYL-FM), Wickenberg, Arizona. In February 2000, the Company began operating KSSL-FM as a stand-alone radio station broadcasting its Hispanic contemporary hit radio format. On November 1, 1999 the Company entered into a merger and registration rights agreement (the "Agreement") in which the Company acquired, in an all stock transaction, all the issued and outstanding stock of Hispanic Internet Holdings, Inc., a privately held bilingual Online Service Provider for the U.S. Hispanic and Latin American markets. The Company, through the acquisition of Hispanic Internet Holdings, Inc., owns TodoAhora.com, a bilingual internet portal, which will deliver a full range of world wide web programming to the Hispanic community including news, entertainment, finance, culture, and e-commerce opportunities. TodoAhora.com serves the Hispanic community both in the U.S. and overseas. On November 8, 2000 the Company entered into an asset purchase agreement in which the Company acquired substantially all of the assets and properties of United Publishers of Florida, Inc, which owned and operated a Hispanic music trade magazine, "Disco", a graphic design business and a 24 LatinMusicTrends.com web site. In November 2000, the Company formed Independent Radio Reps, LLC., a wholly-owned subsidiary. This in-house agency was formed to compete for Hispanic National Radio advertising business. RESULTS OF OPERATIONS The Company's financial results are dependent on a number of factors, including the general strength of the local and national economies, local market competition, the relative efficiency and effectiveness of radio broadcasting compared with other advertising media, government regulation and policies and the Company's ability to provide popular programming. The performance of a radio station group is customarily measured by its ability to generate broadcast cash flow, calculated as station operating income or loss excluding depreciation and amortization and corporate overhead. This measure, although widely used in the broadcast industry as a measure of operating performance, is not calculated in accordance with generally accepted accounting principles. Broadcast cash flow should not be considered in isolation or as a substitute for operating income, net income, cash flows from operating activities, or any other measure for determining the Company's operating performance or liquidity calculated in accordance with generally accepted accounting principles. The Company's primary source of revenue is the sale of advertising. Total revenue is determined by the number of advertisements aired by the station and the advertising rates that the stations are able to charge. See "Business--Advertising Sales." Given the fact that the Company's strategy involves developing brand new metropolitan area radio stations, the initial revenue base is zero and subject to factors other than ratings and radio broadcasting seasonality. After the start-up period, as is typical in the radio broadcasting industry, a station's first calendar quarter generally will produce the lowest revenues for the year, and the fourth quarter generally will produce the highest revenues for the year. The Company's operating results in any period may be affected by the incurrence of advertising and promotion expenses that do not produce commensurate revenues in the period in which the expenses are incurred. YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999 NET REVENUES in the year ended December 31, 2000 were $23,841,000 compared with $20,604,000 for the year ended December 31, 1999, an increase of $3,237,000 or 16%. This increase was due primarily to the increase in net revenues of the New York Stations and the Chicago Stations and the addition of the Phoenix Stations on July 31, 1999. Partially offsetting the net revenue increase was a decrease in net revenues at the LA Stations compared to the same period in 1999 resulting from its change in format in December 1999. The existing radio stations' (owned for all of 2000 and 1999) net revenue growth compared with the corresponding period in the prior year was $497,000 or 3%. STATION OPERATING EXPENSES excluding depreciation and amortization for the year ended December 31, 2000 were $26,047,000 compared with $23,566,000 in the year ended December 31, 1999, an increase of $2,481,000 or 11%. This increase was due principally to the addition of the operations of the Phoenix Stations and the increased costs associated with Chicago Stations' revenue growth, partially offset by the reduction in operating expenses for the New York Stations, LA Stations and WRKL-AM. INTERNET AND PUBLISHING operating expenses excluding depreciation and amortization for the year ended December 31,2000 were $1,569,000 compared with $51,000 in the year ended December 31, 1999, an increase of $1,518,000. The increase was due principally to the start-up operations of TodaAhora.com since its inception in November 1999. DEPRECIATION AND AMORTIZATION EXPENSES for the year ended December 31, 2000 were $4,867,000 compared with $3,812,000 for the year ended December 31, 1999, an increase of $1,055,000 or 28%. This increase was due primarily to the amortization of intangibles and depreciation of capital assets of 25 the Phoenix Stations which were acquired in July and September 1999 and Hispanic Internet Holdings, Inc. which was acquired in November 1999. CORPORATE, GENERAL AND ADMINISTRATIVE EXPENSES for the year ended December 31, 2000 were $3,845,000 compared with $4,371,000 for the year ended December 31, 1999, a decrease of $526,000 or 12%. This decrease was due primarily to a severance payment made to the Company's prior Chief Executive Officer in 1999, and decreased legal and professional fees in 2000. COST OF ABANDONMENT ON STATION ACQUISITION AGREEMENT for the year ended December 31, 2000 was the result of the cancellation of a signed agreement whereby the assets of radio station KLVA-FM, Casa Grande, Arizona would have been exchanged for the assets of radio station KDDJ-FM, Globe, Arizona. On signing of the acquisition agreement, the Company deposited $275,000 into an escrow account in April 1999. In February 2000, the Company paid the balance in the escrow account and an additional amount of $275,000, totaling $550,000, to cancel the signed KLVA-FM acquisition. The decision to abandon the transaction was made in response to a change in the engineering enhancement plan for our Phoenix radio licenses. INTEREST EXPENSE for the year ended December 31, 2000 was $18,392,000 compared with $16,953,000 for the year ended December 31, 1999, an increase of $1,439,000 or 8%. This increase reflects additional interest resulting from the issuance of the Notes on March 17, 1998 (the "Notes Offering") and its accreted principal amount for the year ended December 31, 2000 when compared to the corresponding period in 1999. In the years ended December 31, 2000 and 1999, the weighted average outstanding total debt for the Company was $162,288,000 and $146,540,000, respectively. The weighted average rate of interest on the outstanding debt was 11.324% and 11.323%, respectively. INTEREST INCOME for the year ended December 31, 2000 was $281,000 as compared to $1,952,000 for the year ended December 31, 1999, a decrease of $1,671,000 or 86%. This decrease was due primarily to a decline in marketable securities balances as a result of those funds being used in operations. NET LOSSES for the year ended December 31, 2000 were $31,168,000 compared with $25,808,000 for the year ended December 31, 1999, an increase of $5,360,000 or 21%. The increase in the net loss was primarily attributable to, (a) higher station operating expenses and the start-up operations of TodoAhora.com, (b) higher depreciation and amortization expenses and net interest expense, resulting from the Phoenix station acquisitions in 1999, and (c) a $550,000 cancellation charge related to the KLVA-FM acquisition, and the absence of the gain on sale of radio stations in 2000. Partially offsetting these factors, was the increase in net revenues for the year ended December 31, 2000, compared to the corresponding year ended December 31, 1999. YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998 NET REVENUES in the year ended December 31, 1999 were $20,604,000 compared with $14,202,000 for the year ended December 31, 1998, an increase of $6,402,000 or 45%. This increase was due primarily to increases in the net revenues of Y-107 NY, the Chicago stations, and the acquisition of "The Edge" in Phoenix. These increases in revenues were partially offset by the decrease in net revenues of $1,368,000 for WRKL-AM which was sold by the Company during the first quarter of 1999. The existing radio stations' (owned for all of 1999 and 1998) net revenue growth compared with the corresponding period in the prior year was $2,437,000 or 19%. STATION OPERATING EXPENSES excluding depreciation and amortization for the year ended December 31, 1999 were $23,617,000 compared with $17,525,000 in the year ended December 31, 1998, an increase of $6,092,000 or 35%. This increase was due principally to the start-up operations of 92 KISS FM in November 1998 and "The Edge" in July 1999 and the increased station operating expenses of the "The EightiesChannel" throughout the twelve months ended December 31, 1999, offset by a decrease in station operating expenses at WRKL-AM of $1,531,000 for the corresponding twelve month period in 1999 due to its sale in March 1999. 26 DEPRECIATION AND AMORTIZATION EXPENSES for the year ended December 31, 1999 were $3,812,000 compared with $2,528,000 for the year ended December 31, 1998, an increase of $1,284,000 or 51%. This increase was due primarily to the amortization of intangibles and depreciation of capital assets of the Phoenix Stations which were acquired in July and September 1999 and Chicago Stations which were acquired in August 1998 and February 1999. CORPORATE, GENERAL AND ADMINISTRATIVE EXPENSES for the year ended December 31, 1999 were $4,371,000 compared with $2,527,000 for the year ended December 31, 1998, an increase of $1,844,000 or 73%. This increase was due primarily to a severance payment to the Company's prior Chief Executive Officer and increased administrative expenses to support the growth of the company. INTEREST EXPENSE for the year ended December 31, 1999 was $16,953,000 compared with $12,608,000 for the year ended December 31, 1998, an increase of $4,345,000 or 34%. This increase reflects additional interest resulting from the issuance of the Notes on March 17, 1998 (the "Notes Offering") and its accreted principal amount for the year ended December 31, 1999 when compared to the corresponding period in 1998, offset by a decrease of $2,971,000 resulting from the pay off of the long-term debt in March 1998. In the years ended December 31, 1999 and 1998, the weighted average outstanding total debt for the Company was $146,540,000 and $111,399,000, respectively. The weighted average rate of interest on the outstanding debt was 11.32% and 11.31%, respectively. INTEREST INCOME for the year ended December 31, 1999 was $1,952,000 as compared to $3,076,000 for the year ended December 31, 1998, a decrease of $1,124,000 or 37%. This decrease was due primarily to a decline in marketable securities balances as a result of those funds being used to complete radio stations acquisitions and in operations. NET LOSSES for the year ended December 31, 1999 were $25,808,000 compared with $17,449,000 for the year ended December 31, 1998, an increase of $8,359,000 or 48%. This increase was primarily attributable to higher station operating expenses, depreciation and amortization expenses, corporate, general and administrative expenses, and net interest expense as well as the reduction in income tax benefit of $1,925,000. These increases were offset by a gain on sale of station of $663,000, no extraordinary loss on extinguishment of debt, net of income taxes of $495,000 or employment stock incentive of $808,000 and increased net revenues for the twelve months ended December 31, 1999. LIQUIDITY AND CAPITAL RESOURCES The Company has incurred substantial net losses since inception primarily due to broadcast cash flow deficits characteristic of the start up of its radio stations. In addition, since the majority of its broadcast properties are in the early stages of development, either as a result of them being recent purchases, or as a result of them being recently reformatted, the Company expects to generate significant net losses for the foreseeable future, as it continues to expand its presence in major markets as well as developing its Internet portal site. As a result of these factors, working capital needs have been met by borrowings, including loans from the Principal Stockholders (which borrowings were contributed to the capital of the Company immediately prior to the consummation of the Initial Public Offering), under the Old Credit Facility and the issuance of the Notes. The net proceeds of approximately of $120,808,000 from the Notes Offering were used to repay approximately $32,600,000 of the Old Credit Facility (as hereinafter defined; see Note 8). Simultaneously with the completion of the Note Offering, the Company obtained a revolving credit facility (the "Revolving Credit Facility") with The Chase Manhattan Bank ("Chase") in the amount of $15.0 million. (see Note 8). The Company has entered into employment contracts with 17 individuals, mainly officers and senior management that provide for minimum salaries and incentives based upon specified levels of 27 performance. The minimum payments under these contracts are $1,919,000 in 2001, $1,246,000 in 2002 and $150,000 in 2003. The Company has never paid cash or stock dividends. The Company will continue to report net losses throughout the start up period for the Los Angeles, Chicago and Phoenix Stations. Furthermore, it intends to retain future earnings for use in its business and does not anticipate paying dividends on shares of its common stock in the foreseeable future. CASH FLOWS FROM OPERATING ACTIVITIES In each of the years ended December 31, 1998, 1999 and 2000, the Company reported cash used in operations. In the years ended December 31, 1998 and 1999 the negative cash flow was predominantly due to the funding of start-up operations at New York and Chicago Stations. In the year ended December 31, 2000, the negative cash flow was predominantly due to the start-up operating losses of the LA Stations as Viva 107.1, the Que Buena Phoenix Station, and the Hispanic Internet portal site, TodoAhora.com, as well as the operating losses of the Chicago Stations. CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (excluding acquisitions of radio stations) were $2,441,000, $2,941,000 and $1,584,000 in the years ended December 31, 1998, 1999 and 2000, respectively. These expenditures primarily reflect costs associated with the FCC Power Increases and other technical improvements at the Company's stations, the upgrade and expansion of the studio and broadcast facilities, computer support equipment, and purchase of promotional vehicles for the new station properties, as well as purchase of furniture and fixture and computer equipment for the Internet and publishing operations. In the year ended 1998, the Company purchased $125,609,000 in marketable securities with proceeds from the Notes Offering of which $77,193,000 were sold during the year. In the year ended 1999, the Company purchased $34,508,000 in marketable securities and sold $75,065,000 to generate cash for the purchase of radio stations in DeKalb, Illinois and Phoenix, Arizona and for general working capital purposes. In the year ended 2000, the Company sold $5,964,000 in marketable securities to generate cash for general working capital purposes. Cash paid and advanced for the purchase of assets of radio stations and Internet and publishing businesses were $23,244,000, $36,177,000 and $250,000 in the years ended December 31, 1998, 1999 and 2000, respectively. CASH FLOWS FROM FINANCING ACTIVITIES The Company completed a private placement of $174.0 million aggregate principal amount at maturity of Notes on March 17, 1998 (the "issue date"), generating approximately $125.4 million of gross proceeds for the Company of which the Company used approximately $32.6 million to repay outstanding indebtedness under its Old Credit Facility. The Company has used the proceeds of the Notes Offering to finance the acquisition costs of radio station properties and intends to use the remaining proceeds for general working capital purposes. The Notes were issued at an original issue discount and will accrete in value until March 15, 2001 at a rate of 11 1/4% per annum, compounded semi-annually to an aggregate principal amount of $174.0 million. Cash interest will not accrue on the Notes prior to March 15, 2001. Thereafter, interest on the Notes will accrue at a rate of 11 1/4% per annum and will be payable in cash semi-annually, commencing September 15, 2001. The Notes will mature on March 15, 2005 but may be redeemed after March 15, 2001 at the option of the Company, in whole or in part at a redemption price of 105.625%, 102.813% or 100.000% if redeemed during the 12-month period commencing on March 15 of 2002, 2003 and on and after 2004, respectively. In addition, up to 33 1/3% of the original principal amount of the Notes may be redeemed at the option of the Company prior to March 15, 2001 at a redemption price equal to 111.25% of the accreted value of the Notes with net cash proceeds of one or more 28 equity offerings of the Company so long as there is a public market for the Class A Common Stock at the time of such redemption and provided that at least 66 2/3% of the original principal amount of the Notes remains outstanding. Holders of the Notes have the right to require the Company to repurchase their Notes upon a "change of control" of the Company, at a price equal to 101% of the accreted value of the Notes if such repurchase occurs prior to March 15, 2001 or of the principal amount of such Notes if such repurchase occurs thereafter. A "change of control" for purposes of the Notes is deemed to occur (i) when any person other than the Principal Stockholders, the management and their affiliates (the "Permitted Holders"), becomes the owner of more than 35% of the total voting power of the Company's stock and the Permitted Holders own in the aggregate a lesser percentage of such voting power and do not have the right or ability to elect a majority of the Board of Directors, (ii) when the Board of Directors does not consist of a majority of continuing directors, (iii) upon the occurrence of a sale or transfer of all or substantially all of the assets of the Company taken as a whole, or (iv) upon the adoption by the stockholders of a plan for the liquidation or dissolution of the Company. Payments under the Notes are guaranteed on a senior unsecured basis by the Company's Restricted Subsidiaries, as defined in the Indenture governing the Notes; as of December 31, 2000, all of the Company's subsidiaries were Restricted Subsidiaries. The Notes contain certain financial and operational covenants and other restrictions with which the Company and its Restricted Subsidiaries must comply, including restrictions on the incurrence of additional indebtedness, investments, payment of dividends on and redemption of capital stock and the redemption of certain subordinated obligations, sales of assets and the use of proceeds therefrom, transactions with affiliates, creation and existence of liens, the types of businesses in which the Company may operate, asset swaps, distributions from Restricted Subsidiaries, sales of capital stock of Restricted Subsidiaries and consolidations, mergers and transfers of all or substantially all of the Company's assets. At December 31, 2000 the Company is in compliance with all covenants and other restrictions under the Notes. On July 6, 1998, the Company completed an exchange offer for the Notes, in which the holders of substantially all outstanding Notes exchanged their Notes for newly-issued Notes registered under the Securities Act of 1933. The new Notes have the same terms as the exchanged Notes, except that the new Notes are so registered. The amount exchanged was $172,500,000 aggregate principal amount at maturity of Notes. The Notes contain customary events of default including payment defaults and default in the performance of other covenants, certain bankruptcy defaults, judgment and cross defaults, and failure of a subsidiary guarantee to be in full force and effect. In connection with the consummation of the Notes Offering, the Company entered into a revolving credit facility (the "Revolving Credit Facility") with The Chase Manhattan Bank ("Chase") providing for up to $15.0 million of availability, based upon a multiple of the Company's Los Angeles and any other Stations' cash flow as agreed to from time to time. The Revolving Credit Facility will mature on the fifth anniversary of the issue date and amounts outstanding under the Revolving Credit Facility will bear interest at an applicable margin plus, at the Company's option, Chase's prime rate (in which case the applicable margin will initially be 2.00% subject to reduction upon obtaining performance criteria based on the Company's leverage ratio) or the London Interbank Borrowing Rate (in which case the applicable margin will initially be 3.00% subject to reduction upon obtaining performance criteria based on the Company's leverage ratio). The Company's obligations under the Revolving Credit Facility are secured by a pledge of substantially all of the Company's and its restricted subsidiaries' assets. The Company will pay fees of 0.5 percent per annum, on the aggregate unused portion of the facility. The Revolving Credit Facility contains certain financial and operational covenants and other restrictions with which the Company must comply, including, among others, limitations on capital expenditures, limitations on the incurrence of additional indebtedness, restrictions on sales of assets, 29 restrictions on the use of borrowings, limitations on paying cash dividends and redeeming or repurchasing capital stock of the Company or the Notes, and requirements to maintain certain minimum interest coverage ratios. The Company is currently in compliance with all material covenants and restrictions under the Revolving Credit Facility, with the exception that the Independent Auditors' Report for the year ended December 31, 2000 includes a "going concern" uncertainty paragraph (see page 33). The Company is currently seeking a new debt facility, and as part of this negotiation plans to rectify its non-compliance with this covenant within the thirty day period permitted by the existing Revolving Credit Facility. The Revolving Credit Facility contains customary events of default, including material misrepresentations, payment defaults and default in the performance of other covenants, certain bankruptcy and ERISA defaults, judgment and cross defaults, revocation of any of the Company's broadcast licenses and change in control. The Revolving Credit Facility also provides that an event of default will occur upon the occurrence of a "change of control" as defined in the Revolving Credit Facility. For purposes of the Revolving Credit Facility, a "change of control" will occur when (i) any person or group other than the Principal Stockholders and their affiliates obtains the power to elect a majority of the Board of Directors, (ii) the Company fails to own 100% of the capital stock of its subsidiaries owning any of the FCC broadcast licenses, or when (iii) the Board of Directors does not consist of a majority of continuing directors, as defined. As of the date of this report, the Company has no binding commitments for any transactions that would result in a "change of control". The Company had available approximately $2.8 million of cash and cash equivalents and marketable securities at December 31, 2000 and has unused borrowing capacity of $3.9 million under the Revolving Credit Facility, which can be used for working capital purposes, including financing any such acquisitions. On March 15, 2001, the senior discount notes commence accruing interest at 11 1/4% per annum, which interest is payable in cash, semi-annually, commencing September 15, 2001. The semi-annual interest payment is $9.8 million. Cash on hand and amounts available under the Revolving Credit Facility are not sufficient to support the Company's operations through December 31, 2001 and its growth strategy. In addition, because of the Company's substantial indebtedness, a significant portion of the Company's broadcast cash flow will be required for debt service. These matters raise substantial doubt about the Company's ability to continue as a going concern. The Company is in the process of seeking a new debt facility to finance its operating and debt service requirements and capital expenditure programs through December 31, 2001. There can be no assurance that any such financing will be available or available on acceptable terms. Management believes that its long-term liquidity needs will be satisfied through a combination of i) achieving positive operating results and cash flows through revenue growth and control of operating expenses and ii) the implementation and execution of its growth strategy to acquire and build a major market broadcast group. In order to meet its long-term financing needs, the Company is currently considering all means available to it, including the raising of additional equity and the restructuring of the Notes. NEW ACCOUNTING DISCLOSURES ACCOUNTING FOR DERIVATIVES In June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities, was issued. SFAS 133 established accounting and reporting standards for derivative instruments and for hedging activities. SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities and measure those instruments at fair value. The accounting for the gain or loss due to changes in fair value of the derivative instrument depends on whether the derivative instrument qualifies as a hedge. In June 2000, SFAS 138 was issued which addresses a limited number of issues causing implementation difficulties for numerous entities that have 30 applied SFAS 133. SFAS 133 and SFAS 138 are effective for all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS 133 can not be applied retroactively to financial statements of prior periods. The adoption of SFAS No. 133 and 138 is not expected to have a material impact on the financial position or results of operations of the Company. REVENUE RECOGNITION In December 1999, the staff of the SEC issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements," which provides guidance in applying generally accepted accounting principles to selected revenue recognition issues. In March 2000 and June 2000, the staff of the SEC amended SAB No. 101 to delay the required implementation date of SAB No. 101 to the fourth quarter of fiscal years beginning after December 15, 1999. The Company has adopted SAB No. 101 as amended. The adoption of SAB No. 101, as amended, has not and is not expected to have a material impact on the Company's results of operations. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to the impact of interest rate changes and the change in the market values of its investments. The Company's exposure to market rate risk for changes in interest rates relates primarily to the Company's investment portfolio. The Company has not used derivative financial instruments in its investment portfolio. The Company invests its excess cash in debt instruments of the U.S. Government and its agencies and, by policy, limits the amount of credit exposure to any one issuer. The Company protects and preserves its invested funds by limiting default, market and reinvestment risk. Investments in fixed rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates. The Company may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates. 31 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA BIG CITY RADIO, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- BIG CITY RADIO, INC. Report of KPMG LLP, Independent Auditors.................... 33 Consolidated Balance Sheets as of December 31, 1999 and 2000...................................................... 34 Consolidated Statements of Operations for the years ended December 31, 1998, 1999 and 2000.......................... 35 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1999 and 2000.......................... 36 Consolidated Statement of Stockholders' Equity (Deficiency).............................................. 37 Notes to Consolidated Financial Statements.................. 38
32 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders of Big City Radio, Inc.: We have audited the accompanying consolidated balance sheets of Big City Radio, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity (deficiency) and cash flows for each of the years in the three-year period ended December 31, 2000. In connection with our audits of the consolidated financial statements, we also have audited Schedule II, Valuation and Qualifying Accounts for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Big City Radio, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. The accompanying consolidated financial statements and financial statement schedule have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a total stockholders' deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The consolidated financial statements and financial statement schedules do not include any adjustments that might result from the outcome of this uncertainty. KPMG LLP Los Angeles, California March 29, 2001 33 BIG CITY RADIO, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 2000
1999 2000 ---- ---- ASSETS Current assets: Cash and cash equivalents................................. $ 2,431,000 $ 862,000 Cash held in escrow (note 4).............................. 275,000 -- Cash held in investment, restricted (note 5).............. 1,934,000 802,000 Marketable securities (note 2)............................ 7,859,000 1,895,000 Accounts receivable, net of allowance of $235,000 and $338,000 in 1999 and 2000, respectively................. 6,090,000 4,716,000 Interest receivable....................................... 526,000 38,000 Prepaid expenses and other current assets................. 920,000 981,000 ------------ ------------ Total current assets.................................... 20,035,000 9,294,000 Property and equipment, net (note 6)........................ 7,145,000 7,148,000 Intangibles, net (note 7)................................... 113,873,000 110,476,000 Deferred financing fees, net................................ 3,399,000 2,747,000 Other assets................................................ 59,000 181,000 ------------ ------------ Total assets............................................ $144,511,000 $129,846,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 822,000 $ 1,337,000 Accrued expenses.......................................... 3,146,000 2,138,000 Promissory notes (note 9)................................. 881,000 -- Other current liabilities................................. 93,000 36,000 ------------ ------------ Total current liabilities............................... 4,942,000 3,511,000 ------------ ------------ Long-term liabilities: Senior discount notes (note 8)............................ 152,596,000 170,296,000 Other long-term liabilities............................... 498,000 621,000 Deferred income tax liabilities (note 12)................... 2,410,000 2,347,000 Stockholders' equity (deficiency) (note 13): Preferred stock, $.01 par value. Authorized 20,000,000 shares; zero shares issued and outstanding in 1999 and 2000.................................................... -- -- Common stock, Class A, $.01 par value. Authorized 80,000,000 shares; issued and outstanding 6,218,817 shares and 6,226,817 shares in 1999 and 2000, respectively............................................ 62,000 62,000 Common stock, Class B, $.01 par value. Authorized 20,000,000 shares; issued and outstanding 8,250,458 shares in 1999 and 2000................................. 83,000 83,000 Additional paid-in capital................................ 29,458,000 29,492,000 Other comprehensive loss (note 2)......................... (149,000) (9,000) Accumulated deficit....................................... (45,389,000) (76,557,000) ------------ ------------ (15,935,000) (46,929,000) ------------ ------------ Total liabilities and stockholders' equity.............. $144,511,000 $129,846,000 ============ ============
See accompanying notes to consolidated financial statements. 34 BIG CITY RADIO, INC. CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
1998 1999 2000 ---- ---- ---- Gross revenues...................................... $ 15,883,000 $ 23,296,000 $ 26,895,000 Less commissions and fees........................... 1,681,000 2,692,000 3,054,000 ------------ ------------ ------------ Net revenues.................................... 14,202,000 20,604,000 23,841,000 ------------ ------------ ------------ Operating expenses: Station operating expenses, excluding depreciation and amortization................................ 17,525,000 23,566,000 26,047,000 Internet and publishing, excluding depreciation and amortization................................ -- 51,000 1,569,000 Corporate, general and administrative expenses.... 2,527,000 4,371,000 3,845,000 Employment stock incentives (note 13)............. 808,000 -- -- Cost of abandonment of station acquisition agreement....................................... -- -- 550,000 Depreciation and amortization..................... 2,528,000 3,812,000 4,867,000 ------------ ------------ ------------ Total operating expenses........................ 23,388,000 31,800,000 36,878,000 ------------ ------------ ------------ Operating loss.................................. (9,186,000) (11,196,000) (13,037,000) Other income (expenses): Gain on sale of station (note 4).................. -- 663,000 -- Interest income................................... 3,076,000 1,952,000 281,000 Interest expense.................................. (12,608,000) (16,953,000) (18,392,000) Other, net........................................ (224,000) (337,000) (83,000) ------------ ------------ ------------ Total other (expenses).......................... (9,756,000) (14,675,000) (18,194,000) ------------ ------------ ------------ Loss before income tax benefit and extraordinary loss.............................................. (18,942,000) (25,871,000) (31,231,000) Income tax benefit, net (notes 2 and 12)............ 1,988,000 63,000 63,000 ------------ ------------ ------------ Loss before extraordinary loss.................. (16,954,000) (25,808,000) (31,168,000) Extraordinary loss on extinguishment of debt, net of income taxes (note 8)............................. (495,000) -- -- ------------ ------------ ------------ Net loss........................................ (17,449,000) (25,808,000) (31,168,000) ============ ============ ============ Basic and diluted loss per share: Loss before extraordinary item.................... ($1.21) ($1.83) ($2.15) Extraordinary item................................ (0.03) -- -- ------------ ------------ ------------ Net loss........................................ ($1.24) ($1.83) ($2.15) ============ ============ ============ Weighted average shares outstanding................. 14,026,000 14,136,000 14,475,000 ============ ============ ============
See accompanying notes to consolidated financial statements. 35 BIG CITY RADIO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
1998 1999 2000 ---- ---- ---- Cash flows from operating activities: Net loss.................................................. $ (17,449,000) $(25,808,000) $(31,168,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization........................... 2,528,000 3,812,000 4,867,000 Deferred income taxes (notes 2 and 12).................. (2,100,000) (63,000) (63,000) Non cash interest....................................... 11,948,000 16,504,000 18,352,000 Non cash change in other comprehensive loss............. -- (149,000) 140,000 Gain on sale of station (note 4).......................... -- (663,000) -- Loss on disposal of fixed assets.......................... -- 11,000 -- Disposal of fixed assets.................................. -- 33,000 -- Employment stock incentives (note 13)..................... 808,000 -- 34,000 Extraordinary loss on extinguishment of debt (note 8)..... 582,000 -- -- Changes in operating assets and liabilities, net of acquisitions: (Increase) decrease in assets: Accounts receivable................................... (1,037,000) (2,728,000) 1,374,000 Interest receivable................................... (1,574,000) 1,048,000 488,000 Prepaid expenses and other current assets............. (351,000) (67,000) (61,000) Other assets.......................................... (124,000) 110,000 (122,000) Increase (decrease) in liabilities: Accounts payable...................................... (607,000) 304,000 515,000 Accrued expenses...................................... (197,000) 1,960,000 (1,009,000) Other liabilities..................................... (185,000) (91,000) 66,000 ------------- ------------ ------------ Net cash used in operating activities............... (7,758,000) (5,787,000) (6,587,000) ------------- ------------ ------------ Cash flows from investing activities: Purchase of property and equipment........................ (2,441,000) (2,941,000) (1,584,000) Purchase of marketable securities......................... (125,609,000) (34,508,000) -- Sale of marketable securities............................. 77,193,000 75,065,000 5,964,000 Cash paid and advanced for assets of radio stations acquired................................................ (23,244,000) (36,177,000) (250,000) Decrease (Increase) in cash held in restricted investment.............................................. (3,350,000) 1,416,000 1,132,000 Decrease in cash held in escrow........................... -- -- 275,000 Cash received for disposal of fixed assets................ -- 58,000 10,000 Cash received for radio station sold...................... -- 1,195,000 352,000 ------------- ------------ ------------ Net cash provided by (used in) investing activities........................................ (77,451,000) 4,108,000 5,899,000 ------------- ------------ ------------ Cash flows from financing activities: Proceeds from offering of Senior Discount Notes, net of discount and fees of $4,568,000......................... 120,808,000 -- -- Drawdown on credit facility, net of fees paid of $793,000, $0 and $0 in 1998, 1999, and 2000, respectively......... 2,500,000 -- -- Repayment of existing credit facility..................... (32,600,000) -- -- Repayment of promissory notes............................. (294,000) (1,175,000) (881,000) ------------- ------------ ------------ Net cash provided by (used in) financing activities........................................ 90,414,000 (1,175,000) (881,000) ------------- ------------ ------------ Change in cash and cash equivalents................. 5,205,000 (2,854,000) (1,569,000) Cash and cash equivalents at beginning of year.............. 80,000 5,285,000 2,431,000 ------------- ------------ ------------ Cash and cash equivalents at end of year.................... $ 5,285,000 $ 2,431,000 $ 862,000 ============= ============ ============
See accompanying notes to consolidated financial statements. 36 BIG CITY RADIO, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
COMMON STOCK ADDITIONAL OTHER --------------------- PAID-IN COMPREHENSIVE ACCUMULATED SHARES AMOUNT CAPITAL LOSS DEFICIT TOTAL ---------- -------- ----------- ------------- ------------ ------------ Balance at December 31, 1997................ 13,975,520 $140,000 $27,024,000 $ -- $(2,132,000) $ 25,032,000 Capital contribution related to employment incentive (note 13)....................... 93,755 1,000 807,000 -- -- 808,000 Net loss.................................... -- -- -- -- (17,449,000) (17,449,000) ---------- -------- ----------- --------- ------------ ------------ Balance at December 31, 1998................ 14,069,275 141,000 27,831,000 -- (19,581,000) 8,391,000 Capital contribution related to employment incentive (note 13)....................... -- -- 31,000 -- -- 31,000 Unrealized loss on marketable securities.... -- -- -- (149,000) -- (149,000) Acquisition of Hispanic Internet Holdings (note 4).................................. 400,000 4,000 1,596,000 -- -- 1,600,000 Net loss.................................... -- -- -- -- (25,808,000) (25,808,000) ---------- -------- ----------- --------- ------------ ------------ Balance at December 31, 1999................ 14,469,275 145,000 29,458,000 (149,000) (45,389,000) (15,935,000) Employee stock options...................... 8,000 -- 34,000 -- -- 34,000 Unrealized income on marketable securities................................ -- -- -- 140,000 -- 140,000 Net loss.................................... -- -- -- -- (31,168,000) (31,168,000) ---------- -------- ----------- --------- ------------ ------------ Balance at December 31, 2000................ 14,477,275 $145,000 $29,492,000 $ (9,000) $(76,557,000) $(46,929,000) ========== ======== =========== ========= ============ ============
See accompanying notes to consolidated financial statements. 37 BIG CITY RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 2000 (1) ORGANIZATION AND BUSINESS Big City Radio, Inc. (formerly Odyssey Communications, Inc.) ("Big City Radio") was incorporated in Delaware on August 2, 1994 and commenced operations on January 1, 1995. On May 30, 1996, Big City Radio merged with Q Broadcasting, Inc. ("Q", and together with Big City Radio, the "Company"), with Big City Radio being the surviving company. Big City Radio and Q were owned 94% and 100%, respectively by Stuart and Anita Subotnick (the "Principal Stockholders"). Accordingly, the merger has been accounted for as a combination of entities under common control. As a result, the combination of Big City Radio and Q was effected utilizing historical costs. At the date of conversion from S Corporation status to C Corporation status (see Note 2), the Company formed five wholly owned subsidiaries, Big City Radio--LA, LLC; Big City Radio--NYC, LLC; Big City Radio--CHI, LLC; WRKL Rockland Radio, LLC; and Odyssey Traveling Billboards, Inc. The Company owns and operates radio broadcasting stations. As of December 31, 2000, the Company owned three FM stations in Southern California, KLYY-FM Arcadia, KVYY-FM Ventura and KSYY-FM Fallbrook (programmed as "Viva 107.1"). In the New York area, the Company owns four radio properties, WWXY-FM Westchester County, New York (the "Original New York Stations"), WWZY-FM Monmouth, New Jersey, WWVY-FM Hampton Bays, New York and WWYY-FM Hackettstown, New Jersey. WWXY-FM, WWZY-FM, WWVY-FM, and WWYY-FM are programmed as "New Country Y-107." In the Chicago area, the Company owns five radio properties, WXXY-FM Highland Park, Illinois, WYXX-FM Morris, Illinois (programmed as "FM 103.1"), WKIE-FM Arlington Heights, Illinois, WKIF-FM Kankakee, Illinois, and WDEK-FM DeKalb, Illinois (programmed as "92 KISS FM"). In the Phoenix area, the Company owns four radio properties, KEDJ-FM Sun City, Arizona, KDDJ-FM Globe, Arizona, KBZR-FM Arizona City, Arizona (programmed as "The Edge") and KSSL-FM Wickenburg, Arizona (programmed as "Que Buena"). The Company owns Hispanic Internet Holdings, Inc. which operates TodoAhora.com, a bilingual internet portal, which delivers a full range of internet programming to the Hispanic community including news, entertainment, finance, culture, and e-commerce opportunities. The Company also owns United Publishers of Florida, Inc., which publishes the Hispanic music trade magazine, "Disco", a graphic design business and the LatinMusicTrends.com website. The Company has incurred substantial net losses since inception primarily due to broadcast cash flow deficits characteristic of the start up of its radio stations. In addition, since the majority of its broadcast properties are in the early stages of development, either as a result of them being recent purchases, or as a result of them being recently reformatted, the Company expects to generate significant net losses for the foreseeable future, as it continues to expand its presence in major markets as well as developing its Internet portal site. As a result of these factors, working capital needs have been met by borrowings, including loans from the Principal Stockholders (which borrowings were contributed to the capital of the Company immediately prior to the consummation of the Initial Public Offering), under the Old Credit Facility and the issuance of the Notes. The net proceeds of approximately $120,808,000 from the Notes Offering were used to repay approximately $32,600,000 of the Old Credit Facility (as hereinafter defined; see Note 8). Simultaneously with the completion of the Note Offering, the Company obtained a revolving credit facility (the "Revolving Credit Facility") with The Chase Manhattan Bank ("Chase") in the amount of $15 million (see Note 8). 38 BIG CITY RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 AND 2000 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of Big City Radio, Inc. and all its subsidiaries. All significant intercompany accounts and transactions have been eliminated. CASH EQUIVALENTS Cash equivalents of $526,000 with maturities less than three months were included in cash and cash equivalents at December 31, 2000. MARKETABLE SECURITIES Marketable securities at December 31, 1999 and 2000 consist of U.S. Treasury, mortgage-backed, corporate debt securities. The Company classifies its debt securities as available-for-sale. Securities are recorded at fair value with the unrealized holding gain or loss, net of the related tax effect, excluded from earnings and reported as a separate component of other comprehensive income until realized. Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis. As of December 31, 2000, $9,000 of unrealized holding losses were recorded. Proceeds from the sale of securities were $6.0 million in 2000. Gross realized losses were $87,000 in 2000 and has been included in interest income, net. A decline in the market value of any available-for-sale security below cost that is deemed to be other than temporary results in a charge to earnings and a new cost basis for the security is established. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets ranging from 5 to 7 years for transmission equipment, vehicles and furniture and office equipment to 39 years for buildings and leasehold improvements over the lesser of the useful life or the term of the lease. IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. INTANGIBLE ASSETS Intangible assets include the portion of the purchase price allocable to FCC broadcast licenses, which are amortized on a straight-line method over 40 years. Covenants not to compete, signed as part of station acquisition agreements, are amortized over the period of the agreements, generally three years. Goodwill resulting from the acquisition of the Hispanic Internet Holdings, Inc. and United Publishers of Florida, Inc. are amortized over five years. It is the Company's policy to account for intangible assets at the lower of amortized cost or fair market value. As part of an ongoing review of the valuation and amortization of intangible assets, 39 BIG CITY RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 AND 2000 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) management assesses the carrying value of the Company's intangible assets if facts and circumstances suggest that they are impaired. If this review indicates that the intangibles will not be recoverable as determined by a non-discounted cash flow analysis over the remaining amortization period, the carrying value of the Company's intangibles will be reduced to their estimated fair market value. The Company has determined that intangibles are fairly stated at December 31, 2000. DEFERRED FINANCING FEES Deferred finance costs and loan origination fees are amortized over the period of the relevant facility. REVENUE RECOGNITION Broadcasting revenue is recognized when commercials are aired. Net revenues represent gross revenues, less direct fees and commissions paid to independent advertising agencies. INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used in estimating the fair value disclosures for financial instruments: The carrying amounts reported in the balance sheets for cash, current receivables, accounts payable and accrued expenses approximate fair value. The carrying value and fair value of Senior Discount Notes are $170.3 million and $60.9 million, respectively, at December 31, 2000. Fair values of Senior Discount Notes are based on market prices. CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company to concentration of credit risk consist primarily of accounts receivable. The Company believes that concentration of credit risk with respect to accounts receivable, which are unsecured, are limited due to the Company's ongoing relationship with its clients. The Company estimates uncollectible accounts on a periodic basis. The Company has not experienced significant losses relating to accounts receivable. For periods ended December 31, 1998, 1999 and 2000, no customer accounted for more than 10% of revenues. 40 BIG CITY RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 AND 2000 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) BARTER TRANSACTIONS The Company trades commercial air time for goods and services used principally for promotional, sales and other business activities. An asset and a liability are recorded at the fair market value of the goods or services received. Barter revenue is recorded and the liability is relieved when the commercials are broadcast, and barter expense is recorded and the assets are relieved when the goods or services are received or used. ADVERTISING The Company charges advertising costs, as incurred, to expense. Advertising costs amounted to $1,484,000, $1,326,000 and $1,703,000 for the years ended December 31, 1998, 1999 and 2000, respectively. LOSS PER SHARE The Company calculates loss per share in accordance with Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share". Under SFAS No. 128 basic EPS includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution from securities that could share in the earnings of the Company. In calculating diluted EPS, no potential shares of common stock are to be included in the computation when a loss from continuing operations available to common stockholders exists. The statement requires dual presentation of basic and diluted EPS by entities with complex capital structures. Stock options issued under the Company's 1998, 1999 and 2000 Incentive Stock Plan amounting to 924,800, 2,193,300 and 1,964,100 at December 31, 1998, 1999 and 2000, respectively, were not included in the computation of diluted EPS because to do so would have been antidilutive. ACCOUNTING FOR STOCK OPTIONS On January 1, 1996, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and disclosure for employee stock option grants made in 1995, 1996 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. REPORTING COMPREHENSIVE INCOME In fiscal 1998, the Company adopted the provisions of Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS No. 130"). The statement required that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in-capital in the equity section of a statement of financial position. Accumulated other comprehensive income of the Company consists solely of net unrealized gains (losses) on available for sale investments. 41 BIG CITY RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 AND 2000 (3) LIQUIDITY AND GOING CONCERN The Company has incurred substantial net losses since inception primarily due to broadcast cash flow deficits characteristic of the start up of its radio stations. In addition, since the majority of its broadcast properties are in the early stages of development, either as a result of them being recent purchases, or as a result of them being recently reformatted, the Company expects to generate significant net losses for the foreseeable future, as it continues to expand its presence in major markets as well as developing its Internet portal site. As a result of these factors, working capital needs have been met by borrowings, including loans from the Principal Stockholders (which borrowings were contributed to the capital of the Company immediately prior to the consummation of the Initial Public Offering), under the Old Credit Facility and the issuance of the Notes. The net proceeds of approximately $120,808,000 from the Notes Offering were used to repay approximately $32,600,000 of the Old Credit Facility (as hereinafter defined; see Note 8). Simultaneously with the completion of the Note Offering, the Company obtained a revolving credit facility (the "Revolving Credit Facility") with The Chase Manhattan Bank ("Chase") in the amount of $15.0 million (see Note 8). The Company is currently in compliance with all material covenants and restrictions under the Revolving Credit Facility, with the exception that the Independent Auditors' Report for the year ended December 31, 2000 includes a "going concern" uncertainty paragraph (see page 33). The Company is currently seeking a new debt facility, and as part of this negotiation plans to rectify its non-compliance with this covenant within the thirty day period permitted by the existing Revolving Credit Facility. The Company had available approximately $2.8 million of cash and cash equivalents and marketable securities at December 31, 2000 and has unused borrowing capacity of $3.9 million under the Revolving Credit Facility, which can be used for working capital purposes, including financing any such acquisitions. On March 15, 2001, the senior discount notes commence accruing interest at 11 1/4% per annum, which interest is payable in cash, semi-annually, commencing September 15, 2001. The semi-annual interest payment is $9.8 million. Cash on hand and amounts available under the Revolving Credit Facility are not sufficient to support the Company's operations through December 31, 2001 and its growth strategy. In addition, because of the Company's substantial indebtedness, a significant portion of the Company's broadcast cash flow will be required for debt. These matters raise substantial doubt about the Company's ability to continue as a going concern. The Company is in the process of seeking a new debt facility to finance its operating and debt service requirements and capital expenditure programs through December 31, 2001. There can be no assurance that any such financing will be available or available on acceptable terms. Management believes that its long-term liquidity needs will be satisfied through a combination of i) achieving positive operating results and cash flows through revenue growth and control of operating expenses and ii) the implementation and execution of its growth strategy to acquire and build a major market broadcast group. In order to meet its long-term financing needs, the Company is currently considering all means available to it, including the raising of additional equity and the restructuring of the Notes. The accompanying consolidated financial statements have been prepared on the basis that the Company and its subsidiaries will be able to continue in existence as a going concern and, accordingly, do not include any adjustments relating to the recoverability and classification of reported assets amounts and classification of liabilities that might result from the outcome of this uncertainty. 42 BIG CITY RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 AND 2000 (4) ACQUISITIONS AND DISPOSITIONS On November 8, 2000 the Company entered into an asset purchase agreement in which the Company acquired substantially all of the assets and properties of United Publishers of Florida, Inc., which owned and operated a Hispanic music trade magazine, "Disco", a graphic design business and the LatinMusicTrends.com website. The purchase price for the acquired business was $250,000 excluding acquisition related expenses and was paid in cash. Under the terms of the purchase agreement a second installment of up to $250,000 is due at the one year anniversary of the acquisition, subject to certain operating cash flow targets to be attained by the acquired business. Management's preliminary estimate of the fair value of the assets acquired in this transaction, subject to further review and appraisal is as follows: Fixed assets............................................ $118,000 Goodwill................................................ 132,000
On April 12, 2000, the Company sold the assets of radio station WLBK-AM, DeKalb, Illinois for a sale price of $416,000. No gain or loss was recorded on this transaction. On November 1, 1999 the Company consummated the acquisition, in an all stock transaction, all the issued and outstanding stock of Hispanic Internet Holdings, Inc., a privately held bilingual Online Service Provider for the U.S. Hispanic and Latin American markets. The transaction was accounted for as a purchase. The Company issued 400,000 shares of its Class A Common Stock with a fair market value of $4 per share. Under the terms of the Agreement, an additional 600,000 shares may be issued, (i) Over the next five years contingent upon the successful achievement of certain annual revenue goals, or (ii) In the event of a sale or spin-off of the Internet company, prior to the fifth anniversary of the merger, for a valuation of at least $10 million, or (iii) In the event of a sale of Big City Radio prior to the fifth anniversary of the merger at a price of at least $4.00 per share. On September 28, 1999 the Company completed the acquisition of KSSL-FM (formerly KMYL-FM), Wickenburg, Arizona. The operations of this station have been included in the consolidated statements of operations from that date. The purchase price for this station was $5,600,000 excluding acquisition related expenses and was paid in cash. The fair value of the assets acquired in this transaction exclusive of acquisition costs, subject to further review and appraisal is as follows: Building................................................ $ 8,000 Fixed assets............................................ 92,000 FCC broadcast license................................... 5,500,000
On September 22, 1999 the Company completed the acquisition of KBZR-FM, Arizona City, Arizona. The operations of this station have been included in the consolidated statements of operations from that date. The purchase price for this station was $3,900,000 excluding acquisition related expenses and was paid in cash. The fair value of the assets acquired in this transaction exclusive of acquisition costs, subject to further review and appraisal is as follows: Land.................................................... $ 20,000 Fixed assets............................................ 73,000 FCC broadcast license................................... 3,807,000
On July 30, 1999 the Company completed the acquisition of the simulcast stations, KEDJ-FM, Sun City, Arizona and KDDJ-FM, Globe, Arizona. The operations of these stations have been included in the consolidated statements of operations from that date. The purchase price for these stations was $22,000,000 excluding acquisition related expenses and was paid in cash. The fair value of the assets 43 BIG CITY RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 AND 2000 (4) ACQUISITIONS AND DISPOSITIONS (CONTINUED) acquired in this transaction exclusive of acquisition costs, subject to further review and appraisal is as follows: Building................................................ $ 461,000 Fixed assets............................................ 227,000 FCC broadcast license................................... 21,312,000
On April 30, 1999 the Company signed an acquisition agreement whereby the assets of radio station KLVA-FM, Casa Grande, Arizona would be exchanged for the assets of radio station KDDJ-FM, Globe, Arizona, subject to the consummation of its purchase which occurred on July 30, 1999. Accordingly, in April 1999 the Company deposited into an escrow account the amount of $275,000 in good faith consideration. In February 2000, the Company paid the balance in the escrow account and an additional amount of $275,000, totaling $550,000, to cancel the signed KLVA-FM acquisition. On March 26, 1999 the Company sold the assets of radio station WRKL-AM, New City, New York to Polnet Communications, LTD. for a sale price of $1.625 million. A gain of $663,000 on the sale of the station was recognized during the period. On February 25, 1999 the Company completed the acquisition of WDEK-FM and WLBK-AM, DeKalb, Illinois. The operations of these stations have been included in the consolidated statements of operations from that date.The purchase price for these stations was $4,500,000, excluding acquisition related expenses, of which $450,000 was deposited into an escrow account in April 1998 in anticipation of this purchase.Management's preliminary estimate of the fair value of the assets acquired in these transactions, subject to further review and appraisal, is as follows:
WDEK-FM WLBK-AM ---------- -------- Building.............................................. $ -- $150,000 Fixed assets.......................................... 165,000 141,000 FCC broadcast license................................. 3,735,000 309,000
On August 4 and 7, 1998, the Company completed the acquisitions of WKIE-FM, Arlington Heights, Illinois (formerly WCBR-FM) and WKIF-FM (formerly WLRT-FM), Kankakee, Illinois. The operations of these stations have been included in the consolidated statements of operations from these dates. The purchase price for these stations was $19,500,000 excluding acquisition related expenses, of which $19,000,000 was paid in cash. The fair value of the WKIE-FM and WKIF-FM assets acquired, exclusive of acquisition costs, is as follows:
WKIE-FM WKIF-FM ----------- ---------- Fixed assets........................................ $ 100,000 102,000 FCC broadcast license............................... 14,400,000 4,898,000
On April 27, 1998, the Company signed an agreement to acquire all of the stock of Radio New Jersey, owner of the FCC licenses of WWYY-FM (formerly WRNJ-FM) and WRNJ-AM, New Jersey. Simultaneously with the execution of this acquisition agreement, the Company agreed to sell substantially all of the assets of WRNJ-AM to one of the existing stockholders of Radio New Jersey. These acquisitions and sale were completed on August 14, 1998. The Company liquidated Radio New Jersey and transferred the FCC license of WWYY-FM to its Subsidiary Guarantor, Big City Radio-NYC, L.L.C. The aggregate purchase price for WWYY-FM was $5,350,000 excluding acquisition related expenses, of which $3,000,000 was paid in cash and the remainder was satisfied by the issuance 44 BIG CITY RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 AND 2000 (4) ACQUISITIONS AND DISPOSITIONS (CONTINUED) of two promissory notes totaling $2,350,000, bearing interest at 8.5% per annum. The Company managed the operations of WWYY-FM for a fee from April 27, 1998 up to the effective date under a local marketing agreement ("LMA"). Revenue, programming expenses and other reimbursable expenses pursuant to the LMA have been included in the accompanying consolidated financial statements as have LMA fees of approximately $54,000. Upon final review and appraisal, the fair value of the WWYY-FM assets acquired in these transactions, exclusive of acquisition costs, is determined to be as follows: Fixed assets............................................ $ 25,000 FCC broadcast license................................... 7,798,000
LMA fees are reflected in the accompanying consolidated financial statements as station operating expenses. (5) CASH HELD IN INVESTMENT, RESTRICTED The restricted cash balance collateralizes two letters of credit outstanding at December 31, 2000. The letters of credit relate to the Chicago and Phoenix office leases. According to the Chicago lease agreement, the Company agreed to deposit the sum of $1,000,000 as security in the form of an unconditional and irrevocable letter of credit. The amount of the letter of credit will decrease $200,000 each year over 5 years. According to the Phoenix lease agreement, the Company agreed to deposit the sum of $269,000 as security in the form of an unconditional and irrevocable letter of credit. The amount of the letter of credit will decrease $51,000 each year over 5 years. (6) PROPERTY AND EQUIPMENT Property and equipment at December 31, 1999 and 2000 were as follows:
1999 2000 --------- ---------- Land.................................................. 347,000 245,000 Building and improvements............................. 1,611,000 1,943,000 Transmitter equipment................................. 6,044,000 6,676,000 Furniture and office equipment........................ 1,340,000 1,871,000 Vehicles.............................................. 466,000 623,000 --------- ---------- 9,808,000 11,358,000 Less accumulated depreciation......................... 2,663,000 4,210,000 --------- ---------- 7,145,000 7,148,000 ========= ==========
45 BIG CITY RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 AND 2000 (7) INTANGIBLES Intangibles at December 31, 1999 and 2000 are as follows:
1999 2000 ----------- ----------- FCC broadcast licenses............................. 118,152,000 117,916,000 Covenants not to compete........................... 678,000 678,000 Goodwill........................................... 1,594,000 1,727,000 ----------- ----------- 120,424,000 120,321,000 Less accumulated amortization...................... 6,551,000 9,845,000 ----------- ----------- 113,873,000 110,476,000 =========== ===========
(8) SENIOR DISCOUNT NOTES OFFERING OF SENIOR DISCOUNT NOTES On March 17, 1998 (the "issue date"), the Company completed the Note Offering. The $174,000,000 aggregate principal amount at maturity of Notes were issued at a discount generating gross proceeds to the Company of approximately $125.4 million. They mature on March 15, 2005. The Notes will accrete in value until March 15, 2001 at a rate of 11.25% per annum, compounded semiannually, to an aggregate principal amount of $174.0 million. Commencing on March 15, 2001, interest on the Notes will accrue at a rate of 11.25% per annum and will be payable semiannually in cash on March 15 and September 15 of each year, commencing on September 15, 2001. Except as described below, the Company may not redeem the Notes prior to March 15, 2002. On or after such date, the Company may redeem the Notes, in whole or in part, at certain redemption prices together with accrued and unpaid interest, if any, to the date of redemption. In addition, at any time on or prior to March 15, 2001, the Company may, at its option, redeem in the aggregate up to 33 1/3% of the original principal amount of the Notes with net cash proceeds of one or more Equity Offerings received by the Company so long as there is a public market for the Company's Class A Common Stock at the time of such redemption, at a redemption price equal to 111.25% of the accreted value thereof to be redeemed, to the date of redemption; provided that at least 66 2/3% of the original principal amount of the Notes remains outstanding immediately after each such redemption. The Notes are not subject to any sinking fund requirement. Upon a Change of Control (as such term is defined in the Notes), each holder of Notes has the right to require the Company to make an offer to purchase the Notes at a price equal to 101% of the accreted value of such Notes prior to March 15, 2001, or 101% of the principal amount of such Notes thereafter, together with accrued and unpaid interest, if any, to the date of the purchase. The Notes are unsecured, senior obligations of the Company and rank PARI PASSU in right of payment to all existing and future senior indebtedness of the Company and senior to all existing and future subordinated indebtedness of the Company. The Notes are guaranteed on a senior unsecured basis by each of the Company's subsidiaries. The indenture does not restrict the ability of the Company or its subsidiaries to create, acquire or capitalize subsidiaries in the future. The Notes will be effectively subordinated to all existing and future indebtedness of the Company's subsidiaries. Approximately $4.6 million of costs associated with the issuance of the Notes, including the underwriters fees and related professional fees are included in deferred financing fees and will be amortized over the term of the Notes. 46 BIG CITY RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 AND 2000 (8) SENIOR DISCOUNT NOTES (CONTINUED) Simultaneously with the consummation of the Notes, the Company entered into the Revolving Credit Facility providing for up to $15 million of availability, subject to certain available borrowing calculations. The Revolving Credit Facility matures on the fifth anniversary of the issue date and amounts outstanding under the Revolving Credit Facility bear interest at an applicable margin plus, at the Company's option, Chase's prime rate (in which case the applicable margin is 2.00% subject to reduction upon obtaining performance criteria based on the Company's leverage ratio) or the London Inter-Bank Borrowing Rate (in which case the applicable margin is 3.00% subject to reduction upon obtaining performance criteria based on the Company's leverage ratio). The Company's obligations under the Revolving Credit Facility are secured by a pledge of substantially all of the Company and its subsidiaries' assets. The Company will pay fees of .5% per annum, on the aggregate unused portion of the facility. Upon entering into the Revolving Credit Facility, the Company recorded a loss on extinguishment of the Old Credit Facility which consisted of the unamortized deferred financing fees of $582,000. This expense is reported, net of its tax effect of $87,000, as an extraordinary loss in the consolidated statement of operations for the year ended December 31, 1998. Interest expense on the Old Credit Facility for the year ended December 31, 1998 was $576,000. The Revolving Credit Facility contains certain financial and operational covenants and other restrictions with which the Company must comply, including, among others, limitations on capital expenditures, limitations on the incurrence of additional indebtedness, restrictions on sale of assets, restrictions on the use of borrowings, limitations on paying cash dividends and redeeming or repurchasing capital stock of the Company or the Notes, and requirements to maintain certain financial ratios, maximum total leverage, minimum interest coverage and minimum fixed charge coverage. The Company had violated one of the covenants (see Note 3). As of December 31, 2000 no amounts were drawn down on the Revolving Credit Facility. However, a $259,000 letter of credit related to the Century City office lease and a $500,000 letter of credit related to the LA Stations power signal project were issued under the Revolving Credit Facility. The Revolving Credit Facility contains customary events of default, including material misrepresentations, payment defaults and default in the performance of other covenants, certain bankruptcy and ERISA defaults, judgment and cross defaults and revocation of any of the Company's broadcast licenses. The Revolving Credit Facility also provides that an event of default will occur upon the occurrence of a "change of control." For purposes of the Revolving Credit Facility, a change of control will occur when (i) any person or group other than the Principal Stockholders and their affiliates obtains the power to elect a majority of the Board of Directors, (ii) the Company fails to own 100% of the capital stock of its subsidiaries owning any of the FCC broadcast licenses or (iii) the Board of Directors does not consist of a majority of continuing directors. 47 BIG CITY RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 AND 2000 (8) SENIOR DISCOUNT NOTES (CONTINUED) SUBSIDIARY GUARANTORS Pursuant to the terms of the indenture relating to the Notes (the "Indenture"), the direct subsidiaries of Big City Radio, Inc. consisting of Odyssey Traveling Billboards, Inc., Big City Radio-NYC, L.L.C., Big City Radio-LA, L.L.C., Big City Radio-CHI, L.L.C., and Big City Radio-Phoenix, L.L.C. (collectively, the Subsidiary Guarantors) have, jointly and severally, fully and unconditionally guaranteed the obligations of Big City Radio, Inc. with respect to the Notes. All of the then existing Subsidiary Guarantors except Odyssey Traveling Billboards, Inc. (the "Station Subsidiaries"), were created in December 1997 as special purpose Delaware limited liability companies formed at the request of the lenders under the Credit Facility for the sole purpose of facilitating the Credit Facility by holding the Company's Federal Communications Commission ("FCC") radio licenses. The operating agreements for the Station subsidiaries limit the activities of these companies to holding the FCC radio licenses.Odyssey Traveling Billboards, Inc. ("Odyssey") owns and operates certain vehicles used to advertise for the Company's radio stations. Because the Station Subsidiaries have entered into assignment and use agreements with the Company whereby the Company manages and directs the day-to-day operations of the radio stations, pays all expenses and capital costs incurred in operating the radio stations, and retains all advertising and other receipts collected in operating the radio stations, the Station Subsidiaries have no income or expenses other than the amortization of the FCC licenses. Odyssey is similarly a special purpose corporation with no income and only expenses. The covenants in the Notes, the Indenture and the Revolving Credit Facility do not restrict the ability of the Station Subsidiaries to make cash distributions to the Company. Set forth below is certain summarized financial information for the Subsidiary Guarantors, as of December 31, 1999 and 2000 and for the year ended, December 31, 1999 and 2000 on an "as if pooling" basis given the common control relationship of Big City Radio, Inc. and the Subsidiary Guarantors.
DECEMBER 31, --------------------------- 1999 2000 ------------ ------------ Current assets................................... -- -- Noncurrent assets................................ $112,331,000 $109,126,000 Current liabilities.............................. -- -- Noncurrent liabilities........................... -- --
FOR THE YEAR ENDED DECEMBER 31, ---------------------------- 1999 2000 ----------- ---------- Net sales......................................... -- -- Costs and expenses................................ -- -- Depreciation and amortization..................... $ 2,499,000 2,969,000 Net loss.......................................... (2,499,000) (2,969,000)
The summarized financial information for the Subsidiary Guarantors has been prepared from the books and records maintained by the Subsidiary Guarantors and the Company. The summarized financial information may not necessarily be indicative of the results of operations or financial position had the Subsidiary Guarantors operated as independent entities. 48 BIG CITY RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 AND 2000 (9) PROMISSORY NOTES In August 1998, the Company acquired all of the stock of Radio New Jersey, owner of the FCC licenses of WWYY-FM and WRNJ-AM. The aggregate purchase price was $5.4 million excluding acquisition-related expenses, of which $3.0 million was paid in cash and the remainder was satisfied by the issuance of two promissory notes. The principal amount of these Notes are due and payable in eight equal consecutive quarterly installments of $147,000 each, commencing on November 1, 1998, together with interest in arrears on the unpaid principal balance at an annual rate equal to 8.5%. In August 2000, the Company repaid all amounts outstanding on these promissory notes. The principal amount and interest paid on these promissory notes during 2000 was $881,000 and $25,000, respectively. The principal amount and interest paid on these promissory notes during 1999 was $1,175,000 and $137,000, respectively. (10) COMMITMENTS AND CONTINGENCIES LEASES The Company leases studio and office space, transmitter tower sites and office equipment under operating leases. Future minimum rental commitments for the remainder of the operating leases are as follows: 2001........................................... $ 2,226,000 2002........................................... 1,940,000 2003........................................... 1,834,000 2004........................................... 1,103,000 2005........................................... 669,000 Thereafter..................................... 2,461,000 ----------- $10,233,000 ===========
Rent expense for the years ended December 31, 1998, 1999 and 2000 was approximately $651,000, $1,382,000 and $1,960,000, respectively. EMPLOYMENT CONTRACTS The Company has entered into various employment contracts with 17 individuals comprised of mainly officers and senior management that provide for minimum salaries and incentives based upon specified levels of performance. The minimum payments under these contracts are as follows: 2001.................................................... $1,919,000 2002.................................................... 1,246,000 2003.................................................... 150,000 ---------- $3,315,000 ==========
49 BIG CITY RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 AND 2000 (10) COMMITMENTS AND CONTINGENCIES (CONTINUED) CONTINGENT LIABILITIES The Company has certain contingent liabilities resulting from litigation and claims incident to the ordinary course of business. Management believes that the probable resolution of such contingencies will not materially affect the financial position, results of operations, or liquidity of the Company. (11) SUPPLEMENTARY INFORMATION--STATEMENT OF CASH FLOWS The Company acquired vehicles during the years ended December 31, 1998, 1999 and 2000 through issuance of notes payable amounting to $39,000, $0, and $50,000, respectively. Barter transactions resulted in sales of $1,560,000, $841,000 and $1,107,000 and related expenses of $1,514,000, $947,000 and $1,061,000 for the years ended December 31, 1998, 1999 and 2000, respectively. Cash paid for interest during the years ended December 31, 1998, 1999 and 2000 amounted to $931,000, $137,000 and $40,000, respectively. (12) INCOME TAXES Income tax expense for the year ended December 31, 1998, 1999 and 2000 is comprised of the following:
1998 1999 2000 ----------- -------- -------- Deferred tax benefit........................................ (2,013,000) (63,000) (63,000) Tax benefit resulting from extraordinary loss............... (87,000) -- -- Other....................................................... 25,000 -- -- ----------- ------- ------- $(2,075,000) (63,000) (63,000) =========== ======= =======
The provision for income taxes differs from the amount computed by applying the statutory Federal income tax rate in 1998, 1999 and 2000 due to the following:
1998 1999 2000 ----------- ----------- ----------- Federal income taxes at the statutory rate............. $(6,833,000) (9,055,000) (10,899,000) State income taxes net of any amount of Federal income tax benefit.......................................... (939,000) (1,322,000) (1,523,000) Extraordinary loss..................................... (87,000) -- -- Valuation Allowance.................................... 5,571,000 10,279,000 12,327,000 Other.................................................. 213,000 35,000 32,000 ----------- ----------- ----------- $(2,075,000) (63,000) (63,000) =========== =========== ===========
50 BIG CITY RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 AND 2000 (12) INCOME TAXES (CONTINUED) The components of deferred taxes at December 31, 1998, 1999 and 2000 are as follows:
1998 1999 2000 ----------- ----------- ----------- Deferred tax assets: Net operating loss................................... $ 6,030,000 10,077,000 16,794,000 Other................................................ 222,000 206,000 240,000 Book interest expense/Tax OID 11.25% Senior Notes.... 4,902,000 11,950,000 19,823,000 ----------- ----------- ----------- 11,154,000 22,233,000 36,857,000 ----------- ----------- ----------- Deferred tax liabilities: Deferred gain........................................ (2,771,000) (2,831,000) (2,679,000) Book/Tax basis difference from WRNJ-FM stock purchase........................................... (2,473,000) (2,410,000) (2,348,000) Depreciation and amortization........................ (2,307,000) (2,490,000) (4,129,000) Other................................................ (505,000) (1,062,000) (1,871,000) ----------- ----------- ----------- (8,056,000) (8,793,000) (11,027,000) ----------- ----------- ----------- Sub-Total before valuation allowance................... 3,098,000 13,440,000 25,830,000 Valuation Allowance.................................... (5,571,000) (15,850,000) (28,177,000) ----------- ----------- ----------- Net deferred tax asset (liability)..................... $(2,473,000) (2,410,000) (2,347,000) =========== =========== ===========
The Company has approximately $41,751,000 of net operating loss carryforwards for Federal income tax purposes. These NOLs begin to expire in 2017. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment. At December 31, 2000, based on projections for future taxable income over the periods in which the level of deferred tax assets are deductible, management believes that it is unlikely that the Company will realize the benefits of all these deductible differences. Accordingly, a valuation allowance of $28,177,000 has been provided for the deferred tax assets for the year ended December 31, 2000. (13) CAPITAL STOCK AND RELATED TRANSACTIONS DESCRIPTION OF CAPITAL STOCK--The authorized capital stock of the Company consists of 120,000,000 shares of capital stock, par value $.01 per share, of which 80,000,000 shares are designated as Class A Common Stock and 20,000,000 shares are designated as Class B Common Stock.At December 31, 2000, 6,226,817 shares of Class A Common Stock were issued and outstanding and 8,250,458 shares of Class B Common Stock were issued and outstanding. In addition, 8,250,458 shares of Class A Common Stock are reserved for issuance upon conversion of the Class B Common Stock. Immediately prior to the consummation of the Offering, there was one holder of Class A Common Stock and two holders of Class B Common Stock. 51 BIG CITY RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 AND 2000 (13) CAPITAL STOCK AND RELATED TRANSACTIONS (CONTINUED) The shares of Class A Common Stock and Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect to the shares of the Class B Common Stock. The holders of Class A Common Stock are entitled to one vote per share. Holders of Class B Common Stock are entitled to ten votes per share. Holders of all classes of Common Stock vote together as a single class on all matters presented to the stockholders for their vote or approval except for the election and removal of directors as described below and as otherwise required by applicable law. With respect to the election of directors, the Company's Amended and Restated Certificate of Incorporation provides that holders of Class B Common Stock vote as a separate class to elect up to 75% of the members of the Company's Board of Directors. Stockholders have no cumulative voting rights. EMPLOYMENT INCENTIVE--On June 18, 1998, the Company issued 93,755 shares of Class A Common Stock to the then Chief Executive Officer an as employment incentive, as required by an agreement executed prior to the Offering. The consolidated statement of operations for the year ended December 31, 1998 reflect a charge of $808,000 relating to the award. The charge represents the fair market value of the stock and it has been reflected as a capital contribution in the accompanying consolidated financial statements. (14) STOCK OPTION PLANS Under the Company's 1997, 1998 and 1999 Incentive Stock Plan (the "Incentive Stock Plan"), as amended in November 1999, 700,000, 311,500 and 2,500,000 shares, respectively of the Company's Class A Common Stock are reserved for issuance. The types of awards that may be granted pursuant to the Incentive Stock Plan include (i) incentive stock options ("ISOs") and (ii) nonqualified stock options ("NQSOs" and together with ISOs, "Stock Options" and "Awards"). Stock Option grants will consist of the maximum number of ISOs that may be granted to a particular grantee under applicable law with the balance of the Stock Options being NQSOs. Incentive stock options granted under both Plans are exercisable for a period of up to ten years. The following is a summary of the material features of the Incentive Stock Plan. Subject to certain exceptions set forth in the 1997 Incentive Stock Plan, up to 700,000 shares of the Class A Common Stock may be the subject of Awards under the 1997 Incentive Stock Plan. Up to 100,000 shares of Class A Common Stock are available with respect to Awards granted to any one grantee. Shares of Class A Common Stock granted under the 1997 Incentive Stock Plan may either be authorized but unissued shares of Class A Common Stock not reserved for any other purpose or shares of Class A Common Stock held in or acquired for the treasury of the Company. On January 16, 1998, the Company granted options to purchase an aggregate of 2,500 shares of Class A Common Stock to a certain director of the Company, at an exercise price of $7.125 per share. On April 8, 1998, the Board of Directors approved the Big City Radio, Inc. 1998 Incentive Stock Plan (the "1998 Incentive Stock Plan"). Subject to certain adjustments set forth in the 1998 Incentive Stock Plan, up to 300,000 shares of the Class A Common Stock may be the subject of Awards under the 1998 Incentive Stock Plan. Up to 100,000 shares of Class A Common Stock are available with respect to Awards granted to any one grantee.Shares of Class A Common Stock subject to Awards granted under 52 BIG CITY RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 AND 2000 (14) STOCK OPTION PLANS (CONTINUED) the 1998 Incentive Stock Plan may either be authorized but unissued shares of Class A Common Stock not reserved for any other purpose or shares of Class A Common Stock held in or acquired for the treasury of the Company. Shares of Class A Common Stock subject to an Award which terminates unexercised may again be subject to an Award under the 1998 Incentive Stock Plan. In addition, shares of Class A Common Stock surrendered to the Company in payment of the exercise price of applicable taxes upon exercise of an Award may also be used thereafter for additional Awards. On July 6, 1998, the Board of Directors granted stock options to purchase an aggregate of 311,500 shares of Class A Common Stock under the 1998 Incentive Stock Plan to certain employees and officers of the Company, at an exercise price of the then market value of $7.8125 per share. On July 22, 1998, the Company granted stock options to purchase an aggregate of 33,000 shares of Class A Common Stock to certain employees of the Company at an exercise price of $7.8125 per share. On November 30, 1998, the Board of Directors granted stock options to purchase an aggregate of 47,500 shares of Class A Common Stock under the 1998 Incentive Stock Plan to certain employees of the Company, at an exercise price of the then market value of $4.375 per share. The majority of these awards vest over a four-year period, with the first 20% vesting immediately at the date of the grant and the remainder vesting 20% per annum, thereafter. On January 28, 1999, the Board of Directors granted stock options to purchase an aggregate of 75,000 shares of Class A Common Stock under the 1999 Incentive Stock Plan to certain employees and officers of the Company, at an exercise price of the then market value of $3.4375 per share. On March 11, 1999, the Company granted stock options to purchase an aggregate of 25,000 shares of Class A Common Stock to certain employees of the Company at an exercise price of $4.313 per share. On July 19, 1999, the Board of Directors granted stock options to purchase an aggregate of 6,500 shares of Class A Common Stock under the 1999 Incentive Stock Plan to certain employees of the Company, at an exercise price of the then market value of $3.625 per share. On August 20, 1999, the Board of Directors granted stock options to purchase an aggregate of 10,000 shares of Class A Common Stock under the 1999 Incentive Stock Plan to certain employees and officers of the Company, at an exercise price of the then market value of $4.0625 per share. On October 20, 1999, the Board of Directors granted stock options to purchase an aggregate of 151,000 shares of Class A Common Stock under the 1999 Incentive Stock Plan to certain employees and officers of the Company, at an exercise price of the then market value of $3.4375 per share. The majority of these awards vest over a four-year period, with the first 20% vesting immediately at the date of the grant and the remainder vesting 20% per annum, thereafter. At November 1, 1999, there were only 222,500 shares of common stock available for the grant of options under its 1999 Incentive Stock Plan. After examining the overall employee compensation, the Board of Directors concluded that additional shares of common stock be made available for the grant of options under the plan. Accordingly, the Board approved an amendment to the 1999 Incentive Stock Plan to increase the total number of shares of common stock that may be issued pursuant to options granted under the plan to 2,500,000 and to increase the aggregate number of shares of Class A Common Stock that may be issued to any one optionee under the plan from 100,000 to 1,000,000. On November 1, 1999, the Board of Directors granted stock options to purchase an aggregate of 770,000 shares of Class A Common Stock under the amended 1999 Incentive Stock Plan to certain 53 BIG CITY RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 AND 2000 (14) STOCK OPTION PLANS (CONTINUED) employees and officers of the Company and certain other directors and advisors of the Company, at an exercise price of the then market value of $3.5625 per share. Also on November 1, 1999, the Board of Directors granted stock options to purchase an aggregate of 250,000 shares of Class A Common Stock under the amended 1999 Incentive Stock Plan to the new Chief Executive Officer of the Company, at an exercise price of $4.00 per share. On November 22, 1999, the Board of Directors granted stock options to purchase an aggregate of 25,000 shares of Class A Common Stock under the amended 1999 Incentive Stock Plan to a key employee of the Company, at an exercise price of $5 per share. The majority of these awards vest over a four-year period, with the first 20% vesting immediately at the date of the grant and the remainder vesting 20% per annum, thereafter. On September 6, 2000, the Board of Directors granted stock options to purchase an aggregate of 25,000 shares of Class A Common Stock under the amended 1999 Incentive Stock Plan to a key employee of the Company, at an exercise price of the then market value of $4.00 per share. On October 19, 2000, the Board of Directors granted stock options to purchase an aggregate of 20,000 shares of Class A Common Stock under the amended 1999 Incentive Stock Plan to a key employee of the Company, at an exercise price of the then market value of $3.375 per share. On November 20, 2000, the Board of Directors granted stock options to purchase an aggregate of 100,000 shares of Class A Common Stock under the amended 1999 Incentive Stock Plan to a key employee of the Company, at an exercise price of the then market value of $2.875 per share. The majority of these awards vest over a four-year period, with the first 20% vesting immediately at the date of the grant and the remainder vesting 20% per annum, thereafter. Summary information pertaining to the plan for the year ended December 31, 2000 is as follow:
WEIGHTED NUMBER OF EXERCISE PRICE AVERAGE SHARES PER SHARE EXERCISE PRICE --------- -------------- -------------- Outstanding at beginning of year..... 2,193,300 $ 3.4375--7.8125 $5.00 Granted.............................. 145,000 2.875 --4.00 3.14 Exercised............................ 8,000 3.5625--4.375 4.17 Cancelled............................ 366,200 3.4375--7.8125 6.02 Outstanding at end of year........... 1,964,100 2.875 --7.8125 4.67 Exercisable at end of year........... 1,133,400 2.875 --7.8125 4.87 Available for grant at end of year... 1,535,900 --
At December 31, 2000, the weighted average remaining contractual life of all outstanding options was 8.34 years. 54 BIG CITY RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 AND 2000 (14) STOCK OPTION PLANS (CONTINUED) The following table summarizes information concerning currently outstanding and exercisable stock options as of December 31, 2000:
OPTIONS OUTSTANDING AT OPTIONS EXERCISABLE DECEMBER 31, 2000 AT DECEMBER 31, 2000 ---------------------------- ---------------------------- WEIGHTED- WEIGHTED RANGE OF NUMBER AVERAGE NUMBER AVERAGE EXERCISE PRICES OUTSTANDING EXERCISE PRICE EXERCISABLE EXERCISE PRICE - --------------------- ----------- -------------- ----------- -------------- 2.875--4.00 1,336,600 3.59 720,900 3.70 4.375--6.00 127,500 5.77 111,500 5.89 7.00 --7.8125 500,000 7.29 301,000 7.27 --------- --------- 1,964,100 4.67 1,133,400 4.87 ========= =========
Summary information pertaining to the plan for the year ended December 31, 1999 is as follows:
WEIGHTED NUMBER OF EXERCISE PRICE AVERAGE SHARES PER SHARE EXERCISE PRICE --------- --------------------- -------------- Outstanding at beginning of year..... 924,800 $ 4.375 --7.8125 $7.00 Granted.............................. 1,312,500 3.4375--5.00 3.67 Exercised............................ -- -- -- Cancelled............................ 44,000 4.375 --7.8125 7.42 Outstanding at end of year........... 2,193,300 3.4375--7.8125 5.00 Exercisable at end of year........... 1,001,550 3.4375--7.8125 5.15 Available for grant at end of year... 1,306,700 -- --
At December 31, 1999, the weighted average remaining contractual life of all outstanding options was 9.14 years. Summary information pertaining to the plan for the year ended December 31, 1998 is as follows:
WEIGHTED NUMBER OF EXERCISE PRICE AVERAGE SHARES PER SHARE EXERCISE PRICE --------- -------------------- -------------- Outstanding at beginning of year...... 572,500 $ 6.00 --7.00 $6.74 Granted............................... 391,500 4.375--7.8125 7.39 Exercised............................. -- -- -- Cancelled............................. 39,200 7.00 --7.8125 7.19 Outstanding at end of year............ 924,800 4.375--7.8125 7.00 Exercisable at end of year............ 322,300 4.375--7.8125 6.62 Available for grant at end of year.... 75,200 --
At December 31, 1998, the weighted average remaining contractual life of all outstanding options was 9.21 years. The Company accounts for its stock option plan in accordance with the provisions of Accounting Principles Board (APB) Option No. 25, "Accounting for Stock Issued to Employees," and related 55 BIG CITY RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 AND 2000 (14) STOCK OPTION PLANS (CONTINUED) interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation," which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 in accounting for its Plan, and accordingly, no compensation cost has been recognized for its stock options granted at fair market value in the consolidated financial statements. Compensation cost will be recorded for options granted below fair market value. In 1998, 1999 and 2000, had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net loss would have been increased to the pro forma amounts indicated below:
1998 1999 2000 ------------ ------------ ------------ Net income (loss): As reported....................... $(17,449,000) $(25,808,000) $(31,168,000) Pro forma......................... (18,379,000) (27,825,000) (32,869,000) Earnings (loss) per share: As reported....................... (1.24) (1.83) (2.15) Pro forma......................... (1.31) (1.97) (2.27)
At December 31, 1998, 1999, and 2000 the per share weighted average fair value of stock options granted was$4.98, $2.41 and $1.99, respectively, on the date of grant using the modified Black-Scholes option-pricing model with the following weighted average assumptions: expected dividend yield of 0%, risk-free interest rate of 5.57%, expected volatility of 50% and an expected life of 10 years for options granted in 1998; expected dividend yield of 0%, risk-free interest rate of 5.85%, expected volatility of 50% and an expected life of 10 years for options granted in 1999; expected dividend yield of 0%, risk-free interest rate of 4.93%, expected volatility of 50% and an expected life of 10 years for options granted in 2000. 56 BIG CITY RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 AND 2000 (15) UNAUDITED QUARTERLY RESULTS The following tables contain selected unaudited consolidated statement of operations for each quarter of fiscal years 2000 and 1999.
FISCAL YEAR 2000 ----------------------------------------- 4TH 3RD 2ND 1ST QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net revenues............................. $ 5,506 $ 6,874 $ 6,815 $ 4,646 Operating loss........................... (3,411) (2,440) (2,862) (4,324) Net loss................................. (8,199) (6,982) (7,331) (8,656) Loss per common share: Basic and diluted...................... $ (0.57) $ (0.48) $ (0.51) $ (0.60) Weighted average shares outstanding: Basic and diluted...................... 14,477 14,477 14,475 14,469
FISCAL YEAR 1999 ----------------------------------------- 4TH 3RD 2ND 1ST QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net revenues............................. $ 6,536 $ 6,615 $ 4,092 $ 3,361 Operating loss........................... (3,255) (1,449) (2,934) (3,558) Net loss................................. (7,356) (5,697) (6,540) (6,215) Loss per common share: Basic and diluted...................... $ (0.51) $ (0.40) $ (0.46) $ (0.44) Weighted average shares outstanding: Basic and diluted...................... 14,334 14,069 14,069 14,069
57 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is incorporated by reference to the Company's definitive Proxy Statement prepared with respect to the Annual Meeting of Stockholders to be held on May 11, 2001. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to the Company's definitive Proxy Statement prepared with respect to the Annual Meeting of Stockholders to be held on May 11, 2001. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference to the Company's definitive Proxy Statement prepared with respect to the Annual Meeting of Stockholders to be held on May 11, 2001. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to the Company's definitive Proxy Statement prepared with respect to the Annual Meeting of Stockholders to be held on May 11, 2001. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statement, Financial Statement Schedules and Exhibits 1. FINANCIAL STATEMENTS
PAGE -------- Report of KPMG LLP, Independent Auditors.................... 33 Consolidated Balance Sheets as of December 31, 1999 and 2000...................................................... 34 Consolidated Statements of Operations for the years ended December 31, 1998, 1999 and 2000.......................... 35 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1999 and 2000.......................... 36 Consolidated Statement of Stockholders' Equity (Deficiency).............................................. 37 Notes to Consolidated Financial Statements.................. 38
2. FINANCIAL STATEMENT SCHEDULES Schedule II--Valuation and Qualifying Accounts 58 3. EXHIBITS All Exhibits listed below are filed with this Annual Report on Form 10-K unless specifically stated to be incorporated by reference to other documents previously filed with the Securities and Exchange Commission.
EXHIBIT NO. DESCRIPTION OF EXHIBITS - --------------------- ----------------------- 3.1 Form of Amended and Restated Certificate of Incorporation of Big City Radio, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 (File No. 333-36449)). 3.2 Form of Amended and Restated Bylaws of Big City Radio, Inc. (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1 (File No. 333-36449)). 4.1 Specimen Class A Common Stock Certificate of Big City Radio, Inc. (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1 (File No. 333-36449)). 4.2 Indenture, dated as of March 17, 1998, among the Company, the Subsidiary Guarantors named therein and First Trust National Association as Trustee (incorporated by reference to Exhibit 4.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 4.3 Form of 11 1/4% Senior Discount Note due 2005 (incorporated by reference to Exhibit 4.3 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 10.1 Big City Radio, Inc. 1997 Incentive Stock Plan (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1 (File No. 333-36449)). 10.2 Big City Radio, Inc. 1998 Incentive Stock Plan (incorporated by reference to Appendix A to the Company's Proxy Statement for the May 12, 1998 Annual Meeting (File No. 001-13715)). 10.3 Employment Agreement, between Big City Radio, Inc. and Michael Kakoyiannis (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-1 (File No. 333-36449)). 10.4 Form of Employment Agreement, between Big City Radio, Inc. and Paul R. Thomson (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-1 (File No. 333-36449)). 10.5 Form of Employment Agreement, between Big City Radio, Inc. and Steven G. Blatter (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1 (File No. 333-36449)). 10.6 Form of Employment Agreement, between Big City Radio, Inc. and Alan D. Kirschner (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1 (File No. 333-36449)). 10.7 Agreement and Plan of Merger, dated May 20, 1996, between Q Broadcasting, Inc. and Odyssey Communications, Inc. (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form S-1 (File No. 333-36449)). 10.8 Amended and Restated Credit Agreement between Big City Radio, Inc. and The Chase Manhattan Bank (incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-1 (File No. 333-36449)). 10.9 Form of Registration Rights Agreement between Big City Radio, Inc. and Michael Kakoyiannis (incorporated by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1 (File No. 333-36449)). 10.10 Form of Registration Rights Agreement between Big City Radio, Inc., Stuart Subotnick and
59
EXHIBIT NO. DESCRIPTION OF EXHIBITS - --------------------- ----------------------- Anita Subotnick (incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1 (File No. 333-36449)). 10.11 Second Amended and Restated Credit Agreement, dated as of March 17, 1998, among the Company, the Subsidiary Guarantors named therein, the lenders named therein and The Chase Manhattan Bank (incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 10.12 Purchase Agreement, dated March 12, 1998, among the Company, the Subsidiary Guarantors named therein and Chase Securities, Inc., Donaldson, Lufkin & Jenrette Securities Corporation, BT Alex Brown Incorporated and ING Barings (U.S.) Securities, Inc. as initial purchasers (incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 10.13 Exchange and Registration Rights Agreement, dated as of March 17, 1998, among the Company, the Subsidiary Guarantors named therein and Chase Securities Inc., Donaldson, Lufkin & Jenrette Securities Corporation, BT Alex Brown Incorporated and ING Barings (U.S.) Securities, Inc. as initial purchasers (incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 10.14 Asset Purchase Agreement, dated April 20, 1998, between the Company and Darrel Peters Productions, Inc. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on October 14, 1998). 10.15 Trade Agreement, dated April 20, 1998, between the Company and Darrel Peters Productions, Inc. (incorporated by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K filed on October 14, 1998). 21.1 List of Subsidiaries of Big City Radio, Inc. (incorporated by reference to Exhibit 21.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 24.1 Power of Attorney (contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 27.1 Financial Data Schedule.
(b) Reports on Form 8-K: During the period from October 1, 2000 to December 31, 2000, the Company did not file any reports on Form 8-K. As of the date of the filing of this Annual Report on Form 10-K no proxy materials have been furnished to security holders. Copies of all proxy materials will be sent to the Commission in compliance with its rules. 60 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in East Rutherford, New Jersey, on this 30th day of March, 2000. BIG CITY RADIO, INC. By: /s/ PAUL THOMSON ----------------------------------------- Name: Paul Thomson Title: Vice President, Chief Financial Officer and Treasurer
We, the undersigned officers and directors of Big City Radio, Inc., hereby severally constitute David A. Persing, Silvia Kessel, Paul R. Thomson and Charles M. Fernandez, and each of them singly, our true and lawful attorneys with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below, any and all reports (including any amendments thereto), with all exhibits thereto and any and all documents in connection therewith, and generally do all such things in our name and on our behalf in such capacities to enable Big City Radio, Inc. to comply with the applicable provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities Exchange Commission, and we hereby ratify and confirm our signatures as they may be signed by our said attorneys, or either of them, to any and all such reports (including any amendments thereto) and other documents in connection therewith. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ STUART SUBOTNICK ------------------------------------------- Chairman of the Board of March 30, 2001 Stuart Subotnick Directors /s/ CHARLES M. FERNANDEZ ------------------------------------------- President, Chief Executive March 30, 2001 Charles M. Fernandez Officer and Director Vice President, Chief /s/ PAUL R. THOMSON Financial Officer and ------------------------------------------- Treasurer (Principal March 30, 2001 Paul R. Thomson Financial and Accounting Officer) /s/ ANITA SUBOTNICK ------------------------------------------- Director March 30, 2001 Anita Subotnick
61
NAME TITLE DATE ---- ----- ---- /s/ SILVIA KESSEL ------------------------------------------- Executive Vice President March 30, 2001 Silvia Kessel and Director /s/ DAVID A. PERSING Executive Vice President, ------------------------------------------- General Counsel, March 30, 2001 David A. Persing Secretary and Director /s/ LEONARD L. WHITE ------------------------------------------- Director March 30, 2001 Leonard L. White /s/ MICHAEL H. BOYER ------------------------------------------- Director March 30, 2001 Michael H. Boyer
62 SCHEDULE II BIG CITY RADIO, INC. VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGED BALANCE AT BEGINNING TO COSTS AND OTHER DEDUCTIONS/ END OF PERIOD PURCHASES CHARGES WRITE-OFFS OF PERIOD ---------- ------------ --------- ----------- ---------- Allowances for doubtful accounts, etc. (deducted from current receivables): Year ended December 31, 1998.............. $213,000 $138,000 $ -- $(232,000) $119,000 Year ended December 31, 1999.............. $119,000 $241,000 $ -- $(125,000) $235,000 Year ended December 31, 2000.............. $235,000 $796,000 $ -- $(693,000) $338,000
63 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBITS - --------------------- ----------------------- 3.1 Form of Amended and Restated Certificate of Incorporation of Big City Radio, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 (File No. 333-36449)). 3.2 Form of Amended and Restated Bylaws of Big City Radio, Inc. (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1 (File No. 333-36449)). 4.1 Specimen Class A Common Stock Certificate of Big City Radio, Inc. (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1 (File No. 333-36449)). 4.2 Indenture, dated as of March 17, 1998, among the Company, the Subsidiary Guarantors named therein and First Trust National Association as Trustee (incorporated by reference to Exhibit 4.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 4.3 Form of 11 1/4% Senior Discount Note due 2005 (incorporated by reference to Exhibit 4.3 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 10.1 Big City Radio, Inc. 1997 Incentive Stock Plan (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1 (File No. 333-36449)). 10.2 Big City Radio, Inc. 1998 Incentive Stock Plan (incorporated by reference to Appendix A to the Company's Proxy Statement for the May 12, 1998 Annual Meeting (File No. 001-13715)). 10.3 Employment Agreement, between Big City Radio, Inc. and Michael Kakoyiannis (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-1 (File No. 333-36449)). 10.4 Form of Employment Agreement, between Big City Radio, Inc. and Paul R. Thomson (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-1 (File No. 333-36449)). 10.5 Form of Employment Agreement, between Big City Radio, Inc. and Steven G. Blatter (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1 (File No. 333-36449)). 10.6 Form of Employment Agreement, between Big City Radio, Inc. and Alan D. Kirschner (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1 (File No. 333-36449)). 10.7 Agreement and Plan of Merger, dated May 20, 1996, between Q Broadcasting, Inc. and Odyssey Communications, Inc. (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form S-1 (File No. 333-36449)). 10.8 Amended and Restated Credit Agreement between Big City Radio, Inc. and The Chase Manhattan Bank (incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-1 (File No. 333-36449)). 10.9 Form of Registration Rights Agreement between Big City Radio, Inc. and Michael Kakoyiannis (incorporated by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1 (File No. 333-36449)). 10.10 Form of Registration Rights Agreement between Big City Radio, Inc., Stuart Subotnick and Anita Subotnick (incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1 (File No. 333-36449)). 10.11 Second Amended and Restated Credit Agreement, dated as of March 17, 1998, among the Company, the Subsidiary Guarantors named therein, the lenders named therein and The Chase Manhattan Bank (incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997).
64
EXHIBIT NO. DESCRIPTION OF EXHIBITS - --------------------- ----------------------- 10.12 Purchase Agreement, dated March 12, 1998, among the Company, the Subsidiary Guarantors named therein and Chase Securities, Inc., Donaldson, Lufkin & Jenrette Securities Corporation, BT Alex Brown Incorporated and ING Barings (U.S.) Securities, Inc. as initial purchasers (incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 10.13 Exchange and Registration Rights Agreement, dated as of March 17, 1998, among the Company, the Subsidiary Guarantors named therein and Chase Securities Inc., Donaldson, Lufkin & Jenrette Securities Corporation, BT Alex Brown Incorporated and ING Barings (U.S.) Securities, Inc. as initial purchasers (incorporated by reference to Exhibit 10.12 to the Company's annual Report on Form 10-K for the fiscal year ended December 31, 1997). 10.14 Asset Purchase Agreement, dated April 20, 1998, between the Company and Darrel Peters Productions, Inc. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on October 14, 1998). 10.15 Trade Agreement, dated April 20, 1998, between the Company and Darrel Peters Productions, Inc. (incorporated by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K filed on October 14, 1998). 21.1 List of Subsidiaries of Big City Radio, Inc. (incorporated by reference to Exhibit 21.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 24.1 Power of Attorney (contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000).
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