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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2001
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 000-27053
USA Radio Network, Inc.
(Exact name of small business issuer as specified in its
charter)
DELAWARE 52-2234827
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2290 Springlake Road, Suite 107, Dallas, Texas 75234
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 972.484.3900
Former name, former address and former fiscal year, if changed
since last report: N/A
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
At November 7, 2001, 13,516,720 shares of common stock were
outstanding.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [X]
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PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
USA Radio Network, Inc.
Balance Sheets as of September 30, 2001 (unaudited) and
December 31, 2000 ......................................... 2
Unaudited Statements of Operations for the Three Months
Ended September 30, 2001 and 2000.......................... 3
Unaudited Statements of Operations for the Nine Months
Ended September 30, 2001 and 2000.......................... 4
Unaudited Statements of Cash Flows for the Nine Months
Ended September 30, 2001 and 2000.......................... 5
Notes to Financial Statements................................ 6
1
USA Radio Network, Inc.
BALANCE SHEETS
ASSETS
CURRENT ASSETS September 30, December 31,
2001 2000
---------- ----------
(unaudited)
Cash.......................................... $ 14,154 $ 17,120
Accounts receivable, net of allowance for
doubtful accounts of $52,788
in 2001 and 2000........................... 523,310 470,308
Prepaid expenses.............................. 20,867 20,867
--------- -----------
Total current assets.................... 558,331 508,295
PROPERTY AND EQUIPMENT-AT COST
Equipment..................................... 576,083 574,033
Automobiles................................... 47,718 47,718
Furniture and fixtures........................ 23,906 18,952
Software...................................... 20,984 23,906
--------- -----------
664,609 668,691
Less accumulated depreciation................. (551,106) (498,545)
--------- -----------
166,064 117,585
--------- -----------
$ 675,916 $ 674,359
========= ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current maturities of long-term debt.......... $ 16,084 $ 22,083
Notes payable-bank............................ 125,000 125,000
Accounts payable and accrued liabilities...... 703,727 581,458
--------- -----------
Total current liabilities............. 844,811 728,541
LONG-TERM DEBT, net of current maturities..... 201,235 202,128
STOCKHOLDERS' DEFICIT
Common stock.................................. 2,673 2,673
Additional paid-in capital.................... 211,327 211,327
Accumulated deficit........................... (584,130) (470,310)
--------- -----------
Stockholders' deficit......................... (370,130) (256,310)
--------- -----------
$ 675,916 $ 674,359
========= ===========
See accompanying notes.
2
USA Radio Network, Inc.
STATEMENTS OF OPERATIONS
Three months ended September 30,
(unaudited)
2001 2000
------------- -----------
NET SALES...................................... $ 797,972 $ 797,822
OPERATING EXPENSES
Sales expenses.............................. 188,461 227,844
Programming and news service................ 294,709 250,483
Administrative and engineering.............. 339,323 369,226
Depreciation................................. 17,521 16,724
----------- -----------
840,014 864,277
----------- -----------
Operating loss................ (42,042) (66,455)
OTHER EXPENSE
Interest expense............................ (8,456) (10,107)
----------- -----------
Net loss...................... $ (50,498) $ (76,562)
=========== ===========
LOSS PER COMMON SHARE-BASIC AND DILUTED....... $ Nil $ (0.01)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING-
BASIC AND DILUTED .......................... 13,516,720 13,516,720
=========== ===========
See accompanying notes.
3
USA Radio Network Inc.
STATEMENTS OF OPERATIONS
Nine months ended September 30,
(unaudited)
2001 2000
---------- -------------
NET SALES.............................. $ 2,524,626 $ 2,705,688
OPERATING EXPENSES
Sales expenses....................... 631,050 684,914
Programming and news service......... 842,313 842,532
Administrative and engineering....... 1,083,196 1,271,319
Depreciation......................... 52,562 48,585
------------ -----------
2,609,121 2,847,350
------------ -----------
Operating loss................ (84,495) (141,662)
OTHER EXPENSE
Interest expense..................... (29,325) (29,642)
------------ -----------
Net loss...................... $ (113,820) $ (171,304)
============ ===========
LOSS PER COMMON SHARE-BASIC
AND DILUTED ........................ $ (0.01) $ (0.01)
============ ===========
WEIGHTED AVERAGE SHARES OUTSTANDING-
BASIC AND DILUTED ................... 13,516,720 13,516,720
============ ===========
See accompanying notes.
4
USA Radio Network, Inc.
STATEMENTS OF CASH FLOWS
Nine months ended September 30,
(unaudited)
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss........................................ $ (113,820) $(171,304)
Adjustments to reconcile net loss to net
net cash provided by operating activities
Depreciation and amortization................. 52,562 48,585
Changes in operating assets and liabilities
Accounts receivable............................. (53,002) 206,037
Prepaid expenses................................ - 10,739
Accounts payable and accrued liabilities........ 122,269 (57,550)
---------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES.................. 8,008 36,507
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment............. (4,083) (3,334)
---------- ---------
NET CASH USED IN
INVESTING ACTIVITIES............... (4,083) (3,334)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable..................... 10,000 42,000
Payments on notes payable....................... (16,891) (34,214)
---------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES................ (6,891) 7,786
----------- ---------
NET INCREASE (DECREASE) IN CASH...... (2,966) 40,959
CASH-BEGINNING OF PERIOD.......................... 17,120 9,225
---------- ---------
CASH-END OF PERIOD................................ $ 14,154 $ 50,184
========== =========
See accompanying notes.
5
USA Radio Network, Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
1. Basis of presentation
The accompanying unaudited financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America ("US GAAP") for
interim financial information and with the instructions to
Form 10-QSB and Item 310 of Regulation S-B. Accordingly,
they do not include all of the information and footnotes
required by US GAAP for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the
three or nine months ended September 30, 2001 are not
necessarily indicative of the results that might be expected
for the year ending December 31, 2001. For further
information, refer to the financial statements and footnotes
thereto included in the Company's annual report on Form 10-
KSB for the year ended December 31, 2000.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Except for the historical information contained herein, the
matters discussed below contain forward-looking statements which
involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements
of the company, or industry results, to be materially different
from any future results, performance or achievements expressed or
implied by such forward-looking statements. The company expressly
disclaims any obligation to update this information or publicly
release any revision or reflect events or circumstances after the
date of this report. Such factors include among others: our
ability to obtain additional capital to implement our business
plan; our history of losses and negative cash flow; our
dependence on the continued demand for radio airtime; our
potential inability to manage our airtime inventory; our
dependence on the continued popularity of our programs,
particularly "Point of View;" the need to maintain and expand our
affiliate base; business conditions in the radio industry
generally; the impact of market competitors; and such other
factors as are more fully described in our Form 10-KSB for the
year ended December 31,2000.
The Company
USA Radio Network, Inc. (formally known as USARadio.com,
Inc.) is a Delaware corporation with principal executive offices
located at 2290 Springlake Road, Suite 107, Dallas, Texas 75234.
The company's telephone number is 972.484.3900.
We held our Annual Meeting of Shareholders on July 6, 2001.
At this meeting, the stockholders approved both the election of
Robert Marlin Maddoux and Mark R. Maddoux as directors to serve a
one-year term ending with the 2002 Annual Meeting of
Stockholders, and an amendment to our Certificate of
Incorporation to change our name from "USARadio.com, Inc." to
"USA Radio Network, Inc."
An Information Statement, together with the company's Annual
Report for the year ended December 31, 2000, were sent to each of
the company's stockholders of record as of June 21, 2001 on June
22, 2001 describing in detail both the election of directors and
the proposed name change to be submitted to a vote of the
stockholders.
Overview
USA Radio Network, Inc. is a satellite-delivered radio
broadcast network that offers a broad line of programming content
to independent radio stations. Our programming includes news,
sports, music, and general interest talk programs. Our target
market consists of independent radio stations, both AM and FM,
that choose not to become affiliated with the 3 major radio
networks (ABC Radio, NBC, and CBS Radio Networks). As of
November 7, 2001, our network was comprised of approximately
1,200 affiliated radio stations across the nation, including
affiliates in 46 of the top 50 Dominant Market Areas (DMAs). Our
network includes affiliates in markets that represent
approximately 92% of the U.S. population. We simultaneously
broadcast select programming over the Internet.
We do not derive revenues from the sale of our programs to
affiliate stations. Instead, we barter with our affiliated radio
stations for commercial airtime which is exchanged for our
programming content. This commercial airtime is then resold to
advertisers with whom we have relationships. We derive additional
revenue, although to a much lesser extent, from the sale of our
programming to non-commercial radio stations and the rental of
time on our channels. We price our advertising time based on a
variety of factors including the time of day the advertisement
will air, the size of the potential listening audience, the
length of the ad and the number of times the advertisement will
run. Our revenues are recognized in the accounting period which
corresponds with the broadcast of the advertisement. Amounts
received in advance of a broadcast are recorded as deferred
revenue until the broadcast is aired. Our advertisers and
advertising agencies are generally billed monthly.
7
For the three months and nine months ended September 30,
2001, respectively, the following percentage of our revenues were
derived from the following sources:
% of Revenues % of Revenues
During Three During Nine
Months Ended Months Ended
September 30, September 30,
Revenue Source 2001 2001
------------------------- ------------- ------------
News and sports
programming........... 73% 73%
Talk programming........ 20% 20%
Satellite time.......... 4% 4%
Other revenue........... 3% 3%
------------- -------------
TOTAL 100% 100%
============== ==============
Other revenue is derived from a fee charged to non-
commercial radio stations unable to air commercial advertising
and a fee charged for syndicating services of select network
programming.
Our expenses are comprised of:
* sales expenses, which consists primarily of
compensation and related expenses for our sales and
marketing group, together with commission expense,
including commissions payable to sales staff;
* programming costs, which consists primarily of
compensation and related expenses for "on air"
personalities, production staff and related personnel
as well as the actual costs associated with developing
programming content;
* news services, which consists primarily of the variable
costs of independent reporters and operational expenses
including subscription fees to news services and
satellite time;
* administrative and engineering, which consists
primarily of compensation and related expenses for our
administrative, accounting and engineering staff,
occupancy costs and legal and consulting fees; and
* depreciation.
Three Months Ended September 30, 2001 Compared to Three Months
Ended September 30, 2000
Revenues. Our revenues remained flat at approximately
$798,000 for each of the three month periods ended September 30,
2000 and 2001.
Operating Expenses. Overall operating expenses decreased by
approximately $24,000, or approximately 3%, to $840,000 for the
three months ended September 30, 2001 from approximately $864,000
for the comparable period of 2000. This decrease resulted from
a decrease in administrative and engineering expense of
approximately $30,000 (approximately 8%) resulting from decreases
in compensation and related expense associated with a reduction
of employees and a decrease in sales expense of approximately
$39,000 (approximately 17%) due to decreased sales commissions
paid as a consequence of decreased revenue from available
inventory. The decreases in administrative and engineering
expenses and sales expenses were partially offset by an increase
in programming and news service expense of approximately $44,000
(approximately 18%) as a result of the addition of a new talk-
style program and an increase in news related costs due to the
events on September 11.
Income Tax Benefit. No income tax benefit was recorded for
the three months ended September 30, 2001, because, at that
date, realization of deferred tax assets is dependent on future
taxable income which is uncertain.
Net Loss. For the three months ended September 30, 2001,
our net loss was approximately $50,000 compared with a net loss
of approximately $77,000 for the three months ended September 30,
2000.
8
Nine Months Ended September 30, 2001 Compared to Nine Months
Ended September 30, 2000
Revenues. Our revenues decreased approximately $181,000, or
approximately 7%, to $2,525,000 for the nine months ended
September 30, 2001 from $2,706,000 for the nine months ended
September 30, 2000. This decrease in revenue was primarily
related to an decrease in the rate at which we sell our
commercial airtime.
Operating Expenses. Overall operating expenses decreased
by approximately $238,000, or approximately 8% to approximately
$2,609,000 for the nine months ended September 30, 2001 from
approximately $2,847,000 for the comparable period of 2000. This
decrease resulted primarily from a decrease in administrative and
engineering expenses of approximately $188,000 (approximately
15%) resulting from decreases in compensation and related expense
associated with a reduction of employees, and a decrease in sales
expense of approximately $54,000 (approximately 8%) due to
decreased sales commissions paid as a consequence of decreased
revenue from available inventory.
Income Tax Benefit. No income tax benefit was recorded for
the nine months ended September 30, 2000, because, at that date,
realization of deferred tax assets is dependent on future taxable
income which is uncertain.
Net Loss. For the nine months ended September 30, 2001, our
net loss was approximately $114,000 compared with a net loss of
approximately $171,000 for the nine months ended September 30,
2000.
Liquidity and Capital Resources
Since inception, we have financed our operations principally
internally. Such funds have historically been supplemented with
bank debt and stockholder loans. At September 30, 2001, we had a
working capital deficit of approximately $286,000 as compared
with a working capital deficit of approximately $220,000 at
December 31, 2000. Net cash provided by operating activities for
the nine months ended September 30, 2001 was approximately $8,000
and net cash provided by activities for the like period of 2000
was approximately $37,000 representing a decrease in the net cash
provided by operating activities of approximately $29,000 in the
2001 period. The decrease was due principally to the timing of
payments to vendors and receipt of accounts receivable collections,
which mitigated the cash impact of the net loss of approximately
$114,000 in the 2001 period.
As of September 30, 2001, certain of our vendors had granted
extended payment terms to us relating to an aggregate of
approximately $215,000 in payables. At December 31, 2000, we owed
approximately $225,000 under extended payment terms. Although we
expect that we will be able to remain current with each of these
vendors, including with respect to those portions for which we
have been granted extended payment terms, no assurances can be
made that we will be able to fulfill our obligations under these
terms. Failure to repay our obligations to these vendors
according to the arranged terms could have a material adverse
effect on our business, prospects, financial condition or results
of operations.
During the year ended December 31, 1999, Marlin Maddoux, our
Chief Executive Officer and President, advanced $80,000 to us. At
September 30, 2001, the outstanding amount of this advance was
$38,012. This advance bears interest at 10% per annum with a
maturity date of September 1, 2004. These funds were used by us
to acquire certain equipment and technology necessary in
connection with the upgrade of our command and control center.
Specifically, this equipment upgraded our satellite transmission
technology from analog to digital.
Mr. Marlin Maddoux also has advanced a total of $128,057 to
us as of September 30, 2001. This advance bears interest at 12%
per annum, with a maturity date of June 1, 2002. These funds were
used by us for operating and advertising expenses.
We maintain a credit facility with Bank of America. This
credit line is payable upon demand and borrowings are limited to
$100,000. Borrowings under this facility bear interest at prime
plus 1%, which was 7.0% at September 30, 2001. At September 30,
2001, our outstanding debt under the credit facility was
$88,000. The borrowings under this credit facility are
collateralized by our assets. We intend to pursue increasing
our line of credit with Bank of America during the remainder of
the year 2001.
In addition to the line of credit referenced above, we also
maintain an additional bank line with Bank of America. Borrowings
under this bank line are limited to $40,000 and bear interest at
prime plus 3.625%, which was 9.625% at September 30, 2001.
Borrowings under this bank line are also payable on demand.
At September 30, 2001, our outstanding debt under this facility
was $37,000.
9
Management believes that its available cash, together with
operating revenues and other available funds, will be adequate to
meet its operating requirements for the immediate term.
We are currently in the process of seeking additional
financing through the issuance of debt, equity, other securities
or a combination thereof. Although there can be no assurances
that any additional capital will be raised, any such financing
which involves the issuance of equity securities would result in
dilution to existing stockholders and the issuance of debt
securities would subject us to the risks associated therewith,
including the risks that interest rates may fluctuate and our
cash flows may be insufficient to pay interest and principal on
such indebtedness. There can be no assurances that we will be
able to obtain additional financing on terms which are acceptable
to us. Our inability to obtain additional acceptable financing
could have a significant negative impact on our operations or
growth plans.
10
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to, nor are our properties the subject
of, any pending legal proceedings and no such proceedings are
known to us to be threatened or contemplated against us.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) We held our Annual Meeting of Stockholders on July 6, 2001.
An Information Statement, together with the company's Annual
Report for the year ended December 31, 2000, were sent to each of
the company's stockholders of record as of June 21, 2001 on
June 22, 2000 describing in detail both the election of directors
and the proposed amendment to our Certificate of Incorporation to
change our name from "USARadio.com, Inc." to "USA Radio Network,
Inc.".
(b) The following two directors were elected to serve a one-year
term ending with the 2002 Annual Meeting of Stockholders:
* Robert Marlin Maddoux
* Mark R. Maddoux
(c) The two directors elected received the following votes:
Votes For Votes Withheld
---------- --------------
Robert Marlin Maddoux 13,136,720 -0-
Mark R. Maddoux 13,136,720 -0-
Our proposal to approve an amendment to our certificate
of incorporation to change our name to "USA Radio
Network, Inc." was approved. The votes were cast as
follows:
For 13,136,720
Against 0
Abstain 0
Broker nonvotes 0
(d) Not applicable.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on form 8-K
None
11
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on November __, 2001.
USA Radio Network, Inc.
By:/s/ MARK R. MADDOUX
--------------------------------
Mark R. Maddoux
Vice President and Chief
Financial Officer
12