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K & W LOGO
Exhibit 99(b)
TREASURE RADIO ASSOCIATES
LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1996 AND 1995
(See Independent Auditors' Report)
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K & W LOGO
INDEPENDENT AUDITORS' REPORT
Partners
Treasure Radio Associates
Limited Partnership
Cleveland, Ohio
We have audited the accompanying balance sheets of Treasure Radio Associates
Limited Partnership as of November 30, 1996 and 1995 and the related statements
of income, partners' deficit, and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those 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 financial statements referred to above present fairly, in
all material respects, the financial position of Treasure Radio Associates
Limited Partnership as of November 30, 1996 and 1995, and the results of its
operations and cash flows for the years then ended, in conformity with generally
accepted accounting principles.
/s/ Kopperman & Wolf Co.
January 9, 1997
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K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
BALANCE SHEET
NOVEMBER 30, 1996 AND 1995
1996 1995
------------ -----------
ASSETS
CURRENT ASSETS (Note 5)
Cash and cash equivalents............................................. $ 233,827 $ 332,174
Accounts receivable, net of allowance for doubtful accounts of
$15,000 for 1996 and 1995............................................ 265,353 257,909
Investments........................................................... 345,308 0
Prepaid expenses...................................................... 13,234 6,943
------------ -----------
TOTAL CURRENT ASSETS............................................... 857,722 597,026
PROPERTY AND EQUIPMENT--AT COST (Notes 3 and 5)
Land.................................................................. 160,713 160,713
Office furniture and equipment........................................ 316,017 303,441
Technical equipment................................................... 917,926 914,096
Buildings and antenna systems......................................... 1,265,008 1,246,781
Music, records and tapes.............................................. 295,116 295,116
Vehicles.............................................................. 15,421 15,421
------------ -----------
2,970,201 2,935,568
Less accumulated depreciation......................................... 2,020,508 1,855,542
------------ -----------
949,693 1,080,026
OTHER ASSETS (Note 5)
Radio station licenses, call letters and goodwill..................... 323,336 354,175
Loan fees............................................................. 48,981 29,845
------------ -----------
372,317 384,020
------------ -----------
$2,179,732 $2,061,072
============ ===========
See Notes to the Financial Statements
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K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
BALANCE SHEET (CONTINUED)
NOVEMBER 30, 1996 AND 1995
1996 1995
------------- -------------
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITES
Accounts payable--trade......................................... $ 11,409 $ 27,240
Accrued payroll and related taxes............................... 85,673 65,689
Current portion of long-term liabilities (Note 5)............... 343,822 241,495
Accrued interest................................................ 40,530 60,421
Advance payable--Interstate Management Consultants, Inc.
(Note 8)....................................................... 15,670 15,670
Accrued management fee (Note 8)................................. 39,900 39,900
Other accrued expenses.......................................... 29,078 13,183
------------- -------------
TOTAL CURRENT LIABILITIES.................................... 566,082 463,598
LONG-TERM LIABILITIES, Net of Current Portion (Note 5) .......... 2,816,463 3,151,566
COMMITMENTS AND CONTINGENCIES (Notes 3, 4, 5, 6 and 10)
PARTNERS' DEFICIT................................................ (1,202,813) (1,554,092)
------------- -------------
$ 2,179,732 $ 2,061,072
============= =============
See Notes to the Financial Statements
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K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' DEFICIT
YEARS ENDED NOVEMBER 30, 1996 AND 1995
1996 1995
-------------- --------------
Balance, Beginning $(1,554,092) $(1,689,791)
Net Income 351,279 135,699
-------------- --------------
Balance, Ending $(1,202,813) $(1,554,092)
============== ==============
See Notes to the Financial Statements
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K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF INCOME
YEARS ENDED NOVEMBER 30, 1996 AND 1995
1996 1995
------------ ------------
BROADCAST REVENUES, NET OF AGENCY COMMISSIONS $2,256,075 $1,934,983
OPERATING EXPENSES
Administrative 450,466 395,120
Program 425,053 409,925
Sales 468,572 388,660
Technical 53,734 58,403
------------ ------------
Total Operating Expenses 1,397,825 1,252,108
------------ ------------
Operating Income 858,250 682,875
OTHER INCOME
Rental (note 6) 4,968 3,196
Miscellaneous 10,810 7,403
------------ ------------
15,778 10,599
OTHER EXPENSES
Interest 261,222 304,363
Depreciation 164,966 165,688
Amortization 66,561 57,724
Management fee (note 8) 30,000 30,000
------------ ------------
522,749 557,775
------------ ------------
NET INCOME $ 351,279 $ 135,699
============ ============
See Notes to the Financial Statements
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K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
YEARS ENDED NOVEMBER 30, 1996 AND 1995
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $2,158,769 $1,839,543
Cash paid to employees (771,953) (688,963)
Cash paid for services and supplies (552,253) (502,524)
Interest paid (280,914) (275,995)
Rent and interest received 15,579 5,974
------------ ------------
Net Cash Provided by Operating Activities 569,228 378,035
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of investments (455,308) 0
Proceeds from redemption of investments 110,000 0
Payments for purchases of property and equipment (24,370) (13,426)
------------ ------------
Net Cash Used by Investing Activities (369,678) (13,426)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term liabilities - net (243,039) (179,467)
Payments for loan refinancing (54,858) 0
------------ ------------
Net Cash Used by Financing Activities (297,897) (179,467)
------------ ------------
(Decrease) Increase in Cash (98,347) 185,142
Cash and Cash Equivalents, Beginning 332,174 147,032
------------ ------------
Cash and Cash Equivalents, Ending $ 233,827 $ 332,174
============ ============
(Continued)
See Notes to the Financial Statements
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K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1996 AND 1995
1996 1995
---------- ----------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net Income $351,279 $135,699
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 164,966 165,688
Amortization 66,561 57,724
Barter transactions (595) 2,419
Changes in assets and liabilities:
Increase in accounts receivable (6,849) (36,548)
(Increase) decrease in prepaid expenses (6,291) 5,551
(Decrease) increase in accounts payable (15,831) 1,744
Increase in accrued payroll and related
taxes 19,984 18,366
(Decrease) increase in accrued interest (19,891) 28,368
Increase (decrease) in other accrued
expenses 15,895 (976)
---------- ----------
Net Cash Provided by Operations $569,228 $378,035
========== ==========
OTHER TRANSACTIONS NOT AFFECTING CASH:
Revenues recognized from barter activities $ 90,457 $ 64,697
========== ==========
Expenses recognized from barter activities $ 89,862 $ 67,116
========== ==========
Assets acquired from barter activity $ 0 $ 5,448
========== ==========
Decrease in barter receivables $ (595) $ (2,419)
========== ==========
Assets acquired under capital lease $ 10,263 $ 0
========== ==========
See Notes to the Financial Statements
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K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1996 AND 1995
NOTE 1--NATURE OF OPERATIONS
Treasure Radio Associates Limited Partnership (the Partnership) was organized
as an Ohio limited partnership on January 5, 1987, with Treasure Radio, Inc. as
its general partner. The Partnership operates both an AM radio station, WMAN,
and an FM radio station, WYHT, in Mansfield, Ohio.
WYHT-FM and WMAN-AM are currently operating under licenses from the Federal
Communications Commission that must be renewed prior to October 1, 2003.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Partnership are as follows:
Cash and Cash Equivalents--Included in cash and cash equivalents in 1995 is a
certificate of deposit with a maturity of less than three months. In 1996, a
highly liquid money market fund is also included in cash and cash equivalents.
Accounts Receivable and Bad Debts--Provisions for bad debts on accounts
receivable are made in amounts required to maintain an adequate allowance to
cover potential losses. Accounts determined to be uncollectible during the year
are charged against this allowance or directly to bad debt expense in a manner
to maintain an adequate allowance. Bad debt expense was $23,932 and $9,814 for
the years ended November 30, 1996 and 1995, respectively.
Investments--Investments consist of three United States Treasury Notes
maturing in February, April and August 1997. Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Debt and Equity Securities,";
requires that these investments be recorded at market value; however, the
difference between the cost and market value of these investments is immaterial.
Depreciation--Depreciation of property and equipment is computed on the
straight-line method at rates based on the expected useful lives of the assets,
as follows:
ASSETS LIFE
- ---------------------------------- ------------
Office furniture and equipment 5 years
Technical equipment 10 years
Buildings and antenna systems 20 years
Music, records and tapes 5 years
Vehicles 3 years
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K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1996 AND 1995
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Amortization--Amortization of other assets is computed on the straight-line
method at appropriate rates, based on the stated or expected lives of the
related assets, as follows:
OTHER ASSETS LIFE
- ------------------------------------------------ ------------
Radio station licenses, call letters and goodwill 20 years
Loan fees 7 years
Barter Contracts--The Partnership provides commercial air time in exchange
for goods and services. All transactions are recorded based on the fair market
value of the goods and services received. Revenue is recognized when the
advertising is broadcast and the value of the goods and services is recorded
when they are received or used.
Taxes on Income--The individual partners are required to report their share
of the Partnership's taxable income or loss on their respective tax returns.
Therefore, no provision for taxes on income is made in the accompanying
financial statements (Note 7).
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.
NOTE 3--ASSETS ACQUIRED BY CAPITAL LEASE
The Partnership leases various assets that have been capitalized in
accordance with Financial Accounting Standards Board Statement No. 13 (Note 5).
Following is a schedule of the assets acquired under capital leases which are
included under property and equipment on the balance sheet.
1996 1995
---------- ---------
Office equipment $ 19,995 $ 9,732
Technical equipment 19,096 19,096
Buildings and antennas 384,465 384,465
---------- ---------
423,556 413,293
Less accumulated depreciation 192,435 168,330
---------- ---------
$231,121 $244,963
========== =========
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K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1996 AND 1995
NOTE 4--COVENANTS NOT TO COMPETE
As part of the purchase agreements for the radio stations, the Partnership
agreed to make specified future payments to the sellers in return for their
covenants not to compete. These payments were discounted at the Partnership's
incremental borrowing rate to determine the values of the intangible assets and
the related liabilities (Note 5) that were recorded on the balance sheet.
Both of the covenants were restructured during the year ended November 30,
1993. One of the covenants not to compete had an original term of five years
which expired May 8, 1992. The remaining unpaid obligation under this
non-compete agreement has been amended to postpone the quarterly installments
for a period of four years. The quarterly payments will resume on July 1, 1997
and continue through July, 2001 (Note 5). The other covenant not to compete had
a term of seven years which expired June 16, 1994. As discussed in Note 5,
modifications have been made to extend installment payments. The monthly
payments for the period June 20, 1993 through May 20, 1997 were reduced to
$1,667 and the final payment, due June 16, 1994, was replaced by 48 monthly
installments of $3,092.
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K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1996 AND 1995
NOTE 5--LONG-TERM LIABILITIES
Long term debt consists of a note payable to Star Bank, capital leases,
covenants and management fees (Note 9). The note payable to Star Bank is the
result of a refinancing of the Partnership's previous loan agreement with Bank
of America during the year ended November 30, 1996. Following is a description
of the Star Bank note payable, in accordance with the terms of the agreement
dated May 13, 1996:
The Star Bank note payable, initially amounting to $2,350,000, is an
eighty-four month term loan with payments commencing July 1, 1996 and ending
June 1, 2003. Monthly principal payments are due in the amount of $25,000 from
July 1, 1996 through June 1, 1999, $29,167 from July 1, 1999 through June 1,
2002 and $33,333 from July 1, 2002 through May 1, 2003. All remaining principal,
along with any accrued interest, is due June 1, 2003.
Interest is payable monthly on the outstanding loan balance at a rate of
9.05% per annum until May, 2000. At that time, the Partnership will be able to
select either the bank's "Prime Based Rate" or "Cost of Funds
Based Rate" on which the remaining interest payments will be based.
The Star Bank loan agreement contains various loan covenants including
assurance of the maintenance and continuance of the business, maintenance of
various financial ratios, reporting requirements and limitations on loans,
investments, partner distributions, capital expenditures, lease obligations and
management fees. The loan is collateralized by essentially all assets of the
Partnership and each limited partner's interest in the Partnership and is
guaranteed by the general partner of the Partnership (Note 8).
If prepaid, this loan is subject to a fee equal to the difference between the
net present value of the prepaid amount, including interest, and the principal
amount of the prepayment on the date of payment.
Following is a schedule of long-term debt:
1996 1995
------------ -----------
Star Bank $2,225,000 $ 0
Bank of America--paid in full in May,
1996 with proceeds from Star Bank loan 0 2,418,314
Richland, Inc.--payments due under
covenant not to compete (Note 4);
effective interest rate 2.41%; per
modified agreement, monthly payments
of $1,667 beginning June 20, 1993
through May 20, 1997, and for the
period June 20, 1997 through May 20,
2001, monthly payments $3,092;
subordinated to the Star Bank debt 150,936 167,087
Capital Lease Obligation--Madison
Leasing--incurred in connection with
the acquisition of equipment;
effective interest rate at November
30, 1996 was 16.33%; payable in
monthly payments of $251, including
interest through February, 2001;
collateral, equipment 9,177 0
------------ -----------
Balance Carried Forward $2,385,113 $2,585,401
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K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1996 AND 1995
NOTE 5--LONG-TERM LIABILITIES (CONTINUED)
1996 1995
------------ ------------
Balance Brought Forward $2,385,113 $2,585,401
Greater Mansfield Broadcasting Company--payments under covenant not
to compete (Note 4); effective interest rate, 3.18%; per modified
agreement, payments deferred until July 1, 1997 at which time
quarterly payments of $6,250 will be due for a period of four
years; secured by property and equipment; subordinated to the Star
Bank debt 91,362 88,507
Capital Lease Obligation--payments due under a capital lease of
transmitter sites; discounted at the Partnership's incremental
borrowing rate at date of acquisition, yielding an effective
interest rate of 7.045%; payable in monthly payments of $2,500
through May, 1997, monthly payments of $2,782 from June 7, 1997
through May 7, 2001 when a final payment of $265,000 is due 319,948 327,130
Capital Lease Obligation--Fuerst & Co.--incurred in connection with
the acquisition of equipment; effective interest rate at November
30, 1996 and 1995 was 14.18%; payable in monthly payments of $141,
including interest through June of 1997; collateral, equipment 942 2,387
Loan Facility Fee Payable--Bank of America--$75,000 fee payable at
maturity on the Bank of America loan (September 30, 1997); if loan
were prepaid by December 31, 1995, the fee due was $25,000; if loan
were prepaid by December 31, 1996, the fee due was $50,000; this
loan was prepaid in May, 1996, at which time the Partnership paid a
negotiated fee of $25,000 0 25,000
Interstate Management Consultants, Inc. (Note 8)--payments due under
a promissory note; interest rate, 10%; interest is due annually on
February 1st beginning in 1989; subordinated to the Star Bank debt 50,000 50,000
Capital Lease Obligation--Reserve Management, Inc.--incurred in
connection with the acquisition of equipment; effective interest
rate at November 30, 1996 and 1995 was 14.9%; payable in monthly
payments of $189, including interest through March, 1998;
collateral, equipment 2,720 4,436
------------ ------------
Balance Carried Forward $2,850,085 $3,082,861
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K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1996 AND 1995
NOTE 5--LONG-TERM LIABILITIES (CONTINUED)
1996 1995
------------ ------------
Balance Brought Forward $2,850,085 $3,082,861
Interstate Management Consultants, Inc. (Note 8)--payments due
for unpaid management fees, reclassified to non-current since
debt is subordinated to the Star Bank debt; non-interest
bearing; unsecured 310,200 310,200
------------ ------------
Total Long-Term Liabilities 3,160,285 3,393,061
Less Current Portion 343,822 241,495
------------ ------------
Long-Term Liabilities, Net of Current Portion $2,816,463 $3,151,566
============ ============
Following is a schedule of the maturities of long-term liabilities, including
capital lease obligations as of November 30, 1996:
PRINCIPAL
YEARS ENDING PAYMENTS FUTURE MINIMUM MANAGEMENT
NOVEMBER 30, ON NOTES LEASE PAYMENTS FEES
- -------------------------------------- ------------ -------------- ------------
1997 $ 327,000 $ 37,910 $ 0
1998 356,870 37,154 0
1999 379,268 36,401 0
2000 410,044 36,401 0
2001 389,959 280,018 0
Thereafter 654,157 0 310,200
------------ -------------- ------------
427,884
Less amounts representing interest and
maintenance fees 95,097
--------------
Total notes payable $2,517,298
============
Present value of net lease payments $332,787
==============
Accrued management fees $310,200
============
Total Long-Term Liabilities $3,160,285
============
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K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1996 AND 1995
NOTE 6--COMMITMENTS AND CONTINGENCIES
As part of the original purchase on May 8, 1987, the Partnership also
acquired the leases of two houses. As of November 30, 1996, both of these houses
are being subleased under month-to-month leases. The net rental income for 1996
and 1995 under these leases amounted to $4,967 and $3,196, respectively. There
are no future minimum rents due under these arrangements.
NOTE 7--TAXABLE INCOME
The individual partners are required to report their share of the
Partnership's taxable income on their respective tax returns. Following is a
reconciliation of the Partnership's net income for financial reporting purposes
to its taxable income for 1996 and 1995:
1996 1995
---------- ----------
Net Income for Financial Reporting $351,279 $135,699
Permanent Differences:
Non-deductible amortization 30,838 30,838
Other 3,777 2,878
---------- ----------
34,615 33,716
Timing Differences:
Depreciation differences 84,910 81,575
Real estate taxes accrued but not paid 200 100
Accrued vacation pay 1,704 (1,471)
Allowance for doubtful accounts 0 2,000
Accrued compensation 0 (7,360)
Accrued interest 5,000 5,000
Accrued commissions 1,184 (471)
Capital lease differences (895) 0
---------- ----------
92,103 79,373
---------- ----------
Taxable Income $477,997 $248,788
========== ==========
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K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1996 AND 1995
NOTE 8--RELATED PARTY TRANSACTIONS
Treasure Radio, Inc. is the sole general partner of the Partnership, and has
a 60.5% interest in the Partnership. Treasure Radio, Inc. is a wholly-owned
subsidiary of Interstate Management Consultants, Inc. (Interstate).
Interstate provides management services to the Partnership. In return, the
Partnership has agreed to pay a management fee to Interstate equal to 15% of the
Partnership's net income before the management fee, depreciation, amortization,
interest expense and income taxes. The parties, in order to comply with
stipulations of the bank agreements, agreed to a reduced management fee of
$30,000 for 1996 and 1995 which was paid in each of those years.
Interstate also paid organization and start-up costs amounting to $57,835 on
behalf of the Partnership. During 1987, the Partnership repaid $42,165 leaving a
balance due to Interstate of $15,670.
The sole shareholder of Interstate is an attorney who is associated with a
law firm that provides legal services to the Partnership. Amounts incurred for
services provided by attorneys of this law firm, other than the sole shareholder
(for whose services no charge was made), for 1996 and 1995 totaled $17,688 and
$4,361, respectively. Of the $17,688 incurred in 1996, $13,182 was capitalized
and is being amortized in connection with the refinancing of the Partnership's
loan agreement (Note 5).
The sole shareholder of Interstate is also the owner of another company with
which the Partnership has a capital lease agreement. This lease agreement has a
term of five years, and expires in 1997 (Note 5).
During the year ended November 30, 1988, Interstate loaned the Partnership an
additional $50,000 (Note 5).
NOTE 9--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value under Statement of Financial Accounting Standards No. 107, Disclosures
about Fair Value of Financial Instruments.
CASH, ACCOUNTS RECEIVABLE, INVESTMENTS AND PREPAID EXPENSES--The carrying
amount approximates fair value because of the short maturity of those
instruments.
ADVANCE PAYABLE, ACCOUNTS PAYABLE AND OTHER ACCRUED EXPENSES--The carrying
amount approximates fair value because of the short maturity of those
instruments.
LOAN PAYABLE, BANK--the carrying amount approximates fair value because the
interest rate charged approximates current market rates.
NOTE PAYABLE INTERSTATE MANAGEMENT CONSULTANTS, INC.--The carrying amount
approximates fair value because the interest rate being charged approximates the
Partnership's incremental borrowing rate.
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K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1996 AND 1995
NOTE 9--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
COVENANTS NOT TO COMPETE--The carrying amounts of the Richland Incorporated
and Greater Mansfield Broadcasting Company covenants not to compete do not
approximate fair value because the interest rates implicit in these agreements
are 2.41% and 3.18%, respectively (Note 5). In order to estimate the fair value
of these covenants, the expected future cash flows have been discounted at the
Partnership's incremental borrowing rate.
The fair values of the covenants not to compete which do not approximate
carrying value are as follows:
NOVEMBER 30,
1996
---------------------
CARRYING FAIR
AMOUNT VALUE
---------- ----------
Payments due under covenants not to compete:
Richland, Inc. $150,936 $129,080
Greater Mansfield Broadcasting Company 91,362 81,722
---------- ----------
$242,298 $210,802
========== ==========
It is not practicable to estimate the fair value of a liability representing
unpaid management fees in the amount of $310,200. This liability, as discussed
in Note 5, is non-interest bearing and unsecured. The liability is also
subordinate to the Star Bank loan agreement and would probably be subordinate to
any future senior debt. Because of this subordination, it is impracticable to
estimate a future repayment schedule and therefore a term over which future cash
flows can be discounted.
NOTE 10--SALE OF BUSINESS
On January 23, 1997, the Partnership entered into an Asset Purchase Agreement
to sell substantially all of the assets of the radio stations, excluding cash
and accounts receivable. The sales price is $7,350,000, subject to customary
contingencies and post closing adjustments. An escrow deposit of $400,000 was
made by the buyer upon execution of the Agreement. Closing of the sale is
contingent upon Federal Communications Commission approval. The balance of the
purchase price is due at closing, except for a $200,000 eighteen month holdback.
Concurrent with the closing, non-compete agreements will be executed by
Treasure Radio, Inc. (general partner) and the sole shareholder of Interstate
Management, Inc. (the owner of Treasure Radio, Inc.).
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Treasure Radio Associates Limited Partnership
Condensed Balance Sheets
May 31, 1997 and 1996
(Unaudited)
1997 1996
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 200,765 $ 387,986
Accounts receivable, net of allowance for doubtful accounts 287,735 316,410
Investments 490,529 --
Prepaid expenses and other current assets 3,348 7,468
----------- -----------
Total current assets 982,377 711,864
----------- -----------
Property and equipment 868,321 1,010,401
----------- -----------
Other assets:
Radio station, licenses, call letters and goodwill 307,918 338,755
Loan fees 45,050 35,499
----------- -----------
352,968 374,254
----------- -----------
$ 2,203,666 $ 2,096,519
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities:
Accounts payable - trade $ 13,252 $ 43,570
Accrued payroll and related taxes 82,587 68,997
Current portion of long-term liabilities 300,000 300,000
Accrued interest 26,250 33,485
Other current liabilities 43,259 56,219
----------- -----------
Total current liabilities 465,348 502,271
Long-term liabilities, net of current portion 2,695,636 2,993,887
Partners' deficit (957,318) (1,399,639)
----------- -----------
$ 2,203,666 $ 2,096,519
=========== ===========
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Treasure Radio Associates Limited Partnership
Condensed Statements of Operations
Six Months Ended May 31, 1997 and 1996
(Unaudited)
1997 1996
---- ----
Net broadcasting revenues $ 1,160,579 $ 1,059,546
----------- -----------
Operating expenses:
Programming and technical expenses 263,868 251,212
Selling, general and administrative expenses 450,148 398,075
Depreciation and amortization 102,449 111,061
Corporate expenses 15,000 15,000
----------- -----------
Total operating expenses 831,465 775,348
----------- -----------
Income from operations 329,114 284,198
Interest expense (98,096) (135,698)
Other income 14,477 5,953
----------- -----------
Income before taxes on income 245,495 154,453
Taxes on income -- --
----------- -----------
Net income $ 245,495 $ 154,453
=========== ===========
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Treasure Radio Associates Limited Partnership
Condensed Statements of Cash Flows
Six Months Ended May 31, 1997 and 1996
(Unaudited)
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 245,495 $ 154,453
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 102,449 111,061
Changes in assets and liabilities:
Increase in accounts receivable (22,382) (58,501)
Decrease (increase) in prepaid expenses 9,886 (525)
Increase in accounts payable 1,843 16,330
(Decrease) increase in accrued payroll and related taxes (3,086) 3,308
Decrease in accrued interest (14,280) (26,936)
Decrease in other current liabilities (41,389) (12,534)
--------- ---------
Net cash provided by operating activities 278,536 186,656
--------- ---------
Cash flows from investing activities:
Payments for purchases of investments (380,583) --
Proceeds from redemption of investments 235,362 --
Payments for purchases of property and equipment (1,728) (12,575)
--------- ---------
Net cash used in investing activities (146,949) (12,575)
--------- ---------
Cash flows from financing activities:
Principal payments on long-term liabilities (164,649) (99,174)
Payments for loan refinancing -- (19,095)
--------- ---------
Net cash used in financing activities (164,649) (118,269)
--------- ---------
(Decrease) increase in cash and cash equivalents (33,062) 55,812
Cash and cash equivalents, beginning 233,827 332,174
--------- ---------
Cash and cash equivalents, ending $ 200,765 $ 387,986
========= =========
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TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
NOTE TO INTERIM FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for completed financial
statements. In the opinion of management, the statements include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for the interim periods. The results of
operations for any interim period are not necessarily indicative of the results
for a full year.
It is suggested that these interim financial statements be read in
conjunction with the financial statements and notes thereto included in the
Treasure Radio Associates Limited Partnership's audited financial statements for
the fiscal years ended November 30, 1996 and 1995.
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