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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended August 31, 2002 Commission File Number: 0-24075
NBG RADIO NETWORK, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 88-0362102
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
520 SW Sixth Avenue, Suite 750
Portland, Oregon 97204
(Address of principal executive offices) (Zip Code)
(503) 802-4624
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The registrant has one class of Common Stock with 14,585,651 shares
outstanding as of October 12, 2002.
Transitional Small Business Issuer Disclosure Format (check one):
Yes [ ] No [X].
PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
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NBG RADIO NETWORK, INC.
BALANCE SHEETS
ASSETS
------
August 31 August 31 November 30
(Unaudited) (Unaudited) (Audited)
------------- ------------- -------------
2002 2001 2001
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CURRENT ASSETS
Cash and cash equivalents $ 290,963 $ 399,623 $ 321,402
Receivables:
Accounts receivable, net of allowance for
doubtful accounts of $60,000 in 2002
and in 2001 3,440,489 4,467,040 3,945,803
Note receivable - 167,200 -
Related-party receivable 227,954 219,790 219,354
Barter exchange receivables - 102,054 -
Sales representation contract agreements, net of
amortization 123,888 497,776 402,637
Prepaid expenses and other current assets 45,295 261,399 31,148
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Total current assets 4,128,589 6,114,882 4,920,344
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PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 111,998 172,255 197,183
GOODWILL, net of amortization 1,261,728 5,074,893 2,911,187
INTANGIBLE ASSETS, net of amortization 8,795 1,446,202 957,093
OTHER ASSETS 115,000 145,000 137,500
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TOTAL ASSETS $ 5,626,110 $ 12,953,232 $ 9,123,307
============= ============= =============
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
----------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 1,581,314 $ 928,083 $ 1,438,382
Accrued liabilities 383,975 176,339 447,531
Barter exchange payables 21,091 - 29,339
Sales representation agreement liabilities 1,090,552 365,588 1,203,095
Current portion of long-term debt, net of discount 4,551,667 - 300,000
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Total current liabilities 7,628,599 1,470,010 3,418,347
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LONG-TERM DEBT - 4,121,667 3,929,167
STOCKHOLDERS' (DEFICIT) EQUITY
Preferred stock, $.001 par value, 5,000,000
authorized and unissued - - -
Common stock, $.001 par value; 50,000,000
common shares authorized 14,585,651,
14,385,651, and 14,385,651 common
shares issued and outstanding at August
31, 2002, August 31, 2001, and
November 30, 2001 respectively 14,586 14,386 14,386
Additional paid-in-capital 11,450,411 11,290,610 11,290,611
Retained deficit (13,248,224) (3,715,901) (9,306,807)
Stock subscription receivable (219,262) (227,540) (222,397)
------------- ------------- ------------
Total stockholders' (deficit) equity (2,002,489) 7,361,555 1,775,793
------------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
$ 5,626,110 $ 12,953,232 $ 9,123,307
============= ============= =============
See Accompanying Notes
NBG RADIO NETWORK, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, NINE MONTHS ENDED AUGUST 31,
(Unaudited) (Unaudited)
------------------------------------ ----------------------------------
2002 2001 2002 2001
-------------- -------------- -------------- --------------
REVENUES $ 2,682,001 $ 3,300,823 $ 8,436,974 $ 9,450,542
DIRECT COSTS 1,544,244 2,717,716 5,736,529 7,373,647
-------------- -------------- -------------- --------------
GROSS MARGIN 1,137,757 583,107 2,700,445 2,076,895
-------------- -------------- -------------- --------------
GENERAL AND ADMINISTRATIVE EXPENSES
Wages and employee benefits 390,925 632,030 1,240,909 1,751,274
Travel and entertainment 26,035 76,542 78,955 238,578
Consulting and professional 102,480 697,109 1,064,647 1,200,506
Advertising 25,738 26,081 44,139 43,956
Depreciation and amortization 404,422 410,756 1,165,220 625,920
Impairment of assets 1,545,000 - 1,545,000 -
Postage and printing 26,994 32,814 84,148 92,486
Rent 29,296 23,085 89,509 49,854
Office supplies 19,135 9,141 45,175 39,332
Telephone 15,653 15,038 45,010 64,076
Other expenses 65,532 60,439 219,309 163,307
-------------- -------------- -------------- --------------
Total general and administrative
expenses 2,651,210 1,983,035 5,622,021 4,269,289
-------------- -------------- -------------- --------------
Loss before provision for other expense
and income taxes (1,513,453) (1,399,928) (2,921,576) (2,192,394)
-------------- -------------- -------------- --------------
OTHER INCOME (EXPENSE)
Interest income 240 1,834 2,296 5,410
Interest expense (336,392) (254,437) (978,118) (274,547)
-------------- -------------- -------------- --------------
Total other expense (336,152) (252,603) (975,822) (269,137)
-------------- -------------- -------------- --------------
Loss before provision for income taxes
(1,849,605) (1,652,531) (3,897,398) (2,461,531)
Provision for income taxes - - 4,548 -
-------------- -------------- -------------- --------------
Net loss from continuing operations (1,849,605) (1,652,531) (3,901,946) (2,461,531)
-------------- -------------- -------------- --------------
Discontinued operations
Loss from discontinued operations of
NBG Solutions, Inc.
(19,124) (126,103) (39,471) (331,444)
-------------- -------------- -------------- --------------
Net loss $ (1,868,729) $ (1,778,634) $ (3,941,417) $ (2,792,975)
============== ============== ============== ==============
Basic and diluted loss per share
Continuing operations $ (0.13) $ (0.12) $ (0.27) $ (0.20)
Discontinued operations - - - -
-------------- -------------- -------------- --------------
$ (0.13) $ (0.12) $ (0.27) $ (0.20)
============== ============== ============== ==============
Weighted average number of shares
outstanding - basic and diluted 14,585,651 14,365,851 14,496,762 13,791,470
============== ============== ============== ==============
See Accompanying Notes
NBG RADIO NETWORK, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
Additional Stock
Paid-In Retained Subscription
Common Stock Capital Deficit Receivable Total
-------------------------- ------------ ------------ ------------ -----------
Shares Amount
----------- ----------
BALANCE, November 30, 2000
(audited) 12,321,831 $ 12,322 $ 6,795,719 $ (922,926) $ (14,113) $5,871,002
Issuance of common shares 1,351,920 1,352 1,800,568 - - 1,801,920
Exercise of options 577,900 578 312,458 - - 313,036
Issuance of common shares and
common share subscription
for services 134,000 134 231,866 - (228,000) 4,000
Services provided for payment
of subscribed shares - - - - 19,716 19,716
Allocated value of warrants
issued in debt financing - - 2,150,000 - - 2,150,000
Net loss for the year - - - (8,383,881) - (8,383,881)
----------- ---------- ------------ ------------ ------------ -----------
BALANCE November 30, 2001
(audited) 14,385,651 $ 14,386 $11,290,611 $(9,306,807) $ (222,397) $1,775,793
Issuance of Common Shares 200,000 200 159,800 - - 160,000
Service provided for payment
of subscribed shares - - - - 3,135 3,135
Net loss for the period - - - (3,941,417) - (3,941,417)
----------- ---------- ------------ ------------ ------------ -----------
BALANCE August 31, 2002
(unaudited) 14,585,651 $ 14,586 $11,450,411 $(13,248,224) $ (219,262) $(2,002,489)
=========== ========== ============ ============ ============ ===========
See Accompanying Notes
NBG RADIO NETWORK, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED AUGUST 31,
(Unaudited)
-------------------------------------
2002 2001
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (3,941,417) $ (2,792,975)
Adjustments to reconcile net loss to cash from operating
activities:
Depreciation and amortization 1,167,664 625,920
Impairment of assets 1,545,000 -
Shares issued for services - 4,000
Amortization of discount on long-term debt 322,500 71,667
Services provided in payment of subscribed shares 3,135 14,573
Changes in assets and liabilities:
Accounts receivable 505,314 (546,341)
Unbilled receivable - 195,739
Net change in barter exchange receivable and payable (8,248) (20,173)
Prepaid expenses and other current assets (14,147) (283,841)
Sales representation agreement amortization 278,749 2,440,473
Net change in programming contract liabilities (112,543) (2,962,139)
Accounts payable 142,932 269,214
Accrued liabilities 96,444 12,427
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Net cash from operating activities (14,617) (2,971,456)
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CASH FLOWS FROM INVESTING ACTIVITIES
Net cash paid for acquisition of GFEC $ - $ (5,253,689)
Increase in related party notes receivable (8,600) (137,548)
Acquisition of property and equipment (7,222) (7,262)
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Net cash from investing activities (15,822) (5,398,499)
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CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock $ - $ 1,801,920
Proceeds from stock options exercised and issuance
of common stock - 313,035
Borrowings of long-term debt 6,200,000
Net payments on line of credit - (400,000)
---------------- ----------------
Net cash from financing activities - 7,914,955
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NET DECREASE IN CASH AND CASH EQUIVALENTS (30,439) (455,000)
CASH, beginning of year 321,402 854,623
---------------- ----------------
CASH, end of year $ 290,963 $ 399,623
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NBG RADIO NETWORK, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED AUGUST 31,
(Unaudited)
-------------------------------------
2002 2001
---------------- ----------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest $ 486,614 $ 48,188
================ ================
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Issuance of common stock in payment of accrued
expenses $ 160,000 $ -
================ ================
Allocated value of warrants issued in debt financing $ - $ 2,150,000
================ ================
Capitalization of programming contract assets and
recognition of related liabilities $ - $ 288,000
================ ================
Issuance of common stock subscription receivables for
services $ - $ 228,000
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See Accompanying Notes
NOTE 1 - ORGANIZATION AND BUSINESS ACTIVITY
NBG Radio Network, Inc. ("NBG" or "the Company") was organized under the laws of
the State of Nevada on March 27, 1996, with the name of Nostalgia Broadcasting
Corporation. In January 1998, the stockholders approved the Company's name
change to NBG Radio Network, Inc. The Company creates, produces, distributes and
is a sales representative for national radio programs and offers other related
services to the radio industry. The Company offers radio programs to radio
stations in exchange for advertising time on those stations, which the Company
then sells to national advertisers.
In June 2001, NBG completed the acquisition of Glenn Fisher Entertainment
Corporation ("GFEC") (see Note 5), which became a wholly owned subsidiary of the
Company involved in the creation, production, and distribution of national radio
programs. The Company also owns NBG Solutions, Inc. ("Solutions"), a wholly
owned subsidiary involved in providing design, installation, and support for
interactive kiosks. The Company discontinued operations of Solutions on July 11,
2002 (see Note 6). All significant intercompany accounts and transactions have
been eliminated in the preparation of the consolidated financial statements.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
The interim consolidated financial statements include the accounts of NBG and
its wholly owned subsidiaries, Solutions and GFEC, after elimination of
intercompany transactions and balances.
The interim financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. The financial
information included in this interim report has been prepared by management
without audit by independent public accountants. The Company's annual report
contains audited financial statements. In the opinion of management, all
adjustments, including normal recurring accruals necessary for fair presentation
of results of operations for the interim periods included herein have been made.
The results of operations for the nine months ended August 31, 2002 are not
necessarily indicative of results to be anticipated for the year ending November
30, 2002.
NOTE 3 - REVENUE RECOGNITION
The Company recognizes revenues from the sale of advertising after the
commercial advertisements are broadcast. This is generally billed monthly. If
the Company is required to guarantee a certain rating as a condition of the
sale, then revenue is not recognized until the advertisement is broadcast and
the Company has confirmed it delivered the required rating. Revenues recognized
from the design, installation, and support for interactive kiosks produced
through Solutions are recognized when the product is delivered or services
performed.
NOTE 4 - LOSS PER COMMON SHARE
Basic and diluted loss per common share is calculated by dividing net loss by
the weighted average basic and diluted shares outstanding, respectively.
NOTE 5 - ACQUISITION OF GLENN FISHER ENTERTAINMENT CORPORATION
On June 29, 2001, the Company acquired all of the common stock of GFEC for
$5,280,425 and, as of the date of the acquisition, GFEC became a wholly owned
subsidiary of the Company.
The acquisition was accounted for as a purchase. Accordingly, the excess of the
fair value of assets acquired over liabilities assumed was recognized as
goodwill, and is being amortized over its expected useful life of five years. In
addition, identifiable intangible assets have been recognized and will be
amortized over the lives of the underlying assets, which have a weighted average
life of 2.5 years. The following summarizes the fair value of the assets
acquired and liabilities assumed in the Company's purchase of GFEC.
Goodwill $ 4,332,443
Identifiable intangibles 1,518,688
Assets acquired 971,037
Liabilities assumed (1,541,743)
------------
Total cash paid for GFEC $ 5,280,425
============
Prior to the acquisition, NBG and GFEC entered into contracts through which NBG
obtained the right to the advertising inventory within GFEC radio programs. The
contracts entered into between the two parties required NBG to pay a flat-fee
for the rights to the advertising on programs three months in advance of the
actual broadcasting of the show.
Under these contracts and for the entire period of the contracts, NBG assumed
both the performance risk of selling the advertising within the radio programs
and the market risks of fluctuations in advertising rates until the program
aired. For each of the sales representation agreements with GFEC, NBG entered
into contracts with GFEC that unconditionally obligated the Company for payments
to GFEC whether or not the acquired programs aired on the Company's network at
any time during the contract period. Therefore, when sales representation
agreements were established, NBG recognized a liability equal to the sum of
required payments that generally extended from 12 to 18 months. Simultaneously,
NBG recognized an asset representing the unamortized right and interest in the
sales representation agreements. This asset was amortized during the contract
period as advertising revenues were recognized. At the time the contracts were
established, GFEC recognized a contract receivable for amounts due from NBG and
deferred revenue. As payments were made on the contracts, NBG reduced the
contract liability and GFEC would reduce the contract receivable.
At the date of acquisition, GFEC's intercompany receivable of $924,250 and
intercompany payable of $1,653,228 were eliminated.
As part of the acquisition by NBG, Glenn Fisher, the former president and sole
shareholder of GFEC, entered into a three-year consulting agreement with NBG.
Terms of the consulting agreement provided for monthly payments of $16,667 to
Mr. Fisher for the three-year period covered by the agreement. The Company and
Mr. Fisher agreed to terminate Mr. Fisher's consulting agreement on June 1,
2002. All payments under the agreement were discontinued and Mr. Fisher was
released from all representations and warranties contained in the transactional
documents relating to the GFEC acquisition.
NOTE 6 - DISCONTINUED OPERATION
On July 11, 2002, Solutions filed articles of dissolution. Since filing its
articles of dissolution, Solutions has limited its operations to collecting and
disposing of its business assets and negotiating with its creditors for the
satisfaction of its outstanding debts. As of August 31, 2002, Solutions had
total assets of approximately $80,000, net accounts receivable of $37,731,
long-lived assets of $10,510, accounts payable of $102,277, and no secured
creditors. Solutions's management does not believe that Solutions will have
sufficient assets to satisfy all outstanding debts. It has notified all known
creditors and other claimants of the situation. Management intends to dispose of
Solutions's assets and distribute the proceeds to the creditors on a pro rata
basis.
In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," the operations of Solutions are reported as discontinued
operations in the statement of operations. Operating results from Solutions were
as follows:
Three months ended August 31, Nine months ended August 31,
---------------------------------- ---------------------------------
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
Revenues $ 50,829 $ 385,493 $ 540,695 $ 907,677
Direct costs (40,683) (319,974) (331,977) 694,508
--------------- --------------- --------------- ---------------
Gross margin 10,146 65,519 208,718 213,169
General and administrative expenses
(29,270) (191,622) (248,189) (544,613)
--------------- --------------- --------------- ---------------
Net loss $ (19,124) $ (126,103) $ (39,471) $ (331,444)
=============== =============== =============== ===============
NOTE 7 - ABILITY TO CONTINUE AS A GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. However, the Company incurred
significant losses in 2002 and had incurred additional losses in other years
since its inception in 1996 such that, as of August 31, 2002, the Company had
recorded a retained deficit of $13,248,224. Furthermore, the Company is subject
to several restrictive borrowing covenants, which are contained in its Credit
Facility Agreement with MCG Finance Corporation ("MCG") dated June 29, 2001.
As of August 31, 2002, the Company was unable to meet three of these borrowing
covenants and as a result, repayment of the Company's outstanding indebtedness
to MCG may be accelerated and the Company may be unable to meet the accelerated
repayment requirements. The Company failed to meet one or more of these
covenants on November 30, 2001, and on May 31, 2002. MCG agreed to waive these
violations. On August 31, 2002, the Company failed to meet the minimum quarterly
adjusted operating cash flow covenants, the minimum twelve-month adjusted
operating cash flow covenant, and the minimum cumulative revenue covenant. While
the Company is negotiating with MCG, it has not received a waiver for these
covenant violations. Without a waiver, the Company is considered in default. MCG
may, after providing notice to the Company, demand repayment of the entire
outstanding balance of the credit facility and foreclose on the Company's
assets. In addition, MCG may demand that the Company pay an addition 3% in
interest during the period of default. As of October 15, 2002, the Company has
not received notice from MCG demanding accelerated repayment or additional
interest. Therefore, the Company has recorded its obligation to MCG as a current
liability.
The amount of the current liability owed to MCG reflects a discount to the
amount actually owed by the Company. When it entered into the credit facility,
the Company received $6.2 million from MCG in exchange for a promissory note
with a face value of $6.2 million and an option to acquire warrants to purchase
shares of the Company's common stock. In order to reflect the value of this
option in accordance with Emerging Issues Task Force Abstract 00-19, "Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock", it was necessary to discount the face value of the
promissory note by $2,150,000 at the time the debt was issued. This discount was
recorded in the consolidated financial statements for the year ended November
30, 2001 as an increase to additional paid in capital. Accordingly, the
Company's balance sheet does not reflect the full face value of the debt owed
MCG. If MCG accelerated the entire amount actually owed, the Company would be
required to pay $6,533,137, comprised of $1,648,336 representing the unamortized
balance of the discount, $333,134 in accrued and deferred interest payable, and
$4,551,667 representing the carrying value of the outstanding principal balance
of long-term debt.
A national economic recovery could improve operational performance.
Nevertheless, the Company will continue to attempt to increase profitability and
cash flow by eliminating programs that do not achieve required profitability
ratios and reducing its production and operational expenses. The Company has
renegotiated its contractual agreements with its hosts and producers allowing
the Company to either pay the host or producer a percentage of the revenue
generated by the program, or reducing the guaranteed payment to the host or
producer. The Company has successfully negotiated with selected creditors more
favorable repayment terms that will assist in maintaining appropriate levels of
cash flow to sustain operating activities.
However, the Company's ability to operate as a going concern is dependent on its
ability to regain and sustain profitable operations; to restructure its current
debt covenants and comply with these covenants in the future; and, to generate
sufficient cash flow from operations to meet its obligations as they become
payable. If the Company is unable to achieve these measures it will be necessary
to seek additional funding. There is no assurance that the Company will be able
to locate a source of financing willing to offer terms satisfactory to the
Company. In addition, the credit facility places restrictions on the Company's
ability to issue equity instruments, pay dividends, repurchase its stock, and
incur indebtedness. The terms of an Option and Warrant Agreement between the
Company and MCG provide MCG with certain antidilution provisions, which may
further complicate the Company's ability to issue additional equity securities
in the future. Although no assurances can be given, management believes that the
Company will be able to continue operations into the future. Accordingly, no
adjustment has been made to the accompanying consolidated financial statements
in anticipation of the Company not being able to continue as a going concern.
NOTE 8 - IMPAIRMENT OF ASSETS
The Company's acquisition of GFEC was accounted for using the purchase method of
accounting, under which the excess of the fair value of assets acquired over
liabilities assumed was recognized as goodwill and was anticipated to be
amortized over an expected useful life of five years. In addition, identifiable
intangible assets were recognized at the time of acquisition and have been
amortized over the lives of the underlying assets, which were expected to have a
weighted average life of 2.5 years. Since the acquisition, management has
continuously evaluated the long-term viability of these programs acquired from
GFEC. For the year ended November 30, 2001, management determined that a partial
impairment of intangible assets had occurred since certain agreements were
terminated because underlying radio programs were unable to attain adequate
market share on a national scale. Accordingly, an impairment charge of
$1,600,000 was recognized for the year ended November 30, 2001. Based on
management's continuing evaluation of the commercial viability of these
programs, the Company's plans for future program operations, and management's
analysis of the future expected undiscounted cash flows of each program acquired
from GFEC, the Company determined during the quarter ending August 31, 2002 that
the carrying value of the goodwill and identifiable intangible assets associated
with some of these programs would also not be fully recoverable. Accordingly,
the Company recorded an impairment charge of $1,545,000, representing writedowns
of recorded goodwill by $1,028,000 and other identifiable intangible assets by
$517,000. These amounts were calculated based upon the present value of
estimated expected future cash flows using a discount rate commensurate with an
evaluation of the risk involved.
Item 2. Management's Discussion and Analysis or Plan of Operation
-----------------------------------------------------------------
Forward Looking Statements
--------------------------
The information set forth below relating to matters that are not
historical facts are "forward looking statements" within the meaning of Section
21E of the Securities Exchange Act of 1934 and involve risks and uncertainties
which could cause actual results to differ materially from those contained in
such forward looking statements. Such risks and uncertainties include, but are
not limited to, the following:
o Our revenues depend on radio advertising spending. The Company generates
its revenues from the sale of radio advertising. If overall advertising
spending declines or if advertisers shift their resources to other forms of
advertising, such as newspapers, magazines, or television, the Company's
ability to generate revenues could suffer.
o We are competing against much larger companies with significantly more
resources. According to Radio Advertising Bureau, the network radio
advertising business is a $910 million industry. We estimate that 85% of
this industry is controlled by Clear Channel Communications, Inc. (owners
of Premiere Radio Networks, Inc.), ABC Radio Networks, and Infinity
Broadcasting Corporation (owners of Westwood One). These companies have
significantly more resources, capital, and market control than our company.
In addition to syndicating radio programming, these companies also own and
operate thousands of radio stations. We currently air many of our programs
on the radio stations owned and operated by these companies. Our future
financial success will depend on our ability to continue airing our
programs on these stations. If any of these companies denied us access to
their stations, it would adversely effect our businesses.
o Our business may be harmed if we lose the services of certain key
employees. Our success depends largely on the skills, experience, and
performance of key employees, particularly John A. Holmes, John J.
Brumfield, and Dean R. Gavoni. If we lost one or more of these key
employees, our business and financial performance could suffer.
o Our success depends on our ability to place our programs on radio stations.
Our revenues result from the sale of advertising time. We obtain that
advertising time by exchanging our programming with radio stations for
advertising time on those stations. Our success depends on our ability to
establish and maintain relationships with radio stations willing to air our
programming.
o Our revenues depend on the popularity and listener ratings of our programs.
Radio programs that are popular and have high listener ratings are more
likely to be aired by radio stations. In addition, advertisers will
typically pay more to advertise on programs with high ratings. Our success
depends on the ratings of our programs. If the ratings for our programs
decline, radio stations will be less likely to air our programming. If
radio stations drop our programming, we will have less advertising
available for sale. In addition, a decline in ratings may also require us
to reduce our advertising rates, which could cause a reduction in our
revenues.
o Our success depends on our ability to retain successful programs and
services. We secure the rights to syndicate our programming by entering
into contracts with the program's hosts. Our success depends on our ability
to maintain a positive relationship with the program's hosts. In addition,
our business success also depends on our ability to re-sign the hosts of
our successful programs when their contracts expire.
o Our success also depends on our ability to predict the public's taste with
respect to radio programs. Our ability to produce successful programs
depends on our ability to predict the public's taste. If we are unable to
predict the public's taste with respect to radio programs, our programming
may not generate sufficient ratings to be commercially viable.
o We depend on an independent sales representation firm to sell a significant
portion of our revenues. While we have our own sales force to sell our
advertising time, we have historically relied on an independent sales
representation firm to help us sell a significant portion of our
advertising time. If our sales representation firm is unable to sell our
advertising time, our financial performance may suffer.
o We may need additional financing which could be difficult to obtain without
the permission of our lender. Our credit facility contains numerous
restrictive covenants that restrict our ability to raise capital. These
restrictions limit our ability to borrow additional funds or sell our
securities. As a result, it will be difficult for us to raise additional
financing without the permission of our lender. There is no guarantee that
our lender will permit us to raise additional funds. Even if we receive our
lender's permission, there is no guarantee that we could obtain financing
on acceptable terms or in a sufficient amount to meet our needs.
o We are currently in default on our credit facility. On August 31, 2002, we
failed to meet three financial covenants in our credit facility. Under the
terms of the credit facility, this constitutes an "Event of Default."
During an "Event of Default," our lender may, after providing notice,
choose to accelerate repayment of the outstanding balance on the credit
facility and foreclose on the Company's assets. We do not have sufficient
funds to repay the outstanding balance on the credit facility. There is no
guarantee that we could raise these funds through its financing activities.
o Our financial success depends on our ability to renegotiate the terms of
our credit facility. As stated above, we are currently in default on our
credit facility. We may not be able to generate sufficient cash flows from
our operations to maintain the current interest and principal repayment
schedule set forth in the credit agreement. If we cannot generate
sufficient cash flows from our operations, there is no guarantee that we
will be able to obtain sufficient financing to our debt. As a result, we
believe that our future financial success will depend on whether we can
successfully renegotiate the terms of our credit facility with our lender.
Three Months and Nine Months Ended August 31, 2002 and 2001
-----------------------------------------------------------
Reference is made to Item 6, "Management's Discussion and Analysis or
Plan of Operation" included in the Company's annual report on Form 10-KSB for
the year ended November 30, 2001, as amended, on file with the Securities and
Exchange Commission. The following discussion and analysis pertains to the
Company's results of operations for the three and nine month periods ended
August 31, 2002, compared to the results of operations for the three and nine
month periods ended August 31, 2001, and to changes in the Company's financial
condition from November 30, 2001 to August 31, 2002.
REVENUES. Total revenues for the three months ended August 31, 2002
were $2,682,001 compared to revenues of $3,300,823 for the same period in 2001,
representing a decrease of $618,822, or 19%. For the nine months ended August
31, 2002, total revenues were $8,436,974 representing a decrease of $1,013,568,
or 11% compared to the same period in 2001. The Company's decline in revenue
resulted from two factors. First, due to overall economic conditions,
industry-wide advertising rates have fallen significantly in 2002 compared to
the rates seen in the same period in 2001. Second, the Company has less
commercial broadcast time
available for sale compared to the same periods in 2001. The reduction of
commercial broadcast time resulted from the cancellation of four programs that
the Company determined were not generating sufficient revenues to be
commercially viable. The Company is developing four new programs to replace the
cancelled shows. However, these programs are still in development and hence are
not generating significant revenues.
On August 15, 2002, the Company terminated its relationship with its sales
representation firm, Dial Communications-Global Media, Inc. ("Dial"). For the
last two years, the Company had relied on Dial to sell a substantial portion of
its advertising time. While Dial's sales have accounted for approximately half
of the Company's revenues in the last two years, Dial had consistently failed to
meet its predetermined sales goals. As a result, the Company felt that a change
was necessary and hired a new sales representation firm, True Measure, Inc
("TMI"). While the transition from Dial to TMI has been going well, the Company
expects that the termination of Dial will effect its revenues in the next fiscal
quarter and possibly into the next fiscal year. Some advertisers cancelled their
purchases following the termination of the Company's relationship with Dial. In
addition, the Company expects that TMI will require some time to become familiar
with the Company's programming.
Solutions' revenues decreased from $385,493 for the three months ended August
31, 2001 to $50,829 for the three months ended August 31, 2001. As explained in
Note 6, Solutions was dissolved on July 11, 2002. The Company decided to take
this action because Solutions had been unable to develop new clients and
generate sufficient revenues. Solutions' operations are now limited to
collecting and liquidating its assets and negotiating repayment terms with its
creditors. The Company does not expect to generate any future revenues or incur
significant expenses from Solutions.
DIRECT COSTS. Direct costs for the three months ended August 31, 2002
and 2001 were $1,544,244 and $2,717,716, respectively, representing a decrease
of $1,173,472, or 43%. For the nine months ended August 31, 2002 direct costs
decreased $1,637,118, or 22% compared to the same period last year. Several
factors contributed to the reduction in the Company's direct costs. First, most
of the Company's agreements with its hosts and program producers are now
structured to compensate the host or producers based on a percentage of revenue
generated from the respective program, rather than a guaranteed payment to the
hosts. As the Company's revenues declined as a result of the drop in advertising
rates, so did its obligations to compensate its hosts and producers. Second, to
reflect the depressed economic conditions in the radio industry, the Company
renegotiated several guaranteed contract payments with hosts and producers.
These hosts or producers agreed to accept reduced guaranteed payments
recognizing the economic conditions that exist. Third, the Company was able to
reduce costs by eliminating programs that were not maintaining ratings and
achieving the profitability ratios required by the Company. Fourth, the Company
was able to reduce the costs of the programs that it produces internally.
Finally, the Company reduced the amount of weekday advertising time that it
purchased through its affiliate stations agreements. The combination of these
factors allowed the Company to reduce its costs in declining economic
conditions.
GROSS MARGIN. Gross margin for the three months ended August 31, 2002,
was $1,137,757, an increase of $554,650, or 95%, compared to the same period
2001. For the nine months ended August 31, 2002, gross margin increased
$623,550, or 30% compared to the same period last year. Despite declining
revenues, the Company was able to significantly improve its gross margin by
controlling its direct costs. In particular, the Company's decision to
renegotiate compensation agreements with its hosts from guaranteed payment to
amounts based on a percentage of program revenues has allowed the Company to
improve its gross margins despite a
decline in revenues. In addition, the cancellation of unprofitable programs and
reduction in affiliate station expenses contributed to the improvement in the
Company's gross margin.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for the three months ended August 31, 2002, were $2,651,210,
representing an increase of $668,175, or 34% over the same period in 2001. The
increase in general and administrative expense during this three-month period
was primarily a result of the Company's $1,545,000 impairment charge (See Note
8). For the nine months ended August 31, 2002, general and administrative
expenses were $5,622,021 representing an increase of $1,352,732, or 32%. The
increase in the Company's general and administrative expense during this
nine-month period resulted from three factors. First, the Company incurred a
substantial impairment charge in the third quarter of 2002. Second, the
Company's depreciation and amortization expense increased $539,300 primarily
from the amortization of intangible assets and goodwill acquired in the GFEC
acquisition. Third, the Company incurred $600,000 in fees charged by its lender,
which were recorded as expenses in the first quarter of 2002. Combined, these
three factors increased the Company's general and administrative expenses by
$2,684,300 in the first nine months of 2002 compared to the same period in 2001.
The Company offset a substantial portion of these increased expenses by reducing
its staff by over 45%, reducing the compensation for all remaining employees,
reducing the Company's travel and entertainment budget, and eliminating the
Company's investor relations campaign.
OTHER INCOME (EXPENSES). For the three months ended August 31, 2002 and
2001, the Company included a net interest expense of $336,392 and $252,603,
respectively. Net interest expense for the nine months ended August 31, 2002 and
2001, were $975,822 and $269,137, respectively. Interest expense increased due
to the interest charged on the Company's outstanding obligation to its lender
under the credit facility.
INCOME TAXES. For the three months ending on August 31, 2002 and 2001,
and for the nine months ending August 31, 2001, the Company made no payment or
provision for income tax. For the nine months ending August 31, 2002, the
Company paid $4,548 in estimated taxes due, resulting from the GFEC acquisition
in 2001.
NET LOSS AND EARNINGS PER SHARE. Net loss for the three months ended
August 31, 2002, was $1,868,729, or $0.13 per share. Net loss for the three
months ended August 31, 2001 was $1,778,634, or $0.12 per share. For the nine
months ended August 31, 2002, and August 31, 2001, the net loss was $3,941,417
and $2,792,975 respectively. Overall, the Company's net loss in 2002 is a result
of several factors. First, the Company's revenues have declined as a result of
the economic conditions in the radio industry and the cancellation of several of
its programs. Second, the Company incurred a substantial impairment charge in
addition to significant increases in its depreciation and amortization expenses
since its acquisition of GFEC. Finally, the violation of a loan covenant on
November 30, 2001, caused the Company to incur certain fees charged by its
lender, which were recorded as an expense during the first quarter of the 2002
fiscal year.
Basic and diluted earnings per share are based upon a weighted average of
14,585,651 and 14,365,851 shares outstanding on August 31, 2002, and August 31,
2001, respectively.
Liquidity and Capital Resources
-------------------------------
Historically, the Company has financed its cash flow requirements through
cash flows generated from operations and financing activities. However, the
Company's working capital has
significantly declined. On August 31, 2002, the Company had a working capital
deficit of $3.50 million compared to a working capital surplus of $4.64 million
on August 31, 2001. The largest factor contributing the Company's decrease in
working capital was the reclassification of its credit facility as a current
liability.
On June 29, 2001, the Company entered into a $6.2 million credit
facility with MCG Finance Corporation ("MCG"). The proceeds from the credit
facility were primarily used to finance the Company acquisition of GFEC and to
retire the Company's line of credit. The credit facility is secured by all of
the Company's assets, including its intellectual property and the stock of its
subsidiaries. The credit facility is structured to allow for the possibility of
an additional $10 million in future financing. The interest rate on the amounts
outstanding under the credit facility is comprised of two parts; a deferred
fixed rate of 3.0% and a variable rate. On August 31, 2002, the variable
interest rate equaled 9.8624% per annum. The variable portion of the interest
rate is due quarterly while the deferred fixed portion is due upon the
termination of the credit facility. The credit facility terminates in June 2006
unless prepaid earlier by the Company.
The terms of the credit facility require the Company to comply with
several affirmative and negative covenants. These covenants include interest
coverage ratios, total charge coverage ratios, cash flow leverage ratios,
maximum programming obligations and affiliate stations expenses, minimum
adjusted operating cash flow, maximum capital expenditures, restrictions on the
issuance of equity instruments or additional indebtedness, as well as other
elements. These covenants are typically measured on a quarterly basis. The
Company failed to meet one or more of these covenants on November 30, 2001, and
on May 31, 2002. MCG agreed to waive these violations by amending the terms of
the credit facility on February 28, 2002, and on July 19, 2002. On August 31,
2002, the Company failed to meet the minimum quarterly adjusted operating cash
flow covenant, the minimum twelve-month adjusted operating cash flow covenant,
and the minimum cumulative revenue covenant. The failure to meet these covenants
constitutes and "Event of Default" under the terms of the credit facility.
During an "Event of Default," MCG may, after giving notice to the Company,
accelerate the repayment of the outstanding principal and accrued interest and
foreclose on the Company's assets. In addition, MCG may also charge the Company
an additional 3% in interest during the Event of Default. As of October 21,
2002, MCG has not notified the Company of its intent to exercise any of these
options.
While the Company failed to meet these financial covenants, it has made
all principal and interest payments required under the current terms of the
credit facility. The Company's management believes that it will generate
sufficient cash flows from its operations to continue making these payments
through the end of the 2003 fiscal year. The Company is currently working with
MCG to restructure the terms of the credit facility. Unless the credit facility
is restructured, the Company anticipates that it will need to raise additional
capital to servicing its debt. The terms of the credit facility place
restrictions on the Company's ability to issue equity instruments, pay
dividends, repurchase its stock, and incur indebtedness. The terms of an Option
and Warrant Agreement between the Company and MCG provide MCG with certain
antidilution provisions, which may further complicate the Company's ability to
issue additional equity securities in the future. Given these restrictions and
the current economic climate, the Company is uncertain whether it can raise
sufficient capital to continue servicing its debt.
Given the Company's covenant violations, it recorded the amounts owed
under its credit facility as a current liability. Recording this debt as a
current liability accounted for almost one-half of the Company's decrease in
working capital. In addition to the covenant violation in the credit facility,
the following factors also contributed to the Company's reduction in working
capital:
o the reduction of accounts receivable due to lower advertising
rates and less commercial advertising time available for sale; and
o an increase in accounts payable and sales representation agreement
liabilities resulting from the Company's negotiation of extended
repayment terms with its creditors.
The Company's increase in accounts payable is primarily a result of
certain fees charged by MCG. These fees, which total $600,000, account for 38%
of the Company's account payable. According to its agreement with MCG, these
fees become payable if the Company closes a corporate development or financing
transaction, such as a merger or acquisition, before November 30, 2002. If the
Company does not close on such a transaction before November 30, 2002, then the
Company is required to make a payment to its lender equal to the lesser of 25%
of (1) the amount of the fees, or (2) its excess cash flow for the trailing
twelve-month period ending November 30, 2002. If the Company does not generate
sufficient cash flows to pay the lender the entire amount of fees owed, then the
remaining balance of the fees owed will be added to the outstanding principal
balance of the Company's credit facility.
The Company is attempting to improve its cash flow from operations. The
Company's net cash flows used in operations for the nine months ending August
31, 2002, were $14,617, compared with cash flows used in operations of
$2,971,546 for the same period in 2001. During the first quarter of the current
fiscal year, the Company's net cash flows used in operations were $128,574. In
the second quarter, the net cash flows used in operation were $51,987. In the
third quarter, the Company generated $165,944 in cash flows from operations. The
improvement in the Company's cash flows from operations is primarily a result of
the cost cutting measure instituted by the Company's management at the beginning
of the fiscal year. In addition, the Company negotiated with several of its
vendors for extended repayment terms on the Company's outstanding accounts
payable.
The Company's management believes that its cash flow from operations
will allow the Company to finance its prospective needs for capital over the
next twelve months. However, this assumes that MCG does not accelerate repayment
on the credit facility and the Company is able to continue making progress
improving its cash flows from operations. In the long term, the Company's
management believes that the Company must either restructure the terms of its
credit facility or find a source of alternative financing. As discussed earlier,
the terms of the credit facility along with the current economic climate will
make finding a source of alternative financing difficult. The Company may not be
able to locate an alternative source of financing. Even if a source of financing
could be located, it may not offer terms acceptable to the Company. While the
Company will continue considering alternative financing sources, it will focus
its efforts negotiating with MCG for a restructuring of the terms of its credit
facility.
Recently Issued Accounting Standards
------------------------------------
In October 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 147, "Acquisitions of
Certain Financial
Institutions - an amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9." The Company's management does not expect that the
application of the provisions of this statement will have a material impact on
the Company's consolidated financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." The statement
is effective for exit or disposal activities that are initiated after December
31, 2002, with early application encouraged. The Company's management does not
expect that the application of the provisions of this statement will have a
material impact on the Company's consolidated financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and
Losses from Extinguishment of Debt," and an amendment of that Statement, FASB
Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements." This Statement also rescinds FASB Statement No. 44, "Accounting
for Intangible Assets of Motor Carriers." This Statement amends FASB Statement
No. 13, "Accounting for Leases," to eliminate an inconsistency between the
required accounting for sale-leaseback transactions and the required accounting
for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions and is
effective for fiscal years beginning after May 31, 2002. The Company's
management does not expect that the application of the provisions of this
statement will have a material impact on the Company's consolidated financial
statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 clarifies the
accounting for the impairment of long-lived assets and for long-lived assets to
be disposed of, including the disposal of business segments and major lines of
business. As allowed, the Company early adopted SFAS No. 144, which did not have
a material impact on the Company's consolidated financial statements.
In July 2001, the FASB also issued SFAS No. 141, "Business
Combinations," and No. 142, "Goodwill and Other Intangible Assets." These
standards change the accounting for business combinations by, among other
things, prohibiting the prospective use of pooling-of-interests accounting and
requiring companies to cease amortizing goodwill and certain intangible assets
with an indefinite useful life created by business combinations accounted for
using the purchase method of accounting. Instead, goodwill and intangible assets
deemed to have an indefinite useful life will be subject to an annual review for
impairment. Implementation of SFAS No. 141 had no effect on the Company's 2001
and 2000 consolidated financial statements. The new standards of SFAS No. 142
will be effective for the Company in the first quarter of the fiscal year ending
November 30, 2003.
On December 1, 2002, the Company will no longer amortize goodwill.
Based on the current recorded balance of goodwill, this accounting change will
reduce annual amortization expense by approximately $270,000. The impact of
ceasing to record goodwill amortization will be an increase in the Company's
annual net income, after taxes, of approximately $180,000.
Goodwill will, however, be subject to an annual review for impairment
upon adoption of SFAS No. 142. The Company is in the process of determining
whether any such impairment would be required upon adoption of the new
accounting standard. If the Company concludes that a charge for goodwill
impairment is necessary, such a charge would be reported as a cumulative effect
of an accounting change.
Item 3. Controls and Procedures
-------------------------------
(a) Evaluation of disclosure controls and procedures. The Company's chief
executive officer and chief financial officer, after evaluating the
effectiveness of the Company's "disclosure controls and procedures" (as
defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and
15-d-14(c)) as of a date (the "Evaluation Date") within 90 days before
the filing date of this quarterly report, have concluded that as of the
Evaluation Date, the Company's disclosure controls and procedures were
effective and designed to ensure that material information relating to
the Company and the Company's consolidated subsidiaries would be made
known to them by others within those entities.
(b) Changes in internal controls. There were no significant changes in the
Company's internal controls or in other factors that could
significantly affect those controls subsequent to the Evaluation Date.
PART II - OTHER INFORMATION
---------------------------
Item 4. Defaults Upon Senior Securities.
----------------------------------------
On August 31, 2002, the Company failed to meet three financial covenants in its
Credit Facility Agreement with MCG. The failure to meet these covenants
constitutes an "Event of Default" under the terms of the credit facility.
Item 6. Exhibits and Reports on Form 8-K
----------------------------------------
(a) Exhibits
99.1 Certification of John A. Holmes
99.2 Certification of John J. Brumfield
(b) No reports on form 8-K were required to be filed during the quarter
ended August 31, 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NBG RADIO NETWORK, INC.,
a Nevada corporation
Date: October 21, 2002 By: /s/ John J. Brumfield
---------------------------------------------
John J. Brumfield, Chief Financial Officer
Vice President, Finance
(Principal Financial and Accounting Officer)
I, John A. Holmes III, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of NBG Radio
Network, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: October 21, 2002
/s/ John A. Holmes III
--------------------------------------------
John A. Holmes III, President and
Chief Executive Officer
I, John J. Brumfield, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of NBG Radio
Network, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: October 21, 2002
/s/ JOHN J. BRUMFIELD
--------------------------------------------
John J. Brumfield, Chief Financial Officer and
Vice President, Finance
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
99.1 Certification of John A. Holmes
99.2 Certification of John J. Brumfield