[PAGES 1 THROUGH 6 OF PART I OF THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR
THE PERIOD ENDED 6/30/97]
Exhibit (g)(2)
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the period
Three months end Six months ended May 17,1990
---------------------------- ---------------------------- (date of inception)
June 30, June 30, June 30, June 30, to June 30,
1997 1996 1997 1996 1997
------------ ------------ ------------ ------------ ------------
Revenue $ - $ - $ - $ - $ -
------------ ------------ ------------ ------------- ------------
Expenses:
Legal, consulting and
regulatory fees 1,009,110 347,495 1,245,751 575,169 8,494,715
Other general and administrative 566,250 330,151 846,915 611,832 8,379,678
Research and development 15,434 24,576 35,058 52,477 1,951,413
Write-off of investment in
Sky-Highway Radio Corp. - - - - 2,000,000
------------ ------------ ------------ ------------- ------------
Total expenses 1,590,794 702,222 2,127,724 1,239,478 20,825,806
------------ ------------ ------------ ------------- ------------
Other income (expense)
Interest income 1,237,003 20,099 1,297,684 45,389 1,626,356
Interest expense (34) (4,903) (4,945) (9,820) (171,395)
------------ ------------ ------------ ------------- ------------
1,236,969 15,196 1,292,739 35,569 1,454,961
------------ ------------ ------------ ------------- ------------
Net loss $ (353,825) $ (687,026) $ (834,985) $ (1,203,909) $(19,370,845)
============ ============ ============ ============= ============
Net loss per common share $ (4.23) $ (0.07) $ (4.28) $ (0.13)
============ ============ ============ =============
Weighted average common shares
outstanding 10,313,114 9,322,471 10,307,255 9,385,781
============ ============ ============ =============
The accompanying notes are an integral part of these
consolidated financial statements
1
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
June 30, December 31,
1997 1996
------------- -------------
Current assets:
Cash and cash equivalents $ 30,184,349 $ 4,583,562
Interest receivable and other 447,141 9,368
------------- ------------
Total current assets 30,631,490 4,592,930
------------- ------------
Property and equipment in service, at cost:
Technical equipment 254,200 254,200
Office equipment and other 93,720 89,220
Demonstration equipment 38,664 38,664
------------- ------------
386,584 382,084
Less accumulated depreciation (233,118) (213,344)
------------- ------------
153,466 168,740
------------- ------------
Satellite construction in process 6,500,000 -
Other assets
Launch deposit 3,420,000 -
FCC license deposit 16,669,200 -
Designated cash 66,676,800 -
Other deposits 303,793 303,793
------------- ------------
Total other assets 87,069,793 303,793
------------- ------------
Total assets $ 124,354,749 $ 5,065,463
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 187,172 $ 131,118
Other 20,082 20,174
------------- ------------
Total current liabilities 207,254 151,292
Deferred rent and other 5,743 15,795
------------- ------------
Total liabilities 212,997 167,087
============= ============
Commitments and contingencies
5% Delayed Convertible Preferred Stock, $0.001 par value;
8,000,000 shares authorized, 5,400,000 shares issued and
outstanding at June 30, 1997 (liquidation preference
of $136,400,000), at net carrying value 111,855,311
Stockholders' equity:
Preferred stock, $0.001 par value, 50,000,000 shares
authorized; 8,000,000 shares designated as 5% Delayed
Convertible Preferred Stock
Common stock, $0.001 par value; 200,000,000 shares
authorized; 10,313,391 and 10,300,391 shares issued and
outstanding at June 30, 1997 and December 31, 1996,
respectively 10,313 10,300
Additional paid-in capital 75,424,923 23,423,936
Subscription receivable (465,450) -
Deficit accumulated during the development stage (62,683,345) (18,535,860)
------------- ------------
Total stockholders' equity 12,286,441 4,898,376
------------- ------------
Total liabilities and stockholders' equity $ 124,354,749 $ 5,065,463
============= ============
The accompanying notes are an integral part of these
consolidated financial statements
2
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the period
Six months ended May 17,1990
------------------------------ (date of inception)
June 30, June 30, to June 30,
1997 1996 1997
----------- ----------- ------------
Cash flows from operating activities:
Net loss $ (834,985) $ (1,203,909) $(19,370,845)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 19,774 26,885 243,817
Write off of investment in Sky-Highway Radio Corp. - - 2,000,000
Compensation expense in connection with
issuance of stock options - 160,000 1,715,500
Common stock issued for services rendered - 222,731 901,576
Common stock options granted for services 119,820
rendered - -
Increase (decrease) in cash and cash equivalents
resulting from changes in assets and liabilities:
Interest receivable and other (437,773) 4,713 (447,141)
Due to related party - - 350,531
Deposits - - 303,793)
Accounts payable and accrued expenses 56,054 57,405 262,411
Other liabilities (10,144) (12,995) 25,825
------------ ------------ ------------
Net cash used in development stage activities (1,207,074) (745,170) (14,502,299)
------------ ------------ ------------
Cash flows from investing activities:
Payments for satellite construction (6,500,000) - (6,500,000)
Advance payment for launch services (3,420,000) - (3,420,000)
License fee payments to the FCC (16,669,200) - (16,669,200)
Designated cash (66,676,800) - (66,676,800)
Capital expenditures (4,500) - (397,283)
Acquisition of Sky-Highway Radio Corp. - - (2,000,000)
------------ ------------ ------------
Net cash used in investing activities (93,270,500) - (95,663,283)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of units and common stock - - 14,557,482
Proceeds from issuance of preferred stock 120,052,361 - 120,052,361
Proceeds from exercise of stock warrants - 211,800 4,589,088
Proceeds from issuance of promissory notes - - 200,000
Proceeds from issuance of promissory notes to
related parties - - 2,965,000
Proceeds from exercise of stock options by
Company employees 26,000 105,000 181,000
Repayment of promissory note - - (200,000)
Repayment of promissory notes to related parties - - (2,435,000)
Loan from officer - - 440,000
Deferred offering costs - - -
------------ ------------ ------------
Net cash provided by financing activities 120,078,361 316,800 140,349,931
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 25,600,787 (428,370) 30,184,349
Cash and cash equivalents at the beginning of period 4,583,562 1,799,814 -
------------ ------------ ------------
Cash and cash equivalents at the end of period $ 30,184,349 $ 1,371,444 $ 30,184,349
============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements
3
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
GENERAL
The accompanying consolidated financial statements do not include all
of the information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles. In the opinion of management, all adjustments (consisting only of
normal, recurring adjustments) considered necessary to fairly reflect the
Company's consolidated financial position and consolidated results of
operations have been included.
SATELLITE CONSTRUCTION
In March 1997, the Company extended its satellite construction
contract with Space Systems/Loral ("Loral") and amended the contract to allow
Loral to commence work associated with the program schedule. In April 1997 the
Company made its first payment of $6.5 million under this agreement.
BROADCAST LICENSE
In April 1997, the Federal Communications Commission held an auction
for two national satellite radio broadcast licenses. The Company was the
winning bidder in such auction for one of these licenses (the "FCC License")
with a bid price of $83.3 million. Of the total bid price, $16.7 million has
been deposited with the FCC, with the remainder due within 10 business days
following the public notice by the FCC that it is prepared to award the
license. The Company has classified $66.7 million as designated cash in the
June 30, 1997 balance sheet reflecting the balance due the FCC if and when the
license is awarded.
PRIVATE PLACEMENT
In April 1997, the Company completed a private placement of its 5%
Delayed Convertible Preferred Stock (the "5'% Preferred Stock"). The Company
sold a total of 5.4 million shares of the 5% Preferred Stock for an aggregate
sale price of $135 million. In connection with the private placement, the
Company paid $10.1 million in fees to its placement agent, Libra Investments,
Inc. ("Libra"), and $2.7 million to Batchelder & Partners, Inc., a financial
advisory firm. In addition, the Company agreed to grant a warrant to Libra to
purchase 486,000 shares of the 5% Preferred Stock with an exercise price of
$25.00 per share. As a result of the private placement, options to purchase
200,000 shares of Common Stock held by Batchelder & Partners, Inc. vest and
become exercisable for three years with an exercise price of $6.25. Reference
is made to the Company's report on Form 8-K filed May 5, 1997 for a description
of the terms of the 5% Preferred Stock.
4
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
SUBSEQUENT EVENTS
On July 22, 1997, the Company entered into two loan agreements
(collectively the "AEF Agreements") with Arianespace Finance S.A. ("AEF"), a
subsidiary of Arianespace S.A. ("Arianespace"), to finance approximately $105
million of the estimated $176 million price of the launch services to be
provided by Arianespace. Under these agreements, the Company is able to borrow
funds to meet the progress payments due to Arianespace for the construction of
each launch vehicle and other launch costs (the "Loans"). The Company has the
opportunity upon satisfying a variety of conditions specified in the AEF
Agreements to extend the Loans. Otherwise, if not refinanced, the Company will
be required to repay the Loans in full, together with accrued interest and all
fees and other amounts due, approximately three months before the applicable
launch date. The AEF Agreements impose restrictions on the Company's ability to
permit liens on certain assets of the Company, other than liens in favor of
AEF. If the loans are extended, the Company will be subject to provisions
restricting its ability to incur additional indebtedness or make investments.
On August 5, 1997, Loral agreed to an amendment to the Company's
satellite construction contract under which Loral agreed defer for three years
$20 million in payments to be made by the Company in connection with the
contract. In addition, on the same date, Loral's parent company, Loral Space &
Communications Ltd., purchased from the Company 1.9 million shares of common
stock for $25 million.
NET LOSS PER COMMON SHARE
Net loss per common share has been computed based on the weighted
average number of common and common equivalent shares outstanding. Common
equivalent shares representing the common shares that would be issued on
conversion of convertible securities and exercise of outstanding stock options
and warrants reduced by the number of shares which could be purchased from the
related exercise proceeds are not included since their effect would be
anti-dilutive.
The net loss attributable to common stockholders has been adjusted for
deemed dividends. The deemed dividend relates to the discount feature
associated with the Company's 5% Delayed Convertible Preferred Stock, computed
in accordance with the SEC's position on accounting for preferred stock which
is convertible at a discount to the market. The discount, which totaled
approximately $52 million, will be recognized as a return to the 5% Delayed
Convertible Preferred Stock shareholders over the period April 1997 through
July 1997, which is the minimum period in which the shareholders can realize
that return.
5
3 months 6 months
ended ended
June 30, June 30,
1997 1997
-------- --------
Net loss $ (353,825) $ (834,985)
Deemed dividends
on preferred stock (43,312,500) (43,312,500)
--------------- --------------
Net loss attributable
to common stockholders ($43,666,325) ($44,147,485)
=============== ==============
Per common share:
Net loss $ (.03) $ (.08)
Deemed dividends on
on preferred stock (4.20) (4.20)
----- -----
Net loss attributable to
common stockholders $ (4.23) $ (4.28)
===== =====
For reporting periods ending after December 15, 1997, the Company will
be required to report earnings (loss) per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). As
long as the Company continues to experience net losses, there will be no
material impact on the Company's net loss per share from adoption of SFAS 128.
6