MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
CD Radio Inc. was founded in 1990 to pioneer and commercialize a
compact disc quality, multi-channel radio service broadcast directly from
satellites to vehicles and is in its development stage. The Company's principal
activities to date have included technology development, pursuing regulatory
approval for CD Radio, market research, design, development, contract
negotiations with satellite and launch vehicle contractors, technical efforts
with respect to standards, and securing adequate financing for working capital
and capital expenditures. The Company does not expect to derive any revenues
from operations prior to the commercial launch of CD Radio, which is expected
to occur no earlier than the end of 1999. The Company has incurred substantial
losses to date and expects to incur substantial losses until at least a year
after the commercial launch of CD Radio. The Company will require substantial
additional capital to complete development and commence commercial operations.
Upon commencing commercial operations, the Company expects its primary
source of revenues to be monthly subscription fees. The Company currently
anticipates that its subscription fee will be approximately $10 per month to
receive CD Radio broadcasts, with a one time, modest activation fee per
subscriber. To receive the service, subscribers will need to purchase a radio
card or S-band radio and a miniature satellite dish antenna. The Company does
not intend to manufacture these products and thus will not receive any revenues
from their sale. Although the Company holds patents covering certain technology
to be used in the radio cards, S-band radios and satellite dish antennas, the
Company expects to license its technology to manufacturers at no charge. As the
number of subscribers to CD Radio increases, the Company may also derive
revenues from producers of sports, news and talk programming for providing
national distribution of their programming to subscribers.
The Company expects that the operating expenses associated with
commercial operations will consist primarily of costs to acquire programming;
costs to maintain and operate its satellite broadcasting system and studio;
sales, general and administrative costs; and royalties paid for rights to
programming (calculated based on a percentage of revenue). Costs to acquire
programming are expected to include payments to build and maintain an extensive
music library and royalty payments for broadcasting music. Sales, general and
administrative costs are expected to consist primarily of advertising costs,
salaries of studio personnel, program hosts, technical staff, rent and other
administrative expenses. The Company expects that the number of its employees
will increase from 10 to approximately 100 by the time it commences commercial
operations.
In addition to funding initial operating losses, the Company will require
funds for working capital, interest and financing costs on borrowings and
capital expenditures. The Company's interest expense will increase
significantly as a result of its financing plan. However, a substantial portion
of its planned indebtedness will not require cash payments of interest and
principal for some time. |
