XM Radio 1999 Annual Report Download - page 47

45 1999 ANNUAL REPORT
At December 31, 1997, 1998 and 1999, deferred income tax consists of future tax assets/(liabilities)
attributable to the following:
December 31,
1997 1998 1999
(in thousands)
Deferred tax assets:..................................................................................
Net operating loss/other tax attribute carryovers................................. $ 36 $ 477 $ 2,650
Start-up costs.................................................................................... 710 7,501 17,605
Gross total deferred tax assets.................................................... 746 7,978 20,255
Valuation allowance for deferred tax assets................................................. (746) (7,978) (4,819)
Net deferred assets .................................................................... — — 15,436
Deferred tax liabilities: ...............................................................................
Fixed assets...................................................................................... — — (51)
FCC license ....................................................................................... — — (10,160)
Other intangible assets....................................................................... — — (5,225)
Net deferred tax liabilities ............................................................ — — (15,436)
Deferred income tax, net ............................................................. $ — $ — $ —
(11) Accumulated Deficit
The Company is devoting its efforts to develop, construct and expand a digital audio radio network. This effort
involves substantial risk and future operating results will be subject to significant business, economic, regulatory,
technical, and competitive uncertainties and contingencies. These factors individually or in the aggregate could
have an adverse effect on the Company’s financial condition and future operating results and create an
uncertainty as to the Company’s ability to continue as a going concern. The financial statements do not include
any adjustments that might be necessary should the Company be unable to continue as a going concern.
In order to commence satellite-based radio broadcasting services, the Company will require substantial funds to
develop and construct the DARS system, develop and launch radio communications satellites, retire debt
incurred in connection with the acquisition of the DARS license and to sustain operations until it generates
positive cash flow.
At the Company’s current stage of development, economic uncertainties exist regarding successful acquisition of
additional debt and equity financing and ultimate profitability of the Company’s proposed service. The Company
is currently constructing its satellites and will require substantial additional financing before construction is
completed. Failure to obtain the required long-term financing will prevent the Company from realizing its objective
of providing satellite-delivered radio programming. Management’s plan to fund operations and capital expansion
includes the additional sale of debt and equity securities through public and private sources. There are no
assurances, however, that such financing will be obtained.
(12) Commitments and Contingencies
(a) FCC License
The FCC has established certain system development milestones that must be met for the Company to maintain
its license to operate the system. The Company believes that it is proceeding into the system development as
planned and in accordance with the FCC milestones.
(b) Application for Review of FCC License
One of the losing bidders for the DARS licenses filed an Application for Review by the full FCC of the Licensing
Order which granted the Company its FCC license. The Application for Review alleges that WSI had effectively