As filed with the Securities and Exchange Commission on January 29, 1997.
Registration No. 33-80321
==========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 3 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
SECURITIES ACT OF 1933
REDWOOD BROADCASTING, INC.
----------------------------------------------
(Name of small business issuer in its Charter)
Colorado 4832 84-1295270
- ---------------------------- ------------------------- ------------------
(State or other jurisdiction (Primary Standard IRS Employer
of incorporation or Industrial Classification Identification
organization) Code Number) Number
8 Elbow Bend Rd., Bldg. A, Ste. I John C. Power, President
P.O. Box 3463 7518 Elbow Bend Rd., Bldg. A, Ste. I
Carefree, Arizona 85377 P.O. Box 3463
(602) 488-2596 Carefree, Arizona 85377
- --------------------------------- (602) 488-2596
(Address, including zip code, and ------------------------------------
telephone number, including area (Name, address, including zip code,
code, of Registrant's principal and telephone number, including area
executive offices) code, of Agent for service of
process)
REDWOOD MICROCAP FUND, INC.
----------------------------------------------
(Name of small business issuer in its Charter)
Colorado 6282 84-0937822
- ---------------------------- ------------------------- ------------------
(State or other jurisdiction (Primary Standard IRS Employer
of incorporation or Industrial Classification Identification
organization) Code Number) Number
7518 Elbow Bend Rd., Bldg. A, Ste. I John C. Power, President
P.O. Box 3463 7518 Elbow Bend Rd., Bldg. A, Ste. I
Carefree, Arizona 85377 P.O. Box 3463
(602) 488-2596 Carefree, Arizona 85377
- --------------------------------- (602) 488-2596
(Address, including zip code, and ------------------------------------
telephone number, including area (Name, address, including zip code,
code, of Registrant's principal and telephone number, including area
executive offices) code, of Agent for service of
process)
Copies to:
Clifford L. Neuman, Esq.
Neuman & Cobb
1507 Pine Street
Boulder, Colorado 80302
(303) 449-2100
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of the Registration
Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check, the following box. / X /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
==========================================================================<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Title of Maximum Maximum
Each Class of Amount Offering Aggregate Amount of
Securities To be Price Per Offering Registration
To be Registered Registered Share(1) Price(1) Fee
- ------------------- ------------ --------- --------- ------------
<S> <C> <C> <C> <C>
Common Stock,
$.004 par value (2) 500,429 $2.00 $1,000,858 $345.12
Common Stock,
$.004 par value (3) 300,008 $.0013 $400.01 $0.14
Common Stock,
$.004 par value 400,000 $2.00 $800,000 $275.86
Common Stock
Put Options (4) 203,008 $1.50 $304,512 $105.01
Put Option
Guarantees (5) 203,008 -0- -0- -0-
TOTAL: $2,105,770 $726.13
- ----------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Constitutes shares of Common Stock being offered by certain Selling
Shareholders of the Company. (See "TERMS OF THE OFFERINGS -- Selling
Shareholders Offering.")
(3) Consists of Common Stock to be distributed to holders of record of Cell
Robotics International, Inc. ("CRI") common stock on December 16, 1994
(the "Spin-Off Record Date") to effect a spin-off of the Company (the
"Spin-Off") pursuant to the terms of a certain Agreement and Plan of
Reorganization between and among CRI, Cell Robotics, Inc., a New Mexico
corporation, MiCEL, Inc., a Delaware corporation and others, dated as of
December 12, 1994 ("CRI Agreement"). The CRI Shareholders will not be
charged or assessed, and the Company will receive no consideration, for
the distribution of the foregoing shares of Common Stock in the Spin-Off.
There currently exists no market for the Company's securities and the
Company has an accumulated capital deficit. As a result, the registration
fee has been calculated based on one-third (1/3) of the par value of the
shares in accordance with the provisions of Rule 457(f)(2).
(4) Consists of Common Stock Put Options ("Puts") to be issued to certain CRI
Shareholders ("Putholders") pursuant to the terms of the RBI Agreement,
which Puts will grant to the holders thereof the right and option to sell
to the Company up to 203,008 shares of the Company's Common Stock at a
price of $1.50 per share. The Putholders will not be charged or assessed,
and the Company will receive no consideration, for the issuance of the
Puts. The registration fee has been calculated in accordance with the
provisions of Rule 457(g).
(5) Consists of the guarantee of Redwood Microcap Fund, Inc. ("Microcap") of
the Company's obligation under the Puts.
</TABLE>
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
REDWOOD BROADCASTING, INC.
CROSS-REFERENCE INDEX
Item No. and Heading
In Form SB-2 Location
Registration Statement in Prospectus
---------------------- -------------
1. Forepart of the Registration Forepart of Registration
Statement and outside front cover Statement and outside front
page of Prospectus cover page of Prospectus
2. Inside front and outside back cover Inside front and outside back
pages of Prospectus cover pages of Prospectus
3. Summary Information, Risk Factors PROSPECTUS SUMMARY; RISK
and Ratio of Earnings to Fixed FACTORS
Charges
4. Use of Proceeds USE OF PROCEEDS
5. Determination of Offering Price Front Cover Page; TERMS OF
OFFERING - Company Offering
6. Dilution DILUTION
7. Selling Securityholders TERMS OF OFFERINGS - The Selling
Shareholders' Offering
8. Plan of Distribution TERMS OF OFFERINGS
9. Legal Proceedings LEGAL PROCEEDINGS
10. Directors, Executive Officers, MANAGEMENT
Promoters and Control Persons
11. Security Ownership of Certain SECURITY OWNERSHIP OF
Beneficial Owners and Management MANAGEMENT AND PRINCIPAL
SHAREHOLDERS
12. Description of Securities to be DESCRIPTION OF SECURITIES
Registered
13. Interest of Named Experts and Counsel LEGAL MATTERS; EXPERTS
14. Disclosure of SEC Position on INDEMNIFICATION
Indemnification for Securities Act
Liabilities
15. Organization Within Last Five Years *
16. Description of Business PROSPECTUS SUMMARY; RISK FACTORS;
BUSINESS; REDWOOD MICROCAP FUND,
INC.
17. Management's Discussion and Analysis MANAGEMENT'S DISCUSSION AND
Plan of Operation ANALYSIS OR PLAN OF OPERATION;
FINANCIAL STATEMENTS
18. Description of Property BUSINESS
19. Certain Relationships and Related CERTAIN TRANSACTIONS
Transactions
20. Market for Common Equity and Related MARKET FOR COMMON STOCK
Stockholder Matters
21. Executive Compensation EXECUTIVE COMPENSATION
22. Financial Statements FINANCIAL STATEMENTS
23. Changes in and Disagreements *
with Accountants on Accounting
and Financial Disclosure
- ---------------------
* Omitted from Prospectus because Item inapplicable or answer is in the
negative.
<PAGE>
PROSPECTUS
REDWOOD BROADCASTING, INC.
----------------------------------------------------------
1,200,437 Shares of
$.004 Par Value Common Stock
----------------------------------------------------------
203,008
Common Stock Put Options
----------------------------------------------------------
REDWOOD MICROCAP FUND, INC.
----------------------------------------------------------
203,008 Put Option Guarantees
----------------------------------------------------------
This Prospectus relates to four (4) offerings of securities of Redwood
Broadcasting, Inc., f/k/a Intelligent Financial Holding Corporation, a Colorado
corporation (the "Company" or "RBI"). The first offering (the "Spin-Off
Offering") relates to the distribution by Cell Robotics International, Inc., a
Colorado corporation ("CRI"), the Company's former parent corporation, of up to
300,008 shares of the Company's $.004 par value common stock (the "Common
Stock"), as a spin-off (the "Spin-Off Shares" and "Spin-Off," respectively)
pursuant to the terms of a certain Agreement and Plan of Reorganization between
and among CRI, Cell Robotics, Inc., a New Mexico corporation ("Cell"), MiCEL,
Inc., a Delaware corporation, and others, dated as of December 12, 1994 (the
"CRI Agreement"), pursuant to which CRI agreed to distribute all 300,008 shares
of Company Common Stock owned by it to the shareholders of record of CRI (the
"CRI Shareholders") as of December 16, 1994 (the "Spin-Off Record Date") upon
the effective date of the Registration Statement of which this Prospectus forms
a part (the "Registration Statement"). The Spin-Off Shares will be distributed
by mail within 10 days after the effective date of the Registration Statement
on a "pro-rata" one-for-one (1-for-1) basis, with each CRI Shareholder entitled
to receive without cost one (1) share of Company Common Stock for every share
of CRI common stock held of record on the Spin-Off Record Date. The Company is
bearing all costs incurred in connection with the Spin-Off Offering. (See
"TERMS OF OFFERINGS - The Spin-Off Offering.")
This Prospectus also relates to the offering by the Company to the public
of up to 400,000 shares of the Company's $.004 par value Common Stock at an
offering price of $2.00 per share, (the "Company Offering"). The Company is
offering the shares of Common Stock to the public through its officers and
directors. The Company may retain the services of Selling Agents who are
members of the National Association of Securities Dealers to assist in the
Company Offering. On any sales made by Selling Agents, a commission of up to
ten percent (10%) may be paid. To date, there exists no arrangements or
commitments by the Company to retain any Selling Agent. (See "TERMS OF
OFFERINGS - THE COMPANY OFFERING.")
This Prospectus also relates to the issuance by the Company to certain CRI
Shareholders (the "Putholders") of up to 203,008 Common Stock Put Options (the
"Puts" and "Put Offering," respectively) pursuant to the terms of a certain
Agreement and Plan of Reorganization between and among the Company, Redwood
Broadcasting, Inc., a Colorado corporation ("Broadcasting") and Redwood
MicroCap Fund, Inc., a Colorado corporation ("MicroCap") dated as of June 16,
1995 (the "RBI Agreement"). The Puts grant to each Putholder the right and
option to sell to the Company and require the Company to purchase for
redemption, all or a portion of the shares of Common Stock which the Putholder
has the right to receive in the Spin-Off Offering. The Puts will require the
Company to purchase and redeem any and all shares tendered in accordance with
the terms of the Puts at a price of $1.50 per share (the "Put Redemption
Price"). The Puts will be exercisable for a period of ninety (90) days
following the effective date of the Registration Statement of which this
Prospectus forms a part. The Puts being issued to the Putholders will be
distributed by mail within 10 days after the effective date of the Registration
Statement. The Putholders will not be charged or assessed for Puts and the
Company will not receive any proceeds from the distribution of the Puts. The
Company is bearing the cost of the Put Option Offering. (See "TERMS OF
OFFERINGS - THE PUT OPTION OFFERING.")
The obligation of the Company to pay the Put Redemption Price upon
exercise of the Puts has been guaranteed by Microcap, a principal shareholder
of the Company. The issuance by Microcap of the guarantee under the Puts is
being registered in the Registration Statement of which this Prospectus forms a
part. The guarantee of Microcap is secured by a pledge by Microcap in favor of
the Company of 195,371 shares of Common Stock of the Company also being
registered herewith as part of the Selling Shareholder Offering. By virtue of
Microcap's guarantee, Microcap would be deemed a co-issuer of securities
herein. Pursuant to the guarantee and stock pledge, in the event that the
Company is unable to purchase and redeem shares of Common Stock pursuant to the
exercise of a Put, and Microcap defaults in its guarantee to pay the Put
Redemption Price, shares of Microcap subject to the pledge may be sold under
this Prospectus, the proceeds of which will be used to pay the Put Redemption
Price. As the Put Options expire 90 days following the effective date of the
Registration Statement, the Company does not anticipate updating the Prospectus
during the term of the Put Option to reflect the sale of pledged shares unless,
in the judgment of the Company, the number of shares sold becomes material.
Finally, this Prospectus relates to the offer and sale of 500,429 shares
of Common Stock by certain shareholders of the Company (the "Selling
Shareholders" and "Selling Shareholder Offering," respectively). 195,371
shares of Common Stock being offered by the Selling Shareholders have been
pledged by MicroCap as security for its guarantee of the Company's obligation
to purchase and redeem up to 203,008 shares of Common Stock upon exercise of
the Puts. The Company will not receive any of the proceeds from the sales of
the Common Stock by the Selling Shareholders. The Common Stock offered by the
Selling Shareholders may be sold by them from time to time commencing on the
date of this Prospectus, based upon prevailing market conditions for the
Company's Common Stock. No underwriting arrangements have been entered into by
the Selling Shareholders. Sales of Common Stock by the Selling Shareholders
may be effected in one or more transactions that may take place on the over-
the-counter market, including ordinary broker's transactions, privately-
negotiated transactions or through sales to one or more dealers for resale of
such shares as principals, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or negotiated prices. Usual
and customary or specifically negotiated brokerage fees or commissions may be
paid by the Selling Shareholders in connection with the sales of securities.
The Selling Shareholders may be deemed to be "Underwriters" as defined in
the Securities Act of 1933 (the "Securities Act"). If any broker-dealers are
used by the Selling Shareholders, any commissions paid to broker-dealers and,
if broker-dealers purchase any securities as principals, any profits received
by such broker-dealers on the resales of the securities may be deemed to be
underwriting discounts or commissions under the Securities Act. In addition,
any profits realized by the Selling Shareholders may be deemed to be
underwriting commissions. By agreement between the Company and the Selling
Shareholders, all costs, expenses and fees in connection with the registration
of the securities offered by Selling Shareholders will be borne by the Company.
Brokerage commissions, if any, attributable to the sale of the securities will
be borne by the Selling Shareholders. The Company has agreed to indemnify the
Selling Shareholders against certain liabilities, including liabilities under
the Securities Act. (See "SELLING SHAREHOLDERS" and "PLAN OF DISTRIBUTION.")
This Prospectus does not relate to any resales of Common Stock by the
transferees of the Selling Shareholders.
Prior to this Offering, there has been no public market for the Common
Stock or the Puts, and despite the anticipated listing of the Common Stock and
Puts on the over-the-counter market, there is no assurance that an active
market will develop in the Common Stock or Puts. The Company intends to
develop separate trading markets for the Common Stock and the Puts on the over-
the-counter market. The Company, however, has no arrangements with any broker
or dealer to act as a market maker for the Company's securities and there can
be no assurance that the Company will be successful in obtaining any market
makers.
-------------------------------------------------
THESE ARE SPECULATIVE SECURITIES AND INVOLVE A HIGH DEGREE OF RISK AND NO
ONE SHOULD INVEST IN THESE SECURITIES UNLESS HE OR SHE CAN AFFORD A COMPLETE
LOSS OF HIS OR HER INVESTMENT.
-------------------------------------------------
FOR DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED IN EVALUATING
AN INVESTMENT IN THE COMPANY, SEE "RISK FACTORS" COMMENCING AT PAGE 15.
-------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Proceeds to
Price Selling Proceeds Selling
to Agents' to Security-
Public Commission Company holders (4)(5)
- -------------------- --------- ---------- ----------- --------------
<S> <C> <C> <C> <C>
Per Share (1)(2).... $2.00 $0.20 (3) $1.80 *
-------- --------- ----------- --------------
Total $800,000 $80,000 $720,000(4) *
- -------------------- -------- --------- ----------- --------------
(See Footnotes on following page)
The Date of This Prospectus is _____________, 1997.
(1) Contemplates the offering by the Company of up to 400,000 shares of the
Company's $.004 par value Common Stock at an offering price of $2.00 per
share in the Company Offering.
(2) The Company will not receive any proceeds from the distributions
contemplated in the Selling Shareholders Offering or Put Option Offering.
(3) No underwriter has been engaged to participate in the Company Offering.
Consequently, the Company will offer shares of Common Stock in the Company
Offering primarily through its officers and directors and possibly through
broker-dealers who are members of the National Association of Securities
Dealers, Inc. ("Selling Agents"). No commission or finders' fees will be
paid on sales made by officers and/or directors. On sales made by Selling
Agents, a commission will be paid. The Company's Board of Directors has
authorized payment of commissions to Selling Agents up to ten percent
(10%) of the purchase price of each share of Common Stock sold, or $.20
per share. To the extent that sales will be made through such Selling
Agents, the net proceeds to the Company will be reduced by the
commissions. Although it is unlikely, if all of the shares of Common
Stock are offered and sold through such Selling Agents, $80,000 would be
paid as commissions and the net proceeds to the Company would be $720,000
if the maximum number of shares of Common Stock are sold, excluding
expenses of the Offering. To date, no Selling Agents have been retained
or are under any obligation to participate in the distribution of the
shares in the Company Offering
(4) Before deducting the expenses of the Offering, including legal, accounting
and printing expenses, estimated to be $50,000. Assumes the sale of all
400,000 shares of Common Stock being offered by the Company at $2.00 per
share.
(5) The Selling Shareholders will offer their shares in transactions in the
over-the-counter market at prices obtainable at the time of sale in
privately-negotiated transactions at prices determined by negotiation. The
Selling Shareholders may effect transactions by selling to or through
securities broker-dealers and such broker-dealers may receive compensation
in the form of discounts, concessions, or commissions from the Selling
Shareholders. While it is impracticable to determine the precise amount
that the Selling Shareholders will incur, it is anticipated that any such
discounts, selling concessions or commissions will be consistent with
those customarily charged by broker-dealers who are members of the
National Association of Securities Dealers, Inc. ("NASD").
(6) The net proceeds to be realized by the Selling Shareholders will be an
amount equal to the gross selling price of the shares, as determined by
the market, less any discounts, concessions or commissions paid to the
broker-dealers.
</TABLE>
No person is authorized in connection with any offering made hereby to
give any information or to make any representation other than as contained in
this Prospectus, and if given or made, such information or representation must
not be relied upon as having been authorized by the Company. This Prospectus
does not constitute an offer to sell, or a solicitation of an offer to buy, by
any person in any jurisdiction in which it is unlawful for such person to make
such an offer or solicitation. Neither the delivery of this Prospectus nor any
sale made hereunder shall under any circumstances create any implication that
the information herein is correct as of any date subsequent to the date hereof.
<PAGE>
AVAILABLE INFORMATION
---------------------
The Company has filed a Registration Statement on Form SB-2 with the
Securities and Exchange Commission, Washington, D.C. (the "Commission"), in
accordance with the provisions of the Securities Act of 1933, as amended (the
"Act"). This Prospectus does not contain all of the information set forth in
the Registration Statement, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. For further
information pertaining to the shares of Common Stock offered hereby and the
Company, reference is made to the Registration Statement, including the
exhibits and financial statement schedules filed as a part thereof. Statements
herein contained concerning the provisions of any document are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an Exhibit to the Registration Statement. Each such statement is
qualified in its entirety by such reference. The Registration Statement may be
obtained from the Commission upon payment of the fees prescribed therefor and
may be examined at the principal office of the Commission in Washington, D.C.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-9-
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-9-
THE SPIN-OFF OFFERING . . . . . . . . . . . . . . . . . . . . . . . . -12-
THE PUT OPTION OFFERING . . . . . . . . . . . . . . . . . . . . . . . -12-
COMPANY OFFERING. . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
THE SELLING SHAREHOLDERS' OFFERING. . . . . . . . . . . . . . . . . . -14-
RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
SUMMARY FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . . . -14-
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
RISK FACTORS RELATED TO THE BUSINESS OF THE COMPANY . . . . . . . . . -16-
RISK FACTORS RELATED TO THIS OFFERING . . . . . . . . . . . . . . . . -20-
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
DILUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. . . . . . . . . -25-
OVERVIEW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
LIQUIDITY AND CAPITAL RESOURCES - MARCH 31, 1996 COMPARED TO
JULY 31, 1995. . . . . . . . . . . . . . . . . . . . . . . . . . -25-
RESULTS OF OPERATIONS - EIGHT MONTHS ENDED MARCH 31, 1996
COMPARED WITH FISCAL YEAR ENDED JULY 31, 1995. . . . . . . . . . -30-
LIQUIDITY AND CAPITAL RESOURCES - SEPTEMBER 30, 1996 TO
MARCH 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . -31-
RESULTS OF OPERATIONS - SIX MONTHS ENDED SEPTEMBER 30, 1996
COMPARED WITH SIX MONTHS ENDED SEPTEMBER 30, 1995. . . . . . . . -32-
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
OVERVIEW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
HISTORY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
ACQUISITIONS AND DEVELOPMENT. . . . . . . . . . . . . . . . . . . . . -36-
OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37-
REDWOOD MICROCAP FUND, INC.. . . . . . . . . . . . . . . . . . . . . . . . -46-
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -47-
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES . . . . . . . . . . . -47-
DIRECTOR COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . -48-
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . -49-
1995 INCENTIVE STOCK OPTION PLAN. . . . . . . . . . . . . . . . . . . -50-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . -51-
DESCRIPTION OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . -53-
COMMON STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -53-
PREFERRED SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . -53-
COMMON STOCK PUT OPTIONS. . . . . . . . . . . . . . . . . . . . . . . -53-
TERMS OF OFFERINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . -55-
THE SPIN-OFF OFFERING . . . . . . . . . . . . . . . . . . . . . . . . -55-
THE PUT OPTION OFFERING . . . . . . . . . . . . . . . . . . . . . . . -55-
THE COMPANY OFFERING. . . . . . . . . . . . . . . . . . . . . . . . . -57-
THE SELLING SHAREHOLDERS' OFFERING. . . . . . . . . . . . . . . . . . -57-
CERTAIN TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . -61-
CRI AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . -61-
RBI AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . -61-
MICROCAP GUARANTEE. . . . . . . . . . . . . . . . . . . . . . . . . . -61-
MICROCAP DEBT CONVERSION. . . . . . . . . . . . . . . . . . . . . . . -62-
MICROCAP CONSULTATION AGREEMENT . . . . . . . . . . . . . . . . . . . -62-
TRIPOWER RESOURCES, INC. DEBT OBLIGATION. . . . . . . . . . . . . . . -62-
MICROCAP ADVANCES . . . . . . . . . . . . . . . . . . . . . . . . . . -62-
J. ANDREW MOORER STOCK PURCHASE . . . . . . . . . . . . . . . . . . . -62-
POWER CURVE, INC. STOCK PURCHASE. . . . . . . . . . . . . . . . . . . -63-
INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -63-
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -63-
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -63-
INDEMNIFICATION OF DIRECTORS AND OFFICERS. . . . . . . . . . . . . . . . . -65-
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. . . . . . . . . . . . . . . . -70-
RECENT SALES OF UNREGISTERED SECURITIES. . . . . . . . . . . . . . . . . . -70-
EXHIBITS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -71-
UNDERTAKINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -72-
</TABLE>
<PAGE>
[The following text is contained in a box]
PROSPECTUS SUMMARY
------------------
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED AND PRO FORMA FINANCIAL STATEMENTS, INCLUDING THE
RELATED NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
-----------
Redwood Broadcasting, Inc., f/k/a Intelligent Financial Holding
Corporation (the "Company" or "RBI") and its subsidiaries operate in the
rapidly-developing and expanding radio broadcasting industry in Northern
California and Arizona. The Company has embarked upon an aggressive
acquisition and development strategy and continues to seek acquisition and
development opportunities in the broadcast industry.
By agreement dated June 16, 1995, the Company acquired one hundred percent
(100%) of the issued and outstanding shares of Common Stock of Broadcasting in
exchange for 300,000 shares of Common Stock of the Company. Following the
acquisition, Broadcasting was merged with and into the Company, with the
Company remaining as the surviving entity. Thereafter, at a special meeting of
the Company's shareholders an amendment of the Company's Articles of
Incorporation changing the Company's name to Redwood Broadcasting, Inc. was
approved.
Broadcasting was incorporated in 1993 by entrepreneurs focused on
acquiring and developing undervalued radio broadcasting properties located in
small-to-medium sized markets as defined by industry standards. Broadcasting
began broadcast operations by entering into a joint venture with Quick
Broadcasting, Inc., an established broadcaster, to pursue the acquisition of a
station licensed to Vallejo, California. The station was attractive to
Broadcasting as it was eligible for the "Expanded Band" which, if granted,
would increase the station's broadcast capability. Greater signal range would
encompass more listeners which, in turn, would attract more advertising
clients. In addition, the purchase included real property that had a defined
buyer. The acquisition was completed in October, 1993, and in a simultaneous
separate transaction, the real property was sold leaving Broadcasting with a
minimal cash outlay for its capital investment. In 1994, Broadcasting sold its
fifty percent ownership interest in the joint venture.
In May, 1994, Broadcasting formed a wholly-owned subsidiary, Alta
California Broadcasting, Inc. ("Alta"), to pursue radio acquisition
opportunities it had determined were available in northern California. In
June, 1994, Alta entered into an Asset Purchase Agreement to acquire KHSL-AM\FM
licensed to Chico and Paradise, California respectively ("KHSL"). The
acquisition, valued at $1.15 million, included 11.7 acres of real property
located in Chico zoned for residential housing. The real property was sold in
April, 1996, for $450,000. Alta began operating KHSL in February, 1995 under a
Local Management Agreement ("LMA") while the station licenses were submitted to
the FCC to approve the change in ownership. In April, 1995, Alta also changed
the call letters of KHSL-AM to KNSN or KNSN Talk 1290. Located at 1290 on the
AM band, KNSN's programming is primarily originated through satellite
programming companies. In June, 1995, Alta completed the acquisition of KHSL
resulting in a termination of the LMA.
In March, 1995, Alta entered into an LMA with an option to purchase radio
station KCFM-FM licensed to Shingletown, California. KCFM-FM primarily serves
the Redding, California market. KCFM-FM began commercial broadcasting in
August, 1995, with a "Country" music format. The source of the programming was
simulcasting with KHSL-FM, also a country music format station, through the use
of high speed data transmission lines. In September, 1995, KCFM-FM changed its
call letters to KHZL-FM. During the Company's review of the performance of
KHZL-FM, it was decided that a format change would best serve the goal of
revenue enhancement. A new music format was developed using a satellite
delivered "Oldies" format. The change proved to be highly successful as KHZL-
FM posted a rating of 6.4 in The Arbitron Company's ("Arbitron") 1996 Spring
Survey versus not qualifying for any rated status in the Fall Survey under the
previous format. In May, 1996, Alta applied for an upgrade to increase the
station's broadcast power, the granting of which cannot be assured. In July,
1996, Alta completed the acquisition of KHZL-FM, thereby terminating the LMA.
Effective September 27, 1996, Alta changed KHZL-FM's call letters to KRDG-FM.
In December, 1995, Alta formed its own wholly-owned subsidiary, Northern
California Broadcasting, Inc. ("Northern"), to pursue the acquisition of radio
station KNNN-FM licensed to Central Valley, California, which primarily serves
the Redding, California market with an "Adult Contemporary" format. In May,
1996, Northern entered into an Asset Purchase Agreement to acquire KNNN-FM.
KNNN has obtained an upgrade to increase the station's broadcast power.
In March, 1996, Alta entered into separate Asset Sale Agreements to sell
the assets of both KHSL-FM and KNSN-AM, in a transaction valued at
$1.47 million. The proceeds from closing, which is scheduled to close on March
12, 1997 and is awaiting approval from the FCC for a change of ownership and
certain engineering modifications, will provide the capital for the Company's
plan of expansion into Redding, California, a market with greater opportunity
for the Company to implement its strategy to acquire multiple stations and
become a dominate force, unlike the Chico, California market, which has already
been consolidated.
In May, 1996, Alta also entered in an Asset Purchase Agreement to acquire
radio station KLXR-AM, presently a "dark" station (a station not broadcasting)
licensed to and serving the Redding, California market.
The Company has also filed for, and is the only applicant seeking, a
construction permit for an FM radio station in Payson, Arizona. Payson is not
a ranked market in the industry and the Company has no current plans to develop
the station. In July, 1996, Alta filed an application with the FCC for the
issuance of a construction permit to build an FM radio station to be licensed
to Shasta Lake City, California, which would also serve the Redding, California
market. In August, 1996, the Company also filed for a construction permit for
an FM radio station in Mesquite, Nevada. Numerous applicants are seeking
construction permits in both Shasta Lake City and Mesquite. As a result, there
can be no assurance that the Company's will be granted these construction
permits, or if granted, that the Company will have the resources or ability to
construct, and thereafter operate, one or both of the stations.
The Company's focus will continue to be multi-station ownership in small
and medium markets which it has termed its "Heartland" strategy. It believes
the markets it terms as "Heartland" markets tend to attract small local
operators with limited financial resources. The small-to-mid-sized market as
rated by Arbitron, in terms of population, holds a ranking of 150 to 250.
There are between 10,000 and 11,000 radio stations in the United States, the
majority of which are located in markets ranked small-to- medium sized,
"Heartland" sized, which offers the Company multiple opportunities for
acquisitions. To this end, the Company regularly evaluates possibilities for
the acquisition of additional radio stations, but at present, except as set
forth above, there are no negotiations, or arrangements or understandings with
respect to any potential material acquisition. (See "BUSINESS".)
The Company maintains its principal executive offices at Building A,
Suite I, 7518 Elbow Bend Road, P.O. Box 3463, Carefree, Arizona 85377, where
its telephone number is (602) 488-2596.
<PAGE>
THE SPIN-OFF OFFERING
- ---------------------
Purpose: To permit the distribution of shares of
the Company's Common Stock issuable to
the CRI Shareholders pursuant to the
terms of the Spin-Off.
Securities Offered: 300,008 shares of Common Stock.
Terms of the Spin-off (1): Upon the effective date of the
Registration Statement and the
qualification of the Offering under all
applicable state Blue Sky laws, the
Company will distribute to the CRI
Shareholders of record as of December
16, 1994, on a "pro rata" one-for-one
(1-for-1) basis, 300,008 shares of the
Company's Common Stock, which shares
are currently being held in escrow
pursuant to the terms of the CRI
Agreement.
- -----------------------------------
(1) Pursuant to the terms of the CRI Agreement, the Company was formed and
organized by CRI as a wholly-owned subsidiary. 300,008 shares of Company
Common Stock were issued to CRI and escrowed to be distributed to the
Shareholders of record of CRI as of December 16, 1994 upon the effective
date of the Registration Statement. Does not include any of the 695,750
shares of Common Stock of the Company issued in transactions following the
initial formation and organization of the Company by CRI.
<PAGE>
THE PUT OPTION OFFERING
- -----------------------
Purpose: To give those CRI Shareholders with the
right to acquire shares of the
Company's Common Stock in the Spin-Off
Offering the right and option to sell
to the Company any or all Spin-Off
Shares.
Terms of the Puts:
Put Price: $1.50 per share
Expiration Date: The Puts will be exercisable for a
period of ninety (90) days following
the effective date of the Registration
Statement.
Maximum Number of Puts: 203,008
Guarantee: The Company's obligation to purchase
and redeem up to 203,008 shares of the
Company' Common Stock upon exercise of
the Puts has been guaranteed by
MicroCap, which guarantee is secured by
a pledge of 195,371 shares of the
Company's Common Stock owned by
MicroCap which are included in the
shares being registered for resale by
the Selling Shareholders.
COMPANY OFFERING
- ----------------
Securities Offered: 400,000 shares of Common Stock, $.004
par value.
Offering Price: $2.00 per share
Common Shares Outstanding:
Before Offering: 995,758
After Offering:(2) 1,395,758
Use of Proceeds: The proceeds, if any, from the Company
Offering will be used for working
capital and debt retirement (See "USE
OF PROCEEDS".)
- ----------------------------------------
(2) Assumes no Put Options are exercised.
<PAGE>
THE SELLING SHAREHOLDERS' OFFERING
- ----------------------------------
Securities Offered: 500,429 shares of Common Stock, $.004
par value (See "DESCRIPTION OF
SECURITIES.")
Offering Price: Prevailing market price
RISK FACTORS
------------
Investment in the securities offered by this Prospectus involves a high
degree of risk, including development stage of business, lack of profitable
operating history, lack of working capital, and possible volatility of price of
Common Stock. Prospective investors should carefully consider the factors set
forth under "RISK FACTORS."
SUMMARY FINANCIAL DATA
----------------------
Set forth below is selected summary financial information with
respect to the Company. Financial information for the eight months ended March
31, 1996, for the years in the two-year period ended July 31, 1995 and 1994,
and as of and for the six months ended September 30, 1996 and September 30,
1995 is derived from the financial statements included elsewhere in this
Prospectus and is qualified by reference to such financial statements and the
notes related thereto.
<PAGE>
<TABLE>
<CAPTION>
QUALITY BROADCASTERS OF
RBI CONSOLIDATED CALIFORNIA, L.P. (KNNN) RBI CONSOLIDATED
FOR THE FOR THE YEARS FOR THE 6 MONTHS
------------------------ ENDED ENDED
8 MOS ENDED YEAR ENDED ---------------------- -----------------------
STATEMENTS OF MARCH 31 JULY 31 MARCH 31 MARCH 31 SEPT. 30 SEPT. 30
OPERATIONS DATA: 1996 1995 1996 1995 1996 1995
- --------------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 429,386 $ 367,548 $ 725,163 $ 803,849 $ 130,847 $ 341,559
Operating (Loss) (363,121) (160,453) (102,350) (131,758) (168,503) (130,281)
Net (Loss) (368,659) (160,453) (135,378) (176,055) (226,010) (147,638)
Net (Loss Per Share) (.53) (.49) N/A N/A (.29) (.25)
Weighted Average
Shares Outstanding 690,258 325,000 N/A N/A 793,008 600,008
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
RBI KHSL (1) KNNN COMBINED
FOR THE FOR THE FOR THE -----------
PRO FORMA 6 MOS ENDED 6 MOS ENDED 6 MOS ENDED 6 MOS ENDED
STATEMENTS OF SEPT. 30, SEPT. 30, SEPT. 30, PRO FORMA SEPT. 30,
OPERATIONS DATA: 1996 1996 (1) 1996 (1) ADJUSTMENT (2) 1996
----------- ----------- ------------ -------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 130,847 $ (24,170) $ 201,423 $ - $ 308,100
Operating Income (Loss) (168,503) 79,215 (11,038) (40,889) (141,215)
Net Income (Loss) (226,010) 159,215 (32,676) (40,889) (140,360)
Net (Loss Per Share) (0.29) N/A N/A - (.18)
Weighted Average
Shares Outstanding 793,008 N/A N/A - 793,008
_____________________________
<FN>
(1) Stated separately to reflect the sale of KHSL-AM\FM which is pending
regulatory approval.
(2) Reflects amortization expense associated with purchase of KNNN license.
</FN>
</TABLE>
<TABLE>
<CAPTION>
AS OF PRO FORMA PRO FORMA
BALANCE SHEET DATA: SEPT. 30, 1996 ADJUSTMENTS(1) AS ADJUSTED(1)(2) AS ADJUSTED(2)(3)
- ------------------ -------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Total Assets $2,155,412 $ (144,480) $2,010,932 $2,760,932
Working Capital (Deficit) (1,628,287) 1,266,000 (362,287) 387,713
Total Long-Term Obligations 665,222 - 665,222 665,222
Stockholders' Equity (Deficit) (257,989) 781,859 523,870 1,193,870
- ---------------------------------------
(1) Pro forma adjusted to reflect the purchase of KNNN and the sale of KHSL-
AM\FM, which is pending regulatory approval.
(2) Adjusted to reflect the sale by the Company of 400,000 shares of Common
Stock at a price of $2.00 per share, after deducting an estimated $50,000
in offering expenses and $80,000 for Selling Agents' commission. However,
there can be no assurance how many, if any, shares of Common Stock will be
sold in the Company Offering.
(3) Assumes no Put Options are exercised.
</TABLE>
[REMAINING TEXT NOT CONTAINED WITHIN BOX]
<PAGE>
RISK FACTORS
------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE POSSIBILITY OF THE
LOSS OF THEIR ENTIRE INVESTMENT IN THE COMPANY'S SECURITIES AND, ALONG WITH
EACH OF THE FOLLOWING FACTORS, CONSIDER THE INFORMATION SET FORTH ELSEWHERE IN
THIS PROSPECTUS.
RISK FACTORS RELATED TO THE BUSINESS OF THE COMPANY
- ---------------------------------------------------
RISK OF NEW BUSINESS. The Company's operations are subject to all of the
risks inherent in a new business enterprise, including the absence of a
substantial operating history, shortage of cash, under-capitalization, and the
need for additional financing. As such, problems, expenses, complications and
delays are expected to be encountered in connection with the implementation of
the Company's business plan. Future growth beyond present capacity will
require significant expenditures for the acquisition and development of
additional radio stations. These expenses must be paid either out of the
proceeds of future debt and/or equity offerings or out of generated revenues
and Company profits. The availability of funds from either of these sources
cannot be assured. (See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION OR PLAN OF OPERATION," and the Financial Statements and Notes
thereto.)
BUSINESS OF THE COMPANY. The principal business of the Company is
acquiring, developing, maintaining and operating, primarily through operating
subsidiaries, radio broadcasting properties . The foregoing business involves
substantial risks which include, without limitation, intense competition from
others who possess more experience and greater resources, the need to obtain
and maintain all necessary licenses and permits, extensive governmental
regulation, attracting qualified management, engaging in effective marketing
and numerous other factors, many of which are beyond the Company's control.
NEW BUSINESS AND LIMITED RADIO BROADCASTING EXPERIENCE. The Company has
only been engaged in the radio broadcasting industry since August, 1993. While
the Company has and will continue to hire individuals with experience in the
radio broadcast industry, the Company has limited experience in the radio
broadcast industry, and there is no assurance that its intended activities will
be successful or result in profitable operations. The Company also faces all
the risks associated with a new business, including the need for additional
personnel and working capital.
SUBSTANTIAL INDEBTEDNESS. As of September 30, 1996, the Company was
indebted to a number of lenders in the aggregate amount of $1,491,561.
Interest is payable at rates ranging from 10% to 18% per annum with respect to
such borrowings. Consequently, a substantial portion of the Company's cash
flow has been and will be utilized to pay principal and interest with respect
to such indebtedness. Unless the Company can generate substantial positive
cash flow, an event that cannot be assured, the Company will require additional
financing as to which it has no commitments. Should any such financing become
available, there can be no assurance that it will be upon terms or conditions
favorable to the Company or its shareholders. (See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION," "BUSINESS - Proposed
Acquisitions," and Financial Statements and the Notes thereto.)
SIGNIFICANT CASH REQUIREMENTS. The Company's cash requirements have been
and will continue to be significant. Net cash (used) by operating activities
for the six (6) months ended September 30, 1996, was $(26,335). The Company is
dependent upon the net proceeds of the Company Offering or other financing in
order to meet its obligations upon exercise of the Puts, and to fund its
working capital requirements. Accordingly, substantial capital resources and
additional working capital will be needed to support the current operations and
obligations of the Company, and to support the operations of its proposed
acquisitions. There can be no assurance that any future financing will be
available to the Company on acceptable terms, if at all. (See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION," "BUSINESS
- - PROPOSED ACQUISITIONS," AND FINANCIAL STATEMENTS AND THE NOTES THERETO.)
SECURED LIENS - EXISTENCE OF LIENS ON ASSETS. Substantially all of the
Company's assets have been pledged as collateral to secure the Company's
indebtedness in connection with the acquisition of radio stations and certain
other lending arrangements. In the event that the Company fails to meet its
obligations, including the making of required payments of principal and
interest, the Company's indebtedness could be declared immediately due and
payable and, in certain cases, the Company's assets could be foreclosed upon.
Moreover, to the extent that substantially all of the Company's assets continue
to be pledged to secure outstanding indebtedness, such assets will be
unavailable to secure additional debt financing, which may adversely affect the
Company's ability to borrow in the future. (See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION," AND "CERTAIN
TRANSACTIONS.")
ADDITIONAL CAPITAL REQUIREMENTS. The Company's plans include the possible
development and operation of KLXR-AM in Redding, California, the construction
and operation of new radio stations in Payson, Arizona, Shasta Lake City,
California, and Mesquite, Nevada, and increased marketing efforts aimed at
improving the operations of all of the Company's radio stations. Proceeds of
the Company Offering will, however, be limited, and it is likely that such
proceeds will be substantially below the funding necessary for the Company to
fully develop its strategy. As a result, it is probable that the Company will
require additional capital in the future to finance its business activities.
Additional needed capital may be obtained through borrowings or by additional
equity financing. Future equity financing may occur through the sale of either
unregistered common stock in exempt offerings or through the public offering of
registered equity securities. In any case, such additional equity financing
may result in additional dilution to investors. There can be no assurance that
any additional capital, funding or revenues can be satisfactorily arranged.
The Company has no arrangements for or understandings with respect to the
acquisition of additional capital. (See "BUSINESS.")
LACK OF PROFITABLE OPERATING HISTORY. For the eight months ended March
31, 1996, on a consolidated basis, the Company generated a net loss of
$(368,659) on net revenues of $429,386. Similarly, for the six months ended
September 30, 1996, on a consolidated basis, the Company generated a net loss
of $(226,010) on revenues of $130,847. There can be no assurance that the
Company's sales will continue to improve, or that the Company's operations will
not continue to result in a net loss.
RISKS OF RECENT ACQUISITIONS AND RAPID EXPANSION. The Company acquired
radio station KHZL-FM licensed to Shingletown, California, in July, 1996 and
radio station KNNN licensed to Central Valley, California, in September, 1996.
The Company's strategic plan also contemplates the development of radio station
KLXR-AM licensed to Redding, California, and the construction of additional
radio stations in Payson, Arizona, Shasta
Lake City, California, and Mesquite, Nevada in 1997. While the Company
believes that current management has the capacity to adequately oversee the
operation of these radio stations, there can be no assurance that management
will be able to meet the demands inherent in such rapid growth. Further, the
acquisition and development of radio stations in new geographical locations
will result in the dispersion of key personnel over significant distances.
Such dispersion will impose additional burdens on existing management.
LIQUIDITY AND CAPITAL RESOURCES. In the past the Company has operated on
limited capital resources and has depended primarily on funds generated from
stock sales and short-term loans for on-going operations. Even if the Company
is able to achieve its business plan objectives, it does not anticipate having
substantial net operating profits until at least 1999. In the meantime, there
can be no assurance that funds necessary for operations can be generated from
stock sales and short-term loans from investors and affiliates.
DEPENDENCE UPON MANAGEMENT. The Company's future success depends in a
large part on the continued service of its key marketing, sales, promotional
and management personnel and on its ability to continue to attract, motivate
and retain highly qualified employees. The Company currently does not have
written employment contracts with its key executive officers, and, as a result,
there can be no assurance of their continued service to the Company. The loss
of the services of key personnel could have a material adverse effect upon the
Company's operations and development efforts. The Company does not have key
person life insurance covering its management personnel or other key employees.
(See "MANAGEMENT.")
DEPENDENCE UPON ADVERTISING REVENUES. Substantially all of the Company's
revenues are derived from the sale of local, regional and national advertising
for broadcast on its radio stations. Although the format of a particular
station's programming can vary, there are only a limited number of
advertisements broadcast each hour of broadcast time. The Company determines
the number of advertisements broadcast hourly based upon its assessment of the
maximum amount of advertising revenue it can derive without jeopardizing
listening levels. While there may be shifts from time to time in the number of
advertisements broadcast during a particular time of day, the total number of
advertisements broadcast on a particular station generally does not vary
significantly from year to year. Any change in the Company's revenues, with
the exception of those instances where stations are acquired or sold, is
generally the result of pricing adjustments which are made to ensure that the
station fully utilizes available inventory. Advertising rates are directly
related to the size of a radio station's listening audience. Increasing the
audience base is an important factor in achieving profitability and this cannot
be assured. (See "BUSINESS - ADVERTISING.")
SUBSTANTIAL COMPETITION. Radio broadcasting is an extremely competitive
business. The Company's radio stations compete for listeners and advertising
revenues directly with other radio stations within their market place.
Competition for radio listeners is primarily based upon program content and on-
air talent which appeals to a particular demographic group. By building a
strong base of listeners, the Company attempts to attract advertisers who wish
to reach a particular demographic group of listeners who may purchase their
products. Thus, a decrease in the number of listeners will likely result in a
decrease in advertising revenues. There can be no assurance that the Company
can successfully compete for listeners or advertising revenues. In addition,
the Company's radio stations compete for listeners and advertising revenues
with other forms of communications media, including broadcast television, cable
television, newspapers, magazines, direct mail coupons and billboard
advertising. (See "BUSINESS - COMPETITION.")
FEDERAL REGULATION OF RADIO BROADCASTING; LICENSE RENEWAL. The ownership,
operation and sale of radio stations, including those licensed to the Company,
are subject to regulation by the Federal Communications Commission ("FCC").
Among other things, the FCC assigns frequency bands for broadcasting;
determines the particular frequencies, locations and operating power of
stations; issues, renews, revokes and modifies station licenses; determines
whether to approve changes to ownership or control of station licensees;
regulates transmitting equipment used by stations; adopts and implements
regulations and policies that directly or indirectly affect the ownership,
operation and employment practices of radio broadcasting stations; and has the
power to impose penalties for violations of its rules or the Communication Act
of 1934, as amended (the "Communication Act"). Federal regulations, including,
without limitation, those affecting the regulation of radio broadcasting and
advertising, govern the promotion and advertising activities of the Company and
its advertisers' products. The Communications Act also prohibits the
assignment of an FCC license or any transfer of control of an FCC license
without the prior approval of the FCC. In determining whether to grant
requests for consents to such assignments or transfers, and in determining
whether to grant or renew a radio broadcast license, the FCC considers a number
of factors pertaining to the licensee or proposed licensee including compliance
with alien ownership restrictions and rules governing the multiple ownership
and cross-ownership of broadcast and other media properties, the "character" of
the applicant and those persons or entities holding "attributable" interests in
the applicant and compliance with the Anti-Drug Abuse Act of 1988. Compliance
with such laws and regulations could be costly and changes in laws and
regulations could increase the cost of compliance and materially affect the
Company in other respects not presently foreseeable. The Company monitors laws
and regulations, as well as pending legislation. However, there can be no
assurance that such laws and regulations will not have a material adverse
effect upon the Company.
The Company's current licenses expire on December 1, 1997. There can be
no assurance that any of the Company's current or proposed licenses will be
renewed. (See "BUSINESS - GOVERNMENT REGULATION.")
RESTRICTIONS ON FOREIGN OWNERSHIP. In accordance with the Communication
Act and rules promulgated by the FCC, the ownership, voting and transfer of the
Company's capital stock is restricted with respect to foreign owners. Such
regulations prohibit the ownership of more than twenty percent (20%) of the
Company's outstanding capital stock (or more than twentypercent (20%) of the
voting rights represented), by or for the account of foreign individuals or
corporations otherwise subject to the control of foreign individuals or
entities. Such restrictions could adversely influence the market for and/or
price of the Company's securities. (See "BUSINESS - GOVERNMENT REGULATION.")
CERTAIN CONFLICTS OF INTEREST - CORPORATE OPPORTUNITIES. As of the date
of this Prospectus, MicroCap is the beneficial owner of 487,692 shares of the
Company's Common Stock, which shares represent 48.9% of the issued and
outstanding shares of the Company's Common Stock. Additionally, John C. Power
and J. Andrew Moorer, both officers and directors of the Company, also serve as
officers and directors of MicroCap. The Company's officers and directors are
aware of the fact that they owe a fiduciary duty to the Company not to withhold
any corporate opportunity which may arise because of their association with the
Company. However, the Company may not have sufficient capital to take
advantage of opportunities which may be presented to its officers and
directors; and these persons may, either alone or jointly with third parties,
make acquisitions or otherwise take advantage of opportunities which might
otherwise be available to the Company and within the Company's area of
interest. It is also possible that in the future these opportunities may be
presented to the Company by these individuals at a time when the Company has
sufficient capital; however, it is likely that under those circumstances these
individuals will expect a profit or reasonable return on their investment in
the terms offered to the Company. All of these situations represent the
potential for conflicts of interest from these transactions. While the Company
has clearly defined its area of interest to include only "heartland" sized
markets with Arbitron ranking of 150-250, the officers and directors of the
Company have neither adopted nor articulated any policy with respect to
corporate opportunity should it arise. It is possible that the Company's
officers would be unable to reconcile their fiduciary duties to their various
affiliated entities, in which event shareholder suits may be possible. (See
"MANAGEMENT.")
RISK FACTORS RELATED TO THIS OFFERING
- -------------------------------------
OFFERING PRICE ARBITRARILY DETERMINED. The Offering Price of the Common
Stock being offered hereby and the exercise price and other terms of the Puts
were arbitrarily determined by the Company and are not necessarily related to
the Company's assets, book value or financial condition, and may not be
indicative of the actual value of the Company.
LACK OF DIVIDENDS. The Company has not declared or paid any dividends on
outstanding shares of Common Stock and does not intend to declare or pay any
dividends on its outstanding shares of Common Stock in the foreseeable future.
(See "DIVIDENDS.")
NO PUBLIC TRADING MARKET FOR THE COMPANY'S COMMON STOCK OR PUTS. There
currently exists no public trading market for the Company's Common Stock, and
there can be no assurance that such a market will develop in the future or that
a public market for the Puts will be developed or sustained. In the absence of
an active public trading market, there can be no assurances that an investor
will be able to liquidate his investment without considerable delay, if at all.
If a market does develop, the price for the Company's securities may be highly
volatile and may bear no relationship to the Company's actual financial
condition or results of operations. (See "DESCRIPTION OF SECURITIES.")
NO MARKETMAKER. The Company's securities may be quoted in the "pink-
sheets" maintained by the National Quotations Bureau, Inc., which reports
quotations by brokers or dealers making a market in particular securities. The
Company has no agreement with any broker or dealer to act as a marketmaker for
the Company's securities and there is no assurance that Management will be
successful in obtaining any marketmakers. The lack of a marketmaker for the
Company's securities could adversely influence the market for and price of the
Company's securities, as well as the ability of investors to dispose of, or to
obtain accurate quotations as to the price of, the Company's securities. (See
"TERMS OF OFFERINGS.")
NASDAQ LISTING AND MAINTENANCE REQUIREMENTS; RISKS OF LOW-PRICED STOCKS.
The Securities and Exchange Commission (the "Commission") has approved rules
imposing more stringent criteria for the listing of securities on NASDAQ,
including standards for maintenance of such listing. Even upon successful
closing of this Offering, the Company will be unable to satisfy NASDAQ's
initial listing criteria and, as a result, trading of the Company's securities,
if any, will be conducted in the over-the-counter market in the so-called "pink
sheets" or on the "Electronic Bulletin Board" of the National Association of
Securities Dealers, Inc. ("NASD"). As a consequence, an investor could find it
more difficult to dispose of, or to obtain accurate quotations as to the price
of, the Company's securities.
The Securities Enforcement and Penny Stock Reform Act of 1990
requires additional disclosure, relating to the market for penny stocks, in
connection with trades in any stock defined as a penny stock. The Commission
has adopted regulations that generally define a penny stock to be any equity
security that has a market price of less than $5.00 per share, subject to
certain exceptions. Such exceptions include any equity security listed on
NASDAQ and any equity security issued by an issuer that has (i) net tangible
assets of at least $2,000,000, if such issuer has been in continuous operation
for three years, (ii) net tangible assets of at least $5,000,000, if such
issuer has been in continuous operation for less than three years, or
(iii) average annual revenue of at least $6,000,000, if such issuer has been in
continuous operation for less than three years. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the risks associated therewith.
Because the Company's securities will not be quoted on NASDAQ, and
the Company does not have $5,000,000 in net tangible assets, or average annual
revenue of $6,000,000, trading in the Company's securities will be covered by
Rules 15-g-1 through 15-g-6 promulgated under the Exchange Act for non-NASDAQ
and non-exchange listed securities. Under such rules, broker-dealers who
recommend such securities to persons other than established customers and
accredited investors must make a special written suitability determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to this transaction. Securities are exempt from
these rules if the market price of the Common Stock is at least $5.00 per
share.
Because the Company's Common Stock will, as of the date of this
Prospectus, be within the definitional scope of a penny stock, the market
liquidity for the Company's securities could be severely affected.
Specifically, the regulations on penny stocks could limit the willingness
and/or ability of broker-dealers to sell the Company's securities and thus the
ability of purchasers of the Company's securities to sell their securities in
the secondary market.
SHARES ELIGIBLE FOR FUTURE SALE. As of December 20, 1996, 995,758 shares
of the Company's $.004 par value Common Stock, were issued and outstanding, all
of which are "restricted securities" and are being registered for future sale.
Of these 995,758 restricted securities, approximately 63.6% are beneficially
owned by officers, directors and affiliates of the Company. No prediction can
be made as to the effect, if any, that sales of shares of Common Stock or the
availability of such shares for sale will have on the market prices prevailing
from time to time. Nevertheless, the possibility that substantial amounts of
Common Stock may be sold in the public market may adversely affect prevailing
market prices for the Common Stock and could impair the Company's ability to
raise capital in the future through the sale of equity securities. Actual
sales or the prospect of future sales of shares of Common Stock may have a
depressive effect upon the price of the Common Stock and the market therefor.
AUTHORIZATION OF PREFERRED STOCK. The Company's Articles of
Incorporation, as amended, authorize the issuance of up to 2,500,000 shares of
preferred stock. The Board of Directors has been granted the authority to fix
and determine the relative rights and preferences of preferred shares, as well
as the authority to issue such shares, without further stockholder approval.
As a result, the Board of Directors could authorize the issuance of a series of
preferred stock which would grant to holders preferred rights to the assets of
the Company upon liquidation, the right to receive dividend coupons before
dividends would be declared to common stockholders, and the right to the
redemption of such shares, together with a premium, prior to the redemption of
Common Stock. Common stockholders have no redemption rights. In addition, the
Board could issue large blocks of voting stock to fend against unwanted tender
offers or hostile takeovers without further shareholder approval. (See
"DESCRIPTION OF SECURITIES.")
AUTHORIZATION OF ADDITIONAL SHARES. The Company's Articles of
Incorporation, as amended, authorized the issuance of up to 12,500,000 shares
of Common Stock, of which 995,758 shares are outstanding on the date of this
Prospectus. The Company's Board of Directors has the authority to issue
additional shares of Common Stock and to issue options and warrants to purchase
shares of the Company's Common Stock without shareholder approval. Future
issuance of Common Stock could be at values substantially below the Offering
Price in the Offering and therefore could represent further substantial
dilution to investors in the Offering. In addition, the Board could issue
large blocks of voting stock to fend off unwanted tender offers or hostile
takeovers without further shareholder approval. (See "DESCRIPTION OF
SECURITIES.")
DILUTION. At September 30, 1996, the Company had issued the outstanding
895,758 shares of Common Stock at an average cost per share of approximately
$.56, which is $1.44 per share less than the price to the public in the Company
Offering. At September 30, 1996, the Company had a pro forma net tangible book
value of $523,870, or $.59 per share of Common Stock outstanding, based on
895,758 shares issued and outstanding. Giving effect to the sale of 400,000
shares of Common Stock by the Company in the Company Offering, and after
deduction of expenses of the Offerings, the Company will have a net tangible
book value of approximately $1,193,870, or $.92 per share. Investors in this
Offering will sustain an immediate substantial dilution of $1.08 or 54% of
their price per share. (See "DILUTION.")
RETENTION OF CONTROL. The Company's Articles of Incorporation do not
provide for cumulative voting in the election of Directors. Giving effect to
the sale of 400,000 shares of Common Stock in the Company Offering, the
existing shareholders will own or control 895,758 shares of Common Stock, or
approximately 69% of the shares then outstanding and will be in a position to
influence the election of the Board of Directors of the Company who, in turn,
appoint all of the Company's officers.
NEED FOR CURRENT PROSPECTUS AND STATE BLUE SKY QUALIFICATIONS. The CRI
Shareholders will receive shares of the Spin-Off Shares, and Putholders will
receive Puts, only if there is a current and effective Registration Statement
and Prospectus covering the shares of Spin-Off Shares and Puts, and only if the
Spin-Off Shares and Puts are qualified for issuance under the securities laws
of the applicable state or states. Although the Company plans to qualify the
issuance of the Spin-Off Shares and Puts in those states in which the
securities are to be distributed, no assurance can be given that such
qualification will occur. CRI Shareholders residing in states where the
Company is unable to qualify the Spin-Off Shares for distribution, and
Putholders residing in states where the Company is unable to qualify the Puts
for issuance, will not be eligible to participate in the Spin-Off or Put Option
Offering. Any Spin-Off Shares or Puts which cannot be qualified for
distribution to residents of certain states will be distributed PRO-RATA to the
remaining CRI Shareholders who reside in States where the distributions have
been qualified. (See "DESCRIPTION OF SECURITIES.")
USE OF PROCEEDS
---------------
The proceeds to the Company from the Company Offering, net of the expenses
of the Company Offering and the maximum Selling Agents' commissions, will be
approximately $670,000. Management anticipates that the proceeds will be
applied with the following priority during the next twelve (12) month period:
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION OF USE AMOUNT PERCENT
------------------ -------- -------
<S> <C> <C>
Put Option Exercise(1) $304,500 45.4%
Working Capital(2) 365,500 54.6%
-------- -------
Total: $670,000 100.0%
======== ======
- -----------------------------------
<FN>
(1) Reflects the Company's total obligation in the event all 203,008 Puts are
exercised at a put price of $1.50 per share. If fewer than 203,008 Puts
are exercised, the excess proceeds allocated to cover the exercise of
outstanding Puts will be re-allocated to working capital and/or the
reduction of existing debt obligations of the Company.
(2) The proceeds allocated to working capital will be applied, to the extent
necessary, to the Company's current and proposed operations. (See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.") However, as
it is an inherent part of the Company's strategic plan to achieve long-
term growth through acquisitions and/or the development of additional
stations, a portion of the proceeds allocated to working capital may be
used in connection with the development of one or more additional radio
stations, including the possible development of KLXR-AM in Redding,
California, and/or the development of radio stations in Payson, Arizona,
Shasta Lake City, California and/or Mesquite, Nevada. While the Company
regularly evaluates opportunities for the acquisition of existing radio
stations, other than KLXR-AM, there are no substantive negotiations,
arrangements, agreements or understandings with respect to any potential
acquisition. The Company's development plans are currently limited to the
development of one (1) station in Payson, Arizona and, possibly stations
in Shasta Lake City and/or Mesquite, Nevada. (See "BUSINESS.")
</FN>
</TABLE>
Due to an inability to precisely forecast the number of shares which may
be sold by the Company in the Company Offering, the Company is unable to
predict the precise period for which the Company Offering will provide
financing. The proceeds of the Company Offering will not be sufficient to
satisfy all of the Company's working capital requirements. The Company will
need additional financing in the future. (See "RISK FACTORS")
<PAGE>
DILUTION
--------
The pro forma net tangible book value of the Company at September 30,
1996, giving effect to the sale of KHSL-AM\FM but before giving effect to (i)
the sale in December 1996 of 100,000 shares of Common Stock for $1.20 per share
or (ii) the Company Offering, was $523,870 or $.59 per share, based upon
895,758 shares outstanding. Net tangible book value per share is determined by
dividing the number of outstanding shares of Common Stock into the net tangible
book value of the Company (total assets less total liabilities and intangible
assets). After giving effect to the sale of 400,000 shares of Common Stock by
the Company in the Company Offering and receipt of the estimated net proceeds
therefrom (assuming the maximum Selling Agent's Commissions are paid), the pro
forma, adjusted net tangible book value at September 30, 1996 was $1,193,870,
or $.92 per share of Common Stock, based upon 1,295,758 shares outstanding.
This represents an immediate increase of $.33 per share to current shareholders
and an immediate dilution of $1.08 per share to the investors in the Company
Offering. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Public Offering Price $2.00
Pro Forma Net Tangible Book Value
per share before Offering: (1) $(.59)
Total Assets (1)(3) $2,010,932
Total Tangible Assets (1)(3) $2,010,932
Total Liabilities (1)(3) $1,487,062
Net Tangible Book Value (1)(3) $523,870
Net Tangible Book Value Per Share
After Offering (1)(2)(3) $.92
Increase in Net Tangible Book Value per
share Attributable to Offering (1)(2)(3) $.33
Dilution of Net Tangible Book Value per
share to new investors (1)(4) $1.08
=====
Dilution as a Percentage of Offering
Price (1)(4) 54%
===
- -----------------------------------
(1) Does not give effect to the sale in December, 1996 of 100,000 shares of
Common Stock at a price of $1.20 per share.
(2) After deduction of estimated Offering costs, and maximum potential Selling
Agents' commissions.
(3) Based upon 1,290,758 shares outstanding.
(4) Determined by subtracting the net tangible book value per share after the
Company Offering from the amount of cash paid by a new investor for a
share of Common Stock.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
The following discussion and analysis should be read in conjunction with
the Financial Statements and notes thereto appearing elsewhere in this
Prospectus.
OVERVIEW
- --------
By agreement dated June 16, 1995, the Company acquired one hundred percent
(100%) of the issued and outstanding shares of common stock of Redwood
Broadcasting, Inc. ("Broadcasting") in exchange for 300,000 shares of Common
Stock of the Company. Immediately prior to the acquisition of Broadcasting,
the Company's assets consisted primarily of personal property, machinery and
equipment, and certain contracts, leases, accounts and agreements previously
owned by CRI (the Company's former parent corporation) and transferred to the
Company in February, 1995, in exchange for 300,008 shares of the Company's
Common Stock pursuant to the CRI Agreement. Subsequent to the acquisition,
Broadcasting was merged with and into the Company, with the Company remaining
as the surviving entity (the "Merger"). (See "BUSINESS - HISTORY - FORMATION
OF THE COMPANY"). The acquisition of Broadcasting was accounted for as a
reverse acquisition because MicroCap, the controlling shareholder of
Broadcasting, was in control of the Company upon consummation of the Merger.
(See "SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS".) Following
the Merger, the Company changed its name to Redwood Broadcasting, Inc.
Subsequent to consummation of the Merger, the Company changed its fiscal
year end from July 31 to March 31. As a result, the Company's income
statements relate to the eight (8) months ended March 31, 1996, and the year
ended July 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES - MARCH 31, 1996 COMPARED TO JULY 31, 1995
- --------------------------------------------------------------------------
The Company's balance sheet at March 31, 1996 reflects a slight increase
in assets, liabilities and stockholders' equity when compared with the
Company's balance sheet at July 31, 1995.
Total current assets at March 31, 1996 were $160,727, consisting of
accounts receivable of $86,834, net of allowance for doubtful accounts of
$16,400, and other assets of $73,893. Total current liabilities at March 31,
1996 were $1,585,368, resulting in a working capital deficit of $1,424,641.
This compares with a working capital deficit of $1,415,137 at July 31, 1995,
based on current assets of $149,779 and current liabilities of $1,564,916.
Contributing significantly to the Company's working capital deficiency was
$735,000 in short-term debt created by Alta in conjunction with its purchase of
radio stations KHSL-AM\FM, which at March 31, 1996, had been paid down to
$685,000. Specifically, by agreement dated March 3, 1995, Alta entered into an
asset purchase agreement to acquire radio stations KHSL-AM\FM, for $1,150,000
("KHSL AGREEMENT"). Effective February 15, 1995, prior to consummation of the
acquisition, Alta commenced operating KHSL-AM\FM under a Local Management
Agreement ("LMA"). On June 19, 1995, Alta completed the acquisition of KHSL-
AM\FM. Based on management's estimate of the values of the assets acquired,
the Purchase Price was originally allocated as follows:
<TABLE>
<S> <C>
Land $ 600,000
License 350,000
Station equipment 200,000
----------
$1,150,000
</TABLE>
However, the appraised value of $600,000 for the land failed to take into
account a long-term ground lease for use of space by a third party on the radio
tower located on the property. Based on this subsequently obtained
information, the allocation of the purchase price was retroactively changed to
reclassify the difference between the sale price of the land and the original
cost allocation to land, in the amount of $150,000, to the value of the
license. The July 31, 1995 financial statements have been retroactively
adjusted for this correction of an error in the allocation of the purchase
price.
In order to facilitate the acquisition, Alta created the following notes
payable:
* A $375,000 note payable to TriPower Resources, Inc., a controlled
corporation of the Company's President, John C. Power, which note
bears interest at the rate of fourteen percent (14%) per annum, and
was originally due and not paid on August 18, 1995 (the "TriPower
Note"). By mutual agreement of the parties, the maturity date of the
TriPower Note has been extended to September, 1996. The TriPower
Note was originally collateralized by a deed of trust on certain
real estate acquired in conjunction with the purchase of KHSL-AM\FM
located in Chico, California, ("Chico Property"), which property was
sold by the Company in April, 1996. The TriPower Note is now
collateralized by a pledge of 100% of the shares of Alta Common
Stock. Alta is the Company's principal operating subsidiary, which
owns and operates both KNNN and KRDG in Northern California, the
Company's principal assets. In addition, Alta is the owner of KHSL,
which will receive the remaining proceeds of the sale of that station
once regulatory approval is obtained. The TriPower Note was paid
down by $75,000 with proceeds from the sale of the Chico Property,
and has since been paid in full, and the Alta shares released from
pledge.
* Alta also created a $260,000 note payable to the former owner of
KHSL-AM\FM, which note bears interest at the rate of ten percent
(10%) per annum and was due in full in June, 1996 (the "June Note").
The June Note was collateralized by all of the assets of KHSL-AM\FM
acquired by Alta as part of the acquisitionand was guaranteed by
MicroCap. The June Note was paid in full in April, 1996, prior to
the maturity date, with proceeds from the sale of the Chico Property.
* A note payable to an individual in the original principal amount of
$100,000, which note bears interest at the rate of eight percent (8%)
per annum and was due and not paid in full, on September, 15, 1995
(the "September Note"). Subsequent to the original maturity date,
the Company made a principal reduction payment of $50,000, and the
holder of the September Note agreed to extend the maturity date to
September, 1996. The September Note is uncollateralized but is
guaranteed by MicroCap and a principal shareholder of the Company,
and has since been paid in full.
Also contributing to the Company's working capital deficit is the
Company's obligation, pursuant to the terms of the RBI Agreement, to purchase
and redeem up to 203,008 shares of Company Common Stock upon the exercise of
certain put options ("Puts") at a purchase price of $1.50 per share. The Puts
are exercisable for a period of ninety (90) days following the effective date
of the Registration Statement. As a result of the Company's obligation under
the Puts, the Company has included in its balance sheet a current liability of
$304,512.
Other short-term debts contributing to the Company's working capital
deficit at March 31, 1996, include trade accounts payable of $108,319, accrued
expenses of $91,991, and payroll tax withholding of $73,121. At March 31,
1996, the Company also reported accounts payable to certain related parties
totalling $232,730, and the current portion of unearned income totalling
$23,333. Unearned income relates to a portion of the proceeds received by RBI
in conjunction with the sale of a fifty percent (50%) interest in a joint
venture formed to acquire radio station KNBA licensed to Vallejo, California.
In addition to receiving $180,000 in cash for this fifty percent (50%)
interest, RBI received $70,000 in cash for a three (3) year covenant not to
compete. This covenant is being amortized into income on a straight-line basis
over a three (3) year term.
In an effort to reduce its working capital deficit, the Company has taken
or plans to take the following actions:
* During the eight months ended March 31, 1996, the Company received
approximately $200,000 from MicroCap in the form of intercompany
advances. Although this infusion of capital contributed to the
Company's overall working capital deficit by increasing current
liabilities, the funds received were used to pay down the September
Note by $50,000 (to a principal balance of $50,000) thereby reducing
the Company's interest burden.
* During the eight (8) months ended March 31, 1996, the Company
completed a private offering in which it sold a total of 25,000
shares of Common Stock for an aggregate purchase price of $30,000, or
$1.20 per share. The shares were "restricted securities" under the
Securities Act. The private offering price per share was negotiated
by the Company with the investor, who was and remains unaffiliated
with the Company and/or its officers and directors.
* During the eight (8) months ended March 31, 1996, the Company
established relationships with several lenders for the purpose of
leasing capital equipment. These leases are for periods of not less
than three years and are at what management believes to be favorable
interest rates. The use of leases for the acquisition of capital
equipment will, in the opinion of management, allow the Company to
utilize cash flow from operations to reduce the Company's short-term
debt obligations, and increase the amount of working capital
available for future needs.
* The Company has entered into agreements to sell radio stations KHSL-
AM\FM for a combined purchase price of $1,466,000, of which
$1,266,000 will be payable in cash at closing and the balance of
which, $200,000, will be payable in the form of a promissory note.
The Company plans to use the sale proceeds to significantly reduce
its outstanding notes payable and to repay the advances from
Microcap. Because both stations were incurring operating losses at
the time Alta entered into the LMA, Alta will benefit from this
transaction by not having to fund current operating losses. In
addition, upon closing, Alta will obtain necessary capital to reduce
its notes payable and to continue its acquisition plan and growth
strategy.
* In April, 1996, Alta sold the Chico Property for a purchase price of
$450,000. As part of the transaction, Alta remitted to the purchaser
of the land a total of $80,000 in the form of a charitable donation.
As a result, net proceeds to the Company from the sale were $370,000.
Proceeds from this sale were used to pay all amounts due and owing
under the September Note ($260,000), and to reduce the TriPower Note
by $75,000.
* In August, 1996, the Company completed another private placement of
stock in which it sold a total of 37,750 shares of Common Stock to
four (4) investors for an aggregate purchase price of $45,300, or
$1.20 per share. The shares were "restricted securities" under the
Securities Act. The private offering price per share was negotiated
by the Company with the investors.
* The Company plans to use the net proceeds from the Company Offering,
if any, to reduce its current liabilities. If the Company is able to
successfully complete the sale of all 400,000 shares of Common Stock,
of which there can be no assurance, the Company will receive
approximately $690,000 in net proceeds after all costs and selling
agent commissions. The net proceeds, if any, will be used to meet
the Company's obligation upon exercise of the Puts, and, if proceeds
remain, will be allocated to working capital and/or the reduction of
debt obligations. (See "USE OF PROCEEDS".)
At March 31, 1996, the Company reported total assets of $1,545,105,
including property and equipment of $749,560, net of accumulated depreciation
of $74,855. Significant assets included in property and equipment at March 31,
1996 included the Chico Property recorded at $450,000, radio broadcasting
equipment valued at $296,142, and computer equipment valued at $44,443, all of
which was either acquired in conjunction with the purchase of KHSL-AM\FM, or
subsequently purchased by the Company in an effort to maintain or enhance the
quality of the Company's broadcast signal and/or automate operations at the
Company's Chico, California studio, or as part of the construction and ultimate
purchase of KRDG more fully described below. Total assets also includes radio
broadcast licenses valued at $489,833, net of accumulated amortization of
$16,667, and other assets valued at $144,985.
Total liabilities of $1,607,084 as of March 31, 1996 include, in addition
to the current liabilities referred to above, the long-term portion of notes
payable of $11,994 and unearned income of $9,722. This compares with total
liabilities of $1,611,649 as of July 31, 1995, and represents a decrease of
$4,565.
For the eight months ended March 31, 1996, the Company reported an
accumulated deficit of $(532,224). The Company's accumulated deficit, when
combined with additional paid-in capital of $467,123, resulted in a
stockholders' deficit of $(61,979) at March 31, 1996. This compares with
stockholder's equity of $93,380 at July 31, 1995, and represents a decrease of
$155,359.
RECENT ACQUISITIONS
-------------------
In March, 1995, Alta entered into a Local Management Agreement ("LMA")
with an option to purchase radio station KCFM licensed to Shingletown,
California. Upon exercise of its option, Alta advanced $50,000 to the license
holder of KCFM-FM, which sum was credited towards the purchase price of the
station. In addition, Alta advanced an additional $100,000 to build the radio
station and construct the transmitter site. Upon consummation of the
acquisition, which was finalized in July, 1996, Alta delivered the balance of
the purchase price in the form of $15,000 in cash and Alta's promissory note in
the principal amount of $155,000, which note bears interest at the prime rate
per annum as quoted by Chemical Bank of New York, and is secured by KCFM's
assets and guaranteed by MicroCap. In August, 1995, KCFM began commercial
broadcasting at 105.3 Mhz on the FM band. In September, 1995, KCFM changed its
call letters to KRDG, and presently broadcasts a satellite delivered oldies
format. (See "BUSINESS - Operations - RECENT ACQUISITIONS".)
In December, 1995, Alta executed a Letter of Intent regarding the
acquisition by Alta's wholly owned subsidiary, Northern California
Broadcasting, Inc. ("Northern"), of radio station KNNN licensed to Central
Valley, California, for a total purchase price of $825,000. $325,000 of the
Purchase Price was paid in certified funds at closing, and the balance,
$500,000, in the form of Northern's promissory note, secured by 100% of the
stock of Northern and guaranteed by the Company. The acquisition of KNNN was
consummated in September, 1996.
PROPOSED DEVELOPMENT
--------------------
In May, 1996, Alta entered into an Asset Purchase Agreement to acquire
radio station KLXR-AM, presently a "dark" station (a station not broadcasting)
licensed to and serving the Redding, California market for a total purchase
price of $100,000 in cash. The acquisition of KLXR-AM is subject to a number
of contingencies including obtaining all necessary approvals from the FCC.
There can be no assurance that the Company's attempts to acquire KLXR-AM will
be successful, or if successful, that the operation of KLXR-AM will be
profitable.
The Company has also filed for, and is the only applicant seeking, a
construction permit for an FM radio station in Payson, Arizona. Additionally,
in July, 1996, Alta filed an application with the FCC for the issuance of a
construction permit to build an FM radio station to be licensed to Shasta Lake
City, California, which would also serve the Redding, California, market. In
August, the Company filed for a construction permit for an FM radio station in
Mesquite, Nevada. Numerous applicants are seeking construction permits for
both Shasta Lake City, California and Mesquite, Nevada. Accordingly, there can
be no assurance that the Company will be granted construction permits for
either location, or, if granted, that the Company will be able to complete
development of the stations. To this end, the Company estimates that it will
cost approximately $350,000 to complete construction of all three (3) stations.
The Company's current capital resources are substantially below the funding
necessary for the Company to fully complete its development strategy.
Microcap, the Company's majority shareholder, has agreed in principle to
provide the working capital necessary to complete the station construction in
Payson and to cover operating expenses for the first three months of operation.
While the terms of the capital infusion have not been finalized, it is expected
that the funds will be advanced in the form of loans, secured by the tangible
and intangible assets of the Payson station. As the Company is a controlled
corporation of Microcap, it has been agreed that the terms of the funding will
be no less favorable to the Company than terms that would otherwise be
available to the Company from unaffiliated third parties through arms-length
negotiations. Nevertheless, the transaction has the potential for creating
conflicts of interest. (See "RISK FACTORS - Risk Factors Related to Business
of Company - Conflicts of Interests.")
Even if the Company successfully completes the Company Offering, it is
probable that the Company will require additional capital in the future to
finance its proposed development activities. Such additional needed capital
may be obtained through the sale of radio stations KNSN-AM and KHSL-FM, or
through borrowings or additional equity financing. Future equity financing may
occur through the sale of either unregistered common stock in exempt offerings,
or through the public offering of registered equity securities. To date,
however, the Company has no arrangement for or understandings with respect to
the acquisition of additional capital, and there can be no assurance that any
additional capital, funding or revenues can be satisfactorily arranged on terms
acceptable to the Company.
RESULTS OF OPERATIONS - EIGHT MONTHS ENDED MARCH 31, 1996 COMPARED WITH FISCAL
YEAR ENDED JULY 31, 1995
- -----------------------------------------------------------------------
Effective January 12, 1996, the Company changed its fiscal year end from
July 31 to March 31. As a result, the Company's financial statements are
reported for the eight months ended March 31, 1996, and the year ending July
31, 1995. Accordingly, results of operations for the period ended March 31,
1996 reflect only eight months of operations, and therefore, a meaningful
comparison with the previous year's operations cannot be made.
Because the Merger with Broadcasting was accounted for as a reverse
acquisition, the results of operations of IFHC prior to June 16, 1995, have
been excluded from the consolidated results of operations set forth in the
Company's Financial Statements. The results of operations of KHSL-AM\FM have
been included in the Consolidated Financial Statements of RBI since February
15, 1995, the effective date of the KHSL-AM\FM LMA which transferred control of
KHSL-AM\FM to Alta. Likewise, the results of operations of KHZL-FM (f/k/a
KCFM-FM) have been included in the Consolidated Financial Statement of RBI
since March, 1995, the effective date of the KHZL-FM LMA. For comparative
presentation purposes, the results of operations of KHSL-AM\FM for the year
ended July 31, 1994, and for the six and one-half month period ended February
15, 1995, have been shown in separate Statements of Operations included with
the Company's financial statements.
The Company's combined sales for the eight months ended March 31, 1996
were $440,457, and represent revenue in the amount of $397,775 generated by
KHSL-FM and KNSN-AM which the Company began operating on February 15, 1995.
This figure also represents revenue in the amount of $14,031 generated by KHZL-
FM which began commercial operation in August, 1995.
Operating expenses for the eight months ended March 31, 1996, were
$792,507. Of this total, KNSN-AM and KHSL-FM combined for a total of $560,006,
and KHZL-FM generated operating expenses of approximately $96,388. In addition
to the foregoing, the Company generated general and administrative expenses of
$58,464 during the eight months ended March 31, 1996, consisting primarily of
travel and related costs. The Company also recorded depreciation expense of
$77,649 during the eight-month period ended March 31, 1996 which the Company
did not incur during the fiscal year ended July 31, 1995. Although the Company
assumed operating control of radio stations KNSN-AM and KHSL-FM in February,
1995, under an LMA, the Company did not formerly close on the acquisition of
these stations until June, 1995. Because the Company did not own the assets of
the stations during the period of the LMA, no depreciation expense was recorded
during that time.
During the eight months ended March 31, 1996, the Company also incurred
interest expense of $22,436. The interest expense incurred during the eight
months ended March 31, 1996, is primarily the result of acquisition debt
incurred by the Company in conjunction with the acquisition of radio stations
KNSN-AM and KHSL-FM.
As a result of the foregoing, the Company incurred a net loss for the
eight-month period ended March 31, 1996, of $368,659 or $.53 per share based on
a weighted average number of shares outstanding of 690,258.
Management believes that the revenue base provided by radio stations KNSN-
AM and KHSL-FM is not sufficient to support the staff and operational burden of
operating both stations. Moreover, realizing that revenue growth in a market
that management feels is saturated with other radio stations is not going to
increase substantially in the near future, management has determined that the
best course of action is to sell radio stations KNSN-AM and KHSL-FM, and to use
the proceeds the sale to acquire additional stations in the Redding, California
market, a market already served by KHZL-FM. To this end, the Company has
entered into agreements to sell both radio stations in a transaction valued at
approximately $1,466,000. Simultaneously with the signing of the KHSL Asset
Sale Agreements, Alta entered into an LMA with the prospective buyer of the
stations, giving the prospective buyer operational control of the stations
until such time as the sale closes, at which time the LMA will terminate. The
transfer applications have been filed with the FCC and approval of the transfer
of ownership is pending. Although Alta will not receive sale proceeds until
closing (anticipated by management to occur in March, 1997), under the LMA, the
operating expenses of both stations have been assumed by the prospective buyer.
Accordingly, during the LMA, Alta has no cash outlays related to the operation
of KHSL-AM\FM.
LIQUIDITY AND CAPITAL RESOURCES - SEPTEMBER 30, 1996 TO MARCH 31, 1996
- ----------------------------------------------------------------------
At September 30, 1996, the Company had total current assets of $119,892,
consisting primarily of accounts receivable of $49,041, net of an allowance for
doubtful accounts of $16,400, and other current assets of $70,851. Total
current liabilities as of September 30, 1996 were $1,748,179, resulting in a
working capital deficit of $1,628,287. This compares with a working capital
deficit of $1,424,641 at March 31, 1996, based on total current assets of
$160,727 and total current liabilities of $1,585,368. The increase in the
Company's working capital deficit of $203,646 is attributable to the following:
* a reduction in accounts receivable of $37,793 which was used to
reduce a technical book overdraft by $10,882 and to pay down accounts
payable and accrued expenses by $25,051;
* repayment of the June Note in the principal amount of $260,000;
* principal reduction of $75,000 applied against the TriPower Note;
* increases in short-term borrowings (notes payable) associated with
the acquisition of KRDG-FM and KNNN-FM in the amount of approximately
$433,165;
* increases in related party payables associated with funding
operations in the amount of $113,652.
As of September 30, 1996, the Company reported total assets of $2,155,412,
including property and equipment of $1,320,813, net of accumulated depreciation
of $122,302. This compares with total assets at March 31, 1996 of $1,545,105,
including property and equipment of $749,560, net of accumulated depreciation
of $74,855. The increase in property and equipment of $571,253 is primarily
the result of the acquisition of KNNN ($825,000 purchase price) and KRDG
($220,000 purchase price) offset by the sale of the Chico property valued at
$450,000.
As of September 30, 1996, the Company reported total liabilities of
$2,413,401, including, in addition to the current liabilities referred to
above, the long-term portion of notes payable in the amount of $665,222. Long-
term notes payable as of September 30, 1996 is made up of acquisition debt
associated with KNNN and KRDG in the amount of $689,978 and $155,000,
respectively. This compares with total liabilities of $1,607,084 as of March
31, 1996, and represents an increase of $806,317.
As of September 30, 1996, the Company reported an accumulated deficit of
$758,234. This compares with an accumulated deficit at March 31, 1996, of
$532,224. The Company's accumulated deficit at September 30, 1996, when
combined with Common Stock and additional paid-in capital of $500,245, resulted
in a stockholders' deficit of $257,989. This compares with a stockholders'
deficit as of March 31, 1996, of $61,979.
RESULTS OF OPERATIONS - SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH SIX
MONTHS ENDED SEPTEMBER 30, 1995
- -------------------------------------------------------------------------
Sales for the six months ended September 30, 1996, were $139,392 compared
to sales of $375,282 for the same period in fiscal 1995. As previously stated,
1996 sales do not include revenues generated by KHSL-FM and/or KNSN-AM.
Rather, sales for this six-month period are comprised primarily of LMA fee
income (associated with KHSL-FM and KNSN-AM) of $24,000, deferred revenue of
$23,333 associated with the amortization of a covenant not to compete, and
radio advertising revenues of stations KRDG-FM in the amount of $16,000 and
KNNN-FM (for August and September, 1996) in the amount of $73,000. Sales in
1995 were comprised entirely of advertising revenues associated with the
operation of KHSL-FM.
Station operating expenses for the six months ended September 30, 1996 of
$229,099 represent a reduction of $208,060 over the same six-month period in
fiscal 1995. The 1996 expenses reflect the inclusion of $105,496 in costs
associated with operating KNNN-FM for the period August 1, 1996 through
September 30, 1996. The 1996 expenses also reflect certain operating costs for
KHSL-FM and KNSN-AM the Company was not able to transfer to the prospective
buyer of the stations under the LMA. Specifically, employee costs for a
general manager and an engineer must be maintained by the Company during the
LMA in accordance with FCC regulations. In 1995, station operating expenses
consisted of all expenses associated with operating both KHSL-FM and KNSN-AM
for the six-month period ended September 30, 1995.
Depreciation and amortization expenses for the six months ended September
30, 1996 amounted to $47,447 and represents a 100% increase over the six months
ended September 30, 1995. Although the Company assumed operating control of
both stations in February, 1995, under the LMA and closed on the acquisition in
June, 1995, no depreciation expense was recorded until the licenses of these
stations were formally transferred to the Company by the FCC. This occurred in
September, 1995. The first month depreciation was recorded in October, 1995.
General and administrative expenses for the six months ended September 30,
1996 amounted to $22,804, a decrease of $11,877 over the six months ended
September 30, 1995. General and administrative expenses are comprised
primarily of travel and related costs.
Other expenses of $57,507 incurred during the six-month period ended
September 30, 1996 increased $40,150 over the same period in 1995. The primary
reason for the increase is related to an $80,000 charitable contribution made
by the Company to the buyer of the Chico property. The buyer, a local
hospital, required the Company to make the donation to the hospital as part of
the closing.
For the six months ended September 30, 1996, the Company reported a net
loss of $226,010 compared to a net loss of $147,638 for the same six-month
period a year ago. Adjusting for the one-time $80,000 charitable contribution
made by the Company in conjunction with the sale of the Chico property in
April, 1996, the Company sustained a net loss of $146,010 for the current
period, approximating the loss for the six-month period ended September 30,
1995. The Company attributes this current period loss to only having had the
benefit of revenues associated with KNNN-FM for two months (August and
September, 1996) during the six-month period ended September 30, 1996.
Inflation has not had any material effect on the Company's operations, and
is not expected to in the foreseeable future. Other than the foregoing,
management knows of no trends or other demands, commitments, events or
uncertainties that will result in, or that are reasonably likely to result in,
a material impact on the Company's liquidity and capital resources or
operations.
<PAGE>
BUSINESS
--------
OVERVIEW
- --------
Redwood Broadcasting, Inc., f/k/a Intelligent Financial Holding
Corporation (the "Company" or "RBI") and its subsidiaries operate in the
rapidly-developing and expanding radio broadcasting industry. Organized as a
holding company for the purpose of acquiring and/or developing undervalued
radio broadcasting properties located in small-to-medium sized markets, the
Company has recently embarked upon an aggressive acquisition and development
program and continues to seek acquisition and development opportunities in the
broadcast industry.
HISTORY
- -------
FORMATION OF THE COMPANY
------------------------
By agreement dated December 12, 1994, Cell Robotics International, Inc.
f/k/a Intelligent Financial Corporation ("CRI") executed and entered into a
definitive Agreement and Plan of Reorganization between and among CRI, Cell
Robotics, Inc., a New Mexico corporation ("Cell"), MiCEL, Inc., a Delaware
corporation, Bridgeworks Investors I, L.L.C., an Oregon limited liability
company and Ronald K. Lohrding, individually (the "CRI Agreement"), providing
INTER ALIA, for the acquisition by CRI of 100% of the issued and outstanding
equity securities of Cell. The CRI Agreement also provided for the formation
of a new wholly-owned subsidiary of CRI and the transfer to the subsidiary of
certain assets of CRI, subject to certain liabilities.
The Company was formed on December 1, 1994, and in February, 1995, CRI
transferred to the Company in a tax-free reorganization ("Reorganization")
undertaken in reliance upon the provisions of Section 351 of the Internal
Revenue Code of 1986, as amended, one hundred percent (100%) of CRI's real and
personal property ("Property"), subject to certain liabilities ("Liabilities"),
saving and excepting cash, cash equivalents or marketable securities having an
aggregate fair market value of not less than $250,000 (collectively the
"Retained Assets"), solely in exchange for 300,008 shares of the Company's
$.004 par value common stock ("Spin-Off Shares"). Immediately following the
Reorganization, CRI's assets consisted entirely of the Retained Assets and the
Spin-Off Shares, and the Company became a wholly-owned subsidiary of CRI,
owning the Property, subject to the Liabilities.
Pursuant to the terms of the CRI Agreement, CRI further agreed to
distribute the Spin-Off Shares to the shareholders of record of CRI ("CRI
Shareholders") as of December 16, 1994 upon the effective date of this
Registration Statement. (See "TERMS OF OFFERINGS - THE SPIN-OFF OFFERING".)
REDWOOD BROADCASTING, INC.
--------------------------
By agreement dated June 16, 1995, the Company acquired one hundred percent
(100%) of the issued and outstanding shares of Common Stock of Redwood
Broadcasting, Inc. ("Broadcasting") in exchange for 300,000 shares of Common
Stock of the Company. Subsequent to the acquisition, Broadcasting was merged
with and into the Company, with the Company remaining as the surviving entity.
Thereafter, at a special meeting of the Company's shareholders, an amendment of
the Company's Articles of Incorporation was approved changing the Company's
name to Redwood Broadcasting, Inc.
Broadcasting was formed in 1993 as a majority-owned subsidiary of MicroCap
to pursue the acquisition of radio station KNBA (1190 AM) licensed to Vallejo,
California. Broadcasting entered into a joint venture with Quick Broadcasting,
Inc., an established broadcaster, and acquired KNBA in October, 1993. KNBA was
attractive to Broadcasting because it was eligible for the "Expanded Band"
which, if granted, would increase the station's broadcast capability. Greater
signal strength would encompass more listeners which, in turn, would attract
more advertising clients. In 1994, Broadcasting sold its 50% ownership
interest in the joint venture to Quick Broadcasting, Inc for $180,000 in cash
and a three (3) year, pre-paid, agreement not to compete valued at $70,000.
Broadcasting sold its interest in KNBA in order to focus its resources on
wholly and majority-owned radio properties.
SOLO YOLO BROADCASTING
----------------------
In 1994, MicroCap assigned to its subsidiary, Broadcasting, a ninety
percent (90%) ownership interest in Solo Yolo Broadcasting ("Solo Yolo"), a
California general partnership. Solo Yolo was one of only two applicants to
file for an FM construction permit for Esparto, California. Solo Yolo
subsequently settled with the competing applicant and received a reimbursement
of its expenses in the amount of $18,000 in cash in exchange for Solo Yolo's
agreement to withdraw its application.
ALTA CALIFORNIA BROADCASTING, INC.
----------------------------------
In 1994, Broadcasting formed its own wholly-owned subsidiary, Alta
California Broadcasting, Inc. ("Alta"), to pursue radio acquisition
opportunities it had determined were available in northern California.
KHSL-AM\FM
----------
In June, 1994, Alta entered into an Asset Purchase Agreement to
acquire radio stations KHSL-AM\FM licensed to Chico and Paradise, California,
respectively ("KHSL Agreement"). The acquisition, valued at $1.15 million,
included furniture and fixtures, broadcast equipment, broadcast licenses and
11.70 acres of real property located in Chico, California, zoned for
residential housing development. On February 15, 1995, Alta commenced
operating KHSL-AM\FM under a Local Management Agreement ("LMA"), while transfer
applications were filed with the FCC to approve the change in ownership. On
June 19, 1995, Alta completed the acquisition of KHSL-AM\FM ("KHSL
Acquisition") resulting in the termination of the LMA.
KHSL-FM has a country format and is located at 103.5 on the FM
band. All programming for KHSL-FM originates at its studio in Chico.
Subsequent to its acquisition by Alta, KHSL-AM changed its call letters and
format. The new call letters are KNSN-AM. The new format is "Talk" , and its
programming is primarily originated through satellite delivery companies.
In March, 1996, Alta entered into separate Asset Sale Agreements
to sell the assets of both KNSN-AM and KHSL-FM, excluding the 11.70 acres of
real property, in a transaction valued at $1.47 million. Simultaneously with
signing the Asset Purchase Agreements, Alta entered into an LMA with the
prospective purchaser until the sale closes, at which time the LMA will
terminate. The transfer applications associated with the sale of the two (2)
stations are presently awaiting approval by the FCC. In April, 1996, the
11.70 acres of real property was sold to an unrelated party for $450,000.
KRDG-FM (F/K/A KHZL AND KCFM)
-----------------------------
In March, 1995, Alta entered into an LMA with an option to
purchase radio station KCFM-FM licensed to Shingletown, California, which began
commercial broadcasting, with a "Country" music format, at 105.3 on the FM band
in August, 1995. The source of its programming was simulcasting with KHSL-FM,
through the use of high speed data transmission lines. KCFM-FM primarily
serves the Redding, California market. In September, 1995, KCFM-FM changed its
call letters to KHZL-FM. During the Company's review of KHZL-FM's performance,
it was determined that a format change would best serve the goal of revenue
enhancement. A new music format was developed using a satellite delivered
"Oldies" format. The change proved to be highly successful as KHZL-FM posted a
6.4 in Arbitron's 1996 Spring Survey, versus not qualifying for any rating
status in the fall survey under the previous format. In May, 1996, the Company
filed for an upgrade to increase the station's broadcast power. In July, 1996,
Alta completed the acquisition of KHZL-FM, thereby terminating the LMA.
Effective September 27, 1996, Alta changed KHZL-FM's call letters to KRDG-FM.
KNNN-FM
-------
In May, 1996, Alta entered into an Asset Purchase Agreement to
acquire KNNN-FM licensed to Central Valley, California. The Asset Purchase
Agreement was subsequently assigned to Alta's wholly-owned subsidiary, Northern
California Broadcasting, Inc. KNNN-FM primarily serves the Redding, California
market and broadcasts an "Adult Contemporary" format at 99.3 on the FM band.
In August, 1996, Alta began operating KNNN-FM under an LMA pending approval of
the transfer of ownership by the FCC. The Company has obtained an upgrade to
increase the station's broadcast power. In September, 1996, Northern completed
the acquisition of KNNN-FM, thereby terminating the LMA. The purchase price
for KNNN was $825,000, $325,000 of which was paid in cash at closing, and the
balance was paid in the form of a promissory note secured by the assets of KNNN
and guaranteed by the Company.
ACQUISITIONS AND DEVELOPMENT
- ----------------------------
The Company's strategy is to grow by acquiring additional radio stations
meeting specified criteria and by maximizing the revenues and Broadcast Cash
Flow of the stations it owns and operates. Broadcast Cash Flow is defined as
operating income (loss), exclusive of trade (non-cash) revenue and expenses,
before deductions for interest, taxes, depreciation, amortization and corporate
expense. Although Broadcast Cash Flow is not recognized under generally
accepted accounting principles ("GAAP"), it is accepted by the broadcast
industry as a generally recognized measure of performance and is used by
analysts who report publicly on the condition and performance of broadcast
companies. Broadcast Cash Flow should not,
however, be considered an alternative to operating income as determined in
accordance with GAAP or to cash flows from operating activities (as a measure
of liquidity) or other indicators of the Company's performance as reported
under GAAP.
The Company generally intends to acquire established stations and/or build
stations in small- to medium-size media markets as defined by industry
standards. The Company defines these markets as those ranked 150 to 250 in
terms of population by the Arbitron Company ("Arbitron").
In general, the Company seeks to acquire stations: (i) located in markets
with well established and relatively stable economies, which are often
characterized by the presence of universities, tourism or a substantial
industrial base, (ii) with a demonstrated track record of audience share and
(iii) which can be purchased at attractive prices. The Company believes that
it can most effectively maintain and improve operating results of stations with
these characteristics. Factors considered by the Company in evaluating an
acquisition candidate include (i) the size, rates of growth and projected
future rates of growth of the market's broadcast revenue and population, (ii)
the number of competitive stations in the market, (iii) the operating history
and performance of the stations, (iv) the success of the station's format, (v)
the quality of and the ability to enhance the station's broadcast signal, (vi)
the terms of the purchase and (vii) duopoly (or greater) ownership
possibilities or other unique synergies with the then existing stations of the
Company.
The Company intends to pursue acquisition opportunities, including
acquisition opportunities made possible by recently adopted Federal
Communications Commission ("FCC") rules (the "New FCC Rules") which
substantially increased the number of stations in the same radio service (i.e.,
AM or FM) one entity may own, both nationally and in a single geographic
market. The Company believes that the ability to own multiple stations in a
single geographic market, known as a duopoly, offers the potential for both
substantial cost savings and increased revenues. For example, a duopoly
permits the consolidation of studios and office space, thereby reducing
administrative, engineering and management expenses. Furthermore, additional
stations in a particular market enable the Company to take advantage of its
existing relationships with advertisers, provide advertisers a larger, combined
audience and permit joint promotional efforts, which may result in increased
revenues and reduce the risk of a particular acquisition.
By combining the operations of KHZL and KNNN, the Company hopes to create
a duopoly serving the Redding, California market. This approach is consistent
with the Company's strategy of creating duopolies and implementing other cost
saving and revenue enhancement programs.
OPERATIONS
- ----------
The Company's business is devoted to acquiring and operating radio
stations, and generating revenue principally through the sale of advertising.
Through its subsidiaries, the Company currently offers advertisers a radio
listening audience in the Redding, California market. The Company has also
filed for an FM construction permit in Payson, Arizona, and, if the permit is
awarded, will develop and operate a radio station in Payson. Additionally, in
July, 1996, Alta filed an application with the FCC for the issuance of a
construction permit to build an FM radio station to be licensed to Shasta Lake
City, California, which would serve the Redding, California market. The Company
also filed for a construction permit for an FM radio station in Mesquite,
Nevada. Numerous applicants are seeking construction permits in both Shasta
Lake City, California and Mesquite, Nevada. As a result, there can be no
assurance that the Company will be granted these construction permits, or, if
granted, that the Company's operations will be successful.
The Company believes a large percentage of radio advertising dollars are
expended in small-to- medium-sized media markets. The Company believes that it
can improve the financial performance and Broadcast Cash Flow of small- to
medium-sized stations by enhancing revenues while, at the same time,
controlling costs. The Company seeks to enhance billings by implementing or
expanding: (i) targeted programming designed to increase audience share within
specific demographic groups considered to be particularly attractive to
advertisers, (ii) sales and marketing programs intended to increase both
audience share and the sale of advertising time, from which substantially all
of the Company's revenues are derived, and (iii) effective advertising rate
management and inventory control. Extensive market research is conducted to
refine and enhance the Company's programming. The Company's stations employ a
variety of programming formats. The Company believes that selling advertising
time in small- to medium-sized markets is less dependent upon ratings and more
dependent upon aggressive marketing, promotional and selling techniques. Local
advertising and promotional tie-ins with local events are designed to heighten
public awareness of the Company's stations. Duopoly ownership structures will
enable the Company to offer advertisers a broader range of creative advertising
packages and enable the Company to derive increased benefits from its
advertising rate management and inventory control techniques.
As a result of the acquisitions of KNNN-FM and KRDG-FM, a duopoly, the
Company now has 13.4% of listenership in the overall Redding, California
market, making it the third largest radio group in the market as reported by
Arbitron's 1996 Spring Survey. The Company hopes to increase its percentage of
the Redding, California listenership through the development, and subsequent
operation of radio station KLXR-AM in Redding, and a new station licensed to
Shasta Lake City, California, which will also serve primarily the Redding,
California market. According to the BIA 1996 Radio Yearbook, the Redding,
California Total Service Area ("TSA") has a population of 166,694, with nine FM
stations and seven AM stations. The Redding, California Metro Rank is 207.
BIA estimates annual revenues of $4.6 million for the Redding market.
THE COMPANY'S RADIO STATIONS
----------------------------
The following table sets forth certain information covering the Company's
current and proposed radio stations:
<TABLE>
STATIONS CURRENTLY OWNED BY COMPANY
-----------------------------------
<CAPTION>
TARGET
STATION CITY OF LICENSE STATION FORMAT DEMOGRAPHICS
- ------- ------------------------- -------------- ------------
<S> <C> <C> <C>
KRDG-FM Shingletown, California Oldies Ages 35+
KHSL-FM (1) Paradise, California Country Ages 18 to 54
KNSN-AM (1) Chico, California News/Talk Ages 35+
KNNN Central Valley, Adult Ages 25-54
California Contemporary
PROPOSED ACQUISITIONS OR FOR DEVELOPMENT
----------------------------------------
KLXR-AM Redding, California TBD TBD
TBD Payson, Arizona TBD TBD
TBD Shasta Lake, California TBD TBD
TBD Mesquite, Nevada TBD TBD
- -----------------------------------
<FN>
(1) The Company has executed a definitive agreement to sell these stations,
which are currently being operated by the prospective purchaser under an
LMA. The sale, which is scheduled to close on March 12, 1997, is awaiting
regulatory approval by the FCC, and engineering modifications.
</FN>
</TABLE>
In developing its stations, the Company utilizes a variety of practices
designed to improve the station's Broadcast Cash Flow, including implementation
of strict financial reporting requirements and cost controls, directing
promotional activities, developing programming to improve the station's appeal
to targeted audience groups and enhancing advertising sales efforts. In
particular, the Company emphasizes increasing local advertising revenues in
order to reduce dependence on national advertising revenues.
In operating its stations, the Company concentrates on the development of
strong decentralized local management, which is responsible for the day-to-day
operations of the station and is compensated, in part, based on incentives
related to the station's financial performance. Local management, in
cooperation with corporate management, is responsible for sales and marketing,
hiring on-air talent and developing programming. Corporate management is
responsible for long-range planning, establishing policies and procedures,
resources allocation and maintaining overall control of the stations.
The Company has purchased and installed at its studio in Redding,
California, a digital control system which the Company believes will result in
a significant reduction in live disc jockey time. Certain non-peak broadcast
periods such as nights and weekends will be voice tracked on a weekly basis
with local talent. Listeners generally will not be able to tell the difference
between the live and voice tracked disc jockey.
The Company continues to seek opportunities to acquire radio stations with
strong growth potential in the Company's current markets, subject to the
Communication Act and FCC rules, which currently limit, among other things, the
maximum number of radio stations that can be owned by the Company in the same
geographic market. Since the Company has historically grown in part through
the acquisition of broadcasting properties, current or subsequent limitations
imposed by the FCC on the number of broadcasting properties the Company may
acquire could limit the Company's ability to grow in the future.
ADVERTISING
-----------
Substantially all of the Company's revenues are generated from the sale of
advertising for broadcast on its radio stations. Depending upon the format of
a particular station, there are a predetermined number of advertisements
broadcast each hour. The Company attempts to maximize the number of
advertisements broadcast hourly without jeopardizing listening levels. Any
change in the Company's revenues, with the exception of those instances where
stations are acquired or sold, is generally the result of additional
advertising revenues and pricing adjustments which are made to ensure that the
station fully utilizes available inventory.
The Company believes that radio is one of the most efficient, cost-
effective means for advertisers to reach specific demographic groups. The
Company also believes that radio in general is more resistant to economic
downturns than other advertising-supported media due to its relatively lower
rates and lower commercial production costs.
Depending on the programming format of a particular station, the Company
estimates the optimum number of advertisements available for sale.
Accordingly, changes in the Company's net revenues (except to give effect to
the acquisition or disposition of a radio station) are generally the result of
pricing adjustments or an increase in the number of commercials sold.
Advertising rates charged by radio stations are based primarily on a
station's ability to attract audiences in the demographic groups targeted by
advertisers. The number of listeners of a station is often reported by rating
service surveys such as Arbitron, although most small radio markets are not
serviced by Arbitron. Advertising rates are also dependent upon the number of
stations in the market competing for the same demographic group and on the
supply of and demand for radio advertising time. Rates are generally highest
during the morning and afternoon drive-time hours.
Substantially all of the revenues generated by a radio station, including
the Company's radio stations, are derived from local, regional and national
advertising. Local and regional sales generally are made by a station's sales
staff. National sales are made by "national representative" firms, which
specialize in radio advertising sales on the national level. These firms are
compensated on a commission-only basis. Most advertising contracts are short-
term, generally running for only a few weeks.
COMPETITION
-----------
Radio broadcasting is an extremely competitive business. The Company's
radio stations compete for listeners and advertising revenues directly with
other radio stations within their markets, many of which have more experience
and greater resources than the Company. Radio stations compete for listeners
primarily on the basis of program content and by hiring high-profile talent
that appeals to a particular demographic group. The Company competes for
advertising revenues principally through effective promotion of its stations'
listener demographics and audience shares, and through the number of listeners
in a target group that can be reached for the price charged for the air-time.
The Company's stations also compete for advertising revenues with other media
within their markets, including broadcast television, cable television,
newspapers, magazines, direct mail, coupons and billboard advertising. By
building a strong listening base comprised of a specific demographic group in
each of its markets, the Company is able to attract advertisers seeking to
reach those listeners. Other factors that affect a station's competitive
position include its authorized power, terrain, assigned frequency, audience
characteristics, local program acceptance and the number and characteristics of
other stations in the market area.
The radio broadcasting industry is also subject to competition from new
media technologies that are being developed or introduced, such as the delivery
of audio programming by cable television systems and by digital audio
broadcasting. The radio broadcasting industry historically has grown despite
the introduction of new technologies for the delivery of entertainment and
information, such as television broadcasting, cable television, audio tapes and
compact disks. There can be no assurance, however, that the development or
introduction in the future of any new media technology will not have an adverse
effect on the radio broadcasting industry. The Company also competes with
other radio station groups to purchase additional stations. Some of these
other groups are owned or operated by companies that have substantially greater
financial and other resources than the Company.
The Telecommunications Act of 1996 will permit other radio broadcasting
companies to enter the markets in which the Company operates or may operate in
the future, some of which may be larger and have more financial resources than
the Company. There can be no assurance that the Company's existing stations,
or those stations acquired by the Company in the future, will be able to
maintain or increase their respective current audience ratings or advertising
revenue market share.
GOVERNMENTAL REGULATION
-----------------------
The ownership, operation and sale of radio stations, including those
licensed to the Company and its subsidiaries, are subject to the jurisdiction
of the FCC, which acts under authority granted by the Communication Act. Among
other things, the FCC assigns frequency bands for broadcasting; determines the
particular frequencies, locations and operating power of stations; issues,
renews, revokes and modifies station licenses; determines whether to approve
changes to ownership or control of station licenses; regulates equipment used
by stations; adopts and implements regulations and policies that directly or
indirectly affect the ownership, operation and employment practices of
stations; and has the power to impose penalties for violations of its rules or
the Communication Act.
The following is a brief summary of certain provisions of the
Communication Act, including amendments thereto recently effectuated by the
Telecommunications Act of 1996 (the "1996 Telecom Act") and of specific FCC
regulations and policies that affect the business of the Company. Reference
should be made to the Communication Act, FCC rules and the public notices and
rulings of the FCC for further information concerning the nature and extent of
federal regulation of broadcast stations.
LICENSE RENEWALS AND TRANSFERS
------------------------------
Under the 1996 Telecom Act, radio broadcasting licenses are granted
for maximum terms of eight (8) years. Such licenses are subject to renewal
upon application to the FCC. Under the 1996 Telecom Act, the FCC shall adopt
regulations which will implement a two-step procedure, pursuant to which
competing applications for an incumbent licensee's frequency will be explicitly
prohibited, and the FCC shall grant the incumbent licensee's renewal
application if it finds that (i) the incumbent licensee has served the public
interest, convenience and necessity; (ii) the incumbent licensee has not
engaged in any serious violations of the Communications Act or the FCC's rules;
and (iii) there have been no other violations by the incumbent licensee of the
Communications Act or of the FCC's rules which, taken together, would
constitute a pattern of abuse. If, based upon a review of the incumbent
licensee's renewal application, or of other facts that are brought to the FCC's
attention in a petition to deny or other third party filing, the FCC is unable
to make the foregoing findings, the incumbent licensee is entitled to a full
evidentiary hearing to establish that it is entitled to renewal. If, following
the evidentiary hearing, the FCC determines that the incumbent licensee has
failed to meet the basic requirements for renewal and that no mitigating
factors justify the imposition of a sanction less than denial of renewal (such
as, for instance, a "short" term renewal or the imposition of forfeitures), the
FCC is obligated to deny the renewal application. Should such denial become
final following judicial review, the FCC may thereafter entertain applications
for the incumbent licensee's frequency. The 1996 Telecom Act makes these
provisions retroactively applicable to renewal applications filed after May 1,
1995. The FCC intends to initiate a rule-making proceeding during 1996 to
implement these procedures.
The following table sets forth the frequency of each of the Company's
stations and the date on which the FCC license for each such station expires,
as well as certain information regarding radio station licenses that are the
subject of certain acquisition agreements with the Company:
<TABLE>
<CAPTION>
EXPIRATION
DATE OF FCC
STATION CITY OF LICENSE FREQUENCY AUTHORIZATION
- ------- --------------- --------- -------------
CURRENTLY OWNED STATIONS
------------------------
<S> <C> <C> <C>
KRDG-FM Shingletown, California 105.3 Mhz December 1, 1997
KHSL-FM (1) Paradise, California 103.5 Mhz December 1, 1997
KNSN-AM (1) Chico, California 1290 Khz December 1, 1997
KNNN Central Valley, 99.3 Mhz December 1, 1997
California
PROPOSED ACQUISITIONS OR DEVELOPMENT
------------------------------------
KLXR-AM Redding, California 1230 Khz TBD
TBD Payson, Arizona 101.1 Mhz TBD
TBD Shasta Lake City, TBD TBD
California
TBD Mesquite, Nevada TBD TBD
- -----------------------------------
<FN>
(1) The Company has executed a definitive agreement to sell these stations,
which are currently being operated by the prospective purchaser under an
LMA. The sale, which is scheduled to close on March 12, 1997, is awaiting
regulatory approval by the FCC, and engineering modifications.
</FN>
</TABLE>
OWNERSHIP MATTERS
-----------------
The Communication Act prohibits the assignment of a broadcast license
or the transfer of control of a broadcast licensee without the prior approval
of the FCC. To obtain the FCC's prior consent to transfer or assign a
broadcast license, appropriate applications must be filed with the FCC. In
determining whether to grant or renew a broadcast license, the FCC considers a
number of factors pertaining to the licensee, including compliance with the
Communications Act's limitations on alien ownership, compliance with various
rules limiting common ownership of broadcast, cable and newspaper properties,
and the "character" of a licensee and those persons holding "attributable"
interests therein.
Under the Communications Act, broadcast licenses may not be granted
to any corporation having more than twenty percent (20%) of its issued and
outstanding capital stock owned or voted by aliens (including non-U.S.
corporations), foreign governments or their representatives (collectively
"aliens"). The Communications Act also prohibits a corporation, without FCC
waiver, from holding a broadcast license if that corporation is controlled,
directly or indirectly, by another corporation, in which more than twenty-five
percent (25%) of the issued and outstanding capital stock is owned or voted by
Aliens. The FCC has issued interpretations of existing law under which these
restrictions in modified form apply to other forms of business organizations,
including partnerships. As a result of these provisions, in the absence of a
waiver, the Company, which serves as a holding company for its various
subsidiaries, cannot have more than twenty-five percent (25%) of its stock
owned or voted by Aliens.
Under the 1996 Telecom Act, the FCC's national and local multiple
ownership rules were revised. The FCC's formal rules prohibited the Company
from owning, operating or controlling, directly or indirectly, more than twenty
AM and twenty FM radio stations in the United States. The 1996 Telecom Act
completely eliminated national ownership limitations. In addition, the 1996
Telecom Act substantially relaxed restrictions on local radio multiple
ownership (often referred to as the "duopoly") rules. Under the new law, which
was implemented by the FCC in March, 1996, in markets with fourteen or fewer
radio stations, the Company is permitted to own up to a total of five (5) radio
stations, no more than three (3) of which may be FM, so long as the Company's
owned radio stations represent less than fifty percent (50%) of the radio
stations in the market. In markets between fifteen (15) and twenty-nine (29)
radio stations, the Company will be permitted to own up to a total of six (6)
radio stations, no more than four (4) of which may be FM. In markets with
between thirty (30) and forty-four (44) radio stations, the Company will be
permitted to own up to a total of seven (7) radio stations, no more than four
(4) of
which may be FM. Finally, in markets with forty-five (45) or more radio
stations, the Company may own up to a total of eight (8) radio stations, no
more than five (5) of which may be FM. All of the Company's current holdings
and proposed acquisitions are consistent with these new local multiple
ownership restrictions.
The Communications Act and FCC rules also generally limit the common
ownership, operation or control of a radio broadcast station and a television
broadcast station serving the same geographic market and of a radio broadcast
station and a daily newspaper serving the same geographic market. Under these
rules, absent waivers, the Company would not be permitted to acquire any
newspaper or television broadcast station (other than low-power television) in
a geographic market in which it now owns a broadcast property. However, the
FCC's policies, as modified by the 1996 Telecom Act, provide for the liberal
grant of waivers of the rule prohibiting ownership of radio and television
stations in the same geographic market in the top fifty television markets if
certain other conditions are satisfied. The FCC has also indicated that it
intends to hold a rule-making proceeding looking toward the liberal grant of
waivers of the rule prohibiting common ownership of a radio station and a
newspaper in the same market in large markets.
The FCC generally applies its ownership limits to "attributable"
interests held by an individual, corporation, partnership or other association.
In the case of corporations holding broadcast licenses, the interests of
officers, directors and those who, directly or indirectly, have the right to
vote five percent (5%) or more of the corporation's stock (or ten percent (10%)
or more of such stock in the case of insurance companies, investment companies
and bank trust departments that are holding stock for investment purposes only)
are generally attributable, as are positions of an officer or director of a
corporate parent of a broadcast licensee. Currently, none of the Company's
officers, directors or stockholders has an attributable interest in any company
licensed to operate broadcast stations other than the Company and/or its
subsidiaries.
LOCAL MARKETING AGREEMENTS
--------------------------
Over the past few years, a number of radio stations have entered into
what have commonly been referred to as "Local Marketing Agreements" or "LMAs".
While these agreements may take different forms, under a typical LMA,
separately owned and licensed radio stations agree to enter into cooperative
arrangements of varying sorts, subject to compliance with the requirements of
the antitrust laws and the FCC's rules and policies, including the requirement
that the licensee of each station maintain independent control over the
programming and operation of its own stations. The most prevalent kind of LMA
is a time brokerage agreement among two separately-owned radio stations serving
a common service area, whereby the licensee of one station programs substantial
parts of the broadcast day on the other licensee's station, subject to ultimate
editorial and other controls being exercised by the latter licensee, and sells
advertising time during such program segments. The FCC has held that such
agreements involving radio stations are not contrary to the Communications Act,
provided that the licensee of the station that is being substantially
programmed by another entity maintains complete responsibility for, and control
over, the operations of its broadcast station, and assures compliance with
applicable FCC rules and policies.
The FCC rules specifically permit LMAs but provide that a station
leasing time and broadcasting programming on another station servicing the same
market will be considered to have an attributable ownership interest in the
other station for purposes of the FCC's multiple ownership rules. As a result,
the Company would not be permitted to enter into an LMA with another local
station which it could not own under the FCC's local ownership rules unless the
Company's programming constituted less than fifteen percent (15%) of the other
station's programming on a weekly basis. Under the 1996 Telecom Act, in
markets with fourteen or fewer radio stations, such as the Redding, California
market, the Company is permitted to own up to a total of five radio stations,
no more than three (3) of which may be FM so long as the Company's owned radio
stations represent less than fifty percent of the radio stations in the market.
As a result of the KNNN acquisition, the Company can only acquire or enter into
an LMA relating to the operation of one (1) more FM station that serves the
Redding, California market.
PROGRAMMING AND OPERATION
-------------------------
The Communication Act requires broadcasters to serve the "public
interest." Licensees are required to present programming that is responsive to
community issues and to maintain certain records demonstrating such
responsiveness. Complaints from listeners concerning a station's programming
may be considered by the FCC when it evaluates renewal applications of a
licensee, although such complaints may be filed at any time. Stations also
must follow various rules promulgated under the Communication Act that
regulate, among other things, political advertising, sponsorship
identifications, and advertisement of contests and lotteries and technical
operations, including limits on radio frequency radiation. In addition,
licensees must develop and implement programs designed to promote equal
employment opportunities and must submit reports to the FCC with respect to
these matters on an annual basis and in connection with a renewal application.
Failure to observe these or other rules and policies can result in
the imposition of various sanctions, including monetary forfeitures,
conditional grants of licenses, the grant of "short" (less than the full eight
(8) year term) renewal terms or, for particularly egregious violations, the
denial of a license renewal application or the revocation of a license.
PROPOSED CHANGES
----------------
The Congress and the FCC have under consideration, and may in the
future consider and adopt, new laws, regulations and policies, regarding a wide
variety of matters that could, directly or indirectly, affect the operation and
ownership of the Company's radio broadcast properties. Such matters include,
for example, proposals to impose spectrum use or other governmentally imposed
fees upon licensees; the FCC's equal employment opportunity rules and other
matters relating to minority and female involvement in the broadcasting
industry including enhancement of ownership opportunities; proposals to change
rules relating to political broadcasting; proposals to change the thresholds,
benchmarks or concepts applicable to attributing ownership interest in
broadcast media; proposals to permit lenders to take a security interest in FCC
licenses; technical and frequency allocation matters, including those relative
to the implementation of digital audio broadcasting on both a satellite and
terrestrial basis, spectrum for which has been allocated by the FCC; proposals
to permit expanded use of FM translator stations; proposals to restrict or
prohibit the advertising of tobacco products and/or beer, wine or other
alcoholic beverages on radio; and changes to broadcast technical requirements
in frequency allocation matters. The Company cannot predict whether any such
proposed changes will be adopted nor can it judge in advance what impact, if
any, any such proposed changes might have on its business.
LEGAL PROCEEDINGS
-----------------
Neither the Company nor any of its subsidiaries is a party to any material
legal proceedings, nor are they aware of any pending or threatened claim of a
material nature.
During 1994, 1995 and 1996, John C. Power, the Company's President and
Director, and Microcap, the Company's principal shareholder, received several
requests from the Securities and Exchange Commission (the "Commission") to
produce documents covering numerous transactions involving Mr. Power, Microcap
and other parties. In September, 1996, Mr. Power was notified by Commission's
staff that it intends to request that the Commission commence an administrative
proceeding against Mr. Power and others based upon certain transactions in
securities of issuers other than the Company or Microcap. Microcap did not
receive any such notification. Mr. Power has responded to the Commission with
a written submission which sets forth why there exists no basis in fact or law
for such a proceeding. It is impossible to predict whether the staff will
recommend a proceeding against Mr. Power, and if such a recommendation is made,
whether the Commission will authorize the institution of a proceeding. If a
proceeding is instituted against Mr. Power, there can be no assurance that such
a proceeding will not have an adverse impact upon Mr. Power and indirectly, an
adverse impact upon the Company's financial condition or operating results, or
the market for the Company's securities.
EMPLOYEES
---------
The Company presently has fourteen (14) full time employees. The
Company's principal executive officers are John C. Power, Chief Executive
Officer and President, J. Andrew Moorer, Chief Financial Officer, Secretary and
Treasurer, and Donald P. Griffin, Chief Operating Officer. The foregoing
individuals are responsible for all of the Company's budget, legal and
financial matters, as well as for evaluating, investigating and negotiating all
acquisition opportunities.
The stations have not experienced any significant labor problems under the
Company's ownership, and the Company considers its labor relations on the whole
to be good.
The Company has plans for aggressive acquisition and growth using current
management and staff as an infrastructure. The Company believes that it has
full-time management sufficient to operate six (6) radio stations; however,
there can be no assurance that rapid expansion will not necessitate further
demand for local management. (See "RISK FACTORS -- RISK OF EXPANSION.")
<PAGE>
REDWOOD MICROCAP FUND, INC.
---------------------------
Redwood Microcap Fund, Inc. ("Microcap") has unconditionally agreed to
guarantee to each Putholder payment of the Put Option price upon exercise of a
Put in the event the Company defaults in its obligation to purchase and redeem
the underlying shares of Common Stock upon exercise of the Put.
Microcap is a diversified, closed-end management investment company
registered under the Investment Company Act of 1940 (the "1940 Act"). It is a
reporting company under the 1940 Act and its securities are traded in the over-
the-counter market and quoted on the OTC Electronic Bulletin Board.
Microcap's assets, totaling approximately $4,617,874 at September 30,
1996, are invested primarily in securities of issuers with market
capitalizations of less than $50,000,000, real estate, radio broadcasting, oil
and gas and cash equivalents. In addition to its securities portfolio,
Microcap has two principal operating divisions: oil and gas and radio
broadcasting. TDP Energy Company is a majority-owned subsidiary based in
Ardmore, Oklahoma which is engaged in the exploration of oil and gas and
operates over 500 producing wells and manages 13 oil and gas limited
partnerships. The Company's ownership of Redwood Broadcasting, Inc. represents
its radio broadcasting operating division.
At September 30, 1996, Microcap had total assets consisted principally of
investments in securities of both affiliated and unaffiliated issuers. Total
liabilities at September 30, 1996 were $1,106,937, resulting in Microcap's net
assets at September 30, 1996 being $3,510,936.
For the six-month period ended September 30, 1996, Microcap's net asset
value ("NAV") increased from $2,089,000 to $3,510,936, a gain of 68.7%. The
increase was primarily due to the sale of one portfolio security position of an
issuer that was the subject of a corporate acquisition during 1996. As a
result of that transaction, Microcap realized a gain of more than $1,500,000.
Subsequent to September 30, 1996, the securities position was fully liquidated
through market transactions.
The maximum exposure of Microcap under its guarantee of the Puts is
approximately $312,000. In view of foregoing, this maximum potential liability
represents less than 10% of Microcap's NAV at September 30, 1996. Further, due
to Microcap's subsequent liquidation of the one portfolio position discussed
above, as of the date of this Prospectus Microcap has cash or cash equivalent
in excess of its maximum potential liability under the Put Option guarantee.
John C. Power is President and director and James Andrew Moorer is CFO,
Secretary and Treasurer of Microcap, as well as officers and directors of the
Company.
<PAGE>
MANAGEMENT
----------
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
- -----------------------------------------------
Name, position with the Company, age of each Director or executive
officer, and the period during which each Director and officer has served are
as follows:
<TABLE>
<CAPTION>
DIRECTOR/OFFICER
NAME AGE POSITION SINCE
- ----------------- --- ------------------------ ----------------
<S> <C> <C> <C>
John C. Power 34 Chairman of the Board 1995
Chief Executive Officer,
President
J. Andrew Moorer 34 Chief Financial Officer, 1995
Secretary, Treasurer,
and Director
Donald P. Griffin 49 Chief Operating Officer, 1996
Director
- -----------------------------------
</TABLE>
JOHN C. POWER. Mr. Power began his service as President, Chief Executive
Officer and Chairman of the Board of the Company in June, 1995 upon
consummation of the Company's acquisition of RBI. Mr. Power has also served as
President and Chief Executive Officer of Redwood MicroCap Fund, Inc.
("MicroCap") since February, 1992. MicroCap is registered as an Investment
Company under the Investment Company Act of 1940, as amended (the "40 Act"),
but is attempting to de-register from the 40 Act. MicroCap has majority and/or
wholly-owned subsidiaries engaged in oil and gas exploration, production and
management and radio broadcasting. Since November 1996, Mr. Power has been the
Managing Member of Northern Lights Broadcasting, L.L.C., a limited liability
company engaged in the acquisition and development of radio stations in Montana
and North Dakota. Since November 1996, Mr. Power has also been President of
Power Surge, Inc. Mr. Power has also served as president of Power Curve, Inc.,
a private investment and consulting firm since 1986, and as an officer and
director of Signature Wines of Napa Valley, Inc. from September, 1995 to June
1996. Signature Wines is engaged in the resale and marketing of wines through
a private label program. From March, 1994 to September, 1995, Mr. Power served
as a general partner of Signature Wines, a California general partnership, a
predecessor entity of Signature Wines of Napa Valley, Inc. Mr. Power served as
a director of BioSource International, Inc. (NASDAQ: BIOI) from August, 1993 to
December, 1994, of Optimax Industries, Inc. (NASDAQ: OPMX) from April 1993 to
March, 1995, and of AirSoft Corporation, a manufacturer of network
communications software and systems, from 1993 to June 1996. Mr. Power
received his formal education at Occidental College and at the University of
California at Davis.
J. ANDREW MOORER. Mr. Moorer, like Mr. Power, began his service with the
Company upon consummation of the Company's acquisition of RBI in June, 1995,
and currently serves as the Company's Chief Financial Officer, Secretary,
Treasurer, and as a member of the Company's Board of Directors. Mr. Moorer has
also served as a Director of MicroCap since December, 1993, and as Chief
Financial Officer of MicroCap since July, 1994. From May, 1990 to May 1994,
Mr. Moorer held the position of Chief Financial Officer of Applied Research
Corporation, a large, publicly traded, scientific research and development
company based in Landover, Maryland. From March, 1987 to May, 1990, Mr. Moorer
was employed as a business analyst with Compudyne Corporation, a defense
electronics manufacturer located in Annapolis, Maryland. Prior to accepting
employment with Compudyne, Mr. Moorer was employed as a Certified Public
Accountant with the international accounting firm of Coopers & Lybrand where he
worked in the Audit and Emerging Business Services Group from January, 1985 to
March, 1987. Mr. Moorer received his formal education at Loyola College,
Baltimore, Maryland.
DONALD P. GRIFFIN. Mr. Griffin recently joined the Company as a Director
and as the Chief Operating Officer. He is responsible for the sales, marketing
and broadcasting operations in Redding, California. Mr. Griffin joins the
Company with an extensive and highly successful career in radio broadcasting.
Most recently, Mr. Griffin was Vice President and General Manager of WLQT\WDOL
Radio in Dayton, Ohio. At WLQT\WDOL he was responsible for tripling revenues
in three years, growing from seven percent (7%) to twelve and one-half percent
(12.5%) of the market. He also held the position of General Sales Manager for
WONE\WTUE Radio, a country/AOR format, in Dayton, Ohio. While at WONE\WTUE,
Mr. Griffin took revenues from nineteen percent (19%) to twenty-nine percent
(29%) in three years, and was Sales Manager of the year in 1988. Mr. Griffin
has been a General Manager in a number of turn-around stations producing
dramatic increases in revenues in his initial year of responsibility. His
sales programs have included the addition of college and professional sport
broadcasting, special weekend programs and value-rated sales concepts which
increased revenues as much as seventy-five percent (75%) in a six-month period.
Mr. Griffin holds a B.A. degree in Communications Arts from the University of
Dayton.
Each Director is elected to serve for a term of one (1) year until the
next Annual Meeting of Shareholders or until a successor is duly elected and
qualified.
During the eight (8) months ended March 31, 1996, the Company did not have
standing Audit, Compensation or Nominating Committees of the Board of
Directors. However, the Company plans to form an Audit Committee during fiscal
1997. No member of the Audit Committee will receive any additional
compensation for his service as a member of that Committee. The Audit Committee
will be responsible for providing assurance that financial disclosures made by
Management reasonably portray the Company's financial condition, results of
operations, plan and long-term commitments. To accomplish this, the Audit
Committee will oversee the external audit coverage, including the annual
nomination of the independent public accountants, review accounting policies
and policy decisions, review the financial statements, including interim
financial statements and annual financial statements, together with auditor's
opinions, inquire about the existence and substance of any significant
accounting accruals, reserves or estimates made by Management, review with
Management the Management's Discussion and Analysis section of the Annual
Report, review the letter of Management representations given to the
independent public accountants, meet privately with the independent public
accountants to discuss all pertinent matters, and report regularly to the Board
of Directors regarding its activities.
During the eight (8) months ended March 31, 1996, three (3) meetings of
the Board of Directors of the Company were held. Each meeting was attended by
all members of the Board of Directors.
Any transactions between the Company and its officers, directors,
principal shareholders, or other affiliates have been and will be on terms no
less favorable to the Company than could be obtained from unaffiliated third
parties on an arms-length basis.
<PAGE>
DIRECTOR COMPENSATION
- ---------------------
Outside Directors receive no cash compensation for their services as such,
however they are reimbursed their expenses associated with attendance at
meetings or otherwise incurred in connection with the discharge of their duties
as Directors of the Company. Directors who are also executive officers of the
Company receive no additional compensation for their services as Directors.
<PAGE>
EXECUTIVE COMPENSATION
----------------------
The following table and discussion sets forth information with respect to
all plan and non-plan compensation awarded to, earned by or paid to the Chief
Executive Officer ("CEO"), and the Company's four (4) most highly compensated
executive officers other than the CEO, for all services rendered in all
capacities to the Company and its subsidiaries for the eight (8) months ended
March 31, 1996, and each of the years in the two (2) fiscal years ended
July 31, 1995 and 1994; provided, however, that no disclosure has been made for
any executive officer, other than the CEO, whose total annual salary and bonus
does not exceed $100,000.
<TABLE>
TABLE 1
SUMMARY COMPENSATION TABLE
--------------------------
<CAPTION>
Long Term Compensation
----------------------------------
Annual Compensation(1) Awards Payouts
-------------------------- --------------------- -------
Other All
Annual Restricted Other
Name and Compen- Stock LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) ($)(2) ($) SARs ($) ($)
- --------------- ------- -------- ----- --------- ---------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John C. Power, 1996(2) $-0- $-0- $7,500 -0- -0- -0- -0-
President, CEO
and Chairman of 1995 $-0- (3) $-0- $5,000(3) -0- -0- -0- -0-
the Board
1994 $-0- $-0- $-0- -0- -0- -0- -0-
- -----------------------------------
(1) No executive officer received perquisites and other personal benefits
which, in the aggregate, exceeded the lesser of either $50,000 or 10% of
the total of annual salary and bonus paid during the respective fiscal
years.
(2) In January 1996, the Company changed its fiscal year from
July 31 to March 31. As a result, information reported for fiscal 1996
represents compensation paid during the eight (8) months ended March 31,
1996.
(3) To date, no officer or director of the Company has received cash
compensation for services rendered on behalf of the Company. The Company
did, however, pay to MicroCap a consultation fee in the amount of $7,500
during the eight (8) months ended March 31, 1996 and the sum of $5,000
during the year ended July 31, 1995, and has agreed to continue to pay
MicroCap the sum of $2,500.00 per month through March 31, 1997. The
consultation fee paid to MicroCap is the equivalent and representative of
the reasonable management expenses of the Company on a stand-alone basis.
No consulting fee was paid during the fiscal year ended July 31, 1994.
Mr. Power currently serves as President, CEO and Chairman of the Board of
MicroCap.
</TABLE>
1995 INCENTIVE STOCK OPTION PLAN
- --------------------------------
On December 5, 1995, the Board of Directors of the Company adopted the
Redwood Broadcasting, Inc. 1995 Incentive Stock Option Plan (the "ISOP"),
subject to shareholder approval. Pursuant to the ISOP, the Company's Board of
Directors is authorized to issue options for the purchase of up to 150,000
shares of the Company's Common Stock to key employees of the Company. Options
granted under the ISOP to eligible participants may take the form of Incentive
Stock Options ("ISOs") under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") or options which do not qualify as ISOs (Non-Qualified
Stock Options or "NQSOs"). As required by Section 422 of the Code, the
aggregate fair market value (as defined in the ISOP) of the Company's Common
Stock (determined as of the date of grant of the ISO) with respect to which
ISOs granted to an employee are exercisable for the first time in any calendar
year may not exceed $100,000. The foregoing limitation does not apply to
NQSOs. The exercise price of an ISO may not be less than 100% of the fair
market value of the shares of the Company's Common Stock (or 110% of the fair
market value if granted to a person who owns 10% or more of the Company's
outstanding shares) on the date of grant. The exercise price of a NQSO may be
set by the administrator of the ISOP. The exercise price under any option will
be adjusted as provided in the ISOP to reflect stock dividends, splits, other
recapitalizations or reclassifications or changes affecting the number or kind
of outstanding shares. Fair market value of the Company's Common Stock is
defined in the ISOP as the closing sale price of the Common Stock on the OTC
Electronic Bulletin Board System or any securities exchange on which the shares
of Common Stock are then listed.
The ISOP is administered by a committee made up of members of the
Company's Board of Directors (the"Committee"), which determines eligible
employees, the time and number of options to be granted, and the periods for
which such options are granted. There are limitations on the number of options
which can be granted and the aggregate fair market value of the stock in any
given year. All options granted under the ISOP can be made subject to vesting
by the Committee in its discretion.
As of March 31, 1996, no ISOs or NQSOs, had been issued or were
outstanding under the ISOP.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock, as of the date of this Prospectus,
and as adjusted to reflect the sale of the securities offered by this
Prospectus by: (i) each of the directors and executive officers of the Company,
(ii) all officers and directors of the Company as a group, and (iii) holders of
5% or more of the Company's Common Stock. Each person has sole voting and
investment power with respect to the shares shown, except as noted.
<TABLE>
<CAPTION>
PERCENT(1)
NUMBER OF SHARES ---------------------
NAME AND ADDRESS BENEFICIALLY BEFORE AFTER
OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- -------------------- --------------- -------- --------
OFFICERS, DIRECTORS,
AND PRINCIPAL SHAREHOLDERS
- --------------------------
<S> <C> <C> <C>
John C. Power(2) 595,442 60.0% 42.7%
P.O. Box 3458
Carefree, AZ 85377
J. Andrew Moorer(3) 525,192 52.7% 37.6%
4528 E. Duane Lane
Cave Creek, AZ 85331
Redwood MicroCap Fund, Inc.(4)(5) 487,692 48.9% 34.9%
P.O. Box 3463
Carefree, AZ 85377
Combined Penny Stock Fund, Inc.(6) 51,652 5.2% 3.7%
2055 Anglo Drive, Suite 105
Colorado Springs, CO 80918
Brian Power(7) 65,938 6.6% 4.7%
Nut Tree Ranch
Nut Tree, CA 95696
Officers and Directors as a 632,942 63.6% 45.3%
Group (three (3) individuals)
- -----------------------------------
(1) Shares not outstanding but deemed beneficially owned by virtue of the
individual's right to acquire then as of the date of this Prospectus, or
within 60 days of such date, are treated as outstanding when determining
the percent of the class owned by such individual and when determining the
percent owned by the group. For purposes of calculating the percent of
class owned after this offering, it was assumed that the officers,
directors and principal shareholders will not be purchasing shares in this
offering.
(2) Includes 487,692 shares held of record by Redwood MicroCap Fund, Inc., a
Colorado corporation, of which Mr. Power is an officer, director and
shareholder and, as such, would be deemed to exercise the shared voting
and investment power with respect to such securities. Mr. Power disclaims
beneficial ownership of the securities for purposes of Section 16 under
the Exchange Act. Assumes no shares are sold by MicroCap in the Selling
Shareholders' Offering. Also, includes 7,750 shares held of record by the
John C. Power Profit Sharing Plan. Mr. Power currently serves as the
Plan's administrator and is a beneficiary and as such, would be deemed to
exercise voting and investment power with respect to such securities.
Also includes 100,000 shares held of record by Power Curve, Inc., a
controlled corporation of Mr. Power.
(3) Includes 487,692 shares held of record by Redwood MicroCap Fund, Inc., a
Colorado corporation, of which Mr. Moorer is an officer and director and,
as such, would be deemed to exercise the shared voting and investment
power with respect to such securities. Mr. Moorer disclaims beneficial
ownership of the securities for purposes of Section 16 under the Exchange
Act. Assumes no shares are sold by MicroCap in the Selling Shareholders'
Offering.
(4) Includes 195,371 shares of Common Stock acquired pursuant to the terms of
the RBI Agreement. (See "CERTAIN TRANSACTIONS - RBI Agreement"), which
have been pledged as collateral to secure MicroCap's guarantee of the
Company's obligation to purchase up to 203,008 shares of the Company's
Common Stock upon exercise of the Puts. Also includes 150,000 shares of
Common Stock issued to MicroCap in satisfaction of $180,000 in debt owed
to MicroCap by the Company. Also includes 97,000 shares of Common Stock
to be acquired from certain CRI Shareholders.
(5) Redwood MicroCap Fund, Inc. is a diversified, closed-end, mutual fund
registered under the Investment Company Act of 1940 (the "1940 Act").
Voting and investment power with respect to these securities is exercised
by the company's Board of Directors, whose members are John C. Power,
Joseph O. Smith, and J. Andrew Moorer.
(6) Combined Penny Stock Fund, Inc is a Colorado-based business development
company located in Colorado Springs, Colorado. Voting and investment
power with respect to these securities is exercised by the Company's Board
of Directors whose members include Allan W. Williams, Dr. A. Leonard
Nacht. Brian Power and John Overturf.
(8) Includes 51,562 shares of Common Stock owned of record by Combined Penny
Stock Fund, Inc., on which Mr. Power serves as a member of the Board of
Directors. Mr. Power disclaims beneficial ownership of the shares held of
record by Combined Penny Stock Fund, Inc. for purposes of Section 16 of
the Exchange Act.
</TABLE>
<PAGE>
DESCRIPTION OF SECURITIES
-------------------------
COMMON STOCK
- ------------
The authorized capital stock of the Company consists of 12,500,000 shares
of Common Stock having a par value of $.004 per share. All shares have equal
voting rights and are not assessable. Voting rights are not cumulative and,
therefore, the holders of more than 50% of the Common Stock of the Company
could, if they chose to do so, elect all the Directors. The terms of the
directors are not staggered. Directors are elected annually to serve until the
next annual meeting of shareholders or until their successors are elected and
qualified.
Upon liquidation, dissolution or winding up of the Company, the assets of
the Company, after satisfaction of all liabilities, will be distributed PRO
RATA to the holders of the Common Stock. The holders of the Common Stock do
not have preemptive rights to subscribe for any securities of the Company and
have no right to require the Company to redeem or purchase their shares. The
shares of Common Stock presently outstanding are, and the shares of the Common
Stock to be sold pursuant to this offering will be, upon issuance, fully paid
and non-assessable.
Holders of Common Stock are entitled to dividends when, as and if declared
by the Board of Directors of the Company, out of funds legally available
therefor. The Company has not paid any cash dividends on its Common Stock, and
it is unlikely that any such dividends will be declared in the foreseeable
future.
PREFERRED SHARES
- ----------------
The Articles of Incorporation of the Company authorize issuance of a
maximum of 2,500,000 shares of preferred stock having a par value of $.04 per
share. The Articles of Incorporation vest the Board of Directors of the
Company with authority to divide the class of Preferred Shares into series and
to fix and determine the relative rights and preferences of the shares of any
such series so established to the full extent permitted by the laws of the
State of Colorado and the Articles of Incorporation in respect of, among other
things, (i) the number of Preferred Shares to constitute such series and the
distinctive designations thereof, (ii) the rate and preference of dividends, if
any, the time of payment of dividends, whether dividends are cumulative and the
date from which any dividend shall accrue, (iii) whether Preferred Shares may
be redeemed and, if so, the redemption price and the terms and conditions of
redemption, (iv) the liquidation preferences payable on Preferred Shares in the
event of involuntary or voluntary liquidation, (v) sinking fund or other
provisions, if any, for redemption or purchase of Preferred Shares, (vi) the
terms and conditions by which Preferred Shares may be converted, if the
Preferred Shares of any series are issued with the privilege of conversion, and
(vii) voting rights, if any.
COMMON STOCK PUT OPTIONS
- ------------------------
Pursuant to the terms of the RBI Agreement, and upon the effective
date of the Registration Statement of which this Prospectus forms a part, the
Company has agreed to issue up to 203,008 Common Stock Put Options ("Puts") to
certain of the CRI shareholders (the "Putholders"). Upon issuance, the Puts
will grant to each Putholder the right and option to sell to the Company for
redemption any or all of the number of shares of the Company's Common Stock
which such Putholders have the right to receive by virtue of the CRI Agreement.
The Puts will require the Company to purchase and redeem any and all shares
tendered at a price of $1.50 per share. The Puts will be exercisable for a
period of ninety (90) days following the effective date of the Registration
Statement of which this Prospectus forms a part ("Redemption Period"). The
Company has the option to extend the exercise period of the Put Options and to
increase the Put Redemption Price upon written notice to the holders thereof.
Once issued, the Put Options shall be freely transferrable and tradeable by the
holders, should a market for the Put Options develop, of which there can be no
assurance.
Upon exercise of a Put Option and the execution and delivery to the
Company by the exercising Putholder of the Put redemption certificate as well
as certificates representing the underlying shares of Common Stock, the Company
shall be obligated to pay to the exercising Putholder within ten days the Put
Redemption Price of $1.50 per share of Common Stock put to the Company for
redemption. An exercising Putholder must cover the exercise of the Put Option
by delivering to the Company underlying shares of Common Stock, which may be
acquired by such exercising Putholder through market purchasers or in
privately-negotiated purchases. (See "TERMS OF OFFERINGS - The Put Option
Offering.")(See "TERMS OF OFFERINGS - THE PUT OPTION OFFERING.")
<PAGE>
TERMS OF OFFERINGS
------------------
This Prospectus relates to four (4) offerings of the Company's securities,
the terms and conditions of which are set forth below.
THE SPIN-OFF OFFERING
- ---------------------
The first offering relates to the distribution by Cell Robotics
International, Inc., a Colorado corporation ("CRI") of up to 300,008 shares of
the Company's $.004 par value common stock pursuant to the terms of a certain
Agreement and Plan of Reorganization between and among CRI, Cell Robotics,
Inc., a New Mexico corporation ("Cell"), MiCEL, Inc., a Delaware corporation,
Bridgeworks Investors I, LLC, an Oregon limited liability company, and Ronald
K. Lohrding individually, dated as of December 12, 1994 (the "CRI Agreement"),
pursuant to which CRI agreed to distribute 300,008 shares of the Company's
Common Stock ("Spin-Off Shares") to the shareholders of record of CRI (the "CRI
Shareholders") as of December 16, 1994 (the "Record Date") upon the effective
date of the Registration Statement of which this Prospectus forms a part (the
"Registration Statement"). (See "BUSINESS - HISTORY - FORMATION OF THE
COMPANY.")
The Spin-Off Shares will be distributed by mail within 10 days after the
effective date of the Registration Statement on a "pro-rata", one-for-one (1-
for-1) basis, with each CRI Shareholder receiving one (1) Spin-Off Share for
each share of CRI common stock held of record on the Record Date. No
fractional shares will be distributed.
Only CRI Shareholders residing in states where the Spin-Off Shares have
been qualified for issuance under the applicable state securities laws will be
eligible to receive shares of the Company's Common Stock. Although the Company
plans to qualify the issuance of the Spin-Off Shares in those states in which
the securities are to be distributed, no assurance can be given that such
qualification will occur. CRI Shareholders residing in states where the
Company is unable to qualify the Spin-Off Shares for distribution will not be
eligible to participate in the distribution. In the event the Company is
unable to qualify the distribution of the Spin-Off Shares under one or more
applicable state securities laws, the Company will provide the CRI shareholders
residing in such states with written notice of their ineligibility to
participate in the Spin-Off. Any Spin-Off shares which cannot be distributed
due to the Company's inability to qualify the Spin-Off Offering under a state's
securities laws will be distributed pro rata to the remaining CRI Shareholders.
In such event, the Company does not intend to amend this Prospectus unless the
aggregate number of Spin-Off Shares which are ineligible to be distributed
exceeds 5% of the total Spin-Off Shares. All questions as to the eligibility
of the CRI Shareholders to participate in the distribution will be determined
by the Company in its sole discretion.
The CRI Shareholders will not be charged or assessed for the Spin-Off
Shares and neither CRI nor the Company will receive any proceeds from the
distribution of the Spin-Off Shares. Pursuant to the terms of the CRI
Agreement, the Company is bearing the cost of the distribution.
THE PUT OPTION OFFERING
- -----------------------
This Prospectus also relates to the distribution by the Company of up to
203,008 Common Stock Put Options ("Puts") issuable pursuant to the terms of a
certain Agreement and Plan of Reorganization between and among the Company,
Broadcasting and MicroCap dated as of June 16, 1995, pursuant to which the
Company agreed to issue to certain of the CRI Shareholders (the "Putholders") a
Put exercisable to sell to the Company for redemption, any or all of the Spin-
Off Shares which such Putholders have the right to receive in the Spin-Off.
The Put will require the Company to purchase and redeem any and all shares
tendered at a price of $1.50 per share (the "Put Price"). The Puts will be
exercisable for a period of ninety (90) days following the effective date of
the Registration Statement (the "Put Expiration Date"). The Company's
obligation to purchase and redeem any and all shares tendered has been
guaranteed by MicroCap, which guarantee is secured by 195,371 shares of the
Company's Common Stock owned by MicroCap. The guarantee of MicroCap is direct,
unconditional and independent of the obligations of the Company. In the event
the Company fails to redeem Spin-Off Shares which have been tendered in
accordance with the Put Exercise Procedure described below, a cause or causes
of action may be brought and prosecuted against the Company and MicroCap or
against MicroCap for the full amount of the outstanding indebtedness due and
owing upon said exercise without the necessity of first proceeding against or
joining the Company.
The Puts being issued to the Putholders, together with Put Redemption
Certificates, will be distributed by mail within 10 days after the effective
date of the Registration Statement. No fractional Puts will be distributed.
Only Putholders residing in states where the Puts have been qualified for
issuance under the applicable state securities laws will be eligible to
participate in the distribution. Although the Company seeks to qualify the
issuance of the Puts in those states in which the Puts are to be distributed,
no assurance can be given that such qualification will occur. In the event the
Company is unable to qualify the distribution of the Puts to any CRI
shareholders due to the applicable state securities laws of the state of such
putholder's residence, the Company will provide the putholder with written
notice of such ineligibility and will amend this Prospectus to disclose those
states in which the Put Option Offering will not be conducted. Putholders
residing in states where the Company is unable to qualify the Puts for issuance
will not be eligible to participate in the distribution. The Putholders will
not be charged or assessed for Puts and the Company will not receive any
proceeds from the distribution of the Puts. Pursuant to the terms of the RBI
Agreement, the Company is bearing the cost of the distribution.
PUT EXERCISE PROCEDURE
----------------------
Puts may be exercised by mailing or delivering to the Company a duly
executed and completed Put Redemption Certificate indicating the number of
shares being tendered for redemption and a certificate or certificates
representing the number of shares of Company Common Stock being tendered. Put
Redemption Certificates must arrive on or before the Put Expiration Date. Any
Put Redemption Certificates received after the Put Expiration Date will not be
honored. Once a Putholder has exercised a Put, the exercise is irrevocable.
Within ten (10) days of receipt of the foregoing, the Company will return to
each tendering Putholder a certificate for all shares surrendered in excess of
those tendered for redemption, if any, and will mail to each exercising
Putholder a check from the Company in consideration for the shares that were
tendered and redeemed by the Company.
The instructions on the Put Redemption Certificate should be read
carefully and followed in detail. No Puts will be accepted until the Company
has received delivery of a duly executed Put Redemption Certificate. The risk
of delivery of Put Redemption Certificates and Common Stock to the Company will
be borne by the Putholders and not by the Company. If the mail is used to
exercise Puts, it is recommended that insured, registered mail be used. Any
questions or requests for assistance concerning the method of exercising the
Puts should be directed to the Company. All questions as to the validity,
form, eligibility and acceptance of any exercise of Puts will be determined by
the Company in its sole discretion. The Company may waive any defect or
irregularity, permit a defect or irregularity to be corrected within such time
as it may determine, or reject any exercise of a Put which it determines to
have been made improperly.
THE COMPANY OFFERING
- --------------------
The Company is offering on a best efforts basis up to 400,000 shares of
the Company's $.004 par value Common Stock at an offering price of $2.00 per
share. The Offering Price of the Common Stock being offered hereby was
arbitrarily determined by the Company and is not necessarily related to the
Company's assets, book value or financial condition. In determining the
offering price and the number of shares of Common Stock to be offered, the
Company considered such factors as the financial condition of the Company, its
net tangible book value, limited operating history and general condition of the
securities market. Accordingly, the offering price of the Common Stock may not
be indicative of the actual value of the Company. (See "RISK FACTORS - RISK
FACTORS RELATED TO THIS OFFERING.")
The Company is offering the shares of Common Stock to the public through
its officers and directors. The Company may retain the services of Selling
Agents who are members of the National Association of Securities Dealers to
assist in the Company Offering. On any sales made by Selling Agents, a
commission of up to ten percent (10%) may be paid. To date, there exists no
arrangements or commitments by the Company to retain any Selling Agent.
There currently exists no public trading market for the Company's Common
Stock, and there can be no assurance that such a market will develop in the
future. In the absence of an active public trading market, there can be no
assurances that an investor will be able to liquidate his investment without
considerable delay, if at all. If a market does develop, the price for the
Company's securities may be highly volatile and may bear no relationship to the
Company's actual financial condition or results of operations. (See
"DESCRIPTION OF SECURITIES" and "RISK FACTORS - RISK FACTORS RELATED TO THIS
OFFERING.")
The Company's securities may be quoted in the "pink-sheets" maintained by
the National Quotations Bureau, Inc., which reports quotations by brokers or
dealers making a market in particular securities. The Company has no agreement
with any broker or dealer to act as a marketmaker for the Company's securities
and there is no assurance that Management will be successful in obtaining any
marketmakers. The lack of a marketmaker for the Company's securities could
adversely influence the market for and price of the Company's securities, as
well as the ability of investors to dispose of, or to obtain accurate
quotations as to the price of, the Company's securities. (See "RISK FACTORS -
RISK FACTORS RELATED TO THIS OFFERING.")
THE SELLING SHAREHOLDERS' OFFERING
- ----------------------------------
This Prospectus relates to the resale to the public of 500,429 shares of
Common Stock by the Selling Shareholders set forth below. The following table
sets forth certain information with respect to persons for whom the Company is
registering the Common Stock for resale to the public. None of the Selling
Shareholders have had any material relationship with the Company, or any of its
predecessors or affiliates within the past three years, except as noted. The
Company will not receive any of the proceeds from the sale of the Common Stock
by the Selling Shareholders. Beneficial ownership of the Common Stock by such
Selling Shareholders after this Offering will depend on the number of shares
sold by each Selling Shareholder.
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO SHARES OWNED AFTER
OFFERING OFFERED OFFERING
NAME AND ADDRESS ------------------- ------- -------------------
OF BENEFICIAL OWNER NUMBER PERCENT(1) NUMBER NUMBER PERCENT(1)
- ------------------- ------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Stefan Ponek 15,000 1.5% 15,000 -0- -0-
642 O'Farrel Drive
Benicia, CA 94510
Brian Power(2) 14,376 1.4% 14,376 -0- -0-
Nut Tree Ranch
Nut Tree, CA 95696
Redwood MicroCap Fund, Inc.(3) 487,692 48.9% 195,371 292,321 20.9%
P.O. Box 3463
Carefree, AZ 85377
Allan Williams 13,719 1.4% 13,719 -0- -0-
21071 43A Avenue
Langley, British Columbia,
Canada V3A 8K4
Combined Penny Stock Fund, Inc. 51,562 5.2% 51,562 -0- -0-
2055 Anglo Drive, Suite 105
Colorado Springs, CO 80918
Peter L. Hirschburg, Jr. 7,651 .8% 7,651 -0- -0-
471 N. Curtis Road
Boise, Idaho 83706
Edward Gizdich 20,000 2.0% 20,000 -0- -0-
23 Pinnacle Peak
Napa, California 94558
Raymond and Phyllis Walker 5,000 .5% 5,000 -0- -0-
c/o Paula Power
P.O. Box 3458
Carefree, Arizona 85377
The John C. Power Profit 7,750 .8% 7,750 -0- -0-
Sharing Plan(4)
P.O. Box 3458
Carefree, Arizona 85377
<PAGE>
Vernon D. Moorer, Jr. Trust 25,000 2.5% 25,000 -0- -0-
c/o Joan B. Moorer, Trustee
141 Spring Place Way
Annapolis, Maryland 21401
Clifford L. Neuman(5) 5,000 .5% 5,000 -0- -0-
1507 Pine Street
Boulder, Colorado 80302
J. Andrew Moorer 37,500 3.8% 37,500 -0- -0-
P.O. Box 3463
Carefree, Arizona 85377
Ronald Woodward 2,500 .2% 2,500 -0- -0-
c/o KNNN-FM
1326 Market Street
Redding, California 96001
Power Curve, Inc.(6) 100,000 10.0% 100,000 -0- -0-
P.O. Box 3458
Carefree, Arizona 85377
- -----------------------------
<FN>
(1) Shares not outstanding but deemed beneficially owned by virtue of the
individual's right to acquire them as of the date of this Prospectus, or
within 60 days of such date, are treated as outstanding when determining
the percent of the class owned by such individual and when determining the
percent owned by the group.
(2) Brian Power is the brother of John C. Power, President and Director of the
Company and President and Director of Microcap, the Company's principal
shareholder.
(3) Includes 195,371 shares of Common Stock acquired pursuant to the terms of
the RBI Agreement. (See "CERTAIN TRANSACTIONS - RBI Agreement"), which
shares have been pledged as security for MicroCap's guarantee of the
Company's obligation to purchase up to 203,008 shares of the Company's
Common Stock upon exercise of the Puts. Also includes 150,000 shares of
Common Stock issued to MicroCap in exchange for MicroCap's agreement to
release and forever discharge $180,000 in debt owed to MicroCap by the
Company. Finally, includes 97,000 shares of Common Stock to be acquired
from certain CRI Shareholders upon the effective date of the Registration
Statement.
(4) John C. Power is the beneficiary of the John C. Power Profit Sharing Plan.
(5) Clifford L. Neuman is the principal of Neuman & Cobb, legal counsel to the
Company.
(6) Power Curve, Inc. is a controlled corporation of John C. Power.
</FN>
</TABLE>
The 195,371 shares of Common Stock owned by Microcap and included in the
Selling Shareholder Offering have been pledged to secure Microcap's conditional
obligation under its guarantee of the Company's obligation under the Put
Option. In the event the Company defaults in its obligation to pay the Put
Redemption Price upon its due exercise and Microcap also defaults under its
guarantee, shares of Common Stock owned by Microcap and included in the Selling
Shareholder Offering may be sold by the Company in market transactions in such
quantities as may be necessary to fulfill the Company's obligation under the
Put Options which have been exercised. Following the expiration of the Put
Options after 90 days from the date of this Prospectus, any shares of Common
Stock owned by Microcap and included in the Selling Shareholder Offering which
have not been sold to fulfill Microcap's obligation under its conditional
guarantee will be withdrawn from registration and shall no longer be subject to
resale under the Selling Shareholder Offering.
The Selling Shareholders have advised the Company that sales of the shares
of Common Stock may be effected from time to time in transactions (which may
include block transactions) in the over-the-counter market, in negotiated
transactions, through the writing of options on the Common Stock or a
combination of such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of sale, or at negotiated prices. The
Selling Shareholders may effect such transactions by selling the Common Stock
directly to purchasers or through broker-dealers that may act as agents or
principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Shareholders and/or the
purchasers of shares of Common Stock for whom such broker-dealers may act as
agents or to whom they sell as principals, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions).
The Selling Shareholders and any broker-dealers that act in connection
with the sale of the shares of Common Stock as principals may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act and
any commissions received by them and any profit on the resale of the shares of
Common Stock as principals might be deemed to be underwriting discounts and
commissions under the Securities Act. The Selling Shareholders may agree to
indemnify any agent, dealer or broker-dealer that participates in transactions
involving sales of the shares of Common Stock against certain liabilities,
including liabilities arising under the Securities Act. The Company will not
receive any proceeds from the sales of shares of Common Stock by the Selling
Shareholders. Sales of the shares of Common Stock by the Selling Shareholders,
or even the potential of such sales, would likely have an adverse effect on the
market price of the Common Stock.
The shares of Common Stock are offered by the Selling Shareholders on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act. The
Company has agreed to pay all expenses incurred in connection with the
registration of the shares offered by the Selling Shareholders; provided,
however, that the Selling Shareholders shall be exclusively liable to pay any
and all commissions, discounts and other payments to broker-dealers incurred in
connection with their sale of the shares.
<PAGE>
CERTAIN TRANSACTIONS
--------------------
CRI AGREEMENT
- -------------
In connection with the formation of the Company, the Company issued to CRI
300,008 shares of the Company's $.004 par value Common Stock ("Spin-Off
Shares"), in exchange for one hundred percent (100%) of CRI's real and personal
property, subject to certain liabilities, saving and excepting cash, cash
equivalents or marketable securities having an aggregate fair market value of
not less than $250,000. Pursuant to the terms of the CRI Agreement, CRI agreed
to distribute the Spin-Off Shares to the shareholders of record of CRI as of
December 16, 1994, upon the effective date of the Registration Statement of
which this Prospectus forms a part. The CRI Shareholders will not be charged
or assessed for the shares of Company Common Stock and neither CRI nor the
Company will receive any proceeds from the distribution of the Company Common
Stock. Pursuant to the terms of the CRI Agreement, the Company is bearing the
cost of the distribution. (See "TERMS OF OFFERING - THE SPIN-OFF OFFERING.")
RBI AGREEMENT
- -------------
In connection with the Company's acquisition of Broadcasting (see
"BUSINESS - HISTORY - REDWOOD BROADCASTING, INC."), the Company issued to RBI's
shareholders 300,000 shares of the Company's Common Stock in exchange for one
hundred percent (100%) of the issued and outstanding shares of Common Stock of
Broadcasting. Subsequent to the acquisition, Broadcastsing was merged with and
into the Company, with the Company remaining as the surviving entity.
In connection with the acquisition of Broadcasting, the Company did not
obtain an opinion of an investment banker, accountant or other third party that
the terms of the transaction were fair to the Company's future shareholders who
would receive their shares in their shares in the Spin-Off. In lieu of
obtaining such opinions, MicroCap (Broadcasting's parent corporation) agreed to
purchase from certain of the CRI Shareholders the right to receive a total of
97,000 Spin-Off Shares at a price of $1.20 per share. As MicroCap lacked the
resources and capital to extend the same offer and opportunity to all CRI
Shareholders, the Company required as a condition to closing the transaction
that MicroCap guarantee its obligations under the Put Options being issued to
the remaining CRI Shareholders. The Puts require the Company to purchase and
redeem any and all shares tendered at a price of $1.50 per share. The Puts
will be exercisable for a period of ninety (90) days following the effective
date of the Registration Statement of which this Prospectus forms a part. The
Putholders will not be charged or assessed for Puts and the Company will not
receive any proceeds from the proceeds of the Puts. The Company is bearing the
cost of the distribution of the Puts.
On June 16, 1995, as part of the RBI Agreement, the Company's Board of
Directors was reconstituted to consist of John C. Power, J. Andrew Moorer, and
Stefan Ponek, until the next Annual Meeting of the Company's Shareholders or
until a successor is duly elected and qualified. Subsequently, Mr. Ponek
resigned from the Company's Board of Directors, and was replaced by Brian
Power. Brian Power was subsequently replaced by Donald Griffin.
MICROCAP GUARANTEE
- ------------------
Pursuant to the terms of the RBI Agreement, the Company's obligation to
purchase and redeem any and all shares tendered upon exercise of the Puts has
been guaranteed by MicroCap, which guarantee is secured by shares of the
Company's Common Stock owned by MicroCap. MicroCap's obligations under the
Guarantee are direct, unconditional and independent of the obligations of the
Company. In the event the Company fails to redeem shares of Common Stock which
have been tendered in accordance with Put Exercise Procedures, a cause or
causes of action may be brought and prosecuted against the Company alone, or
the Company and MicroCap or only MicroCap for the full amount of the
outstanding indebtedness due and owing upon said exercise without the necessity
of first proceeding against or joining the Company.
MICROCAP DEBT CONVERSION
- ------------------------
By agreement dated September 30, 1995, the Company agreed to issue to
MicroCap 150,000 shares of Common Stock in satisfaction of debt totalling
$180,000. Pursuant to the Agreement to Convert Debt, all costs associated with
the Conversion and issuance of shares of Common Stock to MicroCap have been
paid by the Company.
MICROCAP CONSULTATION AGREEMENT
- -------------------------------
During the eight (8) months ended March 31, 1996, the Company paid to
MicroCap consultation fees totalling $7,500, and during fiscal 1995, the
Company paid to MicroCap consultation fees totalling $5,000. The Company has
agreed to continue to pay MicroCap a monthly consulting fee of $2,500 through
at least the year ending March 31, 1997, and possibly longer. Under the
arrangement, MicroCap provides general management services to the Company.
Messrs. Power and Moorer, officers and directors of the Company, are also
officers and directors of MicroCap. The Company believes that the fees were
and are commercially reasonable, competitive, and more favorable to the Company
than terms available from unaffiliated third-parties on an arms-length basis.
TRIPOWER RESOURCES, INC. DEBT OBLIGATION
- ----------------------------------------
In conjunction with the acquisition of KHSL-AM-FM by Alta, Alta borrowed
the sum of $375,000 from TriPower Resources, Inc., which indebtedness is
evidenced by Alta's promissory note (the "Note") and was originally secured by
the Chico Property, which was sold by the Company in April, 1996. The TriPower
Note is now collateralized by a pledge of 100% of the shares of Alta Common
Stock. TriPower Resources, Inc. is a controlled corporation of the Company's
President, John C. Power. Pursuant to the terms of the Note, Alta has agreed
to pay TriPower Resources, Inc. interest on the unpaid principal balance at the
rate of fourteen percent (14%) per annum. During the eight (8) months ended
March 31, 1996, the Company made a principal reduction payment of $75,000,
leaving a principal balance of $300,000. The TriPower Note has been paid in
full.
MICROCAP ADVANCES
- -----------------
The Company has received approximately $350,000 from MicroCap in the form
of inter-company advances, which indebtedness is unsecured. The funds received
were used in part to pay down the September Note, to retire the TriPower Note,
and the remaining amount used for working capital. The remaining portion of
the advances was used by the Company to cover operating expenses. The balance
of approximately $350,000 is due on demand.
J. ANDREW MOORER STOCK PURCHASE
- -------------------------------
In August, 1996, the Company issued a total of 37,500 shares of Common
Stock to J. Andrew Moorer, the Company's Chief Financial Officer, Secretary and
Treasurer, and who is also a member of the Company's Board of Directors, at a
price of $1.20 per share in exchange for a $45,000 promissory note, which note
bears interest at the rate of 7%, is secured by Mr. Moorer's principal
residence, which is due and payable in full on or before August 1, 2001.
POWER CURVE, INC. STOCK PURCHASE
- --------------------------------
In December, 1996, the Company sold and issued 100,000 shares of Common
Stock to Power Curve, Inc., a controlled corporation of John C. Power, the
Company's President and Director. Mr. Power is also a Director and President
of Microcap, the Company's principal shareholder. The shares were sold to
Power Curve, Inc. at a price of $1.20 per share.
INDEMNIFICATION
---------------
In accordance with the Colorado Business Corporation Act, the Company has
included a provision in its Articles of Incorporation to limit the personal
liability of its officers and directors to the maximum extent allowable under
Colorado law. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
LEGAL MATTERS
-------------
The validity of the issuance of the Common Stock and Puts offered hereby
will be passed upon for the Company by Neuman & Cobb, Boulder, Colorado.
Clifford L. Neuman, a partner in the firm of Neuman & Cobb, was an officer and
director of the Company until June 16, 1995. Mr. Neuman resigned as an officer
and director of the Company in connection with the Company's acquisition of RBI
which closed effective June 16, 1995.
EXPERTS
-------
The financial statements of the Company as of March 31, 1996 and for each
of the years in the fiscal years ended July 31, 1995 and 1994 are included
herein in reliance on the reports of Schumacher & Bruce, Inc., independent
certified public accountants, and upon the authority of that firm as experts in
auditing and accounting.
The financial statements of MicroCap as of March 31, 1996 and for each of
the years in the fiscal years ended March 31, 1996 and 1995 are included herein
in reliance on the reports of Stockman Kast Ryan & Scruggs, P.C., independent
certified public accountants, and upon the authority of that firm as experts in
auditing and accounting.
<PAGE>
<PAGE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
FINANCIAL STATEMENTS
<PAGE>
<PAGE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
MASTER INDEX
Index of Redwood Broadcasting, Inc. and
Consolidated Subsidiaries Financial Statements
for the Eight Month Period Ended March 31, 1996
and Years Ended July 31, 1995 and 1994 F-3
Index of KHSL AM-FM Financial Statements For the
Six and One-half Months Ended February 15, 1995
and for the Year Ended July 31, 1994 F-17
Index of Quality Broadcasters of California, L.P.
Financial Statements for the Years Ended
March 31, 1995 and 1996 F-25
Index of Redwood Broadcasting, Inc., Pro Forma
Financial Statements for the Eight Month Period
Ended March 31, 1996 (Unaudited) F-33
Index of Redwood Broadcasting, Inc. and Consolidated
Subsidiaries Financial Statements for the Six
Months Ended September 30, 1996 (Unaudited) F-39
Index of Redwood Broadcasting, Inc., Pro Forma
Financial Statements for the Six Month Period
Ended September 30, 1996 (Unaudited) F-51
REDWOOD MICROCAP FUND, INC.
Index of Redwood Microcap Fund,Inc. and
Consolidated Subsidiaries Financial
Statements as of and for the Six Months
Ended September 30, 1995 F-56
Index of Redwood Microcap Fund,Inc. and
Consolidated Subsidiaries Financial
Statements as of and for the Year
Ended March 31, 1996 F-67
Index of Redwood Microcap Fund,Inc. and
Consolidated Subsidiaries Financial
Statements as of and for the Six Months
Ended September 30, 1996 F-78
<PAGE>
<PAGE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
FINANCIAL STATEMENTS
and
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
March 31, 1996, July 31, 1995 and July 31, 1994
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants F-4
Financial Statements:
Balance Sheets F-5
Statements of Operations F-6
Statement of Changes in Stockholders' Equity F-7
Statements of Cash Flows F-8
Notes to Financial Statements F-9
</TABLE>
<PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
The Board of Directors
Redwood Broadcasting, Inc.
We have audited the consolidated balance sheet of Redwood Broadcasting, Inc.
and consolidated subsidiaries as of March 31, 1996 and July 31, 1995 and the
related statements of operations, changes in stockholders' equity and cash
flows for the eight months ended March 31, 1996 and the two years ended July
31, 1995 and 1994. These financial statements are the responsibility of the
Company'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 an 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 consolidated financial position of Redwood
Broadcasting, Inc. and consolidated subsidiaries as of March 31, 1996 and July
31, 1995 and the results of its operations, its changes in stockholders' equity
and its cash flows for the eight months ended march 31, 1996 and the two years
ended July 31, 1995 and 1994 in conformity with generally accepted accounting
principles.
The financial statements as of July 31, 1995 have been corrected for an
accounting error in the allocation of the purchase price of KHSL AM-FM as
described in Note 1 to the financial statements.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 9 to
the consolidated financial statements, the Company has suffered recurring
losses from operations, and has a net working capital deficiency, that raise
substantial doubt about its ability to continue as a going concern. Note 9 also
discusses management's plan regarding these matters. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Schumacher & Associates, Inc.
Certified Public Accountants
12835 E. Arapahoe Road
Tower II, Suite 110
Englewood, CO 80112
June 6, 1996
<PAGE>
<PAGE>
<TABLE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
BALANCE SHEET
<CAPTION>
March 31, July 31,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
------
Current Assets
Cash $ - $ 3,518
Accounts receivable, net of allowance for
doubtful accounts of $16,400 at March 31,
1996 and $7,027 at July 31, 1995 86,834 139,538
Other 73,893 6,723
----------- -----------
Total Current Assets 160,727 149,779
Property and equipment, net of accumulated
depreciation of $74,855 at March 31, 1996
and $69,482 at July 31, 1995 (Note 4) 749,560 906,200
License, net of accumulated amortization
of $16,667 at March 31, 1996 489,833 500,000
Other assets 144,985 149,050
----------- -----------
Total Assets $1,545,105 $1,705,029
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Outstanding checks in excess of amounts
reported by banks $ 23,188 $ -
Accounts payable and accrued expenses
(Note 12) 273,431 206,924
Notes payable, current portion (Note 2) 728,174 974,289
Common stock subject to mandatory
redemption (Note 3) 304,512 304,512
Accounts payable, related parties 232,730 15,185
Income taxes payable - 40,673
Unearned income, current portion (Note 8) 23,333 23,333
----------- -----------
Total Current Liabilities 1,585,368 1,564,916
Unearned income, net of current portion (Note 8) 9,722 25,278
Notes payable, net of current portion (Note 2) 11,994 21,455
----------- -----------
Total Liabilities 1,607,084 1,611,649
----------- -----------
<PAGE>
Commitments and contingencies (Notes 2,3,5,6,
8,9,10 and 11) - -
Stockholders' Equity (Notes 3 and 7):
Preferred stock - $.04 par value,
2,500,000 shares authorized,
none issued and outstanding - -
Common stock - $.004 par value,
12,500,000 shares authorized; 780,508 and
600,008 shares issued and outstanding as
of March 31, 1996 and July 31, 1995,
respectively 3,122 2,400
Additional paid-in capital 467,123 254,545
Accumulated (deficit) (532,224) (163,565)
----------- -----------
Total Stockholders' Equity (61,979) 93,380
----------- -----------
Total Liabilities and Stockholders' Equity $1,545,105 $1,705,029
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
<TABLE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
STATEMENTS OF OPERATIONS
<CAPTION>
For the Eight For the Years
Months Ended ---------------------
March 31, Ended July 31,
1996 1995 1994
----------- ---------- ---------
<S> <C> <C> <C>
Total revenues $ 440,457 $ 377,023 $ -
Less agency commissions (11,071) (9,475) -
---------- ---------- ---------
Net revenues 429,386 367,548 -
Operating Expenses:
Station operating expenses excluding
depreciation and amortization 656,394 470,445 -
Depreciation and amortization 77,649 9,108 -
Corporate general and administrative
expenses 58,464 48,448 3,112
---------- ---------- ---------
Total operating expenses 792,507 528,001 3,112
---------- ---------- ---------
Operating Loss (363,121) (160,453) (3,112)
Other Income (Expense):
Other income 16,898 - -
Interest expense (22,436) - -
---------- ---------- ---------
Total Other Income (Expense) (5,538) - -
---------- ---------- ---------
Net loss $(368,659) $(160,453) $ (3,112)
========== ========== =========
Net loss per share $ (.53) $ (.49) $ (.01)
========== ========== =========
Weighted average shares
outstanding 690,258 325,000 300,000
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
<TABLE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Two Years Ended July 31, 1995
and for the Eight Months Ended March 31, 1996
<CAPTION>
Additional
Common Stock Common Stock Paid-In Accumulated
No./Shares Amount Capital (Deficit) Total
------------ ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance at July 31, 1993 - - - - -
Common stock issued 300,000 1,200 2,300 - 3,500
Net (loss) for the year ended July 31, 1994 - - - (3,112) (3,112)
------- ------- --------- ---------- ----------
Balance at July 31, 1994 300,000 $ 1,200 $ 2,300 $ (3,112) $ 388
Capital contribution - - 241,798 - 241,798
Reorganization (Note 1) 300,008 1,200 10,447 - 11,647
Net (loss) for the year ended July 31, 1995 - - - (160,453) (160,453)
------- ------- --------- ---------- ----------
Balance at July 31, 1995 600,008 2,400 254,545 (163,565) 93,380
Common stock issued in private placement 25,000 100 29,900 - 30,000
Common stock issued in debt conversion 150,000 600 179,400 - 180,000
Common stock issued for services 5,500 22 3,278 - 3,300
Net (loss) for the eight month period
ended March 31, 1996 - - - (368,659) (368,659)
------- ------- --------- ---------- ----------
Balance at March 31, 1996 780,508 $ 3,122 $ 467,123 $(532,224) $ (61,979)
======= ======= ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
<TABLE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<CAPTION>
For the For the
Eight Month Years Ended July 31
Period Ended ---------------------
March 31, 1996 1995 1994
-------------- ---------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net (loss) $(368,659) $(160,453) $(3,112)
Adjustments to reconcile net
income to net cash (used) by
operating activities
Depreciation 77,649 9,108 -
Increase in accounts payable
and accrued expenses 266,564 222,109 -
(Increase) decrease in
accounts receivable 52,704 (139,538) -
Increase (decrease) in
unearned income (15,556) 48,611 -
Other, net (49,635) (6,723) -
---------- ---------- --------
Net Cash (Used) by Operating
Activities (36,933) (26,886) (3,112)
---------- ---------- --------
Cash Flows from Investing Activities:
(Acquisition) disposition of
property and equipment and
other (Note A) 78,991 (329,173) -
---------- ---------- --------
Net Cash Provided (Used) by
Investing Activities 78,991 (329,173) -
---------- ---------- --------
Cash Flows from Financing Activities:
Proceeds from notes payable - 131,844 -
(Repayment) of notes payable (75,576) (26,100) -
Common stock issued and capital
contributed 30,000 253,445 3,500
---------- ---------- --------
Net Cash Provided (Used) by
Financing Activities (45,576) 359,189 3,500
---------- ---------- --------
Increase (decrease) in cash (3,518) 3,130 388
Cash, beginning of period 3,518 388 -
---------- ---------- --------
Cash, end of period $ - $ 3,518 $ 388
========= ========= =======
Interest paid $ 22,436 $ - $ -
========= ========= =======
Income taxes paid $ - $ - $ -
========= ========= =======
Note A: During the year ended July 31, 1995 the Company acquired certain
radio station assets and real property at a cost of $1,150,000. The
Company made a cash down payment of $415,000 and incurred
indebtedness of $735,000 related to this acquisition.
Note B: During the period ended March 31, 1996 the Company issued 150,000
shares of its common stock in lieu of cash or money payment of an
obligation to a related party totalling $180,000.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
March 31, 1996, July 31, 1995 and July 31, 1994
(1) SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
(a) GENERAL
-------
Redwood Broadcasting, Inc. (RBI) was organized under the laws of the
State of Colorado. Pursuant to a spin-off agreement, certain assets
of its parent company were contributed to RBI in exchange for
300,008 shares of RBI $.004 par value common stock. Pursuant to the
terms of the agreement the 300,008 shares were issued in escrow with
the provision that upon the effective date of a registration
statement the shares would be distributed to the shareholders of
record as of December 16, 1994 of RBI's parent company.
By an agreement dated June 16, 1995, RBI issued 300,000 shares of
its common stock for one hundred percent of the issued and
outstanding common stock of Redwood Broadcasting, Inc. The
shareholders of RBI and affiliates acquired 97,000 shares of the
outstanding shares of RBI from RBI shareholders and as disclosed in
note 3 entered into a put arrangement on the remaining 203,008
shares of RBI outstanding. Subsequent to the RBI business
combination, and effective September 30, 1995 RBI agreed to issue
150,000 shares of RBI common stock to Redwood MicroCap Fund, Inc.
(MicroCap) in lieu of cash or money payment of an obligation to
MicroCap totalling $180,000. MicroCap was the former controlling
shareholder of RBI. This business combination with RBI was
accounted for as a reverse acquisition since the controlling
shareholder of RBI controlled RBI after the business combination.
The net monetary book value of RBI at June 16, 1995 was accounted
for as issued for the 300,008 shares of RBI outstanding at that
time. The results of operations of RBI prior to June 16, 1995 have
been excluded from the consolidated results of operations since the
transaction was recorded as a reverse acquisition.
Prior to RBI's business combination with RBI, RBI acquired a ninety
percent (90%) ownership interest in Solo Yolo Broadcasting (Solo
Yolo), a California general partner-ship from MicroCap. Solo Yolo's
only business was the application for an FM construction permit for
Esparto, California. Solo Yolo was one of only two applicants to
file for the same permit. Solo Yolo was paid $18,000 in cash in
exchange for withdrawing its application.
Also prior to the business combination RBI formed a wholly-owned
subsidiary, Alta California Broadcasting, Inc. (Alta) to pursue
radio acquisition opportunities in northern California.
In June, 1994, Alta entered into as asset purchase agreement to
acquire radio stations KHSL AM-FM in Chico, California, for
$1,150,000.
The $1,150,000 purchase price was allocated as follows:
<TABLE>
<S> <C> <C>
Land $ 600,000
License 350,000
Station equipment 200,000
----------
$1,150,000
</TABLE>
The allocation was based on management's estimate of the current
values of the assets. The land was appraised as of November, 1995 at
$600,000. Subsequent to March 31, 1996 the land was sold for
$450,000. The appraised value of $600,000 failed to take into
account a long-term ground lease for use of space by a third party on
the radio tower located on the property. This lease diminished the
value of the property. Based on this subsequently obtained
information, the allocation of the purchase price was retroactively
changed to reclassify the difference between the sale price of the
land and the original cost allocation to land to the value of the
license in the amount of $150,000. The July 31, 1995 financial
statements have been retroactively adjusted for this correction of an
error in the allocation of the purchase price.
On February 15, 1995, Alta commenced operating KHSL AM-FM under a
local management agreement (LMA). On June 19, 1995 Alta completed
the acquisition of KHSL AM-FM resulting in the termination of the
LMA. The acquisition of KHSL-AM by Alta was accounted for as a
purchase effective June 19, 1995. The results of operations of KHSL
AM-FM have been included in the consolidated financial statements of
RBI since February 15, 1995, the effective date of the LMA which
transferred control to Alta.
KHSL-FM has a country format and is located at 103.5 on the FM band.
All programming for KHSL-FM originates at its studios in Chico,
California. Subsequent to its acquisition by Alta, KHSL-AM changed
its call letters to KNSN-AM. Located at 1290 on the AM band, KNSN-
AM has a news-talk format with programming originating through
satellite delivery companies.
In March, 1995 Alta entered into an LMA with an option to purchase
radio station KCFM licensed to Shingletown, California and has
advanced funds under a purchase option agreement to the license
holder of KCFM to build the station. As of March 31, 1996 the
Company has advanced $50,000 to the license holder which will be
fully credited against the purchase price. These option payments
have been included in other assets in the financial statements. The
Company has entered into an agreement to acquire this radio station
by paying an additional $15,000 in cash and issuing a note payable
for $155,000. In August, 1995, KCFM began commercial broadcasting at
105.3 on the FM band. In September, 1995, KCFM changed its call
letters to KHZL and presently broadcasts an "Oldies" format via
satellite programming. KHZL primarily serves the Redding, California
market.
In transactions involving the purchase and sale of radio stations
where an LMA is executed between the buyer and the seller pending FCC
approval, the buyer retains all revenues from the sale of advertising
and responsible for all costs associated with the delivery of
programming for which revenues are generated during the LMA period.
While the seller, as the holder of the FCC license, is technically
accountable to the FCC during the LMA period, effective control of
all functions, activities and operations of the station is exercised
by the buyer. Since the economic risk of station operations is born
by the buyer during the LMA period, results of station operations
during the LMA period are consolidated with the buyer. During the
LMA period, the seller may only terminate the LMA agreement in the
event of a material default by the buyer. There is a material impact
upon the financial statements of the Company resulting from the
consolidation of operations of KHSL as of the LMA date.
During the five month period ended December 31, 1995 the Company
exercised its option to acquire KCFM. In August, 1995, KCFM began
commercial broadcasting at 105.3 on the FM band. In September, 1995,
KCFM changed its call letters to KHZL and presently simulcasts its
programming from KHSL's station in Chico, California. KHSL and KHZL
are, however, designed to air separate commercials and commercials
and public service announcements simultaneously in their respective
markets. The KHLZ transaction, formerly KCFM was in substance a
transaction whereby the Company constructed a radio station. An
individual had a FCC construction permit to build a radio station.
Rather than acquiring the construction permit, which could not be
sold, the Company entered into a LMA agreement and purchase option
agreement for the radio station to be built. The Company has
exercised its option and acquired the station. The legal form of the
transaction was an LMA plus option agreement. The substance of the
transaction was a construction project. The costs related to this
construction project totalled approximately $194,000 and have been
included in the assets of the Company. KHZL primarily serves the
Redding, California market.
All intercompany accounts and transactions have been eliminated in
the consolidated financial statements. All references to "the
Company" refer to RBI and consolidated subsidiaries.
Financial statements prepared in accordance with generally accepted
accounting principles require managements estimates and assumptions.
Significant assumptions in the accompanying financial statements
relate to the Company's ability to continue as a going concern as
described in note 9, and estimated useful lives of property and
equipment as disclosed in note 1(c). The ultimate resolution of the
reasonableness of the related assumptions cannot presently be
determined. Actual results could differ from the Company's
estimates.
(b) BAD DEBTS
---------
An allowance for uncollectible accounts has been provided based on
the Company's past collection history.
(c) PROPERTY AND EQUIPMENT
----------------------
Property and equipment are carried at cost, net of accumulated
depreciation. Depreciation is provided on a straight-line basis over
estimated useful lives ranging from three to twenty years.
(d) CONCENTRATION OF CREDIT RISK
----------------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of accounts
receivable. The Company grants credit to various businesses
principally in California.
(e) ADVERTISING COSTS
-----------------
Advertising costs are expensed as incurred.
(f) GEOGRAPHIC AREA OF OPERATIONS AND INTEREST RATES
------------------------------------------------
The Company's radio stations broadcast principally in Northern
California. The potential for severe financial impact can result
from negative effects of economic conditions within a market or
geographic area. Since the Company's business is principally in one
area, this concentration of operations results in an associated risk
and uncertainty.
(g) REVENUE RECOGNITION
-------------------
Revenues are recognized when advertisements are aired.
(h) LOSS PER SHARE
--------------
Loss per share is based on the weighted average number of common
shares and common equivalent shares (where inclusion of such
equivalent shares would not be anti-dilutive) outstanding during the
year.
(i) INTANGIBLE ASSETS
-----------------
Intangible assets including goodwill are being amortized over a 20-
year period based upon management's estimate of their estimated
useful lives. The Company periodically evaluates the value of its
intangible assets and if the cost of such assets are in excess of
associated expected operating cash flows, the related assets are
written down to fair value.
(j) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
-----------------------------------------------------------
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 disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results
could differ from those estimates.
(2) NOTES PAYABLE
-------------
<TABLE>
<S> <C>
Note payable to a related party corporation,
interest rate of 14% per annum. The note is
due September, 1996. $ 375,000
Note payable to a corporation, interest rate
of 10% per annum. The note is due in full
in June, 1996. The note is collateralized
by all of the assets of KHSL AM-FM acquired
by the Company and 100% of the common stock
of Alta. The note is guaranteed by MicroCap. 260,000
Other notes payable, various interest rates
ranging from 10% to 18%. The notes are due
at different times ranging from June, 1996
to September, 1996. Certain notes are
guaranteed by MicroCap. 105,168
--------
Total 740,168
Current Portion 728,174
--------
Long-term Portion $ 11,994
========
</TABLE>
Maturities on notes payable including notes already due, are summarized as
follows:
<TABLE>
<S> <C>
Year ending March 31, 1997 $ 728,174
Year ending March 31, 1998 $ 11,994
</TABLE>
<PAGE>
(3) PROPOSED SECURITIES OFFERING
----------------------------
RBI is proposing to offer securities to the public through a Registration
Statement Form SB-2, pursuant to the Securities Act of 1933. The proposal
includes four offerings as follows:
1. The first proposed offering relates to the distribution of up to the
300,008 shares of RBI common stock to shareholders of RBI's former
parent of record as of December 16, 1994. RBI will not receive any
proceeds from the distribution of the shares.
2. The third proposed offering relates to the distribution by RBI of up
to 203,008 common stock put options (puts) pursuant to the terms of
the RBI business combination agreement. The puts will require RBI to
purchase and redeem any and all shares tendered at a price of $1.50
per share. The puts will be exercisable for a period of ninety days
following the effective date of the registration statement. RBI will
not receive any proceeds from the distribution of the puts. Since
RBI agreed to redeem up to 203,008 of the shares outstanding at $1.50
per share, as part of the RBI business combination agreement, RBI has
shown this commitment as a liability in the financial statements
under the caption, securities subject to mandatory redemption.
3. The second proposed offering relates to selling up to 400,000 shares
of RBI common stock at $2.00 per share.
4. Finally, the proposed offering relates to the offer and sale of
590,750 shares of common stock by certain shareholders of RBI. RBI
will not receive any proceeds from the sale of the common stock by
the selling shareholders.
RBI will bear the cost of the proposed offering. If the offering is
successful, the offering costs will be offset against the proceeds of the
offering. If the offering is not successful, the costs will be charged to
operations as a period expense. As of March 31, 1996 RBI had incurred
$30,500 in offering costs. These costs are included in Other Assets.
(4) PROPERTY AND EQUIPMENT
----------------------
The Company's property and equipment is summarized as follows:
<TABLE>
<CAPTION>
March 31, July 31,
1996 1995
---------- ----------
<S> <C> <C>
Land $ 450,000 $ 450,000
Buildings and improvements 24,671 18,507
Furniture and fixtures 9,159 13,453
Radio broadcasting equipment 296,142 395,429
Computer equipment 44,443 98,293
---------- ----------
824,415 975,682
Accumulated depreciation (74,855) (69,482)
---------- ----------
749,560 $ 906,200
======= =========
</TABLE>
<PAGE>
(5) CONSULTATION AGREEMENT, RELATED PARTY
-------------------------------------
During the eight month period ended March 31, 1996 and the year ended
July 31, 1995 the Company paid $7,500 and $5,000, respectively in
consulting fees to MicroCap. RBI has agreed to pay MicroCap a monthly
consulting fee of $2,500 through the year ending March 31, 1997.
(6) INDEMNIFICATION
---------------
In accordance with the Colorado Business Corporation Act, RBI has included
a provision in its Articles of Incorporation to limit the personal
liability of its officers and directors to the maximum extent provided
under Colorado law.
(7) PREFERRED STOCK
---------------
The Company has 2,500,000 shares of $.04 par value preferred stock
authorized. Preferences may be determined by the Company's Board of
Directors. As of July 31, 1995 there were no preferred shares issued.
(8) UNEARNED INCOME
---------------
RBI was formed in 1993 to pursue the acquisition of radio station KNBA
licensed in Vallejo California. RBI entered into a joint venture to
acquire KNBA in October, 1993. Effective November 1, 1994, RBI sold its
50% interest in the joint venture. In addition to receiving $180,000 in
cash for this 50% interest, RBI received $70,000 cash for a three year
covenant not to compete. This covenant is being amortized into income on
a straight-line basis over the three year term.
(9) BASIS OF PRESENTATION - GOING CONCERN
-------------------------------------
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. However, the Company has
sustained operating losses since its inception and has a net working
capital deficiency. Management is attempting to raise additional capital
through a public securities offering.
In view of these matters, realization of certain of the assets in the
accompanying balance sheet is dependent upon continued operations of the
Company, which in turn is dependent upon the Company's ability to meet its
financial requirements, raise additional capital, and the success of its
future operations. Management believes that its ability to raise
additional capital provide the opportunity for the Company to continue as
a going concern.
(10) LEASE COMMITMENTS
-----------------
Effective January 18, 1995 Alta entered into a three year local marketing
agreement for the right to operate radio station, KHZL, formerly known as
KCFM licensed to Shingletown, California. Monthly payments under the
agreement are $350. If Alta exercises its right to acquire the radio
station, these payments will be terminated.
Effective December 18, 1994, Alta entered into a five year lease for
studio space for radio station KHZL located in Redding California. The
monthly rental payments due under the terms of the lease are:
<TABLE>
<S> <C>
$ 800 per month in 1995
$ 900 per month in 1996
$ 950 per month in 1997
$ 990 per month in 1998
$1,040 per month in 1999
</TABLE>
(10) LEASE COMMITMENTS, CONTINUED
----------------------------
Minimum future rental payments under operating leases with terms greater
than one year are summarized as follows:
<TABLE>
<S> <C>
Year ending March 31, 1997 $ 15,150
Year ending March 31, 1998 $ 15,020
Year ending March 31, 1999 $ 12,030
Year ending March 31, 2000 $ 9,360
</TABLE>
Rent expense was $36,540 and $101,418 for the eight months ended March 31,
1996 and the year ended July 31, 1995, respectively.
(11) INCOME TAXES PAYABLE
--------------------
The Company has approximately $530,000 of net operating loss carryovers
expiring in years through 2011. As of March 31, 1996 the Company has
total deferred tax assets of approximately $106,000 due to operating loss
carryforwards. However, because of the uncertainty of potential
realization of these deferred tax assets, the Company has provided a
valuation allowance for the entire $106,000. Thus, no tax assets have
been recorded in the financial statements as of March 31, 1996. A change
in the control of the Company could result in limitations on the Company's
ability to utilize the loss carryovers.
(12) DELINQUENT PAYROLL TAXES
-----------------------
As of March 31, 1996 the Company had payroll taxes payable of $73,121
which were delinquent. Management anticipates utilizing the proceeds from
certain asset sale transactions to retire this obligation.
<PAGE>
<PAGE>
KHSL AM-FM
FINANCIAL STATEMENTS
and
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
For the Six and One-half Months
Ended February 15, 1995 and for the
Year Ended July 31, 1994
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants F-18
Financial Statements:
Statements of Operations F-19
Statement of Changes in Stockholder's
Equity F-20
Statements of Cash Flows F-21
Notes to Financial Statements F-22
</TABLE>
<PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Intelligent Financial Holding Corporation
We have audited the statements of operations, cash flows and changes in
stockholders' equity of KHSL AM-FM Radio for the year ended July 31, 1994 and
the six and one half month period ended February 15, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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 results of operations, cash flows and changes in
stockholders' equity of KHSL AM-FM Radio for the year ended July 31, 1994 and
the six and one half month period ended February 15, 1995 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring losses
from operations, and has a net working capital deficiency, that raise
substantial doubt about its ability to continue as a going concern. Note 2 also
discusses management's plan regarding these matters. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Schumacher & Associates, Inc.
Certified Public Accountants
12835 E. Arapahoe Road
Tower II, Suite 110
Englewood, CO 80112
December 4, 1995
<PAGE>
<PAGE>
<TABLE>
KHSL AM-FM
STATEMENTS OF OPERATIONS
<CAPTION>
Six and
One-Half
Months Year
Ended Ended
February 15, July 31,
1995 1994
------------ -----------
<S> <C> <C>
Revenues $ 448,044 $ 788,541
Less agency commissions (41,902) (45,811)
----------- ----------
Net revenues 406,142 742,730
Operating expenses:
Station operating expenses excluding
depreciation and amortization 547,997 1,141,419
Depreciation and amortization 5,262 31,572
Corporate general and administrative
expenses 7,431 5,936
----------- ----------
Total operating expenses 560,690 1,178,927
----------- ----------
Net (loss) $ (154,548) $ (436,197)
=========== ===========
Net (loss) per share $ (628) $ (1,773)
=========== ===========
Weighted average shares
outstanding 246 246
=== ===
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
<TABLE>
KHSL AM-FM
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Year Ended July 31, 1994 and Six and One-half
Months Ended February 15, 1995
<CAPTION>
Common Stock Additional
------------------------ Paid-In Accumulated
No./Shares Amount Capital (Deficit) Total
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at July 31, 1993 246 $ 52,729 $ 25,113 $ 420,792 $ 498,634
Capital contribution - - 384,575 - 384,575
Net (loss) for the year ended July 31, 1994 - - - (436,197) (436,197)
---- -------- --------- ---------- ----------
Balance at July 31, 1994 246 $ 52,729 $ 409,688 $ (15,405) $ 447,012
Capital contribution - - 149,867 - 149,867
---- -------- --------- ---------- ----------
Net (loss) for the six and one-half
months ended February 15, 1995 - - - (154,548) (154,548)
---- -------- --------- ---------- ----------
Balance at February 15, 1995 246 $ 52,729 $ 559,555 $(169,953) $ 442,331
=== ======== ========= ========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
<TABLE>
KHSL AM-FM
STATEMENTS OF CASH FLOWS
<CAPTION>
Six and
One-Half Year
Months Ended Ended
February 15, July 31,
1995 1994
------------ -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net (loss) $ (154,548) $ (436,197)
Adjustments to reconcile net
income to net cash (used in)
operating activities
Depreciation 5,262 31,572
(Decrease) in accounts payable and
accrued expenses (18,109) (3,521)
Decrease in accounts receivable 8,314 12,837
Other, net 12,275 9,885
----------- -----------
Net Cash (Used in) Operating Activities (146,806) (385,424)
----------- -----------
Cash Flows from Investing Activities:
(Acquisition) disposition of property
and equipment and other (3,061) 849
----------- -----------
Net Cash Provided by (Used in)
Investing Activities (3,061) 849
----------- -----------
Cash Flows from Financing Activities:
Capital contributed 149,867 384,575
----------- -----------
Net Cash Provided by Financing Activities 149,867 384,575
----------- -----------
Increase in cash - -
Cash, beginning of year - -
----------- -----------
Cash, end of year $ - $ -
=========== ===========
Interest paid $ - $ -
=========== ===========
Income taxes paid $ - $ -
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
KHSL AM-FM
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF ACCOUNTING POLICIES
------------------------------
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
(a) GENERAL
-------
The KHSL AM-FM radio stations were part of a group of businesses
which also included a TV station. KHSL AM-FM and the TV station
were owned and operated by a California Corporation. Certain
operating expenses have been allocated between the radio and TV
operations. As such, future costs to operate the radio stations by
themselves may be more than historical costs due to the inability to
benefit from the allocation and sharing of certain expenses.
In June, 1994, Alta California Broadcasting, Inc. (Alta) entered
into as asset purchase agreement to acquire radio stations KHSL AM-
FM in Chico, California, for $1,150,000.
On February 15, 1995, Alta commenced operating KHSL AM-FM under a
Local Management Agreement (LMA). On June 19, 1995 Alta completed
the acquisition of KHSL AM-FM resulting in the termination of the
LMA. The accompanying financial statements present the results of
operations, cash flows and changes in stockholder's equity of the
KHSL AM-FM division for the year ended July 31, 1994 and the six and
on half month period ended February 15, 1995.
KHSL-FM has a country format and is located at 103.5 on the FM band.
All programming for KHSL-FM originates at its studios in Chico,
California. Subsequent to its acquisition by Alta, KHSL-AM changed
its call letters to KNSN-AM. Located at 1290 on the AM band, KNSN-
AM's programming is primarily originated through satellite delivery
companies.
Financial statements prepared in accordance with generally accepted
accounting principles require managements estimates and assumptions.
Significant assumptions in the accompanying financial statements
relate to the Company's ability to continue as a going concern as
described in note 2, and estimated useful lives of property and
equipment as disclosed in note 1(c). The ultimate resolution of the
reasonableness of the related assumptions cannot presently be
determined.
(b) BAD DEBTS
---------
An allowance for uncollectible accounts has been provided based on
the Company's past collection history.
(c) DEPRECIATION
------------
Property and equipment depreciation is provided on a straight-line
basis over estimated lives ranging from three to twenty years.
(d) CONCENTRATION OF CREDIT RISK
----------------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of accounts
receivable. The Company grants credit to various businesses located
principally in California.
(e) ADVERTISING COSTS
-----------------
Advertising costs are expensed as incurred.
(2) BASIS OF PRESENTATION - GOING CONCERN
-------------------------------------
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. However, the Company has
sustained operating losses since its inception and has an accumulated
deficit. Management is attempting to raise additional capital through a
public securities offering, and hire and retain qualified personnel and
increase operating efficiencies.
In view of these matters, realization of certain of the assets in the
accompanying balance sheet is dependent upon continued operations of the
Company, which in turn is dependent upon the Company's ability to meet
its financial requirements, raise additional capital, and the success of
its future operations. Management believes that its ability to raise
additional capital provide the opportunity for the Company to continue as
a going concern.
<PAGE>
<PAGE>
QUALITY BROADCASTERS OF CALIFORNIA, L.P.
FINANCIAL STATEMENTS
and
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
March 31, 1996 and 1995
<PAGE>
<PAGE>
QUALITY BROADCASTERS OF CALIFORNIA, L.P.
March 31, 1996 and 1995
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants F-26
Financial Statements:
Balance Sheet F-27
Statements of Operations and Changes in Partners'
Capital (Deficiency) F-28
Statements of Cash Flows F-29
Notes to Financial Statements F-30
</TABLE>
<PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Quality Broadcasters of California, L.P.
We have audited the balance sheet of Quality Broadcasters of California, L.P.
as of March 31, 1996 and the related statements of operations and partners'
capital (deficiency) and cash flows for the two years ended March 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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 Quality Broadcasters of
California, L.P. as of March 31, 1996 and the results of its operations and
changes in partners' capital (deficiency) and its cash flows for the two years
ended March 31, 1996 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has a net capital deficiency as of March 31,
1996 and has incurred recurring losses from operations. These factors raise
substantial doubt about its ability to continue as a going concern.
Management's plan in regard to these matters is also described in Note 1. The
financial statements do not include any adjustments that may result from the
outcome of this uncertainty.
Schumacher & Associates, Inc.
Certified Public Accountants
12835 E. Arapahoe Road
Tower II, Suite 110
Englewood, CO 80112
June 1, 1996
<PAGE>
<PAGE>
<TABLE>
QUALITY BROADCASTERS OF CALIFORNIA, L.P.
BALANCE SHEET
March 31, 1996
<S> <C>
ASSETS
------
Current Assets
Accounts receivable, net of allowance for
doubtful accounts of $23,846 (Note 2) $ 90,028
Other 6,725
----------
Total Current Assets 96,753
Furniture and equipment, net of accumulated
depreciation of $311,587 (Note 4) 31,134
License and goodwill, net of accumulated
amortization of $118,019 249,831
Other assets 12,280
----------
Total Assets $ 389,998
=========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY)
----------------------------------------------
Current Liabilities
Outstanding checks in excess of amounts
reported by banks $ 458
Notes, advances and accrued interest
payable, related parties (Note 3) 585,653
Accounts payable and accrued expenses (Note 2) 85,136
----------
Total Current Liabilities 671,247
----------
Total Liabilities 671,247
----------
Commitments and contingencies (Notes 2,3,5 and 6) -
Partners' Capital (Deficiency) (281,249)
----------
Total Liabilities and Partners' Capital
(Deficiency) $ 389,998
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
<TABLE>
QUALITY BROADCASTERS OF CALIFORNIA, L.P.
STATEMENTS OF OPERATIONS
AND CHANGES IN PARTNERS' CAPITAL (DEFICIENCY)
For the Years Ended March 31,
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Revenues $ 561,613 $ 660,672
Barter revenue 213,911 213,613
Agency commissions (50,361) (70,436)
---------- -----------
Net revenue 725,163 803,849
Operating expenses:
Station operation expenses excluding
depreciation and amortization 587,575 636,926
Barter expense 201,759 224,833
Depreciation and amortization 38,179 73,849
---------- -----------
Total operating expenses 827,513 935,607
---------- -----------
Net operating (loss) (102,350) (131,758)
---------- -----------
Other income (expense):
Interest income 1,608 547
Interest expense (34,636) (44,843)
---------- -----------
Total other (33,028) (44,297)
---------- -----------
Net (loss) (135,378) (176,055)
Partners' capital (deficiency),
beginning of year (145,871) 30,184
---------- -----------
Partners' capital (deficiency),
end of year $ (281,249) $ (145,871)
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
<TABLE>
QUALITY BROADCASTERS OF CALIFORNIA, L.P.
STATEMENTS OF CASH FLOWS
For the Years Ended March 31
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net (loss) $ (135,378) $ (176,055)
Adjustments to reconcile net
income to net cash provided by
operating activities
Depreciation and amortization 38,179 73,849
Increase (decrease) in accounts
payable and accrued expenses 20,742 (4,713)
(Increase) decrease in
accounts receivable (123) 3,567
Other, net (887) (6,341)
----------- -----------
Net Cash Provided by Operating Activities (77,467) (109,693)
----------- -----------
Cash Flows from Investing Activities:
(Acquisition of) furniture and equipment (30,283) (1,542)
----------- -----------
Net Cash (Used in) Investing Activities (30,283) (1,542)
----------- -----------
Cash Flows from Financing Activities:
Repayment of notes payable - (152,183)
Proceeds from advances from related parties 100,526 264,898
----------- -----------
Net Cash Provided by (Used in) Financing
Activities 100,526 112,715
----------- -----------
Increase (decrease) in cash (7,224) 1,480
Cash, beginning of year 7,224 5,744
----------- -----------
Cash, end of year $ - $ 7,224
=========== ===========
Interest paid $ - $ -
=========== ===========
Income taxes paid $ - $ -
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
QUALITY BROADCASTERS OF CALIFORNIA, L.P.
NOTES TO FINANCIAL STATEMENTS
March 31, 1996 and 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
(a) GENERAL
-------
Quality Broadcasters of California, L.P., a California limited
partnership (the Company) was organized under the laws of the State
of California in 1989 for the purpose of acquiring and operating
radio stations.
(b) INCOME TAXES
------------
Since the Company is a partnership, taxable income and losses flow
through to the partners. The Company, therefore, does not incur
income tax expense.
(c) REVENUE RECOGNITION
-------------------
Revenues from radio advertising are recognized in the period that the
advertising is broadcast.
(d) BAD DEBTS
---------
An allowance for uncollectible accounts has been provided based on
the Company's past collection history.
(e) FURNITURE AND EQUIPMENT
-----------------------
Furniture and equipment are carried at cost, net of accumulated
depreciation. Depreciation is provided on a straight-line basis over
estimated lives ranging from five to seven years.
(f) CONCENTRATION OF CREDIT RISK
----------------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of accounts
receivable. The Company grants credit to various businesses, and
individuals, principally in Northern California.
(g) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
-----------------------------------------------------------
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 disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results
could differ from those estimates.
(h) GEOGRAPHIC AREA OF OPERATIONS
-----------------------------
The Company operates Radio stations in the Redding, California area.
The potential for severe financial impact can result from negative
effects of economic conditions within the market or geographic area.
Since the Company's business is principally in one area, this
concentration of operations results in an associated risk and
uncertainty.
(i) LICENSE AND GOODWILL
--------------------
The Company acquired its FM radio station in 1989 at a total cost of
$475,000. Of this amount $367,850 was allocated to the license and
goodwill attributable to the business. The carrying value of this
asset is being amortized on a straight-line basis over a twenty year
period. It is management's policy to review the carrying value of
intangible assets on a periodic basis (at least annually) to
determine if there is any impairment of value. As of March 31, 1996,
management does not believe that there is any impairment in the
carrying value of its intangible assets.
(j) GOING CONCERN
-------------
As of March 31, 1996, the Company has a net capital deficiency and
has incurred recurring losses from operations. Cash flow shortages
have principally been financed through loans from related parties.
If the Company is unable to continue borrowing from related parties
or is unable to obtain additional financing, it may be unable to
continue as a going concern. The financial statements do not include
any adjustments that may result from the outcome of this uncertainty.
The Company has entered into a business sale agreement as described
in Note 6.
(k) ADVERTISING EXPENSES
--------------------
Advertising costs are expensed as incurred.
(2) BARTER TRANSACTIONS/TRADE ACCOUNTS
----------------------------------
Included in sales revenue for the years ended March 31, 1996 and 1995,
respectively, are $213,911 and $213,613 of advertising revenues related to
barter transactions/trade accounts. Also, included in operating expenses
for the years ended March 31, 1996 and 1995, respectively, are $201,758
and $224,832 of barter expenses. As of March 31, 1996 accounts payable
includes a net amount of $13,276 which will not be paid in cash, but
offset by future barter/trade radio advertising.
(3) RELATED PARTY TRANSACTIONS
--------------------------
As of March 31, 1996 the Company had $585,653 of notes, advances and
accrued interest payable to related parties. The amounts are payable upon
demand. The notes bear interest principally at 10% per annum and the
advances bear no interest and are uncollateralized.
(4) FURNITURE AND EQUIPMENT
-----------------------
The Company's furniture and equipment at March 31, 1996 is summarized as
follows:
<TABLE>
<S> <C>
Furniture and fixtures $ 21,198
Studio and production equipment 263,824
Leasehold improvements 57,699
---------
342,721
Accumulated amortization (311,587)
---------
$ 31,134
========
</TABLE>
(5) LEASES
------
The Company leases its office and studio facilities through operating
leases. The Company does not have any material lease commitments with
terms exceeding one year past March 31, 1996.
Rent expense was $20,472 and $20,462 for the years ended March 31, 1996
and 1995, respectively.
(6) SUBSEQUENT EVENTS
-----------------
The Company entered into a business sale agreement whereby certain assets
and the business operations are being sold to an unrelated entity, subject
to certain regulatory approval.
<PAGE>
<PAGE>
Index to Pro Forma Financial Statements
REDWOOD BROADCASTING, INC. (RBI)
KHSL AM-FM (KHSL)
Pro Forma Combined Financial Statements (Unaudited)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Pro Forma Financial Statements:
Pro Forma Balance Sheet March 31, 1996 F-34
Pro Forma Statement of Operations, Eight Months
Ended March 31, 1996 F-36
Notes to Pro Forma Financial Statements F-37
</TABLE>
<PAGE>
<PAGE>
<TABLE>
REDWOOD BROADCASTING, INC.
PRO FORMA BALANCE SHEET
March 31, 1996
(Unaudited)
<CAPTION>
Pro Forma Pro Forma
(RBI) Adjustments Combined
------------ ----------- ------------
<S> <C> <C> <C>
ASSETS
------
Current Assets:
Cash $ - $ $ 481,000
821,000 (2)
(325,000) (3)
( 15,000) (4)
Accounts receivable, net of
allowance for doubtful accounts 86,834 86,834
Other 73,893 73,893
------------ ----------- ------------
Total Current Assets 160,727 481,000 641,727
Property and equipment, net of
accumulated depreciation 749,560 (236,653) (2) 137,907
75,000 (3)
(450,000) (1)
License, net of accumulated
amortization 489,833 (489,833) (2) 920,000
750,000 (3)
170,000 (4)
Notes receivable - 200,000 (2) 200,000
Other assets 144,985 144,985
------------ ----------- ------------
Total Assets $ 1,545,105 $ 499,514 $ 2,044,619
=========== ========== ===========
LIABILITIES
-----------
Current Liabilities:
Outstanding checks in excess of
amounts reported by banks $ 23,188 $ $ 23,188
Accounts payable and accrued expenses 273,431 (35,896) (1) 237,535
Notes payable, current portion 728,174 (375,000) (2) 118,174
(335,000) (1)
100,000 (3)
<PAGE>
Common stock subject to mandatory
redemption 304,512 304,512
Accounts payable, related parties 232,730 (70,000) (2) 162,730
Unearned income, current portion 23,333 23,333
----------- ----------- ------------
Total Current Liabilities 1,585,368 (715,896) 869,472
Unearned income, net of current portion 9,722 9,722
155,000 (4)
Notes payable, net of current portion 11,994 400,000 (3) 566,994
------------ ----------- ------------
Total Liabilities 1,607,084 (160,896) 1,446,188
------------ ----------- ------------
Stockholders' Equity:
Common stock 3,122 3,122
Additional paid-in capital 467,123 467,123
(79,104) (1)
Retained earnings, accumulated (deficit) (532,224) 739,514 (2) 128,186
------------ ----------- -------------
Total Stockholders' Equity (Deficit) (61,979) 660,410 598,431
------------ ----------- -------------
Total Liabilities and Stockholders'
Equity (Deficit) $ 1,545,105 $ 499,514 $ 2,044,619
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
<TABLE>
REDWOOD BROADCASTING, INC.
PRO FORMA STATEMENT OF OPERATIONS
EIGHT MONTHS ENDED MARCH 31, 1996
(Unaudited)
<CAPTION>
Pro Forma Pro Forma
(RBI) (KNNN) (KHSL) Adjustments Combined
---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
REVENUE:
Total revenues $ 440,457 $ 374,411 $ (397,775) $ $ 417,093
Barter revenue - 142,608 - 142,608
Less agency commissions (11,071) (33,574) 11,071 (33,574)
---------- ---------- ---------- --------- -----------
Net revenues 429,386 483,445 (386,704) 526,127
---------- ---------- ---------- --------- -----------
OPERATING EXPENSES:
Station operating expenses excluding
depreciation and amortization 656,394 391,719 (504,825) 543,288
Depreciation and amortization 77,649 134,507 (77,649) 40,889 (5) 175,396
Corporate general and administrative
expenses 58,464 25,453 - 83,917
---------- ---------- ---------- --------- -----------
Total Operating Expenses 792,507 551,679 (582,474) 40,889 802,601
---------- ---------- ---------- --------- -----------
Operating Income (Loss) (363,121) (68,234) 195,770 (40,889) (276,474)
---------- ---------- ---------- --------- -----------
Other Income (Expense):
Other income 16,898 1,072 - - 17,970
Interest expense (22,436) (23,091) - - (45,527)
---------- ---------- ---------- --------- -----------
Total Other Income (Expense) (5,538) (22,019) - - (27,557)
---------- ---------- ---------- --------- -----------
Net (Loss) $(368,659) $ (90,253) $ 195,770 $(40,889) $ (304,031)
========== ========== ========= ========= ===========
Net (Loss) per Common Share $ (.44)
===========
Total Number of Common Shares Outstanding 690,258
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
REDWOOD BROADCASTING, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
(A) GENERAL
-------
The Company, subsequent to March 31, 1996, has entered into several agreements
and transactions that have (will have) a material effect on the financial
statements. The pro forma financial statements give effect to these
transactions and are summarized as follows:
1. The Company has sold its investment in land located in Chico California.
The sales price was $450,000 from which the Company made a charitable
contribution to the non-profit entity that acquired the property in the
amount of $80,000.
2. The Company entered into a contract to sell radio station KHSL AM-FM for
$1,266,000 cash and a note receivable of $200,000. From the sale proceeds
$445,000 of notes payable are expected to be paid. Closing of this
transaction is pending regulatory approval.
3. The Company has entered into an agreement, subject to regulatory approval,
to acquire the assets and business of Quality Broadcasters of California,
L.P. (Quality) operating under the call letters of KNNN. The purchase
price is $825,000 including cash of $325,000 and notes payable of
$500,000.
4. The Company has agreed to pay $170,000 to an individual for the rights to
operate KHZL. Of this amount, $15,000 was paid in cash in July, 1996 with
the balance due being in the form of a note payable.
(B) PRO FORMA INFORMATION
---------------------
The proforma balance sheet as of March 31, 1996 gives effect to the above
transactions.
The pro forma statement of operations gives effect to the operations of KHSL,
AM-FM being excluded and the operations of KNNN being included.
(C) PRO FORMA ADJUSTMENTS
---------------------
(1) To record the sale of land.
(2) To record the sale of KHSL AM-FM radio.
(3) To record the purchase of Quality Broadcasting of California, L.P.
(KNNN).
(4) To record purchase of KHZL radio.
(5) To record the amortization of the purchased license cost of KNNN.
<PAGE>
<PAGE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
FINANCIAL STATEMENTS
2ND QUARTER ENDED SEPTEMBER 30, 1996
<PAGE>
<PAGE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
Financial Statements:
Consolidated Balance Sheets-
September 30, 1996 and March 31, 1996 F-40
Consolidated Statements of Operations-
Six Months Ended September 30, 1996 and 1995 F-41
Consolidated Statements of Changes in
Stockholders' Equity-
Six Months Ended September 30, 1996, Eight
Months Ended March 31, 1996 and the Two
Years Ended July 31, 1995 F-42
Consolidated Statements of Cash Flows-
Six Months Ended September 30, 1996 and 1995 F-43
Notes to Consolidated Financial Statements F-44
</TABLE>
<PAGE>
<PAGE>
<TABLE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
<CAPTION>
September 30 March 31
1996 1996
----------- -----------
<S> <C> <C>
ASSETS
------
Current Assets
Accounts Receivable, net of allowance
for doubtful accounts of $16,400 at
September 30, 1996 and March, 1996 $ 49,041 $ 86,834
Other current assets 70,851 73,893
----------- -----------
Total Current Assets 119,892 160,727
Property and equipment, net of accumulated
depreciation of $122,302 at September 30,
1996 and $74,855 at March 31, 1996 1,320,813 749,560
License, net of accumulated amortization
of $22,917 at September 30, 1996 and
$16,667 at March 31, 1996 470,833 489,833
Other assets 243,874 144,985
----------- -----------
Total Assets $ 2,155,412 $ 1,545,105
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
Current Liabilities
Outstanding checks in excess of amounts
reported by banks $ 12,306 $ 23,188
Accounts payable and accrued expenses 248,380 273,431
Notes payable, current portion 826,339 728,174
Common stock subject to mandatory
redemption 304,512 304,512
Accounts payable, related parties 346,382 232,730
Unearned income, current portion 10,260 23,333
----------- -----------
Total Current Liabilities 1,748,179 1,585,368
Unearned income, net of current portion - 9,722
Notes payable, net of current portion 665,222 11,994
----------- -----------
Total Liabilities 2,413,401 1,607,084
----------- -----------
<PAGE>
Commitments and contingencies - -
Stockholders' Equity
Preferred stock - $.04 par value,
2,500,000 shares authorized,
none issued and outstanding - -
Common stock - $.004 par value,
12,500,000 shares authorized;
805,508 and 780,508 shares
issued and outstanding as of
September 30, 1996 and March 31,
1996, respectively 3,222 3,122
Additional paid-in capital 497,023 467,123
Accumulated deficit (758,234) (532,224)
----------- -----------
Total Stockholders' Equity (257,989) (61,979)
----------- -----------
Total Liabilities and Stockholders' Equity $2,155,412 $1,545,105
========== ==========
</TABLE>
<PAGE>
<PAGE>
<TABLE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
STATEMENTS OF OPERATIONS
<CAPTION>
Six Months Six Months
Ended Ended
September 30 September 30
1996 1995
----------- -----------
<S> <C> <C>
Total Revenues 139,392 375,282
Less agency commission 8,545 33,723
----------- -----------
Net Revenues 130,847 341,559
Operating Expenses:
Station operating expenses
excluding depreciation
and amortization 229,099 437,159
Depreciation and
amortization 47,447 -
Corporate general and
administrative expenses 22,804 34,681
----------- -----------
Total operating expenses 299,350 471,840
Operating loss (168,503) (130,281)
Other expense
Other expense 45,432 -
Interest expense 12,075 17,357
----------- -----------
Total other expense 57,507 17,357
----------- -----------
Net loss (226,010) (147,638)
=========== ===========
Net loss per share (0.29) (0.25)
=========== ===========
Weighted average shares
outstanding 793,008 600,008
=========== ===========
</TABLE>
<PAGE>
<PAGE>
<TABLE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AS OF SEPTEMBER 30, 1996
<CAPTION>
Common Stock
--------------------------- Paid-In Accumulated
No./Shares Amount Capital Deficit Total
------------ ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at July 31, 1993 - - - - -
Common stock issued 300,000 1,200 2,300 - 3,500
Net (loss) for the year ended July 31, 1994 - - - (3,112) (3,112)
------- ------- --------- ---------- ----------
Balance at July 31, 1994 300,000 1,200 2,300 (3,112) 388
Capital contribution - - 241,798 - 241,798
Reorganization (Note 1) 300,008 1,200 10,447 - 11,647
Net (loss) for the year ended July 31, 1995 - - - (160,453) (160,453)
------- ------- --------- ---------- ----------
Balance at July 31, 1995 600,008 2,400 254,545 (163,565) 93,380
Common stock issued in private placement 25,000 100 29,900 - 30,000
Common stock issued in debt conversion 150,000 600 179,400 - 180,000
Common stock issued for services 5,500 22 3,278 - 3,300
Net (loss) for the eight month period
ended March 31, 1996 - - - (368,659) (368,659)
------- ------- --------- ---------- ----------
Balance at March 31, 1996 780,508 $ 3,122 $ 467,123 $(532,224) (61,979)
Common stock issued in private placement 25,000 100 29,900 - 30,000
Net loss for the six month period
ended September 30, 1996 - - - (226,010) (226,010)
------- ------- --------- ---------- ----------
Balance at September 30, 1996 805,508 3,222 497,023 (758,234) (257,989)
======= ======= ========= ========== ==========
/TABLE
<PAGE>
<PAGE>
<TABLE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<CAPTION>
Six Six
Months Months
Ended Ended
September 30 September 30
1996 1995
------------ ------------
<S> <C> <C>
Cash Flows from operating activities:
Net (loss) (226,010) (147,638)
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation 47,447 -
Decrease in Deferred Reserve 22,795 -
(Increase) decrease in accounts
receivable 37,793 (112,249)
(Increase) decrease in other
current assets 3,042 (58,365)
Increase (decrease) in accounts
payable and accrued expenses (25,051) 72,393
Increase (decrease) in other
current liabilities 113,652 29,263
----------- -----------
Net cash provided (used) by operating
activities (26,335) (216,596)
Cash flows from investing activities:
(Acquisition) disposition of property
and equipment (744,176) (1,262,566)
----------- -----------
Net cash provided (used) by investing
activities (744,176) (1,262,566)
Cash flows from financing activities:
Proceeds from (repayment) of notes
payable 751,393 1,449,605
Proceeds from common stock issuance 30,000 11,647
----------- -----------
Net cash provided (used) by financing
activities 781,393 1,461,252
----------- -----------
Increase (decrease) in cash 10,882 (17,910)
Cash, beginning of period (23,188) 10,895
----------- -----------
Cash, end of period (12,306) (7,015)
=========== ===========
</TABLE>
<PAGE>
<PAGE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
---------------------
The consolidated balance sheet as of September 30, 1996, the consolidated
statements of operations for the six months ended September 30, 1996 and 1995,
the consolidated statements of changes in stockholders' equity for the six
months ended September 30, 1996, the eight months ended March 31, 1996 and the
two years ended July 31, 1995, and the consolidated statement of cash flows for
the six months ended September 30, 1996 and 1995 have been prepared by the
Company and are unaudited. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the financial position, results of operations, changes in equity and cash flows
at September 30, 1996, and for all periods presented, have been made.
Financial statements prepared in accordance with generally accepted
accounting principles require management's estimates and assumptions.
Significant assumptions in the accompanying financial statements relate to the
Company's ability to continue as a going concern as described in
Note 9, and estimated useful lives of property and equipment as disclosed in
Note 5. The ultimate resolution of the reasonableness of the related
assumptions cannot presently be determined. Actual results could differ from
the Company's estimates.
All intercompany accounts and transactions have been eliminated in the
consolidated financial statements. All references to "the Company" refer to
RBI and consolidated subsidiaries.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
(a) GENERAL DEVELOPMENT OF THE BUSINESS
-----------------------------------
Redwood Broadcasting, Inc. (RBI) was organized under the laws of the
State of Colorado. Pursuant to a spin-off agreement, certain assets of
its parent company were contributed to RBI in exchange for 300,008 shares
of RBI, $.004 par value common stock. Pursuant to the terms of the
agreement, the 300,008 shares were issued in escrow with the provision
that upon the effective date of a registration statement the shares would
be distributed to the shareholders of record as of December 16, 1994 of
RBI's parent.
By agreement dated June 16, 1995, RBI issued 300,000 shares of its
common stock for one hundred percent of the issued and outstanding common
stock of Redwood Broadcasting, Inc. (RBI). The shareholders of RBI and
affiliates acquired 97,000 shares of the outstanding shares of RBI from
RBI shareholders and as disclosed in Note 3 entered into a put arrangement
on the remaining 203,008 shares of RBI outstanding. Subsequent to the RBI
business combination, and effective September 30, 1995 RBI agreed to issue
150,000 shares of RBI common stock to Redwood MicroCap Fund, Inc.
(MicroCap) in lieu of cash or money payment of an obligation to MicroCap
totalling $180,000. MicroCap was the former controlling shareholder of
RBI. This business combination with RBI was accounted for as a reverse
acquisition since the controlling shareholder of RBI controlled RBI after
the business combination. The results of operations of RBI prior to June
16, 1995 have been excluded from the consolidated results of operations
since the transaction was recorded as a reverse acquisition.
Prior to RBI's business combination with RBI, RBI acquired a ninety
percent (90%) ownership interest in Solo Yolo Broadcasting (Solo Yolo), a
California general partnership, from MicroCap. Solo Yolo's only business
activity was filing an application for an FM construction permit for
Esparto, California. Solo Yolo was one of only two applicants to file for
the same permit. Solo Yolo was paid $18,000 in cash in exchange for
withdrawing its application.
Also prior to the business combination, RBI formed a wholly-owned
subsidiary, Alta California Broadcasting, Inc. (Alta), to pursue radio
acquisition opportunities in northern California.
In June, 1994, Alta entered into as asset purchase agreement to
acquire radio stations KHSL AM-FM located in Chico, California for
$1,150,000.
The $1,150,000 purchase price was allocated as follows:
<TABLE>
<S> <C> <C>
Land $ 600,000
License 350,000
Station Assets 200,000
----------
$1,150,000
==========
</TABLE>
The allocation was based on management's estimate of the current
values of the assets. The land was appraised as of November, 1995 at
$600,000. However, the appraisal failed to take into account a long term
ground lease for use of space by a third party on the radio tower located
on the property. This lease diminished the value of the property. In
addition, the land was sold in April, 1995 for $450,000. Management
determined that the sale price of the land at that time represented a more
accurate value of the land. In light of these facts, the allocation of
the purchase price was retroactively changed to reclassify the difference
between the sale price of the land and the original cost allocation to
land to the value of the license in the amount of $150,000.
On February 15, 1995, Alta commenced operating KHSL AM-FM under a
Local Management Agreement (LMA). On June 19, 1995 Alta completed the
acquisition of KHSL AM-FM resulting in the termination of the LMA. The
acquisition of KHSL AM-FM by Alta was accounted for as a purchase
effective June 19, 1995. The results of operations of KHSL AM-FM have
been included in the consolidated financial statements of RBI since
February 15, 1995, the effective date of the LMA which transferred control
to Alta.
In March, 1995 Alta entered into a LMA with an option to purchase
radio station KCFM FM (KCFM) licensed to Shingletown, California and
advanced funds under a purchase option agreement to the license holder of
KCFM to build the station. In August 1995, KCFM began commercial
broadcasting. In September, 1995 KCFM changed its call letters to KHZL FM
(KHZL). As of June 30, 1996 Alta had advanced $50,000 to the license
holder which were to be fully credited against the purchase price. On
July 31, 1996 Alta completed the acquisition of KHZL by paying $15,000 in
cash (in addition to monies previously advanced) and issuing a note
payable for $155,000. On September 27, 1996, Alta changed KHZL call
letters to KRDG-FM ("KRDG").
In December, 1995, Alta executed a Letter of Intent regarding the
acquisition by Alta's wholly-owned subsidiary, Northern California
Broadcasting, Inc., of radio station KNNN licensed to Central Valley,
California, for a total purchase price of $825,000. $325,000 of the
Purchase Price was paid in certified funds at closing, and the balance,
$500,000, in the form of a promissory note. The acquisition of KNNN was
consummated in September, 1996.
(b) BAD DEBTS
---------
An allowance for doubtful accounts receivable has been provided based
on the Company's past collection history.
(c) PROPERTY AND EQUIPMENT
----------------------
Property and equipment are carried at cost, net of accumulated
depreciation. Depreciation is provided on a straight-line basis over
estimated useful lives ranging from three to twenty years.
(d) CONCENTRATION OF CREDIT RISK
----------------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of accounts receivable.
The Company grants credit to various businesses principally in California.
(e) ADVERTISING COSTS
-----------------
Advertising costs are expensed as incurred.
(f) GEOGRAPHIC AREA OF OPERATIONS AND INTEREST RATES
-------------------------------------------------
The Company's radio stations broadcast principally in northern
California. The potential for severe financial impact can result from
negative effects of economic conditions within a market or geographic
area. Since the Company's business is principally in one area, this
concentration of operations results in an associated risk and uncertainty.
(g) REVENUE RECOGNITION
-------------------
Revenues are recognized when advertisements are aired.
(h) LOSS PER SHARE
--------------
Loss per share is based on the weighted average number of common
shares and common equivalent shares (where inclusion of such equivalent
shares would not be anti-dilutive) outstanding during the year.
(i) INTANGIBLE ASSETS
-----------------
Intangible assets, including licenses and goodwill, are being
amortized over their estimated useful lives. No amortization period
exceeds 40 years. The Company periodically evaluates the value of its
intangible assets and if the cost of such assets are in excess of
associated expected operating cash flows, the related assets are written
down to fair value.
3.) NOTES PAYABLE
-------------
Notes payable as of September 30, 1996 is comprised of the following:
<TABLE>
<S> <C>
Note payable to seller of KMNN-FM radio
(corporation), interest payable @ 8.5% per
annum. The note is due September, 2006.
The note is collateralized by the assets
of the station 498,228
Note payable to seller of KRDG-FM radio
(individual), interest accrues @ 8.25%
per annum. The note plus accrued interest
is due in July, 2001. The note is collater-
alized by the assets of the station 155,000
Note payable to a related party (corporation),
interest accrues @ 14% per annum. The note
plus accrued interest is due in March, 1997 100,000
Other notes payable, various interest rates
ranging from 10%-18%. The notes are due at
different times through September, 1997.
Certain notes are guaranteed by MicroCap. 738,833
--------
Total 1,491,561
Current portion 826,339
Long term portion 665,222
</TABLE>
(4) PROPOSED SECURITIES OFFERING
----------------------------
RBI is proposing to offer securities to the public through a Registration
Statement Form SB-2, pursuant to the Securities Act of 1933. The proposal
includes four offerings as follows:
(a) The first proposed offering relates to the distribution of up to
300,008 shares of common stock to shareholders of RBI's former parent of
record as of December 16, 1994. RBI will not receive any proceeds from
the distribution of the shares.
(b) The second proposed offering relates to the distribution by RBI
of up to 203,008 common stock put options (puts) pursuant to the terms of
the RBI business combination agreement. The puts will require RBI to
purchase and redeem any and all shares tendered at a price of $1.50 per
share. The puts will be exercisable for a period of ninety days following
the effective date of the Registration Statement. RBI will not receive
any proceeds from the distribution of the puts. Since RBI agreed to
redeem up to 203,008 of the shares outstanding at $1.50 per share as part
of the RBI business combination agreement, RBI has shown this commitment
as a liability in the financial statements under the caption, securities
subject to mandatory redemption.
(c) The third proposed offering relates to the offer and sale of
305,058 shares of common stock by certain shareholders of RBI. RBI will
not receive any proceeds from the sale of the common stock by the selling
shareholders.
(d) The final proposed offering relates to selling up to 400,000
shares of RBI common stock at $2.00 per share.
RBI will bear the cost of the proposed offering. If the offering is
successful, the offering costs will be offset against the proceeds of the
offering. If the offering is not successful, the costs will be charged to
operations as a period expense. As of September 30, 1996, RBI had
incurred $68,500 in offering costs. These costs are included in Other
Assets.
(5) PROPERTY AND EQUIPMENT
----------------------
The Company's property and equipment as of September 30, 1996 is
summarized as follows:
<TABLE>
<S> <C>
Land $ -
Building and improvements 24,671
Furniture and equipment 9,159
Radio broadcasting equipment 1,367,284
Computer equipment 42,001
----------
1,443,115
Accumulated depreciation 122,302
----------
Total 1,320,813
==========
</TABLE>
(6) INDEMNIFICATION
---------------
In accordance with the Colorado Business Corporation Act, RBI has included
a provision in its Articles of Incorporation to limit the personal
liability of its officers and directors to the maximum extent provided
under Colorado law.
(7) PREFERRED STOCK
---------------
The Company has 2,500,000 shares of $.04 par value preferred stock
authorized. Preferences may be determined by the Company's Board of
Directors. As of September 30, 1996 there were no preferred shares
issued.
(8) UNEARNED INCOME
---------------
RBI was formed in 1993 to pursue the acquisition of radio station KNBA
licensed in Vallejo, California. RBI entered into a joint venture to
acquire KNBA and in October, 1993 completed the acquisition of the
station. Effective November 1994, RBI sold its 50% interest in the joint
venture. In addition to receiving $180,000 in cash for this 50% interest,
RBI received $70,000 cash for a three-year covenant not to compete. This
covenant is being amortized into income on a straight-line basis over a
three-year term.
(9) BASIS OF PRESENTATION
---------------------
The accompanying financial statements have been prepared in conformity
with generally-accepted accounting principles, which contemplates
continuation of the Company as a going concern. However, the Company has
sustained operating losses since its inception and has a net working
capital deficiency.
Since September 30, 1996, the Company has taken several steps in an effort
to improve its working capital. The sale of KHSL will, subject to FCC
approval, generate approximately $1,200,000 in cash at closing, which is
expected to occur during the last quarter of fiscal 1997. The Company
plans to use the proceeds of the sale to significantly reduce its
outstanding notes payable.
In addition, in April 1996, the Company sold the Chico Property for a
purchase price of $450,000. In August 1996, the Company completed a
private placement of Common Stock in which it sold 37,750 shares of Common
Stock to four investors for an aggregate purchase price of $45,300, or
$1.20 per share. In addition, in December 1996, the Company completed a
private placement to one affiliated investor consisting of 100,000 shares
of Common Stock at $1.20 per share. Finally, the Company is registering
for sale an aggregate of 400,000 shares of Common Stock which it intends
to offer to the public at a price of $2.00 per share upon the effective
date of a Registration Statement. While the proposed public offering will
be offered and sold through the Company's officers and directors without a
firm commitment from an underwriter, the Company is optimistic that the
public offering can be consummated and that the net proceeds, estimated to
be $670,000, will be made available during the fourth quarter of fiscal
1997 for working capital.
Finally, the Company's principal shareholder, Redwood Microcap, has agreed
to provide working capital to complete the radio station construction in
Payson, Arizona and to cover the first three months of operating expenses
for that new station.
Management believes that the foregoing measures will provide sufficient
liquidity and capital resources for the Company to continue its current
operations and complete pending development opportunities, all of which
have been calculated to improve the Company's results of operations over
the next 12 months.
(10) LEASE COMMITMENTS
-----------------
Effective December 18, 1994, Alta entered into a five-year lease for
studio space for radio station KHZL located in Redding, California. The
monthly rental payments under the terms of the lease are as follows:
<TABLE>
<S> <C>
$ 800 per month in 1995
900 per month in 1996
950 per month in 1997
990 per month in 1998
1,040 per month in 1999
</TABLE>
Future minimum rental payments under operating leases with terms greater
than one year are summarized as follows:
<TABLE>
<S> <C> <C>
Year ended March 31, 1997 $ 8,250
Year ended March 31, 1998 11,520
Year ended March 31, 1999 12,030
Year ended March 31, 2000 9,360
</TABLE>
(11) DELINQUENT PAYROLL TAXES
------------------------
As of September 30, 1996 the Company had payroll taxes payable of $83,221
which were delinquent. Management anticipates utilizing the proceeds from
certain asset sale transactions to retire this obligation. The Company is
currently remitting payroll tax withholdings on a timely basis.
<PAGE>
<PAGE>
Index to Pro Forma Financial Statements
REDWOOD BROADCASTING, INC. (RBI)
KHSL AM-FM (KHSL)
Pro Forma Combined Financial Statements (Unaudited)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Pro Forma Financial Statements:
Pro Forma Balance Sheet September 30, 1996 F-52
Pro Forma Statement of Operations, Six Months
Ended September 30, 1996 F-53
Notes to Pro Forma Financial Statements F-54
</TABLE>
<PAGE>
<PAGE>
<TABLE>
REDWOOD BROADCASTING, INC.
PRO FORMA BALANCE SHEET
September 30, 1996
(Unaudited)
<CAPTION>
Pro Forma Pro Forma
(RBI) Adjustments Combined
------------ ------------------ ------------
<S> <C> <C> <C>
ASSETS
------
Current Assets:
Cash $ - $339,661 (1) $ 339,661
Accounts receivable, net of
allowance for doubtful accounts 49,041 49,041
Other 70,851 70,851
------------ ----------- ------------
Total Current Assets 119,892 339,661 459,553
Property and equipment, net of
accumulated depreciation 1,320,813 (213,308) (1) 1,107,505
License, net of accumulated
amortization 470,833 (470,833) (1) -
Notes receivable - 200,000 (1) 200,000
Other assets 243,874 243,874
------------ ------------ ------------
Total Assets $ 2,155,412 $ (144,480) $ 2,010,932
============ ============= ============
LIABILITIES
-----------
Current Liabilities:
Outstanding checks in excess of
amounts reported by banks $ 12,306 $ $ 12,306
Accounts payable and accrued expenses 248,380 (100,000) (1) 148,380
Notes payable, current portion 826,339 (826,339) (1) -
Common stock subject to mandatory
redemption 304,512 304,512
Accounts payable, related parties 346,382 346,382
Unearned income, current portion 10,260 10,260
----------- ----------- ------------
Total Current Liabilities 1,748,179 (926,339) 821,840
Unearned income, net of current portion - -
Notes payable, net of current portion 665,222 665,222
------------ ----------- ------------
Total Liabilities 2,413,401 (926,339) 1,487,062
------------ ----------- ------------
Stockholders' Equity:
Common stock 3,222 3,222
Additional paid-in capital 497,023 497,023
Retained earnings, accumulated (deficit) (758,234) 781,859 (1) 23,625
------------ ------------ -------------
Total Stockholders' Equity (Deficit) (257,989) 781,859 523,870
------------ ------------ -------------
Total Liabilities and Stockholders'
Equity (Deficit) $ 2,155,412 $ (144,480) $ 2,010,932
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
<TABLE>
REDWOOD BROADCASTING, INC.
PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
<CAPTION>
Pro Forma Pro Forma
(RBI) (KHSL) (KNNN) Adjustments Combined
<S> <C> <C> <C> <C> <C>
REVENUE:
Total revenues $ 139,392 $ (24,170) $ 224,651 $ $ 339,873
Less agency commissions 8,545 - 23,228 31,773
---------- ---------- ---------- --------- -----------
Net revenues 130,847 (24,170) 201,423 308,100
---------- ---------- ---------- --------- -----------
OPERATING EXPENSES:
Station operating expenses exclud-
ing depreciation and amortization 229,099 (67,641) 208,153 369,611
Depreciation and amortization 47,447 (35,744) 4,308 40,889 (2) 56,900
Corporate general and
administrative expenses 22,804 - - - 22,804
---------- ---------- ---------- --------- -----------
Total Operating Expenses 299,350 (103,385) 212,461 40,889 449,315
---------- ---------- ---------- --------- -----------
Operating Income (Loss) (168,503) 79,215 (11,038) (40,889) (141,215)
---------- ---------- ---------- --------- -----------
Other Income (Expense):
Other income (expense) (45,432) 80,000 (7,761) 26,807
Interest expense (12,075) - (13,877) - (25,752)
---------- ---------- ---------- --------- -----------
Total Other Income (Expense) (57,507) 80,000 (21,638) - 855
---------- ---------- ---------- --------- -----------
Net (Loss) $(226,010) $ 159,215 $ (32,676) $(40,889) $(140,360)
========== ========= ========== ========= ==========
Net (Loss) per Common Share $ (0.29) $ (0.14)
========== ==========
Total Number of Common
Shares Outstanding 793,008 793,008
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
REDWOOD BROADCASTING, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
(A) GENERAL
-------
The Company entered into a contract to sell radio station KHSL AM-FM for
$1,266,000 cash and a note receivable of $200,000. From the sale proceeds
$826,339 of notes payable are expected to be paid. Since execution of the sale
agreement, the radio station has been operated by the prospective purchaser
under a LMA. Closing of this transaction is pending regulatory approval.
(B) PRO FORMA INFORMATION
---------------------
The proforma balance sheet as of September 30, 1996 gives effect to the above
transaction.
The pro forma statement of operations gives effect to the operations of KHSL-
AM/FM for the six months ended September 30, 1996 being excluded and the
operations of KNNN-FM for the six months ended September 30, 1996 being
included.
(C) PRO FORMA ADJUSTMENTS
---------------------
(1) To record the sale of KHSL AM-FM radio.
(2) To record the amortization of the purchased license cost of KNNN.
<PAGE>
<PAGE>
REDWOOD MICROCAP FUND, INC.
FINANCIAL STATEMENTS
<PAGE>
<PAGE>
REDWOOD MICROCAP FUND, INC.
and CONSOLIDATED SUBSIDIARIES
FINANCIAL STATEMENTS
As of and for the Six Months Ended September 30, 1995
TABLE OF CONTENTS
-----------------
Page
Financial Statements:
Statement of Investments in Unaffiliated Issuers
as of September 30, 1995 F-57
Statement of Investments in Affiliated Issuers
as of September 30, 1995 F-58
Assets and Liabilities as of September 30, 1995 F-59
Capital Stock and Accumulated Gain as of
September 30, 1995 F-60
Statement of Operations for Six Months Ended
September 30, 1995 F-61
Statement of Cash Flows for the Six Months Ended
September 30, 1995 F-62
Statements of Changes in Net Assets for the Years
Ended March 31, 1995, 1994 and the Six Months
Ended September 30, 1995 Unaudited F-63
Notes to Financial Statements F-63
Financial Highlights F-66
<PAGE>
<PAGE>
<TABLE>
STATEMENT OF INVESTMENTS IN UNAFFILIATED ISSUERS AS OF SEPTEMBER 30, 1995
- -----------------------------------------------------------------------------
<CAPTION>
UNITS,
SHARES OR
WARRANTS COMMON STOCKS AND PREFERRED STOCKS - 20.19%(d) VALUE(a)
- ------------ ---------------------------------------------- ------------
COMMON STOCKS
-------------
<S> <C> <C>
Communications -.00%
12,110 Discovery Technologies, Inc. (class "C" warrants) 0
------------
Entertainment - .35%
22,360 Global Casinos, Inc. (b) 6,987
------------
Medical Services & Research - 5.58%
50,000 Immucell, Inc. 112,500
------------
Retail - 00%
65,800 Bali Jewelry Ltd. 0
------------
PREFERRED STOCKS
----------------
Entertainment - 9.92%
125,000 Global Casinos, Inc. (b)
(Convertible Preferred) 200,000
------------
Manufacturing - 4.34%
171,569 Optek Music Systems, Inc.
Series A Convertible Non-voting (b) 87,500
------------
TOTAL COMMON AND PREFERRED STOCKS (COST $533,283) $ 406,987
------------
/TABLE
<PAGE>
<PAGE>
<TABLE>
STATEMENT OF INVESTMENTS IN AFFILIATED ISSUERS AS OF SEPTEMBER 30, 1995
- -----------------------------------------------------------------------------
<CAPTION>
SHARES Common Stocks - 61.86% (c)(d) VALUE(a)
- ---------- ---------------------------------------------- ------------
<S> <C> <C>
696,617 Airsoft, Inc. (b) $ 81,435
650,000 California Progressions, Inc. (b) 65,000
68,000 Intelligent Financial Holdings Corporation (b) 81,600
172,500 Premier Concepts, Inc. (b) 160,418
47,360 Premier Concepts, Inc. 35,520
76,250 Premier Concepts, Inc. - warrants (b) 0
195,370 Redwood Broadcasting, Inc. (b) 160,997
500,000 Redwood Energy, Inc.- Escrow (b) 3,676
530,919 Redwood Energy, Inc.-Seed (b) 98,100
50 Redwood Properties, Inc. (b) 10,037
501 TDP Energy Company (b) 550,000
------------
1,246,783
------------
PRINCIPAL Corporate Notes - 14.91%
- --------- ------------------------
$ 150,447 Buttes Energy Company, 6% quarterly,
due on demand (b) 150,477
85,944 Northpark Office Building, 50% of cash flow,
payable monthly, due on demand 150,000
------------
300,477
------------
Other Investments - 4.22%(d)
----------------------------
14,384 Los Molinos Broadcasting 60,000
14,851 Northern California Broadcasting 14,851
10,250 Palo Verde Group 10,250
------------
85,101
------------
Total Investments in Securities, Corporate Notes and Other
Investments of Affiliated Issuers (cost $1,139,761) $ 1,632,361
------------
Total Investments In Securities of Unaffiliated
Issuers (cost $533,283) 20.19 % $ 406,987
Total Investments In Securities of Affiliated
Issuers (cost $1,139,761) 80.99 % 1,632,361
-------- ------------
Total Investments In Securities 101.18 % 2,039,348
Other Liabilities, Net of Assets (1.18)% (23,879)
-------- ------------
TOTAL NET ASSETS 100.00 % $ 2,015,469
======== ===========
<FN>
(a) See Note 1 of notes to financial statements.
(b) Restricted security, see Note 2 of notes to financial statements.
(c) See Note 3 of notes to financial statements.
(d) Non-income producing securities
</FN>
/TABLE
<PAGE>
<PAGE>
<TABLE>
ASSETS AND LIABILITIES AS OF SEPTEMBER 30, 1995
- -----------------------------------------------------------------------------
<CAPTION>
NOTES
ASSETS -----
- ------
<S> <C> <C>
Investments in Securities:
- -------------------------
Investments in securities of unaffiliated
issuers (identified cost $533,283) 2,3,4 $ 406,987
Investments in securities of affiliated
issuers (identified cost $1,139,761) 2,3,4 1,632,361
------------
Total 2,039,348
------------
Cash and Equivalents 28,132
Other Receivables 6 232,938
Other Assets 5,881
------------
Total Assets 2,306,299
------------
LIABILITIES
- -----------
Payables:
- --------
Accounts payable 42,035
Payable to officers & affiliates 6 77,076
Other payables 19,091
Deferred tax liability 5 108,000
Income tax payable 5 19,628
Note payable 7 25,000
------------
Total Liabilities 290,830
------------
Net Assets $ 2,015,469
===========
Net Asset Value Per Share $ .916
===========
</TABLE>
<PAGE>
<PAGE>
<TABLE>
CAPITAL STOCK AND ACCUMULATED GAIN AS OF SEPTEMBER 30, 1995
- -----------------------------------------------------------------------------
<CAPTION>
NOTES
-----
<S> <C> <C>
Common Stock, $.001 par value, 500,000,000
shares authorized, 2,337,219 issued;
2,200,000 outstanding $ 2,200
------------
Treasury stock - at cost, 137,219 shares (25,439)
------------
Additional paid-in capital 1,865,545
------------
Net Accumulated Gain:
- --------------------
Net Investment loss (1,775,146)
Accumulated net realized gain 1,582,005
Net unrealized appreciation of investments 4 366,304
------------
Net Accumulated Gain 173,163
------------
Total Capital Stock and Accumulated Gain $ 2,015,469
============
</TABLE>
See notes to financial statements
<PAGE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995
- -----------------------------------------------------------------------------
<S> <C>
Investment Income:
- -----------------
Interest income from affiliated companies $ 7,354
Interest income from nonaffiliated companies 6
Consulting income 33,000
Other Income 5,850
------------
Total Income 46,210
------------
Expenses:
- --------
Salaries 76,812
Professional fees 26,027
Office expense 20,071
Reports to shareholders 1,814
Insurance 8,921
Interest 4,276
Custodian fees 792
Travel 5,262
Other 2,680
------------
Total expenses 146,655
------------
Net Investment Loss (100,445)
------------
Net Realized Gain and Unrealized Appreciation on Investments:
- ------------------------------------------------------------
Net realized gain from investment transactions 21,258
Unrealized appreciation of investments 130,909
------------
Net Realized Gain and Unrealized Appreciation on Investments 152,167
------------
Net Increase in Net Assets From Operations Before Tax 51,722
Income Tax Provision 0
------------
Net Increase in Net Assets From Operations $ 51,722
===========
</TABLE>
See notes to financial statements
<PAGE>
<PAGE>
<TABLE>
CASH FLOWS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995
- -----------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- ------------------------------------
Net increase in Net Assets from Operations $ 51,722
Adjustments to reconcile net increase in
net assets to cash used in operations:
Unrealized appreciation of investments (130,909)
Net realized gain from investment transactions (21,258)
Change in:
Other assets 69
Accounts Payable 13,180
Other Receivables (201,525)
Other Payables (7,041)
Income Tax Payable (2,645)
------------
Cash used in Operating Activities (298,407)
CASH FLOWS FROM INVESTING ACTIVITIES:
- ------------------------------------
Purchase of Investments (103,815)
Proceeds from Sale of Investments 191,712
Proceeds from Note Receivable 110,196
------------
Cash Provided by Investing Activities 198,093
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------
Principle payment on Note Payable (50,000)
Proceeds from Loans with Affiliates & Officers 51,980
Proceeds from sale of common stock 201,650
Principal payments on loans with Affiliates & Officers (81,983)
------------
Cash Provided by Financing Activities 121,647
NET INCREASE IN CASH AND CASH EQUIVALENTS 21,333
CASH AND CASH EQUIVALENT AT BEGINNING OF PERIOD 6,799
------------
CASH AND CASH EQUIVALENT AT END OF PERIOD $ 28,132
===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest was $ 4,276
=======
</TABLE>
<PAGE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED MARCH 31, 1995, 1994
AND THE SIX MONTHS ENDED SEPTEMBER 30, 1995 UNAUDITED
- -----------------------------------------------------------------------------
<CAPTION>
(Unaudited)
For the
Six Months Ended
NOTES September 30, 1995 1995 1994
----- ------------------ ------------ ------------
From Operations:
- ---------------
<S> <C> <C> <C> <C>
Net investment income/(loss) (100,445) $ (53,465) $ 82,849
Net realized gain/(loss) from
investment transactions 21,258 (20,313) 1,120,938
Net change in unrealized
appreciation/(depreciation)
of investments 130,909 348,014 (459,854)
Income tax provision 5 0 (100,849) (26,500)
------------ ------------ ------------
Net increase in net assets from
operations 51,722 173,387 717,433
Capital Stock issuance 201,650
Net Assets-beginning of period 1,762,097 1,588,710 871,277
------------ ------------ ------------
Net Assets-end of period $ 2,015,469 $ 1,762,097 $ 1,588,710
=========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Redwood MicroCap Fund, Inc., (the Fund) is registered under the Investment
Company Act of 1940, as amended, as a closed-end investment company. The Fund
invests in a broad range of small speculative stocks traded in the
over-the-counter market, real estate, radio broadcasting, and the petroleum
industry. The following is a summary of significant accounting policies
followed by the Fund in the preparation of its financial statements.
Investment Valuation -
--------------------
Investments in securities traded in the over-the-counter market are valued
at the reported sales prices as obtained from NASDAQ, or at the bid prices from
the brokers that make markets in such securities, on the last business day of
the year. Investments in securities traded on national exchanges are valued at
last reported sales prices. Investments in restricted securities, corporate
notes, other investments, and in securities which are thinly traded totaling
$1,845,248 are valued at their fair value as determined in good faith under
procedures established by and under the direction of the Fund's Board of
Directors.
Federal Income Taxes -
--------------------
The Fund has not elected to be treated for Federal tax purposes as a
"regulated investment company" under Subchapter M of the Internal Revenue Code.
Consequently, investment income and realized capital gains are taxed to the
Fund at the tax rates applicable to corporations.
On April 1, 1993, the Fund adopted SFAS No. 109, "Accounting for Income
Taxes." Under SFAS 109, a current or deferred income tax liability or asset is
recognized for timing differences which exist in the recognition of certain
income and expense items for financial statement reporting purposes in periods
different than for tax reporting purposes. The provision for income taxes is
based on the amount of current and deferred income taxes payable or refundable
at the date of the financial statements as measured by the provisions of
current tax laws.
Other -
-----
Investment transactions are accounted for on the date the investments are
purchased or sold (trade date). Realized gains and losses from investment
transactions and unrealized appreciation and depreciation of investments are
reported on a first-in, first-out basis.
Statement of Cash Flows -
-----------------------
The Fund considers all highly liquid investments with maturities of three
months or less to be cash equivalents.
<PAGE>
<PAGE>
2. RESTRICTED SECURITIES
---------------------
Restricted securities are those securities which have been acquired from an
issuer without registration under the Securities Act of 1933. Restricted
securities generally cannot be sold by the Fund except pursuant to an effective
registration or in compliance with Rule 144 of the Securities Act of 1933.
Valuations for such securities, as well as certain thinly-traded securities and
corporate notes, have been determined in good faith by the Fund's Board of
Directors. The following schedule provides certain information with respect to
restricted securities held by the Fund as of September 30, 1995, which
securities comprised 82.18% of the Fund's net assets at such time:
<TABLE>
<CAPTION>
Date of Fair
Description Acquisition Cost Value
- ----------- ----------------- ----------- ------------
<S> <C> <C> <C>
Airsoft, Inc. February 1, 1993 $ 81,435 $ 81,435
Buttes Energy Company December 22, 1993 150,477 150,477
California Progressions, Inc. November 21, 1994 65,000 65,000
Global Casinos, Inc. March 15, 1994 0 6,987
Global Casinos
(Convertible preferred) May 17, 1994 250,000 200,000
Intelligent Financial
Holding Corp. July 7, 1995 81,600 81,600
Optek Music Systems August 27, 1993 178,383 87,500
Premier Concepts, Inc. February 28, 1994 160,418 160,418
Premier Concepts, Inc. -
warrants September 1, 1994 0 0
Redwood Broadcasting, Inc. June 15, 1993 160,997 160,997
Redwood Energy, Inc. -Escrow June 29, 1994 3,676 3,676
Redwood Energy, Inc. -Seed June 29, 1994 98,100 98,100
Redwood Properties, Inc. April 16, 1992 40,494 10,037
TDP Energy Company December 22, 1993 84,429 550,000
----------- -----------
Total $ 1,355,009 $ 1,656,227
=========== ===========
</TABLE>
With the exception of Global Casinos, Inc. and Premier Concepts, Inc., the
Fund has no right to require registration of the above restricted securities.
As of September 30, 1995, the Fund's investments in restricted securities
comprised approximately 71.81% of the value of its total assets.
3. INVESTMENTS IN SECURITIES OF AFFILIATED ISSUERS
-----------------------------------------------
For the six months ended September 30, 1995, the Fund holds either an indirect
or direct ownership of 5 percent or more of the following securities:
<TABLE>
<CAPTION>
Fair
Description Cost Value Purchases
- ---------------- ------------ ----------- ----------
<S> <C> <C> <C>
Common Stock:
- ------------
Airsoft, Inc. $ 81,435 $ 81,435 $ -
California Progressions, Inc. 65,000 65,000
Intelligent Financial Holding Corp. 81,600 81,600 19,320
Premier Concepts, Inc. 248,125 195,938 5,000
Redwood Broadcasting, Inc. 160,997 160,997
Redwood Energy, Inc. 101,776 101,776 2,250
Redwood Properties, Inc. 40,494 10,037
TDP Energy Company 84,429 550,000
----------- -----------
863,856 1,246,783
------------ -----------
Corporate Notes:
- ---------------
Buttes Energy Company 150,477 150,477
Northpark Office Building 85,944 150,000
------------ -----------
236,421 300,477
------------ -----------
Other Investments:
- -----------------
Los Molinos Broadcasting 14,383 60,000 116
Northern California Broadcasting 14,851 14,851 14,851
Palo Verde Group 10,250 10,250
--------- ---------
$ 39,484 $ 85,101
========== ==========
</TABLE>
4. UNREALIZED GAINS AND LOSSES
---------------------------
At September 30, 1995 the net unrealized appreciation of investments of
$366,304 was comprised of gross appreciation of $600,902 for those investments
having an excess of value over cost and gross depreciation of $234,598 for
those investments having an excess of cost over value.
5. INCOME TAX
----------
The Fund adopted Statement of Financial Accounting Standards No. 109,
"Accounting For Income Taxes," as of April 1, 1993. The Fund had previously
utilized SFAS No. 96. Adoption of SFAS No. 109 on April 1, 1993, had no
cumulative effect.
The temporary differences, tax effected, which give rise to the company's net
deferred tax assets as of September 30, 1995 are as follows:
<TABLE>
<S> <C>
Deferred Tax Assets:
- -------------------
State Net Operating Loss $ 11,000
Federal Net Operating Loss 30,000
Deferred Tax Liabilities:
- ------------------------
Accretion of discount on investment 69,000
Unrealized Gain 80,000
---------
Net Deferred Tax Liability $ 108,000
=========
</TABLE>
6. TRANSACTIONS WITH OFFICERS AND AFFILIATES
-----------------------------------------
At September 30, 1995 the Chief Financial Officer owes the Fund $7,723 for
moving expenses which were paid by the Fund.
As of September 30, 1995 the fund had advanced $183,092 to Redwood Broadcasting
Inc. an affiliated Company.
In addition, several affiliated companies which are included in the Fund's
investment portfolio at September 30, 1995, have advanced the Fund cash during
the current year and the balance at September 30, 1995 is $47,751.
At September 30, 1995, the Fund owes $29,325 to the President of the Fund for
advances made to the Fund during the six months ended September 30, 1995.
7. NOTE PAYABLE
------------
Note Payable at September 30, 1995, consists of borrowings from a bank of
$25,000 bearing interest at a rate of 11.5%. This note was retired on October
18, 1995.
<PAGE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------
<CAPTION>
(Unaudited)
For the Six
Months Ended
September 30, ----For the Years Ended March 31----
1995 1995 1994 1993 1992
------------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per Share:
- ---------
Income from investments $ .021 $ .105 $ .158 $ .005 $ .001
Expenses (.067) (.183) .129 .074 .052
------- ------- ------ ------ ------
Net investment income (loss) (.046) (.078) .029 .069 .051
Net realized gain and net change in
unrealized appreciation of investments .069 .166 .335 .136 .255
Purchase of treasury stock 0 .000 .000 .000 .002
------- ------- ------ ------ ------
.069 .166 .335 .136 .257
Net increase in net asset value .023 .088 .364 .067 .206
Net asset value:
Beginning of period .893 .805 .441 .374 .168
------- ------- ------ ------ ------
End of period $ .916 $ .893 $ .805 $ .441 $ .374
======= ====== ====== ====== ======
Total investment return (1) 2.58% 10.91% 86.25% 36.87% 96.53%
Ratios:
Expenses to average net assets 8.10% 14.07% 20.26% 19.41% 19.00%
Expenses to income 317.37% 125.95% 73.38% 1409.00% 6130.00%
Net investment income/loss to
average net assets (5.55)% (2.90)% 7.35% (18.03)% (19.00)%
Portfolio turnover rate (2) 5.11% 29.88% 329.91% 149.73% 579.42%
- ------------------------------
<FN>
(1) Based on the change in net asset value since there has been no
distributions during the period presented. The Fund does not believe that
a presentation based on changes in the market value of the Funds' common
stock is appropriate considering the limited market for its stock.
(2) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the year ended September 30, 1995, were
$103,815 and $280,651, respectively.
</FN>
</TABLE>
See notes to financial statements
<PAGE>
<PAGE>
REDWOOD MICROCAP FUND, INC.
and CONSOLIDATED SUBSIDIARIES
FINANCIAL STATEMENTS
and
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As of and for the Year Ended March 31, 1996
TABLE OF CONTENTS
-----------------
Page
----
Report of Independent Certified Public
Accountants F-68
Financial Statements:
Statement of Investments in Unaffiliated
Issuers as of March 31, 1996 F-69
Statement of Investments in Affiliated
Issuers as of March 31, 1996 F-69
Assets and Liabilities as of
March 31, 1996 F-71
Capital Stock and Accumulated Gain
as of March 31, 1996 F-71
Statement of Operations for
Year Ended March 31, 1996 F-72
Statement of Cash Flows for
the Year Ended March 31, 1996 F-73
Statements of Changes in
Net Assets for the Years
Ended March 31, 1996 and 1995 F-74
Notes to Financial Statements F-74
Financial Highlights F-77
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders,
Redwood MicroCap Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including
the statements of investments in affiliated and unaffiliated issuers, and of
capital stock and accumulated gain of Redwood MicroCap Fund, Inc. (the Fund) as
of March 31, 1996, and the related statements of operations, cash flows and
changes in net assets for the year then ended, and the financial highlights for
the year ended March 31, 1996. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the financial
highlights based on our audit. The statement changes in net assets of Redwood
MicroCap Fund, Inc. for the year ended March 31, 1995 and the financial
highlights for each of the four years in the period ended March 31, 1995 were
audited by other auditors whose report dated May 12, 1995, on those statements
included an explanatory paragraph that described the estimation of values of
securities without readily ascertainable market values discussed in Note 1 to
the financial statements.
We conducted our audit 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 and
financial highlights are free of material misstatement. An audit includes
examining on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at March 31, 1996 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by the management, as well as the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the 1996 financial statements and financial highlights present
fairly, in all material respects, the financial position of Redwood MicroCap
Fund, Inc. at March 31, 1996, the results of its operations and its cash flows,
the changes in its net assets, and the financial highlights for the year then
ended in conformity with generally accepted accounting principles.
As explained in Note 1, the financial statements include securities valued at
$2,410,472 at March 31, 1996, representing 115% of net assets, whose values
have been estimated by the Board of Directors in the absence of readily
ascertainable market values. We have reviewed the procedures used by the Board
of Directors in arriving at their estimate of value of such securities and have
inspected underlying documentation, and in the circumstances, we believe the
procedures are reasonable and the documentation appropriate. However, because
of the inherent uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a ready market for
the securities existed, and the differences could be material.
STOCKMAN KAST RYAN & SCRUGGS, P.C.
Colorado Springs, Colorado
May 24, 1996<PAGE>
<PAGE>
<TABLE>
STATEMENT OF INVESTMENTS IN UNAFFILIATED ISSUERS AS OF MARCH 31, 1996
- -----------------------------------------------------------------------------
<CAPTION>
SHARES
OR
UNITS VALUE(a)
- ----------- -------------
COMMON STOCK - .37%
-------------------
<S> <C> <C>
Entertainment - .37%
22,360 Global Casinos, Inc. $ 7,686
-------------
PREFERRED STOCKS - 11 .37%
--------------------------
Entertainment - 7.18%
125,000 Global Casinos, Inc. (b)
(Convertible Preferred) 150,000
Manufacturing - 4.19%
171,569 Optek Music Systems, Inc.
Series A Convertible Non-voting (b) 87,500
-------------
TOTAL PREFERRED STOCKS 237,500
-------------
OPTIONS - .37%
--------------
Medical - .37%
10,000 Immucell Corporation - options 7,774
-------------
TOTAL INVESTMENTS IN SECURITIES OF UNAFFILIATED
ISSUERS (COST $428,833) $ 252,960
-------------
</TABLE>
<PAGE>
<PAGE>
<TABLE>
STATEMENT OF INVESTMENTS IN AFFILIATED ISSUERS AS OF MARCH 31, 1996 (c)
- -----------------------------------------------------------------------
COMMON STOCKS - 76.86%
----------------------
<S> <C> <C>
Communications - 25.07%
846,617 AirSoft, Inc. (b) $ 81,435
429,270 Redwood Broadcasting, Inc. (b) 442,397
-------------
523,832
-------------
Oil & Gas - 41.34%
500,000 Redwood Energy, Inc. - Escrow (b) 3,676
838,746 Redwood Energy, Inc. - Seed (b) 185,111
501 TDP Energy Co. (b) 675,000
-------------
863,787
-------------
Retail - 10.45%
650,000 California Progression, Inc. (b) 65,000
42,360 Premier Concepts, Inc. 21,180
352,500 Premier Concepts, Inc. (b) 132,187
-------------
218,367
-------------
TOTAL COMMON STOCKS 1,605,986
-------------
MISCELLANEOUS INVESTMENTS - 27.77%
----------------------------------
<S> <C> <C> <C>
PRINCIPAL Corporate Notes - 11.63%
- --------- ------------------------
$ 93,014 Buttes Energy Company, 6% quarterly,
due on demand (d) 93,014
85,944 Northpark Office Building, 50% of cash flow,
payable monthly, due on demand (d) 150,000
-------------
243,014
-------------
Other Investments - 3.36%
-------------------------
14,614 Los Molinos Broadcasting 60,000
22,706 Northern California Broadcasting 0
10,250 Palo Verde Group 10,250
-------------
70,250
-------------
Advances to Affiliates - 12.78%
-------------------------------
202,238 Redwood Broadcasting, Inc. 202,238
64,890 Palo Verde Group 64,890
-------------
267,128
-------------
Total Investments in Securities, Corporate Notes and Other
Investments of Affiliated Issuers (cost $1,627,015) $ 2,186,378
-------------
Total Investments In Securities of Unaffiliated
Issuers (cost $428,833) 12.11% $ 252,960
Total Investments In Securities of Affiliated
Issuers (cost $1,627,015) 104.63% 2,186,378
--------- ------------
Total Investments 116.74% 2,439,338
Other Liabilities, Net of Assets (16.74)% (349,729)
--------- ------------
TOTAL NET ASSETS 100.00% $ 2,089,609
======= ===========
- --------------------------
<FN>
(a) See Note 1 of notes to financial statements and report of independent
auditors.
(b) Restricted security, see Note 2 of notes to financial statements.
(c) See Note 3 of notes to financial statements.
(d) Income producing securities
</FN>
/TABLE
<PAGE>
<PAGE>
<TABLE>
ASSETS AND LIABILITIES AS OF MARCH 31, 1996
- -----------------------------------------------------------------------------
<CAPTION>
NOTES
ASSETS -----
- ------
<S> <C> <C>
Investments in Securities:
Investments in securities of unaffiliated
issuers (identified cost $428,833) 2,4 $ 252,960
Investments in securities of affiliated
issuers (identified cost $1,359,887) 2,3,4 1,919,250
Advances to affiliates 6 267,128
-------------
Total 2,439,338
-------------
Cash and equivalents 14,392
Other receivables 16,000
Other assets 5,971
-------------
Total 2,475,701
-------------
LIABILITIES
- -----------
Accounts payable 41,414
Payable to officers & directors 6 138,241
Investment securities purchased 22,325
Other payables 30,385
Deferred income tax liability 5 90,000
Income tax payable 5 3,727
Note payable 7 60,000
-------------
Total 386,092
-------------
Net Assets $ 2,089,609
============
Net Asset Value Per Share $ .858
============
</TABLE>
<PAGE>
<PAGE>
<TABLE>
CAPITAL STOCK AND ACCUMULATED GAIN AS OF MARCH 31, 1996
- -----------------------------------------------------------------------------
<CAPTION>
NOTES
-----
<S> <C> <C>
Common Stock, $.001 par value, 500,000,000
shares authorized, 2,436,448 issued
and outstanding 8 $ 2,436
-------------
Additional paid-in capital 2,047,791
-------------
Net Accumulated Gain:
Net investment loss (1,861,935)
Accumulated net realized gain 1,517,827
Net unrealized appreciation of investments 4 383,490
-------------
Net accumulated gain 39,382
-------------
Total Capital Stock and Accumulated Gain $ 2,089,609
============
</TABLE>
See notes to financial statements and report of independent auditors.
<PAGE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1996
- -----------------------------------------------------------------------------
<CAPTION>
NOTES
Investment Income: -----
- -----------------
<S> <C> <C>
Consulting income from affiliated companies $ 44,000
Interest income from affiliated companies 11,012
Consulting income from nonaffiliated companies 9 8,333
Option income 5,850
Other income 4,950
Interest income from nonaffiliated companies 11
-------------
Total 74,156
-------------
Expenses:
- --------
Salaries 160,938
Office expense 20,516
Legal fees 19,536
Insurance 16,233
Telephone and telefax 15,313
Audit and accounting fees 14,400
Travel 10,402
Loan fees 6,934
Reports to shareholders 3,511
Outside services 2,879
Custodian fees 1,534
Other 7,194
-------------
Total 279,390
-------------
Net Investment Loss (205,234)
-------------
Net Realized Loss and Unrealized Appreciation on Investments:
- ------------------------------------------------------------
Net realized loss from investment transactions in
investments in affiliated issuers (51,552)
Net realized gain from investment transactions in
investments in unaffiliated issuers 8,632
Unrealized appreciation of investments 148,095
-------------
Net Realized Loss and Unrealized Appreciation
on Investments 105,175
-------------
Net Decrease in Net Assets From Operations
Before Income Tax (100,059)
Deferred Income Tax Benefit 5 18,000
-------------
Net Decrease in Net Assets From Operations $ (82,059)
=============
</TABLE>
See notes to financial statements and report of independent auditors.
<PAGE>
<PAGE>
<TABLE>
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED MARCH 31, 1996
- -----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
- ------------------------------------
<S> <C>
Net decrease in net assets from operations $ (82,059)
Adjustments to reconcile net decrease in net
assets to cash used in operations:
Unrealized appreciation of investments (148,095)
Net realized loss from investment transactions 42,920
Decrease in deferred tax liability (18,000)
Change in:
Other receivables 15,413
Other assets (21)
Accounts payable and other liabilities 39,137
Income tax payable (18,546)
-------------
Net cash used in operating activities (169,251)
CASH FLOWS FROM INVESTING ACTIVITIES:
- ------------------------------------
Purchase of investments (268,154)
Proceeds from sale of investments 298,734
Principal payments on note receivable 167,659
Advances to affiliates (763,816)
Repayments of advances to affiliates 316,688
-------------
Net cash used in investing activities (248,889)
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------
Proceeds of borrowings from banks 435,000
Principal repayments of borrowings from banks (450,000)
Advances from officers and affiliates 745,211
Repayment of advances from officers and affiliates (696,124)
Issuance of common stock 391,646
-------------
Cash provided by financing activities 425,733
NET INCREASE IN CASH AND CASH EQUIVALENTS 7,593
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 6,799
-------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 14,392
============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest was $ 6,684
=============
Cash paid during the period for income taxes was $ 18,546
=============
Non-Cash Investing Activity:
Redwood Broadcasting, Inc. stock received in
exchange for forgiveness of receivable $ 180,000
=============
Non-Cash Financing Activity:
Common stock issued in exchange for forgiveness
of payable $ 17,925
=============
</TABLE>
See notes to financial statements and report of independent auditors.
<PAGE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED MARCH 31, 1996 & 1995
- -----------------------------------------------------------------------------
<CAPTION>
NOTES 1996 1995
----- ------------ ------------
From Operations:
- ---------------
<S> <C> <C> <C>
Net investment loss $ (205,234) $ (53,465)
Net realized loss from investment
transactions (42,920) (20,313)
Net change in unrealized
appreciation/(depreciation)
of investments 148,095 348,014
Income tax benefit/(provision) 5 18,000 (100,849)
------------- ------------
Net increase in net assets
from operations (82,059) 173,387
Capital share transactions 409,571
Net Assets-beginning of period 1,762,097 1,588,710
------------- ------------
Net Assets-end of period $ 2,089,609 $ 1,762,097
============ ===========
</TABLE>
See notes to financial statements and report of independent auditors.
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Redwood MicroCap Fund, Inc., (the Fund) is registered under the Investment
Company Act of 1940, as amended, as a closed-end investment company. The Fund
invests in a broad range of small speculative stocks traded in the
over-the-counter market, real estate, radio broadcasting, and the petroleum
industry. The following is a summary of significant accounting policies
followed by the Fund in the preparation of its financial statements.
Investment Valuation -
--------------------
Investments in securities traded in the over-the-counter market are valued
at the reported sales prices as obtained from NASDAQ, or at the bid prices from
the brokers that make markets in such securities, on the last business day of
the year. Investments in securities traded on national exchanges are valued at
last reported sales prices. Investments in restricted securities, corporate
notes, other investments, and in securities which are thinly traded totaling
$2,410,472 are valued at their fair value as determined in good faith under
procedures established by and under the direction of the Fund's Board of
Directors.
Federal Income Taxes -
--------------------
The Fund has not elected to be treated for Federal tax purposes as a
"regulated investment company" under Subchapter M of the Internal Revenue Code.
Consequently, investment income and realized capital gains are taxed to the
Fund at the tax rates applicable to corporations.
The Fund accounts for income taxes in accordance with the Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, a current or deferred income tax liability or asset is
recognized for timing differences which exist in the recognition of certain
income and expense items for financial statement reporting purposes in periods
different than for tax reporting purposes. The provision for income taxes is
based on the amount of current and deferred income taxes payable or refundable
at the date of the financial statements as measured by the provisions of
current tax laws.
Other -
-----
Investment transactions are accounted for on the date the investments are
purchased or sold (trade date). Realized gains and losses from investment
transactions and unrealized appreciation and depreciation of investments are
reported on a first-in, first-out basis.
Statement of Cash Flows -
-----------------------
The Fund considers all highly liquid investments with maturities of three
months or less to be cash equivalents.
2. RESTRICTED SECURITIES
---------------------
Restricted securities are those securities which have been acquired from an
issuer without registration under the Securities Act of 1933. Restricted
securities generally cannot be sold by the Fund except pursuant to an effective
registration or in compliance with Rule 144 of the Securities Act of 1933.
Valuations for such securities, as well as certain thinly-traded securities and
corporate notes, have been determined in good faith by the Fund's Board of
Directors. The following schedule provides certain information with respect to
restricted securities held by the Fund as of March 31, 1996, which securities
comprised 87.21% of the Fund's net assets at such time:
<PAGE>
<TABLE>
<CAPTION>
Date of Fair
Description Acquisition Cost Value
- ----------- ---------------- ----------- -----------
<S> <C> <C> <C>
AirSoft, Inc. February 1, 1993 $ 81,435 $ 81,435
California Progressions, Inc. November 21, 1994 65,000 65,000
Global Casinos
(Convertible preferred) May 17, 1994 250,000 150,000
Optek Music Systems August 27, 1993 178,833 87,500
Premier Concepts, Inc. February 28, 1994 205,418 132,187
Redwood Broadcasting, Inc. June 15, 1993 442,397 442,397
Redwood Energy, Inc. -
Escrow June 29, 1994 3,676 3,676
Redwood Energy, Inc. - Seed June 29, 1994 176,953 185,111
TDP Energy Company December 22, 1993 84,429 675,000
----------- -----------
Total $ 1,488,141 $ 1,822,306
=========== ===========
</TABLE>
With the exception of Global Casinos, Inc. and Premier Concepts, Inc., the
Fund has no right to require registration of the above restricted securities.
As of March 31, 1996, the Fund's investments in restricted securities comprised
approximately 73.61% of the value of its total assets.
3. INVESTMENTS IN SECURITIES OF AFFILIATED ISSUERS
-----------------------------------------------
As of March 31, 1996, the Fund holds either an indirect or direct ownership of
5 percent or more of the following securities:
<TABLE>
<CAPTION>
Purchases
During the
Fair Year Ended
Description Cost Value March 31, 1996
- ---------------- ------------ ----------- --------------
Common Stock:
- ------------
<S> <C> <C> <C>
AirSoft, Inc. $ 81,435 $ 81,435
California Progressions, Inc. 65,000 65,000
Premier Concepts, Inc. 279,469 153,367 $ 62,600
Redwood Broadcasting, Inc. 442,397 442,397 281,400
Redwood Energy, Inc. 180,629 188,787 100,450
TDP Energy Company 84,429 675,000
----------- -----------
1,133,359 1,605,986
----------- -----------
Corporate Notes:
- ---------------
Buttes Energy Company 93,014 93,014
Northpark Office Building 85,944 150,000
----------- -----------
178,958 243,014
----------- -----------
<PAGE>
<PAGE>
Other Investments:
- -----------------
Los Molinos Broadcasting 14,614 60,000 346
Northern California Broadcasting 22,706 0 22,706
Palo Verde Group 10,250 10,250
----------- -----------
47,570 70,250
----------- -----------
Advances to Affiliates:
- ----------------------
Redwood Broadcasting, Inc. 202,238 202,238 202,238
Palo Verde Group 64,890 64,890 64,890
----------- -----------
$ 267,128 $ 267,128
----------- -----------
Total $ 1,627,015 $ 2,186,378
----------- -----------
</TABLE>
4. UNREALIZED GAINS AND LOSSES
---------------------------
At March 31, 1996 the net unrealized appreciation of investments of $383,490
was comprised of gross appreciation of $723,631 for those investments having an
excess of value over cost and gross depreciation of $340,141 for those
investments having an excess of cost over value.
5. INCOME TAX
----------
The temporary differences, tax effected, which give rise to the company's net
deferred tax liability as of March 31, 1996 are as follows:
<TABLE>
<CAPTION>
Deferred Tax Assets:
- -------------------
<S> <C>
Federal and state net operating loss $(88,000)
Deferred Tax Liabilities:
- ------------------------
Accretion of discount on investment 35,000
Unrealized Gain 143,000
---------
Net Deferred Tax Liability $ 90,000
========
</TABLE>
The Fund has net operating loss carryforwards of $187,000 and capital loss
carryforwards of $43,000 which begin expiring in 2010 and 2001, respectively.
6. TRANSACTIONS WITH OFFICERS AND AFFILIATES
-----------------------------------------
During 1996 the fund made advances to affiliated companies. At March 31, 1996,
the Fund had outstanding advances of $202,238 to Redwood Broadcasting Inc. and
$64,890 to Palo Verde Group.
At March 31, 1996, the Fund owed $92,337 to the President of the Fund and
$45,904 to a company owned by the President of the Fund for advances made to
the Fund during the year ended March 31, 1996.
7. NOTE PAYABLE
------------
At March 31, 1996, the Fund has a note payable to a bank with an outstanding
balance of $60,000. The note bears interest at 11.25% with interest payments
due monthly. Principal payments of $15,000 are due quarterly, commencing April
6, 1996, with all principal and interest due on January 6, 1997.
8. COMMON STOCK
------------
During the year ended March 31, 1996, the Fund issued 462,547 shares of common
stock in a private placement offering in exchange for $391,646 cash and
forgiveness of debt of $17,925.
9. CONSULTING AGREEMENT
--------------------
The Fund has a consulting agreement with an unrelated third party in which the
Fund is to be paid a minimum amount for consulting services to be performed by
the Fund's President. The Fund received $8,333 under the agreement during
fiscal 1996 and is to receive an additional $41,667 in fiscal 1997.
<PAGE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------
<CAPTION>
----For the Years Ended March 31----
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per Share:
- ---------
Income from investments $ .029 $ .105 $ .158 $ .005 $ .001
Expenses (.107) (.183) (.129) (.074) (.052)
------- ------- ------- ------- -------
Net investment income (loss) (.078) (.078) .029 (.069) (.051)
Net realized gain (loss) and net
change in unrealized appreciation
of investments .043 .166 .335 .136 .255
Purchase of treasury stock 000 .000 .000 .000 .002
------- ------- ------- ------- -------
.043 .166 .335 .136 .257
Net decrease in net asset
value (.035) .088 .364 .067 .206
Net asset value:
Beginning of period .893 .805 .441 .374 .168
------- ------- ------- ------- -------
End of period $ .858 $ .893 $ .805 $ .441 $ .374
======= ======= ======= ======= =======
Total investment return (1) (3.52)% 10.91% 86.25% 36.87% 96.53%
Ratios:
- ------
Expenses to average net assets 14.57% 14.07% 20.26% 19.41% 19.00%
Expenses to income 376.76% 125.95% 73.38% 1409.00% 6130.00%
Net investment income/(loss) to
average net assets (10.70)% (2.90)% 7.35% (18.03)% (19.00)%
Portfolio turnover rate (2) 21.63% 29.88% 329.91% 149.73% 579.42%
- ------------------------------
<FN>
(1) Based on the change in net asset value since there has been no
distributions during the period presented. The Fund does not believe that
a presentation based on changes in the market value of the Funds' common
stock is appropriate considering the limited market for its stock.
(2) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the year ended March 31, 1996, were $448,154
and $509,313, respectively.
</FN>
</TABLE>
See notes to financial statements and report of independent auditors.
<PAGE>
<PAGE>
REDWOOD MICROCAP FUND, INC.
and CONSOLIDATED SUBSIDIARIES
FINANCIAL STATEMENTS
As of and for the Six Months Ended September 30, 1996
TABLE OF CONTENTS
-----------------
Page
----
Financial Statements:
Statement of Investments in Unaffiliated Issuers
as of September 30, 1996 F-79
Statement of Investments in Affiliated Issuers
as of September 30, 1996 F-79
Assets and Liabilities as of September 30, 1996 F-81
Capital Stock and Accumulated Gain as of
September 30, 1996 F-81
Statement of Operations for Six Months Ended
September 30, 1996 F-82
Statement of Cash Flows for the Six Months Ended
September 30, 1996 F-83
Statements of Changes in Net Assets for the Years
Ended March 31, 1996, 1995 and the Six Months
Ended September 30, 1996 Unaudited F-84
Notes to Financial Statements F-84
Financial Highlights F-88
<PAGE>
<PAGE>
<TABLE>
STATEMENT OF INVESTMENTS IN UNAFFILIATED ISSUERS AS OF SEPTEMBER 30, 1996
- -----------------------------------------------------------------------------
<CAPTION>
SHARES
OR
UNITS VALUE (a)
- ---------- ------------
COMMON STOCK - 51.95%
---------------------
<S> <C> <C>
Communications - 50.24%
36,895 Shiva Corporation (b) $ 1,587,592
4,099 Shiva Corporation - Escrow (b) 176,380
------------
1,763,972
------------
Entertainment - 1.71%
137,200 Global Casinos, Inc. (b) 60,025
------------
TOTAL COMMON STOCK 1,823,997
------------
PREFERRED STOCKS - 2.49%
------------------------
Manufacturing - 2.49%
171,569 Optek Music Systems, Inc.
Series A Convertible Non-voting (b) 87,500
------------
TOTAL PREFERRED STOCKS 87,500
------------
OPTIONS - .12%
--------------
Medical - .12%
10,000 Immucell Corporation - options 4,180
------------
TOTAL INVESTMENTS IN SECURITIES OF UNAFFILIATED
ISSUERS (COST $383,368) $ 1,915,677
------------
</TABLE>
<PAGE>
<PAGE>
<TABLE>
STATEMENT OF INVESTMENTS IN AFFILIATED ISSUERS AS OF SEPTEMBER 30, 1996
- -----------------------------------------------------------------------------
COMMON STOCKS - 60.58%
----------------------
<S> <C> <C>
Communications - 16.88%
475,441 Redwood Broadcasting, Inc. (b) $ 512,778
1,000 Los Molinos Broadcasting (b) 80,000
------------
592,778
------------
Oil & Gas - 35.84%
500,000 Redwood Energy, Inc. - Escrow (b) 3,676
838,746 Redwood Energy, Inc. - Seed (b) 204,444
501 TDP Energy Co. (b) 1,050,000
------------
1,258,120
------------
Retail - 7.86%
650,000 California Progressions, Inc. (b) 65,000
42,360 Premier Concepts, Inc. 29,123
352,500 Premier Concepts, Inc. (b) 181,749
------------
275,872
------------
TOTAL COMMON STOCKS 2,126,770
------------
MISCELLANEOUS INVESTMENTS - 14.24%
----------------------------------
PRINCIPAL Corporate Notes - 1.43%
- --------- -----------------------
$50,231 Buttes Energy Company, 6% quarterly,
due on demand (d) 50,231
------------
Other Investments - .54%
------------------------
22,706 Northern California Broadcasting 0
18,900 Palo Verde Group 18,900
-----------
18,900
------------
Advances to Affiliates - 12.27%
-------------------------------
326,999 Redwood Broadcasting, Inc. 326,999
78,890 Palo Verde Group 78,890
25,000 Northern California Broadcasting 25,000
------------
430,889
------------
Total Investments in Securities, Corporate Notes and Other
Investments of Affiliated Issuers (cost $1,652,582) $ 2,626,790
------------
Total Investments In Securities of Unaffiliated
Issuers (cost $383,368) 54.56% $ 1,915,677
Total Investments In Securities of Affiliated
Issuers (cost $1,652,582) 74.82% 2,626,790
--------- ------------
Total Investments 129.38% 4,542,467
Other Liabilities, Net of Assets (29.38)% (1,031,531)
--------- ------------
TOTAL NET ASSETS 100.00% $ 3,510,936
======= ===========
<FN>
(a) See Note 1 of notes to financial statements
(b) Restricted security, see Note 2 of notes to financial statements
(c) See Note 3 of notes to financial statements
(d) Income producing securities
</FN>
</TABLE>
<PAGE>
<PAGE>
<TABLE>
ASSETS AND LIABILITIES AS OF SEPTEMBER 30, 1996
- -----------------------------------------------------------------------------
<CAPTION>
ASSETS
- ------
Investments in Securities:
- -------------------------
<S> <C>
Investments in securities of unaffiliated
issuers (identified cost $383,368) $ 1,915,677
Investments in securities of affiliated
issuers (identified cost $1,221,693) 2,195,901
Advances to affiliates 430,889
------------
Total 4,542,467
------------
Cash and equivalents 44,760
Other receivables 25,518
Other assets 5,128
------------
Total 4,617,873
------------
LIABILITIES
- -----------
Accounts payable 56,062
Payable to officers & directors 27,317
Other payables 236,788
Deferred income tax liability 756,770
Note payable 30,000
------------
Total 1,106,937
------------
Commitments and Contingencies (Note 10)
Net Assets $ 3,510,936
===========
Net Asset Value Per Share $ 1.40
===========
/TABLE
<PAGE>
<PAGE>
<TABLE>
CAPITAL STOCK AND ACCUMULATED GAIN AS OF SEPTEMBER 30, 1996
- -----------------------------------------------------------------------------
<S> <C>
Common Stock, $.001 par value, 500,000,000
shares authorized, 2,500,000 issued
and outstanding $ 2,500
------------
Additional paid-in capital 2,103,083
------------
Net Accumulated Gain:
- --------------------
Net investment loss (2,631,942)
Accumulated net realized gain 1,530,778
Net unrealized appreciation of investments 2,506,517
------------
Net accumulated gain 1,405,353
------------
Total Capital Stock and Accumulated Gain $ 3,510,936
===========
</TABLE>
See notes to financial statements
<PAGE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS FOR SIX MONTHS ENDED SEPTEMBER 30, 1996
- -----------------------------------------------------------------------------
Investment Income:
- -----------------
<S> <C>
Consulting income from affiliated companies $ 3,000
Interest income from affiliated companies 2,306
Consulting income from nonaffiliated companies 19,192
Option income 10,000
Interest income from nonaffiliated companies 1,667
------------
Total 36,165
------------
Expenses:
- --------
Salaries 71,250
Office expense 8,426
Legal fees 683
Insurance 6,798
Telephone and telefax 7,098
Audit and accounting fees 16,329
Travel 1,690
Reports to shareholders 1,730
Custodian fees 1,861
Other 23,537
------------
Total 139,402
------------
Net Investment Loss (103,237)
------------
Net Realized Loss and Unrealized Appreciation on Investments:
- ------------------------------------------------------------
Net realized loss from investment transactions in
investments in affiliated issuers (61,587)
Net realized gain from investment transactions in
investments in unaffiliated issuers 74,538
Unrealized appreciation of investments 2,123,026
------------
Net Realized Loss and Unrealized Appreciation
on Investments 2,135,977
------------
Net Increase in Net Assets From Operations
Before Income Tax 2,032,740
Deferred Income Tax Provision (666,770)
------------
Net Increase in Net Assets From Operations $ 1,365,970
===========
</TABLE>
See notes to financial statements
<PAGE>
<PAGE>
<TABLE>
STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996
- -----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
- ------------------------------------
<S> <C>
Net increase in net assets from operations $ 1,365,970
Adjustments to reconcile net decrease in
net assets to cash used in operations:
Unrealized appreciation of investments (2,123,026)
Net realized gain from investment transactions (12,951)
Increase in deferred tax liability 666,770
Change in:
Other receivables (9,518)
Other assets 843
Accounts payable and other liabilities 221,051
Income tax payable (3,727)
------------
Net cash used in operating activities 105,412
CASH FLOWS FROM INVESTING ACTIVITIES:
- ------------------------------------
Purchase of investments (22,325)
Proceeds from sale of investments 140,875
Principal payments on note receivable 48,784
Advances to affiliates 294,294
Repayments of advances to affiliates (459,470)
------------
Net cash used in investing activities 2,158
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------
Principal repayments of borrowings from banks (30,000)
Repayment of advances from officers and affiliates (47,202)
------------
Cash provided by financing activities (77,202)
NET INCREASE IN CASH AND CASH EQUIVALENTS 30,368
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 14,392
------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 44,760
===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest was $ 2,635
===========
Cash paid during the period for income taxes was $ 3,727
===========
Non-Cash Financing Activity:
Common stock issued in exchange for
forgiveness of payable $ 55,357
===========
</TABLE>
See notes to financial statements<PAGE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED MARCH 31,1996, 1995
AND THE SIX MONTHS ENDED SEPTEMBER 30, 1996 UNAUDITED
- -----------------------------------------------------------------------------
<CAPTION>
(Unaudited)
For the
Six Months Ended
NOTES September 30, 1996 1996 1995
----- ------------------ ------------ ------------
From Operations:
- ---------------
<S> <C> <C> <C> <C>
Net investment loss $ (103,237) $ (205,234) $ (53,465)
Net realized gain/loss from
investment transactions 12,951 (42,920) (20,313)
Net change in unrealized
appreciation/(depreciation)
of investments 2,123,026 148,095 348,014
Income tax benefit/(provision) 5 (666,770) 18,000 (100,849)
------------ ------------ ------------
Net increase in net assets
from operations 1,365,970 (82,059) 173,387
Capital share transactions 55,357 409,571
Net Assets-beginning of period 2,089,609 1,762,097 1,588,710
------------ ------------ ------------
Net Assets-end of period $ 3,510,936 $ 2,089,609 $ 1,762,097
=========== =========== ==========
</TABLE>
See notes to financial statements
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Redwood MicroCap Fund, Inc., (the Fund) is registered under the Investment
Company Act of 1940, as amended, as a closed-end investment company. The Fund
invests in a broad range of small speculative stocks traded in the
over-the-counter market, real estate, radio broadcasting, and the petroleum
industry. The following is a summary of significant accounting policies
followed by the Fund in the preparation of its financial statements.
Investment Valuation -
--------------------
Investments in securities traded in the over-the-counter market are valued
at the reported sales prices as obtained from NASDAQ, or at the bid prices from
the brokers that make markets in such securities, on the last business day of
the year. Investments in securities traded on national exchanges are valued at
last reported sales prices. Investments in restricted securities, corporate
notes, other investments, and in securities which are thinly traded are valued
at their fair value as determined in good faith under procedures established by
and under the direction of the Fund's Board of Directors.
Federal Income Taxes -
--------------------
The Fund has not elected to be treated for Federal tax purposes as a
"regulated investment company" under Subchapter M of the Internal Revenue Code.
Consequently, investment income and realized capital gains are taxed to the
Fund at the tax rates applicable to corporations.
The Fund accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, a current or deferred income tax liability or asset is
recognized for timing differences which exist in the recognition of certain
income and expense items for financial statement reporting purposes in periods
different than for tax reporting purposes. The provision for income taxes is
based on the amount of current and deferred income taxes payable or refundable
at the date of the financial statements as measured by the provisions of
current tax laws.
Other -
-----
Investment transactions are accounted for on the date the investments are
purchased or sold (trade date). Realized gains and losses from investment
transactions and unrealized appreciation and depreciation of investments are
reported on a first-in, first-out basis.
Statement of Cash Flows -
-----------------------
The Fund considers all highly liquid investments with maturities of three
months or less to be cash equivalents.
<PAGE>
<PAGE>
2. RESTRICTED SECURITIES
---------------------
Restricted securities are those securities which have been acquired from an
issuer without registration under the Securities Act of 1933. Restricted
securities generally cannot be sold by the Fund except pursuant to an effective
registration or in compliance with Rule 144 of the Securities Act of 1933.
Valuations for such securities, as well as certain thinly-traded securities and
corporate notes, have been determined in good faith by the Fund's Board of
Directors. The following schedule provides certain information with respect to
restricted securities held by the Fund as of September 30, 1996, which
securities comprised 114.19% of the Fund's net assets at such time:
<TABLE>
<CAPTION>
Date of Fair
Description Acquisition Cost Value
- ----------- ---------------- ----------- -----------
<S> <C> <C> <C>
California Progressions, Inc. November 21, 1994 $ 65,000 $ 65,000
Global Casinos, Inc. May 17, 1994 123,100 60,025
Optek Music Systems August 27, 1993 178,833 87,500
Premier Concepts, Inc. February 28, 1994 205,418 181,749
Redwood Broadcasting, Inc. June 15, 1993 512,778 512,778
Redwood Energy, Inc. - Escrow June 29, 1994 3,676 3,676
Redwood Energy, Inc. -Seed June 29, 1994 176,953 204,444
Shiva Corporation June 6, 1996 73,292 1,587,592
Shiva Corporation - Escrow June 6, 1996 8,143 176,380
Los Molinos Broadcasting February 22, 1994 7,551 80,000
TDP Energy Company December 22, 1993 84,429 1,050,000
----------- -----------
Total $ 1,439,173 $ 4,009,144
=========== ===========
</TABLE>
With the exception of Global Casinos, Inc. and Premier Concepts, Inc., the
Fund has no right to require registration of the above restricted securities.
As of September 30, 1996, the Fund's investments in restricted securities
comprised approximately 86.82% of the value of its total assets.
3. INVESTMENTS IN SECURITIES OF AFFILIATED ISSUERS
-----------------------------------------------
As of September 30, 1996, the Fund holds either an indirect or direct ownership
of 5 percent or more of the following securities:
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Purchases
During the Six
Months Ended
Fair September 30,
Description Cost Value 1996
- ---------------- ------------ ----------- --------------
Common Stock:
- ------------
<S> <C> <C> <C>
California Progressions, Inc. $ 65,000 $ 65,000
Premier Concepts, Inc. 279,469 210,872
Redwood Broadcasting, Inc. 512,778 512,778 $ 70,382
Redwood Energy, Inc. 180,629 208,120
TDP Energy Company 84,429 1,050,000
Los Molinos 7,551 80,000
----------- -----------
1,129,856 2,126,770
----------- -----------
Corporate Notes:
- ---------------
Buttes Energy Company 50,231 50,231
----------- -----------
50,231 50,231
----------- -----------
Other Investments:
- -----------------
Northern California Broadcasting 22,706 0
Palo Verde Group 18,900 18,900 8,650
----------- -----------
41,606 18,900
----------- -----------
Advances to Affiliates:
Redwood Broadcasting, Inc. 326,999 326,999 124,761
Palo Verde Group 78,890 78,890 14,000
Northern California Broadcasting 25,000 25,000 25,000
----------- -----------
$ 430,889 $ 430,889
----------- -----------
Total $ 1,652,582 $ 2,626,790
=========== ===========
</TABLE>
<PAGE>
<PAGE>
4. UNREALIZED GAINS AND LOSSES
---------------------------
At September 30, 1996 the net unrealized appreciation of investments of
$2,506,517 was comprised of gross appreciation of $2,752,228 for those
investments having an excess of value over cost and gross depreciation of
$245,711 for those investments having an excess of cost over value.
5. INCOME TAX
----------
The temporary differences, tax effected, which give rise to the company's net
deferred tax liability as of September 30, 1996 are as follows:
<TABLE>
<S> <C>
Deferred Tax Liability 3/31/96 $ 90,000
Deferred Tax Liabilities 9/30/96:
Unrealized Gain on Investment 666,770
---------
Net Deferred Tax Liability 9/30/96 $ 756,770
=========
</TABLE>
The Fund has net operating loss carryforwards of $289,000 and capital loss
carryforwards of $30,000 which begin expiring in 2010 and 2001, respectively.
6. TRANSACTIONS WITH OFFICERS AND AFFILIATES
-----------------------------------------
During 1996 the fund made advances to affiliated companies. At September 30,
1996, the Fund had outstanding advances of $326,999 to Redwood Broadcasting
Inc., $78,890 to Palo Verde Group., and $25,000 to Northern California
Broadcasting.
At September 30, 1996, the Fund owed $27,317 to the President of the Fund for
advances made to the Fund during the six months ended September 30, 1996.
7. NOTE PAYABLE
------------
At September 30, 1996, the Fund has a note payable to a bank with an
outstanding balance of $30,000. The note bears interest at 11.25% with
interest payments due monthly. Principal payments of $15,000 are due
quarterly, commencing April 6, 1996, with all principal and interest due on
January 6, 1997.
8. COMMON STOCK
------------
During the six months ended September 30, 1996, the Fund issued 63,552 shares
of common stock in a private placement offering to the President, a related
party, in exchange for forgiveness of debt of $55,357.
<PAGE>
<PAGE>
9. CONSULTING AGREEMENT
--------------------
The Fund has a consulting agreement with California Progressions, Inc., a
related third party, in which the Fund is to be paid a minimum amount for
consulting services to be performed by the Fund's President. The Fund received
$16,666 under the agreement during the six months ended September 30, 1996.
10. COMMITMENTS AND CONTINGENCIES
-----------------------------
In connection with the filing of a registration statement with the Securities
and Exchange Commission, Redwood Broadcasting intends to register approximately
800,000 shares of its currently outstanding common stock and to issue and sell
an additional 200,000 shares of its common stock to the public. Redwood
Broadcasting also intends to register put options it has given to certain
shareholders who own 203,008 shares of Redwood Broadcasting common stock.
Redwood Broadcasting is committed to purchase the related shares for $1.50 per
share. The put options will expire 90 days after the effective date of the
registration statement. The Fund has agreed to guarantee Redwood
Broadcasting's obligation under the put options. The Fund has also pledged
195,371 shares of its Redwood Broadcasting common stock as security for the
guarantee.
In July 1996, Redwood Broadcasting completed the acquisition of a radio
station. In connection with the acquisition the Fund guaranteed Redwood
Broadcasting's obligation of a note to the seller in the amount of $155,000.
The note bears interest at the prime rate and matures in July 2001.
Redwood Broadcasting has filed with the Federal Communications Commission an
application for a construction permit to build a radio station in Arizona.
Should the permit be granted, the Fund has agreed to provide working capital
necessary to complete the station construction and to cover operating expenses
for the first three months of operations.
<PAGE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------
<CAPTION>
(Unaudited)
For the Six
Months Ended
September 30, ----For the Years Ended March 31----
1996 1996 1995 1994 1993
------------- ------- ------- ------- -------
Per Share:
- ---------
<S> <C> <C> <C> <C> <C>
Income from investments $ .014 $ .029 $ .105 $ .158 $ .005
Expenses (.056) (.107) (.183) (.129) (.074)
------- ------- ------- ------- -------
Net investment income (loss) (.042) (.078) (.078) .029 (.069)
Net realized gain (loss) and
net change in unrealized
appreciation of investments .588 .043 .166 .335 .136
Purchase of treasury stock .000 .000 .000 .000 .000
------- ------- ------- ------- -------
.588 .043 .166 .335 .136
Net decrease/increase in
net asset value .546 (.035) .088 .364 .067
Net asset value:
Beginning of period .858 .893 .805 .441 .374
------- ------- ------- ------- -------
End of period $1.404 $ .858 $ .893 $ .805 $ .441
====== ====== ====== ====== ======
Total investment return (1) 63.64% (3.52)% 10.91% 86.25% 36.87%
Ratios:
- ------
Expenses to average net assets 4.69% 14.57% 14.07% 20.26% 19.41%
Expenses to income 385.46% 376.76% 125.95% 73.38% 1409.00%
Net investment income/(loss) to
average net assets 3.47% (10.70)% (2.90)% 7.35% (18.03)%
Portfolio turnover rate (2) 2.25% 21.63% 29.88% 329.91% 149.73%
- --------------------------
<FN>
(1) Based on the change in net asset value since there has been no
distributions during the period presented. The Fund does not believe that
a presentation based on changes in the market value of the Funds' common
stock is appropriate considering the limited market for its stock.
(2) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the six months ended September 30, 1996, were
$70,382 and $126,900, respectively.
</FN>
</TABLE>
See notes to financial statements
<PAGE>
- ----------------------------------- ----------------------------
No person is authorized to give any
information or to make any represen-
tation other than those contained in
this Prospectus, and if made such
information or representation must
not be relied upon as having been
given or authorized by the Company. REDWOOD BROADCASTING, INC.
This Prospectus does not constitute
an offer to sell or a solicitation 1,200,437 shares of
of an offer to buy any securities $.004 par value
other than the Securities offered by Common Stock
this Prospectus or an offer to sell
or a solicitation of an offer to buy
the said Securities in any jurisdic- 203,008 Common Stock
tion to any person to whom it is Put Options
unlawful to make such offer or solici-
tation in such jurisdiction.
The delivery of this Prospectus shall
not, under any circumstances, create
any implication that there has been
no changes in the affairs of the
Company since the date of this
Prospectus. However, in the event
of a material change, this Prospectus
will be amended or supplemented
accordingly.
TABLE OF CONTENTS
Page
----
Prospectus Summary 9
Risk Factors 16
Use of Proceeds 22
Dilution 24 ----------------
Management's Discussion
and Analysis or Plan of PROSPECTUS
Operation 25
Business 34 ----------------
Redwood Microcap Fund, Inc. 46
Management 47
Executive Compensation 49
Security Ownership of
Certain Beneficial
Owners and Management 51
Description of Securities 53 ------------, 1997
Terms of Offerings 55
Certain Transactions 61
Indemnification 63
Legal Matters 63
Experts 63
Financial Statements F-1 -- F-88
- ----------------------------------- ----------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The only statute, charter provision, bylaw, contract, or other arrangement
under which any controlling person, director or officers of the Registrant is
insured or indemnified in any manner against any liability which he may incur
in his capacity as such, is as follows:
Sections 7-109-101 through 7-109-110 of the Colorado Corporation Code
provide as follows:
7-109-101. DEFINITIONS. As used in this article:
(1) "Corporation" includes any domestic or foreign entity that is a
predecessor of a corporation by reason of a merger or other
transaction in which the predecessor's existence ceased upon
consummation of the transaction.
(2) "Director" means an individual who is or was a director of a
corporation or an individual who, while a director of a corporation,
is or was serving at the corporation's request as a director,
officer, partner, trustee, employee, fiduciary, or agent of another
domestic or foreign corporation or other person or of an employee
benefit plan. A director is considered to be serving an employee
benefit plan at the corporation's request if his or her duties to the
corporation also impose duties on, or otherwise involve services by,
the director to the plan or to participants in or beneficiaries of
the plan. "Director" includes, unless the context requires
otherwise, the estate or personal representative of a director.
(3) "Expenses" includes counsel fees.
(4) "Liability" means the obligation incurred with respect to a
proceeding to pay a judgment, settlement, penalty, fine, including an
excise tax assessed with respect to an employee benefit plan, or
reasonable expenses.
(5) "Official capacity" means, when used with respect to a director,
the office of director in a corporation and, when used with respect
to a person other than a director as contemplated in section 7-109-
107, the office in a corporation held by the officer or the
employment, fiduciary, or agency relationship undertaken by the
employee, fiduciary, or agent on behalf of the corporation.
"Official capacity" does not include service for any other domestic
or foreign corporation or other person or employee benefit plan.
(6) "Party" includes a person who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(7) "Proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal.
7-109-102. AUTHORITY TO INDEMNIFY DIRECTORS.
(1) Except as provided in subsection (4) of this section, a
corporation may indemnify a person made a party to a proceeding
because the person is or was a director against liability incurred in
the proceeding if:
(a) The person conducted himself or herself in good faith; and
(b) The person reasonable believed:
(I) In the case of conduct in an official capacity with the
corporation, that his or her conduct was in the corporation's best
interests; and
(II) In all other cases, that his or her conduct was at least not
opposed to the corporation's best interests; and
(c) In the case of any criminal proceeding, the person had no
reasonable cause to believe his or her conduct was unlawful.
(2) A director's conduct with respect to an employee benefit plan
for a purpose the director reasonably believed to be in the interests
of the participants in or beneficiaries of the plan is conduct that
satisfies the requirement of subparagraph (II) of paragraph (b) of
subsection (1) of this section. A director's conduct with respect to
an employee benefit plan for a purpose that the director did not
reasonably believe to be in the interests of the participants in or
beneficiaries of the plan shall be deemed not to satisfy the
requirements of paragraph (a) of subsection (1) of this section.
(3) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is
not, of itself, determinative that the director did not meet the
standard of conduct described in this section.
(4) A corporation may not indemnify a director under this section:
(a) In connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the
corporation; or
(b) In connection with any other proceeding charging that the
director derived an improper personal benefit, whether or not
involving action in an official capacity, in which proceeding the
director was adjudged liable on the basis that he or she derived an
improper personal benefit.
(5) Indemnification permitted under this section in connection with
a proceeding by or in the right of the corporation is limited to
reasonable expenses incurred in connection with the proceeding.
7-109-103. MANDATORY INDEMNIFICATION OF DIRECTORS. Unless limited
by its articles of incorporation, a corporation shall indemnify a
person who was wholly successful, on the merits or otherwise, in the
defense of any proceeding to which the person was a party because the
person is or was a director, against reasonable expenses incurred by
him or her in connection with the proceeding.
7-109-104. ADVANCE OF EXPENSES TO DIRECTORS.
(1) A corporation may pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of
final disposition of the proceeding if:
<PAGE>
(a) The director furnishes to the corporation a written
affirmation of the director's good faith belief that he or she has
met the standard of conduct described in section 7-109-102;
(b) The director furnishes to the corporation a written
undertaking, executed personally or on the director's behalf, to
repay the advance if it is ultimately determined that he or she did
not meet the standard of conduct; and
(c) A determination is made that the facts then known to those
making the determination would not preclude indemnification under
this article.
(2) The undertaking required by paragraph (b) of subsection (1) of
this section shall be an unlimited general obligation of the director
but need not be secured and may be accepted without reference to
financial ability to make repayment.
(3) Determinations and authorizations of payments under this section
shall be made in the manner specified in section 7-109-106.
7-109-105. COURT-ORDERED INDEMNIFICATION OF DIRECTORS.
(1) Unless otherwise provided in the articles of incorporation, a
director who is or was a party to a proceeding may apply for
indemnification to the court conducting the proceeding or to another
court of competent jurisdiction. On receipt of an application, the
court, after giving any notice the court considers necessary, may
order indemnification in the following manner:
(a) If it determines that the director is entitled to mandatory
indemnification under section 7-109-103, the court shall order
indemnification, in which case the court shall also order the
corporation to pay the director's reasonable expenses incurred to
obtain court-ordered indemnification.
(b) If it determines that the director is fairly and reasonable
entitled to indemnification in view of all the relevant
circumstances, whether or not the director met the standard of
conduct set forth in section 7-109-102 (1) or was adjudged liable in
the circumstances described in section 7-109-102 (4), the court may
order such indemnification as the court deems proper; except that the
indemnification with respect to any proceeding in which liability
shall have been adjudged in the circumstances described in section 7-
109-102 (4) is limited to reasonable expenses incurred in connection
with the proceeding and reasonable expenses incurred to obtain court-
ordered indemnification.
7-109-106. DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION OF
DIRECTORS.
(1) A corporation may not indemnify a director under section 7-109-
102 unless authorized in the specific case after a determination has
been made that indemnification of the director is permissible in the
circumstances because the director has met the standard of conduct
set forth in section 7-109-102. A corporation shall not advance
expenses to a director under section 7-109-104 unless authorized in
the specific case after the written affirmation and undertaking
required by section 7-109-104 (1) (a) and (1) (b) are received and
the determination required by section 7-109-104 (1) (c) has been
made.
(2) The determinations required by subsection (1) of this section
shall be made:
(a) By the board of directors by a majority vote of those present
at a meeting at which a quorum is present, and only those directors
not parties to the proceeding shall be counted in satisfying the
quorum; or
(b) If a quorum cannot be obtained, by a majority vote of a
committee of the board of directors designated by the board of
directors, which committee shall consist of two or more directors not
parties to the proceeding; except that directors who are parties to
the proceeding may participate in the designation of directors for
the committee.
(3) If a quorum cannot be obtained as contemplated in paragraph (a)
of subsection (2) of this section, and a committee cannot be
established under paragraph (b) of subsection (2) of this section,
or, even if a quorum is obtained or a committee is designated, if a
majority of the directors constituting such quorum or such committee
so directs, the determination required to be made by subsection (1)
of this section shall be made:
(a) By independent legal counsel selected by a vote of the board
of directors or the committee in the manner specified in paragraph
(a) or (b) of subsection (2) of this section or, if a quorum of the
full board cannot be obtained and a committee cannot be established,
by independent legal counsel selected by a majority vote of the full
board of directors; or
(b) By the shareholders.
(4) Authorization of indemnification and advance of expenses shall
be made in the same manner as the determination that indemnification
or advance of expenses is permissible; except that, if the
determination that indemnification or advance of expenses is
permissible is made by independent legal counsel, authorization of
indemnification and advance of expenses shall be made by the body
that selected such counsel.
7-109-107. INDEMNIFICATION OF OFFICERS, EMPLOYEES, FIDUCIARIES, AND
AGENTS.
(1) Unless otherwise provided in the articles of incorporation:
(a) An officer is entitled to mandatory indemnification under
section 7-109-103, and is entitled to apply for court-ordered
indemnification under section 7-109-105, in each case to the same
extent as a director;
(b) A corporation may indemnify and advance expenses to an
officer, employee, fiduciary, or agent of the corporation to the same
extent as to a director; and
(c) A corporation may also indemnify and advance expenses to an
officer, employee, fiduciary, or agent who is not a director to a
greater extent, if not inconsistent with public policy, and if
provided for by its bylaws, general or specific action of its board
of directors or shareholders, or contract.
<PAGE>
7-109-108. INSURANCE. A corporation may purchase and maintain
insurance on behalf of a person who is or was a director, officer,
employee, fiduciary, or agent of the corporation, or who, while a
director, officer, employee, fiduciary, or agent of the corporation,
is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee, fiduciary, or agent of another
domestic or foreign corporation or other person or of an employee
benefit plan, against liability asserted against or incurred by the
person in that capacity or arising from his or her status as a
director, officer, employee, fiduciary, or agent, whether or not the
corporation would have power to indemnify the person against the same
liability under section 7-109-102, 7-109-103, or 7-109-107. Any such
insurance may be procured from any insurance company designated by
the board of directors, whether such insurance company is formed
under the laws of this state or any other jurisdiction of the United
States or elsewhere, including any insurance company in which the
corporation has an equity or any other interest through stock
ownership or otherwise.
7-109-109. LIMITATION OF INDEMNIFICATION OF DIRECTORS.
(1) A provision treating a corporation's indemnification of, or
advance of expenses to, directors that is contained in its articles
of incorporation or bylaws, in a resolution of its shareholders or
board of directors, or in a contract, except an insurance policy, or
otherwise, is valid only to the extent the provision is not
inconsistent with sections 7-109-101 to 7-109-108. If the article of
incorporation limit indemnification or advance of expenses,
indemnification and advance of expenses are valid only to the extent
not inconsistent with the articles of incorporation.
(2) Sections 7-109-101 to 7-109-108 do not limit a corporation's
power to pay or reimburse expenses incurred by a director in
connection with an appearance as a witness in a proceeding at a time
when he or she has not been made a named defendant or respondent in
the proceeding.
7-109-110. NOTICE TO SHAREHOLDER OF INDEMNIFICATION OF DIRECTOR. If
a corporation indemnifies or advances expenses to a director under
this article in connection with a proceeding by or in the right of
the corporation, the corporation shall give written notice of the
indemnification or advance to the shareholders with or before the
notice of the next shareholders' meeting. If the next shareholder
action is taken without a meeting at the instigation of the board of
directors, such notice shall be given to the shareholders at or
before the time the first shareholder signs a writing consenting to
such action.
* * *
Article XIII of the By-Laws of the Company also tracks the language
Sections 7-109-101 through 7-109-110 of the Colorado Corporation Code.
Item 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the offering are to be borne by the Company, are
as follows:
<PAGE>
<TABLE>
<S> <C>
SEC Filing Fee $ 562
Printing Expenses* 1,500
Accounting Fees and Expenses* 6,000
Legal Fees and Expenses* 30,000
Blue Sky Fees and Expenses* 10,000
Miscellaneous* 1,938
Total $50,000
- -----------------------------------
* Estimated
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
---------------------------------------
1. In February, 1995, the Company was formed and organized as a
reorganization by CRI in which it issued 300,008 shares of its Common Stock to
CRI in exchange for one hundred percent (100%) of CRI's real and personal
property, subject to certain liabilities, saving and excepting cash, cash
equivalents or marketable securities having an aggregate fair market value of
not less than $250,000. The shares of Common Stock were acquired for
investment purposes and were subject to appropriate transfer restrictions. The
shares were not registered under the Securities Act in reliance upon Section
4(2) thereof.
2. In June, 1995, the Company issued 300,000 shares of its Common Stock
to seven (7) accredited investors in exchange for one hundred percent (100%) of
the issued and outstanding shares of common stock of Redwood Broadcasting, Inc.
The shares of Common Stock were acquired for investment purposes and were
subject to appropriate transfer restrictions. the shares were not registered
under the Securities Act in reliance upon Section 4(2) thereof.
3. In October, 1995, the Company sold 25,000 shares of Common Stock to
one (1) accredited investor for a price of $1.20 per share or a total of
$30,000. The shares of Common Stock were acquired for investment purposes and
were subject to appropriate transfer restrictions. The shares were not
registered under the Securities Act in reliance upon Section 4(2) thereof.
4. In September, 1995, the Company issued to MicroCap, an accredited
investor, 150,000 shares of Common Stock in lieu of cash or money payment of
indebtedness of the Company to MicroCap totaling $180,000. The shares of
Common Stock were acquired for investment purposes and were subject to
appropriate transfer restrictions. The shares were not registered under the
Securities Act in reliance upon Section 4(2) thereof.
5. In August, 1996, the Company sold and issued an aggregate of 37,550
shares of Common Stock to four accredited investors at a price of $1.20 per
share. The shares of Common Stock were acquired for investment purposes and
were subject to appropriate transfer restrictions. The shares were not
registered under the Securities Act in reliance upon Section 4(2) thereof.
6. In December 1996, the Company sold and issued to Power Curve, Inc.,
an accredited investor and a controlled corporation of John C. Power, the
Company's President and Director, 100,000 shares of Common Stock at a price of
$1.20 per share. The shares of Common Stock were acquired for investment
purposes and were subject to appropriate transfer restrictions. The shares
were not registered under the Securities Act in reliance upon Section 4(2)
thereof.
ITEM 27. EXHIBITS.
--------
a. The following Exhibits are filed as part of this Registration
Statement pursuant to Item 601 of Regulation S-B:
<TABLE>
<CAPTION>
Exhibit No. Title
- ---------- -----
<S> <C> <C>
* 2.0 Agreement and Plan or Reorganization Dated as of December 5,
1994, between and among Cell Robotics, Inc., Intelligent
Financial Corporation, Micel, Inc., Bridgeworks Investors I,
LLC, and Ronald K. Lohrding
* 2.1 Agreement and Plan of Reorganization Date as of June 16,
1995, between and among Intelligent Financial Holding
Corporation, Redwood MicroCap Fund, Inc., and Redwood
Broadcasting, Inc.
* 3.0(i) Articles of Incorporation of Intelligent Financial Holding
Corporation
* 3.0(ii) By-laws of Intelligent Financial Holding Corporation
* 4.1 Specimen Certificate of Common Stock
*** 4.2 Specimen Put Option Certificate
*** 4.3 Redwood Broadcasting, Inc. 1995 Incentive Stock Option Plan
5.0 Opinion of Neuman & Cobb regarding the legality of the
securities being registered
* 10.0 KHSL AM/FM Asset Purchase Agreement dated February 3, 1995
10.1 KHSL Local Management Agreement
*** 10.3 Agreement to Convert Debt dated September 30, 1995, between
Intelligent Financial Holding Corporation and Redwood
MicroCap Fund, Inc.
* 10.4 KNNN Letter of Intent
10.5 KNNN Asset Purchase Agreement
** 10.6 KNSN-AM and KHSL-FM Asset Purchase Agreement dated March 12,
1996
10.7 Redwood MicroCap Fund, Inc. Consultation Agreement
*** 10.8 Selected Dealer Agreement
* 21.0 Subsidiaries
23.1 Consent of Neuman & Cobb
23.2 Consent of Schumacher & Associates, Inc., Certified Public
Accountants
23.3 Consent of Stockman, Kast, Ryan & Scruggs, P.C.
- ----------------------------
* Incorporated by referenced from Registrant's Registration
Statement on Form SB-2, S.E.C. File No. 33-80321, as filed
with the Commission on December 12, 1995.
** Incorporated by referenced from Registrant's Pre-Effective
Amendment No. 1 to Registration Statement on Form SB-2,
S.E.C. File No. 33-80321, as filed with the Commission on
October 3, 1996.
*** Incorporated by referenced from Registrant's Pre-Effective
Amendment No. 2 to Registration Statement on Form SB-2,
S.E.C. File No. 33-80321, as filed with the Commission on
January 2, 1997.
</TABLE>
ITEM 28. UNDERTAKINGS.
------------
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
3. To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
4. To provide, upon effectiveness, certificates in such
denominations and registered in such names as are required to permit prompt
delivery to each purchaser.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and has duly caused this
Amendment No. 3 to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Carefree, Arizona on the
29th day of January, 1997.
REDWOOD BROADCASTING, INC.
By: /s/ John C. Power
---------------------------
John C. Power, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 3 to the Registration Statement has been signed by the
following persons in the capacities with Redwood Broadcasting, Inc. and on the
dates indicated.
Signature Position Date
- --------- -------- ----
/s/ John C. Power Chairman of the Board, 1/29/97
- ------------------------------President, Chief Executive Officer----------
John C. Power
/s/ J. Andrew Moorer Chief Financial Officer, 1/29/97
- ------------------------------ Chief Accounting Officer, ----------
J. Andrew Moorer Secretary, Treasurer, Director
/s/ Donald P. Griffin Chief Operating Officer, Director 1/29/97
- ------------------------------ ----------
Donald P. Griffin
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and has duly caused this
Amendment No. 3 to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Carefree, Arizona on the
29th day of January, 1997.
REDWOOD MICROCAP FUND, INC.
By: /s/ John C. Power
---------------------------
John C. Power, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 3 to the Registration Statement has been signed by the
following persons in the capacities with Redwood Microcap Fund, Inc. and on the
dates indicated.
Signature Position Date
- --------- -------- ----
/s/ John C. Power Chairman of the Board, 1/29/97
- ------------------------------President, Chief Executive Officer----------
John C. Power
/s/ J. Andrew Moorer Chief Financial Officer, 1/29/97
- ------------------------------ Chief Accounting Officer, ----------
J. Andrew Moorer Treasurer, Director
/s/ Joseph O. Smith Director 1/29/97
- ------------------------------ ----------
Joseph O. Smith
<PAGE>
EXHIBIT 5.0
January 24, 1997
Redwood Broadcasting, Inc.
7518 Elbow Bend Road, Bldg. A, Ste. I
P.O. Box 3458
Carefree, Arizona 85377
Re: Pre-Effective Amendment No. 3 to S.E.C. Registration Statement
on Form SB-2
Ladies and Gentlemen:
We have acted as counsel to Redwood Broadcasting, Inc. (the "Company") and
Redwood Microcap Fund, Inc. ("MicroCap") in connection with Pre-Effective
Amendment No. 3 to Registration Statement to be filed with the United States
Securities and Exchange Commission, Washington, D.C., pursuant to the
Securities Act of 1933, as amended, covering the registration of an aggregate
of 1,200,437 shares of the Company's $0.004 par value common stock (the "Common
Stock") and 203,008 Common Stock Put Options and 203,008 Put Option Guarantees
(the "Guarantees"). In connection with such representation of the Company, we
have examined such corporate records, and have made such inquiry of government
officials and Company officials and have made such examination of the law as we
deemed appropriate in connection with delivering this opinion.
Based upon the foregoing, we are of the opinion as follows:
1. The Company has been duly incorporated and organized under the laws
of the State of Colorado and is validly existing as a corporation in good
standing under the laws of that state.
2. The Company's authorized capital consists of twelve million five
hundred thousand (12,500,000) shares of Common Stock having a par value of
$0.004 each and two million five hundred thousand (2,500,000) shares of
preferred stock having a par value of $.04 per share.
3. The 300,008 shares of the Company's Common Stock to be distributed by
Cell Robotics International, Inc. ("CRI") to the shareholders of record of CRI
as of December 16, 1994 pursuant to the terms of the Agreement and Plan of
Reorganization between and among CRI, Cell Robotics, Inc., a New Mexico
corporation ("Cell"), MiCEL, Inc., a Delaware corporation, and others, dated as
of December 12, 1994 (the "CRI Agreement"), more fully described in the
Registration Statement, are duly and validly authorized, legally issued, fully
paid and nonassessable shares of the Company's Common Stock.
4. The 400,000 shares of Common Stock being registered for sale and
offered by the Company shall, upon valid issuance thereof as more fully
described in the Registration Statement, be duly and validly authorized,
legally issued, fully paid and non-assessable shares of the Company's Common
Stock.
5. The 203,008 Common Stock Put Options to be issued by the Company and
the 203,008 Guarantees to be issued by MicroCap shall, upon valid issuance
thereof as more fully described in the Registration Statement, be duly and
validly authorized, legally issued, and fully exercisable and enforceable in
accordance with their respective terms and conditions.
6. The 500,429 shares of Common Stock being registered for sale and
offered by the Selling Shareholders as more fully described in the Registration
Statement are lawfully and validly issued, fully paid and non-assessable shares
of the Company's Common Stock.
Sincerely,
Clifford L. Neuman
CLN:at
EXHIBIT 10.1
------------
TIME BROKERAGE AGREEMENT
This Time Brokerage Agreement ("Agreement") is made this 15th day of
February, 1995, by and between GE RADIO COMPANY ("Licensee") and ALTA CALIFOR-
NIA BROADCASTING, INC., a corporation organized under the laws of the State of
California ("Broker") ("Licensee" and "Broker" being jointly referred to herein
as the "Parties").
WHEREAS, Licensee is authorized to operate Radio Stations KHSL(AM) and
KHSL-FM (the "Stations"), Chico and Paradise, California, pursuant to authori-
zations issued by the Federal Communications Commission ("FCC");
WHEREAS, the Parties have carefully considered the FCC's time brokerage
policies and intend that this Agreement in all respects comply with such
policies;
WHEREAS, Licensee desires to enter into this Agreement to provide a
regular source of diverse programming and income to sustain the operations of
the Stations;
WHEREAS, Broker desires to provide an over-the-air program service to the
Chico and Paradise, California area using the facilities of the Stations;
WHEREAS, Licensee agrees to provide time on the Stations exclusively to
Broker on terms and conditions that conform to policies of the Stations and the
FCC for time brokerage arrangements and that are as set forth herein;
WHEREAS, Broker agrees to utilize the facilities of the Stations solely to
broadcast such programming of its selection that conforms with the policies of
Licensee as set forth in Exhibit A hereto and with all rules, regulations, and
policies of the FCC, and as set forth herein; and
WHEREAS, the Licensee and the Broker have entered into an Asset Purchase
Agreement, dated as of the date hereof (the "Purchase Agreement"), by which the
Broker will purchase the assets of, and accept the assignment of the licenses
issued by the FCC with respect to, the Stations.
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
promises set forth herein, Licensee and Broker, intending to be bound legally,
hereby agree as follows:
1. FACILITIES. Licensee agrees to make the broadcasting studio and
transmission facilities of the Stations available to Broker and to broadcast on
the Stations, or cause to be broadcast, Broker's programs which shall originate
either from Broker's own studios or from other studios contracted for by
Broker. To the extent necessary or desired by Broker, the Stations' studio
building, transmitter site and transmission facilities and equipment shall be
made available by Licensee to Broker for Broker's use at Seller's out-of-pocket
cost during the Term of this Agreement, to the extent that such facilities are
not actually needed or in use for Licensee's own broadcasts on the Stations.
2. PAYMENT.
(a) BASIC PAYMENT.
As consideration for Licensee's permitting Broker to air its
programming on the Stations pursuant to this Agreement, Broker shall pay to
Licensee the sum of Three Thousand Dollars ($3,000.00) on the first day of each
month during which this Agreement is in effect (the "Monthly Payment"). In the
even that, for any month, this Agreement is in effect for less than the full
month,m the consideration to be paid pursuant to this Paragraph shall be pro
rated such that Licensee shall be compensated for that portion of the month
during which the Agreement is in effect.
(b) LICENSEE'S ACCOUNTS RECEIVABLE.
On the Commencement Date, Licensee shall assign to Broker for
purposes of collection only, all of the Licensee's accounts receivable except
each account more than sixty (60) days overdue and upon which no payment has
been received within the sixty (60) days prior to Commencement Date. Broker
shall use such efforts as are reasonable and in the ordinary course of business
to collect the accounts receivable for a period of one hundred twenty (120)
days following the Commencement Date (the "Collection Period"). This obliga-
tion, however, shall not extend to the institution of litigation, employment of
counsel, or any other extraordinary means of collection. So long as the
accounts receivable are in Broker's possession, neither Licensee nor its agents
shall make any solicitation of them for collection purposes or institute
litigation for the collection of any amounts due thereunder. All payments
received by Broker during the Collection Period from any person or entity
obligated with respect to any of the accounts receivable shall be applied first
to Licensee's account and only after full satisfaction thereof to Broker's
account; provided, however, that if during the Collection Period any account
debtor contests in writing the validity of its obligation with respect to any
account receivable, then Broker shall return that account receivable to
Licensee after which Licensee shall be solely responsible for the collection
thereof. Within ten (10) days after the end of each calendar month during the
Collection Period (or if such day is a weekend or holiday, on the next business
day), Broker shall furnish Licensee with a list of the accounts receivable
collected during the prior calendar month and shall pay to Licensee the full
amount collected with respect to the accounts receivable during such month.
Any of the accounts receivable that are not collected during the Collection
Period shall be reassigned to Licensee after which Broker shall have no further
obligation to Licensee with respect to the accounts receivable; provided,
however, that all funds subsequently received by Broker (without time limita-
tion) that can be specifically identified, whether by accompanying invoice or
otherwise, as payment on any account receivable belonging to Licensee shall be
promptly paid to Licensee. Broker shall not have the right to compromise,
settle or adjust the amounts of any of the accounts receivable without
Licensee's prior written consent, or to withhold any proceeds or the accounts
receivable or to retain any uncollected accounts receivable after the
expiration of the Collection Period for any reason whatsoever. Licensee shall
be responsible for the payment of all commissions due with respect to the
accounts receivable.
3. TERM. This Agreement shall commence on February 15, 1995. The Term
of this Agreement shall be coincident with the duration of the Purchase
Agreement, such that this Agreement will terminate automatically upon the
consummation or termination of the Purchase Agreement, unless earlier
terminated as provided in this Agreement.
4. PROGRAMS. Broker shall furnish or cause to be furnished the programs
to be broadcast, which shall be in good taste and in accordance with the rules,
regulations and policies of the Federal Communications Commission ("Commission"
and/or "FCC") and the Communications Act of 1934, as amended (the
"Communications Act"). Licensee is aware that Broker's current intention is to
program the Stations with the programming that is directed to the country and
western music audience. The Broker may place programming over the Stations up
to a maximum of one hundred sixty-six hours per week per station and shall
supply Licensee with no less than one hundred sixty hours per week per station
of programming. Broker recognizes that Licensee continues to have obligations
under certain barter agreements into which the Licensee has entered.
5. STATION FACILITIES.
5.1 OPERATION OF STATIONS.
The Licensee represents that the Stations will operate
throughout the Term of this Agreement in accordance with the authorizations
issued to it by the FCC and all applicable FCC Rules. The Licensee's reserved
air time of at least two (2) hours per week shall be scheduled between the
hours of 7:00 a.m. and 12:00 noon on Sundays. Any routine or non-emergency
maintenance work affecting the operation of the Stations at full power shall be
scheduled with at least forty-eight (48) hours prior notice to the Broker.
5.2 INTERRUPTION OF NORMAL OPERATIONS.
If the Stations suffer any damage or loss of any nature to their
transmission or studio facilities which results in the interruption of service
or the inability of the Stations to operate with maximum authorized facilities,
Licensee shall immediately notify Broker and shall inform Broker whether it is
willing to effectuate those repairs or replace that equipment necessary to
return the Stations to maximum power operation. If the Licensee notifies the
Broker that it is unwilling to make such repairs or replace such equipment,
Broker, at its option, may (1) terminate this Agreement or (2) agree to
reimburse Licensee for the repair or replacement of such facilities, any
equipment purchased shall become the property of the Broker.
5.3 MAIN STUDIO LOCATION.
Licensee shall maintain a main studio for the Stations within
the Stations' principal community contours and shall staff the main studio of
the Stations consistent with the FCC's rules and policies.
6. COMPLIANCE WITH FCC RULES; HANDLING OF MAIL. Licensee shall comply
with Commission rules and policies, including those regarding the maintenance
of the Stations' local public inspection files (which shall at all times remain
the responsibility of the Licensee). Licensee shall also be required to
receive or handle mail, cables, telegraph messages or telephone calls in
connection with the Licensee's operation of the Stations. Any mail or other
written communications received by Broker that deal with the operations of the
Stations shall be forwarded promptly by the Broker to the Licensee.
7. PROGRAMMING AND THE PUBLIC INTEREST. The programming provided by
Broker shall consist of such materials as are determined by Broker to be
appropriate and/or in the public interest including, without limitation, such
public affairs programming, public service announcements, music, news, weather
reports, sports, promotional material, and advertising, as are determined and
selected by Broker. Licensee shall have the full and unrestricted right to
delete and not broadcast any material contained in any part of the programming
provided by Broker which it regards as being unsuitable for broadcast or the
broadcast of which it believes would be contrary to the public interest.
8. RESPONSIBILITY FOR EMPLOYEES AND EXPENSES. Broker shall employ and
be responsible for the salaries, commissions, taxes, insurance, and all other
related costs for all personnel involved in the production, broadcast and sale
of its programming and commercial messages including, but not limited to, air
personalities, salespersons, and traffic personnel. Broker shall also be
responsible for all of its promotional expenses in connection with the
programming it is to furnish for broadcast on the Stations. Broker shall be
responsible for delivering the programming and/or the broadcast signal to
Licensee's Studio. Alternatively, Broker may deliver its programming to
Broker's transmitters via radio Studio Transmitter Link. In such event,
however, Broker shall pay for all equipment necessary to connect Broker's STL
equipment to Licensee's remote control unit. Installation of the STL equipment
and any equipment needed to connect the STL equipment to Licensee's remote
control unit shall be at Broker's expense. Broker shall bear full
responsibility for any damage caused by such installation. Prior to the
installation of any STL equipment including, without limitation, any antenna,
Broker shall provide a wind load study performed by a registered professional
engineer demonstrating that the station's tower can support the STL antenna and
a certificate from a registered professional engineer certifying that the
equipment will not cause interference to any other equipment then located at
the station's transmitter site. In the event that the STL equipment causes
interference to the Stations or to any third party:
A. Broker shall cease use of the STL equipment. Broker shall be
responsible for paying certain other operating costs of the Stations,
including, but not limited to the following:
1. All lease payments for use of the Stations' main
studio and offices should they be utilized by Broker; and
provided that Seller is required to and does in fact make such
payments to the owner of the studio and offices;
2. Utility bills for utility services at both the main
studio location and the transmitter sites of the Stations;
3. Telephone system maintenance costs and local exchange
telephone service costs at the Stations' main studios and to and
at the Stations' transmitter sites;
4. Normal maintenance of the transmitting facilities of
the Stations and of all equipment required by the FCC for the
operation of the Stations in compliance with the rules and
policies of the FCC;
B. Licensee shall be responsible for paying the following:
1. Salaries, benefits, payroll taxes, insurance and
related costs of all personnel employed by Licensee for the
Stations;
2. Costs of equipment repair and supplies; such as parts
replacements, major supplies or maintenance requiring the
capabilities of specialized third parties.
3. Costs of engineering or technical personnel necessary
to assure compliance with FCC rules and policies and maintenance
and repair of the Stations' transmission facilities;
4. All insurance premiums on property and casualty
insurance coverage of the Stations' transmission facilities at
the Stations' transmitter site(s) and at the Stations' offices
and main studio facilities; and
5. Personal and real property taxes and regulatory fees.
Broker shall be fully responsible for the supervision and direction of its
employees, and Licensee shall be directly responsible for the supervision and
direction of its employees. Broker shall promptly enter into agreements with
ASCAP, BMI or SESAC, as required to permit the airing of Broker's programming
over the Stations, and shall pay the required license fees to each of such
performance rights societies. Broker shall also pay any and all other
copyright license fees attributable to its programming to be broadcast on the
Stations.
9. ADVERTISING AND PROGRAMMING REVENUES. Broker shall retain all
revenues from the sale of advertising time on the programs it delivers to the
Stations. Licensee shall retain the revenue from the sale of any advertising
on the Stations on programs not provided or delivered to Licensee by Broker.
10. OPERATION OF STATION. Notwithstanding anything to the contrary in
this Agreement, Licensee shall have full authority, power and control over the
operation of the Stations during the period of this Agreement, including,
without limitation, control over the Stations' finances, personnel and
programming. The Stations' General Manager shall direct the day-to-day
operation of the Stations. Licensee shall retain control over the policies,
programming and operations of the Stations, including, without limitation, the
right to decide whether to accept or reject any programming or advertisements,
the right to preempt any programs not in the public interest or in order to
broadcast a program deemed by Licensee to be of greater national, regional or
local interest, and the right to take any other actions necessary for
compliance with federal, state and local laws, the Commmunications Act and the
Rules, regulations and policies of the FCC (including the prohibition against
unauthorized transfers of control) and the rules, regulations and polices of
other federal government entities, including the Federal Trade Commission and
the U. S. Department of Justice. Licensee shall at all times be solely
responsible for meeting all of the Commission's requirements with respect to
public service programming, for ascertaining the problems, issues, needs and
interests of the Stations' communities of license and their surrounding area,
maintaining the political and public inspection files and the Stations' logs,
and for the preparation of the Stations' quarterly issues/programs lists.
Licensee shall also retain the right to break into Broker's programming in case
of an emergency. Broker shall, upon request by Licensee, provide Licensee with
information with respect to such of Broker's programs that are responsive to
the problems, needs and issues facing the residents of the Stations' service
area, so as to assist Licensee in the preparation of required programming
reports and will provide upon request such other information necessary to
enable Licensee to prepare other records and reports required by the FCC or
other local, state or federal government entities.
11. STATION IDENTIFICATION. Licensee will be responsible for ensuring
the proper broadcast of FCC-required station identification announcements;
however, Broker shall cooperate with Licensee to ensure that all required
station identification announcements are broadcast with respect to the Stations
in full compliance with FCC rules and policies.
12. SPECIAL EVENTS. Licensee reserves the right, in its discretion, to
preempt any of the broadcasts of Broker's programs for broadcast of special
programs of public importance. In all such cases, Licensee will use its best
efforts to give Broker reasonable notice of its intention to preempt Broker's
programs.
13. POLITICAL ADVERTISING. Broker shall cooperate with Licensee to
ensure compliance with the political broadcasting requirements of the
Communications Act and the FCC's rules and policies thereunder. Broker shall
supply such information promptly to Licensee as may be necessary to comply with
the lowest unit charge requirements of Section 315 of the Communications Act or
with any statute that may be enacted relating to the provision of air time to
political candidates. To the extent that Licensee believes necessary, in
Licensee's sole discretion, Broker shall release advertising availabilities to
Licensee to permit it to comply with the reasonable access provisions of
Section 312(a)(7) of the Communications Act, or any successor statute, and the
equal opportunities provisions of Section 315 of the Communications Act, or any
successor statute, and the rules and policies of the FCC thereunder; provided,
however, that all revenues realized by Licensee as a result of such a release
of advertising time shall promptly be remitted to Broker. In any event, with
respect to the Stations, Licensee must oversee and take ultimate responsibility
with respect to the provision of equal opportunities, lowest unit charge, and
reasonable access to political candidates, and compliance with the political
broadcast rules and policies of the FCC.
14. LICENSEE'S RESPONSIBILITY FOR COMPLIANCE WITH FCC TECHNICAL RULES.
Licensee shall retain, on a full time or part time basis, a qualified Chief
Engineer who shall be responsible for maintaining the transmission facilities
of the Stations. Licensee shall retain a Chief Operator, as that term is
defined by the rules and regulations of the FCC (who may also hold the position
of Chief Engineer), who shall be responsible for ensuring compliance by the
Stations with the technical operating and reporting requirements established by
the FCC.
15. FORCE MAJEURE. Any failure or impairment of facilities or any delay
or interruption in the broadcast of programs, or failure at any time to furnish
facilities, in whole or in part, for broadcast, due to causes beyond the
control of Licensee, shall not constitute a breach of this Agreement and
Licensee will not be liable to Broker; provided, however, that, if the Stations
are off the air or operating at less than ninety percent (90%) of their
authorized power for either two consecutive days or forty-eight (48) hours
(whether or not consecutive) during any consecutive thirty (30) day period,
Broker shall be entitled to an offset in the Monthly Payment as set forth in
Exhibit B, hereto.
16. RIGHT TO USE THE PROGRAMS. The right to use the programs to be
furnished hereunder by Broker and to authorize their use in any manner and in
any media whatsoever shall be, and remain, vested in Broker, subject, however,
to the rights of others (including, without limitation, copyright rights,
trademark and service mark rights and other intellectual property rights) in
and to the programs. By entering into this Agreement, Licensee does not
license Broker to use, in any manner, any programs produced or aired by
Licensee.
17. PAYOLA. Broker agrees that neither it nor any of its employees will
accept any consideration, compensation or gift or gratuity or any kind
whatsoever, regardless of its value or form, including, but not limited to, a
commission, discount, bonus, material, supplies or other merchandise, services
or labor (collectively, "Consideration"), whether or not pursuant to written
contracts or agreements between Broker and merchants or advertisers, in
consideration for the broadcast of any matter on the Stations unless the pay is
identified, in the broadcast for which Consideration was provided, as having
paid for or furnished such Consideration, in accordance with Sections 507 and
317 of the Communications Act and FCC rules and polices. Broker agrees to
execute, and to have each of its employees involved in the section of broadcast
matter on the Stations execute, at least once every six (6) months, payola
Affidavits in the form annexed as an attachment to Exhibit C hereto, and Broker
agrees to deliver the originals of all such Affidavits to Licensee as
expeditiously as possible following their execution.
18. COMPLIANCE WITH LAW. Broker agrees that, throughout the Term of this
Agreement, Broker will comply with all laws, rules, regulations and policies
applicable to the conduct of Licensee's business, and Broker acknowledges that
Licensee has not urged, counseled or advised the use of any unfair business
practice.
19. COMPLIANCE BY BROKER WITH LICENSEE POLICY STATEMENT. Broker hereby
covenants, warrants and represents that it will, at all times during the Term
of this Agreement, comply in all material respects with the Licensee's
Statement of Stations' Policies concerning the Stations, which Statement of
Stations' Policies is annexed hereto as Exhibit A.
20. REPRESENTATIONS, WARRANTIES, COVENANTS AND INDEMNIFICATION WARRANTY.
20.1(a) AUTHORIZATIONS.
Except as specified in the Asset Purchase Agreement,
Licensee owns and holds all licenses and other permits and authorizations
necessary for the operation of the Station as presently conducted (including
licenses, permits and authorizations issued by the FCC) ("Operating
Authorizations"). There is not now pending or, to Licensee's knowledge
threatened any action by the Commission or other party to revoke, cancel,
suspend, refuse to renew or materially and adversely modify any of such
Operating Authorizations and, to Licensee's knowledge, except as reflected in
the Asset Purchase Agreement, no event has occurred which allows or, after
notice or lapse of time or both, would allow, the revocation or termination of
such Operating Authorizations or the imposition of any restrictions thereon of
such a nature that may limit in any material respect the operation of the
Station as presently conducted. Licensee has no knowledge that any such
Operating Authorizations will not be renewed in due course during the term of
this Agreement. To the best of its knowledge, Licensee is not in violation of
any material respect of any statute, ordinance, rule, regulation, policy, order
or decree of any federal, state, local or foreign government entity, court or
authority having jurisdiction over it or its operations or assets, which wold
have a material adverse effect on Licensee or its assets or on its ability to
perform this Agreement.
(b) FILINGS.
To the best of Licensee's knowledge, all reports and
applications required to be filed within the last two (2) years with the FCC
(including ownership reports and renewal applications) or any other
governmental entity, department or body in respect of the Station have been,
and in the future will be, filed by Licensee in a timely manner and are and
will be true and complete in all material respects. All such reports and
documents, to the extent required to be kept in the public inspection files of
Station, are and will be kept in such files.
(c) FACILITIES.
The Stations' operating equipment will be maintained and comply
in all material respects with the maximum facilities permitted by the Operating
Authorizations and will be maintained, in all material respects, in accordance
with good engineering standards necessary to deliver a high quality technical
signal to the are served by Station and, in all material respects, with all
applicable laws and regulations (including the requirements of the Act and the
rules, regulations, policies and procedures of the FCC promulgated thereunder).
All expenditures reasonably required to maintain the quality of Stations'
signals shall be made promptly and shall be deemed "Operating Expenses," except
as otherwise may be required by the Asset Purchase Agreement.
(d) RETENTION OF PROPERTY.
Licensee will not dispose of, transfer, assign or pledge any
asset, except with the prior written consent of Broker, if such actin would
affect materially and adversely Licensee's performance hereunder or the
business and operations of Broker permitted hereby.
(e) INSURANCE.
Licensee will maintain in full force and effect throughout the
term of this Agreement insurance with responsible and reputable insurance
companies or associations covering such risks (including fire, and other risks
insured against by extended coverage, public liability insurance, insurance for
claims against personal injury or death or property damage, and such other
insurance as may be required by law and as is customary and usual in the
broadcast industry) and in such amounts and on such terms as is conventionally
carried by broadcasters operating radio stations with facilities comparable to
those of the Station. Any insurance proceeds received by Licensee in respect
of damaged property will be used to repair or replace such property so that the
operation of Station conforms with this Agreement.
20.2 Broker shall indemnity and hold Licensee harmless against all
liability for libel, slander, unfair competition or trade practices,
infringement of trademarks, trade names or program titles, violation of rights
of privacy and infringement of copyrights and other proprietary rights
resulting from or caused by the actions or inactions of Broker, and from and
against any and all other claims, damages, and causes of action resulting from
the broadcast of programming furnished by Broker, or any liability resulting
from the broadcast of Broker's programming. Further, Broker warrants that the
broadcasting of its programs will not violate programming. Further, Broker
warrants that the broadcasting of its programs will not violate any applicable
laws or any rights of others, and Broker agrees to hold Licensee, the Stations
and its employees, harmless from any and all claims, damages, liabilities,
costs and expenses, including reasonable attorneys' fees, arising from the
broadcast of such programs. Broker's obligation to hold Licensee harmless
against the liabilities specified above shall survive any termination of this
Agreement until the expiration of all applicable statutes of limitation.
20.3 Licensee shall notify Broker in writing within sixty (60) days
of the occurrence of any event, or of its discovery of any facts, which in its
opinion entitle or may entitle it to indemnification under Paragraph 20.1;
provided, however, that failure to give such notice within such sixty (60) day
period shall not affect the liability of Broker under Paragraph 20.1 unless the
failure to give such notice within such time period materially adversely
affects Broker's ability to defend itself against the claim giving rise to
Licensee's claim. With respect to threatened or asserted claims of third
parties, Broker shall promptly defend such claim by counsel of Broker's own
choosing. Licensee shall reasonably cooperate in such defense.
20.4 If Broker, within a reasonable time after notice of a claim
hereunder, fails to defend such claim, Licensee shall be entitled to undertake
the defense, compromise or settlement of such claim subject to the right of
Broker to assume the defense of such claim at any time prior to the settlement,
compromise or final determination thereof. Anything in this Paragraph 20 to
the contrary notwithstanding: (i) if there is a reasonable probability that a
claim may adversely affect Licensee, Licensee shall have the right to defend,
compromise or settle such claim; (ii) if the facts giving rise to
indemnification hereunder shall involve a possible claim by Licensee against a
third party, Licensee shall have the right, at its own cost and expense, to
undertake the prosecution, compromise and settlement of such claim; (iii)
Broker will not, without Licensee's written consent, settle or compromise any
claim or consent to any entry of judgment which does not include as an
unconditional term thereof the giving by the claimant or the plaintiff to
Licensee of a release from all liability in respect to such claim; and (iv)
Broker shall not be liable for any settlement or compromise to which it did not
consent, which consent shall not be unreasonably withheld.
20.5 Licensee shall indemnify and hold Broker harmless against all
liability for libel, slander, unfair competition or trade practices,
infringement of trademarks, service marks, trade names or program titles,
violation of rights or privacy and infringement of copyrights and to the
proprietary rights resulting from or caused by the actions or inactions of
Licensee, and from and against any and all other claims, damages and causes of
action resulting from the broadcast on the Stations of the programming
furnished by Licensee. Licensee agrees to hold Broker and its employees
harmless from any and all claims, damages, liabilities, costs and expenses,
including reasonable attorneys' fees, accruing to Broker and arising from the
broadcast on the Stations of the programs to be aired by Licensee. Licensee's
obligation to hold Broker harmless against the liabilities specified above
shall survive any termination of this Agreement until the expiration of all
applicable statutes of limitation.
20.6 Broker shall notify Licensee in writing within sixty (60) days
of the occurrence of any event, or of its discovery of any facts, which in its
opinion entitle or may entitle it to indemnification under Paragraph 20.4;
provided, however, that failure to give such notice within such sixty (60) day
period shall not affect the liability or Licensee under Paragraph 20.4 unless
the failure to give such notice within such time period materially adversely
affects Licensee's ability to defend itself against the claim giving rise to
Broker's claim for indemnification or to cure the default giving rise to such
claim. With respect to threatened or asserted claims of third parties,
Licensee shall promptly defend such claim by counsel of the Licensee's own
choosing, Broker shall reasonably cooperate in such defense.
20.7 If Licensee, within a reasonable time after notice of a claim
hereunder, fails to defend such claim, Broker shall be entitled to undertake
the defense, compromise or settlement of such claim subject to the right of
Licensee to assume the defense of such claim at any time prior to the
settlement, compromise or final determination thereof. Anything in this
Paragraph 20 to the contrary notwithstanding (i) if there is a reasonable
probability that a claim may adversely affect Broker, Broker shall have the
right to defend, compromise or settle such claim; (ii) if the facts giving rise
to indemnification hereunder shall involve a possible claim by Broker against a
third party, Broker shall have the right, at its own cost and expense, to
undertake the prosecution, compromise and settlement of such claim; (iii)
Licensee shall not, without Broker's written consent, settle or compromise any
claim or consent to any entry of judgment which does not include as an
unconditional term thereof the giving by the claimant or the plaintiff to
Broker of a release from all liability in respect to such claim; and (iv)
Licensee shall not be liable for any settlement or compromise to which it did
not consent, which consent shall not be unreasonably withheld.
20.8 Broker and Licensee each shall maintain, in forms and amounts
customary in the radio broadcast industry, general liability insurance with
respect to all programming to be broadcast by Broker or Licensee, as the case
may be, over the Stations and shall add one another as an additional insured on
all such insurance policies.
21. EVENTS OF DEFAULT; CURE PERIODS AND REMEDIES. The following shall,
after the expiration of the applicable cure periods without the curing of the
acts or omissions set forth below, constitute Events of Default;
21.1 NON-PAYMENT.
Broker's failure to fully and timely pay the consideration
provided for in Paragraph 2 above; or
21.2 DEFAULT IN COVENANTS OR ADVERSE LEGAL ACTION.
The default by either party hereto in the material observance or
performance of any material covenant, condition or agreement contained herein,
or if Broker (i) shall make a general assignment for the benefit of creditors,
(ii) files or has filed against it a petition for bankruptcy, reorganization or
an arrangement for the benefit of creditors, or for the appointment of a
receiver, trustee or similar creditors' representative for the property or
assets of such party under any federal or state insolvency law, which, if filed
against such party, has not been dismissed or discharged within sixty (60) days
thereof; or
21.3 BREACH OF REPRESENTATION.
If any material representation or warranty herein made by either
party hereto, or in any certificate or document furnished by either party to
the other pursuant to the provisions hereof, shall prove to have been false or
misleading in any material respect as of the time made or furnished.
21.4 CURE PERIODS.
An Event of Default (except where such Event Of Default arises
from Broker's failure to fully and timely make payments provided for in
Paragraph 2 hereof) shall not be deemed to have occurred until thirty (30)
business days after the non-defaulting party has provided the defaulting party
with written notice specifying the event or events that if not cured would
constitute an Event of Default and specifying the action necessary to cure the
Default within such period. This period may be extended for a reasonable
period of time, if the defaulting party is acting in good faith to cure the
default and such delay is not materially adverse to the other party. Where an
Event of Default (other than Broker's failure to pay to Licensee the sum
specified in Paragraph 2 hereof) arises from Broker's failure to fully and
timely perform the other terms hereof. Such an Event of Default shall not be
deemed to have occurred until fifteen (15) days after the Licensee shall have
provided the Broker with written notice specifying the non-payment or lateness
in payment that if not cured would constitute an Event of Default. If the
default is not cured by Broker following notice by Licensee, this Agreement may
be terminated (except for the indemnification provisions of this Agreement
which shall survive any such termination), unless Licensee shall, in its sole
discretion, in writing, agree to continuation of this Agreement in force. If
Broker fails to make timely payment under Paragraph 2 hereof, Licensee may
terminate the Agreement at any time.
21.5 TERMINATION UPON DEFAULT.
Upon the occurrence of an Event of Default, which shall not have
been cured within the applicable cure period provided for hereinabove, the non-
defaulting party may terminate this Agreement provided that it is not also in
material default hereunder. If Broker has defaulted in the performance of its
obligations, Licensee shall be under no further obligation to make available to
Broker any further broadcast time or broadcast transmission facilities during
calendar months following the calendar month in which such Event of Default
shall have occurred.
22. TERMINATION OPTIONS. Broker may elect to terminate this Agreement at
any time during the Term hereof in the event that Licensee preempts or
substitutes other programming for that supplied by the Broker during two
percent (2%) or more of the total hours of Broker programming operation of the
Stations during any calendar month. In the event Broker elects to terminate
this Agreement pursuant to this provision, it shall give the Licensee notice of
such election at least thirty (30) days prior to the effective date of such
termination. Upon termination, all sums owing to the Licensee through the
effective date of such termination and all credits due the Broker pursuant to
the provisions of this Agreement shall be paid and neither party shall have any
further liability to the other except as may be provided by Paragraph 20 above.
Notwithstanding anything to the contrary above, any preemption by Licensee for
the purpose of (a) broadcasting programming to address a public emergency
situation or (b) providing political advertising time as required by statute or
by FCC rule or policy, shall be specifically excluded from the two percent (2%)
calculation. Licensee may terminate this Agreement for material violation of
the Agreement by Broker or if Broker ceases to perform its obligation under the
Asset Purchase Agreement.
23. TERMINATION UPON ORDER OF GOVERNMENTAL AUTHORITY. In the event that
a federal, state or local governmental authority (including, without
limitation, the FCC) orders, or takes or announces other action that requires
the termination of its Agreement and/or the curtailment, in any material
manner, of the relationship between the parties hereto or the provision of
programming by Broker hereunder, Broker, at its option, may: (a) seek
administrative or judicial relief from such order(s) (in which event Licensee
shall cooperate with Broker, provided that Broker shall be responsible for
legal fees and costs incurred in such proceedings); or (b) notify Licensee that
it will terminate this Agreement upon ten (10) days' prior written notice to
Licensee. In the event of termination of this Agreement by Broker pursuant to
clause (b) of the preceding sentence, and in the event that the effective date
of termination of this Agreement shall occur in the middle of a calendar month
(i.e., on any date other than the first day of the calendar month), the Broker
shall be entitled to a proration of the sums owed to or paid to Licensee
pursuant to Paragraph 2 hereof, provided that Broker is not in default under
this Agreement as of the effective date of such termination of this Agreement.
If the FCC designates the license renewal application of the Stations for a
hearing as a consequence of this Agreement or for any other reason, or
initiates any revocation or other proceeding with respect to the authorizations
issued to the Licensee for the operation of the Stations, and Licensee elects
to contest the action, then Licensee shall be responsible for its expenses
incurred as a consequence of the FCC proceedings; provided, however, that
Broker shall at its own expense cooperate and comply with any reasonable
request of Licensee to assemble and provide to the Commission information
relating to Broker's performance under this Agreement. In the event of
termination upon any government order(s), Licensee shall cooperate reasonably
with Broker to the extent permitted to enable Broker to fulfill advertising or
other programming contracts then outstanding, in which event Licensee shall
receive as compensation for the carriage of such programming that which
otherwise would have been paid to the Broker hereunder. In the event of
termination of this Agreement upon any governmental order(s), Broker shall be
entitled to pursue collection of its own accounts receivable accrued from any
advertiser which has contracted directly with Broker for the purchase of
advertising time on the Stations. In the event that any change in FCC rules or
policies calls into question the validity of any portion of this Agreement, the
parties hereunder shall consult with the FCC and its staff concerning such
matters and shall negotiate in good faith a modification to this Agreement
which would obviate any such FCC questions as to validity while preserving, to
the extent possible, the intent of the parties and the economic and other
benefits of this Agreement.
24. MUTUAL REPRESENTATIONS AND WARRANTIES. Both Licensee and Broker
represent that they are legally qualified, empowered and able to enter into
this Agreement, and that the execution, delivery and performance hereof shall
not constitute a breach or violation of any agreement, contract or other
obligation to which either party is subject or by which it is bound. Both
Licensee and Broker warrant, represent, covenant and certify that Licensee
maintains, and shall continue to maintain, ultimate control over the Stations'
facilities during the Term of this Agreement, including, without limitation,
control over the Stations' finances, personnel and programming. Each party
hereto represents and warrants that it has taken all necessary corporate or
other necessary action to make this Agreement legally binding on such party,
and that the individual signing this Agreement on behalf of such party has been
fully authorized and empowered to execute this Agreement on behalf of such
party. Broker and Licensee each represents to the other that, with the
exception of R. Dean Meiszer of Crisler Capital Company in connection with the
Purchase Agreement, it has not engaged a broker in connection with this
Agreement and agrees to indemnity the other and hold the other harmless against
any claim from any broker or finder based upon any agreement, arrangement, or
understanding alleged to have been made by Broker or by Licensee, as the case
may be.
25. CERTIFICATION. Pursuant to Section 73.3555(a)(2)(ii) of the FCC's
rules, Licensee certifies that it will maintain ultimate control over the
Stations' facilities, including control over the Stations' finances, personnel
and programming, and Broker certifies that the arrangement contemplated by this
Agreement complies with the provision of Sections 73.3555(a)(1) and
73.3555(e)(1) of the FCC's rules.
26. LIABILITIES UPON TERMINATION.
26.1 Broker shall be responsible for all debts and obligations of
Broker to third parties based upon the purchase of air time and use of
Licensee's transmission facilities including, without limitation, accounts
payable, barter agreements and unaired advertisements, but not for Licensee's
federal, state and local income and business franchise tax liabilities or taxes
levied upon Licensee's real estate or personal property. Any and all tax
obligations with respect to the Licensee's employees are the responsibility of
the Licensee and any and all tax obligations with respect to the employees of
Broker are the responsibility of Broker.
26.2 If Broker terminates this Agreement pursuant to the terms
hereof, Broker shall have no further obligations or liabilities to Licensee
under this Agreement, except for the indemnification obligations set forth in
Paragraph 20.1 above and the obligations set forth in Paragraph 26.1 above.
27. NOTICES. Any notice, demand, or request required or permitted to be
given under the provisions of the Agreement shall be in writing and shall be
deemed to have been duly delivered on the date of personal delivery or on the
date of receipt if mailed by registered or certified mail, postage prepaid and
return receipt requested, and shall be deemed to have been received on the date
of personal deliver or on the date set forth on the return receipt, to the
following addresses or to such other address as party may request, in the case
of Broker, by notifying Licensee and in the case of Licensee by notifying
Broker:
To Broker:
John Power, President
Alta California Broadcasting, Inc.
c/o Redwood MicroCap Fund, Inc.
Building A, Suite 5-I
7518 Elbow Bend Road
Carefree, Arizona 85377
with copy (which shall not constitute notice) to
Gregg P. Skall, Esquire
Pepper & Corazzini
1776 K Street, N.W.
Washington, D.C. 20006
To Licensee:
Mr. and Mrs. Hugh McClung
G.E. Radio Company
271 Fourteenth Avenue
San Francisco, California 94118
with copy (which shall not constitute notice) to
Michael H. Bader, Esquire
Haley, Bader & Potts
Suite 900
4350 North Fairfax Drive
Arlington, Virginia 22203-1633
and
Leland H. Faust, Esquire
Taylor & Faust, A Professional Corporation
Suite 2525, Telesis Tower
One Montgomery Street
San Francisco, CA 94104
28. MODIFICATION AND WAIVER. No modification of any provision of this
Agreement shall in any event be effective unless the same shall be in writing
and then such modification shall be effective only in the specific instance and
for the purpose for which given.
29. CONSTRUCTION. This Agreement shall be construed in accordance with
the laws of the State of California except for the choice of law rules utilized
in that state, and the obligations of the parties hereto are subject to all
federal, state and local laws and regulations now or hereafter in force and to
the rules, regulations and policies of the Commission and all other
governmental entities or authorities presently or hereafter to be constituted.
Nothing in this Agreement shall be construed or interpreted to make Licensee
and Broker partners or joint venturers, or to make one an agent or
representative of the other, or to afford any rights to any third party other
than as expressly provided herein. Neither Broker nor Licensee is authorized
to bind the other to any contract, agreement or understanding. Broker and
Licensee acknowledge that call letters, trademarks and other intellectual
property shall at all times remain the property of the respective parties, and
that neither party shall obtain any ownership interest in the other party's
intellectual property by virtue of this Agreement.
30. HEADINGS. The headings contained in this Agreement are included for
convenience only and no such heading shall in any way alter the meaning of any
provision.
31. ASSIGNMENT. This Agreement may not be assigned by either party
hereto without the express written approval of the other party hereto, except
that Licensee may take appropriate action to implement the provisions of law
incident to the Estate of Ruth (Mickey) McClung, relative to Stations.
32. COUNTERPART SIGNATURE. This Agreement may be signed in one or more
counterparts, each of which shall be deemed a duplicate original, binding on
the parties hereto notwithstanding that the parties are not signatory to the
original or the same counterpart. This Agreement shall be effective as of the
date first above written.
33. ENTIRE AGREEMENT. This Agreement supersedes any prior agreements
between the parties and contains all of the terms agreed upon with respect to
the subject matter hereof.
34. NO PARTNERSHIP OR JOINT VENTURE CREATED. Nothing in this Agreement
shall be construed to make Licensee and Broker partners or joint venturers or
to afford any rights to any third party other than as expressly provided
herein.
35. SEVERABILITY. Subject to the provisions of Paragraph 23, above, in
the event any provision contained in this Agreement is held to be invalid,
illegal or unenforceable, such holding shall not affect any other provision
hereof and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had not been contained herein.
36. LEGAL EFFECT. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto, their heirs, executors, personal
representatives, successors and assigns.
37. GUARANTEE. Broker shall cause its parent corporation to guarantee
its performance hereunder and shall provide a written undertaking of such
guarantee in Exhibit C hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the date above written.
G.E. RADIO COMPANY
By ---------------------------------------------
Hugh McClung, President
By ---------------------------------------------
Barbara McClung, Secretary
ALTA CALIFORNIA BROADCASTING, INC.
By ---------------------------------------------
John Power, President
By ---------------------------------------------
, Secretary
<PAGE>
EXHIBIT 10.5
------------
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated this day of April, 1996, is between Quality
Broadcasters of California, L.P. a California limited partnership, ("Seller"),
and Alta California Broadcasting, Inc., a corporation ("Buyer").
BACKGROUND
Seller holds certain licenses, permits and authorizations issued by the
Federal Communications Commission (the "Commission") for the operation of Radio
Station KNNN ("K9") licensed to Central Valley, California, and related
translator facilities and translator station applications (hereinafter, the
"Station"). Buyer and Seller have agreed that Seller shall transfer and Buyer
shall acquire the Station and the broadcasting business associated therewith,
including substantially all of the assets owned or held by Seller and used or
intended for use in the conduct of the business and operations of the Station,
on the terms and subject to the conditions specified herein.
NOW, THEREFORE, in consideration of the mutual representations, warranties
and covenants contained herein, the parties, intending to be legally bound, and
subject to the prior approval of the Commission, mutually agree as follows:
SECTION 1
CONVEYANCE OF ASSETS
1.1 Included Assets. Subject to Section 1.2 (Excluded Assets) below, on
the Closing Date (hereinafter defined), Seller shall sell, assign, transfer,
convey, set over, and deliver to Buyer, and Buyer shall purchase and/or accept
assignment of, all the assets, tangible and intangible, real, personal or
mixed, used and/or useful in the operation of the Station, including without
limitation all land, buildings, towers, antennas, transmitters, equipment and
furniture (including the business of the Station as a going concern), which are
owned or held by Seller and used or intended for use in the conduct of the
business and operations of the Station, including all such property acquired by
Seller between the date hereof and the Closing Date, consisting of the
following (hereinafter collectively the "Assets"), free and clear of all debts,
claims, liens, and encumbrances of any kind or nature whatsoever, except as to
any obligation or liability that Buyer expressly agrees herein to accept.
(a) Authorizations. All licenses, permits authorizations, waivers
and temporary authorizations, issued or granted by the Commission for the
operation of the Station, together with any additional or modified
authorizations pertaining to the Station, including authorizations issued
between the date hereof and the Closing Date, and any applications to the
Commission pertaining to the Station submitted prior to the Closing Date
(collectively, the "Commission Authorizations"), and all of Seller's rights in
and to the call letters, together with all other licenses, permits and
authorizations issued to Seller by any governmental authority which are used or
intended for use in the conduct of the business and operations of the Station,
including but not limited to the authorizations listed on Schedule A.
(b) Tangible Personal Property. The fixed assets and tangible
personal property, including but not limited to all towers, antennas,
transmitters, equipment, office furniture and fixtures, office materials and
supplies, tools, inventory, spare parts, music libraries and other tangible
personal property owned or held by Seller and used or intended for use in the
conduct of the business and operations of the Station, listed on Schedule B,
together with such replacements, additions and alterations thereto made between
the date hereof and the Closing Date (collectively the "Tangible Personal
Property").
(c) Real Property. The leasehold interests in real property
described on Schedule C, along with Seller's interest in the buildings,
structures and improvements located thereon, and any rights or appurtenances
thereto, together with any additions thereto between the date hereof and the
Closing Date (collectively the "Real Property").
(d) Agreements. Subject to Sections 1.3 and 1.4 hereof, those
business contracts, leases, including the leases for the studio and transmitter
sites, agreements, commitments, options, rights and interests, written or oral,
of Seller or to which Seller is a party, relating to the conduct of the
business and operations of the Station (collectively the "Agreements") which
are listed and contained in Schedule D.
(e) Intangibles. All right, title and interest of Seller in and to
all trademarks, tradenames, service marks, copyrights, jingles, licenses,
permits and privileges owned or held by Seller and used or intended for use in
the conduct of the business and operations of the Station, and to the call
letters, including but not limited to the intangible property listed on
Schedule E and intangible property acquired by Seller and used in the operation
of the Station between the date hereof and the Closing Date (collectively the
"Intangibles").
(f) Business Records. All files, records and logs relating to the
conduct of the business and operations of the Station as Buyer may reasonably
request, including but not limited to public file copies of all filings with
the Commission, executed copies of all Agreements and all research reports or
marketing studies (collectively the "Business Records").
1.2 Excluded Assets. It is expressly understood and agreed that the
Assets shall not include the following:
(a) Prepaid expenses, contract deposits (except to the extent Buyer
will be liable for obligations secured by such deposits), cash and liquid
investments, such as certificates of deposit, Treasury bills and other
marketable securities:
(b) Any federal, state or local income tax refunds and/or claims for
such refunds, any income tax benefits available as a result of operations for
periods prior to the Closing and any loss carryovers and income tax
prepayments;
(c) Seller's minute books, charter documents and other similar
organizational documents; and
(d) Seller's accounts receivable.
1.3 Assumption of Obligations. On the Closing Date and subject to
Section 1.4 below, Buyer shall assume and undertake to pay, satisfy or
discharge the liabilities, obligations and commitments of Seller under the
Agreements which first accrue and are to be performed or satisfied after the
Closing Date, to the extent that such obligations arise out of Buyer's conduct
of the business of the Station and/or ownership of the Assets after the Closing
Date. Except as expressly provided in this Agreement, Buyer shall not assume
or be deemed to assume any other liabilities or obligations of Seller, whether
known or unknown, including but not limited to obligations of Seller to its
employees.
1.4 Limitation. Notwithstanding the first clause in Section 1.3 above,
Buyer shall not be required or deemed to assume (a) any agreement for which
written consent to assignment is required but has not been obtained by the
Closing Date, or (b) any Material Agreement not listed on Schedule D.
"Material Agreements" includes all agreements except (a) agreements for the
sale of advertising time entered into in the ordinary course of business for
cash in accordance with established rates and with not more than thirteen (13)
weeks remaining in their present term; (b) agreements terminable by Seller
without payment of premium or penalty upon no more than thirty (30) days notice
and that do not require aggregate monthly monetary payments in excess of
$1,000; and (c) agreements that impose no material non-monetary obligation.
SECTION 2
CONSIDERATION
2.1 Assets. The purchase price for the Assets shall be Eight Hundred
Twenty-Five Thousand Dollars ($825,000) (the "Purchase Price").
2.2 Manner of Payment. The Purchase Price shall paid as follows:
(a) The sum of $325,000-00 on the Closing Date by or cashier's check
bank wire transfer of immediately available funds in accordance with Seller's
instructions.
(b) The sum of $500,000.00, plus interest at the rate of 8.5% per
annum, with monthly payments of principal and interest in the amount of
$6,199.28, with the remaining unpaid balance of principal and interest due and
payable 5 years from the Closing Date, pursuant to the terms of a promissory
note (the "Note") in the form as set forth in Schedule F of this Agreement.
2.3 Escrow. Buyer has deposited with the Exline Company, as Escrow
Agent, the sum of $40,000.00 as a Purchase Escrow which sum shall be held and
disbursed by the Escrow Agent pursuant to the terms of an Escrow Agreement
attached hereto and made a part hereof as Schedule G.
2.4 Security for Note. As security for the Note, Buyer shall deliver:
(a) A Security Agreement in the form as set forth in Schedule H to
this Agreement evidencing a senior security interest in the Assets, and UCC-1
Form(s) perfecting the security interest of Seller in the Assets acceptable for
filing with the Office of the California Secretary of State and the County
Recorder of Shasta County.
(b) A Pledge Agreement in the form as set forth in Schedule I to
this Agreement evidencing the pledge of all of the issued and outstanding
capital stock of Buyer to secure the payments due Seller under the Note.
(c) The Personal Guaranties of John Power [and all of the
shareholders of Buyer] in the form set forth in schedule J to this Agreement
guarantying the payments due Seller under the Note.
(The Security Agreement, Pledge Agreement and Personal Guaranties described in
this Section 2.4 are hereinafter collectively referred to as the "Security
Documents".)
2.5 Non-Competition. As additional consideration, Seller and principals
of Seller shall enter into the Non-Competition agreement substantially in the
form of Schedule K in which Seller agrees not to compete or have any interest
in a radio station licensed to any community in Shasta County after the Closing
for a three (3) year period. The agreement shall provide for termination of
obligations upon the sale of the Station by Buyer prior to the end of the three
(3) year period.
SECTION 3
CLOSING
3.1 Time and Place. Subject to the satisfaction of the conditions to
closing, the closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Keck, Mahin & Cate at 10:00 A.M.,
on the earlier of (i) a date determined by mutual agreement of Buyer and
Seller, or (ii) ten (10) business days after the date on which the approvals of
the Commission required for the consummation of the transactions contemplated
hereby shall have become a Final Order, (the "Closing Date"). "Final Order"
means a published order or other published action by the Commission granting
its consent to the assignment of all licenses, permits and authorizations
issued or granted by the Commission for the operation of the Station to Buyer
without any conditions adverse to Seller or Buyer, and as to which order or
other action the time for filing a request for agency reconsideration or
judicial review or for the Commission's review of staff action or other appeal,
protest, request for stay, or petition for rehearing, reconsideration, or
review shall have expired without any such filing having been made or, if made,
such request or other action shall have been denied, dismissed or withdrawn and
the time for instituting any further proceedings shall have expired. The
foregoing notwithstanding, in the event Buyer waives the requirement that the
FCC's consent shall have become a Final Order, then the Closing shall take
place after FCC consent has been granted, on a date specified by Buyer on not
less than 10 days written notice to Seller and only in the event Buyer and
Seller enter into an agreement (the "Unwind Agreement") regarding the handling
of the proceeds and the Station during the period before the FCC's consent
becomes a Final Order.
3.2 Seller's Closing Deliveries. At the Closing, Seller shall deliver to
Buyer, in form and substance satisfactory to Buyer's counsel, the following
(collectively "Seller's Closing Documents"):
(a) Instruments of Conveyance. Deeds, bills of sale, endorsements,
assignments and other instruments of conveyance and transfer sufficient in form
and substance to convey the Assets to Buyer, including but not limited to the
following:
(i) Assignments of Seller's interest in all leasehold
interests in the Real Property (together with estoppel certificates in form and
substance satisfactory to Buyer);
(ii) Bills of sale for the Tangible Personal Property;
(iii) Assignments of the Commission Authorizations and any
other government authorizations;
(iv) Assignments of all Agreements;
(v) Assignments of the Intangibles;
(vi) The consents described in Section 10.1(f) hereof; and
(vii) Such other instruments or documents as Buyer may
reasonably request in connection with the transfer of the Assets.
(b) Opinion of Seller's Counsel. An opinion of Keck, Mahin & Cate,
counsel to Seller, in form and substance similar to the following:
(1) Seller is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of California.
(2) Seller has full power and authority to own and operate the
Station and to enter into and perform the Agreement and the transactions
contemplated thereby.
(3) The execution, delivery and performance of the Agreement by
Seller have been duly authorized by all necessary action of the partners of
Seller, including approval of the transaction by the requisite vote of Seller's
general and limited partners. The Agreement and Seller's Closing Documents
have been duly executed and delivered by Seller, and constitute valid and
binding obligations of Seller, enforceable in accordance with their terms,
except as they may be rendered unenforceable in the future by applicable
bankruptcy or other similar laws and the exercise of judicial discretion in
accordance with general equitable principles.
(4) The execution, delivery and performance of the Agreement
and the consummation of the transactions contemplated thereby, (a) will not
violate any provisions of Seller's limited partnership agreement, (b) will not
result in the breach of, constitute a default under, or result in the
imposition of any lien or encumbrance on any of the Assets pursuant to, any
contract or agreement known to counsel (after reasonable inquiry) and to which
Seller is a party or by which it is bound, and (c) to the best of their
knowledge, will not violate any laws, regulations, orders or judgments
applicable to Seller. Other than the Communications Act of 1934 and the rules
and regulations promulgated thereunder, no consent, approval or authorization
of, or any filing with, any governmental authority is required for the
execution, delivery and performance of this Agreement by Seller.
(5) To the best of their knowledge, (a) there is no litigation,
proceeding or investigation of any nature pending or threatened against Seller
(b) no judgment, award, order or decree has been rendered against Seller which
could affect, or which seeks to enjoin, prohibit or otherwise challenge, the
transactions contemplated by this Agreement or which would have an adverse
effect on Seller's ability to perform under this Agreement.
(c) Records. The Business Records or copies thereof.
(d) Certificates. Certificates of Seller, executed by its Managing
Partner certifying as to the matters set forth in Sections 10.1(c) and 10.1(d)
hereof.
3.3 Buyer's Closing Deliveries. At the Closing, Buyer shall deliver to
Seller, in form and substance satisfactory to Seller's counsel, the following
("Buyer's Closing Documents"):
(a) Cash. The cash portion of the Purchase Price.
(b) Note and Security Documents. The Note and the Security
Documents which have been duly executed.
(b) Opinion of Buyer's Counsel. An opinion of _________________,
counsel to Buyer, to the effect that:
(1) Buyer is a corporation duly organized, validly existing and
in good standing under the laws of the State of ________________________, and
is duly qualified as a foreign corporation and is in good standing under the
laws of the State of California.
(2) Buyer has full corporate power and authority to own and
operate the Station and to enter into and perform the Agreement and the
transactions contemplated thereby.
(3) The execution, delivery and performance of the Agreement by
Buyer have been duly authorized by all necessary corporate action, including
approval by the requisite vote of Buyer's board of directors. The Agreement
and Buyer's Closing Documents have been duly executed and delivered by Buyer
and constitute valid and binding obligations of Buyer, enforceable in
accordance with their terms, except as they may be rendered unenforceable in
the future by applicable bankruptcy or other similar laws and the exercise of
judicial discretion in accordance with general equitable principles.
(4) The execution, delivery and performance of the Agreement,
the consummation of the transactions contemplated thereby and the compliance
with the provisions thereof by Buyer (a) will not violate any provisions of
Buyer's corporate charter or bylaws, (b) will not result in the breach of, or
constitute a default under, any contract or agreement known to counsel (after
reasonable inquiry) and to which Buyer is a party or by which it is bound and
(c) to the best of their knowledge, will not violate any laws, regulations,
orders or judgments applicable to Buyer" Subject to the Communications Act of
1934 and the rules and regulations promulgated thereunder, no consent, approval
or authorization of, or any filing with, any governmental authority is required
for the execution, delivery and performance of the Agreement by Buyer.
(5) To the best of their knowledge, (a) there is no litigation,
proceeding or investigation of any nature pending or threatened against Buyer
(b) no judgment, award, order or decree has been rendered against Buyer which
could affect, or which seeks to enjoin, prohibit or otherwise challenge, the
transactions contemplated by this Agreement or which would have an adverse
effect on Buyer's ability to perform under this Agreement.
(c) Certificate. A certificate of Buyer executed by Buyer's Chief
Executive Officer or President certifying as to the matters set forth in
Sections 10.2(b) and 10.2(c).
SECTION 4
ADJUSTMENTS AND PRORATIONS
4.1 Proration of Income and Expenses. All income and expenses arising
from the conduct of the business and operations of the Station shall be
prorated between Buyer and Seller in accordance with generally accepted
accounting principles as of 11:59 p.m. on the day immediately preceding the
Closing Date. Such prorations shall include, without limitation, all ad
valorem, real estate and other property taxes (but excluding taxes arising by
reason of the transfer of the Assets, which shall be paid by Seller), business
and license fees, wages and salaries (and accruals for vacation and sick pay
only) of those employees Buyer is offering employment (but not including
accruals for bonuses, commissions and severance pay for any employee or
accruals for bonuses, commissions, vacation pay, sick pay, and severance pay
for any employee not hired by Buyer on Closing date, all of which obligations,
if any, shall remain the responsibility of Seller), utility expenses, time
sales agreements, trade and barter agreements (to the extent provided in
Section 4.2 below), license fees, and all other income and expenses
attributable to the ownership and operation of the Station. Prorations under
this Section 4.1 shall, insofar as feasible, be determined and paid on the
Closing Date, with Buyer and Seller to use best efforts to achieve final
settlement within thirty (30) days after the Closing Date.
4.2 Trade and Barter Agreements. Seller will use reasonable efforts to
cause its advertisers to use the broadcast time available under all existing
arrangements for the exchange of advertising time for consideration other than
money ("Trade-out Agreement") prior to Closing. Providing that Seller uses its
reasonable efforts to cause the trade to be used, the obligation to run
advertising not used prior to the Closing shall be assumed by Buyer and the
difference between the value of the spots to be run after Closing (valued at
the rate card in effect at the date of Closing) and the reasonable fair market
value of goods or serviceS still to be delivered after Closing by the
advertiser with respect to said Trade-out Agreements shall be deducted from the
price paid to Seller at Closing but only if and to the extent that Buyer shall
be obligated to broadcast advertising time valued at more than $10,000 over the
value of goods or services to be delivered to Buyer under the Trade-out
Agreements.
SECTION 5
APPLICATION TO AND CONSENT BY COMMISSION
5.l Commission Consent. Consummation of the purchase and sale provided
for herein and the performance of the obligations of Seller and Buyer under
this Agreement are subject to the condition that the Commission shall have
given its consent in writing to the assignment of the Commission Authorizations
to Buyer and such consent shall have become a Final Order.
5.2 Application for Commission Consent.
(a) Each party agrees to file with the Commission its respective
portion of an assignment application with respect to the Station (the
"Assignment Application") within ten (10) business days after the date hereof
and said application shall be substantially complete, in proper form and
substance. Seller and Buyer agree to prosecute the Assignment. Application
with diligence and to use their best efforts and to cooperate with each other
in seeking the Commission's approval of the transactions contemplated
hereunder. Each party further agrees to prepare expeditiously Assignment
Application amendments whenever such amendments are required by the Commission
or its rules or requested by the Commission's staff.
(b) Except as otherwise provided herein, each party will be solely
responsible for the expenses incurred by it in the preparation, filing and
prosecution of its respective portion of the Assignment Application. All
filing fees and grant fees imposed by the Commission shall be paid l/2 each by
Seller and Buyer Prior to Closing, Seller shall be responsible for the annual
regulatory fees.
SECTION 6
ACCOUNTS RECEIVABLE
At the Closing, Seller shall assign to Buyer, for purposes of collection
only, all accounts receivable arising out of the conduct of the business and
operations of the Station prior to the Closing Date. Seller shall deliver to
Buyer within ten (10) days after the Closing Date a complete and detailed
statement of such accounts receivable for the Station, showing the name, amount
and age of each such account receivable, and Buyer shall cause its employees to
cooperate with Seller in the preparation of such statement Buyer shall
undertake to bill such account debtors for any amounts unbilled by Seller by
reason of the occurrence of the Closing Date prior to the date on which Seller
normally and customarily would bill such account debtors. Buyer shall make
reasonable efforts on Seller's behalf to collect the accounts receivable
assigned hereunder for a period of one hundred twenty (120) days after the
Closing Date. On or before the tenth (10th) day following the end of such one
hundred twenty (120) day period, Buyer shall furnish Seller with a list of, and
pay over to Seller, the amounts collected during the one hundred twenty (120)
day period with respect to such accounts receivable. Any payment received by
Buyer during the one hundred twenty (120) day period from any customer owing
any such account receivable shall first be applied ln reduction of such
account, unless such customer disputes his obligation therefor, in which case
Buyer shall promptly return all records relating to such disputed account to
Seller and shall have no further obligation with respect to the collection
thereof. On or before the tenth (10th) day following the expiration of such
one hundred twenty (120)day period, Buyer shall (i) furnish to Seller an
accounting of, and remit to Seller, the amounts collected under such accounts
receivable, and (ii) furnish Seller with a list of, and shall reassign to
Seller, without recourse to Buyer, all of Seller's accounts receivable which
then remain uncollected and thereafter Buyer shall have no further obligation
under this Section 6. Buyer shall not be obligated to refer any of the
accounts receivable assigned to it for collection hereunder to a collection
agency or to an attorney for collection, and Buyer shall not make any such
referral or compromise, nor settle or adjust the amount of any such account
receivable, except with the approval of Seller. It is expressly understood and
agreed that Seller shall be free to take any action it may deem appropriate
with respect to any account receivable reassigned to it, whether before or
after the expiration of the one hundred twenty (120) day period, but that
Seller shall not take any action with respect to collecting any account
receivable during the 120 day period unless that account has been reassigned to
Seller.
SECTION 7
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
7.1 Organization and Standing. Seller is a limited partnership duly
organized, validly existing and in good standing under the laws of the State of
California. Seller has full legal power and authority to own the Assets and to
carry on the business of the Station as it is presently conducted.
7.2 Authority. Seller has the legal power and authority to execute,
deliver and perform this Agreement and the transactions or documents
contemplated hereby. The execution, delivery and performance of this Agreement
and Seller's Closing Documents have been duly authorized by Seller's general
and limited partners.
7.3 Binding Effect of Agreement. This Agreement has been duly executed
and delivered by Seller and constitutes a valid and binding obligation of
Seller, enforceable against it in accordance with its terms. Upon execution,
the Seller's Closing DocumentS will constitute valid and binding obligations of
Seller, enforceable against Seller in accordance with their terms, except as
they may be rendered unenforceable in the future by applicable bankruptcy or
other similar laws and the exercise of judicial discretion in accordance with
general equitable principles.
7.4 Conflicts. Except as described in Schedule N, the execution,
delivery and performance by Seller of this Agreement do not violate any
charter, bylaw, or contract provision or other commitment to which Seller is a
party or under which it or its property are bound, or any law, judgment, order,
injunction, decree, rule, regulation or ruling of any governmental authority,
and will not result in the creation or imposition of any lien, charge, security
interest, or encumbrance of any nature whatsoever upon any of the Assets.
Seller will obtain all consents and discharges necessary to perform its
obligations hereunder on or prior to the Closing Date.
7.5 Financial Representations.
The Financial Statements have been prepared on an accrual basis in
accordance with accounting principles applied on a basis consistent with all
prior periods. The Financial Statements present fairly the financial
condition, assets, liabilities and results of the operations of the Station as
of their dates and for the periods indicated. "Financial Statements" shall
mean (i) an unaudited balance sheet of Seller as of 12\31\95, and (ii) an
unaudited income statement of Seller for the twelve months ended 12\31\95.
There have been no material changes to Seller's business or operation since the
date of preparation of the most recent Financial Statement which would render
the Financial StatementS misleading in any material respect.
7.6 Real Property. Schedule C contains descriptions of all real property
currently owned or leased by Seller, and used or intended for use in the
conduct of the business and operations of the Station. Seller has delivered to
Buyer true and complete copies of all leases listed in Schedule C (including
any and all amendments and other modifications of such leases), which leases
are valid, binding and enforceable in accordance with their terms, except as
they may be rendered unenforceable in the future by applicable bankruptcy or
other similar laws and the exercise of judicial discretion in accordance with
general equitable principles. Except with respect to those leases designated
in Schedule C as requiring the consent of a third party, Seller has full legal
power and authority to assign its rights under all of the leases listed in
Schedule C. All property listed in Schedule C (including the improvements
thereon) is in good condition and repair and available for immediate use in the
conduct of the business and operations of the Station. None of Seller's
property fails to comply in any material respect with any applicable building
or zoning code or regulation of any governmental authority having jurisdiction.
The property, whether owned or leased by Seller, described in Schedule C
includes all such property necessary to conduct the business and operations of
the Station as now conducted. To the best of Seller's knowledge, except as
disclosed on Schedule C, there is no condemnation pending or threatened against
any of the properties leased by Seller nor any pending or threatened
interruption in the provisions of utilities to any of the properties leased by
Seller.
7.7 Tangible Personal Property. Seller is the owner of and has
marketable title to all of the Tangible Personal Property listed in Schedule B,
free and clear of all liens, charges, encumbrances, restrictions, debts,
demands, or claims of any kind or nature whatsoever, except liens pursuant to
the agreements listed in Schedule D, which shall be discharged on the Closing
Date by application of the proceeds of the sale of the Assets. Schedule B
contains descriptions of all Tangible Personal Property and assets owned or
held by Seller and used or useful in the conduct of the business and operations
of the Station. The transmitting and studio equipment of the Station are in
good operating condition and repair (ordinary wear and tear excepted), have
been installed and maintained in accordance with good engineering practice, and
permit the Stations to operate in accordance with the Commission Authorizations
and the rules and regulations of the Commission. All other Tangible Personal
Property used in the operation of the Station is likewise in good operating
condition and repair (ordinary wear and tear excepted). The use of all
Tangible Personal Property is in compliance in all material respects with all
applicable statutes, ordinances, rules and regulations, federal, state and
local The Tangible Personal Property listed in Schedule B includes all such
property now used to conduct the business and operations of the Station, and is
sufficient to permit the operation of Station within the rules and regulations
of the Federal Communications Commission
7.8 Agreements. Schedule D accurately lists all Material Agreements.
Except as indicated in Schedule D, there is no material default by or claim of
material default against Seller or by Seller against any other party to the
Agreements listed in Schedule D, or any notice of termination existing or given
by Seller or, to Seller's knowledge, by any other party with respect to any
such Agreement or any renewal, extension or replacement thereof. All of the
Agreements are legal and binding on Seller and, to the best knowledge of
Seller, binding on the other parties thereto in all material respects. True
and correct copies of the Agreements listed in Schedule D are contained in
Schedule D.
7.9 Authorizations.
(a) Status. Seller is the holder of all licenses, permits and
authorizations necessary to operate the business of the Station as they now are
being conducted and necessary for the lawful operation of the Station,
including, without limitation, all Commission Authorizations. Seller is in
compliance with all such licenses, permits and authorizations, all of which are
in full force and effect. The Station are not operating pursuant to any
waiverS, special reporting conditions, special temporary authority, permission
to remain off the air, or any other similar permissions to operate in any
manner inconsistent with the commission Authorizations attached hereto. There
is no action pending or, to Seller's knowledge, threatened, before the
Commission or other body to revoke, refuse to renew, suspend or modify any of
the Commission Authorizations, or any action which may result in the denial of
any pending applications, the issuance of any cease and desist orders, or the
imposition of any administrative sanctions whatsoever with respect to the
Station or its operation, nor is Seller aware of any circumstances which, to
its knowledge, could result in an action to revoke, refuse to renew, suspend or
modify any of the Commission Authorizations, deny any pending applications, or
to issue of a cease and desist order, or impose any administrative sanctions
whatsoever with respect to the Station or its operation. All of the Licenses
have been renewed for the full term without conditions materially adverse to
Seller or the operations of the Business. Seller has no knowledge of any
reason why the Commission Authorizations would not be renewed or of any persons
who intend to oppose renewal of the Commission Authorizations.
(b) Reports. All material reports, applications and other documents
required to be filed by Seller with the Commission or any other administrative
body (and in the Public File) with respect to the Station or its operations
have been timely and properly filed and all such reports, applications and
documents are true and correct in all material respects.
7.10 Litigation; Compliance with Law. Seller is in compliance in all
material respects with all applicable federal, state and local laws, ordinances
and regulations, including compliance with the Communications Act of 1934, as
amended, and all rules and regulations issued thereunder. Other than
proceedings of general applicability to the broadcasting industry and except as
provided in Schedule M, there is no complaint, claim, litigation,
investigation, or judicial, administrative, or other proceeding of any nature,
including, without limitation, a grievance, arbitration, or insolvency or
bankruptcy proceeding, pending, or to the best knowledge of Seller, threatened
against Seller which could reasonably be expected to have a material adverse
effect on the Station. Except as provided in Section 5, no consent, approval
or authorization of, or any filing with, any governmental authority is required
for the execution, delivery and performance of this Agreement by Seller.
7.11 Insurance. Seller holds valid policies of insurance covering the
Assets and the Station' business for all risks and contingencies, and in such
amounts, as it considers normal and customary for its operations. Copies of
such policies have been delivered to Buyer. Seller is in compliance with the
requirements of its insurance policies in all material respects.
7.12 Employees and Labor Relations.
(a) Roster. A complete and accurate payroll roster for the Station
that sets forth names, job titles, annual or hourly rate of pay and commission
or bonus arrangements (as appropriate) for each employee or other person
rendering services to the Station has been provided to Buyer.
(b) Collective Bargaining Agreements. Seller is not a party to any
collective bargaining agreement or employment agreement covering or relating to
any of Station' employees, and has not recognized or received, and is not aware
of, a demand for recognition by any labor union or other collective bargaining
unit representing or claiming to represent any of the employees of the Station.
Seller is not aware of any circumstances which, to its knowledge, could result
in a claim of employment discrimination or an unfair labor practice.
(c) Employee Benefit Plans. Seller is not a party to any pension,
profit-sharing or bonus agreement or any other employee benefit plan or
compensation arrangement except as disclosed to Buyer in writing.
7.13 Payment of Taxes. Except for taxes not yet due and payable, all
returns and reports concerning income taxes, franchise taxes, unemployment
insurance, withholding and payroll taxes, sales taxes, personal property taxes,
license taxes, social security taxes, and all other reports required to have
been filed by the Seller relating to the Station have been duly filed, and all
taxes, interest, and penalties which are due to any taxing authority have been
duly paid or will be paid by the Closing Date.
7.14 Environmental. To the best of Seller's knowledge, no hazardous or
toxic materials (as hereinafter defined) exist in any structure located on, or
exist on or under the surface of, any of the real property to be conveyed to or
the leases assigned to Buyer pursuant to this Agreement. For purposes of this
Agreement, "hazardous or toxic material" shall mean waste, substances,
materials, smoke, gas, pollutants, contaminants, pollutants, asbestos or
asbestos related products, PCB's, petroleum, crude oil (or any fraction or
distillate thereof) or particulate matter designated as hazardous, toxic or
dangerous, or requiring special handling, treatment or storage whether or not
designated hazardous, toxic or dangerous under any environmental laws. For
purposes of this Agreement "environmental law" shall be interpreted to mean the
Comprehensive Environmental Response Compensation and Liability Act, any
successor to such law, and/or any other applicable federal, state, or local
environmental, health or safety law, rule or regulation concerning the
treating, producing, handling, storing, releasing, spilling, leaking, pumping,
pouring, emitting, or dumping of any waste, substance, materials, smoke, gas or
particulate matter or imposing liability or standards in connection therewith.
7.15 Intangibles. Schedule D is a true and complete list of all
copyrights, trademarks, trade names, licenses, patents, permits, jingles,
privileges and other similar intangible property rights and interests
(exclusive of those required to be listed in other Schedules) applied for,
issued to or owned by Seller or under which Seller is licensed or franchised
and used or useful in the conduct of the business and operations of the
station, all of which are, to the best of Seller's knowledge and except as
otherwise noted on Schedule D, valid and in good standing and uncontested.
Seller has received no notice and has no knowledge of any infringements or
unlawful use of such property.
7.16 Bankruptcy. No voluntary or involuntary petition in bankruptcy,
receivership, insolvency, or reorganization with respect to Seller, or petition
to appoint a receiver or trustee of Seller's property, has been filed by or
against Seller. Seller has not made any assignment for the benefit of its
creditors, and it is neither insolvent nor unable to pay its debts as they
become due and has not permitted any judgment, execution, attachment or levy
against it or against any of its properties to remain outstanding or
unsatisfied for more than thirty (30) days.
7.17 Disclosure. Neither this Agreement nor any other document,
certificate or schedule delivered pursuant hereto by or on behalf of Seller
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary in order to make the statements
contained herein and therein not misleading.
SECTION 8
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
8.1 Organization and Standing. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of
__________________. Buyer has full corporate power and authority to own the
Assets and to carry on the business of the Station as it is presently conducted
and at Closing will be qualified and in good standing in the State of
California.
8.2 Authority. Buyer has the corporate power and authority to execute,
deliver and perform this Agreement and the transactions or documents
contemplated hereby. The execution, delivery and performance of this Agreement
and Buyer's Closing Documents have been duly authorized by Buyer's board of
directors and shareholders.
8.3 Conflicts. The execution, delivery and performance by Buyer of this
Agreement do not violate any contract provision or other commitment to which
Buyer is a party or under which Buyer or its property is bound, or any law,
judgment, order, injunction, decree, rule, regulation or ruling of any
governmental authority.
8.4 Binding Effect of Agreement. This Agreement has been duly executed
and delivered by Buyer and constitutes a valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms Upon execution, the
Buyer's Closing Documents will constitute valid and binding obligations of
Buyer, enforceable against Buyer in accordance with their terms.
8.5 Litigation; Compliance with Law. There is no complaint, claim,
litigation, investigation, or judicial, administrative, or other proceeding of
any nature, including, without limitation, a grievance, arbitration, or
insolvency or bankruptcy proceeding, pending, or to Buyer's knowledge,
threatened against Buyer, which could have a material adverse effect on Buyer's
ability to perform its obligations hereunder. Except as provided in Section 5,
no consent, approval or authorization of, or any filing with, any governmental
authority is required for Buyer's execution, delivery and performance of this
Agreement.
8.6 Disclosure. Neither this Agreement nor any other document,
certificate or schedule delivered pursuant hereto by or on behalf of Buyer
contains or will contain any untrue statements of a material fact or omits or
will omit to state a material fact necessary in order to make the statements
contained herein and therein not misleading.
8.7 Qualification. Buyer knows of no fact that would, under existing law
and the existing rules, regulations, policies and procedures of the Commission,
disqualify Buyer as an assignee of the Commission Authorizations or as the
owner and operator of the Station. Buyer shall not take any action which would
cause the Commission or any other governmental authority to institute
proceedings regarding Buyer's qualifications to become the licensee of the
Station or take any other action which would result in Buyer being in
noncompliance in any material respect with the requirements of the
Communications Act of 1934, as amended, or any other applicable law, or the
rules and regulations of the Commission (or any other governmental authority
having jurisdiction).
SECTION 9
COVENANTS
9.1 Covenants of Seller. Seller covenants and agrees that between the
date hereof and the Closing Date, except as contemplated by this Agreement or
with the prior consent of Buyer, the business and operations of the Station
will be conducted in accordance with the following:
(a) Negative Covenants.
(i) Contracts. Seller will not enter into any contract or
commitment relating to the Station or the Assets except in the ordinary course
of business and consistent with the other provisions of this Agreements.
(ii) Disposition of Property. Seller will not sell, assign,
lease, encumber or otherwise transfer or dispose of any of the Assets except in
the ordinary course of business and shall replace any material property which
it transfers with an asset of comparable value and utility.
(iii) Employee Benefits. Seller will not increase the
compensation or other benefits or bonuses payable or to become payable to any
of the employees of the Station, and will not enter into any employment
agreements other than those terminable at will or terminable prior to Closing,
and Seller may perform the employment agreements listed on Schedule D.
(iv) Licenses. Seller will not cause or permit, by any act
or failure to act, the licenses, permits and other authorizations listed in
Schedule A to expire or to be surrendered or modified, or take any action which
would cause the Commission or any other governmental authority to institute
proceedings for the suspension, revocation or adverse modification of any of
said licenses, permits and authorizations, or fail to prosecute with due
diligence any pending applications to any governmental authority, or take any
other action within its control which would result in the Station being in
material noncompliance with the requirements of the Communications Act of 1934,
as amended, or any other applicable law, or the rules and regulations of the
Commission (or any other governmental authority having jurisdiction).
(b) Affirmative Covenants.
(i) Preservation of Business. Seller will conduct the
business and operations of the Station ln substantially the same manner as
heretofore in all matters concerning Station operation and in conformity with
all applicable laws, rules and regulations. It will exercise reasonable
commercial efforts to preserve the business and organization of the Station
intact, to keep available to the Station its present employees, to preserve for
the Station its respective present relationships with suppliers and customers
and others having business relations with it, and to maintain the Station's
goodwill and operating facilities. Seller will continue its promotional
activities at a level consistent with past practices.
(ii) Access to Information. From the date of this Agreement
to the Closing Date, upon reasonable notice, Seller will give to Buyer and its
respective counsel, accountants, engineers and other authorized representatives
reasonable access during normal business hours to the Assets and to the books
and records of the Station, and will furnish or cause to be furnished to Buyer
and its authorized representatives all information relating to the Assets as
they may reasonably request.
(iii) Maintenance of Assets. Seller will (a) maintain all of
the Assets or replacements thereof in their present condition, ordinary wear
and tear excepted: (b) maintain in effect music service agreements, program
contracts and rights, and advertising and promotion activities at levels
consistent with past operations of the Station; and (c) maintain supplies of
inventory and spare parts consistent with past practice.
(iv) Authorizations. Seller will conduct the business and
operations of the Station in accordance with applicable rules and regulations
of the Commission and the licenses, permits and other authorizations issued to
it by the Commission or by any other governmental authority.
(v) Insurance. Seller will maintain in force the existing
hazard and liability insurance policies, or comparable coverage, for the
Station and the Assets, and will use the proceeds of any such policies to
repair or restore any damaged Assets.
(vi) Contracts. Prior to the Closing Date, Seller shall
deliver to Buyer a list and complete copies of all Material Agreements entered
into between the date hereof and the Closing Date. Buyer shall have the right,
but not the obligation (unless Buyer shall have consented in writing to
Seller's execution of any such Material Agreement), to assume such Material
Agreements. Seller will perform its obligations under the Contracts and will
not fail to renew any Contract without prior notice to, and discussion with,
Buyer.
(vii) Consents and Approvals. Where the consent of any third
party is required under the terms of any of the Agreements to be assigned by it
hereunder, Seller will use its best efforts to obtain such consent.
(viii) Commission Notices. Seller shall provide Buyer with
copies of all filings it makes with the Commission and any notices from the
Commission relating to the Station or the Commission Authorizations.
(ix) Litigation. Seller shall give Buyer notice of any
litigation or proceedings against Seller that would have a material adverse
effect on Seller, the Assets or Seller's ability to perform its obligations
hereunder, together with copies of all pleadings relating thereto.
9.2 Joint Covenants. Buyer and Seller covenant and agree that they shall
act in accordance with the following:
(a) Conditions. The parties hereto will use their reasonable best
efforts to fulfill the conditions to their obligations hereunder and to cure
any event that may occur which would prevent the fulfillment of such
conditions.
(b) Confidentiality. The parties shall use their best efforts to
keep confidential all information obtained by them with respect to the other in
connection with this Agreement. None of the parties shall disclose, or make
any public statements regarding, the existence of this Agreement or any of the
terms and conditions hereof, without obtaining the prior consent of the others.
(c) Cooperation. The parties hereto shall cooperate fully with each
other in taking any actions, including actions to obtain the required consent
of any governmental instrumentality or any third party, necessary or helpful to
accomplish the transactions contemplated by this Agreement.
(d) Governmental Consents. If the consent of any governmental
instrumentality contains any condition, the party upon which such condition is
imposed shall use its best, diligent and good faith efforts to comply therewith
before the Closing Date; provided, however, that no party hereto shall be
required hereunder to comply with any condition where compliance would be
unduly burdensome or would have a material adverse effect upon it.
(e) Control of the Station. Notwithstanding any other provision of
this Agreement, prior to the Closing Date Buyer shall not directly or
indirectly control, supervise or direct the operations of the Station; such
operations, including complete control and supervision of all programs,
employees, and policies, shall be the sole responsibility of Seller.
(f) Further Assurances. Each party hereto covenants on and after
the Closing Date to execute such documents or instruments or take such other
steps as may be reasonably requested by any other party hereto to confirm,
perfect or document the transactions contemplated hereunder.
SECTION 10
CONDITIONS
10.1 Conditions Precedent to Obligations of Buyer. The obligations of the
Buyer under this Agreement are subject to the satisfaction of each of the
following express conditions precedent on the Closing Date;
(a) Final Order. Unless the requirement for finality is waived by
Buyer, the Final Order of the commission for the assignment of the Commission
Authorizations shall be in effect with no condition materially adverse to
Buyer.
(b) Closing Documents Seller shall have delivered to Buyer all of
Seller's Closing Documents.
(c) Representations and Warranties. Each of the representations and
warranties of Seller contained in this Agreement or in any schedule,
certificate, or document delivered pursuant to the provisions hereof shall be
true, correct and complete in all material respects at and as of the Closing
Date with the same force and effect as if made on and as of the Closing Date
(d) Performance. Seller shall have performed and complied with, in
all material respects, all covenants, agreements and obligations required by
this Agreement to be performed or complied with by it prior to the Closing
Date.
(e) Liens. Following application of the proceeds of the sale of the
Assets, there shall be no outstanding mortgages, liens, security agreements, or
other charges and encumbrances on the Assets.
(f) Consents. Seller shall have obtained all consents required for
the assignment of the Agreements to Buyer without any material change and
without any condition (i) adverse to Buyer "exclusive of conditions expressly
set forth in the Agreements), or (ii) requiring that defaults under such
Agreements arising prior to the Closing Date be cured. The form of the consent
for the assignment of the leases for the studio and transmitter sites shall be
reasonably acceptable to Buyer.
(g) Litigation. There shall be no pending litigation seeking to
prohibit or otherwise enjoin the transactions contemplated by this Agreement.
10.2 Conditions Precedent to Obligations of Seller. The performance of
the obligations of the Seller under this Agreement is subject to the
satisfaction of each of the following express conditions precedent on the
Closing Date:
(a) Final Order. Unless the requirement for finality is waived by
Buyer, the Final Order of the Commission for the assignment of the Commission
Authorizations shall be in effect.
(b) Representations and Warranties Each of Buyer's representations
and warranties contained in this Agreement or in any certificate or document
delivered pursuant to the provisions hereof shall be true, correct and complete
in all material respects at and as of Closing Date with the same force and
effect as if made on and as of the Closing Date.
(c) Performance. Buyer shall have performed and complied with, in
all material respects, all covenants, agreements and obligations required by
this Agreement to be performed or complied with by it prior to or on the
Closing Date.
(d) Closing Documents. Buyer shall have delivered to Seller all of
Buyer's Closing Documents.
(e) Litigation. There shall be no pending litigation seeking to
prohibit or otherwise enjoin the transactions contemplated by this Agreement.
SECTION 11
BROKERAGE
Buyer and Seller represent and warrant to each other that they know of no
broker, finder, or intermediary which has been involved in the transactions
provided for in this Agreement or which might be entitled to a fee or
commission upon the consummation of such transactions other than The Exline
Company, and Seller acknowledges that The Exline Company's fees are the sole
responsibility of Seller and shall be paid by Seller in accordance with the
agreement between them. Seller hereby agrees to indemnify, defend and hold
Buyer harmless from and against any claim of any such obligation or liability,
and any expense incurred in defending against any such claim, including
reasonable attorneys' fees, that shall have resulted from any contract,
agreement, or action by the Seller in connection with this Section 11.
SECTION 12
INDEMNIFICATION
12.1 Seller. Seller covenants and agrees to defend, indemnify, defend and
hold harmless Buyer from and against any and all loss, cost, liability, claim,
damage and expense (including legal and other expenses incident thereto)
arising out of (a) the breach of any representation or warranty of Seller set
forth in this Agreement (including the inaccuracy of any schedules hereto or
other written information provided to Buyer); (b) the breach of any of the
covenants or other agreements of Seller contained in or arising out of this
Agreement or the transactions contemplated hereby; (c) the operations of
Station prior to the Closing Date; and (d) any liabilities of Seller not
assumed by Buyer hereunder and as to which Buyer incurs liability.
12.2 Buyer. Buyer covenants and agrees to indemnify, defend and hold
harmless Seller from and against any and all losses, cost, liability, claim,
damage and expense (including legal and other expenses incident thereto)
arising out of (a) the breach of any representation or warranty of Buyer set
forth in this Agreement; (b) the breach of any of Buyer's covenants or other
agreements contained in or arising out of this Agreement or the transactions
contemplated hereby; (c) any liabilities assumed by Buyer herein; or (d) the
conduct of the business and operations of the Station following the Closing.
12.3 Notice of Claim. Buyer and Seller, upon discovery of the breach of
any of the representations, warranties or covenants of the other under this
Agreement, shall each give to the other prompt written notice of the discovery
of such breach. If any action, suit or proceeding shall be commenced, or any
claim or demand be asserted in respect of which a party proposes to seek
indemnification from the other under this Section 12, then such party
(hereinafter the "Claimant") shall notify the party or parties from whom
indemnification is sought (hereinafter the "Indemnifying Party") to that effect
in writing with reasonable promptness and in any event, if such claim arises
out of a claim by a person or entity other than the Claimant, then within ten
(10) days after notice of such claim was given to the Claimant; provided,
however, that the Claimant's failure to give such notice to the Indemnifying
Party shall not relieve the Indemnifying Party of its obligations hereunder
unless, and only to the extent that, it has a prejudicial effect on the
Indemnifying Party's ability to defend the claim.
12.4 Assumption and Defense of Third-Party Action. If any claim hereunder
arises out of a claim against the Claimant by a third party, the Indemnifying
Party shall have the right, at its own expense, to participate in or assume
control of the defense or settlement of such claim, and the Claimant shall
fully cooperate with the Indemnifying Party subject to reimbursement for actual
out-of-pocket expenses incurred as the result of a request by the Indemnifying
Party. If the Indemnifying party elects to assume control of the defense of
any third-party claim, the Claimant shall have the right to participate in the
defense of such claim at its own expense. If a claim requires immediate
action, the parties will make every effort to reach a decision with respect
thereto as expeditiously as possible. If the Indemnifying Party does not elect
to assume control or otherwise participate in the defense of any third-party
claim, it shall be bound by the results obtained by the Claimant with respect
to such claim
12.5 Limitation. No claim for indemnification may be brought under
Section 12 hereof unless such claim is first asserted in writing prior to the
first anniversary of the Closing Date; provided, however, that the foregoing
limitation shall not apply to claims by third parties with respect to
liabilities of Seller not assumed by Buyer.
SECTION 13
TERMINATION RIGHTS
13.1 General. This Agreement may be terminated by either Buyer or Seller,
if the terminating party is not then in material default, upon written notice
to the other upon the occurrence of any of the following:
(a) If the purchase of the Assets by Buyer pursuant to this
Agreement shall not have been closed on or before a date six (6) months from
the date of the acceptance by the FCC of the application for consent to the
assignment of the License;
(b) Subject to Section 14 hereof, if the non-terminating party
materially defaults in the observance or in the due and timely performance of
any of its covenants or agreements herein contained;
(c) Subject to Section 14 hereof, if on the closing Date any of the
conditions precedent to the obligations of the terminating party have not been
satisfied or waived by the terminating party; or
(d) If there shall be in effect on the Closing Date any judgment,
decree or order that would prevent or make unlawful the closing of this
Agreement, provided that no party shall be allowed to terminate pursuant to
this section if it is responsible for the judgment or decree that prevents
Closing.
13.2 Notwithstanding any other provision of this Section 13, any
termination pursuant to paragraphs (b) or (c) of Section 13.1 shall not be
effective unless and until (1) the terminating party shall have given to the
other party written notice of termination so as to afford the other party the
opportunity to cure, and (2) the non-terminating party shall have failed to
cure the default or the failure of the condition within thirty (30) days after
its receipt of the notice from the terminating party.
<PAGE>
SECTION 14
RISK OF LOSS
14.1 Generally. The risk of any loss or damage to the Assets by any
casualty or cause, reasonable wear and tear excepted, prior to Closing Date, is
assumed and shall be borne by the Seller at all times before Closing Date. If
any such loss or damage occurs, Seller shall give prompt written notice of the
loss or damage to Buyer. Buyer shall have the right in the event the loss or
damage exceeds $50,000 and the property will not be substantially repaired or
restored within sixty (60) days at Seller's expense, which right shall be
exercisable within ten (10) days after receipt of notice from Seller, to (i)
terminate this Agreement, or (ii) elect to consummate the Closing and accept
the property in its "then" condition, in which event Seller shall assign all
rights under any insurance claims covering the loss theretofore received by
Seller with respect thereto. If Seller seeks to restore any damaged property
and the restoration extends beyond the period within which the Commission has
approved the transfer of the Commission Authorizations to Buyer, the parties
agree to join in an application to the Commission to extend such period.
14.2 Broadcast Transmission of Station Prior to Closing. If, prior to the
Closing Date, the Station incurs any unusual operating problems which affects
its ability to provide uninterrupted broadcast service at substantially full
licensed power and antenna height, Seller shall provide Buyer, as soon as
practicable, with written notice of such problem and the measures being taken
to correct same. If any event occurs which prevents the broadcast transmission
of the Station with substantially full licensed power and antenna height as
described in the licenses in the manner in which it has heretofore been
operating, and (i) such facilities are not restored so that operations are
resumed within three (3) days of such event or so that operations are not
resumed with substantially full licensed power and antenna height within five
(5) days of such event, or (ii) in the case of more than one event the
aggregate number of days preceding such restoration from all such events
exceeds five (5) days, or (iii) if any one of the Station are off the air more
than four separate days for a period, in each case, exceeding three (3) hours,
then Seller shall be deemed to be in breach of this Agreement and Buyer may
terminate this Agreement forthwith without any further obligation hereunder
upon written notice to Seller.
SECTION 15
NOTICES
All notices, requests, demands, waivers, consents and other communications
required or permitted hereunder shall be in writing and be deemed to have been
duly given on the earlier of receipt of such communications or three (3) days
after deposit in the United States Mail, registered or certified, postage
prepaid, addressed to the party to be notified as follows:
If to Seller:
With a copy to:
If to Buyer:
With a copy to:
Any party may change its address for notice purposes by providing a notice
in accordance with this Section.
SECTION 16
LIQUIDATED DAMAGES
In the event that the conditions to Buyer's obligations set forth in
Section 10.1 have been satisfied or waived and the parties do not consummate
the transactions contemplated by this Agreement as a result of Buyer's breach
hereof, then upon termination of this Agreement under Section 13 hereof Buyer
shall pay Seller $40,000 as liquidated damages as its sole remedy for Buyer's
breach of this Agreement. The payment from Buyer to Seller shall be made by
the Escrow Agent from the sums deposited into the Purchase Escrow. The parties
hereto agree that liquidated damages payable to Seller under this section are
to be the sole and exclusive remedy of Seller hereunder and are to be paid as
complete, reasonable, and adequate liquidated damages and not as a penalty or
forfeiture and that the reason for the inclusion of such provisions in this
Agreement is that, at the time of the execution of this Agreement, the
determination of the actual damages to Seller resulting from any action
requiring the payment of such liquidated damages would be impracticable or
extremely difficult to ascertain. Seller waives any other remedy or claim for
damages it may have.
SECTION 17
MISCELLANEOUS
17.1 Headings. The headings of the Sections of this Agreement are for
convenience of reference only, and do not form a part thereof, and do not in
any way modify, interpret or construe the meaning of the sections themselves or
the intentions of the parties.
17.2 Entire Agreement. This Agreement, together with the Schedules hereto
which are incorporated herein by reference, and any other agreements entered
into contemporaneously herewith, set forth the entire agreement of the parties
and are intended to supersede all prior negotiations, understandings, and
agreements and cannot be altered, amended, changed or modified in any respect
or particular unless each such alteration, amendment, change or modification
shall have been agreed to by each of the parties hereto and reduced to writing
in its entirety and signed and delivered by each party.
17.3 No Waiver. No provision, condition or covenant of this Agreement
shall be waived by either party hereto except by a written instrument delivered
to the other party and signed by the party consenting to and to be charged with
such waiver.
17.4 Third Party Rights. Nothing in this Agreement, express or implied,
is intended to or shall confer on any person other than the parties hereto and
their respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
17.5 Other and Further Documents. The parties hereto agree to execute,
acknowledge and deliver, at or after the Closing Date, such other and further
instruments and documents as may be reasonably necessary to implement,
consummate and effectuate the terms of this Agreement, the effective vesting in
Buyer of title to the Assets and/or the successful processing by the Commission
of the application to be filed with it.
17.6 Counterparts. This Agreement may be executed in counterparts, all of
which together shall comprise one and the same instrument.
17.7 Good Faith. All parties hereto shall act in good faith in performing
and discharging their respective duties and obligations hereunder.
17.8 Time. Time shall be of the essence in this Agreement.
17.9 Governing Law. The parties agree that this Agreement will be
interpreted, construed, and enforced under and according to the laws of the
State of California.
17.10 Benefit and Assignment. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and assigns. Except as provided herein, neither of the parties
hereto may voluntarily or involuntarily assign their interest under this
Agreement prior to the Closing Date without the prior written consent of the
other party, provided that such consent shall hot be unreasonably withheld, and
further provided that Buyer may assign its rights and obligations hereunder to
a corporation or limited partnership with respect to which it is the primary
shareholder.
17.11 Attorneys' Fees. Each party shall pay its own attorneys' fees and
expenses which it initiates, creates, or incurs in connection with the
negotiation, preparation and execution of this Agreement.
17.12 Specific Performance. Seller acknowledges that the Assets and the
business of the Station constitute unique property, and that there is no
adequate remedy at law for the damage which Buyer might sustain for the failure
of Seller to consummate the transactions contemplated by this Agreement.
Accordingly, Buyer shall be entitled, at its option, to the remedy of specific
performance to enforce the sale of the Assets pursuant to this Agreement, or to
damages in the event of a breach hereof by Seller.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed and executed by their proper officers "hereunto duly authorized as of
the day and year first above written.
SELLER: BUYER:
QUALITY BROADCASTERS OF CALI- ALTA CALIFORNIA BROADCASTING,
FORNIA, L.P. INC.
By : /s/ By: /s/ John C. Power
------------------------ ------------------------------------
May 3, 1996
<PAGE>
SUPPLEMENT
The attached Purchase Agreement is signed by Alta California Broadcasting,
Inc. ("Alta") and Quality Broadcasts of Redding, L.P. ("Quality") subject to
the following conditions:
1. Alta may, at its election, assign its rights but not its obligations under
the Purchase Agreement either to Northern California Broadcasting, Inc., a
Colorado corporation which is a wholly owned subsidiary of Alta;
2. In the event of any such assignment, Alta will guaranty the full
performance of the subsidiary of all obligations under the Purchase Agreement,
including but not limited to full payment of the Promissory Note and full
performance or all security agreements and documents;
3. Any pledge of stock required under the Purchase Agreement will be a pledge
of all the stock of the entity or entities which acquire the license and the
assets being sold under the Purchase Agreement; and
4. All security agreements will be senior security agreements with no other
entity holding a security interest senior to or pari passu with the security
interest of Quality.
5. Replace the reference to John Power in 2.4(c) with a reference to Redwood
Broadcasting, Inc., a California corporation, the parent of Alta.
Alta Quality
By: /s/ John C. Power By: /s/
------------------------- ---------------------------------------
Date: May 3, 1996 Date: May 3, 1996
------------------------ --------------------------------------
Agreed: /s/ John C. Power
Redwood Broadcasting, Inc.
May 3, 1996
Date: John C. Power
-----------------------
<PAGE>
EXHIBIT 10.7
------------
CONSULTATION AGREEMENT
THIS AGREEMENT is made as of the 1st day of January, 1996, at Carefree,
Arizona, between REDWOOD BROADCASTING, INC., a Colorado corporation (the
"Company"), and REDWOOD MICROCAP FUND, INC., a Colorado corporation
("Consultant").
In consideration of the mutual covenants, agreements and provisions
contained in this Agreement, the parties agree as follows:
1. Consultation.
The Company hereby retains the services of Consultant, as an
independent contractor and not as an employee, which retention is accepted and
agreed to be performed by Consultant, subject to and upon the terms and
conditions hereinbelow set forth.
2. Term.
The term of this Agreement shall begin on the 1st day of January,
1996, and shall terminate upon the expiration of fifteen (15) months from the
date hereof, and thereafter, if extended or renewed, upon thirty (30) days'
written notice given by either party to the other. Upon the termination of
this Agreement, the retention and agency, and Consultant's independent
contractor status, shall end, unless a new, separate written agreement shall
have been executed by all parties.
3. Consultant's Status.
It is understood and agreed that Consultant shall be at all times and
for all purposes hereunder an independent contractor to the Company and under
no circumstances shall be deemed an employee, partner or joint venturer of or
with the Company. Consultant agrees that it shall not directly or indirectly
imply or represent to others, or permit another to imply or represent to others
that Consultant has any authority to act for, represent or bind the Company in
any matter by virtue of this Agreement. Consultant expressly agrees to
indemnify and hold harmless the Company for any damages which may be sustained
by the Company as a result of or arising out of any breach of the covenants set
forth in this Section 3.0.
4. Services of Consultant.
4.1. Upon the request of the Company, Consultant shall perform
general management and administrative services for the Company as directed by
its executive officers.
4.2. In performing hereunder, Consultant may, but need not, use the
facilities or resources of the Company. Consultant shall be solely and
exclusively responsible for determining when, where, how and by whom the
services are to be performed hereunder, subject only to such matters as may be
specifically addressed in written communications from the Company.
4.3. Consultant agrees to exercise the highest degree of care, skill
and diligence in the performance of its services hereunder and shall perform
all services in a good and workmanlike fashion.
5. Compensation.
5.1. For all services to be rendered by Consultant pursuant to
Section 4 above, Consultant shall be paid as compensation the sum of $2,500.00
per month throughout the term of this Agreement and any extension thereof.
Consultant shall be entitled to reimbursement for any reasonable costs or
expenses incurred in connection with performing the services hereunder,
provided that any such costs or expenses were previously authorized in writing
by the Company and are appropriately substantiated in writing by invoice or
other documentation.
5.2. Consultant shall keep accurate records showing the quantity and
date of time devoted to the services provided for herein and a description
thereof. The Company shall make payment to the Consultant subject to the terms
and conditions hereinbelow set forth on or before the fifth day of each month
for services rendered during the preceding month.
6. Performance and Other Engagements.
Throughout the term of this Agreement, it is understood that
Consultant will only provide services to the Company on a part-time basis and,
subject to the provisions concerning competition hereinbelow set forth, may
perform the same or similar services for other persons or entities not
inconsistent with its undertakings hereunder.
7. Work Product.
7.1. All trade secrets, know-how, confidential information,
copyrightable material, inventions, discoveries, and improvements, whether
patentable or unpatentable, made, devised, or discovered by Consultant pursuant
to or as a result of services rendered for the Company, relating or pertaining
in any way to the business of the Company, shall be promptly disclosed in
writing to an officer of the Company and are to redound to the benefit of the
Company and become and remain its sole and exclusive property. Consultant
agrees to execute and cause its employees to execute any assignments to the
Company or its nominee of this entire right, title and interest in and/or right
to exploit any such trade secrets, copyrightable material, inventions,
discoveries, and improvements, and to execute and cause its employees to
execute any other instruments and documents requisite or desirable in applying
for and obtaining patents and/or copyrights, at the cost of the Company, with
respect thereto in the United States and in all foreign countries, that may be
requested by the Company. Without in any way limiting the generality of the
foregoing, Consultant agrees that all copyrightable and/or patentable materials
generated or developed by it or its employees for the Company, including, but
not limited to, source codes and/or computer programs and documentation
pertaining thereto, shall be considered the property and copyrights of the
Company, and the Company shall have the right to register and hold in its own
name all copyrights and/or patents issuable from such materials. Consultant
further agrees, whether or not engaged by the Company, to cooperate to the
extent and in the manner requested by the Company in the prosecution or defense
of any patent/copyright claims or any litigation or other proceeding involving
any inventions, trade secrets, processes, discoveries, or improvements covered
by this Agreement, but all expense thereof shall be paid by the Company.
8. Confidentiality.
8.1. Consultant for itself and its employees covenants with the Company
that all information concerning its computer software programs, including their
source code, object code, database, visual screen display, structure, sequence,
organization, look and feel, as well as the methods, processes, and formulas
embodied therein, and the Company's research, markets, plans, strategies,
distributors, dealers, customers, clients and end users collectively are and
constitute the trade secrets and confidential proprietary information of the
Company. Consultant covenants and agrees for itself and its Consultants that
it will not (except as required in the course of its services for the Company),
during the term of this Agreement or thereafter, communicate or divulge to, or
use for the benefit of itself or any other person, firm, association, or
corporation, without the consent of the Company, any trade secrets or
confidential and proprietary information of the Company or other confidential
matters possessed, owned, or used by the Company that may be communicated to,
acquired by, or learned of by it or its employees in the course of or as a
result of its services for the Company. All records, disks, tapes, stored
information on any medium, files, memoranda, reports, price lists, customer
lists, drawings, plans, sketches, documents, equipment, and the like, relating
to the business of the Company, which Consultant or its employees shall use or
prepare or come into contact with, shall remain the sole property of the
Company.
9. Affiliates of Consultant.
Consultant agrees that the Covenants set forth in Sections 7, 8, 9,
10 and 11 of this Agreement are applicable to and binding upon any and all of
Consultant's officers, directors, shareholders, agents, and employees
(hereafter "Affiliates"). Consultant agrees that it will not permit any
Affiliate to perform services hereunder nor permit the disclosure of any the
Company trade secret, proprietary or confidential information to any Affiliate
until and unless such Affiliate agrees in writing to be bound by the terms and
conditions of Sections 7, 8, 9, 10 and 11 of this Agreement.
10. Attorneys' Fees.
In the event there is any litigation or arbitration between the
parties concerning this Agreement, the successful party shall be awarded
reasonable attorneys' fees and litigation or arbitration costs, including the
attorneys' fees and costs incurred in the collection of any judgment.
11. Notices.
All notices required or permitted hereunder shall be sufficient if
delivered personally or mailed to the parties at the address set forth below or
at such other address as either party may designate in writing from time to
time. Any notice by mailing shall be effective 48 hours after it has been
deposited in the United States certified mail, return receipt requested, duly
addressed and with postage prepaid.
12. Partial Invalidity.
If any provisions of this Agreement are in violation of any statute
or rule of law of any state or district in which it may be sought to be
enforced, then such provisions shall be deemed null and void only to the extent
that they may be in violation thereof, but without invalidating the remaining
provisions.
13. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
respective parties hereto, their heirs, personal representatives, successors
and assigns.
14. Waiver.
No waiver of any breach of any one of the agreements, terms,
conditions or covenants of this Agreement by the Company shall be deemed to
imply or constitute a waiver of any other agreement, term, condition or
covenants of this Agreement. The failure of either party to insist on strict
performance of any agreement, term, condition or covenant, herein set forth,
shall not constitute or become construed as a waiver of the rights of either or
the other thereafter to enforce any other default of such agreement, term,
condition or covenant; neither shall such failure to insist upon strict
performance be deemed sufficient grounds to enable either party hereto to
forego or subvert or otherwise disregard any other agreement, term, condition
or covenants of this Agreement.
15. Governing Law.
This Agreement and the rights and duties of the parties shall be
construed enforced in accordance with the laws of the State of Colorado.
16. Fax/Counterparts.
This Agreement may be executed by telex, telecopy or other facsimile
transmission, and may be executed in counterparts, each of which shall be
deemed an original, but all of which shall together constitute one agreement.
17. Entire Agreement.
This Agreement constitutes the entire agreement of the parties hereto
with respect to the subject matter hereof. There are no representations,
warranties, conditions or obligations except as herein specifically provided.
Any amendment or modification hereof must be in writing.
IN WITNESS WHEREOF, the parties to this Agreement have duly executed
effective on the day and year first above written.
REDWOOD BROADCASTING, INC., a Colorado
corporation
Attest:
- -------------------------------- By: ----------------------------------
Secretary
REDWOOD MICROCAP FUND, INC., a Colorado
corporation
Attest:
- ------------------------------- By: -----------------------------------
Secretary
EXHIBIT 23.1
January 28, 1997
Redwood Broadcasting, Inc. Redwood Microcap Fund, Inc.
7518 Elbow Bend Rd., Bldg. A, Ste. I 7518 Elbow Bend Rd., Bldg. A, Ste. I
P.O. Box 3458 P.O. Box 3458
Carefree, Arizona 85377 Carefree, Arizona 85377
Re: Pre-Effective Amendment No. 3 to S.E.C. Registration Statement on
Form SB-2
Ladies and Gentlemen:
We hereby consent to the inclusion of our opinion regarding the legality
of the securities being registered by the Form SB-2 Registration Statement to
be filed with the United States Securities and Exchange Commission, Washington,
D.C., pursuant to the Securities Act of 1933, as amended, by Redwood
Broadcasting, Inc., a Colorado corporation (the "Company"), in connection with
the offering by the Company and certain Selling Shareholders described therein
of up to 1,200,437 shares of its Common Stock and up to 203,008 Common Stock
Put Options, and the offering by Redwood MicroCap Fund, Inc. of 203,008 Put
Option Guarantees as proposed and more fully described in such Registration
Statement.
We further consent to the reference in such Registration Statement to our
having given such opinions.
Sincerely,
Clifford L. Neuman
CLN:at
EXHIBIT 23.2
-------------
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated June 6, 1996 accompanying the financial
statements of Redwood Broadcasting, Inc. and Consolidated subsidiaries. We
have also issued our report dated December 4, 1995 accompanying the financial
statements of KHSL-AM/FM. In addition we have issued our report dated June 1,
1996 accompanying the financial statements of Quality Broadcasters of
California, L.P. We consent to the use of the aforementioned reports in
registration statement and prospectus of Redwood Broadcasting, Inc. and to the
reference of our firm as experts in the filing and prospectus.
SCHUMACHER & ASSOCIATES, INC.
12835 East Arapahoe Road
Tower II, Suite #110
Englewood, Colorado 80112
January 28, 1997
EXHIBIT 23.3
------------
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement No.
33-80321 of Redwood Broadcasting, Inc. and Redwood MicroCap Fund, Inc. of our
report dated May 24, 1996, related to the March 31, 1996 financial statements
of Redwood MicroCap Fund, Inc., appearing in the Prospectus, which is part of
this Registration Statement, and to the reference to us under the heading
"Experts" in such Prospectus.
STOCKMAN KAST RYAN & SCRUGGS, P.C.
Colorado Springs, Colorado
January 28, 1997
