U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended June 30, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 33-80321
REDWOOD BROADCASTING, INC.
(Name of Small Business Issuer in Its Charter)
Colorado 84-1295270
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation) Identification No.)
7518 Elbow Bend Road
P.O. Box 3463
Carefree, AZ 85377
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (602) 488-2596
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.004 PAR VALUE
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ].
The number of shares of the registrant's .004 par value Common Stock
outstanding as of June 30, 1997 was 997,054.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet as of
June 30, 1997 ........................................ 3
Consolidated Statements of Income for the
Three months ended June 30, 1997 and 1996 ............ 4
Consolidated Statements of Cash Flows for the
Three months ended June 30, 1997 and 1996 ............ 5
Notes to the Consolidated Financial Statements ....... 6
Item 2. Management's Discussion and Analysis or
Plan of Operation .................................... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .................................... 9
Item 2. Changes in Securities ................................ 9
Item 3. Defaults Under Senior Securities ..................... 9
Item 4. Submission of Matters to a Vote of Security Holders .. 9
Item 5. Other Matters ........................................ 9
Item 6. Exhibits and Reports on Form 8-K ..................... 9
Signatures ........................................... 9
<PAGE>
REDWOOD BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30,
1997
(unaudited)
ASSETS
CURRENT ASSETS
Cash $ 19,611
Accounts receivable, net 192,066
Receivable from related parties 65,820
Receivable from sale of radio station 633,000
Other current assets 15,359
---------
Total current assets 925,856
PROPERTY AND EQUIPMENT, net 231,529
INTANGIBLE ASSETS, net 976,367
NOTE RECEIVABLE FROM SALE OF RADIO STATION 200,000
OTHER ASSETS 223,001
---------
TOTAL $2,556,753
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 344,855
Payables to related parties 202,032
Current portion of notes payable 48,335
Current portion of notes payable to related parties 25,000
Capital lease obligation 8,175
---------
Total current liabilities 628,397
NOTES PAYABLE 605,208
NOTES PAYABLE TO RELATED PARTIES 710,479
---------
Total liabilities 1,944,084
---------
COMMITMENTS
REDEEMABLE COMMON STOCK 154,419
---------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.04; 2,500,000 shares authorized;
none issued and outstanding
Common stock, par value $.004; 12,500,000 shares authorized;
997,054 shares issued and outstanding 3,988
Additional paid-in capital 1,069,740
Accumulated deficit (520,478)
Note receivable from stockholder (45,000)
Common stock subscribed (50,000)
---------
Total stockholders' equity 458,250
---------
TOTAL $2,556,753
=========
See notes to consolidated financial statements.
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<PAGE>
REDWOOD BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Three Months
Ended Ended
June 30, 1997 June 30, 1996
(unaudited) (unaudited)
REVENUE
Broadcast revenue $ 373,317 $ --
Less agency commissions 33,399 --
--------- ---------
Net revenue 339,918 --
--------- ---------
OPERATING EXPENSE
General and administrative 120,026 13,722
Station operating expenses 191,302 60,416
Depreciation and amortization 28,460 24,102
--------- ---------
Total 339,788 98,240
--------- ---------
INCOME/(LOSS) FROM OPERATIONS 130 (98,240)
--------- ---------
OTHER INCOME (EXPENSE)
Interest expense (10,960) (1,200)
Other income (expense) 42,751 (28,009)
--------- ---------
Total other - net 31,791 (29,209)
--------- ---------
NET INCOME/(LOSS) 31,921 (127,449)
--------- ---------
NET INCOME (LOSS) PER COMMON SHARE $ 0.03 $ (.22)
========= =========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 934,523 590,000
========= =========
See notes to consolidated financial statements.
- 4 -
<PAGE>
REDWOOD BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Three Months
Ended Ended
June 30, June 30,
1997 1996
(unaudited) (unaudited)
OPERATING ACTIVITIES
Net Income/(loss) $ 31,921 $(127,449)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 28,460 24,102
Changes in operating assets and liabilities:
Accounts receivable (70,506) 70,010
Other current assets (2,452) (114,646)
Accounts payable and accrued expenses (43,810) (83,005)
Other assets (66,038) 17,264
Other liabilities -- (626)
-------- --------
Net cash provided by(used in) operating activities (122,425) (214,350)
-------- --------
INVESTING ACTIVITIES
Purchases of equipment (26,299) --
Sale of radio station assets -- 445,488
-------- --------
Net cash provided by (used in)
investing activities (26,299) 445,488
-------- --------
FINANCING ACTIVITIES
Proceeds from borrowings under
related party notes 45,030 --
Proceeds from borrowings under notes 25,000 --
Principal payments on notes to
related parties -- (243,336)
Principal payments on notes (39,550) --
Increase in net payable to related parties 50,883 --
Payments on capital lease obligations (3,819) --
Proceeds from issuance of common stock 50,000 30,000
-------- --------
Net cash provided by (used in)
financing activities 127,544 (213,336)
-------- --------
NET INCREASE (DECREASE) IN CASH (21,180) 17,802
CASH, Beginning of period 40,791 (23,188)
-------- --------
CASH, End of period $ 19,611 $ (5,386)
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 10,960 $ 1,200
See notes to consolidated financial statements.
- 5 -
<PAGE>
REDWOOD BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
The consolidated financial statements for the three months ended June 30, 1997
and 1996 are unaudited and reflect all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of the financial position and operating results for the
interim periods. The consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto,
together with management's discussion and analysis of financial condition and
results of operations, contained in the Company's annual report on Form 10-KSB
for the fiscal year ended March 31, 1997. Results of operations for interim
periods are not necessarily indicative of results which may be expected for the
year as a whole.
2. Acquistions
Effective April 1, 1997, the Company acquired an option to purchase radio
stations KNRO-AM and KARZ-FM (KNRO/KARZ) licensed in Redding, California from
Power Surge, Inc. (Power Surge). Power Surge received the licenses from Power
Curve, Inc. (Power Curve) on March 31, 1997. Power Surge and Power Curve are
both controlled by the Company's President. Power Curve acquired KNRO/KARZ on
January 31, 1997 for $480,000 in cash and a $720,000 promissory note. Under the
terms of the option agreement, the Company can either (1) purchase KNRO/KARZ for
$1,200,000 in cash or (2) issue 1,000,000 shares of its common stock in exchange
for all of the issued and outstanding shares of common stock of Power Surge. The
option terminates on September 30, 1997. Concurrently, the Company entered into
an LMA with Power Surge for a period of one year. Under the terms of the LMA,
the Company is operating KNRO/KARZ and is obligated to pay Power Surge a monthly
fee of $5,000.
3. Stockholder's Equity
In February 1997, the Company completed the filing of a Registration Statement
Form SB-2 under the Securities Act of 1933. The filing effectively registered
for sale all shares of common stock issued and outstanding at that time, 203,008
common stock put options which were subsequently issued to certain stockholders
and an additional 400,000 shares of the Company's common stock to be offered to
the public. The registration of the outstanding shares and the put options were
required pursuant to an Agreement and Plan of Reorganization dated June 16,
1995.
At March 31, 1997, the 203,008 common stock put options remained outstanding.
The put options granted the optionholders the right to sell to the Company their
shares of common stock at a price of $1.50 per share. The Company's potential
obligation under the put options of $304,512 was classified as redeemable common
stock in the Company's balance sheet at March 31, 1997. The put options expired
June 13, 1997; however, prior to such expiration, 102,946 options were
excercised by the optionholders and, accordingly, the Company will acquire all
of these shares of the Company's common stock for $154,419. The remaining put
options were forfeited. Therefore, the put option liability reflected in the
accompanying balance sheet (dated June 30, 1997) has been reduced from $304, 512
to $154,419 with the difference - $150,093 being credited to common stock and
additional paid in capital.
In May, 1997 the Company issued 25,000 shares of common stock pursuant to the
Company's public offering (400,000 shares total are registered for this purpose)
at $2.00 per share receiving proceeds of $50,000. In addition, during the
quarter ended June 30, 1997, the Company received a subscription agreement for
an additional 25,000 shares of common stock to be issued pursuant to the
Company's public offering at $2.00 per share, said shares to be issued upon
receipt of payment. Management anticipates receipt of the $50,000 during the
Company's second quarter ending September 30, 1997. This transaction is
currently reflected in the accompanying balance sheet as "common stock
subscribed."
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<PAGE>
4. Borrowings Under Lines of Credit
The Company had a $25,000 line of credit agreement with a bank which was to
expire April 1, 1998. Borrowings under the line of credit agreement would bear
interest of a rate of 7.9% and were collateralized by a certificate of deposit
from a related party. There were no borrowings under the line of credit
agreement as of or during the year ended March 31, 1997. However, the Company
borrowed 100% of the line during the three months ended June 30, 1997 for
working capital purposes. In addition, subsequent to the close of the quarter,
the Company was granted an increase in the line to $50,000 under the same terms
and conditions. This additional amount ($25,000) was also drawn on for equipment
purchases following the close of the quarter.
Item 2. Management's Discussion and Analysis or Plan of Operation
Overview
The following is a discussion of the consolidated financial condition and
results of operations of the Company as of and for the two fiscal periods ended
June 30, 1997 and 1996. This discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes related thereto
included in the Company's Form 10-KSB for the fiscal year ended March 31, 1997.
The forward-looking statements included in Management's Discussion and Analysis
of Financial Condition and Results of Operations, which reflect management's
best judgement based on factors currently known, involve risks and
uncertainties. Actual results could differ materially from those anticipated in
these forward-looking statements as a result of a number of factors, including
but not limited to those discussed herein.
Liquidity and Capital Resources - June 30, 1997 compared to March 31, 1997
The Company's balance sheet at June 30, 1997 reflects continued improvement in
financial condition when compared with the Company's balance sheet at March 31,
1997. Total assets increased from $2,446,823 as of March 31, 1997 to $2,556,753
as of June 30, 1997, representing an increase of $109,930; total liabilities
increased $28,009 to $1,944,084; commitments (redeemable common stock) decreased
$150,093 and total stockholder's equity increased $232,014 from $226,236 as of
March 31, 1997 to $458,250 as of June 30, 1997.
Total current assets at June 30, 1997 were $925,856 and consisted of cash of
$19,611, net accounts receivable of $192,066, a receivable from the sale of a
radio station of $633,000 and other current assets of $81,179. Total current
liabilities at June 30, 1997 were $628,397 (comprised primarily of accounts
payable and accrued expenses of $344,855 and payables to related parties of
$202,032), resulting in working capital of $297,459. This compares favorably to
working capital of $234,386 as of March 31, 1997, an improvement of $63,073 or
27%.
Contributing significantly to this increased working capital position were the
following:
* An increase in net accounts receivable of $70,506
* A decrease in accounts payable and accrued expenses of $43,810
* A reduction in the current portion of notes payable of $15,549
At March 31, 1997, the Company reported total assets of $2,556,753 including
property and equipment of $231,529 net of accumulated depreciation of $45,909
and $976,367 (net of $74,122 in accumulated amortization) of intangibles (radio
broadcast licenses and non-compete agreements) attributable to KRDG-FM acquired
in July, 1996 and KNNN-FM acquired in September, 1996.
Total liabilities of $1,944,034 (excluding $154,419 in put option liability
associated with redeemable common stock) include, in addition to current
liabilities of $628,397 referred to above, the long term portion of notes
payable of $605,208 associated with the acquisitions of KRDG-FM and KNNN-FM and
notes payable to related parties of $710,449. This compares with total
liabilities of $1,916,075 (excluding the put option liability associated with
redeemable common stock) at March 31, 1997 and represents an increase of only
$28,009.
-7-
<PAGE>
As of June 30, 1997, the Company reported stockholders equity of $458,250. This
compares favorably to stockholders equity of $226,236 as of March 31, 1997.
Contributing to the increase in stockholder's equity of $232,014 were the
following:
* Earnings for the three month period ended June 30, 1997 of $31,921 had a
positive impact on stockholder's equity by reducing the Company's
accumulated deficit from ($552,399) to ($520,478)
* The issuance of 25,000 shares of common stock pursuant to the Company's
public offering at $2.00 per share generated $50,000 of additional capital.
Another 25,000 shares of common stock were issued after June 30, 1997 at
$2.00 per share which will generate $50,000 of additional equity during the
Company's second quarter.
* At March 31, 1997, 203,008 common stock put options remained outstanding.
The put options grant the optionholders the right to sell to the Company
their shares of common stock at a price of $1.50 per share. The Company's
potential obligation under the put options of $304,512 was classified as
redeemable common stock in the balance sheet at March 31, 1997. The put
options expired June 13, 1997; however, prior to such expiration, 102,946
options were exercised by the optionholders and, accordingly, the Company
will acquire all of these shares of the Company's common stock for
$154,419. The remaining put options were forfeited. Therefore, the put
option liability reflected in the accompanying balance sheet (dated June
30, 1997) has been reduced from $304, 512 to $154,419 with the difference -
$150,093 being credited to common stock and additional paid in capital.
Results of Operations - Three Months Ended June 30, 1997 compared to the Three
Months Ended June 30, 1996
Net Revenues (gross revenues less agency commissions) for the three months ended
June 30, 1997 were $339,918 compared to no net revenue for the three months
ended June 30, 1996. Net revenue for the current quarter is comprised of radio
advertising sales associated with the Company's radio stations located in
Redding, California. The Company had no revenue during the three months ended
June 30, 1996 because the Company had entered into a Local Marketing Agreement
(LMA) with a prospective buyer of its two radio stations located in Chico,
California (KHSL-FM and KNSN-AM). The LMA and related purchase contracts were
entered into on March 15, 1996. Under the LMA, the prospective buyer operated
the radio stations thereby receiving the benefit of all revenue generated during
the first quarter ended June 30, 1996. The Company in turn received a monthly
LMA fee. This amount, $16,500, is included in other income for the three month
period ended June 30, 1997.
Operating expenses for the three months ended March 31, 1997 were $339,788
comprised of station operating expenses of $191,302, general and administrative
expenses of $120,026 and depreciation and amortization of $28,460. This
represents an increase of $241,548 over the same period a year ago. Operating
expenses for the current quarter were generated by the Company's Redding,
California radio stations. As previously stated, the Company transferred
operational control of its two Chico, California stations under an LMA on March
15, 1996. The Company incurred minimal operating costs during the prior year
first quarter associated with salary and benefits of a general manager and an
engineer (as required by the LMA) and certain severence costs associated with
employees that were not hired by the prospective buyer at the time the LMA was
signed.
The Company generated other income (net of other expense) of $31,921 during the
quarter compared to other expense of ($29,209) for the quarter ended June 30,
1996. Current quarter other income was comprised primarily of option income of
$30,000 associated with the sale of KNSN-AM, interest income of $5,000
associated with notes receivable ( $200,000 taken as part of the KHSL-FM closing
and $45,000 taken as part of a stock sale to a shareholder of the Company), and
the recognition of deferred revenue of $9,722. Other income was partially offset
by interest expense on notes payable of $10,960.
As a result of the foregoing, the Company produced net income of $31,921 or
$0.03 per share based on a weighted average number of shares outstanding of
934,523 for the three months ended June 30, 1997 compared to a net loss of
($127,449) or ($0.22) per share based on a weighted average number of shares
outstanding of 590,000 for the three months ended June 30, 1996.
-8-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit No. Exhibit Name
27 Financial Data Schedule
(b) The Company filed a Form 8-K on May 27, 1997 in reporting its
change in certifying accountant. No financial statements were
required to be filed.
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
Signature Title Date
/s/ John C. Power President and Chief Executive Officer 08/01/97
JOHN C. POWER Chairman of the Board of Directors
/s/ J. Andrew Moorer Chief Financial Officer and Director 08/01/97
J. ANDREW MOORER
-9-
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<PERIOD-START> APR-01-1997
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