U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 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 [ ].
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The registrant's gross revenues for the fiscal year-ended March 31, 1997
were $545,185.
The aggregate market value of the Common Stock (one vote per share) held by
non-affiliates cannot be ascertained as the common stock does not currently
trade in the public market.
The number of shares of the registrant's .004 par value Common Stock
outstanding as of June 30, 1997 was 1,175,000.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
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 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 a Registration
Statement.
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 Article of Incorporation was approved changing the Company's name
to Redwood Broadcasting, Inc.
Broadcasting was formed in 1993 as a majority-owned subsidiary of Redwood
MicroCap Fund, Inc. (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.
<PAGE>
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. Concurrently with signing
the Asset Purchase Agreements, Alta entered into an LMA with the prospective
purchaser until the sale closes, at which time the LMA would terminate. Closing
took place March 31, 1997. In April, 1996, the 11.70 acres of real property was
sold to an unrelated party for $370,000.
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. 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,Northern began operating KNNN-FM under an LMA pending approval of the
transfer of ownership by the FCC. In September, 1996. Northern completed the
acquistion of KNNN-FM, thereby terminating the LMA. The Company has filed with
the FCC for an upgrade to increase the station's broadcast power. 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 common
stock of Northern California Broadcasting, Inc. and guaranteed by the Company.
<PAGE>
KRRX-FM (f/k/a KARZ-FM) and KNRO-AM
Effective April 1, 1997, the Company acquired from Power Surge, Inc. a
Delaware corporation ("Power Surge") an option to purchase radio broadcast
stations KRRX-FM, Burney, California and KNRO-AM Redding, California (the "Power
Surge Stations"). Under the terms of the Option, the Company can purchase the
Power Surge Stations at any time for a period of six (6) months or until
September 30, 1997 ("Option Period") for a purchase price of $1,200,000. If the
Company elects to exercise its option to purchase the Power Surge Stations, it
can pay the purchase price either in cash at closing or through the issuance of
1,000,000 shares of its common stock, valued at $1.20 per share.
Power Surge is a controlled corporation of John C. Power, the Company's
President, Director and principal shareholder through his affiliation with
Redwood Microcap Fund, Inc. ("MicroCap"). The Power Surge Stations were
purchased by Mr. Power through another controlled corporation, Power Curve, Inc.
("Power Curve"), from non-affiliated third parties on January 31, 1997. Power
Curve purchased the Power Surge Stations for a total purchase price of
$1,200,000, the same as the option price granted to the Company by Power Surge.
Under the terms of the acquisition, Power Curve paid to the seller of the Power
Surge Stations $480,000 in cash at closing and executed a 10-year promissory
note in the principal amount of $720,000. The promissory note issued to the
Seller by Power Curve, Inc. is secured by other assets and securities owned by
Power Curve.
Power Curve transferred the Power Surge Stations to Power Surge effective
March 31, 1997 in order to facilitate the Option being granted to the Company
more fully described herein.
The Company's ability to exercise the Option to purchase the Power Surge
Stations is subject to FCC approval and other customary conditions to closing.
Effective April 1, 1997, Power Surge and the Company entered into a Time
Brokerage Agreement (Local Management Agreement) ("LMA") pursuant to which
during the Option Period the Company will provide programming for the Power
Surge Stations in conformity with rules and policies of the FCC. Under the terms
of the LMA, the Company will pay Power Surge an LMA fee of $5,000 per month.
Further, under the terms of the LMA, the Company will be responsible for
operating the Power Surge Stations and will effectively bear the economic risk
and benefit of owning the Power Surge Stations during the LMA and Option Period.
Power Surge shall be responsible for maintaining in effect the FCC licenses
covering the Power Surge Stations. Since entering into the LMA on April 1, 1997,
the Company changed the call letters of KARZ-FM to KRRX-FM. Concurrent with the
call letter change, the format of KRRX-FM was changed from Adult-Contemporary to
Album Oriented Rock ("AOR").
When the Company's management learned of the opportunity to purchase the
Power Surge Stations, it recognized that those stations represented a potential
opportunity for the Company. However, at the time the Company lacked sufficient
working capital to take advantage of the opportunity. In order to perserve that
opportunity on behalf of the Company, Mr. Power through Power Curve purchased
the Power Surge Stations with the intent to give the Company the opportunity to
acquire the Power Surge Stations at a later date when it had the capital
necesary to do so. Through Power Surge, Mr. Power has made available to the
Company the opportunity to acquire the Power Surge Stations upon terms no less
favorable than the terms upon which Mr. Power initially acquired those assets
through Power Curve in January 1997.
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 deduction 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.
<PAGE>
The Company generally intends to acquire established stations and/or build
stations in small- to medium-sized 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 the 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
Communication 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.
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 and been awarded an FM construction permit In Payson, Arizona and plans to
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 also 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.
<PAGE>
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. The Company's stations employ a variety of programming formats. The
Company believes that selling dvertising 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 and the operating of
KRRX-FM, KNRO-AM and KLXR-AM under LMA's, the Company now has 23.3% of the
Redding radio audience as measured by the Fall 1996 Arbitron Survey making it
the third largest radio broadcaster in the Redding market. Redwood's two larger
competitors had market shares of 23.4% and 27.6% according to Arbitron. The
Arbitron Survey results herein are based on listeners age 12+, Monday - Sunday,
6AM - Midnight. This is the broadest audience mearsurement that Arbitron makes
available to its subscribers. The Company hopes to increase its percentage of
the Redding, California audience through the further development of these
stations. According to the BIA 1997 Radio Yearbook, the Redding, California
Total Service Area ("TSA") has a population of 167,333, with nine FM stations
and five AM stations. The Redding, California Metro Rank is 209. BIA also
estimates the annual revenues of $4.8 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:
Stations Currently Owned or Operated by Company
Target
Station City of License Station Format Demographics
KRDG-FM Shingletown, CA Oldies Adults 35-64
KNNN-FM Central Valley, CA Adult Contemporary Women 25-49
KRRX-FM Burney, CA AOR Men 18-49
KLXR-AM Redding, CA Standards Adults 50+
KNRO-AM Redding, CA News/Talk Adults 35-64
Proposed Acquisitions or For Development
KESP-FM Payson, Arizona TBD TBD
TBD Shasta Lake City, California TBD TBD
TBD Mesquite, Nevada TBD TBD
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.
<PAGE>
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, resource 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 also utilizes
satellite delivered programming on three of its stations.
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 that 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.
<PAGE>
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 airtime. 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.
GOVERNMENT 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.
<PAGE>
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 the FCC's rules which, taken together, would constitute a pattern of
abuse. If, based upon 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's 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 stations expires,
as well as certain information regarding radio station licenses that are the
subject of certain acquisition agreements with the Company:
Expiration
Date of FCC
Station City of License Frequency Authorization
Stations Currently Owned or operated by the Company
KRDG-FM Shingletown, California 105.3 Mhz December 1, 1997
KNNN-FM Central Valley, California 99.3 Mhz December 1, 1997
KLXR-AM Redding, California 1230 Khz December 1, 1997
KRRX-FM Burney, California 106.1 Mhz December 1, 1997
KNRO-AM Redding, California 600 Khz December 1, 1997
Proposed Acquisitions or For Development
KESP-FM Payson, Arizona 101.1 Mhz TBD
TBD Shasta Lake City, California TBD TBD
TBD Mesquite, Nevada TBD TBD
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 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.
<PAGE>
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 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 (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
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
waiver, 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.
<PAGE>
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 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 assured 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 Communications 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 of 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.
<PAGE>
EMPLOYEES
The Company presently has seventeen (17) full time and four (4)
part-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.
ITEM 2. DESCRIPTION OF PROPERTY
The types of properties required to support each of the Company's radio
stations include offices, studios and transmitter/antenna sites. A station's
studios are generally housed with its offices in downtown or business districts.
Transmitter/antenna sites are generally located so as to provide maximum market
coverage.
The Company's corporate headquarters are leased and located in
Carefree, Arizona. Principally, the Company's offices, studio and
transmitter/antenna sites are leased with lease terms that expire within one to
four years. The Company does not anticipate any difficulties in renewing those
leases that expire within the next five years or in leasing other space if
required. The Company owns substantially all of the equipment used in its radio
broadcasting business.
The Company believes that its properties are in good condition and
suitable for its operations. However, the Company continually looks for
opportunities to upgrade its properties.
ITEM 3. LEGAL PROCEEDINGS
The Company from time to time is involved in litigation in the ordinary
course of business. The Company is not a party to any lawsuit or proceeding
which, in the opinion of management, is likely to have a material adverse effect
on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders in
the fourth quarter of fiscal 1997.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information for Securities
The Company's $.004 par value Common Stock does not currently trade in the
public market.
There were approximately 61 stockholders of record of the Company's $.004
par value common stock as of June 26, 1997. This amount does not include shares
held in "street name" by various brokerage/clearing houses. The number of
stockholders of record would be substantially greater if the "street name"
stockholders were included.
The Company has not declared or paid any cash dividends on its common stock
since its formation, and the present policy of the Board of Directors is to
retain any earnings to provide for the Company's growth. Any future
determination to pay dividends will be at the discretion of the Board of
Directors, and dependent upon the Company's financial condition, results of
operations, capital requirements and such other factors as the Board of
Directors deems relevant.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and related notes thereto. The following discussion
contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, risks and uncertainties relating to leverage,
the ability to obtain financing, consummation of acquisitions and divestitures,
the ability of the Company to achieve certain cost savings, the management of
growth, the introduction of new technology, changes in the regulatory
environment, the popularity of radio as a broadcasting and advertising medium
and changing consumer tastes. The Company undertakes no obligation to publicly
release the results of any revisions to these forward-looking statements that
may be made to reflect any future events or circumstances.
Liquidity and Capital Resources - March 31, 1997 Compared to March 31, 1996
The Company's balance sheet at March 31, 1997 reflects a significant
improvement in financial condition when compared with the Company's balance
sheet at March 31, 1996. Total assets increased from $1,545,105 as of March 31,
1996 to $2,446,823 as of March 31, 1997, an increase of over $900,000; total
liabilities during the current period increased $613,503 and total stockholders'
equity increased to $226,236 from a stockholders' deficit of $61,979 an
improvement of $288,215.
Total current assets at March 31, 1997 were $879,804 and consisted of cash
of $40,791, net accounts receivable of $121,560, a receivable from the sale of a
radio station of $633,000 and other current assets of $84,453. Total current
liabilities at March 31, 1997 were $645,418, resulting in working capital of
$234,386. This compares favorably to a working capital deficit of $1,120,129 at
March 31, 1996. Overall, the Company's working capital position improved by
$1,354,515 during the current period. Contributing significantly to this
improved working capital position were the following:
* An increase in net accounts receivable of $34,726 resulting from
increased radio revenues.
* An increase in other receivables of $633,000 attributable to
the sale during fiscal 1997 of KNSN-AM.
* A reduction in the current portion of notes payable of $640,290
generated by the application of $370,000 in proceeds from the
$633,000 in proceeds from the sale of KHSL-FM during the current
period.
<PAGE>
At March 31, 1997, the Company reported total assets of $2,446,823
including property and equipment of $251,138 net of accumulated depreciation of
$37,666 and $996,584 (net of $53,905 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. The effect of
the increase in total assets associated with the acquisition of KRDG-FM and
KNNN-FM was partially offset by the sale of land, KHSL-FM and KNSN-AM during the
current period. The net book value of intangibles associated with KHSL-FM and
KNSN-AM was $489,333 at March 31, 1996.
Total liabilities of $1,916,075 (excluding $304,512 in put option liability
classified below liabilities) include, in addition to current liabilities of
$645,418 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 $665,449. This compares with total liabilities of $1,302,572
(excluding the put option liability) at March 31, 1996 and represents an
increase of $613,503.
As of March 31, 1997, the Company reported stockholders' equity of
$226,236. This compares favorably to a stockholders' deficit of $61,979 as of
March 31, 1996. Contributing to the increase in stockholders' equity of $288,215
were the following:
* An increase in common stock and additional paid in capital during
the current period of $308,390 associated with several equity
transactions involving the issuance of common stock in private
placement transactions, in exchange for the forgiveness of debt
and in exchange for services rendered.
* The aforementioned was partially offset by an increase in the
Company's accumulated deficit of $20,175 associated with the
Company's current period net loss.
Subsequent to year end, the Company has issued 50,000 shares pursuant to
its public offering at $2.00 per share generating proceeds of $100,000. This
capital infusion further enhances the liquidity of the Company.
Results of Operations - Year Ended March 31, 1997 Compared to the Eight
Months Ended March 31, 1996
Net revenues (gross revenues less agency commissions) for the year ended
March 31, 1997 were $507,917 compared to annualized revenues associated with the
eight months ended March 31, 1996 of $644,079 represents a decrease, on an
adjusted annualized basis, of $136,162. Revenues for the eight months ended
March 31, 1996, were comprised entirely of sales associated with KHSL-FM and
KNSN-AM. Effective March 15, 1996, the Company entered into an LMA agreement for
these stations in conjunction with their impending sale agreements. The LMA's
effectively transferred operational control of the stations to the buyer.
Therefore during fiscal 1997, no revenues and only limited expenditures are
reflected in the consolidated financial statements for KHSL-FM and KNSN-AM.
Revenues for the current year were entirely generated by KRDG-FM (from July,
1996 through March, 1997) and KNNN-FM (from August, 1996 through March 1997).
Operating expenses for the year ended March 31, 1997 were $1,066,225
comprised of station operating expenses of $339,499, selling expenses of
$104,169, general and administrative expenses of $347,635, depreciation and
amortization of $152,175 and a charge for corporate restructuring of $122,747.
This represents an increase in operating expenses over the previous year of
$273,718. This increase is attributable primarily to the restructuring charge of
$122,747 associated with legal and accounting costs incurred in completing the
Company's Registration Statement on Form SB-2 (effective February, 1997),
coupled with an increase in depreciation and amortization of $74,526. On an
annualized basis, broadcasting, selling, and general and administrative expenses
for the period ended March 31, 1996 were $1,072,287 compared to $791,303 for the
year ended March 31, 1997, resulting in a decrease of $280,984. As previously
stated, prior year costs were generated by KHSL-FM and KNSN-AM. Current year
expenses were generated by the operations of KRDG-FM, KNNN-FM and certain
residual operating expenses associated with KHSL-FM and KNSN-AM.
<PAGE>
During the twelve months ended March 31, 1997, the Company generated other
income (net of other expense) of $538,133 compared to other expense of $5,538
incurred during the eight month period ended March 31, 1996 ($8,307 on an
annualized basis). Other income for fiscal 1997 was comprised of the following:
* A gain on the sale of KHSL-FM and KNSN-AM of $678,206.
* LMA fee income (associated with the sale of KHSL-FM and KNSN-AM) and
other miscellaneous income totaling $87,857.
* A loss on the sale of land in the amount of $80,000.
* Interest expense of $147,930.
As a result of the foregoing, the Company incurred a net loss for the
twelve months ended March 31, 1997 of $20,175 or $0.03 per share based on a
weighted average number of shares outstanding of 732,201 compared to a net loss
of $368,659 or $0.76 per share based on a weighted average number of shares
outstanding of 487,250 for the eight month period ended March 31, 1996.
Annualizing the March 31, 1996 loss represents an improvement in net income
during the current period of $532,812 or $1.11 per share.
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 $1,280,856, resulting in a working capital deficit of $1,120,129. This
compares with a working capital deficit of $1,110,625 at July 31, 1995, based on
current assets of $149,779 and current liabilities of $1,260,404.
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, for $1,150,000 ("KHSL AGREEMENT"). Effective February
15, 1995, prior to consummation of the acquistion, 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:
Land $ 600,000
License 350,000
Station equipment 200,000
---------
$ 1,150,000
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 classify 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 this error of the allocation of the purchase price.
In order to faciliate 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 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
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 of the Chico Property, and has since been paid in
full, and the Alta shares released from pledge.
<PAGE>
* 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 acquisition and 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 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 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 liabilty 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 the
the sale of a fifty percent (50%) interest in a joint venture formed to acquire
radio station KNBA licensed in 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 (8) 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.
* Subsequent to July 31, 1995, 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 acquistion 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.
<PAGE>
* The Company has entered into agreements to sell radio stations
KHSL-AM/FM for a combined prchase 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 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.
At March 31, 1996, the Company reported total assets of $1,545,105,
including 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.
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.
<PAGE>
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 transfered 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 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 $.76 per share based on
a weighted average number of shares outstanding of 487,250.
ITEM 7. FINANCIAL STATEMENTS
See Financial Statements on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE.
The Company's change in principal independent accountant was previously
reported in its Form 8-K dated May 27, 1997 and is therefore not required to be
reported in this Form 10-KSB.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The directors and executive officers of the Company are as follows:
Director/Officer
Name Age Position Since
John C. Power 34 Chairman of the Board
Chief Executive Officer,
President 1995
J. Andrew Moorer 35 Chief Financial Officer,
Secretary, Treasurer,
and Director 1995
Donald P. Griffin 49 Chief Operating Officer,
Director 1996
CERTAIN INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
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 Broadcasting. 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").
MicroCap has majority and minority-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, 1996 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 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 Broadcasting 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 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
<PAGE>
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 (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.
Directors who are also executive officers of the Company receive no
additional compensation for their services as Directors.
In December, 1996, the Company formed an Audit Committee of the Board
of Directors comprised of Messrs. Power and Moorer. No member of the Audit
Committee will receive additional compensation for his service as a member of
that Committee. The Audit Committee is 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 oversees 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 twelve (12) months ended March 31, 1997, the Company did not
have standing compensation or nominating committees of the Board of Directors.
Any transaction 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.
SECTION 16(A) BENEFICIAL OWNERSHIP OF REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who beneficially own more than ten percent of a
registered class of the Company's equity securities (collectively, the "Covered
Shareholders"), to file with the Commission initial reports of ownership and
reports of changes of ownership of certain equity securities of the Company.
Covered Shareholders are required by the Commission's regulations to furnish the
Company with copies of all Section 16(a) forms they file. Section 16(b) of the
Exchange Act requires the Covered Shareholders to return to the Company any
profit resulting from the purchase and sale of the Company's securities
consummated within a period of less than six months.
Based solely on a review of the copies of such reports furnished to the
Company or written representations that no other reports were required, the
Company believes that, during the Transition Period 1996, all filing
requirements applicable to its Covered Shareholders were complied with.
ITEM 10. 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 periods covered by this
Form 10-KSB; 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 $100,000.
<PAGE>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation (1) Awards Payouts
- - --------------------------------------------------------------------------------
Other
Annual Restricted All Other
Name and Compen- Stock LTIP Compen-
Principal Year Salary Bonus sation Award(s) Options/ Payouts sation
Position ($) ($) ($)(1) ($) SARS ($) ($)
- - --------------------------------------------------------------------------------
John C. Power
President, 1997 $-0- $-0- $-0- $-0- $-0- $-0- $-0-
CEO and
Chairman 1996(2)-0- $-0- $7,500(3) $-0- $-0- $-0- $-0-
of the
Board 1995 -0-(3) $-0- $5,000(3) $-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) The Company paid MicroCap a consultation fee in the amount of $7,500 during
the eight (8) months ended March 31, 1996 and $5,000 during the year ended
July 31, 1995. The consultation fee paid to MicroCap is representative of
the reasonable management expenses of the Company on a stand-alone basis at
that time. Mr. Power currently serves as President, CEO and Chairman of the
Board of MicroCap.
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").
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 ISO 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.
During the year ended March 31, 1997, the Company issued 100,000
options under the plan to an employee. The options have an exercise price of
$1.20 per share and vest over a four year period. No options have vested as of
March 31, 1997.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock 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.
Name and Address Number of Shares
of Beneficial Owner Beneficially Owned
Officers, Directors,
and Principal Shareholders
John C. Power (1) 662,750 61.7%
P.O. Box 3458
Carefree, AZ 85377
J. Andrew Moorer (2) 593,516 55.2%
4528 E. Duane Lane
Cave Creek, AZ 85331
Redwood MicroCap Fund, Inc. (3)(4) 550,000 51.2%
P.O. Box 3463
Carefree, AZ 85377
Combined Penny Stock Fund, Inc. (5) 58,229 5.42%
2055 Anglo Drive, Suite 105
Colorado Springs, CO 80918
Brian Power (6) 72,605 6.75%
Nut Tree Ranch
Nut Tree, CA 95690
Officer and Directors
as a Group (three (3) individuals) 706,266 65.7%
(1) Includes 550,000 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
beneficiary and as such, would be deemed to exercise voting and
investment power with respect to such securities. Also includes
87,500 shares held of record by Power Curve, Inc., a controlled
corporation of Mr. Power.
(2) Includes 550,000 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.
(3) 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
216,559 shares of the Common Stock issued to MicroCap in satisfaction
of $259,371 in debt owed to MicroCap by the Company. Also includes
92,750 shares of Common Stock to be acquired from certain CRI
Shareholders.
<PAGE>
(4) 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.
(5) 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.
(6) Includes 58,229 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.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED 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.
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 Common Stock in exchange for one
hundred percent (100%) of the issued and outstanding shares of Common Stock of
Broadcasting. Subsequent to the acquisition, Broadcasting 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 this 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.
<PAGE>
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
During the year ended March 31, 1997, the Company issued 66,559 shares of
common stock to MicroCap to retire notes and accounts payable totalling $79,871.
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 was
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 was then 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 was paid in full
during the year ended March 31, 1997 and all collateral was returned to the
Company.
MICROCAP BORROWINGS
The Company has received approximately $681,875 from MicroCap in the form
of inter-Company borrowings, which indebtedness is unsecured. The funds received
were used for working capital.
POWER CURVE, INC. STOCK PURCHASE
During the year ended March 31, 1997, the Company received private
placement proceeds of $105,000 in exchange for the issuance of $87,500 shares of
common stock at $1.20 per share to Power Curve, Inc., a corporation controlled
by John C. Power, an officer and director of the Company.
<PAGE>
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.
(a) Exhibits
The exhibits as indexed below are included as part of this Form 10-KSB
(b) Reports on Form 8-K
8K filed 3/31/97 - KHSL/KNSN sale
- KARZ/KNRO LMA and purchase option
The following Exhibits have previously been filed as part of a
Registration Statement pursuant to item 601 of Regulation S-B:
Index to Exhibits
-----------------
Exhibit No. Description
2.0 Agreement and Plan or Reorganization Dated as of December 5,
1994, between and among Cell Robotics, Inc., Intellegent
Financial Corporation, Micel, Inc., Bridgeworks Investors
1, 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 Newman & 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
<PAGE>
16.0 Letter on Change and Certifying Accountant
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 Registation
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.
<PAGE>
SIGNATURES
DATED: 07/14/97 REDWOOD BROADCASTING
By: /s/ JOHN C. POWER
John C. Power
President and Chief Executive Officer
By: /s/ J. ANDREW MOORER
J. Andrew Moorer
Chief Financial Officer
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 07/14/97
JOHN C. POWER Chairman of the Board of Directors
/s/ J. Andrew Moorer Chief Financial Officer and Director 07/14/97
J. ANDREW MOORER
/s/ Don Griffin Chief Operating Officer and Director 07/14/97
DON GRIFFIN
<PAGE>
REDWOOD BROADCASTING, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORTS 1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet 3
Consolidated Statements of Operations 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
<PAGE>
INDEPENDENT AUDITORS' REPORT
Redwood Broadcasting, Inc.
Colorado Springs, Colorado
We have audited the accompanying consolidated balance sheet of Redwood
Broadcasting, Inc. and subsidiaries as of March 31, 1997 and the related
consolidated statements of operations, stockholders' deficiency and cash flows
for the year then ended. 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 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 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Redwood Broadcasting, Inc. and
subsidiaries as of March 31, 1997, and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
STOCKMAN KAST RYAN & SCRUGGS, P.C.
Colorado Springs, Colorado
June 25, 1997
- 1 -
<PAGE>
The Board of Directors
Redwood Broadcasting, Inc.
We have audited the statements of operations, changes in stockholders' equity
and cash flows of Redwood Broadcasting, Inc. and consolidated subsidiaries for
the eight months ended March 31, 1996 and the year ended July 31, 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 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 results of operations, changes in stockholders'
equity and cash flows of Redwood Broadcasting, Inc. and consolidated
subsidiaries for the eight months ended March 31, 1996 and the year ended July
31, 1995 in conformity with generally accepted accounting principles.
Schumacher & Associates, Inc.
Certified Public Accountants
12835 E. Arapahoe Road
Tower II, Suite 110
Englewood, CO 80112
June 6, 1996
- 2 -
<PAGE>
REDWOOD BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31,
1997
ASSETS
CURRENT ASSETS
Cash $ 40,791
Accounts receivable, net 121,560
Receivable from related parties (Note 5) 71,546
Receivable from sale of radio station (Note 2) 633,000
Other current assets 12,907
---------
Total current assets 879,804
PROPERTY AND EQUIPMENT,
net (Note 3) 213,472
INTANGIBLE ASSETS, net (Note 4) 996,584
NOTE RECEIVABLE FROM SALE OF RADIO STATION (Note 2) 200,000
OTHER ASSETS 156,963
---------
TOTAL $2,446,823
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $388,665
Payables to related parties (Note 5) 156,875
Current portion of notes payable (Note 6) 62,884
Current portion of notes payable to related parties (Note 5) 25,000
Capital lease obligations (Note 7) 11,994
---------
Total current liabilities 645,418
NOTES PAYABLE (Note 6) 605,208
NOTES PAYABLE TO RELATED PARTIES (Note 5) 665,449
---------
Total liabilities 1,916,075
---------
COMMITMENTS (Note 7)
REDEEMABLE COMMON STOCK (Note 8) 304,512
---------
STOCKHOLDERS' EQUITY (Note 8)
Preferred stock, par value $.04; 2,500,000 shares authorized;
none issued and outstanding
Common stock, par value $.004; 12,500,000 shares authorized;
871,992 shares issued and outstanding 3,488
Additional paid-in capital 820,147
Accumulated deficit (552,399)
Note receivable from stockholder (45,000)
---------
Total stockholders' equity 226,236
---------
TOTAL $2,446,823
=========
See notes to consolidated financial statements.
- 3 -
<PAGE>
REDWOOD BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Eight Months
Year Ended Ended Year Ended
March 31, 1997 March 31, 1996 July 31, 1995
REVENUE
Broadcast revenue $ 545,185 $ 440,457 $ 377,023
Less agency commissions 37,268 11,071 9,475
--------- --------- ---------
Net revenue 507,917 429,386 367,548
--------- --------- ---------
OPERATING EXPENSE
General and administrative 347,635 314,180 228,054
Broadcasting 339,499 306,603 222,553
Selling 104,169 94,075 68,286
Depreciation and amortization 152,175 77,649 9,108
Corporate restructuring (Note 8) 122,747
--------- --------- ---------
Total 1,066,225 792,507 528,001
--------- --------- ---------
LOSS FROM OPERATIONS (558,308) (363,121) (160,453)
--------- --------- ---------
OTHER INCOME (EXPENSE)
Gain on sale of radio
stations (Note 2) 678,206
Loss on sale of land (Note 2) (80,000)
Interest expense (Note 5) (147,930) (22,436)
Other income - net 87,857 16,898
--------- ---------
OTHER - net 538,133 (5,538)
--------- --------- ---------
NET LOSS $(20,175) $(368,659) $ 160,453
========= ========= =========
NET LOSS PER COMMON SHARE $ (.03) $ (.76) $ (.49)
========= ========= =========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 732,201 487,250 325,000
========= ========= =========
See notes to consolidated financial statements.
- 4 -
<PAGE>
REDWOOD BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Note
Additional Receivable Total
Common Stock Paid-In Accumulated from Stockholders'
Shares Amount Capital Deficit Stockholder Equity
BALANCES,
AUGUST 1, 1994 300,000 $1,200 $ 2,300 $ (3,112) $ 388
Capital
contribution 241,798 241,798
Reorganization 97,000 388 11,259 11,647
Net loss (160,453) (160,453)
-------- ----- ------- -------- --------
BALANCES,
JULY 31, 1995 397,000 1,588 255,357 (163,565) 93,380
Issuance of common
stock in private
placement 25,000 100 29,900 30,000
Issuance of common
stock to extinguish
debt 150,000 600 179,400 180,000
Issuance of common
stock for services 5,500 22 3,278 3,300
Net loss (368,659) (368,659)
------- ----- ------- --------- ---------
BALANCES,
MARCH 31, 1996 577,500 2,310 467,935 (532,224) (61,979)
Issuance of stock in
private placements
(Note 8) 132,750 531 158,769 159,300
Issuance of common
stock to extinguish
debt (Note 8) 71,559 286 85,585 85,871
Issuance of common
stock for services
(Note 8) 46,016 184 55,035 55,219
Issuance of common
stock to officer
(Note 8) 37,500 150 44,850 $(45,000)
Issuance of common
stock for investment 6,667 27 7,973 8,000
Net loss (20,175) (20,175)
------ ----- ------ -------- -------- --------
BALANCES,
MARCH 31, 1997 871,992 $3,488 $820,147 $(552,399) $(45,000) $226,236
======= ===== ======= ========= ======== ========
See notes to consolidated financial statements.
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<PAGE>
REDWOOD BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Eight Months
Year Ended Ended Year Ended
March 31, March 31, July 31,
1997 1996 1995
OPERATING ACTIVITIES
Net loss $ (20,175) $(368,659) $(160,453)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 152,175 77,649 9,108
Gain on sale of radio stations (678,206)
Loss on sale of land 80,000
Loss on disposals of equipment 5,942
Changes in operating assets and liabilities:
Accounts receivable (42,226) 52,704 (139,538)
Other current assets 10,986
Accounts payable and accrued expenses 10,008 251,008 271,720
Other assets (54,099) (49,635) (6,723)
--------- -------- --------
Net cash used in operating activities (535,595) (36,933) (26,886)
--------- -------- --------
INVESTING ACTIVITIES
Proceeds from sale of radio stations, net 588,333 78,991
Proceeds from sale of land, net 370,000
Purchases of radio stations (448,920) (329,173)
--------- -------- --------
Net cash provided by (used in)
investing activities 509,413 78,991 (329,173)
--------- -------- --------
FINANCING ACTIVITIES
Proceeds from borrowings under
related party notes 1,198,808
Proceeds from borrowings under notes 465,000 131,844
Principal payments on notes to
related parties (848,533)
Principal payments on notes (761,908) (75,576) (26,100)
Decrease in net payable to related parties (132,030)
Payments on capital lease obligations (13,664)
Proceeds from issuance of common stock 159,300 30,000
Capital contribution and reorganization 253,445
--------- -------- --------
Net cash provided by (used in)
financing activities 66,973 (45,576) 359,189
--------- -------- --------
NET INCREASE (DECREASE) IN CASH 40,791 (3,518) 3,130
CASH, Beginning of period -- 3,518 388
--------- -------- --------
CASH, End of period $ 40,791 $ -- $ 3,518
========= ======== ========
SUPPLEMENTAL NONCASH INVESTING ACTIVITIES
Promissory note received for sale of
radio stations $ 200,000
Receivable for sale of radio stations 633,000
SUPPLEMENTAL NONCASH FINANCING ACTIVITIES
Issuance of common stock for services $ 55,219
Issuance of common stock to repay debt 85,871 $180,000
Issuance of common stock in exchange for note
receivable to officer 45,000
Issuance of common stock for investment 8,000
Notes issued in acquisition of radio
station assets and land 655,000 $735,000
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 115,689 $ 22,436
See notes to consolidated financial statements.
- 6 -
<PAGE>
REDWOOD BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization -- Redwood Broadcasting, Inc. ("RBI") and its subsidiaries
(collectively, the Company), operate in the radio broadcasting
industry. RBI is a majority-owned subsidiary of Redwood MicroCap Fund,
Inc. ("MicroCap"). Organized as a holding company for the purpose of
acquiring and developing undervalued radio broadcasting properties
located in small to medium sized markets, the Company has embarked upon
an aggressive acquisition and development program and continues to seek
acquisition and development opportunities in the broadcast industry.
The Company currently operates radio stations in Northern California.
Principles of Consolidation -- The consolidated financial statements
include the accounts of RBI and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Accounts Receivable -- The Company maintains an allowance for doubtful
accounts based upon the expected collectibility of all accounts
receivable. At March 31, 1997, the allowance was $3,200.
Property and Equipment -- Property and equipment are recorded at fair
value as of the date of acquisition of the related radio station or
cost if purchased subsequently. Depreciation is provided on a
straight-line basis over the estimated useful lives of the assets as
follow: buildings and improvements - 10 years; transmitter - 20 years;
computer equipment - 3 years; and technical equipment and furniture and
fixtures - 5 to 7 years. The recoverability of the carrying value of
property and equipment is evaluated periodically in relation to the
estimated value of the radio stations based on their operating
performance and cash flows.
Intangible Assets -- Intangible assets include the radio station
purchase price allocations to license costs and the noncompete
agreement. License costs are amortized over a period of 20 years and
the noncompete agreement is amortized over the three year period of the
agreement. The recoverability of the carrying value of intangible
assets is evaluated periodically in relation to the estimated value of
the radio stations based on their operating performance and cash flows.
Revenue Recognition -- The Company's primary source of revenue is the
sale of air time to advertisers. Revenue from the sale of air time is
recorded when the advertisements are broadcast.
Barter Transactions -- Revenue from barter transactions (advertising
provided in exchange for goods and services) is recognized based on the
fair value of the goods or services received when the advertisements
are broadcast. Expense is recognized when goods and services are used.
- 7 -
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Income Taxes -- The Company accounts for income taxes in accordance
with Statement of Financial Accounting Standards No. 109, which uses
the asset and liability method of accounting for income taxes. Under
the asset and liability method, deferred income taxes are recognized
for the tax consequences of temporary differences by applying enacted
statutory tax rates to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.
The effect on deferred taxes of a change in tax rate is recognized in
the period that includes the enactment date.
Loss Per Common Share -- Loss per common share is based upon the net
loss applicable to common shares and upon the weighted average of
common shares outstanding during the period. The exercise of common
stock warrants was not assumed in the calculation of loss per common
share because the effect would be antidilutive. The weighted average
common shares outstanding excludes shares which are reflected as
redeemable common stock.
Use of Estimates -- The preparation of the Company's 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 income and expenses during the reporting period.
Actual results could differ from those estimates.
Statement of Cash Flows -- For purposes of the statement of cash flows,
highly liquid investments, maturing within three months of acquisition,
are considered to be cash equivalents.
Concentrations of Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily
of cash and cash equivalents and receivables. Also, the Company's radio
stations broadcast in Northern California which results in a risk to
the Company due to the concentration in one geographic area.
Reclassifications-- Certain amounts in the 1995 and 1996 financial
statements have been reclassified to conform with the 1997
presentation.
2. RADIO STATION ACQUISITIONS AND SALES
In 1994, RBI formed a wholly-owned subsidiary, Alta California
Broadcasting, Inc. (Alta), to pursue radio acquisition opportunities in
Northern California. A description of such stations follows:
KHSL AM/FM -- In February 1995, Alta entered into a Local Marketing
Agreement (LMA) with an option to purchase radio stations KHSL-AM/FM
licensed to Chico and Paradise, California, respectively. The purchase
closed on June 19, 1995. Subsequent to its acquisition by Alta, KHSL-AM
changed its call letters to KNSN-AM.
- 8 -
<PAGE>
2. RADIO STATION ACQUISITIONS AND SALES, continued
In March 1996, Alta entered into separate Asset Sale Agreements to sell
the assets of both KNSN-AM and KHSL-FM, excluding a parcel of land, for
$1,466,333. Concurrently with signing the Asset Sale Agreements, Alta
entered into an LMA with the prospective purchaser. When the sale
closed on March 31, 1997, the LMA terminated.
At closing Alta received $633,333 in cash and a $200,000 promissory
note bearing interest at a rate of 7% and maturing on March 31, 1999
for KHSL-FM. Alta is also to receive $633,000 in cash no later than
August 31, 1997 for KNSN-AM; however, pursuant to the Asset Purchase
Agreement, the buyer of KNSN-AM has the option to defer payment of such
amount for a monthly option fee of $10,000. A gain on the sale of the
stations of $678,206 has been recorded in the accompanying statement of
operations for the year ended March 31, 1997.
Management believes that the fair values of its receivables relating to
the sale of the stations are not materially different from their
carrying values.
In April 1996, the parcel of land was sold to an unrelated party for
$370,000. A loss on the sale of $80,000 has been recorded in the
accompanying statement of operations for the year ended March 31, 1997.
KRDG-FM (f/k/a KHZL and KCFM) -- In March 1995, Alta entered into a LMA
with an option to purchase radio station KCFM-FM licensed to
Shingletown, California, which began commercial broadcasting in August
1995. KCFM-FM primarily serves the Redding, California market. In
September 1995, KCFM-FM changed its call letters to KHZL-FM. In July
1996, Alta completed the acquisition of KHZL-FM, thereby terminating
the LMA. Alta paid $65,000 cash and issued a $155,000 promissory note
as consideration for KHZL-FM (see Note 6). The acquisition was recorded
using the purchase method and the $220,000 purchase price was recorded
as license costs as no other assets of KHZL-FM were acquired. 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 and assigned
its rights to Alta's wholly-owned subsidiary, Northern California
Broadcasting, Inc. KNNN-FM primarily serves the Redding, California
market. In August 1996, Alta began operating KNNN-FM under a LMA
pending approval of the transfer of ownership by the FCC. The purchase
price for KNNN-FM was $825,000, $325,000 of which was paid in cash at
closing, and the balance of which was in the form of a promissory note
(see Note 6). Pursuant to the Asset Purchase Agreement, the seller of
KNNN-FM agreed to not compete with the Company in the Redding,
California market for a period of three years. The acquisition was
recorded using the purchase method and the purchase price was allocated
to property and equipment, the noncompete agreement and license costs,
based on their respective estimated fair values.
KLXR-FM -- In May 1996, Alta entered into an Asset Purchase Agreement
to acquire KLXR-AM, licensed to Redding, California, for a total
purchase price of $100,000. In February 1997, Alta entered into a LMA
with the prospective seller until the sale closes at which time the LMA
will terminate. The sale had not closed as of June 25, 1997.
- 9 -
<PAGE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at March 31, 1997:
Buildings and improvements $ 29,437
Equipment 112,844
Transmitters 68,516
Furniture and fixtures 40,341
-------
Total property and equipment 251,138
Less accumulated depreciation 37,666
-------
Property and equipment-- net $213,472
=======
4. INTANGIBLE ASSETS
Intangible assets consist of the following at March 31, 1997:
License costs $ 950,489
Noncompete agreement 100,000
---------
Total intangible assets 1,050,489
Less accumulated amortization 53,905
---------
Intangible assets-- net $ 996,584
=========
5. RELATED PARTY TRANSACTIONS
Notes payable to related parties consist of the following at March 31,
1997:
Uncollateralized notes payable to MicroCap with interest
at 8% and principal due on March 31, 1999 $525,000
Uncollateralized note payable to an entity controlled by
an officer and stockholder of RBI with interest at 14%
and principal and interest due on March 31, 1999 100,000
Uncollateralized note payable to an entity controlled by an
officer and stockholder of RBI with interest at 12% and
principal and interest due on demand 25,000
Uncollateralized notes payable to stockholders with interest
at 8% and principal and interest due on March 31, 1999 40,449
-------
Total 690,449
Less current portion 25,000
-------
Total $665,449
=======
- 10 -
<PAGE>
5. RELATED PARTY TRANSACTIONS, continued
The Company recorded interest expense on the related party notes of
approximately $79,000 for the year ended March 31, 1997.
Management believes that the fair values of its notes payable to
related parties are not materially different from their carrying values
based on the terms and varying characteristics of the notes.
The Company has receivables from and payables to entities controlled by
an officer and stockholder of RBI totalling $71,546 and $156,875,
respectively, as of March 31, 1997. Such balances do not bear interest
and have no set repayment terms.
During the eight months 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. No consulting fees were paid during the
fiscal year ended March 31, 1997.
See Note 8 regarding common stock transactions with related parties.
6. NOTES PAYABLE
Notes payable consist of the following at March 31, 1997:
Note payable to seller of KNNN-FM with interest at 8.5%,
collateralized by the common stock of Northern
California Broadcasting, Inc., payable in monthly
installments of principal and interest of $6,199
through October 2001 with the remaining balance due
at that date $ 484,725
Note payable to seller of KRDG-FM with interest at 8.25%
and payable semi-annually, principal payable on
July 31, 2004, collateralized by property and equipment,
guaranteed by MicroCap 155,000
Other notes payable, with interest rates ranging from 8%
to 12%, past due as of March 31, 1997, uncollateralized 28,367
--------
Total 668,092
Less current portion 62,884
--------
Total $ 605,208
========
Under the terms of the promissory note agreements, future minimum
annual principal payments during the next five fiscal years ending
March 31 are as follows: 1998 - $62,884; 1999 - $37,568; 2000 -
$40,889; 2001 - $44,503 and 2002 - $327,248.
The Company has a $25,000 line of credit agreement with a bank which
expires on April 1, 1998. Borrowings under the line of credit agreement
bear interest at a rate of 7.9% and are collateralized by a certificate
of deposit of MicroCap. There were no borrowings under the line of
credit agreement as of or during the year ended March 31, 1997.
- 11 -
<PAGE>
6. NOTES PAYABLE, continued
Management believes that the fair values of its notes payable are not
materially different from their carrying values based on the terms and
varying characteristics of the notes.
7. LEASE AGREEMENTS
The Company leases land and equipment under operating lease agreements
expiring in various years through 2001 and leases equipment under a
capital lease agreement expiring in 1998. Lease expense under the
operating lease agreements totalled $74,039, $36,540 and $101,418 for
the year ended March 31, 1997, the eight months ended March 31, 1996
and the year ended July 31, 1995, respectively.
At March 31, 1997, future minimum lease payments under the lease
agreements are summarized as follows:
Capital Operating
Lease Leases
1998 $13,858 $ 54,821
1999 36,849
2000 16,310
2001 2,577
------ -------
Total minimum lease payments 13,858 $110,557
Less amount representing interest 1,864 =======
------
Capital lease obligation $11,994
======
The equipment under capital lease is as follows at March 31, 1997:
Equipment $42,416
Less accumulated depreciation 3,361
------
Net $39,055
======
8. STOCKHOLDERS' 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, 203,008 put option
guarantees under which MicroCap guarantees the Company's obligation
under the put options, and an additional 400,000 shares of the
Company's common stock to be offered to the public. The registration of
the outstanding shares, the put options and the put option guarantees
was required pursuant to the Agreement and Plan of Reorganization dated
June 16, 1995.
- 12 -
<PAGE>
8. STOCKHOLDERS' EQUITY, continued
In connection with the completion and filing of the registration
statement, the Company incurred certain legal, accounting and
consulting costs. The portion of such costs which related to the
registration of the previously issued and outstanding shares, the put
options and put option guarantees were charged to corporate
restructuring expense in accompanying statement of operations since no
proceeds were realized relating to the registration of such securities.
Approximately $62,000 of such costs which related to the registration
of the additional 400,000 shares to be offered to the public is
included within other assets at March 31, 1997 and will be reflected
as a reduction of proceeds upon the sale of these shares. Subsequent
to March 31, 1997 and through June 25, 1997, the Company has issued
50,000 shares for $100,000.
At March 31, 1997, the 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 has been classified as redeemable common stock in the
accompanying 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.
During the eight months ended March 31, 1996, the Company issued
150,000 shares of its common stock to MicroCap to extinguish an
obligation to MicroCap of $180,000. During the year ended March 31,
1997, the Company issued 66,559 shares of common stock to MicroCap to
retire notes and accounts payable totalling $79,871. During the year
ended March 31, 1997 the Company received proceeds from several private
placement transactions. In one transaction, private placement proceeds
of $36,000 were received for 30,000 shares of common stock. Also,
included within the private placement proceeds is $129,300 received
from related parties during the year ended March 31, 1997 for 107,750
shares of common stock.
During the year ended March 31, 1997, the Company issued 46,016 shares
of common stock for legal and other services. The estimated fair value
of the services of $55,219 was charged to operations.
The Company has a $45,000 note receivable from an officer of RBI as of
March 31, 1997 relating to a purchase by the officer of 37,500 shares
of RBI common stock. The note bears interest at 7%, matures on August
1, 2002 and is collateralized by a second deed of trust on the
officer's personal residence.
During the year ended July 31, 1995, RBI issued 300,008 shares of its
common stock, including 203,008 shares containing the put options
described above, in connection with a business combination which was
accounted for as a reverse acquisition.
As of March 31, 1997 and 1996 and July 31, 1995, the Company's issued
and outstanding shares of common stock totalled 1,075,000, 780,508 and
600,008, respectively, including 203,008 shares as of each date which
are subject to the put options.
- 13 -
<PAGE>
8. STOCKHOLDERS' EQUITY, continued
At March 31, 1997, the Company had outstanding warrants which entitles
the warrant holders to purchase 116,666 shares of the Company's common
stock at a purchase price equal to the lesser of $1.50 per share or
fifty percent of the offering price to the public of the Company's
common stock in connection with the next public offering of shares by
the Company. The shares become exercisable on September 9, 1997 and
expire on September 9, 2000.
On December 5, 1995, the Company adopted the 1995 Incentive Stock
Option Plan (the Plan). Pursuant to the Plan, 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. Under the Plan, the exercise price of the options may not be
less than the fair market value of the shares of the Company's common
stock on the date of grant. During the year ended March 31, 1997, the
Company issued 100,000 options under the Plan to an employee. The
options have an exercise price of $1.20 per share and vest over a
four-year period. No options have vested as of March 31, 1997.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation" (FAS 123), which establishes financial
accounting and reporting standards for stock based employee
compensation plans including stock purchase plans, stock options,
restricted stock and stock appreciation rights. As permitted by FAS
123, the Company has elected to continue accounting for stock based
compensation in accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and related
interpretations. The Company estimates that the impact of adopting FAS
123 would not be material to the Company's financial statements.
9. INCOME TAXES
The Company has approximately $375,000 of net operating loss carryovers
expiring in various years through 2012 which result in deferred income
tax assets of approximately $127,000. However, because of the
uncertainty regarding future realization of the deferred income tax
assets, the Company has established a valuation allowance of $127,000
as of March 31, 1997. The valuation allowance increased by $21,000 and
$106,000 during the year ended March 31, 1997 and the eight months
ended March 31, 1996, respectively.
10. SUBSEQUENT EVENTS
Effective April 1, 1997, the Company acquired an option to purchase
radio stations KNRO-AM and KARZ-FM(KNRO/KARZ) licenced 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.
- 14 -
