As filed with the Securities and Exchange Commission on January 2, 1997.
Registration No. 33-80321
==========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
SECURITIES ACT OF 1933
REDWOOD BROADCASTING, INC.
----------------------------------------------
(Name of small business issuer in its Charter)
Colorado 4832 84-1295270
- ----------------------- ------------------------- -------------
(State or other jurisdiction (Primary Standard Industrial IRS Employer
of incorporation or Classification Code Number) Identification
organization) Number
Building A, Suite I
7518 Elbow Bend Road
P.O. Box 3463
Carefree, Arizona 85377
(602) 488-2596
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(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
John C. Power, President
Building A, Suite I
7518 Elbow Bend Road
P.O. Box 3463
Carefree, Arizona 85377
(602) 488-2596
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(Name, address, including zip code, and telephone number of
agent for service of process)
Copies to:
Clifford L. Neuman, Esq.
Neuman & Cobb
1507 Pine Street
Boulder, Colorado 80302
(303) 449-2100
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of the Registration
Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check, the following box. / X /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
==========================================================================<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Title of Maximum Maximum
Each Class of Amount Offering Aggregate Amount of
Securities To be Price Per Offering Registration
To be Registered Registered Share(1) Price(1) Fee
- ------------------- ------------ --------- --------- ------------
<S> <C> <C> <C> <C>
Common Stock,
$.004 par value (2) 500,429 $2.00 $1,000,858 $345.12
Common Stock,
$.004 par value (3) 300,008 $.0013 $400.01 $0.14
Common Stock,
$.004 par value 400,000 $2.00 $800,000 $275.86
Common Stock
Put Options (4) 203,008 $1.50 $304,512 $105.01
TOTAL: $2,105,770 $726.13
- ----------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Constitutes shares of Common Stock being offered by certain Selling
Shareholders of the Company. (See "TERMS OF THE OFFERINGS -- Selling
Shareholders Offering.")
(3) Consists of Common Stock to be distributed to holders of record of Cell
Robotics International, Inc. ("CRI") common stock on December 16, 1994
(the "Spin-Off Record Date") to effect a spin-off of the Company (the
"Spin-Off") pursuant to the terms of a certain Agreement and Plan of
Reorganization between and among CRI, Cell Robotics, Inc., a New Mexico
corporation, MiCEL, Inc., a Delaware corporation and others, dated as of
December 12, 1994 ("CRI Agreement"). The CRI Shareholders will not be
charged or assessed, and the Company will receive no consideration, for
the distribution of the foregoing shares of Common Stock in the Spin-Off.
There currently exists no market for the Company's securities and the
Company has an accumulated capital deficit. As a result, the registration
fee has been calculated based on one-third (1/3) of the par value of the
shares in accordance with the provisions of Rule 457(f)(2).
(4) Consists of Common Stock Put Options ("Puts") to be issued to certain CRI
Shareholders ("Putholders") pursuant to the terms of the RBI Agreement,
which Puts will grant to the holders thereof the right and option to sell
to the Company up to 203,008 shares of the Company's Common Stock at a
price of $1.50 per share. The Putholders will not be charged or assessed,
and the Company will receive no consideration, for the issuance of the
Puts. The registration fee has been calculated in accordance with the
provisions of Rule 457(g).
</TABLE>
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
REDWOOD BROADCASTING, INC.
CROSS-REFERENCE INDEX
Item No. and Heading
In Form SB-2 Location
Registration Statement in Prospectus
---------------------- -------------
1. Forepart of the Registration Forepart of Registration
Statement and outside front cover Statement and outside front
page of Prospectus cover page of Prospectus
2. Inside front and outside back cover Inside front and outside back
pages of Prospectus cover pages of Prospectus
3. Summary Information, Risk Factors PROSPECTUS SUMMARY; RISK
and Ratio of Earnings to Fixed FACTORS
Charges
4. Use of Proceeds USE OF PROCEEDS
5. Determination of Offering Price Front Cover Page; TERMS OF
OFFERING - Company Offering
6. Dilution DILUTION
7. Selling Securityholders TERMS OF OFFERINGS - The Selling
Shareholders' Offering
8. Plan of Distribution TERMS OF OFFERINGS
9. Legal Proceedings LEGAL PROCEEDINGS
10. Directors, Executive Officers, MANAGEMENT
Promoters and Control Persons
11. Security Ownership of Certain SECURITY OWNERSHIP OF
Beneficial Owners and Management MANAGEMENT AND PRINCIPAL
SHAREHOLDERS
12. Description of Securities to be DESCRIPTION OF SECURITIES
Registered
13. Interest of Named Experts and Counsel LEGAL MATTERS; EXPERTS
14. Disclosure of SEC Position on INDEMNIFICATION
Indemnification for Securities Act
Liabilities
15. Organization Within Last Five Years *
16. Description of Business PROSPECTUS SUMMARY; RISK FACTORS;
BUSINESS
17. Management's Discussion and Analysis MANAGEMENT'S DISCUSSION AND
Plan of Operation ANALYSIS OR PLAN OF OPERATION;
FINANCIAL STATEMENTS
18. Description of Property BUSINESS
19. Certain Relationships and Related CERTAIN TRANSACTIONS
Transactions
20. Market for Common Equity and Related MARKET FOR COMMON STOCK
Stockholder Matters
21. Executive Compensation EXECUTIVE COMPENSATION
22. Financial Statements FINANCIAL STATEMENTS
23. Changes in and Disagreements *
with Accountants on Accounting
and Financial Disclosure
- ---------------------
* Omitted from Prospectus because Item inapplicable or answer is in the
negative.
<PAGE>
PROSPECTUS
REDWOOD BROADCASTING, INC.
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1,200,437 Shares of
$.004 Par Value Common Stock
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203,008
Common Stock Put Options
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This Prospectus relates to four (4) offerings of securities of Redwood
Broadcasting, Inc., f/k/a Intelligent Financial Holding Corporation, a Colorado
corporation (the "Company" or "RBI"). The first offering (the "Spin-Off
Offering") relates to the distribution by Cell Robotics International, Inc., a
Colorado corporation ("CRI"), the Company's former parent corporation, of up to
300,008 shares of the Company's $.004 par value common stock (the "Common
Stock"), as a spin-off (the "Spin-Off Shares" and "Spin-Off," respectively)
pursuant to the terms of a certain Agreement and Plan of Reorganization between
and among CRI, Cell Robotics, Inc., a New Mexico corporation ("Cell"), MiCEL,
Inc., a Delaware corporation, and others, dated as of December 12, 1994 (the
"CRI Agreement"), pursuant to which CRI agreed to distribute all 300,008 shares
of Company Common Stock owned by it to the shareholders of record of CRI (the
"CRI Shareholders") as of December 16, 1994 (the "Spin-Off Record Date") upon
the effective date of the Registration Statement of which this Prospectus forms
a part (the "Registration Statement"). The Spin-Off Shares will be distributed
by mail within 10 days after the effective date of the Registration Statement
on a "pro-rata" one-for-one (1-for-1) basis, with each CRI Shareholder entitled
to receive without cost one (1) share of Company Common Stock for every share
of CRI common stock held of record on the Spin-Off Record Date. The Company is
bearing all costs incurred in connection with the Spin-Off Offering. (See
"TERMS OF OFFERINGS - The Spin-Off Offering.")
This Prospectus also relates to the offering by the Company to the public
of up to 400,000 shares of the Company's $.004 par value Common Stock at an
offering price of $2.00 per share, (the "Company Offering"). The Company is
offering the shares of Common Stock to the public through its officers and
directors. The Company may retain the services of Selling Agents who are
members of the National Association of Securities Dealers to assist in the
Company Offering. On any sales made by Selling Agents, a commission of up to
ten percent (10%) may be paid. To date, there exists no arrangements or
commitments by the Company to retain any Selling Agent. (See "TERMS OF
OFFERINGS - THE COMPANY OFFERING.")
This Prospectus also relates to the issuance by the Company to certain CRI
Shareholders (the "Putholders") of up to 203,008 Common Stock Put Options (the
"Puts" and "Put Offering," respectively) pursuant to the terms of a certain
Agreement and Plan of Reorganization between and among the Company, Redwood
Broadcasting, Inc., a Colorado corporation ("Broadcasting") and Redwood
MicroCap Fund, Inc., a Colorado corporation ("MicroCap") dated as of June 16,
1995 (the "RBI Agreement"). The Puts grant to each Putholder the right and
option to sell to the Company and require the Company to purchase for
redemption, all or a portion of the shares of Common Stock which the Putholder
has the right to receive in the Spin-Off Offering. The Puts will require the
Company to purchase and redeem any and all shares tendered in accordance with
the terms of the Puts at a price of $1.50 per share. The Puts will be
exercisable for a period of ninety (90) days following the effective date of
the Registration Statement of which this Prospectus forms a part. The Puts
being issued to the Putholders will be distributed by mail within 10 days after
the effective date of the Registration Statement. The Putholders will not be
charged or assessed for Puts and the Company will not receive any proceeds from
the distribution of the Puts. The Company is bearing the cost of the Put
Option Offering. (See "TERMS OF OFFERINGS - THE PUT OPTION OFFERING.")
Finally, this Prospectus relates to the offer and sale of 500,429 shares
of Common Stock by certain shareholders of the Company (the "Selling
Shareholders" and "Selling Shareholder Offering," respectively). 195,371
shares of Common Stock being offered by the Selling Shareholders have been
pledged by MicroCap as security for its guarantee of the Company's obligation
to purchase and redeem up to 203,008 shares of Common Stock upon exercise of
the Puts. Pursuant to the guarantee and stock pledge, in the event that the
Company is unable to purchase and redeem shares of Common Stock pursuant to the
exercise of a Put, and Microcap defaults in its guarantee to pay the Put Option
price, shares of Microcap subject to the pledge may be sold under this
Prospectus, the proceeds of which will be used to pay the Put Option price. As
the Put Options expire 90 days following the effective date of the Registration
Statement, the Company does not anticipate updating the Prospectus during the
term of the Put Option to reflect the sale of pledged shares unless, in the
judgment of the Company, the number of shares sold becomes materials. The
Company will not receive any of the proceeds from the sales of the Common Stock
by the Selling Shareholders. The Common Stock offered by the Selling
Shareholders may be sold by them from time to time commencing on the date of
this Prospectus, based upon prevailing market conditions for the Company's
Common Stock. No underwriting arrangements have been entered into by the
Selling Shareholders. Sales of Common Stock by the Selling Shareholders may be
effected in one or more transactions that may take place on the over-the-
counter market, including ordinary broker's transactions, privately-negotiated
transactions or through sales to one or more dealers for resale of such shares
as principals, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or negotiated prices. Usual and
customary or specifically negotiated brokerage fees or commissions may be paid
by the Selling Shareholders in connection with the sales of securities.
The Selling Shareholders may be deemed to be "Underwriters" as defined in
the Securities Act of 1933 (the "Securities Act"). If any broker-dealers are
used by the Selling Shareholders, any commissions paid to broker-dealers and,
if broker-dealers purchase any securities as principals, any profits received
by such broker-dealers on the resales of the securities may be deemed to be
underwriting discounts or commissions under the Securities Act. In addition,
any profits realized by the Selling Shareholders may be deemed to be
underwriting commissions. By agreement between the Company and the Selling
Shareholders, all costs, expenses and fees in connection with the registration
of the securities offered by Selling Shareholders will be borne by the Company.
Brokerage commissions, if any, attributable to the sale of the securities will
be borne by the Selling Shareholders. The Company has agreed to indemnify the
Selling Shareholders against certain liabilities, including liabilities under
the Securities Act. (See "SELLING SHAREHOLDERS" and "PLAN OF DISTRIBUTION.")
This Prospectus does not relate to any resales of Common Stock by the
transferees of the Selling Shareholders.
Prior to this Offering, there has been no public market for the Common
Stock or the Puts, and despite the anticipated listing of the Common Stock and
Puts on the over-the-counter market, there is no assurance that an active
market will develop in the Common Stock or Puts. The Company intends to
develop separate trading markets for the Common Stock and the Puts on the over-
the-counter market. The Company, however, has no arrangements with any broker
or dealer to act as a market maker for the Company's securities and there can
be no assurance that the Company will be successful in obtaining any market
makers.
-------------------------------------------------
THESE ARE SPECULATIVE SECURITIES AND INVOLVE A HIGH DEGREE OF RISK AND NO
ONE SHOULD INVEST IN THESE SECURITIES UNLESS HE OR SHE CAN AFFORD A COMPLETE
LOSS OF HIS OR HER INVESTMENT.
-------------------------------------------------
FOR DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED IN EVALUATING
AN INVESTMENT IN THE COMPANY, SEE "RISK FACTORS" COMMENCING AT PAGE 15.
-------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Proceeds to
Price Selling Proceeds Selling
to Agents' to Security-
Public Commission Company holders (4)(5)
- -------------------- --------- ---------- ----------- --------------
<S> <C> <C> <C> <C>
Per Share (1)(2).... $2.00 $0.20 (3) $1.80 *
-------- --------- ----------- --------------
Total $800,000 $80,000 $720,000(4) *
- -------------------- -------- --------- ----------- --------------
(See Footnotes on following page)
The Date of This Prospectus is _____________, 1997.
(1) Contemplates the offering by the Company of up to 400,000 shares of the
Company's $.004 par value Common Stock at an offering price of $2.00 per
share in the Company Offering.
(2) The Company will not receive any proceeds from the distributions
contemplated in the Selling Shareholders Offering or Put Option Offering.
(3) No underwriter has been engaged to participate in the Company Offering.
Consequently, the Company will offer shares of Common Stock in the Company
Offering primarily through its officers and directors and possibly through
broker-dealers who are members of the National Association of Securities
Dealers, Inc. ("Selling Agents"). No commission or finders' fees will be
paid on sales made by officers and/or directors. On sales made by Selling
Agents, a commission will be paid. The Company's Board of Directors has
authorized payment of commissions to Selling Agents up to ten percent
(10%) of the purchase price of each share of Common Stock sold, or $.20
per share. To the extent that sales will be made through such Selling
Agents, the net proceeds to the Company will be reduced by the
commissions. Although it is unlikely, if all of the shares of Common
Stock are offered and sold through such Selling Agents, $80,000 would be
paid as commissions and the net proceeds to the Company would be $720,000
if the maximum number of shares of Common Stock are sold, excluding
expenses of the Offering. To date, no Selling Agents have been retained
or are under any obligation to participate in the distribution of the
shares in the Company Offering
(4) Before deducting the expenses of the Offering, including legal, accounting
and printing expenses, estimated to be $50,000. Assumes the sale of all
400,000 shares of Common Stock being offered by the Company at $2.00 per
share.
(5) The Selling Shareholders will offer their shares in transactions in the
over-the-counter market at prices obtainable at the time of sale in
privately-negotiated transactions at prices determined by negotiation. The
Selling Shareholders may effect transactions by selling to or through
securities broker-dealers and such broker-dealers may receive compensation
in the form of discounts, concessions, or commissions from the Selling
Shareholders. While it is impracticable to determine the precise amount
that the Selling Shareholders will incur, it is anticipated that any such
discounts, selling concessions or commissions will be consistent with
those customarily charged by broker-dealers who are members of the
National Association of Securities Dealers, Inc. ("NASD").
(6) The net proceeds to be realized by the Selling Shareholders will be an
amount equal to the gross selling price of the shares, as determined by
the market, less any discounts, concessions or commissions paid to the
broker-dealers.
</TABLE>
No person is authorized in connection with any offering made hereby to
give any information or to make any representation other than as contained in
this Prospectus, and if given or made, such information or representation must
not be relied upon as having been authorized by the Company. This Prospectus
does not constitute an offer to sell, or a solicitation of an offer to buy, by
any person in any jurisdiction in which it is unlawful for such person to make
such an offer or solicitation. Neither the delivery of this Prospectus nor any
sale made hereunder shall under any circumstances create any implication that
the information herein is correct as of any date subsequent to the date hereof.
<PAGE>
AVAILABLE INFORMATION
---------------------
The Company has filed a Registration Statement on Form SB-2 with the
Securities and Exchange Commission, Washington, D.C. (the "Commission"), in
accordance with the provisions of the Securities Act of 1933, as amended (the
"Act"). This Prospectus does not contain all of the information set forth in
the Registration Statement, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. For further
information pertaining to the shares of Common Stock offered hereby and the
Company, reference is made to the Registration Statement, including the
exhibits and financial statement schedules filed as a part thereof. Statements
herein contained concerning the provisions of any document are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an Exhibit to the Registration Statement. Each such statement is
qualified in its entirety by such reference. The Registration Statement may be
obtained from the Commission upon payment of the fees prescribed therefor and
may be examined at the principal office of the Commission in Washington, D.C.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 14
THE COMPANY 14
THE SPIN-OFF OFFERING 17
THE PUT OPTION OFFERING 17
COMPANY OFFERING 18
THE SELLING SHAREHOLDERS' OFFERING 19
RISK FACTORS 19
SUMMARY FINANCIAL DATA 19
RISK FACTORS 22
RISK FACTORS RELATED TO THE BUSINESS OF THE COMPANY 22
RISK FACTORS RELATED TO THIS OFFERING 26
USE OF PROCEEDS 28
DILUTION 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 32
LIQUIDITY AND CAPITAL RESOURCES - MARCH 31, 1996
COMPARED TO JULY 31, 1995 32
RESULTS OF OPERATIONS 39
BUSINESS 42
OVERVIEW 42
HISTORY 42
ACQUISITIONS AND DEVELOPMENT 44
OPERATIONS 45
MANAGEMENT 54
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES 54
EXECUTIVE COMPENSATION 56
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 59
DESCRIPTION OF SECURITIES 61
COMMON STOCK 61
PREFERRED SHARES 61
COMMON STOCK PUT OPTIONS 61
TERMS OF OFFERINGS 62
THE SPIN-OFF OFFERING 62
THE PUT OPTION OFFERING 62
THE COMPANY OFFERING 64
THE SELLING SHAREHOLDERS' OFFERING 64
CERTAIN TRANSACTIONS 68
CRI AGREEMENT 68
RBI AGREEMENT 68
MICROCAP GUARANTEE 69
MICROCAP DEBT CONVERSION 69
MICROCAP CONSULTATION AGREEMENT 69
TRIPOWER RESOURCES, INC. DEBT OBLIGATION 69
INDEMNIFICATION 71
LEGAL MATTERS 71
EXPERTS 71
INDEMNIFICATION OF DIRECTORS AND OFFICERS 74
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION 78
RECENT SALES OF UNREGISTERED SECURITIES 79
EXHIBITS 79
UNDERTAKINGS 80
</TABLE>
<PAGE>
[The following text is contained in a box]
PROSPECTUS SUMMARY
------------------
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED AND PRO FORMA FINANCIAL STATEMENTS, INCLUDING THE
RELATED NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
-----------
Redwood Broadcasting, Inc., f/k/a Intelligent Financial Holding
Corporation (the "Company" or "RBI") and its subsidiaries operate in the
rapidly-developing and expanding radio broadcasting industry in Northern
California and Arizona. The Company has embarked upon an aggressive
acquisition and development strategy and continues to seek acquisition and
development opportunities in the broadcast industry.
By agreement dated June 16, 1995, the Company acquired one hundred percent
(100%) of the issued and outstanding shares of Common Stock of Broadcasting in
exchange for 300,000 shares of Common Stock of the Company. Following the
acquisition, Broadcasting was merged with and into the Company, with the
Company remaining as the surviving entity. Thereafter, at a special meeting of
the Company's shareholders an amendment of the Company's Articles of
Incorporation changing the Company's name to Redwood Broadcasting, Inc. was
approved.
Broadcasting was incorporated in 1993 by entrepreneurs focused on
acquiring and developing undervalued radio broadcasting properties located in
small-to-medium sized markets as defined by industry standards. Broadcasting
began broadcast operations by entering into a joint venture with Quick
Broadcasting, Inc., an established broadcaster, to pursue the acquisition of a
station licensed to Vallejo, California. The station was attractive to
Broadcasting as it was eligible for the "Expanded Band" which, if granted,
would increase the station's broadcast capability. Greater signal range would
encompass more listeners which, in turn, would attract more advertising
clients. In addition, the purchase included real property that had a defined
buyer. The acquisition was completed in October, 1993, and in a simultaneous
separate transaction, the real property was sold leaving Broadcasting with a
minimal cash outlay for its capital investment. In 1994, Broadcasting sold its
fifty percent ownership interest in the joint venture.
In May, 1994, Broadcasting formed a wholly-owned subsidiary, Alta
California Broadcasting, Inc. ("Alta"), to pursue radio acquisition
opportunities it had determined were available in northern California. In
June, 1994, Alta entered into an Asset Purchase Agreement to acquire KHSL-AM\FM
licensed to Chico and Paradise, California respectively ("KHSL"). The
acquisition, valued at $1.15 million, included 11.7 acres of real property
located in Chico zoned for residential housing. The real property was sold in
April, 1996, for $450,000. Alta began operating KHSL in February, 1995 under a
Local Management Agreement ("LMA") while the station licenses were submitted to
the FCC to approve the change in ownership. In April, 1995, Alta also changed
the call letters of KHSL-AM to KNSN or KNSN Talk 1290. Located at 1290 on the
AM band, KNSN's programming is primarily originated through satellite
programming companies. In June, 1995, Alta completed the acquisition of KHSL
resulting in a termination of the LMA.
In March, 1995, Alta entered into an LMA with an option to purchase radio
station KCFM-FM licensed to Shingletown, California. KCFM-FM primarily serves
the Redding, California market. KCFM-FM began commercial broadcasting in
August, 1995, with a "Country" music format. The source of the programming was
simulcasting with KHSL-FM, also a country music format station, through the use
of high speed data transmission lines. In September, 1995, KCFM-FM changed its
call letters to KHZL-FM. During the Company's review of the performance of
KHZL-FM, it was decided that a format change would best serve the goal of
revenue enhancement. A new music format was developed using a satellite
delivered "Oldies" format. The change proved to be highly successful as KHZL-
FM posted a rating of 6.4 in The Arbitron Company's ("Arbitron") 1996 Spring
Survey versus not qualifying for any rated status in the Fall Survey under the
previous format. In May, 1996, Alta applied for an upgrade to increase the
station's broadcast power, the granting of which cannot be assured. In July,
1996, Alta completed the acquisition of KHZL-FM, thereby terminating the LMA.
Effective September 27, 1996, Alta changed KHZL-FM's call letters to KRDG-FM.
In December, 1995, Alta formed its own wholly-owned subsidiary, Northern
California Broadcasting, Inc. ("Northern"), to pursue the acquisition of radio
station KNNN-FM licensed to Central Valley, California, which primarily serves
the Redding, California market with an "Adult Contemporary" format. In May,
1996, Northern entered into an Asset Purchase Agreement to acquire KNNN-FM.
KNNN has obtained an upgrade to increase the station's broadcast power.
In March, 1996, Alta entered into separate Asset Sale Agreements to sell
the assets of both KHSL-FM and KNSN-AM, in a transaction valued at
$1.47 million. The proceeds from closing, which is scheduled to close on March
12, 1997 and is awaiting approval from the FCC for a change of ownership and
certain engineering modifications, will provide the capital for the Company's
plan of expansion into Redding, California, a market with greater opportunity
for the Company to implement its strategy to acquire multiple stations and
become a dominate force, unlike the Chico, California market, which has already
been consolidated.
In May, 1996, Alta also entered in an Asset Purchase Agreement to acquire
radio station KLXR-AM, presently a "dark" station (a station not broadcasting)
licensed to and serving the Redding, California market.
The Company has also filed for, and is the only applicant seeking, a
construction permit for an FM radio station in Payson, Arizona. Payson is not
a ranked market in the industry and the Company has no current plans to develop
the station. In July, 1996, Alta filed an application with the FCC for the
issuance of a construction permit to build an FM radio station to be licensed
to Shasta Lake City, California, which would also serve the Redding, California
market. In August, 1996, the Company also filed for a construction permit for
an FM radio station in Mesquite, Nevada. Numerous applicants are seeking
construction permits in both Shasta Lake City and Mesquite. As a result, there
can be no assurance that the Company's will be granted these construction
permits, or if granted, that the Company will have the resources or ability to
construct, and thereafter operate, one or both of the stations.
The Company's focus will continue to be multi-station ownership in small
and medium markets which it has termed its "Heartland" strategy. It believes
the markets it terms as "Heartland" markets tend to attract small local
operators with limited financial resources. The small-to-mid-sized market as
rated by Arbitron, in terms of population, holds a ranking of 150 to 250.
There are between 10,000 and 11,000 radio stations in the United States, the
majority of which are located in markets ranked small-to- medium sized,
"Heartland" sized, which offers the Company multiple opportunities for
acquisitions. To this end, the Company regularly evaluates possibilities for
the acquisition of additional radio stations, but at present, except as set
forth above, there are no negotiations, or arrangements or understandings with
respect to any potential material acquisition. (See "BUSINESS".)
The Company maintains its principal executive offices at Building A,
Suite I, 7518 Elbow Bend Road, P.O. Box 3463, Carefree, Arizona 85377, where
its telephone number is (602) 488-2596.
<PAGE>
THE SPIN-OFF OFFERING
- ---------------------
Purpose: To permit the distribution of shares of
the Company's Common Stock issuable to
the CRI Shareholders pursuant to the
terms of the Spin-Off.
Securities Offered: 300,008 shares of Common Stock.
Terms of the Spin-off (1):
Upon the effective date of the
Registration Statement and the
qualification of the Offering under all
applicable state Blue Sky laws, the
Company will distribute to the CRI
Shareholders of record as of December
16, 1994, on a "pro rata" one-for-one
(1-for-1) basis, 300,008 shares of the
Company's Common Stock, which shares
are currently being held in escrow
pursuant to the terms of the CRI
Agreement.
- -----------------------------------
(1) Pursuant to the terms of the CRI Agreement, the Company was formed and
organized by CRI as a wholly-owned subsidiary. 300,008 shares of Company
Common Stock were issued to CRI and escrowed to be distributed to the
Shareholders of record of CRI as of December 16, 1994 upon the effective
date of the Registration Statement. Does not include any of the 695,750
shares of Common Stock of the Company issued in transactions following the
initial formation and organization of the Company by CRI.
<PAGE>
THE PUT OPTION OFFERING
- -----------------------
Purpose: To give those CRI Shareholders with the
right to acquire shares of the
Company's Common Stock in the Spin-Off
Offering the right and option to sell
to the Company any or all Spin-Off
Shares.
Terms of the Puts:
Put Price: $1.50 per share
Expiration Date: The Puts will be exercisable for a
period of ninety (90) days following
the effective date of the Registration
Statement.
Maximum Number of Puts: 203,008
Guarantee: The Company's obligation to purchase
and redeem up to 203,008 shares of the
Company' Common Stock upon exercise of
the Puts has been guaranteed by
MicroCap, which guarantee is secured by
a pledge of 195,371 shares of the
Company's Common Stock owned by
MicroCap which are included in the
shares being registered for resale by
the Selling Shareholders.
COMPANY OFFERING
- ----------------
Securities Offered: 400,000 shares of Common Stock, $.004
par value.
Offering Price: $2.00 per share
Common Shares Outstanding:
Before Offering: 995,758
After Offering:(2) 1,395,758
Use of Proceeds: The proceeds, if any, from the Company
Offering will be used for working
capital and debt retirement (See "USE
OF PROCEEDS".)
- ----------------------------------------
(2) Assumes no Put Options are exercised.
<PAGE>
THE SELLING SHAREHOLDERS' OFFERING
- ----------------------------------
Securities Offered: 500,429 shares of Common Stock, $.004
par value (See "DESCRIPTION OF
SECURITIES.")
Offering Price: Prevailing market price
RISK FACTORS
------------
Investment in the securities offered by this Prospectus involves a high
degree of risk, including development stage of business, lack of profitable
operating history, lack of working capital, and possible volatility of price of
Common Stock. Prospective investors should carefully consider the factors set
forth under "RISK FACTORS."
SUMMARY FINANCIAL DATA
----------------------
Set forth below is selected summary financial information with
respect to the Company. Financial information for the eight months ended March
31, 1996, for the years in the two-year period ended July 31, 1995 and 1994,
and as of and for the six months ended September 30, 1996 and September 30,
1995 is derived from the financial statements included elsewhere in this
Prospectus and is qualified by reference to such financial statements and the
notes related thereto.
<PAGE>
<TABLE>
<CAPTION>
RBI CONSOLIDATED KNNN RBI CONSOLIDATED
FOR THE FOR THE YEARS FOR THE 6 MONTHS
------------------------ ENDED ENDED
8 MOS ENDED YEAR ENDED ---------------------- -----------------------
STATEMENTS OF MARCH 31 JULY 31 MARCH 31 MARCH 31 SEPT. 30 SEPT. 30
OPERATIONS DATA: 1996 1995 1996 1995 1996 1995
- --------------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 429,386 $ 367,548 $ 725,163 $ 803,849 $ 130,847 $ 341,559
Operating (Loss) (363,121) (160,453) (102,350) (131,758) (168,503) (130,281)
Net (Loss) (368,659) (160,453) (135,378) (176,055) (226,010) (147,638)
Net (Loss Per Share) (.53) (.49) N/A N/A (.29) (.25)
Weighted Average
Shares Outstanding 690,258 325,000 N/A N/A 793,008 600,008
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED
PRO FORMA RBI FOR THE KHSL (1) FOR THE ------------------
STATEMENTS OF 6 MOS ENDED 6 MOS ENDED PRO FORMA 6 MOS ENDED
OPERATIONS DATA: SEPT. 30, 1996 SEPT. 30, 1996 (1) ADJUSTMENT (2) SEPT. 30, 1996
-------------- ------------------ -------------- ------------------
<S> <C> <C> <C> <C>
Revenues $ 130,847 $ (24,170) $ - $ 106,677
Operating Income (Loss) (168,503) 79,215 (40,889) (130,177)
Net Income (Loss) (226,010) 159,215 (40,889) (107,684)
Net (Loss Per Share) (0.29) N/A - (.14)
Weighted Average
Shares Outstanding 793,008 N/A - 793,008
_____________________________
<FN>
(1) Stated separately to reflect the sale of KHSL-AM\FM which is pending regulatory approval.
(2) Reflects amortization expense associated with purchase of KNNN license.
</FN>
</TABLE>
<TABLE>
<CAPTION>
AS OF PRO FORMA PRO FORMA
BALANCE SHEET DATA: SEPT. 30, 1996 ADJUSTMENTS(1) AS ADJUSTED(1)(2) AS ADJUSTED(2)(3)
- ------------------ -------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Total Assets $2,155,412 $ (144,480) $2,010,932 $2,760,932
Working Capital (Deficit) (1,628,287) 1,266,000 (362,287) 387,713
Total Long-Term Obligations 665,222 - 665,222 665,222
Stockholders' Equity (Deficit) (257,989) 781,859 523,870 1,273,870
- ---------------------------------------
<FN>
(1) Pro forma adjusted to reflect the sale of KHSL-AM\FM, which is pending regulatory approval.
(2) Adjusted to reflect the sale by the Company of 400,000 shares of Common Stock at a price of $2.00
per share, after deducting an estimated $50,000 in offering expenses. However, there can be no
assurance how many, if any, shares of Common Stock will be sold in the Company Offering.
(3) Assumes no Put Options are exercised.
</FN>
</TABLE>
[REMAINING TEXT NOT CONTAINED WITHIN BOX]
<PAGE>
RISK FACTORS
------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
POSSIBILITY OF THE LOSS OF THEIR ENTIRE INVESTMENT IN THE COMPANY'S
SECURITIES AND, ALONG WITH EACH OF THE FOLLOWING FACTORS, CONSIDER THE
INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS.
RISK FACTORS RELATED TO THE BUSINESS OF THE COMPANY
- ---------------------------------------------------
DEVELOPMENT STAGE COMPANY. The Company is in the development stage
and its operations are subject to all of the risks inherent in a new
business enterprise, including the absence of a substantial operating
history, shortage of cash, under-capitalization, and the need for
additional financing. As such, problems, expenses, complications and
delays are expected to be encountered in connection with the
implementation of the Company's business plan. Future growth beyond
present capacity will require significant expenditures for the acquisition
and development of additional radio stations. These expenses must be paid
either out of the proceeds of future debt and/or equity offerings or out
of generated revenues and Company profits. The availability of funds from
either of these sources cannot be assured. (See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION," and the
Financial Statements and Notes thereto.)
BUSINESS OF THE COMPANY. The principal business of the Company is
acquiring, developing, maintaining and operating, primarily through
operating subsidiaries, radio broadcasting properties . The foregoing
business involves substantial risks which include, without limitation,
intense competition from others who possess more experience and greater
resources, the need to obtain and maintain all necessary licenses and
permits, extensive governmental regulation, attracting qualified
management, engaging in effective marketing and numerous other factors,
many of which are beyond the Company's control.
NEW BUSINESS AND LIMITED RADIO BROADCASTING EXPERIENCE. The Company
has only been engaged in the radio broadcasting industry since August,
1993. While the Company has and will continue to hire individuals with
experience in the radio broadcast industry, the Company has limited
experience in the radio broadcast industry, and there is no assurance that
its intended activities will be successful or result in profitable
operations. The Company also faces all the risks associated with a new
business, including the need for additional personnel and working capital.
SUBSTANTIAL INDEBTEDNESS. As of September 30, 1996, the Company was
indebted to a number of lenders in the aggregate amount of $826,339.
Interest is payable at rates ranging from 10% to 18% per annum with
respect to such borrowings. Consequently, a substantial portion of the
Company's cash flow has been and will be utilized to pay principal and
interest with respect to such indebtedness. Unless the Company can
generate substantial positive cash flow, an event that cannot be assured,
the Company will require additional financing as to which it has no
commitments. Should any such financing become available, there can be no
assurance that it will be upon terms or conditions favorable to the
Company or its shareholders. (See "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION OR PLAN OF OPERATION," "BUSINESS - Proposed
Acquisitions," and Financial Statements and the Notes thereto.)
SIGNIFICANT CASH REQUIREMENTS. The Company's cash requirements have
been and will continue to be significant. Net cash (used) by operating
activities for the six (6) months ended September 30, 1996, was $(26,335).
The Company is dependent upon the net proceeds of the Company Offering or
other financing in order to meet its obligations upon exercise of the
Puts, and to fund its working capital requirements. Accordingly,
substantial capital resources and additional working capital will be
needed to support the current operations and obligations of the Company,
and to support the operations of its proposed acquisitions. There can be
no assurance that any future financing will be available to the Company on
acceptable terms, if at all. (See "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION OR PLAN OF OPERATION," "BUSINESS - PROPOSED
ACQUISITIONS," AND FINANCIAL STATEMENTS AND THE NOTES THERETO.)
SECURED LIENS - EXISTENCE OF LIENS ON ASSETS. Substantially all of
the Company's assets have been pledged as collateral to secure the
Company's indebtedness in connection with the acquisition of radio
stations and certain other lending arrangements. In the event that the
Company fails to meet its obligations, including the making of required
payments of principal and interest, the Company's indebtedness could be
declared immediately due and payable and, in certain cases, the Company's
assets could be foreclosed upon. Moreover, to the extent that
substantially all of the Company's assets continue to be pledged to secure
outstanding indebtedness, such assets will be unavailable to secure
additional debt financing, which may adversely affect the Company's
ability to borrow in the future. (See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION," AND "CERTAIN
TRANSACTIONS.")
ADDITIONAL CAPITAL REQUIREMENTS. The Company's plans include the
possible development and operation of KLXR-AM in Redding, California, the
construction and operation of new radio stations in Payson, Arizona,
Shasta Lake City, California, and Mesquite, Nevada, and increased
marketing efforts aimed at improving the operations of all of the
Company's radio stations. Proceeds of the Company Offering will, however,
be limited, and it is likely that such proceeds will be substantially
below the funding necessary for the Company to fully develop its strategy.
As a result, it is probable that the Company will require additional
capital in the future to finance its business activities. Additional
needed capital may be obtained through borrowings or by additional equity
financing. Future equity financing may occur through the sale of either
unregistered common stock in exempt offerings or through the public
offering of registered equity securities. In any case, such additional
equity financing may result in additional dilution to investors. There
can be no assurance that any additional capital, funding or revenues can
be satisfactorily arranged. The Company has no arrangements for or
understandings with respect to the acquisition of additional capital.
(See "BUSINESS.")
LACK OF PROFITABLE OPERATING HISTORY. For the eight months ended
March 31, 1996, on a consolidated basis, the Company generated a net loss
of $(368,659) on net revenues of $429,386. Similarly, for the six months
ended September 30, 1996, on a consolidated basis, the Company generated a
net loss of $(226,010) on revenues of $130,847. There can be no assurance
that the Company's sales will continue to improve, or that the Company's
operations will not continue to result in a net loss.
RISKS OF RECENT ACQUISITIONS AND RAPID EXPANSION. The Company
acquired radio station KHZL-FM licensed to Shingletown, California, in
July, 1996 and radio station KNNN licensed to Central Valley, California,
in September, 1996. The Company's strategic plan also contemplates the
development of radio station KLXR-AM licensed to Redding, California, and
the construction of additional radio stations in Payson, Arizona, Shasta
Lake City, California, and Mesquite, Nevada in 1997. While the Company
believes that current management has the capacity to adequately oversee
the operation of these radio stations, there can be no assurance that
management will be able to meet the demands inherent in such rapid growth.
Further, the acquisition and development of radio stations in new
geographical locations will result in the dispersion of key personnel over
significant distances. Such dispersion will impose additional burdens on
existing management.
LIQUIDITY AND CAPITAL RESOURCES. In the past the Company has
operated on limited capital resources and has depended primarily on funds
generated from stock sales and short-term loans for on-going operations.
Even if the Company is able to achieve its business plan objectives, it
does not anticipate having substantial net operating profits until at
least 1999. In the meantime, there can be no assurance that funds
necessary for operations can be generated from stock sales and short-term
loans from investors and affiliates.
DEPENDENCE UPON MANAGEMENT. The Company's future success depends in
a large part on the continued service of its key marketing, sales,
promotional and management personnel and on its ability to continue to
attract, motivate and retain highly qualified employees. The Company
currently does not have written employment contracts with its key
executive officers, and, as a result, there can be no assurance of their
continued service to the Company. The loss of the services of key
personnel could have a material adverse effect upon the Company's
operations and development efforts. The Company does not have key person
life insurance covering its management personnel or other key employees.
(See "MANAGEMENT.")
DEPENDENCE UPON ADVERTISING REVENUES. Substantially all of the
Company's revenues are derived from the sale of local, regional and
national advertising for broadcast on its radio stations. Although the
format of a particular station's programming can vary, there are only a
limited number of advertisements broadcast each hour of broadcast time.
The Company determines the number of advertisements broadcast hourly based
upon its assessment of the maximum amount of advertising revenue it can
derive without jeopardizing listening levels. While there may be shifts
from time to time in the number of advertisements broadcast during a
particular time of day, the total number of advertisements broadcast on a
particular station generally does not vary significantly from year to
year. Any change in the Company's revenues, with the exception of those
instances where stations are acquired or sold, is generally the result of
pricing adjustments which are made to ensure that the station fully
utilizes available inventory. Advertising rates are directly related to
the size of a radio station's listening audience. Increasing the audience
base is an important factor in achieving profitability and this cannot be
assured. (See "BUSINESS - ADVERTISING.")
SUBSTANTIAL COMPETITION. Radio broadcasting is an extremely
competitive business. The Company's radio stations compete for listeners
and advertising revenues directly with other radio stations within their
market place. Competition for radio listeners is primarily based upon
program content and on-air talent which appeals to a particular
demographic group. By building a strong base of listeners, the Company
attempts to attract advertisers who wish to reach a particular demographic
group of listeners who may purchase their products. Thus, a decrease in
the number of listeners will likely result in a decrease in advertising
revenues. There can be no assurance that the Company can successfully
compete for listeners or advertising revenues. In addition, the Company's
radio stations compete for listeners and advertising revenues with other
forms of communications media, including broadcast television, cable
television, newspapers, magazines, direct mail coupons and billboard
advertising. (See "BUSINESS - COMPETITION.")
FEDERAL REGULATION OF RADIO BROADCASTING; LICENSE RENEWAL. The
ownership, operation and sale of radio stations, including those licensed
to the Company, are subject to regulation by the Federal Communications
Commission ("FCC"). Among other things, the FCC assigns frequency bands
for broadcasting; determines the particular frequencies, locations and
operating power of stations; issues, renews, revokes and modifies station
licenses; determines whether to approve changes to ownership or control of
station licensees; regulates transmitting equipment used by stations;
adopts and implements regulations and policies that directly or indirectly
affect the ownership, operation and employment practices of radio
broadcasting stations; and has the power to impose penalties for
violations of its rules or the Communication Act of 1934, as amended (the
"Communication Act"). Federal regulations, including, without limitation,
those affecting the regulation of radio broadcasting and advertising,
govern the promotion and advertising activities of the Company and its
advertisers' products. The Communications Act also prohibits the
assignment of an FCC license or any transfer of control of an FCC license
without the prior approval of the FCC. In determining whether to grant
requests for consents to such assignments or transfers, and in determining
whether to grant or renew a radio broadcast license, the FCC considers a
number of factors pertaining to the licensee or proposed licensee
including compliance with alien ownership restrictions and rules governing
the multiple ownership and cross-ownership of broadcast and other media
properties, the "character" of the applicant and those persons or entities
holding "attributable" interests in the applicant and compliance with the
Anti-Drug Abuse Act of 1988. Compliance with such laws and regulations
could be costly and changes in laws and regulations could increase the
cost of compliance and materially affect the Company in other respects not
presently foreseeable. The Company monitors laws and regulations, as well
as pending legislation. However, there can be no assurance that such laws
and regulations will not have a material adverse effect upon the Company.
The Company's current licenses expire on December 1, 1997. There can
be no assurance that any of the Company's current or proposed licenses
will be renewed. (See "BUSINESS - GOVERNMENT REGULATION.")
RESTRICTIONS ON FOREIGN OWNERSHIP. In accordance with the
Communication Act and rules promulgated by the FCC, the ownership, voting
and transfer of the Company's capital stock is restricted with respect to
foreign owners. Such regulations prohibit the ownership of more than
twenty percent (20%) of the Company's outstanding capital stock (or more
than twentypercent (20%) of the voting rights represented), by or for the
account of foreign individuals or corporations otherwise subject to the
control of foreign individuals or entities. Such restrictions could
adversely influence the market for and/or price of the Company's
securities. (See "BUSINESS - GOVERNMENT REGULATION.")
CERTAIN CONFLICTS OF INTEREST - CORPORATE OPPORTUNITIES. As of the
date of this Prospectus, MicroCap is the beneficial owner of 487,692
shares of the Company's Common Stock, which shares represent 48.9% of the
issued and outstanding shares of the Company's Common Stock.
Additionally, John C. Power and J. Andrew Moorer, both officers and
directors of the Company, also serve as officers and directors of
MicroCap. The Company's officers and directors are aware of the fact that
they owe a fiduciary duty to the Company not to withhold any corporate
opportunity which may arise because of their association with the Company.
However, the Company may not have sufficient capital to take advantage of
opportunities which may be presented to its officers and directors; and
these persons may, either alone or jointly with third parties, make
acquisitions or otherwise take advantage of opportunities which might
otherwise be available to the Company and within the Company's area of
interest. It is also possible that in the future these opportunities may
be presented to the Company by these individuals at a time when the
Company has sufficient capital; however, it is likely that under those
circumstances these individuals will expect a profit or reasonable return
on their investment in the terms offered to the Company. All of these
situations represent the potential for conflicts of interest from these
transactions. While the Company has clearly defined its area of interest
to include only "heartland" sized markets with Arbitron ranking of
150-250, the officers and directors of the Company have neither adopted
nor articulated any policy with respect to corporate opportunity should it
arise. It is possible that the Company's officers would be unable to
reconcile their fiduciary duties to their various affiliated entities, in
which event shareholder suits may be possible. (See "MANAGEMENT.")
RISK FACTORS RELATED TO THIS OFFERING
- -------------------------------------
OFFERING PRICE ARBITRARILY DETERMINED. The Offering Price of the
Common Stock being offered hereby and the exercise price and other terms
of the Puts were arbitrarily determined by the Company and are not
necessarily related to the Company's assets, book value or financial
condition, and may not be indicative of the actual value of the Company.
LACK OF DIVIDENDS. The Company has not declared or paid any
dividends on outstanding shares of Common Stock and does not intend to
declare or pay any dividends on its outstanding shares of Common Stock in
the foreseeable future. (See "DIVIDENDS.")
NO PUBLIC TRADING MARKET FOR THE COMPANY'S COMMON STOCK OR PUTS.
There currently exists no public trading market for the Company's Common
Stock, and there can be no assurance that such a market will develop in
the future or that a public market for the Puts will be developed or
sustained. In the absence of an active public trading market, there can
be no assurances that an investor will be able to liquidate his investment
without considerable delay, if at all. If a market does develop, the
price for the Company's securities may be highly volatile and may bear no
relationship to the Company's actual financial condition or results of
operations. (See "DESCRIPTION OF SECURITIES.")
NO MARKETMAKER. The Company's securities may be quoted in the "pink-
sheets" maintained by the National Quotations Bureau, Inc., which reports
quotations by brokers or dealers making a market in particular securities.
The Company has no agreement with any broker or dealer to act as a
marketmaker for the Company's securities and there is no assurance that
Management will be successful in obtaining any marketmakers. The lack of
a marketmaker for the Company's securities could adversely influence the
market for and price of the Company's securities, as well as the ability
of investors to dispose of, or to obtain accurate quotations as to the
price of, the Company's securities. (See "TERMS OF OFFERINGS.")
NASDAQ LISTING AND MAINTENANCE REQUIREMENTS; RISKS OF LOW-PRICED
STOCKS. The Securities and Exchange Commission (the "Commission") has
approved rules imposing more stringent criteria for the listing of
securities on NASDAQ, including standards for maintenance of such listing.
Even upon successful closing of this Offering, the Company will be unable
to satisfy NASDAQ's initial listing criteria and, as a result, trading of
the Company's securities, if any, will be conducted in the over-the-
counter market in the so-called "pink sheets" or on the "Electronic
Bulletin Board" of the National Association of Securities Dealers, Inc.
("NASD"). As a consequence, an investor could find it more difficult to
dispose of, or to obtain accurate quotations as to the price of, the
Company's securities.
The Securities Enforcement and Penny Stock Reform Act of 1990
requires additional disclosure, relating to the market for penny stocks,
in connection with trades in any stock defined as a penny stock. The
Commission has adopted regulations that generally define a penny stock to
be any equity security that has a market price of less than $5.00 per
share, subject to certain exceptions. Such exceptions include any equity
security listed on NASDAQ and any equity security issued by an issuer that
has (i) net tangible assets of at least $2,000,000, if such issuer has
been in continuous operation for three years, (ii) net tangible assets of
at least $5,000,000, if such issuer has been in continuous operation for
less than three years, or (iii) average annual revenue of at least
$6,000,000, if such issuer has been in continuous operation for less than
three years. Unless an exception is available, the regulations require
the delivery, prior to any transaction involving a penny stock, of a
disclosure schedule explaining the penny stock market and the risks
associated therewith.
Because the Company's securities will not be quoted on NASDAQ,
and the Company does not have $5,000,000 in net tangible assets, or
average annual revenue of $6,000,000, trading in the Company's securities
will be covered by Rules 15-g-1 through 15-g-6 promulgated under the
Exchange Act for non-NASDAQ and non-exchange listed securities. Under
such rules, broker-dealers who recommend such securities to persons other
than established customers and accredited investors must make a special
written suitability determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written agreement
to this transaction. Securities are exempt from these rules if the market
price of the Common Stock is at least $5.00 per share.
Because the Company's Common Stock will, as of the date of this
Prospectus, be within the definitional scope of a penny stock, the market
liquidity for the Company's securities could be severely affected.
Specifically, the regulations on penny stocks could limit the willingness
and/or ability of broker-dealers to sell the Company's securities and thus
the ability of purchasers of the Company's securities to sell their
securities in the secondary market.
SHARES ELIGIBLE FOR FUTURE SALE. As of December 20, 1996, 995,758
shares of the Company's $.004 par value Common Stock, were issued and
outstanding, all of which are "restricted securities" and are being
registered for future sale. Of these 995,758 restricted securities,
approximately 63.6% are beneficially owned by officers, directors and
affiliates of the Company. No prediction can be made as to the effect, if
any, that sales of shares of Common Stock or the availability of such
shares for sale will have on the market prices prevailing from time to
time. Nevertheless, the possibility that substantial amounts of Common
Stock may be sold in the public market may adversely affect prevailing
market prices for the Common Stock and could impair the Company's ability
to raise capital in the future through the sale of equity securities.
Actual sales or the prospect of future sales of shares of Common Stock may
have a depressive effect upon the price of the Common Stock and the market
therefor.
AUTHORIZATION OF PREFERRED STOCK. The Company's Articles of
Incorporation, as amended, authorize the issuance of up to 2,500,000
shares of preferred stock. The Board of Directors has been granted the
authority to fix and determine the relative rights and preferences of
preferred shares, as well as the authority to issue such shares, without
further stockholder approval. As a result, the Board of Directors could
authorize the issuance of a series of preferred stock which would grant to
holders preferred rights to the assets of the Company upon liquidation,
the right to receive dividend coupons before dividends would be declared
to common stockholders, and the right to the redemption of such shares,
together with a premium, prior to the redemption of Common Stock. Common
stockholders have no redemption rights. In addition, the Board could
issue large blocks of voting stock to fend against unwanted tender offers
or hostile takeovers without further shareholder approval. (See
"DESCRIPTION OF SECURITIES.")
AUTHORIZATION OF ADDITIONAL SHARES. The Company's Articles of
Incorporation, as amended, authorized the issuance of up to 12,500,000
shares of Common Stock, of which 995,758 shares are outstanding on the
date of this Prospectus. The Company's Board of Directors has the
authority to issue additional shares of Common Stock and to issue options
and warrants to purchase shares of the Company's Common Stock without
shareholder approval. Future issuance of Common Stock could be at values
substantially below the Offering Price in the Offering and therefore could
represent further substantial dilution to investors in the Offering. In
addition, the Board could issue large blocks of voting stock to fend off
unwanted tender offers or hostile takeovers without further shareholder
approval. (See "DESCRIPTION OF SECURITIES.")
DILUTION. At September 30, 1996, the Company had issued the
outstanding 895,758 shares of Common Stock at an average cost per share of
approximately $.56, which is $1.44 per share less than the price to the
public in the Company Offering. At September 30, 1996, the Company had a
pro forma net tangible book value of $523,870, or $.59 per share of Common
Stock outstanding, based on 895,758 shares issued and outstanding. Giving
effect to the sale of 400,000 shares of Common Stock by the Company in the
Company Offering, and after deduction of expenses of the Offerings, the
Company will have a net tangible book value of approximately $1,193,870,
or $.92 per share. Investors in this Offering will sustain an immediate
substantial dilution of $1.08 or 54% of their price per share. (See
"DILUTION.")
RETENTION OF CONTROL. The Company's Articles of Incorporation do not
provide for cumulative voting in the election of Directors. Giving effect
to the sale of 400,000 shares of Common Stock in the Company Offering, the
existing shareholders will own or control 895,758 shares of Common Stock,
or approximately 69% of the shares then outstanding and will be in a
position to influence the election of the Board of Directors of the
Company who, in turn, appoint all of the Company's officers.
NEED FOR CURRENT PROSPECTUS AND STATE BLUE SKY QUALIFICATIONS. The
CRI Shareholders will receive shares of the Spin-Off Shares, and
Putholders will receive Puts, only if there is a current and effective
Registration Statement and Prospectus covering the shares of Spin-Off
Shares and Puts, and only if the Spin-Off Shares and Puts are qualified
for issuance under the securities laws of the applicable state or states.
Although the Company plans to qualify the issuance of the Spin-Off Shares
and Puts in those states in which the securities are to be distributed, no
assurance can be given that such qualification will occur. CRI
Shareholders residing in states where the Company is unable to qualify the
Spin-Off Shares for distribution, and Putholders residing in states where
the Company is unable to qualify the Puts for issuance, will not be
eligible to participate in the Spin-Off or Put Option Offering. Any Spin-
Off Shares or Puts which cannot be qualified for distribution to residents
of certain states will be distributed PRO-RATA to the remaining CRI
Shareholders who reside in States where the distributions have been
qualified. (See "DESCRIPTION OF SECURITIES.")
USE OF PROCEEDS
---------------
The proceeds to the Company from the Company Offering, net of the
expenses of the Company Offering and the maximum Selling Agents'
commissions, will be approximately $670,000. Management anticipates that
the proceeds will be applied with the following priority during the next
twelve (12) month period:
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION OF USE AMOUNT PERCENT
------------------ -------- -------
<S> <C> <C>
Put Option Exercise(1) $304,500 45.4%
Working Capital(2) 365,500 54.6%
-------- -------
Total: $670,000 100.0%
======== ======
- -----------------------------------
<FN>
(1) Reflects the Company's total obligation in the event all 203,008 Puts
are exercised at a put price of $1.50 per share. If fewer than
203,008 Puts are exercised, the excess proceeds allocated to cover
the exercise of outstanding Puts will be re-allocated to working
capital and/or the reduction of existing debt obligations of the
Company.
(2) The proceeds allocated to working capital will be applied, to the
extent necessary, to the Company's current and proposed operations.
(See "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.")
However, as it is an inherent part of the Company's strategic plan to
achieve long-term growth through acquisitions and/or the development
of additional stations, a portion of the proceeds allocated to
working capital may be used in connection with the development of one
or more additional radio stations, including the possible development
of KLXR-AM in Redding, California, and/or the development of radio
stations in Payson, Arizona, Shasta Lake City, California and/or
Mesquite, Nevada. While the Company regularly evaluates
opportunities for the acquisition of existing radio stations, other
than KLXR-AM, there are no substantive negotiations, arrangements,
agreements or understandings with respect to any potential
acquisition. The Company's development plans are currently limited
to the development of one (1) station in Payson, Arizona and,
possibly stations in Shasta Lake City and/or Mesquite, Nevada. (See
"BUSINESS.")
</FN>
</TABLE>
Due to an inability to precisely forecast the number of shares which
may be sold by the Company in the Company Offering, the Company is unable
to predict the precise period for which the Company Offering will provide
financing. The proceeds of the Company Offering will not be sufficient to
satisfy all of the Company's working capital requirements. The Company
will need additional financing in the future. (See "RISK FACTORS")
<PAGE>
DILUTION
--------
The pro forma net tangible book value of the Company at September 30,
1996, giving effect to the sale of KHSL-AM\FM but before giving effect to
(i) the sale in December 1996 of 100,000 shares of Common Stock for $1.20
per share or (ii) the Company Offering, was $523,870 or $.59 per share,
based upon 895,758 shares outstanding. Net tangible book value per share
is determined by dividing the number of outstanding shares of Common Stock
into the net tangible book value of the Company (total assets less total
liabilities and intangible assets). After giving effect to the sale of
400,000 share of Common Stock by the Company in the Company Offering and
receipt of the estimated net proceeds therefrom (assuming the maximum
Selling Agent's Commissions are paid), the pro forma, adjusted net
tangible book value at September 30, 1996 was $1,193,870, or $.92 per
share of Common Stock, based upon 1,295,758 shares outstanding. This
represents an immediate increase of $.33 per share to current shareholders
and an immediate dilution of $1.08 per share to the investors in the
Company Offering. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Public Offering Price $2.00
Pro Forma Net Tangible Book Value
per share before Offering: (1) $(.59)
Total Assets (1)(3) $2,010,932
Total Tangible Assets (1)(3) $2,010,932
Total Liabilities (1)(3) $1,487,062
Net Tangible Book Value (1)(3) $523,870
Net Tangible Book Value Per Share
After Offering (1)(2)(3) $.92
Increase in Net Tangible Book Value per
share Attributable to Offering (1)(2)(3) $.33
Dilution of Net Tangible Book Value per
share to new investors (1)(4) $1.08
=====
Dilution as a Percentage of Offering
Price (1)(4) 54%
===
- -----------------------------------
(1) Does not give effect to the sale in December, 1996 of 100,000 shares
of Common Stock at a price of $1.20 per share.
(2) After deduction of estimated Offering costs, and maximum potential
Selling Agents' commissions.
(3) Based upon 1,290,758 shares outstanding.
(4) Determined by subtracting the net tangible book value per share after
the Company Offering from the amount of cash paid by a new investor
for a share of Common Stock.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
The following discussion and analysis should be read in conjunction
with the Financial Statements and notes thereto appearing elsewhere in
this Prospectus.
OVERVIEW
- --------
By agreement dated June 16, 1995, the Company acquired one hundred
percent (100%) of the issued and outstanding shares of common stock of
Redwood Broadcasting, Inc. ("Broadcasting") in exchange for 300,000 shares
of Common Stock of the Company. Immediately prior to the acquisition of
Broadcasting, the Company's assets consisted primarily of personal
property, machinery and equipment, and certain contracts, leases, accounts
and agreements previously owned by CRI (the Company's former parent
corporation) and transferred to the Company in February, 1995, in exchange
for 300,008 shares of the Company's Common Stock pursuant to the CRI
Agreement. Subsequent to the acquisition, Broadcasting was merged with
and into the Company, with the Company remaining as the surviving entity
(the "Merger"). (See "BUSINESS - HISTORY - FORMATION OF THE COMPANY").
The acquisition of Broadcasting was accounted for as a reverse acquisition
because MicroCap, the controlling shareholder of Broadcasting, was in
control of the Company upon consummation of the Merger. (See "SECURITY
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS".) Following the
Merger, the Company changed its name to Redwood Broadcasting, Inc.
Subsequent to consummation of the Merger, the Company changed its
fiscal year end from July 31 to March 31. As a result, the Company's
balance sheet relates to the eight (8) months ended March 31, 1996, and
the year ended July 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES - MARCH 31, 1996 COMPARED TO JULY 31, 1995
- --------------------------------------------------------------------------
The Company's balance sheet at March 31, 1996 reflects a slight
increase in assets, liabilities and stockholders' equity when compared
with the Company's balance sheet at July 31, 1995.
Total current assets at March 31, 1996 were $160,727, consisting of
accounts receivable of $86,834, net of allowance for doubtful accounts of
$16,400, and other assets of $73,893. Total current liabilities at March
31, 1996 were $1,585,368, resulting in a working capital deficit of
$1,424,641. This compares with a working capital deficit of $1,415,137 at
July 31, 1995, based on current assets of $149,779 and current liabilities
of $1,564,916.
Contributing significantly to the Company's working capital
deficiency was $735,000 in short-term debt created by Alta in conjunction
with its purchase of radio stations KHSL-AM\FM, which at March 31, 1996,
had been paid down to $685,000. Specifically, by agreement dated March 3,
1995, Alta entered into an asset purchase agreement to acquire radio
stations KHSL-AM\FM, for $1,150,000 ("KHSL AGREEMENT"). Effective
February 15, 1995, prior to consummation of the acquisition, Alta
commenced operating KHSL-AM\FM under a Local Management Agreement ("LMA").
On June 19, 1995, Alta completed the acquisition of KHSL-AM\FM. Based on
management's estimate of the values of the assets acquired, the Purchase
Price was originally allocated as follows:
<TABLE>
<S> <C>
Land $ 600,000
License 350,000
Station equipment 200,000
----------
$1,150,000
</TABLE>
However, the appraised value of $600,000 for the land failed to take into
account a long-term ground lease for use of space by a third party on the
radio tower located on the property. Based on this subsequently obtained
information, the allocation of the purchase price was retroactively
changed to reclassify the difference between the sale price of the land
and the original cost allocation to land, in the amount of $150,000, to
the value of the license. The July 31, 1995 financial statements have
been retroactively adjusted for this correction of an error in the
allocation of the purchase price.
In order to facilitate the acquisition, Alta created the following notes
payable:
* A $375,000 note payable to TriPower Resources, Inc., a
controlled corporation of the Company's President, John C.
Power, which note bears interest at the rate of fourteen percent
(14%) per annum, and was originally due and not paid on August
18, 1995 (the "TriPower Note"). By mutual agreement of the
parties, the maturity date of the TriPower Note has been
extended to September, 1996. The TriPower Note was originally
collateralized by a deed of trust on certain real estate
acquired in conjunction with the purchase of KHSL-AM\FM located
in Chico, California, ("Chico Property"), which property was
sold by the Company in April, 1996. The TriPower Note is now
collateralized by a pledge of 100% of the shares of Alta Common
Stock. Alta is the Company's principal operating subsidiary,
which owns and operates both KNNN and KRDG in Northern
California, the Company's principal assets. In addition, Alta
is the owner of KHSL, which will receive the remaining proceeds
of the sale of that station once regulatory approval is
obtained. The TriPower Note was paid down by $75,000 with
proceeds from the sale of the Chico Property, and has since been
paid in full, and the Alta shares released from pledge.
* Alta also created a $260,000 note payable to the former owner of
KHSL-AM\FM, which note bears interest at the rate of ten percent
(10%) per annum and was due in full in June, 1996 (the "June
Note"). The June Note was collateralized by all of the assets
of KHSL-AM\FM acquired by Alta as part of the acquisitionand was
guaranteed by MicroCap. The June Note was paid in full in
April, 1996, prior to the maturity date, with proceeds from the
sale of the Chico Property.
* A note payable to an individual in the original principal amount
of $100,000, which note bears interest at the rate of eight
percent (8%) per annum and was due and not paid in full, on
September, 15, 1995 (the "September Note"). Subsequent to the
original maturity date, the Company made a principal reduction
payment of $50,000, and the holder of the September Note agreed
to extend the maturity date to September, 1996. The September
Note is uncollateralized but is guaranteed by MicroCap and a
principal shareholder of the Company, and has since been paid in
full.
Also contributing to the Company's working capital deficit is the
Company's obligation, pursuant to the terms of the RBI Agreement, to
purchase and redeem up to 203,008 shares of Company Common Stock upon the
exercise of certain put options ("Puts") at a purchase price of $1.50 per
share. The Puts are exercisable for a period of ninety (90) days
following the effective date of the Registration Statement. As a result
of the Company's obligation under the Puts, the Company has included in
its balance sheet a current liability of $304,512.
Other short-term debts contributing to the Company's working capital
deficit at March 31, 1996, include trade accounts payable of $108,319,
accrued expenses of $91,991, and payroll tax withholding of $73,121. At
March 31, 1996, the Company also reported accounts payable to certain
related parties totalling $232,730, and the current portion of unearned
income totalling $23,333. Unearned income relates to a portion of the
proceeds received by RBI in conjunction with the sale of a fifty percent
(50%) interest in a joint venture formed to acquire radio station KNBA
licensed to Vallejo, California. In addition to receiving $180,000 in
cash for this fifty percent (50%) interest, RBI received $70,000 in cash
for a three (3) year covenant not to compete. This covenant is being
amortized into income on a straight-line basis over a three (3) year term.
In an effort to reduce its working capital deficit, the Company has
taken or plans to take the following actions:
* During the eight months ended March 31, 1996, the Company
received approximately $200,000 from MicroCap in the form of
intercompany advances. Although this infusion of capital
contributed to the Company's overall working capital deficit by
increasing current liabilities, the funds received were used to
pay down the September Note by $50,000 (to a principal balance
of $50,000) thereby reducing the Company's interest burden.
* During the eight (8) months ended March 31, 1996, the Company
completed a private offering in which it sold a total of 25,000
shares of Common Stock for an aggregate purchase price of
$30,000, or $1.20 per share. The shares were "restricted
securities" under the Securities Act. The private offering
price per share was negotiated by the Company with the investor,
who was and remains unaffiliated with the Company and/or its
officers and directors.
* During the eight (8) months ended March 31, 1996, the Company
established relationships with several lenders for the purpose
of leasing capital equipment. These leases are for periods of
not less than three years and are at what management believes to
be favorable interest rates. The use of leases for the
acquisition of capital equipment will, in the opinion of
management, allow the Company to utilize cash flow from
operations to reduce the Company's short-term debt obligations,
and increase the amount of working capital available for future
needs.
* The Company has entered into agreements to sell radio stations
KHSL-AM\FM for a combined purchase price of $1,466,000, of which
$1,266,000 will be payable in cash at closing and the balance of
which, $200,000, will be payable in the form of a promissory
note. The Company plans to use the sale proceeds to
significantly reduce its outstanding notes payable and to repay
the advances from Microcap. Because both stations were
incurring operating losses at the time Alta entered into the
LMA, Alta will benefit from this transaction by not having to
fund current operating losses. In addition, upon closing, Alta
will obtain necessary capital to reduce its notes payable and to
continue its acquisition plan and growth strategy.
* In April, 1996, Alta sold the Chico Property for a purchase
price of $450,000. As part of the transaction, Alta remitted to
the purchaser of the land a total of $80,000 in the form of a
charitable donation. As a result, net proceeds to the Company
from the sale were $370,000. Proceeds from this sale were used
to pay all amounts due and owing under the September Note
($260,000), and to reduce the TriPower Note by $75,000.
* In August, 1996, the Company completed another private placement
of stock in which it sold a total of 37,750 shares of Common
Stock to four (4) investors for an aggregate purchase price of
$45,300, or $1.20 per share. The shares were "restricted
securities" under the Securities Act. The private offering
price per share was negotiated by the Company with the
investors.
* The Company plans to use the net proceeds from the Company
Offering, if any, to reduce its current liabilities. If the
Company is able to successfully complete the sale of all 400,000
shares of Common Stock, of which there can be no assurance, the
Company will receive approximately $690,000 in net proceeds
after all costs and selling agent commissions. The net
proceeds, if any, will be used to meet the Company's obligation
upon exercise of the Puts, and, if proceeds remain, will be
allocated to working capital and/or the reduction of debt
obligations. (See "USE OF PROCEEDS".)
At March 31, 1996, the Company reported total assets of $1,545,105,
including property and equipment of $749,560, net of accumulated
depreciation of $74,855. Significant assets included in property and
equipment at March 31, 1996 included the Chico Property recorded at
$450,000, radio broadcasting equipment valued at $296,142, and computer
equipment valued at $44,443, all of which was either acquired in
conjunction with the purchase of KHSL-AM\FM, or subsequently purchased by
the Company in an effort to maintain or enhance the quality of the
Company's broadcast signal and/or automate operations at the Company's
Chico, California studio, or as part of the construction and ultimate
purchase of KRDG more fully described below. Total assets also includes
radio broadcast licenses valued at $489,833, net of accumulated
amortization of $16,667, and other assets valued at $144,985.
Total liabilities of $1,607,084 as of March 31, 1996 include, in
addition to the current liabilities referred to above, the long-term
portion of notes payable of $11,994 and unearned income of $9,722. This
compares with total liabilities of $1,611,649 as of July 31, 1995, and
represents a decrease of $4,565.
For the eight months ended March 31, 1996, the Company reported an
accumulated deficit of $(532,224). The Company's accumulated deficit,
when combined with additional paid-in capital of $467,123, resulted in a
stockholders' deficit of $(61,979) at March 31, 1996. This compares with
stockholder's equity of $93,380 at July 31, 1995, and represents a
decrease of $155,359.
RECENT ACQUISITIONS
-------------------
In March, 1995, Alta entered into a Local Management Agreement
("LMA") with an option to purchase radio station KCFM licensed to
Shingletown, California. Upon exercise of its option, Alta advanced
$50,000 to the license holder of KCFM-FM, which sum was credited towards
the purchase price of the station. In addition, Alta advanced an
additional $100,000 to build the radio station and construct the
transmitter site. Upon consummation of the acquisition, which was
finalized in July, 1996, Alta delivered the balance of the purchase price
in the form of $15,000 in cash and Alta's promissory note in the principal
amount of $155,000, which note bears interest at the prime rate per annum
as quoted by Chemical Bank of New York, and is secured by KCFM's assets
and guaranteed by MicroCap. In August, 1995, KCFM began commercial
broadcasting at 105.3 Mhz on the FM band. In September, 1995, KCFM
changed its call letters to KRDG, and presently broadcasts a satellite
delivered oldies format. (See "BUSINESS - Operations - RECENT
ACQUISITIONS".)
In December, 1995, Alta executed a Letter of Intent regarding the
acquisition by Alta's wholly owned subsidiary, Northern California
Broadcasting, Inc. ("Northern"), of radio station KNNN licensed to Central
Valley, California, for a total purchase price of $825,000. $325,000 of
the Purchase Price was paid in certified funds at closing, and the
balance, $500,000, in the form of Northern's promissory note, secured by
100% of the stock of Northern and guaranteed by the Company. The
acquisition of KNNN was consummated in September, 1996.
PROPOSED DEVELOPMENT
--------------------
In May, 1996, Alta entered into an Asset Purchase Agreement to
acquire radio station KLXR-AM, presently a "dark" station (a station not
broadcasting) licensed to and serving the Redding, California market for a
total purchase price of $100,000 in cash. The acquisition of KLXR-AM is
subject to a number of contingencies including obtaining all necessary
approvals from the FCC. There can be no assurance that the Company's
attempts to acquire KLXR-AM will be successful, or if successful, that the
operation of KLXR-AM will be profitable.
The Company has also filed for, and is the only applicant seeking, a
construction permit for an FM radio station in Payson, Arizona.
Additionally, in July, 1996, Alta filed an application with the FCC for
the issuance of a construction permit to build an FM radio station to be
licensed to Shasta Lake City, California, which would also serve the
Redding, California, market. In August, the Company filed for a
construction permit for an FM radio station in Mesquite, Nevada. Numerous
applicants are seeking construction permits for both Shasta Lake City,
California and Mesquite, Nevada. Accordingly, there can be no assurance
that the Company will be granted construction permits for either location,
or, if granted, that the Company will be able to complete development of
the stations. To this end, the Company estimates that it will cost
approximately $350,000 to complete construction of all three (3) stations.
The Company's current capital resources are substantially below the
funding necessary for the Company to fully complete its development
strategy. Microcap, the Company's majority shareholder, has agreed in
principle to provide the working capital necessary to complete the station
construction in Payson and to cover operating expenses for the first three
months of operation. While the terms of the capital infusion have not
been finalized, it is expected that the funds will be advanced in the form
of loans, secured by the tangible and intangible assets of the Payson
station. As the Company is a controlled corporation of Microcap, it has
been agreed that the terms of the funding will be no less favorable to the
Company than terms that would otherwise be available to the Company from
unaffiliated third parties through arms-length negotiations.
Nevertheless, the transaction has the potential for creating conflicts of
interest. (See "RISK FACTORS - Risk Factors Related to Business of
Company - Conflicts of Interests.")
Even if the Company successfully completes the Company Offering, it
is probable that the Company will require additional capital in the future
to finance its proposed development activities. Such additional needed
capital may be obtained through the sale of radio stations KNSN-AM and
KHSL-FM, or through borrowings or additional equity financing. Future
equity financing may occur through the sale of either unregistered common
stock in exempt offerings, or through the public offering of registered
equity securities. To date, however, the Company has no arrangement for
or understandings with respect to the acquisition of additional capital,
and there can be no assurance that any additional capital, funding or
revenues can be satisfactorily arranged on terms acceptable to the
Company.
RESULTS OF OPERATIONS - EIGHT MONTHS ENDED MARCH 31, 1996 COMPARED WITH
FISCAL YEAR ENDED JULY 31, 1995
- -----------------------------------------------------------------------
Effective January 12, 1996, the Company changed its fiscal year end
from July 31 to March 31. As a result, the Company's financial statements
are reported for the eight months ended March 31, 1996, and the year
ending July 31, 1995. Accordingly, results of operations for the period
ended March 31, 1996 reflect only eight months of operations, and
therefore, a meaningful comparison with the previous year's operations
cannot be made.
Because the Merger with Broadcasting was accounted for as a reverse
acquisition, the results of operations of IFHC prior to June 16, 1995,
have been excluded from the consolidated results of operations set forth
in the Company's Financial Statements. The results of operations of KHSL-
AM\FM have been included in the Consolidated Financial Statements of RBI
since February 15, 1995, the effective date of the KHSL-AM\FM LMA which
transferred control of KHSL-AM\FM to Alta. Likewise, the results of
operations of KHZL-FM (f/k/a KCFM-FM) have been included in the
Consolidated Financial Statement of RBI since March, 1995, the effective
date of the KHZL-FM LMA. For comparative presentation purposes, the
results of operations of KHSL-AM\FM for the year ended July 31, 1994, and
for the six and one-half month period ended February 15, 1995, have been
shown in separate Statements of Operations included with the Company's
financial statements.
The Company's combined sales for the eight months ended March 31,
1996 were $440,457, and represent revenue in the amount of $397,775
generated by KHSL-FM and KNSN-AM which the Company began operating on
February 15, 1995. This figure also represents revenue in the amount of
$14,031 generated by KHZL-FM which began commercial operation in August,
1995.
Operating expenses for the eight months ended March 31, 1996, were
$792,507. Of this total, KNSN-AM and KHSL-FM combined for a total of
$560,006, and KHZL-FM generated operating expenses of approximately
$96,388. In addition to the foregoing, the Company generated general and
administrative expenses of $58,464 during the eight months ended March 31,
1996, consisting primarily of travel and related costs. The Company also
recorded appreciation expense of $77,649 during the eight-month period
ended March 31, 1996 which the Company did not incur during the fiscal
year ended July 31, 1995. Although the Company assumed operating control
of radio stations KNSN-AM and KHSL-FM in February, 1995, under an LMA, the
Company did not formerly close on the acquisition of these stations until
June, 1995. Because the Company did not own the assets of the stations
during the period of the LMA, no depreciation expense was recorded during
that time.
During the eight months ended March 31, 1996, the Company also
incurred interest expense of $22,436. The interest expense incurred
during the eight months ended March 31, 1996, is primarily the result of
acquisition debt incurred by the Company in conjunction with the
acquisition of radio stations KNSN-AM and KHSL-FM.
As a result of the foregoing, the Company incurred a net loss for the
eight-month period ended March 31, 1996, of $368,659 or $.53 per share
based on a weighted average number of shares outstanding of 690,258.
Management believes that the revenue base provided by radio stations
KNSN-AM and KHSL-FM is not sufficient to support the staff and operational
burden of operating both stations. Moreover, realizing that revenue
growth in a market that management feels is saturated with other radio
stations is not going to increase substantially in the near future,
management has determined that the best course of action is to sell radio
stations KNSN-AM and KHSL-FM, and to use the proceeds the sale to acquire
additional stations in the Redding, California market, a market already
served by KHZL-FM. To this end, the Company has entered into agreements
to sell both radio stations in a transaction valued at approximately
$1,466,000. Simultaneously with the signing of the KHSL Asset Sale
Agreements, Alta entered into an LMA with the prospective buyer of the
stations, giving the prospective buyer operational control of the stations
until such time as the sale closes, at which time the LMA will terminate.
The transfer applications have been filed with the FCC and approval of the
transfer of ownership is pending. Although Alta will not receive sale
proceeds until closing (anticipated by management to occur in mid-
November, 1996), under the LMA, the operating expenses of both stations
have been assumed by the prospective buyer. Accordingly, during the LMA,
Alta has no cash outlays related to the operation of KHSL-AM\FM.
LIQUIDITY AND CAPITAL RESOURCES - SEPTEMBER 30, 1996 TO MARCH 31, 1996
- ----------------------------------------------------------------------
At September 30, 1996, the Company had total current assets of
$119,892, consisting primarily of accounts receivable of $49,041, net of
an allowance for doubtful accounts of $16,400, and other current assets of
$70,851. Total current liabilities as of September 30, 1996 were
$1,748,179, resulting in a working capital deficit of $1,628,287. This
compares with a working capital deficit of $1,424,641 at March 31, 1996,
based on total current assets of $160,727 and total current liabilities of
$1,585,368. The increase in the Company's working capital deficit of
$203,646 is attributable to the following:
* a reduction in accounts receivable of $37,793 which was used to
reduce a technical book overdraft by $10,882 and to pay down
accounts payable and accrued expenses by $25,051;
* repayment of the June Note in the principal amount of $260,000;
* principal reduction of $75,000 applied against the TriPower
Note;
* increases in short-term borrowings (notes payable) associated
with the acquisition of KRDG-FM and KNNN-FM in the amount of
approximately $433,165;
* increases in related party payables associated with funding
operations in the amount of $113,652.
As of September 30, 1996, the Company reported total assets of
$2,155,412, including property and equipment of $1,320,813, net of
accumulated depreciation of $122,302. This compares with total assets at
March 31, 1996 of $1,545,105, including property and equipment of
$749,560, net of accumulated depreciation of $74,855. The increase in
property and equipment of $571,253 is primarily the result of the
acquisition of KNNN ($825,000 purchase price) and KRDG ($220,000 purchase
price) offset by the sale of the Chico property valued at $450,000.
As of September 30, 1996, the Company reported total liabilities of
$2,413,401, including, in addition to the current liabilities referred to
above, the long-term portion of notes payable in the amount of $856,972.
Long-term notes payable as of September 30, 1996 is made up of acquisition
debt associated with KNNN and KRDG in the amount of $689,978 and $155,000,
respectively. This compares with total liabilities of $1,607,084 as of
March 31, 1996, and represents an increase of $806,317.
As of September 30, 1996, the Company reported an accumulated deficit
of $758,234. This compares with an accumulated deficit at March 31, 1996,
of $532,224. The Company's accumulated deficit at September 30, 1996,
when combined with Common Stock and additional paid-in capital of
$500,245, resulted in a stockholders' deficit of $257,989. This compares
with a stockholders' deficit as of March 31, 1996, of $61,979.
RESULTS OF OPERATIONS - SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH
SIX MONTHS ENDED SEPTEMBER 30, 1995
- -------------------------------------------------------------------------
Sales for the six months ended September 30, 1996, were $139,392
compared to sales of $375,282 for the same period in fiscal 1995. As
previously stated, 1996 sales do not include revenues generated by KHSL-FM
and/or KNSN-AM. Rather, sales for this six-month period are comprised
primarily of LMA fee income (associated with KHSL-FM and KNSN-AM) of
$24,000, deferred revenue of $23,333 associated with the amortization of a
covenant not to compete, and radio advertising revenues of stations KRDG-
FM in the amount of $16,000 and KNNN-FM (for August and September, 1996)
in the amount of $73,000. Sales in 1995 were comprised entirely of
advertising revenues associated with the operation of KHSL-FM.
Station operating expenses for the six months ended September 30,
1996 of $229,099 represent a reduction of $208,060 over the same six-month
period in fiscal 1995. The 1996 expenses reflect the inclusion of
$105,496 in costs associated with operating KNNN-FM for the period
August 1, 1996 through September 30, 1996. The 1996 expenses also reflect
certain operating costs for KHSL-FM and KNSN-AM the Company was not able
to transfer to the prospective buyer of the stations under the LMA.
Specifically, employee costs for a general manager and an engineer must be
maintained by the Company during the LMA in accordance with FCC
regulations. In 1995, station operating expenses consisted of all
expenses associated with operating both KHSL-FM and KNSN-AM for the six-
month period ended September 30, 1995.
Depreciation and amortization expenses for the six months ended
September 30, 1996 amounted to $47,447 and represents a 100% increase over
the six months ended September 30, 1995. Although the Company assumed
operating control of both stations in February, 1995, under the LMA and
closed on the acquisition in June, 1995, no depreciation expense was
recorded until the licenses of these stations were formally transferred to
the Company by the FCC. This occurred in September, 1995. The first
month depreciation was recorded in October, 1995.
General and administrative expenses for the six months ended
September 30, 1996 amounted to $22,804, a decrease of $11,877 over the six
months ended September 30, 1995. General and administrative expenses are
comprised primarily of travel and related costs.
Other expenses of $57,507 incurred during the six-month period ended
September 30, 1996 increased $40,150 over the same period in 1995. The
primary reason for the increase is related to an $80,000 charitable
contribution made by the Company to the buyer of the Chico property. The
buyer, a local hospital, required the Company to make the donation to the
hospital as part of the closing.
For the six months ended September 30, 1996, the Company reported a
net loss of $226,010 compared to a net loss of $147,638 for the same six-
month period a year ago. Adjusting for the one-time $80,000 charitable
contribution made by the Company in conjunction with the sale of the Chico
property in April, 1996, the Company sustained a net loss of $146,010 for
the current period, approximating the loss for the six-month period ended
September 30, 1995. The Company attributes this current period loss to
only having had the benefit of revenues associated with KNNN-FM for two
months (August and September, 1996) during the six-month period ended
September 30, 1996.
Inflation has not had any material effect on the Company's
operations, and is not expected to in the foreseeable future. Other than
the foregoing, management knows of no trends or other demands,
commitments, events or uncertainties that will result in, or that are
reasonably likely to result in, a material impact on the Company's
liquidity and capital resources or operations.
<PAGE>
BUSINESS
--------
OVERVIEW
- --------
Redwood Broadcasting, Inc., f/k/a Intelligent Financial Holding
Corporation (the "Company" or "RBI") and its subsidiaries operate in the
rapidly-developing and expanding radio broadcasting industry. Organized
as a holding company for the purpose of acquiring and/or developing
undervalued radio broadcasting properties located in small-to-medium sized
markets, the Company has recently embarked upon an aggressive acquisition
and development program and continues to seek acquisition and development
opportunities in the broadcast industry.
HISTORY
- -------
FORMATION OF THE COMPANY
------------------------
By agreement dated December 12, 1994, Cell Robotics International,
Inc. f/k/a Intelligent Financial Corporation ("CRI") executed and entered
into a definitive Agreement and Plan of Reorganization between and among
CRI, Cell Robotics, Inc., a New Mexico corporation ("Cell"), MiCEL, Inc.,
a Delaware corporation, Bridgeworks Investors I, L.L.C., an Oregon limited
liability company and Ronald K. Lohrding, individually (the "CRI
Agreement"), providing INTER ALIA, for the acquisition by CRI of 100% of
the issued and outstanding equity securities of Cell. The CRI Agreement
also provided for the formation of a new wholly-owned subsidiary of CRI
and the transfer to the subsidiary of certain assets of CRI, subject to
certain liabilities.
The Company was formed on December 1, 1994, and in February, 1995,
CRI transferred to the Company in a tax-free reorganization
("Reorganization") undertaken in reliance upon the provisions of Section
351 of the Internal Revenue Code of 1986, as amended, one hundred percent
(100%) of CRI's real and personal property ("Property"), subject to
certain liabilities ("Liabilities"), saving and excepting cash, cash
equivalents or marketable securities having an aggregate fair market value
of not less than $250,000 (collectively the "Retained Assets"), solely in
exchange for 300,008 shares of the Company's $.004 par value common stock
("Spin-Off Shares"). Immediately following the Reorganization, CRI's
assets consisted entirely of the Retained Assets and the Spin-Off Shares,
and the Company became a wholly-owned subsidiary of CRI, owning the
Property, subject to the Liabilities.
Pursuant to the terms of the CRI Agreement, CRI further agreed to
distribute the Spin-Off Shares to the shareholders of record of CRI ("CRI
Shareholders") as of December 16, 1994 upon the effective date of this
Registration Statement. (See "TERMS OF OFFERINGS - THE SPIN-OFF
OFFERING".)
REDWOOD BROADCASTING, INC.
--------------------------
By agreement dated June 16, 1995, the Company acquired one hundred
percent (100%) of the issued and outstanding shares of Common Stock of
Redwood Broadcasting, Inc. ("Broadcasting") in exchange for 300,000 shares
of Common Stock of the Company. Subsequent to the acquisition,
Broadcasting was merged with and into the Company, with the Company
remaining as the surviving entity. Thereafter, at a special meeting of
the Company's shareholders, an amendment of the Company's Articles of
Incorporation was approved changing the Company's name to Redwood
Broadcasting, Inc.
Broadcasting was formed in 1993 as a majority-owned subsidiary of
MicroCap to pursue the acquisition of radio station KNBA (1190 AM)
licensed to Vallejo, California. Broadcasting entered into a joint
venture with Quick Broadcasting, Inc., an established broadcaster, and
acquired KNBA in October, 1993. KNBA was attractive to Broadcasting
because it was eligible for the "Expanded Band" which, if granted, would
increase the station's broadcast capability. Greater signal strength
would encompass more listeners which, in turn, would attract more
advertising clients. In 1994, Broadcasting sold its 50% ownership
interest in the joint venture to Quick Broadcasting, Inc for $180,000 in
cash and a three (3) year, pre-paid, agreement not to compete valued at
$70,000. Broadcasting sold its interest in KNBA in order to focus its
resources on wholly and majority-owned radio properties.
SOLO YOLO BROADCASTING
----------------------
In 1994, MicroCap assigned to its subsidiary, Broadcasting, a
ninety percent (90%) ownership interest in Solo Yolo Broadcasting ("Solo
Yolo"), a California general partnership. Solo Yolo was one of only two
applicants to file for an FM construction permit for Esparto, California.
Solo Yolo subsequently settled with the competing applicant and received a
reimbursement of its expenses in the amount of $18,000 in cash in exchange
for Solo Yolo's agreement to withdraw its application.
ALTA CALIFORNIA BROADCASTING, INC.
----------------------------------
In 1994, Broadcasting formed its own wholly-owned subsidiary,
Alta California Broadcasting, Inc. ("Alta"), to pursue radio acquisition
opportunities it had determined were available in northern California.
KHSL-AM\FM
----------
In June, 1994, Alta entered into an Asset Purchase
Agreement to acquire radio stations KHSL-AM\FM licensed to Chico and
Paradise, California, respectively ("KHSL Agreement"). The acquisition,
valued at $1.15 million, included furniture and fixtures, broadcast
equipment, broadcast licenses and 11.70 acres of real property located in
Chico, California, zoned for residential housing development. On February
15, 1995, Alta commenced operating KHSL-AM\FM under a Local Management
Agreement ("LMA"), while transfer applications were filed with the FCC to
approve the change in ownership. On June 19, 1995, Alta completed the
acquisition of KHSL-AM\FM ("KHSL Acquisition") resulting in the
termination of the LMA.
KHSL-FM has a country format and is located at 103.5 on the
FM band. All programming for KHSL-FM originates at its studio in Chico.
Subsequent to its acquisition by Alta, KHSL-AM changed its call letters
and format. The new call letters are KNSN-AM. The new format is "Talk" ,
and its programming is primarily originated through satellite delivery
companies.
In March, 1996, Alta entered into separate Asset Sale
Agreements to sell the assets of both KNSN-AM and KHSL-FM, excluding the
11.70 acres of real property, in a transaction valued at $1.47 million.
Simultaneously with signing the Asset Purchase Agreements, Alta entered
into an LMA with the prospective purchaser until the sale closes, at which
time the LMA will terminate. The transfer applications associated with
the sale of the two (2) stations are presently awaiting approval by the
FCC. In April, 1996, the 11.70 acres of real property was sold to an
unrelated party for $450,000.
KRDG-FM (F/K/A KHZL AND KCFM)
-----------------------------
In March, 1995, Alta entered into an LMA with an option to
purchase radio station KCFM-FM licensed to Shingletown, California, which
began commercial broadcasting, with a "Country" music format, at 105.3 on
the FM band in August, 1995. The source of its programming was
simulcasting with KHSL-FM, through the use of high speed data transmission
lines. KCFM-FM primarily serves the Redding, California market. In
September, 1995, KCFM-FM changed its call letters to KHZL-FM. During the
Company's review of KHZL-FM's performance, it was determined that a format
change would best serve the goal of revenue enhancement. A new music
format was developed using a satellite delivered "Oldies" format. The
change proved to be highly successful as KHZL-FM posted a 6.4 in
Arbitron's 1996 Spring Survey, versus not qualifying for any rating status
in the fall survey under the previous format. In May, 1996, the Company
filed for an upgrade to increase the station's broadcast power. In July,
1996, Alta completed the acquisition of KHZL-FM, thereby terminating the
LMA. Effective September 27, 1996, Alta changed KHZL-FM's call letters to
KRDG-FM.
KNNN-FM
-------
In May, 1996, Alta entered into an Asset Purchase Agreement
to acquire KNNN-FM licensed to Central Valley, California. The Asset
Purchase Agreement was subsequently assigned to Alta's wholly-owned
subsidiary, Northern California Broadcasting, Inc. KNNN-FM primarily
serves the Redding, California market and broadcasts an "Adult
Contemporary" format at 99.3 on the FM band. In August, 1996, Alta began
operating KNNN-FM under an LMA pending approval of the transfer of
ownership by the FCC. The Company has obtained an upgrade to increase the
station's broadcast power. In September, 1996, Northern completed the
acquisition of KNNN-FM, thereby terminating the LMA. The purchase price
for KNNN was $825,000, $325,000 of which was paid in cash at closing, and
the balance was paid in the form of a promissory note secured by the
assets of KNNN and guaranteed by the Company.
ACQUISITIONS AND DEVELOPMENT
- ----------------------------
The Company's strategy is to grow by acquiring additional radio
stations meeting specified criteria and by maximizing the revenues and
Broadcast Cash Flow of the stations it owns and operates. Broadcast Cash
Flow is defined as operating income (loss), exclusive of trade (non-cash)
revenue and expenses, before deductions for interest, taxes, depreciation,
amortization and corporate expense. Although Broadcast Cash Flow is not
recognized under generally accepted accounting principles ("GAAP"), it is
accepted by the broadcast industry as a generally recognized measure of
performance and is used by analysts who report publicly on the condition
and performance of broadcast companies. Broadcast Cash Flow should not,
however, be considered an alternative to operating income as determined in
accordance with GAAP or to cash flows from operating activities (as a
measure of liquidity) or other indicators of the Company's performance as
reported under GAAP.
The Company generally intends to acquire established stations and/or
build stations in small- to medium-size media markets as defined by
industry standards. The Company defines these markets as those ranked 150
to 250 in terms of population by the Arbitron Company ("Arbitron").
In general, the Company seeks to acquire stations: (i) located in
markets with well established and relatively stable economies, which are
often characterized by the presence of universities, tourism or a
substantial industrial base, (ii) with a demonstrated track record of
audience share and (iii) which can be purchased at attractive prices. The
Company believes that it can most effectively maintain and improve
operating results of stations with these characteristics. Factors
considered by the Company in evaluating an acquisition candidate include
(i) the size, rates of growth and projected future rates of growth of the
market's broadcast revenue and population, (ii) the number of competitive
stations in the market, (iii) the operating history and performance of the
stations, (iv) the success of the station's format, (v) the quality of and
the ability to enhance the station's broadcast signal, (vi) the terms of
the purchase and (vii) duopoly (or greater) ownership possibilities or
other unique synergies with the then existing stations of the Company.
The Company intends to pursue acquisition opportunities, including
acquisition opportunities made possible by recently adopted Federal
Communications Commission ("FCC") rules (the "New FCC Rules") which
substantially increased the number of stations in the same radio service
(i.e., AM or FM) one entity may own, both nationally and in a single
geographic market. The Company believes that the ability to own multiple
stations in a single geographic market, known as a duopoly, offers the
potential for both substantial cost savings and increased revenues. For
example, a duopoly permits the consolidation of studios and office space,
thereby reducing administrative, engineering and management expenses.
Furthermore, additional stations in a particular market enable the Company
to take advantage of its existing relationships with advertisers, provide
advertisers a larger, combined audience and permit joint promotional
efforts, which may result in increased revenues and reduce the risk of a
particular acquisition.
By combining the operations of KHZL and KNNN, the Company hopes to
create a duopoly serving the Redding, California market. This approach is
consistent with the Company's strategy of creating duopolies and
implementing other cost saving and revenue enhancement programs.
OPERATIONS
- ----------
The Company's business is devoted to acquiring and operating radio
stations, and generating revenue principally through the sale of
advertising. Through its subsidiaries, the Company currently offers
advertisers a radio listening audience in the Redding, California market.
The Company has also filed for an FM construction permit in Payson,
Arizona, and, if the permit is awarded, will develop and operate a radio
station in Payson. Additionally, in July, 1996, Alta filed an application
with the FCC for the issuance of a construction permit to build an FM
radio station to be licensed to Shasta Lake City, California, which would
serve the Redding, California market. The Company also filed for a
construction permit for an FM radio station in Mesquite, Nevada. Numerous
applicants are seeking construction permits in both Shasta Lake City,
California and Mesquite, Nevada. As a result, there can be no assurance
that the Company will be granted these construction permits, or, if
granted, that the Company's operations will be successful.
The Company believes a large percentage of radio advertising dollars
are expended in small-to- medium-sized media markets. The Company
believes that it can improve the financial performance and Broadcast Cash
Flow of small- to medium-sized stations by enhancing revenues while, at
the same time, controlling costs. The Company seeks to enhance billings
by implementing or expanding: (i) targeted programming designed to
increase audience share within specific demographic groups considered to
be particularly attractive to advertisers, (ii) sales and marketing
programs intended to increase both audience share and the sale of
advertising time, from which substantially all of the Company's revenues
are derived, and (iii) effective advertising rate management and inventory
control. Extensive market research is conducted to refine and enhance the
Company's programming. The Company's stations employ a variety of
programming formats. The Company believes that selling advertising time
in small- to medium-sized markets is less dependent upon ratings and more
dependent upon aggressive marketing, promotional and selling techniques.
Local advertising and promotional tie-ins with local events are designed
to heighten public awareness of the Company's stations. Duopoly ownership
structures will enable the Company to offer advertisers a broader range
of creative advertising packages and enable the Company to derive
increased benefits from its advertising rate management and inventory
control techniques.
As a result of the acquisitions of KNNN-FM and KRDG-FM, a duopoly,
the Company now has 13.4% of listenership in the overall Redding,
California market, making it the third largest radio group in the market
as reported by Arbitron's 1996 Spring Survey. The Company hopes to
increase its percentage of the Redding, California listenership through
the development, and subsequent operation of radio station KLXR-AM in
Redding, and a new station licensed to Shasta Lake City, California, which
will also serve primarily the Redding, California market. According to
the BIA 1996 Radio Yearbook, the Redding, California Total Service Area
("TSA") has a population of 166,694, with nine FM stations and seven AM
stations. The Redding, California Metro Rank is 207. BIA estimates
annual revenues of $4.6 million for the Redding market.
THE COMPANY'S RADIO STATIONS
----------------------------
The following table sets forth certain information covering the
Company's current and proposed radio stations:
<TABLE>
STATIONS CURRENTLY OWNED BY COMPANY
-----------------------------------
<CAPTION>
TARGET
STATION CITY OF LICENSE STATION FORMAT DEMOGRAPHICS
- ------- ------------------------- -------------- ------------
<S> <C> <C> <C>
KRDG-FM Shingletown, California Oldies Ages 35+
KHSL-FM (1) Paradise, California Country Ages 18 to 54
KNSN-AM (1) Chico, California News/Talk Ages 35+
KNNN Central Valley, Adult Ages 25-54
California Contemporary
PROPOSED ACQUISITIONS OR FOR DEVELOPMENT
----------------------------------------
KLXR-AM Redding, California TBD TBD
TBD Payson, Arizona TBD TBD
TBD Shasta Lake, California TBD TBD
TBD Mesquite, Nevada TBD TBD
- -----------------------------------
<FN>
(1) The Company has executed a definitive agreement to sell these
stations, which are currently being operated by the prospective
purchaser under an LMA. The sale, which is scheduled to close on
March 12, 1997, is awaiting regulatory approval by the FCC, and
engineering modifications.
</FN>
</TABLE>
In developing its stations, the Company utilizes a variety of
practices designed to improve the station's Broadcast Cash Flow, including
implementation of strict financial reporting requirements and cost
controls, directing promotional activities, developing programming to
improve the station's appeal to targeted audience groups and enhancing
advertising sales efforts. In particular, the Company emphasizes
increasing local advertising revenues in order to reduce dependence on
national advertising revenues.
In operating its stations, the Company concentrates on the
development of strong decentralized local management, which is responsible
for the day-to-day operations of the station and is compensated, in part,
based on incentives related to the station's financial performance. Local
management, in cooperation with corporate management, is responsible for
sales and marketing, hiring on-air talent and developing programming.
Corporate management is responsible for long-range planning, establishing
policies and procedures, resources allocation and maintaining overall
control of the stations.
The Company has purchased and installed at its studio in Redding,
California, a digital control system which the Company believes will
result in a significant reduction in live disc jockey time. Certain non-
peak broadcast periods such as nights and weekends will be voice tracked
on a weekly basis with local talent. Listeners generally will not be able
to tell the difference between the live and voice tracked disc jockey.
The Company continues to seek opportunities to acquire radio stations
with strong growth potential in the Company's current markets, subject to
the Communication Act and FCC rules, which currently limit, among other
things, the maximum number of radio stations that can be owned by the
Company in the same geographic market. Since the Company has historically
grown in part through the acquisition of broadcasting properties, current
or subsequent limitations imposed by the FCC on the number of broadcasting
properties the Company may acquire could limit the Company's ability to
grow in the future.
ADVERTISING
-----------
Substantially all of the Company's revenues are generated from the
sale of advertising for broadcast on its radio stations. Depending upon
the format of a particular station, there are a predetermined number of
advertisements broadcast each hour. The Company attempts to maximize the
number of advertisements broadcast hourly without jeopardizing listening
levels. Any change in the Company's revenues, with the exception of those
instances where stations are acquired or sold, is generally the result of
additional advertising revenues and pricing adjustments which are made to
ensure that the station fully utilizes available inventory.
The Company believes that radio is one of the most efficient, cost-
effective means for advertisers to reach specific demographic groups. The
Company also believes that radio in general is more resistant to economic
downturns than other advertising-supported media due to its relatively
lower rates and lower commercial production costs.
Depending on the programming format of a particular station, the
Company estimates the optimum number of advertisements available for sale.
Accordingly, changes in the Company's net revenues (except to give effect
to the acquisition or disposition of a radio station) are generally the
result of pricing adjustments or an increase in the number of commercials
sold.
Advertising rates charged by radio stations are based primarily on a
station's ability to attract audiences in the demographic groups targeted
by advertisers. The number of listeners of a station is often reported by
rating service surveys such as Arbitron, although most small radio markets
are not serviced by Arbitron. Advertising rates are also dependent upon
the number of stations in the market competing for the same demographic
group and on the supply of and demand for radio advertising time. Rates
are generally highest during the morning and afternoon drive-time hours.
Substantially all of the revenues generated by a radio station,
including the Company's radio stations, are derived from local, regional
and national advertising. Local and regional sales generally are made by
a station's sales staff. National sales are made by "national
representative" firms, which specialize in radio advertising sales on the
national level. These firms are compensated on a commission-only basis.
Most advertising contracts are short-term, generally running for only a
few weeks.
COMPETITION
-----------
Radio broadcasting is an extremely competitive business. The
Company's radio stations compete for listeners and advertising revenues
directly with other radio stations within their markets, many of which
have more experience and greater resources than the Company. Radio
stations compete for listeners primarily on the basis of program content
and by hiring high-profile talent that appeals to a particular demographic
group. The Company competes for advertising revenues principally through
effective promotion of its stations' listener demographics and audience
shares, and through the number of listeners in a target group that can be
reached for the price charged for the air-time. The Company's stations
also compete for advertising revenues with other media within their
markets, including broadcast television, cable television, newspapers,
magazines, direct mail, coupons and billboard advertising. By building a
strong listening base comprised of a specific demographic group in each of
its markets, the Company is able to attract advertisers seeking to reach
those listeners. Other factors that affect a station's competitive
position include its authorized power, terrain, assigned frequency,
audience characteristics, local program acceptance and the number and
characteristics of other stations in the market area.
The radio broadcasting industry is also subject to competition from
new media technologies that are being developed or introduced, such as the
delivery of audio programming by cable television systems and by digital
audio broadcasting. The radio broadcasting industry historically has
grown despite the introduction of new technologies for the delivery of
entertainment and information, such as television broadcasting, cable
television, audio tapes and compact disks. There can be no assurance,
however, that the development or introduction in the future of any new
media technology will not have an adverse effect on the radio broadcasting
industry. The Company also competes with other radio station groups to
purchase additional stations. Some of these other groups are owned or
operated by companies that have substantially greater financial and other
resources than the Company.
The Telecommunications Act of 1996 will permit other radio
broadcasting companies to enter the markets in which the Company operates
or may operate in the future, some of which may be larger and have more
financial resources than the Company. There can be no assurance that the
Company's existing stations, or those stations acquired by the Company in
the future, will be able to maintain or increase their respective current
audience ratings or advertising revenue market share.
GOVERNMENTAL REGULATION
-----------------------
The ownership, operation and sale of radio stations, including those
licensed to the Company and its subsidiaries, are subject to the
jurisdiction of the FCC, which acts under authority granted by the
Communication Act. Among other things, the FCC assigns frequency bands
for broadcasting; determines the particular frequencies, locations and
operating power of stations; issues, renews, revokes and modifies station
licenses; determines whether to approve changes to ownership or control of
station licenses; regulates equipment used by stations; adopts and
implements regulations and policies that directly or indirectly affect the
ownership, operation and employment practices of stations; and has the
power to impose penalties for violations of its rules or the Communication
Act.
The following is a brief summary of certain provisions of the
Communication Act, including amendments thereto recently effectuated by
the Telecommunications Act of 1996 (the "1996 Telecom Act") and of
specific FCC regulations and policies that affect the business of the
Company. Reference should be made to the Communication Act, FCC rules and
the public notices and rulings of the FCC for further information
concerning the nature and extent of federal regulation of broadcast
stations.
LICENSE RENEWALS AND TRANSFERS
------------------------------
Under the 1996 Telecom Act, radio broadcasting licenses are
granted for maximum terms of eight (8) years. Such licenses are subject
to renewal upon application to the FCC. Under the 1996 Telecom Act, the
FCC shall adopt regulations which will implement a two-step procedure,
pursuant to which competing applications for an incumbent licensee's
frequency will be explicitly prohibited, and the FCC shall grant the
incumbent licensee's renewal application if it finds that (i) the
incumbent licensee has served the public interest, convenience and
necessity; (ii) the incumbent licensee has not engaged in any serious
violations of the Communications Act or the FCC's rules; and (iii) there
have been no other violations by the incumbent licensee of the
Communications Act or of the FCC's rules which, taken together, would
constitute a pattern of abuse. If, based upon a review of the incumbent
licensee's renewal application, or of other facts that are brought to the
FCC's attention in a petition to deny or other third party filing, the FCC
is unable to make the foregoing findings, the incumbent licensee is
entitled to a full evidentiary hearing to establish that it is entitled to
renewal. If, following the evidentiary hearing, the FCC determines that
the incumbent licensee has failed to meet the basic requirements for
renewal and that no mitigating factors justify the imposition of a
sanction less than denial of renewal (such as, for instance, a "short"
term renewal or the imposition of forfeitures), the FCC is obligated to
deny the renewal application. Should such denial become final following
judicial review, the FCC may thereafter entertain applications for the
incumbent licensee's frequency. The 1996 Telecom Act makes these
provisions retroactively applicable to renewal applications filed after
May 1, 1995. The FCC intends to initiate a rule-making proceeding during
1996 to implement these procedures.
The following table sets forth the frequency of each of the
Company's stations and the date on which the FCC license for each such
station expires, as well as certain information regarding radio station
licenses that are the subject of certain acquisition agreements with the
Company:
<TABLE>
<CAPTION>
EXPIRATION
DATE OF FCC
STATION CITY OF LICENSE FREQUENCY AUTHORIZATION
- ------- --------------- --------- -------------
CURRENTLY OWNED STATIONS
------------------------
<S> <C> <C> <C>
KRDG-FM Shingletown, California 105.3 Mhz December 1, 1997
KHSL-FM (1) Paradise, California 103.5 Mhz December 1, 1997
KNSN-AM (1) Chico, California 1290 Khz December 1, 1997
KNNN Central Valley, 99.3 Mhz December 1, 1997
California
PROPOSED ACQUISITIONS OR DEVELOPMENT
------------------------------------
KLXR-AM Redding, California 1230 Khz TBD
TBD Payson, Arizona 101.1 Mhz TBD
TBD Shasta Lake City, TBD TBD
California
TBD Mesquite, Nevada TBD TBD
- -----------------------------------
<FN>
(1) The Company has executed a definitive agreement to sell these
stations, which are currently being operated by the prospective
purchaser under an LMA. The sale, which is scheduled to close on
March 12, 1997, is awaiting regulatory approval by the FCC, and
engineering modifications.
</FN>
</TABLE>
OWNERSHIP MATTERS
-----------------
The Communication Act prohibits the assignment of a broadcast
license or the transfer of control of a broadcast licensee without the
prior approval of the FCC. To obtain the FCC's prior consent to transfer
or assign a broadcast license, appropriate applications must be filed with
the FCC. In determining whether to grant or renew a broadcast license,
the FCC considers a number of factors pertaining to the licensee,
including compliance with the Communications Act's limitations on alien
ownership, compliance with various rules limiting common ownership of
broadcast, cable and newspaper properties, and the "character" of a
licensee and those persons holding "attributable" interests therein.
Under the Communications Act, broadcast licenses may not be
granted to any corporation having more than twenty percent (20%) of its
issued and outstanding capital stock owned or voted by aliens (including
non-U.S. corporations), foreign governments or their representatives
(collectively "aliens"). The Communications Act also prohibits a
corporation, without FCC waiver, from holding a broadcast license if that
corporation is controlled, directly or indirectly, by another corporation,
in which more than twenty-five percent (25%) of the issued and outstanding
capital stock is owned or voted by Aliens. The FCC has issued
interpretations of existing law under which these restrictions in modified
form apply to other forms of business organizations, including
partnerships. As a result of these provisions, in the absence of a
waiver, the Company, which serves as a holding company for its various
subsidiaries, cannot have more than twenty-five percent (25%) of its stock
owned or voted by Aliens.
Under the 1996 Telecom Act, the FCC's national and local
multiple ownership rules were revised. The FCC's formal rules prohibited
the Company from owning, operating or controlling, directly or indirectly,
more than twenty AM and twenty FM radio stations in the United States.
The 1996 Telecom Act completely eliminated national ownership limitations.
In addition, the 1996 Telecom Act substantially relaxed restrictions on
local radio multiple ownership (often referred to as the "duopoly") rules.
Under the new law, which was implemented by the FCC in March, 1996, in
markets with fourteen or fewer radio stations, the Company is permitted to
own up to a total of five (5) radio stations, no more than three (3) of
which may be FM, so long as the Company's owned radio stations represent
less than fifty percent (50%) of the radio stations in the market. In
markets between fifteen (15) and twenty-nine (29) radio stations, the
Company will be permitted to own up to a total of six (6) radio stations,
no more than four (4) of which may be FM. In markets with between thirty
(30) and forty-four (44) radio stations, the Company will be permitted to
own up to a total of seven (7) radio stations, no more than four (4) of
which may be FM. Finally, in markets with forty-five (45) or more radio
stations, the Company may own up to a total of eight (8) radio stations,
no more than five (5) of which may be FM. All of the Company's current
holdings and proposed acquisitions are consistent with these new local
multiple ownership restrictions.
The Communications Act and FCC rules also generally limit the
common ownership, operation or control of a radio broadcast station and a
television broadcast station serving the same geographic market and of a
radio broadcast station and a daily newspaper serving the same geographic
market. Under these rules, absent waivers, the Company would not be
permitted to acquire any newspaper or television broadcast station (other
than low-power television) in a geographic market in which it now owns a
broadcast property. However, the FCC's policies, as modified by the 1996
Telecom Act, provide for the liberal grant of waivers of the rule
prohibiting ownership of radio and television stations in the same
geographic market in the top fifty television markets if certain other
conditions are satisfied. The FCC has also indicated that it intends to
hold a rule-making proceeding looking toward the liberal grant of waivers
of the rule prohibiting common ownership of a radio station and a
newspaper in the same market in large markets.
The FCC generally applies its ownership limits to "attributable"
interests held by an individual, corporation, partnership or other
association. In the case of corporations holding broadcast licenses, the
interests of officers, directors and those who, directly or indirectly,
have the right to vote five percent (5%) or more of the corporation's
stock (or ten percent (10%) or more of such stock in the case of insurance
companies, investment companies and bank trust departments that are
holding stock for investment purposes only) are generally attributable, as
are positions of an officer or director of a corporate parent of a
broadcast licensee. Currently, none of the Company's officers, directors
or stockholders has an attributable interest in any company licensed to
operate broadcast stations other than the Company and/or its subsidiaries.
LOCAL MARKETING AGREEMENTS
--------------------------
Over the past few years, a number of radio stations have entered
into what have commonly been referred to as "Local Marketing Agreements"
or "LMAs". While these agreements may take different forms, under a
typical LMA, separately owned and licensed radio stations agree to enter
into cooperative arrangements of varying sorts, subject to compliance with
the requirements of the antitrust laws and the FCC's rules and policies,
including the requirement that the licensee of each station maintain
independent control over the programming and operation of its own
stations. The most prevalent kind of LMA is a time brokerage agreement
among two separately-owned radio stations serving a common service area,
whereby the licensee of one station programs substantial parts of the
broadcast day on the other licensee's station, subject to ultimate
editorial and other controls being exercised by the latter licensee, and
sells advertising time during such program segments. The FCC has held
that such agreements involving radio stations are not contrary to the
Communications Act, provided that the licensee of the station that is
being substantially programmed by another entity maintains complete
responsibility for, and control over, the operations of its broadcast
station, and assures compliance with applicable FCC rules and policies.
The FCC rules specifically permit LMAs but provide that a
station leasing time and broadcasting programming on another station
servicing the same market will be considered to have an attributable
ownership interest in the other station for purposes of the FCC's multiple
ownership rules. As a result, the Company would not be permitted to enter
into an LMA with another local station which it could not own under the
FCC's local ownership rules unless the Company's programming constituted
less than fifteen percent (15%) of the other station's programming on a
weekly basis. Under the 1996 Telecom Act, in markets with fourteen or
fewer radio stations, such as the Redding, California market, the Company
is permitted to own up to a total of five radio stations, no more than
three (3) of which may be FM so long as the Company's owned radio stations
represent less than fifty percent of the radio stations in the market. As
a result of the KNNN acquisition, the Company can only acquire or enter
into an LMA relating to the operation of one (1) more FM station that
serves the Redding, California market.
PROGRAMMING AND OPERATION
-------------------------
The Communication Act requires broadcasters to serve the "public
interest." Licensees are required to present programming that is
responsive to community issues and to maintain certain records
demonstrating such responsiveness. Complaints from listeners concerning a
station's programming may be considered by the FCC when it evaluates
renewal applications of a licensee, although such complaints may be filed
at any time. Stations also must follow various rules promulgated under
the Communication Act that regulate, among other things, political
advertising, sponsorship identifications, and advertisement of contests
and lotteries and technical operations, including limits on radio
frequency radiation. In addition, licensees must develop and implement
programs designed to promote equal employment opportunities and must
submit reports to the FCC with respect to these matters on an annual basis
and in connection with a renewal application.
Failure to observe these or other rules and policies can result
in the imposition of various sanctions, including monetary forfeitures,
conditional grants of licenses, the grant of "short" (less than the full
eight (8) year term) renewal terms or, for particularly egregious
violations, the denial of a license renewal application or the revocation
of a license.
PROPOSED CHANGES
----------------
The Congress and the FCC have under consideration, and may in
the future consider and adopt, new laws, regulations and policies,
regarding a wide variety of matters that could, directly or indirectly,
affect the operation and ownership of the Company's radio broadcast
properties. Such matters include, for example, proposals to impose
spectrum use or other governmentally imposed fees upon licensees; the
FCC's equal employment opportunity rules and other matters relating to
minority and female involvement in the broadcasting industry including
enhancement of ownership opportunities; proposals to change rules relating
to political broadcasting; proposals to change the thresholds, benchmarks
or concepts applicable to attributing ownership interest in broadcast
media; proposals to permit lenders to take a security interest in FCC
licenses; technical and frequency allocation matters, including those
relative to the implementation of digital audio broadcasting on both a
satellite and terrestrial basis, spectrum for which has been allocated by
the FCC; proposals to permit expanded use of FM translator stations;
proposals to restrict or prohibit the advertising of tobacco products
and/or beer, wine or other alcoholic beverages on radio; and changes to
broadcast technical requirements in frequency allocation matters. The
Company cannot predict whether any such proposed changes will be adopted
nor can it judge in advance what impact, if any, any such proposed changes
might have on its business.
LEGAL PROCEEDINGS
-----------------
Neither the Company nor any of its subsidiaries is a party to any
material legal proceedings, nor are they aware of any pending or
threatened claim of a material nature.
During 1994, 1995 and 1996, John C. Power, the Company's President
and Director, and Microcap, the Company's principal shareholder, received
several requests from the Securities and Exchange Commission (the
"Commission") to produce documents covering numerous transactions
involving Mr. Power, Microcap and other parties. In September, 1996, Mr.
Power was notified by Commission's staff that it intends to request that
the Commission commence an administrative proceeding against Mr. Power and
others based upon certain transactions in securities of issuers other than
the Company or Microcap. Microcap did not receive any such notification.
Mr. Power has responded to the Commission with a written submission which
sets forth why there exists no basis in fact or law for such a proceeding.
It is impossible to predict whether the staff will recommend a proceeding
against Mr. Power, and if such a recommendation is made, whether the
Commission will authorize the institution of a proceeding. If a
proceeding is instituted against Mr. Power, there can be no assurance that
such a proceeding will not have an adverse impact upon Mr. Power and
indirectly, an adverse impact upon the Company's financial condition or
operating results, or the market for the Company's securities.
EMPLOYEES
---------
The Company presently has fourteen (14) full time employees. The
Company's principal executive officers are John C. Power, Chief Executive
Officer and President, J. Andrew Moorer, Chief Financial Officer,
Secretary and Treasurer, and Donald P. Griffin, Chief Operating Officer.
The foregoing individuals are responsible for all of the Company's budget,
legal and financial matters, as well as for evaluating, investigating and
negotiating all acquisition opportunities.
The stations have not experienced any significant labor problems
under the Company's ownership, and the Company considers its labor
relations on the whole to be good.
The Company has plans for aggressive acquisition and growth using
current management and staff as an infrastructure. The Company believes
that it has full-time management sufficient to operate six (6) radio
stations; however, there can be no assurance that rapid expansion will not
necessitate further demand for local management. (See "RISK FACTORS --
RISK OF EXPANSION.")
<PAGE>
MANAGEMENT
----------
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
- -----------------------------------------------
Name, position with the Company, age of each Director or executive
officer, and the period during which each Director and officer has served
are as follows:
<TABLE>
<CAPTION>
DIRECTOR/OFFICER
NAME AGE POSITION SINCE
- ----------------- --- ------------------------ ----------------
<S> <C> <C> <C>
John C. Power 34 Chairman of the Board 1995
Chief Executive Officer,
President
J. Andrew Moorer 34 Chief Financial Officer, 1995
Secretary, Treasurer,
and Director
Donald P. Griffin 49 Chief Operating Officer, 1996
Director
- -----------------------------------
</TABLE>
JOHN C. POWER. Mr. Power began his service as President, Chief
Executive Officer and Chairman of the Board of the Company in June, 1995
upon consummation of the Company's acquisition of RBI. Mr. Power has also
served as President and Chief Executive Officer of Redwood MicroCap Fund,
Inc. ("MicroCap") since February, 1992. MicroCap is registered as an
Investment Company under the Investment Company Act of 1940, as amended
(the "40 Act"), but is attempting to de-register from the 40 Act.
MicroCap has majority and/or wholly-owned subsidiaries engaged in oil and
gas exploration, production and management and radio broadcasting. Since
November 1996, Mr. Power has been the Managing Member of Northern Lights
Broadcasting, L.L.C., a limited liability company engaged in the
acquisition and development of radio stations in Montana and North Dakota.
Since November 1996, Mr. Power has also been President of Power Surge,
Inc. Mr. Power has also served as president of Power Curve, Inc., a
private investment and consulting firm since 1986, and as an officer and
director of Signature Wines of Napa Valley, Inc. from September, 1995 to
June 1996. Signature Wines is engaged in the resale and marketing of
wines through a private label program. From March, 1994 to September,
1995, Mr. Power served as a general partner of Signature Wines, a
California general partnership, a predecessor entity of Signature Wines of
Napa Valley, Inc. Mr. Power served as a director of BioSource
International, Inc. (NASDAQ: BIOI) from August, 1993 to December, 1994, of
Optimax Industries, Inc. (NASDAQ: OPMX) from April 1993 to March, 1995,
and of AirSoft Corporation, a manufacturer of network communications
software and systems, from 1993 to June 1996. Mr. Power received his
formal education at Occidental College and at the University of California
at Davis.
J. ANDREW MOORER. Mr. Moorer, like Mr. Power, began his service with
the Company upon consummation of the Company's acquisition of RBI in June,
1995, and currently serves as the Company's Chief Financial Officer,
Secretary, Treasurer, and as a member of the Company's Board of Directors.
Mr. Moorer has also served as a Director of MicroCap since December, 1993,
and as Chief Financial Officer of MicroCap since July, 1994. From May,
1990 to May 1994, Mr. Moorer held the position of Chief Financial Officer
of Applied Research Corporation, a large, publicly traded, scientific
research and development company based in Landover, Maryland. From March,
1987 to May, 1990, Mr. Moorer was employed as a business analyst with
Compudyne Corporation, a defense electronics manufacturer located in
Annapolis, Maryland. Prior to accepting employment with Compudyne, Mr.
Moorer was employed as a Certified Public Accountant with the
international accounting firm of Coopers & Lybrand where he worked in the
Audit and Emerging Business Services Group from January, 1985 to March,
1987. Mr. Moorer received his formal education at Loyola College,
Baltimore, Maryland.
DONALD P. GRIFFIN. Mr. Griffin recently joined the Company as a
Director and as the Chief Operating Officer. He is responsible for the
sales, marketing and broadcasting operations in Redding, California.
Mr. Griffin joins the Company with an extensive and highly successful
career in radio broadcasting. Most recently, Mr. Griffin was Vice
President and General Manager of WLQT\WDOL Radio in Dayton, Ohio. At
WLQT\WDOL he was responsible for tripling revenues in three years, growing
from seven percent (7%) to twelve and one-half percent (12.5%) of the
market. He also held the position of General Sales Manager for WONE\WTUE
Radio, a country/AOR format, in Dayton, Ohio. While at WONE\WTUE,
Mr. Griffin took revenues from nineteen percent (19%) to twenty-nine
percent (29%) in three years, and was Sales Manager of the year in 1988.
Mr. Griffin has been a General Manager in a number of turn-around stations
producing dramatic increases in revenues in his initial year of
responsibility. His sales programs have included the addition of college
and professional sport broadcasting, special weekend programs and value-
rated sales concepts which increased revenues as much as seventy-five
percent (75%) in a six-month period. Mr. Griffin holds a B.A. degree in
Communications Arts from the University of Dayton.
Each Director is elected to serve for a term of one (1) year until
the next Annual Meeting of Shareholders or until a successor is duly
elected and qualified.
During the eight (8) months ended March 31, 1996, the Company did not
have standing Audit, Compensation or Nominating Committees of the Board of
Directors. However, the Company plans to form an Audit Committee during
fiscal 1997. No member of the Audit Committee will receive any additional
compensation for his service as a member of that Committee. The Audit
Committee will be responsible for providing assurance that financial
disclosures made by Management reasonably portray the Company's financial
condition, results of operations, plan and long-term commitments. To
accomplish this, the Audit Committee will oversee the external audit
coverage, including the annual nomination of the independent public
accountants, review accounting policies and policy decisions, review the
financial statements, including interim financial statements and annual
financial statements, together with auditor's opinions, inquire about the
existence and substance of any significant accounting accruals, reserves
or estimates made by Management, review with Management the Management's
Discussion and Analysis section of the Annual Report, review the letter of
Management representations given to the independent public accountants,
meet privately with the independent public accountants to discuss all
pertinent matters, and report regularly to the Board of Directors
regarding its activities.
During the eight (8) months ended March 31, 1996, three (3) meetings
of the Board of Directors of the Company were held. Each meeting was
attended by all members of the Board of Directors.
Any transactions between the Company and its officers, directors,
principal shareholders, or other affiliates have been and will be on terms
no less favorable to the Company than could be obtained from unaffiliated
third parties on an arms-length basis.
<PAGE>
DIRECTOR COMPENSATION
- ---------------------
Outside Directors receive no cash compensation for their services as
such, however they are reimbursed their expenses associated with
attendance at meetings or otherwise incurred in connection with the
discharge of their duties as Directors of the Company. Directors who are
also executive officers of the Company receive no additional compensation
for their services as Directors.
EXECUTIVE COMPENSATION
----------------------
The following table and discussion sets forth information with
respect to all plan and non-plan compensation awarded to, earned by or
paid to the Chief Executive Officer ("CEO"), and the Company's four (4)
most highly compensated executive officers other than the CEO, for all
services rendered in all capacities to the Company and its subsidiaries
for the eight (8) months ended March 31, 1996, and each of the years in
the two (2) fiscal years ended July 31, 1995 and 1994; provided, however,
that no disclosure has been made for any executive officer, other than the
CEO, whose total annual salary and bonus does not exceed $100,000.
<TABLE>
TABLE 1
SUMMARY COMPENSATION TABLE
--------------------------
<CAPTION>
Long Term Compensation
----------------------------------
Annual Compensation(1) Awards Payouts
-------------------------- --------------------- -------
Other All
Annual Restricted Other
Name and Compen- Stock LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) ($)(2) ($) SARs ($) ($)
- --------------- ------- -------- ----- --------- ---------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John C. Power, 1996(2) $-0- $-0- $7,500 -0- -0- -0- -0-
President, CEO
and Chairman of 1995 $-0- (3) $-0- $5,000(3) -0- -0- -0- -0-
the Board
1994 $-0- $-0- $-0- -0- -0- -0- -0-
- -----------------------------------
(1) No executive officer received perquisites and other personal benefits
which, in the aggregate, exceeded the lesser of either $50,000 or 10% of
the total of annual salary and bonus paid during the respective fiscal
years.
(2) Effective January ____, 1996, the Company changes its fiscal year from
July 31 to March 31. As a result, information reported for fiscal 1996
represents compensation paid during the eight (8) months ended March 31,
1996.
(3) To date, no officer or director of the Company has received cash
compensation for services rendered on behalf of the Company. The Company
did, however, pay to MicroCap a consultation fee in the amount of $7,500
during the eight (8) months ended March 31, 1996 and the sum of $5,000
during the year ended July 31, 1995, and has agreed to continue to pay
MicroCap the sum of $2,500.00 per month through March 31, 1997. No
consulting fee was paid during the fiscal year ended July 31, 1994. .
Mr. Power currently serves as President, CEO and Chairman of the Board of
MicroCap.
</TABLE>
1995 INCENTIVE STOCK OPTION PLAN
- --------------------------------
On December 5, 1995, the Board of Directors of the Company adopted
the Redwood Broadcasting, Inc. 1995 Incentive Stock Option Plan (the
"ISOP"), subject to shareholder approval. Pursuant to the ISOP, the
Company's Board of Directors is authorized to issue options for the
purchase of up to 150,000 shares of the Company's Common Stock to key
employees of the Company. Options granted under the ISOP to eligible
participants may take the form of Incentive Stock Options ("ISOs") under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")
or options which do not qualify as ISOs (Non-Qualified Stock Options or
"NQSOs"). As required by Section 422 of the Code, the aggregate fair
market value (as defined in the ISOP) of the Company's Common Stock
(determined as of the date of grant of the ISO) with respect to which ISOs
granted to an employee are exercisable for the first time in any calendar
year may not exceed $100,000. The foregoing limitation does not apply to
NQSOs. The exercise price of an ISO may not be less than 100% of the fair
market value of the shares of the Company's Common Stock (or 110% of the
fair market value if granted to a person who owns 10% or more of the
Company's outstanding shares) on the date of grant. The exercise price of
a NQSO may be set by the administrator of the ISOP. The exercise price
under any option will be adjusted as provided in the ISOP to reflect stock
dividends, splits, other recapitalizations or reclassifications or changes
affecting the number or kind of outstanding shares. Fair market value of
the Company's Common Stock is defined in the ISOP as the closing sale
price of the Common Stock on the OTC Electronic Bulletin Board System or
any securities exchange on which the shares of Common Stock are then
listed.
The ISOP is administered by a committee made up of members of the
Company's Board of Directors (the"Committee"), which determines eligible
employees, the time and number of options to be granted, and the periods
for which such options are granted. There are limitations on the number
of options which can be granted and the aggregate fair market value of the
stock in any given year. All options granted under the ISOP can be made
subject to vesting by the Committee in its discretion.
As of March 31, 1996, no ISOs or NQSOs, had been issued or were
outstanding under the ISOP.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth certain information with respect to
the beneficial ownership of the Common Stock, as of the date of this
Prospectus, and as adjusted to reflect the sale of the securities offered
by this Prospectus by: (i) each of the directors and executive officers of
the Company, (ii) all officers and directors of the Company as a group,
and (iii) holders of 5% or more of the Company's Common Stock. Each
person has sole voting and investment power with respect to the shares
shown, except as noted.
<TABLE>
<CAPTION>
PERCENT(1)
NUMBER OF SHARES ---------------------
NAME AND ADDRESS BENEFICIALLY BEFORE AFTER
OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- -------------------- --------------- -------- --------
OFFICERS, DIRECTORS,
AND PRINCIPAL SHAREHOLDERS
- --------------------------
<S> <C> <C> <C>
John C. Power(2) 595,442 60.0% 42.7%
P.O. Box 3458
Carefree, AZ 85377
J. Andrew Moorer(3) 525,192 52.7% 37.6%
4528 E. Duane Lane
Cave Creek, AZ 85331
Redwood MicroCap Fund, Inc.(4)(5) 487,692 48.9% 34.9%
P.O. Box 3463
Carefree, AZ 85377
Combined Penny Stock Fund, Inc.(6) 51,652 5.2% 3.7%
2055 Anglo Drive, Suite 105
Colorado Springs, CO 80918
Brian Power(7) 65,938 6.6% 4.7%
Nut Tree Ranch
Nut Tree, CA 95696
Officers and Directors as a 632,942 63.6% 45.3%
Group (three (3) individuals)
- -----------------------------------
(1) Shares not outstanding but deemed beneficially owned by virtue of the
individual's right to acquire then as of the date of this Prospectus,
or within 60 days of such date, are treated as outstanding when
determining the percent of the class owned by such individual and
when determining the percent owned by the group. For purposes of
calculating the percent of class owned after this offering, it was
assumed that the officers, directors and principal shareholders will
not be purchasing shares in this offering.
(2) Includes 487,692 shares held of record by Redwood MicroCap Fund,
Inc., a Colorado corporation, of which Mr. Power is an officer,
director and shareholder and, as such, would be deemed to exercise
the shared voting and investment power with respect to such
securities. Mr. Power disclaims beneficial ownership of the
securities for purposes of Section 16 under the Exchange Act.
Assumes no shares are sold by MicroCap in the Selling Shareholders'
Offering. Also, includes 7,750 shares held of record by the John C.
Power Profit Sharing Plan. Mr. Power currently serves as the Plan's
administrator and is a beneficiary and as such, would be deemed to
exercise voting and investment power with respect to such securities.
Also includes 100,000 shares held of record by Power Curve, Inc., a
controlled corporation of Mr. Power.
(3) Includes 487,692 shares held of record by Redwood MicroCap Fund,
Inc., a Colorado corporation, of which Mr. Moorer is an officer and
director and, as such, would be deemed to exercise the shared voting
and investment power with respect to such securities. Mr. Moorer
disclaims beneficial ownership of the securities for purposes of
Section 16 under the Exchange Act. Assumes no shares are sold by
MicroCap in the Selling Shareholders' Offering.
(4) Includes 195,371 shares of Common Stock acquired pursuant to the
terms of the RBI Agreement. (See "CERTAIN TRANSACTIONS - RBI
Agreement"), which have been pledged as collateral to secure
MicroCap's guarantee of the Company's obligation to purchase up to
203,008 shares of the Company's Common Stock upon exercise of the
Puts. Also includes 150,000 shares of Common Stock issued to
MicroCap in satisfaction of $180,000 in debt owed to MicroCap by the
Company. Also includes 97,000 shares of Common Stock to be acquired
from certain CRI Shareholders.
(5) Redwood MicroCap Fund, Inc. is a diversified, closed-end, mutual fund
registered under the Investment Company Act of 1940 (the "1940 Act").
Voting and investment power with respect to these securities is
exercised by the company's Board of Directors, whose members are John
C. Power, Joseph O. Smith, and J. Andrew Moorer.
(6) Combined Penny Stock Fund, Inc is a Colorado-based business
development company located in Colorado Springs, Colorado. Voting
and investment power with respect to these securities is exercised by
the Company's Board of Directors whose members include Allan W.
Williams, Dr. A. Leonard Nacht. Brian Power and John Overturf.
(8) Includes 51,562 shares of Common Stock owned of record by Combined
Penny Stock Fund, Inc., on which Mr. Power serves as a member of the
Board of Directors. Mr. Power disclaims beneficial ownership of the
shares held of record by Combined Penny Stock Fund, Inc. for purposes
of Section 16 of the Exchange Act.
</TABLE>
<PAGE>
DESCRIPTION OF SECURITIES
-------------------------
COMMON STOCK
- ------------
The authorized capital stock of the Corporation consists of
12,500,000 shares of Common Stock having a par value of $.004 per share.
All shares have equal voting rights and are not assessable. Voting rights
are not cumulative and, therefore, the holders of more than 50% of the
Common Stock of the Company could, if they chose to do so, elect all the
Directors. The terms of the directors are not staggered. Directors are
elected annually to serve until the next annual meeting of shareholders or
until their successors are elected and qualified.
Upon liquidation, dissolution or winding up of the Company, the
assets of the Company, after satisfaction of all liabilities, will be
distributed PRO RATA to the holders of the Common Stock. The holders of
the Common Stock do not have preemptive rights to subscribe for any
securities of the Company and have no right to require the Company to
redeem or purchase their shares. The shares of Common Stock presently
outstanding are, and the shares of the Common Stock to be sold pursuant to
this offering will be, upon issuance, fully paid and non-assessable.
Holders of Common Stock are entitled to dividends when, as and if
declared by the Board of Directors of the Company, out of funds legally
available therefor. The Company has not paid any cash dividends on its
Common Stock, and it is unlikely that any such dividends will be declared
in the foreseeable future.
PREFERRED SHARES
- ----------------
The Articles of Incorporation of the Company authorize issuance of a
maximum of 2,500,000 shares of preferred stock having a par value of $.04
per share. The Articles of Incorporation vest the Board of Directors of
the Company with authority to divide the class of Preferred Shares into
series and to fix and determine the relative rights and preferences of the
shares of any such series so established to the full extent permitted by
the laws of the State of Colorado and the Articles of Incorporation in
respect of, among other things, (i) the number of Preferred Shares to
constitute such series and the distinctive designations thereof, (ii) the
rate and preference of dividends, if any, the time of payment of
dividends, whether dividends are cumulative and the date from which any
dividend shall accrue, (iii) whether Preferred Shares may be redeemed and,
if so, the redemption price and the terms and conditions of redemption,
(iv) the liquidation preferences payable on Preferred Shares in the event
of involuntary or voluntary liquidation, (v) sinking fund or other
provisions, if any, for redemption or purchase of Preferred Shares, (vi)
the terms and conditions by which Preferred Shares may be converted, if
the Preferred Shares of any series are issued with the privilege of
conversion, and (vii) voting rights, if any.
COMMON STOCK PUT OPTIONS
- ------------------------
Pursuant to the terms of the RBI Agreement, and upon the
effective date of the Registration Statement of which this Prospectus
forms a part, the Company has agreed to issue up to 203,008 Common Stock
Put Options ("Puts") to certain of the CRI shareholders (the
"Putholders"). Upon issuance, the Puts will grant to each Putholder the
right and option to sell to the Company for redemption any or all of the
number of shares of the Company's Common Stock which such Putholders have
the right to receive by virtue of the CRI Agreement. The Puts will
require the Company to purchase and redeem any and all shares tendered at
a price of $1.50 per share. The Puts will be exercisable for a period of
ninety (90) days following the effective date of the Registration
Statement of which this Prospectus forms a part ("Redemption Period").
(See "TERMS OF OFFERINGS - THE PUT OPTION OFFERING.")
<PAGE>
TERMS OF OFFERINGS
------------------
This Prospectus relates to four (4) offerings of the Company's
securities, the terms and conditions of which are set forth below.
THE SPIN-OFF OFFERING
- ---------------------
The first offering relates to the distribution by Cell Robotics
International, Inc., a Colorado corporation ("CRI") of up to 300,008
shares of the Company's $.004 par value common stock pursuant to the terms
of a certain Agreement and Plan of Reorganization between and among CRI,
Cell Robotics, Inc., a New Mexico corporation ("Cell"), MiCEL, Inc., a
Delaware corporation, Bridgeworks Investors I, LLC, an Oregon limited
liability company, and Ronald K. Lohrding individually, dated as of
December 12, 1994 (the "CRI Agreement"), pursuant to which CRI agreed to
distribute 300,008 shares of the Company's Common Stock ("Spin-Off
Shares") to the shareholders of record of CRI (the "CRI Shareholders") as
of December 16, 1994 (the "Record Date") upon the effective date of the
Registration Statement of which this Prospectus forms a part (the
"Registration Statement"). (See "BUSINESS - HISTORY - FORMATION OF THE
COMPANY.")
The Spin-Off Shares will be distributed by mail within 10 days after
the effective date of the Registration Statement on a "pro-rata", one-for-
one (1-for-1) basis, with each CRI Shareholder receiving one (1) Spin-Off
Share for each share of CRI common stock held of record on the Record
Date. No fractional shares will be distributed.
Only CRI Shareholders residing in states where the Spin-Off Shares
have been qualified for issuance under the applicable state securities
laws will be eligible to receive shares of the Company's Common Stock.
Although the Company plans to qualify the issuance of the Spin-Off Shares
in those states in which the securities are to be distributed, no
assurance can be given that such qualification will occur. CRI
Shareholders residing in states where the Company is unable to qualify the
Spin-Off Shares for distribution will not be eligible to participate in
the distribution. In the event the Company is unable to qualify the
distribution of the Spin-Off Shares under one or more applicable state
securities laws, the Company will provide the CRI shareholders residing in
such states with written notice of their ineligibility to participate in
the Spin-Off. Any Spin-Off shares which cannot be distributed due to the
Company's inability to qualify the Spin-Off Offering under a state's
securities laws will be distributed pro rata to the remaining CRI
Shareholders. In such event, the Company does not intend to amend this
Prospectus unless the aggregate number of Spin-Off Shares which are
ineligible to be distributed is, in the judgment of management, material.
All questions as to the eligibility of the CRI Shareholders to participate
in the distribution will be determined by the Company in its sole
discretion.
The CRI Shareholders will not be charged or assessed for the Spin-Off
Shares and neither CRI nor the Company will receive any proceeds from the
distribution of the Spin-Off Shares. Pursuant to the terms of the CRI
Agreement, the Company is bearing the cost of the distribution.
THE PUT OPTION OFFERING
- -----------------------
This Prospectus also relates to the distribution by the Company of up
to 203,008 Common Stock Put Options ("Puts") issuable pursuant to the
terms of a certain Agreement and Plan of Reorganization between and among
the Company, Broadcasting and MicroCap dated as of June 16, 1995, pursuant
to which the Company agreed to issue to certain of the CRI Shareholders
(the "Putholders") a Put exercisable to sell to the Company for
redemption, any or all of the Spin-Off Shares which such Putholders have
the right to receive in the Spin-Off. The Put will require the Company to
purchase and redeem any and all shares tendered at a price of $1.50 per
share (the "Put Price"). The Puts will be exercisable for a period of
ninety (90) days following the effective date of the Registration
Statement (the "Put Expiration Date"). The Company's obligation to
purchase and redeem any and all shares tendered has been guaranteed by
MicroCap, which guarantee is secured by 195,371 shares of the Company's
Common Stock owned by MicroCap. The guarantee of MicroCap is direct,
unconditional and independent of the obligations of the Company. In the
event the Company fails to redeem Spin-Off Shares which have been tendered
in accordance with the Put Exercise Procedure described below, a cause or
causes of action may be brought and prosecuted against the Company and
MicroCap or against MicroCap for the full amount of the outstanding
indebtedness due and owing upon said exercise without the necessity of
first proceeding against or joining the Company.
The Puts being issued to the Putholders, together with Put Redemption
Certificates, will be distributed by mail within 10 days after the
effective date of the Registration Statement. No fractional Puts will be
distributed. Only Putholders residing in states where the Puts have been
qualified for issuance under the applicable state securities laws will be
eligible to participate in the distribution. Although the Company seeks
to qualify the issuance of the Puts in those states in which the Puts are
to be distributed, no assurance can be given that such qualification will
occur. In the event the Company is unable to qualify the distribution of
the Puts to any CRI shareholders due to the applicable state securities
laws of the state of such putholder's residence, the Company will provide
the putholder with written notice of such ineligibility. Putholders
residing in states where the Company is unable to qualify the Puts for
issuance will not be eligible to participate in the distribution. The
Putholders will not be charged or assessed for Puts and the Company will
not receive any proceeds from the distribution of the Puts. Pursuant to
the terms of the RBI Agreement, the Company is bearing the cost of the
distribution.
PUT EXERCISE PROCEDURE
----------------------
Puts may be exercised by mailing or delivering to the Company a duly
executed and completed Put Redemption Certificate indicating the number of
shares being tendered for redemption and a certificate or certificates
representing the number of shares of Company Common Stock being tendered.
Put Redemption Certificates must arrive on or before the Put Expiration
Date. Any Put Redemption Certificates received after the Put Expiration
Date will not be honored. Once a Putholder has exercised a Put, the
exercise is irrevocable. Within ten (10) days of receipt of the
foregoing, the Company will return to each tendering Putholder a
certificate for all shares surrendered in excess of those tendered for
redemption, if any, and will mail to each exercising Putholder a check
from the Company in consideration for the shares that were tendered and
redeemed by the Company.
The instructions on the Put Redemption Certificate should be read
carefully and followed in detail. No Puts will be accepted until the
Company has received delivery of a duly executed Put Redemption
Certificate. The risk of delivery of Put Redemption Certificates and
Common Stock to the Company will be borne by the Putholders and not by the
Company. If the mail is used to exercise Puts, it is recommended that
insured, registered mail be used. Any questions or requests for
assistance concerning the method of exercising the Puts should be directed
to the Company. All questions as to the validity, form, eligibility and
acceptance of any exercise of Puts will be determined by the Company in
its sole discretion. The Company may waive any defect or irregularity,
permit a defect or irregularity to be corrected within such time as it may
determine, or reject any exercise of a Put which it determines to have
been made improperly.
THE COMPANY OFFERING
- --------------------
The Company is offering on a best efforts basis up to 400,000 shares
of the Company's $.004 par value Common Stock at an offering price of
$2.00 per share. The Offering Price of the Common Stock being offered
hereby was arbitrarily determined by the Company and is not necessarily
related to the Company's assets, book value or financial condition. In
determining the offering price and the number of shares of Common Stock to
be offered, the Company considered such factors as the financial condition
of the Company, its net tangible book value, limited operating history and
general condition of the securities market. Accordingly, the offering
price of the Common Stock may not be indicative of the actual value of the
Company. (See "RISK FACTORS - RISK FACTORS RELATED TO THIS OFFERING.")
The Company is offering the shares of Common Stock to the public
through its officers and directors. The Company may retain the services
of Selling Agents who are members of the National Association of
Securities Dealers to assist in the Company Offering. On any sales made
by Selling Agents, a commission of up to ten percent (10%) may be paid.
To date, there exists no arrangements or commitments by the Company to
retain any Selling Agent.
There currently exists no public trading market for the Company's
Common Stock, and there can be no assurance that such a market will
develop in the future. In the absence of an active public trading market,
there can be no assurances that an investor will be able to liquidate his
investment without considerable delay, if at all. If a market does
develop, the price for the Company's securities may be highly volatile and
may bear no relationship to the Company's actual financial condition or
results of operations. (See "DESCRIPTION OF SECURITIES" and "RISK FACTORS
- - RISK FACTORS RELATED TO THIS OFFERING.")
The Company's securities may be quoted in the "pink-sheets"
maintained by the National Quotations Bureau, Inc., which reports
quotations by brokers or dealers making a market in particular securities.
The Company has no agreement with any broker or dealer to act as a
marketmaker for the Company's securities and there is no assurance that
Management will be successful in obtaining any marketmakers. The lack of
a marketmaker for the Company's securities could adversely influence the
market for and price of the Company's securities, as well as the ability
of investors to dispose of, or to obtain accurate quotations as to the
price of, the Company's securities. (See "RISK FACTORS - RISK FACTORS
RELATED TO THIS OFFERING.")
THE SELLING SHAREHOLDERS' OFFERING
- ----------------------------------
This Prospectus relates to the resale to the public of 500,429 shares
of Common Stock by the Selling Shareholders set forth below. The
following table sets forth certain information with respect to persons for
whom the Company is registering the Common Stock for resale to the public.
None of the Selling Shareholders have had any material relationship with
the Company, or any of its predecessors or affiliates within the past
three years, except as noted. The Company will not receive any of the
proceeds from the sale of the Common Stock by the Selling Shareholders.
Beneficial ownership of the Common Stock by such Selling Shareholders
after this Offering will depend on the number of shares sold by each
Selling Shareholder.
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO SHARES OWNED AFTER
OFFERING OFFERED OFFERING
NAME AND ADDRESS ------------------- ------- -------------------
OF BENEFICIAL OWNER NUMBER PERCENT(1) NUMBER NUMBER PERCENT(1)
- ------------------- ------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Stefan Ponek 15,000 1.5% 15,000 -0- -0-
642 O'Farrel Drive
Benicia, CA 94510
Brian Power(2) 14,376 1.4% 14,376 -0- -0-
Nut Tree Ranch
Nut Tree, CA 95696
Redwood MicroCap Fund, Inc.(3) 487,692 48.9% 195,371 292,321 20.9%
P.O. Box 3463
Carefree, AZ 85377
Allan Williams 13,719 1.4% 13,719 -0- -0-
21071 43A Avenue
Langley, British Columbia,
Canada V3A 8K4
Combined Penny Stock Fund, Inc. 51,562 5.2% 51,562 -0- -0-
2055 Anglo Drive, Suite 105
Colorado Springs, CO 80918
Peter L. Hirschburg, Jr. 7,651 .8% 7,651 -0- -0-
471 N. Curtis Road
Boise, Idaho 83706
Edward Gizdich 20,000 2.0% 20,000 -0- -0-
23 Pinnacle Peak
Napa, California 94558
Raymond and Phyllis Walker 5,000 .5% 5,000 -0- -0-
c/o Paula Power
P.O. Box 3458
Carefree, Arizona 85377
The John C. Power Profit 7,750 .8% 7,750 -0- -0-
Sharing Plan(4)
P.O. Box 3458
Carefree, Arizona 85377
<PAGE>
Vernon D. Moorer, Jr. Trust 25,000 2.5% 25,000 -0- -0-
c/o Joan B. Moorer, Trustee
141 Spring Place Way
Annapolis, Maryland 21401
Clifford L. Neuman(5) 5,000 .5% 5,000 -0- -0-
1507 Pine Street
Boulder, Colorado 80302
J. Andrew Moorer 37,500 3.8% 37,500 -0- -0-
P.O. Box 3463
Carefree, Arizona 85377
Ronald Woodward 2,500 .2% 2,500 -0- -0-
c/o KNNN-FM
1326 Market Street
Redding, California 96001
Power Curve, Inc.(6) 100,000 10.0% 100,000 -0- -0-
P.O. Box 3458
Carefree, Arizona 85377
- -----------------------------
<FN>
(1) Shares not outstanding but deemed beneficially owned by virtue of the
individual's right to acquire them as of the date of this Prospectus, or
within 60 days of such date, are treated as outstanding when determining
the percent of the class owned by such individual and when determining the
percent owned by the group.
(2) Brian Power is the brother of John C. Power, President and Director of the
Company and President and Director of Microcap, the Company's principal
shareholder.
(3) Includes 195,371 shares of Common Stock acquired pursuant to the terms of
the RBI Agreement. (See "CERTAIN TRANSACTIONS - RBI Agreement"), which
shares have been pledged as security for MicroCap's guarantee of the
Company's obligation to purchase up to 203,008 shares of the Company's
Common Stock upon exercise of the Puts. Also includes 150,000 shares of
Common Stock issued to MicroCap in exchange for MicroCap's agreement to
release and forever discharge $180,000 in debt owed to MicroCap by the
Company. Finally, includes 97,000 shares of Common Stock to be acquired
from certain CRI Shareholders upon the effective date of the Registration
Statement.
(4) John C. Power is the beneficiary of the John C. Power Profit Sharing Plan.
(5) Clifford L. Neuman is the principal of Neuman & Cobb, legal counsel to the
Company.
(6) Power Curve, Inc. is a controlled corporation of John C. Power.
</FN>
</TABLE>
The Selling Shareholders have advised the Company that sales of the
shares of Common Stock may be effected from time to time in transactions
(which may include block transactions) in the over-the-counter market, in
negotiated transactions, through the writing of options on the Common
Stock or a combination of such methods of sale, at fixed prices that may
be changed, at market prices prevailing at the time of sale, or at
negotiated prices. The Selling Shareholders may effect such transactions
by selling the Common Stock directly to purchasers or through broker-
dealers that may act as agents or principals. Such broker-dealers may
receive compensation in the form of discounts, concessions or commissions
from the Selling Shareholders and/or the purchasers of shares of Common
Stock for whom such broker-dealers may act as agents or to whom they sell
as principals, or both (which compensation as to a particular broker-
dealer might be in excess of customary commissions).
The Selling Shareholders and any broker-dealers that act in
connection with the sale of the shares of Common Stock as principals may
be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act and any commissions received by them and any profit on the
resale of the shares of Common Stock as principals might be deemed to be
underwriting discounts and commissions under the Securities Act. The
Selling Shareholders may agree to indemnify any agent, dealer or broker-
dealer that participates in transactions involving sales of the shares of
Common Stock against certain liabilities, including liabilities arising
under the Securities Act. The Company will not receive any proceeds from
the sales of shares of Common Stock by the Selling Shareholders. Sales of
the shares of Common Stock by the Selling Shareholders, or even the
potential of such sales, would likely have an adverse effect on the market
price of the Common Stock.
The shares of Common Stock are offered by the Selling Shareholders on
a delayed or continuous basis pursuant to Rule 415 under the Securities
Act. The Company has agreed to pay all expenses incurred in connection
with the registration of the shares offered by the Selling Shareholders;
provided, however, that the Selling Shareholders shall be exclusively
liable to pay any and all commissions, discounts and other payments to
broker-dealers incurred in connection with their sale of the shares.
<PAGE>
CERTAIN TRANSACTIONS
--------------------
CRI AGREEMENT
- -------------
In connection with the formation of the Company, the Company issued
to CRI 300,008 shares of the Company's $.004 par value Common Stock
("Spin-Off Shares"), in exchange for one hundred percent (100%) of CRI's
real and personal property, subject to certain liabilities, saving and
excepting cash, cash equivalents or marketable securities having an
aggregate fair market value of not less than $250,000. Pursuant to the
terms of the CRI Agreement, CRI agreed to distribute the Spin-Off Shares
to the shareholders of record of CRI as of December 16, 1994, upon the
effective date of the Registration Statement of which this Prospectus
forms a part. The CRI Shareholders will not be charged or assessed for
the shares of Company Common Stock and neither CRI nor the Company will
receive any proceeds from the distribution of the Company Common Stock.
Pursuant to the terms of the CRI Agreement, the Company is bearing the
cost of the distribution. (See "TERMS OF OFFERING - THE SPIN-OFF
OFFERING.")
RBI AGREEMENT
- -------------
In connection with the Company's acquisition of Broadcasting (see
"BUSINESS - HISTORY - REDWOOD BROADCASTING, INC."), the Company issued to
RBI's shareholders 300,000 shares of the Company's Common Stock in
exchange for one hundred percent (100%) of the issued and outstanding
shares of Common Stock of Broadcasting. Subsequent to the acquisition,
Broadcastsing was merged with and into the Company, with the Company
remaining as the surviving entity.
In connection with the acquisition of Broadcasting, the Company did
not obtain an opinion of an investment banker, accountant or other third
party that the terms of the transaction were fair to the Company's future
shareholders who would receive their shares in their shares in the Spin-
Off. In lieu of obtaining such opinions, MicroCap (Broadcasting's parent
corporation) agreed to purchase from certain of the CRI Shareholders the
right to receive a total of 97,000 Spin-Off Shares at a price of $1.20 per
share. As MicroCap lacked the resources and capital to extend the same
offer and opportunity to all CRI Shareholders, the Company required as a
condition to closing the transaction that MicroCap guarantee its
obligations under the Put Options being issued to the remaining CRI
Shareholders. The Puts require the Company to purchase and redeem any and
all shares tendered at a price of $1.50 per share. The Puts will be
exercisable for a period of ninety (90) days following the effective date
of the Registration Statement of which this Prospectus forms a part. The
Putholders will not be charged or assessed for Puts and the Company will
not receive any proceeds from the proceeds of the Puts. The Company is
bearing the cost of the distribution of the Puts.
On June 16, 1995, as part of the RBI Agreement, the Company's Board
of Directors was reconstituted to consist of John C. Power, J. Andrew
Moorer, and Stefan Ponek, until the next Annual Meeting of the Company's
Shareholders or until a successor is duly elected and qualified.
Subsequently, Mr. Ponek resigned from the Company's Board of Directors,
and was replaced by Brian Power. Brian Power was subsequently replaced by
Donald Griffin.
MICROCAP GUARANTEE
- ------------------
Pursuant to the terms of the RBI Agreement, the Company's obligation
to purchase and redeem any and all shares tendered upon exercise of the
Puts has been guaranteed by MicroCap, which guarantee is secured by shares
of the Company's Common Stock owned by MicroCap. MicroCap's obligations
under the Guarantee are direct, unconditional and independent of the
obligations of the Company. In the event the Company fails to redeem
shares of Common Stock which have been tendered in accordance with Put
Exercise Procedures, a cause or causes of action may be brought and
prosecuted against the Company alone, or the Company and MicroCap or only
MicroCap for the full amount of the outstanding indebtedness due and owing
upon said exercise without the necessity of first proceeding against or
joining the Company.
MICROCAP DEBT CONVERSION
- ------------------------
By agreement dated September 30, 1995, the Company agreed to issue to
MicroCap 150,000 shares of Common Stock in satisfaction of debt totalling
$180,000. Pursuant to the Agreement to Convert Debt, all costs associated
with the Conversion and issuance of shares of Common Stock to MicroCap
have been paid by the Company.
MICROCAP CONSULTATION AGREEMENT
- -------------------------------
During the eight (8) months ended March 31, 1996, the Company paid to
MicroCap consultation fees totalling $7,500, and during fiscal 1995, the
Company paid to MicroCap consultation fees totalling $5,000. The Company
has agreed to continue to pay MicroCap a monthly consulting fee of $2,500
through at least the year ending March 31, 1997, and possibly longer.
Under the arrangement, MicroCap provides general management services to
the Company. Messrs. Power and Moorer, officers and directors of the
Company, are also officers and directors of MicroCap. The Company
believes that the fees were and are commercially reasonable, competitive,
and more favorable to the Company than terms available from unaffiliated
third-parties on an arms-length basis.
TRIPOWER RESOURCES, INC. DEBT OBLIGATION
- ----------------------------------------
In conjunction with the acquisition of KHSL-AM-FM by Alta, Alta
borrowed the sum of $375,000 from TriPower Resources, Inc., which
indebtedness is evidenced by Alta's promissory note (the "Note") and was
originally secured by the Chico Property, which was sold by the Company in
April, 1996. The TriPower Note is now collateralized by a pledge of 100%
of the shares of Alta Common Stock. TriPower Resources, Inc. is a
controlled corporation of the Company's President, John C. Power.
Pursuant to the terms of the Note, Alta has agreed to pay TriPower
Resources, Inc. interest on the unpaid principal balance at the rate of
fourteen percent (14%) per annum. During the eight (8) months ended March
31, 1996, the Company made a principal reduction payment of $75,000,
leaving a principal balance of $300,000. The TriPower Note has been paid
in full.
MICROCAP ADVANCES
- -----------------
The Company has received approximately $350,000 from MicroCap in the
form of inter-company advances, which indebtedness is unsecured. The
funds received were used in part to pay down the September Note, to retire
the TriPower Note, and the remaining amount used for working capital. The
remaining portion of the advances was used by the Company to cover
operating expenses. The balance of approximately $350,000 is due on
demand.
J. ANDREW MOORER STOCK PURCHASE
- -------------------------------
In August, 1996, the Company issued a total of 37,500 shares of
Common Stock to J. Andrew Moorer, the Company's Chief Financial Officer,
Secretary and Treasurer, and who is also a member of the Company's Board
of Directors, at a price of $1.20 per share in exchange for a $45,000
promissory note, which note bears interest at the rate of 7%, is secured
by Mr. Moorer's principal residence, which is due and payable in full on
or before August 1, 2001.
POWER CURVE, INC. STOCK PURCHASE
- --------------------------------
In December, 1996, the Company sold and issued 100,000 shares of
Common Stock to Power Curve, Inc., a controlled corporation of John C.
Power, the Company's President and Director. Mr. Power is also a Director
and President of Microcap, the Company's principal shareholder. The
shares were sold to Power Curve, Inc. at a price of $1.20 per share.
INDEMNIFICATION
---------------
In accordance with the Colorado Business Corporation Act, the Company
has included a provision in its Articles of Incorporation to limit the
personal liability of its officers and directors to the maximum extent
allowable under Colorado law. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 (the "Act") may be permitted to
directors, officers and controlling persons of the Company pursuant to the
foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable.
LEGAL MATTERS
-------------
The validity of the issuance of the Common Stock and Puts offered
hereby will be passed upon for the Company by Neuman & Cobb, Boulder,
Colorado. Clifford L. Neuman, a partner in the firm of Neuman & Cobb, was
an officer and director of the Company until June 16, 1995. Mr. Neuman
resigned as an officer and director of the Company in connection with the
Company's acquisition of RBI which closed effective June 16, 1995.
EXPERTS
-------
The financial statements of the Company as of March 31, 1996 and for
each of the years in the fiscal years ended July 31, 1995 and 1994 are
included herein in reliance on the reports of Schumacher & Bruce, Inc.,
independent certified public accountants, and upon the authority of that
firm as experts in auditing and accounting.
<PAGE>
<PAGE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
FINANCIAL STATEMENTS
<PAGE>
<PAGE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
MASTER INDEX
Index of Redwood Broadcasting, Inc. and
Consolidated Subsidiaries Financial Statements
for the Eight Month Period Ended March 31, 1996
and Years Ended July 31, 1995 and 1994 F-3
Index of KHSL AM-FM Financial Statements For the
Six and One-half Months Ended February 15, 1995
and for the Year Ended July 31, 1994 F-17
Index of Quality Broadcasters of California, L.P.
Financial Statements for the Years Ended
March 31, 1995 and 1996 F-25
Index of Redwood Broadcasting, Inc., Pro Forma
Financial Statements for the Eight Month Period
Ended March 31, 1996 (Unaudited) F-33
Index of Redwood Broadcasting, Inc. and Consolidated
Subsidiaries Financial Statements for the Six
Months Ended September 30, 1996 (Unaudited) F-39
Index of Redwood Broadcasting, Inc., Pro Forma
Financial Statements for the Six Month Period
Ended September 30, 1996 (Unaudited) F-51
<PAGE>
<PAGE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
FINANCIAL STATEMENTS
and
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
March 31, 1996, July 31, 1995 and July 31, 1994
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants F-4
Financial Statements:
Balance Sheets F-5
Statements of Operations F-6
Statement of Changes in Stockholders' Equity F-7
Statements of Cash Flows F-8
Notes to Financial Statements F-9
</TABLE>
<PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
The Board of Directors
Redwood Broadcasting, Inc.
We have audited the consolidated balance sheet of Redwood Broadcasting,
Inc. and consolidated subsidiaries as of March 31, 1996 and July 31, 1995
and the related statements of operations, changes in stockholders' equity
and cash flows for the eight months ended March 31, 1996 and the two years
ended July 31, 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Redwood
Broadcasting, Inc. and consolidated subsidiaries as of March 31, 1996 and
July 31, 1995 and the results of its operations, its changes in
stockholders' equity and its cash flows for the eight months ended march
31, 1996 and the two years ended July 31, 1995 and 1994 in conformity with
generally accepted accounting principles.
The financial statements as of July 31, 1995 have been corrected for an
accounting error in the allocation of the purchase price of KHSL AM-FM as
described in Note 1 to the financial statements.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed
in Note 9 to the consolidated financial statements, the Company has
suffered recurring losses from operations, and has a net working capital
deficiency, that raise substantial doubt about its ability to continue as
a going concern. Note 9 also discusses management's plan regarding these
matters. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Schumacher & Associates, Inc.
Certified Public Accountants
12835 E. Arapahoe Road
Tower II, Suite 110
Englewood, CO 80112
June 6, 1996
<PAGE>
<PAGE>
<TABLE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
BALANCE SHEET
<CAPTION>
March 31, July 31,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
------
Current Assets
Cash $ - $ 3,518
Accounts receivable, net of allowance for
doubtful accounts of $16,400 at March 31,
1996 and $7,027 at July 31, 1995 86,834 139,538
Other 73,893 6,723
----------- -----------
Total Current Assets 160,727 149,779
Property and equipment, net of accumulated
depreciation of $74,855 at March 31, 1996
and $69,482 at July 31, 1995 (Note 4) 749,560 906,200
License, net of accumulated amortization
of $16,667 at March 31, 1996 489,833 500,000
Other assets 144,985 149,050
----------- -----------
Total Assets $1,545,105 $1,705,029
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Outstanding checks in excess of amounts
reported by banks $ 23,188 $ -
Accounts payable and accrued expenses
(Note 12) 273,431 206,924
Notes payable, current portion (Note 2) 728,174 974,289
Common stock subject to mandatory
redemption (Note 3) 304,512 304,512
Accounts payable, related parties 232,730 15,185
Income taxes payable - 40,673
Unearned income, current portion (Note 8) 23,333 23,333
----------- -----------
Total Current Liabilities 1,585,368 1,564,916
Unearned income, net of current portion (Note 8) 9,722 25,278
Notes payable, net of current portion (Note 2) 11,994 21,455
----------- -----------
Total Liabilities 1,607,084 1,611,649
----------- -----------
<PAGE>
Commitments and contingencies (Notes 2,3,5,6,
8,9,10 and 11) - -
Stockholders' Equity (Notes 3 and 7):
Preferred stock - $.04 par value,
2,500,000 shares authorized,
none issued and outstanding - -
Common stock - $.004 par value,
12,500,000 shares authorized; 780,508 and
600,008 shares issued and outstanding as
of March 31, 1996 and July 31, 1995,
respectively 3,122 2,400
Additional paid-in capital 467,123 254,545
Accumulated (deficit) (532,224) (163,565)
----------- -----------
Total Stockholders' Equity (61,979) 93,380
----------- -----------
Total Liabilities and Stockholders' Equity $1,545,105 $1,705,029
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
<TABLE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
STATEMENTS OF OPERATIONS
<CAPTION>
For the Eight For the Years
Months Ended ---------------------
March 31, Ended July 31,
1996 1995 1994
----------- ---------- ---------
<S> <C> <C> <C>
Total revenues $ 440,457 $ 377,023 $ -
Less agency commissions (11,071) (9,475) -
---------- ---------- ---------
Net revenues 429,386 367,548 -
Operating Expenses:
Station operating expenses excluding
depreciation and amortization 656,394 470,445 -
Depreciation and amortization 77,649 9,108 -
Corporate general and administrative
expenses 58,464 48,448 3,112
---------- ---------- ---------
Total operating expenses 792,507 528,001 3,112
---------- ---------- ---------
Operating Loss (363,121) (160,453) (3,112)
Other Income (Expense):
Other income 16,898 - -
Interest expense (22,436) - -
---------- ---------- ---------
Total Other Income (Expense) (5,538) - -
---------- ---------- ---------
Net loss $(368,659) $(160,453) $ (3,112)
========== ========== =========
Net loss per share $ (.53) $ (.49) $ (.01)
========== ========== =========
Weighted average shares
outstanding 690,258 325,000 300,000
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
<TABLE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Two Years Ended July 31, 1995
and for the Eight Months Ended March 31, 1996
<CAPTION>
Additional
Common Stock Paid-In Accumulated
No./Shares Amount in Capital (Deficit) Total
------------ ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance at July 31, 1993 - - - - -
Common stock issued 300,000 1,200 2,300 - 3,500
Net (loss) for the year ended July 31, 1994 - - - (3,112) (3,112)
------- ------- --------- ---------- ----------
Balance at July 31, 1994 300,000 $ 1,200 $ 2,300 $ (3,112) $ 388
Capital contribution - - 241,798 - 241,798
Reorganization (Note 1) 300,008 1,200 10,447 - 11,647
Net (loss) for the year ended July 31, 1995 - - - (160,453) (160,453)
------- ------- --------- ---------- ----------
Balance at July 31, 1995 600,008 2,400 254,545 (163,565) 93,380
Common stock issued in private placement 25,000 100 29,900 - 30,000
Common stock issued in debt conversion 150,000 600 179,400 - 180,000
Common stock issued for services 5,500 22 3,278 - 3,300
Net (loss) for the eight month period
ended March 31, 1996 - - - (368,659) (368,659)
------- ------- --------- ---------- ----------
Balance at March 31, 1996 780,508 $ 3,122 $ 467,123 $(532,224) $ (61,979)
======= ======= ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
<TABLE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<CAPTION>
For the For the
Eight Month Years Ended July 31
Period Ended ---------------------
March 31, 1996 1995 1994
-------------- ---------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net (loss) $(368,659) $(160,453) $(3,112)
Adjustments to reconcile net
income to net cash (used) by
operating activities
Depreciation 77,649 9,108 -
Increase in accounts payable
and accrued expenses 266,564 222,109 -
(Increase) decrease in
accounts receivable 52,704 (139,538) -
Increase (decrease) in
unearned income (15,556) 48,611 -
Other, net (49,635) (6,723) -
---------- ---------- --------
Net Cash (Used) by Operating
Activities (36,933) (26,886) (3,112)
---------- ---------- --------
Cash Flows from Investing Activities:
(Acquisition) disposition of
property and equipment and
other (Note A) 78,991 (329,173) -
---------- ---------- --------
Net Cash Provided (Used) by
Investing Activities 78,991 (329,173) -
---------- ---------- --------
Cash Flows from Financing Activities:
Proceeds from notes payable - 131,844 -
(Repayment) of notes payable (75,576) (26,100) -
Common stock issued and capital
contributed 30,000 253,445 3,500
---------- ---------- --------
Net Cash Provided (Used) by
Financing Activities (45,576) 359,189 3,500
---------- ---------- --------
Increase (decrease) in cash (3,518) 3,130 388
Cash, beginning of period 3,518 388 -
---------- ---------- --------
Cash, end of period $ - $ 3,518 $ 388
========= ========= =======
Interest paid $ 22,436 $ - $ -
========= ========= =======
Income taxes paid $ - $ - $ -
========= ========= =======
Note A: During the year ended July 31, 1995 the Company acquired certain
radio station assets and real property at a cost of $1,150,000. The
Company made a cash down payment of $415,000 and incurred
indebtedness of $735,000 related to this acquisition.
Note B: During the period ended March 31, 1996 the Company issued 150,000
shares of its common stock in lieu of cash or money payment of an
obligation to a related party totalling $180,000.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
March 31, 1996, July 31, 1995 and July 31, 1994
(1) SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
(a) GENERAL
-------
Redwood Broadcasting, Inc. (RBI) was organized under the laws of the
State of Colorado. Pursuant to a spin-off agreement, certain assets
of its parent company were contributed to RBI in exchange for
300,008 shares of RBI $.004 par value common stock. Pursuant to the
terms of the agreement the 300,008 shares were issued in escrow with
the provision that upon the effective date of a registration
statement the shares would be distributed to the shareholders of
record as of December 16, 1994 of RBI's parent company.
By an agreement dated June 16, 1995, RBI issued 300,000 shares of
its common stock for one hundred percent of the issued and
outstanding common stock of Redwood Broadcasting, Inc. The
shareholders of RBI and affiliates acquired 97,000 shares of the
outstanding shares of RBI from RBI shareholders and as disclosed in
note 3 entered into a put arrangement on the remaining 203,008
shares of RBI outstanding. Subsequent to the RBI business
combination, and effective September 30, 1995 RBI agreed to issue
150,000 shares of RBI common stock to Redwood MicroCap Fund, Inc.
(MicroCap) in lieu of cash or money payment of an obligation to
MicroCap totalling $180,000. MicroCap was the former controlling
shareholder of RBI. This business combination with RBI was
accounted for as a reverse acquisition since the controlling
shareholder of RBI controlled RBI after the business combination.
The net monetary book value of RBI at June 16, 1995 was accounted
for as issued for the 300,008 shares of RBI outstanding at that
time. The results of operations of RBI prior to June 16, 1995 have
been excluded from the consolidated results of operations since the
transaction was recorded as a reverse acquisition.
Prior to RBI's business combination with RBI, RBI acquired a ninety
percent (90%) ownership interest in Solo Yolo Broadcasting (Solo
Yolo), a California general partner-ship from MicroCap. Solo Yolo's
only business was the application for an FM construction permit for
Esparto, California. Solo Yolo was one of only two applicants to
file for the same permit. Solo Yolo was paid $18,000 in cash in
exchange for withdrawing its application.
Also prior to the business combination RBI formed a wholly-owned
subsidiary, Alta California Broadcasting, Inc. (Alta) to pursue
radio acquisition opportunities in northern California.
In June, 1994, Alta entered into as asset purchase agreement to
acquire radio stations KHSL AM-FM in Chico, California, for
$1,150,000.
The $1,150,000 purchase price was allocated as follows:
<PAGE>
<TABLE>
<S> <C>
Land $ 600,000
License 350,000
Station equipment 200,000
----------
$1,150,000
</TABLE>
The allocation was based on management's estimate of the current
values of the assets. The land was appraised as of November, 1995 at
$600,000. Subsequent to March 31, 1996 the land was sold for
$450,000. The appraised value of $600,000 failed to take into
account a long-term ground lease for use of space by a third party on
the radio tower located on the property. This lease diminished the
value of the property. Based on this subsequently obtained
information, the allocation of the purchase price was retroactively
changed to reclassify the difference between the sale price of the
land and the original cost allocation to land to the value of the
license in the amount of $150,000. The July 31, 1995 financial
statements have been retroactively adjusted for this correction of an
error in the allocation of the purchase price.
On February 15, 1995, Alta commenced operating KHSL AM-FM under a
local management agreement (LMA). On June 19, 1995 Alta completed
the acquisition of KHSL AM-FM resulting in the termination of the
LMA. The acquisition of KHSL-AM by Alta was accounted for as a
purchase effective June 19, 1995. The results of operations of KHSL
AM-FM have been included in the consolidated financial statements of
RBI since February 15, 1995, the effective date of the LMA which
transferred control to Alta.
KHSL-FM has a country format and is located at 103.5 on the FM band.
All programming for KHSL-FM originates at its studios in Chico,
California. Subsequent to its acquisition by Alta, KHSL-AM changed
its call letters to KNSN-AM. Located at 1290 on the AM band, KNSN-
AM has a news-talk format with programming originating through
satellite delivery companies.
In March, 1995 Alta entered into an LMA with an option to purchase
radio station KCFM licensed to Shingletown, California and has
advanced funds under a purchase option agreement to the license
holder of KCFM to build the station. As of March 31, 1996 the
Company has advanced $50,000 to the license holder which will be
fully credited against the purchase price. These option payments
have been included in other assets in the financial statements. The
Company has entered into an agreement to acquire this radio station
by paying an additional $15,000 in cash and issuing a note payable
for $155,000. In August, 1995, KCFM began commercial broadcasting at
105.3 on the FM band. In September, 1995, KCFM changed its call
letters to KHZL and presently broadcasts an "Oldies" format via
satellite programming. KHZL primarily serves the Redding, California
market.
During the five month period ended December 31, 1995 the Company
exercised its option to acquire KCFM. In August, 1995, KCFM began
commercial broadcasting at 105.3 on the FM band. In September, 1995,
KCFM changed its call letters to KHZL and presently simulcasts its
programming from KHSL's station in Chico, California. KHSL and KHZL
are, however, designed to air separate commercials and commercials
and public service announcements simultaneously in their respective
markets. The KHLZ transaction, formerly KCFM was in substance a
transaction whereby the Company constructed a radio station. An
individual had a FCC construction permit to build a radio station.
Rather than acquiring the construction permit, which could not be
sold, the Company entered into a LMA agreement and purchase option
agreement for the radio station to be built. The Company has
exercised its option and acquired the station. The legal form of the
transaction was an LMA plus option agreement. The substance of the
transaction was a construction project. The costs related to this
construction project totalled approximately $194,000 and have been
included in the assets of the Company. KHZL primarily serves the
Redding, California market.
All intercompany accounts and transactions have been eliminated in
the consolidated financial statements. All references to "the
Company" refer to RBI and consolidated subsidiaries.
Financial statements prepared in accordance with generally accepted
accounting principles require managements estimates and assumptions.
Significant assumptions in the accompanying financial statements
relate to the Company's ability to continue as a going concern as
described in note 9, and estimated useful lives of property and
equipment as disclosed in note 1(c). The ultimate resolution of the
reasonableness of the related assumptions cannot presently be
determined. Actual results could differ from the Company's
estimates.
(b) BAD DEBTS
---------
An allowance for uncollectible accounts has been provided based on
the Company's past collection history.
(c) PROPERTY AND EQUIPMENT
----------------------
Property and equipment are carried at cost, net of accumulated
depreciation. Depreciation is provided on a straight-line basis over
estimated useful lives ranging from three to twenty years.
(d) CONCENTRATION OF CREDIT RISK
----------------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of accounts
receivable. The Company grants credit to various businesses
principally in California.
(e) ADVERTISING COSTS
-----------------
Advertising costs are expensed as incurred.
(f) GEOGRAPHIC AREA OF OPERATIONS AND INTEREST RATES
------------------------------------------------
The Company's radio stations broadcast principally in Northern
California. The potential for severe financial impact can result
from negative effects of economic conditions within a market or
geographic area. Since the Company's business is principally in one
area, this concentration of operations results in an associated risk
and uncertainty.
(g) REVENUE RECOGNITION
-------------------
Revenues are recognized when advertisements are aired.
(h) LOSS PER SHARE
--------------
Loss per share is based on the weighted average number of common
shares and common equivalent shares (where inclusion of such
equivalent shares would not be anti-dilutive) outstanding during the
year.
(i) INTANGIBLE ASSETS
-----------------
Intangible assets including goodwill are being amortized over their
estimated useful lives. No amortization period exceeds 40 years.
The Company periodically evaluates the value of its intangible assets
and if the cost of such assets are in excess of associated expected
operating cash flows, the related assets are written down to fair
value.
(j) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
-----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results
could differ from those estimates.
(2) NOTES PAYABLE
-------------
<TABLE>
<S> <C>
Note payable to a related party corporation,
interest rate of 14% per annum. The note is
due September, 1996. $ 375,000
Note payable to a corporation, interest rate
of 10% per annum. The note is due in full
in June, 1996. The note is collateralized
by all of the assets of KHSL AM-FM acquired
by the Company and 100% of the common stock
of Alta. The note is guaranteed by MicroCap. 260,000
Other notes payable, various interest rates
ranging from 10% to 18%. The notes are due
at different times ranging from June, 1996
to September, 1996. Certain notes are
guaranteed by MicroCap. 105,168
--------
Total 740,168
Current Portion 728,174
--------
Long-term Portion $ 11,994
========
</TABLE>
Maturities on notes payable including notes already due, are summarized as
follows:
<TABLE>
<S> <C>
Year ending March 31, 1997 $ 728,174
Year ending March 31, 1998 $ 11,994
</TABLE>
<PAGE>
(3) PROPOSED SECURITIES OFFERING
----------------------------
RBI is proposing to offer securities to the public through a Registration
Statement Form SB-2, pursuant to the Securities Act of 1933. The proposal
includes four offerings as follows:
1. The first proposed offering relates to the distribution of up to the
300,008 shares of RBI common stock to shareholders of RBI's former
parent of record as of December 16, 1994. RBI will not receive any
proceeds from the distribution of the shares.
2. The third proposed offering relates to the distribution by RBI of up
to 203,008 common stock put options (puts) pursuant to the terms of
the RBI business combination agreement. The puts will require RBI to
purchase and redeem any and all shares tendered at a price of $1.50
per share. The puts will be exercisable for a period of ninety days
following the effective date of the registration statement. RBI will
not receive any proceeds from the distribution of the puts. Since
RBI agreed to redeem up to 203,008 of the shares outstanding at $1.50
per share, as part of the RBI business combination agreement, RBI has
shown this commitment as a liability in the financial statements
under the caption, securities subject to mandatory redemption.
3. The second proposed offering relates to selling up to 400,000 shares
of RBI common stock at $2.00 per share.
4. Finally, the proposed offering relates to the offer and sale of
590,750 shares of common stock by certain shareholders of RBI. RBI
will not receive any proceeds from the sale of the common stock by
the selling shareholders.
RBI will bear the cost of the proposed offering. If the offering is
successful, the offering costs will be offset against the proceeds of the
offering. If the offering is not successful, the costs will be charged to
operations as a period expense. As of March 31, 1996 RBI had incurred
$30,500 in offering costs. These costs are included in Other Assets.
(4) PROPERTY AND EQUIPMENT
----------------------
The Company's property and equipment is summarized as follows:
<TABLE>
<CAPTION>
March 31, July 31,
1996 1995
---------- ----------
<S> <C> <C>
Land $ 450,000 $ 450,000
Buildings and improvements 24,671 18,507
Furniture and fixtures 9,159 13,453
Radio broadcasting equipment 296,142 395,429
Computer equipment 44,443 98,293
---------- ----------
824,415 975,682
Accumulated depreciation (74,855) (69,482)
---------- ----------
749,560 $ 906,200
======= =========
</TABLE>
<PAGE>
(5) CONSULTATION AGREEMENT, RELATED PARTY
-------------------------------------
During the eight month period ended March 31, 1996 and the year ended
July 31, 1995 the Company paid $7,500 and $5,000, respectively in
consulting fees to MicroCap. RBI has agreed to pay MicroCap a monthly
consulting fee of $2,500 through the year ending March 31, 1997.
(6) INDEMNIFICATION
---------------
In accordance with the Colorado Business Corporation Act, RBI has included
a provision in its Articles of Incorporation to limit the personal
liability of its officers and directors to the maximum extent provided
under Colorado law.
(7) PREFERRED STOCK
---------------
The Company has 2,500,000 shares of $.04 par value preferred stock
authorized. Preferences may be determined by the Company's Board of
Directors. As of July 31, 1995 there were no preferred shares issued.
(8) UNEARNED INCOME
---------------
RBI was formed in 1993 to pursue the acquisition of radio station KNBA
licensed in Vallejo California. RBI entered into a joint venture to
acquire KNBA in October, 1993. Effective November 1, 1994, RBI sold its
50% interest in the joint venture. In addition to receiving $180,000 in
cash for this 50% interest, RBI received $70,000 cash for a three year
covenant not to compete. This covenant is being amortized into income on
a straight-line basis over the three year term.
(9) BASIS OF PRESENTATION - GOING CONCERN
-------------------------------------
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. However, the Company has
sustained operating losses since its inception and has a net working
capital deficiency. Management is attempting to raise additional capital
through a public securities offering.
In view of these matters, realization of certain of the assets in the
accompanying balance sheet is dependent upon continued operations of the
Company, which in turn is dependent upon the Company's ability to meet its
financial requirements, raise additional capital, and the success of its
future operations. Management believes that its ability to raise
additional capital provide the opportunity for the Company to continue as
a going concern.
(10) LEASE COMMITMENTS
-----------------
Effective January 18, 1995 Alta entered into a three year local marketing
agreement for the right to operate radio station, KHZL, formerly known as
KCFM licensed to Shingletown, California. Monthly payments under the
agreement are $350. If Alta exercises its right to acquire the radio
station, these payments will be terminated.
Effective December 18, 1994, Alta entered into a five year lease for
studio space for radio station KHZL located in Redding California. The
monthly rental payments due under the terms of the lease are:
<TABLE>
<S> <C>
$ 800 per month in 1995
$ 900 per month in 1996
$ 950 per month in 1997
$ 990 per month in 1998
$1,040 per month in 1999
</TABLE>
(10) LEASE COMMITMENTS, CONTINUED
----------------------------
Minimum future rental payments under operating leases with terms greater
than one year are summarized as follows:
<TABLE>
<S> <C>
Year ending March 31, 1997 $ 15,150
Year ending March 31, 1998 $ 15,020
Year ending March 31, 1999 $ 12,030
Year ending March 31, 2000 $ 9,360
</TABLE>
Rent expense was $36,540 and $101,418 for the eight months ended March 31,
1996 and the year ended July 31, 1995, respectively.
(11) INCOME TAXES PAYABLE
--------------------
The Company has approximately $530,000 of net operating loss carryovers
expiring in years through 2011. As of March 31, 1996 the Company has
total deferred tax assets of approximately $106,000 due to operating loss
carryforwards. However, because of the uncertainty of potential
realization of these deferred tax assets, the Company has provided a
valuation allowance for the entire $106,000. Thus, no tax assets have
been recorded in the financial statements as of March 31, 1996. A change
in the control of the Company could result in limitations on the Company's
ability to utilize the loss carryovers.
(12) DELINQUENT PAYROLL TAXES
-----------------------
As of March 31, 1996 the Company had payroll taxes payable of $73,121
which were delinquent. Management anticipates utilizing the proceeds from
certain asset sale transactions to retire this obligation.
<PAGE>
<PAGE>
KHSL AM-FM
FINANCIAL STATEMENTS
and
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
For the Six and One-half Months
Ended February 15, 1995 and for the
Year Ended July 31, 1994
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants F-18
Financial Statements:
Statements of Operations F-19
Statement of Changes in Stockholder's
Equity F-20
Statements of Cash Flows F-21
Notes to Financial Statements F-22
</TABLE>
<PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Intelligent Financial Holding Corporation
We have audited the statements of operations, cash flows and changes in
stockholders' equity of KHSL AM-FM Radio for the year ended July 31, 1994 and
the six and one half month period ended February 15, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations, cash flows and changes in
stockholders' equity of KHSL AM-FM Radio for the year ended July 31, 1994 and
the six and one half month period ended February 15, 1995 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring losses
from operations, and has a net working capital deficiency, that raise
substantial doubt about its ability to continue as a going concern. Note 2 also
discusses management's plan regarding these matters. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Schumacher & Associates, Inc.
Certified Public Accountants
12835 E. Arapahoe Road
Tower II, Suite 110
Englewood, CO 80112
December 4, 1995
<PAGE>
<PAGE>
<TABLE>
KHSL AM-FM
STATEMENTS OF OPERATIONS
<CAPTION>
Six and
One-Half
Months Year
Ended Ended
February 15, July 31,
1995 1994
------------ -----------
<S> <C> <C>
Revenues $ 448,044 $ 788,541
Less agency commissions (41,902) (45,811)
----------- ----------
Net revenues 406,142 742,730
Operating expenses:
Station operating expenses excluding
depreciation and amortization 547,997 1,141,419
Depreciation and amortization 5,262 31,572
Corporate general and administrative
expenses 7,431 5,936
----------- ----------
Total operating expenses 560,690 1,178,927
----------- ----------
Net (loss) $ (154,548) $ (436,197)
=========== ===========
Net (loss) per share $ (628) $ (1,773)
=========== ===========
Weighted average shares
outstanding 246 246
=== ===
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
<TABLE>
KHSL AM-FM
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Year Ended July 31, 1994 and Six and One-half
Months Ended February 15, 1995
<CAPTION>
Common Stock Additional
------------------------ Paid-In Accumulated
No./Shares Amount Capital (Deficit) Total
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at July 31, 1993 246 $ 52,729 $ 25,113 $ 420,792 $ 498,634
Capital contribution - - 384,575 - 384,575
Net (loss) for the year ended July 31, 1994 - - - (436,197) (436,197)
---- -------- --------- ---------- ----------
Balance at July 31, 1994 246 $ 52,729 $ 409,688 $ (15,405) $ 447,012
Capital contribution - - 149,867 - 149,867
---- -------- --------- ---------- ----------
Net (loss) for the six and one-half
months ended February 15, 1995 - - - (154,548) (154,548)
---- -------- --------- ---------- ----------
Balance at February 15, 1995 246 $ 52,729 $ 559,555 $(169,953) $ 442,331
=== ======== ========= ========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
<TABLE>
KHSL AM-FM
STATEMENTS OF CASH FLOWS
<CAPTION>
Six and
One-Half Year
Months Ended Ended
February 15, July 31,
1995 1994
------------ -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net (loss) $ (154,548) $ (436,197)
Adjustments to reconcile net
income to net cash (used in)
operating activities
Depreciation 5,262 31,572
(Decrease) in accounts payable and
accrued expenses (18,109) (3,521)
Decrease in accounts receivable 8,314 12,837
Other, net 12,275 9,885
----------- -----------
Net Cash (Used in) Operating Activities (146,806) (385,424)
----------- -----------
Cash Flows from Investing Activities:
(Acquisition) disposition of property
and equipment and other (3,061) 849
----------- -----------
Net Cash Provided by (Used in)
Investing Activities (3,061) 849
----------- -----------
Cash Flows from Financing Activities:
Capital contributed 149,867 384,575
----------- -----------
Net Cash Provided by Financing Activities 149,867 384,575
----------- -----------
Increase in cash - -
Cash, beginning of year - -
----------- -----------
Cash, end of year $ - $ -
=========== ===========
Interest paid $ - $ -
=========== ===========
Income taxes paid $ - $ -
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
KHSL AM-FM
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF ACCOUNTING POLICIES
------------------------------
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
(a) GENERAL
-------
The KHSL AM-FM radio stations were part of a group of businesses
which also included a TV station. KHSL AM-FM and the TV station
were owned and operated by a California Corporation. Certain
operating expenses have been allocated between the radio and TV
operations. As such, future costs to operate the radio stations by
themselves may be more than historical costs due to the inability to
benefit from the allocation and sharing of certain expenses.
In June, 1994, Alta California Broadcasting, Inc. (Alta) entered
into as asset purchase agreement to acquire radio stations KHSL AM-
FM in Chico, California, for $1,150,000.
On February 15, 1995, Alta commenced operating KHSL AM-FM under a
Local Management Agreement (LMA). On June 19, 1995 Alta completed
the acquisition of KHSL AM-FM resulting in the termination of the
LMA. The accompanying financial statements present the results of
operations, cash flows and changes in stockholder's equity of the
KHSL AM-FM division for the year ended July 31, 1994 and the six and
on half month period ended February 15, 1995.
KHSL-FM has a country format and is located at 103.5 on the FM band.
All programming for KHSL-FM originates at its studios in Chico,
California. Subsequent to its acquisition by Alta, KHSL-AM changed
its call letters to KNSN-AM. Located at 1290 on the AM band, KNSN-
AM's programming is primarily originated through satellite delivery
companies.
Financial statements prepared in accordance with generally accepted
accounting principles require managements estimates and assumptions.
Significant assumptions in the accompanying financial statements
relate to the Company's ability to continue as a going concern as
described in note 2, and estimated useful lives of property and
equipment as disclosed in note 1(c). The ultimate resolution of the
reasonableness of the related assumptions cannot presently be
determined.
(b) BAD DEBTS
---------
An allowance for uncollectible accounts has been provided based on
the Company's past collection history.
(c) DEPRECIATION
------------
Property and equipment depreciation is provided on a straight-line
basis over estimated lives ranging from three to twenty years.
(d) CONCENTRATION OF CREDIT RISK
----------------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of accounts
receivable. The Company grants credit to various businesses located
principally in California.
(e) ADVERTISING COSTS
-----------------
Advertising costs are expensed as incurred.
(2) BASIS OF PRESENTATION - GOING CONCERN
-------------------------------------
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. However, the Company has
sustained operating losses since its inception and has an accumulated
deficit. Management is attempting to raise additional capital through a
public securities offering, and hire and retain qualified personnel and
increase operating efficiencies.
In view of these matters, realization of certain of the assets in the
accompanying balance sheet is dependent upon continued operations of the
Company, which in turn is dependent upon the Company's ability to meet
its financial requirements, raise additional capital, and the success of
its future operations. Management believes that its ability to raise
additional capital provide the opportunity for the Company to continue as
a going concern.
<PAGE>
<PAGE>
QUALITY BROADCASTERS OF CALIFORNIA, L.P.
FINANCIAL STATEMENTS
and
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
March 31, 1996 and 1995
<PAGE>
<PAGE>
QUALITY BROADCASTERS OF CALIFORNIA, L.P.
March 31, 1996 and 1995
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants F-26
Financial Statements:
Balance Sheet F-27
Statements of Operations and Changes in Partners'
Capital (Deficiency) F-28
Statements of Cash Flows F-29
Notes to Financial Statements F-30
</TABLE>
<PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Quality Broadcasters of California, L.P.
We have audited the balance sheet of Quality Broadcasters of California, L.P.
as of March 31, 1996 and the related statements of operations and partners'
capital (deficiency) and cash flows for the two years ended March 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Quality Broadcasters of
California, L.P. as of March 31, 1996 and the results of its operations and
changes in partners' capital (deficiency) and its cash flows for the two years
ended March 31, 1996 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has a net capital deficiency as of March 31,
1996 and has incurred recurring losses from operations. These factors raise
substantial doubt about its ability to continue as a going concern.
Management's plan in regard to these matters is also described in Note 1. The
financial statements do not include any adjustments that may result from the
outcome of this uncertainty.
Schumacher & Associates, Inc.
Certified Public Accountants
12835 E. Arapahoe Road
Tower II, Suite 110
Englewood, CO 80112
June 1, 1996
<PAGE>
<PAGE>
<TABLE>
QUALITY BROADCASTERS OF CALIFORNIA, L.P.
BALANCE SHEET
March 31, 1996
<S> <C>
ASSETS
------
Current Assets
Accounts receivable, net of allowance for
doubtful accounts of $23,846 (Note 2) $ 90,028
Other 6,725
----------
Total Current Assets 96,753
Furniture and equipment, net of accumulated
depreciation of $311,587 (Note 4) 31,134
License and goodwill, net of accumulated
amortization of $118,019 249,831
Other assets 12,280
----------
Total Assets $ 389,998
=========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY)
----------------------------------------------
Current Liabilities
Outstanding checks in excess of amounts
reported by banks $ 458
Notes, advances and accrued interest
payable, related parties (Note 3) 585,653
Accounts payable and accrued expenses (Note 2) 85,136
----------
Total Current Liabilities 671,247
----------
Total Liabilities 671,247
----------
Commitments and contingencies (Notes 2,3,5 and 6) -
Partners' Capital (Deficiency) (281,249)
----------
Total Liabilities and Partners' Capital
(Deficiency) $ 389,998
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
<TABLE>
QUALITY BROADCASTERS OF CALIFORNIA, L.P.
STATEMENTS OF OPERATIONS
AND CHANGES IN PARTNERS' CAPITAL (DEFICIENCY)
For the Years Ended March 31,
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Revenues $ 561,613 $ 660,672
Barter revenue 213,911 213,613
Agency commissions (50,361) (70,436)
---------- -----------
Net revenue 725,163 803,849
Operating expenses:
Station operation expenses excluding
depreciation and amortization 587,575 636,926
Barter expense 201,759 224,833
Depreciation and amortization 38,179 73,849
---------- -----------
Total operating expenses 827,513 935,607
---------- -----------
Net operating (loss) (102,350) (131,758)
---------- -----------
Other income (expense):
Interest income 1,608 547
Interest expense (34,636) (44,843)
---------- -----------
Total other (33,028) (44,297)
---------- -----------
Net (loss) (135,378) (176,055)
Partners' capital (deficiency),
beginning of year (145,871) 30,184
---------- -----------
Partners' capital (deficiency),
end of year $ (281,249) $ (145,871)
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
<TABLE>
QUALITY BROADCASTERS OF CALIFORNIA, L.P.
STATEMENTS OF CASH FLOWS
For the Years Ended March 31
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net (loss) $ (135,378) $ (176,055)
Adjustments to reconcile net
income to net cash provided by
operating activities
Depreciation and amortization 38,179 73,849
Increase (decrease) in accounts
payable and accrued expenses 20,742 (4,713)
(Increase) decrease in
accounts receivable (123) 3,567
Other, net (887) (6,341)
----------- -----------
Net Cash Provided by Operating Activities (77,467) (109,693)
----------- -----------
Cash Flows from Investing Activities:
(Acquisition of) furniture and equipment (30,283) (1,542)
----------- -----------
Net Cash (Used in) Investing Activities (30,283) (1,542)
----------- -----------
Cash Flows from Financing Activities:
Repayment of notes payable - (152,183)
Proceeds from advances from related parties 100,526 264,898
----------- -----------
Net Cash Provided by (Used in) Financing
Activities 100,526 112,715
----------- -----------
Increase (decrease) in cash (7,224) 1,480
Cash, beginning of year 7,224 5,744
----------- -----------
Cash, end of year $ - $ 7,224
=========== ===========
Interest paid $ - $ -
=========== ===========
Income taxes paid $ - $ -
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
QUALITY BROADCASTERS OF CALIFORNIA, L.P.
NOTES TO FINANCIAL STATEMENTS
March 31, 1996 and 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
(a) GENERAL
-------
Quality Broadcasters of California, L.P., a California limited
partnership (the Company) was organized under the laws of the State
of California in 1989 for the purpose of acquiring and operating
radio stations.
(b) INCOME TAXES
------------
Since the Company is a partnership, taxable income and losses flow
through to the partners. The Company, therefore, does not incur
income tax expense.
(c) REVENUE RECOGNITION
-------------------
Revenues from radio advertising are recognized in the period that the
advertising is broadcast.
(d) BAD DEBTS
---------
An allowance for uncollectible accounts has been provided based on
the Company's past collection history.
(e) FURNITURE AND EQUIPMENT
-----------------------
Furniture and equipment are carried at cost, net of accumulated
depreciation. Depreciation is provided on a straight-line basis over
estimated lives ranging from five to seven years.
(f) CONCENTRATION OF CREDIT RISK
----------------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of accounts
receivable. The Company grants credit to various businesses, and
individuals, principally in Northern California.
(g) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
-----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results
could differ from those estimates.
(h) GEOGRAPHIC AREA OF OPERATIONS
-----------------------------
The Company operates Radio stations in the Redding, California area.
The potential for severe financial impact can result from negative
effects of economic conditions within the market or geographic area.
Since the Company's business is principally in one area, this
concentration of operations results in an associated risk and
uncertainty.
(i) LICENSE AND GOODWILL
--------------------
The Company acquired its FM radio station in 1989 at a total cost of
$475,000. Of this amount $367,850 was allocated to the license and
goodwill attributable to the business. The carrying value of this
asset is being amortized on a straight-line basis over a twenty year
period. It is management's policy to review the carrying value of
intangible assets on a periodic basis (at least annually) to
determine if there is any impairment of value. As of March 31, 1996,
management does not believe that there is any impairment in the
carrying value of its intangible assets.
(j) GOING CONCERN
-------------
As of March 31, 1996, the Company has a net capital deficiency and
has incurred recurring losses from operations. Cash flow shortages
have principally been financed through loans from related parties.
If the Company is unable to continue borrowing from related parties
or is unable to obtain additional financing, it may be unable to
continue as a going concern. The financial statements do not include
any adjustments that may result from the outcome of this uncertainty.
The Company has entered into a business sale agreement as described
in Note 6.
(k) ADVERTISING EXPENSES
--------------------
Advertising costs are expensed as incurred.
(2) BARTER TRANSACTIONS/TRADE ACCOUNTS
----------------------------------
Included in sales revenue for the years ended March 31, 1996 and 1995,
respectively, are $213,911 and $213,613 of advertising revenues related to
barter transactions/trade accounts. Also, included in operating expenses
for the years ended March 31, 1996 and 1995, respectively, are $201,758
and $224,832 of barter expenses. As of March 31, 1996 accounts payable
includes a net amount of $13,276 which will not be paid in cash, but
offset by future barter/trade radio advertising.
(3) RELATED PARTY TRANSACTIONS
--------------------------
As of March 31, 1996 the Company had $585,653 of notes, advances and
accrued interest payable to related parties. The amounts are payable upon
demand. The notes bear interest principally at 10% per annum and the
advances bear no interest and are uncollateralized.
(4) FURNITURE AND EQUIPMENT
-----------------------
The Company's furniture and equipment at March 31, 1996 is summarized as
follows:
<TABLE>
<S> <C>
Furniture and fixtures $ 21,198
Studio and production equipment 263,824
Leasehold improvements 57,699
---------
342,721
Accumulated amortization (311,587)
---------
$ 31,134
========
</TABLE>
(5) LEASES
------
The Company leases its office and studio facilities through operating
leases. The Company does not have any material lease commitments with
terms exceeding one year past March 31, 1996.
Rent expense was $20,472 and $20,462 for the years ended March 31, 1996
and 1995, respectively.
(6) SUBSEQUENT EVENTS
-----------------
The Company entered into a business sale agreement whereby certain assets
and the business operations are being sold to an unrelated entity, subject
to certain regulatory approval.
<PAGE>
<PAGE>
Index to Pro Forma Financial Statements
REDWOOD BROADCASTING, INC. (RBI)
KHSL AM-FM (KHSL)
Pro Forma Combined Financial Statements (Unaudited)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Pro Forma Financial Statements:
Pro Forma Balance Sheet March 31, 1996 F-34
Pro Forma Statement of Operations, Eight Months
Ended March 31, 1996 F-36
Notes to Pro Forma Financial Statements F-37
</TABLE>
<PAGE>
<PAGE>
<TABLE>
REDWOOD BROADCASTING, INC.
PRO FORMA BALANCE SHEET
March 31, 1996
(Unaudited)
<CAPTION>
Pro Forma Pro Forma
(RBI) Adjustments Combined
------------ ----------- ------------
<S> <C> <C> <C>
ASSETS
------
Current Assets:
Cash $ - $ $ 481,000
821,000 (2)
(325,000) (3)
( 15,000) (4)
Accounts receivable, net of
allowance for doubtful accounts 86,834 86,834
Other 73,893 73,893
------------ ----------- ------------
Total Current Assets 160,727 481,000 641,727
Property and equipment, net of
accumulated depreciation 749,560 (236,653) (2) 137,907
75,000 (3)
(450,000) (1)
License, net of accumulated
amortization 489,833 (489,833) (2) 920,000
750,000 (3)
170,000 (4)
Notes receivable - 200,000 (2) 200,000
Other assets 144,985 144,985
------------ ----------- ------------
Total Assets $ 1,545,105 $ 499,514 $ 2,044,619
=========== ========== ===========
LIABILITIES
-----------
Current Liabilities:
Outstanding checks in excess of
amounts reported by banks $ 23,188 $ $ 23,188
Accounts payable and accrued expenses 273,431 (35,896) (1) 237,535
Notes payable, current portion 728,174 (375,000) (2) 118,174
(335,000) (1)
100,000 (3)
<PAGE>
Common stock subject to mandatory
redemption 304,512 304,512
Accounts payable, related parties 232,730 (70,000) (2) 162,730
Unearned income, current portion 23,333 23,333
----------- ----------- ------------
Total Current Liabilities 1,585,368 (715,896) 869,472
Unearned income, net of current portion 9,722 9,722
155,000 (4)
Notes payable, net of current portion 11,994 400,000 (3) 566,994
------------ ----------- ------------
Total Liabilities 1,607,084 (160,896) 1,446,188
------------ ----------- ------------
Stockholders' Equity:
Common stock 3,122 3,122
Additional paid-in capital 467,123 467,123
(79,104) (1)
Retained earnings, accumulated (deficit) (532,224) 739,514 (2) 128,186
------------ ----------- -------------
Total Stockholders' Equity (Deficit) (61,979) 660,410 598,431
------------ ----------- -------------
Total Liabilities and Stockholders'
Equity (Deficit) $ 1,545,105 $ 499,514 $ 2,044,619
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
<TABLE>
REDWOOD BROADCASTING, INC.
PRO FORMA STATEMENT OF OPERATIONS
EIGHT MONTHS ENDED MARCH 31, 1996
(Unaudited)
<CAPTION>
Pro Forma Pro Forma
(RBI) (KNNN) (KHSL) Adjustments Combined
---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
REVENUE:
Total revenues $ 440,457 $ 374,411 $ (397,775) $ $ 417,093
Barter revenue - 142,608 - 142,608
Less agency commissions (11,071) (33,574) 11,071 (33,574)
---------- ---------- ---------- --------- -----------
Net revenues 429,386 483,445 (386,704) 526,127
---------- ---------- ---------- --------- -----------
OPERATING EXPENSES:
Station operating expenses excluding
depreciation and amortization 656,394 391,719 (504,825) 543,288
Depreciation and amortization 77,649 134,507 (77,649) 40,889 (5) 175,396
Corporate general and administrative
expenses 58,464 25,453 - 83,917
---------- ---------- ---------- --------- -----------
Total Operating Expenses 792,507 551,679 (582,474) 40,889 802,601
---------- ---------- ---------- --------- -----------
Operating Loss (363,121) (68,234) 195,770 (40,889) (276,474)
---------- ---------- ---------- --------- -----------
Other Income (Expense):
Other income 16,898 1,072 - - 17,970
Interest expense (22,436) (23,091) - - (45,527)
---------- ---------- ---------- --------- -----------
Total Other Income (Expense) (5,538) (22,019) - - (27,557)
---------- ---------- ---------- --------- -----------
Net (Loss) $(368,659) $ (90,253) $ 195,770 $(40,889) $ (304,031)
========== ========== ========= ========= ===========
Net (Loss) per Common Share $ (.44)
===========
Total Number of Common Shares Outstanding 690,258
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
REDWOOD BROADCASTING, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
(A) GENERAL
-------
The Company, subsequent to March 31, 1996, has entered into several agreements
and transactions that have (will have) a material effect on the financial
statements. The pro forma financial statements give effect to these
transactions and are summarized as follows:
1. The Company has sold its investment in land located in Chico California.
The sales price was $450,000 from which the Company made a charitable
contribution to the non-profit entity that acquired the property in the
amount of $80,000.
2. The Company entered into a contract to sell radio station KHSL AM-FM for
$1,266,000 cash and a note receivable of $200,000. From the sale proceeds
$445,000 of notes payable are expected to be paid. Closing of this
transaction is pending regulatory approval.
3. The Company has entered into an agreement, subject to regulatory approval,
to acquire the assets and business of Quality Broadcasters of California,
L.P. (Quality) operating under the call letters of KNNN. The purchase
price is $825,000 including cash of $325,000 and notes payable of
$500,000.
4. The Company has agreed to pay $170,000 to an individual for the rights to
operate KHZL. Of this amount, $15,000 was paid in cash in July, 1996 with
the balance due being in the form of a note payable.
(B) PRO FORMA INFORMATION
---------------------
The proforma balance sheet as of March 31, 1996 gives effect to the above
transactions.
The pro forma statement of operations gives effect to the operations of KHSL,
AM-FM being excluded and the operations of KNNN being included.
(C) PRO FORMA ADJUSTMENTS
---------------------
(1) To record the sale of land.
(2) To record the sale of KHSL AM-FM radio.
(3) To record the purchase of Quality Broadcasting of California, L.P.
(KNNN).
(4) To record purchase of KHZL radio.
(5) To record the amortization of the purchased license cost of KNNN.
<PAGE>
<PAGE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
FINANCIAL STATEMENTS
2ND QUARTER ENDED SEPTEMBER 30, 1996
<PAGE>
<PAGE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
Financial Statements:
Consolidated Balance Sheets-
September 30, 1996 and March 31, 1996 F-40
Consolidated Statements of Operations-
Six Months Ended September 30, 1996 and 1995 F-41
Consolidated Statements of Changes in
Stockholders' Equity-
Six Months Ended September 30, 1996, Eight
Months Ended March 31, 1996 and the Two
Years Ended July 31, 1995 F-42
Consolidated Statements of Cash Flows-
Six Months Ended September 30, 1996 and 1995 F-43
Notes to Consolidated Financial Statements F-44
</TABLE>
<PAGE>
<PAGE>
<TABLE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
<CAPTION>
September 30 March 31
1996 1996
----------- -----------
<S> <C> <C>
ASSETS
------
Current Assets
Accounts Receivable, net of allowance
for doubtful accounts of $16,400 at
September 30, 1996 and March, 1996 $ 49,041 $ 86,834
Other current assets 70,851 73,893
----------- -----------
Total Current Assets 119,892 160,727
Property and equipment, net of accumulated
depreciation of $122,302 at September 30,
1996 and $74,855 at March 31, 1996 1,320,813 749,560
License, net of accumulated amortization
of $22,917 at September 30, 1996 and
$16,667 at March 31, 1996 470,833 489,833
Other assets 243,874 144,985
----------- -----------
Total Assets $ 2,155,412 $ 1,545,105
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
Current Liabilities
Outstanding checks in excess of amounts
reported by banks $ 12,306 $ 23,188
Accounts payable and accrued expenses 248,380 273,431
Notes payable, current portion 826,339 728,174
Common stock subject to mandatory
redemption 304,512 304,512
Accounts payable, related parties 346,382 232,730
Unearned income, current portion 10,260 23,333
----------- -----------
Total Current Liabilities 1,748,179 1,585,368
Unearned income, net of current portion - 9,722
Notes payable, net of current portion 665,222 11,994
----------- -----------
Total Liabilities 2,413,401 1,607,084
----------- -----------
<PAGE>
Commitments and contingencies - -
Stockholders' Equity
Preferred stock - $.04 par value,
2,500,000 shares authorized,
none issued and outstanding - -
Common stock - $.004 par value,
12,500,000 shares authorized;
805,508 and 780,508 shares
issued and outstanding as of
September 30, 1996 and March 31,
1996, respectively 3,222 3,122
Additional paid-in capital 497,023 467,123
Accumulated deficit (758,234) (532,224)
----------- -----------
Total Stockholders' Equity (257,989) (61,979)
----------- -----------
Total Liabilities and Stockholders' Equity $2,155,412 $1,545,105
========== ==========
</TABLE>
<PAGE>
<PAGE>
<TABLE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
STATEMENTS OF OPERATIONS
<CAPTION>
Six Months Six Months
Ended Ended
September 30 September 30
1996 1995
----------- -----------
<S> <C> <C>
Total Revenues 139,392 375,282
Less agency commission 8,545 33,723
----------- -----------
Net Revenues 130,847 341,559
Operating Expenses:
Station operating expenses
excluding depreciation
and amortization 229,099 437,159
Depreciation and
amortization 47,447 -
Corporate general and
administrative expenses 22,804 34,681
----------- -----------
Total operating expenses 299,350 471,840
Operating loss (168,503) (130,281)
Other expense
Other expense 45,432 -
Interest expense 12,075 17,357
----------- -----------
Total other expense 57,507 17,357
----------- -----------
Net loss (226,010) (147,638)
=========== ===========
Net loss per share (0.29) (0.25)
=========== ===========
Weighted average shares
outstanding 793,008 600,008
=========== ===========
</TABLE>
<PAGE>
<PAGE>
<TABLE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AS OF SEPTEMBER 30, 1996
<CAPTION>
Common Stock
--------------------------- Paid-In Accumulated
No./Shares Amount Capital Deficit Total
------------ ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at July 31, 1993 - - - - -
Common stock issued 300,000 1,200 2,300 - 3,500
Net (loss) for the year ended July 31, 1994 - - - (3,112) (3,112)
------- ------- --------- ---------- ----------
Balance at July 31, 1994 300,000 1,200 2,300 (3,112) 388
Capital contribution - - 241,798 - 241,798
Reorganization (Note 1) 300,008 1,200 10,447 - 11,647
Net (loss) for the year ended July 31, 1995 - - - (160,453) (160,453)
------- ------- --------- ---------- ----------
Balance at July 31, 1995 600,008 2,400 254,545 (163,565) 93,380
Common stock issued in private placement 25,000 100 29,900 - 30,000
Common stock issued in debt conversion 150,000 600 179,400 - 180,000
Common stock issued for services 5,500 22 3,278 - 3,300
Net (loss) for the eight month period
ended March 31, 1996 - - - (368,659) (368,659)
------- ------- --------- ---------- ----------
Balance at March 31, 1996 780,508 $ 3,122 $ 467,123 $(532,224) (61,979)
Common stock issued in private placement 25,000 100 29,900 - 30,000
Net loss for the six month period
ended September 30, 1996 - - - (226,010) (226,010)
------- ------- --------- ---------- ----------
Balance at September 30, 1996 805,508 3,222 497,023 (758,234) (257,989)
======= ======= ========= ========== ==========
/TABLE
<PAGE>
<PAGE>
<TABLE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<CAPTION>
Six Six
Months Months
Ended Ended
September 30 September 30
1996 1995
------------ ------------
<S> <C> <C>
Cash Flows from operating activities:
Net (loss) (226,010) (147,638)
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation 47,447 -
Decrease in Deferred Reserve 22,795 -
(Increase) decrease in accounts
receivable 37,793 (112,249)
(Increase) decrease in other
current assets 3,042 (58,365)
Increase (decrease) in accounts
payable and accrued expenses (25,051) 72,393
Increase (decrease) in other
current liabilities 113,652 29,263
----------- -----------
Net cash provided (used) by operating
activities (26,335) (216,596)
Cash flows from investing activities:
(Acquisition) disposition of property
and equipment (744,176) (1,262,566)
----------- -----------
Net cash provided (used) by investing
activities (744,176) (1,262,566)
Cash flows from financing activities:
Proceeds from (repayment) of notes
payable 751,393 1,449,605
Proceeds from common stock issuance 30,000 11,647
----------- -----------
Net cash provided (used) by financing
activities 781,393 1,461,252
----------- -----------
Increase (decrease) in cash 10,882 (17,910)
Cash, beginning of period (23,188) 10,895
----------- -----------
Cash, end of period (12,306) (7,015)
=========== ===========
</TABLE>
<PAGE>
<PAGE>
REDWOOD BROADCASTING, INC.
and CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
---------------------
The consolidated balance sheet as of September 30, 1996, the consolidated
statements of operations for the six months ended September 30, 1996 and 1995,
the consolidated statements of changes in stockholders' equity for the six
months ended September 30, 1996, the eight months ended March 31, 1996 and the
two years ended July 31, 1995, and the consolidated statement of cash flows for
the six months ended September 30, 1996 and 1995 have been prepared by the
Company and are unaudited. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the financial position, results of operations, changes in equity and cash flows
at September 30, 1996, and for all periods presented, have been made.
Financial statements prepared in accordance with generally accepted
accounting principles require management's estimates and assumptions.
Significant assumptions in the accompanying financial statements relate to the
Company's ability to continue as a going concern as described in
Note 9, and estimated useful lives of property and equipment as disclosed in
Note 5. The ultimate resolution of the reasonableness of the related
assumptions cannot presently be determined. Actual results could differ from
the Company's estimates.
All intercompany accounts and transactions have been eliminated in the
consolidated financial statements. All references to "the Company" refer to
RBI and consolidated subsidiaries.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
(a) GENERAL DEVELOPMENT OF THE BUSINESS
-----------------------------------
Redwood Broadcasting, Inc. (RBI) was organized under the laws of the
State of Colorado. Pursuant to a spin-off agreement, certain assets of
its parent company were contributed to RBI in exchange for 300,008 shares
of RBI, $.004 par value common stock. Pursuant to the terms of the
agreement, the 300,008 shares were issued in escrow with the provision
that upon the effective date of a registration statement the shares would
be distributed to the shareholders of record as of December 16, 1994 of
RBI's parent.
By agreement dated June 16, 1995, RBI issued 300,000 shares of its
common stock for one hundred percent of the issued and outstanding common
stock of Redwood Broadcasting, Inc. (RBI). The shareholders of RBI and
affiliates acquired 97,000 shares of the outstanding shares of RBI from
RBI shareholders and as disclosed in Note 3 entered into a put arrangement
on the remaining 203,008 shares of RBI outstanding. Subsequent to the RBI
business combination, and effective September 30, 1995 RBI agreed to issue
150,000 shares of RBI common stock to Redwood MicroCap Fund, Inc.
(MicroCap) in lieu of cash or money payment of an obligation to MicroCap
totalling $180,000. MicroCap was the former controlling shareholder of
RBI. This business combination with RBI was accounted for as a reverse
acquisition since the controlling shareholder of RBI controlled RBI after
the business combination. The results of operations of RBI prior to June
16, 1995 have been excluded from the consolidated results of operations
since the transaction was recorded as a reverse acquisition.
Prior to RBI's business combination with RBI, RBI acquired a ninety
percent (90%) ownership interest in Solo Yolo Broadcasting (Solo Yolo), a
California general partnership, from MicroCap. Solo Yolo's only business
activity was filing an application for an FM construction permit for
Esparto, California. Solo Yolo was one of only two applicants to file for
the same permit. Solo Yolo was paid $18,000 in cash in exchange for
withdrawing its application.
Also prior to the business combination, RBI formed a wholly-owned
subsidiary, Alta California Broadcasting, Inc. (Alta), to pursue radio
acquisition opportunities in northern California.
In June, 1994, Alta entered into as asset purchase agreement to
acquire radio stations KHSL AM-FM located in Chico, California for
$1,150,000.
The $1,150,000 purchase price was allocated as follows:
<TABLE>
<S> <C>
Land $ 600,000
License 350,000
Station Assets 200,000
----------
$1,150,000
==========
</TABLE>
The allocation was based on management's estimate of the current
values of the assets. The land was appraised as of November, 1995 at
$600,000. However, the appraisal failed to take into account a long term
ground lease for use of space by a third party on the radio tower located
on the property. This lease diminished the value of the property. In
addition, the land was sold in April, 1995 for $450,000. Management
determined that the sale price of the land at that time represented a more
accurate value of the land. In light of these facts, the allocation of
the purchase price was retroactively changed to reclassify the difference
between the sale price of the land and the original cost allocation to
land to the value of the license in the amount of $150,000.
On February 15, 1995, Alta commenced operating KHSL AM-FM under a
Local Management Agreement (LMA). On June 19, 1995 Alta completed the
acquisition of KHSL AM-FM resulting in the termination of the LMA. The
acquisition of KHSL AM-FM by Alta was accounted for as a purchase
effective June 19, 1995. The results of operations of KHSL AM-FM have
been included in the consolidated financial statements of RBI since
February 15, 1995, the effective date of the LMA which transferred control
to Alta.
In March, 1995 Alta entered into a LMA with an option to purchase
radio station KCFM FM (KCFM) licensed to Shingletown, California and
advanced funds under a purchase option agreement to the license holder of
KCFM to build the station. In August 1995, KCFM began commercial
broadcasting. In September, 1995 KCFM changed its call letters to KHZL FM
(KHZL). As of June 30, 1996 Alta had advanced $50,000 to the license
holder which were to be fully credited against the purchase price. On
July 31, 1996 Alta completed the acquisition of KHZL by paying $15,000 in
cash (in addition to monies previously advanced) and issuing a note
payable for $155,000. On September 27, 1996, Alta changed KHZL call
letters to KRDG-FM ("KRDG").
In December, 1995, Alta executed a Letter of Intent regarding the
acquisition by Alta's wholly-owned subsidiary, Northern California
Broadcasting, Inc., of radio station KNNN licensed to Central Valley,
California, for a total purchase price of $825,000. $325,000 of the
Purchase Price was paid in certified funds at closing, and the balance,
$500,000, in the form of a promissory note. The acquisition of KNNN was
consummated in September, 1996.
(b) BAD DEBTS
---------
An allowance for doubtful accounts receivable has been provided based
on the Company's past collection history.
(c) PROPERTY AND EQUIPMENT
----------------------
Property and equipment are carried at cost, net of accumulated
depreciation. Depreciation is provided on a straight-line basis over
estimated useful lives ranging from three to twenty years.
(d) CONCENTRATION OF CREDIT RISK
----------------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of accounts receivable.
The Company grants credit to various businesses principally in California.
(e) ADVERTISING COSTS
-----------------
Advertising costs are expensed as incurred.
(f) GEOGRAPHIC AREA OF OPERATIONS AND INTEREST RATES
-------------------------------------------------
The Company's radio stations broadcast principally in northern
California. The potential for severe financial impact can result from
negative effects of economic conditions within a market or geographic
area. Since the Company's business is principally in one area, this
concentration of operations results in an associated risk and uncertainty.
(g) REVENUE RECOGNITION
-------------------
Revenues are recognized when advertisements are aired.
(h) LOSS PER SHARE
--------------
Loss per share is based on the weighted average number of common
shares and common equivalent shares (where inclusion of such equivalent
shares would not be anti-dilutive) outstanding during the year.
(i) INTANGIBLE ASSETS
-----------------
Intangible assets, including licenses and goodwill, are being
amortized over their estimated useful lives. No amortization period
exceeds 40 years. The Company periodically evaluates the value of its
intangible assets and if the cost of such assets are in excess of
associated expected operating cash flows, the related assets are written
down to fair value.
3.) NOTES PAYABLE
-------------
Notes payable as of September 30, 1996 is comprised of the following:
<TABLE>
<S> <C>
Note payable to seller of KMNN-FM radio
(corporation), interest payable @ 8.5% per
annum. The note is due September, 2006.
The note is collateralized by the assets
of the station 498,228
Note payable to seller of KRDG-FM radio
(individual), interest accrues @ 8.25%
per annum. The note plus accrued interest
is due in July, 2001. The note is collater-
alized by the assets of the station 155,000
Note payable to a related party (corporation),
interest accrues @ 14% per annum. The note
plus accrued interest is due in March, 1997 100,000
Other notes payable, various interest rates
ranging from 10%-18%. The notes are due at
different times through September, 1997.
Certain notes are guaranteed by MicroCap. 738,833
--------
Total 1,491,561
Current portion 826,339
Long term portion 665,222
</TABLE>
(4) PROPOSED SECURITIES OFFERING
----------------------------
RBI is proposing to offer securities to the public through a Registration
Statement Form SB-2, pursuant to the Securities Act of 1933. The proposal
includes four offerings as follows:
(a) The first proposed offering relates to the distribution of up to
300,008 shares of common stock to shareholders of RBI's former parent of
record as of December 16, 1994. RBI will not receive any proceeds from
the distribution of the shares.
(b) The second proposed offering relates to the distribution by RBI
of up to 203,008 common stock put options (puts) pursuant to the terms of
the RBI business combination agreement. The puts will require RBI to
purchase and redeem any and all shares tendered at a price of $1.50 per
share. The puts will be exercisable for a period of ninety days following
the effective date of the Registration Statement. RBI will not receive
any proceeds from the distribution of the puts. Since RBI agreed to
redeem up to 203,008 of the shares outstanding at $1.50 per share as part
of the RBI business combination agreement, RBI has shown this commitment
as a liability in the financial statements under the caption, securities
subject to mandatory redemption.
(c) The third proposed offering relates to the offer and sale of
305,058 shares of common stock by certain shareholders of RBI. RBI will
not receive any proceeds from the sale of the common stock by the selling
shareholders.
(d) The final proposed offering relates to selling up to 400,000
shares of RBI common stock at $2.00 per share.
RBI will bear the cost of the proposed offering. If the offering is
successful, the offering costs will be offset against the proceeds of the
offering. If the offering is not successful, the costs will be charged to
operations as a period expense. As of September 30, 1996, RBI had
incurred $68,500 in offering costs. These costs are included in Other
Assets.
(5) PROPERTY AND EQUIPMENT
----------------------
The Company's property and equipment as of September 30, 1996 is
summarized as follows:
<TABLE>
<S> <C>
Land $ -
Building and improvements 24,671
Furniture and equipment 9,159
Radio broadcasting equipment 1,367,284
Computer equipment 42,001
----------
1,443,115
Accumulated depreciation 122,302
----------
Total 1,320,813
==========
</TABLE>
(6) INDEMNIFICATION
---------------
In accordance with the Colorado Business Corporation Act, RBI has included
a provision in its Articles of Incorporation to limit the personal
liability of its officers and directors to the maximum extent provided
under Colorado law.
(7) PREFERRED STOCK
---------------
The Company has 2,500,000 shares of $.04 par value preferred stock
authorized. Preferences may be determined by the Company's Board of
Directors. As of September 30, 1996 there were no preferred shares
issued.
(8) UNEARNED INCOME
---------------
RBI was formed in 1993 to pursue the acquisition of radio station KNBA
licensed in Vallejo, California. RBI entered into a joint venture to
acquire KNBA and in October, 1993 completed the acquisition of the
station. Effective November 1994, RBI sold its 50% interest in the joint
venture. In addition to receiving $180,000 in cash for this 50% interest,
RBI received $70,000 cash for a three-year covenant not to compete. This
covenant is being amortized into income on a straight-line basis over a
three-year term.
(9) BASIS OF PRESENTATION
---------------------
The accompanying financial statements have been prepared in conformity
with generally-accepted accounting principles, which contemplates
continuation of the Company as a going concern. However, the Company has
sustained operating losses since its inception and has a net working
capital deficiency.
Since September 30, 1996, the Company has taken several steps in an effort
to improve its working capital. The sale of KHSL will, subject to FCC
approval, generate approximately $1,200,000 in cash at closing, which is
expected to occur during the last quarter of fiscal 1997. The Company
plans to use the proceeds of the sale to significantly reduce its
outstanding notes payable.
In addition, in April 1996, the Company sold the Chico Property for a
purchase price of $450,000. In August 1996, the Company completed a
private placement of Common Stock in which it sold 37,750 shares of Common
Stock to four investors for an aggregate purchase price of $45,300, or
$1.20 per share. In addition, in December 1996, the Company completed a
private placement to one affiliated investor consisting of 100,000 shares
of Common Stock at $1.20 per share. Finally, the Company is registering
for sale an aggregate of 400,000 shares of Common Stock which it intends
to offer to the public at a price of $2.00 per share upon the effective
date of a Registration Statement. While the proposed public offering will
be offered and sold through the Company's officers and directors without a
firm commitment from an underwriter, the Company is optimistic that the
public offering can be consummated and that the net proceeds, estimated to
be $670,000, will be made available during the fourth quarter of fiscal
1997 for working capital.
Finally, the Company's principal shareholder, Redwood Microcap, has agreed
to provide working capital to complete the radio station construction in
Payson, Arizona and to cover the first three months of operating expenses
for that new station.
Management believes that the foregoing measures will provide sufficient
liquidity and capital resources for the Company to continue its current
operations and complete pending development opportunities, all of which
have been calculated to improve the Company's results of operations over
the next 12 months.
(10) LEASE COMMITMENTS
-----------------
Effective December 18, 1994, Alta entered into a five-year lease for
studio space for radio station KHZL located in Redding, California. The
monthly rental payments under the terms of the lease are as follows:
<TABLE>
<S> <C>
$ 800 per month in 1995
900 per month in 1996
950 per month in 1997
990 per month in 1998
1,040 per month in 1999
</TABLE>
Future minimum rental payments under operating leases with terms greater
than one year are summarized as follows:
<TABLE>
<S> <C>
Year ended March 31, 1997 $ 8,250
Year ended March 31, 1998 11,520
Year ended March 31, 1999 12,030
Year ended March 31, 2000 9,360
</TABLE>
(11) DELINQUENT PAYROLL TAXES
------------------------
As of September 30, 1996 the Company had payroll taxes payable of $83,221
which were delinquent. Management anticipates utilizing the proceeds from
certain asset sale transactions to retire this obligation. The Company is
currently remitting payroll tax withholdings on a timely basis.
<PAGE>
<PAGE>
Index to Pro Forma Financial Statements
REDWOOD BROADCASTING, INC. (RBI)
KHSL AM-FM (KHSL)
Pro Forma Combined Financial Statements (Unaudited)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Pro Forma Financial Statements:
Pro Forma Balance Sheet September 30, 1996 F-52
Pro Forma Statement of Operations, Six Months
Ended September 30, 1996 F-53
Notes to Pro Forma Financial Statements F-54
</TABLE>
<PAGE>
<PAGE>
<TABLE>
REDWOOD BROADCASTING, INC.
PRO FORMA BALANCE SHEET
September 30, 1996
(Unaudited)
<CAPTION>
Pro Forma Pro Forma
(RBI) Adjustments Combined
------------ ------------------ ------------
<S> <C> <C> <C>
ASSETS
------
Current Assets:
Cash $ - $339,661 (1) $ 339,661
Accounts receivable, net of
allowance for doubtful accounts 49,041 49,041
Other 70,851 70,851
------------ ----------- ------------
Total Current Assets 119,892 339,661 459,553
Property and equipment, net of
accumulated depreciation 1,320,813 (213,308) (1) 1,107,505
License, net of accumulated
amortization 470,833 (470,833) (1) -
Notes receivable - 200,000 (1) 200,000
Other assets 243,874 243,874
------------ ------------ ------------
Total Assets $ 2,155,412 $ (144,480) $ 2,010,932
============ ============= ============
LIABILITIES
-----------
Current Liabilities:
Outstanding checks in excess of
amounts reported by banks $ 12,306 $ $ 12,306
Accounts payable and accrued expenses 248,380 (100,000) (1) 148,380
Notes payable, current portion 826,339 (826,339) (1) -
Common stock subject to mandatory
redemption 304,512 304,512
Accounts payable, related parties 346,382 346,382
Unearned income, current portion 10,260 10,260
----------- ----------- ------------
Total Current Liabilities 1,748,179 (926,339) 821,840
Unearned income, net of current portion - -
Notes payable, net of current portion 665,222 665,222
------------ ----------- ------------
Total Liabilities 2,413,401 (926,339) 1,487,062
------------ ----------- ------------
Stockholders' Equity:
Common stock 3,222 3,222
Additional paid-in capital 497,023 497,023
Retained earnings, accumulated (deficit) (758,234) 781,859 (1) 23,625
------------ ------------ -------------
Total Stockholders' Equity (Deficit) (257,989) 781,859 523,870
------------ ------------ -------------
Total Liabilities and Stockholders'
Equity (Deficit) $ 2,155,412 $ (144,480) $ 2,010,932
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
<TABLE>
REDWOOD BROADCASTING, INC.
PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
<CAPTION>
Pro Forma Pro Forma
(RBI) (KHSL) Adjustments Combined
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE:
Total revenues $ 139,392 $ (24,170) $ $ 115,222
Less agency commissions 8,545 - 8,545
---------- ---------- --------- -----------
Net revenues 130,847 (24,170) 106,677
---------- ---------- --------- -----------
OPERATING EXPENSES:
Station operating expenses excluding
depreciation and amortization 229,099 (67,641) 161,458
Depreciation and amortization 47,447 (35,744) 40,889 (2) 52,592
Corporate general and administrative
expenses 22,804 - - 22,804
---------- ---------- --------- -----------
Total Operating Expenses 299,350 (103,385) 40,889 236,854
---------- ---------- --------- -----------
Operating Loss (168,503) 79,215 (40,889) (130,177)
---------- ---------- --------- -----------
Other Income (Expense):
Other income (expense) (45,432) 80,000 34,568
Interest expense (12,075) - - (12,075)
---------- ---------- --------- -----------
Total Other Income (Expense) (57,507) 80,000 - 22,493
---------- ---------- --------- -----------
Net (Loss) $(226,010) $ 159,215 $(40,889) $ (107,684)
========== ========= ========= ===========
Net (Loss) per Common Share $ (0.29) $ (0.14)
========== ===========
Total Number of Common Shares Outstanding 793,008 793,008
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
REDWOOD BROADCASTING, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
(A) GENERAL
-------
The Company entered into a contract to sell radio station KHSL AM-FM for
$1,266,000 cash and a note receivable of $200,000. From the sale proceeds
$826,339 of notes payable are expected to be paid. Since execution of the sale
agreement, the radio station has been operated by the prospective purchaser
under a LMA. Closing of this transaction is pending regulatory approval.
(B) PRO FORMA INFORMATION
---------------------
The proforma balance sheet as of September 30, 1996 gives effect to the above
transaction.
The pro forma statement of operations gives effect to the operations of KHSL,
AM-FM being excluded.
(C) PRO FORMA ADJUSTMENTS
---------------------
(1) To record the sale of KHSL AM-FM radio.
(2) To record the amortization of the purchased license cost of KNNN.
<PAGE>
- ----------------------------------- ----------------------------
No person is authorized to give any
information or to make any represen-
tation other than those contained in
this Prospectus, and if made such
information or representation must
not be relied upon as having been
given or authorized by the Company. REDWOOD BROADCASTING, INC.
This Prospectus does not constitute
an offer to sell or a solicitation 1,200,437 shares of
of an offer to buy any securities
other than the Securities offered by $.004 par value
this Prospectus or an offer to sell Common Stock
or a solicitation of an offer to buy
the said Securities in any jurisdic- 203,008 Common Stock
tion to any person to whom it is Put Options
unlawful to make such offer or solici-
tation in such jurisdiction.
The delivery of this Prospectus shall
not, under any circumstances, create
any implication that there has been
no changes in the affairs of the
Company since the date of this
Prospectus. However, in the event
of a material change, this Prospectus
will be amended or supplemented
accordingly.
TABLE OF CONTENTS
Page
----
Prospectus Summary 14
Risk Factors 22
Use of Proceeds 28
Dilution 29 ----------------
Management's Discussion
and Analysis or Plan of PROSPECTUS
Operation 32
Business 42 ----------------
Management 54
Executive Compensation 56
Security Ownership of
Certain Beneficial
Owners and Management 59
Description of Securities 61 ------------, 1997
Terms of Offerings 62
Certain Transactions 68
Indemnification 71
Legal Matters 71
Experts 71
- ----------------------------------- ----------------------------<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The only statute, charter provision, bylaw, contract, or other arrangement
under which any controlling person, director or officers of the Registrant is
insured or indemnified in any manner against any liability which he may incur
in his capacity as such, is as follows:
Sections 7-109-101 through 7-109-110 of the Colorado Corporation Code
provide as follows:
7-109-101. DEFINITIONS. As used in this article:
(1) "Corporation" includes any domestic or foreign entity that is a
predecessor of a corporation by reason of a merger or other
transaction in which the predecessor's existence ceased upon
consummation of the transaction.
(2) "Director" means an individual who is or was a director of a
corporation or an individual who, while a director of a corporation,
is or was serving at the corporation's request as a director,
officer, partner, trustee, employee, fiduciary, or agent of another
domestic or foreign corporation or other person or of an employee
benefit plan. A director is considered to be serving an employee
benefit plan at the corporation's request if his or her duties to the
corporation also impose duties on, or otherwise involve services by,
the director to the plan or to participants in or beneficiaries of
the plan. "Director" includes, unless the context requires
otherwise, the estate or personal representative of a director.
(3) "Expenses" includes counsel fees.
(4) "Liability" means the obligation incurred with respect to a
proceeding to pay a judgment, settlement, penalty, fine, including an
excise tax assessed with respect to an employee benefit plan, or
reasonable expenses.
(5) "Official capacity" means, when used with respect to a director,
the office of director in a corporation and, when used with respect
to a person other than a director as contemplated in section 7-109-
107, the office in a corporation held by the officer or the
employment, fiduciary, or agency relationship undertaken by the
employee, fiduciary, or agent on behalf of the corporation.
"Official capacity" does not include service for any other domestic
or foreign corporation or other person or employee benefit plan.
(6) "Party" includes a person who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(7) "Proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal.
7-109-102. AUTHORITY TO INDEMNIFY DIRECTORS.
(1) Except as provided in subsection (4) of this section, a
corporation may indemnify a person made a party to a proceeding
because the person is or was a director against liability incurred in
the proceeding if:
(a) The person conducted himself or herself in good faith; and
(b) The person reasonable believed:
(I) In the case of conduct in an official capacity with the
corporation, that his or her conduct was in the corporation's best
interests; and
(II) In all other cases, that his or her conduct was at least not
opposed to the corporation's best interests; and
(c) In the case of any criminal proceeding, the person had no
reasonable cause to believe his or her conduct was unlawful.
(2) A director's conduct with respect to an employee benefit plan
for a purpose the director reasonably believed to be in the interests
of the participants in or beneficiaries of the plan is conduct that
satisfies the requirement of subparagraph (II) of paragraph (b) of
subsection (1) of this section. A director's conduct with respect to
an employee benefit plan for a purpose that the director did not
reasonably believe to be in the interests of the participants in or
beneficiaries of the plan shall be deemed not to satisfy the
requirements of paragraph (a) of subsection (1) of this section.
(3) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is
not, of itself, determinative that the director did not meet the
standard of conduct described in this section.
(4) A corporation may not indemnify a director under this section:
(a) In connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the
corporation; or
(b) In connection with any other proceeding charging that the
director derived an improper personal benefit, whether or not
involving action in an official capacity, in which proceeding the
director was adjudged liable on the basis that he or she derived an
improper personal benefit.
(5) Indemnification permitted under this section in connection with
a proceeding by or in the right of the corporation is limited to
reasonable expenses incurred in connection with the proceeding.
7-109-103. MANDATORY INDEMNIFICATION OF DIRECTORS. Unless limited
by its articles of incorporation, a corporation shall indemnify a
person who was wholly successful, on the merits or otherwise, in the
defense of any proceeding to which the person was a party because the
person is or was a director, against reasonable expenses incurred by
him or her in connection with the proceeding.
7-109-104. ADVANCE OF EXPENSES TO DIRECTORS.
(1) A corporation may pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of
final disposition of the proceeding if:
<PAGE>
(a) The director furnishes to the corporation a written
affirmation of the director's good faith belief that he or she has
met the standard of conduct described in section 7-109-102;
(b) The director furnishes to the corporation a written
undertaking, executed personally or on the director's behalf, to
repay the advance if it is ultimately determined that he or she did
not meet the standard of conduct; and
(c) A determination is made that the facts then known to those
making the determination would not preclude indemnification under
this article.
(2) The undertaking required by paragraph (b) of subsection (1) of
this section shall be an unlimited general obligation of the director
but need not be secured and may be accepted without reference to
financial ability to make repayment.
(3) Determinations and authorizations of payments under this section
shall be made in the manner specified in section 7-109-106.
7-109-105. COURT-ORDERED INDEMNIFICATION OF DIRECTORS.
(1) Unless otherwise provided in the articles of incorporation, a
director who is or was a party to a proceeding may apply for
indemnification to the court conducting the proceeding or to another
court of competent jurisdiction. On receipt of an application, the
court, after giving any notice the court considers necessary, may
order indemnification in the following manner:
(a) If it determines that the director is entitled to mandatory
indemnification under section 7-109-103, the court shall order
indemnification, in which case the court shall also order the
corporation to pay the director's reasonable expenses incurred to
obtain court-ordered indemnification.
(b) If it determines that the director is fairly and reasonable
entitled to indemnification in view of all the relevant
circumstances, whether or not the director met the standard of
conduct set forth in section 7-109-102 (1) or was adjudged liable in
the circumstances described in section 7-109-102 (4), the court may
order such indemnification as the court deems proper; except that the
indemnification with respect to any proceeding in which liability
shall have been adjudged in the circumstances described in section 7-
109-102 (4) is limited to reasonable expenses incurred in connection
with the proceeding and reasonable expenses incurred to obtain court-
ordered indemnification.
7-109-106. DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION OF
DIRECTORS.
(1) A corporation may not indemnify a director under section 7-109-
102 unless authorized in the specific case after a determination has
been made that indemnification of the director is permissible in the
circumstances because the director has met the standard of conduct
set forth in section 7-109-102. A corporation shall not advance
expenses to a director under section 7-109-104 unless authorized in
the specific case after the written affirmation and undertaking
required by section 7-109-104 (1) (a) and (1) (b) are received and
the determination required by section 7-109-104 (1) (c) has been
made.
(2) The determinations required by subsection (1) of this section
shall be made:
(a) By the board of directors by a majority vote of those present
at a meeting at which a quorum is present, and only those directors
not parties to the proceeding shall be counted in satisfying the
quorum; or
(b) If a quorum cannot be obtained, by a majority vote of a
committee of the board of directors designated by the board of
directors, which committee shall consist of two or more directors not
parties to the proceeding; except that directors who are parties to
the proceeding may participate in the designation of directors for
the committee.
(3) If a quorum cannot be obtained as contemplated in paragraph (a)
of subsection (2) of this section, and a committee cannot be
established under paragraph (b) of subsection (2) of this section,
or, even if a quorum is obtained or a committee is designated, if a
majority of the directors constituting such quorum or such committee
so directs, the determination required to be made by subsection (1)
of this section shall be made:
(a) By independent legal counsel selected by a vote of the board
of directors or the committee in the manner specified in paragraph
(a) or (b) of subsection (2) of this section or, if a quorum of the
full board cannot be obtained and a committee cannot be established,
by independent legal counsel selected by a majority vote of the full
board of directors; or
(b) By the shareholders.
(4) Authorization of indemnification and advance of expenses shall
be made in the same manner as the determination that indemnification
or advance of expenses is permissible; except that, if the
determination that indemnification or advance of expenses is
permissible is made by independent legal counsel, authorization of
indemnification and advance of expenses shall be made by the body
that selected such counsel.
7-109-107. INDEMNIFICATION OF OFFICERS, EMPLOYEES, FIDUCIARIES, AND
AGENTS.
(1) Unless otherwise provided in the articles of incorporation:
(a) An officer is entitled to mandatory indemnification under
section 7-109-103, and is entitled to apply for court-ordered
indemnification under section 7-109-105, in each case to the same
extent as a director;
(b) A corporation may indemnify and advance expenses to an
officer, employee, fiduciary, or agent of the corporation to the same
extent as to a director; and
(c) A corporation may also indemnify and advance expenses to an
officer, employee, fiduciary, or agent who is not a director to a
greater extent, if not inconsistent with public policy, and if
provided for by its bylaws, general or specific action of its board
of directors or shareholders, or contract.
<PAGE>
7-109-108. INSURANCE. A corporation may purchase and maintain
insurance on behalf of a person who is or was a director, officer,
employee, fiduciary, or agent of the corporation, or who, while a
director, officer, employee, fiduciary, or agent of the corporation,
is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee, fiduciary, or agent of another
domestic or foreign corporation or other person or of an employee
benefit plan, against liability asserted against or incurred by the
person in that capacity or arising from his or her status as a
director, officer, employee, fiduciary, or agent, whether or not the
corporation would have power to indemnify the person against the same
liability under section 7-109-102, 7-109-103, or 7-109-107. Any such
insurance may be procured from any insurance company designated by
the board of directors, whether such insurance company is formed
under the laws of this state or any other jurisdiction of the United
States or elsewhere, including any insurance company in which the
corporation has an equity or any other interest through stock
ownership or otherwise.
7-109-109. LIMITATION OF INDEMNIFICATION OF DIRECTORS.
(1) A provision treating a corporation's indemnification of, or
advance of expenses to, directors that is contained in its articles
of incorporation or bylaws, in a resolution of its shareholders or
board of directors, or in a contract, except an insurance policy, or
otherwise, is valid only to the extent the provision is not
inconsistent with sections 7-109-101 to 7-109-108. If the article of
incorporation limit indemnification or advance of expenses,
indemnification and advance of expenses are valid only to the extent
not inconsistent with the articles of incorporation.
(2) Sections 7-109-101 to 7-109-108 do not limit a corporation's
power to pay or reimburse expenses incurred by a director in
connection with an appearance as a witness in a proceeding at a time
when he or she has not been made a named defendant or respondent in
the proceeding.
7-109-110. NOTICE TO SHAREHOLDER OF INDEMNIFICATION OF DIRECTOR. If
a corporation indemnifies or advances expenses to a director under
this article in connection with a proceeding by or in the right of
the corporation, the corporation shall give written notice of the
indemnification or advance to the shareholders with or before the
notice of the next shareholders' meeting. If the next shareholder
action is taken without a meeting at the instigation of the board of
directors, such notice shall be given to the shareholders at or
before the time the first shareholder signs a writing consenting to
such action.
* * *
Article XIII of the By-Laws of the Company also tracks the language
Sections 7-109-101 through 7-109-110 of the Colorado Corporation Code.
Item 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the offering are to be borne by the Company, are
as follows:
<PAGE>
<TABLE>
<S> <C>
SEC Filing Fee $ 562
Printing Expenses* 1,500
Accounting Fees and Expenses* 6,000
Legal Fees and Expenses* 30,000
Blue Sky Fees and Expenses* 10,000
Miscellaneous* 1,938
Total $50,000
- -----------------------------------
* Estimated
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
---------------------------------------
1. In February, 1995, the Company was formed and organized as a
reorganization by CRI in which it issued 300,008 shares of its Common Stock to
CRI in exchange for one hundred percent (100%) of CRI's real and personal
property, subject to certain liabilities, saving and excepting cash, cash
equivalents or marketable securities having an aggregate fair market value of
not less than $250,000. The shares of Common Stock were acquired for
investment purposes and were subject to appropriate transfer restrictions. The
shares were not registered under the Securities Act in reliance upon Section
4(2) thereof.
2. In June, 1995, the Company issued 300,000 shares of its Common Stock
to seven (7) accredited investors in exchange for one hundred percent (100%) of
the issued and outstanding shares of common stock of Redwood Broadcasting, Inc.
The shares of Common Stock were acquired for investment purposes and were
subject to appropriate transfer restrictions. the shares were not registered
under the Securities Act in reliance upon Section 4(2) thereof.
3. In October, 1995, the Company sold 25,000 shares of Common Stock to
one (1) accredited investor for a price of $1.20 per share or a total of
$30,000. The shares of Common Stock were acquired for investment purposes and
were subject to appropriate transfer restrictions. The shares were not
registered under the Securities Act in reliance upon Section 4(2) thereof.
4. In September, 1995, the Company issued to MicroCap, an accredited
investor, 150,000 shares of Common Stock in lieu of cash or money payment of
indebtedness of the Company to MicroCap totaling $180,000. The shares of
Common Stock were acquired for investment purposes and were subject to
appropriate transfer restrictions. The shares were not registered under the
Securities Act in reliance upon Section 4(2) thereof.
5. In August, 1996, the Company sold and issued an aggregate of 37,550
shares of Common Stock to four accredited investors at a price of $1.20 per
share. The shares of Common Stock were acquired for investment purposes and
were subject to appropriate transfer restrictions. The shares were not
registered under the Securities Act in reliance upon Section 4(2) thereof.
6. In December 1996, the Company sold and issued to Power Curve, Inc.,
an accredited investor and a controlled corporation of John C. Power, the
Company's President and Director, 100,000 shares of Common Stock at a price of
$1.20 per share. The shares of Common Stock were acquired for investment
purposes and were subject to appropriate transfer restrictions. The shares
were not registered under the Securities Act in reliance upon Section 4(2)
thereof.
ITEM 27. EXHIBITS.
--------
a. The following Exhibits are filed as part of this Registration
Statement pursuant to Item 601 of Regulation S-B:
<TABLE>
<CAPTION>
Exhibit No. Title
- ---------- -----
<S> <C> <C>
* 2.0 Agreement and Plan or Reorganization Dated as of December 5,
1994, between and among Cell Robotics, Inc., Intelligent
Financial Corporation, Micel, Inc., Bridgeworks Investors I,
LLC, and Ronald K. Lohrding
* 2.1 Agreement and Plan of Reorganization Date as of June 16,
1995, between and among Intelligent Financial Holding
Corporation, Redwood MicroCap Fund, Inc., and Redwood
Broadcasting, Inc.
* 3.0(i) Articles of Incorporation of Intelligent Financial Holding
Corporation
* 3.0(ii) By-laws of Intelligent Financial Holding Corporation
* 4.1 Specimen Certificate of Common Stock
4.2 Specimen Put Option Certificate
4.3 Redwood Broadcasting, Inc. 1995 Incentive Stock Option Plan
5.0 Opinion of Neuman & Cobb regarding the legality of the
securities being registered
* 10.0 KHSL AM/FM Asset Purchase Agreement dated February 3, 1995
*** 10.1 KHSL Local Management Agreement
*** 10.2 KCFM Local Management Agreement
10.3 Agreement to Convert Debt dated September 30, 1995, between
Intelligent Financial Holding Corporation and Redwood
MicroCap Fund, Inc.
* 10.4 KNNN Letter of Intent
*** 10.5 KNNN Asset Purchase Agreement
** 10.6 KNSN-AM and KHSL-FM Asset Purchase Agreement dated March 12,
1996
*** 10.7 Redwood MicroCap Fund, Inc. Consultation Agreement
10.8 Selected Dealer Agreement
* 21.0 Subsidiaries
23.1 Consent of Neuman & Cobb
23.2 Consent of Schumacher & Associates, Inc., Certified Public
Accountants
<FN>
* Incorporated by referenced from Registrant's Registration
Statement on Form SB-2, S.E.C. File No. 33-80321, as filed
with the Commission on December 12, 1995.
** Incorporated by referenced from Registrant's Pre-Effective
Amendment No. 1 to Registration Statement on Form SB-2,
S.E.C. File No. 33-80321, as filed with the Commission on
October 3, 1996.
*** To be filed by Amendment.
</FN>
</TABLE>
ITEM 28. UNDERTAKINGS.
------------
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
3. To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
4. To provide, upon effectiveness, certificates in such
denominations and registered in such names as are required to permit prompt
delivery to each purchaser.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and has duly caused this
Amendment No. 2 to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Carefree, Arizona on the
2nd day of January, 1997.
REDWOOD BROADCASTING, INC.
By: /s/ John C. Power
---------------------------
John C. Power, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed by the
following persons in the capacities with Redwood Broadcasting, Inc. and on the
dates indicated.
Signature Position Date
- --------- -------- ----
/s/ John C. Power Chairman of the Board, 1/2/97
- ------------------------------President, Chief Executive Officer----------
John C. Power
/s/ J. Andrew Moorer Chief Financial Officer, 1/2/97
- ------------------------------ Chief Accounting Officer, ----------
J. Andrew Moorer Secretary, Treasurer, Director
/s/ Donald P. Griffin Chief Operating Officer, Director 1/2/97
- ------------------------------ ----------
Donald P. Griffin
EXHIBIT 4.2
PUT OPTION CERTIFICATE
For the Sale of Common Shares,
Par Value $.004 per Share
of
REDWOOD BROADCASTING, INC.
(a Colorado corporation)
Option No. Options
/ P- / / /
THIS PUT OPTION CERTIFIES THAT, for value received, ________________
_____________________, or registered assigns ("Putholder") is the registered
owner of the above indicated number of Options entitling the Putholder to
surrender to Redwood Broadcasting, Inc., a Colorado corporation (the
"Company"), up to _______________________ shares of the Company's $.004 par
value common stock ("Common Stock") at a price of $1.50 per share (the
"Redemption Price") for a period of ninety (90) days commencing on the
effective date of a Registration Statement (the "Registration Statement")
registering for sale under the Securiteis Act of 1933, as amended (the "Act"),
the Put Options represented by this Put Option Certificate (the "Redemption
Period"), but only subject to the conditions set forth herein. This Option
will expire ninety days following the effective date of the Registration
Statement at 5:00 p.m., Denver, Colorado, time (the "Put Option Expiration
Date"). The Redemption Price, the number of shares to be surrendered upon
exercise of each Option, and the Put Option Expiration Date are subject to
adjustments described herein. The Putholders may exercise all or any number of
the Options represented hereby. Upon exercise of this Option, the Put
Redemption Certificate hereinafter provided for must be completed and duly
executed and the instructions for Redemption of the Common Stock contained
herein should be read carefully and followed in detail. If the rights
represented hereby shall not be exercised at or before the Put Option
Expiration Date, this Option shall become and be void without further force or
effect, and all rights represented hereby shall cease and expire.
1. TERM OF OPTION.
---------------
The Options evidenced by this Put Option Certificate may be exercised
in whole or in part at any time, commencing upon the issuance hereof and ending
at 5:00 o'clock p.m. on the Put Option Expiration Date; provided, however, that
the Company may extend the Redemption Period of this Option by giving notice of
such extension.
2. NOTICE OF EXTENDED REDEMPTION DATE.
-----------------------------------
The Company may extend the Redemption Date for the exercise of this
Option at any time by giving thirty (30) days' written notice thereof to the
Putholder. If this Option is not exercised on or before the extended Put
Option Expiration Date, it shall become wholly void.
3. ADJUSTMENTS OF REDEMPTION PRICE AND SHARES.
-------------------------------------------
In the event the Common Stock to be surrendered upon exercise of this
Option shall be changed into the same or different number of shares of any
class or classes of stock, whether by capital reorganization, reclassification
or otherwise, or in the event the Company shall at any time issue Common Stock
by way of dividend or other distribution on any stock of the Company, or
subdivide or combine the outstanding shares of Common Stock, then in each such
event the Holder of this Option shall have the right thereafter to exercise
this Option and surrender the kind and amount of shares of stock and other
securities and property received by the Putholder as a result of such
reorganization, reclassification or other change. In the case of any such
reorganization, reclassification or change, the Redemption Price shall also be
appropriately adjusted so as to maintain the aggregate Redemption Price.
Further, in case of any consolidation or merger of the Company with or into
another corporation in which consolidation or merger the Company is not the
continuing corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety, or substantially as
an entirety, the Company shall cause effective provision to be made so that the
Putholder shall have the right thereafter, by exercising this Option, to
surrender to the continuing company the kind and amount of shares of stock and
other securities and property received by the Putholder as a result of such
consolidation, merger, sale or conveyance, which provision shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Option. The foregoing provisions shall
similarly apply to successive reclassifications, capital reorganizations and
changes of shares of Common Stock and to successive consolidations, mergers,
sales or conveyances.
Notwithstanding the foregoing, no adjustment of the Redemption Price
shall be made as a result of or in connection with (1) the issuance or
redemption of Common Stock of the Company pursuant to options, warrants and
share purchase agreements now in effect or hereafter outstanding or created,
(2) the establishment of option plans of the Company, the modification, renewal
or extension of any plan now in effect or hereafter created, or the issuance or
redemption of Common Stock upon exercise of any options pursuant to such plans,
(3) the issuance or redemption of Common Stock in connection with an
acquisition, consolidation or merger of any type in which the Company is the
continuing corporation, or (4) the issuance or redemption of Common Stock in
consideration of such cash, property or service as may be approved by the Board
of Directors of the Company and permitted by applicable law.
4. ADJUSTMENT TO PURCHASE PRICE.
-----------------------------
The Company may, in its sole discretion, increase (but not lower) the
purchase price at any time, or from time-to-time. When any adjustment is made
in the purchase price, the Company shall cause a copy of such statement to be
mailed to the Putholder, as of a date within ten (10) days after the date when
the purchase price has been adjusted.
5. MANNER OF EXERCISE.
-------------------
The holder of the Options evidenced by this Put Option Certificate
may exercise all or any whole number of such Options during the Redemption
Period in the manner stated herein. Put Options may be exercised by mailing or
delivering a duly executed and completed Put Redemption Certificate indicating
the number of shares being tendered for redemption, and a certificate or
certificates representing the number of shares of Common Stock being tendered,
to the principal offices of the Company, P.O. Box 3458, 7518 Elbow Bend Road,
Building A, Suite 5-I, Carefree, Arizona 85377. Put Redemption Certificates,
together with certificates representing the number of shares of Common Stock
being tendered, must arrive at the principal offices of the Company on or
before the Put Option Expiration Date. Put Redemption Certificates received
after the Put Option Expiration Date will not be honored. Once a Putholder has
exercised a Put Option, the exercise is irrevocable. Delivery of Put
Redemption Certificates and Common Stock certificates to the Company shall be
the sole responsibility of the Putholder, and all risks associated therewith
shall be borne by the Putholder and not the Company. If the mail is used to
exercise Put Options, it is recommended that insured, registered mail be used.
Any questions or requests for assistance concerning the method of exercising
the Put Options should be directed to the Company. All questions as to the
validity, form, eligibility and acceptance of any exercise of Put Options will
be determined by the Company in its sole discretion. The Company may waive any
defect or irregularity, permit a defect or irregularity to be corrected within
such time as it may determine, or reject any exercise of a Put Option which it
determines to have been made improperly.
6. PAYMENT UPON EXERCISE.
----------------------
Within ten (10) days of receipt of a duly executed and completed Put
Redemption Certificate, together with a certificate or certificates
representing the number of shares of Common Stock being tendered, the Company
will mail to each exercising Putholder a check from the Company in
consideration for the shares that were tendered and redeemed by the Company,
and will return to each tendering Putholder a certificate for all shares of
Common Stock surrendered in excess of those tendered for redemption, if any.
7. COMMITMENT.
-----------
The Company agrees to carry out and perform all of the obligations of
this Pu Option, in accordance with the terms and conditions hereof.
8. ASSIGNMENT.
-----------
This Put Option is freely assignable by the holder hereof.
Dated: ___________________________ REDWOOD BROADCASTING, INC.
Attest:
By: ------------------------------ By: ---------------------------------
Secretary President
<PAGE>
REDWOOD BROADCASTING, INC.
PUT REDEMPTION CERTIFICATE
(Transfer Fee: $10.00 per certificate issued)
The undersigned hereby irrevocably elects to exercise ___________________
Put Options represented by this Put Option Certificate, and tenders herewith
the corresponding number of shares of Redwood Broadcasting, Inc. $.004 par
value Common Stock ("Common Stock") for redemption under the terms of this Put
Option Certificate (represented by certificate(s) ____________________
totalling ____________________ shares of Common Stock) and requests that
payment for such shares in the amount of $_________________________ be made to:
_______________________________________________________________________________
Address
_______________________________________________________________________________
Social Security or other identifying number
_______________________________________________________________________________
and be delivered to
_______________________________________________________________________________
Name
at
_______________________________________________________________________________
Address
and, if said number of Put Options shall not be all the Put Options evidenced
by this Put Option Certificate, that a new Put Option Certificate for the
balance of such Put Options, together with a Common Stock certificate
representing the balance of __________________ shares of Common Stock
represented by Common Stock certificate(s) _______________________, which are
not being tendered herewith, be registered in the name of, AND delivered to,
the undersigned at the address stated below.
Dated: ____________________, 19____
Name of Putholder: ___________________________________________________
Address: _____________________________________________________________
_______________________________________________________________________
Signature: ___________________________________________________________
ASSIGNMENT
For value received ______________________________________________________
hereby sells, assigns, and transfers unto __________________________________
____________________________________________________________________________
Put Options represented by this Put Option certificate, together with all
right, title, and interest therein, and do hereby irrevocably constitute and
appoint _____________________________________________________________________
_____________________________________________________________________________
attorney, to transfer this Put Option certificate on the books of the Company,
with full power of substitution.
Dated: _____________, 19____ X________________________________________________
X________________________________________________
SIGNATURE GUARANTEED: NOTICE: The signature to this assignment must
correspond with the name as written upon the face
of the certificate, in every particular, without
alteration or enlargement, or any change
whatever.
IMPORTANT: SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER
FIRM OF ONE OF THE FOLLOWING STOCK EXCHANGES: NEW YORK STOCK EXCHANGE,
PACIFIC COAST STOCK EXCHANGE, AMERICAN STOCK EXCHANGE, MIDWEST STOCK
EXCHANGE.
REDWOOD BROADCASTING, INC.
STOCK INCENTIVE PLAN
I. PURPOSE.
--------
A. This Stock Incentive Plan (the "Plan") is adopted by the Board
of Directors of Redwood Broadcasting, Inc., a Colorado corporation (the
"Company"), on December 5, 1995, to enable the Company to afford certain of its
directors, executive officers and key employees and the directors, executive
officers and key employees of any subsidiary corporation or parent corporation
of the Company who are responsible for the continued growth of the Company, an
opportunity to acquire a proprietary interest in the Company and thus to create
in such directors, executive officers and key employees an increased interest
in, and a greater concern for, the welfare of the Company.
B. The stock options ("Options") offered pursuant to the Plan are a
matter of separate inducement and are not in lieu of any salary or other
compensation for the services of such directors, executive officers or key
employees.
C. The Options granted under the Plan are intended to be either
incentive stock options ("Incentive Options") within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code") or Options that
do not meet the requirements for Incentive Options ("Non-Qualified Options"),
but the Company makes no warranty as to the qualification of any Option as an
Incentive Option.
II. ADMINISTRATION OF THE PLAN.
---------------------------
A. PROCEDURE.
---------
The Plan shall be administered by a Committee of the Board of
Directors of the Company.
1. Subject to subparagraph (2), the Board of Directors shall
appoint a Committee consisting of not less than two members of the Board of
Directors to administer the Plan on behalf of the Board of Directors, subject
to such terms and conditions as the Board of Directors may prescribe. Once
appointed, the Committee shall continue to serve until otherwise directed by
the Board of Directors. All members of the Committee shall be "disinterested
persons" within the meaning of Rule 16b-3(c)(2)(i) (or any successor rule or
regulation) promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). A majority of the members of the Committee shall
constitute a quorum, and the act of a majority of the members of the Committee
shall be the act of the Committee. Any member of the Committee may be removed
at any time, either with or without cause, by resolution adopted by the Board
of Directors, and any vacancy on the Committee may at any time be filled by
resolution adopted by the Board of Directors.
2. Any or all powers and functions of the Committee may at any
time, and from time to time, be exercised by the Board of Directors; provided,
however, that with respect to the participation in the Plan by members of the
Board of Directors, such powers and functions of the Committee may be exercised
by the Board of Directors only if, at the time of such exercise, a majority of
the members of the Board of Directors, as the case may be, and a majority of
the directors acting in a particular matter, are "disinterested persons" within
the meaning of Rule 16b-3(c)(2)(i) (or any successor rule or regulation)
promulgated under the Exchange Act. Any reference in the Plan to the Committee
shall be deemed also to refer to the Board of Directors, to the extent that the
Board of Directors is exercising any of the powers and functions of the
Committee.
3. Subject to the foregoing subparagraphs (1) and (2), from
time to time the Board of Directors may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies however caused, or
remove all members of the Committee and thereafter directly administer the
Plan.
B. POWERS OF THE COMMITTEE.
------------------------
Subject to the provisions of the Plan, the Committee shall have the
authority, in its discretion:
1. to determine the directors, executive officers and key
employees to whom Options shall be granted, the time when such Options shall be
granted, the number of shares which shall be subject to each Option, the
purchase price or exercise price of each share which shall be subject to each
Option, the periods during which such Options shall be exercisable (whether in
whole or in part) and the other terms and provisions with respect to the
Options (which need not be identical);
2. to determine, upon review of relevant information and in
accordance with Article IX hereof, the fair market value of the Common Stock
underlying the Options;
3. to construe the Plan and Options granted thereunder;
4. to accelerate or defer (with the consent of the Optionee)
the exercise of any Option, consistent with the provisions of the Plan;
5. to authorize any person to execute on behalf of the Company
any instrument required to effectuate the grant of an option;
6. to prescribe, amend and rescind rules and regulations
relating to the Plan;
7. to make all other determinations deemed necessary or
advisable for the administration of the Plan.
C. AGREEMENTS WITH OPTIONEE.
-------------------------
Without limiting the foregoing, the Committee shall also have the
authority to require, in its discretion, as a condition to the granting of any
Option, that the Participant agree not to sell or otherwise dispose of shares
acquired pursuant to the Option for a prescribed period following the date of
acquisition of such shares and that in the event of termination of a
directorship or employment of such Participant, other than as a result of
dismissal without cause, the Participant will not, for a period to be fixed at
the time of the grant of the Option, enter into any employment or participate
directly or indirectly in any business or enterprise which is competitive with
the business of the Company or any subsidiary corporation or parent corporation
of the Company, or enter into any employment in which such employee or director
will be called upon to utilize special knowledge obtained through his or her
directorship or employment with the Company or any subsidiary corporation or
parent corporation thereof.
D. EFFECT OF COMMITTEE'S DECISION.
-------------------------------
All decisions, determinations and interpretations of the Committee
shall be final and binding on all Optionees and any other holders of any
Options granted under the Plan.
III. ELIGIBILITY.
------------
A. Non-Qualified Options may be granted to directors, officers, key
employees, consultants or advisors of the Company, or any subsidiary
corporation or parent corporation of the Company now existing or hereafter
formed or acquired, provided that bona fide services shall be rendered by
consultants or advisors and such services are not provided in connection with
the offer or sale of securities in a capital-raising transaction.
B. An Incentive Option may be granted only to salaried key
employees of the Company or any subsidiary corporation or parent corporation of
the Company now existing or hereafter formed or acquired, and not to any
director or officer who is not also an employee.
IV. AMOUNT OF STOCK.
----------------
A. The total number of shares of Common Stock of the Company which
may be purchased pursuant to the exercise of Options granted under the Plan
shall not exceed, in the aggregate, 150,000 shares of the authorized Common
Stock, $.004 par value per share, of the Company (the "Shares"). Shares which
are subject to Options shall be counted only once in determining whether the
maximum number of shares which may be purchased or acquired under the Plan has
been exceeded.
B. Shares which may be acquired under the Plan may either be
authorized but unissued Shares, Shares of issued stock held in the Company's
treasury, or both, at the discretion of the Company. If and to the extent that
Options granted under the Plan expire or terminate without having been
exercised, new Options may be granted with respect to the Shares covered by
such expired or terminated Options, provided that the grant and the terms of
such new Options shall in all respects comply with the provisions of the Plan.
V. EFFECTIVE DATE AND TERM OF THE PLAN.
------------------------------------
A. The Plan shall become effective on the date (the "Effective
Date") on which it is adopted by the Board of Directors of the Company;
provided, however, that if the Plan is not approved by a vote of the
Shareholders of the Company within twelve (12) months before or after the
Effective Date, the Plan and any Options granted thereunder shall terminate.
B. The Company may, from time to time during the period beginning
on the Effective Date and ending on December 4, 2005 (the "Termination Date")
grant to persons eligible to participate in the Plan, Options under the terms
of the Plan. Options granted prior to the Termination Date may extend beyond
that date, in accordance with the terms thereof. In no event shall the
Termination Date be later than ten (10) years following the Effective Date.
C. As used in the Plan, the terms "subsidiary corporation" and
"parent corporation" shall have the meanings ascribed to such terms,
respectively, in Sections 425(f) and 425(e) of the Code.
D. An employee, executive officer or director to whom Options are
granted hereunder may be referred to herein as a "Participant".
VI. LIMITATION ON INCENTIVE OPTIONS.
--------------------------------
The amount of aggregate fair market value of the stock determined at the
time of the grant of the Incentive Option for which any employee may be granted
Incentive Options under this Plan in any calendar year shall not exceed the sum
of $100,000.00.
VII. TERMS OF OPTIONS.
-----------------
Stock Options granted pursuant to this Plan shall be evidenced by written
agreements which shall comply with the following terms and conditions:
A. TIME OF EXERCISE.
-----------------
Any Option may be exercised by the Participant holding such Option
for such period or periods as the Committee shall determine at the date of
grant of such Option. In no event shall any Incentive Option granted to a
Participant owning more than ten percent (10%) of the voting power of all
classes of the Company's stock, or the stock of any subsidiary corporation or
parent corporation, be exercisable by its terms after the expiration of
five (5) years from the date it is granted, nor shall any other Incentive
Option granted under this Plan be exercisable by its terms after ten (10) years
from the date it is granted. The Committee shall have the right to accelerate,
in whole or in part, the expiration date of any Option; and to the extent that
an Option is not exercised within the period of exercisability specified
therein, it shall expire as to the then unexercised portion.
B. TRANSFERABILITY.
----------------
Any Option granted under this Plan shall not be transferrable by the
director, executive officer or key employee holding same and may be exercised
by the director, executive officer or key employee only during his lifetime,
except that the Option may be exercisable after the death of such director,
executive officer or key employee in accordance with the laws of descent and
distribution.
C. OPTION PRICE.
-------------
1. The purchase price for each Share purchasable under any
Non-Qualified Option granted hereunder shall be such amount as the Committee
shall deem appropriate.
2. The purchase price for shares of stock subject to any
Incentive Option under this Plan, shall not be less than the fair market value
of the stock on the date of the grant of the Incentive Option, which fair
market value shall be determined in good faith at the time of the grant of the
Incentive Option by the Committee administering this Plan. In the event that
any Incentive Option is granted to an employee owning more than ten percent
(10%) of the voting power of all classes of the Company's stock, the purchase
price per share of the stock subject to such an Incentive Option shall not be
less than 110% of the fair market value of the stock on the date of the grant
of such Incentive Option determined in good faith by the Committee.
D. CONSIDERATION FOR SHARES.
-------------------------
The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Committee and may consist entirely of cash, check, other shares of common
stock of the Company which have a fair market value on the date of surrender
equal to the aggregate exercise price of the shares as to which said Option
shall be exercised, or any combination of such methods of payment, or such
other consideration and method of payment for issuance of shares to the extent
permitted under applicable provisions of the Colorado Corporation Code and the
Company's Articles of Incorporation and Bylaws.
E. VESTING.
--------
Any Options granted pursuant to this Plan may be made subject to
vesting by the Committee in its discretion.
VIII. SHAREHOLDER APPROVAL.
---------------------
This Plan shall not be valid unless it shall be approved by the
shareholders of the Company at a regular or special meeting of shareholders
which shall be held within the period of twelve (12) months following the
effective date of this Plan set forth above.
IX. METHOD OF DETERMINATION OF FAIR MARKET VALUE.
---------------------------------------------
A. If the Shares are listed on a national securities exchange in the
United States on any date on which the fair market value per Share is to be
determined, the fair market value per Share shall be deemed to be the average
of the high and low quotations at which such Shares are sold on such national
securities exchange on such date. If the Shares are listed on a national
securities exchange in the United States on such date but the Shares are not
traded on such date, or such national securities exchange is not open for
business on such date, the fair market value per Share shall be determined as
of the closest preceding date on which such exchange shall have been open for
business and the Shares were traded. If the Shares are listed on more than one
national securities exchange in the United States on the date any such Option
is granted, the Committee shall determine which national securities exchange
shall be used for the purpose of determining the fair market value per Share.
B. If a public market exists for the Shares on any date on which
the fair market value per Share is to be determined but the Shares are not
listed on a national securities exchange in the United States, the fair market
value per Share shall be deemed to be the mean between the closing bid and
asked quotations in the over-the-counter market for the Shares on such date.
If there are no bid and asked quotations for the Shares on such date, the fair
market value per Share shall be deemed to be the mean between the closing bid
and asked quotations in the over-the-counter market for the Shares on the
closest date preceding such date for which such quotations are available.
C. If no public market exists for the Shares on any date on which
the fair market value per Share is to be determined, the Committee shall, in
its sole discretion and best judgment, determine the fair market value of a
Share.
For purposes of this Plan, the determination by the Committee of the fair
market value of a Share shall be conclusive.
X. TERMINATION OF DIRECTORSHIP OR EMPLOYMENT.
------------------------------------------
A. Upon termination of the directorship or employment of any
Participant with the Company and all subsidiary corporations and parent
corporations of the Company, any Option previously granted to the Participant,
unless otherwise specified by the Committee in the Option, shall, to the extent
not theretofore exercised, terminate and become null and void, provided that:
1. if the Participant shall die while serving as a director or
while in the employ of such corporation or during either the three (3) month or
one (1) year period, whichever is applicable, specified in clause A.2 below and
at a time when such Participant was entitled to exercise an Option as herein
provided, the legal representative of such Participant, or such person who
acquired such Option by bequest or inheritance or by reason of the death of the
Participant, may, not later than one (1) year from the date of death, exercise
such Option, to the extent not theretofore exercised, in respect of any or all
of such number of Shares as specified by the Committee in such Option; and
2. If the directorship or employment of any Participant to
whom such Option shall have been granted shall terminate by reason of the
Participant's retirement (at such age or upon such conditions as shall be
specified by the Committee), disability (as described in Section 22(e)(3) of
the Code) or dismissal by the employer other than for cause (as defined below),
and while such Participant is entitled to exercise such Option as herein
provided, such Participant shall have the right to exercise such Option, to the
extent not theretofore exercised, in respect of any or all of such number of
Shares as specified by the Committee in such Option, at any time up to and
including (i) three (3) months after the date of such termination of
directorship or employment in the case of termination by reason of retirement
or dismissal other than for cause, and (ii) one (1) year after the date of
termination of directorship or employment in the case of termination by reason
of disability.
In no event, however, shall any person be entitled to exercise
any Option after the expiration of the period of exercisability of such Option
as specified therein.
B. If a Participant voluntarily terminates his directorship or
employment, or is discharged for cause, any Option granted hereunder shall,
unless otherwise specified by the Committee in the Option, forthwith terminate
with respect to any unexercised portion thereof.
C. If an Option shall be exercised by the legal representative of a
deceased Participant, or by a person who acquired an Option or by bequest or
inheritance or by reason of the death of any Participant, written notice of
such exercise shall be accompanied by a certified copy of letter testamentary
or equivalent proof of the right of such legal representative or other person
to exercise such Option.
D. For the purposes of the Plan, the term "for cause" shall mean:
1. with respect to an employee who is a party to a written
agreement with, or, alternatively, participates in a compensation or benefit
plan of the Company or a subsidiary corporation or parent corporation of the
Company, which agreement or plan contains a definition of "for cause" or
"cause" (or words of like import) for purposes of termination of employment
thereunder by the Company or such subsidiary corporation or parent corporation
of the Company, "for cause" or "cause" as defined in the most recent of such
agreements or plans; or
2. in all other cases, as determined by the Board of
Directors, in its sole discretion, (i) the willful commission by an employee of
a criminal or other act that causes or probably will cause substantial economic
damage to the Company or a subsidiary corporation or parent corporation of the
Company or substantial injury to the business reputation of the Company or a
subsidiary corporation or parent corporation of the Company; (ii) the
commission by an employee of an act of fraud in the performance of such
employee's duties on behalf of the Company or a subsidiary corporation or
parent corporation of the Company; (iii) the continuing willful failure of an
employee to perform the duties of such employee to the Company or a subsidiary
corporation or parent corporation of the Company (other than such failure
resulting from the employee's incapacity due to physical or mental illness)
after written notice thereof (specifying the particulars thereof in reasonable
detail) and a reasonable opportunity to be heard and cure such failure are
given to the employee by the Board of Directors; or (iv) the order of a court
of competent jurisdiction requiring the termination of the employee's
employment. For purposes of the Plan, no act, or failure to act, on the
employee's part shall be considered "willful" unless done or omitted to be done
by the employee not in good faith and without reasonable belief that the
employee's action or omission was in the best interest of the Company or a
subsidiary corporation or parent corporation of the Company.
E. For the purposes of the Plan, an employment relationship shall
be deemed to exist between an individual and a corporation if, at the time of
the determination, the individual was an "employee" of such corporation for
purposes of Section 422(a) of the Code. If an individual is on maternity,
military, or sick leave or other bona fide leave of absence, such individual
shall be considered an "employee" for purposes of the exercise of an Option and
shall be entitled to exercise such Option during such leave if the period of
such leave does not exceed ninety (90) days, or if longer, so long as the
individual's right to reemployment with his employer is guaranteed either by
statute or by contract. If the period of leave exceeds ninety (90) days, the
employment relationship shall be deemed to have terminated on the ninety-first
(91) day of such leave, unless the individual's right to reemployment is
guaranteed by statute or contract.
F. A termination of employment shall not be deemed to occur by
reason of (i) the transfer of a Participant from employment by the Company to
employment by a subsidiary corporation or a parent corporation of the Company,
or (ii) the transfer of a Participant from employment by a subsidiary
corporation or a parent corporation of the Company to employment by the Company
or by another subsidiary corporation or parent corporation of the Company.
XI. RIGHT TO TERMINATE EMPLOYMENT.
------------------------------
The Plan shall not impose any obligation on the Company or on any
subsidiary corporation or parent corporation thereof to continue the employment
of any Participant; and it shall not impose any obligation on the part of any
Participant to remain in the employ of the Company or of any subsidiary
corporation or parent corporation thereof.
XII. PURCHASE FOR INVESTMENT.
------------------------
Except as hereafter provided, a Participant shall, upon any exercise of an
Option or Right, execute and deliver to the Company a written statement, in
form satisfactory to the Company, in which such Participant represents and
warrants that such Participant is purchasing or acquiring the Shares acquired
thereunder for such Participant's own account, for investment only and not with
a view to the resale or distribution thereof, and agrees that any subsequent
offer for sale or sale or distribution of any of such Shares shall be made only
pursuant to either (a) a Registration Statement on an appropriate form under
the Securities Act of 1933, as amended (the "Securities Act"), which
Registration Statement has become effective and is current with regard to the
Shares being offered or sold; or (b) a specific exemption from the registration
requirements of the Securities Act, but in claiming such exemption the holder
shall, if so requested by the Company, prior to any offer for sale or sale of
such Shares, obtain a prior favorable written opinion, in form and substance
satisfactory to the Company, from counsel for or approved by the Company, as to
the applicability of such exemption thereto. The foregoing restriction shall
not apply to (i) issuances by the Company so long as the Shares being issued
are registered under the Securities Act and a prospectus in respect thereof is
current, or (ii) reofferings of Shares by affiliates of the Company (as defined
in Rule 405 or any successor rule or regulation promulgated under the
Securities Act) if the Shares being reoffered are registered under the
Securities Act and a prospectus in respect thereof is current.
XIII. EXCHANGE, S.E.C. OR OTHER GOVERNMENTAL REQUIREMENTS.
----------------------------------------------------
If any law or regulation of the Securities and Exchange Commission, any
stock exchange, NASDAQ, or any governmental body having jurisdiction shall
require any action to be take in connection with the issuance of shares
pursuant to an Option under this Plan before shares can be delivered to an
Optionee, then the date for issuance of these shares shall be postponed until
such action can be taken.
XIV. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
-----------------------------------------------------
Subject to any required action by the shareholders of the Company, the
number of shares of Common Stock covered by each outstanding Option, and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as
the price per share of Common Stock covered by each such outstanding Option,
shall be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, reverse stock
split, stock dividend, combination or reclassification of the Common Stock, or
any other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be
deemed to have been "effected without receipt of consideration". Such
adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the Company,
the Option will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. The Board may, in the
exercise of its sole discretion in such instances, declare that any Option
shall terminate as of a date fixed by the Board and give each Optionee the
right to exercise his Option as to all or any part of the Optioned Stock,
including Shares as to which the Option would not otherwise be exercisable. In
the event of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation, the
Option shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless such successor corporation does not agree to assume the Option or to
substitute an equivalent option, in which case the Board shall, in lieu of such
assumption or substitution provide for the Optionee to have the right to
exercise the Option as to all of the Optioned Stock, including Shares as to
which the Option would not otherwise be exercisable. If the Board makes an
Option fully exercisable in lieu of assumption or substitution in the event of
a merger or sale of assets, the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of fifteen (15) days from the date of
such notice, and the Option will terminate upon the expiration of such period.
If, as a result of accelerating the time period during which all Options
are exercisable in full in the event of a merger or asset transaction, any
Optionee would incur liability under Section 16(b) of the Securities Exchange
Act of 1934 as a result of the exercise of an accelerated Option, such Optionee
may request the Company to, and the Company shall be obligated to repurchase
such Option for cash equal to the excess of the fair market value on the
advanced termination date of the shares subject to the Option over the Option
exercise price.
XV. ORDER OF EXERCISE OF OPTIONS.
-----------------------------
No Option issued pursuant to this Plan shall be exercisable so long as
there is any outstanding Option issued at an earlier date with respect to such
Employee; Options must be exercised in the order in which they are granted.
Notwithstanding anything in this Plan to the contrary in connection with any
corporate transaction to which Section 425(a) of the Code is applicable, there
may be a substitution of a new Option for an old Option granted under this
Plan, or an assumption of an old Option granted under this Plan. Any Optionee
who has a new Option submitted for an old Option granted under this Plan shall,
in connection with the corporate transaction, lose his rights under the old
Option. Nothing in the terms of the assumed or substituted Option shall confer
upon the Optionee more favorable benefits than he had under the old Option.
XVI. CHANGE IN CONTROL.
------------------
A. For purposes of the Plan, a "change in control" of the Company
occurs if (i) any "person" (defined as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act, as amended) is or becomes the beneficial owner,
directly or indirectly) of securities of the Company representing fifty percent
(50%) or more of the combined voting power of the Company's outstanding
securities than entitled to vote for the election of directors; or (ii) during
any period of two (2) consecutive years, individuals who at the beginning of
such period constitute the Board of Directors cease for any reason to
constitute at least a majority thereof; or (iii) the Board of Directors shall
approve the sale of all or substantially all of the assets of the Company or
any merger, consolidation, issuance of securities or purchase of assets, the
result of which would be the occurrence of any event described in clause (i) or
(ii) above.
B. In the event of a change in control of the Company (defined
above), the Committee, in its discretion, may determine that, upon the
occurrence of a transaction described in the preceding paragraph, each Option
outstanding hereunder shall terminate within a specified number of days after
notice to the holder, and such holder shall receive, with respect to each Share
subject to such Option, an amount of cash equal to the excess of the fair
market value of such Share immediately prior to the occurrence of such
transaction over the exercise price per Share of such Option. The provisions
contained in the preceding sentence shall be inapplicable to an Option granted
within six (6) months before the occurrence of a transaction described above if
the holder of such Option is a director or officer of the Company or a
beneficial owner of the Company who is described in Section 16(a) of the
Exchange Act, unless such holder dies or becomes disabled (within the meaning
of Section 22(e)(3) of the Code) prior to the expiration of such six-month
period.)
C. Alternatively, the Committee may determine, in its discretion,
that all then outstanding Options shall immediately become exercisable upon a
change of control of the Company.
XVII. WITHHOLDING TAXES.
------------------
The Company may require an employee exercising a Non-Qualified Option
granted hereunder, or disposing of Shares acquired pursuant to the exercise of
an Incentive Option in a disqualifying disposition (within the meaning of
Section 421(b) of the Code), to reimburse the corporation that employs such
employee for any taxes required by any government to be withheld or otherwise
deducted and paid by such corporation in respect of the issuance or disposition
of such Shares. In lieu thereof, the employer corporation shall have the right
to withhold the amount of such taxes from any other sums due or to become due
from such corporation to the employee upon such terms and conditions as the
Committee shall prescribe. The employer corporation may, in its discretion,
hold the stock certificate to which such employee is entitled upon the exercise
of an Option as security for the payment of such withholding tax liability,
until cash sufficient to pay that liability has been accumulated.
XVIII. AMENDMENT OF THE PLAN.
----------------------
The Board of Directors or the Committee may, from time to time, amend the
Plan, provided that, notwithstanding anything to the contrary herein, no
amendment shall be made, without the approval of the shareholders of the
Company, that will (i) increase the total number of Shares reserved for Options
under the Plan (other than an increase resulting from an adjustment provided
for in Article X, Termination of Directorship or Employment), (ii) reduce the
exercise price of any Incentive Option granted hereunder below the price
required by Article IX, Method of Determination of Fair Market Value; (iii)
modify the provisions of the Plan relating to eligibility, or (iv) materially
increase the benefits accruing to participants under the Plan. The Board of
Directors or the Committee shall be authorized to amend the Plan and the
Options granted thereunder to permit the Incentive Options granted thereunder
to qualify as "incentive stock options" within the meaning of Section 422 of
the Code. The rights and obligations under any Option granted before
amendment of the Plan or any unexercised portion of such Option shall not be
adversely affected by amendment of the Plan or the Option without the consent
of the holder of the Option.
XIX. TERMINATION OR SUSPENSION OF THE PLAN.
--------------------------------------
The Board of Directors or the Committee may at any time and for any or no
reason suspend or terminate the Plan. The Plan, unless sooner terminated under
Article V, Effective Date and Term of the Plan, or by action of the Board of
Directors, shall terminate at the close of business on the Termination Date.
An Option may not be granted while the Plan is suspended or after it is
terminated. Options granted while the Plan is in effect shall not be altered
or impaired by suspension or termination of the Plan, except upon the consent
of the person to whom the Option was granted. The power of the Committee under
Article II to construe and administer any Options granted prior to the
termination or suspension of the Plan shall continue after such termination or
during such suspension.
XX. GOVERNING LAW.
--------------
The Plan, such Options as may be granted thereunder, and all related
matters shall be governed by, and construed and enforced in accordance with,
the laws of the State of Colorado from time to time obtaining.
<PAGE>
XXI. PARTIAL INVALIDITY.
-------------------
The invalidity or illegality of any provision herein shall not be deemed
to affect the validity of any other provision.
XXII. The foregoing Stock Incentive Plan of Redwood Broadcasting, Inc.
was approved by a majority of the Board of Directors of the Company at a
special meeting of the Board of Directors on December 5, 1995.
REDWOOD BROADCASTING, INC.
By: ------------------------------
Corporate Officer
The foregoing Stock Incentive Plan of Redwood Broadcasting, Inc. was
approved by a majority of the shareholders of the Company at a Special Meeting
of Shareholders on January 29, 1996.
By: ----------------------------------
Corporate Officer
EXHIBIT 5.0
January 2, 1997
Redwood Broadcasting, Inc.
7518 Elbow Bend Road, Bldg. A, Ste. I
P.O. Box 3458
Carefree, Arizona 85377
Re: Pre-Effective Amendment No. 2 to S.E.C. Registration Statement on
Form SB-2
Ladies and Gentlemen:
We have acted as counsel to Redwood Broadcasting, Inc. (the "Company") in
connection with Pre-Effective Amendment No. 2 to Registration Statement to be
filed with the United States Securities and Exchange Commission, Washington,
D.C., pursuant to the Securities Act of 1933, as amended, covering the
registration of an aggregate of 1,200,437 shares of the Company's $0.004 par
value common stock (the "Common Stock") and 203,008 Common Stock Put Options.
In connection with such representation of the Company, we have examined such
corporate records, and have made such inquiry of government officials and
Company officials and have made such examination of the law as we deemed
appropriate in connection with delivering this opinion.
Based upon the foregoing, we are of the opinion as follows:
1. The Company has been duly incorporated and organized under the laws
of the State of Colorado and is validly existing as a corporation in good
standing under the laws of that state.
2. The Company's authorized capital consists of twelve million five
hundred thousand (12,500,000) shares of Common Stock having a par value of
$0.004 each and two million five hundred thousand (2,500,000) shares of
preferred stock having a par value of $.04 per share.
3. The 300,008 shares of the Company's Common Stock to be distributed by
Cell Robotics International, Inc. ("CRI") to the shareholders of record of CRI
as of December 16, 1994 pursuant to the terms of the Agreement and Plan of
Reorganization between and among CRI, Cell Robotics, Inc., a New Mexico
corporation ("Cell"), MiCEL, Inc., a Delaware corporation, and others, dated as
of December 12, 1994 (the "CRI Agreement"), more fully described in the
Registration Statement, are duly and validly authorized, legally issued, fully
paid and nonassessable shares of the Company's Common Stock.
4. The 400,000 shares of Common Stock being registered for sale and
offered by the Company shall, upon valid issuance thereof as more fully
described in the Registration Statement, be duly and validly authorized,
legally issued, fully paid and non-assessable shares of the Company's Common
Stock.
5. The 203,008 shares of the Company's Common Stock Put Options to be
issued pursuant to the terms of the Agreement and Plan of Reorganization
between and among the Company, Redwood Broadcasting, Inc., a Colorado
corporation ("RBI") and Redwood MicroCap Fund, Inc., a Colorado corporation
("MicroCap") dated as of June 16, 1995 (the "RBI Agreement") shall, upon valid
issuance thereof as more fully described in the Registration Statement, be duly
and validly authorized, legally issued, and fully exercisable in accordance
with their respective terms and conditions.
6. The 500,429 shares of Common Stock being registered for sale and
offered by the Selling Shareholders as more fully described in the Registration
Statement are lawfully and validly issued, fully paid and non-assessable shares
of the Company's Common Stock.
Sincerely,
Clifford L. Neuman
CLN:at
AGREEMENT TO CONVERT DEBT
THIS AGREEMENT is made and entered into this 30th day of September, 1995,
by and between INTELLIGENT FINANCIAL HOLDING CORPORATION, a Colorado
corporation ("IFHC" or the "Company"), and REDWOOD MICROCAP FUND, INC., a
Colorado corporation ("Redwood" or "Claimant").
WITNESSETH
WHEREAS, IFHC has an outstanding account with or is otherwise obligated to
Claimant in the particulars hereinbelow set forth; and
WHEREAS, IFHC desires to satisfy that obligation by the issuance to
Claimant of shares of its $.004 par value Common Stock (the "Shares"); and
WHEREAS, Claimant is willing to accept said Shares in lieu of cash or
money payment of IFHC's obligation to it;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinbelow set forth, and for such good and other valuable consideration, the
receipt and sufficiency whereof is hereby acknowledged, the parties agree as
follows:
SECTION I.: CONVERSION OF DEBT
- --------------------------------
A. Claimant and IFHC affirm and agree that as of the date of this
Agreement, IFHC or its affiliates or subsidiaries is indebted to Claimant in
the principal amount of $180,000.00 together with all accrued and unpaid
interest thereon (the "Indebtedness").
B. Subject to, among other things, the grant and issuance of the
Shares pursuant to the terms hereof, Claimant, for its self, successors in
interest and assigns, hereby agrees to accept 150,000 Shares (the "Conversion
Shares") in full satisfaction and payment of the Indebtedness.
C. Claimant agrees that upon the issuance of the Conversion Shares,
Claimant, for itself, successors in interest and assigns, shall be deemed to
have released and forever discharged IFHC, its officers, directors,
shareholders, affiliates, employees and agents, from any liability, payment or
obligation whatsoever in connection with or arising out of the Indebtedness.
Claimant's acceptance of such Shares shall constitute a full and complete
release, settlement and discharge of any of IFHC's obligation to Claimant, in
connection with the Indebtedness, without the necessity of Claimant executing
any further documentation, release or settlement agreement; it being the
express understanding of the parties hereto that this Agreement, upon its
performance, shall constitute such evidence of release and discharge.
D. With respect to accepting the Shares in lieu of other forms of
payment of the Indebtedness, Claimant represents and warrants as follows:
1. Claimant fully understands that the number of Shares to
be granted in satisfaction of the Indebtedness was arbitrarily determined
without regard to any value of the Shares or the shares of Common Stock
issuable upon exercise of the Shares.
2. Claimant fully understands that the issuance of the
Shares shall be made only pursuant to an effective Registration Statement to be
filed by the Company under the Act and the delivery by the Company of a
Prospectus conforming to the requirements of Section 10(a) of the Act (the
"Prospectus").
3. The Claimant will accept the Shares in satisfaction of
the Indebtedness, subject to all of the risk factors and other disclosures more
fully set forth by the Company in the Prospectus.
SECTION II.: REPRESENTATIONS AND WARRANTIES BY IFHC
- ----------------------------------------------------
IFHC represents and warrants to Claimant that, as of the date of this
Agreement, and as of the date of closing:
A. ORGANIZATION AND CORPORATION POWER.
-----------------------------------
The Company is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Colorado; and has all
required corporate power and authority to own its property and to carry on its
business as now being conducted, and to carry out the transactions contemplated
hereby.
B. AUTHORIZATION.
--------------
1. The execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby will not, violate any
provision of any charter, by-law, mortgage, lien, lease, agreement, contract,
instrument, order judgment, or decree to which the Company is a party, or by
which it is bound, and will not violate any other restriction of any other kind
or character of which Company is subject.
2. The Board of Directors of the Company has taken or will
take all action required by law, the Company's Articles of Incorporation and
By-Laws, or otherwise, to authorize execution and delivery of this Agreement,
the Shares and the consummation of the transactions described herein.
3. This Agreement, upon execution and delivery in
accordance herewith, is the valid and binding obligation of the Company,
enforceable in accordance with its terms, subject to the terms of bankruptcy
and similar laws, and any rules and regulations adopted thereunder. The
execution, delivery and performance of this Agreement have been duly authorized
by all necessary corporate and other action.
C. CAPITALIZATION.
---------------
There are sufficient authorized shares of Common Stock of the
Company to cover the issuance of all shares to be issued and sold pursuant to
this Agreement. There are no restrictions on the transferability of shares of
the Company's Common Stock imposed by or pursuant to the Company's Articles of
Incorporation, as amended, or the Company's By-Laws, or by agreement to which
the Company is a party, except for restrictions imposed by or on account of
federal and state securities laws. The common shareholders of the Company have
no preemptive rights with respect to the issue or sale of the Company's Common
Stock.
SECTION III.: MISCELLANEOUS
- ---------------------------
A. PAYMENT OF EXPENSES OF PREVAILING PARTY IN DISPUTE.
---------------------------------------------------
Unless otherwise specifically provided for herein, in the event
that there is a dispute concerning this Agreement, including, without
limitation, the issue of compliance with any term of this Agreement, the court
may in its discretion, direct that the prevailing party shall be entitled to
reimbursement from the other party of reasonable attorneys' fees and other
expenses incurred in resolving the said dispute.
B. SURVIVAL AND INCORPORATION OF REPRESENTATIONS.
----------------------------------------------
The representations, warranties, covenants and agreements made
herein or in any certificates or documents executed in connection herewith
shall survive the execution and delivery thereof, and all statements contained
in any certificate or other document delivered by the Company hereunder or in
connection herewith shall be deemed to constitute representations and
warranties made by the Company in this Agreement.
C. AMENDMENTS AND WAIVERS.
-----------------------
This Agreement may not be amended, nor may compliance with any
term, covenant, agreement, condition or provision set forth herein be waived
(either generally or in a particular instance and either retroactively or
prospectively) unless such amendment or waiver is agreed to in writing by all
parties hereto.
D. GOVERNING LAW.
--------------
This Agreement shall be construed and enforced in accordance
with and governed by the laws of the State of Colorado.
E. COUNTERPARTS.
-------------
This Agreement may be executed by telex, telecopy or other
facsimile transmission, and such facsimile transmission shall be valid and
binding to the same extent as if it were an original. Further, this Agreement
may be executed in counterparts, each of which shall be deemed an original, but
all of which shall together constitute one agreement.
F. SEVERABILITY.
-------------
Wherever there is any conflict between any provision of this
Agreement and any statute, law, regulation or judicial precedent, the latter
shall prevail, but in such event the provisions of this Agreement thus affected
shall be curtailed and limited only to the extent necessary to bring it within
the requirement of the law. In the event that any part, section, paragraph or
clause of this Agreement shall be held by a court of proper jurisdiction to be
invalid or unenforceable, the entire Agreement shall not fail on account
thereof, but the balance of the Agreement shall continue in full force and
effect unless such construction would clearly be contrary to the intention of
the parties or would result in unconscionable injustice.
G. ENTIRE AGREEMENT.
-----------------
This Agreement constitutes the entire agreement of the parties
hereto with respect to the subject matter hereof. There are no
representations, warranties, conditions, or obligations except as herein
specifically provided. Any amendment or modification hereof must be in
writing.
IN WITNESS WHEREOF, the parties have signed the Agreement the date and
year first above written.
INTELLIGENT FINANCIAL HOLDING CORPORATION, a
Colorado corporation
Attest:
_______________________________ By: ______________________________________
Secretary
CLAIMANT:
REDWOOD MICROCAP FUND, INC., a Colorado
corporation
Attest:
________________________________ By: _______________________________________
Secretary
REDWOOD BROADCASTING, INC.
SELECTED DEALER AGREEMENT
Redwood Broadcasting, Inc., a Colorado corporation (the "Company"),
invites your participation as a selected dealer ("Selected Dealer") in an
offering of the Company's Common Stock, $.004 par value ("Common Stock"), at a
price of $2.00 per share. The offering is being made by the Company on a
$800,000 best-efforts basis. The offering is being undertaken pursuant to a
Registration Statement (the "Registration Statement") and Prospectus (the
"Prospectus") included therein which has been filed with the Securities and
Exchange Commission on Form SB-2 under the Securities Act of 1933, as amended
(the "Securities"), and pursuant to filings that have been made or will be made
with the applicable authorities of states in which the offering will be
undertaken. The Company is offering the Shares subject to the terms of the
Prospectus. This invitation is made by the Company only if the Company's
Shares may be lawfully offered by the Selected Dealer in the states in which
the Selected Dealer is registered as a broker-dealer. The terms and conditions
of this invitation are as follows:
1. COMPLIANCE WITH TERMS OF OFFERING.
Orders received from the Selected Dealer will be accepted only at the
price, in the amounts and on the terms which are set forth in the Prospectus.
2. SELLING CONCESSION.
As a Selected Dealer, you will be allowed, on all Shares sold by you,
a commission of ten percent (10%) of the purchase price of the Shares.
3. STATUS OF SELECTED DEALER.
The Selected Dealer agrees to purchase the Company's Common Stock for
its customers, and all such purchases shall be made only upon orders already
received by the Selected Dealer from its customers. In all sales of the
Company's Shares to the public, the Selected Dealer shall confirm as agent for
another. The Selected Dealer agrees that it will make no sales to any accounts
over which it exercises discretionary authority.
4. SUBSCRIPTION PROCEDURE.
a. No sales shall be solicited by the Selected Dealer without first
having delivered to each Offeree a copy of the Company's Prospectus in the form
prepared by the Company and made available to Selected Dealer.
b. All sales shall be made pursuant to the completion and execution
of a confirmation in the form available to Selected Dealer.
5. ACCEPTANCE.
The Selected Dealer will promptly transmit (by noon of the next
business day following receipt) to the Company all complying funds received
from investors and a confirmation and a record of each sale which sets forth
the name, address, Social Security number of each individual beneficial
purchaser, the number of shares purchased, and, if there is more than one
registered owner, whether the certificates evidencing the Shares purchased are
to be issued to the purchasers in joint tenancy or otherwise.
6. BLUE SKY APPROVAL AND REJECTION OF SALES.
The Company will notify each Selected Dealer of the states in which
the Shares have been approved for sale. Each Selected Dealer shall report in
writing to the Company the amount and number of the Company's Securities which
have been sold in each state and the number of persons in each such state who
purchased Company Shares through the Selected Dealer. The Company does not
assume any responsibility or obligation with respect to the right of any
Selected Dealer to sell Shares in any state. Any sale may be rejected by the
Company for any reason and, if rejected, all funds paid by the purchaser which
have been received will be returned to the purchaser, without interest.
7. PAYMENT.
Payment for the Company's Shares shall accompany all confirmations.
All checks and other orders for the payment of money shall be made payable to
"Redwood Broadcasting, Inc." Shares sold by the Selected Dealer shall be
available for delivery at the Company, unless other arrangements are made for
delivery.
8. SELECTED DEALER'S UNDERTAKINGS.
a. No person is authorized to make any representations concerning
the Company's Shares except those contained in the Prospectus and amendments or
supplements, if any. The Selected Dealer agrees not to use any supplemental
sales literature of any kind without written approval of the Company unless it
is furnished by the Company for such purpose. In offering and selling the
Company's Shares, the Selected Dealer will rely solely on the representations
contained in the Prospectus. Copies of the Prospectus will be supplied by the
Company in reasonable quantities upon request.
b. The Selected Dealer will not offer or sell the Shares in any
jurisdiction except those with respect to which the Company has advised you
that such offers or sales will be permissible under the state securities or
Blue Sky Laws of the respective jurisdictions (notwithstanding any information
furnished or any action taken in connection therewith, the Company shall have
no obligation or responsibility with respect to the registration or
qualification of the Shares in any jurisdiction or the right of any Selected
Dealer to sell or advertise them therein) and that, in the event that you sell
any Shares in jurisdictions where the Shares have not been registered or
qualified, you will accept sole responsibility for any curative measures with
respect to, or liability arising from, such sales.
c. The Selected Dealer will comply with Sections 8, 24, 25 and 36
of Article III of the NASD Rules of Fair Practice.
d. The Selected Dealer will comply with all applicable provisions
of federal and state securities laws in connection with the sale of the Shares
to its customers, including, if applicable, Rule 15c2-6. In furtherance of
this undertaking, the Selected Dealer agrees not to engage in any "parking
arrangements" or "multiple tying arrangements" or accept any after market
orders for Company common stock prior to the closing of the offering.
9. CONDITIONS OF OFFERING.
All sales will be subject to delivery by the Company of certificates
evidencing the Shares. The Company shall have full authority to take such
action as it deems advisable in respect to matters pertaining to the offering.
The Company shall incur no liabilities to the Selected Dealer except as may be
incurred under the Securities Act of 1933, as amended, for lack of good faith
or for obligations assumed in this Agreement. Nothing contained in this
Agreement shall be deemed a guarantee or commitment on the part of the Company
that Shares will be available for sale to customers of the Selected Dealer.
10. FAILURE OF ORDER.
If an order is rejected or if a payment is received which proves
insufficient or worthless, any compensation paid to the Selected Dealer shall
be returned either by the Selected Dealer's remittances in cash or by a charge
against the account of the Selected Dealer, as the Company may elect.
<PAGE>
11. REPRESENTATIONS AND AGREEMENTS OF SELECTED DEALER.
By accepting this Agreement, the Selected Dealer represents that
a. it is registered as a broker-dealer under the Securities
Exchange Act of 1934, as amended;
b. it is qualified to act as a broker-dealer in the state or other
jurisdictions in which it offers the Company's Shares;
c. it is a member in good standing of the National Association of
Securities Dealers, Inc.; and will maintain such registrations, qualifications
and memberships throughout the term of this Agreement.
d. The Selected Dealer agrees to comply with all applicable federal
laws; the laws of the states or other jurisdictions concerned; and the Rules
and Regulations of the National Association of Securities Dealers, Inc.,
including, without limitation, Sections 8, 24, 25 and 36 of the Rules of Fair
Practice.
e. The Selected Dealer agrees that it will not offer or sell the
Company's Shares in any state or jurisdiction in which it is illegal to offer
or sell the Shares.
f. The Selected Dealer shall not be entitled to any compensation
during any period in which it has been suspended or expelled from membership in
the National Association of Securities Dealers, Inc.
12. SELECTED DEALER'S EMPLOYEES.
By accepting this Agreement, the Selected Dealer has assumed full
responsibility for thorough and proper training of its representatives
concerning the selling methods to be used in connection with the offer and sale
of the Company's Shares giving special emphasis to the principles of full and
fair disclosure to prospective investors and the prohibitions against "Free-
Riding and Withholding".
13. COMPANY'S INDEMNIFICATION.
The Company agrees to indemnify, defend and hold the Selected Dealer
and each person, if any, who controls the Selected Dealer within the meaning of
Section 15 of the Act, free and harmless from and against any and all losses,
claims, demands, liabilities and expenses (including reasonable legal or other
expenses incurred by each such person in connection with defending or
investigating any such claims or liabilities, whether or not resulting in any
liability to such person), which the Selected Dealer or controlling person may
incur under the federal or state securities laws and regulations thereunder,
state statutes or at common law or otherwise, but only to the extent that such
losses, claims, demands, liabilities and expenses shall arise out of or be
based upon a violation or alleged violation of the federal or state securities
laws and regulations thereunder, state statutes or the common law, including
any untrue statement or alleged untrue statement of material fact required to
be stated in the Prospectus, or in any amendment or amendments to the
Prospectus, or in any application or other papers (hereinafter collectively
called "Blue Sky Application"), or shall rise out of or be based upon any
omission or alleged omission to state therein a material fact required to be
stated in the Prospectus, in any amendment or amendments, in any Blue Sky
Application, or necessary to make the statements in any thereof not misleading,
provided, however, that this indemnity agreement shall not apply to any such
losses, claims, demands, liabilities, or expenses arising out of or based upon
any such violation, statement or omission made in reliance upon information
furnished to the Company by the Selected Dealer in writing expressly for use in
the Prospectus or in any amendment or amendments or in a Blue Sky Application.
The Selected Dealer agrees to give the Company an opportunity to participate in
the defense or preparation of the defense of any action brought against the
Selected Dealer or controlling person of the Selected Dealer to enforce any
such claim or liability and the Company shall have the right to so participate.
The agreement of the Company under this indemnity is expressly conditioned upon
notice of any such action having been sent by the Selected Dealer or
controlling person, as the case may be, to the Company, by letter or telegram,
promptly after the commencement of such an action against the Selected Dealer
or controlling person, such notice either being accompanied by copies of papers
served or filed in connection with such action or by a statement of the nature
of the action to the extent known to the Selected Dealer. Failure to notify
the Company within a reasonable amount of time of any such action shall relieve
the Company of its liabilities under the foregoing indemnity, but failure to
notify the Company as herein provided shall not relieve it from any liability
which it may have to the Selected Dealer or controlling persons other than on
account of the indemnity agreement. The foregoing described indemnity of the
Company in favor of the Selected Dealer and controlling persons shall not be
deemed to protect the Selected Dealer and controlling persons against any
liability to which the Selected Dealer or controlling persons would otherwise
be subject by reason of willful misfeasance, bad faith, or gross negligence in
the performance of their duties, or by reasons of their reckless disregard of
their obligations and duties under this Agreement.
14. SELECTED DEALER'S INDEMNIFICATION.
The Selected Dealer hereby agrees to indemnify and to hold harmless
the Company and each person, if any , who controls the Company within the
meaning of Section 15 of the Act, against any and all losses, claims, damages,
or liabilities to which the Company may become subject under the Act, or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon information contained in the
Prospectus, or other document filed with the Securities and Exchange
Commission, to the extent such information is supplied by the Selected Dealer
to the Company for inclusion therein, or are based upon alleged
misrepresentations or omissions to state material facts in connection with the
statements made by the Selected Dealer or the Selected Dealer's salesmen orally
or by other means, or are based upon the Selected Dealer's offers or sales of
Shares made in any state or other jurisdiction in violation of such state's or
other jurisdiction's laws or regulations; and the Selected Dealer will
reimburse the Company for any legal or other expenses reasonably incurred in
connection with the investigation of or the defending of any such action or
claim. The Company shall, after receiving the first Summons or other legal
process disclosing the nature of the action being served upon it in any
proceeding in respect of which indemnity may be sought by the Company
hereunder, promptly notify the Selected Dealer in writing of the commencement
thereof. In case any such litigation be brought against the Company, the
Company shall notify The Selected Dealer of the commencement thereof, and the
Selected Dealer shall be entitled to participate in (and, to the extent the
Selected Dealer shall wish, to direct) the defense thereof at the Selected
Dealer's own expense, but such defense shall be conducted by counsel of good
standing satisfactory to the Company. If the Selected Dealer shall fail to
provide such defense, the Company may defend such action at the Selected
Dealer's cost and expense. The Selected Dealer's obligation under this
paragraph shall survive the termination of this Agreement.
15. EXPENSES.
The Selected Dealer will be responsible for its share of any
liability or expenses as a result of any tax, claim or the expenses of
resisting a claim imposed in connection with the offering of the Shares, except
those expenses which may be covered by the Company's indemnification described
in Paragraph 14.
16. USE OF SELECTED DEALER'S NAME.
The Selected Dealer authorizes the Company to determine the form and
manner of any public advertisement of the Shares including using the Selected
Dealer's name in the advertisement.
17. COMMUNICATIONS.
All communications to the Company should be sent to the address shown
in this Agreement. Any notice to the Selected Dealer shall be properly given
if mailed or telephoned to the Selected Dealer below.
18. ASSIGNMENT AND TERMINATION.
This Agreement may not be assigned by the Selected Dealer without the
Company's consent. This Agreement will terminate upon the termination of the
offering except that the Company may terminate this Agreement at any time by
giving written notice to the Selected Dealer.
IN WITNESS WHEREOF, the parties have signed this Agreement this _____ day
of January, 1997.
REDWOOD BROADCASTING, INC.
715 Elbow Bend Road, Bldg. A, Ste. I
P.O. Box 3658
Carefree, Arizona 85377
By: _________________________________________
ACCEPTANCE BY SELECTED DEALER
Firm Name: _______________________________________
By: ______________________________________________
Address: _________________________________________
__________________________________________________
Telephone No. ____________________________________
IRS Employer Identification No. __________________
Date: ____________________________________________
Share Allocation: ________________________________
EXHIBIT 23.1
January 2, 1997
Redwood Broadcasting, Inc.
7518 Elbow Bend Rd., Bldg. A, Ste. I
P.O. Box 3458
Carefree, Arizona 85377
Re: Pre-Effective Amendment No. 2 to S.E.C. Registration Statement on
Form SB-2
Ladies and Gentlemen:
We hereby consent to the inclusion of our opinion regarding the legality
of the securities being registered by the Form SB-2 Registration Statement to
be filed with the United States Securities and Exchange Commission, Washington,
D.C., pursuant to the Securities Act of 1933, as amended, by Redwood
Broadcasting, Inc., a Colorado corporation (the "Company"), in connection with
the offering by the Company and certain Selling Shareholders described therein
of up to 1,200,437 shares of its Common Stock and up to 203,008 Common Stock
Put Options, as proposed and more fully described in such Registration
Statement.
We further consent to the reference in such Registration Statement to our
having given such opinions.
Sincerely,
Clifford L. Neuman
CLN:at
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated June 6, 1996 accompanying the financial
statements of Redwood Broadcasting, Inc. and Consolidated subsidiaries. We
have also issued our report dated December 4, 1995 accompanying the financial
statements of KHSL-AM/FM. In addition we have issued our report dated June 1,
1996 accompanying the financial statements of Quality Broadcasters of
California, L.P. We consent to the use of the aforementioned reports in
registration statement and prospectus of Redwood Broadcasting, Inc. and to the
reference of our firm as experts in the filing and prospectus.
SCHUMACHER & ASSOCIATES, INC.
12835 East Arapahoe Road
Tower II, Suite #110
Englewood, Colorado 80112
December 27, 1996
