-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LB1osWb0zOfzijBieUzp5UkfA9WqvUJ2G+hLfcYlJaOYHatnfPZ4qk9EZZlq8Bpr 48dEguV+njPQqrmCJDHMgw== 0001004991-98-000004.txt : 19980723 0001004991-98-000004.hdr.sgml : 19980723 ACCESSION NUMBER: 0001004991-98-000004 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980714 DATE AS OF CHANGE: 19980721 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: REDWOOD BROADCASTING INC CENTRAL INDEX KEY: 0001004991 STANDARD INDUSTRIAL CLASSIFICATION: 4832 IRS NUMBER: 840928022 STATE OF INCORPORATION: CO FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 033-80321 FILM NUMBER: 98668189 BUSINESS ADDRESS: STREET 1: 7518 ELBOW BEND RD P O BOX 3463 STREET 2: BLDG A STE I CITY: CAREFREE STATE: AZ ZIP: 85377 BUSINESS PHONE: 6024882596 MAIL ADDRESS: STREET 1: 7518 ELBOW BEND RD P O BOX 3463 STREET 2: BLDG A STE I CITY: CAREFREE STATE: AZ ZIP: 85377 FORMER COMPANY: FORMER CONFORMED NAME: INTELLIGENT FINANCIAL HOLDING CORP DATE OF NAME CHANGE: 19951215 10KSB 1 10KSB U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 1998 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 33-80321 REDWOOD BROADCASTING, INC. (Name of Small Business Issuer in Its Charter) Colorado 84-1295270 (State or Other Jurisdiction (I.R.S. Employer of Incorporation) Identification No.) 11 Sundial Circle, Suite #17 P.O. Box 3463 Carefree, AZ 85377 (Address of Principal Executive Offices) (Zip Code) Issuer's telephone number, including area code: (602) 488-2596 Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK, $.004 PAR VALUE (Title of Class) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-KSB or any amendment to this Form 10-KSB. [X] The registrant's gross revenues for the fiscal year-ended March 31, 1997 were $545,185. The aggregate market value of the Common Stock (one vote per share) held by non-affiliates as of July 14, 1998 was $598,332. The number of shares of the registrant's .004 par value Common Stock outstanding as of July 14, 1998 was 1,410,000. Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ] PART I ITEM 1. DESCRIPTION OF BUSINESS GENERAL Redwood Broadcasting, Inc., f/k/a Intelligent Financial Holding Corporation (the "Company" or "RBI") and its subsidiaries operate in the rapidly-developing and expanding radio broadcasting industry. Organized as a holding company for the purpose of acquiring and/or developing undervalued radio broadcasting properties located in small to medium sized markets, the Company has embarked upon an aggressive acquisition and development program and continues to seek acquisition and development opportunities in the broadcast industry. HISTORY Formation of the Company By agreement dated December 12, 1994, Cell Robotics International, Inc. f/k/a Intelligent Financial Corporation ("CRI") executed and entered into a definitive Agreement and Plan of Reorganization between and among CRI, Cell Robotics, Inc., a New Mexico corporation ("Cell"), MiCEL, Inc., a Delaware corporation, Bridgeworks Investors I, L.L.C., an Oregon limited liability company and Ronald K. Lohrding, individually (the "CRI Agreement"), providing inter alia, for the acquisition by CRI of 100% of the issued and outstanding equity securities of Cell. The CRI Agreement also provided for the formation of a new wholly-owned subsidiary of CRI and the transfer to the subsidiary of certain assets of CRI, subject to certain liabilities. The Company was formed on December 1, 1994, and in February, 1995, CRI transferred to the Company in a tax-free reorganization ("Reorganization") undertaken in reliance upon the provisions of Section 351 of the Internal Revenue Code of 1986, as amended, one hundred percent (100%) of CRI's real and personal property ("Property"), subject to certain liabilities ("Liabilities"), saving and excepting cash, cash equivalents or marketable securities having an aggregate fair market value of not less than $250,000 (collectively the "Retained Assets"), solely in exchange for 300,008 shares of the Company's $.004 par value common stock ("Spin-Off Shares"). Immediately following the Reorganization, CRI's assets consisted entirely of the Retained Assets and the Spin-Off Shares, and the Company became a wholly-owned subsidiary of CRI, owning the Property, subject to the Liabilities. Pursuant to the terms of the CRI Agreement, CRI further agreed to distribute the Spin-Off Shares to the shareholders of record of CRI ("CRI Shareholders") as of December 16, 1994 upon the effective date of a Registration Statement. Redwood Broadcasting, Inc. By agreement dated June 16, 1995, the Company acquired one hundred percent (100%) of the issued and outstanding shares of Common Stock of Redwood Broadcasting, Inc. ("Broadcasting") in exchange for 300,000 shares of Common Stock of the Company. Subsequent to the acquisition, Broadcasting was merged with and into the Company, with the Company remaining as the surviving entity. Thereafter, at a special meeting of the Company's shareholders, an amendment of the Company's Article of Incorporation was approved changing the Company's name to Redwood Broadcasting, Inc. Broadcasting was formed in 1993 as a majority-owned subsidiary of Redwood MicroCap Fund, Inc. (MicroCap) to pursue the acquisition of radio station KNBA (1190 AM) licensed to Vallejo, California. Broadcasting entered into a joint venture with Quick Broadcasting, Inc., an established broadcaster, and acquired KNBA in October, 1993. KNBA was attractive to Broadcasting because it was eligible for the "Expanded Band" which, if granted, would increase the station's broadcast capability. Greater signal strength would encompass more listeners which, in turn, would attract more advertising clients. In 1994, Broadcasting sold its 50% ownership interest in the joint venture to Quick Broadcasting, Inc. for $180,000 in cash and a three (3) year, pre-paid, agreement not to compete valued at $70,000. Broadcasting sold its interest in KNBA in order to focus its resources on wholly and majority-owned radio properties. KESP-FM During the year ended March 31, 1998, the Company was issued a construction permit for KESP-FM licensed to Payson, Arizona and began construction of the station. On March 31, 1998, the Company signed an agreement with Brentlinger Broadcasting, Inc. (Brentlinger) under which Brentlinger has the option to purchase the station assets for a period of three years after commencement of program test operations. The option price is $1.5 million within two years after commencement of program test operations or $1.75 million thereafter. Alta California Broadcasting, Inc. In 1994, Broadcasting formed its own wholly-owned subsidiary, Alta California Broadcasting, Inc. ("Alta"), to pursue radio acquisition opportunities it had determined were available in northern California. KHSL-AM\FM In June, 1994, Alta entered into an Asset Purchase Agreement to acquire radio stations KHSL-AM\FM licensed to Chico and Paradise, California, respectively ("KHSL Agreement"). The acquisition, valued at $1.15 million, included furniture and fixtures, broadcast equipment, broadcast licenses and 11.70 acres of real property located in Chico, California, zoned for residential housing development. On February 15, 1995, Alta commenced operating KHSL-AM\FM under a Local Management Agreement ("LMA"), while transfer applications were filed with the FCC to approve the change in ownership. On June 19, 1995, Alta completed the acquisition of KHSL-AM\FM ("KHSL Acquisition") resulting in the termination of the LMA. KHSL-FM has a country format and is located at 103.5 on the FM band. All programming for KHSL-FM originates at its studio in Chico. Subsequent to its acquisition by Alta, KHSL-AM changed its call letters and format. The new call letters are KNSN-AM. The new format is "Talk", and its programming is primarily originated through satellite delivery companies. In March, 1996, Alta entered into separate Asset Sale Agreements to sell the assets of both KNSN-AM and KHSL-FM, excluding the 11.70 acres of real property, in a transaction valued at $1.47 million. Concurrently with signing the Asset Purchase Agreements, Alta entered into an LMA with the prospective purchaser until the sale closes, at which time the LMA would terminate. Closing took place March 31, 1997. In April, 1996, the 11.70 acres of real property was sold to an unrelated party for $370,000. KRDG-FM (f/k/a KHZL and KCFM) In March, 1995, Alta entered into an LMA with an option to purchase radio station KCFM-FM licensed to Shingletown, California, which began commercial broadcasting, with a "Country" music format at 105.3 on the FM band in August, 1995. The source of its programming was simulcasting with KHSL-FM, through the use of high speed data transmission lines. KCFM-FM primarily serves the Redding, California market. In September, 1995, KCFM-FM changed its call letters to KHZL-FM. During the Company's review of KHZL-FM's performance, it was determined that a format change would best serve the goal of revenue enhancement. A new music format was developed using a satellite delivered "Oldies" format. In May, 1996, the Company filed for an upgrade to increase the station's broadcast power. In July, 1996, Alta completed the acquisition of KHZL-FM, thereby terminating the LMA. Effective September 27, 1996, Alta changed KHZL-FM's call letters to KRDG-FM. KNNN-FM In May, 1996, Alta entered into an Asset Purchase Agreement to acquire radio station KNNN-FM licensed to Central Valley, California. The Asset Purchase Agreement was subsequently assigned to Alta's wholly-owned subsidiary, Northern California Broadcasting, Inc. KNNN-FM primarily serves the Redding, California market and broadcasts an "Adult Contemporary" format at 99.3 on the FM band. In August, 1996,Northern began operating KNNN-FM under an LMA pending approval of the transfer of ownership by the FCC. In September, 1996. Northern completed the acquistion of KNNN-FM, thereby terminating the LMA. The Company has filed with the FCC for an upgrade to increase the station's broadcast power. The purchase price for KNNN was $825,000, $325,000 of which was paid in cash at closing, and the balance was paid in the form of a promissory note secured by the common stock of Northern California Broadcasting, Inc. and guaranteed by the Company. KLXR-AM In May, 1996, Alta entered into an Asset Purchase Agreement to acquire radio station KLXR-AM Licensed to Redding, California for $100,000. In February 1997, Alta entered into an LMA with the seller and, in April 1998, Alta completed the purchase of KLXR-AM for $100,000 cash. KRRX-FM (f/k/a KARZ-FM) and KNRO-AM Effective April 1, 1997, the Company, through Alta, acquired from Power Surge, Inc. a Delaware corporation ("Power Surge") an option to purchase radio broadcast stations KRRX-FM, licensed to Burney, California and KNRO-AM licensed to Redding, California (the "Power Surge Stations") (the "Option"). Under the terms of the Option, the Company could either (1) purchase KNRO/KARZ on January 31, 1997 for $1,200,000 in cash or (2) issue 1,000,000 shares of its common stock in exchange for all of the issued and outstanding shares of common stock of Power Surge. The option was due to expire on September 30, 1997. However, by mutual agreement, the Company and Power Surge extended the date of the Option to March 31, 1998. In addition to extending the Option exercise period, the parties agreed to amend the terms of purchase to include a combination of cash and stock. The Company was unable to exercise the Option by March 31, 1998. The Option was extended again, by mutual consent, until June 30, 1998 in exchange for an increase in the purchase price to $1,235,000 (the increase reflects additional costs borne by Power Surge related to the acquisition). As of March 31, 1998 the Company had deposited $973,000 (comprised of $733,000 in cash and $240,000 in common stock) toward the purchase of the stations. On June 15, 1998 the Company exercised its option. Immediately thereafter, the stations, along with KRDG-FM and KNNN-FM were sold the Regent Communications, Inc. (Regent)-(see below). Power Surge is a controlled corporation of John C. Power, the Company's President, Director and principal shareholder through his affiliation with Redwood Microcap Fund, Inc. ("MicroCap"). The Power Surge Stations were purchased by Mr. Power through another controlled corporation, Power Curve, Inc. ("Power Curve"), from non-affiliated third parties on January 31, 1997. Power Curve purchased the Power Surge Stations for $1,200,000, the same as the option price granted to the Company by Power Surge. Under the terms of the acquisition, Power Curve paid to the seller of the Power Surge Stations $480,000 in cash at closing and executed a 10-year promissory note in the principal amount of $720,000. The promissory note issued to the Seller by Power Curve, Inc. is secured by other assets and securities owned by Power Curve. Power Curve transferred the Power Surge Stations to Power Surge effective March 31, 1997 in order to facilitate the Option being granted to the Company more fully described herein. When the Company's management learned of the opportunity to purchase the Power Surge Stations, it recognized that those stations represented a potential opportunity for the Company. However, at the time the Company lacked sufficient working capital to take advantage of the opportunity. In order to perserve that opportunity on behalf of the Company, Mr. Power through Power Curve purchased the Power Surge Stations with the intent to give the Company the opportunity to acquire the Power Surge Stations at a later date when it had the capital necesary to do so. Through Power Surge, Mr. Power has made available to the Company the opportunity to acquire the Power Surge Stations upon terms no less favorable than the terms upon which Mr. Power initially acquired those assets through Power Curve in January 1997. Effective April 1, 1997, Power Surge and the Company, through Alta, entered into a Time Brokerage Agreement (Local Management Agreement) ("LMA") pursuant to which during the Option Period Alta will provide programming for the Power Surge Stations in conformity with rules and policies of the FCC. Under the terms of the LMA, Alta will pay Power Surge an LMA fee of $5,000 per month. Further, under the terms of the LMA, Alta will be responsible for operating the Power Surge Stations and will effectively bear the economic risk and benefit of owning the Power Surge Stations during the LMA and Option Period. Power Surge shall be responsible for maintaining in effect the FCC licenses covering the Power Surge Stations. Since entering into the LMA on April 1, 1997, Alta changed the call letters of KARZ-FM to KRRX-FM. Concurrent with the call letter change, the format of KRRX-FM was changed from Adult-Contemporary to Album Oriented Rock ("AOR"). The LMA terminated on June 15, 1998 when the Company exercised its Option. REGENT COMMUNICATIONS On October 10, 1997 Alta California Broadcasting, Inc. ("Alta"), a wholly-owned subsidiary of Redwood Broadcasting, Inc. (the "Company") entered into an agreement of Merger (the "Merger") with Regent Communications ("Regent") whereby Alta would merge into a wholly-owned subsidiary of Regent formed for the purposes of effectuating the Merger. On June 15, 1998, the Company transferred, via the Merger, KRDG-FM, KNNN-FM, KNRO-FM, and KRRX-FM to Regent and received approximately $950,000 cash and 200,000 shares of Regent Series "E" Preferred Stock (valued at $5.00). Regent also assumed approximately $1,500,000 of the Company's liabilities. Regent operated such stations through June 15, 1998 under an LMA which was effective on October 15, 1997. ACQUISITIONS AND DEVELOPMENT The Company's strategy is to grow by acquiring additional radio stations meeting specified criteria and by maximizing the revenues and Broadcast Cash Flow of the stations it owns and operates. Broadcast Cash Flow is defined as operating income (loss), exclusive of trade (non-cash) revenue and expenses, before deduction for interest, taxes, depreciation, amortization and corporate expense. Although Broadcast Cash Flow is not recognized under Generally Accepted Accounting Principles ("GAAP"), it is accepted by the broadcast industry as a generally recognized measure of performance and is used by analysts who report publicly on the condition and performance of broadcast companies. Broadcast Cash Flow should not, however, be considered an alternative to operating income as determined in accordance with GAAP or to cash flows from operating activities (as a measure of liquidity) or other indicators of the Company's performance as reported under GAAP. The Company generally intends to acquire established stations and/or build stations in small- to medium-sized media markets as defined by industry standards. The Company defines these markets as those ranked 150 to 250 in terms of population by the Arbitron Company ("Arbitron"). In general, the Company seeks to acquire stations: (i) located in markets with well established and relatively stable economies, which are often characterized by the presence of universities, tourism or a substantial industrial base, (ii) with a demonstrated track record of audience share and (iii) which can be purchased at attractive prices. The Company believes that it can most effectively maintain and improve the operating results of stations with these characteristics. Factors considered by the Company in evaluating an acquisition candidate include (i) the size, rates of growth and projected future rates of growth of the market's broadcast revenue and population, (ii) the number of competitive stations in the market, (iii) the operating history and performance of the stations, (iv) the success of the station's format, (v) the quality of and the ability to enhance the station's broadcast signal, (vi) the terms of the purchase and (vii) duopoly (or greater) ownership possibilities or other unique synergies with the then existing stations of the Company. The Company intends to pursue acquisition opportunities, including acquisition opportunities made possible by recently adopted Federal Communication Commission ("FCC") rules (the "New FCC Rules") which substantially increased the number of stations in the same radio service (i.e., AM or FM) one entity may own, both nationally and in a single geographic market. The Company believes that the ability to own multiple stations in a single geographic market, known as a duopoly, offers the potential for both substantial cost savings and increased revenues. For example, a duopoly permits the consolidation of studios and office space, thereby reducing administrative, engineering and management expenses. Furthermore, additional stations in a particular market enable the Company to take advantage of its existing relationships with advertisers, provide advertisers a larger, combined audience and permit joint promotional efforts, which may result in increased revenues and reduce the risk of a particular acquisition. OPERATIONS The Company believes a large percentage of radio advertising dollars are expended in small- to medium-sized media markets. The Company believes that it can improve the financial performance and Broadcast Cash Flow of small- to medium-sized stations by enhancing revenues while, at the same time, controlling costs. The Company seeks to enhance billings by implementing or expanding: (i) targeted programming designed to increase audience share within specific demographic groups considered to be particularly attractive to advertisers, (ii) sales and marketing programs intended to increase both audience share and the sale of advertising time, from which substantially all of the Company's revenues are derived, and (iii) effective advertising rate management and inventory control. The Company's stations employ a variety of programming formats. The Company believes that selling dvertising time in small- to medium-sized markets is less dependent upon ratings and more dependent upon aggressive marketing, promotional and selling techniques. Local advertising and promotional tie-ins with local events are designed to heighten public awareness of the Company's stations. Duopoly ownership structures will enable the Company to offer advertisers a broader range of creative advertising packages and enable the Company to derive increased benefits from its advertising rate management and inventory control techniques. THE COMPANY'S RADIO STATIONS The following table sets forth certain information covering the Company's current and proposed radio stations: Stations Currently Owned or Operated as of 7/14/98 Station City of License Station Format Demographics -------- --------------- --------------- ------------ KLXR-AM Redding, CA Adult Standards Adults 50+ Stations Currently Under Development as of 7/14/98 Station City of License Station Format Demographics -------- --------------- --------------- ------------ KESP-FM Payson, Arizona Oldies Adults 35-64 The following table sets forth other Radio & Television applications currently before the FCC: Radio ----- Dickson, OK Gillette, WY Television ---------- Great Falls, MT Missoula, MT Butte, MT Marquette, MI There can be no assurance that the Company will be granted license associated with the radio and television applications currently before the FCC. 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, resource allocation and maintaining overall control of the stations. The Company continues to seek opportunities to acquire radio stations with strong growth potential in the Company's current markets, subject to the Communication Act and FCC rules, which currently limit, among other things, the maximum number of radio stations that can be owned by the Company in the same geographic market. Since the Company has historically grown in part through the acquisition of broadcasting properties, current or subsequent limitations imposed by the FCC on the number of broadcasting properties the Company may acquire could limit the Company's ability to grow in the future. ADVERTISING Substantially all of the Company's revenues are generated from the sale of advertising for broadcast on its radio stations. Depending upon the format of a particular station, there are a predetermined number of advertisements broadcast each hour. The Company attempts to maximize the number of advertisements broadcast hourly without jeopardizing listening levels. Any change in the Company's revenues, with the exception of those instances where stations are acquired or sold, is generally the result of additional advertising revenues and pricing adjustments which are made to ensure that the station fully utilizes available inventory. The Company believes that radio is one of the most efficient, cost-effective means for advertisers to reach specific demographic groups. The Company also believes that radio in general is more resistant to economic downturns that other advertising-supported media due to its relatively lower rates and lower commercial production costs. Depending on the programming format of a particular station, the Company estimates the optimum number of advertisements available for sale. Accordingly, changes in the Company's net revenues (except to give effect to the acquisition or disposition of a radio station) are generally the result of pricing adjustments or an increase in the number of commercials sold. Advertising rates charged by radio stations are based primarily on a station's ability to attract audiences in the demographic groups targeted by advertisers. The number of listeners of a station is often reported by rating service surveys such as Arbitron, although most small radio markets are not serviced by Arbitron. Advertising rates are also dependent upon the number of stations in the market competing for the same demographic group and on the supply of and demand for radio advertising time. Rates are generally highest during the morning and afternoon drive-time hours. Substantially all of the revenues generated by a radio station, including the Company's radio stations, are derived from local, regional and national advertising. Local and regional sales generally are made by a station's sales staff. National sales are made by "national representative" firms, which specialize in radio advertising sales on the national level. These firms are compensated on a commission-only basis. Most advertising contracts are short-term, generally running for only a few weeks. COMPETITION Radio broadcasting is an extremely competitive business. The Company's radio stations compete for listeners and advertising revenues directly with other radio stations within their markets, many of which have more experience and greater resources than the Company. Radio stations compete for listeners primarily on the basis of program content and by hiring high-profile talent that appeals to a particular demographic group. The Company competes for advertising revenues principally through effective promotion of its stations' listener demographics and audience shares, and through the number of listeners in a target group that can be reached for the price charged for the airtime. The Company's stations also compete for advertising revenues with other media within their markets, including broadcast television, cable television, newspapers, magazines, direct mail, coupons and billboard advertising. By building a strong listening base comprised of a specific demographic group in each of its markets, the Company is able to attract advertisers seeking to reach those listeners. Other factors that affect a station's competitive position include its authorized power, terrain, assigned frequency, audience characteristics, local program acceptance and the number and characteristics of other stations in the market area. The radio broadcasting industry is also subject to competition from new media technologies that are being developed or introduced, such as the delivery of audio programming by cable television systems and by digital audio broadcasting. The radio broadcasting industry historically has grown despite the introduction of new technologies for the delivery of entertainment and information, such as television broadcasting, cable television, audio tapes and compact disks. There can be no assurance, however, that the development or introduction in the future of any new media technology will not have an adverse effect on the radio broadcasting industry. The Company also competes with other radio station groups to purchase additional stations. Some of these other groups are owned or operated by companies that have substantially greater financial and other resources than the Company. The Telecommunications Act of 1996 will permit other radio broadcasting companies to enter the markets in which the Company operates or may operate in the future, some of which may be larger and have more financial resources than the Company. There can be no assurance that the Company's existing stations, or those stations acquired by the Company in the future, will be able to maintain or increase their respective current audience ratings or advertising revenue market share. GOVERNMENT REGULATION The ownership, operation and sale of radio stations, including those licensed to the Company and its subsidiaries, are subject to the jurisdiction of the FCC, which acts under authority granted by the Communication Act. Among other things, the FCC assigns frequency bands for broadcasting; determines the particular frequencies, locations and operating power of stations; issues, renews, revokes and modifies station licenses; determines whether to approve changes to ownership or control of station licenses; regulates equipment used by stations; adopts and implements regulations and policies that directly or indirectly affect the ownership, operation and employment practices of stations; and has the power to impose penalties for violations of its rules or the Communication Act. The following is a brief summary of certain provisions of the Communication Act, including amendments thereto recently effectuated by the Telecommunications Act of 1996 (the "1996 Telecom Act") and of specific FCC regulations and policies that affect the business of the Company. Reference should be made to the Communication Act, FCC rules and the public notices and rulings of the FCC for further information concerning the nature and extent of federal regulation of broadcast stations. License Renewals and Transfers Under the 1996 Telecom Act, radio broadcasting licenses are granted for maximum terms of eight (8) years. Such licenses are subject to renewal upon application to the FCC. Under the 1996 Telecom Act, the FCC shall adopt regulations which will implement a two-step procedure, pursuant to which competing applications for an incumbent licensee's frequency will be explicitly prohibited, and the FCC shall grant the incumbent licensee's renewal application if it finds that (I) the incumbent licensee has served the public interest, convenience and necessity; (ii) the incumbent licensee has not engaged in any serious violations of the Communications Act or the FCC's rules; and (iii) there have been no other violations by the incumbent licensee of the Communications Act or the FCC's rules which, taken together, would constitute a pattern of abuse. If, based upon review of the incumbent licensee's renewal application, or of other facts that are brought to the FCC's attention in a petition to deny or other third party filing, the FCC is unable to make the foregoing findings, the incumbent licensee is entitled to a full evidentiary hearing to establish that it is entitled to renewal. If, following the evidentiary hearing, the FCC determines that the incumbent licensee has failed to meet the basic requirements for renewal and that no mitigating factors justify the imposition of a sanction less than denial of renewal (such as, for instance, a "short" term renewal or the imposition of forfeitures), the FCC is obligated to deny the renewal application. Should such denial become final following judicial review, the FCC may thereafter entertain applications for the incumbent's licensee's frequency. The 1996 Telecom Act makes these provisions retroactively applicable to renewal applications filed after May 1, 1995. The 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: Stations Currently Owned or Operated as of July 14, 1998 Expiration Date of FCC Station City of License Frequency Authorization ------- ----------------- ---------- -------------- KLXR-AM Redding, California 1230 Khz 12/01/05 Stations Currently Under Development as of July 14, 1998 Expiration Date of FCC Station City of License Frequency Authorization ------- ----------------- ---------- -------------- KESP-FM Payson, Arizona 101.1 Mhz 12/01/05 Ownership Matters The Communication Act prohibits the assignment of a broadcast license or the transfer of control of a broadcast licensee without the prior approval of the FCC. To obtain the FCC's prior consent to transfer or assign a broadcast license, appropriate applications must be filed with the FCC. In determining whether to grant or renew a broadcast license, the FCC considers a number of factors pertaining to the licensee, including compliance with the Communications Act limitations on alien ownership, compliance with various rules limiting common ownership of broadcast, cable and newspaper properties, and the "character" of a licensee and those persons holding "attributable" interests therein. Under the Communications Act, broadcast licenses may not be granted to any corporation having more than twenty percent (20%) of its issued and outstanding capital stock owned or voted by aliens (including non-U.S. corporations), foreign governments or their representatives (collectively "aliens"). The Communications Act also prohibits a corporation, without FCC waiver, from holding a broadcast license if that corporation is controlled, directly or indirectly, by another corporation, in which more than twenty-five percent (25%) of the issued and outstanding capital stock is owned or voted by Aliens. The FCC has issued interpretations of existing law under these restrictions in modified form apply to other forms of business organizations, including partnerships. As a result of these provisions, in the absence of a waiver, the Company, which serves as a holding company for its various subsidiaries, cannot have more than twenty-five (25%) of its stock owned or voted by Aliens. Under the 1996 Telecom Act, the FCC's national and local multiple ownership rules were revised. The FCC's formal rules prohibited the Company from owning, operating or controlling, directly or indirectly, more than twenty AM and twenty FM radio stations in the United States. The 1996 Telecom Act completely eliminated national ownership limitations. In addition, the 1996 Telecom Act substantially relaxed restrictions on local radio multiple ownership (often referred to as the "duopoly") rules. Under the new law, which was implemented by the FCC in March 1996, in markets with fourteen or fewer radio stations, the Company is permitted to own up to a total of five (5) radio stations, no more than three (3) of which may be FM, so long as the Company's owned radio stations represent less than fifty percent (50%) of the radio stations in the market. In markets between fifteen (15) and twenty-nine (29) radio stations, the Company will be permitted to own up to a total of six (6) radio stations, no more than four (4) of which may be FM. In markets with between thirty (30) and forty-four (44) radio stations, the Company will be permitted to own up to a total of seven (7) radio stations, no more than four (4) of which may be FM. Finally, in markets with forty-five (45) or more radio stations, the Company may own up to a total of eight (8) radio stations, no more than five (5) of which may be FM. All of the Company's current holdings and proposed acquisitions are consistent with these new local multiple ownership restrictions. The Communications Act and FCC rules also generally limit the common ownership, operation or control of a radio broadcast station and a television station serving the same geographic market and of a radio broadcast station and a daily newspaper serving the same geographic market. Under these rules, absent waiver, the Company would not be permitted to acquire any newspaper or television broadcast station (other than low-power television) in a geographic market in which it now owns a broadcast property. However, the FCC's policies, as modified by the 1996 Telecom Act, provide for the liberal grant of waivers of the rule prohibiting ownership of radio and television stations in the same geographic market in the top fifty television markets if certain other conditions are satisfied. The FCC has also indicated that it intends to hold a rule-making proceeding looking toward the liberal grant of waivers of the rule prohibiting common ownership of a radio station and a newspaper in the same market in large markets. The FCC generally applies its ownership limits to "attributable" interests held by an individual, corporation, partnership or other association. In the case of corporations holding broadcast licenses, the interests of officers, directors and those who, directly or indirectly, have the right to vote five percent (5%) or more of the corporation's stock (or ten percent (10%) or more of such stock in the case of insurance companies, investment companies and bank trust departments that are holding stock for investment purposes only) are generally attributable, as are positions of an officer or director of a corporate parent of a broadcast licensee. Currently, none of the Company's officers, directors or stockholders has an attributable interest in any company licensed to operate broadcast stations other than the Company and/or its subsidiaries. Local Marketing Agreements Over the past few years, a number of radio stations have entered into what have commonly been referred to as "Local Marketing Agreements" or "LMAs". While these agreements may take different forms, under a typical LMA, separately owned and licensed radio stations agree to enter into cooperative arrangements of varying sorts, subject to compliance with the requirements of the antitrust laws and the FCC's rules and policies, including the requirement that the licensee of each station maintain independent control over the programming and operation of its own stations. The most prevalent kind of LMA is a time brokerage agreement among two separately-owned radio stations serving a common service area, whereby the licensee of one station programs substantial parts of the broadcast day on the other licensee's station, subject to ultimate editorial and other controls being exercised by the latter licensee, and sells advertising time during such program segments. The FCC has held that such licensee of the station that is being substantially programmed by another entity maintains complete responsibility for, and control over, the operations of its broadcast station, and assured compliance with applicable FCC rules and policies. The FCC rules specifically permit LMAs but provide that a station leasing time and broadcasting programming on another station servicing the same market will be considered to have an attributable ownership interest in the other station for purposes of the FCC's multiple ownership rules. As a result, the Company would not be permitted to enter into an LMA with another local station which it could not own under the FCC's local ownership rules unless the Company's programming constituted less than fifteen percent (15%) of the other station's programming on a weekly basis. Under the 1996 Telecom Act, in markets with fourteen or fewer radio stations, such as the Redding, California market, the Company is permitted to own up to a total of five radio stations, no more than three (3) of which may be FM so long as the Company's owned radio stations represent less than fifty percent of the radio stations in the market. As a result of the KNNN acquisition, the Company can only acquire or enter into an LMA relating to the operation of one (1) more FM station that serves the Redding, California market. Programming and Operation The Communications Act requires broadcasters to serve the "public interest". Licensees are required to present programming that is responsive to community issues and to maintain certain records demonstrating such responsiveness. Complaints from listeners concerning a station's programming may be considered by the FCC when it evaluates renewal applications of a licensee, although such complaints may be filed at any time. Stations also must follow various rules promulgated under the Communication Act that regulate, among other things, political advertising, sponsorship identifications, and advertisement of contests and lotteries and technical operations, including limits on radio frequency radiation. In addition, licensees must develop and implement programs designed to promote equal employment opportunities and must submit reports to the FCC with respect to these matters on an annual basis and in connection with a renewal application. Failure to observe these or other rules and policies can result in the imposition of various sanctions, including monetary forfeitures, conditional grants of licenses, the grant of "short" (less than the full eight (8) year term) renewal terms or, for particularly egregious violations, the denial of a license renewal application or the revocation of a license. Proposed Changes The Congress and the FCC have under consideration, and may in the future consider and adopt, new laws, regulations and policies, regarding a wide variety of matters that could, directly or indirectly, affect the operation and ownership of the Company's radio broadcast properties. Such matters include, for example, proposals to impose spectrum use of other governmentally imposed fees upon licensees; the FCC's equal employment opportunity rules and other matters relating to minority and female involvement in the broadcasting industry including enhancement of ownership opportunities; proposals to change rules relating to political broadcasting; proposals to change the thresholds, benchmarks or concepts applicable to attributing ownership interest in broadcast media; proposals to permit lenders to take a security interest in FCC licenses; technical and frequency allocation matters, including those relative to the implementation of digital audio broadcasting on both a satellite and terrestrial basis, spectrum for which has been allocated by the FCC; proposals to permit expanded use of FM translator stations; proposals to restrict or prohibit the advertising of tobacco products and/or beer, wine or other alcoholic beverages on radio; and changes to broadcast technical requirements in frequency allocation matters. The Company cannot predict whether any such proposed changes will be adopted nor can it judge in advance what impact, if any, any such proposed changes might have on its business. EMPLOYEES The Company presently has four (4) full time and four (4) part-time employees. The Company's principal executive officers are John C. Power, Chief Executive Officer and President, and J. Andrew Moorer, Chief Financial Officer, Secretary and Treasurer. The foregoing individuals are responsible for all of the Company's budget, legal and financial matters, as well as for evaluating, investigating and negotiating all acquisition opportunities. The stations have not experienced any significant labor problems under the Company's ownership, and the Company considers its labor relations on the whole to be good. ITEM 2. DESCRIPTION OF PROPERTY The types of properties required to support each of the Company's radio stations include offices, studios and transmitter/antenna sites. A station's studios are generally housed with its offices in downtown or business districts. Transmitter/antenna sites are generally located so as to provide maximum market coverage. The Company's corporate headquarters are leased and located in Carefree, Arizona. Principally, the Company's offices, studio and transmitter/antenna sites are leased with lease terms that expire within one to five years. The Company does not anticipate any difficulties in renewing those leases that expire within the next five years or in leasing other space if required. The Company owns substantially all of the equipment used in its radio broadcasting business. The Company believes that its properties are in good condition and suitable for its operations. However, the Company continually looks for opportunities to upgrade its properties. ITEM 3. LEGAL PROCEEDINGS The Company from time to time is involved in litigation in the ordinary course of business. The Company is not a party to any lawsuit or proceeding which, in the opinion of management, is likely to have a material adverse effect on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company did not submit any matters to a vote of security holders in the fourth quarter of fiscal 1998. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Market Information for Securities The Company's outstanding shares of common stock are traded over the counter and quoted on the OTC Electronic Bulletin Board on a limited and sporatic basis under the symbol RWBD. The reported high and low prices for the common stock are shown below for the period through March 31, 1998. These prices reflect inter-dealer prices and do not include adjustments for retail mark-ups, mark-downs or commissions and may not represent actual transactions. High Low ------ ----- Fiscal Quarter Ended June 30, 1997 $1.50 $1.50 Fiscal Quarter Ended September 30, 1997 $1.50 $1.25 Fiscal Quarter Ended December 31, 1997 $2.00 $1.625 Fiscal Quarter Ended March 31, 1998 $1.75 $1.75 There were approximately 55 stockholders of record of the Company's $.004 par value common stock as of July 14, 1998. This amount does not include shares held in "street name" by various brokerage/clearing houses. The number of stockholders of record would be substantially greater if the "street name" stockholders were included. The Company has not declared or paid any cash dividends on its common stock since its formation, and the present policy of the Board of Directors is to retain any earnings to provide for the Company's growth. Any future determination to pay dividends will be at the discretion of the Board of Directors, and dependent upon the Company's financial condition, results of operations, capital requirements and such other factors as the Board of Directors deems relevant. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the consolidated financial statements and related notes thereto. The following discussion contains certain forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, risks and uncertainties relating to leverage, the ability to obtain financing, consummation of acquisitions and divestitures, the ability of the Company to achieve certain cost savings, the management of growth, the introduction of new technology, changes in the regulatory environment, the popularity of radio as a broadcasting and advertising medium and changing consumer tastes. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. Liquidity and Capital Resources - March 31, 1998 Compared to March 31, 1997 The Company's balance sheet at March 31, 1998 reflects an improvement in the overall financial condition of the Company compared to the balance sheet at March 31, 1997. Total assets increased $166,807 to $2,613,630 as of March 31, 1998 compared to $2,446,823 as of March 31, 1997; total liabilities for the current period decreased significantly from $1,916,075 as of March 31, 1997 to $1,109,301, a reduction of over $800,000; total stockholders' equity increased to $714,329 from $226,236 a year ago, an increase of $488,093 or 216% Total current assets at March 31, 1998 were $299,317 and consisted of cash of $55,695, net accounts receivable of $93,024, receivables from related parties of $133,839 and other current assets of $16,759. Total current liabilities as of March 31, 1998 were $615,930 comprised primarily of vendor accounts payable and accrued expenses of $200,121, accounts payable and the current portion of notes payable to related parties of $317,869 and the current portion of notes payable to unrelated third parties of $97,940. The Company posted a working capital deficiency of ($316,613) as of March 31, 1998 compared to working capital of $234,386 as of March 31, 1997. Contributing to the decrease in working capital for the period was the following: 1.) The collection, during the current period, of a $633,000 receivable from the sale of a radio station (decrease in current assets during the current period) was used to repay the long term portion of notes payable to related parties (decrease in long term liability during the current period). At March 31, 1998, the Company reported total assets of $2,613,630, including property and equipment of $227,249 net of accumulated depreciation and amortization of $90,675 and $915,716 (net of $134,773 in accumulated amortization) of intangibles (radio broadcast licenses and non-compete agreements) attributable to KRDG-FM acquired in July 1996 and KNNN-FM acquired in September 1996, a deposit of $973,000 associated with the purchase of two radio stations, and other assets of $198,348. Total liabilities as of March 31, 1998 of $1,109,301 include, in addition to current liabilities of $615,930 referred to above, the long term portion of notes payable of $443,371 and notes payable to related parties of $50,000. The long term portion of notes payable is comprised primarily of $412,640 in term debt associated with the acquisition of KNNN-FM. This compares with total liabilities of $1,916,075 as of March 31, 1997 and represents a decrease of $806,774. As of March 31, 1998 the Company reported stockholders' equity of $714,329. This represents an increase of $488,093 over March 31, 1998 stockholders' equity of $226,236. Contributing to the increase in stockholders' cquity were the following: 1.) An increase in common stock and additional paid in capital during the current year of $635,511 associated with several equity transactions involving the issuance of common stock pursuant to the Company's public offering, in private placement transactions, in exchange for the forgiveness of debt and in exchange for services rendered. 2.) The aforementioned was partiallly offset by an increase in the Company's accumulated deficit of $147,418 attributable to the company's current period loss. The increase in common stock and paid in capital resulted from the following transactions during the year: 1.) At March 31, 1997, 203,008 common stock put options were outstanding. The put options granted the optionholders the right to sell the Company their share of common stock at a price of $1.50 per share. The Company's potential obligation under the put options of $304,512 was classified as redeemable common stock in the balance sheet at March 31, 1997. The put options expired June 13, 1997; however, prior to such expiration, 102,946 options were exercised by the optionholders and accordingly, these shares were acquired for $154,419. As the Company did not have the financial resources to effect the exercise of the options, these shares were acquired by affiliates of the Company. The remaining unexercised put options were offered to outside third parties for purchase. The remaining unexercised put options were forfeited. The value of the forfeited options of $150,093 was credited to additional paid in capital at the time of forfeiture. 2.) The issuance of 50,000 shares of common stock pursuant to the Company's public offering at $2.00 per share generated $100,000 of additioal capital. 3.) The issuance of 75,000 shares of common stock at $1.10 per share (restricted stock) in exchange for the forgiveness of $82,500 in debt. 4.) The issuance of 10,000 shares of common stock at $2.00 per share in exchange for services rendered to the Company. 5.) The issuance of 200,000 shares of common stock at $1.20 per share (restricted stock) representing a deposit in Power Surge, Inc., the license-holder of radio stations KARZ-FM and KNRO-AM which are to be acquired by the Company. Results of Operations - Year Ended March 31, 1998 Compared to the Year Ended March 31, 1997 Net revenues (gross revenues less agency commissions) for the year ended March 31, 1998 were $757,086 compared to $507,917 for the year ended March 31, 1997 representing an increase of $249,169. The increase in revenue is attributable entirely to increased volume in radio advertising over a larger of radio stations owned or operated by the Company during the current year as compared to the same period a year ago. Revenues for the 12 months ended March 31, 1998 were generated by the Company's four radio stations owned or operated in the Redding, California market (KRDG-FM-owned, KNNN-FM-owned, KRRX-FM-operated under LMA and KNRO-AM-operated under LMA). Revenues for the previous twelve-month period were comprised of KRDG-FM (from July 1996 through March 1997) and KNNN-FM (from August 1996 through March 1997). Operating expenses for the year ended March 31, 1998 were $1,006,520 comprised of station operating expenses of $333,110, selling expenses of $103,552, general and administrative expenses of $435,981, and depreciation and amortization of $133,877. Operating expenses last year were $1,066,225. The decrease in operating expenses during the twelve months ended March 31, 1998 of $59,705 is attributed to the following: 1.) A one-time corporate restructuring charge of $122,747 recorded last year. The charge was associated with legal and accounting costs incurred in completing the Company's Registration Statement on Form SB-2 (effective February 1997). No such cost were incurred during the current year. 2.) A decrease in depreciation and amortization of $18,298 during the current year. 3.) Partially offsetting the decreases in items 1 & 2 above was an increase in general and administrative costs of $88,346 during the current year (from $347,635 to $435,981) as the Company increased administrative staff to handle the increase in number of stations being operated (from two stations to four). In addition, the Company incurred higher legal expenses during the year associated with various purchase and sale transactions. The higher legal costs contributed to the overall increase in general and administrative costs. Although the Company sustained an operating loss for the twelve months ended March 31, 1998; the increase in revenues, coupled with the decrease in operating expenses, reduced the operating loss by $308,874 or 55%; from a loss of ($558,308) last year to a loss of ($249,434) during the current year. The Company incurred interest expense for the twelve months ended March 31, 1998 of $70,452 comprised of financing costs associated with the Company's acquisition of KRDG-FM and KNNN-FM. Offsetting the Company's interest costs for the current period was $172,468 of other income. Other income is comprised primarily of option income of $70,000 attributable to the sale of KNSN-AM and auction settlement income of $36,000 received from the settlement, via private auction, of the Company's pending application for a construction permit to build an FM radio station licensed to Shasta Lake City, California. There were multiple participants in the auction. The Company was not the winning bidder, but will receive a proportionate share of the winning bid price. In addition, the Company posted $14,600 in interest income on notes receivable and recognized $9,722 in deferred revenue. As a result of the foregoing, the Company sustained a net loss of ($147,418) or ($0.15) per share for the twelve months ended March 31, 1998 compared to a net loss of ($20,175) or ($0.03) per share for the same period a year ago. Liquidity and Capital Resources - March 31, 1997 Compared to March 31, 1996 The Company's balance sheet at March 31, 1997 reflects a significant improvement in financial condition when compared with the Company's balance sheet at March 31, 1996. Total assets increased from $1,545,105 as of March 31, 1996 to $2,446,823 as of March 31, 1997, an increase of over $900,000; total liabilities during the current period increased $613,503 and total stockholders' equity increased to $226,236 from a stockholders' deficit of $61,979 an improvement of $288,215. Total current assets at March 31, 1997 were $879,804 and consisted of cash of $40,791, net accounts receivable of $121,560, a receivable from the sale of a radio station of $633,000 and other current assets of $84,453. Total current liabilities at March 31, 1997 were $645,418, resulting in working capital of $234,386. This compares favorably to a working capital deficit of $1,120,129 at March 31, 1996. Overall, the Company's working capital position improved by $1,354,515 during the current period. Contributing significantly to this improved working capital position were the following: * An increase in net accounts receivable of $34,726 resulting from increased radio revenues. * An increase in other receivables of $633,000 attributable to the sale during fiscal 1997 of KNSN-AM. * A reduction in the current portion of notes payable of $640,290 generated by the application of $370,000 in proceeds from the $633,000 in proceeds from the sale of KHSL-FM during the current period. At March 31, 1997, the Company reported total assets of $2,446,823 including property and equipment of $251,138 net of accumulated depreciation of $37,666 and $996,584 (net of $53,905 in accumulated amortization) of intangibles (radio broadcast licenses and non-compete agreements) attributable to KRDG-FM acquired in July, 1996 and KNNN-FM acquired in September, 1996. The effect of the increase in total assets associated with the acquisition of KRDG-FM and KNNN-FM was partially offset by the sale of land, KHSL-FM and KNSN-AM during the current period. The net book value of intangibles associated with KHSL-FM and KNSN-AM was $489,333 at March 31, 1996. Total liabilities of $1,916,075 (excluding $304,512 in put option liability classified below liabilities) include, in addition to current liabilities of $645,418 referred to above, the long term portion of notes payable of $605,208 associated with the acquisitions of KRDG-FM and KNNN-FM and notes payable to related parties of $665,449. This compares with total liabilities of $1,302,572 (excluding the put option liability) at March 31, 1996 and represents an increase of $613,503. As of March 31, 1997, the Company reported stockholders' equity of $226,236. This compares favorably to a stockholders' deficit of $61,979 as of March 31, 1996. Contributing to the increase in stockholders' equity of $288,215 were the following: * An increase in common stock and additional paid in capital during the current period of $308,390 associated with several equity transactions involving the issuance of common stock in private placement transactions, in exchange for the forgiveness of debt and in exchange for services rendered. * The aforementioned was partially offset by an increase in the Company's accumulated deficit of $20,175 associated with the Company's current period net loss. Subsequent to year end, the Company has issued 50,000 shares pursuant to its public offering at $2.00 per share generating proceeds of $100,000. This capital infusion further enhances the liquidity of the Company. Results of Operations - Year Ended March 31, 1997 Compared to the Eight Months Ended March 31, 1996 Net revenues (gross revenues less agency commissions) for the year ended March 31, 1997 were $507,917 compared to annualized revenues associated with the eight months ended March 31, 1996 of $644,079 represents a decrease, on an adjusted annualized basis, of $136,162. Revenues for the eight months ended March 31, 1996, were comprised entirely of sales associated with KHSL-FM and KNSN-AM. Effective March 15, 1996, the Company entered into an LMA agreement for these stations in conjunction with their impending sale agreements. The LMA's effectively transferred operational control of the stations to the buyer. Therefore during fiscal 1997, no revenues and only limited expenditures are reflected in the consolidated financial statemenst for KHSL-FM and KNSN-AM. Revenues for the current year were entirely generated by KRDG-FM (from July, 1996 through March, 1997) and KNNN-FM (from August, 1996 through March, 1997). Operating expenses for the year ended March 31, 1997 were $1,066,225 comprised of station operating expenses of $339,499 selling expenses of $104,169, general and administrative expenses of $347,635, depreciation and amortization of $152,175 and a charge for corporate restructuring of $$122,747. This represents an increase in operating expenses over the previous year of $273,718. This increase is attributable primarily to the restructuring charge of $122,747 associated with legal and accounting costs incurred in completing the Company's Registration Statement on Form SB-2 (effective February, 1997), coupled with an increase in depreciation and amortization of $74,526. On an annualized basis, broadcasting, selling, and general and administrative expenses for the period ended March 31, 1996 were $1,072,287 compared to$791,303 for the year ended March 31, 1997, resulting in a decrease of $280,984. As previously stated, prior year costs were generated by KHSL-FM and KNSN-AM. Current year expenses were generated by the operations of KRDG-FM, KNNN-FM and certain residual operating expenses associated with KHSL-FM and KNSN-AM. During the twelve months ended March 31, 1997, the Company generated other income (net of other expense) of $538,133 compared to other expense of $5,538 incurred during the eight month period ended March 31, 1996 ($8,307 on an annualized basis). Other income for fiscal 1997 was comprised of the following: * A gain on the sale of KHSL-FM and KNSN-AM of $678,206. * LMA fee income (associated with the sale of KHSL-FM and KNSN-AM) and other miscellaneous income totaling $87,857. * A loss on the sale of land in the amount of $80,000. * Interest expense of $147,930. As a result of the foregoing, the Company incurred a net loss for the twelve months ended March 31, 1997 of $20,175 or $0.03 per share based on a weighted average number of shares outstanding of 732,201 compared to a net loss of $368,659 or $0.76 per share based on a weighted average number of shares outstanding of 487,250 for the eight month period ended March 31, 1996. Annualizing the March 31, 1996 loss represents an improvement in net income during the current period of $532,812 or $1.11 per share. ITEM 7. FINANCIAL STATEMENTS See Financial Statements on page F-1. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE. None PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. The directors and executive officers of the Company are as follows: Director/Officer Name Age Position Since John C. Power 35 Chairman of the Board Chief Executive Officer, President 1995 J. Andrew Moorer 36 Chief Financial Officer, Secretary, Treasurer, and Director 1995 CERTAIN INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS John C. Power. Mr. Power began his service as President, Chief Executive Officer and Chairman of the Board of the Company in June, 1995 upon consummation of the Company's acquisition of Broadcasting. Mr. Power has also served as President and Chief Executive Officer of Redwood MicroCap Fund, Inc. ("MicroCap") since February, 1992. MicroCap is registered as an Investment Company under the Investment Company Act of 1940, as amended (the "40 Act"). MicroCap has majority and minority-owned subsidiaries engaged in oil and gas exploration, production and management, radio broadcasting, real estate and hotel development. 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. Since February 1997, Mr. Power has been an officer and director of a privately-held Vineyard Project: Love Oak Vineyards, Inc. Since November 1997, Mr. Power has been a managing member of Sea Ranch Lodge & Village, LLC. Since March 1998, Mr. Power has been a director of Guardian Technologies (NASDAQ: GRDN). From March, 1994 to September, 1995, Mr. Power served as a general partner of Signature Wines, a California partnership, a predecessor entity of Signature Wines of Napa Valley, Inc. Mr. Power served as a director of Biosource International, Inc. (NASDAQ: BIOI) from August, 1993 to December, 1994, of Optimax Industries, Inc. (NASDAQ: OPMX) from April, 1993 to March, 1995, and of AirSoft Corporation, a manufacturer of network communications software and systems, from 1993 to June, 1996. Mr. Power received his formal education at Occidental College and at the University of California at Davis. J. Andrew Moorer. Mr. Moorer, like Mr. Power, began his service with the Company upon consummation of the Company's acquisition of Broadcasting in June, 1995, and currently serves as the Company's Chief Financial Officer, Secretary, Treasurer, and as a member of the Company's Board of Directors. Mr. Moorer has also served as a Director of MicroCap since December, 1993, and as Chief Financial Officer of MicroCap since July, 1994. From May, 1990 to May, 1994, Mr. Moorer held the position of Chief Financial Officer of Applied Research Corporation, a large, publicly traded, scientific research and development company based in Landover, Maryland. From March, 1987 to May, 1990, Mr. Moorer was employed as a business analyst with Compudyne Corporation, a defense electronics manufacturer located in Annapolis, Maryland. Prior to accepting employment with Compudyne, Mr. Moorer was employed as a Certified Public Accountant with the international accounting firm of Coopers & Lybrand where he worked in the Audit and Emerging Business Services Group from January, 1985 to March, 1987. Mr. Moorer received his formal education at Loyola College, Baltimore, Maryland. Each Director is elected to serve for a term of one (1) year until the next Annual Meeting of Shareholders or until a successor is duly elected and qualified. Directors who are also executive officers of the Company receive no additional compensation for their services as Directors. In December, 1996, the Company formed an Audit Committee of the Board of Directors comprised of Messrs. Power and Moorer. No member of the Audit Committee will receive additional compensation for his service as a member of that Committee. The Audit Committee is responsible for providing assurance that financial disclosures made by Management reasonably portray the Company's financial condition, results of operations, plan and long-term commitments. To accomplish this, the Audit Committee oversees the external audit coverage, including the annual nomination of the independent public accountants, review accounting policies and policy decisions, review the financial statements, including interim financial statements and annual financial statements, together with auditor's opinions, inquire about the existence and substance of any significant accounting accruals, reserves or estimates made by Management, review with Management the Management's Discussion and Analysis section of the Annual Report, review the letter of Management representations given to the independent public accountants, meet privately with the independent public accountants to discuss all pertinent matters, and report regularly to the Board of Directors regarding its activities. During the twelve (12) months ended March 31, 1998, the Company did not have standing compensation or nominating committees of the Board of Directors. Any transaction between the Company and its officers, directors, principal shareholders, or other affiliates have been and will be on terms no less favorable to the Company than could be obtained from unaffiliated third parties on an arms-length basis. SECTION 16(A) BENEFICIAL OWNERSHIP OF REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires the Company's directors and executive officers, and persons who beneficially own more than ten percent of a registered class of the Company's equity securities (collectively, the "Covered Shareholders"), to file with the Commission initial reports of ownership and reports of changes of ownership of certain equity securities of the Company. Covered Shareholders are required by the Commission's regulations to furnish the Company with copies of all Section 16(a) forms they file. Section 16(b) of the Exchange Act requires the Covered Shareholders to return to the Company any profit resulting from the purchase and sale of the Company's securities consummated within a period of less than six months. Based solely on a review of the copies of such reports furnished to the Company or written representations that no other reports were required, the Company believes that, during the Transition Period 1996, all filing requirements applicable to its Covered Shareholders were complied with. ITEM 10. EXECUTIVE COMPENSATION The following table and discussion sets forth information with respect to all plan and non-plan compensation awarded to, earned by or paid to the Chief Executive Officer ("CEO"), and the Company's four (4) most highly compensated executive officers other than the CEO, for all services rendered in all capacities to the Company and its subsidiaries for the periods covered by this Form 10-KSB; provided, however, that no disclosure has been made for any executive officer, other than the CEO, whose total annual salary and bonus does not exceed $100,000. SUMMARY COMPENSATION TABLE Long Term Compensation Annual Compensation (1) Awards Payouts - - -------------------------------------------------------------------------------- Other Annual Restricted All Other Name and Compen- Stock LTIP Compen- Principal Year Salary Bonus sation Award(s) Options/ Payouts sation Position ($) ($) ($)(1) ($) SARS ($) ($) - - -------------------------------------------------------------------------------- John C. Power President, 1998 $-0- $-0- $-0- $-0- $-0- $-0- $-0- CEO and Chairman 1997(2)-0- $-0- $-0- $-0- $-0- $-0- $-0- of the Board - - -------------------------------------------------------------------------------- (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. 1995 INCENTIVE STOCK OPTION PLAN On December 5, 1995, the Board of Directors of the Company adopted the Redwood Broadcasting, Inc. 1995 Incentive Stock Option Plan (the "ISOP"). Pursuant to the ISOP, the Company's Board of Directors is authorized to issue options for the purchase of up to 150,000 shares of the Company's Common Stock to key employees of the Company. Options granted under the ISOP to eligible participants may take the form of Incentive Stock Options ("ISOs") under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") or options which do not qualify as ISOs (Non-Qualified Stock Options or "NQSOs"). As required by Section 422 of the Code, the aggregate fair market value (as defined in the ISOP) of the Company's Common Stock (determined as of the date of grant of the ISO) with respect to which ISOs granted to an employee are exercisable for the first time in any calendar year may not exceed $100,000. The foregoing limitation does not apply to NQSOs. The exercise price of an ISO may not be less than 100% of the fair market value of the shares of the Company's Common Stock (or 110% of the fair market value if granted to a person who owns 10% or more of the Company's outstanding shares) on the date of grant. The exercise price of a NQSO may be set by the administrator of the ISOP. The exercise price under any option will be adjusted as provided in the ISOP to reflect stock dividends, splits, other recapitalizations or reclassifications or changes affecting the number or kind of outstanding shares. Fair market value of the Company's Common Stock is defined in the ISO as the closing sale price of the Common Stock on the OTC Electronic Bulletin Board System or any securities exchange on which the shares of Common Stock are then listed. The ISOP is administered by a committee made up of members of the Company's Board of Directors (the "Committee"), which determines eligible employees, the time and number of options to be granted, and the periods for which such options are granted. There are limitations on the number of options which can be granted and the aggregate fair market value of the stock in any given year. All options granted under the ISOP can be made subject to vesting by the Committee in its discretion. During the year ended March 31, 1997, the Company issued 100,000 options under the plan to an employee. The options expired in 1997 upon the employees termination. No options had vested prior to the termination and there were no options outstanding as of March 31, 1998. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information with respect to the beneficial ownership of the Company's Common Stock by: (i) each of the directors and executive officers of the Company, (ii) all officers and directors of the Company as a group, and (iii) holders of 5% or more of the Company's Common Stock. Each person has sole voting and investment power with respect to the shares shown, except as noted. Name and Address Number of Shares of Beneficial Owner Beneficially Owned Officers, Directors, and Principal Shareholders John C. Power (1) 813,204 57.7% P.O. Box 3458 Carefree, AZ 85377 J. Andrew Moorer (2) 743,970 52.8% 4528 E. Duane Lane Cave Creek, AZ 85331 Redwood MicroCap Fund, Inc. (3)(4) 700,454 49.7% P.O. Box 3463 Carefree, AZ 85377 Combined Penny Stock Fund, Inc. (5) 130,608 9.26% 2055 Anglo Drive, Suite 105 Colorado Springs, CO 80918 Brian Power (6) 144,984 10.30% Nut Tree Ranch Nut Tree, CA 95690 Rockies Fund, Inc. 200,000 14.2% 4465 Northpark Drive Colorado Springs, CO 80907 Officer and Directors as a Group (two (2) individuals) 856,720 60.8% (1) Includes 700,454 shares held of record by Redwood MicroCap Fund, Inc.,a Colorado corporation, of which Mr. Power is an officer, director and shareholder and, as such, would be deemed to exercise the shared voting and investment power with respect to such securities. Mr. Power disclaims beneficial ownership of the securities for purposes of Section 16 under the Exchange Act. Assumes no shares are sold by MicroCap in the Selling Shareholders' Offering. Also, includes 7,750 shares held of record by the John C. Power Profit Sharing Plan. Mr. Power currently serves as the Plan's administrator and is beneficiary and as such, would be deemed to exercise voting and investment power with respect to such securities. Also includes 81,250 shares held of record by Power Curve, Inc., a controlled corporation of Mr. Power. (2) Includes 700,454 shares held of record by Redwood MicroCap Fund, Inc., a Colorado corporation of which Mr. Moorer is an officer and director and, as such, would be deemed to exercise the shared voting and investment power with respect to such securities. Mr. Moorer disclaims beneficial ownership of the securities for purposes of Section 16 under the Exchange Act. Assumes no shares are sold by MicroCap in the Selling Shareholders' Offering. (3) Includes 195,371 shares of Common Stock acquired pursuant to the terms of the RBI Agreement. (See "CERTAIN TRANSACTIONS - RBI Agreement"), 216,559 shares of the Common Stock issued to MicroCap in satisfaction of $259,371 in debt owed to MicroCap by the Company, 143,204 shares of Common Stock acquired from certain CRI Shareholders, 25,000 shares acquired during the Company's Public Offering, and 75,000 shares held by a wholly-owned subsidiary of MicroCap. (4) Redwood MicroCap Fund, Inc. is a diversified, closed-end, mutual fund registered under the Investment Company Act of 1940 (the "1940 Act"). Voting and investment power with respect to these securities is exercised by the company's Board of Directors, whose members are John C. Power, Joseph O. Smith, and J. Andrew Moorer. (5) Combined Penny Stock Fund, Inc. is a Colorado-based business development company located in Colorado Springs, Colorado. Voting and investment power with respect to these securities is exercised by the Company's Board of Directors whose members include Jeff Kormos, Dr. A. Leonard Nacht, Brian Power and John Overturf. (6) Includes 130,608 shares of Common Stock owned of record by Combined Penny Stock Fund, Inc., on which Mr. Power serves as a member of the Board of Directors. Mr. Power disclaims beneficial ownership of the shares held of record by Combined Penny Stock Fund, Inc. for purposes of Section 16 of the Exchange Act. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS RBI AGREEMENT In connection with the Company's acquisition of Broadcasting (See "BUSINESS - History-Redwood Broadcasting, Inc."), the Company issued to RBI's shareholders 300,000 shares of the Company Common Stock in exchange for one hundred percent (100%) of the issued and outstanding shares of Common Stock of Broadcasting. Subsequent to the acquisition, Broadcasting was merged with and into the Company, with the Company remaining as the surviving entity. In connection with the acquisition of Broadcasting, the Company did not obtain an opinion of an investment banker, accountant or other third party that the terms of the transaction were fair to the Company's future shareholders who would receive their shares in this shares in the Spin-Off. In lieu of obtaining such opinions, MicroCap (Broadcasting's parent corporation) agreed to purchase from certain of the CRI Shareholders the right to receive a total of 97,000 Spin-Off Shares at a price of $1.20 per share. As MicroCap lacked the resources and capital to extend the same offer and opportunity to all CRI Shareholders, the Company required as a condition to closing the transaction that MicroCap guarantee its obligations under the Put Options being issued to the remaining CRI Shareholders. The Puts required the Company to purchase and redeem any and all shares tendered at a price of $1.50 per share. The Puts were exercisable for a period of ninety (90) days following the effective date of the Company's Registration Statement. The Putholders were not charged or assessed for Puts and the Company did not receive any proceeds from the proceeds of the Puts. The Company bore the cost of the distribution of the Puts. In February 1997, the Company completed the filing of a Registration Statement Form SB-2 under the Securities Act of 1933, as amended. The filing effectively registered for sale all shares of common stock issued and outstanding at that time, 203,008 common stock put options which were subsequently issued to certain stockholders, 203,008 put option guarantees under which MicroCap guaranteed the Company's obligation under the puts, and an additional 400,000 shares of the Company's common stock to be offered to the public. The registration of the outstanding shares, the put options and the put option guarantees was required pursuant to the Agreement and Plan of Reorganization dated June 16, 1995. At March 31, 1997, the 203,008 common stock put options remained outstanding. The put options granted the putholders the right to sell to the Company their shares of common stock at a price of $1.50 per share. The Company's potential obligation under the put options of $304,512 was classified as redeemable common stock at March 31, 1997. The put options expired on June 13, 1997; however, prior to their expiration, 102,946 options were exercised by the optionholders and the shares were acquired by affiliates of the Company for $154,419. The remaining put options were forfeited. MICROCAP DEBT CONVERSION During the year ended March 31, 1997, the Company issued 71,559 shares of common stock to MicroCap to retire notes and accounts payable totalling $85,871. TRIPOWER RESOURCES, INC., DEBT OBLIGATION In conjunction with the acquisition of KHSL-AM\FM by Alta, Alta borrowed the sum of $375,000 from TriPower Resources, Inc., which indebtedness was evidenced by Alta's promissory note (the "Note") and was originally secured by the Chico Property, which was sold by the Company in April, 1996. The TriPower Note was then collateralized by a pledge of 100% of the shares of Alta Common Stock. TriPower Resources, Inc. is a controlled corporation of the Company's President, John C. Power. Pursuant to the terms of the Note, Alta has agreed to pay TriPower Resources, Inc. interest on the unpaid principal balance at the rate of fourteen percent (14%) per annum. During the eight (8) months ended March 31, 1996, the Company made a principal reduction payment of $75,000, leaving a principal balance of $300,000. The TriPower Note was paid in full during the year ended March 31, 1997 and all collateral was returned to the Company. MICROCAP BORROWINGS The Company has received approximately $108,957 from MicroCap in the form of inter-Company borrowings, which indebtedness is unsecured and had not been repaid as of March 31, 1998. The funds received were used for working capital. POWER CURVE, INC. STOCK PURCHASE During the year ended March 31, 1997, the Company received private placement proceeds of $97,500 in exchange for the issuance of $81,250 shares of common stock at $1.20 per share to Power Curve, Inc., a corporation controlled by John C. Power, an officer and director of the Company. MICROCAP PREFERRED STOCK During the year ended March 31, 1998, the Company issued 790,000 shares of its preferred stock to MicroCap for $790,000. NOTES RECEIVABLE OFFICER The Company has a $45,000 note receivable from an officer of the Company as of March 31, 1998 relating to a purchase by the officer of 31,500 shares of the Company's common stock. The note bears interest at 7%, matures on August 1, 2002 and is collateralized by a second deed of trust on the officer's personal residence. MICROCAP STOCK PURCHASE During the year ended March 31, 1998 MicroCap purchased 25,000 shares of Common Stock pursuant to the Company's Public offering. The Company received proceeds of $50,000 from this transaction. ROCKIES FUND STOCK ISSUANCE During the year ended March 31, 1998 the Company issued 200,000 shares of Common Stock to the Rockies Fund, Inc. to purchase a 20% interest in Power Surge, Inc. (a wholly-owned subsidiary of Power Curve, Inc. which is 100% owned by the President of the Company). ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K. (a) Exhibits The exhibits as indexed below are included as part of this Form 10-KSB The following Exhibits have previously been filed as part of a Registration Statement pursuant to item 601 of Regulation S-B: Index to Exhibits ----------------- Exhibit No. Description 2.0 Agreement and Plan or Reorganization Dated as of December 5, 1994, between and among Cell Robotics, Inc., Intellegent Financial Corporation, Micel, Inc., Bridgeworks Investors 1, LLC, and Ronald K. Lohrding 2.1 Agreement and Plan of Reorganization Date as of June 16, 1995, between and among Intelligent Financial Holding Corporation, Redwood Microcap Fund, Inc., and Redwood Broadcasting Inc. 3.0(i) Articles of Incorporation of Intelligent Financial Holding Corporation 3.0(ii) By-laws of Intelligent Financial Holding Corporation 4.1 Specimen Certificate of Common Stock 4.2 Specimen Put Option Certificate 4.3 Redwood Broadcasting Inc. 1995 Incentive Stock Option Plan 5.0 Opinion of Newman & Cobb regarding the legality of the securities being registered 10.0 KHSL-AM/FM Asset Purchase Agreement dated February 3, 1995 10.1 KHSL Local Management Agreement 10.3 Agreement to Convert Debt dated September 30, 1995 between Intelligent Financial Holding Corporation and Redwood MicroCap Fund, Inc. 10.4 KNNN Letter of Intent 10.5 KNNN Asset Purchase Agreement 10.6 KNSN-AM and KHSL-FM Asset Purchase Agreement dated March 12, 1996 10.7 Redwood MicroCap Fund Inc. Consultation Agreement 10.8 Selected Dealer Agreement 16.0 Letter on Change and Certifying Accountant 21.0 Subsidiaries 23.1 Consent of Neuman & Cobb 23.2 Consent of Schumacher & Associates, Inc., Certified Public Accountants 23.3 Consent of Stockman, Kast, Ryan & Scruggs, P.C. * Incorporated by referenced from Registrant's Registation Statement on Form SB-2, S.E.C. File No. 33-80321, as filed with the Commission on December 12, 1995. ** Incorporated by referenced from Registrant's Pre-Effective Amendment No.1 to Registration Statement on Form SB-2 S.E.C. File No.33-80321, as filed with the Commission on October 3, 1996. *** Incorporated by referenced from Registrant's Pre-Effective Amendment No.2 to Registration Statement on Form SB-2 S.E.C. File No.33-80321, as filed with the Commission on January 2, 1997. SIGNATURES DATED: 07/14/97 REDWOOD BROADCASTING By: /s/ JOHN C. POWER John C. Power President and Chief Executive Officer By: /s/ J. ANDREW MOORER J. Andrew Moorer Chief Financial Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ John C. Power President and Chief Executive Officer 07/14/98 JOHN C. POWER Chairman of the Board of Directors /s/ J. Andrew Moorer Chief Financial Officer and Director 07/14/98 J. ANDREW MOORER REDWOOD BROADCASTING, INC. AND SUBSIDIARIES TABLE OF CONTENTS Page INDEPENDENT AUDITORS' REPORT 2 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheet 3 Consolidated Statements of Operations 4 Consolidated Statements of Stockholders' Equity 5 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7 - 1 - INDEPENDENT AUDITORS' REPORT Redwood Broadcasting, Inc. Carefree, Arizona We have audited the accompanying consolidated balance sheet of Redwood Broadcasting, Inc. and subsidiaries as of March 31, 1998 and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended March 31, 1998 and 1997. 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 the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Redwood Broadcasting, Inc. and subsidiaries as of March 31, 1998, and the results of their operations and their cash flows for the years ended March 31, 1998 and 1997 in conformity with generally accepted accounting principles. STOCKMAN KAST RYAN & SCRUGGS, P.C. Colorado Springs, Colorado July 10, 1998 - 2 - REDWOOD BROADCASTING, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET MARCH 31, 1998 ASSETS CURRENT ASSETS Cash and cash equivalents (Note 6) $ 55,695 Accounts receivable, net (Note 1) 48,024 Receivables from related parties (Note 5) 133,839 Receivable from bid settlement 45,000 Other current assets 16,759 --------- Total current assets 299,317 Property and equipment, net (Notes 3 and 6) 227,249 Intangible assets, net (Note 4) 915,716 Deposit on purchase of stations (Note 2) 973,000 Other assets 198,348 --------- TOTAL $2,613,630 ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $ 200,121 Payables to related parties (Note 5) 152,805 Current portion of notes payable (Note 6) 97,940 Current portion of notes payable to related parties (Note 5) 165,064 --------- Total current liabilities 615,930 Notes payable (Note 6) 443,371 Notes payable to related parties (Note 5) 50,000 --------- Total liabilities 1,109,301 --------- REDEEMABLE PREFERRED STOCK, par value $.04; 2,500,000 shares authorized; 790,000 issued and outstanding (Notes 8 and 11) 790,000 --------- STOCKHOLDERS' EQUITY (Note 8) Common stock, par value $.004; 12,500,000 shares authorized; 1,410,000 shares issued and outstanding 5,640 Additional paid-in capital 1,453,506 Accumulated deficit (699,817) Note receivable from stockholder (45,000) --------- Total stockholders' equity 714,329 --------- TOTAL $2,613,630 ========= See notes to consolidated financial statements. - 3 - REDWOOD BROADCASTING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1998 AND 1997 1998 1997 REVENUE Broadcast revenue $ 830,724 $ 545,185 Less agency commissions 73,638 37,268 --------- --------- Net revenue 757,086 507,917 --------- --------- OPERATING EXPENSE General and administrative 435,981 347,635 Broadcasting 333,110 339,499 Selling 103,552 104,169 Depreciation and amortization 133,877 152,175 Corporate restructuring (Note 8) - 122,747 --------- --------- Total 1,006,520 1,066,225 --------- --------- LOSS FROM OPERATIONS (249,434) (558,308) --------- --------- OTHER INCOME (EXPENSE) Interest expense (70,452) (147,930) Gain on sale of radio stations (Note 2) 678,206 Loss on sale of land (Note 2) (80,000) Other income - net (Notes 2 and 10) 172,468 87,857 --------- --------- OTHER INCOME, NET 102,016 538,133 --------- --------- NET LOSS $(147,418) $ (20,175) ========= ========= NET LOSS PER COMMON SHARE $ (.15) $ (.03) ========= ========= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 1,015,082 732,201 ========= ========= See notes to consolidated financial statements. - 4 - REDWOOD BROADCASTING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Note Additional Receivable Total Common Stock Paid-In Accumulated from Stockholders' Shares Amount Capital Deficit Stockholder Equity BALANCES, APRIL 1, 1996 577,500 $2,310 $467,935 $(532,224) $ (61,979) Issuance of stock in private placements (Note 8) 132,750 531 158,769 159,300 Issuance of common stock to repay debt (Note 8) 71,559 286 85,585 85,871 Issuance of common stock for services (Note 8) 46,016 184 55,035 55,219 Issuance of common stock to officer (Note 8) 37,500 150 44,850 $(45,000) Issuance of common stock for investment 6,667 27 7,973 8,000 Net loss (20,175) (20,175) ------ ----- ------ -------- -------- -------- BALANCES, MARCH 31, 1997 871,992 3,488 820,147 (552,399) (45,000) 226,236 Satisfaction or forfeiture of common stock put options (Note 8) 203,008 812 303,700 304,512 Issuance of common stock to repay debt(Note 8) 75,000 300 82,200 82,500 Issuance of common stock for cash and services (Note 8) 60,000 240 8,259 8,499 Issuance of common stock for investment(Note 2) 200,000 800 239,200 240,000 Net loss (147,418) (147,418) --------- ---- --------- -------- --------- ---------- BALANCES, MARCH 31, 1998 1,410,000 $5,640 $1,453,506 $(699,817) $(45,000) $714,329 ========= ====== ========== ======== ========= ======== See notes to consolidated financial statements. - 5 - REDWOOD BROADCASTING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MARCH 31, 1998 AND 1997 1998 1997 OPERATING ACTIVITIES Net loss $(147,418) $ (20,175) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 133,877 152,175 Gain on bid settlement (36,205) Gain on sale of stations (678,206) Loss on sale of land 80,000 Loss on disposals of equipment 5,942 Changes in operating assets and liabilities: Accounts receivable 73,536 (42,226) Other current assets (3,852) 10,986 Accounts payable and accrued expenses (188,544) 10,008 Other assets (112,180) 7,901 -------- -------- Net cash used in operating activities (280,786) (473,595) -------- -------- INVESTING ACTIVITIES Collection of receivables from sales of stations 833,000 Cash deposit on purchase of stations (733,000) Proceeds from sale of radio stations, net of commissions paid 588,333 Proceeds from sale of land 370,000 Purchases of station assets (66,786) (448,920) -------- -------- Net cash provided by investing activities 33,214 509,413 -------- -------- FINANCING ACTIVITIES Proceeds from borrowings under related party notes 205,000 1,198,808 Proceeds from borrowings under notes 97,403 465,000 Principal payments on notes to related parties (580,385) (848,533) Principal payments on notes (224,184) (761,908) Decrease in net payable to related parties (83,863) (132,030) Payments on capital lease obligations (11,994) (13,664) Proceeds from issuance of common stock 100,000 159,300 Proceeds from issuance of redeemable preferred stock 790,000 Increase in common stock offering costs (29,501) (62,000) -------- -------- Net cash provided by financing activities 262,476 4,973 -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 14,904 40,791 CASH AND CASH EQUIVALENTS, Beginning of year 40,791 -------- -------- CASH AND CASH EQUIVALENTS, End of year $55,695 $ 40,791 ======== ======== SUPPLEMENTAL NONCASH INVESTING ACTIVITIES Promissory note received for sale of stations $ 200,000 Receivable received for sale of stations 633,000 SUPPLEMENTAL NONCASH FINANCING ACTIVITIES Satisfaction or forfeiture of common stock put options $ 304,512 Issuance of common stock for services 20,000 $ 55,219 Issuance of common stock to repay debt 82,500 85,871 Issuance of common stock for investment 240,000 8,000 Issuance of common stock to officer in exchange for note receivable from officer 45,000 Note issued in acquisition of station assets 655,000 SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest $ 113,048 $ 115,689 See notes to consolidated financial statements. - 6 - REDWOOD BROADCASTING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization -- Redwood Broadcasting, Inc. ("RBI") and its subsidiaries Alta California Broadcasting, Inc. and Northern California Broadcasting, Inc. (collectively, the Company), operate in the radio broadcasting industry. RBI is a majority-owned subsidiary of Redwood MicroCap Fund, Inc. ("MicroCap"). Organized as a holding company for the purpose of acquiring and/or developing undervalued radio broadcasting properties located in small to medium sized markets, the Company has embarked upon an aggressive acquisition and development program and continues to seek acquisition and development opportunities in the broadcast industry. The Company currently operates radio stations in Northern California. Management of the Company is performed by employees of MicroCap. Principles of Consolidation -- The consolidated financial statements include the accounts of RBI and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Accounts Receivable -- The Company maintains an allowance for doubtful accounts based upon the expected collectibility of all accounts receivable. At March 31, 1998, the allowance was $8,250. Property and Equipment -- Property and equipment are recorded at fair value as of the date of aquisition of the related station or cost if purchased subsequently. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets as follows: buildings and improvements - 10 years; transmitters - 20 years; computer equipment - 3 years; and technical equipment and furniture and fixtures - 5 to 7 years. The recoverability of the carrying value of property and equipment is evaluated periodically in relation to the estimated value of the radio stations based on their operating performance and cash flows. Intangible Assets -- Intangible assets include radio station purchase price allocations to license costs and the noncompete agreement. License costs are amortized over a period of 20 years and noncompete agreement is amortized over the three year period of the agreement. The recoverability of the carrying value of intangible assets is evaluated periodically in relation to the estimated value of the radio stations based on their operating performance and cash flows. Revenue Recognition -- The Company's primary source of revenue is the sale of air time to advertisers. Revenue from the sale of air time is recorded when the advertisements are broadcast. Barter Transactions -- Revenue from barter transactions (advertising provided in exchange for goods and services) is recognized based on the fair value of the goods or services received when the advertisements are broadcast. Goods and services are recognized when used. - 7 - 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Income Taxes -- The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, which uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes of a change in tax rate is recognized in the period that includes the enactment date. Loss Per Common Share -- Loss per common share is based upon the net loss applicable to common shares and upon the weighted average of common shares outstanding during the period. The exercise of common stock warrants was not assumed in the calculation of loss per common share because the effect would be antidilutive. The weighted average common shares outstanding excludes shares which are treated as redeemable common stock. Use of Estimates -- The preparation of the Company's financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Statement of Cash Flows -- For purposes of the statement of cash flows, highly liquid investments, maturing within three months of acquisition, are considered to be cash equivalents. Concentrations of Risk -- Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and receivables. The Company's radio stations broadcast in Northern California. This results in a risk to the Company due to the concentration in one geographic area. Reclassifications -- Certain amounts in the 1997 financial statements have been reclassified to conform with the 1998 presentation. 2. RADIO STATION ACQUISITIONS AND DISPOSITIONS In 1994, RBI formed a wholly-owned subsidiary, Alta California Broadcasting, Inc. (Alta), to pursue radio acquisition opportunities it had determined were available in Northern California. A description of such stations follows: KHSL AM/FM -- In 1994, Alta acquired radio stations KHSL-AM/FM licensed to Chico and Paradise, California, respectively. Subsequent to its acquisition by Alta, KHSL-AM changed its call letters to KNSN-AM. - 8 - 2. RADIO STATION ACQUISITIONS AND DISPOSITIONS, continued In March 1996, Alta entered into separate Asset Sale Agreements to sell the assets of both KNSN-AM and KHSL-FM, excluding a parcel of land, for $1,466,333. Concurrently with signing the Asset Sale Agreements, Alta entered into a Local Management Agreement (LMA) with the prospective purchaser until the sale closed on March 31, 1997, at which time the LMA terminated. Included in other income for the year ended March 31, 1997 is $46,033 resulting from LMA fees from the prospective purchaser. Alta received $633,333 in cash and a $200,000 promissory note bearing interest at a rate of 7%. Alta was also to receive $633,000 in cash no later than April 30, 1997 for KNSN-AM; however, pursuant to the Asset Purchase Agreement, the buyer of KNSN-AM had the option to defer payment of such amount for monthly option fees of $10,000 or $15,000. Included in other income for the year ended March 31, 1998 is $70,000 resulting from monthly option fees collected. As of March 31, 1998, all amounts receivable from the sale of KHSL-AM/FM had been collected. A gain on the sale of $678,206 has been recorded in the accompanying statement of operations for the year ended March 31, 1997. In April 1996, the parcel of land was sold to an unrelated party for $370,000. A loss on the sale of $80,000 has been recorded in the accompanying statement of operations for the year ended March 31, 1997. KRDG-FM (f/k/a KHZL and KCFM) -- In March 1995, Alta entered into a LMA with an option to purchase radio station KCFM-FM licensed to Shingletown, California, which began commercial broadcasting in August 1995. KCFM-FM primarily serves the Redding, California market. In September 1995, KCFM-FM changed its call letters to KHZL-FM. In July 1996, Alta completed the acquisition of KHZL-FM, thereby terminating the LMA. Alta paid $65,000 cash and issued a $155,000 promissory note as consideration for KHZL-FM (see Note 6). The acquisition was recorded using the purchase method and the $220,000 purchase price was recorded as license costs as no other assets of KHZL-FM were acquired. Effective September 27, 1996, Alta changed KHZL-FM's call letters to KRDG-FM. KNNN-FM -- In May 1996, Alta entered into an Asset Purchase Agreement to acquire KNNN-FM licensed to Central Valley, California. 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. In August 1996, Alta began operating KNNN-FM under a LMA pending approval of the transfer of ownership by the FCC. The purchase price for KNNN-FM was $825,000, $325,000 of which was paid in cash at closing, and the balance of which was in the form of a promissory note (see Note 6). Pursuant to the Asset Purchase Agreement, the seller of KNNN-FM agreed to not compete in the Redding, California market for a period of three years. The acquisition was recorded using the purchase method and the purchase price was allocated to property and equipment, the noncompete agreement and license costs, based on estimated fair values. - 9 - KLXR-FM -- In May 1996, Alta entered into an Asset Purchase Agreement to acquire KLXR-AM, licensed to Redding, California, for a total purchase price of $100,000. In February 1997, Alta entered into a LMA with the seller and, in April 1998, Alta completed the purchase of KLXR for $100,000 cash. KNRO-AM and KRRX-FM (f/k/a KARZ-FM) - Effective April 1, 1997, Alta acquired an option to purchase radio stations KNRO-AM and KARZ-FM (KNRO/KARZ) licensed in Redding, California from Power Surge, Inc. (Power Surge), a wholly-owned subsidiary of Power Curve, Inc. (Power Curve). Power Surge and Power Curve are both controlled by the Company's President. Power Curve acquired KNRO/KARZ on January 31, 1997 for $480,000 in cash and a $720,000 promissory note. Power Surge operated the stations from February 1, 1997 through March 31, 1997 and received the licenses from Power Curve on March 31, 1997. Under the terms of the option agreement, the Company can either (1) purchase KNRO/KARZ for $1,200,000 in cash or (2) issue 1,000,000 shares of its common stock in exchange for all of the issued and outstanding shares of common stock of Power Surge. Also effective April 1, 1997, the Company entered into a LMA with Power Surge for a period of one year. The Company operated KNRO/KARZ through October 15, 1997 and was obligated to pay Power Surge a monthly fee of $5,000. Effective May 16, 1997, KARZ-FM changed its call letters to KRRX-FM. As of March 31, 1998, the Company made cash payments of $733,000 and issued 200,000 shares of its common stock, with a fair value of $240,000, to Power Curve as deposits on the purchases. Subsequent to year-end the option agreement and LMA were extended, the option price was increased to $1,235,000, and Alta exercised its option on June 15, 1998. Immediately thereafter, the stations, along with KRDG-FM and KNNN-FM, were sold to Regent Communications, Inc. (Regent) (see note 11). KESP-FM -- During the year ended March 31, 1998, the Company acquired a construction permit for KESP-FM in Payson, Arizona and began construction of the station. On March 31, 1998, the Company signed an agreement with Brentlinger Broadcasting, Inc. (Brentlinger) under which Brentlinger has the option to purchase the station assets for a period of three years after commencement of program test operations. The option price is $1.5 million within two years after commencement of program test operations or $1.75 million thereafter. - 10 - 3. PROPERTY AND EQUIPMENT Property and equipment consists of the following at March 31, 1998: Buildings and improvements $ 54,098 Equipment 147,343 Transmitters 72,764 Furniture and fixtures 43,719 ------- Total property and equipment 317,924 Less accumulated depreciation 90,675 ------- Property and equipment-- net $227,249 ======= 4. INTANGIBLE ASSETS Intangible assets consist of the following at March 31, 1998: License costs $ 950,489 Noncompete agreement 100,000 --------- Total intangible assets 1,050,489 Less accumulated amortization 134,773 --------- Intangible assets-- net $ 915,716 ========= 5. RELATED PARTY TRANSACTIONS Notes payable to related parties consist of the following at March 31, 1998: Uncollateralized notes payable to related entities with interest at 8.25% and principal and interest due on June 30, 1998 $155,000 Uncollateralized notes payable to an employee with interest at 15% and principal and interest due on November 21, 2000 50,000 Uncollateralized notes payable to stockholders with interest at 8% and principal and interest due on March 31, 1999 10,064 ------- Total 215,064 Less current portion 165,064 ------- Total $ 50,000 ======= - 11 - 5. RELATED PARTY TRANSACTIONS, continued The Company recorded interest expense on the related party notes of approximately $45,000 and $79,000 for the years ended March 31, 1998 and 1997, respectively. Management believes that the fair values of its notes payable to related parties are not materially different from their carrying values based on the terms and varying characteristics of the notes. The Company has receivables from and payables to entities controlled by an officer and stockholder of the Company totalling $133,839 and $152,805 respectively, as of March 31, 1998. Such balances do not bear interest and have no set repayment terms. See Note 8 regarding common stock transactions with related parties. 6. NOTES PAYABLE Notes payable consist of the following at March 31, 1998: Note payable to seller of KNNN-FM with interest at 8.5%, collateralized by the common stock of Northern California Broadcasting, Inc., payable in monthly installments of principal and interest of $6,199 through October 2001 with the remaining balance due at that date $ 450,208 Note payable to bank with interest rates ranging from 8% to 11%, partially collateralized by cash equivalents and equipment, interest payable monthy and principal due in varying amounts from April 1, 1998 through September 2, 2000 76,103 Uncollateralized note payable, with interest at 15%, due and payable on November 21, 2000 15,000 -------- Total 541,311 Less current portion 97,940 -------- Total $ 443,371 ======== Under the terms of the promissory note agreements, future minimum annual principal payments during the fiscal years ending March 31 are as follows: 1999 - $97,940; 2000 - $53,621; 2001 - $62,502; and 2002 - $327,248. Management believes that the fair values of its notes payable are not materially different from their carrying values based on the terms and varying characteristics of the notes. - 12 - 7. LEASE AGREEMENTS The Company leases land and equipment under operating lease agreements expiring in various years through 2002. Lease expense under the operating lease agreements totalled $30,263 and $74,039 for the years ended March 31, 1998 and 1997, respectively. Pursuant to the LMA agreement between Alta and Regent (see Note 11), the Company was reimbursed for all operating lease payments subsequent to October 15, 1997. The lease agreements were assumed by Regent upon the closing of the sales agreement with Regent on June 15, 1998. 8. STOCKHOLDERS' EQUITY In February 1997, the Company completed the filing of a Registration Statement Form SB-2 under the Securities Act of 1933, as amended. The filing effectively registered for sale all shares of common stock issued and outstanding at that time, 203,008 common stock put options which were subsequently issued to certain stockholders, 203,008 put option guarantees under which MicroCap guaranteed the Company's obligation under the puts, and an additional 400,000 shares of the Company's common stock to be offered to the public. The registration of the outstanding shares, the put options and the put option guarantees was required pursuant to the Agreement and Plan of Reorganization dated June 16, 1995. In connection with the completion and filing of the registration statement, the Company incurred certain legal, accounting and consulting costs. The portion of such costs which related to the registration of the previously issued and outstanding shares, the put options and put option guarantees were charged to operations since no proceeds were realized relating to the registration of such securities. The portion of such costs which related to the registration of the additional 400,000 shares to be offered to the public are reflected as a reduction of proceeds totalling $111,501 upon the sale of these shares. During the year ended March 31, 1998, the Company sold 50,000 shares for $100,000. - 13 - 8. STOCKHOLDERS' EQUITY, continued At March 31, 1997, the 203,008 common stock put options remained outstanding. The put options granted the putholders the right to sell to the Company their shares of common stock at a price of $1.50 per share. The Company's potential obligation under the put options of $304,512 was classified as redeemable common stock at March 31, 1997. The put options expired on June 13, 1997; however, prior to their expiration, 102,946 options were exercised by the optionholders and the shares were acquired by affiliates of the Company for $154,419. The remaining put options were forfeited. During the year ended March 31, 1998, the Company issued 790,000 shares of its preferred stock to MicroCap for $790,000. Because it was management's intention as of March 31, 1998, to repurchase the shares with the proceeds from the sale of radio stations to Regent in June 1998 (see note 11), the preferred stock has been classified as redeemable in the accompanying balance sheet as of March 31, 1998. During the year ended March 31, 1997, the Company issued 71,559 shares of common stock to MicroCap and a company controlled by the Company's president in repayment of notes and accounts payable totalling $85,871. Also, included within the private placement proceeds is $129,300 received from related parties during the year ended March 31, 1997 for 107,750 shares of common stock. During the year ended March 31, 1998, the Company issued 10,000 shares of common stock for legal services rendered in connection with the completion and filing of the registration statement described above. The services, with a value of $20,000, were charged to additional paid-in capital. During the year ended March 31, 1997, the Company issued 46,016 shares of common stock for legal and other services. The estimated fair value of the services of $55,219 was charged to operations. The Company has a $45,000 note receivable from an officer of RBI as of March 31, 1998 relating to a purchase by the officer of 37,500 shares of RBI common stock. The note bears interest at 7%, matures on August 1, 2002 and is collateralized by a second deed of trust on the officer's personal residence. - 14 - 8. STOCKHOLDERS' EQUITY, continued At March 31, 1998, the Company had outstanding warrants to purchase 116,666 shares of the Company's common stock at a purchase price equal to the lesser of $1.50 per share or fifty percent of the offering price to the public of the Company's common stock in connection with the next public offering of shares by the Company. The shares became exercisable on September 9, 1997 and expire on September 9, 2000. On December 5, 1995, the Company adopted the 1995 Incentive Stock Option Plan (the Plan). Pursuant to the Plan, the Company's Board of Directors is authorized to issue options for the purchase of up to 150,000 shares of the Company's common stock to key employees of the Company. Under the Plan, the exercise price of the options may not be less than the fair market value of the shares of the Company's common stock on the date of grant. During the year ended March 31, 1997, the Company issued 100,000 options under the Plan to an employee; the options expired in December, 1997 upon the employee's termination. No options are outstanding at March 31, 1998. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" (FAS 123), which establishes financial accounting and reporting standards for stock based employee compensation plans including stock purchase plans, stock options, restricted stock and stock appreciation rights. As permitted by FAS 123, the Company has elected to continue accounting for stock based compensation in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. The Company estimates that the impact of FAS 123 would not be material to the Company's financial statements. 9. INCOME TAXES The Company has approximately $540,000 of net operating loss carryovers expiring in various years through 2013 which result in deferred income tax assets of approximately $180,000. However, because of the uncertainty regarding future realization of the deferred income tax assets, the Company has established a valuation allowance of $180,000 as of March 31, 1998. The valuation allowance increased by $53,000 and $64,000 during the years ended March 31, 1998 and 1997. 10. OTHER INCOME Included in other income for the year ended March 31, 1998 is a $36,205 gain resulting from a FCC license auction and settlement agreement. 11. SUBSEQUENT EVENTS During April 1998, the Company received $90,000 for 497 of its 1,000 shares in Channel 31, Inc., a company founded to acquire a construction permit to build a television station in Pocatello, Idaho. The Company has also granted an option to the acquiror of the shares to purchase the Company's remaining 503 shares for $10,000. On June 15, 1998, the Company sold KRDG-FM, KNNN-FM, KNRO-FM, and KRRX-FM to Regent and received approximately $950,000 cash and 200,000 shares of Regent's Series E preferred stock. Regent also assumed approximately $1,500,000 of the Company's liabilities. With the proceeds of the sale, the Company repurchased all of its outstanding shares of preferred stock (see note 8) for $790,000. Regent operated such stations through June 15, 1998 under a LMA which was effective on October 15, 1997. - 15 - -----END PRIVACY-ENHANCED MESSAGE-----