SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 31, 1997
REDWOOD BROADCASTING, INC.
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(Exact name of registrant as specified in its charter)
Colorado 33-00321 84-0928022
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(State or other juris- (Commission file (IRS Employer
diction of incorporation number) Identification No.)
or organization)
P.O. Box 3463, 7518 Elbow Bend Rd., Bldg. A, Suite I, Carefree, Arizona 85377
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 488-2596
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(Former name or former address, if changed since last report)
ITEM 7: FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION
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(a) Financial Statements of Businesses Acquired
Filed herewith are the Report of Independent Auditors, the
Balance Sheet as of December 31, 1996 of KARZ/KNRO (A Division of
Merit Broadcasting Corporation), Statement of Operations and Net
Liabilities of Division for the year ended December 31, 1996 and the
three months ended March 31, 1996 (unaudited), and Statements of
Cash Flows for the year ended December 31, 1996 and the three months
ended March 31, 1996 (unaudited), together with the Notes to
Financial Statements.
Also filed herewith are the Balance Sheet as of March 31, 1997
(unaudited) of KARZ/KNRO (A Division of Power Surge, Inc.),
Statement of Operations and Net Assets of Division for the period
January 31, 1997 through March 31, 1997 (unaudited), and Statement
of Cash Flows for the period January 31, 1997 through March 31, 1997
(unaudited), together with the Notes to Financial Statements
(Unaudited).
(b) Pro Forma Consolidated Financial Information
Filed herewith are the Unaudited Pro Forma Consolidated
Statement of Operations for the year ended March 31, 1997 and the
Unaudited Pro Forma Consolidated Balance Sheet at March 31, 1997 of
Redwood Broadcasting, Inc. and Subsidiaries.
==============================================================================
AUDITED FINANCIAL STATEMENTS
KARZ/KNRO
(A Division of Merit Broadcasting Corporation)
December 31, 1996
==============================================================================
INDEPENDENT AUDITORS' REPORT
KARZ/KNRO (A Division of Merit Broadcasting Corporation)
We have audited the accompanying balance sheet of KARZ/KNRO (A Division of
Merit Broadcasting Corporation) as of December 31, 1996 and the related
statements of operations and of cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of KARZ/KNRO at December 31, 1996 and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
STOCKMAN KAST RYAN & SCRUGGS, P.C.
Colorado Springs, Colorado
May 9, 1997
KARZ/KNRO (A Division of Merit Broadcasting Corporation)
BALANCE SHEET
DECEMBER 31, 1996
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ASSETS
CURRENT ASSETS
Cash $ 4,661
Accounts receivable - net of allowance for
doubtful accounts of $23,074 92,834
Other current assets 10,000
----------
Total 107,495
OPERATING PROPERTY AND EQUIPMENT - Net (Note 3) 70,280
----------
TOTAL $ 177,775
=========
LIABILITIES AND NET LIABILITIES OF DIVISION
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 10,877
Accrued interest payable to related parties (Note 2) 85,458
Line of credit borrowings (Note 4) 1,617
----------
Total 97,952
DEBT TO RELATED PARTIES (Note 2) 164,297
NET LIABILITIES OF DIVISION (84,474)
----------
TOTAL $ 177,775
=========
See notes to financial statements.
KARZ/KNRO (A Division of Merit Broadcasting Corporation)
STATEMENTS OF OPERATIONS AND NET LIABILITIES OF DIVISION
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE THREE MONTHS ENDED MARCH 31, 1996
- -----------------------------------------------------------------------------
December 31, March 31,
1996 1996
(Unaudited)
------------ -----------
REVENUE
Broadcasting $ 588,339 $ 130,342
Less agency commissions 38,042 8,256
----------- ----------
Net revenue 550,297 122,086
----------- ----------
COSTS AND EXPENSES
General and administrative 298,701 72,260
Programming and technical 152,611 37,157
Sales 104,014 19,719
----------- ----------
Total 555,326 129,136
----------- ----------
LOSS FROM OPERATIONS 5,029 7,050
INTEREST EXPENSE (Note 2) 17,526 4,245
----------- ----------
NET LOSS 22,555 11,295
TRANSFERS TO OTHER DIVISIONS 8,551
NET LIABILITIES OF DIVISION, Beginning of period 53,368 53,368
----------- ----------
NET LIABILITIES OF DIVISION, End of period $ 84,474 $ 64,663
========== =========
See notes to financial statements.
KARZ/KNRO (A Division of Merit Broadcasting Corporation)
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE THREE MONTHS ENDED MARCH 31, 1996
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December 31, March 31,
1996 1996
(Unaudited)
------------ -----------
OPERATING ACTIVITIES
Net loss $ (22,555) $ (11,295)
Adjustments to reconcile net loss to net cash
provided by activities:
Depreciation 8,887 2,222
Changes in operating assets and liabilities:
Accounts receivable 20,256 13,713
Accounts payable and accrued liabilities (7,854) 48,653
Accrued interest payable to related parties 16,930 4,233
----------- ----------
Net cash provided by operating activities 15,664 57,526
----------- ----------
FINANCING ACTIVITIES
Repayment of line of credit borrowings (17,383) (3,048)
Transfers to other divisions (8,551)
----------- ----------
Net cash used in financing activities (25,934) (3,048)
----------- ----------
NET INCREASE (DECREASE) IN CASH (10,270) 54,478
CASH, Beginning of period 14,931 14,931
----------- ----------
CASH, End of period $ 4,661 $ 69,409
========== =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 1,058 $ 265
========== =========
See notes to financial statements.
KARZ/KNRO (A Division of Merit Broadcasting Corporation)
NOTES TO FINANCIAL STATEMENTS
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General -
-------
Merit Broadcasting Corporation (the Company) owned and operated
radio stations KARZ-FM and KNRO-AM (together, KARZ/KNRO) in Redding,
California through January 31, 1997, at which time KARZ/KNRO was
acquired by Power Curve, Inc.
The Company owns and operates two other radio stations and accounts
for the activities of the stations as separate divisions. The
accompanying financial statements include only the accounts of the
KARZ/KNRO division of the Company.
Interim Financial Statements -
----------------------------
The financial statements for the three months ended March 31, 1996
are unaudited. In management's opinion, the financial statements
reflect all adjustments necessary for a fair presentation of the
results for the three months ended March 31, 1996, all adjustments
being of a normal and recurring nature.
Accounts Receivable -
-------------------
Concentrations of credit risk with respect to receivables are
limited due to the large number of customers in diverse industries
and generally short payment terms. Due to these factors, no
additional credit risk beyond amounts provided for collection losses
is believed inherent in the accounts receivable of KARZ/KNRO.
Operating Property and Equipment -
--------------------------------
Property and equipment is recorded at cost and is depreciated using
accelerated methods over lives as follows: buildings - 35 years;
vehicles - 5 years; towers and improvements - 5 to 10 years; and
other equipment - 5 to 7 years. The recoverability of the carrying
value of operating property and equipment is evaluated periodically
in relation to the estimated value of the radio stations based on
their operating performance and non-discounted cash flows.
Income Taxes -
------------
As a division of the Company, KARZ/KNRO is not a taxable entity.
Accordingly, no provision or credit for income taxes has been made
in the accompanying financial statements.
Statement of Cash Flows -
-----------------------
For purposes of the statement of cash flows, highly liquid accounts
maturing within three months of acquisition are considered to be
cash equivalents.
Use of Estimates -
----------------
The preparation of KARZ/KNRO'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.
Geographic Area -
---------------
KARZ/KNRO broadcasts in Northern California. This results in a risk
to the Company due to the concentration in one geographic area.
2. RELATED PARTY TRANSACTIONS
--------------------------
The Company has debt to its shareholders totalling $164,297 as of
December 31, 1996. The debt is unsecured, bears interest at 10% and has
no maturity date. Accrued interest on such debt was $85,458 as of
December 31, 1996. Such debt and the related accrued interest has been
recorded on the accompanying financial statements of KARZ/KNRO as it
relates to the acquisition of assets of KARZ/KNRO.
The Company has debt to a former shareholder totalling $644,825 as of
December 31, 1996. Accrued interest on such debt was $45,867 as of
December 31, 1996. Since such debt was incurred for the purchase of
treasury stock of the Company, it has been recorded at the corporate
level and has not been recorded on the accompanying KARZ/KNRO financial
statements. Had such debt been recorded on the accompanying KARZ/KNRO
financial statements as of December 31, 1996, net liabilities would have
increased by $690,692 and net loss would have increased by $29,917.
3. OPERATING PROPERTY AND EQUIPMENT
--------------------------------
Operating property and equipment consists of the following at
December 31, 1996:
Land $ 23,000
Building 22,644
Towers and improvements 126,099
Equipment 191,856
Vehicles 26,914
----------
Total 390,513
Less accumulated depreciation 320,233
----------
Operating property and equipment - net $ 70,280
=========
4. LINE OF CREDIT
--------------
The Company has a $50,000 line of credit agreement with a bank which is
unsecured, bears interest at the bank's index rate plus 1.5% and matured
on February 15, 1997. The Company borrowed $19,000 under the line of
credit agreement in 1995 for the purchase of equipment for KARZ/KNRO.
Accordingly, such borrowings have been recorded on the KARZ/KNRO
financial statements. As of December 31, 1996, the outstanding
borrowings under the agreement totalled $1,617.
5. BUILDING LEASE
--------------
KARZ/KNRO leases its offices under a month-to-month operating lease
agreement. Lease expense totalled $19,908 during 1996.
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UNAUDITED FINANCIAL STATEMENTS
KARZ/KNRO
(A Division of Power Surge, Inc.)
March 31, 1997
=============================================================================
KARZ/KNRO (A Division of Power Surge, Inc.)
BALANCE SHEET
MARCH 31, 1997 (UNAUDITED)
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ASSETS
CURRENT ASSETS
Cash $ 14,087
Accounts receivable - net of allowance for
doubtful accounts of $600 50,679
----------
Total 64,766
OPERATING PROPERTY AND EQUIPMENT - net (Note 3) 145,239
NONCOMPETE AGREEMENT - net of accumulated amortization
of $8,333 141,667
FCC LICENSE - net of accumulated amortization of $6,000 894,000
----------
TOTAL $1,245,672
=========
LIABILITIES AND NET ASSETS OF DIVISION
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 41,596
Advances payable to Power Curve 11,000
----------
Total 52,596
NET ASSETS OF DIVISION 1,193,076
----------
TOTAL $ 1,245,672
=========
See notes to financial statements.
KARZ/KNRO (A Division of Power Surge, Inc.)
STATEMENT OF OPERATIONS AND NET ASSETS OF DIVISION
FOR THE PERIOD JANUARY 31, 1997 THROUGH MARCH 31, 1997 (UNAUDITED)
- -----------------------------------------------------------------------------
REVENUE
Broadcasting $ 74,703
Less agency commissions 5,893
----------
Net revenue 68,810
----------
COSTS AND EXPENSES
General and administrative 43,297
Programming and technical 24,370
Sales 8,067
----------
Total 75,734
----------
NET LOSS 6,924
NET ASSETS OF DIVISION, Beginning of period 1,200,000
----------
NET ASSETS OF DIVISION, End of period $1,193,076
=========
See notes to financial statements.
KARZ/KNRO (A Division of Power Surge, Inc.)
STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 31, 1997 THROUGH MARCH 31, 1997 (UNAUDITED)
- -----------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss $ (6,924)
Adjustments to reconcile net loss to net cash
provided by activities:
Depreciation and amortization 19,094
Changes in operating assets and liabilities:
Accounts receivable (50,679)
Accounts payable and accrued liabilities 41,596
---------
Net cash provided by operating activities 3,087
---------
FINANCING ACTIVITIES
Advances from Power Curve 11,000
---------
NET INCREASE IN CASH 14,087
CASH, Beginning of period 0
---------
CASH, End of period $ 14,087
========
See notes to financial statements.
KARZ/KNRO (A Division of Power Surge, Inc.)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General -
-------
KARZ-FM and KNRO-AM (together, KARZ/KNRO) are radio stations in
Redding, California. Power Curve, Inc. (Power Curve) acquired
KARZ/KNRO on January 31, 1997 from Merit Broadcasting Corporation
(see Note 2). On March 31, 1997, the ownership of KARZ/KNRO was
transferred to Power Curve's wholly owned subsidiary, Power Surge,
Inc. (Power Surge). On April 1, 1997, the operation of KARZ/KNRO
was transferred to Redwood Broadcasting, Inc. (Redwood) pursuant to
a local management agreement. Power Curve and Redwood are
affiliated through common ownership.
The statements of operations and net assets of division and of cash
flows reflect the activities of KARZ/KNRO for the period
January 31, 1997 through March 31, 1997, during which time KARZ/KNRO
was a division of Power Curve. The following unaudited pro forma
information reflects the results of operations of KARZ/KNRO for the
three-month period ended March 31, 1997, had Power Curve acquired
KARZ/KNRO on January 1, 1997:
Net revenue $ 106,159
Net loss 33,625
Interim Financial Statements -
----------------------------
The financial statements for the period January 31, 1997 through
March 31, 1997 are unaudited. In management's opinion, the
financial statements reflect all adjustments necessary for a fair
presentation of the results for the period January 31, 1997 through
March 31, 1997, all adjustments being of a normal and recurring
nature.
Accounts Receivable -
-------------------
Concentrations of credit risk with respect to receivables are
limited due to the large number of customers in diverse industries
and generally short payment terms. Due to these factors, no
additional credit risk beyond amounts provided for collection losses
is believed inherent in the accounts receivable of KARZ/KNRO.
Operating Property and Equipment -
--------------------------------
Property and equipment is recorded at cost and is depreciated using
accelerated methods over lives as follows: buildings - 35 years;
equipment - 5 to 7 years; furniture and fixtures - 5 to 7 years.
The recoverability of the carrying value of operating property and
equipment is evaluated periodically in relation to the estimated
value of the radio stations based on their operating performance and
non-discounted cash flows.
FCC License -
-----------
The Federal Communications Commission (FCC) license represents the
excess purchase price paid by Power Curve for KARZ/KNRO over the
fair value of the acquired operating property and equipment and non-
compete agreement and is being amortized on a straight-line basis
over 25 years.
Noncompete Agreement -
--------------------
The cost of obtaining the agreement not to compete is being
amortized over the three-year period of the agreement.
Income Taxes -
------------
As a division of Power Surge, KARZ/KNRO is not a taxable entity.
Accordingly, no provision or credit for income taxes has been made
in the accompanying financial statements.
Statement of Cash Flows -
-----------------------
For purposes of the statement of cash flows, highly liquid accounts
maturing within three months of acquisition are considered to be
cash equivalents.
Use of Estimates -
----------------
The preparation of KARZ/KNRO'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.
Geographic Area -
---------------
KARZ/KNRO broadcasts in Northern California. This results in a risk
to Power Surge due to the concentration in one geographic area.
2. ACQUISITION OF KARZ/KNRO
------------------------
Pursuant to an agreement dated October 29, 1996, KARZ/KNRO was acquired
by Power Curve on January 31, 1997 for a total purchase price of
$1,200,000 consisting of $480,000 in cash and a $720,000 promissory
note. The note is payable in monthly installments of principal and
interest of $8,735, bears interest at a rate of 8% and matures on
January 31, 2007. Power Surge did not assume the promissory note upon
the transfer of ownership of KARZ/KNRO from Power Curve; accordingly,
outstanding borrowings on the promissory note have not been reflected in
the accompanying financial statements of KARZ/KNRO.
The $1,200,000 purchase price has been allocated to operating property
and equipment, noncompete agreement and FCC license in the accompanying
KARZ/KNRO financial statements based on estimated fair values.
3. OPERATING PROPERTY AND EQUIPMENT
--------------------------------
Operating property and equipment consists of the following at March 31,
1997:
Buildings and improvements $ 75,000
Equipment 40,000
Transmitter 30,000
Furniture and fixtures 5,000
----------
Total 150,000
Less accumulated depreciation 4,761
----------
Operating property and equipment - net $ 145,239
=========
KARZ/KNRO leases its offices under a month-to-month operating lease
agreement. Lease expense totalled $1,145 during the period January 31,
1997 through March 31, 1997.
=============================================================================
SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA
REDWOOD BROADCASTING, INC. AND SUBSIDIARIES
March 31, 1997
=============================================================================
SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following tables set forth selected pro forma consolidated financial data
for the Company. The Unaudited Pro Forma Consolidated Statement of Operations
for the year ended March 31, 1997 gives effect to the acquisition of KARZ/KNRO
as if such transaction had occurred on April 1, 1996. The Unaudited Pro Forma
Consolidated Balance Sheet as of March 31, 1997 gives effect to the
acquisition of KARZ/KNRO as if such transaction had occurred on March 31,
1997. The selected pro forma consolidated financial data set forth below do
not purport to reflect what the results of operations or financial condition
of the Company would have been if the acquisition had occurred on the dates
specified above or to project the results of operations or financial condition
of the Company for any future date or period.
REDWOOD BROADCASTING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1997
- --------------------------------------------------------------------------------------------------------------
Redwood
Broadcasting, Inc.
and Subsidiaries KARZ/KNRO Pro Forma Pro Forma
Historical Historical (1) Adjustments Balances
------------------ -------------- --------------- ------------
Net revenues $ 507,917 $ 534,370 $ 1,042,287
Operating expenses 1,011,865 558,807 $ 78,548 (2) 1,649,220
------------ ---------- ---------- ------------
Loss from operations (503,948) (24,437) (78,548) (606,933)
Other income (expense) 544,051 (14,692) 13,634 (3) 542,993
------------ ---------- ---------- ------------
Net income (loss) $ 40,103 $ (30,129) $ (64,914) $ (63,940)
=========== ========== ========== ============
(1) Reflects the operations of KARZ/KNRO as a division of Merit Broadcasting
Corporation for the ten months ended January 31, 1997 and as a division
of Power Surge, Inc. for the two months ended March 31, 1997.
(2) Represents additional depreciation and amortization expense that would
have been recognized if the acquisition of KARZ/KNRO had occurred on
April 1, 1996.
(3) Represents the reduction of interest expense relating to KARZ/KNRO debt
that would have been repaid if the acquisition of KARZ/KNRO had occurred
on April 1, 1996.
REDWOOD BROADCASTING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
- -------------------------------------------------------------------------------
Redwood
Broadcasting, Inc.
and Subsidiaries KARZ/KNRO Pro Forma Pro Forma
Historical Historical (1) Adjustments Balances
------------------ -------------- ------------------ ------------
ASSETS
CURRENT ASSETS
Cash $ 40,791 $ 14,087 $ 54,878
Accounts receivable, net 193,106 50,679 243,785
Receivable 633,000 633,000
Other 10,807 10,807
---------- ----------- ---------- ------------
Total current assets 877,704 64,766 942,470
Property and equipment, net 219,345 145,239 364,584
License, net 928,473 894,000 $ 6,000 (1) 1,828,473
Note receivable 200,000 200,000
Other 226,741 141,667 8,333 (1) 376,741
---------- ----------- ---------- ------------
TOTAL $2,452,263 $1,245,672 $ 14,333 $ 3,712,268
========= ========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and
accrued liabilities $ 478,980 $ 41,596 $ 520,576
Current portion of notes
payable 62,884 62,884
Other current liabilities 21,716 11,000 32,716
---------- ----------- ----------- ------------
Total current liabilities 563,580 52,596 616,176
NOTES PAYABLE 1,305,657 1,305,657
---------- ----------- ----------- ------------
TOTAL LIABILITIES 1,869,237 52,596 1,921,833
---------- ----------- ----------- ------------
STOCKHOLDERS' EQUITY
Preferred stock
Common stock 4,300 4,300
Additional paid-in capital 1,039,328 $1,207,409 (1)(2) 2,246,737
Accumulated deficit (415,602) (415,602)
Note receivable from stockholder (45,000) (45,000)
Net assets of division 1,193,076 (1,193,076) (2)
---------- ----------- ----------- ------------
Total stockholders' equity 583,026 1,193,076 14,333 1,790,435
---------- ------------ ----------- ------------
TOTAL $2,452,263 $1,245,672 $ 14,333 $ 3,712,268
========= =========== ========== ===========
(1) Represents reduction in amortization expense that was recognized on the
purchase price allocation to fee license and noncompete agreement from
January 1, 1997 through March 31, 1997.
(2) Represents contribution of capital assuming the acquisition of KARZ/KNRO
on March 31, 1997.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
REDWOOD BROADCASTING, INC.
Date: 6/13/97 By: /s/ John C. Power
-------------- --------------------------
John C. Power