U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

(Mark One)
     [X]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
 EXCHANGE
           ACT OF 1934

For the fiscal year ended March 31, 1997
                                             OR

     [  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
          ACT OF 1934
                           Commission file number: 33-80321

                           REDWOOD BROADCASTING, INC.
                 (Name of Small Business Issuer in Its Charter)

                Colorado                                        84-1295270
      (State or Other Jurisdiction                           (I.R.S. Employer
            of Incorporation)                               Identification No.)

                              7518 Elbow Bend Road
                                  P.O. Box 3463
                                     Carefree, AZ                   85377
                       (Address of Principal Executive Offices)   (Zip Code)

Issuer's telephone number, including area code:  (602) 488-2596

Securities registered under Section 12(b) of the Exchange Act:  None

Securities registered under Section 12(g) of the Exchange Act:

                                      COMMON STOCK, $.004 PAR VALUE
                                             (Title of Class)

Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ].

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of Regulation S-B is not contained in this form,  and no disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements  incorporated by reference in Part III of the Form 10-KSB
or any amendment to this Form 10-KSB. [X]

     The  registrant's  gross revenues for the fiscal  year-ended March 31, 1997
were $545,185.

     The aggregate market value of the Common Stock (one vote per share) held by
non-affiliates  cannot be  ascertained  as the common  stock does not  currently
trade in the public market.

     The  number of  shares of the  registrant's  .004 par  value  Common  Stock
outstanding as of June 30, 1997 was 1,175,000.

Transitional Small Business Disclosure Format (check one):  Yes [   ]  No [ X ]


<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

     Redwood Broadcasting, Inc., f/k/a Intelligent Financial Holding Corporation
(the "Company" or "RBI") and its subsidiaries operate in the  rapidly-developing
and expanding radio  broadcasting  industry.  Organized as a holding company for
the  purpose of  acquiring  and/or  developing  undervalued  radio  broadcasting
properties  located in small to medium sized  markets,  the Company has embarked
upon an aggressive  acquisition  and  development  program and continues to seek
acquisition and development opportunities in the broadcast industry.

HISTORY

     Formation of the Company

     By agreement  dated December 12, 1994,  Cell Robotics  International,  Inc.
f/k/a  Intelligent  Financial  Corporation  ("CRI")  executed and entered into a
definitive  Agreement  and Plan of  Reorganization  between and among CRI,  Cell
Robotics,  Inc.,  a New Mexico  corporation  ("Cell"),  MiCEL,  Inc., a Delaware
corporation,  Bridgeworks  Investors  I,  L.L.C.,  an Oregon  limited  liability
company and Ronald K. Lohrding,  individually (the "CRI  Agreement"),  providing
inter alia,  for the  acquisition  by CRI of 100% of the issued and  outstanding
equity  securities of Cell. The CRI Agreement also provided for the formation of
a new  wholly-owned  subsidiary  of CRI and the  transfer to the  subsidiary  of
certain assets of CRI, subject to certain liabilities.

     The  Company was formed on December 1, 1994,  and in  February,  1995,  CRI
transferred  to the  Company  in a  tax-free  reorganization  ("Reorganization")
undertaken  in  reliance  upon the  provisions  of Section  351 of the  Internal
Revenue Code of 1986, as amended,  one hundred  percent (100%) of CRI's real and
personal property ("Property"),  subject to certain liabilities ("Liabilities"),
saving and excepting cash, cash equivalents or marketable  securities  having an
aggregate  fair  market  value  of not  less  than  $250,000  (collectively  the
"Retained Assets"), solely in exchange for 300,008 shares of the Company's $.004
par  value  common  stock  ("Spin-Off   Shares").   Immediately   following  the
Reorganization,  CRI's assets consisted  entirely of the Retained Assets and the
Spin-Off Shares, and the Company became a wholly-owned subsidiary of CRI, owning
the Property, subject to the Liabilities.

     Pursuant  to  the  terms  of the  CRI  Agreement,  CRI  further  agreed  to
distribute  the  Spin-Off  Shares  to the  shareholders  of  record of CRI ("CRI
Shareholders") as of December 16, 1994 upon the effective date of a Registration
Statement.

     Redwood Broadcasting, Inc.

     By agreement dated June 16, 1995, the Company  acquired one hundred percent
(100%)  of the  issued  and  outstanding  shares  of  Common  Stock  of  Redwood
Broadcasting,  Inc.  ("Broadcasting")  in exchange for 300,000  shares of Common
Stock of the Company.  Subsequent to the  acquisition,  Broadcasting  was merged
with and into the Company,  with the Company  remaining as the surviving entity.
Thereafter, at a special meeting of the Company's shareholders,  an amendment of
the Company's  Article of Incorporation was approved changing the Company's name
to Redwood Broadcasting, Inc.

     Broadcasting was formed in 1993 as a  majority-owned  subsidiary of Redwood
MicroCap Fund,  Inc.  (MicroCap) to pursue the acquisition of radio station KNBA
(1190 AM)  licensed to Vallejo,  California.  Broadcasting  entered into a joint
venture with Quick Broadcasting,  Inc., an established broadcaster, and acquired
KNBA in  October,  1993.  KNBA was  attractive  to  Broadcasting  because it was
eligible for the "Expanded Band" which, if granted, would increase the station's
broadcast  capability.  Greater signal  strength would  encompass more listeners
which, in turn, would attract more advertising  clients.  In 1994,  Broadcasting
sold its 50% ownership interest in the joint venture to Quick Broadcasting, Inc.
for $180,000 in cash and a three (3) year,  pre-paid,  agreement  not to compete
valued at $70,000.  Broadcasting sold its interest in KNBA in order to focus its
resources on wholly and majority-owned radio properties.




<PAGE>



     Alta California Broadcasting, Inc.

     In  1994,  Broadcasting  formed  its  own  wholly-owned  subsidiary,   Alta
California   Broadcasting,   Inc.   ("Alta"),   to  pursue   radio   acquisition
opportunities it had determined were available in northern California.

     KHSL-AM\FM

     In June,  1994,  Alta entered into an Asset  Purchase  Agreement to acquire
radio  stations   KHSL-AM\FM   licensed  to  Chico  and  Paradise,   California,
respectively  ("KHSL  Agreement").  The  acquisition,  valued at $1.15  million,
included  furniture and fixtures,  broadcast  equipment,  broadcast licenses and
11.70 acres of real property located in Chico, California, zoned for residential
housing  development.  On February 15, 1995, Alta commenced operating KHSL-AM\FM
under a Local Management  Agreement  ("LMA"),  while transfer  applications were
filed with the FCC to approve the change in  ownership.  On June 19, 1995,  Alta
completed the acquisition of KHSL-AM\FM  ("KHSL  Acquisition")  resulting in the
termination of the LMA.

     KHSL-FM  has a country  format and is located at 103.5 on the FM band.  All
programming  for KHSL-FM  originates  at its studio in Chico.  Subsequent to its
acquisition by Alta,  KHSL-AM changed its call letters and format.  The new call
letters are KNSN-AM.  The new format is "Talk", and its programming is primarily
originated through satellite delivery companies.

     In March,  1996,  Alta entered into separate Asset Sale  Agreements to sell
the  assets of both  KNSN-AM  and  KHSL-FM,  excluding  the 11.70  acres of real
property, in a transaction valued at $1.47 million.  Concurrently  with  signing
the Asset  Purchase  Agreements,  Alta entered into an LMA with the  prospective
purchaser until the sale closes, at which time the LMA would terminate.  Closing
took place March 31, 1997. In April,  1996, the 11.70 acres of real property was
sold to an unrelated party for $370,000.

     KRDG-FM (f/k/a KHZL and KCFM)

     In March,  1995,  Alta entered into an LMA with an option to purchase radio
station KCFM-FM  licensed to  Shingletown,  California,  which began  commercial
broadcasting,  with a "Country"  music format at 105.3 on the FM band in August,
1995. The source of its programming was simulcasting  with KHSL-FM,  through the
use of high speed data transmission lines. KCFM-FM primarily serves the Redding,
California  market.  In  September,  1995,  KCFM-FM  changed its call letters to
KHZL-FM. During the Company's review of KHZL-FM's performance, it was determined
that a format  change  would best serve the goal of revenue  enhancement.  A new
music format was developed using a satellite  delivered "Oldies" format. In May,
1996,  the Company  filed for an upgrade to  increase  the  station's  broadcast
power.  In July,  1996,  Alta  completed  the  acquisition  of KHZL-FM,  thereby
terminating the LMA.  Effective  September 27, 1996, Alta changed KHZL-FM's call
letters to KRDG-FM.

     KNNN-FM

     In May,  1996,  Alta  entered into an Asset  Purchase  Agreement to acquire
KNNN-FM licensed to Central Valley, California. The Asset Purchase Agreement was
subsequently  assigned to Alta's  wholly-owned  subsidiary,  Northern California
Broadcasting,  Inc. KNNN-FM primarily serves the Redding,  California market and
broadcasts  an "Adult  Contemporary"  format at 99.3 on the FM band.  In August,
1996,Northern  began  operating  KNNN-FM  under an LMA  pending  approval of the
transfer of ownership by the FCC. In  September,  1996.  Northern  completed the
acquistion of KNNN-FM,  thereby  terminating the LMA. The Company has filed with
the FCC for an upgrade to increase the station's  broadcast  power. The purchase
price for KNNN was $825,000,  $325,000 of which was paid in cash at closing, and
the  balance  was paid in the form of a  promissory  note  secured by the common
stock of Northern California Broadcasting, Inc. and guaranteed by the Company.

<PAGE>

KRRX-FM (f/k/a KARZ-FM) and KNRO-AM

     Effective  April 1, 1997,  the Company  acquired  from Power Surge,  Inc. a
Delaware  corporation  ("Power  Surge") an option to  purchase  radio  broadcast
stations KRRX-FM, Burney, California and KNRO-AM Redding, California (the "Power
Surge  Stations").  Under the terms of the Option,  the Company can purchase the
Power  Surge  Stations  at any  time  for a period  of six (6)  months  or until
September 30, 1997 ("Option Period") for a purchase price of $1,200,000.  If the
Company elects to exercise its option to purchase the Power Surge  Stations,  it
can pay the purchase  price either in cash at closing or through the issuance of
1,000,000 shares of its common stock, valued at $1.20 per share.

     Power Surge is a controlled  corporation  of John C. Power,  the  Company's
President,  Director and  principal  shareholder  through his  affiliation  with
Redwood  Microcap  Fund,  Inc.  ("MicroCap").  The  Power  Surge  Stations  were
purchased by Mr. Power through another controlled corporation, Power Curve, Inc.
("Power Curve"),  from  non-affiliated  third parties on January 31, 1997. Power
Curve  purchased  the  Power  Surge  Stations  for a  total  purchase  price  of
$1,200,000,  the same as the option price granted to the Company by Power Surge.
Under the terms of the acquisition,  Power Curve paid to the seller of the Power
Surge  Stations  $480,000 in cash at closing and  executed a 10-year  promissory
note in the  principal  amount of $720,000.  The  promissory  note issued to the
Seller by Power Curve,  Inc. is secured by other assets and securities  owned by
Power Curve.

     Power Curve  transferred  the Power Surge Stations to Power Surge effective
March 31, 1997 in order to  facilitate  the Option being  granted to the Company
more fully described herein.

     The  Company's  ability to exercise  the Option to purchase the Power Surge
Stations is subject to FCC approval and other customary conditions to closing.

     Effective  April 1, 1997,  Power Surge and the Company  entered into a Time
Brokerage  Agreement  (Local  Management  Agreement)  ("LMA")  pursuant to which
during the Option  Period the Company  will  provide  programming  for the Power
Surge Stations in conformity with rules and policies of the FCC. Under the terms
of the LMA,  the  Company  will pay Power  Surge an LMA fee of $5,000 per month.
Further,  under  the  terms of the LMA,  the  Company  will be  responsible  for
operating the Power Surge Stations and will  effectively  bear the economic risk
and benefit of owning the Power Surge Stations during the LMA and Option Period.
Power Surge shall be  responsible  for  maintaining  in effect the FCC  licenses
covering the Power Surge Stations. Since entering into the LMA on April 1, 1997,
the Company changed the call letters of KARZ-FM to KRRX-FM.  Concurrent with the
call letter change, the format of KRRX-FM was changed from Adult-Contemporary to
Album Oriented Rock ("AOR").

     When the Company's  management  learned of the  opportunity to purchase the
Power Surge Stations,  it recognized that those stations represented a potential
opportunity for the Company.  However, at the time the Company lacked sufficient
working capital to take advantage of the opportunity.  In order to perserve that
opportunity  on behalf of the Company,  Mr. Power through Power Curve  purchased
the Power Surge Stations with the intent to give the Company the  opportunity to
acquire  the  Power  Surge  Stations  at a later  date  when it had the  capital
necesary to do so.  Through  Power Surge,  Mr.  Power has made  available to the
Company the  opportunity  to acquire the Power Surge Stations upon terms no less
favorable  than the terms upon which Mr. Power  initially  acquired those assets
through Power Curve in January 1997.




ACQUISITIONS AND DEVELOPMENT

     The Company's  strategy is to grow by acquiring  additional  radio stations
meeting  specified  criteria and by maximizing  the revenues and Broadcast  Cash
Flow of the  stations it owns and  operates.  Broadcast  Cash Flow is defined as
operating  income (loss),  exclusive of trade  (non-cash)  revenue and expenses,
before deduction for interest, taxes,  depreciation,  amortization and corporate
expense. Although Broadcast Cash Flow is not recognized under Generally Accepted
Accounting  Principles  ("GAAP"),  it is accepted by the broadcast industry as a
generally  recognized  measure of performance and is used by analysts who report
publicly on the condition and performance of broadcast companies. Broadcast Cash
Flow should not,  however,  be considered an alternative to operating  income as
determined in accordance  with GAAP or to cash flows from  operating  activities
(as a measure of liquidity) or other indicators of the Company's  performance as
reported under GAAP.

<PAGE>

     The Company generally intends to acquire established  stations and/or build
stations  in small-  to  medium-sized  media  markets  as  defined  by  industry
standards. The Company defines these markets as those ranked 150 to 250 in terms
of population by the Arbitron Company ("Arbitron").

     In general,  the Company seeks to acquire stations:  (i) located in markets
with  well  established  and  relatively  stable  economies,   which  are  often
characterized  by  the  presence  of  universities,  tourism  or  a  substantial
industrial  base,  (ii) with a  demonstrated  track record of audience share and
(iii) which can be purchased at attractive  prices. The Company believes that it
can most effectively maintain and improve the operating results of stations with
these  characteristics.  Factors  considered  by the  Company in  evaluating  an
acquisition candidate include (i) the size, rates of growth and projected future
rates of growth of the  market's  broadcast  revenue  and  population,  (ii) the
number of competitive  stations in the market,  (iii) the operating  history and
performance of the stations,  (iv) the success of the station's format,  (v) the
quality of and the ability to enhance the station's  broadcast signal,  (vi) the
terms of the purchase and (vii) duopoly (or greater) ownership  possibilities or
other unique synergies with the then existing stations of the Company.

     The  Company  intends  to  pursue  acquisition   opportunities,   including
acquisition   opportunities   made   possible   by  recently   adopted   Federal
Communication Commission ("FCC") rules (the "New FCC Rules") which substantially
increased the number of stations in the same radio service (i.e.,  AM or FM) one
entity may own, both nationally and in a single geographic  market.  The Company
believes  that the  ability  to own  multiple  stations  in a single  geographic
market,  known as a duopoly,  offers the  potential  for both  substantial  cost
savings and increased revenues. For example, a duopoly permits the consolidation
of studios and office space,  thereby reducing  administrative,  engineering and
management  expenses.  Furthermore,  additional  stations in a particular market
enable  the  Company  to  take  advantage  of its  existing  relationships  with
advertisers,  provide  advertisers a larger,  combined audience and permit joint
promotional efforts,  which may result in increased revenues and reduce the risk
of a particular acquisition.


OPERATIONS

     The  Company's  business  is  devoted  to  acquiring  and  operating  radio
stations,  and generating revenue  principally  through the sale of advertising.
Through its  subsidiaries,  the Company  currently  offers  advertisers  a radio
listening audience in the Redding, California market. The Company has also filed
for and been awarded an FM construction  permit In Payson,  Arizona and plans to
develop and operate a radio station in Payson. Additionally, in July, 1996, Alta
filed an application  with the FCC for the issuance of a construction  permit to
build an FM radio station to be licensed to Shasta Lake City, California,  which
would also serve the Redding,  California  market.  The Company also filed for a
construction  permit  for an FM radio  station  in  Mesquite,  Nevada.  Numerous
applicants are seeking construction permits in both Shasta Lake City, California
and Mesquite,  Nevada.  As a result,  there can be no assurance that the Company
will be granted these construction  permits, or, if granted,  that the Company's
operations will be successful.

<PAGE>

     The Company  believes a large percentage of radio  advertising  dollars are
expended in small- to medium-sized  media markets.  The Company believes that it
can improve  the  financial  performance  and  Broadcast  Cash Flow of small- to
medium-sized stations by enhancing revenues while, at the same time, controlling
costs. The Company seeks to enhance  billings by implementing or expanding:  (i)
targeted  programming  designed  to  increase  audience  share  within  specific
demographic groups considered to be particularly attractive to advertisers, (ii)
sales and marketing  programs  intended to increase both audience  share and the
sale of advertising time, from which substantially all of the Company's revenues
are derived,  and (iii)  effective  advertising  rate  management  and inventory
control.  The Company's  stations employ a variety of programming  formats.  The
Company believes that selling dvertising time in small- to medium-sized  markets
is less dependent upon ratings and more  dependent  upon  aggressive  marketing,
promotional and selling  techniques.  Local advertising and promotional  tie-ins
with local events are  designed to heighten  public  awareness of the  Company's
stations.  Duopoly  ownership  structures  will  enable  the  Company  to  offer
advertisers  a broader  range of creative  advertising  packages  and enable the
Company to derive  increased  benefits from its advertising  rate management and
inventory control techniques.

     As a result of the acquisitions of KNNN-FM and KRDG-FM and the operating of
KRRX-FM,  KNRO-AM  and  KLXR-AM  under  LMA's,  the Company now has 23.3% of the
Redding radio  audience as measured by the Fall 1996  Arbitron  Survey making it
the third largest radio broadcaster in the Redding market.  Redwood's two larger
competitors  had market  shares of 23.4% and 27.6%  according to  Arbitron.  The
Arbitron  Survey results herein are based on listeners age 12+, Monday - Sunday,
6AM - Midnight.  This is the broadest audience  mearsurement that Arbitron makes
available to its  subscribers.  The Company hopes to increase its  percentage of
the  Redding,  California  audience  through  the further  development  of these
stations.  According to the BIA 1997 Radio  Yearbook,  the  Redding,  California
Total  Service Area ("TSA") has a population  of 167,333,  with nine FM stations
and five AM  stations.  The  Redding,  California  Metro  Rank is 209.  BIA also
estimates the annual revenues of $4.8 Million for the Redding market.


THE COMPANY'S RADIO STATIONS

     The following table sets forth certain  information  covering the Company's
current and proposed radio stations:

                       Stations Currently Owned or Operated by Company
           Target
           Station        City of License        Station Format     Demographics

          KRDG-FM         Shingletown, CA            Oldies         Adults 35-64

          KNNN-FM         Central Valley, CA   Adult Contemporary    Women 25-49

          KRRX-FM         Burney, CA                   AOR           Men 18-49

          KLXR-AM         Redding, CA                Standards       Adults 50+

          KNRO-AM         Redding, CA                News/Talk      Adults 35-64

                    Proposed Acquisitions or For Development

          KESP-FM         Payson, Arizona                 TBD     TBD

          TBD             Shasta Lake City, California    TBD     TBD

          TBD             Mesquite, Nevada                TBD     TBD


     In  developing  its stations,  the Company  utilizes a variety of practices
designed to improve the station's Broadcast Cash Flow, including  implementation
of  strict  financial  reporting  requirements  and  cost  controls,   directing
promotional  activities,  developing programming to improve the station's appeal
to  targeted  audience  groups  and  enhancing  advertising  sales  efforts.  In
particular,  the Company  emphasizes  increasing local  advertising  revenues in
order to reduce dependence on national advertising revenues.

<PAGE>
 
    In operating its stations,  the Company  concentrates on the development of
strong  decentralized local management,  which is responsible for the day-to-day
operations  of the  station and is  compensated,  in part,  based on  incentives
related to the station's financial performance. Local management, in cooperation
with corporate management, is responsible for sales and marketing, hiring on-air
talent and  developing  programming.  Corporate  management is  responsible  for
long-range planning,  establishing policies and procedures,  resource allocation
and maintaining overall control of the stations.

     The  Company  has  purchased  and  installed  at  its  studio  in  Redding,
California, a digital control system which the Company believes will result in a
significant  reduction  in live disc jockey  time.  Certain  non-peak  broadcast
periods such as nights and weekends will be voice tracked on a weekly basis with
local  talent.  Listeners  generally  will  not be able to tell  the  difference
between  the live and voice  tracked  disc  jockey.  The Company  also  utilizes
satellite delivered programming on three of its stations.

     The Company continues to seek  opportunities to acquire radio stations with
strong  growth  potential  in the  Company's  current  markets,  subject  to the
Communication Act and FCC rules,  which currently limit, among other things, the
maximum  number of radio  stations  that can be owned by the Company in the same
geographic market.  Since the Company has historically grown in part through the
acquisition  of  broadcasting  properties,  current  or  subsequent  limitations
imposed by the FCC on the number of  broadcasting  properties  the  Company  may
acquire could limit the Company's ability to grow in the future.

ADVERTISING

     Substantially all of the Company's  revenues are generated from the sale of
advertising for broadcast on its radio stations.  Depending upon the format of a
particular station, there are a predetermined number of advertisements broadcast
each hour.  The  Company  attempts  to  maximize  the  number of  advertisements
broadcast  hourly  without  jeopardizing  listening  levels.  Any  change in the
Company's  revenues,  with the exception of those  instances  where stations are
acquired or sold, is generally the result of additional advertising revenues and
pricing  adjustments  which are made to ensure that the station  fully  utilizes
available inventory.

     The   Company   believes   that  radio  is  one  of  the  most   efficient,
cost-effective  means for advertisers to reach specific  demographic groups. The
Company  also  believes  that  radio in general is more  resistant  to  economic
downturns that other  advertising-supported  media due to its  relatively  lower
rates and lower commercial production costs.

     Depending on the programming  format of a particular  station,  the Company
estimates the optimum number of advertisements  available for sale. Accordingly,
changes in the Company's net revenues  (except to give effect to the acquisition
or  disposition  of a  radio  station)  are  generally  the  result  of  pricing
adjustments or an increase in the number of commercials sold.

     Advertising  rates  charged  by radio  stations  are based  primarily  on a
station's  ability to attract  audiences in the  demographic  groups targeted by
advertisers.  The number of listeners  of a station is often  reported by rating
service  surveys such as  Arbitron,  although  most small radio  markets are not
serviced by Arbitron.  Advertising  rates are also  dependent upon the number of
stations  in the  market  competing  for the same  demographic  group and on the
supply of and demand for radio  advertising  time.  Rates are generally  highest
during the morning and afternoon drive-time hours.

     Substantially all of the revenues  generated by a radio station,  including
the  Company's  radio  stations,  are derived from local,  regional and national
advertising.  Local and regional sales  generally are made by a station's  sales
staff.  National  sales  are  made by  "national  representative"  firms,  which
specialize in radio  advertising  sales on the national  level.  These firms are
compensated  on  a  commission-only   basis.  Most  advertising   contracts  are
short-term, generally running for only a few weeks.

<PAGE>

COMPETITION

     Radio  broadcasting  is an extremely  competitive  business.  The Company's
radio  stations  compete for listeners and  advertising  revenues  directly with
other radio stations  within their markets,  many of which have more  experience
and greater  resources than the Company.  Radio  stations  compete for listeners
primarily on the basis of program content and by hiring high-profile talent that
appeals to a particular  demographic group. The Company competes for advertising
revenues  principally  through  effective  promotion of its  stations'  listener
demographics  and  audience  shares,  and through the number of  listeners  in a
target  group that can be reached  for the price  charged for the  airtime.  The
Company's stations also compete for advertising revenues with other media within
their markets,  including broadcast  television,  cable television,  newspapers,
magazines,  direct mail, coupons and billboard advertising. By building a strong
listening base comprised of a specific demographic group in each of its markets,
the Company is able to attract  advertisers  seeking to reach  those  listeners.
Other  factors  that  affect  a  station's   competitive  position  include  its
authorized power, terrain, assigned frequency,  audience characteristics,  local
program  acceptance and the number and  characteristics of other stations in the
market area.

     The radio  broadcasting  industry is also subject to  competition  from new
media technologies that are being developed or introduced,  such as the delivery
of  audio  programming  by  cable  television   systems  and  by  digital  audio
broadcasting. The radio broadcasting industry historically has grown despite the
introduction  of  new  technologies  for  the  delivery  of  entertainment   and
information, such as television broadcasting,  cable television, audio tapes and
compact  disks.  There can be no assurance,  however,  that the  development  or
introduction in the future of any new media  technology will not have an adverse
effect on the radio broadcasting  industry. The Company also competes with other
radio station groups to purchase additional stations. Some of these other groups
are owned or operated by companies that have substantially greater financial and
other resources than the Company.

     The  Telecommunications  Act of 1996 will permit  other radio  broadcasting
companies  to enter the markets in which the Company  operates or may operate in
the future,  some of which may be larger and have more financial  resources than
the Company.  There can be no assurance that the Company's existing stations, or
those stations  acquired by the Company in the future,  will be able to maintain
or increase their respective  current  audience  ratings or advertising  revenue
market share.

GOVERNMENT REGULATION

     The  ownership,  operation  and sale of  radio  stations,  including  those
licensed to the Company and its subsidiaries, are subject to the jurisdiction of
the FCC,  which acts under  authority  granted by the  Communication  Act. Among
other things,  the FCC assigns frequency bands for broadcasting;  determines the
particular  frequencies,  locations  and  operating  power of stations;  issues,
renews,  revokes and modifies station  licenses;  determines  whether to approve
changes to ownership or control of station licenses; regulates equipment used by
stations;  adopts and  implements  regulations  and  policies  that  directly or
indirectly affect the ownership, operation and employment practices of stations;
and has the  power  to  impose  penalties  for  violations  of its  rules or the
Communication Act.

     The following is a brief summary of certain provisions of the Communication
Act, including amendments thereto recently effectuated by the Telecommunications
Act of 1996  (the  "1996  Telecom  Act") and of  specific  FCC  regulations  and
policies  that affect the business of the Company.  Reference  should be made to
the  Communication  Act, FCC rules and the public notices and rulings of the FCC
for further  information  concerning the nature and extent of federal regulation
of broadcast stations.

<PAGE>

         License Renewals and Transfers

         Under the 1996 Telecom Act, radio broadcasting licenses are granted for
maximum  terms of eight (8) years.  Such  licenses  are subject to renewal  upon
application  to the FCC.  Under  the  1996  Telecom  Act,  the FCC  shall  adopt
regulations  which  will  implement  a  two-step  procedure,  pursuant  to which
competing  applications for an incumbent licensee's frequency will be explicitly
prohibited, and the FCC shall grant the incumbent licensee's renewal application
if it finds that (I) the  incumbent  licensee  has  served the public  interest,
convenience  and necessity;  (ii) the incumbent  licensee has not engaged in any
serious violations of the Communications Act or the FCC's rules; and (iii) there
have been no other  violations by the incumbent  licensee of the  Communications
Act or the FCC's rules  which,  taken  together,  would  constitute a pattern of
abuse. If, based upon review of the incumbent licensee's renewal application, or
of other facts that are brought to the FCC's  attention in a petition to deny or
other third party filing, the FCC is unable to make the foregoing findings,  the
incumbent  licensee is entitled to a full evidentiary  hearing to establish that
it is  entitled to renewal.  If,  following  the  evidentiary  hearing,  the FCC
determines that the incumbent licensee has failed to meet the basic requirements
for renewal and that no mitigating  factors justify the imposition of a sanction
less than denial of renewal  (such as, for  instance,  a "short" term renewal or
the  imposition  of  forfeitures),  the FCC is  obligated  to deny  the  renewal
application.  Should such denial become final following judicial review, the FCC
may thereafter entertain  applications for the incumbent's licensee's frequency.
The 1996 Telecom Act makes these provisions  retroactively applicable to renewal
applications  filed after May 1, 1995. The FCC intends to initiate a rule-making
proceeding during 1996 to implement these procedures.

         The  following  table sets forth the frequency of each of the Company's
stations and the date on which the FCC license for each such  stations  expires,
as well as certain  information  regarding  radio station  licenses that are the
subject of certain acquisition agreements with the Company:


                                                                  Expiration
                                                                  Date of FCC
           Station        City of License           Frequency    Authorization

                   Stations Currently Owned or operated by the Company

          KRDG-FM         Shingletown, California   105.3 Mhz   December 1, 1997

          KNNN-FM         Central Valley, California 99.3 Mhz   December 1, 1997

          KLXR-AM         Redding, California        1230 Khz   December 1, 1997

          KRRX-FM         Burney, California        106.1 Mhz   December 1, 1997

          KNRO-AM         Redding, California         600 Khz   December 1, 1997

                   Proposed Acquisitions or For Development

          KESP-FM         Payson, Arizona           101.1 Mhz      TBD

          TBD             Shasta Lake City, California    TBD      TBD

          TBD             Mesquite, Nevada                TBD      TBD

         Ownership Matters

         The  Communication  Act prohibits the assignment of a broadcast license
or the transfer of control of a broadcast licensee without the prior approval of
the FCC.  To obtain the FCC's  prior  consent to  transfer or assign a broadcast
license,  appropriate  applications  must be filed with the FCC. In  determining
whether to grant or renew a  broadcast  license,  the FCC  considers a number of
factors pertaining to the licensee, including compliance with the Communications
Act  limitations  on alien  ownership,  compliance  with various rules  limiting
common  ownership  of  broadcast,   cable  and  newspaper  properties,  and  the
"character"  of a licensee and those persons  holding  "attributable"  interests
therein.

<PAGE>

         Under the Communications  Act, broadcast licenses may not be granted to
any  corporation  having  more  than  twenty  percent  (20%) of its  issued  and
outstanding   capital  stock  owned  or  voted  by  aliens  (including  non-U.S.
corporations),   foreign  governments  or  their  representatives  (collectively
"aliens").  The  Communications  Act also prohibits a  corporation,  without FCC
waiver,  from holding a broadcast  license if that  corporation  is  controlled,
directly or indirectly,  by another corporation,  in which more than twenty-five
percent (25%) of the issued and  outstanding  capital stock is owned or voted by
Aliens.  The  FCC  has  issued  interpretations  of  existing  law  under  these
restrictions  in modified  form apply to other forms of business  organizations,
including  partnerships.  As a result of these  provisions,  in the absence of a
waiver,  the  Company,  which  serves  as a  holding  company  for  its  various
subsidiaries,  cannot  have more than  twenty-five  (25%) of its stock  owned or
voted by Aliens.

     Under the 1996 Telecom Act, the FCC's national and local multiple ownership
rules were revised.  The FCC's formal rules  prohibited the Company from owning,
operating or controlling, directly or indirectly, more than twenty AM and twenty
FM radio  stations  in the  United  States.  The  1996  Telecom  Act  completely
eliminated  national ownership  limitations.  In addition,  the 1996 Telecom Act
substantially  relaxed  restrictions  on local radio multiple  ownership  (often
referred to as the "duopoly") rules. Under the new law, which was implemented by
the FCC in March 1996,  in markets with  fourteen or fewer radio  stations,  the
Company is  permitted to own up to a total of five (5) radio  stations,  no more
than three (3) of which may be FM, so long as the Company's owned radio stations
represent less than fifty percent (50%) of the radio stations in the market.  In
markets between fifteen (15) and  twenty-nine  (29) radio stations,  the Company
will be permitted to own up to a total of six (6) radio  stations,  no more than
four (4) of which may be FM. In markets with between  thirty (30) and forty-four
(44) radio stations, the Company will be permitted to own up to a total of seven
(7)  radio  stations,  no more than  four (4) of which  may be FM.  Finally,  in
markets with forty-five (45) or more radio stations, the Company may own up to a
total of eight (8) radio stations, no more than five (5) of which may be FM. All
of the Company's current holdings and proposed  acquisitions are consistent with
these new local multiple ownership restrictions.

         The  Communications  Act and FCC rules  also generally limit the common
ownership,  operation or control of a radio  broadcast  station and a television
station serving the same geographic  market and of a radio broadcast station and
a daily newspaper serving the same geographic market.  Under these rules, absent
waiver,  the  Company  would  not be  permitted  to  acquire  any  newspaper  or
television  broadcast station (other than low-power  television) in a geographic
market in which it now owns a broadcast property.  However,  the FCC's policies,
as modified by the 1996 Telecom Act, provide for the liberal grant of waivers of
the rule  prohibiting  ownership  of radio and  television  stations in the same
geographic  market  in  the  top  fifty  television  markets  if  certain  other
conditions are  satisfied.  The FCC has also indicated that it intends to hold a
rule-making  proceeding  looking toward the liberal grant of waivers of the rule
prohibiting  common  ownership  of a radio  station and a newspaper  in the same
market in large markets.

         The FCC  generally  applies  its  ownership  limits  to  "attributable"
interests held by an individual, corporation,  partnership or other association.
In the  case of  corporations  holding  broadcast  licenses,  the  interests  of
officers,  directors and those who,  directly or  indirectly,  have the right to
vote five percent (5%) or more of the corporation's  stock (or ten percent (10%)
or more of such stock in the case of insurance  companies,  investment companies
and bank trust departments that are holding stock for investment  purposes only)
are  generally  attributable,  as are  positions  of an officer or director of a
corporate  parent of a  broadcast  licensee.  Currently,  none of the  Company's
officers,  directors or stockholders has an attributable interest in any company
licensed  to  operate  broadcast  stations  other  than the  Company  and/or its
subsidiaries.

<PAGE>


         Local Marketing Agreements

         Over the past few years,  a number of radio  stations have entered into
what have commonly been referred to as "Local Marketing  Agreements"  or "LMAs".
While these agreements may take different forms, under a typical LMA, separately
owned and licensed radio stations agree to enter into  cooperative  arrangements
of varying sorts,  subject to compliance with the  requirements of the antitrust
laws and the FCC's  rules  and  policies,  including  the  requirement  that the
licensee of each station maintain  independent  control over the programming and
operation  of  its  own  stations.  The  most  prevalent  kind  of LMA is a time
brokerage agreement among two  separately-owned  radio stations serving a common
service area, whereby the licensee of one station programs  substantial parts of
the broadcast day on the other licensee's station, subject to ultimate editorial
and other controls being exercised by the latter licensee, and sells advertising
time during such program  segments.  The FCC has held that such  licensee of the
station  that is being  substantially  programmed  by another  entity  maintains
complete  responsibility  for, and control over, the operations of its broadcast
station, and assured compliance with applicable FCC rules and policies.

        The FCC  rules  specifically  permit  LMAs but  provide  that a station
leasing time and broadcasting  programming on another station servicing the same
market will be  considered  to have an  attributable  ownership  interest in the
other station for purposes of the FCC's multiple  ownership  rules. As a result,
the  Company  would not be  permitted  to enter into an LMA with  another  local
station which it could not own under the FCC's local  ownership rules unless the
Company's  programming  constituted less than fifteen percent (15%) of the other
station's  programming on a weekly basis. Under the 1996 Telecom Act, in markets
with fourteen or fewer radio stations,  such as the Redding,  California market,
the Company is  permitted to own up to a total of five radio  stations,  no more
than three (3) of which may be FM so long as the Company's  owned radio stations
represent  less than fifty  percent of the radio  stations in the  market.  As a
result of the KNNN  acquisition,  the Company can only  acquire or enter into an
LMA  relating  to the  operation  of one (1) more FM  station  that  serves  the
Redding, California market.

         Programming and Operation

     The  Communications   Act  requires   broadcasters  to  serve  the  "public
interest".  Licensees are required to present  programming that is responsive to
community   issues  and  to  maintain   certain   records   demonstrating   such
responsiveness. Complaints from listeners concerning a station's programming may
be considered by the FCC when it evaluates  renewal  applications of a licensee,
although  such  complaints  may be filed at any time.  Stations also must follow
various rules promulgated under the Communication Act that regulate, among other
things, political advertising, sponsorship identifications, and advertisement of
contests and  lotteries  and  technical  operations,  including  limits on radio
frequency  radiation. In addition, licensees must develop and implement programs
designed to promote equal  employment  opportunities  and must submit reports to
the FCC with respect to these matters on an annual basis and in connection  with
a renewal application.

         Failure to observe  these or other rules and policies can result in the
imposition of various  sanctions,  including monetary  forfeitures,  conditional
grants of  licenses,  the grant of  "short"  (less  than the full eight (8) year
term) renewal terms or, for particularly  egregious violations,  the denial of a
license renewal application or the revocation of a license.

         Proposed Changes

         The  Congress  and the FCC  have  under  consideration,  and may in the
future consider and adopt, new laws, regulations and policies,  regarding a wide
variety of matters that could, directly or indirectly,  affect the operation and
ownership of the Company's radio broadcast properties. Such matters include, for
example,  proposals to impose spectrum use of other governmentally  imposed fees
upon licensees;  the FCC's equal employment  opportunity rules and other matters
relating  to  minority  and  female  involvement  in the  broadcasting  industry
including  enhancement  of  ownership  opportunities;  proposals to change rules
relating  to  political  broadcasting;   proposals  to  change  the  thresholds,
benchmarks or concepts applicable to attributing ownership interest in broadcast
media;  proposals to permit lenders to take a security interest in FCC licenses;
technical and frequency  allocation  matters,  including  those  relative to the
implementation of digital audio broadcasting on both a satellite and terrestrial
basis,  spectrum for which has been  allocated  by the FCC;  proposals to permit
expanded use of FM  translator  stations;  proposals to restrict or prohibit the
advertising of tobacco  products and/or beer, wine or other alcoholic  beverages
on  radio;  and  changes  to  broadcast  technical   requirements  in  frequency
allocation matters. The Company cannot predict whether any such proposed changes
will be  adopted  nor can it judge in  advance  what  impact,  if any,  any such
proposed changes might have on its business.

<PAGE>

EMPLOYEES

         The  Company  presently  has  seventeen  (17)  full  time  and four (4)
part-time  employees.  The Company's  principal  executive  officers are John C.
Power, Chief Executive Officer and President,  J. Andrew Moorer, Chief Financial
Officer,  Secretary  and  Treasurer,  and  Donald P.  Griffin,  Chief  Operating
Officer.  The foregoing  individuals  are  responsible  for all of the Company's
budget,  legal and financial matters,  as well as for evaluating,  investigating
and negotiating all acquisition opportunities.

         The stations have not experienced any significant  labor problems under
the Company's  ownership,  and the Company  considers its labor relations on the
whole to be good.


ITEM 2.  DESCRIPTION OF PROPERTY

         The types of properties required to support each of the Company's radio
stations include  offices,  studios and  transmitter/antenna  sites. A station's
studios are generally housed with its offices in downtown or business districts.
Transmitter/antenna  sites are generally located so as to provide maximum market
coverage.

         The  Company's  corporate   headquarters  are  leased  and  located  in
Carefree,   Arizona.    Principally,   the   Company's   offices,   studio   and
transmitter/antenna  sites are leased with lease terms that expire within one to
four years.  The Company does not anticipate any  difficulties in renewing those
leases  that  expire  within the next five years or in  leasing  other  space if
required.  The Company owns substantially all of the equipment used in its radio
broadcasting business.

         The Company  believes  that its  properties  are in good  condition and
suitable  for  its  operations.  However,  the  Company  continually  looks  for
opportunities to upgrade its properties.


ITEM 3.  LEGAL PROCEEDINGS

         The Company from time to time is involved in litigation in the ordinary
course of  business.  The  Company is not a party to any  lawsuit or  proceeding
which, in the opinion of management, is likely to have a material adverse effect
on the Company.

      
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         The Company did not submit any matters to a vote of security holders in
the fourth quarter of fiscal 1997.
  

<PAGE>


                              PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Market Information for Securities

     The Company's  $.004 par value Common Stock does not currently trade in the
public market.

     There were  approximately  61 stockholders of record of the Company's $.004
par value common stock as of June 26, 1997.  This amount does not include shares
held in  "street  name" by  various  brokerage/clearing  houses.  The  number of
stockholders  of record  would be  substantially  greater if the  "street  name"
stockholders were included.

     The Company has not declared or paid any cash dividends on its common stock
since its  formation,  and the present  policy of the Board of  Directors  is to
retain  any  earnings  to  provide  for  the   Company's   growth.   Any  future
determination  to pay  dividends  will  be at the  discretion  of the  Board  of
Directors,  and dependent  upon the Company's  financial  condition,  results of
operations,  capital  requirements  and  such  other  factors  as the  Board  of
Directors deems relevant.


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         The  following  discussion  of the  financial  condition and results of
operations of the Company  should be read in conjunction  with the  consolidated
financial  statements  and  related  notes  thereto.  The  following  discussion
contains   certain   forward-looking   statements   that   involve   risks   and
uncertainties.  The Company's actual results could differ  materially from those
discussed  herein.  Factors that could cause or contribute  to such  differences
include,  but are not limited to, risks and uncertainties  relating to leverage,
the ability to obtain financing,  consummation of acquisitions and divestitures,
the ability of the Company to achieve  certain cost savings,  the  management of
growth,   the  introduction  of  new  technology,   changes  in  the  regulatory
environment,  the popularity of radio as a broadcasting  and advertising  medium
and changing consumer tastes.  The Company  undertakes no obligation to publicly
release the results of any revisions to these  forward-looking  statements  that
may be made to reflect any future events or circumstances.


Liquidity and Capital Resources - March 31, 1997 Compared to March 31, 1996

     The  Company's  balance  sheet at March 31,  1997  reflects  a  significant
improvement  in financial  condition  when compared  with the Company's  balance
sheet at March 31, 1996.  Total assets increased from $1,545,105 as of March 31,
1996 to  $2,446,823 as of March 31, 1997,  an increase of over  $900,000;  total
liabilities during the current period increased $613,503 and total stockholders'
equity  increased  to  $226,236  from a  stockholders'  deficit  of  $61,979  an
improvement of $288,215.

     Total current  assets at March 31, 1997 were $879,804 and consisted of cash
of $40,791, net accounts receivable of $121,560, a receivable from the sale of a
radio  station of $633,000 and other  current  assets of $84,453.  Total current
liabilities  at March 31, 1997 were  $645,418,  resulting in working  capital of
$234,386.  This compares favorably to a working capital deficit of $1,120,129 at
March 31, 1996.  Overall,  the Company's  working capital  position  improved by
$1,354,515  during  the  current  period.  Contributing  significantly  to  this
improved working capital position were the following:

          *    An increase in net accounts  receivable of $34,726 resulting from
               increased radio revenues.

          *    An   increase  in  other receivables of $633,000 attributable  to
               the  sale during  fiscal 1997 of KNSN-AM.

          *    A reduction in the current  portion of notes  payable of $640,290
               generated  by the  application  of $370,000 in proceeds  from the
               $633,000 in proceeds  from the sale of KHSL-FM during the current
               period.

<PAGE>


     At March  31,  1997,  the  Company  reported  total  assets  of  $2,446,823
including property and equipment of $251,138 net of accumulated  depreciation of
$37,666 and $996,584 (net of $53,905 in accumulated amortization) of intangibles
(radio broadcast  licenses and non-compete  agreements)  attributable to KRDG-FM
acquired in July,  1996 and KNNN-FM  acquired in September,  1996. The effect of
the  increase in total assets  associated  with the  acquisition  of KRDG-FM and
KNNN-FM was partially offset by the sale of land, KHSL-FM and KNSN-AM during the
current  period.  The net book value of intangibles  associated with KHSL-FM and
KNSN-AM was $489,333 at March 31, 1996.

     Total liabilities of $1,916,075 (excluding $304,512 in put option liability
classified below  liabilities)  include,  in addition to current  liabilities of
$645,418  referred to above,  the long term portion of notes payable of $605,208
associated  with the  acquisitions  of KRDG-FM and KNNN-FM and notes  payable to
related parties of $665,449.  This compares with total liabilities of $1,302,572
(excluding  the put  option  liability)  at March  31,  1996 and  represents  an
increase of $613,503.

     As of  March  31,  1997,  the  Company  reported  stockholders'  equity  of
$226,236.  This compares  favorably to a stockholders'  deficit of $61,979 as of
March 31, 1996. Contributing to the increase in stockholders' equity of $288,215
were the following:

          *    An increase in common stock and additional paid in capital during
               the current  period of $308,390  associated  with several  equity
               transactions  involving  the  issuance of common stock in private
               placement  transactions,  in exchange for the forgiveness of debt
               and in exchange for services rendered.

          *    The  aforementioned  was  partially  offset by an increase in the
               Company's  accumulated  deficit  of $20,175  associated  with the
               Company's current period net loss.

     Subsequent to year end, the Company has issued  50,000  shares  pursuant to
its public  offering at $2.00 per share  generating  proceeds of $100,000.  This
capital infusion further enhances the liquidity of the Company.

     Results of  Operations  - Year Ended March 31,  1997  Compared to the Eight
Months Ended March 31, 1996

     Net revenues  (gross revenues less agency  commissions)  for the year ended
March 31, 1997 were $507,917 compared to annualized revenues associated with the
eight  months  ended  March 31, 1996 of $644,079  represents  a decrease,  on an
adjusted  annualized  basis,  of  $136,162.  Revenues for the eight months ended
March 31, 1996,  were comprised  entirely of sales  associated  with KHSL-FM and
KNSN-AM. Effective March 15, 1996, the Company entered into an LMA agreement for
these stations in conjunction  with their impending sale  agreements.  The LMA's
effectively  transferred  operational  control  of the  stations  to the  buyer.
Therefore  during  fiscal 1997,  no revenues and only limited  expenditures  are
reflected  in the  consolidated  financial  statements  for KHSL-FM and KNSN-AM.
Revenues for the current  year were  entirely  generated by KRDG-FM  (from July,
1996 through March, 1997) and KNNN-FM (from August, 1996 through March 1997).

     Operating  expenses  for the year  ended  March 31,  1997  were  $1,066,225
comprised  of station  operating  expenses  of  $339,499,  selling  expenses  of
$104,169,  general and  administrative  expenses of $347,635,  depreciation  and
amortization of $152,175 and a charge for corporate  restructuring  of $122,747.
This  represents  an increase in operating  expenses  over the previous  year of
$273,718. This increase is attributable primarily to the restructuring charge of
$122,747  associated with legal and accounting  costs incurred in completing the
Company's  Registration  Statement  on Form  SB-2  (effective  February,  1997),
coupled with an increase in  depreciation  and  amortization  of $74,526.  On an
annualized basis, broadcasting, selling, and general and administrative expenses
for the period ended March 31, 1996 were $1,072,287 compared to $791,303 for the
year ended March 31, 1997,  resulting in a decrease of $280,984.  As  previously
stated,  prior year costs were  generated by KHSL-FM and  KNSN-AM.  Current year
expenses  were  generated  by the  operations  of  KRDG-FM,  KNNN-FM and certain
residual operating expenses associated with KHSL-FM and KNSN-AM.

<PAGE>

     During the twelve months ended March 31, 1997, the Company  generated other
income (net of other  expense) of $538,133  compared to other  expense of $5,538
incurred  during the eight  month  period  ended  March 31,  1996  ($8,307 on an
annualized basis). Other income for fiscal 1997 was comprised of the following:

     *    A gain on the sale of KHSL-FM and KNSN-AM of $678,206.

     *    LMA fee income (associated with  the sale of KHSL-FM and KNSN-AM)  and
          other miscellaneous income totaling $87,857.

     *    A loss on the sale of land in the amount of $80,000.

     *    Interest expense of $147,930.

     As a result  of the  foregoing,  the  Company  incurred  a net loss for the
twelve  months  ended  March 31,  1997 of $20,175 or $0.03 per share  based on a
weighted average number of shares  outstanding of 732,201 compared to a net loss
of  $368,659  or $0.76 per share based on a  weighted  average  number of shares
outstanding  of  487,250  for the eight  month  period  ended  March  31,  1996.
Annualizing  the March 31, 1996 loss  represents  an  improvement  in net income
during the current period of $532,812 or $1.11 per share.


Liquidity and Capital Resources - March 31, 1996 Compared to July 31, 1995

         The  Company's  balance  sheet  at March  31,  1996  reflects  a slight
increase in assets,  liabilities and stockholders' equity when compared with the
Company's balance sheet at July 31, 1995.

     Total  current  assets  at March  31,  1996 were  $160,727,  consisting  of
accounts  receivable  of $86,834,  net of  allowance  for  doubtful  accounts of
$16,400,  and other assets of $73,893.  Total current  liabilities  at March 31,
1996 were $1,280,856, resulting in a working capital deficit of $1,120,129. This
compares with a working capital deficit of $1,110,625 at July 31, 1995, based on
current assets of $149,779 and current liabilities of $1,260,404.

     Contributing  significantly to the Company,s working capital deficiency was
$735,000 in short-term debt created by Alta in conjunction  with its purchase of
radio stations KHSL-AM\FM, for $1,150,000 ("KHSL AGREEMENT"). Effective February
15, 1995,  prior to  consummation of the  acquistion,  Alta commenced  operating
KHSL-AM\FM under a Local Management  Agreement  ("LMA").  On June 19, 1995, Alta
completed the acquisition of KHSL-AM/FM.  Based on management's  estimate of the
values of the assets  acquired,  the Purchase Price was originally  allocated as
follows:

               Land           $     600,000
               License              350,000
               Station equipment    200,000
                                  ---------
                               $  1,150,000

     However,  the appraised  value of $600,000 for the land failed to take into
account a long term ground  lease for use of space by a third party on the radio
tower located on the property.  Based on this subsequently obtained information,
the allocation of the purchase price was  retroactively  changed to classify the
difference  between the sale price of the land and the original cost  allocation
to land,  in the amount of $150,000,  to the value of the license.  The July 31,
1995 financial  statements have been retroactively  adjusted for this correction
of this error of the allocation of the purchase price.

     In order to faciliate the  acquisition,  Alta created the  following  notes
payable:

     *    A $375,000  note  payable to TriPower  Resources,  Inc.,  a controlled
          corporation  of the  Company's  President,  John C. Power,  which note
          bears  interest at the rate of fourteen  percent (14%) per annum,  and
          was  originally  due and  not paid on August  18,  1995(the  "TriPower
          Note").  By mutual agreement of the of the parties,  the maturity date
          of the  TriPower  Note has  been  extended  to  September,  1996.  The
          TriPower  Note  was  originally  collateralized  by a deed of trust on
          certain  real estate  acquired  in  conjunction  with the  purchase of
          KHSL-AM\FM located in Chico,  California,  ("Chico  Property"),  which
          property was sold by the Company in April,  1996. The TriPower Note is
          Company's principal operating subsidiary, which owns and operates both
          KNNN and KRDG in Northern California,  the Company's principal assets.
          In  addition,  Alta is the  owner  of KHSL,  which  will  receive  the
          remaining  proceeds  of the  sale  of  that  station  once  regulatory
          approval is obtained.  The TriPower Note was paid down by $75,000 with
          proceeds  from the of the Chico  Property,  and has since been paid in
          full, and the Alta shares released from pledge.

<PAGE>

     *    Alta also created a $260,000 note payable to the former owner of KHSL-
          AM\FM,  which note bears interest at the rate of ten percent (10%) per
          annum and was due in full in June,  1996 (the "June  Note").  The June
          Note was collateralized by all of the assets of KHSL-AM\FM acquired by
          Alta as part of the  acquisition  and was guaranteed by MicroCap.  The
          June Note was paid in full in April, 1996, prior to the maturity date,
          with proceeds from the sale of the Chico Property.

     *    A note payable to an  individual in the original  principal  amount of
          $100,000, which note bears interest at the rate eight percent (8%) per
          annum and was due and not paid in full,  on  September  15,  1995 (the
          "September  Note").  Subsequent  to  the original   maturity date, the
          Company  made  a principal  reduction  payment  of  $50,000,  and  the
          holder of the September  Note  agreed  to extend  the maturity date to
          September  1996.   The  September  Note is  uncollateralized   but  is
          guaranteed by MicroCap and a principal shareholder of the Company, and
          has since been paid in full.

     Also contributing to the Company's working capital deficit is the Company's
obligation,  pursuant to the terms of the RBI Agreement,  to purchase and redeem
up to 203,008  shares of Company  Common  Stock upon the  exercise  certain  put
options  ("Puts")  at a  purchase  price  of  $1.50  per  share.  The  Puts  are
exercisable for a period of ninety (90) days following the effective date of the
Registration  Statement. As a result of the Company's obligation under the Puts,
the Company has included in its balance sheet a current liabilty of $304,512.

     Other  short term  debts  contributing  to the  Company's  working  capital
deficit at March 31, 1996 include trade  accounts  payable of $108,319,  accrued
expenses of $91,991,  and payroll tax withholding of $73,121. At March 31, 1996,
the Company also reported  accounts payable to certain related parties totalling
$232,730, and the current portion of unearned income totalling $23,333. Unearned
income relates to a portion of the proceeds  received by RBI in conjunction  the
the sale of a fifty percent (50%)  interest in a joint venture formed to acquire
radio  station KNBA  licensed in Vallejo,  California.  In addition to receiving
$180,000 in cash for this fifty percent (50%) interest,  RBI received $70,000 in
cash for a three  (3) year  covenant  not to  compete.  This  covenant  is being
amortized into income on a straight line basis over a three (3) year term.

     In an effort to reduce its working capital  deficit,  the Company has taken
or plans to take the following actions:

     *    During the eight (8) months ended March 31,1996,  the Company received
          approximately  $200,000  from  MicroCap  in the  form of  intercompany
          advances.  Although  this  infusion  of  capital  contributed  to  the
          Company's  overall  working  capital  deficit  by  increasing  current
          liabilities,  the funds  received  were used to pay down the September
          Note by $50,000 (to a principal  balance of $50,000)  thereby reducing
          the Company's interest burden.

     *    During  the  eight  (8)  months  ended  March 31,  1996,  the  Company
          completed a private offering in which it sold a total of 25,000 shares
          of Common Stock for an aggregate  purchase price of $30,000,  or $1.20
          per  share.  The  shares  were  "restricted   securities"   under  the
          Securities Act. The private offering price per share was negotiated by
          the Company with the investor,  who was and remains  unaffiliated with
          the Company and/or its officers and directors.

     *    Subsequent  to July 31, 1995,  the Company  established  relationships
          with  several  lenders for the purpose of leasing  capital  equipment.
          These  leases are for  periods of not less than three years and are at
          what management  believes to be favorable  interest rates.  The use of
          leases for the acquistion of capital equipment will, in the opinion of
          management,  allow the Company to utilize cash flow from operations to
          reduce the Company's  short-term  debt  obligations,  and increase the
          amount of working capital available for future needs.

<PAGE>

     *    The  Company  has  entered  into  agreements  to sell  radio  stations
          KHSL-AM/FM  for a  combined  prchase  price  of  $1,466,000,  of which
          $1,266,000  will be  payable  in cash at  closing  and the  balance of
          which, $200,000, will be payable in the form of a promissory note. The
          Company  plans to use the sale  proceeds to  significantly  reduce its
          outstanding  notes  payable and to repay the advances  from  Microcap.
          Because both stations were incurring operating losses at the time Alta
          entered  into the  LMA,  Alta  will  benefit  from  Alta  will  obtain
          necessary  capital to reduce its notes  payable  and to  continue  its
          acquisition plan and growth strategy.

     *    In April,  1996,  Alta sold the Chico Property for a purchase price of
          $450,000.  As part of the transaction,  Alta remitted to the purchaser
          of the land a total of $80,000 in the form of a  charitable  donation.
          As a result,  net proceeds to the Company from the sale were $370,000.
          Proceeds  from this sale  were used to pay all  amounts  due and owing
          under the September Note  ($260,000),  and to reduce the TriPower Note
          by $75,000.

     *    In August,  1996, the Company  completed  another private placement of
          stock in which it sold a total of 37,750  shares  of  Common  Stock to
          four (4)  investors  for an aggregate  purchase  price of $45,300,  or
          $1.20 per share.  The shares were  "restricted  securities"  under the
          Securities Act. The private offering price per share was negotiated by
          the Company with the investors.


     At  March  31,  1996, the  Company  reported   total  assets of $1,545,105,
including  equipment of $749,560,  net of accumulated  depreciation  of $74,855.
Significant assets included in property and equipment at March 31, 1996 included
the Chico Property recorded at $450,000,  radio broadcasting equipment valued at
$296,142,  and  computer  equipment  valued at $44,443,  all of which was either
acquired  in  conjunction  with the  purchase  of  KHSL-AM/FM,  or  subsequently
purchased  by the Company in an effort to maintain or enhance the quality of the
Company's  broadcast  signal and/or automate  operations at the Company's Chico,
California  studio, or as part of the construction and ultimate purchase of KRDG
more fully described below.  Total assets also includes radio broadcast licenses
valued at $489,833, net of accumulated amortization of $16,667, and other assets
valued at $144,985.

     Total  liabilities of $1,607,084 as of March 31, 1996 include,  in addition
to the current  liabilities  referred to above,  the long-term  portion of notes
payable of $11,994  and  unearned  income of $9,722.  This  compares  with total
liabilities  of  $1,611,649  as of July 31, 1995,  and  represents a decrease of
$4,565.

     For the eight  months  ended  March  31,  1996,  the  Company  reported  an
accumulated  deficit of  $(532,224).  The Company's  accumulated  deficit,  when
combined  with   additional   paid-in   capital  of  $467,123,   resulted  in  a
stockholders'  deficit  of  $(61,979)  at March 31,  1996.  This  compares  with
stockholder's  equity of $93,380 at July 31, 1995,  and represents a decrease of
$155,359.

Results of  Operations - Eight Months Ended March 31, 1996  Compared with Fiscal
Year Ended July 31, 1995.

     Effective  January 12, 1996,  the Company  changed its fiscal year end from
July 31 to March  31.  As a  result,  the  Company's  financial  statements  are
reported for the eight months ended March 31, 1996, and the year ending July 31,
1995.  Accordingly,  results of  operations  for the period ended March 31, 1996
reflect only eight months of operations,  and therefore, a meaningful comparison
with the previous year's operations cannot be made.

<PAGE>

     Because  the  Merger  with  Broadcasting  was  accounted  for as a  reverse
acquisition, the results of operations of IFHC prior to June 16, 1995, have been
excluded from the consolidated  results of operations set forth in the Company's
Financial Statements. The results of operations of KHSL-AM/FM have been included
in the  Consolidated  Financial  Statements of RBI since  February 15, 1995, the
effective date of the KHSL-AM/FM LMA which  transfered  control of KHSL-AM/FM to
Alta.  Likewise,  the results of operations of KHZL-FM (f/k/a KCFM-FM) have been
included in the Consolidated  Financial  Statement of RBI since March, 1995, the
effective date of the KHZL-FM LMA. For comparative  presentation  purposes,  the
results of operations of  KHSL-AM/FM  for the year ended July 31, 1994,  and for
the six and one-half  month period ended  February 15, 1995,  have been shown in
separate   Statements  of  Operations  included  with  the  Company's  financial
statements.

     The  Company's  combined  sales for the eight  months ended March 31, 1996,
were  $440,457,  and  represent  revenue in the amount of $397,775  generated by
KHSL-FM which the Company began operating on February 15, 1995. This figure also
represents  revenue in the amount of $14,031  generated  by KHZL-FM  which began
commercial operation in August, 1995.

     Operating  expenses  for the  eight  months  ended  March  31,  1996,  were
$792,507.  Of this total,  KNSN-AM and KHSL-FM combined for a total of $560,006,
and KHZL-FM generated  operating expenses of approximately  $96,388. In addition
to the foregoing,  the Company generated general and administrative  expenses of
$58,464  during the eight months ended March  31,1996,  consisting  primarily of
travel and related  costs.  The Company also  recorded  depreciation  expense of
$77,649 during the eight-month period ended March 31, 1996 which the Company did
not incur  during the fiscal  year ended July 31,  1995.  Although  the  Company
assumed  operating  control of radio  stations  KNSN-AM and KHSL-FM in February,
1995,  under an LMA, the Company did not formerly  close on the  acquisition  of
these stations until June,  1995.  Because the Company did not own the assets of
the stations during the period of the LMA, no depreciation  expense was recorded
during that time.

     During the eight  months ended March 31,  1996,  the Company also  incurred
interest  expense of $22,436.  The interest  expense  incurred  during the eight
months  ended  March 31,  1996,  is  primarily  the result of  acquisition  debt
incurred by the Company in conjunction with the  acquisition  of radio  stations
KNSN-AM and KHSL-FM.

     As a result  of the  foregoing,  the  Company  incurred  a net loss for the
eight-month  period ended March 31, 1996, of $368,659 or $.76 per share based on
a weighted average number of shares outstanding of 487,250.


ITEM 7.  FINANCIAL STATEMENTS

         See Financial Statements on page F-1.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE.

     The Company's  change in principal  independent  accountant  was previously
reported in its Form 8-K dated May 27, 1997 and is therefore  not required to be
reported in this Form 10-KSB.



<PAGE>


                            PART III

 ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS,
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

         The directors and executive officers of the Company are as follows:

                                Director/Officer
           Name                   Age           Position                Since

       John C. Power              34        Chairman of the Board
                                            Chief Executive Officer,
                                            President                    1995

       J. Andrew Moorer           35        Chief Financial Officer,
                                            Secretary, Treasurer,
                                            and Director                 1995

       Donald P. Griffin          49        Chief Operating Officer,
                                            Director                     1996

CERTAIN INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS

     John C. Power.  Mr. Power began his service as President,  Chief  Executive
Officer and Chairman of the Board of the Company in June, 1995 upon consummation
of the  Company's  acquisition  of  Broadcasting.  Mr.  Power has also served as
President  and  Chief   Executive   Officer  of  Redwood   MicroCap  Fund,  Inc.
("MicroCap")  since  February,  1992.  MicroCap is  registered  as an Investment
Company  under the  Investment  Company Act of 1940,  as amended (the "40 Act").
MicroCap has  majority  and minority-owned  subsidiaries  engaged in oil and gas
exploration,  production and management and radio  broadcasting.  Since November
1996, Mr. Power has been the Managing  Member of Northern  Lights  Broadcasting,
L.L.C., a limited  liability  company engaged in the acquisition and development
of radio  stations in Montana and North Dakota.  Since  November 1996, Mr. Power
has also been  President  of Power  Surge,  Inc.  Mr.  Power has also  served as
president of Power Curve,  Inc., a private  investment and consulting firm since
1986,  and as an officer and  director of Signature  Wines of Napa Valley,  Inc.
from September,  1996 to June 1996. Signature Wines is engaged in the resale and
marketing  of wines  through  a  private  label  program.  From  March,  1994 to
September,  1995,  Mr. Power served as a general  partner of Signature  Wines, a
California partnership,  a predecessor entity of Signature Wines of Napa Valley,
Inc. Mr. Power served as a director of Biosource  International,  Inc.  (NASDAQ:
BIOI) from August, 1993 to December, 1994, of Optimax Industries,  Inc. (NASDAQ:
OPMX)  from  April,  1993  to  March,  1995,  and  of  AirSoft  Corporation,   a
manufacturer of network communications  software and systems, from 1993 to June,
1996. Mr. Power received his formal  education at Occidental  College and at the
University of California at Davis.

     J. Andrew Moorer.  Mr. Moorer,  like Mr. Power,  began his service with the
Company upon consummation of the Company's  acquisition of Broadcasting in June,
1995, and currently serves as the Company's Chief Financial Officer,  Secretary,
Treasurer,  and as a member of the Company's Board of Directors.  Mr. Moorer has
also  served as a  Director  of  MicroCap  since  December,  1993,  and as Chief
Financial Officer of MicroCap since July, 1994. From May, 1990 to May, 1994, Mr.
Moorer  held the  position  of  Chief  Financial  Officer  of  Applied  Research
Corporation,  a large,  publicly  traded,  scientific  research and  development
company based in Landover,  Maryland.  From March, 1987 to May, 1990, Mr. Moorer
was  employed  as a  business  analyst  with  Compudyne  Corporation,  a defense
electronics  manufacturer  located in  Annapolis,  Maryland.  Prior to accepting
employment  with  Compudyne,  Mr.  Moorer was  employed  as a  Certified  Public
Accountant with the international  accounting firm of Coopers & Lybrand where he
worked in the Audit and Emerging Business  Services Group from January,  1985 to
March,  1987.  Mr.  Moorer  received  his formal  education  at Loyola  College,
Baltimore, Maryland.

     Donald P. Griffin.  Mr. Griffin  recently  joined the Company as a Director
and as Chief Operating Officer.  He is responsible for the sales,  marketing and
broadcasting  operations in Redding,  California.  Mr. Griffin joins the Company
with an  extensive  and highly  successful  career in radio  broadcasting.  Most
recently,  Mr. Griffin was Vice President and General Manager of WLQT\WDOL Radio
in Dayton,  Ohio. At WLQT\WDOL he was responsible for tripling revenues in three
years, growing from seven percent (7%) to twelve and one-half percent (12.5%) of

<PAGE>


the market.  He also held the position of General Sales  Manager for  WONE/\WTUE
Radio, a country/AOR  format, in Dayton,  Ohio. While at WONE\WTUE,  Mr. Griffin
took revenues from nineteen percent (19%) to twenty-nine  percent (29%) in three
years,  and was Sales  Manager  of the year in  1988/.  Mr.  Griffin  has been a
General Manager in a number of turn-around stations producing dramatic increases
in revenues in his  initial  year of  responsibility.  His sales  programs  have
included the addition of college and professional  sport  broadcasting,  special
weekend programs and value-rated sales concepts which increased revenues as much
as seventy-five  (75%) in a six-month period. Mr. Griffin holds a B.A. degree in
Communications Arts from the University of Dayton.

         Each  Director is elected to serve for a term of one (1) year until the
next Annual  Meeting of  Shareholders  or until a successor  is duly elected and
qualified.

         Directors  who are also  executive  officers of the Company  receive no
additional compensation for their services as Directors.

         In December,  1996, the Company formed an Audit  Committee of the Board
of  Directors  comprised  of Messrs.  Power and  Moorer.  No member of the Audit
Committee will receive  additional  compensation  for his service as a member of
that Committee.  The Audit Committee is responsible for providing assurance that
financial  disclosures  made by  Management  reasonably  portray  the  Company's
financial condition,  results of operations,  plan and long-term commitments. To
accomplish  this,  the Audit  Committee  oversees the external  audit  coverage,
including the annual nomination of the independent  public  accountants,  review
accounting  policies  and policy  decisions,  review the  financial  statements,
including interim financial statements and annual financial statements, together
with  auditor's  opinions,  inquire  about the  existence  and  substance of any
significant  accounting  accruals,  reserves or  estimates  made by  Management,
review with Management the  Management's  Discussion and Analysis section of the
Annual  Report,  review the letter of  Management  representations  given to the
independent  public  accountants,  meet  privately with the  independent  public
accountants to discuss all pertinent matters,  and report regularly to the Board
of Directors regarding its activities.

         During the twelve (12) months ended March 31, 1997, the Company did not
have standing compensation or nominating committees of the Board of Directors.

         Any  transaction  between  the  Company  and its  officers,  directors,
principal  shareholders,  or other  affiliates have been and will be on terms no
less  favorable to the Company than could be obtained  from  unaffiliated  third
parties on an arms-length basis.

SECTION 16(A) BENEFICIAL OWNERSHIP OF REPORTING COMPLIANCE

         Section 16(a) of the Exchange Act requires the Company's  directors and
executive officers,  and persons who beneficially own more than ten percent of a
registered class of the Company's equity securities (collectively,  the "Covered
Shareholders"),  to file with the  Commission  initial  reports of ownership and
reports of changes of ownership  of certain  equity  securities  of the Company.
Covered Shareholders are required by the Commission's regulations to furnish the
Company with copies of all Section  16(a) forms they file.  Section 16(b) of the
Exchange  Act  requires  the Covered  Shareholders  to return to the Company any
profit  resulting  from  the  purchase  and  sale  of the  Company's  securities
consummated within a period of less than six months.

         Based solely on a review of the copies of such reports furnished to the
Company or written  representations  that no other  reports were  required,  the
Company   believes  that,   during  the  Transition   Period  1996,  all  filing
requirements applicable to its Covered Shareholders were complied with.

ITEM 10.  EXECUTIVE COMPENSATION

         The following table and discussion sets forth  information with respect
to all plan and non-plan compensation awarded to, earned by or paid to the Chief
Executive  Officer ("CEO"),  and the Company's four (4) most highly  compensated
executive  officers  other  than  the  CEO,  for all  services  rendered  in all
capacities to the Company and its subsidiaries for the periods covered by this
Form  10-KSB;  provided,  however,  that no  disclosure  has  been  made for any
executive officer,  other than the CEO, whose total annual salary and bonus does
not exceed $100,000.





<PAGE>


                   SUMMARY COMPENSATION TABLE

                             Long Term Compensation
             Annual Compensation (1)              Awards   Payouts
--------------------------------------------------------------------------------
                                  Other
                                 Annual   Restricted                   All Other
 Name and                        Compen-    Stock               LTIP     Compen-
 Principal  Year  Salary  Bonus  sation    Award(s)  Options/  Payouts   sation
 Position          ($)     ($)    ($)(1)    ($)        SARS      ($)       ($)
--------------------------------------------------------------------------------
John C. Power
 President, 1997  $-0-    $-0-     $-0-     $-0-       $-0-     $-0-       $-0-
 CEO and
 Chairman   1996(2)-0-    $-0-   $7,500(3)  $-0-       $-0-     $-0-       $-0-
 of the
 Board      1995   -0-(3) $-0-   $5,000(3)  $-0-       $-0-     $-0-       $-0-

--------------------------------------------------------------------------------

(1)  No executive  officer  received  perquisites  and other  personal  benefits
     which,  in the  aggregate,  exceeded the lesser of either $50,000 or 10% of
     the total of annual  salary and bonus paid  during  the  respective  fiscal
     years.

(2)  In January, 1996, the Company changed its fiscal year from July 31 to March
     31.  As  a  result,   information   reported  for  fiscal  1996  represents
     compensation paid during the eight (8) months ended March 31, 1996.

(3)  The Company paid MicroCap a consultation fee in the amount of $7,500 during
     the eight (8) months ended March 31, 1996 and $5,000  during the year ended
     July 31, 1995. The consultation fee paid to MicroCap is  representative  of
     the reasonable management expenses of the Company on a stand-alone basis at
     that time. Mr. Power currently serves as President, CEO and Chairman of the
     Board of MicroCap.


1995 INCENTIVE STOCK OPTION PLAN

     On  December 5, 1995,  the Board of  Directors  of the Company  adopted the
Redwood  Broadcasting,  Inc.  1995  Incentive  Stock  Option Plan (the  "ISOP").
Pursuant to the ISOP,  the  Company's  Board of Directors is authorized to issue
options for the purchase of up to 150,000  shares of the Company's  Common Stock
to key  employees of the  Company.  Options  granted  under the ISOP to eligible
participants may take the form of Incentive Stock Options ("ISOs") under Section
422 of the  Internal  Revenue  Code of 1986,  as amended (the "Code") or options
which do not  qualify  as ISOs  (Non-Qualified  Stock  Options or  "NQSOs").  As
required by Section 422 of the Code, the aggregate fair market value (as defined
in the ISOP) of the Company's  Common Stock  (determined as of the date of grant
of the ISO) with respect to which ISOs  granted to an employee  are  exercisable
for the first time in any calendar year may not exceed  $100,000.  The foregoing
limitation does not apply to NQSOs. The exercise price of an ISO may not be less
than 100% of the fair market value of the shares of the  Company's  Common Stock
(or 110% of the fair market value if granted to a person who owns 10% or more of
the Company's  outstanding shares) on the date of grant. The exercise price of a
NQSO may be set by the  administrator  of the ISOP. The exercise price under any
option will be adjusted  as  provided  in the ISOP to reflect  stock  dividends,
splits,  other  recapitalizations  or reclassifications or changes affecting the
number or kind of outstanding  shares. Fair market value of the Company's Common
Stock is defined in the ISO as the closing sale price of the Common Stock on the
OTC Electronic  Bulletin  Board System or any  securities  exchange on which the
shares of Common Stock are then listed.

         The ISOP is  administered  by a  committee  made up of  members  of the
Company's  Board of  Directors  (the  "Committee"),  which  determines  eligible
employees,  the time and number of options to be  granted,  and the  periods for
which such options are granted.  There are  limitations on the number of options
which can be granted and the  aggregate  fair  market  value of the stock in any
given year. All options granted under the ISOP can be made subject to vesting by
the Committee in its discretion.

        During the  year  ended  March 31,  1997,  the  Company  issued  100,000
options under the plan to an  employee.  The options have  an exercise  price of
$1.20 per share and vest over a four year  period.  No options have vested as of
March 31, 1997.



<PAGE>


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT       

         The following table sets forth certain  information with respect to the
beneficial ownership of the Company's Common Stock by: (i) each of the directors
and  executive  officers of the Company,  (ii) all officers and directors of the
Company  as a group,  and (iii)  holders of 5% or more of the  Company's  Common
Stock.  Each person has sole  voting and  investment  power with  respect to the
shares shown, except as noted.

Name and Address                        Number of Shares
of Beneficial Owner                     Beneficially Owned

Officers, Directors,
and Principal Shareholders

John C. Power (1)                              662,750               61.7%
P.O. Box 3458
Carefree, AZ  85377

J. Andrew Moorer (2)                           593,516               55.2%
4528 E. Duane Lane
Cave Creek, AZ  85331

Redwood MicroCap Fund, Inc. (3)(4)             550,000               51.2%
P.O. Box 3463
Carefree, AZ  85377

Combined Penny Stock Fund, Inc. (5)             58,229                5.42%
2055 Anglo Drive, Suite 105
Colorado Springs, CO  80918

Brian Power (6)                                 72,605                6.75%
Nut Tree Ranch
Nut Tree, CA  95690

Officer and Directors
as a Group (three (3) individuals)             706,266               65.7%


     (1)  Includes  550,000  shares  held of record by  Redwood  MicroCap  Fund,
          Inc.,a  Colorado  corporation,  of  which  Mr.  Power  is an  officer,
          director and shareholder and, as such, would be deemed to exercise the
          shared voting and  investment  power with respect to such  securities.
          Mr.  Power  disclaims  beneficial  ownership  of  the  securities  for
          purposes of Section 16 under the Exchange  Act.  Assumes no shares are
          sold by MicroCap in the Selling Shareholders' Offering. Also, includes
          7,750 shares held of record by the John C. Power Profit  Sharing Plan.
          Mr.  Power  currently  serves  as  the  Plan's  administrator  and  is
          beneficiary  and as such,  would be  deemed  to  exercise  voting  and
          investment  power  with  respect  to such  securities.  Also  includes
          87,500  shares  held  of record by Power  Curve,  Inc.,  a  controlled
          corporation of Mr. Power.

     (2)  Includes 550,000 shares held of record by Redwood MicroCap Fund, Inc.,
          a Colorado  corporation of which Mr. Moorer is an officer and director
          and,  as such,  would be deemed to  exercise  the  shared  voting  and
          investment power with respect to such securities. Mr. Moorer disclaims
          beneficial  ownership  of the  securities  for  purposes of Section 16
          under the Exchange Act.  Assumes no shares are sold by MicroCap in the
          Selling Shareholders' Offering.

     (3)  Includes 195,371 shares of Common Stock acquired pursuant to the terms
          of the RBI Agreement.  (See "CERTAIN  TRANSACTIONS - RBI  Agreement"),
          which have been pledged as collateral to secure  MicroCap's  guarantee
          of the Company's  obligation  to purchase up to 203,008  shares of the
          Company's  Common  Stock  upon  exercise  of the Puts.  Also  includes
          216,559 shares of the Common Stock issued to MicroCap in  satisfaction
          of $259,371 in debt owed to MicroCap  by the  Company.  Also  includes
          92,750  shares  of  Common  Stock  to be  acquired  from  certain  CRI
          Shareholders.

<PAGE>


     (4)  Redwood MicroCap Fund, Inc. is  a diversified, closed-end, mutual fund
          registered under the Investment  Company Act of 1940 (the "1940 Act").
          Voting and  investment  power  with  respect  to these  securities  is
          exercised by the company's Board of Directors,  whose members are John
          C. Power, Joseph O. Smith, and J. Andrew Moorer.

     (5)  Combined  Penny  Stock  Fund,  Inc.  is  a   Colorado-based   business
          development company located in Colorado Springs,  Colorado. Voting and
          investment  power with respect to these securities is exercised by the
          Company's  Board of Directors whose members include Allan W. Williams,
          Dr. A. Leonard Nacht, Brian Power and John Overturf.

     (6)  Includes  58,229  shares of Common  Stock  owned of record by Combined
          Penny Stock Fund,  Inc.,  on which Mr. Power serves as a member of the
          Board of Directors.  Mr. Power disclaims  beneficial  ownership of the
          shares held of record by Combined Penny Stock Fund,  Inc. for purposes
          of Section 16 of the Exchange Act.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CRI AGREEMENT

         In connection with the formation of the Company,  the Company issued to
CRI 300,008  shares of the  Company's  $.004 par value Common  Stock  ("Spin-Off
Shares"),  in exchange for one hundred percent (100%) of CRI's real and personal
property,  subject  to certain  liabilities,  saving and  excepting  cash,  cash
equivalents  or marketable  securities  having an aggregate fair market value of
not less than $250,000.  Pursuant to the terms of the CRI Agreement,  CRI agreed
to distribute  the Spin-Off  Shares to the  shareholders  of record of CRI as of
December 16, 1994,  upon the  effective  date of the  Registration  Statement of
which this Prospectus forms a part. The CRI Shareholders  will not be charged or
assessed for the shares of Company  Common Stock and neither CRI nor the Company
will receive any proceeds  from the  distribution  of the Company  Common Stock.
Pursuant to the terms of the CRI  Agreement,  the Company is bearing the cost of
the distribution.

RBI AGREEMENT

         In  connection  with the Company's  acquisition  of  Broadcasting  (See
"BUSINESS - History-Redwood  Broadcasting,  Inc."),  the Company issued to RBI's
shareholders  300,000  shares of the Company  Common  Stock in exchange  for one
hundred percent (100%) of the issued and  outstanding  shares of Common Stock of
Broadcasting.  Subsequent to the  acquisition,  Broadcasting was merged with and
into the Company, with the Company remaining as the surviving entity.

         In connection with the acquisition of Broadcasting, the Company did not
obtain an opinion of an investment banker,  accountant or other third party that
the terms of the transaction were fair to the Company's future  shareholders who
would receive their shares in this shares in the Spin-Off.  In lieu of obtaining
such opinions,  MicroCap  (Broadcasting's parent corporation) agreed to purchase
from  certain  of the CRI  Shareholders  the right to  receive a total of 97,000
Spin-Off  Shares at a price of $1.20 per share. As MicroCap lacked the resources
and capital to extend the same offer and  opportunity  to all CRI  Shareholders,
the Company  required as a condition to closing the  transaction  that  MicroCap
guarantee  its  obligations  under the Put Options being issued to the remaining
CRI  Shareholders.  The Puts  require the Company to purchase and redeem any and
all shares tendered at a price of $1.50 per share.  The Puts will be exercisable
for  a  period  of  ninety  (90)  days  following  the  effective  date  of  the
Registration  Statement of which this  Prospectus  forms a part.  The Putholders
will not be charged or assessed  for Puts and the  Company  will not receive any
proceeds  from the proceeds of the Puts.  The Company is bearing the cost of the
distribution of the Puts.


<PAGE>

MICROCAP GUARANTEE

         Pursuant to the terms of the RBI Agreement, the Company's obligation to
purchase and redeem any and all shares  tendered  upon  exercise of the Puts has
been  guaranteed  by  MicroCap,  which  guarantee  is  secured  by shares of the
Company's  Common  Stock owned by  MicroCap.  MicroCap's  obligations  under the
Guarantee are direct,  unconditional,  and independent of the obligations of the
Company.  In the event the Company  fails to redeem shares of Common Stock which
have been tendered in accordance with Put Exercise Procedures, a cause or causes
of action may be brought  and  prosecuted  against  the  Company  alone,  or the
Company and  MicroCap or only  MicroCap  for the full amount of the  outstanding
indebtedness  due and owing upon said  exercise  without the  necessity of first
proceeding against or joining the Company.

MICROCAP DEBT CONVERSION

     During the year ended March 31, 1997,  the Company  issued 66,559 shares of
common stock to MicroCap to retire notes and accounts payable totalling $79,871.

TRIPOWER RESOURCES, INC., DEBT OBLIGATION

     In conjunction  with the  acquisition of KHSL-AM\FM by Alta,  Alta borrowed
the sum of $375,000  from  TriPower  Resources,  Inc.,  which  indebtedness  was
evidenced by Alta's  promissory note (the "Note") and was originally  secured by
the Chico Property,  which was sold by the Company in April,  1996. The TriPower
Note was then  collateralized  by a pledge of 100% of the shares of Alta  Common
Stock.  TriPower  Resources,  Inc. is a controlled  corporation of the Company's
President,  John C. Power. Pursuant to the terms of the Note, Alta has agreed to
pay TriPower  Resources,  Inc.  interest on the unpaid principal  balance at the
rate of  fourteen  percent  (14%) per annum.  During the eight (8) months  ended
March 31,  1996,  the  Company  made a principal  reduction  payment of $75,000,
leaving a principal  balance of  $300,000.  The  TriPower  Note was paid in full
during the year ended  March 31,  1997 and all  collateral  was  returned to the
Company.

MICROCAP BORROWINGS

     The Company has received  approximately  $681,875 from MicroCap in the form
of inter-Company borrowings, which indebtedness is unsecured. The funds received
were used for working capital. 

POWER CURVE, INC. STOCK PURCHASE

     During  the year  ended  March  31,  1997,  the  Company  received  private
placement proceeds of $105,000 in exchange for the issuance of $87,500 shares of
common stock at $1.20 per share to Power Curve,  Inc., a corporation  controlled
by John C. Power, an officer and director of the Company.

<PAGE>

ITEM 13.  EXHIBITS, LISTS AND REPORTS ON FORM 8-K.

      (a)  Exhibits

          The exhibits as indexed below are included as part of this Form 10-KSB

      (b)  Reports on Form 8-K

            8K filed 3/31/97 - KHSL/KNSN sale
                                  - KARZ/KNRO LMA and purchase option

          The  following  Exhibits  have  previously  been  filed  as  part of a
     Registration Statement pursuant to item 601 of Regulation S-B:

                         Index to Exhibits
                         -----------------

     Exhibit No.    Description

          2.0       Agreement and Plan or Reorganization Dated as of December 5,
                    1994,  between  and  among  Cell Robotics, Inc., Intellegent
                    Financial  Corporation,  Micel, Inc., Bridgeworks  Investors
                    1, LLC, and Ronald K. Lohrding

          2.1       Agreement  and  Plan of  Reorganization  Date as of June 16,
                    1995,  between  and  among  Intelligent   Financial  Holding
                    Corporation,   Redwood  Microcap  Fund,  Inc.,  and  Redwood
                    Broadcasting Inc.

          3.0(i)    Articles of  Incorporation  of Intelligent Financial Holding
                    Corporation

          3.0(ii)   By-laws of Intelligent Financial Holding Corporation

          4.1       Specimen Certificate of Common Stock

          4.2       Specimen Put Option Certificate

          4.3       Redwood Broadcasting Inc. 1995 Incentive Stock Option Plan

          5.0       Opinion  of  Newman & Cobb  regarding  the  legality  of the
                    securities being registered

         10.0       KHSL-AM/FM Asset Purchase Agreement dated February 3, 1995

         10.1       KHSL Local Management Agreement

         10.3       Agreement  to  Convert Debt dated September 30, 1995 between
                    Intelligent   Financial  Holding   Corporation  and  Redwood
                    MicroCap Fund, Inc.

         10.4       KNNN Letter of Intent

         10.5       KNNN Asset Purchase Agreement

         10.6       KNSN-AM and KHSL-FM Asset Purchase Agreement dated March 12,
                    1996

         10.7       Redwood MicroCap Fund Inc. Consultation Agreement

         10.8       Selected Dealer Agreement

<PAGE>


         16.0       Letter on Change and Certifying Accountant

         21.0       Subsidiaries

         23.1       Consent of Neuman & Cobb

         23.2       Consent  of  Schumacher & Associates, Inc., Certified Public
                    Accountants

         23.3       Consent of Stockman, Kast, Ryan & Scruggs, P.C.

         *          Incorporated  by  referenced from  Registrant's  Registation
                    Statement on Form  SB-2, S.E.C.  File No. 33-80321, as filed
                    with the Commission on December 12, 1995.

         **         Incorporated by  referenced  from Registrant's Pre-Effective
                    Amendment No.1 to Registration Statement on Form SB-2 S.E.C.
                    File No.33-80321, as filed with the Commission on October 3,
                    1996.

         ***        Incorporated  by  referenced from Registrant's Pre-Effective
                    Amendment No.2 to Registration Statement on Form SB-2 S.E.C.
                    File No.33-80321, as filed with the Commission on January 2,
                    1997.


<PAGE>



                                   SIGNATURES


DATED:  07/14/97                    REDWOOD BROADCASTING

                            By: /s/ JOHN C. POWER
                                    John C. Power
                                    President and Chief Executive Officer


                            By: /s/ J. ANDREW MOORER
                                    J. Andrew Moorer
                                    Chief Financial Officer

         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  Registrant and in the capacities and
on the dates indicated.

     Signature                            Title                          Date

/s/ John C. Power            President and Chief Executive Officer     07/14/97
JOHN C. POWER                 Chairman of the Board of Directors


/s/ J. Andrew Moorer         Chief Financial Officer and Director      07/14/97
J. ANDREW MOORER


/s/ Don Griffin              Chief Operating Officer and Director      07/14/97
DON GRIFFIN






<PAGE>




REDWOOD BROADCASTING, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

                                                                 Page

INDEPENDENT AUDITORS' REPORTS                                      1

CONSOLIDATED  FINANCIAL  STATEMENTS
Consolidated  Balance  Sheet                                       3
Consolidated Statements of Operations                              4
Consolidated Statements of Stockholders' Equity                    5
Consolidated Statements of Cash Flows                              6
Notes to Consolidated Financial Statements                         7




<PAGE>



INDEPENDENT AUDITORS' REPORT


Redwood Broadcasting, Inc.
Colorado Springs, Colorado


We  have  audited  the  accompanying   consolidated  balance  sheet  of  Redwood
Broadcasting,  Inc.  and  subsidiaries  as of March  31,  1997  and the  related
consolidated statements of operations,  stockholders'  deficiency and cash flows
for the year then ended.  These financial  statements are the  responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,  the financial  position of Redwood  Broadcasting,  Inc. and
subsidiaries as of March 31, 1997, and the results of their operations and their
cash  flows  for the year  then  ended in  conformity  with  generally  accepted
accounting principles.





STOCKMAN KAST RYAN & SCRUGGS, P.C.
Colorado Springs, Colorado
June 25, 1997



                                           - 1 -

<PAGE>

 


The Board of Directors
Redwood Broadcasting, Inc.

We have audited the statements of operations,  changes in  stockholders'  equity
and cash flows of Redwood Broadcasting,  Inc. and consolidated  subsidiaries for
the eight months  ended March 31, 1996 and the year ended July 31,  1995.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility is to express an opinion on these financial  statements  based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards  require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining on a test basis,  evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the results of  operations,  changes in  stockholders'
equity  and  cash  flows  of  Redwood   Broadcasting,   Inc.  and   consolidated
subsidiaries  for the eight  months ended March 31, 1996 and the year ended July
31, 1995 in conformity with generally accepted accounting principles.


Schumacher & Associates, Inc.
Certified Public Accountants
12835 E. Arapahoe Road
Tower II, Suite 110
Englewood, CO  80112

June 6, 1996


                                       - 2 -



<PAGE>


REDWOOD BROADCASTING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
                                                                       March 31,
                                                                         1997
ASSETS
CURRENT ASSETS
Cash                                                                 $   40,791
Accounts receivable, net                                                121,560
Receivable from related parties (Note 5)                                 71,546
Receivable from sale of radio station (Note 2)                          633,000
Other current assets                                                     12,907
                                                                      ---------
Total current assets                                                    879,804

PROPERTY AND EQUIPMENT,
  net (Note 3)                                                          213,472
INTANGIBLE ASSETS, net (Note 4)                                         996,584

NOTE RECEIVABLE FROM SALE OF RADIO STATION (Note 2)                     200,000
OTHER ASSETS                                                            156,963
                                                                      ---------
TOTAL                                                                $2,446,823
                                                                      =========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses                                  $388,665
Payables to related parties (Note 5)                                    156,875
Current portion of notes payable (Note 6)                                62,884
Current portion of notes payable to related parties (Note 5)             25,000
Capital lease obligations (Note 7)                                       11,994
                                                                      ---------
Total current liabilities                                               645,418

NOTES PAYABLE (Note 6)                                                  605,208
NOTES PAYABLE TO RELATED PARTIES (Note 5)                               665,449
                                                                      ---------
Total liabilities                                                     1,916,075
                                                                      ---------
COMMITMENTS (Note 7)
REDEEMABLE COMMON STOCK (Note 8)                                        304,512
                                                                      ---------
STOCKHOLDERS' EQUITY (Note 8)
Preferred stock, par value $.04; 2,500,000 shares authorized;
    none issued and outstanding
Common stock, par value $.004; 12,500,000 shares authorized;
    871,992 shares issued and outstanding                                 3,488
Additional paid-in capital                                              820,147
Accumulated deficit                                                    (552,399)
Note receivable from stockholder                                        (45,000)
                                                                      ---------
Total stockholders' equity                                              226,236
                                                                      ---------
TOTAL                                                                $2,446,823
                                                                      =========







See notes to consolidated financial statements.


                                              - 3 -

<PAGE>



REDWOOD BROADCASTING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

                                                   Eight Months
                                   Year Ended          Ended        Year Ended
                                 March 31, 1997   March 31, 1996   July 31, 1995
REVENUE
Broadcast revenue                  $ 545,185         $ 440,457        $ 377,023
Less agency commissions               37,268            11,071            9,475
                                   ---------         ---------        ---------
Net revenue                          507,917           429,386          367,548
                                   ---------         ---------        ---------
OPERATING EXPENSE
General and administrative           347,635           314,180          228,054
Broadcasting                         339,499           306,603          222,553
Selling                              104,169            94,075           68,286
Depreciation and amortization        152,175            77,649            9,108
Corporate restructuring (Note 8)     122,747
                                   ---------         ---------        ---------
Total                              1,066,225           792,507          528,001
                                   ---------         ---------        ---------
LOSS FROM OPERATIONS                (558,308)         (363,121)        (160,453)
                                   ---------         ---------        ---------

OTHER INCOME (EXPENSE)
Gain on sale of radio
  stations (Note 2)                  678,206
Loss on sale of land (Note 2)        (80,000)
Interest expense (Note 5)           (147,930)          (22,436)
Other income - net                    87,857            16,898
                                   ---------         ---------
OTHER - net                          538,133            (5,538)
                                   ---------         ---------        ---------
NET LOSS                            $(20,175)        $(368,659)       $ 160,453
                                   =========         =========        =========
NET LOSS PER COMMON SHARE           $   (.03)        $    (.76)       $    (.49)
                                   =========         =========        =========
WEIGHTED AVERAGE COMMON
    SHARES OUTSTANDING               732,201           487,250          325,000
                                   =========         =========        =========









See notes to consolidated financial statements.


                                                       - 4 -

<PAGE>


REDWOOD BROADCASTING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                             Note
                                     Additional           Receivable   Total
                       Common Stock   Paid-In  Accumulated   from  Stockholders'
                      Shares  Amount  Capital    Deficit  Stockholder  Equity

BALANCES,
    AUGUST 1, 1994    300,000 $1,200  $  2,300  $  (3,112)           $     388
Capital
  contribution                         241,798                         241,798
Reorganization         97,000    388    11,259                          11,647
Net loss                                         (160,453)            (160,453)
                     --------  -----   -------   --------             --------
BALANCES,
    JULY 31, 1995     397,000  1,588   255,357   (163,565)              93,380
Issuance of common
  stock in private
  placement            25,000    100    29,900                          30,000
Issuance of common
  stock to extinguish
  debt                150,000    600   179,400                         180,000
Issuance of common
  stock for services    5,500     22     3,278                           3,300
Net loss                                         (368,659)            (368,659)
                      -------  -----   -------   ---------            ---------
BALANCES,
    MARCH 31, 1996    577,500  2,310   467,935   (532,224)             (61,979)

Issuance of stock in
  private placements
  (Note 8)            132,750    531   158,769                         159,300
Issuance of common
  stock to extinguish
  debt (Note 8)        71,559    286    85,585                          85,871
Issuance of common
  stock for services
  (Note 8)             46,016    184    55,035                          55,219
Issuance of common
  stock to officer
  (Note 8)             37,500    150    44,850               $(45,000)
Issuance of common
  stock for investment  6,667     27     7,973                           8,000
Net loss                                         (20,175)              (20,175)
                       ------  -----    ------   --------     -------- --------
BALANCES,
    MARCH 31, 1997    871,992 $3,488  $820,147 $(552,399)    $(45,000) $226,236
                      =======  =====   =======  =========     ======== ========








See notes to consolidated financial statements.






                                          - 5 -



<PAGE>




REDWOOD BROADCASTING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                         Eight Months
                                              Year Ended     Ended    Year Ended
                                               March 31,    March 31,   July 31,
                                                 1997         1996        1995
OPERATING ACTIVITIES
Net loss                                      $ (20,175)  $(368,659)  $(160,453)
Adjustments to reconcile net loss to net cash
    used in operating activities:
    Depreciation and amortization               152,175      77,649       9,108
    Gain on sale of radio stations             (678,206)
    Loss on sale of land                         80,000
    Loss on disposals of equipment                5,942
    Changes in operating assets and liabilities:
       Accounts receivable                      (42,226)     52,704    (139,538)
       Other current assets                      10,986
       Accounts payable and accrued expenses     10,008     251,008     271,720
       Other assets                             (54,099)    (49,635)     (6,723)
                                              ---------    --------    --------
Net cash used in operating activities          (535,595)    (36,933)    (26,886)
                                              ---------    --------    --------
INVESTING ACTIVITIES
Proceeds from sale of radio stations, net       588,333      78,991
Proceeds from sale of land, net                 370,000
Purchases of radio stations                    (448,920)               (329,173)
                                              ---------    --------    --------
Net cash provided by (used in)
  investing activities                          509,413      78,991    (329,173)
                                              ---------    --------    --------
FINANCING ACTIVITIES
Proceeds from borrowings under
  related party notes                         1,198,808
Proceeds from borrowings under notes            465,000                 131,844
Principal payments on notes to
  related parties                              (848,533)
Principal payments on notes                    (761,908)    (75,576)    (26,100)
Decrease in net payable to related parties     (132,030)
Payments on capital lease obligations           (13,664)
Proceeds from issuance of common stock          159,300      30,000
Capital contribution and reorganization                                 253,445
                                              ---------    --------    --------
Net cash provided by (used in)
  financing activities                           66,973     (45,576)    359,189
                                              ---------    --------    --------
NET INCREASE (DECREASE) IN CASH                  40,791      (3,518)      3,130
CASH, Beginning of period                            --       3,518         388
                                              ---------    --------    --------
CASH, End of period                            $ 40,791     $    --    $  3,518
                                              =========    ========    ========
SUPPLEMENTAL NONCASH INVESTING  ACTIVITIES
Promissory note received for sale of
  radio stations                              $ 200,000
Receivable for sale of radio stations           633,000
SUPPLEMENTAL NONCASH FINANCING ACTIVITIES
Issuance of common stock for services         $  55,219
Issuance of common stock to repay debt           85,871   $180,000
Issuance of common stock in exchange for note
  receivable to officer                          45,000
Issuance of common stock for investment           8,000
Notes issued in acquisition of radio
  station assets and land                       655,000                $735,000

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest                        $ 115,689   $ 22,436






See notes to consolidated financial statements.



                                             - 6 -

<PAGE>




REDWOOD BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Organization -- Redwood Broadcasting, Inc. ("RBI") and its subsidiaries
         (collectively,   the  Company),   operate  in  the  radio  broadcasting
         industry. RBI is a majority-owned  subsidiary of Redwood MicroCap Fund,
         Inc.  ("MicroCap").  Organized as a holding  company for the purpose of
         acquiring and  developing  undervalued  radio  broadcasting  properties
         located in small to medium sized markets, the Company has embarked upon
         an aggressive acquisition and development program and continues to seek
         acquisition and development  opportunities  in the broadcast  industry.
         The Company currently operates radio stations in Northern California.

         Principles of Consolidation -- The  consolidated  financial  statements
         include  the  accounts  of RBI and its  subsidiaries.  All  significant
         intercompany   accounts  and  transactions   have  been  eliminated  in
         consolidation.

         Accounts  Receivable -- The Company maintains an allowance for doubtful
         accounts  based  upon  the  expected  collectibility  of  all  accounts
         receivable. At March 31, 1997, the allowance was $3,200.

         Property and  Equipment -- Property and  equipment are recorded at fair
         value as of the date of  acquisition  of the related  radio  station or
         cost  if  purchased   subsequently.   Depreciation  is  provided  on  a
         straight-line  basis over the  estimated  useful lives of the assets as
         follow:  buildings and improvements - 10 years; transmitter - 20 years;
         computer equipment - 3 years; and technical equipment and furniture and
         fixtures - 5 to 7 years.  The  recoverability  of the carrying value of
         property and  equipment is  evaluated  periodically  in relation to the
         estimated  value  of  the  radio  stations  based  on  their  operating
         performance and cash flows.

         Intangible  Assets --  Intangible  assets  include  the  radio  station
         purchase  price   allocations  to  license  costs  and  the  noncompete
         agreement.  License costs are  amortized  over a period of 20 years and
         the noncompete agreement is amortized over the three year period of the
         agreement.  The  recoverability  of the  carrying  value of  intangible
         assets is evaluated  periodically in relation to the estimated value of
         the radio stations based on their operating performance and cash flows.

         Revenue  Recognition -- The Company's  primary source of revenue is the
         sale of air time to  advertisers.  Revenue from the sale of air time is
         recorded when the advertisements are broadcast.

         Barter  Transactions -- Revenue from barter  transactions  (advertising
         provided in exchange for goods and services) is recognized based on the
         fair value of the goods or services  received  when the  advertisements
         are broadcast. Expense is recognized when goods and services are used.

                                         - 7 -

<PAGE>



1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

         Income Taxes -- The Company  accounts  for income  taxes in  accordance
         with  Statement of Financial  Accounting  Standards No. 109, which uses
         the asset and liability  method of accounting  for income taxes.  Under
         the asset and liability  method,  deferred  income taxes are recognized
         for the tax  consequences of temporary  differences by applying enacted
         statutory  tax rates to  differences  between the  financial  statement
         carrying  amounts and the tax bases of existing assets and liabilities.
         The effect on deferred  taxes of a change in tax rate is  recognized in
         the period that includes the enactment date.

         Loss Per Common  Share -- Loss per  common  share is based upon the net
         loss  applicable  to common  shares  and upon the  weighted  average of
         common  shares  outstanding  during the period.  The exercise of common
         stock  warrants was not assumed in the  calculation  of loss per common
         share because the effect would be  antidilutive.  The weighted  average
         common  shares  outstanding  excludes  shares  which are  reflected  as
         redeemable common stock.

         Use  of  Estimates  --  The  preparation  of  the  Company's  financial
         statements in conformity with generally accepted accounting  principles
         requires  management to make estimates and assumptions  that affect the
         reported amounts of assets and liabilities and disclosure of contingent
         assets and liabilities at the date of the financial  statements and the
         reported  amounts of income and expenses  during the reporting  period.
         Actual results could differ from those estimates.

         Statement of Cash Flows -- For purposes of the statement of cash flows,
         highly liquid investments, maturing within three months of acquisition,
         are considered to be cash equivalents.

         Concentrations  of  Risk --  Financial  instruments  which  potentially
         subject the Company to  concentrations of credit risk consist primarily
         of cash and cash equivalents and receivables. Also, the Company's radio
         stations  broadcast in Northern  California  which results in a risk to
         the Company due to the concentration in one geographic area.

         Reclassifications--  Certain  amounts  in the 1995  and 1996  financial
         statements   have  been   reclassified   to   conform   with  the  1997
         presentation.


2.       RADIO STATION ACQUISITIONS AND SALES

         In  1994,  RBI  formed  a  wholly-owned  subsidiary,   Alta  California
         Broadcasting, Inc. (Alta), to pursue radio acquisition opportunities in
         Northern California. A description of such stations follows:

         KHSL AM/FM -- In February  1995,  Alta entered  into a Local  Marketing
         Agreement  (LMA) with an option to purchase radio  stations  KHSL-AM/FM
         licensed to Chico and Paradise, California,  respectively. The purchase
         closed on June 19, 1995. Subsequent to its acquisition by Alta, KHSL-AM
         changed its call letters to KNSN-AM.

                                                         - 8 -

<PAGE>



2.       RADIO STATION ACQUISITIONS AND SALES, continued

         In March 1996, Alta entered into separate Asset Sale Agreements to sell
         the assets of both KNSN-AM and KHSL-FM, excluding a parcel of land, for
         $1,466,333.  Concurrently with signing the Asset Sale Agreements,  Alta
         entered  into an LMA  with  the  prospective  purchaser.  When the sale
         closed on March 31, 1997, the LMA terminated.

         At closing  Alta  received  $633,333 in cash and a $200,000  promissory
         note  bearing  interest at a rate of 7% and  maturing on March 31, 1999
         for  KHSL-FM.  Alta is also to receive  $633,000  in cash no later than
         August 31, 1997 for KNSN-AM;  however,  pursuant to the Asset  Purchase
         Agreement, the buyer of KNSN-AM has the option to defer payment of such
         amount for a monthly  option fee of $10,000.  A gain on the sale of the
         stations of $678,206 has been recorded in the accompanying statement of
         operations for the year ended March 31, 1997.

         Management believes that the fair values of its receivables relating to
         the  sale of the  stations  are not  materially  different  from  their
         carrying values.

         In April 1996,  the parcel of land was sold to an  unrelated  party for
         $370,000.  A loss on the  sale of  $80,000  has  been  recorded  in the
         accompanying statement of operations for the year ended March 31, 1997.

         KRDG-FM (f/k/a KHZL and KCFM) -- In March 1995, Alta entered into a LMA
         with  an  option  to  purchase  radio  station   KCFM-FM   licensed  to
         Shingletown,  California, which began commercial broadcasting in August
         1995.  KCFM-FM  primarily  serves the Redding,  California  market.  In
         September 1995,  KCFM-FM  changed its call letters to KHZL-FM.  In July
         1996,  Alta completed the acquisition of KHZL-FM,  thereby  terminating
         the LMA. Alta paid $65,000 cash and issued a $155,000  promissory  note
         as consideration for KHZL-FM (see Note 6). The acquisition was recorded
         using the purchase method and the $220,000  purchase price was recorded
         as license costs as no other assets of KHZL-FM were acquired. Effective
         September 27, 1996, Alta changed KHZL-FM's call letters to KRDG-FM.

         KNNN-FM -- In May 1996,  Alta entered into an Asset Purchase  Agreement
         to acquire KNNN-FM licensed to Central Valley,  California and assigned
         its  rights  to Alta's  wholly-owned  subsidiary,  Northern  California
         Broadcasting,  Inc. KNNN-FM  primarily  serves the Redding,  California
         market.  In August  1996,  Alta  began  operating  KNNN-FM  under a LMA
         pending  approval of the transfer of ownership by the FCC. The purchase
         price for KNNN-FM was  $825,000,  $325,000 of which was paid in cash at
         closing,  and the balance of which was in the form of a promissory note
         (see Note 6). Pursuant to the Asset Purchase  Agreement,  the seller of
         KNNN-FM  agreed  to not  compete  with  the  Company  in  the  Redding,
         California  market for a period of three  years.  The  acquisition  was
         recorded using the purchase method and the purchase price was allocated
         to property and equipment,  the noncompete agreement and license costs,
         based on their respective estimated fair values.

         KLXR-FM -- In May 1996,  Alta entered into an Asset Purchase  Agreement
         to  acquire  KLXR-AM,  licensed  to  Redding,  California,  for a total
         purchase price of $100,000.  In February 1997,  Alta entered into a LMA
         with the prospective seller until the sale closes at which time the LMA
         will terminate. The sale had not closed as of June 25, 1997.

                                             - 9 -

<PAGE>



3.       PROPERTY AND EQUIPMENT

         Property and equipment consists of the following at March 31, 1997:


         Buildings and improvements                                $ 29,437
         Equipment                                                  112,844
         Transmitters                                                68,516
         Furniture and fixtures                                      40,341
                                                                    -------
         Total property and equipment                               251,138
         Less accumulated depreciation                               37,666
                                                                    -------
         Property and equipment-- net                              $213,472
                                                                    =======

4.       INTANGIBLE ASSETS

         Intangible assets consist of the following at March 31, 1997:

         License costs                                           $  950,489
         Noncompete agreement                                       100,000
                                                                  ---------
         Total intangible assets                                  1,050,489
         Less accumulated amortization                               53,905
                                                                  ---------
         Intangible assets-- net                                 $  996,584
                                                                  =========

5.       RELATED PARTY TRANSACTIONS

         Notes payable to related  parties consist of the following at March 31,
          1997:

         Uncollateralized notes payable to MicroCap with interest
             at 8% and principal due on March 31, 1999               $525,000

         Uncollateralized note payable to an entity controlled by
             an officer and stockholder of RBI with interest at 14%
             and principal and interest due on March 31, 1999         100,000

         Uncollateralized note payable to an entity controlled by an
            officer and stockholder of RBI with interest at 12% and 
            principal and interest due on demand                       25,000

         Uncollateralized notes payable to stockholders with interest
             at 8% and principal and interest due on March 31, 1999    40,449
                                                                      -------
         Total                                                        690,449
         Less current portion                                          25,000
                                                                      -------
         Total                                                       $665,449
                                                                      =======

                                        - 10 -


<PAGE>


5.       RELATED PARTY TRANSACTIONS, continued

         The Company  recorded  interest  expense on the related  party notes of
         approximately $79,000 for the year ended March 31, 1997.

         Management  believes  that the fair  values  of its  notes  payable  to
         related parties are not materially different from their carrying values
         based on the terms and varying characteristics of the notes.

         The Company has receivables from and payables to entities controlled by
         an officer and  stockholder  of RBI  totalling  $71,546  and  $156,875,
         respectively,  as of March 31, 1997. Such balances do not bear interest
         and have no set repayment terms.

         During the eight  months  ended  March 31, 1996 and the year ended July
         31,  1995  the  Company  paid  $7,500  and  $5,000,  respectively,   in
         consulting  fees to MicroCap.  No consulting  fees were paid during the
         fiscal year ended March 31, 1997.

         See Note 8 regarding common stock transactions with related parties.


6.       NOTES PAYABLE

         Notes payable consist of the following at March 31, 1997:

         Note payable to seller of KNNN-FM with interest at 8.5%,
           collateralized by the common  stock of  Northern
           California  Broadcasting, Inc., payable in monthly
           installments of principal and interest of $6,199
           through October 2001 with the remaining balance due
           at that date                                             $ 484,725

         Note payable to seller of KRDG-FM with interest at 8.25%
           and payable semi-annually, principal payable on
           July 31, 2004, collateralized by property and equipment,
           guaranteed by MicroCap                                     155,000

         Other notes  payable,  with interest rates ranging from 8%
           to 12%, past due as of March 31, 1997, uncollateralized     28,367
                                                                     --------
         Total                                                        668,092
         Less current portion                                          62,884
                                                                     --------
         Total                                                      $ 605,208
                                                                     ========

         Under the  terms of the  promissory  note  agreements,  future  minimum
         annual  principal  payments  during the next five fiscal  years  ending
         March  31 are  as  follows:  1998 -  $62,884;  1999 -  $37,568;  2000 -
         $40,889; 2001 - $44,503 and 2002 - $327,248.

         The Company has a $25,000  line of credit  agreement  with a bank which
         expires on April 1, 1998. Borrowings under the line of credit agreement
         bear interest at a rate of 7.9% and are collateralized by a certificate
         of deposit of  MicroCap.  There  were no  borrowings  under the line of
         credit agreement as of or during the year ended March 31, 1997.

                                        - 11 -

<PAGE>



6.       NOTES PAYABLE, continued

         Management  believes  that the fair values of its notes payable are not
         materially  different from their carrying values based on the terms and
         varying characteristics of the notes.


7.       LEASE AGREEMENTS

         The Company leases land and equipment under operating lease  agreements
         expiring in various  years  through 2001 and leases  equipment  under a
         capital  lease  agreement  expiring in 1998.  Lease  expense  under the
         operating lease agreements  totalled $74,039,  $36,540 and $101,418 for
         the year ended March 31,  1997,  the eight  months ended March 31, 1996
         and the year ended July 31, 1995, respectively.

         At March  31,  1997,  future  minimum  lease  payments  under the lease
         agreements are summarized as follows:

                                                      Capital      Operating
                                                       Lease        Leases

         1998                                        $13,858   $      54,821
         1999                                                         36,849
         2000                                                         16,310
         2001                                                          2,577
                                                      ------         -------
         Total minimum lease payments                 13,858        $110,557
         Less amount representing interest             1,864         =======
                                                      ------
         Capital lease obligation                    $11,994
                                                      ======

         The equipment under capital lease is as follows at March 31, 1997:

         Equipment                                   $42,416
         Less accumulated depreciation                 3,361
                                                      ------
         Net                                         $39,055
                                                      ======

8.       STOCKHOLDERS' EQUITY

         In February  1997,  the Company  completed the filing of a Registration
         Statement  Form  SB-2  under the  Securities  Act of 1933.  The  filing
         effectively  registered  for sale all shares of common stock issued and
         outstanding  at that time,  203,008 common stock put options which were
         subsequently  issued  to  certain  stockholders,   203,008  put  option
         guarantees  under which MicroCap  guarantees  the Company's  obligation
         under  the  put  options,  and  an  additional  400,000  shares  of the
         Company's common stock to be offered to the public. The registration of
         the outstanding  shares,  the put options and the put option guarantees
         was required pursuant to the Agreement and Plan of Reorganization dated
         June 16, 1995.

                                              - 12 -

<PAGE>


8.       STOCKHOLDERS' EQUITY, continued

         In  connection  with the  completion  and  filing  of the  registration
         statement,   the  Company  incurred   certain  legal,   accounting  and
         consulting  costs.  The  portion  of such  costs  which  related to the
         registration of the previously issued and outstanding  shares,  the put
         options  and  put  option   guarantees   were   charged  to   corporate
         restructuring expense in accompanying  statement of operations since no
         proceeds were realized relating to the registration of such securities.
         Approximately $62,000 of such costs  which related  to the registration
         of the  additional  400,000  shares  to  be  offered  to the  public is
         included within other assets at March  31,  1997 and will be  reflected
         as a reduction of proceeds  upon the sale of these  shares.  Subsequent
         to  March 31, 1997  and  through  June 25, 1997, the Company has issued
         50,000 shares for $100,000.

         At March 31,  1997,  the  203,008  common  stock put  options  remained
         outstanding.  The put options grant the optionholders the right to sell
         to the  Company  their  shares of common  stock at a price of $1.50 per
         share.  The  Company's  potential  obligation  under the put options of
         $304,512  has  been  classified  as  redeemable  common  stock  in  the
         accompanying  balance sheet at March 31, 1997. The put options  expired
         June 13, 1997; however, prior to such expiration,  102,946 options were
         exercised  by the  optionholders  and,  accordingly,  the Company  will
         acquire all of these shares of the Company's common stock for $154,419.
         The remaining put options were forfeited.

         During the eight  months  ended  March 31,  1996,  the  Company  issued
         150,000  shares  of its  common  stock to  MicroCap  to  extinguish  an
         obligation  to  MicroCap of  $180,000.  During the year ended March 31,
         1997,  the Company  issued 66,559 shares of common stock to MicroCap to
         retire notes  and  accounts payable totalling $79,871.  During the year
         ended March 31, 1997 the Company received proceeds from several private
         placement transactions.  In one transaction, private placement proceeds
         of $36,000 were  received  for  30,000  shares  of common stock.  Also,
         included within  the  private  placement  proceeds is $129,300 received
         from related  parties during the year ended March 31, 1997 for  107,750
         shares of common stock.

         During the year ended March 31, 1997,  the Company issued 46,016 shares
         of common stock for legal and other services.  The estimated fair value
         of the services of $55,219 was charged to operations.

         The Company has a $45,000 note  receivable from an officer of RBI as of
         March 31, 1997  relating to a purchase by the officer of 37,500  shares
         of RBI common stock.  The note bears  interest at 7%, matures on August
         1,  2002  and is  collateralized  by a  second  deed  of  trust  on the
         officer's personal residence.

         During the year ended July 31, 1995,  RBI issued  300,008 shares of its
         common  stock,  including  203,008  shares  containing  the put options
         described  above, in connection with a business  combination  which was
         accounted for as a reverse acquisition.

         As of March 31, 1997 and 1996 and July 31, 1995,  the Company's  issued
         and outstanding shares of common stock totalled 1,075,000,  780,508 and
         600,008,  respectively,  including 203,008 shares as of each date which
         are subject to the put options.





                                          - 13 -

<PAGE>


8.       STOCKHOLDERS' EQUITY, continued

         At March 31, 1997, the Company had outstanding  warrants which entitles
         the warrant holders to purchase  116,666 shares of the Company's common
         stock at a  purchase  price  equal to the  lesser of $1.50 per share or
         fifty  percent of the  offering  price to the  public of the  Company's
         common stock in connection  with the next public  offering of shares by
         the Company.  The shares  become  exercisable  on September 9, 1997 and
         expire on September 9, 2000.

         On December  5, 1995,  the Company  adopted  the 1995  Incentive  Stock
         Option Plan (the Plan).  Pursuant to the Plan,  the Company's  Board of
         Directors  is  authorized  to issue  options for the  purchase of up to
         150,000  shares of the  Company's  common stock to key employees of the
         Company.  Under the Plan,  the exercise price of the options may not be
         less than the fair market value of the shares of the  Company's  common
         stock on the date of grant.  During the year ended March 31, 1997,  the
         Company  issued  100,000  options  under the Plan to an  employee.  The
         options  have an  exercise  price of $1.20  per  share  and vest over a
         four-year period. No options have vested as of March 31, 1997.

         In October  1995,  the  Financial  Accounting  Standards  Board  issued
         Statement of Financial  Accounting  Standards No. 123,  "Accounting for
         Stock  Based  Compensation"  (FAS  123),  which  establishes  financial
         accounting   and   reporting   standards   for  stock  based   employee
         compensation  plans  including  stock  purchase  plans,  stock options,
         restricted  stock and stock  appreciation  rights.  As permitted by FAS
         123,  the Company has  elected to continue  accounting  for stock based
         compensation in accordance with Accounting Principles Board Opinion No.
         25,   "Accounting   for  Stock   Issued  to   Employees"   and  related
         interpretations.  The Company estimates that the impact of adopting FAS
         123 would not be material to the Company's financial statements.

9.       INCOME TAXES

         The Company has approximately $375,000 of net operating loss carryovers
         expiring in various years through 2012 which result in deferred  income
         tax  assets  of  approximately  $127,000.   However,   because  of  the
         uncertainty  regarding  future  realization of the deferred  income tax
         assets,  the Company has established a valuation  allowance of $127,000
         as of March 31, 1997. The valuation  allowance increased by $21,000 and
         $106,000  during the year  ended  March 31,  1997 and the eight  months
         ended March 31, 1996, respectively.


10.      SUBSEQUENT EVENTS

         Effective  April 1, 1997,  the  Company  acquired an option to purchase
         radio  stations  KNRO-AM  and  KARZ-FM(KNRO/KARZ)  licenced in Redding,
         California from Power Surge,  Inc.(Power  Surge).  Power Surge received
         the  licenses  from Power Curve,  Inc.(Power  Curve) on March 31, 1997.
         Power  Surge  and  Power  Curve are both  controlled  by the  Company's
         President.  Power  Curve  acquired  KNRO/KARZ  on January  31, 1997 for
         $480,000 in cash and a $720,000 promissory note. Under the terms of the
         option  agreement,  the Company can either (1) purchase  KNRO/KARZ  for
         $1,200,000 in cash or (2) issue 1,000,000 shares of its common stock in
         exchange for all of the issued and  outstanding  shares of common stock
         of  Power  Surge.   The  option   terminates  on  September  30,  1997.
         Concurrently,  the Company  entered  into an LMA with Power Surge for a
         period  of one  year.  Under  the  terms of the  LMA,  the  Company  is
         operating  KNRO/KARZ  and is obligated to pay Power Surge a monthly fee
         of $5,000.




                                             - 14 -