UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1995
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to _________
Commission file number: 0-18034
INDENET, INC.
(formerly INDEPENDENT TELEMEDIA GROUP, INC.)
(Exact name of registrant as specified in charter)
Delaware 68-0158367
(State or other jurisdiction IRS Employer
of incorporation) Identification No.)
1640 North Gower Street, Los Angeles, California 90028
(Address of principal executive office)
Registrant's telephone number, including area code: (213) 466-6388
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
Yes X NO ___
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12,13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
Yes ___No ___
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 9,341,315 Shares of Common
Stock, Par Value $.001 as of November 10, 1995.
INDENET, INC.
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Page
No.
Consolidated Balance Sheet --
September 30, 1995 and March 31, 1995 1
Consolidated Statement of Operations
--Three-Months and Six-Months Ended
September 30, 1995 and 1994 3
Consolidated Statement of Changes in
Stockholders' Equity -- Six-Months Ended
September 30, 1995 4
Statement of Consolidated Cash Flows --
Six Months Ended September 30, 1995
and 1994 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 11
INDENET, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
September 30, March 31,
1995 1995
Current assets:
Cash and cash equivalents $ 3,121,537 $ 479,534
Restricted cash - 688,826
Receivables
Accounts and other receivables, net 3,368,323 3,678,553
Note receivable, current portion 115,799 583,604
Total receivables 3,484,122 4,262,157
Inventories 289,584 327,108
Prepaid expenses 140,263 116,843
Total current assets 7,035,506 5,874,468
Property and equipment, less accumulated
depreciation and amortization 7,232,510 2,762,936
Capitalized costs, net 15,672 59,655
Other long-term assets 314,999 317,124
Goodwill, net 3,869,469 8,443,401
TOTAL ASSETS $ 18,468,156 $17,457,584
See accompanying notes to consolidated financial statements
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, March 31,
1995 1995
Current liabilities:
Accounts payable and accrued expenses $ 2,780,238 $ 3,217,659
Notes payable, current portion 1,925,182 2,947,620
Total current liabilities 4,705,420 6,165,279
Notes payable to shareholders
of acquired company 2,335,750 4,604,500
Note payable 1,778,759 1,916,758
Total liabilities 8,819,929 12,686,537
Commitments and contingencies
Stockholders' equity:
Preferred stock $.0001 par
Authorized - 40,000,000 shares
216,667 issued and outstanding 22 -
Common stock $.001 par value
Authorized - 100,000,000 shares
Issued and outstanding - 8,076,735
and 5,404,823 8,077 5,405
Additional paid-in capital 11,483,100 6,064,463
Retained deficit (1,842,972) (1,298,821)
Total stockholders' equity 9,648,227 4,771,047
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $18,468,156 $17,457,584
See accompanying notes to consolidated financial statements
INDENET, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
Pro forma
1995 1994 1994
Revenue $ 4,030,324 $ - $ 4,373,222
Cost of sales 1,663,857 - 1,890,791
Gross profit 2,366,467 - 2,482,431
Operating expenses:
Selling, general
and administrative 2,171,393 - 2,013,503
Depreciation and
amortization 476,273 7,000 419,753
Research and
development 71,351 - -
Corporate 120,539 238,540 238,540
Operating loss (473,089) (245,540) (189,365)
Other income (expense):
Interest income 42,334 82,229 99,467
Interest expense (150,589) (16,250) (202,789)
Reduction of account
payable - - -
Settlement of
lawsuits - 200,000 200,000
Miscellaneous, net 11,646 (66,570) (33,460)
Net loss before income taxes (569,698) (46,131) (126,147)
Income taxes 2,400 - -
Net loss $(572,098) $ (46,131) $(126,147)
Net loss per share $ (0.08) $ (0.01) $ (0.03)
Weighted average number of
common shares outstanding 7,550,098 3,970,143 4,870,143
Six Months Ended
September 30,
Pro forma
1995 1994 1994
Revenue $ 8,628,272 $ - $ 9,004,863
Cost of sales 3,626,277 - 3,745,074
Gross profit 5,001,995 - 5,259,789
Operating expenses:
Selling, general
and administrative 4,273,009 - 4,143,286
Depreciation and
amortization 746,535 19,000 837,523
Research and
development 71,351 - -
Corporate 298,431 450,170 450,170
Operating loss (387,331) (469,170) (171,190)
Other income (expense):
Interest income 47,051 160,868 195,727
Interest expense (369,707) (32,500) (427,878)
Reduction of
account payable - 172,427 -
Settlement of
lawsuits 145,000 102,280 -
Miscellaneous, net 38,320 (88,812) 265,328
Net loss before
income taxes (526,667) (154,907) (138,013)
Income taxes 2,484 - -
Net loss $ (529,151) $(154,907) $(138,013)
Net loss per
share $ (0.08) $ (0.04) $ (0.03)
Weighted average
number of common
shares
outstanding 6,588,941 3,943,198 4,843,198
INDENET, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Six Months Ended September 30, 1995
(Unaudited)
Preferred Stock Common Stock
Number of Preferred Number of Common
Shares Stock Shares Stock
Balance at April 1, 1995 - $ - 5,404,823 $5,405
Exercise of warrants
and options - - 1,921,912 1,922
Conversion of debt to
preferred stock 166,667 17 -
Conversion of debt to
common stock - - 750,000 750
Sale of preferred
stock 50,000 5
Preferred dividends
Net income
Balance at
September 30, 1995 216,667 $ 22 8,076,735 $8,077
Additional
Paid-in Retained
Capital Deficit Total
Balance at April 1, 1995 $ 6,064,463 $ (1,298,821) $ 4,771,047
Exercise of warrants
and options 2,524,009 2,525,931
Conversion of debt
to preferred stock 499,983 500,000
Conversion of debt
to common stock 2,249,250 2,250,000
Sale of preferred stock 145,395 145,400
Preferred dividends (15,000) (15,000)
Net income (529,151) (529,151)
Balance at
September 30, 1995 $ 11,483,100 $ (1,842,972) $ 9,648,227
See accompanying notes to consolidated financial statements
INDENET, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
INCREASE IN CASH AND CASH EQUIVALENTS
Six Months Ended September 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (529,151) $(154,907)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization 746,535 19,000
Provision for losses on accounts receivable (44,000) -
Interest accrued on note receivable - 14,361
Issuance of common stock for services
and settlement of lawsuit - 216,187
Decrease/Increase in operating assets and
liabilities:
Restricted cash 688,826 129,289
Accounts receivable 354,230 (19,544)
Receivables from related party - 77,200
Inventories 37,524 -
Prepaid expenses (23,420) -
Other assets 2,125 -
Accounts payable and accrued expenses (437,421) (438,033)
NET CASH PROVIDED BY (USED IN) OPERATIONS 795,248 (156,447)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (598,194) -
Investment in marketable securities - 1,952,283
Collection of notes receivable 467,805 666,590
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (130,389) 2,618,873
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable (679,187) (50,000)
Proceeds from exercise of warrants
and options 2,525,931 125,000
Purchase of Class A warrants - (72,160)
Proceeds from sale of preferred stock 145,400 -
Purchase and cancellation of treasury stock - (388)
Dividends on preferred stock (15,000) -
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,977,144 2,452
INCREASE IN CASH AND CASH EQUIVALENTS 2,642,003 2,464,878
CASH AND CASH EQUIVALENTS
- BEGINNING OF PERIOD 479,534 505,336
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 3,121,537 $ 2,970,214
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest $ 369,707 $ 32,500
See accompanying notes to consolidated financial statements
INDENET, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of the Company, the unaudited financial statements
contain all adjustments, consisting solely of adjustments of a normal
recurring nature, necessary to present fairly the financial position, results
of operations and cash flows for the periods presented. These statements
should be read in conjunction with the Company's Annual Report for the fiscal
year ended December 31, 1994. The results of operations for the three- and
six-month periods ended September 30, 1995 are not necessarily indicative of
the results for the full year.
In May, 1995, the Company changed its fiscal year from a calendar
year-end to a March 31 year-end. For further information, refer to the
consolidated financial statements and footnotes thereto as of December 31,
1994 included in the Company's Annual Report on Form 10-KSB/A-2. Also
included in this Annual Report are pro-forma financial statements of the
Company and Mediatech, Inc. ("Mediatech") for the years ended December 31, 1994
and 1993. Furthermore, effective June 30, 1995, the Company changed its name
from Independent TeleMedia Group, Inc. to IndeNet, Inc. and re-incorporated
as a Delaware corporation.
The accompanying consolidated financial statements include the accounts
of IndeNet, Inc. and its wholly-owned subsidiary Mediatech, Inc.
(collectively "the Company") since its acquisition on February 3, 1995.
2. During the six-months ended September 30, 1995, warrant and option
holders exercised warrants and options to purchase 1,921,912 shares of the
Company's common stock. The warrants and options were exercised for between
$1.25 and $2.50 per share. The Company received gross proceeds of
$2,569,931. Legal and professional fees of approximately $44,000 were
incurred in connection with the transactions.
3. During the six-months ended September 30, 1995, the holder of the
$500,000 note payable converted the debt to 166,667 shares of Series B
Convertible Preferred Stock. The preferred stock was valued at $3.00 per
share and provides for a 12% annual dividend, payable monthly for a period of
up to five (5) years. Commencing July 1, 1997, the preferred stock is
convertible into the Company's common stock for $3.00 per common share (i.e.,
one preferred share for one common share) or market, whichever is less. Also
during the six-months ended September 30, 1995, the holder purchased an
additional 50,000 shares of Series B Preferred Stock, valued at $3.00 per
share. This issuance of Preferred Stock has the same terms as described
above. Net proceeds to the Company, after legal and professional expenses
was $145,400.
During the six-months ended September 30, 1995, a former shareholder of
Mediatech converted $2,250,000 of a note payable to 750,000 shares of common
stock at $3.00 per share. The shareholder has agreed to "lockup" the shares
until July 1, 1996; at which time the Company has agreed to demand
registration rights.
4. As of June 30, 1995, the Company, as a result of obtaining appraisals,
re-valued certain of the property and equipment acquired from the Mediatech
acquisition, which occurred in February, 1995. The result of the
re-valuation was to increase property and equipment and reduce goodwill by
$4,418,000.
5. During the six-months ended September 30, 1995, the Company settled a
lawsuit with one of its former tenants. The result of the settlement was a
net gain to the Company of $145,000.
6. The Company leases office, production and warehousing facilities in its
Chicago location from real estate partnerships in which a former shareholder
of Mediatech, Inc. has a controlling interest. Total rent expense paid to
these partnerships for the three- and six-months ended September 30,1995 was
$217,519 and $435,259.
7. Net loss per share is calculated by taking the net loss after deducting
the preferred dividends and dividing the resultant amount by the average
number of common shares outstanding. Common stock equivalents, such as stock
options and warrants, have not been included since their effect would not be
dilutive.
8. Condensed pro-forma results of operations of the Company and Mediatech,
Inc. as if the purchase occurred at the beginning of the periods is presented
below.
Pro-forma adjustments primarily include amortization of allocated costs
in connection with the purchase and reduction of salaries pursuant to
employment contracts.
IndeNet Mediatech Combined Pro forma
Six Months Six Months Six Months Six Months
Ended Ended Ended Pro forma Ended
9/30/94 9/30/94 9/30/94 Adjustments 9/30/94
Revenue $ - $ 9,004,863 $ 9,004,863 $ - $ 9,004,863
Cost of sales - 3,745,074 3,745,074 - 3,745,074
S,G&A - 4,230,786 4,230,786 (87,500) 4,143,286
Depr./Amort. 19,000 605,664 624,664 212,859 837,523
Corporate 450,170 - 450,170 - 450,170
Misc.,net 314,263 (250,560) 63,703 (30,526) 33,177
Net(loss) (154,907) 172,779 17,872 (155,885) (138,013)
Net(loss)
per share $ (0.04) $ (0.03)
IndeNet Mediatech Combined Pro forma
Three Months Three Months Three Months Three Months
Ended Ended Ended Pro forma Ended
9/30/94 9/30/94 9/30/94 Adjustments 9/30/94
Revenue $ - $ 4,373,222 $ 4,373,222 $ - $ 4,373,222
Cost of sales - 1,890,791 1,890,791 - 1,890,791
S,G&A - 2,057,253 2,057,253 (43,750) 2,013,503
Depr./Amort. 7,000 306,324 313,324 106,429 419,753
Corporate 238,540 - 238,540 - 238,540
Misc., net 199,409 (120,928) 78,481 (15,263) 63,218
Net loss (46,131) (2,074) (48,205) (77,942) (126,147)
Net loss
per share $ (0.01) $ (0.03)
9. On November 1, 1995 , the Company redeemed its Class B Warrants. The
Company has received proceeds of approximately $2,460,000 and issued
1,229,879 shares of the common stock as a result of this redemption.
INDENET, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The results of operations for the six- and three-months ended September 30,
1995 include the operations of the Company's wholly-owned subsidiary
Mediatech as a result of the acquisition of Mediatech effective February 3,
1995. Additionally, condensed pro-forma results of operations of the Company
and Mediatech are summarized in the Notes to Consolidated Financial
Statements and discussed below.
Revenue
The increase in revenue was a result of the consolidation of revenue of the
Company's recently acquired and wholly-owned subsidiary, Mediatech. All
revenues in the current periods presented resulted from the operations of
Mediatech. There was no revenue for the six- and three-months ended
September 30, 1994 since the Company had no operations during those periods.
On a pro-forma basis revenue for the periods ended September 30, 1995 are
generally consistent with the prior year's periods. It is anticipated that
revenue in future periods will increase in comparison to revenue in the
current periods. Due to the seasonality of Mediatech's business, sales for
the three-months ended September 30 tend to be the lowest period of the year.
Television viewership is lower in the Summer which results in fewer broadcast
spots being delivered. Syndicated programs are in hiatus during the Summer
which results in fewer occasional feeds of supplemental promotional spots
being broadcast.
Cost of Sales
Cost of sales was 42% and 41% for the six- and three-months ended September
30, 1995. There was no cost of sales for the comparable periods in prior
year since there was no revenue for those periods. On a pro-forma basis the
three-months ended September 30, 1994. It is anticipated that cost of sales
as a percentage of revenue will remain consistent in future periods until the
Company has deployed its Digital Broadcast Network; at which time cost of
sales should decrease.
Selling, General and Administrative
Selling, general and administrative expenses for the six- and three-months
September 30, 1995 represent operating expense of Mediatech. There are no
selling, general and administrative expenses for the six- and three months
ended September 30, 1994 since the Company did not have an operating business
at that time. On a pro-forma basis selling, general and administrative
expenses were similar to the prior year's periods. It is anticipated that
selling, general and administrative expense in future periods will be
proportionately consistent with revenue in the future periods.
Depreciation and Amortization
Depreciation and amortization increased as a result of the acquisition of
Mediatech for the six- and three-months ended September 30, 1995. It is
anticipated that depreciation and amortization will increase in future
periods as a result of the reallocation of Goodwill to Property, Plant and
Equipment as discussed above.
Research and Development
Research and development expenses for the six- and three-months ended
September 30, 1995 represent expenses related to the development of the
Company's Digital Broadcast Network. It is anticipated that research
and development will increase in future periods related to the development
and deployment of the Digital Broadcast Network.
Corporate
Corporate overhead represent general and administrative expenses related to
the administration of the Company exclusive of expenses related to Mediatech.
These expenses for the six- and three-months ended September 30, 1995
decreased 34% and 49% in comparison to the prior year's periods primarily as
the result of resolving all outstanding litigation. The remaining expenses
are primarily related to costs of being a public company. Since the Company
has no ongoing material litigation and as a result of the consolidation of
the Company's corporate expenses into its wholly-owned subsidiary, Mediatech,
and the other items previously mentioned, it is anticipated that corporate
expenses will decline in future periods.
Interest Income
Interest income decreased $113,817 and $39,895 for the six- and three-months
ended September 30, 1995 due to the reduction in cash. The reduction in cash
is attributable to the $3,000,000 paid for the purchase of Mediatech. It is
anticipated that interest income will increase in the following period due to
the exercise of options and warrants resulting in a higher cash balance.
However, interest income will then decrease as a result of the $4,500,000
cash payment due to the shareholder of Channelmatic, Inc. for the pending
acquisition of that company.
Interest Expense
Interest Expense increased $337,207 and $134,339 for the six- and
three-months ended September 30, 1995 primarily as a result of increased
interest expense resulting from debt related to the acquisition of Mediatech.
It is anticipated that interest expense will increase in future periods as a
result of the additional note payable resulting from the pending acquisition
of Channelmatic, Inc.
Miscellaneous, net
Miscellaneous, net increased $127,132 and $78,216 for the six- and
three-months ended September 30, 1995 primarily as the result of increased
rental income and decrease in miscellaneous expenses.
Income Taxes Benefit
As all available loss carrybacks were utilized in 1993, there is no carryback
provided for in the current periods. The Company has net operating loss
carryforwards. The Company has not recorded a deferred tax asset for its
current net operating loss as the Company cannot conclude that it is more
likely than not the deferred tax asset would be realized.
Net Loss
Net loss for the six- and three-months ended September 30, 1995 increased
$374,244 and $525,967 from prior year's periods primarily as a result of the
items discussed in the section on corporate expenses as well as consolidation
of the results of the operations of Mediatech with the Company for the
current periods. On a pro-forma basis net loss increased by $391,138 and
$445,951 for the six- and three-months ended September 30, 1995 compared with
prior year's periods for the same reasons stated above. It is anticipated
that the results of operations will be impacted by increased expenses related
to deployment of the Company's Digital Broadcast Network.
LIQUIDITY AND CAPITAL RESOURCES
During the six-months ended September 30, 1995, cash and cash equivalents
increased $2,642,003 primarily as a result of the exercise of Warrants and
Stock Options, the sale of Preferred Stock, the conversion of restricted cash
to cash and cash equivalents, and the collection of the Note Receivable.
Working capital increased $2,620,897 for the six-months ended September 30,
1995 compared to prior year's periods primarily as the result of the above
factors.
Long term debt was reduced by $2,250,000 as the result of conversion of a
note payable to a shareholder of the acquired company to Common Stock.
However, current debt service requirements have not changed.
The Company anticipates that its current liquidity will fund operations at
the current level without reliance on additional outside sources of
financing. As a result of the purchase of Mediatech and the pending
acquisition of Channelmatic, Inc. (see following discussion of Channelmatic
acquisition), the Company anticipates that up to $10,000,000 will need to be
raised to fund the anticipated deployment of a Digital Broadcast Network
throughout the country to broadcast television stations. As of the date of
this filing, the Company is in the process of attempting to raise such funds
through a private placement.
The Company is in the process of the purchase of Channelmatic, Inc.
("Channelmatic"). The purchase price is to include, among other
considerations, cash of $4,500,000 upon closing and a commitment to invest
$3,000,000 into Channelmatic after the closing to be used for market and
product development. The Company is currently working with its investment
banking firm to raise the funds, through a private placement of preferred
stock and debt in order to consummate the transaction. At this time no
commitments have been made and there is no assurance that the purchase of
Channelmatic will be consummated.
INDENET, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None material.
Item 6. Exhibits and Reports on Form 8-K
a. A Form 8-K was filed for the event reported October 11, 1995 related to
the entering into an Asset Purchase Agreement with Channelmatic, Inc.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned hereunto duly authorized.
INDENET, INC.
Date: November 14, 1995 By: /s/ Lewis K. Eisaguirre
Lewis K. Eisaguirre,
Chief Financial and
Accounting Officer
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