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 June 30, 1996
[ ] 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.
(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 CORPORATE ISSUERS
The number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
16,904,770 Shares of Common Stock, Par Value $.001 as of August
8, 1996.
INDENET, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Page No.
Consolidated Balance Sheet --
June 30, 1996 and March 31,
1996................................................... 1
Consolidated Statement of Operations --
Three-months Ended June 30, 1996 and
1995................................................... 3
Consolidated Statement of Changes in
Stockholders' Equity --
Three-months Ended June 30, 1996....................... 4
Consolidated Statement of Cash Flows --
Three-months Ended June 30, 1996 and
1995................................................... 5
Notes to Consolidated Financial
Statements............................................. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 10
PART II. OTHER INFORMATION............................ 14
INDENET, INC.
INDENET, INC. CONSOLIDATED BALANCE SHEET (UNAUDITED)
ASSETS
June 30, March 31,
1996 1996
Current assets:
Cash and cash equivalents $ 3,131,517 $ 3,818,133
Restricted cash 450,000 453,340
Accounts and other
receivables, net of
allowance for doubtful
accounts 9,731,048 5,159,651
Inventories 3,029,703 2,143,927
Prepaid expenses 586,018 209,822
Total current assets 16,928,286 11,784,873
Property and equipment,
less accumulated
depreciation and
amortization 14,832,696 13,646,419
Capitalized software costs,
net 12,056,688 485,930
Other long-term assets 612,352 525,387
Deferred financing costs,
net 433,522 235,771
Customer list, net 14,955,549 -
Goodwill, net 19,831,922 16,514,557
TOTAL ASSETS $ 79,651,015 $ 43,192,937
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses $ 10,746,769 $ 7,667,159
Deferred income 3,107,386 -
Notes payable,
current portion 2,665,260 1,047,694
Notes payable to
shareholders of
acquired companies,
current portion 1,197,226 1,197,226
Total current liabilities 17,716,641 9,912,079
Notes payable to
shareholders of
acquired companies,
net of current portion 9,176,221 4,676,221
Notes payable, net of
current portion 9,912,528 8,152,051
Deferred taxes 1,295,308 -
Other long-term liabilities 55,710 -
TOTAL LIABILITIES 38,156,408 22,740,351
Minority interest 1,496,739 1,580,456
Commitments and contingencies
Stockholders' equity:
Preferred stock, Series A,
$.0001 par value
Authorized - 1,200 shares
1,200 issued and outstanding - -
Preferred stock, Series B,
$.0001 par value
Authorized - 40,000,000
shares
216,667 issued and
outstanding 22 22
Common stock $.001 par value
Authorized - 100,000,000
shares
Issued and outstanding -
15,752,773 and 12,451,815 15,752 12,451
Additional paid-in
capital 46,075,211 23,169,510
Accumulated deficit (6,093,117) (4,309,853)
Total stockholders' equity 39,997,868 18,872,130
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 79,651,015 $ 43,192,937
See accompanying notes to consolidated financial statements.
INDENET, INC. CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Three Months Ended June 30,
1996 1995
Revenue $ 8,982,716 $ 4,597,949
Cost of sales 3,499,773 1,962,420
Gross profit 5,482,943 2,635,529
Operating expenses:
Selling, general and
administrative 5,162,715 2,145,616
Depreciation and
amortization 1,161,917 270,262
Research and development 249,594 -
Corporate 548,805 161,478
7,123,031 2,577,356
Operating (loss) income (1,640,088) 58,173
Other income (expense):
Interest income 92,387 4,718
Interest expense (332,863) (219,117)
Miscellaneous, net 156,276 199,174
(84,200) (15,225)
(Loss) income before
income tax expense and
allocation to minority
interest (1,724,288) 42,948
Income tax expense 3,193 -
(Loss) income before
allocation to minority
interest (1,727,481) 42,948
Allocation to
minority interest (83,717) -
Net (loss) income $ (1,643,764) $ 42,948
Net (loss) income
per share $ (0.13) $ 0.01
Weighted average
number of common
shares outstanding 13,760,904 5,512,303
See accompanying notes to consolidated financial statements.
INDENET, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended June 30, 1996
(Unaudited)
Preferred Stock Common Stock
Add'l Accumu-
No. of Preferred No. of Common Paid-In lated
Shares Stock Shares Stock Capital Deficit Total
Balance at April 1, 1996
216667 22 12451815 12451 23169510 (4309853) 18872130
Issuance of Series A Preferred Stock
1200 - - - 11183606 - 11183606
Exercise of Warrants
- - 128876 129 289570 - 289699
Shares issued for purchase of CCMS
- - 587612 588 2647339 - 2647927
Shares issued for purchase of Enterprise
- - 2276200 2276 8665494 - 8667770
Cashless exercise of stock options
- - 308270 308 (308) - -
Amount to be paid in common stock related to accretion on Series
A Preferred Stock
- - - - 120000 - 120000
Preferred stock dividends
- - - - - (139500) (139500)
Net loss
- - - - - (1643764) (1643764)
Balance at June 30, 1996
217867 22 15752773 15752 46075211 (6093117) 39997868
See accompanying notes to consolidated financial statements.
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Three Months Ended June 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (1,643,764) $ 42,948
Adjustments to reconcile net
(loss) income to net cash
(used in) provided by
operating activities:
Depreciation and amortization 1,161,917 270,262
Provision for losses on
accounts receivable 13,301 (24,897)
Allocation of loss to
minority interest (83,717 -
Gain on sale of building (128,811) -
Changes in operating assets
and liabilities:
Restricted cash 3,340 688,826
Accounts receivable (1,231,572) 124,382
Inventories (884,669) (25,285)
Prepaid expenses 14,419 (34,250)
Other assets (86,965) 3,667
Accounts payable and
accrued expenses 800,565 (544,320)
Deferred revenue 183,935 -
Other long-term liabilities 55,710 -
NET CASH (USED IN)
PROVIDED BY OPERATIONS (1,826,311) 501,333
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures 851,174) (47,047)
Capitalized software costs (834,822) -
Deferred financing costs (234,140) -
Proceeds from sale of building 1,158,186 -
Cash used to acquire CCMS (1,036,522) -
Cash used to acquire
Enterprise (10,000,000) -
Cash of acquired entity CCMS 276,779 -
Cash of acquired entity
Enterprise 603,839 -
Collection of note receivable - 467,805
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (10,917,854) 420,758
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable (1,896,256) (360,998)
Proceeds from exercise of
warrants 289,699 717,521
Proceeds from private
placements 13,683,606 -
Dividends on preferred stock (19,500) -
NET CASH PROVIDED BY
FINANCING ACTIVITIES 12,057,549 356,523
(DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (686,616) 1,278,614
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 3,818,133 479,534
CASH AND CASH EQUIVALENTS -
END OF PERIOD $ 3,131,517 $ 1,758,148
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest $ 263,526 $ 125,000
Income taxes 3,193 -
Supplemental Disclosure of Noncash Investing and Financing
Activities
Effective May 16, 1996, in conjunction with an Agreement and
Plan of Merger with Cable Computerized Management Systems, Inc.,
("CCMS") the Company received assets of approximately $568,000
and assumed liabilities of approximately $366,000 in exchange for
$1,036,522 in cash and 587,612 shares of the Company's common
stock valued at $4.48 per share.
Effective May 24, 1996, in connection with a Share Purchase
Agreement with Enterprise Systems Group Limited,("Enterprise")
the Company received assets of approximately $16,961,000 and
assumed liabilities of approximately $8,281,000 in exchange for
$10,000,000 in cash, notes payable of $5,000,000, and 2,276,200
shares of the Company's common stock valued at $3.81 per share.
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of the Company, the unaudited
consolidated 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
unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not
contain all the information and footnotes required in a complete
set of financial statements. These statements should be read in
conjunction with the Company's consolidated financial statements
and footnotes thereto as of March 31,1996 included in the
Company's Form 10-KSB. Also included in this Form 10-KSB are
pro-forma financial statements of the Company, Mediatech, Inc.
("Mediatech"), Channelmatic, Inc. ("Channelmatic"), Starcom
Television Services, Inc. ("Starcom"), Cable Computerized
Management Systems, Inc. ("CCMS") and Enterprise Systems Group
Limited ("Enterprise") for the year ended March 31, 1996. The
results of operations for the three-month period ended June 30,
1996 is not necessarily indicative of the results for the year
ending March 31, 1997.
Included in this interim report are pro-forma financial
results of operations for the three-months ended June 30, 1996
for the Company, Mediatech, Channelmatic, Starcom, CCMS (acquired
effective May 1, 1996) and Enterprise (acquired effective June 1,
1996).
The accompanying consolidated financial statements include
the accounts of IndeNet, Inc., its wholly-owned subsidiaries
Mediatech, Starcom (since its acquisition on February 7, 1996),
CCMS (since its acquisition), Enterprise (since its acquisition)
and its 66.67% owned subsidiary Channelmatic (since its
acquisition on November 27, 1995) (collectively "the Company").
2. The Company leases office, production and warehousing
facilities in its Chicago, Illinois location from real estate
partnerships in which a former shareholder of Mediatech has a
controlling interest. Total rent expense paid to these
partnerships for the three-months ended June 30, 1996 and 1995
was $205,118 and $197,075. The Company also leases office space
in Alpine, California from a director who was the sole
shareholder of Channelmatic. Total rent expense paid to the
officer for the three-months ended June 30, 1996 was $19,500.
3. Net loss per share is calculated by taking the sum of
the net loss plus preferred dividends divided by the average
number of common shares outstanding. Common stock equivalents,
such as stock options, warrants and convertible preferred stock,
have not been included since their effect would be anti-dilutive.
4. On April 29, 1996, the Company completed a private
placement of Series A Preferred Stock ("the Preferred Stock") for
$12.0 million, the net proceeds of which were used primarily for
the acquisition of Enterprise. The placement consisted of 1,200
shares of the Preferred Stock with a 6% annual accretion. The
Preferred Stock is convertible into common stock based on 85% of
the average closing bid price of the Common Stock for the five
days immediately preceding the conversion date, but not to exceed
$7.00 per share. The Preferred Stock will automatically convert
into Common Stock in April 1999. The Common Stock carries
registration rights and the Company has the option to repurchase
the Preferred Stock at the time of conversion at an 18% premium
to the principal amount and has the right to call the Preferred
Stock at a 30% premium to the principal amount after 12 months
declining to a 15% premium after 30 months. As of June 30, 1996,
no shares of Common Stock have been issued resulting from
conversion of the Preferred Stock. Subsequent to June 30, 1996,
approximately $1.8 million of the Preferred Stock had been
converted, resulting in the issuance of approximately 650,000
shares of the Company's Common Stock. The Company is currently
renegotiating the terms of the Preferred Stock with the holders
of the Preferred Stock.
On May 24, 1996, the Company completed a private placement
of a $2.5 million Convertible Note ("the Note") to a single
accredited institutional investor, which funds were used
primarily for product development. The investor is the same
investor who invested $4.0 million of a private placement in
February 1996 for approximately 225,000 shares of common stock
and a $3.0 million Convertible Note. The $2.5 million Note
accrues interest at a rate of 7% annually, payable quarterly in
cash or the Company's Common Stock (at the Company's option) and
has a term of two years. The principal amount of the Note,
together with interest is convertible no later than 120 days
subsequent to the offering at a conversion rate based on 82% of
the average closing bid price of the Common Stock for the five
days immediately preceding the conversion date. The Company
shall have the right to convert all or part of the Note any time
after 210 days from the closing date into the underlying stock.
In addition, the Note is redeemable for cash in whole or in part
anytime after 120 days from closing in an amount equal to 122% of
the principal balance of the Note. Subsequent to June 30, 1996,
the holder of the $3.0 million Convertible Debt converted
approximately $1.2 million of the Note. The conversion resulted
in the Company issuing to the holder approximately 500,000 shares
of Company's Common Stock. The Company is currently
renegotiating the terms of the $3.0 million and $2.5 million
Convertible Notes with the holder.
5. On May 16, 1996, the Company completed the acquisition
of CCMS for a purchase price of $4,800,000. The acquisition was
effected through the merger of CCMS into a newly-formed
wholly-owned subsidiary of the Company. The purchase price was
paid at the closing by the Company paying $1,036,522 in cash and
by the Company issuing 587,612 unregistered shares of the
Company's common stock to the CCMS shareholders. The number of
shares issued to the CCMS shareholders was based on the trading
price of the Company's common stock, approximately $6.40 per
share. For book purposes, the stock was valued at $4.48 per
share, or 70% of $6.40. The amount of the purchase price was
based on a multiple of CCMS's earnings before interest, taxes,
depreciation and amortization. The cash portion of the purchase
price was paid from the Company's existing working capital
reserves.
CCMS is a designer and distributor of "traffic and billing"
software that is used by the cable television industry to manage
the airing and invoicing of TV commercials. The principal assets
acquired by the Company consisted of CCMS's software, cash and
accounts receivable. Although the Company intends to continue
CCMS's operations, the Company may integrate CCMS with the
Company's other complimentary businesses in the future.
The acquisition was accounted for as a purchase. The excess
of the purchase price over the net assets of $3,560,595 is
included in Goodwill and is being amortized over 20 years. The
result of operations of CCMS are included in the following
unaudited pro forma results of operations.
On May 24, 1996, the Company completed the acquisition of
Enterprise, a private company incorporated in England and Wales
for a purchase price equal to $27,379,210. The purchase price is
equal to the U.S. dollar equivalent of eight times EBITDA
(earnings before interest, taxes, depreciation and amortization)
of Enterprise for the 12 months ended March 31, 1996. The
purchase price was paid (i) at the closing by the Company paying
$10,000,000 in cash and $5,000,000 in promissory notes ("the
Enterprise Notes") and (ii) by the Company issuing 2,276,200
shares of Common Stock, valued at $5.44 per share. The number
of shares issued was based on the average closing price of the
stock (as reported by The Nasdaq Stock Market) for a 60-day
trading period consisting of a defined 30 trading days in
February and March 1996 and 30 trading days following the closing
(the "Share Price"). For book purposes, the shares were valued at
$3.81 per share, or 70% of $5.44. The Enterprise Notes earn
interest at a rate of 8% per annum, mature May 31, 2000, with
equal payments due quarterly commencing on November 30, 1996.
Commencing November 24, 1996, the Enterprise Notes are
convertible into the Company's common stock at the holders'
option at a conversion price of 150% of the Share Price. The
holders of the common stock issued in this transaction have
certain demand and piggy-back registration rights. The cash
portion of the purchase price was paid from proceeds of the
private placement discussed above. In connection with the
acquisition of Enterprise, the Company elected two designees of
the former Enterprise shareholders to the Company's Board of
Directors.
Enterprise is a London, U.K. based company which designs,
develops and integrates traffic and billing, revenue management,
and program management software products for use by broadcast
television stations. The principal assets acquired by the
Company consisted of Enterprise's software, cash and accounts
receivable. Enterprise currently provides its software products
to over 140 domestic television and radio stations, and to a
total of over 70 television stations located in the United
Kingdom, Western Europe, New Zealand, Australia, Southeast Asia
and South Africa. Enterprise's customers include such major
television networks as NBC Television Stations and Fox Television
Stations in the United States, Laser Sales and VTM in Europe,
Network 10 in Australia and TVNZ in New Zealand. Although the
Company intends to continue Enterprise's operations, the Company
may integrate Enterprise with the Company's other complimentary
businesses in the future.
The acquisition was accounted for as a purchase. The excess
of the purchase price over the net assets of $15,039,100 is
included in Customer List and is being amortized over 15 years.
The result of operations of Enterprise are included in the
following unaudited pro forma results of operations.
6. Condensed unaudited pro-forma results of operations of
the IndeNet, Mediatech, Channelmatic, Starcom, CCMS and
Enterprise are presented as if the respective purchases occurred
at the beginning of the period. The unaudited pro forma results
of operations are not necessarily indicative of what would have
occurred had the acquisitions been completed as of that date or
of any results that may occur in the future. The column labeled
"Acquisitions" consist of operations of CCMS for the one-month
ended April 30, 1996 and of Enterprise for the two-months ended
May 31, 1996.
Pro-forma adjustments include amortization of allocated
costs in connection with the purchases and interest expense on
shareholder notes.
The Pro
Company Combined Forma
Three Three Pro Three
Months Months Forma Months
Ended Acqui- Ended Adjust- Ended
6/30/96 sitions 6/30/96 ments 6/30/96
Revenue $ 8,982,716 2,834,711 11,817,427 - 11,817,427
Cost of 3,499,773 291,465 3,791,238 - 3,791,238
sales
Net loss (1,643,264) (37,723)(1,681,487)(248,604)(1,930,091)
Net loss $ (0.13) $ 0.13)
per share
Number of 13,760,904 15,408,651
shares
INDENET, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the three-months ended June 30, 1995, the operations of the
Company were conducted solely through its subsidiary Mediatech.
The results of operations for the three-months ended June 30,
1996 include the operations of the Company's subsidiaries
Mediatech, Channelmatic, Starcom, CCMS (since its acquisition
which is accounted for commencing May 1, 1996) and Enterprise
(since its acquisition which is accounted for commencing June 1,
1996).
Except for historical information contained herein, statements in
this report are forward-looking statements that are made pursuant
to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements
involve known and unknown risks and uncertainties which may cause
the Company's actual results in future periods to differ
materially from forecast results.
Revenue
The increase in revenue from the prior period was primarily a
result of the consolidation of revenue from the subsidiaries
acquired subsequent to the comparative prior period. Revenue for
Mediatech in the current period is consistent with that of the
comparable prior period. It is anticipated that revenue in
future periods for the Company on a consolidated basis will
increase in comparison to revenue in the current period due to
consolidation of revenue from the subsidiaries acquired during
the current period for a full reporting period.
Cost of Sales
The increase in cost of sales from the prior period was primarily
a result of the consolidation of the cost of sales of the
subsidiaries acquired subsequent to the comparative prior period.
Cost of sales as a percent of sales for Mediatech in the current
period is consistent with that of the comparable prior period.
It is anticipated that cost of sales in future periods for the
Company on a consolidated basis will increase in comparison to
cost of sales in the current period due to consolidation of cost
of sales from the subsidiaries acquired during the current period
for a full reporting period.
Selling, General and Administrative
The increase in selling, general and administrative expense from
the prior period was primarily a result of the consolidation of
the selling, general and administrative expense of the
subsidiaries acquired subsequent to the comparative prior period.
Selling, general and administrative expense for Mediatech is
$298,470 or 14% greater than the comparable prior period due to
additional personnel costs incurred from an additional office
opened in Louisville, Kentucky. It is anticipated that selling,
general and administrative expense in future periods for the
Company on a consolidated basis will increase in comparison to
selling, general and administrative expense in the current period
due to consolidation of the subsidiaries acquired during the
current period for a full reporting period.
Depreciation and Amortization
The increase in depreciation and amortization from the prior
period was primarily a result of the consolidation of the
depreciation and amortization of the subsidiaries acquired
subsequent to the comparable prior period. Prior period's
depreciation and amortization consisted of depreciation and
amortization of Mediatech and IndeNet. Depreciation and
amortization for Mediatech remained consistent with prior period;
however, depreciation and amortization for IndeNet increased by
$635,095 from $131,430 to $766,525 due to depreciation and
amortization of goodwill and purchase price allocation of
equipment and customer list of the subsidiaries acquired
subsequent to the comparable prior period. It is anticipated
that depreciation and amortization in future periods will
increase in comparison to depreciation and amortization in the
current period due to (i) the consolidation of the subsidiaries
acquired during the current period for a full reporting period
and (ii) a full period of amortization of excess purchase price
for those acquisitions.
Research and Development
Research and development expense for the three-months ended June
30, 1996 represent expenses primarily related to the research and
development of Channelmatic products. There was no research and
development expense in the comparative prior period. It is
anticipated that research and development will increase in future
periods related to continued research and development incurred by
Channelmatic and potential research and development expense to be
incurred by CCMS and Enterprise.
Corporate
Corporate overhead represents general and administrative expenses
related to the administration of IndeNet, exclusive of expenses
of the subsidiaries. These expenses for three-months ended June
30, 1996 compared to the comparative prior period increased by
$387,327 from $161,478 to $548,805. The increase is due to (i)
additional personnel needed at the corporate level in overseeing
the subsidiaries, continued corporate financings and evaluation
and execution of mergers and acquisitions, (ii) Company
advertising and promotion, and (iii) additional legal and other
professional costs. It is anticipated that corporate expenses
will increase in the future due to (i) the addition of a Chief
Operating Officer who is expected to commence his duties at the
corporate office in September 1996, and (ii) from additional
administrative costs and professional fees that may be incurred
in any future mergers and acquisitions.
Interest Income
Interest income increased $87,669 from $4,718 to $92,387 for the
three-months ended June 30, 1996 compared to the comparable prior
period due primarily to an increase in the average cash balance
during the period. It is expected that interest income will
decrease as a result of a lower cash balance through use of cash
in funding of the Company's digital delivery system and
capitalized software costs.
Interest Expense
Interest expense increased $113,746 from $219,117 to $332,863 for
the three-months ended June 30, 1996 compared to the prior period
due to (i) the inclusion of interest expense of the companies
acquired subsequent to the comparable prior period and (ii)
interest expense incurred on the promissory notes delivered by
IndeNet as partial payment of the purchase price of each of those
acquisitions. Interest expense is expected to increase in future
periods due to the consolidation of interest expense for the
companies acquired during the three months ended June 30, 1996
and interest expense for a full reporting period incurred on the
promissory notes delivered by IndeNet as partial payment of the
purchase price of Enterprise.
Income Tax Expense
At June 30, 1996, the Company (excluding Channelmatic) has a net
operating loss carryforward of approximately $9.0 million for
federal income tax purposes of which $2.7 million is subject to a
separate return limitation. The carryforward expires in varying
amounts and years through 2011. This loss carryforward also
gives rise to a deferred tax asset of approximately $3.0 million.
This tax asset has a 100% valuation allowance as the Company
cannot determine if it is more likely than not that the deferred
tax asset will be realized. Due to changes in the Company's
ownership, there is an annual limitation on the usage of the net
operation loss carryforward. Income tax expense for the three
months ended June 30, 1996 represents minimum state taxes paid
for the various states in which the Company does business.
Minority Interest
The allocation of net loss to minority interest for the periods
presented represents the 33.33% minority interest in
Channelmatic. The amount allocated to minority interest will
differ in future periods based on the operations of Channelmatic.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company had approximately $3.1 million
in cash and cash equivalents and a working capital deficit of
$788,355. During the three-months ended June 30, 1996, cash and
cash equivalents decreased $686,616, and the Company used
$1,826,311 in operations, primarily due to the operating loss of
the Company. The Company used $10,917,854 in investing
activities, primarily for the purchases of CCMS and Enterprise,
ongoing capital expenditures for the digital delivery system,
capitalized software costs, and deferred financing costs.
Investing activities also include the non-recurring activities of
(i) proceeds from the sale of an office building and (ii) cash
from acquired companies CCMS and Enterprise. The Company
generated $12,057,549 in financing activities, primarily from net
proceeds of two private placements totaling $13,683,606, offset
by repayment of a $750,000 mortgage note from the sale of the
underlying collateral and payments on related party notes
payable.
In August 1996, the Company announced that, due to unusual
trading activity in its publicly traded common stock, it would no
longer permit the conversion of the Series A Preferred Stock or
the two outstanding convertible notes. The Company has initiated
discussions with the holders of the preferred stock and the
convertible notes in order to restructure those securities as
non-convertible debt instruments or to otherwise restrict the
conversion features. In the event that the Company is successful
in its renegotiation of the preferred stock, the Company's long
term indebtedness would increase by approximately $10.2 million,
and its on-going debt service obligations would significantly
increase. In connection with the renegotiation of the foregoing
securities, the Company is also considering raising additional
equity capital for the purpose of redeeming or prepaying the
Series A Preferred Stock and convertible notes. However, unless
the Company is successful in raising such additional equity, the
Company would be unable to redeem the preferred stock and
convertible notes. In addition, unless the Company is able to
renegotiate the terms of the perferred stock and convertible
notes, the Company may be engaged in protracted litigation with
the holders of such securities, which litigation could be
expensive and further negatively impact the Company's liquidity.
Based on the projected operations of the Company's subsidiaries,
the Company currently believes that its consolidated operations
will generate sufficient cash to fund the Company's working
capital needs for the next twelve months. Such projections are
based on financial information that the Company has obtained from
its acquired subsidiaries and is based on projected benefits to
be derived from the integration of the operations of the
subsidiaries. No assurance can be given that the projected
operations or projected integration benefits will be realized.
The Company expects to spend approximately an additional $3.5
million to complete and deliver its digital delivery system. The
Company is attempting to obtain a line-of-credit agreement for
its subsidiary Channelmatic in order to fund Channelmatic's
working capital needs. In addition, the Company may need to
raise capital to fund anticipated capital requirements. If the
company is unable to obtain the required additional capital, the
Company will need to restructure or consolidate its operations,
reduce its projected research and development expenses, or
otherwise revise its proposed business plans. Any such
restructuring would detrimentally affect the future growth of the
Company.
Any future acquisitions will be funded from equity and/or debt
financing. Payments on promissory notes and notes payable as a
result of the private placements of convertible notes that were
completed earlier in 1996 are expected to be paid from either (i)
future fund raising or (ii) funds from IndeNet's subsidiaries.
There is no assurance given that anticipated future capital
financings will be successful or that funds will be available
from IndeNet's subsidiaries to meet capital requirements.
INDENET, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27. Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter
for which this report is filed.
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: August 14, 1996 By: /s/ Richard J. Parent
Richard J. Parent
Chief Financial Officer and
Corporate Secretary
(Principal Financial and Chief
Accounting Officer)
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