UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of
1934
Report for Event: May 10, 1996
INDENET, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-18034 68-0158367
(State or other (Commission (IRS Employer
jurisdiction of File No.) Identification No.)
incorporation)
1640 N. Gower Street, Los Angeles, CA 90028
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(213) 466-6388
Not applicable
(Former name and address)
Item 1. Changes in Control of Registrant
Not applicable.
Item 2. Acquisition or Disposition of Assets
Not applicable.
Item 3. Bankruptcy or Receivership
Not applicable.
Item 4. Changes in Registrant's Certifying Accountant
Not applicable.
Item 5. Other Events
Not applicable.
Item 6. Resignations of Registrant's Directors
Not applicable.
Item 7. Financial Statements and Exhibits.
Attached are audited financial statements of the issuer for
the three months ended March 31, 1995.
Exhibit No. Description
99.1 Audited financial statements for the three
months ended March 31, 1995.
23.2 Consent of BDO Seidman LLP
Item 8. Change in Fiscal Year
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
INDENET, INC.
Date: May 14, 1996 By: /s/ Richard J. Parent
Richard J. Parent
Its: Chief Financial
Officer and Secretary
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
To the Board of Directors
IndeNet, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of
IndeNet, Inc. and Subsidiary (formerly Independent TeleMedia
Group, Inc.) as of March 31, 1995 and the related consolidated
statements of operations, stockholders' equity and cash flows for
the three months 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 audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of IndeNet, Inc. and Subsidiary (formerly Independent
TeleMedia Group, Inc.) as of March 31, 1995 and the results of
their operations and their cash flows for the three months then
ended in conformity with generally accepted accounting
principles.
We have reviewed the accompanying consolidated balance sheet of
IndeNet, Inc. and Subsidiary ((formerly Independent TeleMedia
Group, Inc.) as of March 31, 1994, and the related consolidated
statements of operations and cash flows for the three months then
ended in accordance with standards established by the American
Institute of Certified Public Accountants. All information
included in these financial statements is the representation of
the management of IndeNet, Inc. and Subsidiary ((formerly
Independent TeleMedia Group, Inc.)
A review consists primarily of inquiries of company personnel and
analytical procedures applied to financial data. It is
substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying
consolidated financial statements in order for them to be in
conformity with generally accepted accounting principles.
/s/ BDO Seidman
BDO Seidman
May 7, 1996
INDENET, INC.
Consolidated Balance Sheet
March 31, 1995 and 1994
1995 1994
(audited) (unaudited)
ASSETS:
Current Assets:
Cash and cash equivalents $479,534 $505,336
Restricted cash
(Notes B, D and H) 688,826 834,070
Marketable securities, at
cost which approximates
market ----- 1,952,283
Receivables:
Accounts and other receivables,
less allowance for doubtful
accounts of $125,417 and $0
(Note J) 3,678,553 216,176
Note Receivable,
current portion 583,604 1,533,962
Total Receivables 4,262,157 1,750,138
Inventories 327,108 ----
Prepaid Expenses 116,843 ----
Total Current Assets 5,874,468 5,041,827
Property and equipment,
less accumulated depreciation
and amortization (Note C) 2,762,936 19,000
Note receivable, less
current portion 458,047
Capitalized costs, net 59,655 ----
Other long-term assets 317,124 ----
Goodwill, net (Note A) 8,443,401 ----
TOTAL ASSETS: $17,457,584 $5,518,874
See notes to consolidated financial statements.
INDENET, INC.
Consolidated Balance Sheet (cont'd)
March 31, 1995 and 1994
1995 1994
(audited) (unaudited)
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable and accrued
expenses $3,217,659 $ 874,042
Line of credit (Note D) 2,171,620 ---
Notes payable to shareholders
of acquired company, current
portion (Notes A and D) 200,020 ---
Note payable, current portion
(Note D) 776,000 150,000
Total current liabilities 6,365,299 1,024,042
Notes payable to shareholders
of acquired company
(Notes A and D) 4,404,480 ---
Note payable (Note D) 1,916,758 400,000
Total liabilities: 12,686,537 1,424,042
Commitments and contingencies
(Notes H and K)
Stockholders' equity (Note F)
Preferred stock $.0001 par value
Authorized - 40,000,000 shares
None issued and outstanding
Common stock $.001 par value
Authorized - 100,000,000 shares
Issued and Outstanding -
5,404,823 and 3,793,472 5,405 3,793
Additional paid-in capital 6,064,463 4,185,196
Accumulated deficit (1,298,821) (94,157)
Total stockholders' equity 4,771,047 4,094,832
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $17,457,584 $5,518,874
See notes to consolidated financial statements.
INDENET, INC.
Consolidated Statement of Operations
Three Months Ended March 31, 1995 and 1994
1995 1994
(audited) (unaudited)
Revenue (Note J) $3,004,259 $ ---
Cost of sales 1,243,211 ---
Gross profit 1,761,048 ---
Operating expenses:
Selling, general and
administrative 1,658,865 ---
Depreciation and
amortization (Note C) 179,232 6,000
Corporate general and
administrative 557,631 284,918
Operating loss (634,680) (290,918)
Other income (expense):
Interest expense (137,885) (19,500)
Miscellaneous, net 10,571 3,305
Net Loss (761,994) (307,113)
Net loss per share ($0.15) ($0.08)
Weighted average number of
common shares outstanding 5,096,823 3,793,472
See notes to consolidated financial statements.
INDENET, INC.
Consolidated Statement of Changes
in Stockholders' Equity
Three Months Ended March 31, 1995
Common Stock
Addit'l
No. of Common Paid-In Accumulated
Shares Stock Capital Deficit Total
Balance at
January 1,
1995 4,050,143 $ 4,050 $4,532,818 $(536,827) $4,000,041
Exercise of
Options
(Note F) 430,680 431 (431) ---- -----
Issuance of
common stock
in lieu of
officers'
compensation
(Note F) 24,000 24 29,976 ---- 30,000
Issuance of
common stock
for purchase
of Mediatech
(Note A) 900,000 900 1,502,100 ---- 1,503,000
Net loss --- --- --- (76,994) (761,994)
Balance at
March 31,
1995 5,404,823 5,405 6,064,463 (1,2998,821) 4,771,047
See notes to consolidated financial statements.
INDENET, INC.
Consolidated Statement of Cash Flows
Increase (Decrease) in
Cash and Cash Equivalents
Three Months Ended March 31, 1995 and 1994
1995 1994
(audited) (unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $ (761,994) $ (307,113)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and amortization 179,232 6,000
Provision for losses on
accounts receivable 29,938 ---
Interest accrued on
note receivable (24,000) (14,361)
Issuance of common stock
for services 30,000 57,292
Decrease/increase in operating
assets and liabilities:
Restricted cash 17,454 (2,354)
Accounts receivable (175,218) 56,933
Inventories (45,627) ---
Prepaid expenses (11,486) ---
Capitalized costs --- ---
Other Assets (16,511) ---
Accounts payable and
accrued expenses 192,930 (60,830)
Net cash used in operations (585,282) (264,433)
Cash Flows from Investing
Activities:
Acquisition of Mediatech,
Inc. (3,000,000) ---
Cash acquired from
Mediatech, Inc. 369,848 ---
Capital expenditures (39,277) ---
Investment in marketable
securities --- (1,952,283)
Collection of note
receivable, net 350,001 ---
Net cash used in
investing activities (2,319,428) (1,952,283)
Cash Flows from
financing activities:
Proceeds from notes payable 179,690 ---
Repayment of notes payable (46,000) (40,000)
Net cash provided by (used in)
financing activities 133,690 (40,000)
Decrease in cash and cash
equivalents (2,771,020) (2,256,716)
Cash and cash equivalents
- - beginning of period 3,250,554 2,762,052
Cash and cash equivalents
- - end of period 479,534 505,336
See notes to consolidated financial statements.
INDENET, INC.
Consolidated Statement of
Cash Flows (cont'd)
Increase (Decrease) in
Cash and Cash Equivalents
1995 1994
(audited) (unaudited)
Supplemental Disclosure of
Cash Flow Information
Cash paid during the
period for:
Interest $ 80,329 $ 19,500
Supplemental Disclosure of
Non-Cash Investing and
Financing Activities
Effective February 3, 1995, in conjunction with
the purchase of Mediatech, Inc., the Company
received assets of approximately $6,793,809 and
assumed liabilities of approximately $6,835,958
in exchange for 900,000 shares of the Company's
common stock valued at $1.67 per share and
a note payable of $4,604,500.
See notes for consolidated financial statements.
INDENET, INC. Summary of Accounting Policies
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include
the accounts of IndeNet, Inc. and Subsidiary (formerly
Independent TeleMedia Group, Inc.), (the Company) and
its wholly-owned subsidiary Mediatech, Inc. ("Mediatech")
(since its acquisition on February 3, 1995). All material
intercompany transactions and balances have been eliminated.
ORGANIZATION AND BUSINESS
The Company was organized under the laws of the State of
Colorado on April 4, 1988. The Company is primarily a
duplicator and distributor of video-based program materials.
The Company's customers are located throughout the United
States and are serviced by three operating facilities located in
Chicago, Illinois; New York, New York; and Los Angeles,
California. Effective June 30, 1995, the Company re-incorporated
as a Delaware corporation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased
with an initial maturity of three months or less to be cash
equivalents.
MARKETABLE SECURITIES
The Company accounts for marketable securities in accordance
with Statement of Financial Accounting Standards No. 115
("SFAS 115"). The Company's investments are available for sale
and are stated at market, which approximates cost. Investments
consist primarily of bonds.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out)
or market (net realizable value).
DEPRECIATION AND AMORTIZATION
Depreciation of property and equipment is provided using the
straight-line method. The estimated useful lives are as follows:
Building and improvements 10-20 years
Equipment 5-7 years
Leasehold improvements are written off over the estimated
useful lives or the life of the related lease, whichever is
shorter.
GOODWILL
Goodwill represents a portion of the excess of cost over the
fair value of the identifiable net assets acquired in connection
with the February 3, 1995 acquisition of Mediatech. Goodwill
is amortized over 20 years.
At each balance sheet date, using an un-discounted cash flow
method, the Company evaluates the realization and period
of amortization to determine whether events and circumstances
warrant revised estimates of amortization and whether the
goodwill has continuing value.
INCOME TAXES
The Company accounts for income taxes using Financial Accounting
Standards Board's (FASB) Statement of Financial Accounting,
Standard No. 109 (SFAS 109) "Accounting for Income Taxes."
SFAS 109 requires a company to recognize deferred tax liabilities
and assets for the expected future tax consequences of events
that have been recognized in a company's financial statements or
tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the
financial statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates in effect in the years which
the differences are expected to reverse.
LOSS PER SHARE
Net loss per share is calculated by taking the net loss divided
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 not be dilutive.
ACCOUNTING ESTIMATES
The preparation of 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, disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
FAIR VALUE OF LONG-TERM DEBT
The fair value of the Company's long-term debt is estimated
based on the quoted market price for the same or similar
issued or on the current rates offered to the Company for
debt of the same remaining maturities.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-lived Assets and
for Long-lived Assets to Be Disposed of" (SFAS No. 121)
issued by the Financial Accounting Standards Board (FASB)
is effective for financial statements for fiscal years beginning
after December 15, 1995. The new standard establishes new
guidelines regarding when impairment losses on long-lived
assets, which included plant and equipment, and certain
identifiable intangible assets, should be recognized and how
important losses should be measured. The Company does
not expect adoption to have a material effect on its financial
position or results of operations. Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123) issued by the Financial Accounting
Standards Board (FASB) is effective for specific transactions
entered into after December 15, 1995. The new standard
establishes a fair value method of accounting for stock-based
compensation plans and for transactions in which an entity
acquires goods or services from nonemployees in exchange for
equity instruments. At the present time, the Company has not
determined if it will change its accounting policy for stock
based compensation or only provide the required financial
statement disclosures. As such, the impact on the Company's
financial position and results of operations is currently
unknown. The Company does not expect adoption to have a material
effect on its financial position or results of operations.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior period
consolidated financial statements to conform to 1995
presentation.
INDENET, INC.
Notes to Consolidated Financial Statements
Three Months Ended March 31, 1995
(Information with respect to the three-month
period ended March 31, 1995 is unaudited.)
NOTE A - ACQUISITION OF MEDIATECH
Effective February 3, 1995 and amended as of March 14, 1995,
the Company acquired 100% of the outstanding common shares
of Mediatech under a Stock Purchase Agreement with Mediatech's
shareholders for $9,107,500. Under the terms of the Agreement
with the shareholders of Mediatech, the Company issued 900,000
shares of restricted common stock valued at $1,503,000, paid
$3,000,000 in cash and issued notes of $4,604,500. Principal and
interest payments on the notes are payable quarterly and begin
90 days from the date of close and will equal $18,750 per quarter
for the first quarters; will increase to $143,750 for the fifth
through the twelfth quarters; and will remain at $125,000 for the
remaining term of the notes. Effective June 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. The acquisition is being accounted for as a purchase.
The results of operations of Mediatech are included in the
statement of operations as of the date of acquisition. See Notes
G and K for unaudited pro forma results of operations which
include Mediatech.
NOTE B - RESTRICTED CASH
At March 31, 1995, the Company had approximately $163,000 in
an escrow account pending the outcome of the Company's lawsuit
with USID. The Company has accrued a liability with respect to
this matter. See Note H.
At March 31, 1995, the Company had approximately $526,000
in an escrow account as collateral against the Company's
$500,000 note payable. See Note D.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and consist of the
following:
March 31, 1995 March 31, 1994
(unaudited)
Land $ 500,000 $ ----
Building and improvements 621,732 ----
Equipment 1,447,314 50,000
Leasehold improvements 244,117 40,882
Furniture and fixtures 92,428 ----
Vehicles 41,513 ----
2,947,104 90,882
Less accumulated depreciation
and amortization 184,168 71,882
Property and
equipment, net $ 2,762,936 $ 19,000
Depreciation and amortization for the three months ended
March 31, 1995 and 1994 was $179,232 and $6,000.
NOTE D - LONG-TERM DEBT AND LINE-OF-CREDIT
Note payable of $500,000 which is classified as a current note
payable on the balance sheet. The note is secured by $526,000
held in an escrow account, and is to repaid within five years
with interest accruing at 13% per annum. As of March 31, 1995,
the Company was making interest only payments. Effective June
30, 1995, the holder of the note 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. In addition, the holder purchased an additional 50,000
shares of Series B Convertible 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.
Note payable of $2,192,758 of which $276,000 is classified as
notes payable, current and $1,916,758 is classified note payable,
long term. The note was issued pursuant to a term loan
agreement which contains restrictive covenants, including
financial covenants relating to levels of tangible net worth,
capital expenditures and compensation and certain financial
ratios. At March 31, 1995, the Company was in violation of one
covenant for which a waiver has been obtained. The note bears
interest at the prime rate (9% at March 31, 1995) plus 0.75%; due
in monthly installments of $23,000 plus interest, with a balloon
payment due in October 1999 for the remaining balance; secured by
substantially all assets of the Company, and guaranteed by an
officer of Mediatech. In February, 1996, the Company refinanced
this note with another lender into two notes; a term loan for
$1,300,000 and a mortgage loan for $768,000. Both notes bear
interest at prime + 0.5%; are amortized over ten years and due
December 1997. Payments on the term loan equal $31,549 monthly
and payments on the mortgage note equal $9,271 monthly. In
connection with the refinance, the guarantee by the officer was
relieved.
The Company has a $2,200,000 line-of-credit expiring
June 30, 1995, which bears interest at the bank's prime
lending rate plus 0.75%. The line-of-credit is secured
by the Company's accounts receivable. The line is guaranteed
by an officer of Mediatech. Cash advances of $2,171,620 were
outstanding against the line-of-credit at March 31, 1995. In
addition, the Company maintains a $26,800 standby letter of
credit in favor of the lessor of the Company's East office
facilities. In February, 1996, the Company refinanced with
another lender. The new arrangement calls for a $1,850,000
line-of-credit expiring December 1997 ; interest at prime plus
0.25% or LIBOR plus 2.75% (at the Company's election); due
December, 1997; monthly payments are interest only; and the line
is secured by eligible receivables. In connection with the
refinance, the guarantee by the officer was relieved.
The carrying cost of the above debt instruments approximate the
fair value of the instruments.
As of March 31, 1995, the aggregate amounts of long-term debt
maturing in succeeding years are as follow:
Years ended
March 31, Related Party Third Party Total
1996 $ 200,020 $ 776,000 $ 976,020
1997 200,000 276,000 476,000
1998 200,000 276,000 476,000
1999 200,000 276,000 476,000
2000 3,804,480 1,088,758 4,893,238
$ 4,604,500 $ 2,692,758 $ 7,297,258
NOTE E - INCOME TAXES
At March 31, 1995, the Company has a net operating loss
carryforward of approximately $1,487,000 for federal income
tax purposes, which expires in 2009. This loss carryforward
gives rise to a deferred tax asset of $506,000. This tax asset
has a 100% valuation allowance as the Company cannot determine
if it is more likely than not the deferred tax asset will be
realized. Because of changes in the Company's ownership, there
is an annual limitation on the usage of the net operating loss
carryforward.
NOTE F - EQUITY
Private Placement
On February 19, 1993, the Company completed a private
placement of units consisting of 1,351,200 shares of the
Company's common stock and warrants to purchase an additional
1,351,200 shares at $2.00 per share, for a period of five years.
Net proceeds to the Company from the offering after payment of
the agents commission and expense was $2,354,442, of which
$300,000 was used by the Company to purchase 150,000 shares of
common stock from officers/shareholders. The agent received an
option to purchase 112,600 units at $2.50 per share for a period
of five years.
In August 1994, the Company distributed a private Tender
Offer to the warrant holders offering either to purchase
each existing warrant for $.40 per warrant or to exchange
for three existing warrants one share of available common
stock. Warrant holders sold back to the Company 194,800 warrants
for a total price of $77,920. No warrants were exchanged for
common stock. See Warrants below.
Stock Compensation Plan
On December 14, 1993, the Company implemented a qualified stock
option plan (Plan). The purposes of the Plan was to further the
success of the Company be making common stock of the Company
available for purchase by employees and to provide an incentive
to such individuals. A total of 1,000,000 shares of common stock
of the Company have been approved by the shareholders for
issuance under the Plan.
As of March 31, 1995, options for 294,200 shares of the Company's
common stock are outstanding under the Company's qualified stock
option plan. The following summarizes those options as of March
31, 1995:
Shares Exercise Price Canceled Vested Non-Vested
174,200 $1.25 ---- 64,200 110,000 (a)
120,000 $1.43 ---- 120,000 ----
(a) 55,000 shares vest upon common stock price reaching $3.25
and 55,000 vest upon common stock price reaching $4.25.
Subsequent to March 31, 1995, the Company issued to employees
1,134,485 options for between $1.38 and $2.25. The strike price
granted was the fair value of the stock at the time of grant.
Stock Grants
During the three months ended March 31, 1995, officers
received 24,000 shares of common stock in lieu of cash
compensation. The shares were valued at $1.25 per share.
Compensation expense of $30,000 was recorded in connection with
this transaction.
Stock Options
During the three months ended March 31, 1995, option holders
exercised options to purchase 717,800 of the Company's common
stock utilizing the Company's "Stock for Stock Exchange"
arrangement resulting in the issuance of 430,680 shares of common
stock.
Subsequent to March 31, 1995, warrant and option holders
exercised warrants and options to purchase 3,185,651 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 $5,095,186. Legal, professional and
solicitation fees of approximately $243,000 were incurred in
connection with the transactions.
Warrants
The following warrants were outstanding at March 31, 1995:
(a) 1,269,000 issued in connection with a private offering. See
Private Placement above.
(b) 360,000 issued in connection with a settlement of a lawsuit
in 1994.
(c) 162,241 issued in connection with a note payable. See Note
D.
NOTE G - UNAUDITED PRO FORMA RESULTS OF OPERATIONS
Condensed unaudited pro forma results of operations of the
Company and Mediatech, as if the purchase occurred at the
beginning of the following three periods, are presented below.
Since Mediatech was acquired by the Company as of February 3,
1995, the unaudited pro forma results of operations for the three
months ended March 31, 1995 include Mediatech for the one month
period ended January 31, 1995. The unaudited pro forma financial
statements have been prepared for comparative purposes only and
are not necessarily indicative of what would have occurred had
the acquisition been completed as of those dates or of any
results that may occur in the future.
UNAUDITED
The
Company Pro
Three Mediatech Combined forma
Months One Three Pro Three
Ended Month Months forma Months
3/31/95 Ended Ended Adjust- Ended
1/31/95 3/31/95 ments 3/31/95
Revenue $ 3,004,259 $ 1,375,174 $ 4,379,433 $ ----- $4,379,433
Net
(loss)
income $ (761,944) $ (97,264) $ (859,258) $56,261 $(802,997)
Net loss
per share $ (0.15) $(0.15)
The
Company Pro
Three Mediatech Combined forma
Months One Three Pro Three
Ended Month Months forma Months
3/31/95 Ended Ended Adjust- Ended
3/31/95 3/31/95 ments 3/31/95
Revenue $ ---- $4,603,164 $4,379,433 $ ---- $4,603,164
Net
(loss)
income $(307,113) $168,506 $(138,607) $(61,495) $(200,102)
Net
loss
per
share $ (0.08) $ (0.04)
The
Company Pro
Twelve Mediatech Combined forma
Months Twelve Twelve Pro Twelve
Ended Months Months forma Months
12/31/94 Ended Ended Adjust- Ended
12/31/94 12/31/94 ments 12/31/94
Revenue $ ---- $18,156,544 $18,156,544 $ ---- $18,156,544
Net
(loss)
income $(749,783) $598,179 $ (151,604) $185,095 $ 33,491
Net
loss
per
share $ (0.19) $ .01
Pro forma adjustments primarily include amortization of allocated
costs in connection with purchase and reduction of salaries
pursuant to employment contracts.
NOTE H - COMMITMENTS, CONTINGENCIES AND LITIGATION
Employment Agreements
Effective January 1, 1993, the Company entered into employment
agreements with two of its officers. The agreements expire on
January 1, 1996, and provide for minimum salaries of $120,000
and $180,000 each, subject to a 5% to 20% raise in the second and
third years. The agreement also provides for each officer to
participate in the Company's profit sharing bonus as determined
by the Board of Directors. One of the officers received an
outright stock grant for 10,000 shares upon execution of the
agreement. In an amendment to the employment agreement approved
by the Board in June 1993, the other officer was provided with
50,000 stock grants issued in blocks of 25,000 shares at January
1, 1994 and January 1, 1995 contingent upon his continued
employment on these dates. On January 1, 1996, the Company
entered into an employment agreement with one its officers,
providing for an annual salary of $190,000 plus stock options.
In connection with the acquisition of Mediatech, the Company
entered into employment agreements with two of Mediatech's
officers. The agreements expire on February 2, 1998 and provide
for annual salaries of $125,000 each. The agreements also
provide for each officer to participate in the Company's profit
sharing bonus as determined by the Board of Directors.
Leases
The Company leases office and warehouse facilities under various
operating lease agreements. Certain of these facilities are
owned by companies, all of which are owned or majority owned by
an officer of Mediatech. In addition to monthly rentals, the
Company is responsible for insurance, property taxes, utilities
and normal maintenance of the facilities.
Future minimum lease payments under noncancelable operating
leases as of March 31, 1995 are as follows:
Related Party Third Party Total
1996 $ 978,603 $ 161,590 $1,140,193
1997 978,603 161,590 1,140,193
1998 692,942 160,700 853,642
1999 159,444 62,500 221,944
2000 159,444 ---- 159,444
Thereafter 411,897 ---- 411,897
$3,380,933 $ 546,380 $3,927,313
Rental expense on operating leases amounted to $191,074 and
$7,500 for the three months ended March 31, 1995 and 1994,
including $163,101 in 1995 for the related party leases described
above. Rental income amounted to $8,970 for the three months
ended March 31, 1995.
Litigation
Allstate
On July 16, 1993, Allstate Communications, Inc. ("Allstate")
filed a lawsuit in Los Angeles Superior Court for the County of
Los Angeles against the Company. The Complaint alleges the
following courses of action: breach of contract, breach of
implied co venant of good faith and fair dealings, fraud,
negligent misrepresentation, constructive fraud, common count,
declaratory relief, statutory misrepresentation of trade secrets,
intentional interference with prospective economic advantage,
negligent interference with prospective economic advantage,
temporary restraining order, reliminary injunction and permanent
injunction, and for an accounting.
On June 29, 1994, the Court provided Allstate an attachment of
approximately $161,000 of the Company's funds. The plaintiffs
have reduced the scope of their complaint to eliminate all direct
and indirect securities claims. At March 31, 1995, the Company
had accrued $251,000 with respect to this matter. Subsequent to
March 31, 1995, the Company settled with Allstate which resulted
in the Company paying to Allstate the $161,000 in the escrow
account plus an additional $90,000 for accrued interest and
related expenses.
Other
The Company is subject to various lawsuits and claims arising out
of the normal course of its business. In the opinion of
management, the ultimate liability to the Company as a result of
any legal proceedings will not have a material effect on the
financial position of the Company.
Subsequent to March 31, 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.
NOTE I - 401(K) PLAN AND PROFIT PARTICIPATION PROGRAM
The Company's subsidiary Mediatech has a 401(k) defined
contribution plan covering substantially all of its full-time
employees. The Company contributes a percentage of participants'
contributed earnings to the plan. Contributions amounted to
approximately $4,900 for the three months ended March 31, 1995
and 1994.
The Company's subsidiary has a profit participation program
whereby the Company will allocate a percentage of its pretax
profits to eligible supervisors and managers of the Company.
No amounts were allocated under this program for the
three months ended March 31, 1995 and 1994.
NOTE J - SIGNIFICANT CUSTOMERS
Sales to one customer represented approximately 14% of the
Company's net sales for the three months ended March 31, 1995.
The related accounts receivable from this customer represented
7% of the accounts receivable at March 31, 1995.
NOTE K - SUBSEQUENT EVENTS
Acquisition of Channelmatic
Effective November 27, 1995, the Company entered into an Asset
Purchase and Contribution Agreement with Channelmatic pursuant
to which the Company agreed to purchase 66.67% of the assets,
business and operations of Channelmatic. The purchase price
paid by the Company for its 66.67% interest consisted of the
following: (i) a $5,602,500 promissory note; and (ii) 1,530,000
restricted shares of the Company's Common Stock. The
restricted common stock was valued at $2.82 per share (which
price represents 70% of the average quoted price of the Company's
common stock at the time of acquisition), which management
believes was its fair value. In addition, the Company agreed to
contribute $3,000,000 to the capital of Channelmatic, which
amount is payable over an 18-month period with interest at an 8%
annual rate. On November 27, 1995, the Company made a $755,000
payment on this note. The Company also has obtained a five-year
option to purchase some or all of the remaining 33.33% interest
in Channelmatic for a purchase price of up to $6,000,000 on a pro
rata basis.
The $5,602,500 promissory note bears interest at a rate of 8%
per annum. A $2,000,000 principal payment was made on January
5, 1996 and a $500,000 payment was made on April 1, 1996.
Commencing in July 1996, the Company will make monthly
payments of principal and interest equal to $70,613. Based
on the foregoing payment schedule, the entire promissory note
will be paid in full within 72 months after the closing date of
the acquisition. The Company's obligations under the promissory
note are secured by a lien on the Company's 66.67% common
stock interest in Channelmatic, a blanket lien on substantially
all of Channelmatic's assets, and by a guaranty of Channelmatic.
Condensed unaudited pro forma results of operations of the
Company, Mediatech, and Channelmatic as if the purchase
occurred at the beginning of the periods is presented below.
The unaudited pro forma financial statements have been
prepared for comparative purposes only and are not necessarily
indicative of what would have occurred had the acquisition
been completed as of those dates or of any results that may
occur in the future.
UNAUDITED
Channel Pro
IndeNet matic Combined forma
Nine Nine Nine Pro Nine
Months Months Months forma Months
Ended Ended Ended Adjust- Ended
12/31/95 11/30/95 12/31/95 ments 12/31/95
Revenue $13,558,661 $4,551,907 $18,110,568 $---- $18,110,568
Cost of
Sales 5,848,202 2,875,782 8,723,984 ---- 8,723,984
S, G&A 6,518,721 1,553,676 8,072,397 (b) 7,973,730
(98,667)
Depr./
Amort. 1,309,661 222,090 1,531,751 377,056(a)1,908,807
Research
& Devel-
opment 174,960 90,202 265,162 ---- 265,162
Corporate 779,055 ---- 779,055 ----(c) 779,055
Misc.
(expense),
net (253,441) (87,499) (340,940) (298,800) (639,740)
Income
taxes 2,484 (11,353) (8,869) ---- (8,869)
Alloca-
tion
to min. (6,224)(d)
int. (51,870) (51,870) (58,094)
Net
(loss)
income (1,275,993) (265,989) (1,541,982)(570,965)$(2,112,947)
Net
(loss)
per share $(0.17) $(0.24)
Number of
shares 7,612,723 8,972,723
IndeNet Channel- Pro
Nine Mediatech matic Combined forma
Months Nine Nine Nine Pro Nine
Ended Months Months Months forma Months
12/31/94 Ended Ended Ended Adjust- Ended
12/31/94 12/31/94 12/31/94 ments 12/31/94
Revenue
$ ---- $13,553,083 $7,356,805 $20,909,888 $ --- $20,909,888
Cost of Sales
$ ---- 5,708,749 3,854,997 9,563,746 $ --- 9,563,746
S, G&A
$ ---- 6,485,073 1,917,772 8,402,845 (b) 8,160,595
(242,250)
Depr./Amort.
$ 19,000 797,163 142,063 958,226 1,322,394(a) 2,280,620
Research and Development
$ ---- ---- 481,157 481,157 $ --- 481,157
Corporate
$ 936,164 ---- ---- 936,164 $ --- 936,164
Misc. (expense), net
$ 512,494 (132,680) (94,974) 284,840 (126,939)(c) 157,901
Provision for income taxes
$ ---- ---- 25,482 25,482 $ --- 25,482
Allocation to min. int.
$ ---- ----- ----- ------ 243,096(d) 243,096
Net (loss) income
$ (442,670) 429,418 840,360 827,108 (1,450,179) (623,071)
Net (loss) per share
$ (0.11) $ (0.10)
Number of shares
$ 3,967,531 $6,397,531
Pro-forma adjustments include (a) amortization of allocated costs
in connection with the purchases, (b) reduction of salaries
pursuant to employment contracts, (c) interest expense on
shareholder notes, and (d) allocation to minority interest.
Acquisition of Starcom
On February 7, 1996, the Company acquired 100% of the common
stock of Starcom for 1,000,000 shares of the Company's restricted
common stock. The restricted common stock was valued for book
purposes at $2.80 per share (which price represents 70% of the
average quoted price of the Company's common stock at the time of
acquisition), which management believes was its fair value.
The number of shares issued to the Starcom shareholders can be
adjusted according to the "Formula Value." The Formula Value
is based primarily on the gross profit of Starcom business from
January 1, 1996 through March 31, 1996.
Starcom is engaged in the distribution of syndicated television
programs, television commercials and infomercial programs.
Distribution is accomplished through satellite broadcast.
Starcom will provide the Company with a West Coast base
of operations to establish a position in the program syndication
market and enhance its position in video duplication. The
digital delivery technology being developed by the Company
has direct application for the delivery of syndicated programs as
well as infomercials. The synergies between the Company and
Starcom permit elimination of significant costs duplicated at the
two entities.
Condensed unaudited pro forma results of operations
of the Company, Mediatech, Channelmatic and Starcom as if
the purchase occurred at the beginning of the periods is
presented herein. The unaudited pro forma financial statements
have been prepared for comparative purposes only and are not
necessarily indicative of what would have occurred had the
acquisition been completed as of those dates or of any results
that may occur in the future.
UNAUDITED
IndeNet Acqui- Pro
Nine sitions Combined forma
Months Eight Nine Pro Nine
Ended Months Months forma Months
12/31/95 Ended Ended Adjust- Ended
12/31/95 12/31/95 ments 12/31/95
Revenue
$13,558,661 $8,186,278 $21,744,939 $(714,000)(a) $21,030,939
Cost of Sales
5,848,202 5,075,098 10,923,300 (531,000)(a),(b) 10,392,300
S, G&A
7,297,776 3,405,795 10,703,571 (1,302,667)(c), 9,400,904
(d)(e)
Depr./Amort.
1,309,661 405,426 1,715,087 821,733 (f) 2,536,820
Research and Development
174,960 90,202 265,162 ---- 265,162
Misc. (expense), net
(253,441) (378,666) (632,107) (132,800)(g),(i) (764,907)
Income taxes
2,484 (11,353) (8,869) ---- (8,869)
Allocation to min. int.
(51,870) ---- (51,870) 6,224)(h) (58,094)
Net (loss) income
$(1,275,993) $(1,157,556) $(2,433,549) $171,358 $(2,262,191)
Net (loss) per share
$ (0.17) $ (0.27)
Number of shares
7,612,723 8,612,723
IndeNet Acqui- Pro
Twelve sitions Combined forma
Months Twelve Twelve Pro Twelve
Ended Months Months forma Months
12/31/94 Ended Ended Adjust- Ended
12/31/94 12/31/94 ments 12/31/94
Revenue
$ ---- $34,626,544 $34,626,544 $(3,178,000)(a) $31,448,544
Cost of Sales
- ---- 17,568,403 17,568,403 (2,328,000)(a), 15,240,403
(b)
S, G&A
1,221,082 14,925,992 16,147,074 (1,991,734)(c), 14,155,340
(d)(e)
Depr./Amort.
25,000 1,179,154 1,204,154 2,345,717(f) 3,549,871
Misc. (expense), net
249,007 (1,087,377) (838,370) (184,494) (g), (524,050)
(i)
Provision for income taxes
- ---- 32,000 32,000 ---- 32,000
Allocation to min. int.
- ---- ---- ---- 438,222(h) 438,222
Net (loss) income
$( 749,783) $85,140 $( 664,643) $(1,388,477) $(2,491,342)
Net (loss) per share
$(0.19) $(0.39)
Number of shares
3,936,668 6,366,668
Pro forma adjustment include (a) adjustments to reflect
elimination of Starcom product lines; (b) adjustments to reflect
application of existing lower Mediatech inventory purchasing to
Starcom inventory; (c) adjustments to reflect reduction in
payroll of principal officers with employment contracts and
reduction of general payroll of Starcom due to a redundancy of
staff with Mediatech. It is anticipated that the Company will
combine the Starcom operations with the existing Mediatech
operations; (d) adjustments to reflect non-recurring rent expense
due to the closure of the Starcom offices and Company's corporate
office; (e) adjustments to reflect non-recurring expenses such
as property insurance, building costs, and data processing due
to the closure of the Starcom offices; (f) Adjustments to reflect
amortization of goodwill for both Channelmatic and Starcom over
20 years and amortization of step-up of equipment over five
years; (g) adjustments to reflect interest expense related to the
$5,602,500 note payable to the former Channelmatic shareholder;
(h) Adjustments to reflect a 33.33% allocation of operations
from Channelmatic to minority shareholder; (i) Adjustments
to record and eliminate intercompany interest income and expense.
Private Placements
On February 28, 1996, the Company completed a Regulation D
private placement of 224,795 of its common stock for $1,000,000
and a Convertible Note ("the Note") for $3,000,000 to a single
accredited institutional investor. The 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 in one-hundred-eighty days at 82% of the average
closing bid price for the five days immediately preceding the
conversion date. The Company shall have the right to convert all
or part of the promissory note any time after six months from
closing date. The Note is redeemable in whole or in part anytime
after 90 days from closing in an amount equal to 122% of the
principal balance of the Note. The Company has agreed to file a
Form S-3 registration statement to register the common shares
which were issued and common shares underlying the Note.
On April 29, 1996, the Company completed a private placement of
Class A Preferred Stock for $12,000,000. The placement consisted
of 1,200 shares of Convertible Class A Preferred Stock which pays
a dividend of 6% annually, payable in cash or common stock at the
Company's option, and has a term of three years. The Class A
Preferred Stock is convertible into common stock at a rate
determined by the average trading price of the Company's common
stock at the time of conversion not to exceed $7.00 per share.
The common stock carries registration rights and the Company has
the option to repurchase the Class A Preferred Stock at the time
of conversion at a 15% premium to the principal amount and has
the right to call the Class A Preferred Stock at a 30% premium to
the principal amount after 12 months, declining to a 15% premium
after 30 months.
Acquisitions
On March 22, 1996, the Company entered into a letter of intent to
acquire 100% of the common stock of Cable Computerized
Management Systems, Inc. ("CCMS"). Terms of acquisition call
for the Company to pay $4,800,000 as follows: $1,036,521 in
cash; $1,400,000 promissory note amortized over five years
bearing interest at 8%, quarterly payments beginning in
month 13; and $2,363,479 payable in the form of the Company's
common stock valued at the average closing price of the
Company's common stock for the 30 consecutive trading days
preceding the closing date and 30 consecutive trading days
subsequent to the closing date. The shares issued are restricted
for twelve months with subsequent selling restrictions lifted
on a prorata basis for the following 24 months.
On March 11, 1996, the Company entered into a letter of intent
to acquire 100% of the capital stock of Enterprise Systems Group,
Ltd. ("Enterprise"). Terms of acquisition call for the Company
to pay to Enterprise an amount equal to eight times Enterprise's
earnings before interest, taxes, depreciation and amortization
for the fiscal year ended March 31, 1996. Payment is a follows:
$10,000,000 in cash; $5,000,000 promissory note amortized over
four years bearing interest at 8%, quarterly payments beginning
in month seven; and the balance payable in the form of the
Company's common stock valued at the average closing price of
the Company's common stock for the 30 consecutive trading days
preceding the closing date and 30 consecutive trading days
subsequent to the closing date. The shares issued are restricted
for six months.
The Company will provide CCMS and Enterprise with "piggy-back"
rights on a future registration statement or will file a separate
registration statement to register the common stock issued in
these transactions.
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
IndeNet, Inc.
(formerly Independent TeleMedia Group, Inc.)
Los Angeles, California
We hereby consent to the inclusion in this
Form 8-K of our report dated May 7, 1996, relating
to the consolidated financial statements of
IndeNet, Inc., for the three months ended March 31, 1995.
/s/ BDO SEIDMAN, LLP
Los Angeles, California
May 10, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,168,360
<SECURITIES> 0
<RECEIVABLES> 3,803,970
<ALLOWANCES> 125,417
<INVENTORY> 327,108
<CURRENT-ASSETS> 5,874,468
<PP&E> 2,947,104
<DEPRECIATION> 184,168
<TOTAL-ASSETS> 17,457,584
<CURRENT-LIABILITIES> 6,365,299
<BONDS> 0
5,405
0
<COMMON> 0
<OTHER-SE> 4,765,642
<TOTAL-LIABILITY-AND-EQUITY> 17,457,584
<SALES> 3,004,259
<TOTAL-REVENUES> 3,004,259
<CGS> 1,243,211
<TOTAL-COSTS> 1,243,211
<OTHER-EXPENSES> 2,395,728
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137,885
<INCOME-PRETAX> (761,994)
<INCOME-TAX> 0
<INCOME-CONTINUING> (761,994)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
