<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-QSB/A
[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.
<PAGE> 2
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............................................. 11
<PAGE> 3
INDENET, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
------------ ------------
<S> <C> <C>
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
Deferred interest, net 753,958 --
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 $80,404,973 $43,192,937
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
1
<PAGE> 4
INDENET, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
------------ ------------
<S> <C> <C>
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 48,400,611 23,169,510
Accumulated deficit (6,268,292) (4,309,853)
Deferred accretion, net (1,396,267) --
------------ ------------
Total stockholders' equity 40,751,826 18,872,130
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $80,404,973 $43,192,937
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE> 5
INDENET, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
------------------------------
1996 1995
----------- -----------
<S> <C> <C>
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 (425,905) (219,117)
Miscellaneous, net 156,276 199,174
----------- -----------
(177,242) (15,225)
----------- -----------
(Loss) income before income tax expense and
allocation to minority interest (1,817,330) 42,948
Income tax expense 3,193 --
----------- -----------
(Loss) income before allocation to minority interest (1,820,523) 42,948
Allocation to minority interest (83,717) --
----------- -----------
Net (loss) income (1,736,806) 42,948
Dividends to preferred shareholders (221,633) --
----------- -----------
Net (loss) income allocable to common shareholders $(1,958,439) $ 42,948
=========== ===========
Net (loss) income per share $ (0.14) $ 0.01
=========== ===========
Weighted average number of
common shares outstanding 13,760,904 5,512,303
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 6
INDENET, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------------------- ---------------------------
Number of Preferred Number of Common
Shares Stock Shares Stock
------------ ------------- ----------------------------
<S> <C> <C> <C> <C>
Balance at April 1, 1996 216,667 $22 12,451,815 $12,451
Issuance of Series A Preferred Stock 1,200 - - -
Exercise of warrants - - 128,876 129
Shares issued for purchase of CCMS - - 587,612 588
Shares issued for purchase of Enterprise - - 2,276,200 2,276
Cashless exercise of stock options - - 308,270 308
Deferred interest payable in
common stock - - - -
Deferred accretion on Series A
Preferred Stock - - - -
Amount to be paid in common stock
related to stated accretion on
Series A Preferred Stock - - - -
Change in deferred accretion - - - -
Preferred stock dividends - - - -
Net loss - - - -
------------ ------------ ------------ ------------
Balance at June 30, 1996 217,867 $22 15,752,773 $15,752
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Additional
Paid-in Accumulated Deferred
Capital Deficit Accretion Total
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at April 1, 1996 $23,169,510 $(4,309,853) $ - $18,872,130
Issuance of Series A Preferred Stock 11,183,606 - - 11,183,606
Exercise of warrants 289,570 - - 289,699
Shares issued for purchase of CCMS 2,647,339 - - 2,647,927
Shares issued for purchase of Enterprise 8,665,494 - - 8,667,770
Cashless exercise of stock options (308) - - -
Deferred interest payable in
common stock 847,000 - - 847,000
Deferred accretion on Series A
Preferred Stock 1,478,400 - (1,478,400) -
Amount to be paid in common stock
related to stated accretion on
Series A Preferred Stock 120,000 - - 120,000
Change in deferred accretion - - 82,133 82,133
Preferred stock dividends - (221,633) - (221,633)
Net loss - (1,736,806) - (1,736,806)
------------ ------------ ------------ ------------
Balance at June 30, 1996 $48,400,611 $(6,268,292) $(1,396,267) $40,751,826
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 7
INDENET, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Three Months Ended June 30,
---------------------------------
1996 1995
-------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (1,736,806) $ 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)
Amortization of deferred interest 93,042
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
============ =============
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 8
INDENET, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(Unaudited)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<S> <C> <C>
Cash paid during the period for:
Interest $ 356,568 $ 125,000
Income taxes 3,193 -
</TABLE>
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
6
<PAGE> 9
INDENET, INC.
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/A. Also included in this Form 10-KSB/A 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
7
<PAGE> 10
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.
The Company recorded $1,478,400 in deferred accretion. The amount
represents an implied additional dividend rate of 12.3% based on the
fair market value of the 85% conversion feature and is being amortized
over the three year period ending on the automatic conversion date.
During the quarter ended June 30, 1996, $82,133 was amortized as
dividends.
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.
The Company recorded $847,000 as a deferred interest asset. The
amount represents an implied discount rate of 15.4% based on the fair
market value of the 82% conversion features of both the $2.5 million
and $3.0 million notes, and is being amortized over the two year
period ending on the note maturity dates. During the quarter ended
June 30, 1996, $93,042 was amortized as interest expense.
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.
8
<PAGE> 11
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 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.
9
<PAGE> 12
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.
Pro-forma adjustments include amortization of allocated costs in
connection with the purchases, interest expense on shareholder notes,
and accretion from Series A Preferred Stock..
<TABLE>
<CAPTION>
The Company CCMS Enterprise Combined Pro forma
3 months 1 month 2 months 3 months 3 months
Ended Ended Ended Ended Pro forma Ended
6/30/96 4/30/96 5/31/96 6/30/96 Adjustments 6/30/96
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 8,982,716 $193,877 $ 2,640,834 $ 11,817,427 $ 11,817,427
Cost of sales 3,499,773 - 291,465 3,791,238 3,791,238
Net (loss) income (1,736,806) 48,818 (86,541) (1,774,529) (248,604) (2,023,133)
Dividends (221,633) (221,633) (101,067) (322,700)
Net(loss) income
applicable to Common
shareholders $(1,958,439) $48,818 $(86,541) $(1,996,162) (349,671) $(2,345,833)
Net loss per share $ (0.14) $ (0.15)
Number of shares 13,760,904 15,408,651
</TABLE>
10
<PAGE> 13
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.
11
<PAGE> 14
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 $206,788 from $219,117 to $425,905 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, (ii) interest expense incurred on the promissory notes
delivered by IndeNet as partial payment of the purchase price of each of those
acquisitions, and (iii) interest expense incurred on the promissory notes
delivered by IndeNet as a result of the financing activities. 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
12
<PAGE> 15
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 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 underling 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 preferred 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
13
<PAGE> 16
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 plan. 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.
14
<PAGE> 17
INDENET, 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.
Signed By: /s/ Richard J. Parent
---------------------------------------
Richard J. Parent
Chief Financial Officer and Corporate
Secretary (Principal Financial
and Chief Accounting Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 3,131,517
<SECURITIES> 0
<RECEIVABLES> 9,985,086
<ALLOWANCES> 254,038
<INVENTORY> 3,029,703
<CURRENT-ASSETS> 16,928,286
<PP&E> 30,977,106
<DEPRECIATION> 16,144,410
<TOTAL-ASSETS> 80,404,973
<CURRENT-LIABILITIES> 17,716,641
<BONDS> 0
0
22
<COMMON> 15,752
<OTHER-SE> 40,736,052
<TOTAL-LIABILITY-AND-EQUITY> 80,404,973
<SALES> 8,982,716
<TOTAL-REVENUES> 8,982,716
<CGS> 3,499,773
<TOTAL-COSTS> 7,123,031
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 425,905
<INCOME-PRETAX> (1,817,330)
<INCOME-TAX> 3,193
<INCOME-CONTINUING> (1,736,806)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,736,806)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
